Wednesday, October 1, 2014 Last update: 5:03 AM
FreshNews.com - Tech News = Large & Small Companies (Many you've never heard of) Since 1996

Activision Blizzard Announces Better-Than-Expected Second Quarter 2014 Financial Results

Companies mentioned in this article: Activision Blizzard, Inc.

SANTA MONICA, Calif. -- (BUSINESS WIRE) -- Activision Blizzard, Inc. (Nasdaq: ATVI) today announced better-than-expected financial results for the second quarter of 2014.

 
Second Quarter


(in millions, except EPS)

 

2014

 

Prior

Outlook*

 

2013

GAAP

   
Net Revenues $ 970 $ 910 $ 1,050
EPS   $ 0.28   $ 0.22   $ 0.28

Non-GAAP

Net Revenues $ 658 $ 600 $ 608
EPS   $ 0.06   $ 0.01   $ 0.08
 

*Prior outlook was provided by the company on May 6, 2014 in its earnings release

For the quarter ended June 30, 2014, Activision Blizzard’s GAAP net revenues were $970 million, as compared with $1.05 billion for the second quarter of 2013. On a non-GAAP basis, the company’s net revenues were $658 million, as compared with $608 million for the second quarter of 2013. For the second quarter of 2014, GAAP net revenues from digital channels represented 49% of the company’s total revenues. On a non-GAAP basis, net revenues from digital channels represented a record 73% of the company’s total revenues.

For the quarters ended June 30, 2014 and 2013, Activision Blizzard’s GAAP earnings per diluted share were $0.28. On a non-GAAP basis, the company’s earnings per diluted share were $0.06 for the second quarter of 2014, as compared with $0.08 for the second quarter of 2013.

The company reports results on both a GAAP and a non-GAAP basis. 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, “Our better-than expected performance was driven by continued strong digital sales from Blizzard Entertainment’s World of Warcraft®, Diablo® III: Reaper of Souls™ and Blizzard Entertainment’s newest franchise, Hearthstone®: Heroes of Warcraft™, which recently launched on the iPad and continues to be well received by audiences around the world, as well as digital sales from Activision Publishing’s Call of Duty®. Based on our results, we are raising our full-year outlook and we expect to grow our non-GAAP revenues year-over-year and deliver record non-GAAP earnings per share for the full year.”

Kotick added, ”Over the next few months we expect to release some of the very best games in our company’s history. Blizzard Entertainment plans to launch World of Warcraft: Warlords of Draenor™, the newest expansion in the epic franchise, which more than 1.5 million Western subscribers have already pre-purchased and Activision Publishing expects to release Destiny™, which we believe will be the largest new intellectual property launch in videogame history, as well as Skylanders Trap Team™ and Call of Duty: Advanced Warfare.

Kotick continued, “Today, we have more opportunities to create great content using new platforms and business models while also expanding into new geographies, and are embracing all of these growth opportunities with the same commitment to excellence that we have demonstrated over the past 23 years. As the world’s largest and most profitable independent interactive entertainment company, we remain focused on creating the most compelling, engaging games for our dedicated audiences and providing superior returns for our shareholders.”

Selected Business Highlights:

  • Life to date, Activision Publishing’s Call of Duty: Ghosts remained the #1 best-selling game on the next-generation consoles in North America and Europe combined.¹
  • In North America and Europe combined, for the first six months of 2014, Activision Publishing’s Skylanders SWAP Force™ was the #2 best-selling console and handheld game overall in dollars, and in North America, Skylanders SWAP Force outsold the #1 action figure line.²
  • As of June 30, 2014, Blizzard Entertainment’s Diablo III: Reaper of Souls remained the #1 PC game in dollars in both North America and Europe and, including its expansion and digital sales, Diablo III has sold more than 20 million copies worldwide across all platforms since its release in 2012.³
  • As of June 30, 2014, Blizzard Entertainment’s World of Warcraft remains the #1 subscription-based MMORPG, with approximately 6.8 million subscribers.⁴ There was a decline in subscribers quarter over quarter, which was disproportionately concentrated in the East and was similar to the seasonal decline experienced during the second quarter of 2012, prior to the launch of the most recent expansion later that year.
  • On July 15, 2014, Blizzard Entertainment and NetEase, Inc. jointly announced an agreement to license Blizzard Entertainment's award-winning action role-playing game, Diablo III, to a NetEase, Inc. affiliate in mainland China.
  • During the quarter, Activision Blizzard paid its highest dividend ever of $0.20 per common share, totaling $147 million.

Company Outlook:

Today, Activision Publishing released Call of Duty: Ghosts Nemesis, a downloadable content pack exclusively on Xbox Live for both Xbox One and Xbox 360®. The company expects to release Call of Duty: Ghosts Nemesis on other platforms later in the third quarter of 2014.

Additionally, on September 9, 2014, Activision Publishing plans to release Bungie’s highly anticipated game, Destiny, for Sony’s PlayStation®4 and PlayStation®3 and Microsoft’s Xbox One and Xbox 360. Preorders for the game are tracking towards an industry record for a new intellectual property.

