Better-Than-Expected Q3 Results
Activision Blizzard, Inc. (Nasdaq: ATVI) today announced
third-quarter 2018 results.
“Activision Blizzard’s results for Q3 exceeded our prior outlook
as we continue to entertain large audiences, drive deep engagement,
and attract significant audience investment across our franchises,”
said Bobby Kotick, Chief Executive Officer of Activision Blizzard.
“Our unique advantage continues to be our ability to create the
most compelling interactive and spectator entertainment based on
our own franchises, combined with our direct digital connection to
hundreds of millions of customers, in over 190 countries. With
these competitive advantages we continue to connect and engage the
world through epic entertainment.”
Financial Metrics
Q3 (in
millions, except EPS) 2018
Prior
Outlook*
2017 GAAP Net Revenues $1,512
$1,490 $1,618 Impact of GAAP deferralsA $146 $125
$284 GAAP EPS $0.34 $0.16 $0.25 Non-GAAP EPS $0.42 $0.37
$0.47 Impact of GAAP deferralsA $0.10 $0.10 $0.13
* Prior outlook was provided by the
company on August 2, 2018 in its earnings release.
For the quarter ended September 30, 2018, Activision Blizzard’s
net revenues presented in accordance with GAAP were $1.51 billion,
as compared with $1.62 billion for the third quarter of 2017. GAAP
net revenues from digital channels were $1.28 billion. GAAP
operating margin was 18%. GAAP earnings per diluted share were
$0.34, as compared with $0.25 for the third quarter of 2017.
For the quarter ended September 30, 2018, on a non-GAAP basis,
Activision Blizzard’s operating margin was 27% and earnings per
diluted share were $0.42, as compared with $0.47 for the third
quarter of 2017.
For the quarter ended September 30, 2018, operating cash flow
was $253 million. For the trailing twelve-month period, operating
cash flow was $1.95 billion.
Please refer to the tables at the back of this press release for
a reconciliation of the company’s GAAP and non-GAAP results.
Operating Metric
For the quarter ended September 30, 2018, Activision Blizzard’s
net bookingsB were $1.66 billion, as compared with $1.90 billion
for the third quarter of 2017. Net bookingsB from digital channels
were $1.44 billion, as compared with $1.47 billion for the third
quarter of 2017.
Selected Business Highlights
Over the last three months, all three of the Company’s segments
have delivered innovative major content releases for our global
franchises. Activision launched Call of Duty®:
Black Ops 4, Blizzard released World of
Warcraft®: Battle for Azeroth™, and King launched
Candy Crush Friends Saga™. The high quality of these
releases has been widely recognized in our communities and
beyond.
Audience Reach
- Activision Blizzard had 345 million
Monthly Active Users (MAUs)C in the quarter.
- King had 262 million MAUsC in the
quarter. Candy Crush Saga™ MAUsC grew year-over-year. In
October, the newly launched Candy Crush Friends Saga reached
the top of the iPhone download charts in 93 countries within three
weeks.
- Blizzard had 37 million MAUsC in the
quarter. World of Warcraft: Battle for Azeroth set a new
day-one franchise record with more than 3.4 million units
sold-through. World of Warcraft engagement grew strongly
quarter-over-quarter. Hearthstone® recently surpassed
the 100 million life-to-date registered player milestone.
- Activision had 46 million MAUsC in the
quarter. Destiny MAUsC grew quarter-over-quarter and
year-over-year, driven by the launch of Forsaken and reach
initiatives for the base game. Activision MAUsC increased
significantly in October following the launch of Call of Duty:
Black Ops 4. In the first three weeks after launch, Black
Ops 4 sold-through more units than Black Ops III, with
PC sell-through more than three times higher. Additionally for the
first three weeks after launch, total active users and hours played
were 16% and over 20% higher respectively, versus Black Ops
III.
Deep Engagement
- Players spent a record 52 minutes per
day in Activision, Blizzard, and King games in the quarter.
Viewership of our games was up substantially this quarter, and in
the month of October, Activision Blizzard had seven of the top 20
most viewed games on the industry’s largest streaming platform1,
including Call of Duty: Black Ops 4 where viewership
continues to break franchise records.
- The Overwatch League™ continues
to build on the success of its inaugural season with the
announcement of the sale of another six teams in September, again
at a substantially higher valuation than the team prices in the
first season. These latest sales take the total league roster to 20
teams, with nine teams outside the U.S.
- In November, BlizzCon®,
the ultimate celebration of the Blizzard community, drew over
40,000 fans in person with millions more livestreaming from around
the world.
Player Investment
- Activision Blizzard delivered $1
billion of in-game net bookingsB in the third quarter and a record
$3 billion year-to-date.
- This quarter, King had two of the
top-10 highest-grossing titles in the U.S. mobile app stores for
the twentieth quarter in a row, with Candy Crush Saga at #1
again.2
- King’s advertising business continued
to exceed plan with net bookingsB growing almost 50% sequentially,
albeit off a relatively small base.
Company Outlook
(in millions, except EPS)
GAAP
Outlook
Non-GAAP
Outlook
Impact of GAAP
deferralsA
CY
2018
Net Revenues
$7,355 $7,355 $120 EPS $1.94
$2.46 $0.12 Fully Diluted Shares 772
772
Q4
2018
Net Revenues $2,236 $2,236 $812
EPS $0.43 $0.64 $0.63 Fully Diluted
Shares 776 776
Net bookingsB is expected to be $7.48 billion for 2018 and $3.05
billion for the fourth quarter of 2018.
Currency Assumptions for 2018 Outlook:
- $1.20 USD/Euro for current outlook (vs.
average of $1.12 for 2017 and $1.11 for 2016); and
- $1.34 USD/British Pound Sterling for
current outlook (vs. average of $1.30 for 2017 and $1.36 for
2016).
- Note: Our financial guidance includes
the forecasted impact of our FX hedging program.
Conference Call
Today at 4:30 p.m. EST, Activision Blizzard’s management will
host a conference call and webcast to discuss the company’s results
for the quarter ended September 30, 2018 and management’s outlook
for the remainder of the calendar year. The company welcomes all
members of the financial and media communities and other interested
parties to visit https://investor.activision.com to listen to the
conference call via live Webcast or to listen to the call live by
dialing into 800-263-0877 in the U.S. with passcode 9817186. A
replay of the call will also be available after the call's
conclusion and archived for one year at
https://investor.activision.com/events.cfm.
About Activision Blizzard
Activision Blizzard, Inc., a member of the Fortune 500 and
S&P 500, is the world's most successful standalone interactive
entertainment company. We delight hundreds of millions of monthly
active users around the world through franchises including
Activision's Call of Duty®, Destiny, and Skylanders®, Blizzard
Entertainment's World of Warcraft®, Overwatch®, Hearthstone®,
Diablo®, StarCraft®, and Heroes of the Storm®, and King's Candy
Crush™, Bubble Witch™, and Farm Heroes™. The company is one of the
Fortune "100 Best Companies To Work For®." Headquartered in Santa
Monica, California, Activision Blizzard has operations throughout
the world. More information about Activision Blizzard and its
products can be found on the company's website,
www.activisionblizzard.com.
1 GITHYP.com for most watched games by total viewers, for the
one month period ended November 1, 2018.
2 U.S. ranking for Apple App Store and Google Play Store
combined, per App Annie Intelligence for third quarter of 2018.
A Net effect of accounting treatment from revenue deferrals on
certain of our online-enabled products. Since certain of our games
are hosted online or include significant online functionality that
represents a separate performance obligation, we defer the
transaction price allocable to the online functionality from the
sale of these games and recognize the attributable revenues over
the relevant estimated service periods, which are generally less
than a year. The related cost of revenues is deferred and
recognized as an expense as the related revenues are recognized.
Impact from changes in deferrals refers to the net effect from
revenue deferrals accounting treatment for the purposes of
revenues, along with, for the purposes of EPS, the related cost of
revenues deferrals treatment and the related tax impacts.
