Market Overview

Activision Blizzard Announces Second-Quarter 2018 Financial Results

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Better-Than-Expected Second-Quarter Results

Record First-Half Revenue, Net Bookings A,
and EPS

Record Second-Quarter Mobile Revenue and Mobile Net Bookings
A

Activision Blizzard, Inc. (NASDAQ:ATVI) today announced second-quarter
2018 results.

"This was another strong quarter for Activision Blizzard. Our portfolio
of global franchises enabled us to deliver record first half revenues
and earnings per share," said Bobby Kotick, Chief Executive Officer of
Activision Blizzard. "This past weekend we held the Overwatch League
TM
Grand Finals. We had a very successful first season as we
enhanced our leadership position in esports. And, today we announced two
additional Overwatch League franchise sales at record prices, adding
Atlanta, Georgia and Guangzhou, China to our league. We plan to announce
additional franchises over the next few months."

Financial Metrics:

  Second Quarter
 

Prior

 
(in millions, except EPS)    

2018

 

Outlook*

 

2017

 
GAAP Net Revenues $ 1,641   $ 1,555   $ 1,631
Impact of GAAP deferralsB $ (256 ) $ (205 ) $ (213 )
 
GAAP EPS $ 0.52 $ 0.26 $ 0.32
Non-GAAP EPS $ 0.62 $ 0.46 $ 0.55
Impact of GAAP deferralsB $ (0.21 ) $ (0.15 ) $ (0.12 )

* Prior outlook was provided by the company on May 3, 2018 in its
earnings release.

For the quarter ended June 30, 2018, Activision Blizzard's net revenues
presented in accordance with GAAP were a Q2 record $1.64 billion, as
compared with $1.63 billion for the second quarter of 2017. GAAP net
revenues from digital channels were $1.26 billion. GAAP operating margin
was 26%. GAAP earnings per diluted share were a Q2 record $0.52, as
compared with $0.32 for the second quarter of 2017.

For the quarter ended June 30, 2018, on a non-GAAP basis, Activision
Blizzard's operating margin was 35% and earnings per diluted share were
a Q2 record $0.62, as compared with $0.55 for the second quarter of 2017.

For the quarter ended June 30, 2018, operating cash flow was $9 million.
For the trailing twelve-month period, operating cash flow was $2.08
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 Metric:

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.

For the quarter ended June 30, 2018, Activision Blizzard's net bookingsA
were $1.38 billion, as compared with $1.42 billion for the second
quarter of 2017. Net bookingsA from digital channels were
$1.20 billion, as compared with $1.28 billion for the second quarter of
2017.

Selected Business Highlights:

Activision Blizzard's consistent second-quarter results illustrate the
enduring nature of our franchises. In the second half of 2018, we have
several exciting launches which we expect to drive strong full-year
results.

Audience Reach

  • Activision Blizzard had 352 million Monthly Active Users (MAUs)C
    in the quarter.
  • Activision had 45 million MAUsC. Call of Duty®: World
    War II
    continued to have more MAUsC than the prior
    franchise release. Pre-orders for Call of Duty: Black Ops 4 are
    strong. Black Ops 3 MAUsC grew
    quarter-over-quarter and, in June, reached the highest level
    for this year as over 15 million players geared up for the October 12th
    release of Black Ops 4. During the quarter, Destiny
    2
    released its second expansion, Warmind, with
    higher attach rates than Destiny 1's second expansion,
    and Destiny 2 MAUsC grew
    quarter-over-quarter. Crash Bandicoot™ N. Sane Trilogy
    successfully launched for Xbox One, Switch, and PC in the quarter with
    strong performance.
  • Blizzard had 37 million MAUsC ahead of significant content
    coming in the second half of 2018. World of Warcraft® momentum
    remains high ahead of the upcoming expansion, Battle for Azeroth™,
    which is seeing strong pre-orders. Blizzard is building on the
    excitement around the Overwatch League with further Overwatch®
    esports events, and a continuous stream of content for the game in the
    second half of this year, including seasonal events, maps, heroes, and
    new cosmetic items. Pre-purchases for the upcoming
    Hearthstone®
    expansion, The Boomsday
    Project™
    , are tracking ahead of any prior expansion at the
    same point in time pre-release.
  • King had 270 million MAUsC. Candy Crush Saga™
    mobile MAUsC were stable quarter-over-quarter and grew
    year-over-year. King's engagement remained strong with daily time
    spent per user at 36 minutes.

Deep Engagement

  • The Overwatch League held its Grand Finals event at Barclays
    Center in New York on June 27-28. The Grand Finals had a sold-out live
    audience and millions of global viewers watched on TV networks and
    streaming platforms. The hard-to-reach 18 to 34 demographic made up
    approximately 70% of the global audience.
  • Activision's Call of Duty World League continued to enjoy
    momentum with year-to-date minutes watched up 50% year-over-year
    heading into its championships in Columbus, Ohio later this month.

Player Investment

  • Activision Blizzard delivered $1 billion of in-game net bookingsA
    in the second quarter and a record of approximately $2 billion
    year-to-date.
  • Activision had record Q2 in-game net bookings A, driven by Call
    of Duty: WWII
    , Call of Duty: Black Ops 3, and Destiny
    2
    .
  • This quarter, King had two of the top-10 highest-grossing titles in
    the U.S. mobile app stores for the nineteenth quarter in a row, with Candy
    Crush Saga
    at #1 again.1 Overall Candy Crush™
    franchise net bookings A grew double digits year-over-year.
  • King's advertising business was profitable for the second quarter in a
    row with net bookings A growing sequentially.

Company Outlook:

 

GAAP
Outlook

   

Non-GAAP
Outlook

   

Impact of GAAP
deferralsB

(in millions, except EPS)    

CY 2018

     
Net Revenues $ 7,355 $ 7,355 $ 120
EPS $ 1.84 $ 2.46 $ 0.12
Fully Diluted Shares 774 774

Q3 2018

Net Revenues $ 1,490 $ 1,490 $

125

EPS $ 0.16 $ 0.37 $ 0.10
Fully Diluted Shares     772       772        
 

Net bookingsA (operating metric) is expected to
be $7.48 billion for 2018 and $1.61 billion for the third quarter of
2018.

Currency Assumptions for 2018 Outlook:

  • $1.21 USD/Euro for current outlook (vs. average of $1.12 for 2017 and
    $1.11 for 2016); and
  • $1.35 USD/British Pound Sterling for current outlook (vs. average of
    $1.30 for 2017 and $1.36 for 2016).
  • Note: Our financial guidance includes the forecasted impact of our FX
    hedging program.

Capital Allocation:

The company paid a cash dividend of $0.34 per common share, up 13%
year-over-year, in May 2018 to shareholders of record at the close of
business on March 30, 2018. Cash payments totaled $259 million. The
Board of Directors has authorized a debt paydown of up to $1.8 billion
during 2018, and the company expects to utilize the full authorization
in Q3.

