Better-Than-Expected Q2 Results
Activision Blizzard, Inc. (Nasdaq: ATVI) today announced
second-quarter 2019 results.
“Our second quarter results exceeded our prior outlook for both
revenue and earnings per share,” said Bobby Kotick, Chief Executive
Officer of Activision Blizzard. “In the first half of 2019 we have
prioritized investments in our key franchises and, beginning in the
second half of this year our audiences will have a chance to see
and experience the initial results of these efforts.”
Financial Metrics
Q2
(in millions, except EPS)
2019
Prior Outlook*
2018
GAAP Net Revenues
$1,396
$1,315
$1,641
Impact of GAAP deferralsA
($189)
($165)
($256)
GAAP EPS
$0.43
$0.21
$0.52
Non-GAAP EPS
$0.53
$0.35
$0.62
Impact of GAAP deferralsA
($0.15)
($0.12)
($0.21)
* Prior outlook was provided by the company on May 2, 2019 in
its earnings release.
For the quarter ended June 30, 2019, Activision Blizzard’s net
revenues presented in accordance with GAAP were $1.40 billion, as
compared with $1.64 billion for the second quarter of 2018. GAAP
net revenues from digital channels were $1.09 billion. GAAP
operating margin was 24%. GAAP earnings per diluted share were
$0.43, as compared with $0.52 for the second quarter of 2018.
For the quarter ended June 30, 2019, on a non-GAAP basis,
Activision Blizzard’s operating margin was 32% and earnings per
diluted share were $0.53, as compared with $0.62 for the second
quarter of 2018.
For the quarter ended June 30, 2019, operating cash flow was
$154 million. For the trailing twelve-month period, operating cash
flow was $1.86 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 June 30, 2019, Activision Blizzard’s net
bookingsB were $1.21 billion, compared with $1.38 billion for the
second quarter of 2018. Net bookingsB from digital channels were
$1.01 billion, as compared with $1.20 billion for the second
quarter of 2018.
Selected Business Highlights
Activision Blizzard outperformed our second quarter outlook,
reflecting strong creative and commercial execution as we continued
to reposition the business for future growth. Across Call of
Duty®, Candy Crush™, Warcraft®,
Hearthstone®, Overwatch®, and Diablo®, we are
expanding our development teams so that we can accelerate the
delivery of content in our pipeline, pursue new business models,
broaden our communities, and delight our players.
Audience Reach
- Activision Blizzard had 327 million Monthly Active Users
(MAUs)C in the quarter.
- King had 258 million MAUsC. Candy Crush franchise MAUsC
grew year-over-year, driven by growth in Candy Crush Saga™
and the addition of Candy Crush Friends Saga™.
- Activision had 37 million MAUsC. Call of Duty: Black Ops
4 MAUsC grew year-over-year versus Call of Duty: WWII,
and hours played increased by more than 50%. Crash™ Team Racing:
Nitro-Fueled enjoyed positive critical reviews and strong
sales, particularly through digital channels.
- Blizzard had 32 million MAUsC. Hearthstone MAUsC grew
quarter-over-quarter following the release of the Rise of
Shadows™ expansion and The Dalaran Heist single-player
Adventure. Overwatch MAUsC were relatively stable
quarter-over-quarter, with engagement increasing following the
release of the Workshop. Subscribers in World of Warcraft®
increased since mid-May, following the release date announcement
and beta for World of Warcraft Classic and the
Rise of Azshara™ content update.
Deep Engagement
- Total time spent in King’s Candy Crush franchise grew
strongly year-over-year.
- Total hours played in Activision’s Call of Duty
franchise rose double-digits year-over-year.
- Daily time spent per player in Blizzard’s franchises again
increased year-over-year.
- Overwatch League™ hours viewed continued to grow robustly
year-over-year in the two stages held during the second quarter.
Season-to-date, viewership and average minute audience have grown
double-digits year-over-year.
Player Investment
- Activision Blizzard delivered approximately $800 million of
in-game net bookingsB in the second quarter.
- King’s Candy Crush was the top-grossing franchise in the
U.S. mobile app stores, a lead position it has held for the last
two years1.
- Advertising in the King network continued to ramp, with net
bookingsB growing sequentially and doubling year-over-year.
- For Call of Duty: Black Ops 4, net bookingsB from
in-game items grew year-over-year versus Call of Duty:
WWII and are ahead of WWII on a comparable
life-to-date basis.