Internally, management excludes the impact of this change in
deferred revenues and related cost of revenues when evaluating the
company’s operating performance, when planning, forecasting and
analyzing future periods, and when assessing the performance of its
management team. Management believes this is appropriate because
doing so enables an analysis of performance based on the timing of
actual transactions with our customers. In addition, management
believes excluding the change in deferred revenues and the related
cost of revenues provides a much more timely indication of trends
in our operating results.
B Net bookings is an operating metric that is defined as the net
amount of products and services sold digitally or sold-in
physically in the period, and includes license fees, merchandise,
and publisher incentives, among others, and is equal to net
revenues excluding the impact from deferrals.
C Monthly Active User (“MAU”) Definition: We monitor MAUs as a
key measure of the overall size of our user base. MAUs are the
number of individuals who accessed a particular game in a given
month. We calculate average MAUs in a period by adding the total
number of MAUs in each of the months in a given period and dividing
that total by the number of months in the period. An individual who
accesses two of our games would be counted as two users. In
addition, due to technical limitations, for Activision and King, an
individual who accesses the same game on two platforms or devices
in the relevant period would be counted as two users. For Blizzard,
an individual who accesses the same game on two platforms or
devices in the relevant period would generally be counted as a
single user.
Non-GAAP Financial Measures: As a supplement to our
financial measures presented in accordance with Generally Accepted
Accounting Principles (“GAAP”), Activision Blizzard presents
certain non-GAAP measures of financial performance. These non-GAAP
financial measures are not intended to be considered in isolation
from, as a substitute for, or as more important than, the financial
information prepared and presented in accordance with GAAP. In
addition, these non-GAAP measures have limitations in that they do
not reflect all of the items associated with the company’s results
of operations as determined in accordance with GAAP.
Activision Blizzard provides net income (loss), earnings (loss)
per share, and operating margin data and guidance both including
(in accordance with GAAP) and excluding (non-GAAP) certain items.
When relevant, the company also provides constant FX information to
provide a framework for assessing how our underlying businesses
performed excluding the effect of foreign currency rate
fluctuations. In addition, Activision Blizzard provides EBITDA
(defined as GAAP net income (loss) before interest (income)
expense, income taxes, depreciation, and amortization) and adjusted
EBITDA (defined as non-GAAP operating margin (see non-GAAP
financial measure below) before depreciation). The non-GAAP
financial measures exclude the following items, as applicable in
any given reporting period and our outlook:
- expenses related to stock-based
compensation;
- the amortization of intangibles from
purchase price accounting;
- fees and other expenses related to the
King acquisition, inclusive of related debt financings, and
refinancing of long-term debt, including penalties and the write
off of unamortized discount and deferred financing costs;
- restructuring charges;
- other non-cash charges from
reclassification of certain cumulative translation adjustments into
earnings as required by GAAP;
- the income tax adjustments associated
with any of the above items (tax impact on non-GAAP pre-tax income
is calculated under the same accounting principles applied to the
GAAP pre-tax income under ASC 740, which employs an annual
effective tax rate method to the results); and
- significant discrete tax-related items,
including amounts related to changes in tax laws (including the Tax
Cuts and Jobs Act enacted in December 2017), amounts related to the
potential or final resolution of tax positions, and other unusual
or unique tax-related items and activities.
In the future, Activision Blizzard may also consider whether
other items should also be excluded in calculating the non-GAAP
financial measures used by the company. Management believes that
the presentation of these non-GAAP financial measures provides
investors with additional useful information to measure Activision
Blizzard’s financial and operating performance. In particular, the
measures facilitate comparison of operating performance between
periods and help investors to better understand the operating
results of Activision Blizzard by excluding certain items that may
not be indicative of the company’s core business, operating
results, or future outlook. Additionally, we consider quantitative
and qualitative factors in assessing whether to adjust for the
impact of items that may be significant or that could affect an
understanding of our ongoing financial and business performance or
trends. Internally, management uses these non-GAAP financial
measures, along with others, in assessing the company’s operating
results, and measuring compliance with the requirements of the
company’s debt financing agreements, as well as in planning and
forecasting.
Activision Blizzard’s non-GAAP financial measures are not based
on a comprehensive set of accounting rules or principles, and the
terms non-GAAP net income, non-GAAP earnings per share, non-GAAP
operating margin, and non-GAAP or adjusted EBITDA do not have a
standardized meaning. Therefore, other companies may use the same
or similarly named measures, but exclude different items, which may
not provide investors a comparable view of Activision Blizzard’s
performance in relation to other companies.
Management compensates for the limitations resulting from the
exclusion of these items by considering the impact of the items
separately and by considering Activision Blizzard’s GAAP, as well
as non-GAAP, results and outlook, and by presenting the most
comparable GAAP measures directly ahead of non-GAAP measures, and
by providing a reconciliation that indicates and describes the
adjustments made.
Cautionary Note Regarding Forward-looking Statements: The
statements contained herein that are not historical facts are
forward-looking statements, including, but not limited to,
statements about: (1) projections of revenues, expenses, income or
loss, earnings or loss per share, cash flow or other financial
items; (2) statements of our plans and objectives, including those
related to releases of products and services; (3) statements of
future financial or operating performance, including the impact of
tax items thereon; and (4) statements of assumptions underlying
such statements. The company generally uses words such as
“outlook,” “forecast,” “will,” “could,” “should,” “would,” “to be,”
“plan,” “plans,” “believes,” “may,” “might,” “expects,” “intends,”
“intends as,” “anticipates,” “estimate,” “future,” “positioned,”
“potential,” “project,” “remain,” “scheduled,” “set to,” “subject
to,” “upcoming,” and other similar expressions to help identify
forward-looking statements. Forward-looking statements are subject
to business and economic risks, reflect management’s current
expectations, estimates, and projections about our business, and
are inherently uncertain and difficult to predict.
The company cautions that a number of important factors could
cause Activision Blizzard's actual future results and other future
circumstances to differ materially from those expressed in any
forward-looking statements. Such factors include, but are not
limited to: sales levels of Activision Blizzard’s titles, products,
and services; concentration of revenue among a small number of
titles; Activision Blizzard’s ability to predict consumer
preferences, including interest in specific genres and modes, and
preferences among platforms; the continued growth in the scope and
complexity of our business, including the diversion of management
time and attention to issues relating to the operations of our
newly acquired or started businesses and the potential impact of
our expansion into new businesses on our existing businesses; the
amount of our debt and the limitations imposed by the covenants in
the agreements governing our debt; counterparty risks relating to
customers, licensees, licensors, and manufacturers; maintenance of
relationships with key personnel, customers, financing providers,
licensees, licensors, manufacturers, vendors, and third-party
developers, including the ability to attract, retain, and motivate
key personnel and developers that can create high-quality titles,
products, and services; changing business models within the video
game industry, including digital delivery of content and the
increased prevalence of free-to-play games; product delays or
defects; competition, including from other forms of entertainment;
rapid changes in technology and industry standards; possible
declines in software pricing; product returns and price protection;
the identification of suitable future acquisition opportunities and
potential challenges associated with geographic expansion; the
seasonal and cyclical nature of the interactive entertainment
market; the outcome of current or future tax disputes; litigation
risks and associated costs; protection of proprietary rights;
potential data breaches and other cybersecurity risks; shifts in
consumer spending trends; capital market risks; the impact of
applicable laws, rules, and regulations, including changes in those
laws, rules, and regulations; domestic and international economic,
financial, and political conditions and policies; tax rates and
foreign exchange rates; the impact of the current macroeconomic
environment; and the other factors identified in “Risk Factors”
included in Part I, Item 1A of our Annual Report on Form 10-K for
the year ended December 31, 2017.
The forward-looking statements in this press release are based
on information available to the company at this time and we assume
no obligation to update any such forward-looking statements.
