Company Increases CY 2016 Revenues and EPS
OutlookRecord Third Quarter Revenues, Operating Income, EPS
and Operating Cash FlowRecord Quarterly GAAP Digital
Revenues of Over $1.3 Billion, Up 114% Year-over-YearCompany
Had 482 Million Monthly Active Users, and More Than 10 Billion
Hours of Play Time During the Third Quarter
Activision Blizzard, Inc. (Nasdaq: ATVI) today announced
better-than-expected financial results for the third quarter of
2016.
Third Quarter (in millions, except EPS)
2016 Prior
Outlook*
2015 GAAP Net Revenues
$ 1,568 $ 1,490
$ 990 Impact of GAAP deferrals $
62 $ 45 $ 50 GAAP
EPS $ 0.26 $ 0.06 $
0.17 Non-GAAP (redefined) EPS* $ 0.49
$ 0.39 $ 0.20 Impact of GAAP
deferrals $ 0.03 $ 0.01 $
0.01
* “Non-GAAP (redefined)” includes the net effect of revenue
deferrals accounting treatment on certain of our online enabled
products. Please refer to our July 29, 2016 call and materials for
additional information.
For the quarter ended September 30, 2016, Activision Blizzard’s
net revenues presented in accordance with Generally Accepted
Accounting Principles (“GAAP”) were a third-quarter record $1.57
billion, as compared with $990 million for the third quarter of
2015, an increase of 58%. GAAP net revenues from digital channels
were an all-time quarterly record of $1.34 billion, growing 18%
quarter-over-quarter and 114% year-over-year. GAAP earnings per
diluted share were a third-quarter record $0.26, as compared with
$0.17 for the third quarter of 2015, an increase of 53%. On a
non-GAAP (redefined) basis, the company’s earnings per diluted
share were a third-quarter record $0.49, as compared with $0.20 for
the third quarter of 2015, an increase of 145%.
The Activision and Blizzard segments had record combined
third-quarter performance with $1.10B in net revenues, a 15%
increase year-over-year, and $444M in operating income, a 78%
increase year-over-year. Year-to-date, the combined segments
generated record revenue of $2.83B, a 22% increase year-over-year,
and record operating income of $1.05B, a 67% increase
year-over-year.
Activision Blizzard generated a third-quarter record $456
million in operating cash flow for the quarter ended September 30,
2016. For the trailing twelve months ended September 30, 2016,
operating cash flow totaled $2.36 billion, a 68% increase
year-over-year.
Please refer to the tables at the back of this press release for
a reconciliation of the company’s GAAP and non-GAAP (redefined)
results.
Bobby Kotick, Chief Executive Officer of Activision Blizzard,
said, “This quarter we again over-performed our plan, delivering
record third-quarter revenues of $1.57 billion, up almost 60% and
earnings per share of $0.49, more than doubling year-over-year on a
non-GAAP basis (as redefined).”
Kotick added, “We continue to see enthusiasm from our global
audiences for our key franchises including Call of Duty, Destiny,
Candy Crush and World of Warcraft, plus our newest franchise –
Overwatch, which after only about four months had already reached
over 20 million players and has incredible player engagement.
Looking forward, we expect continued momentum from all of our
growth strategies, especially our esports initiatives and our
integration of in-game advertising.”
Selected Business Highlights:
Audience Reach
- Activision Blizzard had 482 million
Monthly Active Users (MAUs)A in the quarter.
- Blizzard had the biggest quarterly
online player community in its history, with 42 million MAUsA, up
25% quarter-over-quarter and 50% year-over-year. This reflects the
continued success of Overwatch® and the launch of
World of Warcraft®: Legion™. Blizzard has more
than doubled its MAUsA in just two years.
- On August 30, 2016, Blizzard launched
World of Warcraft: Legion, which sold-through 3.3
million copies on day one, matching all-time records achieved by
previous expansions, and ranking amongst the fastest-selling PC
games ever. The new expansion grew franchise MAUsA by nearly 30%
quarter-over-quarter.
- Overwatch became Blizzard’s
fastest game ever to reach over 20 million players globally, with a
roughly even player base split between east and west.
Overwatch also held the number one position in share of play
time in Korean Internet Game Rooms from launch all the way through
the third-quarter.1
- Blizzard’s
Hearthstone®: Heroes of Warcraft™ had record
quarterly MAUsA, which grew a double-digit percentage
year-over-year.
- Activision had the biggest third
quarter online player community in its history with 46 million
MAUsA. Over the last two years, Activision has grown its MAUsA by
18%. 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. 1.2 The Call of
Duty franchise reached record third quarter MAUsA.
- On September 20, 2016, Activision and
Bungie released Rise of Iron, a large new expansion for the
Destiny universe. The expansion included fresh new content
in the form of a new location, a new Raid, a new Strike, additional
quests, gear, and a new game mode, which drove an increase in MAUsA
quarter-over-quarter.
- King MAUsA of 394 million were down
slightly this quarter. King had three of the top-20-grossing titles
in the U.S. mobile app stores for the eleventh quarter in a
row.3
Deep Engagement
- Activision Blizzard’s compelling
in-game experiences drove over 10 billion hours of play time during
the third-quarter.
- Blizzard had all-time engagement
records with record weekly and daily active users, unique users and
play time, driven by an expanding player base and strong engagement
across a number of franchises.
- In September, Blizzard released the
World of Warcraft: Legion Companion App, and for the first
time ever, players can engage with select in-game activities and
continue gameplay even when away from their PCs. Millions of
players have already used the app and are logging in an average of
4 to 5 times every day.
