Zendesk, Inc.
Q4 2014 Earnings Call Transcript

Published: 12 Feb 2015

[Operator:]

Good afternoon. I'd like to welcome everyone to the Q4, 2014 Zendesk Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. Marc Cabi, you may now begin your conference.

[Marc Cabi:]

Thank you, Ian. Hello, everyone. This Marc Cabi, Vice President of Investor Relations. I am pleased to welcome you to Zendesk's fourth quarter 2014 earnings conference call and webcast to discuss our financial results. Joining me today are Mikkel Svane, Founder, Chairman and CEO; and Alan Black, Chief Financial Officer. After the market closed today Zendesk announced financial results for its fourth quarter of 2014 and the full year calendar of 2014. The earnings press release and live webcast of this session are available by visiting investor.zen.com which is our Zendesk's Investor website. A replay of this webcast will be available for one year on our Investor website. During the course of today's call, we may make forward looking statements such as statements regarding our future financial performance, product development, growth prospects, ability to attract or retain customers, and ability to compete effectively. Words such as may, should, will, believe, expect, anticipate, target and project and other similar phrases that denote future expectations or intent regarding our financial results, operations and other matters are also intended to identify such forward looking statements. These forward looking statements are subject to risks, uncertainties and assumptions. Additional information concerning factors that could cause actual results to materially differ from those in the forward looking statements is contained in our earnings press release and the risk factors in our filings with Securities and Exchange Commission including our quarterly report on Form 10-Q for the quarter ended September 30, 2014. Further information on potential risks that could affect actual results will also be included in the subsequent periodic and current reports and other filings that we make with the Securities and Exchange Commission from time to time including our annual report on Form 10-K for the year ended December 31, 2014. Please note that any forward looking statements made today are based on assumptions that we believe to be reasonable as of today. Actual results may differ materially from those expressed or implied by any forward looking statements that we make. We undertake no obligations to update these statements after today's presentation or to confirm these statements to actual results or to changes in our expectations except as required by law. During this call we will present both GAAP and non-GAAP financial measures. The non-GAAP measures should be considered in addition to but not as a substitute for or isolation from our GAAP financial information. You could find additional disclosures regarding these non-GAAP measures including reconciliation with the comparable GAAP financial measures in today's earnings press release regarding our fourth quarter 2014 and full calendar year 2014 results which is available on our Investor's website. Before I turn the call over to Mikkel, let me take a moment to discuss some updates to the way we are presenting our operating metrics. As we communicated in our last earnings call, we planned to institute some changes to provide additional transparency in to the customers that drive our financial performance and more closely align these metrics with our revenue generating and marketing activities. The changes we have made affect the way we report our customer accounts and annualized dollar base net expansion rate metrics. We are also beginning to provide further information into the scope of our customer base using our Zopim live chat. We closed the year with a 51,721 customer accounts on our customer service platform. All of these customers provide us revenue. Beginning with this quarter, we began to disclose a number of customer accounts on our customer service platform that subscribe to plans other than our starter plan. We view our starter plan as a great way to promote our brand and maintaining conversation that can lead to future sales. But the vast majority of our revenue is driven by customer accounts on our other plan. And we think it is instructive for the financial community to understand the breadth of their population. As of December 31, 2014, we had approximately 27,600 customer accounts on plans other than starter. Going forward, we will be reporting our customer account metric based on the number of these so called K- customer. We are also pleased to begin providing information on pay customer accounts for our Zopim live chat software. As of December 31, 2014, we had over 24,900 such pay customer accounts. We internally classify our starter plan similarly to our free Zopim live plan and certain other free services we provide as premium accounts, intended to promote brand awareness and engage customers with that product. As of December 31, 2014, we had nearly 100,000 active premium accounts for these services. We have made a similar change to the calculation of our annualized dollar based net expansion rate to provide that measure that excludes customer accounts on our starter plan. Using our prior method of calculation our annualized dollar based expansion rate was 122% as of December 31, 2014 compared to 123% as of September 30, 2014. Excluding our starter plan from the calculation of this metric, resulting an annualized dollar base retention rate of 120% as of December 31, 2014, compared to 121% as of September 30, 2014. Our newly formulated operating metrics and a comparison to these measures as previously calculated for each of our prior four quarter are available for you to review in our press release. With that let me turn the call over to Mikkel.

