Destiny® and World of Warcraft® Drive Record
Third Quarter Non-GAAP Net Revenue and EPS
Company Increases CY 2014 Full-Year Revenue
and Non-GAAP EPS Outlook
Activision Blizzard, Inc. (Nasdaq: ATVI) today announced
better-than-expected financial results for the third quarter of
2014.
Third Quarter (in millions, except
EPS) 2014
Prior
Outlook*
2013
GAAP
Net Revenues $ 753 $
650 $ 691 EPS $
(0.03 ) $ (0.07 )
$ 0.05
Non-GAAP
Net Revenues $ 1,170 $ 975
$ 657 EPS $ 0.23
$ 0.11 $ 0.08
*Prior outlook was provided by the company on August 5, 2014
in its earnings release
For the quarter ended September 30, 2014, Activision Blizzard’s
GAAP net revenues were $753 million, as compared with $691 million
for the third quarter of 2013. On a non-GAAP basis, the company’s
net revenues were a record $1.17 billion, as compared with $657
million for the third quarter of 2013. For the third quarter of
2014, GAAP net revenues from digital channels represented a record
67% of the company’s total revenues. On a non-GAAP basis, net
revenues from digital channels represented 43% of the company’s
total revenues.
For the quarter ended September 30, 2014, Activision Blizzard’s
GAAP loss per diluted share was ($0.03), as compared with GAAP
earnings per diluted share of $0.05 for the third quarter of 2013.
On a non-GAAP basis, the company’s earnings per diluted share were
a record $0.23 for the third quarter of 2014, as compared with
$0.08 for the third quarter of 2013.
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 record third-quarter results were driven by
Destiny®, the biggest new videogame franchise launch of all
time, as well as strong sales from Blizzard Entertainment’s
Diablo® III: Reaper of Souls™ - Ultimate Evil Edition™,
Hearthstone®: Heroes of Warcraft™, which now has over 20
million registered players¹, and World of Warcraft®, which
saw a quarterly increase in subscribers to 7.4¹ million in
anticipation of the upcoming Warlords of Draenor™ release.
We are raising our full-year non-GAAP outlook and we expect to
deliver double-digit non-GAAP revenue growth year-over-year and
record non-GAAP earnings per share.”
Kotick added, ”In addition to new content releases of
Skylanders® Trap Team and Call of Duty®: Advanced
Warfare, next week Blizzard Entertainment plans to launch
World of Warcraft: Warlords of Draenor. Today, we have some
of the most important franchises in entertainment and we expect to
continue growing our product portfolio in 2015 with two additional
franchises -- Call of Duty Online, which we expect will
enter an unlimited beta test, including virtual item sales, in
China during the first quarter, and Blizzard Entertainment’s
Heroes of the Storm™. Looking ahead, we have more
opportunities than ever before to fuel our growth by creating great
content using new platforms and business models while also
expanding into new geographies. We are embracing all of these
growth opportunities with the same commitment to excellence that we
have demonstrated over the past 23 years.”
Selected Business Highlights:
- For the third quarter, Activision
Publishing’s Destiny was the largest new franchise launch in
videogame history and ranks among the top 10 largest videogame
launches of all time in the U.S.² To date, Destiny has more
than 9.5 million registered users and our active players are
playing the game an average of more than three hours per day.¹
- Blizzard Entertainment’s World of
Warcraft remains the #1 subscription-based MMORPG, with more
than 7.4 million subscribers as of September 30, 2014, ahead of the
upcoming World of Warcraft: Warlords of Draenor
release.¹
- During the quarter, Blizzard
Entertainment’s newest franchise, Hearthstone: Heroes of
Warcraft, exceeded 20 million registered users life to
date.¹
- In North America and Europe combined,
for the third quarter, Blizzard Entertainment’s Diablo III:
Reaper of Souls - Ultimate Evil Edition was the #4 best-selling
console title², and year to date, Diablo III: Reaper of
Souls remained the #2 PC game in dollars.³
- In North America and Europe combined,
for the first nine months of 2014, Activision Publishing’s
Skylanders SWAP Force™ was the #4 best-selling console and
handheld game overall in dollars, and in North America and Europe,
Skylanders toys outsold the #1 action figure line.⁴
- On November 7 and 8, 2014, Blizzard
Entertainment will host its eighth BlizzCon® gaming convention at
the Anaheim Convention Center. For new product announcements and
information please visit www.blizzcon.com.
