Record Q4 and Full Year Results
Activision Blizzard, Inc. (Nasdaq: ATVI) today announced
fourth-quarter 2018 results.
Financial Metrics
Q4 CY (in millions,
except EPS) 2018 Prior
Outlook* 2017 2018
2017 GAAP Net Revenues $2,381 $2,236
$2,043 $7,500 $7,017 Impact of GAAP deferralsA
$454 $812 $597 ($238) $139 GAAP EPS** $0.84 $0.43 ($0.77)
$2.35 $0.36 Non-GAAP EPS $0.90 $0.64 $0.49 $2.72 $2.21 Impact of
GAAP deferralsA $0.39 $0.63 $0.45 ($0.12) $0.07
* Prior outlook was provided by the company on November 8, 2018
in its earnings release.** GAAP EPS includes the impact of
significant discrete tax related items. Refer to the tables at the
end of this press release for details.
For the year ended December 31, 2018, Activision Blizzard’s net
revenues presented in accordance with GAAP were a record $7.50
billion, as compared with $7.02 billion for 2017. GAAP net revenues
from digital channels were a record $5.79 billion. GAAP operating
margin was 27%. GAAP earnings per diluted share were a record
$2.35, as compared with $0.36 for 2017. On a non-GAAP basis,
Activision Blizzard’s operating margin was 34% and earnings per
diluted share were a record $2.72, as compared with $2.21 for
2017.
For the quarter ended December 31, 2018, Activision Blizzard’s
net revenues presented in accordance with GAAP were a record $2.38
billion, as compared with $2.04 billion for the fourth quarter of
2017. GAAP net revenues from digital channels were a record $1.79
billion. GAAP operating margin was a Q4 record of 29%. GAAP
earnings per diluted share were a record $0.84, as compared with
loss per share of $0.77 for the fourth quarter of 2017. On a
non-GAAP basis, Activision Blizzard’s operating margin was a Q4
record of 35% and earnings per diluted share were a record $0.90,
as compared with $0.49 for the fourth quarter of 2017.
Activision Blizzard generated $1.79 billion in operating cash
flow for the year ended December 31, 2018, as compared to $2.21
billion for 2017. For the quarter, operating cash flow was $999
million.
Please refer to the tables at the back of this press release for
a reconciliation of the company’s GAAP and non-GAAP results.
Bobby Kotick, Chief Executive Officer of Activision Blizzard
said “While our financial results for 2018 were the best in our
history, we didn’t realize our full potential. To help us reach our
full potential, we have made a number of important leadership
changes. These changes should enable us
to achieve the many opportunities our industry affords
us, especially with our powerful owned franchises, our strong
commercial capabilities, our direct digital connections to hundreds
of millions of players, and our extraordinarily talented
employees.”
Operating Metrics
For the year ended December 31, 2018, Activision Blizzard’s net
bookingsB were a record $7.26 billion, as compared with $7.16
billion for 2017, below our prior outlook. Net bookingsB from
digital channels were a record $5.72 billion, as compared with
$5.43 billion for 2017, and in-game net bookingsB were a record of
$4.2 billion.
For the quarter ended December 31, 2018, Activision Blizzard’s
net bookingsB were a record $2.84 billion, compared with $2.64
billion for the fourth quarter of 2017, below our prior outlook.
Net bookingsB from digital channels were a record $1.88 billion, as
compared with $1.62 billion for the fourth quarter of 2017, and
in-game net bookingsB were a record of $1.2 billion.
Selected Business Highlights
Activision
- Activision had 53 million Monthly
Active Users (MAUs)C in the quarter, growing double-digits
quarter-over-quarter. Fourth quarter segment revenues grew 6%
year-over-year to $1.41 billion and operating income increased 14%
year-over-year to $723 million.
- Call of Duty® was again
the number-one selling console franchise worldwide for the year, a
franchise feat accomplished for nine of the last 10 years.1 In its
launch quarter, Call of Duty: Black Ops 4 sold-through more
units than Call of Duty: Black Ops III, with PC units more
than tripling. Full-game downloads were over 40% of Call of
Duty: Black Ops 4 console sell-through, versus approximately
30% for the prior release, Call of Duty: WWII.
- The successful launch of
Spyro® Reignited Trilogy in the fourth quarter
and the ongoing contribution of Crash Bandicoot™ N. Sane
Trilogy, which has sold-in over 10 million units since its 2017
release, highlight the enduring nature of Activision’s classic
franchises.
Blizzard
- Blizzard had 35 million MAUsC in the
quarter, as Overwatch® and Hearthstone®
saw sequential stability and World of Warcraft® saw
expected declines post-expansion-launch. Fourth quarter segment
revenues grew 15% year-over-year to $686 million and operating
income increased 51% year-over-year to $241 million.
- Building on an 11-year partnership,
Blizzard extended its joint venture with NetEase to publish its
games in China through January 2023.
King
- King had 268 million MAUsC in the
quarter, growing sequentially, driven by the successful launch of
Candy Crush Friends SagaTM. Fourth quarter segment
revenues grew 5% year-over-year to $543 million and operating
income increased 28% year-over-year to $207 million.
- Candy Crush Friends Saga saw
strong monetization and retention trends, contributing incremental
growth for the Candy CrushTM franchise, which grew
net bookingsB and MAUsC year-over-year and quarter-over-quarter.
