Form 8-K Zendesk, Inc. For: Feb 01
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): February 1, 2018
ZENDESK, INC.
(Exact name of Registrant as Specified in Its Charter)
Delaware | 001-36456 | 26-4411091 | ||
(State or Other Jurisdiction of Incorporation) | (Commission File Number) | (IRS Employer Identification No.) | ||
1019 Market Street San Francisco, California | 94103 | |
(Address of Principal Executive Offices) | (Zip Code) | |
Registrant’s Telephone Number, Including Area Code: 415.418.7506
______________________________________
(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instructions A.2. below):
¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 or Rule 12b-2 of the Securities Exchange Act of 1934. Emerging growth company ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Item 2.02. Results of Operations and Financial Condition.
On February 6, 2018, Zendesk, Inc. (the “Company”) issued a press release announcing its results for the quarter and fiscal year ended December 31, 2017. A copy of the press release is attached as Exhibit 99.1 to this Current Report on Form 8-K and is incorporated herein by reference. The Company also issued a letter to its shareholders announcing its financial results for the quarter and fiscal year ended December 31, 2017 (the “Shareholder Letter”). The full text of the Shareholder Letter is attached as Exhibit 99.2 to this Current Report on Form 8-K and is incorporated herein by reference. The information in this Item 2.02 (including Exhibits 99.1 and 99.2) shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended (the “Securities Act”), or the Exchange Act, regardless of any general incorporation language in such filing.
Item 5.03 Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year
On February 1, 2018, the Company’s Board of Directors (the “Board”) approved a further amendment and restatement of the Company’s Amended and Restated Bylaws (the “Bylaws”) to provide (i) for a majority voting standard in uncontested director elections and (ii) that stockholder director nominations must include a written statement that the nominee intends to tender his or her irrevocable resignation, subject to acceptance by the Board, upon his or her election or re-election, which resignation shall become effective upon the nominee’s failure to receive the requisite number of votes under the majority voting standard.
On the same date, the Board also approved related amendments to the Company’s Corporate Governance Guidelines to provide that the Board will only nominate a candidate for election or re-election as a director who, in advance of such nomination, has submitted his or her irrevocable resignation, subject to acceptance by the Board, that would become effective upon the nominee’s failure to receive the requisite number of votes under the majority voting standard.
Prior to the implementation of majority voting for uncontested director elections in the Company's Bylaws and Corporate Governance Guidelines, the Company provided for plurality voting for uncontested director elections.
The foregoing description of the Bylaws is not complete and qualified in its entirety by reference to the Bylaws, which are attached hereto as Exhibit 3.1 and incorporated herein by reference.
Item 7.01. Regulation FD Disclosure.
On February 6, 2018, Mikkel Svane, Chief Executive Officer of the Company, will make the graphic included with this Current Report on Form 8-K as Exhibit 99.3 available to the public. In addition, on February 6, 2018, the Company will make the investor deck included with this Current Report on Form 8-K as Exhibit 99.4 available to the public. The graphic and the investor deck will also be available for viewing at the Company’s investor website, investor.zendesk.com, although the Company reserves the right to discontinue that availability at any time.
The information in this Item 7.01 (including Exhibits 99.3 and 99.4) shall not be deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act, or the Exchange Act, regardless of any general incorporation language in such filing.
Item 9.01. Financial Statements and Exhibits.
(d) Exhibits
3.1 Amended and Restated Bylaws.
99.1 Press Release issued by Zendesk, Inc., dated February 6, 2018.
99.2 Letter to Shareholders, dated February 6, 2018.
99.3 February 2018 Update, dated February 6, 2018.
99.4 ASC 606 Investor Deck, dated February 6, 2018.
Exhibit Index
Exhibit No. | Description |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Zendesk, Inc. | ||
(Registrant) | ||
By: | /s/ Elena Gomez | |
Elena Gomez | ||
Chief Financial Officer (Principal Financial and Accounting Officer) | ||
February 6, 2018
Exhibit 3.1
AMENDED AND RESTATED
BY-LAWS
OF
ZENDESK, INC.
(the “Corporation”)
Adopted February 1, 2018
ARTICLE I
Stockholders
SECTION 1. Annual Meeting. The annual meeting of stockholders of the Corporation (any such meeting being referred to in these By-laws as an “Annual Meeting”) shall be held at the hour, date and place within or without the United States which is fixed by the Board of Directors, which time, date and place may subsequently be changed at any time by vote of the Board of Directors. If no Annual Meeting has been held for a period of thirteen (13) months after the Corporation’s last Annual Meeting, a special meeting in lieu thereof may be held, and such special meeting shall have, for the purposes of these By-laws or otherwise, all the force and effect of an Annual Meeting. Any and all references hereafter in these By-laws to an Annual Meeting or Annual Meetings shall be deemed to also refer to any special meeting(s) in lieu thereof.
SECTION 2. Notice of Stockholder Business and Nominations.
(a) Annual Meetings of Stockholders.
(1) Nominations of persons for election to the Board of Directors of the Corporation and the proposal of other business to be considered by the stockholders may be brought before an Annual Meeting (i) by or at the direction of the Board of Directors or (ii) by any stockholder of the Corporation who was a stockholder of record at the time of giving of notice provided for in this By-law, who is entitled to vote at the meeting, who is present (in person or by proxy) at the meeting and who complies with the notice procedures set forth in this By-law as to such nomination or business. For the avoidance of doubt, the foregoing clause (ii) shall be the exclusive means for a stockholder to bring nominations or business properly before an Annual Meeting (other than matters properly brought under Rule 14a-8 (or any successor rule) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), and such stockholder must comply with the notice and other procedures set forth in Article I, Section 2(a)(2) and (3) of this By-law to bring such nominations or business properly before an Annual Meeting. In addition to the other requirements set forth in this By-law, for any proposal of business to be considered at an
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Annual Meeting, it must be a proper subject for action by stockholders of the Corporation under Delaware law.
(2) For nominations or other business to be properly brought before an Annual Meeting by a stockholder pursuant to clause (ii) of Article I, Section 2(a)(1) of this By-law, the stockholder must (i) have given Timely Notice (as defined below) thereof in writing to the Secretary of the Corporation, (ii) have provided any updates or supplements to such notice at the times and in the forms required by this By-law and (iii) together with the beneficial owner(s), if any, on whose behalf the nomination or business proposal is made, have acted in accordance with the representations set forth in the Solicitation Statement (as defined below) required by this By-law. To be timely, a stockholder’s written notice shall be received by the Secretary at the principal executive offices of the Corporation not later than the close of business on the ninetieth (90th) day nor earlier than the close of business on the one hundred twentieth (120th) day prior to the one-year anniversary of the preceding year’s Annual Meeting; provided, however, that in the event the Annual Meeting is first convened more than thirty (30) days before or more than sixty (60) days after such anniversary date, or if no Annual Meeting were held in the preceding year, notice by the stockholder to be timely must be received by the Secretary of the Corporation not later than the close of business on the later of the ninetieth (90th) day prior to the scheduled date of such Annual Meeting or the tenth (10th) day following the day on which public announcement of the date of such meeting is first made (such notice within such time periods shall be referred to as “Timely Notice”). Notwithstanding anything to the contrary provided herein, for the first Annual Meeting following the initial public offering of common stock of the Corporation, a stockholder’s notice shall be timely if received by the Secretary at the principal executive offices of the Corporation not later than the close of business on the later of the ninetieth (90th) day prior to the scheduled date of such Annual Meeting or the tenth (10th) day following the day on which public announcement of the date of such Annual Meeting is first made or sent by the Corporation. Such stockholder’s Timely Notice shall set forth:
(A) as to each person whom the stockholder proposes to nominate for election or reelection as a director, (i) all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors in an election contest, or is otherwise required, in each case pursuant to Regulation 14A under the Exchange Act (including such person’s written consent to being named in the proxy statement as a nominee and to serving as a director if elected), and (ii) a written statement of such person that such person, if elected, intends to tender, promptly following such person’s election or re-election, an irrevocable resignation effective upon such person’s failure to receive the required vote for re-election at the next meeting at which such person would face re-election and upon acceptance of such resignation by the Board of Directors, in accordance with the Corporation’s Corporate Governance Guidelines;
(B) as to any other business that the stockholder proposes to bring before the meeting, a brief description of the business desired to be brought before the
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meeting, the reasons for conducting such business at the meeting, and any material interest in such business of each Proposing Person (as defined below);
(C) (i) the name and address of the stockholder giving the notice, as they appear on the Corporation’s books, and the names and addresses of the other Proposing Persons (if any) and (ii) as to each Proposing Person, the following information: (a) the class or series and number of all shares of capital stock of the Corporation which are, directly or indirectly, owned beneficially or of record by such Proposing Person or any of its affiliates or associates (as such terms are defined in Rule 12b-2 promulgated under the Exchange Act), including any shares of any class or series of capital stock of the Corporation as to which such Proposing Person or any of its affiliates or associates has a right to acquire beneficial ownership at any time in the future; (b) all Synthetic Equity Interests (as defined below) in which such Proposing Person or any of its affiliates or associates, directly or indirectly, holds an interest including a description of the material terms of each such Synthetic Equity Interest, including without limitation, identification of the counterparty to each such Synthetic Equity Interest and disclosure, for each such Synthetic Equity Interest, as to (x) whether or not such Synthetic Equity Interest conveys any voting rights, directly or indirectly, in such shares to such Proposing Person, (y) whether or not such Synthetic Equity Interest is required to be, or is capable of being, settled through delivery of such shares and (z) whether or not such Proposing Person and/or, to the extent known, the counterparty to such Synthetic Equity Interest has entered into other transactions that hedge or mitigate the economic effect of such Synthetic Equity Interest; (c) any proxy (other than a revocable proxy given in response to a public proxy solicitation made pursuant to, and in accordance with, the Exchange Act), agreement, arrangement, understanding or relationship pursuant to which such Proposing Person has or shares a right to, directly or indirectly, vote any shares of any class or series of capital stock of the Corporation; (d) any rights to dividends or other distributions on the shares of any class or series of capital stock of the Corporation, directly or indirectly, owned beneficially by such Proposing Person that are separated or separable from the underlying shares of the Corporation; and (e) any performance-related fees (other than an asset based fee) that such Proposing Person, directly or indirectly, is entitled to based on any increase or decrease in the value of shares of any class or series of capital stock of the Corporation or any Synthetic Equity Interests (the disclosures to be made pursuant to the foregoing clauses (a) through (e) are referred to, collectively, as “Material Ownership Interests”) and (iii) a description of the material terms of all agreements, arrangements or understandings (whether or not in writing) entered into by any Proposing Person or any of its affiliates or associates with any other person for the purpose of acquiring, holding, disposing or voting of any shares of any class or series of capital stock of the Corporation;
(D) (i) a description of all agreements, arrangements or understandings by and among any of the Proposing Persons, or by and among any Proposing Persons and any other person (including with any proposed nominee(s)), pertaining to the
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nomination(s) or other business proposed to be brought before the meeting of stockholders (which description shall identify the name of each other person who is party to such an agreement, arrangement or understanding), and (ii) identification of the names and addresses of other stockholders (including beneficial owners) known by any of the Proposing Persons to support such nominations or other business proposal(s), and to the extent known the class and number of all shares of the Corporation’s capital stock owned beneficially or of record by such other stockholder(s) or other beneficial owner(s); and
(E) a statement whether or not the stockholder giving the notice and/or the other Proposing Person(s), if any, will deliver a proxy statement and form of proxy to holders of, in the case of a business proposal, at least the percentage of voting power of all of the shares of capital stock of the Corporation required under applicable law to approve the proposal or, in the case of a nomination or nominations, at least the percentage of voting power of all of the shares of capital stock of the Corporation reasonably believed by such Proposing Person to be sufficient to elect the nominee or nominees proposed to be nominated by such stockholder (such statement, the “Solicitation Statement”).
For purposes of this Article I of these By-laws, the term “Proposing Person” shall mean the following persons: (i) the stockholder of record providing the notice of nominations or business proposed to be brought before a stockholders’ meeting, and (ii) the beneficial owner(s), if different, on whose behalf the nominations or business proposed to be brought before a stockholders’ meeting is made. For purposes of this Section 2 of Article I of these By-laws, the term “Synthetic Equity Interest” shall mean any transaction, agreement or arrangement (or series of transactions, agreements or arrangements), including, without limitation, any derivative, swap, hedge, repurchase or so-called “stock borrowing” agreement or arrangement, the purpose or effect of which is to, directly or indirectly: (a) give a person or entity economic benefit and/or risk similar to ownership of shares of any class or series of capital stock of the Corporation, in whole or in part, including due to the fact that such transaction, agreement or arrangement provides, directly or indirectly, the opportunity to profit or avoid a loss from any increase or decrease in the value of any shares of any class or series of capital stock of the Corporation, (b) mitigate loss to, reduce the economic risk of or manage the risk of share price changes for, any person or entity with respect to any shares of any class or series of capital stock of the Corporation, (c) otherwise provide in any manner the opportunity to profit or avoid a loss from any decrease in the value of any shares of any class or series of capital stock of the Corporation, or (d) increase or decrease the voting power of any person or entity with respect to any shares of any class or series of capital stock of the Corporation.
(3) A stockholder providing Timely Notice of nominations or business proposed to be brought before an Annual Meeting shall further update and supplement such notice, if necessary, so that the information (including, without limitation, the Material Ownership Interests information) provided or required to be provided in such notice pursuant to this By-law shall be true and correct as of the record date for the meeting and as of the date that
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is ten (10) business days prior to such Annual Meeting, and such update and supplement shall be received by the Secretary at the principal executive offices of the Corporation not later than the close of business on the fifth (5th) business day after the record date for the Annual Meeting (in the case of the update and supplement required to be made as of the record date), and not later than the close of business on the eighth (8th) business day prior to the date of the Annual Meeting (in the case of the update and supplement required to be made as of ten (10) business days prior to the meeting).
(4) Notwithstanding anything in the second sentence of Article I, Section 2(a)(2) of this By-law to the contrary, in the event that the number of directors to be elected to the Board of Directors of the Corporation is increased and there is no public announcement naming all of the nominees for director or specifying the size of the increased Board of Directors made by the Corporation at least ten (10) days before the last day a stockholder may deliver a notice of nomination in accordance with the second sentence of Article I, Section 2(a)(2), a stockholder’s notice required by this By-law shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be received by the Secretary of the Corporation not later than the close of business on the tenth (10th) day following the day on which such public announcement is first made by the Corporation.
(b) General.
(1) Only such persons who are nominated in accordance with the provisions of this By-law shall be eligible for election and to serve as directors and only such business shall be conducted at an Annual Meeting as shall have been brought before the meeting in accordance with the provisions of this By-law or in accordance with Rule 14a-8 under the Exchange Act. The Board of Directors or a designated committee thereof shall have the power to determine whether a nomination or any business proposed to be brought before the meeting was made in accordance with the provisions of this By-law. If neither the Board of Directors nor such designated committee makes a determination as to whether any stockholder proposal or nomination was made in accordance with the provisions of this By-law, the presiding officer of the Annual Meeting shall have the power and duty to determine whether the stockholder proposal or nomination was made in accordance with the provisions of this By-law. If the Board of Directors or a designated committee thereof or the presiding officer, as applicable, determines that any stockholder proposal or nomination was not made in accordance with the provisions of this By-law, such proposal or nomination shall be disregarded and shall not be presented for action at the Annual Meeting.
(2) Except as otherwise required by law, nothing in this Article I, Section 2 shall obligate the Corporation or the Board of Directors to include in any proxy statement or other stockholder communication distributed on behalf of the Corporation or the Board of Directors information with respect to any nominee for director or any other matter of business submitted by a stockholder.
(3) Notwithstanding the foregoing provisions of this Article I, Section 2, if the nominating or proposing stockholder (or a qualified representative of the stockholder) does
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not appear at the Annual Meeting to present a nomination or any business, such nomination or business shall be disregarded, notwithstanding that proxies in respect of such vote may have been received by the Corporation. For purposes of this Article I, Section 2, to be considered a qualified representative of the proposing stockholder, a person must be authorized by a written instrument executed by such stockholder or an electronic transmission delivered by such stockholder to act for such stockholder as proxy at the meeting of stockholders and such person must produce such written instrument or electronic transmission, or a reliable reproduction of the written instrument or electronic transmission, to the presiding officer at the meeting of stockholders.
(4) For purposes of this By-law, “public announcement” shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act.
(5) Notwithstanding the foregoing provisions of this By-law, a stockholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this By-law. Nothing in this By-law shall be deemed to affect any rights of (i) stockholders to have proposals included in the Corporation’s proxy statement pursuant to Rule 14a-8 (or any successor rule), as applicable, under the Exchange Act and, to the extent required by such rule, have such proposals considered and voted on at an Annual Meeting or (ii) the holders of any series of Undesignated Preferred Stock to elect directors under specified circumstances.
