Banata obby Kotick, CEO of Activision Blizzard, shared, “Our acquisitions this past quarter of Proletariat and Peltarion further boost our development resources, including our artificial intelligence and machine learning capabilities. Even in a challenging economic environment, with so many companies announcing hiring freezes and layoffs, our development headcount grew 25% year-over-year as of the end of the second quarter. Our talented teams are planning to release exciting new Call of Duty, World of Warcraft and Overwatch content later this year. Of course, we look forward to completing our pending $95 per share all-cash transaction with Microsoft as soon as possible.”

Please refer to the tables at the back of this earnings release for a reconciliation of the company’s GAAP and non-GAAP results.

For the quarter ended June 30, 2022, Activision Blizzard’s net revenues presented in accordance with GAAP were $1.64 billion, as compared with $2.30 billion for the second quarter of 2021. GAAP net revenues from digital channels were $1.47 billion. GAAP operating margin was 21%. GAAP earnings per diluted share was $0.36, as compared with $1.12 for the second quarter of 2021. On a non-GAAP basis, Activision Blizzard’s operating margin was 28% and earnings per diluted share was $0.48, as compared with $1.20 for the second quarter of 2021.

Activision Blizzard generated $198 million in operating cash flow for the quarter as compared with $388 million for the second quarter of 2021.

Please refer to the tables at the back of this press release for a reconciliation of the company’s GAAP and non-GAAP results.

Operating Metrics

For the quarter ended June 30, 2022, Activision Blizzard’s net bookingsB were $1.64 billion, as compared with $1.92 billion for the second quarter of 2021. In-game net bookingsC were $1.20 billion, as compared with $1.32 billion for the second quarter of 2021.

For the quarter ended June 30, 2022, overall Activision Blizzard Monthly Active Users (MAUs)D were 361 million.

Microsoft transaction

As announced on January 18, 2022, Microsoft plans to acquire Activision Blizzard for $95.00 per share in an all-cash transaction. The transaction is subject to customary closing conditions and completion of regulatory review. The transaction, which is expected to close in Microsoft’s fiscal year ending June 30, 2023, has been approved by the boards of directors of both Activision Blizzard and Microsoft and by Activision Blizzard’s stockholders.

Conference Call and Earnings Presentation

In light of the proposed transaction with Microsoft, and as is customary during the pendency of an acquisition, Activision Blizzard will not be hosting a conference call, issuing an earnings presentation, or providing quantitative financial guidance in conjunction with its second quarter 2022 earnings release. For further detail and discussion of our financial performance please refer to our quarterly report on Form 10-Q for the quarter ended June 30, 2022.

Selected Business Highlights

During the second quarter, our teams made strong progress on a broad pipeline of content across established franchises. Releases planned for the second half of the year include Call of Duty®: Modern Warfare II, a new Call of Duty: Warzone™ 2.0 experience, World of Warcraft®: Wrath of the Lich King® Classic, World of Warcraft: Dragonflight™, and Overwatch® 2, with Diablo® IV planned for release in 2023. We continue to increase investment in our creative resources to meet the demand for our content – our development headcount at the end of the second quarter grew by 25% year-over-year.

While the company remains cognizant of risks including those related to the labor market and economic conditions, and we still have significant execution ahead of us, we expect these releases to increase our global audience, deepen community engagement, and drive year-over-year growth in player investment in the fourth quarter and beyond.

GAAP revenue and EPS declined year-over-year in the second quarter, and the company expects GAAP revenue and earnings per share to remain lower year-over-year in the second half of the year. Second quarter segment operating income increased versus the first quarter for each of Activision, Blizzard and King. Based on the current pipeline, total segment operating income is expected to increase modestly in the third quarter versus the second quarter, and to return to year-over-year growth in the fourth quarter.

Activision Blizzard remains committed to becoming the most welcoming, inclusive company in our industry, and continues to implement previously announced initiatives to strengthen our practices and policies. In the second quarter, we added experienced DE&I leaders in key positions across the organization. In July, the company launched Level Up U, a 12-week program that prepares talented individuals from inside and outside the industry to become full-time game developers. Level Up U is the first major program funded through a $250 million investment over 10 years announced last October to accelerate opportunities in gaming and technology for under-represented communities.

Activision

• The fourth quarter will usher in a new era for the Call of Duty franchise. Anticipation is high for Call of Duty: Modern Warfare II, planned for release on console and PC on October 28. The sequel to 2019’s Modern Warfare®, the most successful Call of Duty title to date, will lead the most ambitious rollout yet across the franchise. An all-new Call of Duty: Warzone 2.0 experience, tightly integrated with the premium game, will launch as an extension of the Modern Warfare universe later this year.

• Activision’s expanded studios also continue to make strong progress on an innovative mobile experience that will extend Warzone to the largest and fastest growing platform. Across the Call of Duty ecosystem, the teams are well positioned to support these launches with substantial live operations while also continuing development of new premium content planned for 2023 and beyond.

• Activision’s second quarter segment revenue and operating income declined year-over-year, reflecting lower engagement for the Call of Duty franchise, but grew versus the first quarter. Call of Duty net bookings on console and PC grew sequentially in the second quarter, following gameplay improvements and seasonal content across Call of Duty: Vanguard and Call of Duty: Warzone that were well-received by players. Net bookings for Call of Duty Mobile were consistent with the first quarter.

