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

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 bookings^B
were $1.26 billion, compared with $1.38 billion for the first quarter of
2018. Net bookings^B 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 bookings^B
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 MAUs^C were up sequentially for the second quarter in a
  row driven by the Candy Crush™ franchise where MAUs^C
  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 bookings^B 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

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 https://investor.activision.com
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 https://investor.activision.com/events.cfm.

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, www.activisionblizzard.com.

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
GAAP.

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

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

(Tables to Follow)

Contacts

Activision Blizzard, Inc.

Investors and Analysts:
ir@activisionblizzard.com
or
Press:
pr@activisionblizzard.com

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