znga-8k_20180502.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 8-K

 

CURRENT REPORT

Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): May 2, 2018

 

ZYNGA INC.

(Exact name of Registrant as Specified in Its Charter)

 

 

Delaware

001-35375

42-1733483

(State or Other Jurisdiction

of Incorporation)

(Commission

File Number)

(IRS Employer

Identification No.)

 

 

 

699 Eighth Street

San Francisco, CA 94103

 

94103

(Address of Principal Executive Offices)

 

(Zip Code)

 

Registrant’s Telephone Number, Including Area Code: (855) 449-9642

Not Applicable

(Former Name or Former Address, if Changed Since Last Report)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instructions A.2. below):

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§ 230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§ 240.12b-2 of this chapter).

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

 

 


 

Item 1.01. Entry into a Material Definitive Agreement.

On May 2, 2018, Zynga Inc. (Zynga) entered into a director nomination letter (the “Nomination Letter”) with Mark Pincus pursuant to which Zynga’s Board of Directors (the “Board”) and the Nominating and Corporate Governance Committee of the Board agreed to, subject to the exercise of their fiduciary duties, nominate Mr. Pincus for election as a director at each applicable election of directors. The Nomination Letter terminates upon the earlier of (i) in the event Mr. Pincus transfers more than approximately one-half of his current Zynga shares, (ii) in the event of Mr. Pincus’ death or disability, or (iii) a change of control of Zynga.

The foregoing description of the Nomination Letter is a summary only and is qualified in its entirety by reference to the full text of the Nomination Letter, a copy of which is attached as Exhibit 10.1 hereto, which is incorporated by reference into this Item 1.01.

Item 2.02. Results of Operations and Financial Condition.

On May 2, 2018, Zynga issued its Q1 2018 Quarterly Earnings Letter announcing its financial results for the quarter ended March 31, 2018. A copy of the quarterly earnings letter is furnished as Exhibit 99.1 to this Current Report on Form 8-K and is incorporated herein by reference.

The information furnished in Item 2.02 of this Current Report on Form 8-K, including Exhibit 99.1 attached hereto, shall not be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the Exchange Act) or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference into any other filing under the Securities Act of 1933, as amended (the Securities Act) or the Exchange Act, except as expressly set forth by specific reference in such a filing.

Item 3.03. Material Modification of Rights of Security Holders.

On May 2, 2018, Mr. Pincus (including an investment entity controlled by Mr. Pincus) elected to convert (the “Pincus Conversion”) certain outstanding shares of Zynga’s Class B common stock, par value $0.00000625 per share (the “Class B Common Stock”), and all outstanding shares of Zynga’s Class C common stock, par value $0.00000625 per share (the “Class C Common Stock”), into an equivalent number of shares of Zynga’s Class A common stock, par value $0.00000625 per share (the “Class A Common Stock”). Mr. Pincus took this action pursuant to the optional conversion provisions set forth in Zynga’s Seventeenth Amended and Restated Certificate of Incorporation (the “Certificate”).

The Certificate provides that if the outstanding shares of Class B Common Stock and Class C Common Stock together represent less than 10% of the total voting power of the shares of Zynga then entitled to vote, then each share of Class B Common Stock will convert automatically into one share of Class A Common Stock. As a result of the Pincus Conversion, the remaining shares of Class B Common Stock represented less than 10% of the total voting power of the shares of Zynga then entitled to vote. Accordingly, each remaining outstanding share of Class B Common Stock automatically converted into one share of Class A Common Stock (together with the Pincus Conversion, the “Conversion”). Following the Conversion, no shares of Class B Common Stock or Class C Common Stock are outstanding.

Zynga will file a certificate with the Secretary of State of the State of Delaware effecting the retirement and cancellation of the shares of Class B Common Stock that were previously issued (the “Certificate of Retirement”). Following the filing of the Certificate of Retirement, Zynga will file a certificate with the Secretary of State of the State of Delaware effecting the retirement and cancellation of the shares of Class C Common Stock that were previously issued (the “Certificate of Elimination”).

The Conversion had the following effects:

Voting Power. Prior to the Conversion, holders of shares of Class B Common Stock were entitled to cast seven votes per share and holders of shares of Class C Common Stock were entitled to cast seventy votes per share, on any matter submitted to a vote of Zynga’s stockholders. As a result of the Conversion, all holders of shares of Zynga shall exclusively hold shares of Class A Common Stock, which have only one vote per share on all matters subject to a stockholder vote.

Economic Interests. The Conversion had no impact on the economic interests of holders of shares of Class B Common Stock and Class C Common Stock, including with regard to dividends, liquidation rights, treatment in connection with a change of control or merger transaction and redemption.

Capitalization. The Conversion had no impact on the total number of Zynga’s issued and outstanding shares of capital stock, as the issued and outstanding shares of Class B Common Stock and Class C Common Stock converted into an equivalent number of shares of Class A Common Stock. Effective as of the filing of the Certificate of Retirement and the Certificate of Elimination, Zynga’s total number of authorized shares of capital stock will be reduced to account for the retired and cancelled shares of Class B Common Stock and Class C Common Stock.

 


 

Item 5.02. Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.

Effective as of May 2, 2018, Mr. Pincus will no longer be a full-time employee of Zynga. Mr. Pincus will continue to serve as Chairman of the Board.  As a non-executive director, Mr. Pincus will be eligible to receive compensation under Zynga’s Non-Employee Director Compensation Policy as further described in Zynga’s Proxy Statement filed with the Securities and Exchange Commission on March 16, 2018.

Item 5.03. Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year.

The description under “Item 3.03 Material Modification of Rights of Security Holders” is incorporated by reference.

Item 7.01. Regulation FD Disclosure.

On May 2, 2018, Zynga issued a press release relating to its announcement of its financial results for the quarter ended March 31, 2018 and the Conversion. A copy of the press release is furnished as Exhibit 99.2 to this Current Report on Form 8-K and is incorporated herein by reference.

The information furnished in Item 7.01 of this Current Report on Form 8-K, including Exhibit 99.2 attached hereto, shall not be deemed filed for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference into any other filing under the Securities Act or the Exchange Act, except as expressly set forth by specific reference in such a filing.

Item 8.01. Other Events.

