Financial News

Zendesk Announces Second Quarter 2022 Results

Highlights:

  • Second quarter revenue increased 28% year-over-year to $407.2 million
  • Second quarter GAAP operating loss of $92.5 million and non-GAAP operating income of $23.6 million
  • GAAP operating loss includes real estate impairments of $24.9 million and merger-related costs and other expenses of $12.2 million

Zendesk, Inc. (NYSE: ZEN) today reported financial results for the second quarter ended June 30, 2022.

Results for the Second Quarter 2022

Revenue was $407.2 million for the quarter ended June 30, 2022, an increase of 28% over the prior year period. GAAP net loss for the quarter ended June 30, 2022 was $95.1 million, and GAAP net loss per share (basic and diluted) was $0.77. Non-GAAP net income was $18.8 million, and non-GAAP net income per share was $0.15 (basic) and $0.14 (diluted). Non-GAAP net income excludes approximately $75.7 million in share-based compensation and related expenses (including $1.9 million of employer tax related to employee stock transactions and $0.4 million of amortization of share-based compensation capitalized in internal-use software), $24.9 million of real estate impairments, $12.2 million of merger-related costs and other expenses, $1.8 million of amortization of purchased intangibles, $1.4 million of acquisition-related expenses, $1.2 million of amortization of debt issuance costs, and includes non-GAAP income tax effects and adjustments of $3.4 million. GAAP net loss per share for the quarter ended June 30, 2022 was based on 122.8 million weighted average shares outstanding (basic and diluted), and non-GAAP net income per share for the quarter ended June 30, 2022 was based on 122.8 million weighted average shares outstanding (basic) and 138.0 million weighted average shares outstanding (diluted).

Transaction with Private Equity Consortium

Due to Zendesk’s pending acquisition by an investor group led by leading investment firms Hellman & Friedman LLC and Permira Advisers LLC that was announced on June 24, 2022, the Company will not be holding a conference call or live webcast to discuss Zendesk’s financial results for the second quarter ended June 30, 2022, or provide a Shareholder Letter for such period. In addition, the Company will not be providing financial guidance for the quarter ending September 30, 2022 and is suspending its financial guidance for the year ending December 31, 2022 in light of the pending transaction.

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 6,000 people across the world. Learn more at www.zendesk.com.

References to Zendesk, the “Company,” “our,” or “we” in this press release refer to Zendesk, Inc. and its subsidiaries on a consolidated basis.

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, progress toward its long-term financial objectives, and the proposed transaction. 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) the intensely competitive market in which Zendesk operates; (iii) the development of the market for software as a service business software applications; (iv) Zendesk’s substantial reliance on its customers renewing their subscriptions and purchasing additional subscriptions; (v) Zendesk’s ability to effectively market and sell its products to larger enterprises; (vi) Zendesk’s ability to develop or acquire and market new products and to support its products on a unified, reliable shared services platform; (vii) Zendesk’s reliance on third-party services, including services for hosting, email, and messaging; (viii) Zendesk’s ability to retain key employees and attract qualified personnel, particularly in the primary regions Zendesk operates; (ix) Zendesk’s ability to effectively manage its growth and organizational change, including its international expansion strategy; (x) 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; (xi) Zendesk’s ability to integrate acquired businesses and technologies successfully or achieve the expected benefits of such acquisitions; (xii) real or perceived errors, failures, or bugs in Zendesk’s products; (xiii) potential service interruptions or performance problems associated with Zendesk’s technology and infrastructure; (xiv) Zendesk’s ability to securely maintain customer data and prevent, mitigate, and respond effectively to both historical and future data breaches; (xv) Zendesk’s ability to comply with privacy and data security regulations; (xvi) Zendesk’s ability to optimize the pricing for its solutions; (xvii) other adverse changes in general economic or market conditions; and (xviii) known and unknown risks, uncertainties, and other factors related to the proposed transaction, including: the timing, receipt and terms and conditions of any required governmental and regulatory approvals of the proposed transaction that could reduce anticipated benefits or cause the parties to abandon the proposed transaction; the occurrence of any event, change or other circumstances that could give rise to the termination of the merger agreement entered into pursuant to the proposed transaction; the possibility that Zendesk stockholders may not approve the proposed transaction; the risk that the parties to the merger agreement may not be able to satisfy the conditions to the proposed transaction in a timely manner or at all; risks related to disruption of management time from ongoing business operations due to the proposed transaction; the risk that any announcements relating to the proposed transaction could have adverse effects on the market price of Zendesk’s common stock; the risk of any unexpected costs or expenses resulting from the proposed transaction; the risk of any litigation relating to the proposed transaction; the risk that the proposed transaction and its announcement could have an adverse effect on the ability of Zendesk to retain customers and retain and hire key personnel and maintain relationships with customers, suppliers, employees, stockholders and other business relationships and on its operating results and business generally; and the risk the pending proposed transaction could distract management of Zendesk.

