Earnings Call Transcript - EA Q1 2024

Operator, Operator

Good afternoon. My name is Josh, and I will be your conference operator today. At this time, I would like to welcome everyone to the Electronic Arts First Quarter Fiscal Year 2024 Conference Call. I would now like to turn the conference over to Ms. Katie Burke, Director, Investor Relations. Please go ahead.

Katie Burke, Director, Investor Relations

Thank you. Welcome to EA’s first quarter fiscal year 2024 earnings call. With me today are Andrew Wilson, our CEO, Stuart Canfield, our CFO, and Laura Miele, President of EA Entertainment, Technology and Central Development. Please note that our SEC filings and our earnings release are available at ir.ea.com. In addition, we have posted detailed earnings slides to accompany our prepared remarks. Lastly, after the call, we will post our prepared remarks, an audio replay of this call, and a transcript. With regards to our calendar: our second quarter fiscal 2024 earnings call is scheduled for Wednesday, November 1st. As a reminder, we post the schedule of upcoming earnings calls for the fiscal year 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 10-K 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, August 1st, 2023, and disclaims 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. Please see our earnings slides for further information. 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.

Andrew Wilson, CEO

Thanks, Katie. It’s great to be here with all of you. To begin, I want to welcome Stuart Canfield, who many of you already know. I have worked with Stuart for nearly two decades. He has been a trusted partner and valuable leader through many of the biggest transformations at Electronic Arts. I am excited to be working with Stuart as our new Chief Financial Officer, driving multi-year growth and unlocking long-term value. It was a record Q1 for EA with net bookings of $1.6 billion, up 21% year-over-year, driven by sustained momentum across the entire EA SPORTS FIFA ecosystem and the launch of Star Wars Jedi: Survivor. During the quarter, we executed across our business, launching five new high-quality titles, while providing over 145 content updates across 37 titles. Our teams continue to create the entertainment and experiences that inspire, engage, and connect hundreds of millions of players. To every EA employee, for all that you do for our communities, thank you. EA SPORTS FIFA had the biggest Q1 in our company’s history. The franchise continues to deliver compelling content to our growing community, driving strong engagement and accelerating net bookings growth. FIFA Ultimate Team engaged tens of millions of fans, and daily average users grew 15%. FIFA Mobile attracted over 65 million new players in the quarter alone. FIFA Online produced double-digit growth across monthly, weekly, and daily average users. These remarkable results are a testament to our incredible teams executing against our strategy sharpened by 30 years of passion, innovation, and leadership in interactive football. Star Wars Jedi: Survivor is pure blockbuster entertainment, rooted in a timeless, culture-defining IP. Our team at Respawn proudly launched this title to critical acclaim and commercial success. Millions of players have already engaged with the game, making this one of the biggest events in the Star Wars galaxy this year. Thanks to the strength of this legendary franchise and community demand, our development team has committed to bringing this Jedi experience to PlayStation 4 and Xbox One. Over the coming year, we will harness the community’s passion and capitalize on key Star Wars franchise moments to drive continued engagement for this incredible game. Since going free to enter, The Sims 4 community continues to reach a broader global audience, welcoming over 4 million new players in the quarter. In addition to continuing to deliver new content and experiences to expand The Sims 4, the Maxis team is developing a new, innovative parallel experience that will ignite the imaginations of the next generation of players. In Q1, our mobile business delivered ahead of our expectations, driven by outperformance across our broad portfolio, including FIFA Mobile, Star Wars: Galaxy of Heroes, and The Sims FreePlay. Over the last year, we focused and refined our approach to mobile. We are excited to see the results as we continue to drive for long-term profitable growth. During the quarter, we launched Lord of the Rings: Heroes of Middle-Earth. Based on strong