SECTION 3. Special Meetings. Except as otherwise required by statute and subject to the rights, if any, of the holders of any series of Undesignated Preferred Stock, special meetings of the stockholders of the Corporation may be called only by the Board of Directors, the Chairperson of the Board of Directors, or the Chief Executive Officer acting pursuant to a resolution approved by the affirmative vote of a majority of the Directors then in office. The Board of Directors may postpone or reschedule any previously scheduled special meeting of stockholders. Only those matters set forth in the notice of the special meeting may be considered or acted upon at a special meeting of stockholders of the Corporation. Nominations of persons for election to the Board of Directors of the Corporation and stockholder proposals of other business shall not be brought before a special meeting of stockholders to be considered by the stockholders unless such special meeting is held in lieu of an annual meeting of stockholders in accordance with Article I, Section 1 of these By-laws, in which case such special meeting in lieu thereof shall be deemed an Annual Meeting for purposes of these By-laws and the provisions of Article I, Section 2 of these By-laws shall govern such special meeting.
SECTION 4. Notice of Meetings; Adjournments.
(a) A notice of each Annual Meeting stating the hour, date and place, if any, of such Annual Meeting and the means of remote communication, if any, by which stockholders and proxyholders may be deemed to be present in person and vote at such meeting, shall be given not less than ten (10) days nor more than sixty (60) days before the Annual Meeting, to each stockholder entitled to vote thereat by delivering such notice to such stockholder or by mailing it, postage
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prepaid, addressed to such stockholder at the address of such stockholder as it appears on the Corporation’s stock transfer books. Without limiting the manner by which notice may otherwise be given to stockholders, any notice to stockholders may be given by electronic transmission in the manner provided in Section 232 of the Delaware General Corporation Law (“DGCL”).
(b) Notice of all special meetings of stockholders shall be given in the same manner as provided for Annual Meetings, except that the notice of all special meetings shall state the purpose or purposes for which the meeting has been called.
(c) Notice of an Annual Meeting or special meeting of stockholders need not be given to a stockholder if a waiver of notice is executed, or waiver of notice by electronic transmission is provided, before or after such meeting by such stockholder or if such stockholder attends such meeting, unless such attendance is for the express purpose of objecting at the beginning of the meeting to the transaction of any business because the meeting was not lawfully called or convened.
(d) The Board of Directors may postpone and reschedule any previously scheduled Annual Meeting or special meeting of stockholders and any record date with respect thereto, regardless of whether any notice or public disclosure with respect to any such meeting has been sent or made pursuant to Section 2 of this Article I of these By-laws or otherwise. In no event shall the public announcement of an adjournment, postponement or rescheduling of any previously scheduled meeting of stockholders commence a new time period for the giving of a stockholder’s notice under this Article I of these By-laws.
(e) When any meeting is convened, the presiding officer may adjourn the meeting if (i) no quorum is present for the transaction of business, (ii) the Board of Directors determines that adjournment is necessary or appropriate to enable the stockholders to consider fully information which the Board of Directors determines has not been made sufficiently or timely available to stockholders, or (iii) the Board of Directors determines that adjournment is otherwise in the best interests of the Corporation. When any Annual Meeting or special meeting of stockholders is adjourned to another hour, date or place, notice need not be given of the adjourned meeting other than an announcement at the meeting at which the adjournment is taken of the hour, date and place, if any, to which the meeting is adjourned and the means of remote communications, if any, by which stockholders and proxyholders may be deemed to be present in person and vote at such adjourned meeting; provided, however, that if the adjournment is for more than thirty (30) days from the meeting date, or if after the adjournment a new record date is fixed for the adjourned meeting, notice of the adjourned meeting and the means of remote communications, if any, by which stockholders and proxyholders may be deemed to be present in person and vote at such adjourned meeting shall be given to each stockholder of record entitled to vote thereat and each stockholder who, by law or under the Certificate of Incorporation of the Corporation (as the same may hereafter be amended and/or restated, the “Certificate”) or these By-laws, is entitled to such notice.
SECTION 5. Quorum. A majority of the shares entitled to vote, present in person or represented by proxy, shall constitute a quorum at any meeting of stockholders. If less than a quorum is present at a meeting, the holders of voting stock representing a majority of the voting power present at the meeting or the presiding officer may adjourn the meeting from time to time, and the meeting may be held as adjourned without further notice, except as provided in Section 4 of this
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Article I. At such adjourned meeting at which a quorum is present, any business may be transacted which might have been transacted at the meeting as originally noticed. The stockholders present at a duly constituted meeting may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum.
SECTION 6. Voting and Proxies. Stockholders shall have one vote for each share of stock entitled to vote owned by them of record according to the stock ledger of the Corporation as of the record date, unless otherwise provided by law or by the Certificate. Stockholders may vote either (i) in person, (ii) by written proxy or (iii) by a transmission permitted by Section 212(c) of the DGCL. Any copy, facsimile telecommunication or other reliable reproduction of the writing or transmission permitted by Section 212(c) of the DGCL may be substituted for or used in lieu of the original writing or transmission for any and all purposes for which the original writing or transmission could be used, provided that such copy, facsimile telecommunication or other reproduction shall be a complete reproduction of the entire original writing or transmission. Proxies shall be filed in accordance with the procedures established for the meeting of stockholders. Except as otherwise limited therein or as otherwise provided by law, proxies authorizing a person to vote at a specific meeting shall entitle the persons authorized thereby to vote at any adjournment of such meeting, but they shall not be valid after final adjournment of such meeting. A proxy with respect to stock held in the name of two or more persons shall be valid if executed by or on behalf of any one of them unless at or prior to the exercise of the proxy the Corporation receives a specific written notice to the contrary from any one of them.
SECTION 7. Action at Meeting. When a quorum is present at any meeting of stockholders, any matter before any such meeting (other than an election of a director or directors) shall be decided by a majority of the votes properly cast for and against such matter, except where a larger vote is required by law, by the Certificate or by these By-laws. When a quorum is present in any meeting of stockholders, a nominee for director shall be elected to the Board of Directors if the number of votes cast for such nominee’s election exceed the number of votes cast against such nominee’s election; provided, however, that in a contested election, a nominee shall be elected by a plurality of the votes properly cast by the stockholders entitled to vote at the election on such election of directors. An election shall be considered contested if, as of the last date on which nominees for director may be submitted in accordance with these By-laws, the nominees for election to the Board of Directors exceeds the number of positions on the Board of Directors to be filled by election at that meeting.
SECTION 8. Stockholder Lists. The Secretary or an Assistant Secretary (or the Corporation’s transfer agent or other person authorized by these By-laws or by law) shall prepare and make, at least ten (10) days before every Annual Meeting or special meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for a period of at least ten (10) days prior to the meeting in the manner provided by law. The list shall also be open to the examination of any stockholder during the whole time of the meeting as provided by law.
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SECTION 9. Presiding Officer. The Board of Directors shall designate a representative to preside over all Annual Meetings or special meetings of stockholders, provided that if the Board of Directors does not so designate such a presiding officer, then the Chairperson of the Board, if one is elected, shall preside over such meetings. If the Board of Directors does not so designate such a presiding officer and there is no Chairperson of the Board or the Chairperson of the Board is unable to so preside or is absent, then the Chief Executive Officer shall preside over such meetings, provided further that if there is no Chief Executive Officer or the Chief Executive Officer is unable to so preside or is absent, then a President, if one is elected, shall preside over such meetings. The presiding officer at any Annual Meeting or special meeting of stockholders shall have the power, among other things, to adjourn such meeting at any time and from time to time, subject to Sections 4 and 5 of this Article I. The order of business and all other matters of procedure at any meeting of the stockholders shall be determined by the presiding officer.
SECTION 10. Inspectors of Elections. The Corporation shall, in advance of any meeting of stockholders, appoint one or more inspectors to act at the meeting and make a written report thereof. The Corporation may designate one or more persons as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate is able to act at a meeting of stockholders, the presiding officer shall appoint one or more inspectors to act at the meeting. Any inspector may, but need not, be an officer, employee or agent of the Corporation. Each inspector, before entering upon the discharge of his or her duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of his or her ability. The inspectors shall perform such duties as are required by the DGCL, including the counting of all votes and ballots. The inspectors may appoint or retain other persons or entities to assist the inspectors in the performance of the duties of the inspectors. The presiding officer may review all determinations made by the inspectors, and in so doing the presiding officer shall be entitled to exercise his or her sole judgment and discretion and he or she shall not be bound by any determinations made by the inspectors. All determinations by the inspectors and, if applicable, the presiding officer, shall be subject to further review by any court of competent jurisdiction.
ARTICLE II
Directors
SECTION 1. Powers. The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors except as otherwise provided by the Certificate or required by law.
SECTION 2. Number and Terms. The number of directors of the Corporation shall be fixed solely and exclusively by resolution duly adopted from time to time by the Board of Directors. The directors shall hold office in the manner provided in the Certificate.
SECTION 3. Qualification. No director need be a stockholder of the Corporation.
SECTION 4. Vacancies. Vacancies in the Board of Directors shall be filled in the manner provided in the Certificate.
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SECTION 5. Removal. Directors may be removed from office only in the manner provided in the Certificate.
SECTION 6. Resignation. A director may resign at any time by giving written notice to the Chairperson of the Board, if one is elected, the Chief Executive Officer, a President, if one is elected, or the Secretary. A resignation shall be effective upon receipt, unless the resignation otherwise provides.
SECTION 7. Regular Meetings. The regular annual meeting of the Board of Directors shall be held, without notice other than this Section 7, on the same date and at the same place as the Annual Meeting following the close of such meeting of stockholders. Other regular meetings of the Board of Directors may be held at such hour, date and place as the Board of Directors may by resolution from time to time determine and publicize by means of reasonable notice given to any director who is not present at the meeting at which such resolution is adopted.
SECTION 8. Special Meetings. Special meetings of the Board of Directors may be called, orally or in writing, by or at the request of a majority of the directors, the Chairperson of the Board, if one is elected, the Chief Executive Officer, or a President, if one is elected. The person calling any such special meeting of the Board of Directors may fix the hour, date and place thereof.
SECTION 9. Notice of Meetings. Notice of the hour, date and place of all special meetings of the Board of Directors shall be given to each director by the Secretary or an Assistant Secretary, or in case of the death, absence, incapacity or refusal of such persons, by the Chairperson of the Board, if one is elected, the Chief Executive Officer, or a President, if one is elected, or such other officer designated by the Chairperson of the Board, if one is elected, the Chief Executive Officer, or a President, if one is elected. Notice of any special meeting of the Board of Directors shall be given to each director in person, by telephone, or by facsimile, electronic mail or other form of electronic communication, sent to his or her business or home address, at least twenty-four (24) hours in advance of the meeting, or by written notice mailed to his or her business or home address, at least forty-eight (48) hours in advance of the meeting. Such notice shall be deemed to be delivered when hand-delivered to such address, read to such director by telephone, deposited in the mail so addressed, with postage thereon prepaid if mailed, dispatched or transmitted if sent by facsimile transmission or by electronic mail or other form of electronic communications. A written waiver of notice signed before or after a meeting by a director and filed with the records of the meeting shall be deemed to be equivalent to notice of the meeting. The attendance of a director at a meeting shall constitute a waiver of notice of such meeting, except where a director attends a meeting for the express purpose of objecting at the beginning of the meeting to the transaction of any business because such meeting is not lawfully called or convened. Except as otherwise required by law, by the Certificate or by these By-laws, neither the business to be transacted at, nor the purpose of, any meeting of the Board of Directors need be specified in the notice or waiver of notice of such meeting.
SECTION 10. Quorum. At any meeting of the Board of Directors, a majority of the total number of directors shall constitute a quorum for the transaction of business, but if less than a quorum is present at a meeting, a majority of the directors present may adjourn the meeting from time to time, and the meeting may be held as adjourned without further notice. Any business which might have been transacted at the meeting as originally noticed may be transacted at such adjourned
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meeting at which a quorum is present. For purposes of this section, the total number of directors includes any unfilled vacancies on the Board of Directors.
SECTION 11. Action at Meeting. At any meeting of the Board of Directors at which a quorum is present, the vote of a majority of the directors present shall constitute action by the Board of Directors, unless otherwise required by law, by the Certificate or by these By-laws.
SECTION 12. Action by Consent. Any action required or permitted to be taken at any meeting of the Board of Directors may be taken without a meeting if all members of the Board of Directors consent thereto in writing or by electronic transmission and the writing or writings or electronic transmission or transmissions are filed with the records of the meetings of the Board of Directors. Such filing shall be in paper form if the minutes are maintained in paper form and shall be in electronic form if the minutes are maintained in electronic form. Such consent shall be treated as a resolution of the Board of Directors for all purposes.
SECTION 13. Manner of Participation. Directors may participate in meetings of the Board of Directors by means of conference telephone or other communications equipment by means of which all directors participating in the meeting can hear each other, and participation in a meeting in accordance herewith shall constitute presence in person at such meeting for purposes of these By-laws.
SECTION 14. Presiding Director. The Board of Directors shall designate a representative to preside over all meetings of the Board of Directors, provided that if the Board of Directors does not so designate such a presiding director or such designated presiding director is unable to so preside or is absent, then the Chairperson of the Board, if one is elected, shall preside over all meetings of the Board of Directors. If both the designated presiding director, if one is so designated, and the Chairperson of the Board, if one is elected, are unable to preside or are absent, the Board of Directors shall designate an alternate representative to preside over a meeting of the Board of Directors.
SECTION 15. Committees. The Board of Directors, by vote of a majority of the directors then in office, may elect one or more committees, including, without limitation, a Compensation Committee, a Nominating & Corporate Governance Committee and an Audit Committee, and may delegate thereto some or all of its powers except those which by law, by the Certificate or by these By-laws may not be delegated. Except as the Board of Directors may otherwise determine, any such committee may make rules for the conduct of its business, but unless otherwise provided by the Board of Directors or in such rules, its business shall be conducted so far as possible in the same manner as is provided by these By-laws for the Board of Directors. All members of such committees shall hold such offices at the pleasure of the Board of Directors. The Board of Directors may abolish any such committee at any time. Any committee to which the Board of Directors delegates any of its powers or duties shall keep records of its meetings and shall report its action to the Board of Directors.
SECTION 16. Compensation of Directors. Directors shall receive such compensation for their services as shall be determined by a majority of the Board of Directors, or a designated committee thereof, provided that directors who are serving the Corporation as employees and who
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receive compensation for their services as such, shall not receive any salary or other compensation for their services as directors of the Corporation.
ARTICLE III
Officers
SECTION 1. Enumeration. The officers of the Corporation shall consist of a Chief Executive Officer, a Treasurer, a Secretary, and such other officers, including, without limitation, a Chairperson of the Board of Directors, one or more Presidents, and one or more Vice Presidents (including Executive Vice Presidents or Senior Vice Presidents), Assistant Vice Presidents, Assistant Treasurers and Assistant Secretaries, as the Board of Directors may determine.
SECTION 2. Election. At the regular annual meeting of the Board of Directors following the Annual Meeting, the Board of Directors shall elect the Chief Executive Officer, the Treasurer and the Secretary. Other officers may be elected by the Board of Directors at such regular annual meeting of the Board of Directors or at any other regular or special meeting.
SECTION 3. Qualification. No officer need be a stockholder or a director. Any person may occupy more than one office of the Corporation at any time.
SECTION 4. Tenure. Except as otherwise provided by the Certificate or by these By-laws, each of the officers of the Corporation shall hold office until the regular annual meeting of the Board of Directors following the next Annual Meeting and until his or her successor is elected and qualified or until his or her earlier resignation or removal.
SECTION 5. Resignation. Any officer may resign by delivering his or her written resignation to the Corporation addressed to the Chief Executive Officer, a President, if one is elected, or the Secretary, and such resignation shall be effective upon receipt, unless the resignation otherwise provides.
SECTION 6. Removal. Except as otherwise provided by law, the Board of Directors may remove any officer with or without cause by the affirmative vote of a majority of the directors then in office.
SECTION 7. Absence or Disability. In the event of the absence or disability of any officer, the Board of Directors may designate another officer to act temporarily in place of such absent or disabled officer.
SECTION 8. Vacancies. Any vacancy in any office may be filled for the unexpired portion of the term by the Board of Directors.
SECTION 9. President(s). Each President shall, subject to the direction of the Board of Directors, have such powers and shall perform such duties as the Board of Directors or the Chief Executive Officer may from time to time designate.
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SECTION 10. Chairperson of the Board. The Chairperson of the Board, if one is elected, shall have such powers and shall perform such duties as the Board of Directors may from time to time designate.
SECTION 11. Chief Executive Officer. Subject to the provisions of these Bylaws and to the direction of the Board of Directors, the Chief Executive Officer of the Corporation shall have the responsibility for the general management and control of the business and affairs of the Corporation and shall perform all duties and have all powers that are commonly incident to the office of chief executive or that are delegated to him or her by the Board of Directors. He or she shall have power to sign contracts and other instruments of the Corporation that are authorized and shall have general supervision and direction of all of the duties, employees and agents of the Corporation.
SECTION 12. Vice Presidents and Assistant Vice Presidents. Any Vice President (including any Executive Vice President or Senior Vice President) and any Assistant Vice President shall have such powers and shall perform such duties as the Board of Directors, the Chief Executive Officer, or a President may from time to time designate.
