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    Zendesk Announces Second Quarter 2022 Results

    7/28/22 4:15:00 PM ET
    $ZEN
    EDP Services
    Technology
    Get the next $ZEN alert in real time by email

    Highlights:

    • Second quarter revenue increased 28% year-over-year to $407.2 million
    • Second quarter GAAP operating loss of $92.5 million and non-GAAP operating income of $23.6 million
    • GAAP operating loss includes real estate impairments of $24.9 million and merger-related costs and other expenses of $12.2 million

    Zendesk, Inc. (NYSE:ZEN) today reported financial results for the second quarter ended June 30, 2022.

    Results for the Second Quarter 2022

    Revenue was $407.2 million for the quarter ended June 30, 2022, an increase of 28% over the prior year period. GAAP net loss for the quarter ended June 30, 2022 was $95.1 million, and GAAP net loss per share (basic and diluted) was $0.77. Non-GAAP net income was $18.8 million, and non-GAAP net income per share was $0.15 (basic) and $0.14 (diluted). Non-GAAP net income excludes approximately $75.7 million in share-based compensation and related expenses (including $1.9 million of employer tax related to employee stock transactions and $0.4 million of amortization of share-based compensation capitalized in internal-use software), $24.9 million of real estate impairments, $12.2 million of merger-related costs and other expenses, $1.8 million of amortization of purchased intangibles, $1.4 million of acquisition-related expenses, $1.2 million of amortization of debt issuance costs, and includes non-GAAP income tax effects and adjustments of $3.4 million. GAAP net loss per share for the quarter ended June 30, 2022 was based on 122.8 million weighted average shares outstanding (basic and diluted), and non-GAAP net income per share for the quarter ended June 30, 2022 was based on 122.8 million weighted average shares outstanding (basic) and 138.0 million weighted average shares outstanding (diluted).

    Transaction with Private Equity Consortium

    Due to Zendesk's pending acquisition by an investor group led by leading investment firms Hellman & Friedman LLC and Permira Advisers LLC that was announced on June 24, 2022, the Company will not be holding a conference call or live webcast to discuss Zendesk's financial results for the second quarter ended June 30, 2022, or provide a Shareholder Letter for such period. In addition, the Company will not be providing financial guidance for the quarter ending September 30, 2022 and is suspending its financial guidance for the year ending December 31, 2022 in light of the pending transaction.

    About Zendesk

    Zendesk started the customer experience revolution in 2007 by enabling any business around the world to take their customer service online. Today, Zendesk is the champion of great service everywhere for everyone, and powers billions of conversations, connecting more than 100,000 brands with hundreds of millions of customers over telephony, chat, email, messaging, social channels, communities, review sites and help centers. Zendesk products are built with love to be loved. The company was conceived in Copenhagen, Denmark, built and grown in California, taken public in New York City, and today employs more than 6,000 people across the world. Learn more at www.zendesk.com.

    References to Zendesk, the "Company," "our," or "we" in this press release refer to Zendesk, Inc. and its subsidiaries on a consolidated basis.

    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, progress toward its long-term financial objectives, and the proposed transaction. 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) Zendesk's ability to adapt its products to changing market dynamics and customer preferences or achieve increased market acceptance of its products; (ii) the intensely competitive market in which Zendesk operates; (iii) the development of the market for software as a service business software applications; (iv) Zendesk's substantial reliance on its customers renewing their subscriptions and purchasing additional subscriptions; (v) Zendesk's ability to effectively market and sell its products to larger enterprises; (vi) Zendesk's ability to develop or acquire and market new products and to support its products on a unified, reliable shared services platform; (vii) Zendesk's reliance on third-party services, including services for hosting, email, and messaging; (viii) Zendesk's ability to retain key employees and attract qualified personnel, particularly in the primary regions Zendesk operates; (ix) Zendesk's ability to effectively manage its growth and organizational change, including its international expansion strategy; (x) 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; (xi) Zendesk's ability to integrate acquired businesses and technologies successfully or achieve the expected benefits of such acquisitions; (xii) real or perceived errors, failures, or bugs in Zendesk's products; (xiii) potential service interruptions or performance problems associated with Zendesk's technology and infrastructure; (xiv) Zendesk's ability to securely maintain customer data and prevent, mitigate, and respond effectively to both historical and future data breaches; (xv) Zendesk's ability to comply with privacy and data security regulations; (xvi) Zendesk's ability to optimize the pricing for its solutions; (xvii) other adverse changes in general economic or market conditions; and (xviii) known and unknown risks, uncertainties, and other factors related to the proposed transaction, including: the timing, receipt and terms and conditions of any required governmental and regulatory approvals of the proposed transaction that could reduce anticipated benefits or cause the parties to abandon the proposed transaction; the occurrence of any event, change or other circumstances that could give rise to the termination of the merger agreement entered into pursuant to the proposed transaction; the possibility that Zendesk stockholders may not approve the proposed transaction; the risk that the parties to the merger agreement may not be able to satisfy the conditions to the proposed transaction in a timely manner or at all; risks related to disruption of management time from ongoing business operations due to the proposed transaction; the risk that any announcements relating to the proposed transaction could have adverse effects on the market price of Zendesk's common stock; the risk of any unexpected costs or expenses resulting from the proposed transaction; the risk of any litigation relating to the proposed transaction; the risk that the proposed transaction and its announcement could have an adverse effect on the ability of Zendesk to retain customers and retain and hire key personnel and maintain relationships with customers, suppliers, employees, stockholders and other business relationships and on its operating results and business generally; and the risk the pending proposed transaction could distract management of Zendesk.