- King’s time spent per MAUA was up
year-over-year.
- Activision Blizzard’s esports network,
Major League Gaming, in partnership with Facebook, recorded about
50 million views, growing 67% quarter-over-quarter4. At peak, a
record 11 million users were reached in a single day4.
- From September 2 through 4, 2016,
Activision hosted Call of Duty XP, its largest fan event
ever which included the culmination of the Call of Duty World
League Championship, presented by PlayStation® 4. More than
1,000 teams participated in the Call of Duty World League
during the 2016 season, which recorded 121 million views.
Player Investment
- Activision Blizzard GAAP revenues from
in-game content reached records of nearly $1 billion this
quarter.
- Blizzard’s World of Warcraft:
Legion expansion drove record monthly participation in
value-added services.
- Summer Games content for Blizzard’s
Overwatch drove record engagement and participation in
in-game customization items.
- On August 11th, 2016, Blizzard launched
One Night in Karazhan™, a new Adventure for Hearthstone:
Heroes of Warcraft, which performed even better than its
predecessor.
- King’s overall mobile gross bookingsB
and average revenue per paying user increased year-over-year. In
addition, gross bookingsB for King’s Candy Crush™ franchise
grew year-over-year, and King’s Farm Heroes™ franchise
increased mobile gross bookingsB quarter-over-quarter and
year-over-year.
- Activision’s Call of Duty
continues to deliver record performance. The number of in-game
content purchasers in Call of Duty more than doubled
year-to-date and, along with robust participation in Season Pass
and a-la-carte map packs, drove an increase in average revenue per
user as well.
Company Outlook:
- On October 5, 2016, Activision launched
the Call of Duty: Modern Warfare® Remastered
campaign mode for pre-purchasers of Legacy or Digital Deluxe
Editions on PlayStation 4 console systems 30 days in advance of the
broader launch. On November 4, 2016, Activision is expected to
launch the highly anticipated Call of Duty: Infinite
Warfare™.
- On October 11, 2016, Blizzard launched
its Halloween Terror event for Overwatch. The event included
Overwatch’s first-ever player versus environment game mode
and a variety of new Halloween-themed customization items. The
event drove even higher engagement and participation than the
Summer Games event.
- On October 12, 2016, King launched
Shuffle Cats™, a free-to-play live multiplayer card game set
in the 1920s. The title is available on the Apple App Store, Google
Play, and Facebook.
- On October 16, 2016, Activision
released Skylanders®: Imaginators, and for the
first time in toys-to-life history, fans are able to create their
own digital Skylanders from scratch. On October 28, 2016,
Activision Blizzard Studios, in partnership with Netflix, debuted
Skylanders™ Academy, a new TV series celebrating the
beloved kids franchise.
- On October 18, 2016, CBS, in
collaboration with King and Lionsgate Television, announced
Candy Crush, a new one-hour live action game show, based on
the world-renowned mobile franchise.
- Blizzard’s tenth BlizzCon® will
be returning to the Anaheim Convention Center this Friday, November
4, and Saturday, November 5. Thousands of tickets again sold out in
a matter of minutes, but millions more will be able to join through
live-streaming or virtual tickets. BlizzCon will feature a
number of events including the finals of several Blizzard esports
tournaments, with global champions across a number of franchises
crowned.
- From December 16 through December 18,
2016, Major League Gaming will host its first MLG Vegas event, an
esports and digital culture festival at the Mandalay Bay in Las
Vegas. The 3 day event will feature the first competition of the
Call of Duty World League 2017 and an Overwatch
Invitational.
- Based on its year-to-date results,
Activision Blizzard is raising its full-year net revenues and
earnings per share outlook. The company’s fourth-quarter and
full-year net revenues and earnings per share outlook are as
follows:
GAAP Outlook
Non-GAAP Outlook (redefined) Impact of GAAP
deferralsC (in millions, except EPS)
CY
2016
Net Revenues
$
6,450
$
6,450
$
75
EPS $ 0.98 $ 1.92 $
0.10
Fully Diluted Shares* 762 762
Q4
2016
Net Revenues
$
1,856
$
1,856
$
522
EPS $ 0.05 $
0.40
$ 0.34
Fully Diluted Shares* 765 765
* Fully diluted weighted average shares include participating
securities and dilutive options on a weighted average basis.
As referenced on our July 29, 2016 call, if you would like to
calculate Non-GAAP metrics as previously defined, in order to do
year-over-year comparisons, you would add the impact of GAAP
deferrals to the Non-GAAP (redefined) metrics.
Currency Assumptions for 2016 Outlook:
- $1.09 USD/Euro for current outlook (vs.
average of $1.11 for 2015 and $1.33 for 2014)
- $1.22 USD/British Pound Sterling for
current outlook (vs. average of $1.53 for 2015 and $1.65 for
2014)
Debt Repayment
In the quarter ended September 30, 2016, we made repayments to
reduce our total outstanding term loans by $185 million. This
brings our total prepayments in 2016 to $1.5 billion.
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 September 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
888-395-3239 in the U.S. with passcode 5137988.
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™, Bubble Witch™, 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 Gametrics.com2 Based on data from the NPD Group and GfK
Chart-Track3 U.S. ranking for Apple App Store and Google Play Store
combined, per App Annie Intelligence for third quarter 20164 Per
MLGPRO Facebook Insights Portal
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 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.
