Activision Blizzard Announces Third-Quarter 2018 Financial Results

Nov 8, 2018
Activision Blizzard Announces Third-Quarter 2018 Financial Results

Better-Than-Expected Q3 Results

SANTA MONICA, Calif.--(BUSINESS WIRE)--Nov. 8, 2018-- Activision Blizzard, Inc. (Nasdaq: ATVI) today announced third-quarter 2018 results.

“Activision Blizzard’s results for Q3 exceeded our prior outlook as we continue to entertain large audiences, drive deep engagement, and attract significant audience investment across our franchises,” said Bobby Kotick, Chief Executive Officer of Activision Blizzard. “Our unique advantage continues to be our ability to create the most compelling interactive and spectator entertainment based on our own franchises, combined with our direct digital connection to hundreds of millions of customers, in over 190 countries. With these competitive advantages we continue to connect and engage the world through epic entertainment.”

Financial Metrics

       
    Q3
(in millions, except EPS)     2018    

Prior

Outlook*

    2017
GAAP Net Revenues $1,512     $1,490     $1,618
Impact of GAAP deferralsA $146 $125 $284
 
GAAP EPS $0.34 $0.16 $0.25
Non-GAAP EPS $0.42 $0.37 $0.47
Impact of GAAP deferralsA $0.10 $0.10 $0.13
 

* Prior outlook was provided by the company on August 2, 2018 in its earnings release.

For the quarter ended September 30, 2018, Activision Blizzard’s net revenues presented in accordance with GAAP were $1.51 billion, as compared with $1.62 billion for the third quarter of 2017. GAAP net revenues from digital channels were $1.28 billion. GAAP operating margin was 18%. GAAP earnings per diluted share were $0.34, as compared with $0.25 for the third quarter of 2017.

For the quarter ended September 30, 2018, on a non-GAAP basis, Activision Blizzard’s operating margin was 27% and earnings per diluted share were $0.42, as compared with $0.47 for the third quarter of 2017.

For the quarter ended September 30, 2018, operating cash flow was $253 million. For the trailing twelve-month period, operating cash flow was $1.95 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 Metric

For the quarter ended September 30, 2018, Activision Blizzard’s net bookingsB were $1.66 billion, as compared with $1.90 billion for the third quarter of 2017. Net bookingsB from digital channels were $1.44 billion, as compared with $1.47 billion for the third quarter of 2017.

Selected Business Highlights

Over the last three months, all three of the Company’s segments have delivered innovative major content releases for our global franchises. Activision launched Call of Duty®: Black Ops 4, Blizzard released World of Warcraft®: Battle for Azeroth™, and King launched Candy Crush Friends Saga™. The high quality of these releases has been widely recognized in our communities and beyond.

Audience Reach

  • Activision Blizzard had 345 million Monthly Active Users (MAUs)C in the quarter.
  • King had 262 million MAUsC in the quarter. Candy Crush Saga™ MAUsC grew year-over-year. In October, the newly launched Candy Crush Friends Saga reached the top of the iPhone download charts in 93 countries within three weeks.
  • Blizzard had 37 million MAUsC in the quarter. World of Warcraft: Battle for Azeroth set a new day-one franchise record with more than 3.4 million units sold-through. World of Warcraft engagement grew strongly quarter-over-quarter. Hearthstone® recently surpassed the 100 million life-to-date registered player milestone.
  • Activision had 46 million MAUsC in the quarter. Destiny MAUsC grew quarter-over-quarter and year-over-year, driven by the launch of Forsaken and reach initiatives for the base game. Activision MAUsC increased significantly in October following the launch of Call of Duty: Black Ops 4. In the first three weeks after launch, Black Ops 4 sold-through more units than Black Ops III, with PC sell-through more than three times higher. Additionally for the first three weeks after launch, total active users and hours played were 16% and over 20% higher respectively, versus Black Ops III.

Deep Engagement

  • Players spent a record 52 minutes per day in Activision, Blizzard, and King games in the quarter. Viewership of our games was up substantially this quarter, and in the month of October, Activision Blizzard had seven of the top 20 most viewed games on the industry’s largest streaming platform1, including Call of Duty: Black Ops 4 where viewership continues to break franchise records.
  • The Overwatch League™ continues to build on the success of its inaugural season with the announcement of the sale of another six teams in September, again at a substantially higher valuation than the team prices in the first season. These latest sales take the total league roster to 20 teams, with nine teams outside the U.S.
  • In November, BlizzCon®, the ultimate celebration of the Blizzard community, drew over 40,000 fans in person with millions more livestreaming from around the world.

Player Investment

  • Activision Blizzard delivered $1 billion of in-game net bookingsB in the third quarter and a record $3 billion year-to-date.
  • This quarter, King had two of the top-10 highest-grossing titles in the U.S. mobile app stores for the twentieth quarter in a row, with Candy Crush Saga at #1 again.2
  • King’s advertising business continued to exceed plan with net bookingsB growing almost 50% sequentially, albeit off a relatively small base.

Company Outlook

 
(in millions, except EPS)    

GAAP

Outlook

   

Non-GAAP

Outlook

   

Impact of GAAP

deferralsA

CY 2018

           
Net Revenues $7,355 $7,355 $120
EPS $1.94 $2.46 $0.12
Fully Diluted Shares 772 772
 

Q4 2018

Net Revenues $2,236 $2,236 $812
EPS $0.43 $0.64 $0.63
Fully Diluted Shares     776     776      

Net bookingsB is expected to be $7.48 billion for 2018 and $3.05 billion for the fourth quarter of 2018.

Currency Assumptions for 2018 Outlook:

  • $1.20 USD/Euro for current outlook (vs. average of $1.12 for 2017 and $1.11 for 2016); and
  • $1.34 USD/British Pound Sterling for current outlook (vs. average of $1.30 for 2017 and $1.36 for 2016).
  • Note: Our financial guidance includes the forecasted impact of our FX hedging program.

Conference Call

Today at 4:30 p.m. EST, Activision Blizzard’s management will host a conference call and webcast to discuss the company’s results for the quarter ended September 30, 2018 and management’s outlook for the remainder of the calendar year. The company welcomes all members of the financial and media communities and other interested parties to visit https://investor.activision.com to listen to the conference call via live Webcast or to listen to the call live by dialing into 800-263-0877 in the U.S. with passcode 9817186. 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 the world's most successful standalone interactive entertainment company. We delight hundreds of millions of monthly active users around the world through franchises including Activision's Call of Duty®, Destiny, and Skylanders®, 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 GITHYP.com for most watched games by total viewers, for the one month period ended November 1, 2018.