[Mikkel Svane:]

Thank you, Marc. And thank you for this very detailed explanation. I hope everybody got it out there. Thank you so much for joining us on our call today. Looking back at the results of our latest quarter and all of 2014 it is impressive to think about how much our product has evolved. How much we have grown as a company and how our tool has expanded across the world. I am proud of how international and how distributed we have become with nearly half of our team located outside of our San Francisco headquarter. Our international team plays a critical role in our success and led many of our important development and expansion projects that will drive our future growth. We finished 2014 with the product launch of Zendesk Embeddables; this was actually one of our first big globally orchestrated projects. Zendesk Embeddables is something you will hear a lot more about in 2015. It represents how we think about the future of customer service. Customer service not as a destination but as something that is available at your finger tips whether that beyond your device in your app, in your web service or in your website. We also completed our third quarter as a public company and I am very proud of our accomplishments over the past months. Three quarter, the quarter was punctuated with strong revenue growth and of course strong financial operating results. As we close 2014, we used to pass some very important milestones. As of December 31st, we have over 52,000 paying customer accounts actually doing the Zopim live chat offering to our consolidated account along with data count on our customer service platform but now exclude customers on our entry level Startup line as Marc explained to us. In addition to these paid accounts, we closed the year with a population of nearly 100,000 active accounts using our premium plans for customer service and live chat that now also includes our Starter plan. As Marc mentioned, we view these premium accounts as a tremendous opportunity to promote our brand and maintain a conversation that can lead to future sales. As I have in prior discussions of our operating results, I'd like to focus the rest of my discussion on highlighting how our results and achievements relate to the key growth drivers that we have to find for business. The first of our growth strategy is to introduce new products and to broaden our platform functionality. As I mentioned in early December, we launched the first set of Zendesk compatible. It is a new development tools that allow organization to easily embed call center functionality into their respective native mobile application into the website, into their product, into their services. Embeddables consist of a new web widget framework for websites in mobile as a case for IOS and for Android as well as our full featured ATI for more customized development. Embeddables on a positive first step towards enabling businesses to put customer service at the forefront of the customer experience as the number of devices and online services and products we all use continue to proliferate. We view this launch as only the beginning. Embeddables will help Zendesk expand its appeal to new teams within organizations. Most notably product and mobile developers who want to embed different customer service tools into the right context for their customers. They can now take the separate component of our platform and with a few lines of code embed into their own mobile apps site, services and devices. Although it is in its early stages, we are encouraged by the early engagement by our customers. More than 2,000 accounts already have already implemented the new Embeddables. And allow me to emphasis two of them. First, GREE International, Global, mobile, social gaming company and mega of top giant title such as Modern War, Crime City and War of Nations. It is a great example. It uses the Embeddables to make it very easy for its gamers to get support directly within the mobile game experience, engaging the players in game is an important goal as gamers they don't want to leave the game to look up to answer to a question. Another company Getaround empowers people to conveniently share and rent car. The peer-to-peer talk sharing company understands that when it comes to transportation, people want a fast and reliable customer service experience. Using Zendesk Embeddables the team uses a live system mobile as a cap to embed its importantly maidenly into his app giving customers the ability to easily find and seek help without leaving the Getaround app. Our second growth driver is to maintain our Zendesk addition up serving small and medium size businesses and maintaining our leadership in the SMB market. We are proud that Zendesk continues to be the platform of choice for the world's most innovative start ups even as we increasingly adopted by mainstream businesses around the world. Our earliest SMB customers range from mom-and-pops shops through early Silicon Valley startups. A close connection to the startup world has now been strength of ours because we understand the requirement and companies that often defining the trends that later become popular across our entire customer base. In the past quarters, we have detailed our success with high growth companies such as Google and Airbnb from the very early startup date. In Q4, we are honor to have fast growing companies like Squarespace and Revel Systems continue that tradition. As Squarespace is a leading all in one publishing and e-commerce platform with a mission to provide creative tools that help anyone give voice to their ideas. Prior to choosing Zendesk, it used a multiple systems for managing customer up service, customer servicing mail, customer chat and bill reporting. It chose Zendesk to replace those systems and serve as a single customer service platform that can give it a complete view of its customers and more detailed data analytics about how support impacts his business and improve his product. Another fast growing company Revel Systems which is a leading iPad kind of sale platform was looking to replace its existing customer service solution as it prepared for large increase in customer inquiries and services requests in 2015. Not only is the company growing fast but it also has announced a new partnership with Intuit that it expect will increase its need to support all the restaurants, the retailers and other establishments that uses its system. Revel Systems chose Zendesk for its ability to scale with its growth as well as the overall ease of use of the platform compared to other solution and of course the advanced analytics offer incentive in sight. These are just two examples of new accounts in the fourth quarter. What's even more gratifying is when we are able to watch the success of so many of our startup customers. Just last week in San Francisco the tech blog take TechCrunch