Company Increases CY 2016 Revenues and EPS
Outlook
Record Q2 Revenues, Growing More Than 50%
Year-over-Year
Record Quarterly Digital Revenues of Over $1
Billion
Record Q2 Operating Cash Flow, Up More Than
250% Year-over-Year
Activision Blizzard, Inc. (Nasdaq: ATVI) today announced
better-than-expected financial results for the second quarter of
2016.
Second Quarter (in millions, except
EPS)
2016
PriorOutlook*
2015
GAAP Net Revenues $ 1,570
$ 1,425 $ 1,044 GAAP
EPS $ 0.17 $ 0.10 $
0.29 Non-GAAP (redefined) EPS $
0.45 $ 0.36
$ 0.31
For the quarter ended June 30, 2016, Activision Blizzard’s net
revenues presented in accordance with Generally Accepted Accounting
Principles (“GAAP”) were a Q2 record $1.57 billion, as compared
with $1.04 billion for the second quarter of 2015, an increase of
50%. GAAP net revenues from digital channels were an all-time
quarterly record of $1.14 billion, up 23% quarter-over-quarter and
101% year-over-year. GAAP earnings per diluted share were $0.17, as
compared with $0.29 for the second quarter of 2015, down
year-over-year primarily due to purchase price accounting related
to the acquisition of King Digital Entertainment. On a Non-GAAP
(redefined) basis, the company’s earnings per diluted share were a
Q2 record $0.45, as compared with $0.31 for the second quarter of
2015, an increase of 45%.
Second Quarter (in millions, except
EPS)
2016
PriorOutlook*
2015
Non-GAAP (as previously defined) Net Revenues $
1,609 $ 1,375
$ 759 Non-GAAP (as previously defined) EPS
$ 0.54 $
0.38 $ 0.13
* GAAP and “Non-GAAP (as previously defined)” outlook was
previously provided in the May 5, 2016 earnings release. “Non-GAAP
(redefined)” outlook is what would have been provided on May 5,
2016 if the company were providing outlook based on the redefined
methodology at that time. “Non-GAAP (redefined)” includes the net
effect of revenue deferrals accounting treatment on certain of our
online enabled products, which was expected to be $0.02 per diluted
share in the outlook that was provided in the May 5, 2016 earnings
release.
On a Non-GAAP (as previously defined) basis, the company’s net
revenues were a Q2 record $1.61 billion, as compared with $759
million for the second quarter of 2015, an increase of 112%.
Non-GAAP (as previously defined) net revenues from digital channels
were an all-time quarterly record of $1.40 billion, up 76%
quarter-over-quarter and 129% year-over-year. Non-GAAP (as
previously defined) earnings per diluted share were a Q2 record
$0.54, as compared with $0.13 for the second quarter of 2015, an
increase of 315%. Note that we are providing these Non-GAAP (as
previously defined) measures for comparability one last time this
quarter.
Activision Blizzard generated a Q2 record $479 million in
operating cash flow for the quarter ended June 30, 2016, up 255%
year-over-year. For the trailing twelve months ended June 30, 2016,
operating cash flow totaled $1.64 billion, a 17% increase
year-over-year.
Please refer to the tables at the back of this press release for
a reconciliation of the company’s GAAP, non-GAAP (redefined) and
non-GAAP (as previously defined) results.
Bobby Kotick, Chief Executive Officer of Activision Blizzard,
said, “With Overwatch’s incredibly successful launch, Call of
Duty’s record first half performance, and Candy Crush’s continued
growth as key drivers of our overall performance, we delivered a
record Q2. We exceeded our non-GAAP (as previously defined) outlook
by $234 million in revenues and $0.16 in earnings per share, and
raised our full-year outlook.”
Kotick added, “The lynchpin of our current success and our
future growth is our talent. Our teams have the unique combination
of passion, entrepreneurial spirit and inspired creativity. The
success of Overwatch, our newest franchise, is a testament to this
talent. I’m grateful to our over 10,000 employees, each of whom
embodies these characteristics of our culture.”
Selected Business Highlights:
Audience Reach
- Activision Blizzard had 491 million
Monthly Active Users (MAUs)A in the quarter.
- Blizzard had the biggest quarterly
online player community in its history, with MAUsA of 33 million,
up 29% quarter-over-quarter and 13% year-over-year. This reflects
the successful launch of Overwatch® and strength
across the broader portfolio, including
Hearthstone®: Heroes of Warcraft™,
which had record quarterly MAUsA, and World of
Warcraft®, which had double-digit MAUA growth
quarter-over-quarter and year-over-year.
- On May 24, 2016, Blizzard launched
Overwatch which now has over 15 million players globally,
including box and digital sales, internet game room players, and
multi-user console households. In China, Overwatch broke the
previous record set by Diablo® III as the
fastest-selling PC game in the market’s history.1 Overwatch
also currently holds the number one position in Korean Internet
Game Rooms with over 30% share of play time.2
- Activision had the biggest second
quarter online player community in its history, with MAUsA of 49
million, up 11% year-over-year. Activision continues to have four
of the top ten games on current-generation consoles life-to-date,
including Call of Duty®: Black Ops III at No.
1.3
- King MAUsA of 409 million declined in
the quarter as expected due to seasonal trends and launch timing.
King had three of the top-15-grossing titles in the U.S. mobile app
stores for the tenth quarter in a row.4
Deep Engagement
- Activision Blizzard’s deep game
experiences drove nearly 10 billion hours of play time during
Q2.
- Players have spent about 500 million
hours playing Blizzard’s Overwatch, with additional content
updates ahead.
- Blizzard’s Hearthstone: Heroes of
Warcraft had record total quarterly time spent with the launch
of the Whispers of the Old Gods™ expansion.
- King’s time spent per MAUA was up
quarter-over-quarter and year-over-year.
- Activision and its partners at Bungie
launched an update in April for Destiny which drove strong
reengagement, with an increase in MAUsA and time spent per MAUA
month-over-month.
- Activision Blizzard’s esports network,
Major League Gaming, debuted the Enhanced Viewer Experience (EVE)
which provides viewers with match statistics, up-to-the-minute
leaderboards and situational insights live as the competition
unfolds. MLG also announced a partnership with Facebook that
includes broadcast of the “ESR” (Esports Report) on the social
network platform. MLG’s inaugural broadcast on Facebook was the
June Call of Duty World League event, the Anaheim Open.
Since the December acquisition, MLG’s reach on Facebook is up
700%.
- With the growth of the Call of Duty
World League, Call of Duty esports viewership increased
by more than 5 times year-over-year to 33 million views of the
Stage 1 events. This year’s major events are yet to come.
Player Investment
- Activision Blizzard GAAP revenues from
in-game content reached a record of over $900 million this quarter.
Activision Blizzard non-GAAP (as previously defined) revenues from
in-game content reached a record of over $1 billion this quarterB.
In-game content continues to be a rapidly growing part of the
business.
- Blizzard had its biggest segment
revenue quarter and first half year, ever. Blizzard's quarterly
segment operating income nearly tripled vs. the second quarter last
year. Additionally, Blizzard had record second quarter GAAP
revenues and record quarterly non-GAAP revenues (as previously
defined) in China. Blizzard’s overall performance was driven in
particular by Overwatch’s outstanding launch, World of
Warcraft’s strong pre-expansion momentum, with Legion
pre-purchases tracking in-line with the previous expansion, and
Hearthstone: Heroes of Warcraft’s double digit revenue
growth year-over-year.
- Activision had its biggest segment
operating income second quarter and first half year, ever, with
continued momentum on Call of Duty, including on catalog
sales, Season Pass, map packs and micro-transactions, and continued
engagement on Destiny.
- Gross bookingsC for King’s Candy
Crush™ franchise grew quarter-over-quarter and year-over-year.
In addition, King’s average revenue per paying user grew
quarter-over-quarter and year-over-year, also driving
year-over-year growth in King’s mobile gross bookingsC.
