Company Increases CY 2014 Full-Year Revenue
and EPS Outlook
Company Expects to Deliver Record Non-GAAP
Full-Year EPS in 2014
Activision Blizzard, Inc. (Nasdaq: ATVI) today announced
better-than-expected financial results for the second quarter of
2014.
Second Quarter
(in millions,
except EPS)
2014
Prior
Outlook*
2013
GAAP
Net Revenues $ 970 $
910 $ 1,050 EPS $
0.28 $ 0.22 $ 0.28
Non-GAAP
Net Revenues $ 658 $ 600
$ 608 EPS $ 0.06
$ 0.01 $ 0.08
*Prior outlook was provided by the company on May 6, 2014 in
its earnings release
For the quarter ended June 30, 2014, Activision Blizzard’s GAAP
net revenues were $970 million, as compared with $1.05 billion for
the second quarter of 2013. On a non-GAAP basis, the company’s net
revenues were $658 million, as compared with $608 million for the
second quarter of 2013. For the second quarter of 2014, GAAP net
revenues from digital channels represented 49% of the company’s
total revenues. On a non-GAAP basis, net revenues from digital
channels represented a record 73% of the company’s total
revenues.
For the quarters ended June 30, 2014 and 2013, Activision
Blizzard’s GAAP earnings per diluted share were $0.28. On a
non-GAAP basis, the company’s earnings per diluted share were $0.06
for the second quarter of 2014, as compared with $0.08 for the
second quarter of 2013.
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 better-than expected performance was driven by continued
strong digital sales from Blizzard Entertainment’s World of
Warcraft®, Diablo® III: Reaper of Souls™ and Blizzard
Entertainment’s newest franchise, Hearthstone®: Heroes of
Warcraft™, which recently launched on the iPad and continues to
be well received by audiences around the world, as well as digital
sales from Activision Publishing’s Call of Duty®. Based on
our results, we are raising our full-year outlook and we expect to
grow our non-GAAP revenues year-over-year and deliver record
non-GAAP earnings per share for the full year.”
Kotick added, ”Over the next few months we expect to release
some of the very best games in our company’s history. Blizzard
Entertainment plans to launch World of Warcraft: Warlords of
Draenor™, the newest expansion in the epic franchise, which
more than 1.5 million Western subscribers have already
pre-purchased and Activision Publishing expects to release
Destiny™, which we believe will be the largest new
intellectual property launch in videogame history, as well as
Skylanders Trap Team™ and Call of Duty: Advanced
Warfare.
Kotick continued, “Today, we have more opportunities to create
great content using new platforms and business models while also
expanding into new geographies, and are embracing all of these
growth opportunities with the same commitment to excellence that we
have demonstrated over the past 23 years. As the world’s largest
and most profitable independent interactive entertainment company,
we remain focused on creating the most compelling, engaging games
for our dedicated audiences and providing superior returns for our
shareholders.”
Selected Business Highlights:
- Life to date, Activision Publishing’s
Call of Duty: Ghosts remained the #1 best-selling game on
the next-generation consoles in North America and Europe
combined.¹
- In North America and Europe combined,
for the first six months of 2014, Activision Publishing’s
Skylanders SWAP Force™ was the #2 best-selling console and
handheld game overall in dollars, and in North America,
Skylanders SWAP Force outsold the #1 action figure
line.²
- As of June 30, 2014, Blizzard
Entertainment’s Diablo III: Reaper of Souls remained the #1
PC game in dollars in both North America and Europe and, including
its expansion and digital sales, Diablo III has sold more than 20
million copies worldwide across all platforms since its release in
2012.³
- As of June 30, 2014, Blizzard
Entertainment’s World of Warcraft remains the #1
subscription-based MMORPG, with approximately 6.8 million
subscribers.⁴ There was a decline in subscribers quarter over
quarter, which was disproportionately concentrated in the East and
was similar to the seasonal decline experienced during the second
quarter of 2012, prior to the launch of the most recent expansion
later that year.