- Hearthstone net bookingsB grew sequentially in Q2
following the release of Rise of Shadows and the
introduction of the paid single-player Adventure, with the
expansion also outperforming last Q4’s Rastakhan’s
Rumble™.
Company Outlook
(in millions, except EPS)
GAAP Outlook
Non-GAAP Outlook
Impact of GAAP
deferralsA
CY
2019
Net Revenues
$6,190
$6,190
$110
EPS
$1.41
$2.02
$0.13
Fully Diluted Shares
774
774
Q3
2019
Net Revenues
$1,105
$1,105
($5)
EPS
$0.05
$0.20
-
Fully Diluted Shares
772
772
Net bookingsB are expected to be $6.30 billion for 2019 and
$1.10 billion for the third quarter of 2019.
Currency Assumptions for 2019 Outlook:
- $1.15 USD/Euro for current outlook (vs. average of $1.12 for
2018, $1.12 for 2017, and $1.11 for 2016); and
- $1.24 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 company paid a cash dividend of $0.37 per common share, up
9% year-over-year, in May 2019 to shareholders as of record at the
close of business on March 28, 2019. Cash payments totaled $283
million.
Conference Call
Today at 4:30 p.m. EDT, Activision Blizzard’s management will
host a conference call and webcast to discuss the company’s results
for the quarter ended June 30, 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 800-239-9838 in the U.S. with passcode 3325605. 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 second
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 then 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 share-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 June
30,
Six Months Ended June
30,
2019
2018
2019
2018
Net revenues
Product sales
$
359
$
464
$
1,015
$
1,184
Subscription, licensing, and other
revenues 1
1,037
1,177
2,205
2,423
Total net revenues
1,396
1,641
3,220
3,607
Costs and expenses
Cost of revenues—product sales:
Product costs
99
126
251
289
Software royalties, amortization, and
intellectual property licenses
51
49
162
194
Cost of revenues—subscription, licensing,
and other:
Game operations and distribution costs
230
250
469
521
Software royalties, amortization, and
intellectual property licenses
53
85
114
169
Product development
244
255
492
513
Sales and marketing
191
226
397
477
General and administrative
170
216
350
415
Restructuring and related costs
22
—
79
—
Total costs and expenses
1,060
1,207
2,314
2,578
Operating income
336
434
906
1,029
Interest and other expense (income),
net
(34
)
26
(31
)
54
Income before income tax expense
370
408
937
975
Income tax expense
42
6
163
73
Net income
$
328
$
402
$
774
$
902
Basic earnings per common share
$
0.43
$
0.53
$
1.01
$
1.19
Weighted average common shares
outstanding
766
761
765
760
Diluted earnings per common share
$
0.43
$
0.52
$
1.01
$
1.17
Weighted average common shares outstanding
assuming dilution
770
770
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)
June 30, 2019 1
December 31, 2018 2
Assets
Current assets
Cash and cash equivalents
$
4,592
$
4,225
Accounts receivable, net
455
1,035
Inventories, net
46
43
Software development
184
264
Other current assets
386
539
Total current assets
5,663
6,106
Software development
90
65
Property and equipment, net
259
282
Deferred income taxes, net
366
458
Other assets
721
482
Intangible assets, net
633
735
Goodwill
9,763
9,762
Total assets
$
17,495
$
17,890
Liabilities and Shareholders’
Equity
Current liabilities
Accounts payable
$
180
$
253
Deferred revenues
728
1,493
Accrued expenses and other liabilities
731
896
Total current liabilities
1,639
2,642
Long-term debt, net
2,673
2,671
Deferred income taxes, net
20
18
Other liabilities
1,186
1,167
Total liabilities
5,518
6,498
Shareholders’ equity
Common stock
—
—
Additional paid-in capital
11,063
10,963
Treasury stock
(5,563
)
(5,563
)
Retained earnings
7,085
6,593
Accumulated other comprehensive loss
(608
)
(601
)
Total shareholders’ equity
11,977
11,392
Total liabilities and shareholders’
equity
$
17,495
$
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 June 30, 2019. Refer to
our Form 10-Q for the three and six months ended June 30, 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 and six months ended June 30, 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 June 30,
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
$
1,396
$
99
$
51
$
230
$
53
$
244
$
191
$
170
$
22
$
1,060
Share-based compensation1
—
—
(4
)
—
—
(16
)
(3
)
(15
)
—
(38
)
Amortization of intangible assets2
—
—
—
—
(46
)
—
—
(1
)
—
(47
)
Restructuring and related costs3
—
—
—
—
—
—
—
—
(22
)
(22
)
Non-GAAP Measurement
$
1,396
$
99
$
47
$
230
$
7
$
228
$
188
$
154
$
—
$
953
Net effect of deferred revenues and
related cost of revenues4
$
(189
)
$
(20
)
$
(34
)
$
1
$
(1
)
$
—
$
—
$
—
$
—
$
(54
)
Operating Income
Net Income
Basic Earnings per
Share
Diluted Earnings per
Share
GAAP Measurement
$
336
$
328
$
0.43
$
0.43
Share-based compensation1
38
38
0.05
0.05
Amortization of intangible assets2
47
47
0.06
0.06
Restructuring and related costs3
22
22
0.03
0.03
Income tax impacts from items above5
—
(18
)
(0.02
)
(0.02
)
Discrete tax-related items6
—
(8
)
(0.01
)
(0.01
)
Non-GAAP Measurement
$
443
$
409
$
0.53
$
0.53
Net effect of deferred revenues and
related cost of revenues4
$
(135
)
$
(115
)
$
(0.15
)
$
(0.15
)
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.
