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Net Cash Provided By Operations of
Free
Implementing Cost Reduction Plan
- Q3 Revenue of
$317 million , up 3% year-over-year, nine months year-to-date revenue of$970 million , up 17% year-over-year- Q3 Bookings of
$256 million , down 11% year-over-year, nine months year-to-date bookings of$886 million , up 4% year-over-year- Q3 EPS of
($0.07) , down from$0.00 in the third quarter of 2011, nine months year-to-date EPS of($0.22) , down from$0.00 in the first nine months of 2011- Non-GAAP EPS of
$0.00 , down from$0.04 in the third quarter of 2011, nine months year-to-date non-GAAP EPS of$0.06 , down from$0.20 in the first nine months of 2011
"While the last several months have been challenging for us,
Financial Highlights (in thousands, except per share data)
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Business Highlights
Third Quarter 2012 Financial Summary
Cost Reduction Plan
Yesterday
Share Repurchase Program
2012 Outlook
Conference Call Details:
About
The
Forward-Looking Statements
This press release contains forward-looking statements relating to, among other things, our outlook for full year 2012 bookings, adjusted EBITDA, stock-based expense, capital expenditures, effective tax rate, non-GAAP weighted average diluted shares and non-GAAP EPS; our cost reduction plans and reduction in force and estimated pre-tax savings and pre-tax restructuring charges; our proposed non-headcount cost reductions and our ability to rationalize our product pipeline, reduce marketing and technology expenditures and consolidate certain facilities; our proposed share repurchase program; our launch of successful new games; the growth of the social games market, including mobile and advertising growth; and our future operational plans. Forward-looking statements often include words such as "outlook," "projected, " "intends," "will," "anticipate," "believe," "expect," and statements in the future tense are generally forward-looking statements. The achievement or success of the matters covered by such forward-looking statements involves 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. Factors that could cause or contribute to such differences include, but are not limited to, our relationship with Facebook or changes in the Facebook platform or to our agreements with Facebook, our ability to launch new games in a timely manner and monetize these games effectively, our ability to control and reduce expenses, our ability to anticipate and address technical challenges that may arise, competition, the changing interests of players, intellectual property disputes or other litigation, asset impairment charges, our ability to retain key employees, acquisitions by us and changes in our corporate strategy or management.
More information about factors that could affect our operating results is included under the captions "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Quarterly Report on Form 10-Q for the three months ended June 30, 2012, in our registration statement on Form S-1, as amended, filed with the Securities and Exchange Commission ("SEC") on March 23, 2012 and in our Annual Report on Form 10-K for the year ended December 31, 2011, copies of which may be obtained by visiting our Investor Relations web site at http://investor.zynga.com or the
DAU, MAU, MUU, MUP and ABPU figures presented in this press release represent the average for each period presented. The figures in this press release above represent the quarterly average of the three months within each quarter presented.
MUPs represents the aggregate number of unique players who made a payment at least once during the applicable month through a payment method for which we can quantify the number of unique payers. MUPs do not include payers who use certain payment methods for which we cannot quantify the number of unique payers. If a player made a payment in our games on two separate platforms (e.g. Facebook and Google+) in a month, the player would be counted as two unique payers in that month.
Non-GAAP Financial Measures:
We have provided in this release non-GAAP financial information including bookings, adjusted EBITDA, non-GAAP net income (loss), free cash flow, and non-GAAP EPS, as a supplement to the consolidated financial statements, which are prepared in accordance with generally accepted accounting principles ("GAAP"). Management uses these non-GAAP financial measures internally in analyzing our financial results to assess operational performance and liquidity. The presentation of this financial information is not intended to be considered in isolation or as a substitute for the financial information prepared in accordance with GAAP. We believe that both management and investors benefit from referring to these non-GAAP financial measures in assessing our performance and when planning, forecasting and analyzing future periods. We believe these non-GAAP financial measures are useful to investors because they allow for greater transparency with respect to key financial metrics 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 between our historical non-GAAP financial measures to the most directly comparable GAAP financial measures. However, we have not provided reconciliation of bookings outlook to revenue, adjusted EBITDA outlook to net income (loss), non-GAAP effective tax rate outlook to GAAP effective tax rate or non-GAAP EPS outlook to GAAP EPS because certain reconciling items necessary to accurately project revenue (including the projected mix of virtual goods sold in our games, and the projected estimated average lives of durable virtual goods for our games) are not in our control and cannot be reasonably projected due to variability from period to period caused by changes in player behavior and other factors. As revenue and/or net income for the applicable future period is a necessary input to determine all of these comparable GAAP figures, we are not able to provide these reconciliations.
