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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2019

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                     to                   

Commission File Number: 001-35375

 

Zynga Inc.

(Exact name of registrant as specified in its charter)

 

 

Delaware

42-1733483

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

 

 

699 Eighth Street

 

San Francisco, CA

94103

(Address of principal executive offices)

(Zip Code)

 

(855) 449-9642

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

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.

Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2).    Yes      No  

As of July 15, 2019, there were 941,634,893 shares of the Registrant’s Class A common stock outstanding.

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Class A common stock

ZNGA

Nasdaq Global Select Market

 

 

 

 

 


Zynga Inc.

Form 10-Q Quarterly Report

TABLE OF CONTENTS

 

 

 

 

 

Page

Cautionary Note Regarding Forward-Looking Statements

 

1

 

 

 

 

 

PART I. FINANCIAL INFORMATION

 

 

 

 

 

 

 

 

Item 1.

Financial Statements (Unaudited)

 

 

 

 

 

 

 

 

 

Consolidated Balance Sheets as of June 30, 2019 and December 31, 2018

 

2

 

 

 

 

 

 

 

Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2019 and 2018

 

3

 

 

 

 

 

 

 

Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months Ended June 30, 2019 and 2018

 

4

 

 

 

 

 

 

 

Consolidated Statements of Stockholders’ Equity for the Three and Six Months Ended June 30, 2019 and 2018

 

5

 

 

 

 

 

 

 

Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2019 and 2018

 

6

 

 

 

 

 

 

 

Notes to Consolidated Financial Statements

 

7

 

 

 

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

26

 

 

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosure About Market Risk

 

41

 

 

 

 

 

 

Item 4.

Controls and Procedures

 

41

 

 

 

 

 

PART II. OTHER INFORMATION

 

 

 

 

 

 

 

 

Item 1.

Legal Proceedings

 

42

 

 

 

 

 

 

Item 1A.

Risk Factors

 

42

 

 

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Issuer Purchases of Equity Purchases

 

60

 

 

 

 

 

 

Item 6.

Exhibits

 

61

 

 

 

 

 

 

 

Signatures

 

62

Zynga, the Zynga logo and other trademarks or service marks of Zynga appearing in this report are the property of Zynga Inc. Trade names, trademarks and service marks of other companies appearing in this report are the property of their respective holders.

 

 


CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward looking statements reflecting our current expectations that involve risks and uncertainties. These forward-looking statements include, but are not limited to, statements related to industry prospects, our future economic performance including anticipated revenues and expenditures, results of operations or financial position, and other financial items, our business plans and objectives, including our growth strategies and intended product releases, and may include certain assumptions that underlie the forward-looking statements. 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.

We have based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives, and financial needs. The achievement or success of the matters covered by such forward-looking statements involves significant risks, uncertainties and assumptions, including those described in “Part II. Item 1A. Risk Factors” of this Quarterly Report on Form 10-Q. Moreover, we operate in a very competitive and rapidly changing environment and industry. New risks may also emerge from time to time. It is not possible for our management to predict all of the risks related to our business and operations, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this Quarterly Report on Form 10-Q may not occur and actual results could differ materially and adversely from those anticipated, predicted or implied in the forward-looking statements.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur, and reported results should not be considered as an indication of future performance. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.

Except as required by law, we undertake no obligation to update any forward-looking statements for any reason to conform these statements to actual results or to changes in our expectations.

 

 

 

1


PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

Zynga Inc.

Consolidated Balance Sheets

(In thousands, except par value)

(Unaudited)

 

 

 

June 30,

 

 

December 31,

 

 

 

2019

 

 

2018

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

691,343

 

 

$

544,990

 

Short-term investments

 

 

137,265

 

 

 

36,232

 

Accounts receivable, net of allowance of $0 at June 30, 2019 and

      December 31, 2018

 

 

144,935

 

 

 

91,630

 

Restricted cash

 

 

25,006

 

 

 

35,006

 

Prepaid expenses

 

 

24,054

 

 

 

26,914

 

Assets held for sale

 

 

310,902

 

 

 

 

Other current assets

 

 

9,992

 

 

 

12,505

 

Total current assets

 

 

1,343,497

 

 

 

747,277

 

Long-term investments

 

 

2,004

 

 

 

 

Goodwill

 

 

1,460,896

 

 

 

934,187

 

Intangible assets, net

 

 

269,923

 

 

 

118,600

 

Property and equipment, net

 

 

18,043

 

