Earnings Call Transcript - EA Q3 2020

Operator, Operator

Good afternoon. My name is Chantal and I'll be your conference operator today. At this time, I would like to welcome everyone to the Electronic Arts Q3 Fiscal 2020 Earnings Conference Call. Mr. Chris Evenden, VP of Investor Relations, you may begin your call.

Chris Evenden, VP of Investor Relations

Thanks, Chantal. Welcome to EA's third quarter fiscal 2020 earnings call. With me on the call today are Andrew Wilson, our CEO; and Blake Jorgensen, our COO and CFO. Please note that our SEC filings and our earnings release are available at ir.ea.com. In addition, we've posted earnings slides to accompany our prepared remarks. Lastly, after the call, we will post our prepared remarks and audio replay of this call, our financial model, and a transcript. With regards to our calendar, our Q4 fiscal 2020 earnings call is scheduled for Tuesday, May the 5th, 2020. 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-Q 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, January 30, 2020, 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. 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, Chris. It was an excellent third quarter for Electronic Arts, with new games like the outstanding Star Wars Jedi: Fallen Order, as well as our dynamic live services for FIFA, Madden NFL, Apex Legends, and The Sims 4, we delivered unmatched depth and breadth to players over the holiday season. As a result, our revenue and earnings for Q3 were above our guidance, growing significantly year-over-year for the quarter. We're raising our full-year guidance for the second time this fiscal year and we are on track to post a very strong year against our original projections for FY 2020. What we delivered to players in Q3 reflects the breadth and strength of our business, our focus on quality experiences, and a deep commitment to execution. We're growing our IP portfolio with more great new games, our live services are among the most popular and highest performing in the industry and we're expanding to more distribution channels, so we can connect more players to the games they love. As a result, players are deeply engaged in our top games, sentiment scores are strong and we are building momentum in the growth areas of our business. I'll touch on a few highlights here. Our portfolio of Star Wars games across all platforms has never been stronger. Star Wars Jedi: Fallen Order was the action adventure game that fans were looking for this holiday season. Respawn delivered an expertly crafted high-quality experience with outstanding gameplay that thrilled players, made many of the game of the year lists and sold beyond our projections for the quarter. In addition to Jedi: Fallen Order, the quality of the Star Wars Battlefront II experience is shining through as well. Two years and dozens of content updates later, spanning all three trilogies and more, critics have re-reviewed the game to high scores, player sentiment is exceptional and the Celebration Edition helped to drive performance at Battlefront II that was significantly above our Q3 expectations. Our communities in both Star Wars: Galaxy of Heroes and Star Wars: The Old Republic are thriving as well. The power of the Star Wars franchise continues to endure and grow across generations and geographies and we look forward to continuing our momentum with Disney and Lucasfilm. It's nearly one year since we took the industry by storm with Apex Legends and the strength and opportunity of this IP and live service continued to grow. Apex is an outstanding example of the innovation across our portfolio. Seasons of new content are coming at a regular cadence for the growing global community. Season three was bigger than season two, with higher peaks in daily active users. Within those seasons in-game events are engaging players with content and challenges that show the imagination and creativity that we are continually pouring into the experience. We're also expanding the Apex universe with more ways to play and watch. We have plans to reach more platforms in FY 2021 and there's a lot of excitement in the esports community for the Apex Legends global series that is now underway. We're pleased to have Lenovo as an official sponsor for Apex competitive gaming joining Gillette, Snickers, Pizza Hut and other major brands and broadcast networks partnering with us on our esports portfolio. It's been a great year for EA SPORTS around the world. Madden NFL 20 and FIFA 20 are both demonstrating how exciting and fresh our sports games can be for new and established fans alike. Madden NFL 20 is our most successful game ever in the franchise, setting multiple records for player engagement and the highest net bookings through a holiday quarter. Our FIFA franchise also grew year-over-year in Q3. VOLTA Football brought an all-new dimension to FIFA 20 and the updates to FIFA Ultimate Team have been deeply engaging for fans with fight matches up nearly 40% year-over-year from launch through Q3. FIFA 20 is also the number one most engaged title in our subscription services. We're now getting ready to launch two major additions to the FIFA 20 experience with prestigious South American club tournaments CONMEBOL Libertadores and CONMEBOL Sudamericana as well as the E-Libertadores, a new expansion to our FIFA 20 global series esports competitions. In addition to South America, Asia is another growth market for our FIFA franchise with FIFA online up significantly year-over-year in Q3. In other dimensions of our portfolio, we now have more than 20 million unique players worldwide in The Sims 4 life-to-date. Our eighth expansion pack for the game, Discover University, continues to demonstrate the creative ways we can add to this experience for our amazing Sims community. As did the surprise addition of the child from the Mandalorian series on Disney+ just before the holidays. Meanwhile, PvZ: Battle for Neighborville and Need for Speed Heat both brought fun and new experiences to fans around the world. Our people are our greatest resource at Electronic Arts and this year has been a demonstration of how the creativity and technical expertise of our teams working together around the world allows us to deliver an unmatched breadth of entertainment to players. From FIFA to Star Wars, Apex to Madden to Sims to Need for Speed and more, we have the titles that fans around the world recognize and love to play. The addition of great new games and experiences is also vital to growth and we're excited to do that in the year ahead through more of our own IP with partner in indie content and some more surprises to come. Live services are delivering value for players and continuing growth for our business. Our teams are among the best in the industry. They are constantly building on feedback to expand and enhance the experience for players. With content updates and in-game events in Ultimate Team, creative and original new seasons in Apex Legends that expand the game and its characters, new content in The Sims 4 that continues to add player choice and more content across our top mobile titles around the world, live services will continue to be a key focus and growth driver for us in Q4 and the year ahead. With the strength of our IP and live services, we're well-positioned for growth as the audience expands and diversifies into new forms of content. We are bringing our games and IP to new regions, including continued mobile growth in Asia and plans to launch Apex Legends in China. With our subscription services now available on three major platforms and coming to Steam in FY 2021, we're expanding our leadership in high-value low-friction subscriptions for more players. And with FIFA and Madden continuing to grow as leading esports properties, we're bringing Apex Legends competition to the global stage and we have exciting plans for new content in esports as we move into the next fiscal year. We're looking forward to finishing this year strong, delivering for players, and continuing our growth into FY 2021. Now, I'll hand the call over to Blake.

