Earnings Transcript for ATVI - Q1 Fiscal Year 2020

Operator: Good afternoon and welcome to the Activision Blizzard First Quarter 2020 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please also note today’s event is being recorded. At this time, I’d like to turn the conference call over to Chris Hickey, Senior Vice President of Investor Relations. Sir, please go ahead.

Christopher Hickey: Good afternoon and thank you for joining us today for Activision Blizzard’s first quarter 2020 conference call. With us are Bobby Kotick, CEO; Daniel Alegre, President and COO; and Dennis Durkin, Company’s CFO and President of Emerging Businesses. And for Q&A, Rob Kostich, President of Activision; J. Allen Brack, President of Blizzard; and Humam Sakhnini, President of King will also join us. I would like to remind everyone that during this call we will be making statements that are not historical facts. The forward-looking statements in this presentation are based on information available to the company as of the date of this presentation. And while we believe them to be true, they ultimately may prove to be incorrect. A number of factors could cause the company’s actual future results and other future circumstances to differ materially from those expressed in any forward-looking statements. These include the impact of the COVID-19 pandemic, the risk factors discussed in our SEC filings, including our 2019 Annual Report on Form 10-K and our first quarter 2020 10-Q, which will be filed shortly, and those on the slide that is showing. The company undertakes no obligation to release publicly any revisions to any forward-looking statements to reflect events or circumstances after today, May 5, 2020. We will present both GAAP and non-GAAP financial measures during the call. We provide non-GAAP financial measures, which exclude the impact of expenses related to stock-based compensation, the amortization of intangible assets and expenses related to acquisitions, including legal fees, costs, expenses and accruals, expenses related to debt financings and refinancings, restructuring and related charges, the associated tax benefits of these excluded items, and significant discrete tax-related items, including amounts related to changes in tax laws, amounts related to the potential or final resolution of tax positions and other unusual or unique tax-related items and activities. These non-GAAP measures are not intended to be considered in isolation from, as a substitute for or superior to our GAAP results. We encourage investors to consider all measures before making an investment decision. Please refer to our earnings release, which is posted on www.activisionblizzard.com for a full GAAP to non-GAAP reconciliation, and further explanation with respect to our non-GAAP measures. There is also an earnings presentation, 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.

