Electronic Arts to Cut Back on Reporting Adjusted Figures
July 19 2016 - 7:30PM
Dow Jones News
Electronic Arts Inc. will stop reporting many of the adjusted
financial measures it has used for years, addressing regulators'
stepped-up criticism of how companies apply customized metrics in
earnings.
The Securities and Exchange Commission in May issued new
guidelines for the use of adjusted measures that don't comply with
U.S. generally accepted accounting principles over concerns such
metrics could make earnings appear better than they are.
In a conference call with analysts Tuesday, EA said results for
its most recently ended quarter, due Aug. 2, will be the last to
include revenue, gross margin and per-share earnings on a non-GAAP
basis.
The changes won't have an impact on financial performance but
could make it harder to compare to past results, analysts said. EA
said it would provide the data it used to calculate non-GAAP
figures so others can make historical comparisons. Cash flow
remains a key valuation measure for the business, the company
said.
"At the end of the day, every company should be valued on its
ability to generate cash," said Robert W. Baird & Co. analyst
Colin Sebastian.
The SEC's guidance applies to all publicly traded companies,
though the issue is particularly relevant to the videogame
industry. Under GAAP rules, revenue from games with online
components is deferred for however long companies think players
will use those services—typically six to nine months.
It reflects continuing expenses that go into online games, such
as keeping servers running and fixing bugs, Mr. Sebastian said. The
same rules apply to other software companies that accept payment
from customers upfront for services provided over time, such as
cloud-storage providers, he said.
Non-GAAP figures paint a more accurate picture of near-term
financial performance since they show the full amount of revenue
from games sold in the quarter, companies and analysts have
said.
Adjusted figures also might also exclude other expenses
companies consider irregular or unimportant to investors. Some
technology companies, for example, report non-GAAP numbers that
strip out hundreds of millions of dollars in stock
compensation.
EA will still report free cash flow, as well as earnings before
interest, taxes, depreciation and amortization, also called Ebitda,
on a non-GAAP basis, the company said.
Activision Blizzard Inc. and Take-Two Interactive Software Inc.,
which both report earnings Aug. 4, declined to comment.
Write to Sarah E. Needleman at sarah.needleman@wsj.com
(END) Dow Jones Newswires
July 19, 2016 19:15 ET (23:15 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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