Q1 2020 Earnings Call

Good afternoon, and welcome to the Activision Blizzard first quarter 2020, or these conference call.

All participants will be in a lesson only node should you need assistance policing all conference specialist by pressing the Starkey followed by zero.

I finished presentation, there would be an opportunity to ask questions to ask a question you may <unk> and then one so which all your questions you May press star into.

He's also know today's the finished being recorded.

At this time I'd like to turn the conference call over to Chris Shaky Senior Vice President I'm Investorrelations. Sir. Please go ahead.

Good afternoon. Thank you for joining us to date for activation place. It's fish quartet Twentytwenty come from school with <unk> see Oh, I knew or late great presidents and C. yellow and Dennis stricken company C.F.L. and pressed into the nursing businesses <unk> Cross stitch president of activation <unk> <unk>.

<unk>, what else or join us I would like to remind everyone that during this cool we would be making statements, but not historical facts. The forward looking statements. In this presentation based on information available to the company I said the data this presentation wildly pretty soon to be true. They ultimately may prove to be incorrect.

A number of factors could cause the company's actual feature results and other feature circumstances to different maturity from those expressed in 94 to can statements.

The impact of the coping 19 pandemic the risk factors disgusting I actually she filings increasing our 2019 annual report on form 10, K. and I first quarter 22, 20, Thank you, which we filed shortly and those on the slide that is shedding.

The company under takes no obligation to release publicly any revisions to any forward looking statements to reflect events will circumstances. After today may 5th 2020.

We will present this gap and don't got financial measures during the cool if I'd known got financial measures, which exclude the impact of expenses related to stop based compensation <unk> been tangible assets and expenses related acquisitions, including legal fees costs expenses and accruals expenses related to debt financing and refinancings restructuring them relate to charges.

The associated tax benefits would be excluded items and significant squeak that's related to like it was increasing amounts related changes in tax rolls and that's related to the potential final resolution of tax positions and other unusual or unique x. related items activities.

These don't got measures and not intended to be considered as in isolation from as a substitute full superior to I've got results. We encourage investors to consider all measures before making an investment decision. Please refer <unk>, which is pressed his own W.W.W. dot Activision Blizzard dot com for full got to know got bright reconciliation and further explanation with respect to unknown gotten measures.

There's also an innings presentation, which you can access the west coast, and which will be posted to the website. Following the colds now I'd like to introduce I see probably coated.

Thank you, Chris and thank you for joining us today.

Let me first conveyor sympathies to those who have suffered during this difficult time.

Well very few of her own team members of contracted covered 19, a number of employees have been impacted by the illness and the passing of family members have thoughts and prayers are with Dan and everyone else affected by the pandemic.

Well see I've been ostrach during the last two months by the strength of our employees and their families managing through unprecedented challenges from health care to childcare our teams around the world have shown ingenuity and incredible resilience and even faced with so many difficulties our employees still ensured that.

Enjoy the social connection and the unexpected benefits of gaming as a way to keep our 400 million players around the world connected engaged and safely at home has continued without interruption.

Our employees and their families have shown incredible empathy for those affected by the endemic in their communities and across the world.

They've organize meal deliveries care for the elderly even the use of their own three d. printers to create high quality facial protection for their colleagues.

Teams have shown unwavering support for the first responders nurses doctors and medical professionals working tirelessly in unimaginable conditions.

Our corporate social responsibility initiatives have been expanded to support programs to provide health care professionals with a variety of resources, including faster more effective testing and the use of tools like convalescent blood transfusion as a possible method of immunization. We've also increased at direct support for military families.

Millions of dollars.

Through our teams dedication and incredibly hard work under very difficult circumstances, we delivered results significantly above our outlook for the first quarter and this momentum will likely continue for the second quarter.

I've conducted almost 100 earnings calls and none was under a backdrop of so much uncertainty for the future Hmm.

Mission to connect engaged the world throughout the entertainment has never been more meaningful than it is today.

Time, when so many forms of social interactions and entertainment experiences have been shut down we're providing entertainment positive impact for hundreds of millions of people throughout games.

Content and connecting members of our communities around the world it's critically important.

Are developments in commercial teams quickly adapted to this new work environment and as of now we're on track to deliver compelling new content, including the world of Warcraft Shadowlands expansion and the next premium call of duty release, both of which are plan for the second half of the year.

R.E. sports organization as quickly pivoted to remote production and continues to deliver it lie v. sports for both the calls duty league and the overlaps neat.

Direct result of the hard work and flexibility with our team owners and our sponsors.

In the face of unprecedented circumstances are extraordinary teams also delivered extremely strong first quarter financial results, we significantly exceeded our outlook for both revenue in earnings per share, we reach new highs for first quarter enough bookings across each of mobile console M.P.C. and we actually did the quarter with accelerating engaged.

Momentum across the business as people around the world turned to our content for entertainment and connection.

Performance in the quarter was led by calls duty, which is achieving tremendous scale momentum across platforms geography is business models.

Following industry, leading lunches for calls duty mobile in modern warfare in the fourth quarter of 2019, the franchise raised the bar, even higher with a bunch of war zone in March.

<unk> the free to play business model and cross platform play, whereas the unexpected modern warfare as reach engagement have player investment.

Whereas on today is brought it over 16 million players since its launch.

The exceptional results for called D. reflect our teams remarkable execution as they innovate and take on new commercial challenges to grow and better serve our community. Their success demonstrates that free to play experiences across mobile console and P.C. not only extend the reach of a franchise, but can also lead to strong in game.

<unk> and sales a premium content.

