Record First-Quarter Revenues, Net
BookingsA, and EPS
Record First-Quarter Digital, Mobile, and
In-Game Revenues and Net BookingsA
Record First-Quarter Operating Cash Flow of
$529 Million, up 29% Year-over-Year
Company Increases CY 2018 Revenues and EPS
Outlook
Activision Blizzard, Inc. (Nasdaq: ATVI) today announced
first-quarter 2018 results.
“Activision Blizzard had another strong quarter, growing
year-over-year, setting top and bottom line records, and
over-performing guidance. Our continued ability to set new records
speaks to the quality of our teams and the breadth and enduring
nature of our portfolio of franchises against the backdrop of a
large and growing interactive market,” said Bobby Kotick, Chief
Executive Officer of Activision Blizzard. “As we look ahead, our
innovative core gaming pipeline, as well as initiatives like
mobile, esports, and advertising, will continue to drive growth for
our business.”
Financial Metrics:
First Quarter Prior (in
millions, except EPS) 2018
Outlook* 2017
GAAP Net Revenues $ 1,965
$ 1,820 $ 1,726 Impact of
GAAP deferralsB $ (581 ) $
(540 ) $ (530 ) GAAP
EPS $ 0.65 $ 0.47 $
0.56 Non-GAAP EPS $ 0.78 $
0.65 $ 0.72 Impact of GAAP
deferralsB $ (0.40 )
$ (0.34 ) $ (0.41
)
* Prior outlook was provided by the company on February 8, 2018
in its earnings release.
For the quarter ended March 31, 2018, Activision Blizzard’s net
revenues presented in accordance with GAAP were a Q1 record $1.97
billion, as compared with $1.73 billion for the first quarter of
2017. GAAP net revenues from digital channels were an all-time
quarterly record $1.46 billion. GAAP operating margin was 30%. GAAP
earnings per share were an all-time quarterly record $0.65, as
compared with $0.56 for the first quarter of 2017.
For the quarter ended March 31, 2018, on a non-GAAP basis,
Activision Blizzard’s operating margin was 39% and earnings per
diluted share were an all-time quarterly record $0.78, as compared
with $0.72 for the first quarter of 2017.
For the quarter ended March 31, 2018, operating cash flow was a
Q1 record $529 million, up 29% 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 results.
Operating Metric:
Net bookingsA is an operating metric that is defined as the net
amount of products and services sold digitally or sold-in
physically in the period, and includes license fees, merchandise,
and publisher incentives, among others, and is equal to net
revenues excluding the impact from deferrals.
For the quarter ended March 31, 2018, Activision Blizzard’s net
bookingsA were a Q1 record $1.38 billion, as compared with $1.20
billion for the first quarter of 2017. Net bookingsA from digital
channels were a Q1 record $1.20 billion, as compared with $1.07
billion for the first quarter of 2017.
Selected Business Highlights:
Activision Blizzard’s record first-quarter results demonstrate
our ability to deliver strong results, even in quarters without
large content releases, illustrating the enduring nature of our
franchises and our shift to a games-as-a-service model.
Audience Reach
- Activision Blizzard had 374 million
Monthly Active Users (MAUs)C in the quarter.
- King had 285 million MAUsC. King’s
engagement remained strong with daily time spent per user at record
levels.
- Activision had 51 million MAUsC.
Call of Duty® grew its audience year-over-year with players
engaging across the franchise including with Call of Duty:
WWII.
- Blizzard had 38 million MAUsC. World
of Warcraft® over-performed versus the prior expansion at this
point in time, with higher engagement sequentially and strong
community participation with in-game purchases. Preorders for the
upcoming expansion, Battle for Azeroth™, are ahead of plan.
Hearthstone® continues to reach and engage its large global
audience through multiple efforts including a new promotional
bundle, expansion, and player-versus-environment mode, Monster
Hunts, which has had strong engagement. Overwatch® continues
to add new players, and engagement remains strong, with the most
recent seasonal event, Retribution, having a higher participation
rate than any prior event.
Deep Engagement
- The Overwatch League™ launched
its inaugural regular season in January and continues to have
strong viewership globally, reaching millions each week, with the
playoffs still to come this summer. This has led to increased
engagement for the franchise overall, with combined hours spent
playing and watching Overwatch increasing sequentially. The
Overwatch League and its partners also introduced new
engagement programs, which deliver enhanced viewing
experiences.
- The Call of Duty World League
completed stage one in mid-April and continues to have strong
viewership, with cumulative hours watched doubling
year-over-year.
Player Investment
- Activision Blizzard delivered a
first-quarter record of approximately $1 billion of in-game net
bookingsA.