Company Outlook:
- On July 12, 2016, Activision released
the third of four map packs for Call of Duty: Black Ops III,
delivering four multiplayer maps in addition to an all-new Zombies
experience, available first on PlayStation 4.
- On August 2, 2016, Blizzard launched
its Summer Games content for Overwatch. The content includes
a new soccer-like game mode and includes a variety of new Summer
Games-themed cosmetic content in loot boxes.
- From August 5 to August 7, 2016, MLG
will host a Call of Duty World League event in Orlando with
a $100,000 prize pool.
- On August 11, 2016, Blizzard plans to
release a new adventure for Hearthstone: Heroes of Warcraft.
The adventure, One Night in Karazhan™, will offer
single-player content and the ability to earn new cards for
multiplayer duels.
- On August 30, 2016, Blizzard is
expected to launch its highly anticipated World of Warcraft
expansion, Legion™. World of Warcraft remains
the No. 1 subscription‐based MMORPG in the world.
- From September 2 to September 4, 2016,
Activision will host fans at Call of Duty XP. Thousands of
fans will enjoy hands-on Call of Duty: Infinite Warfare™
play, the first Call of Duty VR experience, exhibits,
developer panels, a surprise musical guest, and more. Call of
Duty XP will also host the finals for the Call of Duty
World League Championships, where teams from around
the world will compete for a $3 million prize pool.
- On September 20, Activision and Bungie
plan to release Rise of Iron, a large new expansion for the
Destiny universe. The expansion will include a new location,
a new Raid, a new Strike, more quests, weapons, and gear, and a new
competitive multiplayer mode.
- On October 16, 2016, Activision is
expected to release Skylanders®: Imaginators,
an innovative new title. For the first time ever, players will be
able to create their own Skylanders characters.
Skylanders™ Academy, a new TV series celebrating the
beloved kids franchise is expected to premiere on Netflix this
fall.
- On November 4, 2016, Activision is
expected to launch the highly anticipated Call of Duty: Infinite
Warfare. This is the first release on a three-year development
cycle from award-winning studio, Infinity Ward. Fans will also have
the opportunity to purchase Legacy and Digital Deluxe Editions
including a remastered copy of Call of Duty: Modern
Warfare®, one of the most beloved games of the franchise.
- Blizzard’s tenth BlizzCon® will
be returning to the Anaheim Convention Center on Friday, November
4, and Saturday, November 5. Thousands of tickets again sold out in
a matter of minutes, but online access via the purchase of a
BlizzCon Virtual Ticket is again available for this year’s
show.
- King is expected to have one additional
non-Candy Crush franchise release coming towards the end of
the year.
- Based on its year-to-date results,
Activision Blizzard is raising its full-year net revenues and
earnings per share outlook. The company’s third-quarter and
full-year net revenues and earnings per share outlook are as
follows:
(in millions, except EPS)
GAAP Outlook
Non-GAAP Outlook
(redefined)
Impact of GAAP
deferralsD
CY
2016
Net Revenues $ 6,400 $ 6,400 $ 75
EPS $ 0.87 $ 1.83 $
0.07
Fully Diluted Shares* 765 765
Q3
2016
Net Revenues $ 1,490 $ 1,490 $ 45
EPS $ 0.06 $ 0.39 $
0.01
Fully Diluted Shares* 760 760
* Fully diluted weighted average shares include participating
securities and dilutive options on a weighted average basis.
As referenced on our July 29, 2016 call, if you would like to
calculate Non-GAAP (as previously defined) revenues and EPS, in
order to do year-over-year comparisons, you would add the impact of
GAAP deferrals to GAAP Revenues and to Non-GAAP (redefined) EPS.
See footnote D for further explanation.
Currency Assumptions for 2016 Outlook:
- $1.11 USD/Euro for current outlook (vs.
average of $1.11 for 2015 and $1.33 for 2014)
- $1.31 USD/British Pound Sterling for
current outlook (vs. average of $1.53 for 2015 and $1.65 for
2014)
Debt Repayment and Cash Dividend
In the quarter ended June 30, 2016, we made prepayments to
reduce our total outstanding term loans by $816 million.
Furthermore, the company paid a cash dividend of $0.26 per common
share, a 13% increase year-over-year, in May 2016 to shareholders
of record at the close of business on March 30, 2016, totaling $195
million.
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, 2016 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
866-598-9332 in the U.S. with passcode 5764728.
About Activision Blizzard
Activision Blizzard, Inc., a member of the S&P 500, is the
world's most successful standalone interactive entertainment
company. We delight nearly 500 million monthly active users around
the world through franchises including Activision's Call of Duty®,
Destiny and Skylanders®, Blizzard Entertainment's World of
Warcraft®, StarCraft®, Diablo®, Hearthstone®: Heroes of Warcraft™
and Overwatch®, and King's Candy Crush™, Pet Rescue™ and Farm
Heroes™. The company is one of the Fortune ʺ100 Best Companies To
Work For®ʺ. Headquartered in Santa Monica, California, Activision
Blizzard has operations throughout the world, and its games are
played in 196 countries. More information about Activision Blizzard
and its products can be found on the company’s website,
www.activisionblizzard.com.
1 NetEase2 Gametrics.com3 Based on data from the NPD Group and
GfK Chart-Track4 U.S. ranking for Apple App Store and Google Play
Store, per App Annie Intelligence for second quarter 2016
A Monthly Active User (“MAU”) Definition: We monitor MAUs as a
key measure of the overall size of our user base and their regular
engagement with our portfolio of games. MAUs are the number of
individuals who played a particular game in a given month. We
calculate average MAUs in a period by adding the total number of
MAUs in each of the months in a given period and dividing that
total by the number of months in the period. An individual who
plays two of our games would be counted as two users. In addition,
due to technical limitations with respect to Activision Publishing
and King MAUs, an individual who plays the same game on two
platforms or devices in the relevant period would be counted as two
users. For Blizzard MAUs, an individual who plays the same game on
two platforms or devices in the relevant period would generally be
counted as a single user.
B The difference between the GAAP and non-GAAP measurement
represents the net effect of accounting treatment from revenue
deferrals on certain of our online enabled products. In-game
content is defined as content and services that can be purchased
once the player starts playing a game, e.g. DLC such as map packs,
micro-transactions such as loot boxes or gold bars, and value added
services such as paid character boosts. It does not include
subscriptions.
C Gross bookings is an operating metric that represents the
total cash spent by players in the period for the purchase of
virtual items. King uses gross bookings to evaluate its results of
operations, generate future operating plans and assess performance.
Gross bookings is the total price paid by players, which includes
indirect taxes (sales tax or value added tax etc.), platform
providers fees, and King’s share of revenues.
D Net effect of accounting treatment from revenue deferrals on
certain of our online enabled products. Some of our games’ online
functionality represents an essential component of gameplay and, as
a result, a more-than-inconsequential separate deliverable. As a
result, we recognize revenues attributed to these game titles over
their estimated service periods, which is generally less than a
year. The related cost of revenues is deferred and recognized as an
expense as the related revenues are recognized. Impact from changes
in deferrals refers to the net effect from revenue deferrals
accounting treatment for the purposes of revenues, and together
with the related cost of revenues deferrals treatment and the
related tax impacts for the purposes of EPS. Internally, management
excludes the impact of this change in deferred revenues and related
cost of revenues when evaluating the company’s operating
performance, when planning, forecasting and analyzing future
periods, and when assessing the performance of its management team.
Management believes this is appropriate because doing so enables an
analysis of performance based on the timing of actual transactions
with our customers. In addition, management believes excluding the
change in deferred revenues and the related cost of revenues
provides a much more timely indication of trends in our operating
results.
