BusinessWire

Zendesk Announces Third Quarter 2019 Results

Highlights

  • Third quarter revenue increased 36% year over year to $210.5 million
  • Third quarter GAAP operating loss of $35.4 million and non-GAAP operating income of $10.6 million

SAN FRANCISCO--(BUSINESS WIRE)--Zendesk, Inc. (NYSE: ZEN) today reported financial results for the third quarter ended September 30, 2019, and released a Shareholder Letter on its investor relations website at https://investor.zendesk.com.

Results for the Third Quarter 2019

Revenue was $210.5 million for the quarter ended September 30, 2019, an increase of 36% over the prior year period. GAAP net loss for the quarter ended September 30, 2019 was $34.2 million, and GAAP net loss per share (basic and diluted) was $0.31. Non-GAAP net income was $14.0 million, and non-GAAP net income per share (basic) was $0.13, and non-GAAP net income per share (diluted) was $0.12. Non-GAAP net income excludes approximately $41.1 million in share-based compensation and related expenses (including $2.0 million of employer tax related to employee stock transactions and $0.4 million of amortization of share-based compensation capitalized in internal-use software), $6.4 million of amortization of debt discount and issuance costs, $2.8 million of amortization of purchased intangibles, $2.2 million of acquisition-related expenses, and non-GAAP income tax effects and adjustments of $4.1 million. GAAP net loss per share for the quarter ended September 30, 2019 was based on 111.3 million weighted average shares outstanding (basic and diluted), and non-GAAP net income per share for the quarter ended September 30, 2019 was based on 111.3 million weighted average shares outstanding (basic) and 119.7 million weighted average shares outstanding (diluted).

Outlook

As of October 29, 2019, Zendesk provided guidance for the quarter ending December 31, 2019 and updated its guidance for the year ending December 31, 2019.

For the quarter ending December 31, 2019, Zendesk expects to report:

  • Revenue in the range of $226 - 228 million
  • GAAP operating income (loss) in the range of $(37) - (35) million, which includes share-based compensation and related expenses of approximately $40 million, amortization of purchased intangibles of approximately $3 million, and acquisition-related expenses of approximately $2 million
  • Non-GAAP operating income (loss) in the range of $8 - 10 million, which excludes share-based compensation and related expenses of approximately $40 million, amortization of purchased intangibles of approximately $3 million, and acquisition-related expenses of approximately $2 million
  • Approximately 112 million weighted average shares outstanding (basic)
  • Approximately 117 million weighted average shares outstanding (diluted)

For the full year ending December 31, 2019, Zendesk expects to report:

  • Revenue in the range of $813 - 815 million
  • GAAP operating income (loss) in the range of $(167) - (165) million, which includes share-based compensation and related expenses of approximately $168 million, amortization of purchased intangibles of approximately $10 million, and acquisition-related expenses of approximately $12 million
  • Non-GAAP operating income (loss) in the range of $23 - 25 million, which excludes share-based compensation and related expenses of approximately $168 million, amortization of purchased intangibles of approximately $10 million, and acquisition-related expenses of approximately $12 million
  • Approximately 111 million weighted average shares outstanding (basic)
  • Approximately 119 million weighted average shares outstanding (diluted)
  • Free cash flow in the range of $35 - 45 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, October 29, 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 3987256. 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 3987256. The dial-in replay will be available until the end of day November 1, 2019. The webcast replay will be available for 12 months.

About Zendesk

The best customer experiences are built with Zendesk. Our customer service and engagement products are powerful and flexible, and scale to meet the needs of any business. Zendesk serves businesses across a multitude of industries, with more than 150,000 paid customer accounts offering service and support in over 30 languages. Zendesk is headquartered in San Francisco, and operates worldwide with 17 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 maintain and develop its strategic relationships with third parties; (ix) Zendesk's ability to prevent, mitigate, and respond effectively to both historical and future data breaches and to securely maintain customer data; (x) Zendesk’s ability to effectively manage its growth and organizational change, including its international expansion strategy; (xi) Zendesk’s ability to integrate acquired businesses and technologies successfully or achieve the expected benefits of such acquisitions; (xii) Zendesk's ability to comply with privacy and data security regulations; (xiii) the development of the market for software as a service business software applications; (xiv) potential service interruptions or performance problems associated with Zendesk’s technology and infrastructure; (xv) real or perceived errors, failures, or bugs in its products; (xvi) Zendesk’s substantial reliance on its customers renewing their subscriptions and purchasing additional subscriptions; and (xvii) Zendesk’s ability to accurately forecast expenditures on third-party managed hosting services.

