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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 September 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 October 15, 2019, there were 945,922,482 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 September 30, 2019 and December 31, 2018

 

2

 

 

 

 

 

 

 

Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2019 and 2018

 

3

 

 

 

 

 

 

 

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

 

4

 

 

 

 

 

 

 

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

 

5

 

 

 

 

 

 

 

Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2019 and 2018

 

7

 

 

 

 

 

 

 

Notes to Consolidated Financial Statements

 

8

 

 

 

 

 

 

Item 2.

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

 

27

 

 

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosure About Market Risk

 

42

 

 

 

 

 

 

Item 4.

Controls and Procedures

 

42

 

 

 

 

 

PART II. OTHER INFORMATION

 

 

 

 

 

 

 

 

Item 1.

Legal Proceedings

 

43

 

 

 

 

 

 

Item 1A.

Risk Factors

 

43

 

 

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Issuer Purchases of Equity Purchases

 

61

 

 

 

 

 

 

Item 6.

Exhibits

 

62

 

 

 

 

 

 

 

Signatures

 

63

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)

 

 

 

September 30,

 

 

December 31,

 

 

 

2019

 

 

2018

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

589,446

 

 

$

544,990

 

Short-term investments

 

 

790,776

 

 

 

36,232

 

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

      December 31, 2018

 

 

149,507

 

 

 

91,630

 

Restricted cash

 

 

55,006

 

 

 

35,006

 

Prepaid expenses

 

 

22,817

 

 

 

26,914

 

Other current assets

 

 

15,907

 

 

 

12,505

 

Total current assets

 

 

1,623,459

 

 

 

747,277

 

Long-term investments

 

 

66,018

 

 

 

 

Goodwill

 

 

1,437,900

 

 

 

934,187

 

Intangible assets, net

 

 

247,299

 

 

 

118,600

 

Property and equipment, net

 

 

24,118

 

 

 

266,557

 

Right-of-use assets

 

 

139,048

 

 

 

 

Prepaid expenses

 

 

26,752

 

 

 

30,774

 

Other non-current assets

 

 

13,420

 

 

 

49,308

 

Total assets

 

$

3,578,014

 

 

$

2,146,703

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

25,953

 

 

$

26,811

 

Income tax payable

 

 

5,817

 

 

 

4,895

 

Deferred revenue

 

 

401,844

 

 

 

191,299

 

Debt

 

 

 

 

 

100,000

 

Operating lease liabilities

 

 

15,278

 

 

 

 

Other current liabilities

 

 

315,891

 

 

 

156,829

 

Total current liabilities

 

 

764,783

 

 

 

479,834

 

Convertible senior notes, net

 

 

564,309

 

 

 

 

Deferred revenue

 

 

965

 

 

 

1,586

 

Deferred tax liabilities, net

 

 

27,873

 

 

 

16,087

 

Non-current operating lease liabilities

 

 

132,225

 

 

 

 

Other non-current liabilities

 

 

149,424

 

 

 

52,586

 

Total liabilities

 

 

1,639,579

 

 

 

550,093

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

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

      authorized shares: 2,020,517; shares outstanding: 945,762 shares as

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

 

 

3,873,712

 

 

 

3,504,713

 

Accumulated other comprehensive income (loss)

 

 

(152,610

)

 

 

(118,439

)

Accumulated deficit

 

 

(1,782,667

)

 

 

(1,789,664

)

Total stockholders’ equity

 

 

1,938,435

 

 

 

1,596,610

 

Total liabilities and stockholders’ equity

 

$

3,578,014

 

 

$

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

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Online game

 

$

281,651

 

 

$

167,716

 

 

$

722,523

 

 

$

493,949

 

Advertising and other

 

 

63,642

 

 

 

65,527

 

 

 

194,673

 

 

 

164,571

 

Total revenue

 

 

345,293

 

 

 

233,243

 

 

 

917,196

 

 

 

658,520

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenue

 

 

133,859

 

 

 

78,592

 

 

 

382,374

 

 

 

221,816

 

Research and development

 

 

137,487

 

 

 

71,124

 

 

 

401,461

 

 

 

199,340

 

Sales and marketing

 

 

120,836

 

 

 

55,613

 

 

 

336,376

 

 

 

159,346

 

General and administrative

 

 

26,774

 

 

 

23,144

 

 

 

73,517

 

 

 

71,977

 

Total costs and expenses

 

 

418,956

 

 

 

228,473

 

 

 

1,193,728

 

 

 

652,479

 

Income (loss) from operations

 

 

(73,663

)

 

 

4,770

 

 

 

(276,532

)

 

 

6,041

 

Interest income

 

 

6,597

 

 

 

1,421

 

 

 

7,929

 

 

 

5,031

 

Interest expense

 

 

(6,728

)

 

 

(133

)

 

 

(10,158

)

 

 

(147

)

Other income (expense), net

 

 

313,757

 

 

 

4,147

 

 

 

321,009

 

 

 

10,167

 

Income (loss) before income taxes

 

 

239,963

 

 

 

10,205

 

 

 

42,248

 

 

 

21,092

 

Provision for (benefit from) income taxes

 

 

9,880

 

 

 

5

 

 

 

(3,177

)

 

 

6,194

 

Net income (loss)

 

$

230,083

 

 

$

10,200

 

 

$

45,425

 

 

$

14,898

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per share attributable to common

   stockholders:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.24

 

 

$

0.01

 

 

$

0.05

 

 

$

0.02

 

Diluted

 

$

0.24

 

 

$

0.01

 

 

$

0.05

 

 

$

0.02

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average common shares used to compute net income

   (loss) per share attributable to common stockholders:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

943,350

 

 

 

860,988

 

 

 

935,701

 

 

 

863,062

 

Diluted

 

 

973,830

 

 

 

887,228

 

 

 

970,801

 

 

 

890,146

 

 

See accompanying notes to consolidated financial statements.

3


Zynga Inc.

Consolidated Statements of Comprehensive Income (Loss)

(In thousands)

(Unaudited)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Net income (loss)

 

$

230,083

 

 

$

10,200

 

 

$

45,425

 

 

$

14,898

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in foreign currency translation adjustment

 

 

(30,666

)

 

 

(3,141

)

 

 

(34,304

)

 

 

(9,863

)

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

   marketable debt securities, net of tax

 

 

82

 

 

 

42

 

 

 

133

 

 

 

150

 

Other comprehensive income (loss), net of tax

 

 

(30,584

)

 

 

(3,099

)

 

 

(34,171

)

 

 

(9,713

)

Comprehensive income (loss)

 

$

199,499

 

 

$

7,101

 

 

$

11,254

 

 

$

5,185

 

 

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

 

Exercise of stock options and ESPP

 

 

1,452

 

 

 

 

 

 

5,490

 

 

 

 

 

 

 

 

 

 

 

 

5,490

 

Vesting of ZSUs, net of tax

   withholdings

 

 

4,086

 

 

 

 

 

 

 

 

 

(10,808

)

 

 

 

 

 

 

 

 

(10,808

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

21,339

 

 

 

 

 

 

 

 

 

 

 

 

21,339

 

Retirements of treasury stock

 

 

 

 

 

 

 

 

 

 

 

10,808

 

 

 

 

 

 

(10,808

)

 

 

 

Equity component of convertible

   senior notes

 

 

 

 

 

 

 

 

(36

)

 

 

 

 

 

 

 

 

 

 

 

(36

)

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

230,083