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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

 

 

FORM 8-K

 

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

 

Date of report (Date of earliest event reported):  February 6, 2020

 

  ACTIVISION BLIZZARD, INC.  
  (Exact Name of Registrant as Specified in Charter)  

 

Delaware   001-15839   95-4803544
(State or Other Jurisdiction of   (Commission File Number)   (IRS Employer
Incorporation)       Identification No.)

 

3100 Ocean Park Boulevard,    
Santa Monica, CA   90405
(Address of Principal Executive
Offices)
  (Zip Code)

 

Registrant’s telephone number, including area code: (310) 255-2000

 

 

___________________________________________________________

(Former Name or Former Address, if Changed Since Last Report)

 

Title of Each Class   Trading Symbol   Name of Each Exchange on 
Which Registered
Common Stock, par value $.000001 per share   ATVI   The Nasdaq Global Select Market

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

 

¨Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
¨Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
¨Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
¨Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

 

Emerging growth company              ¨

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.             ¨

 

 

 

 

 

Certain Information Not Filed. The information in Item 2.02 of this Form 8-K and Exhibit 99.1 attached to this Form 8-K shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, nor shall such Item 2.02 or such Exhibit 99.1 or any of the information contained therein be deemed incorporated by reference in any filing under the Securities Exchange Act of 1934 or the Securities Act of 1933, except as shall be expressly set forth by specific reference in such filing.

 

Item 2.02.Results of Operations and Financial Condition.

 

On February 6, 2020, Activision Blizzard, Inc. (the “Company”) issued a press release announcing results for the Company for the fiscal quarter and year ended December 31, 2019. A copy of the press release is attached hereto as Exhibit 99.1. As previously announced, the Company is hosting a conference call and webcast in conjunction with that release.

 

Item 8.01.Other Events.

 

Cash Dividend. On February 6, 2020, the Company’s Board of Directors declared a cash dividend of $0.41 per share of the Company’s outstanding common stock, payable on May 6, 2020, to shareholders of record at the close of business on April 15, 2020.

 

Item 9.01.Financial Statements and Exhibits.

 

(d) Exhibits

 

Exhibit No.

 

Description

     
99.1   Press Release dated February 6, 2020 (furnished not filed)
104   Cover Page Interactive Data File (embedded within the Inline XBRL document)

 

2

 

 

SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

Date: February 6, 2020  ACTIVISION BLIZZARD, INC.
    
    
   By: /s/ Dennis Durkin
     Dennis Durkin
     Chief Financial Officer

 

3

 

 

Exhibit 99.1

 

ACTIVISION BLIZZARD ANNOUNCES FOURTH-QUARTER AND 2019 FINANCIAL RESULTS

 

Better-Than-Expected Q4 Results

 

Santa Monica, CA – February 6, 2020 – Activision Blizzard, Inc. (Nasdaq: ATVI) today announced fourth-quarter and full year 2019 results.

 

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

 

Financial Metrics

 

  Q4   CY
(in millions, except EPS) 2019 Prior
Outlook*
2018   2019 2018
GAAP Net Revenues $ 1,986 $ 1,812 $ 2,381   $ 6,489 $ 7,500
      Impact of GAAP deferralsA $ 722 $ 834 $ 454   $ (101) $ (238)
             
GAAP EPS $ 0.68 $ 0.29 $ 0.89   $ 1.95 $ 2.40
Non-GAAP EPS $ 0.62 $ 0.43 $ 0.90   $ 2.31 $ 2.72
      Impact of GAAP deferralsA $ 0.61 $ 0.72 $ 0.39   $ (0.06) $ (0.12)
             

 

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

 

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

 

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

 

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

 

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

 

  1

 

Activision Blizzard Announces Q4 2019 Financial Results

 

Operating Metrics

 

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

 

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

 

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

 

Selected Business Highlights

 

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

 

Activision

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

 

Blizzard

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

 

  2

 

Activision Blizzard Announces Q4 2019 Financial Results

 

King

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

 

 

Company Outlook

 

(in millions, except EPS) GAAP
Outlook
Non-GAAP
Outlook
Impact of GAAP
deferralsA
CY 2020      
  Net Revenues $ 6,450 $ 6,450 $ 275
  EPS $ 1.85 $ 2.22 $ 0.13
  Fully Diluted Shares 778 778  
       
Q1 2020      
  Net Revenues $ 1,640 $ 1,640 $ (365)
  EPS $ 0.55 $ 0.66 $ (0.31)
  Fully Diluted Shares 775 775  

 

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

 

Capital Allocation

 

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

 

Conference Call 

 

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

 

  3

 

Activision Blizzard Announces Q4 2019 Financial Results

 

About Activision Blizzard

 

Activision Blizzard, Inc. connects and engages the world through epic entertainment. A member of the Fortune 500 and S&P 500, Activision Blizzard is a leading interactive entertainment company. We delight hundreds of millions of monthly active users around the world through franchises including Activision’s Call of Duty®, Spyro®, and Crash Bandicoot™, Blizzard Entertainment's World of Warcraft®, Overwatch®, Hearthstone®, Diablo®, StarCraft®, and Heroes of the Storm®, and King's Candy Crush™, Bubble Witch™, and Farm Heroes™. The company is one of the Fortune "100 Best Companies To Work For®." Headquartered in Santa Monica, California, Activision Blizzard has operations throughout the world. More information about Activision Blizzard and its products can be found on the company's website, www.activisionblizzard.com.