Blake Jorgensen, COO and CFO

Thanks, Andrew. EA successfully launched three games last quarter: Need for Speed Heat; Plants vs. Zombies: Battle for Neighborville; and of course, Star Wars Jedi: Fallen Order. That brings the total for calendar 2019 to eight. Launching eight major games at quality in a year is a substantial undertaking, but that number only tells part of the story. For example, with Battlefield V, we launched a whole new theater of war with maps, vehicles, weapons, and more driving a major shift in engagement. For Star Wars Battlefront II, we introduced game-changing heroes, fan-favorite reinforcements, exotic planets, and epic new ways to play across three cinematic eras. For Apex Legends, we launched three seasons of content including three new legends, five in-game events, three town takeovers, and a whole new map of six new game modes. Delivering quality entertainment at this level testifies to how well the teams are aligned across the company and the way in which we unite to achieve our goals. And it works; we had another great quarter with record net bookings and live services as a whole and in FIFA and Madden Ultimate Teams in particular. Apex Legends is having a fantastic season and we delivered a new hit with the launch of Star Wars Jedi: Fallen Order. As a result, we generated record operating cash flow over the last 12 months. EA's net revenue was $1.593 billion and operating expenses were $724 million. GAAP operating income was $361 million and resulted in earnings per share of $1.18, $0.26 better than our guidance. The year-on-year increase in OpEx was largely driven by variable compensation which flexes up and down depending on company performance against plan. Remember that the true-up in Q3 last year was negative; that combined with a positive true-up this year creates a $58 million swing year-on-year. There was also underlying growth in R&D as we continue to invest in game development. Operating cash flow for the quarter was $1.104 billion, up $150 million last year. Operating cash flow for the trailing 12 months was a record at $1.898 billion. Capital expenditures for the quarter were $28 million resulting in a free cash flow of $1.076 billion. See our earnings slides for further details on this information. During the quarter, we repurchased 3.1 million shares at a cost of $305 million. We've now returned to shareholders over $2 billion of the $2.4 billion in our two-year buyback program that we began in May 2018. We will announce our future plans on our May earnings call. Our cash and short-term investments at the end of the quarter were $5.6 billion. Total net bookings for the quarter were $1.978 billion, up 23% on the prior year despite a $39 million FX headwind. Sales of Star Wars Jedi: Fallen Order significantly beat our expectations. We had forecast 6 million to 8 million units for the fiscal year, but to hit the high end of that in the third quarter, and now we anticipate selling around 10 million units in the fiscal year; a very strong result for a single-player action game. Madden NFL 20 is delivering the best performance in Madden's more than 30-year history. Average selling prices were strong across the portfolio, with discounts smaller and applied later in the year. Diving into digital net bookings. Digital net bookings were $1.444 billion, up 20% on the year-ago period. Digital net bookings now represent 77% of our business on a trailing 12-month basis. This compares to 74% in the prior year. Live service net bookings were up 27% to $993 million. Nothing illustrates the changing nature of our business model like the growth of our live services and $993 million is an all-time high. Growth was led by Apex Legends, but closely followed by double-digit growth in FIFA and Madden Ultimate Team. Growth in FIFA online in Asia was also extremely strong. Mobile delivered net bookings of $134 million, down 6% year-over-year but above our expectations, driven by titles across the breadth of our portfolio, particularly in Asia. Including our IP-licensed deals, such as the one for Command & Conquer: Red Alert in China, mobile is up year-on-year at constant currency. With many promising titles in incubation at EA, we are excited about the opportunities ahead for us in the mobile market. Full game PC and console downloads generated net bookings of $317 million, 16% higher than last year. Growth was driven by increased game sales, plus the ongoing shift to digital. Overall, 49% of our units sold through were digital rather than physical, measured on Xbox One and PlayStation 4 over the last 12 months. This compares to 47% a year ago. We continue to model underlying annual growth of around 5 percentage points for digital. Turning to guidance, we expect full-year GAAP net revenue to be $5.475 billion and for diluted earnings per share to be $9.90. We expect operating cash flow of about $1.725 billion. We continue to anticipate capital expenditures of around $140 million, which would deliver free cash flow of about $1.585 billion, $135 million above where our expectations were at the start of the year. We now anticipate fiscal 2020 net bookings of $5.15 billion, up $25 million over our prior guidance and up $50 million from where we started the year. For the fourth quarter, we expect net revenue of $1.325 billion, cost of revenue to be $257 million and operating expenses of $724 million. OpEx is down year-on-year, reflecting the two new IPs we launched last year. This results in a diluted earnings per share of $1.05 for the fourth quarter, using the diluted share count of 293 million shares. We anticipate net bookings for the quarter to be $1.152 billion. This is slightly down year-on-year with broad-based strength this year, offset by the massive launch quarter for Apex Legends and Anthem last year. Looking forward to fiscal 2021, our goal is to continue to grow net bookings and underlying profitability, even as we invest in new platforms. We anticipate live services to be the primary growth driver, followed by the launch of new content across our broad range of genres. We're launching four sports titles, including new games in our blockbuster FIFA and Madden franchises; four other titles that draw from the breadth of our IP and we'll also publish four titles globally from smaller developers. Finally, we expect two new mobile titles to make it into soft launch. We expect growth to accelerate in fiscal 2022 as we leverage the growing base of next-generation consoles with the launch of a new Battlefield. This is on top of the launches of FIFA 22 and Madden NFL 22 plus new and ongoing live services and other titles. We create long-term value by growing strong live services, launching new content, and expanding our reach. This broad-based model reduces our dependency on individual titles, decreases risks and enables us to deliver financial results for our shareholders through a constant stream of high-quality entertainment for our players. Now I'll hand the call back to Andrew to offer some final thoughts.