This quarter, King had two of the top-10 highest-grossing titles in
the U.S. mobile app stores for twenty-one quarters in a row, with
Candy Crush SagaTM at #1 again.2
- Advertising in the King network was
again profitable with net bookingsB growing over 50%
sequentially.
Company Outlook
In 2019, the company will increase development investment in its
biggest franchises, enabling teams to accelerate the pace and
quality of content for their communities and supporting a number of
new product initiatives. The number of developers working on
Call of Duty, Candy Crush, Overwatch,
Warcraft®, Hearthstone and
Diablo® in aggregate will increase approximately 20%
over the course of 2019. The company will fund this greater
investment by de-prioritizing initiatives that are not meeting
expectations and reducing certain non-development and
administrative-related costs across the business. The company is
also integrating its global and regional sales and go-to-market,
partnerships, and sponsorships capabilities. As part of these
restructuring actions, the company expects to incur a GAAP-only
pre-tax charge of approximately $150 million, the majority of which
is expected to be incurred this year.
(in millions, except EPS)
GAAP Outlook
Non-GAAP Outlook Impact of
GAAP deferralsA
CY
2019
Net Revenues $6,025
$6,025 $275 EPS $1.18 $1.85 $0.25 Fully Diluted Shares 775 775
Q1
2019
Net Revenues $1,715 $1,715 ($540) EPS $0.39 $0.63 ($0.43)
Fully Diluted Shares
772 772
Net bookingsB are expected to be $6.30 billion for 2019 and
$1.18 billion for the first quarter of 2019.
Currency Assumptions for 2019 Outlook:
- $1.13 USD/Euro for current outlook (vs.
average of $1.12 for 2018, $1.12 for 2017, and $1.11 for 2016);
and
- $1.26 USD/British Pound Sterling for
current outlook (vs. average of $1.30 for 2018, $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 Board of Directors declared a cash dividend of $0.37 per
common share, payable on May 9, 2019 to shareholders of record at
the close of business on March 28, 2019, which represents a 9%
increase from 2018. Additionally, the Board of Directors authorized
a new two-year stock repurchase program under which the company is
authorized to repurchase up to $1.5 billion of its outstanding
common stock during the period.
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 December 31, 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 866-548-4713 in the U.S. with passcode 9678578. 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®, Spyro™, and Crash™, 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 The NPD Group, GfK, GSD and internal estimates, based on
dollar sales of front line games.
2 U.S. ranking for Apple App Store and Google Play Store
combined, per App Annie Intelligence for fourth 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, including 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 and restructuring
activities; (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
execution of our restructuring activities; 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 December 31, Year Ended
December 31,
20181
2017
20181
2017 Net revenues Product
sales $ 808 $ 737 $ 2,255 $ 2,110 Subscription, licensing, and
other revenues2 1,573 1,306 5,245 4,907 Total
net revenues 2,381 2,043 7,500 7,017
Costs and
expenses Cost of revenues—product sales: Product costs 303 310
719 733 Software royalties, amortization, and intellectual property
licenses 157 101 371 300 Cost of revenues—subscription, licensing,
and other: Game operations and distribution costs 251 268 1,028 984
Software royalties, amortization, and intellectual property
licenses 121 124 399 484 Product development 325 318 1,101 1,069
Sales and marketing 321 479 1,062 1,378 General and administrative
209 222 832 760 Total costs and expenses 1,687
1,822 5,512 5,708 Operating income 694
221 1,988 1,309 Interest and other expense (income), net 4
36 71 146 Loss on extinguishment of debt — — 40
12 Income before income tax expense 690 185 1,877 1,151
Income tax expense 40 769 64 878
Net income (loss) $ 650 $ (584 ) $ 1,813 $ 273
Basic earnings (loss) per common share $ 0.85 $ (0.77 ) $ 2.38 $
0.36 Weighted average common shares outstanding 763 757 762 754
Diluted earnings (loss) per common share $ 0.84 $ (0.77 ) $
2.35 $ 0.36 Weighted average common shares outstanding assuming
dilution 771 757 771 766 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 months and year ended December
31, 2018. Prior period results have not been restated to reflect
this change in accounting standards. Refer to our forthcoming Form
10-K for the year ending December 31, 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)
December 31, 20181
December 31, 2017 Assets Current assets Cash and cash
equivalents $ 4,225 $ 4,713 Accounts receivable, net 1,035 918
Inventories, net 43 46 Software development 264 367 Other current
assets 539 476 Total current assets 6,106 6,520
Software development 65 86 Property and equipment, net 282 294
Deferred income taxes, net 403 459 Other assets 482 440 Intangible
assets, net 735 1,106 Goodwill 9,762 9,763 Total
assets $ 17,835 $ 18,668
Liabilities and
Shareholders' Equity Current liabilities Accounts payable $ 253
$ 323 Deferred revenues 1,493 1,929 Accrued expenses and other
liabilities 896 1,411 Total current liabilities 2,642
3,663 Long-term debt, net 2,671 4,390 Deferred income taxes, net 18
21 Other liabilities 1,147 1,132 Total liabilities
6,478 9,206 Shareholders' equity Common stock
— — Additional paid-in capital 10,963 10,747 Treasury stock (5,563
) (5,563 ) Retained earnings 6,558 4,916 Accumulated other
comprehensive loss (601 ) (638 ) Total shareholders’ equity 11,357
9,462 Total liabilities and shareholders’ equity $
17,835 $ 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 months and year ended December
31, 2018. Prior period results have not been restated to reflect
this change in accounting standards. Refer to our forthcoming Form
10-K for the year ending December 31, 2018 for additional
information.
