ServiceNow
Annual Report 2013

Plain-text annual report

UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549 FORM 10-KxAnnual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934For the fiscal year ended December 31, 2013OR ¨Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934Commission File Number: 001-35580SERVICENOW, INC.(Exact name of registrant as specified in its charter) Delaware 20-2056195(State or other jurisdiction ofincorporation or organization) (I.R.S. EmployerIdentification Number)ServiceNow, Inc.3260 Jay StreetSanta Clara, California 95054(408) 501-8550(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices) Securities registered pursuant to Section 12(b) of the Act:Title of each class Name of each exchange on which registeredCommon stock, par value $0.001 per share New York Stock Exchange, Inc.Securities registered pursuant to section 12(g) of the Act:Not applicable__________________________Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No ¨Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of Act. Yes ¨ No xIndicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months(or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes x No ¨Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and postedpursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post suchfiles). Yes x No ¨Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the bestof Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. xIndicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large acceleratedfiler,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):Large accelerated filer x Accelerated filer ¨ Non-accelerated filer ¨ Smaller reporting company ¨Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No xBased on the closing price of the Registrant’s Common Stock on the last business day of the Registrant’s most recently completed second fiscal quarter, which was June 30, 2013, theaggregate market value of its shares (based on a closing price of $40.39 per share on June 28, 2013 as reported on the New York Stock Exchange) held by non-affiliates wasapproximately $2.8 billion.As of January 31, 2014, there were approximately 141.1 million shares of the Registrant’s Common Stock outstanding.DOCUMENTS INCORPORATED BY REFERENCEPortions of the Registrant’s definitive proxy statement for its 2014 Annual Meeting of Stockholders (the “Proxy Statement”), to be filed within 120 days of the Registrant’s fiscal yearended December 31, 2013, are incorporated by reference in Part III of this Report on Form 10-K. Except with respect to information specifically incorporated by reference in this Form 10-K, the Proxy Statement is not deemed to be filed as part of this Form 10-K.TABLE OF CONTENTS Page PART I Item 1Business1Item 1ARisk Factors8Item 1BUnresolved Staff Comments24Item 2Properties24Item 3Legal Proceedings24Item 4Mine Safety Disclosures24 PART II Item 5Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities24Item 6Selected Consolidated Financial Data26Item 7Management’s Discussion and Analysis of Financial Condition and Results of Operations29Item 7AQuantitative and Qualitative Disclosures About Market Risk53Item 8Consolidated Financial Statements and Supplementary Data54Item 9Changes in and Disagreements with Accountants on Accounting and Financial Disclosure85Item 9AControls and Procedures85Item 9BOther Information86 PART III Item 10Directors, Executive Officers and Corporate Governance86Item 11Executive Compensation86Item 12Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters86Item 13Certain Relationships and Related Party Transactions and Director Independence86Item 14Principal Accounting Fees and Services86 PART IV Item 15Exhibits and Financial Statement Schedules86Signatures 87Index to Exhibits PART IFORWARD-LOOKING STATEMENTSThis Annual Report on Form 10-K, including the “Management's Discussion and Analysis of Financial Condition and Results of Operations,” containsforward-looking statements regarding future events and our future results that are based on our current expectations, estimates, forecasts, and projectionsabout our business, our results of operations, the industry in which we operate and the beliefs and assumptions of our management. Words such as “believe,”“may,” “will,” “estimate,” “continue,” “anticipate,” “would,” “could,” “should,” “intend” and “expect,” variations of these words, and similar expressionsare intended to identify those forward-looking statements. These forward-looking statements are only predictions and are subject to risks, uncertainties andassumptions that are difficult to predict. Therefore, actual results may differ materially and adversely from those expressed in any forward-lookingstatements. Factors that might cause or contribute to such differences include, but are not limited to, those discussed in this Report under the section entitled“Risk Factors” in Item 1A of Part I and elsewhere herein, and in other reports we file with the SEC. While forward-looking statements are based on reasonableexpectations of our management at the time that they are made, you should not rely on them. We undertake no obligation to revise or update publicly anyforward-looking statements for any reason, whether as a result of new information, future events or otherwise, except as may be required by law. ITEM 1. BUSINESSOverviewServiceNow is a leading provider of cloud-based services to automate and manage IT service relationships across the global enterprise. Our servicesinclude a suite of IT service automation applications built on our proprietary platform that can be rapidly deployed and configured. Customers use ourservices to create a single system of record for enterprise IT, automate manual tasks, standardize processes and consolidate legacy systems. UsingServiceNow, IT departments can accelerate their shift from managing IT infrastructure to managing IT service relationships across the enterprise with greatertransparency, accountability and auditability. Our proprietary platform enables our customers to create custom applications and evolve the IT service model toservice domains inside and outside the enterprise.We offer our services under a Software-as-a-Service, or SaaS, business model. Customers access our services over the Internet through an easy-to-use,consumer-like interface. We provide our services from servers we manage in co-location facilities. Service upgrades are designed to be compatible withconfiguration changes and applied with minimal disruption to ongoing operations. Our multi-instance architecture has proven scalability for global enterprises,as well as advantages in security, reliability and deployment location.We primarily market our services to large enterprises in a wide variety of industries, including financial services, consumer products, IT services,health care and technology. We sell our services through direct field sales and indirect channel sales. We also provide implementation services to customersthrough our professional services experts and a network of partners.We were incorporated as Glidesoft, Inc. in California in June 2004 and changed our name to Service-now.com in February 2006. In May 2012, wereincorporated into Delaware as ServiceNow, Inc.In February 2012, we changed our fiscal year-end from June 30 to December 31. Throughout this filing, references to “fiscal 2009,” “fiscal 2010” and“fiscal 2011” are to the fiscal years ended June 30, 2009, 2010 and 2011, while references to 2011, 2012, 2013 and 2014 refer to the respective years endingon December 31.Transforming ITAll too often, legacy IT service management products are inflexible and IT demands from lines of business and shared services in the enterprise areunmet. The result has been the proliferation of applications outside the control of the IT organization. IT organizations have often lacked visibility into the fullrange of applications being used across the enterprise, and have been confronted with the challenge of managing disparate systems and the underlyinginfrastructure. Further, this fragmentation has resulted in an inability to audit, govern and meet compliance obligations. Work that should flow smoothly fromone process to the next with easy-to-use technology and full transparency is forced to migrate through different, opaque and complex data models, interfacesand technologies, often with human involvement.At the same time, workers are demanding consumer-friendly IT applications that can be customized to meet business requirements. Users in theenterprise are coming to expect the same intuitive experience with applications they use at work as they have with applications they use at home.1Our Subscription Services We offer a suite of cloud-based applications that automate and manage IT and other service relationships across the enterprise:•IT Service Automation Applications. ServiceNow IT Service Automation Applications evolve the service model so that IT professionals can spendmore time delivering innovative business solutions and less time managing disparate legacy applications and the underlying infrastructure. IT canreplace fragmented systems with SaaS applications that use a single data model, provide a single system of record for IT and automate associatedworkflows across the enterprise.•Custom Application Development. ServiceNow users can rapidly turn ideas into working applications. These applications are built on theServiceNow Service Automation Platform, which is designed to be used by both professional developers and non-technical IT personnel. ServiceNowusers can build a wide variety of powerful business applications where there is a requester, a service process and a response. These applications canbe built with minimal coding using a rich set of prebuilt services and templates and published with a single click. Custom applications can spanfrom a single department to the entire enterprise, and may include order management, HR case management, legal request processing and other line ofbusiness and shared services applications.Expert Services We provide expert services to help customers transform IT, including leadership, guidance and education and support services.Professional services. Customers configure our applications and build custom applications for their organizational structures and workflows. Weprovide implementation services through our professional services group and a network of partners. Our professional services can include customer guidanceon implementation, comprehensive integration and implementation projects, and the development of custom applications.Training and certification. We offer training and certification solutions to our customers and partners that fit their requirements, skill levels, learningstyles and schedules.Support. We offer technical support resources 24 hours a day, 7 days a week from support centers located in San Diego, Santa Clara, London, andAmsterdam. We also offer self-service technical support through our support portal, which provides access to documentation, knowledge base, online supportforums and online incident filing. Business BenefitsKey customer benefits of our services include:•Automation. Implementing work through standardized and automated workflows can improve the speed and accuracy of the delivery of serviceswithin the enterprise and increase the amount of work completed.•Extensibility and scalability. A common data model and ease of customization and development enable customers to leverage their existingServiceNow implementations to expand into additional applications and functionality across the enterprise.