- On July 15, 2014, Blizzard
Entertainment and NetEase, Inc. jointly announced an agreement to
license Blizzard Entertainment's award-winning action role-playing
game, Diablo III, to a NetEase, Inc. affiliate in mainland
China.
- During the quarter, Activision Blizzard
paid its highest dividend ever of $0.20 per common share,
totaling $147 million.
Company Outlook:
Today, Activision Publishing released Call of Duty: Ghosts
Nemesis, a downloadable content pack exclusively on Xbox Live
for both Xbox One and Xbox 360®. The company expects to release
Call of Duty: Ghosts Nemesis on other platforms later in the
third quarter of 2014.
Additionally, on September 9, 2014, Activision Publishing plans
to release Bungie’s highly anticipated game, Destiny, for
Sony’s PlayStation®4 and PlayStation®3 and Microsoft’s Xbox One and
Xbox 360. Preorders for the game are tracking towards an industry
record for a new intellectual property.
Earlier this quarter, Blizzard Entertainment released Curse
of Naxxramas™: A Hearthstone Adventure for Windows, Mac
and iPad. On August 19, 2014, Blizzard Entertainment also expects
to release Diablo III: Reaper of Souls - Ultimate Evil
Edition™ for Sony’s PlayStation 4 and PlayStation 3 and
Microsoft’s Xbox One and Xbox 360.
Based on its second quarter results, Activision Blizzard is
raising its full year outlook. The company’s third quarter and full
year net revenue and earnings per share outlook are as follows:
(in millions, except EPS)
GAAP Outlook Prior*
GAAP Outlook
Non-GAAP Outlook Prior*
Non-GAAP Outlook
CY 2014
Net Revenues $ 4,240 $ 4,220 $ 4,700 $ 4,675 EPS $ 0.91 $ 0.89 $
1.29 $ 1.27 Fully Diluted Shares** 750 750 750 750
Q3 2014
Net Revenues $ 650 n/a $ 975 n/a EPS $ (0.07) n/a $ 0.11 n/a Fully
Diluted Shares** 719 n/a 745 n/a
* Prior outlook was provided by the company on May 6, 2014 in
its earnings release**Fully diluted weighted average shares
include participating securities and dilutive options on a weighted
average basis. With expected GAAP net losses for Q3 2014, basic
weighted average shares are used in the losses per share
calculation.
Conference Call
Today at 4:30 p.m. EDT, Activision Blizzard’s management will
host a conference call and Webcast to discuss the company’s results
for the quarter ended June 30, 2014 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
888-329-8889 in the U.S. with passcode 9595797.
About Activision Blizzard
Activision Blizzard, Inc. is the largest and most profitable
independent western 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, Activision Blizzard
maintains operations throughout the United States, Europe, and
Asia. It 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
2According to The NPD Group and GfK Chart-Track and Activision
Blizzard internal estimates, including toys and accessories
3According to The NPD Group, GfK Chart-Track and Activision
Blizzard internal estimates
4According to Activision Blizzard internal estimates
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 the $4.75 billion debt financings related
thereto; 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 within the meaning of the
Private Securities Litigation Reform Act of 1995. Such statements
consist of any statement other than a recitation of historical
facts and include, but are not limited to: (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 relating to product releases; (3)
statements of future financial or operating performance; (4)
statements about the impact of the transactions involving the
repurchase of shares from Vivendi, S.A., and the debt financing
related thereto; and (5) statements of assumptions underlying such