- King’s mobile business had the highest
quarterly net bookingsA in its history. Total net bookingsA were up
3% quarter-over-quarter and up 13% year-over-year and reached their
highest level since Q1 2015, just after Candy Crush Soda
SagaTM was released. This quarter, King had two of the
top-10 highest-grossing titles in the U.S. mobile app stores for
the eighteenth quarter in a row, with Candy Crush
Saga™ and Candy Crush Soda Saga at #1 and #2 for
the second quarter in a row, respectively.1
- King continues to make progress in
ramping its advertising business, with industry-leading
viewability, completion, and ad-recall rates2. King continues to
attract new advertisers and has repeat advertisers across multiple
industries.
- Activision’s Call of Duty grew
in-game net bookingsA year-over-year, with WWII’s first
quarter second only to that of Black Ops III.
Company Outlook:
- Based on the strength of our Q1 beat
and confidence in our franchises and pipeline, we’re modestly
raising our full year outlook.
- As we previously shared, we expect
revenues and operating income for 2018 to be more influenced by the
last six months of our operating results than 2017.
GAAP Outlook
Non-GAAP Outlook Impact of
GAAP deferralsB (in millions, except EPS)
CY
2018
Net Revenues $ 7,355 $ 7,355 $ 120
EPS $ 1.79 $ 2.46 $ 0.05
Fully Diluted Shares 775 775
Q2
2018
Net Revenues $ 1,555 $ 1,555 $ (205 )
EPS $ 0.26 $
0.46 $ (0.15 )
Fully Diluted Shares 771
771
Net bookingsA (operating metric) is expected to be $7.48 billion
for 2018 and $1.35 billion for the second quarter of 2018.
Currency Assumptions for 2018 Outlook:
- $1.21 USD/Euro for current outlook (vs.
average of $1.12 for 2017 and $1.11 for 2016); and
- $1.39 USD/British Pound Sterling for
current outlook (vs. average of $1.30 for 2017 and $1.36 for
2016).
- Note: Our financial guidance includes
the forecasted impact of our FX hedging program.
Capital Allocation:
The Board of Directors declared a cash dividend of $0.34 per
common share to be paid on May 9, 2018 to shareholders of record at
the close of business on March 30, 2018, which represents a 13%
increase from 2017. Additionally, the Board of Directors authorized
a debt paydown of as much as $1.8 billion during 2018.
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 March 31, 2018 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
866-548-4713 in the U.S. with passcode 2838651.
About Activision Blizzard:
Activision Blizzard, Inc., a member of the Fortune 500 and
S&P 500, is the world's most successful standalone interactive
entertainment company. We delight hundreds of millions of monthly
active users around the world through franchises including
Activision's Call of Duty®, Destiny, and Skylanders®, Blizzard
Entertainment's World of Warcraft®, Overwatch®, Hearthstone®,
Diablo®, StarCraft®, and Heroes of the Storm®, and King's Candy
Crush™, Bubble Witch™, and Farm Heroes™. The company is one of the
Fortune "100 Best Companies To Work For®." 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 U.S. ranking for Apple App Store and Google Play Store
combined, per App Annie Intelligence for first quarter of 2018.
2 Based on MOAT and Millward Brown.
A Net bookings is an operating metric that is defined as the net
amount of products and services sold digitally or sold-in
physically in the period, and includes license fees, merchandise,
and publisher incentives, among others, and is equal to net
revenues excluding the impact from deferrals.
B Net effect of accounting treatment from revenue deferrals on
certain of our online-enabled products. Since certain of our games
are hosted online or include significant online functionality that
represents a separate performance obligation, we defer the
transaction price allocable to the online functionality from the
sale of these games and recognize the attributable revenues over
the relevant estimated service periods, which are 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, along with, for the purposes of EPS, the related cost of
revenues deferrals treatment and the related tax impacts.
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.
C Monthly Active User (“MAU”) Definition: We monitor MAUs as a
key measure of the overall size of our user base. MAUs are the
number of individuals who accessed 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
accesses two of our games would be counted as two users. In
addition, due to technical limitations, for Activision and King, an
individual who accesses the same game on two platforms or devices
in the relevant period would be counted as two users. For Blizzard,
an individual who accesses the same game on two platforms or
devices in the relevant period would generally be counted as a
single user.
Non-GAAP Financial Measures: As a supplement to our
financial measures presented in accordance with Generally Accepted
Accounting Principles (“GAAP”), Activision Blizzard presents
certain non-GAAP measures of financial performance. These non-GAAP
financial measures are not intended to be considered in isolation
from, as a substitute for, or as more important than, the financial
information prepared and presented in accordance with GAAP. In
addition, these non-GAAP measures have limitations in that they do
not reflect all of the items associated with the company’s results
of operations as determined in accordance with GAAP.