In connection with the Conversion, the Class A Common Stock will continue to trade on The Nasdaq Global Market under the ticker symbol “ZNGA” and will maintain the same CUSIP number.

Item 9.01. Financial Statements and Exhibits.

(d) Exhibits.

 

Exhibit Number

Description

10.1

Director Nomination Letter

99.1+

Quarterly Earnings Letter

99.2+

Press Release

 

 

+

This exhibit shall not be deemed filed for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference into any other filing under the Securities Act of 1933, as amended, or the Exchange Act, except as expressly set forth by specific reference in such a filing.

 


 

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

 

ZYNGA INC.

 

 

 

 

Date: May 2, 2018

 

By:

/s/ Gerard Griffin

 

 

 

Gerard Griffin

 

 

 

Chief Financial Officer

 

 

znga-ex101_141.htm

Exhibit 10.1

699 Eighth Street

San Francisco

California 94103

 

May 2, 2018

Mark Pincus
c/o Zynga Inc.
699 Eighth Street
San Francisco, CA 94103

Re: Membership on the Board of Directors of Zynga Inc.

Dear Mr. Pincus:

In recognition of the conversion (the “Conversion”) of all shares of Zynga Inc.’s (“Zynga”) Class B Common Stock and Class C Common Stock into shares of Class A Common Stock (including any successor, the “Class A Common Stock”), this letter confirms the decision by the Board of Directors of Zynga (the “Board”) to make the following commitments to you.

1.In connection with each annual or special meeting of Zynga’s stockholders at which directors are to be elected (an “Election Meeting”), the Board’s Nominating and Corporate Governance Committee (including any successor committee, the “Nominating Committee”) will, subject to requirements of fiduciary duties under applicable law, recommend you for inclusion on the Board’s slate of nominees at such Election Meeting, unless you are already a director of Zynga at the time of the Election Meeting and your term as a member of the Board does not expire at such Election Meeting.

2.Upon the Nominating Committee’s recommendation that you be included on the Board’s slate of nominees at such Election Meeting, (a) the Board will include you on its slate of nominees; and (b) subject to requirements of fiduciary duties under applicable law, (i) the Board will recommend that Zynga’s stockholders vote, and (ii) Zynga will solicit proxies, in favor of your election as a director at such Election Meeting and otherwise support you for election in a manner no less rigorous and favorable than the manner in which the Board supports its other director nominees.

This letter is effective only upon the Conversion. This letter will terminate on the earliest of (a) the Transfer, other than pursuant to a Permitted Transfer (each as defined below), of more than 45,000,000 shares of Class A Common Stock beneficially owned by you immediately following the Conversion (as adjusted for stock splits and reverse stock splits); (b) your death or Disability (as defined below); (c) the occurrence of a Change in Control (as defined below); or (d) the mutual consent of Zynga and you.

For purposes of this letter:

Change in Control” means the occurrence, in a single transaction or in a series of related transactions, of  a merger, consolidation or similar transaction involving (directly or indirectly) Zynga or the capital stock of Zynga and, immediately after the consummation of such merger, consolidation or similar transaction, the stockholders of Zynga immediately prior thereto do not own, directly or indirectly, either (i) outstanding voting securities representing more than 50 percent of the combined outstanding voting power of the surviving entity in such merger, consolidation or similar transaction; or (ii) more than 50 percent of the combined outstanding voting power of the parent of the surviving entity in such merger, consolidation or similar transaction, in each case in substantially the same proportions as their ownership of the outstanding voting securities of Zynga immediately prior to such transaction.

Disability” means permanent and total disability such that you are unable to engage in any substantial gainful activity by reason of any medically determinable mental impairment which can be expected to result in

 


 

death or which has lasted or can be expected to last for a continuous period of not less than 12 months as determined by a licensed medical practitioner. In the event of a dispute whether you have suffered a Disability, no Disability shall be deemed to have occurred unless and until an affirmative ruling regarding such Disability has been made by a court of competent jurisdiction, and such ruling has become final and non-appealable.

Permitted Transfer” means a Transfer from you, for tax or estate planning purposes, to any of the persons or entities listed in clauses (a) through (c) below (each, a “Permitted Transferee”) and from any such Permitted Transferee back to you and/or any other Permitted Transferee established by or for you:

(a)a trust for your benefit or the benefit of persons other than you, if such Transfer does not involve any payment of cash, securities, property or other consideration (other than an interest in such trust) to you, or a trust under the terms of which you have retained a “qualified interest” within the meaning of §2702(b)(1) of the Internal Revenue Code and/or a reversionary interest, in each case so long as you have sole dispositive power and exclusive Voting Control (as defined below) with respect to the shares of Class A Common Stock held by such trust;

(b)an Individual Retirement Account, as defined in Section 408(a) of the Internal Revenue Code, or a pension, profit sharing, stock bonus or other type of plan or trust of which you are a participant or beneficiary and which satisfies the requirements for qualification under Section 401 of the Internal Revenue Code; provided, however, that in each case you have sole dispositive power and exclusive Voting Control with respect to the shares of Class A Common Stock held in such account, plan or trust; or

(c)a corporation, partnership or limited liability company in which you directly, or indirectly through one or more Permitted Transferees, own shares, partnership interests or membership interests, as applicable, with sufficient Voting Control in the corporation, partnership or limited liability company, as the case may be, or otherwise have legally enforceable rights, such that you retain sole dispositive power and exclusive Voting Control with respect to the shares of Class A Common Stock held by such corporation, partnership or limited liability company, as the case may be.

If you (i) no longer have sole dispositive power and exclusive Voting Control with respect to the shares of Class A Common Stock then held by such trust under clause (a) above, or account, plan or trust under clause (b) above, or (ii) no longer own sufficient shares, partnership interests or membership interests, as applicable, or otherwise no longer have sufficient legally enforceable rights to ensure that you retain sole dispositive power and exclusive Voting Control with respect to the shares of Class A Common Stock then held by such corporation, partnership or limited liability company under clause (c) above, then all shares of Class A Common Stock then held by such trust, account, plan or trust, corporation, partnership or limited liability company, as applicable, will be considered to have been Transferred by you, and such Transfer will not be considered to be a Permitted Transfer.