 

1 Per the NPD Group, GfK, GSD and internal estimates, based on dollar sales of front-line games.

2 Per App Annie Intelligence and internal estimates for respective regions, app stores, and periods.

3 Defined as players with monthly or longer-term subscriptions.

4 Per App Annie Intelligence for respective regions, app stores, and periods.

 

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

 

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

 

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

 

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

 

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

 

  4

 

Activision Blizzard Announces Q4 2019 Financial Results

 

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

 

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

 

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

 

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

 

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

 

Cautionary Note Regarding Forward-looking Statements: The statements contained herein that are not historical facts are forward-looking statements, including, but not limited to, statements about: (1) projections of revenues, expenses, income or loss, earnings or loss per share, cash flow or other financial items; (2) statements of our plans and objectives, including those related to releases of products and services and restructuring activities; (3) statements of future financial or operating performance, including the impact of tax items thereon; and (4) statements of assumptions underlying such statements. The company generally uses words such as “outlook,” “forecast,” “will,” “could,” “should,” “would,” “to be,” “plan,” “plans,” “believes,” “may,” “might,” “expects,” “intends,” “intends as,” “anticipates,” “estimate,” “future,” “positioned,” “potential,” “project,” “remain,” “scheduled,” “set to,” “subject to,” “upcoming,” and other similar expressions to help identify forward-looking statements. Forward-looking statements are subject to business and economic risks, reflect management’s current expectations, estimates, and projections about our business, and are inherently uncertain and difficult to predict.

 

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

 

  5

 

Activision Blizzard Announces Q4 2019 Financial Results

 

The forward-looking statements in this press release are based on information available to the company at this time and we assume no obligation to update any such forward-looking statements. Although these forward-looking statements are believed to be true when made, they may ultimately prove to be incorrect. These statements are not guarantees of our future performance and are subject to risks, uncertainties, and other factors, some of which are beyond our control and may cause actual results to differ materially from current expectations.

 

 

Activision Blizzard, Inc.

 

Investors and Analysts:

ir@activisionblizzard.com

or

Press:

pr@activisionblizzard.com

 

###

 

(Tables to Follow)

 

  6
  1

 

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(Amounts in millions, except per share data)

 

  Three Months Ended December 31,   Year Ended December 31,
  2019   2018 1   2019   2018 1
               
Net revenues              
Product sales $ 699     $ 808     $ 1,975     $ 2,255  
Subscription, licensing, and other revenues2 1,287     1,573     4,514     5,245  
Total net revenues 1,986     2,381     6,489     7,500  
               
Costs and expenses              
Cost of revenues—product sales:              
Product costs 268     303     656     719  
Software royalties, amortization, and intellectual property licenses 69     157     240     371  
Cost of revenues—subscription, licensing, and other:              
Game operations and distribution costs 251     251     965     1,028  
Software royalties, amortization, and intellectual property licenses 68     121     233     399  
Product development 296     325     998     1,101  
Sales and marketing 346     321     926     1,062  
General and administrative 205     199     732     822  
Restructuring and related costs 29     10     132     10  
Total costs and expenses 1,532     1,687     4,882     5,512  
               
Operating income 454     694     1,607     1,988  
Interest and other expense (income), net 7     4     (26 )   71  
Loss on extinguishment of debt             40  
Income before income tax expense (benefit) 447     690     1,633     1,877  
               
Income tax expense (benefit) (78 )   5     130     29  
               
Net income $ 525     $ 685     $ 1,503     $ 1,848  
               
Basic earnings per common share $ 0.68     $ 0.90     $ 1.96     $ 2.43  
Weighted average common shares outstanding 768     763     767     762  
               
Diluted earnings per common share $ 0.68     $ 0.89     $ 1.95     $ 2.40  
Weighted average common shares outstanding assuming dilution 773     771     771     771  

 

1During the three months ended March 31, 2019, we identified an amount which should have been recorded in the fourth quarter of 2018 to reduce income tax expense by $35 million. Our statement of operations for the three months and year ended December 31, 2018, as presented above, has been revised to reflect the correction. Refer to our forthcoming Annual Report on Form 10-K for the year ended December 31, 2019, for additional information.

 

2Subscription, 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.

