Activision Blizzard Announces Better-Than-Expected Second Quarter 2015 Financial Results

Company Increases CY 2015 Revenues and EPS Outlook Once Again

Company Delivered Record Q2 Non-GAAP Digital Revenues of Over $600 Million, Growing 27% Year-Over-Year

SANTA MONICA, Calif.--(BUSINESS WIRE)-- Activision Blizzard, Inc. (Nasdaq: ATVI) today announced better-than-expected financial results for the second quarter of 2015.

				Second Quarter
(in millions, except EPS)				2015					Prior Outlook*					2014
GAAP
Net Revenues				$	1,044				$	930				$	970
EPS				$	0.29				$	0.21				$	0.28
Non-GAAP
Net Revenues				$	759				$	650				$	658
EPS				$	0.13				$	0.07				$	0.06

*Prior outlook was provided by the company on May 6, 2015 in its earnings release.

For the quarter ended June 30, 2015, Activision Blizzard’s GAAP net revenues were $1.04 billion, as compared with $970 million for the second quarter of 2014. On a non-GAAP basis, the company’s net revenues were $759 million, as compared with $658 million for the second quarter of 2014. For the second quarter, GAAP net revenues from digital channels were a Q2 record $569 million and represented a Q2 record 55% of the company’s total revenues. On a non-GAAP basis, net revenues from digital channels were a Q2 record $611 million, growing 27% year-over-year.

For the quarter ended June 30, 2015, Activision Blizzard’s GAAP earnings per diluted share were $0.29, as compared with $0.28 for the second quarter of 2014. On a non-GAAP basis, the company’s earnings per diluted share were $0.13, as compared with $0.06 for the second quarter of 2014.

Year-to-date non-GAAP revenues and EPS were up 2% and 12%, respectively, year-over-year (13% and 56%, respectively, at constant FXA), given strong engagement and recurring digital monetization trends on our year-round monetizing franchises.

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 of Activision Blizzard, said, “Our strategic focus on expanding our franchise portfolio with captivating and original new intellectual property, innovating on new platforms, and expanding into new geographies is reflected in our results. We outperformed our Q2 targets and last year’s results on revenues, digital growth, and earnings per share. These strong results and the excitement for our future games have driven us to raise our full-year outlook.”

Kotick added, “Our audience size and the total amount of time people spend with our franchises continue to grow. In the second quarter, our monthly active usersB grew by 35% year-over-year, and the time our communities spent playing our games grew by 25% year-over-year.”

Kotick continued, “I want to thank our extraordinarily talented employees around the world. They pour their passions into creating the most fun and epic entertainment experiences for our audiences, and our superior financial performance is a result of their dedication.”

Selected Business Highlights:

• Blizzard Entertainment’s Hearthstone®: Heroes of Warcraft™ and Heroes of the Storm™, and Activision Publishing’s Destiny combined now have more than 70 million registered players and over $1.25 billion in non-GAAP revenues1 life-to-date.
• Activision Publishing had its strongest ever second quarter engagement and digital monetization, with the most Q2 monthly active users (MAUs)B in its history, up more than 25% year-over-year, and the largest Q2 and first half digital revenues in its history.
• Activision Publishing continues to have 2 of the top 5 videogame franchises in North America and Europe year-to-date, with Skylanders, including toys and accessories, achieving the No. 1 spot.2 Including toys and accessories, Skylanders was the No. 1 console title and kids console title year to date, and outsold the No. 1 action figure line in North America and Europe.2 Activision Publishing also continues to have 3 of the top 5 next-generation games life-to-date.3
• Activision Publishing’s Call of Duty franchise Q2 non-GAAP revenues increased by a double-digit percentage year-over-year due to strong continued sell-through of Call of Duty: Advanced Warfare and growing online revenues per user across the franchise. Season pass, downloadable content, and micro-transaction offerings have helped drive increased engagement and monetization. Call of Duty: Advanced Warfare remains the No. 1 next generation game life to date, as it has been since its launch nine months ago.3
• Activision Publishing and Bungie released Destiny’s highly acclaimed second expansion, House of Wolves, which had a strong attach rate and engagement. Destiny now has over 2 billion hours of gameplay since launch, which amounts to an average 100 hours of gameplay for each of Destiny’s over 20 million registered players.
• Blizzard Entertainment had the largest online player community in its history, with Q2 MAUsB up 50% year-over-year. Though World of Warcraft® ended the quarter at 5.6 million subscribersC, Blizzard revenues are up year-over-year based on strong performance across the expanding Blizzard portfolio. On June 23, 2015, Blizzard Entertainment released, Fury of Hellfire, one of the largest non-expansion content updates to date for World of Warcraft. This new content helped stabilize the subscriber number towards the end of the quarter. World of Warcraft remains the No. 1 subscription‐based MMORPG in the world.
• On April 2, 2015, Blizzard Entertainment launched Blackrock Mountain™, the second Adventure for Hearthstone: Heroes of Warcraft. The release of Hearthstone on iOS and Android smartphones followed on April 14, 2015. Key engagement metrics, which were already very strong, nearly doubled year over year, largely on account of the new content and new platforms.
• Blizzard Entertainment launched Heroes of the Storm on June 2, 2015 with strong critical reception. The Eternal Conflict, a series of content additions based on the Diablo® universe, was launched in June and is still ongoing, and players have responded with positivity and excitement. Blizzard announced in May that Heroes of the Storm had been added to the Road to BlizzCon® program, and major tournaments are already underway globally.
• On April 23, 2015, Sanctuary’s gates were thrown open to all Chinese heroes, as Blizzard Entertainmentʹs award‐winning action role‐playing game Diablo® III: Reaper of Souls™ went live in China. Diablo III has now sold-through over 30 million units life-to-date globally.
• Blizzard Entertainment achieved record revenues and MAUsB in China this quarter, driven by the popularity of Diablo III, Hearthstone: Heroes of Warcraft, and Heroes of the Storm.