C Net effect of accounting treatment from revenue deferrals on
certain of our online enabled products. Some of our games’ online
functionality represents an essential component of gameplay and, as
a result, a more-than-inconsequential separate deliverable. As a
result, we recognize revenues attributed to these game titles over
their estimated service periods, which is generally less than a
year. The related cost of revenues is deferred and recognized as an
expense as the related revenues are recognized. Impact from changes
in deferrals refers to the net effect from revenue deferrals
accounting treatment for the purposes of revenues, and together
with the related cost of revenues deferrals treatment and the
related tax impacts for the purposes of EPS. Internally, management
excludes the impact of this change in deferred revenues and related
cost of revenues when evaluating the company’s operating
performance, when planning, forecasting and analyzing future
periods, and when assessing the performance of its management team.
Management believes this is appropriate because doing so enables an
analysis of performance based on the timing of actual transactions
with our customers. In addition, management believes excluding the
change in deferred revenues and the related cost of revenues
provides a much more timely indication of trends in our operating
results.
Non-GAAP (as previously defined) and Non-GAAP (redefined)
Financial Measures: In accordance with the updated Compliance
and Disclosure Interpretations issued by the SEC staff on May 17,
2016, we reported our third quarter of 2016 results, and provided
our outlook, using GAAP and non-GAAP (redefined). We have
historically provided Non-GAAP (as previously defined) financial
measures. The only difference between the two measures is the
inclusion (Non-GAAP (redefined)) or exclusion (Non-GAAP (as
previously defined)) of the impact from revenue deferrals
accounting treatment on certain of our online enabled products.
Please see materials from July 29, 2016 call for further
details.
Non-GAAP (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. Tax impact on Non-GAAP (redefined)
pre-tax income is calculated under the same accounting principles
applied to the GAAP pre-tax income under ASC 740, which employs an
annual effective tax rate method to the results.
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 releases of products and services; (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; and (5) 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 benefits
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 and Major League Gaming; sales levels of
Activision Blizzard’s titles, products and services; concentration
of revenue among a small number of titles; Activision Blizzard’s
ability to predict consumer preferences, including interest in
specific genres, and preferences among 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, products and services; risks
relating to the expansion into new businesses, including the
potential impact on our existing businesses; changing business
models within the video game industry, including digital delivery
of content and the increased prevalence of free-to-play games;
product delays or defects; competition, including from 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.
The forward-looking statements in this press release are based
on information available to the company at this time and we assume
no obligation to update any such forward-looking statements.
Although these forward-looking statements are believed to be true
when made, they may ultimately prove to be incorrect. These
statements are not guarantees of our future performance and are
subject to risks, uncertainties and other factors, some of which
are beyond our control and may cause actual results to differ
materially from current expectations.
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited) (Amounts in millions, except per share
data)
Three Months EndedSeptember
30,
Nine Months EndedSeptember
30,
2016 2015 2016
2015 Net revenues Product sales $ 355 $ 425 $
1,501 $ 1,736 Subscription, licensing and other revenues1
1,213 565 3,093 1,576 Net revenues 1,568 990
4,594 3,312
Costs and expenses Cost of revenues -
product sales: Product costs 111 179 429 528 Software royalties,
amortization, and intellectual property licenses 42 62 250 273 Cost
of revenues - subscription, licensing, and other: Game operations
and distribution costs 237 71 620 192 Software royalties,
amortization, and intellectual property licenses 139 25 319 54
Product development 249 159 673 453 Sales and marketing 340 189 830
445 General and administrative 156 109 486
297 Total costs and expenses 1,274 794 3,607 2,242
Operating income 294 196 987 1,070
Interest and other expense (income), net 63 51 181 151
Income before income tax expense 231 145 806
919 Income tax expense 32 18 93 186
Net income $ 199 $ 127 $ 713 $ 733 Basic earnings per
common share 2 $ 0.27 $ 0.17 $ 0.96 $ 0.99 Weighted average common
shares outstanding 742 730 739 727 Diluted earnings per
common share 2 $ 0.26 $ 0.17 $ 0.94 $ 0.98 Weighted average common
shares outstanding assuming dilution 756 739 753 736 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 2 million and 3 million for the three and nine months
ended September 30, 2016 respectively, and 8 million and 9 million
for the three and nine months ended September 30, 2015
respectively. For the three and nine months ended September 30,
2016, net income attributable to Activision Blizzard, Inc. common
shareholders used to calculate earnings per common share, assuming
dilution, was $198 million and $709 million, respectively, as
compared to total net income of $199 million and $713 million,
respectively, for the same period. For the three and nine months
ended September 30, 2015, net income attributable to Activision
Blizzard, Inc. common shareholders used to calculate earnings per
common share, assuming dilution, was $125 million and $723 million,
respectively, as compared to total net income of $127 million and
$733 million, respectively, for the same period.
