Activision Blizzard, Inc (ATVI)

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Activision Blizzard (ATVI)

Q3 2010 Earnings Call

November 04, 2010 4:30 pm ET


Michael Morhaime - Chief Executive Officer of Blizzard Entertainment and President Blizzard Entertainment

Thomas Tippl - Chief Operating Officer and Chief Financial Officer

Robert Kotick - Chief Executive Officer, President and Director

Kristin Southey -

Eric Hirshberg - Chief Executive Officer of Publishing Unit


Brian Pitz - UBS Investment Bank

Douglas Creutz - Cowen and Company, LLC

Edward Williams - BMO Capital Markets U.S.

Justin Post - BofA Merrill Lynch

Brian Sozzi

Jeetil Patel - Deutsche Bank AG



Good day, everyone, and welcome to the Activision Blizzard's Third Quarter CY 2010 Earnings Conference Call. [Operator Instructions] At this time, for opening remarks and introductions, I would like to turn the call over to the Senior Vice President of Investor Relations Ms. Kristin Southey. Please go ahead.

Kristin Southey

Good afternoon and thank you for joining us today for Activision Blizzard's Third Quarter 2010 Conference Call. With me today are Bobby Kotick, CEO of Activision Blizzard; Thomas Tippl, COO and CFO of Activision Blizzard; Eric Hirshberg; CEO of Activision Publishing; and Mike Morhaine, CEO of Blizzard Entertainment. I would like to remind everyone that during this call, we will be making statements that are not historical facts. These forward-looking statements are based on current expectations and assumptions that are subject to risk and uncertainties. As indicated in the slides that is showing, a number of important factors could cause the company's actual future results and other future circumstances to differ materially from those expressed in any forward-looking statement. Such factors include, without limitation: Sales levels; increasing concentration of titles; shifting consumer spending trends; current macroeconomic and industry conditions; conditions within the video game industry; the seasonal and cyclical nature of our industry; our ability to predict consumer preferences among competing hardware platforms and genres; possible declines in pricing; product returns; price reception; product delays; retail acceptance of our products; adoption rate and availability of new hardware and related software; competition, litigation and associated cost throughout the changes in technology; industry standards; business models, including online and youth games and consumer preferences; protection of proprietary rights; maintenance of key relationships, including the ability to attract, retain and develop key personnel and developers that can create high-quality hit titles; counterparty risk; economic, financial and political conditions and policies; foreign exchange and tax rates; identification of acquisition opportunities; and potential challenges associated with geographic expansion.

These important factors and other factors that potentially could affect the company's financial results are described in the company's annual report on Form 10-K for the period ended December 31, 2009, and then the company's other SEC findings. The company may change its intentions, views, or expectations at anytime and without notice based upon any changes in such factors in the company's assumptions or otherwise. The company undertakes no obligations to release publicly any revisions to any forward-looking statements to reflect events or circumstances after today, November 4, 2010, or to reflect the occurrence of unanticipated events.

I would also like to note that certain numbers we will be presenting today will be made on a non-GAAP basis, excluding the impact of the change in deferred net revenues and related cost of sales with respect to certain of our online-enabled games, expenses related to share-based payment, the operating results of products and operations from the historical of any gains that [indiscernible] that the company has exited or substantially wound down. Costs related to the business culmination between Activision and the vendor games, the amortization of intangibles and impairment of intangible assets and the associated tax benefit. Please refer to our earnings release, which is posted at, for a full GAAP to non-GAAP reconciliation and further explanation. Finally, there is a PowerPoint overview which you can access with the webcast and which will be posted in the website following the call. And now I would like to introduce our CEO, Bobby Kotick.

Robert Kotick

Thank you, Kristin, and thank you for joining us today. Today, we're excited to report that Activision Blizzard delivered another quarter of better-than-expected financial results. As the results, we're raising our 2010 outlook for both the revenue and EPS reflecting the continued strength in our business and our confidence in our continued execution.

While we're likely to achieve record profitability this year, we sometimes overlook the strong ability our businesses have to convert profits into cash, which for the last 12 months, have generated approximately $1.2 billion of operating cash flow. Our increased outlook puts us on face for the most profitable year in our history and our highest operating margins ever. And should, I believe, allow us to maintain our leadership position as the world's largest and most profitable online entertainment company.

Our biggest brands are thriving, while many other media and entertainment companies including most of our direct competitors are experiencing challenges. We continue to see a shift in the way our consumers play games, which immerse for our unique benefit. Having the largest reservoir of our online gaming expertise combined with the most capable studios and development teams, has resulted in the deeper and wider moat surrounding our core franchises. More importantly, we are delivering some of the world's best games for the largest audience of gamers we have ever addressed.

All of this, not only means that our business is stronger financially, which it is, but it also means that our audiences are embracing the franchises around which this moats are built. Mike Morhaime, will give you a glimpse of how we're seeing this happen within Blizzard's games.

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