ATVI
$59.98
Activision Blizzard
($.80)
(1.32%)
Earnings Details
Quarter December 2019
Thursday, February 6, 2020 4:05:00 PM
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Summary

Activision Blizzard Misses

Activision Blizzard (ATVI) reported Quarter December 2019 earnings of $1.19 per share on revenue of $2.0 billion. The consensus earnings estimate was $1.14 per share on revenue of $2.7 billion. The Earnings Whisper number was $1.21 per share. Revenue fell 16.6% compared to the same quarter a year ago.

The company said it expects first quarter non-GAAP earnings of approximately $0.66 per share on revenue of approximately $1.64 billion and 2020 earnings of approximately $2.22 per share on revenue of approximately $6.45 billion. The current consensus earnings estimate is $0.32 per share on revenue of $1.30 billion for the quarter ending March 31, 2020 and $2.33 per share on revenue of $6.86 billion for the year ending December 31, 2020.

Activision Blizzard Inc is an online, personal computer, video game console, tablet, handheld, and mobile game publisher. It has three operating segments: - Activision Publishing, Inc., Blizzard Entertainment, Inc. and Activision Blizzard Distribution.

Results
Reported Earnings
$1.19
Earnings Whisper
$1.21
Consensus Estimate
$1.14
Reported Revenue
$1.99 Bil
Revenue Estimate
$2.67 Bil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

Activision Blizzard Announces Fourth-Quarter and 2019 Financial Results

Better-Than-Expected Q4 Results

SANTA MONICA, Calif.--(BUSINESS WIRE)--Activision Blizzard, Inc. (Nasdaq: ATVI) today announced fourth-quarter and full year 2019 results.

“Our fourth quarter results exceeded our prior outlook for both revenue and earnings per share,” said Bobby Kotick, Chief Executive Officer of Activision Blizzard. “Our recent Call of Duty® success illustrates the scale of our growth potential, as we expanded the community to more players in more countries on more platforms than ever before. With our strong content pipeline across our franchises and momentum in mobile, esports, and advertising, we look forward to continuing to delight our players, fans and stakeholders in 2020 and beyond.”

Financial Metrics

 

Q4

 

CY

(in millions, except EPS)

2019

 

Prior
Outlook*

 

2018

 

 

 

2019

 

2018

GAAP Net Revenues

$1,986

 

$1,812

 

$2,381

 

 

 

$6,489

 

$7,500

Impact of GAAP deferralsA

$722

 

$834

 

$454

 

 

 

($101)

 

($238)

 

 

 

 

 

 

 

 

 

 

 

 

GAAP EPS

$0.68

 

$0.29

 

$0.89

 

 

 

$1.95

 

$2.40

Non-GAAP EPS

$0.62

 

$0.43

 

$0.90

 

 

 

$2.31

 

$2.72

Impact of GAAP deferralsA

$0.61

 

$0.72

 

$0.39

 

 

 

($0.06)

 

($0.12)

 

 

 

 

 

 

* Prior outlook was provided by the company on November 7, 2019 in its earnings release.

For the year ended December 31, 2019, Activision Blizzard’s net revenues presented in accordance with GAAP were $6.49 billion, as compared with $7.50 billion for 2018. GAAP net revenues from digital channels were $4.93 billion. GAAP operating margin was 25%. GAAP earnings per diluted share were $1.95, as compared with $2.40 for 2018. On a non-GAAP basis, Activision Blizzard’s operating margin was 33% and earnings per diluted share were $2.31, as compared with $2.72 for 2018.

For the quarter ended December 31, 2019, Activision Blizzard’s net revenues presented in accordance with GAAP were $1.99 billion, as compared with $2.38 billion for the fourth quarter of 2018. GAAP net revenues from digital channels were $1.44 billion. GAAP operating margin was 23%. GAAP earnings per diluted share were $0.68, as compared with $0.89 for the fourth quarter of 2018. On a non-GAAP basis, Activision Blizzard’s operating margin was 30% and earnings per diluted share were $0.62, as compared with $0.90 for the fourth quarter of 2018.

Activision Blizzard generated $1.83 billion in operating cash flow for the year ended December 31, 2019, as compared with $1.79 billion for 2018. For the quarter, operating cash flow was $918 million, as compared with $999 million for the fourth quarter of 2018.

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

Operating Metrics

For the year ended December 31, 2019, Activision Blizzard’s net bookingsB were $6.39 billion, as compared with $7.26 billion for 2018. Net bookingsB from digital channels were $4.93 billion, as compared with $5.72 billion for 2018, and in-game net bookingsC were $3.37 billion.

For the quarter ended December 31, 2019, Activision Blizzard’s net bookingsB were $2.71 billion, as compared with $2.84 billion for the fourth quarter of 2018. Net bookingsB from digital channels were $1.88 billion, as compared with $1.88 billion for the fourth quarter of 2018. In-game net bookingsC were $1.09 billion.

For the quarter ended December 31, 2019, overall Activision Blizzard Monthly Active Users (MAUs)D were 409 million.

Selected Business Highlights

Strong execution against our strategy enabled Activision Blizzard to exceed its fourth quarter outlook and enter 2020 with momentum. Our increased investment and focus on the creative and commercial resources of our biggest franchises is delivering results, enabling us to accelerate the delivery of content in our pipeline, pursue new business models, broaden our communities, and delight our players.

Activision

  • Activision had 128 million MAUsD.
  • Call of Duty® Mobile installs exceeded 150 million, with the game reaching the top of the download charts in more than 150 countries and regions, and ending the fourth quarter in the top-15 grossing games in U.S. app stores.2
  • Call of Duty®: Modern Warfare® unit sell-through increased by a double-digit percentage versus Call of Duty®: Black Ops 4, with growth across both PC and console. PC sell-through on Battle.net grew 50% year-over-year. Modern Warfare saw strong growth in full-game downloads with console digital mix at nearly 50%. In-game net bookingsC grew by a double-digit percentage versus Black Ops 4.
  • In 2019, Call of Duty again generated more upfront console sales than any other franchise worldwide, a feat accomplished for 10 of the last 11 years.1
  • In January, the Call of Duty LeagueTM debuted with 12 city-based teams competing at its launch weekend in Minnesota. The league launched with deeply experienced team owners, high profile sponsors, and streaming distribution through YouTube, Activision Blizzard’s new broadcasting partner for esports leagues and events.

Blizzard

  • Blizzard had 32 million MAUsD.
  • World of Warcraft® exited 2019 with an active player community3 more than twice the size of its Q2-ending level.
  • Hearthstone® launched the Descent of DragonsTM expansion and rolled out the new Battlegrounds game mode in the fourth quarter, which drove sequential growth in engagement. Net bookingsB also grew sequentially for the franchise.
  • Overwatch® launched on the Nintendo Switch, further expanding a community that has surpassed 50 million players globally since launch.
  • In February, the Overwatch LeagueTM will return with 20 established teams from around the world competing in a homestand format with matches broadcast live on YouTube.