•Speed and ease of implementation. A comprehensive set of feature-rich IT Service Automation Applications delivered as SaaS enable rapidimplementation of business solutions.•Governance and compliance. The consolidation of previously disparate applications enables auditing, governance, transparency and reporting.Powerful reporting features deliver visibility into the costs and service performance of IT, including access to key performance indicators,benchmarking and executive dashboards.•User satisfaction. Delivering a mobile-enabled, consumerized storefront, with personalized dashboards and reporting, embedded user self-help andcollaboration features, increases user satisfaction and use of IT-managed applications.•Reduced infrastructure requirements. We provide and support a secure high-availability infrastructure and install and manage included softwareupdates.2•Expertise. We provide access to highly skilled professional services, training, technical support, and dedicated peer support engagement programs,including annual user conferences, local user groups, special interest groups, online forums and blogs, collaboration and knowledge sharing for endusers, partners and application developers.Our Applications Our services offer the following applications, options and capabilities: IT Service Automation Applications•Incident Management enables customers to restore normal IT operations by providing capabilities to record, classify, distribute and manageincidents.•Problem Management facilitates the process of identifying the root causes of errors in the IT infrastructure by providing capabilities to record,escalate and manage problems.•Change Management allows repeatable methods and procedures to be used for introducing change into the IT infrastructure by providingcapabilities for creating, assessing, approving and executing changes.•Release Management facilitates the planning, design, build, configuration, testing and release of hardware and software into the IT infrastructure.•Request Management provides capabilities to approve and fulfill requests for IT goods and services defined and presented in the service catalog.•Configuration Management (CMDB) provides capabilities to identify, record and report on IT configuration items and their relationships.•Asset Management provides capabilities to track and manage the physical, contractual and financial aspects of IT assets.•Project Portfolio Management provides capabilities to plan, organize, and manage IT projects and project portfolios, including associated tasksand resources.•Software Development Lifecycle Management provides capabilities to manage the software development process in IT projects includingenhancement requests, defect prioritization, definition of release content and tasks.•IT Governance, Risk and Compliance provides capabilities to document IT policies and procedures, define and assess risks and controls, auditand test controls and track remediation tasks.•IT Cost Management provides capabilities to track one-time and recurring costs of configuration items used by IT and allocate those costs tobusiness units using allocation rules.•Work Management provides capabilities to create work order records for the repair and service of IT equipment, including capabilities to qualify,dispatch and issue work tasks based on location and skill.•Vendor Performance Management provides capabilities to manage, evaluate and compare IT vendors based on predefined criteria.•Resource Management provides capabilities to view IT projects and the availability, allocation and capacity of assigned IT resources.Case Management Applications•HR Service Automation provides capabilities to manage the service delivery of human resources departments by offering a self-service catalog,assignment of requests based on fulfillment rules and reporting.3Options and Add-OnsOur customers can also purchase a number of services as add-on services, or service options, to accompany applications they have purchased. Theseservice options include:•Performance Analytics provides advanced analytics and time series analysis for key performance indicators.•Discovery locates devices connected to an enterprise network. When Discovery locates a device, it explores its configuration, status, software andrelationships to other connected devices and updates the Configuration Management Database.•Orchestration Core enables the automation of activities taking place outside of the ServiceNow environment.•Orchestration Cloud Provisioning Application provides the capability to automate the lifecycle of public and private Orchestration CloudProvisioning Catalog Items.•Orchestration Password Reset Application provides the capability to reset users’ passwords that are stored and pre-authenticated in a credentialstore outside customers’ instances of the subscription service such as Active Directory and other supported credential stores.•Orchestration Configuration Automation Application provides the capability to manage the configuration settings of a physical or virtual device.Custom Application Development•CreateNow™ Development Suite provides a browser-based, consolidated and comprehensive set of tools to manage the entire lifecycle of anapplication from creation to deployment. ServiceNow users can create powerful applications with minimal or no coding. Users can easily collaboratewith each other using the team development feature. Completed applications can easily be deployed to a single department or the entire enterprise andare instantly available through mobile devices.Our Service Automation PlatformThe ServiceNow Service Automation Platform is a highly configurable, easy-to-use and extensible cloud platform built on an enterprise-gradeinfrastructure. All ServiceNow applications, as well as custom applications created by ServiceNow customers and partners, are built on this common,underlying platform. All of these applications leverage one user interface, one code base and one data model to create a single system of record for IT and theenterprise.Our TechnologyWe designed our cloud-based service to support large global enterprises. The architecture, design, deployment and management of our services arefocused on: Scalability. Our services are designed to support concurrent user sessions within a global enterprise. Across our customer base we process billions ofrecord-producing transactions per month and manage multiple petabytes of data while enabling best-in-class transaction processing time. Availability. Our customers are highly dependent on our services for the day-to-day operations of their IT infrastructure. Our services are designed as an“always on” solution. Security and Compliance. We employ a number of technologies, policies and procedures designed to protect customer data. We offer services that havereceived SSAE 16 (SOC1 Type 1 and Type 2), SOC 2 and ISO 27001 third-party attestation. Our U.S. federal services have received a FISMA ModerateAuthorization (ATO) attestation that can be used by our U.S. federal customer base. Additionally, our data centers have an ISO27001 or SSAE16 attestationor equivalent.We have a standardized Java-based development environment with the majority of our software written in industry standard software programminglanguages. We also use Web 2.0 technologies like AJAX and HTML that give users an intuitive and familiar experience. Our hardware primarily consists ofindustry standard servers and network components. Our standard operating system and database are Linux and MySQL, respectively, and the system ishighly portable across multiple platforms including Microsoft Windows, Microsoft SQL Server and Oracle databases.4Unlike many SaaS vendors, we operate a multi-instance architecture that provides all customers with dedicated applications and databases. Mostcustomers run on shared infrastructure servers while larger customers may run on dedicated servers. This architecture reduces risk associated withinfrastructure outages, improves system scalability and security, and allows for flexibility in deployment location. We are also investing in enhancements toour cloud architecture, which are designed to provide all our customers with increased data reliability and availability. For an increased subscription fee, we offer our customers the option to be deployed on dedicated hardware in our data centers. In limited circumstances,we grant certain customers the right to deploy our subscription service on the customers' own servers without significant penalty. Our multi-instancearchitecture gives us the added flexibility to deploy our applications on-premises at a customer data center in order to support regulatory or securityrequirements. When our software is installed at the customer site, we define the hardware requirements that the customers must install and manage. We thenwork with the customers to remotely install the applications and provide ongoing customer support in a similar way to how we support customer instancesdeployed in our own managed data centers. A small percentage of our customers run an on-premises solution.Sales and Marketing We sell our services through direct field sales and indirect channel sales. Our primary sales channel is direct sales, and we also partner with systemsintegrators, managed services providers and resale partners, particularly in less developed markets. In the past year we have made significant investments indirect sales in many markets outside of the United States, and we intend to continue to invest in our direct sales force globally. Our marketing efforts and lead generation activities consist primarily of customer referrals, Internet advertising, trade shows, industry events and pressreleases. We also host our annual Knowledge global user conference, and webinars where customers and partners both participate in and present a variety ofprograms designed to help accelerate marketing success with our services and platform.We are investing in new geographies, including investment in direct and indirect sales channels, professional services capabilities, customer supportresources and implementation partners. In addition to adding new geographies, we also plan to increase our investment in our existing locations in order toachieve scale efficiencies in our sales and marketing efforts.Customers We primarily market our services to large enterprises. We have proven scalability supporting large enterprise-wide deployments. As of December 31,2013, we had 2,061 customers that operate in a wide variety of industries, including financial services, consumer products, IT services, health care andtechnology. No single customer accounted for more than 10% of our revenue for any of the periods presented.BacklogBacklog represents future amounts to be invoiced under our agreements and is not included in deferred revenue. As of December 31, 2013 and 2012, wehad backlog of approximately $608 million and $379 million, respectively. We expect backlog will change from period to period for several reasons,including the timing and duration of customer subscription and professional services agreements, varying billing cycles of subscription agreements, and thetiming of customer renewals.Financial Information about Segments and Geographic AreasWe manage our operations and allocate resources as a single reporting segment. For information regarding our revenue, revenue by geographic area andlong-lived assets by geographic area, please refer to Note 2 and Note 18 to our consolidated financial statements in this