Some limitations of bookings, adjusted EBITDA, non-GAAP net income (loss), free cash flow and non-GAAP EPS are:
Because of these limitations, you should consider bookings, adjusted EBITDA, non-GAAP net income (loss), free cash flow and non-GAAP EPS along with other financial performance measures, including revenue, net income (loss) and our other financial results presented in accordance with GAAP. See the GAAP to non-GAAP reconciliations below for further details.
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CONSOLIDATED BALANCE SHEETS (In thousands, unaudited) |
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| 2012 | 2011 | |
| Assets | ||
| Current assets: | ||
| Cash and cash equivalents |
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| Marketable securities | 928,684 | 225,165 |
| Accounts Receivable | 105,601 | 135,633 |
| Income tax receivable | 6,764 | 18,583 |
| Deferred tax assets | 34,055 | 23,515 |
| Restricted cash | 28,596 | 3,846 |
| Other current assets | 37,245 | 34,824 |
| Total current assets | 1,535,304 | 2,023,909 |
| Long-term marketable securities | 325,269 | 110,098 |
| Goodwill | 209,781 | 91,765 |
| Other intangible assets, net | 39,520 | 32,112 |
| Property and equipment, net | 488,109 | 246,740 |
| Restricted cash | -- | 4,082 |
| Other long-term assets | 7,515 | 7,940 |
| Total assets |
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| Liabilities and stockholders' equity | ||
| Current liabilities: | ||
| Accounts payable |
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| Other current liabilities | 146,126 | 167,271 |
| Deferred revenue | 390,033 | 457,394 |
| Total current liabilities | 573,729 | 668,685 |
| Long-term debt | 100,000 | -- |
| Deferred revenue | 6,868 | 23,251 |
| Deferred tax liabilities | 13,324 | 13,950 |
| Other non-current liabilities | 57,845 | 61,221 |
| Total liabilities | 751,766 | 767,107 |
| Stockholders' equity: | ||
| Common stock and additional paid in capital | 2,692,827 | 2,426,168 |
| Treasury stock | (283,311) | (282,897) |
| Accumulated other comprehensive income (loss) | (803) | 362 |
| Accumulated deficit | (554,981) | (394,094) |
| Total stockholders' equity | 1,853,732 | 1,749,539 |
| Total liabilities and stockholders' equity |
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| CONSOLIDATED STATEMENTS OF OPERATIONS | ||||
| (In thousands, except per share data, unaudited) | ||||
| Three Months Ended | Nine Months Ended | |||
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| 2012 | 2011 | 2012 | 2011 | |
| Revenue: | ||||
| Online game | $ 285,587 | $ 287,866 | $ 869,915 |
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| Advertising | 31,050 | 18,963 | 100,187 | 47,125 |
| Total Revenue | 316,637 | 306,829 | 970,102 | 828,863 |
| Costs and expenses: | ||||
| Cost of revenue | 90,150 | 80,170 | 275,113 | 225,908 |
| Research and development | 155,609 | 114,809 | 513,801 | 282,316 |
| Sales and marketing | 36,586 | 43,717 | 149,478 | 121,971 |
| General and administrative | 35,353 | 36,395 | 156,798 | 117,723 |
| Impairment of intangible assets | 95,493 | -- | 95,493 | -- |
| Total costs and expenses | 413,191 | 275,091 | 1,190,683 | 747,918 |
| Income (loss) from operations | (96,554) | 31,738 | (220,581) | 80,945 |
| Interest income | 1,144 | 262 | 3,519 | 1,223 |
| Other income (expense), net | (350) | 263 | 19,758 | (273) |
| Income (loss) before income taxes | (95,760) | 32,263 | (197,304) | 81,895 |
| (Provision for) benefit from income taxes | 43,035 | (19,723) | 36,417 | (51,206) |
| Net income (loss) | $ (52,725) | $ 12,540 | $ (160,887) | $ 30,689 |
| Net income attributable to participating securities | -- | 12,540 | -- | 30,689 |
| Net income (loss) attributable to common stockholders | $ (52,725) | $ -- | $ (160,887) | $ -- |
| Net income (loss) per share attributable to common stockholders | ||||
| Basic | $ (0.07) |
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| Diluted (1) | $ (0.07) |