Oh duty success highlights the great potential across our portfolio as we continue to focus on extending a fully and intellectual property to new platforms, new geography, and new business models.

Blizzard also recorded strong growth in the first quarter led by World of Warcraft.

After doubling in the second half of 2019, but well active community group further in Q1.

Blizzard of seeing strong increases engagement across our franchises as people around the world stay home, Yeah, I think the business momentum as or gain teams executed against the strongest pipeline of content in blizzards history.

King Candy crush was again in the top grossing game franchise across the U.S. at stores with engagement increasing sharply towards the end of the corridor.

Able our community play even more as a part of the stay at home initiatives in late March King offered unlimited free lives across many of their titles, resulting in the number of game round played in a single day shattering all prior records.

Momentum continued to increase in April and strong year over year grow can reach engagement in player investment.

[noise] as rebuild that are strong first quarter results in our continuing momentum I'm excited to introduce our new President and Chief operating officer, Daniel leg right.

As long tenure at Google Ganja brings deep experience building direct digital relationships with consumers fostering strategic relationships with key industry partners and driving rapid growth internationally and in early stage businesses.

His expertise and commitment to excellence in execution will be his folks.

I'd also like to thank potty Johnson phrase extraordinary contributions to the continued success of the company. During his 12 year tenure at for being a truly truly valued Fred.

Of course are strong business performance wouldn't be possible without the efforts of our dedicated counted and truly and pass it teams around the world. We are so grateful for the work you're doing under extremely challenging circumstances were also appreciative of the continued support of our shareholders partners and players and we wish you in new families.

Health and safety threw out remains a difficult time.

And now the annual review the highlights of our operations with.

Thank you Bobby.

Glad to be with you all for my first starting to call at C.L. hadn't really proud to be part of a company. So deeply connected to its mission during this really challenging time.

I want to start by first expressing my deepest some sympathies to all those affected by this health crisis that expressing thanks on behalf of the entire company to all those on the front lines the battle against the call that endemic.

I would also like to thank our employees for their commitment to our players.

To each other particularly under such a unique and difficult environment. We're currently living it.

But before I discuss our recent operational highlights I like to share with you my focus and priorities.

They are simple execution execution and execution.

We have great franchises, and we will get back to what we are known for superb execution.

As Bobby said, the health and safety over employees and their families remains our priority I like to expand on the measures. We are taking to keep our employees and their family safe and address or expectations or our development pipeline for the remainder of the year.

All their offices had moved to work from home environments by mid March and we're fortunate to have had very few cases of covert 19 across the company.

We're ensuring our employees and their family members are receiving but that's possible care. Yeah, we're covering all costs of testing and treatment for affected employees and their families. We have increased access to tell a health resources and contracted private doctors and medical support and regions where employees live and work.

We have had additional services to are already best in class health benefits and ensured that employees have access to the mental and physical wellbeing and support they need while at home.

We are continuing to find other ways to support employees and their families including services to help families balance work at home life.

Now turning to develop it the digital nature of our content means our creative talent can continue to work on our product pipeline from home.

Although the shift to remote working does have complexity and challenges in some areas of the game development process, including creative collaboration motion capture voiceover work Localisation and quality assurance.

Implementing mitigation measures to each and to address each of these areas.

It partly based on the work to date, we still expect to deliver a robust slate of content over the remainder of the year.

This includes the next premium release of call of duty.

Two titles based on library I.P. from Activision the world of Warcraft Shadowlands expansion.

You know testing for new mobile titles and ongoing <unk> live operations across our key franchises.

Regardless of location. Our teams remained focused on executing against our forest strategic growth pillars as Bobby laid out first delivering a strong consistent cadence a major new content releases.

Second driving live operations with ongoing endgame content services features and events.

Third expanding kings industry, leading mobile success, and extending our acclaim console and P.C. franchises to mobile.

And finally building you engage in bottles around or franchise, including advertising is sports and consumer products.

Now more than ever players, new and existing are looking for a connection through epic Entertainment and our mission is to make that available to them in whatever form they find most convenient.

Now turning to our first quarter results, we significantly exceeded our outlook driven primarily by or performance for call of duty modern warfare throughout the court, including a highly successful start for new free to play call of duty Wars are.

We also continued saw continued momentum for world of Warcraft and better than expected results for other key franchises in the second half of March that's populations sheltering at home in many of our key regions turned to our contact for entertainment and social connection.

Transcept continued so far in the second quarter with business performance accelerating further in April.

I started with Activision mows more than doubled over the prior year, reaching 102 million as call of duty delivered remarkable growth across multiple doctors.

We've discussed on <unk>. Prior calls we made significant changes with the launch a call of duty modern warfare to enhance the player experience expand the community and deepening engagement.

We added cross platform play introduced a new in game content system and remove the season pass to keep our players closer together.

Modern warfare entered the year with strong bantam, achieving substantial year over year growth in engagement premium game sales in game that bookings in both January and February.

At the launch of war zone on console and P.C. on March 10th really took the franchise to new highs.

Wars on is a massive free to play experience, we're up to 150 players compete in arrange remotes on the vast map retrained cross play and M. game system entirely integrated with a modern warfare bottle pass.

<unk> ads, yet more compelling content for our modern warfare community. It also enables an entirely new set of players around the world to experience colored duty for free.

Response has been incredible war zone has brought in more than 60 million players says to launch, including many on the P.C. flat platform and in countries beyond called duties traditional regions.

We're seeing the free to play experience driving strong incremental sales on the premium what Martin work for a title adding to its sales momentum entering the year and rising demand from stay at home conditions.

Modern warfare Sellthrough in Q1 was the highest ever for a call do call of duty title outside of the launch quarter.

