Record First-Half Total Revenues and Digital Revenues
Company Increases CY 2017 Revenues and EPS Outlook
Announced Team Sales for the
Second Quarter | |||||||||
Prior | |||||||||
(in millions, except EPS) |
2017 |
Outlook* |
2016 |
||||||
GAAP Net Revenues | $ | 1,631 | $ | 1,425 | $ | 1,570 | |||
Impact of GAAP deferralsA | $ | (213) | $ | (225) | $ | 39 | |||
GAAP EPS | $ | 0.32 | $ | 0.15 | $ | 0.20 | |||
Non-GAAP (redefined) EPS** | $ | 0.55 | $ | 0.38 | $ | 0.45 | |||
Impact of GAAP deferralsA | $ | (0.12) | $ | (0.11) | $ | 0.08 |
* Prior outlook was provided by the company on
** "Non-GAAP (redefined)" includes the net effect
of revenue deferrals accounting treatment on certain of our online
enabled products. Please refer to our
For the quarter ended
For the quarter ended
For the quarter, operating cash flows were
Please refer to the tables at the back of this press release for a reconciliation of the company's GAAP and non-GAAP (redefined) results.
Kotick added, "Celebrating players and audiences is the foundation for
our success. This quarter we announced the first team owners in the
Overwatch League™, the first major global, city-based professional
esports league. With hundreds of hours of broadcast content ahead of us,
as well as significant sponsorship and media opportunities, the
Selected Business Highlights:
- Regular content and feature updates across the portfolio enabled deeper player engagement and therefore player investment.
Audience Reach
-
Activision Blizzard had 407 million Monthly Active Users (MAUs)B in the quarter. - Blizzard had the biggest quarterly online player community in its history with a record 46 million MAUsB, up 38% year-over-year. The Overwatch community continued to grow more than a year after launch, setting another all-time MAUB record with the release of two seasonal events in the quarter. Hearthstone® MAUsB grew year-over-year and quarter-over-quarter to an all-time record, driven by its expansion, Journey to Un'Goro™.
-
Activision had 47 million MAUsB in the second quarter, down
slightly year-over-year. The launch of Zombies Chronicles led
to a MAUB increase quarter-over-quarter in Call of
Duty®: Black Ops III.
Activision also released Crash Bandicoot™
N. Sane Trilogy for PS4, a collection of remastered Crash Bandicoot™ classic titles. Despite only two days of sales on a single platform, it was the number one console title globally in June based on units.1 -
Activision and its partners at Bungie expect to release Destiny
2 on
September 6, 2017 for consoles and onOctober 24, 2017 for PC. The Destiny 2 console Beta had more total players than the 2014 Destiny Beta, and Destiny 2 pre-orders are now above the first Destiny. Activision expects to release Call of Duty: WWII onNovember 3, 2017 . Momentum on pre-orders and hands-on feedback have been strong. -
King had 314 million MAUsB for the quarter, down
year-over-year, but with better gross bookingsC per paying
user. King had two of the top-10 highest-grossing titles in the
U.S. mobile app stores for the fifteenth quarter in a row.2
- Blizzard had Q2-record time spent. In April, Blizzard launched Uprising, an Overwatch seasonal event that included a player-versus-environment mode that drew record play time. Overwatch's Anniversary event in May and June also drove strong engagement with record participation in customization items. Time spent in World of Warcraft® grew year-over-year in the second quarter, and the Legion™ expansion continued to perform ahead of the prior expansion.
- King's live operations and new content continue to drive strong engagement with steady time spent at 35 minutes per day and players engaging more frequently.
-
Blizzard announced the first seven team sales for the
Overwatch League , the first major global professional esports league with city-based teams, and the league is set to begin its inaugural competitive season later this year. -
Blizzard announced a live-streaming media rights partnership for
esports and in-game content across a number of franchises, but
excluding
Overwatch League content. -
Activision's Call of
Duty World League will culminate in its Championships held inOrlando in August.
-
Activision Blizzard delivered nearly$1 billion of in-game revenues in the quarter with record performance in the first half of 2017. - King's gross bookingsC per paying user grew for the 8th quarter in a row to a new record. Strong engagement and player investment led to an increase in mobile gross bookingsC year-over-year and quarter-over-quarter.
- Call of Duty: Black Ops III's Zombies Chronicles, Activision's first large content drop in year two after a game launch, not only drove purchases of that specific piece of content, but also led to higher engagement and to add-on revenues for that game.
-
Blizzard's Overwatch, Hearthstone, World
of Warcraft, and
Diablo ®III, which debuted new content during the quarter, drove strong in-game participation.
Company Outlook:
(in millions, except EPS) |
GAAP Outlook |
Non-GAAP |
Impact of GAAP |
||||||
CY 2017 |
|||||||||
Net Revenues | $ | 6,400 | 6,400 | 175 | |||||
EPS | $ | 1.05 | 1.94 | 0.06 | |||||
Fully Diluted Shares* | 767 | 767 | |||||||
Q3 2017 |
|||||||||
Net Revenues | $ | 1,385 | 1,385 | 315 | |||||
EPS | $ | 0.09 | 0.34 | 0.11 | |||||
Fully Diluted Shares* | 766 | 766 |
* Fully diluted weighted average shares include participating securities and dilutive options on a weighted average basis.
As referenced on our
Currency Assumptions for 2017 Outlook:
-
$1.12 USD /Euro for current outlook (vs. average of$1.11 for 2016 and$1.11 for 2015); and -
$1.30 USD /British Pound Sterling for current outlook (vs. average of$1.36 for 2016 and$1.53 for 2015). - Note: Our financial guidance includes the forecasted impact of the FX cash flow hedging program.
Cash Dividend:
The company paid a cash dividend of
Conference Call:
Today at
About
1 Per NPD, GfK, GSD, and internal estimates
2
A Net effect of accounting treatment from revenue deferrals on certain of our online enabled products. Some of our games' online functionality represents an essential component of gameplay and, as a result, a more-than-inconsequential separate deliverable. As a result, we recognize revenues attributed to these game titles over their estimated service periods, which is generally less than a year. The related cost of revenues is deferred and recognized as an expense as the related revenues are recognized. Impact from changes in deferrals refers to the net effect from revenue deferrals accounting treatment for the purposes of revenues, along with, for the purposes of EPS, the related cost of revenues deferrals treatment and the related tax impacts. Internally, management excludes the impact of this change in deferred revenues and related cost of revenues when evaluating the company's operating performance, when planning, forecasting and analyzing future periods, and when assessing the performance of its management team. Management believes this is appropriate because doing so enables an analysis of performance based on the timing of actual transactions with our customers. In addition, management believes excluding the change in deferred revenues and the related cost of revenues provides a much more timely indication of trends in our operating results.