Earlier this quarter, Blizzard Entertainment released Curse of Naxxramas™: A Hearthstone Adventure for Windows, Mac and iPad. On August 19, 2014, Blizzard Entertainment also expects to release Diablo III: Reaper of Souls - Ultimate Evil Edition™ for Sony’s PlayStation 4 and PlayStation 3 and Microsoft’s Xbox One and Xbox 360.

Based on its second quarter results, Activision Blizzard is raising its full year outlook. The company’s third quarter and full year net revenue and earnings per share outlook are as follows:

       

 

 

(in millions, except EPS)

GAAP Outlook Prior*

GAAP Outlook

Non-GAAP Outlook Prior*

Non-GAAP Outlook

CY 2014

Net Revenues $ 4,240 $ 4,220 $ 4,700 $ 4,675
EPS $ 0.91 $ 0.89 $ 1.29 $ 1.27
Fully Diluted Shares** 750 750 750 750

Q3 2014

Net Revenues $ 650 n/a $ 975 n/a
EPS $ (0.07) n/a $ 0.11 n/a
Fully Diluted Shares** 719 n/a 745 n/a

* Prior outlook was provided by the company on May 6, 2014 in its earnings release
**Fully diluted weighted average shares include participating securities and dilutive options on a weighted average basis. With expected GAAP net losses for Q3 2014, basic weighted average shares are used in the losses per share calculation.

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, 2014 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 888-329-8889 in the U.S. with passcode 9595797.

About Activision Blizzard

Activision Blizzard, Inc. is the largest and most profitable independent western interactive entertainment publishing company. It develops and publishes some of the most successful and beloved entertainment franchises in any medium, including Call of Duty, Skylanders, World of Warcraft, StarCraft® and Diablo.

Headquartered in Santa Monica California, Activision Blizzard maintains operations throughout the United States, Europe, and Asia. It develops and publishes games on all leading interactive platforms and its games are available in most countries around the world. More information about Activision Blizzard and its products can be found on the company's website, www.activisionblizzard.com.

1According to The NPD Group and GfK Chart-Track

2According to The NPD Group and GfK Chart-Track and Activision Blizzard internal estimates, including toys and accessories

3According to The NPD Group, GfK Chart-Track and Activision Blizzard internal estimates

4According to Activision Blizzard internal estimates

Subscriber Definition: World of Warcraft subscribers include individuals who have paid a subscription fee or have an active prepaid card to play World of Warcraft, as well as those who have purchased the game and are within their free month of access. Internet Game Room players who have accessed the game over the last thirty days are also counted as subscribers. The above definition excludes all players under free promotional subscriptions, expired or cancelled subscriptions, and expired prepaid cards. Subscribers in licensees' territories are defined along the same rules.

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 revenues, 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. 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:

  • the change in deferred revenues and related cost of sales with respect to certain of the company’s online-enabled games;
  • expenses related to stock-based compensation;
  • the amortization of intangibles from purchase price accounting;
  • fees and other expenses related to the acquisition of 429 million shares of our common stock on October 11, 2013 from Vivendi, pursuant to the stock purchase agreement dated July 25, 2013 and the $4.75 billion debt financings related thereto; and
  • the income tax adjustments associated with any of the above items.

In the future, Activision Blizzard may also consider whether other significant non-recurring 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 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 revenues, 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.

In addition to the reasons stated above, which are generally applicable to each of the items Activision Blizzard excludes from its non-GAAP financial measures, there are additional specific reasons why the company believes it is appropriate to exclude the change in deferred revenues and related cost of sales with respect to certain of the company’s online-enabled games.

Since Activision Blizzard has determined that some of our games’ online functionality represents an essential component of gameplay and, as a result, a more-than-inconsequential separate deliverable, we recognize revenues attributed to these game titles over their estimated service periods, which may range from five months to a maximum of less than a year. The related cost of sales is deferred and recognized as the related revenues are recognized. Internally, management excludes the impact of this change in deferred revenues and related cost of sales in its non-GAAP financial measures 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, which is consistent with the way the company is measured by investment analysts and industry data sources. In addition, excluding the change in deferred revenues and the related cost of sales provides a much more timely indication of trends in our operating results.