Life to date modern warfare has sold through more units and that's more players that any prior call of duty title at this point after it's release.

War Zone also contributed to a further acceleration in modern warfare in game that bookings, which more than doubled year over year versus the prior game in Q1, even with the removal of the season pass.

And this momentum has only strengthened the third season of endgame contact launching April and his colleagues duties best performing to date for both engagement and play your investment.

With the new free to play experience contributing to massively expanded audience unprecedented momentum in cream game sales and robust in in game grow we expect modern warfare that bookings this year to be the highest for a call of duty game in the year After March.

Looking ahead, the next premium release for call of duty already looks great and remains on track for release later this year.

Oh, the mobile platform the call of duty mobile team continue to build a last October breakout launch with new content features and events aimed at optimizing engagement retention and player investment.

The team started to deliver and accelerate occasions of content in March launching new season, all of that every four weeks twice as frequently as previously.

The combination of increasingly compelling content and events and stay at home dynamic struggling growth and reach and engagement in March and player investment has followed with April season, five delivering the highest monthly in game that bookings since he's in one.

With deep engagement substantial content on the pipeline and opportunities to further refined the in game system.

We expect call of duty mobile to be an increasing contributor overtime.

You want to also saw the launch the inaugural season of the professional call of duty League.

Originally planned in a local city based homestead format, we click quickly pivoted all matches to online play and remote production for the remainder of the regular season to keep our players and fans safe, while still delivering premium you sports content to a global audience.

With the call of duty demonstrating the power of a franchise model across platforms geography isn't business model and premium content on track for the fall, we really couldn't be more excited about the growth trajectory for 2020 and beyond.

Now turning to Blizzard, Mows, where 32 million in Q1 with each of blizzards key franchises experiencing a month on month increase in reach in March well. The Warcraft continued it stronger meant to have a quarter as a team continue to deliver more contact between expansion of than ever before.

Doubled that's active community and the second half a last year the number of players on muthee or longer term subscription plans increase further in q. what.

Reach engagement were particularly strong as regions introduced sheltered home measures through the quarter with momentum increasing further in April.

Community continuous to engage deeply impact classic a recreation of our original Wow from 15 years ago, which has delivered substantial content drops in recent months and has much more to come later in the year reach an engagement also increased for modern Wow, which again received a major content drop in Q1.

And this increased activity drove accelerating pre sales of shadowlands. The next expansion for mater, well, which is slated for the second half a year.

Stone continue to deliver improved engagement trends in the first quarter driven by the launch of the new battlegrounds autopilot or more.

However, as strong execution in live operations.

Overwatch also experienced a meaningful increase engagement in March as its latest seasonal yvette coincided with staying home and vets effects.

And fast continued to engage with a franchise through the Overwatch League, which successfully moved to online play and remote production during the court.

And finally Diablo immortal is shaping up very well we were may not track to begin regional testing for the game in the middle of the year.

At King Mows, where it 273 million, increasing 10% from the fourth quarter.

Now's grew month by month in January and February and then accelerate further in March as shelter at home conditions came into effect.

Kings key franchises franchise Caddy crush grew mows year over year, and each month of the quarter with double digit growth in March.

Within the Candy franchise, the community played more rounds of games it any quarter since the 2016 acquisition.

Now in terms of player investment candy crust side that remained the top grossing title across the U.S. have stores and the wider candy franchise, what was once again number one.

We previously discussed kings initiatives to bring back laps payers and attract new pairs into the ecosystem positioning of the business for stronger growth over the medium and long term.

Expected these initiatives dampened in game that bookings again and Q. what.

But they contributed to ongoing improvement in payer trends in January and February.

Before payers numbers pair numbers stepped up further in both March and April.

Strengthening engagement impair trends, we've seen kings m. game that bookings grow by low double digit percentage year over year in April.

While we find proving trends in kings in game business, which represents a significant majority of the segments that bookings the advertising business slow toward the end of the quarter.

Advertising grew over 75 per cent year over year for the first quarter, and then moderated a bit in April against the backdrop of a sudden decline and demand across the digital advertising sector, albeit still growing over 20% year on year in April.

Well, we assume the environment will remain challenging we do expect growth for the full year as we're a lot more ads to more players enhance our infrastructure to deliver the highest value adds to each player and brought both our base of advertisers and demand partners.

I also note that the combination of King strong in game trends in the current situation in the AD market is creating more opportunities for the business to cost effectively bring players into a network expanding its audience and further boosting its mouth trajectory the same as true across our other business yes.

So in summary, we entered the year with strong momentum and some of our biggest franchise, which only increased further through the court or employees are showing remarkable dedication as they take on the responsibility of delivering the highest quality content to our expanded communities and I couldn't be more excited to be part of this great and dedicated global team.

I haven't focused on executing on our priorities as we deliver against the substantial opportunity to extend our largest I.P. across new platforms geography is and business models and work on the strongest pipeline in our company's history.

I will not hand over the call to Dennis to discuss our Q. want a financial results and outlook Dennis.

Thanks Daniel.

Today I will review, our Q1 2020 results as well as our outlook for 2020 and the second quarter.

But before I start I, just like the Echo Daniel and Bobby sentiments about the unique environment, we were in and share my sincere is sympathies to those who have been affected directly by it.

As well as my thanks, and gratitude to all our teams and employees, who associate Leslie transitioned into this new work environment, we find ourselves in.

Are digitally need a business model both on the production and the distribution side of our business makes us well positioned to deliver world class content and experiences for players are teams take our mission and our responsibility to deliver fun in social engagement to our players in this tough time very seriously.