 

 

2

 

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(Amounts in millions)

 

  December 31, 2019 1   December 31, 2018 2
Assets      
Current assets      
Cash and cash equivalents $ 5,794     $ 4,225  
Accounts receivable, net 848     1,035  
Inventories, net 32     43  
Software development 322     264  
Other current assets 296     539  
Total current assets 7,292     6,106  
Software development 54     65  
Property and equipment, net 253     282  
Deferred income taxes, net 1,293     458  
Other assets 658     482  
Intangible assets, net 531     735  
Goodwill 9,764     9,762  
Total assets $ 19,845     $ 17,890  
       
Liabilities and Shareholders' Equity      
Current liabilities      
Accounts payable $ 292     $ 253  
Deferred revenues 1,375     1,493  
Accrued expenses and other liabilities 1,248     896  
Total current liabilities 2,915     2,642  
Long-term debt, net 2,675     2,671  
Deferred income taxes, net 505     18  
Other liabilities 945     1,167  
Total liabilities 7,040     6,498  
       
Shareholders' equity      
Common stock      
Additional paid-in capital 11,174     10,963  
Treasury stock (5,563 )   (5,563 )
Retained earnings 7,813     6,593  
Accumulated other comprehensive loss (619 )   (601 )
Total shareholders’ equity 12,805     11,392  
Total liabilities and shareholders’ equity $ 19,845     $ 17,890  

 

1We adopted a new lease accounting standard in the first quarter of 2019. The new lease accounting standard increased our “Other assets,” “Accrued expenses and other liabilities,” and “Other liabilities” as of December 31, 2019. Refer to our forthcoming Annual Report on Form 10-K for the year ended December 31, 2019 for additional information.

 

2During the three months ended March 31, 2019, we identified an amount which should have been recorded in the fourth quarter of 2018 to reduce income tax expense by $35 million. Our balance sheet as of December 31, 2018, as presented above, has been revised to reflect the correction. Refer to our forthcoming Annual Report on Form 10-K for the year ended December 31, 2019, for additional information.

 

 

3

 

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Amounts in millions)

 

  Year Ended December 31,
  2019   2018 1
Cash flows from operating activities:      
Net income $ 1,503     $ 1,848  
Adjustments to reconcile net income to net cash provided by operating activities:      
Deferred income taxes (352 )   (35 )
Provision for inventories 6     6  
Non-cash operating lease cost 64      
Depreciation and amortization 328     509  
Amortization of capitalized software development costs and intellectual property licenses2 225     489  
Loss on extinguishment of debt     40  
Share-based compensation expense3 166     209  
Unrealized gain on equity investment (38 )    
Other 51     7  
Changes in operating assets and liabilities, net of effect from business acquisitions:      
Accounts receivable, net 182     (114 )
Inventories 7     (5 )
Software development and intellectual property licenses (275 )   (372 )
Other assets 164     (51 )
Deferred revenues (154 )   (122 )
Accounts payable 31     (65 )
Accrued expenses and other liabilities (77 )   (554 )
Net cash provided by operating activities 1,831     1,790  
Cash flows from investing activities:      
Proceeds from maturities of available-for-sale investments 153     116  
Purchases of available-for-sale investments (65 )   (209 )
Capital expenditures (116 )   (131 )
Other investing activities 6     (6 )
Net cash used in investing activities (22 )   (230 )
Cash flows from financing activities:      
Proceeds from issuance of common stock to employees 105     99  
Tax payment related to net share settlements on restricted stock units (59 )   (94 )
Dividends paid (283 )   (259 )
Repayment of long-term debt     (1,740 )
Premium payment for early redemption of note     (25 )
Other financing activities     (1 )
Net cash used in financing activities (237 )   (2,020 )
Effect of foreign exchange rate changes on cash and cash equivalents (3 )   (31 )
Net increase (decrease) in cash and cash equivalents and restricted cash 1,569     (491 )
Cash and cash equivalents and restricted cash at beginning of period 4,229     4,720  
Cash and cash equivalents and restricted cash at end of period $ 5,798     $ 4,229  

 

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

 

2 Excludes deferral and amortization of share-based compensation expense.

 

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

 

 

4

 

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

SUPPLEMENTAL CASH FLOW INFORMATION

(Amounts in millions)

 

   Three Months Ended   Year   Three Months Ended   Year 
   December 31,
   March 31,
   June 30,
   September 30,
   December 31,
   over Year
% Increase

   March 31,
   June 30,
   September 30,
   December 31,
   over Year
% Increase
 
   2017   2018   2018   2018   2018   (Decrease)   2019   2019   2019   2019   (Decrease) 
Cash Flow Data                                                       
Operating Cash Flow  $1,158   $529   $9   $253   $999    (14)%  $450   $154   $309   $918    (8)%
Capital Expenditures   69    31    30    36    34    (51)   18    27    34    37    9 
Non-GAAP Free Cash Flow1  $1,089   $498   $(21)  $217   $965    (11)  $432   $127   $275   $881    (9)
Operating Cash Flow - TTM2  $2,213   $2,331   $2,075   $1,949   $1,790    (19)  $1,711   $1,856   $1,912   $1,831    2 
Capital Expenditures - TTM2   155    165    164    166    131    (15)   118    115    113    116    (11)
Non-GAAP Free Cash Flow - TTM2  $2,058   $2,166   $1,911   $1,783   $1,659    (19)%  $1,593   $1,741   $1,799   $1,715    3%

 

1 Non-GAAP free cash flow represents operating cash flow minus capital expenditures.

2 TTM represents trailing twelve months. Operating Cash Flow for the three months ended March 31, 2017, three months ended June 30, 2017, and three months ended September 30, 2017 was $411 million, $265 million, and $379 million, respectively. Capital Expenditures for the three months ended March 31, 2017, three months ended June 30, 2017, and three months ended September 30, 2017, was $21 million, $31 million, and $34 million, respectively.