Bobby Kotick: Thank you, Chris, and thank you all for joining us today. Let me first convey our sympathies to those who have suffered during this difficult time. While very few of our own team members have contracted COVID-19, a number of our employees have been impacted by the illness and the passing of family members. Our thoughts and prayers are with them and everyone else affected by the pandemic. But honestly I’ve been awestruck during the last two months by the strength of our employees and their families, managing through unprecedented challenges from healthcare to childcare. Our teams around the world have shown ingenuity and incredible resilience. And even faced with so many difficulties, our employees still ensure that the joy, the social connection and the unexpected benefits of gaming as a way to keep our 400 million players around the world connected and engaged and safely at home has continued without interruption. Our employees and their families have shown incredible empathy for those affected by the pandemic in their communities and across the world. They’ve organized meal deliveries, care for the elderly, even the use of their own 3D printers, to create high-quality facial protection for their colleagues. Our 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 healthcare 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 our direct support for military families by millions of dollars. Through our team’s 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. Our mission to connect and engage the world through epic entertainment has never been more meaningful than it is today. At a time when so many forms of social interactions and entertainment experiences have been shut down, we’re providing entertainment with positive impact for hundreds of millions of people through our games. Our content and connecting members of our communities around the world is critically important. Our development and 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 planned for the second half of the year. Our esports organization has quickly pivoted to remote production and continues to deliver live esports for both the Call of Duty League and the Overwatch League, a direct result of the hard work and flexibility of our team owners and our sponsors. In the face of unprecedented circumstances, our extraordinary teams also delivered extremely strong first quarter financial results. We significantly exceeded our outlook for both revenue and earnings per share. We reached new heights for first quarter net bookings across each of mobile, console and PC, and we exited the quarter with accelerating engagement and momentum across the business, as people around the world turn to our content for entertainment and connection. Performance in the quarter was led by Call of Duty, which is achieving tremendous scale and momentum across platforms, geographies, and business models. Following industry-leading launches for Call of Duty Mobile and Modern Warfare in the fourth quarter of 2019, the franchise raised the bar even higher with the launch of Warzone in March. With a free-to-play business model and cross-platform play, Warzone expanded Modern Warfare’s reach, engagement and player investment. Warzone to date has brought in over 60 million players since its launch. The exceptional results for Call of Duty reflect our team’s 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 PC, not only extends the reach of our franchise, but can also lead to strong in-game monetization and sales of premium content. Call of Duty’s success highlights the great potential across our portfolio, as we continue to focus on extending our fully-owned intellectual property to new platforms, new geographies 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, the WoW active community grew further in Q1. Blizzard is seeing strong increases in engagement across our franchises, as people around the world stay home. Adding to business momentum, as our game teams execute against the strongest pipeline of content in Blizzard’s history. At King, Candy Crush was again the top grossing game franchise across U.S. app stores, with engagement increasing sharply towards the end of the quarter. To enable 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 rounds played in a single day shattering all prior records. Momentum continued to increase in April with strong year-over-year growth in reach, engagement and player investment. As we build on our strong first quarter results and our continuing momentum, I’m excited to introduce our new President and Chief Operating Officer, Daniel Alegre. From his long tenure at Google, Daniel 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 focus. I’d also like to thank Coddy Johnson for his extraordinary contributions to the continued success of the company during his 12-year tenure, and for being a truly, truly valued friend. Of course, our strong business performance wouldn’t be possible without the efforts of our dedicated, talented and truly empathic teams around the world. We are so grateful for the work you’re doing under extremely challenging circumstances. We’re also appreciative of the continued support of our shareholders, partners and players, and we wish you and your families health and safety through what remains a difficult time. And now, Daniel will review the highlights of our operations with you.

Daniel Alegre: Thank you, Bobby. I’m glad to be with you all for my first earnings call as COO, and 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 sympathies to all those affected by this health crisis, and expressing thanks on behalf of the entire company to all those on the frontlines of the battle against the COVID pandemic. I would also like to thank our employees for their commitment to our players and to each other, particularly under such a unique and difficult environment we are currently living in. But before I discuss our recent operational highlights, I’d 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 of our employees and their families remains our priority. I’d like to expand on the measures we are taking to keep our employees and their families safe and address our expectations for our development pipeline for the remainder of the year. All our offices had moved to work from home environments by mid-March, and we are fortunate to have had very few cases of COVID-19 across the company. Now we are ensuring our employees and their family members are receiving the best possible care. And we’re covering all costs of testing and treatment for affected employees and their families. We have increased access to telehealth resources, and contracted private doctors and medical support in regions where employees live and work. We’ve had additional services to our already best-in-class health benefits, and ensured that employees have access to the mental and physical well-being and support they need while at home. And we are continuing to find other ways to support our employees and their families, including services to help families balance work, and home life. Now turning to development, 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 add complexity and challenges in some areas of the game development process, including creative collaboration, motion capture, voiceover work, localization and quality assurance. We are implementing mitigation measures to each and to address each of these areas. Importantly, 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, 2 titles based on library IP from Activision, the World of Warcraft Shadowlands expansion, regional testing for new mobile titles, and ongoing live operations across our key franchises. Regardless of location, our teams remain focused on executing against our 4 strategic growth pillars as Bobby has laid out