Transfer” of a share of Class A Common Stock means any sale, assignment, transfer, conveyance, hypothecation or other transfer or disposition of such share or any legal or beneficial interest in such share, whether or not for value and whether voluntary or involuntary or by operation of law; provided, however, that the following will not be considered a “Transfer”: (a) the granting of a revocable proxy to officers or directors of Zynga at the request of the Board in connection with actions to be taken at an annual or special meeting of stockholders; (b) entering into a voting trust, agreement or arrangement (with or without granting a proxy) solely with Zynga and/or its stockholders that (i) is disclosed either in a Schedule 13D filed with the Securities and Exchange Commission or in writing to the Corporate Secretary of Zynga, (ii) either has a term not exceeding one year or is terminable by you at any time and (iii) does not involve any payment of cash, securities, property or other consideration to you other than the mutual promise to vote shares in a designated manner; or (c) the pledge of shares of capital stock of Zynga by you that creates a mere security interest in such shares pursuant to a bona fide loan or indebtedness transaction so long as you continue to exercise sole voting control over such pledged shares; provided, however, that a foreclosure on such shares or other similar action by the pledgee shall constitute a “Transfer.”

Voting Control” shall mean the exclusive power (whether directly or indirectly) to vote or direct the voting of a share of capital stock or other equity interest by proxy, voting agreement or otherwise.

This letter is governed by the laws of the State of Delaware. Any action, suit or proceeding arising out of or relating to this letter will be subject to the exclusive jurisdiction of the federal and state courts located in the State of

 


 

Delaware. ANY AND ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, SUIT OR PROCEEDING ARISING OUT OF OR RELATING TO THIS LETTER ARE WAIVED. It is agreed that irreparable injury would result from a breach of this letter and that monetary damages would be inadequate to protect against any actual or threatened beach of this letter. It is also agreed that equitable relief, including injunctive relief and specific performance, without proof of actual damages or the need to post a bond, is appropriate in the event of any actual or threatened breach of this letter. Nothing in this letter is intended to or will confer upon any person or entity (other than you and Zynga) any right, benefit or remedy. Neither this letter nor any of the rights, interests or obligations under this letter may be assigned, in whole or in part, by operation of law or otherwise, without the prior written consent of Zynga.

***


 


 

 

 

Very truly yours,

 

 

ZYNGA INC.

 

 

 

 

 

 

By:

/s/ Frank Gibeau

 

 

Name:

Frank Gibeau

ACCEPTED AND AGREED:

 

Title:

Chief Executive Officer

 

 

 

 

/s/ Mark Pincus

 

 

 

Mark Pincus

 

 

 

 

 

znga-ex991_11.htm

Exhibit 99.1

Zynga Zynga Q1 2018 Earnings Highlights STRENGTH IN MOBILE REVENUE & BOOKINGS Mobile Revenue = $182.6M Q1 2018 = +13% Y/Y Mobile Bookings = $193.4M Q1 2018 = +10% Y/Y $176M $162M Q1’17 $182M $180M Q2’17 $187M $194M Q3’17 $197M $204M Q4’17 $193M $183M Q1’18 Mobile Revenue Mobile Bookings CONTINUED GROWTH IN OUR FOREVER FRANCHISES Words With Friends W 2 Mobile Revenue +18% Y/Y Mobile Bookings +32% Y/Y CSR Racing 2 CSR2 Mobile Revenue +2% Y/Y Mobile Bookings +25% Y/Y Zynga Poker Mobile Revenue +13% Y/Y Mobile Bookings +7% Y/Y BEST MOBILE AUDIENCE IN +4 YEARS 23M Mobile DAUs +24% Y/Y 82M Mobile MAUs +30% Y/Y NET INCOME $5.6M +$15.1M Y/Y


 

ZYNGA – Q1 2018 QUARTERLY EARNINGS LETTER

 

May 2, 2018

 

Dear Shareholders,

 

We look forward to discussing our Q1 2018 results during today’s earnings call at 2:30 p.m. PT. Below, you’ll find our quarterly earnings letter detailing our Q1 performance, as well as our outlook for Q2 and growth opportunities for 2018 and beyond. Please note that we manage our business based on topline measures including revenue, which is comprised of the change in deferred revenue and bookings. Revenue and the change in deferred revenue are both directly affected by bookings results, and management utilizes bookings as a primary topline measure to help inform their decisions.

 

HIGHLIGHTS

 

We had a great start to 2018, outperforming guidance in the quarter across all key financial measures and delivering our highest mobile audience in over four years. We are pleased with the player engagement we’re seeing across our forever franchises – CSR2, Words With Friends and Zynga Poker – and continue to make strong progress towards our near-term margin goals.

 

Before we discuss our Q1 performance, we would like to announce that our founder, Mark Pincus, has converted all of his high voting shares into the company’s Class A common stock. This decision enables Zynga to simplify its stock structure by moving from a multi-class to a single class structure. Mark’s share conversion establishes voting rights parity for all Zynga shareholders and reduces his overall voting rights in Zynga from approximately 70% to approximately 10%, with no change in his underlying economic interest. In addition, Mark will serve on Zynga’s Board of Directors as non-executive Chairman, effective immediately. Our management team welcomes this significant vote of confidence from Mark in the work we’ve done turning around the company to-date, as well as the progress we’re making in our growth strategy.

 

Q1 Highlights:

 

Strong performance driven by our mobile live services and continued focus on cost management.

 

Mobile revenue was up 13% year-over-year and mobile bookings were up 10% year-over-year, driven primarily by the continued strength of our live services and the first full quarter contribution from our Casual Cards acquisition in mid-December.

 

Words With Friends – Mobile revenue up 18% year-over-year and mobile bookings up 32% year-over-year.

 

CSR2 – Mobile revenue up 2% year-over-year and mobile bookings up 25% year-over-year.

 

Zynga Poker – Mobile revenue up 13% year-over-year and mobile bookings up 7% year-over-year.

 

Delivered our highest mobile audience in over four years, with 23 million average daily active users (DAUs) in Q1, up 24% year-over-year.

 

Improved our operating leverage with GAAP operating expenses at 65% of revenue, down from 71% of revenue in Q1 2017. Non-GAAP operating expenses were 55% of bookings, down from 58% of bookings a year ago.