metrics, the team is tuning and balancing the game to scale user acquisition and promotion in the coming months. Apex Legends is one of the strongest franchises and live services in the industry with 18 million active monthly players and an impressive retention rate of over 70%. After a highly successful 16th season, we launched Season 17 in May with new variations of gameplay and monetization. While this new season did not meet our financial expectations, the team has applied important learnings, including new game mechanics to engage and retain players, which are already generating momentum. We will continue to reinforce the strengths of this franchise by introducing new modes of play and investing in regional marketing, as well as culturalization in key markets. Looking forward, I’ve never been more excited for what’s to come as we head into the biggest sports season in our company’s history. As the world’s preeminent interactive American football experience, Madden NFL continues to deliver higher engagement year-over-year, an indicator of future success. This franchise is one of the most powerful IPs in all of sports and is at the center of football culture, bringing the community together in our game and beyond. We are building on a tidal wave of community excitement after the reveal of Josh Allen as Madden NFL 24’s cover athlete. This completely new experience will offer more fun, more immersive gameplay, and for the first time ever, cross-play to amplify the power of community as we build a connected multi-platform ecosystem around American football. On July 13th, we unveiled our vision for a new era of global football with EA SPORTS FC 24. Alongside this amazing title, we announced advancements of FC Mobile and FC Online in Asia, as well as new experiences FC Tactical mobile and FC Pro esports. This was the biggest reveal we’ve ever had, generating almost double the positive worldwide response to FIFA 23’s debut. Over 2.5 million people have watched the event live and on demand so far, an amazing celebration for the global football community. To secure a fan-first future for FC, we have announced new long-term, global partnerships with UEFA, The Premier League, LaLiga, Frauen-Bundesliga, Liga F, and many more. With these recent announcements, alongside our existing and ongoing network of partnerships, the game will showcase 19,000 fully licensed footballers, 700 squads, 30 leagues, and the biggest competitions. As a result, FC 24 is the most authentic, interactive football experience ever created. It’s also a massive leap forward in gameplay innovation with a trio of cutting-edge technologies: Hypermotion V, PlayStyles by Opta, and a revolutionized Frostbite engine. The highly anticipated release of FC 24 in September is the first giant step toward realizing a multi-experience global platform capable of connecting over a billion fans. To do more extraordinary things for our people, players, and communities, our teams are building the strongest pipeline in the history of EA to drive multi-year growth. Over the next few years, we will launch numerous experiences that grow and deepen the fandom of our legendary IP. Our multi-year targeted investments toward our biggest opportunities include global titles like blockbuster storytelling from Dragon Age, incredible skateboarding gameplay and social connection from skate, and a revival of EA SPORTS College Football that celebrates the action, culture, and tradition of the sport like never before. We’re also hard at work on a new experience from The Sims that will transform what players can do with creativity, a sprawling action/adventure Iron Man game, a reimagination of Battlefield as a truly connected ecosystem, and the expansion of the Apex Legends universe across platforms, geographies, and modalities of play. The most recent reveal of our Black Panther project set in a massive, explorable universe marks the latest chapter in EA’s collaboration with The Walt Disney Company and the Marvel Games team. To drive player engagement and deliver returns for our shareholders, we will build unrivaled IP-driven platforms that entertain massive online communities, tell blockbuster stories, and amplify the power of community in and around our games. Being thoughtful and deliberate around feature sets, launch timing, and quality will lead to long-term profitability as we invest in our vision and lead the future of entertainment. Now, I’ll hand the call over to Stuart to provide additional details on our business.