    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 Annual Report on Form 10-K for the year ended December 31, 2021. 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 Quarterly Report on Form 10-Q for the quarter ended June 30, 2022.

    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.

    Additional Information and Where to Find It

    This communication relates to the proposed transaction involving Zendesk, Inc. ("Zendesk"). In connection with the proposed transaction, Zendesk has filed with the U.S. Securities and Exchange Commission (the "SEC") a preliminary proxy statement on Schedule 14A. The definitive proxy statement (the "Proxy Statement") will be mailed to Zendesk's stockholders when available. This communication is not a substitute for the Proxy Statement or for any other document that Zendesk may file with the SEC and send to its stockholders in connection with the proposed transaction. The proposed transaction will be submitted to Zendesk's stockholders for their consideration. Before making any voting decision, Zendesk's stockholders are urged to read all relevant documents filed or to be filed with the SEC, including the Proxy Statement, as well as any amendments or supplements to those documents, when they become available because they will contain important information about the proposed transaction.

    Zendesk's stockholders will be able to obtain a free copy of the Proxy Statement, as well as other filings containing information about Zendesk, without charge, at the SEC's website (www.sec.gov). Copies of the Proxy Statement and the filings with the SEC that will be incorporated by reference therein can also be obtained, without charge, by directing a request to Zendesk, Inc., 989 Market Street, San Francisco, CA 94103, Attention: Investor Relations, email: [email protected], or from Zendesk's website www.zendesk.com.

    Participants in the Solicitation

    Zendesk and certain of its directors, executive officers and employees may be deemed to be participants in the solicitation of proxies in respect of the proposed transaction. Information regarding Zendesk's directors and executive officers is available in Zendesk's proxy statement on Schedule 14A for the 2022 annual meeting of stockholders, which was filed with the SEC on July 11, 2022. Other information regarding the participants in the proxy solicitation and a description of their direct and indirect interests, by security holdings or otherwise, will be contained in the Proxy Statement and other relevant materials to be filed with the SEC in connection with the proposed transaction when they become available. Free copies of the Proxy Statement and such other materials may be obtained as described in the preceding paragraph.

    Condensed Consolidated Statements of Operations

    (In thousands, except per share data; unaudited)

     

     

    Three Months Ended June 30,

     

    Six Months Ended June 30,

     

    2022

     

    2021

     

    2022

     

    2021

    Revenue

    $

    407,208

     

     

    $

    318,216

     

     

    $

    795,535

     

     

    $

    616,264

     

    Cost of revenue

     

    82,790

     

     

     

    66,743

     

     

     

    158,468

     

     

     

    127,637

     

    Gross profit

     

    324,418

     

     

     

    251,473

     

     

     

    637,067

     

     

     

    488,627

     

    Operating expenses:

     

     

     

     

     

     

     

    Research and development

     

    110,539

     

     

     

    82,826

     

     

     

    218,616

     

     

     

    156,609

     

    Sales and marketing

     

    209,160

     

     

     

    165,250

     

     

     

    410,820

     

     

     

    322,768

     

    General and administrative

     

    97,210

     

     

     

    45,818

     

     

     

    160,748

     

     

     

    88,951

     

    Total operating expenses

     

    416,909

     

     

     

    293,894

     

     

     

    790,184

     

     

     

    568,328

     

    Operating loss

     

    (92,491

    )

     

     

    (42,421

    )

     

     

    (153,117

    )

     

     

    (79,701

    )

    Other income (expense), net:

     

     

     

     

     

     

     

    Interest expense

     

    (3,121

    )

     

     

    (14,591

    )

     

     

    (6,242

    )

     

     

    (29,006

    )

    Interest and other income (expense), net

     

    2,094

     

     

     

    960

     

     

     

    2,932

     

     

     

    6,044

     

    Total other income (expense), net

     

    (1,027

    )

     

     

    (13,631

    )

     

     

    (3,310

    )

     

     

    (22,962

    )

    Loss before provision for income taxes

     

    (93,518

    )

     

     

    (56,052

    )

     

     

    (156,427

    )

     

     

    (102,663

    )

    Provision for income taxes

     

    1,564

     

     

     

    2,355

     

     

     

    5,601

     

     

     

    4,709

     

    Net loss

    $

    (95,082

    )

     

    $

    (58,407

    )

     

    $

    (162,028

    )

     

    $

    (107,372

    )

    Net loss per share, basic and diluted

    $

    (0.77

    )

     

    $

    (0.49

    )

     

    $

    (1.32

    )