B 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 played a particular game in a given month. We calculate average MAUs in a period by adding the total number of MAUs in each of the months in a given period and dividing that total by the number of months in the period. An individual who plays two of our games would be counted as two users. In addition, due to technical limitations, for Activision and King, an individual who plays the same game on two platforms or devices in the relevant period would be counted as two users. For Blizzard, an individual who plays the same game on two platforms or devices in the relevant period would generally be counted as a single user.
C Gross bookings is an operating metric that represents the total cash spent by players in the period for the purchase of virtual items. King uses gross bookings to evaluate its results of operations, generate future operating plans and assess performance. Gross bookings is the total price paid by players, which includes indirect taxes (sales tax or value added tax etc.), platform providers fees, and King's share of revenues.
Non-GAAP (as previously defined) and Non-GAAP (redefined) Financial
Measures: In accordance with the updated Compliance and Disclosure
Interpretations issued by the
Non-GAAP Financial Measures: As a supplement to our financial
measures presented in accordance with Generally Accepted Accounting
Principles ("GAAP"),
- expenses related to stock-based compensation;
- the amortization of intangibles from purchase price accounting;
- fees and other expenses related to the King acquisition, inclusive of related debt financings, and refinancing of long-term debt, including penalties and the write off of unamortized discount and deferred financing costs;
- restructuring charges;
- other non-cash charges from reclassification of certain cumulative translation adjustments into earnings as required by GAAP; and
- the income tax adjustments associated with any of the above items (tax impact on non-GAAP pre-tax income is calculated under the same accounting principles applied to the GAAP pre-tax income under ASC 740, which employs an annual effective tax rate method to the results).
In the future,
Activision Blizzard's non-GAAP financial measures are not based on a comprehensive set of accounting rules or principles, and the terms non-GAAP net income, non-GAAP earnings per share, non-GAAP operating margin, and non-GAAP or adjusted EBITDA do not have a standardized meaning. Therefore, other companies may use the same or similarly named measures, but exclude different items, which may not provide investors a comparable view of Activision Blizzard's performance in relation to other companies.
Management compensates for the limitations resulting from the exclusion of these items by considering the impact of the items separately and by considering Activision Blizzard's GAAP, as well as non-GAAP, results and outlook, and by presenting the most comparable GAAP measures directly ahead of non-GAAP measures, and by providing a reconciliation that indicates and describes the adjustments made.
Cautionary Note Regarding Forward-looking Statements: The statements contained herein that are not historical facts are forward-looking statements, including, but not limited to, statements about: (1) projections of revenues, expenses, income or loss, earnings or loss per share, cash flow or other financial items; (2) statements of our plans and objectives, including those related to releases of products and services; (3) statements of future financial or operating performance; and (4) statements of assumptions underlying such statements. The company generally uses words such as "outlook," "forecast," "will," "could," "should," "would," "to be," "plan," "plans," "believes," "may," "might," "expects," "intends," "intends as," "anticipates," "estimate," "future," "positioned," "potential," "project," "remain," "scheduled," "set to," "subject to," "upcoming" and other similar expressions to help identify forward-looking statements. Forward-looking statements are subject to business and economic risk, reflect management's current expectations, estimates and projections about our business, and are inherently uncertain and difficult to predict.
The company cautions that a number of important factors could cause
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.
|
||||||||||||||
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||||||||
(Unaudited) | ||||||||||||||
(Amounts in millions, except per share data) | ||||||||||||||
Three Months Ended |
Six Months Ended |
|||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||
Net revenues | ||||||||||||||
Product sales | $ | 481 | $ | 501 | $ | 989 | $ | 1,145 | ||||||
Subscription, licensing, and other revenues 1 | 1,150 | 1,069 | 2,367 | 1,880 | ||||||||||
Total net revenues | 1,631 | 1,570 | 3,356 | 3,025 | ||||||||||
Costs and expenses | ||||||||||||||
Cost of revenues—product sales: | ||||||||||||||
Product costs | 130 | 149 | 273 | 318 | ||||||||||
Software royalties, amortization, and intellectual property licenses | 75 | 80 | 163 | 208 | ||||||||||
Cost of revenues—subscription, licensing, and other: | ||||||||||||||
Game operations and distribution costs | 236 | 241 | 468 | 383 | ||||||||||
Software royalties, amortization, and intellectual property licenses | 120 | 128 | 242 | 180 | ||||||||||
Product development | 252 | 249 | 478 | 424 | ||||||||||
Sales and marketing | 308 | 322 | 554 | 490 | ||||||||||
General and administrative | 171 | 169 | 347 | 329 | ||||||||||
Total costs and expenses | 1,292 | 1,338 | 2,525 | 2,332 | ||||||||||
Operating income | 339 | 232 | 831 | 693 | ||||||||||
Interest and other expense (income), net | 46 | 65 | 85 | 117 | ||||||||||
Income before income tax expense | 293 | 167 | 746 | 576 | ||||||||||
Income tax expense | 50 | 16 | 77 | 62 | ||||||||||
Net income | $ | 243 | $ | 151 | $ | 669 | $ | 514 | ||||||
Basic earnings per common share 2 | $ | 0.32 | $ | 0.20 | $ | 0.89 | $ | 0.69 | ||||||
Weighted average common shares outstanding | 754 | 739 | 752 | 737 | ||||||||||
Diluted earnings per common share 2 | $ | 0.32 | $ | 0.20 | $ | 0.88 | $ | 0.68 | ||||||
