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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, 2021

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, 2021, there were 1,091,890,649 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 June 30, 2021 and December 31, 2020

 

2

 

 

 

 

 

 

 

Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2021 and 2020

 

3

 

 

 

 

 

 

 

Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months Ended June 30, 2021 and 2020

 

4

 

 

 

 

 

 

 

Consolidated Statements of Stockholders’ Equity for the Three and Six Months Ended June 30, 2021 and 2020

 

5

 

 

 

 

 

 

 

Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2021 and 2020

 

6

 

 

 

 

 

 

 

Notes to Consolidated Financial Statements

 

7

 

 

 

 

 

 

Item 2.

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

 

25

 

 

 

 

 

 

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

 

64

 

 

 

 

 

 

Item 6.

Exhibits

 

66

 

 

 

 

 

 

 

Signatures

 

68

 

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 millions, except par value)

(Unaudited)

 

 

 

June 30,

 

 

December 31,

 

 

 

2021

 

 

2020

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

1,058.0

 

 

$

1,364.4

 

Short-term investments

 

 

444.5

 

 

 

208.4

 

Accounts receivable, net of allowance of $0.5 at June 30, 2021

   and December 31, 2020, respectively

 

 

259.3

 

 

 

217.5

 

Restricted cash

 

 

136.0

 

 

 

 

Prepaid expenses

 

 

53.3

 

 

 

40.0

 

Other current assets

 

 

26.5

 

 

 

29.5

 

Total current assets

 

 

1,977.6

 

 

 

1,859.8

 

Long-term investments

 

 

 

 

 

2.0

 

Goodwill

 

 

3,181.2

 

 

 

3,160.8

 

Intangible assets, net

 

 

746.5

 

 

 

838.1

 

Property and equipment, net

 

 

36.1

 

 

 

39.3

 

Right-of-use assets

 

 

150.5

 

 

 

131.9

 

Restricted cash

 

 

 

 

 

136.0

 

Prepaid expenses

 

 

18.4

 

 

 

21.6

 

Other non-current assets

 

 

21.9

 

 

 

17.0

 

Total assets

 

$

6,132.2

 

 

$

6,206.5

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

42.8

 

 

$

57.2

 

Income tax payable

 

 

76.2

 

 

 

39.6

 

Deferred revenue

 

 

774.8

 

 

 

747.7

 

Operating lease liabilities

 

 

17.7

 

 

 

18.5

 

Other current liabilities

 

 

596.4

 

 

 

462.4

 

Total current liabilities

 

 

1,507.9

 

 

 

1,325.4

 

Convertible senior notes, net

 

 

1,316.6

 

 

 

1,289.9

 

Deferred revenue

 

 

0.2

 

 

 

0.3

 

Deferred tax liabilities, net

 

 

94.2

 

 

 

126.3

 

Non-current operating lease liabilities

 

 

140.4

 

 

 

122.0

 

Other non-current liabilities

 

 

52.3

 

 

 

401.1

 

Total liabilities

 

 

3,111.6

 

 

 

3,265.0

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

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

      authorized shares: 2,020.5; shares outstanding: 1,092.0 shares as

      of June 30, 2021 and 1,081.6 as of December 31, 2020

 

 

5,367.6

 

 

 

5,276.5

 

Accumulated other comprehensive income (loss)

 

 

(55.3

)

 

 

(50.7

)

Accumulated deficit

 

 

(2,291.7

)

 

 

(2,284.3

)

Total stockholders’ equity

 

 

3,020.6

 

 

 

2,941.5

 

Total liabilities and stockholders’ equity

 

$

6,132.2

 

 

$

6,206.5

 

 

See accompanying notes to consolidated financial statements.

2


Zynga Inc.

Consolidated Statements of Operations

(In millions, except per share data)

(Unaudited)

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Online game

 

$

587.0

 

 

$

388.2

 

 

$

1,144.0

 

 

$

732.5

 

Advertising and other

 

 

133.0

 

 

 

63.5

 

 

 

256.3

 

 

 

122.9

 

Total revenue

 

 

720.0

 

 

 

451.7

 

 

 

1,400.3

 

 

 

855.4

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenue

 

 

253.3

 

 

 

179.2

 

 

 

514.0

 

 

 

325.4

 

Research and development

 

 

109.8

 

 

 

227.9

 

 

 

250.5

 

 

 

425.8

 

Sales and marketing

 

 

244.2

 

 

 

134.7

 

 

 

492.9

 

 

 

257.8

 

General and administrative

 