Annual Report on Form 10-K. Forfinancial information about our segment, please refer to the section entitled “Management's Discussion and Analysis of Financial Condition and Results ofOperations” in Item 7 of Part II and to our consolidated financial statements and the related notes in this Annual Report on Form 10-K. For informationregarding risks associated with our international operations, please refer to the section entitled “Risk Factors” in Item 1A of Part I in this Annual Report onForm 10-K.Data Center Operations We currently run our services from data centers located in the United States, Canada, the United Kingdom, the Netherlands, Switzerland, andAustralia. We are also in the process of establishing a data center in Brazil. Our data centers operate in a mirrored5configuration to provide high availability. We plan to add data centers, or expand our existing data center operations, as required to meet regulatoryrequirements and accommodate growth. Research and Development Our research and development organization is responsible for the design, development, testing and certification of our services. We focus on developingnew services and core technologies and further enhancing the functionality, reliability, performance and flexibility of existing solutions. We focus our efforts onanticipating customer demand and then bringing new services and new versions of existing services to market quickly in order to remain competitive in themarketplace. We have made, and will continue to make, significant investments in research and development to strengthen our existing applications, expandthe number of applications on our platform and develop additional automation technologies.Competition The markets in which we compete to automate and manage IT service relationships are fragmented, rapidly evolving and highly competitive, withrelatively low barriers to entry. As the market for automating and managing IT service relationships matures, we expect competition to intensify. We facecompetition from in-house solutions, large integrated systems vendors, and established and emerging SaaS and software vendors. Our competitors vary in sizeand in the breadth and scope of the products and services offered. Our primary competitors include BMC Software, Inc., CA, Inc., Hewlett-PackardCompany and International Business Machines Corporation. Further, other potential competitors not currently offering competitive products may expand theirservices to compete with our services. Moreover, as we expand the breadth of our services to include offerings for service domains outside of IT, and offeringsfor small and medium sized businesses, we face and will face additional competition from platform vendors including Salesforce.com and from applicationdevelopment vendors focused on these other markets.The principal competitive factors in our industry include total cost of ownership, product functionality, breadth of offerings, flexibility andperformance. We believe that we compete favorably with our competitors on each of these factors. However, our competitors may be able to respond morequickly and effectively than we can to new or changing opportunities, technologies, standards and customer requirements. An existing competitor or newentrant could introduce new technology that reduces demand for our services. In addition, some of our competitors offer their products or services at a lowerprice, which has resulted in pricing pressures. Some of our larger competitors have the operating flexibility to bundle competing products and services withother software offerings, including offering them at a lower price as part of a larger sale.Intellectual Property We rely upon a combination of copyright, trade secret and trademark laws and contractual restrictions, such as confidentiality agreements and licenses,to establish and protect our proprietary rights. In addition, we have recently begun to seek patent protection for our technology. We pursue the registration ofour domain names and trademarks and service marks in the United States and in certain locations outside the United States. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy or obtain and use our technology to develop products andservices that provide features and functionality that are similar to our service offerings. Policing unauthorized use of our technology is difficult. The laws ofthe countries in which we market our services may offer little or no effective protection of our proprietary technology. Our competitors could also independentlydevelop services equivalent to ours, and our intellectual property rights may not be broad enough for us to prevent competitors from doing so. Reverseengineering, unauthorized copying or other misappropriation of our proprietary technology could enable third parties to benefit from our technology withoutpaying us for it, which would significantly harm our business.Companies in our industry own large numbers of patents, copyrights, trademarks, and trade secrets and frequently enter into litigation based onallegations of infringement, misappropriation or other violations of intellectual property or other rights. We currently face, and we expect we will face in thefuture, allegations that we have infringed the trademarks, copyrights, patents, trade secrets and other intellectual property rights of third parties, including ourcompetitors and non-practicing entities. As we face increasing competition and as our business grows, we will likely face more claims of infringement. Forexample, on February 6, 2014, Hewlett-Packard Company filed a lawsuit against us in the U.S. District Court for the Northern District of California thatalleges that some of our services infringe the claims of eight of Hewlett-Packard's patents. For additional information, see Item 1A-Risk Factors in this annualreport. 6Employees As of December 31, 2013, we had 1,830 full-time employees worldwide, including 636 in operations, professional services, training and customersupport, 615 in sales and marketing, 352 in research and development and 227 in general and administrative roles. None of our U.S. employees isrepresented by a labor union with respect to his or her employment. Employees in certain European countries have the benefits of collective bargainingarrangements at the national level. We have not experienced any work stoppages and we believe our relations with our employees to be good.Available InformationYou can obtain copies of our Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and other filings with the SEC, and allamendments to these filings, free of charge from our website at www.servicenow.com as soon as reasonably practicable following our filing of any of thesereports with the SEC. The public may read and copy any materials we have filed with the SEC at the SEC’s Public Reference Room at 100 F Street, NE,Room 1580, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information statements and other information regarding issuers that fileelectronically with the SEC at www.sec.gov. The contents of these websites are not incorporated into this filing. Further, our references to the URLs for thesewebsites are intended to be inactive textual references only.7ITEM 1A. RISK FACTORS We have identified the following risks and uncertainties that may have a material adverse effect on our business, financial condition, results ofoperations and future prospects. Our business could be harmed by any of these risks. The trading price of our common stock could decline due to anyof these risks, and you may lose all or part of your investment. In assessing these risks, you should also refer to the other information contained in thisAnnual Report on Form 10-K, including our consolidated financial statements and related notes. Risks Related to Our Business and IndustryWe expect our revenue growth rate to decline. As our costs increase, we may not be able to generate sufficient revenue to generate or sustainprofitability or positive cash flow from operations. From fiscal 2009 to the year ended December 31, 2013, our revenues grew from $19.3 million to $424.7 million. We expect that our revenue growth ratewill decline. We also expect our costs to increase in future periods as we continue to invest in our growth. These investments may not result in increasedrevenues or growth in our business. Additionally, we may encounter unforeseen operating expenses, difficulties, complications, delays and other unknownfactors that may result in increased costs. As a result, we may not be able to achieve or maintain profitability and we may be unable to generate positive cashflow from operations. If we fail to grow our revenues sufficiently to keep pace with our growing investments and other expenses, our operating results will beharmed.Our quarterly results may fluctuate, and if we fail to meet the expectations of analysts or investors or our previously issued guidance, our stockprice could decline substantially. Our quarterly financial results may fluctuate as a result of a variety of factors, many of which are outside of our control. If our quarterly financialresults fall below the expectations of investors or any securities analysts who follow our stock, or we fail to meet or exceed any forward guidance we haveissued, or if any forward guidance we give is below the expectations of investors or any securities analysts who follow our stock, the price of our commonstock could decline substantially. Some of the important factors that may cause our revenues, operating results and cash flows to fluctuate from quarter toquarter include: •our ability to retain and increase sales to existing customers, attract new customers and satisfy our customers’ requirements;•the number of new employees added;•the rate of expansion and productivity of our sales force;•the cost, timing and management effort for our development of new services;•the length of the sales cycle for our services;•changes in our pricing policies, whether initiated by us or as a result of competition;•the amount and timing of operating costs and capital expenditures related to the operation and expansion of our business;•significant security breaches, technical difficulties or interruptions of our services;•new solutions, products or changes in pricing policies introduced by our competitors;•changes in foreign currency exchange rates;•changes in effective tax rates;•general economic conditions that may adversely affect either our customers’ ability or willingness to purchase additional subscriptions, delay aprospective customer’s purchasing decision, reduce the value of new subscription contracts or affect renewal rates;•seasonality in terms of when we enter into customer agreements for our services;•changes in the average duration of our customer agreements;•changes in our renewal and upsell rates;•the timing of customer payments and payment defaults by customers;•extraordinary expenses such as litigation costs or damages, including settlement payments;•the impact of new accounting pronouncements;•changes in laws or regulations impacting the delivery of our services; and•the amount and timing of stock awards and the related financial statement expenses.Many of these factors are outside of our control, and the occurrence of one or more of them might cause our operating results to vary widely. As such, webelieve that quarter-to-quarter comparisons of our revenues, operating results and cash flows are not meaningful and should not be relied upon as an indicationof future performance.8We have experienced rapid growth