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8-K/A - 8-K/A - Zendesk, Inc.zen-8ka_20151223.htm
EX-99.2 - EX-99.2 - Zendesk, Inc.zen-ex992_9.htm
EX-99.1 - EX-99.1 - Zendesk, Inc.zen-ex991_8.htm
EX-23.1 - EX-23.1 - Zendesk, Inc.zen-ex231_91.htm

Exhibit 99.3

ZENDESK, INC.

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

The following unaudited pro forma condensed combined financial information and related notes present the historical condensed combined financial information of Zendesk, Inc., the “Company”, “our”, or “we”, and We Are Cloud SAS, or “WAC”, after giving effect to Zendesk's acquisition of WAC that was completed on October 13, 2015, the “Acquisition”. We acquired 100 percent of the outstanding shares of WAC in exchange for purchase consideration of approximately $46.2 million in cash, subject to working capital adjustments.  The unaudited pro forma condensed combined financial information is based on the historical financial statements of the Company and WAC after giving effect to the Acquisition, as described in the accompanying notes to the unaudited pro forma condensed combined financial information.

The unaudited pro forma condensed combined balance sheet as of September 30, 2015 is presented as if the Acquisition had occurred on September 30, 2015. The unaudited pro forma condensed combined statements of operations for the nine months ended September 30, 2015 and the year ended December 31, 2014 are presented as if the Acquisition had occurred on January 1, 2014. The historical financial information is adjusted in the unaudited pro forma condensed combined financial information to give effect to pro forma events that are (1) directly attributable to the Acquisition, (2) factually supportable, and (3) with respect to the condensed combined statements of operations, expected to have a continuing impact on the combined results.

The unaudited pro forma condensed combined financial statements were prepared using the acquisition method of accounting with Zendesk considered the accounting acquirer of WAC. Under the acquisition method of accounting, the purchase price was allocated to the underlying WAC tangible and intangible assets acquired and liabilities assumed based on their respective fair market values with any excess purchase price allocated to goodwill. The acquisition method of accounting is dependent upon certain valuations and other studies that are preliminary, based on work performed to-date. Accordingly, the pro forma adjustments are preliminary and have been made solely for the purpose of providing the unaudited pro forma condensed combined financial information. We anticipate that all the information needed to identify and measure values assigned to the assets acquired and liabilities assumed will be obtained and finalized during the one-year measurement period following the date of completion of the Acquisition. Differences between these preliminary estimates and the final acquisition accounting may occur, and these differences could have a material impact on the accompanying unaudited pro forma condensed combined financial information and the combined company’s future results of operations and financial position.

The unaudited pro forma condensed combined financial information should be read in conjunction with our historical consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2014, our Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2015, the historical consolidated financial statements of WAC for the year ended December 31, 2014, and the historical unaudited consolidated financial statements of WAC included in this Form 8-K/A as of and for the six months ended June 30, 2015.

 


ZENDESK, INC.

UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET

AS OF SEPTEMBER 30, 2015

(In thousands)

 

 

 

Historical

 

 

 

 

 

 

 

 

 

 

 

 

 

Zendesk, Inc.

 

 

We Are Cloud

SAS

 

 

Pro Forma

Adjustments

(Note 3)

 

 

Ref

 

Pro Forma

Combined

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

255,386

 

 

$

1,386

 

 

$

(46,158

)

 

a

 

$

210,614

 

Marketable securities

 

 

25,247

 

 

 

 

 

 

 

 

 

 

 

25,247

 

Accounts receivable, net

 

 

24,121

 

 

 

277

 

 

 

 

 

 

 

 

24,398

 

Prepaid expenses and other current assets

 

 

9,904

 

 

 

403

 

 

 

 

 

 

 

 

10,307

 

Total current assets

 

 

314,658

 

 

 

2,066

 

 

 

(46,158

)

 

 

 

 

270,566

 

Marketable securities, noncurrent

 

 

22,513

 

 

 

 

 

 

 

 

 

 

 

22,513

 