held its annual Crunchies award for the most innovative startups and tech companies. As much fun as it was for us to be nominated, my two co-founders Morten, Alexander and myself were also founders of the year, it was even better to see that almost half of all the companies nominated were Zendesk customers. In fact, the founder of the year winners ended up not being myself and my two co-founders but the three guys behind Slack, a great customer of our that we mentioned in our last earnings call. And again I just want to say congratulation to Stuart and his co-founder on the award. Third and important driver of our growth is to further our data driven approach. We took a novel approach to our quarterly Zendesk benchmark to client data science technique to better understand hidden connection among the more than 25,000 participating customer accounts on the Zendesk customer service platform. Our platform provides organizations operational benchmark for key metrics like CSAT and first appliance resolution times broken down by country, vertical industry, company sites et cetera. But our customers also wanted to understand how they compare to other organizations that maybe similarly structured or have been handled similar support volumes. These innovative organizations are looking for additional lenses through which to measure and understand their performance. They want an operational score of their performance and of their best practices to tell that how they can improve against the organization that the consider better in class. This quarter's research clustered organizations into four operational types based on workload, based on support strategy, based on resources and based on the outcome they can expect around customer satisfaction and customer loyalty. We have already begun to introduce some of our understanding of how these organizations operate and to how we assist our own customers through our customer assess scene. And we believe that this type of segmentation it also provide a unique opportunity to further build best practices directly into our platform. We believe the Zendesk's benchmark can be transformative in that industry that is too reliant on self proclaimed experts. With organizations struggling to adapt to the new reality of customer relationships. Being transparent with data and providing data driven best practices is part of our effort to democratize great customer service. Our fourth growth driver is to continue to expand our mid-market and enterprise customer base. Our software platform is build to address a broad range of use cases as well as to scale from teams with only a handful of users to installations that may have several thousands seats. During 2014, we began a concerned effort to build out organization and infrastructure to capitalize on the mid-market and enterprise opportunity. We successfully hired and deployed a substantial portion of the team we expect to drive this growth. Including a sales force, a distributed globally who are focused on this segment as well as the field marketing team to support their efforts and help drive lead generation for the sales force. It remains early days for our mid-market and supply efforts but we are excited about the results so far and very optimistic about the future. One of the measures of our progress towards our goal is a percentage of marginally recurring revenue or MRR that is generated by customers with 100 or more seats on our customer service platform. As of December 31t, 2014, those customers represented 24% of our total MRR, up from 23% as of the end of the third quarter. During 2014, we were selected in more than 500 new customer accounts that we identified as mid-market enterprise, while we can't name them all I like take a moment to highlight just a few of the customer accounts that we added in the fourth quarter. From a Tokyo Recruit Holdings the multinational company and a leader in information services for HR, for marketing, staffing and other businesses. They have over 100 subsidiaries, 20,000 employees and annual revenues reaching $10 billion. The group's media technology lab serve as a corporate incubator for recruit holding and they chose Zendesk to power external customer service for the innovative businesses that are being build via the media technology lab. And now the well known brand in the fourth quarter was ANE, the entertainment media company. ANE reaches 330 million people worldwide; they can be found in eight of 10 American homes and has something like 500 million digital users. The company is using Zendesk to support digital users for several of their brands. ANE was seeking a platform that could handle its fast pack, fast pace and high volume environment and allow customers to help themselves proves our service. And other customer Cementos Progreso or CemPro for short is a major cement producer and distributor in Guatemala. CemPro saw Zendesk as an innovative tool to tick their company to the next level in productivity and customer carry experience. The company is using Zendesk to manage claims and order inquiries generated by business customers. Zendesk was selected because of its ease of use and all the agents' site and ability to implement and scale quickly. I am very excited about the addition of CemPro given its Latin American rules. We believe the Latin American market offers us a wealth of future opportunities. Lastly, let me mention Deckers brand, one of the global leaders in footwear listed on the New York Stock Exchange, the company has a number of well known shoe brands including of course Ugg Australia, Deckers products are sold in more than 50 countries and territories. They look to Zendesk very simple and cost effective way to offer what they call click and collect as part of their omnichannel strategy. This solution allows customers to -- consumer to go online order their favorite Ugg boots and pick them pick them up from one of their many world wide stores and locations like London, San Francisco and Las Vegas. After a competitive evaluation, Deckers chose Zendesk because they like the mix between automated and human interactions which provides an effortless and very seamless shopping experience for the Deckers customers. Fifth growth factor involves broadening our integrations and partnerships as a way to extend our reach especially in two larger accounts. We built a large and growing business by selling directly to organization seeking to provide great customer service. We believe these efforts have established Zendesk as both thought and market leader and we are well positioned to take advantage of that leadership to leverage a number of promising additional sales channels to expand distribution in 2015. One area of focus with these efforts is with so called business process outsourcing or BPO in short. These organizations provide outsource business plus management