in recent periods. If we are not able to manage this growth and expansion, or if our business does not grow aswe expect, our operating results may suffer. We continue to experience rapid growth in our customer base and have significantly expanded our operations during the last several years. Our rapidgrowth has placed, and will continue to place, a significant strain on our management, operations, infrastructure, facilities and other resources. Our ability tomanage our operations and growth will require us to continue to expand our sales force, facilities, infrastructure and operations, and refine our operational,financial and management controls, human resource policies, and reporting systems and procedures. If we fail to effectively manage our growth, our costs andexpenses may increase more than we plan and we may lose the ability to close customer opportunities, enhance our existing service, develop new applications,satisfy customer requirements, respond to competitive pressures or otherwise execute our business plan.Disruptions in our services could damage our customers’ businesses, subject us to substantial liability and harm our reputation and financialresults.Our customers use our services to manage important aspects of their businesses, and any disruptions in our services could damage our customers'businesses, subject us to substantial liability and harm our reputation and financial results. From time to time, we have found defects in our services, andnew defects may be detected in the future. We provide regular updates to our services, which frequently contain undetected defects when first introduced orreleased. Defects may also be introduced by our use of third-party software, including open source software. Disruptions may also result from errors we makein delivering, configuring, or hosting our services, or designing, installing, expanding or maintaining our cloud infrastructure. Disruptions in service can alsoresult from incidents that are outside of our control. We currently serve our customers primarily using equipment managed by us and co-located in third-partydata center facilities operated by several different providers located around the world. These centers are vulnerable to damage or interruption from earthquakes,floods, fires, power loss and similar events. They may also be subject to break-ins, sabotage, intentional acts of vandalism and similar misconduct,equipment failure and adverse events caused by operator error. We cannot rapidly switch to new data centers or move customers from one data center to anotherin the event of any adverse event. Despite precautions taken at these facilities, problems at these facilities could result in lengthy interruptions in our servicesand the loss of customer data. In addition, our customers may use our services in ways that cause disruptions in service for other customers. Our reputationand business will be harmed if our customers and potential customers believe our services are unreliable. Disruptions in our services may reduce ourrevenues, cause us to issue credits or pay penalties, subject us to claims and litigation, cause our customers to delay payment or terminate or fail to renew theirsubscriptions, and adversely affect our ability to attract new customers. The occurrence of payment delays, or service credit, warranty or other claims againstus, could result in an increase in our bad debt expense, an increase in collection cycles for accounts receivable, an increase to our warranty provisions orservice level credit accruals or other increased expenses or risks of litigation. We do not have insurance sufficient to compensate us for the potentiallysignificant losses that may result from claims arising from disruptions in our services.We face security risks, including but not limited to, unauthorized use or disclosure of customer data, theft of proprietary information, denial ofservice attacks, loss or corruption of customer data, and computer hacking attacks. If any of these risks occur, our services may be perceived asnot secure, we may lose prospective customers, existing customers may curtail or stop using our services, our ability to operate our business maybe impaired, and we may incur significant liabilities.Our operations involve the storage, transmission and processing of our customers’ confidential, proprietary and sensitive information including in somecases personally identifiable information, protected health information, proprietary intellectual property and credit card information. We do not control ormonitor the information that customers process in our services, we are unaware of the type, sensitivity and value of the customer information processed in ourservices and we do not vary our service offering and security measures due to the content of customer data. We have legal and contractual obligations to protectthe confidentiality and appropriate use of customer data. Security risks, including but not limited to, unauthorized use or disclosure of customer data, theft ofproprietary information, denial of service attacks, loss or corruption of customer data, and computer hacking attacks could expose us to substantial litigationexpenses and damages, indemnity and other contractual obligations, government fines and penalties, mitigation expenses and other liability. Additionally,unauthorized persons may obtain access to our own sensitive, proprietary or confidential information or systems including our intellectual property and otherconfidential business information and our information technology systems. Such access could be used to compromise our competitive position, our ability todeliver our services or our ability to manage and operate our business. The security measures protecting our customers' and our own information and systemscould be breached as a result of third party action, employee error or misconduct. Because techniques used to obtain unauthorized access or to sabotagesystems change frequently and generally are not recognized until successfully launched against a target, we may be unable to anticipate these techniques or toimplement adequate preventative measures. If an actual or perceived breach of our security occurs, the market perception of the effectiveness of our securitymeasures could be harmed, we could lose potential sales and existing customers, our ability to operate our business may be impaired, and9we may incur significant liabilities. We do not have insurance sufficient to compensate us for the potentially significant losses that may result from securitybreaches.If we are not able to enhance our existing service, develop new applications and promote our services for the development of custom applications,our business and operating results could be harmed. Our ability to attract new customers and increase revenues from existing customers depends on our ability to enhance our services and provide it in away that is broadly accepted. In particular, we need to continuously modify and enhance our services to keep pace with changes in user expectations, Internetsoftware practices, and communication, database, hardware and security technologies. In addition, we must effectively make our services available inadditional ways, including on mobile devices. If we are unable to respond in a timely and cost-effective manner to these rapid developments, our services maybecome less marketable and less competitive or obsolete. Our success also depends on our ability to develop new applications and promote our services for thedevelopment of custom applications. We derive a substantial majority of our revenue from subscriptions to our suite of applications for use within IT, and weexpect this will continue for the foreseeable future. We are expanding the breadth of our services to include offerings for service domains outside of IT andofferings for small and medium-sized businesses. The success of any enhancement or new application, and the success of our efforts to promote the use of ourservices for development of custom applications, depends on several factors, including timely completion, adequate quality testing, introduction and marketacceptance. Any new service that we develop may not be introduced in a timely or cost-effective manner, may not be priced appropriately, and may not achievethe broad market acceptance necessary to generate significant revenues. For instance, we recently changed the way that we price and package our services, andprospective or existing customers may not accept the new pricing. In addition, sales of new services may erode sales of our existing similar services. If we areunable to enhance our existing service, successfully develop new applications or promote the use of our services for the development of custom applications,our business and operating results could be harmed.We may not timely and effectively scale and adapt our technology to meet our customers’ performance and other requirements. Our future growth is dependent upon our ability to continue to meet the expanding needs of our customers as their use of our services grows. We expectthe number of users and transactions we manage, the amount of data we transfer, process and store, the number of locations from which our services arebeing accessed, and the number of processes and systems we manage to continue to grow. In the past, a few of our largest customers experienced reduced levelsof availability, performance and functionality due to the scale at which they implemented our services. In order to meet the performance and other requirementsof our customers, we intend to continue making significant investments to develop and implement new technologies in our services and cloud-basedinfrastructure operations. These technologies, which include databases, applications and server optimizations, network and hosting strategies, andautomation, are often advanced, complex, new and untested. We may not be successful in developing or implementing these technologies. In addition, it takesa significant amount of time to plan, develop and test improvements to our technologies and infrastructure, and we may not be able to accurately forecastdemand or predict the results we will realize from such improvements. We are also dependent upon open source and other third-party technologies and may beunable to quickly effect changes to such technologies, which may prevent us from rapidly responding to evolving customer requirements. To the extent that wedo not effectively scale our services and operations to meet the growing needs of our customers, we may not be able to grow as quickly as we anticipate, ourcustomers may reduce or cancel use of our services, we may be unable to compete effectively and our business and operating results may be harmed. We may acquire or invest in companies, which may divert our management’s attention, and result in additional dilution to our stockholders. Wemay be unable to integrate acquired businesses and technologies successfully or achieve the expected benefits of such acquisitions or investments. We may evaluate and consider potential strategic transactions, including acquisitions of, or investments in, businesses, technologies, services, productsand other assets in the future. We also may enter into relationships with other businesses to expand our service offerings or our ability to provide services ininternational locations, which could involve preferred or exclusive licenses, additional channels of distribution, discount pricing or investments in othercompanies. An acquisition, investment or business