Stuart Canfield, CFO

Thanks, Andrew, and hello to everyone. I’m honored to be on my first earnings call in my new role as Chief Financial Officer. Throughout my twenty-year career at EA, I have been and continue to be inspired by our talented teams and the entertainment and experiences they create for our players. I am excited by our future, and I have great conviction that our strategy and teams will help us achieve our ambitions to lead the future of entertainment. Turning to our business, we continue to see healthy engagement and new player acquisition across our portfolio and have started the year strong. Today, we are reaffirming our full-year net bookings outlook. I’ll now speak to our Q1 results. Net bookings were $1.6 billion, up 21% year-over-year, or 25% in constant currency, primarily driven by continued strength in EA SPORTS FIFA and the release of Star Wars Jedi: Survivor. This is the second record quarter in a row for EA SPORTS FIFA, with year-over-year growth accelerating from Q4, as this entire franchise continues to demonstrate the strategic potential of a connected massive online community. Our full game net bookings were $401 million, up 143% year-over-year, or 152% in constant currency, primarily driven by the release of Star Wars Jedi: Survivor. As Andrew noted, the title was a critical success, with performance in line with our expectations. Based on the strength of the IP, the engaging gameplay, and new ways to bring the title to players, Star Wars Jedi: Survivor will continue to deliver long-term value. Our live services were up 4% year over year, or 7% in constant currency. Even in a quarter with such strength in full game, live services, which demonstrates a highly resilient, recurring business model, were 75% of total net bookings. With ongoing innovation in EA SPORTS FIFA, Ultimate Team remains a material growth engine for our live services business, with strength across acquisition, engagement, and monetization. In mobile, net bookings were up 3% year over year, or 5% in constant currency, excluding the impact of lapping the sunset of Apex Mobile. We continue to make material progress across our portfolio as we manage our business for long-term profitability. FIFA Mobile delivered record Q1 net bookings, almost doubling from the year prior, driven by historic levels of player engagement and new player acquisition. And although early in our launch, initial metrics are promising for our new title Lord of the Rings: Heroes of Middle-Earth. Apex Legends is a highly successful original IP for EA with a strong community of loyal core players. This quarter, net bookings were below expectations, largely driven by underperformance from Season 17. As an evergreen live service that is constantly evolving, our teams continue to innovate on content and introduce new modes of play to engage a broader base of players across different geographies. To echo Andrew, we will continue to invest behind the talented team at Respawn to drive long-term expansion and growth of the franchise. On a GAAP basis, we delivered Q1 net revenue of $1.9 billion, up 9% year-over-year. Operating expenses were roughly flat and below our expectations, as we shifted marketing spend for new releases, primarily EA Sports FC, to later in the year. As a result, earnings per share was $1.47, up 32% year-over-year. We delivered operating cash flow of $359 million, one of our largest ever Q1 results, and returned $377 million to shareholders through share buybacks and dividends. And on a trailing 12-month basis, free cash flow is up 2% year-over-year. Now, turning to guidance. Let me start by sharing our assumptions as we think about Q2. First, our guidance assumes continuing momentum in our existing global football business in addition to a strong launch for EA SPORTS FC late in the quarter. Second, we are taking a more measured approach for Apex Legends as the teams apply learnings from Season 17 and introduce new modes of play across various markets. Third, we plan to heavily invest ahead of the launch of the fan platform for the global football community EA SPORTS FC. And finally, as a reminder, net of hedges relative to last year, we continue to expect foreign exchange headwinds. As a result of these assumptions, we expect Q2 net bookings of $1.7 billion to $1.8 billion, down 3% to up 3%, or down 2% to up 4% in constant currency. For the second quarter, we expect GAAP net revenue of $1.825 billion to $1.925 billion, and cost of revenue to be $430 million to $450 million. We expect GAAP operating expenses in Q2 to be between $1.11 billion and $1.12 billion, up 9% to 10%, driven by marketing investment noted earlier. And we expect earnings per share to be approximately $0.72 to $0.89. Now, turning to the full-year. We are reaffirming our full-year net bookings guidance range of $7.3 billion to $7.7 billion, roughly flat to up 5%, or up 1% to up 6% in constant currency. We are revising our GAAP operating expenses guidance range to $4.25 to $4.37 billion, driven largely by reductions in stock-based compensation. As a result, our earnings per share guidance range is now $3.42 to $3.92. We are reaffirming our guidance for our other full-year metrics. We expect operating cash flow of $1.7 billion to $1.9 billion and capital expenditures of around $275 million, which would deliver free cash flow of about $1.4 billion to $1.6 billion. To conclude, our strong first quarter is a testament to our incredible brands, our evergreen live services, and our ability to deliver compelling entertainment to hundreds of millions of players around the world. As we make progress around aligning our teams behind our biggest long-term opportunities, we will continue to stay focused, disciplined, and agile to deliver multi-year growth. Now, I’ll hand it back to Andrew.

Andrew Wilson, CEO

Thanks, Stuart. EA is set to launch some of the world’s most anticipated and celebrated games and experiences. At a time when our growing global community are choosing games as their first form of entertainment and primary way to stay connected with friends through shared fandom, the value and opportunity of creating interactive entertainment has never been greater. With our exceptional teams, an unrelenting commitment to execution, our world class IP, and technological advancements that will accelerate and expand our ability to deliver new levels of creativity and innovation, EA is building toward incredible growth in the years to come. Now, Stuart, Laura, and I are here for your questions.

Operator, Operator

Our first question comes from Eric Sheridan with Goldman Sachs. Your line is open.

Eric Sheridan, Analyst

Thanks so much for taking the questions. When we look at the mobile performance in the quarter, I wanted to get your perspective on where we are in the cycle of recovery in mobile more broadly. Obviously, mobile was an area that struggled as we moved out of the pandemic and dealt with some of the challenges from the IDFA headwinds from Apple's privacy changes. And as we get deeper into 2023 and you think about growth and investing behind mobile into 2024 calendar, just more interested in how your perspectives have changed about mobile as part of the broader mix of the portfolio. Thanks.

Andrew Wilson, CEO

Thanks, Eric. Let me take the first part of that, and then I'll hand-off to Stuart. I think that we have always believed that mobile is an incredibly valuable platform for us, not just in the context of being the world's largest gaming platform and our ability to generate return from blockbuster IP that is mobile native, but also our ability to use mobile as a tool for acquiring new users to our broader ecosystems of play. And you're seeing that happen around what will be FC later this year, what is currently FIFA and what will be FC later this year. And we're also starting to see that as we build out towards other blockbuster ecosystems around our biggest IP. As I think about the business broadly, we spent a lot of time and a lot of energy over the last 12 months really rightsizing the cost profile of our mobile business and really driving for great efficiency and higher levels of engagement and monetization across our very broad portfolio. And certainly, through Q1, we're seeing results ahead of our expectations. Our sense is that we will have growth from here, but it is a different mobile market that we're going into. Things do take longer from launch to scale in size. And certainly, we think the biggest opportunities are almost certainly around our big, broad IP-driven ecosystems.

