Electronic Arts to Cut Back on Reporting Adjusted Figures

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 [e-mail]

(END) Dow Jones Newswires

July 19, 2016 19:15 ET (23:15 GMT)

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