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, 2018 and management's outlook for the remainder
of the calendar year. The company welcomes all members of the financial
and media communities and other interested parties to visit the
"Investor Relations" area of www.activisionblizzard.com
to listen to the conference call via live Webcast or to listen to the
call live by dialing into 866-548-4713 in the U.S. with passcode 1068570.

About Activision Blizzard:

Activision Blizzard, Inc., a member of the Fortune 500 and S&P 500, is
the world's most successful standalone interactive entertainment
company. We delight hundreds of millions of monthly active users around
the world through franchises including Activision's Call of Duty®,
Destiny, and Skylanders®, Blizzard Entertainment's World
of Warcraft
®, Overwatch®, Hearthstone®, Diablo®,
StarCraft®, and Heroes of the Storm®, and King's Candy
Crush
™, Bubble Witch™, and Farm Heroes™. The company
is one of the Fortune "100 Best Companies To Work For®." Headquartered
in Santa Monica, California, Activision Blizzard has operations
throughout the world, and its games are played in 196 countries. More
information about Activision Blizzard and its products can be found on
the company's website, www.activisionblizzard.com.

1 U.S. ranking for Apple App Store and Google Play Store
combined, per App Annie Intelligence for second quarter of 2018.

A Net bookings is an operating metric that is defined
as the net amount of products and services sold digitally or sold-in
physically in the period, and includes license fees, merchandise, and
publisher incentives, among others, and is equal to net revenues
excluding the impact from deferrals.

B Net effect of accounting treatment from revenue deferrals
on certain of our online-enabled products. Since certain of our games
are hosted online or include significant online functionality that
represents a separate performance obligation, we defer the transaction
price allocable to the online functionality from the sale of these games
and recognize the attributable revenues over the relevant estimated
service periods, which are generally less than a year. The related cost
of revenues is deferred and recognized as an expense as the related
revenues are recognized. Impact from changes in deferrals refers to the
net effect from revenue deferrals accounting treatment for the purposes
of revenues, along with, for the purposes of EPS, the related cost of
revenues deferrals treatment and the related tax impacts. Internally,
management excludes the impact of this change in deferred revenues and
related cost of revenues when evaluating the company's operating
performance, when planning, forecasting and analyzing future periods,
and when assessing the performance of its management team. Management
believes this is appropriate because doing so enables an analysis of
performance based on the timing of actual transactions with our
customers. In addition, management believes excluding the change in
deferred revenues and the related cost of revenues provides a much more
timely indication of trends in our operating results.

C Monthly Active User ("MAU") Definition: We monitor
MAUs as a key measure of the overall size of our user base. MAUs are the
number of individuals who accessed a particular game in a given month.
We calculate average MAUs in a period by adding the total number of MAUs
in each of the months in a given period and dividing that total by the
number of months in the period. An individual who accesses two of our
games would be counted as two users. In addition, due to technical
limitations, for Activision and King, an individual who accesses the
same game on two platforms or devices in the relevant period would be
counted as two users. For Blizzard, an individual who accesses the same
game on two platforms or devices in the relevant period would generally
be counted as a single user.

Non-GAAP Financial Measures: As a supplement to our financial
measures presented in accordance with Generally Accepted Accounting
Principles ("GAAP"), Activision Blizzard presents certain non-GAAP
measures of financial performance. These non-GAAP financial measures are
not intended to be considered in isolation from, as a substitute for, or
as more important than, the financial information prepared and presented
in accordance with GAAP. In addition, these non-GAAP measures have
limitations in that they do not reflect all of the items associated with
the company's results of operations as determined in accordance with
GAAP.

Activision Blizzard provides net income (loss), earnings (loss) per
share, and operating margin data and guidance both including (in
accordance with GAAP) and excluding (non-GAAP) certain items. When
relevant, the company also provides constant FX information to provide a
framework for assessing how our underlying businesses performed
excluding the effect of foreign currency rate fluctuations. In addition,
Activision Blizzard provides EBITDA (defined as GAAP net income (loss)
before interest (income) expense, income taxes, depreciation, and
amortization) and adjusted EBITDA (defined as non-GAAP operating margin
(see non-GAAP financial measure below) before depreciation). The
non-GAAP financial measures exclude the following items, as applicable
in any given reporting period and our outlook:

  • expenses related to stock-based compensation;
  • the amortization of intangibles from purchase price accounting;
  • fees and other expenses related to the King acquisition, inclusive of
    related debt financings, and refinancing of long-term debt, including
    penalties and the write off of unamortized discount and deferred
    financing costs;
  • restructuring charges;
  • other non-cash charges from reclassification of certain cumulative
    translation adjustments into earnings as required by GAAP;
  • the income tax adjustments associated with any of the above items (tax
    impact on non-GAAP pre-tax income is calculated under the same
    accounting principles applied to the GAAP pre-tax income under ASC
    740, which employs an annual effective tax rate method to the
    results); and
  • significant discrete tax-related items, including amounts related to
    changes in tax laws (including the Tax Cuts and Jobs Act enacted in
    December 2017), amounts related to the potential or final resolution
    of tax positions, and other unusual or unique tax-related items and
    activities.

In the future, Activision Blizzard may also consider whether other items
should also be excluded in calculating the non-GAAP financial measures
used by the company. Management believes that the presentation of these
non-GAAP financial measures provides investors with additional useful
information to measure Activision Blizzard's financial and operating
performance. In particular, the measures facilitate comparison of
operating performance between periods and help investors to better
understand the operating results of Activision Blizzard by excluding
certain items that may not be indicative of the company's core business,
operating results, or future outlook. Additionally, we consider
quantitative and qualitative factors in assessing whether to adjust for
the impact of items that may be significant or that could affect an
understanding of our ongoing financial and business performance or
trends. Internally, management uses these non-GAAP financial measures,
along with others, in assessing the company's operating results, and
measuring compliance with the requirements of the company's debt
financing agreements, as well as in planning and forecasting.

Activision Blizzard's non-GAAP financial measures are not based on a
comprehensive set of accounting rules or principles, and the terms
non-GAAP net income, non-GAAP earnings per share, non-GAAP operating
margin, and non-GAAP or adjusted EBITDA do not have a standardized
meaning. Therefore, other companies may use the same or similarly named
measures, but exclude different items, which may not provide investors a
comparable view of Activision Blizzard's performance in relation to
other companies.

Management compensates for the limitations resulting from the exclusion
of these items by considering the impact of the items separately and by
considering Activision Blizzard's GAAP, as well as non-GAAP, results and
outlook, and by presenting the most comparable GAAP measures directly
ahead of non-GAAP measures, and by providing a reconciliation that
indicates and describes the adjustments made.