Andrew Wilson, CEO

Thanks, Blake. We're delivering for our players and our business is growing. Our foundation is great IP that excites and engages hundreds of millions of players. We've added the breadth and depth of our portfolio with great games like Star Wars Jedi: Fallen Order and the innovation in FIFA, Madden, and our ongoing franchises is helping us reach new fans and grow our total player base. We're looking forward to delivering more amazing games from our top franchises, new IP, new partner indie titles and some other surprises in FY 2021 and beyond. Live services extend and enhance the experience for players in their favorite games and enable strong ongoing growth for our business. We design experiences for longevity, creating communities where our players love to connect, share and compete with friends for months and years to come. Our live services for Apex Legends, EA SPORTS Ultimate Team, The Sims 4, Star Wars and more continue to grow in player engagement and will bring more great creative content and in-game events to those communities throughout the year ahead. Great games and strength in live services also position us well in additional growth areas. New consoles are coming and we'll be ready to lead with some of our top titles. Our esports portfolio will expand to four franchises this year with content designed for a wide audience and a growing range of sponsors. We continue to add to the value of our subscription offerings, reaching more players through more distribution channels and expanding to audiences in more geographies with IP that they can't wait to play. It's an exciting time of growth in the interactive entertainment industry and a great time to be making amazing games and bringing them to more players around the world. Now Blake and I are here for your questions.

Operator, Operator

Your first question comes from Andrew Uerkwitz with Oppenheimer & Company. Please go ahead.

Andrew Uerkwitz, Analyst

Thanks, gentlemen for taking the question. Looking at the past two Star Wars games, one was a massive multiplayer; one was obviously a big single player. Seems like sales numbers initially are roughly the same but one's got live services, one doesn't. How has that shaped the way you think about future game design as we head into the next console with a big focus on live services?

Andrew Wilson, CEO

Great question. And part of the reason why we have this breadth and depth in our portfolio is because as the player base continues to grow, so do their motivations. As we think about making games, we think about the motivations of why people want to play; inspiration, escape, social connection, creation, self-improvement, all these types of things. And as we start to look at the broader player base and we think about each of the cohorts within that, we're looking to build experiences that satisfy their needs and motivations. And what we've come to understand particularly with Star Wars is it's a really, really big fan base. And while social interaction competition and multiplayer is really important for a large part of that fan base, what we have seen through the last quarter is it also is that inspiration and escape model that living the Jedi journey, the Jedi story. As we think about this on a go-forward basis, you should imagine that we will continue with the breadth and depth across the IP in order to meet the needs and motivations of that broad player base.

Andrew Uerkwitz, Analyst

If I could ask a follow-up. Considering live services and additional distribution channels along with more cost-effective marketing, should we anticipate EA to launch more than eight games over the next three to five years, or is eight a reasonable estimate?

