Highlights:
-
Fourth quarter revenue increased 41% year over year to $172.2 million
-
Fourth quarter GAAP operating loss of $36.5 million and non-GAAP
operating income of $4.8 million
-
Full year 2018 revenue increased 39% year over year to $598.7 million
-
Full year 2018 GAAP operating loss of $137.9 million and non-GAAP
operating income of $3.5 million
-
Thomas Szkutak, former Amazon.com chief financial officer, joins board
of directors
SAN FRANCISCO--(BUSINESS WIRE)--
Zendesk, Inc. (NYSE: ZEN) today reported financial results for the
fiscal quarter and full fiscal year ended December 31, 2018, and
announced the appointment of former Amazon.com chief financial officer
Thomas Szkutak to its board of directors.
A Shareholder Letter with more commentary on the results is available on
the Zendesk investor relations website at https://investor.zendesk.com.
All results and guidance are based on the revenue recognition standard
ASC 606.
Results for the Fourth Quarter 2018
Revenue was $172.2 million for the quarter ended December 31, 2018, an
increase of 41% over the prior year period. GAAP net loss for the
quarter ended December 31, 2018 was $33.3 million, and GAAP net loss per
share (basic and diluted) was $0.31. Non-GAAP net income was $11.2
million, and non-GAAP net income per share (basic) was $0.10, and
non-GAAP net income per share (diluted) was $0.10. Non-GAAP net income
excludes approximately $36.9 million in share-based compensation and
related expenses (including $3.6 million of employer tax related to
employee stock transactions and $0.4 million of amortization of
share-based compensation capitalized in internal-use software), $6.1
million of amortization of debt discount and issuance costs,$2.2
million of acquisition-related expenses, and $2.2 million of
amortization of purchased intangibles. GAAP net loss per share for the
quarter ended December 31, 2018 was based on 107.4 million weighted
average shares outstanding (basic and diluted), and non-GAAP net income
per share for the quarter ended December 31, 2018 was based on 107.4
million weighted average shares outstanding (basic) and 113.7 million
weighted average shares outstanding (diluted).
Results for the Full Fiscal Year 2018
Revenue was $598.7 million for the year ended December 31, 2018, an
increase of 39% over the prior year period. GAAP net loss for the year
ended December 31, 2018 was $131.1 million, and GAAP net loss per share
(basic and diluted) was $1.24. Non-GAAP net income was $23.0 million,
non-GAAP net income per share (basic) was $0.22, and non-GAAP net income
per share (diluted) was $0.21. Non-GAAP net income excludes
approximately $129.9 million in share-based compensation and related
expenses (including $8.9 million of employer tax related to employee
stock transactions and $1.5 million of amortization of share-based
compensation capitalized in internal-use software), $18.8 millionof
amortization of debt discount and issuance costs, $6.8 million of
acquisition-related expenses, and $4.8 million of amortization of
purchased intangibles. GAAP net loss per share for the year ended
December 31, 2018 was based on 105.6 million weighted average shares
outstanding (basic and diluted), and non-GAAP net income per share for
the year ended December 31, 2018 was based on 105.6 million weighted
average shares outstanding (basic) and 111.7 million weighted average
shares outstanding (diluted).
Appointment of Thomas Szkutak to Board of Directors
Zendesk appointed Thomas Szkutak to its board of directors, effective
January 31, 2019. Tom was previously the senior vice president and chief
financial officer of Amazon.com, Inc. from October 2002 to June 2015. He
currently serves as a member of the board of directors of Intuit Inc.
and athenahealth, Inc. Szkutak also serves as an advisor and operating
partner of Advent International, a global private equity firm.
“Tom knows firsthand how to manage and scale a high-growth company,”
said Mikkel Svane, Zendesk chief executive officer, chairman and
founder. “Together with our diverse and talented board, he will use his
experience to help guide us to become a multibillion-dollar revenue
company over the long-term.”
“I’m proud to be joining at a time when Zendesk has major opportunities
ahead of it,” Szkutak said. “With the launch of its open and flexible
CRM platform, Zendesk is well-positioned to move upmarket and into the
broader customer experience and CRM market.”
Outlook
As of February 5, 2019, Zendesk provided guidance for the quarter ending
March 31, 2019 and for the year ending December 31, 2019.
