Overview and Basis of Presentation | Overview and Basis of Presentation Company and Background Zendesk was founded in Denmark in 2007 and reincorporated in Delaware in April 2009. We are a software development company that provides software as a service, or SaaS, products that are intended to help organizations and their customers build better relationships. With our origins in customer service, we have evolved our offerings over time to a family of products that work together to help organizations understand their customers, improve communications, and engage where and when it’s needed most. Our product family is built upon a modern architecture that enables us and our customers to rapidly innovate, adapt our technology in novel ways, and easily integrate with other products and applications. References to Zendesk, the “Company,” “our,” or “we” in these notes refer to Zendesk, Inc. and its subsidiaries on a consolidated basis. Basis of Presentation These unaudited condensed consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles, or GAAP, and applicable rules and regulations of the Securities and Exchange Commission, or SEC, regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Therefore, these condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes included in our Annual Report on Form 10-K for the year ended December 31, 2016, filed with the SEC on February 27, 2017. There have been no changes to our significant accounting policies described in the Annual Report on Form 10-K that have had a material impact on our condensed consolidated financial statements and related notes, except as described below. In the first quarter of 2017, we changed our accounting policy for share-based compensation to recognize forfeitures as they occur, as permitted by Accounting Standards Update, or ASU, 2016-09. Refer to Recently Adopted Accounting Pronouncements below for a more detailed discussion. The consolidated balance sheet as of December 31, 2016 included herein was derived from the audited financial statements as of that date. The unaudited condensed consolidated financial statements reflect all normal recurring adjustments necessary to present fairly our financial position, results of operations, comprehensive loss, and cash flows for the interim periods, but are not necessarily indicative of the results of operations to be anticipated for the full year ending December 31, 2017 . Use of Estimates The preparation of our consolidated financial statements in conformity with GAAP requires management to make certain estimates, judgments, and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenue and expenses during the reported periods. Significant items subject to such estimates and assumptions include the fair value of share-based awards, acquired intangible assets, goodwill and unrecognized tax benefits, the useful lives of acquired intangible assets and property and equipment, the capitalization and estimated useful life of capitalized internal-use software, and financial forecasts used in currency hedging. These estimates are based on information available as of the date of the financial statements; therefore, actual results could differ from those estimates. Concentrations of Risk As of September 30, 2017 , no customers represented 10% or greater of our total accounts receivable balance. There were no customers that individually exceeded 10% of our revenue during the three and nine months ended September 30, 2017 or 2016 . Recently Issued Accounting Pronouncements In May 2014, the Financial Accounting Standards Board, or the FASB, issued new revenue guidance that provides principles for recognizing revenue to which an entity expects to be entitled for the transfer of promised goods or services to customers. The guidance also requires the deferral of incremental costs to acquire contracts with customers. As currently issued and amended, the new guidance is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period, though early adoption is permitted for annual reporting periods beginning after December 15, 2016. The guidance may be applied retrospectively to each prior period presented (full retrospective method), or with the cumulative effect recognized as of the date of initial adoption (modified retrospective method). We currently intend to adopt using the full retrospective method; however, our decision has not been finalized. We have completed a preliminary assessment to determine the effect of adoption on our existing revenue arrangements and are nearing final conclusions. We are continuing to progress in the implementation of our new revenue recognition systems. As a result of adoption, we also expect to capitalize a significant portion of our sales commissions and other incremental costs to acquire contracts, which we historically expensed as incurred, resulting in an increase in deferred costs recognized on our balance sheet. We have not yet concluded the useful life of our capitalized costs, which will affect the classification and magnitude of the deferred costs at each reporting period. We are nearing the completion of our analysis to quantify the total effect of adoption on our consolidated financial statements. To meet the incremental disclosure requirements of the new guidance, we are also developing processes that will enable our ability to disclose backlog. In February 2016, the FASB issued ASU 2016-02, regarding Accounting Standards Codification, or ASC, Topic 842 “ Leases. ” This new standard requires lessees to recognize most leases on their balance sheets as lease liabilities with corresponding right-of-use assets and eliminates certain real estate-specific provisions. The new guidance is effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period. Early adoption is permitted. We are currently evaluating the effect of this standard on our consolidated financial statements. In August 2017, the FASB issued ASU 2017-12, regarding ASC Topic 815 "Derivatives and Hedging." This amendment simplifies various aspects of hedge accounting, including measurement and presentation of hedge ineffectiveness and certain documentation and assessment requirements. The amendment also makes more hedging strategies eligible for hedge accounting. The guidance is effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period. Early adoption is permitted. We are currently evaluating the effect of this standard on our consolidated financial statements. Recently Adopted Accounting Pronouncements In March 2016, the FASB issued ASU 2016-09, regarding ASC Topic 718 “ Compensation - Stock Compensation. ” This amendment changes certain aspects of accounting for share-based awards to employees, including the recognition of income tax effects of awards when the awards vest or are settled, requirements on net share settlement to cover tax withholding, and accounting for forfeitures. We adopted the standard in the first quarter of 2017. As required by the new standard, we now recognize excess tax effects from share-based awards as a component of provision for income taxes in our statement of operations when awards vest or are settled. Upon adoption, we recorded a deferred tax asset of $52.8 million to reflect, on a modified retrospective basis, the previously unrecognized excess tax benefits; however, the deferred tax asset was fully offset by a valuation allowance, resulting in no impact to our consolidated financial statements. In our statement of cash flows, we no longer classify excess tax benefits as a reduction from operating cash flows. This change was made prospectively beginning with the quarter ended March 31, 2017. We also elected to account for forfeitures as they occur; therefore, share-based compensation expense for the three and nine months ended September 30, 2017 has been calculated based on actual forfeitures in our consolidated statement of operations, rather than our previous approach, which was net of estimated forfeitures. The cumulative-effect adjustment of this change on a modified retrospective basis was not material. Share-based compensation expense for the three and nine months ended September 30, 2016 was recorded net of estimated forfeitures. In October 2016, the FASB issued ASU 2016-16, “ Income Taxes - Intra-Entity Transfers of Assets Other Than Inventory, ” which requires entities to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. The new guidance is effective for annual reporting periods beginning after December 15, 2017. Early adoption is permitted as of the beginning of an annual reporting period. The new standard must be adopted using a modified retrospective basis, with the cumulative effect recognized as of the date of adoption. We early adopted the standard in the first quarter of 2017. Upon adoption, we recorded a deferred tax asset of $6.2 million to reflect the previously unrecognized tax benefits; however, the deferred tax asset was fully offset by a valuation allowance, resulting in no impact to our consolidated financial statements. In May 2017, the FASB issued ASU 2017-09, regarding ASC Topic 718 “ Compensation - Stock Compensation: Scope of Modification Accounting. ” This amendment clarified what changes to terms or conditions of share-based awards require an entity to apply modification accounting. The new guidance is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. We early adopted this standard in the second quarter of 2017 on a prospective basis, as permitted by the standard. The adoption did not have a material effect on our consolidated financial statements. |