Company Outlook:

• On September 15, 2015, Activision Publishing and Bungie expect to release The Taken King, the largest update to the Destiny universe yet. The mega-expansion will include an all-new campaign, new sub-classes, a new destination, and more. Current players can digitally purchase the expansion for a suggested retail price of $39.99, while The Legendary Edition offers new players the original game, both expansion packs, and The Taken King for a suggested retail price of $59.99.
• On September 20, 2015, Activision Publishing expects to release Skylanders SuperChargers, the next installment in the franchise with all new vehicles, action figures and exclusive Nintendo characters.
• On October 20, 2015, Activision Publishing plans to bring back the pop culture phenomenon that previously reached over 40 million players in North America and Europe with the launch of Guitar Hero® Live. The new multiplayer mode, Guitar Hero TV, allows fans to play songs on multiple channels, play with and against their friends, discover new music, and choose songs on-demand. The re-imagined experience will offer two game modes and will be available on consoles, tablets, and mobile phones.
• On November 6, 2015, Activision Publishing expects to release the highly anticipated Call of Duty: Black Ops III from its award winning studio, Treyarch. The company also announced an upcoming multiplayer Beta, a first for Call of Duty on next-generation consoles. Fans who pre-order the game now will get access to the Beta on August 19 on Sony’s PlayStation®4, and August 26 on Microsoft’s Xbox One and PC .
• On July 15, 2015, Blizzard Entertainment kicked off pre-purchases for StarCraft® II: Legacy of the Void™, the third installment of the company’s real-time strategy sequel. Players who pre-purchase Legacy of the Void through Battle.net® will have access to the ongoing beta and three prologue missions, titled “Whispers of Oblivion.” Legacy of the Void will be a standalone product that won’t require any prior releases, so it will be easier than ever for players to get into the game and experience all of the latest content. It is expected to be released in 2015.
• On July 22, 2015, Blizzard Entertainment announced The Grand Tournament, the second expansion to Hearthstone: Heroes of Warcraft, which will launch with over 130 new cards and new mechanics this month.
• A new expansion for Blizzard Entertainment’s World of Warcraft will be announced at gamescom in August 2015.
• Blizzard Entertainment expects to begin beta testing for Overwatch™ in fall 2015.
• Tickets to Blizzard Entertainment’s ninth BlizzCon, which will be returning to the Anaheim Convention Center on Friday, November 6, and Saturday, November 7, went on sale in two batches in April and quickly sold out. One of the biggest attractions at BlizzCon will be the culmination of this year’s Road to BlizzCon eSports tournaments, with the global champions for World of Warcraft, StarCraft II, Hearthstone, and Heroes of the Storm being crowned.
• Given the weakening of foreign currencies versus the U.S. dollar, the company’s 2015 international revenues and earnings are expected to be translated at lower rates than in 2014. This impacts the company’s 2015 outlook as compared to 2014 actual results because approximately 50% of the company’s revenues, and a higher percentage of profits, are generated outside the U.S. while a much higher percentage of the company’s costs are incurred in the U.S. See comparison table, below.

Activision Blizzard’s third quarter and calendar year 2015 outlook is, as follows:

		Prior Outlook*							Current Outlook
(in millions, except EPS)		GAAP Outlook			Non-GAAP Outlook			GAAP Outlook				Non-GAAP Outlook
CY 2015
Net Revenues		$	4,250		$	4,425		$		4,425		$	4,600
EPS		$	0.98		$	1.20		$		1.06		$	1.30
Fully Diluted Shares**			750			750				750			750
Q3 2015
Net Revenues			N/A			N/A		$		875		$	930
EPS			N/A			N/A		$		0.08		$	0.14
Fully Diluted Shares**			N/A			N/A				748			748

The following table compares our CY14 actual earnings per share to CY15 outlook earnings per share.

		Comparison
EPS		Prior Non-GAAP Outlook*				Current Non-GAAP Outlook				Change
CY14 – Actuals		$	1.42			$	1.42
Slate / Operations			0.01				0.15			0.14
Foreign Currency			(0.15	)			(0.19	)		(0.04	)
Tax Rate & Share Count			(0.08	)			(0.08	)
CY15 – Outlook		$	1.20			$	1.30			0.10

Currency Assumptions for 2015 Outlook (Q3-Q4):

• $1.10 USD/Euro for current outlook (vs. $1.11 for prior outlook* and a $1.33 average for 2014)
• $1.54 USD/British Pound Sterling for current and prior outlook* (vs. a $1.65 average for 2014)
• Note: Revenue and EPS increase if the Euro or British Pound Sterling strengthen vs. USD

* Prior outlook was provided by the company on May 6, 2015 in its earnings release.** Fully diluted weighted average shares include participating securities and dilutive options on a weighted average basis.

Cash Dividend

Activision Blizzard paid a cash dividend of $0.23 per common share, a 15% increase year-over-year, in May 2015 to shareholders of record at the close of business on March 30, 2015, totaling $170 million. The company did not make any share repurchases during the second quarter under its $750 million share repurchase authorization ending February 2017.

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 June 30, 2015 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 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 888-337-8197 in the U.S. with passcode 6151996.

