Business Combinations

12 Months Ended

Dec. 31, 2016

Business Combinations [Abstract]

Business Combinations

Business Combinations

We Are Cloud SAS

On October 13, 2015, we completed the acquisition of WAC, the maker of BIME Analytics software. We acquired 100 percent of the outstanding shares of WAC in exchange for purchase consideration of $46.4 million in cash, including working capital adjustments. As partial security for standard indemnification obligations, $7.0 million of the consideration was held in escrow for a period of up to 18 months, a portion of which was released 12 months following the closing of the acquisition. We incurred transaction costs of $1.0 million in connection with the acquisition. The transaction costs were expensed as incurred and recognized within general and administrative expenses.

In 2016, we finalized our purchase accounting for the acquisition. The total purchase price was allocated to the assets acquired and liabilities assumed as set forth below (in thousands). The excess of the purchase price over the net assets acquired was recorded as goodwill. Goodwill generated from the acquisition is primarily attributable to expected synergies, including cost savings from integrating the analytics technology with our infrastructure and the opportunity to sell the analytics software alongside our existing products. Goodwill is not deductible for income tax purposes. Goodwill will not be amortized but instead will be tested for impairment at least annually and more frequently if certain indicators of impairment are present.

Net tangible assets acquired	$	2,140
Net deferred tax liability recognized	(1,979		)
Identifiable intangible assets:
Developed technology	8,800
Customer relationships	500
Goodwill	36,896
Total purchase price	$	46,357

The developed technology and customer relationship intangible assets were each assigned useful lives of 4.5 years.

In connection with the acquisition, we entered into retention arrangements with certain employees of WAC, pursuant to which we issued RSUs for approximately 0.5 million shares of our common stock, most of which vest in three annual installments from the date of acquisition. The expense related to the RSUs will be accounted for as share-based compensation expense over the required service periods and was not included in the purchase consideration.

The results of operations of WAC have been included in our consolidated financial statements from the date of the acquisition.

The following unaudited pro forma information presents the combined results of operations as if the acquisition had been completed on January 1, 2014, the beginning of the comparable prior annual reporting period. The unaudited pro forma results include: (i) recognition of the post-acquisition share-based compensation and other compensation expense; (ii) amortization associated with the acquired intangible assets, based on preliminary estimates of fair value; (iii) acquisition-related costs incurred by Zendesk and WAC; (iv) the impact of fair value adjustments to deferred revenue and capitalized software; (v) the income tax benefit associated with WAC’s historical loss before income taxes, and the pro forma adjustments.

The unaudited pro forma results do not reflect any cost saving synergies from operating efficiencies or the effect of the incremental costs incurred in integrating the two companies. Accordingly, the unaudited pro forma results are presented for informational purposes only and are not necessarily indicative of what the actual results of operations of the combined company would have been if the acquisition had occurred at the beginning of the period presented, nor are they indicative of future results of operations (in thousands):

	Year Ended December 31,
	2015			2014
Revenue	$	210,647		$	127,932
Net loss attributable to common stockholders	(87,348		)	(74,670		)

Zopim Technologies

On March 21, 2014, we completed the acquisition of Zopim, a software development company that provides a SaaS live chat service. The total adjusted acquisition date fair value of consideration transferred was $15.8 million, including $4.9 million of cash and $10.9 million of our common stock, all of which was issued on the acquisition date. The total purchase price was allocated to assets acquired and liabilities assumed as set forth below (in thousands). The excess of the purchase price over the net assets acquired was recorded as goodwill. Goodwill generated from the acquisition is attributable to expected synergies from future growth and potential future monetization opportunities, and is not deductible for tax purposes.

Net tangible liabilities assumed	$	(385	)
Intangible assets	6,560
Goodwill	9,594
Total purchase price	$	15,769

In connection with the acquisition, we also established a retention plan pursuant to which we issued RSUs for 0.9 million shares of our common stock, which vest in three annual installments from the date of acquisition. In addition, we agreed to pay cash in an aggregate amount of $3.0 million in two annual installments from the date of acquisition to Zopim employees in connection with their continued employment, which is recorded as compensation expense over the associated service periods of such employees. As of December 31, 2016, RSUs for 0.6 million shares of our common stock have vested pursuant to the terms of the retention plan, and we have paid the cash retention bonus of $3.0 million.

Pro forma revenue and results of operations have not been presented because the historical results of Zopim were not material to our consolidated financial statements in any period presented.