Non-GAAP (as previously defined) and Non-GAAP (redefined)
Financial Measures: We provide Non-GAAP (as previously defined)
financial measures and Non-GAAP (redefined) financial measures in
this earnings release. The only difference between the two measures
is the inclusion (Non-GAAP (redefined)) or exclusion (Non-GAAP (as
previously defined)) of the impact from revenue deferrals
accounting treatment on certain of our online enabled products. We
have reported our second quarter of 2016 results under Generally
Accepted Accounting Principles (“GAAP”), Non-GAAP (as previously
defined) and Non-GAAP (redefined). We have provided our outlook for
the third quarter and full year of 2016 under GAAP, and Non-GAAP
(redefined). This is the last quarter we will report Non-GAAP (as
previously defined) financial measures. In accordance with the
updated Compliance and Disclosure Interpretations issued by the SEC
staff on May 17, 2016, going forward, we will only be providing
results and outlook using GAAP and Non-GAAP (redefined).
Non-GAAP (redefined) Financial Measures: As a supplement
to our financial measures presented in accordance with Generally
Accepted Accounting Principles (“GAAP”), Activision Blizzard
presents certain non-GAAP measures of financial performance. These
non-GAAP financial measures are not intended to be considered in
isolation from, as a substitute for, or as more important than, the
financial information prepared and presented in accordance with
GAAP. In addition, these non-GAAP measures have limitations in that
they do not reflect all of the items associated with the company’s
results of operations as determined in accordance with GAAP.
Activision Blizzard provides net income (loss), earnings (loss)
per share and operating margin data and guidance both including (in
accordance with GAAP) and excluding (non-GAAP) certain items. When
relevant, the Company also provides constant FX information to
provide a framework for assessing how our underlying businesses
performed excluding the effect of foreign currency rate
fluctuations. In addition, Activision Blizzard provides EBITDA
(defined as GAAP net income (loss) before interest (income)
expense, income taxes, depreciation and amortization) and adjusted
EBITDA (defined as non-GAAP operating margin (see non-GAAP
financial measure below) before depreciation). The non-GAAP
financial measures exclude the following items, as applicable in
any given reporting period and our outlook:
- expenses related to stock-based
compensation;
- the amortization of intangibles from
purchase price accounting;
- fees and other expenses related to the
King acquisition, inclusive of related debt financings, and future
refinancing of long-term debt, including penalties and the write
off of unamortized discount and deferred financing costs; and
- the income tax adjustments associated
with any of the above items. We derive the income tax adjustments
commensurate with the non-GAAP income before income tax
expenses.
In the future, Activision Blizzard may also consider whether
other items should also be excluded in calculating the non-GAAP
financial measures used by the company. Management believes that
the presentation of these non-GAAP financial measures provides
investors with additional useful information to measure Activision
Blizzard’s financial and operating performance. In particular, the
measures facilitate comparison of operating performance between
periods and help investors to better understand the operating
results of Activision Blizzard by excluding certain items that may
not be indicative of the company’s core business, operating results
or future outlook. Internally, management uses these non-GAAP
financial measures, along with others, in assessing the company’s
operating results, and measuring compliance with the requirements
of the company’s debt financing agreements, as well as in planning
and forecasting.
Activision Blizzard’s non-GAAP financial measures are not based
on a comprehensive set of accounting rules or principles, and the
terms non-GAAP net income, non-GAAP earnings per share, non-GAAP
operating margin, and non-GAAP or adjusted EBITDA do not have a
standardized meaning. Therefore, other companies may use the same
or similarly named measures, but exclude different items, which may
not provide investors a comparable view of Activision Blizzard’s
performance in relation to other companies.
Management compensates for the limitations resulting from the
exclusion of these items by considering the impact of the items
separately and by considering Activision Blizzard’s GAAP, as well
as non-GAAP, results and outlook, and by presenting the most
comparable GAAP measures directly ahead of non-GAAP measures, and
by providing a reconciliation that indicates and describes the
adjustments made.
Cautionary Note Regarding Forward-looking Statements: The
statements contained in this press release that are not historical
facts are forward-looking statements, including, but not limited
to, statements about (1) projections of revenues, expenses, income
or loss, earnings or loss per share, cash flow or other financial
items; (2) statements of our plans and objectives, including those
related to product releases; (3) statements of future financial or
operating performance; (4) statements relating to the acquisition
of King and expected impact of that transaction, including without
limitation, the expected impact on Activision Blizzard, Inc.'s
future financial results; (5) statements about potential future
debt refinancing or other capital structure changes; and (6)
statements of assumptions underlying such statements. The company
generally uses words such as “outlook,” “forecast,” “will,”
“could,” “should,” “would,” “to be,” “plan,” “plans,” “believes,”
“may,” “might,” “expects,” “intends,” “intends as,” “anticipates,”
“estimate,” “future,” “positioned,” “potential,” “project,”
“remain,” “scheduled,” “set to,” “subject to,” “upcoming” and other
similar expressions to help identify forward-looking statements.
Forward-looking statements are subject to business and economic
risk, reflect management’s current expectations, estimates and
projections about our business, and are inherently uncertain and
difficult to predict.
The company cautions that a number of important factors could
cause Activision Blizzard's actual future results and other future
circumstances to differ materially from those expressed in any
forward looking statements. Such factors include, but are not
limited to: uncertainties as to whether and when Activision
Blizzard will be able to realize the anticipated financial results
from the acquisition of King; the integration of King being more
difficult, time-consuming or costly than expected; the diversion of
management time and attention to issues relating to the operations
and integration of King; sales levels of Activision Blizzard’s
titles; increasing concentration of revenue among a small number of
titles; Activision Blizzard’s ability to predict consumer
preferences, including interest in specific genres, and preferences
among hardware platforms; the amount of our debt and the
limitations imposed by the covenants in the agreements governing
our debt; adoption rate and availability of new hardware (including
peripherals) and related software; counterparty risks relating to
customers, licensees, licensors and manufacturers; maintenance of
relationships with key personnel, customers, financing providers,
licensees, licensors, manufacturers, vendors, and third-party
developers, including the ability to attract, retain and develop
key personnel and developers that can create high quality titles;
changing business models, including digital delivery of content and
the increased prevalence of free-to-play games; product delays or
defects; competition, including from used games and other forms of
entertainment; rapid changes in technology and industry standards;
possible declines in software pricing; product returns and price
protection; the identification of suitable future acquisition
opportunities and potential challenges associated with geographic
expansion; the seasonal and cyclical nature of the interactive
entertainment market; the outcome of current or future tax
disputes; litigation risks and associated costs; protection of
proprietary rights; shifts in consumer spending trends; capital
market risks; applicable regulations; domestic and international
economic, financial and political conditions and policies; tax
rates and foreign exchange rates; the impact of the current
macroeconomic environment; and the other factors identified in
“Risk Factors” included in Part I, Item 1A of our Annual Report on
Form 10-K for the year ended December 31, 2015 and subsequent
quarterly reports on Form 10-Q.
The forward-looking statements in this press release are based
on information available to the company and we assume no obligation
to update any such forward-looking statements. Although these
forward-looking statements are believed to be true when made, they
may ultimately prove to be incorrect. These statements are not
guarantees of our future performance and are subject to risks,
uncertainties and other factors, some of which are beyond our
control and may cause actual results to differ materially from
current expectations.
(Tables to Follow)
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, 2016
2015 2016 2015 Net
revenues Product sales $ 501 $ 528 $ 1,145 $ 1,311
Subscription, licensing and other revenues1 1,069 516
1,880 1,011 Net revenues 1,570 1,044 3,025 2,322
Costs and expenses Cost of revenues - product sales: Product
costs 149 147 318 349 Software royalties, amortization, and
intellectual property licenses 80 70 208 211 Cost of revenues -
subscription, licensing, and other: Game operations and
distribution costs 241 61 383 120 Software royalties, amortization,
and intellectual property licenses 128 19 180 30 Product
development 249 149 424 294 Sales and marketing 322 164 490 256
General and administrative 169 102 329 188
Total costs and expenses 1,338 712 2,332 1,448
Operating income 232 332 693 874 Interest and other
expense (income), net 65 50 117 100
Income before income tax expense 167 282 576 774 Income tax
expense 40 70 113 168 Net income $ 127
$ 212 $ 463 $ 606 Basic earnings per
common share 2 $ 0.17 $ 0.29 $ 0.62 $ 0.82 Weighted average common
shares outstanding 739 727 737 725 Diluted earnings per
common share 2 $ 0.17 $ 0.29 $ 0.61 $ 0.81 Weighted average common
shares outstanding assuming dilution 750 735 748 734 1
Subscription, licensing and other revenues
represent revenues from World of Warcraft subscriptions, licensing
royalties from our products and franchises, value-added services,
downloadable content, microtransactions, and other miscellaneous
revenues.