Activision Blizzard provides net 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
refinancing of long-term debt, including penalties and the write
off of unamortized discount and deferred financing costs;
- restructuring charges;
- other non-cash charges from
reclassification of certain cumulative translation adjustments into
earnings as required by GAAP;
- the income tax adjustments associated
with any of the above items (tax impact on non-GAAP 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); and
- significant discrete tax-related items,
including amounts related to changes in tax laws (including the Tax
Cuts and Jobs Act enacted in December 2017), amounts related to the
potential or final resolution of tax positions, and other unusual
or unique tax-related items and activities.
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. Additionally, we consider quantitative
and qualitative factors in assessing whether to adjust for the
impact of items that may be significant or that could affect an
understanding of our ongoing financial and business performance or
trends. 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 herein 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, including the impact of
tax items thereon; and (4) 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 risks, 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: 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 modes, and
preferences among platforms; the continued growth in the scope and
complexity of our business, including the diversion of management
time and attention to issues relating to the operations of our
acquired or newly started businesses and the potential impact of
our expansion into new businesses on our existing businesses; the
amount of our debt and the limitations imposed by the covenants in
the agreements governing our debt; 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 motivate
key personnel and developers that can create high-quality titles,
products, and services; 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 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;
potential data breaches and other cybersecurity risks; shifts in
consumer spending trends; capital market risks; the impact of
applicable laws, rules, and regulations, including changes in those
laws, rules, and 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, 2017.
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 Ended March 31,
20181
2017 Net revenues
Product sales $ 720 $ 509
Subscription, licensing, and other
revenues2
1,245 1,217 Total net revenues 1,965 1,726
Costs and
expenses Cost of revenues—product sales: Product costs 162 143
Software royalties, amortization, and intellectual property
licenses 146 88 Cost of revenues—subscription, licensing, and
other: Game operations and distribution costs 270 232 Software
royalties, amortization, and intellectual property licenses 84 122
Product development 259 225 Sales and marketing 251 246 General and
administrative 198 177 Total costs and expenses 1,370 1,233
Operating income 595 493 Interest and other expense (income), net
28 40 Income before income tax expense 567 453 Income tax
expense 67 27 Net income $ 500 $ 426 Basic
earnings per common share $ 0.66 $ 0.57 Weighted average common
shares outstanding 759 749 Diluted earnings per common share
$ 0.65 $ 0.56 Weighted average common shares outstanding assuming
dilution 770 761 1
We adopted a new revenue accounting
standard in the first quarter of 2018. The impacts of the new
revenue accounting standard are reflected in our financial
information as of and for the three months ended March 31, 2018.
Prior period results have not been restated to reflect this change
in accounting standards. Refer to our Form 10-Q for the first
quarter of 2018 for additional information.
2 Subscription, licensing, and other revenues represent revenues
from World of Warcraft subscriptions, licensing royalties from our
products and franchises, downloadable content, microtransactions,
and other miscellaneous revenues.
ACTIVISION BLIZZARD, INC. AND
SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE
SHEETS
(Unaudited)
(Amounts in millions)
March 31, 20181
December 31, 2017 Assets Current assets Cash and cash
equivalents $ 5,217 $ 4,713 Accounts receivable, net 431 918
Inventories, net 42 46 Software development 298 367 Other current
assets 422 476 Total current assets 6,410 6,520
Software development 92 86 Property and equipment, net 286 294
Deferred income taxes, net 400 459 Other assets 458 440 Intangible
assets, net 987 1,106 Goodwill 9,764 9,763 Total
assets $ 18,397 $ 18,668
Liabilities and
Shareholders' Equity Current liabilities Accounts payable $ 172
$ 323 Deferred revenues 1,204 1,929 Accrued expenses and other
liabilities 1,551 1,411 Total current liabilities
2,927 3,663 Long-term debt, net 4,392 4,390 Deferred income taxes,
net 16 21 Other liabilities 1,243 1,132 Total
liabilities 8,578 9,206 Shareholders' equity
Common stock — — Additional paid-in capital 10,786 10,747 Treasury
stock (5,563 ) (5,563 ) Retained earnings 5,245 4,916 Accumulated
other comprehensive loss (649 ) (638 ) Total shareholders’ equity
9,819 9,462 Total liabilities and shareholders’
equity $ 18,397 $ 18,668 1
We adopted a new revenue accounting
standard in the first quarter of 2018. The impacts of the new
revenue accounting standard are reflected in our financial
information as of and for the three months ended March 31, 2018.
Prior period results have not been restated to reflect this change
in accounting standards. Refer to our Form 10-Q for the first
quarter of 2018 for additional information.