2 U.S. ranking for Apple App Store and Google Play Store combined, per App Annie Intelligence for third quarter of 2018.

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.

BNet 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.

CMonthly 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 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, 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;
  • 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; (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.

The company cautions that a number of important factors could cause Activision Blizzard's 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: sales levels of Activision Blizzard’s titles, products, and services; concentration of revenue among a small number of titles; Activision Blizzard’s ability to predict consumer preferences, including interest in specific genres and modes, and preferences among platforms; 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; 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; maintenance of relationships with key personnel, customers, financing providers, licensees, licensors, manufacturers, vendors, and third-party developers, including the ability to attract, retain, and motivate key personnel and developers that can create high-quality titles, products, and services; changing business models within the video game industry, including digital delivery of content and the increased prevalence of free-to-play games; product delays or defects; competition, including from other forms of entertainment; rapid changes in technology and industry standards; possible declines in software pricing; product returns and price protection; the identification of suitable future acquisition opportunities and potential challenges associated with geographic expansion; the seasonal and cyclical nature of the interactive entertainment market; the outcome of current or future tax disputes; litigation risks and associated costs; protection of proprietary rights; potential data breaches and other cybersecurity risks; shifts in consumer spending trends; capital market risks; the impact of applicable laws, rules, and regulations, including changes in those laws, rules, and regulations; domestic and international economic, financial, and political conditions and policies; tax rates and foreign exchange rates; the impact of the current macroeconomic environment; 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, 2017.

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)

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Amounts in millions, except per share data)

       
Three Months Ended September 30, Nine Months Ended September 30,

20181

 

2017

20181

 

2017

Net revenues
Product sales $ 263 $ 384 $ 1,447 $ 1,373
Subscription, licensing, and other revenues 2 1,249   1,234   3,672   3,601
Total net revenues 1,512 1,618 5,119 4,974
 
Costs and expenses
Cost of revenues—product sales:
Product costs 127 149 416 422
Software royalties, amortization, and intellectual property licenses 20 37 214 200
Cost of revenues—subscription, licensing, and other:
Game operations and distribution costs 257 249 777 717
Software royalties, amortization, and intellectual property licenses 109 117 278 359
Product development 263 273 776 750
Sales and marketing 263 345 741 899
General and administrative 208   191   623   539
Total costs and expenses 1,247   1,361   3,825   3,886
 
Operating income 265 257 1,294 1,088
Interest and other expense (income), net 13 37 67 109
Loss on extinguishment of debt 40     40   12
Income before income tax expense (benefit) 212 220 1,187 967
 
Income tax expense (benefit) (48 ) 32 25 109
       
Net income $ 260   $ 188   $ 1,162   $ 858
 
Basic earnings per common share $ 0.34 $ 0.25 $ 1.53 $ 1.14
Weighted average common shares outstanding 763 755 761 753
 
Diluted earnings per common share $ 0.34 $ 0.25 $ 1.51 $ 1.12
Weighted average common shares outstanding assuming dilution 771 766 771 764
1   We adopted a new revenue accounting standard in the first quarter of 2018. The impacts of the new revenue accounting standard are reflected in our financial information as of and for the three and nine months ended September 30, 2018. Prior period results have not been restated to reflect this change in accounting standards. Refer to our Form 10-Q for the third quarter of 2018 for additional information.
 
2 Subscription, licensing, and other revenues represent revenues from World of Warcraft subscriptions, licensing royalties from our products and franchises, downloadable content, microtransactions, and other miscellaneous revenues.
 
 

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Amounts in millions)

       
September 30, 2018 1 December 31, 2017
Assets
Current assets
Cash and cash equivalents $ 3,308 $ 4,713
Accounts receivable, net 641 918
Inventories, net 174 46
Software development 348 367
Other current assets 501   476  
Total current assets 4,972 6,520
Software development 174 86
Property and equipment, net 281 294
Deferred income taxes, net 243 459
Other assets 454 440
Intangible assets, net 826 1,106
Goodwill 9,763   9,763  
Total assets $ 16,713   $ 18,668  
 
Liabilities and Shareholders’ Equity
Current liabilities
Accounts payable $ 312 $ 323
Deferred revenues 1,017 1,929
Accrued expenses and other liabilities 1,053   1,411  
Total current liabilities 2,382 3,663
Long-term debt, net 2,670 4,390
Deferred income taxes, net 11 21
Other liabilities 991   1,132  
Total liabilities 6,054   9,206  
 
Shareholders’ equity
Common stock
Additional paid-in capital 10,928 10,747
Treasury stock (5,563 ) (5,563 )
Retained earnings 5,907 4,916
Accumulated other comprehensive loss (613 ) (638 )
Total shareholders’ equity 10,659   9,462  
Total liabilities and shareholders’ equity $ 16,713   $ 18,668  
1   We adopted a new revenue accounting standard in the first quarter of 2018. The impacts of the new revenue accounting standard are reflected in our financial information as of and for the three and nine months ended September 30, 2018. Prior period results have not been restated to reflect this change in accounting standards. Refer to our Form 10-Q for the third quarter of 2018 for additional information.
 