ACTIVISION BLIZZARD, INC. AND
SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS
(Unaudited)
(Amounts in millions)
Year Ended December 31, 2018
2017 Cash flows from operating
activities: Net income $ 1,813 $ 273 Adjustments to reconcile net
income to net cash provided by operating activities: Deferred
income taxes 20 (181 ) Provision for inventories 6 33 Depreciation
and amortization 509 888 Amortization of capitalized software
development costs and intellectual property licenses1 489 311 Loss
on extinguishment of debt 40 12 Amortization of debt discount and
financing costs 6 12 Share-based compensation expense2 209 176
Other 1 28 Changes in operating assets and liabilities, net of
effect from business acquisitions: Accounts receivable, net (114 )
(165 ) Inventories (5 ) (26 ) Software development and intellectual
property licenses (372 ) (301 ) Other assets (51 ) (97 ) Deferred
revenues (122 ) 220 Accounts payable (65 ) 85 Accrued expenses and
other liabilities (574 ) 945 Net cash provided by operating
activities 1,790 2,213 Cash flows from
investing activities: Proceeds from maturities of
available-for-sale investments 116 80 Purchases of
available-for-sale investments (209 ) (135 ) Capital expenditures
(131 ) (155 ) Other investing activities (6 ) 3 Net cash
used in investing activities (230 ) (207 ) Cash flows from
financing activities: Proceeds from issuance of common stock to
employees 99 178 Tax payment related to net share settlements on
restricted stock units (94 ) (56 ) Dividends paid (259 ) (226 )
Proceeds from debt issuances, net of discounts — 3,741 Repayment of
long-term debt (1,740 ) (4,251 ) Premium payment for early
redemption of note (25 ) — Other financing activities (1 ) (10 )
Net cash (used in) provided by financing activities (2,020 ) (624 )
Effect of foreign exchange rate changes on cash and cash
equivalents (31 ) 76 Net increase in cash and cash
equivalents and restricted cash (491 ) 1,458 Cash and
cash equivalents and restricted cash at beginning of period 4,720
3,262 Cash and cash equivalents and restricted
cash at end of period $ 4,229 $ 4,720 1
Excludes deferral and amortization of share-based
compensation expense. 2 Includes the net effects of capitalization,
deferral, and amortization of share-based compensation expense.
ACTIVISION BLIZZARD, INC. AND
SUBSIDIARIES
SUPPLEMENTAL CASH FLOW
INFORMATION
(Amounts in millions)
Three Months Ended Year over Year Three
Months Ended Year over Year December 31,
March 31, June 30,
September 30, December 31, %
Increase March 31, June 30,
September 30, December 31, %
Increase 2016 2017 2017 2017
2017 (Decrease) 2018 2018 2018
2018 (Decrease) Cash Flow Data Operating Cash
Flow $ 859 $ 411 $ 265 $ 379 $ 1,158 35 % $ 529 $ 9 $ 253 $ 999 (14
)% Capital Expenditures 37 21 31 34 69
86 31 30 36 34 (51 ) Non-GAAP
Free Cash Flow1 822 390 234 345 1,089 32 498 (21 ) 217 965 (11 )
Operating Cash Flow - TTM2 2,155 2,229 1,991 1,914 2,213 3
2,331 2,075 1,949 1,790 (19 ) Capital Expenditures - TTM2 136
130 117 123 155 14 165
164 166 131 (15 ) Non-GAAP Free Cash Flow -
TTM2 $ 2,019 $ 2,099 $ 1,874 $ 1,791 $ 2,058 2 % $ 2,166 $ 1,911 $
1,783 $ 1,659 (19 )% 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 March 31, 2016, three months ended June 30,
2016, and three months ended September 30, 2016 was $337 million,
$503 million, and $456 million, respectively. Capital Expenditures
for the three months ended March 31, 2016, three months ended June
30, 2016, and three months ended September 30, 2016, was $27
million, $44 million, and $28 million, respectively.
ACTIVISION BLIZZARD, INC. AND
SUBSIDIARIES
RECONCILIATION OF GAAP NET INCOME TO
NON-GAAP MEASURES
(Amounts in millions, except per share
data)
Three Months Ended December 31, 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 $ 2,381 $ 303 $ 157 $ 251 $ 121 $ 325 $ 321 $ 209
$ 1,687 Share-based compensation1 — — (7 ) — (1 ) (12 ) (2 ) (21 )
(43 ) Amortization of intangible assets2 — — — — (88 ) — — (3 ) (91
) Restructuring costs3 — — —
— — — —
(10 ) (10 ) Non-GAAP Measurement $ 2,381
$ 303 $ 150 $ 251
$ 32 $ 313 $ 319 $ 175
$ 1,543 Net effect of deferred revenues
and related cost of revenues4 $ 454 $ 74 $ 26 $ (1 ) $ (13 ) $ — $
— $ — $ 86
Operating
Income
Net Income
Basic Earnings
per Share
Diluted Earnings
per Share
GAAP Measurement $ 694 $ 650 $ 0.85 $ 0.84 Share-based
compensation1 43 43 0.06 0.06 Amortization of intangible assets2 91
91 0.12 0.12 Restructuring costs3 10 10 0.01 0.01 Income tax
impacts from items above5 — (19 ) (0.03 ) (0.03 ) Discrete
tax-related items6 — (79 ) (0.10 )
(0.10 ) Non-GAAP Measurement $ 838 $ 696
$ 0.91 $ 0.90 Net effect of
deferred revenues and related cost of revenues4 $ 368 $ 298 $ 0.39
$ 0.39 1 Includes expenses related to
share-based compensation. 2 Reflects amortization of intangible
assets from purchase price accounting. 3 Reflects restructuring
charges, primarily severance costs. 4
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.
