Better-Than-Expected Q1 Results
Activision Blizzard, Inc. (Nasdaq: ATVI) today announced
first-quarter 2019 results.
“We started the year with strong operating discipline and
exceeded our prior outlook for the first quarter. We are increasing
investment in our biggest franchises to better deliver against our
growth potential, and I am pleased with our progress,” said Bobby
Kotick, Chief Executive Officer of Activision Blizzard. “We’re
continuing to enhance our leadership position in esports. The
second season of the Overwatch League™ has seen strong growth in
viewership, and we’re seeing enthusiastic demand for our
professional, city-based Call of Duty® league franchises. We have
already sold the first five Call of Duty teams in Atlanta, Dallas,
New York, Paris and Toronto to owners who recognize the scale of
the opportunity from their partnerships with us on the Overwatch
League.”
Financial Metrics
Q1 (in millions, except EPS)
2019 Prior Outlook* 2018 GAAP
Net Revenues $1,825 $1,715 $1,965
Impact of GAAP deferralsA
($567) ($540) ($581) GAAP EPS $0.58 $0.39 $0.65 Non-GAAP EPS
$0.78 $0.63 $0.78 Impact of GAAP deferralsA ($0.47) ($0.43) ($0.40)
* Prior outlook was provided by the
company on February 12, 2019 in its earnings release.
For the quarter ended March 31, 2019, Activision Blizzard’s net
revenues presented in accordance with GAAP were $1.83 billion, as
compared with $1.97 billion for the first quarter of 2018. GAAP net
revenues from digital channels were $1.39 billion. GAAP operating
margin was 31%. GAAP earnings per diluted share were $0.58, as
compared with $0.65 for the first quarter of 2018.
For the quarter ended March 31, 2019, on a non-GAAP basis,
Activision Blizzard’s operating margin was 41% and earnings per
diluted share were $0.78, as compared with $0.78 for the first
quarter of 2018.
For the quarter ended March 31, 2019, operating cash flow was
$450 million. For the trailing twelve-month period, operating cash
flow was $1.71 billion.
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 Metrics
For the quarter ended March 31, 2019, Activision Blizzard’s net
bookingsB were $1.26 billion, compared with $1.38 billion for the
first quarter of 2018. Net bookingsB from digital channels were
$1.07 billion, as compared with $1.21 billion for the first quarter
of 2018.
Selected Business Highlights
Activision Blizzard outperformed our first quarter outlook. Over
the last three months, the Company made progress against the plan
outlined in our February earnings call to reinforce the foundation
for future growth. The Company is increasing development for our
biggest, internally-owned franchises, for both upfront releases and
in-game content, as well as investing in platform expansion on PC
and mobile and new geographies. We are also seeing strong momentum
in our esports and in-game advertising initiatives. While we expect
all the work underway to bear fruit in the future, the Company
remains focused on delivering in the near-term, reporting first
quarter net revenues, net bookingsB and EPS ahead of our prior
outlook.
Audience Reach
- Activision Blizzard had 345 million
Monthly Active Users (MAUs)C in the quarter, with 41 million at
Activision, 32 million at Blizzard, and 272 million at King.
- King MAUsC were up sequentially for the
second quarter in a row driven by the Candy Crush™ franchise
where MAUsC again grew quarter-over-quarter and year-over-year.
Candy Crush Friends Saga™ continues to attract both
former and new players to the franchise.
- Sekiro™: Shadows Die Twice
launched in March to 90-plus Metacritic scores. The game
sold-through more than two million copies worldwide in less than 10
days.
Deep Engagement
- For each of Activision, Blizzard, and
King, daily time spent per user increased year-over-year. For the
Company overall, average time spent was approximately 50
minutes.
- Daily time spent per player across the
Candy Crush franchise reached a new high, driving the King
network to a record of 38 minutes.
- Call of Duty: Black Ops 4’s core
player base remains highly engaged, with total hours played and
daily time spent per player growing double-digits versus Call of
Duty: WWII.
- The Company’s professional Call of
Duty city-based league is off to a strong start, selling its
first five franchise teams. In Atlanta, Dallas, New York, Paris and
Toronto, we are partnering with existing Overwatch League
team owners who have first-hand experience of our esports strategy
and capabilities and recognize the scale of the opportunity for a
global Call of Duty league.