 

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
RECONCILIATION OF GAAP NET INCOME TO NON-GAAP MEASURES
(Amounts in millions, except per share data)

                   
Three Months Ended September 30, 2018     Net Revenues  

Cost of Revenues
- Product Sales:
Product Costs

 

Cost of Revenues
- Product Sales:
Software
Royalties and
Amortization

 

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

 

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

 

Product
Development

 

Sales and
Marketing

 

General and
Administrative

 

Total Costs and
Expenses

GAAP Measurement $ 1,512 $ 127 $ 20 $ 257 $ 109 $ 263 $ 263 $ 208 $ 1,247
Share-based compensation1 (1 ) (3 ) (17 ) (3 ) (31 ) (55 )
Amortization of intangible assets2                 (81 )           (2 )   (83 )
Non-GAAP Measurement $ 1,512     $ 127     $ 19     $ 257     $ 25     $ 246     $ 260     $ 175     $ 1,109  
 
Net effect of deferred revenues and related cost of revenues3 $ 146 $ (3 ) $ 63 $ 5 $ (8 ) $ $ $ $ 57
             

Operating
Income

  Net Income  

Basic Earnings
per Share

 

Diluted Earnings
per Share

GAAP Measurement $ 265 $ 260 $ 0.34 $ 0.34
Share-based compensation1 55 55 0.07 0.07
Amortization of intangible assets2 83 83 0.11 0.11
Loss on extinguishment of debt4 40 0.05 0.05
Income tax impacts from items above5 (41 ) (0.05 ) (0.05 )
Discrete tax-related items6     (72 )   (0.09 )   (0.09 )
Non-GAAP Measurement $ 403     $ 325     $ 0.43     $ 0.42  
 
Net effect of deferred revenues and related cost of revenues3 $ 89 $ 74 $ 0.09 $ 0.10
1   Includes expenses related to share-based compensation.
2 Reflects amortization of intangible assets from purchase price accounting.
3 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.
4 Reflects the loss on extinguishment of debt from redemption activities.
5 Reflects the income tax impact associated with the above items. Tax impact on non-GAAP pre-tax income is calculated under the same accounting principles applied to the GAAP pre-tax income under ASC 740, which employs an annual effective tax rate method to the results.
6 Reflects the impact of significant discrete tax-related items, including amounts related to changes in tax laws, amounts related to the potential or final resolution of tax positions, and/or other unusual or unique tax-related items and activities. Refer to our Form 10-Q for the third quarter of 2018 for additional information.
 

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

 
 

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
RECONCILIATION OF GAAP NET INCOME TO NON-GAAP MEASURES
(Amounts in millions, except per share data)

                   
Nine Months Ended September 30, 2018     Net Revenues  

Cost of Revenues
- Product Sales:
Product Costs

 

Cost of Revenues
- Product Sales:
Software
Royalties and
Amortization

 

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

 

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

 

Product
Development

 

Sales and
Marketing

 

General and
Administrative

 

Total Costs and
Expenses

GAAP Measurement $ 5,119 $ 416 $ 214 $ 777 $ 278 $ 776 $ 741 $ 623 $ 3,825
Share-based compensation1 (6 ) (1 ) (3 ) (49 ) (13 ) (94 ) (166 )
Amortization of intangible assets2                 (229 )       (44 )   (6 )   (279 )
Non-GAAP Measurement $ 5,119     $ 416     $ 208     $ 776     $ 46     $ 727     $ 684     $ 523     $ 3,380  
 
Net effect of deferred revenues and related cost of revenues3 $ (692 ) $ (123 ) $ (102 ) $ $ 1 $ $ $ $ (224 )
             
Operating Income   Net Income   Basic Earnings per Share   Diluted Earnings per Share
GAAP Measurement $ 1,294 $ 1,162 $ 1.53 $ 1.51
Share-based compensation1 166 166 0.22 0.21
Amortization of intangible assets2 279 279 0.37 0.36
Loss on extinguishment of debt4 40 0.05 0.05
Income tax impacts from items above5 (147 ) (0.20 ) (0.19 )
Discrete-tax related items6     (97 )   (0.13 )   (0.13 )
Non-GAAP Measurement $ 1,739     $ 1,403     $ 1.84     $ 1.82  
 
Net effect of deferred revenues and related cost of revenues3 $ (468 ) $ (394 ) $ (0.51 ) $ (0.51 )
1   Includes expenses related to share-based compensation.
2 Reflects amortization of intangible assets from purchase price accounting.
3 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.
4 Reflects the loss on extinguishment of debt from redemption activities.
5 Reflects the income tax impact associated with the above items. Tax impact on non-GAAP pre-tax income is calculated under the same accounting principles applied to the GAAP pre-tax income under ASC 740, which employs an annual effective tax rate method to the results.
6 Reflects the impact of significant discrete tax-related items, including amounts related to changes in tax laws, amounts related to the potential or final resolution of tax positions, and/or other unusual or unique tax-related items and activities. Refer to our Form 10-Q for the third quarter of 2018 for additional information.
 

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

 
 

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
RECONCILIATION OF GAAP NET INCOME TO NON-GAAP MEASURES
(Amounts in millions, except per share data)

                   
Three Months Ended September 30, 2017    

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 $ 1,618 $ 149 $ 37 $ 249 $ 117 $ 273 $ 345 $ 191 $ 1,361
Share-based compensation1 (1 ) (1 ) (15 ) (3 ) (27 ) (47 )
Amortization of intangible assets2 (109 ) (76 ) (2 ) (187 )
Fees and other expenses related to the King Acquisition3 (3 ) (3 )
Other non-cash charges4                             1     1  
Non-GAAP Measurement $ 1,618     $ 149     $ 36     $ 249     $ 7     $ 258     $ 266     $ 160     $ 1,125  
 
Net effect of deferred revenues and related cost of revenues5 $ 284 $ 30 $ 120 $ 3 $ (1 ) $ $ $ $ 152
             

Operating
Income

  Net Income  

Basic Earnings
per Share

 

Diluted Earnings
per Share

GAAP Measurement $ 257 $ 188 $ 0.25 $ 0.25
Share-based compensation1 47 47 0.06 0.06
Amortization of intangible assets2 187 187 0.25 0.24
Fees and other expenses related to the King Acquisition3 3 4 0.01 0.01
Other non-cash charges4 (1 ) (1 )
Income tax impacts from items above6     (67 )   (0.09 )   (0.09 )
Non-GAAP Measurement $ 493     $ 358     $ 0.47     $ 0.47  
 
Net effect of deferred revenues and related cost of revenues5 $ 132 $ 100 $ 0.14 $ 0.13
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 King Digital Entertainment (“King Acquisition”), inclusive of related debt financings and integration costs.
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 income tax impact associated with the above items. Tax impact on non-GAAP pre-tax income is calculated under the same accounting principles applied to the GAAP pre-tax income under ASC 740, which employs an annual effective tax rate method to the results.
 