Stuart Canfield, CFO

Eric, just to add on a couple of points there on the financial side. Obviously, we talked to in Q1 outside of the Apex headwinds, which will be there for several quarters as we lap the sunset of the title. Obviously, we're up 3% and 5% at constant currency as we saw in the script. I think how do we preface that Q-over-Q, we're seeing, to the point in the script, overperforming expectations on some of our key titles we called out Galaxy of Heroes. We talked to FIFA. We continue to roll out on Lord of the Rings: Heroes of Middle-Earth and expect that to continue to grow through subsequent quarters. We are expecting and have guided to a 1% growth in Q2 as well. So overall, we saw a stabilization in Q4. We saw acceleration in terms of the GAAP Q-over-Q in terms of declines year-over-year, and we feel well-positioned behind the strategy levers that Andrew just laid out.

Eric Sheridan, Analyst

Great. Thank you so much for the color. And you upfront ran my follow-up on how mobile and traditional play might integrate on a title like EA FC. So thanks so much.

Katie Burke, Director, Investor Relations

Thank you. Operator, next question, please.

Clay Griffin, Analyst

Good afternoon. Thank you for taking my question. Andrew, I appreciate the update about the pipeline. I wanted to ask for an update on College Football, as there are many developments regarding licensing. Could you provide some insight on the status of that title? Additionally, regarding FIFA, I wanted to inquire about the daily active numbers and if you could share any insights on the monetization impacts for Ultimate Team during the quarter. Thank you.

Andrew Wilson, CEO

Let me address the College Football aspect first, and then I'll pass it to Stuart for the FIFA update. The team is making tremendous strides in college football. We have a rich legacy in developing this exciting element of American football, alongside our well-known Madden franchise. College football has always been a significant aspect of gaming in the U.S. The team is doing an outstanding job in shaping the future of college football, bringing together players and capturing the unique excitement and traditions that differentiate college football from the NFL. I have strong confidence in the team's direction. We're currently navigating the licensing landscape, and as it stands, we've secured licenses from many schools as part of our platform. We will continue to collaborate with the sport’s governing bodies and key partners on how and when to incorporate college athletes into the game, and we will work closely with them. I am confident that this will lead to a remarkable revival of our college football experience, which will encapsulate all the energy and traditions associated with the schools and the overall conduct of the game. I believe we will find a way to work together with the athletes for their inclusion in the game as well.

Stuart Canfield, CFO

And Clay, with regards to specifically your question on FIFA, I think I'll just frame up first. I think the second successive record quarter for us with the franchise, the growth was across all platforms. We alluded to mobile net bookings almost doubling Q-over-Q. We saw double-digit growth collectively across all forms, full game through Ultimate Team, Mobile and FO4 for one of our most successful quarters in FIFA.

Clay Griffin, Analyst

That's great. And just to drill down again. The daily active increases, is that a function of frequency or new player or growth? How should we think about that?

Stuart Canfield, CFO

On the daily side, that's really referencing a couple of pieces. One on the mobile side, in particular, as the team have continued to drive recurring frequency in content drops. We used to have a much larger spaced-out live service consideration. Now the teams are bringing much greater frequency and therefore greater engagement by virtue, and you're also seeing that evolve itself through the bookings and the overall performance of the mobile SKU.

Andrew Wilson, CEO

One thing I would add there on mobile broadly and on live services broadly is that given that we have this broad portfolio of live services across console, across PC free-to-play, across mobile, we brought in some incredible mobile native talent with our Glu acquisition with Golf Clash. We're starting to really reconcile how to effectively drive these live services at scale. And that includes both how we build core game mechanics, how we build new modalities of play on top of those core game mechanics, how we drive user acquisition, and how we really build modalities of play and live events on a more regular basis to drive extraordinary retention in our franchises. And what you're seeing in our football franchise broadly across console, PC free-to-play, and mobile and we're starting to see in the conduct of even the learnings that we've had with Apex coming out of Season 17, and what we're doing in and around mobile, really embedding this great learning that we've had as we brought new talent into the organization. And as we, as an organization, have learned to run these live services at scale, our expectation is this will continue to be a strong tailwind for us as the nature of the industry continues to change, and we operate in this new version of our industry at scale.

Clay Griffin, Analyst

Great. Thank you.

Katie Burke, Director, Investor Relations

Thank you. Operator, next question, please.

Andrew Uerkwitz, Analyst

Thanks for taking the question. I just have one short-term, one long-term question. On the short-term side, you called out Apex weakness here quite substantially in your prepared remarks, but you kept your full-year guide. Is something else kind of making up for it? Or is the weakness just not that bad? But just any comment there on how to reconcile the comments around Apex and the yearly guide.

