Highlights:
-
Fourth quarter revenue increased 41% year-over-year to $88.6 million
-
Fourth quarter GAAP operating loss of $25.1 million and non-GAAP
operating loss of $4.4 million
SAN FRANCISCO--(BUSINESS WIRE)--
Zendesk, Inc. (NYSE: ZEN) today reported financial results for the
fiscal quarter and full fiscal year ended December 31, 2016, and
released a Shareholder Letter on its Investor Relations website at https://investor.zendesk.com.
Results for the Fourth Quarter 2016
Revenue was $88.6 million for the quarter ended December 31, 2016, an
increase of 41% over the prior year period. GAAP net loss for the
quarter ended December 31, 2016 was $24.5 million, and GAAP net loss per
share was $0.26. Non-GAAP net loss was $3.8 million, and non-GAAP net
loss per share was $0.04. Non-GAAP net loss excludes approximately $19.8
million in share-based compensation and related expenses (including $1.8
million of employer tax related to employee stock transactions and $0.6
million of amortized share-based compensation capitalized in
internal-use software) and $0.9 million of amortization of purchased
intangibles. GAAP and non-GAAP net loss per share for the quarter ended
December 31, 2016 were based on 95.8 million weighted average shares
outstanding.
Results for the Full Fiscal Year 2016
Revenue was $312.0 million for the year ended December 31, 2016, an
increase of 49% over the prior year period. GAAP net loss for the year
ended December 31, 2016 was $103.8 million, and GAAP net loss per share
was $1.11. Non-GAAP net loss was $20.5 million, and non-GAAP net loss
per share was $0.22. Non-GAAP net loss excludes approximately $79.5
million in share-based compensation and related expenses (including $3.9
million of employer tax related to employee stock transactions and $1.8
million of amortized share-based compensation capitalized in
internal-use software) and $3.8 million of amortization of purchased
intangibles. GAAP and non-GAAP net loss per share for the year ended
December 31, 2016 were based on 93.2 million weighted average shares
outstanding.
Outlook
As of February 8, 2017, Zendesk provided guidance for its expected
revenue, GAAP operating loss, and non-GAAP operating loss for the
quarter ending March 31, 2017 and for the year ending December 31, 2017.
For the quarter ending March 31, 2017, Zendesk expects to report:
-
Revenue in the range of $91.0 - 93.0 million
-
GAAP operating loss of $28.0 - 29.0 million, which includes
share-based compensation and related expenses of approximately $21.1
million and amortization of purchased intangibles of approximately
$0.9 million
-
Non-GAAP operating loss of $6.0 - 7.0 million, which excludes
share-based compensation and related expenses of approximately $21.1
million and amortization of purchased intangibles of approximately
$0.9 million
-
Approximately 97.3 million weighted average shares outstanding
For the full year 2017, Zendesk expects to report:
-
Revenue in the range of $415.0 - 425.0 million
-
GAAP operating loss of $109.0 - 113.0 million, which includes
share-based compensation and related expenses of approximately $89.8
million and amortization of purchased intangibles of approximately
$3.2 million
-
Non-GAAP operating loss of $16.0 - 20.0 million, which excludes
share-based compensation and related expenses of approximately $89.8
million and amortization of purchased intangibles of approximately
$3.2 million
-
Approximately 99.3 million weighted average shares outstanding
Zendesk’s estimates of share-based compensation and amortization of
purchased intangibles in future periods assume, among other things, the
occurrence of no additional acquisitions, investments or restructurings,
and no further revisions to share-based compensation and related
expenses.
Conference Call Information
The detailed Shareholder Letter is available at https://investor.zendesk.com
and Zendesk will host a conference call to answer questions today,
February 8, 2017, at 2:00 p.m. Pacific Time, 5:00 p.m. Eastern Time. A
live webcast of the conference call will be available at https://investor.zendesk.com.
The conference call can also be accessed by dialing 877-201-0168, or +1
647-788-4901 (outside the U.S. and Canada). The conference ID is
51702179. A replay of the call via webcast will be available at https://investor.zendesk.com
or by dialing 855-859-2056 or +1 404-537-3406 (outside the U.S. and
Canada) and entering passcode 51702179. The dial-in replay will be
available until the end of day February 10, 2017. The webcast replay
will be available for 12 months.
About Zendesk
Zendesk builds software for better customer relationships. It empowers
organizations to improve customer engagement and better understand their
customers. More than 94,000 paid customer accounts in over 150 countries
and territories use Zendesk products. Based in San Francisco, Zendesk
has operations in the United States, Europe, Asia, Australia, and South
America. Learn more at www.zendesk.com.