Weighted average common shares outstanding assuming dilution | 764 | 753 | 763 | 751 | ||||||||||
1 | Subscription, licensing, and other revenues represent revenues from World of Warcraft subscriptions, licensing royalties from our products and franchises, value-added services, downloadable content, microtransactions, and other miscellaneous revenues. | |
2 |
The company calculates earnings per share pursuant to the
two-class method which requires the allocation of net income
between common shareholders and participating security holders. We
had, on a weighted-average basis, participating securities of less
than 1 million for both the three and six months ended |
|
|
||||||||||
CONDENSED CONSOLIDATED BALANCE SHEETS | ||||||||||
(Unaudited) | ||||||||||
(Amounts in millions) | ||||||||||
2017 |
2016 |
|||||||||
Assets | ||||||||||
Current assets | ||||||||||
Cash and cash equivalents | $ | 3,278 | $ | 3,245 | ||||||
Accounts receivable, net | 360 | 732 | ||||||||
Inventories, net | 51 | 49 | ||||||||
Software development | 349 | 412 | ||||||||
Other current assets | 314 | 392 | ||||||||
Total current assets | 4,352 | 4,830 | ||||||||
Software development | 104 | 54 | ||||||||
Property and equipment, net | 246 | 258 | ||||||||
Deferred income taxes, net | 398 | 283 | ||||||||
Other assets | 466 | 401 | ||||||||
Intangible assets, net | 1,479 | 1,858 | ||||||||
|
9,763 | 9,768 | ||||||||
Total assets | $ | 16,808 | $ | 17,452 | ||||||
Liabilities and Shareholders' Equity | ||||||||||
Current liabilities | ||||||||||
Accounts payable | $ | 163 | $ | 222 | ||||||
Deferred revenues | 940 | 1,628 | ||||||||
Accrued expenses and other liabilities | 662 | 806 | ||||||||
Total current liabilities | 1,765 | 2,656 | ||||||||
Long-term debt, net | 4,387 | 4,887 | ||||||||
Deferred income taxes, net | 38 | 44 | ||||||||
Other liabilities | 903 | 746 | ||||||||
Total liabilities | 7,093 | 8,333 | ||||||||
Shareholders' equity | ||||||||||
Common stock | — | — | ||||||||
Additional paid-in capital | 10,606 | 10,442 | ||||||||
|
(5,563 | ) | (5,563 | ) | ||||||
Retained earnings | 5,312 | 4,869 | ||||||||
Accumulated other comprehensive loss | (640 | ) | (629 | ) | ||||||
Total shareholders' equity | 9,715 | 9,119 | ||||||||
Total liabilities and shareholders' equity | $ | 16,808 | $ | 17,452 | ||||||
|
|||||||||||||||||||||||||||||||||||||
RECONCILIATION OF GAAP NET INCOME TO NON-GAAP MEASURES | |||||||||||||||||||||||||||||||||||||
(Amounts in millions, except per share data) | |||||||||||||||||||||||||||||||||||||
Three Months Ended |
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 | Total Costs and Expenses | ||||||||||||||||||||||||||||
GAAP Measurement | $ | 1,631 | $ | 130 | $ | 75 | $ | 236 | $ | 120 | $ | 252 | $ | 308 | $ | 171 | $ | 1,292 | |||||||||||||||||||
Share-based compensation1 | — | — | (3 | ) | — | — | (14 | ) | (4 | ) | (18 | ) | (39 | ) | |||||||||||||||||||||||
Amortization of intangible assets2 | — | — | — | — | (114 | ) | — | (78 | ) | (2 | ) | (194 | ) | ||||||||||||||||||||||||
Fees and other expenses related to the King Acquisition3 | — | — | — | — | — | — | — | (5 | ) | (5 | ) | ||||||||||||||||||||||||||
Other non-cash charges4 | — | — | — | — | — | — | — | 1 | 1 | ||||||||||||||||||||||||||||
Non-GAAP (redefined) Measurement | $ | 1,631 | $ | 130 | $ | 72 | $ | 236 | $ | 6 | $ | 238 | $ | 226 | $ | 147 | $ | 1,055 | |||||||||||||||||||
Net effect of deferred revenues and related cost of revenues5 | $ | (213 | ) | $ | (44 | ) | $ | (68 | ) | $ | 1 | $ | 3 | $ | — | $ | — | $ | — | $ | (108 | ) | |||||||||||||||
Operating Income | Net Income | Basic Earnings per Share | Diluted Earnings per Share | ||||||||||||||||||||||||||||||||||
GAAP Measurement | $ | 339 | $ | 243 | $ | 0.32 | $ | 0.32 | |||||||||||||||||||||||||||||
Share-based compensation1 | 39 | 39 | 0.05 | 0.05 | |||||||||||||||||||||||||||||||||
Amortization of intangible assets2 | 194 | 194 | 0.26 | 0.25 | |||||||||||||||||||||||||||||||||
Fees and other expenses related to the King Acquisition3 | 5 | 6 | 0.01 | 0.01 | |||||||||||||||||||||||||||||||||
Other non-cash charges4 | (1 | ) | (1 | ) | — | — | |||||||||||||||||||||||||||||||
Loss on extinguishment of debt6 | — | 12 | 0.02 | 0.02 | |||||||||||||||||||||||||||||||||
Income tax impacts from items above7 | — | (75 | ) | (0.10 | ) | (0.10 | ) | ||||||||||||||||||||||||||||||
Non-GAAP (redefined) Measurement | $ | 576 | $ | 418 | $ | 0.55 | $ | 0.55 | |||||||||||||||||||||||||||||
Net effect of deferred revenues and related cost of revenues5 | $ | (105 | ) | $ | (86 | ) | $ | (0.11 | ) | $ | (0.12 | ) | |||||||||||||||||||||||||
1 | Includes expenses related to share-based compensation. | |
2 | Reflects amortization of intangible assets from purchase price accounting. | |
3 |
Reflects fees and other expenses related to the acquisition of |
|
4 | Reflects a non-cash accounting charge to reclassify certain cumulative translation (gains) losses into earnings due to the substantial liquidation of certain of our foreign entities. | |
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 loss on extinguishment of debt from refinancing activities. | |
7 | Reflects the income tax impact associated with the above items. Tax impact on non-GAAP (redefined) 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 (redefined) earnings per share information is presented as calculated. The sum of these measures, as presented, may differ due to the impact of rounding. |
For purposes of calculating earnings per share, we had, on a
weighted-average basis, common shares outstanding of 754 million,
participating securities of less than 1 million, and dilutive shares
of 10 million during the three months ended |
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|||||||||||||||||||||||||||||||||||||
RECONCILIATION OF GAAP NET INCOME TO NON-GAAP MEASURES | |||||||||||||||||||||||||||||||||||||
(Amounts in millions, except per share data) | |||||||||||||||||||||||||||||||||||||
Six Months Ended |
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 | Total Costs and Expenses | ||||||||||||||||||||||||||||
GAAP Measurement | $ | 3,356 | $ | 273 | $ | 163 | $ | 468 | $ | 242 | $ | 478 | $ | 554 | $ | 347 | $ | 2,525 | |||||||||||||||||||
