competitors due to potential differences in the exact method of calculation. The SEC rules that would otherwise require a reconciliation of an adjusted financial measure to a GAAP financial measure do not apply to adjusted financial measures provided to a board of directors or a financial advisor in connection with a proposed business combination such as the combination if the disclosure is included in a document such as this joint proxy statement/prospectus. In addition, reconciliations of adjusted financial measures were not relied upon by the Zynga board of directors, the Take-Two board of directors or their respective members of management or financial advisors in connection with their respective evaluation of the combination. Accordingly, Zynga has not provided a reconciliation of the adjusted financial measures included in the Zynga standalone projections or the combined company projections prepared by Zynga to the relevant GAAP financial measures.
None of Zynga, Take-Two, the combined company or their respective affiliates, officers, directors, advisors or other representatives can provide any assurance that actual results will not differ from the Zynga standalone projections or the combined company projections prepared by Zynga, and, except as required by applicable law, none of Zynga, Take-Two the combined company or their respective affiliates undertakes any obligation to update, or otherwise revise or reconcile, the Zynga standalone projections or the combined company projections prepared by Zynga to reflect circumstances existing after the date the Zynga standalone projections or the combined company projections prepared by Zynga were generated or to reflect the occurrence of future events even in the event that any or all of the assumptions underlying the Zynga standalone projections or the combined company projections prepared by Zynga are shown to be inappropriate. None of Zynga or Take-Two or their respective affiliates, officers, directors, advisors or other representatives has made or makes any representation to any Zynga stockholder, Take-Two stockholder or other person regarding the ultimate performance of Zynga or the combined company compared to the information contained in the Zynga standalone projections or the combined company projections prepared by Zynga or that forecasted results will be achieved. Zynga has made no representation to Take-Two, in the merger agreement or otherwise, concerning the Zynga standalone projections or the combined company projections prepared by Zynga.
Summary of the Zynga standalone projections
The following table presents a summary of the certain unaudited prospective financial information for Zynga’s fiscal years 2021 through 2024 for Zynga as an independent company prepared by Zynga’s management, as approved by the Zynga board of directors on October 6, 2021, which financial information is referred to as the “Zynga standalone projections as of October 2021.” Zynga management made various assumptions when preparing the Zynga standalone projections as of October 2021, including certain assumptions regarding bookings growth and overall company financial performance, based on each game title or category of games and estimates of advertising performance, which resulted in a compound annual growth rate for Bookings over the period of Zynga’s fiscal years 2021 through 2024 of approximately 16%.
| Fiscal year ended December 31, | ||||||||||||||||
| 2021E | 2022E | 2023E | 2024E | |||||||||||||
| (in millions) | ||||||||||||||||
| Bookings(1) |
$ | 2,829 | $ | 3,252 | $ | 3,756 | $ | 4,400 | ||||||||
| Adjusted EBITDA(2) |
$ | 661 | $ | 756 | $ | 958 | $ | 1,188 | ||||||||
| (1) | Bookings is defined as revenue plus or minus the change in deferred revenue and other adjustments during the period. |
| (2) | Adjusted EBITDA (a) does not include the impact of the change in deferred revenue, stock-based compensation expense, acquisition-related transaction expenses, contingent consideration fair value adjustments and expenses incurred from vacated leases (which includes impairment charges recognized), (b) does not reflect provisions for or benefits from income taxes and does not include other income (expense) net, which includes foreign exchange and asset disposition gains and losses, interest expense and interest income, and (c) excludes depreciation and amortization of tangible and intangible assets (although depreciation and amortization are non-cash charges, the assets being depreciated or amortized may have to be replaced in the future). |
The following table presents a summary of the certain unaudited prospective financial information for Zynga’s fiscal years 2021 through 2024 for Zynga as an independent company prepared by Zynga’s management, as updated by Zynga management as of, and approved by the Zynga board of directors on, December 29, 2021, which financial information is referred to as the “Zynga standalone projections as of December 2021.” The Zynga standalone projections as of December 2021 were updated by Zynga management to reflect Zynga’s latest market data, trends in live services, and future product pipeline as of the time of preparation. The Zynga standalone projections as of December 2021 included estimated Unlevered Free Cash Flow for Zynga’s fiscal years 2021 through 2024 for Zynga as an independent company prepared by Zynga management for Goldman Sachs’ use in connection with its opinion delivered to the Zynga board of directors and related financial analyses, as described further in the section titled “The Combination—Opinion of Zynga’s Financial Advisor.” Zynga management made various assumptions when preparing the Zynga standalone projections as of December 2021, including certain assumptions regarding bookings growth and overall company financial performance, based on each game title or category of games and estimates of advertising performance, which resulted in a compound annual growth rate for Bookings over the period of Zynga’s fiscal years 2021 through 2024 of approximately 14%.