 

37.9

 

 

 

39.2

 

 

 

73.6

 

 

 

67.4

 

Total costs and expenses

 

 

645.2

 

 

 

581.0

 

 

 

1,331.0

 

 

 

1,076.4

 

Income (loss) from operations

 

 

74.8

 

 

 

(129.3

)

 

 

69.3

 

 

 

(221.0

)

Interest income

 

 

1.7

 

 

 

3.6

 

 

 

3.4

 

 

 

9.1

 

Interest expense

 

 

(14.7

)

 

 

(7.0

)

 

 

(29.4

)

 

 

(13.9

)

Other income (expense), net

 

 

(9.1

)

 

 

0.6

 

 

 

(0.2

)

 

 

(1.7

)

Income (loss) before income taxes

 

 

52.7

 

 

 

(132.1

)

 

 

43.1

 

 

 

(227.5

)

Provision for (benefit from) income taxes

 

 

24.9

 

 

 

18.2

 

 

 

38.3

 

 

 

26.7

 

Net income (loss)

 

$

27.8

 

 

$

(150.3

)

 

 

4.8

 

 

$

(254.2

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per share attributable to common

   stockholders:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.03

 

 

$

(0.16

)

 

$

0.00

 

 

$

(0.27

)

Diluted

 

$

0.02

 

 

$

(0.16

)

 

$

0.00

 

 

$

(0.27

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average common shares used to compute net income

   (loss) per share attributable to common stockholders:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

1,089.7

 

 

 

956.9

 

 

 

1,087.1

 

 

 

954.7

 

Diluted

 

 

1,147.6

 

 

 

956.9

 

 

 

1,146.0

 

 

 

954.7

 

 

See accompanying notes to consolidated financial statements.


3


 

Zynga Inc.

Consolidated Statements of Comprehensive Income (Loss)

(In millions)

(Unaudited)

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Net income (loss)

 

$

27.8

 

 

$

(150.3

)

 

$

4.8

 

 

$

(254.2

)

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in foreign currency translation adjustment

 

 

11.0

 

 

 

16.3

 

 

 

(4.5

)

 

 

(12.7

)

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

   marketable debt securities, net of tax

 

 

 

 

 

1.4

 

 

 

(0.1

)

 

 

0.4

 

Other comprehensive income (loss), net of tax

 

 

11.0

 

 

 

17.7

 

 

 

(4.6

)

 

 

(12.3

)

Comprehensive income (loss)

 

$

38.8

 

 

$

(132.6

)

 

$

0.2

 

 

$

(266.5

)

 

See accompanying notes to consolidated financial statements.


4


 

Zynga Inc.

Consolidated Statements of Stockholders’ Equity

(In millions)

(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, 2020

 

 

1,081.6

 

 

$

 

 

$

5,276.5

 

 

$

 

 

$

(50.7

)

 

$

(2,284.3

)

 

$

2,941.5

 

Exercise of stock options and ESPP

 

 

2.7

 

 

 

 

 

 

10.5

 

 

 

 

 

 

 

 

 

 

 

 

10.5

 

Vesting of RSUs, net of tax

   withholdings

 

 

4.5

 

 

 

 

 

 

 

 

 

(8.2

)

 

 

 

 

 

 

 

 

(8.2

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

37.2

 

 

 

 

 

 

 

 

 

 

 

 

37.2

 

Retirements of treasury stock

 

 

 

 

 

 

 

 

 

 

 

8.2

 

 

 

 

 

 

(8.2

)

 

 

 

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(23.0

)

 

 

(23.0

)

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(15.6

)

 

 

 

 

 

(15.6

)

Balances at March 31, 2021

 

 

1,088.8

 

 

$

 

 

$

5,324.2

 

 

$

 

 

$

(66.3

)

 

$

(2,315.5

)

 

$

2,942.4

 

Exercise of stock options and ESPP

 

 

0.1

 

 

 

 

 

 

0.2

 

 

 

 

 

 

 

 

 

 

 

 

0.2

 

Vesting of RSUs, net of tax

   withholdings

 

 

3.1

 

 

 

 

 

 

 

 

 

(4.0

)

 

 

 

 

 

 

 

 

(4.0

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

43.2

 

 

 

 

 

 

 

 

 

 

 

 

43.2

 

Retirements of treasury stock

 

 

 

 

 

 

 

 

 

 

 

4.0

 

 

 

 

 

 

(4.0

)

 

 

 

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

27.8

 

 

 

27.8

 

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

11.0

 

 