SECTION 13. Treasurer and Assistant Treasurers. The Treasurer shall, subject to the direction of the Board of Directors and except as the Board of Directors or the Chief Executive Officer may otherwise provide, have general charge of the financial affairs of the Corporation and shall cause to be kept accurate books of account. The Treasurer shall have custody of all funds, securities, and valuable documents of the Corporation. He or she shall have such other duties and powers as may be designated from time to time by the Board of Directors or the Chief Executive Officer. Any Assistant Treasurer shall have such powers and perform such duties as the Board of Directors or the Chief Executive Officer may from time to time designate.
SECTION 14. Secretary and Assistant Secretaries. The Secretary shall record all the proceedings of the meetings of the stockholders and the Board of Directors (including committees of the Board of Directors) in books kept for that purpose. In his or her absence from any such meeting, a temporary secretary chosen at the meeting shall record the proceedings thereof. The Secretary shall have charge of the stock ledger (which may, however, be kept by any transfer or other agent of the Corporation). The Secretary shall have custody of the seal of the Corporation, and the Secretary, or an Assistant Secretary shall have authority to affix it to any instrument requiring it, and, when so affixed, the seal may be attested by his or her signature or that of an Assistant Secretary. The Secretary shall have such other duties and powers as may be designated from time to time by the Board of Directors or the Chief Executive Officer. In the absence of the Secretary, any Assistant Secretary may perform his or her duties and responsibilities. Any Assistant Secretary shall have such powers and perform such duties as the Board of Directors or the Chief Executive Officer may from time to time designate.
SECTION 15. Other Powers and Duties. Subject to these By-laws and to such limitations as the Board of Directors may from time to time prescribe, the officers of the Corporation shall each have such powers and duties as generally pertain to their respective offices, as well as such powers and duties as from time to time may be conferred by the Board of Directors or the Chief Executive Officer.
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ARTICLE IV
Capital Stock
SECTION 1. Certificates of Stock. Each stockholder shall be entitled to a certificate of the capital stock of the Corporation in such form as may from time to time be prescribed by the Board of Directors. Such certificate shall be signed by any two officers of the Corporation, including, without limitation, the Chairperson of the Board, the Chief Executive Officer, a President, a Vice President, the Treasurer, an Assistant Treasurer, the Secretary, or an Assistant Secretary. The Corporation seal and the signatures by the Corporation’s officers, the transfer agent or the registrar may be facsimiles. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed on such certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he or she were such officer, transfer agent or registrar at the time of its issue. Every certificate for shares of stock which are subject to any restriction on transfer and every certificate issued when the Corporation is authorized to issue more than one class or series of stock shall contain such legend with respect thereto as is required by law. Notwithstanding anything to the contrary provided in these Bylaws, the Board of Directors of the Corporation may provide by resolution or resolutions that some or all of any or all classes or series of its stock shall be uncertificated shares (except that the foregoing shall not apply to shares represented by a certificate until such certificate is surrendered to the Corporation), and by the approval and adoption of these Bylaws the Board of Directors has determined that all classes or series of the Corporation’s stock may be uncertificated, whether upon original issuance, re-issuance, or subsequent transfer.
SECTION 2. Transfers. Subject to any restrictions on transfer and unless otherwise provided by the Board of Directors, shares of stock that are represented by a certificate may be transferred on the books of the Corporation by the surrender to the Corporation or its transfer agent of the certificate theretofore properly endorsed or accompanied by a written assignment or power of attorney properly executed, with transfer stamps (if necessary) affixed, and with such proof of the authenticity of signature as the Corporation or its transfer agent may reasonably require. Shares of stock that are not represented by a certificate may be transferred on the books of the Corporation by submitting to the Corporation or its transfer agent such evidence of transfer and following such other procedures as the Corporation or its transfer agent may require.
SECTION 3. Record Holders. Except as may otherwise be required by law, by the Certificate or by these By-laws, the Corporation shall be entitled to treat the record holder of stock as shown on its books as the owner of such stock for all purposes, including the payment of dividends and the right to vote with respect thereto, regardless of any transfer, pledge or other disposition of such stock, until the shares have been transferred on the books of the Corporation in accordance with the requirements of these By-laws.
SECTION 4. Record Date. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix a record date, which record date shall not
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precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date: (a) in the case of determination of stockholders entitled to vote at any meeting of stockholders, shall, unless otherwise required by law, not be more than sixty (60) nor less than ten (10) days before the date of such meeting and (b) in the case of any other action, shall not be more than sixty (60) days prior to such other action. If no record date is fixed: (i) the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held; and (ii) the record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto.
SECTION 5. Replacement of Certificates. In case of the alleged loss, destruction or mutilation of a certificate of stock of the Corporation, a duplicate certificate may be issued in place thereof, upon such terms as the Board of Directors may prescribe.
ARTICLE V
Indemnification
SECTION 1. Definitions. For purposes of this Article:
(a) “Corporate Status” describes the status of a person who is serving or has served (i) as a Director of the Corporation, (ii) as an Officer of the Corporation, (iii) as a Non-Officer Employee of the Corporation, or (iv) as a director, partner, trustee, officer, employee or agent of any other corporation, partnership, limited liability company, joint venture, trust, employee benefit plan, foundation, association, organization or other legal entity which such person is or was serving at the request of the Corporation. For purposes of this Section 1(a), a Director, Officer or Non-Officer Employee of the Corporation who is serving or has served as a director, partner, trustee, officer, employee or agent of a Subsidiary shall be deemed to be serving at the request of the Corporation. Notwithstanding the foregoing, “Corporate Status” shall not include the status of a person who is serving or has served as a director, officer, employee or agent of a constituent corporation absorbed in a merger or consolidation transaction with the Corporation with respect to such person’s activities prior to said transaction, unless specifically authorized by the Board of Directors or the stockholders of the Corporation;
(b) “Director” means any person who serves or has served the Corporation as a director on the Board of Directors of the Corporation;
(c) “Disinterested Director” means, with respect to each Proceeding in respect of which indemnification is sought hereunder, a Director of the Corporation who is not and was not a party to such Proceeding;
(d) “Expenses” means all attorneys’ fees, retainers, court costs, transcript costs, fees of expert witnesses, private investigators and professional advisors (including, without limitation, accountants and investment bankers), travel expenses, duplicating costs, printing and binding costs, costs of preparation of demonstrative evidence and other courtroom presentation aids and devices,
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costs incurred in connection with document review, organization, imaging and computerization, telephone charges, postage, delivery service fees, and all other disbursements, costs or expenses of the type customarily incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating, being or preparing to be a witness in, settling or otherwise participating in, a Proceeding;
(e) “Liabilities” means judgments, damages, liabilities, losses, penalties, excise taxes, fines and amounts paid in settlement;
(f) “Non-Officer Employee” means any person who serves or has served as an employee or agent of the Corporation, but who is not or was not a Director or Officer;
(g) “Officer” means any person who serves or has served the Corporation as an officer of the Corporation appointed by the Board of Directors of the Corporation;
(h) “Proceeding” means any threatened, pending or completed action, suit, arbitration, alternate dispute resolution mechanism, inquiry, investigation, administrative hearing or other proceeding, whether civil, criminal, administrative, arbitrative or investigative; and
(i) “Subsidiary” shall mean any corporation, partnership, limited liability company, joint venture, trust or other entity of which the Corporation owns (either directly or through or together with another Subsidiary of the Corporation) either (i) a general partner, managing member or other similar interest or (ii) (A) fifty percent (50%) or more of the voting power of the voting capital equity interests of such corporation, partnership, limited liability company, joint venture or other entity, or (B) fifty percent (50%) or more of the outstanding voting capital stock or other voting equity interests of such corporation, partnership, limited liability company, joint venture or other entity.
SECTION 2. Indemnification of Directors and Officers.
(a) Subject to the operation of Section 4 of this Article V of these By-laws, each Director and Officer shall be indemnified and held harmless by the Corporation to the fullest extent authorized by the DGCL, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than such law permitted the Corporation to provide prior to such amendment), and to the extent authorized in this Section 2.
(1) Actions, Suits and Proceedings Other than By or In the Right of the Corporation. Each Director and Officer shall be indemnified and held harmless by the Corporation against any and all Expenses and Liabilities that are incurred or paid by such Director or Officer or on such Director’s or Officer’s behalf in connection with any Proceeding or any claim, issue or matter therein (other than an action by or in the right of the Corporation), which such Director or Officer is, or is threatened to be made, a party to or participant in by reason of such Director’s or Officer’s Corporate Status, if such Director or Officer acted in good faith and in a manner such Director or Officer reasonably believed
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to be in or not opposed to the best interests of the Corporation and, with respect to any criminal proceeding, had no reasonable cause to believe his or her conduct was unlawful.
(2) Actions, Suits and Proceedings By or In the Right of the Corporation. Each Director and Officer shall be indemnified and held harmless by the Corporation against any and all Expenses that are incurred by such Director or Officer or on such Director’s or Officer’s behalf in connection with any Proceeding or any claim, issue or matter therein by or in the right of the Corporation, which such Director or Officer is, or is threatened to be made, a party to or participant in by reason of such Director’s or Officer’s Corporate Status, if such Director or Officer acted in good faith and in a manner such Director or Officer reasonably believed to be in or not opposed to the best interests of the Corporation; provided, however, that no indemnification shall be made under this Section 2(a)(2) in respect of any claim, issue or matter as to which such Director or Officer shall have been finally adjudged by a court of competent jurisdiction to be liable to the Corporation, unless, and only to the extent that, the Court of Chancery or another court in which such Proceeding was brought shall determine upon application that, despite adjudication of liability, but in view of all the circumstances of the case, such Director or Officer is fairly and reasonably entitled to indemnification for such Expenses that such court deems proper.
(3) Survival of Rights. The rights of indemnification provided by this Section 2 shall continue as to a Director or Officer after he or she has ceased to be a Director or Officer and shall inure to the benefit of his or her heirs, executors, administrators and personal representatives.
(4) Actions by Directors or Officers. Notwithstanding the foregoing, the Corporation shall indemnify any Director or Officer seeking indemnification in connection with a Proceeding initiated by such Director or Officer only if such Proceeding (including any parts of such Proceeding not initiated by such Director or Officer) was authorized in advance by the Board of Directors of the Corporation, unless such Proceeding was brought to enforce such Officer’s or Director’s rights to indemnification or, in the case of Directors, advancement of Expenses under these By-laws in accordance with the provisions set forth herein.
SECTION 3. Indemnification of Non-Officer Employees. Subject to the operation of Section 4 of this Article V of these By-laws, each Non-Officer Employee may, in the discretion of the Board of Directors of the Corporation, be indemnified by the Corporation to the fullest extent authorized by the DGCL, as the same exists or may hereafter be amended, against any or all Expenses and Liabilities that are incurred by such Non-Officer Employee or on such Non-Officer Employee’s behalf in connection with any threatened, pending or completed Proceeding, or any claim, issue or matter therein, which such Non-Officer Employee is, or is threatened to be made, a party to or participant in by reason of such Non-Officer Employee’s Corporate Status, if such Non-Officer Employee acted in good faith and in a manner such Non-Officer Employee reasonably believed to be in or not opposed to the best interests of the Corporation and, with respect to any criminal proceeding, had no reasonable cause to believe his or her conduct was unlawful. The rights of indemnification provided by this Section 3 shall exist as to a Non-Officer Employee after he or she
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has ceased to be a Non-Officer Employee and shall inure to the benefit of his or her heirs, personal representatives, executors and administrators. Notwithstanding the foregoing, the Corporation may indemnify any Non-Officer Employee seeking indemnification in connection with a Proceeding initiated by such Non-Officer Employee only if such Proceeding was authorized in advance by the Board of Directors of the Corporation.
SECTION 4. Determination. Unless ordered by a court, no indemnification shall be provided pursuant to this Article V to a Director, to an Officer or to a Non-Officer Employee unless a determination shall have been made that such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Corporation and, with respect to any criminal Proceeding, such person had no reasonable cause to believe his or her conduct was unlawful. Such determination shall be made by (a) a majority vote of the Disinterested Directors, even though less than a quorum of the Board of Directors, (b) a committee comprised of Disinterested Directors, such committee having been designated by a majority vote of the Disinterested Directors (even though less than a quorum), (c) if there are no such Disinterested Directors, or if a majority of Disinterested Directors so directs, by independent legal counsel in a written opinion, or (d) by the stockholders of the Corporation.
SECTION 5. Advancement of Expenses to Directors Prior to Final Disposition.
(a) The Corporation shall advance all Expenses incurred by or on behalf of any Director in connection with any Proceeding in which such Director is involved by reason of such Director’s Corporate Status within thirty (30) days after the receipt by the Corporation of a written statement from such Director requesting such advance or advances from time to time, whether prior to or after final disposition of such Proceeding. Such statement or statements shall reasonably evidence the Expenses incurred by such Director and shall be preceded or accompanied by an undertaking by or on behalf of such Director to repay any Expenses so advanced if it shall ultimately be determined that such Director is not entitled to be indemnified against such Expenses. Notwithstanding the foregoing, the Corporation shall advance all Expenses incurred by or on behalf of any Director seeking advancement of expenses hereunder in connection with a Proceeding initiated by such Director only if such Proceeding (including any parts of such Proceeding not initiated by such Director) was (i) authorized by the Board of Directors of the Corporation, or (ii) brought to enforce such Director’s rights to indemnification or advancement of Expenses under these By-laws.
(b) If a claim for advancement of Expenses hereunder by a Director is not paid in full by the Corporation within thirty (30) days after receipt by the Corporation of documentation of Expenses and the required undertaking, such Director may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim and if successful in whole or in part, such Director shall also be entitled to be paid the expenses of prosecuting such claim. The failure of the Corporation (including its Board of Directors or any committee thereof, independent legal counsel, or stockholders) to make a determination concerning the permissibility of such advancement of Expenses under this Article V shall not be a defense to an action brought by a Director for recovery of the unpaid amount of an advancement claim and shall not create a presumption that such advancement is not permissible. The burden of proving that a Director is not entitled to an advancement of expenses shall be on the Corporation.
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(c) In any suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the Corporation shall be entitled to recover such expenses upon a final adjudication that the Director has not met any applicable standard for indemnification set forth in the DGCL.
SECTION 6. Advancement of Expenses to Officers and Non-Officer Employees Prior to Final Disposition.
(a) The Corporation may, at the discretion of the Board of Directors of the Corporation, advance any or all Expenses incurred by or on behalf of any Officer or any Non-Officer Employee in connection with any Proceeding in which such person is involved by reason of his or her Corporate Status as an Officer or Non-Officer Employee upon the receipt by the Corporation of a statement or statements from such Officer or Non-Officer Employee requesting such advance or advances from time to time, whether prior to or after final disposition of such Proceeding. Such statement or statements shall reasonably evidence the Expenses incurred by such Officer or Non-Officer Employee and shall be preceded or accompanied by an undertaking by or on behalf of such person to repay any Expenses so advanced if it shall ultimately be determined that such Officer or Non-Officer Employee is not entitled to be indemnified against such Expenses.
(b) In any suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the Corporation shall be entitled to recover such expenses upon a final adjudication that the Officer or Non-Officer Employee has not met any applicable standard for indemnification set forth in the DGCL.
SECTION 7. Contractual Nature of Rights.
(a) The provisions of this Article V shall be deemed to be a contract between the Corporation and each Director and Officer entitled to the benefits hereof at any time while this Article V is in effect, in consideration of such person’s past or current and any future performance of services for the Corporation. Neither amendment, repeal or modification of any provision of this Article V nor the adoption of any provision of the Certificate of Incorporation inconsistent with this Article V shall eliminate or reduce any right conferred by this Article V in respect of any act or omission occurring, or any cause of action or claim that accrues or arises or any state of facts existing, at the time of or before such amendment, repeal, modification or adoption of an inconsistent provision (even in the case of a proceeding based on such a state of facts that is commenced after such time), and all rights to indemnification and advancement of Expenses granted herein or arising out of any act or omission shall vest at the time of the act or omission in question, regardless of when or if any proceeding with respect to such act or omission is commenced. The rights to indemnification and to advancement of expenses provided by, or granted pursuant to, this Article V shall continue notwithstanding that the person has ceased to be a director or officer of the Corporation and shall inure to the benefit of the estate, heirs, executors, administrators, legatees and distributees of such person.
(b) If a claim for indemnification hereunder by a Director or Officer is not paid in full by the Corporation within sixty (60) days after receipt by the Corporation of a written claim for indemnification, such Director or Officer may at any time thereafter bring suit against the
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Corporation to recover the unpaid amount of the claim, and if successful in whole or in part, such Director or Officer shall also be entitled to be paid the expenses of prosecuting such claim. The failure of the Corporation (including its Board of Directors or any committee thereof, independent legal counsel, or stockholders) to make a determination concerning the permissibility of such indemnification under this Article V shall not be a defense to an action brought by a Director or Officer for recovery of the unpaid amount of an indemnification claim and shall not create a presumption that such indemnification is not permissible. The burden of proving that a Director or Officer is not entitled to indemnification shall be on the Corporation.