Forward-Looking Statements
This press release contains forward-looking statements, including, among
other things, statements regarding Zendesk’s future financial
performance, its continued investment to grow its business, and progress
towards its long-term financial objectives. The words such as “may,”
“should,” “will,” “believe,” “expect,” “anticipate,” “target,”
“project,” and similar phrases that denote future expectation or intent
regarding Zendesk’s financial results, operations, and other matters are
intended to identify forward-looking statements. You should not rely
upon forward-looking statements as predictions of future events.
The outcome of the events described in these forward-looking statements
is subject to known and unknown risks, uncertainties, and other factors
that may cause Zendesk’s actual results, performance, or achievements to
differ materially, including (i) adverse changes in general economic or
market conditions; (ii) Zendesk’s ability to adapt its products to
changing market dynamics and customer preferences or achieve increased
market acceptance of its products; (iii) Zendesk’s expectation that the
future growth rate of its revenues will decline, and that, as its costs
increase, Zendesk may not be able to generate sufficient revenues to
achieve or sustain profitability; (iv) Zendesk’s limited operating
history, which makes it difficult to evaluate its prospects and future
operating results; (v) Zendesk’s ability to effectively manage its
growth and organizational change; (vi) the market in which Zendesk
operates is intensely competitive, and Zendesk may not compete
effectively; (vii) the development of the market for software as a
service business software applications; (viii) Zendesk’s ability to
introduce and market new products and to support its products on a
shared services platform; (ix) breaches in Zendesk’s security measures
or unauthorized access to its customers’ data; (x) service interruptions
or performance problems associated with Zendesk’s technology and
infrastructure; (xi) real or perceived errors, failures, or bugs in its
products; (xii) Zendesk’s substantial reliance on its customers renewing
their subscriptions and purchasing additional subscriptions; and (xiii)
Zendesk’s ability to effectively expand its sales capabilities.
The forward-looking statements contained in this press release are also
subject to additional risks, uncertainties, and factors, including those
more fully described in Zendesk’s filings with the Securities and
Exchange Commission, including its Quarterly Report on Form 10-Q for the
quarter ended September 30, 2016. Further information on potential risks
that could affect actual results will be included in the subsequent
periodic and current reports and other filings that Zendesk makes with
the Securities and Exchange Commission from time to time, including its
Annual Report on Form 10-K for the year ended December 31, 2016.
Forward-looking statements represent Zendesk’s management’s beliefs and
assumptions only as of the date such statements are made. Zendesk
undertakes no obligation to update any forward-looking statements made
in this press release to reflect events or circumstances after the date
of this press release or to reflect new information or the occurrence of
unanticipated events, except as required by law.
|
|
|
Condensed Consolidated Statements of Operations
|
|
|
|
(In thousands, except per share data; unaudited)
|
|
|
|
|
|
|
|
|
|
Three Months Ended
December 31,
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
Revenue
|
|
$
|
88,623
|
|
|
$
|
62,646
|
|
|
$
|
311,999
|
|
|
$
|
208,768
|
|
|
Cost of revenue
|
|
25,582
|
|
|
19,693
|
|
|
93,900
|
|
|
67,184
|
|
|
Gross profit
|
|
63,041
|
|
|
42,954
|
|
|
218,099
|
|
|
141,584
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
24,383
|
|
|
19,098
|
|
|
91,067
|
|
|
62,615
|
|
|
Sales and marketing
|
|
47,566
|
|
|
34,328
|
|
|
166,987