     

    $

    (0.91

    )

    Weighted-average shares used to compute net loss per share, basic and diluted

     

    122,841

     

     

     

    119,050

     

     

     

    122,404

     

     

     

    118,484

     

    Condensed Consolidated Balance Sheets

    (In thousands, except par value; unaudited)

     

     

    June 30,

    2022

     

    December 31,

    2021

    Assets

     

     

     

    Current assets:

     

     

     

    Cash and cash equivalents

    $

    567,980

     

     

    $

    476,103

     

    Marketable securities

     

    590,263

     

     

     

    539,780

     

    Accounts receivable, net of allowance for credit losses of $5,742 and $6,190 as of June 30, 2022 and December 31, 2021, respectively

     

    258,127

     

     

     

    273,898

     

    Deferred costs

     

    82,497

     

     

     

    72,042

     

    Prepaid expenses and other current assets

     

    71,514

     

     

     

    56,809

     

    Total current assets

     

    1,570,381

     

     

     

    1,418,632

     

    Marketable securities, noncurrent

     

    473,949

     

     

     

    559,652

     

    Property and equipment, net

     

    90,955

     

     

     

    97,815

     

    Deferred costs, noncurrent

     

    78,266

     

     

     

    72,553

     

    Lease right-of-use assets

     

    48,259

     

     

     

    69,936

     

    Goodwill and intangible assets, net

     

    193,610

     

     

     

    197,098

     

    Other assets

     

    36,689

     

     

     

    35,593

     

    Total assets

    $

    2,492,109

     

     

    $

    2,451,279

     

     

     

     

     

    Liabilities and stockholders' equity

     

     

     

    Current liabilities:

     

     

     

    Accounts payable

    $

    70,682

     

     

    $

    49,213

     

    Accrued liabilities

     

    56,562

     

     

     

    50,075

     

    Accrued compensation and related benefits

     

    105,297

     

     

     

    138,127

     

    Deferred revenue

     

    563,873

     

     

     

    512,933

     

    Lease liabilities

     

    21,977

     

     

     

    21,253

     

    Current portion of convertible senior notes, net

     

    148,687

     

     

     

    139,738

     

    Total current liabilities

     

    967,078

     

     

     

    911,339

     

    Convertible senior notes, net

     

    1,137,424

     

     

     

    979,350

     

    Deferred revenue, noncurrent

     

    6,326

     

     

     

    4,277

     

    Lease liabilities, noncurrent

     

    51,727

     

     

     

    63,212

     

    Other liabilities

     

    2,733

     

     

     

    3,883

     

    Total liabilities

     

    2,165,288

     

     

     

    1,962,061

     

     

     

     

     

    Stockholders' equity:

     

     

     

    Preferred stock, par value $0.01 per share

     

    —

     

     

     

    —

     

    Common stock, par value $0.01 per share

     

    1,232

     

     

     

    1,215

     

    Additional paid-in capital

     

    1,568,922

     

     

     

    1,637,157

     

    Accumulated other comprehensive loss

     

    (22,176

    )

     

     

    (8,911

    )

    Accumulated deficit

     

    (1,221,157

    )

     

     

    (1,140,243

    )

    Total stockholders' equity

     

    326,821

     

     

     

    489,218

     

    Total liabilities and stockholders' equity

    $

    2,492,109

     

     

    $

    2,451,279

     

    Condensed Consolidated Statements of Cash Flows

    (In thousands; unaudited)

     

     

    Three Months Ended June 30,

     

    2022

     

    2021

    Cash flows from operating activities

     

     

     

    Net loss

    $

    (95,082

    )

     

    $

    (58,407

    )

    Adjustments to reconcile net loss to net cash provided by operating activities:

     

     

     

    Depreciation and amortization

     

    9,340

     

     

     

    9,108

     

    Share-based compensation

     

    73,359

     

     

     

    56,694

     

    Amortization of deferred costs

     

    21,719

     

     

     

    16,185

     

    Amortization of debt discount and issuance costs

     

    1,225

     

     

     

    12,694

     

    Real estate impairments

     

    24,908

     

     

     

    —

     

    Allowance for credit losses on accounts receivable

     

    1,668

     

     

     

    1,327

     

    Other, net

     

    1,750

     

     

     

    1,088

     

    Changes in operating assets and liabilities:

     

     

     

    Accounts receivable

     

    (39,312

    )

     

     

    (27,868

    )

    Prepaid expenses and other current assets

     

    3,576

     

     

     

    (1,272

    )

    Deferred costs

     

    (30,087

    )

     

     

    (32,267

    )

    Lease right-of-use assets

     

    3,956

     

     

     

    4,354

     

    Other assets and liabilities

     

    (491

    )

     

     

    (2,166

    )

    Accounts payable

     

    39,961

     

     

     

    (420

    )

    Accrued liabilities

     

    (2,352

    )

     

     

    (483

    )

    Accrued compensation and related benefits

     

    (6,320

    )

     

     

    14,152

     

    Deferred revenue

     

    44,351

     

     

     