For the quarter ending March 31, 2019, Zendesk expects to report:
-
Revenue in the range of $178.0 - 180.0 million
-
GAAP operating income (loss) in the range of $(44.0) - (42.0) million,
which includes share-based compensation and related expenses of
approximately $38.2 million, amortization of purchased intangibles of
approximately $2.2 million, and acquisition-related expenses of
approximately $1.6 million
-
Non-GAAP operating income (loss) of $(2.0) - 0.0 million, which
excludes share-based compensation and related expenses of
approximately $38.2 million, amortization of purchased intangibles of
approximately $2.2 million, and acquisition-related expenses of
approximately $1.6 million
-
Approximately 108.7 million weighted average shares outstanding (basic)
-
Approximately 117.2 million weighted average shares outstanding
(diluted)
For the full year ending December 31, 2019, Zendesk expects to report:
-
Revenue in the range of $795.0 - 805.0 million
-
GAAP operating income (loss) in the range of $(154.0) - (149.0)
million, which includes share-based compensation and related expenses
of approximately $154.2 million, amortization of purchased intangibles
of approximately $8.8 million, and acquisition-related expenses of
approximately $4.0 million
-
Non-GAAP operating income of $13.0 - 18.0 million, which excludes
share-based compensation and related expenses of approximately $154.2
million, amortization of purchased intangibles of approximately $8.8
million, and acquisition-related expenses of approximately $4.0 million
-
Approximately 110.7 million weighted average shares outstanding (basic)
-
Approximately 119.3 million weighted average shares outstanding
(diluted)
-
Free cash flow in the range of $55.0 - 65.0 million
We have not reconciled free cash flow guidance to net cash from
operating activities for the full year 2019 because we do not provide
guidance on the reconciling items between net cash from operating
activities and free cash flow, 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 our free cash flow
and, accordingly, a reconciliation of net cash from operating activities
to free cash flow for the full year 2019 is not available without
unreasonable effort.
Zendesk’s estimates of share-based compensation and related expenses,
amortization of purchased intangibles, acquisition-related expenses,
weighted average shares outstanding, and free cash flow 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.
Shareholder Letter and 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 5, 2019, 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 833-287-0801, or +1
647-689-4460 (outside the U.S. and Canada). The conference ID is
2737549. A replay of the call via webcast will be available at https://investor.zendesk.com
or by dialing 800-585-8367 or +1 416-621-4642 (outside the U.S. and
Canada) and entering passcode 2737549. The dial-in replay will be
available until the end of day February 7, 2019. The webcast replay will
be available for 12 months.
About Zendesk
The best customer experiences are built with Zendesk. Zendesk’s powerful
and flexible customer service and engagement platform scales to meet the
needs of any business, from startups and small businesses to growth
companies and enterprises. Zendesk serves businesses across a multitude
of industries, with more than 125,000 paid customer accounts offering
service and support in more than 30 languages. Headquartered in San
Francisco, Zendesk operates worldwide with 16 offices in North America,
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
toward its long-term financial objectives. 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 ability to
effectively expand its sales capabilities; (iv) Zendesk’s ability to
effectively market and sell its products to larger enterprises; (v)
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; (vi)
the intensely competitive market in which Zendesk operates and the
difficulty that Zendesk may have in competing effectively; (vii)
Zendesk’s ability to introduce and market new products and to support
its products on a shared services platform; (viii) Zendesk’s ability to
integrate acquired businesses and technologies successfully or achieve
the expected benefits of such acquisitions; (ix) Zendesk’s ability to
effectively manage its growth and organizational change, including its
international expansion strategy; (x) potential breaches in Zendesk’s
security measures or unauthorized access to its customers’ data; (xi)
Zendesk's ability to comply with privacy and data security regulations;
(xii) the development of the market for software as a service business
software applications; (xiii) potential service interruptions or
performance problems associated with Zendesk’s technology and
infrastructure; (xiv) real or perceived errors, failures, or bugs in its
products; (xv) Zendesk’s substantial reliance on its customers renewing
their subscriptions and purchasing additional subscriptions; and (xvi)
Zendesk’s ability to accurately forecast expenditures on third-party
managed hosting services.
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, 2018. 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, 2018.