statements. Activision Blizzard 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. Activision
Blizzard’s actual future results could differ materially from those
expressed in the forward-looking statements set forth in this
release. Risks and uncertainties that may affect our future results
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, massively multiplayer online and “toys to
life” 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,
financing providers, licensees, licensors, vendors, and third-party
developers, including the ability to attract, retain and develop
key personnel and developers that can create high quality 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 transactions involving the repurchase of
shares from Vivendi S.A. 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 “Risk Factors” included in Part I, Item 1A of Activision
Blizzard’s most recent annual report on Form 10-K. 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 June 30, Six Months Ended June 30,
2014 2013 2014 2013
Net revenues: Product sales $
587 $ 727 $ 1,357 $ 1,717 Subscription, licensing and other
revenues 1 383 323
724 658 Total net revenues
970 1,050 2,081
2,375 Costs and expenses: Cost of sales
- product costs 187 179 412 440 Cost of sales - online 56 54 115
111 Cost of sales - software royalties and amortization 46 38 102
99 Cost of sales - intellectual property licenses 11 14 13 52
Product development 112 123 255 247 Sales and marketing 141 116 245
223 General and administrative 107
96 202 186 Total
costs and expenses 660 620
1,344 1,358 Operating
income 310 430 737 1,017 Interest and other investment income
(expense), net (50 ) ---
(101 ) 3 Income before income tax expense 260
430 636 1,020 Income tax expense 56
106 139 240 Net
income $ 204 $ 324 $ 497
$ 780
Basic earnings per
common share 2 $ 0.28 $ 0.28 $ 0.68 $ 0.68 Weighted average common
shares outstanding 716 1,118
712 1,116
Diluted earnings per common share 2 $ 0.28 $
0.28 $ 0.67 $ 0.68 Weighted average common shares outstanding
assuming dilution 725 1,127
723 1,124
1 Subscription, licensing and other
revenues represents revenues from World of Warcraft subscriptions,
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 16 million for both the three and six months ended
June 30, 2014. We had, on a weighted-average basis, participating
securities of approximately 24 million and 25 million for the three
and six months ended June 30, 2013, respectively. Net income
attributable to Activision Blizzard Inc. common shareholders used
to calculate earnings per common share assuming dilution was $200
million and $484 million for the three and six months ended June
30, 2014 as compared to the total net income of $204 million and
$497 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 $318
million and $764 million for the three and six months ended June
30, 2013 as compared to the total net income of $324 million and
$780 million for the same periods, respectively.
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES CONDENSED
CONSOLIDATED BALANCE SHEETS (Unaudited) (Amounts in
millions)
June 30, December 31,
2014 2013
ASSETS
Current assets: Cash and cash
equivalents $ 4,199 $ 4,410 Short-term investments 5 33 Accounts
receivable, net 107 510 Inventories, net 151 171 Software
development 391 367 Intellectual property licenses 3 11 Deferred
income taxes, net 359 321 Other current assets 259
418 Total current assets
5,474 6,241 Long-term
investments 9 9 Software development 68 21 Property and equipment,
net 162 138 Other assets 86 35 Intangible assets, net 39 43
Trademark and trade names 433 433 Goodwill 7,089
7,092 Total assets $
13,360 $ 14,012