King

  • King had 249 million MAUsD.
  • Candy Crush SagaTM mobile reach grew year-over-year and it was the top-grossing title in the U.S. app stores.4
  • Candy CrushTM was once again the top-grossing franchise in the U.S. mobile app stores in the fourth quarter and 2019.4
  • Advertising net bookingsB grew over 80% year-over-year in the fourth quarter, and exceeded $150 million dollars in 2019.

Company Outlook

(in millions, except EPS)

GAAP
Outlook

Non-GAAP
Outlook

Impact of GAAP
deferralsA

CY 2020

 

 

 

Net Revenues

$6,450

$6,450

$275

EPS

$1.85

$2.22

$0.13

Fully Diluted Shares

778

778

 

 

 

 

 

Q1 2020

 

 

 

Net Revenues

$1,640

$1,640

($365)

EPS

$0.55

$0.66

($0.31)

Fully Diluted Shares

775

775

 

Net bookingsB are expected to be $6.725 billion for 2020 and $1.275 billion for the first quarter of 2020.

Capital Allocation

The Board of Directors declared a cash dividend of $0.41 per common share, payable on May 6, 2020 to shareholders of record at the close of business on April 15, 2020, which represents an 11% increase from 2019.

Conference Call

Today at 4:30 p.m. EST, Activision Blizzard’s management will host a conference call and webcast to discuss the company’s results for the quarter ended December 31, 2019 and management’s outlook for the remainder of the calendar year. The company welcomes all members of the financial and media communities and other interested parties to visit https://investor.activision.com to listen to the conference call via live Webcast or to listen to the call live by dialing into 800-367-2403 in the U.S. with passcode 2945091. A replay of the call will also be available after the call's conclusion and archived for one year at https://investor.activision.com/events.cfm.

About Activision Blizzard

Activision Blizzard, Inc. connects and engages the world through epic entertainment. A member of the Fortune 500 and S&P 500, Activision Blizzard is a leading interactive entertainment company. We delight hundreds of millions of monthly active users around the world through franchises including Activision’s Call of Duty®, Spyro®, and Crash Bandicoot™, Blizzard Entertainment's World of Warcraft®, Overwatch®, Hearthstone®, Diablo®, StarCraft®, and Heroes of the Storm®, and King's Candy Crush™, Bubble Witch™, and Farm Heroes™. 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. More information about Activision Blizzard and its products can be found on the company's website, www.activisionblizzard.com.

1 Per the NPD Group, GfK, GSD and internal estimates, based on dollar sales of front-line games.
2 Per App Annie Intelligence and internal estimates for respective regions, app stores, and periods.
3 Defined as players with monthly or longer-term subscriptions.
4 Per App Annie Intelligence for respective regions, app stores, and periods.

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

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

C In-game net bookings primarily includes the net amount of downloadable content and microtransactions sold during the period, and is equal to in-game net revenues excluding the impact from deferrals.

D Monthly Active User (“MAU”) Definition: We monitor MAUs as a key measure of the overall size of our user base. MAUs are the number of individuals who accessed a particular game in a given month. We calculate average MAUs in a period by adding the total number of MAUs in each of the months in a given period and dividing that total by the number of months in the period. An individual who accesses two of our games would be counted as two users. In addition, due to technical limitations, for Activision and King, an individual who accesses the same game on two platforms or devices in the relevant period would be counted as two users. For Blizzard, an individual who accesses the same game on two platforms or devices in the relevant period would generally be counted as a single user. In certain instances, we rely on third parties to publish our games. In these instances, MAU data is based on information provided to us by those third parties, or, if final data is not available, reasonable estimates of MAUs for these third-party published games.

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

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

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

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

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

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

Cautionary Note Regarding Forward-looking Statements: The statements contained herein that are not historical facts are forward-looking statements, including, but not limited to, statements about: (1) projections of revenues, expenses, income or loss, earnings or loss per share, cash flow or other financial items; (2) statements of our plans and objectives, including those related to releases of products and services and restructuring activities; (3) statements of future financial or operating performance, including the impact of tax items thereon; and (4) statements of assumptions underlying such statements. 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.

We caution that a number of important factors could cause our actual future results and other future circumstances to differ materially from those expressed in any forward-looking statements. Such factors include, but are not limited to: our ability to consistently deliver popular, high-quality titles in a timely manner; our ability to satisfy the expectations of consumers with respect to our brands, games, services, and/or business practices; concentration of revenue among a small number of titles; the continued growth in the scope and complexity of our business, including the diversion of management time and attention to issues relating to the operations of our newly acquired or started businesses and the potential impact of our expansion into new businesses on our existing businesses; our ability to realize the expected financial and operational benefits of, and effectively manage, our recently announced restructuring plans; increasing importance of revenues derived from digital distribution channels; risks associated with the retail sales business model; substantial influence of third-party platform providers over our products and costs; success and availability of video game consoles manufactured by third parties; risks associated with the free-to-play business model, including dependence on a relatively small number of consumers for a significant portion of revenues and profits from any given game; risks and costs associated with legal proceedings; changes in tax rates or exposure to additional tax liabilities, as well as the outcome of current or future tax disputes; rapid changes in technology and industry standards; competition, including from other forms of entertainment; our ability to sell products at assumed pricing levels; our ability to attract, retain, and motivate skilled personnel; reliance on external developers for development of some of our software products; the amount of our debt and the limitations imposed by the covenants in the agreements governing our debt; counterparty risks relating to customers, licensees, licensors, and manufacturers; intellectual property claims; piracy and unauthorized copying of our products; risks and uncertainties of conducting business outside the U.S.; fluctuations in currency exchange rates; increasing regulation of our business, products, and distribution in key territories; compliance with continually evolving laws and regulations concerning data privacy; potential data breaches and other cybersecurity risks; and the other factors identified in “Risk Factors” included in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2018.

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 December 31,

Year Ended December 31,

 

2019

2018 1

2019

2018 1

 

 

 

 

 

Net revenues

 

 

 

 

Product sales

$

699

 

$

808

$

1,975

 

$

2,255

Subscription, licensing, and other revenues2

1,287

 

1,573

4,514

 

5,245

Total net revenues

1,986

 

2,381

6,489

 

7,500

 

 

 

 

 

Costs and expenses

 

 

 

 

Cost of revenues—product sales:

 

 

 

 

Product costs

268

 

303

656

 

719

Software royalties, amortization, and intellectual property licenses

69

 

157

240

 

371

Cost of revenues—subscription, licensing, and other:

 

 

 

 

Game operations and distribution costs

251

 

251

965

 

1,028

Software royalties, amortization, and intellectual property licenses

68

 

121

233

 

399

Product development

296

 

325

998

 

1,101

Sales and marketing

346

 

321

926

 

1,062

General and administrative

205

 

199

732

 

822

Restructuring and related costs

29

 

10

132

 

10

Total costs and expenses

1,532

 

1,687

4,882

 

5,512

 

 

 

 

 

Operating income

454

 

694

1,607

 

1,988

 

 

 

 

 

Interest and other expense (income), net

7

 

4

(26

)