The forward-looking statements contained in this shareholder letter 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 June 30, 2019. 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 Quarterly Report on Form 10-Q for the quarter ended September 30, 2019.

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 shareholder letter to reflect events or circumstances after the date of this shareholder letter 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 September 30,

 

Nine Months Ended September 30,

 

 

2019

 

2018

 

2019

 

2018

Revenue

 

$

210,477

 

 

$

154,828

 

 

$

586,545

 

 

$

426,501

 

Cost of revenue

 

59,210

 

 

46,992

 

 

172,534

 

 

130,207

 

Gross profit

 

151,267

 

 

107,836

 

 

414,011

 

 

296,294

 

Operating expenses:

 

 

 

 

 

 

 

 

Research and development

 

54,528

 

 

40,410

 

 

151,829

 

 

115,118

 

Sales and marketing

 

99,303

 

 

74,270

 

 

285,750

 

 

208,778

 

General and administrative

 

32,864

 

 

27,357

 

 

107,135

 

 

73,809

 

Total operating expenses

 

186,695

 

 

142,037

 

 

544,714

 

 

397,705

 

Operating loss

 

(35,428

)

 

(34,201

)

 

(130,703

)

 

(101,411

)

Other income (expense), net

 

 

 

 

 

 

 

 

Interest income

 

4,986

 

 

4,561

 

 

15,752

 

 

9,906

 

Interest expense

 

(6,727

)

 

(6,375

)

 

(19,885

)

 

(13,427

)

Other income (expense), net

 

2,581

 

 

(463

)

 

2,012

 

 

(194

)

Total other income (expense), net

 

840

 

 

(2,277

)

 

(2,121

)

 

(3,715

)

Loss before provision for (benefit from) income taxes

 

(34,588

)

 

(36,478

)

 

(132,824

)

 

(105,126

)

Provision for (benefit from) income taxes

 

(364

)

 

(2,334

)

 

661

 

 

(7,291

)

Net loss

 

$

(34,224

)

 

$

(34,144

)

 

$

(133,485

)

 

$

(97,835

)

Net loss per share, basic and diluted

 

$

(0.31

)

 

$

(0.32

)

 

$

(1.21

)

 

$

(0.93

)

Weighted-average shares used to compute net loss per share, basic and diluted

 

111,261

 

 

106,143

 

 

109,969

 

 

104,954

 

Condensed Consolidated Balance Sheets

(In thousands, except par value; unaudited)

 

 

September 30,
2019

 

December 31,
2018

Assets

 

 

 

Current assets:

 

 

 

Cash and cash equivalents

$

190,892

 

 

$

126,518

 

Marketable securities

243,846

 

 

300,213

 

Accounts receivable, net of allowance for doubtful accounts of $2,715 and $2,571 as of September 30, 2019 and December 31, 2018, respectively

101,440

 

 

85,280

 

Deferred costs

32,406

 

 

24,712

 

Prepaid expenses and other current assets

48,124

 

 

35,873

 

Total current assets

616,708

 

 

572,596

 

Marketable securities, noncurrent

384,527

 

 

393,671

 

Property and equipment, net

94,851

 

 

75,654

 

Deferred costs, noncurrent

32,516

 

 

26,914

 

Lease right-of-use assets

95,098

 

 

 

Goodwill and intangible assets, net

209,516

 

 

146,327

 

Other assets

26,242

 

 

22,717

 

Total assets

$

1,459,458

 

 

$

1,237,879

 

Liabilities and stockholders’ equity

 

 

 

Current liabilities:

 

 

 

Accounts payable

$

43,206

 

 

$

16,820

 

Accrued liabilities

36,531

 

 

34,097

 

Accrued compensation and related benefits

58,544

 

 

46,603

 

Deferred revenue

290,285

 

 

245,243

 

Lease liabilities

21,398

 

 

 

Total current liabilities

449,964

 

 

342,763

 

Convertible senior notes, net

477,007

 

 