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES CONDENSED
CONSOLIDATED BALANCE SHEETS (Unaudited) (Amounts in
millions)
September 30, 2016
December 31, 2015
Assets Current assets Cash and cash equivalents $ 4,029 $
1,823 Accounts receivable, net 446 679 Inventories, net 131 128
Software development 414 336 Other current assets 314
421 Total current assets 5,334 3,387 Cash in escrow —
3,561 Software development 64 80 Property and equipment, net 258
189 Deferred income taxes, net 485 275 Other assets 382 177
Intangible assets, net 2,070 482 Goodwill 9,787
7,095 Total assets $ 18,380 $ 15,246
Liabilities and Shareholders' Equity Current
liabilities Accounts payable $ 211 $ 284 Deferred revenues 1,320
1,702 Accrued expenses and other liabilities 689 625 Current
portion of long-term debt, net 1,481 —
Total current liabilities 3,701 2,611 Long-term debt, net 4,881
4,074 Deferred income taxes, net 43 10 Other liabilities 937
483 Total liabilities 9,562
7,178 Shareholders' equity Common stock — —
Additional paid-in capital 10,427 10,242 Treasury stock (5,572 )
(5,637 ) Retained earnings 4,616 4,096 Accumulated other
comprehensive loss (653 ) (633 ) Total shareholders’
equity 8,818 8,068 Total liabilities
and shareholders’ equity $ 18,380 $ 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 September 30, 2016
NetRevenues
Cost ofRevenues -Product
Sales:Product Costs
Cost ofRevenues -Product
Sales:SoftwareRoyalties
andAmortization
Cost ofRevenues
-Subs/Lic/Other:Game Operationsand
DistributionCosts
Cost ofRevenues
-Subs/Lic/Other:SoftwareRoyalties
andAmortization
ProductDevelopment
Sales andMarketing
General
andAdministrative
Total Costsand Expenses
GAAP Measurement $ 1,568 $ 111 $ 42 $
237 $ 139 $ 249 $ 340 $ 156 $
1,274 Stock-based compensation1 — — (2 ) — (1 ) (11 ) (5 ) (14 )
(33 ) Amortization of intangible assets2 — — (1 ) — (129 ) — (78 )
(3 ) (211 ) Fees and other expenses related to acquisitions3
— — — —
— —
— (4 ) (4 ) Non-GAAP (redefined)
Measurement $ 1,568 $ 111 $ 39 $
237 $ 9 $ 238 $ 257
$ 135 $ 1,026 Net effect of
deferred revenues and related cost of revenues4 $ 62 $ (16 ) $ 28 $
5 $ 12 $ — $ — $ — $ 29
OperatingIncome
Net Income
Basic Earningsper Share
Diluted Earningsper
Share
GAAP Measurement $ 294 $ 199 $ 0.27 $ 0.26 Stock-based
compensation1 33 33 0.04 0.04 Amortization of intangible assets2
211 211 0.28 0.28 Fees and other expenses related to acquisitions3
4 6 0.01 0.01
Loss on extinguishment of debt5
— 10 0.01 0.01
Income tax impacts from items above6 — (88 )
(0.12 ) (0.12 ) Non-GAAP (redefined)
Measurement $ 542 $ 371 $ 0.50 $
0.49 Net effect of deferred revenues and related cost of
revenues4 $ 33 $ 26 $ 0.03 $ 0.03 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 and integration costs. 4 Reflects the net effect from
deferral of revenues and (recognition) of deferred revenues, along
with related cost of revenues, on certain of our online enabled
products, including the effects of taxes. 5 Reflects the loss on
extinguishment of debt. 6 Reflects the income tax impact associated
with the above items. Tax impact on non-GAAP (redefined) pre-tax
income is calculated under the same accounting principles applied
to the GAAP pre-tax income under ASC 740, which employs an annual
effective tax rate method to the results.
The GAAP and non-GAAP (redefined) earnings per share information
is presented as calculated. The sum of these measures, as
presented, may differ due to the impact of rounding.
The company calculates earnings per share pursuant to the
two-class method which requires the allocation of net income
between common shareholders and participating security holders. For
the three months ended September 30, 2016, net income
attributable to Activision Blizzard, Inc. common shareholders used
to calculate non-GAAP (redefined) earnings per common share,
assuming dilution, was $370 million, as compared to total net
income of $371 million, for the same period.
For purposes of calculating earnings per share, we had, on a
weighted-average basis, common shares outstanding of 742 million,
participating securities of approximately 2 million, and dilutive
shares of 14 million during the three months ended
September 30, 2016.
ACTIVISION BLIZZARD, INC. AND
SUBSIDIARIES
RECONCILIATION OF GAAP NET INCOME TO
NON-GAAP MEASURES
(Amounts in millions, except per share
data)
Nine Months Ended September 30,
2016
NetRevenues
Cost ofRevenues -Product
Sales:Product Costs
Cost ofRevenues -Product
Sales:SoftwareRoyalties
andAmortization
Cost ofRevenues
-Subs/Lic/Other:Game Operationsand
DistributionCosts
Cost ofRevenues
-Subs/Lic/Other:SoftwareRoyalties
andAmortization
ProductDevelopment
Sales andMarketing
General
andAdministrative
Total Costsand Expenses
GAAP Measurement $ 4,594 $ 429 $ 250 $ 620 $ 319 $ 673 $ 830 $ 486
$ 3,607 Stock-based compensation1 — — (16 ) — (1 ) (34 ) (12 ) (55
) (118 ) Amortization of intangible assets2 — — (2 ) (2 ) (297 ) —
(188 ) (6 ) (495 ) Fees and other expenses related to acquisitions3
— — —
— — —
— (43 ) (43
) Non-GAAP (redefined) Measurement $ 4,594 $ 429
$ 232 $ 618 $ 21
$ 639 $ 630 $ 382
$ 2,951 Net effect of deferred revenues and related cost of
revenues4 $ (447 ) $ (143 ) $ (96 ) $ 8 $ 12 $ — $ — $ — $ (219 )
OperatingIncome
Net Income
Basic Earningsper Share
Diluted Earningsper
Share
GAAP Measurement $ 987 $ 713 $ 0.96 $ 0.94 Stock-based
compensation1 118 118 0.16 0.16 Amortization of intangible assets2
495 495 0.67 0.65 Fees and other expenses related to acquisitions3
43 48 0.06 0.06
Loss on extinguishment of debt5
— 10 0.01 0.01 Income tax impacts from items above6 —
(230 ) (0.31 ) (0.30 )
Non-GAAP (redefined) Measurement $ 1,643 $ 1,154
$ 1.55 $ 1.52 Net effect of
deferred revenues and related cost of revenues4 $ (228 ) $ (180 ) $
(0.24 ) $ (0.23 ) 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 and integration
costs. 4 Reflects the net effect from deferral of revenues and
(recognition) of deferred revenues, along with related cost of
revenues, on certain of our online enabled products, including the
effects of taxes. 5 Reflects the loss on extinguishment of debt. 6
Reflects the income tax impact associated with the above items. Tax
impact on non-GAAP (redefined) pre-tax income is calculated under
the same accounting principles applied to the GAAP pre-tax income
under ASC 740, which employs an annual effective tax rate method to
the results.
