Author: sick skills

Record Q3 Revenues

Record Year-to-Date Revenues and EPS

Company Increases CY 2017 Revenues and EPS Outlook

SANTA MONICA, Calif.–(BUSINESS WIRE)– Activision Blizzard, Inc. (Nasdaq: ATVI) today announced better-than-expected third-quarter 2017 results.

For the quarter ended September 30, 2017, Activision Blizzard’s net revenues presented in accordance with GAAP were a Q3 record of $1.62 billion, as compared with $1.57 billion for the third quarter of 2016. GAAP net revenues from digital channels were a Q3 record of $1.35 billion. GAAP operating margin was 16%. GAAP earnings per diluted share were $0.25, as compared with $0.26 for the third quarter of 2016.

For the quarter ended September 30, 2017, on a non-GAAP basis, Activision Blizzard’s operating margin was 30% and earnings per diluted share were $0.47, as compared with $0.49 for the third quarter of 2016.

For the quarter, operating cash flows were $379 million.

Please refer to the tables at the back of this press release for a reconciliation of the company’s GAAP and non-GAAP results.

Bobby Kotick, Chief Executive Officer of Activision Blizzard, said, “This was another strong quarter. We delivered record results and impressive engagement. With the recently released Destiny 2 off to a strong start, King’s position as the number one mobile publisher in the U.S.¹, our release of Call of Duty®: WWII, and the upcoming launch of the Overwatch League™, we have great momentum as we approach the end of the year.”

Kotick added, “By investing in our franchises and communities, we continue to make progress on our efforts to connect and engage the world through epic entertainment.”

Selected Business Highlights:

We serve our hundreds of millions of audience members with an ongoing pipeline of content, services, and features. In Q3 we demonstrated that meaningful results can come from content investments, both large and small.

Audience Reach

• Activision Blizzard had 384 million Monthly Active Users (MAUs)^B in the quarter.
• Activision had the biggest third-quarter online player community in its history, with a record 49 million MAUs^B.
• Launched in September, Destiny 2 is the best-selling console game year-to-date in the U.S.² Digital mix was over 50% of console full game sell-through, a new record for the company. In October, we introduced the Destiny franchise to PC gamers on Blizzard’s Battle.net^® platform, opening the franchise to new global audiences and future growth opportunities.
• Activision’s Call of Duty continued its strong momentum with record Q3 MAUs^B ahead of the highly anticipated launch of Call of Duty: WWII on November 3, 2017. Pre-order momentum has been strong, with a higher percentage of pre-orders on the digital offering than prior Call of Duty titles.
• Blizzard had the biggest third quarter online player community in its history, with a record 42 million MAUs^B. This is the fourth quarter in a row that Blizzard drove quarterly record MAUs^B. Overwatch® and Hearthstone® MAUs^B grew year-over-year. The Overwatch community grew to over 35 million registered players.
• King had 293 million MAUs^B for the quarter and has had two of the top-10 highest-grossing titles in the U.S. mobile app stores for sixteen quarters in a row.¹Candy Crush Saga™, which is celebrating its 5^th anniversary, returned to the #1 grossing position in U.S. mobile app stores for the quarter.¹

Deep Engagement

• The company achieved a new milestone with players spending over 50 minutes per day in Activision Blizzard games, in line with some of the most engaging online connected platforms in the world.
• Activision and Bungie’s Destiny 2 is well ahead of the highly engaging original Destiny on time spent per player and attach rate to the Expansion Pass.
• Blizzard’s Hearthstone: Knights of the Frozen Throne™expansion led to double-digit percentage growth in time spent year-over-year for the franchise. Overwatch had a Summer Games seasonal event in August and a Halloween Terror event in October, both of which continued to drive strong engagement and participation in customization items. World of Warcraft® released a new content update in the quarter, leading to stable MAUs^B for the franchise quarter-over-quarter and continued participation in value added services.
• King’s increased cadence of live operations and new features continued to drive strong engagement. The frequency with which players returned to play and the time spent per player are at record highs.
• The inaugural season of the Overwatch League is set to begin at the Blizzard Arena Los Angeles, with 12 world-class teams from around the world competing in regular season games starting on January 10, 2018. This morning, Blizzard announced groundbreaking Overwatch League sponsorship deals with HP and Intel.
• Blizzard’s eleventh BlizzCon® will be returning to the Anaheim Convention Center this Friday, November 3, and Saturday, November 4, where it will host over 30,000 people. With tickets having sold out in a matter of seconds, millions more will be able to join through live-streaming or the BlizzCon Virtual Ticket. BlizzCon will feature a number of events, including the finals of several Blizzard esports tournaments, with global champions crowned across a number of franchises.
• The new season of Activision’s Call of Duty World League is set to begin in December, featuring the largest prize pool in franchise history.