|
|
|
114,052
|
|
|
General and administrative
|
|
16,222
|
|
|
13,920
|
|
|
64,371
|
|
|
47,902
|
|
|
Total operating expenses
|
|
88,171
|
|
|
67,346
|
|
|
322,425
|
|
|
224,569
|
|
|
Operating loss
|
|
(25,130
|
)
|
|
(24,393
|
)
|
|
(104,326
|
)
|
|
(82,985
|
)
|
|
Other income (expense), net
|
|
775
|
|
|
(302
|
)
|
|
1,520
|
|
|
(729
|
)
|
|
Loss before provision for (benefit from) income taxes
|
|
(24,355
|
)
|
|
(24,694
|
)
|
|
(102,806
|
)
|
|
(83,714
|
)
|
|
Provision for (benefit from) income taxes
|
|
193
|
|
|
(216
|
)
|
|
993
|
|
|
338
|
|
|
Net loss
|
|
$
|
(24,548
|
)
|
|
$
|
(24,478
|
)
|
|
$
|
(103,799
|
)
|
|
$
|
(84,052
|
)
|
|
Net loss per share, basic and diluted
|
|
$
|
(0.26
|
)
|
|
$
|
(0.27
|
)
|
|
$
|
(1.11
|
)
|
|
$
|
(0.99
|
)
|
|
Weighted-average shares used to compute net loss per share, basic
and diluted
|
|
95,793
|
|
|
89,073
|
|
|
93,161
|
|
|
84,926
|
|
|
|
|
Condensed Consolidated Balance Sheets
|
|
|
|
(In thousands, except par value; unaudited)
|
|
|
|
|
|
|
|
|
|
December 31,
2016
|
|
December 31,
2015
|
|
Assets
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
93,677
|
|
|
$
|
216,226
|
|
|
Marketable securities
|
|
131,190
|
|
|
29,414
|
|
|
Accounts receivable, net of allowance for doubtful accounts of
$1,269 and $763 as of December 31, 2016 and 2015, respectively
|
|
37,343
|
|
|
26,168
|
|
|
Prepaid expenses and other current assets
|
|
17,608
|
|
|
11,423
|
|
|
Total current assets
|
|
279,818
|
|
|
283,231
|
|
|
Marketable securities, noncurrent
|
|
75,168
|
|
|
22,336
|
|
|
Property and equipment, net
|
|
62,731
|
|
|
56,540
|
|
|
Goodwill and intangible assets, net
|
|
53,296
|
|
|
57,050
|
|
|
Other assets
|
|
4,272
|
|
|
3,529
|
|
|
Total assets
|
|
$
|
475,285
|
|
|
$
|
422,686
|
|
|
|
|
|
|
|
|
Liabilities and stockholders’ equity
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
Accounts payable
|
|
$
|
4,555
|
|
|
$
|
9,332
|
|
|
Accrued liabilities
|
|
19,106
|
|
|
9,742
|
|
|
Accrued compensation and related benefits
|
|
20,281
|
|
|
14,115
|
|
|
Deferred revenue
|
|
123,276
|
|
|
84,210
|
|
|
Total current liabilities
|
|
167,218
|
|
|
117,399
|
|
|
Deferred revenue, noncurrent
|
|
1,257
|
|
|
1,405
|
|
|
Other liabilities
|
|
7,382
|
|
|
10,592
|
|
|
Total liabilities
|
|
175,857
|
|
|
129,396
|
|
|
Stockholders’ equity:
|
|
|
|
|
|
Preferred stock, par value $0.01 per share
|
|
—
|
|
|
—
|
|
|
Common stock, par value $0.01 per share
|
|
971
|
|
|
905
|
|
|
Additional paid-in capital
|
|
624,026
|
|
|
511,183
|
|
|
Accumulated other comprehensive loss
|
|
(5,197
|
)
|
|
(2,225
|
)
|
|
Accumulated deficit
|
|
(319,720
|
)
|
|
(215,921
|
)
|
|
Treasury stock, at cost
|
|
(652
|
)
|
|
(652
|
)
|
|
Total stockholders’ equity
|
|
299,428
|
|
|
293,290
|
|
|
Total liabilities and stockholders’ equity
|
|
$
|
475,285
|
|
|
$
|
422,686
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidated Statements of Cash Flows
|
|
|
|
(In thousands; unaudited)
|
|
|
|
|
|
|
|
|
|
Three Months Ended
December 31,
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(24,548
|
)
|
|
$
|
(24,478
|
)
|
|
$
|
(103,799
|
)
|
|
$
|
(84,052
|
)
|
|
Adjustments to reconcile net loss to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
7,506
|
|
|
6,072
|
|
|
27,506
|
|
|
19,744
|
|
|
Share-based compensation
|
|
17,444
|
|
|
15,497
|
|
|
73,779
|
|
|
52,556
|
|
|
Excess tax benefit from share-based award activity
|
|
(204
|
)
|
|
(325
|
)
|
|
(337
|
)
|
|
(449
|
)
|
|
Other
|
|
1,884
|
|
|
932
|
|
|
3,106
|
|
|
1,457
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
(26
|
)
|
|
(1,908
|
)
|
|
(11,808
|
)
|
|
(14,989
|
)
|
|
Prepaid expenses and other current assets
|
|
1,115
|
|
|
(1,349
|
)
|
|
(6,286
|
)
|
|
(5,510
|
)
|
|
Other assets and liabilities
|
|
(2,058
|
)
|
|
(1,582
|
)
|
|
(3,887
|
)
|
|
(3,204
|
)
|
|
Accounts payable
|
|
(1,266
|
)
|
|
3,936
|
|
|
(3,486
|
)
|
|
2,017
|
|
|
Accrued liabilities
|
|
2,616
|
|
|
(57