6
Reflects the impact of 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.
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)
Six Months Ended June 30, 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
$
3,220
$
251
$
162
$
469
$
114
$
492
$
397
$
350
$
79
$
2,314
Share-based compensation1
—
—
(14
)
(1
)
(1
)
(36
)
(5
)
(43
)
—
(100
)
Amortization of intangible assets2
—
—
—
—
(99
)
—
—
(3
)
—
(102
)
Restructuring and related costs3
—
—
—
—
—
—
—
—
(79
)
(79
)
Non-GAAP Measurement
$
3,220
$
251
$
148
$
468
$
14
$
456
$
392
$
304
$
—
$
2,033
Net effect of deferred revenues and
related cost of revenues4
$
(755
)
$
(73
)
$
(100
)
$
(4
)
$
(2
)
$
—
$
—
$
—
$
—
$
(179
)
Operating Income
Net Income
Basic Earnings per
Share
Diluted Earnings per
Share
GAAP Measurement
$
906
$
774
$
1.01
$
1.01
Share-based compensation1
100
100
0.13
0.13
Amortization of intangible assets2
102
102
0.13
0.13
Restructuring and related costs3
79
79
0.10
0.10
Income tax impacts from items above5
—
(36
)
(0.05
)
(0.05
)
Discrete tax-related items6
—
(8
)
(0.01
)
(0.01
)
Non-GAAP Measurement
$
1,187
$
1,011
$
1.32
$
1.31
Net effect of deferred revenues and
related cost of revenues4
$
(576
)
$
(475
)
$
(0.62
)
$
(0.61
)
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.
6
Reflects the impact of 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.
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 June 30,
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
$
1,641
$
126
$
49
$
250
$
85
$
255
$
226
$
216
$
1,207
Share-based compensation1
—
—
(2
)
—
—
(18
)
(5
)
(32
)
(57
)
Amortization of intangible assets2
—
—
—
—
(75
)
—
—
(2
)
(77
)
Non-GAAP Measurement
$
1,641
$
126
$
47
$
250
$
10
$
237
$
221
$
182
$
1,073
Net effect of deferred revenues and
related cost of revenues3
$
(256
)
$
(44
)
$
(46
)
$
(1
)
$
17
$
—
$
—
$
—
$
(74
)
Operating Income
Net Income
Basic Earnings per
Share
Diluted Earnings per
Share
GAAP Measurement
$
434
$
402
$
0.53
$
0.52
Share-based compensation1
57
57
0.07
0.07
Amortization of intangible assets2
77
77
0.10
0.10
Income tax impacts from items above4
—
(37
)
(0.05
)
(0.05
)
Discrete tax-related items5
—
(25
)
(0.03
)
(0.03
)
Non-GAAP Measurement
$
568
$
474
$
0.62
$
0.62
Net effect of deferred revenues and
related cost of revenues3
$
(182
)
$
(159
)
$
(0.21
)
$
(0.21
)
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.
5
Reflects the impact of 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.