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

 
 

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
RECONCILIATION OF GAAP NET INCOME TO NON-GAAP MEASURES
(Amounts in millions, except per share data)

                   
Nine Months Ended September 30, 2017     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 $ 4,974 $ 422 $ 200 $ 717 $ 359 $ 750 $ 899 $ 539 $ 3,886
Share-based compensation1 (8 ) (1 ) (1 ) (41 ) (11 ) (58 ) (120 )
Amortization of intangible assets2 (334 ) (231 ) (6 ) (571 )
Fees and other expenses related to the King Acquisition3 (12 ) (12 )
Restructuring costs4 (11 ) (11 )
Other non-cash charges5                             (14 )   (14 )
Non-GAAP Measurement $ 4,974     $ 422     $ 192     $ 716     $ 24     $ 709     $ 657     $ 438     $ 3,158  
 
Net effect of deferred revenues and related cost of revenues6 $ (458 ) $ (70 ) $ (17 ) $ 1 $ (2 ) $ $ $ $ (88 )
             
Operating Income   Net Income   Basic Earnings per Share   Diluted Earnings per Share
GAAP Measurement $ 1,088 $ 858 $ 1.14 $ 1.12
Share-based compensation1 120 120 0.16 0.16
Amortization of intangible assets2 571 571 0.76 0.75
Fees and other expenses related to the King Acquisition3 12 17 0.02 0.02
Restructuring costs4 11 11 0.01 0.01
Other non-cash charges5 14 14 0.02 0.02
Loss on extinguishment of debt7 12 0.02 0.02
Income tax impacts from items above8     (281 )   (0.37 )   (0.37 )
Non-GAAP Measurement $ 1,816     $ 1,322     $ 1.76     $ 1.73  
 
Net effect of deferred revenues and related cost of revenues6 $ (370 ) $ (295 ) $ (0.40 ) $ (0.39 )
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, 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 pre-tax income is calculated under the same accounting principles applied to the GAAP pre-tax income under ASC 740, which employs an annual effective tax rate method to the results.
 
The GAAP and non-GAAP earnings per share information is presented as calculated. The sum of these measures, as presented, may differ due to the impact of rounding.
 
 

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
OPERATING SEGMENTS INFORMATION
For the Three and Nine Months Ended September 30, 2018 and 2017
(Amounts in millions)

       
Three Months Ended:

September 30, 2018

$ Increase / (Decrease)
Activision   Blizzard   King   Total Activision   Blizzard   King   Total
Segment Net Revenues
Net revenues from external customers $ 397 $ 627 $ 506 $ 1,530 $ (362 ) $ 96 $ (22 ) $ (288 )
Intersegment net revenues1

 

 

 

8  

 

 

 

8  

 

 

 

8

 

 

 

 

8

 
Segment net revenues $ 397   $ 635   $ 506   $ 1,538   $ (362 ) $ 104   $ (22 ) $ (280 )
 
Segment operating income $ 112 $ 189 $ 184 $ 485 $ (149 ) $ 21 $ (24 ) $ (152 )
 
Operating Margin

 

31.5 %
 

September 30, 2017

Activision

Blizzard

King

Total

Segment Net Revenues
Net revenues from external customers $ 759 $ 531 $ 528 $ 1,818
Intersegment net revenues1

 

 

 

 

 

 

 

 
Segment net revenues $ 759   $ 531   $ 528   $ 1,818  
 
Segment operating income $ 261 $ 168 $ 208 $ 637
 
Operating Margin

 

35.0 %
Nine Months Ended:    

September 30, 2018

 

$ Increase / (Decrease)

Activision

 

Blizzard

 

King

 

Total

Activision

 

Blizzard

 

King

 

Total

Segment Net Revenues
Net revenues from external customers $ 1,047 $ 1,592 $ 1,542 $ 4,181 $ (244 ) $ 53 $ 60 $ (131 )
Intersegment net revenues1

 

 

 

14  

 

 

 

14  

 

 

 

14  

 

 

 

14  
Segment net revenues $ 1,047   $ 1,606   $ 1,542   $ 4,195   $ (244 ) $ 67   $ 60   $ (117 )
 
Segment operating income $ 288 $ 444 $ 543 $ 1,275 $ (83 ) $ (108 ) $ 5 $ (186 )
 
Operating Margin

 

30.4 %
 

September 30, 2017

Activision

Blizzard

King

Total

Segment Net Revenues
Net revenues from external customers $ 1,291 $ 1,539 $ 1,482 $ 4,312
Intersegment net revenues1

 

 

 

 

 

 

 

 
Segment net revenues $ 1,291   $ 1,539   $ 1,482   $ 4,312  
 
Segment operating income $ 371 $ 552 $ 538 $ 1,461
 
Operating Margin

 

33.9 %
1   Intersegment revenues reflect licensing and service fees charged between segments.
 

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

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

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
OPERATING SEGMENTS INFORMATION
For the Three and Nine Months Ended September 30, 2018 and 2017
(Amounts in millions)

   

 

   

Three Months Ended September 30,

Nine Months Ended September 30,

2018

 

2017

2018

 

2017

Reconciliation to consolidated net revenues:
Segment net revenues $ 1,538 $ 1,818 $ 4,195 $ 4,312
Revenues from non-reportable segments1

 

128

 

84

 

246

 

204
Net effect from recognition (deferral) of deferred net revenues2

 

(146 )

 

(284 )

 

692

 

458
Elimination of intersegment revenues3

 

(8 )

 

 

 

(14 )

 

 
Consolidated net revenues $ 1,512   $ 1,618   $ 5,119   $ 4,974  
 
Reconciliation to consolidated income before income tax expense:
Segment operating income $ 485 $ 637 $ 1,275 $ 1,461
Operating income from non-reportable segments1

 

7

 

(12 )

 

(4 )

 

(15 )
Net effect from recognition (deferral) of deferred net revenues and related cost of revenues2

 

(89 )

 

(132 )

 

468

 

370
Share-based compensation expense

 

(55 )

 

(47 )

 

(166 )

 

(120 )
Amortization of intangible assets

 

(83 )

 

(187 )

 

(279 )

 

(571 )
Fees and other expenses related to the King Acquisition4

 

 

(3 )

 

 

(12 )
Restructuring costs5

 

 

 

 

(11 )
Other non-cash charges6

 

 

 

1  

 

 

 

(14 )
Consolidated operating income

 

265

 

257

 

1,294

 

1,088
Interest and other expense (income), net

 

13

 

37

 

67

 

109
Loss on extinguishment of debt

 

40  

 

 

 

40  

 

12  
Consolidated income before income tax expense $ 212  

$

220   $ 1,187   $ 967  
1   Includes other income and expenses from operating segments managed outside the reportable segments, including our studios and distribution businesses. Also includes unallocated corporate income and expenses.
2 Reflects the net effect from (deferral) of revenues and recognition of deferred revenues, along with related cost of revenues, on certain of our online enabled products.
3 Intersegment revenues reflect licensing and service fees charged between segments.
4 Reflects fees and other expenses related to the King Acquisition, inclusive of related debt financings and integration costs.
5 Reflects restructuring charges, primarily severance costs.
6 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.
 
