Company Raises 2013 Net Revenues and EPS
Outlook
Activision Blizzard, Inc. (Nasdaq: ATVI) today announced
better-than-expected financial results for the third quarter of
2013.
Third Quarter Nine Months (in millions,
except EPS) 2013 Prior
Outlook*
2012 2013
2012
GAAP
Net Revenues $ 691 $
635 $ 841 $ 3,065 $
3,088 EPS $ 0.05 $
0.03 $ 0.20 $ 0.73
$ 0.70
Non-GAAP
Net Revenues $ 657 $ 585
$ 751 $ 2,070 $ 2,393
EPS $ 0.08 $ 0.03
$ 0.15 $ 0.33 $ 0.40
*Prior Outlook was provided by the
company in its August 1, 2013 earnings release
For the third quarter, which ended September 30, 2013, the
company delivered GAAP net revenues of $691 million, as compared
with $841 million for the third quarter of 2012. On a non-GAAP
basis, the company’s net revenues were $657 million, as compared
with $751 million for the third quarter of 2012. GAAP net revenues
from digital channels were $409 million and represented a
third-quarter record 59% of the company’s total net revenues. On a
non-GAAP basis, net revenues from digital channels were $399
million and represented 61% of the quarter’s total net
revenues.
For the third quarter of 2013, Activision Blizzard delivered
GAAP earnings per diluted share of $0.05, as compared with $0.20
for the third quarter of 2012. On a non-GAAP basis, the company
delivered earnings per diluted share of $0.08, as compared with
$0.15 for the third quarter of 2012.
The company reports results on both a GAAP and a non-GAAP basis.
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, “Our third-quarter results exceeded our expectations, and we
are able to raise our outlook for 2013 net revenues and earnings
per share. Robust continued engagement with our core franchises
drove digital revenue, which constituted a majority of all revenue.
This quarter demonstrates that games like Call of Duty and
World of Warcraft engage and entertain our fans year
round.”
Kotick added, “We recently released new titles in two of the
most popular franchises in entertainment, Call of Duty:
Ghosts and Skylanders SWAP Force. We are thrilled by the
quality of those games and we are excited to show what we can do
with them on next-generation consoles in the coming weeks. We are
also in the process of a beta launch for our first major
free-to-play game, Hearthstone: Heroes of Warcraft. However,
we continue to believe that the fourth quarter this year presents a
unique and challenging landscape due to increased competition and
uncertainties surrounding the console transition. We are confident
in our ability to navigate these challenges successfully,
particularly in light of the recent completion of our transaction
with Vivendi and the focus and flexibility provided by our return
to independence.”
Selected Business Highlights
- Year to date, in both North America and
Europe Activision Publishing had two of the top-five best-selling
games with Skylanders Giants™ and Call of Duty: Black Ops
II.¹
- In both North America and Europe,
Activision Publishing’s Skylanders Giants was the #1
best-selling kids console and hand-held game overall in dollars for
the first nine months of 2013.¹
- As of September 30, 2013, Blizzard
Entertainment’s World of Warcraft remains the #1
subscription-based MMORPG, with approximately 7.6 million
subscribers.²
- In North America, Blizzard
Entertainment’s StarCraft® II: Heart of the Swarm® was the
#1 PC game for the first nine months of 2013.³
- On September 19, 2013, the company
issued $2.25 billion of long-term debt, consisting of $1.5 billion
of 5.625% senior notes due 2021 and $750 million of 6.125% senior
notes due 2023.
- On October 11, 2013 the company
borrowed approximately $2.5 billion under a seven-year secured term
loan facility. The company now has a total of $4.75 billion in debt
at a weighted average interest rate below 5%.
- On October, 11, 2013, Activision
Blizzard, Inc. completed its previously announced acquisition of
approximately 429 million company shares and certain tax attributes
from Vivendi for approximately $5.83 billion, or $13.60 per share,
in cash. ASAC II LP, an investment vehicle led by Activision
Blizzard CEO Bobby Kotick and Chairman Brian Kelly, has also
completed its purchase of approximately 172 million company shares
from Vivendi for approximately $2.34 billion in cash, or $13.60 per
share, in a separate transaction. As a result of the transactions,
Activision Blizzard is an independent company with a majority of
its shares owned by public shareholders. Vivendi has retained a
stake of approximately 83 million shares, or approximately 12% of
the company’s outstanding shares.
Company Outlook
During October, Activision Publishing released several new
titles including: Skylanders SWAP Force™ on October 13,
2013; Cabela’s® African Safari, and Wipeout™ Crash and
Burn on October 15, 2013; SpongeBob SquarePants™: Plankton’s
Robotic Revenge and Teenage Mutant Ninja Turtles™ on
October 22, 2013; and Angry Birds™ Star Wars® on October 29,
2013.
On November 5, 2013, Activision Publishing released its highly
anticipated game, Call of Duty: Ghosts, the next generation
of Call of Duty and a stunning leap forward for the franchise.
As the repurchase transaction with Vivendi did not close on or
before September 30, 2013 as previously expected, Activision
Blizzard’s weighted average fully diluted share count is now
expected to be 1.06 billion for the calendar year, and to be 785
million for the fourth quarter.