They really didn't Miss a beat during all this transition and you can see the strong results of those efforts in our Q1 results and increased for your guidance.

Our first quarter revenue in earnings were well ahead of our prior outlook, primarily driven by our investment and creative in commercial initiatives for call duty delivering better than expected results throughout the quarter. In addition world of Warcraft continue to Overdeliver and other key franchises in catalog sales also exceeded our outlook benefited from stronger demand towards the end of the quarter as consumer.

<unk> sheltered at home in many of our key regions.

To review the quarter I will start with our segment results.

Activision revenue was a hub $519 million crank, 64% year over year growth is driven by call of duty modern warfare and war zone in game revenues strong game sales a premium modern warfare and the addition of color duty mobile.

Operating income was $184 million with an operating margin of 35% 12 percentage points higher year over year.

Blizzard revenue was $452 million, increasing 31% year over year, reflecting strong growth for world of Warcraft and the release of Warcraft three reforest in the quarter.

Operating income was $197 million.

Blizzards operating margin was 44% significantly higher year over year, primarily due to strong revenue growth.

Kings revenue at $498 million was roughly flat sequentially and lower year over year, driven primarily by kings actions to prioritize mobile pay or engagement in the quarter.

Yeah, it's business grew over 75% year over year <unk>.

Operating income was 156 million with an operating margin of 31% lower than a year ago due to lower revenues and higher operating expenses as king made disappointed investments and expanding its player network.

Across our segments in game that bookings grew 20 per cent year over year to $956 million.

Now, let's turn to our overall consolidated results unless otherwise indicated I will be referencing nongaap figures. Please refer to our earnings release for full gap to non-GAAP reconciliations.

For the quarter, we generate Q1 gap revenues of $1.79 billion $148 million above our February guidance <unk>.

This includes the net recognition of deferrals of $266 million.

Bookings at $1.52 billion, where $247 million above our February outlook.

We incur gap only restructuring and related charges of $23 million and we generated Q1 gap E.P.S. of 65 cents and Q1, Nongaap P.P.S. of 76 cents, which was 10 cents above guides.

These figures include the net recognition of deferrals of 18 cents.

In terms of cash flow increasingly digital recurring and cash generative nature of our business remains one of our fundamental strikes.

This power is a strong balance sheet, which continues to be an important strategic asset for the company, especially now.

Q1, we delivered operating cash flow $148 million lower year over year, despite higher operating income due to cash payments for tax settlements and working capital timing.

Our cash investments at the end of March where approximately $6 billion and we ended the quarter with a net cash position of approximately $3.3 billion and as previously announced this week, we will pay an annual dividend of 41 cents per share 11% higher year over year.

Now, let's turn to our outlook for Q2 in the four year.

And to to pack division plans to deliver two seasons of in game content for modern warfare and war zone versus one season in the first quarter.

Season, three is already launched very successfully in April.

Activision also released call of duty modern warfare to remastered on P.C.N.X. box, one falling the P.S. for release in Lake you, one and they plan to continue delivering new features of events and seasons for call of duty mobile.

In April Blizzard launched its latest <unk> hearthstone expansion ashes about land and through the quarter will continue to support other key franchises within game content.

And King will continue to deliver innovative features events and live ops across its portfolio.

Turning to the second half of the year. Our plan slate includes a new call of duty premium title to release is based on our extensive library of I.P. from Activision and blizzards shadowlands expansion for world of Warcraft.

We will also going to continue to deliver in game experiences for other key franchises across our portfolio.

And we continue to expect to begin regional play testing for Diablo immortal at certain other mobile titles, although as discussed last quarter. We don't include any material revenue from these new mobile titles in our guidance.

Before discuss the specifics specifics of our outlook I'll provide some context.

Full extent of the impact of the pandemic on our financial results will depend on numerous evolving factors that are we we are not able to fully predicted this time [noise].

Well, we have seen a positive impact on demand. There are also risks related to global economic weakness rising unemployment pressures on retail channel pricing and other factors, where we have limited visibility currently we have tried to be proven in our guys to account for these effects and we believe there's a potential for overperformance. If these risk do not materialize.

Now. The addition of the war zone free to play experience as further increase the reach engagement and player investment in called duty building on him existing strength or modern warfare, and creating a strong foundation for future financial performance.

Discussed we're also seeing increased demand for our other franchises as interest in gaming gross.

The current environment creates the potential for a structural opportunity to bring more players into our communities, who we can engage in retained for the long term and to accelerate the continuing shift towards digital sales in our business.

We have attempted to be conservative in our assumptions around the impact of these trends beyond the second quarter, but the backdrop does create greater potential for operating Overperformance later this year.

Since we provided our initial guidance in February.

Strengthening dollar has resulted in an additional affects head went to for your net bookings of approximately $100 million and the combination of F.X. and lower interest income from declining interest rates represent in aggregate approximately eight cents of head went to our full year gap and non-GAAP E.P.S. versus our prior outlook.

[noise] overall, though with strong momentum across the business, we are raising our outlook for net bookings revenue any P.S. for the year.

And then the case vps, we're raising buying them out greater than our first quarter overperformance. Despite the F.X. and interest rate headwinds I just described.

Now, let me get into specifics for two two on a gap basis, we now expect revenues of $1.69 billion, including the net recognition of deferrals $15 million, we expect net bookings at $1.68 billion product costs game operations and distribution expenses of 19% and operating expenses, including software amortization of 48.

<unk>.

And the gap only restructuring charge of approximately 20 million.

I expect the tax rate of 21% gap and Nongaap share account of 776 million at E.P.S. 54 cents.

