Activision Blizzard Announces First-Quarter 2019 Financial Results

Better-Than-Expected Q1 Results

SANTA MONICA, Calif.–(BUSINESS WIRE)–Activision Blizzard, Inc. (Nasdaq: ATVI) today announced first-quarter
2019 results.

“We started the year with strong operating discipline and exceeded our
prior outlook for the first quarter. We are increasing investment in our
biggest franchises to better deliver against our growth potential, and I
am pleased with our progress,” said Bobby Kotick, Chief Executive
Officer of Activision Blizzard. “We’re continuing to enhance our
leadership position in esports. The second season of the Overwatch
League™ has seen strong growth in viewership, and we’re seeing
enthusiastic demand for our professional, city-based Call of Duty®
league franchises. We have already sold the first five Call of Duty
teams in Atlanta, Dallas, New York, Paris and Toronto to owners who
recognize the scale of the opportunity from their partnerships with us
on the Overwatch League.”

Financial Metrics

(in millions, except EPS)   2019   Prior Outlook*   2018
GAAP Net Revenues $1,825   $1,715   $1,965

Impact of GAAP deferralsA

($567) ($540) ($581)
GAAP EPS $0.58 $0.39 $0.65
Non-GAAP EPS $0.78 $0.63 $0.78
Impact of GAAP deferralsA ($0.47) ($0.43) ($0.40)

* Prior outlook was provided by the company on February 12, 2019
in its earnings release.


For the quarter ended March 31, 2019, Activision Blizzard’s net revenues
presented in accordance with GAAP were $1.83 billion, as compared with
$1.97 billion for the first quarter of 2018. GAAP net revenues from
digital channels were $1.39 billion. GAAP operating margin was 31%. GAAP
earnings per diluted share were $0.58, as compared with $0.65 for the
first quarter of 2018.

For the quarter ended March 31, 2019, on a non-GAAP basis, Activision
Blizzard’s operating margin was 41% and earnings per diluted share were
$0.78, as compared with $0.78 for the first quarter of 2018.

For the quarter ended March 31, 2019, operating cash flow was $450
million. For the trailing twelve-month period, operating cash flow was
$1.71 billion.

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

Operating Metrics

For the quarter ended March 31, 2019, Activision Blizzard’s net bookingsB
were $1.26 billion, compared with $1.38 billion for the first quarter of
2018. Net bookingsB from digital channels were $1.07 billion,
as compared with $1.21 billion for the first quarter of 2018.

Selected Business Highlights

Activision Blizzard outperformed our first quarter outlook. Over the
last three months, the Company made progress against the plan outlined
in our February earnings call to reinforce the foundation for future
growth. The Company is increasing development for our biggest,
internally-owned franchises, for both upfront releases and in-game
content, as well as investing in platform expansion on PC and mobile and
new geographies. We are also seeing strong momentum in our esports and
in-game advertising initiatives. While we expect all the work underway
to bear fruit in the future, the Company remains focused on delivering
in the near-term, reporting first quarter net revenues, net bookingsB
and EPS ahead of our prior outlook.

Audience Reach

  • Activision Blizzard had 345 million Monthly Active Users (MAUs)C
    in the quarter, with 41 million at Activision, 32 million at Blizzard,
    and 272 million at King.
  • King MAUsC were up sequentially for the second quarter in a
    row driven by the Candy Crush™ franchise where MAUsC
    again grew quarter-over-quarter and year-over-year. Candy
    Crush Friends Saga™ continues to attract both former and
    new players to the franchise.
  • Sekiro™: Shadows Die Twice launched in March to 90-plus
    Metacritic scores. The game sold-through more than two million copies
    worldwide in less than 10 days.

Deep Engagement

  • For each of Activision, Blizzard, and King, daily time spent per user
    increased year-over-year. For the Company overall, average time spent
    was approximately 50 minutes.
  • Daily time spent per player across the Candy Crush
    franchise reached a new high, driving the King network to a record of
    38 minutes.
  • Call of Duty: Black Ops 4’s core player base remains
    highly engaged, with total hours played and daily time spent per
    player growing double-digits versus Call of Duty: WWII.
  • The Company’s professional Call of Duty city-based
    league is off to a strong start, selling its first five franchise
    teams. In Atlanta, Dallas, New York, Paris and Toronto, we are
    partnering with existing Overwatch League team
    owners who have first-hand experience of our esports strategy and
    capabilities and recognize the scale of the opportunity for a global
    Call of Duty league.
  • The second season of the Overwatch League commenced in February
    to sell-out crowds at the Blizzard Arena. Viewership hours for the
    second season to date are over 30% higher than in the first season.

Player Investment

  • Activision Blizzard delivered approximately $800 million of in-game
    net bookingsB in the first quarter.
  • For the twenty-second quarter in a row, King had two of the top-10
    highest grossing titles in the U.S. mobile app stores.1

Company Outlook

(in millions, except EPS)  







Impact of GAAP


CY 2019

Net Revenues $6,025 $6,025 $275
EPS $1.18 $1.85 $0.25
Fully Diluted Shares 774 774

Q2 2019

Net Revenues $1,315 $1,315 ($165)
EPS $0.21 $0.35 ($0.12)
Fully Diluted Shares   771   771    

Net bookingsB are expected to be $6.30 billion for 2019
and $1.15 billion for the second quarter of 2019.


Currency Assumptions for 2019 Outlook:

  • $1.19 USD/Euro for current outlook (vs. average of $1.12 for 2018,
    $1.12 for 2017, and $1.11 for 2016); and
  • $1.33 USD/British Pound Sterling for current outlook (vs. average of
    $1.30 for 2018, $1.30 for 2017 and $1.36 for 2016).
  • Note: Our financial guidance includes the forecasted impact of our FX
    hedging program.