ACTIVISION BLIZZARD, INC. AND
SUBSIDIARIES
RECONCILIATION OF GAAP NET INCOME TO
NON-GAAP MEASURES
(Amounts in millions, except per share
data)
Three Months Ended March 31, 2018
Net Revenues
Cost of Revenues
- Product Sales:
Product Costs
Cost of Revenues
- Product Sales:
Software
Royalties and
Amortization
Cost of Revenues
- Subs/Lic/Other:
Game Operations
and Distribution
Costs
Cost of Revenues
- Subs/Lic/Other:
Software
Royalties and
Amortization
Product
Development
Sales and
Marketing
General and
Administrative
Total Costs and
Expenses
GAAP Measurement $ 1,965 $ 162 $ 146 $ 270 $ 84 $ 259 $ 251 $ 198 $
1,370 Share-based compensation1 — — (4 ) — — (15 ) (4 ) (30 ) (53 )
Amortization of intangible assets2 — —
— — (73 )
— (44 ) (2 )
(119 ) Non-GAAP Measurement $ 1,965
$ 162 $ 142 $ 270
$ 11 $ 244
$ 203 $ 166 $
1,198 Net effect of deferred revenues and related
cost of revenues3 $ (581 ) $ (75 ) $ (120 ) $ (5 ) $ (8 ) $ — $ — $
— $ (208 )
Operating
Income
Net Income
Basic Earnings
per Share
Diluted Earnings
per Share
GAAP Measurement $ 595 $ 500 $ 0.66 $ 0.65 Share-based
compensation1 53 53 0.07 0.07 Amortization of intangible assets2
119 119 0.16 0.15 Income tax impacts from items above4 —
(68 ) (0.09 ) (0.09 )
Non-GAAP Measurement $ 767 $ 604
$ 0.80 $ 0.78 Net effect
of deferred revenues and related cost of revenues3 $ (373 ) $ (309
) $ (0.41 ) $ (0.40 ) 1 Includes expenses
related to share-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 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 earnings per share information is
presented as calculated. The sum of these measures, as presented,
may differ due to the impact of rounding.
ACTIVISION BLIZZARD, INC. AND
SUBSIDIARIES
RECONCILIATION OF GAAP NET INCOME TO
NON-GAAP MEASURES
(Amounts in millions, except per share
data)
Three Months Ended March 31, 2017
Net Revenues
Cost of Revenues
- Product Sales:
Product Costs
Cost of Revenues
- Product Sales:
Software
Royalties and
Amortization
Cost of Revenues
- Subs/Lic/Other:
Game Operations
and Distribution
Costs
Cost of Revenues
- Subs/Lic/Other:
Software
Royalties and
Amortization
Product
Development
Sales and
Marketing
General and
Administrative
Total Costs and
Expenses
GAAP Measurement $ 1,726 $ 143 $ 88 $ 232 $ 122 $ 225 $ 246 $ 177 $
1,233 Share-based compensation1 — — (4 ) — — (12 ) (4 ) (13 ) (33 )
Amortization of intangible assets2 — — — — (111 ) — (77 ) (2 ) (190
) Fees and other expenses related to the King Acquisition3 — — — —
— — — (4 ) (4 ) Restructuring costs4 — — — — — — — (11 ) (11 )
Other non-cash charges5 — —
— — —
— — (16 )
(16 ) Non-GAAP Measurement $ 1,726
$ 143 $ 84 $ 232
$ 11 $ 213
$ 165 $ 131 $ 979
Net effect of deferred revenues and related cost of
revenues6 $ (530 ) $ (58 ) $ (68 ) $ (4 ) $ (4 ) $ — $ — $ — $ (134
)
Operating
Income
Net Income
Basic Earnings
per Share
Diluted Earnings
per Share
GAAP Measurement $ 493 $ 426 $ 0.57 $ 0.56 Share-based
compensation1 33 33 0.04 0.04 Amortization of intangible assets2
190 190 0.25 0.25 Fees and other expenses related to the King
Acquisition3 4 9 0.01 0.01 Restructuring costs4 11 11 0.01 0.01
Other non-cash charges5 16 16 0.02 0.02 Income tax impacts from
items above7 — (139 ) (0.18 )
(0.18 ) Non-GAAP Measurement $ 747
$ 546 $ 0.73 $
0.72 Net effect of deferred revenues and related cost
of revenues6 $ (396 ) $ (310 ) $ (0.41 ) $ (0.41 ) 1
Includes expenses related to share-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 restructuring charges, primarily severance costs. 5
Reflects a non-cash accounting charge to reclassify certain
cumulative translation (gains) losses into earnings due to the
substantial liquidation of certain of our foreign entities. 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 effects of
taxes. 7 Reflects the income tax impact associated with the above
items. Tax impact on non-GAAP 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 earnings per share information is
presented as calculated. The sum of these measures, as presented,
may differ due to the impact of rounding.