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,
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
|
|
*As adjusted
|
|
|
*As adjusted
|
Revenue
|
|
$
|
172,245
|
|
|
$
|
121,916
|
|
|
$
|
598,746
|
|
|
$
|
430,165
|
|
Cost of revenue
|
|
51,048
|
|
|
34,958
|
|
|
181,255
|
|
|
127,422
|
|
Gross profit
|
|
121,197
|
|
|
86,958
|
|
|
417,491
|
|
|
302,743
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
Research and development
|
|
45,142
|
|
|
30,779
|
|
|
160,260
|
|
|
115,291
|
|
Sales and marketing
|
|
82,890
|
|
|
60,854
|
|
|
291,668
|
|
|
211,918
|
|
General and administrative
|
|
29,682
|
|
|
22,177
|
|
|
103,491
|
|
|
81,680
|
|
Total operating expenses
|
|
157,714
|
|
|
113,810
|
|
|
555,419
|
|
|
408,889
|
|
Operating loss
|
|
(36,517
|
)
|
|
(26,852
|
)
|
|
(137,928
|
)
|
|
(106,146
|
)
|
Other income (expense), net:
|
|
|
|
|
|
|
|
|
Interest income
|
|
5,181
|
|
|
1,079
|
|
|
15,086
|
|
|
3,542
|
|
Interest expense
|
|
(6,455
|
)
|
|
—
|
|
|
(19,882
|
)
|
|
—
|
|
Other income (expense), net
|
|
(275
|
)
|
|
63
|
|
|
(467
|
)
|
|
(1,055
|
)
|
Total other income (expense), net
|
|
(1,549
|
)
|
|
1,142
|
|
|
(5,263
|
)
|
|
2,487
|
|
Loss before benefit from income taxes
|
|
(38,066
|
)
|
|
(25,710
|
)
|
|
(143,191
|
)
|
|
(103,659
|
)
|
Benefit from income taxes
|
|
(4,816
|
)
|
|
(732
|
)
|
|
(12,107
|
)
|
|
(1,518
|
)
|
Net loss
|
|
$
|
(33,250
|
)
|
|
$
|
(24,978
|
)
|
|
$
|
(131,084
|
)
|
|
$
|
(102,141
|
)
|
Net loss per share, basic and diluted
|
|
$
|
(0.31
|
)
|
|
$
|
(0.24
|
)
|
|
$
|
(1.24
|
)
|
|
$
|
(1.02
|
)
|
Weighted-average shares used to compute net loss per share, basic
and diluted
|
|
107,387
|
|
|
102,044
|
|
|
105,567
|
|
|
99,918
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*Adjusted to reflect the adoption of ASC 606.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidated Balance Sheets
(In thousands,
except par value; unaudited)
|
|
|
|
|
|
|
|
December 31,
2018
|
|
December 31,
2017
|
|
|
|
*As adjusted
|
Assets
|
|
|
|
|
Current assets:
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
126,518
|
|
|
$
|
109,370
|
|
Marketable securities
|
|
300,213
|
|
|
137,576
|
|
Accounts receivable, net of allowance for doubtful accounts of
$2,571 and $1,252 as of December 31, 2018 and 2017, respectively
|
|
85,280
|
|
|
57,096
|
|
Deferred costs
|
|
24,712
|
|
|
15,771
|
|
Prepaid expenses and other current assets
|
|
35,873
|
|
|
24,165
|
|
Total current assets
|
|
572,596
|
|
|
343,978
|
|
Marketable securities, noncurrent
|
|
393,671
|
|
|
97,447
|
|
Property and equipment, net
|
|
75,654
|
|
|
59,157
|
|
Deferred costs, noncurrent
|
|
26,914
|
|
|
15,395
|
|
Goodwill and intangible assets, net
|
|
146,327
|
|
|
67,034
|
|
Other assets
|
|
22,717
|
|
|
8,359
|
|
Total assets
|
|
$
|
1,237,879
|
|
|
$
|
591,370
|
|
|
|
|
|
|
Liabilities and stockholders’ equity
|
|
|
|
|
Current liabilities:
|
|
|
|
|
Accounts payable
|
|
$
|
16,820
|
|
|
$
|
5,307
|
|
Accrued liabilities
|
|
34,097
|
|
|
21,876
|
|
Accrued compensation and related benefits
|
|
46,603
|
|
|
29,017
|
|
Deferred revenue
|
|
245,243
|
|
|
173,147
|
|
Total current liabilities