relationship may result in unforeseen operating difficulties and expenditures. In particular, we mayencounter difficulties assimilating or integrating the businesses, technologies, products, personnel or operations of the acquired companies, particularly if thekey personnel of the acquired company choose not to work for us, their technology is not easily adapted to work with ours, or we have difficulty retaining thecustomers of any acquired business due to changes in ownership, management or otherwise. Negotiating these transactions can be time-consuming, difficult and expensive, and our ability to close these transactions may often be subject toconditions or approvals that are beyond our control. Consequently, these transactions, even if undertaken and announced, may not close. For one or more ofthose transactions, we may: 10•issue additional equity securities that would dilute our stockholders;•use cash that we may need in the future to operate our business;•incur debt on terms unfavorable to us or that we are unable to repay;•incur large charges or substantial liabilities;•encounter difficulties retaining key employees of the acquired company or integrating diverse technologies, software or business cultures; and•become subject to adverse tax consequences, substantial depreciation or deferred compensation charges.Acquisitions may also disrupt our business, divert our resources and require significant management attention that would otherwise be available fordevelopment of our existing business. Moreover, the anticipated benefits of any acquisition, investment or business relationship may not be realized or we maybe exposed to unknown risks or liabilities.The markets in which we participate are intensely competitive, and if we do not compete effectively, our operating results could be harmed. The markets in which we compete to automate and manage IT service relationships are fragmented, rapidly evolving and highly competitive, withrelatively low barriers to entry. As the market for automating and managing IT service relationships matures, we expect competition to intensify. We facecompetition from in-house solutions, large integrated systems vendors, and established and emerging SaaS and software vendors. Our competitors vary in sizeand in the breadth and scope of the products and services offered. Many of our competitors and potential competitors are larger, have greater name recognition,longer operating histories, more established customer relationships, larger marketing budgets and greater resources than we do. Our primary competitorsinclude BMC Software, Inc., CA, Inc., Hewlett-Packard Company and International Business Machines Corporation. Further, other potential competitors notcurrently offering competitive products may expand their services to compete with our services. Moreover, as we expand the breadth of our services to includeofferings for service domains outside of IT, and offerings for small and medium sized businesses, we will face additional competition from platform vendorsincluding Salesforce.com and from application development vendors focused on these other markets. Our competitors may be able to respond more quicklyand effectively than we can to new or changing opportunities, technologies, standards and customer requirements. An existing competitor or new entrant couldintroduce new technology that reduces demand for our services. In addition to product and technology competition, we face pricing competition. Some of ourcompetitors offer their products or services at a lower price, which has resulted in pricing pressures. Some of our larger competitors have the operatingflexibility to bundle competing products and services with other software offerings, including offering them at a lower price as part of a larger sale. For all ofthese reasons, we may not be able to compete successfully and competition could result in reduced sales, reduced margins, losses or the failure of our servicesto achieve or maintain market acceptance, any of which could harm our business.If the market for our technology delivery model develops more slowly than we expect, our growth may slow or stall, and our operating resultswould be harmed. Use of SaaS applications to automate and manage IT service relationships is at an early stage. We do not know whether the trend of adoption ofenterprise SaaS solutions we have experienced in the past will continue in the future. In particular, many organizations have invested substantial personnel andfinancial resources to integrate legacy software into their businesses over time, and some have been reluctant or unwilling to migrate to SaaS. Furthermore,some organizations, particularly large enterprises upon which we are dependent, have been reluctant or unwilling to use SaaS because they have concernsregarding the risks associated with the security of their data and the reliability of the technology delivery model associated with these solutions. In addition, ifother SaaS providers experience security incidents, loss of customer data, disruptions in delivery or other problems, the market for SaaS solutions as a whole,including our services, will be negatively impacted. If the adoption of SaaS solutions does not continue, the market for these solutions may stop developing ormay develop more slowly than we expect, either of which would harm our operating results.Failure to effectively expand our sales and marketing capabilities could harm our ability to increase our customer base and achieve broadermarket acceptance of our services. Increasing our customer base and achieving broader market acceptance of our services will depend, to a significant extent, on our ability to effectivelyexpand our sales and marketing operations and activities. We are substantially dependent on our direct sales force to obtain new customers. From December31, 2012 to December 31, 2013, our sales and marketing organization increased from 350 to 615 employees. We plan to continue to expand our direct salesforce both domestically and internationally. There is significant competition for direct sales personnel with the sales skills and technical knowledge that werequire. Our ability to achieve significant revenue growth in the future will depend, in large part, on our success in recruiting, training and retaining asufficient number of direct sales personnel and we may be unable to hire or retain sufficient numbers of qualified individuals. Further, new hires requiresignificant training and time before they achieve full productivity, particularly in new sales territories11and our recent hires and planned hires may not become as productive as quickly as we plan, or at all. Moreover, we do not have significant experience as anorganization developing and implementing overseas marketing campaigns, and such campaigns may be expensive and difficult to implement. Our businesswill be harmed if our expansion efforts do not generate a significant increase in revenues.Our growth depends in part on the success of our strategic relationships with third parties and their continued performance. We depend on various third parties, such as implementation partners, systems integrators, managed services providers and sales partners in order togrow our business. Our sales efforts have focused on large enterprise customers and there are a limited number of partners with the capacity to provide thesecustomers a significant level of services. In order to continue our growth, we need to recruit these partners and these partners need to devote substantialresources to our solutions. Accordingly, we need to build services, implement partner programs, and provide training and other resources to recruit, retain andenable these partners. Our agreements with partners are typically non-exclusive and do not prohibit them from working with our competitors or from offeringcompeting solutions. Our competitors may be effective in providing incentives to our partners to favor their solutions or otherwise disrupt the relationships wehave with our partners. In addition, global economic conditions could harm the businesses of our partners, and it is possible that they may not be able todevote the additional resources we expect to the relationship. If we are unsuccessful in establishing or maintaining our relationships with these third parties, ourability to compete in the marketplace or to grow our revenues could be impaired and our operating results would suffer. As we expand the breadth of ourservices to include offerings for service domains outside of IT, and offerings for small and medium sized businesses, we may need to establish relationshipswith additional sales and implementation partners. Further, reliance on third parties exposes us to risk of poor performance and failed customer expectations. Ifa customer is not satisfied with the quality of work performed by a third party, we could incur additional costs to address the situation, the profitability ofthat work might be impaired, and the customer’s dissatisfaction could damage our reputation or ability to obtain additional revenues from that customer orprospective customers.Our business depends substantially on our customers renewing their subscriptions and purchasing additional subscriptions from us. Any declinein customer renewals or additional purchases would harm our operating results. In order for us to maintain or improve our operating results, it is important that our customers renew their subscriptions when the initial contract termexpires and add additional authorized users to their subscriptions. Our customers have no obligation to renew their subscriptions, and our customers may notrenew subscriptions with a similar contract period or with the same or a greater number of authorized users. Although our renewal rates have been historicallyhigh, some of our customers have elected not to renew their agreements with us and we cannot accurately predict renewal rates. Moreover, in some cases, someof our customers have the right to cancel their agreements prior to the expiration of the term. Our renewal rates may decline or fluctuate as a result of a numberof factors, including our customers' satisfaction with our subscription service, professional services, customer support, or prices, the prices of competingsolutions, mergers and acquisitions affecting our customer base, the effects of global economic conditions, or reductions in our customers’ spending levels.Our growth also depends in part on our ability to sell more subscriptions and additional professional services to our current customers. If our customers donot renew their subscriptions, renew on less favorable terms or fail to add more authorized users or fail to purchase additional professional services, ourrevenues may decline, and our operating results would be harmed.Because our sales efforts are targeted at large enterprise customers, we face longer sales cycles, substantial upfront sales costs and lesspredictability in completing some of our sales. If our sales cycle lengthens, or if our sales investments do not result in sufficient sales, ouroperating results could be harmed. We target our sales efforts at large enterprise customers. Because these customers are often making an enterprise-wide decision to deploy our services,sometimes on a global basis, we face long sales cycles, complex customer requirements, substantial upfront sales costs and less predictability in completingsome of our sales. Our sales cycle is generally six to nine months, but is variable and difficult to predict and can be much longer. Large enterprises oftenundertake a prolonged evaluation of our services, including whether they need professional services performed by us or a third party for their IT and businessprocess needs, and a comparison of our services to products offered by our competitors. Moreover, our large enterprise customers often begin to deploy ourservices on a limited basis, but nevertheless demand extensive configuration, integration services and pricing concessions, which increase our upfrontinvestment in the sales effort with no guarantee that these customers will deploy our services widely enough across their organization to justify our substantialupfront investment. If our sales cycle lengthens or our substantial upfront sales and implementation investments do not result in sufficient subscriptionrevenues to justify our investments, our operating results could be harmed.We depend on our senior management team and if we lose key employees or are unable to attract and retain the employees we need to support ouroperations and growth, our business could be harmed. 