including customer service, moderation, community management and other services through a wide array of organization across all industries. We believe that our platform provides a unique value position to these organizations to serve their clients through a flexible and easy to deploy solution, while our efforts with this channel still are nascent; we are excited to already to working with 12 BPOs worldwide and have aligned our sales organization to specifically address this opportunity. Our channel strategy is also designed to be flexible enough to recognize unique opportunities to expand our reach. As an example, we recently entered into a strategic partnership for the company called Symphony Commerce, a leading so called business process as a service provider that powers online stores. Through our partnership with Symphony, we’ll be delivering customer service solutions to compliment the fulfillment in marketing tools that Symphony already delivers. Symphony’s client use Zendesk to interact directly and build relationships with their customers delivering a beautiful simple customer experience. Last quarter we spoke to you about to launch of our redesign developed portal and we’ll let you know that we have surpassed a thousand registered developers on our platform. I'm very excited to make you know that this number has more than doubled during bringing the total number of registered developers to more than 2,500 currently. We believe that the growing number of developers results in proliferation of apps and other powerful expansions of our platform. We currently have more than 270 apps in our marketplace, a number which has more than doubled over the last year. Continuing to expand our global footprint is another important growth driver. As I mentioned earlier, we are very global for being such a young company and have 45% of revenue outside of the US in the quarter ended December 31, 2014. In 2014, we solidified our presence in Europe by opening or expanding our office in Dublin, in Berlin, Copenhagen and in London. Throughout the start of the year I traveled to London myself and to launch my new book Startupland and walking down region street, I was impressed, I was humble to see a broad range of retail brand that have chosen Zendesk to power their customer service. These are prominent brands like as I mentioned before Ugg Australia but also June Hobbs, Lodge Cosmetics and even the Rifle Cycle Club have all chosen Zendesk for providing next generation customer service. Also I want to mention that in January we began to rollout online our live credit card billing in foreign currency. Pounds Sterling pricing launched on January 22nd and will be followed by euro pricing during our first quarter of 2014. Very excited to see the impact of providing local currency on the rate of adoption for Zendesk in the European markets. Finally, we believe the ongoing development of our brand is an important key to our growth. Some of you have heard or seeing that I wrote a book called Starter Plan which was published in December by widely here in the US and it was released in Europe last month. It shows the founding story of Zendesk from the point of view of Alexander, Morten and myself all the way from the early days eight years ago in Alexander’s kitchen in Copenhagen. To us ringing the bell together I think New York Stock Exchange last year. We published this book because we thought it was important to our brand for us to tell the story and to share it widely. I’ve talked a lot on these calls about how Zendesk gets evolved, how we have now served not only a core small and medium size businesses but increasingly larger enterprises looking to transform customer service. As we move up market, we are aware that we must do so in a way that it’s true to our history and through our brand values. Startupland is very much a reminder of where we came from and why we believe we can change this industry and democratize great customer service. A big part of our success early on was to trust that other entrepreneurs heading us as they build few companies that quickly grew with us, Groupon to Uber to Airbnb. I hope that Startupland inspires even more future entrepreneurs to pursue the big ideas and helps remind them that we understand what it’s like to go through the journey, and we are here to help them along the way. Of course it has been fun to be an author and I'm proud that Startupland has received a positive response, made on Amazon best of books -- best books of the month’s list and it was also chosen at the book of the week in the Times of London newspaper. The new book, one of many activities we assured to solidify our brand and our goal of representing our brand in a very humble, charming, uncomplicated way. We believe our brand strategy is critical to driving around awareness and word-of-mouth a key component of our growth. We believe our continues success in this effort is reflected in the percentage of our online leave that we identify as being sourced organically which was the 64% in the fourth quarter. Before I turn the call over to Alan Black, our CFO, I want to mention and I want to thank some of the customers with whom I personally got a chance to work with in the last quarter. So thank you so much for our confidence -- for your confidence in our company. Thank you Anthony from Square Space in New York, Billy Bosworth from DataStax in Santa Clara, I also want to thank the entire Dropbox team in Dublin that I visited earlier in the quarter. On a more personal level, I also just wanted to tell that I recently enjoyed weekend with my kids at the Monterey Bay Aquarium. This is such an amazing place I hope you have all visit this place recently, it is one of my favorite activities here in California, and therefore also very, very excited to personally welcome this great organization to the Zendesk's family, we are very happy to have you as a customer, thank you. And finally let me just expect -- let me finish off by expressing my sincere gratitude to Devdutt Yellurkar, a member of our Board and a very first VC Investment at Zendesk. Devdutt has informed us of his plans to step down from the Board when his term is up at our annual meeting, stockholders plan for May of this year. As everyone who has read my book knows Devdutt had a tremendous influence on Zendesk, and on our growth beginning with convincing these three pale Danish guys to pack up and move to America to make a goal of this experiment call centers. I want to thank him and we all want to thank him for all that he has done and wish him tremendous future success in his day job if you will of filing and billing the next generation of great technology company. I am going to miss having Devdutt on my Board, but I look forward to seeing a lot more often as a friend, so Devdutt thank you so much. And with that please let me now turn it over to Alan.