About Activision Blizzard

Activision Blizzard, Inc. is the largest and most profitable western interactive entertainment publishing company. It develops and publishes some of the most successful and beloved entertainment franchises in any medium, including Call of Duty, Call of Duty Online, Destiny, Skylanders, World of Warcraft, StarCraft, Diablo, Hearthstone: Heroes of Warcraft, and Heroes of the Storm. The company is one of the FORTUNE “100 Best Companies To Work For®” 2015.

Headquartered in Santa Monica, California, it maintains operations throughout the United States, Europe, and Asia. Activision Blizzard develops and publishes games on all leading interactive platforms and its games are available in most countries around the world. More information about Activision Blizzard and its products can be found on the company's website, www.activisionblizzard.com.

1 Life to date, combined GAAP revenues from Hearthstone: Heroes of Warcraft, Destiny, and Heroes of the Storm were over $1 billion.2 The NPD Group and GfK Chart-Track and Activision Blizzard internal estimates, including toys and accessories3 The NPD Group and GfK Chart-Track

A Constant FX Definition: Constant FX provides current period results converted into USD using the average exchange rates from the comparative prior periods rather than the actual exchange rates in effect during the respective current periods.

B Monthly Active User (MAU) Definition: We monitor MAUs as a key measure of the overall size of our user base and their regular engagement with our portfolio of games. MAUs are the number of individuals who played a particular game in a given month. We calculate average MAUs in a period by adding the total number of MAUs in each of the months in a given period and dividing by the number of months in the period. An individual who plays two of our games would be counted as two users. For Activision Publishing MAUs, an individual who plays the same game on two platforms or devices in the relevant period would be counted as two users due to technical limitations. For Blizzard MAUs, an individual who plays the same game on two platforms or devices in the relevant period would be counted as one user.

C 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. 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:

• the change in deferred revenues and related cost of sales with respect to certain of the company’s online-enabled games;
• expenses related to stock-based compensation;
• the amortization of intangibles from purchase price accounting;
• fees and other expenses (including legal fees, costs, expenses and accruals) related to the acquisition of 429 million shares of our common stock on October 11, 2013 from Vivendi, pursuant to the stock purchase agreement dated July 25, 2013 and the $4.75 billion debt financings related thereto; 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, 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 revenues, 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.

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 revenues 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 revenues 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 revenues 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 revenues and the related cost of sales provides a much more timely indication of trends in our operating results.

Cautionary Note Regarding Forward-looking Statements: The statements contained in this press release 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 product releases; (3) statements of future financial or operating performance; and (4) statements of assumptions underlying such statements. The company generally uses words such as “outlook,” “forecast,” “will,” “could,” “should,” “would,” “to be,” “plan,” “plans,” “believes,” “may,” “might,” “expects,” “intends,” “intends as,” “anticipates,” “estimate,” “future,” “positioned,” “potential,” “project,” “remain,” “scheduled,” “set to,” “subject to,” “upcoming” and other similar expressions to help identify forward-looking statements. Forward-looking statements are subject to business and economic risk, reflect management’s current expectations, estimates and projections about our business, and are inherently uncertain and difficult to predict.

The Company cautions that a number of important factors could cause Activision Blizzard's actual future results and other future circumstances to differ materially from those expressed in any forward looking statements. Such factors include, but are not limited to: sales levels of Activision Blizzard’s titles; increasing concentration of revenue among a small number of titles; Activision Blizzard’s ability to predict consumer preferences, including interest in specific genres, and preferences among hardware platforms; the amount of our debt and the limitations imposed by the covenants in the agreements governing our debt; adoption rate and availability of new hardware (including peripherals) and related software, particularly during the console transitions; counterparty risks relating to customers, licensees, licensors and manufacturers; maintenance of relationships with key personnel, customers, financing providers, licensees, licensors, manufacturers, vendors, and third-party developers, including the ability to attract, retain and develop key personnel and developers that can create high quality titles; changing business models, including digital delivery of content and the increased prevalence of free-to-play games; product delays or defects; competition, including from used games and other forms of entertainment; rapid changes in technology and industry standards; possible declines in software pricing; product returns and price protection; the identification of suitable future acquisition opportunities and potential challenges associated with geographic expansion; the seasonal and cyclical nature of the interactive entertainment market; litigation risks and associated costs; protection of proprietary rights; shifts in consumer spending trends; capital market risks; applicable regulations; domestic and international economic, financial and political conditions and policies; tax rates and foreign exchange rates; the impact of the current macroeconomic environment; and the other factors identified in “Risk Factors” included in Part I, Item 1A of Activision Blizzard’s most recent annual report on Form 10-K.

The forward-looking statements in this presentation are based on information available to the Company as of the date of this press release and, while believed to be true when made, may ultimately prove to be incorrect. The Company may change its intention, belief or expectation, at any time and without notice, based upon any changes in such factors, in the Company’s assumptions or otherwise. The Company undertakes no obligation to release publicly any revisions to any forward-looking statements to reflect events or circumstances after the original date of this press release, August 4, 2015, or to reflect the occurrence of unanticipated events.