2 The company calculates earnings per share pursuant to the
two-class method which requires the allocation of net income
between common shareholders and participating security holders. We
had, on a weighted-average basis, participating securities of
approximately 3 million for the three and six months ended June 30,
2016, and 9 million and 10 million for the three and six months
ended June 30, 2015, respectively. For the three and six months
ended June 30, 2016, net income attributable to Activision
Blizzard, Inc. common shareholders used to calculate earnings per
common share, assuming dilution, was $126 million and $460 million,
respectively, as compared to total net income of $127 million and
$463 million, respectively, for the same period. For the three and
six months ended June 30, 2015, net income attributable to
Activision Blizzard, Inc. common shareholders used to calculate
earnings per common share, assuming dilution, was $210 million and
$597 million, respectively, as compared to total net income of $212
million and $606 million, respectively, for the same period.
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(Amounts in millions) June
30, 2016 December 31, 2015 Assets
Current assets Cash and cash equivalents $ 2,271 $ 1,823 Accounts
receivable, net 462 679 Inventories, net 94 128 Software
development 287 336 Other current assets 306 421
Total current assets 3,420 3,387 Cash in escrow — 3,561 Software
development 150 80 Property and equipment, net 260 189 Deferred
income taxes, net 405 275 Other assets 320 177 Intangible assets,
net 2,281 482 Goodwill 9,771 7,095 Total assets $
16,607 $ 15,246
Liabilities and
Shareholders' Equity Current liabilities Accounts payable $ 176
$ 284 Deferred revenues 1,238 1,702 Accrued expenses and other
liabilities 721 625 Current portion of long-term debt, net 56
— Total current liabilities 2,191 2,611 Long-term
debt, net 4,977 4,074 Deferred income taxes, net 50 10 Other
liabilities 835 483 Total liabilities 8,053
7,178 Shareholders' equity Common stock — —
Additional paid-in capital 10,425 10,242 Treasury stock (5,588 )
(5,637 ) Retained earnings 4,366 4,096 Accumulated other
comprehensive loss (649 ) (633 ) Total shareholders’ equity 8,554
8,068 Total liabilities and shareholders’ equity $
16,607 $ 15,246
ACTIVISION BLIZZARD,
INC. AND SUBSIDIARIES RECONCILIATION OF GAAP NET INCOME TO
NON-GAAP MEASURES (Amounts in millions, except per share
data)
Three Months Ended June 30, 2016 Net
Revenues
Cost of Revenues- Product
Sales:Product Costs
Cost of Revenues- Product
Sales:SoftwareRoyalties
andAmortization
Cost of Revenues-
Subs/Lic/Other:Game Operations andDistribution
Costs
Cost of Revenues-
Subs/Lic/Other:SoftwareRoyalties
andAmortization
ProductDevelopment
Sales andMarketing
General
andAdministrative
Total Costsand Expenses
GAAP Measurement $ 1,570 $ 149 $ 80 $ 241 $ 128 $ 249 $ 322 $ 169 $
1,338 Stock-based compensation1 — — (6 ) — (1 ) (13 ) (4 ) (17 )
(41 ) Amortization of intangible assets2 — — (1 ) — (122 ) — (78 )
(2 ) (203 ) Fees and other expenses related to acquisitions3 —
— —
— — —
— (4 ) (4 ) Non-GAAP
(redefined) Measurement $ 1,570 $ 149
$ 73 $ 241
$ 5 $ 236 $ 240
$ 146 $ 1,090 Net
effect of deferred revenues and related cost of revenues4 $ 39 $
(44 ) $ (34 ) $ 7 $ 2 $ — $ — $ — $ (69 ) Non-GAAP (as
previously defined) Measurement6 $ 1,609 $ 105 $ 39 $ 248 $ 7 $ 236
$ 240 $ 146 $ 1,021
OperatingIncome
Net Income
Basic Earningsper Share
Diluted Earningsper
Share
GAAP Measurement $ 232 $ 127 $ 0.17 $ 0.17 Stock-based
compensation1 41 41 0.06 0.06 Amortization of intangible assets2
203 203 0.27 0.27 Fees and other expenses related to acquisitions3
4 5 0.01 0.01 Income tax impacts from items above5 —
(35 ) (0.05 ) (0.05 ) Non-GAAP
(redefined) Measurement $ 480 $ 341
$ 0.46 $ 0.45 Net
effect of deferred revenues and related cost of revenues4 $ 108 $
63 $ 0.08 $ 0.09 Non-GAAP (as previously defined)
Measurement6 $ 588 $ 404 $ 0.54 $ 0.54 1 Includes expenses
related to stock-based compensation. 2 Reflects amortization of
intangible assets from purchase price accounting. 3 Reflects fees
and other expenses related to the acquisition of King Digital
Entertainment ("King Acquisition"), inclusive of related debt
financings. 4 Reflects the net effect from deferral of revenues and
(recognition) of deferred revenues, along with related cost of
revenues, on certain of our online enabled products, including the
effects of taxes. 5 Reflects the income tax impact associated with
the above items. We derive the income tax impacts commensurate with
the non-GAAP income before income tax expenses. 6
We have provided Non-GAAP (as previously
defined) financial measures and Non-GAAP (redefined) financial
measures in this earnings release. The only difference between the
two measures is the inclusion (Non-GAAP (redefined)) or exclusion
(Non-GAAP (as previously defined)) of the impact from revenue
deferrals accounting treatment on certain of our online enabled
products. We reported our second quarter of 2016 results under
GAAP, Non-GAAP (as previously defined) and Non-GAAP (redefined).
This is the last quarter we will report Non-GAAP (as previously
defined) financial measures and going forward, we will only be
providing GAAP and Non-GAAP (redefined) results.
The GAAP, non-GAAP (redefined), and
non-GAAP (as previously defined) earnings per share information is
presented as calculated. The sum of these measures, as presented,
may differ due to the impact of rounding.
The company calculates earnings per share pursuant to the
two-class method which requires the allocation of net income
between common shareholders and participating security holders. For
the three months ended June 30, 2016, net income attributable to
Activision Blizzard, Inc. common shareholders used to calculate
non-GAAP (redefined) earnings per common share, assuming dilution,
was $340 million, as compared to total net income of $341 million,
for the same period. For the three months ended June 30, 2016, net
income attributable to Activision Blizzard, Inc. common
shareholders used to calculate non-GAAP (as previously defined)
earnings per common share, assuming dilution, was $402 million, as
compared to total net income of $404 million, for the same period.
For purposes of calculating earnings per share, we had, on a
weighted-average basis, common shares outstanding of 739 million,
participating securities of approximately 3 million, and dilutive
shares of 11 million during the three months ended June 30, 2016.