[Alan Black:]

Well, thank you, Mikkel and good afternoon everyone Mikkel and Marc have both spoken extensively so I propose that we dive directly into the numbers. Beginning with the review of our results for the quarter, Q4 marked another strong quarter for Zendesk in terms of our revenue growth, operating results and other financial metrics. Revenue for the quarter totaled $38.5 million, which was up 71% from $22.5 million in Q4, 2013 and 14% sequentially from $33.9 million of revenue recorded in the third quarter. Our GAAP net loss was $17.5 million, which included $8.9 million of share base compensation and related corporate payable taxes, a $132,000 of share base compensation capitalize and internal use software and amortized to cost of revenue and $465,000 of amortization of purchased intangibles. GAAP net loss attributable to common shareholders was $0.24 per share and excluding the charges that I just detailed our non-GAAP net loss was $8 million, or $0.11 per share. There were 73.3 million weighted average shares outstanding for the quarter. Non-GAAP gross margin was 67.9%, as compare to 68.7% in the third quarter. As discussed with you on the last earnings call, we expected our gross margin to decline modestly in the fourth quarter as our Virginia co-lo facility ended production. Non-GAAP operating margin came in at negative 20.1% compared to negative 18.9% in the third quarter of 2014. As hiring in other areas in which we reinvested in the business track closer to our expectations in this period and was in the case in the third quarter. On GAAP basis gross margin was 64.6% compared to 65.6% in the third quarter and operating margin was negative 44.6% compared to negative 52.5% in the third quarter. We generated positive $2.1 million cash from operating activities in the fourth quarter and were cash flow positive from operations for 2014 as a whole as we were in 2013. Cash used in investing activities were $8 million in the fourth quarter which was comprise of $2.5 million invested in property and equipment. $1.7 million of capitalize website and software development cost and net $3.8 million invested in marketable securities. Cash derived from financing activities was $5.6 million during the fourth quarter driven largely from purchase of common stock by employees through either option exercises or under our employees stock purchase plan. We ended 2014 with $80.3 million of cash and equivalents and had additional $42.2 million of short- term marketable securities as Mikkel discussed 55% of our revenue is derived customers in the US while 45% of revenue came from customers internationally. This mix reflects the broad geographic diversification of our business and the global opportunity we are addressing. Once again in the fourth quarter, over 60% of our growth was drive from expansion of our relationships with existing customers and a balance of our growth came from the addition of new customer during the quarter. As you heard Marc has already provided you with details of our net expansion rate metric for the fourth quarter which reflects not only our success driving customer expansion but our continued strong retention. Retention is the inverse of churn and as of December 31, 2014, our annualized measure of monthly recurring revenue represented by churned customers remained less than 10%/ Before I conclude and turn the call back to Marc, I would like to initiate our guidance for 2015 and the first quarter. First our outlook for the first quarter is as follows. We expect the Q1 revenue to be in the range of approximately $39 million to $41 million and expect our non-GAAP operating loss to range between $9.5 million and $10.5 million. We further expect our GAAP operating loss to range between $20 million and $21 million, considering weighted average share count based on our current shares outstanding and anticipated activities associated with equity incentive plans only; we estimate we will have 75.5 million weighted average shares outstanding for the first quarter. For 2015 as a whole, we expect revenue to grow 45% to 50% year-over-year or in dollar terms to range between $184 million and $190 million. We expect our annual non-GAAP operating loss to range between $34 million and $36 million, and we expect our annual GAAP operating loss to range between $76 million and $78 million. Concerning cash flow this quarter we expect our cash from operations to dip negative before we returning to be in positive for the year as a whole. Ongoing capital expenditures in 2015 including those associated with call or data centre investments and other office facilities will result in use of between $30 million and $35 million of cash over the course of the year. In aggregate therefore we expect free cash flow to be negative for 2015 as a whole as we have discussed previously and we as we’ve previously said we maintain the goal of achieving a positive free cash flow run rate by the end of 2016 And with that I would like to thank you for your attention and I will turn the call back to Marc, Marc?