Cautionary Note Regarding Forward-looking Statements: The
statements contained herein that are not historical facts are
forward-looking statements, including, but not limited to, statements
about: (1) projections of revenues, expenses, income or loss, earnings
or loss per share, cash flow or other financial items; (2) statements of
our plans and objectives, including those related to releases of
products and services; (3) statements of future financial or operating
performance, including the impact of tax items thereon; and (4)
statements of assumptions underlying such statements. The company
generally uses words such as "outlook," "forecast," "will," "could,"
"should," "would," "to be," "plan," "plans," "believes," "may," "might,"
"expects," "intends," "intends as," "anticipates," "estimate," "future,"
"positioned," "potential," "project," "remain," "scheduled," "set to,"
"subject to," "upcoming," and other similar expressions to help identify
forward-looking statements. Forward-looking statements are subject to
business and economic risks, reflect management's current expectations,
estimates, and projections about our business, and are inherently
uncertain and difficult to predict.

The company cautions that a number of important factors could cause
Activision Blizzard's actual future results and other future
circumstances to differ materially from those expressed in any
forward-looking statements. Such factors include, but are not limited
to: sales levels of Activision Blizzard's titles, products, and
services; concentration of revenue among a small number of titles;
Activision Blizzard's ability to predict consumer preferences, including
interest in specific genres and modes, and preferences among platforms;
the continued growth in the scope and complexity of our business,
including the diversion of management time and attention to issues
relating to the operations of our acquired or newly started businesses
and the potential impact of our expansion into new businesses on our
existing businesses; the amount of our debt and the limitations imposed
by the covenants in the agreements governing our debt; counterparty
risks relating to customers, licensees, licensors, and manufacturers;
maintenance of relationships with key personnel, customers, financing
providers, licensees, licensors, manufacturers, vendors, and third-party
developers, including the ability to attract, retain, and motivate key
personnel and developers that can create high-quality titles, products,
and services; changing business models within the video game industry,
including digital delivery of content and the increased prevalence of
free-to-play games; product delays or defects; competition, including
from other forms of entertainment; rapid changes in technology and
industry standards; possible declines in software pricing; product
returns and price protection; the identification of suitable future
acquisition opportunities and potential challenges associated with
geographic expansion; the seasonal and cyclical nature of the
interactive entertainment market; the outcome of current or future tax
disputes; litigation risks and associated costs; protection of
proprietary rights; potential data breaches and other cybersecurity
risks; shifts in consumer spending trends; capital market risks; the
impact of applicable laws, rules, and regulations, including changes in
those laws, rules, and regulations; domestic and international economic,
financial, and political conditions and policies; tax rates and foreign
exchange rates; the impact of the current macroeconomic environment; and
the other factors identified in "Risk Factors" included in Part I, Item
1A of our Annual Report on Form 10-K for the year ended December 31,
2017.

The forward-looking statements in this press release are based on
information available to the company at this time and we assume no
obligation to update any such forward-looking statements. Although these
forward-looking statements are believed to be true when made, they may
ultimately prove to be incorrect. These statements are not guarantees of
our future performance and are subject to risks, uncertainties, and
other factors, some of which are beyond our control and may cause actual
results to differ materially from current expectations.

 

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(Amounts in millions, except per share data)

 
    Three Months Ended June 30,   Six Months Ended June 30,

20181

  2017

20181

  2017
Net revenues
Product sales $ 464 $ 481 $ 1,184 $ 989
Subscription, licensing, and other revenues 2 1,177   1,150   2,423   2,367
Total net revenues 1,641 1,631 3,607 3,356
 
Costs and expenses
Cost of revenues—product sales:
Product costs 126 130 289 273
Software royalties, amortization, and intellectual property licenses 49 75 194 163
Cost of revenues—subscription, licensing, and other:
Game operations and distribution costs 250 236 521 468
Software royalties, amortization, and intellectual property licenses 85 120 169 242
Product development 255 252 513 478
Sales and marketing 226 308 477 554
General and administrative 216   171   415   347
Total costs and expenses 1,207   1,292   2,578   2,525
 
Operating income 434 339 1,029 831
Interest and other expense (income), net 26   46   54   85
Income before income tax expense 408 293 975 746
 
Income tax expense 6 50 73 77
       
Net income $ 402   $ 243   $ 902   $ 669
 
Basic earnings per common share $ 0.53 $ 0.32 $ 1.19 $ 0.89
Weighted average common shares outstanding 761 754 760 752
 
Diluted earnings per common share $ 0.52 $ 0.32 $ 1.17 $ 0.88
Weighted average common shares outstanding assuming dilution 770 764 770 763
 
   
1 We adopted a new revenue accounting standard in the first quarter of
2018. The impacts of the new revenue accounting standard are
reflected in our financial information as of and for the three and
six months ended June 30, 2018. Prior period results have not been
restated to reflect this change in accounting standards. Refer to
our Form 10-Q for the second quarter of 2018 for additional
information.
 

2

Subscription, licensing, and other revenues represent revenues from
World of Warcraft subscriptions, licensing royalties from our
products and franchises, downloadable content, microtransactions,
and other miscellaneous revenues.
 
 

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(Amounts in millions)

 
    June 30, 2018 1   December 31, 2017
Assets
Current assets
Cash and cash equivalents $ 4,857 $ 4,713
Accounts receivable, net 418 918
Inventories, net 36 46
Software development 320 367
Other current assets 503   476  
Total current assets 6,134 6,520
Software development 131 86
Property and equipment, net 281 294
Deferred income taxes, net 324 459
Other assets 415 440
Intangible assets, net 910 1,106
Goodwill 9,763   9,763  
Total assets $ 17,958   $ 18,668  
 
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable $ 167 $ 323
Deferred revenues 832 1,929
Accrued expenses and other liabilities 1,061   1,411  
Total current liabilities 2,060 3,663
Long-term debt, net 4,394 4,390
Deferred income taxes, net 13 21
Other liabilities 1,145   1,132  
Total liabilities 7,612   9,206  
 
Shareholders' equity
Common stock
Additional paid-in capital 10,867 10,747
Treasury stock (5,563 ) (5,563 )
Retained earnings 5,647 4,916
Accumulated other comprehensive loss (605 ) (638 )
Total shareholders' equity 10,346   9,462  
Total liabilities and shareholders' equity $ 17,958   $ 18,668  
 
   
1 We adopted a new revenue accounting standard in the first quarter of
2018. The impacts of the new revenue accounting standard are
reflected in our financial information as of and for the three and
six months ended June 30, 2018. Prior period results have not been
restated to reflect this change in accounting standards. Refer to
our Form 10-Q for the second quarter of 2018 for additional
information.
 
 

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

RECONCILIATION OF GAAP NET INCOME TO NON-GAAP MEASURES

(Amounts in millions, except per share data)

 
Three Months Ended 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. Refer to our
Form 10-Q for the second quarter of 2018 for additional information.
 

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.

 
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. Refer to our
Form 10-Q for the second quarter of 2018 for additional information.
 

