Company Increases CY 2017 Revenues and EPS
Outlook
Record Q1 Revenues, Digital Revenues and
Earnings Per Share
Record Q1 Operating Cash Flow of Over $400
Million, up 22% Year-Over-Year
Activision Blizzard, Inc. (Nasdaq: ATVI) today announced
better-than-expected and record first-quarter 2017 results.
First Quarter Prior
(in millions, except EPS)
2017 Outlook*
2016 GAAP Net Revenues $
1,726 $ 1,550 $
1,455 Impact of GAAP deferrals $ (530)
$ (500) $ (547) GAAP EPS
$ 0.56 $ 0.25 $ 0.48
Non-GAAP (redefined) EPS** $ 0.72 $
0.51 $ 0.58 Impact of GAAP deferrals
$ (0.41) $ (0.33) $
(0.35)
* Prior outlook was provided by the company on February 9, 2017
in its earnings release.
** “Non-GAAP (redefined)” includes the net effect of revenue
deferrals accounting treatment on certain of our online enabled
products. Please refer to our July 29, 2016 call and materials for
additional information.
For the quarter ended March 31, 2017, Activision Blizzard’s net
revenues presented in accordance with GAAP were a Q1 record of
$1.73 billion, as compared with $1.46 billion for the first quarter
of 2016, an increase of 19%. GAAP net revenues from digital
channels were a Q1 record of $1.39 billion, growing 50%
year-over-year. GAAP operating margin was 29%. GAAP earnings per
diluted share were an all-time quarterly record $0.56, as compared
with $0.48 for the first quarter of 2016, an increase of 17%.
For the quarter ended March 31, 2017, on a non-GAAP (redefined)
basis, Activision Blizzard’s operating margin was 43% and earnings
per diluted share were an all-time quarterly record $0.72, as
compared with $0.58 for the first quarter of 2016, an increase of
24%.
For the quarter, operating cash flows were a Q1 record of $411
million, up 22% year-over-year.
Please refer to the tables at the end of this press release for
a reconciliation of the company’s GAAP and non-GAAP (redefined)
results.
Bobby Kotick, Chief Executive Officer of Activision Blizzard,
said, “This quarter we delivered record revenues, earnings per
share and cash flow, and over-performed guidance.”
Kotick added, "Among the drivers of our results was
Overwatch®, which now has over 30 million players
globally. The Overwatch League™ is gaining momentum and we're
excited to offer our community of players the best professional
league experience. Destiny 2 and Call of
Duty®: WWII are also coming later this year, and
both reveals have been very well received by fans."
Selected Business Highlights:
Audience Reach
- Activision Blizzard had 431 million
Monthly Active Users (MAUs)A in the quarter.
- Blizzard had the biggest Q1 online
player community in its history with MAUsA of 41 million, up 58%
year-over-year. Overwatch continues to be Blizzard’s fastest
growing new franchise, reaching over 30 million players globally
less than a year after launch. Overwatch is now the 8th
billion-dollar franchise in Activision Blizzard’s portfolio.
Hearthstone® MAUsA grew year-over-year and
quarter-over-quarter, despite no content releases in the first
quarter, and recently surpassed the 70 million registered player
milestone life-to-date.
- Activision had 48 million MAUsA in the
first quarter, down year-over-year primarily due to expected
softness from last year’s Infinite Warfare™ release.
Activision expects to release Call of Duty: WWII on November
3, 2017. Last week’s reveal was the most watched livestream in
Call of Duty history, and the reveal trailer became the
fastest video to reach 10 million views in Call of Duty
history. Though early, initial pre-orders for Call of Duty:
WWII are off to a very strong start. Activision and its
partners at Bungie expect to release Destiny 2 on
September 8, 2017 and welcome PC players into the Destiny
universe for the first time. Response to the Destiny 2
reveal was very encouraging, and pre-orders are off to a very
strong start.