71

Loss on extinguishment of debt

 

 

40

Income before income tax expense (benefit)

447

 

690

1,633

 

1,877

 

 

 

 

 

Income tax expense (benefit)

(78

)

5

130

 

29

 

 

 

 

 

Net income

$

525

 

$

685

$

1,503

 

$

1,848

 

 

 

 

 

Basic earnings per common share

$

0.68

 

$

0.90

$

1.96

 

$

2.43

Weighted average common shares outstanding

768

 

763

767

 

762

 

 

 

 

 

Diluted earnings per common share

$

0.68

 

$

0.89

$

1.95

 

$

2.40

Weighted average common shares outstanding assuming dilution

773

 

771

771

 

771

1

During the three months ended March 31, 2019, we identified an amount which should have been recorded in the fourth quarter of 2018 to reduce income tax expense by $35 million. Our statement of operations for the three months and year ended December 31, 2018, as presented above, has been revised to reflect the correction. Refer to our forthcoming Annual Report on Form 10-K for the year ended December 31, 2019, 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)

 

 

December 31, 2019 1

December 31, 2018 2

Assets

 

 

Current assets

 

 

Cash and cash equivalents

$

5,794

 

$

4,225

 

Accounts receivable, net

848

 

1,035

 

Inventories, net

32

 

43

 

Software development

322

 

264

 

Other current assets

296

 

539

 

Total current assets

7,292

 

6,106

 

Software development

54

 

65

 

Property and equipment, net

253

 

282

 

Deferred income taxes, net

1,293

 

458

 

Other assets

658

 

482

 

Intangible assets, net

531

 

735

 

Goodwill

9,764

 

9,762

 

Total assets

$

19,845

 

$

17,890

 

 

 

 

Liabilities and Shareholders' Equity

 

 

Current liabilities

 

 

Accounts payable

$

292

 

$

253

 

Deferred revenues

1,375

 

1,493

 

Accrued expenses and other liabilities

1,248

 

896

 

Total current liabilities

2,915

 

2,642

 

Long-term debt, net

2,675

 

2,671

 

Deferred income taxes, net

505

 

18

 

Other liabilities

945

 

1,167

 

Total liabilities

7,040

 

6,498

 

 

 

 

Shareholders' equity

 

 

Common stock

 

 

Additional paid-in capital

11,174

 

10,963

 

Treasury stock

(5,563

)

(5,563

)

Retained earnings

7,813

 

6,593

 

Accumulated other comprehensive loss

(619

)

(601

)

Total shareholders’ equity

12,805

 

11,392

 

Total liabilities and shareholders’ equity

$

19,845

 

$

17,890

 

1

We adopted a new lease accounting standard in the first quarter of 2019. The new lease accounting standard increased our “Other assets,” “Accrued expenses and other liabilities,” and “Other liabilities” as of December 31, 2019. Refer to our forthcoming Annual Report on Form 10-K for the year ended December 31, 2019 for additional information.

 

2

During the three months ended March 31, 2019, we identified an amount which should have been recorded in the fourth quarter of 2018 to reduce income tax expense by $35 million. Our balance sheet as of December 31, 2018, as presented above, has been revised to reflect the correction. Refer to our forthcoming Annual Report on Form 10-K for the year ended December 31, 2019, for additional information.

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Amounts in millions)

 

 

Year Ended December 31,

 

2019

2018 1

Cash flows from operating activities:

 

 

Net income

$

1,503

 

$

1,848

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

Deferred income taxes

(352

)

(35

)

Provision for inventories

6

 

6

 

Non-cash operating lease cost

64

 

 

Depreciation and amortization

328

 

509

 

Amortization of capitalized software development costs and intellectual property licenses2

225

 

489

 

Loss on extinguishment of debt

 

40

 

Share-based compensation expense3

166

 

209

 

Unrealized gain on equity investment

(38

)

 

Other

51

 

7

 

Changes in operating assets and liabilities, net of effect from business acquisitions:

 

 

Accounts receivable, net

182

 

(114

)

Inventories

7

 

(5

)

Software development and intellectual property licenses

(275

)

(372

)

Other assets

164

 

(51

)

Deferred revenues

(154

)

(122

)

Accounts payable

31

 

(65

)

Accrued expenses and other liabilities

(77

)

(554

)

Net cash provided by operating activities

1,831

 

1,790

 

 

 

 

Cash flows from investing activities:

 

 

Proceeds from maturities of available-for-sale investments

153

 

116

 

Purchases of available-for-sale investments

(65

)

(209

)

Capital expenditures

(116

)

(131

)

Other investing activities

6

 

(6

)

Net cash used in investing activities

(22

)

(230

)

 

 

 

Cash flows from financing activities:

 

 

Proceeds from issuance of common stock to employees

105

 

99

 

Tax payment related to net share settlements on restricted stock units

(59

)

(94

)

Dividends paid

(283

)

(259

)

Repayment of long-term debt

 

(1,740

)

Premium payment for early redemption of note

 

(25

)

Other financing activities

 

(1

)

Net cash used in financing activities

(237

)

(2,020

)

 

 

 

Effect of foreign exchange rate changes on cash and cash equivalents

(3

)

(31

)

 

 

 

Net increase (decrease) in cash and cash equivalents and restricted cash

1,569

 

(491

)

 

 

 

Cash and cash equivalents and restricted cash at beginning of period

4,229

 

4,720

 

 

 

 

Cash and cash equivalents and restricted cash at end of period

$

5,798

 

$

4,229

 

1

Our statement of cash flows for the year ended December 31, 2018, as presented above, has been revised to reflect the reduction in income tax expense for Q4 2018 that was identified in Q1 2019, as previously discussed. The correction did not change our total operating, investing, or financing cash flows.

2

Excludes deferral and amortization of share-based compensation expense.

3

Includes the net effects of capitalization, deferral, and amortization of share-based compensation expense.

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

SUPPLEMENTAL CASH FLOW INFORMATION

(Amounts in millions)

 

 

Three Months Ended

Year over Year

Three Months Ended

Year over Year

 

December 31,

March 31,

June 30,

September 30,

December 31,

% Increase

March 31,

June 30,

September 30,

December 31,

% Increase

 

2017

 

2018

 

2018

 

2018

 

2018

 

(Decrease)

 

2019

 

2019

 

2019

 

2019

(Decrease)

Cash Flow Data

 

 

 

 

 

 

 

 

 

 

 

Operating Cash Flow

$

 

1,158

$

 

529

$

 

9

 

$

 

253

$

 

999

(14

)%

$

 

450

$

 

154

$

 

309

$

918

(8

)%

Capital Expenditures

 

69

 

31

 

30

 

 

36

 

34

(51

)

 

18

 

27

 

34

 

37

9

 

Non-GAAP Free Cash Flow1

$

 

1,089

$

 

498

$

 

(21

)

$

 

217

$

 

965

(11

)

$

432

$

 

127

$

 

275

$

 

881

(9

)

 

 

 

 

 

 

 

 

 

 

 

 

Operating Cash Flow - TTM2

$

 

2,213

$

 

2,331

$

 

2,075

 

$

 

1,949

$

 

1,790

(19

)

$

1,711

$

 

1,856

$

 

1,912

$

 

1,831

2

 

Capital Expenditures - TTM2

 

155

 

165

 

164

 

 

166

 

131

(15

)

 

118

 

115

 

113

 

116

(11

)

Non-GAAP Free Cash Flow - TTM2

$

 

2,058

$

 

2,166

$

 

1,911

 

$

 

1,783

$

 

1,659

(19

)%

$

 

1,593

$

 

1,741

$

 

1,799

$

 

1,715

3

%

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 March 31, 2017, three months ended June 30, 2017, and three months ended September 30, 2017 was $411 million, $265 million, and $379 million, respectively. Capital Expenditures for the three months ended March 31, 2017, three months ended June 30, 2017, and three months ended September 30, 2017, was $21 million, $31 million, and $34 million, respectively.