ACTIVISION BLIZZARD, INC. AND
SUBSIDIARIES
RECONCILIATION OF GAAP NET INCOME TO
NON-GAAP MEASURES
(Amounts in millions, except per share
data)
Six Months Ended June 30, 2016 Net
Revenues
Cost of Revenues- Product
Sales:Product Costs
Cost of Revenues- Product
Sales:SoftwareRoyalties
andAmortization
Cost of Revenues-
Subs/Lic/Other:Game Operations andDistribution
Costs
Cost of Revenues-
Subs/Lic/Other:SoftwareRoyalties
andAmortization
ProductDevelopment
Sales andMarketing
General
andAdministrative
Total Costsand Expenses
GAAP Measurement $ 3,025 $ 318 $ 208 $ 383 $ 180 $ 424 $ 490 $ 329
$ 2,332 Stock-based compensation1 — — (14 ) — (1 ) (23 ) (7 ) (40 )
(85 ) Amortization of intangible assets2 — — (2 ) (1 ) (168 ) —
(111 ) (3 ) (285 ) Fees and other expenses related to acquisitions3
— — —
— — —
— (38 ) (38 )
Non-GAAP (redefined) Measurement $ 3,025 $ 318
$ 192 $ 382
$ 11 $ 401 $ 372
$ 248 $ 1,924
Net effect of deferred revenues and related cost of
revenues4 $ (508 ) $ (127 ) $ (122 ) $ 3 $ (1 ) $ — $ — $ — $ (247
) Non-GAAP (as previously defined) Measurement6 $ 2,517 $
191 $ 70 $ 385 $ 10 $ 401 $ 372 $ 248 $ 1,677
OperatingIncome
Net Income
Basic Earningsper Share
Diluted Earningsper
Share
GAAP Measurement $ 693 $ 463 $ 0.62 $ 0.61 Stock-based
compensation1 85 85 0.12 0.11 Amortization of intangible assets2
285 285 0.38 0.38 Fees and other expenses related to acquisitions3
38 41 0.06 0.05 Income tax impacts from items above5 —
(92 ) (0.12 ) (0.12 )
Non-GAAP (redefined) Measurement $ 1,101 $ 782
$ 1.06 $ 1.04
Net effect of deferred revenues and related cost of
revenues4 $ (261 ) $ (205 ) $ (0.28 ) $ (0.27 ) Non-GAAP (as
previously defined) Measurement6 $ 840 $ 577 $ 0.78 $ 0.77 1
Includes expenses related to stock-based compensation. 2 Reflects
amortization of intangible assets from purchase price accounting. 3
Reflects fees and other expenses related to the acquisition of King
Digital Entertainment ("King Acquisition"), inclusive of related
debt financings. 4 Reflects the net effect from deferral of
revenues and (recognition) of deferred revenues, along with related
cost of revenues, on certain of our online enabled products,
including the effects of taxes. 5 Reflects the income tax impact
associated with the above items. We derive the income tax impacts
commensurate with the non-GAAP income before income tax expenses. 6
We have provided Non-GAAP (as previously
defined) financial measures and Non-GAAP (redefined) financial
measures in this earnings release. The only difference between the
two measures is the inclusion (Non-GAAP (redefined)) or exclusion
(Non-GAAP (as previously defined)) of the impact from revenue
deferrals accounting treatment on certain of our online enabled
products. We reported our second quarter of 2016 results under
GAAP, Non-GAAP (as previously defined) and Non-GAAP (redefined).
This is the last quarter we will report Non-GAAP (as previously
defined) financial measures and going forward, we will only be
providing GAAP and Non-GAAP (redefined) results.
The GAAP, non-GAAP (redefined), and
non-GAAP (as previously defined) earnings per share information is
presented as calculated. The sum of these measures, as presented,
may differ due to the impact of rounding.
The company calculates earnings per share pursuant to the
two-class method which requires the allocation of net income
between common shareholders and participating security holders. For
the six months ended June 30, 2016, net income attributable to
Activision Blizzard, Inc. common shareholders used to calculate
non-GAAP (redefined) earnings per common share, assuming dilution,
was $778 million, as compared to total net income of $782 million,
for the same period. For the six months ended June 30, 2016, net
income attributable to Activision Blizzard, Inc. common
shareholders used to calculate non-GAAP (as previously defined)
earnings per common share, assuming dilution, was $573 million, as
compared to total net income of $577 million, for the same period.
For purposes of calculating earnings per share, we had, on a
weighted-average basis, common shares outstanding of 737 million,
participating securities of approximately 3 million, and dilutive
shares of 11 million during the six months ended June 30, 2016.
ACTIVISION BLIZZARD, INC. AND
SUBSIDIARIES
RECONCILIATION OF GAAP NET INCOME TO
NON-GAAP MEASURES
(Amounts in millions, except per share
data)
Three Months Ended June 30, 2015 Net
Revenues
Cost of Revenues- Product
Sales:Product Costs
Cost of Revenues- Product
Sales:SoftwareRoyalties
andAmortization
Cost of Revenues-
Subs/Lic/Other:Game Operations andDistribution
Costs
Cost of Revenues-
Subs/Lic/Other:SoftwareRoyalties
andAmortization
ProductDevelopment
Sales andMarketing
General
andAdministrative
Total Costsand Expenses
GAAP Measurement $ 1,044 $ 147 $ 70 $ 61 $ 19 $ 149 $ 164 $ 102 $
712 Stock-based compensation1 — — (2 ) — (1 ) (6 ) (2 ) (10 ) (21 )
Amortization of intangible assets2 — —
(1 ) — —
— — —
(1 ) Non-GAAP (redefined) Measurement $ 1,044
$ 147 $ 67
$ 61 $ 18 $ 143
$ 162 $ 92
$ 690 Net effect of deferred revenues and
related cost of revenues3 $ (285 ) $ (66 ) $ (57 ) $ 8 $ 11 $ — $ —
$ — $ (104 ) Non-GAAP (as previously defined) Measurement5 $
759 $ 81 $ 10 $ 69 $ 29 $ 143 $ 162 $ 92 $ 586
OperatingIncome
Net Income
Basic Earningsper Share
Diluted Earningsper
Share
GAAP Measurement $ 332 $ 212 $ 0.29 $ 0.29 Stock-based
compensation1 21 21 0.03 0.03 Amortization of intangible assets2 1
1 — — Income tax impacts from items above4 —
(5 ) (0.01 ) (0.01 ) Non-GAAP
(redefined) Measurement $ 354 $ 229
$ 0.31 $ 0.31 Net
effect of deferred revenues and related cost of revenues3 $ (181 )
$ (136 ) $ (0.18 ) $ (0.18 ) Non-GAAP (as previously
defined) Measurement5 $ 173 $ 93 $ 0.13 $ 0.13 1 Includes
expenses related to stock-based compensation. 2 Reflects
amortization of intangible assets from purchase price accounting. 3
Reflects the net effect from deferral of revenues and (recognition)
of deferred revenues, along with related cost of revenues, on
certain of our online enabled products, including the effects of
taxes. 4 Reflects the income tax impact associated with the above
items. We derive the income tax impacts commensurate with the
non-GAAP income before income tax expenses. 5
We have provided Non-GAAP (as previously
defined) financial measures and Non-GAAP (redefined) financial
measures in this earnings release. The only difference between the
two measures is the inclusion (Non-GAAP (redefined)) or exclusion
(Non-GAAP (as previously defined)) of the impact from revenue
deferrals accounting treatment on certain of our online enabled
products. We reported our second quarter of 2016 results under
GAAP, Non-GAAP (as previously defined) and Non-GAAP (redefined).
This is the last quarter we will report Non-GAAP (as previously
defined) financial measures and going forward, we will only be
providing GAAP and Non-GAAP (redefined) results.
The GAAP, non-GAAP (redefined), and
non-GAAP (as previously defined) earnings per share information is
presented as calculated. The sum of these measures, as presented,
may differ due to the impact of rounding.
The company calculates earnings per share pursuant to the
two-class method which requires the allocation of net income
between common shareholders and participating security holders. For
the three months ended June 30, 2015, net income attributable to
Activision Blizzard, Inc. common shareholders used to calculate
non-GAAP (redefined) earnings per common share, assuming dilution,
was $226 million, as compared to total net income of $229 million,
for the same period. For the three months ended June 30, 2015, net
income attributable to Activision Blizzard, Inc. common
shareholders used to calculate non-GAAP (as previously defined)
earnings per common share, assuming dilution, was $92 million, as
compared to total net income of $93 million, for the same period.
For purposes of calculating earnings per share, we had, on a
weighted-average basis, common shares outstanding of 727 million,
participating securities of approximately 9 million, and dilutive
shares of 8 million during the three months ended June 30, 2015.