LIABILITIES AND SHAREHOLDERS’
EQUITY Current
liabilities: Accounts payable $ 167 $ 355 Deferred revenues 769
1,389 Accrued expenses and other liabilities 507 636 Current
portion of long-term debt ---
25 Total current liabilities 1,443
2,405 Long-term debt, net 4,321
4,668 Deferred income taxes, net 82 66 Other liabilities
343 251 Total liabilities
6,189 7,390
Shareholders’ equity: Common stock --- --- Additional paid-in
capital 9,853 9,682 Treasury stock (5,762 ) (5,814 ) Retained
earnings 3,036 2,686 Accumulated other comprehensive income
44 68 Total shareholders’
equity 7,171 6,622
Total liabilities and shareholders’ equity $ 13,360
$ 14,012
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 June 30, 2014
Net Revenues Cost of Sales - Product
Costs Cost of Sales - Online
Cost of Sales -Software
Royaltiesand Amortization
Cost of Sales
-IntellectualProperty Licenses
Product Development Sales and Marketing
General and Administrative Total Costs and
Expenses GAAP Measurement $ 970 $ 187
$ 56 $ 46 $ 11 $ 112 $ 141
$ 107 $ 660 Less: Net effect from deferral of net
revenues and related cost of sales (a)
(312
)
(69
)
-
(24
)
1 - - -
(92
)
Less: Stock-based compensation (b) - - -
(4
)
-
(3
)
(2
)
(13
)
(22
)
Less: Amortization of intangible assets (c) -
- - -
(1
)
- - -
(1
)
Non-GAAP Measurement $ 658 $ 118
$ 56 $ 18 $ 11
$ 109 $ 139 $ 94 $
545
Three Months Ended June
30, 2014
Operating Income Net Income
Basic Earnings per Share
Diluted Earningsper
Share
GAAP Measurement $ 310 $ 204 $ 0.28 $ 0.28 Less: Net effect from
deferral of net revenues and related cost of sales (a)
(220
)
(174
)
(0.24
)
(0.23
)
Less: Stock-based compensation (b) 22 14 0.02 0.02 Less:
Amortization of intangible assets (c) 1
1 - - Non-GAAP
Measurement $ 113 $ 45
$ 0.06 $ 0.06
Six Months Ended June 30, 2014
Net
Revenues Cost of Sales - Product Costs
Cost of Sales - Online
Cost of Sales -Software
Royaltiesand Amortization
Cost of Sales
-IntellectualProperty Licenses
Product Development Sales and Marketing
General and Administrative Total Costs and
Expenses GAAP Measurement $ 2,081 $ 412 $ 115 $ 102 $ 13 $ 255
$ 245 $ 202 $ 1,344 Less: Net effect from deferral of net revenues
and related cost of sales (a)
(651
)
(163
)
-
(49
)
1 - - -
(211
)
Less: Stock-based compensation (b) - - -
(11
)
-
(10
)
(5
)
(27
)
(53
)
Less: Amortization of intangible assets (c) -
- - -
(3
)
- - -
(3
)
Non-GAAP Measurement $ 1,430 $
249 $ 115 $ 42 $ 11
$ 245 $ 240 $ 175
$ 1,077
Six Months
Ended June 30, 2014
Operating Income
Net Income Basic Earnings per Share
Diluted Earningsper
Share
GAAP Measurement $ 737 $ 497 $ 0.68 $ 0.67 Less: Net effect from
deferral of net revenues and related cost of sales (a)
(440
)
(346
)
(0.47
)
(0.47
)
Less: Stock-based compensation (b) 53 33 0.05 0.04 Less:
Amortization of intangible assets (c) 3
2 - - Non-GAAP
Measurement $ 353 $ 186
$ 0.25 $ 0.25
(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 common
shareholders used to calculate non-GAAP earnings per common share
assuming dilution was $44 million and $181 million for the three
and six months ended June 30, 2014 as compared to total non-GAAP
net income of $45 million and $186 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 June 30, 2013
Net Revenues
Cost of Sales - Product Costs
Cost of Sales - Online
Cost of Sales -Software
Royaltiesand Amortization
Cost of Sales
-IntellectualProperty Licenses
Product Development
Sales and Marketing
General and Administrative
Total Costs and Expenses
GAAP Measurement
$
1,050
$
179
$
54
$
38
$
14
$
123
$
116
$
96
$
620
Less: Net effect from deferral of net
revenues and related cost of sales
(a)
(442
)
(77
)
-
(26
)
(1
)
-
-
-
(104
)
