Activision Blizzard, Inc. (Nasdaq: ATVI) today announced
first-quarter 2020 results.
“Our goal to connect the world through epic entertainment is
more important to our players than ever before,” said Bobby Kotick,
Chief Executive Officer of Activision Blizzard. “We delivered
strong financial results for the first quarter, and are raising our
full year outlook. I have been awestruck by the strength of our
employees and their families during this difficult time. Whether
managing healthcare or childcare, performing public service or
community service, our teams around the world have shown ingenuity
and resilience. In the face of so many difficulties, our employees
have made certain that the joy, the engagement, and the benefits of
gaming remain an effective way to help keep our 400 million players
around the world connected and safe.”
Financial Metrics
Q1
(in millions, except EPS)
2020
Prior Outlook*
2019
GAAP Net Revenues
$1,788
$1,640
$1,825
Impact of GAAP deferralsA
($266)
($365)
($567)
GAAP EPS
$0.65
$0.55
$0.58
Non-GAAP EPS
$0.76
$0.66
$0.78
Impact of GAAP deferralsA
($0.18)
($0.31)
($0.47)
* Prior outlook was provided by the company on February 6, 2020
in its earnings release.
For the quarter ended March 31, 2020, Activision Blizzard’s net
revenues presented in accordance with GAAP were $1.79 billion, as
compared with $1.83 billion for the first quarter of 2019. GAAP net
revenues from digital channels were $1.44 billion, as compared with
$1.39 billion for the first quarter of 2019. GAAP operating margin
was 34%. GAAP earnings per diluted share were $0.65, as compared
with $0.58 for the first quarter of 2019.
For the quarter ended March 31, 2020, on a non-GAAP basis,
Activision Blizzard’s operating margin was 40% and earnings per
diluted share were $0.76, as compared with $0.78 for the first
quarter of 2019.
For the quarter ended March 31, 2020, operating cash flow was
$148 million. For the trailing twelve-month period, operating cash
flow was $1.53 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, 2020, Activision Blizzard’s net
bookingsB were $1.52 billion, as compared with $1.26 billion for
the first quarter of 2019. Net bookingsB from digital channels were
$1.36 billion, as compared with $1.07 billion for the first quarter
of 2019. In-game net bookingsC were $956 million, as compared with
$794 million for the first quarter of 2019.
For the quarter ended March 31, 2020, overall Activision
Blizzard Monthly Active Users (MAUs)D were 407 million.
COVID-19 Response
At Activision Blizzard, our number one priority is the health
and safety of our employees and their families. All of our offices
moved to work-from-home environments by mid-March. We are covering
all costs of testing and treatment for affected employees and their
families, and we have increased access to tele-health resources and
contracted private doctors and medical support in regions where our
employees live and work. And we are continuing to find other ways
to support our employees and their families as we navigate through
this unprecedented situation, including services to help families
balance work and home life.
The digital nature of our content means our creative talent can
continue to work on our product pipeline from home. While the shift
to remote working adds complexity and challenges in some areas of
the game development process, we are implementing mitigation
measures to address these areas and, based on the work to date, we
still expect to deliver a robust slate of content over the
remainder of the year.
We have leveraged our game platforms to disseminate critical
health and safety information while offering in-game events and
rewards to promote social distancing. We have made donations to
world class health organizations and medical centers in cities
where our employees live and work, funding promising convalescent
blood therapies and drug trials. And we have made an additional
contribution to our own Call of Duty Endowment to continue placing
veterans into high-quality jobs.
The increasingly digital, recurring and cash-generative nature
of our operations remains one of our fundamental strengths. With a
strong balance sheet, low capital intensity and a track record of
disciplined capital allocation, we have substantial flexibility as
we navigate through an uncertain environment.
Selected Business Highlights
Activision Blizzard exceeded its first-quarter outlook, driven
primarily by our investment in creative and commercial initiatives
for Call of Duty® delivering better-than-expected results
throughout the quarter. We also saw continued momentum for World
of Warcraft® and better-than-expected results for other key
franchises, as populations sheltering at home turned to our content
for entertainment and social connection. These trends have
continued so far in the second quarter, with business momentum
accelerating further in April. In the current environment, we are
fortunate to still be in a position to enable some of the world’s
best gaming experiences through our direct digital connection to
hundreds of millions of people.