Player Investment

• Activision Blizzard delivered a Q3 record of over $1 billion of in-game revenues, with record performance year-to-date.
• Activision achieved record Q3 segment revenues and operating income, capping record year-to-date performance.
• With the launch of the game on PC, Destiny 2 is now ahead of the original game in consumer spend.
• Call of Duty had strong franchise engagement and stable in-game purchases sequentially.
• King’s paying players grew for the first time since Q1 2016, while gross bookings^C per paying user also grew for the ninth quarter in a row to a new record.
• Candy Crush™ franchise gross bookings^C grew to their highest level since 2013. King also achieved record quarterly mobile gross bookings^C in Q3, driving the third sequential quarter of segment revenues growth.
• Both Activision and Blizzard delivered strong library content in the quarter with Activision’s Crash Bandicoot™ N. Sane Trilogy, and Call of Duty: Modern Warfare® Remastered, released as a standalone game, and Blizzard’s StarCraft®: Remastered.

Company Outlook:

Currency Assumptions for 2017 Outlook:

• $1.12 USD/Euro for current outlook (vs. average of $1.11 for 2016 and $1.11 for 2015); and
• $1.32 USD/British Pound Sterling for current outlook (vs. average of $1.36 for 2016 and $1.53 for 2015).
• Note: Our financial guidance includes the forecasted impact of the FX cash flow hedging program.

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 September 30, 2017 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 877-604-9668 in the U.S. with passcode 2253748.

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™, Pet Rescue™, 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 third quarter 2017.

² Per NPD and internal estimates

^A Net effect of accounting treatment from revenue deferrals on certain of our online enabled products. Some of our games’ online functionality represents an essential component of gameplay and, as a result, a more-than-inconsequential separate deliverable. As a result, we recognize revenues attributed to these game titles over their estimated service periods, which is 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.

^BMonthly 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 played 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 plays two of our games would be counted as two users. In addition, due to technical limitations, for Activision and King, an individual who plays the same game on two platforms or devices in the relevant period would be counted as two users. For Blizzard, an individual who plays the same game on two platforms or devices in the relevant period would generally be counted as a single user.

^CGross bookings is an operating metric that represents the total cash spent by players in the period for the purchase of virtual items. King uses gross bookings to evaluate its results of operations, generate future operating plans and assess performance. Gross bookings is the total price paid by players, which includes indirect taxes (sales tax or value added tax etc.), platform providers fees, and King’s share of revenues.

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; and
• 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).

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. 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; 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 preferences among platforms; the diversion of management time and attention to issues relating to the operations of our acquired or newly started businesses; the amount of our debt and the limitations imposed by the covenants in the agreements governing our debt; the adoption rate and availability of new hardware (including peripherals) and related software; 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 develop key personnel and developers that can create high-quality titles, products and services; risks relating to the expansion into new businesses, including the potential impact on our existing businesses; 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; shifts in consumer spending trends; capital market risks; the impact of applicable 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, 2016.

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.

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.

For purposes of calculating earnings per share, we had, on a weighted-average basis, common shares outstanding of 755 million and dilutive shares of 11 million during the three months ended September 30, 2017.

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.

For purposes of calculating earnings per share, we had, on a weighted-average basis, common shares outstanding of 753 million and dilutive shares of 11 million during the nine months ended September 30, 2017.

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.

For purposes of calculating earnings per share, we had, on a weighted-average basis, common shares outstanding of 742 million and dilutive shares of 14 million during the three months ended September 30, 2016.

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.

For purposes of calculating earnings per share, we had, on a weighted-average basis, common shares outstanding of 739 million and dilutive shares of 14 million during the nine months ended September 30, 2016.

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.

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. Due to change in our internal organization and reporting structure and how we manage the business, commencing with the second quarter of 2017, our Major League Gaming business, which was previously included in Other segments, is now included in the Blizzard segment. We have also revised prior periods to reflect this change. We do not aggregate operating 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.

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. Due to change in our internal organization and reporting structure and how we manage the business, commencing with the second quarter of 2017, our Major League Gaming business, which was previously included in Other segments, is now included in the Blizzard segment. We have also revised prior periods to reflect this change. We do not aggregate operating segments.