- King had 342 million MAUsA for the
quarter, down year-over-year, but with better per user engagement
and investment. King had two of the top 10 highest-grossing titles
in the U.S. mobile app stores for the fourteenth quarter in a
row.1
Deep Engagement
- Blizzard had record first-quarter time
spent, up a double-digit percentage year-over-year. In late
January, Overwatch had its fourth seasonal event, Year of
the Rooster, to celebrate the lunar new year. The event drove
engagement records for the game. Blizzard launched a fifth seasonal
event in April, Uprising, including a
player-versus-environment game mode which drew record time spent.
With a regular content and feature update cadence, World of
Warcraft® time spent grew year-over-year in the first
quarter. Hearthstone set a new all-time Daily Active Users
(DAUs)B record last month with the release of a new expansion,
Journey to Un’Goro™. In April, Blizzard also launched
Heroes of the Storm® 2.0, bringing players
back into the game.
- King’s time spent per DAUB is now a
record 35 minutes a day, up quarter-over-quarter and
year-over-year. King’s DAUB to MAUA ratio is at its highest point
since 2013, and DAUsB were steady quarter-over-quarter.
Player Investment
- Blizzard’s revenues from in-game
content grew more than 25% year-over-year, driven by revenues from
World of Warcraft in-game content and continued strength of
Overwatch customization items.
- Activision expects to release a new
content offering for Call of Duty: Black Ops 3 fans,
Zombies Chronicles, on May 16, 2017. The remastered
collection of the franchise’s most beloved Zombies content will be
available first on PlayStation 4.
- King’s first-quarter gross bookingsC
per paying user grew for the 7th quarter in a row to a new record.
The Candy Crush™ franchise showed continued stability
with mobile bookings up quarter-over-quarter. Also, King has
entered into a promising publishing partnership with PlayStudios to
enter the social casino genre.
Company Outlook:
(in millions, except EPS) GAAP
Outlook
Non-GAAP Outlook
(redefined)
Impact of GAAP
deferralsD
CY
2017
Net Revenues $ 6,100 6,100 230
EPS $
0.88 1.80 0.08
Fully Diluted Shares* 767 767
Q2
2017
Net Revenues $ 1,425 1,425 (225 )
EPS $ 0.15 0.38
(0.11 )
Fully Diluted Shares* 764 764
* Fully diluted weighted average shares include participating
securities and dilutive options on a weighted average basis.
As referenced on our July 29, 2016 call, if you would like to
calculate Non-GAAP metrics as previously defined, you would add the
impact of GAAP deferrals to the Non-GAAP (redefined) metrics.
Currency Assumptions for 2017 Outlook:
- $1.09 USD/Euro for current outlook (vs.
average of $1.11 for 2016 and $1.11 for 2015); and
- $1.28 USD/British Pound Sterling for
current outlook (vs. average of $1.36 for 2016 and $1.53 for
2015).
Debt Repayment and Cash Dividend:
During the first quarter, we prepaid $500 million of our term
loan. Also, the company declared a cash dividend of $0.30 per
common share to be paid on May 10th to shareholders of record at
the close of business on March 30, 2017.
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 March 31, 2017 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
888-510-1785 in the U.S. with passcode 5731344.
About Activision Blizzard:
Activision Blizzard, Inc., a member of the 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™, Pet Rescue™, 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 first quarter 2017.
A 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 played 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
plays two of our games would be counted as two users. In addition,
due to technical limitations, for Activision Publishing and King,
an individual who plays the same game on two platforms or devices
in the relevant period would be counted as two users. For Blizzard,
an individual who plays the same game on two platforms or devices
in the relevant period would generally be counted as a single
user.
B Daily Active Users (“DAU”) Definition: DAUs are defined and
measured using the same methodology as we use for MAUs but on a
daily basis.
C Gross bookings is an operating metric that represents the
total cash spent by players in the period for the purchase of
virtual items. King uses gross bookings to evaluate its results of
operations, generate future operating plans and assess performance.
Gross bookings is the total price paid by players, which includes
indirect taxes (sales tax or value added tax etc.), platform
providers fees, and King’s share of revenues.
D Net effect of accounting treatment from revenue deferrals on
certain of our online enabled products. Some of our games’ online
functionality represents an essential component of gameplay and, as
a result, a more-than-inconsequential separate deliverable. As a
result, we recognize revenues attributed to these game titles over
their estimated service periods, which is 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, and together
with the related cost of revenues deferrals treatment and the
related tax impacts for the purposes of EPS. 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.
