Zendesk Announces Fourth Quarter And Fiscal Year 2020 Results

February 4, 2021

Highlights:

• Fourth quarter revenue increased 23% year over year to $283.5 million

• GAAP operating income of $18.5 million

• Full year 2020 revenue increased 26% year over year to $1.030 billion

• Full year 2020 GAAP operating loss of $155.9 million and non-GAAP operating income of $71.8 million

SAN FRANCISCO – February 4, 2021 – Zendesk, Inc. (NYSE: ZEN) today reported financial results for the quarter and fiscal year ended December 31, 2020, and released a Shareholder Letter on its investor relations website at https://investor.zendesk.com.

Results for the Fourth Quarter 2020

Revenue was $283.5 million for the quarter ended December 31, 2020, an increase of 23% over the prior year period. GAAP net loss for the quarter ended December 31, 2020 was $70.0 million, and GAAP net loss per share (basic and diluted) was $0.60. Non-GAAP net income was $13.1 million, and non-GAAP net income per share (basic and diluted) was $0.11. Non-GAAP net income excludes approximately $52.9 million in share-based compensation and related expenses (including $2.1 million of employer tax related to employee stock transactions and $0.7 million of amortization of share-based compensation capitalized in internal-use software), $15.0 million of real estate impairments, $12.4 million of amortization of debt discount and issuance costs, $3.4 million of amortization of purchased intangibles, $2.0 million of acquisition-related expenses, and non-GAAP income tax effects and adjustments of $2.5 million. GAAP net loss per share for the quarter ended December 31, 2020 was based on 117.0 million weighted average shares outstanding (basic and diluted), and non-GAAP net income per share for the quarter ended December 31, 2020 was based on 117.0 million weighted average shares outstanding (basic) and 124.8 million weighted average shares outstanding (diluted).

Results for the Full Fiscal Year 2020

Revenue was $1.030 billion for the year ended December 31, 2020, an increase of 26% over the prior year period. GAAP net loss for the year ended December 31, 2020 was $218.2 million, and GAAP net loss per share (basic and diluted) was $1.89. Non-GAAP net income was $63.0 million, non-GAAP net income per share (basic) was $0.55, and non-GAAP net income per share (diluted) was $0.52. Non-GAAP net income excludes approximately $194.2 million in share-based compensation and related expenses (including $10.0 million of employer tax related to employee stock transactions and $2.1 million of amortization of share-based compensation capitalized in internal-use software), $38.6 million of amortization of debt discount and issuance costs, a $26.0 million loss on early extinguishment of debt, $15.0 million of real estate impairments, $10.7 million of amortization of purchased intangibles, $7.7 million of acquisition-related expenses, and non-GAAP income tax effects and adjustments of $11.0 million. GAAP net loss per share for the year ended December 31, 2020 was based on 115.2 million weighted average shares outstanding (basic and diluted), and non-GAAP net income per share for the year ended December 31, 2020 was based on 115.2 million weighted average shares outstanding (basic) and 121.3 million weighted average shares outstanding (diluted).

Outlook

As of February 4, 2021, Zendesk provided guidance for the quarter ending March 31, 2021 and for the year ending December 31, 2021.

For the quarter ending March 31, 2021, Zendesk expects to report:

• Revenue in the range of $291 – 296 million

• GAAP operating income (loss) in the range of $(48) – (44) 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 $2 million

• Non-GAAP operating income (loss) in the range of $15 – 19 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 $2 million

• Approximately 118 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 $1.280 – 1.305 billion

• GAAP operating income (loss) in the range of $(165) – (150) million, which includes share-based compensation and related expenses of approximately $244 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 $90 – 105 million, which excludes share-based compensation and related expenses of approximately $244 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 130 million weighted average shares outstanding (diluted)

• Free cash flow in the range of $85 – 100 million, which includes expected accelerated rent payments of up to $12 million related to our real estate changes in San Francisco

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 customers which can result and has resulted in higher levels of contraction than historical levels.

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.

Chief Financial Officer Transition

Zendesk also announces today that Chief Financial Officer Elena Gomez has informed the company and its board of directors of her plans to depart the company in the coming months. We are initiating a search for her successor. Ms. Gomez will stay to ensure a smooth transition and will be with us as Chief Financial Officer until at least through the release of our financial results for the quarter ending March 31, 2021 and the filing of the company’s Quarterly Report on Form 10-Q for the same period.

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, February 4, 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 is a service-first CRM company that builds support, sales, and customer engagement software designed to foster better customer relationships. From large enterprises to startups, we believe that powerful, innovative customer experiences should be within reach for every company, no matter the size, industry or ambition. Zendesk serves more than 170,000 customers across a multitude of industries in over 30 languages. Zendesk is headquartered in San Francisco, and operates offices worldwide. Learn more at www.zendesk.com.