Better-Than-Expected Second-Quarter
Results
Record First-Half Revenue, Net Bookings
A, and EPS
Record Second-Quarter Mobile Revenue and
Mobile Net Bookings A
Activision Blizzard, Inc. (Nasdaq: ATVI) today announced
second-quarter 2018 results.
“This was another strong quarter for Activision Blizzard. Our
portfolio of global franchises enabled us to deliver record first
half revenues and earnings per share,” said Bobby Kotick, Chief
Executive Officer of Activision Blizzard. “This past weekend we
held the Overwatch League TM Grand Finals. We had a very successful
first season as we enhanced our leadership position in esports.
And, today we announced two additional Overwatch League franchise
sales at record prices, adding Atlanta, Georgia and Guangzhou,
China to our league. We plan to announce additional franchises over
the next few months.”
Financial Metrics:
Second Quarter
Prior
(in millions, except EPS)
2018
Outlook*
2017
GAAP Net Revenues $ 1,641
$ 1,555 $ 1,631 Impact of
GAAP deferralsB $ (256 ) $
(205 ) $ (213 ) GAAP
EPS $ 0.52 $ 0.26 $
0.32 Non-GAAP EPS $ 0.62 $
0.46 $ 0.55 Impact of GAAP
deferralsB $ (0.21 ) $
(0.15 ) $ (0.12 )
* Prior outlook was provided by the company on May 3, 2018 in
its earnings release.
For the quarter ended June 30, 2018, Activision Blizzard’s net
revenues presented in accordance with GAAP were a Q2 record $1.64
billion, as compared with $1.63 billion for the second quarter of
2017. GAAP net revenues from digital channels were $1.26 billion.
GAAP operating margin was 26%. GAAP earnings per diluted share were
a Q2 record $0.52, as compared with $0.32 for the second quarter of
2017.
For the quarter ended June 30, 2018, on a non-GAAP basis,
Activision Blizzard’s operating margin was 35% and earnings per
diluted share were a Q2 record $0.62, as compared with $0.55 for
the second quarter of 2017.
For the quarter ended June 30, 2018, operating cash flow was $9
million. For the trailing twelve-month period, operating cash flow
was $2.08 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:
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.
For the quarter ended June 30, 2018, Activision Blizzard’s net
bookingsA were $1.38 billion, as compared with $1.42 billion for
the second quarter of 2017. Net bookingsA from digital channels
were $1.20 billion, as compared with $1.28 billion for the second
quarter of 2017.
Selected Business Highlights:
Activision Blizzard’s consistent second-quarter results
illustrate the enduring nature of our franchises. In the second
half of 2018, we have several exciting launches which we expect to
drive strong full-year results.
Audience Reach
- Activision Blizzard had 352 million
Monthly Active Users (MAUs)C in the quarter.
- Activision had 45 million MAUsC.
Call of Duty®: World War II continued to have more MAUsC
than the prior franchise release. Pre-orders for Call of Duty:
Black Ops 4 are strong. Black Ops 3 MAUsC grew
quarter-over-quarter and, in June, reached the highest level for
this year as over 15 million players geared up for the October 12th
release of Black Ops 4. During the quarter, Destiny 2
released its second expansion, Warmind, with higher attach
rates than Destiny 1’s second expansion, and Destiny
2 MAUsC grew quarter-over-quarter. Crash Bandicoot™ N. Sane
Trilogy successfully launched for Xbox One, Switch, and PC in
the quarter with strong performance.
- Blizzard had 37 million MAUsC ahead of
significant content coming in the second half of 2018. World of
Warcraft® momentum remains high ahead of the upcoming
expansion, Battle for Azeroth™, which is seeing strong
pre-orders. Blizzard is building on the excitement around the
Overwatch League with further Overwatch® esports
events, and a continuous stream of content for the game in the
second half of this year, including seasonal events, maps, heroes,
and new cosmetic items. Pre-purchases for the upcoming
Hearthstone® expansion, The Boomsday Project™,
are tracking ahead of any prior expansion at the same point in time
pre-release.
- King had 270 million MAUsC. Candy
Crush Saga™ mobile MAUsC were stable quarter-over-quarter and
grew year-over-year. King’s engagement remained strong with daily
time spent per user at 36 minutes.
Deep Engagement
- The Overwatch League held its
Grand Finals event at Barclays Center in New York on June 27-28.
The Grand Finals had a sold-out live audience and millions of
global viewers watched on TV networks and streaming platforms. The
hard-to-reach 18 to 34 demographic made up approximately 70% of the
global audience.
- Activision’s Call of Duty World
League continued to enjoy momentum with year-to-date minutes
watched up 50% year-over-year heading into its championships in
Columbus, Ohio later this month.
Player Investment
- Activision Blizzard delivered $1
billion of in-game net bookingsA in the second quarter and a record
of approximately $2 billion year-to-date.
- Activision had record Q2 in-game net
bookings A, driven by Call of Duty: WWII, Call of Duty:
Black Ops 3, and Destiny 2.