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)
Six Months Ended June 30, 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
$
3,607
$
289
$
194
$
521
$
169
$
513
$
477
$
415
$
2,578
Share-based compensation1
—
—
(5
)
(1
)
—
(32
)
(9
)
(64
)
(111
)
Amortization of intangible assets2
—
—
—
—
(148
)
—
(44
)
(4
)
(196
)
Non-GAAP Measurement
$
3,607
$
289
$
189
$
520
$
21
$
481
$
424
$
347
$
2,271
Net effect of deferred revenues and
related cost of revenues3
$
(838
)
$
(120
)
$
(165
)
$
(5
)
$
9
$
—
$
—
$
—
$
(281
)
Operating Income
Net Income
Basic Earnings per
Share
Diluted Earnings per
Share
GAAP Measurement
$
1,029
$
902
$
1.19
$
1.17
Share-based compensation1
111
111
0.15
0.14
Amortization of intangible assets2
196
196
0.26
0.25
Income tax impacts from items above4
—
(106
)
(0.14
)
(0.14
)
Discrete tax-related items5
—
(25
)
(0.03
)
(0.03
)
Non-GAAP Measurement
$
1,336
$
1,078
$
1.42
$
1.40
Net effect of deferred revenues and
related cost of revenues3
$
(557
)
$
(469
)
$
(0.62
)
$
(0.61
)
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.
5
Reflects the impact of 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.
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 and Six Months Ended June
30, 2019 and 2018
(Amounts in millions)
Three Months Ended:
June 30, 2019
$ Increase /
(Decrease)
Activision
Blizzard
King
Total
Activision
Blizzard
King
Total
Segment Net Revenues
Net revenues from external customers
$
268
$
381
$
499
$
1,148
$
(70
)
$
(104
)
$
(3
)
$
(177
)
Intersegment net revenues1
—
3
—
3
—
(1
)
—
(1
)
Segment net revenues
$
268
$
384
$
499
$
1,151
$
(70
)
$
(105
)
$
(3
)
$
(178
)
Segment operating income
$
55
$
75
$
171
$
301
$
(29
)
$
(58
)
$
2
$
(85
)
Operating Margin
26.2
%
June 30, 2018
Activision
Blizzard
King
Total
Segment Net Revenues
Net revenues from external customers
$
338
$
485
$
502
$
1,325
Intersegment net revenues1
—
4
—
4
Segment net revenues
$
338
$
489
$
502
$
1,329
Segment operating income
$
84
$
133
$
169
$
386
Operating Margin
29.0
%
Six Months Ended:
June 30, 2019
$ Increase /
(Decrease)
Activision
Blizzard
King
Total
Activision
Blizzard
King
Total
Segment Net Revenues
Net revenues from external customers
$
585
$
720
$
1,028
$
2,333
$
(66
)
$
(244
)
$
(8
)
$
(318
)
Intersegment net revenues1
—
8
—
8
—
2
—
2
Segment net revenues
$
585
$
728
$
1,028
$
2,341
$
(66
)
$
(242
)
$
(8
)
$
(316
)
Segment operating income
$
128
$
130
$
349
$
607
$
(47
)
$
(125
)
$
(11
)
$
(183
)
Operating Margin
25.9
%
June 30, 2018
Activision
Blizzard
King
Total
Segment Net Revenues
Net revenues from external customers
$
651
$
964
$
1,036
$
2,651
Intersegment net revenues1
—
6
—
6
Segment net revenues
$
651
$
970
$
1,036
$
2,657
Segment operating income
$
175
$
255
$
360
$
790
Operating Margin
29.7
%
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 and Six Months Ended June
30, 2019 and 2018
(Amounts in millions)
Three Months Ended June
30,
Six Months Ended June
30,
2019
2018
2019
2018
Reconciliation to consolidated net
revenues:
Segment net revenues
$
1,151
$
1,329
$
2,341
$
2,657
Revenues from non-reportable segments1
59
60
132
118
Net effect from recognition (deferral) of
deferred net revenues2
189
256
755
838
Elimination of intersegment revenues3
(3
)
(4
)
(8
)
(6
)
Consolidated net revenues
$
1,396
$
1,641
$
3,220
$
3,607
Reconciliation to consolidated income
before income tax expense:
Segment operating income
$
301
$
386
$
607
$
790
Operating income (loss) from
non-reportable segments1
7
—
4
(11
)
Net effect from recognition (deferral) of
deferred net revenues and related cost of revenues2
135
182
576
557
Share-based compensation expense
(38
)
(57
