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Press Release: Zendesk Announces Fourth Quarter -4-

· 02/04/2021 16:15
expenses (876 ) (26 ) (1,814 ) (5,644 ) Less: Real estate impairments (15,003 ) -- (15,003 ) -- -------- -------- --------- --------- Non-GAAP general and administrative $ 31,786 $ 26,594 $ 113,925 $ 98,376 ======= ======= ======== ======== GAAP general and administrative as percentage of revenue 20 % 15 % 16 % 17 % Non-GAAP general and administrative as percentage of revenue 11 % 12 % 11 % 12 % Reconciliation of operating income (loss) and operating margin GAAP operating loss $(54,793 ) $(32,302 ) $(155,899 ) $(163,004 ) Plus: Share-based compensation 50,147 37,672 182,204 156,730 Plus: Employer tax related to employee stock transactions 2,089 1,423 9,970 9,567 Plus: Amortization of purchased intangibles 3,389 2,805 10,679 10,365 Plus: Acquisition-related expenses 1,964 1,601 7,722 11,244 Plus: Amortization of share-based compensation capitalized in internal-use software 700 440 2,075 1,711 Plus: Real estate impairments 15,003 -- 15,003 -- -------- -------- --------- --------- Non-GAAP operating income $ 18,499 $ 11,639 $ 71,754 $ 26,613 ======= ======= ======== ======== GAAP operating margin (19 )% (14 )% (15 )% (20 )% Non-GAAP adjustments 26 % 19 % 22 % 23 % -------- -------- --------- --------- Non-GAAP operating margin 7 % 5 % 7 % 3 % ======== ======== ========= ========= Three Months Ended Year Ended December 31, December 31, ---------------------------- ----------------------------- 2020 2019 2020 2019 -------- --- -------- --- --------- --------- --- Reconciliation of net income (loss) GAAP net loss $(70,036) $(36,168) $(218,178) $(169,653) Plus: Share-based compensation 50,147 37,672 182,204 156,730 Plus: Employer tax related to employee stock transactions 2,089 1,423 9,970 9,567 Plus: Amortization of purchased intangibles 3,389 2,805 10,679 10,365 Plus: Acquisition-related expenses 1,964 1,601 7,722 11,244 Plus: Amortization of share-based compensation capitalized in internal-use software 700 440 2,075 1,711 Plus: Real estate impairments 15,003 -- 15,003 -- Plus: Amortization of debt discount and issuance costs 12,358 6,457 38,588 25,288 Plus: Loss on early extinguishment of debt -- -- 25,950 -- Less: Income tax effects and adjustments (2,501) (2,444) (10,993) (8,438) -------- -------- --------- --------- Non-GAAP net income $ 13,113 $ 11,786 $ 63,020 $ 36,814 ======= === ======= === ======== ======== === Reconciliation of net income (loss) per share, basic GAAP net loss per share, basic $ (0.60) $ (0.32) $ (1.89) $ (1.53) Non-GAAP adjustments to net loss 0.71 0.42 2.44 1.86 -------- --- -------- --- --------- --------- --- Non-GAAP net income per share, basic $ 0.11 $ 0.10 $ 0.55 $ 0.33 ======= === ======= === ======== ======== === Reconciliation of net income (loss) per share, diluted GAAP net loss per share, diluted $ (0.60) $ (0.32) $ (1.89) $ (1.53) Non-GAAP adjustments to net loss 0.71 0.42 2.41 1.84 -------- --- -------- --- --------- --------- --- Non-GAAP net income per share, diluted $ 0.11 $ 0.10 $ 0.52 $ 0.31 ======= === ======= === ======== ======== === Weighted-average shares used in GAAP per share calculation, basic and diluted 116,986 112,496 115,240 110,606 Weighted-average shares used in non-GAAP per share calculation Basic 116,986 112,496 115,240 110,606 Diluted 124,781 118,809 121,301 118,696 Computation of free cash flow Net cash provided by operating activities $ 46,349 $ 32,211 $ 26,428 $ 89,261 Plus: repayment of convertible senior notes attributable to debt discount -- -- 38,637 -- Less: purchases of property and equipment (3,388) (13,512) (22,877) (39,140) Less: internal-use software development costs (4,745) (2,834) (15,646) (7,841) -------- -------- --------- --------- Free cash flow $ 38,216 $ 15,865 $ 26,542 $ 42,280 ------- --- ------- --- -------- -------- --- Net cash provided by operating activities margin 16% 14% 3% 11% Non-GAAP adjustments (3 ) % (7 ) % --% (6 ) % -------- --- -------- --- --------- --------- --- Free cash flow margin 13% 7% 3% 5% ======== ======== ========= =========

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.

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February 04, 2021 16:15 ET (21:15 GMT)