- This quarter, King had two of the
top-10 highest-grossing titles in the U.S. mobile app stores for
the nineteenth quarter in a row, with Candy Crush Saga at #1
again.1 Overall Candy Crush™ franchise net bookings A grew
double digits year-over-year.
- King’s advertising business was
profitable for the second quarter in a row with net bookings A
growing sequentially.
Company Outlook:
GAAP Outlook
Non-GAAP Outlook
Impact of GAAP
deferralsB
(in millions, except EPS)
CY
2018
Net Revenues $ 7,355 $ 7,355 $ 120
EPS $ 1.84 $ 2.46 $ 0.12
Fully Diluted Shares 774 774
Q3
2018
Net Revenues $ 1,490 $ 1,490 $
125
EPS $ 0.16 $ 0.37 $ 0.10
Fully Diluted Shares
772 772
Net bookingsA (operating metric) is expected to be $7.48 billion
for 2018 and $1.61 billion for the third quarter of 2018.
Currency Assumptions for 2018 Outlook:
- $1.21 USD/Euro for current outlook (vs.
average of $1.12 for 2017 and $1.11 for 2016); and
- $1.35 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.
Capital Allocation:
The company paid a cash dividend of $0.34 per common share, up
13% year-over-year, in May 2018 to shareholders of record at the
close of business on March 30, 2018. Cash payments totaled $259
million. The Board of Directors has authorized a debt paydown of up
to $1.8 billion during 2018, and the company expects to utilize the
full authorization in Q3.
Conference Call:
Today at 4:30 p.m. EDT, Activision Blizzard’s management will
host a conference call and Webcast to discuss the company’s results
for the quarter ended June 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 the “Investor Relations” area of
www.activisionblizzard.com to listen to the conference call via
live Webcast or to listen to the call live by dialing into
866-548-4713 in the U.S. with passcode 1068570.
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, and its games are played in 196 countries. More
information about Activision Blizzard and its products can be found
on the company's website, www.activisionblizzard.com.
1 U.S. ranking for Apple App Store and Google Play Store
combined, per App Annie Intelligence for second quarter of
2018.
A 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.
B 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.
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
acquired or newly 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.
ACTIVISION BLIZZARD, INC. AND
SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS
(Unaudited)
(Amounts in millions, except per share
data)
Three Months Ended June 30,
Six Months Ended June 30,
20181
2017
20181
2017 Net revenues Product sales $ 464 $ 481 $
1,184 $ 989 Subscription, licensing, and other revenues 2 1,177
1,150 2,423 2,367 Total net revenues 1,641
1,631 3,607 3,356
Costs and expenses Cost of
revenues—product sales: Product costs 126 130 289 273 Software
royalties, amortization, and intellectual property licenses 49 75
194 163 Cost of revenues—subscription, licensing, and other: Game
operations and distribution costs 250 236 521 468 Software
royalties, amortization, and intellectual property licenses 85 120
169 242 Product development 255 252 513 478 Sales and marketing 226
308 477 554 General and administrative 216 171 415
347 Total costs and expenses 1,207 1,292 2,578
2,525 Operating income 434 339 1,029 831 Interest and
other expense (income), net 26 46 54 85 Income
before income tax expense 408 293 975 746 Income tax expense
6 50 73 77 Net income $ 402 $
243 $ 902 $ 669 Basic earnings per common
share $ 0.53 $ 0.32 $ 1.19 $ 0.89 Weighted average common shares
outstanding 761 754 760 752 Diluted earnings per common
share $ 0.52 $ 0.32 $ 1.17 $ 0.88 Weighted average common shares
outstanding assuming dilution 770 764 770 763
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
six months ended June 30, 2018. Prior period results have not been
restated to reflect this change in accounting standards. Refer to
our Form 10-Q for the second 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
SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE
SHEETS
(Unaudited)
(Amounts in millions)
June 30, 2018 1
December 31, 2017 Assets Current assets Cash and cash
equivalents $ 4,857 $ 4,713 Accounts receivable, net 418 918
Inventories, net 36 46 Software development 320 367 Other current
assets 503 476 Total current assets 6,134 6,520
Software development 131 86 Property and equipment, net 281 294
Deferred income taxes, net 324 459 Other assets 415 440 Intangible
assets, net 910 1,106 Goodwill 9,763 9,763 Total
assets $ 17,958 $ 18,668
Liabilities and
Shareholders’ Equity Current liabilities Accounts payable $ 167
$ 323 Deferred revenues 832 1,929 Accrued expenses and other
liabilities 1,061 1,411 Total current liabilities
2,060 3,663 Long-term debt, net 4,394 4,390 Deferred income taxes,
net 13 21 Other liabilities 1,145 1,132 Total
liabilities 7,612 9,206 Shareholders’ equity
Common stock — — Additional paid-in capital 10,867 10,747 Treasury
stock (5,563 ) (5,563 ) Retained earnings 5,647 4,916 Accumulated
other comprehensive loss (605 ) (638 ) Total shareholders’ equity
10,346 9,462 Total liabilities and shareholders’
equity $ 17,958 $ 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
six months ended June 30, 2018. Prior period results have not been
restated to reflect this change in accounting standards. Refer to
our Form 10-Q for the second quarter of 2018 for additional
information.