 

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
NET REVENUES BY DISTRIBUTION CHANNEL
For the Three and Nine Months Ended September 30, 2018 and 2017
(Amounts in millions)

   
Three Months Ended
September 30, 2018   September 30, 2017  

$ Increase
(Decrease)

 

% Increase
(Decrease)

Amount1   % of Total2 Amount   % of Total2
Net Revenues by Distribution Channel
Digital online channels3 $ 1,276 84 % $ 1,354 84 % $ (78 ) (6 )%
Retail channels 76 5 168 10 (92 ) (55 )
Other4 160   11   96   6   64   67
Total consolidated net revenues $ 1,512   100 % $ 1,618   100 % $ (106 ) (7 )
 
Change in deferred revenues5
Digital online channels3 $ 159 $ 114
Retail channels (14 ) 177
Other4 1   (7 )
Total changes in deferred revenues $ 146   $ 284  
    Nine Months Ended
September 30, 2018   September 30, 2017  

$ Increase
(Decrease)

 

% Increase
(Decrease)

Amount1   % of Total2 Amount   % of Total2
Net Revenues by Distribution Channel
Digital online channels3 $ 3,998 78 % $ 4,048 81 % $ (50 ) (1 )%
Retail channels 764 15 698 14 66 9
Other4 357   7   228   5   129   57
Total consolidated net revenues $ 5,119   100 % $ 4,974   100 % $ 145   3
 
Change in deferred revenues5
Digital online channels3 $ (160 ) $ (236 )
Retail channels (546 ) (208 )
Other4 14   (14 )
Total changes in deferred revenues $ (692 ) $ (458 )
1   We adopted a new revenue accounting standard in the first quarter of 2018. The impacts of the new revenue accounting standard are reflected in our financial information as of and for the three and nine months ended September 30, 2018. Prior period results have not been restated to reflect this change in accounting standards. Refer to our Form 10-Q for the third quarter of 2018 for additional information.
2 The percentages of total are presented as calculated. Therefore, the sum of these percentages, as presented, may differ due to the impact of rounding.
3 Net revenues from Digital online channels represent revenues from digitally-distributed subscriptions, downloadable content, microtransactions, and products, as well as licensing royalties.
4 Net revenues from Other include revenues from our studios and distribution businesses, as well as revenues from Major League Gaming and the Overwatch League.
5 Reflects the net effect from deferral of revenues and (recognition) of deferred revenues on certain of our online enabled products.
 
 

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
NET REVENUES BY DISTRIBUTION CHANNEL - SUPPLEMENTAL INFORMATION
For the Three Months Ended September 30, 2018
(Amounts in millions)

   

As a result of our adoption of the new revenue accounting standard, net revenues by distribution channel for the three months ended September 30, 2018, includes a reconciliation to our segment revenues as disclosed for each of our reportable segments. Net revenues by distribution channel were as follows:

Three Months Ended September 30, 2018

Activision

 

Blizzard

 

King

 

Non-
reportable
segments

 

Elimination of
intersegment
revenues
4

 

Total

Net Revenues by Distribution Channel:
Digital online channels1 $ 299 $ 480 $ 505 $ $ (8 ) $ 1,276
Retail channels

53

23

 

76

Other2  

   

35

   

   

125

   

   

160

 
Total consolidated net revenues $ 352   $ 538  

$

505

  $ 125   $ (8 ) $ 1,512  
 
Change in deferred revenues3:
Digital online channels1 $ 57 $ 101 $ 1 $ $ $ 159
Retail channels

(12

)

(2

)

(14

)
Other2  

   

(2

)  

   

3

   

   

1

 
Total change in deferred revenues $ 45   $ 97   $ 1   $ 3   $   $ 146  
 
Segment net revenues:
Digital online channels1 $ 356 $ 581 $ 506 $ $ (8 ) $ 1,435
Retail channels

41

21

62

Other2  

   

33

   

   

128

   

   

161

 
Total segment net revenues $ 397   $ 635   $ 506   $ 128   $ (8 ) $ 1,658  
1   Net revenues from Digital online channels represent revenues from digitally-distributed subscriptions, downloadable content, microtransactions, and products, as well as licensing royalties.
2 Net revenues from Other include revenues from our studios and distribution businesses, as well as revenues from Major League Gaming and the Overwatch League.
3 Reflects the net effect from deferral of revenues and (recognition) of deferred revenues on certain of our online enabled products.
4 Intersegment revenues reflect licensing and service fees charged between segments.
 
 

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
NET REVENUES BY DISTRIBUTION CHANNEL - SUPPLEMENTAL INFORMATION
For the Nine Months Ended September 30, 2018
(Amounts in millions)

   

As a result of our adoption of the new revenue accounting standard, net revenues by distribution channel for the nine months ended September 30, 2018, includes a reconciliation to our segment revenues as disclosed for each of our reportable segments. Net revenues by distribution channel were as follows:

 
Nine Months Ended September 30, 2018
Activision   Blizzard   King  

Non-
reportable
segments

 

Elimination of
intersegment
revenues4

  Total
Net Revenues by Distribution Channel:
Digital online channels1 $ 1,110 $ 1,355 $ 1,547 $ $ (14 ) $ 3,998
Retail channels 707 57 764
Other2   124     233     357  
Total consolidated net revenues $ 1,817   $ 1,536   $ 1,547   $ 233   $ (14 ) $ 5,119  
 
Change in deferred revenues3:
Digital online channels1 $ (234 ) $ 79 $ (5 ) $ $ $ (160 )
Retail channels (536 ) (10 ) (546 )
Other2   1     13     14  
Total change in deferred revenues $ (770 ) $ 70   $ (5 ) $ 13   $   $ (692 )
 
Segment net revenues:
Digital online channels1 $ 876 $ 1,434 $ 1,542 $ $ (14 ) $ 3,838
Retail channels 171 47 218
Other2   125     246     371  
Total segment net revenues $ 1,047   $ 1,606   $ 1,542   $ 246   $ (14 ) $ 4,427  
1   Net revenues from Digital online channels represent revenues from digitally-distributed subscriptions, downloadable content, microtransactions, and products, as well as licensing royalties.
2 Net revenues from Other include revenues from our studios and distribution businesses, as well as revenues from Major League Gaming and the Overwatch League.
3 Reflects the net effect from deferral of revenues and (recognition) of deferred revenues on certain of our online enabled products.
4 Intersegment revenues reflect licensing and service fees charged between segments.
 