Andrew Wilson, CEO

I would start by saying eight is a lot. If you think about the various game launches across the industry, there are not many companies that can come together and launch that kind of breadth at that kind of quality with that strength of execution. And so we feel really good about that number. The other thing that's important to understand is this also has a layering effect. So, as we launch games that have live services that last one, two, three, and in some cases, four and five years, the build that we get over time and the predictability and longevity in our revenue stream is really, really strong. And so I think eight is probably a pretty good number. Some years there might be a few more and some it might be a few less than that, but we feel really good. The other thing that we're starting to see is that with the reach and the network power that we have with subscriptions and our ability to reach players in this high-value low-friction business model, we now have a lot of other third-parties and Indies coming to speak with us about distribution of their content. And so while I feel really good about our capacity to continue to execute and deliver great high-quality content and potentially more than many others in the industry, we're also going to have the opportunity to reach our player base with these very new and interesting titles from third-party and indie developers.

Blake Jorgensen, COO and CFO

Yes. And what I would add to Andrew's comment is remember one of the major strengths of our business is a deep catalog. And a deep catalog is based on not just this year's games or last year's games, but maybe even games from two or three or four years ago. And we sometimes see north of $1 billion in catalog sales in the following year. That's very powerful to us. It's very profitable. And it is critical in continuing to maintain the brands that we have built. And fans will come into games at many different levels either through direct purchase or through subscriptions. And that deep bench is something that creates a lot of value which I'm not sure people always think about as we're thinking about the value of the overall business.

Andrew Uerkwitz, Analyst

Got it. Thanks gentlemen and congrats on the quarter.

Blake Jorgensen, COO and CFO

Thanks.

Chris Evenden, VP of Investor Relations

Next question?

Operator, Operator

Your next question comes from Brian Nowak with Morgan Stanley. Your line is open.

Matt Cost, Analyst

Hi guys, it's Matt on for Brian. Congrats on the quarter and thanks for taking the question. The first one is just on the mobile business. It seems like you made some great progress, obviously, on constant currency growing year-on-year. Can you talk about sort of what you're seeing in that business and maybe any thoughts you're having on potentially partnering with other mobile app developers and some of your competitors have seen some success recently following the strategy like that particularly in terms of going into markets like Asia? And then if you could just quickly an update on Project Atlas? Thank you.

Blake Jorgensen, COO and CFO

Yes. In order to roll out mobile in China, we need a partner, and as mentioned earlier, we are collaborating with a partner there and are very excited about the potential. This partner is also assisting us in developing a mobile Apex for the global market. More details on the timing will follow, but we see significant upside in that area. We haven't incorporated much into our projections for next year due to the uncertain timing, but we believe there's plenty of opportunity. Additionally, we plan to launch a PC version of Apex in China with the same partner, and we will choose to work with partners selectively when beneficial. We have excellent studios and believe we can continue to create great games, but we will collaborate with partners when they can help us enter markets where we may not have the capacity to go to market independently, such as China. More updates will come regarding Apex and any other suitable titles.

Andrew Wilson, CEO

We've discussed before our three-pronged strategy regarding mobile. The first aspect is our realization that we were not monetizing our mobile games as effectively as some leading companies in the industry, and we intend to concentrate on improving this. Our studio leadership team has recruited several highly experienced leaders from the broader mobile industry who are now collaborating with our teams to shift our approach to creating compelling content and monetizing it. We're beginning to see positive results from this effort, and we plan to keep focusing on enhancing our existing mobile titles that have performed well in the market but haven't received as much attention. The second aspect is our identity as a game development company with excellent intellectual property that appeals to mobile audiences. We have several mobile titles in development that I'm genuinely excited about, including two that will enter soft launch within the next year, along with a possibility of others launching even sooner. Lastly, we continue to explore opportunities for partnerships and acquisitions. Although there are not many available, we are committed to being part of all relevant discussions. Therefore, mobile remains a priority for us, and we see significant growth potential ahead.

Blake Jorgensen, COO and CFO

Yes. On Project Atlas, the other part of your question, you'll continue to hear more from us about streaming and other components of Atlas. We're in tight connection and conversations with all of the players that are doing streaming. We're very excited about where it's going and the potential, as well as how we can continue to improve the tools that people use inside of the subscription models that we put in place. So a simple reminder, our goal is to be on every platform and to offer our great products to consumers, wherever they want to play them as long as we can provide them at a quality level that we're comfortable with. So you're going to hear and see a lot more in the next coming year.

Matt Cost, Analyst

Thank you.

Operator, Operator

Your next question comes from Raymond Stochel with Consumer Edge Research. Your line is open.

Raymond Stochel, Analyst

Great. Thanks so much for taking my question. Is there anything that you can discuss as far as VOLTA. Can you give us an update on monetization for VOLTA? And then, any more details on FIFA Ultimate Team being up double digits this call? Is that like-for-like as far as first launch? And then, what would be driving that growth? Thanks.

Andrew Wilson, CEO

We're very happy with VOLTA. VOLTA brought in a whole set of new players and engaged them in new and interesting ways. As we've also talked about a lot in past calls, as we think about building live services, we really think about building engagement first and monetization to follow. As I say, I think that what the team did with VOLTA this year is really, really strong. They've taken some great learning from feedback they've received from the community and we'll continue to build on that in the years to come. And while we don't have any announcements yet on monetization, a lot of player feedback is that they would also like to see the opportunity to extend and enhance that VOLTA experience in a way they do with other live services. So we're excited about what that might bring.