[Marc Cabi:]

Thank you, Alan. And thank you, Mikkel for you comments. We can now open up the Q&A. Ian; I will turn the call back to you to pool for questions.

[Operator:]

[Operator Instructions] And your first question comes from Greg Dunham at Goldman Sachs. Your line is open.

[Frank Robinson:]

Hi, thanks for taking for question. You actually have Frank Robinson here for Greg Dunham. Sounded pretty amazing that you guys are dealing some revenue above 70% for the year while being cash flow from operations positive, so the question is what about the business model allowed you accomplish that and how -- I guess you gave guidance on CapEx, but how should we think about cash flow from operations for the full year next year? How much of margin I suppose -- cash flow margin Expansion I guess should we see?

[Alan Black:]

Hi, this is Alan, thank you for your kind words I think the drivers in terms of our ability to sustain growth rate that we did over 70% for the year while being cash flow positive from operations I think it starts with the customer acquisition model that we have as Mikkel mentioned we this last quarter had a 64% rate of organic leads in terms of the mix between organic and paid, that drives an efficient level of customer acquisition cost which by not having to invest heavily in that area relative to perhaps others we are able to grow rapidly while at the same time remain efficient and cash flow positive from operations. You are correct this year we are going to be investing again as we did in 2014 on the capital expenditure side for the full year as a whole. As I mentioned we will be cash flow positive for the quarter we expect to be negative and I think that you should expect that we will have a stronger performance in 2015 in terms of the amount of operating cash flow that we will generate relative to 2014. So it should be higher.

[Frank Robinson:]

Great and you talked about expanding the mid-marketing enterprise sales team. Can you give u update on maybe how many reps you have currently or just how rest throughout the year and how much more you to act with the team in 2015 customer.

[Alan Black:]

Yes so I think one thing was that we will say maybe just concluding 2014 a note of having achieved the hiring plan that we said in the beginning year for that team. So over the course of the year we added the 20 to 25 that we said we would. So we're pleased with that and I think that said we continue to believe that it's early days and there is going to be a time for them to ramp especially those that we're added later in the year. So we'd have you expect that. I think on a forward basis, we're going to continue to invest there based upon the growth that we see from this point forward in terms of opportunities that come to us. 2014 was a year of investing in the team knowing that it took time for them to become productive. 2015 is much going to be about growing that team as we see the pipeline of opportunities come to us through the efforts of the team, the outbound team that was put in place last year as well as the efforts the field marketing organization that was also build throughout the year.

[Operator:]

And your next question comes from the line of Phil Winslow at Credit Suisse. Your line is open.

[Phil Winslow:]

Hi, guys. Thanks guys and congrats on a great quarter. Just two questions here. First, Mikkel, wonder if you can comment on what you're seeing in the US versus international. As you kind of think about 2015 here in the guidance, how do you parse out sort of your expectations for domestic versus what has been obviously good international growth as well? Then also just a follow-up for Alan. I wonder if you can just give us the headcount number for Q4, and then how are you thinking about just sort of headcount growth in 2015?

[Mikkel Svane:]

Yes, so I think that we know and partly due to our international roots in the company, as you know that all the founder from Europe and we have a big international team. I think it is very native for us, it's very safe for us to realize what the big market as it is out then, and some of these markets, there are still bunch of markets where we only like moderately penetrated and we have a huge opportunity ahead of us. And as we mentioned like our -- are still -- our operations in Europe is relatively matured market for us are still growing dramatically, Latin America is another huge opportunity and still we feel that our penetration in Asia are still very, very low. So we continue to believe that markets outside of US are tremendous opportunity for Zendesk. And Alan I don't know if you want to answer the second part of the question.

