ATVI

Activision Blizzard, Inc (ATVI)

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Activision Blizzard (ATVI)

Q2 2011 Earnings Call

August 03, 2011 4:30 pm ET

Executives

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

Analysts

Eric Handler - MKM Partners LLC

Brian Pitz - UBS Investment Bank

Douglas Creutz - Cowen and Company, LLC

Arvind Bhatia - Sterne Agee & Leach Inc.

Edward Williams - BMO Capital Markets U.S.

Jeetil Patel - Deutsche Bank AG

Brian Karimzad - Goldman Sachs Group Inc.

Presentation

Operator

Good day, everyone, and welcome to the Activision Blizzard Second Quarter 2011 Earnings Conference Call. Today's call is being recorded. At this time, for opening remarks and introductions, I'd like to turn today's call over to Kristin Southey. Please go ahead, Kristin.

Kristin Southey

Good afternoon, and thank you for joining us today for Activision Blizzard's Second 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 delivery of content; competition including from used games; possible declines in prices; 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 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 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, August 3, 2011, 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 payments, expenses related to the restructuring of our Activision Publishing operations, the amortization of intangibles and impairments of intangible assets and the associated tax benefit.

Please refer to our earnings release, which is posted at www.activisionblizzard.com for a full GAAP to non-GAAP reconciliation and further explanation. There is also a PowerPoint overview which you can access with the webcast and which will be posted to the website following the call. In addition, we will also be posting a new 12 quarter financial overview highlighting both GAAP and non-GAAP results.

Finally, I'd like to welcome Peter Ausnit who has joined us as Vice President of Investor Relations.

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

Robert Kotick

Thank you, Kristin, and good afternoon. I'm pleased to announce that Activision Blizzard delivered another quarter of better-than-expected growth. In June quarter, we increased revenues over the prior year and set new average [ph] for operating margins and EPS. Our momentum continues to gain strength. For the first 6 months, revenues increased year-over-year and we significantly expanded our non-GAAP operating margins to a new record 26% and increased EPS by more than 50%.

Our growth has been fueled by our continued online expansion. For the first 6 months of the year, revenues from online channels grew more than 20% and for the trailing 12 months, they're up 25%. Our digital growth is reflected on the top line, as well as increased profitability and higher return on invested capital. Because of our continued growth as the leader in online gaming and our financial discipline and the prudent allocation of our capital, we are again raising our revenue and EPS outlook for the year.

We continue to shift our business toward digital delivery of content and services that established direct ongoing relationships with our audiences across an increasingly wider range of devices and in more geographies than ever before. Our product plans for the remainder of the year is consistent with the strategy that we have articulated for the last few years. Now indeed with the very best experiences for our audiences. This fall is no exception. We expect to release the most innovative connected social game experiences we have ever created. Modern Warfare 3 is a stellar experience in every way, and we'll also launch Call of Duty Elite, our new online service that we believe will extend the multi-player experience and unite the worldwide Call of Duty community in response to the interest of our audiences.

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