ACTIVISION BLIZZARD, INC. AND
SUBSIDIARIES
RECONCILIATION OF GAAP NET INCOME TO
NON-GAAP MEASURES
(Amounts in millions, except per share
data)
Three Months Ended June 30, 2018 Net
Revenues
Cost of Revenues - Product
Sales: Product Costs
Cost of Revenues - Product
Sales: Software Royalties and
Amortization
Cost of Revenues -
Subs/Lic/Other:Game Operationsand
Distribution|Costs
Cost of Revenues -
Subs/Lic/Other:SoftwareRoyalties and
Amortization
Product Development
Sales and Marketing
General and
Administrative
Total Costs and Expenses
GAAP Measurement $ 1,641 $ 126 $ 49
$ 250 $ 85 $ 255 $ 226 $ 216
$ 1,207 Share-based compensation1 — — (2 ) — — (18 ) (5 )
(32 ) (57 ) Amortization of intangible assets2 — —
— — (75 ) —
— (2 ) (77 ) Non-GAAP Measurement $
1,641 $ 126 $ 47 $ 250
$ 10 $ 237 $ 221
$ 182 $ 1,073 Net effect of
deferred revenues and related cost of revenues3 $ (256 ) $ (44 ) $
(46 ) $ (1 ) $ 17 $ — $ — $ — $ (74 )
Operating Income
Net Income
Basic Earnings per Share
Diluted Earnings per
Share
GAAP Measurement $ 434 $ 402 $ 0.53 $ 0.52 Share-based
compensation1 57 57 0.07 0.07 Amortization of intangible assets2 77
77 0.10 0.10 Income tax impacts from items above4 — (37 ) (0.05 )
(0.05 ) Discrete tax-related items5 — (25 )
(0.03 ) (0.03 ) Non-GAAP Measurement $ 568 $
474 $ 0.62 $ 0.62 Net
effect of deferred revenues and related cost of revenues3 $ (182 )
$ (159 ) $ (0.21 ) $ (0.21 ) 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 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. 5 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 second 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.
Six Months Ended June 30, 2018 Net
Revenues
Cost of Revenues - Product
Sales: Product Costs
Cost of Revenues - Product
Sales: Software Royalties and
Amortization
Cost of Revenues -
Subs/Lic/Other: Game Operations and Distribution
Costs
Cost of Revenues -
Subs/Lic/Other: Software Royalties and
Amortization
Product Development
Sales and Marketing
General and
Administrative
Total Costs and Expenses
GAAP Measurement $ 3,607 $ 289 $ 194
$ 521 $ 169 $ 513 $ 477 $ 415
$ 2,578 Share-based compensation1 — — (5 ) (1 ) — (32 ) (9 )
(64 ) (111 ) Amortization of intangible assets2 — —
— — (148 ) —
(44 ) (4 ) (196 ) Non-GAAP Measurement
$ 3,607 $ 289 $ 189 $ 520
$ 21 $ 481 $ 424
$ 347 $ 2,271 Net effect of
deferred revenues and related cost of revenues3 $ (838 ) $ (120 ) $
(165 ) $ (5 ) $ 9 $ — $ — $ — $ (281 )
Operating Income Net
Income
Basic Earnings per Share
Diluted Earnings per
Share
GAAP Measurement $ 1,029 $ 902 $ 1.19 $ 1.17 Share-based
compensation1 111 111 0.15 0.14 Amortization of intangible assets2
196 196 0.26 0.25 Income tax impacts from items above4 — (106 )
(0.14 ) (0.14 ) Discrete-tax related items5 — (25 )
(0.03 ) (0.03 ) Non-GAAP Measurement $ 1,336
$ 1,078 $ 1.42 $ 1.40
Net effect of deferred revenues and related cost of
revenues3 $ (557 ) $ (469 ) $ (0.62 ) $ (0.61 )
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 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. 5 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 second 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
SUBSIDIARIES
RECONCILIATION OF GAAP NET INCOME TO
NON-GAAP MEASURES
(Amounts in millions, except per share
data)
Three Months Ended June 30, 2017 Net
Revenues
Cost of Revenues - Product
Sales: Product Costs
Cost of Revenues - Product
Sales: Software Royalties and
Amortization
Cost of Revenues -
Subs/Lic/Other: Game Operations and Distribution
Costs
Cost of Revenues -
Subs/Lic/Other: Software Royalties and
Amortization
Product Development
Sales and Marketing
General and
Administrative
Total Costs and Expenses
GAAP Measurement $ 1,631 $ 130 $ 75
$ 236 $ 120 $ 252 $ 308 $ 171
$ 1,292 Share-based compensation1 — — (3 ) — — (14 ) (4 )
(18 ) (39 ) Amortization of intangible assets2 — — — — (114 ) — (78
) (2 ) (194 ) Fees and other expenses related to the King
Acquisition3 — — — — — — — (5 ) (5 ) Other non-cash charges4 —
— — — —
— — 1 1
Non-GAAP Measurement $ 1,631 $ 130
$ 72 $ 236 $ 6 $
238 $ 226 $ 147 $ 1,055
Net effect of deferred revenues and related cost of
revenues5 $ (213 ) $ (44 ) $ (68 ) $ 1 $ 3 $ — $ — $ — $ (108 )
Operating Income
Net Income
Basic Earnings per Share
Diluted Earnings per
Share
GAAP Measurement $ 339 $ 243 $ 0.32 $ 0.32 Share-based
compensation1 39 39 0.05 0.05 Amortization of intangible assets2
194 194 0.26 0.25 Fees and other expenses related to the King
Acquisition3 5 6 0.01 0.01 Other non-cash charges4 (1 ) (1 ) — —
Loss on extinguishment of debt6 — 12 0.02 0.02 Income tax impacts
from items above7 — (75 ) (0.10 ) (0.10
) Non-GAAP Measurement $ 576 $ 418 $
0.55 $ 0.55 Net effect of deferred
revenues and related cost of revenues5 $ (105 ) $ (86 ) $ (0.11 ) $
(0.12 ) 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 loss on
extinguishment of debt from refinancing activities. 7 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.
