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spk01: Good afternoon. My name is Charlie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Electronic Arts Fourth Quarter 2022 Earnings Conference Call. Mr. Chris Edmonton, Vice President, Investor Relations, you may begin your conference.
spk12: Thank you, Operator. Welcome to EA's Fourth Quarter Fiscal 2022 Earnings Call. With me today are Andrew Wilson, our CEO, and Chris, our CFO. Please note that our SEC filings and our earnings release are available at ir.ea.com. In addition, we have posted earnings slides to accompany our prepared remarks. Lastly, after the call, we will post our prepared remarks, an audio replay of this call, a financial model, and a transcript. With regards to our calendar, our Q1 fiscal 2023 earnings call is scheduled for Tuesday, August 2nd. And as a reminder, we post the schedule of our entire year of coming earnings calls on our IR website. This presentation and our comments include forward-looking statements regarding future events and the future financial performance of the company. Actual events and results may differ materially from our expectations. We refer you to our most recent form 10Q for a discussion of risks that could cause actual results to differ materially from those discussed today. Electronic Arts makes these statements as of today, May 10, 2022, and explains any duty to update them. During this call, the financial metrics, with the exception of free cash flow, will be presented on a GAAP basis. All comparisons made in the course of this call are against the same period in the prior year, unless otherwise stated. Now, I'll turn the call over to Andrew. Thanks, Chris. I hope all of you are well.
spk13: I want to start by thanking our incredible teams at Electronic Arts. We have the most talented people in the industry who, every day, demonstrate passion, creativity, and determination. I'd also like to extend a warm welcome to Chris Sutt. Chris joined us in March as our new Chief Financial Officer. He's an exceptionally qualified leader, and I'm looking forward to our partnership as we drive our next phase of growth. EA delivered profitable growth in FY22, a record year in every important measure of our business. Total players, engagement in our games and live services, net bookings, and underlying profit. We grew our global network of players to more than 580 million unique active accounts, fueled by new players joining titles including EA Sports FIFA, Apex Legends, and The Sims, and new players that we welcomed from our acquisitions. The strength of our broad IP portfolio, our creative talent, together with highly recurring revenue streams, continues to supercharge growth in our business. We delivered $7.515 billion in net bookings, and the underlying profit grew more than 20%. It was a record year, and our talented teams rose to the challenge in a big way to inspire and entertain hundreds of millions of engaged players worldwide. Games are now central to people's lives, and younger audiences have more power as consumers. Gen Alpha, Gen Z, and Millennials are digital natives, and they are gaming first generations. They see gaming as their number one choice for entertainment. The consumption of entertainment and sport is deeply social, with players across our network using games to stay connected to friends and to express themselves. The future of entertainment is interactive, and we derive strength from three structural advantages. Our IP, our incredible talent, and our growing network of players deeply engage in our live services. First, our IP. Everything begins with amazing games, and we continue to invest in one of the most powerful IP portfolios in all of entertainment. Apex Legends will expand in every dimension, going from strength to strength. New gameplay is coming to the console and PC live service, a new mobile service launches globally this month, and the grand finale of the 2022 Apex Legends Global Series for esports is in July. EA Sports and Racing are set to grow significantly in FY23. We have six new EA Sports titles this year with more in development. Our pipeline for this year and future years features big, beloved IP that we cannot wait for players to experience, including Need for Speed, Dead Space, Star Wars, The Sims, Skate, our Bioware franchises, and Lord of the Rings. Our two new studios in Seattle are working on new projects. Our modern studio has an unannounced title in development, and we have more underway across our global studio teams. Next, we have the best talent in the world. Making amazing games starts with incredible game makers. Innovating across our business, our people make electronic arts a great place to work, from delivering safe and secure platforms to telling exciting stories and developing our next generation of creators. We have a collective team of leaders who together deliver one of the broadest portfolios in the industry every year while continuing to pioneer new experiences. We are proud of our distinctive talent from across the many parts of EA for continuing to deliver more exceptional games and content at scale. Finally, we have a large growing network of players deeply engaged in our live services. To provide a sense of scale, we have more daily, weekly, and monthly active players across our entire portfolio. FIFA Mobile recorded its biggest quarter ever, with unique new players surging nearly 80% year over year. And Apex Legends is amongst the top live service games in the industry. As we look ahead, we're investing in ways for fans to have amazing shared experiences together, whether that's by playing, watching, or creating. through our console, PC, and mobile life services, through esports, through other original content, and with the tools that unleash the creativity of our players, we will grow what are already some of the world's largest and most engaged entertainment communities. Earlier today, we announced that starting next fiscal year, our football experiences will move under a new EA Sports FC brand. This is such an exciting moment for us and for our fans. We've just had our biggest year ever for EA Sports FIFA games, building on nearly 30 years of connected experiences for players across more than 150 million unique accounts. With more than 300 licensed partners, 30 leagues and federations, 700 teams and 19,000 athletes, The future of global football is huge. We're excited to grow EA Sports FC. It will be the only place that fans can play in the UEFA Champions League, CONMEBOL Libertadores, the Premier League, Bundesliga, Serie A, La Liga, MLS, and many others. Our global football franchise has long been at the forefront of innovation. From the first isometric play angles to online play, ultimate team and women's teams, the first narrative story mode with The Journey, to Volta, to Hypermotion. We have repeatedly delivered new ways to play the game. We're thankful for the many great years of partnership with FIFA, and we are looking forward to delivering another full EA Sports FIFA game later this year, filled with great features and World Cup content. Then, the new era begins next year with EA Sports FC, With a total addressable market of more than 3.5 billion football and soccer fans worldwide, EA Sports FC will be the authentic, inclusive and immersive global entertainment property at the epicentre of football fandom. We have amazing games. We've built around powerful IP made by incredibly talented teams. We have a network of more than half a billion player accounts. We have outstanding engagement in our games and live services fueled by social connection and shared experiences. With these strengths at our core, FY23 is set to be a year of innovation, growth, and leadership for electronic arts. Now I'll hand the call over to Chris.