Non-GAAP (as previously defined) and Non-GAAP (redefined)
Financial Measures: In accordance with the updated Compliance
and Disclosure Interpretations issued by the SEC staff on May 17,
2016, beginning with the reporting of our second-quarter 2016
results, we have reported our financial results and provided our
outlook using GAAP and non-GAAP (redefined). We have historically
provided Non-GAAP (as previously defined) financial measures. The
only difference between the two measures is the inclusion (Non-GAAP
(redefined)) or exclusion (Non-GAAP (as previously defined)) of the
impact from revenue deferrals accounting treatment on certain of
our online enabled products. Please see materials from July 29,
2016 call for further details.
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; and
- 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).
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. 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; 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
risk, 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: the diversion of management time and attention to
issues relating to the operations of our acquired or newly started
businesses; 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 preferences
among platforms; the amount of our debt and the limitations imposed
by the covenants in the agreements governing our debt; the adoption
rate and availability of new hardware (including peripherals) and
related software; 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 develop
key personnel and developers that can create high-quality titles,
products and services; risks relating to the expansion into new
businesses, including the potential impact on our existing
businesses; 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; the impact
of litigation risks and associated costs; protection of proprietary
rights; shifts in consumer spending trends; capital market risks;
applicable 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, 2016.
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 March 31, 2017
2016 Net revenues Product sales $ 509 $
645
Subscription, licensing, and other
revenues 1
1,217 810 Total net revenues 1,726 1,455
Costs and
expenses Cost of revenues—product sales: Product costs 143 169
Software royalties, amortization, and intellectual property
licenses 88 128 Cost of revenues—subscription, licensing, and
other: Game operations and distribution costs 232 142 Software
royalties, amortization, and intellectual property licenses 122 52
Product development 225 175 Sales and marketing 246 168 General and
administrative 177 160 Total costs and expenses 1,233 994
Operating income 493 461 Interest and other
expense (income), net 40 52 Income before income tax
expense 453 409 Income tax expense 27 46 Net
income $ 426 $ 363 Basic earnings per common share 2
$ 0.57 $ 0.49 Weighted average common shares outstanding 749 735
Diluted earnings per common share 2 $ 0.56 $ 0.48 Weighted
average common shares outstanding assuming dilution 761 749
1
Subscription, licensing, and other
revenues represent revenues from World of Warcraft subscriptions,
licensing royalties from our products and franchises, value-added
services, downloadable content, microtransactions, and other
miscellaneous revenues.
2 The company calculates earnings per share pursuant to the
two-class method which requires the allocation of net income
between common shareholders and participating security holders. We
had, on a weighted-average basis, participating securities of less
than a million and approximately 4 million for the three months
ended March 31, 2017, and 2016, respectively. For the three months
ended March 31, 2017, net income attributable to Activision
Blizzard, Inc. common shareholders used to calculate earnings per
common share, assuming dilution, was $426 million, as compared to
total net income of $426 million, for the same period. For the
three months ended March 31, 2016, net income attributable to
Activision Blizzard, Inc. common shareholders used to calculate
earnings per common share, assuming dilution, was $360 million, as
compared to total net income of $363 million, for the same period.