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, 2017     Net Revenues  

Cost of Revenues
- Product Sales:
Product
Costs

 

Cost of Revenues
- Product Sales:
Software

Royalties and
Amortization

 

Cost of Revenues
- Subs/Lic/Other:
Game
Operations

and Distribution
Costs

 

Cost of Revenues
- Subs/Lic/Other:
Software

Royalties and
Amortization

 

Product
Development

 

Sales and
Marketing

 

General and
Administrative

 

Total Costs and
Expenses

GAAP Measurement     $ 1,631   $ 130   $ 75   $ 236   $ 120   $ 252   $ 308   $ 171   $ 1,292
Share-based compensation1 (3 ) (14 ) (4 ) (18 ) (39 )
Amortization of intangible assets2 (114 ) (78 ) (2 ) (194 )
Fees and other expenses related to the King Acquisition3 (5 ) (5 )
Other non-cash charges4                             1     1  
Non-GAAP Measurement $ 1,631     $ 130     $ 72     $ 236     $ 6     $ 238     $ 226     $ 147     $ 1,055  
 
Net effect of deferred revenues and related cost of revenues5 $ (213 ) $ (44 ) $ (68 ) $ 1 $ 3 $ $ $ $ (108 )
             

Operating
Income

 

Net Income

 

Basic Earnings
per Share

 

Diluted Earnings
per Share

GAAP Measurement $ 339 $ 243 $ 0.32 $ 0.32
Share-based compensation1 39 39 0.05 0.05
Amortization of intangible assets2 194 194 0.26 0.25
Fees and other expenses related to the King Acquisition3 5 6 0.01 0.01
Other non-cash charges4 (1 ) (1 )
Loss on extinguishment of debt6 12 0.02 0.02
Income tax impacts from items above7     (75 )   (0.10 )   (0.10 )
Non-GAAP Measurement $ 576     $ 418     $ 0.55     $ 0.55  
 
Net effect of deferred revenues and related cost of revenues5 $ (105 ) $ (86 ) $ (0.11 ) $ (0.12 )
 
   
1 Includes expenses related to share-based compensation.
2 Reflects amortization of intangible assets from purchase price
accounting.
3 Reflects fees and other expenses related to the acquisition of King
Digital Entertainment ("King Acquisition"), inclusive of related
debt financings and integration costs.
4 Reflects a non-cash accounting charge to reclassify certain
cumulative translation (gains) losses into earnings due to the
substantial liquidation of certain of our foreign entities.
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, including the effects of
taxes.
6 Reflects the loss on extinguishment of debt from refinancing
activities.
7 Reflects the income tax impact associated with the above items. Tax
impact on non-GAAP pre-tax income is calculated under the same
accounting principles applied to the GAAP pre-tax income under ASC
740, which employs an annual effective tax rate method to the
results.
 

The GAAP and non-GAAP earnings per share information is presented as
calculated. The sum of these measures, as presented, may differ due to
the impact of rounding.

 
Six Months Ended June 30, 2017     Net Revenues  

Cost of Revenues
- Product Sales:
Product
Costs

 

Cost of Revenues
- Product Sales:
Software

Royalties and
Amortization

 

Cost of Revenues
- Subs/Lic/Other:
Game
Operations

and Distribution
Costs

 

Cost of Revenues
- Subs/Lic/Other:
Software

Royalties and
Amortization

 

Product
Development

 

Sales and
Marketing

 

General and
Administrative

 

Total Costs and
Expenses

GAAP Measurement     $ 3,356   $ 273   $ 163   $ 468   $ 242   $ 478   $ 554   $ 347   $ 2,525
Share-based compensation1 (7 ) (1 ) (27 ) (7 ) (31 ) (73 )
Amortization of intangible assets2 (1 ) (224 ) (155 ) (4 ) (384 )
Fees and other expenses related to the King Acquisition3 (9 ) (9 )
Restructuring costs4 (11 ) (11 )
Other non-cash charges5                             (15 )   (15 )
Non-GAAP Measurement $ 3,356     $ 273     $ 155     $ 467     $ 18     $ 451     $ 392     $ 277     $ 2,033  
 
Net effect of deferred revenues and related cost of revenues6 $ (742 ) $ (101 ) $ (137 ) $ (3 ) $ $ $ $ $ (241 )
             

Operating
Income

  Net Income  

Basic Earnings
per Share

 

Diluted Earnings
per Share

GAAP Measurement $ 831 $ 669 $ 0.89 $ 0.88
Share-based compensation1 73 73 0.10 0.10
Amortization of intangible assets2 384 384 0.51 0.50
Fees and other expenses related to the King Acquisition3 9 15 0.02 0.02
Restructuring costs4 11 11 0.01 0.01
Other non-cash charges5 15 15 0.02 0.02
Loss on extinguishment of debt7 12 0.02 0.02
Income tax impacts from items above8     (215 )   (0.28 )   (0.28 )
Non-GAAP Measurement $ 1,323     $ 964     $ 1.28     $ 1.26  
 
Net effect of deferred revenues and related cost of revenues6 $ (501 ) $ (395 ) $ (0.52 ) $ (0.51 )
 
   
1 Includes expenses related to share-based compensation.
2 Reflects amortization of intangible assets from purchase price
accounting.
3 Reflects fees and other expenses related to the King Acquisition,
inclusive of related debt financings and integration costs.
4 Reflects restructuring charges, primarily severance costs.
5 Reflects a non-cash accounting charge to reclassify certain
cumulative translation (gains) losses into earnings due to the
substantial liquidation of certain of our foreign entities.
6 Reflects the net effect from deferral of revenues and (recognition)
of deferred revenues, along with related cost of revenues, on
certain of our online enabled products, including the effects of
taxes.
7 Reflects the loss on extinguishment of debt from refinancing
activities.
8 Reflects the income tax impact associated with the above items. Tax
impact on non-GAAP pre-tax income is calculated under the same
accounting principles applied to the GAAP pre-tax income under ASC
740, which employs an annual effective tax rate method to the
results.
 

The GAAP and non-GAAP earnings per share information is presented as
calculated. The sum of these measures, as presented, may differ due to
the impact of rounding.

 

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

OPERATING SEGMENTS INFORMATION

For the Three and Six Months Ended June 30, 2018 and 2017

(Amounts in millions)

 
Three Months Ended:     June 30, 2018   $ Increase / (Decrease)
Activision   Blizzard   King   Total Activision   Blizzard   King   Total
Segment Net Revenues
Net revenues from external customers $ 338 $ 485 $ 502 $ 1,325 $ 22 $ (81 ) $ 22 $ (37 )
Intersegment net revenues1   4     4     4     4  
Segment net revenues $ 338   $ 489   $ 502   $ 1,329   $ 22   $ (77 ) $ 22   $ (33 )
 
Segment operating income $ 84 $ 133 $ 169 $ 386 $ (3 ) $ (92 ) $ 5 $ (90 )
 
Operating Margin 29.0 %
 
June 30, 2017
Activision Blizzard King Total
Segment Net Revenues
Net revenues from external customers $ 316 $ 566 $ 480 $ 1,362
Intersegment net revenues1        
Segment net revenues $ 316   $ 566   $ 480   $ 1,362  
 