Dennis Durkin: 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’d just like to echo Daniel and Bobby’s sentiments about the unique environment we’re in and share my sincerest sympathies to those who have been affected directly by it as well as my thanks and gratitude to all our teams and employees, who have so seamlessly transitioned into this new work environment we find ourselves in. Our digitally native 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 our players. Our teams take our mission and our responsibility to deliver fun and 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 full year guidance. Our first quarter revenue and earnings were well ahead of our prior outlook, primarily driven by our investment in creative and commercial initiatives for Call of Duty, delivering better than expected results throughout the quarter. In addition, World of Warcraft continued to over deliver and other key franchises and catalog sales also exceeded our outlook, benefiting from stronger demand towards the end of the quarter as consumers sheltered at home in many of our key regions. To review the quarter, I will start with our segment results. Activision revenue was $519 million, growing 64% year-over-year. Growth was driven by Call of Duty

Operator: Ladies and gentlemen, at this time we’ll begin the question-and-answer session. [Operator Instructions] And our first question today comes from Mario Lu from Barclays. Please go ahead with your question.

Mario Lu: Great. Thanks for taking the question. Amazing quarter and I hope that everyone in the family is safe. So I know it’s hard to parse out due to the increased engagement from COVID and social distancing. But can you provide any color in terms of how accretive Call of Duty

Rob Kostich: Hi, Mario. This is Rob. Thanks for the question. And also for your note up front. I think the short answer to the question is that Warzone has definitely been accretive to the franchise. And it’s become, and it is a really important part of the overall franchise ecosystem that we’re creating. And I think it’s worth just talking about that a bit. Since the last few calls, we’ve been discussing, bringing our community together through a number of player-focused initiatives. And that started with cross plays, where all the friends can just get together no matter what platform you’re on. It was about the free 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 is amplified all this with the launch of Warzone, our massive scale battle royale experience. And when you look at Warzone, it was definitely built to provide endless fun on its own and to stand on its own as a great game. But Warzone and Modern Warfare are also obviously connected in many ways, including through shared progression systems, game systems, and content offerings. And what we’re seeing right now in Warzone is that a large number of players choosing to upgrade to the premium Modern Warfare game and experience everything that the Modern Warfare universe has offered. And so far, you know, the number of upgrades to premium that we’re seeing are definitely above our initial expectations. And that’s really great to see. And also, across this universe, the Modern Warfare universe from an engagement perspective, we’re also seeing franchise highs now and daily average unique players, peak concurrent players and overall player investment has been as indicated on the call so far. So regarding the future of Warzone, we know how much the community is loving it. We know how much they’re enjoying the experience so far. So we’re going to continue to invest in this significantly, in terms of content, events, new modes, new ways to play, and really just a ton more in the future. And to follow up on the last part of your question, I think what I would say is, yes, we believe it has the potential to positively impact future premium games as well. And so, we’re excited about that opportunity. And before I jump off, I would also just like to thank all our Activision publishing, development teams and all our employees for keeping all of our critical projects on track. This shift to work from home has 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 a big thank you to them. But, again, Mario, thanks for the question. I appreciate it.

Mario Lu: Right. Okay.

Bobby Kotick: Thanks, Mario.

Christopher Hickey: Operator, can we have the next question, please?

Operator: Our next question comes from Gerrick Johnson from BMO Capital Markets. Please go ahead with your question.

Gerrick Johnson: Thank you. Good afternoon. Hey, so do you guys think increased engagement with video games owing to the stay-at-home trend and COVID-19 will be sustainable? Do you see a swing perhaps back in the direction once we return back to normal?

Dennis Durkin: Hey, Gerrick. It’s Dennis. 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 like 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 seem like that there is a likelihood that even once shelter-at-home ends, that it may be a fair amount of time before people are really returning to normal as we know it. So we do think that there is potentially an acceleration to the structural change that we’ve seen in consumer entertainment, consumption patterns that we’ve already been seen in gaming. And that trend could persist for the long term, which would obviously benefit social, yet socially distant categories, like gaming. We’ve already seen this with the younger generation of consumers, where gaming is more an integrated part of their social entertainment fabric. And times like these will make that activity, we believe even more mainstream. We’re obviously trying to lean into this and welcome as many players into our ecosystem as possible and 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 data points right now on what happens to consumption, when people returned 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 of the world as they start to return to normal as well. So, generally speaking, we think there’s a pretty big opportunity here to see and then acceleration in the long term structural shifts that we’ve already seen, from the existing heightened engagement. But as usual, we’re always trying to be prudent in how we model that, because we know there are still so many unknowns at this time.

