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Summary of Activision Blizzard's 4Q13 Earnings Call

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Activision Blizzard (NASDAQ: ATVI) held their fourth quarter 2013 Earnings Call on Thursday, February 6.

Earnings Highlights:
Activision Blizzard delivered better-than-expected financial results for the full fiscal 2013 year based on continued success of the company's games.

  • Activision reported $4.3 billion in revenues on a non-GAAP basis for FY2013.
  • On a non-GAAP basis, the company saw a 31% gain in operating margin, $0.94 in EPS and an operating cash flow of more than $1.26 billion for FY2013.
  • The Board of Directors authorized an increase in their annual cash dividend to $0.20 over share and an accelerated debt repayment of $375 million due to Activision's strong cash flows.
  • Activision paid out over $215 million in dividends.
  • In 2013, Activision Publishing's Call of Duty: Ghosts was the number one game across all platforms and the number one next generation game on PlayStation 4 and Xbox One in both North America and Europe in the fourth quarter.
  • Including toys and accessories in North America and Europe, Skylanders was the number three overall video game franchise at retail across all platforms. In Q4, Skylanders was the number one children's franchise.
  • In 2013, Blizzard Entertainment's StarCraft II: Heart of the Swarm was the number one PC title in North America.
  • World of Warcraft remained the number one subscription-based MMORPG ending the year with approximately 7.8 million subscribers.
  • Xbox One and PlayStation 4 sold over 7 million units combined in 2013.
  • Diablo III ended the year with over 15 million units sold through cumulatively across all platforms. The CEO commented that this bodes well for the upcoming launch of the Diablo III PC expansion pack in March.

Significant Guidance Points:

  • For 2014, the company expects GAAP revenues of $4 billion, product cost of 24%, and operating expenses of 53%.
  • On a non-GAAP basis, Activision expects revenue growth of 6% to $4.6 billion, product cost of 25%, and operating expense of 43%.
  • Non-GAAP operating income is expected to grow 8%, resulting in an operating margin of 32% and an adjusted EBITDA margin of 34%.
  • Activision Blizzard plans to introduce at least three “potential groundbreaking franchises operating on our free-to-play transaction systems designed to appeal to players across numerous platforms and in numerous geographies.” Games included are Hearthstone: Heroes of Warcraft and Blizzard's Heroes of the Storm and Call of Duty Online.
  • The company expects to release several new games and content in 2014. Activision Publishing is expected to release games based on Call of Duty and Skylanders, in addition to the biggest new IP, Destiny. The CEO of Activision Blizzard commented that Destiny may be “perhaps the best Call of Duty game ever created.” Blizzard Entertainment will release Diablo III: Reaper of Souls, the PC expansion for the record-breaking Diablo III on March 25th. The company is also working on an expansion for World of Warcraft: Warlords of Draenor.

Management's Comments:

  • Robert Kotick, CEO of Activision Blizzard, said “We were once again the number one independent console and handheld publisher in North America and Europe combined including toys and accessories. We have the most successful based MMORPG of all-time and we continue to lead our industry in our ability to generate free cash flow from operations.”
  • CFO of Activision Blizzard Dennis Durkin commented, “Obviously our priorities with our new capital structure are around debt repayment and debt servicing. We're very comfortable with sort of the leverage ratio that you see inside of our capital structure, it's very modest. And we obviously are committed to making sure that we're delivering value to all of our stakeholders, and you see thatby the dividend today. We currently don't have a share repurchase authorized by the board currently, but like all things whether it's M&A or other activities, we're going to be opportunistic relative to new opportunities whether it be inorganic opportunities.”
  • Michael Morhaime, CEO of Blizzard Entertainment, noted “2013 ended on a strong note with our most successful BlizzCon yet. More than 4.5 million viewers around the world tuned into the show where we gave you two new games: Heroes of the Storm and the next expansion for World of Warcraft: Warlords of Draenor. More than 24,000 attendees got a chance to demo those games in addition to Diablo III: Reaper of Souls on PC and PS4 and Hearthstone, our free-to-play digital card game. We received very positive player feedback and press coverage on all of our games at BlizzCon, giving us great momentum as we head into 2014.”

Posted-In: Earnings News Guidance Dividends Management

 

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