Company Outlook:
On October 5, 2014, Activision Publishing launched Skylanders
Trap Team and yesterday the company released Call of Duty:
Advanced Warfare, which brings a new vision to the Call of Duty
franchise.
On November 13, 2014, Blizzard Entertainment expects to release
World of Warcraft: Warlords of Draenor, the newest expansion
in the epic franchise.
Additionally, on December 9, 2014, Activision Publishing plans
to release The Dark Below™, the first expansion to
Destiny, for Sony’s PlayStation®4 and PlayStation®3 and
Microsoft’s Xbox One and Xbox 360®.
Based on its third quarter results, Activision Blizzard is
raising its full year net revenue and non-GAAP earnings per share
outlook. The company’s fourth-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 $ 4,325 $ 4,240 $ 4,800 $ 4,700 EPS $ 0.91 $ 0.91 $
1.35 $ 1.29 Fully Diluted Shares** 745 750 745 750
Q4 2014
Net Revenues $ 1,492 n/a $ 2,200 n/a EPS $ 0.28 n/a $ 0.86 n/a
Fully Diluted Shares** 748 n/a 748 n/a
* Prior outlook was
provided by the company on August 5, 2014 in its earnings
release
**Fully diluted weighted average shares
include participating securities and dilutive options on a weighted
average basis.
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, 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
877-681-3367 in the U.S. with passcode 5237379.
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,
Destiny, Skylanders, World of Warcraft, StarCraft®, Diablo
and Hearthstone.
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 Activision Blizzard internal estimates²According
to The NPD Group, GfK Chart-Track and Activision Blizzard internal
estimates³According to The NPD Group and GfK Chart-Track⁴According
to the NPD Group and Gfk Chart-Track and Activision Blizzard
internal estimates, including toys and accessories
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 (including
legal fees, costs, expenses and accruals) 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; and (3)
statements of future financial or operating performance.
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.
(Tables to Follow)
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, 2014
2013 2014 2013 Net revenues:
Product sales $ 337 $ 332 $ 1,693 $ 2,049 Subscription, licensing
and other revenues 1 416 359 1,140
1,016 Total net revenues 753 691 2,833
3,065 Costs and expenses: Cost of sales - product costs 156
111 568 551 Cost of sales - online 56 43 170 154 Cost of sales -
software royalties and amortization 34 16 136 116 Cost of sales -
intellectual property licenses 7 5 20 56 Product development 131
140 387 387 Sales and marketing 221 144 465 367 General and
administrative 140 162 342 347 Total
costs and expenses 745 621 2,088 1,978
Operating income 8 70 745 1,087 Interest and other investment
income (expense), net (51) (4) (152)
(1) Income (loss) before income tax expense (benefit) (43) 66 593
1,086 Income tax expense (benefit) (20) 10 119
249 Net income (loss) $ (23) $ 56 $ 474 $ 837
Basic earnings
(loss) per common share 2 $ (0.03) $ 0.05 $ 0.65 $ 0.73 Weighted
average common shares outstanding 718 1,122
714 1,118
Diluted earnings (loss) per common share 2 $ (0.03) $
0.05 $ 0.64 $ 0.73 Weighted average common shares outstanding
assuming dilution 718 1,134 725 1,127
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
14 million and 16 million for the three and nine months ended
September 30, 2014, respectively. 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. Net income (loss) attributable to Activision Blizzard
Inc. common shareholders used to calculate earnings per common
share assuming dilution was $(23) million and $462 million for the
three and nine months ended September 30, 2014 as compared to the
total net income (loss) of $(23) million and $474 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 $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.