458,176

 

Deferred revenue, noncurrent

2,662

 

 

2,719

 

Lease liabilities, noncurrent

87,926

 

 

 

Other liabilities

4,710

 

 

17,300

 

Total liabilities

1,022,269

 

 

820,958

 

 

 

 

 

Stockholders’ equity:

 

 

 

Preferred stock, par value $0.01 per share

 

 

 

Common stock, par value $0.01 per share

1,119

 

 

1,080

 

Additional paid-in capital

1,099,730

 

 

950,693

 

Accumulated other comprehensive loss

(1,047

)

 

(5,724

)

Accumulated deficit

(662,613

)

 

(529,128

)

Total stockholders’ equity

437,189

 

 

416,921

 

Total liabilities and stockholders’ equity

$

1,459,458

 

 

$

1,237,879

 

Condensed Consolidated Statements of Cash Flows

(In thousands; unaudited)

 

 

 

Three Months Ended September 30,

 

 

2019

 

2018

Cash flows from operating activities

 

 

 

 

Net loss

 

$

(34,224

)

 

$

(34,144

)

Adjustments to reconcile net loss to net cash provided by operating activities:

 

 

 

 

Depreciation and amortization

 

10,091

 

 

8,530

 

Share-based compensation

 

38,650

 

 

31,446

 

Amortization of deferred costs

 

8,443

 

 

5,594

 

Amortization of debt discount and issuance costs

 

6,366

 

 

6,015

 

Other

 

112

 

 

566

 

Changes in operating assets and liabilities:

 

 

 

 

Accounts receivable

 

3,035

 

 

(12,825

)

Prepaid expenses and other current assets

 

(1,843

)

 

(2,742

)

Deferred costs

 

(10,944

)

 

(9,137

)

Lease right-of-use assets

 

4,915

 

 

 

Other assets and liabilities

 

(2,401

)

 

1,285

 

Accounts payable

 

1,258

 

 

10,341

 

Accrued liabilities

 

65

 

 

(4,503

)

Accrued compensation and related benefits

 

(909

)

 

(1,633

)

Deferred revenue

 

6,240

 

 

16,951

 

Lease liabilities

 

(8,631

)

 

 

Net cash provided by operating activities

 

20,223

 

 

15,744

 

Cash flows from investing activities

 

 

 

 

Purchases of property and equipment

 

(11,474

)

 

(7,096

)

Internal-use software development costs

 

(2,041

)

 

(1,389

)

Purchases of marketable securities

 

(103,883

)

 

(342,415

)

Proceeds from maturities of marketable securities

 

45,875

 

 

37,239

 

Proceeds from sales of marketable securities

 

57,520

 

 

31,927

 

Cash paid for the acquisition of FutureSimple, net of cash acquired

 

 

 

(79,363

)

Net cash used in investing activities

 

(14,003

)

 

(361,097

)

Cash flows from financing activities

 

 

 

 

Issuance costs related to convertible senior notes

 

 

 

(54

)

Proceeds from exercises of employee stock options

 

8,767

 

 

3,507

 

Proceeds from employee stock purchase plan

 

7,747

 

 

6,050

 

Taxes paid related to net share settlement of share-based awards

 

(2,323

)

 

(1,620

)

Other

 

 

 

1,675

 

Net cash provided by financing activities

 

14,191

 

 

9,558

 

Effect of exchange rate changes on cash, cash equivalents and restricted cash

 

19

 

 

(19

)

Net increase (decrease) in cash, cash equivalents and restricted cash

 

20,430

 

 

(335,814

)

Cash, cash equivalents and restricted cash at beginning of period

 

173,381

 

 

494,397

 

Cash, cash equivalents and restricted cash at end of period

 

$

193,811

 

 

$

158,583

 

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 September 30,

 

Nine Months Ended September 30,

 

2019

 

2018

 

2019

 

2018

Reconciliation of gross profit and gross margin

 

 

 

 

 

 

 

GAAP gross profit

$

151,267

 

 

$

107,836

 

 

$

414,011

 

 

$

296,294

 

Plus: Share-based compensation

5,397

 

 

3,929

 

 

15,580

 

 

10,500

 

Plus: Employer tax related to employee stock transactions

310

 

 

238

 

 

1,149

 

 

794

 