Segment operating income $ 87 $ 225 $ 164 $ 476
 
Operating Margin 34.9 %
 
 
Six Months Ended:     June 30, 2018   $ Increase / (Decrease)
Activision   Blizzard   King   Total Activision   Blizzard   King   Total
Segment Net Revenues
Net revenues from external customers $ 651 $ 964 $ 1,036 $ 2,651 $ 119 $ (45 ) $ 82 $ 156
Intersegment net revenues1   6     6     6     6  
Segment net revenues $ 651   $ 970   $ 1,036   $ 2,657   $ 119   $ (39 ) $ 82   $ 162  
 
Segment operating income $ 175 $ 255 $ 360 $ 790 $ 64 $ (129 ) $ 30 $ (35 )
 
Operating Margin 29.7 %
 
June 30, 2017
Activision Blizzard King Total
Segment Net Revenues
Net revenues from external customers $ 532 $ 1,009 $ 954 $ 2,495
Intersegment net revenues1        
Segment net revenues $ 532   $ 1,009   $ 954   $ 2,495  
 
Segment operating income $ 111 $ 384 $ 330 $ 825
 
Operating Margin

 

33.1 %
 
   
1 Intersegment revenues reflect licensing and service fees charged
between segments.
 

Our operating segments are consistent with the manner in which our
operations are reviewed and managed by our Chief Executive Officer, who
is our chief operating decision maker ("CODM"). The CODM reviews segment
performance exclusive of: the impact of the change in deferred revenues
and related cost of revenues with respect to certain of our
online-enabled games; share-based compensation expense; amortization of
intangible assets as a result of purchase price accounting; fees and
other expenses (including legal fees, costs, expenses and accruals)
related to acquisitions, associated integration activities, and
financings; certain restructuring costs; and other non-cash charges. See
the following page for the reconciliation tables of segment revenues and
operating income to consolidated net revenues and consolidated operating
income.

Our operating segments are also consistent with our internal
organizational 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, 2018 and 2017

(Amounts in millions)

 
    Three Months Ended June 30,   Six Months Ended June 30,
2018   2017 2018   2017
Reconciliation to consolidated net revenues:
Segment net revenues $ 1,329 $ 1,362 $ 2,657 $ 2,495
Revenues from non-reportable segments1 60 56 118 119
Net effect from recognition (deferral) of deferred net revenues2 256 213 838 742
Elimination of intersegment revenues3 (4 )   (6 )  
Consolidated net revenues $ 1,641   $ 1,631   $ 3,607   $ 3,356  
 
Reconciliation to consolidated income before income tax expense:
Segment operating income $ 386 $ 476 $ 790 $ 825
Operating income from non-reportable segments1 (5 ) (11 ) (3 )
Net effect from recognition (deferral) of deferred net revenues and
related cost of revenues2
182 105 557 501
Share-based compensation expense (57 ) (39 ) (111 ) (73 )
Amortization of intangible assets (77 ) (194 ) (196 ) (384 )
Fees and other expenses related to the King Acquisition4 (5 ) (9 )
Restructuring costs5 (11 )
Other non-cash charges6   1     (15 )
Consolidated operating income 434 339 1,029 831
Interest and other expense (income), net 26   46   54   85  
Consolidated income before income tax expense $ 408   $ 293   $ 975   $ 746  
 
   
1 Includes other income and expenses from operating segments managed
outside the reportable segments, including our studios and
distribution businesses. Also includes unallocated corporate income
and expenses.
2 Reflects the net effect from (deferral) of revenues and recognition
of deferred revenues, along with related cost of revenues, on
certain of our online enabled products.
3 Intersegment revenues reflect licensing and service fees charged
between segments.
4 Reflects fees and other expenses related to the King Acquisition,
inclusive of related debt financings and integration costs.
5 Reflects restructuring charges, primarily severance costs.
6 Reflects a non-cash accounting charge to reclassify certain
cumulative translation gains (losses) into earnings due to the
substantial liquidation of certain of our foreign entities.
 
 

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

NET REVENUES BY DISTRIBUTION CHANNEL

For the Three and Six Months Ended June 30, 2018 and 2017

(Amounts in millions)

 
    Three Months Ended
June 30, 2018   June 30, 2017  

$ Increase
(Decrease)

 

% Increase
(Decrease)

Amount1   % of Total2 Amount   % of Total2
Net Revenues by Distribution Channel
Digital online channels3 $ 1,259 77 % $ 1,309 80 % $ (50 ) (4 )%
Retail channels 278 17 260 16 18 7
Other4 104   6   62   4   42   68
Total consolidated net revenues $ 1,641   100 % $ 1,631   100 % $ 10   1
 
Change in deferred revenues5
Digital online channels3 $ (62 ) $ (31 )
Retail channels (202 ) (180 )
Other4 8   (2 )
Total changes in deferred revenues $ (256 ) $ (213 )
    Six Months Ended
June 30, 2018   June 30, 2017  

$ Increase
(Decrease)

 

% Increase
(Decrease)

Amount1   % of Total2 Amount   % of Total2
Net Revenues by Distribution Channel
Digital online channels3 $ 2,720 75 % $ 2,694 80 % $ 26 1 %
Retail channels 690 19 529 16 161 30
Other4 197   5   133   4   64   48
Total consolidated net revenues $ 3,607   100 % $ 3,356   100 % $ 251   7
 
Change in deferred revenues5
Digital online channels3 $ (319 ) $ (350 )
Retail channels (533 ) (385 )
Other4 14   (7 )
Total changes in deferred revenues $ (838 ) $ (742 )
 
   
1 We adopted a new revenue accounting standard in the first quarter of
2018. The impacts of the new revenue accounting standard are
reflected in our financial information as of and for the three and
six months ended June 30, 2018. Prior period results have not been
restated to reflect this change in accounting standards. Refer to
our Form 10-Q for the second quarter of 2018 for additional
information.
2 The percentages of total are presented as calculated. Therefore, the
sum of these percentages, as presented, may differ due to the impact
of rounding.
3 Net revenues from Digital online channels represent revenues from
digitally-distributed subscriptions, downloadable content,
microtransactions, and products, as well as licensing royalties.
4 Net revenues from Other include revenues from our studios and
distribution businesses, as well as revenues from Major League
Gaming and the Overwatch League.
5 Reflects the net effect from deferral of revenues and (recognition)
of deferred revenues on certain of our online enabled products.
 