Activision
- Activision had 102 million MAUsD in the first quarter.
- Call of Duty: Warzone launched on March 10, 2020 and has
reached over 60 million players to date.
- Life-to-date, Modern Warfare has sold through more units
and has more players than any prior Call of Duty title at
this point after its release.
- In the first quarter, Call of Duty: Modern Warfare® unit
sell-through was the highest for the franchise outside of a launch
quarter. Following substantial year-over-year growth versus the
prior title in January and February, unit sell-through accelerated
in March, driven by upgrades from Warzone as well as rising
demand amidst shelter-at-home conditions.
- Also in the first quarter, Modern Warfare in-game net
bookingsC more than doubled year-over-year versus Black Ops
4.
- Call of Duty Mobile continued to build on last October’s
breakout launch with new content, features and events aimed at
optimizing engagement, retention and player investment. The game
saw increased reach and engagement in March, driven by an increased
cadence of compelling content and events as well as shelter-at-home
tailwinds.
- Originally planned in a local city-based homestand format, the
inaugural season of the professional Call of Duty LeagueTM pivoted
all matches to online play and remote production for the remainder
of the regular season, to keep players and fans safe while still
delivering premium esports content to a global audience.
Blizzard
- Blizzard had 32 million MAUsD in the first quarter.
- After doubling in the second half of 2019, World of
Warcraft’s active player community1 increased further in the
first quarter, driven by both new and returning players, as the
team continued to deliver more content between expansions than ever
before.
- Each of Blizzard’s key franchises experienced a month-on-month
increase in MAUsD in March as a result of shelter-at-home
tailwinds.
- Hearthstone® engagement improved sequentially, driven by
the new Battlegrounds game mode launched in November, and strong
execution in live operations.
- Overwatch® engagement increased meaningfully in March
and the Overwatch LeagueTM successfully moved to online play and
remote production during the quarter.
King
- King had 273 million MAUsD in the first quarter.
- MAUsD grew month-over-month in both January and February, and
further accelerated in March as shelter-at-home conditions came
into effect.
- Candy CrushTM franchise MAUsD grew year-over-year in
each month of the quarter, with double-digit growth in March.
Within the franchise, the community played more game rounds than in
any quarter since Activision Blizzard’s acquisition of King.
- Candy Crush SagaTM and the wider Candy Crush
franchise were once again the top-grossing title and franchise in
the U.S. mobile app stores.2
- Advertising net bookingsB grew over 75% year-over-year, even
against the backdrop of the sudden decline in demand across the
digital advertising sector in March.
Company Outlook
Our business exhibited accelerating momentum entering the second
quarter from the dual tailwinds of strong execution in the Call of
Duty franchise following last year’s increased investment, and
increased engagement as people turned to our interactive content as
they sheltered at home. The full extent of the impact of the
COVID-19 pandemic on our business, operations, and financial
results will depend on numerous evolving factors that we are not
able to fully predict at this time. While there are risks related
to global economic weakness, rising unemployment, pressures on the
retail channel, pricing and other potential factors, we also see
many positive opportunities for our operating performance this
year, including the potential for continued heightened engagement
in our content well beyond the second quarter. We have aimed to be
prudent in our guidance to account for these effects, and we
believe there is potential for overperformance if these risks do
not materialize.
Regarding product development, the majority of our employees are
currently working from home, which while adding complexity to some
areas of the game development process, has not currently changed
our plans for our key content releases this year.
Since we provided our initial guidance in February, the
strengthening dollar has resulted in an additional FX headwind to
full year net bookings of approximately $100 million. Further, the
strengthening dollar and lower interest income from the current
interest rate environment represent an additional headwind to
full-year GAAP and non-GAAP EPS of approximately $0.08 versus our
prior outlook. Nonetheless, with strong momentum across the
business we are raising our outlook for net revenues and EPS for
the year, more than passing through the Q1 earnings outperformance
despite these headwinds.
(in millions, except EPS)
GAAP Outlook
Non-GAAP Outlook
Impact of GAAP
deferralsA
CY
2020
Net Revenues
$6,800
$6,800
$100
EPS
$2.22
$2.62
($0.02)
Fully Diluted Shares
778
778
Q2
2020
Net Revenues
$1,690
$1,690
($15)
EPS
$0.54
$0.64
$0.01
Fully Diluted Shares
776
776
Net bookingsB are expected to be $6.9 billion for 2020 and
$1.675 billion for the second quarter of 2020.
