Zendesk : 2020 Analyst & Investor Event - Product Section

Safe harbor

This presentation contains forward-looking statements, including, among other things, statements regarding Zendesk's future financial performance, its continued investment to grow its business, and progress toward its long-term financial objectives. 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;

1. 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 ability to effectively expand its sales capabilities; (iv) Zendesk's ability to effectively market and sell its products to larger enterprises; (v) 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; (vi) the intensely competitive market in which Zendesk operates and the difficulty that Zendesk may have in competing effectively; (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 maintain and develop its strategic relationships with third parties; (ix) Zendesk's ability to prevent, mitigate, and respond effectively to both historical and future data breaches and to securely maintain customer data; (x) Zendesk's ability to effectively manage its growth and organizational change, including its international expansion strategy; (xi) Zendesk's ability to integrate acquired businesses and technologies successfully or achieve the expected benefits of such acquisitions; (xii) Zendesk's ability to comply with privacy and data security regulations;

1. potential service interruptions or performance problems associated with Zendesk's technology and infrastructure; (xiv) the development of the market for software as a service business software applications;

1. real or perceived errors, failures, or bugs in its products; (xvi) Zendesk's substantial reliance on its customers renewing their subscriptions and purchasing additional subscriptions; (xvii) Zendesk's ability to accurately forecast expenditures on third-party managed hosting services; and (xviii) unfavorable conditions in the global economy, including those associated with public health crises, such as pandemics and epidemics.

The forward-looking statements contained in this presentation 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, 2019 and its Annual Report on Form 10-K for the year ended December 31, 2019.

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.

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 shareholder letter to reflect events or circumstances after the date of this shareholder letter or to reflect new information or the occurrence of unanticipated events, except as required by law.

This presentation and the accompanying oral presentation include certain non-GAAP financial measures as defined by the Securities and Exchange Commission rules. These non-GAAP financial measures are in addition to, and not as a substitute for or superior to measures of financial performance prepared in accordance with GAAP. There are a number of limitations related to the use of these non-GAAP financial measures versus their nearest GAAP equivalents. For example, other companies may calculate non-GAAP financial measures differently or may use other measures to evaluate their performance, all of which could reduce the usefulness of our non-GAAP financial measures as tools for comparison. As required by Regulation G, we have provided a reconciliation of those measures to the most directly comparable GAAP measures, which is available in the Appendix.

This presentation and the accompanying oral presentation include a number of operating metrics that Zendesk uses to evaluate its business, measure performance, identify trends, formulate business plans, and make strategic decisions. These operating metrics include the number of paid customer accounts, dollar-based net expansion rate, and the percentage of its annual recurring revenue from Zendesk Support originating from customers with more than 100 agents on Zendesk Support. Please see the Appendix for details regarding the definition and calculation and these operating metrics.

This presentation utilizes certain trademarks and service marks for reference purposes. All such trademarks and service marks are and remain the property of their respective owners. Any unreleased services or features referenced in this or other presentations, press releases or public statements are not currently available and may not be delivered or released on time or at all. Customers who purchase our services should make their purchase decisions based upon features that are currently available.

Zendesk is leading CRM innovation

Customer experience is the best way for organizations to truly differentiate

Our modern, service-first CRM solutions transform customer experiences and drive high demand

The Sunshine platform approach, open and on the public cloud, is the future of CX

Consistently deliver high-growth and scale

Agenda

Mikkel Svane, Founder + CEO

Our evolution to service-first CRM

Adrian McDermott, President of Products Shawna Wolverton, SVP Product Leading in CRM innovation

Tom Keiser, COO

Transforming customer experiences

Norm Gennaro, President of Sales

Differentiating for the enterprise

Elena Gomez, CFO

Scaling to be a multibillion-dollar revenue company

Q&A

Our investments to

continue leading in CRM innovation

Powering every		Leveraging smarter,		Extending our		Redefining CX
customer-facing		faster technologies		footprint in support,		through our open
conversation		to enable better CX		sales, and beyond		CRM platform