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, 2021. 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 June 30, 2022.

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.

Additional Information and Where to Find It

This communication relates to the proposed transaction involving Zendesk, Inc. (“Zendesk”). In connection with the proposed transaction, Zendesk has filed with the U.S. Securities and Exchange Commission (the “SEC”) a preliminary proxy statement on Schedule 14A. The definitive proxy statement (the “Proxy Statement”) will be mailed to Zendesk’s stockholders when available. This communication is not a substitute for the Proxy Statement or for any other document that Zendesk may file with the SEC and send to its stockholders in connection with the proposed transaction. The proposed transaction will be submitted to Zendesk’s stockholders for their consideration. Before making any voting decision, Zendesk’s stockholders are urged to read all relevant documents filed or to be filed with the SEC, including the Proxy Statement, as well as any amendments or supplements to those documents, when they become available because they will contain important information about the proposed transaction.

Zendesk’s stockholders will be able to obtain a free copy of the Proxy Statement, as well as other filings containing information about Zendesk, without charge, at the SEC’s website (www.sec.gov). Copies of the Proxy Statement and the filings with the SEC that will be incorporated by reference therein can also be obtained, without charge, by directing a request to Zendesk, Inc., 989 Market Street, San Francisco, CA 94103, Attention: Investor Relations, email: ir@zendesk.com, or from Zendesk’s website www.zendesk.com.

Participants in the Solicitation

Zendesk and certain of its directors, executive officers and employees may be deemed to be participants in the solicitation of proxies in respect of the proposed transaction. Information regarding Zendesk’s directors and executive officers is available in Zendesk’s proxy statement on Schedule 14A for the 2022 annual meeting of stockholders, which was filed with the SEC on July 11, 2022. Other information regarding the participants in the proxy solicitation and a description of their direct and indirect interests, by security holdings or otherwise, will be contained in the Proxy Statement and other relevant materials to be filed with the SEC in connection with the proposed transaction when they become available. Free copies of the Proxy Statement and such other materials may be obtained as described in the preceding paragraph.

Condensed Consolidated Statements of Operations

(In thousands, except per share data; unaudited)

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

2022

 

2021

 

2022

 

2021

Revenue

$

407,208

 

 

$

318,216

 

 

$

795,535

 

 

$

616,264

 

Cost of revenue

 

82,790

 

 

 

66,743

 

 

 

158,468

 

 

 

127,637

 

Gross profit

 

324,418

 

 

 

251,473

 

 

 

637,067

 

 

 

488,627

 

Operating expenses:

 

 

 

 

 

 

 

Research and development

 

110,539

 

 

 

82,826

 

 

 

218,616

 

 

 

156,609

 

Sales and marketing

 

209,160

 

 

 

165,250

 

 

 

410,820

 

 

 

322,768

 

General and administrative

 

97,210

 

 

 

45,818

 

 

 

160,748

 

 

 

88,951

 

Total operating expenses

 

416,909

 

 

 

293,894

 

 

 

790,184

 

 

 

568,328

 

Operating loss

 

(92,491

)

 

 

(42,421

)

 

 

(153,117

)

 

 

(79,701

)

Other income (expense), net:

 

 

 

 

 

 

 

Interest expense

 

(3,121

)

 

 

(14,591

)

 

 

(6,242

)

 

 

(29,006

)

Interest and other income (expense), net

 

2,094

 

 

 

960

 

 

 

2,932

 

 

 

6,044

 

Total other income (expense), net

 

(1,027

)

 

 