- The second season of the Overwatch
League commenced in February to sell-out crowds at the Blizzard
Arena. Viewership hours for the second season to date are over 30%
higher than in the first season.
Player Investment
- Activision Blizzard delivered
approximately $800 million of in-game net bookingsB in the first
quarter.
- For the twenty-second quarter in a row,
King had two of the top-10 highest grossing titles in the U.S.
mobile app stores.1
Company Outlook
(in millions, except EPS)
GAAP
Outlook
Non-GAAP
Outlook
Impact of GAAP
deferralsA
CY
2019
Net Revenues $6,025 $6,025 $275 EPS $1.18
$1.85 $0.25 Fully Diluted Shares 774 774
Q2
2019
Net Revenues $1,315 $1,315 ($165) EPS $0.21 $0.35 ($0.12) Fully
Diluted Shares 771 771
Net bookingsB are expected to be $6.30
billion for 2019 and $1.15 billion for the second quarter of
2019.
Currency Assumptions for 2019 Outlook:
- $1.19 USD/Euro for current outlook (vs.
average of $1.12 for 2018, $1.12 for 2017, and $1.11 for 2016);
and
- $1.33 USD/British Pound Sterling for
current outlook (vs. average of $1.30 for 2018, $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 $0.37 per
common share, payable on May 9, 2019 to shareholders of record at
the close of business on March 28, 2019, which represents a 9%
increase from 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, 2019 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 https://investor.activision.com to listen to the
conference call via live Webcast or to listen to the call live by
dialing into 888-394-8218 in the U.S. with passcode 8315973. A
replay of the call will also be available after the call's
conclusion and archived for one year at
https://investor.activision.com/events.cfm.
About Activision Blizzard
Activision Blizzard, Inc., a member of the Fortune 500 and
S&P 500, is a leading standalone interactive entertainment
company. We delight hundreds of millions of monthly active users
around the world through franchises including Activision's Call of
Duty®, Spyro™, and Crash™, 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. 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 2019.
A 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.
B 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.
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 U.S. 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, including related debt financings, and
refinancing of long-term debt, including penalties and the write
off of unamortized discount and deferred financing costs;
- restructuring and related 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 and restructuring
activities; (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.
We caution that a number of important factors could cause our
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: our ability to
consistently deliver popular, high-quality titles in a timely
manner; our ability to satisfy the expectations of consumers with
respect to our brands, games, services, and/or business practices;
concentration of revenue among a small number of titles; 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 newly acquired or started
businesses and the potential impact of our expansion into new
businesses on our existing businesses; our ability to realize the
expected financial and operational benefits of, and effectively
manage, our recently announced restructuring plans; increasing
importance of revenues derived from digital distribution channels;
risks associated with the retail sales business model; substantial
influence of third-party platform providers over our products and
costs; success and availability of video game consoles manufactured
by third parties; risks associated with the free-to-play business
model, including dependence on a relatively small number of
consumers for a significant portion of revenues and profits from
any given game; risks and costs associated with legal proceedings;
changes in tax rates or exposure to additional tax liabilities, as
well as the outcome of current or future tax disputes; rapid
changes in technology and industry standards; competition,
including from other forms of entertainment; our ability to sell
products at assumed pricing levels; our ability to attract, retain,
and motivate skilled personnel; reliance on external developers for
development of some of our software products; 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; intellectual property
claims; piracy and unauthorized copying of our products; risks and
uncertainties of conducting business outside the U.S.; fluctuations
in currency exchange rates; increasing regulation of our business,
products, and distribution in key territories; compliance with
continually evolving laws and regulations concerning data privacy;
potential data breaches and other cybersecurity risks; 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, 2018.
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.