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.
Activision Blizzard will provide additional information in our
forthcoming Form 10-K for the year ending December 31, 2018.
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)
Year Ended December 31, 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 $ 7,500 $ 719 $ 371 $ 1,028 $ 399 $ 1,101 $ 1,062
$ 832 $ 5,512 Share-based compensation1 — — (13 ) (2 ) (3 ) (61 )
(15 ) (115 ) (209 ) Amortization of intangible assets2 — — — — (318
) — (44 ) (8 ) (370 ) Restructuring costs3 — —
— — — —
— (10 ) (10 ) Non-GAAP Measurement $
7,500 $ 719 $ 358 $ 1,026
$ 78 $ 1,040 $ 1,003
$ 699 $ 4,923 Net effect
of deferred revenues and related cost of revenues4 $ (238 ) $ (48 )
$ (76 ) $ (2 ) $ (12 ) $ — $ — $ — $ (138 )
Operating
Income
Net Income
Basic Earnings
per Share
Diluted Earnings
per Share
GAAP Measurement $ 1,988 $ 1,813 $ 2.38 $ 2.35 Share-based
compensation1 209 209 0.27 0.27 Amortization of intangible assets2
370 370 0.48 0.48 Restructuring costs3 10 10 0.01 0.01 Loss on
extinguishment of debt5 — 40 0.05 0.05 Income tax impacts from
items above6 — (167 ) (0.22 ) (0.22 ) Discrete tax-related items7 —
(176 ) (0.23 ) (0.23 ) Non-GAAP
Measurement $ 2,577 $ 2,099 $ 2.76
$ 2.72 Net effect of deferred revenues
and related cost of revenues4 $ (100 ) $ (96 ) $ (0.13 ) $ (0.12 )
1 Includes expenses related to share-based
compensation. 2 Reflects amortization of intangible assets from
purchase price accounting. 3 Reflects restructuring charges,
primarily severance costs. 4
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.
5 Reflects the loss on extinguishment of debt from redemption
activities. 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. 7 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. Activision Blizzard will provide additional information
in our forthcoming Form 10-K for the year ending December 31, 2018.
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 December 31, 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 $ 2,043 $ 310 $ 101 $ 268 $ 124 $ 318 $ 479 $ 222
$ 1,822 Share-based compensation1 — — (2 ) — (2 ) (16 ) (4 ) (34 )
(58 ) Amortization of intangible assets2 — — (3 ) — (104 ) — (76 )
(2 ) (185 ) Fees and other expenses related to the King
Acquisition3 — — — — — — — (3 ) (3 ) Restructuring costs4 — — — — —
— — (5 ) (5 ) Discrete tax-related items5 — —
— (10 ) — (6 ) (16
) (7 ) (39 ) Non-GAAP Measurement $ 2,043
$ 310 $ 96 $ 258 $
18 $ 296 $ 383 $ 171
$ 1,532 Net effect of deferred revenues
and related cost of revenues6 $ 597 $ 95 $ 52 $ — $ 9 $ — $ — $ — $
156
Operating
Income
Net Income
(Loss)
Basic Earnings
(Loss) per Share
Diluted Earnings
(Loss) per Share
GAAP Measurement $ 221 $ (584 ) $ (0.77 ) $ (0.77 ) Share-based
compensation1 58 58 0.08 0.08 Amortization of intangible assets2
185 185 0.24 0.24 Fees and other expenses related to the King
Acquisition3 3 3 — — Restructuring costs4 5 5 0.01 0.01 Income tax
impacts from items above7 — (86 ) (0.11 ) (0.11 ) Discrete
tax-related items5 39 794 1.05
1.03 Non-GAAP Measurement $ 511 $ 375
$ 0.50 $ 0.49 Net effect
of deferred revenues and related cost of revenues6 $ 441 $ 347 $
0.45 $ 0.45 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”), including related debt financings and
integration costs. 4
Reflects restructuring charges, primarily
severance costs.