The GAAP and non-GAAP (redefined) earnings per share information
is presented as calculated. The sum of these measures, as
presented, may differ due to the impact of rounding.
The company calculates earnings per share pursuant to the
two-class method which requires the allocation of net income
between common shareholders and participating security holders. For
the nine months ended September 30, 2016, net income
attributable to Activision Blizzard, Inc. common shareholders used
to calculate non-GAAP (redefined) earnings per common share,
assuming dilution, was $1,148 million, as compared to total net
income of $1,154 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 14 million during the nine months ended
September 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 September 30, 2015
NetRevenues
Cost ofRevenues -Product
Sales:Product Costs
Cost ofRevenues -Product
Sales:SoftwareRoyalties
andAmortization
Cost ofRevenues
-Subs/Lic/Other:Game Operationsand
DistributionCosts
Cost ofRevenues
-Subs/Lic/Other:Software Royalties
andAmortization
ProductDevelopment
Sales andMarketing
General
andAdministrative
Total Costsand Expenses
GAAP Measurement $ 990 $ 179 $ 62 $ 71
$ 25 $ 159 $ 189 $ 109 $ 794
Stock-based compensation1 — — (3 ) — (2 ) (6 ) (2 ) (15 ) (28 )
Amortization of intangible assets2 — —
(1 ) — —
— — —
(1 ) Non-GAAP (redefined) Measurement $ 990
$ 179 $ 58 $ 71 $
23 $ 153 $ 187 $ 94
$ 765 Net effect of deferred revenues and
related cost of revenues3 $ 50 $ (4 ) $ 36 $ 10 $ (18 ) $ — $ — $ —
$ 24
OperatingIncome
Net Income
Basic Earningsper Share
Diluted Earningsper
Share
GAAP Measurement $ 196 $ 127 $ 0.17 $ 0.17 Stock-based
compensation1 28 28 0.04 0.04 Amortization of intangible assets2 1
1 — — Income tax impacts from items above4 —
(9 ) (0.01 ) (0.01 ) Non-GAAP
(redefined) Measurement $ 225 $ 147 $ 0.20
$ 0.20 Net effect of deferred revenues and
related cost of revenues3 $ 26 $ 11 $ 0.01 $ 0.01 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. Tax impact on non-GAAP (redefined) pre-tax income is
calculated under the same accounting principles applied to the GAAP
pre-tax income under ASC 740, which employs an annual effective tax
rate method to the results.
The GAAP and non-GAAP (redefined) earnings per share information
is presented as calculated. The sum of these measures, as
presented, may differ due to the impact of rounding.
The company calculates earnings per share pursuant to the
two-class method which requires the allocation of net income
between common shareholders and participating security holders. For
the three months ended September 30, 2015, net income
attributable to Activision Blizzard, Inc. common shareholders used
to calculate non-GAAP (redefined) earnings per common share,
assuming dilution, was $146 million, as compared to total net
income of $147 million, for the same period.
For purposes of calculating earnings per share, we had, on a
weighted-average basis, common shares outstanding of 730 million,
participating securities of approximately 8 million, and dilutive
shares of 9 million during the three months ended
September 30, 2015.
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
RECONCILIATION OF GAAP NET INCOME TO NON-GAAP MEASURES
(Amounts in millions, except per share data)
Nine Months Ended September 30,
2015
NetRevenues
Cost ofRevenues -Product
Sales:Product Costs
Cost ofRevenues -Product
Sales:SoftwareRoyalties
andAmortization
Cost ofRevenues
-Subs/Lic/Other:Game Operationsand
DistributionCosts
Cost ofRevenues
-Subs/Lic/Other:SoftwareRoyalties
andAmortization
ProductDevelopment
Sales andMarketing
General
andAdministrative
Total Costsand Expenses
GAAP Measurement $ 3,312 $ 528 $ 273 $
192 $ 54 $ 453 $ 445 $ 297 $
2,242 Stock-based compensation1 — — (7 ) — (3 ) (20 ) (7 ) (33 )
(70 ) Amortization of intangible assets2 —
— (4 ) —
— — —
— (4 ) Non-GAAP (redefined)
Measurement $ 3,312 $ 528 $ 262
$ 192 $ 51 $ 433 $
438 $ 264 $ 2,168 Net effect of
deferred revenues and related cost of revenues3 $ (809 ) $ (181 ) $
(137 ) $ 17 $ 9 $ — $ — $ — $ (292 )
OperatingIncome
Net Income
Basic Earningsper Share
Diluted Earningsper
Share
GAAP Measurement $ 1,070 $ 733 $ 0.99 $ 0.98 Stock-based
compensation1 70 70 0.10 0.09 Amortization of intangible assets2 4
4 0.01 0.01 Income tax impacts from items above4 —
(21 ) (0.03 ) (0.03 )
Non-GAAP (redefined) Measurement $ 1,144 $ 786
$ 1.07 $ 1.05 Net effect of deferred
revenues and related cost of revenues3 $ (517 ) $ (419 ) $ (0.57 )
$ (0.56 ) 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. Tax impact on non-GAAP
(redefined) pre-tax income is calculated under the same accounting
principles applied to the GAAP pre-tax income under ASC 740, which
employs an annual effective tax rate method to the results.