12Our success depends largely upon the continued services of our management team and many key individual contributors. From time to time, there maybe changes in our management team resulting from the hiring or departure of employees, which could disrupt our business. Our employees are generallyemployed on an at-will basis, which means that our employees could terminate their employment with us at any time. The loss of one or more members of ourmanagement team or other key employees could have a serious impact on our business. In the technology industry, there is substantial and continuouscompetition for engineers with high levels of experience in designing, developing and managing software and Internet-related solutions, as well as competitionfor sales executives and operations personnel. We may not be successful in attracting and retaining qualified personnel. We have from time to time experienced,and we expect to continue to experience, difficulty in hiring and retaining highly skilled employees with appropriate qualifications. In particular, competitionfor experienced software and cloud-based infrastructure engineers in the San Francisco Bay area, San Diego, Seattle, London and Amsterdam, our primaryoperating locations, is intense. If we fail to attract new personnel or fail to retain and motivate our current personnel, our business and future growth prospectscould be harmed.We may be unable to develop or obtain intellectual property that provides us with a competitive advantage or prevents third parties from infringingupon or misappropriating our intellectual property. Defending our intellectual property may result in substantial expenses that harm ouroperating results.Our success depends to a significant degree on our ability to protect our proprietary technology and our brand. We rely on a combination of copyright,trademark, trade secret and other intellectual property laws and confidentiality procedures to protect our proprietary rights. We have recently begun to seekpatent protection for our technology. We may not be successful in obtaining patent protection, and any patents issued in the future may not provide us withcompetitive advantages, or may be successfully challenged by third parties. Furthermore, legal standards relating to the validity, enforceability and scope ofprotection of intellectual property rights are uncertain. Any of our intellectual property rights may be challenged by others or invalidated through administrativeprocess or litigation. Effective patent, trademark, copyright and trade secret protection may not be available to us in every country in which our services areavailable. The laws of some foreign countries may not be as protective of intellectual property rights as those in the United States, and mechanisms forenforcement of intellectual property rights may be inadequate. We may be required to spend significant resources to monitor and protect our intellectualproperty rights. We have and in the future may initiate claims or litigation against third parties for infringement of our proprietary rights or to establish thevalidity of our proprietary rights. Any litigation, whether or not it is resolved in our favor, could result in significant expense to us, divert the efforts of ourtechnical and management personnel and may result in counter-claims with respect to infringement of intellectual property rights by us. If we are unable toprevent third parties from infringing upon or misappropriating our intellectual property, or are required to incur substantial expenses in defending ourintellectual property rights, our business and operating results may be harmed.We have been, and may in the future be, sued by third parties for alleged infringement of their proprietary rights. There is considerable patent and other intellectual property development activity in our industry. Our success depends in part on not infringing upon theintellectual property rights of others. We may be unaware of the intellectual property rights of others that may cover some or all of our technology or services.From time to time, our competitors or other third parties may claim that we are infringing upon their intellectual property rights, and we may be found to beinfringing upon such rights. For example, on February 6, 2014, Hewlett-Packard Company filed a lawsuit against us in the U.S. District Court for the Northern District ofCalifornia that alleges that some of our services infringe the claims of eight of Hewlett-Packard's patents. Hewlett-Packard is seeking unspecified damages andan injunction. We intend to vigorously defend this lawsuit. This litigation is still in its early stages and the final outcome, including our liability, if any, withrespect to Hewlett-Packard’s claims, is uncertain. If an unfavorable outcome were to occur in this litigation, the impact could be material to our business,financial condition, or results of operations, depending on the specific circumstances of the outcome.Any claims or litigation could cause us to incur significant expenses and, if successfully asserted against us, could require that we pay substantialdamages or ongoing royalty payments, prevent us from offering our services, or require that we comply with other unfavorable terms. We may also beobligated to indemnify our customers or business partners in connection with any such litigation and to obtain licenses, modify our services or refund fees.Such disputes could also cause an adverse impact to our customer satisfaction and related renewal rates and could cause us to lose potential sales. Even if wewere to prevail in the event of claims or litigation against us, any claim or litigation regarding our intellectual property could be costly and time-consuming anddivert the attention of our management and key personnel from our business operations and harm our operating results.Our use of open source software could harm our ability to sell our services and subject us to possible litigation. 13A significant portion of the technologies licensed or developed by us incorporate open source software, and we may incorporate open source software intoother services in the future. We attempt to monitor our use of open source software in an effort to avoid subjecting our services to adverse licensing conditions.However, there can be no assurance that our efforts have been or will be successful. There is little or no legal precedent governing the interpretation of the termsof open source licenses, and therefore the potential impact of these terms on our business is uncertain and enforcement of these terms may result inunanticipated obligations regarding our services and technologies. For example, depending on which open source license governs open source software includedwithin our services or technologies, we may be subjected to conditions requiring us to offer our services to users at no cost; make available the source code formodifications and derivative works based upon, incorporating or using the open source software; and license such modifications or derivative works underthe terms of the particular open source license. Moreover, if an author or other third party that distributes such open source software were to allege that we hadnot complied with the conditions of one or more of these licenses, we could be required to incur significant legal costs defending ourselves against suchallegations, be subject to significant damages or be enjoined from the distribution of our services.We need to continue to invest in the growth of our worldwide operations by opening new geographic markets. If our required investments in thesemarkets are greater than anticipated, or if our customer growth in these markets does not meet our expectations, our financial results will benegatively impacted. We are continuing to expand worldwide and have recently significantly expanded our presence in Brazil and Asia. We have made and will continue tomake substantial investments as we enter these and other new geographic markets. These include investments in data centers and cloud-based infrastructure,sales, marketing and administrative personnel and facilities. Often we must make these investments when it is still unclear whether future sales in the newmarket will justify the investments. In addition, these investments may be more expensive than we initially anticipate. If our required investments are greaterthan anticipated or if our customer growth does not meet our expectations, our financial results will be negatively impacted. Sales to customers outside North America expose us to risks inherent in international sales. Because we sell our services throughout the world, we are subject to risks and challenges that we would otherwise not face if we conducted our businessonly in North America. Sales outside of North America represented 30% of our total revenues for the year ended December 31, 2013, and we intend to continueto expand our international sales efforts. Our business and future prospects depend on increasing our international sales as a percentage of our total revenues,and the failure to grow internationally will harm our business. The risks and challenges associated with sales to customers outside North America are differentin some ways from those associated with sales in North America and we have a limited history addressing those risks and meeting those challenges.Furthermore, the business conduct and ethical standards of many other countries, including the emerging market countries that we are expanding into, aresubstantially different and much less rigorous than the United States. The risks and challenges inherent with international sales include: •compliance with multiple, conflicting and changing governmental laws and regulations, including employment, tax, competition, privacy and dataprotection laws and regulations;•compliance by us and our business partners with international bribery and corruption laws, including the UK Bribery Act;•the risk that illegal or unethical activities of our business partners will be attributed to or result in liability to us;•compliance with regional data privacy laws that apply to the transmission of our customers’ data across international borders, many of which arestricter than the equivalent U.S. laws;•difficulties in staffing and managing foreign operations;•different or lesser protection of our intellectual property;•foreign currency fluctuations and controls;•longer sales cycles;•longer accounts receivable payment cycles