5 Reflects the impact of significant discrete tax-related items,
including amounts related to changes in tax laws (including a
reasonable estimate for the impact of the Tax Cuts and Jobs Act
enacted in December 2017, as provided for in accordance with
Securities and Exchange Commission guidance) and the resolution of
tax positions, and/or other unusual or unique tax-related items and
activities. Activision Blizzard provided additional information in
our Form 10-K for the year ended December 31, 2017. 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 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
RECONCILIATION OF GAAP NET INCOME TO
NON-GAAP MEASURES
(Amounts in millions, except per share
data)
Year Ended December 31, 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 $ 7,017 $ 733 $ 300 $ 984 $ 484 $ 1,069 $ 1,378 $
760 $ 5,708 Share-based compensation1 — — (10 ) (1 ) (3 ) (57 ) (15
) (92 ) (178 ) Amortization of intangible assets2 — — (3 ) — (438 )
— (308 ) (8 ) (757 ) Fees and other expenses related to the King
Acquisition3 — — — — — — — (15 ) (15 ) Restructuring costs4 — — — —
— — — (15 ) (15 ) Other non-cash charges5 — — — — — — — (14 ) (14 )
Discrete tax-related items6 — — —
(10 ) — (6 ) (16 )
(7 ) (39 ) Non-GAAP Measurement $ 7,017 $ 733
$ 287 $ 973 $ 43
$ 1,006 $ 1,039 $ 609
$ 4,690 Net effect of deferred revenues and
related cost of revenues7 $ 139 $ 25 $ 35 $ 1 $ 7 $ — $ — $ — $ 68
Operating
Income
Net Income
Basic Earnings
per Share
Diluted Earnings
per Share
GAAP Measurement $ 1,309 $ 273 $ 0.36 $ 0.36 Share-based
compensation1 178 178 0.24 0.23 Amortization of intangible assets2
757 757 1.00 0.99 Fees and other expenses related to the King
Acquisition3 15 22 0.03 0.03 Restructuring costs4 15 15 0.02 0.02
Other non-cash charges5 14 14 0.02 0.02 Loss on extinguishment of
debt8 — 12 0.02 0.02 Income tax impacts from items above9 — (368 )
(0.49 ) (0.48 ) Discrete tax-related items6 39 794
1.05 1.04 Non-GAAP Measurement $
2,327 $ 1,697 $ 2.25 $
2.21 Net effect of deferred revenues and related cost
of revenues7 $ 71 $ 52 $ 0.07 $ 0.07 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,
including 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
impact of significant discrete tax-related items, including amounts
related to changes in tax laws (including a reasonable estimate for
the impact of the Tax Cuts and Jobs Act enacted in December 2017,
as provided for in accordance with Securities and Exchange
Commission guidance) and the resolution of tax positions, and/or
other unusual or unique tax-related items and activities.
Activision Blizzard provided additional information in our Form
10-K for the year ended December 31, 2017. 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,
including the effects of taxes.
8 Reflects the loss on extinguishment of debt from refinancing
activities. 9 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 Months and Year Ended
December 31, 2018 and 2017
(Amounts in millions)
Three Months Ended: December 31, 2018 $
Increase / (Decrease) Activision
Blizzard King
Total Activision Blizzard
King Total Segment
Revenues Net revenues from external customers $ 1,411 $ 647 $
543 $ 2,601 $ 74 $ 67 $ 27 $ 168 Intersegment net revenues1 —
39 — 39 — 20 — 20
Segment net revenues $ 1,411 $ 686 $ 543 $
2,640 $ 74 $ 87 $ 27 $ 188
Segment operating income $ 723 $ 241 $ 207 $ 1,171 $ 89 $ 81
$ 45 $ 215
Operating Margin 44.4 %
December
31, 2017 Activision Blizzard King
Total Segment Revenues Net revenues from external
customers $ 1,337 $ 580 $ 516 $ 2,433 Intersegment net revenues1 —
19 — 19 Segment net revenues $ 1,337
$ 599 $ 516 $ 2,452
Segment
operating income $ 634 $ 160 $ 162 $ 956
Operating
Margin 39.0 %
Year Ended: December 31,
2018 $ Increase / (Decrease) Activision
Blizzard King Total Activision
Blizzard King Total Segment Revenues
Net revenues from external customers $ 2,458 $ 2,238 $ 2,086 $
6,782 $ (170 ) $ 118 $ 88 $ 36 Intersegment net revenues1 —
53 — 53 — 34 — 34 Segment
net revenues $ 2,458 $ 2,291 $ 2,086 $ 6,835
$ (170 ) $ 152 $ 88 $ 70
Segment
operating income $ 1,011 $ 685 $ 750 $ 2,446 $ 6 $ (27 ) $ 50 $
29
Operating Margin 35.8 %
December 31,
2017 Activision Blizzard King Total
Segment Revenues Net revenues from external customers $
2,628 $ 2,120 $ 1,998 $ 6,746 Intersegment net revenues1 —
19 — 19 Segment net revenues $ 2,628 $
2,139 $ 1,998 $ 6,765
Segment
operating income $ 1,005 $ 712 $ 700 $ 2,417
Operating Margin 35.7 % 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
SUBSIDIARIES
OPERATING SEGMENTS INFORMATION
For the Three Months and Year Ended
December 31, 2018 and 2017
(Amounts in millions)
Three Months Ended December 31, Year Ended
December 31, 2018 2017
2018 2017 Reconciliation to
consolidated net revenues: Segment net revenues $ 2,640 $ 2,452
$ 6,835 $ 6,765 Revenues from non-reportable segments1 234 207 480
410 Net effect from recognition (deferral) of deferred net
revenues2 (454 ) (597 ) 238 (139 ) Elimination of intersegment
revenues3 (39 ) (19 ) (53 ) (19 ) Consolidated net revenues $ 2,381
$ 2,043 $ 7,500 $ 7,017
Reconciliation to consolidated income before income tax
expense: Segment operating income $ 1,171 $ 956 $ 2,446 $ 2,417
Operating income (loss) from non-reportable segments1 35 (4 ) 31
(19 ) Net effect from recognition (deferral) of deferred net
revenues and related cost of revenues2 (368 ) (441 ) 100 (71 )
Share-based compensation expense (43 ) (58 ) (209 ) (178 )
Amortization of intangible assets (91 ) (185 ) (370 ) (757 ) Fees
and other expenses related to the King Acquisition4 — (3 ) — (15 )
Restructuring costs5 (10 ) (5 ) (10 ) (15 ) Other non-cash charges6
— — — (14 ) Discrete tax-related items7 — (39 ) — (39
) Consolidated operating income 694 221 1,988 1,309 Interest and
other expense (income), net 4 36 71 146 Loss on extinguishment of
debt — — 40 12 Consolidated income
before income tax expense $ 690 $ 185 $ 1,877
$ 1,151 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, including 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.