Activision Blizzard is raising its outlook for calendar year
2013 from the estimates it provided on August 1, 2013, as
follows:
(Amounts in millions, except share data)
GAAP Outlook
Prior*
GAAP
Outlook
Non-GAAP Outlook Prior*
Non-GAAP Outlook
CY 2013
Net Revenues $ 4,320 $ 4,310 $ 4,285 $ 4,250 EPS $ 0.83 $ 0.80 –
0.82 $ 0.89 $ 0.85 – 0.87 Fully diluted shares** 1,060 1,050 1,060
1,050
Q4 2013
Net Revenues $ 1,255 $ 1,300 $ 2,215 $ 2,252 EPS $ 0.05 $ 0.01 –
0.04 $ 0.72 $ 0.76 – 0.79 Fully diluted shares** 785 743 785 743
*Prior outlook was provided by the company in its August
1, 2013 earnings release. This prior outlook assumed the
transaction and its related financial impact (including interest
expense from debt, associated fees and expenses, and lower weighted
average share count as a result of the share repurchase) commenced
on September 30, 2013. ** Fully diluted weighted average shares
include participating securities and dilutive options on a weighted
average basis. Prior outlook assumed the repurchase transaction was
closed on September 30, 2013. The actual completion of the
repurchase transaction was on October 11, 2013. This results in
higher fully diluted shares outstanding and lower non-GAAP EPS by
$0.01 and $0.04 (no impact to GAAP EPS) in the current outlook than
prior outlook for the calendar year and fourth quarter,
respectively.
Conference Call
Today at 4:30 p.m. EST, Activision Blizzard’s management will
host a conference call and webcast to discuss the company’s results
for the quarter ended September 30, 2013 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 800 768 6544 in the U.S. with passcode
7807006.
About Activision Blizzard
Activision Blizzard, Inc. is the world’s largest and most
profitable independent interactive entertainment publishing
company. It develops and publishes some of the most successful and
beloved entertainment franchises in any medium, including Call of
Duty, Skylanders, World of Warcraft, StarCraft® and Diablo.
Headquartered in Santa Monica California, it maintains
operations throughout the United States, Europe, and Asia.
Activision Blizzard develops and publishes games on all leading
interactive platforms and its games are available in most countries
around the world. More information about Activision Blizzard and
its products can be found on the company's website,
www.activisionblizzard.com.
¹According to The NPD Group and GfK Chart-Track and Activision
Blizzard internal estimates, including toys and
accessories²According to Activision Blizzard internal
estimates³According to The NPD Group
Subscriber Definition: World of Warcraft subscribers
include individuals who have paid a subscription fee or have an
active prepaid card to play World of Warcraft, as well as those who
have purchased the game and are within their free month of access.
Internet Game Room players who have accessed the game over the last
thirty days are also counted as subscribers. The above definition
excludes all players under free promotional subscriptions, expired
or cancelled subscriptions, and expired prepaid cards. Subscribers
in licensees' territories are defined along the same rules.
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 revenues, 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. 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:
- the change in deferred revenues and
related cost of sales with respect to certain of the company’s
online-enabled games;
- expenses related to stock-based
compensation;
- the amortization of intangibles from
purchase price accounting;
- fees and other expenses related to the
acquisition of 429 million shares of our common stock on October
11, 2013 from Vivendi, pursuant to the stock purchase agreement
dated July 25, 2013 and related debt financings; and
- the income tax adjustments associated
with any of the above items.
In the future, Activision Blizzard may also consider whether
other significant non-recurring 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 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 revenues, 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.
In addition to the reasons stated above, which are generally
applicable to each of the items Activision Blizzard excludes from
its non-GAAP financial measures, there are additional specific
reasons why the company believes it is appropriate to exclude the
change in deferred revenues and related cost of sales with respect
to certain of the company’s online-enabled games.
Since Activision Blizzard has determined that some of our games’
online functionality represents an essential component of gameplay
and, as a result, a more-than-inconsequential separate deliverable,
we recognize revenues attributed to these game titles over their
estimated service periods, which may range from five months to a
maximum of less than a year. The related cost of sales is deferred
and recognized as the related revenues are recognized. Internally,
management excludes the impact of this change in deferred revenues
and related cost of sales in its non-GAAP financial measures 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, which is consistent with the way
the company is measured by investment analysts and industry data
sources. In addition, excluding the change in deferred revenues and
the related cost of sales provides a much more timely indication of
trends in our operating results.