 

 

5

 

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

RECONCILIATION OF GAAP NET INCOME TO NON-GAAP MEASURES

(Amounts in millions, except per share data)

 

Three Months Ended December 31, 2019 Net Revenues Cost of Revenues—
Product Sales:
Product Costs
Cost of
Revenues—
Product Sales:
Software
Royalties and
Amortization
Cost of
Revenues—
Subs/Lic/Other:
Game
Operations and
Distribution
Costs
Cost of
Revenues—
Subs/Lic/Other:
Software
Royalties and
Amortization
Product
Development
Sales and
Marketing
General and
Administrative
Restructuring
and related
costs
Total Costs and
Expenses
GAAP Measurement $ 1,986   $         268   $        69   $             251   $                   68   $ 296   $ 346   $ 205   $ 29   $ 1,532  
Share-based compensation1     (4 )     (10 ) (2 ) (23 )   (39 )
Amortization of intangible assets2         (49 )     (2 )   (51 )
Restructuring and related costs3   (1 )             (29 ) (30 )
Discrete tax-related items4       (5 )   (3 ) (5 ) (4 )   (17 )
Non-GAAP Measurement $ 1,986   $ 267   $ 65   $ 246   $ 19   $ 283   $ 339   $ 176   $   $ 1,395  
                     
Net effect of deferred revenues and related cost of revenues5 $ 722   $ 59   $ 81   $ 3   $ 2   $   $   $   $   $ 145  
                     
  Operating
Income
Net Income Basic Earnings
per Share
 
Diluted Earnings
per Share
           
GAAP Measurement $ 454   $ 525   $ 0.68   $ 0.68              
Share-based compensation1 39   39   0.05   0.05              
Amortization of intangible assets2 51   51   0.07   0.07              
Restructuring and related costs3 30   30   0.04   0.04              
Income tax impacts from items above6   (45 ) (0.06 ) (0.06 )            
Discrete tax-related items4 17   (123 ) (0.16 ) (0.16 )            
Non-GAAP Measurement $ 591   $ 477   $ 0.62   $ 0.62              
                     
Net effect of deferred revenues and related cost of revenues5 $ 577   $ 476   $ 0.62   $ 0.61              

 

 

1 Includes expenses related to share-based compensation.
2 Reflects amortization of intangible assets from purchase price accounting.
3 Reflects restructuring initiatives, primarily severance and other restructuring-related costs.
4 Reflects the impact of significant discrete tax-related items, including amounts related to changes in tax laws, amounts related to the potential or final resolution of tax positions, and/or other unusual or unique tax-related items and activities. Activision Blizzard will provide additional information in our forthcoming Form 10-K for the year ending December 31, 2019.
5 Reflects the net effect from deferral of revenues and (recognition) of deferred revenues, along with related cost of revenues, on certain of our online enabled products, including the effects of taxes.
6 Reflects the income tax impact associated with the above items. Tax impact on non-GAAP pre-tax income is calculated under the same accounting principles applied to the GAAP pre-tax income under ASC 740, which employs an annual effective tax rate method to the results.

 

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

 

 

6

 

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

RECONCILIATION OF GAAP NET INCOME TO NON-GAAP MEASURES

(Amounts in millions, except per share data)

 

Year Ended December 31, 2019 Net Revenues Cost of
Revenues—
Product Sales:
Product Costs
Cost of
Revenues—
Product Sales:
Software
Royalties and
Amortization
Cost of
Revenues—
Subs/Lic/Other: Game
Operations and
Distribution Costs
Cost of
Revenues—
Subs/Lic/Other:
Software
Royalties and
Amortization
Product
Development
Sales and
Marketing
General and
Administrative
Restructuring
and related
costs
Total Costs and
Expenses
GAAP Measurement $ 6,489   $ 656   $ 240   $ 965   $ 233   $ 998   $ 926   $ 732   $ 132   $ 4,882  
Share-based compensation1     (19 ) (1 ) (1 ) (53 ) (10 ) (82 )   (166 )
Amortization of intangible assets2         (196 )     (7 )   (203 )
Restructuring and related costs3   (5 )             (132 ) (137 )
Discrete tax-related items4       (5 )   (3 ) (5 ) (4 )   (17 )
Non-GAAP Measurement $ 6,489   $ 651   $ 221   $ 959   $ 36   $ 942   $ 911   $ 639   $   $ 4,359  
                     
Net effect of deferred revenues and related cost of revenues5 $ (101 ) $ (23 ) $ (25 ) $ (2 ) $ 1   $   $   $   $   $ (49 )
                     
  Operating
Income
Net Income Basic Earnings
per Share
Diluted Earnings
per Share
           
GAAP Measurement $ 1,607   $ 1,503   $ 1.96   $ 1.95              
Share-based compensation1 166   166   0.22   0.22              
Amortization of intangible assets2 203   203   0.26   0.26              
Restructuring and related costs3 137   137   0.18   0.18              
Income tax impacts from items above6   (95 ) (0.13 ) (0.12 )            
Discrete tax-related items4 17   (131 ) (0.17 ) (0.17 )            
Non-GAAP Measurement $ 2,130   $ 1,783   $ 2.33   $ 2.31              
                     
Net effect of deferred revenues and related cost of revenues5 $ (52 ) $ (47 ) $ (0.07 ) $ (0.06 )            

 

1Includes expenses related to share-based compensation.
2Reflects amortization of intangible assets from purchase price accounting.
3Reflects restructuring initiatives, primarily severance and other restructuring-related costs.
4Reflects the impact of significant discrete tax-related items, including amounts related to changes in tax laws, amounts related to the potential or final resolution of tax positions, and/or other unusual or unique tax-related items and activities. Activision Blizzard will provide additional information in our forthcoming Form 10-K for the year ending December 31, 2019.
5Reflects 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.
6Reflects 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.