Gerrick Johnson: Great. Thank you very much.

Christopher Hickey: Operator, can we have the next question, please?

Operator: Our next question comes from Ryan Gee from Bank of America. Please go ahead with your question.

Ryan Gee: Hey, good afternoon. Thanks for the question. Fantastic quarter you guys. I was hoping you can provide a little more color on the subscriber trends for a while during the period and specifically how you see the opportunity to sustain this larger base post Classic as you move towards the Shadowlands expansion? Thanks.

J. Allen Brack: Hi, this is Jay. Thank you for the question. Before I answer, I want to take a step back and just say, we’re really thankful that our games are able to play a part in helping to bring people together during what’s really an unprecedented challenging time for us all. In the World of Warcraft, it’s very fortunate to be able to engineer it as a very social experience. And that is true today as the day we launched. Over time we listen to feedback from community. And the game has evolved to what we now call the modern game, which is really expanded the breadth and the depth of gameplay, as well as making it easier to kind of find friends group up, make progress or play alone, all within the social environment. At the same time, we’ve seen a lot of good work and good returning experience for players returning to the Classic WoW experience. So today, we think about World of Warcraft as a single community under one subscription, where players can enjoy both WoW Classic and Modern WoW. And we release a steady stream of content to both. In a variety of different experiences, it’s always been a strength of the game. And it’s been good to see players resonate – that resonate with players as they see a lot what they’re looking for in the Warcraft. We’ve seen particularly strong engagement with Classic in the East. And the momentum has continued in those regions, even as they have started to come back to work. And we saw western subscribers grow in March, driven by players returning to Modern WoW primarily. And this has contributed to strong pre-sales for Shadowlands. So the momentum we saw in March across both modes continues with the active community growing faster than it ever has and that’s outside of an expansion launch period. On the development side, our teams have done a really good job in shifting to work from home. We’re able to welcome select players into the closed alpha for Shadowlands last month. And thanks to the hard work of the team, Shadowlands is on track to launch in Q4 of this year. Lastly, before I hand off the call, I’ll hand off to the next questioner, we want to thank all the Blizzard employees during this difficult time. It’s been really amazing to kind of see everyone come together in a positive way. Thank you.

Christopher Hickey: Thanks, Ryan. Operator, can we have the next question, please?

Operator: Our next question comes from Doug Creutz from Cowen. Please go ahead with your question.

Doug Creutz: Hey, thank you. You talked a bit about the pressure on the ad side at King as the economy slows down. I was wondering if you could maybe go in a little more detail there and what are you seeing in terms of your CPMs. And then along with that, is there any offset on your user acquisition side? Because presumably, you’re acquiring users through a lot of the same channels that similar channels to your advertising? Thanks.