(13,631

)

 

 

(3,310

)

 

 

(22,962

)

Loss before provision for income taxes

 

(93,518

)

 

 

(56,052

)

 

 

(156,427

)

 

 

(102,663

)

Provision for income taxes

 

1,564

 

 

 

2,355

 

 

 

5,601

 

 

 

4,709

 

Net loss

$

(95,082

)

 

$

(58,407

)

 

$

(162,028

)

 

$

(107,372

)

Net loss per share, basic and diluted

$

(0.77

)

 

$

(0.49

)

 

$

(1.32

)

 

$

(0.91

)

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

 

122,841

 

 

 

119,050

 

 

 

122,404

 

 

 

118,484

 

Condensed Consolidated Balance Sheets

(In thousands, except par value; unaudited)

 

 

June 30,

2022

 

December 31,

2021

Assets

 

 

 

Current assets:

 

 

 

Cash and cash equivalents

$

567,980

 

 

$

476,103

 

Marketable securities

 

590,263

 

 

 

539,780

 

Accounts receivable, net of allowance for credit losses of $5,742 and $6,190 as of June 30, 2022 and December 31, 2021, respectively

 

258,127

 

 

 

273,898

 

Deferred costs

 

82,497

 

 

 

72,042

 

Prepaid expenses and other current assets

 

71,514

 

 

 

56,809

 

Total current assets

 

1,570,381

 

 

 

1,418,632

 

Marketable securities, noncurrent

 

473,949

 

 

 

559,652

 

Property and equipment, net

 

90,955

 

 

 

97,815

 

Deferred costs, noncurrent

 

78,266

 

 

 

72,553

 

Lease right-of-use assets

 

48,259

 

 

 

69,936

 

Goodwill and intangible assets, net

 

193,610

 

 

 

197,098

 

Other assets

 

36,689

 

 

 

35,593

 

Total assets

$

2,492,109

 

 

$

2,451,279

 

 

 

 

 

Liabilities and stockholders’ equity

 

 

 

Current liabilities:

 

 

 

Accounts payable

$

70,682

 

 

$

49,213

 

Accrued liabilities

 

56,562

 

 

 

50,075

 

Accrued compensation and related benefits

 

105,297

 

 

 

138,127

 

Deferred revenue

 

563,873

 

 

 

512,933

 

Lease liabilities

 

21,977

 

 

 

21,253

 

Current portion of convertible senior notes, net

 

148,687

 

 

 

139,738

 

Total current liabilities

 

967,078

 

 

 

911,339

 

Convertible senior notes, net

 

1,137,424

 

 

 

979,350

 

Deferred revenue, noncurrent

 

6,326

 

 

 

4,277

 

Lease liabilities, noncurrent

 

51,727

 

 

 

63,212

 

Other liabilities

 

2,733

 

 

 

3,883

 

Total liabilities

 

2,165,288

 

 

 

1,962,061

 

 

 

 

 

Stockholders’ equity:

 

 

 

Preferred stock, par value $0.01 per share

 

 

 

 

 

Common stock, par value $0.01 per share

 

1,232

 

 

 

1,215

 

Additional paid-in capital

 

1,568,922

 

 

 

1,637,157

 

Accumulated other comprehensive loss

 

(22,176

)

 

 

(8,911

)

Accumulated deficit

 

(1,221,157

)

 

 

(1,140,243

)

Total stockholders’ equity

 

326,821

 

 

 

489,218

 

Total liabilities and stockholders’ equity

$

2,492,109

 

 

$

2,451,279

 

Condensed Consolidated Statements of Cash Flows

(In thousands; unaudited)

 

 

Three Months Ended June 30,

 

2022

 

2021

Cash flows from operating activities

 

 

 

Net loss

$

(95,082

)

 

$

(58,407

)

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

 

 

 

Depreciation and amortization

 

9,340

 

 

 

9,108

 

Share-based compensation

 

73,359

 

 

 

56,694

 

Amortization of deferred costs

 

21,719

 

 

 

16,185

 

Amortization of debt discount and issuance costs

 

1,225

 

 

 

12,694

 

Real estate impairments

 

24,908

 

 

 

 

Allowance for credit losses on accounts receivable

 

1,668

 

 

 