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

RECONCILIATION OF GAAP NET INCOME TO NON-GAAP MEASURES

(Amounts in millions, except per share data)

 

Three Months Ended December 31, 2019

Net Revenues

Cost of
Revenues—
Product Sales:
Product Costs

Cost of
Revenues—
Product Sales:
Software
Royalties and
Amortization

Cost of
Revenues—
Subs/Lic/Other:
Game Operations
and Distribution
Costs

Cost of
Revenues—
Subs/Lic/Other:
Software
Royalties and
Amortization

Product
Development

Sales and
Marketing

General and
Administrative

Restructuring
and related
costs

Total Costs and
Expenses

GAAP Measurement

$

1,986

$

268

 

$

69

 

$

251

 

$

68

 

$

296

 

$

346

 

$

205

 

$

29

 

$

1,532

 

Share-based compensation1

 

(4

)

 

 

(10

)

(2

)

(23

)

 

(39

)

Amortization of intangible assets2

 

 

 

(49

)

 

 

(2

)

 

(51

)

Restructuring and related costs3

(1

)

 

 

 

 

 

 

(29

)

(30

)

Discrete tax-related items4

 

 

(5

)

 

(3

)

(5

)

(4

)

 

(17

)

Non-GAAP Measurement

$

1,986

$

267

 

$

65

 

$

246

 

$

19

 

$

283

 

$

339

 

$

176

 

$

 

$

1,395

 

 

 

 

 

 

 

 

 

 

 

 

Net effect of deferred revenues and related cost of revenues5

$

722

$

59

 

$

81

 

$

3

 

$

2

 

$

 

$

 

$

 

$

 

$

145

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating
Income

Net Income

Basic Earnings
per Share

Diluted Earnings
per Share

 

 

 

 

 

 

GAAP Measurement

$

454

$

525

 

$

0.68

 

$

0.68

 

 

 

 

 

 

 

Share-based compensation1

39

39

 

0.05

 

0.05

 

 

 

 

 

 

 

Amortization of intangible assets2

51

51

 

0.07

 

0.07

 

 

 

 

 

 

 

Restructuring and related costs3

30

30

 

0.04

 

0.04

 

 

 

 

 

 

 

Income tax impacts from items above6

(45

)

(0.06

)

(0.06

)

 

 

 

 

 

 

Discrete tax-related items4

17

(123

)

(0.16

)

(0.16

)

 

 

 

 

 

 

Non-GAAP Measurement

$

591

$

477

 

$

0.62

 

$

0.62

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net effect of deferred revenues and related cost of revenues5

$

577

$

476

 

$

0.62

 

$

0.61

 

 

 

 

 

 

 

1

Includes expenses related to share-based compensation.

2

Reflects amortization of intangible assets from purchase price accounting.

3

Reflects restructuring initiatives, primarily severance and other restructuring-related costs.

4

Reflects the 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. Activision Blizzard will provide additional information in our forthcoming Form 10-K for the year ending December 31, 2019.

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 income tax impact associated with the above items. Tax impact on non-GAAP pre-tax income is calculated under the same accounting principles applied to the GAAP pre-tax income under ASC 740, which employs an annual effective tax rate method to the results.

 

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

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

RECONCILIATION OF GAAP NET INCOME TO NON-GAAP MEASURES

(Amounts in millions, except per share data)

 

Year Ended December 31, 2019

Net Revenues

Cost of
Revenues—
Product Sales:
Product Costs

Cost of
Revenues—
Product Sales:
Software
Royalties and
Amortization

Cost of
Revenues—
Subs/Lic/Other:
Game Operations
and Distribution
Costs

Cost of
Revenues—
Subs/Lic/Other:
Software
Royalties and
Amortization

Product
Development

Sales and
Marketing

General and
Administrative

Restructuring
and related
costs

Total Costs and
Expenses

GAAP Measurement

$

6,489

 

$

656

 

$

240

 

$

965

 

$

233

 

$

998

 

$

926

 

$

732

 

$

132

 

$

4,882

 

Share-based compensation1

 

 

(19

)

(1

)

(1

)

(53

)

(10

)

(82

)

 

(166

)

Amortization of intangible assets2

 

 

 

 

(196

)

 

 

(7

)

 

(203

)

Restructuring and related costs3

 

(5

)

 

 

 

 

 

 

(132

)

(137

)

Discrete tax-related items4

 

 

 

(5

)

 

(3

)

(5

)

(4

)

 

(17

)

Non-GAAP Measurement

$

6,489

 

$

651

 

$

221

 

$

959

 

$

36

 

$

942

 

$

911

 

$

639

 

$

 

$

4,359

 

 

 

 

 

 

 

 

 

 

 

 

Net effect of deferred revenues and related cost of revenues5

$

(101

)

$

(23

)

$

(25

)

$

(2

)

$

1

 

$

 

$

 

$

 

$

 

$

(49

)

 

 

 

 

 

 

 

 

 

 

 

 

Operating
Income

Net Income

Basic Earnings
per Share

Diluted Earnings
per Share

 

 

 

 

 

 

GAAP Measurement

$

1,607

 

$

1,503

 

$

1.96

 

$

1.95

 

 

 

 

 

 

 

Share-based compensation1

166

 

166

 

0.22

 

0.22

 

 

 

 

 

 

 

Amortization of intangible assets2

203

 

203

 

0.26

 

0.26

 

 

 

 

 

 

 

Restructuring and related costs3

137

 

137

 

0.18

 

0.18

 

 

 

 

 

 

 

Income tax impacts from items above6

 

(95

)

(0.13

)

(0.12

)

 

 

 

 

 

 

Discrete tax-related items4

17

 

(131

)

(0.17

)

(0.17

)

 

 

 

 

 

 

Non-GAAP Measurement

$

2,130

 

$

1,783

 

$

2.33

 

$

2.31

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net effect of deferred revenues and related cost of revenues5

$

(52

)

$

(47

)

$

(0.07

)

$

(0.06

)

 

 

 

 

 

 

1

Includes expenses related to share-based compensation.

2

Reflects amortization of intangible assets from purchase price accounting.