Cautionary Note Regarding Forward-looking Statements: Information in this press release that involves Activision Blizzard’s expectations, plans, intentions or strategies regarding the future, including statements under the heading “Company Outlook,” are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements consist of any statement other than a recitation of historical facts and include, but are not limited to: (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 relating to product releases; (3) statements of future financial or operating performance; (4) statements about the impact of the transactions involving the repurchase of shares from Vivendi, S.A., and the debt financing related thereto; and (5) statements of assumptions underlying such statements. Activision Blizzard 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 risk, reflect management’s current expectations, estimates and projections about our business, and are inherently uncertain and difficult to predict. Activision Blizzard’s actual future results could differ materially from those expressed in the forward-looking statements set forth in this release. Risks and uncertainties that may affect our future results include, but are not limited to, sales levels of Activision Blizzard’s titles, increasing concentration of titles, shifts in consumer spending trends, the impact of the current macroeconomic environment, Activision Blizzard’s ability to predict consumer preferences, including interest in specific genres, such as first-person action, massively multiplayer online and “toys to life” games, and preferences among hardware platforms, the seasonal and cyclical nature of the interactive game market, changing business models, including digital delivery of content, competition including from used games and other forms of entertainment, possible declines in software pricing, product returns and price protection, product delays, adoption rate and availability of new hardware (including peripherals) and related software, particularly during the ongoing console transition, rapid changes in technology and industry standards, the current regulatory environment, litigation risks and associated costs, protection of proprietary rights, maintenance of relationships with key personnel, customers, financing providers, licensees, licensors, vendors, and third-party developers, including the ability to attract, retain and develop key personnel and developers that can create high quality titles, counterparty risks relating to customers, licensees, licensors and manufacturers, domestic and international economic, financial and political conditions and policies, foreign exchange rates and tax rates, the identification of suitable future acquisition opportunities and potential challenges associated with geographic expansion, capital market risks, the possibility that expected benefits related to the transactions involving the repurchase of shares from Vivendi S.A. may not materialize as expected, the amount of our debt and the limitations imposed by the covenants in the agreements governing our debt, and the other factors identified in “Risk Factors” included in Part I, Item 1A of Activision Blizzard’s most recent annual report on Form 10-K. The forward-looking statements in this release are based upon information available to Activision Blizzard as of the date of this release, and Activision Blizzard assumes 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 the future performance of Activision Blizzard and are subject to risks, uncertainties and other factors, some of which are beyond its 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,
    2014   2013     2014   2013
         
Net revenues:
Product sales $ 587 $ 727 $ 1,357 $ 1,717
Subscription, licensing and other revenues 1     383       323       724       658
Total net revenues     970       1,050       2,081       2,375
 
Costs and expenses:
Cost of sales - product costs 187 179 412 440
Cost of sales - online 56 54 115 111
Cost of sales - software royalties and amortization 46 38 102 99
Cost of sales - intellectual property licenses 11 14 13 52
Product development 112 123 255 247
Sales and marketing 141 116 245 223
General and administrative     107       96       202       186
Total costs and expenses     660       620       1,344       1,358
Operating income 310 430 737 1,017
Interest and other investment income (expense), net     (50 )     ---       (101 )     3
Income before income tax expense 260 430 636 1,020
Income tax expense     56       106       139       240
Net income   $ 204     $ 324     $ 497     $ 780
                           
Basic earnings per common share 2 $ 0.28 $ 0.28 $ 0.68 $ 0.68
Weighted average common shares outstanding     716       1,118       712       1,116
                           
Diluted earnings per common share 2 $ 0.28 $ 0.28 $ 0.67 $ 0.68
Weighted average common shares outstanding assuming dilution     725       1,127       723       1,124
                           
 

1 Subscription, licensing and other revenues represents revenues from World of Warcraft subscriptions, licensing royalties from our products and franchises, value-added services, downloadable content, and other miscellaneous revenues.

 
2 The company calculates earnings per share pursuant to the two-class method which requires the allocation of net income between common shareholders and participating security holders. We had, on a weighted-average basis, participating securities of approximately 16 million for both the three and six months ended June 30, 2014. We had, on a weighted-average basis, participating securities of approximately 24 million and 25 million for the three and six months ended June 30, 2013, respectively. Net income attributable to Activision Blizzard Inc. common shareholders used to calculate earnings per common share assuming dilution was $200 million and $484 million for the three and six months ended June 30, 2014 as compared to the total net income of $204 million and $497 million for the same periods, respectively. Net income attributable to Activision Blizzard Inc. common shareholders used to calculate earnings per common share assuming dilution was $318 million and $764 million for the three and six months ended June 30, 2013 as compared to the total net income of $324 million and $780 million for the same periods, respectively.
 
 
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Amounts in millions)
               
  June 30,     December 31,
      2014       2013
ASSETS              
Current assets:
Cash and cash equivalents $ 4,199 $ 4,410
Short-term investments 5 33
Accounts receivable, net 107 510
Inventories, net 151 171
Software development 391 367
Intellectual property licenses 3 11
Deferred income taxes, net 359 321
Other current assets     259         418  
Total current assets     5,474         6,241  
Long-term investments 9 9
Software development 68 21
Property and equipment, net 162 138
Other assets 86 35
Intangible assets, net 39 43
Trademark and trade names 433 433
Goodwill     7,089         7,092  
Total assets   $ 13,360       $ 14,012  
               
LIABILITIES AND SHAREHOLDERS’ EQUITY              
Current liabilities:
Accounts payable $ 167 $ 355
Deferred revenues 769 1,389
Accrued expenses and other liabilities 507 636
Current portion of long-term debt     ---         25  
Total current liabilities     1,443         2,405  
Long-term debt, net 4,321 4,668
Deferred income taxes, net 82 66
Other liabilities     343         251  
Total liabilities     6,189         7,390  
Shareholders’ equity:
Common stock --- ---
Additional paid-in capital 9,853 9,682
Treasury stock (5,762 ) (5,814 )
Retained earnings 3,036 2,686
Accumulated other comprehensive income     44         68  
Total shareholders’ equity     7,171         6,622  
Total liabilities and shareholders’ equity   $ 13,360       $ 14,012  
 