ACTIVISION BLIZZARD, INC. AND
SUBSIDIARIES
OPERATING SEGMENTS INFORMATION
For the Three Months Ended
March 31, 2018 and 2017
(Amounts in millions)
Three Months Ended: March 31, 2018 $
Increase / (Decrease) Activision
Blizzard King
Total Activision
Blizzard King
Total Segment Net Revenues Net revenues from
external customers $ 312 $ 479 $ 534 $ 1,325 $ 97 $ 36 $ 60 $ 193
Intersegment net revenues1 — 1 — 1 —
1 — 1 Segment net revenues $ 312 $ 480
$ 534 $ 1,326 $ 97 $ 37 $ 60
$ 194
Segment operating income $ 92 $ 122 $
191 $ 405 $ 68 $ (37 ) $ 25 $ 56
Operating Margin
30.5 %
March 31, 2017 Activision
Blizzard King Total Segment Net
Revenues Net revenues from external customers $ 215 $ 443 $ 474
$ 1,132 Intersegment net revenues1 — — — —
Segment net revenues $ 215 $ 443 $ 474
$ 1,132
Segment operating income $ 24 $ 159 $
166 $ 349
Operating Margin 30.8 % 1
Intersegment revenues reflect licensing and service fees
charged between segments.
Our operating segments are consistent with the manner in which
our operations are reviewed and managed by our Chief Executive
Officer, who is our chief operating decision maker (“CODM”). 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 games; share-based
compensation expense; amortization of intangible assets as a result
of purchase price accounting; fees and other expenses (including
legal fees, costs, expenses and accruals) related to acquisitions,
associated integration activities, and financings; certain
restructuring costs; and other non-cash charges. See the
following page for the reconciliation tables of segment revenues
and operating income to consolidated net revenues and consolidated
operating income.
Our operating segments are also consistent with our internal
organization structure, the way we assess operating performance and
allocate resources, and the availability of separate financial
information. Due to change in our internal organization and
reporting structure and how we manage the business, commencing with
the second quarter of 2017, our Major League Gaming business, which
was previously included in non reportable segments, is now included
in the Blizzard segment. We have also revised prior periods to
reflect this change. We do not aggregate operating segments.
ACTIVISION BLIZZARD, INC. AND
SUBSIDIARIES
OPERATING SEGMENTS INFORMATION
For the Three Months Ended
March 31, 2018 and 2017
(Amounts in millions)
Three Months Ended March 31, 2018
2017 Reconciliation to
consolidated net revenues: Segment net revenues $ 1,326 $ 1,132
Revenues from non-reportable segments1 59 64 Net effect from
recognition (deferral) of deferred net revenues2 581 530
Elimination of intersegment revenues3 (1 ) — Consolidated
net revenues $ 1,965 $ 1,726
Reconciliation
to consolidated income before income tax expense: Segment
operating income $ 405 $ 349 Operating income from non-reportable
segments1 (11 ) 2 Net effect from recognition (deferral) of
deferred net revenues and related cost of revenues2 373 396
Share-based compensation expense (53 ) (33 ) Amortization of
intangible assets (119 ) (190 ) Fees and other expenses related to
the King Acquisition4 — (4 ) Restructuring costs5 — (11 ) Other
non-cash charges6 — (16 ) Consolidated operating income 595
493 Interest and other expense (income), net 28 40
Consolidated income before income tax expense $ 567 $ 453
1 Includes other income and expenses
from operating segments managed outside the reportable segments,
including our studios and distribution businesses. Also includes
unallocated corporate income and expenses. 2 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. 3 Intersegment revenues reflect licensing
and service fees charged between segments. 4 Reflects fees and
other expenses related to the King Acquisition, inclusive of
related debt financings and integration costs. 5 Reflects
restructuring charges, primarily severance costs. 6 Reflects a
non-cash accounting charge to reclassify certain cumulative
translation gains (losses) into earnings due to the substantial
liquidation of certain of our foreign entities.
ACTIVISION BLIZZARD, INC. AND
SUBSIDIARIES
NET REVENUES BY DISTRIBUTION
CHANNEL
For the Three Months Ended
March 31, 2018 and 2017
(Amounts in millions)
Three Months Ended March 31, 2018
March 31, 2017
$ Increase
(Decrease)
% Increase
(Decrease)
Amount1
% of Total2
Amount % of Total2 Net
Revenues by Distribution Channel Digital online channels3 $
1,463 74 % $ 1,386 80 % $ 77 6 % Retail channels 409 21 270 16 139
51 Other4 93 5 70 4 23 33 Total
consolidated net revenues $ 1,965 100 % $ 1,726 100 %
$ 239 14
Change in deferred revenues5
Digital online channels3 $ (258 ) $ (320 ) Retail channels (330 )
(206 ) Other4 7 (4 ) Total changes in deferred revenues $
(581 ) $ (530 ) 1
We adopted a new revenue accounting
standard in the first quarter of 2018. The impacts of the new
revenue accounting standard are reflected in our financial
information as of and for the three months ended March 31, 2018.
Prior period results have not been restated to reflect this change
in accounting standards. Refer to our Form 10-Q for the first
quarter of 2018 for additional information.