|
|
342,763
|
|
|
229,347
|
|
Convertible senior notes, net
|
|
458,176
|
|
|
—
|
|
Deferred revenue, noncurrent
|
|
2,719
|
|
|
1,213
|
|
Other liabilities
|
|
17,300
|
|
|
6,626
|
|
Total liabilities
|
|
820,958
|
|
|
237,186
|
|
Stockholders’ equity:
|
|
|
|
|
Preferred stock, par value $0.01 per share
|
|
—
|
|
|
—
|
|
Common stock, par value $0.01 per share
|
|
1,080
|
|
|
1,031
|
|
Additional paid-in capital
|
|
950,693
|
|
|
753,568
|
|
Accumulated other comprehensive loss
|
|
(5,724
|
)
|
|
(2,372
|
)
|
Accumulated deficit
|
|
(529,128
|
)
|
|
(398,043
|
)
|
Total stockholders’ equity
|
|
416,921
|
|
|
354,184
|
|
Total liabilities and stockholders’ equity
|
|
$
|
1,237,879
|
|
|
$
|
591,370
|
|
|
|
|
|
|
|
|
|
|
*Adjusted to reflect the adoption of ASC 606.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidated Statements of Cash Flows
(In
thousands; unaudited)
|
|
|
|
|
|
|
|
Three Months Ended
December 31,
|
|
Year Ended December 31,
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
|
|
*As adjusted
|
|
|
*As adjusted
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(33,250
|
)
|
|
$
|
(24,978
|
)
|
|
$
|
(131,084
|
)
|
|
$
|
(102,141
|
)
|
Adjustments to reconcile net loss to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
9,327
|
|
|
7,668
|
|
|
36,520
|
|
|
31,931
|
|
Share-based compensation
|
|
32,902
|
|
|
22,128
|
|
|
119,483
|
|
|
84,553
|
|
Amortization of deferred costs
|
|
6,180
|
|
|
4,102
|
|
|
21,304
|
|
|
14,434
|
|
Amortization of debt discount and issuance costs
|
|
6,101
|
|
|
—
|
|
|
18,766
|
|
|
—
|
|
Income tax benefit related to convertible senior notes
|
|
(5,731
|
)
|
|
—
|
|
|
(13,784
|
)
|
|
—
|
|
Other
|
|
(16
|
)
|
|
222
|
|
|
2,848
|
|
|
603
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
(3,286
|
)
|
|
(6,162
|
)
|
|
(30,007
|
)
|
|
(21,201
|
)
|
Prepaid expenses and other current assets
|
|
(453
|
)
|
|
4
|
|
|
(10,620
|
)
|
|
(5,112
|
)
|
Deferred costs
|
|
(14,182
|
)
|
|
(7,167
|
)
|
|
(40,898
|
)
|
|
(22,762
|
)
|
Other assets and liabilities
|
|
6,608
|
|
|
(442
|
)
|
|
6,635
|
|
|
(5,765
|
)
|
Accounts payable
|
|
(13,073
|
)
|
|
(5,398
|
)
|
|
7,534
|
|
|
1,839
|
|
Accrued liabilities
|
|
(3,229
|
)
|
|
76
|
|
|
3,844
|
|
|
6,919
|
|
Accrued compensation and related benefits
|
|
12,539
|
|
|
5,896
|
|
|
15,026
|
|
|
7,399
|
|
Deferred revenue
|
|
22,501
|
|
|
21,357
|
|
|
73,053
|
|
|
51,531
|
|
Net cash provided by operating activities
|
|
22,938
|
|
|
17,306
|
|
|
78,620
|
|
|
42,228
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
(8,191
|
)
|
|
(3,062
|
)
|
|
(35,323
|
)
|
|
(16,396
|
)
|
Internal-use software development costs
|
|
(1,455
|
)
|
|
(2,284
|
)
|
|
(7,005
|
)
|
|
(7,521
|
)
|
Purchases of marketable securities
|
|
(108,800
|
)
|
|
(42,030
|
)
|
|
(700,226
|
)
|
|
(177,309
|
)
|
Proceeds from maturities of marketable securities
|
|
39,063
|
|
|
27,775
|
|
|
170,882
|
|
|
116,735
|
|
Proceeds from sales of marketable securities
|
|
30,584
|
|
|
2,946
|
|
|
71,359
|
|
|
31,090
|
|
Cash paid for acquisitions, net of cash acquired
|
|
—
|
|
|
—
|
|
|
(79,363
|
)
|
|
(16,470
|
)
|