Blake Jorgensen, COO and CFO

And what I would say on Ultimate Team, and this is not just FIFA, this is Madden and this is NHL and our other games. The thing you need to remember on Ultimate Team is we continue to refine and improve the weekly or monthly events that we're running on Ultimate Team that bring people into play. People won't play Ultimate Team if they are not having fun. And so the key is how do you build an event that they're going to have fun competing and interacting. It's a social network and it's all about the design of events. And I think the team continues to get better and better every year either refining existing events or adding new events and that's what really drives the overall monetization in Ultimate Team across all of our sports. And it's the thing that people sometimes don't understand when it comes to live services, that it's not about the monetization. It's about how do you create fun for people to be able to come in and enjoy that social connection and that competition with others. And that's what really drives that across all of our live services.

Chris Evenden, VP of Investor Relations

Next question.

Operator, Operator

Your next question comes from Gerrick Johnson with BMO Capital Markets. Your line is open.

Gerrick Johnson, Analyst

Hey, good afternoon. Two questions. First, gross margin. Maybe you could provide us with the puts and takes, the bridge from last year to this year? And then also on the other titles that you did have guidance for, any update to that guidance for those titles? Thank you.

Blake Jorgensen, COO and CFO

Gross margin has been quite straightforward. We sold more copies of Madden, FIFA, and Star Wars Jedi than we anticipated. Since all three are royalty properties, we incurred royalty costs, which are reflected in gross margin. While this situation means expenses, it’s a welcome challenge because it contributes positively to our overall business and profitability. We don’t have any new updates on guidance for other areas. We have tried to provide some insight into what next year looks like. As I mentioned earlier, our aim is to enhance both top-line and bottom-line performance, and we believe we’ve lined up a strong roster of properties for next year to achieve that. We’ve also shared that Battlefield is scheduled for release the following year, which we expect will further stimulate growth. Overall, we see positive prospects for our continued focus on strong growth in revenue and cash flow moving forward.

Gerrick Johnson, Analyst

Okay. Thank you.

Operator, Operator

Your next question comes from Alex Giaimo with Jefferies. Your line is open.

Alex Giaimo, Analyst

Hey guys. Thanks for taking the question. Hoping to dig into Apex aspirations a bit more without getting too bogged down into the F 2020 or F 2021 guide. Specifically, how should investors be thinking broadly about the growth aspirations for that franchise? I think you've mentioned in the past that you view it as a 10-year franchise and it's obviously early, but should we think about it sort of as a modest straight-line grower moving forward or is it a bit more lumpy? And then just given the free-to-play nature of that game hoping you can just update us on how the profitability of Apex compares to the broader profitability of EA as a whole. Thanks.

Blake Jorgensen, COO and CFO

Yes, those are great questions. As Andrew mentioned, we're approaching the one-year mark for the game, which is wonderful. We are very pleased with its current status. The team has done an incredible job of innovating and adding content while engaging a highly involved audience, providing them with what they want to keep playing and to create excitement and surprises. We will continue this approach just as we have with our live services. People often overlook that Ultimate Team was only an $8 million business 12 years ago. Our goal is to constantly innovate and improve over time to grow the business, and that's our mindset with Apex. We have been strengthening the team with new talent focused on live services while ensuring that our existing team stays dedicated to developing the business and is recognized for their hard work. They have accomplished an impressive job. It's challenging for us to make predictions. If you had asked us six months or even one month ago, we wouldn’t have had clear insights, and we still don’t. However, our aim is to keep expanding the business. When we provide guidance in May, we will attempt to give a clearer sense of our direction. We are committed to growth, confident in the longevity of the franchise, and excited about the opportunities that lie ahead for Apex.

Andrew Wilson, CEO

I just want to add that when we look at the gaming industry and the titles that have stood the test of time, like League of Legends, CS: GO, and DOTA 2, we see that they continually engage large player bases worldwide. There are three main elements that underlie the success of these games: compelling and recognizable characters, an immersive world, and competitive, skill-based, highly social gameplay that evolves as players improve. These are also the three foundational aspects of Apex Legends. As we plan for the upcoming year and beyond, expanding into new regions and on more platforms, it’s difficult to precisely predict how this will unfold. However, we genuinely believe there is growth ahead, and we are very encouraged by our team's ability to adapt to player needs. Season 3 outperformed Season 2, and we anticipate that Season 4 will show further growth. We are excited about what the future holds.

Blake Jorgensen, COO and CFO

Yes. You mentioned our previous comments about building a long-term franchise. Ultimately, we prefer a model that lasts for many years and avoids boom and bust cycles. That's the framework we're using to design the business, and the team is fully aligned with this vision. If we can develop it into an annual shooter as part of our franchises, it would significantly benefit the overall company. This is our perspective and approach, and we believe everyone shares this alignment with more developments to come.

Alex Giaimo, Analyst

Thanks, guys.

Chris Evenden, VP of Investor Relations

Thanks. Next question?

Operator, Operator

Your next question comes from Jeff Cohen with Stephens. Your line is open.

Jeff Cohen, Analyst

Hey, guys. Thanks for taking the question. Could you talk about how big of a driver Jedi: Fallen Order was for new subscribers to origin access? And then, broadly, just, can you talk about how churn has trended within your subscription products?