spk16: Thanks, Andrew, and good afternoon, everyone. As Andrew said, FY22 was a record year, with net bookings that exceeded $7.5 billion. This is more than $200 million ahead of our original guidance, driven by growing player engagement across our broad portfolio of live services and games. We grew both net bookings and underlying profit by over 20% for the full year. Operating cash flow for the year was $1.9 billion, nearly $150 million above our original guidance, and we returned almost $1.5 billion to shareholders. These results speak to the power of our diverse portfolio and to the durability and consistency of a live services business founded on deep player engagement. For the fourth quarter, net bookings were $1.75 billion, up 18% from the prior year and reaching a new Q4 high, even with the action we took to see sales in Russia and Belarus during the quarter. Live services net bookings grew 14% year-on-year. We delivered Q4 net revenue of over $1.8 billion ahead of our expectations and up 36% year on year. Underlying profit was well above our expectations. Q4 operating expenses came in lower than our expectations, driven by the timing of some marketing and sales activities. We're continuing to prioritize our investments into our best long-term growth opportunities, while also remaining agile to realize cost savings and implement efficiencies where appropriate. We generated $444 million in operating cash flow during the quarter and returned a further $373 million to shareholders through dividends in our ongoing share repurchase program. Now, let me talk about our full-year performance. Live services net bookings grew 17% year-on-year to nearly $5.4 billion and made up over 71% of our total business. Full game sales were up 34% to $2.1 billion. Our healthy live services growth was driven by strength across our broad-based portfolio, most notably by Apex Legends and FIFA. Apex Legends is up over 40% for the year, taking it past the $2 billion milestone in lifetime net bookings. Season 12 finished yesterday and was the most successful ever. And, of course, Apex Legends Mobile is performing well in tests and is close to launch. FIFA 22 is the most successful FIFA ever, launched to date, with net bookings up double digits. Full game sales growth was similarly diverse with Battlefield, FIFA 22, Madden NFL, It Takes Two, F1, and Mass Effect Legendary Edition, all important contributors. On consoles, digital represented 65% of full game units sold through, up three percentage points from last year. In mobile, we passed the billion-dollar milestone this year with nearly $1.2 billion in net bookings. As a result of great work by our teams, our return on advertising spend is now roughly back to where it was before the IDFA changes. And now we're looking to maintain that ROAS level as we scale spend back to the level it was before and as we continue to learn and to adapt to market changes. Across our full portfolio, 12 titles contributed $100 million or more to net bookings in FY22. Now, Let me turn to FY23. As Andrew laid out, we're entering the year from a position of strength. We're experiencing strong engagement across our live services, have great early indicators for our mobile launches, see continued momentum in our annual sports titles, and have a strong slate of console titles scheduled for the second half. We expect fiscal 23 net bookings to be $7.9 billion to $8.1 billion, up 5% to 8% versus FY22, driven by growth in live services, particularly in mobile, and supported by the strong launch slate in the second half. Three key drivers of our mobile growth in FY23 are the launch of Apex Legends Mobile, growth in FIFA Mobile, and the launch of Lord of the Rings Heroes of Middle-Earth later in the year. FX is a headwind of nearly three points net of hedges relative to last year for both net bookings and underlying profit, which puts our net bookings guidance in constant currency at 8% to 10%. Additionally, the impact of the stoppage of Russia sales is one percentage point to net bookings and two points to underlying profits. Adjusted for these factors, we continue to see healthy underlying performance, which illustrates the durability of our portfolio of live services. We expect cost of revenue to be $2.02 to $2.065 billion, in part reflecting the anticipated strong growth of our mobile business. We expect operating expenses to be $4.2 to $4.315 billion, This is driven by investment in user acquisition for our two major mobile launches and adding talent to our development teams to deliver the live services and title slates we have in development for FY24, FY25, and beyond. Also note that we've increased the management tax rate used by our long-term model from 18% to 19%, primarily due to U.S. tax rules published in January. We expect operating cash flow of $1.6 to $1.65 billion and capital expenditures of around $200 million, which would deliver free cash flow of about $1.4 to $1.45 billion. The business continues to be a strong generator of cash, although the year-on-year number is down slightly, primarily due to timing as our biggest non-sports launch is coming in Q4 with collections in FY24 and also because our tax rate has increased. We continue to be committed to growing our cash return program and announced today that we're increasing our dividend by 12%, from 17 cents