(c) In any suit brought by a Director or Officer to enforce a right to indemnification hereunder, it shall be a defense that such Director or Officer has not met any applicable standard for indemnification set forth in the DGCL.
SECTION 8. Non-Exclusivity of Rights. The rights to indemnification and to advancement of Expenses set forth in this Article V shall not be exclusive of any other right which any Director, Officer, or Non-Officer Employee may have or hereafter acquire under any statute, provision of the Certificate or these By-laws, agreement, vote of stockholders or Disinterested Directors or otherwise.
SECTION 9. Insurance. The Corporation may maintain insurance, at its expense, to protect itself and any Director, Officer or Non-Officer Employee against any liability of any character asserted against or incurred by the Corporation or any such Director, Officer or Non-Officer Employee, or arising out of any such person’s Corporate Status, whether or not the Corporation would have the power to indemnify such person against such liability under the DGCL or the provisions of this Article V.
SECTION 10. Other Indemnification. The Corporation’s obligation, if any, to indemnify or provide advancement of Expenses to any person under this Article V as a result of such person serving, at the request of the Corporation, as a director, partner, trustee, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise shall be reduced by any amount such person may collect as indemnification or advancement of Expenses from such other corporation, partnership, joint venture, trust, employee benefit plan or enterprise (the “Primary Indemnitor”). Any indemnification or advancement of Expenses under this Article V owed by the Corporation as a result of a person serving, at the request of the Corporation, as a director, partner, trustee, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise shall only be in excess of, and shall be secondary to, the indemnification or advancement of Expenses available from the applicable Primary Indemnitor(s) and any applicable insurance policies.
ARTICLE VI
Miscellaneous Provisions
SECTION 1. Fiscal Year. The fiscal year of the Corporation shall be determined by the Board of Directors.
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SECTION 2. Seal. The Board of Directors shall have power to adopt and alter the seal of the Corporation.
SECTION 3. Execution of Instruments. All deeds, leases, transfers, contracts, bonds, notes and other obligations to be entered into by the Corporation in the ordinary course of its business without director action may be executed on behalf of the Corporation by the Chairperson of the Board, if one is elected, the Chief Executive Officer, a President, if one is elected, or the Treasurer or any other officer, employee or agent of the Corporation as the Board of Directors or the executive committee of the Board may authorize.
SECTION 4. Voting of Securities. Unless the Board of Directors otherwise provides, the Chairperson of the Board, if one is elected, the Chief Executive Officer, a President, if one is elected, or the Treasurer may waive notice of and act on behalf of the Corporation, or appoint another person or persons to act as proxy or attorney in fact for the Corporation with or without discretionary power and/or power of substitution, at any meeting of stockholders or shareholders of any other corporation or organization, any of whose securities are held by the Corporation.
SECTION 5. Resident Agent. The Board of Directors may appoint a resident agent upon whom legal process may be served in any action or proceeding against the Corporation.
SECTION 6. Corporate Records. The original or attested copies of the Certificate, By-laws and records of all meetings of the incorporators, stockholders and the Board of Directors and the stock transfer books, which shall contain the names of all stockholders, their record addresses and the amount of stock held by each, may be kept outside the State of Delaware and shall be kept at the principal office of the Corporation, at an office of its counsel, at an office of its transfer agent or at such other place or places as may be designated from time to time by the Board of Directors.
SECTION 7. Certificate. All references in these By-laws to the Certificate shall be deemed to refer to the Amended and Restated Certificate of Incorporation of the Corporation, as amended and/or restated and in effect from time to time.
SECTION 8. Exclusive Jurisdiction of Delaware Courts. Unless the Corporation consents in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware shall be the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of the Corporation, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee of the Corporation to the Corporation or the Corporation’s stockholders, (iii) any action asserting a claim arising pursuant to any provision of the Delaware General Corporation Law or the Certificate or By-laws, or (iv) any action asserting a claim against the Corporation governed by the internal affairs doctrine. Any person or entity purchasing or otherwise acquiring any interest in shares of capital stock of the Corporation shall be deemed to have notice of and consented to the provisions of this Section 8.
SECTION 9. Amendment of By-laws.
21
(a) Amendment by Directors. Except as provided otherwise by law, these By-laws may be amended or repealed by the Board of Directors by the affirmative vote of a majority of the directors then in office.
(b) Amendment by Stockholders. These By-laws may be amended or repealed at any Annual Meeting, or special meeting of stockholders called for such purpose in accordance with these By-Laws, by the affirmative vote of at least seventy-five percent (75%) of the outstanding shares entitled to vote on such amendment or repeal, voting together as a single class; provided, however, that if the Board of Directors recommends that stockholders approve such amendment or repeal at such meeting of stockholders, such amendment or repeal shall only require the affirmative vote of the majority of the outstanding shares entitled to vote on such amendment or repeal, voting together as a single class. Notwithstanding the foregoing, stockholder approval shall not be required unless mandated by the Certificate, these By-laws, or other applicable law.
SECTION 10. Notices. If mailed, notice to stockholders shall be deemed given when deposited in the mail, postage prepaid, directed to the stockholder at such stockholder’s address as it appears on the records of the Corporation. Without limiting the manner by which notice otherwise may be given to stockholders, any notice to stockholders may be given by electronic transmission in the manner provided in Section 232 of the DGCL.
SECTION 11. Waivers. A written waiver of any notice, signed by a stockholder or director, or waiver by electronic transmission by such person, whether given before or after the time of the event for which notice is to be given, shall be deemed equivalent to the notice required to be given to such person. Neither the business to be transacted at, nor the purpose of, any meeting need be specified in such a waiver.
22
Exhibit 99.1
ZENDESK ANNOUNCES FOURTH QUARTER AND FULL FISCAL YEAR 2017 RESULTS
Highlights:
• | Fourth quarter revenue increased 39% year-over-year to $123.4 million |
• | Fourth quarter GAAP operating loss of $28.5 million and non-GAAP operating loss of $2.4 million |
• | Full year 2017 revenue increased 38% year-over-year to $430.5 million |
• | Full year 2017 GAAP operating loss of $114.6 million and non-GAAP operating loss of $17.1 million |
SAN FRANCISCO – February 6, 2018 – Zendesk, Inc. (NYSE: ZEN) today reported financial results for the fiscal quarter and full fiscal year ended December 31, 2017, and released a Shareholder Letter on its investor relations website at https://investor.zendesk.com. Additionally, Zendesk has provided its historical financial results under the new revenue recognition standard ASC 606 on its investor relations website.
Results for the Fourth Quarter 2017
Revenue was $123.4 million for the quarter ended December 31, 2017, an increase of 39% over the prior year period. GAAP net loss for the quarter ended December 31, 2017 was $26.6 million, and GAAP net loss per share was $0.26. Non-GAAP net loss was $0.5 million, and non-GAAP net loss per share was $0.01. Non-GAAP net loss excludes approximately $24.7 million in share-based compensation and related expenses (including $2.0 million of employer tax related to employee stock transactions and $0.4 million of amortization of share-based compensation capitalized in internal-use software), $0.7 million of amortization of purchased intangibles, and $0.7 million of acquisition-related expenses. GAAP and non-GAAP net loss per share for the quarter ended December 31, 2017 were based on 102.0 million weighted average shares outstanding.
Results for the Full Fiscal Year 2017
Revenue was $430.5 million for the year ended December 31, 2017, an increase of 38% over the prior year period. GAAP net loss for the quarter ended December 31, 2017 was $110.6 million, and GAAP net loss per share was $1.11. Non-GAAP net loss was $13.1 million, and non-GAAP net loss per share was $0.13. Non-GAAP net loss excludes approximately $91.6 million in share-based compensation and related expenses (including $4.8 million of employer tax related to employee stock transactions and $1.8 million of amortization of share-based compensation capitalized in internal-use software), $3.7 million of amortization of purchased intangibles, and $2.2 million of acquisition-related expenses. GAAP and non-GAAP net loss per share for the year ended December 31, 2017 were based on 99.9 million weighted average shares outstanding.
Outlook
As of February 6, 2018, Zendesk provided guidance for the quarter ending March 31, 2018 and for the year ending December 31, 2018. Guidance for 2018 is based on the new revenue recognition standard ASC 606.
For the quarter ending March 31, 2018, Zendesk expects to report:
• | Revenue in the range of $125.0 - 127.0 million |
• | GAAP operating loss of $33.0 - 35.0 million, which includes share-based compensation and related expenses of approximately $28.7 million, amortization of purchased intangibles of approximately $0.7 million, and acquisition-related expenses of approximately $0.6 million |
• | Non-GAAP operating loss of $3.0 - 5.0 million, which excludes share-based compensation and related expenses of approximately $28.7 million, amortization of purchased intangibles of approximately $0.7 million, and acquisition-related expenses of approximately $0.6 million |
• | Approximately 103.8 million weighted average shares outstanding |
For the full year 2018, Zendesk expects to report:
• | Revenue in the range of $555.0 - 565.0 million |
• | GAAP operating loss of $113.0 - 118.0 million, which includes share-based compensation and related expenses of approximately $112.8 million, amortization of purchased intangibles of approximately $2.7 million, and acquisition-related expenses of approximately $2.5 million |
• | Non-GAAP operating loss of $0.0 - 5.0 million, which excludes share-based compensation and related expenses of approximately $112.8 million, amortization of purchased intangibles of approximately $2.7 million, and acquisition-related expenses of approximately $2.5 million |
• | Approximately 106.2 million weighted average shares outstanding |
• | Free cash flow of approximately $25.0 - 30.0 million |
We have not reconciled free cash flow guidance to net cash from operating activities for the full year 2018 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 2018 is not available without unreasonable effort.
Zendesk’s estimates of share-based compensation and related expenses, amortization of purchased intangibles, and acquisition-related expenses 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, February 6, 2018, 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 2747839. 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 2747839. The dial-in replay will be available until the end of day February 8, 2018. The webcast replay will be available for 12 months.
About Zendesk
Zendesk builds software for better customer relationships. It empowers organizations to improve customer engagement and better understand their customers. Approximately 119,000 paid customer accounts in over 160 countries and territories use Zendesk products. Based in San Francisco, Zendesk has operations in the United States, 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 towards its long-term financial objectives. The 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 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; (iv) Zendesk’s limited operating history, which makes it difficult to evaluate its prospects and future operating results; (v) the market in which Zendesk operates is intensely competitive, and Zendesk may not compete effectively; (vi) the development of the market for software as a service business software applications; (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 integrate acquired businesses and technologies successfully or achieve the expected benefits of such acquisitions; (ix) Zendesk’s ability to effectively manage its growth and organizational change; (x) breaches in Zendesk’s security measures or unauthorized access to its customers’ data; (xi) service interruptions or performance problems associated with Zendesk’s technology and infrastructure; (xii) real or perceived errors, failures, or bugs in its products; (xiii) Zendesk’s substantial reliance on its customers renewing their subscriptions and purchasing additional subscriptions; and (xiv) Zendesk’s ability to effectively expand its sales capabilities.
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 September 30, 2017. 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 Annual Report on Form 10-K for the year ended December 31, 2017.
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.
Condensed Consolidated Statements of Operations
(In thousands, except per share data; unaudited)
Three Months Ended December 31, | Year Ended December 31, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Revenue | $ | 123,426 | $ | 88,623 | $ | 430,492 | $ | 311,999 | ||||||||
Cost of revenue | 34,958 | 25,582 | 127,422 | 93,900 | ||||||||||||
Gross profit | 88,468 | 63,041 | 303,070 | 218,099 | ||||||||||||
Operating expenses: | ||||||||||||||||
Research and development | 30,779 | 24,383 | 115,291 | 91,067 | ||||||||||||
Sales and marketing | 64,035 | 47,566 | 220,742 | 166,987 | ||||||||||||
General and administrative | 22,177 | 16,222 | 81,680 | 64,371 | ||||||||||||
Total operating expenses | 116,991 | 88,171 | 417,713 | 322,425 | ||||||||||||
Operating loss | (28,523 | ) | (25,130 | ) | (114,643 | ) | (104,326 | ) | ||||||||
Other income, net | 1,142 | 775 | 2,487 | 1,520 | ||||||||||||
Loss before provision for (benefit from) income taxes | (27,381 | ) | (24,355 | ) | (112,156 | ) | (102,806 | ) | ||||||||
Provision for (benefit from) income taxes | (732 | ) | 193 | (1,518 | ) | 993 | ||||||||||
Net loss | $ | (26,649 | ) | $ | (24,548 | ) | $ | (110,638 | ) | $ | (103,799 | ) | ||||
Net loss per share, basic and diluted | $ | (0.26 | ) | $ | (0.26 | ) | $ | (1.11 | ) | $ | (1.11 | ) | ||||
Weighted-average shares used to compute net loss per share, basic and diluted | 102,044 | 95,793 | 99,918 | 93,161 | ||||||||||||
Condensed Consolidated Balance Sheets
(In thousands, except par value; unaudited)
December 31, 2017 | December 31, 2016 | |||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 109,370 | $ | 93,677 | ||||
Marketable securities | 137,576 | 131,190 | ||||||
Accounts receivable, net of allowance for doubtful accounts of $1,252 and $1,269 as of December 31, 2017 and 2016, respectively | 57,096 | 37,343 | ||||||
Prepaid expenses and other current assets | 24,165 | 17,608 | ||||||
Total current assets | 328,207 | 279,818 | ||||||
Marketable securities, noncurrent | 97,447 | 75,168 | ||||||
Property and equipment, net | 59,157 | 62,731 | ||||||
Goodwill and intangible assets, net | 67,034 | 53,296 | ||||||
Other assets | 8,359 | 4,272 | ||||||
Total assets | $ | 560,204 | $ | 475,285 | ||||
Liabilities and stockholders’ equity | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 5,307 | $ | 4,555 | ||||
Accrued liabilities | 21,876 | 19,106 | ||||||
Accrued compensation and related benefits | 29,017 | 20,281 | ||||||
Deferred revenue | 174,524 | 123,276 | ||||||
Total current liabilities | 230,724 | 167,218 | ||||||
Deferred revenue, noncurrent | 1,213 | 1,257 | ||||||
Other liabilities | 6,626 | 7,382 | ||||||
Total liabilities | 238,563 | 175,857 | ||||||
Stockholders’ equity: | ||||||||
Preferred stock, par value $0.01 per share | — | — | ||||||
Common stock, par value $0.01 per share | 1,031 | 971 | ||||||
Additional paid-in capital | 753,568 | 624,026 | ||||||
Accumulated other comprehensive loss | (2,372 | ) | (5,197 | ) | ||||
Accumulated deficit | (430,586 | ) | (319,720 | ) | ||||
Treasury stock, at cost | — | (652 | ) | |||||
Total stockholders’ equity | 321,641 | 299,428 | ||||||
Total liabilities and stockholders’ equity | $ | 560,204 | $ | 475,285 | ||||
Condensed Consolidated Statements of Cash Flows
(In thousands; unaudited)
Three Months Ended December 31, | Year Ended December 31, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Cash flows from operating activities | ||||||||||||||||
Net loss | $ | (26,649 | ) | $ | (24,548 | ) | $ | (110,638 | ) | $ | (103,799 | ) | ||||
Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||||||||||||
Depreciation and amortization | 7,668 | 7,506 | 31,931 | 27,506 | ||||||||||||
Share-based compensation | 22,244 | 17,444 | 85,049 | 73,779 | ||||||||||||
Excess tax benefit from share-based award activity | — | (204 | ) | — | (337 | ) | ||||||||||
Other | 222 | 1,884 | 603 | 3,106 | ||||||||||||
Changes in operating assets and liabilities: | ||||||||||||||||
Accounts receivable | (6,162 | ) | (26 | ) | (21,201 | ) | (11,808 | ) | ||||||||
Prepaid expenses and other current assets | 54 | 1,115 | (5,055 | ) | (6,286 | ) | ||||||||||
Other assets and liabilities | (442 | ) | (2,058 | ) | (5,955 | ) | (3,887 | ) | ||||||||
Accounts payable | (5,398 | ) | (1,266 | ) | 1,839 | (3,486 | ) | |||||||||
Accrued liabilities | 76 | 2,616 | 6,919 | 5,261 | ||||||||||||
Accrued compensation and related benefits | 5,896 | 5,243 | 7,399 | 6,055 | ||||||||||||
Deferred revenue | 19,847 | 12,822 | 51,204 | 38,418 | ||||||||||||
Net cash provided by operating activities | 17,356 | 20,528 | 42,095 | 24,522 | ||||||||||||
Cash flows from investing activities | ||||||||||||||||
Purchases of property and equipment | (3,062 | ) | (8,153 | ) | (16,396 | ) | (20,647 | ) | ||||||||
Internal-use software development costs | (2,284 | ) | (1,997 | ) | (7,521 | ) | (6,310 | ) | ||||||||