 

 

266,557

 

Right-of-use assets

 

 

17,249

 

 

 

 

Restricted cash

 

 

30,000

 

 

 

 

Prepaid expenses

 

 

28,928

 

 

 

30,774

 

Other non-current assets

 

 

13,712

 

 

 

49,308

 

Total assets

 

$

3,184,252

 

 

$

2,146,703

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

21,909

 

 

$

26,811

 

Income tax payable

 

 

11,155

 

 

 

4,895

 

Deferred revenue

 

 

356,932

 

 

 

191,299

 

Debt

 

 

 

 

 

100,000

 

Operating lease liabilities

 

 

9,042

 

 

 

 

Liabilities related to assets held for sale

 

 

46,279

 

 

 

 

Other current liabilities

 

 

229,882

 

 

 

156,829

 

Total current liabilities

 

 

675,199

 

 

 

479,834

 

Convertible senior notes, net

 

 

558,394

 

 

 

 

Deferred revenue

 

 

944

 

 

 

1,586

 

Deferred tax liabilities, net

 

 

21,635

 

 

 

16,087

 

Non-current operating lease liabilities

 

 

17,917

 

 

 

 

Other non-current liabilities

 

 

187,212

 

 

 

52,586

 

Total liabilities

 

 

1,461,301

 

 

 

550,093

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Common stock (Class A), $0.00000625 par value, and additional paid in capital -

      authorized shares: 2,020,517; shares outstanding: 940,224 shares as

      of June 30, 2019 and 861,111 as of December 31, 2018

 

 

3,846,919

 

 

 

3,504,713

 

Accumulated other comprehensive income (loss)

 

 

(122,026

)

 

 

(118,439

)

Accumulated deficit

 

 

(2,001,942

)

 

 

(1,789,664

)

Total stockholders’ equity

 

 

1,722,951

 

 

 

1,596,610

 

Total liabilities and stockholders’ equity

 

$

3,184,252

 

 

$

2,146,703

 

 

See accompanying notes to consolidated financial statements.

 

2


Zynga Inc.

Consolidated Statements of Operations

(In thousands, except per share data)

(Unaudited)

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Online game

 

$

240,708

 

 

$

164,680

 

 

$

440,872

 

 

$

326,233

 

Advertising and other

 

 

65,792

 

 

 

52,365

 

 

 

131,031

 

 

 

99,044

 

Total revenue

 

 

306,500

 

 

 

217,045

 

 

 

571,903

 

 

 

425,277

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenue

 

 

126,872

 

 

 

74,182

 

 

 

248,515

 

 

 

143,224

 

Research and development

 

 

102,094

 

 

 

67,391

 

 

 

263,974

 

 

 

128,216

 

Sales and marketing

 

 

113,529

 

 

 

52,878

 

 

 

215,540

 

 

 

103,733

 

General and administrative

 

 

25,239

 

 

 

25,580

 

 

 

46,743

 

 

 

48,833

 

Total costs and expenses

 

 

367,734

 

 

 

220,031

 

 

 

774,772

 

 

 

424,006

 

Income (loss) from operations

 

 

(61,234

)

 

 

(2,986

)

 

 

(202,869

)

 

 

1,271

 

Interest income

 

 

889

 

 

 

1,800

 

 

 

1,332

 

 

 

3,610

 

Interest expense

 

 

(2,167

)

 

 

(9

)

 

 

(3,430

)

 

 

(14

)

Other income (expense), net

 

 

3,877

 

 

 

2,614

 

 

 

7,252

 

 

 

6,020

 

Income (loss) before income taxes

 

 

(58,635

)

 

 

1,419

 

 

 

(197,715

)

 

 

10,887

 

Provision for (benefit from) income taxes

 

 

(2,805

)

 

 

2,330

 

 

 

(13,057

)

 

 

6,189

 

Net income (loss)

 

$

(55,830

)

 

$

(911

)

 

$

(184,658

)

 

$

4,698

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.06

)

 

$

(0.00

)

 

$

(0.20

)

 

$

0.01

 

Diluted

 

$

(0.06

)

 

$

(0.00

)

 

$

(0.20

)

 

$

0.01

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average common shares used to compute net income

   (loss) per share attributable to common stockholders:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

937,334

 

 

 

858,666

 

 

 

931,813

 

 

 

864,117

 

Diluted

 

 

937,334

 

 

 

858,666

 

 

 

931,813

 

 

 

890,285

 

 

See accompanying notes to consolidated financial statements.