ACTIVISION BLIZZARD, INC. AND
SUBSIDIARIES
NET REVENUES BY DISTRIBUTION
CHANNEL
For the Three Months and Year Ended
December 31, 2018 and 2017
(Amounts in millions)
Three Months Ended December 31, 2018
December 31, 2017
$ Increase
(Decrease)
% Increase
(Decrease)
Amount1 % of Total2
Amount % of Total2 Net
Revenues by Distribution Channel Digital online channels3 $
1,788 75 % $ 1,431 70 % $ 357 25 % Retail channels 343 14 335 16 8
2 Other4 250 10 277 14 (27 ) (10 )
Total consolidated net revenues $ 2,381 100 % $ 2,043
100 % $ 338 17
Change in deferred
revenues5 Digital online channels3 $ 92 $ 184 Retail
channels 356 417 Other4 6 (4 ) Total changes in deferred
revenues $ 454 $ 597
Year Ended
December 31, 2018 December 31, 2017
$ Increase
(Decrease)
% Increase
(Decrease)
Amount1 % of Total2 Amount %
of Total2 Net Revenues by Distribution Channel
Digital online channels3 $ 5,786 77 % $ 5,479 78 % $ 307 6 % Retail
channels 1,107 15 1,033 15 74 7 Other4 607 8 505
7 102 20 Total consolidated net revenues $
7,500 100 % $ 7,017 100 % $ 483 7
Change in deferred revenues5 Digital online channels3
$ (68 ) $ (53 ) Retail channels (191 ) 210 Other4 21 (18 )
Total changes in deferred revenues $ (238 ) $ 139 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 months and year ended December
31, 2018. Prior period results have not been restated to reflect
this change in accounting standards. Refer to our forthcoming Form
10-K for the year ending December 31, 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
December 31, 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 December 31, 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 December 31, 2018
Activision Blizzard
King
Non-
reportable
segments
Elimination of
intersegment
revenues4
Total Net Revenues by Distribution
Channel: Digital online channels1 $ 630 $ 655 $ 542 $ — $ (39 )
$ 1,788 Retail channels 291 52 — — — 343 Other2 — 24
— 226 — 250 Total consolidated net revenues $
921 $ 731 $ 542 $ 226 $ (39 ) $ 2,381
Change in deferred revenues3: Digital online channels1 $ 139
$ (48 ) $ 1 $ — $ — $ 92 Retail channels 351 5 — — — 356 Other2 —
(2 ) — 8 — 6 Total change in deferred
revenues $ 490 $ (45 ) $ 1 $ 8 $ — $
454
Segment net revenues: Digital online channels1 $
769 $ 607 $ 543 $ — $ (39 ) $ 1,880 Retail channels 642 57 — — —
699 Other2 — 22 — 234 — 256
Total segment net revenues $ 1,411 $ 686 $ 543
$ 234 $ (39 ) $ 2,835 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 Year Ended December 31,
2018
(Amounts in millions)
As a result of our adoption of the new
revenue accounting standard, net revenues by distribution channel
for the year ended December 31, 2018, includes a
reconciliation to our segment revenues as disclosed for each of our
reportable segments. Net revenues by distribution channel were as
follows:
Year Ended December 31, 2018 Activision
Blizzard King
Non-
reportable
segments
Elimination of
intersegment
revenues4
Total Net Revenues by Distribution
Channel: Digital online channels1 $ 1,740 $ 2,009 $ 2,090 $ — $
(53 ) $ 5,786 Retail channels 998 109 — — — 1,107 Other2 —
148 — 459 — 607 Total
consolidated net revenues $ 2,738 $ 2,266 $ 2,090
$ 459 $ (53 ) $ 7,500 Change in
deferred revenues3: Digital online channels1 $ (96 ) $ 32 $ (4 ) $
— $ — $ (68 ) Retail channels (184 ) (7 ) — — — (191 ) Other2 —
— — 21 — 21 Total change
in deferred revenues $ (280 ) $ 25 $ (4 ) $ 21 $ —
$ (238 )
Segment net revenues: Digital online
channels1 $ 1,644 $ 2,041 $ 2,086 $ — $ (53 ) $ 5,718 Retail
channels 814 102 — — — 916 Other2 — 148 — 480
— 628 Total segment net revenues $ 2,458
$ 2,291 $ 2,086 $ 480 $ (53 ) $ 7,262
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 Months and Year Ended
December 31, 2018 and 2017
(Amounts in millions)
Three Months Ended December 31, 2018
December 31, 2017
$ Increase
(Decrease)
% Increase
(Decrease)
Amount1 % of Total2
Amount % of Total2 Net
Revenues by Platform Console $ 808 34 % $ 679 33 % $ 129 19 %
PC 727 31 508 25 219 43 Mobile and ancillary3 596 25 579 28 17 3
Other4 250 10 277 14 (27 ) (10 ) Total
consolidated net revenues $ 2,381 100 % $ 2,043 100 %
$ 338 17
Change in deferred revenues5
Console $ 455 $ 520 PC (10 ) 86 Mobile and ancillary3 3 (5 ) Other4
6 (4 ) Total changes in deferred revenues $ 454 $ 597
Year Ended December 31, 2018
December 31, 2017
$ Increase
(Decrease)
% Increase
(Decrease)
Amount1 % of Total2 Amount %
of Total2 Net Revenues by Platform Console $