ACTIVISION BLIZZARD, INC. AND
SUBSIDIARIES
RECONCILIATION OF GAAP NET INCOME TO
NON-GAAP MEASURES
(Amounts in millions, except per share
data)
Six Months Ended June 30, 2015 Net
Revenues
Cost of Revenues- Product
Sales:Product Costs
Cost of Revenues- Product
Sales:SoftwareRoyalties
andAmortization
Cost of Revenues-
Subs/Lic/Other:Game Operations andDistribution
Costs
Cost of Revenues-
Subs/Lic/Other:SoftwareRoyalties
andAmortization
ProductDevelopment
Sales andMarketing
General
andAdministrative
Total Costsand Expenses
GAAP Measurement $ 2,322 $ 349 $ 211 $ 120 $ 30 $ 294 $ 256 $ 188 $
1,448 Stock-based compensation1 — — (5 ) — (2 ) (14 ) (4 ) (19 )
(44 ) Amortization of intangible assets2 — —
(3 ) — —
— —
— (3 ) Non-GAAP (redefined) Measurement $
2,322 $ 349 $ 203
$ 120 $ 28
$ 280 $ 252 $ 169
$ 1,401 Net effect of deferred revenues
and related cost of revenues3 $ (860 ) $ (176 ) $ (173 ) $ 7 $ 27 $
— $ — $ — $ (315 ) Non-GAAP (as previously defined)
Measurement5 $ 1,462 $ 173 $ 30 $ 127 $ 55 $ 280 $ 252 $ 169 $
1,086
OperatingIncome
Net Income
Basic Earningsper Share
Diluted Earningsper
Share
GAAP Measurement $ 874 $ 606 $ 0.82 $ 0.81 Stock-based
compensation1 44 44 0.06 0.06 Amortization of intangible assets2 3
3 — — Income tax impacts from items above4 —
(13 ) (0.01 ) (0.01 ) Non-GAAP
(redefined) Measurement $ 921 $ 640
$ 0.87 $ 0.86 Net
effect of deferred revenues and related cost of revenues3 $ (545 )
$ (431 ) $ (0.59 ) $ (0.58 ) Non-GAAP (as previously
defined) Measurement5 $ 376 $ 209 $ 0.28 $ 0.28 1 Includes
expenses related to stock-based compensation. 2 Reflects
amortization of intangible assets from purchase price accounting. 3
Reflects the net effect from deferral of revenues and (recognition)
of deferred revenues, along with related cost of revenues, on
certain of our online enabled products, including the effects of
taxes. 4 Reflects the income tax impact associated with the above
items. We derive the income tax impacts commensurate with the
non-GAAP income before income tax expenses. 5
We have provided Non-GAAP (as previously
defined) financial measures and Non-GAAP (redefined) financial
measures in this earnings release. The only difference between the
two measures is the inclusion (Non-GAAP (redefined)) or exclusion
(Non-GAAP (as previously defined)) of the impact from revenue
deferrals accounting treatment on certain of our online enabled
products. We reported our second quarter of 2016 results under
GAAP, Non-GAAP (as previously defined) and Non-GAAP (redefined).
This is the last quarter we will report Non-GAAP (as previously
defined) financial measures and going forward, we will only be
providing GAAP and Non-GAAP (redefined) results.
The GAAP, non-GAAP (redefined), and
non-GAAP (as previously defined) earnings per share information is
presented as calculated. The sum of these measures, as presented,
may differ due to the impact of rounding.
The company calculates earnings per share pursuant to the
two-class method which requires the allocation of net income
between common shareholders and participating security holders. For
the six months ended June 30, 2015, net income attributable to
Activision Blizzard, Inc. common shareholders used to calculate
non-GAAP (redefined) earnings per common share, assuming dilution,
was $630 million, as compared to total net income of $640 million,
for the same period. For the six months ended June 30, 2015, net
income attributable to Activision Blizzard, Inc. common
shareholders used to calculate non-GAAP (as previously defined)
earnings per common share, assuming dilution, was $205 million, as
compared to total net income of $209 million, for the same period.
For purposes of calculating earnings per share, we had, on a
weighted-average basis, common shares outstanding of 725 million,
participating securities of approximately 10 million, and dilutive
shares of 9 million during the six months ended June 30, 2015.
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
FINANCIAL INFORMATION For the Three and Six Months Ended
June 30, 2016 and 2015 (Amounts in millions)
Three Months Ended June 30, 2016
June 30, 2015
$ Increase(Decrease)
% Increase(Decrease)
Amount % of Total1 Amount
% of Total1 Net Revenues by
Distribution Channel Digital online
channels2 $ 1,141 73 % $ 569 55 % $ 572 101 % Retail channels 374
24 414 40 (40 ) (10 ) Other3 55 4 61
6 (6 ) (10 ) Total consolidated net
revenues 1,570 100 1,044
100 526 50
Change in deferred
revenues4 Digital online channels2 261 42 Retail
channels (222 ) (327 ) Total changes in deferred revenues 39
(285 )
Non-GAAP (as previously defined) Net Revenues by
Distribution Channel5 Digital online channels2 1,402 87
611 81 791 129 Retail channels 152 9 87 11 65 75 Other3 55
3 61 8 (6 ) (10 )
Total non-GAAP (as previously defined) net revenues5 $ 1,609
100 % $ 759 100 % $ 850
112 %
Six Months Ended June 30, 2016 June
30, 2015
$ Increase(Decrease)
% Increase(Decrease)
Amount % of Total1 Amount
% of Total1 Net Revenues by
Distribution Channel Digital online channels2 $ 2,067 68 % $
1,150 50 % $ 917 80 % Retail channels 856 28 1,063 46 (207 ) (19 )
Other3 102 3 109 5
(7 ) (6 ) Total consolidated net revenues 3,025
100 2,322 100 703
30
Change in deferred revenues4 Digital
online channels2 132 (1 ) Retail channels (640 ) (859 ) Total
changes in deferred revenues (508 ) (860 )
Non-GAAP (as
previously defined) Net Revenues by Distribution
Channel5 Digital online channels2 2,199 87 1,149 79
1,050 91 Retail channels 216 9 204 14 12 6 Other3 102
4 109 7 (7 ) (6 ) Total
non-GAAP (as previously defined) net revenues5 $ 2,517
100 % $ 1,462 100 % $ 1,055
72 % 1 The percentages of total are presented as
calculated. Therefore the sum of these percentages, as presented,
may differ due to the impact of rounding. 2
Net revenues from digital online channels
represent revenues from digitally distributed subscriptions,
licensing royalties, value-added services, downloadable content,
microtransactions, and products.
3 Net revenues from Other include revenues from our Major League
Gaming, studios, and distribution businesses. 4 Reflects the net
effect from deferral of revenues and (recognition) of deferred
revenues on certain of our online enabled products, including the
effect of taxes. 5
We have provided Non-GAAP (as previously
defined) financial measures and Non-GAAP (redefined) financial
measures in this earnings release. The only difference between the
two measures is the inclusion (Non-GAAP (redefined)) or exclusion
(Non-GAAP (as previously defined)) of the impact from revenue
deferrals accounting treatment on certain of our online enabled
products. We reported our second quarter of 2016 results under
GAAP, Non-GAAP (as previously defined) and Non-GAAP (redefined).
This is the last quarter we will report Non-GAAP (as previously
defined) financial measures and going forward, we will only be
providing GAAP and Non-GAAP (redefined) results.