|
)
|
|
5,261
|
|
|
2,204
|
|
|
Accrued compensation and related benefits
|
|
5,243
|
|
|
4,061
|
|
|
6,055
|
|
|
1,706
|
|
|
Deferred revenue
|
|
12,822
|
|
|
9,482
|
|
|
38,418
|
|
|
33,853
|
|
|
Net cash provided by operating activities
|
|
20,528
|
|
|
10,281
|
|
|
24,522
|
|
|
5,333
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
(8,153
|
)
|
|
(8,758
|
)
|
|
(20,647
|
)
|
|
(22,989
|
)
|
|
Internal-use software development costs
|
|
(1,997
|
)
|
|
(1,157
|
)
|
|
(6,310
|
)
|
|
(4,705
|
)
|
|
Purchases of marketable securities
|
|
(32,408
|
)
|
|
(13,312
|
)
|
|
(249,048
|
)
|
|
(70,303
|
)
|
|
Proceeds from maturities of marketable securities
|
|
15,719
|
|
|
6,557
|
|
|
39,690
|
|
|
36,982
|
|
|
Proceeds from sale of marketable securities
|
|
14,707
|
|
|
2,501
|
|
|
53,951
|
|
|
32,152
|
|
|
Cash paid for the acquisition of WAC, net of cash acquired
|
|
—
|
|
|
(42,758
|
)
|
|
—
|
|
|
(42,758
|
)
|
|
Cash paid for the acquisition of Zopim, net of cash acquired
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,100
|
)
|
|
Net cash used in investing activities
|
|
(12,132
|
)
|
|
(56,927
|
)
|
|
(182,364
|
)
|
|
(72,721
|
)
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
Proceeds from follow-on public offering, net of issuance costs
|
|
—
|
|
|
(16
|
)
|
|
—
|
|
|
190,094
|
|
|
Proceeds from exercise of employee stock options
|
|
5,526
|
|
|
4,836
|
|
|
25,412
|
|
|
10,609
|
|
|
Proceeds from employee stock purchase plan
|
|
2,300
|
|
|
2,283
|
|
|
11,004
|
|
|
9,526
|
|
|
Taxes paid related to net share settlement of equity awards
|
|
(177
|
)
|
|
(128
|
)
|
|
(803
|
)
|
|
(609
|
)
|
|
Excess tax benefit from share-based award activity
|
|
204
|
|
|
325
|
|
|
337
|
|
|
449
|
|
|
Principal payments on debt
|
|
—
|
|
|
—
|
|
|
(323
|
)
|
|
(6,952
|
)
|
|
Principal payments on capital lease obligations
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(10
|
)
|
|
Net cash provided by financing activities
|
|
7,853
|
|
|
7,300
|
|
|
35,627
|
|
|
203,107
|
|
|
Effect of exchange rates changes on cash and cash equivalents
|
|
(161
|
)
|
|
187
|
|
|
(334
|
)
|
|
242
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
16,088
|
|
|
(39,159
|
)
|
|
(122,549
|
)
|
|
135,961
|
|
|
Cash and cash equivalents at the beginning of period
|
|
77,589
|
|
|
255,385
|
|
|
216,226
|
|
|
80,265
|
|
|
Cash and cash equivalents at the end of period
|
|
$
|
93,677
|
|
|
$
|
216,226
|
|
|
$
|
93,677
|
|
|
$
|
216,226
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP Results
|
|
|
|
(In thousands, except per share data)
|
|
The following table shows Zendesk’s GAAP results reconciled to
non-GAAP results included in this release.
|
|
|
|
|
|
|
|
|
|
Three Months Ended
December 31,
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
Reconciliation of gross profit and gross margin
|
|
|
|
|
|
|
|
|
|
GAAP gross profit
|
|
$
|
63,041
|
|
|
$
|
42,954
|
|
|
$
|
218,099
|
|
|
$
|
141,584
|
|
|
Plus: Share-based compensation
|
|
1,691
|
|
|
1,405
|
|
|
7,045
|
|
|
4,541
|
|
|
Plus: Employer tax related to employee stock transactions
|
|
106
|
|
|
31
|
|
|
383
|
|
|
175
|
|
|
Plus: Amortization of purchased intangibles
|
|
837
|
|
|
832
|
|
|
3,362
|
|
|
1,890
|
|
|
Plus: Amortization of share-based compensation capitalized in
internal-use software
|
|
598
|
|
|
312
|
|
|
1,821
|
|
|
1,065
|
|
|
Non-GAAP gross profit
|
|
$
|
66,273
|
|
|
$
|
45,534
|
|
|
$
|
230,710
|
|
|
$
|
149,255
|
|
|
GAAP gross margin
|
|
71
|
%
|
|
69
|
%
|
|
70
|
%
|
|
68
|
%
|
|
Non-GAAP adjustments
|
|
4
|
%
|
|
4
|
%
|
|
4
|
%
|
|
3
|
%
|
|
Non-GAAP gross margin
|
|
75
|
%
|
|
73
|
%
|
|
74
|
%
|
|
71
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of operating expenses
|
|
|
|
|
|
|
|
|
|
GAAP research and development
|
|
$
|
24,383
|
|
|
$
|
19,098
|
|
|
$
|
91,067
|
|
|
$
|
62,615
|
|
|
Less: Share-based compensation
|
|
(6,535
|
)
|
|
(5,930
|
)
|
|
(27,083
|
)
|
|
(19,414
|
)
|
|