ACTIVISION BLIZZARD, INC. AND
SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited) (Amounts in millions)
September 30, December 31, 2014 2013
ASSETS Current assets: Cash and
cash equivalents $ 3,805 $ 4,410 Short-term investments 23 33
Accounts receivable, net 689 510 Inventories, net 222 171 Software
development 445 367 Intellectual property licenses 2 11 Deferred
income taxes, net 394 321 Other current assets 377
418 Total current assets 5,957 6,241 Long-term
investments 9 9 Software development 78 21 Property and equipment,
net 162 138 Other assets 90 35 Intangible assets, net 38 43
Trademark and trade names 433 433 Goodwill 7,088
7,092 Total assets $ 13,855 $ 14,012
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities: Accounts payable $ 266 $ 355
Deferred revenues 1,305 1,389 Accrued expenses and other
liabilities 541 636 Current portion of long-term debt ---
25 Total current liabilities 2,112 2,405
Long-term debt, net 4,322 4,668 Deferred income taxes, net 82 66
Other liabilities 347 251 Total liabilities
6,863 7,390 Shareholders’ equity: Common stock --- ---
Additional paid-in capital 9,900 9,682 Treasury stock (5,764)
(5,814) Retained earnings 3,013 2,686 Accumulated other
comprehensive income (loss) (157) 68 Total
shareholders’ equity 6,992 6,622 Total liabilities
and shareholders’ equity $ 13,855 $ 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 September 30, 2014
Net Revenues
Cost of Sales -Product
Costs
Cost of Sales -Online
Cost of Sales -Software
Royaltiesand Amortization
Cost of Sales
-IntellectualProperty Licenses
ProductDevelopment
Sales andMarketing
General
andAdministrative
Total Costs andExpenses
GAAP Measurement $ 753 $ 156 $ 56 $ 34 $ 7 $ 131 $ 221 $ 140 $ 745
Less: Net effect from deferral of net revenues and related cost of
sales (a) 417 80 - 157 - - - - 237 Less: Stock-based compensation
(b) - - - (1) - (5) (3) (13) (22) Less: Amortization of intangible
assets (c) - - - - (2) - - - (2) Less: Fees and other expenses
related to the Purchase Transaction and related debt financings (d)
- - - - - - -
(48) (48) Non-GAAP Measurement $ 1,170 $ 236 $
56 $ 190 $ 5 $ 126 $ 218 $ 79 $ 910 Three Months
Ended September 30, 2014
OperatingIncome
Net Income(Loss)
Basic Earnings(Loss)
perShare
Diluted Earnings(Loss) per
Share
GAAP Measurement $ 8 $ (23) $ (0.03) $ (0.03) Less: Net effect from
deferral of net revenues and related cost of sales (a) 180 133 0.18
0.18 Less: Stock-based compensation (b) 22 14 0.02 0.02 Less:
Amortization of intangible assets (c) 2 1 - - Less: Fees and other
expenses related to the Purchase Transaction and related debt
financings (d) 48 48 0.07 0.07 Non-GAAP
Measurement $ 260 $ 173 $ 0.24 $ 0.23 Nine
Months Ended September 30, 2014
Net Revenues
Cost of Sales -Product
Costs
Cost of Sales -Online
Cost of Sales -Software
Royaltiesand Amortization
Cost of Sales
-IntellectualProperty Licenses
ProductDevelopment
Sales andMarketing
General
andAdministrative
Total Costs andExpenses
GAAP Measurement $ 2,833 $ 568 $ 170 $ 136 $ 20 $ 387 $ 465 $ 342 $
2,088 Less: Net effect from deferral of net revenues and related
cost of sales (a) (233) (83) - 109 1 - - - 27 Less: Stock-based
compensation (b) - - - (12) - (17) (6) (41) (76) Less: Amortization
of intangible assets (c) - - - - (4) - - - (4) Less: Fees and other
expenses related to the Purchase Transaction and related debt
financings (d) - - - - -
- - (48) (48) Non-GAAP Measurement $
2,600 $ 485 $ 170 $ 233 $ 17 $ 370 $ 459 $ 253 $ 1,987
Nine Months Ended September 30, 2014
OperatingIncome
Net Income
Basic Earningsper Share
Diluted Earningsper
Share
GAAP Measurement $ 745 $ 474 $ 0.65 $ 0.64 Less: Net effect from
deferral of net revenues and related cost of sales (a) (260) (212)
(0.29) (0.29) Less: Stock-based compensation (b) 76 46 0.06 0.06
Less: Amortization of intangible assets (c) 4 3 - - Less: Fees and
other expenses related to the Purchase Transaction and related debt
financings (d) 48 48 0.07 0.07 Non-GAAP
Measurement $ 613 $ 359 $ 0.49 $ 0.48
(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 (including legal
fees, costs, expenses and accruals) 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 $170 million and $350 million for the three
and nine months ended September 30, 2014 as compared to total
non-GAAP net income of $173 million and $359 million for the same
periods, respectively.