Purchase of strategic investment
|
|
(10,000
|
)
|
|
—
|
|
|
(10,000
|
)
|
|
—
|
|
Net cash used in investing activities
|
|
(58,799
|
)
|
|
(16,655
|
)
|
|
(589,676
|
)
|
|
(69,871
|
)
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
Proceeds from issuance of convertible senior notes, net of issuance
costs paid of $13,561
|
|
—
|
|
|
—
|
|
|
561,439
|
|
|
—
|
|
Purchase of capped call related to convertible senior notes
|
|
—
|
|
|
—
|
|
|
(63,940
|
)
|
|
—
|
|
Proceeds from exercise of employee stock options
|
|
2,896
|
|
|
13,332
|
|
|
16,150
|
|
|
31,882
|
|
Proceeds from employee stock purchase plan
|
|
5,441
|
|
|
3,268
|
|
|
21,440
|
|
|
14,248
|
|
Taxes paid related to net share settlement of share-based awards
|
|
(1,447
|
)
|
|
(574
|
)
|
|
(5,213
|
)
|
|
(2,989
|
)
|
Other
|
|
(772
|
)
|
|
—
|
|
|
(813
|
)
|
|
—
|
|
Net cash provided by financing activities
|
|
6,118
|
|
|
16,026
|
|
|
529,063
|
|
|
43,141
|
|
Effect of exchange rate changes on cash, cash equivalents and
restricted cash
|
|
36
|
|
|
40
|
|
|
(19
|
)
|
|
328
|
|
Net increase (decrease) in cash, cash equivalents and restricted cash
|
|
(29,707
|
)
|
|
16,717
|
|
|
17,988
|
|
|
15,826
|
|
Cash, cash equivalents and restricted cash at beginning of period
|
|
158,583
|
|
|
94,171
|
|
|
110,888
|
|
|
95,062
|
|
Cash, cash equivalents and restricted cash at end of period
|
|
$
|
128,876
|
|
|
$
|
110,888
|
|
|
$
|
128,876
|
|
|
$
|
110,888
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*Adjusted to reflect the adoption of ASC 606 and ASU 2016-18.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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,
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
|
|
*As adjusted
|
|
|
*As adjusted
|
Reconciliation of gross profit and gross margin
|
|
|
|
|
|
|
|
|
GAAP gross profit
|
|
$
|
121,197
|
|
|
$
|
86,958
|
|
|
$
|
417,491
|
|
|
$
|
302,743
|
|
Plus: Share-based compensation
|
|
4,335
|
|
|
2,372
|
|
|
14,835
|
|
|
9,040
|
|
Plus: Employer tax related to employee stock transactions
|
|
242
|
|
|
129
|
|
|
1,036
|
|
|
530
|
|
Plus: Amortization of purchased intangibles
|
|
1,647
|
|
|
612
|
|
|
3,789
|
|
|
3,209
|
|
Plus: Amortization of share-based compensation capitalized in
internal-use software
|
|
403
|
|
|
417
|
|
|
1,487
|
|
|
1,774
|
|
Plus: Acquisition-related expenses
|
|
114
|
|
|
—
|
|
|
152
|
|
|
—
|
|
Non-GAAP gross profit
|
|
$
|
127,938
|
|
|
$
|
90,488
|
|
|
$
|
438,790
|
|
|
$
|
317,296
|
|
GAAP gross margin
|
|
70
|
%
|
|
71
|
%
|
|
70
|
%
|
|
70
|
%
|
Non-GAAP adjustments
|
|
4
|
%
|
|
3
|
%
|
|
3
|
%
|
|
4
|
%
|
Non-GAAP gross margin
|
|
74
|
%
|
|
74
|
%
|
|
73
|
%
|
|
74
|
%
|
|
|
|
|
|
|
|
|
|
Reconciliation of operating expenses
|
|
|
|
|
|
|
|
|
GAAP research and development
|
|
$
|
45,142
|
|
|
$
|
30,779
|
|
|
$
|
160,260
|
|
|
$
|
115,291
|
|
Less: Share-based compensation
|
|
(10,929
|
)
|
|
(7,697
|
)
|
|
(41,365
|
)
|
|
(29,970
|
)
|
Less: Employer tax related to employee stock transactions
|
|
(1,826
|
)
|
|
(816
|
)
|
|
(3,884
|
)
|
|
(1,971
|
)
|
Less: Acquisition-related expenses
|
|
(542
|
)
|
|
(406
|
)
|
|
(2,335
|
)
|
|