Less: Employer tax related to employee stock transactions
|
|
(756
|
)
|
|
(69
|
)
|
|
(1,559
|
)
|
|
(415
|
)
|
|
Non-GAAP research and development
|
|
$
|
17,092
|
|
|
$
|
13,099
|
|
|
$
|
62,425
|
|
|
$
|
42,786
|
|
|
GAAP research and development as percentage of revenue
|
|
28
|
%
|
|
30
|
%
|
|
29
|
%
|
|
30
|
%
|
|
Non-GAAP research and development as percentage of revenue
|
|
19
|
%
|
|
21
|
%
|
|
20
|
%
|
|
20
|
%
|
|
|
|
|
|
|
|
|
|
|
|
GAAP sales and marketing
|
|
$
|
47,566
|
|
|
$
|
34,328
|
|
|
$
|
166,987
|
|
|
$
|
114,052
|
|
|
Less: Share-based compensation
|
|
(5,263
|
)
|
|
(4,604
|
)
|
|
(23,043
|
)
|
|
(14,759
|
)
|
|
Less: Employer tax related to employee stock transactions
|
|
(768
|
)
|
|
(174
|
)
|
|
(1,342
|
)
|
|
(474
|
)
|
|
Less: Amortization of purchased intangibles
|
|
(104
|
)
|
|
(103
|
)
|
|
(418
|
)
|
|
(346
|
)
|
|
Non-GAAP sales and marketing
|
|
$
|
41,431
|
|
|
$
|
29,447
|
|
|
$
|
142,184
|
|
|
$
|
98,473
|
|
|
GAAP sales and marketing as percentage of revenue
|
|
54
|
%
|
|
55
|
%
|
|
54
|
%
|
|
55
|
%
|
|
Non-GAAP sales and marketing as percentage of revenue
|
|
47
|
%
|
|
47
|
%
|
|
46
|
%
|
|
47
|
%
|
|
|
|
|
|
|
|
|
|
|
|
GAAP general and administrative
|
|
$
|
16,222
|
|
|
$
|
13,920
|
|
|
$
|
64,371
|
|
|
$
|
47,902
|
|
|
Less: Share-based compensation
|
|
(3,955
|
)
|
|
(3,559
|
)
|
|
(16,608
|
)
|
|
(13,842
|
)
|
|
Less: Employer tax related to employee stock transactions
|
|
(123
|
)
|
|
(73
|
)
|
|
(586
|
)
|
|
(387
|
)
|
|
Less: Transaction costs related to acquisition
|
|
—
|
|
|
(708
|
)
|
|
—
|
|
|
(998
|
)
|
|
Non-GAAP general and administrative
|
|
$
|
12,144
|
|
|
$
|
9,580
|
|
|
$
|
47,177
|
|
|
$
|
32,675
|
|
|
GAAP general and administrative as percentage of revenue
|
|
18
|
%
|
|
22
|
%
|
|
21
|
%
|
|
23
|
%
|
|
Non-GAAP general and administrative as percentage of revenue
|
|
14
|
%
|
|
15
|
%
|
|
15
|
%
|
|
16
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of operating loss and operating margin
|
|
|
|
|
|
|
|
|
|
GAAP operating loss
|
|
$
|
(25,130
|
)
|
|
$
|
(24,393
|
)
|
|
$
|
(104,326
|
)
|
|
$
|
(82,985
|
)
|
|
Plus: Share-based compensation
|
|
17,444
|
|
|
15,498
|
|
|
73,779
|
|
|
52,556
|
|
|
Plus: Employer tax related to employee stock transactions
|
|
1,753
|
|
|
347
|
|
|
3,870
|
|
|
1,451
|
|
|
Plus: Amortization of purchased intangibles
|
|
941
|
|
|
935
|
|
|
3,780
|
|
|
2,236
|
|
|
Plus: Transaction costs related to acquisition
|
|
—
|
|
|
708
|
|
|
—
|
|
|
998
|
|
|
Plus: Amortization of share-based compensation capitalized in
internal-use software
|
|
598
|
|
|
312
|
|
|
1,821
|
|
|
1,065
|
|
|
Non-GAAP operating loss
|
|
$
|
(4,394
|
)
|
|
$
|
(6,593
|
)
|
|
$
|
(21,076
|
)
|
|
$
|
(24,679
|
)
|
|
GAAP operating margin
|
|
(28
|
)%
|
|
(39
|
)%
|
|
(33
|
)%
|
|
(40
|
)%
|
|
Non-GAAP adjustments
|
|
23
|
%
|
|
28
|
%
|
|
26
|
%
|
|
28
|
%
|
|
Non-GAAP operating margin
|
|
(5
|
)%
|
|
(11
|
)%
|
|
(7
|
)%
|
|
(12
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
December 31,
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
Reconciliation of net loss
|
|
|
|
|
|
|
|
|
|
GAAP net loss
|
|
$
|
(24,548
|
)
|
|
$
|
(24,478
|
)
|
|
$
|
(103,799
|
)
|
|
$
|
(84,052
|
)
|
|
Plus: Share-based compensation
|
|
17,444
|
|
|
15,498
|
|
|
73,779
|
|
|
52,556
|
|
|
Plus: Employer tax related to employee stock transactions
|
|
1,753
|
|
|
347
|
|
|
3,870
|
|
|
1,451
|
|
|
Plus: Amortization of purchased intangibles
|
|
941
|
|
|
935
|
|
|
3,780
|
|
|
2,236
|
|
|
Plus: Transaction costs related to acquisition
|
|
—
|
|
|
708
|
|
|
—
|
|
|
998
|
|
|
Plus: Amortization of share-based compensation capitalized in
internal-use software
|
|
598
|
|
|
312
|
|
|
1,821
|
|
|
1,065
|
|
|
Non-GAAP net loss
|
|
$
|
(3,812
|
)
|
|
$
|
(6,678
|
)
|
|
$
|
(20,549
|
)
|
|
$
|
(25,746
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of net loss per share, basic and diluted
|
|
|
|
|
|
|
|
|
|
GAAP net loss per share, basic and diluted