[Alan Black:]

Yes, I know I will be happy to, so Phil I think just too perhaps start with 2015 and have you understand what we're planning from a hiring point of view. I think that the intention we have is that we will hire again not only as it relates to the sales organization but across the company as a whole that we're going to hire based up on the actual growth that we see that we are achieving, right. And so the faster we're growing the more that we will look to reinvest both in personnel to build out the team necessary to support growing the number of customers, but also investing in other areas for example caller facility to stay at a position to being able to always deliver high quality service to our customers, and facilities to hire to handle additional headcounts as we grow. So have you looked at that way from a 2015 perspective? We ended 2014, if I am not mistaken Marc at over 800 employees. So we picked up the pace of hiring in the fourth quarter from what we have described in the third quarter I think show our recruiting team who did a great job there as well as hiring managers across the company.

[Operator:]

And your next question comes from the line of Jennifer Low at Morgan Stanley. Your line is now open.

[Anjit Singh:]

Hi, this is Anjit Singh sitting in for Jennifer. How are you?

[Alan Black:]

It is like you had a cold Jen.

[Anjit Singh:]

That would be an issue if she has this voice. Let me ask you a little bit about the customer acquisition for this quarter. I guess using the old baseline, we're looking at -- I have it slightly under 3,000 customers added this quarter. Just wanted to get your thoughts. It seems that it's been generally flat over the last three quarters. Just wanted to get your thoughts on how you think about the rate of the customer additions going into 2015, where you see more opportunities mining the installed base, or there's the potential for new customer acquisitions to accelerate.

[Alan Black:]

As we have said in the past again you are absolutely right customer acquisitions on a peer count basis has been about 3,000 over the last couple of quarters just under that actually, and we are seeing a mix shift in terms of how we are generating customers as well as the fact that we are reclassify our customer metrics to really allow you to analyze customer metrics for those customers that are above our Startupland, so by segmenting out that premium category using that is our opportunity to really mind market opportunity with customers that are using our product on a premium basis, we believe we are creating a huge future customer opportunity there. So going forward we will be reporting our customer metric based on Zendesk customer service platform numbers as well as Zopim customers on the chat platform that will be reported separately and you will be able to gauge the growth for each of those going forward. We do aggregate those numbers and within those customers can subscribe to different plans and you will have to do your own calculations as to how do you that customer acquisition. One other point I would just make is we have been deliberately as we look to drive our program marketing spend looking always in which to have that spend produce leads in larger organizations and so I think one of the things that happens over time is by generating less leads with smaller, very small businesses and small businesses you have larger opportunities to come your way and fewer smaller businesses signing up, so I think that's a bit color for you to appreciate that we have deliberately been looking to find ways in which to shift the productivity of the investment there towards opportunities across larger businesses.

[Anjit Singh:]

Great. I appreciate the answer. Maybe to take some time to talk about the competitive environment if you have noticed any shift there, anyone is getting incrementally more aggressive or has it been the same type of environment even operating in and over last year?

[Mikkel Svane:]

I think we are company that enjoys competition, it keeps us on our toes and makes us eager to win, and like as we said before and as we said in this call we consider ourselves and the leader in this industry and in the enterprise space we are still very much at disrupt and very much showing the path forward for new generation of enterprise customer software so no big change to them.

[Operator:]

And your next question comes from the line of Richard Davis at Cannacord. Your line is open.

[Richard Davis:]

Hey, thanks very much. So our checks actually support Mikkel's assertion that until you guys came around there really wasn't product out there like yours. In fact one guy that we talked to said that they use their software as a customer communications, almost branding platform. So to me when I sit back and hear that, I think, well, that's a big opportunity but then at the same time, how do you guys think of the -- I mean there is there's a trade-off and balance between kind of keeping your prices and your customer acquisition costs low, because you have a brilliant model the way it works today, versus drawing those broader functionality footprints. So how do you think about that trade-off? To build a really big company, those are the bridges you're going to have to cross so it is helpful to hear what your thought process is there. Thanks.

[Mikkel Svane:]

Yes. I think like first of all I think we see that as a huge opportunity. Just like on top of the high growth we have already there like there is even more opportunity to accelerate that growth, so we are really optimistic and aggressive about that type of business, I think some of things that helps us the openness of our platform, how easily it is extend, how easily it is to integrate, how easily is to customize it and that helps both our customers but also some of the partners we work with building very unique applications on top out of using center and the new Embeddables we just make that even more easier as we increase our appeal to the builder community out there. So we see as a huge opportunity and we really strengthen and focus on our platform to help us drive growth in that area.