3

Reflects restructuring initiatives, primarily severance and other restructuring-related costs.

4

Reflects the 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. Activision Blizzard will provide additional information in our forthcoming Form 10-K for the year ending December 31, 2019.

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 income tax impact associated with the above items. Tax impact on non-GAAP pre-tax income is calculated under the same accounting principles applied to the GAAP pre-tax income under ASC 740, which employs an annual effective tax rate method to the results.

 

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

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

RECONCILIATION OF GAAP NET INCOME TO NON-GAAP MEASURES

(Amounts in millions, except per share data)

 

Three Months Ended December 31, 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

Restructuring
and related
costs

Total Costs
and Expenses

GAAP Measurement

$

2,381

 

$

303

 

$

157

 

$

251

 

$

121

 

$

325

 

$

321

 

$

199

 

$

10

 

$

1,687

 

Share-based compensation1

 

 

(7

)

 

(1

)

(12

)

(2

)

(21

)

 

(43

)

Amortization of intangible assets2

 

 

 

 

(88

)

 

 

(3

)

 

(91

)

Restructuring and related costs3

 

 

 

 

 

 

 

 

(10

)

(10

)

Non-GAAP Measurement

$

2,381

 

$

303

 

$

150

 

$

251

 

$

32

 

$

313

 

$

319

 

$

175

 

$

 

$

1,543

 

 

Net effect of deferred revenues and related cost of revenues4

$

454

 

$

74

 

$

26

 

$

(1

)

$

(13

)

$

 

$

 

$

 

$

 

$

86

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating
Income

Net Income7

Basic Earnings
per Share7

Diluted Earnings
per Share7

 

 

 

 

 

 

GAAP Measurement

$

694

 

$

685

 

$

0.90

 

$

0.89

 

 

 

 

 

 

 

Share-based compensation1

43

 

43

 

0.06

 

0.06

 

 

 

 

 

 

 

Amortization of intangible assets2

91

 

91

 

0.12

 

0.12

 

 

 

 

 

 

 

Restructuring and related costs3

10

 

10

 

0.01

 

0.01

 

 

 

 

 

 

 

Income tax impacts from items above5

 

(19

)

(0.03

)

(0.03

)

 

 

 

 

 

 

Discrete tax-related items6

 

(114

)

(0.15

)

(0.15

)

 

 

 

 

 

 

Non-GAAP Measurement

$

838

 

$

696

 

$

0.91

 

$

0.90

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net effect of deferred revenues and related cost of revenues4

$

368

 

$

298

 

$

0.39

 

$

0.39

 

 

 

 

 

 

 

1

Includes expenses related to share-based compensation.

2

Reflects amortization of intangible assets from purchase price accounting.

3

Reflects restructuring initiatives, primarily severance and other restructuring-related costs.

4

Reflects the net effect from deferral of revenues and (recognition) of deferred revenues, along with related cost of revenues, on certain of our online enabled products, including the effects of taxes.

5

Reflects the income tax impact associated with the above items. Tax impact on non-GAAP pre-tax income is calculated under the same accounting principles applied to the GAAP pre-tax income under ASC 740, which employs an annual effective tax rate method to the results.

6

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. Activision Blizzard provided additional information in our Form 10-K for the year ended December 31, 2018.

7

GAAP Net Income, GAAP EPS, and Discrete tax-related items, as presented above, have been revised to reflect the reduction in income tax expense for Q4 2018 that was identified in Q1 2019, as previously discussed.

 

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)

 

Year Ended December 31, 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

Restructuring
and related
costs

Total Costs and
Expenses

GAAP Measurement

$

7,500

 

$

719

 

$

371

 

$

1,028

 

$

399

 

$

1,101

 

$

1,062

 

$

822

 

$

10

 

$

5,512

 

Share-based compensation1

 

 

(13

)

(2

)

(3

)

(61

)

(15

)

(115

)

 

(209

)

Amortization of intangible assets2

 

 

 

 

(318

)

 

(44

)

(8

)

 

(370

)

Restructuring and related costs3

 

 

 

 

 

 

 

 

(10

)

(10

)

Non-GAAP Measurement

$

7,500

 

$

719

 

$

358

 

$

1,026

 

$

78

 

$

1,040

 

$

1,003

 

$

699

 

$

 

$

4,923

 

 

Net effect of deferred revenues and related cost of revenues4

$

(238

)

$

(48

)

$

(76

)

$

(2

)

$

(12

)

$

 

$

 

$

 

$

 

$

(138

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating
Income

Net Income8

Basic Earnings
per Share8

Diluted Earnings
per Share8

 

 

 

 

 

 

GAAP Measurement

$

1,988

 

$

1,848

 

$

2.43

 

$

2.40

 

 

 

 

 

 

 

Share-based compensation1

209

 

209

 

0.27

 

0.27

 

 

 

 

 

 

 

Amortization of intangible assets2

370

 

370

 

0.48

 

0.48

 

 

 

 

 

 

 

Restructuring and related costs3

10

 

10

 

0.01

 

0.01

 

 

 

 

 

 

 

Loss on extinguishment of debt5

 

40

 

0.05

 

0.05

 

 

 

 

 

 

 

Income tax impacts from items above6

 

(167

)

(0.22

)

(0.22

)

 

 

 

 

 

 

Discrete tax-related items7

 

(211

)

(0.27

)

(0.27

)

 

 

 

 

 

 

Non-GAAP Measurement

$

2,577

 

$

2,099

 

$

2.76

 

$

2.72

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net effect of deferred revenues and related cost of revenues4

$

(100

)

$

(96

)

$

(0.13

)

$

(0.12

)

 

 

 

 

 

 

1

Includes expenses related to share-based compensation.

2

Reflects amortization of intangible assets from purchase price accounting.

3

Reflects restructuring initiatives, primarily severance and other restructuring-related costs.

4

Reflects the net effect from deferral of revenues and (recognition) of deferred revenues, along with related cost of revenues, on certain of our online enabled products, including the effects of taxes.

5

Reflects the loss on extinguishment of debt from redemption activities.

6

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.

7

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. Activision Blizzard provided additional information in our Form 10-K for the year ended December 31, 2018.

8

GAAP Net Income, GAAP EPS, and Discrete tax-related items, as presented above, have been revised to reflect the reduction in income tax expense for Q4 2018 that was identified in Q1 2019, as previously discussed.