Although these forward-looking statements are believed to be true
when made, they may ultimately prove to be incorrect. These
statements are not guarantees of our future performance and are
subject to risks, uncertainties, and other factors, some of which
are beyond our control and may cause actual results to differ
materially from current expectations.
(Tables to Follow)
ACTIVISION BLIZZARD, INC. AND
SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS(Unaudited)(Amounts in millions, except per
share data)
Three Months Ended September 30,
Nine Months Ended September 30,
20181
2017
20181
2017
Net revenues Product sales $ 263 $ 384 $ 1,447 $ 1,373
Subscription, licensing, and other revenues 2 1,249 1,234
3,672 3,601 Total net revenues 1,512 1,618 5,119
4,974
Costs and expenses Cost of revenues—product
sales: Product costs 127 149 416 422 Software royalties,
amortization, and intellectual property licenses 20 37 214 200 Cost
of revenues—subscription, licensing, and other: Game operations and
distribution costs 257 249 777 717 Software royalties,
amortization, and intellectual property licenses 109 117 278 359
Product development 263 273 776 750 Sales and marketing 263 345 741
899 General and administrative 208 191 623 539
Total costs and expenses 1,247 1,361 3,825
3,886 Operating income 265 257 1,294 1,088 Interest and
other expense (income), net 13 37 67 109 Loss on extinguishment of
debt 40 — 40 12 Income before income tax
expense (benefit) 212 220 1,187 967 Income tax expense
(benefit) (48 ) 32 25 109 Net income $
260 $ 188 $ 1,162 $ 858 Basic earnings
per common share $ 0.34 $ 0.25 $ 1.53 $ 1.14 Weighted average
common shares outstanding 763 755 761 753 Diluted earnings
per common share $ 0.34 $ 0.25 $ 1.51 $ 1.12 Weighted average
common shares outstanding assuming dilution 771 766 771 764 1
We adopted a new revenue accounting standard in the first
quarter of 2018. The impacts of the new revenue accounting standard
are reflected in our financial information as of and for the three
and nine months ended September 30, 2018. Prior period results have
not been restated to reflect this change in accounting standards.
Refer to our Form 10-Q for the third quarter of 2018 for additional
information. 2 Subscription, licensing, and other revenues
represent revenues from World of Warcraft subscriptions, licensing
royalties from our products and franchises, downloadable content,
microtransactions, and other miscellaneous revenues.
ACTIVISION BLIZZARD, INC. AND
SUBSIDIARIESCONDENSED CONSOLIDATED BALANCE
SHEETS(Unaudited)(Amounts in millions)
September 30, 2018 1
December 31, 2017 Assets Current assets Cash and cash
equivalents $ 3,308 $ 4,713 Accounts receivable, net 641 918
Inventories, net 174 46 Software development 348 367 Other current
assets 501 476 Total current assets 4,972 6,520
Software development 174 86 Property and equipment, net 281 294
Deferred income taxes, net 243 459 Other assets 454 440 Intangible
assets, net 826 1,106 Goodwill 9,763 9,763 Total
assets $ 16,713 $ 18,668
Liabilities and
Shareholders’ Equity Current liabilities Accounts payable $ 312
$ 323 Deferred revenues 1,017 1,929 Accrued expenses and other
liabilities 1,053 1,411 Total current liabilities
2,382 3,663 Long-term debt, net 2,670 4,390 Deferred income taxes,
net 11 21 Other liabilities 991 1,132 Total
liabilities 6,054 9,206 Shareholders’ equity
Common stock — — Additional paid-in capital 10,928 10,747 Treasury
stock (5,563 ) (5,563 ) Retained earnings 5,907 4,916 Accumulated
other comprehensive loss (613 ) (638 ) Total shareholders’ equity
10,659 9,462 Total liabilities and shareholders’
equity $ 16,713 $ 18,668 1 We adopted a new
revenue accounting standard in the first quarter of 2018. The
impacts of the new revenue accounting standard are reflected in our
financial information as of and for the three and nine months ended
September 30, 2018. Prior period results have not been restated to
reflect this change in accounting standards. Refer to our Form 10-Q
for the third quarter of 2018 for additional information.
ACTIVISION BLIZZARD, INC. AND
SUBSIDIARIESRECONCILIATION OF GAAP NET INCOME TO NON-GAAP
MEASURES(Amounts in millions, except per share data)
Three Months Ended September 30, 2018
Net Revenues
Cost of Revenues- Product
Sales:Product Costs
Cost of Revenues- Product
Sales:SoftwareRoyalties
andAmortization
Cost of Revenues-
Subs/Lic/Other:Game Operationsand
DistributionCosts
Cost of Revenues-
Subs/Lic/Other:Software Royalties
andAmortization
ProductDevelopment
Sales andMarketing
General
andAdministrative
Total Costs andExpenses
GAAP Measurement $ 1,512 $ 127 $ 20 $ 257 $ 109 $ 263 $ 263 $ 208 $
1,247 Share-based compensation1 — — (1 ) — (3 ) (17 ) (3 ) (31 )
(55 ) Amortization of intangible assets2 — —
— — (81 ) —
— (2 ) (83 ) Non-GAAP Measurement $ 1,512
$ 127 $ 19 $ 257
$ 25 $ 246 $ 260 $
175 $ 1,109 Net effect of deferred
revenues and related cost of revenues3 $ 146 $ (3 ) $ 63 $ 5 $ (8 )
$ — $ — $ — $ 57
OperatingIncome
Net Income
Basic Earningsper Share
Diluted Earningsper
Share
GAAP Measurement $ 265 $ 260 $ 0.34 $ 0.34 Share-based
compensation1 55 55 0.07 0.07 Amortization of intangible assets2 83
83 0.11 0.11 Loss on extinguishment of debt4 — 40 0.05 0.05 Income
tax impacts from items above5 — (41 ) (0.05 ) (0.05 ) Discrete
tax-related items6 — (72 ) (0.09 )
(0.09 ) Non-GAAP Measurement $ 403 $ 325
$ 0.43 $ 0.42 Net effect of
deferred revenues and related cost of revenues3 $ 89 $ 74 $ 0.09 $
0.10 1 Includes expenses related to share-based
compensation. 2 Reflects amortization of intangible assets from
purchase price accounting. 3 Reflects the net effect from deferral
of revenues and (recognition) of deferred revenues, along with
related cost of revenues, on certain of our online enabled
products, including the effects of taxes. 4 Reflects the loss on
extinguishment of debt from redemption activities. 5 Reflects the
income tax impact associated with the above items. Tax impact on
non-GAAP pre-tax income is calculated under the same accounting
principles applied to the GAAP pre-tax income under ASC 740, which
employs an annual effective tax rate method to the results. 6
Reflects the impact of significant discrete tax-related items,
including amounts related to changes in tax laws, amounts related
to the potential or final resolution of tax positions, and/or other
unusual or unique tax-related items and activities. Refer to our
Form 10-Q for the third quarter of 2018 for additional information.
The GAAP and non-GAAP earnings per share
information is presented as calculated. The sum of these
measures, as presented, may differ due to the impact of
rounding.