(Tables to Follow)

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Amounts in millions, except per share data)
		Three Months Ended June 30,						Six Months Ended June 30,
		2015			2014			2015			2014
Net revenues
Product sales		$	528		$	587		$	1,311		$	1,357
Subscription, licensing and other revenues1			516			383			1,011			724
Total net revenues			1,044			970			2,322			2,081
Costs and expenses
Cost of sales - product costs			156			187			364			412
Cost of sales - online			53			56			106			115
Cost of sales - software royalties and amortization			85			46			233			102
Cost of sales - intellectual property licenses			3			11			7			13
Product development			149			112			294			255
Sales and marketing			164			141			256			245
General and administrative			102			107			188			202
Total costs and expenses			712			660			1,448			1,344
Operating income			332			310			874			737
Interest and other expense, net			50			50			100			101
Income before income tax expense			282			260			774			636
Income tax expense			70			56			168			139
Net income		$	212		$	204		$	606		$	497
Basic earnings per common share 2		$	0.29		$	0.28		$	0.82		$	0.68
Weighted average common shares outstanding			727			716			725			712
Diluted earnings per common share 2		$	0.29		$	0.28		$	0.81		$	0.67
Weighted average common shares outstanding assuming dilution			735			725			734			723

1		Subscription, licensing and other revenues represent revenues from World of Warcraft subscriptions, licensing royalties from our products and franchises, value-added services, downloadable content, and other miscellaneous revenues.
2		The company calculates earnings per share pursuant to the two-class method which requires the allocation of net income between common shareholders and participating security holders. We had, on a weighted-average basis, participating securities of approximately 9 million and 10 million for the three and six months ended June 30, 2015, respectively, and 16 million for both the three and six months ended June 30, 2014. For the three and six months ended June 30, 2015, net income attributable to Activision Blizzard, Inc. common shareholders used to calculate earnings per common share, assuming dilution, was $210 million and $597 million, respectively, as compared to total net income of $212 million and $606 million, respectively, for the same periods. For the three and six months ended June 30, 2014, net income attributable to Activision Blizzard, Inc. common shareholders used to calculate earnings per common share, assuming dilution, was $200 million and $484 million, respectively, as compared to total net income of $204 million and $497 million, respectively, for the same periods.

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Amounts in millions)
		June 30,				December 31,
			2015				2014
Assets
Current assets
Cash and cash equivalents		$	4,416			$	4,848
Short-term investments			105				10
Accounts receivable, net			201				659
Inventories, net			117				123
Software development			338				452
Intellectual property licenses			26				5
Deferred income taxes, net			346				368
Other current assets			502				444
Total current assets			6,051				6,909
Long-term investments			9				9
Software development			80				20
Intellectual property licenses			—				18
Property and equipment, net			179				157
Other assets			153				85
Intangible assets, net			26				29
Trademark and trade names			433				433
Goodwill			7,084				7,086
Total assets		$	14,015			$	14,746
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable		$	198			$	325
Deferred revenues			837				1,797
Accrued expenses and other liabilities			510				592
Total current liabilities			1,545				2,714
Long-term debt, net			4,077				4,324
Deferred income taxes, net			126				114
Other liabilities			466				361
Total liabilities			6,214				7,513
Shareholders' equity
Common stock			—				—
Additional paid-in capital			10,163				9,924
Treasury stock			(5,627	)			(5,762	)
Retained earnings			3,810				3,374
Accumulated other comprehensive loss			(545	)			(303	)
Total shareholders’ equity			7,801				7,233
Total liabilities and shareholders’ equity		$	14,015			$	14,746

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
RECONCILIATION OF GAAP NET INCOME TO NON-GAAP MEASURES
(Amounts in millions, except per share data)
Three Months Ended June 30, 2015		Net Revenues				Cost of Sales - Product Costs				Cost of Sales - Online				Cost of Sales - Software Royalties and Amortization				Cost of Sales - Intellectual Property Licenses				Product Development				Sales and Marketing				General and Administrative				Total Costs and Expenses
GAAP Measurement		$	1,044			$	156			$	53			$	85			$	3			$	149			$	164			$	102			$	712
Less: Net effect from deferral of net revenues and related cost of sales1			(285	)			(59	)			—				(45	)			—				—				—				—				(104	)
Less: Stock-based compensation2			—				—				—				(3	)			—				(6	)			(2	)			(10	)			(21	)
Less: Amortization of intangible assets3			—				—				—				—				(1	)			—				—				—				(1	)
Non-GAAP Measurement		$	759			$	97			$	53			$	37			$	2			$	143			$	162			$	92			$	586
		Operating Income				Net Income				Basic Earnings per Share				Diluted Earnings per Share
GAAP Measurement		$	332			$	212			$	0.29			$	0.29
Less: Net effect from deferral of net revenues and related cost of sales			(181	)			(136	)			(0.18	)			(0.18	)
Less: Stock-based compensation			21				16				0.02				0.02
Less: Amortization of intangible assets			1				1				—				—
Non-GAAP Measurement		$	173			$	93			$	0.13			$	0.13
Six Months Ended June 30, 2015		Net Revenues				Cost of Sales - Product Costs				Cost of Sales - Online				Cost of Sales - Software Royalties and Amortization				Cost of Sales - Intellectual Property Licenses				Product Development				Sales and Marketing				General and Administrative				Total Costs and Expenses
GAAP Measurement		$	2,322			$	364			$	106			$	233			$	7			$	294			$	256			$	188			$	1,448
Less: Net effect from deferral of net revenues and related cost of sales1			(860	)			(170	)			—				(145	)			—				—				—				—				(315	)
Less: Stock-based compensation2			—				—				—				(7	)			—				(14	)			(4	)			(19	)			(44	)
Less: Amortization of intangible assets3			—				—				—				—				(3	)			—				—				—				(3	)
Non-GAAP Measurement		$	1,462			$	194			$	106			$	81			$	4			$	280			$	252			$	169			$	1,086
		Operating Income				Net Income				Basic Earnings per Share				Diluted Earnings per Share
GAAP Measurement		$	874			$	606			$	0.82			$	0.81
Less: Net effect from deferral of net revenues and related cost of sales			(545	)			(431	)			(0.59	)			(0.58	)
Less: Stock-based compensation			44				32				0.04				0.04
Less: Amortization of intangible assets			3				2				—				—
Non-GAAP Measurement		$	376			$	209			$	0.28			$	0.28