[Operator:]

And your next question comes from the line of Owen Hyde at Pacific Crest. Your line is open.

[Owen Hyde:]

Hey guys, thanks for taking my call. I'm on for Brennan. Most of my questions have been answered but I think I just wanted to touch really quickly on, in the past you have said that your customer mix has been split, it's about 85% recurring revenue, split between enterprise and pro. Just wondering if you can give a little more detail. I assume the vast majority of that is pro, but I'm just wondering if you have ever broken that out.

[Alan Black:]

Owen we have not but I think what you're referring to is we have stated in the past that from the combination of our plus and enterprise plans that are approximately 85% of our recurring revenues are generated from those two plans. From the Zendesk portion of that revenue stream so that is still a correct kind of round number.

[Owen Hyde:]

Perfect. And I was just wondering how much as far as the guidance, how much pricing uplift is baked in there versus account growth? Are you guys still looking to see a modest uplift as that enterprise becomes a larger percentage of overall mix, or?

[Alan Black:]

Well so I think there is generally two different ways to understand that. For the most part the pricing that we offer hasn't changed in some time. We do expect as more customers look at the functionality is available in our enterprise and more recently introduce enterprise or lead plan that they're maybe a growth over time in average deal sizes and revenue per customer. The other thing that we are doing as we introduce local currency pricing is providing a modest differential between the local currency price and the US price is one of the ways in which to allow us to invest from a hedging perspective to ensure there is predictability of revenues in the future. So that's modest however I think it's a not going to be a significant contributor to the guidance that we move put before you this afternoon.

[Owen Hyde:]

Perfect. It's really helpful. And then just one follows- up. So how do you think about going to market with -- I guess with enterprise customers that need telephony solutions. You guys I know have partnered with 23 to 24 different companies, but do you generally bring them in towards the end or are that something that you attack that customer together to go to market together.

[Alan Black:]

Well so further almost telephony voice is something that we hope to speak a lot more about later this year. We have our owned voice product called Zendesk Voice and that is become intensively popular product especially with the smaller business, small and medium sized businesses. But we also have more than as let just say 25 integrations and partnerships with other call center providers that are using our voice API to create a completely native voice experience inside the Zendesk product. Some of these solutions are extremely powerful and can offer enterprise features at a point where our own Zendesk Voice product is not capable of yet. So we have tremendous value of having these great partnerships and they provide immense value to a bunch of our customers and in some instances we help them in and other instances we have join go-to-market efforts and latest we saw some of the things we did together with Genesis as a fantastic opportunity to have a join start we can go out and have our customers use the greatness of the Genesis platform along side an integrated directly into the Zendesk platform.

[Operator:]

And your next question comes from the line of Pat Walravens at JMP Securities. Your line is now open.

[Matt Spencer:]

This is actually Matt Spencer in for Pat. Congratulations on a great quarter. Definitely. And so kind of my questions have already been answered. I guess I'll approach it from a more high-level aspect, and ask you what you think your biggest challenge is heading into 2015, as far as accomplishing your goals and moving into the mid- market and enterprise space?

[Mikkel Svane:]

If you want the very, very high level question here I think it's the same challenge that you always have when you are building a company. It's all about the team, it's all about attracting the best talent, it is all about cultivating the best talent and making your employees excited every single morning to go out there and kill it, and be subscribed to the whole vision and the growth of the company. And this is something we invest in and we think about every single day how do we make our employees most excited employees about our mission and go out there and crush it, beyond that a lot of original stuff, we are still a young company, still many things to solve but like we have an excited team behind it and a very optimistic about that and Alan, I don’t know if you have other things too

[Alan Black:]

No. I think you hit it, I mean it's really all about people. We have a great team today, we, a year from now when we are speaking and providing you news for what do we expect in 2016, we are going to have to add many hundreds more right, so recruiting them getting, successfully integrated is critical there is a tremendous amount of work ahead of us on the roadmap that we want to build and opportunities we want to develop not just here in the US, but other market so I do think it's about people, and we are blessed with ones we have and I know that we need a lot more in the year ahead.

[Operator:]

You have no further questions.

[Marc Cabi:]

Alright, Ian, thank you very much. Again, I would like to thank everybody for taking time to join our conference call today. Information -- Ends abruptly