 

Increased profitability year-over-year as we progress towards our near-term margin goals.

 

Today, we are announcing a new $200 million share repurchase program. This follows the completion of our existing $200 million repurchase program, through which we repurchased 67 million shares at an average price of $2.99 per share.

 


2

 


EXECUTIVE SUMMARY

 

(in millions)

Q1'18 Actuals

 

Q1'17 Actuals

 

Variance $

(Y/Y)

 

Variance %

(Y/Y)

 

Q1'18 Guidance

 

Variance $

(Guidance)

 

Variance %

(Guidance)

 

Revenue

$

 

208.2

 

$

 

194.3

 

$

 

13.9

 

 

 

7

%

$

 

200.0

 

$

 

8.2

 

 

 

4

%

Net income (loss)

$

 

5.6

 

$

 

(9.5

)

$

 

15.1

 

 

NM

 

$

 

(5.0

)

$

 

10.6

 

 

NM

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bookings

$

 

219.5

 

$

 

207.4

 

$

 

12.1

 

 

 

6

%

$

 

210.0

 

$

 

9.5

 

 

 

5

%

Adjusted EBITDA (1)

$

 

26.6

 

$

 

16.7

 

$

 

9.9

 

 

 

59

%

$

 

20.0

 

$

 

6.6

 

 

 

33

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net release of (increase in) deferred revenue (2)

$

 

(11.3

)

$

 

(13.1

)

$

 

1.8

 

 

 

(14)

%

$

 

(10.0

)

$

 

(1.3

)

 

 

12

%

 

 

(1)

Adjusted EBITDA includes the net release of (increase in) deferred revenue.

 

(2)

For clarity, a net release of deferred revenue results in revenue being higher than bookings and is a positive impact to Adjusted EBITDA as reported; a net increase in deferred revenue results in revenue being lower than bookings and is a negative impact to Adjusted EBITDA as reported.

In Q1, revenue was $208.2 million, above our guidance by $8.2 million and up $13.9 million or 7% year-over-year. Bookings were $219.5 million – beating our guidance by $9.5 million and up $12.1 million or 6% year-over-year. We achieved net income of $5.6 million, $10.6 million above our guidance and an improvement of $15.1 million year-over-year. Our Adjusted EBITDA was $26.6 million, above our guidance by $6.6 million, and an increase of $9.9 million year-over-year. We had a net increase in deferred revenue of $11.3 million versus our guidance of a net increase of $10.0 million and a net increase of $13.1 million in the prior year quarter. The year-over-year difference in change in deferred revenue accounted for $1.8 million of the year-over-year increase in revenue, net income and Adjusted EBITDA. We had a use of operating cash flow of $3.9 million in the quarter versus a use of operating cash flow of $4.7 million in Q1 2017.

 

In Q1, mobile revenue was up 13% year-over-year and mobile bookings were up 10% year-over-year. Mobile represents 88% of our total revenue and total bookings. Mobile online game – or mobile user pay – revenue was up 10% year-over-year, and mobile user pay bookings were up 7% year-over-year, driven by our forever franchises that collectively delivered double-digit year-over-year growth. We significantly increased our mobile audience from 18 million average DAUs in Q1 2017 to 23 million average DAUs in Q1 2018, up 24% year-over-year driven primarily by our Casual Cards acquisition and new audiences we’ve attracted on mobile chat platforms. This represented Zynga’s highest mobile average DAUs in over four years. Mobile average MAUs are also up, from 63 million in Q1 2017 to 82 million this quarter, representing an increase of 30% year-over-year.

 

Our strong performance in the quarter was driven by our mobile live services – in particular our Words With Friends, CSR2 and Zynga Poker forever franchises – as well as a full quarter contribution from our Casual Cards acquisition.

 

Following the successful Q4 launch of our new sequel, Words With Friends 2, we had a particularly strong Q1 for Words With Friends with mobile revenue up 18% year-over-year and mobile bookings up 32% year-over-year. We’re pleased with how Words With Friends has engaged existing players and captured the attention of new and lapsed players, increasing mobile average DAUs by 8% year-over-year. New features we introduced with the launch of the game, such as Solo Challenge and Lightning Round, have driven improved player engagement, with average moves per DAU up more than 20% year-over-year. We’re also encouraged by the continued engagement we’re seeing from our players around boost features like Tile Swap, Hindsight and Word Radar, which allow our players to enhance their gaming experience with friends and family. These boosts – in addition to other new features we’ve introduced in Words With Friends 2 – have delivered players more value and more ways to play their favorite word game, while also enabling us to expand the monetization potential of Words With Friends beyond in-game advertising.

 

Turning to CSR2, mobile revenue was up 2% year-over-year and mobile bookings were up 25% year-over-year. Our positive performance in the quarter was due to continued live services innovation through bold beats and deepened auto manufacturer partnerships that appeal to our global racing fans. Last quarter, we continued working with Universal Brand Development to license the hugely popular Fast & Furious, releasing a new event series in CSR2 that gives players the opportunity to acquire the most in-demand cars in the history of this blockbuster franchise. Additionally, as part of our commitment to bring authentic racing experiences to fans, in Q1 we worked with Lamborghini to debut the new Huracán Performante Spyder and Lamborghini Urus in CSR2. Both unveils were timed with the real-world launches of these supercars at the 2018 Geneva International Motor Show.

 

3

 


In Social Casino, we continue to see impressive growth milestones with Zynga Poker, which had a strong start to the year with mobile revenue up 13% year-over-year and mobile bookings up 7% year-over-year. Q1 also marked the first full quarter contribution from our Casual Cards acquisition. Our new Casual Cards team in Istanbul has been meeting our expectations and we’re pleased with their successful integration into our publishing and studio operations. Looking ahead, this talented Zynga Turkey team will continue to focus on delivering fun, world-class experiences to our Casual Cards players through new content and innovative bold beats over the coming quarters. Looking more broadly across our Social Casino portfolio, our Social Slots portfolio’s mobile revenue was down 4% year-over-year and mobile bookings were flat year-over-year. Our Hit It Rich! Slots and Wizard of Oz Slots games delivered strong year-over-year mobile revenue and mobile bookings growth, offset by declines in other titles in the portfolio. Overall, we were pleased to see the Social Slots portfolio deliver its best quarterly monetization in franchise history as the team introduced new features and licensed content to players that deepened their engagement.