    45,720

     

    Lease liabilities

     

    (3,144

    )

     

     

    (11,561

    )

    Net cash provided by operating activities

     

    49,025

     

     

     

    26,878

     

    Cash flows from investing activities

     

     

     

    Purchases of property and equipment

     

    (5,412

    )

     

     

    (2,896

    )

    Internal-use software development costs

     

    (2,880

    )

     

     

    (3,070

    )

    Purchases of marketable securities

     

    (198,582

    )

     

     

    (199,540

    )

    Proceeds from maturities of marketable securities

     

    147,330

     

     

     

    182,044

     

    Proceeds from sales of marketable securities

     

    74,847

     

     

     

    20,462

     

    Purchases of strategic investments

     

    (1,000

    )

     

     

    —

     

    Net cash provided by (used in) investing activities

     

    14,303

     

     

     

    (3,000

    )

    Cash flows from financing activities

     

     

     

    Proceeds from exercises of employee stock options

     

    1,414

     

     

     

    11,204

     

    Proceeds from employee stock purchase plan

     

    10,209

     

     

     

    11,594

     

    Taxes paid related to net share settlement of share-based awards

     

    (2,263

    )

     

     

    (3,502

    )

    Net cash provided by financing activities

     

    9,360

     

     

     

    19,296

     

    Effect of exchange rate changes on cash, cash equivalents and restricted cash

     

    77

     

     

     

    (11

    )

    Net increase in cash, cash equivalents and restricted cash

     

    72,765

     

     

     

    43,163

     

    Cash, cash equivalents and restricted cash at beginning of period

     

    496,929

     

     

     

    380,085

     

    Cash, cash equivalents and restricted cash at end of period

    $

    569,694

     

     

    $

    423,248

     

    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 June 30,

     

    Six Months Ended June 30,

     

    2022

     

    2021

     

    2022

     

    2021

    Reconciliation of gross profit and gross margin

     

     

     

     

     

     

     

    GAAP gross profit

    $

    324,418

     

     

    $

    251,473

     

     

    $

    637,067

     

     

    $

    488,627

     

    Plus: Share-based compensation

     

    6,982

     

     

     

    5,218

     

     

     

    13,159

     

     

     

    9,704

     

    Plus: Employer tax related to employee stock transactions

     

    139

     

     

     

    327

     

     

     

    386

     

     

     

    780

     

    Plus: Amortization of purchased intangibles

     

    1,177

     

     

     

    1,136

     

     

     

    2,355

     

     

     

    2,355

     

    Plus: Acquisition-related expenses

     

    —

     

     

     

    55

     

     

     

    —

     

     

     

    124

     

    Plus: Amortization of share-based compensation capitalized in internal-use software

     

    413

     

     

     

    387

     

     

     

    837

     

     

     

    771

     

    Non-GAAP gross profit

    $

    333,129

     

     

    $

    258,596

     

     

    $

    653,804

     

     

    $

    502,361

     

    GAAP gross margin

     

    80

    %

     

     

    79

    %

     

     

    80

    %

     

     

    79

    %

    Non-GAAP adjustments

     

    2

    %

     

     

    2

    %

     

     

    2

    %

     

     

    3

    %

    Non-GAAP gross margin

     

    82

    %

     

     

    81

    %

     

     

    82

    %

     

     

    82

    %

     

     

     

     

     

     

     

     

    Reconciliation of operating expenses

     

     

     

     

     

     

     

    GAAP research and development

    $

    110,539

     

     

    $

    82,826

     

     

    $

    218,616

     

     

    $

    156,609

     

    Less: Share-based compensation

     

    (20,482

    )

     

     

    (17,024

    )

     

     

    (39,769

    )

     

     

    (32,697

    )

    Less: Employer tax related to employee stock transactions

     

    (653

    )

     

     

    (1,082

    )

     

     

    (1,535

    )

     

     

    (2,509

    )

    Less: Acquisition-related expenses

     

    (1,299

    )

     

     

    (811

    )

     

     

    (2,637

    )

     

     

    (1,779

    )

    Less: Amortization of share-based compensation capitalized in internal-use software

     

    (17

    )

     

     

    (17

    )

     

     

    (34

    )

     

     

    (34

    )

    Non-GAAP research and development

    $

    88,088

     

     

    $

    63,892

     

     

    $

    174,641

     

     

    $

    119,590

     

    GAAP research and development as percentage of revenue

     

    27

    %

     

     

    26

    %

     

     

    27

    %

     

     

    25

    %

    Non-GAAP research and development as percentage of revenue

     

    22

    %

     

     

    20

    %

     

     

    22

    %

     

     

    19

    %

     

     

     

     

     

     

     

     

    GAAP sales and marketing

    $

    209,160

     

     

    $

    165,250

     

     

    $

    410,820

     

     

    $

    322,768

     

    Less: Share-based compensation

     

    (31,120

    )

     

     

    (24,501

    )

     

     

    (57,920

    )

     

     

    (47,733

    )

    Less: Employer tax related to employee stock transactions

     

    (992

    )

     