3


Zynga Inc.

Consolidated Statements of Comprehensive Income (Loss)

(In thousands)

(Unaudited)

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Net income (loss)

 

$

(55,830

)

 

$

(911

)

 

$

(184,658

)

 

$

4,698

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in foreign currency translation adjustment

 

 

(10,600

)

 

 

(29,855

)

 

 

(3,638

)

 

 

(6,721

)

Net change in unrealized gains (losses) on available-for-sale

   marketable debt securities, net of tax

 

 

36

 

 

 

134

 

 

 

51

 

 

 

107

 

Other comprehensive income (loss), net of tax

 

 

(10,564

)

 

 

(29,721

)

 

 

(3,587

)

 

 

(6,614

)

Comprehensive income (loss)

 

$

(66,394

)

 

$

(30,632

)

 

$

(188,245

)

 

$

(1,916

)

 

See accompanying notes to consolidated financial statements.

4


Zynga Inc.

Consolidated Statements of Stockholders’ Equity

(In thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

Class A

Common Stock

 

 

Additional

Paid-In

 

 

Treasury

 

 

Other

Comprehensive

 

 

Accumulated

 

 

Total

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Stock

 

 

Income (Loss)

 

 

Deficit

 

 

Equity

 

Balances at December 31, 2018

 

 

861,111

 

 

$

5

 

 

$

3,504,708

 

 

$

 

 

$

(118,439

)

 

$

(1,789,664

)

 

$

1,596,610

 

Exercise of stock options and ESPP

 

 

5,097

 

 

 

 

 

 

5,304

 

 

 

 

 

 

 

 

 

 

 

 

5,304

 

Vesting of ZSUs, net of tax

   withholdings

 

 

2,487

 

 

 

 

 

 

 

 

 

(11,010

)

 

 

 

 

 

 

 

 

(11,010

)

Acquisition-related common stock

   issuance

 

 

63,795

 

 

 

1

 

 

 

253,902

 

 

 

 

 

 

 

 

 

 

 

 

253,903

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

18,773

 

 

 

 

 

 

 

 

 

 

 

 

18,773

 

Retirements of treasury stock

 

 

 

 

 

 

 

 

 

 

 

11,010

 

 

 

 

 

 

(11,010

)

 

 

 

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(128,828

)

 

 

(128,828

)

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6,977

 

 

 

 

 

 

6,977

 

Balances at March 31, 2019

 

 

932,490

 

 

$

6

 

 

$

3,782,687

 

 

$

 

 

$

(111,462

)

 

$

(1,929,502

)

 

$

1,741,729

 

Exercise of stock options and ESPP

 

 

3,885

 

 

 

 

 

 

1,727

 

 

 

 

 

 

 

 

 

 

 

 

1,727

 

Vesting of ZSUs, net of tax

   withholdings

 

 

3,849

 

 

 

 

 

 

 

 

 

(16,610

)

 

 

 

 

 

 

 

 

(16,610

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

21,355

 

 

 

 

 

 

 

 

 

 

 

 

21,355

 

Retirements of treasury stock

 

 

 

 

 

 

 

 

 

 

 

16,610

 

 

 

 

 

 

(16,610

)

 

 

 

Equity component of convertible

   senior notes

 

 

 

 

 

 

 

 

114,974

 

 

 

 

 

 

 

 

 

 

 

 

114,974

 

Purchase of capped calls related

   to issuance of convertible senior

   notes

 

 

 

 

 

 

 

 

(73,830

)

 

 

 

 

 

 

 

 

 

 

 

(73,830

)

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(55,830

)

 

 

(55,830

)

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(10,564

)

 

 

 

 

 

(10,564

)

Balances at June 30, 2019

 

 

940,224

 

 

$

6

 

 

$

3,846,913

 

 

$

 

 

$

(122,026

)

 

$

(2,001,942

)

 

$

1,722,951

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

Class A, B and C

Common Stock

 

 

Additional

Paid-In

 

 

Treasury

 

 

Other

Comprehensive

 

 

Accumulated

 

 

Total

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Stock

 

 

Income (Loss)

 

 

Deficit

 

 

Equity

 

Balances at December 31, 2017

 

 

870,660

 

 

$

5

 

 

$

3,426,500

 

 

$

 

 

$

(93,497

)

 

$

(1,691,768

)

 

$

1,641,240

 

Exercise of stock options and ESPP

 

 

1,510