Service-first CRM solutions

Grounded in customer experience

Powerfully easy

Open and flexible

Data rich

Best total cost of ownership

We continue to

deliver for our customers

LAUNCHING TODAY

Next evolution

of Enterprise

Enterprise

+

Full

Availability

Zendesk Suite

Contextual

WhatsApp

Duet

Web and Mobile

workspaces

Collaboration

2018

2019

2020

Announcing key new launches today

Full

Availability

Launching the Support Suite

The Support Suite builds upon the success of our original Zendesk Suite omnichannel bundle

Pricing

ProfessionalEnterprise

$99 $169

Per user/month

Per user/month

*Pricing from June 1, 2020 onwards

Making the Support Suite "Suite-er"

New

Agent

Workspace

Simplify the agent experience by unifying support channels for connected conversations

New

Social Messaging

Unlock the most popular social messaging apps seamlessly

Unify the conversation across channels

UNIFIED CONVERSATION:

Unify support channels in one conversation

Provide customer context for more personalized support

LIVE UPDATES:

Get real-time updates on incoming messages from customers

ESSENTIALS CARD:

See all of the relevant details about a customer

CHAT VISITOR PATH & INTERACTION HISTORY:

Gain visibility into previous events and conversations

Create seamless, collaborative internal workflows

for faster support

SIDE

ANSWER BOT

KNOWLEDGE

CONVERSATIONS

FOR AGENTS

CAPTURE

TICKET

FIELDS:

Track and prioritize each customer interaction for faster follow up and resolution

Enable customizable workspaces

to boost agent productivity

APPS:

Integrate data from other tools easily

MACROS:

Quickly respond to common requests with a standard reply.

Messaging is the new communication paradigm

The need and want to communicate is constant. It's the way we do it that has changed.

87% of smartphone users use messaging

State of Messaging 2020

Introducing the Social Messaging Add-on

(included with the new Support Suite)

Twitter			WeChat				LINE

Included at no additional cost for all Support Suite plans.

Available for Zendesk Support Professional or Enterprise for $5/agent/month.

What's next?

Out-of-the-box messaging for mobile and web natively available in the Zendesk Support Suite

Persistent Conversations

Give end-users the flexibility to start and

pick up conversations without losing the history

Rich Interactions

Structured messages to collect information and give customers interactive experiences, while providing agents with more customer context

The number of companies offering AI-powered bots is expected to grow

120%

within the next year

New

Building better bot

experiences

Email

Web Form

Web Widget

API & SDK

Zendesk Customer Experience Trends Report Jan 2020

AUTOMATION

Answer Bot leverages AI to

remove repetitive work

3.5M 9,000 700K

				Agent
		Years given back
Answer Bot
resolutions		to customers		hours saved

Answer Bot will become more conversational

你好

Здравствуй

ﺎﺑﺣرﻣ

韓国語

10 NEW LANGUAGES

こんにちは Including Chinese, Japanese,

Korean, Thai, Arabic, Russian สวัสดี and more!

DATA LOOKUPS

Bring data in from other systems to provide answers in-context

GUIDED FLOWS

Guide users to refine their problem quickly, and access answers fast

Launching the Sales Suite

Extending our reach in CRM with a

solution built for the way modern sales work

Pricing

ProfessionalEnterprise

$79 $125

Per user/month

Per user/month

Sales CRM to enhance productivity, processes, and pipeline visibility for sales teams

Live chat to engage more buyers, convert more leads, and shorten sales cycles

Prospecting and enrichment tool to instantly build pipeline, generate leads, and update contacts

Click-to-call dialer to track, analyze, and improve phone conversations

Focus on the conversation

Engage with customers over phone, email, chat, or SMS, from a unified interface centered around conversations, not data fields.

Voice

Chat

SMS

Email

Keep your pipeline full
SELL

Open up more opportunities to uncover new leads from online chat, support tickets, and enriched prospects lists.