     

    (1,385

    )

     

     

    (2,188

    )

     

     

    (3,454

    )

    Less: Amortization of purchased intangibles

     

    (642

    )

     

     

    (642

    )

     

     

    (1,284

    )

     

     

    (1,284

    )

    Less: Acquisition-related expenses

     

    (1

    )

     

     

    (64

    )

     

     

    (374

    )

     

     

    (112

    )

    Non-GAAP sales and marketing

    $

    176,405

     

     

    $

    138,658

     

     

    $

    349,054

     

     

    $

    270,185

     

    GAAP sales and marketing as percentage of revenue

     

    51

    %

     

     

    52

    %

     

     

    52

    %

     

     

    52

    %

    Non-GAAP sales and marketing as percentage of revenue

     

    43

    %

     

     

    44

    %

     

     

    44

    %

     

     

    44

    %

     

     

     

     

     

     

     

     

    GAAP general and administrative

    $

    97,210

     

     

    $

    45,818

     

     

    $

    160,748

     

     

    $

    88,951

     

    Less: Share-based compensation

     

    (14,775

    )

     

     

    (9,951

    )

     

     

    (26,449

    )

     

     

    (18,934

    )

    Less: Employer tax related to employee stock transactions

     

    (135

    )

     

     

    (1,124

    )

     

     

    (980

    )

     

     

    (2,288

    )

    Less: Acquisition-related expenses

     

    (122

    )

     

     

    (141

    )

     

     

    (9,846

    )

     

     

    (463

    )

    Less: Real estate impairments

     

    (24,908

    )

     

     

    (1,176

    )

     

     

    (24,908

    )

     

     

    (1,176

    )

    Less: Merger-related costs and other expenses

     

    (12,213

    )

     

     

    —

     

     

     

    (12,213

    )

     

     

    —

     

    Non-GAAP general and administrative

    $

    45,057

     

     

    $

    33,426

     

     

    $

    86,352

     

     

    $

    66,090

     

    GAAP general and administrative as percentage of revenue

     

    24

    %

     

     

    14

    %

     

     

    20

    %

     

     

    14

    %

    Non-GAAP general and administrative as percentage of revenue

     

    11

    %

     

     

    11

    %

     

     

    11

    %

     

     

    11

    %

     

     

     

     

     

     

     

     

    Reconciliation of operating income (loss) and operating margin

     

     

     

     

     

     

     

    GAAP operating loss

    $

    (92,491

    )

     

    $

    (42,421

    )

     

    $

    (153,117

    )

     

    $

    (79,701

    )

    Plus: Share-based compensation

     

    73,359

     

     

     

    56,694

     

     

     

    137,297

     

     

     

    109,068

     

    Plus: Employer tax related to employee stock transactions

     

    1,919

     

     

     

    3,918

     

     

     

    5,089

     

     

     

    9,031

     

    Plus: Amortization of purchased intangibles

     

    1,819

     

     

     

    1,778

     

     

     

    3,639

     

     

     

    3,639

     

    Plus: Acquisition-related expenses

     

    1,422

     

     

     

    1,071

     

     

     

    12,857

     

     

     

    2,478

     

    Plus: Amortization of share-based compensation capitalized in internal-use software

     

    430

     

     

     

    404

     

     

     

    871

     

     

     

    805

     

    Plus: Real estate impairments

     

    24,908

     

     

     

    1,176

     

     

     

    24,908

     

     

     

    1,176

     

    Plus: Merger-related costs and other expenses

     

    12,213

     

     

     

    —

     

     

     

    12,213

     

     

     

    —

     

    Non-GAAP operating income

    $

    23,579

     

     

    $

    22,620

     

     

    $

    43,757

     

     

    $

    46,496

     

    GAAP operating margin

     

    (23

    ) %

     

     

    (13

    ) %

     

     

    (19

    ) %

     

     

    (13

    ) %

    Non-GAAP adjustments

     

    29

    %

     

     

    20

    %

     

     

    25

    %

     

     

    21

    %

    Non-GAAP operating margin

     

    6

    %

     

     

    7

    %

     

     

    6

    %

     

     

    8

    %

     

    Three Months Ended June 30,

     

    Six Months Ended June 30,

     

    2022

     

    2021

     

    2022

     

    2021

    Reconciliation of net income (loss)

     

     

     

     

     

     

     

    GAAP net loss

    $

    (95,082

    )

     

    $

    (58,407

    )

     

    $

    (162,028

    )

     

    $

    (107,372

    )

    Plus: Share-based compensation

     

    73,359

     

     

     

    56,694

     

     

     

    137,297

     

     

     

    109,068

     

    Plus: Employer tax related to employee stock transactions

     

    1,919

     

     

     

    3,918

     

     

     

    5,089

     

     

     

    9,031

     

    Plus: Amortization of purchased intangibles

     

    1,819

     

     

     

    1,778

     

     

     

    3,639

     

     

     

    3,639

     

    Plus: Acquisition-related expenses

     

    1,422

     

     

     

    1,071

     

     

     

    12,857

     

     