Purchases of marketable securities | (42,030 | ) | (32,408 | ) | (177,309 | ) | (249,048 | ) | ||||||||
Proceeds from maturities of marketable securities | 27,775 | 15,719 | 116,735 | 39,690 | ||||||||||||
Proceeds from sale of marketable securities | 2,946 | 14,707 | 31,090 | 53,951 | ||||||||||||
Cash paid for acquisition of Outbound, net of cash acquired | — | — | (16,470 | ) | — | |||||||||||
Net cash used in investing activities | (16,655 | ) | (12,132 | ) | (69,871 | ) | (182,364 | ) | ||||||||
Cash flows from financing activities | ||||||||||||||||
Proceeds from exercise of employee stock options | 13,332 | 5,526 | 31,882 | 25,412 | ||||||||||||
Proceeds from employee stock purchase plan | 3,268 | 2,300 | 14,248 | 11,004 | ||||||||||||
Taxes paid related to net share settlement of share-based awards | (574 | ) | (177 | ) | (2,989 | ) | (803 | ) | ||||||||
Excess tax benefit from share-based award activity | — | 204 | — | 337 | ||||||||||||
Principal payments on debt | — | — | — | (323 | ) | |||||||||||
Net cash provided by financing activities | 16,026 | 7,853 | 43,141 | 35,627 | ||||||||||||
Effect of exchange rate changes on cash and cash equivalents | 40 | (161 | ) | 328 | (334 | ) | ||||||||||
Net increase (decrease) in cash and cash equivalents | 16,767 | 16,088 | 15,693 | (122,549 | ) | |||||||||||
Cash and cash equivalents at beginning of period | 92,603 | 77,589 | 93,677 | 216,226 | ||||||||||||
Cash and cash equivalents at end of period | $ | 109,370 | $ | 93,677 | $ | 109,370 | $ | 93,677 | ||||||||
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 December 31, | Year Ended December 31, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Reconciliation of gross profit and gross margin | ||||||||||||||||
GAAP gross profit | $ | 88,468 | $ | 63,041 | $ | 303,070 | $ | 218,099 | ||||||||
Plus: Share-based compensation | 2,372 | 1,691 | 9,040 | 7,045 | ||||||||||||
Plus: Employer tax related to employee stock transactions | 129 | 106 | 530 | 383 | ||||||||||||
Plus: Amortization of purchased intangibles | 612 | 837 | 3,209 | 3,362 | ||||||||||||
Plus: Amortization of share-based compensation capitalized in internal-use software | 417 | 598 | 1,774 | 1,821 | ||||||||||||
Non-GAAP gross profit | $ | 91,998 | $ | 66,273 | $ | 317,623 | $ | 230,710 | ||||||||
GAAP gross margin | 72 | % | 71 | % | 70 | % | 70 | % | ||||||||
Non-GAAP adjustments | 3 | % | 4 | % | 4 | % | 4 | % | ||||||||
Non-GAAP gross margin | 75 | % | 75 | % | 74 | % | 74 | % | ||||||||
Reconciliation of operating expenses | ||||||||||||||||
GAAP research and development | $ | 30,779 | $ | 24,383 | $ | 115,291 | $ | 91,067 | ||||||||
Less: Share-based compensation | (7,697 | ) | (6,535 | ) | (29,970 | ) | (27,083 | ) | ||||||||
Less: Employer tax related to employee stock transactions | (816 | ) | (756 | ) | (1,971 | ) | (1,559 | ) | ||||||||
Less: Acquisition-related expenses | (406 | ) | — | (843 | ) | — | ||||||||||
Non-GAAP research and development | $ | 21,860 | $ | 17,092 | $ | 82,507 | $ | 62,425 | ||||||||
GAAP research and development as percentage of revenue | 25 | % | 28 | % | 27 | % | 29 | % | ||||||||
Non-GAAP research and development as percentage of revenue | 18 | % | 19 | % | 19 | % | 20 | % | ||||||||
GAAP sales and marketing | $ | 64,035 | $ | 47,566 | $ | 220,742 | $ | 166,987 | ||||||||
Less: Share-based compensation | (6,414 | ) | (5,263 | ) | (24,776 | ) | (23,043 | ) | ||||||||
Less: Employer tax related to employee stock transactions | (356 | ) | (768 | ) | (1,164 | ) | (1,342 | ) | ||||||||
Less: Amortization of purchased intangibles | (135 | ) | (104 | ) | (495 | ) | (418 | ) | ||||||||
Less: Acquisition-related expenses | (281 | ) | — | (750 | ) | — | ||||||||||
Non-GAAP sales and marketing | $ | 56,849 | $ | 41,431 | $ | 193,557 | $ | 142,184 | ||||||||
GAAP sales and marketing as percentage of revenue | 52 | % | 54 | % | 51 | % | 54 | % | ||||||||
Non-GAAP sales and marketing as percentage of revenue | 46 | % | 47 | % | 45 | % | 46 | % | ||||||||
GAAP general and administrative | $ | 22,177 | $ | 16,222 | $ | 81,680 | $ | 64,371 | ||||||||
Less: Share-based compensation | (5,761 | ) | (3,955 | ) | (21,263 | ) | (16,608 | ) | ||||||||
Less: Employer tax related to employee stock transactions | (671 | ) | (123 | ) | (1,184 | ) | (586 | ) | ||||||||
Less: Acquisition-related expenses | (45 | ) | — | (566 | ) | — | ||||||||||
Non-GAAP general and administrative | $ | 15,700 | $ | 12,144 | $ | 58,667 | $ | 47,177 | ||||||||
GAAP general and administrative as percentage of revenue | 18 | % | 18 | % | 19 | % | 21 | % | ||||||||
Non-GAAP general and administrative as percentage of revenue | 13 | % | 14 | % | 14 | % | 15 | % | ||||||||
Reconciliation of operating loss and operating margin | ||||||||||||||||
GAAP operating loss | $ | (28,523 | ) | $ | (25,130 | ) | $ | (114,643 | ) | $ | (104,326 | ) | ||||
Plus: Share-based compensation | 22,244 | 17,444 | 85,049 | 73,779 | ||||||||||||
Plus: Employer tax related to employee stock transactions | 1,972 | 1,753 | 4,849 | 3,870 | ||||||||||||
Plus: Amortization of purchased intangibles | 747 | 941 | 3,704 | 3,780 | ||||||||||||
Plus: Acquisition-related expenses | 732 | — | 2,159 | — | ||||||||||||
Plus: Amortization of share-based compensation capitalized in internal-use software | 417 | 598 | 1,774 | 1,821 | ||||||||||||
Non-GAAP operating loss | $ | (2,411 | ) | $ | (4,394 | ) | $ | (17,108 | ) | $ | (21,076 | ) | ||||
GAAP operating margin | (23 | )% | (28 | )% | (27 | )% | (33 | )% | ||||||||
Non-GAAP adjustments | 21 | % | 23 | % | 23 | % | 26 | % | ||||||||
Non-GAAP operating margin | (2 | )% | (5 | )% | (4 | )% | (7 | )% | ||||||||
Three Months Ended December 31, | Year Ended December 31, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Reconciliation of net loss | ||||||||||||||||
GAAP net loss | $ | (26,649 | ) | $ | (24,548 | ) | $ | (110,638 | ) | $ | (103,799 | ) | ||||
Plus: Share-based compensation | 22,244 | 17,444 | 85,049 | 73,779 | ||||||||||||
Plus: Employer tax related to employee stock transactions | 1,972 | 1,753 | 4,849 | 3,870 | ||||||||||||
Plus: Amortization of purchased intangibles | 747 | 941 | 3,704 | 3,780 | ||||||||||||
Plus: Acquisition-related expenses | 732 | — | 2,159 | — | ||||||||||||
Plus: Amortization of share-based compensation capitalized in internal-use software | 417 | 598 | 1,774 | 1,821 | ||||||||||||
Non-GAAP net loss | $ | (537 | ) | $ | (3,812 | ) | $ | (13,103 | ) | $ | (20,549 | ) | ||||
Reconciliation of net loss per share, basic and diluted | ||||||||||||||||
GAAP net loss per share, basic and diluted | $ | (0.26 | ) | $ | (0.26 | ) | $ | (1.11 | ) | $ | (1.11 | ) | ||||
Non-GAAP adjustments to net loss | 0.25 | 0.22 | 0.98 | 0.89 | ||||||||||||
Non-GAAP net loss per share, basic and diluted | $ | (0.01 | ) | $ | (0.04 | ) | $ | (0.13 | ) | $ | (0.22 | ) | ||||
Weighted-average shares used to compute net loss per share, basic and diluted | 102,044 | 95,793 | 99,918 | 93,161 | ||||||||||||
Computation of free cash flow | ||||||||||||||||
Net cash provided by operating activities | $ | 17,356 | $ | 20,528 | $ | 42,095 | $ | 24,522 | ||||||||
Less: purchases of property and equipment | (3,062 | ) | (8,153 | ) | (16,396 | ) | (20,647 | ) | ||||||||
Less: internal-use software development costs | (2,284 | ) | (1,997 | ) | (7,521 | ) | (6,310 | ) | ||||||||
Free cash flow | $ | 12,010 | $ | 10,378 | $ | 18,178 | $ | (2,435 | ) | |||||||
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 loss and operating margin, non-GAAP net loss, non-GAAP net loss per share, basic and diluted, and free cash flow.
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.
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. Zendesk uses free cash flow, among 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 provides investors with an important perspective on the cash available to fund ongoing operations.
Zendesk has not reconciled free cash flow guidance to net cash from operating activities for the year ending December 31, 2018 because Zendesk does 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 Zendesk’s free cash flow and, accordingly, a reconciliation of net cash from operating activities to free cash flow for the year ending December 31, 2018 is not available without unreasonable effort.
Zendesk’s disclosures regarding its expectations for its non-GAAP operating margin include adjustments to its expectations for its GAAP operating margin that exclude the expected share-based compensation and related expenses, amortization of purchased intangibles, and acquisition-related expenses excluded from its expectations for non-GAAP operating loss as compared to its expectation for GAAP operating loss for the same period.
Zendesk does not provide a reconciliation of its non-GAAP operating margin guidance to GAAP operating margin for future periods beyond the current fiscal year because Zendesk does not provide guidance on the reconciling items between GAAP operating margin and non-GAAP operating margin for such periods, 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 Zendesk’s non-GAAP operating margin and, accordingly, a reconciliation of GAAP operating margin to non-GAAP operating margin guidance for such periods is not available without unreasonable effort.
Zendesk’s disclosures regarding its expectations for its non-GAAP gross margin include adjustments to its expectations for its GAAP gross margin that exclude share-based compensation and related expenses in Zendesk’s cost of revenue and amortization of purchased intangibles related to developed technology. The share-based compensation and related expenses excluded due to such adjustments are primarily comprised of the share-based compensation and related expenses for employees associated with Zendesk’s platform infrastructure and customer experience organization.
Zendesk does not provide a reconciliation of its non-GAAP gross margin guidance to GAAP gross margin for future periods because Zendesk does not provide guidance on the reconciling items between GAAP gross margin and non-GAAP gross margin, 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 Zendesk’s non-GAAP gross margin and, accordingly, a reconciliation of GAAP gross margin to non-GAAP gross margin guidance for the period is not available without unreasonable effort.
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 purchased intangibles, and acquisition-related 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.
About Operating Metrics
Zendesk reviews a number of operating metrics to evaluate its business, measure performance, identify trends, formulate business plans, and make strategic decisions. These include the number of paid customer accounts on Zendesk Support, Zendesk Chat, and its other products, dollar-based net expansion rate, monthly recurring revenue represented by its churned customers, and the percentage of its monthly recurring revenue from Support originating from customers with 100 or more agents on Support.
Zendesk defines the number of paid customer accounts at the end of any particular period as the sum of (i) the number of accounts on Support, exclusive of its legacy Starter plan, free trials, or other free services, (ii) the number of accounts using Chat, exclusive of free trials or other free services, and (iii) the number of accounts on all of its other products, exclusive of free trials and other free services, each as of the end of the period and as identified by a unique account identifier. Use of Support, Chat, and Zendesk’s other products requires separate subscriptions and each of these accounts are treated as a separate paid customer account. Existing customers may also expand their utilization of Zendesk’s products by adding new accounts and a single consolidated organization or customer may have multiple accounts across each of Zendesk’s products to service separate subsidiaries, divisions, or work processes. Each of these accounts is also treated as a separate paid customer account.
Zendesk’s dollar-based net expansion rate provides a measurement of its ability to increase revenue across its existing customer base through expansion of authorized agents associated with a paid customer account, upgrades in subscription plans, and the purchase of additional products as offset by churn, contraction in authorized agents associated with a paid customer account, and downgrades in subscription plans. Zendesk’s dollar-based net expansion rate is based upon monthly recurring revenue for a set of paid customer accounts on its products. Monthly recurring revenue for a paid customer account is a legal and contractual determination made by assessing the contractual terms of each paid customer account, as of the date of determination, as to the revenue Zendesk expects to generate in the next monthly period for that paid customer account, assuming no changes to the subscription and without taking into account any one-time discounts or any platform usage above the subscription base, if any, that may be applicable to such subscription. Monthly recurring revenue is not determined by reference to historical revenue, deferred revenue, or any other GAAP financial measure over any period. It is forward-looking and contractually derived as of the date of determination.
Zendesk calculates its dollar-based net expansion rate by dividing the retained revenue net of contraction and churn by Zendesk’s base revenue. Zendesk defines its base revenue as the aggregate monthly recurring revenue across its products for
customers with paid customer accounts on Support or Chat as of the date one year prior to the date of calculation. Zendesk defines the retained revenue net of contraction and churn as the aggregate monthly recurring revenue across its products for the same customer base included in the measure of base revenue at the end of the annual period being measured. The dollar-based net expansion rate is also adjusted to eliminate the effect of certain activities that Zendesk identifies involving the transfer of agents between paid customer accounts, consolidation of customer accounts, or the split of a single paid customer account into multiple paid customer accounts. In addition, the dollar-based net expansion rate is adjusted to include paid customer accounts in the customer base used to determine retained revenue net of contraction and churn that share common corporate information with customers in the customer base that are used to determine the base revenue. Giving effect to this consolidation results in Zendesk’s dollar-based net expansion rate being calculated across approximately 92,800 customers, as compared to the approximately 118,900 total paid customer accounts as of December 31, 2017.
To the extent that Zendesk can determine that the underlying customers do not share common corporate information, Zendesk does not aggregate paid customer accounts associated with reseller and other similar channel arrangements for the purposes of determining its dollar-based net expansion rate. While not material, Zendesk believes the failure to account for these activities would otherwise skew the dollar-based net expansion metrics associated with customers that maintain multiple paid customer accounts across its products and paid customer accounts associated with reseller and other similar channel arrangements.
Zendesk does not currently incorporate operating metrics associated with its analytics product or its Outbound product into its measurement of dollar-based net expansion rate.
For a more detailed description of how Zendesk calculates its dollar-based net expansion rate, please refer to Zendesk’s periodic reports filed with the Securities and Exchange Commission.
Zendesk calculates its monthly recurring revenue represented by its churned customers on an annualized basis by dividing base revenue associated with paid customer accounts on Support that churn, either by termination of the subscription or failure to renew, during the annual period being measured, by Zendesk’s base revenue. Zendesk’s monthly recurring revenue represented by its churned customers excludes expansion or contraction associated with paid customer accounts on Support and the effect of upgrades or downgrades in subscription plan. The monthly recurring revenue represented by its churned customers is adjusted to exclude paid customer accounts that churned from the customer base used that share common corporate information with customer accounts that did not churn from the customer base during the annual period being measured. While not material, Zendesk believes the failure to make this adjustment could otherwise skew the monthly recurring revenue represented by its churned customers as a result of customers that maintain multiple paid customer accounts on Support.
Zendesk’s percentage of monthly recurring revenue from Support that is generated by customers with 100 or more agents on Support is determined by dividing the monthly recurring revenue from Support for paid customer accounts with 100 or more agents on Support as of the measurement date by the monthly recurring revenue from Support for all paid customer accounts on Support as of the measurement date. Zendesk determines the customers with 100 or more agents on Support as of the measurement date based on the number of activated agents on Support at the measurement date and includes adjustments to aggregate paid customer accounts that share common corporate information.
Zendesk determines the annualized value of a contract by annualizing the monthly recurring revenue for such contract.
Zendesk does not currently incorporate operating metrics associated with products other than Support into its measurement of monthly recurring revenue represented by its churned customers or the percentage of monthly recurring revenue from Support that is generated by customers with 100 or more agents on Support.
Source: Zendesk, Inc.
Contact:
Zendesk, Inc.
Investor Contact:
Marc Cabi, +1 415-852-3877
or
Media Contact:
Tian Lee, +1 415-231-0847
Zendesk Shareholder Letter Q4 2017 - 1
Shareholder Letter
Q4 2017
February 6, 2018
Exhibit 99.2
Zendesk Shareholder Letter Q4 2017 - 2
Mikkel
Svane
CEO
Elena
Gomez
CFO
Marc
Cabi
Strategy & IR
Q4 2017 Revenue
Q4 Y/Y Revenue Growth
Paid Customer Accounts
INTRODUCTION
In 2017, we made great progress towards our goal of being a $1 billion
revenue company in 2020. Through disciplined execution, we expanded
our product line, increased our market penetration, and rapidly grew our
business. We also delivered on our important strategic goals for the year:
moving upmarket by landing larger deals with mid-market and enterprise
companies, and becoming a multiproduct company with new revenue
opportunities. With this performance, we delivered strong revenue growth,
our highest-ever annual net cash from operating activities, and—for the first
time in Zendesk’s history—positive full-year free cash flow.