ACTIVISION BLIZZARD, INC. AND
SUBSIDIARIESRECONCILIATION OF GAAP NET INCOME TO NON-GAAP
MEASURES(Amounts in millions, except per share data)
Nine Months Ended September 30, 2018
Net Revenues
Cost of Revenues- Product
Sales:Product Costs
Cost of Revenues - Product
Sales:SoftwareRoyalties
andAmortization
Cost of Revenues -
Subs/Lic/Other:Game Operationsand
DistributionCosts
Cost of Revenues -
Subs/Lic/Other:Software Royalties and
Amortization
ProductDevelopment
Sales andMarketing
General
andAdministrative
Total Costs andExpenses
GAAP Measurement $ 5,119 $ 416 $ 214 $ 777 $ 278 $ 776 $ 741 $ 623
$ 3,825 Share-based compensation1 — — (6 ) (1 ) (3 ) (49 ) (13 )
(94 ) (166 ) Amortization of intangible assets2 — —
— — (229 ) —
(44 ) (6 ) (279 ) Non-GAAP Measurement
$ 5,119 $ 416 $ 208 $ 776
$ 46 $ 727 $ 684
$ 523 $ 3,380 Net effect of
deferred revenues and related cost of revenues3 $ (692 ) $ (123 ) $
(102 ) $ — $ 1 $ — $ — $ — $ (224 )
Operating Income Net
Income Basic Earnings per Share Diluted
Earnings per Share GAAP Measurement $ 1,294 $ 1,162 $ 1.53 $
1.51 Share-based compensation1 166 166 0.22 0.21 Amortization of
intangible assets2 279 279 0.37 0.36 Loss on extinguishment of
debt4 — 40 0.05 0.05 Income tax impacts from items above5 — (147 )
(0.20 ) (0.19 ) Discrete-tax related items6 — (97 )
(0.13 ) (0.13 ) Non-GAAP Measurement $ 1,739
$ 1,403 $ 1.84 $ 1.82
Net effect of deferred revenues and related cost of
revenues3 $ (468 ) $ (394 ) $ (0.51 ) $ (0.51 ) 1 Includes
expenses related to share-based compensation. 2 Reflects
amortization of intangible assets from purchase price accounting. 3
Reflects the net effect from deferral of revenues and (recognition)
of deferred revenues, along with related cost of revenues, on
certain of our online enabled products, including the effects of
taxes. 4 Reflects the loss on extinguishment of debt from
redemption activities. 5 Reflects the income tax impact associated
with the above items. Tax impact on non-GAAP pre-tax income is
calculated under the same accounting principles applied to the GAAP
pre-tax income under ASC 740, which employs an annual effective tax
rate method to the results. 6 Reflects the impact of significant
discrete tax-related items, including amounts related to changes in
tax laws, amounts related to the potential or final resolution of
tax positions, and/or other unusual or unique tax-related items and
activities. Refer to our Form 10-Q for the third quarter of 2018
for additional information.
The GAAP and non-GAAP earnings per share
information is presented as calculated. The sum of these
measures, as presented, may differ due to the impact of
rounding.
ACTIVISION BLIZZARD, INC. AND
SUBSIDIARIESRECONCILIATION OF GAAP NET INCOME TO NON-GAAP
MEASURES(Amounts in millions, except per share data)
Three Months Ended September 30, 2017
Net Revenues
Cost of Revenues- Product
Sales:Product Costs
Cost of Revenues - Product
Sales:SoftwareRoyalties
andAmortization
Cost of Revenues -
Subs/Lic/Other:Game Operationsand
DistributionCosts
Cost of Revenues -
Subs/Lic/Other:SoftwareRoyalties
andAmortization
ProductDevelopment
Sales andMarketing
General
andAdministrative
Total Costs andExpenses
GAAP Measurement $ 1,618 $ 149 $ 37 $ 249 $ 117 $ 273 $ 345 $ 191 $
1,361 Share-based compensation1 — — (1 ) — (1 ) (15 ) (3 ) (27 )
(47 ) Amortization of intangible assets2 — — — — (109 ) — (76 ) (2
) (187 ) Fees and other expenses related to the King Acquisition3 —
— — — — — — (3 ) (3 ) Other non-cash charges4 — —
— — — —
— 1 1 Non-GAAP
Measurement $ 1,618 $ 149 $ 36
$ 249 $ 7 $ 258 $
266 $ 160 $ 1,125 Net
effect of deferred revenues and related cost of revenues5 $ 284 $
30 $ 120 $ 3 $ (1 ) $ — $ — $ — $ 152
OperatingIncome
Net Income
Basic Earningsper Share
Diluted Earningsper
Share
GAAP Measurement $ 257 $ 188 $ 0.25 $ 0.25 Share-based
compensation1 47 47 0.06 0.06 Amortization of intangible assets2
187 187 0.25 0.24 Fees and other expenses related to the King
Acquisition3 3 4 0.01 0.01 Other non-cash charges4 (1 ) (1 ) — —
Income tax impacts from items above6 — (67 )
(0.09 ) (0.09 ) Non-GAAP Measurement $ 493 $
358 $ 0.47 $ 0.47 Net
effect of deferred revenues and related cost of revenues5 $ 132 $
100 $ 0.14 $ 0.13 1 Includes expenses related to share-based
compensation. 2 Reflects amortization of intangible assets from
purchase price accounting. 3 Reflects fees and other expenses
related to the acquisition of King Digital Entertainment (“King
Acquisition”), inclusive of related debt financings and integration
costs. 4 Reflects a non-cash accounting charge to reclassify
certain cumulative translation (gains) losses into earnings due to
the substantial liquidation of certain of our foreign entities. 5
Reflects the net effect from deferral of revenues and (recognition)
of deferred revenues, along with related cost of revenues, on
certain of our online enabled products, including the effects of
taxes. 6 Reflects the income tax impact associated with the above
items. Tax impact on non-GAAP pre-tax income is calculated under
the same accounting principles applied to the GAAP pre-tax income
under ASC 740, which employs an annual effective tax rate method to
the results.
The GAAP and non-GAAP earnings per share
information is presented as calculated. The sum of these
measures, as presented, may differ due to the impact of
rounding.
ACTIVISION BLIZZARD, INC. AND
SUBSIDIARIESRECONCILIATION OF GAAP NET INCOME TO NON-GAAP
MEASURES(Amounts in millions, except per share data)
Nine Months Ended September 30, 2017
Net Revenues
Cost of Revenues- Product
Sales:Product Costs
Cost of Revenues - Product
Sales:SoftwareRoyalties
andAmortization
Cost of Revenues-
Subs/Lic/Other:Game Operationsand
DistributionCosts
Cost of Revenues-
Subs/Lic/Other:SoftwareRoyalties
andAmortization
ProductDevelopment
Sales andMarketing
General
andAdministrative
Total Costs andExpenses
GAAP Measurement $ 4,974 $ 422 $ 200 $ 717 $ 359 $ 750 $ 899 $ 539
$ 3,886 Share-based compensation1 — — (8 ) (1 ) (1 ) (41 ) (11 )
(58 ) (120 ) Amortization of intangible assets2 — — — — (334 ) —
(231 ) (6 ) (571 ) Fees and other expenses related to the King
Acquisition3 — — — — — — — (12 ) (12 ) Restructuring costs4 — — — —
— — — (11 ) (11 ) Other non-cash charges5 — —
— — — —
— (14 ) (14 ) Non-GAAP Measurement $
4,974 $ 422 $ 192 $ 716
$ 24 $ 709 $ 657
$ 438 $ 3,158 Net effect of
deferred revenues and related cost of revenues6 $ (458 ) $ (70 ) $
(17 ) $ 1 $ (2 ) $ — $ — $ — $ (88 )
Operating Income Net
Income Basic Earnings per Share Diluted
Earnings per Share GAAP Measurement $ 1,088 $ 858 $ 1.14 $ 1.12
Share-based compensation1 120 120 0.16 0.16 Amortization of
intangible assets2 571 571 0.76 0.75 Fees and other expenses
related to the King Acquisition3 12 17 0.02 0.02 Restructuring
costs4 11 11 0.01 0.01 Other non-cash charges5 14 14 0.02 0.02 Loss
on extinguishment of debt7 — 12 0.02 0.02 Income tax impacts from
items above8 — (281 ) (0.37 ) (0.37 )
Non-GAAP Measurement $ 1,816 $ 1,322 $
1.76 $ 1.73 Net effect of deferred
revenues and related cost of revenues6 $ (370 ) $ (295 ) $ (0.40 )
$ (0.39 ) 1 Includes expenses related to share-based
compensation. 2 Reflects amortization of intangible assets from
purchase price accounting. 3 Reflects fees and other expenses
related to the King Acquisition, inclusive of related debt
financings and integration costs. 4 Reflects restructuring charges,
primarily severance costs. 5 Reflects a non-cash accounting charge
to reclassify certain cumulative translation (gains) losses into
earnings due to the substantial liquidation of certain of our
foreign entities. 6 Reflects the net effect from deferral of
revenues and (recognition) of deferred revenues, along with related
cost of revenues, on certain of our online enabled products,
including the effects of taxes. 7 Reflects the loss on
extinguishment of debt from refinancing activities. 8 Reflects the
income tax impact associated with the above items. Tax impact on
non-GAAP pre-tax income is calculated under the same accounting
principles applied to the GAAP pre-tax income under ASC 740, which
employs an annual effective tax rate method to the results.