Share-based compensation1 | — | — | (7 | ) | (1 | ) | — | (27 | ) | (7 | ) | (31 | ) | (73 | ) | ||||||||||||||||||||||
Amortization of intangible assets2 | — | — | (1 | ) | — | (224 | ) | — | (155 | ) | (4 | ) | (384 | ) | |||||||||||||||||||||||
Fees and other expenses related to the King Acquisition3 | — | — | — | — | — | — | — | (9 | ) | (9 | ) | ||||||||||||||||||||||||||
Restructuring costs4 | — | — | — | — | — | — | — | (11 | ) | (11 | ) | ||||||||||||||||||||||||||
Other non-cash charges5 | — | — | — | — | — | — | — | (15 | ) | (15 | ) | ||||||||||||||||||||||||||
Non-GAAP (redefined) Measurement | $ | 3,356 | $ | 273 | $ | 155 | $ | 467 | $ | 18 | $ | 451 | $ | 392 | $ | 277 | $ | 2,033 | |||||||||||||||||||
Net effect of deferred revenues and related cost of revenues6 | $ | (742 | ) | $ | (101 | ) | $ | (137 | ) | $ | (3 | ) | $ | — | $ | — | $ | — | $ | — | $ | (241 | ) | ||||||||||||||
Operating Income | Net Income | Basic Earnings per Share | Diluted Earnings per Share | ||||||||||||||||||||||||||||||||||
GAAP Measurement | $ | 831 | $ | 669 | $ | 0.89 | $ | 0.88 | |||||||||||||||||||||||||||||
Share-based compensation1 | 73 | 73 | 0.10 | 0.10 | |||||||||||||||||||||||||||||||||
Amortization of intangible assets2 | 384 | 384 | 0.51 | 0.50 | |||||||||||||||||||||||||||||||||
Fees and other expenses related to the King Acquisition3 | 9 | 15 | 0.02 | 0.02 | |||||||||||||||||||||||||||||||||
Restructuring costs4 | 11 | 11 | 0.01 | 0.01 | |||||||||||||||||||||||||||||||||
Other non-cash charges5 | 15 | 15 | 0.02 | 0.02 | |||||||||||||||||||||||||||||||||
Loss on extinguishment of debt7 | — | 12 | 0.02 | 0.02 | |||||||||||||||||||||||||||||||||
Income tax impacts from items above8 | — | (215 | ) | (0.28 | ) | (0.28 | ) | ||||||||||||||||||||||||||||||
Non-GAAP (redefined) Measurement | $ | 1,323 | $ | 964 | $ | 1.28 | $ | 1.26 | |||||||||||||||||||||||||||||
Net effect of deferred revenues and related cost of revenues6 | $ | (501 | ) | $ | (395 | ) | $ | (0.52 | ) | $ | (0.51 | ) | |||||||||||||||||||||||||
1 | Includes expenses related to share-based compensation. | |
2 | Reflects amortization of intangible assets from purchase price accounting. | |
3 | Reflects fees and other expenses related to the King Acquisition, inclusive of related debt financings and integration costs. | |
4 | Reflects restructuring charges incurred, primarily severance costs. | |
5 | Reflects a non-cash accounting charge to reclassify certain cumulative translation (gains) losses into earnings due to the substantial liquidation of certain of our foreign entities. | |
6 | 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. | |
7 | Reflects the loss on extinguishment of debt from refinancing activities. | |
8 | Reflects the income tax impact associated with the above items. Tax impact on non-GAAP (redefined) 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 (redefined) earnings per share information is presented as calculated. The sum of these measures, as presented, may differ due to the impact of rounding. |
For purposes of calculating earnings per share, we had, on a
weighted-average basis, common shares outstanding of 752 million,
participating securities of less than 1 million, and dilutive shares
of 11 million during the six months ended |
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||||||||||||||||||||||||||||||||||||
RECONCILIATION OF GAAP NET INCOME TO NON-GAAP MEASURES | ||||||||||||||||||||||||||||||||||||
(Amounts in millions, except per share data) | ||||||||||||||||||||||||||||||||||||
Three Months Ended |
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 | Total Costs and Expenses | |||||||||||||||||||||||||||
GAAP Measurement | $ | 1,570 | $ | 149 | $ | 80 | $ | 241 | $ | 128 | $ | 249 | $ | 322 | $ | 169 | $ | 1,338 | ||||||||||||||||||
Share-based compensation1 | — | — | (6 | ) | — | (1 | ) | (13 | ) | (4 | ) | (17 | ) | (41 | ) | |||||||||||||||||||||
Amortization of intangible assets2 | — | — | (1 | ) | — | (122 | ) | — | (78 | ) | (2 | ) | (203 | ) | ||||||||||||||||||||||
Fees and other expenses related to the King Acquisition3 | — | — | — | — | — | — | — | (4 | ) | (4 | ) | |||||||||||||||||||||||||
Non-GAAP (redefined) Measurement | $ | 1,570 | $ | 149 | $ | 73 | $ | 241 | $ | 5 | $ | 236 | $ | 240 | $ | 146 | $ | 1,090 | ||||||||||||||||||
Net effect of deferred revenues and related cost of revenues4 | $ | 39 | $ | (44 | ) | $ | (34 | ) | $ | 7 | $ | 2 | $ | — | $ | — | $ | — | $ | (69 | ) | |||||||||||||||
Operating Income | Net Income | Basic Earnings per Share | Diluted Earnings per Share | |||||||||||||||||||||||||||||||||
GAAP Measurement | $ | 232 | $ | 151 | $ | 0.20 | $ | 0.20 | ||||||||||||||||||||||||||||
Share-based compensation1 | 41 | 41 | 0.06 | 0.05 | ||||||||||||||||||||||||||||||||
Amortization of intangible assets2 | 203 | 203 | 0.27 | 0.27 | ||||||||||||||||||||||||||||||||
Fees and other expenses related to the King Acquisition3 | 4 | 5 | 0.01 | 0.01 | ||||||||||||||||||||||||||||||||
Income tax impacts from items above5 | — | (59 | ) | (0.08 | ) | (0.08 | ) | |||||||||||||||||||||||||||||
Non-GAAP (redefined) Measurement | $ | 480 | $ | 341 | $ | 0.46 | $ | 0.45 | ||||||||||||||||||||||||||||
Net effect of deferred revenues and related cost of revenues4 | $ | 108 | $ | 63 | $ | 0.08 | $ | 0.08 | ||||||||||||||||||||||||||||
1 | Includes expenses related to share-based compensation. | |
2 | Reflects amortization of intangible assets from purchase price accounting. | |
3 | Reflects fees and other expenses related to the King Acquisition, inclusive of related debt financings and integration 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 (redefined) 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 (redefined) earnings per share information is presented as calculated. The sum of these measures, as presented, may differ due to the impact of rounding. |
The company calculates earnings per share pursuant to the two-class
method which requires the allocation of net income between common
shareholders and participating security holders. For the three
months ended |