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
FINANCIAL INFORMATION For the Three and Six Months Ended
June 30, 2016 and 2015 (Amounts in millions)
Three Months Ended June 30, 2016
June 30, 2015
$ Increase(Decrease)
% Increase(Decrease)
Amount % of Total1 Amount
% of Total1 Net Revenues by
Platform Console $ 650 41 % $ 559
54 % $ 91 16 %
PC2
411 26 370 35 41 11 Mobile and ancillary3 454 29 54 5 400 NM Other4
55 4 61 6
(6 ) (10 ) Total consolidated net revenues 1,570
100 1,044 100 526
50
Change in deferred revenues5 Console (210 )
(283 ) PC2 219 (28 ) Mobile and ancillary3 30 26
Total changes in deferred revenues 39 (285 )
Non-GAAP (as previously defined) Net Revenues by
Platform6 Console 440 27 276 36 164 59 PC2 630 39 342 45
288 84 Mobile and ancillary3 484 30 80 11 404 NM Other4 55
3 61 8 (6 ) (10 )
Total non-GAAP (as previously defined) net revenues6 $ 1,609
100 % $ 759 100 % $ 850
112 %
Six Months Ended June 30, 2016 June
30, 2015
$ Increase(Decrease)
% Increase(Decrease)
Amount % of Total1 Amount
% of Total1 Net Revenues by
Platform Console $ 1,415 47 % $ 1,317 57 % $ 98 7 % PC2 811 27
755 33 56 7 Mobile and ancillary3 697 23 141 6 556 NM Other4 102
3 109 5 (7
) (6 ) Total consolidated net revenues 3,025
100 2,322 100 703 30
Change in deferred revenues5 Console (648 )
(808 ) PC2 121 (78 ) Mobile and ancillary3 19 26
Total changes in deferred revenues (508 ) (860 )
Non-GAAP
(as previously defined) Net Revenues by Platform6
Console 767 30 509 35 258 51
PC2
932 37 677 46 255 38
Mobile and ancillary3
716 28 167 11 549 NM
Other4
102 4 109 7
(7 ) (6 ) Total non-GAAP (as previously defined) net revenues6 $
2,517 100 % $ 1,462 100 %
$ 1,055 72 % 1 The percentages of total are presented
as calculated. Therefore the sum of these percentages, as
presented, may differ due to the impact of rounding. 2 Net revenues
from PC include revenues that were historically shown as “Online.”
3 Net revenues from mobile and ancillary include revenues from
handheld, mobile and tablet 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. 4 Net revenues from Other
include revenues from our Major League Gaming, studios, and
distribution businesses. 5 Reflects the net effect from deferral of
revenues and (recognition) of deferred revenues on certain of our
online enabled products, including the effect of taxes. 6
We have provided Non-GAAP (as previously
defined) financial measures and Non-GAAP (redefined) financial
measures in this earnings release. The only difference between the
two measures is the inclusion (Non-GAAP (redefined)) or exclusion
(Non-GAAP (as previously defined)) of the impact from revenue
deferrals accounting treatment on certain of our online enabled
products. We reported our second quarter of 2016 results under
GAAP, Non-GAAP (as previously defined) and Non-GAAP (redefined).
This is the last quarter we will report Non-GAAP (as previously
defined) financial measures and going forward, we will only be
providing GAAP and Non-GAAP (redefined) results.
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
FINANCIAL INFORMATION For the Three and Six Months Ended
June 30, 2016 and 2015 (Amounts in millions)
Three Months Ended June 30, 2016
June 30, 2015
$ Increase(Decrease)
% Increase(Decrease)
Amount % of Total1 Amount
% of Total1 Net Revenues by
Geographic Region Americas $ 860 55
% $ 551 53 % $ 309 56 % EMEA2 507 32 388 37 119 31 Asia Pacific 203
13 105 10
98 93 Total consolidated GAAP net revenues 1,570
100 1,044 100 526
50
Change in deferred revenues3
Americas (24 ) (198 ) EMEA2 (17 ) (113 ) Asia Pacific 80 26
Total changes in net revenues 39 (285 )
Non-GAAP (as previously defined) Net Revenues by Geographic
Region4 Americas 836 52 353 47 483 137 EMEA2 490 30 275
36 215 78 Asia Pacific 283 18 131
17 152 116 Total non-GAAP (as
previously defined) net revenues4 $ 1,609 100
% $ 759 100 % $ 850 112 %
Six
Months Ended June 30, 2016 June 30, 2015
$ Increase(Decrease)
% Increase(Decrease)
Amount % of Total1 Amount
% of Total1 Net Revenues by
Geographic Region Americas $ 1,613 53 % $ 1,255 54 % $ 358 29 %
EMEA2 1,028 34 852 37 176 21 Asia Pacific 384
13 215 9 169 79 Total
consolidated GAAP net revenues 3,025 100
2,322 100 703 30
Change in deferred revenues3 Americas (317 ) (548 )
EMEA2 (211 ) (309 ) Asia Pacific 20 (3 ) Total changes in
net revenues (508 ) (860 )
Non-GAAP (as previously
defined) Net Revenues by Geographic Region4 Americas
1,296 51 707 48 589 83 EMEA2 817 32 543 37 274 50 Asia Pacific 404
16 212 15
192 91 Total non-GAAP (as previously defined) net revenues4
$ 2,517 100 % $ 1,462 100
% $ 1,055 72 % 1 The percentages of total are
presented as calculated. Therefore the sum of these percentages, as
presented, may differ due to the impact of rounding. 2 EMEA
consists of the Europe, Middle East, and Africa geographic regions.
3 Reflects the net effect from deferral of revenues and
(recognition) of deferred revenues on certain of our online enabled
products, including the effect of taxes. 4
We have provided Non-GAAP (as previously
defined) financial measures and Non-GAAP (redefined) financial
measures in this earnings release. The only difference between the
two measures is the inclusion (Non-GAAP (redefined)) or exclusion
(Non-GAAP (as previously defined)) of the impact from revenue
deferrals accounting treatment on certain of our online enabled
products. We reported our second quarter of 2016 results under
GAAP, Non-GAAP (as previously defined) and Non-GAAP (redefined).
This is the last quarter we will report Non-GAAP (as previously
defined) financial measures and going forward, we will only be
providing GAAP and Non-GAAP (redefined) results.