WEBSITE

LIVE CHAT

Hi do you have products to help me acquire new customers?

We do! Would you like to grow

fast or fast?

Close more deals, faster

Eliminate the admin work required to keep CRM records up-to-date so teams can spend more time selling.

CUSTOMER STORY

Zendesk powers Staples Canada digital transformation strategy

Reps and Agents

300

Stores 300+

"We are using Zendesk Sell and Support to give our sales and support teams everything they need in one platform. They are able to effectively and efficiently collaborate and improve the customer experience."

SIMON RODRIGUE

Chief Digital Officer, Staples Canada

Launching Sunshine Unified Profiles,

Custom Events + more

The Sunshine CRM platform enables larger, more strategic customer experience transformations and implementations

Pricing

	Lite		Professional		Enterprise
	Included		$19		$59
	With Support/		Per user/month		Per user/month
	Suite Enterprise

All components of Sunshine - Profiles, Events, Objects,and Conversations* generally available now.

*Sunshine Conversations priced separately

Treat your customers like humans, not tickets

Better customer experiences start with a complete understanding of your customers

Most businesses have silos

of customer data

Payment		Contact
details		information

Purchase

history

Support

history

Why is this happening?

Disconnected customer data

Handcuffed developers

Proprietary lock-in

Connect all the data and touchpoints between a business and a customer

Announcing into

General Availability today

	Unified Profiles			Custom Events			AWS Events Connector
Understand your customer		Get the complete customer		Make it easy to stream data
	and their information in			context with streaming		out of Zendesk into AWS
					events from any system
	external systems

Sunshine Workflows

EAP launched today

Give your employees their time back

Easily automate manual tasks so you can speed up work and make employees more productive

Bring intelligence to every process

Leverage all your data within Zendesk or 3rd party systems to trigger actions and enhance processes

Build faster with tools you know and love

Create powerful flows that can be reused across process so you dont waste valuable development resources

Hello, I was shipped the wrong item, I'd like a refund?

CUSTOMER REQUESTS REFUND

TICKET CREATED

ORDER VALUE

MORE THAN $5		LESS THAN $5

CHECK LOYALTY STATUS

SEND TO AGENT QUEUE		INITIATE REFUND

2,500+ customers

flipped the switch

Consumer				Internet		Sharing		Software
	Entertainment
products				of things		economy

Reflects the number of Zendesk customers who have accessed the Zendesk Sunshine platform. See Appendix for additional information.

What are customers actually doing with Sunshine?

Giving agents a complete view of the customer

Make your experiences as unique as your customers

Shifting relationships from reactive to proactive

Innovative companies scheduled to talk

about Sunshine at Relate

*Conference information as of 02-29-20 prior to the cancellation of our event.

The messaging platform for

conversational business

*Monthly subscription plus usage-based pricing

*Priced separately from Sunshine

Transform customer engagement into conversational business

Unify messages from every channel into a single conversation

Embed modern messaging into any website or app

Integrate any chatbot and for conversations at scale

Deliver interactive experiences that span marketing, sales, support and commerce

I'd like to book a flight from Montreal to San Francisco.

Personalize the guest experience for hotels & residences globally

Unified channels with shared conversations across all hotel teams

Proactive messaging for welcome messages, amenities and upgrades

Automated translation for over 100 languages

Luxury hotels power a digital concierge across many channels

RCS

LINE Android

Twitter

WeChat Apple

iOS

200M

160M

120M

80M

40M

Powering over a billion customer interactions*

1.1B*

Messages sent

in 2018-2019

7x

Messages growth

Y/Y (or 609%)

2018-01		2018	-06		2019-01		2019-06		2019-12

*Interactions are represented by number of messages sent.