For purposes of calculating earnings per share, we had, on a
weighted-average basis, common shares outstanding of 739 million,
participating securities of approximately 3 million, and dilutive
shares of 14 million during the three months ended |
|
|||||||||||||||||||||||||||||||||||||
RECONCILIATION OF GAAP NET INCOME TO NON-GAAP MEASURES | |||||||||||||||||||||||||||||||||||||
(Amounts in millions, except per share data) | |||||||||||||||||||||||||||||||||||||
Six Months Ended |
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 | Total Costs and Expenses | ||||||||||||||||||||||||||||
GAAP Measurement | $ | 3,025 | $ | 318 | $ | 208 | $ | 383 | $ | 180 | $ | 424 | $ | 490 | $ | 329 | $ | 2,332 | |||||||||||||||||||
Share-based compensation1 | — | — | (14 | ) | — | (1 | ) | (23 | ) | (7 | ) | (40 | ) | (85 | ) | ||||||||||||||||||||||
Amortization of intangible assets2 | — | — | (2 | ) | (1 | ) | (168 | ) | — | (111 | ) | (3 | ) | (285 | ) | ||||||||||||||||||||||
Fees and other expenses related to the King Acquisition3 | — | — | — | — | — | — | — | (38 | ) | (38 | ) | ||||||||||||||||||||||||||
Non-GAAP (redefined) Measurement | $ | 3,025 | $ | 318 | $ | 192 | $ | 382 | $ | 11 | $ | 401 | $ | 372 | $ | 248 | $ | 1,924 | |||||||||||||||||||
Net effect of deferred revenues and related cost of revenues4 | $ | (508 | ) | $ | (127 | ) | $ | (122 | ) | $ | 3 | $ | (1 | ) | $ | — | $ | — | $ | — | $ | (247 | ) | ||||||||||||||
Operating Income | Net Income | Basic Earnings per Share | Diluted Earnings per Share | ||||||||||||||||||||||||||||||||||
GAAP Measurement | $ | 693 | $ | 514 | $ | 0.69 | $ | 0.68 | |||||||||||||||||||||||||||||
Share-based compensation1 | 85 | 85 | 0.12 | 0.11 | |||||||||||||||||||||||||||||||||
Amortization of intangible assets2 | 285 | 285 | 0.38 | 0.38 | |||||||||||||||||||||||||||||||||
Fees and other expenses related to the King Acquisition3 | 38 | 41 | 0.06 | 0.05 | |||||||||||||||||||||||||||||||||
Income tax impacts from items above5 | — | (143 | ) | (0.19 | ) | (0.19 | ) | ||||||||||||||||||||||||||||||
Non-GAAP (redefined) Measurement | $ | 1,101 | $ | 782 | $ | 1.06 | $ | 1.04 | |||||||||||||||||||||||||||||
Net effect of deferred revenues and related cost of revenues4 | $ | (261 | ) | $ | (205 | ) | $ | (0.28 | ) | $ | (0.28 | ) | |||||||||||||||||||||||||
1 | Includes expenses related to share-based compensation. | |
2 | Reflects amortization of intangible assets from purchase price accounting. | |
3 | Reflects fees and other expenses related to the King Acquisition, inclusive of related debt financings and integration 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 (redefined) 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 (redefined) earnings per share information is presented as calculated. The sum of these measures, as presented, may differ due to the impact of rounding. |
The company calculates earnings per share pursuant to the
two-class method which requires the allocation of net income
between common shareholders and participating security holders.
For the six months ended |
For purposes of calculating earnings per share, we had, on a
weighted-average basis, common shares outstanding of 737 million,
participating securities of approximately 3 million, and dilutive
shares of 14 million during the six months ended |
|
|||||||||||||||||||||||||
FINANCIAL INFORMATION | |||||||||||||||||||||||||
For the Three and Six Months Ended |
|||||||||||||||||||||||||
(Amounts in millions) | |||||||||||||||||||||||||
Three Months Ended | |||||||||||||||||||||||||
|
|
$ Increase |
% Increase |
||||||||||||||||||||||
Amount | % of Total1 | Amount | % of Total1 | ||||||||||||||||||||||
Net Revenues by Distribution Channel | |||||||||||||||||||||||||
Digital online channels2 | $ | 1,309 | 80 | % | $ | 1,141 | 73 | % | $ | 168 | 15 | % | |||||||||||||
Retail channels | 260 | 16 | 374 | 24 | (114 | ) | (30 | ) | |||||||||||||||||
Other3 | 62 | 4 | 55 | 4 | 7 | 13 | |||||||||||||||||||
Total consolidated net revenues | $ | 1,631 | 100 | % | $ | 1,570 | 100 | % | $ | 61 | 4 | ||||||||||||||
Change in deferred revenues4 | |||||||||||||||||||||||||
Digital online channels2 | $ | (31 | ) | $ | 261 | ||||||||||||||||||||
Retail channels | (180 | ) | (222 | ) | |||||||||||||||||||||
Other3 | (2 | ) | — | ||||||||||||||||||||||
Total changes in deferred revenues | $ | (213 | ) | $ | 39 | ||||||||||||||||||||
Six Months Ended | |||||||||||||||||||||||||
|
|
$ Increase |
% Increase |
||||||||||||||||||||||
Amount | % of Total1 | Amount | % of Total1 | ||||||||||||||||||||||
Net Revenues by Distribution Channel | |||||||||||||||||||||||||
Digital online channels2 | $ | 2,694 | 80 | % | $ | 2,067 | 68 | % | $ | 627 | 30 | % | |||||||||||||
Retail channels | 529 | 16 | 856 | 28 | (327 | ) | (38 | ) | |||||||||||||||||
Other3 | 133 | 4 | 102 | 3 | 31 | 30 | |||||||||||||||||||
Total consolidated net revenues | $ | 3,356 | 100 | % | $ | 3,025 | 100 | % | $ | 331 | 11 | ||||||||||||||
Change in deferred revenues4 | |||||||||||||||||||||||||
Digital online channels2 | $ | (350 | ) | $ | 132 | ||||||||||||||||||||
Retail channels | (385 | ) | (640 | ) | |||||||||||||||||||||
Other3 | (7 | ) | — | ||||||||||||||||||||||
Total changes in deferred revenues | $ | (742 | ) | $ | (508 | ) | |||||||||||||||||||
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, licensing royalties, value-added services, downloadable content, microtransactions, and products. | |
3 |
Net revenues from Other include revenues from our studios and
distribution businesses, as well as revenues from |
|
4 | Reflects the net effect from deferral of revenues and (recognition) of deferred revenues on certain of our online enabled products. | |
|
|||||||||||||||||||||||||
FINANCIAL INFORMATION | |||||||||||||||||||||||||
For the Three and Six Months Ended |
|||||||||||||||||||||||||
(Amounts in millions) | |||||||||||||||||||||||||
Three Months Ended | |||||||||||||||||||||||||
|
|
$ Increase |
% Increase |
||||||||||||||||||||||
Amount | % of Total1 | Amount | % of Total1 | ||||||||||||||||||||||
Net Revenues by Platform | |||||||||||||||||||||||||
Console | $ | 568 | 35 | % | $ | 650 | 41 | % | $ | (82 | ) | (13 | )% | ||||||||||||