 

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
NET REVENUES BY PLATFORM
For the Three and Nine Months Ended September 30, 2018 and 2017
(Amounts in millions)

   
Three Months Ended
September 30, 2018   September 30, 2017  

$ Increase
(Decrease)

 

% Increase
(Decrease)

Amount1   % of Total2 Amount   % of Total2
Net Revenues by Platform
Console $ 347 23 % $ 527 33 % $ (180 ) (34 )%
PC 482 32 461 28 21 5
Mobile and ancillary3 523 35 534 33 (11 ) (2 )
Other4 160   11   96   6   64   67
Total consolidated net revenues $ 1,512   100 % $ 1,618   100 % $ (106 ) (7 )
 
Change in deferred revenues5
Console $ 20 $ 267
PC 117 8
Mobile and ancillary3 8 16
Other4 1   (7 )
Total changes in deferred revenues $ 146   $ 284  
    Nine Months Ended
September 30, 2018   September 30, 2017  

$ Increase
(Decrease)

 

% Increase
(Decrease)

Amount1   % of Total2 Amount   % of Total2
Net Revenues by Platform
Console $ 1,730 34 % $ 1,710 34 % $ 20 1 %
PC 1,452 28 1,534 31 (82 ) (5 )
Mobile and ancillary3 1,580 31 1,502 30 78 5
Other4 357   7   228   5   129   57
Total consolidated net revenues $ 5,119   100 % $ 4,974   100 % $ 145   3
 
Change in deferred revenues5
Console $ (720 ) $ (310 )
PC 20 (153 )
Mobile and ancillary3 (6 ) 19
Other4 14   (14 )
Total changes in deferred revenues $ (692 ) $ (458 )
1   We adopted a new revenue accounting standard in the first quarter of 2018. The impacts of the new revenue accounting standard are reflected in our financial information as of and for the three and nine months ended September 30, 2018. Prior period results have not been restated to reflect this change in accounting standards. Refer to our Form 10-Q for the third quarter of 2018 for additional information.
2 The percentages of total are presented as calculated. Therefore, the sum of these percentages, as presented, may differ due to the impact of rounding.
3 Net revenues from Mobile and ancillary include revenues from mobile devices, as well as non-platform specific game related revenues, such as standalone sales of physical merchandise and accessories.
4 Net revenues from Other include revenues from our studios and distribution businesses, as well as revenues from Major League Gaming and the Overwatch League.
5 Reflects the net effect from deferral of revenues and (recognition) of deferred revenues on certain of our online enabled products.
 
 

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
NET REVENUES BY PLATFORM - SUPPLEMENTAL INFORMATION
For the Three Months Ended September 30, 2018
(Amounts in millions)

   

As a result of our adoption of the new revenue accounting standard, net revenues by platform for the three months ended September 30, 2018, includes a reconciliation to our segment revenues as disclosed for each of our reportable segments. Net revenues by platform were as follows:

 
 
Three Months Ended September 30, 2018
Activision   Blizzard   King  

Non-
reportable
segments

 

Elimination of
intersegment
revenues4

  Total
Net Revenues by Platform:
Console $ 307 $ 40 $ $ $ $ 347
PC 40 414 36 (8 )

482

Mobile and ancillary1 5 49 469

523

Other2   35     125    

160

Total consolidated net revenues $ 352   $ 538   $ 505   $ 125   $ (8 ) $ 1,512
 
Change in deferred revenues3:
Console $ 29 $ (9 ) $ $ $ $ 20
PC 16 101 117
Mobile and ancillary1 7 1 8
Other2   (2 )   3     1
Total change in deferred revenues $ 45   $ 97   $ 1   $ 3   $   $ 146
 
Segment net revenues:
Console $ 336 $ 31 $ $ $ $ 367
PC 56 515 36 (8 ) 599
Mobile and ancillary1 5 56 470 531
Other2   33     128     161
Total segment net revenues $ 397   $ 635   $ 506   $ 128   $ (8 ) $ 1,658
1   Net revenues from Mobile and ancillary include revenues from mobile devices, as well as non-platform specific game related revenues, such as standalone sales of physical merchandise and accessories.
2 Net revenues from Other include revenues from our studios and distribution businesses, as well as revenues from Major League Gaming and the Overwatch League.
3 Reflects the net effect from deferral of revenues and (recognition) of deferred revenues on certain of our online enabled products.
4 Intersegment revenues reflect licensing and service fees charged between segments.
 
 

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
NET REVENUES BY PLATFORM - SUPPLEMENTAL INFORMATION
For the Nine Months Ended September 30, 2018
(Amounts in millions)

   

As a result of our adoption of the new revenue accounting standard, net revenues by platform for the nine months ended September 30, 2018, includes a reconciliation to our segment revenues as disclosed for each of our reportable segments. Net revenues by platform were as follows:

 
Nine Months Ended September 30, 2018
Activision   Blizzard   King  

Non-
reportable
segments

 

Elimination of
intersegment
revenues4

  Total
Net Revenues by Platform:
Console $ 1,597 $ 133 $ $ $ $ 1,730
PC 208 1,140 118 (14 ) 1,452
Mobile and ancillary1 12 139 1,429 1,580
Other2   124     233     357  
Total consolidated net revenues $ 1,817   $ 1,536   $ 1,547   $ 233   $ (14 ) $ 5,119  
 
