ATVI

Activision Blizzard, Inc (ATVI)

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Activision Blizzard, Inc. (ATVI)

Q4 2009 Earnings Call Transcript

February 10, 2010 4:30 pm ET

Executives

Kristin Southey – VP, IR and Treasurer

Bobby Kotick – President & CEO

Thomas Tippl – CFO & Chief Corporate Officer

Michael Griffith – President & CEO, Activision Publishing Inc.

Michael Morhaime – President & CEO, Blizzard Entertainment

Analysts

Jeetil Patel – Deutsche Securities

Ben Schachter – Broadpoint AmTech

Edward Williams – BMO Capital Markets

Brian Pitz – UBS

Heath Terry – FBR Capital Markets

Justin Post – Bank of America

Colin Sebastian – Lazard Capital Markets

Presentation

Operator

Good day and welcome to the Activision Blizzard’s Fourth Quarter CY 2009 Earnings Conference Call. Today's call is being recorded. At this time for opening remarks and introduction, I would like to turn today's call over to Senior Vice President of Investor Relations, Ms. Kristin Southey. Please go ahead ma'am.

Kristin Southey

Good afternoon and thank you for joining us today for Activision Blizzard’s fourth quarter and calendar year end 2009 conference call. With me today are Bobby Kotick, our CEO; Thomas Tippl, Chief Corporate Officer and CFO; Mike Griffith, President and CEO of Activision Publishing; and Mike Morhaime, Chief Executive Officer of Blizzard Entertainment.

I’d like to remind everyone that we will be making statements that are not historical facts. These forward-looking statements are based on current expectations and assumptions that are not subject to risks and uncertainties. As indicated in the slide that is now 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 statements.

Such factors include without limitation sales levels, shifts in consumer spending trends, current macroeconomic conditions, the seasonal and cyclical nature of our marketplace, difficulties related to World of Warcraft in China, our ability to predict consumer preferences among competing platforms, declines in pricing, product returns, price protections, product delays, retail acceptance of our products, adoption rate and availability of new hardware and related software, competition, the rapid changes in technology, industry standards and consumer preferences, protection of proprietary rights, litigation, maintenance of key relationships, including the ability of track, retain and develop key employees in studios, which can create high quality head titles, counter-party risks, economic, financial and political conditions and policies, foreign exchange and tax rates and identification of acquisition opportunities.

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, 2008 and subsequently filed quarterly reports on Form 10-Q.

The Company may change its intentions, 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 today, February 10, 2010 or to reflect the occurrence of unanticipated events.

I would also like to note 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, expenses related to equity-based compensation costs, the operating results of products and operations from the historical Vivendi Games businesses that the company has exited or is winding down, costs related to the business combination for doing activation of Vivendi Games, the amortization of intangibles and impairment of intangible assets and the associated tax benefits. Please refer to our earnings release for full GAAP to non-GAAP reconciliation.

In addition, due to the fact that our business combination was accounted for as a reverse acquisition, we will be presenting additional non-GAAP information that includes Activision’s standalone results for the periods prior to July 9, 2008, which we refer to as non-GAAP comparable basis. Please refer to our earnings release, which is posted on our Web site at www.activisionblizzard.com for reconciliations and further explanations. There is always PowerPoint overview, which you can access with the webcast and which will be posted to the Web site following the call.

And now I would like to introduce our CEO, Bobby Kotick.

Bobby Kotick

Thank you, Kristin. Today, we're pleased to report that Activision Blizzard delivered another quarter in calendar year of better than expected financial results with a record non-GAAP EPS, record non-GAAP operating margin and record cash flow in what was a very difficult economic environment.

I’d like to thank our incredibly talented employees around the world whose hard work and extraordinary efforts resulted in the largest quarter delivered by a third-party publisher despite this challenging economic environment. I'm always proud to be associated with our fantastic people and I'm grateful for their continued commitment to excellence in every aspect of our business.

This year, in addition to our strong financial performance, we increased our retail share to 16%, a high in the U.S. and in Europe. We executed the largest entertainment launch in our history setting a five-day sell-through record with Call of Duty Modern Warfare 2 which quickly became our third title in the last few years to exceed $1 billion in sales. And we ended the year as the largest third-party digital publisher with the No. 1 online subscription title, World of Warcraft.

As we look ahead, we're presented with more market opportunities than ever before. First and foremost, despite these challenges, the retail software business remains large and lucrative for top brands and this isn't going to change any time soon. Within retail, we continue to demonstrate the great content sales and in fact can sell exceptionally well. In 2010, we plan to launch a strong line up of proven properties in addition to exciting new intellectual properties.

Second, we're experiencing significant growth in the high margin digital online category which I think merit some more time in our discussion today. As you look at digital, it is important to deconstruct the opportunity into its various layers. Some, such as subscription, PC digital download, downloadable content, and value-added services have immediate and tangible business models along with rapid growth in consumer adoption, but require committed, careful and sometimes significant investment into infrastructure, content and execution.

Read the rest of this transcript for free on seekingalpha.com