Capital Allocation

The Board of Directors declared a cash dividend of $0.37 per common
share, payable on May 9, 2019 to shareholders of record at the close of
business on March 28, 2019, which represents a 9% increase from 2018.

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 March 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
to listen to the conference call via live Webcast or to listen to the
call live by dialing into 888-394-8218 in the U.S. with passcode
8315973. A replay of the call will also be available after the call’s
conclusion and archived for one year at

About Activision Blizzard

Activision Blizzard, Inc., a member of the Fortune 500 and S&P 500, is a
leading standalone 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™,
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,

1 U.S. ranking for Apple App Store and Google Play Store
combined, per App Annie Intelligence for first quarter of 2019.

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

Non-GAAP Financial Measures: As a supplement to our financial
measures presented in accordance with 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

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

  • expenses related to stock-based compensation;
  • the amortization of intangibles from purchase price accounting;
  • fees and other expenses related to the King acquisition, 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

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.

(Tables to Follow)




(Amounts in millions, except per share data)

      Three Months Ended March 31,
2019     2018

Net revenues

Product sales $ 656 $ 720
Subscription, licensing, and other revenues 1 1,169   1,245
Total net revenues 1,825 1,965
Costs and expenses
Cost of revenues—product sales:
Product costs 152 162
Software royalties, amortization, and intellectual property licenses 111 146
Cost of revenues—subscription, licensing, and other:
Game operations and distribution costs 239 270
Software royalties, amortization, and intellectual property licenses 61 84
Product development 249 259
Sales and marketing 207 251
General and administrative 179 198
Restructuring and related costs 57  
Total costs and expenses 1,255   1,370
Operating income 570 595
Interest and other expense (income), net 3   28
Income before income tax expense 567 567
Income tax expense 120 67
Net income $ 447   $ 500
Basic earnings per common share $ 0.58 $ 0.66
Weighted average common shares outstanding 764 759
Diluted earnings per common share $ 0.58 $ 0.65
Weighted average common shares outstanding assuming dilution 770 770
1       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.




(Amounts in millions)

      March 31, 2019 1     December 31, 2018 2
Current assets
Cash and cash equivalents $ 4,696 $ 4,225
Accounts receivable, net 594 1,035
Inventories, net 45 43
Software development 184 264
Other current assets 518   539  
Total current assets 6,037 6,106
Software development 80 65
Property and equipment, net 264 282
Deferred income taxes, net 373 458
Other assets 751 482
Intangible assets, net 680 735
Goodwill 9,763   9,762  
Total assets $ 17,948   $ 17,890  
Liabilities and Shareholders’ Equity
Current liabilities
Accounts payable $ 166 $ 253
Deferred revenues 931 1,493
Accrued expenses and other liabilities 1,198   896  
Total current liabilities 2,295 2,642
Long-term debt, net 2,672 2,671
Deferred income taxes, net 22 18
Other liabilities 1,363   1,167  
Total liabilities 6,352   6,498  
Shareholders’ equity
Common stock
Additional paid-in capital 11,004 10,963
Treasury stock (5,563 ) (5,563 )
Retained earnings 6,757 6,593
Accumulated other comprehensive loss (602 ) (601 )
Total shareholders’ equity 11,596   11,392  
Total liabilities and shareholders’ equity $ 17,948   $ 17,890  



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 March 31, 2019. Refer to our Form 10-Q for the
three months ended March 31, 2019 for additional information.




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. We will revise
our 2018 financial statements to correct this matter in our Annual
Report on Form 10-K for the year ending December 31, 2019. Our
balance sheet as of December 31, 2018, as presented above has been
revised to reflect the correction. Refer to our Form 10-Q for the
three months ended March 31, 2019, for additional information.




(Amounts in millions, except per share data)

Three Months Ended March 31, 2019       Net Revenues   Cost of Revenues – Product Sales: Product Costs   Cost of Revenues – Product Sales: Software Royalties and
  Cost of Revenues – Subs/Lic/Other: Game Operations and
Distribution Costs
  Cost of Revenues – Subs/Lic/Other: Software Royalties and
  Product Development   Sales and Marketing   General and Administrative   Restructuring and related costs   Total Costs and Expenses
GAAP Measurement       $ 1,825   $ 152   $ 111   $ 239   $ 61   $ 249   $ 207   $ 179   $ 57   $ 1,255
Share-based compensation1 (10 ) (20 ) (4 ) (29 ) (63 )
Amortization of intangible assets2 (53 ) (1 ) (54 )
Restructuring and related costs3                                 (57 )   (57 )
Non-GAAP Measurement $ 1,825     $ 152     $ 101     $ 239     $ 8     $ 229     $ 203     $ 149     $     $ 1,081  
Net effect of deferred revenues and related cost of revenues4 $ (567 ) $ (53 ) $ (66 ) $ (6 ) $ (1 ) $ $ $ $ $ (126 )
Operating Income   Net Income   Basic Earnings per Share   Diluted Earnings per Share
GAAP Measurement $ 570 $ 447 $ 0.58 $ 0.58
Share-based compensation1 63 63 0.08 0.08
Amortization of intangible assets2 54 54 0.07 0.07
Restructuring and related costs3 57 57 0.07 0.07
Income tax impacts from items above5     (18 )   (0.02 )   (0.02 )
Non-GAAP Measurement $ 744     $ 603     $ 0.79     $ 0.78  
Net effect of deferred revenues and related cost of revenues4 $ (441 ) $ (361 ) $ (0.47 ) $ (0.47 )


Activision Blizzard, Inc.

Investors and Analysts:
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