 
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
RECONCILIATION OF GAAP NET INCOME TO NON-GAAP MEASURES
(Amounts in millions, except earnings per share data)
                                                                             
Three Months Ended June 30, 2014   Net Revenues   Cost of Sales - Product Costs   Cost of Sales - Online  

Cost of Sales -
Software Royalties
and Amortization

 

Cost of Sales -
Intellectual
Property Licenses

  Product Development   Sales and Marketing   General and Administrative   Total Costs and Expenses
GAAP Measurement     $ 970   $ 187   $ 56   $ 46   $ 11   $ 112   $ 141   $ 107   $ 660
Less: Net effect from deferral of net revenues and related cost of sales (a)

(312

)

(69

)

-

(24

)

1 - - -

(92

)

Less: Stock-based compensation (b) - - -

(4

)

-

(3

)

(2

)

(13

)

(22

)

Less: Amortization of intangible assets (c)   -       -       -       -      

(1

)

 

 

-       -       -      

(1

)

Non-GAAP Measurement       $ 658     $ 118     $ 56     $ 18     $ 11     $ 109     $ 139     $ 94     $ 545  
                                                                             
 
                                     
Three Months Ended June 30, 2014   Operating Income   Net Income   Basic Earnings per Share  

Diluted Earnings
per Share

GAAP Measurement $ 310 $ 204 $ 0.28 $ 0.28
Less: Net effect from deferral of net revenues and related cost of sales (a)

(220

)

(174

)

(0.24

)

(0.23

)

Less: Stock-based compensation (b) 22 14 0.02 0.02
Less: Amortization of intangible assets (c)   1       1       -       -  
Non-GAAP Measurement       $ 113     $ 45     $ 0.06     $ 0.06  
                                     
 
                                                                             
Six Months Ended June 30, 2014   Net Revenues   Cost of Sales - Product Costs   Cost of Sales - Online  

Cost of Sales -
Software Royalties
and Amortization

 

Cost of Sales -
Intellectual
Property Licenses

  Product Development   Sales and Marketing   General and Administrative   Total Costs and Expenses
GAAP Measurement $ 2,081 $ 412 $ 115 $ 102 $ 13 $ 255 $ 245 $ 202 $ 1,344
Less: Net effect from deferral of net revenues and related cost of sales (a)

(651

)

(163

)

-

(49

)

1 - - -

(211

)

Less: Stock-based compensation (b) - - -

(11

)

-

(10

)

(5

)

(27

)

(53

)

Less: Amortization of intangible assets (c)   -       -       -       -      

(3

)

    -       -       -      

(3

)

Non-GAAP Measurement       $ 1,430     $ 249     $ 115     $ 42     $ 11     $ 245     $ 240     $ 175     $ 1,077  
                                                                             
 
                                     
Six Months Ended June 30, 2014       Operating Income   Net Income   Basic Earnings per Share  

Diluted Earnings
per Share

GAAP Measurement $ 737 $ 497 $ 0.68 $ 0.67
Less: Net effect from deferral of net revenues and related cost of sales (a)

(440

)

(346

)

(0.47

)

(0.47

)

Less: Stock-based compensation (b) 53 33 0.05 0.04
Less: Amortization of intangible assets (c)   3       2       -       -  
Non-GAAP Measurement       $ 353     $ 186     $ 0.25     $ 0.25  
                                     
 
(a) Reflects the net change in deferred revenues and related cost of sales.
(b) Includes expense related to stock-based compensation.
(c) Reflects amortization of intangible assets from purchase price accounting.
 

The company calculates earnings per share pursuant to the two-class method which requires the allocation of net income between common shareholders and participating security holders. Net income attributable to Activision Blizzard common shareholders used to calculate non-GAAP earnings per common share assuming dilution was $44 million and $181 million for the three and six months ended June 30, 2014 as compared to total non-GAAP net income of $45 million and $186 million for the same periods, respectively.

 

The per share adjustments are presented as calculated, and the GAAP and non-GAAP earnings per share information is also 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 earnings per share data)

                                                                           

Three Months Ended June 30, 2013

 

Net Revenues

 

Cost of Sales - Product Costs

 

Cost of Sales - Online

 

Cost of Sales -
Software Royalties
and Amortization

 

Cost of Sales -
Intellectual
Property Licenses

 

Product Development

 

Sales and Marketing

 

General and Administrative

 

Total Costs and Expenses

GAAP Measurement

 

$

1,050

 

$

179

 

$

54

 

$

38

 

$

14

 

$

123

 

$

116

 

$

96

$

620

Less: Net effect from deferral of net revenues and related cost of sales

(a)

(442

)

(77

)

-

(26

)

(1

)

-

-

-

(104

)

Less: Stock-based compensation

(b)

-

-

-

(3

)

-

(7

)

(2

)

(12

)

(24

)

Less: Amortization of intangible assets

(c)

   

-

     

-

     

-

     

-

     

(3

)

   

-

     

-

     

-

     

(3

)

Non-GAAP Measurement

$

608

   

$

102

   

$

54

   

$

9

   

$

10

   

$

116

   

$

114

   

$

84

   

$

489

 
                                                                           
 
                                   

Three Months Ended June 30, 2013

 

Operating Income

 

Net Income

 