|
|
$
|
(0.26
|
)
|
|
$
|
(0.27
|
)
|
|
$
|
(1.11
|
)
|
|
$
|
(0.99
|
)
|
|
Non-GAAP adjustments to net loss
|
|
0.22
|
|
|
0.20
|
|
|
0.89
|
|
|
0.69
|
|
|
Non-GAAP net loss per share, basic and diluted
|
|
$
|
(0.04
|
)
|
|
$
|
(0.07
|
)
|
|
$
|
(0.22
|
)
|
|
$
|
(0.30
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares used to compute net loss per share, basic
and diluted
|
|
95,793
|
|
|
89,073
|
|
|
93,161
|
|
|
84,926
|
|
|
|
|
|
|
|
|
|
|
|
|
Computation of free cash flow
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
$
|
20,528
|
|
|
$
|
10,281
|
|
|
$
|
24,522
|
|
|
$
|
5,333
|
|
|
Less: purchases of property and equipment
|
|
(8,153
|
)
|
|
(8,758
|
)
|
|
(20,647
|
)
|
|
(22,989
|
)
|
|
Less: internal-use software development costs
|
|
(1,997
|
)
|
|
(1,157
|
)
|
|
(6,310
|
)
|
|
(4,705
|
)
|
|
Free cash flow
|
|
$
|
10,378
|
|
|
$
|
366
|
|
|
$
|
(2,435
|
)
|
|
$
|
(22,361
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
About Non-GAAP Financial Measures
To provide investors and others with additional information regarding
Zendesk’s results, the following non-GAAP financial measures were
disclosed: non-GAAP gross profit and gross margin, non-GAAP operating
expenses, non-GAAP operating loss and operating margin, non-GAAP net
loss, non-GAAP net loss per share, basic and diluted, and free cash flow.
Specifically, Zendesk excludes the following from its historical and
prospective non-GAAP financial measures, as applicable:
Share-based Compensation and Amortization of Share-based Compensation
Capitalized in Internal-use Software: Zendesk utilizes share-based
compensation to attract and retain employees. It is principally aimed at
aligning their interests with those of its stockholders and at long-term
retention, rather than to address operational performance for any
particular period. As a result, share-based compensation expenses vary
for reasons that are generally unrelated to financial and operational
performance in any particular period.
Employer Tax Related to Employee Stock Transactions: Zendesk
views the amount of employer taxes related to its employee stock
transactions as an expense that is dependent on its stock price,
employee exercise and other award disposition activity, and other
factors that are beyond Zendesk’s control. As a result, employer taxes
related to its employee stock transactions vary for reasons that are
generally unrelated to financial and operational performance in any
particular period.
Amortization of Purchased Intangibles and Acquisition Related
Expenses: Zendesk views amortization of purchased intangible assets,
including the amortization of the cost associated with an acquired
entity’s developed technology, as items arising from pre-acquisition
activities determined at the time of an acquisition. While these
intangible assets are evaluated for impairment regularly, amortization
of the cost of purchased intangibles is an expense that is not typically
affected by operations during any particular period. Zendesk views
acquisition related expenses as events that are not necessarily
reflective of operational performance during a period. In particular,
Zendesk believes the consideration of measures that exclude such
expenses can assist in the comparison of operational performance in
different periods which may or may not include such expenses.
Zendesk provides disclosures regarding its free cash flow, which is
defined as net cash from operating activities, less purchases of
property and equipment and internal-use software development costs.
Zendesk uses free cash flow, among other measures, to evaluate the
ability of its operations to generate cash that is available for
purposes other than capital expenditures and capitalized software
development costs. Zendesk believes that information regarding free cash
flow provides investors with an important perspective on the cash
available to fund ongoing operations.