Change in deferred revenues3:
Console $ (695 ) $ (25 ) $ $ $ $ (720 )
PC (76 ) 96 20
Mobile and ancillary1 1 (2 ) (5 ) (6 )
Other2   1     13     14  
Total change in deferred revenues $ (770 ) $ 70   $ (5 ) $ 13   $   $ (692 )
 
Segment net revenues:
Console $ 902 $ 108 $ $ $ $ 1,010
PC 132 1,236 118 (14 ) 1,472
Mobile and ancillary1 13 137 1,424 1,574
Other2   125     246     371  
Total segment net revenues $ 1,047   $ 1,606   $ 1,542   $ 246   $ (14 ) $ 4,427  
1   Net revenues from Mobile and ancillary include revenues from mobile devices, as well as non-platform specific game related revenues, such as standalone sales of physical merchandise and accessories.
2 Net revenues from Other include revenues from our studios and distribution businesses, as well as revenues from Major League Gaming and the Overwatch League.
3 Reflects the net effect from deferral of revenues and (recognition) of deferred revenues on certain of our online enabled products.
4 Intersegment revenues reflect licensing and service fees charged between segments.
 
 

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
NET REVENUES BY GEOGRAPHIC REGION
For the Three and Nine Months Ended September 30, 2018 and 2017
(Amounts in millions)

   
Three Months Ended
September 30, 2018   September 30, 2017  

$ Increase
(Decrease)

 

% Increase
(Decrease)

Amount1  

% of Total2

Amount   % of Total2
Net Revenues by Geographic Region
Americas $ 774 51 % $ 798 49 % $ (24 ) (3 )%
EMEA3 534 35 593 37 (59 ) (10 )
Asia Pacific 204   13   227   14   (23 ) (10 )
Total consolidated net revenues $ 1,512   100 % $ 1,618   100 % $ (106 ) (7 )
 
Change in deferred revenues4
Americas $ 76 $ 182
EMEA3 60 73
Asia Pacific 10   29  
Total changes in deferred revenues $ 146   $ 284  
    Nine Months Ended
September 30, 2018   September 30, 2017  

$ Increase
(Decrease)

 

% Increase
(Decrease)

Amount1   % of Total2 Amount   % of Total2
Net Revenues by Geographic Region
Americas $ 2,740 54 % $ 2,586 52 % $ 154 6 %
EMEA3 1,774 35 1,684 34 90 5
Asia Pacific 605   12   704   14   (99 ) (14 )
Total consolidated net revenues $ 5,119   100 % $ 4,974   100 % $ 145   3
 
Change in deferred revenues4
Americas $ (399 ) $ (258 )
EMEA3 (242 ) (160 )
Asia Pacific (51 ) (40 )
Total changes in deferred revenues $ (692 ) $ (458 )
1   We adopted a new revenue accounting standard in the first quarter of 2018. The impacts of the new revenue accounting standard are reflected in our financial information as of and for the three and nine months ended September 30, 2018. Prior period results have not been restated to reflect this change in accounting standards. Refer to our Form 10-Q for the third quarter of 2018 for additional information.
2 The percentages of total are presented as calculated. Therefore, the sum of these percentages, as presented, may differ due to the impact of rounding.
3 Net revenues from EMEA consist of the Europe, Middle East, and Africa geographic regions.
4 Reflects the net effect from deferral of revenues and (recognition) of deferred revenues on certain of our online enabled products.
 
 

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
NET REVENUES BY GEOGRAPHIC REGION - SUPPLEMENTAL INFORMATION
For the Three Months Ended September 30, 2018
(Amounts in millions)

   

As a result of our adoption of the new revenue accounting standard, net revenues by geographic region for the three months ended September 30, 2018, includes a reconciliation to our segment revenues as disclosed for each of our reportable segments. Net revenues by geographic region were as follows:

 
Three Months Ended September 30, 2018
Activision   Blizzard   King  

Non-
reportable
segments

 

Elimination of
intersegment
revenues3

  Total
Net Revenues by Geographic Region:
Americas $ 214 $ 242 $ 309 $ 13 $ (4 ) $ 774
EMEA1 109 172 143 112 (2 ) 534
Asia Pacific 29   124   53     (2 ) 204
Total consolidated net revenues $ 352   $ 538   $ 505   $ 125   $ (8 ) $ 1,512
 
Change in deferred revenues2:
Americas $ 33 $ 43 $ $ $ $ 76
EMEA1 8 48 1 3 60
Asia Pacific 4   6         10
Total change in deferred revenues $ 45   $ 97   $ 1   $ 3   $   $ 146
 
Segment net revenues:
Americas $ 247 $ 285 $ 309 $ 13 $ (4 ) $ 850
EMEA1 117 220 144 115 (2 ) 594
Asia Pacific 33   130   53     (2 ) 214
Total segment net revenues $ 397   $ 635   $ 506   $ 128   $ (8 ) $ 1,658
1   Net revenues from EMEA consist of the Europe, Middle East, and Africa geographic regions.
2 Reflects the net effect from deferral of revenues and (recognition) of deferred revenues on certain of our online enabled products.
3 Intersegment revenues reflect licensing and service fees charged between segments.
 
 

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
NET REVENUES BY GEOGRAPHIC REGION - SUPPLEMENTAL INFORMATION
For the Nine Months Ended September 30, 2018
(Amounts in millions)

   

As a result of our adoption of the new revenue accounting standard, net revenues by geographic region for the nine months ended September 30, 2018, includes a reconciliation to our segment revenues as disclosed for each of our reportable segments. Net revenues by geographic region were as follows:

 
Nine Months Ended September 30, 2018
Activision   Blizzard   King  

Non-
reportable
segments

 

Elimination of
intersegment
revenues3

  Total
Net Revenues by Geographic Region:
Americas $ 1,074 $ 716 $ 945 $ 13 $ (8 ) $ 2,740
EMEA1 613 497 448 220 (4 ) 1,774
Asia Pacific 130   323   154     (2 ) 605  
Total consolidated net revenues $ 1,817   $ 1,536   $ 1,547   $ 233   $ (14 ) $ 5,119  
 
Change in deferred revenues2:
Americas $ (439 ) $ 43 $ (3 ) $ $ $ (399 )
EMEA1 (287 ) 34 (2 ) 13 (242 )
Asia Pacific (44 ) (7 )       (51 )
Total change in deferred revenues $ (770 ) $ 70   $ (5 ) $ 13   $   $ (692 )
 
Segment net revenues:
Americas $ 635 $ 759 $ 942 $ 13 $ (8 ) $ 2,341
EMEA1 326 531 446 233 (4 ) 1,532
Asia Pacific 86   316   154     (2 ) 554  
Total segment net revenues $ 1,047   $ 1,606   $ 1,542   $ 246   $ (14 ) $ 4,427  
1   Net revenues from EMEA consist of the Europe, Middle East, and Africa geographic regions.
2 Reflects the net effect from deferral of revenues and (recognition) of deferred revenues on certain of our online enabled products.
3 Intersegment revenues reflect licensing and service fees charged between segments.
 