Cautionary Note Regarding Forward-looking Statements:
Information in this press release that involves Activision
Blizzard’s expectations, plans, intentions or strategies regarding
the future, including statements under the heading “Company
Outlook,” are forward-looking statements that are not facts and
involve a number of risks and uncertainties. Activision Blizzard
generally uses words such as “outlook,” “will,” “could,” “should,”
“would,” “might,” “to be,” “plans,” “believes,” “may,” “expects,”
“intends,” "anticipates," "estimate," “future," "plan,"
"positioned," "potential," "project," "remain," "scheduled," "set
to," "subject to," "upcoming" and similar expressions to identify
forward-looking statements. Factors that could cause Activision
Blizzard’s actual future results to differ materially from those
expressed in the forward-looking statements set forth in this
release include, but are not limited to, sales levels of Activision
Blizzard’s titles, increasing concentration of titles, shifts in
consumer spending trends, the impact of the current macroeconomic
environment, Activision Blizzard’s ability to predict consumer
preferences, including interest in specific genres such as
first-person action, “toys to life” and massively multiplayer
online games and preferences among hardware platforms, the seasonal
and cyclical nature of the interactive game market, changing
business models including digital delivery of content, competition,
including from used games and other forms of entertainment,
possible declines in software pricing, product returns and price
protection, product delays, adoption rate and availability of new
hardware (including peripherals) and related software, particularly
during the ongoing console transition, rapid changes in technology
and industry standards, the current regulatory environment,
litigation risks and associated costs, protection of proprietary
rights, maintenance of relationships with key personnel, customers,
licensees, licensors, vendors, and third-party developers,
including the ability to attract, retain and develop key personnel
and developers that can create high quality "hit" titles,
counterparty risks relating to customers, licensees, licensors and
manufacturers, domestic and international economic, financial and
political conditions and policies, foreign exchange rates and tax
rates, the identification of suitable future acquisition
opportunities and potential challenges associated with geographic
expansion, capital market risks, the possibility that expected
benefits related to the recently completed transactions with
Vivendi may not materialize as expected, the amount of our debt and
the limitations imposed by the covenants in the agreements
governing our debt, and the other factors identified in the risk
factors section of Activision Blizzard’s most recent annual report
on Form 10-K, as amended, and our quarterly report on Form 10-Q for
the quarter ended September 30, 2013. The forward-looking
statements in this release are based upon information available to
Activision Blizzard as of the date of this release, and Activision
Blizzard assumes 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 the future performance of
Activision Blizzard and are subject to risks, uncertainties and
other factors, some of which are beyond its 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 September 30, Nine Months Ended September 30,
2013 2012 2013 2012 Net revenues: Product
sales $ 332 $ 536 $ 2,049 $ 2,208 Subscription, licensing
and other revenues 1 359 305 1,016 880
Total net revenues 691 841 3,065
3,088 Costs and expenses: Cost of sales - product costs 111
146 551 633 Cost of sales - online subscriptions 43 62 154 201 Cost
of sales - software royalties and amortization 16 19 116 107 Cost
of sales - intellectual property licenses 5 10 56 37 Product
development 140 125 387 384 Sales and marketing 144 131 367 346
General and administrative 162 121 347
413 Total costs and expenses 621 614
1,978 2,121 Operating income 70 227 1,087 967
Interest and other investment income (expense), net (4)
1 (1) 4 Income before income tax expense 66
228 1,086 971 Income tax expense 10 2 249
176 Net income $ 56 $ 226 $ 837 $ 795
Basic
earnings per common share 2 $ 0.05 $ 0.20 $ 0.73 $ 0.70 Weighted
average common shares outstanding 1,122 1,109
1,118 1,113
Diluted earnings per common share 2 $
0.05 $ 0.20 $ 0.73 $ 0.70 Weighted average common shares
outstanding assuming dilution 1,134 1,114
1,127 1,118 1 Subscription, licensing and other
revenues represents revenues from World of Warcraft subscriptions,
Call of Duty Elite memberships, licensing royalties from our
products and franchises, value-added services, downloadable
content, 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 approximately
24 million and 25 million for the three and nine months ended
September 30, 2013, respectively. We had, on a weighted-average
basis, participating securities of approximately 27 million and 23
million for the three and nine months ended September 30, 2012,
respectively. Net income attributable to Activision Blizzard Inc.
common shareholders used to calculate earnings per common share
assuming dilution was $55 million and $819 million for the three
and nine months ended September 30, 2013 as compared to the total
net income of $56 million and $837 million for the same periods,
respectively. Net income attributable to Activision Blizzard Inc.
common shareholders used to calculate earnings per common share
assuming dilution was $221 million and $779 million for the three
and nine months ended September 30, 2012 as compared to total net
income of $226 million and $795 million for the same periods,
respectively.
ACTIVISION BLIZZARD, INC. AND
SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited) (Amounts in millions)
September 30, December 31,
2013 2012
ASSETS
Current assets: Cash and cash equivalents $ 4,444 $ 3,959
Cash in escrow 1 2,282 --- Short-term investments 95 416 Accounts
receivable, net 205 707 Inventories, net 313 209 Software
development 347 164 Intellectual property licenses 12 11 Deferred
income taxes, net 341 487 Other current assets
212 321 Total current assets 8,251
6,274 Long-term investments 9 8 Software development 54 129
Intellectual property licenses --- 30 Property and equipment, net
139 141 Other assets 18 11 Intangible assets, net 58 68 Trademark
and trade names 433 433 Goodwill 7,098
7,106 Total assets $ 16,060 $ 14,200
LIABILITIES AND SHAREHOLDERS’
EQUITY Current liabilities:
Accounts payable $ 286 $ 343 Deferred revenues 641 1,657
Accrued expenses and other liabilities 506 652
Total current liabilities 1,433 2,652
Long-term debt, net 2,211 --- Deferred income taxes, net 71 25
Other liabilities 206 206
Total liabilities 3,921 2,883 Shareholders’ equity:
Common stock --- --- Additional paid-in capital 9,608 9,450
Retained earnings 2,513 1,893 Accumulated other
comprehensive income (loss) 18 (26)
Total shareholders’ equity 12,139 11,317
Total liabilities and shareholders’ equity $ 16,060 $ 14,200
1 Cash in escrow represents the deposit of the par value of
the 5.625% unsecured senior notes due September 2021 and the 6.125%
unsecured senior notes due September 2023 and related interest
through December 18, 2013 pending the close of the Purchase
Transaction. On October 11, 2013, the Cash in Escrow was released
and used to fund the completion of the Purchase Transaction. For
more details, refer to the company’s quarterly report on Form 10-Q
for the quarter ended September 30, 2013.