Six Months Ended June 30, 2017 Net
Revenues
Cost of Revenues - Product
Sales: Product Costs
Cost of Revenues - Product
Sales: Software Royalties and
Amortization
Cost of Revenues -
Subs/Lic/Other: Game Operations and Distribution
Costs
Cost of Revenues -
Subs/Lic/Other: Software Royalties and
Amortization
Product Development
Sales and Marketing
General and
Administrative
Total Costs and Expenses
GAAP Measurement $ 3,356 $ 273 $ 163
$ 468 $ 242 $ 478 $ 554 $ 347
$ 2,525 Share-based compensation1 — — (7 ) (1 ) — (27 ) (7 )
(31 ) (73 ) Amortization of intangible assets2 — — (1 ) — (224 ) —
(155 ) (4 ) (384 ) Fees and other expenses related to the King
Acquisition3 — — — — — — — (9 ) (9 ) Restructuring costs4 — — — — —
— — (11 ) (11 ) Other non-cash charges5 — —
— — — —
— (15 ) (15 ) Non-GAAP Measurement $
3,356 $ 273 $ 155 $ 467
$ 18 $ 451 $ 392
$ 277 $ 2,033 Net effect of
deferred revenues and related cost of revenues6 $ (742 ) $ (101 ) $
(137 ) $ (3 ) $ — $ — $ — $ — $ (241 )
Operating Income
Net Income
Basic Earnings per Share
Diluted Earnings per
Share
GAAP Measurement $ 831 $ 669 $ 0.89 $ 0.88 Share-based
compensation1 73 73 0.10 0.10 Amortization of intangible assets2
384 384 0.51 0.50 Fees and other expenses related to the King
Acquisition3 9 15 0.02 0.02 Restructuring costs4 11 11 0.01 0.01
Other non-cash charges5 15 15 0.02 0.02 Loss on extinguishment of
debt7 — 12 0.02 0.02 Income tax impacts from items above8 —
(215 ) (0.28 ) (0.28 ) Non-GAAP Measurement $
1,323 $ 964 $ 1.28 $ 1.26
Net effect of deferred revenues and related cost of
revenues6 $ (501 ) $ (395 ) $ (0.52 ) $ (0.51 )
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
SUBSIDIARIES
OPERATING SEGMENTS INFORMATION
For the Three and Six Months Ended
June 30, 2018 and 2017
(Amounts in millions)
Three Months Ended: June 30,
2018 $ Increase / (Decrease) Activision
Blizzard King Total
Activision Blizzard King
Total Segment Net Revenues Net revenues from external
customers $ 338 $ 485 $ 502 $ 1,325 $ 22 $ (81 ) $ 22 $ (37 )
Intersegment net revenues1 — 4 — 4 —
4 — 4 Segment net revenues $ 338
$ 489 $ 502 $ 1,329 $ 22 $ (77 ) $ 22
$ (33 )
Segment operating income $ 84 $ 133 $
169 $ 386 $ (3 ) $ (92 ) $ 5 $ (90 )
Operating Margin
29.0 %
June 30, 2017 Activision
Blizzard King Total Segment Net
Revenues Net revenues from external customers $ 316 $ 566 $ 480
$ 1,362 Intersegment net revenues1 — — — —
Segment net revenues $ 316 $ 566 $ 480
$ 1,362
Segment operating income $ 87 $ 225 $
164 $ 476
Operating Margin 34.9 %
Six Months Ended: June 30, 2018
$ Increase / (Decrease) Activision
Blizzard King Total
Activision Blizzard King
Total Segment Net Revenues Net revenues from external
customers $ 651 $ 964 $ 1,036 $ 2,651 $ 119 $ (45 ) $ 82 $ 156
Intersegment net revenues1 — 6 — 6 —
6 — 6 Segment net revenues $ 651
$ 970 $ 1,036 $ 2,657 $ 119 $ (39 ) $
82 $ 162
Segment operating income $ 175
$ 255 $ 360 $ 790 $ 64 $ (129 ) $ 30 $ (35 )
Operating
Margin 29.7 %
June 30, 2017 Activision
Blizzard King Total Segment Net
Revenues Net revenues from external customers $ 532 $ 1,009 $
954 $ 2,495 Intersegment net revenues1 — — — —
Segment net revenues $ 532 $ 1,009 $ 954
$ 2,495
Segment operating income $ 111
$ 384 $ 330 $ 825
Operating Margin
33.1 % 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
organizational 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
SUBSIDIARIES
OPERATING SEGMENTS INFORMATION
For the Three and Six Months Ended
June 30, 2018 and 2017
(Amounts in millions)
Three Months Ended June 30,
Six Months Ended June 30, 2018 2017
2018 2017 Reconciliation to consolidated
net revenues: Segment net revenues $ 1,329 $ 1,362 $ 2,657 $
2,495 Revenues from non-reportable segments1 60 56 118 119 Net
effect from recognition (deferral) of deferred net revenues2 256