2 The percentages of total are presented as calculated. Therefore,
the sum of these percentages, as presented, may differ due to the
impact of rounding. 3 Net revenues from Digital online channels
represent revenues from digitally-distributed subscriptions,
downloadable content, microtransactions, and products, as well as
licensing royalties. 4 Net revenues from Other include revenues
from our studios and distribution businesses, as well as revenues
from Major League Gaming and the Overwatch League. 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
SUBSIDIARIESNET REVENUES BY DISTRIBUTION CHANNEL -
SUPPLEMENTAL INFORMATIONFor the Three Months Ended
March 31, 2018(Amounts in millions)
As a result of our adoption of the new
revenue accounting standard, net revenues by distribution channel
for the three months ended March 31, 2018, includes a
reconciliation to our segment revenues as disclosed for each of our
reportable segments. Net revenues by distribution channel were as
follows:
Three Months Ended March 31, 2018
Activision Blizzard
King
Non-
reportable
segments
Elimination of
intersegment
revenues4
Total Net Revenues by Distribution
Channel: Digital online channels1 $ 476 $ 455 $ 533 $ —
$
(1
) $ 1,463 Retail channels 396 13 — — — 409 Other2 — 40
— 53 — 93 Total consolidated net
revenues $ 872 $ 508 $ 533 $ 53 $ (1 )
$ 1,965 Change in deferred revenues3: Digital online
channels1 $ (232 ) $ (27 ) $ 1 $ —
$
—
$ (258 ) Retail channels (328 ) (2 ) — — — (330 ) Other2 — 1
— 6 — 7 Total change in deferred
revenues $ (560 ) $ (28 ) $ 1 $ 6 $ — $ (581 )
Segment net revenues: Digital online channels1 $ 244
$ 428 $ 534 $ —
$
(1
) $ 1,205 Retail channels 68 11 — — — 79 Other2 — 41
— 59 — 100 Total segment net revenues $
312 $ 480 $ 534 $ 59 $ (1 ) $ 1,384
1 Net revenues from Digital online
channels represent revenues from digitally-distributed
subscriptions, downloadable content, microtransactions, and
products, as well as licensing royalties. 2 Net revenues from Other
include revenues from our studios and distribution businesses, as
well as revenues from Major League Gaming and the Overwatch League.
3 Reflects the net effect from deferral of revenues and
(recognition) of deferred revenues on certain of our online enabled
products. 4 Intersegment revenues reflect licensing and service
fees charged between segments.
ACTIVISION BLIZZARD, INC. AND
SUBSIDIARIES
NET REVENUES BY PLATFORM
For the Three Months Ended
March 31, 2018 and 2017
(Amounts in millions)
Three Months Ended March 31, 2018
March 31, 2017
$ Increase
(Decrease)
% Increase
(Decrease)
Amount1 % of
Total2 Amount % of
Total2 Net Revenues by Platform Console $ 817 42
% $ 615 36 % $ 202 33 % PC 519 26 566 33 (47 ) (8 ) Mobile and
ancillary3 536 27 475 28 61 13 Other4 93 5 70
4 23 33 Total consolidated net revenues $ 1,965
100 % $ 1,726 100 % $ 239 14
Change
in deferred revenues5 Console $ (510 ) $ (375 ) PC (69 )
(147 ) Mobile and ancillary3 (9 ) (4 ) Other4 7 (4 ) Total
changes in deferred revenues $ (581 ) $ (530 ) 1
We adopted a new revenue accounting
standard in the first quarter of 2018. The impacts of the new
revenue accounting standard are reflected in our financial
information as of and for the three months ended March 31, 2018.
Prior period results have not been restated to reflect this change
in accounting standards. Refer to our Form 10-Q for the first
quarter of 2018 for additional information.
2 The percentages of total are presented as calculated. Therefore,
the sum of these percentages, as presented, may differ due to the
impact of rounding. 3 Net revenues from Mobile and ancillary
include revenues from mobile devices, as well as non-platform
specific game related revenues, such as standalone sales of
physical merchandise and accessories. 4 Net revenues from Other
include revenues from our studios and distribution businesses, as
well as revenues from Major League Gaming and the Overwatch League.
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
NET REVENUES BY PLATFORM - SUPPLEMENTAL
INFORMATION
For the Three Months Ended
March 31, 2018
(Amounts in millions)
As a result of our adoption of the new
revenue accounting standard, net revenues by platform for the three
months ended March 31, 2018, includes a reconciliation to our
segment revenues as disclosed for each of our reportable segments.