 

 

7

 

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

RECONCILIATION OF GAAP NET INCOME TO NON-GAAP MEASURES

(Amounts in millions, except per share data)

 

Three Months Ended December 31, 2018 Net Revenues Cost of
Revenues—
Product Sales:
Product Costs
Cost of
Revenues—
Product Sales:
Software
Royalties and
Amortization
Cost of
Revenues—
Subs/Lic/Other:
Game
Operations and
Distribution Costs
Cost of
Revenues—
Subs/Lic/Other:
Software
Royalties and
Amortization
Product
Development
Sales and
Marketing
General and
Administrative
Restructuring
and related
costs
Total Costs and
Expenses
GAAP Measurement $ 2,381   $ 303   $ 157   $ 251   $ 121   $ 325   $ 321   $ 199   $ 10   $ 1,687  
Share-based compensation1     (7 )   (1 ) (12 ) (2 ) (21 )   (43 )
Amortization of intangible assets2         (88 )     (3 )   (91 )
Restructuring and related costs3                 (10 ) (10 )
Non-GAAP Measurement $ 2,381   $ 303   $ 150   $ 251   $ 32   $ 313   $ 319   $ 175   $   $ 1,543  
                                                             
Net effect of deferred revenues and related cost of revenues4 $ 454   $ 74   $ 26   $ (1 ) $ (13 ) $   $   $   $   $ 86  
                     
  Operating
Income
Net Income7 Basic Earnings
per Share7
Diluted Earnings
per Share7
           
GAAP Measurement $ 694   $ 685   $ 0.90   $ 0.89              
Share-based compensation1 43   43   0.06   0.06              
Amortization of intangible assets2 91   91   0.12   0.12              
Restructuring and related costs3 10   10   0.01   0.01              
Income tax impacts from items above5   (19 ) (0.03 ) (0.03 )            
Discrete tax-related items6   (114 ) (0.15 ) (0.15 )            
Non-GAAP Measurement $ 838   $ 696   $ 0.91   $ 0.90              
                     
Net effect of deferred revenues and related cost of revenues4 $ 368   $ 298   $ 0.39   $ 0.39              

 

1Includes expenses related to share-based compensation.
2Reflects amortization of intangible assets from purchase price accounting.
3Reflects restructuring initiatives, primarily severance and other restructuring-related costs.
4Reflects 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.
5Reflects 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.
6Reflects the impact of significant discrete tax-related items, including amounts related to changes in tax laws, amounts related to the potential or final resolution of tax positions, and/or other unusual or unique tax-related items and activities. Activision Blizzard provided additional information in our Form 10-K for the year ended December 31, 2018.
7GAAP Net Income, GAAP EPS, and Discrete tax-related items, as presented above, have been revised to reflect the reduction in income tax expense for Q4 2018 that was identified during Q1 2019, as previously discussed.

 

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

 

 

8

 

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

RECONCILIATION OF GAAP NET INCOME TO NON-GAAP MEASURES

(Amounts in millions, except per share data)

 

Year Ended December 31, 2018 Net Revenues Cost of
Revenues—
Product Sales:
Product Costs
Cost of
Revenues—
Product Sales:
Software
Royalties and
Amortization
Cost of
Revenues—
Subs/Lic/Other:
Game
Operations and
Distribution Costs
Cost of
Revenues—
Subs/Lic/Other:
Software
Royalties and
Amortization
Product
Development
Sales and
Marketing
General and
Administrative
Restructuring
and related
costs
Total Costs and
Expenses
GAAP Measurement $ 7,500   $ 719   $ 371   $ 1,028   $ 399   $ 1,101   $ 1,062   $ 822   $ 10   $ 5,512  
Share-based compensation1     (13 ) (2 ) (3 ) (61 ) (15 ) (115 )   (209 )
Amortization of intangible assets2         (318 )   (44 ) (8 )   (370 )
Restructuring and related costs3                 (10 ) (10 )
Non-GAAP Measurement $ 7,500   $ 719   $ 358   $ 1,026   $ 78   $ 1,040   $ 1,003   $ 699   $   $ 4,923  
                                                             
Net effect of deferred revenues and related cost of revenues4 $ (238 ) $ (48 ) $ (76 ) $ (2 ) $ (12 ) $   $   $   $   $ (138 )
                     
  Operating
Income
Net Income8 Basic Earnings
per Share8
Diluted Earnings
per Share
8
           