Blake Jorgensen, COO and CFO

Yes. The premier subscription provides access to frontline titles, which is just one aspect of the overall Origin access model and is different from what Sony or Microsoft offers. While it's still in the early stages, it's difficult to gauge if new subscribers are remaining engaged, as we haven't observed significant changes in churn. This is a key area of interest for us, particularly since we don't release new titles every month. We are seeing growth in our subscription business on Origin and through our partners. Each time we add new content, it attracts more subscribers. We anticipate that including Jedi in the regular subscription, even though that’s still months away, will likely draw in additional users. Importantly, we have learned that people often join for specific titles. Our data shows a trend of subscribers playing games they hadn't tried before and increasing their engagement with those games. This reduction in the barrier to trial is beneficial since they do not have to purchase the game but can experience it through the subscription. This strategy helps us introduce individuals to new games, genres, or sports, enhancing their overall interest in gaming.

Jeff Cohen, Analyst

Thanks, Blake. Congrats on the quarter.

Blake Jorgensen, COO and CFO

Thanks.

Operator, Operator

Your next question comes from Matthew Thornton with SunTrust. Your line is open.

Matthew Thornton, Analyst

Hey, guys. Thanks for taking the question. Without getting into maybe any specific dates or even titles specifically, maybe to give us a little more update just on kind of how you're feeling about the pipeline, maybe relative to where we were six, twelve months ago that the products that are out there across the various studios. Any color there would be helpful. And then, just coming back to Sims and Apex in particular, Blake, I think, you had talked about those franchises doing, call it, $300 million to $400 million for the year. Are those still reasonable ending points for those franchises? Thanks, guys.

Blake Jorgensen, COO and CFO

Yes, I believe those are reasonable expectations for those franchises, and both are performing well. The Sims released an expansion pack in the fall that has been very successful, contributing to a thriving business that continues to expand as more players join. These new players often go back to purchase past expansion packs along with the new ones, enhancing the social network we've built within The Sims. We can expect similar trends with Apex, even though it doesn’t have expansion packs. Each season brings in more players who become excited about what they experience and engage with the social network. While I can't share specific details about the future, it's safe to say that the core sports games will continue to be available each year. Next year, we anticipate introducing at least one new sports game. We also have a number of third-party titles slated for next year and some announcements pending. Our focus remains on enhancing both our revenue and profits in the coming years. I want to reassure everyone that we have a robust lineup of titles that should inspire confidence moving forward. Additionally, we're actively developing several of our well-known franchises and exploring new franchises, along with ongoing live service offerings related to all of these.

Andrew Wilson, CEO

Yeah. Just as a kind of an add to that, again we benefit from a large number of very well-established studios with great teams with a track record of delivering really high-quality content. So as we think about Maxis and BioWare and Motive and DICE and Respawn, and our EA SPORTS studios, there are titles in various stages of development across all of those studios and more. I also talked about a number of mobile titles, a couple of which will come into soft launch next year. But I would tell you I'm more excited now about our mobile pipeline than I have been for a number of years. And again I would say also that mobile is an unpredictable marketplace and it's very challenging. And all companies have discovered that. But I feel better about what I'm seeing coming out of our mobile studios now than I have for a number of years. And so we feel very good about the long-term trajectory of where our studios are going and the amount of games and new and creative IP that we have in the pipeline.

Blake Jorgensen, COO and CFO

You can see a pattern in console transitions over time. As new consoles are released, their capabilities will surpass those of current models, allowing us to achieve much more. In the coming years, you'll witness innovations in gaming that will astonish many. This is an exciting aspect of our industry, as there will be significant advancements not only from us but throughout the entire sector. Historically, we've observed growth in the software segment of the video game industry during each console cycle for over 20 years. Sometimes people lose sight of this, focusing too much on immediate results rather than historical trends. The enhanced power of new consoles will enable us to accomplish far more, which will be thrilling to witness, especially as established games like FIFA and Madden evolve alongside new games that take advantage of this increased capability.

Matthew Thornton, Analyst

Appreciate the color guys.

Operator, Operator

Your next question comes from Ryan Gee with Bank of America. Your line is open.

Ryan Gee, Analyst

Hey guys. Thanks for taking the questions. A couple on live services. So first very encouraged by the outperformance of Star Wars Jedi from Respawn. So, you guys now have a large player base into which you could generate some additional revenue. So, what is the opportunity ahead either for to generate live services revenue from that in fiscal 2022 and/or maybe some sort of add-on content pack for that game? And then as it relates to live services from Ultimate Team, the sequential acceleration to double-digits last quarter, are you guys able to see how much of that is a function of just easier year-over-year comps to the Ultimate Team business versus execution getting players further down the conversion funnel and getting higher spend out of existing payers. Thanks.