213 838 742 Elimination of intersegment revenues3 (4 ) — (6
) — Consolidated net revenues $ 1,641 $ 1,631
$ 3,607 $ 3,356
Reconciliation to
consolidated income before income tax expense: Segment
operating income $ 386 $ 476 $ 790 $ 825 Operating income from
non-reportable segments1 — (5 ) (11 ) (3 ) Net effect from
recognition (deferral) of deferred net revenues and related cost of
revenues2 182 105 557 501 Share-based compensation expense (57 )
(39 ) (111 ) (73 ) Amortization of intangible assets (77 ) (194 )
(196 ) (384 ) Fees and other expenses related to the King
Acquisition4 — (5 ) — (9 ) Restructuring costs5 — — — (11 ) Other
non-cash charges6 — 1 — (15 ) Consolidated
operating income 434 339 1,029 831 Interest and other expense
(income), net 26 46 54 85 Consolidated
income before income tax expense $ 408 $ 293 $ 975
$ 746 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
SUBSIDIARIES
NET REVENUES BY DISTRIBUTION
CHANNEL
For the Three and Six Months Ended
June 30, 2018 and 2017
(Amounts in millions)
Three Months Ended June 30, 2018
June 30, 2017
$ Increase (Decrease)
% Increase (Decrease)
Amount1 % of Total2
Amount % of Total2 Net Revenues by
Distribution Channel Digital online channels3 $ 1,259 77 % $
1,309 80 % $ (50 ) (4 )% Retail channels 278 17 260 16 18 7 Other4
104 6 62 4 42 68 Total
consolidated net revenues $ 1,641 100 % $ 1,631 100 %
$ 10 1
Change in deferred revenues5
Digital online channels3 $ (62 ) $ (31 ) Retail channels (202 )
(180 ) Other4 8 (2 ) Total changes in deferred revenues $
(256 ) $ (213 )
Six Months Ended June 30,
2018 June 30, 2017
$ Increase (Decrease)
% Increase (Decrease)
Amount1 % of Total2
Amount % of Total2 Net Revenues by
Distribution Channel Digital online channels3 $ 2,720 75 % $
2,694 80 % $ 26 1 % Retail channels 690 19 529 16 161 30 Other4 197
5 133 4 64 48 Total consolidated
net revenues $ 3,607 100 % $ 3,356 100 % $ 251
7
Change in deferred revenues5 Digital online
channels3 $ (319 ) $ (350 ) Retail channels (533 ) (385 ) Other4 14
(7 ) Total changes in deferred revenues $ (838 ) $ (742 )
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 six months ended June 30, 2018. Prior
period results have not been restated to reflect this change in
accounting standards. Refer to our Form 10-Q for the second 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 SUBSIDIARIES
NET REVENUES BY DISTRIBUTION CHANNEL - SUPPLEMENTAL
INFORMATION
For the Three Months Ended June 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 June 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 June 30, 2018
Activision Blizzard King
Non- reportable
segments
Elimination of intersegment
revenues4
Total Net Revenues by Distribution Channel:
Digital online channels1 $ 333 $ 420 $ 510 $ — $ (4 ) $ 1,259
Retail channels 259 19 — — — 278 Other2 — 49 —
55 — 104 Total consolidated net revenues $ 592
$ 488 $ 510 $ 55 $ (4 ) $ 1,641
Change in deferred revenues3: Digital online channels1 $ (58
) $ 4 $ (8 ) $ — $ — $ (62 ) Retail channels (196 ) (6 ) — — — (202
) Other2 — 3 — 5 — 8
Total change in deferred revenues $ (254 ) $ 1 $ (8 ) $ 5
$ — $ (256 )
Segment net revenues:
Digital online channels1 $ 275 $ 424 $ 502 $ — $ (4 ) $ 1,197
Retail channels 63 13 — — — 76 Other2 — 52 —
60 — 112 Total segment net revenues $ 338
$ 489 $ 502 $ 60 $ (4 ) $ 1,385
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 SUBSIDIARIES
NET REVENUES BY DISTRIBUTION CHANNEL - SUPPLEMENTAL
INFORMATION
For the Six Months Ended June 30, 2018
(Amounts in millions)
As a result of our adoption of the new revenue accounting
standard, net revenues by distribution channel for the six months
ended June 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:
Six Months Ended June 30, 2018
Activision Blizzard King
Non- reportable
segments
Elimination of intersegment
