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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, 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 October 15, 2020, there were 1,078,999,302 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)

 

2

 

 

 

 

 

 

 

Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019

 

2

 

 

 

 

 

 

 

Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2020 and 2019

 

3

 

 

 

 

 

 

 

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

 

4

 

 

 

 

 

 

 

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

 

5

 

 

 

 

 

 

 

Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2020 and 2019

 

7

 

 

 

 

 

 

 

Notes to Consolidated Financial Statements

 

8

 

 

 

 

 

 

Item 2.

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

 

26

 

 

 

 

 

 

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

 

63

 

 

 

 

 

 

Item 6.

Exhibits

 

64

 

 

 

 

 

 

 

Signatures

 

65

 

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)

 

 

 

September 30,

 

 

December 31,

 

 

 

2020

 

 

2019

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

653,454

 

 

$

423,323

 

Short-term investments

 

 

101,971

 

 

 

938,173

 

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

      $0 at December 31, 2019

 

 

233,768

 

 

 

140,078

 

Restricted cash

 

 

6

 

 

 

30,006

 

Prepaid expenses

 

 

28,052

 

 

 

27,533

 

Other current assets

 

 

27,735

 

 

 

16,557

 

Total current assets

 

 

1,044,986

 

 

 

1,575,670

 

Long-term investments

 

 

2,540

 

 

 

175,300

 

Goodwill

 

 

2,986,876

 

 

 

1,460,933

 

Intangible assets, net

 

 

774,866

 

 

 

233,005

 

Property and equipment, net

 

 

39,859

 

 

 

25,826

 

Right-of-use assets

 

 

134,618

 

 

 

136,972

 

Restricted cash

 

 

120,000

 

 

 

 

Prepaid expenses

 

 

33,126

 

 

 

37,815

 

Other non-current assets

 

 

14,376

 

 

 

15,093

 

Total assets

 

$

5,151,247

 

 

$

3,660,614

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

37,562

 

 

$

27,799

 

Income tax payable

 

 

19,677

 

 

 

649

 

Deferred revenue

 

 

654,283

 

 

 

432,962

 

Operating lease liabilities

 

 

18,332

 

 

 

15,753

 

Other current liabilities

 

 

424,878

 

 

 

314,805

 

Total current liabilities

 

 

1,154,732

 

 

 

791,968

 

Convertible senior notes, net

 

 

589,277

 

 

 

570,456

 

Deferred revenue

 

 

912

 

 

 

567

 

Deferred tax liabilities, net

 

 

124,528

 

 

 

33,479

 

Non-current operating lease liabilities

 

 

125,356

 

 

 

130,301

 

Other non-current liabilities

 

 

343,056

 

 

 

158,413

 

Total liabilities

 

 

2,337,861

 

 

 

1,685,184

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

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

      authorized shares: 2,020,517; shares outstanding: 1,078,999 shares as

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

 

 

5,137,360

 

 

 

3,898,695

 

Accumulated other comprehensive income (loss)

 

 

(106,878

)

 

 

(125,935

)

Accumulated deficit

 

 

(2,217,096

)

 

 

(1,797,330

)

Total stockholders’ equity

 

 

2,813,386

 

 

 

1,975,430

 

Total liabilities and stockholders’ equity

 

$

5,151,247

 

 

$

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

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Online game

 

$

436,011

 

 

$

281,651

 

 

$

1,168,552

 

 

$

722,523

 

Advertising and other

 

 

67,321

 

 

 

63,642

 

 

 

190,235

 

 

 

194,673

 

Total revenue

 

 

503,332

 

 

 

345,293

 

 

 

1,358,787

 

 

 

917,196

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenue

 

 

235,940

 

 

 

133,859

 

 

 

561,350

 

 

 

382,374

 

Research and development

 

 

165,947

 

 

 

137,487

 

 

 

591,744

 

 

 

401,461

 

Sales and marketing

 

 

186,999

 

 

 

120,836

 

 

 

444,822

 

 

 

336,376

 

General and administrative

 

 

36,081

 

 

 

26,774

 

 

 

103,479

 

 

 

73,517

 

Total costs and expenses

 

 

624,967

 

 

 

418,956

 

 

 

1,701,395

 

 

 

1,193,728

 

Income (loss) from operations

 

 

(121,635

)

 

 

(73,663

)

 

 

(342,608

)

 

 

(276,532

)

Interest income

 

 

1,029

 

 

 

6,597

 

 

 

10,152

 

 

 

7,929

 

Interest expense

 

 

(7,322

)

 

 

(6,728

)

 

 

(21,238

)

 

 

(10,158

)

Other income (expense), net

 

 

(3,051

)

 

 

313,757

 

 

 

(4,810

)

 

 

321,009

 

Income (loss) before income taxes

 

 

(130,979

)

 

 

239,963

 

 

 

(358,504

)

 

 

42,248

 

Provision for (benefit from) income taxes

 

 

(8,773

)

 

 

9,880

 

 

 

17,927

 

 

 

(3,177

)

Net income (loss)

 

$

(122,206

)

 

$

230,083

 

 

$

(376,431

)

 

$

45,425

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per share attributable to common

   stockholders:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.11

)

 

$

0.24

 

 

$

(0.38

)

 

$

0.05

 

Diluted

 

$

(0.11

)

 

$

0.24

 

 

$

(0.38

)

 

$

0.05

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average common shares used to compute net income

   (loss) per share attributable to common stockholders:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

1,076,680

 

 

 

943,350

 

 

 

995,642

 

 

 

935,701

 

Diluted

 

 

1,076,680

 

 

 

973,830

 

 

 

995,642

 

 

 

970,801

 

 

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,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Net income (loss)

 

$

(122,206

)

 

$

230,083

 

 

$

(376,431

)

 

$

45,425

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in foreign currency translation adjustment

 

 

31,681

 

 

 

(30,666

)

 

 

19,047

 

 

 

(34,304

)

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

   marketable debt securities, net of tax

 

 

(353

)

 

 

82

 

 

 

10

 

 

 

133

 

Other comprehensive income (loss), net of tax

 

 

31,328

 

 

 

(30,584

)

 

 

19,057

 

 

 

(34,171

)

Comprehensive income (loss)

 

$

(90,878

)

 

$

199,499

 

 

$

(357,374

)

 

$

11,254

 

 

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

 

Exercise of stock options and ESPP

 

 

1,093

 

 

 

 

 

 

5,462

 

 

 

 

 

 

 

 

 

 

 

 

5,462

 

Vesting of RSUs, net of tax

   withholdings

 

 

2,468

 

 

 

 

 

 

 

 

 

(13,828

)

 

 

 

 

 

 

 

 

(13,828

)

Acquisition-related common stock

   issuance

 

 

116,564

 

 

 

1

 

 

 

1,137,672

 

 

 

 

 

 

 

 

 

 

 

 

1,137,673

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

38,724

 

 

 

 

 

 

 

 

 

 

 

 

38,724

 

Retirements of treasury stock

 

 

 

 

 

 

 

 

 

 

 

13,828