to 19 cents per share, payable each quarter. We expect to continue to repurchase stock under our current authorization, and we will revisit it closer to the expiration in November of 2022. We expect fiscal 23 gap revenue to be $7.6 to $7.8 billion, and earnings per share of $2.79 to $2.87. We anticipate net bookings for the first quarter to be $1.2 to $1.25 billion. As a reminder, in the prior year, we had a number of new game launches in Q1, whereas this Q1 is primarily live services, with only F1-22 launching on console and PC later this quarter. In contrast, this coming Q2 has a profile very similar to last year's Q2, with launches of Madden and FIFA, plus some live services growth, offset by some Ultimate Team netbooking phasing into Q3. For the first quarter, we expect gap net revenue of $1.675 to $1.725 billion, cost of revenue to be $309 to $321 million, and operating expenses of approximately $1.013 billion. This results in earnings per share of $0.76 to $0.85 for the quarter. To conclude, EA delivered another Record year, well ahead of our original guidance, driven by strong player engagement across our diverse portfolio of titles. Looking forward, we are capitalizing on the strength to invest in our future. We expect to outgrow the market, to show resilience through uncertain times, building on the foundation of live services and our broad portfolio to deliver growth over the long term. Now, I'll hand the phone back to Andrew.
spk13: Thanks, Chris. As we kick off FY23, we are investing for growth from a position of strength. With a portfolio of amazing IP, the best talent, and a growing network of highly engaged players, we are scaling to deliver new experiences on more platforms across more geographies. Our total addressable market is expanding, and secular trends are driving more consumption of interactive entertainment. Our games are deeply social, and we will continue to build on our strengths as we invest to grow our biggest franchises to connect with more players in the future. We have a clear vision, a clear strategy, and we have a spectacular team ready to deliver in FY23 for hundreds of millions of players, viewers, and creators around the world. Now, Chris and I are here for your questions.
spk01: And ladies and gentlemen, if you have a question at this time, please press the star 1 on your telephone keypad. If your question has been answered or you wish to remove yourself from the queue, press the pound key. Again, that's star 1 to ask a question. Your first question comes from the line of Omar Dessouki with Bank of America. Please go ahead.
spk03: Hi. Thank you for taking my question. It kind of looks like excluding the FX you guys increased your guidance versus the mid to high single digits, excluding the FX in Russia, that is, versus the high mid single digits that you had communicated on the third quarter call. First of all, is that the case? And second, has it become more clear since the third quarter call that the churn among gamers who joined during COVID lockdowns has run its course and that average revenue per paying user or remain near the highs seen during the pandemic as 2022 unfolds.
spk16: Great. Thank you for the question. I'll start with the first part first, and then I'll turn it over to Andrew, and he can comment as well on the second part of your question. So from a guidance perspective, Your math is correct. Normalizing for the impact of the strengthening U.S. dollar, which we articulated was three points on net bookings, as well as the impact of the decision taken in Russia, that effectively puts the equivalent guide more in the high single digits range. equivalency, which is slightly above the signal that we gave in the last earnings call. So it is indicative of how we finished the quarter with strong player engagement, and we feel good about that look.
spk13: And as it relates to player engagement and the value that we see from that over the course of time, I think what you've heard from us throughout COVID is that players sort out our games in the beginning for entertainment reasons, but they stay deeply engaged in them beyond just entertainment. They really saw games as a means of deep social connection with their atomic unit of friends. And this is that four or five friends that you spend a great deal of your social time with. What we have seen even as we are moving past COVID and that people are returning to work and returning to life and returning to school is our engagement has continued to be very, very strong and in many cases across some of our franchises at record levels. Given the level of entertainment that we're developing and delivering, given the value of social interaction as part of those experiences, we think this is going to be a continued driver for growth for us.
spk03: Thank you very much.
spk01: Thank you. Your next question comes from the line of David Karnovsky with J.P. Morgan. Please go ahead.
spk08: All right, thank you. Andrew, just on the, you know, the FIFA license, I was wondering if you could just discuss a little bit more of the decision to forego that, and how are you kind of thinking about potential risk given the brand shift, but then also the upside, you know, in terms of how ending the license kind of frees you up for certain revenue opportunities that in the past would have been restricted?