GAAP Measurement $ 1,988   $ 1,848   $ 2.43   $ 2.40              
Share-based compensation1 209   209   0.27   0.27              
Amortization of intangible assets2 370   370   0.48   0.48              
Restructuring and related costs3 10   10   0.01   0.01              
Loss on extinguishment of debt5   40   0.05   0.05              
Income tax impacts from items above6   (167 ) (0.22 ) (0.22 )            
Discrete tax-related items7   (211 ) (0.27 ) (0.27 )            
Non-GAAP Measurement $ 2,577   $ 2,099   $ 2.76   $ 2.72              
                     
Net effect of deferred revenues and related cost of revenues4 $ (100 ) $ (96 ) $ (0.13 ) $ (0.12 )            

 

1Includes expenses related to share-based compensation.
2Reflects amortization of intangible assets from purchase price accounting.
3Reflects restructuring initiatives, primarily severance and other restructuring-related costs.
4Reflects 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.
5Reflects the loss on extinguishment of debt from redemption activities.
6Reflects 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.
7Reflects the impact of significant discrete tax-related items, including amounts related to changes in tax laws, amounts related to the potential or final resolution of tax positions, and/or other unusual or unique tax-related items and activities. Activision Blizzard provided additional information in our Form 10-K for the year ended December 31, 2018.
8GAAP Net Income, GAAP EPS, and Discrete tax-related items, as presented above, have been revised to reflect the reduction in income tax expense for Q4 2018 that was identified during Q1 2019, as previously discussed.

 

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

 

 

9

 

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

OPERATING SEGMENTS INFORMATION

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

(Amounts in millions)

 

Three Months Ended:   December 31, 2019   $ Increase / (Decrease)  
    Activision   Blizzard   King   Total   Activision   Blizzard   King   Total  
Segment Net Revenues                                        
Net revenues from external customers   $1,426   $562   $503   $2,491   $15   $(85)  $(40)  $(110 )
Intersegment net revenues1        33        33        (6)       (6 )
Segment net revenues   $1,426   $595   $503   $2,524   $15   $(91)  $(40)  $(116 )
                                           
Segment operating income   $696   $260   $197   $1,153   $(27)  $19   $(10)  $(18 )
                                           
Operating Margin                  45.7                     
                                           
    December 31, 2018                                 
    Activision   Blizzard   King   Total                                 
Segment Net Revenues                                                     
Net revenues from external customers   $1,411   $647   $543   $2,601                                 
Intersegment net revenues1        39        39                                 
Segment net revenues   $1,411   $686   $543   $2,640                                 
                                                      
Segment operating income   $723   $241   $207   $1,171                                 
                                                      
Operating Margin                   44.4                              

 

Years Ended:   December 31, 2019   $ Increase / (Decrease)  
    Activision   Blizzard   King   Total   Activision   Blizzard   King   Total  
Segment Net Revenues                                  
Net revenues from external customers   $2,219   $1,676   $2,031   $5,926   $(239)  $(562)  $(55)  $(856 )
Intersegment net revenues1        43        43        (10)       (10 )
Segment net revenues   $2,219   $1,719   $2,031   $5,969   $(239)  $(572)  $(55)  $(866 )
                                           
Segment operating income   $850   $464   $740   $2,054   $(161)  $(221)  $(10)  $(392 )
                                           
Operating Margin                  34.4%                     
    December 31, 2018                                 
    Activision   Blizzard   King   Total                                 
Segment Net Revenues                                                     
Net revenues from external customers   $2,458   $2,238   $2,086   $6,782                                 
Intersegment net revenues1        53        53                                 
Segment net revenues   $2,458   $2,291   $2,086   $6,835                                 
                                                      
Segment operating income   $1,011   $685   $750   $2,446                                 
                                                      
Operating Margin                   35.8%                                

 

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

 

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

 

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

 

 

10

 

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

OPERATING SEGMENTS INFORMATION

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

(Amounts in millions)

 

   Three Months Ended December 31,   Years Ended December 31,  
   2019   2018   2019   2018  
Reconciliation to consolidated net revenues:                     
Segment net revenues  $2,524   $2,640   $5,969   $6,835  
Revenues from non-reportable segments1   217    234    462    480  
Net effect from recognition (deferral) of deferred net revenues2   (722)   (454)   101    238  
Elimination of intersegment revenues3   (33)   (39)   (43)   (53 )
Consolidated net revenues  $1,986   $2,381   $6,489   $7,500  
                      
Reconciliation to consolidated income before income tax expense:                     
Segment operating income  $1,153   $1,171   $2,054   $2,446  
Operating income (loss) from non-reportable segments1   15    35    24    31  
Net effect from recognition (deferral) of deferred net revenues and related cost of revenues2   (577)   (368)   52    100  
Share-based compensation expense   (39)   (43)   (166)   (209 )
Amortization of intangible assets   (51)   (91)   (203)   (370 )
Restructuring and related costs4   (30)   (10)   (137)   (10 )
Discrete tax-related items5   (17)       (17)     
Consolidated operating income   454    694    1,607    1,988  
Interest and other expense (income), net   7    4    (26)   71  
Loss on extinguishment of debt               40  
Consolidated income before income tax expense (benefit)  $447   $690   $1,633   $1,877  

 

1Includes other income and expenses from operating segments managed outside the reportable segments, including our distribution business. Also includes unallocated corporate income and expenses.
2Reflects 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.
3Intersegment revenues reflect licensing and service fees charged between segments.
4Reflects restructuring initiatives, primarily severance and other restructuring-related costs.
5Reflects the impact of other unusual or unique tax-related items and activities.