revenues4
Total Net Revenues by Distribution Channel:
Digital online channels1 $ 809 $ 875 $ 1,042 $ — $ (6 ) $ 2,720
Retail channels 656 33 1 — — 690 Other2 — 89 —
108 — 197 Total consolidated net revenues $
1,465 $ 997 $ 1,043 $ 108 $ (6 ) $
3,607 Change in deferred revenues3: Digital online
channels1 $ (290 ) $ (23 ) $ (6 ) $ — $ — $ (319 ) Retail channels
(524 ) (8 ) (1 ) — — (533 ) Other2 — 4 — 10
— 14 Total change in deferred revenues $ (814
) $ (27 ) $ (7 ) $ 10 $ — $ (838 )
Segment
net revenues: Digital online channels1 $ 519 $ 852 $ 1,036 $ —
$ (6 ) $ 2,401 Retail channels 132 25 — — — 157 Other2 — 93
— 118 — 211 Total segment net
revenues $ 651 $ 970 $ 1,036 $ 118 $ (6
) $ 2,769 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
SUBSIDIARIES
NET REVENUES BY PLATFORM
For the Three and Six Months Ended
June 30, 2018 and 2017
(Amounts in millions)
Three Months Ended June 30, 2018
June 30, 2017
$ Increase (Decrease)
% Increase (Decrease)
Amount1 % of Total2
Amount % of Total2 Net Revenues by
Platform Console $ 565 34 % $ 568 35 % $ (3 ) (1 )% PC 451 27
508 31 (57 ) (11 ) Mobile and ancillary3 521 32 493 30 28 6 Other4
104 6 62 4 42 68 Total
consolidated net revenues $ 1,641 100 % $ 1,631 100 %
$ 10 1
Change in deferred revenues5
Console $ (232 ) $ (203 ) PC (28 ) (15 ) Mobile and ancillary3 (4 )
7 Other4 8 (2 ) Total changes in deferred revenues $ (256 )
$ (213 )
Six Months Ended June 30, 2018
June 30, 2017
$ Increase (Decrease)
% Increase (Decrease)
Amount1 % of Total2
Amount % of Total2 Net Revenues by
Platform Console $ 1,382 38 % $ 1,182 35 % $ 200 17 % PC 971 27
1,072 32 (101 ) (9 ) Mobile and ancillary3 1,057 29 969 29 88 9
Other4 197 5 133 4 64 48 Total
consolidated net revenues $ 3,607 100 % $ 3,356 100 %
$ 251 7
Change in deferred revenues5
Console $ (740 ) $ (577 ) PC (97 ) (161 ) Mobile and ancillary3 (15
) 3 Other4 14 (7 ) Total changes in deferred revenues $ (838
) $ (742 ) 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 six months ended June 30,
2018. Prior period results have not been restated to reflect this
change in accounting standards. Refer to our Form 10-Q for the
second 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 SUBSIDIARIES
NET REVENUES BY PLATFORM - SUPPLEMENTAL INFORMATION
For the Three Months Ended June 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
June 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 June 30, 2018
Activision Blizzard King
Non- reportable
segments
Elimination of intersegment
revenues4
Total Net Revenues by Platform: Console $ 520
$ 45 $ — $ — $ — $ 565 PC 69 347 39 — (4 ) 451 Mobile and
ancillary1 3 47 471 — — 521 Other2 — 49 — 55
— 104 Total consolidated net revenues $ 592
$ 488 $ 510 $ 55 $ (4 ) $ 1,641
Change in deferred revenues3: Console $ (233 ) $ 1 $ — $ — $
— $ (232 ) PC (21 ) (6 ) (1 ) — — (28 ) Mobile and ancillary1 — 3
(7 ) — — (4 ) Other2 — 3 — 5 — 8
Total change in deferred revenues $ (254 ) $ 1 $ (8 )
$ 5 $ — $ (256 )
Segment net revenues:
Console $ 287 $ 46 $ — $ — $ — $ 333 PC 48 341 38 — (4 ) 423 Mobile
and ancillary1 3 50 464 — — 517 Other2 — 52 —
60 — 112 Total segment net revenues $ 338
$ 489 $ 502 $ 60 $ (4 ) $ 1,385
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 SUBSIDIARIES
NET REVENUES BY PLATFORM - SUPPLEMENTAL INFORMATION
For the Six Months Ended June 30, 2018
(Amounts in millions)
As a result of our adoption of the new revenue accounting
standard, net revenues by platform for the six months ended
June 30, 2018, includes a reconciliation to our segment
revenues as disclosed for each of our reportable segments. Net
revenues by platform were as follows:
Six Months Ended June 30, 2018
Activision Blizzard
King
Non- reportable
segments
Elimination of intersegment
revenues4
Total Net Revenues by Platform: Console