Property and equipment, net

 

 

52,747

 

 

 

378

 

 

 

(354

)

 

d

 

 

52,771

 

Goodwill and intangible assets, net

 

 

11,888

 

 

 

 

 

 

47,248

 

 

b

 

 

59,136

 

Other assets

 

 

2,450

 

 

 

6

 

 

 

 

 

 

 

 

2,456

 

Total assets

 

$

404,256

 

 

$

2,450

 

 

$

736

 

 

 

 

$

407,442

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

4,390

 

 

$

264

 

 

$

623

 

 

e

 

$

5,277

 

Accrued liabilities

 

 

10,445

 

 

 

59

 

 

 

 

 

 

 

 

10,504

 

Accrued compensation and related benefits

 

 

11,872

 

 

 

306

 

 

 

 

 

 

 

 

12,178

 

Deferred revenue

 

 

74,295

 

 

 

837

 

 

 

(611

)

 

d

 

 

74,521

 

Total current liabilities

 

 

101,002

 

 

 

1,466

 

 

 

12

 

 

 

 

 

102,480

 

Deferred revenue, noncurrent

 

 

1,657

 

 

 

 

 

 

 

 

 

 

 

1,657

 

Other liabilities

 

 

8,966

 

 

 

352

 

 

 

1,979

 

 

b

 

 

11,297

 

Total liabilities

 

$

111,625

 

 

$

1,818

 

 

$

1,991

 

 

 

 

$

115,434

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock

 

 

887

 

 

 

466

 

 

 

(466

)

 

c

 

 

887

 

Additional paid-in capital

 

 

485,417

 

 

 

5,446

 

 

 

(5,446

)

 

c

 

 

485,417

 

Accumulated other comprehensive loss

 

 

(1,578

)

 

 

(658

)

 

 

658

 

 

c

 

 

(1,578

)

Accumulated deficit

 

 

(191,443

)

 

 

(4,622

)

 

 

3,999

 

 

c, e

 

 

(192,066

)

Treasury stock at cost

 

 

(652

)

 

 

 

 

 

 

 

 

 

 

(652

)

Total stockholders’ equity

 

 

292,631

 

 

 

632

 

 

 

(1,255

)

 

 

 

 

292,008

 

Total liabilities and stockholders’ equity

 

$

404,256

 

 

$

2,450

 

 

$

736

 

 

 

 

$

407,442

 

 

See accompanying notes to unaudited pro forma condensed combined financial information

 


ZENDESK, INC.

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 2014

(In thousands, except per share data)

 

 

 

Historical

 

 

 

 

 

 

 

 

 

 

 

 

 

Zendesk, Inc.

 

 

We Are Cloud

SAS

 

 

Pro Forma

Adjustments

(Note 3)

 

 

Ref

 

Pro Forma

Combined

 

Revenue

 

$

127,049

 

 

$

1,272

 

 

$

 

 

 

 

$

128,321

 

Cost of revenue

 

 

46,047

 

 

 

193

 

 

 

1,929

 

 

f, g, h

 

 

48,169

 

Gross profit

 

 

81,002

 

 

 

1,079

 

 

 

(1,929

)

 

 

 

 

80,152

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

36,403

 

 

 

427

 

 

 

2,464

 

 

f, h

 

 

39,294

 

Sales and marketing

 

 

77,875

 

 

 

2,121

 

 

 

1,560

 

 

f, g

 

 

81,556

 

General and administrative

 

 

32,869

 

 

 

766

 

 

 

1,362

 

 

f

 

 

34,997

 

Total operating expenses

 

 

147,147

 

 

 

3,314

 

 

 

5,386

 

 

 

 

 

155,847

 

Operating loss

 

 

(66,145

)

 

 

(2,235

)

 

 

(7,315

)

 

 

 

 

(75,695

)

Other (income) expense, net

 

 

(1,533

)

 

 

135

 

 

 

 

 

 

 

 

(1,398

)

Loss before benefit from income taxes

 

 

(67,678

)

 

 