1,327

 

Other, net

 

1,750

 

 

 

1,088

 

Changes in operating assets and liabilities:

 

 

 

Accounts receivable

 

(39,312

)

 

 

(27,868

)

Prepaid expenses and other current assets

 

3,576

 

 

 

(1,272

)

Deferred costs

 

(30,087

)

 

 

(32,267

)

Lease right-of-use assets

 

3,956

 

 

 

4,354

 

Other assets and liabilities

 

(491

)

 

 

(2,166

)

Accounts payable

 

39,961

 

 

 

(420

)

Accrued liabilities

 

(2,352

)

 

 

(483

)

Accrued compensation and related benefits

 

(6,320

)

 

 

14,152

 

Deferred revenue

 

44,351

 

 

 

45,720

 

Lease liabilities

 

(3,144

)

 

 

(11,561

)

Net cash provided by operating activities

 

49,025

 

 

 

26,878

 

Cash flows from investing activities

 

 

 

Purchases of property and equipment

 

(5,412

)

 

 

(2,896

)

Internal-use software development costs

 

(2,880

)

 

 

(3,070

)

Purchases of marketable securities

 

(198,582

)

 

 

(199,540

)

Proceeds from maturities of marketable securities

 

147,330

 

 

 

182,044

 

Proceeds from sales of marketable securities

 

74,847

 

 

 

20,462

 

Purchases of strategic investments

 

(1,000

)

 

 

 

Net cash provided by (used in) investing activities

 

14,303

 

 

 

(3,000

)

Cash flows from financing activities

 

 

 

Proceeds from exercises of employee stock options

 

1,414

 

 

 

11,204

 

Proceeds from employee stock purchase plan

 

10,209

 

 

 

11,594

 

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

 

(2,263

)

 

 

(3,502

)

Net cash provided by financing activities

 

9,360

 

 

 

19,296

 

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

 

77

 

 

 

(11

)

Net increase in cash, cash equivalents and restricted cash

 

72,765

 

 

 

43,163

 

Cash, cash equivalents and restricted cash at beginning of period

 

496,929

 

 

 

380,085

 

Cash, cash equivalents and restricted cash at end of period

$

569,694

 

 

$

423,248

 

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 June 30,

 

Six Months Ended June 30,

 

2022

 

2021

 

2022

 

2021

Reconciliation of gross profit and gross margin

 

 

 

 

 

 

 

GAAP gross profit

$

324,418

 

 

$

251,473

 

 

$

637,067

 

 

$

488,627

 

Plus: Share-based compensation

 

6,982

 

 

 

5,218

 

 

 

13,159

 

 

 

9,704

 

Plus: Employer tax related to employee stock transactions

 

139

 

 

 

327

 

 

 

386

 

 

 

780

 

Plus: Amortization of purchased intangibles

 

1,177

 

 

 

1,136

 

 

 

2,355

 

 

 

2,355

 

Plus: Acquisition-related expenses

 

 

 

 

55

 

 

 

 

 

 

124

 

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

 

413

 

 

 

387

 

 

 

837

 

 

 

771

 

Non-GAAP gross profit

$

333,129

 

 

$

258,596

 

 

$

653,804

 

 

$

502,361

 

GAAP gross margin

 

80

%

 

 

79

%

 

 

80

%

 

 

79

%

Non-GAAP adjustments

 

2

%

 

 

2

%

 

 

2

%

 

 

3

%

Non-GAAP gross margin

 

82

%

 

 

81

%

 

 

82

%

 

 

82

%

 

 

 

 

 

 

 

 

Reconciliation of operating expenses

 

 

 

 

 

 

 

GAAP research and development

$

110,539

 

 

$

82,826

 

 

$

218,616

 

 

$

156,609

 

Less: Share-based compensation

 

(20,482

)

 

 

(17,024

)

 

 

(39,769

)

 

 

(32,697

)

Less: Employer tax related to employee stock transactions

 

(653

)

 

 

(1,082

)

 

 

(1,535

)

 

 

(2,509

)

Less: Acquisition-related expenses

 

(1,299

)

 

 

(811

)

 

 

(2,637

)

 

 

(1,779

)

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

 

(17

)

 

 

(17

)

 

 

(34

)