Zendesk’s disclosures regarding its expectations for its non-GAAP
operating margin include adjustments to its expectations for its GAAP
operating margin that exclude the expected share-based compensation and
related expenses and amortization of purchased intangibles excluded from
its expectations for non-GAAP operating loss as compared to its
expectation for GAAP operating loss for the same period.
Zendesk’s disclosures regarding its expectations for its non-GAAP gross
margin include adjustments to its expectations for its GAAP gross margin
that exclude share-based compensation and related expenses in Zendesk’s
cost of revenue and amortization of purchased intangibles related to
developed technology. The share-based compensation and related expenses
excluded due to such adjustments are primarily comprised of the
share-based compensation and related expenses for employees associated
with Zendesk’s platform infrastructure, product support, and
professional service organizations.
Zendesk does not provide a reconciliation of its non-GAAP gross margin
guidance to GAAP gross margin for future periods because Zendesk does
not provide guidance on the reconciling items between GAAP gross margin
and non-GAAP gross margin, as a result of the uncertainty regarding, and
the potential variability of, these items. The actual amount of such
reconciling items will have a significant impact on Zendesk’s non-GAAP
gross margin and, accordingly, a reconciliation of GAAP gross margin to
non-GAAP gross margin guidance for the period is not available without
unreasonable effort.
Zendesk uses non-GAAP financial information to evaluate its ongoing
operations and for internal planning and forecasting purposes. Zendesk's
management does not itself, nor does it suggest that investors should,
consider such non-GAAP financial measures in isolation from, or as a
substitute for, financial information prepared in accordance with GAAP.
Zendesk presents such non-GAAP financial measures in reporting its
financial results to provide investors with an additional tool to
evaluate Zendesk's operating results. Zendesk believes these non-GAAP
financial measures are useful because they allow for greater
transparency with respect to key metrics used by management in its
financial and operational decision-making. This allows investors and
others to better understand and evaluate Zendesk’s operating results and
future prospects in the same manner as management.
Zendesk's management believes it is useful for itself and investors to
review, as applicable, both GAAP information that may include items such
as share-based compensation and related expenses, amortization of
purchased intangibles, transaction costs related to acquisitions, and
the non-GAAP measures that exclude such information in order to assess
the performance of Zendesk's business and for planning and forecasting
in subsequent periods. When Zendesk uses such a non-GAAP financial
measure with respect to historical periods, it provides a reconciliation
of the non-GAAP financial measure to the most closely comparable GAAP
financial measure. When Zendesk uses such a non-GAAP financial measure
in a forward-looking manner for future periods, and a reconciliation is
not determinable without unreasonable effort, Zendesk provides the
reconciling information that is determinable without unreasonable effort
and identifies the information that would need to be added or subtracted
from the non-GAAP measure to arrive at the most directly comparable GAAP
measure. Investors are encouraged to review the related GAAP financial
measures and the reconciliation of these non-GAAP financial measures to
their most directly comparable GAAP financial measure as detailed above.
About Operating Metrics
Zendesk reviews a number of operating metrics to evaluate its business,
measure performance, identify trends, formulate business plans, and make
strategic decisions. These include the number of paid customer accounts
on Zendesk Support, Zendesk Chat, and its other products, dollar-based
net expansion rate, monthly recurring revenue represented by its churned
customers, and the percentage of its monthly recurring revenue from
Support originating from customers with more than 100 agents on Support.
Zendesk defines the number of paid customer accounts at the end of any
particular period as the sum of (i) the number of accounts on Support,
exclusive of its legacy Starter plan, free trials or other free
services, (ii) the number of accounts using Chat, exclusive of free
trials or other free services, and (iii) the number of accounts on all
of its other products, exclusive of free trials and other free services,
each as of the end of the period and as identified by a unique account
identifier. Use of Support, Chat, and Zendesk’s other products requires
separate subscriptions and each of these accounts are treated as a
separate paid customer account. Existing customers may also expand their
utilization of Zendesk’s products by adding new accounts and a single
consolidated organization or customer may have multiple accounts across
each of Zendesk’s products to service separate subsidiaries, divisions,
or work processes. Each of these accounts is also treated as a separate
paid customer account.
Zendesk’s dollar-based net expansion rate provides a measurement of its
ability to increase revenue across its existing customer base through
expansion of authorized agents associated with a paid customer account,
upgrades in subscription plans, and the purchase of additional products
as offset by churn, contraction in authorized agents associated with a
paid customer account, and downgrades in subscription plans. Zendesk’s
dollar-based net expansion rate is based upon monthly recurring revenue
for a set of paid customer accounts on its products. Monthly recurring
revenue for a paid customer account is a legal and contractual
determination made by assessing the contractual terms of each paid
customer account, as of the date of determination, as to the revenue
Zendesk expects to generate in the next monthly period for that paid
customer account, assuming no changes to the subscription and without
taking into account any one-time discounts or any platform usage above
the subscription base, if any, that may be applicable to such
subscription. Monthly recurring revenue is not determined by reference
to historical revenue, deferred revenue, or any other United States
generally accepted accounting principles, or GAAP, financial measure
over any period. It is forward-looking and contractually derived as of
the date of determination.