 

 

 

 

11.0

 

Balances at June 30, 2021

 

 

1,092.0

 

 

$

 

 

$

5,367.6

 

 

$

 

 

$

(55.3

)

 

$

(2,291.7

)

 

$

3,020.6

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

950.0

 

 

$

 

 

$

3,898.7

 

 

$

 

 

$

(125.9

)

 

$

(1,797.4

)

 

$

1,975.4

 

Exercise of stock options and ESPP

 

 

2.5

 

 

 

 

 

 

8.8

 

 

 

 

 

 

 

 

 

 

 

 

8.8

 

Vesting of RSUs, net of tax

   withholdings

 

 

3.3

 

 

 

 

 

 

 

 

 

(14.8

)

 

 

 

 

 

 

 

 

(14.8

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

20.5

 

 

 

 

 

 

 

 

 

 

 

 

20.5

 

Retirements of treasury stock

 

 

 

 

 

 

 

 

 

 

 

14.8

 

 

 

 

 

 

(14.8

)

 

 

 

Adoption of ASU 2016-13

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(0.4

)

 

 

(0.4

)

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(103.9

)

 

 

(103.9

)

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(30.0

)

 

 

 

 

 

(30.0

)

Balances at March 31, 2020

 

 

955.8

 

 

$

 

 

$

3,928.0

 

 

$

 

 

$

(155.9

)

 

$

(1,916.5

)

 

$

1,855.6

 

Exercise of stock options and ESPP

 

 

0.6

 

 

 

 

 

 

1.9

 

 

 

 

 

 

 

 

 

 

 

 

1.9

 

Vesting of RSUs, net of tax

   withholdings

 

 

2.4

 

 

 

 

 

 

 

 

 

(14.3

)

 

 

 

 

 

 

 

 

(14.3

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

25.6

 

 

 

 

 

 

 

 

 

 

 

 

25.6

 

Retirements of treasury stock

 

 

 

 

 

 

 

 

 

 

 

14.3

 

 

 

 

 

 

(14.3

)

 

 

 

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(150.3

)

 

 

(150.3

)

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

17.7

 

 

 

 

 

 

17.7

 

Balances at June 30, 2020

 

 

958.8

 

 

$

 

 

$

3,955.5

 

 

$

 

 

$

(138.2

)

 

$

(2,081.1

)

 

$

1,736.2

 

 

See accompanying notes to consolidated financial statements.

5


Zynga Inc.

Consolidated Statements of Cash Flows

(In millions)

(Unaudited)

 

 

 

 

Six Months Ended

 

 

 

June 30,

 

 

 

2021

 

 

2020

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income (loss)

 

$

4.8

 

 

$

(254.2

)

Adjustments to reconcile net income (loss) to net cash provided by (used in)

   operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

112.6

 

 

 

37.9

 

Stock-based compensation expense

 

 

80.4

 

 

 

46.1

 

(Gain) loss from sale of investments, foreign currency and sale of assets, net

 

 

(3.3

)

 

 

(0.7

)

(Accretion) amortization on marketable debt securities, net

 

 

 

 

 

(2.3

)

Noncash lease expense

 

 

8.7

 

 

 

7.6

 

Noncash interest expense

 

 

26.7

 

 

 

12.5

 

Change in deferred income taxes and other

 

 

(33.1

)

 

 

17.5

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable, net

 

 

(43.7

)

 

 

(43.6

)

Prepaid expenses and other assets

 

 

(11.2

)

 

 

11.1

 

Accounts payable

 

 

(13.2

)

 

 

(3.4

)

Deferred revenue

 

 

32.4

 

 

 

86.4

 

Income tax payable

 

 

38.0

 

 

 

5.8

 

Operating lease and other liabilities

 

 

(201.8

)

 

 

189.3

 

Net cash provided by (used in) operating activities

 

 

(2.7

)

 

 

110.0

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of investments

 

 

(609.6

)

 

 

(548.4

)

Maturities of investments

 

 

374.6

 

 

 

923.4

 

Sales of investments

 

 

 

 

 

510.2

 

Acquisition of property and equipment

 

 

(4.3

)

 

 

(11.5

)

Business combinations, net of cash acquired

 

 

(30.0

)

 

 

 

Asset acquisitions of intangible assets

 

 

(3.2

)

 

 

 

Other investing activities, net

 

 

(1.0

)

 

 

(1.1

)

Net cash provided by (used in) investing activities

 

 

(273.5

)

 

 

872.6

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Debt issuance costs paid