spk13: Yeah, great question. And as you will have seen, you know, from our press release today and surveying FIFA firms and things on our own website, we've been working through this. We're very excited about the future of football. We have, you know, as you heard in the prepared remarks, you know, over 300 licenses that deliver the content and form the experience that we deliver to players. It's most meaningful for them. We've got over 150 million players across unique accounts. And so when we think about the future of football right now, we really made this decision on the basis of being able to deliver experiences that our players wanted. They told us they wanted more modalities of play. They told us they wanted to see more commercial partners in the game that are representative and authentic to the broad global world of football. They're telling us they want us to move beyond just the core experience and really build out experiences his digital football experience and they tell us they want us to move really really fast and so as we move through this again we are deeply grateful of our relationship with fifa for nearly 30 years and deeply respectful of the partnership and we worked closely together as two organizations to ensure that we can deliver the biggest fifa this year that we've ever delivered uh featuring world cup content from both the men's world cup and the women's world cup for the first time ever And we work to do that because we believe that's important to our fans. And beyond that, we're excited to work with our 300-plus partners and all the new partners that we're going to have the opportunity to work with to deliver what we believe will be the greatest digital football experience available and sit at the very epicentre of football fandom globally.
spk08: Maybe just to follow up, and I touched on it a little bit, but how do you think specifically about marketing the EA Sports FC brand? Would there be an initial bump in advertising costs, or could you just mostly take advantage of that lack of a license fee? Thank you.
spk13: Yeah, I think it's a little early to tell yet. We're certainly being very thoughtful and deliberate about that. The important thing to understand, though, is that as you travel around the world and you meet with players who really are deeply engaged with our game, For a player in the UK, the most important thing to them is the Premier League. For a player in Germany, the most important thing to them is the Bundesliga. In Spain, it's La Liga and so on and so forth as you go around the world. What we're focused on right now is building very unique experiences for each of those fans in each of those markets. And what you've seen today is many of our partners come out in support of our ability to do this for our fans. And so certainly any time you change the name of a product, you must be very thoughtful and will certainly have to, you know, think about marketing that front. But what gives us confidence as we move into this next phase of growth is that we are working with the partners and the content that our fans love and relate to most directly in the markets in which they do it.
spk01: Thanks. Thank you. Your next question comes from the line of Benjamin Softwood, Deutsche Bank. Please go ahead.
spk06: Hey, thanks for the question, guys. I wanted to dig into the mobile business a bit. You've got Apex on mobile coming out soon. The FIFA mobile rebound seems to be doing really well. You announced the new Lord of the Rings game and, you know, doing some other stuff on the sports side. So really the question is how are you guys thinking about the mobile growth opportunity in general? And how has your outlook changed, if at all, since getting that longer-term growth target for the business last year? Thanks.
spk13: Yeah, great question. I mean, we remain very excited about the opportunity in mobile. It continues to be the single biggest gaming platform in the world with a TAM of 3.5 billion players. And so that's just, you know, to have that kind of TAM access is just extraordinary for us. and delivering live services to that audience. We're seeing really good metrics around Apex Legends right now in tests that will launch later this year. FIFA had its biggest quarter ever. I think it had a surge of 80% in users. And Lord of the Rings is coming from what has been our strongest mobile studio capital games who build these type of games and have done so well for us and have such an avid fan following. So as we think about moving forward in mobile games, We think that the brands that we have, the expertise that we have, you know, that we've built organically internally and that we've acquired through recent mobile acquisitions represents, you know, a really strong opportunity for us over the long term. Remember, when you launch these games, they last for five-plus years as live services. And what you're seeing this year is, you know, three big launches for us in addition to our existing portfolio, which is incredibly strong. And we're going to invest behind that for the long term.
spk06: Got it. And then maybe just a quick follow-up on F1. I believe this upcoming title is the first game in the series that you guys, you know, really were able to put your fingerprints on since the acquisition. So can you talk a little bit more about your plans for the franchise, the types of innovation you're bringing to the game. Thanks.
spk13: Yeah, and that team is an extraordinary team and has always built an incredibly high-quality game. That was really the impetus for the acquisition to bring that into the EA Sports brand portfolio. F1, as you may have seen if you follow the sport, is an all-time high in fandom. We had an extraordinary season last year between Hamilton and Verstappen. We're seeing... An incredible season this year with Ferrari, you know, leading in the Constructors' Championship and Leclerc and others really pushing for Stappen. And so, you know, in our world, if you get to a place where sports fandom is high and engagement in the core sport is high, and you couple that with an extraordinary development team who have a history and track record of building extremely high-quality products... and then you layer in EA Sports' marketing power and global reach, we think there's incredible opportunity there, and we think that business is going to go from strength to strength.
spk01: Thank you. Your next question comes from the line of Eric Handler with MKM Partners. Please go ahead.
