Zendesk Announces First Quarter 2022 Results

Highlights:

• First quarter revenue increased 30% year-over-year to $388.3 million
• First quarter GAAP operating loss of $60.6 million and non-GAAP operating income of $20.2 million

SAN FRANCISCO–(BUSINESS WIRE)–Zendesk, Inc. (NYSE: ZEN) today reported financial results for the first quarter ended March 31, 2022, and released a Shareholder Letter on its investor relations website at https://investor.zendesk.com.

Results for the First Quarter 2022

Revenue was $388.3 million for the quarter ended March 31, 2022, an increase of 30% over the prior year period. GAAP net loss for the quarter ended March 31, 2022 was $66.9 million, and GAAP net loss per share (basic and diluted) was $0.55. Non-GAAP net income was $15.1 million, and non-GAAP net income per share was $0.12 (basic and diluted). Non-GAAP net income excludes approximately $67.5 million in share-based compensation and related expenses (including $3.2 million of employer tax related to employee stock transactions and $0.4 million of amortization of share-based compensation capitalized in internal-use software), $11.4 million of acquisition-related expenses, $1.8 million of amortization of purchased intangibles, and $1.2 million of amortization of debt issuance costs. GAAP net loss per share for the quarter ended March 31, 2022 was based on 122.0 million weighted average shares outstanding (basic and diluted), and non-GAAP net income per share for the quarter ended March 31, 2022 was based on 122.0 million weighted average shares outstanding (basic) and 126.8 million weighted average shares outstanding (diluted).

Outlook

As of April 28, 2022, Zendesk provided guidance for the quarter ending June 30, 2022 and the full year ending December 31, 2022.

For the quarter ending June 30, 2022, Zendesk expects to report:

• Revenue in the range of $402 – 408 million
• GAAP operating income (loss) in the range of $(65) – (59) million, which includes share-based compensation and related expenses of approximately $80 million, amortization of purchased intangibles of approximately $2 million, and acquisition-related expenses of approximately $1 million
• Non-GAAP operating income in the range of $18 – 24 million, which excludes share-based compensation and related expenses of approximately $80 million, amortization of purchased intangibles of approximately $2 million, and acquisition-related expenses of approximately $1 million
• Approximately 123 million weighted average shares outstanding (basic)
• Approximately 138 million weighted average shares outstanding (diluted)

For the full year ending December 31, 2022, Zendesk expects to report:

• Revenue in the range of $1.685 – 1.710 billion
• GAAP operating income (loss) in the range of $(221) – (201) million, which includes share-based compensation and related expenses of approximately $316 million, acquisition-related expenses of approximately $15 million, and amortization of purchased intangibles of approximately $7 million
• Non-GAAP operating income in the range of $117 – 137 million, which excludes share-based compensation and related expenses of approximately $316 million, acquisition-related expenses of approximately $15 million, and amortization of purchased intangibles of approximately $7 million
• Approximately 124 million weighted average shares outstanding (basic)
• Approximately 140 million weighted average shares outstanding (diluted)
• Free cash flow in the range of $175 – 190 million

We have not reconciled free cash flow guidance to net cash from operating activities for the full year 2022 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 2022 is not available without unreasonable effort.

This guidance may be affected by strategic decisions related to our corporate real estate. In the second quarter of 2022, our Board of Directors approved a plan to cease use or sublease certain leased premises across our real estate portfolio. As a result, we expect to record impairment charges in the second quarter of 2022, which could range up to $26 million. These impairments will be excluded from non-GAAP operating income. Refer to Form 10-Q for the quarter ended March 31, 2022 for additional information.

Zendesk’s estimates of share-based compensation and related expenses, amortization of purchased intangibles, acquisition-related expenses, real estate impairments, 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 28, 2022 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 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, 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) 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; and (xvii) 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, 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 March 31, 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.

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.

Contacts

Zendesk, Inc.

Investor Contact:
Jason Tsai, +1 415-997-8882

ir@zendesk.com

or

Media Contact:
Stephanie Barnes, +1 415-722-0883

press@zendesk.com

Read full story here