     

    2,478

     

    Plus: Amortization of share-based compensation capitalized in internal-use software

     

    430

     

     

     

    404

     

     

     

    871

     

     

     

    805

     

    Plus: Real estate impairments

     

    24,908

     

     

     

    1,176

     

     

     

    24,908

     

     

     

    1,176

     

    Plus: Merger-related costs and other expenses

     

    12,213

     

     

     

    —

     

     

     

    12,213

     

     

     

    —

     

    Plus: Amortization of debt discount and issuance costs

     

    1,225

     

     

     

    12,695

     

     

     

    2,446

     

     

     

    25,220

     

    Less: Income tax effects and adjustments

     

    (3,429

    )

     

     

    (2,198

    )

     

     

    (3,406

    )

     

     

    (5,529

    )

    Non-GAAP net income

    $

    18,784

     

     

    $

    17,131

     

     

    $

    33,886

     

     

    $

    38,516

     

     

     

     

     

     

     

     

     

    Reconciliation of net income (loss) per share, basic

     

     

     

     

     

     

     

    GAAP net loss per share, basic

    $

    (0.77

    )

     

    $

    (0.49

    )

     

    $

    (1.32

    )

     

    $

    (0.91

    )

    Non-GAAP adjustments to net loss

     

    0.92

     

     

     

    0.63

     

     

     

    1.60

     

     

     

    1.24

     

    Non-GAAP net income per share, basic

    $

    0.15

     

     

    $

    0.14

     

     

    $

    0.28

     

     

    $

    0.33

     

     

     

     

     

     

     

     

     

    Reconciliation of net income (loss) per share, diluted

     

     

     

     

     

     

     

    GAAP net loss per share, diluted

    $

    (0.77

    )

     

    $

    (0.49

    )

     

    $

    (1.32

    )

     

    $

    (0.91

    )

    Non-GAAP adjustments to net loss

     

    0.91

     

     

     

    0.62

     

     

     

    1.59

     

     

     

    1.21

     

    Non-GAAP net income per share, diluted

    $

    0.14

     

     

    $

    0.13

     

     

    $

    0.27

     

     

    $

    0.30

     

     

     

     

     

     

     

     

     

    Weighted-average shares used in GAAP per share calculation, basic and diluted

     

    122,841

     

     

     

    119,050

     

     

     

    122,404

     

     

     

    118,484

     

     

     

     

     

     

     

     

     

    Weighted-average shares used in non-GAAP per share calculation

     

     

     

     

     

     

     

    Basic

     

    122,841

     

     

     

    119,050

     

     

     

    122,404

     

     

     

    118,484

     

    Diluted (1)

     

    137,969

     

     

     

    127,515

     

     

     

    127,100

     

     

     

    127,384

     

     

     

     

     

     

     

     

     

    Computation of free cash flow

     

     

     

     

     

     

     

    Net cash provided by operating activities

    $

    49,025

     

     

    $

    26,878

     

     

    $

    60,237

     

     

    $

    60,473

     

    Less: Purchases of property and equipment

     

    (5,412

    )

     

     

    (2,896

    )

     

     

    (12,850

    )

     

     

    (5,957

    )

    Less: Internal-use software development costs

     

    (2,880

    )

     

     

    (3,070

    )

     

     

    (5,896

    )

     

     

    (7,538

    )

    Free cash flow

    $

    40,733

     

     

    $

    20,912

     

     

    $

    41,491

     

     

    $

    46,978

     

     

     

     

     

     

     

     

     

    Net cash provided by operating activities margin

     

    12

    %

     

     

    8

    %

     

     

    8

    %

     

     

    10

    %

    Non-GAAP adjustments

     

    (2

    ) %

     

     

    (1

    ) %

     

     

    (3

    ) %

     

     

    (2

    ) %

    Free cash flow margin

     

    10

    %

     

     

    7

    %

     

     

    5

    %

     

     

    8

    %

    (1)

     

    In the first quarter of 2022, we adopted ASU 2020-06, which simplifies the accounting for convertible debt. Under the new standard, companies are required to use the if-converted method for calculating diluted EPS instead of the treasury stock method. For the six months ended June 30, 2022, approximately 11 million shares related to our 2025 convertible notes were excluded from the non-GAAP diluted share amount, as the inclusion of these shares using the if-converted method would have been anti-dilutive.

    About Non-GAAP Financial Measures

    To provide investors and others with additional information regarding Zendesk's results, the following non-GAAP financial measures were disclosed: non-GAAP gross profit and gross margin, non-GAAP operating expenses, non-GAAP operating income (loss) and operating margin, non-GAAP net income (loss), non-GAAP net income (loss) per share, basic and diluted, free cash flow, and free cash flow margin.

    Specifically, Zendesk excludes the following from its historical and prospective non-GAAP financial measures, as applicable:

    Share-Based Compensation and Amortization of Share-Based Compensation Capitalized in Internal-Use Software: Zendesk utilizes share-based compensation to attract and retain employees. It is principally aimed at aligning their interests with those of its stockholders and at long-term retention, rather than to address operational performance for any particular period. As a result, share-based compensation expenses vary for reasons that are generally unrelated to financial and operational performance in any particular period.