1		Reflects the net change in deferred revenues and related cost of sales.
2		Includes expenses related to stock-based compensation.
3		Reflects amortization of intangible assets from purchase price accounting.
		The per share adjustments and the GAAP and non-GAAP earnings per share information are presented as calculated. The sum of these measures, as presented, may differ due to the impact of rounding.
		The company calculates earnings per share pursuant to the two-class method which requires the allocation of net income between common shareholders and participating security holders. For the three and six months ended June 30, 2015, net income attributable to Activision Blizzard, Inc. common shareholders used to calculate non-GAAP earnings per common share, assuming dilution, was $92 million and $205 million, respectively, as compared to total net income of $93 million and $209 million, respectively, for the same periods. For purposes of calculating earnings per share, we had, on a weighted-average basis, common shares outstanding of 727 million, participating securities of approximately 9 million, and dilutive shares of 8 million during the three months ended June 30, 2015. For purposes of calculating earnings per share, we had, on a weighted-average basis, common shares outstanding of 725 million, participating securities of approximately 10 million, and dilutive shares of 9 million during the six months ended June 30, 2015.

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
RECONCILIATION OF GAAP NET INCOME TO NON-GAAP MEASURES
(Amounts in millions, except per share data)
Three Months Ended June 30, 2014		Net Revenues				Cost of Sales - Product Costs				Cost of Sales - Online				Cost of Sales - Software Royalties and Amortization				Cost of Sales - Intellectual Property Licenses				Product Development				Sales and Marketing				General and Administrative				Total Costs and Expenses
GAAP Measurement		$	970			$	187			$	56			$	46			$	11			$	112			$	141			$	107			$	660
Less: Net effect from deferral of net revenues and related cost of sales1			(312	)			(69	)			—				(24	)			1				—				—				—				(92	)
Less: Stock-based compensation2			—				—				—				(4	)			—				(3	)			(2	)			(13	)			(22	)
Less: Amortization of intangible assets3			—				—				—				—				(1	)			—				—				—				(1	)
Non-GAAP Measurement		$	658			$	118			$	56			$	18			$	11			$	109			$	139			$	94			$	545
		Operating Income				Net Income				Basic Earnings per Share				Diluted Earnings per Share
GAAP Measurement		$	310			$	204			$	0.28			$	0.28
Less: Net effect from deferral of net revenues and related cost of sales			(220	)			(174	)			(0.24	)			(0.23	)
Less: Stock-based compensation			22				14				0.02				0.02
Less: Amortization of intangible assets			1				1				—				—
Non-GAAP Measurement		$	113			$	45			$	0.06			$	0.06
Six Months Ended June 30, 2014		Net Revenues				Cost of Sales - Product Costs				Cost of Sales - Online				Cost of Sales - Software Royalties and Amortization				Cost of Sales - Intellectual Property Licenses				Product Development				Sales and Marketing				General and Administrative				Total Costs and Expenses
GAAP Measurement		$	2,081			$	412			$	115			$	102			$	13			$	255			$	245			$	202			$	1,344
Less: Net effect from deferral of net revenues and related cost of sales1			(651	)			(163	)			—				(49	)			1				—				—				—				(211	)
Less: Stock-based compensation2			—				—				—				(11	)			—				(10	)			(5	)			(27	)			(53	)
Less: Amortization of intangible assets3			—				—				—				—				(3	)			—				—				—				(3	)
Non-GAAP Measurement		$	1,430			$	249			$	115			$	42			$	11			$	245			$	240			$	175			$	1,077
		Operating Income				Net Income				Basic Earnings per Share				Diluted Earnings per Share
GAAP Measurement		$	737			$	497			$	0.68			$	0.67
Less: Net effect from deferral of net revenues and related cost of sales			(440	)			(346	)			(0.47	)			(0.47	)
Less: Stock-based compensation			53				33				0.05				0.04
Less: Amortization of intangible assets			3				2				—				—
Non-GAAP Measurement		$	353			$	186			$	0.25			$	0.25

1		Reflects the net change in deferred revenues and related cost of sales.
2		Includes expenses related to stock-based compensation.
3		Reflects amortization of intangible assets from purchase price accounting.
		The per share adjustments and the GAAP and non-GAAP earnings per share information are presented as calculated. The sum of these measures, as presented, may differ due to the impact of rounding.
		The company calculates earnings per share pursuant to the two-class method which requires the allocation of net income between common shareholders and participating security holders. For the three and six months ended June 30, 2014, net income attributable to Activision Blizzard, Inc. common shareholders used to calculate non-GAAP earnings per common share, assuming dilution, was $44 million and $181 million, respectively, as compared to total net income of $45 million and $186 million, respectively, for the same periods. For purposes of calculating earnings per share, we had, on a weighted-average basis, common shares outstanding of 716 million, participating securities of approximately 16 million, and dilutive shares of 9 million during the three months ended June 30, 2014. For purposes of calculating earnings per share, we had, on a weighted-average basis, common shares outstanding of 712 million, participating securities of approximately 16 million, and dilutive shares of 11 million during the six months ended June 30, 2014.