Blake Jorgensen, COO and CFO

Yes, let me address Ultimate Team first, and then Andrew can talk about Star Wars Jedi. Ultimate Team has really benefited from an increase in the number of players and their engagement, rather than focusing on altering the average revenue per user in any way. We are very mindful about not pushing people to spend beyond their limits. The best way to encourage spending is to engage players with exciting new events. The team has done a great job creating and adding new events to keep players enthusiastic about the game, rather than just trying to maximize revenue from any single event. This approach, along with the continued growth of the FIFA player base, has been our primary driver. More and more people are playing Ultimate Team, which we believe keeps them engaged. This isn’t much different from traditional sports where fans are deeply invested in the game; Ultimate Team attracts dedicated sports fans who are eager to participate.

Andrew Wilson, CEO

On Star Wars, no announcements of anything at this point, but what I would say is you're right we have a very, very strong player base, a very engaged player base who feel like what they've just had the ability to experience as one of the most compelling Star Wars experiences of their life of any formal media. I would also highlight it is a single-player game. So, any kind of live service or additional content would be different than what we would see in an Ultimate Team or an Apex Legends. But this team who is working on this is one of the most creative teams in our company and certainly in the industry who are thinking about where to take this journey next for players that love this style of play. We're excited by what we're going to come up with and in the meantime I also think that this will be one of the strongest catalog sellers for this company over the coming years and will almost certainly help continue to grow our subscription as it moves into our various subscription offers across platforms.

Chris Evenden, VP of Investor Relations

Next question?

Operator, Operator

Your next question comes from Mario Lu with Barclays. Your line is open.

Mario Lu, Analyst

Hey guys. Two questions on my end. One on the Switch and one on Sims. So, Nintendo today announced that the Switch exceeded 52 million units shipped worldwide which is similar or more than the Xbox One. So, therefore, should we expect EA to publish more titles on the Switch going forward? As I understand currently there's only three EA titles on the platform including Unravel, Fe, in the legacy version of FIFA. And then secondly on The Sims, the success of Sims 4 is very intriguing to me since the industry is filled with multiplayer experiences. And Facebook recently actually announced that they're coming out with Horizons, a social experience in VR and that kind of reminds me of the Sims online which launched 18 years ago. So, any thoughts on relaunching an online version of the franchise, given its large popularity? Thanks.

Blake Jorgensen, COO and CFO

So let me hit the Switch question and then I'll go into the AR question on Sims. So we are very pleased with how well the Nintendo has done with Switch. I mean, people love the platform. They enjoy it, it's great. And remember there are a lot of people that have both, the Xbox and a Switch or a PlayStation and Switch, because it, in many ways, provides a different experience, particularly a way to access great Nintendo software. We are always looking and discussing with Nintendo what else we can put on the platform. And as you can imagine, as the platform grows, our interest in adding content grows for that platform. But we're also conscious of the fact that the top-selling titles by a long shot are all the Nintendo software, which is fabulous software, but it helps us balance sort of the realities of how big our markets can be there. But trust that we're looking at that. You will hear some more things in the future about what we're putting on the platform. And we're very pleased with how it's grown alongside the growth of both Sony and Microsoft's platforms.

Andrew Wilson, CEO

Great question about The Sims. Interestingly, The Sims will celebrate its 20th anniversary next week. The Maxis team and previous members have consistently delivered innovative and creative content for a growing global community. When considering The Sims, I mentioned earlier the motivations for playing games—such as inspiration, escape, social interaction, creation, self-improvement, and competition. Historically, The Sims has focused on fulfilling the motivations of inspiration, escape, creation, and self-improvement, with less emphasis on social interaction and competition. However, one constant is the growth of The Sims community. Broader social platforms allow players to connect and share their experiences within the game. We've seen this in games like Sims FreePlay, which provided a more social experience. Additionally, the competitive aspect of The Sims has been gaining traction, as players compare and discuss their creations and the imaginative worlds they've built. As Maxis considers the future of The Sims for new generations across various platforms in a cloud-enabled environment, it’s important to note that while we will maintain our focus on inspiration, escape, creation, and self-improvement, the elements of social interaction and competition—similar to those in The Sims Online from many years ago—will increasingly become part of the Sims experience moving forward. We are very excited about this. The Sims stands unique in its category for fulfilling these player motivations, and we see a tremendous growth opportunity ahead for many years.

Blake Jorgensen, COO and CFO

And the one thing that we have with The Sims, that we have with all of our games, but probably the most with The Sims is, its incredibly engaged community. And The Sims team has done an amazing job interacting with the community and trying to understand what they want. And so, it allows us to develop expansion packs, additions, whatever it is, or game approaches that is really coming from the community and we will continue to encourage that. So as we see interest or demand that allows us to go chase that as we develop the product. And I think that's an amazing thing that you don't necessarily have in all games and The Sims is a leader there for us and it makes it such a fabulous opportunity to continue to feed what the community wants.

Mario Lu, Analyst

Very helpful. Thank you.

Operator, Operator

Your next question comes from Mike Ng with Goldman Sachs. Your line is open.

Mike Ng, Analyst

Hi. Thank you very much for the question. I just had one on unit sales. If you look at full game downloads plus packaged goods, it looked like that was up $168 million year-on-year. And it seems like the key moving parts for Star Wars, Need for Speed more than offsetting Battlefield V. I was just wondering if there are any other factors to consider whether those were catalog sales being better or worse or pricing or the digital shift impacting unit sales that could help us think about things that may have impacted units for the quarter? Thank you.