(2,100

)

 

 

(7,315

)

 

 

 

 

(77,093

)

Benefit from income taxes

 

 

(263

)

 

 

 

 

 

(3,107

)

 

i

 

 

(3,370

)

Net loss before accretion of redeemable convertible preferred

   stock

 

 

(67,415

)

 

 

(2,100

)

 

 

(4,208

)

 

 

 

 

(73,723

)

Accretion of redeemable convertible preferred stock

 

 

(18

)

 

 

 

 

 

 

 

 

 

 

(18

)

Net loss

 

$

(67,433

)

 

$

(2,100

)

 

$

(4,208

)

 

 

 

$

(73,741

)

Net loss per share

 

$

(1.26

)

 

 

 

 

 

 

 

 

 

 

 

$

(1.37

)

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

   basic and diluted

 

 

53,571

 

 

 

 

 

 

 

99

 

 

j

 

 

53,670

 

 

See accompanying notes to unaudited pro forma condensed combined financial information

 


ZENDESK, INC.

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2015

(In thousands, except per share data)

 

 

 

Historical

 

 

 

 

 

 

 

 

 

 

 

 

 

Zendesk, Inc.

 

 

We Are Cloud

SAS

 

 

Pro Forma

Adjustments

(Note 3)

 

 

Ref

 

Pro Forma

Combined

 

Revenue

 

$

146,122

 

 

$

1,686

 

 

$

 

 

 

 

$

147,808

 

Cost of revenue

 

 

47,491

 

 

 

217

 

 

 

1,488

 

 

f, g, h

 

 

49,196

 

Gross profit

 

 

98,631

 

 

 

1,469

 

 

 

(1,488

)

 

 

 

 

98,612

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

43,517

 

 

 

189

 

 

 

1,776

 

 

f, h

 

 

45,482

 

Sales and marketing

 

 

79,725

 

 

 

1,771

 

 

 

743

 

 

f, g

 

 

82,238

 

General and administrative

 

 

33,982

 

 

 

626

 

 

 

517

 

 

f, e

 

 

35,125

 

Total operating expenses

 

 

157,224

 

 

 

2,585

 

 

 

3,036

 

 

 

 

 

162,845

 

Operating loss

 

 

(58,593

)

 

 

(1,116

)

 

 

(4,524

)

 

 

 

 

(64,233

)

Other (income) expense, net

 

 

(428

)

 

 

99

 

 

 

 

 

 

 

 

(329

)

Loss before benefit from income taxes

 

 

(59,021

)

 

 

(1,018

)

 

 

(4,524

)

 

 

 

 

(64,563

)

Benefit from income taxes

 

 

554

 

 

 

 

 

 

(1,829

)

 

i

 

 

(1,275

)

Net loss

 

$

(59,575

)

 

$

(1,018

)

 

$

(2,695

)

 

 

 

$

(63,288

)

Net loss per share

 

$

(0.71

)

 

 

 

 

 

 

 

 

 

 

 

$

(0.76

)

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

   basic and diluted

 

 

83,536

 

 

 

 

 

 

 

282

 

 

j

 

 

83,818

 

 

See accompanying notes to unaudited pro forma condensed combined financial information

 


ZENDESK, INC.

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

1.

Basis of Pro Forma Presentation

The unaudited pro forma condensed combined balance sheet as of September 30, 2015 combines our historical condensed consolidated balance sheet with the historical condensed consolidated balance sheet of WAC and has been prepared as if our acquisition of WAC had occurred on September 30, 2015. The unaudited pro forma condensed combined statements of operations for the nine months ended September 30, 2015 and for the year ended December 31, 2014 combine our historical condensed consolidated statements of operations with WAC's historical condensed consolidated statements of operations for the same periods and have been prepared as if the Acquisition had occurred on January 1, 2014. The historical financial information is adjusted in the unaudited pro forma condensed combined financial information to give effect to pro forma events that are (1) directly attributable to the Acquisition, (2) factually supportable, and (3) with respect to the condensed combined statements of operations, expected to have a continuing impact on the combined results.