 

 

11

 

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

NET REVENUES BY DISTRIBUTION CHANNEL

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

(Amounts in millions)

 

  Three Months Ended
  December 31, 2019   December 31, 2018   $ Increase
(Decrease)
  % Increase
(Decrease)
  Amount   % of Total1   Amount   % of Total1    
Net Revenues by Distribution Channel                      
Digital online channels2 $ 1,439     72 %   $ 1,788     75 %   $ (349 )   (20 )%
Retail channels 310     16     343     14     (33 )   (10 )
Other3 237     12     250     10     (13 )   (5 )
Total consolidated net revenues $ 1,986     100 %   $ 2,381     100 %   $ (395 )   (17 )
                       
Change in deferred revenues4                      
Digital online channels2 $ 439         $ 92              
Retail channels 278         356              
Other3 5         6              
Total changes in deferred revenues $ 722         $ 454              

 

  Years Ended
  December 31, 2019   December 31, 2018   $ Increase
(Decrease)
  % Increase
(Decrease)
  Amount   % of Total1   Amount   % of Total1    
Net Revenues by Distribution Channel                      
Digital online channels2 $ 4,932     76 %   $ 5,786     77 %   $ (854 )   (15 )%
Retail channels 909     14     1,107     15     (198 )   (18 )
Other3 648     10     607     8     41     7  
Total consolidated net revenues $ 6,489     100 %   $ 7,500     100 %   $ (1,011 )   (13 )
                       
Change in deferred revenues4                      
Digital online channels2 $ (4 )       $ (68 )            
Retail channels (95 )       (191 )            
Other3 (2 )       21              
Total changes in deferred revenues $ (101 )       $ (238 )            

 

1The percentages of total are presented as calculated. Therefore, the sum of these percentages, as presented, may differ due to the impact of rounding.
2Net revenues from Digital online channels represent revenues from digitally-distributed subscriptions, downloadable content, microtransactions, and products, as well as licensing royalties.
3Net revenues from Other primarily includes revenues from our distribution business and the Overwatch League.
4Reflects the net effect from deferral of revenues and (recognition) of deferred revenues on certain of our online enabled products.

 

 

12

 

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

NET REVENUES BY PLATFORM

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

(Amounts in millions)

 

  Three Months Ended
  December 31, 2019   December 31, 2018   $ Increase
(Decrease)
  % Increase
(Decrease)
  Amount   % of Total1   Amount   % of Total1    
Net Revenues by Platform                      
Console $ 595     30 %   $ 808     34 %   $ (213 )   (26 )%
PC 521     26     727     31     (206 )   (28 )
Mobile and ancillary2 633     32     596     25     37     6  
Other3 237     12     250     10     (13 )   (5 )
Total consolidated net revenues $ 1,986     100 %   $ 2,381     100 %   $ (395 )   (17 )
                       
Change in deferred revenues4                      
Console $ 536         $ 455              
PC 165         (10 )            
Mobile and ancillary2 16         3              
Other3 5         6              
Total changes in deferred revenues $ 722         $ 454              

 

  Years Ended
  December 31, 2019   December 31, 2018   $ Increase
(Decrease)
  % Increase
(Decrease)
  Amount   % of Total1   Amount   % of Total1    
Net Revenues by Platform                      
Console $ 1,920     30 %   $ 2,538     34 %   $ (618 )   (24 )%
PC 1,718     26     2,180     29     (462 )   (21 )
Mobile and ancillary2 2,203     34     2,175     29     28     1  
Other3 648     10     607     8     41     7  
Total consolidated net revenues $ 6,489     100 %   $ 7,500     100 %   $ (1,011 )   (13 )
                       
Change in deferred revenues4                      
Console $ (54 )       $ (265 )            
PC (53 )       9              
Mobile and ancillary2 8         (3 )            
Other3 (2 )       21              
Total changes in deferred revenues $ (101 )       $ (238 )            

 

1The percentages of total are presented as calculated. Therefore, the sum of these percentages, as presented, may differ due to the impact of rounding.
2Net 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.
3Net revenues from Other primarily includes revenues from our distribution business and the Overwatch League.
4Reflects the net effect from deferral of revenues and (recognition) of deferred revenues on certain of our online enabled products.