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES RECONCILIATION
OF GAAP NET INCOME TO NON-GAAP MEASURES (Amounts in
millions, except earnings per share data)
Three months ended
September 30, 2013
Net Revenues
Cost of Sales -Product
Costs
Cost of Sales -Online
Subscriptions
Cost of Sales -Software
Royaltiesand Amortization
Cost of Sales
-IntellectualProperty Licenses
ProductDevelopment
Sales andMarketing
General
andAdministrative
Total Costs andExpenses
GAAP Measurement $ 691 $ 111 $ 43 $ 16 $ 5 $ 140 $ 144 $ 162 $ 621
Less: Net effect from deferral of net revenues and related cost of
sales (a) (34) 1 - (3) - - - - (2) Less: Stock-based compensation
(b) - - - (1) - (9) (2) (13) (25) Less: Amortization of intangible
assets (c) - - - - (3) - - - (3) Less: Fees and other expenses
related to the Purchase Transaction and related debt financings (d)
- - - - - - -
(62) (62) Non-GAAP Measurement $ 657 $ 112 $
43 $ 12 $ 2 $ 131 $ 142 $ 87 $ 529 Three months ended
September 30, 2013
OperatingIncome
Net Income
BasicEarnings
perShare
Diluted Earningsper
Share
GAAP Measurement $ 70 $ 56 $ 0.05 $ 0.05 Less: Net effect from
deferral of net revenues and related cost of sales (a) (32) (23)
(0.02) (0.02) Less: Stock-based compensation (b) 25 16 0.01 0.01
Less: Amortization of intangible assets (c) 3 2 - - Less: Fees and
other expenses related to the Purchase Transaction and related debt
financings (d) 62 39 0.03 0.03 Non-GAAP
Measurement $ 128 $ 90 $ 0.08 $ 0.08
Nine months ended
September 30, 2013
Net Revenues
Cost of Sales -Product
Costs
Cost of Sales
-OnlineSubscriptions
Cost of Sales -Software
Royaltiesand Amortization
Cost of Sales
-IntellectualProperty Licenses
ProductDevelopment
Sales andMarketing
General
andAdministrative
Total Costs andExpenses
GAAP Measurement $ 3,065 $ 551 $ 154 $ 116 $ 56 $ 387 $ 367 $ 347 $
1,978 Less: Net effect from deferral of net revenues and
related cost of sales (a) (995) (191) - (62) (4) - - - (257) Less:
Stock-based compensation (b) - - - (10) - (23) (5) (38) (76) Less:
Amortization of intangible assets (c) - - - - (8) - - - (8) Less:
Fees and other expenses related to the Purchase Transaction and
related debt financings (d) - - - -
- - - (62) (62) Non-GAAP
Measurement $ 2,070 $ 360 $ 154 $ 44 $ 44 $ 364 $ 362 $ 247
$ 1,575 Nine months ended September 30, 2013
OperatingIncome
Net Income
BasicEarnings
perShare
Diluted Earningsper
Share
GAAP Measurement $ 1,087 $ 837 $ 0.73 $ 0.73 Less: Net effect from
deferral of net revenues and related cost of sales (a) (738) (550)
(0.48) (0.48) Less: Stock-based compensation (b) 76 48 0.04 0.04
Less: Amortization of intangible assets (c) 8 5 - - Less: Fees and
other expenses related to the Purchase Transaction and related debt
financings (d) 62 39 0.03 0.03 Non-GAAP
Measurement $ 495 $ 379 $ 0.33 $ 0.33 (a)
Reflects the net change in deferred revenues and related cost of
sales. (b) Includes expense related to stock-based compensation.