HumamSakhnini: Hey, Doug, this is Humam. Thanks so much for the question. So we exited 2019, as you heard with strong momentum in the ads business, and that continued in Q1 where we saw on the quarter that we delivered over 75% year-on-year growth. And as you mentioned in the question, we saw deceleration towards the end of March within the broader advertising ecosystem. But the business did grow 20% year-on-year in April, or over 20% in April. So let me answer your question by talking a little bit of what we’re doing is going forward. I think about the things that we’re already doing and what not to continue, and that’s about rolling out more ads, more players, broadening our advertiser base and working with more partners as we continue to build our tech infrastructure. But now we’re actually increasing some focus areas that we see as kind of in the short- and medium-term will provide opportunities. So we’re going to the brand advertisers and doubling down on their relationships in those sectors that aren’t experiencing slowdowns, and they are experiencing actually sustained demand with their product. So the team is quite active there. We’re also starting to leverage quite a bit of advertiser interest and very differentiated products like the sponsorship product that we have, which was new to our ecosystem and seeing some really nice advertiser interest. And that really amplifies the value proposition of 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 higher CPMs for the ads that we are showing, and that’s been a focus in this quarter and continues to be for the year. So if you add that, plus you look at our network, which is truly global and international, what we’re doing is we’re looking at it as a pretty diversified set of opportunities. So when regions are starting to experience some recovery before others, we focus our efforts there as the opportunity may sit geographically in some places at a certain point in time. So with all of that, my expectation is that the advertising business does deliver growth this year. On your point on acquisition costs, that’s the flip side of this. So what we’re seeing is while we see that some advertisers on [indiscernible] King are seeing an opportunity to bring new players more efficiently than ever on a network. And you couple that with a very different approach, it’s good for us for the medium- and long-term. So when we do that, of course, that reinforces kind of both the app side of the house, the game business, and the advertising number as we continue to invest in the network. So, yeah, again, kind of to echo a lot of what my colleagues have said and before I hand it back to the operator. I just want to thank [indiscernible] the King team and the employees [indiscernible] King who have really not missed a beat as we have experienced something quite remarkable and going to work from home pretty quickly. And so a big thanks for me for the team and the incredible work that they’re doing.

Doug Creutz: Thank you.

Christopher Hickey: Operator, can we have the next question, please?

Operator: Our next question comes from Kunaal Malde from Atlantic Equities. Please go ahead with your question.

Kunaal Malde: Hi, thanks for taking the question. There’s clearly a very strong momentum in the business right now. But given the broader economic pressures from COVID-19, how are you thinking about the potential risks to consumer spending trends over the next few quarters?

Dennis Durkin: Dennis. Thanks for the question. Obviously, we’re in kind of uncharted waters, and there’s not really any precedent for what’s going on right now in the economy, which definitely makes us cautious and careful, maybe more so 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 precedents, obviously, for where we are. But you can look at least back to the past 2 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 is the consumer recreational spending in the U.S., for example, was fairly resilient during those downturns. And if you hone in a little more specifically on entertainment, the global gaming industry, gaming industry fared extremely well, and actually grew low- to mid-single digits in these time periods, whereas 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 other forms of entertainment. And so, if you compare that to the situation we’re in now, where other forms of location based entertainment like going to movies, concerts, sporting events, whatever those may be, and they may not be available for some time to consumers for some period of time. This may also drive some share shift to 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 only 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 and 2008, gaming has 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 to across platforms, geographies, types of games, which is helpful when times get challenging. On the flip side, there obviously are more free ways for players to play games than there have been. So there could be more engagement with slightly weaker monetization. But in the long-term, we kind of view that as an opportunity as well, because that usually normalizes itself. So I’d say there’s puts and takes across the spectrum. But which is why with all this uncertainty in the economy, we’ve tried to reflect these risks as we think about forecasting the business. But the strong momentum we’re seeing gives us obviously confidence in raising our outlook, even with this challenging backdrop.

Kunaal Malde: Thank you.

Christopher Hickey: Thanks, Kunaal. Operator, can we have the next question, please?

Operator: Our next question comes from Eric Handler from MKM Partners. Please go ahead with your question.

Eric Handler: Thank you very much for the question, and glad everyone is healthy. Follow-up on Call of Duty, I wondered if you could talk a little bit how the funnel of players has widened for Call of Duty with the release now of Mobile and Warzone. And along those lines, how much overlap is there for players between the 3 games? And what does that mean for overall spending? Basically, what I’m trying to get at is, is the spending per player additive when they play multiple games.