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

NET REVENUES BY DISTRIBUTION CHANNEL - SUPPLEMENTAL INFORMATION

For the Three Months Ended June 30, 2018

(Amounts in millions)

As a result of our adoption of the new revenue accounting standard, net
revenues by distribution channel for the three months ended June 30,
2018, includes a reconciliation to our segment revenues as disclosed for
each of our reportable segments. Net revenues by distribution channel
were as follows:

 
    Three Months Ended June 30, 2018
Activision   Blizzard   King  

Non-
reportable
segments

 

Elimination of
intersegment
revenues4

  Total
Net Revenues by Distribution Channel:
Digital online channels1 $ 333 $ 420 $ 510 $ $ (4 ) $ 1,259
Retail channels 259 19 278
Other2   49     55     104  
Total consolidated net revenues $ 592   $ 488   $ 510   $ 55   $ (4 ) $ 1,641  
 
Change in deferred revenues3:
Digital online channels1 $ (58 ) $ 4 $ (8 ) $ $ $ (62 )
Retail channels (196 ) (6 ) (202 )
Other2   3     5     8  
Total change in deferred revenues $ (254 ) $ 1   $ (8 ) $ 5   $   $ (256 )
 
Segment net revenues:
Digital online channels1 $ 275 $ 424 $ 502 $ $ (4 ) $ 1,197
Retail channels 63 13 76
Other2   52     60     112  
Total segment net revenues $ 338   $ 489   $ 502   $ 60   $ (4 ) $ 1,385  
 
   
1 Net revenues from Digital online channels represent revenues from
digitally-distributed subscriptions, downloadable content,
microtransactions, and products, as well as licensing royalties.
2 Net revenues from Other include revenues from our studios and
distribution businesses, as well as revenues from Major League
Gaming and the Overwatch League.
3 Reflects the net effect from deferral of revenues and (recognition)
of deferred revenues on certain of our online enabled products.
4 Intersegment revenues reflect licensing and service fees charged
between segments.
 

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

NET REVENUES BY DISTRIBUTION CHANNEL - SUPPLEMENTAL INFORMATION

For the Six Months Ended June 30, 2018

(Amounts in millions)

As a result of our adoption of the new revenue accounting standard, net
revenues by distribution channel for the six months ended June 30, 2018,
includes a reconciliation to our segment revenues as disclosed for each
of our reportable segments. Net revenues by distribution channel were as
follows:

 
    Six Months Ended June 30, 2018
Activision   Blizzard   King  

Non-
reportable
segments

 

Elimination of
intersegment
revenues4

  Total
Net Revenues by Distribution Channel:
Digital online channels1 $ 809 $ 875 $ 1,042 $ $ (6 ) $ 2,720
Retail channels 656 33 1 690
Other2   89     108     197  
Total consolidated net revenues $ 1,465   $ 997   $ 1,043   $ 108   $ (6 ) $ 3,607  
 
Change in deferred revenues3:
Digital online channels1 $ (290 ) $ (23 ) $ (6 ) $ $ $ (319 )
Retail channels (524 ) (8 ) (1 ) (533 )
Other2   4     10     14  
Total change in deferred revenues $ (814 ) $ (27 ) $ (7 ) $ 10   $   $ (838 )
 
Segment net revenues:
Digital online channels1 $ 519 $ 852 $ 1,036 $ $ (6 ) $ 2,401
Retail channels 132 25 157
Other2   93     118     211  
Total segment net revenues $ 651   $ 970   $ 1,036   $ 118   $ (6 ) $ 2,769  
 
   
1 Net revenues from Digital online channels represent revenues from
digitally-distributed subscriptions, downloadable content,
microtransactions, and products, as well as licensing royalties.
2 Net revenues from Other include revenues from our studios and
distribution businesses, as well as revenues from Major League
Gaming and the Overwatch League.
3 Reflects the net effect from deferral of revenues and (recognition)
of deferred revenues on certain of our online enabled products.
4 Intersegment revenues reflect licensing and service fees charged
between segments.
 
 

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

NET REVENUES BY PLATFORM

For the Three and Six Months Ended June 30, 2018 and 2017

(Amounts in millions)

 
    Three Months Ended
June 30, 2018   June 30, 2017  

$ Increase
(Decrease)

 

% Increase
(Decrease)

Amount1   % of Total2 Amount   % of Total2
Net Revenues by Platform
Console $ 565 34 % $ 568 35 % $ (3 ) (1 )%
PC 451 27 508 31 (57 ) (11 )
Mobile and ancillary3 521 32 493 30 28 6
Other4 104   6   62   4   42   68
Total consolidated net revenues $ 1,641   100 % $ 1,631   100 % $ 10   1
 
Change in deferred revenues5
Console $ (232 ) $ (203 )
PC (28 ) (15 )
Mobile and ancillary3 (4 ) 7
Other4 8   (2 )
Total changes in deferred revenues $ (256 ) $ (213 )
    Six Months Ended
June 30, 2018   June 30, 2017  

$ Increase
(Decrease)

 

% Increase
(Decrease)

Amount1   % of Total2 Amount   % of Total2
Net Revenues by Platform
Console $ 1,382 38 % $ 1,182 35 % $ 200 17 %
PC 971 27 1,072 32 (101 ) (9 )
Mobile and ancillary3 1,057 29 969 29 88 9
Other4 197   5   133   4   64   48
Total consolidated net revenues $ 3,607   100 % $ 3,356   100 % $ 251   7
 
Change in deferred revenues5
Console $ (740 ) $ (577 )
PC (97 ) (161 )
Mobile and ancillary3 (15 ) 3
Other4 14   (7 )
Total changes in deferred revenues $ (838 ) $ (742 )
   
1 We adopted a new revenue accounting standard in the first quarter of
2018. The impacts of the new revenue accounting standard are
reflected in our financial information as of and for the three and
six months ended June 30, 2018. Prior period results have not been
restated to reflect this change in accounting standards. Refer to
our Form 10-Q for the second quarter of 2018 for additional
information.
2 The percentages of total are presented as calculated. Therefore, the
sum of these percentages, as presented, may differ due to the impact
of rounding.
3 Net revenues from Mobile and ancillary include revenues from mobile
devices, as well as non-platform specific game related revenues,
such as standalone sales of physical merchandise and accessories.
4 Net revenues from Other include revenues from our studios and
distribution businesses, as well as revenues from Major League
Gaming and the Overwatch League.
5 Reflects the net effect from deferral of revenues and (recognition)
of deferred revenues on certain of our online enabled products.
 

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

NET REVENUES BY PLATFORM - SUPPLEMENTAL INFORMATION

For the Three Months Ended June 30, 2018

(Amounts in millions)

As a result of our adoption of the new revenue accounting standard, net
revenues by platform for the three months ended June 30, 2018, includes
a reconciliation to our segment revenues as disclosed for each of our
reportable segments. Net revenues by platform were as follows:

 
    Three Months Ended June 30, 2018
Activision   Blizzard   King  

Non-
reportable
segments

 

Elimination of
intersegment
revenues4

  Total
Net Revenues by Platform:
Console $ 520 $ 45 $ $ $ $ 565
PC 69 347 39 (4 ) 451
Mobile and ancillary1 3 47 471 521
Other2   49     55     104  
Total consolidated net revenues $ 592   $ 488   $ 510   $ 55   $ (4 ) $ 1,641  
 
Change in deferred revenues3:
Console $ (233 ) $ 1 $ $ $ $ (232 )
PC (21 ) (6 ) (1 ) (28 )
Mobile and ancillary1 3 (7 ) (4 )
Other2   3     5     8  
Total change in deferred revenues $ (254 ) $ 1   $ (8 ) $ 5   $   $ (256 )
 
Segment net revenues:
Console $ 287 $ 46 $ $ $ $ 333
PC 48 341 38 (4 ) 423
Mobile and ancillary1 3 50 464 517
Other2   52     60     112  
Total segment net revenues $ 338   $ 489   $ 502   $ 60   $ (4 ) $ 1,385  
 
   
1 Net revenues from Mobile and ancillary include revenues from mobile
devices, as well as non-platform specific game related revenues,
such as standalone sales of physical merchandise and accessories.
2 Net revenues from Other include revenues from our studios and
distribution businesses, as well as revenues from Major League
Gaming and the Overwatch League.
3 Reflects the net effect from deferral of revenues and (recognition)
of deferred revenues on certain of our online enabled products.
4 Intersegment revenues reflect licensing and service fees charged
between segments.
 