For purpose of calculation of earnings per share, we had, on
a weighted-average basis, common shares outstanding of 718 million,
participating securities of approximately 14 million, and dilutive
shares of 10 million during the three months ended September 30,
2014. 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, 2013
Net Revenues
Cost of Sales -Product
Costs
Cost of Sales -Online
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
Basic Earningsper Share
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- Online
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
Basic Earningsper Share
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 (including legal fees, costs,
expenses and accruals) 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 Inc. 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 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 FINANCIAL INFORMATION
For the Three And Nine Months Ended September 30, 2014 and
2013 (Amounts in millions)
Three Months Ended September 30, 2014 September
30, 2013 $ Increase % Increase Amount %
of Total4
Amount % of Total4
(Decrease)
(Decrease) GAAP Net Revenues by Distribution Channel
Retail channels $ 171 23 % $ 226 33 % $ (55) (24) % Digital online
channels1 504 67 409 59 95 23 Total Activision
and Blizzard 675 90 635 92 40 6 Distribution 78 10
56 8 22 39 Total consolidated GAAP net revenues
753 100 691 100 62 9
Change in
Deferred Revenues2 Retail channels 416 (24) Digital online
channels1 1 (10) Total changes in deferred revenues
417 (34)
Non-GAAP Net Revenues by
Distribution Channel Retail channels 587 50 202 31 385 191
Digital online channels1 505 43 399 61 106 27
Total Activision and Blizzard 1,092 93 601 91 491 82
Distribution 78 7 56 9 22 39 Total non-GAAP
net revenues3 $ 1,170 100 % $ 657 100 % $ 513 78 %
Nine Months Ended September 30, 2014 September 30,
2013 $ Increase % Increase Amount % of
Total4
Amount % of Total4
(Decrease)
(Decrease) GAAP Net Revenues by Distribution Channel
Retail channels $ 1,257 44 % $ 1,748 57 % $ (491) (28) % Digital
online channels1 1,358 48 1,174 38 184 16
Total Activision and Blizzard 2,615 92 2,922 95 (307) (11)
Distribution 218 8 143 5 75 52 Total
consolidated GAAP net revenues 2,833 100 3,065 100
(232) (8)
Change in Deferred Revenues2 Retail
channels (388) (1,033) Digital online channels1 155
38 Total changes in deferred revenues (233) (995)
Non-GAAP Net Revenues by Distribution Channel Retail
channels 869 33 715 35 154 22 Digital online channels1 1,513
58 1,212 59 301 25 Total Activision and Blizzard
2,382 92 1,927 93 455 24 Distribution 218 8
143 7 75 52 Total non-GAAP net revenues3 $ 2,600 100 % $
2,070 100 % $ 530 26 % 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 September 30, 2014 and 2013
(Amounts in millions)
Three Months Ended
September 30, 2014 September 30, 2013
$ Increase % Increase
Amount % of Total6
Amount
% of Total6
(Decrease) (Decrease)
GAAP Net Revenues by Segment/Platform Mix Activision and
Blizzard: Online1
$
205
27
%
$
205
30
%
$
---
--- % PC 165 22 79 11 86 109 Next-generation (PS4, Xbox One,
Wii U) 109 14 3 --- 106 NM Current-generation (PS3, Xbox 360, Wii)
161 21 293 42 (132
) (45 ) Total console2 270 36 296
43 (26 ) (9 ) Mobile and other5 35 5 55
8 (20 ) (36 ) Total Activision
and Blizzard 675 90 635 92
40 6 Distribution: Total Distribution
78 10 56 8 22
39 Total consolidated GAAP net revenues 753
100 691 100 62 9
Change in Deferred Revenues3 Activision and Blizzard:
Online1 4 (24 ) PC (69 ) (38 ) Next-generation (PS4, Xbox
One, Wii U) 359 (2 ) Current-generation (PS3, Xbox 360, Wii)
123 30 Total console2 482
28 Total changes in deferred revenues
417 (34 )
Non-GAAP Net Revenues by
Segment/Platform Mix Activision and Blizzard: Online1 209 18
181 28 28 15 PC 96 8 41 6 55 134 Next-generation (PS4, Xbox
One, Wii U) 468 40 1 --- 467 NM Current-generation (PS3, Xbox 360,
Wii) 284 24 323 49
(39 ) (12 ) Total console2 752 64 324
49 428 132 Mobile and other5 35
3 55 8 (20 ) (36 ) Total
Activision and Blizzard 1,092 93 601