Capital Allocation
The Board of Directors declared a cash dividend of $0.41 per
common share, payable on May 6, 2020 to shareholders of record at
the close of business on April 15, 2020, which represents an 11%
increase from 2019.
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, 2020 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
866-777-2509 in the U.S. We encourage participants to pre-register
for the conference call using the following link
http://dpregister.com/10142657. 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. connects and engages the world through
epic entertainment. A member of the Fortune 500 and S&P 500,
Activision Blizzard is a leading 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 Bandicoot™, 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™. 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 Defined as players with monthly or longer-term
subscriptions.
2 Based on App Annie Intelligence.
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 In-game net bookings primarily includes the net amount of
downloadable content and microtransactions sold during the period,
and is equal to in-game net revenues excluding the impact from
deferrals.
D 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. In certain instances, we rely on third parties to
publish our games. In these instances, MAU data is based on
information provided to us by those third parties, or, if final
data is not available, reasonable estimates of MAUs for these
third-party published games.
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 acquisitions, 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 or 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. Activision
Blizzard, Inc. generally uses words such as “outlook,” “forecast,”
“will,” “could,” “should,” “would,” “to be,” “plan,” “aims,”
“believes,” “may,” “might,” “expects,” “intends,” “seeks,”
“anticipates,” “estimate,” “future,” “positioned,” “potential,”
“project,” “remain,” “scheduled,” “set to,” “subject to,”
“upcoming,” and other similar words and 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, many of which are
beyond our control, 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: the ongoing global impact of a novel strain of
coronavirus which emerged in December 2019 (“COVID-19”) (including,
without limitation, the potential for significant short- and
long-term global unemployment and economic weakness and a resulting
impact on global discretionary spending; potential strain on the
retailers and distributors who sell our physical product to
customers; effects on our ability to release our content in a
timely manner; the impact of large-scale intervention by the
Federal Reserve and other central banks around the world, including
the impact on interest rates; and volatility in foreign exchange
rates); our ability to consistently deliver popular, high-quality
titles in a timely manner, which has been made more difficult as a
result of the COVID-19 pandemic; concentration of revenue among a
small number of franchises; our ability to satisfy the expectations
of consumers with respect to our brands, games, services, and/or
business practices; our ability to attract, retain and motivate
skilled personnel; rapid changes in technology and industry
standards; competition, including from other forms of
entertainment; increasing importance of revenues derived from
digital distribution channels; risks associated with the retail
sales business model; 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;
substantial influence of third-party platform providers over our
products and costs; risks associated with transitions to
next-generation consoles; 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; our ability to realize the expected
financial and operational benefits of, and effectively implement
and manage, our previously-announced restructuring actions; our
ability to quickly adjust our cost structure in response to sudden
changes in demand; risks and costs associated with legal
proceedings; intellectual property claims; changes in tax rates or
exposure to additional tax liabilities, as well as the outcome of
current or future tax disputes; our ability to sell products at
assumed pricing levels; 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; the seasonality in the sale of our products;
counterparty risks relating to customers, licensees, licensors, and
manufacturers, which have been magnified as a result of the
COVID-19 pandemic; risks associated with our use of open source
software; piracy and unauthorized copying of our products;
insolvency or business failure of any of our partners, which has
been magnified as a result of the COVID-19 pandemic; risks and
uncertainties of conducting business outside the United States
(“U.S.”); increasing regulation of our business, products, and
distribution in key territories; compliance with continually
evolving laws and regulations concerning data privacy; reliance on
servers and networks to operate our games and our proprietary
online gaming service; 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, 2019 and this Quarterly Report
on Form 10-Q.
The forward-looking statements contained herein are based on
information available to Activision Blizzard, Inc. as of the date
of this filing and we assume no obligation to update any such
forward-looking statements. Although these forward-looking
statements are believed to be true when made, they may ultimately
prove to be incorrect. These statements are not guarantees of our
future performance and are subject to risks, uncertainties, and
other factors, some of which are beyond our control and may cause
actual results to differ materially from current expectations.