 

In Q1, we continued to make substantial improvements in sharpening our operating model. We delivered GAAP operating expenses at 65% of revenue – down from 71% of revenue in Q1 2017 – and non-GAAP operating expenses at 55% of bookings – down from 58% of bookings a year ago.

 

All of the above contributed to achieving $5.6 million of net income, up $15.1 million year-over-year. We’re proud of the progress we made in growing the company and are well on our way to achieving our near-term margin goals later this year.

 

Looking ahead, we expect to grow Zynga in four ways: (1) Delivering growth in our live services, (2) Building new games with the goal of creating forever franchises, (3) Investing in new emerging mobile technologies and (4) Exploring M&A opportunities that will enhance our growth potential.

 

We believe we can continue to grow our live services, anchored by our forever franchises, through continued investment in bold beats aimed at enhancing player engagement. CSR2, which celebrates its two-year anniversary in June, has several bold beats planned in Q2. Last week, we announced a partnership with BMW for the launch of the new BMW M2 Competition in CSR2, giving players the opportunity to virtually race this high-performance car before it appears on real-world roads. We’ll also be commemorating Porsche’s 70th anniversary, partnering exclusively with the iconic brand to celebrate its sports cars through unique in-game events for our players. In Zynga Poker, we’ll be introducing new competitive features as we prepare for the introduction of our World Poker Tour tournament experience in the second half of the year. Also, in Words With Friends 2, we’ve begun rolling out a new Streaks feature that increases the social competition in the game for players.

 

Looking at our new game creation, we have titles in development in the Action Strategy, Casual, Invest Express and Social Casino categories. We expect to launch new titles in some or all of these categories beginning in the second half of 2018 and continuing into 2019 and beyond. Today, we’re excited to share that we have entered into soft launch with a new Casual mobile game – Willy Wonka’s Sweet Adventure – that combines Match-3 and Builder mechanics to innovate within the popular Match-3 genre. The game leverages our existing multi-year licensing deal with Warner Bros. Interactive Entertainment for Willy Wonka and the Chocolate Factory, bringing a new experience to our Casual gaming audience.

 

In terms of emerging platforms, we’re continuing to innovate and engage with new audiences on mobile chat platforms. While we don’t expect monetization to have a meaningful impact in 2018, we see a big opportunity to make social gaming more accessible. Our approach is to move fast and apply proven mechanics, simple design and lightweight tech to iterate quickly and determine what’s striking a chord with players. We’re pleased with the progress we’re making on Facebook – particularly our Words With Friends for Facebook Instant Games experience.

 

Finally, we intend to use the strength of our balance sheet and positive cash flow from operations to evaluate M&A opportunities that will enhance our growth potential. We’ll continue to take a diligent approach towards any potential transactions, prioritizing opportunities that are accretive to our near-term margin goals and that create shareholder value.

 


4

 


Q1 PERFORMANCE OVERVIEW

 

Q1 Financial Highlights

 

Revenue of $208.2 million; above our guidance and up 7% year-over-year.

 

GAAP operating expenses of $134.9 million; down 2% year-over-year.

 

Net income of $5.6 million; $10.6 million above our guidance and an improvement of $15.1 million year-over-year.

 

Net increase in deferred revenue of $11.3 million; versus our guidance of a net increase in deferred revenue of $10.0 million. This increase in deferred revenue was primarily driven by the first full quarter of bookings contribution from our Casual Cards acquisition.

 

Bookings of $219.5 million; above our guidance and up 6% year-over-year.

 

Non-GAAP operating expenses of $120.3 million; down 1% year-over-year.

 

Adjusted EBITDA of $26.6 million; above our guidance and an increase of $9.9 million year-over-year.

 

Use of operating cash flow of $3.9 million; an improvement of $0.8 million year-over-year.

 

Q1 Mobile Highlights

 

Mobile revenue of $182.6 million; up 13% year-over-year.

 

Mobile bookings of $193.4 million; up 10% year-over-year.

 

Mobile average DAUs of 23 million; up 24% year-over-year.

 

Mobile user pay revenue was up 10% year-over-year, and mobile user pay bookings were up 7% year-over-year.

 

 


5

 


Q1 Advertising Highlights

 

Advertising revenue of $44.8 million and advertising bookings of $45.1 million were up 12% and 10% year-over-year, respectively.

 

Advertising represented 22% of total revenue and 21% of total bookings as compared to 21% of total revenue and 20% of total bookings in Q1 2017.

 

We expect the mobile advertising market to continue to be highly competitive and price sensitive. We remain focused on growing our advertising inventory and optimizing our product offerings.

 

 

 

Q1 Player Metrics (users and payers in millions)

 

 

Three Months Ended

 

 

 

 

 

 

 

 

 

 

 

March 31,

 

 

December 31,

 

 

March 31,

 

 

Q1'18

 

 

Q1'18

 

 

 

2018

 

 

2017

 

 

2017

 

 

Q/Q

 

 

Y/Y

 

Average daily active users (DAUs) (1)

 

 

25

 

 

 

22

 

 

 

21

 

 

 

18

%

 

 

22

%

Average mobile DAUs (1)

 

 

23

 

 

 

20

 

 

 

18

 

 

 

17

%

 

 

24

%

Average web DAUs (1)

 

 

2

 

 

 

2

 

 

 

3

 

 

 

27

%

 

 

4

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average monthly active user (MAUs) (1)

 

 

94

 

 

 

86

 

 

 

72

 

 

 

9

%

 

 

31

%

Average mobile MAUs (1)

 

 

82

 

 

 

76

 

 

 

63

 

 

 

7

%

 

 

30

%

Average web MAUs (1)

 

 

12

 

 

 

10

 

 

 

9

 

 

 

26

%

 

 

35

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average daily bookings per average DAU (ABPU)

 

$

0.096

 

 

$

0.113

 

 

$

0.107

 

 

 

(15

)%

 

 

(11

)%

Average monthly unique users (MUUs) (2)

 

 

51

 

 

 

49

 

 

 

56

 

 

 

4

%

 

 

(7

)%

Average monthly unique payers (MUPs) (2)

 

 

1.2

 

 

 

1.2

 

 

 

1.3

 

 

 

0

%

 

 

(9

)%

Payer conversion (2)

 

 

2.3

%

 

 

2.4

%

 

 

2.3

%

 

 

(4

)%

 

 

(2

)%

 

 

(1)

We do not have the third party network login data to link an individual who has played under multiple user accounts and accordingly, actual DAU and MAU may be lower than reported due to the potential duplication of these individuals. Specifically, for the first quarter of 2018 and fourth quarter of 2017, DAUs and MAUs incrementally include Daily Celebrity Crossword, Solitaire, our Facebook Instant Games and casual card games acquired in December 2017; for the first quarter of 2017, DAUs and MAUs incrementally include Daily Celebrity Crossword, Solitaire and our Facebook Instant Games.