Rob Kostich: Eric, it’s Rob. Thanks. I’ll take the question. And I think it’s important to probably first just 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, an authentic Call of Duty experience regardless of 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’ve delivered across mobile, across console and across PC. And if you look at some of the metrics over the last 6 months, that you’ve seen in the Q4, and both in Q1, we’ve crossed over 100 million MAUs, and dramatically increasing our player base and a lot of that’s been driven by Mobile and Warzone, of course, as is the ongoing success in Modern Warfare driving that. But through Mobile and Warzone, we’re definitely reaching new audiences and new geographies 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 in time in its history, in terms of audience profile, and that’s pretty exciting for us to see. So a little bit on your question on engagement, and for us, when it comes to engagement, what we’ve seen really time and time, again, is that engagement just tends to drive engagement. And so for us exposure on what platform is driving engagement across other platform and other experiences. So we actually like to see that crossover a lot. And in terms of the investment, part of your question, that also is looking additive to us across this ecosystem as well. In the previous question, I talked about Warzone and how we’re seeing that as being accretive to the franchise overall. And with respect to CoD Mobile, then specifically when you take a look at it. We’re seeing really great momentum there. It was referenced earlier that Season 5, just concluded, it’s our best performing season in terms of engagement in-game performance, since the first season. And Season 6, just launched on May 1, and so that’s off to a really strong start as well. So for me, when I look at it, I see the positive trends on mobile as a platform, but coming at a time, we’re having record engagement and record performance across console and PC. And to me, that’s a pretty clear indication that what we’re seeing on Call of Duty

Christopher Hickey: Thanks, Eric. Can we have the next question, please?

Operator: Our next question comes from Alexia Quadrani from JPMorgan. Please go ahead with your question.

David Karnovsky: Hi, this is David Karnovsky on for Alexia. Thanks so much for taking the question. Can you just expand a little bit on what impact you’re seeing to your pipeline, both near- and long-term from having developers work at home? Thanks.

Daniel Alegre: Sure. And this is Daniel. Thanks for the question. Look the vast majority of our developers they move to 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, IT, HR, security operations and other groups really rally together to make it all happen. And we’re really fortunate to be in a truly digital business, where the majority of our content creation really can be performed across any location. So the vast majority of our developers, they took their computer’s 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 developer’s homes as well. But we were able to do that relatively quickly. So our development teams working on everything from design, to art, to engineering, to production, really had most of what they needed to keep working. That being said, it’s not easy, and there are aspects of building our games that are more challenging via remote work like collaborative design, in person user research, motion capture, voiceover, and in QA. So we really had to find some creative solutions to work through these like for record voiceovers, we did that remotely. We’ve also enabled new secure access systems 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 we can. And what’s really important is 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 in my prepared remarks that we’re currently still on track to deliver our key content in the second half of this year. And my primary focus is to ensure that we continue to execute on these top priorities.

Bobby Kotick: And I would just add, I think that our teams are doing an extraordinary job right now on continuing to stay focused, work hard to deliver great content. But it is a challenging process. We still have a lot of uncertainty for the future. And I think that it’s hard to know, a year from now or 2 years from now, what the impact of all of this will be on our development processes 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 we remain focused on execution of our strategy, and I think our teams are doing a truly extraordinary job of accomplishing that.

Christopher Hickey: Operator, can we have the next question, please?

Operator: Our next question comes from Alex Giaimo from Jefferies. Please go ahead with your question.

Alex Giaimo: Great. Thanks for taking the question. I was hoping to get a bit more color on the Hearthstone franchise, maybe if some of the recent updates you’ve rolled out have been well received, and if you’re seeing any notable change within the competitive landscape. Thank you, guys.