For two two on a non got basis, we now expect product costs game operations and distribution expenses of 19%.

At operating expenses, including software amortization of 43% expect a tax rate of 19% and Nongaap U.P.S. of 64 cents, including net deferrals of one set.

On a gap basis for 2020, we now expect revenues of $6.8 billion, including net deferrals of $100 million <unk> expect net bookings of $6.9 billion for the year.

Product costs game operations and distribution expenses of 19% operating expenses, including software amortization of 48%.

The gap all the restructuring charge of approximately 50 million.

We now expect a gap tax rate of 20% gap and Nongaap share count of 778 million and gap P.P.S. $2.22.

For 2020 on a non got basis, we expect product costs game operations and distribution expenses of 20 per cent.

And operating expenses, including software amortization of 42%.

Back to tax rate of 19% and non gap E.P.S. of $2.62, including the net recognition of deferrals up two sets.

So in closing our business has accelerating momentum from that dual tail ends up strong execution in our largest franchises falling last year's investments and increased development capacity and expanded reach an engagement as people turned to our interactive content as they shelter at home.

We are humbled that so many people are turning to our content for solace Joy and connection in this challenging time and will continue to stay focused on delivering the high quality experiences that they have come to expect from us.

Now, Bobby Daniel and our business leaders, Rob her mom and J. and I are happy to answer your question.

Operator, operator.

Well you didn't gentlemen at this time will be getting the question and answer session.

Ask a question you May press Star and then one using it touched on telephone to withdraw. Your question is you May Press Star and then too. If you are using a speaker phone. We do ask you. Please pick up the handset before pressing the numbers to ensure the best sound quality once again that a star and then one to ask a question.

And our first question today comes from Mario Lou from Barclays. Please go ahead with your question.

Great things, where I've taken a question amazing quarter, and I hope, everyone and their families safe.

So I know, it's hard to parse out due to the increase engagement from covenants social destined see but can you provide any color in terms of how I create a holiday do worse than has been to modern warfare unit sales and well shall we expect that success to have on the new call of duty 2020 premium title sales later this year that game.

<unk>. This is Rob thanks for the question and also your your your note right I think the short answer. The question is that war zone is definitely been creative franchise.

And it's become and it is really important part of the overall franchise ecosystem nowhere, creating and I think it's we're just talking about that a bit.

Since the last few calls we've been discussing bringing our community together to and number of player focused initiative, then that started with cross place all the friends can just get together no matter what clock from your on it was about three content to our community at the same time.

And it was about kind of the new deterministic content system, we put in the game and of course in the backdrop here you have modern warfare, which has been just a fantastic game that gets better over time and then what we really did an Apple applied all day with the launch a war zone you know our our massive scale battle Ral experience and when you look at war zone. It was definitely bill.

To provide endless fun on its own and to stand on its own as the great game, but we're done in modern warfare are also obviously connected in many ways, including through you know shared progression systems game system and content offerings and what we're seeing right now in war zone is it a large number of players.

Using the upgrade to the premium modern warfare, a game inexperience everything that the modern warfare universe has offer and so far you know the number of upgrade Supreme that we're seeing are definitely above our initial expectations and that's really great to see and also across you know this university <unk>.

Perspective, we're also think franchise hide now in daily average unique players p. concurrent players and overall player investment has been had been indicated on the call so far.

Regarding the future awards, though and you know how much you community is loving it how much they're enjoying the experience. So far so we're we're going to continue to invest in the significantly in terms of content you bad new modes, new ways to play and really a just a 10 more in the future and to follow up on the last part of your question I think without.

Saying you know, yes, we believe it has the potential to positively impact future premium game as well. So we're excited about that opportunity and before I jump off I would also just like to think all our activities in publishing development teams in all our employees.

Keeping all of our critical projects on track the shift to work from home, it's been a massive logistical exercise across the organization and the teams have done just an outstanding job and I just wanted to close. This question by you know a big thank you to them, but again tomorrow I think so the question appreciate it.

Right, Okay alright.

Oh braids are going to have the next question. Please.

Our next question comes from Garrick Johnson from B.M.O. capital markets. Please you have with your question.

Thank you. Good afternoon, Hey, you guys think increased engagement with video games to the stay at home trend uncovered 19 will be sustainable do you see swing, perhaps back you know direction. Once we returned back to normal.

Hey, Garrick at status. Thanks, that's obviously a super important question and really applicable clearly, it's obviously a scenario, we'd all love to see which is life returning to back to normal as soon as possible, but the reality is that we really don't know what that new normal will look like once that comes to pass it does it does seem.

Like that there is a likelihood that even once shelter at home ends that there maybe it maybe a fair amount of time before people are really returning as normal as we know it. So we do think there's potentially an acceleration to the structural change that we've seen in in consumer entertainment.

Consumption patterns that we've already been seen a gaming and that trend could participate a long term, which would obviously benefit social yet socially distant categories like gaming.

We've already seen this with the younger generation that consumers work gaming is more an integrated part of their social entertainment fabric and times like these will make that activity. We believe even more mainstream obviously trying to lean into this and welcome as may players into our ecosystem as possible and you know bring more gamers into our communities and give them a compelling.

Experience that hopefully turns them into long-term fans, we don't really have any great datapoint's right now on what happens to consumption when people return from shelter at home, but we have seen in Asia that the strong momentum continues even as they started to transition back. So we hope that's a sign of the similar opportunity we may have in other parts.

The world as they start to a return to normal as well. So generally speaking we think there's a a pretty big opportunity here to see and then acceleration in a long term structural shifts that we've already seen from the existing heightened engagement, but as usual, we're always trying to be proven how we modeled out because we know there are still so many unknowns at this time.