(c) Reflects amortization of intangible assets from purchase price
accounting. (d) Reflects fees and other expenses related to the
repurchase of 429 million shares of our common stock from Vivendi
(the "Purchase Transaction") completed on October 11, 2013 and
related debt financings. 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. Net income attributable to
Activision Blizzard common shareholders used to calculate non-GAAP
earnings per common share assuming dilution was $88 million and
$370 million for the three and nine months ended September 30, 2013
as compared to the total non-GAAP net income of $90 million and
$379 million for the same periods, respectively. The per
share adjustments are presented as calculated, and the GAAP and
non-GAAP earnings per share information is also 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 earnings per
share data)
Three months ended September 30, 2012
Net
Revenues
Cost of Sales -Product
Costs
Cost of Sales
-OnlineSubscriptions
Cost of Sales -Software
Royaltiesand Amortization
Cost of Sales
-IntellectualProperty Licenses
ProductDevelopment
Sales andMarketing
General
andAdministrative
Total Costs andExpenses
GAAP Measurement $ 841 $ 146 $ 62 $ 19 $ 10 $ 125 $ 131 $ 121 $ 614
Less: Net effect from deferral of net revenues and related cost of
sales (a) (90) (5) - 23 2 - - - 20 Less: Stock-based compensation
(b) - - - (1) - (5) (2) (26) (34) Less: Amortization of intangible
assets (c) - - - - (3) -
- - (3) Non-GAAP Measurement $ 751 $ 141 $ 62
$ 41 $ 9 $ 120 $ 129 $ 95 $ 597 Three months ended
September 30, 2012
OperatingIncome
Net Income
Basic Earningsper Share
Diluted Earningsper
Share
GAAP Measurement $ 227 $ 226 $ 0.20 $ 0.20 Less: Net effect from
deferral of net revenues and related cost of sales (a) (110) (83)
(0.07) (0.07) Less: Stock-based compensation (b) 34 23 0.02 0.02
Less: Amortization of intangible assets (c) 3 2
- - Non-GAAP Measurement $ 154 $ 168 $ 0.15 $ 0.15
Nine months ended September 30, 2012
Net Revenues
Cost of Sales -Product
Costs
Cost of Sales -Online
Subscriptions
Cost of Sales -Software
Royaltiesand Amortization
Cost of Sales
-IntellectualProperty Licenses
ProductDevelopment
Sales andMarketing
General
andAdministrative
Total Costs andExpenses
GAAP Measurement $ 3,088 $ 633 $ 201 $ 107 $ 37 $ 384 $ 346 $ 413 $
2,121 Less: Net effect from deferral of net revenues and
related cost of sales (a) (695) (186) - 5 - - - - (181) Less:
Stock-based compensation (b) - - - (6) - (14) (5) (60) (85) Less:
Amortization of intangible assets (c) - - -
- (7) - - - (7) Non-GAAP
Measurement $ 2,393 $ 447 $ 201 $ 106 $ 30 $ 370 $ 341 $ 353 $
1,848 Nine months ended September 30, 2012
OperatingIncome
Net Income
Basic Earningsper Share
Diluted Earningsper
Share
GAAP Measurement $ 967 $ 795 $ 0.70 $ 0.70 Less: Net effect from
deferral of net revenues and related cost of sales (a) (514) (401)
(0.35) (0.35) Less: Stock-based compensation (b) 85 60 0.05 0.05
Less: Amortization of intangible assets (c) 7 5
- - Non-GAAP Measurement $ 545 $ 459 $ 0.40 $ 0.40
(a) Reflects the net change in deferred revenues and
related cost of sales. (b) Includes expense related to stock-based
compensation. (c) Reflects amortization of intangible assets from
purchase price accounting. 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. Net income attributable to
Activision Blizzard Inc. common shareholders used to calculate
non-GAAP earnings per common share assuming dilution was $164
million and $449 million for the three and nine months ended
September 30, 2012 as compared to total non-GAAP net income of $168
million and $459 million for the same periods, respectively.
The per share adjustments are presented as calculated, and the GAAP
and non-GAAP earnings per share information is also presented as
calculated. The sum of these measures, as presented, may differ due
to the impact of rounding.
ACTIVISION BLIZZARD,
INC. AND SUBSIDIARIES FINANCIAL INFORMATION For the
Three And Nine Months Ended September 30, 2013 and 2012
(Amounts in millions)
Three Months
Ended September 30, 2013 September 30, 2012
$ Increase
% Increase Amount % of Total4
Amount
% of Total4
(Decrease) (Decrease) GAAP Net
Revenues by Distribution Channel Retail channels $ 226 33 % $
357 42 % $ (131) (37) % Digital online channels1 409 59
430 51 (21) (5) Total Activision and Blizzard 635 92
787 94 (152) (19) Distribution 56 8 54 6
2 4 Total consolidated GAAP net revenues 691 100
841 100 (150) (18)
Change in Deferred
Revenues2 Retail channels (24) (87) Digital online channels1
(10) (3) Total changes in deferred revenues
(34) (90)
Non-GAAP Net Revenues by Distribution
Channel Retail channels 202 31 270 36 (68) (25) Digital online
channels1 399 61 427 57 (28) (7) Total
Activision and Blizzard 601 91 697 93 (96) (14) Distribution
56 9 54 7 2 4 Total non-GAAP net revenues3 $
657 100 % $ 751 100 % $ (94) (13) %
Nine Months
Ended September 30, 2013 September 30, 2012 $
Increase % Increase Amount % of Total4
Amount % of Total4
(Decrease)
(Decrease) GAAP Net Revenues by Distribution Channel
Retail channels $ 1,748 57 % $ 1,837 59 % $ (89) (5) % Digital
online channels1 1,174 38 1,085 35 89 8 Total
Activision and Blizzard 2,922 95 2,922 95 --- ---
Distribution 143 5 166 5 (23) (14) Total
consolidated GAAP net revenues 3,065 100 3,088 100
(23) (1)
Change in Deferred Revenues2 Retail
channels (1,033) (832) Digital online channels1 38
137 Total changes in deferred revenues (995) (695)
Non-GAAP Net Revenues by Distribution Channel Retail
channels 715 35 1,005 42 (290) (29) Digital online channels1
1,212 59 1,222 51 (10) (1) Total Activision and
Blizzard 1,927 93 2,227 93 (300) (13) Distribution
143 7 166 7 (23) (14) Total non-GAAP net revenues3 $
2,070 100 % $ 2,393 100 % $ (323) (13) % 1 Net revenues from
digital online channel represent revenues from subscriptions and
memberships, licensing royalties, value-added services,
downloadable content, digitally distributed products, and wireless
devices. 2 We provide net revenues including (in accordance with
GAAP) and excluding (non-GAAP) the impact of changes in deferred
revenues. 3 Total non-GAAP net revenues presented also represents
our total operating segment net revenues. 4 The percentages of
total are presented as calculated. Therefore the sum of these
percentages, as presented, may differ due to the impact of
rounding.