Net revenues by platform were as follows:
Three Months Ended March 31, 2018 Activision
Blizzard
King
Non-
reportable
segments
Elimination of
intersegment
revenues4
Total Net Revenues by Platform:
Console $ 769 $ 48 $ — $ — $ — $ 817 PC 99 378 43 — (1 ) 519 Mobile
and ancillary1 4 42 490 — — 536 Other2 — 40 —
53 — 93 Total consolidated net revenues $ 872
$ 508 $ 533 $ 53 $ (1 ) $ 1,965
Change in deferred revenues3: Console $ (491 ) $ (19 ) $ — $
— $ — $ (510 ) PC (69 ) — — — — (69 ) Mobile and ancillary1 — (10 )
1 — — (9 ) Other2 — 1 — 6 — 7
Total change in deferred revenues $ (560 ) $ (28 ) $ 1
$ 6 $ — $ (581 )
Segment net
revenues: Console $ 278 $ 29 $ — $ — $ — $ 307 PC 30 378 43 —
(1 ) 450 Mobile and ancillary1 4 32 491 — — 527 Other2 — 41
— 59 — 100 Total segment net
revenues $ 312 $ 480 $ 534 $ 59 $ (1 )
$ 1,384 1 Net revenues from Mobile and
ancillary include revenues from mobile devices, as well as
non-platform specific game related revenues, such as standalone
sales of physical merchandise and accessories. 2 Net revenues from
Other include revenues from our studios and distribution
businesses, as well as revenues from Major League Gaming and the
Overwatch League. 3 Reflects the net effect from deferral of
revenues and (recognition) of deferred revenues on certain of our
online enabled products. 4 Intersegment revenues reflect licensing
and service fees charged between segments.
ACTIVISION BLIZZARD, INC. AND
SUBSIDIARIES
NET REVENUES BY GEOGRAPHIC
REGION
For the Three Months Ended
March 31, 2018 and 2017
(Amounts in millions)
Three Months Ended March 31, 2018
March 31, 2017
$ Increase
(Decrease)
% Increase
(Decrease)
Amount1 % of
Total2 Amount % of
Total2 Net Revenues by Geographic Region Americas
$ 1,065 54 % $ 929 54 % $ 136 15 % EMEA3 687 35 554 32 133 24 Asia
Pacific 213 11 243 14 (30 ) (12 ) Total
consolidated net revenues $ 1,965 100 % $ 1,726 100 %
$ 239 14
Change in deferred revenues4
Americas $ (333 ) $ (309 ) EMEA3 (200 ) (162 ) Asia Pacific (48 )
(59 ) Total changes in deferred revenues $ (581 ) $ (530 ) 1
We adopted a new revenue accounting
standard in the first quarter of 2018. The impacts of the new
revenue accounting standard are reflected in our financial
information as of and for the three months ended March 31, 2018.
Prior period results have not been restated to reflect this change
in accounting standards. Refer to our Form 10-Q for the first
quarter of 2018 for additional information.
2 The percentages of total are presented as calculated. Therefore,
the sum of these percentages, as presented, may differ due to the
impact of rounding. 3 Consists of the Europe, Middle East, and
Africa geographic regions. 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
NET REVENUES BY GEOGRAPHIC REGION -
SUPPLEMENTAL INFORMATION
For the Three Months Ended
March 31, 2018
(Amounts in millions)
As a result of our adoption of the new
revenue accounting standard, net revenues by geographic region for
the three months ended March 31, 2018, includes a reconciliation to
our segment revenues as disclosed for each of our reportable
segments. Net revenues by geographic region were as follows:
Three Months Ended March 31, 2018 Activision
Blizzard
King
Non-
reportable
segments
Elimination of
intersegment
revenues3
Total Net Revenues by Geographic
Region: Americas $ 510 $ 234 $ 322 $ —
$
(1
) $ 1,065 EMEA1 305 169 160 53 — 687 Asia Pacific 57 105
51 — — 213 Total consolidated
net revenues $ 872 $ 508 $ 533 $ 53 $
(1 ) $ 1,965 Change in deferred revenues2: Americas $
(328 ) $ (6 ) $ 1 $ —
$
—
$ (333 ) EMEA1 (198 ) (8 ) — 6 — (200 ) Asia Pacific (34 ) (14 ) —
— — (48 ) Total change in deferred revenues $
(560 ) $ (28 ) $ 1 $ 6 $ — $ (581 )
Segment net revenues: Americas $ 182 $ 228 $ 323 $ —
$
(1
) $ 732 EMEA1 107 161 160 59 — 487 Asia Pacific 23 91
51 — — 165 Total segment net revenues $
312 $ 480 $ 534 $ 59 $ (1 ) $ 1,384
1 Consists of the Europe, Middle East,
and Africa geographic regions. 2 Reflects the net effect from
deferral of revenues and (recognition) of deferred revenues on
certain of our online enabled products. 3 Intersegment revenues
reflect licensing and service fees charged between segments.