Great. Thank you very much.

Albright took we have the next question please.

Our next question custom right <unk> from Bank of America. Please you have what's your question.

[noise] Hey, good afternoon, thanks to the question Fantastic quarter you guys.

You can provide a little more color on the subscriber trends for awhile during the period and specific we how you see the opportunity to sustain a this larger base post classic as you move towards the shadowlands expansion. Thanks.

Hi, This is a j. Thank you kind of question.

You know before I answer I I wouldn't take a sit back and just say you know, we're really thankful bought our games right play a part in helping bring people together.

During looks really an unprecedented in challenging time for us all well the warcraft and it's a very.

Fortunate to be entered engineered a diverse social experience and that is true today as you know they would launch.

Overtime, and listen to feedback and community and the game and the ball to what we now call modern game, which is really expanded rather than the death of game play as long as making it easier to kind of findings friends group make progress warplane alone all within the <unk>.

The same time into we've seen a lot of good more can can returning.

Experience for players are turning to the the classic loud experiments.

So today, we think about Warcraft as a single community under one subscription what players can enjoy both while classic and modern Wow, and we released steady stream content for both.

Variety different experiences someone's gonna strength of the game.

Hmm Hmm good since she players resume that resonate with players aren't they see a warm weather and looking for a little Warcraft.

We seem particularly strong engagement with classic in the east.

And the and then some have continued in those regions, even as necessary to come back to work.

And we saw a western subscribers grow in March your own by whether it's your turn into modern ball pen there.

And this is contributed to strong <unk>.

Oh I'm, we saw in March across both both.

Continues with the active community growing faster than we've ever has <unk> an expansion watch period.

On the developments on our team said on a really good job in shifting to work from home you know, we're able to welcome select players into the closed alpha for silence last month.

Thanks to the hard work team Shadowland is on track to watch and chief warrant this year.

Well actually right hand off the call you know all hand off to the next question I really want to think Oh.

Israel, it's difficult time, it's been.

See everyone come together in a positive thinking.

Thanks, right over I didn't have a nice question. Please.

Our next question comes from Doug Kreutz from <unk>. Please go what's your question.

[noise] Hey, Thank you you talked a bit about the pressure on the outside of King the economy slows down at home, but going a little more detailed on what do you see <unk>.

And then along with that is is there any offset on your user acquisition side, because presumably you're you're require you just do a lot of the same channels, but similar channels to your advertising Bucks.

[noise] Hey, Doc. This is your mom thinks I'm I tried the question. So we exited 2019 have you heard with a strong momentum and the ads business and that continued in Q1.

Where we saw in the quarter acts that we delivered over 75% you're on your growth and as you mentioned in the question. We thought the celebration towards the end of March within a broader advertising ecosystem, but the business didn't grow 20% here and here in April or over 20%.

In April.

So let me answer your question by talking about a little bit of what we're doing is going for you know I think about the things that we're already doing and what must continue and that's about rolling out more add some more players broadening our advertise their base and working with more partners as we continue to build our.

Infrastructure.

But now we're actually increasing some focus areas. That's how we see as a kind of it now short medium temp or provide opportunities.

So we're going to the brand advertisers and tumbling down on the relationships no sectors that aren't experiencing a slow downs and they are experiencing actually says tend to match with their products. So they came as quite active there.

What also starting to leverage quite a bit of advertising interest and very differentiated products like sponsorship product that we have which was a new car ecosystem and seeing a temporary an ice advertiser interest and that really amplifies the value proposition over the King network in this environment.

And then we are rolling out new technology in our games and that's become the focus that allows us to really optimize our demand and get to hire C.P.N.S for the ads that we are showing and that's that's been a focus underscored on continues to be for the year.

So if you add that plus you look at the on network, which is truly global in international what we're doing is we're looking at it as a pretty diverse kind of opportunities. So when regions are starting to experience. Some recovered recovery before others. We focus our efforts there has the opportunity me [laughter] geographically.

In some places at the second point in time.

So with all of that my expectation is that the advertising business does deliver this year.

Your point on acquisition costs, that's fine.

And while we see at some advertisers on [noise].

Nurses tomorrow.

King are saying an opportunity to bring new players more efficiently than haven't for her car Hi network.

And you couple batch was ever buried descent approach.

Hello.

[laughter] for us for the medium or long term. So when when we do that of course that you know reinforces kind of both the <unk> outside of the house, though became pizzazz and advertising number as we continue to invest in the network.

So yeah again kind of to Echo a lot of what my colleagues at sad and before I end up to the operator I. Just went out you know well the king theme and being put to use costs came horror movies.

As we have.

Something quite remarkable going to work for pretty quickly and so it makes sense from before for the team an incredible they're doing.

Thank you.

I'll probably didn't have the next question. Please [noise].

Oh Nice question goes from <unk> from Atlantic Equities. Please go ahead with your question.

Hi, I'm just taking the question this could be very strong women spend the business right now, but given the broader economic pressures from club in 19, How're you think you buy the potential risks to consumer spending trends over the next few courses.

And that's.

Thanks for the question, obviously, we're kind of uncharted waters, there's not really any precedent for what's going on right now in the economy, which yeah definitely makes us cautious and careful maybe more so than than normal relatively speaking. However, we do feel pretty good about the value proposition of our content even in tough times, there's not.

Great past precedence, obviously for where we are but you can look at least back to the past two market dislocations in 2001 and 2008 for at least some directional indication of how gaming has performed in challenging economic times and what we've seen as a consumer recreational spending in the U.S. for example was fairly RESILIA.