 

(2)

For the first quarter of 2018 and fourth quarter of 2017, MUUs and MUPs exclude Daily Celebrity Crossword, Solitaire, our Facebook Instant Games and casual card games acquired in December 2017. For the first quarter of 2017, MUUs and MUPs exclude Daily Celebrity Crossword, Solitaire and our Facebook Instant Games. These games are excluded to avoid potential double counting of MUUs and MUPs as our systems are unable to distinguish whether a player of these games is also a player of the Company’s other games during the applicable time periods.

 


6

 


SHARE REPURCHASE

 

Today, we’re announcing a new $200 million share repurchase program. This follows the completion of our existing $200 million repurchase program, through which we repurchased 67 million shares at an average price of $2.99 per share. Share repurchase programs are a part of our ongoing capital allocation strategy as we continue to look for opportunities to deliver long-term shareholder value.

 

FINANCIAL GUIDANCE

 

Q2 Guidance

 

Revenue of $208 million

 

Net increase in deferred revenue of $10 million

 

Bookings of $218 million

 

Net income of $1 million

 

Adjusted EBITDA of $27 million

 

We expect Q2 to be similar in profile to the performance we delivered in Q1, driven primarily by live services and our planned cadence of bold beats. We anticipate our year-over-year growth to benefit from a full quarter contribution from our Casual Cards acquisition, and low double-digit growth collectively across CSR2, our Social Slots portfolio, Words With Friends and Zynga Poker. This growth will be partially offset by declines in web and older mobile games. We expect our gross margins and our operating expenses to be broadly in-line with Q1.

 

We continue to believe that our financial performance in 2018 will broadly follow the financial themes we outlined in our Q4 2017 Quarterly Earnings Letter. In particular, we remain on-track to deliver low double-digit growth in mobile bookings and expect live services to deliver more than 95% of our revenue and bookings. Our performance and execution over the past quarter gives us confidence in our ability to continue to grow Zynga. The company remains on track to achieving its near-term margin goals and is committed to delivering margins in-line with its peers over the long term.

 

In summary, we’re proud of the way we started 2018 and are confident in our performance and execution ability in the year ahead. We’re excited about how we’re executing against our growth strategy as we continue to prioritize delivering value to our players, employees and investors.

 

Sincerely,

 

 

Frank Gibeau

 

Ger Griffin

Chief Executive Officer

 

Chief Financial Officer


7

 


CONTACTS

Rebecca Lau
Director, Investor Relations & Corporate Finance
relau@zynga.com

Dani Dudeck
Chief Communications Officer
dani@zynga.com

 

FORWARD-LOOKING STATEMENTS

This letter contains forward-looking statements, including those statements relating to our outlook for the second quarter under the heading "FINANCIAL GUIDANCE" and for the full year 2018 (incorporated from our Q4 earnings letter filed with the SEC on February 7, 2018 under the heading “2018 FINANCIAL THEMES” and "FINANCIAL GUIDANCE") and statements relating to, among other things: our operational performance and progress in our turnaround; our operational strategy, including our focus on live services, growth projections relating to our mobile forever franchises, including our ability to enhance the monetization potential of our games; our continued investment in game innovations; our plans to acquire additional games and IP assets, such as our continued license of the Fast & Furious brand; our partnership with the World Poker Tour (WPT), including the development, launch and success of future game features; our ability to successfully launch new games and enhance existing games; the success of new product and feature launches and other special events; the prospect of emerging game platforms and features, such as chat, augmented reality and next generation wireless networks; our expectations regarding the advertising market, including anticipated trends in that market; our expectations in the mobile game industry, including anticipated trends in that market; our performance expectations regarding our legacy portfolio of web and older mobile games; our share repurchase program and capital allocation strategy; and our ability to achieve financial projections, including revenue, bookings, income and margin goals.

Forward-looking statements often include words such as "outlook," "projected," "intends," "will," "anticipate," "believe," "target," "expect," and statements in the future tense are generally forward-looking. The achievement or success of the matters covered by such forward-looking statements involves significant risks, uncertainties, and assumptions. Our actual results could differ materially from those predicted or implied and reported results should not be considered as an indication of our future performance. Undue reliance should not be placed on such forward-looking statements, which are based on information available to us on the date hereof. We assume no obligation to update such statements. More information about factors that could affect our operating results are described in greater detail in our public filings with the Securities and Exchange Commission (the “SEC”), copies of which may be obtained by visiting our Investor Relations web site at http://investor.zynga.com or the SEC's web site at www.sec.gov.

In addition, the preliminary financial results set forth in this letter are estimates based on information currently available to us. While we believe these estimates are meaningful, they could differ from the actual amounts that we ultimately report in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2018. We assume no obligation and do not intend to update these estimates prior to filing our Quarterly Report on Form 10-Q.

NON-GAAP FINANCIAL MEASURES

We have provided in this letter certain non-GAAP financial measures to supplement our consolidated financial statements prepared in accordance with U.S. GAAP (our “GAAP financial statements”). Management uses non-GAAP financial measures internally in analyzing our financial results to assess operational performance and liquidity. Our non-GAAP financial measures may be different from non-GAAP financial measures used by other companies.

The presentation of our non-GAAP financial measures is not intended to be considered in isolation or as a substitute for, or superior to, our GAAP financial statements. We believe that both management and investors benefit from referring to our non-GAAP financial measures in assessing our performance and when planning, forecasting and analyzing future periods. We believe our non-GAAP financial measures are useful to investors because they allow for greater transparency with respect to key financial measures we use in making operating decisions and because our investors and analysts use them to help assess the health of our business.