Andrew Wilson, CEO

Yes. Let me discuss Apex briefly, and Laura can provide additional details. This franchise is remarkable and continues to grow, representing one of the best in our industry. Like any franchise, it has its ups and downs, which we've observed. Reflecting on my earlier statement, as a company that has operated live services on a large scale for nearly two decades—starting with our first live service, FIFA Online, in 2006—we've experienced these fluctuations in our live services, including with Apex. After a record-breaking Season 16, the team introduced some innovative changes for Season 17 that did not meet our expectations. It's important to mention that we entered a highly competitive quarter. Currently, the team has been working hard to make quick adjustments based on community feedback regarding Season 17's performance, and we are beginning to notice positive momentum as we progress through this quarter. This is the reality of our business; we will keep innovating at the forefront of entertainment. Some initiatives will succeed, and through our collective learning, we will likely adapt more quickly than others in the industry. However, we will still encounter ups and downs. As we consider the franchise's long-term future, we take this into account.

Andrew Uerkwitz, Analyst

Got it. That's helpful.

Laura Miele, President, EA Entertainment

Thank you, Andrew, for the question. To build on what Andrew mentioned, he did a great job explaining our approach to live services, experimentation, learning, and responding to players. As we mentioned earlier, we have a top-tier shooter developer in Respawn, and their expertise in catering to the shooter audience is a significant asset for us. This strength presents us with considerable opportunities as we explore new game modes and increase accessibility for a wider player base. We have a strong foundation with core shooter players, boasting 18 million active monthly players and over 70% retention. There's potential for further growth as the team considers more accessible modes, including features like bots to enhance the experience for new and first-time players. Additionally, the team is highly focused on geographic expansion. We've seen great success in North America and Asia, and we plan to build on that by tailoring our marketing efforts and cultural initiatives in other regions to support continued growth. In terms of monetization, even after 17 seasons and 4.5 years, we still see opportunities within gameplay. We are exploring areas such as IP integration, brand partnerships, and evolving our heirlooms for the legends. We're looking to expand these options across all legends to attract a broader audience. Overall, we see significant potential for growth in the franchise, and the team is well aware of our priorities and focus areas.

Andrew Uerkwitz, Analyst

Got it. That's super helpful. Yes, go ahead.

Stuart Canfield, CFO

And Andrew, just to cover for you the financial-specific question upfront as well. And if I back off everything Andrew and Laura just noted, I'm just thinking about, obviously, we entered the year with a more measured approach given the prior Q3 and Q4. We know Q3 is a natural competitive window for us. Inside of how we split the year on H1, obviously, we've got record FIFA performance across the franchise and obviously, mobile is ahead of our expectations. And you should think about Q4 from a seasonality perspective, Apex being one of our stronger quarters as well. So that's how ultimately it balances back in terms of the range on the guide.

Andrew Uerkwitz, Analyst

Got it. That's very helpful. I have a long-term question for Laura and Stuart. Andrew did an excellent job of outlining the pipeline, and I think it's reasonable to say that we're far enough along in a post-COVID environment where development might be returning to normal. Where do we currently stand on that? As you reflect on the previous soft guidance, the goal was to achieve high single-digit growth annually and double-digit bottom line growth. Are we approaching a point where that will be the norm again, or should we anticipate some ongoing effects from game delays, COVID, and remote work? Thank you.

Laura Miele, President, EA Entertainment

Thank you, Andrew. We have recently restructured our company into two divisions: entertainment and sports, and we see considerable growth potential in both sectors. In the entertainment division, which I am currently leading, we recognize significant opportunities in developing connected game ecosystems, as Andrew mentioned, particularly in our action blockbuster titles such as Marvel's Black Panther and Iron Man, as well as Star Wars games. Our strategy around these connected games and blockbuster action games is very strong. This represents a new evolution of our approach. Therefore, rather than reverting to our previous development methods, we are focused on innovating and evolving our development practices based on new opportunities, our updated strategy, and the new structure of our organization.

Stuart Canfield, CFO

And Andrew, just to kind of look back on the long-term financial thinking. I think, as you know, obviously, we expensed versus capitalized, and we've been in an investment cycle as we build out the multi-year pipeline that Andrew referenced in his script. I think in terms of, is it going to be sort of normalized, I think we'll continue to map through sort of timing and sequencing for both those releases. You should expect us to start to talk to that towards the back-end of the calendar year early into the next calendar year. And we know we'll give more sort of credence to timing. We want to make sure that we are really clear with our development teams and get into the quarter levels we expect. But you should expect us to get to ultimately with that multi-year pipe sort of more step functional change in the future.

Andrew Uerkwitz, Analyst

Got it. That's really helpful. Thank you, both.

Katie Burke, Director, Investor Relations

Operator, next question, please.