ACTIVISION BLIZZARD, INC. AND
SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE
SHEETS
(Unaudited)
(Amounts in millions)
March 31, 2017
December 31, 2016 Assets Current assets Cash
and cash equivalents $ 3,248 $ 3,245 Accounts receivable, net 344
732 Inventories, net 48 49 Software development 370 412 Other
current assets 346 392 Total current assets 4,356
4,830 Software development 74 54 Property and equipment, net 245
258 Deferred income taxes, net 371 283 Other assets 439 401
Intangible assets, net 1,673 1,858 Goodwill 9,763 9,768
Total assets $ 16,921 $ 17,452
Liabilities and Shareholders' Equity Current liabilities
Accounts payable $ 150 $ 222 Deferred revenues 1,153 1,628 Accrued
expenses and other liabilities 936 806 Total current
liabilities 2,239 2,656 Long-term debt, net 4,393 4,887 Deferred
income taxes, net 41 44 Other liabilities 812 746
Total liabilities 7,485 8,333 Shareholders'
equity Common stock — — Additional paid-in capital 10,555 10,442
Treasury stock (5,563 ) (5,563 ) Retained earnings 5,069 4,869
Accumulated other comprehensive loss (625 ) (629 ) Total
shareholders’ equity 9,436 9,119 Total liabilities
and shareholders’ equity $ 16,921 $ 17,452
ACTIVISION BLIZZARD, INC. AND
SUBSIDIARIES
RECONCILIATION OF GAAP NET INCOME TO
NON-GAAP MEASURES
(Amounts in millions, except per share
data)
Three Months Ended March 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: SoftwareRoyalties and
Amortization
Product Development
Sales and Marketing
General and
Administrative
Total Costs and Expenses
GAAP Measurement $ 1,726 $ 143 $ 88
$ 232 $ 122 $ 225 $ 246 $ 177
$ 1,233 Share-based compensation1 — — (4 ) — — (12 ) (4 )
(13 ) (33 ) Amortization of intangible assets2 — — — — (111 ) — (77
) (2 ) (190 )
Fees and other expenses related to the
King Acquisition3
— — — — — — — (4 ) (4 ) Restructuring costs4 — — — — — — — (11 )
(11 ) Other non-cash charges5 — — —
— — — —
(16 ) (16 ) Non-GAAP (redefined) Measurement $
1,726 $ 143 $ 84 $ 232
$ 11 $ 213 $ 165
$ 131 $ 979 Net effect of
deferred revenues and related cost of revenues6 $ (530 ) $ (58 ) $
(68 ) $ (4 ) $ (4 ) $ — $ — $ — $ (134 )
Operating Income
Net Income
Basic Earnings per Share
Diluted Earnings per
Share
GAAP Measurement $ 493 $ 426
$ 0.57 $ 0.56 Share-based compensation1 33 33 0.04 0.04
Amortization of intangible assets2 190 190 0.25 0.25
Fees and other expenses related to the
King Acquisition3
4 9 0.01 0.01 Restructuring costs4 11 11 0.01 0.01 Other non-cash
charges5 16 16 0.02 0.02 Income tax impacts from items above7 —
(139 ) (0.18 ) (0.18 ) Non-GAAP
(redefined) Measurement $ 747 $ 546 $
0.73 $ 0.72 Net effect of deferred
revenues and related cost of revenues6 $ (396 ) $ (310 ) $ (0.41 )
$ (0.41 ) 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 restructuring charges incurred,
primarily severance costs. 5
Reflects a non-cash accounting charge to
reclassify certain cumulative translation 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 income tax impact associated with
the above items. Tax impact on non-GAAP (redefined) 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 (redefined) earnings per share information
is presented as calculated. The sum of these measures, as
presented, may differ due to the impact of rounding.
For purposes of calculating earnings per share, we had, on a
weighted-average basis, common shares outstanding of 749 million,
participating securities of less than a million, and dilutive
shares of 12 million during the three months ended March 31,
2017.
ACTIVISION BLIZZARD, INC. AND
SUBSIDIARIES
RECONCILIATION OF GAAP NET INCOME TO
NON-GAAP MEASURES
(Amounts in millions, except per share
data)
Three Months Ended March 31, 2016
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 $ 1,455 $ 169 $ 128
$ 142 $ 52 $ 175 $ 168 $ 160
$ 994 Share-based compensation1 — — (8 ) — — (10 ) (3 ) (23
) (44 ) Amortization of intangible assets2 — — (1 ) (1 ) (46 ) —
(33 ) (1 ) (82 )
Fees and other expenses related to the
King Acquisition3
— — — — —
— — (34 ) (34 )
Non-GAAP (redefined) Measurement $ 1,455 $ 169
$ 119 $ 141 $ 6 $
165 $ 132 $ 102 $ 834
Net effect of deferred revenues and related cost of
revenues4 $ (547 ) $ (83 ) $ (88 ) $ (5 ) $ (2 ) $ — $ — $ — $ (178
)
Operating Income
Net Income
Basic Earnings per Share
Diluted Earnings per
Share
GAAP Measurement $ 461 $ 363 $ 0.49 $ 0.48 Share-based
compensation1 44 44 0.06 0.06 Amortization of intangible assets2 82
82 0.11 0.11
Fees and other expenses related to the
King Acquisition3
34 34 0.05 0.05 Income tax impacts from items above5 —
(82 ) (0.11 ) (0.11 ) Non-GAAP (redefined)
Measurement $ 621 $ 441 $ 0.59
$ 0.58 Net effect of deferred revenues and
related cost of revenues4 $ (369 ) $ (268 ) $ (0.36 ) $ (0.35 )
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 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 (redefined) 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 (redefined) earnings per share information
is presented as calculated. The sum of these measures, as
presented, may differ due to the impact of rounding.