We have accounted for the Acquisition in this unaudited pro forma condensed combined financial information using the acquisition method of accounting in accordance with Financial Accounting Standards Board Accounting Standard 805 “Business Combinations.”  We used our best estimates and assumptions to assign fair value to the tangible and intangible assets acquired and liabilities assumed as of the date of the Acquisition. Goodwill has been measured as the excess of purchase consideration over the fair value of net tangible and identifiable intangible assets acquired.

The unaudited pro forma condensed combined financial information is provided for illustrative purposes only and does not purport to represent what the actual consolidated results of operations or the consolidated financial position of the combined company would have been had the Acquisition occurred on the dates assumed, nor are they necessarily indicative of future consolidated results of operations or financial position.  The unaudited pro forma condensed combined financial information does not reflect any integration activities or cost savings from operating efficiencies, synergies, asset dispositions or other restructuring events that could result from the Acquisition.

2.

Preliminary Purchase Consideration and Related Allocation

The total purchase price of approximately $46.2 million has been allocated to WAC’s tangible and intangible assets and liabilities for purposes of providing the unaudited pro forma condensed combined financial information based on their estimated fair values. Goodwill has been measured as the excess of purchase consideration over the fair value of net tangible and identifiable intangible assets acquired.

The total purchase price was allocated as follows, based on WAC’s consolidated balance sheet as of September 30, 2015 (in thousands):

 

Net liabilities assumed

 

$

(1,090

)

Identifiable intangible assets:

 

 

 

 

Developed technology

 

 

8,800

 

Customer relationships

 

 

500

 

Goodwill

 

 

37,948

 

Total purchase price

 

$

46,158

 

 

Goodwill resulting from the allocation of purchase consideration is primarily attributable to expected synergies, including cost savings from integrating the analytics technology with our customer service platform and the opportunity to sell the analytics software alongside our existing products. Goodwill is not expected to be deductible for income tax purposes. Goodwill will not be amortized but instead will be tested for impairment at least annually and more frequently if certain indicators of impairment are present.

In connection with the Acquisition, we entered into retention arrangements with certain employees of WAC, pursuant to which we issued approximately 0.5 million of Restricted Stock Unit awards, or “RSUs”, which are subject to vesting based on service conditions. The RSUs have been accounted for as share-based compensation expense over the required service periods and were not included in the purchase consideration.  The RSUs were valued based on the closing price of $20.29 of our common stock on the grant date, which was also the date of the Acquisition.  For pro forma purposes, the RSUs are assumed to have been granted on January 1, 2014 at the fair value on the date of the Acquisition.

The final purchase price allocation will be based upon valuations and other analyses for which there is currently insufficient information to make a definitive allocation. Accordingly, the purchase price allocation adjustments are preliminary and have been made solely for the purpose of providing the unaudited pro forma condensed combined financial information. The final purchase price allocation will be determined after completion of a thorough analysis to determine the fair value of WAC’s tangible and intangible


assets and liabilities. As a result, the final purchase accounting adjustments, including those resulting from conforming WAC’s accounting policies to those of Zendesk, could differ materially from the unaudited pro forma adjustments presented herein. Any increase or decrease in the fair value of WAC’s tangible and intangible assets and liabilities as compared to the information shown herein would also change the portion of purchase price allocated to goodwill.

3.

Pro Forma Adjustments

The pro forma adjustments included in the unaudited pro forma condensed combined financial information are as follows:

a)

Reduction of $46.2 million in cash, representing the consideration paid by Zendesk to acquire WAC

b)

Represents the estimated fair value of identifiable intangible assets, goodwill, and related deferred tax assets and liabilities recognized in the preliminary purchase price allocation, refer to (g)

c)

Represents the elimination of WAC’s historical stockholders’ equity

d)

Represents the reduction to WAC’s historical balances to reflect fair value, including property and equipment of $0.4 million, comprised of $0.3 million of capitalized software and $0.1 million of fixed assets, and $0.6 million related to deferred revenue. We did not make a pro forma adjust to revenue associated with the aforementioned reduction of deferred revenue because the impact was not continuing in nature.