and other collection difficulties;•treatment of revenues from international sources and changes to tax codes, including being subject to foreign tax laws and being liable for payingwithholding, income or other taxes in foreign jurisdictions;•different pricing and distribution environments;•local business practices and cultural norms that may favor local competitors;•localization of our services, including translation into foreign languages and associated expenses; and•regional economic and political conditions.Any of these factors could negatively impact our business and results of operations.A portion of our revenues are generated by sales to government entities and heavily regulated organizations, which are subject to a number ofchallenges and risks.14 A portion of our sales are to governmental agencies. Additionally, many of our current and prospective customers, such as those in the financial servicesand health care industries, are highly regulated and may be required to comply with more stringent regulations in connection with subscribing to andimplementing our services. Selling to these entities can be highly competitive, expensive and time consuming, often requiring significant upfront time andexpense without any assurance that we will successfully complete a sale. Furthermore, engaging in sales activities to foreign governments introduces additionalcompliance risks specific to the Foreign Corrupt Practices Act, the UK Bribery Act and other similar statutory requirements prohibiting bribery andcorruption in the jurisdictions in which we operate. Government and highly regulated entities often require contract terms that differ from our standardarrangements and impose compliance requirements that are complicated, require preferential pricing or “most favored nation” terms and conditions, or areotherwise time consuming and expensive to satisfy. If we undertake to meet special standards or requirements and do not meet them, we could be subject toincreased liability from our customers or regulators. Even if we do meet them, the additional costs associated with providing our services to government andhighly regulated customers could harm our margins. Moreover, changes in the underlying regulatory conditions that affect these types of customers couldharm our ability to efficiently provide our services to them and to grow or maintain our customer base.Because we recognize revenues from our subscription service over the subscription term, downturns or upturns in new sales and renewals willnot be immediately reflected in our operating results.We generally recognize revenues from customers ratably over the terms of their subscriptions, which on average are approximately 33 months in durationfor initial contract terms, although terms can range from 12 to 120 months. As a result, most of the revenues we report in each quarter are derived from therecognition of deferred revenues relating to subscriptions entered into during previous quarters. Consequently, a decline in new or renewed subscriptions in anysingle quarter will likely have only a small, and perhaps no apparent, impact on our revenue results for that quarter. Such a decline, however, will negativelyaffect our revenues in future quarters. Accordingly, the effect of significant downturns in sales and market acceptance of our services, and potential changes inour rate of renewals may not be fully reflected in our results of operations until future periods. Our subscription model also makes it difficult for us to rapidlyincrease our revenues through additional sales in any period, as revenues from new customers must be recognized over the applicable subscription term. Inaddition, we may be unable to adjust our cost structure to reflect the changes in revenues.We face exposure to foreign currency exchange rate fluctuations. We conduct significant transactions, including intercompany transactions, in currencies other than the U.S. dollar or the functional operating currencyof the transactional entities. In addition, our international subsidiaries maintain significant net assets that are denominated in currencies other than thefunctional operating currencies of these entities. Accordingly, changes in the value of currencies relative to the U.S. dollar can affect our revenues and operatingresults due to transactional and translational remeasurement that is reflected in our earnings. We do not currently maintain a program to hedge transactionalexposures in foreign currencies. However, in the future, we may use derivative instruments, such as foreign currency forward and option contracts, to hedgecertain exposures to fluctuations in foreign currency exchange rates. The use of such hedging activities may not offset any or more than a portion of the adversefinancial effects of unfavorable movements in foreign exchange rates over the limited time the hedges are in place. Moreover, the use of hedging instrumentsmay introduce additional risks if we are unable to structure effective hedges with such instruments. It is particularly difficult to forecast any impact fromexchange rate movements, so there is a risk that unanticipated currency fluctuations could adversely affect our results or cause our results to differ frominvestor expectations or our own guidance in any future periods. Unanticipated changes in our effective tax rate could harm our future results. We are subject to income taxes in the United States and various foreign jurisdictions, and our domestic and international tax liabilities are subject to theallocation of earnings and losses in differing jurisdictions. Our effective tax rate could be adversely affected by changes in the mix of earnings and losses incountries with differing statutory tax rates, certain non-deductible expenses as a result of acquisitions, the valuation of deferred tax assets and liabilities andchanges in federal, state or international tax laws and accounting principles. Increases in our effective tax rate would reduce our profitability or in some casesincrease our losses. In addition, we may be subject to income tax audits by many tax jurisdictions throughout the world, many of which have not established clear guidanceon the tax treatment of SaaS-based companies. Although we believe our income tax liabilities are reasonably estimated and accounted for in accordance withapplicable laws and principles, an adverse resolution of one or more uncertain tax positions in any period could have a material impact on the results ofoperations for that period.If we are unable to maintain effective internal control over financial reporting, the accuracy and timeliness of our financial reporting may beadversely affected.15 The Sarbanes-Oxley Act requires, among other things that we assess and report on the effectiveness of our internal control over financial reportingannually and disclosure controls and procedures quarterly. In addition, our independent registered public accounting firm is required to audit the effectivenessof our internal control over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act annually. Our independent registered public accountingfirm may issue a report that is adverse in the event it is not satisfied with the level at which our controls are documented, designed or operating. Moreover, ourtesting, or the subsequent testing by our independent registered public accounting firm, may reveal material weaknesses. If material weaknesses are identifiedor we are not able to comply with the requirements of Section 404 in a timely manner, our reported financial results could be materially misstated or couldsubsequently require restatement, we could receive an adverse opinion regarding our internal control over financial reporting from our independent registeredpublic accounting firm, we could be subject to investigations or sanctions by regulatory authorities and we could incur substantial expenses.Changes in laws, regulations and standards related to the Internet may cause our business to suffer. Federal, state or foreign government bodies or agencies have in the past adopted, and may in the future adopt, laws and regulations affecting dataprivacy and the use of the Internet as a commercial medium. Industry organizations also regularly adopt and advocate for new standards in this area. Forinstance, we believe increased regulation is likely in the area of data privacy, and changing laws, regulations and standards applying to the solicitation,collection, processing or use of personal or consumer information could affect our customers’ ability to use and share data, potentially restricting our ability tostore, process and share data with our customers in connection with providing our services. In addition, government agencies or private organizations maybegin to impose taxes, fees or other charges for accessing the Internet, commerce conducted via the Internet or validation that particular processes follow thelatest standards. These changes could limit the viability of Internet-based services such as ours. If we are not able to adjust to changing laws, regulations andstandards related to the Internet, our business may be harmed.Natural disasters and other events beyond our control could harm our business. Natural disasters or other catastrophic events may cause damage or disruption to our operations, international commerce and the global economy, andthus could have a negative effect on us. Our business operations are subject to interruption by natural disasters, flooding, fire, power shortages, pandemicsand other events beyond our control. Although we maintain crisis management and disaster response plans, such events could make it difficult or impossiblefor us to deliver our services to our customers, could decrease demand for our services, and would cause us to incur substantial expense. Our insurance maynot be sufficient to cover losses or additional expense that we may sustain in connection with any natural disaster. The majority of our research anddevelopment activities, corporate offices, information technology systems, and other critical business operations are located near major seismic faults inCalifornia. Customer data could be lost, significant recovery time could be required to resume operations and our financial condition and operating resultscould be harmed in the event of a major natural disaster or catastrophic event.Weakened global economic conditions may harm our industry, business and results of operations. Our overall performance depends in part on worldwide economic conditions. Global financial developments seemingly unrelated to us or the softwareindustry may harm us. The United States and other key international economies have been impacted by falling demand for a variety of goods and services,restricted credit, poor liquidity, reduced corporate profitability, volatility in credit, equity and foreign exchange markets, bankruptcies and overall uncertaintywith respect to the economy. These conditions affect the rate of information technology spending and could adversely affect our customers’ ability orwillingness to purchase our services, delay prospective customers’ purchasing decisions, reduce the value or duration of their subscriptions, or affect renewalrates, all of which could harm our operating results. Risks Related to Our 0% Convertible Senior Notes Due 2018 (the "Notes")Although the Notes are referred to as convertible senior notes, they are effectively subordinated to any of our secured debt and any liabilities ofour subsidiaries.The Notes will rank senior in right of payment to