    Employer Tax Related to Employee Stock Transactions: Zendesk views the amount of employer taxes related to its employee stock transactions as an expense that is dependent on its stock price, employee exercise and other award disposition activity, and other factors that are beyond Zendesk's control. As a result, employer taxes related to its employee stock transactions vary for reasons that are generally unrelated to financial and operational performance in any particular period.

    Amortization of Purchased Intangibles: Zendesk views amortization of purchased intangible assets, including the amortization of the cost associated with an acquired entity's developed technology, as items arising from pre-acquisition activities determined at the time of an acquisition. While these intangible assets are evaluated for impairment regularly, amortization of the cost of purchased intangibles is an expense that is not typically affected by operations during any particular period.

    Acquisition-Related Expenses: Zendesk views acquisition-related expenses, such as transaction costs, integration costs, restructuring costs, and acquisition-related retention payments, including amortization of acquisition-related retention payments capitalized in internal-use software, as events that are not necessarily reflective of operational performance during a period. In particular, Zendesk believes the consideration of measures that exclude such expenses can assist in the comparison of operational performance in different periods which may or may not include such expenses.

    Real Estate Impairments: To support an increased percentage of remote teams, Zendesk records impairments for certain assets associated with leased properties, or portions thereof, that it ceases to occupy. Any losses and gains associated with these activities are generally unrelated to financial and operational performance in any particular period and Zendesk believes the exclusion of such losses and gains provides for a more useful comparison of operational performance in comparative periods that may or may not include such losses and gains.

    Merger-Related Costs and Other Expenses: Zendesk views fees related to its pending acquisition, including transaction costs, as events that are not necessarily reflective of operational performance during a period. Zendesk believes the consideration of measures that exclude such expenses provides meaningful supplemental information regarding operational performance. Other expenses include non-recurring fees paid for third-party advisory and professional services related to shareholder activism and the strategic review.

    Amortization of Debt Discount and Issuance Costs: On January 1, 2022, Zendesk prospectively adopted ASU 2020-06, regarding ASC Topic 470 "Debt" and ASC Topic 815 "Derivatives and Hedging," which simplifies the accounting for convertible debt. Prior to the adoption of ASU 2020-06, the imputed interest rates of our 2023 convertible notes and our 2025 notes were approximately 5.26% and 5.00%, respectively. This was a result of the debt discounts recorded for the conversion features of the notes that were required to be separately accounted for as equity, and debt issuance costs, which reduced the carrying value of the convertible debt instruments. The debt discounts were amortized as interest expense together with the issuance costs of the debt. Upon adoption of the new standard, the liability and equity components of each instrument were recombined into a single liability instrument measured at amortized cost. As a result, from the date of adoption, no debt discount remains and no interest expense related to debt discount amortization will be recorded. Interest expense related to the amortization of debt issuance costs will continue to be recorded over the term of the notes. The expense for the amortization of debt discount and debt issuance costs is a non-cash item, and we believe the exclusion of this expense will provide for a more useful comparison of our operational performance in different periods.

    Income Tax Effects: Zendesk utilizes a fixed long-term projected tax rate in its computation of non-GAAP income tax effects to provide better consistency across interim reporting periods. In projecting this long-term non-GAAP tax rate, Zendesk utilizes a financial projection that excludes the direct impact of other non-GAAP adjustments. The projected rate considers other factors such as Zendesk's current operating structure, existing tax positions in various jurisdictions, and key legislation in major jurisdictions where Zendesk operates. For the year ending December 31, 2022, Zendesk has determined the projected non-GAAP tax rate to be 21%. Zendesk will periodically re-evaluate this tax rate, as necessary, for significant events, based on relevant tax law changes, material changes in the forecasted geographic earnings mix, and any significant acquisitions.

    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. Free cash flow margin is calculated as free cash flow as a percentage of total revenue. Zendesk uses free cash flow, free cash flow margin, and 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 and free cash flow margin provides investors with an important perspective on the cash available to fund ongoing operations.

    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 debt discount and issuance costs, amortization of purchased intangibles, acquisition-related expenses, real estate impairments, and merger-related costs and other 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.

    In August 2020, the Financial Accounting Standards Board issued ASU 2020-06, regarding ASC Topic 470 "Debt" and ASC Topic 815 "Derivatives and Hedging," which amends the calculation of diluted earnings per share for certain convertible debt instruments, among other changes. Under the new standard, Zendesk is required to use the "if-converted" method to calculate diluted earnings per share for its convertible debt, which assumes conversion of its convertible debt instruments at the beginning of the reporting period, with settlement entirely in shares of common stock, unless the result would be anti-dilutive. Historically, Zendesk calculated diluted earnings per share for its convertible debt using the "treasury stock" method, which assumes that the principal amount of convertible debt instruments is settled in cash. Accordingly, our diluted shares outstanding are generally expected to increase under the new standard. We adopted this standard in the first quarter of 2022. The total amount of shares underlying the convertible notes is approximately 13 million. Refer to Form 10-Q for the quarter ended June 30, 2022 for further information.