As we move into 2018, we are focused on further maturing our omnichannel
offering and accelerating our push upmarket. We enter 2018 with a strong
team enhanced by two new board members and a new head of worldwide
sales, and a very high level of optimism about the sales opportunities our
teams are pursuing to begin the year. Based on our results and momentum,
we have gained additional confidence in our plan to reach our $1 billion 2020
revenue goal.
$123.4M
39%
119,000
Zendesk Shareholder Letter Q4 2017 - 3
Fourth quarter and full fiscal year 2017 financial summary
(in thousands, except per share data)
Three Months Ended
December 31,
Twelve Months Ended
December 31,
GAAP Results 2017 2016 2017 2016
Revenue $ 123,426 $ 88,623 $ 430,492 $ 311,999
Gross profit 88,468 63,041 303,070 218,099
Gross margin 71.7% 71.1% 70.4% 69.9%
Operating loss $ (28,523) $ (25,130) $ (114,643) $ (104,326)
Operating margin -23.1% -28.4% -26.6% -33.4%
Net loss $ (26,649) $ (24,548) $ (110,638) $ (103,799)
Net loss per share (0.26) (0.26) (1.11) (1.11)
Non-GAAP Results
Non-GAAP gross profit $ 91,998 $ 66,273 $ 317,623 $ 230,710
Non-GAAP gross margin 74.5% 74.8% 73.8% 73.9%
Non-GAAP operating loss $ (2,411) $ (4,394) $ (17,108) $ (21,076)
Non-GAAP operating margin -2.0% -5.0% -4.0% -6.8%
Non-GAAP net loss $ (537) $ (3,812) $ (13,103) $ (20,549)
Non-GAAP net loss per share (0.01) (0.04) (0.13) (0.22)
Our fourth quarter and full-year results highlight our upmarket progress. We
added many new large businesses as customers, while expanding with many
more existing enterprise customers during the quarter. We saw a significant
increase in our metric tracking the percentage of Zendesk Support MRR
coming from customers with 100 or more Support agents—ending 2017 at
38% compared to 34% a year earlier. Additionally, our portfolio of customer
success stories expanded in both number and variety throughout 2017,
showcasing our move into new use cases and our traction in key industry
segments.
For the fourth quarter of 2017, we achieved revenue of $123.4 million, with
an annual growth rate of 39%. For the full year, we ended 2017 with $430.5
million in revenue, with an annual growth rate of 38%. Looking forward to
2018, we project revenue to be in the range of $555 million to $565 million.
Our operating results continue to keep us on track to deliver both year-over-
year GAAP and non-GAAP operating margin improvement, and increased
net cash from operating activities and free cash flow, consistent with the
goals that we established in prior years.
Zendesk Shareholder Letter Q4 2017 - 4
2017 REVIEW
One of Zendesk’s biggest strengths has always been the broad appeal
of our products across industries and organizations of every size. In 2017,
our prevalence grew to a point where we saw Zendesk increasingly at the
center of customer experiences worldwide. For example, over the four days
between Black Friday and Cyber Monday last November, our chat widget
reached more than 400 million visitors collectively across our customers’
individual websites.
Throughout 2017, we saw solid improvement in growth opportunities and
operating fundamentals. Our mission to expand beyond customer service
to address customer journeys and relationships more broadly was a key
investment theme that generated positive results.
On the product front, we focused on creating a more unified customer
experience and simplifying the buying experience across our product family.
As part of that process, we launched Chat Enterprise in August and Talk
Enterprise in September, and brought greater consistency in feature set and
scalability across all our products. Zendesk Support, Chat, Talk, and Guide
can now be used together across a variety of use cases and degrees of
complexity to deliver improved customer experiences.
119,000
Paid customer
accounts
1.25 BILLION
Support tickets solved
in 2017
150,000
Public apps installed
to date
640
Public apps on the
App Marketplace
20,000
Customers with active
web widgets
10,000
Apps using a
mobile SDK
2,000
Employees worldwide
2017
by the num
bers
Zendesk Shareholder Letter Q4 2017 - 5
2018 PRIORITIES
As we move into 2018, our key priorities will revolve around two major
themes: accelerating our upmarket business through larger deals and
greater penetration with enterprise customers, and empowering our
customers to provide the best omnichannel customer experiences possible.
In addition, our product development efforts are focused on delivering
innovation through new products and enhancements to existing products,
including harnessing more data and machine learning opportunities.
Focus on the Enterprise
No longer the obsession of small, nimble startups alone, digital
transformation initiatives are changing even the largest businesses. At
the same time, enterprises are recognizing the critical importance of the
customer experiences they deliver. We believe these trends and others are
creating new opportunities for us to both attract more enterprise customers
and build deeper relationships with our existing large customers.
Enterprise
During the second half of 2017, we observed acceleration in the primary
metric we use to measure our upmarket progress (percentage of Support
MRR from customers with 100 or more Support agents). We benefited
from a growing level of productivity from the salespeople who joined
Zendesk in the past year. In addition, we saw a strong general uptick in
new opportunities worldwide, closing 2017 with a solid set of opportunities
for new and expanded business across a growing family of products. Our
increasing number of customer references across certain industries has
contributed to our ability to repeat successes in those industries.
We believe our progress in 2017 was further underscored by several industry
analyst recognitions in the year. Gartner scored Zendesk the highest for
its business to consumer (B2C) use case in its December 2017 Critical
Capabilities for the CRM Customer Engagement Center report.* Earlier,
we improved our position in Gartner’s May 2017 Magic Quadrant for the
CRM Customer Engagement Center* (in which Zendesk is in the Leaders
quadrant). We also improved our position in The Forrester Wave™: Customer
Service Solutions For Midsize Teams, Q2 2017 (in which Zendesk is a Strong
Performer).
*Gartner does not endorse any vendor, product or service depicted in its research
publications, and does not advise technology users to select only those vendors
with the highest ratings or other designation. Gartner research publications consist
of the opinions of Gartner’s research organization and should not be construed as
statements of fact. Gartner disclaims all warranties, expressed or implied, with respect
to this research, including any warranties of merchantability or fitness for a particular
purpose.
Zendesk Shareholder Letter Q4 2017 - 6
Mike joins Hilarie Koplow-McAdams, who was appointed to the board in
September. Hilarie brings deep global enterprise software sales expertise to
Zendesk, having formerly held executive leadership positions at New Relic,
Salesforce, Intuit, and Oracle. Mike and Hilarie will be key product and sales
resources for us as we move upmarket toward our $1 billion revenue goal.
In addition, we announced the appointment of Norman Gennaro as senior
vice president of worldwide sales in December. Norman brings more than
25 years of business and technology experience leading and growing
global teams of sales professionals. Most recently, he helped to build the
mid-market segment for North America into a multibillion-dollar business
for Amazon Web Services, and prior to that, he spent 16 years in enterprise
sales with Oracle. Norman will partner with Jeff Titterton, who joined us as
senior vice president of marketing earlier in 2017.
Our new sales and marketing leadership is building experienced teams that
can meet the demands of our growing global business. These two teams are
working in concert on our many go-to-market activities worldwide, including
customer and prospect events. Our new 2018 events strategy includes
more than ten major Zendesk-produced events in our most significant
regions around the globe. These events are designed to help generate and
accelerate our pipeline of new and expansion business with their focus on
Zendesk products and customer experience best practices.
In 2018, we plan to expand our investments globally to build a broader
partner and channel ecosystem to support our upmarket activities.
While we continue to pride ourselves on our products’ ease of use and
implementation, we also recognize that our largest enterprise customers
frequently require the expertise of systems integrators and partners. Our
regional partnerships demonstrated the potential value and impact of
such alliances, and we expect to expand the number and scope of these
partnerships over this year.
Our largest customers value our ability to scale with them to serve their
growing demands. To that end, Zendesk continues to make reliability and
scalability top priorities. Our customers view Zendesk as a critical piece
of their businesses and rely on Zendesk products to achieve successful
outcomes. In 2017, we began to migrate our data center investments to cloud
infrastructure to enable greater reliability, flexibility, and scale. In early 2018,
we will finalize our transition plans to cloud infrastructure and develop a plan
for customer migration, which is likely to take several quarters.
Mike Frandsen, Board Member
Our product family enables large companies to transform their customer
experiences. In 2018, we are focused on building out even more
sophisticated product capabilities that our largest customers will expect as
they adapt to these new trends.
To help guide our teams as we continue to move upmarket, we put an
emphasis in the second half of 2017 on filling key roles with leaders
who have experience working with larger companies. Two of these key
additions were for our board of directors—most recently, the appointment
of Mike Frandsen in November. Mike brings more than three decades of
valuable enterprise product development experience with companies like
DemandTec and PeopleSoft. He is currently executive director of products
at Workday.
Zendesk Shareholder Letter Q4 2017 - 7
Focus on Omnichannel
The rise of new communication channels and ubiquitous access to
information has made customer journeys increasingly complex. Customers
have individual channel preferences, and they want to be recognized
across any and all channels they choose. As more power and control shifts
from companies to consumers, organizations are recognizing the critical
importance of their customer experiences and are searching for solutions to
improve their customer interactions.
We believe that we are well positioned to help companies deliver the
omnichannel experiences their customers expect today. The Zendesk
product family is purpose-built to unify disparate channels and departments
and to simplify the process of providing great customer service, whether that
is through self-service, a phone call, live chat, messaging, or a simple email.
In 2017, we put an emphasis on rolling out features that would bring the
rest of our products in-line with the scope and scalability of our Support
product, including launching Enterprise versions of Chat and Talk. All
of that foundational work last year paved the way for our 2018 focus on
omnichannel, and our product organization is now well positioned for a
unified omnichannel offering.
Throughout 2018, we will continue to implement new features for our core
products, including an Enterprise version of Guide in the first half of this year.
This and other ongoing improvements to all our products ensure that we are
always delivering the best capabilities to our customers through a robust
omnichannel solution that can scale to meet the needs of even our largest
customers.
Zendesk Shareholder Letter Q4 2017 - 8
Focus on Innovation
While we added many new products to our
family in 2017, our development efforts in 2018
are focused both on continuing new product
development and delivering enhancements for
our existing products.
An example of this strategy is Answer Bot,
our first machine learning product to directly
monetize our data assets. A paid add-on to our
Guide product, Answer Bot continues to gain
traction within our customer base, and we have
rolled out new features to enhance the customer
experience. In January, we launched Answer
Bot for Web Forms, allowing it to work in more
customer touchpoints and handle more requests.
Answer Bot increases self-service efficiency by
responding to customers’ questions with relevant
knowledge base articles. In addition, Answer Bot
is now available in both Spanish and Portuguese.
We expect to add additional channels and
languages this year.
Meanwhile, we are continuing our development
of two new products—currently in early access
programs—that we believe will deliver greater
innovation for our customers and expand our
market opportunities in the longer term. The
Outbound technology we acquired last year has
been folded into our development efforts for
Zendesk Connect, a product that we believe will
open more opportunities for us to address the
customer experience beyond traditional customer
service. Connect will initially offer new customer
segmentation opportunities and customer activity
history for our Support customers as well as
power proactive campaigns across web, email,
and mobile channels.
Zendesk Explore also continues to progress. This
new customer analytics product will supplement
our current Insights and Benchmark capabilities—
both of which we plan to expand while Explore is
in development. Explore’s modern architecture
will give our customers better decision-making
power by combining Zendesk data with external
data sources for a broader, more integrated
picture of the entire customer data set.
Answer Bot
The good kind of
know-it-all
Zendesk Shareholder Letter Q4 2017 - 9
CUSTOMERS
Increasingly, companies are turning to Zendesk
when seeking a flexible solution for digital
transformation projects centered on improving
the customer experience. Large enterprises—and
even more traditional mid-sized companies—
often are challenged by legacy processes,
infrastructure, and systems that don’t provide
enough agility for large-scale change. With our
ease of integration and quick deployment times,
we are seeing many such companies start down
the path to digital transformation using Zendesk.
Among the customers to join us or expand with us
recently include:
amaysim - an Australian provider of mobile,
broadband, and energy services as well as
devices
Chime - an online bank focused on automatic
savings
Circles.Life - a digital telecommunications
operator in Singapore
Conrad Electronic SE - a European online retailer
of electronic products
Etsy - an online retail marketplace for sellers of
creative goods
FINALCAD - mobile apps and predictive
analytics for construction
GoFundMe - a social fundraising platform with
50 million donors
JD Sports Fashion - a U.K. retailer of branded
trainer and sports fashion
Nexway - solutions for online sales and digital
distribution
ProctorU - online proctoring and identity
management solutions
Rappi - a Mexico City-based ecommerce
company active in Mexico, Brazil, and Colombia
Ryanair - a leading European airline serving 33
countries in Europe, Africa, and the Middle East
Soothe - a global, on-demand massage service
available in 50 cities
Stride Health - a service to connect individual
workers with health insurance plans
Tile - devices and technologies to help locate
missing things
UncommonGoods - an online retailer of unique
gifts by independent makers
Zendesk Shareholder Letter Q4 2017 - 10
OPERATING METRICS
A key metric we use to gauge our penetration within larger
organizations is represented by the percentage of Support
MRR generated by customers with 100 or more Support
agents. That percentage grew to 38% at the end of the fourth
quarter of 2017, compared to 37% at the end of the third
quarter of 2017 and 34% at the end of the fourth quarter of
2016. While we expect this metric to grow gradually, we see
these increases in the second half of 2017 as evidence of
improving upmarket momentum.
As a proxy of our success with upmarket opportunities, we
measure our number of contracts signed with an annual value
of $50,000 or greater. In the fourth quarter of 2017, the number
of these contracts we closed was over 25% greater than in
the fourth quarter of 2016. However, we saw a decrease in the
average size of these transactions as compared to the same
period last year.
Our dollar-based net expansion rate, which we use to quantify
our annual expansion within existing customers, increased
by one percentage point to end the fourth quarter at 119%,
compared to 118% at the end of the third quarter of 2017. Our
dollar-based net expansion rate was 115% at the end of the
fourth quarter of 2016. Consistent with expectations in prior
quarters, we expect our dollar-based net expansion rate to
remain in the 110% - 120% range over the next several quarters.
% of total quarter-ending Support MRR
from paid customer accounts with 100+ Support agents
38%100+ Agents
Q4 2017
Zendesk Shareholder Letter Q4 2017 - 11
CORPORATE SOCIAL RESPONSIBILITY (CSR)
Our commitment to social responsibility is unwavering as we enter 2018.
One of our 2017 projects involved seeking evidence of what we believed
to be true: that CSR activity and employee volunteering have a positive
downstream impact on a business’s customer experience and satisfaction.
To that end, our CSR team commissioned a study from Drexel University to
help substantiate whether and how CSR activities influence how customer-
facing employees at Zendesk interact with customers and how those
interactions affect customer satisfaction. The main takeaways from the
research include:
• Customer support agents who volunteered at least once every two months
were more than three times more likely to be rated among the top third in
the company for empathy.
• CSR can drive customer satisfaction by stimulating helping behaviors
among Zendesk’s customer support agents. Helping behaviors are
important because the more an advocate seeks help from others at the
company, the higher their CSAT scores.
The Zendesk Neighbor Foundation issued $2.1 million in grants in 2017 to
its nonprofit partners across the globe. Meanwhile, Zendesk employees
invested more than 9,500 engagement hours in their communities around
the world. Zendesk’s CSR team also sponsored 28 pro bono customer
accounts for a total of $596,000 worth of donated product.
Zendesk Shareholder Letter Q4 2017 - 12
FINANCIAL MEASURES AND CASH FLOW
We made solid progress on operating fundamentals in 2017. Our strong
revenue growth and continued focus on improving operating margins
have been a key focus of management. In 2017, we achieved GAAP and
non-GAAP operating margin expansion based on continued improvements
across all our cost categories, despite the impact on our gross margin
incurred by our recent decision to move our infrastructure operations to
cloud infrastructure from our current co-located data centers. Our focus in
2018 and beyond is to continue to deliver high revenue growth and further
scale our business as measured by expanding GAAP and non-GAAP
operating margins.
Our revenue growth and improvements in margins also helped drive positive
results in net cash from operating activities and results for free cash flow. In
2017, we achieved positive net cash from operating activties and free cash
flow in each quarter and for the year.
Fourth Quarter Results
Our fourth quarter and full-year 2017 results below are based on the revenue
recognition standard ASC 605. Our guidance for 2018 will be based on the
new revenue recognition standard ASC 606, as discussed further in that
section.