Basic Earnings per Share

 

Diluted Earnings per Share

GAAP Measurement

$

430

$

324

$

0.28

$

0.28

Less: Net effect from deferral of net revenues and related cost of sales

(a)

(338

)

(251

)

(0.22

)

(0.22

)

Less: Stock-based compensation

(b)

24

15

0.01

0.01

Less: Amortization of intangible assets

(c)

 

3

     

2

     

-

     

-

 

Non-GAAP Measurement

$

119

   

$

90

   

$

0.08

   

$

0.08

 
                                   
                                                                           
Six Months Ended June 30, 2013   Net Revenues   Cost of Sales - Product Costs   Cost of Sales - Online  

Cost of Sales -
Software Royalties
and Amortization

 

Cost of Sales -
Intellectual
Property Licenses

  Product Development   Sales and Marketing   General and Administrative   Total Costs and Expenses
GAAP Measurement $ 2,375 $ 440 $ 111 $ 99 $ 52 $ 247 $ 223 $ 186 $ 1,358
Less: Net effect from deferral of net revenues and related cost of sales (a)

(962

)

(192

)

-

(60

)

(3

)

- - -

(255

)

Less: Stock-based compensation (b) - - -

(8

)

-

(13

)

(4

)

(25

)

(50

)

Less: Amortization of intangible assets (c)   -       -       -       -      

(6

)

    -       -       -      

(6

)

Non-GAAP Measurement $ 1,413     $ 248     $ 111     $ 31     $ 43     $ 234     $ 219     $ 161     $ 1,047  
                                                                           
 
                                   
Six Months Ended June 30, 2013   Operating Income   Net Income   Basic Earnings per Share   Diluted Earnings per Share
GAAP Measurement $ 1,017 $ 780 $ 0.68 $ 0.68
Less: Net effect from deferral of net revenues and related cost of sales (a)

(707

)

(528

)

(0.46

)

(0.46

)

Less: Stock-based compensation (b) 50 32 0.03 0.03
Less: Amortization of intangible assets (c)   6       4       -       -  
Non-GAAP Measurement $ 366     $ 288     $ 0.25     $ 0.25  
                                   
 
(a) Reflects the net change in deferred revenues and related cost of sales.
(b) Includes expense related to stock-based compensation.
(c) Reflects amortization of intangible assets from purchase price accounting.
 

The company calculates earnings per share pursuant to the two-class method which requires the allocation of net income between common shareholders and participating security holders. Net income attributable to Activision Blizzard Inc. common shareholders used to calculate non-GAAP earnings per common share assuming dilution was $88 million and $282 million for the three and six months ended June 30, 2013 as compared to total non-GAAP net income of $90 million and $288 million for the same periods, respectively.

 

The per share adjustments are presented as calculated, and the GAAP and non-GAAP earnings per share information is also presented as calculated. The sum of these measures, as presented, may differ due to the impact of rounding.
 
 
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
FINANCIAL INFORMATION
For the Three And Six Months Ended June 30, 2014 and 2013
(Amounts in millions)
           
Three Months Ended
June 30, 2014 June 30, 2013 $ Increase % Increase
Amount % of Total4 Amount % of Total4 (Decrease) (Decrease)
GAAP Net Revenues by Distribution Channel
Retail channels $ 428 44 % $ 626 60 % $ (198 ) (32 ) %
Digital online channels1   476   49     387   37     89   23
Total Activision and Blizzard 904 93 1,013 96 (109 ) (11 )
 
Distribution   66   7     37   4     29   78
Total consolidated GAAP net revenues   970   100     1,050   100     (80 ) (8 )
 
Change in Deferred Revenues2
Retail channels (317 ) (438 )
Digital online channels1   5     (4 )
Total changes in deferred revenues   (312 )   (442 )
 
Non-GAAP Net Revenues by Distribution Channel
Retail channels 111 17 188 31 (77 ) (41 )
Digital online channels1   481   73     383   63     98   26
Total Activision and Blizzard 592 90 571 94 21 4
 
Distribution   66   10     37   6     29   78
Total non-GAAP net revenues3 $ 658   100 % $ 608   100 % $ 50   8 %
 
 
Six Months Ended
June 30, 2014 June 30, 2013 $ Increase % Increase
Amount % of Total4 Amount % of Total4 (Decrease) (Decrease)
GAAP Net Revenues by Distribution Channel
Retail channels $ 1,087 52 % $ 1,522 64 % $ (435 ) (29 ) %
Digital online channels1   854   41     765   32     89   12
Total Activision and Blizzard 1,941 93 2,287 96 (346 ) (15 )
 
Distribution   140   7     88   4     52   59
Total consolidated GAAP net revenues   2,081   100     2,375   100     (294 ) (12 )
 
Change in Deferred Revenues2
Retail channels (804 ) (1,009 )
Digital online channels1   153     47  
Total changes in deferred revenues   (651 )   (962 )
 
Non-GAAP Net Revenues by Distribution Channel
Retail channels 283 20 513 36 (230 ) (45 )
Digital online channels1   1,007   70     812   57     195   24
Total Activision and Blizzard 1,290 90 1,325 94 (35 ) (3 )
 
Distribution   140   10     88   6     52   59
Total non-GAAP net revenues3 $ 1,430   100 % $ 1,413   100 % $ 17   1 %
 

1 Net revenues from digital online channels represent revenues from subscriptions, licensing royalties, value-added services, downloadable content, digitally distributed products, and wireless devices.