spk05: Good evening, and thanks for the question. I'm curious to think about the marketing investment that you're going to be spending on Apex Legends for mobile, and then you got Lord of the Rings. And you're still in the relatively early stages with people from mobile. Should we be thinking about the investment sort of negating a lot of the revenue that comes in from these titles? And really, you look to grow the player base in fiscal 23. And then you think about margin expansion in fiscal 24?
spk13: I think that's a good way to think about it. The reality is anytime we develop a game and launch a game, there is a combination of development cost and marketing cost to get to launch and get to that critical mass of players and a sequencing of that. It's very different in mobile than it is in traditional console experiences. Digital console experience, of course, you can spend in development for two, three, four, in some cases, five years. And there's an exceptional amount of development spend upfront. And then the marketing spend proportion of that is much lower. In mobile, the cost of development is lower to get to launch. The acquisition spent early on to supercharge a new launch is higher. But remember, these are live services. And what we're doing is we're driving a golden cohort at the beginning of the launch. And that cohort will continue to deliver return that we build on over time for the course of the next five plus years. And so early on, you see margin compression. in the context of mobile. Over the course of time, you see margin accretion and margin expansion, and these live services become global communities of players that continue to play for five-plus years, and in some cases, as long as a decade.
spk16: Maybe I could just add on to that, Eric. As you have a chance to go through the model and the guidance that we gave, you'll see that it's implied in the guidance and the cost structure. It is the points that, to reiterate the points that Andrew made, we're excited about our opportunity in mobile. TAM opportunity. We're excited about what we have in store for this year. It is a different margin profile, especially in the short term, but as Andrew pointed out, once we get to scale, we see great revenue and profit opportunity, and we're really excited about the opportunity ahead.
spk05: Great, and just as a follow-up, I believe you said, Andrew, six new sports titles this year. I wonder if you could give a little call on that. Are these mobile titles? Are these new PC console games? What can you tell us there?
spk13: So it's the cast of characters that you would expect from us plus F1. So that's our FIFA product. That's NHL. That's Madden NFL. That's F1. We've got a new golf game. I'm trying to think now. You've caught me off guard. And Super Mega Baseball, which was an acquired property. And that's across console, PC, and in some cases mobile.
spk01: Great. Thank you very much. Thank you. Your next question comes from the line of Drew Crum with Steeple. Please go ahead.
spk04: Okay. Thanks. Hey, guys. Good afternoon. I want to drill down a little bit more on Apex Legends. You're lapping a 40% plus comp but also launching on mobile. What are your expectations for franchise netbooking in fiscal 23? And will you make any changes to the cadence of live services or content drops across the franchise now that you'll be on mobile? Thanks.
spk16: Yeah, no, it's a great question. Thank you for the question. As you rightly pointed out, Apex Legends had a terrific year in FY22. We're across both financial metrics, but also all the player engagement data that Andrew spoke to. And so we're really excited about how we finish the year, coming out of that with a lot of momentum. We do have profitable growth planned again in FY23. It's a large franchise for us. It's a big business. And so we'll see continued growth on that on the console and on the HD side. In addition to that, With the Apex Mobile launch, we're anticipating this to be one of the most exciting launches that we've had on mobile ever. And so the combination of that indicates a lot of optimism and strength for the Apex Legends business all up.
spk13: And in terms of a cadence of content drops and experience updates and events, again, the Respawn team and the Apex team have demonstrated over the course of the last two plus years an extraordinary connection with their community. And they've been able to figure out exactly when and how to make drops and things that the community wants and needs. And so we don't have a hard and fast rule in terms of which drops will happen when. We really allow the team to work deep with the community. But I think as the franchise continues to grow and as we move on mobile and launch and grow on a global basis, I think it's reasonable to believe that over the course of time there will be more and more content launched into the world. And a new season starting today, which off the back of a record season 12, we expect will continue to do well. I know Newcastle is the new legend.
spk02: um is is why the regard is going to be one of one of the great legends inside the game experience thank you thank you thank you your next question comes from the line of colin sebastian with beard please go ahead oh thanks everyone good afternoon welcome chris uh maybe just a quick follow-up to the last question first off um i guess there may be some changes to the release of legends going forward on apex so I'm curious how you think that might impact engagement or each of the contributions from stories going forward. And then the other question is, despite these results, I wonder, Andrew, what you think the impact has been on growth from the persistent short supplies of consoles and GPU chips, et cetera, and what's also factored in the outlook from that perspective? Thanks.