Matthew Cost, Analyst

Hi, everyone. Thank you for the question. I would like to start with Andrew and Laura. Could you provide more details regarding the decision to reorganize the studios into entertainment and sports segments, and explain what improvements you anticipate now that this change has been made? I have one follow-up question as well. Thank you.

Andrew Wilson, CEO

Yes. I'll begin there, and then Laura can provide her insights on the entertainment aspect of the company. We are fundamentally focused on our players. Our network now has over 700 million users who are engaging with us more than ever. Looking ahead, we aim to serve these players who favor interactive entertainment as their primary choice and select games and experiences as their main way to connect with friends. As we envision the future of entertainment, our goal is to entertain and engage this growing audience of 700 million, which we aspire to expand to 1 billion or even 2 billion over time. We want to find the best ways to support these players. While there is some overlap among players of franchises like FC, Apex, Need for Speed, and Madden, the development processes for these games are quite distinct and becoming increasingly so. As we continue to grow the company and our franchises, as well as the live services stemming from them, we are focused on empowering our creative leaders even more. Over the last five or six years, we've been working to give more authority to our creative leaders, allowing them to develop and grow their businesses while maintaining a direct connection with our players. This is the next step in that evolution, aimed at providing more creative and business freedom, given their deep connections with their player communities. The objective is to enhance decision-making speed and development pace. We're already observing the advantages of this shift. Our strategy is clear: we believe the future of entertainment lies in interactivity. Large entertainment companies must grasp and effectively develop interactive experiences for audiences choosing us as their primary form of entertainment. As we continue to expand platforms that provide experiences for large online communities, we can tell engaging interactive stories and leverage these communities both in and out of the game. We're witnessing significant progress with FC, a reimagined Madden, the revival of college football, and developments across our EA SPORTS portfolio. I'm excited about the advancements within Laura's organization, especially how the Respawn team has quickly adapted in the context of Apex Seasons 17 and 18, along with developments for Battlefield and The Sims. I believe our organization's pace is accelerating, which will result in building more, better, and higher-quality products that engage a larger global audience over time.

Laura Miele, President, EA Entertainment

Yes, very well said. To add to what Andrew has outlined, we are a talent-centric company. With the exceptional talent and leadership in development at Electronic Arts, we continually evaluate how to remove obstacles and enhance the speed at which our teams develop and present their work to our players. We are deeply focused on empowering our talent and minimizing friction so they can deliver for our players daily. We've discussed extensively on this call our identity as a live service company, which involves providing ongoing content and updates while adapting and optimizing our offerings for players. Achieving this demands a more vertical organization and the need to foster connections to go-to-market ideas, strategies, and commercial initiatives, alongside game design and technology. The more we can integrate these areas, the more swiftly we can harness our growth potential. Moreover, when our talent feels unencumbered, it leads to a more fulfilling experience for them. On the entertainment front, we remain intensely focused on execution. We recognize we have excellent talent and iconic brands like Skate, The Sims, Apex, Battlefield, Marvel, and Star Wars. We have the foundation for outstanding product experiences. Now, we need to concentrate on execution, aiding our teams in accelerating their efforts through technology and support, so we can achieve the growth we know is achievable in the coming years.

Matthew Cost, Analyst

Thank you. I wanted to ask about M&A. I noticed a small mobile gaming acquisition in the news today, and it seems like it's been a while since we've seen something like that. Are there more opportunities on the horizon? Are discussions potentially restarting regarding acquisitions that had been on hold over the past year or two? Do you think there’s room for more deals, or with Glu, Playdemic, and Codemasters, do you believe you have what you need for now?

Andrew Wilson, CEO

I think right now, we feel very good about who we are as a company and the capabilities and talent and teams and IP we have across the organization. And we have a very clear strategy and an even clearer pipeline for growth across IP and across platforms. That being said, I think we're always looking for great opportunities to drive even more growth and entertain even more people through great games and experiences in IP. And we'll continue to work and look at that over the course of time. But it's not something right now that we're actively engaged in.

Katie Burke, Director, Investor Relations

Thank you. Operator, next question, please.

Colin Sebastian, Analyst

Great. Thanks. Good afternoon and congrats again to Laura and Stuart. I guess, first, just following up on Apex. Maybe to put a finer point on some of the changes, Andrew and Laura, you talked about with the game. Is the expectation that we'll see in Season 18 some of that improvement in engagement given the game mechanics and the monetization there? And then secondly, just on Star Wars, just kind of curious to learn more about the plan and the expectations as we look to see that extend in terms of the lifetime of the franchise as well as live services. I think more detail there might be useful as well. Thank you.

