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Zendesk Announces Second Quarter 2019 Results

30 July, 2019

Highlights

  • Second quarter revenue increased 37% year over year to $194.6 million
  • Second quarter GAAP operating loss of $51.4 million and non-GAAP operating income of $3.8 million

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

Results for the Second Quarter 2019

Revenue was $194.6 million for the quarter ended June 30, 2019, an increase of 37% over the prior year period. GAAP net loss for the quarter ended June 30, 2019 was $54.5 million, and GAAP net loss per share (basic and diluted) was $0.50. Non-GAAP net income was $5.9 million, and non-GAAP net income per share (basic and diluted) was $0.05. Non-GAAP net income excludes approximately $46.8 million in share-based compensation and related expenses (including $2.7 million of employer tax related to employee stock transactions and $0.4 million of amortization of share-based compensation capitalized in internal-use software), $6.3 million of amortization of debt discount and issuance costs, $5.8 million of acquisition-related expenses, $2.6 million of amortization of purchased intangibles, and non-GAAP income tax effects of $1.0 million. GAAP net loss per share for the quarter ended June 30, 2019 was based on 110.0 million weighted average shares outstanding (basic and diluted), and non-GAAP net income per share for the quarter ended June 30, 2019 was based on 110.0 million weighted average shares outstanding (basic) and 119.7 million weighted average shares outstanding (diluted).

Outlook

As of July 30, 2019, Zendesk provided guidance for the quarter ending September 30, 2019 and updated its guidance for the year ending December 31, 2019.

For the quarter ending September 30, 2019, Zendesk expects to report:

  • Revenue in the range of $206 – 208 million
  • GAAP operating income (loss) in the range of $(46) – (44) million, which includes share-based compensation and related expenses of approximately $43 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 $2 – 4 million, which excludes share-based compensation and related expenses of approximately $43 million, amortization of purchased intangibles of approximately $3 million, and acquisition-related expenses of approximately $2 million
  • Approximately 111 million weighted average shares outstanding (basic)
  • Approximately 121 million weighted average shares outstanding (diluted)
  • For the full year ending December 31, 2019, Zendesk expects to report:

  • Revenue in the range of $807 – 811 million
  • GAAP operating income (loss) in the range of $(178) – (175) million, which includes share-based compensation and related expenses of approximately $173 million, amortization of purchased intangibles of approximately $10 million, and acquisition-related expenses of approximately $11 million
  • Non-GAAP operating income (loss) in the range of $16 – 19 million, which excludes share-based compensation and related expenses of approximately $173 million, amortization of purchased intangibles of approximately $10 million, and acquisition-related expenses of approximately $11 million
  • Approximately 111 million weighted average shares outstanding (basic)
  • Approximately 122 million weighted average shares outstanding (diluted)
  • Free cash flow in the range of $35 – 45 million
  • Our guidance for free cash flow for the full year ending December 31, 2019, has been adjusted from the guidance for free cash flow provided in our shareholder letter dated April 30, 2019. This guidance was adjusted due to, among other factors, refinements in our cash flow forecasting methodology, increased acquisition activity and the associated acquisition-related expenses, the prepayment of certain vendor expenses in order to achieve more favorable pricing, additional capital expenditures intended to increase our real estate utilization, and revisions to the timing of and changes in the form of certain contingent payments from share-based to cash-based payments.

    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, July 30, 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 7164839. 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 7164839. The dial-in replay will be available until the end of day August 2, 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 145,000 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 integrate acquired businesses and technologies successfully or achieve the expected benefits of such acquisitions; (x) Zendesk’s ability to effectively manage its growth and organizational change, including its international expansion strategy; (xi) potential breaches in Zendesk’s security measures or unauthorized access to its customers’ data; (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 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 Quarterly Report on Form 10-Q for the quarter ended March 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 June 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 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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