2,538 34 % $ 2,389 34 % $ 149 6 % PC 2,180 29 2,042 29 138 7 Mobile
and ancillary3 2,175 29 2,081 30 94 5 Other4 607 8
505 7 102 20 Total consolidated net revenues $
7,500 100 % $ 7,017 100 % $ 483 7
Change in deferred revenues5 Console $ (265 ) $ 210
PC 9 (67 ) Mobile and ancillary3 (3 ) 14 Other4 21 (18 )
Total changes in deferred revenues $ (238 ) $ 139 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 months and year ended December
31, 2018. Prior period results have not been restated to reflect
this change in accounting standards. Refer to our forthcoming Form
10-K for the year ending December 31, 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
December 31, 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 December 31, 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 December 31, 2018
Activision Blizzard
King
Non-
reportable
segments
Elimination of
intersegment
revenues4
Total Net Revenues by Platform:
Console $ 754 $ 54 $ — $ — $ — $ 808 PC 160 571 35 — (39 ) 727
Mobile and ancillary1 7 82 507 — — 596 Other2 — 24 —
226 — 250 Total consolidated net
revenues $ 921 $ 731 $ 542 $ 226 $ (39
) $ 2,381 Change in deferred revenues3: Console $ 438
$ 17 $ — $ — $ — $ 455 PC 52 (62 ) — — — (10 ) Mobile and
ancillary1 — 2 1 — — 3 Other2 — (2 ) — 8 —
6 Total change in deferred revenues $ 490 $
(45 ) $ 1 $ 8 $ — $ 454
Segment net revenues: Console $ 1,192 $ 71 $ — $ — $ — $
1,263 PC 212 509 35 — (39 ) 717 Mobile and ancillary1 7 84 508 — —
599 Other2 — 22 — 234 — 256
Total segment net revenues $ 1,411 $ 686 $ 543
$ 234 $ (39 ) $ 2,835 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 Year Ended December 31,
2018
(Amounts in millions)
As a result of our adoption of the new
revenue accounting standard, net revenues by platform for the year
ended December 31, 2018, includes a reconciliation to our
segment revenues as disclosed for each of our reportable segments.
Net revenues by platform were as follows:
Year Ended December 31, 2018 Activision
Blizzard King
Non-
reportable
segments
Elimination of
intersegment
revenues4
Total Net Revenues by Platform:
Console $ 2,351 $ 187 $ — $ — $ — $ 2,538 PC 368 1,711 154 — (53 )
2,180 Mobile and ancillary1 19 220 1,936 — — 2,175 Other2 —
148 — 459 — 607 Total
consolidated net revenues $ 2,738 $ 2,266 $ 2,090
$ 459 $ (53 ) $ 7,500 Change in
deferred revenues3: Console $ (257 ) $ (8 ) $ — $ — $ — $ (265 ) PC
(23 ) 33 (1 ) — — 9 Mobile and ancillary1 — — (3 ) — — (3 ) Other2
— — — 21 — 21 Total
change in deferred revenues $ (280 ) $ 25 $ (4 ) $ 21
$ — $ (238 )
Segment net revenues: Console $
2,094 $ 179 $ — $ — $ — $ 2,273 PC 345 1,744 153 — (53 ) 2,189
Mobile and ancillary1 19 220 1,933 — — 2,172 Other2 — 148
— 480 — 628 Total segment net
revenues $ 2,458 $ 2,291 $ 2,086 $ 480
$ (53 ) $ 7,262 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 Months and Year Ended
December 31, 2018 and 2017
(Amounts in millions)
Three Months Ended December 31, 2018
December 31, 2017
$ Increase
(Decrease)
% Increase
(Decrease)
Amount1 % of Total2
Amount % of Total2 Net
Revenues by Geographic Region Americas $ 1,140 48 % $ 1,021 50
% $ 119 12 % EMEA3 844 35 780 38 64 8 Asia Pacific 397 17
242 12 155 64 Total consolidated net
revenues $ 2,381 100 % $ 2,043 100 % $ 338 17
Change in deferred revenues4 Americas $ 248 $
333 EMEA3 151 247 Asia Pacific 55 17 Total changes in
deferred revenues $ 454 $ 597
Year
Ended December 31, 2018 December 31, 2017
$ Increase
(Decrease)
% Increase
(Decrease)
Amount1 % of Total2 Amount %
of Total2 Net Revenues by Geographic Region
Americas $ 3,880 52 % $ 3,607 51 % $ 273 8 % EMEA3 2,618 35 2,464
35 154 6 Asia Pacific 1,002 13 946 13
56 6 Total consolidated net revenues $ 7,500 100 % $
7,017 100 % $ 483 7
Change in deferred
revenues4 Americas $ (151 ) $ 75 EMEA3 (91 ) 88 Asia
Pacific 4 (24 ) Total changes in deferred revenues $ (238 )
$ 139 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 months and year ended December
31, 2018. Prior period results have not been restated to reflect
this change in accounting standards. Refer to our forthcoming Form
10-K for the year ending December 31, 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
December 31, 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 December 31, 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 December 31, 2018
Activision Blizzard
King
Non-
reportable
segments
Elimination of
intersegment
revenues3
Total Net Revenues by Geographic