ACTIVISION BLIZZARD, INC. AND
SUBSIDIARIES
EBITDA and ADJUSTED EBITDA
For the Trailing Twelve Months Ended
March 31, 2018
(Amounts in millions)
Trailing Twelve
Months Ended
June 30, 2017 September 30, 2017 December 31,
2017
March 31, 20181
March 31, 2018 GAAP Net Income (Loss) $ 243 $
188 $ (584 ) $ 500 $ 347 Interest and other expense (income), net
34 37 36 28 135 Loss on extinguishment of debt 12 — — — 12
Provision for income taxes2 50 32 769 67 918 Depreciation and
amortization 226 220 219 155 820
EBITDA 565 477 440 750
2,232 Share-based compensation expense3 39 47 58 53
197 Fees and other expenses related to the King Acquisition4 5 3 3
— 11 Restructuring costs5 — — 5 — 5 Other non-cash charges6 (1 ) (1
) — — (2 ) Discrete tax-related items7 — — 39
— 39
Adjusted EBITDA $ 608
$ 526 $ 545
$ 803 $ 2,482
Change in deferred net revenues and related cost of revenues8 $
(105 ) $ 132 $ 441 $ (373 ) $ 95 1
We adopted a new revenue accounting
standard in the first quarter of 2018. The impacts of the new
revenue accounting standard are reflected in our financial
information as of and for the three months ended March 31, 2018.
Prior period results have not been restated to reflect this change
in accounting standards. Refer to our Form 10-Q for the first
quarter of 2018 for additional information.
2 Provision for income taxes for the three months ended December
31, 2017 also includes an impact from significant discrete
tax-related items, including amounts related to changes in tax laws
(including a reasonable estimate of the impact of the Tax Cuts and
Jobs Act enacted in December 2017, as provided for in accordance
with Securities and Exchange Commission guidance), amounts related
to the potential or final resolution of tax positions, and/or other
unusual or unique tax-related items and activities. 3 Includes
expenses related to share-based compensation. 4 Reflects fees and
other expenses related to the King Acquisition, inclusive of
related debt financings and integration costs. 5 Reflects
restructuring charges, primarily severance costs. 6 Reflects a
non-cash accounting charge to reclassify certain cumulative
translation (gains) losses into earnings due to the substantial
liquidation of certain of our foreign entities. 7 Reflects the
impact of other unusual or unique tax-related items and activities.
8 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 CASH FLOW
INFORMATION
(Amounts in millions)
Three Months Ended March 31,
June 30, September 30,
December 31,
March 31,
Year over Year %
Increase
(Decrease)
2017 2017 2017 2017 2018 Cash
Flow Data Operating Cash Flow $ 411 $ 265 $ 379 $ 1,158 $ 529
29 % Capital Expenditures 21 31 34 69
31 48 Non-GAAP Free Cash Flow1 390 234 345 1,089 498 28
Operating Cash Flow - TTM2 2,229 1,991 1,914 2,213 2,331 5
Capital Expenditures - TTM2 130 117 123 155
165 27 Non-GAAP Free Cash Flow - TTM2 $ 2,099 $ 1,874
$ 1,791 $ 2,058 $ 2,166 3 % 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 June 30, 2016, three months
ended September 30, 2016, and three months ended December 31, 2016,
were $503 million, $456 million, and $859 million, respectively.
Capital Expenditures for the three months ended June 30, 2016,
three months ended September 30, 2016, and three months ended
December 31, 2016, were $44 million, $28 million, and $37 million,
respectively.
ACTIVISION BLIZZARD, INC. AND
SUBSIDIARIES
Outlook for the Three Months Ending
June 30, 2018 and Year Ending December 31, 2018
GAAP to Non-GAAP Reconciliation
(Amounts in millions, except per share
data)
Outlook for the Outlook for the Three
Months Ending Year Ending June 30, 2018
December 31, 2018 Net Revenues1
$ 1,555 $ 7,355 Change in deferred
revenues2 $ (205 ) $
120 Earnings Per Diluted Share (GAAP)
$ 0.26 $ 1.79 Excluding the impact of:
Share-based compensation3 0.08 0.33 Amortization of intangible
assets4 0.11 0.48 Loss on extinguishment of debt5 0.05 0.05 Income
tax impacts from items above6 (0.04 ) (0.20 )
Earnings Per
Diluted Share (Non-GAAP) $ 0.46 $
2.46 Net effect of deferred net
revenues and related cost of revenues on Earnings Per Diluted
Share7 $ (0.15 ) $
0.05 1 Net Revenues represents the
revenue outlook for both GAAP and Non-GAAP 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 share-based compensation.
4 Reflects amortization of intangible assets from purchase price
accounting, including intangible assets from the King Acquisition.
5 Reflects losses to be recognized from early extinguishment of
debt. 6 Reflects the income tax impacts associated with the above
items. Due to the inherent uncertainties in share price and option
exercise behavior, we do not generally 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 earnings per share information are presented
as calculated. Therefore, the sum of these measures, as presented,
may differ due to the impact of rounding.
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Activision Blizzard, Inc.Investors and
Analysts:ir@activisionblizzard.comorPress:pr@activisionblizzard.com
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