spk13: Yeah, so let me touch on the first two and then I'll let Chris take the outlook piece. You know, again, I think that each time the team releases new content, new events, we see growing engagement and have demonstrated an extraordinary ability to really understand the things that are going to drive ongoing engagement for our community. So I wouldn't expect that we would see any decline in engagement with more content. Quite the opposite. I think as we go to more platforms and we build out our engagement model over the course of time, I think that we'll see a growing audience and I think we'll see growing engagement. And that has been our experience so far. In terms of supply chain shortages, again, we've just come off a record year. We beat on almost every measure, even in the face of what is almost certainly supply chain shortages around consoles and chipsets and graphics cards and these types of things. It's hard to know how much bigger that would be. I have to imagine with more consoles out there and more PCs and more graphics cards that our results may have been even better. But we're very happy with the results we had and we look forward to as supply chain issues start to ease and more consoles end up in the marketplace and more graphics cards and more PC availability, that more gamers will have access to higher quality machines, and that ultimately will drive engagement for us. If you go back through the course of time, you know, at each platform transition, at each technology evolution, the gaming PAM and the gaming community broadly has grown. And so I think this only represents upside for us.
spk16: I'll just add on to Andrew's good summation. From a market standpoint, from the composition of our business, I think this is one of the things that really sort of illustrates the resilience or the live services business model, which was 71% of our business or over 71% of our business in FY22. you know, grow as a share of our business next year, especially with the launches of mobile. And so from one standpoint, you know, we feel good about that. And that's all embedded into the guide that you heard us talk about at length. Specific to the console market, we are anticipating Gen 5 console units to be up year on year, and that will also be an added tailwind to the business all in all.
spk01: Thank you. Your next question comes from the line of Andrew Urquitz with Jefferies. Please go ahead. Pardon me. Your next question comes from the line of Andrew Urquitz with Jefferies. Your line is now open.
spk09: Charlie, I think he dropped off the line. So we can move to the next one.
spk01: Sure. No problem, sir. Your next question comes from the line of Matthew Torrington with Trui Securities. Please go ahead.
spk11: Hey, good afternoon Andrew and Chris. A couple of interrelated ones, if I could. I'm going to ask a question that was asked earlier, but in a little bit of a different way. Since you guys talked about mid to high single-digit bookings growth last quarter, as you've alluded to, there's a lot of incremental headwinds. So my first question is, is there anything that's changed in the slate as you think about fiscal 23 versus what you were thinking three months ago? That's question one. Question number two, the slate talks about a major IP in the fourth quarter. I'm just curious if there's a reason why that would fit better in a fiscal 4Q as opposed to the traditional holiday quarter in 3Q where you typically might put a big piece of IP. Any thoughts there? And it's just finally on maybe, Andrew, you can talk a little bit about just the work from home transition to back to office, how that's playing into productivity and how that maybe gives you confidence there. that you can kind of release these titles because you do have quite a few in the back half of the year, including in four queues. I'm just curious your level of comfort with that based on what you're seeing in the productivity trends. Thanks, guys.
spk13: Okay, so there was a lot in there. I think the first one was, do we anticipate slate change as an additional element as we kind of have got from third quarter through fourth quarter? The short answer to that is no. We continue to believe our slate is strong. I think the second question was, we've got a major IP in the fourth quarter, and why not do that in the holiday quarter? And I would say two things to that. One is we want to get to the highest quality games we possibly can. We're committed to quality. We're committed to giving our development teams all the time they need to build great games and deliver those to a global audience. Underlying that, I'd also highlight though that the nature of our business is changing. As Chris pointed out, 71% of our business is coming from live services. And so these traditional launch windows that have been so important in our industry for the longest time, you know, aren't as relevant now in a world where players are playing our games day in day out week in week out month in month out and so the combination of the changing nature of engagement consumption of our games and our deep desire to give our teams all the time they need uh to get to the best possible game experience really is what driving that that q4 um launch And then I think the last part of your question was around work from home and how is that looking? And I would say, you know, it's still early. We're seeing more and more people back into offices. Again, there are still waves of COVID out there and we're seeing some rising numbers in certain geographies. And, you know, Good news is the severity of infection or the severity of symptoms from infection seems to be much lower than the initial waves and phases of COVID. So I think that's good just for humanity broadly. And certainly we're seeing a return to office kind of moving through its general iteration. In terms of confidence that I have in launching the games through the year, I have strong confidence largely because having done this for two years, we've launched more content than any other developer and publisher of video games through this time. And our teams have demonstrated unbelievable tenacity and unbelievable wherewithal, and we've really harnessed the power of our platform technology to continue to deliver games even while working from home. So as people come back together, we get to see more collaboration. I think things get easier. But even if that ends up being a little slower than we would hope, given the ingenuity of our teams, I still have strong confidence in our ability to launch our full slate of high-quality titles this year.
spk12: I think that was all of them. You got them.
spk01: Thank you. Your next question comes from the line with benchmarking company. Please go ahead.