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
FINANCIAL INFORMATION
For the Three and Six Months Ended June 30, 2015 and 2014
(Amounts in millions)
		Three Months Ended
		June 30, 2015							June 30, 2014							$ Increase (Decrease)				% Increase (Decrease)
		Amount				% of Total4			Amount				% of Total4
GAAP Net Revenues by Distribution Channel
Retail channels		$	414			40	%		$	428			44	%		$	(14	)		(3	)%
Digital online channels1			569			55				476			49				93			20
Total Activision and Blizzard			983			94				904			93				79			9
Distribution			61			6				66			7				(5	)		(8	)
Total consolidated GAAP net revenues			1,044			100				970			100				74			8
Change in Deferred Revenues2
Retail channels			(327	)						(317	)
Digital online channels1			42							5
Total changes in deferred revenues			(285	)						(312	)
Non-GAAP Net Revenues by Distribution Channel
Retail channels			87			11				111			17				(24	)		(22	)
Digital online channels1			611			81				481			73				130			27
Total Activision and Blizzard			698			92				592			90				106			18
Distribution			61			8				66			10				(5	)		(8	)
Total non-GAAP net revenues3		$	759			100	%		$	658			100	%		$	101			15	%
		Six Months Ended
		June 30, 2015							June 30, 2014							$ Increase (Decrease)				% Increase (Decrease)
		Amount				% of Total4			Amount				% of Total4
GAAP Net Revenues by Distribution Channel
Retail channels		$	1,063			46	%		$	1,087			52	%		$	(24	)		(2	)%
Digital online channels1			1,150			50				854			41				296			35
Total Activision and Blizzard			2,213			95				1,941			93				272			14
Distribution			109			5				140			7				(31	)		(22	)
Total consolidated GAAP net revenues			2,322			100				2,081			100				241			12
Change in Deferred Revenues2
Retail channels			(859	)						(804	)
Digital online channels1			(1	)						153
Total changes in deferred revenues			(860	)						(651	)
Non-GAAP Net Revenues by Distribution Channel
Retail channels			204			14				283			20				(79	)		(28	)
Digital online channels1			1,149			79				1,007			70				142			14
Total Activision and Blizzard			1,353			93				1,290			90				63			5
Distribution			109			7				140			10				(31	)		(22	)
Total non-GAAP net revenues3		$	1,462			100	%		$	1,430			100	%		$	32			2	%

1		Net revenues from digital online channels represent revenues from digitally distributed subscriptions, licensing royalties, value-added services, downloadable content, and products.
2		We provide net revenues including (in accordance with GAAP) and excluding (non-GAAP) the impact of changes in deferred revenues.
3		Total non-GAAP net revenues presented also represents our total operating segment net revenues.
4		The percentages of total are presented as calculated. Therefore the sum of these percentages, as presented, may differ due to the impact of rounding.

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
FINANCIAL INFORMATION
For the Three Months Ended June 30, 2015 and 2014
(Amounts in millions)
		Three Months Ended
		June 30, 2015							June 30, 2014							$ Increase (Decrease)				% Increase (Decrease)
		Amount				% of Total6			Amount				% of Total6
GAAP Net Revenues by Segment/Platform Mix
Activision and Blizzard:
Online1		$	221			21	%		$	195			20	%		$	26			13	%
PC			149			14				182			19				(33	)		(18	)
Next-generation (PS4, Xbox One, Wii U)			317			30				137			14				180			131
Prior-generation (PS3, Xbox 360, Wii)			242			23				342			35				(100	)		(29	)
Total console2			559			54				479			49				80			17
Mobile and other3			54			5				48			5				6			13
Total Activision and Blizzard			983			94				904			93				79			9
Distribution:
Total Distribution			61			6				66			7				(5	)		(8	)
Total consolidated GAAP net revenues			1,044			100				970			100				74			8
Change in Deferred Revenues4
Activision and Blizzard:
Online1			(64	)						6
PC			36							(51	)
Next-generation (PS4, Xbox One, Wii U)			(152	)						(70	)
Prior-generation (PS3, Xbox 360, Wii)			(131	)						(208	)
Total console2			(283	)						(278	)
Mobile and other3			26							11
Total changes in deferred revenues			(285	)						(312	)
Non-GAAP Net Revenues by Segment/Platform Mix
Activision and Blizzard:
Online1			157			21				201			31				(44	)		(22	)
PC			185			24				131			20				54			41
Next-generation (PS4, Xbox One, Wii U)			165			22				67			10				98			146
Prior-generation (PS3, Xbox 360, Wii)			111			15				134			20				(23	)		(17	)
Total console2			276			36				201			31				75			37
Mobile and other3			80			11				59			9				21			36
Total Activision and Blizzard			698			92				592			90				106			18
Distribution:
Total Distribution			61			8				66			10				(5	)		(8	)
Total consolidated non-GAAP net revenues5		$	759			100	%		$	658			100	%		$	101			15	%

1		Revenues from online consists of revenues from all World of Warcraft products, including subscriptions, boxed products, expansion packs, licensing royalties, and value-added services.
2		Downloadable content and their related revenues are included in each respective console platforms and total console.
3		Revenues from mobile and other includes revenues from handheld and mobile devices, as well as non-platform specific game related revenues, such as standalone sales of toys and accessories products from the Skylanders franchise and other physical merchandise and accessories.
4		We provide net revenues including (in accordance with GAAP) and excluding (non-GAAP) the impact of changes in deferred net revenues.
5		Total non-GAAP net revenues presented also represents our total operating segment net revenues.
6		The percentages of total are presented as calculated. Therefore the sum of these percentages, as presented, may differ due to the impact of rounding.