PC | 508 | 31 | 411 | 26 | 97 | 24 | |||||||||||||||||||
Mobile and ancillary2 | 493 | 30 | 454 | 29 | 39 | 9 | |||||||||||||||||||
Other3 | 62 | 4 | 55 | 4 | 7 | 13 | |||||||||||||||||||
Total consolidated net revenues | $ | 1,631 | 100 | % | $ | 1,570 | 100 | % | $ | 61 | 4 | ||||||||||||||
Change in deferred revenues4 | |||||||||||||||||||||||||
Console | $ | (203 | ) | $ | (210 | ) | |||||||||||||||||||
PC | (15 | ) | 219 | ||||||||||||||||||||||
Mobile and ancillary2 | 7 | 30 | |||||||||||||||||||||||
Other3 | (2 | ) | — | ||||||||||||||||||||||
Total changes in deferred revenues | $ | (213 | ) | $ | 39 | ||||||||||||||||||||
Six Months Ended | |||||||||||||||||||||||||
|
|
$ Increase |
% Increase |
||||||||||||||||||||||
Amount | % of Total1 | Amount | % of Total1 | ||||||||||||||||||||||
Net Revenues by Platform | |||||||||||||||||||||||||
Console | $ | 1,182 | 35 | % | $ | 1,415 | 47 | % | $ | (233 | ) | (16 | )% | ||||||||||||
PC | 1,072 | 32 | 811 | 27 | 261 | 32 | |||||||||||||||||||
Mobile and ancillary2 | 969 | 29 | 697 | 23 | 272 | 39 | |||||||||||||||||||
Other3 | 133 | 4 | 102 | 3 | 31 | 30 | |||||||||||||||||||
Total consolidated net revenues | $ | 3,356 | 100 | % | $ | 3,025 | 100 | % | $ | 331 | 11 | ||||||||||||||
Change in deferred revenues4 | |||||||||||||||||||||||||
Console | $ | (577 | ) | $ | (648 | ) | |||||||||||||||||||
PC | (161 | ) | 121 | ||||||||||||||||||||||
Mobile and ancillary2 | 3 | 19 | |||||||||||||||||||||||
Other3 | (7 | ) | — | ||||||||||||||||||||||
Total changes in deferred revenues | $ | (742 | ) | $ | (508 | ) | |||||||||||||||||||
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 toys and accessories from the Skylanders franchise and other physical merchandise and accessories. | |
3 |
Net revenues from Other include revenues from our studios and
distribution businesses, as well as revenues from |
|
4 | Reflects the net effect from deferral of revenues and (recognition) of deferred revenues on certain of our online enabled products. | |
|
|||||||||||||||||||||||||
FINANCIAL INFORMATION | |||||||||||||||||||||||||
For the Three and Six Months Ended |
|||||||||||||||||||||||||
(Amounts in millions) | |||||||||||||||||||||||||
Three Months Ended | |||||||||||||||||||||||||
|
|
$ Increase |
% Increase |
||||||||||||||||||||||
Amount | % of Total1 | Amount | % of Total1 | ||||||||||||||||||||||
Net Revenues by |
|||||||||||||||||||||||||
|
$ | 858 | 53 | % | $ | 860 | 55 | % | $ | (2 | ) | — | % | ||||||||||||
EMEA2 | 538 | 33 | 507 | 32 | 31 | 6 | |||||||||||||||||||
|
235 | 14 | 203 | 13 | 32 | 16 | |||||||||||||||||||
Total consolidated net revenues | $ | 1,631 | 100 | % | $ | 1,570 | 100 | % | $ | 61 | 4 | ||||||||||||||
Change in deferred revenues3 | |||||||||||||||||||||||||
|
$ | (129 | ) | $ | (24 | ) | |||||||||||||||||||
EMEA2 | (72 | ) | (17 | ) | |||||||||||||||||||||
|
(12 | ) | 80 | ||||||||||||||||||||||
Total changes in deferred revenues | $ | (213 | ) | $ | 39 | ||||||||||||||||||||
Six Months Ended | |||||||||||||||||||||||||
|
|
$ Increase |
% Increase |
||||||||||||||||||||||
Amount | % of Total1 | Amount | % of Total1 | ||||||||||||||||||||||
Net Revenues by |
|||||||||||||||||||||||||
|
$ | 1,787 | 53 | % | $ | 1,613 | 53 | % | $ | 174 | 11 | % | |||||||||||||
EMEA2 | 1,092 | 33 | 1,028 | 34 | 64 | 6 | |||||||||||||||||||
|
477 | 14 | 384 | 13 | 93 | 24 | |||||||||||||||||||
Total consolidated GAAP net revenues | $ | 3,356 | 100 | % | $ | 3,025 | 100 | % | $ | 331 | 11 | ||||||||||||||
Change in deferred revenues3 | |||||||||||||||||||||||||
|
$ | (438 | ) | $ | (317 | ) | |||||||||||||||||||
EMEA2 | (234 | ) | (211 | ) | |||||||||||||||||||||
|
(70 | ) | 20 | ||||||||||||||||||||||
Total changes in net revenues | $ | (742 | ) | $ | (508 | ) | |||||||||||||||||||
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 |
EMEA consists of the |
|
3 | Reflects the net effect from deferral of revenues and (recognition) of deferred revenues on certain of our online enabled products. | |
|
|||||||||||||||||||||||||
FINANCIAL INFORMATION | |||||||||||||||||||||||||
For the Three Months Ended |
|||||||||||||||||||||||||
(Amounts in millions) | |||||||||||||||||||||||||
Three Months Ended | |||||||||||||||||||||||||
|
|
$ Increase |
% Increase |
||||||||||||||||||||||
Amount | % of Total1 | Amount | % of Total1 | ||||||||||||||||||||||
Segment net revenues: | |||||||||||||||||||||||||
Activision2 | $ | 316 | 23 | % | $ | 332 | 21 | % | $ | (16 | ) | (5 | )% | ||||||||||||
Blizzard3 | 566 | 42 | 741 | 48 | (175 | ) | (24 | ) | |||||||||||||||||
King4 | 480 | 35 | 484 | 31 | (4 | ) | (1 | ) | |||||||||||||||||
Reportable segments total | 1,362 | 100 | % | 1,557 | 100 | % | (195 | ) | (13 | ) | |||||||||||||||
Reconciliation to consolidated net revenues: | |||||||||||||||||||||||||
Other segments5 | 56 | 52 | |||||||||||||||||||||||
Net effect from deferral of net revenues6 | 213 | (39 | ) | ||||||||||||||||||||||
Consolidated net revenues | $ | 1,631 | $ | 1,570 | $ | 61 | 4 | % | |||||||||||||||||
Segment income (loss) from operations: | |||||||||||||||||||||||||
Activision2 | $ | 87 | $ | 88 | $ | (1 | ) | (1 | )% | ||||||||||||||||
Blizzard3 | 225 | 329 | (104 | ) | (32 | ) | |||||||||||||||||||
King4 | 164 | 176 | (12 | ) | (7 | ) | |||||||||||||||||||
Reportable segments total | 476 | 593 | (117 | ) | (20 | ) | |||||||||||||||||||
Reconciliation to consolidated operating income and consolidated income before income tax expense: | |||||||||||||||||||||||||
Other segments5 | (5 | ) | (5 | ) | |||||||||||||||||||||
Net effect from certain revenues deferrals accounting treatment6 |
105 | (108 | ) | ||||||||||||||||||||||
Share-based compensation expense | (39 | ) | (41 | ) | |||||||||||||||||||||
Amortization of intangible assets | (194 | ) | (203 | ) | |||||||||||||||||||||
Fees and other expenses related to the King Acquisition7 | (5 | ) | (4 | ) | |||||||||||||||||||||
Other non-cash charges8 | 1 | — | |||||||||||||||||||||||
Consolidated operating income | 339 | 232 | 107 | 46 | |||||||||||||||||||||
Interest and other expense (income), net | 46 | 65 | |||||||||||||||||||||||
Consolidated income before income tax expense | $ | 293 | $ | 167 | $ | 126 | 75 | % | |||||||||||||||||