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| Weighted average common shares used to compute net income (loss) per share attributable to common stockholders: | ||||
| Basic | 754,862 | 271,513 | 729,184 | 264,114 |
| Diluted | 754,862 | 271,513 | 729,184 | 264,114 |
| Stock-based expense included in the above line items: | ||||
| Cost of revenue |
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| Research and development | 41,853 | 16,752 | 185,245 | 40,693 |
| Sales and marketing | (3,977) | 2,330 | 21,156 | 10,101 |
| General and administrative | (1,139) | 3,027 | 49,625 | 17,845 |
| Total stock-based expense |
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(1) For periods when we have net income, diluted earnings per share results cannot be recalculated using the numbers above due to reallocation of net income as required by the two-class method. Refer to the Net income (loss) per share footnote in our |
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| CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||
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| Three Months Ended | Nine Months Ended | |||
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| 2012 | 2011 | 2012 | 2011 | |
| Operating activities | ||||
| Net income (loss) | $ (52,725) | $ 12,540 |
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$ 30,689 |
| Adjustments to reconcile net loss to net cash provided by operating activities: | ||||
| Depreciation and amortization | 39,444 | 22,936 | 108,049 | 64,148 |
| Stock-based expense | 37,817 | 22,624 | 267,124 | 70,241 |
| Accretion and amortization on marketable securities | 4,929 | 701 | 12,058 | 2,227 |
| Net gain on termination of lease and purchase of building | -- | -- | (19,886) | -- |
| (Gain) loss from sales of investments, assets and other, net | 237 | (1,380) | (161) | (1,380) |
| Tax benefits from stock based awards | 470 | -- | 5,680 | -- |
| Excess tax benefits from stock-based awards | (470) | 2,030 | (5,680) | 2,030 |
| Deferred income taxes | (50,851) | -- | (58,391) | -- |
| Impairment of intangible assets | 95,493 | -- | 95,493 | -- |
| Changes in operating assets and liabilities: | ||||
| Accounts receivable, net | 10,310 | (17,519) | 35,064 | (39,276) |
| Income tax receivable | (2,350) | 11,948 | 11,819 | 32,620 |
| Other assets | 18,465 | 7,981 | 8,920 | (22,114) |
| Accounts payable | 2,349 | (8,162) | (7,040) | 18,839 |
| Deferred revenue | (61,031) | (19,168) | (83,744) | 20,139 |
| Other liabilities | (11,940) | 12,964 | (32,430) | 47,050 |
| Net cash provided by operating activities | 30,147 | 47,495 | 175,988 | 225,213 |
| Investing activities | ||||
| Purchase of building | -- | -- | (233,700) | -- |
| Purchase of marketable securities | (289,207) | (21,733) | (1,527,322) | (512,564) |
| Sales of marketable securities | 70,019 | 10,484 | 150,117 | 12,620 |
| Maturities of marketable securities | 167,622 | 117,604 | 441,698 | 725,315 |
| Acquisition of property and equipment | (13,889) | (63,021) | (91,804) | (187,736) |
| Acquisition of purchased technology and other intangible assets | -- | (3) | (3,193) | (3,712) |
| Business acquisitions, net of cash acquired | (12,746) | (19,403) | (205,510) | (37,951) |
| Proceeds from sale of investment | -- | 2,049 | -- | 2,049 |
| Restricted cash | -- | (201) | 6,536 | (7,684) |
| Other investing activities, net | -- | (333) | 937 | (916) |
| Net cash provided by (used in) investing activities | (78,201) | 25,443 | (1,462,241) | (10,579) |
| Financing activities | ||||
| Repurchase of common stock | -- | (2,500) | -- | (283,770) |
| Proceeds from debt, net of issuance costs | -- | -- | 99,780 | -- |
| Taxes paid related to net share settlement of equity awards | (979) | -- | (26,069) | -- |
| Proceeds from exercise of stock options and warrants | 2,261 | 502 | 14,290 | 2,231 |
| Proceeds from employee stock purchase plan | 4,489 | -- | 4,489 | -- |
| Excess tax benefits from stock-based awards | 470 | (2,030) | 5,680 | (2,030) |
| Net proceeds from issuance of preferred stock | -- | -- | -- | 485,300 |