• Send automated notifications to boost engagement
• Trigger from any business system - eCommerce, shipping, reservations, CSAT, etc.
• Route replies to any customer engagement solution - bots, sales, service, etc.
• A unified API - available now for SMS and WhatsApp

Connect riders, drivers, buyers, sellers, and everyone in your marketplace

Power group messaging, conversational communities, and cross-team collaboration for streamlined support

Monitor conversations on any channel to enforce compliance, auditing, and rich customer insights

Sunshine Conversations Pricing

	SELF-SERVE	SALES-ASSISTED
Plans	Starter & Growth	Premium & Enterprise
Target Markets	SMB	Enterprise
Platform Subscription	From $145/month	From $2k/month
Usage	5k Conversations included	50k Conversations included +
		optional bulk purchases
	$0.03/extra conversation	$0.02/extra conversation

*Conversation: Any number of sent or received messages from a unique end user to a Sunshine Conversations integration.

More to come for Sunshine

Create and automate any
		Build faster with new			Make the lives of developers
CX business process with			Sunshine admin tools and			easier with Sunshine
Sunshine Workflows			components			developer enhancements

Our investments to

continue leading in CRM innovation

Powering every		Leveraging smarter,		Extending our		Redefining CX
customer-facing		faster technologies		footprint in support,		through our open
conversation		to enable better CX		sales, and beyond		CRM platform

Appendix

Appendix - reconciliation of non-GAAP financial measures

2014-2015 reflect ASC 605. 2016-2019 reflect ASC 606.

Appendix - 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-RelatedExpenses: 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.

Amortization of Debt Discount and Issuance Costs: In March 2018, Zendesk issued $575 million of convertible senior notes due in 2023, which bear interest at an annual fixed rate of 0.25%. The imputed interest rate of the convertible senior notes was approximately 5.26%. This is a result of the debt discount recorded for the conversion feature that is required to be separately accounted for as equity, and debt issuance costs, which reduce the carrying value of the convertible debt instrument. The debt discount is amortized as interest expense together with the issuance costs of the debt. The expense for the amortization of debt discount and debt issuance costs is a non-cashitem, and we believe the exclusion of this interest 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-termnon-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, 2019, 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 has not reconciled free cash flow guidance to net cash from operating activities for the year ending December 31, 2020 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, 2020 is not available without unreasonable effort.

Appendix - About Non-GAAP Financial Measures

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, amortization of purchased intangibles primarily related to developed technology, and acquisition-related expenses. 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 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 debt discount and issuance costs, 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.

To

Appendix - 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, annual recurring revenue represented by its churned customers, and the percentage of its annual 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. In the quarter ended June 30, 2018, Zendesk began to offer an omnichannel subscription which provides access to multiple products through a single paid customer account, Zendesk Suite and in the quarter ended June 30, 2019, Zendesk began to offer a subscription which provides access to Sell and Support through a single paid customer account, Zendesk Duet. All of the Suite paid customer accounts are included in the number of paid customer accounts on products other than Support and Chat and are not included in the number of paid customer accounts on Support or Chat. For the quarters ended June 30, 2019 and September 30, 2019, each Duet paid customer account was included in the number of paid customer accounts on Support, but not included in the number of paid customer accounts on products other than Support and Chat. For the quarter ended December 31, 2019, each Duet paid customer account is included once in the number of paid customer accounts on Support and once in the number of paid customer accounts on products other than Support and Chat in order to more accurately reflect how Zendesk's management views such metric. The effect of this change in methodology did not have a material impact on either the number of paid customer accounts on products other than Support and Chat or the total number of paid customer accounts for the quarter ended December 31, 2019. 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. Other than usage of Zendesk's products through its omnichannel subscription offering, each of these accounts is also treated as a separate paid customer account. Zendesk does not currently include in its number of paid accounts the number of accounts on Sunshine Conversations, its Sunshine platform messaging product, Zendesk Gather, its community forum software, or its legacy Smooch product.

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 annual recurring revenue for a set of paid customer accounts on its products.