ACTIVISION BLIZZARD, INC. AND
SUBSIDIARIES
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
(Unaudited)
(Amounts in millions, except
per share data)
Three Months Ended March
31,
2020
2019
Net revenues
Product sales
$
543
$
656
Subscription, licensing, and other
revenues 1
1,245
1,169
Total net revenues
1,788
1,825
Costs and expenses
Cost of revenues—product sales:
Product costs
119
152
Software royalties, amortization, and
intellectual property licenses
82
111
Cost of revenues—subscription, licensing,
and other:
Game operations and distribution costs
258
239
Software royalties, amortization, and
intellectual property licenses
46
61
Product development
238
249
Sales and marketing
243
207
General and administrative
167
179
Restructuring and related costs
23
57
Total costs and expenses
1,176
1,255
Operating income
612
570
Interest and other expense (income),
net
8
3
Income before income tax expense
604
567
Income tax expense
99
120
Net income
$
505
$
447
Basic earnings per common share
$
0.66
$
0.58
Weighted average common shares
outstanding
769
764
Diluted earnings per common share
$
0.65
$
0.58
Weighted average common shares outstanding
assuming dilution
774
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, 2020
December 31, 2019
Assets
Current assets
Cash and cash equivalents
$
5,906
$
5,794
Accounts receivable, net
590
848
Software development
293
322
Other current assets
330
328
Total current assets
7,119
7,292
Software development
90
54
Property and equipment, net
236
253
Deferred income taxes, net
1,234
1,293
Other assets
664
658
Intangible assets, net
498
531
Goodwill
9,763
9,764
Total assets
$
19,604
$
19,845
Liabilities and Shareholders’
Equity
Current liabilities
Accounts payable
$
158
$
292
Deferred revenues
1,064
1,375
Accrued expenses and other liabilities
1,338
1,248
Total current liabilities
2,560
2,915
Long-term debt, net
2,675
2,675
Deferred income taxes, net
458
505
Other liabilities
890
945
Total liabilities
6,583
7,040
Shareholders’ equity
Common stock
—
—
Additional paid-in capital
11,213
11,174
Treasury stock
(5,563
)
(5,563
)
Retained earnings
7,999
7,813
Accumulated other comprehensive loss
(628
)
(619
)
Total shareholders’ equity
13,021
12,805
Total liabilities and shareholders’
equity
$
19,604
$
19,845
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)
2019
2019
2019
2019
2020
Cash Flow Data
Operating Cash Flow
$
450
$
154
$
309
$
918
$
148
(67
)%
Capital Expenditures
18
27
34
37
19
6
Non-GAAP Free Cash Flow1
432
127
275
881
129
(70
)
Operating Cash Flow - TTM2
1,711
1,856
1,912
1,831
1,529
(11
)%
Capital Expenditures - TTM2
118
115
113
116
117
(1
)
Non-GAAP Free Cash Flow - TTM2
$
1,593
$
1,741
$
1,799
$
1,715
$
1,412
(11
)
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, 2018, three
months ended September 30, 2018, and three months ended December
31, 2018, were $9 million, $253 million, and $999 million,
respectively. Capital Expenditures for the three months ended June
30, 2018, three months ended September 30, 2018, and three months
ended December 31, 2018, were $30 million, $36 million, and $34
million, respectively.
