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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, 2020

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)

 

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

 

 

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, 2020, there were 1,075,438,386 shares of the Registrant’s Class A common stock outstanding.

 

 

 

 


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, 2020 and December 31, 2019

 

2

 

 

 

 

 

 

 

Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2020 and 2019

 

3

 

 

 

 

 

 

 

Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months Ended June 30, 2020 and 2019

 

4

 

 

 

 

 

 

 

Consolidated Statements of Stockholders’ Equity for the Three and Six Months Ended June 30, 2020 and 2019

 

5

 

 

 

 

 

 

 

Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2020 and 2019

 

6

 

 

 

 

 

 

 

Notes to Consolidated Financial Statements

 

7

 

 

 

 

 

 

Item 2.

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

 

24

 

 

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosure About Market Risk

 

40

 

 

 

 

 

 

Item 4.

Controls and Procedures

 

40

 

 

 

 

 

PART II. OTHER INFORMATION

 

 

 

 

 

 

 

 

Item 1.

Legal Proceedings

 

41

 

 

 

 

 

 

Item 1A.

Risk Factors

 

41

 

 

 

 

 

 

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, the impact of the ongoing coronavirus (COVID-19) pandemic and our response to it, our ability to integrate and achieve the intended benefits of our recent and announced acquisitions, 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,

 

 

 

2020

 

 

2019

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

1,339,619

 

 

$

423,323

 

Short-term investments

 

 

216,595

 

 

 

938,173

 

Accounts receivable, net of allowance of $400 at June 30, 2020 and

      $0 at December 31, 2019

 

 

184,388

 

 

 

140,078

 

Restricted cash

 

 

30,006

 

 

 

30,006

 

Prepaid expenses

 

 

27,077

 

 

 

27,533

 

Other current assets

 

 

14,544

 

 

 

16,557

 

Total current assets

 

 

1,812,229

 

 

 

1,575,670

 

Long-term investments

 

 

15,356

 

 

 

175,300

 

Goodwill

 

 

1,449,135

 

 

 

1,460,933

 

Intangible assets, net

 

 

201,507

 

 

 

233,005

 

Property and equipment, net

 

 

31,567

 

 

 

25,826

 

Right-of-use assets

 

 

128,686

 

 

 

136,972

 

Prepaid expenses

 

 

28,985

 

 

 

37,815

 

Other non-current assets

 

 

16,137

 

 

 

15,093

 

Total assets

 

$

3,683,602

 

 

$

3,660,614

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

24,249

 

 

$

27,799

 

Income tax payable

 

 

6,276

 

 

 

649

 

Deferred revenue

 

 

521,314

 

 

 

432,962

 

Operating lease liabilities

 

 

16,053

 

 

 

15,753

 

Other current liabilities

 

 

415,876

 

 

 

314,805

 

Total current liabilities

 

 

983,768

 

 

 

791,968

 

Convertible senior notes, net

 

 

582,939

 

 

 

570,456

 

Deferred revenue

 

 

1,732

 

 

 

567

 

Deferred tax liabilities, net

 

 

43,415

 

 

 

33,479

 

Non-current operating lease liabilities

 

 

122,077

 

 

 

130,301

 

Other non-current liabilities

 

 

213,438

 

 

 

158,413

 

Total liabilities

 

 

1,947,369

 

 

 

1,685,184

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Common stock, $0.00000625 par value and additional paid in capital -

      authorized shares: 2,020,517; shares outstanding: 958,874 shares as

      of June 30, 2020 and 950,042 as of December 31, 2019

 

 

3,955,501

 

 

 

3,898,695

 

Accumulated other comprehensive income (loss)

 

 

(138,206

)

 

 

(125,935

)

Accumulated deficit

 

 

(2,081,062

)

 

 

(1,797,330

)

Total stockholders’ equity

 

 

1,736,233

 

 

 

1,975,430

 

Total liabilities and stockholders’ equity

 

$

3,683,602

 

 

$

3,660,614

 

 

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,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Online game

 

$

388,181

 

 

$

240,708

 

 

$

732,541

 

 

$

440,872

 

Advertising and other

 

 

63,507

 

 

 

65,792

 

 

 

122,914

 

 

 

131,031

 

Total revenue

 

 

451,688

 

 

 

306,500

 

 

 

855,455

 

 

 

571,903

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenue

 

 

179,208

 

 

 

126,872

 

 

 

325,410

 

 

 

248,515

 

Research and development

 

 

227,952

 

 

 

102,094

 

 

 

425,797

 

 

 

263,974

 

Sales and marketing

 

 

134,652

 

 

 