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
FINANCIAL INFORMATION For the Three and Six Months Ended
June 30, 2016 and 2015 (Amounts in millions)
Three Months Ended June 30, 2016
June 30, 2015
$ Increase(Decrease)
% Increase(Decrease)
Amount % of Total1 Amount
% of Total1 Segment net
revenues: Activision2 $ 332 21 % $
313 45 % $ 19 6 % Blizzard3 738 47 385 55 353 92 King4 484
31 — — 484
NM Reportable segments total 1,554 100 % 698 100 % 856 123
Reconciliation to consolidated net revenues: Other segments5
55 61
Net effect from deferral of net
revenues6
(39 ) 285 Consolidated net revenues $ 1,570 $ 1,044
526 50 %
Segment income (loss) from
operations: Activision2 $ 88 $ 57 $ 31 54 % Blizzard3 333 117
216 185 King4 176 — 176 NM
Reportable segments total
597 174 423 NM
Reconciliation to consolidated operating income
and consolidated income before income tax expense Other
segments5 (9 ) (1 )
Net effect from certain revenues deferrals
accounting treatment6
(108 ) 181 Stock-based compensation expense (41 ) (21 )
Amortization of intangible assets (203 ) (1 )
Fees and other expenses related to
acquisitions7
(4 ) — Consolidated operating income 232 332 (100 ) (30 )
Interest and other expense (income), net 65 50
Consolidated income before income tax expense $ 167 $ 282
(115 ) (41 )% Operating margin from total reportable
segments 38.4 % 24.9 %
Six Months Ended June 30,
2016 June 30, 2015
$ Increase(Decrease)
% Increase(Decrease)
Amount % of Total1 Amount
% of Total1 Segment net
revenues: Activision2 $ 692 29 % $ 616 46 % $ 76 12 % Blizzard3
1,032 43 737 54 295 40 King4 691 29 —
— 691 NM Reportable segments
total 2,415 100 % 1,353 100 % 1,062 78
Reconciliation to
consolidated net revenues: Other segments5 102 109 Net effect
from deferral of net revenues6 508 860 Consolidated
net revenues $ 3,025 $ 2,322 703 30 %
Segment income (loss) from operations: Activision2 $ 187 $
121 $ 66 55 % Blizzard3 419 256 163 64 King4 243 —
243 NM Reportable segments total 849 377 472 125
Reconciliation to consolidated operating income and consolidated
income before income tax expense Other segments5 (9 ) (1 ) Net
effect from certain revenues deferrals accounting treatment6 261
545 Stock-based compensation expense (85 ) (44 ) Amortization of
intangible assets (285 ) (3 ) Fees and other expenses related to
acquisitions7 (38 ) — Consolidated operating income 693 874
(181 ) (21 ) Interest and other expense (income), net 117
100 Consolidated income before income tax expense $ 576
$ 774 (198 ) (26 )% Operating margin from
total reportable segments 35.2 % 27.9 % 1 The percentages of
total are presented as calculated. Therefore the sum of these
percentages, as presented, may differ due to the impact of
rounding. 2 Activision Publishing (“Activision”) — publishes
interactive entertainment products and content. 3 Blizzard
Entertainment, Inc. (“Blizzard”) — publishes interactive
entertainment products and online subscription-based games. 4 King
Digital Entertainment plc (“King”) — publishes interactive mobile
entertainment products. 5 Other includes other income and expenses
from operating segments managed outside the reportable segments,
including our Major League Gaming, studios, and distribution
businesses. Other also includes unallocated corporate income and
expenses. 6 Reflects the net effect from deferral of revenues and
(recognition) of deferred revenues, along with related cost of
revenues, on certain of our online enabled products, including the
effect of taxes. 7 Reflects fees and other expenses related to the
King Acquisition, inclusive of related debt financings. Our
segments are consistent with our internal organizational structure,
the manner in which our operations are reviewed and managed by our
Chief Executive Officer, who is our Chief Operating Decision Maker
(“CODM”), the manner in which we assess operating performance and
allocate resources, and the availability of separate financial
information. The CODM reviews segment performance exclusive of the
impact of the change in deferred revenues and related cost of
revenues with respect to certain of our online-enabled products,
stock-based compensation expense, amortization of intangible assets
as a result of purchase price accounting, and fees and other
expenses related to financings and acquisitions.
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES EBITDA and
Adjusted EBITDA For the Trailing Twelve Months Ended June
30, 2016 (Amounts in millions)
Trailing TwelveMonths Ended
September 30,2015 December 31,2015 March 31,2016 June 30,2016 June
30,2016
GAAP Net Income $ 127 $ 159 $ 336 $ 127 $ 749
Interest Expense, net 51 50 52 66 219 Provision for income taxes 18
42 73 40 173 Depreciation and amortization 25 30 107
233 395
EBITDA 221 281
568 466 1,536 Stock-based compensation
expense1 28 22 44 41 135 Fees and other expenses related to
acquisitions2 — 5 34 4 43
Adjusted
EBITDA (redefined) $ 249 $
308 $ 646 $ 511
$ 1,714 Change in deferred net revenues
and related cost of revenues3 $ 26 $ 554 $ (369 ) $ 108 $ 319
Adjusted EBITDA (as previously defined)4
$ 275 $ 862 $ 277
$ 619 $ 2,033 1 Includes
expenses related to stock-based compensation. 2 Reflects fees and
other expenses related to the King Acquisition, inclusive of
related debt financings. 3 Reflects the net effect from deferral of
revenues and (recognition) of deferred revenues, along with related
cost of revenues, on certain of our online enabled products,
including the effect of taxes. 4
We have provided Adjusted EBITDA (as
previously defined) and Adjusted EBITDA (redefined) in this
earnings release. The only difference between the two measures is
the inclusion (Adjusted EBITDA (redefined)) or exclusion (Adjusted
EBITDA (as previously defined)) of the impact from revenue
deferrals accounting treatment on certain of our online enabled
products. This is the last quarter we will report Adjusted EBITDA
(as previously defined) and going forward, we will only be
providing Adjusted EBITDA (redefined).
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
SUPPLEMENTAL FINANCIAL INFORMATION (Amounts in
millions)
Three Months Ended June 30, September 30,
December 31, March 31,
June 30,
Year over Year%
Increase(Decrease)
2015 2015 2015 2016 2016 Cash
Flow Data Operating Cash Flow $ 135 $ (181 ) $ 1,029 $ 309 $
479 255 % Capital Expenditures 28 46 16 27
44 57 Non-GAAP Free Cash Flow1 107 (227 ) 1,013 282
435 307 Operating Cash Flow - TTM2 1,394 1,358 1,192 1,292
1,636 17 Capital Expenditures - TTM2 94 112 111
117 133 41 Non-GAAP Free Cash Flow - TTM2 $
1,300 $ 1,246 $ 1,081 $ 1,175 $ 1,503 16 % 1 Non-GAAP free
cash flow represents operating cash flow minus capital
expenditures. 2 TTM represents trailing twelve months. Operating
Cash Flow for the three months ended March 31, 2015, three months
ended December 31, 2014, and three months ended September 30, 2014
was $209 million, $1,195 million, and $(145) million, respectively.
Capital Expenditures for the three months ended March 31, 2015,
three months ended December 31, 2014, and three months ended
September 30, 2014 was $21 million, $17 million, and $28 million,
respectively.
ACTIVISION BLIZZARD, INC. AND
SUBSIDIARIES Outlook for the Three Months Ending September
30, 2016 and Year Ending December 31, 2016 GAAP to Non-GAAP
(redefined) Reconciliation (Amounts in millions, except per
share data) Outlook for the
Outlook for the Three Months Ending Year
Ending September 30, 2016 December 31, 2016
Net Revenues1 $ 1,490 $
6,400
Change in deferred revenues2 $ 45
$
75
Earnings Per Diluted Share (GAAP) $
0.06 $ 0.87
Excluding the impact of:
Stock-based compensation3 0.06 0.24 Amortization of intangible
assets4 0.26 0.92 Fees and other expenses related to acquisitions5
0.12 0.18 Income tax impacts from items above6 (0.11 ) (0.39 )
Earnings Per Diluted Share (Non-GAAP redefined) $
0.39 $ 1.83 Net
effect of deferred net revenues and related cost of revenues on
Earnings Per Diluted Share7 $ 0.01
$ 0.07 1 Net Revenues represents
the revenue outlook for both GAAP and Non-GAAP (redefined) as they
are measured the same. 2 Reflects the net effect from deferral of
revenues and (recognition) of deferred revenues on certain of our
online enabled products. 3 Reflects expenses related to stock-based
compensation. 4 Reflects amortization of intangible assets from
purchase price accounting, including intangible assets from the
King Acquisition. 5
Reflects fees and other expenses related
to the King Acquisition, inclusive of related debt financings, and
debts refinancing, as well as anticipated costs associated with
potential future debt refinancings.
6 Reflects the income tax impacts associated with the above items.
The outlook for the year ending December 31, 2016 is benefited by
$0.07 from the adoption of a new accounting standard on share based
payments. The new standard requires that all excess tax benefits
and tax deficiencies from stock-based compensation be recorded as
an income tax expense or benefit that is treated as discrete items
in the reporting period in which they occur. The $0.07 relates to
the excess tax benefits on share based payments for the six months
ended June 30, 2016. Due to the inherent uncertainties in share
price and option exercise behavior, we do not forecast excess tax
benefits or tax deficiencies. 7 Reflects the net effect from
deferral of revenues and (recognition) of deferred revenues, along
with related cost of revenues, on certain of our online enabled
products, including the effect of taxes.
The per share adjustments and the GAAP and
non-GAAP earnings per share information are presented as
calculated. Therefore the sum of these measures, as presented, may
differ due to the impact of rounding.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20160804006430/en/
Activision Blizzard, Inc.Amrita AhujaSVP,
Investor Relations(310) 255-2075Amrita.Ahuja@Activision.comorMary
OsakoSVP, Global Communications(424)
322-5166Mary.Osako@Activision.com
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