Operating margin from total reportable segments | 34.9 | % | 38.1 | % | |||||||||||||||||||||
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 |
|
|
3 |
|
|
4 |
|
|
5 | Other includes other income and expenses from operating segments managed outside the reportable segments, including our studios and distribution businesses. Other also includes unallocated corporate income and expenses. | |
6 | 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. | |
7 | Reflects fees and other expenses related to the King Acquisition, inclusive of related debt financings and integration costs. | |
8 | Reflects a non-cash accounting charge to reclassify certain cumulative translation gains (losses) into earnings due to the substantial liquidation of certain of our foreign entities. | |
Our operating segments are consistent with the manner in which our operations are reviewed and managed by our Chief Executive Officer, who is our chief operating decision maker ("CODM"). The CODM reviews segment performance exclusive of: the impact of the change in deferred revenues and related cost of revenues with respect to certain of our online-enabled games; share-based compensation expense; amortization of intangible assets as a result of purchase price accounting; fees and other expenses (including legal fees, costs, expenses and accruals) related to acquisitions, associated integration activities, and financings; certain restructuring costs; and other non-cash charges. |
Our operating segments are also consistent with our internal
organization structure, the way we assess operating performance and
allocate resources, and the availability of separate financial
information. Due to change in our internal organization and
reporting structure and how we manage the business, commencing with
the second quarter of 2017, our Major |
|
|||||||||||||||||||||||||
FINANCIAL INFORMATION | |||||||||||||||||||||||||
For the Six Months Ended |
|||||||||||||||||||||||||
(Amounts in millions) | |||||||||||||||||||||||||
Six Months Ended | |||||||||||||||||||||||||
|
|
$ Increase |
% Increase |
||||||||||||||||||||||
Amount | % of Total1 | Amount | % of Total1 | ||||||||||||||||||||||
Segment net revenues: | |||||||||||||||||||||||||
Activision2 | $ | 532 | 21 | % | $ | 692 | 29 | % | $ | (160 | ) | (23 | )% | ||||||||||||
Blizzard3 | 1,009 | 40 | 1,038 | 43 | (29 | ) | (3 | ) | |||||||||||||||||
King4 | 954 | 38 | 691 | 29 | 263 | 38 | |||||||||||||||||||
Reportable segments total | 2,495 | 100 | % | 2,421 | 100 | % | 74 | 3 | |||||||||||||||||
Reconciliation to consolidated net revenues: | |||||||||||||||||||||||||
Other segments5 | 119 | 96 | |||||||||||||||||||||||
Net effect from deferral of net revenues6 | 742 | 508 | |||||||||||||||||||||||
Consolidated net revenues | $ | 3,356 | $ | 3,025 | $ | 331 | 11 | % | |||||||||||||||||
Segment income (loss) from operations: | |||||||||||||||||||||||||
Activision2 | $ | 111 | $ | 187 | $ | (76 | ) | (41 | )% | ||||||||||||||||
Blizzard3 | 384 | 413 | (29 | ) | (7 | ) | |||||||||||||||||||
King4 | 330 | 243 | 87 | 36 | |||||||||||||||||||||
Reportable segments total | 825 | 843 | (18 | ) | (2 | ) | |||||||||||||||||||
Reconciliation to consolidated operating income and consolidated income before income tax expense | |||||||||||||||||||||||||
Other segments5 | (3 | ) | (3 | ) | |||||||||||||||||||||
Net effect from certain revenues deferrals accounting treatment6 | 501 | 261 | |||||||||||||||||||||||
Share-based compensation expense | (73 | ) | (85 | ) | |||||||||||||||||||||
Amortization of intangible assets | (384 | ) | (285 | ) | |||||||||||||||||||||
Fees and other expenses related to the King Acquisition7 | (9 | ) | (38 | ) | |||||||||||||||||||||
Restructuring costs8 | (11 | ) | — | ||||||||||||||||||||||
Other non-cash charges9 | (15 | ) | — | ||||||||||||||||||||||
Consolidated operating income | 831 | 693 | 138 | 20 | |||||||||||||||||||||
Interest and other expense (income), net | 85 | 117 | |||||||||||||||||||||||
Consolidated income before income tax expense | $ | 746 | $ | 576 | $ | 170 | 30 | % | |||||||||||||||||
Operating margin from total reportable segments | 33.1 | % | 34.8 | % | |||||||||||||||||||||
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 |
|
|
3 |
|
|
4 |
|
|
5 | Other includes other income and expenses from operating segments managed outside the reportable segments, including our studios and distribution businesses. Other also includes unallocated corporate income and expenses. | |
6 | 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. | |
7 | Reflects fees and other expenses related to the King Acquisition, inclusive of related debt financings and integration costs. | |
8 | Reflects restructuring charges incurred, primarily severance costs. | |
9 | Reflects a non-cash accounting charge to reclassify certain cumulative translation gains (losses) into earnings due to the substantial liquidation of certain of our foreign entities. | |
Our operating segments are consistent with the manner in which our operations are reviewed and managed by our Chief Executive Officer, who is our chief operating decision maker ("CODM"). The CODM reviews segment performance exclusive of: the impact of the change in deferred revenues and related cost of revenues with respect to certain of our online-enabled games; share-based compensation expense; amortization of intangible assets as a result of purchase price accounting; fees and other expenses (including legal fees, costs, expenses and accruals) related to acquisitions, associated integration activities, and financings; certain restructuring costs; and other non-cash charges. |
Our operating segments are also consistent with our internal organization structure, the way we assess operating performance and allocate resources, and the availability of separate financial information. Due to change in our internal organization and reporting structure and how we manage the business, commencing with the second quarter of 2017, our Major League Gaming business, which was previously included in Other segments, is now included in the Blizzard segment. We have also revised prior periods to reflect this change. We do not aggregate operating segments. |