Plus: Amortization of purchased intangibles

2,065

 

 

918

 

 

5,626

 

 

2,142

 

Plus: Amortization of share-based compensation capitalized in internal-use software

438

 

 

366

 

 

1,272

 

 

1,084

 

Plus: Acquisition-related expenses

185

 

 

38

 

 

$

459

 

 

$

38

 

Non-GAAP gross profit

$

159,662

 

 

$

113,325

 

 

$

438,097

 

 

$

310,852

 

GAAP gross margin

72

%

 

70

%

 

71

%

 

69

%

Non-GAAP adjustments

4

%

 

3

%

 

4

%

 

4

%

Non-GAAP gross margin

76

%

 

73

%

 

75

%

 

73

%

 

 

 

 

 

 

 

 

Reconciliation of operating expenses

 

 

 

 

 

 

 

GAAP research and development

$

54,528

 

 

$

40,410

 

 

$

151,829

 

 

$

115,118

 

Less: Share-based compensation

(12,169

)

 

(10,677

)

 

(35,717

)

 

(30,436

)

Less: Employer tax related to employee stock transactions

(634

)

 

(673

)

 

(2,856

)

 

(2,057

)

Less: Acquisition-related expenses

(973

)

 

(1,006

)

 

(2,404

)

 

(1,793

)

Non-GAAP research and development

$

40,752

 

 

$

28,054

 

 

$

110,852

 

 

$

80,832

 

GAAP research and development as percentage of revenue

26

%

 

26

%

 

26

%

 

27

%

Non-GAAP research and development as percentage of revenue

19

%

 

18

%

 

19

%

 

19

%

 

 

 

 

 

 

 

 

GAAP sales and marketing

$

99,303

 

 

$

74,270

 

 

$

285,750

 

 

$

208,778

 

Less: Share-based compensation

(13,839

)

 

(10,261

)

 

(39,813

)

 

(27,447

)

Less: Employer tax related to employee stock transactions

(562

)

 

(561

)

 

(2,352

)

 

(1,635

)

Less: Amortization of purchased intangibles

(699

)

 

(237

)

 

(1,934

)

 

(404

)

Less: Acquisition-related expenses

(390

)

 

(307

)

 

(1,161

)

 

(870

)

Non-GAAP sales and marketing

$

83,813

 

 

$

62,904

 

 

$

240,490

 

 

$

178,422

 

GAAP sales and marketing as percentage of revenue

47

%

 

48

%

 

49

%

 

49

%

Non-GAAP sales and marketing as percentage of revenue

40

%

 

41

%

 

41

%

 

42

%

 

 

 

 

 

 

 

 

GAAP general and administrative

$

32,864

 

 

$

27,357

 

 

$

107,135

 

 

$

73,809

 

Less: Share-based compensation

(7,244

)

 

(6,579

)

 

(27,948

)

 

(18,198

)

Less: Employer tax related to employee stock transactions

(470

)

 

(283

)

 

(1,788

)

 

(872

)

Less: Acquisition-related expenses

(628

)

 

(1,908

)

 

(5,618

)

 

(1,908

)

Non-GAAP general and administrative

$

24,522

 

 

$

18,587

 

 

$

71,781

 

 

$

52,831

 

GAAP general and administrative as percentage of revenue

16

%

 

18

%

 

18

%

 

17

%

Non-GAAP general and administrative as percentage of revenue

12

%

 

12

%

 

12

%

 

12

%

 

 

 

 

 

 

 

 

Reconciliation of operating income (loss) and operating margin

 

 

 

 

 

 

 

GAAP operating loss

$

(35,428

)

 

$

(34,201

)

 

$

(130,703

)

 

$

(101,411

)

Plus: Share-based compensation

38,649

 

 

31,446

 

 

119,058

 

 

86,581

 

Plus: Employer tax related to employee stock transactions

1,976

 

 

1,755

 

 

8,145

 

 

5,358

 

Plus: Amortization of purchased intangibles

2,764

 

 

1,155

 

 

7,560

 

 

2,546

 

Plus: Acquisition-related expenses

2,176

 

 

3,259

 

 

9,642

 

 

4,609

 

Plus: Amortization of share-based compensation capitalized in internal-use software

438

 

 

366

 

 

1,272

 

 