(Tables to Follow)
ACTIVISION BLIZZARD, INC. AND
SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS
(Unaudited)
(Amounts in millions, except per share
data)
Three Months Ended March 31,
2019 2018
Net revenues
Product sales $ 656 $ 720 Subscription, licensing, and other
revenues 1 1,169 1,245 Total net revenues 1,825 1,965
Costs and expenses Cost of revenues—product sales: Product
costs 152 162 Software royalties, amortization, and intellectual
property licenses 111 146 Cost of revenues—subscription, licensing,
and other: Game operations and distribution costs 239 270 Software
royalties, amortization, and intellectual property licenses 61 84
Product development 249 259 Sales and marketing 207 251 General and
administrative 179 198 Restructuring and related costs 57 —
Total costs and expenses 1,255 1,370 Operating income
570 595 Interest and other expense (income), net 3 28 Income
before income tax expense 567 567 Income tax expense 120 67
Net income $ 447 $ 500 Basic earnings
per common share $ 0.58 $ 0.66 Weighted average common shares
outstanding 764 759 Diluted earnings per common share $ 0.58
$ 0.65 Weighted average common shares outstanding assuming dilution
770 770 1 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, 2019 1
December 31, 2018 2 Assets Current
assets Cash and cash equivalents $ 4,696 $ 4,225 Accounts
receivable, net 594 1,035 Inventories, net 45 43 Software
development 184 264 Other current assets 518 539
Total current assets 6,037 6,106 Software development 80 65
Property and equipment, net 264 282 Deferred income taxes, net 373
458 Other assets 751 482 Intangible assets, net 680 735 Goodwill
9,763 9,762 Total assets $ 17,948 $ 17,890
Liabilities and Shareholders’ Equity Current
liabilities Accounts payable $ 166 $ 253 Deferred revenues 931
1,493 Accrued expenses and other liabilities 1,198 896
Total current liabilities 2,295 2,642 Long-term debt, net
2,672 2,671 Deferred income taxes, net 22 18 Other liabilities
1,363 1,167 Total liabilities 6,352 6,498
Shareholders’ equity Common stock — — Additional
paid-in capital 11,004 10,963 Treasury stock (5,563 ) (5,563 )
Retained earnings 6,757 6,593 Accumulated other comprehensive loss
(602 ) (601 ) Total shareholders’ equity 11,596 11,392
Total liabilities and shareholders’ equity $ 17,948 $
17,890
1
We adopted a new lease accounting standard
in the first quarter of 2019. The new lease accounting standard
increased our “Other assets,” “Accrued expenses and other
liabilities,” and “Other liabilities” as of March 31, 2019. Refer
to our Form 10-Q for the three months ended March 31, 2019 for
additional information.
2
During the three months ended March 31,
2019, we identified an amount which should have been recorded in
the fourth quarter of 2018 to reduce income tax expense by $35
million. We will revise our 2018 financial statements to correct
this matter in our Annual Report on Form 10-K for the year ending
December 31, 2019. Our balance sheet as of December 31, 2018, as
presented above has been revised to reflect the correction. Refer
to our Form 10-Q for the three months ended March 31, 2019, 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, 2019
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 Restructuring and related costs
Total Costs and Expenses GAAP Measurement
$ 1,825 $ 152 $ 111 $ 239
$ 61 $ 249 $ 207 $ 179 $ 57 $
1,255 Share-based compensation1 — — (10 ) — — (20 ) (4 ) (29 ) —
(63 ) Amortization of intangible assets2 — — — — (53 ) — — (1 ) —
(54 ) Restructuring and related costs3 — —
— — — —
— — (57 ) (57 ) Non-GAAP
Measurement $ 1,825 $ 152 $ 101
$ 239 $ 8 $ 229 $
203 $ 149 $ — $ 1,081
Net effect of deferred revenues and related cost of
revenues4 $ (567 ) $ (53 ) $ (66 ) $ (6 ) $ (1 ) $ — $ — $ — $ — $
(126 )
Operating Income Net Income Basic
Earnings per Share Diluted Earnings per Share
GAAP Measurement $ 570 $ 447 $ 0.58 $ 0.58 Share-based
compensation1 63 63 0.08 0.08 Amortization of intangible assets2 54
54 0.07 0.07 Restructuring and related costs3 57 57 0.07 0.07
Income tax impacts from items above5 — (18 )
(0.02 ) (0.02 ) Non-GAAP Measurement $ 744 $
603 $ 0.79 $ 0.78 Net
effect of deferred revenues and related cost of revenues4 $ (441 )
$ (361 ) $ (0.47 ) $ (0.47 )
1
Includes expenses related to share-based
compensation.
2
Reflects amortization of intangible assets
from purchase price accounting.