(843
|
)
|
Non-GAAP research and development
|
|
$
|
31,845
|
|
|
$
|
21,860
|
|
|
$
|
112,676
|
|
|
$
|
82,507
|
|
GAAP research and development as percentage of revenue
|
|
26
|
%
|
|
25
|
%
|
|
27
|
%
|
|
27
|
%
|
Non-GAAP research and development as percentage of revenue
|
|
18
|
%
|
|
18
|
%
|
|
19
|
%
|
|
19
|
%
|
|
|
|
|
|
|
|
|
|
GAAP sales and marketing
|
|
$
|
82,890
|
|
|
$
|
60,854
|
|
|
$
|
291,668
|
|
|
$
|
211,918
|
|
Less: Share-based compensation
|
|
(10,436
|
)
|
|
(6,298
|
)
|
|
(37,882
|
)
|
|
(24,279
|
)
|
Less: Employer tax related to employee stock transactions
|
|
(523
|
)
|
|
(356
|
)
|
|
(2,158
|
)
|
|
(1,164
|
)
|
Less: Amortization of purchased intangibles
|
|
(570
|
)
|
|
(135
|
)
|
|
(975
|
)
|
|
(495
|
)
|
Less: Acquisition-related expenses
|
|
(389
|
)
|
|
(281
|
)
|
|
(1,259
|
)
|
|
(750
|
)
|
Non-GAAP sales and marketing
|
|
$
|
70,972
|
|
|
$
|
53,784
|
|
|
$
|
249,394
|
|
|
$
|
185,230
|
|
GAAP sales and marketing as percentage of revenue
|
|
48
|
%
|
|
50
|
%
|
|
49
|
%
|
|
49
|
%
|
Non-GAAP sales and marketing as percentage of revenue
|
|
41
|
%
|
|
44
|
%
|
|
42
|
%
|
|
43
|
%
|
|
|
|
|
|
|
|
|
|
GAAP general and administrative
|
|
$
|
29,682
|
|
|
$
|
22,177
|
|
|
$
|
103,491
|
|
|
$
|
81,680
|
|
Less: Share-based compensation
|
|
(7,203
|
)
|
|
(5,761
|
)
|
|
(25,401
|
)
|
|
(21,263
|
)
|
Less: Employer tax related to employee stock transactions
|
|
(965
|
)
|
|
(671
|
)
|
|
(1,837
|
)
|
|
(1,184
|
)
|
Less: Acquisition-related expenses
|
|
(1,165
|
)
|
|
(45
|
)
|
|
(3,073
|
)
|
|
(566
|
)
|
Non-GAAP general and administrative
|
|
$
|
20,349
|
|
|
$
|
15,700
|
|
|
$
|
73,180
|
|
|
$
|
58,667
|
|
GAAP general and administrative as percentage of revenue
|
|
17
|
%
|
|
18
|
%
|
|
17
|
%
|
|
19
|
%
|
Non-GAAP general and administrative as percentage of revenue
|
|
12
|
%
|
|
13
|
%
|
|
12
|
%
|
|
14
|
%
|
|
|
|
|
|
|
|
|
|
Reconciliation of operating income (loss) and operating margin
|
|
|
|
|
|
|
|
|
GAAP operating loss
|
|
$
|
(36,517
|
)
|
|
$
|
(26,852
|
)
|
|
$
|
(137,928
|
)
|
|
$
|
(106,146
|
)
|
Plus: Share-based compensation
|
|
32,903
|
|
|
22,128
|
|
|
119,483
|
|
|
84,552
|
|
Plus: Employer tax related to employee stock transactions
|
|
3,556
|
|
|
1,972
|
|
|
8,915
|
|
|
4,849
|
|
Plus: Amortization of purchased intangibles
|
|
2,217
|
|
|
747
|
|
|
4,764
|
|
|
3,704
|
|
Plus: Acquisition-related expenses
|
|
2,210
|
|
|
732
|
|
|
6,819
|
|
|
2,159
|
|
Plus: Amortization of share-based compensation capitalized in
internal-use software
|
|
403
|
|
|
417
|
|
|
1,487
|
|
|
1,774
|
|
Non-GAAP operating income (loss)
|
|
$
|
4,772
|
|
|
$
|
(856
|
)
|
|
$
|
3,540
|
|
|
$
|
(9,108
|
)
|
GAAP operating margin
|
|
(21
|
)%
|
|
(22
|
)%
|
|
(23
|
)%
|
|
(25
|
)%
|
Non-GAAP adjustments
|
|
24
|
%
|
|
21
|
%
|
|
24
|
%
|
|
23
|
%
|
Non-GAAP operating margin
|
|
3
|
%
|
|
(1
|
)%
|
|
1
|
%
|
|
(2
|
)%
|
|
|
Three Months Ended
December 31,
|
|
Year Ended December 31,
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
|
|
*As adjusted
|
|
|
*As adjusted
|
Reconciliation of net income (loss)
|
|
|
|
|
|
|
|
|
GAAP net loss
|
|
$
|
(33,250
|
)
|
|