e)

Represents the removal of acquisition-related costs of approximately $0.3 million and $0.1 million of Zendesk and WAC, respectively on the condensed combined statement of operations for the nine months ended September 30, 2015.  An adjustment was also made on the condensed combined balance sheet as of September 30, 2015 to increase accounts payable by $0.6 million, for acquisition-related costs incurred after September 30, 2015, including $0.5 million and $0.1 million related to Zendesk and WAC, respectively.

f)

Represents incremental compensation and payroll tax expense related to employment agreements executed in connection with the Acquisition, (in thousands):

 

 

 

Year Ended December 31, 2014

 

 

 

Cost of Revenue

 

 

Research and

Development

 

 

Sales and

Marketing

 

 

General and

Administrative

 

Net increase to share-based compensation expense

 

$

52

 

 

$

2,135

 

 

$

1,255

 

 

$

1,220

 

Net increase to salary expense

 

 

13

 

 

 

203

 

 

 

194

 

 

 

142

 

 

 

$

65

 

 

$

2,338

 

 

$

1,449

 

 

$

1,362

 

 

 

 

Nine Months Ended September 30, 2015

 

 

 

Cost of Revenue

 

 

Research and

Development

 

 

Sales and

Marketing

 

 

General and

Administrative

 

Net increase to share-based compensation expense

 

$

39

 

 

$

1,521

 

 

$

569

 

 

$

834

 

Net increase to salary expense

 

 

6

 

 

 

129

 

 

 

90

 

 

 

103

 

 

 

$

45

 

 

$

1,650

 

 

$

659

 

 

$

937

 

 

g)

Represents an increase to amortization expense for intangible assets recognized in connection with the Acquisition (in thousands, except for estimated useful life):

 

 

 

 

 

 

 

 

 

Amortization Expense

 

 

 

Fair Value

 

 

Estimated Useful Life

 

Nine Months Ended

September 30, 2015

 

 

Year Ended December 31,

2014

 

Developed technology

 

$

8,800

 

 

4.5 years

 

$

1,467

 

 

$

1,956

 

Customer relationships

 

 

500

 

 

4.5 years

 

 

83

 

 

 

111

 

Goodwill

 

 

37,948

 

 

Indefinite

 

 

 

 

 

 

Total

 

$

47,248

 

 

 

 

$

1,550

 

 

$

2,067

 

 

We recognized a net deferred tax liability of $2.0 million, representing a gross deferred tax liability of $3.5 million and a gross deferred tax asset of $1.5 million.  The gross deferred tax liability of $3.5 million primarily represents the tax effect of the difference between the estimated fair value of identified intangible assets and the tax basis of the assets.  The gross deferred tax asset of $1.5 million primarily represents the historical loss carryforwards of WAC, which we recognized as a result of recording the gross deferred tax liability. The offset to the net deferred tax liability was recorded as an increase to goodwill. The deferred taxes were calculated using the estimated applicable French income tax rate of 33.3%.


h)

Represents the removal of amortization expense within cost of revenue and the inclusion of previously capitalized expenses associated with the elimination of WAC’s historical capitalized software discussed in (d) above (in thousands):

 

 

 

Cost of Revenue

 

 

Research and

Development

 

Increase (decrease) in expense related to elimination of

   capitalized software for the year ended December 31, 2014

 

$

(91

)

 

$

127

 

Increase (decrease) in expense related to elimination of

   capitalized software for the nine months ended

   September 30, 2015

 

 

(23

)

 

 

126

 

 

 

$

(114

)

 

$

253

 

 

i)

Represents the estimated benefits from income tax associated with WAC’s historical loss before income taxes and the pro forma adjustments discussed herein using the estimated applicable French income tax rate of 33.3%

j)

Represents the additional weighted average shares outstanding from RSUs issued under employment agreements executed in connection with the Acquisition