Activision Blizzard Announces Better-Than-Expected Fourth Quarter and Calendar Year 2012 Results

Full Year Non-GAAP EPS Increased 27% to a Record $1.18 Company Generated More Than $1.3 Billion in Operating Cash Flow Company Increases Cash Dividend to $0.19 per Common Share

Activision Blizzard, Inc. (ATVI) today announced better-than-expected financial results for the fourth quarter and calendar year 2012.

For calendar year 2012, Activision Blizzard delivered record GAAP net revenues of $4.86 billion, as compared with $4.76 billion for 2011. On a non-GAAP basis, the company’s net revenues were $4.99 billion, as compared with $4.49 billion for 2011. For the calendar year 2012, GAAP net revenues from digital channels were $1.54 billion and represented 32% of the company’s total revenues. On a non-GAAP-basis, for the calendar year 2012, net revenues from digital channels were a record $1.60 billion and represented 32% of the company’s total net revenues.

For calendar year 2012, Activision Blizzard delivered record GAAP earnings per diluted share of $1.01, as compared with $0.92 per diluted share for 2011. On a non-GAAP basis, the company also delivered record earnings per diluted share of $1.18, as compared with $0.93 per diluted share for 2011.

For the quarter ended December 31, 2012, the company delivered record GAAP net revenues of $1.77 billion, as compared with $1.41 billion for the fourth quarter of 2011. On a non-GAAP basis, the company’s net revenues were a record $2.60 billion, as compared with $2.41 billion for the fourth quarter of 2011.

For the quarter ended December 31, 2012, Activision Blizzard’s GAAP earnings per diluted share set a fourth quarter record of $0.31, as compared with earnings per diluted share of $0.08 for the fourth quarter of 2011. On a non-GAAP basis, the company’s earnings per diluted share were a record $0.78, as compared with $0.62 for the fourth quarter of 2011.

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

Bobby Kotick, Chief Executive Officer, Activision Blizzard, said, “We are very pleased to report that Activision Blizzard delivered the best performance in its history. With better-than-expected net revenues, record operating margins and record earnings, and over $1.3 billion in operating cash flow, we continue to set the industry success bar. I would like to thank our incredibly talented employees around the world for their passion, drive and creativity, which continues to fuel our success.”

Kotick added, “As we look to 2013, we will continue to invest in our established franchises, as well as several new properties. We expect these investments to drive our growth over the long term and to enable us to deliver superior returns to our shareholders in the years to come. In the short-term, we expect to continue delivering strong profitability, but below our record setting 2012 performance, due to a challenged global economy, the ongoing console transition and a difficult year-over-year comparison because of Blizzard’s record-shattering Diablo® III success in 2012.”

Selected Business Highlights:

• In North America and Europe combined Activision Publishing was the #1 console and handheld publisher for the calendar year with the #1 and #3 best-selling franchises—Call of Duty and Skylanders.¹
• Activision Blizzard reported record digital revenues for the calendar year and was the #1 third-party interactive entertainment Western digital publisher.²
• For the calendar year, in aggregate across all platforms in the U.S. and Europe, Activision Publishing’s Black Ops II was the #1 best-selling title in dollars and Modern Warfare 3® was the #9 best-selling title in dollars.¹
• In November 2012, Black Ops II became the first video game ever to cross the $1 billion mark in 15-days, eclipsing “Avatar’s” 17-day movie record.⁴
• In both North America and Europe, Skylanders Giants™ was the #1 best-selling kids’ title in dollars for the fourth quarter.¹ Additionally, for the calendar year, in North America and Europe combined, Skylanders Giants was the #5 best-selling game in dollars, and Skylanders Spyro’s Adventure® was the #4 best-selling game in dollars.¹
• As of December 31, 2012, the Skylanders franchise has generated, life-to-date, more than $1 billion in worldwide sales,¹ and through January 2013, Activision has sold more than 100 million Skylanders toys worldwide.²
• For the calendar year, Blizzard Entertainment had two top-10 PC games in North America and Europe. Diablo III was the #1 best-selling PC game at retail, breaking PC-game sales records with more than 12 million copies sold worldwide through December 31, 2012, and World of Warcraft®: Mists of Pandaria® was the #3 best-selling PC game at retail.⁵
• As of December 31, 2012, Blizzard Entertainment’s World of Warcraft remains the #1 subscription-based MMORPG, with more than 9.6 million subscribers.²

Company Outlook

On January 29, 2013, Activision Publishing released Revolution, the first downloadable map pack for Black Ops II, on the Xbox 360 video game and entertainment system from Microsoft. The company expects to release Revolution on other platforms during the first quarter.

Additionally, on March 12, 2013, Blizzard Entertainment expects to release StarCraft^® II: Heart of the Swarm™, the first expansion to Blizzard’s award-winning real-time strategy game StarCraft II: Wings of Liberty^®.

The company is considering or may consider during 2013, substantial stock repurchases, dividends, acquisitions, licensing or other non-ordinary course transactions, and significant debt financings relating thereto. The company’s first quarter and full year 2013 outlooks do not take into account any such transactions or financings that may or may not occur during the year, with the exception of the $0.19 cent per share cash dividend announced below.

Board Declares Cash Dividend

The Board of Directors declared a cash dividend of $0.19 per common share payable on May 15, 2013 to shareholders of record at the close of business on March 20, 2013.