Blake Jorgensen, COO and CFO

Digital sales continue to grow. It's worth noting that Star Wars tends to perform slightly lower digitally than our average titles due to the holiday gifting dynamics. Live services were a significant contributor as well. Regarding our expectations, we exceeded them for Star Wars; however, we may have slightly underperformed with Plants vs. Zombies, but it's a title that will continue to sell well over time. It's relatively small, so it wasn't the primary driver. Need for Speed performed as we anticipated. This year, we implemented stronger pricing strategies compared to the past and offered discounts later in the season, which was part of our approach and positively influenced overall revenue.

Chris Evenden, VP of Investor Relations

Next question?

Operator, Operator

Your next question comes from Drew Crum with Stifel. Your line is open.

Drew Crum, Analyst

Thank you guys. Can you update us on the progress you've made with FIFA Online 4 in China during the current fiscal year, and how big of a role that plays growth for fiscal 2021? And when you get back to the $200 million annual run rate? And then separately with some of the management changes you've made at DICE and I guess specifically Vince becoming the Director of the LA office, how involved will he be in Respawn be with the development of the next Battlefield game? Thanks.

Blake Jorgensen, COO and CFO

Yeah. So quickly on FIFA Online, we're still running both FIFA Online 3 and FIFA Online 4 in China. That has not impacted the business that much. In fact we're pretty close to getting back to our historical level. We've shut off FIFA Online in Korea. And FIFA Online 4 there has responded very well. We had strong growth year-over-year in the quarter for that and it was mainly driven by Korea. We will play it over the next few quarters as to when and how we're going to shut it down in China. But we're conscious that we don't want to disrupt the consumer there. And right now, both Online 4 and Online 3 are doing well in that marketplace. So, more to come on that. But that's kind of the quick answer.

Andrew Wilson, CEO

Good question regarding Vince and Battlefield V. As you may remember, we announced that Vince is leading a creative council within the organization. This council functions as a brain trust similar to what occurred at Pixar and unites creative leaders from across the company to review, provide constructive feedback, and offer insights on our various creative initiatives. Vince is actively engaged in this process, which is significantly influencing the company and helping us maintain a focused approach on both quality and execution. With his new role at DICE LA, which has traditionally supported DICE Stockholm, we are excited because they have a strong creative team and leadership there, and they are also developing some new projects that Vince will oversee. Additionally, following our leadership changes in Stockholm, we have made excellent progress on the next Battlefield game. I mentioned this in the previous call, and I'm really enthusiastic about the direction the team is taking. David Rota, who is now leading our studios in Europe, is also making a substantial impact, and we expect the team to accomplish some remarkable things.

Chris Evenden, VP of Investor Relations

Next question?

Operator, Operator

Your next question comes from Mike Hickey with Benchmark Company. Your line is open.

Mike Hickey, Analyst

Hey Andrew, Blake, Chris congrats on the quarter. Thanks for taking my questions. I had one on Vince that you kind of answered it, but maybe you can go a layer deeper. Obviously, he's a super talent guy. I mean his success in the shooters truly genres is truly remarkable with Medal of Honor, Call of Duty: Titanfall, Apex Legends, obviously founded Respawn. I guess just your thoughts on Respawn ex-Vince how that studio continues to behave and the leadership there? And then at the new DICE studio, it sounds like they're going to rebrand that or rename it. You mentioned that perhaps he's inheriting some games in development, therapy development preproduction, but I'm curious if we can look forward to sort of AAA from Vince in the shooter genre emerging in two to three years. And then I guess broadly speaking new consoles, Blake, great to hear your excitement on new consoles coming to the market and what that means. I share that. It's also seemingly a good time to come out with new IP. So, thoughts, I guess, broadly on how you think about new IP on the front end to the console cycle? Thank you.

Blake Jorgensen, COO and CFO

Yes. To clarify, Vince is still actively working at Respawn and continues to lead the team. We're expanding his responsibilities, and Laura Miele is ensuring he has the resources he needs. By allowing him to oversee DICE LA, it enables additional resources to be allocated to the Respawn team if necessary. We are currently nurturing several new IP ideas, and there's more to share in the future. Everyone is quite enthusiastic about this development. I want to emphasize that expanding Vince’s role does not mean he is any less focused on Respawn. He has a fantastic team and management in place, and we are continually strengthening that team. He remains an invaluable asset to Respawn and to our overall portfolio. We are thrilled with how he and the entire team have integrated into the company. It can be challenging for a small company to be acquired by a larger one, but we hope the Respawn team realizes that we are supportive and enjoyable to work with. We aim to utilize the best expertise and management across our entire portfolio. Our talented individuals contribute significantly to our ability to deliver outstanding sports games on schedule and within budget each year. I have to wrap up now as we are out of time. However, there was one part of your question, Mike, that we didn't address. We seem to have lost you. Thank you, everyone.

Andrew Wilson, CEO

Thank you.

Blake Jorgensen, COO and CFO

Talk to everyone next quarter.

Operator, Operator

This concludes today's conference call. You may now disconnect.