)
(100
)
(111
)
Amortization of intangible assets
(47
)
(77
)
(102
)
(196
)
Restructuring and related costs4
(22
)
—
(79
)
—
Consolidated operating income
336
434
906
1,029
Interest and other expense (income),
net
(34
)
26
(31
)
54
Consolidated income before income tax
expense
$
370
$
408
$
937
$
975
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 and Six Months Ended June
30, 2019 and 2018
(Amounts in millions)
Three Months Ended
June 30, 2019
June 30, 2018
$ Increase (Decrease)
% Increase (Decrease)
Amount
% of Total1
Amount
% of Total1
Net Revenues by Distribution
Channel
Digital online channels2
$
1,086
78
%
$
1,259
77
%
$
(173
)
(14
)%
Retail channels
193
14
278
17
(85
)
(31
)
Other3
117
8
104
6
13
13
Total consolidated net revenues
$
1,396
100
%
$
1,641
100
%
$
(245
)
(15
)
Change in deferred revenues4
Digital online channels2
$
(76
)
$
(62
)
Retail channels
(112
)
(202
)
Other3
(1
)
8
Total changes in deferred revenues
$
(189
)
$
(256
)
Six Months Ended
June 30, 2019
June 30, 2018
$ Increase (Decrease)
% Increase (Decrease)
Amount
% of Total1
Amount
% of Total1
Net Revenues by Distribution
Channel
Digital online channels2
$
2,479
77
%
$
2,720
75
%
$
(241
)
(9
)%
Retail channels
505
16
690
19
(185
)
(27
)
Other3
236
7
197
5
39
20
Total consolidated net revenues
$
3,220
100
%
$
3,607
100
%
$
(387
)
(11
)
Change in deferred revenues4
Digital online channels2
$
(404
)
$
(319
)
Retail channels
(344
)
(533
)
Other3
(7
)
14
Total changes in deferred revenues
$
(755
)
$
(838
)
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 PLATFORM
For the Three and Six Months Ended June
30, 2019 and 2018
(Amounts in millions)
Three Months Ended
June 30, 2019
June 30, 2018
$ Increase (Decrease)
% Increase (Decrease)
Amount
% of Total1
Amount
% of Total1
Net Revenues by Platform
Console
$
407
29
%
$
565
34
%
$
(158
)
(28
)%
PC
361
26
451
27
(90
)
(20
)
Mobile and ancillary2
511
37
521
32
(10
)
(2
)
Other3
117
8
104
6
13
13
Total consolidated net revenues
$
1,396
100
%
$
1,641
100
%
$
(245
)
(15
)
Change in deferred revenues4
Console
$
(146
)
$
(232
)
PC
(50
)
(28
)
Mobile and ancillary2
8
(4
)
Other3
(1
)
8
Total changes in deferred revenues
$
(189
)
$
(256
)
Six Months Ended
June 30, 2019
June 30, 2018
$ Increase (Decrease)
% Increase (Decrease)
Amount
% of Total1
Amount
% of Total1
Net Revenues by Platform
Console
$
1,083
34
%
$
1,382
38
%
$
(299
)
(22
)%
PC
855
27
971
27
(116
)
(12
)
Mobile and ancillary2
1,046
32
1,057
29
(11
)
(1
)
Other3
236
7
197
5
39
20
Total consolidated net revenues
$
3,220
100
%
$
3,607
100
%
$
(387
)
(11
)
Change in deferred revenues4
Console
$
(544
)
$
(740
)
PC
(196
)
(97
)
Mobile and ancillary2
(8
)
(15
)
Other3
(7
)
14
Total changes in deferred revenues
$
(755
)
$
(838
)
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 GEOGRAPHIC
REGION
For the Three and Six Months Ended June
30, 2019 and 2018
(Amounts in millions)
Three Months Ended
June 30, 2019
June 30, 2018
$ Increase (Decrease)
% Increase (Decrease)
Amount
% of Total1
Amount
% of Total1
Net Revenues by Geographic
Region
Americas
$
764
55
%
$
900
55
%
$
(136
)
(15
)%
EMEA2
459
33
552
34
(93
)
(17
)
Asia Pacific
173
12
189
12
(16
)
(8
)
Total consolidated net revenues
$
1,396
100
%
$
1,641
100
%
$
(245
)
(15
)
Change in deferred revenues3
Americas
$
(120
)
$
(141
)
EMEA2
(58
)
(100
)
Asia Pacific
(11
)
(15
)
Total changes in deferred revenues
$
(189
)
$
(256
)
Six Months Ended
June 30, 2019
June 30, 2018
$ Increase (Decrease)
% Increase (Decrease)
Amount
% of Total1
Amount
% of Total1
Net Revenues by Geographic
Region
Americas
$
1,751
54
%
$
1,966
55
%
$
(215
)
(11
)%
EMEA2
1,073
33
1,239
34
(166