The company calculates earnings per share pursuant to the
two-class method which requires the allocation of net income
between common shareholders and participating security holders. For
the three months ended March 31, 2016, net income attributable
to Activision Blizzard, Inc. common shareholders used to calculate
non-GAAP (redefined) earnings per common share, assuming dilution,
was $438 million, as compared to total net income of $441 million,
for the same period.
For purposes of calculating earnings per share, we had, on a
weighted-average basis, common shares outstanding of 735 million,
participating securities of approximately 4 million, and dilutive
shares of 14 million during the three months ended March 31,
2016.
ACTIVISION BLIZZARD, INC. AND
SUBSIDIARIES
FINANCIAL INFORMATION
For the Three Months Ended
March 31, 2017 and 2016
(Amounts in millions)
Three Months Ended March 31,
2017 March 31, 2016
$ Increase (Decrease)
% Increase (Decrease)
Amount % of Total1 Amount
% of Total1 Net Revenues by Distribution
Channel Digital online channels2 $ 1,386 80 % $ 926 64 % $ 460
50 % Retail channels 270 16 482 33 (212 ) (44 ) Other3 70 4
47 3 23 49 Total consolidated net
revenues $ 1,726 100 % $ 1,455 100 % $ 271 19
Change in deferred revenues4 Digital online
channels2 $ (320 ) $ (129 ) Retail channels (206 ) (418 ) Other3 (4
) — Total changes in deferred revenues $ (530 ) $ (547 )
1 The percentages of total are
presented as calculated. Therefore, the sum of these percentages,
as presented, may differ due to the impact of rounding. 2 Net
revenues from digital online channels represent revenues from
digitally distributed subscriptions, licensing royalties,
value-added services, downloadable content, microtransactions, and
products. 3 Net revenues from Other include revenues from our Major
League Gaming, studios, and distribution businesses. 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
FINANCIAL INFORMATION
For the Three Months Ended
March 31, 2017 and 2016
(Amounts in millions)
Three Months Ended March 31,
2017 March 31, 2016
$ Increase (Decrease)
% Increase (Decrease)
Amount % of Total1 Amount
% of Total1 Net Revenues by Platform Console $
615 36 % $ 765 53 % $ (150 )
(20)
%
PC 566 33 400 27 166 42 Mobile and ancillary2 475 28 243 17 232 95
Other3 70 4 47 3 23 49 Total
consolidated net revenues $ 1,726 100 % $ 1,455 100 %
$ 271 19
Change in deferred revenues4
Console $ (375 ) $ (437 ) PC (147 ) (99 ) Mobile and ancillary2 (4
) (11 ) Other3 (4 ) — Total changes in deferred revenues $
(530 ) $ (547 ) 1 The percentages of total are
presented as calculated. Therefore, the sum of these percentages,
as presented, may differ due to the impact of rounding. 2 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 toys and accessories from the
Skylanders franchise and other physical merchandise and
accessories. 3 Net revenues from Other include revenues from our
Major League Gaming, studios, and distribution businesses. 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
FINANCIAL INFORMATION
For the Three Months Ended
March 31, 2017 and 2016
(Amounts in millions)
Three Months Ended March 31,
2017 March 31, 2016
$ Increase (Decrease)
% Increase (Decrease)
Amount % of Total1 Amount
% of Total1 Net Revenues by Geographic Region