Less: Stock-based compensation
(b)
-
-
-
(3
)
-
(7
)
(2
)
(12
)
(24
)
Less: Amortization of intangible
assets
(c)
-
-
-
-
(3
)
-
-
-
(3
)
Non-GAAP Measurement
$
608
$
102
$
54
$
9
$
10
$
116
$
114
$
84
$
489
Three Months Ended June 30, 2013
Operating Income
Net Income
Basic Earnings per Share
Diluted Earnings per Share
GAAP Measurement
$
430
$
324
$
0.28
$
0.28
Less: Net effect from deferral of net
revenues and related cost of sales
(a)
(338
)
(251
)
(0.22
)
(0.22
)
Less: Stock-based compensation
(b)
24
15
0.01
0.01
Less: Amortization of intangible
assets
(c)
3
2
-
-
Non-GAAP Measurement
$
119
$
90
$
0.08
$
0.08
Six Months Ended June 30, 2013
Net
Revenues Cost of Sales - Product Costs
Cost of Sales - Online
Cost of Sales -Software
Royaltiesand Amortization
Cost of Sales
-IntellectualProperty Licenses
Product Development Sales and Marketing
General and Administrative Total Costs and
Expenses GAAP Measurement $ 2,375 $ 440 $ 111 $ 99 $ 52 $ 247 $
223 $ 186 $ 1,358 Less: Net effect from deferral of net revenues
and related cost of sales (a)
(962
)
(192
)
-
(60
)
(3
)
- - -
(255
)
Less: Stock-based compensation (b) - - -
(8
)
-
(13
)
(4
)
(25
)
(50
)
Less: Amortization of intangible assets (c) -
- - -
(6
)
- - -
(6
)
Non-GAAP Measurement $ 1,413 $ 248 $
111 $ 31 $ 43 $ 234
$ 219 $ 161 $ 1,047
Six Months Ended June 30, 2013
Operating Income Net Income Basic
Earnings per Share Diluted Earnings per Share
GAAP Measurement $ 1,017 $ 780 $ 0.68 $ 0.68 Less: Net effect from
deferral of net revenues and related cost of sales (a)
(707
)
(528
)
(0.46
)
(0.46
)
Less: Stock-based compensation (b) 50 32 0.03 0.03 Less:
Amortization of intangible assets (c) 6
4 - - Non-GAAP
Measurement $ 366 $ 288 $ 0.25
$ 0.25
(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 $88 million and $282 million for the three
and six months ended June 30, 2013 as compared to total non-GAAP
net income of $90 million and $288 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 Six Months Ended June 30, 2014 and 2013 (Amounts in
millions)
Three Months
Ended June 30, 2014 June 30, 2013 $
Increase % Increase Amount % of Total4
Amount % of Total4
(Decrease)
(Decrease) GAAP Net Revenues by Distribution Channel
Retail channels $ 428 44 % $ 626 60 % $ (198 ) (32 ) % Digital
online channels1 476 49 387 37
89 23 Total Activision and Blizzard 904 93
1,013 96 (109 ) (11 ) Distribution 66 7
37 4 29 78 Total consolidated
GAAP net revenues 970 100 1,050
100 (80 ) (8 )
Change in Deferred
Revenues2 Retail channels (317 ) (438 ) Digital online
channels1 5 (4 ) Total changes in deferred
revenues (312 ) (442 )
Non-GAAP Net
Revenues by Distribution Channel Retail channels 111 17 188 31
(77 ) (41 ) Digital online channels1 481 73
383 63 98 26 Total Activision
and Blizzard 592 90 571 94 21 4 Distribution 66
10 37 6 29 78
Total non-GAAP net revenues3 $ 658 100 % $ 608 100 %
$ 50 8 %
Six Months Ended June 30,
2014 June 30, 2013 $ Increase % Increase
Amount % of Total4
Amount % of Total4
(Decrease) (Decrease) GAAP Net Revenues by
Distribution Channel Retail channels $ 1,087 52 % $ 1,522 64 %
$ (435 ) (29 ) % Digital online channels1 854 41
765 32 89 12 Total
Activision and Blizzard 1,941 93 2,287 96 (346 ) (15 )
Distribution 140 7 88 4
52 59 Total consolidated GAAP net revenues
2,081 100 2,375 100 (294
) (12 )
Change in Deferred Revenues2 Retail channels
(804 ) (1,009 ) Digital online channels1 153
47 Total changes in deferred revenues (651 )
(962 )
Non-GAAP Net Revenues by Distribution Channel
Retail channels 283 20 513 36 (230 ) (45 ) Digital online channels1
1,007 70 812 57
195 24 Total Activision and Blizzard 1,290 90 1,325 94 (35 )
(3 ) Distribution 140 10 88