$ 1,289 $ 93 $ — $ — $ — $ 1,382 PC 169 726 82 — (6 ) 971 Mobile
and ancillary1 7 89 961 — — 1,057 Other2 — 89 —
108 — 197 Total consolidated net
revenues $ 1,465 $ 997 $ 1,043 $ 108 $
(6 ) $ 3,607 Change in deferred revenues3: Console $
(723 ) $ (17 ) $ — $ — $ — $ (740 ) PC (91 ) (6 ) — — — (97 )
Mobile and ancillary1 — (8 ) (7 ) — — (15 ) Other2 — 4
— 10 — 14 Total change in
deferred revenues $ (814 ) $ (27 ) $ (7 ) $ 10 $ — $
(838 )
Segment net revenues: Console $ 566 $ 76 $ — $
— $ — $ 642 PC 78 720 82 — (6 ) 874 Mobile and ancillary1 7 81 954
— — 1,042 Other2 — 93 — 118 —
211 Total segment net revenues $ 651 $ 970 $
1,036 $ 118 $ (6 ) $ 2,769
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
SUBSIDIARIES
NET REVENUES BY GEOGRAPHIC
REGION
For the Three and Six Months Ended
June 30, 2018 and 2017
(Amounts in millions)
Three Months Ended June 30, 2018
June 30, 2017
$ Increase (Decrease)
% Increase (Decrease)
Amount1 % of Total2
Amount % of Total2 Net Revenues by
Geographic Region Americas $ 900 55 % $ 858 53 % $ 42 5 % EMEA3
552 34 538 33 14 3 Asia Pacific 189 12 235 14
(46 ) (20 ) Total consolidated net revenues $ 1,641
100 % $ 1,631 100 % $ 10 1
Change in
deferred revenues4 Americas $ (141 ) $ (129 ) EMEA3 (100
) (72 ) Asia Pacific (15 ) (12 ) Total changes in deferred revenues
$ (256 ) $ (213 )
Six Months Ended June 30,
2018 June 30, 2017
$ Increase (Decrease)
% Increase (Decrease)
Amount1 % of Total2
Amount % of Total2 Net Revenues by
Geographic Region Americas $ 1,966 55 % $ 1,787 53 % $ 179 10 %
EMEA3 1,239 34 1,092 33 147 13 Asia Pacific 402 11
477 14 (75 ) (16 ) Total consolidated net revenues $
3,607 100 % $ 3,356 100 % $ 251 7
Change in deferred revenues4 Americas $ (474 ) $ (438
)
EMEA3 (302 ) (234 ) Asia Pacific (62 ) (70 ) Total changes in
deferred revenues $ (838 ) $ (742 ) 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 six months ended
June 30, 2018. Prior period results have not been restated to
reflect this change in accounting standards. Refer to our Form 10-Q
for the second 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 SUBSIDIARIES
NET REVENUES BY GEOGRAPHIC REGION - SUPPLEMENTAL
INFORMATION
For the Three Months Ended June 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 June 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 June 30, 2018
Activision Blizzard King
Non- reportable segments
Elimination of intersegment
revenues3
Total Net Revenues by Geographic Region:
Americas $ 349 $ 239 $ 315 $ — $ (3 ) $ 900 EMEA1 199 155 144 55 (1
) 552 Asia Pacific 44 94 51 — —
189 Total consolidated net revenues $ 592 $ 488
$ 510 $ 55 $ (4 ) $ 1,641 Change
in deferred revenues2: Americas $ (143 ) $ 7 $ (5 ) $ — $ — $ (141
) EMEA1 (97 ) (6 ) (2 ) 5 — (100 ) Asia Pacific (14 ) — (1 )
— — (15 ) Total change in deferred revenues $ (254 )
$ 1 $ (8 ) $ 5 $ — $ (256 )
Segment
net revenues: Americas $ 206 $ 246 $ 310 $ — $ (3 ) $ 759 EMEA1
102 149 142 60 (1 ) 452 Asia Pacific 30 94 50
— — 174 Total segment net revenues $ 338
$ 489 $ 502 $ 60 $ (4 ) $ 1,385
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 SUBSIDIARIES
NET REVENUES BY GEOGRAPHIC REGION - SUPPLEMENTAL
INFORMATION
For the Six Months Ended June 30, 2018
(Amounts in millions)
As a result of our adoption of the new revenue accounting
standard, net revenues by geographic region for the six months
ended June 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:
Six Months Ended June 30, 2018
Activision Blizzard King
Non- reportable segments
Elimination of intersegment
revenues3
Total Net Revenues by Geographic Region:
Americas $ 859 $ 473 $ 637 $ — $ (3 ) $ 1,966 EMEA1 504 325 305 108
(3 ) 1,239 Asia Pacific 102 199 101 — —
402 Total consolidated net revenues $ 1,465 $
997 $ 1,043 $ 108 $ (6 ) $ 3,607
Change in deferred revenues2: Americas $ (471 ) $ — $ (3 ) $ — $ —