Zendesk calculates its dollar-based net expansion rate by dividing the
retained revenue net of contraction and churn by Zendesk’s base revenue.
Zendesk defines its base revenue as the aggregate monthly recurring
revenue across its products for customers with paid customer accounts on
Support or Chat as of the date one year prior to the date of
calculation. Zendesk defines the retained revenue net of contraction and
churn as the aggregate monthly recurring revenue across its products for
the same customer base included in the measure of base revenue at the
end of the annual period being measured. The dollar-based net expansion
rate is also adjusted to eliminate the effect of certain activities that
Zendesk identifies involving the transfer of agents between paid
customer accounts, consolidation of customer accounts, or the split of a
single paid customer account into multiple paid customer accounts. In
addition, the dollar-based net expansion rate is adjusted to include
paid customer accounts in the customer base used to determine retained
revenue net of contraction and churn that share common corporate
information with customers in the customer base that are used to
determine the base revenue. Giving effect to this consolidation results
in Zendesk’s dollar-based net expansion rate being calculated across
approximately 79,600 customers, as compared to the approximately 94,300
total paid customer accounts as of December 31, 2016.
To the extent that Zendesk can determine that the underlying customers
do not share common corporate information, Zendesk does not aggregate
paid customer accounts associated with reseller and other similar
channel arrangements for the purposes of determining its dollar-based
net expansion rate. While not material, Zendesk believes the failure to
account for these activities would otherwise skew the dollar-based net
expansion metrics associated with customers that maintain multiple paid
customer accounts across its products and paid customer accounts
associated with reseller and other similar channel arrangements.
Zendesk does not currently incorporate operating metrics associated with
its analytics product into its measurement of dollar-based net expansion
rate.
For a more detailed description of how Zendesk calculates its
dollar-based net expansion rate, please refer to Zendesk’s periodic
reports filed with the Securities and Exchange Commission.
Zendesk calculates its monthly recurring revenue represented by its
churned customers on an annualized basis by dividing base revenue
associated with paid customer accounts on Support that churn, either by
termination of the subscription or failure to renew, during the annual
period being measured, by Zendesk’s base revenue. Zendesk’s monthly
recurring revenue represented by its churned customers excludes
expansion or contraction associated with paid customer accounts on
Support and the effect of upgrades or downgrades in subscription plan.
The monthly recurring revenue represented by its churned customers is
adjusted to exclude paid customer accounts that churned from the
customer base used that share common corporate information with customer
accounts that did not churn from the customer base during the annual
period being measured. While not material, Zendesk believes the failure
to make this adjustment could otherwise skew the monthly recurring
revenue represented by its churned customers as a result of customers
that maintain multiple paid customer accounts on Support.
Zendesk’s percentage of monthly recurring revenue from Support that is
generated by customers with 100 or more agents on Support is determined
by dividing the monthly recurring revenue from Support for paid customer
accounts with more than 100 agents on Support as of the measurement date
by the monthly recurring revenue from Support for all paid customer
accounts on Support as of the measurement date. Zendesk determines the
customers with 100 or more agents on Support as of the measurement date
based on the number of activated agents on Support at the measurement
date and includes adjustments to aggregate paid customer accounts that
share common corporate information.
Zendesk determines the annualized value of a contract by annualizing the
monthly recurring revenue for such contract.
Zendesk does not currently incorporate operating metrics associated with
products other than Support into its measurement of monthly recurring
revenue represented by its churned customers or the percentage of
monthly recurring revenue from Support that is generated by customers
with 100 or more agents on Support.
Zendesk’s freemium plans include its legacy Starter plan for Support,
its Lite plan for Chat, and its Inbox service for facilitating and
simplifying email collaboration on group email aliases. Zendesk believes
these services provide exposure to its brand and establish a
relationship that can facilitate further adoption of Support and Chat as
organizations grow in size and their service needs grow more complex. A
customer account on Zendesk’s freemium plans is considered active based
on whether functionality of the service has been utilized within the
90-day period preceding the measurement date. A single consolidated
organization or customer may have multiple freemium customer accounts
across each of Support, Chat, and Zendesk’s Inbox service. Each of these
accounts is treated as a separate customer account on Zendesk’s freemium
products.
Source: Zendesk, Inc.
View source version on businesswire.com: http://www.businesswire.com/news/home/20170208006145/en/
Source: Zendesk, Inc.