The GAAP and non-GAAP (redefined) earnings per share information
is presented as calculated. The sum of these measures, as
presented, may differ due to the impact of rounding.
The company calculates earnings per share pursuant to the
two-class method which requires the allocation of net income
between common shareholders and participating security holders. For
the nine months ended September 30, 2015, net income
attributable to Activision Blizzard, Inc. common shareholders used
to calculate non-GAAP (redefined) earnings per common share,
assuming dilution, was $776 million, as compared to total net
income of $786 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 9 million during the nine months ended September 30,
2015.
ACTIVISION BLIZZARD, INC. AND
SUBSIDIARIES
FINANCIAL INFORMATION For the Three and Nine
Months Ended September 30, 2016 and 2015 (Amounts in
millions) Three Months Ended
September 30, 2016 September 30, 2015
$ Increase(Decrease)
% Increase(Decrease)
Amount
% of Total1
Amount
% of Total1
Net Revenues by Distribution Channel
Digital online channels2 $ 1,344 86 % $ 629 64 % $ 715 114 %
Retail channels 157 10 281 28 (124 ) (44 ) Other3 67
4 80 8
(13 ) (16 ) Total consolidated net revenues
$
1,568
100
%
$
990
100
%
$
578
58
Change in deferred revenues4 Digital
online channels2
$
158
$
68
Retail channels (96 ) (18 ) Total changes in deferred
revenues
$
62
$
50
Nine Months Ended September 30, 2016
September 30, 2015
$ Increase(Decrease)
% Increase(Decrease)
Amount
% of Total1
Amount
% of Total1
Net Revenues by Distribution Channel Digital online
channels2 $ 3,412 74 % $ 1,779 54 % $ 1,633 92 % Retail channels
1,013 22 1,344 41 (331 ) (25 ) Other3 169
4 189 6 (20
) (11 ) Total consolidated net revenues
$
4,594
100
%
$
3,312
100
%
$
1,282
39
Change in deferred revenues4 Digital
online channels2
$
288
$
67
Retail channels (735 ) (876 ) Total changes in
deferred revenues
$
(447
)
$
(809
)
1 The percentages of total are presented as calculated.
Therefore the sum of these percentages, as presented, may differ
due to the impact of rounding. 2 Net revenues from digital online
channels represent revenues from digitally distributed
subscriptions, licensing royalties, value-added services,
downloadable content, microtransactions, and products. 3 Net
revenues from Other include revenues from our Major League Gaming,
studios, and distribution businesses. 4 Reflects the net effect
from deferral of revenues and (recognition) of deferred revenues on
certain of our online enabled products.
ACTIVISION BLIZZARD, INC. AND
SUBSIDIARIES
FINANCIAL INFORMATION For the Three and Nine
Months Ended September 30, 2016 and 2015 (Amounts in
millions) Three Months Ended
September 30, 2016 September 30, 2015
$ Increase(Decrease)
% Increase(Decrease)
Amount
% of Total1
Amount
% of Total1
Net Revenues by Platform Console
$ 452 29 % $ 420 42 % $ 32 8 %
PC2
609 39 359 36 250 70
Mobile and ancillary3
440 28 131 13 309 NM Other4 67 4
80 8 (13 ) (16 ) Total
consolidated net revenues
$
1,568
100
%
$
990
100
%
$
578
58
Change in deferred revenues5 Console
$
(35
)
$
80
PC2
82 (36 ) Mobile and ancillary3 15 6
Total changes in deferred revenues
$
62
$
50
Nine Months Ended September 30, 2016
September 30, 2015
$ Increase(Decrease)
% Increase(Decrease)
Amount
% of Total1
Amount
% of Total1
Net Revenues by Platform
Console
$ 1,867 41 % $ 1,737 52 % $ 130 7 %
PC2
1,421 31 1,114 34 307 28
Mobile and ancillary3
1,137 25 272 8 865 NM
Other4
169 4 189
6 (20 ) (11 ) Total consolidated net revenues
$
4,594
100
%
$
3,312
100
%
$
1,282
39
Change in deferred revenues5 Console
$
(683
)
$
(728
)
PC2
202 (113 )
Mobile and ancillary3
34 32 Total changes in deferred
revenues
$
(447
)
$
(809
)
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 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.