|
|||||||||||||||||||||||
EBITDA and Adjusted EBITDA | |||||||||||||||||||||||
For the Trailing Twelve Months Ended June 30, 2017 | |||||||||||||||||||||||
(Amounts in millions) | |||||||||||||||||||||||
Trailing Twelve |
|||||||||||||||||||||||
September 30, |
December 31, 2016 |
March 31, 2017 |
June 30, 2017 |
June 30, 2017 |
|||||||||||||||||||
GAAP Net Income1 | $ | 199 | $ | 254 | $ | 426 | $ | 243 | $ | 1,122 | |||||||||||||
Interest and other expense (income), net | 53 | 43 | 40 | 34 | 170 | ||||||||||||||||||
Loss on extinguishment of debt | 10 | 82 | — | 12 | 104 | ||||||||||||||||||
Provision for income taxes1 | 32 | 46 | 27 | 50 | 155 | ||||||||||||||||||
Depreciation and amortization | 243 | 246 | 224 | 226 | 939 | ||||||||||||||||||
EBITDA | 537 | 671 | 717 | 565 | 2,490 | ||||||||||||||||||
Share-based compensation expense2 | 33 | 40 | 33 | 39 | 145 | ||||||||||||||||||
Fees and other expenses related to the King Acquisition3 | 4 | 4 | 4 | 5 | 17 | ||||||||||||||||||
Restructuring costs4 | — | — | 11 | — | 11 | ||||||||||||||||||
Other non-cash charges5 | — | — | 16 | (1 | ) | 15 | |||||||||||||||||
Adjusted EBITDA (redefined) | $ | 574 | $ | 715 | $ | 781 | $ | 608 | $ | 2,678 | |||||||||||||
Change in deferred net revenues and related cost of revenues6 | $ | 33 | $ | 238 | $ | (396 | ) | $ | (105 | ) | $ | (230 | ) | ||||||||||
1 | We recognized $12 million, $18 million, $69 million, and $13 million of excess tax benefits from share-based payments as an income tax benefit in the provision for income taxes for the three months ended September 30, 2016, December 31, 2016, March 31, 2017, and June 30, 2017, respectively. | |
2 | Includes expenses related to share-based compensation. | |
3 | Reflects fees and other expenses related to the King Acquisition, inclusive of related debt financings and integration costs. | |
4 | Reflects restructuring charges incurred, primarily severance costs. | |
5 | Reflects a non-cash accounting charge to reclassify certain cumulative translation (gains) losses into earnings due to the substantial liquidation of certain of our foreign entities. | |
6 | 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. | |
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SUPPLEMENTAL FINANCIAL INFORMATION | ||||||||||||||||||||||||
(Amounts in millions) | ||||||||||||||||||||||||
Three Months Ended | ||||||||||||||||||||||||
June 30, | September 30, | December 31, | March 31, | June 30, |
Year over Year % |
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2016 | 2016 | 2016 | 2017 | 2017 | ||||||||||||||||||||
Cash Flow Data | ||||||||||||||||||||||||
Operating Cash Flow | $ | 503 | $ | 456 | $ | 859 | $ | 411 | $ | 265 | (47 | )% | ||||||||||||
Capital Expenditures | 44 | 28 | 37 | 21 | 31 | (30 | ) | |||||||||||||||||
Non-GAAP Free Cash Flow1 | 459 | 428 | 822 | 390 | 234 | (49 | ) | |||||||||||||||||
Operating Cash Flow - TTM2 | 1,732 | 2,359 | 2,155 | 2,229 | 1,991 | 15 | ||||||||||||||||||
Capital Expenditures - TTM2 | 133 | 115 | 136 | 130 | 117 | (12 | ) | |||||||||||||||||
Non-GAAP Free Cash Flow - TTM2 | $ | 1,599 | $ | 2,244 | $ | 2,019 | $ | 2,099 | $ | 1,874 | 17 | % | ||||||||||||
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 September 30, 2015, three months ended December 31, 2015, and three months ended March 31, 2016, was $(171) million, $1,063 million, and $337 million, respectively. Capital Expenditures for the three months ended September 30, 2015, three months ended December 31, 2015, and three months ended March 31, 2016, were $46 million, $16 million, and $27 million, respectively. |
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Outlook for the Three Months Ending September 30, 2017 and Year Ending December 31, 2017 | ||||||||||
GAAP to Non-GAAP (redefined) Reconciliation | ||||||||||
(Amounts in millions, except per share data) | ||||||||||
Outlook for the | Outlook for the | |||||||||
Three Months Ending | Year Ending | |||||||||
September 30, 2017 | December 31, 2017 | |||||||||
Net Revenues1 | $ | 1,385 | $ | 6,400 | ||||||
Change in deferred revenues2 | $ | 315 | $ | 175 | ||||||
Earnings Per Diluted Share (GAAP) | $ | 0.09 | $ | 1.05 | ||||||
Excluding the impact of: | ||||||||||
Share-based compensation3 | 0.06 | 0.23 | ||||||||
Amortization of intangible assets4 | 0.24 | 0.99 | ||||||||
Fees and other expenses related to the King Acquisition5 | 0.01 | 0.05 | ||||||||
Restructuring costs6 | — | 0.03 | ||||||||
Other non-cash charges7 | — | 0.02 | ||||||||
Income tax impacts from items above8 | (0.07 | ) | (0.42 | ) | ||||||
Earnings Per Diluted Share (Non-GAAP redefined) | $ | 0.34 | $ | 1.94 | ||||||
Net effect of deferred net revenues and related cost of revenues on Earnings Per Diluted Share9 | $ | 0.11 | $ | 0.06 | ||||||
1 | Net Revenues represents the revenue outlook for both GAAP and Non-GAAP (redefined) 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 King Acquisition. | |
5 | Reflects fees and other expenses related to the King Acquisition, inclusive of related debt financings and integration costs, as well as a loss on extinguishment of debt of $12 million incurred during the three months ended June 30, 2017 related to the refinancing of our long-term debt. | |
6 | Reflects restructuring charges, primarily severance costs. | |
7 | Reflects a non-cash accounting charge incurred to reclassify certain cumulative translation losses into earnings due to the substantial liquidation of certain of our foreign entities. | |
8 | 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. | |
9 | 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 (redefined) earnings per share information are presented as calculated. Therefore, the sum of these measures, as presented, may differ due to the impact of rounding. |
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View source version on businesswire.com: http://www.businesswire.com/news/home/20170803006228/en/
SVP,
Investor Relations
(310) 255-2075
Amrita.Ahuja@ActivisionBlizzard.com
or
SVP, Global Communications
(424) 322-5166
Mary.Osako@Activision.com
Source:
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