 

 

(34

)

Non-GAAP research and development

$

88,088

 

 

$

63,892

 

 

$

174,641

 

 

$

119,590

 

GAAP research and development as percentage of revenue

 

27

%

 

 

26

%

 

 

27

%

 

 

25

%

Non-GAAP research and development as percentage of revenue

 

22

%

 

 

20

%

 

 

22

%

 

 

19

%

 

 

 

 

 

 

 

 

GAAP sales and marketing

$

209,160

 

 

$

165,250

 

 

$

410,820

 

 

$

322,768

 

Less: Share-based compensation

 

(31,120

)

 

 

(24,501

)

 

 

(57,920

)

 

 

(47,733

)

Less: Employer tax related to employee stock transactions

 

(992

)

 

 

(1,385

)

 

 

(2,188

)

 

 

(3,454

)

Less: Amortization of purchased intangibles

 

(642

)

 

 

(642

)

 

 

(1,284

)

 

 

(1,284

)

Less: Acquisition-related expenses

 

(1

)

 

 

(64

)

 

 

(374

)

 

 

(112

)

Non-GAAP sales and marketing

$

176,405

 

 

$

138,658

 

 

$

349,054

 

 

$

270,185

 

GAAP sales and marketing as percentage of revenue

 

51

%

 

 

52

%

 

 

52

%

 

 

52

%

Non-GAAP sales and marketing as percentage of revenue

 

43

%

 

 

44

%

 

 

44

%

 

 

44

%

 

 

 

 

 

 

 

 

GAAP general and administrative

$

97,210

 

 

$

45,818

 

 

$

160,748

 

 

$

88,951

 

Less: Share-based compensation

 

(14,775

)

 

 

(9,951

)

 

 

(26,449

)

 

 

(18,934

)

Less: Employer tax related to employee stock transactions

 

(135

)

 

 

(1,124

)

 

 

(980

)

 

 

(2,288

)

Less: Acquisition-related expenses

 

(122

)

 

 

(141

)

 

 

(9,846

)

 

 

(463

)

Less: Real estate impairments

 

(24,908

)

 

 

(1,176

)

 

 

(24,908

)

 

 

(1,176

)

Less: Merger-related costs and other expenses

 

(12,213

)

 

 

 

 

 

(12,213

)

 

 

 

Non-GAAP general and administrative

$

45,057

 

 

$

33,426

 

 

$

86,352

 

 

$

66,090

 

GAAP general and administrative as percentage of revenue

 

24

%

 

 

14

%

 

 

20

%

 

 

14

%

Non-GAAP general and administrative as percentage of revenue

 

11

%

 

 

11

%

 

 

11

%

 

 

11

%

 

 

 

 

 

 

 

 

Reconciliation of operating income (loss) and operating margin

 

 

 

 

 

 

 

GAAP operating loss

$

(92,491

)

 

$

(42,421

)

 

$

(153,117

)

 

$

(79,701

)

Plus: Share-based compensation

 

73,359

 

 

 

56,694

 

 

 

137,297

 

 

 

109,068

 

Plus: Employer tax related to employee stock transactions

 

1,919

 

 

 

3,918

 

 

 

5,089

 

 

 

9,031

 

Plus: Amortization of purchased intangibles

 

1,819

 

 

 

1,778

 

 

 

3,639

 

 

 

3,639

 

Plus: Acquisition-related expenses

 

1,422

 

 

 

1,071

 

 

 

12,857

 

 

 

2,478

 

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

 

430

 

 

 

404

 

 

 

871

 

 

 

805

 

Plus: Real estate impairments

 

24,908

 

 

 

1,176

 

 

 

24,908

 

 

 

1,176

 

Plus: Merger-related costs and other expenses

 

12,213

 

 

 

 

 

 

12,213

 

 

 

 

Non-GAAP operating income

$

23,579

 

 

$

22,620

 

 

$

43,757

 

 

$

46,496

 

GAAP operating margin

 

(23

) %

 

 

(13

) %

 

 

(19

) %

 

 

(13

) %

Non-GAAP adjustments

 

29

%

 

 

20

%

 

 

25

%

 

 

21

%

Non-GAAP operating margin

 

6

%

 

 

7

%

 