2 We provide net revenues including (in accordance with GAAP) and excluding (non-GAAP) the impact of changes in deferred revenues.
3 Total non-GAAP net revenues presented also represents our total operating segment net revenues.
4 The percentages of total are presented as calculated. Therefore the sum of these percentages, as presented, may differ due to the impact of rounding.
 
 
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
FINANCIAL INFORMATION
For the Three Months Ended June 30, 2014 and 2013
(Amounts in millions)
 
Three Months Ended  
June 30, 2014   June 30, 2013   $ Increase   % Increase
Amount   % of Total6 Amount   % of Total6 (Decrease) (Decrease)
GAAP Net Revenues by Segment/Platform Mix    
Activision and Blizzard:
Online1 195 20 233 22 (38 ) (16 )

%

PC 182 19 100 10 82 82

 

 
Next-generation (PS4, Xbox One, WiiU) 137 14 4 --- 133 NM
Current-generation (PS3, Xbox 360, Wii)   342   35   586   56 (244 ) (42 )
Total console2   479   49   590   56 (111 ) (19 )
 
Mobile and other5 48 5 90 9 (42 ) (47 )
             
Total Activision and Blizzard   904   93   1,013   96 (109 ) (11 )
 
Distribution:
Total Distribution   66   7   37   4 29   78
Total consolidated GAAP net revenues   970   100   1,050   100 (80 ) (8 )
 
Change in Deferred Revenues3
Activision and Blizzard:
Online1 6 (39 )
PC (51 ) (57 )
 
Next-generation (PS4, Xbox One, WiiU) (70 ) (4 )
Current-generation (PS3, Xbox 360, Wii)   (208 )   (342 )
Total console2   (278 )   (346 )
 
Mobile and other5   11     ---  
Total changes in deferred revenues   (312 )   (442 )
 
Non-GAAP Net Revenues by Segment/Platform Mix
Activision and Blizzard:
Online1 201 31 194 32 7 4
PC 131 20 43 7 88 205
 
Next-generation (PS4, Xbox One, WiiU) 67 10 --- --- 67 NM
Current-generation (PS3, Xbox 360, Wii)   134   20   244   40 (110 ) (45 )
Total console2   201   31   244   40 (43 ) (18 )
 
Mobile and other5 59 9 90 15 (31 ) (34 )
             
Total Activision and Blizzard   592   90   571   94 21   4
 
Distribution:
Total Distribution   66   10   37   6 29   78
Total consolidated non-GAAP net revenues4   658   100   608   100 50   8 %
 

1 Revenues from online consists of revenues from all World of Warcraft products, including subscriptions, boxed products, expansion packs, licensing royalties, and value-added services.

2 Downloadable content and their related revenues are included in each respective console platforms and total console.
3 We provide net revenues including (in accordance with GAAP) and excluding (non-GAAP) the impact of changes in deferred net revenues.
4 Total non-GAAP net revenues presented also represents our total operating segment net revenues.
5 Revenues from mobile and other includes revenues from handheld and mobile devices, as well as non-platform specific game related revenues such as standalone sales of toys and accessories products from the Skylanders franchise and other physical merchandise and accessories.
6 The percentages of total are presented as calculated. Therefore the sum of these percentages, as presented, may differ due to the impact of rounding.
 
 
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
FINANCIAL INFORMATION
For the Six Months Ended June 30, 2014 and 2013
(Amounts in millions)
 
  Six Months Ended
June 30, 2014   June 30, 2013   $ Increase   % Increase
Amount   % of Total6 Amount   % of Total6 (Decrease) (Decrease)
GAAP Net Revenues by Segment/Platform Mix      
Activision and Blizzard:
Online1 395 19 508 21 (113 ) (22 )

%

PC 281 14 195 8 86 44

 

 
Next-generation (PS4, Xbox One, WiiU) 245 12 11 --- 234 NM
Current-generation (PS3, Xbox 360, Wii)   889   43   1,328   56   (439 ) (33 )
Total console2   1,134   54   1,339   56   (205 ) (15 )
 
Mobile and other5 131 6 245 10 (114 ) (47 )
               
Total Activision and Blizzard   1,941   93   2,287   96   (346 ) (15 )
 
Distribution:
Total Distribution   140   7   88   4   52   59
Total consolidated GAAP net revenues   2,081   100   2,375   100   (294 ) (12 )
 
Change in Deferred Revenues3
Activision and Blizzard:
Online1 33 (85 )
PC 88 (29 )
 
Next-generation (PS4, Xbox One, WiiU) (146 ) (8 )
Current-generation (PS3, Xbox 360, Wii)   (637 )   (839 )
Total console2   (783 )   (847 )
 
Mobile and other5   11     (1 )
Total changes in deferred revenues   (651 )   (962 )
 
Non-GAAP Net Revenues by Segment/Platform Mix
Activision and Blizzard:
Online1 428 30 423 30 5 1
PC 369 26 166 12 203 122
 
Next-generation (PS4, Xbox One, WiiU) 99 7 3 --- 96 NM
Current-generation (PS3, Xbox 360, Wii)   252   18   489   35   (237 ) (48 )
Total console2   351   25   492   35   (141 ) (29 )
 
Mobile and other5 142 10 244 17 (102 ) (42 )
               
Total Activision and Blizzard   1,290   90   1,325   94   (35 ) (3 )
 
Distribution:
Total Distribution   140   10   88   6   52   59
Total consolidated non-GAAP net revenues4   1,430   100   1,413   100   17   1

%

 

1 Revenues from online consists of revenues from all World of Warcraft products, including subscriptions, boxed products, expansion packs, licensing royalties, and value-added services.