The GAAP and non-GAAP earnings per share information is presented
as calculated. The sum of these measures, as presented, may differ
due to the impact of rounding.
ACTIVISION BLIZZARD, INC. AND
SUBSIDIARIESOPERATING SEGMENTS INFORMATIONFor the
Three and Nine Months Ended September 30, 2018 and
2017(Amounts in millions)
Three Months Ended:
September 30, 2018
$ Increase / (Decrease) Activision
Blizzard King Total
Activision Blizzard King
Total Segment Net Revenues Net revenues from external
customers $ 397 $ 627 $ 506 $ 1,530 $ (362 ) $ 96 $ (22 ) $ (288 )
Intersegment net revenues1
—
8
—
8
—
8
—
8
Segment net revenues $ 397 $ 635 $ 506
$ 1,538 $ (362 ) $ 104 $ (22 ) $ (280 )
Segment operating income $ 112 $ 189 $ 184 $ 485 $ (149 ) $
21 $ (24 ) $ (152 )
Operating Margin
31.5 %
September 30, 2017
Activision
Blizzard
King
Total
Segment Net Revenues Net revenues from external customers $
759 $ 531 $ 528 $ 1,818 Intersegment net revenues1
—
—
—
— Segment net revenues $ 759 $ 531 $ 528
$ 1,818
Segment operating income $ 261
$ 168 $ 208 $ 637
Operating Margin
35.0 %
Nine Months Ended:
September 30, 2018
$ Increase / (Decrease)
Activision
Blizzard
King
Total
Activision
Blizzard
King
Total
Segment Net Revenues Net revenues from external customers $
1,047 $ 1,592 $ 1,542 $ 4,181 $ (244 ) $ 53 $ 60 $ (131 )
Intersegment net revenues1
—
14
—
14
—
14
—
14 Segment net revenues $ 1,047 $ 1,606 $
1,542 $ 4,195 $ (244 ) $ 67 $ 60 $ (117
)
Segment operating income $ 288 $ 444 $ 543 $ 1,275
$ (83 ) $ (108 ) $ 5 $ (186 )
Operating Margin
30.4 %
September 30, 2017
Activision
Blizzard
King
Total
Segment Net Revenues Net revenues from external customers $
1,291 $ 1,539 $ 1,482 $ 4,312 Intersegment net revenues1
—
—
—
— Segment net revenues $ 1,291 $ 1,539 $ 1,482
$ 4,312
Segment operating income $ 371
$ 552 $ 538 $ 1,461
Operating Margin
33.9 % 1 Intersegment revenues reflect licensing and service
fees charged between segments.
Our operating segments are consistent with
the manner in which our operations are reviewed and managed by our
Chief Executive Officer, who is our chief operating decision maker
(“CODM”). The CODM reviews segment performance exclusive of: the
impact of the change in deferred revenues and related cost of
revenues with respect to certain of our online-enabled games;
share-based compensation expense; amortization of intangible assets
as a result of purchase price accounting; fees and other expenses
(including legal fees, costs, expenses and accruals) related to
acquisitions, associated integration activities, and financings;
certain restructuring costs; and other non-cash charges. See the
following page for the reconciliation tables of segment revenues
and operating income to consolidated net revenues and consolidated
operating income.
Our operating segments are also consistent with our internal
organization structure, the way we assess operating performance and
allocate resources, and the availability of separate financial
information. We do not aggregate operating segments.
ACTIVISION BLIZZARD, INC. AND
SUBSIDIARIESOPERATING SEGMENTS INFORMATIONFor the
Three and Nine Months Ended September 30, 2018 and
2017(Amounts in millions)
Three Months Ended September
30,
Nine Months Ended September 30,
2018
2017
2018
2017
Reconciliation to consolidated net revenues: Segment net
revenues $ 1,538 $ 1,818 $ 4,195 $ 4,312 Revenues from
non-reportable segments1
128
84
246
204 Net effect from recognition (deferral) of deferred net
revenues2
(146 )
(284 )
692
458 Elimination of intersegment revenues3
(8 )
—
(14 )
— Consolidated net revenues $ 1,512 $ 1,618 $
5,119 $ 4,974
Reconciliation to
consolidated income before income tax expense: Segment
operating income $ 485 $ 637 $ 1,275 $ 1,461 Operating income from
non-reportable segments1
7
(12 )
(4 )
(15 ) Net effect from recognition (deferral) of deferred net
revenues and related cost of revenues2
(89 )
(132 )
468
370 Share-based compensation expense
(55 )
(47 )
(166 )
(120 ) Amortization of intangible assets
(83 )
(187 )
(279 )
(571 ) Fees and other expenses related to the King Acquisition4
—
(3 )
—
(12 ) Restructuring costs5
—
—
—
(11 ) Other non-cash charges6
—
1
—
(14 ) Consolidated operating income
265
257
1,294
1,088 Interest and other expense (income), net
13
37
67
109 Loss on extinguishment of debt
40
—
40
12 Consolidated income before income tax expense $ 212
$
220 $ 1,187 $ 967 1 Includes other
income and expenses from operating segments managed outside the
reportable segments, including our studios and distribution
businesses. Also includes unallocated corporate income and
expenses. 2 Reflects the net effect from (deferral) of revenues and
recognition of deferred revenues, along with related cost of
revenues, on certain of our online enabled products. 3 Intersegment
revenues reflect licensing and service fees charged between
segments. 4 Reflects fees and other expenses related to the King
Acquisition, inclusive of related debt financings and integration
costs. 5 Reflects restructuring charges, primarily severance costs.
6 Reflects a non-cash accounting charge to reclassify certain
cumulative translation gains (losses) into earnings due to the
substantial liquidation of certain of our foreign entities.
ACTIVISION BLIZZARD, INC. AND
SUBSIDIARIESNET REVENUES BY DISTRIBUTION CHANNELFor
the Three and Nine Months Ended September 30, 2018 and
2017(Amounts in millions)
Three Months Ended September 30, 2018
September 30, 2017
$ Increase(Decrease)
% Increase(Decrease)
Amount1 % of Total2
Amount % of Total2 Net Revenues by
Distribution Channel Digital online channels3 $ 1,276 84 % $
1,354 84 % $ (78 ) (6 )% Retail channels 76 5 168 10 (92 ) (55 )
Other4 160 11 96 6 64 67 Total
consolidated net revenues $ 1,512 100 % $ 1,618 100 %
$ (106 ) (7 )
Change in deferred revenues5
Digital online channels3 $ 159 $ 114 Retail channels (14 ) 177
Other4 1 (7 ) Total changes in deferred revenues $ 146
$ 284
Nine Months Ended
September 30, 2018 September 30, 2017
$ Increase(Decrease)
% Increase(Decrease)
Amount1 % of Total2
Amount % of Total2 Net Revenues by
Distribution Channel Digital online channels3 $ 3,998 78 % $
4,048 81 % $ (50 ) (1 )% Retail channels 764 15 698 14 66 9 Other4
357 7 228 5 129 57 Total
consolidated net revenues $ 5,119 100 % $ 4,974 100 %
$ 145 3
Change in deferred revenues5
Digital online channels3 $ (160 ) $ (236 ) Retail channels (546 )
(208 ) Other4 14 (14 ) Total changes in deferred revenues $
(692 ) $ (458 ) 1 We adopted a new revenue accounting
standard in the first quarter of 2018. The impacts of the new
revenue accounting standard are reflected in our financial
information as of and for the three and nine months ended September
30, 2018. Prior period results have not been restated to reflect
this change in accounting standards. Refer to our Form 10-Q for the
third quarter of 2018 for additional information. 2 The percentages
of total are presented as calculated. Therefore, the sum of these
percentages, as presented, may differ due to the impact of
rounding. 3 Net revenues from Digital online channels represent
revenues from digitally-distributed subscriptions, downloadable
content, microtransactions, and products, as well as licensing
royalties. 4 Net revenues from Other include revenues from our
studios and distribution businesses, as well as revenues from Major
League Gaming and the Overwatch League. 5 Reflects the net effect
from deferral of revenues and (recognition) of deferred revenues on
certain of our online enabled products.