 

6

%

 

 

8

%

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

2022

 

2021

 

2022

 

2021

Reconciliation of net income (loss)

 

 

 

 

 

 

 

GAAP net loss

$

(95,082

)

 

$

(58,407

)

 

$

(162,028

)

 

$

(107,372

)

Plus: Share-based compensation

 

73,359

 

 

 

56,694

 

 

 

137,297

 

 

 

109,068

 

Plus: Employer tax related to employee stock transactions

 

1,919

 

 

 

3,918

 

 

 

5,089

 

 

 

9,031

 

Plus: Amortization of purchased intangibles

 

1,819

 

 

 

1,778

 

 

 

3,639

 

 

 

3,639

 

Plus: Acquisition-related expenses

 

1,422

 

 

 

1,071

 

 

 

12,857

 

 

 

2,478

 

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

 

430

 

 

 

404

 

 

 

871

 

 

 

805

 

Plus: Real estate impairments

 

24,908

 

 

 

1,176

 

 

 

24,908

 

 

 

1,176

 

Plus: Merger-related costs and other expenses

 

12,213

 

 

 

 

 

 

12,213

 

 

 

 

Plus: Amortization of debt discount and issuance costs

 

1,225

 

 

 

12,695

 

 

 

2,446

 

 

 

25,220

 

Less: Income tax effects and adjustments

 

(3,429

)

 

 

(2,198

)

 

 

(3,406

)

 

 

(5,529

)

Non-GAAP net income

$

18,784

 

 

$

17,131

 

 

$

33,886

 

 

$

38,516

 

 

 

 

 

 

 

 

 

Reconciliation of net income (loss) per share, basic

 

 

 

 

 

 

 

GAAP net loss per share, basic

$

(0.77

)

 

$

(0.49

)

 

$

(1.32

)

 

$

(0.91

)

Non-GAAP adjustments to net loss

 

0.92

 

 

 

0.63

 

 

 

1.60

 

 

 

1.24

 

Non-GAAP net income per share, basic

$

0.15

 

 

$

0.14

 

 

$

0.28

 

 

$

0.33

 

 

 

 

 

 

 

 

 

Reconciliation of net income (loss) per share, diluted

 

 

 

 

 

 

 

GAAP net loss per share, diluted

$

(0.77

)

 

$

(0.49

)

 

$

(1.32

)

 

$

(0.91

)

Non-GAAP adjustments to net loss

 

0.91

 

 

 

0.62

 

 

 

1.59

 

 

 

1.21

 

Non-GAAP net income per share, diluted

$

0.14

 

 

$

0.13

 

 

$

0.27

 

 

$

0.30

 

 

 

 

 

 

 

 

 

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

 

122,841

 

 

 

119,050

 

 

 

122,404

 

 

 

118,484

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

Basic

 

122,841

 

 

 

119,050

 

 

 

122,404

 

 

 

118,484

 

Diluted (1)

 

137,969

 

 

 

127,515

 

 

 

127,100

 

 

 

127,384

 

 

 

 

 

 

 

 

 

Computation of free cash flow

 

 

 

 

 

 

 

Net cash provided by operating activities

$

49,025

 

 

$

26,878

 

 

$

60,237

 

 

$

60,473

 

Less: Purchases of property and equipment

 

(5,412

)

 

 

(2,896

)

 

 

(12,850

)

 

 

(5,957

)

Less: Internal-use software development costs

 

(2,880

)

 

 

(3,070

)

 

 

(5,896

)

 

 

(7,538

)

Free cash flow

$

40,733

 

 

$

20,912

 

 

$

41,491

 

 

$

46,978

 

 

 

 

 

 

 

 

 

Net cash provided by operating activities margin

 

12

%

 

 

8

%

 

 

8

%

 

 

10

%

Non-GAAP adjustments

 

(2

) %

 

 

(1

) %

 

 

(3

) %

 

 

(2

) %

Free cash flow margin

 

10

%

 

 

7

%

 

 

5

%

 

 

8

%

(1)

 

In the first quarter of 2022, we adopted ASU 2020-06, which simplifies the accounting for convertible debt. Under the new standard, companies are required to use the if-converted method for calculating diluted EPS instead of the treasury stock method. For the six months ended June 30, 2022, approximately 11 million shares related to our 2025 convertible notes were excluded from the non-GAAP diluted share amount, as the inclusion of these shares using the if-converted method would have been anti-dilutive.