Americas $ 929 54 % $ 753 52 % $ 176 23 % EMEA2 554 32 521 36 33 6
Asia Pacific 243 14 181 12 62 34
Total consolidated net revenues $ 1,726 100 % $ 1,455
100 % $ 271 19
Change in deferred
revenues3 Americas $ (309 ) $ (293 ) EMEA2 (162 ) (194 )
Asia Pacific (59 ) (60 ) Total changes in deferred revenues $ (530
) $ (547 ) 1 The percentages of total
are presented as calculated. Therefore, the sum of these
percentages, as presented, may differ due to the impact of
rounding. 2 EMEA consists of the Europe, Middle East, and Africa
geographic regions. 3 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
FINANCIAL INFORMATION
For the Three Months Ended
March 31, 2017 and 2016
(Amounts in millions)
Three Months Ended March 31,
2017 March 31, 2016
$ Increase (Decrease)
% Increase (Decrease)
Amount % of Total1 Amount
% of Total1 Segment net revenues: Activision2
$ 215 19 % $ 360 42 % $ (145 )
(40)
%
Blizzard3 441 39 294 34 147 50 King4 474 42 207
24 267 129 Reportable segments total 1,130 100
% 861 100 % 269 31
Reconciliation to consolidated net
revenues: Other segments5 66 47 Net effect from deferral of net
revenues6 530 547 Consolidated net revenues $ 1,726
$ 1,455 $ 271 19 %
Segment income (loss)
from operations: Activision2 $ 24 $ 99 $ (75 )
(76)
%
Blizzard3 166 86 80 93 King4 166 67 99 148
Reportable segments total 356 252 104 41
Reconciliation to consolidated
operating income and consolidated income before income tax
expense:
Other segments5 (5 ) — Net effect from certain revenues deferrals
accounting treatment6 396 369 Share-based compensation expense (33
) (44 ) Amortization of intangible assets (190 ) (82 )
Fees and other expenses related to the
King Acquisition7
(4 ) (34 ) Restructuring costs8 (11 ) — Other non-cash charges9 (16
) — Consolidated operating income 493 461 32 7 Interest and
other expense (income), net 40 52 Consolidated income
before income tax expense $ 453 $ 409 $ 44 11 %
Operating margin from total reportable segments 31.5 % 29.3
% 1 The percentages of total are
presented as calculated. Therefore, the sum of these percentages,
as presented, may differ due to the impact of rounding. 2
Activision Publishing (“Activision”) — publishes interactive
entertainment products and content. 3 Blizzard Entertainment, Inc.
(“Blizzard”) — publishes interactive entertainment products and
online subscription-based games. 4 King Digital Entertainment plc
(“King”) — publishes interactive mobile entertainment products. 5
Other includes other income and expenses from operating segments
managed outside the reportable segments, including our Major League
Gaming, studios, and distribution businesses. Other also includes
unallocated corporate income and expenses. 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. 7 Reflects fees and other expenses related
to the King Acquisition, inclusive of related debt financings and
integration costs. 8 Reflects restructuring charges incurred,
primarily severance costs. 9
Reflects a non-cash accounting charge to
reclassify certain cumulative translation losses into earnings due
to the substantial liquidation of certain of our foreign
entities.
Our operating segments are consistent with the manner 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 and
financings; certain restructuring costs; and other non-cash
charges.