Zendesk determines the annual recurring revenue value of a contract by multiplying the monthly recurring revenue for such contract by twelve. 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 platform usage above the subscription base, if any, that may be applicable to such subscription. Beginning with the quarter ended June 30, 2019, we excluded the impact of revenue that we expect to generate from fixed-term contracts that are each associated with an existing account, are solely for additional temporary agents, and are not contemplated to last for the duration of the primary contract for the existing account from our determination of monthly recurring revenue. 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 annual recurring revenue across its products for customers with paid customer accounts 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 annual 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 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.

Appendix - About Operating Metrics

Giving effect to this consolidation results in Zendesk's dollar-based net expansion rate being calculated	Zendesk's annual revenue run rate is based on its revenue for the most recently completed fiscal quarter.
across approximately 106,300 customers, as compared to the approximately 157,000 total paid customer	Zendesk annualized such results to estimate its annual revenue run rate by multiplying the revenue for the most
accounts as of December 31, 2019.	recently completed fiscal quarter by four. Zendesk's annual revenue run rate is not a comprehensive statement
	of its financial results for this period and should not be viewed as a substitute for full annual or interim financial
To the extent that Zendesk can determine that the underlying customers do not share common corporate	statements prepared in accordance with GAAP. In addition, Zendesk's annual revenue run rate is not necessarily
information, Zendesk does not aggregate paid customer accounts associated with reseller and other similar indicative of the results to be achieved in any future period.
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	Zendesk's LTV/CAC ratio reflects an illustrative calculation of the average lifetime value of its customers, or LTV,
net expansion metrics associated with customers that maintain multiple paid customer accounts across its	divided by an average acquisition cost, or CAC. Zendesk calculates LTV by multiplying average churn rate of a
products and paid customer accounts associated with reseller and other similar channel arrangements.	cohort of customers	during a particular period	by its average monthly recurring revenue during such period by
	its overall gross margin percentage during such period. Zendesk calculates its CAC by dividing its	total sales
Zendesk does not currently incorporate operating metrics associated with its legacy analytics product, its
and marketing expenses during a particular period, by its total number of acquired customers during the period.
legacy Outbound product, Sell, its legacy Starter plan, Sunshine Conversations, Gather, its legacy Smooch
product, free trials, or other free services into its measurement of dollar-based net expansion rate.	The number of Zendesk customers who have flipped the switch reflects the number of Zendesk customers who
	have accessed the Zendesk Sunshine	platform.	Some of the Zendesk Sunshine features and functionality were
For a more detailed description of how Zendesk calculates its dollar-based net expansion rate, please refer
part of an early access program up until the date of this presentation. From the date of this presentation, certain
to Zendesk's periodic reports filed with the Securities and Exchange Commission.
Zendesk Sunshine features and functionality will be generally available, while other features will continue to be
Zendesk's percentage of annual recurring revenue from Support that is generated by customers with 100 or	part of an early access program.
more agents on Support is determined by dividing the annual recurring revenue from Support for paid

customer accounts with 100 or more agents on Support as of the measurement date by the annual recurring	The number of unique requesters reflects the number of unique requesters across Zendesk's products during a
revenue from Support for all paid customer accounts on Support as of the measurement date. Zendesk	twelve-month period. Each requester of a Zendesk customer is given a unique requester identification number.
determines the customers with 100 or more agents on Support as of the measurement date based on the	To the extent that a single requester initiates requests from multiple Zendesk customers, such requester will
number of activated agents on Support at the measurement date and includes adjustments to aggregate	receive a unique requester identification number for their requests from each Zendesk customer.
paid customer accounts that share common corporate information. For the purpose of determining this
metric, Zendesk builds an estimation of the proportion of annual recurring revenue from Suite attributable to
Support and includes such portion in the annual recurring revenue from Support.
Zendesk does not currently incorporate operating metrics associated with products other than Support into
its measurement of the percentage of annual recurring revenue from Support that is generated by
customers with 100 or more agents on Support.