ACTIVISION BLIZZARD, INC. AND
SUBSIDIARIESNET REVENUES BY DISTRIBUTION CHANNEL -
SUPPLEMENTAL INFORMATIONFor the Three Months Ended
September 30, 2018(Amounts in millions)
As a result of our adoption of the new
revenue accounting standard, net revenues by distribution channel
for the three months ended September 30, 2018, includes a
reconciliation to our segment revenues as disclosed for each of our
reportable segments. Net revenues by distribution channel were as
follows:
Three Months Ended September 30,
2018
Activision
Blizzard
King
Non-reportablesegments
Elimination
ofintersegmentrevenues4
Total
Net Revenues by Distribution Channel: Digital online
channels1 $ 299 $ 480 $ 505 $ — $ (8 ) $ 1,276 Retail channels
53
23
—
—
—
76
Other2
—
35
—
125
—
160
Total consolidated net revenues $ 352 $ 538
$
505
$ 125 $ (8 ) $ 1,512 Change in deferred
revenues3: Digital online channels1 $ 57 $ 101 $ 1 $ — $ — $ 159
Retail channels
(12
)
(2
)
—
—
—
(14
) Other2
—
(2
)
—
3
—
1
Total change in deferred revenues $ 45 $ 97 $
1 $ 3 $ — $ 146
Segment net
revenues: Digital online channels1 $ 356 $ 581 $ 506 $ — $ (8 )
$ 1,435 Retail channels
41
21
—
—
—
62
Other2
—
33
—
128
—
161
Total segment net revenues $ 397 $ 635 $ 506
$ 128 $ (8 ) $ 1,658 1 Net revenues
from Digital online channels represent revenues from
digitally-distributed subscriptions, downloadable content,
microtransactions, and products, as well as licensing royalties. 2
Net revenues from Other include revenues from our studios and
distribution businesses, as well as revenues from Major League
Gaming and the Overwatch League. 3 Reflects the net effect from
deferral of revenues and (recognition) of deferred revenues on
certain of our online enabled products. 4 Intersegment revenues
reflect licensing and service fees charged between segments.
ACTIVISION BLIZZARD, INC. AND
SUBSIDIARIESNET REVENUES BY DISTRIBUTION CHANNEL -
SUPPLEMENTAL INFORMATIONFor the Nine Months Ended
September 30, 2018(Amounts in millions)
As a result of our adoption of the new
revenue accounting standard, net revenues by distribution channel
for the nine months ended September 30, 2018, includes a
reconciliation to our segment revenues as disclosed for each of our
reportable segments. Net revenues by distribution channel were as
follows:
Nine Months Ended September 30, 2018
Activision Blizzard King
Non-reportablesegments
Elimination
ofintersegmentrevenues4
Total Net Revenues by Distribution Channel:
Digital online channels1 $ 1,110 $ 1,355 $ 1,547 $ — $ (14 ) $
3,998 Retail channels 707 57 — — — 764 Other2 — 124 —
233 — 357 Total consolidated net
revenues $ 1,817 $ 1,536 $ 1,547 $ 233
$ (14 ) $ 5,119 Change in deferred revenues3: Digital
online channels1 $ (234 ) $ 79 $ (5 ) $ — $ — $ (160 ) Retail
channels (536 ) (10 ) — — — (546 ) Other2 — 1 —
13 — 14 Total change in deferred
revenues $ (770 ) $ 70 $ (5 ) $ 13 $ — $ (692
)
Segment net revenues: Digital online channels1 $
876 $ 1,434 $ 1,542 $ — $ (14 ) $ 3,838 Retail channels 171 47 — —
— 218 Other2 — 125 — 246 — 371
Total segment net revenues $ 1,047 $ 1,606 $
1,542 $ 246 $ (14 ) $ 4,427 1 Net
revenues from Digital online channels represent revenues from
digitally-distributed subscriptions, downloadable content,
microtransactions, and products, as well as licensing royalties. 2
Net revenues from Other include revenues from our studios and
distribution businesses, as well as revenues from Major League
Gaming and the Overwatch League. 3 Reflects the net effect from
deferral of revenues and (recognition) of deferred revenues on
certain of our online enabled products. 4 Intersegment revenues
reflect licensing and service fees charged between segments.
ACTIVISION BLIZZARD, INC. AND
SUBSIDIARIESNET REVENUES BY PLATFORMFor the Three and
Nine Months Ended September 30, 2018 and 2017(Amounts
in millions)
Three Months Ended September 30, 2018
September 30, 2017
$ Increase(Decrease)
% Increase(Decrease)
Amount1 % of Total2
Amount % of Total2 Net Revenues by
Platform Console $ 347 23 % $ 527 33 % $ (180 ) (34 )% PC 482
32 461 28 21 5 Mobile and ancillary3 523 35 534 33 (11 ) (2 )
Other4 160 11 96 6 64 67 Total
consolidated net revenues $ 1,512 100 % $ 1,618 100 %
$ (106 ) (7 )
Change in deferred revenues5
Console $ 20 $ 267 PC 117 8 Mobile and ancillary3 8 16 Other4 1
(7 ) Total changes in deferred revenues $ 146 $ 284
Nine Months Ended September 30,
2018 September 30, 2017
$ Increase(Decrease)
% Increase(Decrease)
Amount1 % of Total2
Amount % of Total2 Net Revenues by
Platform Console $ 1,730 34 % $ 1,710 34 % $ 20 1 % PC 1,452 28
1,534 31 (82 ) (5 ) Mobile and ancillary3 1,580 31 1,502 30 78 5
Other4 357 7 228 5 129 57 Total
consolidated net revenues $ 5,119 100 % $ 4,974 100 %
$ 145 3
Change in deferred revenues5
Console $ (720 ) $ (310 ) PC 20 (153 ) Mobile and ancillary3 (6 )
19 Other4 14 (14 ) Total changes in deferred revenues $ (692
) $ (458 ) 1 We adopted a new revenue accounting standard in
the first quarter of 2018. The impacts of the new revenue
accounting standard are reflected in our financial information as
of and for the three and nine months ended September 30, 2018.
Prior period results have not been restated to reflect this change
in accounting standards. Refer to our Form 10-Q for the third
quarter of 2018 for additional information. 2 The percentages of
total are presented as calculated. Therefore, the sum of these
percentages, as presented, may differ due to the impact of
rounding. 3 Net revenues from Mobile and ancillary include revenues
from mobile devices, as well as non-platform specific game related
revenues, such as standalone sales of physical merchandise and
accessories. 4 Net revenues from Other include revenues from our
studios and distribution businesses, as well as revenues from Major
League Gaming and the Overwatch League. 5 Reflects the net effect
from deferral of revenues and (recognition) of deferred revenues on
certain of our online enabled products.