We have provided reconciliations of our non-GAAP financial measures used in this letter to the most directly comparable GAAP financial measures in the following tables. Because of the following limitations of our non-GAAP financial measures, you should consider the non-GAAP financial measures presented in this letter with our GAAP financial statements.

Key limitations of our non-GAAP financial measures include:

8

 


 

Bookings does not reflect that we defer and recognize online game revenue and revenue from certain advertising transactions over the estimated average playing period of payers for durable virtual items or as consumed for consumable virtual items;

 

Adjusted EBITDA does not include the impact of stock-based expense, acquisition-related transaction expenses, contingent consideration fair value adjustments, impairment of intangible assets, legal settlements and restructuring expense;

 

Adjusted EBITDA does not reflect provisions for or benefits from income taxes and does not include other income (expense) net, which includes foreign exchange gains and losses, and interest income;

 

Adjusted EBITDA excludes depreciation and amortization of tangible and intangible assets. Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future; and

 

Free cash flow is derived from net cash provided by operating activities less cash spent on capital expenditures.


9

 


ZYNGA INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, unaudited)

 

 

March 31,

 

 

December 31,

 

 

 

2018

 

 

2017

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

361,581

 

 

$

372,870

 

Short-term investments

 

 

273,850

 

 

 

308,506

 

Accounts receivable, net of allowance of $0 at March 31, 2018 and December 31, 2017

 

 

92,769

 

 

 

103,677

 

Restricted cash

 

 

7

 

 

 

12,807

 

Prepaid expenses

 

 

26,012

 

 

 

24,253

 

Other current assets

 

 

10,073

 

 

 

8,837

 

Total current assets

 

 

764,292

 

 

 

830,950

 

Goodwill

 

 

751,830

 

 

 

730,464

 

Intangible assets, net

 

 

59,792

 

 

 

64,258

 

Property and equipment, net

 

 

264,580

 

 

 

266,589

 

Restricted cash

 

 

10,000

 

 

 

20,000

 

Prepaid expenses

 

 

23,022

 

 

 

23,821

 

Other non-current assets

 

 

45,495

 

 

 

43,251

 

Total assets

 

$

1,919,011

 

 

$

1,979,333

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

11,125

 

 

$

18,938

 

Income tax payable

 

 

1,847

 

 

 

6,677

 

Deferred revenue

 

 

140,021

 

 

 

134,007

 

Other current liabilities

 

 

79,878

 

 

 

123,089

 

Total current liabilities

 

 

232,871

 

 

 

282,711

 

Deferred revenue

 

 

1,770

 

 

 

568

 

Deferred tax liabilities, net

 

 

6,438

 

 

 

5,902

 

Other non-current liabilities

 

 

34,067

 

 

 

48,912

 

Total liabilities

 

 

275,146

 

 

 

338,093

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Common stock and additional paid-in capital

 

 

3,443,929

 

 

 

3,426,505

 

Accumulated other comprehensive income (loss)

 

 

(70,390

)

 

 

(93,497

)

Accumulated deficit

 

 

(1,729,674

)

 

 

(1,691,768

)

Total stockholders’ equity

 

 

1,643,865

 

 

 

1,641,240

 

Total liabilities and stockholders’ equity

 

$

1,919,011

 

 

$

1,979,333

 

 


10

 


ZYNGA INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data, unaudited)

 

 

Three Months Ended

 

 

 

March 31, 2018

 

 

December 31, 2017

 

 

March 31, 2017

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

Online game

 

$

161,553

 

 

$

173,114

 

 

$

153,481

 

Advertising and other

 

 

46,679

 

 

 

60,166

 

 

 

40,803

 

Total revenue

 

 

208,232

 

 

 

233,280

 

 

 

194,284

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenue

 

 

69,042

 

 

 

64,015

 

 

 

64,877

 

Research and development

 

 

60,825

 

 

 

61,229

 

 

 

69,202

 

Sales and marketing

 

 

50,855

 

 

 

60,265

 

 

 

46,620

 

General and administrative

 

 

23,253

 

 

 

38,711

 

 

 

22,565

 

Total costs and expenses

 

 

203,975

 

 

 

224,220

 

 

 

203,264

 

Income (loss) from operations

 

 

4,257

 

 

 

9,060

 

 

 

(8,980

)

Interest income

 

 

1,810

 

 

 

1,761

 

 

 

937

 

Other income (expense), net

 

 

3,401

 

 

 

2,319

 

 

 

1,436

 

Income (loss) before income taxes

 

 

9,468

 

 

 

13,140

 

 

 

(6,607

)

Provision for (benefit from) income taxes

 

 

3,859

 

 

 

211

 

 

 

2,867

 

Net income (loss)

 

$

5,609

 

 

$

12,929

 

 

$

(9,474

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per share attributable to common stockholders:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.01

 

 

$

0.01

 

 

$

(0.01

)

Diluted

 

$

0.01

 

 

$

0.01

 

 

$

(0.01

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares used to compute net income (loss)

   per share attributable to common stockholders:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

869,627

 

 

 

870,137

 

 

 

875,712

 

Diluted

 

 

893,774

 

 

 

898,410

 

 

 

875,712

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation expense included in the above line items:

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenue

 

$

431

 

 

$

413

 

 

$

619

 

Research and development

 

 

8,625

 

 

 

9,883

 

 

 

11,713

 

Sales and marketing

 

 

1,836

 

 

 

1,852

 

 

 

1,787

 

General and administrative

 

 

3,221

 

 

 

3,021

 

 

 

3,407

 

Total stock-based compensation expense

 

$

14,113

 

 

$

15,169

 

 

$

17,526

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


11

 


ZYNGA INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands, unaudited)

 

 

Three Months Ended

 

 

 

March 31, 2018

 

 

December 31, 2017

(As Adjusted)(1)

 

 

March 31, 2017

(As Adjusted)(1)

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

5,609

 

 

$

12,929

 

 

$

(9,474

)

Adjustments to reconcile net income (loss) to net cash provided by (used in)

   operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

7,731

 

 

 

6,405

 

 

 

8,881

 