3
Reflects restructuring initiatives,
primarily severance and other restructuring-related 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 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, 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
OPERATING SEGMENTS INFORMATION
For the Three Months Ended March 31,
2019 and 2018
(Amounts in millions)
Three Months Ended: March 31,
2019 $ Increase / (Decrease)
Activision Blizzard
King Total
Activision Blizzard
King Total Segment Net Revenues
Net revenues from external customers $ 317 $ 339 $ 529 $ 1,185 $ 5
$ (140 ) $ (5 ) $ (140 ) Intersegment net revenues1 — 5
— 5 — 4 — 4
Segment net revenues $ 317 $ 344 $ 529 $ 1,190
$ 5 $ (136 ) $ (5 ) $ (136 )
Segment
operating income $ 73 $ 55 $ 178 $ 306 $ (19 ) $ (67 ) $ (13 )
$ (99 )
Operating Margin 25.7 %
March 31,
2018 Activision Blizzard King Total
Segment Net Revenues Net revenues from external customers $
312 $ 479 $ 534 $ 1,325 Intersegment net revenues1 — 1
— 1 Segment net revenues $ 312 $ 480
$ 534 $ 1,326
Segment operating
income $ 92 $ 122 $ 191 $ 405
Operating Margin
30.5 % 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 and related 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. We do not aggregate operating segments.
ACTIVISION BLIZZARD, INC. AND
SUBSIDIARIES
OPERATING SEGMENTS INFORMATION
For the Three Months Ended March 31,
2019 and 2018
(Amounts in millions)
Three Months Ended March 31,
2019 2018 Reconciliation to
consolidated net revenues: Segment net revenues $ 1,190 $ 1,326
Revenues from non-reportable segments1 73 59 Net effect from
recognition (deferral) of deferred net revenues2 567 581
Elimination of intersegment revenues3 (5 ) (1 ) Consolidated net
revenues $ 1,825 $ 1,965
Reconciliation to
consolidated income before income tax expense: Segment
operating income $ 306 $ 405 Operating income (loss) from
non-reportable segments1 (3 ) (11 ) Net effect from recognition
(deferral) of deferred net revenues and related cost of revenues2
441 373 Share-based compensation expense (63 ) (53 ) Amortization
of intangible assets (54 ) (119 ) Restructuring and related costs4
(57 ) — Consolidated operating income 570 595 Interest and
other expense (income), net 3 28 Consolidated income
before income tax expense $ 567 $ 567 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 restructuring initiatives,
primarily severance and other restructuring-related costs.
ACTIVISION BLIZZARD, INC. AND
SUBSIDIARIES
NET REVENUES BY DISTRIBUTION
CHANNEL
For the Three Months Ended March 31,
2019 and 2018
(Amounts in millions)
Three Months Ended March 31,
2019 March 31, 2018
$ Increase(Decrease)
% Increase(Decrease)
Amount % of Total1 Amount
% of Total1 Net Revenues by
Distribution Channel Digital online channels2 $ 1,393 76 % $
1,463 74 % $ (70 ) (5 )% Retail channels 313 17 409 21 (96 ) (23 )
Other3 119 7 93 5 26 28 Total
consolidated net revenues $ 1,825 100 % $ 1,965 100 %
$ (140 ) (7 )
Change in deferred revenues4
Digital online channels2 $ (328 ) $ (258 ) Retail channels (233 )
(330 ) Other3 (6 ) 7 Total changes in deferred revenues $
(567 ) $ (581 ) 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,
downloadable content, microtransactions, and products, as well as
licensing royalties.
3
Net revenues from Other include revenues
from our studios and distribution businesses, as well as revenues
from Major League Gaming and the Overwatch League.