91 491 82 Distribution: Total
Distribution 78 7 56 9
22 39 Total consolidated non-GAAP net revenues4
$
1,170 100
%
$
657 100
%
$
513 78 % 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 Nine Months Ended September 30, 2014 and 2013
(Amounts in millions)
Nine Months Ended
September 30, 2014 September 30, 2013
$ Increase % Increase
Amount % of Total6
Amount
% of Total6
(Decrease) (Decrease)
GAAP Net Revenues by Segment/Platform Mix Activision and
Blizzard: Online1
$
601
21
%
$
714
23
%
$
(113
)
(16 ) % PC 447 16 274 9 173 63 Next-generation (PS4, Xbox
One, Wii U) 353 12 14 --- 339 NM Current-generation (PS3, Xbox 360,
Wii) 1,049 37 1,620 53
(571 ) (35 ) Total console2 1,402 49
1,634 53 (232 ) (14 ) Mobile and
other5 165 6 300 10 (135 ) (45 )
Total Activision and Blizzard 2,615 92
2,922 95 (307 ) (11 ) Distribution:
Total Distribution 218 8 143 5
75 52 Total consolidated GAAP net revenues
2,833 100 3,065 100
(232 ) (8 )
Change in Deferred Revenues3
Activision and Blizzard: Online1 36 (110 ) PC 18 (67 )
Next-generation (PS4, Xbox One, Wii U) 214 (10 ) Current-generation
(PS3, Xbox 360, Wii) (513 ) (808 ) Total console2
(299 ) (818 ) Mobile and other5 12
--- Total changes in deferred revenues
(233 ) (995 )
Non-GAAP Net Revenues by
Segment/Platform Mix Activision and Blizzard: Online1 637 25
604 29 33 5 PC 465 18 207 10 258 125 Next-generation (PS4,
Xbox One, Wii U) 567 22 4 --- 563 NM Current-generation (PS3, Xbox
360, Wii) 536 21 812 39
(276 ) (34 ) Total console2 1,103 42
816 39 287 35 Mobile and
other5 177 7 300 14 (123 ) (41 )
Total Activision and Blizzard 2,382 92
1,927 93 455 24 Distribution:
Total Distribution 218 8 143 7
75 52 Total consolidated non-GAAP net
revenues4
$
2,600 100
%
$
2,070 100
%
$
530 26 % 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 Nine Months Ended September 30, 2014 and
2013 (Amounts in millions)
Three Months Ended September
30, 2014 September 30, 2013 $ Increase %
Increase Amount % of Total3
Amount % of
Total3
(Decrease) (Decrease) GAAP Net Revenues
by Geographic Region North America $ 350 46 % $ 344 50 % $ 6 2
% Europe 316 42 290 42 26 9 Asia Pacific 87 12
57 8 30 53 Total consolidated GAAP net
revenues 753 100 691 100 62
9
Change in Deferred Revenues1 North America
274 (2 ) Europe 135 (24 ) Asia Pacific 8 (8 )
Total changes in net revenues 417 (34 )
Non-GAAP Net Revenues by Geographic Region North America 624
53 342 52 282 82 Europe 451 39 266 40 185 70 Asia Pacific 95
8 49 7 46 94 Total non-GAAP net
revenues2 $ 1,170 100 % $ 657 100 % $ 513 78 %
Nine Months Ended September 30,
2014 September 30, 2013 $ Increase %
Increase Amount % of Total3
Amount % of
Total3
(Decrease) (Decrease) GAAP Net Revenues
by Geographic Region North America $ 1,384 49 % $ 1,643 54 % $
(259 ) (16 ) % Europe 1,172 41 1,180 38 (8 ) (1 ) Asia Pacific
277 10 242 8 35 14 Total
consolidated GAAP net revenues 2,833 100 3,065
100 (232 ) (8 )
Change in Deferred
Revenues1 North America (136 ) (564 ) Europe (102 ) (355 ) Asia
Pacific 5 (76 ) Total changes in net revenues
(233 ) (995 )
Non-GAAP Net Revenues by
Geographic Region North America 1,248 48 1,079 52 169 16 Europe
1,070 41 825 40 245 30 Asia Pacific 282 11 166
8 116 70 Total non-GAAP net revenues2 $ 2,600
100 % $ 2,070 100 % $ 530 26 % 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, 2014 and 2013 (Amounts in millions)
Three Months Ended September 30, 2014
September 30, 2013 $ Increase
% Increase Amount % of
Total5 Amount % of
Total5 (Decrease) (Decrease) Segment
net revenues: Activision1 $ 704 60 % $ 319 49 % $ 385 121 %
Blizzard2 388 33 282 43 106 38 Distribution3 78 7
56 9 22 39 Operating segment total
1,170 100 % 657 100 % 513 78
Reconciliation to
consolidated net revenues: Net effect from deferral of net
revenues (417 ) 34 Consolidated net revenues $
753 $ 691 $ 62 9 %
Segment income (loss)
from operations: Activision1 $ 95 $ 41 $ 54 132 % Blizzard2 164
88 76 86 Distribution3 1 (1 ) 2
--- Operating segment total 260 128 132 103
Reconciliation to consolidated
operating income andconsolidated income (loss) before income