2 Downloadable content and their related revenues are included in each respective console platforms and total console.
3 We provide net revenues including (in accordance with GAAP) and excluding (non-GAAP) the impact of changes in deferred net revenues.
4 Total non-GAAP net revenues presented also represents our total operating segment net revenues.
5 Revenues from mobile and other includes revenues from handheld and mobile devices, as well as non-platform specific game related revenues such as standalone sales of toys and accessories products from the Skylanders franchise and other physical merchandise and accessories.
6 The percentages of total are presented as calculated. Therefore the sum of these percentages, as presented, may differ due to the impact of rounding.
 
 
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
FINANCIAL INFORMATION
For the Three And Six Months Ended June 30, 2014 and 2013
(Amounts in millions)
           
Three Months Ended
June 30, 2014 June 30, 2013 $ Increase % Increase
Amount % of Total3 Amount % of Total3 (Decrease) (Decrease)
GAAP Net Revenues by Geographic Region
North America $ 471 49 % $ 562 54 % $ (91 ) (16 ) %
Europe 395 41 402 38 (7 ) (2 )
Asia Pacific   104   11     86   8     18   21
Total consolidated GAAP net revenues   970   100     1,050   100     (80 ) (8 )
 
Change in Deferred Revenues1
North America (177 ) (248 )
Europe (113 ) (161 )
Asia Pacific   (22 )   (33 )
Total changes in net revenues   (312 )   (442 )
 
Non-GAAP Net Revenues by Geographic Region
North America 294 45 314 52 (20 ) (6 )
Europe 282 43 241 40 41 17
Asia Pacific   82   12     53   9     29   55
Total non-GAAP net revenues2 $ 658   100 % $ 608   100 % $ 50   8 %
 
 
Six Months Ended
June 30, 2014 June 30, 2013 $ Increase % Increase
Amount % of Total3 Amount % of Total3 (Decrease) (Decrease)
GAAP Net Revenues by Geographic Region
North America $ 1,035 50 % $ 1,300 55 % $ (265 ) (20 ) %
Europe 856 41 889 37 (33 ) (4 )
Asia Pacific   190   9     186   8     4   2
Total consolidated GAAP net revenues   2,081   100     2,375   100     (294 ) (12 )
 
Change in Deferred Revenues1
North America (411 ) (563 )
Europe (237 ) (330 )
Asia Pacific   (3 )   (69 )
Total changes in net revenues   (651 )   (962 )
 
Non-GAAP Net Revenues by Geographic Region
North America 624 44 737 52 (113 ) (15 )
Europe 619 43 559 40 60 11
Asia Pacific   187   13     117   8     70   60
Total non-GAAP net revenues2 $ 1,430   100 % $ 1,413   100 % $ 17   1 %
 
1 We provide net revenues including (in accordance with GAAP) and excluding (non-GAAP) the impact of changes in deferred revenues.
2 Total non-GAAP net revenues presented also represents our total operating segment net revenues.
3 The percentages of total are presented as calculated. Therefore the sum of these percentages, as presented, may differ due to the impact of rounding.
 
 
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
SEGMENT INFORMATION
For the Three And Six Months Ended June 30, 2014 and 2013
(Amounts in millions)
           
Three Months Ended
June 30, 2014 June 30, 2013 $ Increase % Increase
Amount % of Total4 Amount % of Total4 (Decrease) (Decrease)
Segment net revenues:
Activision1 $ 252 38 % $ 347 57 % $ (95 ) (27 ) %
Blizzard2 340 52 224 37 116 52
Distribution3   66   10     37   6     29   78
Operating segment total 658 100 % 608 100 % 50 8
 
Reconciliation to consolidated net revenues:
Net effect from deferral of net revenues   312     442  
Consolidated net revenues $ 970   $ 1,050   $ (80 ) (8 ) %
 
Segment income (loss) from operations:
Activision1 $ (31 ) $ 60 $ (91 ) (152 ) %
Blizzard2 145 60 85 142
Distribution3   (1 )   (1 )   ---   ---
Operating segment total 113 119 (6 ) (5 )
 

Reconciliation to consolidated operating income and consolidated income before income tax expense:

Net effect from deferral of net revenues and related cost of sales 220 338
Stock-based compensation expense (22 ) (24 )
Amortization of intangible assets   (1 )   (3 )
Consolidated operating income 310 430 (120 ) (28 )
Interest and other investment income (expense), net   (50 )   ---  
Consolidated income before income tax expense $ 260   $ 430   $ (170 ) (40 ) %
 