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 DISTRIBUTION CHANNEL -
SUPPLEMENTAL INFORMATION
For the Three Months Ended March 31,
2019 and 2018
(Amounts in millions)
Three Months Ended March 31,
2019
Activision Blizzard
King
Non-reportablesegments
Elimination
ofintersegmentrevenues4
Total Net Revenues by Distribution
Channel: Digital online channels1 $ 466 $ 406 $ 526 $ — $ (5 )
$ 1,393 Retail channels 297 16 — — — 313 Other2 — 39
— 80 — 119 Total consolidated net
revenues $ 763 $ 461 $ 526 $ 80 $ (5 )
$ 1,825 Change in deferred revenues3: Digital online
channels1 $ (217 ) $ (114 ) $ 3 $ — $ — $ (328 ) Retail channels
(229 ) (4 ) — — — (233 ) Other2 — 1 — (7 ) —
(6 ) Total change in deferred revenues $ (446 ) $ (117 ) $ 3
$ (7 ) $ — $ (567 )
Segment net
revenues: Digital online channels1 $ 249 $ 292 $ 529 $ — $ (5 )
$ 1,065 Retail channels 68 12 — — — 80 Other2 — 40 —
73 — 113
Total segment net revenues
$ 317 $ 344 $ 529 $ 73 $ (5 ) $ 1,258
Three Months Ended March 31, 2018
Activision Blizzard King
Non-reportablesegments
Elimination
ofintersegmentrevenues4
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,
2019 and 2018
(Amounts in millions)
Three Months Ended March 31,
2019 March 31, 2018
$ Increase(Decrease)
% Increase(Decrease)
Amount % of Total1 Amount
% of Total1 Net Revenues by
Platform Console $ 677 37 % $ 817 42 % $ (140 ) (17 )% PC 494
27 519 26 (25 ) (5 ) Mobile and ancillary2 535 29 536 27 (1 ) —
Other3 119 7 93 5 26 28 Total
consolidated net revenues $ 1,825 100 % $ 1,965 100 %
$ (140 ) (7 )
Change in deferred revenues4
Console $ (398 ) $ (510 ) PC (149 ) (69 ) Mobile and ancillary2 (14
) (9 ) Other3 (6 ) 7 Total changes in deferred revenues $
(567 ) $ (581 ) 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 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.
3
Net revenues from Other include revenues
from our studios and distribution businesses, as well as revenues
from Major League Gaming and the Overwatch League.
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 PLATFORM - SUPPLEMENTAL
INFORMATION
For the Three Months Ended March 31,
2019 and 2018
(Amounts in millions)
Three Months Ended March 31,
2019 Activision Blizzard
King
Non-reportablesegments
Elimination
ofintersegmentrevenues4
Total Net Revenues by Platform: Console
$ 635 $ 42 $ — $ — $ — $ 677 PC 124 342 33 — (5 ) 494 Mobile and
ancillary1 4 38 493 — — 535 Other2 — 39 — 80
— 119 Total consolidated net revenues $ 763
$ 461 $ 526 $ 80 $ (5 ) $ 1,825
Change in deferred revenues3: Console $ (386 ) $ (12 ) $ — $
— $ — $ (398 ) PC (59 ) (90 ) — — — (149 ) Mobile and ancillary1 (1
) (16 ) 3 — — (14 ) Other2 — 1 — (7 ) —
(6 ) Total change in deferred revenues $ (446 ) $ (117 ) $ 3
$ (7 ) $ — $ (567 )
Segment net revenues:
Console $ 249 $ 30 $ — $ — $ — $ 279 PC 65 252 33 — (5 ) 345 Mobile
and ancillary1 3 22 496 — — 521 Other2 — 40 —
73 — 113 Total segment net revenues $ 317
$ 344 $ 529 $ 73 $ (5 ) $ 1,258
Three Months Ended March 31, 2018
Activision Blizzard King
Non-reportablesegments
Elimination
ofintersegmentrevenues4
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,
2019 and 2018
(Amounts in millions)
Three Months Ended March 31,
2019 March 31, 2018
$ Increase(Decrease)
% Increase(Decrease)
Amount % of Total1 Amount
% of Total1 Net Revenues by
Geographic Region Americas $ 988 54 % $ 1,065 54 % $ (77 ) (7
)% EMEA2 614 34 687 35 (73 ) (11 ) Asia Pacific 223 12
213 11 10 5 Total consolidated net
revenues $ 1,825 100 % $ 1,965 100 % $ (140 ) (7 )
Change in deferred revenues3 Americas $ (318 )
$ (333 ) EMEA2 (200 ) (200 ) Asia Pacific (49 ) (48 ) Total changes
in deferred revenues $ (567 ) $ (581 ) 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 EMEA consist 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
NET REVENUES BY GEOGRAPHIC REGION -
SUPPLEMENTAL INFORMATION
For the Three Months Ended March 31,
2019 and 2018
(Amounts in millions)
Three Months Ended March 31,
2019 Activision Blizzard
King
Non-reportablesegments
Elimination
ofintersegmentrevenues3
Total Net Revenues by Geographic