ACTIVISION BLIZZARD, INC. AND
SUBSIDIARIES FINANCIAL INFORMATION For the Three
Months Ended September 30, 2013 and 2012 (Amounts in millions)
Three Months Ended September 30,
2013 September 30, 2012 $
Increase % Increase Amount
% of Total6
Amount % of
Total6
(Decrease) (Decrease) GAAP Net Revenues
by Segment/Platform Mix Activision and Blizzard: Online
subscriptions1 $ 205 30 % $ 226 27 % $ (21) (9) % PC 79 11 272 32
(193) (71) Sony PlayStation 3 119 17 81 10 38 47 Microsoft Xbox 360
160 23 121 14 39 32 Nintendo Wii and Wii U 17 2 25 3
(8) (32) Total console2 296 43 227 27
69 30 Other5 55 8 62 7 (7) (11) Total
Activision and Blizzard 635 92 787 94 (152)
(19) Distribution: Total Distribution 56 8 54
6 2 4 Total consolidated GAAP net revenues 691 100
841 100 (150) (18)
Change in Deferred
Revenues3 Activision and Blizzard: Online subscriptions1 (24)
119 PC (38) (165) Sony PlayStation 3 15 (12) Microsoft Xbox 360 16
(30) Nintendo Wii and Wii U (3) (2) Total console2
28 (44) Other5 --- --- Total changes in
deferred revenues (34) (90)
Non-GAAP Net
Revenues by Segment/Platform Mix Activision and Blizzard:
Online subscriptions1 181 28 345 46 (164) (48) PC 41 6 107 14 (66)
(62) Sony PlayStation 3 134 20 69 9 65 94 Microsoft Xbox 360 176 27
91 12 85 93 Nintendo Wii and Wii U 14 2 23 3
(9) (39) Total console2 324 49 183 24 141 77
Other5 55 8 62 8 (7) (11) Total Activision and
Blizzard 601 91 697 93 (96) (14)
Distribution: Total Distribution 56 9 54 7 2 4
Total non-GAAP net revenues4 $ 657 100 % $ 751 100 % $ (94) (13) %
1 Revenues from online subscriptions consists of revenues
from all World of Warcraft products, including subscriptions, boxed
products, expansion packs, licensing royalties, and value-added
services. It also includes revenues from Call of Duty Elite
memberships. 2 Downloadable content and their related revenues are
included in each respective console platforms and total console. 3
We provide net revenues including (in accordance with GAAP) and
excluding (non-GAAP) the impact of changes in deferred net
revenues. 4 Total non-GAAP net revenues presented also represents
our total operating segment net revenues. 5 Revenues from other
includes revenues from handheld and mobile devices, as well as
non-platform specific game related revenues such as standalone
sales of toys and accessories products from the Skylanders
franchise and other physical merchandise and accessories. 6 The
percentages of total are presented as calculated. Therefore the sum
of these percentages, as presented, may differ due to the impact of
rounding.
ACTIVISION BLIZZARD, INC. AND
SUBSIDIARIES FINANCIAL INFORMATION For the Nine
Months Ended September 30, 2013 and 2012 (Amounts in millions)
Nine Months Ended September 30,
2013 September 30, 2012 $
Increase % Increase Amount
% of Total6
Amount % of
Total6
(Decrease) (Decrease) GAAP Net Revenues
by Segment/Platform Mix Activision and Blizzard: Online
subscriptions1 $ 714 23 % $ 701 23 % $ 13 2 % PC 274 9 471 15 (197)
(42) Sony PlayStation 3 727 24 617 20 110 18 Microsoft Xbox 360 849
28 705 23 144 20 Nintendo Wii and Wii U 58 2 108 3
(50) (46) Total console2 1,634 53 1,430 46
204 14 Other5 300 10 320 10 (20) (6)
Total Activision and Blizzard 2,922 95 2,922 95
--- --- Distribution: Total Distribution 143 5
166 5 (23) (14) Total consolidated GAAP net revenues
3,065 100 3,088 100 (23) (1)
Change
in Deferred Revenues3 Activision and Blizzard: Online
subscriptions1 (110) 92 PC (67) 126 Sony PlayStation 3 (400) (412)
Microsoft Xbox 360 (405) (469) Nintendo Wii and Wii U (13)
(27) Total console2 (818) (908) Other5
--- (5) Total changes in deferred revenues (995)
(695)
Non-GAAP Net Revenues by Segment/Platform
Mix Activision and Blizzard: Online subscriptions1 604 29 793
33 (189) (24) PC 207 10 597 25 (390) (65) Sony PlayStation 3 327 16
205 9 122 60 Microsoft Xbox 360 444 21 236 10 208 88 Nintendo Wii
and Wii U 45 2 81 3 (36) (44) Total console2
816 39 522 22 294 56 Other5 300 14
315 13 (15) (5) Total Activision and Blizzard
1,927 93 2,227 93 (300) (13) Distribution:
Total Distribution 143 7 166 7 (23) (14) Total
non-GAAP net revenues4 $ 2,070 100 % $ 2,393 100 % $ (323) (13) %
1 Revenue from online subscriptions consists of revenue from
all World of Warcraft products, including subscriptions, boxed
products, expansion packs, licensing royalties, and value-added
services. It also includes revenues from Call of Duty Elite
memberships. 2 Downloadable content and their related revenues are
included in each respective console platforms and total console. 3
We provide net revenues including (in accordance with GAAP) and
excluding (non-GAAP) the impact of changes in deferred net
revenues. 4 Total non-GAAP net revenues presented also represents
our total operating segment net revenues. 5 Revenue from other
includes revenues from handheld and mobile devices, as well as
non-platform specific game related revenues such as standalone
sales of toys and accessories products from the Skylanders
franchise and other physical merchandise and accessories. 6 The
percentages of total are presented as calculated. Therefore the sum
of these percentages, as presented, may differ due to the impact of
rounding.