ACTIVISION BLIZZARD, INC. AND
SUBSIDIARIESNET REVENUES BY PLATFORM - SUPPLEMENTAL
INFORMATIONFor the Three Months Ended September 30,
2018(Amounts in millions)
As a result of our adoption of the new
revenue accounting standard, net revenues by platform for the three
months ended September 30, 2018, includes a reconciliation to
our segment revenues as disclosed for each of our reportable
segments. Net revenues by platform were as follows:
Three Months Ended September 30, 2018
Activision Blizzard King
Non-reportablesegments
Elimination
ofintersegmentrevenues4
Total Net Revenues by Platform: Console $ 307
$ 40 $ — $ — $ — $ 347 PC 40 414 36 — (8 )
482
Mobile and ancillary1 5 49 469 — —
523
Other2 — 35 — 125 —
160
Total consolidated net revenues $ 352 $ 538 $ 505
$ 125 $ (8 ) $ 1,512 Change in deferred
revenues3: Console $ 29 $ (9 ) $ — $ — $ — $ 20 PC 16 101 — — — 117
Mobile and ancillary1 — 7 1 — — 8 Other2 — (2 ) — 3
— 1 Total change in deferred revenues $ 45 $
97 $ 1 $ 3 $ — $ 146
Segment
net revenues: Console $ 336 $ 31 $ — $ — $ — $ 367 PC 56 515 36
— (8 ) 599 Mobile and ancillary1 5 56 470 — — 531 Other2 —
33 — 128 — 161 Total segment net
revenues $ 397 $ 635 $ 506 $ 128 $ (8 )
$ 1,658 1 Net revenues from Mobile and ancillary include
revenues from mobile devices, as well as non-platform specific game
related revenues, such as standalone sales of physical merchandise
and accessories. 2 Net revenues from Other include revenues from
our studios and distribution businesses, as well as revenues from
Major League Gaming and the Overwatch League. 3 Reflects the net
effect from deferral of revenues and (recognition) of deferred
revenues on certain of our online enabled products. 4 Intersegment
revenues reflect licensing and service fees charged between
segments.
ACTIVISION BLIZZARD, INC. AND
SUBSIDIARIESNET REVENUES BY PLATFORM - SUPPLEMENTAL
INFORMATIONFor the Nine Months Ended September 30,
2018(Amounts in millions)
As a result of our adoption of the new
revenue accounting standard, net revenues by platform for the nine
months ended September 30, 2018, includes a reconciliation to
our segment revenues as disclosed for each of our reportable
segments. Net revenues by platform were as follows:
Nine Months Ended September 30, 2018
Activision Blizzard King
Non-reportablesegments
Elimination
ofintersegmentrevenues4
Total Net Revenues by Platform: Console $
1,597 $ 133 $ — $ — $ — $ 1,730 PC 208 1,140 118 — (14 ) 1,452
Mobile and ancillary1 12 139 1,429 — — 1,580 Other2 — 124
— 233 — 357 Total consolidated
net revenues $ 1,817 $ 1,536 $ 1,547 $ 233
$ (14 ) $ 5,119 Change in deferred revenues3:
Console $ (695 ) $ (25 ) $ — $ — $ — $ (720 ) PC (76 ) 96 — — — 20
Mobile and ancillary1 1 (2 ) (5 ) — — (6 ) Other2 — 1
— 13 — 14 Total change in deferred
revenues $ (770 ) $ 70 $ (5 ) $ 13 $ — $ (692
)
Segment net revenues: Console $ 902 $ 108 $ — $ — $
— $ 1,010 PC 132 1,236 118 — (14 ) 1,472 Mobile and ancillary1 13
137 1,424 — — 1,574 Other2 — 125 — 246
— 371 Total segment net revenues $ 1,047 $
1,606 $ 1,542 $ 246 $ (14 ) $ 4,427 1
Net revenues from Mobile and ancillary include revenues from
mobile devices, as well as non-platform specific game related
revenues, such as standalone sales of physical merchandise and
accessories. 2 Net revenues from Other include revenues from our
studios and distribution businesses, as well as revenues from Major
League Gaming and the Overwatch League. 3 Reflects the net effect
from deferral of revenues and (recognition) of deferred revenues on
certain of our online enabled products. 4 Intersegment revenues
reflect licensing and service fees charged between segments.
ACTIVISION BLIZZARD, INC. AND
SUBSIDIARIESNET REVENUES BY GEOGRAPHIC REGIONFor the
Three and Nine Months Ended September 30, 2018 and
2017(Amounts in millions)
Three Months Ended September 30, 2018
September 30, 2017
$ Increase(Decrease)
% Increase(Decrease)
Amount1
% of Total2
Amount % of Total2 Net Revenues by
Geographic Region Americas $ 774 51 % $ 798 49 % $ (24 ) (3 )%
EMEA3 534 35 593 37 (59 ) (10 ) Asia Pacific 204 13
227 14 (23 ) (10 ) Total consolidated net revenues $
1,512 100 % $ 1,618 100 % $ (106 ) (7 )
Change in deferred revenues4 Americas $ 76 $ 182
EMEA3 60 73 Asia Pacific 10 29 Total changes in
deferred revenues $ 146 $ 284
Nine
Months Ended September 30, 2018 September 30,
2017
$ Increase(Decrease)
% Increase(Decrease)
Amount1 % of Total2
Amount % of Total2 Net Revenues by
Geographic Region Americas $ 2,740 54 % $ 2,586 52 % $ 154 6 %
EMEA3 1,774 35 1,684 34 90 5 Asia Pacific 605 12 704
14 (99 ) (14 ) Total consolidated net revenues $
5,119 100 % $ 4,974 100 % $ 145 3
Change in deferred revenues4 Americas $ (399 ) $ (258
) EMEA3 (242 ) (160 ) Asia Pacific (51 ) (40 ) Total changes in
deferred revenues $ (692 ) $ (458 ) 1 We adopted a new
revenue accounting standard in the first quarter of 2018. The
impacts of the new revenue accounting standard are reflected in our
financial information as of and for the three and nine months ended
September 30, 2018. Prior period results have not been restated to
reflect this change in accounting standards. Refer to our Form 10-Q
for the third quarter of 2018 for additional information. 2 The
percentages of total are presented as calculated. Therefore, the
sum of these percentages, as presented, may differ due to the
impact of rounding. 3 Net revenues from EMEA consist of the Europe,
Middle East, and Africa geographic regions. 4 Reflects the net
effect from deferral of revenues and (recognition) of deferred
revenues on certain of our online enabled products.
ACTIVISION BLIZZARD, INC. AND
SUBSIDIARIESNET REVENUES BY GEOGRAPHIC REGION - SUPPLEMENTAL
INFORMATIONFor the Three Months Ended September 30,
2018(Amounts in millions)
As a result of our adoption of the new
revenue accounting standard, net revenues by geographic region for
the three months ended September 30, 2018, includes a
reconciliation to our segment revenues as disclosed for each of our
reportable segments. Net revenues by geographic region were as
follows:
Three Months Ended September 30, 2018
Activision Blizzard King
Non-reportablesegments
Elimination
ofintersegmentrevenues3
Total Net Revenues by Geographic Region:
Americas $ 214 $ 242 $ 309 $ 13 $ (4 ) $ 774 EMEA1 109 172 143 112
(2 ) 534 Asia Pacific 29 124 53 — (2 )
204 Total consolidated net revenues $ 352 $ 538 $ 505
$ 125 $ (8 ) $ 1,512 Change in deferred
revenues2: Americas $ 33 $ 43 $ — $ — $ — $ 76 EMEA1 8 48 1 3 — 60
Asia Pacific 4 6 — — — 10 Total
change in deferred revenues $ 45 $ 97 $ 1 $ 3
$ — $ 146
Segment net revenues:
Americas $ 247 $ 285 $ 309 $ 13 $ (4 ) $ 850 EMEA1 117 220 144 115
(2 ) 594 Asia Pacific 33 130 53 — (2 )
214 Total segment net revenues $ 397 $ 635 $ 506
$ 128 $ (8 ) $ 1,658 1 Net revenues from EMEA
consist of the Europe, Middle East, and Africa geographic regions.