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

NET REVENUES BY PLATFORM - SUPPLEMENTAL INFORMATION

For the Six Months Ended June 30, 2018

(Amounts in millions)

As a result of our adoption of the new revenue accounting standard, net
revenues by platform for the six months ended June 30, 2018, includes a
reconciliation to our segment revenues as disclosed for each of our
reportable segments. Net revenues by platform were as follows:

 
    Six Months Ended June 30, 2018
Activision     Blizzard     King    

Non-
reportable
segments

   

Elimination of
intersegment
revenues4

    Total
Net Revenues by Platform:
Console $ 1,289 $ 93 $ $ $ $ 1,382
PC 169 726 82 (6 ) 971
Mobile and ancillary1 7 89 961 1,057
Other2   89     108     197  
Total consolidated net revenues $ 1,465   $ 997   $ 1,043   $ 108   $ (6 ) $ 3,607  
 
Change in deferred revenues3:
Console $ (723 ) $ (17 ) $ $ $ $ (740 )
PC (91 ) (6 ) (97 )
Mobile and ancillary1 (8 ) (7 ) (15 )
Other2   4     10     14  
Total change in deferred revenues $ (814 ) $ (27 ) $ (7 ) $ 10   $   $ (838 )
 
Segment net revenues:
Console $ 566 $ 76 $ $ $ $ 642
PC 78 720 82 (6 ) 874
Mobile and ancillary1 7 81 954 1,042
Other2   93     118     211  
Total segment net revenues $ 651   $ 970   $ 1,036   $ 118   $ (6 ) $ 2,769  
 
   
1 Net revenues from Mobile and ancillary include revenues from mobile
devices, as well as non-platform specific game related revenues,
such as standalone sales of physical merchandise and accessories.
2 Net revenues from Other include revenues from our studios and
distribution businesses, as well as revenues from Major League
Gaming and the Overwatch League.
3 Reflects the net effect from deferral of revenues and (recognition)
of deferred revenues on certain of our online enabled products.
4 Intersegment revenues reflect licensing and service fees charged
between segments.
 
 

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

NET REVENUES BY GEOGRAPHIC REGION

For the Three and Six Months Ended June 30, 2018 and 2017

(Amounts in millions)

 
    Three Months Ended
June 30, 2018   June 30, 2017  

$ Increase
(Decrease)

 

% Increase
(Decrease)

Amount1   % of Total2 Amount   % of Total2
Net Revenues by Geographic Region
Americas $ 900 55 % $ 858 53 % $ 42 5 %
EMEA3 552 34 538 33 14 3
Asia Pacific 189   12   235   14   (46 ) (20 )
Total consolidated net revenues $ 1,641   100 % $ 1,631   100 % $ 10   1
 
Change in deferred revenues4
Americas $ (141 ) $ (129 )
EMEA3 (100 ) (72 )
Asia Pacific (15 ) (12 )
Total changes in deferred revenues $ (256 ) $ (213 )
    Six Months Ended
June 30, 2018   June 30, 2017  

$ Increase
(Decrease)

 

% Increase
(Decrease)

Amount1   % of Total2 Amount   % of Total2
Net Revenues by Geographic Region
Americas $ 1,966 55 % $ 1,787 53 % $ 179 10 %
EMEA3 1,239 34 1,092 33 147 13
Asia Pacific 402   11   477   14   (75 ) (16 )
Total consolidated net revenues $ 3,607   100 % $ 3,356   100 % $ 251   7
 
Change in deferred revenues4
Americas $ (474 ) $ (438 )

 

EMEA3 (302 ) (234 )
Asia Pacific (62 ) (70 )
Total changes in deferred revenues $ (838 ) $ (742 )
 
 
1 We adopted a new revenue accounting standard in the first quarter of
2018. The impacts of the new revenue accounting standard are
reflected in our financial information as of and for the three and
six months ended June 30, 2018. Prior period results have not been
restated to reflect this change in accounting standards. Refer to
our Form 10-Q for the second quarter of 2018 for additional
information.
2 The percentages of total are presented as calculated. Therefore, the
sum of these percentages, as presented, may differ due to the impact
of rounding.
3 Net revenues from EMEA consist of the Europe, Middle East, and
Africa geographic regions.
4 Reflects the net effect from deferral of revenues and (recognition)
of deferred revenues on certain of our online enabled products.
 

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

NET REVENUES BY GEOGRAPHIC REGION - SUPPLEMENTAL INFORMATION

For the Three Months Ended June 30, 2018

(Amounts in millions)

As a result of our adoption of the new revenue accounting standard, net
revenues by geographic region for the three months ended June 30, 2018,
includes a reconciliation to our segment revenues as disclosed for each
of our reportable segments. Net revenues by geographic region were as
follows:

 
    Three Months Ended June 30, 2018
Activision   Blizzard   King  

Non- reportable
segments

 

Elimination of
intersegment
revenues3

  Total
Net Revenues by Geographic Region:
Americas $ 349 $ 239 $ 315 $ $ (3 ) $ 900
EMEA1 199 155 144 55 (1 ) 552
Asia Pacific 44   94   51       189  
Total consolidated net revenues $ 592   $ 488   $ 510   $ 55   $ (4 ) $ 1,641  
 
Change in deferred revenues2:
Americas $ (143 ) $ 7 $ (5 ) $ $ $ (141 )
EMEA1 (97 ) (6 ) (2 ) 5 (100 )
Asia Pacific (14 )   (1 )     (15 )
Total change in deferred revenues $ (254 ) $ 1   $ (8 ) $ 5   $   $ (256 )
 
Segment net revenues:
Americas $ 206 $ 246 $ 310 $ $ (3 ) $ 759
EMEA1 102 149 142 60 (1 ) 452
Asia Pacific 30   94   50       174  
Total segment net revenues $ 338   $ 489   $ 502   $ 60   $ (4 ) $ 1,385  
 
   
1 Net revenues from EMEA consist of the Europe, Middle East, and
Africa geographic regions.
2 Reflects the net effect from deferral of revenues and (recognition)
of deferred revenues on certain of our online enabled products.
3 Intersegment revenues reflect licensing and service fees charged
between segments.
 