Blizzard

• The June launch of Diablo Immortal™, a deep and authentic Diablo experience designed for the mobile platform, marked the start of a rollout of substantial content across Blizzard’s key franchises. Diablo Immortal received high player ratings on mobile app stores around the world, and reached the top of the game download charts in more than 100 countries and regions following its launch. Over half of the game’s player accounts to date are new to Blizzard. The game ranked in the top-10 grossing games in U.S. app stores for the month of June1.

• Diablo IV, the next-generation installment in the genre-defining series, is planned for launch on PC and console in 2023. The title will support cross-play and cross-progression across platforms, and is designed to be the foundation for an engaging live service, providing ongoing storytelling and new content for many years to come.

• In the Warcraft franchise, Blizzard plans to deliver an unprecedented level of WoW content in the coming months, with Wrath of the Lich King Classic launching on September 26 and World of Warcraft: Dragonflight, the innovative next expansion for the modern game, slated for release later in the year. Blizzard is committed to growing its development resources to meet and exceed its community’s expectations, and at the end of the second quarter significantly bolstered its World of Warcraft team through the acquisition of Boston-based studio Proletariat.

• During the second quarter, Blizzard unveiled Warcraft: Arclight Rumble™, an action-packed mobile strategy game that gives both new and existing fans an entirely different way to experience the Warcraft universe. Public testing of the game is underway in select regions.

• Overwatch 2 is planned to launch in early access on PC and console on October 4. With a free-to-play live service model designed to provide frequent and substantial seasonal updates, this launch kicks off the next chapter for the acclaimed team-based action game.

• Blizzard’s second quarter segment revenue and operating income were lower year-over-year but higher versus the first quarter. World of Warcraft net bookings declined versus a year-ago quarter that included the launch of Burning Crusade™ Classic, offsetting year-over-year growth for Hearthstone® and the contribution from the June launch of Diablo Immortal.

King

• King’s segment revenue and operating income grew year-over-year, driven by Candy Crush™, King’s largest franchise. King’s in-game net bookings increased 6% year-over-year, reflecting strong execution across live operations and user acquisition.

• King continues to increase the frequency and depth of seasonal content and introduce more player-versus-player features within Candy Crush, fueling growth in engagement and player investment. Time spent within Candy again grew year-over-year, franchise payer numbers grew by a double-digit percentage year-over-year, and Candy Crush was the top-grossing game franchise in the U.S. app stores1 for the 20th consecutive quarter.

• King’s advertising business grew over 20% year-over-year, despite intensifying macro headwinds through the quarter, as the team continued to carefully ramp ad volume on the King network.

• In June, King acquired software company Peltarion to accelerate the use of AI and machine learning technology in serving its community even more engaging content.

Balance Sheet and Dividend

• Cash and short-term investments at the end of the second quarter stood at $10.8 billion, and Activision Blizzard ended the quarter with a net cashE position of approximately $7.1 billion.

• On May 6, 2022, the Company paid a cash dividend of $0.47 per common share to shareholders of record at the close of business on April 15, 2022.

About Activision Blizzard

Our mission, to connect and engage the world through epic entertainment, has never been more important. Through communities rooted in our video game franchises we enable hundreds of millions of people to experience joy, thrill and achievement. We enable social connections through the lens of fun, and we foster purpose and a sense of accomplishment through healthy competition. Like sport, but with greater accessibility, our players can find purpose and meaning through competitive gaming. Video games, unlike any other social or entertainment media, have the ability to break down the barriers that can inhibit tolerance and understanding. Celebrating differences is at the core of our culture and ensures we can create games for players of diverse backgrounds in the 190 countries our games are played.

The GAAP and non-GAAP earnings per share information is presented as calculated. The sum of these measures, as presented, may differ due to the impact of rounding.

The GAAP and non-GAAP earnings per share information is presented as calculated. The sum of these measures, as presented, may differ due to the impact of rounding.

The GAAP and non-GAAP earnings per share information is presented as calculated. The sum of these measures, as presented, may differ due to the impact of rounding.

The GAAP and non-GAAP earnings per share information is presented as calculated. The sum of these measures, as presented, may differ due to the impact of rounding.

Our operating segments are consistent with the manner in which our operations are reviewed and managed by our Chief Executive Officer, who is our chief operating decision maker (“CODM”). The CODM reviews segment performance exclusive of: the impact of the change in deferred revenues and related cost of revenues with respect to certain of our online-enabled games; share-based compensation expense (including liability awards accounted for under ASC 718); amortization of intangible assets as a result of purchase price accounting; fees and other expenses (including legal fees, costs, expenses and accruals) related to acquisitions, associated integration activities, and financings; certain restructuring and related costs; and other non-cash charges. See the following page for the reconciliation tables of segment revenues and operating income to consolidated net revenues and consolidated income before income tax expense.

Our operating segments are also consistent with our internal organization structure, the way we assess operating performance and allocate resources, and the availability of separate financial information. We do not aggregate operating segments.