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 and year ended December 31, 2012 and management’s outlook for 2013. The company welcomes all members of the financial and media communities and other interested parties to visit the “Investor Relations” area of www.activisionblizzard.com to listen to the conference call via live Webcast or to listen to the call live by dialing into 888-427-9414 in the U.S. with passcode 3168482.

About Activision Blizzard

Headquartered in Santa Monica, California, Activision Blizzard, Inc. is a worldwide online, PC, console, handheld and mobile device game publisher with leading positions across the major categories of the interactive entertainment software industry.

Activision Blizzard maintains operations in the U.S., Canada, the United Kingdom, France, Germany, Ireland, Italy, Sweden, Spain, the Netherlands, Australia, South Korea and China. More information about Activision Blizzard and its products can be found on the company's website, www.activisionblizzard.com.

¹According to The NPD Group, GfK Chart-Track and Activision Blizzard internal estimates, including toys and accessories

²According to Activision Blizzard internal estimates

³According to The NPD Group and Gfk Chart-Track

⁴According to Chart-Track retail customer sell-through information, internal company estimates and screenrant.com

⁵According to The NPD Group, GfK Chart-Track and Activision Blizzard internal estimates

Subscriber Definition: World of Warcraft subscribers include individuals who have paid a subscription fee or have an active prepaid card to play World of Warcraft, as well as those who have purchased the game and are within their free month of access. Internet Game Room players who have accessed the game over the last thirty days are also counted as subscribers. The above definition excludes all players under free promotional subscriptions, expired or cancelled subscriptions, and expired prepaid cards. Subscribers in licensees' territories are defined along the same rules.

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 revenues, 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. The non-GAAP financial measures exclude the following items, as applicable in any given reporting period:

• the change in deferred net revenue and related cost of sales with respect to certain of the company’s online-enabled games;
• expenses related to stock-based compensation;
• expenses related to restructuring;
• the amortization of intangibles, and impairment of intangible assets and goodwill; and
• the income tax adjustments associated with any of the above items.

In the future, Activision Blizzard may also consider whether other significant non-recurring 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. Internally, management uses these non-GAAP financial measures in assessing the company’s operating results, 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 revenues, non-GAAP net income, non-GAAP earnings per share, and non-GAAP operating margin 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.

In addition to the reasons stated above, which are generally applicable to each of the items Activision Blizzard excludes from its non-GAAP financial measures, there are additional specific reasons why the company believes it is appropriate to exclude the change in deferred net revenue and related cost of sales with respect to certain of the company’s online-enabled games.

Since Activision Blizzard has determined that some of our games’ online functionality represents an essential component of gameplay and, as a result, a more-than-inconsequential separate deliverable, we recognize revenue attributed to these game titles over their estimated service periods, which may range from five months to a maximum of less than a year. The related cost of sales is deferred and recognized as the related revenues are recognized. Internally, management excludes the impact of this change in deferred net revenue and related cost of sales in its non-GAAP financial measures 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, which is consistent with the way the company is measured by investment analysts and industry data sources. In addition, excluding the change in deferred net revenue and the related cost of sales provides a much more timely indication of trends in our operating results.

Cautionary Note Regarding Forward-looking Statements: Information in this press release that involves Activision Blizzard’s expectations, plans, intentions or strategies regarding the future, including statements under the heading “Company Outlook,” are forward-looking statements that are not facts and involve a number of risks and uncertainties. Activision Blizzard generally uses words such as “outlook,” “will,” “could,” “should,” “would,” “might,” “to be,” “plans,” “believes,” “may,” “expects,” “intends,” "anticipates," "estimate," “future," "plan," "positioned," "potential," "project," "remain," "scheduled," "set to," "subject to," "upcoming" and similar expressions to identify forward-looking statements. Factors that could cause Activision Blizzard’s actual future results to differ materially from those expressed in the forward-looking statements set forth in this release include, but are not limited to, sales levels of Activision Blizzard’s titles, increasing concentration of titles, shifts in consumer spending trends, the impact of the current macroeconomic environment, Activision Blizzard’s ability to predict consumer preferences, including interest in specific genres such as first-person action and massively multiplayer online games and preferences among competing hardware platforms, the seasonal and cyclical nature of the interactive game market, changing business models including digital delivery of content, competition, including from used games and other forms of entertainment, possible declines in software pricing, product returns and price protection, product delays, the console transition, adoption rate and availability of new hardware (including peripherals) and related software, rapid changes in technology and industry standards, the current regulatory environment, litigation risks and associated costs, protection of proprietary rights, maintenance of relationships with key personnel, customers, licensees, licensors, vendors, and third-party developers, including the ability to attract, retain and develop key personnel and developers that can create high quality "hit" titles, counterparty risks relating to customers, licensees, licensors and manufacturers, domestic and international economic, financial and political conditions and policies, foreign exchange rates and tax rates, and the identification of suitable future acquisition opportunities and potential challenges associated with geographic expansion, and the other factors identified in the risk factors section of Activision Blizzard’s most recent annual report on Form 10-K. The forward-looking statements in this release are based upon information available to Activision Blizzard as of the date of this release, and Activision Blizzard assumes 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 the future performance of Activision Blizzard and are subject to risks, uncertainties and other factors, some of which are beyond its control and may cause actual results to differ materially from current expectations.