 

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 Months and Years Ended December 31, 2019 and 2018

(Amounts in millions)

 

Three Months Ended:

 

December 31, 2019

 

$ Increase / (Decrease)

 

 

Activision

 

Blizzard

 

King

 

Total

 

Activision

 

Blizzard

 

King

 

Total

Segment Net Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net revenues from external customers

 

$

1,426

 

 

$

562

 

 

$

503

 

 

$

2,491

 

 

$

15

 

 

$

(85

)

 

$

(40

)

 

$

(110

)

Intersegment net revenues1

 

 

 

33

 

 

 

 

33

 

 

 

 

(6

)

 

 

 

(6

)

Segment net revenues

 

$

1,426

 

 

$

595

 

 

$

503

 

 

$

2,524

 

 

$

15

 

 

$

(91

)

 

$

(40

)

 

$

(116

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Segment operating income

 

$

696

 

 

$

260

 

 

$

197

 

 

$

1,153

 

 

$

(27

)

 

$

19

 

 

$

(10

)

 

$

(18

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Margin

 

 

 

 

 

 

 

45.7

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2018

 

 

 

 

 

 

 

 

 

 

Activision

 

Blizzard

 

King

 

Total

 

 

 

 

 

 

 

 

Segment Net Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net revenues from external customers

 

$

1,411

 

 

$

647

 

 

$

543

 

 

$

2,601

 

 

 

 

 

 

 

 

 

Intersegment net revenues1

 

 

 

39

 

 

 

 

39

 

 

 

 

 

 

 

 

 

Segment net revenues

 

$

1,411

 

 

$

686

 

 

$

543

 

 

$

2,640

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Segment operating income

 

$

723

 

 

$

241

 

 

$

207

 

 

$

1,171

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Margin

 

 

 

 

 

 

 

44.4

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Years Ended:

 

December 31, 2019

 

$ Increase / (Decrease)

 

 

Activision

 

Blizzard

 

King

 

Total

 

Activision

 

Blizzard

 

King

 

Total

Segment Net Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net revenues from external customers

 

$

2,219

 

 

$

1,676

 

 

$

2,031

 

 

$

5,926

 

 

$

(239

)

 

$

(562

)

 

$

(55

)

 

$

(856

)

Intersegment net revenues1

 

 

 

43

 

 

 

 

43

 

 

 

 

(10

)

 

 

 

(10

)

Segment net revenues

 

$

2,219

 

 

$

1,719

 

 

$

2,031

 

 

$

5,969

 

 

$

(239

)

 

$

(572

)

 

$

(55

)

 

$

(866

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Segment operating income

 

$

850

 

 

$

464

 

 

$

740

 

 

$

2,054

 

 

$

(161

)

 

$

(221

)

 

$

(10

)

 

$

(392

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Margin

 

 

 

 

 

 

 

34.4

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2018

 

 

 

 

 

 

 

 

 

 

Activision

 

Blizzard

 

King

 

Total

 

 

 

 

 

 

 

 

Segment Net Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net revenues from external customers

 

$

2,458

 

 

$

2,238

 

 

$

2,086

 

 

$

6,782

 

 

 

 

 

 

 

 

 

Intersegment net revenues1

 

 

 

53

 

 

 

 

53

 

 

 

 

 

 

 

 

 

Segment net revenues

 

$

2,458

 

 

$

2,291

 

 

$

2,086

 

 

$

6,835

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Segment operating income

 

$

1,011

 

 

$

685

 

 

$

750

 

 

$

2,446

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Margin

 

 

 

 

 

 

 

35.8

%

 

 

 

 

 

 

 

 

1

Intersegment revenues reflect licensing and service fees charged between segments.

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

Our operating segments are also consistent with our internal organization structure, the way we assess operating performance and allocate resources, and the availability of separate financial information. We do not aggregate operating segments.

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

OPERATING SEGMENTS INFORMATION

For the Three Months and Years Ended December 31, 2019 and 2018

(Amounts in millions)

 

 

 

Three Months Ended December 31,

 

Years Ended December 31,

 

 

2019

 

2018

 

2019

 

2018

Reconciliation to consolidated net revenues:

 

 

 

 

 

 

 

 

Segment net revenues

 

$

2,524

 

 

$

2,640

 

 

$

5,969

 

 

$

6,835

 

Revenues from non-reportable segments1

 

217

 

 

234

 

 

462

 

 

480

 

Net effect from recognition (deferral) of deferred net revenues2

 

(722

)

 

(454

)

 

101

 

 

238

 

Elimination of intersegment revenues3

 

(33

)

 

(39

)

 

(43

)

 

(53

)

Consolidated net revenues

 

$

1,986

 

 

$

2,381

 

 

$

6,489

 

 

$

7,500

 

 

 

 

 

 

 

 

 

 

Reconciliation to consolidated income before income tax expense:

 

 

 

 

 

 

 

 

Segment operating income

 

$

1,153

 

 

$

1,171

 

 

$

2,054

 

 

$

2,446

 

Operating income (loss) from non-reportable segments1

 

15

 

 

35

 

 

24

 

 

31

 

Net effect from recognition (deferral) of deferred net revenues and related cost of revenues2

 

(577

)

 

(368

)

 

52

 

 

100

 

Share-based compensation expense

 

(39

)

 

(43

)

 

(166

)

 

(209

)

Amortization of intangible assets

 

(51

)

 

(91

)

 

(203

)

 

(370

)

Restructuring and related costs4

 

(30

)

 

(10

)

 

(137

)

 

(10

)

Discrete tax-related items5

 

(17

)

 

 

 

(17

)

 

 

Consolidated operating income

 

454

 

 

694

 

 

1,607

 

 

1,988

 

Interest and other expense (income), net

 

7

 

 

4

 

 

(26

)

 

71

 

Loss on extinguishment of debt

 

 

 

 

 

 

 

40

 

Consolidated income before income tax expense (benefit)

 

$

447

 

 

$

690

 

 

$

1,633

 

 

$

1,877

 

1

Includes other income and expenses from operating segments managed outside the reportable segments, including our distribution business. Also includes unallocated corporate income and expenses.

2

Reflects the net effect from (deferral) of revenues and recognition of deferred revenues, along with related cost of revenues, on certain of our online enabled products.

3

Intersegment revenues reflect licensing and service fees charged between segments.

4

Reflects restructuring initiatives, primarily severance and other restructuring-related costs.

5

Reflects the impact of other unusual or unique tax-related items and activities.

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

NET REVENUES BY DISTRIBUTION CHANNEL

For the Three Months and Years Ended December 31, 2019 and 2018

(Amounts in millions)

 

 

Three Months Ended

 

December 31, 2019

 

December 31, 2018

 

$ Increase
(Decrease)

 

% Increase
(Decrease)

 

Amount

% of Total1

 

Amount

% of Total1

 

 

Net Revenues by Distribution Channel

 

 

 

 

 

 

 

 

 

Digital online channels2

$

1,439

 

72

%

 

$

1,788

 

75

%

 

$

(349

)

 

(20

)%

Retail channels

310

 

16

 

 

343

 

14

 

 

(33

)

 

(10

)

Other3

237

 

12

 

 

250

 

10

 

 

(13

)

 

(5

)

Total consolidated net revenues

$

1,986

 

100

%

 

$

2,381

 

100

%

 

$

(395

)

 

(17

)

 

 

 

 

 

 

 

 

 

 

Change in deferred revenues4

 

 

 

 

 

 

 

 

 

Digital online channels2

$

439

 

 

 

$

92

 

 

 

 

 

 

Retail channels

278

 

 

 

356

 

 

 

 

 

 

Other3

5

 

 

 

6

 

 

 

 

 

 

Total changes in deferred revenues

$

722

 

 

 