ACTIVISION BLIZZARD, INC. AND
SUBSIDIARIES
FINANCIAL INFORMATION For the Three and Nine
Months Ended September 30, 2016 and 2015 (Amounts in
millions) Three Months Ended
September 30, 2016 September 30, 2015
$ Increase(Decrease)
% Increase(Decrease)
Amount
% of Total1
Amount
% of Total1
Net Revenues by Geographic Region
Americas
$ 796 51 % $ 495 50 % $ 301 61 % EMEA2 499 32 367 37 132 36 Asia
Pacific 273 17 128
13 145 113 Total consolidated GAAP net
revenues
$
1,568
100
%
$
990
100
%
$
578
58
Change in deferred revenues3 Americas
$
14
$
45
EMEA2 34 11 Asia Pacific 14 (6 ) Total changes
in net revenues
$
62
$
50
Nine Months Ended
September 30, 2016
September 30, 2015
$ Increase(Decrease)
% Increase(Decrease)
Amount
% of Total1
Amount
% of Total1
Net Revenues by Geographic Region Americas $ 2,411 52 % $
1,750 53 % $ 661 38 % EMEA2 1,528 33 1,219 37 309 25 Asia Pacific
655 14 343
10 312 91 Total consolidated GAAP net revenues
$
4,594
100
%
$
3,312
100
%
$
1,282
39
Change in deferred revenues3 Americas
$
(308
)
$
(502
)
EMEA2 (175 ) (298 ) Asia Pacific 36 (9 ) Total
changes in net revenues
$
(447
)
$
(809
)
1 The percentages of total are presented as calculated.
Therefore the sum of these percentages, as presented, may differ
due to the impact of rounding. 2 EMEA consists of the Europe,
Middle East, and Africa geographic regions. 3 Reflects the net
effect from deferral of revenues and (recognition) of deferred
revenues on certain of our online enabled products.
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES FINANCIAL
INFORMATION For the Three and Nine Months Ended
September 30, 2016 and 2015 (Amounts in millions)
Three Months Ended September 30, 2016
September 30, 2015
$ Increase(Decrease)
% Increase(Decrease)
Amount
% ofTotal1
Amount
% ofTotal1
Segment net revenues:
Activision2 $ 377 24 % $ 591 62 % $ (214 ) (36 )% Blizzard3 727 47
369 38 358 97 King4 459 29
— — 459 NM
Reportable segments total 1,563 100 % 960 100 % 603
63
Reconciliation to consolidated net revenues: Other
segments5 67 80 Net effect from deferral of net revenues6
(62 ) (50 ) Consolidated net revenues $ 1,568 $ 990
$
578
58 %
Segment income (loss) from operations:
Activision2 $ 123 $ 122 $ 1 1 % Blizzard3 321 128 193 151 King4
138 — 138 NM Reportable
segments total 582 250 332 133
Reconciliation to consolidated
operating income and consolidated income before income tax
expense Other segments5 (7 ) 1 Net effect from certain revenues
deferrals accounting treatment6 (33 ) (26 ) Stock-based
compensation expense (33 ) (28 ) Amortization of intangible assets
(211 ) (1 ) Fees and other expenses related to acquisitions7
(4 ) — Consolidated operating income 294 196 98 50
Interest and other expense (income), net 63 51
Consolidated income before income tax expense $ 231 $
145
$
86
59 % Operating margin from total reportable segments 37.2 %
26.0 %
Nine Months Ended September 30, 2016
September 30, 2015
$ Increase(Decrease)
% Increase(Decrease)
Amount
% ofTotal1
Amount
% ofTotal1
Segment net revenues: Activision2 $ 1,069 27 % $ 1,208 52 %
$ (139 ) (12 )% Blizzard3 1,760 44 1,106 48 654 59 King4
1,149 29 —
— 1,149 NM Reportable segments total 3,978 100
% 2,314 100 % 1,664 72
Reconciliation to
consolidated net revenues: Other segments5 169 189 Net effect
from deferral of net revenues6 447 809
Consolidated net revenues $ 4,594 $ 3,312
$
1,282
39 %
Segment income (loss) from operations:
Activision2 $ 309 $ 244 $ 65 27 % Blizzard3 740 383 357 93 King4
381 — 381 NM Reportable
segments total 1,430 627 803 128
Reconciliation to consolidated
operating income and consolidated income before income tax
expense Other segments5 (15 ) — Net effect from certain
revenues deferrals accounting treatment6 228 517 Stock-based
compensation expense (118 ) (70 ) Amortization of intangible assets
(495 ) (4 ) Fees and other expenses related to acquisitions7
(43 ) — Consolidated operating income 987 1,070 (83 )
(8 ) Interest and other expense (income), net 181
151 Consolidated income before income tax expense $
806 $ 919
$
(113
)
(12 )% Operating margin from total reportable segments 35.9
% 27.1 % 1 The percentages of total are presented as
calculated. Therefore the sum of these percentages, as presented,
may differ due to the impact of rounding. 2 Activision Publishing
(“Activision”) — publishes interactive entertainment products and
content. 3 Blizzard Entertainment, Inc. (“Blizzard”) — publishes
interactive entertainment products and online subscription-based
games. 4 King Digital Entertainment plc (“King”) — publishes
interactive mobile entertainment products. 5 Other includes other
income and expenses from operating segments managed outside the
reportable segments, including our Major League Gaming, studios,
and distribution businesses. Other also includes unallocated
corporate income and expenses. 6 Reflects the net effect from
deferral of revenues and (recognition) of deferred revenues, along
with related cost of revenues, on certain of our online enabled
products. 7 Reflects fees and other expenses related to the King
Acquisition, inclusive of related debt financings and integration
costs.