During those downturns.

And if you own in a little more specifically on entertainment the global gaming industry, a gaming industry fair extremely well and actually grew low to mid single digits. In these time periods, whereas bought broader consumer recreational spending declined low single digits and that we think that's driven by the low cost per hour of gaming, which makes it a great value versus.

Their forms of entertainment and so you know if you compare that to the situation. We're in now where other forms of location based entertainment like going to movies concert sporting events, Bob whatever those may be and they may not be available for some time to for consumers for some period of time. This may also drives some share shift a gaming from those other categories.

And thankfully in contrast to other forms of media, we're very fortunate that the digital nature of our business enables us to not not only to distribute content remotely but to produce it remotely. So obviously an advantage for us to keep our content fresh another point is in those past recessions in 2001 or 2008.

<unk> come a long way since then obviously, it's much more social and more connected and more mainstream and our business is much more diversified too across platforms geography types of games, which is helpful. When times get challenging on the flip side. They're obviously are more freeways for players to play games. Then there have been so there could be.

More engagement with slightly weaker monetizations, but in the long term, we kind of you that as an opportunity as well because that usually normalizes itself. So I'd say, there's puts and takes a across the spectrum, but which is why you know with all this uncertainty an economy. We've tried to reflect these risks as we think about forecasting the business, but the strong momentum were saying.

Gives us obviously confidence and raise your outlook, even with this challenging backdrop.

Thank you.

Yeah, Oh project, we have an x. question. Please.

Oh Nice question comes from Eric Handler from M.K.M. Partners. Please you have with your question.

Thank thank you very much for the question and glad everyone is healthy follow up on call of duty I Wonder.

If you could talk a little bit how the font all players has widened for call of duty with the release now mobile and war zone and all you know along those lines how much overlap is there for players between the three games and what does that mean for overall spending basically on trying to get out is is a spending for <unk>.

Player additive when they play multiple of games.

Yeah. It gets a rock thanks I'll take the question.

Think it's important that probably first to step back and think about what our goal has been through all this and the goal has been pretty simple on and what we wanted to do is provide players around the world a real fun high quality and I think importantly enough panic call of duty experience, regardless of you know what platform you play on where you happen to live or what business.

Model really motivates you to play and that's exactly what we delivered cross mobile across consul and across P.C.

And if you look at some of the metric the last six months of U.C.B.M. Q4, and both in Q. why we've crossed over 100 million mouse and dramatically increasing our player based a lot of that's been driven by mobile and war zone of course as is the you know she ongoing success in modern warfare driving that.

But through the mobile and war zone, we're definitely reaching you audiences in in new geography in ways that we just haven't before and as I look at call of duty right now it's more global today than at any point, it's time and it's history in terms of audience profile and that's that's pretty exciting for us to see.

A little bit all your question on engagement and for US when it comes engagement, but we seem really time and time again is that engagement just tend to drive engagement and so for us exposure on what platform the driving engagement across other platform and other experiences. So we actually like to see that crossover a lot yeah.

In terms of the investment part of your question that also is looking at it did touch across his ecosystem as well in the previous question I talked about war zone out we're seeing that as being a created the franchise overall <unk> with respect to Cod Mobile then specifically when you take a look at it we're seeing really great momentum.

There it was reference earlier that season five just concluded that's our best performing season in terms of engagement in in game performance I. Since the first you then and season six just launched on May 1st and so that's off to a a really strong start as well. So for me when I look at it next year the positive trends a mobile as.

Form are coming at a time, we're having record engagement and record performance across cultural and P.C. and to me, that's a pretty clear indication never seen on called the mobile.

Liberating incremental results for the franchise as well so the ecosystem the way we're looking at it right now seems to be working incredibly well and in terms of mobile you know in terms of our strategy. It remains the critical part of our overall plans going forward and the key investment area for us.

And you know just speak into the ecosystem I'd, probably just close by you know obviously, a very exciting time for everyone on the franchise right now in our teams or Hyperfocused passionately focused most importantly on delivering you know grading Yukon tendencies, then then games to our growing community around the world we're seeing.

Right now and.

I guess I would just close by saying we couldn't be more thankful for the incredible and growing community that we're seeing out there around the world for their trusting support and we look forward to everything that stuff to come in the future. So thanks to the question.

I'm sorry.

<unk>.

Our next question comes from Alexia Quadrani from J.P. Morgan. Please go ahead with your question.

Hi, This is David <unk> like so much you're taking the question.

And a little bit on what impact your seemed to your pipeline, both near and long term from having developers work at home. Thanks.

Sure and this is a as Daniel thanks. Thanks for the question like the the vast majority of our developers they moved to a remote work by mid March as I mentioned in my opening remarks, and really just credit to all those involved it was such a huge undertaking.

Multifunctional teams across facilities I.T.H.R. security operations and other groups really rally together to make it all happen and we're really fortunate to be in a truly truly digital business, where the majority of her content creation really can be performed across any any location. So the vast majority of hard to.

<unk> they took their <unk> their computers home plugged into secure access and just kept creating so in some cases, we've had to move high end computing and graphic rigs to our developers homes as well, but we were able to do that relatively quickly. So our our development teams working on everything from designed to art to engineer.

Into production.

Really had most of what they needed to out to keep working.

That being said, it's not easy they're aspects of building our games that are more challenging via remote work like collaborative design in person user research motion capture voice over and in Kuwait. So we've really had to find some creative solutions to work through these like for.

<unk> or a record voice overs, we did that remotely. We've also enabled news secure access system for some of the functions where large groups are engaging.