$

454

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Years Ended

 

December 31, 2019

 

December 31, 2018

 

$ Increase
(Decrease)

 

% Increase
(Decrease)

 

Amount

% of Total1

 

Amount

% of Total1

 

 

Net Revenues by Distribution Channel

 

 

 

 

 

 

 

 

 

Digital online channels2

$

4,932

 

76

%

 

$

5,786

 

77

%

 

$

(854

)

 

(15

)%

Retail channels

909

 

14

 

 

1,107

 

15

 

 

(198

)

 

(18

)

Other3

648

 

10

 

 

607

 

8

 

 

41

 

 

7

 

Total consolidated net revenues

$

6,489

 

100

%

 

$

7,500

 

100

%

 

$

(1,011

)

 

(13

)

 

 

 

 

 

 

 

 

 

 

Change in deferred revenues4

 

 

 

 

 

 

 

 

 

Digital online channels2

$

(4

)

 

 

$

(68

)

 

 

 

 

 

Retail channels

(95

)

 

 

(191

)

 

 

 

 

 

Other3

(2

)

 

 

21

 

 

 

 

 

 

Total changes in deferred revenues

$

(101

)

 

 

$

(238

)

 

 

 

 

 

1

The percentages of total are presented as calculated. Therefore, the sum of these percentages, as presented, may differ due to the impact of rounding.

2

Net revenues from Digital online channels represent revenues from digitally-distributed subscriptions, downloadable content, microtransactions, and products, as well as licensing royalties.

3

Net revenues from Other primarily includes revenues from our distribution business and the Overwatch League.

4

Reflects the net effect from deferral of revenues and (recognition) of deferred revenues on certain of our online enabled products.

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

NET REVENUES BY PLATFORM

For the Three Months and Years Ended December 31, 2019 and 2018

(Amounts in millions)

 

 

Three Months Ended

 

December 31, 2019

 

December 31, 2018

 

$ Increase
(Decrease)

 

% Increase
(Decrease)

 

Amount

% of Total1

 

Amount

% of Total1

 

 

Net Revenues by Platform

 

 

 

 

 

 

 

 

 

Console

$

595

 

30

%

 

$

808

 

34

%

 

$

(213

)

 

(26

)%

PC

521

 

26

 

 

727

 

31

 

 

(206

)

 

(28

)

Mobile and ancillary2

633

 

32

 

 

596

 

25

 

 

37

 

 

6

 

Other3

237

 

12

 

 

250

 

10

 

 

(13

)

 

(5

)

Total consolidated net revenues

$

1,986

 

100

%

 

$

2,381

 

100

%

 

$

(395

)

 

(17

)

 

 

 

 

 

 

 

 

 

 

Change in deferred revenues4

 

 

 

 

 

 

 

 

 

Console

$

536

 

 

 

$

455

 

 

 

 

 

 

PC

165

 

 

 

(10

)

 

 

 

 

 

Mobile and ancillary2

16

 

 

 

3

 

 

 

 

 

 

Other3

5

 

 

 

6

 

 

 

 

 

 

Total changes in deferred revenues

$

722

 

 

 

$

454

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Years Ended

 

December 31, 2019

 

December 31, 2018

 

$ Increase
(Decrease)

 

% Increase
(Decrease)

 

Amount

% of Total1

 

Amount

% of Total1

 

 

Net Revenues by Platform

 

 

 

 

 

 

 

 

 

Console

$

1,920

 

30

%

 

$

2,538

 

34

%

 

$

(618

)

 

(24

)%

PC

1,718

 

26

 

 

2,180

 

29

 

 

(462

)

 

(21

)

Mobile and ancillary2

2,203

 

34

 

 

2,175

 

29

 

 

28

 

 

1

 

Other3

648

 

10

 

 

607

 

8

 

 

41

 

 

7

 

Total consolidated net revenues

$

6,489

 

100

%

 

$

7,500

 

100

%

 

$

(1,011

)

 

(13

)

 

 

 

 

 

 

 

 

 

 

Change in deferred revenues4

 

 

 

 

 

 

 

 

 

Console

$

(54

)

 

 

$

(265

)

 

 

 

 

 

PC

(53

)

 

 

9

 

 

 

 

 

 

Mobile and ancillary2

8

 

 

 

(3

)

 

 

 

 

 

Other3

(2

)

 

 

21

 

 

 

 

 

 

Total changes in deferred revenues

$

(101

)

 

 

$

(238

)

 

 

 

 

 

1

The percentages of total are presented as calculated. Therefore, the sum of these percentages, as presented, may differ due to the impact of rounding.

2

Net revenues from Mobile and ancillary include revenues from mobile devices, as well as non-platform specific game related revenues, such as standalone sales of physical merchandise and accessories.

3

Net revenues from Other primarily includes revenues from our distribution business and the Overwatch League.

4

Reflects the net effect from deferral of revenues and (recognition) of deferred revenues on certain of our online enabled products.

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

NET REVENUES BY GEOGRAPHIC REGION

For the Three Months and Years Ended December 31, 2019 and 2018

(Amounts in millions)

 

 

Three Months Ended

 

December 31, 2019

 

December 31, 2018

 

$ Increase
(Decrease)

 

% Increase
(Decrease)

 

Amount

% of Total1

 

Amount

% of Total1

 

 

Net Revenues by Geographic Region

 

 

 

 

 

 

 

 

 

Americas

$

935

 

47

%

 

$

1,140

 

48

%

 

$

(205

)

 

(18

)%

EMEA2

713

 

36

 

 

844

 

35

 

 

(131

)

 

(16

)

Asia Pacific

338

 

17

 

 

397

 

17

 

 

(59

)

 

(15

)

Total consolidated net revenues

$

1,986

 

100

%

 

$

2,381

 

100

%

 

$

(395

)

 

(17

)

 

 

 

 

 

 

 

 

 

 

Change in deferred revenues3

 

 

 

 

 

 

 

 

 

Americas

$

425

 

 

 

$

248

 

 

 

 

 

 

EMEA2

238

 

 

 

151

 

 

 

 

 

 

Asia Pacific

59

 

 

 

55

 

 

 

 

 

 

Total changes in deferred revenues

$

722

 

 

 

$

454

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Years Ended

 

December 31, 2019

 

December 31, 2018

 

$ Increase
(Decrease)

 

% Increase
(Decrease)

 

Amount

% of Total1

 

Amount

% of Total1

 

 

Net Revenues by Geographic Region

 

 

 

 

 

 

 

 

 

Americas

$

3,341

 

51

%

 

$

3,880

 

52

%

 

$

(539

)

 

(14

)%

EMEA2

2,239

 

35

 

 

2,618

 

35

 

 

(379

)

 

(14

)

Asia Pacific

909

 

14

 

 

1,002

 

13

 

 

(93

)

 

(9

)

Total consolidated net revenues

$

6,489

 

100

%

 

$

7,500

 

100

%

 

$

(1,011

)

 

(13

)

 

 

 

 

 

 

 

 

 

 

Change in deferred revenues3

 

 

 

 

 

 

 

 

 

Americas

$

(44

)

 

 

$

(151

)

 

 

 

 

 

EMEA2

(47

)

 

 

(91

)

 

 

 

 

 

Asia Pacific

(10

)

 

 

4

 

 

 

 

 

 

Total changes in deferred revenues

$

(101

)

 

 

$

(238

)

 

 

 

 

 

1

The percentages of total are presented as calculated. Therefore, the sum of these percentages, as presented, may differ due to the impact of rounding.