Region: Americas $ 549 $ 289 $ 322 $ — $ (20 ) $ 1,140 EMEA1
284 195 152 226 (13 ) 844 Asia Pacific 88 247 68
— (6 ) 397 Total consolidated net revenues $ 921
$ 731 $ 542 $ 226 $ (39 ) $ 2,381
Change in deferred revenues2: Americas $ 275 $ (28 ) $ 1 $ —
$ — $ 248 EMEA1 161 (18 ) — 8 — 151 Asia Pacific 54 1
— — — 55 Total change in deferred revenues $
490 $ (45 ) $ 1 $ 8 $ — $ 454
Segment net revenues: Americas $ 824 $ 261 $ 323 $ — $ (20 )
$ 1,388 EMEA1 445 177 152 234 (13 ) 995 Asia Pacific 142 248
68 — (6 ) 452 Total segment net revenues $
1,411 $ 686 $ 543 $ 234 $ (39 ) $ 2,835
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 Year Ended December 31,
2018
(Amounts in millions)
As a result of our adoption of the new
revenue accounting standard, net revenues by geographic region for
the year ended December 31, 2018, includes a reconciliation to
our segment revenues as disclosed for each of our reportable
segments. Net revenues by geographic region were as follows:
Year Ended December 31, 2018 Activision
Blizzard King
Non-
reportable
segments
Elimination of
intersegment
revenues3
Total Net Revenues by Geographic
Region: Americas $ 1,622 $ 1,004 $ 1,269 $ 13 $ (28 ) $ 3,880
EMEA1 897 692 599 446 (16 ) 2,618 Asia Pacific 219 570
222 — (9 ) 1,002 Total consolidated net
revenues $ 2,738 $ 2,266 $ 2,090 $ 459
$ (53 ) $ 7,500 Change in deferred revenues2:
Americas $ (163 ) $ 15 $ (3 ) $ — $ — $ (151 ) EMEA1 (127 ) 16 (1 )
21 — (91 ) Asia Pacific 10 (6 ) — — — 4
Total change in deferred revenues $ (280 ) $ 25 $ (4
) $ 21 $ — $ (238 )
Segment net
revenues: Americas $ 1,459 $ 1,019 $ 1,266 $ 13 $ (28 ) $ 3,729
EMEA1 770 708 598 467 (16 ) 2,527 Asia Pacific 229 564
222 — (9 ) 1,006 Total segment net
revenues $ 2,458 $ 2,291 $ 2,086 $ 480
$ (53 ) $ 7,262 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
December 31, 2018
(Amounts in millions)
Trailing Twelve
Months Ended
March 31,2018 June 30,2018 September
30,2018 December 31, 2018 December
31, 2018 GAAP Net Income1 $ 500 $
402 $ 260 $ 650 $ 1,813 Interest and other expense (income), net 28
26 13 4 71 Loss on extinguishment of debt — — 40 — 40 Provision for
income taxes2 67 6 (48 ) 40 64 Depreciation and amortization 155
112 118 124 509
EBITDA
750 546 383 818 2,497
Share-based compensation expense3 53 57 55 43 209 Restructuring
costs4 — — — 10 10
Adjusted
EBITDA $ 803 $ 603
$ 438 $ 871 $
2,716 Change in deferred net revenues and
related cost of revenues5 $ (373 ) $ (182 ) $ 89 $ 368 $ (100 )
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 forthcoming Form 10-K for the
year ending December 31, 2018 for additional information.
2 Provision for income taxes for the three months ended June 30,
2018, September 30, 2018, and December 31, 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
restructuring charges, primarily severance costs. 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. Trailing twelve months amounts are
presented as calculated. Therefore, the sum of the four quarters,
as presented, may differ due to the impact of rounding.
ACTIVISION BLIZZARD, INC. AND
SUBSIDIARIES
Outlook for the Three Months Ending
March 31, 2019 and Year Ending December 31, 2019
GAAP to Non-GAAP Reconciliation
(Amounts in millions, except per share
data)
Outlook for the
Outlook for the Three Months Ending Year
Ending March 31, 2019 December 31, 2019
Net Revenues1 $ 1,715 $
6,025 Change in deferred revenues2 $
(540 ) $ 275 Earnings
Per Diluted Share (GAAP) $ 0.39 $
1.18 Excluding the impact of: Share-based compensation3 0.10
0.30 Amortization of intangible assets4 0.07 0.26 Restructuring
charges5 0.13 0.19 Income tax impacts from items above6 (0.05 )
(0.09 )
Earnings Per Diluted Share (Non-GAAP) $
0.63 $ 1.85 Net
effect of deferred net revenues and related cost of revenues on
Earnings Per Diluted Share7 $ (0.43
) $ 0.25 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 our planned restructuring
initiatives, primarily severance and facilities costs. This aims to
invest development resources on our biggest franchises, reduce
certain non-development and administrative related costs, and
integrate our global and regional sales and go-to-market,
partnerships, and sponsorship capabilities across the business.
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 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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Activision Blizzard, Inc.
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