Stock-based compensation expense

 

 

14,113

 

 

 

15,169

 

 

 

17,526

 

(Gain) loss from foreign currency, sales of investments, assets and other, net

 

 

1,951

 

 

 

(34

)

 

 

38

 

Accretion and amortization on marketable debt securities

 

 

(549

)

 

 

(464

)

 

 

 

Change in deferred income taxes and other

 

 

1,322

 

 

 

(443

)

 

 

1,075

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Accounts receivable, net

 

 

10,682

 

 

 

(14,267

)

 

 

(8,964

)

Other assets

 

 

(4,786

)

 

 

(8,483

)

 

 

(5,903

)

Accounts payable

 

 

(9,574

)

 

 

2,346

 

 

 

(8,802

)

Deferred revenue

 

 

11,234

 

 

 

(9,494

)

 

 

13,074

 

Income tax payable

 

 

(5,004

)

 

 

2,785

 

 

 

1,252

 

Other liabilities

 

 

(36,676

)

 

 

19,931

 

 

 

(13,424

)

Net cash provided by (used in) operating activities

 

 

(3,947

)

 

 

26,380

 

 

 

(4,721

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

 

 

 

 

Purchases of short-term investments

 

 

(124,822

)

 

 

(93,293

)

 

 

 

Sales and maturities of short-term investments

 

 

160,000

 

 

 

40,000

 

 

 

 

Acquisition of property and equipment

 

 

(1,424

)

 

 

(3,093

)

 

 

(2,285

)

Business acquisitions, net of cash acquired

 

 

 

 

 

(73,620

)

 

 

(27,581

)

Proceeds from sale of property and equipment

 

 

25

 

 

 

52

 

 

 

15

 

Release of restricted cash escrow from business combinations

 

 

(22,800

)

 

 

(1,125

)

 

 

 

Other investing activities, net

 

 

 

 

 

(938

)

 

 

(7,390

)

Net cash provided by (used in) investing activities

 

 

10,979

 

 

 

(132,017

)

 

 

(37,241

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

 

 

 

 

Taxes paid related to net share settlement of stockholders' equity awards

 

 

(6,364

)

 

 

(7,143

)

 

 

(415

)

Repurchases of common stock

 

 

(39,544

)

 

 

(8,089

)

 

 

(86,164

)

Proceeds from issuance of common stock

 

 

3,311

 

 

 

520

 

 

 

3,152

 

Acquisition-related contingent consideration payment

 

 

 

 

 

 

 

 

(5,115

)

Net cash provided by (used in) financing activities

 

 

(42,597

)

 

 

(14,712

)

 

 

(88,542

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Effect of exchange rate changes on cash, cash equivalents and restricted cash

 

 

1,476

 

 

 

(163

)

 

 

857

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net change in cash, cash equivalents and restricted cash

 

 

(34,089

)

 

 

(120,512

)

 

 

(129,647

)

Cash, cash equivalents and restricted cash, beginning of period

 

 

405,677

 

 

 

526,189

 

 

 

861,716

 

Cash, cash equivalents and restricted cash, end of period

 

$

371,588

 

 

$

405,677

 

 

$

732,069

 

 

 

(1)

Prior period amounts retrospectively adjusted to reflect the adoption of ASU 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash”.

 

 


12

 


ZYNGA INC.

RECONCILIATION OF GAAP TO NON-GAAP RESULTS

(In thousands, except per share data, unaudited)

 


 

 

Three Months Ended

 

 

 

March 31, 2018

 

 

December 31, 2017

 

 

March 31, 2017

 

Reconciliation of Revenue to Bookings: Total

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$

208,232

 

 

$

233,280

 

 

$

194,284

 

Change in deferred revenue

 

 

11,240

 

 

 

(9,494

)

 

 

13,074

 

Bookings: Total

 

$

219,472

 

 

$

223,786

 

 

$

207,358

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reconciliation of Revenue to Bookings: Mobile

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$

182,601

 

 

$

203,625

 

 

$

161,613

 

Change in deferred revenue

 

 

10,822

 

 

 

(6,584

)

 

 

14,508

 

Bookings: Mobile

 

$

193,423

 

 

$

197,041

 

 

$

176,121

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reconciliation of Revenue to Bookings: Advertising

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$

44,826

 

 

$

58,991

 

 

$

40,054

 

Change in deferred revenue

 

 

296

 

 

 

860

 

 

 

1,053

 

Bookings: Advertising

 

$

45,122

 

 

$

59,851

 

 

$

41,107

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reconciliation of Net Income (Loss) to Adjusted EBITDA

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

5,609

 

 

$

12,929

 

 

$

(9,474

)

Provision for income taxes

 

 

3,859

 

 

 

211

 

 

 

2,867

 

Other income, net

 

 

(3,401

)

 

 

(2,319

)

 

 

(1,436

)

Interest income

 

 

(1,810

)

 

 

(1,761

)

 

 

(937

)

Restructuring expense (benefit), net

 

 

471

 

 

 

1,612

 

 

 

(845

)

Depreciation and amortization

 

 

7,731

 

 

 

6,405

 

 

 

8,881

 

Acquisition-related transaction expenses

 

 

 

 

 

2,390

 

 

 

187

 

Contingent consideration fair value adjustment

 

 

 

 

 

 

 

 

(94

)

Loss on legal settlements

 

 

 

 

 

11,867

 

 

 

 

Stock-based compensation expense

 

 

14,113

 

 

 

15,169

 

 

 

17,526

 

Adjusted EBITDA

 

$

26,572

 

 

$

46,503

 

 

$

16,675

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reconciliation of GAAP Operating Expense to Non-GAAP Operating Expense

 

 

 

 

 

 

 

 

 

 

 

 

GAAP operating expense

 

$

134,933

 

 

$

160,205

 

 

$

138,387

 

Restructuring (expense) benefit, net

 

 

(444

)

 

 

(1,612

)

 

 

845

 

Amortization of intangible assets from acquisition

 

 

(534

)

 

 

(547

)

 

 

(1,053

)

Acquisition-related transaction expenses

 

 

 

 

 

(2,390

)

 

 

(187

)

Contingent consideration fair value adjustment

 

 

 

 

 

 

 

 

94

 

Loss on legal settlements