Laura Miele, President, EA Entertainment

Thanks, Colin. I'll address the Apex question, and then we can discuss the broader Star Wars aspect next. Regarding Apex, the key point is that with our live services, which include expanding our audience and geographic reach along with evolving monetization strategies, we approach the development cycle in short, mid, and long-term phases. Therefore, we will see some adjustments in Season 18, with even more significant changes anticipated in Seasons 19 and 20, as well as into the following year. The team has numerous options to explore, but certain aspects, like modes or mechanical changes, require a longer development timeline.

Andrew Wilson, CEO

And then on Star Wars, just for my clarity, were you referring to the Star Wars Jedi franchise or Star Wars broadly as we think about the future of the IP and our ability to tell these incredible blockbuster stories in the Galaxy of Star Wars?

Colin Sebastian, Analyst

Yes, Andrew, I guess, leveraging the strength of the recent Star Wars games, mobile as well as Jedi, and how you foresee that over time, turning into a broader franchise with live services and ongoing engagement.

Andrew Wilson, CEO

Yes. We don't have anything to announce today, but we have an incredible partnership with Disney and Lucas. We've had incredible success in that partnership across the Battlefront and the Star Wars Jedi franchise and absolutely with Star Wars: Galaxy of Heroes. Our teams are always thinking about what are new experiences that we might be able to create. Certainly, I would love to see more in the Jedi franchise over time. It's just this extraordinary game that tells us an extraordinary story. And certainly, again, we may be a little biased, but our sense based on the feedback that we're getting from our community and the quality of that product, it's one of the great beats in the Star Wars Galaxy this year and will likely continue to be a very meaningful part of that Galaxy for many years to come. And certainly, as we bring it to PlayStation 4 and Xbox One, we think there'll be another little bump there for the franchise. And so nothing to announce today other than we have an incredible relationship with Disney. We've had incredible success so far in that partnership. And to the extent that we can find new opportunities to execute against new experiences, including live services as part of that partnership, we will explore them.

Colin Sebastian, Analyst

Great. Thank you.

Katie Burke, Director, Investor Relations

Thank you. Operator, next question, please.

Matthew Thornton, Analyst

Hey, good afternoon, everyone. Thanks for taking the question. Maybe two if I could. I guess, first, anything you can say or talk about just in terms of what the early indicators are telling you around the FC launch. Obviously, I still know we have a lot of the marketing still in front of us. I think the title has a couple more early access days this quarter than it did last year. But just kind of anything that the early indicators are telling you? And then just secondly, as we think about the back half of the year, just curious like any ebbs and flows that you would call out. I think you were really helpful in the prepared comments around FIFA strength and Apex needing some work throughout the year. So I think that's pretty well understood. But you've also called out a bunch of other things, Star Wars Jedi coming to prior-gen consoles. I'm not sure if that's this year or further out. You talked about The Sims parallel experience. I think we've got a FIFA Mobile major update coming later this year. So I guess just outside the frontline release, like any other ebbs and flows that we should be cognizant of for the back half of the year? Thanks, everyone.

Andrew Wilson, CEO

That's a great question. I would categorize this into three main points. Firstly, the launch was a tremendous success. This was the first time we discussed FC, and we've been preparing for this for quite a while, collaborating closely with our partners and engaging directly with our global community across different platforms and regions. The launch exceeded our expectations, nearly doubling the positive performance compared to FIFA 23, which itself set records for launch awareness and access. We are very confident that we've struck the right balance and established strong partnerships that ensure we have all the necessary licensed content, including everything we had before plus more. Our game teams on console, PC, and mobile are innovating at the forefront to ensure that this represents not just a symbol change but a change in substance. If you consider the successful launch along with the feedback and performance, we feel optimistic. The second aspect to note is the overall performance of the franchise. We've mentioned before that recent and deep engagement is a strong indicator of future success. The current franchise continues to thrive on both counts, having reported its second record quarter consecutively. Typically, we might expect a decline in engagement at this time due to the lack of activity in football, aside from the Women's World Cup making significant progress in Australia and New Zealand. Despite this, we are still observing robust and regular engagement from our community, which is one of the best indicators of future success. Lastly, as mentioned in our script, we have a substantial marketing budget allocated. If you’re using mobile or PC free-to-play, you will find that your current experience has now transitioned to FC, bringing with it numerous new benefits. For console users, we plan to invest significantly more than we have in previous launches. We're making every effort to ensure that football fans worldwide understand what FC is, how it pertains to them, and that it will be available in September. Considering our successful launch, the quality of games we are developing across all platforms, the current level of engagement, and the coordinated effort from our entire company to support this launch more than ever before in our 40-year history, we feel very positive about the outcome.