6 52 59 Total non-GAAP net revenues3 $
1,430 100 % $ 1,413 100 % $ 17 1 %
1 Net revenues from digital online
channels represent revenues from subscriptions, 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 June 30, 2014 and
2013 (Amounts in millions)
Three Months Ended
June 30, 2014 June 30, 2013 $
Increase % Increase Amount % of
Total6
Amount % of Total6
(Decrease) (Decrease) GAAP Net Revenues by
Segment/Platform Mix Activision and Blizzard:
Online1 195 20 233 22 (38 ) (16 )
%
PC 182 19 100 10 82 82
Next-generation (PS4, Xbox One, WiiU) 137 14 4 --- 133 NM
Current-generation (PS3, Xbox 360, Wii) 342 35
586 56 (244 ) (42 ) Total console2 479 49
590 56 (111 ) (19 ) Mobile and other5 48 5 90
9 (42 ) (47 )
Total Activision and Blizzard 904 93 1,013
96 (109 ) (11 ) Distribution: Total Distribution
66 7 37 4 29 78 Total
consolidated GAAP net revenues 970 100 1,050
100 (80 ) (8 )
Change in Deferred Revenues3
Activision and Blizzard: Online1 6 (39 ) PC (51 ) (57 )
Next-generation (PS4, Xbox One, WiiU) (70 ) (4 ) Current-generation
(PS3, Xbox 360, Wii) (208 ) (342 ) Total console2
(278 ) (346 ) Mobile and other5 11
--- Total changes in deferred revenues
(312 ) (442 )
Non-GAAP Net Revenues by
Segment/Platform Mix Activision and Blizzard: Online1 201 31
194 32 7 4 PC 131 20 43 7 88 205 Next-generation (PS4, Xbox
One, WiiU) 67 10 --- --- 67 NM Current-generation (PS3, Xbox 360,
Wii) 134 20 244 40 (110 ) (45 ) Total
console2 201 31 244 40 (43 ) (18 )
Mobile and other5 59 9 90 15 (31 ) (34 )
Total Activision and Blizzard
592 90 571 94 21 4
Distribution: Total Distribution 66 10 37
6 29 78 Total consolidated non-GAAP net revenues4
658 100 608 100 50 8 %
1 Revenues from online consists of
revenues from all World of Warcraft products, including
subscriptions, boxed products, expansion packs, licensing
royalties, and value-added services.
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 mobile and 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 Six Months
Ended June 30, 2014 and 2013 (Amounts in millions)
Six Months Ended June 30, 2014 June
30, 2013 $ Increase % Increase
Amount % of Total6
Amount %
of Total6
(Decrease) (Decrease) GAAP Net
Revenues by Segment/Platform Mix
Activision and Blizzard: Online1 395 19 508 21 (113 ) (22 )
%
PC 281 14 195 8 86 44
Next-generation (PS4, Xbox One, WiiU) 245 12 11 --- 234 NM
Current-generation (PS3, Xbox 360, Wii) 889 43
1,328 56 (439 ) (33 ) Total console2 1,134
54 1,339 56 (205 ) (15 ) Mobile
and other5 131 6 245 10 (114 ) (47 )
Total Activision and Blizzard
1,941 93 2,287 96 (346 ) (15 )
Distribution: Total Distribution 140 7 88
4 52 59 Total consolidated GAAP net revenues
2,081 100 2,375 100 (294 ) (12 )
Change in Deferred Revenues3 Activision and Blizzard:
Online1 33 (85 ) PC 88 (29 ) Next-generation (PS4, Xbox One,
WiiU) (146 ) (8 ) Current-generation (PS3, Xbox 360, Wii)
(637 ) (839 ) Total console2 (783 ) (847 )
Mobile and other5 11 (1 ) Total changes
in deferred revenues (651 ) (962 )
Non-GAAP
Net Revenues by Segment/Platform Mix Activision and Blizzard:
Online1 428 30 423 30 5 1 PC 369 26 166 12 203 122
Next-generation (PS4, Xbox One, WiiU) 99 7 3 --- 96 NM
Current-generation (PS3, Xbox 360, Wii) 252 18
489 35 (237 ) (48 ) Total console2 351
25 492 35 (141 ) (29 ) Mobile and
other5 142 10 244 17 (102 ) (42 )
Total Activision and Blizzard
1,290 90 1,325 94 (35 ) (3 )
Distribution: Total Distribution 140 10 88
6 52 59 Total consolidated non-GAAP net
revenues4 1,430 100 1,413 100 17
1
%
1 Revenues from online consists of
revenues from all World of Warcraft products, including
subscriptions, boxed products, expansion packs, licensing
royalties, and value-added services.