Revenue was $123.4 million for the fourth quarter of 2017, up 39% year-over-
year compared to $88.6 million in the fourth quarter of 2016. GAAP gross
margin increased quarter over quarter to 71.7% in the fourth quarter of 2017,
from 70.1% in the third quarter of 2017. GAAP gross margin in the fourth
quarter of 2016 was 71.1%. Non-GAAP gross margin increased quarter over
quarter to 74.5% in the fourth quarter of 2017 compared to 73.5% in the third
quarter of 2017. Non-GAAP gross margin in the fourth quarter of 2016 was
74.8%. Both GAAP and non-GAAP gross margin continues to be impacted by
our dual infrastructure deployments.
GAAP operating loss for the fourth quarter of 2017 was $28.5 million
compared to GAAP operating loss for the third quarter of 2017 of $28.4
million. GAAP operating loss for the fourth quarter of 2016 was $25.1 million.
Non-GAAP operating loss for the fourth quarter of 2017 was $2.4 million,
compared to non-GAAP operating loss for the third quarter of 2017 of $3.3
million. Non-GAAP operating loss for the fourth quarter of 2016 was
$4.4 million.
GAAP operating margin improvement is attributed to overall sales force
productivity gains and G&A operational scaling. GAAP operating margin for
the fourth quarter of 2017 improved to -23.1% from -25.2% in the third quarter
of 2017. GAAP operating margin was -28.4% in the fourth quarter of 2016.
Non-GAAP operating margin improved to -2.0% in the fourth quarter of 2017
from -2.9% in the third quarter of 2017. Non-GAAP operating margin was
-5.0% in the fourth quarter of 2016.
GAAP net loss for the fourth quarter of 2017 was $26.6 million or $0.26 per
share compared to GAAP net loss of $27.7 million or $0.28 per share for the
third quarter of 2017. GAAP net loss was $24.5 million or $0.26 per share for
the fourth quarter of 2016.
Non-GAAP net loss for the fourth quarter of 2017 was $0.5 million or $0.01
per share compared to non-GAAP net loss of $2.5 million or $0.02 per share
for the third quarter of 2017. Non-GAAP net loss was $3.8 million or $0.04
per share for the fourth quarter of 2016. Weighted average shares used to
compute both GAAP and non-GAAP net loss per share for the fourth quarter
of 2017 was 102.0 million.
Non-GAAP results for the fourth quarter of 2017 exclude $24.7 million in
share-based compensation and related expenses (including $2.0 million
of employer tax related to employee stock transactions and $0.4 million
of amortization of share-based compensation capitalized in internal-use
software), $0.7 million of amortization of purchased intangibles, and
$0.7 million of acquisition-related expenses. Non-GAAP results for the
third quarter of 2017 exclude $23.7 million in share-based compensation
and related expenses (including $0.7 million of employer tax related to
Zendesk Shareholder Letter Q4 2017 - 13
Full-Year 2017 Results
Revenue was $430.5 million for the full year of
2017, up 38% year-over-year compared to $312.0
million for 2016. GAAP gross margin increased
to 70.4% in 2017 compared to 69.9% in 2016.
Non-GAAP gross margin decreased slightly to
73.8% in 2017 compared to 73.9% in 2016. As
mentioned above, our gross margins in 2017
were negatively impacted by the migration of our
infrastructure operations to cloud infrastructure
from our current co-located data centers.
GAAP operating loss for 2017 was $114.6 million
compared to GAAP operating loss for 2016 of
$104.3 million. Non-GAAP operating loss for
2017 was $17.1 million, compared to non-GAAP
operating loss for 2016 of $21.1 million.
GAAP operating margin in 2017 improved to
-26.6% from -33.4% in 2016. Non-GAAP operating
margin improved to -4.0% in 2017 from -6.8% in
2016.
GAAP net loss in 2017 was $110.6 million or $1.11
per share compared to GAAP net loss of $103.8
million or $1.11 per share for 2016. Non-GAAP
net loss in 2017 was $13.1 million or $0.13 per
share compared to non-GAAP net loss of $20.5
million or $0.22 per share in 2016. Weighted
average shares used to compute both GAAP and
non-GAAP net loss per share for 2017 was 99.9
million.
Non-GAAP results for 2017 exclude $91.6 million
in share-based compensation and related
expenses (including $4.8 million of employer
tax related to employee stock transactions
and $1.8 million of amortization of share-
based compensation capitalized in internal-
use software), $3.7 million of amortization
of purchased intangibles, and $2.2 million
of acquisition-related expenses. Non-GAAP
results for 2016 exclude $79.5 million in share-
based compensation and related expenses
(including $3.9 million of employer tax related
to employee stock transactions and $1.8 million
of amortization of share-based compensation
capitalized in internal-use software), and $3.8
million of amortization of purchased intangibles.
For the full year of 2017, net cash from operating
activities was $42.1 million, and we achieved
positive free cash flow of $18.2 million.
employee stock transactions and $0.5 million
of amortization of share-based compensation
capitalized in internal-use software), $1.0 million
of amortization of purchased intangibles, and
$0.5 million in acquisition-related expenses.
Non-GAAP results for the fourth quarter of
2016 exclude $19.8 million in share-based
compensation and related expenses (including
$1.8 million of employer tax related to
employee stock transactions and $0.6 million
of amortization of share-based compensation
capitalized in internal-use software), and $0.9
million of amortization of purchased intangibles.
During the fourth quarter of 2017, net cash from
operating activities was $17.4 million, and we
achieved positive free cash flow of $12.0 million.
We ended the fourth quarter of 2017 with $109.4
million of cash and equivalents, and we had an
additional $137.6 million of short-term marketable
securities and $97.4 million of long-term
marketable securities.
Zendesk Shareholder Letter Q4 2017 - 14
GUIDANCE
Our guidance for 2018 is based on the new revenue recognition standard
ASC 606. The new standard has a minimal impact on our revenue
recognition, however the requirement to defer sales commissions under
the new standard results in a benefit to our operating margins. The new
standard does not impact net cash from operating activities or free cash flow.
For comparability, we have provided restated historical financial statements
under the new standard for the full year of 2016 and the full year and
quarters of 2017 on our investor relations website.
For the first quarter of 2018, we expect revenue to range between $125.0
and $127.0 million and we expect our GAAP operating loss to range between
$33.0 and $35.0 million. We expect our non-GAAP operating loss for the
first quarter of 2018 to range between $3.0 and $5.0 million. Our GAAP
operating loss for the first quarter of 2018 is estimated to include share-
based compensation and related expenses of approximately $28.7 million,
amortization of purchased intangibles of approximately $0.7 million, and
acquisition-related expenses of $0.6 million.
For the full year of 2018, we expect revenue to range between $555.0
and $565.0 million, representing growth between 29% and 31% year-over-
year. We expect our GAAP operating loss for the full year of 2018 to range
between $113.0 and $118.0 million, and we expect our non-GAAP operating
income to range between $0.0 (breakeven) and $5.0 million. Our GAAP
operating loss for the full year of 2018 is estimated to include share-based
compensation and related expenses of approximately $112.8 million,
amortization of purchased intangibles of approximately $2.7 million, and
acquisition-related expenses of $2.5 million.
Our full-year guidance reflects our confidence in maintaining a high growth
rate in 2018. We note, however, that several factors affect our revenue
recognition primarily in the first half of the year, as evidenced by our first
quarter 2018 guidance. The first half of the year tends to be more heavily
weighted toward our transactional business, whereas we see more
enterprise deals close in the second half of the year. Our first quarter
revenue guidance reflects this seasonal trend.
As part of our infrastructure migration, we will continue to incur expenses for
both Amazon Web Services and our co-located data centers while we host
customers in both environments during the transition period. We expect to
incur up to approximately 100 basis points of additional depreciation and
related costs in each period while the migration continues. We expect to
finalize our migration plan in the first quarter and will disclose information
about the schedule of expense recognition on our first quarter earnings call.
We expect net cash from operating activities to be positive for the full year of
2018, and for the first time, we are introducing annual guidance on free cash
flow. For the full year of 2018, we expect free cash flow between $25 million
and $30 million, representing a year over year growth of 51% at the midpoint.
This target regarding free cash flow includes cash used for purchases of
property and equipment and internal-use software development costs. We
have not reconciled free cash flow guidance to net cash from operating
activities for this future period 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 period is not
available without unreasonable effort.
Finally, we estimate we will have approximately 103.8 million weighted
average shares outstanding for the first quarter of 2018 and 106.2 million
weighted average shares outstanding for the full year of 2018, each based
only on current shares outstanding and anticipated activity associated with
equity incentive plans.
Zendesk Shareholder Letter Q4 2017 - 15
Condensed consolidated
statements of operations
(In thousands, except per
share data; unaudited)
Three Months Ended
December 31,
Year Ended
December 31,
2017 2016 2017 2016
Revenue $123,426 $88,623 $430,492 $311,999
Cost of revenue 34,958 25,582 127,422 93,900
Gross profit 88,468 63,041 303,070 218,099
Operating expenses:
Research and development 30,779 24,383 115,291 91,067
Sales and marketing 64,035 47,566 220,742 166,987
General and administrative 22,177 16,222 81,680 64,371
Total operating expenses 116,991 88,171 417,713 322,425
Operating loss (28,523) (25,130) (114,643) (104,326)
Other income, net 1,142 775 2,487 1,520
Loss before provision for (benefit from) income taxes (27,381) (24,355) (112,156) (102,806)
Provision for (benefit from) income taxes (732) 193 (1,518) 993
Net loss $(26,649) $(24,548) $(110,638) $(103,799)
Net loss per share, basic and diluted $(0.26) $(0.26) $(1.11) $(1.11)
Weighted-average shares used to compute net loss per share,
basic and diluted 102,044 95,793 99,918 93,161
Zendesk Shareholder Letter Q4 2017 - 16
Condensed consolidated
balance sheets
(In thousands, except par
value; unaudited)
December 31,
2017
December 31,
2016
Assets
Current assets:
Cash and cash equivalents $109,370 $93,677
Marketable securities 137,576 131,190
Accounts receivable, net of allowance for
doubtful accounts of $1,252 and $1,269 as of
December 31, 2017 and December 31, 2016,
respectively
57,096 37,343
Prepaid expenses and other
current assets 24,165 17,608
Total current assets 328,207 279,818
Marketable securities, noncurrent 97,447 75,168
Property and equipment, net 59,157 62,731
Goodwill and intangible assets, net 67,034 53,296
Other assets 8,359 4,272
Total assets $560,204 $475,285
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable $5,307 $4,555
Accrued liabilities 21,876 19,106
Accrued compensation and
related benefits 29,017 20,281
Deferred revenue 174,524 123,276
Total current liabilities 230,724 167,218
Deferred revenue, noncurrent 1,213 1,257
Other liabilities 6,626 7,382
Total liabilities 238,563 175,857
Stockholders’ equity:
Preferred stock, par value $0.01 per share — —
Common stock, par value $0.01 per share 1,031 971
Additional paid-in capital 753,568 624,026
Accumulated other comprehensive loss (2,372) (5,197)
Accumulated deficit (430,586) (319,720)
Treasury stock, at cost — (652)
Total stockholders’ equity 321,641 299,428
Total liabilities and stockholders’ equity $560,204 $475,285
Zendesk Shareholder Letter Q4 2017 - 17
Condensed consolidated
statements of cash flows
(In thousands; unaudited)
Three Months Ended
December 31,
Year Ended
December 31,
2017 2016 2017 2016
Cash flows from operating activities
Net loss $(26,649) $(24,548) $(110,638) $(103,799)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization 7,668 7,506 31,931 27,506
Share-based compensation 22,244 17,444 85,049 73,779
Excess tax benefit from share-based award acvitity — (204) — (337)
Other 222 1,884 603 3,106
Changes in operating assets and liabilities:
Accounts receivable (6,162) (26) (21,201) (11,808)
Prepaid expenses and other current assets 54 1,115 (5,055) (6,286)
Other assets and liabilities (442) (2,058) (5,955) (3,887)
Accounts payable (5,398) (1,266) 1,839 (3,486)
Accrued liabilities 76 2,616 6,919 5,261
Accrued compensation and related benefits 5,896 5,243 7,399 6,055
Deferred revenue 19,847 12,822 51,204 38,418
Net cash provided by operating activities 17,356 20,528 42,095 24,522
Cash flows from investing activities
Purchases of property and equipment (3,062) (8,153) (16,396) (20,647)
Internal-use software development costs (2,284) (1,997) (7,521) (6,310)
Purchases of marketable securities (42,030) (32,408) (177,309) (249,048)
Proceeds from maturities of marketable securities 27,775 15,719 116,735 39,690
Proceeds from sale of marketable securities 2,946 14,707 31,090 53,951
Cash paid for acquisition of Outbound, net of cash acquired — — (16,470) —
Net cash used in investing activities (16,655) (12,132) (69,871) (182,364)
Cash flows from financing activities
Proceeds from exercise of employee stock options 13,332 5,526 31,882 25,412
Proceeds from employee stock purchase plan 3,268 2,300 14,248 11,004
Taxes paid related to net share settlement of share-based awards (574) (177) (2,989) (803)
Excess tax benefit from share-based award acvitity — 204 — 337
Principal payments on debt — — — (323)
Net cash provided by financing activities 16,026 7,853 43,141 35,627
Effect of exchange rate changes on cash
and cash equivalents 40 (161) 328 (334)
Net increase (decrease) in cash and cash equivalents 16,767 16,088 15,693 (122,549)
Cash and cash equivalents at beginning of period 92,603 77,589 93,677 216,226
Cash and cash equivalents at end of period $109,370 $93,677 $109,370 $93,677
Zendesk Shareholder Letter Q4 2017 - 18
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 letter.
Three Months Ended
December 31,
Year Ended
December 31,
2017 2016 2017 2016
Reconciliation of gross profit and gross margin
GAAP gross profit $88,468 $63,041 $303,070 $218,099
Plus: Share-based compensation 2,372 1,691 9,040 7,045
Plus: Employer tax related to employee stock transactions 129 106 530 383
Plus: Amortization of purchased intangibles 612 837 3,209 3,362
Plus: Amortization of share-based compensation
capitalized in internal-use software 417 598 1,774 1,821
Non-GAAP gross profit $91,998 $66,273 $317,623 $230,710
GAAP gross margin 72% 71% 70% 70%
Non-GAAP adjustments 3% 4% 4% 4%
Non-GAAP gross margin 75% 75% 74% 74%
Reconciliation of operating expenses
GAAP research and development $30,779 $24,383 $115,291 $91,067
Less: Share-based compensation (7,697) (6,535) (29,970) (27,083)
Less: Employer tax related to employee stock transactions (816) (756) (1,971) (1,559)
Less: Acquisition-related expenses (406) — (843) —
Non-GAAP research and development $21,860 $17,092 $82,507 $62,425
GAAP research and development as percentage of revenue 25% 28% 27% 29%
Non-GAAP research and development as percentage of revenue 18% 19% 19% 20%
GAAP sales and marketing $64,035 $47,566 $220,742 $166,987
Less: Share-based compensation (6,414) (5,263) (24,776) (23,043)
Less: Employer tax related to employee stock transactions (356) (768) (1,164) (1,342)
Less: Amortization of purchased intangibles (135) (104) (495) (418)
Less: Acquisition-related expenses (281) — (750) —
Non-GAAP sales and marketing $56,849 $41,431 $193,557 $142,184
GAAP sales and marketing as percentage of revenue 52% 54% 51% 54%
Non-GAAP sales and marketing as percentage of revenue 46% 47% 45% 46%
Zendesk Shareholder Letter Q4 2017 - 19
(continued...)
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 letter.
Three Months Ended
December 31,
Year Ended
December 31,
2017 2016 2017 2016
GAAP general and administrative $22,177 $16,222 $81,680 $64,371
Less: Share-based compensation (5,761) (3,955) (21,263) (16,608)
Less: Employer tax related to employee stock transactions (671) (123) (1,184) (586)
Less: Acquisition-related expenses (45) — (566) —
Non-GAAP general and administrative $15,700 $12,144 $58,667 $47,177
GAAP general and administrative as percentage of revenue 18% 18% 19% 21%
Non-GAAP general and administrative as percentage of revenue 13% 14% 14% 15%
Reconciliation of operating loss and operating margin
GAAP operating loss $(28,523) $(25,130) $(114,643) $(104,326)
Plus: Share-based compensation 22,244 17,444 85,049 73,779
Plus: Employer tax related to employee stock transactions 1,972 1,753 4,849 3,870
Plus: Amortization of purchased intangibles 747 941 3,704 3,780
Plus: Acquistion-related expenses 732 — 2,159 —
Plus: Amortization of share-based compensation capitalized in
internal-use software 417 598 1,774 1,821
Non-GAAP operating loss $(2,411) $(4,394) $(17,108) $(21,076)
GAAP operating margin (23)% (28)% (27)% (33)%
Non-GAAP adjustment 21% 23% 23% 26%
Non-GAAP operating margin (2)% (5)% (4)% (7)%
Reconciliation of net loss
GAAP net loss
$(26,649) $(24,548) $(110,638)
$(103,799)
Plus: Share-based compensation 22,244 17,444 85,049 73,779
Plus: Employer tax related to employee stock transactions 1,972 1,753 4,849 3,870
Plus: Amortization of purchased intangibles 747 941 3,704 3,780
Plus: Acquistion-related expenses 732 — 2,159 —
Plus: Amortization of share-based compensation capitalized in
internal-use software 417 598 1,774 1,821
Non-GAAP net loss $(537) $(3,812) $(13,103) $(20,549)
Zendesk Shareholder Letter Q4 2017 - 20
Three Months Ended
December 31,
Year Ended
December 31,
2017 2016 2017 2016
Reconciliation of net loss per share, basic and diluted
GAAP net loss per share, basic and diluted $(0.26) $(0.26) $(1.11) $(1.11)
Non-GAAP adjustments to net loss 0.25 0.22 0.98 0.89
Non-GAAP net loss per share, basic and diluted $(0.01) $(0.04) $(0.13) $(0.22)
Weighted-average shares used to compute
net loss per share, basic and diluted 102,044 95,793 99,918 93,161
Computation of free cash flow
Net cash provided by operating activities $17,356 $20,528 $42,095 $24,522
Less: purchases of property and equipment (3,062) (8,153) (16,396) (20,647)
Less: internal-use software development costs (2,284) (1,997) (7,521) (6,310)
Free cash flow $12,010 $10,378 $18,178 $(2,435)
(continued...)