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,
2020
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
$
1,788
$
119
$
82
$
258
$
46
$
238
$
243
$
167
$
23
$
1,176
Share-based compensation1
—
—
(5
)
—
—
(8
)
(7
)
(23
)
—
(43
)
Amortization of intangible assets2
—
—
—
—
(31
)
—
—
(2
)
—
(33
)
Restructuring and related costs3
—
—
—
—
—
—
—
—
(23
)
(23
)
Non-GAAP Measurement
$
1,788
$
119
$
77
$
258
$
15
$
230
$
236
$
142
$
—
$
1,077
Net effect of deferred revenues and
related cost of revenues4
$
(266
)
$
(39
)
$
(52
)
$
(4
)
$
—
$
—
$
—
$
—
$
—
$
(95
)
Operating Income
Net Income
Basic Earnings per
Share
Diluted Earnings per
Share
GAAP Measurement
$
612
$
505
$
0.66
$
0.65
Share-based compensation1
43
43
0.06
0.06
Amortization of intangible assets2
33
33
0.04
0.04
Restructuring and related costs3
23
23
0.03
0.03
Income tax impacts from items above5
—
(13
)
(0.02
)
(0.02
)
Non-GAAP Measurement
$
711
$
591
$
0.77
$
0.76
Net effect of deferred revenues and
related cost of revenues4
$
(171
)
$
(141
)
$
(0.19
)
$
(0.18
)
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,
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
OPERATING SEGMENTS
INFORMATION
(Amounts in millions)
Three Months Ended:
March 31, 2020
$ Increase /
(Decrease)
Activision
Blizzard
King
Total
Activision
Blizzard
King
Total
Segment Net Revenues
Net revenues from external customers
$
519
$
437
$
498
$
1,454
$
202
$
98
$
(31
)
$
269
Intersegment net revenues1
—
15
—
15
—
10
—
10
Segment net revenues
$
519
$
452
$
498
$
1,469
$
202
$
108
$
(31
)
$
279
Segment operating income
$
184
$
197
$
156
$
537
$
111
$
142
$
(22
)
$
231
Operating Margin
36.6
%
March 31, 2019
Activision
Blizzard
King
Total
Segment Net Revenues
Net revenues from external customers
$
317
$
339
$
529
$
1,185
Intersegment net revenues1
—
5
—
5
Segment net revenues
$
317
$
344
$
529
$
1,190
Segment operating income
$
73
$
55
$
178
$
306
Operating Margin
25.7
%
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
(Amounts in millions)
Three Months Ended March
31,
2020
2019
Reconciliation to consolidated net
revenues:
Segment net revenues
$
1,469
$
1,190
Revenues from non-reportable segments1
68
73
Net effect from recognition (deferral) of
deferred net revenues2
266
567
Elimination of intersegment revenues3
(15
)
(5
)
Consolidated net revenues
$
1,788
$
1,825
Reconciliation to consolidated income
before income tax expense:
Segment operating income
$
537
$
306
Operating income (loss) from
non-reportable segments1
3
(3
)
Net effect from recognition (deferral) of
deferred net revenues and related cost of revenues2
171
441
Share-based compensation expense
(43
)
(63
)
Amortization of intangible assets
(33
)
(54
)
Restructuring and related costs4
(23
)
(57
)
Consolidated operating income
612
570
Interest and other expense (income),
net
8
3
Consolidated income before income tax
expense
$
604
$
567
1
Includes other income and expenses from
operating segments managed outside the reportable segments,
including our distribution business. 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
(Amounts in millions)
Three Months Ended
March 31, 2020
March 31, 2019
$ Increase (Decrease)
% Increase (Decrease)
Amount
% of Total1
Amount
% of Total1
Net Revenues by Distribution
Channel
Digital online channels2
$
1,441
81
%
$
1,393
76
%
$
48
3
%
Retail channels
221
12
313
17
(92
)
(29
)
Other3
126
7
119
7
7
6
Total consolidated net revenues
$
1,788
100
%
$
1,825
100
%
$
(37
)
(2
)
Change in deferred revenues4
Digital online channels2
$
(86
)
$
(328
)
Retail channels
(172
)
(233
)
Other3
(8
)
(6
)
Total changes in deferred revenues
$
(266
)
$
(567
)
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 distribution business, the Overwatch League, and the Call
of Duty 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
(Amounts in millions)
Three Months Ended
March 31, 2020
March 31, 2019
$ Increase (Decrease)
% Increase (Decrease)
Amount
% of Total1
Amount
% of Total1
Net Revenues by Platform
Console
$
594
33
%
$
677
37
%
$
(83
)
(12
)%
PC
498
28
494
27
4
1
Mobile and ancillary2
570
32
535
29
35
7
Other3
126
7
119
7
7
6
Total consolidated net revenues
$
1,788
100
%
$
1,825
100
%
$
(37
)
(2
)
Change in deferred revenues4
Console
$
(231
)
$
(398
)
PC
(19
)
(149
)
Mobile and ancillary2
(8
)
(14
)
Other3
(8
)
(6
)
Total changes in deferred revenues
$
(266
)
$
(567
)