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
FINANCIAL INFORMATION
For the Six Months Ended June 30, 2015 and 2014
(Amounts in millions)
		Six Months Ended
		June 30, 2015							June 30, 2014							$ Increase (Decrease)				% Increase (Decrease)
		Amount				% of Total6			Amount				% of Total6
GAAP Net Revenues by Segment/Platform Mix
Activision and Blizzard:
Online1		$	492			21	%		$	395			19	%		$	97			25	%
PC			263			11				281			14				(18	)		(6	)
Next-generation (PS4, Xbox One, Wii U)			751			32				245			12				506			207
Prior-generation (PS3, Xbox 360, Wii)			566			24				889			43				(323	)		(36	)
Total console2			1,317			57				1,134			54				183			16
Mobile and other3			141			6				131			6				10			8
Total Activision and Blizzard			2,213			95				1,941			93				272			14
Distribution:
Total Distribution			109			5				140			7				(31	)		(22	)
Total consolidated GAAP net revenues			2,322			100				2,081			100				241			12
Change in Deferred Revenues4
Activision and Blizzard:
Online1			(126	)						33
PC			48							88
Next-generation (PS4, Xbox One, Wii U)			(453	)						(146	)
Prior-generation (PS3, Xbox 360, Wii)			(355	)						(637	)
Total console2			(808	)						(783	)
Mobile and other3			26							11
Total changes in deferred revenues			(860	)						(651	)
Non-GAAP Net Revenues by Segment/Platform Mix
Activision and Blizzard:
Online1			366			25				428			30				(62	)		(14	)
PC			311			21				369			26				(58	)		(16	)
Next-generation (PS4, Xbox One, Wii U)			298			20				99			7				199			201
Prior-generation (PS3, Xbox 360, Wii)			211			14				252			18				(41	)		(16	)
Total console2			509			35				351			25				158			45
Mobile and other3			167			11				142			10				25			18
Total Activision and Blizzard			1,353			93				1,290			90				63			5
Distribution:
Total Distribution			109			7				140			10				(31	)		(22	)
Total consolidated non-GAAP net revenues5		$	1,462			100	%		$	1,430			100	%		$	32			2	%

1		Revenues from online consists of revenues from all World of Warcraft products, including subscriptions, boxed products, expansion packs, licensing royalties, and value-added services.
2		Downloadable content and their related revenues are included in each respective console platforms and total console.
3		Revenues from mobile and other includes revenues from handheld and mobile devices, as well as non-platform specific game related revenues, such as standalone sales of toys and accessories products from the Skylanders franchise and other physical merchandise and accessories.
4		We provide net revenues including (in accordance with GAAP) and excluding (non-GAAP) the impact of changes in deferred net revenues.
5		Total non-GAAP net revenues presented also represents our total operating segment net revenues.
6		The percentages of total are presented as calculated. Therefore the sum of these percentages, as presented, may differ due to the impact of rounding.

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
FINANCIAL INFORMATION
For the Three and Six Months Ended June 30, 2015 and 2014
(Amounts in millions)
		Three Months Ended
		June 30, 2015							June 30, 2014							$ Increase (Decrease)				% Increase (Decrease)
		Amount				% of Total3			Amount				% of Total3
GAAP Net Revenues by Geographic Region
North America		$	551			53	%		$	471			49	%		$	80			17	%
Europe			388			37				395			41				(7	)		(2	)
Asia Pacific			105			10				104			11				1			1
Total consolidated GAAP net revenues			1,044			100				970			100				74			8
Change in Deferred Revenues1
North America			(198	)						(177	)
Europe			(113	)						(113	)
Asia Pacific			26							(22	)
Total changes in net revenues			(285	)						(312	)
Non-GAAP Net Revenues by Geographic Region
North America			353			47				294			45				59			20
Europe			275			36				282			43				(7	)		(2	)
Asia Pacific			131			17				82			12				49			60
Total non-GAAP net revenues2		$	759			100	%		$	658			100	%		$	101			15	%
		Six Months Ended
		June 30, 2015							June 30, 2014							$ Increase (Decrease)				% Increase (Decrease)
		Amount				% of Total3			Amount				% of Total3
GAAP Net Revenues by Geographic Region
North America		$	1,255			54	%		$	1,035			50	%		$	220			21	%
Europe			852			37				856			41				(4	)		—
Asia Pacific			215			9				190			9				25			13
Total consolidated GAAP net revenues			2,322			100				2,081			100				241			12
Change in Deferred Revenues1
North America			(548	)						(411	)
Europe			(309	)						(237	)
Asia Pacific			(3	)						(3	)
Total changes in net revenues			(860	)						(651	)
Non-GAAP Net Revenues by Geographic Region
North America			707			48				624			44				83			13
Europe			543			37				619			43				(76	)		(12	)
Asia Pacific			212			15				187			13				25			13
Total non-GAAP net revenues2		$	1,462			100	%		$	1,430			100	%		$	32			2	%

1		We provide net revenues including (in accordance with GAAP) and excluding (non-GAAP) the impact of changes in deferred net revenues.
2		Total non-GAAP net revenues presented also represents our total operating segment net revenues.
3		The percentages of total are presented as calculated. Therefore the sum of these percentages, as presented, may differ due to the impact of rounding.