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 letter.
Zendesk Shareholder Letter Q4 2017 - 21
About Zendesk
Zendesk builds software for better customer relationships. It empowers organizations to im-
prove customer engagement and better understand their customers. Approximately 119,000
paid customer accounts in over 160 countries and territories use Zendesk products. Based
in San Francisco, Zendesk has operations in the United States, 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 towards its long-term financial objectives. The 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 chang-
ing market dynamics and customer preferences or achieve increased market acceptance of
its products; (iii) 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; (iv) Zendesk’s limited operating history, which makes it difficult
to evaluate its prospects and future operating results; (v) the market in which Zendesk oper-
ates is intensely competitive, and Zendesk may not compete effectively; (vi) the development
of the market for software as a service business software applications; (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 integrate acquired businesses and technologies success-
fully or achieve the expected benefits of such acquisitions; (ix) Zendesk’s ability to effectively
manage its growth and organizational change; (x) breaches in Zendesk’s security measures
or unauthorized access to its customers’ data; (xi) service interruptions or performance prob-
lems associated with Zendesk’s technology and infrastructure; (xii) real or perceived errors,
failures, or bugs in its products; (xiii) Zendesk’s substantial reliance on its customers renewing
their subscriptions and purchasing additional subscriptions; and (xiv) Zendesk’s ability to
effectively expand its sales capabilities.
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 September 30, 2017. 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 Annual Report on Form 10-K for the year ended December 31, 2017.
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 unantici-
pated 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 loss and operating margin,
non-GAAP net loss, non-GAAP net loss per share, basic and diluted, and free cash flow.
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 perfor-
mance 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 transac-
tion 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.
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. Zendesk uses free cash flow, among 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 informa-
tion regarding free cash flow provides investors with an important perspective on the cash
available to fund ongoing operations.
Zendesk has not reconciled free cash flow guidance to net cash from operating activities for
the year ending December 31, 2018 because Zendesk does 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 Zendesk’s free cash flow and,
accordingly, a reconciliation of net cash from operating activities to free cash flow for the year
ending December 31, 2018 is not available without unreasonable effort.
Zendesk’s disclosures regarding its expectations for its non-GAAP operating margin include
adjustments to its expectations for its GAAP operating margin that exclude the expected
share-based compensation and related expenses, amortization of purchased intangibles,
and acquisition-related expenses excluded from its expectations for non-GAAP operating
loss as compared to its expectation for GAAP operating loss for the same period.
Zendesk Shareholder Letter Q4 2017 - 22
Zendesk does not provide a reconciliation of its non-GAAP operating margin guidance to
GAAP operating margin for future periods beyond the current fiscal year because Zendesk
does not provide guidance on the reconciling items between GAAP operating margin and
non-GAAP operating margin for such periods, 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 Zendesk’s non-GAAP operating margin and, accordingly, a reconcili-
ation of GAAP operating margin to non-GAAP operating margin guidance for such periods is
not available without unreasonable effort.
Zendesk’s disclosures regarding its expectations for its non-GAAP gross margin include
adjustments to its expectations for its GAAP gross margin that exclude share-based com-
pensation and related expenses in Zendesk’s cost of revenue and amortization of purchased
intangibles related to developed technology. The share-based compensation and related
expenses excluded due to such adjustments are primarily comprised of the share-based
compensation and related expenses for employees associated with Zendesk’s platform
infrastructure and customer experience organization.
Zendesk does not provide a reconciliation of its non-GAAP gross margin guidance to GAAP
gross margin for future periods because Zendesk does not provide guidance on the rec-
onciling items between GAAP gross margin and non-GAAP gross margin, 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 Zendesk’s non-GAAP gross margin and,
accordingly, a reconciliation of GAAP gross margin to non-GAAP gross margin guidance for
the period is not available without unreasonable effort.
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 inves-
tors 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 relat-
ed expenses, amortization of purchased intangibles, and acquisition-related 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 Ze-
ndesk 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 fi-
nancial measure. When Zendesk uses such a non-GAAP financial measure in a forward-look-
ing manner for future periods, and a reconciliation is not determinable without unreasonable
effort, Zendesk provides the reconciling information that is determinable without unreason-
able 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.
About Operating Metrics
Zendesk reviews a number of operating metrics to evaluate its business, measure per-
formance, identify trends, formulate business plans, and make strategic decisions. These
include the number of paid customer accounts on Zendesk Support, Zendesk Chat, and its
other products, dollar-based net expansion rate, monthly recurring revenue represented by
its churned customers, and the percentage of its monthly recurring revenue from Support
originating from customers with 100 or more agents on Support.
Zendesk defines the number of paid customer accounts at the end of any particular period
as the sum of (i) the number of accounts on Support, exclusive of its legacy Starter plan, free
trials, or other free services, (ii) the number of accounts using Chat, exclusive of free trials
or other free services, and (iii) the number of accounts on all of its other products, exclusive
of free trials and other free services, each as of the end of the period and as identified by
a unique account identifier. Use of Support, Chat, and Zendesk’s other products requires
separate subscriptions and each of these accounts are treated as a separate paid custom-
er account. Existing customers may also expand their utilization of Zendesk’s products by
adding new accounts and a single consolidated organization or customer may have multiple
accounts across each of Zendesk’s products to service separate subsidiaries, divisions, or
work processes. Each of these accounts is also treated as a separate paid customer account.
Zendesk’s dollar-based net expansion rate provides a measurement of its ability to increase
revenue across its existing customer base through expansion of authorized agents asso-
ciated with a paid customer account, upgrades in subscription plans, and the purchase of
additional products as offset by churn, contraction in authorized agents associated with a
paid customer account, and downgrades in subscription plans. Zendesk’s dollar-based net
expansion rate is based upon monthly recurring revenue for a set of paid customer accounts
on its products. Monthly recurring revenue for a paid customer account is a legal and con-
tractual determination made by assessing the contractual terms of each paid customer ac-
count, as of the date of determination, as to the revenue Zendesk expects to generate in the
next monthly period for that paid customer account, assuming no changes to the subscrip-
tion and without taking into account any one-time discounts or any platform usage above
the subscription base, if any, that may be applicable to such subscription. Monthly recurring
revenue is not determined by reference to historical revenue, deferred revenue, or any other
GAAP financial measure over any period. It is forward-looking and contractually derived as of
the date of determination.
Zendesk calculates its dollar-based net expansion rate by dividing the retained revenue
net of contraction and churn by Zendesk’s base revenue. Zendesk defines its base revenue
as the aggregate monthly recurring revenue across its products for customers with paid
customer accounts on Support or Chat as of the date one year prior to the date of calcula-
tion. Zendesk defines the retained revenue net of contraction and churn as the aggregate
monthly recurring revenue across its products for the same customer base included in the
measure of base revenue at the end of the annual period being measured. The dollar-based
net expansion rate is also adjusted to eliminate the effect of certain activities that Zendesk
identifies involving the transfer of agents between paid customer accounts, consolidation of
customer accounts, or the split of a single paid customer account into multiple paid customer
accounts. In addition, the dollar-based net expansion rate is adjusted to include paid cus-
tomer accounts in the customer base used to determine retained revenue net of contraction
and churn that share common corporate information with customers in the customer base
that are used to determine the base revenue. Giving effect to this consolidation results in
Zendesk’s dollar-based net expansion rate being calculated across approximately 92,800
customers, as compared to the approximately 118,900 total paid customer accounts as of
December 31, 2017.
Zendesk Shareholder Letter Q4 2017 - 23
To the extent that Zendesk can determine that the underlying customers do not share com-
mon corporate information, Zendesk does not aggregate paid customer accounts associated
with reseller and other similar channel arrangements for the purposes of determining its
dollar-based net expansion rate. While not material, Zendesk believes the failure to account
for these activities would otherwise skew the dollar-based net expansion metrics associated
with customers that maintain multiple paid customer accounts across its products and paid
customer accounts associated with reseller and other similar channel arrangements.
Zendesk does not currently incorporate operating metrics associated with its analytics prod-
uct or its Outbound product into its measurement of dollar-based net expansion rate.
For a more detailed description of how Zendesk calculates its dollar-based net expansion
rate, please refer to Zendesk’s periodic reports filed with the Securities and Exchange Com-
mission.
Zendesk calculates its monthly recurring revenue represented by its churned customers on
an annualized basis by dividing base revenue associated with paid customer accounts on
Support that churn, either by termination of the subscription or failure to renew, during the
annual period being measured, by Zendesk’s base revenue. Zendesk’s monthly recurring
revenue represented by its churned customers excludes expansion or contraction associ-
ated with paid customer accounts on Support and the effect of upgrades or downgrades
in subscription plan. The monthly recurring revenue represented by its churned customers
is adjusted to exclude paid customer accounts that churned from the customer base used
that share common corporate information with customer accounts that did not churn from
the customer base during the annual period being measured. While not material, Zendesk
believes the failure to make this adjustment could otherwise skew the monthly recurring rev-
enue represented by its churned customers as a result of customers that maintain multiple
paid customer accounts on Support.
Zendesk’s percentage of monthly recurring revenue from Support that is generated by cus-
tomers with 100 or more agents on Support is determined by dividing the monthly recurring
revenue from Support for paid customer accounts with 100 or more agents on Support as of
the measurement date by the monthly recurring revenue from Support for all paid customer
accounts on Support as of the measurement date. Zendesk determines the customers with
100 or more agents on Support as of the measurement date based on the number of activat-
ed agents on Support at the measurement date and includes adjustments to aggregate paid
customer accounts that share common corporate information.
Zendesk determines the annualized value of a contract by annualizing the monthly recurring
revenue for such contract.
Zendesk does not currently incorporate operating metrics associated with products other
than Support into its measurement of monthly recurring revenue represented by its churned
customers or the percentage of monthly recurring revenue from Support that is generated by
customers with 100 or more agents on Support.
December 31,
2016
March 31,
2017
June 30,
2017
September 30,
2017
December 31,
2017
Paid customer accounts on
Zendesk Support (approx.) 50,800 54,900 57,800 61,200 64,100
+ Paid customer accounts on
Zendesk Chat (approx.) 41,300 44,000 45,300 46,600 47,000
+ Paid customer accounts on
other Zendesk products (approx.) 2,200 2,900 4,300 6,100 7,800
= Approximate number of
paid customer accounts 94,300 101,800 107,400 113,900 118,900
Source: Zendesk, Inc.
Contact:
Investor Contact
Marc Cabi, +1 415-852-3877
[email protected]
Media Contact
Tian Lee, +1 415-231-0847
[email protected]
Customer Metrics
Geographic Information
United States
EMEA
Other
Q4’17
53.2%
28.9%
17.9%
FY’17
53.3%
28.6%
18.1%
Revenue by geography:
Exhibit 99.3
ASC 606 Investor Deck
Exhibit 99.4
Zendesk Adoption Bacground
Adoption date
1/1/18
Full retrospective adoption
(FY16 and FY17 restated)ADOPTION
BACKGROUND
● Minimal impact
● Substantially all of our revenue is from
subscription services
● Revenue recognition for subscription services is
largely unchanged under ASC 606
● Capitalization of deferred commissions and
related overhead results in ~1-2% margin benefit
Impact to Zendesk
Revenue Impact
Margin Impact
Revenue Impact - Annual
ASC605 ASC606
$312.0 $312.8
YoY Growth - 37.5%
YoY Growth - 38.0%
ASC605 ASC606
$430.5 $430.2
FY 2016 FY 2017
Total Revenue ($MM)
Revenue Impact
$000s FY16 Q1'17 Q2'17 Q3'17 Q4'17 FY17
REVENUE
ASC 605 - Reported 311,999 93,007 101,273 112,786 123,426 430,492
ASC 606 - Restated 312,844 93,888 102,096 112,265 121,916 430,165
Impact 845 881 823 (521) (1,510) (327)
GAAP Margin Impact - Annual
GAAP Operating
Expenses ($MM)
ASC605 ASC606
$322.4 $317.1
ASC605 ASC606
$417.7 $408.9
(33.4%) (31.4%)
(26.6%) (24.7%)
GAAP Operating
Margin (%)
FY2016 FY2017
GAAP Margin Impact
$000s FY16 Q1'17 Q2'17 Q3'17 Q4'17 FY17
GAAP Operating Loss
ASC 605 - Reported
GAAP Operating Expense 322,425 92,074 101,114 107,534 116,991 417,713
GAAP Operating Margin $ (104,326) (27,174) (30,504) (28,441) (28,523) (114,643)
GAAP Operating Margin % -33.4% -29.2% -30.1% -25.2% -23.1% -26.6%
ASC 606 - Restated
GAAP Operating Expense 317,091 91,042 98,898 105,139 113,810 408,889
GAAP Operating Margin $ (98,147) (25,261) (27,465) (26,567) (26,852) (106,146)
GAAP Operating Margin % -31.4% -26.9% -26.9% -23.7% -22.0% -24.7%
Impact
GAAP Operating Expense (5,334) (1,032) (2,216) (2,395) (3,181) (8,824)
GAAP Operating Margin $ 6,179 1,913 3,039 1,874 1,671 8,497
GAAP Operating Margin % 2.0% 2.3% 3.2% 1.5% 1.1% 1.9%
Non-GAAP Margin Impact - Annual
Non-GAAP Operating
Expenses ($MM)
ASC605 ASC606
$251.8
$246.8
ASC605 ASC606
$334.7
$326.4
(6.8%)
(4.9%) (4.0%)
(2.1%)Non-GAAP Operating
Margin (%)
FY2016 FY2017
Non-GAAP Margin Impact
$000s FY16 Q1'17 Q2'17 Q3'17 Q4'17 FY17
Non-GAAP Operating Loss
ASC 605 - Reported
Non-GAAP Operating Expense 251,786 73,678 80,453 86,190 94,409 334,731
Non-GAAP Operating Margin $ (21,076) (5,245) (6,187) (3,264) (2,411) (17,108)
Non-GAAP Operating Margin % -6.8% -5.6% -6.1% -2.9% -2.0% -4.0%
ASC 606 - Restated
Non-GAAP Operating Expense 246,802 72,755 78,366 83,938 91,344 326,404
Non-GAAP Operating Margin $ (15,247) (3,441) (3,277) (1,533) (856) (9,108)
Non-GAAP Operating Margin % -4.9% -3.7% -3.2% -1.4% -0.7% -2.1%
Impact
Non-GAAP Operating Expense (4,984) (923) (2,087) (2,252) (3,065) (8,327)
Non-GAAP Operating Margin $ 5,829 1,804 2,910 1,731 1,555 8,000
Non-GAAP Operating Margin % 1.9% 1.9% 2.9% 1.5% 1.3% 1.9%
Selected Balance Sheet Impact
$000s FY16 FY17
ASC 605 ASC 606
Pre-FY16
Impact FY16 Impact ASC 605 ASC 606 Impact
Assets
Deferred costs 0 11,285 6,077 5,208 0 15,771 15,771
Deferred costs, noncurrent 0 11,057 2,809 8,248 0 15,395 15,395
Total 0 22,342 8,886 13,456 0 31,166 31,166
Liabilities
Deferred revenue 124,533 122,829 118 (1,822) 175,737 174,360 (1,377)
No Cash Flow Impact
ASC605 ASC606
$24.5 $24.5
FY 2016
ASC605 ASC606
$42.1 $42.1
FY 2017
Operating Cash
Flow ($MM)
Financial Statements
with 606 Adjustments
Consolidated Balance Sheets – FY17 Quarterly
Consolidated Statements of Operations – FY17 & FY16
Consolidated Statements of Operations – FY17 Quarterly
Consolidated Statements of Cash Flows – FY17 & FY16
Consolidated Statements of Cash Flows – FY17 Quarterly
Non-GAAP
Reconciliation Tables
Non-GAAP Reconciliations – FY17 & FY16
Non-GAAP Reconciliations - FY17