Zendesk Inc. (ZEN - Free Report) reported second-quarter 2018 non-GAAP earnings of 3 cents per share that beat the Zacks Consensus Estimate of a breakeven. The company had reported a non-GAAP loss of 2 cents in the year-ago quarter.
Revenues surged 39% from the year-ago quarter to $141.9 million, better than the Zacks Consensus Estimate of $138 million. The year-over-year growth was driven by strong adoption of the company’s products. Moreover, expanding usage of its products by existing customers is driving growth.
Notably, net expansion rates in dollar terms were 119% compared with 116% at the end of the year-ago quarter.
Geographically, the United States contributed 51.5% of revenues. Europe, Middle East and Africa (EMEA), Asia-Pacific (APAC) and others contributed 29.4%, 11.4% and 7.7%, respectively.
Support MRR from customers with 100 or more Support agents — a key metric to gauge the company’s growth — was up 38% basis points (bps) on a year-over-year basis.
During the quarter, the company launched the Zendesk Suite, its new omnichannel bundle, which brings together Support, Guide, Talk, and Chat products.
The company also launched Zendesk Connect, which enables proactive customer engagement.
Zendesk continued to add features to its enterprise products. Moreover, the company launched new enterprise workflow and collaboration tools during the quarter.
The company also closed over 60% more deals with an average annual contract value of $50,000 or more as compared with the year-ago quarter.
Zendesk’s customer base expanded in the quarter with new additions like Henry Schein, IDEX, Netflix (NFLX - Free Report) and Yandex Taxi among others.
Non-GAAP gross margin contracted 130 basis points (bps) on a year-over-year basis to 72.2%. The decline can be attributed to the ongoing transition from co-located data centers to cloud infrastructure.
Non-GAAP operating expenses increased 33.2% year over year to $104.4 million. Research & development (R&D), sales & marketing (S&M) and general & administrative (G&A) expenses surged 31.1%, 35% and 30.4%, respectively.
However, as percentage of revenues, non-GAAP operating expenses declined 320 bps on a year-over-year basis to 73.6%. R&D, S&M and G&A declined 110 bps, 120 bps and 80 bps, respectively.
Notably, Zendesk opened its new EMEA headquarters in Dublin this July.
Operating loss was $2 million compared with loss of $3.3 million reported in the year-ago quarter.
For third-quarter 2018, Zendesk expects revenues between $150 million and $152 million. Non-GAAP operating income is expected in the range of $2-$4 million.
For 2018, Zendesk expects revenues between $582 million and $586 million.
Zendesk expects 100 bps headwinds to gross margin due to the ongoing transition from co-located data centers to cloud infrastructure. Zendesk expects to complete the migration by year-end.
Non-GAAP operating income is expected in the range of $0-$5 million.
Free cash flow is expected between $28 million and $30 million.
Zacks Rank & Other Stocks to Consider
Currently, Zendesk has a Zacks Rank #3 (Hold).
Attunity (ATTU - Free Report) and Upland Software (UPLD - Free Report) are stocks worth considering in the same sector as both sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Long-term growth rate for both Attunity and Upland is currently pegged at 20%.
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