| Fiscal year ended December 31, | ||||||||||||||||||||||||||||
| 2021E | 2022E | 2023E | 2024E | 2025E | 2026E | Terminal | ||||||||||||||||||||||
| (in millions) | ||||||||||||||||||||||||||||
| Bookings(1) |
$ | 2,819 | $ | 3,150 | $ | 3,623 | $ | 4,166 | $ | 4,583 | $ | 4,812 | $ | 4,812 | ||||||||||||||
| Adjusted EBITDA(2) |
$ | 662 | $ | 700 | $ | 833 | $ | 1,000 | $ | 1,100 | $ | 1,155 | $ | 1,155 | ||||||||||||||
| Cash Taxes(4) |
($ | 98 | ) | ($ | 126 | ) | ($ | 155 | ) | ($ | 171 | ) | ($ | 180 | ) | ($ | 180 | ) | ||||||||||
| Stock-Based Compensation(4) |
($ | 218 | ) | ($ | 218 | ) | ($ | 247 | ) | ($ | 272 | ) | ($ | 286 | ) | ($ | 286 | ) | ||||||||||
| Capital Expenditures(4) |
($ | 12 | ) | ($ | 14 | ) | ($ | 16 | ) | ($ | 18 | ) | ($ | 18 | ) | ($ | 18 | ) | ||||||||||
| Change in Net Working Capital(4) |
($ | 34 | ) | ($ | 8 | ) | ($ | 10 | ) | ($ | 10 | ) | ($ | 10 | ) | ($ | 10 | ) | ||||||||||
| Remaining Contingency Payments(4) |
($ | 270 | ) | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | |||||||||||||||
| Unlevered Free Cash Flow(3)(4)(5) |
$ | 68 | $ | 467 | $ | 571 | $ | 629 | $ | 661 | $ | 661 | ||||||||||||||||
| (1) | Bookings is defined as revenue plus or minus the change in deferred revenue and other adjustments during the period. |
| (2) | Adjusted EBITDA (management reporting) (a) does not include the impact of the change in deferred revenue, stock-based compensation expense, acquisition-related transaction expenses, contingent consideration fair value adjustments and expenses incurred from vacated leases (which includes impairment charges recognized), (b) does not reflect provisions for or benefits from income taxes and does not include other income (expense) net, which includes foreign exchange and asset disposition gains and losses, interest expense and interest income, and (c) excludes depreciation and amortization of tangible and intangible assets (although depreciation and amortization are non-cash charges, the assets being depreciated or amortized may have to be replaced in the future). |
| (3) | Unlevered Free Cash Flow is defined as Adjusted EBITDA (management reporting), minus cash taxes, minus stock-based compensation, minus capital expenditures, plus or minus changes in net working capital, minus remaining contingency payments. |
| (4) | Zynga management estimated Cash Taxes of ($26 million), Stock-Based Compensation of ($48 million), Capital Expenditures of ($1 million), Change in Net Working Capital of $2 million, Remaining Contingency Payments of $0, and Unlevered Free Cash Flow of $101 million for Zynga’s fourth fiscal quarter 2021 for Goldman Sachs’ use in connection with its opinion delivered to the Zynga board of directors and related financial analyses, as described further in the section titled “The Combination—Opinion of Zynga’s Financial Advisor.” |
| (5) | The Unlevered Free Cash Flow figures set forth in the table above were not provided to or utilized by Take-Two, J.P. Morgan or LionTree. Take-Two management approved for J.P. Morgan’s and LionTree’s use in connection with their analyses and opinions the following Unlevered Free Cash Flow figures: $71 million for 2022E, $473 million for 2023E, and $578 million for 2024E. |