J. Allen Brack: Thank you for the question. This is Jay. I want to take those in reverse order. So when we think about competition, Blizzard is full of gamers. And we’re always excited when new games release. We think new titles are good for players, they bring fresh ideas. And that’s really something that everything or that’s something that everyone benefits from. The industry is big enough for lots of different teams to be successful. And we found that if we focused on game-play first, and then we continue to listen to our community feedback, we experience great results. And so, I’m really proud of the Hearthstone team and what they’ve accomplished, especially recently. Under the leadership with an expanded development team, they’ve delivered larger content update to players and have really maintained a high quality bar that we set for ourselves. We rolled out the first major new game mode, which was Battlegrounds in November that we talked about. And we’ve seen it bring players back and continue to drive renewed engagement in the game. And then, last month, we launched the latest expansion, which was Ashes of Outland. And that’s the first game that we’ve launched while we were in a working controlled environment. And that expansion introduced the games’ first new class. So the first new class, they’ve never been added to the game since launch, Demon Hunter, and brought about really some of the biggest fundamental changes that the game has seen today. The sentiment around the new features and the new content is very positive. And as a result of the steady updates in the game, we saw increased engagement in Q1 versus Q4. You have further updates in April. The Hearthstone team is looking to build on that momentum with a really good pipeline of content later to come this year. And then, one of the things we learned is that Battlegrounds has proven that new modes can drive meaningful engagement. And so, the team is thinking about that as part of their future planning going forward.

Alex Giaimo: Thank you. Thanks.

Christopher Hickey: Operator, we have time for one last question.

Operator: Our final question today comes from Brian Nowak from Morgan Stanley. Please go ahead with your question.

Brian Nowak: Thanks for taking my question. Hey, guys, good to hear your voices. I just have one on King. The user number was really strong. I think you added over 20 million, 24 million users quarter over quarter. Maybe talk to us how you think about some of the key strategies you have to sort of develop and roll out to really retain those new players. And then how do you think about converting those new players into payers over time?

Humam Sakhnini: Hey, Brian. It’s Humam. Thanks for the question. So let me first step back and set the context of what we’re saying here in Q1. You heard us talk about it, which is in the past few quarters. We’ve been focusing on growing that audience of players and also payers. And so in Q3 and Q4, last year, we grew the Candy player base. And then in Q3, we started introducing initiatives that are aimed at broadening the payer reach across the network, which started improving the payer conversion mechanics in the second half of last year. So back then, when we did that, you heard me talk about that there would be a trade off in the near-term bookings, but we thought that’s the right thing to do for the business for the long term health of that business. So we’ve seen that through the introduction of the right content and timely offers contextually placed, more players start coming into the ecosystem and more payers start coming into the ecosystem. So in Q1, we went further with that approach both on content and on offer management. And we started broadening our reach of the player investment initiatives. So we started building on top of that momentum in Candy. And we started expanding to all of our network in Q1. And so, as that player base started growing steadily in the quarter, we started seeing kind of that momentum build. And in March, we saw even further acceleration. And then, on the payer conversion, we started seeing some really encouraging results in Q1. And, in fact, in Q1 we saw the strongest sequential improvement in payers that we’ve seen in many years. So the trends have really kind of started looking very favorable, and that’s improved in April. So I’m really pleased with how the ecosystem is been building up, not just in Q1, but all the things that we’ve been doing, from a content perspective and from a player engagement, mechanics perspective in the past few quarters to get to here. So when I look ahead, you’ll expect us to continue to do this. You’ll expect content from us. You’ll continue to expect more ways that we optimize offerings for different players to kind of go after those broader motivations. And the good news here is that you won’t see the drag on Q2 bookings that we would have otherwise expected, because of this really strong engagement that we’re saying. And then, we add on top of that, that we can grow this network now more efficiently, as I just answered before. So I think the combination of all of those really kind of tend to the network. And then, where we continue to keep the players active is really about what the King team does incredibly well, which is innovating the content pipeline and the features within what’s happening in the game to keep these players engaged and continue to kind of drive towards players and payer numbers increasing over time. So that’s kind of I think the – what you’re seeing now, but it’s kind of the combination of everything that we’ve been building over the past few quarters.

Brian Nowak: Great. Thanks.

Christopher Hickey: All right. Thank you. Yeah, thanks, Brian. Thanks, Humam. Thanks, everyone, for joining us today. We greatly appreciate your interest and participation and we look forward to speaking with many of you throughout the quarter. Please do stay safe and we’ll hopefully see you all in game. Thank you.

Operator: Ladies and gentlemen, this does conclude today’s conference call. We do thank you for joining. You may now disconnect your lines.