Stuart Canfield, CFO

Matt, just to add on to Andrew. Just a couple of things to think about. I think are important as you think about the financial guidance. Note, obviously, we will have dynamics in timing between Q2, hence the guide, and later in the year, particularly to the investment around FC, obviously, heavily Q2 prelaunch focused. Also, you should start to think about, to your point on FC, how we nuance the timing and recognition of revenue between Q2 and Q3. Worth noting that the licensing structure will transition back half of the year versus front half of the year. And obviously, we had a heavier launch slate last year in the back half of the year. So we can work through that with you all in the call downs, but just note there's definitely ebbs and flows in timing, and particularly point that to Q2, in particular, as you look at the EPS we put out and how that resonates year-on-year.

Katie Burke, Director, Investor Relations

Operator, we're ready for the next question.

Benjamin Soff, Analyst

Hey, guys. Thanks for the question. You guys referenced that your margins today are reflective of some investments in long-term projects. And I'm just wondering if you guys could help us a little bit better understand the impact there and maybe what margins might look like in more of a steady state? And then secondly, would you anticipate any changes in consumer spending if student debt payments were to resume at scale? Thanks.

Stuart Canfield, CFO

I will address the second question first and possibly the first one as well. Clearly, we are not going to provide any specific guidance or direction on margin structure for the future. However, I want to emphasize that our margins have been lower than usual. We have been investing and expensing as we move forward. We do anticipate returning to levels we experienced a few years ago as we improve our margins. As we consider the upcoming titles, both from our own intellectual property and the scale of games like Battlefield, along with the business models we plan to implement for other titles such as Sims and Skate, you can expect that these will positively impact our margins in the coming years.

Andrew Wilson, CEO

As I don't know that I can comment specifically on student debt or what might happen there. What I would say is this, though. Entertainment is a fundamental human need, and it has been since the beginning of time. As we look at the emerging generations of consumers, including students, they're choosing interactive entertainment as their first form of entertainment. There's a couple of reasons for that. One, it is way more engaging than maybe what traditional entertainment was. Two, it helps you connect with friends and stay connected with friends. So the nature of the relationships that you build through your consumption of these entertainment properties is significantly more rewarding on a personal basis than watching a movie ever was. And I love movies. But three, the most important thing is it represents the best value entertainment. Even as you think about our incredible scale and the incredible financial performance and growth that we have ahead of us, at an individual consumer level, it still represents the best value entertainment on the planet on a per-hour basis of entertainment. And so I'm not sure what will happen with student debt. But my sense is, as we continue to see our industry grow and we continue to see our company grow, as we continue to scale the nature of experiences that we deliver to our consumers and the level of entertainment and connection that provides them, that regardless of what happens in that area, we will continue to be their first choice for entertainment.

Benjamin Soff, Analyst

Okay. That's helpful. Thanks, guys.

Katie Burke, Director, Investor Relations

Thank you. And operator, we'll take our last question.

David Karnovsky, Analyst

Thank you. Last quarter, it was noted that players were concentrating their spend on major franchises. Just wanted to see first if there was any update to that? And then Andrew, in your commentary, you highlighted a goal for Apex as an experience across platforms. I'm assuming that includes mobile as well. So can you speak to how you envision, potentially relaunching that title on phones and how the approach could differ to the prior game? Thank you.

Andrew Wilson, CEO

Yes, let me address the first part. We continue to see major titles growing larger and live services expanding. As a company with a diverse portfolio of substantial intellectual properties and live services, we believe we will benefit from this trend in the long run. However, this does not mean we won't develop smaller titles over time. There are remarkable stories we believe should be told in entertainment. We are directing our investments to create a suitable cost structure around these projects while also strongly supporting our biggest opportunities. Our strategy of creating experiences that engage large online communities is expected to be a significant growth driver for us. When approached correctly, games like Dragon Age and Jedi can narrate blockbuster stories and truly reach the top tier of games. Currently, we observe that mid-tier and lower-tier games, which may have performed well during COVID due to increased leisure time, are struggling. Looking ahead, we will continue to prioritize our investments, energy, and resources toward these substantial opportunities, as we believe that aligns with industry trends.

Laura Miele, President, EA Entertainment

Hi, David, I'll address the question about Apex mobile. As Vince and the team evaluate the franchise's future potential beyond the short to mid-term that I've mentioned today, we see significant opportunities for further storytelling and different gameplay genres. It's important to remember that Apex is part of the Titanfall universe, which has a strong following and interest. As they assess these opportunities, we are considering new genres, potential new platforms, and geographical expansion. While there's nothing to announce today, these considerations are important elements of our strategy for the brand's future.

Andrew Wilson, CEO

Okay. Thank you very much for being with us today, and thank you for all of your questions. Once again, I want to express my deepest appreciation to our incredible teams for delivering a record Q1. We look forward to updating you next quarter on November 1 after what I think is going to be our biggest EA Sports season ever, including Madden 24 and of course, our highly anticipated launch of EA SPORTS FC 24. Thank you so much. Have a great day.

Operator, Operator

That concludes today's meeting. Thank you all for joining. You may now disconnect.