AB(ATVI) - 2023 Q2 - Quarterly Report

Financial Performance - Consolidated net revenues for Q2 2023 increased 34% to $2.2 billion, with operating income rising 72$583 million compared to Q2 2022[149]. - For the first half of 2023, consolidated net revenues increased 35% to $4.6 billion, and operating income increased 69$1.4 billion compared to the same period in 2022[149]. - Diluted earnings per share for Q2 2023 increased 106% to $0.74, and for the first half of 2023, it increased 94$1.67 compared to 2022[149]. - Cash flows from operating activities for the first half of 2023 were approximately $1.2 billion, an increase of 39$0.8 billion in 2022[149]. - Consolidated net revenues for Q2 2023 reached $2.207 billion, a 34$1.644 billion in Q2 2022[182]. - Total net revenues for Q2 2023 were $2.207 billion, a 34$1.644 billion in Q2 2022, with in-game and subscription revenues making up 76% of total revenues[179]. - The company reported a total of $4,590 million in consolidated net revenues for the six months ended June 30, 2023, up from$3,412 million in the same period of 2022, representing a 34.4% increase[202]. - For the six months ended June 30, 2023, consolidated net revenues increased by $1.3 billion, primarily driven by higher revenues from key franchises including Call of Duty and Diablo[185]. Merger and Legal Matters - The company has a merger agreement with Microsoft for$95.00 per share, with a potential reverse termination fee of $3.0 billion, increasing to$3.5 billion after August 29, 2023[134][135]. - The United Kingdom Competition and Markets Authority has blocked the merger, citing competition concerns, and Microsoft is appealing this decision[141]. - The company is subject to legal proceedings regarding workplace matters, which are impacting its operations[143]. Revenue Breakdown - Net bookings for Q2 2023 reached $2.461 billion, a 30$1.637 billion in Q2 2022, driven by significant contributions from Blizzard, Activision, and King[159]. - In-game net bookings for Q2 2023 were $1.562 billion, up 30$1.197 billion in Q2 2022, with Blizzard's Diablo IV being a major driver[161]. - For the six months ended June 30, 2023, net bookings totaled $4.316 billion, a 30$3.119 billion in the same period of 2022[159]. - The company's three franchises—Call of Duty, Warcraft, and Candy Crush—accounted for 79% of consolidated net revenues in 2022, highlighting their importance to overall performance[171]. - Activision segment net revenues for Q2 2023 were $574 million, while Blizzard and King segments reported$1.058 billion and $747 million respectively[190]. - Segment operating income for Activision was$167 million, Blizzard $409 million, and King$266 million for Q2 2023[190]. Costs and Expenses - Total cost of revenues for the six months ended June 30, 2023, was $1,321 million, a 37$964 million for the same period in 2022[217]. - Product costs for the six months ended June 30, 2023, increased by $80 million to$252 million, representing 21% of associated net revenues[219]. - Game operations and distribution costs for the six months ended June 30, 2023, increased by $131 million to$736 million, maintaining 22% of associated net revenues[219]. - Product development costs for the six months ended June 30, 2023, were $807 million, an increase of$149 million from $658 million in the same period in 2022[223]. - Sales and marketing expenses for the six months ended June 30, 2023, increased by$97 million to $611 million, representing 13$468 million, a slight increase of $9 million from$459 million in the same period in 2022[230]. Workplace and Diversity Initiatives - The company has made significant progress towards its workplace excellence goals, including a commitment of $250 million to accelerate opportunities for diverse talent within gaming and technology over the next ten years[263]. - The Company established an$18 million fund as part of a settlement with the EEOC to address claims related to workplace misconduct, with 15,176 individuals covered by the consent decree[276]. - The EEOC conducted a comprehensive investigation involving surveys from over 6,000 current and former employees regarding gender harassment from 2018 to 2021[273]. - The Company intends to release its "Transparency Report" annually, detailing data related to harassment, discrimination, and retaliation[271]. - The Company has taken significant steps to maintain a safe and inclusive workplace culture, with the Board holding ten discussions focused on workplace culture in three quarters of 2022[290]. Cash and Investments - As of June 30, 2023, the company held cash and cash equivalents of $10.77 billion, an increase of$3.71 billion from $7.06 billion as of December 31, 2022[245]. - Net cash provided by operating activities for the six months ended June 30, 2023, was$1.17 billion, up from $840 million for the same period in 2022, reflecting an increase of$327 million[246]. - Net cash provided by investing activities for the six months ended June 30, 2023, was $2.63 billion, compared to a net cash used of$253 million in the same period of 2022, marking an increase of $2.88 billion[249]. - The total gross long-term debt remained stable at$3.65 billion as of June 30, 2023, with a weighted average interest rate of 2.87%[252]. Currency and Interest Rate Risks - The Company is exposed to foreign currency exchange rate risks, with a hypothetical 10% adverse movement potentially leading to a decline in net income of approximately $80 million[296]. - The Company does not hold foreign currency forward contracts for trading or speculative purposes, focusing instead on hedging activities[295]. - Material movements in short-term interest rates by the U.S. Federal Reserve can significantly impact the Company's future interest income[298].