 

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
EBITDA and ADJUSTED EBITDA
For the Trailing Twelve Months Ended September 30, 2018
(Amounts in millions)

           

Trailing Twelve
Months Ended

December 31, 2017 March 31, 2018 June 30, 2018 September 30, 2018 September 30, 2018
 
GAAP Net Income (Loss)1 $ (584 ) $ 500 $ 402 $ 260 $ 578
Interest and other expense (income), net 36 28 26 13 103
Loss on extinguishment of debt 40 40
Provision for income taxes2 769 67 6 (48 ) 794
Depreciation and amortization 219   155   112   118   604  
EBITDA 440 750 546 383 2,119
 
Share-based compensation expense3 58 53 57 55 223
Fees and other expenses related to the King Acquisition4 3 3
Restructuring costs5 5 5
Discrete tax-related items6 39         39  
Adjusted EBITDA $ 545   $ 803   $ 603   $ 438   $ 2,389  
 
Change in deferred net revenues and related cost of revenues7 $ 441 $ (373 ) $ (182 ) $ 89 $ (25 )
1   We adopted a new revenue accounting standard in the first quarter of 2018. The impacts of the new revenue accounting standard are reflected in our financial information as for the fiscal quarters beginning in 2018. Prior period results have not been restated to reflect this change in accounting standards. Refer to our Form 10-Q for the third quarter of 2018 for additional information.
2 Provision for income taxes for the three months ended December 31, 2017, June 30, 2018, and September 30, 2018, also include impacts from significant discrete tax-related items, including amounts related to changes in tax laws, amounts related to the potential or final resolution of tax positions, and/or other unusual or unique tax-related items and activities.
3 Includes expenses related to share-based compensation.
4 Reflects fees and other expenses related to the King Acquisition, inclusive of related debt financings and integration costs.
5 Reflects restructuring charges, primarily severance costs.
6 Reflects the impact of other unusual or unique tax-related items and activities.
7 Reflects the net effect from deferral of revenues and (recognition) of deferred revenues, along with related cost of revenues, on certain of our online enabled products.
 
 

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
SUPPLEMENTAL CASH FLOW INFORMATION
(Amounts in millions)

 

   

 

 

Three Months Ended

Year over Year %
Increase
(Decrease)

September 30,
2017

 

December 31,
2017

 

March 31,
2018

 

June 30,
2018

 

September 30,
2018

Cash Flow Data
Operating Cash Flow $ 379 $ 1,158 $ 529 $ 9 $ 253

(33

)%
Capital Expenditures 34   69   31   30   36   6
Non-GAAP Free Cash Flow1 345 1,089 498 (21 ) 217 (37 )
 
Operating Cash Flow - TTM2 1,914 2,213 2,331 2,075 1,949

2

%

Capital Expenditures - TTM2 123   155   165   164   166   35
Non-GAAP Free Cash Flow - TTM2 $ 1,791 $ 2,058 $ 2,166 $ 1,911 $ 1,783

 

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 December 31, 2016, three months ended March 31, 2017, and three months ended June 30, 2017, were $859 million, $411 million, and $265 million, respectively. Capital Expenditures for the three months ended December 31, 2016, three months ended March 31, 2017, and three months ended June 30, 2017, were $37 million, $21 million, and $31 million, respectively.
 
 

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
Outlook for the Three Months Ending December 31, 2018 and Year Ending December 31, 2018
GAAP to Non-GAAP Reconciliation
(Amounts in millions, except per share data)

     
Outlook for the Outlook for the
Three Months Ending Year Ending
December 31, 2018 December 31, 2018
 
Net Revenues1

$

2,236

$

7,355

Change in deferred revenues2

$

812

$

120

 
 
Earnings Per Diluted Share (GAAP)

$

0.43

$

1.94

Excluding the impact of:
Share-based compensation3

0.11

0.33

Amortization of intangible assets4

0.12

0.48

Loss on extinguishment of debt5

-

0.05

Income tax impacts from items above6

(0.02

)

(0.22

)

Discrete tax-related items7  

-

   

(0.13

)

Earnings Per Diluted Share (Non-GAAP)

$

0.64

 

$

2.46

 
 
 
Net effect of deferred net revenues and related cost of revenues on Earnings Per Diluted Share8

$

0.63

$

0.12

1   Net Revenues represents the revenue outlook for both GAAP and Non-GAAP as they are measured the same.
2 Reflects the net effect from deferral of revenues and (recognition) of deferred revenues on certain of our online enabled products.
3 Reflects expenses related to share-based compensation.
4 Reflects amortization of intangible assets from purchase price accounting, including intangible assets from the King Acquisition.
5

Reflects losses recognized from early extinguishment of debt.

6 Reflects the income tax impacts associated with the above items. Due to the inherent uncertainties in share price and option exercise behavior, we do not generally forecast excess tax benefits or tax shortfalls.
7 Reflects the impacts from significant discrete tax-related items, including amounts related to changes in tax laws, amounts related to the potential or final resolution of tax positions, and/or other unusual or unique tax-related items and activities recognized during the nine months ended September 30, 2018. Refer to our Form 10-Q for the third quarter of 2018 for additional information.
8 Reflects the net effect from deferral of revenues and (recognition) of deferred revenues, along with related cost of revenues, on certain of our online enabled products, including the effect of taxes.
 
The per share adjustments and the GAAP and Non-GAAP earnings per share information are presented as calculated. Therefore, the sum of these measures, as presented, may differ due to the impact of rounding.

Source: Activision Blizzard, Inc.

Activision Blizzard, Inc.
Investors and Analysts:
ir@activisionblizzard.com
or
Press:
pr@activisionblizzard.com