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
EBITDA and Adjusted EBITDA
For the Trailing Twelve Months Ended
March 31, 2017
(Amounts in millions)
Trailing TwelveMonths Ended
June 30,2016 September 30,2016 December 31,2016 March 31,2017 March
31,2017
GAAP Net Income1 $ 151 $ 199 $ 254 $
426 $ 1,030 Interest and other expense (income), net 66 53 43 40
202 Loss on extinguishment of debt — 10 82 — 92 Provision for
income taxes1 16 32 46 27 121 Depreciation and amortization 233
243 246 224 946
EBITDA
466 537 671 717 2,391
Share-based compensation expense2 41 33 40 33 147
Fees and other expenses related to the
King Acquisition3
4 4 4 4 16 Restructuring costs4 — — — 11 11 Other non-cash charges5
— — — 16 16
Adjusted EBITDA
(redefined) $ 511 $ 574
$ 715 $ 781
$ 2,581 Change in deferred net revenues
and related cost of revenues6 $ 108 $ 33 $ 238 $ (396 ) $ (17 )
1 We recognized $24 million, $12
million, $18 million, and $69 million of excess tax benefits from
share-based payments as an income tax benefit in the provision for
income taxes for the three months ended June 30, 2016, September
30, 2016, December 31, 2016, and March 31, 2017, respectively. 2
Includes expenses related to share-based compensation. 3 Reflects
fees and other expenses related to the King Acquisition, inclusive
of related debt financings and integration costs. 4 Reflects
restructuring charges incurred, primarily severance costs. 5
Reflects a non-cash accounting charge to
reclassify certain cumulative translation 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.
ACTIVISION BLIZZARD, INC. AND
SUBSIDIARIES
SUPPLEMENTAL FINANCIAL
INFORMATION
(Amounts in millions)
Three Months Ended
March 31, June 30, September 30,
December 31,
March 31,
Year over Year % Increase
(Decrease)
2016 2016 2016 2016 2017 Cash
Flow Data Operating Cash Flow $ 337 $ 503 $ 456 $ 859 $ 411 22
% Capital Expenditures 27 44 28 37 21
(22 ) Non-GAAP Free Cash Flow1 310 459 428 822 390 26
Operating Cash Flow - TTM2 1,373 1,732 2,359 2,155 2,229 62 Capital
Expenditures - TTM2 117 133 115 136 130
11 Non-GAAP Free Cash Flow - TTM2 $ 1,256 $ 1,599 $ 2,244 $
2,019 $ 2,099 67 % 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 June 30, 2015, three months ended September 30,
2015, and three months ended December 31, 2015, was $144 million,
$(171) million, and $1,063 million, respectively. Capital
Expenditures for the three months ended June 30, 2015, three months
ended September 30, 2015, and three months ended December 31, 2015,
was $28 million, $46 million, and $16 million, respectively.
ACTIVISION BLIZZARD, INC. AND
SUBSIDIARIES
Outlook for the Three Months Ending
June 30, 2017 and Year Ending December 31, 2017
GAAP to Non-GAAP (redefined)
Reconciliation
(Amounts in millions, except per share
data)
Outlook for the Outlook for
the Three Months Ending Year Ending June 30,
2017 December 31, 2017 Net
Revenues1 $
1,425
$ 6,100 Change in deferred revenues2
$
(225
) $ 230 Earnings Per Diluted
Share (GAAP) $ 0.15 $ 0.88
Excluding the impact of: Share-based compensation3 0.06
0.23
Amortization of intangible assets4 0.24 0.99
Fees and other expenses related to the
King Acquisition5
0.01 0.03 Restructuring costs6 — 0.04 Other non-cash charges7 —
0.02 Income tax impacts from items above8 (0.07 ) (0.38 )
Earnings Per Diluted Share (Non-GAAP redefined) $
0.38 $ 1.80 Net
effect of deferred net revenues and related cost of revenues on
Earnings Per Diluted Share9 $ (0.11
) $ 0.08 1 Net
Revenues represents the revenue outlook for both GAAP and Non-GAAP
(redefined) 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
fees and other expenses related to the King Acquisition, inclusive
of related debt financings and integration costs. 6 Reflects our
planned restructuring charges, primarily severance costs. 7
Reflects a non-cash accounting charge
incurred during the three months ended March 31, 2017 to reclassify
certain cumulative translation losses into earnings due to the
substantial liquidation of certain of our foreign entities.
8 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. 9 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 (redefined)
earnings per share information are presented as calculated.
Therefore, the sum of these measures, as presented, may differ due
to the impact of rounding.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20170504006637/en/
Activision Blizzard, Inc.Amrita AhujaSVP,
Investor Relations(310) 255-2075Amrita.Ahuja@ActivisionBlizzard.comorMary
OsakoSVP, Global Communications(424)
322-5166Mary.Osako@Activision.com
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