1,084

 

Non-GAAP operating income (loss)

$

10,575

 

 

$

3,780

 

 

$

14,974

 

 

$

(1,233

)

GAAP operating margin

(17

)%

 

(22

)%

 

(22

)%

 

(24

)%

Non-GAAP adjustments

22

%

 

24

%

 

25

%

 

24

%

Non-GAAP operating margin

5

%

 

2

%

 

3

%

 

%

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

2019

 

2018

 

2019

 

2018

Reconciliation of net income (loss)

 

 

 

 

 

 

 

GAAP net loss

$

(34,224

)

 

$

(34,144

)

 

$

(133,485

)

 

$

(97,835

)

Plus: Share-based compensation

38,649

 

 

31,446

 

 

119,058

 

 

86,581

 

Plus: Employer tax related to employee stock transactions

1,976

 

 

1,755

 

 

8,145

 

 

5,358

 

Plus: Amortization of purchased intangibles

2,764

 

 

1,155

 

 

7,560

 

 

2,546

 

Plus: Acquisition-related expenses

2,176

 

 

3,259

 

 

9,642

 

 

4,609

 

Plus: Amortization of share-based compensation capitalized in internal-use software

438

 

 

366

 

 

1,272

 

 

1,084

 

Plus: Amortization of debt discount and issuance costs

6,366

 

 

6,015

 

 

18,831

 

 

12,665

 

Less: Income tax effects and adjustments

(4,098

)

 

(3,913

)

 

(5,994

)

 

(5,890

)

Non-GAAP net income

$

14,047

 

 

$

5,939

 

 

$

25,029

 

 

$

9,118

 

 

 

 

 

 

 

 

 

Reconciliation of net income (loss) per share, basic

 

 

 

 

 

 

 

GAAP net loss per share, basic

$

(0.31

)

 

$

(0.32

)

 

$

(1.21

)

 

$

(0.93

)

Non-GAAP adjustments to net loss

0.44

 

 

0.38

 

 

1.44

 

 

1.02

 

Non-GAAP net income per share, basic

$

0.13

 

 

$

0.06

 

 

$

0.23

 

 

$

0.09

 

 

 

 

 

 

 

 

 

Reconciliation of net income (loss) per share, diluted

 

 

 

 

 

 

 

GAAP net loss per share, diluted

$

(0.31

)

 

$

(0.32

)

 

$

(1.21

)

 

$

(0.93

)

Non-GAAP adjustments to net loss

0.43

 

 

0.37

 

 

1.42

 

 

1.01

 

Non-GAAP net income per share, diluted

$

0.12

 

 

$

0.05

 

 

$

0.21

 

 

$

0.08

 

 

 

 

 

 

 

 

 

Weighted-average shares used in GAAP per share calculation, basic and diluted

111,261

 

 

106,143

 

 

109,969

 

 

104,954

 

 

 

 

 

 

 

 

 

Weighted-average shares used in non-GAAP per share calculation

 

 

 

 

 

 

 

Basic

111,261

 

 

106,143

 

 

109,969

 

 

104,954

 

Diluted

119,689

 

 

113,752

 

 

118,750

 

 

111,413

 

 

 

 

 

 

 

 

 

Computation of free cash flow

 

 

 

 

 

 

 

Net cash provided by operating activities

$

20,223

 

 

$

15,744

 

 

$

57,050

 

 

$

55,682

 

Less: purchases of property and equipment

(11,474

)

 

(7,096

)

 

(25,628

)

 

(27,132

)

Less: internal-use software development costs

(2,041

)

 

(1,389

)

 

(5,007

)

 

(5,550

)

Free cash flow

$

6,708

 

 

$

7,259

 

 

$

26,415

 

 

$

23,000

 

 

 

 

 

 

 

 

 

Net cash provided by operating activities margin

10

%

 

10

%

 

10

%

 

13

%

Non-GAAP adjustments

(7

)%

 

(5

)%

 

(5

)%

 

(8

)%

Free cash flow margin

3

%

 

5

%

 

5

%

 

5

%

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.


Contacts

Zendesk, Inc.
Investor Contact:
Karen Sansot, +1 415-852-3877
ir@zendesk.com

or

Media Contact:
Tian Lee, +1 415-231-0847
press@zendesk.com


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