Activision Blizzard, Inc. (NASDAQ:ATVI) Q3 2019 Earnings Conference Call - Final Transcript

Nov 07, 2019 • 04:30 pm ET


Activision Blizzard, Inc. (NASDAQ:ATVI) Q3 2019 Earnings Conference Call - Final Transcript


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Dennis Durkin

bookings were $709 million lower year-over-year with the biggest drivers being the Battle for Azeroth and Forsaken expansions in the year ago quarter. We are continuing to improve our execution in this area and we are pleased with the progress we saw in Q3 for certain franchises, most notably Call of Duty.

Now let's turn to our overall consolidated results, unless otherwise indicated, we are referencing non-GAAP figures. Please refer to our earnings release for full GAAP to non-GAAP reconciliations. For the quarter, we generated Q3 GAAP revenues of $1.28 billion, a $177 million above our August guidance. This included the net recognition of deferrals of $68 million. Net bookings of $1.21 billion were $114 million above our August outlook. We incurred GAAP only restructuring and related charges of $28 million. And we generated Q3 GAAP EPS of $0.26 and Q3 non-GAAP EPS of $0.38, which was $0.18 above guidance. These figures include the net recognition of deferrals of $0.06. From a cash flow and capital structure perspective, Q3 operating cash flow was $309 million and our cash and investments at the end of September was approximately $4.9 billion. And we ended the quarter with a net cash position of approximately $2.2 billion.

Now let's turn to our fourth quarter and full-year outlook. Looking at the release slate, in addition to Activision's launches of Call of Duty mobile on October 1 and Modern Warfare on October 25, Blizzard released Overwatch on the Nintendo Switch on October 15 and plans to release Warcraft III: Reforged in December. Q4 will also see the release of Descent of Dragons expansion and the open beta for the Battlegrounds mode for Hearthstone. And we will support other key franchises with a stream of content, services, events, and features. This includes our new in-game system for Modern Warfare, which begins in December slightly later than originally planned.

Before I provide our financial guidance, I'd like to provide some context. Firstly, we are more than delighted with the early results for World of Warcraft Classic, Call of Duty mobile, and Modern Warfare. We are entering the holiday season with strong momentum, but at the same time, we wish to remain prudent as we focus on execution for the rest of the quarter. Secondly, as we think about positioning our franchises for growth into 2020, in some cases, such as Hearthstone, Candy Crush and Call of Duty mobile, we are prioritizing reach and engagement over short-term financial results in the fourth quarter.

Consistent with this, a significant proportion of the Q3 earnings upside was driven by cost timing and we intend to invest these amounts in Q4, given the abundance of potential for our franchises. Thirdly, I would also note that the ongoing shift to digital represents a timing risk factor for sell-in versus retail sell-through dynamics and FX headwinds have modest increase since we last provided guidance. All that said, we are raising our net bookings and EPS guidance for the full year and feel great about