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 distribution business, the Overwatch League, and the Call
of Duty 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
(Amounts in millions)
Three Months Ended
March 31, 2020
March 31, 2019
$ Increase (Decrease)
% Increase (Decrease)
Amount
% of Total1
Amount
% of Total1
Net Revenues by Geographic
Region
Americas
$
948
53
%
$
988
54
%
$
(40
)
(4
)%
EMEA2
566
32
614
34
(48
)
(8
)
Asia Pacific
274
15
223
12
51
23
Total consolidated net revenues
$
1,788
100
%
$
1,825
100
%
$
(37
)
(2
)
Change in deferred revenues3
Americas
$
(143
)
$
(318
)
EMEA2
(101
)
(200
)
Asia Pacific
(22
)
(49
)
Total changes in deferred revenues
$
(266
)
$
(567
)
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
(Amounts in millions)
Trailing Twelve Months
Ended
June 30, 2019
September 30, 2019
December 31, 2019
March 31, 2020
March 31, 2020
GAAP Net Income
$
328
$
204
$
525
$
505
$
1,562
Interest and other expense (income),
net
(34
)
(2
)
7
8
(21
)
Provision for income taxes1
42
45
(78
)
99
108
Depreciation and amortization
79
80
81
62
302
EBITDA
415
327
535
674
1,951
Share-based compensation expense2
38
27
39
43
147
Restructuring and related costs3
22
28
30
23
103
Discrete tax-related items4
—
—
17
—
17
Adjusted EBITDA
$
475
$
382
$
621
$
740
$
2,218
Change in deferred net revenues and
related cost of revenues5
$
(135
)
$
(53
)
$
577
$
171
$
560
1
Provision for income taxes for the three
months ended June 30, 2019 and December 31, 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 impact of other unusual or
unique tax-related items and activities.
5
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.
Trailing twelve months are presented as
calculated. Therefore, the sum of the quarters, as presented, may
differ due to the impact of rounding.
ACTIVISION BLIZZARD, INC. AND
SUBSIDIARIES
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, 2020
December 31, 2020
Net Revenues1
$
1,690
$
6,800
Change in deferred revenues2
$
(15
)
$
100
Earnings Per Diluted Share
(GAAP)
$
0.54
$
2.22
Excluding the impact of:
Share-based compensation3
0.06
0.30
Amortization of intangible assets4
0.02
0.10
Restructuring and related costs5
0.03
0.07
Income tax impacts from items above6
(0.01
)
(0.06
)
Earnings Per Diluted Share
(Non-GAAP)
$
0.64
$
2.62
Net effect of deferred net revenues and
related cost of revenues on Earnings Per Diluted Share7
$
0.01
$
(0.02
)
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 acquisition of King.
5
Reflects our restructuring initiatives,
primarily severance, facilities, and other restructuring-related
costs we expect to incur as we continue to execute against our
previously disclosed restructuring plan.
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.
ACTIVISION BLIZZARD, INC. AND
SUBSIDIARIES
OPERATING METRICS
(Amounts in millions)
Net Bookings1
Three Months Ended March
31,
2020
2019
$ Increase (Decrease)
% Increase (Decrease)
Net bookings1
$
1,522
$
1,258
$
264
21
%
In-game net bookings2
956
794
162
20
1
We monitor net bookings as a key operating
metric in evaluating the performance of our business as it enables
an analysis of performance based on the timing of actual
transactions with our customers, along with providing a more timely
indication of trends in our operating results. Net bookings is 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.
2
In-game net bookings primarily includes
the net amount of downloadable content and microtransactions sold
during the period, and is equal to in-game net revenues excluding
the impact from deferrals.
Monthly Active Users3
March 31, 2019
June 30, 2019
September 30, 2019
December 31, 2019
March 31, 2020
Activision
41
37
36
128
102
Blizzard
32
32
33
32
32
King
272
258
247
249
273
Total MAUs
345
327
316
409
407
3
We monitor our average monthly active
users (“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. In certain instances, we
rely on third parties to publish our games. In these instances, MAU
data is based on information provided to us by those third parties,
or, if final data is not available, reasonable estimates of MAUs
for these third-party published games.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200505006004/en/
Activision Blizzard, Inc.
Investors and Analysts: ir@activisionblizzard.com or Press:
pr@activisionblizzard.com
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