UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 8-K/A
Amendment No. 1
 
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.     ¨






Explanatory Note

This Amendment No. 1 on Form 8-K/A (this “Form 8-K/A”) is an amendment to the Current Report on Form 8-K of Zendesk, Inc. (the “Company”), filed on February 6, 2018 (the “Original Form 8-K”).

Following the initial filing of the Original Form 8-K, the Company discovered two errors contained in the press release attached to the Original Form 8-K as Exhibit 99.1, which stated, (i) under the caption “Outlook” for the full year 2018, that the Company expects to report $0.0 to 5.0 million of non-GAAP operating loss, and should have stated that the Company expects to report $0.0 to 5.0 million of non-GAAP operating income for the full year 2018, and (ii) that the GAAP net loss indicated under the caption "Results for the Full Fiscal Year 2017" was for the quarter ended December 31, 2017, and should have stated that such GAAP net loss was for the full year ended December 31, 2017. A corrected press release was issued by the Company. The Company is amending the Original Form 8-K to include the corrected press release as Exhibit 99.1.

In addition, following the initial filing of the Original Form 8-K, the Company became aware that Item 5.03 had not been properly tagged in the EDGAR submission. The Company is amending the Original Form 8-K to include the item tag of Item 5.03.

No disclosure in the text of the Original Form 8-K was changed as a result of this amendment. No changes in Exhibit 3.1, Exhibit 99.2, Exhibit 99.3, or Exhibit 99.4 resulted from this amendment and are each provided for convenience.

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

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.






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/ John Geschke
 
 
John Geschke
 
 
Chief Legal 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.

    
20




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 year 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 income 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
ir@zendesk.com

or

Media Contact:
Tian Lee, +1 415-231-0847
press@zendesk.com









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 ir@zendesk.com Media Contact Tian Lee, +1 415-231-0847 press@zendesk.com 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