Zendesk, Inc. (NYSE: ZEN) today reported financial results for the second quarter ended June 30, 2020, and released a Shareholder Letter on its investor relations website at https://investor.zendesk.com.
Results for the Second Quarter 2020
Revenue was $246.7 million for the quarter ended June 30, 2020, an increase of 27% over the prior year period. GAAP net loss for the quarter ended June 30, 2020 was $64.7 million, and GAAP net loss per share (basic and diluted) was $0.56. Non-GAAP net income was $16.4 million, non-GAAP net income per share (basic and diluted) was $0.14. Non-GAAP net income excludes approximately $46.5 million in share-based compensation and related expenses (including $2.3 million of employer tax related to employee stock transactions and $0.5 million of amortization of share-based compensation capitalized in internal-use software), a $26.0 million loss on early extinguishment of debt, $7.5 million of amortization of debt discount and issuance costs, $2.3 million of amortization of purchased intangibles, $1.8 million of acquisition-related expenses, and non-GAAP income tax effects and adjustments of $3.1 million. GAAP net loss per share for the quarter ended June 30, 2020 was based on 114.6 million weighted average shares outstanding (basic and diluted), and non-GAAP net income per share for the quarter ended June 30, 2020 was based on 114.6 million weighted average shares outstanding (basic) and 120.4 million weighted average shares outstanding (diluted).
Appointment of Archana Agrawal to Board of Directors
Zendesk appointed Archana Agrawal to its board of directors, effective July 27, 2020. Archana is a seasoned technology executive with nearly two decades of experience in the software industry. She has served as the Chief Marketing Officer of Airtable, a low-code app development platform, since March 2020 and as a member of the board of directors of MongoDB, Inc., since August 2019. Previously, Archana served as the Head of Enterprise and Cloud Marketing at Atlassian, an enterprise software company, from May 2016 to March 2020. Archana joined Atlassian in 2013 as Head of Data Science and Growth Marketing. Prior to that, Archana was at Ladders, Inc. from 2007 until 2013, where she led corporate-wide analytics. She began her career at the IBM Almaden Research Center. She holds an M.B.A. from Harvard Business School and received her M.S. in computer science from the University of Illinois at Urbana-Champaign.
“Archana has a unique background in applying data science to enterprise marketing and customer acquisition,” said Mikkel Svane, Zendesk chief executive officer. “Her experience across fast-growing software companies will serve us well as we continue to expand our reach in the enterprise.”
“Zendesk has led the way in changing how organizations buy enterprise software and in making customer experience a critical differentiator for businesses,” Agrawal said. “I’m thrilled to be joining the board at a time when Zendesk has become so critical to companies of every size as they rapidly adapt to new customer and business realities.”
We believe our financial performance will continue to be impacted by uncertain and highly disrupted global economic conditions. Many customers continue to face end-market demand challenges and we are seeing higher levels of contraction compared to historical trends. We continue to partner with customers who are undergoing business challenges to help them with modified invoicing and subscription terms. These conditions and actions have impacted and will continue to impact our near-term net expansion rate and overall financial performance, and have played a role in impacting our free cash flow generation. We are being disciplined and prudent in how we manage our business.
Longer term, with improved macroeconomic conditions, we continue to believe the fundamentals of our business model will drive meaningful revenue growth. In particular, we believe that our customer experience solutions will continue to lead in innovation and be more compelling relative to traditional larger enterprise competitors. We will continue to innovate and improve our product offering and how we operate and engage with consumers. These initiatives give us confidence in our plan to deliver high revenue growth and operating leverage.
As of July 30, 2020, Zendesk provided guidance for the quarter ending September 30, 2020.
For the quarter ending September 30, 2020, Zendesk expects to report:
- Revenue in the range of $250 – 255 million
- GAAP operating income (loss) in the range of $(42) – (38) million, which includes share-based compensation and related expenses of approximately $48 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 $10 – 14 million, which excludes share-based compensation and related expenses of approximately $48 million, amortization of purchased intangibles of approximately $2 million, and acquisition-related expenses of approximately $2 million
- Approximately 116 million weighted average shares outstanding (basic)
- Approximately 122 million weighted average shares outstanding (diluted)
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, and the ability of our customers to manage the current severe economic downturn.
We have not reconciled free cash flow guidance to net cash from operating activities for the full year 2020 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 2020 is not available without unreasonable effort.
Additionally, 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.
Over the last several months, we have continued to focus on supporting our employees, customers, and community as we navigate the COVID-19 pandemic. Our business continuity plans continue to ensure that we take care of health and safety of our employees while continuing to drive innovation in customer experience solutions for our customers. Additional information regarding these efforts and the expected impact on our business can be found in our Shareholder Letter for the quarter ended June 30, 2020, as well as our quarterly report on Form 10-Q for the quarter ended June 30, 2020 to be filed with the Securities and Exchange Commission.
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, July 30, 2020 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.