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.

Real Estate Impairments: To support an increased percentage of remote teams, Zendesk records impairments for certain assets associated with leased properties, or portions thereof, that it ceases to occupy. Any losses and gains associated with these activities are generally unrelated to financial and operational performance in any particular period and Zendesk believes the exclusion of such losses and gains provides for a more useful comparison of operational performance in comparative periods that may or may not include such losses and gains.

Merger-Related Costs and Other Expenses: Zendesk views fees related to its pending acquisition, including transaction costs, as events that are not necessarily reflective of operational performance during a period. Zendesk believes the consideration of measures that exclude such expenses provides meaningful supplemental information regarding operational performance. Other expenses include non-recurring fees paid for third-party advisory and professional services related to shareholder activism and the strategic review.

Amortization of Debt Discount and Issuance Costs: On January 1, 2022, Zendesk prospectively adopted ASU 2020-06, regarding ASC Topic 470 “Debt” and ASC Topic 815 “Derivatives and Hedging,” which simplifies the accounting for convertible debt. Prior to the adoption of ASU 2020-06, the imputed interest rates of our 2023 convertible notes and our 2025 notes were approximately 5.26% and 5.00%, respectively. This was a result of the debt discounts recorded for the conversion features of the notes that were required to be separately accounted for as equity, and debt issuance costs, which reduced the carrying value of the convertible debt instruments. The debt discounts were amortized as interest expense together with the issuance costs of the debt. Upon adoption of the new standard, the liability and equity components of each instrument were recombined into a single liability instrument measured at amortized cost. As a result, from the date of adoption, no debt discount remains and no interest expense related to debt discount amortization will be recorded. Interest expense related to the amortization of debt issuance costs will continue to be recorded over the term of the notes. The expense for the amortization of debt discount and debt issuance costs is a non-cash item, and we believe the exclusion of this expense will provide for a more useful comparison of our operational performance in different periods.

Income Tax Effects: Zendesk utilizes a fixed long-term projected tax rate in its computation of non-GAAP income tax effects to provide better consistency across interim reporting periods. In projecting this long-term non-GAAP tax rate, Zendesk utilizes a financial projection that excludes the direct impact of other non-GAAP adjustments. The projected rate considers other factors such as Zendesk’s current operating structure, existing tax positions in various jurisdictions, and key legislation in major jurisdictions where Zendesk operates. For the year ending December 31, 2022, Zendesk has determined the projected non-GAAP tax rate to be 21%. Zendesk 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 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, acquisition-related expenses, real estate impairments, and merger-related costs and other 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.

In August 2020, the Financial Accounting Standards Board issued ASU 2020-06, regarding ASC Topic 470 “Debt” and ASC Topic 815 “Derivatives and Hedging,” which amends the calculation of diluted earnings per share for certain convertible debt instruments, among other changes. Under the new standard, Zendesk is required to use the “if-converted” method to calculate diluted earnings per share for its convertible debt, which assumes conversion of its convertible debt instruments at the beginning of the reporting period, with settlement entirely in shares of common stock, unless the result would be anti-dilutive. Historically, Zendesk calculated diluted earnings per share for its convertible debt using the “treasury stock” method, which assumes that the principal amount of convertible debt instruments is settled in cash. Accordingly, our diluted shares outstanding are generally expected to increase under the new standard. We adopted this standard in the first quarter of 2022. The total amount of shares underlying the convertible notes is approximately 13 million. Refer to Form 10-Q for the quarter ended June 30, 2022 for further information.

Contacts

Data & News supplied by www.cloudquote.io
Stock quotes supplied by Barchart
Quotes delayed at least 20 minutes.
By accessing this page, you agree to the following
Privacy Policy and Terms and Conditions.

Use the myMotherLode.com Keyword Search to go straight to a specific page

Popular Pages

  • Local News
  • US News
  • Weather
  • State News
  • Events
  • Traffic
  • Sports
  • Dining Guide
  • Real Estate
  • Classifieds
  • Financial News
  • Fire Info
Feedback