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

NET REVENUES BY GEOGRAPHIC REGION - SUPPLEMENTAL INFORMATION

For the Six Months Ended June 30, 2018

(Amounts in millions)

As a result of our adoption of the new revenue accounting standard, net
revenues by geographic region for the six months ended June 30, 2018,
includes a reconciliation to our segment revenues as disclosed for each
of our reportable segments. Net revenues by geographic region were as
follows:

   
Six Months Ended June 30, 2018
Activision   Blizzard   King  

Non- reportable
segments

 

Elimination of
intersegment
revenues3

  Total
Net Revenues by Geographic Region:
Americas $ 859 $ 473 $ 637 $ $ (3 ) $ 1,966
EMEA1 504 325 305 108 (3 ) 1,239
Asia Pacific 102   199   101       402  
Total consolidated net revenues $ 1,465   $ 997   $ 1,043   $ 108   $ (6 ) $ 3,607  
 
Change in deferred revenues2:
Americas $ (471 ) $ $ (3 ) $ $ $ (474 )
EMEA1 (295 ) (14 ) (4 ) 10 1 (302 )
Asia Pacific (48 ) (13 )     (1 ) (62 )
Total change in deferred revenues $ (814 ) $ (27 ) $ (7 ) $ 10   $   $ (838 )
 
Segment net revenues:
Americas $ 388 $ 473 $ 634 $ $ (3 ) $ 1,492
EMEA1 209 311 301 118 (2 ) 937
Asia Pacific 54   186   101     (1 ) 340  
Total segment net revenues $ 651   $ 970   $ 1,036   $ 118   $ (6 ) $ 2,769  
 
   
1 Net revenues from EMEA consist of the Europe, Middle East, and
Africa geographic regions.
2 Reflects the net effect from deferral of revenues and (recognition)
of deferred revenues on certain of our online enabled products.
3 Intersegment revenues reflect licensing and service fees charged
between segments.
 
 

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

EBITDA and ADJUSTED EBITDA

For the Trailing Twelve Months Ended June 30, 2018

(Amounts in millions)

 
           

Trailing Twelve
Months Ended

September 30, 2017 December 31, 2017 March 31, 2018 June 30, 2018 June 30, 2018
 

GAAP Net Income (Loss)1

$ 188 $ (584 ) $ 500 $ 402 $ 506
Interest and other expense (income), net 37 36 28 26 127
Provision for income taxes2 32 769 67 6 874
Depreciation and amortization 220   219   155   112   706  
EBITDA 477 440 750 546 2,213
 
Share-based compensation expense3 47 58 53 57 215
Fees and other expenses related to the King Acquisition4 3 3 6
Restructuring costs5 5 5
Other non-cash charges6 (1 ) (1 )
Discrete tax-related items7   39       39  
Adjusted EBITDA $ 526   $ 545   $ 803   $ 603   $ 2,477  
 
Change in deferred net revenues and related cost of revenues8 $ 132 $ 441 $ (373 ) $ (182 ) $ 18
 
 
1 We adopted a new revenue accounting standard in the first quarter of
2018. The impacts of the new revenue accounting standard are
reflected in our financial information as for the fiscal quarters
beginning in 2018. Prior period results have not been restated to
reflect this change in accounting standards. Refer to our Form 10-Q
for the second quarter of 2018 for additional information.
2 Provision for income taxes for the three months ended December 31,
2017 and June 30, 2018 also include impacts from significant
discrete tax-related items, including amounts related to changes in
tax laws, amounts related to the potential or final resolution of
tax positions, and/or other unusual or unique tax-related items and
activities.
3 Includes expenses related to share-based compensation.
4 Reflects fees and other expenses related to the King Acquisition,
inclusive of related debt financings and integration costs.
5 Reflects restructuring charges, primarily severance costs.
6 Reflects a non-cash accounting charge to reclassify certain
cumulative translation (gains) losses into earnings due to the
substantial liquidation of certain of our foreign entities.
7 Reflects the impact of other unusual or unique tax-related items and
activities.
8 Reflects the net effect from deferral of revenues and (recognition)
of deferred revenues, along with related cost of revenues, on
certain of our online enabled products.
 
 

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

SUPPLEMENTAL CASH FLOW INFORMATION

(Amounts in millions)

 
    Three Months Ended  
June 30,   September 30,   December 31,   March 31,   June 30,

Year over Year %
Increase
(Decrease)

2017 2017 2017 2018 2018
Cash Flow Data
Operating Cash Flow $ 265 $ 379 $ 1,158 $ 529 $ 9 (97 )%
Capital Expenditures 31   34   69   31   30   (3 )
Non-GAAP Free Cash Flow1 234 345 1,089 498 (21 ) (109 )
 
Operating Cash Flow - TTM2 1,991 1,914 2,213 2,331 2,075 4
Capital Expenditures - TTM2 117   123   155   165   164   40
Non-GAAP Free Cash Flow - TTM2 $ 1,874 $ 1,791 $ 2,058 $ 2,166 $ 1,911 2 %
 
   
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, 2016, three months ended December
31, 2016, and three months ended March 31, 2017, were $456 million,
$859 million, and $411 million, respectively. Capital Expenditures
for the three months ended September 30, 2016, three months ended
December 31, 2016, and March 31, 2017, were $28 million, $37
million, and $21 million, respectively.
 
 

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

Outlook for the Three Months Ending September 30, 2018 and Year
Ending December 31, 2018

GAAP to Non-GAAP Reconciliation

(Amounts in millions, except per share data)

 
    Outlook for the   Outlook for the
Three Months Ending Year Ending
September 30, 2018 December 31, 2018
 
Net Revenues1 $ 1,490 $ 7,355
Change in deferred revenues2 $ 125 $ 120
 
 
Earnings Per Diluted Share (GAAP) $ 0.16 $ 1.84
Excluding the impact of:
Share-based compensation3 0.09 0.34
Amortization of intangible assets4 0.11 0.48
Loss on extinguishment of debt5 0.05 0.05
Income tax impacts from items above6 (0.04 ) (0.22 )
Discrete tax-related items7   (0.03 )
Earnings Per Diluted Share (Non-GAAP) $ 0.37   $ 2.46  
 
 
Net effect of deferred net revenues and related cost of revenues
on Earnings Per Diluted Share
8
$ 0.10 $ 0.12
 
   
1 Net Revenues represents the revenue outlook for both GAAP and
Non-GAAP as they are measured the same.
2 Reflects the net effect from deferral of revenues and (recognition)
of deferred revenues on certain of our online enabled products.
3 Reflects expenses related to share-based compensation.
4 Reflects amortization of intangible assets from purchase price
accounting, including intangible assets from the King Acquisition.
5 Reflects losses to be recognized from early extinguishment of debt.
6 Reflects the income tax impacts associated with the above items. Due
to the inherent uncertainties in share price and option exercise
behavior, we do not generally forecast excess tax benefits or tax
shortfalls.
7 Reflects the 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 recognized during
the three months ended June 30, 2018. Refer to our Form 10-Q for the
second quarter of 2018 for additional information.
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.

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