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 September 30, 2016
(Amounts in millions)
Trailing TwelveMonths Ended
December 31,2015
March 31,2016
June 30,2016
September 30,2016
September 30,2016
GAAP Net Income1
$ 159 $ 363 $ 151 $ 199 $ 872 Interest Expense, net 50 52 66 63 231
Provision for income taxes1
42 46 16 32 136 Depreciation and amortization 30 107
233 243 613
EBITDA 281
568 466 537 1,852
Stock-based compensation expense2
22 44 41 33 140
Fees and other expenses related to
acquisitions3
5 34 4 4 47
Adjusted
EBITDA (redefined) $ 308 $ 646
$ 511 $ 574 $
2,039
Change in deferred net revenues and
related cost of revenues4
$ 554 $ (369 ) $ 108 $ 33 $ 326 1
During the third quarter 2016, we adopted
a new accounting standard on share based payments. The new standard
requires that all excess tax benefits and shortfalls from
share-based payments to be recorded as an income tax expense or
benefit that is treated as discrete items in the reporting period
in which they occur rather than be recorded to
additional-paid-in-capital (APIC) as is required under previous
guidance. The new standard requires us to present the effects on
our financial statements as if we had adopted the standard on
January 1, 2016. Accordingly, excess tax benefits previously
recorded in APIC of $27 million and $24 million for the three
months ended March 31, 2016, and June 30, 2016, respectively, are
now recorded to income tax expense as a tax benefit. As such, for
the three months ended March 31, 2016, and June 30, 2016, GAAP Net
Income and Provision for Income Taxes has been revised for the
adoption of this standard.
2
Includes expenses related to stock-based
compensation.
3
Reflects fees and other expenses related
to the King Acquisition, inclusive of related debt financings and
integration costs.
4
Reflects the net effect from deferral of
revenues and (recognition) of deferred revenues, along with related
cost of revenues, on certain of our online enabled products.
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES SUPPLEMENTAL
FINANCIAL INFORMATION (Amounts in millions)
Three Months Ended
September 30,2015
December 31,2015
March 31,2016
June 30,2016
September 30,2016
Year over Year
%Increase(Decrease)
Cash Flow Data
Operating Cash Flow1
$ (171 ) $ 1,063 $ 337 $ 503 $ 456 367 % Capital Expenditures
46 16 27 44 28 (39 )
Non-GAAP Free Cash Flow2
(217 ) 1,047 310 459 428 297 Operating Cash Flow - TTM3
1,401 1,259 1,373 1,732 2,359 68 Capital Expenditures - TTM3
112 111 117 133 115 3 Non-GAAP
Free Cash Flow - TTM3 $ 1,289 $ 1,148 $ 1,256 $ 1,599 $ 2,244 74 %
1
During the third quarter 2016, we adopted
a new accounting standard on share based payments. The new standard
requires excess tax benefits and shortfalls associated with
share-based payments to be reported within operating activities
instead of financing activities as is required under current
guidance. We elected to apply this guidance retrospectively for all
periods presented resulting in increases in our operating cash flow
of $10 million, $34 million, $28 million, $24 million, and $12
million for the three months ended September 30, 2015, three months
ended December 31, 2015, three months ended March 31, 2016, three
months ended June 30, 2016, and three months ended September 30,
2016, respectively.
2
Non-GAAP free cash flow represents
operating cash flow minus capital expenditures.
3 TTM represents trailing twelve months. Operating Cash Flow for
the three months ended December 31, 2014, three months ended March
31, 2015, and three months ended June 30, 2015, was $1,205 million,
$223 million, and $144 million, respectively. Capital Expenditures
for the three months ended December 31, 2014, three months ended
March 31, 2015. and three months ended June 30, 2015, was $17
million, $21 million, and $28 million, respectively. The adoption
of the accounting standard discussed above resulted in increases in
our operating cash flow of $10 million, $14 million, and $9 million
for three months ended December 31, 2014, three months ended March
31, 2015, and three months ended June 30, 2015, respectively.
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES Outlook
for the Three Months 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 December 31,
2016 December 31, 2016 Net
Revenues1 $
1,856
$
6,450
Change in deferred revenues2 $
522
$
75
Earnings Per Diluted Share (GAAP) $
0.05
$
0.98
Excluding the impact of: Stock-based compensation3 0.06 0.22
Amortization of intangible assets4 0.28 0.93 Fees and other
expenses related to acquisitions5 0.12 0.19 Income tax impacts from
items above6 (0.10 ) (0.40 )
Earnings Per Diluted
Share (Non-GAAP redefined) $
0.40
$
1.92
Net effect of deferred net revenues and
related cost of revenues on Earnings Per Diluted Share7
$
0.34
$
0.10
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
integration costs, as well as anticipated costs associated with
future debt refinancing activities. For the three months ended
December 31, 2016, this includes a loss on extinguishment of debt
of $82 million that was recognized in October 2016 upon
extinguishment of $1.5 billion of our senior notes. For the year
ending December 31, 2016, this includes a loss on extinguishment of
debt of $92 million, inclusive of a $10 million loss recognized in
the third quarter of 2016 related to our term loan refinancing
activities.
6
Reflects the income tax impacts associated
with the above items. For the nine months ended September 30, 2016,
we recognized excess tax benefits on share based payments of $0.08
from the third quarter 2016 adoption of a new accounting standard
on share based payments, which is included in the outlook for the
year ending December 31, 2016. The new standard requires
that all excess tax benefits and shortfalls from share-based
payments be recorded as an income tax expense or benefit that is
treated as a discrete item in the reporting period in which it
occurs. Due to the inherent uncertainties in share price and option
exercise behavior, we do not forecast excess tax benefits or tax
shortfalls.
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 (redefined) earnings per share information are presented
as calculated. Therefore the sum of these measures, as presented,
may differ due to the impact of rounding.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20161103006688/en/
Activision Blizzard, Inc.Colin RoussilSr. Director, Investor
Relations424-272-3164Colin.Roussil@Activision.comorMary OsakoSVP,
Global Communications424-322-5166Mary.Osako@Activision.com
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