Zendesk Announces First Quarter 2021 Results

April 29, 2021

Highlights:

• First quarter revenue increased 26% year over year to $298.0 million

• First quarter GAAP operating loss of $37.3 million and non-GAAP operating income of $23.9 million

• Shelagh Glaser appointed as Chief Financial Officer, who is expected to join Zendesk on May 28, 2021

SAN FRANCISCO–(BUSINESS WIRE)– Zendesk, Inc. (NYSE: ZEN) today reported financial results for the first quarter ended March 31, 2021, and released a Shareholder Letter on its investor relations website at https://investor.zendesk.com.

Results for the First Quarter 2021

Revenue was $298.0 million for the quarter ended March 31, 2021, an increase of 26% over the prior year period. GAAP net loss for the quarter ended March 31, 2021 was $49.0 million, and GAAP net loss per share (basic and diluted) was $0.42. Non-GAAP net income was $21.4 million, and non-GAAP net income per share was $0.18 (basic) and $0.17 (diluted). Non-GAAP net income excludes approximately $57.9 million in share-based compensation and related expenses (including $5.1 million of employer tax related to employee stock transactions and $0.4 million of amortization of share-based compensation capitalized in internal-use software), $12.5 million of amortization of debt discount and issuance costs, $1.9 million of amortization of purchased intangibles, $1.4 million of acquisition-related expenses, and non-GAAP income tax effects and adjustments of $3.3 million. GAAP net loss per share for the quarter ended March 31, 2021 was based on 117.9 million weighted average shares outstanding (basic and diluted), and non-GAAP net income per share for the quarter ended March 31, 2021 was based on 117.9 million weighted average shares outstanding (basic) and 127.2 million weighted average shares outstanding (diluted).

Appointment of Shelagh Glaser as Chief Financial Officer

Zendesk announced today the appointment of its new Chief Financial Officer, Shelagh Glaser, subject to the commencement of her employment, who is expected to join Zendesk on May 28, 2021. Over a more than 25-year career at Intel Corporation, Ms. Glaser has held a wide variety of finance and leadership roles across the organization. Most recently, Ms. Glaser has served as Corporate Vice President and Chief Financial Officer and Chief Operating Officer for the Data Platform Group, serving Intel’s cloud data center and 5G networking customers.

As previously announced, Elena Gomez will depart the company on May 5, 2021. Following Ms. Gomez’s departure and until commencement of Ms. Glaser’s employment, Marc Cabi, Zendesk’s Deputy Chief Financial Officer, will serve as Zendesk’s interim principal financial officer.

Outlook

As of April 29, 2021, Zendesk provided guidance for the quarter ending June 30, 2021 and the full year ending December 31, 2021.

For the quarter ending June 30, 2021, Zendesk expects to report:

• Revenue in the range of $317 – 322 million

• GAAP operating income (loss) in the range of $(42) – (38) million, which includes share-based compensation and related expenses of approximately $59 million, amortization of purchased intangibles of approximately $2 million, and acquisition-related expenses of approximately $1 million

• Non-GAAP operating income (loss) in the range of $20 – 24 million, which excludes share-based compensation and related expenses of approximately $59 million, amortization of purchased intangibles of approximately $2 million, and acquisition-related expenses of approximately $1 million

• Approximately 119 million weighted average shares outstanding (basic)

• Approximately 128 million weighted average shares outstanding (diluted)

For the full year ending December 31, 2021, Zendesk expects to report:

• Revenue in the range of $1.298 – 1.318 billion

• GAAP operating income (loss) in the range of $(160) – (155) million, which includes share-based compensation and related expenses of approximately $245 million, amortization of purchased intangibles of approximately $8 million, and acquisition-related expenses of approximately $3 million

• Non-GAAP operating income (loss) in the range of $96 – 101 million, which excludes share-based compensation and related expenses of approximately $245 million, amortization of purchased intangibles of approximately $8 million, and acquisition-related expenses of approximately $3 million

• Approximately 120 million weighted average shares outstanding (basic)

• Approximately 129 million weighted average shares outstanding (diluted)

Free cash flow in the range of $105 – 115 million, which includes the impact of expected accelerated rent payments of approximately $7 million related to our real estate changes in San Francisco

We have not reconciled free cash flow guidance to net cash from operating activities for the full year 2021 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 2021 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 live video webcast at 2:00 p.m. Pacific Time (5:00 p.m. Eastern Time) on Thursday, April 29, 2021 to discuss the results. The live video webcast can be accessed through Zendesk’s investor relations website at https://investor.zendesk.com. A replay of the webcast will be available for 12 months.

About Zendesk

Zendesk started the customer experience revolution in 2007 by enabling any business around the world to take their customer service online. Today, Zendesk is the champion of great service everywhere for everyone, and powers billions of conversations, connecting more than 100,000 brands with hundreds of millions of customers over telephony, chat, email, messaging, social channels, communities, review sites and help centers. Zendesk products are built with love to be loved. The company was conceived in Copenhagen, Denmark, built and grown in California, taken public in New York City, and today employs more than 4,000 people across the world. 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) Zendesk’s ability to adapt its products to changing market dynamics and customer preferences or achieve increased market acceptance of its products; (ii) Zendesk’s ability to effectively expand its sales capabilities; (iii) the intensely competitive market in which Zendesk operates and the difficulty that Zendesk may have in competing effectively; (iv) the development of the market for software as a service business software applications; (v) Zendesk’s substantial reliance on its customers renewing their subscriptions and purchasing additional subscriptions; (vi) our ability to optimize the pricing for our solutions; (vii) Zendesk’s ability to effectively market and sell its products to larger enterprises; (viii) Zendesk’s ability to introduce and market new products and to support its products on a shared services platform; (ix) Zendesk’s ability to maintain and develop its strategic relationships with third parties; (x) real or perceived errors, failures, or bugs in its products; (xi) Zendesk’s reliance on third party services, including services for hosting, email, and messaging; (xii) Zendesk’s ability to accurately forecast expenditures on third-party managed hosting services; (xiii) 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; (xiv) Zendesk’s ability to effectively manage its growth and organizational change, including its international expansion strategy; (xv) Zendesk’s ability to integrate acquired businesses and technologies successfully or achieve the expected benefits of such acquisitions; (xvi) Zendesk’s ability to securely maintain customer data and prevent, mitigate, and respond effectively to both historical and future data breaches and to securely maintain customer data; (xvii) potential service interruptions or performance problems associated with Zendesk’s technology and infrastructure; (xviii) Zendesk’s ability to comply with privacy and data security regulations; (xix) 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, hiring, demand for its solutions, sales cycles, customer retention, and its customers’ businesses and industries; and (xx) other adverse changes in general economic or market conditions.

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, 2020. 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, 2021.

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.