About Zendesk About Non-GAAP Financial Measures Zendesk builds software for better customer relationships. It empowers organizations to im- To provide investors and others with additional information regarding Zendesk’s results, the prove customer engagement and better understand their customers. Approximately 119,000 following non-GAAP financial measures were disclosed: non-GAAP gross profit and gross paid customer accounts in over 160 countries and territories use Zendesk products. Based margin, non-GAAP operating expenses, non-GAAP operating loss and operating margin, in San Francisco, Zendesk has operations in the United States, Europe, Asia, Australia, and non-GAAP net loss, non-GAAP net loss per share, basic and diluted, and free cash flow. South America. Learn more at www.zendesk.com. Specifically, Zendesk excludes the following from its historical and prospective non-GAAP Forward-Looking Statements financial measures, as applicable: This press release contains forward-looking statements, including, among other things, Share-based Compensation and Amortization of Share-based Compensation Capitalized statements regarding Zendesk’s future financial performance, its continued investment to in Internal-use Software: Zendesk utilizes share-based compensation to attract and retain grow its business, and progress towards its long-term financial objectives. The words such as employees. It is principally aimed at aligning their interests with those of its stockholders “may,” “should,” “will,” “believe,” “expect,” “anticipate,” “target,” “project,” and similar phrases and at long-term retention, rather than to address operational performance for any particular that denote future expectation or intent regarding Zendesk’s financial results, operations, and period. As a result, share-based compensation expenses vary for reasons that are generally other matters are intended to identify forward-looking statements. You should not rely upon unrelated to financial and operational performance in any particular period. forward-looking statements as predictions of future events. Employer Tax Related to Employee Stock Transactions: Zendesk views the amount of The outcome of the events described in these forward-looking statements is subject to employer taxes related to its employee stock transactions as an expense that is dependent known and unknown risks, uncertainties, and other factors that may cause Zendesk’s actual on its stock price, employee exercise and other award disposition activity, and other factors results, performance, or achievements to differ materially, including (i) adverse changes in that are beyond Zendesk’s control. As a result, employer taxes related to its employee stock general economic or market conditions; (ii) Zendesk’s ability to adapt its products to chang- transactions vary for reasons that are generally unrelated to financial and operational perfor- ing market dynamics and customer preferences or achieve increased market acceptance of mance in any particular period. its products; (iii) Zendesk’s expectation that the future growth rate of its revenues will decline, Amortization of Purchased Intangibles: Zendesk views amortization of purchased intangible and that, as its costs increase, Zendesk may not be able to generate sufficient revenues to assets, including the amortization of the cost associated with an acquired entity’s developed achieve or sustain profitability; (iv) Zendesk’s limited operating history, which makes it difficult technology, as items arising from pre-acquisition activities determined at the time of an to evaluate its prospects and future operating results; (v) the market in which Zendesk oper- acquisition. While these intangible assets are evaluated for impairment regularly, amortization ates is intensely competitive, and Zendesk may not compete effectively; (vi) the development of the cost of purchased intangibles is an expense that is not typically affected by operations of the market for software as a service business software applications; (vii) Zendesk’s ability during any particular period. 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- Acquisition-Related Expenses: Zendesk views acquisition-related expenses, such as transac- fully or achieve the expected benefits of such acquisitions; (ix) Zendesk’s ability to effectively tion costs, integration costs, restructuring costs, and acquisition-related retention payments, manage its growth and organizational change; (x) breaches in Zendesk’s security measures including amortization of acquisition-related retention payments capitalized in internal-use or unauthorized access to its customers’ data; (xi) service interruptions or performance prob- software, as events that are not necessarily reflective of operational performance during lems associated with Zendesk’s technology and infrastructure; (xii) real or perceived errors, a period. In particular, Zendesk believes the consideration of measures that exclude such failures, or bugs in its products; (xiii) Zendesk’s substantial reliance on its customers renewing expenses can assist in the comparison of operational performance in different periods which their subscriptions and purchasing additional subscriptions; and (xiv) Zendesk’s ability to may or may not include such expenses. effectively expand its sales capabilities. Zendesk provides disclosures regarding its free cash flow, which is defined as net cash from The forward-looking statements contained in this press release are also subject to additional operating activities, less purchases of property and equipment and internal-use software risks, uncertainties, and factors, including those more fully described in Zendesk’s filings development costs. Zendesk uses free cash flow, among other measures, to evaluate the with the Securities and Exchange Commission, including its Quarterly Report on Form 10-Q ability of its operations to generate cash that is available for purposes other than capital for the quarter ended September 30, 2017. Further information on potential risks that could expenditures and capitalized software development costs. Zendesk believes that informa- affect actual results will be included in the subsequent periodic and current reports and other tion regarding free cash flow provides investors with an important perspective on the cash filings that Zendesk makes with the Securities and Exchange Commission from time to time, available to fund ongoing operations. including its Annual Report on Form 10-K for the year ended December 31, 2017. Zendesk has not reconciled free cash flow guidance to net cash from operating activities for Forward-looking statements represent Zendesk’s management’s beliefs and assumptions the year ending December 31, 2018 because Zendesk does not provide guidance on the only as of the date such statements are made. Zendesk undertakes no obligation to update reconciling items between net cash from operating activities and free cash flow, as a result any forward-looking statements made in this press release to reflect events or circumstances of the uncertainty regarding, and the potential variability of, these items. The actual amount after the date of this press release or to reflect new information or the occurrence of unantici- of such reconciling items will have a significant impact on Zendesk’s free cash flow and, pated events, except as required by law. 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 - 21