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 mobile and 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
Six Months Ended June 30, 2014 and 2013 (Amounts in millions)
Three Months Ended
June 30, 2014 June 30, 2013 $ Increase %
Increase Amount % of Total3
Amount % of
Total3
(Decrease) (Decrease) GAAP Net Revenues
by Geographic Region North America $ 471 49 % $ 562 54 % $ (91
) (16 ) % Europe 395 41 402 38 (7 ) (2 ) Asia Pacific 104
11 86 8 18 21
Total consolidated GAAP net revenues 970 100
1,050 100 (80 ) (8 )
Change
in Deferred Revenues1 North America (177 ) (248 ) Europe (113 )
(161 ) Asia Pacific (22 ) (33 ) Total changes in net
revenues (312 ) (442 )
Non-GAAP Net
Revenues by Geographic Region North America 294 45 314 52 (20 )
(6 ) Europe 282 43 241 40 41 17 Asia Pacific 82 12
53 9 29 55 Total non-GAAP
net revenues2 $ 658 100 % $ 608 100 % $ 50 8 %
Six Months Ended June 30, 2014 June
30, 2013 $ Increase % Increase Amount %
of Total3
Amount % of Total3
(Decrease)
(Decrease) GAAP Net Revenues by Geographic Region
North America $ 1,035 50 % $ 1,300 55 % $ (265 ) (20 ) % Europe 856
41 889 37 (33 ) (4 ) Asia Pacific 190 9
186 8 4 2 Total consolidated GAAP net
revenues 2,081 100 2,375 100
(294 ) (12 )
Change in Deferred
Revenues1 North America (411 ) (563 ) Europe (237 ) (330 ) Asia
Pacific (3 ) (69 ) Total changes in net revenues
(651 ) (962 )
Non-GAAP Net Revenues by
Geographic Region North America 624 44 737 52 (113 ) (15 )
Europe 619 43 559 40 60 11 Asia Pacific 187 13
117 8 70 60 Total non-GAAP net
revenues2 $ 1,430 100 % $ 1,413 100 % $ 17 1 %
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
Six Months Ended June 30, 2014 and 2013 (Amounts in millions)
Three Months Ended
June 30, 2014 June 30, 2013 $ Increase %
Increase Amount % of Total4 Amount
% of Total4 (Decrease) (Decrease)
Segment net revenues: Activision1 $ 252 38 % $ 347 57 % $
(95 ) (27 ) % Blizzard2 340 52 224 37 116 52 Distribution3
66 10 37 6 29 78
Operating segment total 658 100 % 608 100 % 50 8
Reconciliation to consolidated net revenues: Net effect from
deferral of net revenues 312 442
Consolidated net revenues $ 970 $ 1,050 $ (80 ) (8 )
%
Segment income (loss) from operations: Activision1
$ (31 ) $ 60 $ (91 ) (152 ) % Blizzard2 145 60 85 142 Distribution3
(1 ) (1 ) --- --- Operating segment
total 113 119 (6 ) (5 )
Reconciliation to consolidated
operating income and consolidated income before income tax
expense:
Net effect from deferral of net revenues and related cost of sales
220 338 Stock-based compensation expense (22 ) (24 ) Amortization
of intangible assets (1 ) (3 ) Consolidated operating
income 310 430 (120 ) (28 ) Interest and other investment income
(expense), net (50 ) --- Consolidated income
before income tax expense $ 260 $ 430 $ (170 ) (40 )
% Operating margin from total operating segments 17.2 % 19.6
%
Six Months Ended June 30, 2014
June 30, 2013 $ Increase % Increase
Amount % of Total5 Amount % of