2

Net revenues from EMEA consist of the Europe, Middle East, and Africa geographic regions.

3

Reflects the net effect from deferral of revenues and (recognition) of deferred revenues on certain of our online enabled products.

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

EBITDA AND ADJUSTED EBITDA

For the Trailing Twelve Months Ended December 31, 2019

(Amounts in millions)

 

 

 

 

 

 

 

 

 

 

Trailing Twelve
Months Ended

 

March 31,
2019

 

June 30,
2019

 

September 30,
2019

 

December 31,
2019

 

December 31,
2019

 

 

 

 

 

 

 

 

 

 

GAAP Net Income

$

447

 

 

$

328

 

 

$

204

 

 

$

525

 

 

$

1,503

 

Interest and other expense (income), net

3

 

 

(34

)

 

(2

)

 

7

 

 

(26

)

Provision for income taxes1

120

 

 

42

 

 

45

 

 

(78

)

 

130

 

Depreciation and amortization

87

 

 

79

 

 

80

 

 

81

 

 

328

 

EBITDA

657

 

 

415

 

 

327

 

 

535

 

 

1,935

 

 

 

 

 

 

 

 

 

 

 

Share-based compensation expense2

63

 

 

38

 

 

27

 

 

39

 

 

166

 

Restructuring and related costs3

57

 

 

22

 

 

28

 

 

30

 

 

137

 

Discrete tax-related items5

 

 

 

 

 

 

17

 

 

17

 

Adjusted EBITDA

$

777

 

 

$

475

 

 

$

382

 

 

$

621

 

 

$

2,255

 

 

 

 

 

 

 

 

 

 

 

Change in deferred net revenues and related cost of revenues4

$

(441

)

 

$

(135

)

 

$

(53

)

 

$

577

 

 

$

(52

)

1

Provision for income taxes for the three months ended June 30, 2019 and December 31, 2019 also include impacts from significant discrete tax-related items, including amounts related to changes in tax laws, amounts related to the potential or final resolution of tax positions, and/or other unusual or unique tax-related items and activities.

2

Includes expenses related to share-based compensation.

3

Reflects restructuring initiatives, primarily severance and other restructuring-related costs.

4

Reflects the net effect from deferral of revenues and (recognition) of deferred revenues, along with related cost of revenues, on certain of our online enabled products.

5

Reflects the impact of other unusual or unique tax-related items and activities.

 

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 Three Months Ending March 31, 2020 and Year Ending December 31, 2020

GAAP to Non-GAAP Reconciliation

(Amounts in millions, except per share data)

 

 

Outlook for the

 

Outlook for the

 

Three Months Ending

 

Year Ending

 

March 31, 2020

 

December 31, 2020

 

 

 

 

Net Revenues1

1,640

 

6,450

Change in deferred revenues2

(365)

 

275

 

 

 

 

 

 

 

 

Earnings Per Diluted Share (GAAP)

0.55

 

1.85

Excluding the impact of:

 

 

 

Share-based compensation3

0.06

 

0.30

Amortization of intangible assets4

0.04

 

0.10

Restructuring and related costs5

0.04

 

0.07

Income tax impacts from items above6

(0.03)

 

(0.09)

Earnings Per Diluted Share (Non-GAAP)

0.66

 

2.22

 

 

 

 

 

 

 

 

Net effect of deferred net revenues and related cost of revenues on Earnings Per Diluted Share7

(0.31)

 

0.13

1

Net Revenues represents the revenue outlook for both GAAP and Non-GAAP as they are measured the same.

2

Reflects the net effect from deferral of revenues and (recognition) of deferred revenues on certain of our online enabled products.

3

Reflects expenses related to share-based compensation.

4

Reflects amortization of intangible assets from purchase price accounting, including intangible assets from the acquisition of King.

5

Reflects our restructuring initiatives, primarily severance, facilities, and other restructuring-related costs we expect to incur as we continue to execute against our previously disclosed restructuring plan.

6

Reflects the income tax impacts associated with the above items. Due to the inherent uncertainties in share price and option exercise behavior, we do not generally forecast excess tax benefits or tax shortfalls.

7

Reflects the net effect from deferral of revenues and (recognition) of deferred revenues, along with related cost of revenues, on certain of our online enabled products, including the effect of taxes.

 

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

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

OPERATING METRICS

(Amounts in millions)

 

Net Bookings1

 

Three Months Ended December 31,

 

Year Ended December 31,

 

2019

 

2018

 

$ Increase
(Decrease)

 

% Increase
(Decrease)

 

2019

 

2018

 

$ Increase
(Decrease)

 

% Increase
(Decrease)

Net bookings1

$

2,708

$

2,835

$

(127

)

(4

)%

$

6,388

$

7,262

$

(874

)

(12

)%

In-game net bookings2

1,085

1,204

(119

)

(10

)

3,366

4,203

(837

)

(20

)

1

We monitor net bookings as a key operating metric in evaluating the performance of our business as it enables an analysis of performance based on the timing of actual transactions with our customers, along with providing a more timely indication of trends in our operating results. Net bookings is the net amount of products and services sold digitally or sold-in physically in the period, and includes license fees, merchandise, and publisher incentives, among others, and is equal to net revenues excluding the impact from deferrals.

 

2

In-game net bookings primarily includes the net amount of downloadable content and microtransactions sold during the period, and is equal to in-game net revenues excluding the impact from deferrals.

Monthly Active Users3

 

 

December 31, 2018

 

March 31, 2019

 

June 30, 2019

 

September 30, 2019

 

December 31, 2019

Activision

53

 

41

 

37

 

36

 

128

 

Blizzard

35

 

32

 

32

 

33

 

32

 

King

268

 

272

 

258

 

247

 

249

 

Total MAUs

356

 

345

 

327

 

316

 

409

 

3

We monitor our average monthly active users (“MAUs”) as a key measure of the overall size of our user base. MAUs are the number of individuals who accessed a particular game in a given month. We calculate average MAUs in a period by adding the total number of MAUs in each of the months in a given period and dividing that total by the number of months in the period. An individual who accesses two of our games would be counted as two users. In addition, due to technical limitations, for Activision and King, an individual who accesses the same game on two platforms or devices in the relevant period would be counted as two users. For Blizzard, an individual who accesses the same game on two platforms or devices in the relevant period would generally be counted as a single user. In certain instances, we rely on third parties to publish our games. In these instances, MAU data is based on information provided to us by those third parties, or, if final data is not available, reasonable estimates of MAUs for these third-party published games.

 

Activision Blizzard, Inc.
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Source: Activision Blizzard, Inc.