Zendesk Announces First Quarter 2020 Results

April 30, 2020

Highlights

• First quarter revenue increased 31% year over year to $237.5 million

• First quarter GAAP operating loss of $41.3 million and non-GAAP operating income of $9.2 million

SAN FRANCISCO – April 30, 2020 – Zendesk, Inc. (NYSE: ZEN) today reported financial results for the first quarter ended March 31, 2020, and released a Shareholder Letter on its investor relations website at https://investor.zendesk.com.

Results for the First Quarter 2020

Revenue was $237.5 million for the quarter ended March 31, 2020, an increase of 31% over the prior year period. GAAP net loss for the quarter ended March 31, 2020 was $42.8 million, and GAAP net loss per share (basic and diluted) was $0.38. Non-GAAP net income was $12.4 million, non-GAAP net income per share (basic) was $0.11, and non-GAAP net income per share (diluted) was $0.10. Non-GAAP net income excludes approximately $45.8 million in share-based compensation and related expenses (including $3.3 million of employer tax related to employee stock transactions and $0.5 million of amortization of share-based compensation capitalized in internal-use software), $6.5 million of amortization of debt discount and issuance costs, $2.8 million of amortization of purchased intangibles, $1.9 million of acquisition-related expenses, and non-GAAP income tax effects and adjustments of $1.8 million. GAAP net loss per share for the quarter ended March 31, 2020 was based on 113.5 million weighted average shares outstanding (basic and diluted), and non-GAAP net income per share for the quarter ended March 31, 2020 was based on 113.5 million weighted average shares outstanding (basic) and 120.2 million weighted average shares outstanding (diluted).

Outlook

As of April 30, 2020, Zendesk provided guidance for the quarter ending June 30, 2020. Given uncertainties related to the ongoing the novel coronavirus and resulting COVID-19 disease (“COVID-19”) pandemic and rapidly changing global economic environment, Zendesk is withdrawing its previously issued full-year 2020 guidance provided February 6, 2020.

For the quarter ending June 30, 2020, Zendesk expects to report:

• Revenue in the range of $237 – 243 million

• GAAP operating income (loss) in the range of $(43) – (39) million, which includes share-based compensation and related expenses of approximately $47 million, amortization of purchased intangibles of approximately $2 million, and acquisition-related expenses of approximately $2 million

• Non-GAAP operating income (loss) in the range of $8 – 12 million, which excludes share-based compensation and related expenses of approximately $47 million, amortization of purchased intangibles of approximately $2 million, and acquisition-related expenses of approximately $2 million

• Approximately 115 million weighted average shares outstanding (basic)

• Approximately 119 million weighted average shares outstanding (diluted)

There are many factors that can affect our actual results which are discussed below and in the risk factors in our filings with the Securities and Exchange Commission. Some of the key risk factors include global macroeconomic conditions, the impact of the COVID-19 pandemic on our business, business conditions of customers in challenged industries, the effect on demand for our products from large customers, and the ability of small and midsized customers to survive this severe economic downturn. Additionally, Zendesk’s estimates of share-based compensation and related expenses, amortization of purchased intangibles, acquisition-related expenses, and weighted average shares outstanding 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.

COVID-19 Update

Over the last several months, we have been focused on supporting our employees, customers, and community as we navigate the COVID-19 pandemic. We have implemented business continuity plans that ensure we take care of the health and safety of our employees while continuing to drive innovation in customer experience solutions for our customers. Additional information regarding these efforts and the expected impact on our business can be found in our Shareholder Letter for the quarter ended March 31, 2020, as well as our quarterly report on Form 10-Q for the quarter ended March 31, 2020 to be filed with the Securities and Exchange Commission.

Shareholder Letter and Conference Call Information

The detailed Shareholder Letter is available at and Zendesk will host a conference call to answer questions today, April 30, 2020, at 2:00 p.m. Pacific Time, 5:00 p.m. Eastern Time. A live webcast of the conference call will be available at <a href="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 1395302. A replay of the call via webcast will be available 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) the effect of uncertainties related to the COVID-19 pandemic on U.S. and global markets, Zendesk’s business, operations, revenue results, cash flow, operating expenses, demand for its solutions, sales cycles, customer retention and its customers’ businesses; (ii) other adverse changes in general economic or market conditions; (iii) Zendesk’s ability to adapt its products to changing market dynamics and customer preferences or achieve increased market acceptance of its products; (iv) Zendesk’s ability to effectively expand its sales capabilities; (v) Zendesk’s substantial reliance on its customers renewing their subscriptions and purchasing additional subscriptions; (vi) 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; (vii) the intensely competitive market in which Zendesk operates and the difficulty that Zendesk may have in competing effectively; (viii) Zendesk’s ability to effectively market and sell its products to larger enterprises; (ix) Zendesk’s ability to introduce and market new products and to support its products on a shared services platform; (x) Zendesk’s ability to maintain and develop its strategic relationships with third parties; (xi) Zendesk’s ability to prevent, mitigate, and respond effectively to both historical and future data breaches and to securely maintain customer data; (xii) Zendesk’s ability to effectively manage its growth and organizational change, including its international expansion strategy; (xiii) Zendesk’s ability to integrate acquired businesses and technologies successfully or achieve the expected benefits of such acquisitions; (xiv) Zendesk’s ability to comply with privacy and data security regulations; (xv) potential service interruptions or performance problems associated with Zendesk’s technology and infrastructure; (xvi) the development of the market for software as a service business software applications; (xvii) real or perceived errors, failures, or bugs in its products; and (xviii) 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 Annual Report on Form 10-K for the year ended December 31, 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 March 31, 2020.

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.

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