ACTIVISION BLIZZARD, INC. AND
SUBSIDIARIES FINANCIAL INFORMATION For the Three and
Nine Months Ended September 30, 2013 and 2012 (Amounts in
millions)
Three Months Ended
September 30, 2013 September 30, 2012 $
Increase % Increase Amount % of Total3
Amount % of Total3
(Decrease)
(Decrease) GAAP Net Revenues by Geographic Region
North America $ 344 50 % $ 403 48 % $ (59) (15) % Europe 290 42 333
40 (43) (13) Asia Pacific 57 8 105 12 (48)
(46) Total consolidated GAAP net revenues 691 100 841
100 (150) (18)
Change in Deferred Revenues1
North America (2) (49) Europe (24) (9) Asia Pacific (8)
(32) Total changes in net revenues (34) (90)
Non-GAAP Net Revenues by Geographic Region North
America 342 52 354 47 (12) (3) Europe 266 40 324 43 (58) (18) Asia
Pacific 49 7 73 10 (24) (33) Total non-GAAP
net revenues2 $ 657 100 % $ 751 100 % $ (94) (13) %
Nine Months Ended September 30, 2013
September 30, 2012 $ Increase %
Increase Amount % of Total3
Amount % of Total3
(Decrease)
(Decrease) GAAP Net Revenues by Geographic Region
North America $ 1,643 54 % $ 1,567 51 % $ 76 5 % Europe 1,180 38
1,220 40 (40) (3) Asia Pacific 242 8 301
10 (59) (20) Total consolidated GAAP net revenues
3,065 100 3,088 100 (23) (1)
Change in Deferred Revenues1 North America (564)
(459) Europe (355) (243) Asia Pacific (76) 7 Total
changes in net revenues (995) (695)
Non-GAAP Net Revenues by Geographic Region North America
1,079 52 1,108 46 (29) (3) Europe 825 40 977 41 (152) (16) Asia
Pacific 166 8 308 13 (142) (46) Total non-GAAP
net revenues2 $ 2,070 100 % $ 2,393 100 % $ (323) (13) % 1
We provide net revenues including (in accordance with GAAP) and
excluding (non-GAAP) the impact of changes in deferred revenues. 2
Total non-GAAP net revenues presented also represents our total
operating segment net revenues. 3 The percentages of total are
presented as calculated. Therefore the sum of these percentages, as
presented, may differ due to the impact of rounding.
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES SEGMENT
INFORMATION For the Three And Nine Months Ended September
30, 2013 and 2012 (Amounts in millions)
Three Months Ended September 30, 2013
September 30, 2012 $ Increase % Increase
Amount % of Total5 Amount % of
Total5 (Decrease) (Decrease) Segment
net revenues: Activision1 $ 319 46 % $ 283 34 % $ 36 13 %
Blizzard2 282 41 414 49 (132) (32) Distribution3 56 8
54 6 2 4 Operating segment total 657 95 751 89 (94) (13)
Reconciliation to consolidated net revenues: Net
effect from deferral of net revenues 34 5 90 11
Consolidated net revenues $ 691 100 % $ 841 100 % $ (150) (18) %
Segment income from operations: Activision1 $ 41 $
(14) $ 55 NM % Blizzard2 88 168 (80) (48) Distribution3 (1)
--- (1) --- Operating segment total 128 154 (26) (17)
Reconciliation to consolidated operating income and
consolidated income before income tax expense: Net effect
from deferral of net revenues and related cost of sales 32 110
Stock-based compensation expense (25) (34) Amortization of
intangible assets (3) (3) Fees and other expenses related to the
Purchase Transaction and related debt financings4 (62)
--- Consolidated operating income 70 227 (157) (69) Interest
and other investment income (expense), net (4) 1
Consolidated income before income tax expense $ 66 $ 228 $ (162)
(71) % Operating margin from total operating segments 19%
21%
Nine Months Ended September 30,
2013 September 30, 2012 $ Increase %
Increase Amount % of Total5 Amount
% of Total5 (Decrease) (Decrease)
Segment net revenues: Activision1 $ 1,090 36 % $ 928 30 % $
162 17 % Blizzard2 837 27 1,299 42 (462) (36) Distribution3
143 5 166 5 (23) (14) Operating segment total 2,070
68 2,393 77 (323) (13)
Reconciliation to consolidated net
revenues: Net effect from deferral of net revenues 995
32 695 23 Consolidated net revenues $ 3,065 100 % $ 3,088
100 % $ (23) (1) %
Segment income from operations:
Activision1 $ 214 $ (84) $ 298 NM % Blizzard2 282 629 (347) (55)
Distribution3 (1) --- (1) --- Operating
segment total 495 545 (50) (9)
Reconciliation to
consolidated operating income and consolidated income before
income tax expense: Net effect from deferral of net revenues
and related cost of sales 738 514 Stock-based compensation expense
(76) (85) Amortization of intangible assets (8) (7) Fees and other
expenses related to the Purchase Transaction and related debt
financings4 (62) --- Consolidated operating income
1,087 967 120 12 Interest and other investment income (expense),
net (1) 4 Consolidated income before income tax
expense $ 1,086 $ 971 $ 115 12 % Operating margin from total
operating segments 24% 23% 1 Activision Publishing
(“Activision”) — publishes interactive entertainment products and
contents. 2 Blizzard — Blizzard Entertainment, Inc. and its
subsidiaries (“Blizzard”) publishes PC games and online
subscription-based games in the MMORPG category. 3 Activision
Blizzard Distribution (“Distribution”) — distributes interactive
entertainment software and hardware products. 4 Reflects fees and
other expenses related to the repurchase of 429 million shares of
our common stock from Vivendi (the "Purchase Transaction")
completed on October 11, 2013 and related debt financings. 5 The
percentages of total are presented as calculated. Therefore the sum
of these percentages, as presented, may differ due to the impact of
rounding.