| Net cash provided by (used in) financing activities | 6,241 | (4,028) | 98,170 | 201,731 |
| Effect of exchange rate changes on cash and cash equivalents | 192 | (8) | 99 | 19 |
| Net increase (decrease) in cash and cash equivalents | (41,621) | 68,902 | (1,187,984) | 416,384 |
| Cash and cash equivalents, beginning of period | 435,980 | 535,313 | 1,582,343 | 187,831 |
| Cash and cash equivalents, end of period | $ 394,359 | $ 604,215 | $ 394,359 | $ 604,215 |
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| RECONCILIATION OF GAAP TO NON-GAAP RESULTS | ||||
| (In thousands, except per share data, unaudited) | ||||
| Three months ended | Nine months ended | |||
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| 2012 | 2011 | 2012 | 2011 | |
| Reconciliation of Revenue to Bookings | ||||
| Revenue | $ 316,637 | $ 306,829 | $ 970,102 | $ 828,863 |
| Change in deferred revenue | (61,031) | (19,168) | (83,744) | 20,139 |
| Bookings | $ 255,606 | $ 287,661 | $ 886,358 | $ 849,002 |
| Reconciliation of Net income (loss) to Adjusted EBITDA | ||||
| Net income (loss) |
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$ 12,540 |
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$ 30,689 |
| (Provision for) benefit from income taxes | (43,035) | 19,723 | (36,417) | 51,206 |
| Other income (expense), net | 350 | (263) | (19,758) | 273 |
| Interest income | (1,144) | (262) | (3,519) | (1,223) |
| Legal settlement | 985 | -- | 1,874 | -- |
| Depreciation and amortization | 39,444 | 22,936 | 108,049 | 64,148 |
| Impairment of intangible assets | 95,493 | -- | 95,493 | -- |
| Stock-based expense | 37,817 | 22,624 | 267,124 | 70,241 |
| Change in deferred revenue | (61,031) | (19,168) | (83,744) | 20,139 |
| Adjusted EBITDA | $ 16,154 | $ 58,130 | $ 168,215 | $ 235,473 |
| Reconciliation of Net income (loss) to Non-GAAP net income (loss) | ||||
| Net income (loss) |
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$ 12,540 |
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$ 30,689 |
| Impairment of intangible assets | 95,493 | -- | 95,493 | -- |
| Stock-based expense | 37,817 | 22,624 | 267,124 | 70,241 |
| Amortization of intangible assets from acquisitions | 13,510 | 6,873 | 34,998 | 19,131 |
| Change in deferred revenue | (61,031) | (19,168) | (83,744) | 20,139 |
| Legal settlements | 985 | -- | 1,874 | -- |
| Gain on purchase of corporate headquarters building | -- | -- | (19,886) | -- |
| Tax effect of non-GAAP adjustments to net income (loss) | (34,410) | 8,880 | (83,729) | 5,130 |
| Non-GAAP net income (loss) |
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$ 31,749 | $ 51,243 | $ 145,330 |
| Reconciliation of GAAP diluted shares to Non-GAAP diluted shares | ||||
| GAAP diluted shares | 754,862 | 271,513 | 729,184 | 264,114 |
| Add back: assumed preferred stock conversion (1) | -- | 304,865 | -- | 300,968 |
| Add back: other dilutive equity awards (2) | -- | 148,226 | 103,068 | 149,877 |
| Non-GAAP diluted shares | 754,862 | 724,604 | 832,252 | 714,959 |
| Non-GAAP net income (loss) per share: |
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$ 0.20 |
| Reconciliation of Net cash provided by operating activities to free cash flow | ||||
| Net cash provided by operating activities | $ 30,147 | $ 47,495 | $ 175,988 | $ 225,213 |
| Acquisition of property and equipment | (13,889) | (63,021) | (91,804) | (187,736) |
| Purchase of building | -- | -- | (233,700) | -- |
| Excess tax benefits from stock-based awards | 470 | (2,030) | 5,680 | (2,030) |
| Free cash flow | $ 16,728 | $ (17,556) | $ (143,836) | $ 35,447 |
| (1) Gives effect to the conversion of convertible preferred stock into common stock as though the conversion had occurred at the beginning of the period. | ||||
| (2) Gives effect to all dilutive awards based on the treasury stock method. | ||||
CONTACT: Investors -Krista Bessinger 415-339-5266 investors@zynga.com Press -Stephanie Hess 415-503-0303 press@zynga.com
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