Better-Than-Expected Q4 Results

SANTA MONICA, Calif .– (BUSINESS WIRE) –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.

GAAP and non-GAAP results, please refer to the tables below.

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 US 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.

King

  • King had 249 million MAUsD.
  • Candy crush sagaTM mobile reach grew year-over-year and it was the top-grossing title in the US app stores.4
  • Candy CrushTM was once again the top-grossing franchise in the US 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 pm EST, 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 800-367-2403 in the US with passcode 2945091. A replay of the call will also be available after the call's conclusion https://investor.activision.com/events.cfm.

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 For the NPD Group, GfK, GSD and internal estimates, based on dollar sales of front-line games.
2 For App Annie Intelligence and internal estimates for respective regions, app stores, and periods.
3 Defined as players with monthly or longer-term subscriptions.
4 For 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. We have been able to provide online services and / or services. are generally less than a year. The related cost of revenues is recognized and recognized as an expense. Impact of changes in deferrals refers to the net effect of revenue deferrals of the treatment of revenues, of the purposes of EPS, of the related deferrals of treatment and of the related tax impacts. Internationally, management excludes the impact of this change in revenues from revenues and related 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 in the reduction of revenues and in the revenues of our operating system.

B Net bookings is a network of products and services. 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 revenues.

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 in accordance with US 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 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 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, operating margin and guidance both including (in accordance with GAAP) and excluding (non-GAAP) certain items. The following is an example of foreign currency rate fluctuations. In addition, Activision Blizzard provides EBITDA (defined as GAAP net income (loss) before interest (income) expense, income tax, 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 appropriate in any given reporting period:

  • 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 the above items (non-GAAP tax on income tax is calculated on the basis of the GAAP pre-tax income under ASC 740, which uses an annual effective tax rate method to the results); and
  • significant discrete tax-related items, including the Tax Cuts and Jobs Act, enacted in December 2017, 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 Activation Blizzard's financial and operating performance. In particular, the measures facilitated comparisons of operating performance with periods of time and with the help of investors to better understand the operating results of Activision Blizzard by excluding certain items that may be indicative of the company's core business, operating results, or future outlook. Additionally, we consider quantitative and qualitative factors in assessing the impact of items that may be significant or that could affect an ongoing financial and business performance or trends. Internationally, management uses these non-GAAP financial measures, assessing the company's operating results, and measuring compliance with the company's debt-financing concept, as well as in planning and forecasting.

Activision Blizzard's non-GAAP financial measures, 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 similar named measures, but exclude different items, which may provide investors with comparable views of Activision's performance in relation to other companies.

Blizzard's GAAP, as well as non-GAAP, results and outlook - ADAP 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 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 (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 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, estimates of expectations, estimates, and projections about our business, and are inherently uncertain and difficult to predict.

We caution that a number of relevant factors could cause future events and other future events to differ 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; ability to satisfy consumers' expectations with respect to our brands, games, services, and / or business practices; concentration of revenue among a small number of titles; the growth of the business of the new business; the development of the business of the new business; the development of the business of the new business; our ability to realize our predicted 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 business model; 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 the development of some of our software products; the amount of 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 US; fluctuations in currency exchange rates; increasing regulation of our business, products, and distribution in key territories; compliance with continuously evolving laws and regulations concerning data privacy; potential data breaches and other cybersecurity risks; and the other factors identified in “Risk Factors” included in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2018.

The forward-looking statements assume no obligation to update any such forward-looking statements. These statements are believed to be true when made, they may ultimately prove to be incorrect. These statements are guarantees of future performance and risks, uncertainties, and other factors.

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(Amounts in millions, except for 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 for common share

$

0.68

$

0.90

$

1.96

$

2.43

Weighted average common shares outstanding

768

763

767

762

Diluted earnings for common share

$

0.68

$

0.89

$

1.95

$

2.40

Weighted average common shares outstanding assuming dilution

773

771

771

771

1

During the three months ended March 31, 2019, we identified an amount which should have been recorded in the fourth quarter of 2018 to reduce income tax expense by $ 35 million. 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.

2

Subscription, licensing, and other revenues from revenues of our products and franchises, downloadable content, microtransactions, and other miscellaneous revenues.

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

Payable accounts

$

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

Contacts

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

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