Activision Blizzard, Inc (ATVI)

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Activision Blizzard (ATVI)

Q1 2011 Earnings Call

May 09, 2011 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


Michael Hickey - Janco Partners, Inc.

Eric Handler - MKM Partners LLC

Brian Pitz - UBS Investment Bank

Edward Williams - BMO Capital Markets U.S.

Daniel Ernst - Soleil-Hudson Square Research

Atul Bagga - ThinkEquity LLC

Jeetil Patel - Deutsche Bank AG

Brian Karimzad - Goldman Sachs Group Inc.



Good day, and welcome to the Activision Blizzard's First Quarter 2011 Earnings Conference Call. Today's call is being recorded. At this time, for opening remarks and introductions, I would like to turn today's call over to the 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 first quarter 2011 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 Morhaime, 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 risks and uncertainties. As indicated in the slide 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 described in any forward-looking statement. Such factors include, without limitation: Sales levels; increasing concentration of titles; shifts in consumer spending trends; current macroeconomic and industry conditions and conditions within the video game industry; our ability to predict consumer preferences among competing genres and hardware platforms; the seasonal and cyclical nature of our industry; changing business models, including digital and used games; competition; possible declines in pricing; product returns; price protection; product delays; adoption rate and availability of new hardware and related software; rapid changes in technology and industry standards; litigation and associated costs; the effectiveness of our restructuring efforts; 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 changes 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 ending December 31, 2010, and in the company's other SEC filings. The company may change its intentions, beliefs or expectations made at anytime 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, May 9, 2011, or to reflect the occurrence of unanticipated events.

I'd 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 the share-based payments, expenses related to restructuring of our Activision Publishing operations, 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. There's also a PowerPoint overview which you can access with the webcast and which will be posted to the website following the call.

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

Robert Kotick

Thank you, Kristin, and good afternoon. We're pleased to announce that Activision Blizzard delivered another quarter of better-than-expected financial results and established new first quarter records for net revenues, operating margin and EPS, which increased more than 40% year-over-year. Our solid financial performance is driven by a 30% increase in revenues in digital channels year-over-year. Because of our leadership and growth in online gaming, our focused execution and our financial discipline, we have started the year with strong momentum and we are raising our revenue and EPS outlook for the year.

We continue to shift our business towards Digital delivery of content and establishing direct ongoing relationships with our audiences. While this quarter, 50% of our revenues were Digital we are still scratching the surface when it comes to the role that digital delivery will play in our products and franchises. We're seeing the benefits of this focus in the development of new capabilities, the release of even better products with greater audience engagement and in our financial performance.

Our deep capital resources and long-term view of our business provide us the unique ability to continue investing in the major new growth and margin expansion opportunities we continue to find or create. The largest and most rewarding opportunities by creating billion-dollar franchises or building successful digital delivery platforms can often take years to develop, require significant financial and development resources and necessitate management continuity, discipline and focus.

The long list of hurdles and obstacles are why so few companies pursue these large-scale opportunities and why there are still only just a handful of billion-dollar franchises and successful digital platforms. Today, we develop and support 2 of the largest online communities in all of consumer entertainment, collectively serving more than 30 million people. The scope and engagement of the World of Warcraft and Call of Duty communities is massive. In addition, the relaunch of has given our audiences fantastic new functionality and connectivity across the entire Blizzard portfolio.

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