spk07: Hey, guys. Andrew. Hey, Chris. Hey, Chris. Great results, guys. Thanks for taking my question. First question, I guess, just on the economy here. It's been a while, I think, Andrew, since your business has sort of been protected with our recession. So whether or not we go into recession, who knows? How do you think about sort of your player community holding up now that you're pretty much service versus premium and digital versus physical? Would you imagine you sort of make shifts if we do get a recession here or pull back the discretionary spend towards free-to-play? Just sort of, I guess, the take-throughs.
spk13: Yeah, it was a little jumbled, Mike. I'm sorry. But I think that the gist of the question was, with a macroeconomic climate out there, and I think you mentioned the notion of recession, how do we think about that? How do we think about building our plan? And probably specifically, you're thinking around OPEX. I think, you know, and Chris can weigh in here as well, you know, we've been very thoughtful about this as we're embarking on the year ahead. And certainly there are people way smarter than us who are kind of predicting what will be the macroeconomic outcome over the course of time. Here's what we see. We see we're coming out of a year with record performance. We're seeing our network grow dramatically and engagement grow dramatically. And we're seeing our games used not just for entertainment, but also for social interaction and social connection. So that gives us confidence in the underlying fundamentals of our business over the long term. As we look back over previous times where there may have been challenged consumer spending, our industry and our games specifically have actually done very, very well for two reasons. One, entertainment really is a fundamental human need. And two, the form of entertainment that we deliver is extremely high value to consumers, given that, you know, you get thousands of hours of engagement when you play one of our games. and so our expectation is that even in an environment of macro challenge that our industry and our games will continue to do well one of the other things that we have you know when we've gone back and really looked at this though and you study it is you discover that companies that can invest from a position of strength going into an environment like the one seemingly we're moving into actually benefit disproportionately as you come out of that And so I think if you take in the fact that we have, you know, a growing network, growing engagement, record performance, our games fulfill both entertainment and social interaction, that if you look back in history, you know, our industries performed very well at times like this. And when you take the strength of our business and our ability to invest against new titles this year, as well as titles we developed for the out years, we feel like we've put ourselves in a really strong position even if we were going into a challenging macro headwind. With that being said, we have built flexibility to the plan. You should know that we will be extraordinarily disciplined around costs as we move through this, and that should there be something unforeseen to us, that we have levers in our model that will allow us to adjust. But we do believe it is behest of us to invest from a position of strength as we go into this market.
spk04: Thank you.
spk16: I think that was good.
spk07: Hold there. Okay, sounds good. Second question, Microsoft, hope you can hear me, Microsoft and Sony were sort of flirting, or at least that was the rumor, flirting with the idea of adding advertisements into free-to-play game experiences, maybe as a way to sort of help developers monetize their player community. And, of course, you guys, you go way back to Burnout Paradise, you're sort of infamous for trying the idea on the billboards in that game. So, obviously, this idea has created a lot of debate within the player community. But just sort of curious, your thoughts on whether or not ad monetization in free-to-play games is something that you think can be meaningful and then how you sort of balance that with the player experience. Thanks, guys.
spk13: Yeah, and so for us, I think you've finished there where we start, which is the player experience. We want to ensure that the player experience is the best possible player experience that we can provide. And that's why you've seen us kind of test various models over the course of time. Some have continued and some we have stopped on the basis of really upholding the best possible player experience we can. What we've seen generally, though, in entertainment media and even in games, particularly in mobile games right now, you see that there is a place for advertising when done right, and there is a portion of the community that, when given the choice, will participate in advertising where it benefits their gameplay experience. I think we've learned some of this from Glue, as we brought Glue to our organisation, and we've seen this across the industry. And so you should expect that we would continue to kind of test different things, ensuring first and foremost that we uphold the best possible player experience. But where there is an audience that, given the choice, would like to engage with advertising, they have the ability to do so, we want to make that available to them.
spk01: Thank you. Thank you. Thank you. Next question comes from the line of Mario Luth with Barclays. Please go ahead.
spk14: Great, thanks for taking the question. The first one's on the FIFA title this year. I believe you guys are already testing cross-play support in FIFA 23, so I presume it may come in 23. So what is the impact of cross-play potentially in terms of player engagement? And then similarly, can you remind us what the magnitude of uplift was from including a World Cup mode within FIFA?
spk13: Let me start on the World Cup mode with FIFA. And again, in the context of live service, we're always balancing the investment of time and the investment of dollars from the community. And at any given point in time, based on what's going on in the world of that game, and in this case, in the world of football and in the gameplay community, we will look to leverage new content and new events and new experiences either to drive greater engagement and provide new, interesting things for players to do, or it might be a monetisation opportunity. You might recall the last time we did the World Cup, it was an extraordinary engagement opportunity, and I don't have the numbers at the tip of my fingers. But if I remember rightly, we brought 12 or 13 million people back into the game who had lapsed out of the game through World Cup content and drove incredible engagement through the event. And then, of course, as part of the ongoing live service, continued to grow the business over the course of time. We will think about it this year in the same context. We're always thinking about our player community and always thinking about the balance between the investment of time and the investment of dollars, all in service of a more positive and more immersive and a more entertaining player experience. In terms of the value of cross-play, I don't think we have any specific data on that yet out of FIFA. In other franchises, it's certainly where you get greater liquidity in the franchise and friends can play with each other across devices. That's always a good thing for players. But remember, in our FIFA experience, which has, you know, 30-plus million people playing across console and PC, it's already a highly liquid community, and every platform already has more than enough players to sustain the ongoing player experience. But certainly, as we think about the future of all of our franchises, we want to get to a place where the entire community can play together, and that will be part of our drive as we move forward.