Total5 (Decrease) (Decrease) Segment
net revenues: Activision1 $ 489 34 % $ 771 55 % $ (282 ) (37 )
% Blizzard2 801 56 554 39 247 45 Distribution3 140 10
88 6 52 59 Operating
segment total 1,430 100 % 1,413 100 % 17 1
Reconciliation
to consolidated net revenues: Net effect from deferral of net
revenues 651 962 Consolidated net
revenues $ 2,081 $ 2,375 $ (294 ) (12 ) %
Segment income (loss) from operations: Activision1 $ (29 ) $
173 $ (202 )
(117
)
% Blizzard2 383 194 189 97 Distribution3 (1 ) (1 )
--- --- Operating segment total 353 366 (13 ) (4 )
Reconciliation to consolidated
operating income and consolidated income before income tax
expense:
Net effect from deferral of net revenues and related cost of sales
440 707 Stock-based compensation expense (53 ) (50 ) Amortization
of intangible assets (3 ) (6 ) Consolidated operating
income 737 1,017 (280 ) (28 ) Interest and other investment income
(expense), net (101 ) 3 Consolidated income
before income tax expense $ 636 $ 1,020 $ (384 ) (38
) % Operating margin from total operating segments 24.7 %
25.9 % 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 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 June 30, 2014 EBITDA and
Adjusted EBITDA (Amounts in millions)
Trailing
Twelve Months Ending
September 30, 2013
December 31, 2013 March 31, 2014 June 30, 2014
June 30, 2014 GAAP Net Income (Loss) $
56
$ 174
$ 293
$ 204
$ 727 Interest
(Income) / Expense, net 4 52 51 50 157 Provision (Benefit) for
income taxes 10 59 83 56 208 Depreciation and amortization
21 40 19 19 99
EBITDA 91 325 446 329
1,191 Deferral of net revenues and related cost of
sales (a) (32 ) 509 (219 ) (220 ) 38 Stock-based compensation
expense (b) 25 34 30 22 111 Fees and other expenses related to the
Purchase Transaction and related debt financings (c) 62
18 --- --- 80
Adjusted EBITDA $ 146 $
886 $ 257 $ 131
$ 1,420 (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.
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 Quarter
Ending September 30, 2014 and Year Ending December 31,
2014 GAAP to Non-GAAP Reconciliation (Amounts in
millions, except per share data) Outlook for
Outlook for Three Months Ending Year
Ending September 30, 2014 December
31, 2014 Net Revenues (GAAP) $
650 $ 4,240
Excluding the
impact of:
Change in deferred net revenues (a) 325 460
Net Revenues (Non-GAAP) $
975
$ 4,700 Earnings (Losses) Per Basic
/ Diluted Share (GAAP) $ (0.07 ) $
0.91
Excluding the
impact of:
Net effect from deferral in net revenues and related cost of sales
(b) 0.15 0.27 Stock-based compensation (c) 0.02 0.10 Amortization
of intangible assets (d) - 0.01
Earnings Per Diluted Share (Non-GAAP) $ 0.11
$ 1.29 (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.
With expected GAAP net losses for the
three months ending September 30, 2014, basic weighted average
shares are used in the losses per share calculation. 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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