$
|
(24,978
|
)
|
|
$
|
(131,084
|
)
|
|
$
|
(102,141
|
)
|
Plus: Share-based compensation
|
|
32,903
|
|
|
22,128
|
|
|
119,483
|
|
|
84,552
|
|
Plus: Employer tax related to employee stock transactions
|
|
3,556
|
|
|
1,972
|
|
|
8,915
|
|
|
4,849
|
|
Plus: Amortization of purchased intangibles
|
|
2,217
|
|
|
747
|
|
|
4,764
|
|
|
3,704
|
|
Plus: Acquisition-related expenses
|
|
2,210
|
|
|
732
|
|
|
6,819
|
|
|
2,159
|
|
Plus: Amortization of share-based compensation capitalized in
internal-use software
|
|
403
|
|
|
417
|
|
|
1,487
|
|
|
1,774
|
|
Plus: Amortization of debt discount and issuance costs
|
|
6,101
|
|
|
—
|
|
|
18,766
|
|
|
—
|
|
Less: Income tax effects and adjustments
|
|
(2,969
|
)
|
|
(214
|
)
|
|
(6,122
|
)
|
|
—
|
|
Non-GAAP net income (loss)
|
|
$
|
11,171
|
|
|
$
|
804
|
|
|
$
|
23,028
|
|
|
$
|
(5,103
|
)
|
|
|
|
|
|
|
|
|
|
Reconciliation of net income (loss) per share, basic
|
|
|
|
|
|
|
|
|
GAAP net loss per share, basic
|
|
$
|
(0.31
|
)
|
|
$
|
(0.24
|
)
|
|
$
|
(1.24
|
)
|
|
$
|
(1.02
|
)
|
Non-GAAP adjustments to net loss
|
|
0.41
|
|
|
0.25
|
|
|
1.46
|
|
|
0.97
|
|
Non-GAAP net income (loss) per share, basic
|
|
$
|
0.10
|
|
|
$
|
0.01
|
|
|
$
|
0.22
|
|
|
$
|
(0.05
|
)
|
|
|
|
|
|
|
|
|
|
Reconciliation of net income (loss) per share, diluted
|
|
|
|
|
|
|
|
|
GAAP net loss per share, diluted
|
|
$
|
(0.31
|
)
|
|
$
|
(0.24
|
)
|
|
$
|
(1.24
|
)
|
|
$
|
(1.02
|
)
|
Non-GAAP adjustments to net loss
|
|
0.41
|
|
|
0.25
|
|
|
1.45
|
|
|
0.97
|
|
Non-GAAP net income (loss) per share, diluted
|
|
$
|
0.10
|
|
|
$
|
0.01
|
|
|
$
|
0.21
|
|
|
$
|
(0.05
|
)
|
|
|
|
|
|
|
|
|
|
Weighted-average shares used in GAAP per share calculation,
basic
|
|
107,387
|
|
|
102,044
|
|
|
105,567
|
|
|
99,918
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares used in non-GAAP per share calculation
|
|
|
|
|
|
|
|
|
Basic
|
|
107,387
|
|
|
102,044
|
|
|
105,567
|
|
|
99,918
|
|
Diluted
|
|
113,687
|
|
|
106,376
|
|
|
111,733
|
|
|
99,918
|
|
|
|
|
|
|
|
|
|
|
Computation of free cash flow
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
$
|
22,938
|
|
|
$
|
17,306
|
|
|
$
|
78,620
|
|
|
$
|
42,228
|
|
Less: purchases of property and equipment
|
|
(8,191
|
)
|
|
(3,062
|
)
|
|
(35,323
|
)
|
|
(16,396
|
)
|
Less: internal-use software development costs
|
|
(1,455
|
)
|
|
(2,284
|
)
|
|
(7,005
|
)
|
|
(7,521
|
)
|
Free cash flow
|
|
$
|
13,292
|
|
|
$
|
11,960
|
|
|
$
|
36,292
|
|
|
$
|
18,311
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities margin
|
|
13
|
%
|
|
14
|
%
|
|
13
|
%
|
|
10
|
%
|
Non-GAAP adjustments
|
|
(5
|
)%
|
|
(4
|
)%
|
|
(7
|
)%
|
|
(6
|
)%
|
Free cash flow margin
|
|
8
|
%
|
|
10
|
%
|
|
6
|
%
|
|
4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*Adjusted to reflect the adoption of ASC 606 and ASU 2016-18.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 income (loss) and operating margin,
non-GAAP net income (loss), non-GAAP net income (loss) per share, basic
and diluted, free cash flow, and free cash flow margin.
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: 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.