ACTIVISION BLIZZARD, INC. AND
SUBSIDIARIES For the Trailing Twelve Months Ending September
30, 2013 EBITDA (Amounts in millions)
Trailing Twelve Months Ending December 31,
2012 March 31, 2013 June 30, 2013 September
30, 2013 September 30, 2013 GAAP Net Income
(Loss) $ 354
$ 456
$ 324
$ 56
$ 1,190 Interest (Income) / Expense, net (1) (2) --- 4 1
Provision (Benefit) for income taxes 133 133 106 10 382
Depreciation and amortization 51 24 23
21 119
EBITDA 537 611 453
91 1,692 Deferral of net revenues and related
cost of sales (a) 607 (369) (338) (32) (132) Stock-based
compensation expense (b) 40 26 24 25 115 Fees and other expenses
related to the Purchase Transaction and related debt financings (c)
--- --- --- 62 62 Other (d) (1) --- ---
--- (1)
Adjusted EBITDA $ 1,183
$ 268 $ 139 $ 146
$ 1,736 (a) Reflects the net change in
deferred net revenues and related cost of sales. (b) Includes
expense related to stock-based compensation.
(c) Reflects fees and other expenses
related to the repurchase of 429 million shares of our common stock
from Vivendi (the "Purchase Transaction") completed on October 11,
2013 and related debt financings.
(d) Includes other income and expense related to the currency
derivative contracts and changes in fair value of a financial
liability.
ACTIVISION BLIZZARD, INC. AND
SUBSIDIARIES Outlook for the Quarter and Year Ending
December 31, 2013 On a Post-transaction, as reported
1 and Pro-forma 2 Basis GAAP to
Non-GAAP Reconciliation (Amounts in millions, except per
share data) Post-transaction, as reported
1 Outlook for Outlook
for Pro-forma 2 for Three Months
Ending Year Ending Year Ending December
31, 2013 December 31, 2013
December 31, 2013 Net Revenues
(GAAP) $
1,255
$
4,320
$
4,320
Excluding the
impact of:
Change in deferred net revenues (a)
960
(35
)
(35
)
Non-GAAP Net Revenues $
2,215
$
4,285
$
4,285
Earnings Per Diluted Share (GAAP) $
0.05
$
0.83
$
1.06
Excluding the
impact of:
Net effect from deferral in net revenues and related cost of sales
(b)
0.61
(0.07
)
(0.10
)
Stock-based compensation (c)
0.03
0.07
0.10
Amortization of intangible assets (d)
0.01
0.02
0.02
Fees and other expenses related to the Purchase Transaction and
related debt financings (e)
0.01
0.05
0.07
Non-GAAP Earnings Per Diluted Share $
0.72
$
0.89
$
1.16
Fully Diluted Weighted Average Shares (in millions) 3 785
1,060
727
(a) Reflects the net change in deferred net revenues.
(b) Reflects the net change in deferred net revenues and related
cost of sales. (c) Reflects expense related to stock-based
compensation. (d) Reflects amortization of intangible assets from
purchase price accounting.
(e) Reflects fees and other expenses
related to the repurchase of 429 million shares of our common stock
from Vivendi (the "Purchase Transaction") completed on October 11,
2013 and related debt financings.
1 Post-transaction, as reported, presents the transaction and its
related financial impact (including interest expense from debt,
associated fees and expenses, and lower weighted average share
count as a result of the share repurchase) commencing on October
11, 2013. 2 Pro-forma assumes the transaction and its related
financial impact (including interest expense from debt, associated
fees and expenses, and lower
weighted average share count as a result
of the share repurchase) commencing on January 1, 2013.
3 Fully diluted weighted average shares include participating
securities and dilutive options on a weighted average basis.
The per share adjustments are presented as calculated, and the GAAP
and non-GAAP earnings (loss) per share information is also
presented as calculated. The sum of these measures, as presented,
may differ due to the impact of rounding.
Activision Blizzard, Inc.Kristin SoutheySVP, Investor
Relations(310) 255-2635ksouthey@activision.comorMaryanne
LataifSVP, Corporate Communications(310) 255-2704mlataif@activision.com
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