 

 

13

 

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

NET REVENUES BY GEOGRAPHIC REGION

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

(Amounts in millions)

 

  Three Months Ended
  December 31, 2019   December 31, 2018   $ Increase
(Decrease)
  % Increase
(Decrease)
  Amount   % of Total1   Amount   % of Total1    
Net Revenues by Geographic Region                      
Americas $ 935     47 %   $ 1,140     48 %   $ (205 )   (18 )%
EMEA2 713     36     844     35     (131 )   (16 )
Asia Pacific 338     17     397     17     (59 )   (15 )
Total consolidated net revenues $ 1,986     100 %   $ 2,381     100 %   $ (395 )   (17 )
                       
Change in deferred revenues3                      
Americas $ 425         $ 248              
EMEA2 238         151              
Asia Pacific 59         55              
Total changes in deferred revenues $ 722         $ 454              
                       
  Years Ended
  December 31, 2019   December 31, 2018   $ Increase
(Decrease)
  % Increase
(Decrease)
  Amount   % of Total1   Amount   % of Total1    
Net Revenues by Geographic Region                      
Americas $ 3,341     51 %   $ 3,880     52 %   $ (539 )   (14 )%
EMEA2 2,239     35     2,618     35     (379 )   (14 )
Asia Pacific 909     14     1,002     13     (93 )   (9 )
Total consolidated net revenues $ 6,489     100 %   $ 7,500     100 %   $ (1,011 )   (13 )
                       
Change in deferred revenues3                      
Americas $ (44 )       $ (151 )            
EMEA2 (47 )       (91 )            
Asia Pacific (10 )       4              
Total changes in deferred revenues $ (101 )       $ (238 )            

 

1The percentages of total are presented as calculated. Therefore, the sum of these percentages, as presented, may differ due to the impact of rounding.
2Net revenues from EMEA consist of the Europe, Middle East, and Africa geographic regions.
3Reflects the net effect from deferral of revenues and (recognition) of deferred revenues on certain of our online enabled products.

 

 

14

 

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

EBITDA AND ADJUSTED EBITDA

For the Trailing Twelve Months Ended December 31, 2019

(Amounts in millions)

 

                  Trailing Twelve
Months Ended
 
  March 31,
2019
   June 30,
2019
   September 30,
2019
   December 31,
 2019
   December 31,
 2019
 
                    
GAAP Net Income $447   $328   $204   $525   $1,503 
Interest and other expense (income), net  3    (34)   (2)   7    (26)
Provision for income taxes1  120    42    45    (78)   130 
Depreciation and amortization  87    79    80    81    328 
EBITDA  657    415    327    535    1,935 
                         
Share-based compensation expense2  63    38    27    39    166 
Restructuring and related costs3  57    22    28    30    137 
Discrete tax-related items5              17    17 
Adjusted EBITDA $777   $475   $382   $621   $2,255 
                         
Change in deferred net revenues and related cost of revenues4 $(441)  $(135)  $(53)  $577   $(52)
                         

 

1Provision for income taxes for the three months ended June 30, 2019 and December 31, 2019 also include impacts from significant discrete tax-related items, including amounts related to changes in tax laws, amounts related to the potential or final resolution of tax positions, and/or other unusual or unique tax-related items and activities.
2Includes expenses related to share-based compensation.
3Reflects restructuring initiatives, primarily severance and other restructuring-related costs.
4Reflects 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.
5Reflects the impact of other unusual or unique tax-related items and activities.

 

Trailing twelve months amounts are presented as calculated. Therefore, the sum of the four quarters, as presented, may differ due to the impact of rounding.

 

 

15

 

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

Outlook for the Three Months Ending March 31, 2020 and Year Ending December 31, 2020

GAAP to Non-GAAP Reconciliation

(Amounts in millions, except per share data)

 

   Outlook for the   Outlook for the 
   Three Months Ending   Year Ending 
   March 31, 2020   December 31, 2020 
         
Net Revenues1   1,640    6,450 
Change in deferred revenues2   (365)   275 
           
           
Earnings Per Diluted Share (GAAP)   0.55    1.85 
Excluding the impact of:          
Share-based compensation3   0.06    0.30 
Amortization of intangible assets4   0.04    0.10 
Restructuring and related costs5   0.04    0.07 
Income tax impacts from items above6   (0.03)   (0.09)
Earnings Per Diluted Share (Non-GAAP)   0.66    2.22 
           
           
Net effect of deferred net revenues and related cost of revenues on Earnings Per Diluted Share7   (0.31)   0.13 

 

1Net Revenues represents the revenue outlook for both GAAP and Non-GAAP as they are measured the same.
2Reflects the net effect from deferral of revenues and (recognition) of deferred revenues on certain of our online enabled products.
3Reflects expenses related to share-based compensation.
4Reflects amortization of intangible assets from purchase price accounting, including intangible assets from the acquisition of King.
5Reflects our restructuring initiatives, primarily severance, facilities, and other restructuring-related costs we expect to incur as we continue to execute against our previously disclosed restructuring plan.
6Reflects 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.
7Reflects 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.

 

 

16

 

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

OPERATING METRICS

(Amounts in millions)

 

Net Bookings1

 

   Three Months Ended December 31,   Year Ended December 31, 
   2019   2018   $ Increase
(Decrease)
   % Increase
(Decrease)
   2019   2018   $ Increase
(Decrease)
   % Increase
(Decrease)
 
Net bookings1  $2,708   $2,835   $(127)   (4)%  $6,388   $7,262   $(874)   (12)%
In-game net bookings2   1,085    1,204    (119)   (10)   3,366    4,203    (837)   (20)
                                         

 

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

 

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

 

 

Monthly Active Users3

 

   December 31, 2018   March 31, 2019   June 30, 2019   September 30, 2019   December 31, 2019 
Activision   53    41    37    36    128 
Blizzard   35    32    32