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
FINANCIAL INFORMATION
For the Three and Six Months Ended June 30, 2015 and 2014
(Amounts in millions)
		Three Months Ended
		June 30, 2015							June 30, 2014							$ Increase (Decrease)				% Increase (Decrease)
		Amount				% of Total4			Amount				% of Total4
Segment net revenues:
Activision1		$	313			41	%		$	252			38	%		$	61			24	%
Blizzard2			385			51				340			52				45			13
Distribution3			61			8				66			10				(5	)		(8	)
Operating segment total			759			100	%			658			100	%			101			15
Reconciliation to consolidated net revenues:
Net effect from deferral of net revenues			285							312
Consolidated net revenues		$	1,044						$	970							74			8	%
Segment income from operations:
Activision1		$	57						$	(31	)					$	88			NM
Blizzard2			117							145							(28	)		(19	)
Distribution3			(1	)						(1	)						—			—
Operating segment total			173							113							60			53
Reconciliation to consolidated operating income and consolidated income before income tax expense:
Net effect from deferral of net revenues and related cost of sales			181							220
Stock-based compensation expense			(21	)						(22	)
Amortization of intangible assets			(1	)						(1	)
Consolidated operating income			332							310							22			7
Interest and other expense, net			50							50
Consolidated income before income tax expense		$	282						$	260							22			8	%
Operating margin from total operating segments			22.8	%						17.2	%
		Six Months Ended
		June 30, 2015							June 30, 2014							$ Increase (Decrease)				% Increase (Decrease)
		Amount				% of Total4			Amount				% of Total4
Segment net revenues:
Activision1		$	616			42	%		$	489			34	%		$	127			26	%
Blizzard2			737			50				801			56				(64	)		(8	)
Distribution3			109			7				140			10				(31	)		(22	)
Operating segment total			1,462			100	%			1,430			100	%			32			2
Reconciliation to consolidated net revenues:
Net effect from deferral of net revenues			860							651
Consolidated net revenues		$	2,322						$	2,081							241			12	%
Segment income from operations:
Activision1		$	121						$	(29	)					$	150			NM
Blizzard2			256							383							(127	)		(33	)
Distribution3			(1	)						(1	)						—			—
Operating segment total			376							353							23			7
Reconciliation to consolidated operating income and consolidated income before income tax expense:
Net effect from deferral of net revenues and related cost of sales			545							440
Stock-based compensation expense			(44	)						(53	)
Amortization of intangible assets			(3	)						(3	)
Consolidated operating income			874							737							137			19
Interest and other expense, net			100							101
Consolidated income before income tax expense		$	774						$	636							138			22	%
Operating margin from total operating segments			25.7	%						24.7	%

1		Activision Publishing (“Activision”) — publishes interactive entertainment products and content.
2		Blizzard Entertainment, Inc. (“Blizzard”) — publishes PC games and online subscription-based games in the MMORPG category.
3		Activision Blizzard Distribution (“Distribution”) — distributes interactive entertainment software and hardware products.
4		The percentages of total are presented as calculated. Therefore the sum of these percentages, as presented, may differ due to the impact of rounding.

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
EBITDA and Adjusted EBITDA
For the Trailing Twelve Months Ended June 30, 2015
(Amounts in millions)
																		Trailing Twelve
																		Months Ended
		September 30,				December 31,				March 31,				June 30,				June 30,
			2014				2014				2015				2015			2015
GAAP Net Income (Loss)		$	(23	)		$	361			$	394			$	212			$	945
Interest Expense, net			51				51				50				50				202
Provision (Benefit) for income taxes			(20	)			27				98				70				175
Depreciation and amortization			22				29				20				21				91
EBITDA			30				468				562				353				1,413
Deferral of net revenues and related cost of sales1			180				475				(362	)			(181	)			110
Stock-based compensation expense2			22				29				23				21				95
Fees and other expenses related to the Purchase Transaction and related debt financings3			48				(36	)			—				—				13
Adjusted EBITDA		$	280			$	936			$	223			$	193			$	1,631

1		Reflects the net change in deferred revenues and related cost of sales.
2		Includes expenses related to stock-based compensation.
3		Reflects fees and other expenses (including legal fees, costs, expenses and accruals) related to the repurchase of 429 million shares of our common stock from Vivendi (the "Purchase Transaction") completed on October 11, 2013 and related debt financings.
		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.

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
Outlook for the Quarter Ending September 30, 2015 and Year Ending December 31, 2015
GAAP to Non-GAAP Reconciliation
(Amounts in millions, except per share data)
		Outlook for the			Outlook for the
		Three Months Ending			Year Ending
		September 30, 2015			December 31, 2015
Net Revenues (GAAP)		$	875		$	4,425
Excluding the impact of:
Change in deferred revenues1			55			175
Net Revenues (Non-GAAP)		$	930		$	4,600
Earnings Per Diluted Share (GAAP)		$	0.08		$	1.06
Excluding the impact of:
Deferral of net revenues and related cost of sales2			0.03			0.14
Stock-based compensation3			0.02			0.09
Amortization of intangible assets4			—			0.01
Earnings Per Diluted Share (Non-GAAP)		$	0.14		$	1.30

1		Reflects the net change in deferred revenues.
2		Reflects the net change in deferred revenues and related cost of sales.
3		Reflects expenses related to stock-based compensation.
4		Reflects amortization of intangible assets from purchase price accounting.
		The per share adjustments and the GAAP and non-GAAP earnings (loss) per share information are presented as calculated. Therefore the sum of these measures, as presented, may differ due to the impact of rounding.

View source version on businesswire.com: http://www.businesswire.com/news/home/20150804006820/en/

Activision Blizzard, Inc.
Amrita Ahuja
SVP, Investor Relations
(310) 255-2075
[email protected]
or
Mary Osako
SVP, Global Communications
(424) 322-5166
[email protected]

Source: Activision Blizzard, Inc.