    View source version on businesswire.com: https://www.businesswire.com/news/home/20220728005970/en/

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      Highlights: Second quarter revenue increased 28% year-over-year to $407.2 million Second quarter GAAP operating loss of $92.5 million and non-GAAP operating income of $23.6 million GAAP operating loss includes real estate impairments of $24.9 million and merger-related costs and other expenses of $12.2 million Zendesk, Inc. (NYSE:ZEN) today reported financial results for the second quarter ended June 30, 2022. Results for the Second Quarter 2022 Revenue was $407.2 million for the quarter ended June 30, 2022, an increase of 28% over the prior year period. GAAP net loss for the quarter ended June 30, 2022 was $95.1 million, and GAAP net loss per share (basic and diluted) was $0.77

      7/28/22 4:15:00 PM ET
      $ZEN
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    • Sigma Names New Chief Financial Officer and New General Counsel to Drive Next Phase of Growth

      Christina Liu and Ali Harmer join Sigma to guide the organization's financial and legal teams through Sigma's continued high-velocity business growth Sigma, the first and only data analytics solution built natively for cloud scale, announced the addition of two new executives: Christina Liu as Chief Financial Officer (CFO) and Ali Harmer as General Counsel. These new executive hires bring high-impact expertise to measurably grow Sigma and develop the company's business strategy in collaboration with other key leaders in the organization. This press release features multimedia. View the full release here: https://www.businesswire.com/news/home/20240618081253/en/Christina Liu, Chief Financ

      6/18/24 1:45:00 PM ET
      $CFLT
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    • JFrog Appoints Shanti Ariker as Chief Legal Officer

      Seasoned software industry legal executive will help drive JFrog's next phase of growth JFrog Ltd. ("JFrog") (NASDAQ:FROG), the Liquid Software company and creators of the JFrog Software Supply Chain Platform, today announced Shanti Ariker has joined as the company's Chief Legal Officer (CLO). Reporting directly to co-founder and CEO Shlomi Ben Haim, Ms. Ariker serves on the company's executive team overseeing corporate governance, risk, and compliance initiatives, including ESG activities, while supporting strategic growth initiatives, and partnerships. "JFrog has become the world's leading Software Supply Chain Platform used by millions of developers and trusted by the world's top ent

      9/6/23 9:15:00 AM ET
      $FROG
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    • Zendesk Announces First Quarter 2021 Results

      Highlights: First quarter revenue increased 26% year over year to $298.0 million First quarter GAAP operating loss of $37.3 million and non-GAAP operating income of $23.9 million Shelagh Glaser appointed as Chief Financial Officer, who is expected to join Zendesk on May 28, 2021 Zendesk, Inc. (NYSE:ZEN) today reported financial results for the first quarter ended March 31, 2021, and released a Shareholder Letter on its investor relations website at https://investor.zendesk.com. Results for the First Quarter 2021 Revenue was $298.0 million for the quarter ended March 31, 2021, an increase of 26% over the prior year period. GAAP net loss for the quarter ended March 31, 2021 was $49.

      4/29/21 4:15:00 PM ET
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    • Zendesk downgraded by JMP Securities

      JMP Securities downgraded Zendesk from Mkt Outperform to Mkt Perform

      7/26/22 8:25:44 AM ET
      $ZEN
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    • Zendesk downgraded by Stifel

      Stifel downgraded Zendesk from Buy to Hold

      7/26/22 8:25:44 AM ET
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    • Zendesk downgraded by William Blair

      William Blair downgraded Zendesk from Outperform to Mkt Perform

      7/26/22 8:25:44 AM ET
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    SEC Filings

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    • SEC Form 4: Gennaro Norman returned 26,323 shares to the company, closing all direct ownership in the company (tax liability)

      4 - Zendesk, Inc. (0001463172) (Issuer)

      11/25/22 8:50:06 PM ET
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    • SEC Form 4: Geschke John returned 47,204 shares to the company, closing all direct ownership in the company (tax liability)

      4 - Zendesk, Inc. (0001463172) (Issuer)

      11/25/22 8:49:27 PM ET
      $ZEN
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    • SEC Form 4: Glaser Shelagh returned 10,437 shares to the company, closing all direct ownership in the company (tax withholding)

      4 - Zendesk, Inc. (0001463172) (Issuer)

      11/25/22 8:46:56 PM ET
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    • SEC Form 15-12G filed by Zendesk Inc.

      15-12G - Zendesk, Inc. (0001463172) (Filer)

      12/2/22 5:00:27 PM ET
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    • Zendesk Inc. filed SEC Form 8-K: Leadership Update

      8-K - Zendesk, Inc. (0001463172) (Filer)

      12/1/22 4:05:24 PM ET
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    • SEC Form S-8 POS filed by Zendesk Inc.

      S-8 POS - Zendesk, Inc. (0001463172) (Filer)

      11/23/22 5:01:02 PM ET
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