But so far and based on what we can see and with true ingenuity and creativity from the teams we're managing through this as best as as we can and you know what's really important as we just need to continue to provide our communities with the innovative content and features that they love and that they want to keep playing.

So that's why I said it might prepared remarks that we're currently still on track to deliver a key content to the second half of this year and my primary focus is to ensure that we continue to execute on these top priorities.

I was just then [noise] I.

I think that our teams are doing an extraordinary job right now on continuing to stay focused work hard deliver great content, but it. It is a challenging cross process, we still have a lot of uncertainty for the future and I think that it's hard to know a year.

From now where two years from now what's the impacts of all of this will be on our development process sees on the way we go to market.

On the economics of selling games so.

They're.

More to come as we have more clarity over the next few months, but you know we you remain focused on execution of of our strategy and.

I think our teams are doing a truly extraordinary job.

Accomplishing that.

Oh project and have the next question.

[noise] [noise]. Our next question comes from Alex Yeah, I'll know from Jeffries, because you have with your question.

Great. Thanks for taking the question.

<unk> a bit more color on the Hearts don't franchise, maybe if some of the recent updates you build out have been well received and if you're seeing any notable change within the competitive landscape. Thank you guys.

I figured the question. This is Jane I want to pick those in reverse order. So we think about competition Wizard is full of gamers and we're always excited when new games release, you know, we think new titles are good some players they bring fresh ideas and that.

Something that everything or that's something that everyone benefits from you know the industry is big enough for lots of different teams can be successful.

And we found that there can be focused on game play first and then we continue to listen to our community feedback we experience group Waltz and so.

I'm really proud on on the Harrison team.

<unk>.

Under the leadership.

Standard development team they've done with their mortgage content update players and it really maintained a high quality boring stuff ourselves.

<unk>, that's first major nude gain mode, which was battlegrounds in November and we've talked about and we've seen it bring players back and computer drive renewed engaged in in the game.

And last month, we launch when we use expansion.

I was about when am I. The first game once while we were working from home environment.

And that expansion into decent games, first mean class well personally spots and ever been added to the games since launch demon come true and brought over brought about some of the biggest fundamentally changes that would be interesting.

The sentiment around the me features on the <unk>.

And has resulted in the city updates in the game you know we saw increasing use me in Q1 versus cute.

Mmm.

Right.

The heart soon team isn't going to build on that momentum with really good at why it's contents and later become this year.

And then you know one of the things <unk> Battlegrounds has proven that new modes can drive meaningful engaged.

And the team is thinking about that as part of their future planning.

Thank you.

Thanks, Oh break do we have type one last question.

[noise]. Our final question today comes from Brian No walk from Morgan Stanley. Please you have what's your question.

Things, taking my question, Hey, guys good good to hear voices.

I just don't want King you know the the user number was really strong other you added over 20 million, a 24 million users a quarter or recorder, maybe talk to us. How you think about some of the the key strategies you have to sort of developing roll out to really retain those new players now how do you think about converting those new players into into pairs over.

Time.

[noise] Hey, Brian.

It's a mom. Thanks for the question. So let me first cut back and set the context of what we're saying here and care one.

You heard of talk about it which is in the past few quarter is you know we've been focusing on growing bad audience of players and also pairs and so on two or three and four last year. We grew that can be planted days and then in Q3, we start introducing you know initiatives that are aimed at broadening the pay a reach.

<unk> network, which started improving the pair conversion mechanics, and the second half of last year. So back then when we did that you haven't we talk about that there would be a trade off in the near term bookings, but we thought that's because I think could do for the business for as a long term alphabet business.

So we've seen that through the introduction of the right the content and timely offers contextually place more players start coming into the ecosystem and more Paris packed coming into the ecosystem. So into one we went further with that approach both on content and.

Offer management, and we started bring broadening our reach of the player investment initiatives. So we started building on top of that momentum and candy and we started to expanding to all of our network and Q1 and tries that player base started growing steadily in the corridor.

We started paying kinda that momentum belt, and then March we saw even further acceleration.

And then on the pair conversion, we started paying somebody encouraging results and Q1.

And in fact, the kind of ER into one we saw the strongest <unk> the strongest sequential improvement in pairs that we've seen many years. So the trends are greedy kind of you know started looking very favorable and that's improved in April.

Really pleased with how the ecosystem is is it's been building up my <unk> all the things that we've been doing come a content perspective from a player engagement mechanics perspective in the past few quarters to get to here. So when I look ahead.

You know you'll expect us to continue to do it this year expect content from out your continued to expect more ways that we optimized offerings for different players two kind of go after those broader motivations.

And the good news here is that your <unk> won't see the drag on cue to <unk>, we would've otherwise expected because of this really strong engagement.

So we're saying and then we add on top of that that we can grow that's network now more efficiently as I I just answered before so you know I think the combination of all of those we kind of tend to the network and then where we continued to keep by the plan is active is really about what the can.

Team does incredibly well, which is innovating the content the pipeline and Buffy choice would then what's happening in the game.

These players engaged and continue to kind of.

Drive towards players and pay or numbers, increasing over time. So that's kind of I think you know what you're seeing now, but it's kind of the combination. Okay that was the building over the past recorders.

Alright, great <unk>, yeah. Thanks Bryant. Thanks mom thanks, everyone for joining up today. We are currently appreciate your interest in participation and look forward to speak with many of you throughout the quarter. Please do stay safe and well hopefully see all in game. Thank you.

Yeah.

[noise], ladies and gentlemen, it does conclude today's conference call would you. Thank you for joining you may know disconnect Airlines.

Mhm.

Hmm.

So.