spk14: Great. Thanks, Andrew. And then just one on Battlefield. I'm just curious if there's any updates on that franchise. I know you guys basically mentioned you were willing to kind of invest more into the franchise in the long term, but has that mindset changed in the past few weeks given the lack of resurgence from the latest update? Thank you.
spk13: No, and again, we take a long view here. This is one of the great franchises in our industry, built by one of the great teams in our industry, and our expectation is that we'll continue to grow and be a really important part of our portfolio for many, many years to come. incredible leadership over that team now. They're rethinking the development process from the ground up and really using kind of the Vince Zampella slash Respawn model of get to the fun as quickly as possible. They've been doing thousands of updates for the community, working on quality of life and really getting the core game right. I think there's still more work for us to do there and the team is committed to doing that work for the community. And beyond that, once we get to a place where we feel like we're in the right place with the core experience and with the core game, then you should expect us to invest and grow beyond where the game is at today.
spk01: Okay. Thank you. Thank you. Your next question comes from the line of Doug Kreutz with Cowan. Please go ahead.
spk15: Hey, thanks. I think in the last call you indicated that the Battlefield mobile game was close to going into closed beta, and at least at one point you seemed to indicate it might be a fiscal 23 launch. Can you just kind of update on where that is, how did the closed beta go, and how are you feeling about timing for the title at this point?
spk13: yeah right now i think we we're looking at going into further testing um at the end of may and then subject to the metrics and the data that we see in the engagement to see um you know we might look towards the end of this year beginning of next year for a global launch but remember in mobile it all it all really comes down to the tuning and balancing once we go into kind of that closed beta phase We don't have any money in FY23 right now against that title. So if it was to launch in a year, that would be an upside potential for us. And we want to give ourselves the opportunity to ensure that the game has all the soft launch and closed beta that it needs in order to tune and balance. But having played the game, I can tell you I think that, you know, we're excited for the potential.
spk01: Great. Thank you. Thank you. Your next question comes from the line of Jamie Bass with Barenburg. Please go ahead.
spk10: Hello, guys. Thanks for taking my questions. I've just got a couple, if that's okay. Firstly, you were talking about the sort of positive metrics within Nobel coming back to the levels they were at pre-IDFA. Two things on that. Firstly, could you give us sort of an indication of what your expectations are for the key core franchises, as in not bringing in Apex Mobile and the stuff you already had within the mobile franchise. And then second question is on a more boring topic, on developer cost inflation or wage inflation. Do you have sort of an outlook for what you're expecting this year in terms of new hires, whether you're expecting a certain percentage in terms of how much extra you need to pay to bring in new developers? Thank you.
spk13: Maybe I'll start with the second one and then we'll move back to the first one. Certainly I think that competition for great talent has always been incredibly high in our industry and that's no different now. When we think about hiring new talent and we talk to candidates, they really make employment decisions based on four key vectors. What is the work they're going to do? Who are the people they're going to do it with? Of course, what is going to be the compensation and the opportunity to learn and grow? And as we lean into hiring, we really lean into all four of those vectors and try and create a culture where this is a great place to make gains. We were able to hire at record numbers in FY22, even amidst what was already a very competitive marketplace. We expect to continue hiring. I think that, you know, we've been recognised by a number of surveys as an extraordinary place to work. And we've really focused on the culture of our company and ensuring that we are a great place to come and create games. That doesn't mean we won't be challenged in the marketplace. I think there's going to be more and more challenge. But so far, we have not had trouble hiring incredible talent. And we brought in some amazing new creators and people across our business, quite frankly, through FY22.
spk16: And on your question specifically, as I commented in my comments and the prepared remarks about the IDFA changes, it is something we're still working through. We have seen some positive movement toward reaching ROAS levels pre-IDFA, and we feel optimistic that we're sort of through the tougher part of it, and we feel good about the outlook from here.
spk12: And that brings us to the end of the call.
spk03: Can I just? Okay, go ahead. Sorry.
spk12: I'll catch up with you afterwards, Jeremy. So that was just going to say that brings us to the end of the call today. So thanks, everyone, for your time, and we'll look forward to speaking to you in the next quarter. Thank you so much. Thank you all.
spk01: And this concludes today's conference call. Thank you all for participating. You may now disconnect.
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