)
(13
)
Asia Pacific
396
12
402
11
(6
)
(1
)
Total consolidated net revenues
$
3,220
100
%
$
3,607
100
%
$
(387
)
(11
)
Change in deferred revenues3
Americas
$
(437
)
$
(474
)
EMEA2
(259
)
(302
)
Asia Pacific
(59
)
(62
)
Total changes in deferred revenues
$
(755
)
$
(838
)
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
EBITDA and ADJUSTED EBITDA
For the Trailing Twelve Months Ended
June 30, 2019
(Amounts in millions)
Trailing Twelve Months
Ended
September 30, 2018
December 31, 2018 5
March 31, 2019
June 30, 2019
June 30, 2019
GAAP Net Income
$
260
$
685
$
447
$
328
$
1,720
Interest and other expense (income),
net
13
4
3
(34
)
(14
)
Loss on extinguishment of debt
40
—
—
—
40
Provision for income taxes1
(48
)
5
120
42
119
Depreciation and amortization
118
124
87
79
408
EBITDA
383
818
657
415
2,273
Share-based compensation expense2
55
43
63
38
199
Restructuring and related costs3
—
10
57
22
89
Adjusted EBITDA
$
438
$
871
$
777
$
475
$
2,561
Change in deferred net revenues and
related cost of revenues4
$
89
$
368
$
(441
)
$
(135
)
$
(119
)
1
Provision for income taxes for the three
months ended September 30, 2018, December 31, 2018, and June 30,
2019 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 and six months ended
June 30, 2019, for additional information.
ACTIVISION BLIZZARD, INC. AND
SUBSIDIARIES
SUPPLEMENTAL CASH FLOW
INFORMATION
(Amounts in millions)
Three Months Ended
June 30,
September 30,
December 31,
March 31,
June 30,
Year over Year % Increase
(Decrease)
2018
2018
2018
2019
2019
Cash Flow Data
Operating Cash Flow
$
9
$
253
$
999
$
450
$
154
NM
Capital Expenditures
30
36
34
18
27
(10
)
Non-GAAP Free Cash Flow1
(21
)
217
965
432
127
NM
Operating Cash Flow - TTM2
2,075
1,949
1,790
1,711
1,856
(11
)%
Capital Expenditures - TTM2
164
166
131
118
115
(30
)
Non-GAAP Free Cash Flow - TTM2
$
1,911
$
1,783
$
1,659
$
1,593
$
1,741
(9
)
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 September 30, 2017,
three months ended December 31, 2017, and three months ended March
31, 2018, were $379 million, $1,158 million, and $529 million,
respectively. Capital Expenditures for the three months ended
September 30, 2017, three months ended December 31, 2017, and three
months ended March 31, 2018, were $34 million, $69 million, and $31
million, respectively.
ACTIVISION BLIZZARD, INC. AND
SUBSIDIARIES
Outlook for the Three Months Ending
September 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
September 30, 2019
December 31, 2019
Net Revenues1
$
1,105
$
6,190
Change in deferred revenues2
$
(5
)
$
110
Earnings Per Diluted Share
(GAAP)
$
0.05
$
1.41
Excluding the impact of:
Share-based compensation3
0.06
0.26
Amortization of intangible assets4
0.06
0.26
Restructuring and related costs5
0.06
0.19
Income tax impacts from items above6
(0.04
)
(0.11
)
Discrete tax-related items7
—
(0.01
)
Earnings Per Diluted Share
(Non-GAAP)
$
0.20
$
2.02
Net effect of deferred net revenues and
related cost of revenues on Earnings Per Diluted Share8
$
—
$
0.13
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 impact of 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.
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,
including the effect of taxes.
The per share adjustments and the GAAP and
Non-GAAP earnings per share information are presented as
calculated. Therefore, the sum of these measures, as presented, may
differ due to the impact of rounding.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20190808005825/en/
Activision Blizzard, Inc.
Investors and Analysts: ir@activisionblizzard.com or Press:
pr@activisionblizzard.com
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