Operating margin from total operating segments 17.2 % 19.6 %
 
 
Six Months Ended
June 30, 2014 June 30, 2013 $ Increase % Increase
Amount % of Total5 Amount % of Total5 (Decrease) (Decrease)
Segment net revenues:
Activision1 $ 489 34 % $ 771 55 % $ (282 ) (37 ) %
Blizzard2 801 56 554 39 247 45
Distribution3   140   10     88   6     52   59
Operating segment total 1,430 100 % 1,413 100 % 17 1
 
Reconciliation to consolidated net revenues:
Net effect from deferral of net revenues   651     962  
Consolidated net revenues $ 2,081   $ 2,375   $ (294 ) (12 ) %
 
Segment income (loss) from operations:
Activision1 $ (29 ) $ 173 $ (202 )

(117

)

%
Blizzard2 383 194 189 97
Distribution3   (1 )   (1 )   ---   ---
Operating segment total 353 366 (13 ) (4 )
 

Reconciliation to consolidated operating income and consolidated income before income tax expense:

Net effect from deferral of net revenues and related cost of sales 440 707
Stock-based compensation expense (53 ) (50 )
Amortization of intangible assets   (3 )   (6 )
Consolidated operating income 737 1,017 (280 ) (28 )
Interest and other investment income (expense), net   (101 )   3  
Consolidated income before income tax expense $ 636   $ 1,020   $ (384 ) (38 ) %
 
Operating margin from total operating segments 24.7 % 25.9 %
 
1 Activision Publishing (“Activision”) — publishes interactive entertainment products and contents.
2 Blizzard — Blizzard Entertainment, Inc. and its subsidiaries (“Blizzard”) publishes PC games and online subscription-based games in the MMORPG category.
3 Activision Blizzard Distribution (“Distribution”) — distributes interactive entertainment software and hardware products.
4 The percentages of total are presented as calculated. Therefore the sum of these percentages, as presented, may differ due to the impact of rounding.
 
 
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
For the Trailing Twelve Months Ending June 30, 2014
EBITDA and Adjusted EBITDA
(Amounts in millions)
 
                Trailing Twelve
Months Ending

September 30, 2013

December 31, 2013 March 31, 2014 June 30, 2014 June 30, 2014
 
GAAP Net Income (Loss) $ 56 $ 174 $ 293 $ 204 $ 727
Interest (Income) / Expense, net 4 52 51 50 157
Provision (Benefit) for income taxes 10 59 83 56 208
Depreciation and amortization   21     40   19     19     99
EBITDA 91 325 446 329 1,191
 
Deferral of net revenues and related cost of sales (a) (32 ) 509 (219 ) (220 ) 38
Stock-based compensation expense (b) 25 34 30 22 111
Fees and other expenses related to the Purchase
Transaction and related debt financings (c)   62     18   ---     ---     80
Adjusted EBITDA $ 146   $ 886 $ 257   $ 131   $ 1,420
 
(a) Reflects the net change in deferred net revenues and related cost of sales.
(b) Includes expense related to stock-based compensation.
(c)

Reflects fees and other expenses related to the repurchase of 429 million shares of our common stock from Vivendi (the "Purchase Transaction") completed on October 11, 2013 and related debt financings.

 
Trailing twelve months amounts are presented as calculated. Therefore, the sum of the four quarters, as presented, may differ due to the impact of rounding.
 
 
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
Outlook for the Quarter Ending September 30, 2014 and
Year Ending December 31, 2014
GAAP to Non-GAAP Reconciliation
(Amounts in millions, except per share data)
  Outlook for   Outlook for
Three Months Ending Year Ending
September 30, 2014 December 31, 2014
 
Net Revenues (GAAP) $ 650 $ 4,240
 

Excluding the impact of:

Change in deferred net revenues (a)   325     460
 
Net Revenues (Non-GAAP) $

975

$ 4,700
 
 
Earnings (Losses) Per Basic / Diluted Share (GAAP) $ (0.07 ) $ 0.91
 

Excluding the impact of:

Net effect from deferral in net revenues and related cost of sales (b) 0.15 0.27
Stock-based compensation (c) 0.02 0.10
Amortization of intangible assets (d) - 0.01
       
Earnings Per Diluted Share (Non-GAAP) $ 0.11 $ 1.29
 
 
(a) Reflects the net change in deferred net revenues.
(b) Reflects the net change in deferred net revenues and related cost of sales.
(c) Reflects expense related to stock-based compensation.
(d) Reflects amortization of intangible assets from purchase price accounting.
 

With expected GAAP net losses for the three months ending September 30, 2014, basic weighted average shares are used in the losses per share calculation. The per share adjustments are presented as calculated, and the GAAP and non-GAAP earnings (loss) per share information is also presented as calculated. The sum of these measures, as presented, may differ due to the impact of rounding.

 


Copyright © Business Wire 2014
Contact:

Activision Blizzard, Inc.
Kristin Southey
SVP, Investor Relations
(310) 255-2635
ksouthey@activision.com
or
Maryanne Lataif
SVP, Corporate Communications
(310) 255-2704
mlataif@activision.com