Region: Americas $ 458 $ 207 $ 326 $ — $ (3 ) $ 988 EMEA1 243
148 144 80 (1 ) 614 Asia Pacific 62 106 56 —
(1 ) 223 Total consolidated net revenues $ 763
$ 461 $ 526 $ 80 $ (5 ) $ 1,825
Change in deferred revenues2: Americas $ (267 ) $ (54 ) $ 3 $ — $ —
$ (318 ) EMEA1 (146 ) (47 ) — (7 ) — (200 ) Asia Pacific (33 ) (16
) — — — (49 ) Total change in deferred
revenues $ (446 ) $ (117 ) $ 3 $ (7 ) $ — $ (567 )
Segment net revenues: Americas $ 191 $ 153 $ 329 $ —
$ (3 ) $ 670 EMEA1 97 101 144 73 (1 ) 414 Asia Pacific 29 90
56 — (1 ) 174 Total segment net
revenues $ 317 $ 344 $ 529 $
73
$ (5 ) $ 1,258
Three Months Ended
March 31, 2018 Activision Blizzard King
Non-reportablesegments
Elimination
ofintersegmentrevenues3
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 Net revenues from EMEA consist 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, 2019
(Amounts in millions)
Trailing Twelve Months Ended June
30, 2018 September 30, 2018 December 31, 2018
5 March 31, 2019 March 31, 2019 GAAP
Net Income $ 402 $ 260 $ 685 $ 447 $ 1,794 Interest and other
expense (income), net 26 13 4 3 46 Loss on extinguishment of debt —
40 — — 40 Provision for income taxes1 6 (48 ) 5 120 83 Depreciation
and amortization 112 118 124 87 441
EBITDA 546 383 818 657
2,404 Share-based compensation expense2 57 55 43 63
218 Restructuring and related costs3 — — 10 57
67
Adjusted EBITDA $ 603
$ 438 $ 871 $
777 $ 2,689 Change in
deferred net revenues and related cost of revenues4 $ (182 ) $ 89 $
368 $ (441 ) $ (166 )
1
Provision for income taxes for the three
months ended June 30, 2018, September 30, 2018, and December 31,
2018, also include impacts from significant discrete tax-related
items, including amounts related to changes in tax laws, amounts
related to the potential or final resolution of tax positions,
and/or other unusual or unique tax-related items and
activities.
2
Includes expenses related to share-based
compensation.
3
Reflects restructuring initiatives,
primarily severance and other restructuring-related 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.
5
Includes a revision to our GAAP Net Income
and Provision for income taxes for the three months ended December
31, 2018. Refer to our Form 10-Q for the three months ended March
31, 2019, for additional information.
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)
2018 2018 2018 2018 2019 Cash
Flow Data Operating Cash Flow $ 529 $ 9 $ 253 $ 999 $ 450 (15
)% Capital Expenditures 31 30 36 34 18
(42 ) Non-GAAP Free Cash Flow1 498 (21 ) 217 965 432 (13 )
Operating Cash Flow - TTM2 2,331 2,075 1,949 1,790 1,711 (27
)% Capital Expenditures - TTM2 165 164 166 131
118 (28 ) Non-GAAP Free Cash Flow - TTM2 $ 2,166 $
1,911 $ 1,783 $ 1,659 $ 1,593 (26 ) 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, 2017, three months ended September 30, 2017, and three
months ended December 31, 2017, were $265 million, $379 million,
and $1,158 million, respectively. Capital Expenditures
for the three months ended June 30, 2017, three months ended
September 30, 2017, and three months ended December 31, 2017, were
$31 million, $34 million, and $69 million, respectively.
ACTIVISION BLIZZARD, INC. AND
SUBSIDIARIES
Outlook for the Three Months Ending
June 30, 2019 and Year Ending December 31, 2019
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, 2019 December 31, 2019
Net Revenues1 $ 1,315 $
6,025 Change in deferred revenues2 $
(165 ) $ 275 Earnings
Per Diluted Share (GAAP) $ 0.21 $
1.18 Excluding the impact of: Share-based compensation3 0.07
0.30 Amortization of intangible assets4 0.06 0.26 Restructuring and
related costs5
0.05
0.19 Income tax impacts from items above6 (0.03 ) (0.09 )
Earnings Per Diluted Share (Non-GAAP) $
0.35
$ 1.85 Net effect of
deferred net revenues and related cost of revenues on Earnings Per
Diluted Share7 $ (0.12 ) $
0.25 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 our restructuring initiatives,
primarily severance, facilities, and other restructuring-related
costs.
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.
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