Acquisition-Related Expenses: Zendesk views acquisition-related
expenses, such as transaction costs, integration costs, restructuring
costs, and acquisition-related retention payments, including
amortization of acquisition-related retention payments capitalized in
internal-use software, 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.
Amortization of Debt Discount and Issuance Costs: In March 2018,
Zendesk issued $575 million of convertible senior notes due in 2023,
which bear interest at an annual fixed rate of 0.25%. The imputed
interest rate of the convertible senior notes was approximately 5.26%.
This is a result of the debt discount recorded for the conversion
feature that is required to be separately accounted for as equity, and
debt issuance costs, which reduce the carrying value of the convertible
debt instrument. The debt discount is amortized as interest expense
together with the issuance costs of the debt. The expense for the
amortization of debt discount and debt issuance costs is a non-cash
item, and we believe the exclusion of this interest expense will provide
for a more useful comparison of our operational performance in different
periods.
Income Tax Effects: We utilize a fixed long-term projected tax
rate in our computation of the non-GAAP income tax provision to provide
better consistency across the interim reporting periods. In projecting
this long-term non-GAAP tax rate, we utilize a financial projection that
excludes the direct impact of our other non-GAAP adjustments. The
projected rate considers other factors such as our current operating
structure, existing tax positions in various jurisdictions, and key
legislation in major jurisdictions where we operate. For the fiscal year
ending December 31, 2018, we have determined the projected non-GAAP tax
rate to be 21%. We will periodically re-evaluate this tax rate, as
necessary, for significant events, based on relevant tax law changes,
material changes in the forecasted geographic earnings mix, and any
significant acquisitions.
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. Free
cash flow margin is calculated as free cash flow as a percentage of
total revenue. Zendesk uses free cash flow, free cash flow margin, and
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 and free cash flow margin provides
investors with an important perspective on the cash available to fund
ongoing operations.
Zendesk has not reconciled free cash flow guidance to net cash from
operating activities for the year ending December 31, 2019 because
Zendesk does not provide guidance on the reconciling items between net
cash from operating activities and free cash flow, 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 free cash flow and, accordingly, a reconciliation of
net cash from operating activities to free cash flow for the year ending
December 31, 2019 is not available without unreasonable effort.
Zendesk does not provide a reconciliation of its non-GAAP operating
margin guidance to GAAP operating margin for future periods beyond the
current fiscal year because Zendesk does not provide guidance on the
reconciling items between GAAP operating margin and non-GAAP operating
margin for such periods, 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
operating margin and, accordingly, a reconciliation of GAAP operating
margin to non-GAAP operating margin guidance for such periods is not
available without unreasonable effort.
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, amortization of purchased intangibles primarily related
to developed technology, and acquisition-related expenses. 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 infrastructure
and customer experience organization.
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 debt
discount and issuance costs, amortization of purchased intangibles, and
acquisition-related expenses, 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 100 or more 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. In the quarter ended June 30, 2018, Zendesk began to offer
an omnichannel subscription which provides access to multiple products
through a single paid customer account, Zendesk Suite. All of the Suite
paid customer accounts are included in the number of accounts on all of
Zendesk’s other products and are not included in the number of paid
customer accounts using Support or Chat. 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. Other than usage of
Zendesk’s products through its omnichannel subscription offering, each
of these accounts is also treated as a separate paid customer account.
Zendesk does not currently include accounts on its sales force
automation product, Sell, in its determination of the number of paid
customer accounts.
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 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 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 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 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 100,400 customers, as compared to the approximately
136,600 total paid customer accounts as of December 31, 2018.
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 legacy analytics product, its legacy Outbound product, Sell, its
legacy Starter plan, free trials, or other free services 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’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 100 or more 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. For the purpose of determining this
metric, Zendesk builds an estimation of the proportion of monthly
recurring revenue from Suite attributable to Support and includes such
portion in the monthly recurring revenue from Support.
Zendesk does not currently incorporate operating metrics associated with
products other than Support into its measurement of the percentage of
monthly recurring revenue from Support that is generated by customers
with 100 or more agents on Support.
Zendesk determines the annualized value of a contract by annualizing the
monthly recurring revenue for such contract.
Source: Zendesk, Inc.
View source version on businesswire.com:
https://www.businesswire.com/news/home/20190205005954/en/
Zendesk, Inc.
Investor Contact:
Marc Cabi, +1
415-852-3877
ir@zendesk.com
or
Media Contact:
Tian Lee, +1 415-231-0847
press@zendesk.com
Source: Zendesk, Inc.