113,529

 

 

 

257,823

 

 

 

215,540

 

General and administrative

 

 

39,195

 

 

 

25,239

 

 

 

67,398

 

 

 

46,743

 

Total costs and expenses

 

 

581,007

 

 

 

367,734

 

 

 

1,076,428

 

 

 

774,772

 

Income (loss) from operations

 

 

(129,319

)

 

 

(61,234

)

 

 

(220,973

)

 

 

(202,869

)

Interest income

 

 

3,598

 

 

 

889

 

 

 

9,123

 

 

 

1,332

 

Interest expense

 

 

(6,961

)

 

 

(2,167

)

 

 

(13,916

)

 

 

(3,430

)

Other income (expense), net

 

 

571

 

 

 

3,877

 

 

 

(1,759

)

 

 

7,252

 

Income (loss) before income taxes

 

 

(132,111

)

 

 

(58,635

)

 

 

(227,525

)

 

 

(197,715

)

Provision for (benefit from) income taxes

 

 

18,189

 

 

 

(2,805

)

 

 

26,700

 

 

 

(13,057

)

Net income (loss)

 

$

(150,300

)

 

$

(55,830

)

 

$

(254,225

)

 

$

(184,658

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per share attributable to common

   stockholders:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.16

)

 

$

(0.06

)

 

$

(0.27

)

 

$

(0.20

)

Diluted

 

$

(0.16

)

 

$

(0.06

)

 

$

(0.27

)

 

$

(0.20

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average common shares used to compute net income

   (loss) per share attributable to common stockholders:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

956,854

 

 

 

937,334

 

 

 

954,678

 

 

 

931,813

 

Diluted

 

 

956,854

 

 

 

937,334

 

 

 

954,678

 

 

 

931,813

 

 

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,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Net income (loss)

 

$

(150,300

)

 

$

(55,830

)

 

$

(254,225

)

 

$

(184,658

)

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in foreign currency translation adjustment

 

 

16,281

 

 

 

(10,600

)

 

 

(12,634

)

 

 

(3,638

)

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

   marketable debt securities, net of tax

 

 

1,404

 

 

 

36

 

 

 

363

 

 

 

51

 

Other comprehensive income (loss), net of tax

 

 

17,685

 

 

 

(10,564

)

 

 

(12,271

)

 

 

(3,587

)

Comprehensive income (loss)

 

$

(132,615

)

 

$

(66,394

)

 

$

(266,496

)

 

$

(188,245

)

 

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, 2019

 

 

950,042

 

 

$

6

 

 

$

3,898,689

 

 

$

 

 

$

(125,935

)

 

$

(1,797,330

)

 

$

1,975,430

 

Exercise of stock options and ESPP

 

 

2,511

 

 

 

 

 

 

8,802

 

 

 

 

 

 

 

 

 

 

 

 

8,802

 

Vesting of RSUs, net of tax

   withholdings

 

 

3,273

 

 

 

 

 

 

 

 

 

(14,836

)

 

 

 

 

 

 

 

 

(14,836

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

20,465

 

 

 

 

 

 

 

 

 

 

 

 

20,465

 

Retirements of treasury stock

 

 

 

 

 

 

 

 

 

 

 

14,836

 

 

 

 

 

 

(14,836

)

 

 

 

Adoption of ASU 2016-13

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(401

)

 

 

(401

)

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(103,925

)

 

 

(103,925

)

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(29,956

)

 

 

 

 

 

(29,956

)

Balances at March 31, 2020

 

 

955,826

 

 

$

6

 

 

$

3,927,956

 

 

$

 

 

$

(155,891

)

 

$

(1,916,492

)

 

$

1,855,579

 

Exercise of stock options and ESPP

 

 

600

 

 

 

 

 

 

1,866

 

 

 

 

 

 

 

 

 

 

 

 

1,866

 

Vesting of RSUs, net of tax

   withholdings

 

 

2,448

 

 

 

 

 

 

 

 

 

(14,270

)

 

 

 

 

 

 

 

 

(14,270

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

25,673

 

 

 

 

 

 

 

 

 

 

 

 

25,673

 

Retirements of treasury stock

 

 

 

 

 

 

 

 

 

 

 

14,270

 

 

 

 

 

 

(14,270

)

 

 

 

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(150,300

)

 

 

(150,300

)

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

17,685

 

 

 

 

 

 

17,685

 

Balances at June 30, 2020

 

 

958,874

 

 

$

6

 

 

$

3,955,495

 

 

$

 

 

$

(138,206

)

 

$

(2,081,062

)

 

$

1,736,233

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 RSUs, 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