2 Reflects the net effect from deferral of revenues and
(recognition) of deferred revenues on certain of our online enabled
products. 3 Intersegment revenues reflect licensing and service
fees charged between segments.
ACTIVISION BLIZZARD, INC. AND
SUBSIDIARIESNET REVENUES BY GEOGRAPHIC REGION - SUPPLEMENTAL
INFORMATIONFor the Nine Months Ended September 30,
2018(Amounts in millions)
As a result of our adoption of the new
revenue accounting standard, net revenues by geographic region for
the nine months ended September 30, 2018, includes a
reconciliation to our segment revenues as disclosed for each of our
reportable segments. Net revenues by geographic region were as
follows:
Nine Months Ended September 30, 2018
Activision Blizzard King
Non-reportablesegments
Elimination
ofintersegmentrevenues3
Total Net Revenues by Geographic Region:
Americas $ 1,074 $ 716 $ 945 $ 13 $ (8 ) $ 2,740 EMEA1 613 497 448
220 (4 ) 1,774 Asia Pacific 130 323 154 —
(2 ) 605 Total consolidated net revenues $ 1,817
$ 1,536 $ 1,547 $ 233 $ (14 ) $ 5,119
Change in deferred revenues2: Americas $ (439 ) $ 43
$ (3 ) $ — $ — $ (399 ) EMEA1 (287 ) 34 (2 ) 13 — (242 ) Asia
Pacific (44 ) (7 ) — — — (51 ) Total change in
deferred revenues $ (770 ) $ 70 $ (5 ) $ 13 $ —
$ (692 )
Segment net revenues: Americas $ 635
$ 759 $ 942 $ 13 $ (8 ) $ 2,341 EMEA1 326 531 446 233 (4 ) 1,532
Asia Pacific 86 316 154 — (2 ) 554
Total segment net revenues $ 1,047 $ 1,606 $
1,542 $ 246 $ (14 ) $ 4,427 1 Net
revenues from EMEA consist of the Europe, Middle East, and Africa
geographic regions. 2 Reflects the net effect from deferral of
revenues and (recognition) of deferred revenues on certain of our
online enabled products. 3 Intersegment revenues reflect licensing
and service fees charged between segments.
ACTIVISION BLIZZARD, INC. AND
SUBSIDIARIESEBITDA and ADJUSTED EBITDAFor the
Trailing Twelve Months Ended September 30, 2018(Amounts
in millions)
Trailing TwelveMonths
Ended
December 31, 2017 March 31, 2018 June 30, 2018
September 30, 2018 September 30, 2018 GAAP
Net Income (Loss)1 $ (584 ) $ 500 $ 402 $ 260 $ 578
Interest and other expense (income), net 36 28 26 13 103 Loss on
extinguishment of debt — — — 40 40 Provision for income taxes2 769
67 6 (48 ) 794 Depreciation and amortization 219 155
112 118 604
EBITDA 440
750 546 383 2,119 Share-based
compensation expense3 58 53 57 55 223 Fees and other expenses
related to the King Acquisition4 3 — — — 3 Restructuring costs5 5 —
— — 5 Discrete tax-related items6 39 — — —
39
Adjusted EBITDA $ 545
$ 803 $ 603 $
438 $ 2,389 Change in
deferred net revenues and related cost of revenues7 $ 441 $ (373 )
$ (182 ) $ 89 $ (25 ) 1 We adopted a new revenue accounting
standard in the first quarter of 2018. The impacts of the new
revenue accounting standard are reflected in our financial
information as for the fiscal quarters beginning in 2018. Prior
period results have not been restated to reflect this change in
accounting standards. Refer to our Form 10-Q for the third quarter
of 2018 for additional information. 2 Provision for income taxes
for the three months ended December 31, 2017, June 30, 2018, and
September 30, 2018, also include impacts from significant discrete
tax-related items, including amounts related to changes in tax
laws, amounts related to the potential or final resolution of tax
positions, and/or other unusual or unique tax-related items and
activities. 3 Includes expenses related to share-based
compensation. 4 Reflects fees and other expenses related to the
King Acquisition, inclusive of related debt financings and
integration costs. 5 Reflects restructuring charges, primarily
severance costs. 6 Reflects the impact of other unusual or unique
tax-related items and activities. 7 Reflects the net effect from
deferral of revenues and (recognition) of deferred revenues, along
with related cost of revenues, on certain of our online enabled
products.
ACTIVISION BLIZZARD, INC. AND
SUBSIDIARIESSUPPLEMENTAL CASH FLOW INFORMATION(Amounts in
millions)
Three Months Ended
Year over Year
%Increase(Decrease)
September 30,2017
December 31,2017
March 31,2018
June 30,2018
September 30,2018
Cash Flow Data Operating Cash Flow $ 379 $ 1,158 $ 529 $ 9 $
253
(33
)% Capital Expenditures 34 69 31 30 36
6 Non-GAAP Free Cash Flow1 345 1,089 498 (21 ) 217 (37 )
Operating Cash Flow - TTM2 1,914 2,213 2,331 2,075 1,949
2
%
Capital Expenditures - TTM2 123 155 165 164
166 35 Non-GAAP Free Cash Flow - TTM2 $ 1,791 $ 2,058
$ 2,166 $ 1,911 $ 1,783 —
1 Non-GAAP free cash flow represents operating cash flow
minus capital expenditures. 2 TTM represents trailing twelve
months. Operating Cash Flow for the three months ended December 31,
2016, three months ended March 31, 2017, and three months ended
June 30, 2017, were $859 million, $411 million, and $265 million,
respectively. Capital Expenditures for the three months ended
December 31, 2016, three months ended March 31, 2017, and three
months ended June 30, 2017, were $37 million, $21 million, and $31
million, respectively.
ACTIVISION BLIZZARD, INC. AND
SUBSIDIARIESOutlook for the Three Months Ending
December 31, 2018 and Year Ending December 31,
2018GAAP to Non-GAAP Reconciliation(Amounts in
millions, except per share data)
Outlook for the Outlook for the
Three Months Ending Year Ending December 31,
2018 December 31, 2018 Net
Revenues1
$
2,236
$
7,355
Change in deferred revenues2
$
812
$
120
Earnings Per Diluted Share (GAAP)
$
0.43
$
1.94
Excluding the impact of: Share-based compensation3
0.11
0.33
Amortization of intangible assets4
0.12
0.48
Loss on extinguishment of debt5
-
0.05
Income tax impacts from items above6
(0.02
)
(0.22
)
Discrete tax-related items7
-
(0.13
)
Earnings Per Diluted Share (Non-GAAP)
$
0.64
$
2.46
Net effect of deferred net revenues and
related cost of revenues on Earnings Per Diluted Share8
$
0.63
$
0.12
1 Net Revenues represents the revenue outlook for both GAAP
and Non-GAAP as they are measured the same. 2 Reflects the net
effect from deferral of revenues and (recognition) of deferred
revenues on certain of our online enabled products. 3 Reflects
expenses related to share-based compensation. 4 Reflects
amortization of intangible assets from purchase price accounting,
including intangible assets from the King Acquisition. 5
Reflects losses recognized from early
extinguishment of debt.
6 Reflects the income tax impacts associated with the above items.
Due to the inherent uncertainties in share price and option
exercise behavior, we do not generally forecast excess tax benefits
or tax shortfalls. 7 Reflects the impacts from significant discrete
tax-related items, including amounts related to changes in tax
laws, amounts related to the potential or final resolution of tax
positions, and/or other unusual or unique tax-related items and
activities recognized during the nine months ended September 30,
2018. Refer to our Form 10-Q for the third quarter of 2018 for
additional information. 8 Reflects the net effect from deferral of
revenues and (recognition) of deferred revenues, along with related
cost of revenues, on certain of our online enabled products,
including the effect of taxes. The per share adjustments and
the GAAP and Non-GAAP earnings per share information are presented
as calculated. Therefore, the sum of these measures, as presented,
may differ due to the impact of rounding.
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