$ (474 ) EMEA1 (295 ) (14 ) (4 ) 10 1 (302 ) Asia Pacific (48 ) (13
) — — (1 ) (62 ) Total change in deferred revenues $
(814 ) $ (27 ) $ (7 ) $ 10 $ — $ (838 )
Segment net revenues: Americas $ 388 $ 473 $ 634 $ — $ (3 )
$ 1,492 EMEA1 209 311 301 118 (2 ) 937 Asia Pacific 54 186
101 — (1 ) 340 Total segment net
revenues $ 651 $ 970 $ 1,036 $ 118 $ (6
) $ 2,769 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
SUBSIDIARIES
EBITDA and ADJUSTED EBITDA
For the Trailing Twelve Months Ended
June 30, 2018
(Amounts in millions)
Trailing Twelve Months
Ended
September 30, 2017 December 31, 2017 March 31,
2018 June 30, 2018 June 30, 2018
GAAP Net Income (Loss)1
$ 188 $ (584 ) $ 500 $ 402 $ 506 Interest and other expense
(income), net 37 36 28 26 127 Provision for income taxes2 32 769 67
6 874 Depreciation and amortization 220 219 155
112 706
EBITDA 477 440
750 546 2,213 Share-based compensation
expense3 47 58 53 57 215 Fees and other expenses related to the
King Acquisition4 3 3 — — 6 Restructuring costs5 — 5 — — 5 Other
non-cash charges6 (1 ) — — — (1 ) Discrete tax-related items7 —
39 — — 39
Adjusted EBITDA
$ 526 $ 545 $
803 $ 603 $ 2,477
Change in deferred net revenues and related cost of
revenues8 $ 132 $ 441 $ (373 ) $ (182 ) $ 18 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 second quarter of 2018 for additional information. 2
Provision for income taxes for the three months ended December 31,
2017 and June 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 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. 7 Reflects the impact of other unusual or unique
tax-related items and activities. 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.
ACTIVISION BLIZZARD, INC. AND
SUBSIDIARIES
SUPPLEMENTAL CASH FLOW
INFORMATION
(Amounts in millions)
Three Months Ended June
30, September 30, December 31,
March 31, June 30,
Year over Year %Increase
(Decrease)
2017 2017 2017 2018 2018 Cash
Flow Data Operating Cash Flow $ 265 $ 379 $ 1,158 $ 529 $ 9 (97
)% Capital Expenditures 31 34 69 31 30
(3 ) Non-GAAP Free Cash Flow1 234 345 1,089 498 (21 ) (109 )
Operating Cash Flow - TTM2 1,991 1,914 2,213 2,331 2,075 4
Capital Expenditures - TTM2 117 123 155 165
164 40 Non-GAAP Free Cash Flow - TTM2 $ 1,874 $ 1,791
$ 2,058 $ 2,166 $ 1,911 2 % 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 September 30, 2016, three
months ended December 31, 2016, and three months ended March 31,
2017, were $456 million, $859 million, and $411 million,
respectively. Capital Expenditures for the three months ended
September 30, 2016, three months ended December 31, 2016, and March
31, 2017, were $28 million, $37 million, and $21 million,
respectively.
ACTIVISION BLIZZARD, INC. AND
SUBSIDIARIES
Outlook for the Three Months Ending
September 30, 2018 and Year Ending December 31,
2018
GAAP to Non-GAAP Reconciliation
(Amounts in millions, except per share
data)
Outlook for the Outlook for
the Three Months Ending Year Ending September
30, 2018 December 31, 2018 Net
Revenues1 $ 1,490 $ 7,355
Change in deferred revenues2 $ 125
$ 120 Earnings Per Diluted Share
(GAAP) $ 0.16 $ 1.84 Excluding the
impact of: Share-based compensation3 0.09 0.34 Amortization of
intangible assets4 0.11 0.48 Loss on extinguishment of debt5 0.05
0.05 Income tax impacts from items above6 (0.04 ) (0.22 ) Discrete
tax-related items7 — (0.03 )
Earnings Per Diluted Share
(Non-GAAP) $ 0.37 $ 2.46
Net effect of deferred net revenues and
related cost of revenues on Earnings Per Diluted Share8
$ 0.10 $ 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 to be 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 three months ended June 30, 2018. Refer to our Form 10-Q
for the second 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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