tax expense (benefit):
Net effect from deferral of net revenues and related cost of sales
(180 ) 32 Stock-based compensation expense (22 ) (25 ) Amortization
of intangible assets (2 ) (3 ) Fees and other expenses related to
the Purchase Transaction and related debt financings4 (48 )
(62 ) Consolidated operating income 8 70 (62 ) (89 )
Interest and other investment income (expense), net (51 )
(4 ) Consolidated (loss) income before income tax expense
(benefit) $ (43 ) $ 66 $ (109 ) (165 ) % Operating
margin from total operating segments 22.2 % 19.5 %
Nine Months Ended September 30, 2014 September 30,
2013 $ Increase % Increase Amount % of
Total5 Amount % of Total5
(Decrease) (Decrease) Segment net revenues:
Activision1 $ 1,193 46 % $ 1,090 53 % $ 103 9 % Blizzard2 1,189 46
837 40 352 42 Distribution3 218 8 143 7
75 52 Operating segment total 2,600 100 % 2,070 100 %
530 26
Reconciliation to consolidated net revenues:
Net effect from deferral of net revenues 233
995 Consolidated net revenues $ 2,833 $ 3,065
$ (232 ) (8 ) %
Segment income (loss) from
operations: Activision1 $ 66 $ 214 $ (148 ) (69 ) % Blizzard2
548 282 266 94 Distribution3 (1 ) (1 ) ---
--- Operating segment total 613 495 118 24
Reconciliation to consolidated
operating income andconsolidated income before income tax
expense:
Net effect from deferral of net revenues and related cost of sales
260 738 Stock-based compensation expense (76 ) (76 ) Amortization
of intangible assets (4 ) (8 ) Fees and other expenses related to
the Purchase Transaction and related debt financings4 (48 )
(62 ) Consolidated operating income 745 1,087 (342 ) (31 )
Interest and other investment income (expense), net (152 )
(1 ) Consolidated income before income tax expense $ 593
$ 1,086 $ (493 ) (45 ) % Operating margin from
total operating segments 23.6 % 23.9 % 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 Reflects fees and
other expenses (including legal fees, costs, expenses and accruals)
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, 2014 EBITDA and
Adjusted EBITDA (Amounts in millions)
Trailing Twelve Months Ending December 31,
2013 March 31, 2014 June 30, 2014 September
30, 2014 September 30, 2014 GAAP Net Income
(Loss) $ 174
$ 293
$ 204
$ (23 )
$ 648 Interest (Income) / Expense, net 52 51 50 51 204
Provision (Benefit) for income taxes 59 83 56 (20 ) 178
Depreciation and amortization 40 19 19
22 100
EBITDA 325
446 329 30 1,130 Deferral of net
revenues and related cost of sales (a) 509 (219 ) (220 ) 180 250
Stock-based compensation expense (b) 34 30 22 22 108 Fees and other
expenses related to the Purchase Transaction and related debt
financings (c) 18 --- ---
48 66
Adjusted EBITDA
$ 886 $ 257 $ 131
$ 280 $ 1,554
(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
(including legal fees, costs, expenses and accruals) 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 and Year Ending
December 31, 2014 GAAP to Non-GAAP Reconciliation
(Amounts in millions, except per share data)
Outlook for Outlook
for Quarter Ending Year Ending December
31, 2014 December 31, 2014
Net Revenues (GAAP) $ 1,492 $
4,325
Excluding the
impact of:
Change in deferred net revenues (a) 708 475
Net Revenues (Non-GAAP) $ 2,200 $
4,800
Earnings Per Diluted Share
(GAAP)
$ 0.28 $ 0.91
Excluding the
impact of:
Net effect from deferral in net revenues and related cost of sales
(b)
0.54
0.25 Stock-based compensation (c) 0.03 0.09 Amortization of
intangible assets (d) 0.01 0.01 Fees and other expenses related to
the Purchase Transaction and related debt financings (e) 0.01 0.08
Earnings Per Diluted Share
(Non-GAAP) $ 0.86 $
1.35
(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
(including legal fees, costs, expenses and accruals) 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 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.Kristin SoutheySVP,
Investor Relations(310) 255-2635ksouthey@activision.comorMary
OsakoSVP, Global Communications(424)
322-5166mary.osako@activision.com
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