any of our indebtedness that is expressly subordinated in right of payment to the Notes; equal in rightof payment to any of our liabilities that are not so subordinated; effectively junior in right of payment to any of our secured indebtedness to the extent of thevalue of the assets securing such indebtedness; and structurally junior to all indebtedness and other liabilities (including trade payables) of our subsidiaries.In the event of our bankruptcy, liquidation, reorganization or other winding up, our assets that secure debt ranking senior in right of payment to the Notes willbe available to pay obligations on the Notes only after the secured debt has been repaid in full from these assets, and the assets of our subsidiaries will beavailable to pay obligations on the Notes only after all claims senior to the Notes have been repaid in full. There may not16be sufficient assets remaining to pay amounts due on any or all of the Notes then outstanding. The indenture governing the Notes does not prohibit us fromincurring additional senior debt or secured debt, nor does it prohibit any of our current or future subsidiaries from incurring additional liabilities.As of December 31, 2013, we and our subsidiaries had $414.8 million in consolidated indebtedness, and our subsidiaries had $92.6 million ofliabilities (including trade payables but excluding intercompany obligations and liabilities of a type not required to be reflected on a balance sheet of suchsubsidiaries in accordance with GAAP) to which the Notes would have been structurally subordinated.Recent and future regulatory actions and other events may adversely affect the trading price and liquidity of the Notes.We expect that many investors in, and potential purchasers of, the Notes will employ, or seek to employ, a convertible arbitrage strategy with respect tothe Notes. Investors would typically implement such a strategy by selling short the common stock underlying the Notes and dynamically adjusting their shortposition while continuing to hold the Notes. Investors may also implement this type of strategy by entering into swaps on our common stock in lieu of or inaddition to short selling the common stock.The SEC and other regulatory and self-regulatory authorities have implemented various rules and taken certain actions, and may in the future adoptadditional rules and take other actions, that may impact those engaging in short selling activity involving equity securities (including our common stock).Such rules and actions include Rule 201 of SEC Regulation SHO, the adoption by the Financial Industry Regulatory Authority, Inc. and the national securitiesexchanges of a “Limit Up-Limit Down” program, the imposition of market-wide circuit breakers that halt trading of securities for certain periods followingspecific market declines, and the implementation of certain regulatory reforms required by the Dodd-Frank Wall Street Reform and Consumer Protection Act of2010. Any governmental or regulatory action that restricts the ability of investors in, or potential purchasers of, the Notes to effect short sales of our commonstock, borrow our common stock or enter into swaps on our common stock could adversely affect the trading price and the liquidity of the Notes.We may still incur substantially more debt or take other actions which would diminish our ability to make payments on the Notes when due.We and our subsidiaries may be able to incur substantial additional debt in the future, subject to the restrictions contained in our future debtinstruments, some of which may be secured debt. We are not restricted under the terms of the indenture governing the Notes from incurring additional debt,securing existing or future debt, recapitalizing our debt or taking a number of other actions that are not limited by the terms of the indenture governing theNotes that could have the effect of diminishing our ability to make payments on the Notes when due.We may not have the ability to raise the funds necessary to settle conversions of the Notes in cash or to repurchase the Notes upon a fundamentalchange, and our future debt may contain limitations on our ability to pay cash upon conversion or repurchase of the Notes.Holders of the Notes will have the right to require us to repurchase all or a portion of their Notes upon the occurrence of a fundamental change at arepurchase price equal to 100% of the principal amount of the Notes to be repurchased, plus accrued and unpaid special interest, if any. In addition, uponconversion of the Notes, unless we elect to deliver solely shares of our common stock to settle such conversion (other than paying cash in lieu of delivering anyfractional share), we will be required to make cash payments in respect of the Notes being converted. However, we may not have enough available cash or beable to obtain financing at the time we are required to make repurchases of Notes surrendered therefor or pay cash with respect to Notes being converted.In addition, our ability to repurchase or to pay cash upon conversion of the Notes may be limited by law, regulatory authority or agreements governingour future indebtedness. Our failure to repurchase Notes at a time when the repurchase is required by the indenture or to pay cash upon conversion of theNotes as required by the indenture would constitute a default under the indenture. A default under the indenture or the fundamental change itself could alsolead to a default under agreements governing our future indebtedness. Moreover, the occurrence of a fundamental change under the indenture could constitutean event of default under any such agreements. If the payment of the related indebtedness were to be accelerated after any applicable notice or grace periods, wemay not have sufficient funds to repay the indebtedness and repurchase the Notes or to pay cash upon conversion of the Notes.The conditional conversion feature of the Notes, if triggered, may adversely affect our financial condition and operating results.17In the event the conditional conversion feature of the Notes is triggered, holders of Notes will be entitled to convert the Notes at any time during specifiedperiods at their option. If one or more holders elect to convert their Notes, unless we elect to satisfy our conversion obligation by delivering solely shares of ourcommon stock (other than paying cash in lieu of delivering any fractional share), we would be required to settle a portion or all of our conversion obligation incash, which could adversely affect our liquidity. In addition, even if holders do not elect to convert their Notes, we could be required under applicableaccounting rules to reclassify all or a portion of the outstanding principal of the Notes as a current rather than long-term liability, which would result in amaterial reduction of our net working capital.The accounting method for convertible debt securities that may be settled in cash, such as the Notes, could have a material effect on our reportedfinancial results.In May 2008, FASB issued FASB Staff Position No. APB 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash uponConversion (Including Partial Cash Settlement), which has subsequently been codified as Accounting Standards Codification 470-20, Debt with Conversionand Other Options (“ASC 470-20”). Under ASC 470-20, an entity must separately account for the liability and equity components of the convertible debtinstruments (such as the Notes) that may be settled entirely or partially in cash upon conversion in a manner that reflects the issuer’s economic interest cost.The effect of ASC 470-20 on the accounting for the Notes is that the equity component is required to be included in the additional paid-in capital section ofstockholders’ equity on our consolidated balance sheet at the issuance date and the value of the equity component would be treated as debt discount forpurposes of accounting for the debt component of the Notes. As a result, we are required to record a greater amount of non-cash interest expense as a result ofthe amortization of the discounted carrying value of the Notes to their face amount over the term of the Notes. We will report lower net income (or larger netlosses) in our financial results because ASC 470-20 requires interest to include both the amortization of the debt discount and the instrument’s non-convertiblecoupon interest rate, which could adversely affect our future financial results, the trading price of our common stock and the trading price of the Notes.Holders of Notes will not be entitled to any rights with respect to our common stock, but they will be subject to all changes made with respect tothem to the extent our conversion obligation includes shares of our common stock.Holders of Notes will not be entitled to any rights with respect to our common stock (including, without limitation, voting rights and rights to receiveany dividends or other distributions on our common stock) prior to the conversion date relating to such Notes (if we have elected to settle the relevantconversion by delivering solely shares of our common stock (other than paying cash in lieu of delivering any fractional share)) or the last trading day of therelevant observation period (if we elect to pay and deliver, as the case may be, a combination of cash and shares of our common stock in respect of the relevantconversion), but holders of Notes will be subject to all changes affecting our common stock. For example, if an amendment is proposed to our restatedcertificate of incorporation or restated bylaws requiring stockholder approval and the record date for determining the stockholders of record entitled to vote onthe amendment occurs prior to the conversion date related to a holder’s conversion of its Notes (if we have elected to settle the relevant conversion by deliveringsolely shares of our common stock (other than paying cash in lieu of delivering any fractional share)) or the last trading day of the relevant observation period(if we elect to pay and deliver, as the case may be, a combination of cash and shares of our common stock in respect of the relevant conversion), such holderwill not be entitled to vote on the amendment, although such holder will nevertheless be subject to any changes affecting our common stock.The conditional conversion feature of the Notes could result in note holders receiving less than the value of our common stock into which theNotes would otherwise be convertible.Prior to the close of business on the business day immediately preceding July 1, 2018, holders of our Notes may convert their Notes only if specifiedconditions are met. If the specific conditions for conversion are not met, holders will not be able to convert their Notes, and they may not be able to receive thevalue of the cash, common stock or a combination of cash and common stock, as applicable, into which their Notes would otherwise be convertible.Upon conversion of the Notes, note holders may receive less valuable consideration than expected because the value of our common stock maydecline after holders exercise their conversion right but before we settle our conversion obligation.Under the Notes, a converting holder will be exposed to fluctuations in the value of our common stock during the period from the date such holdersurrenders Notes for conversion until the date we settle our conversion obligation.Upon conversion of the Notes, we have the option to pay or deliver, as the case may be, cash, shares of our common stock, or a combination of cashand shares of our common stock. If we elect to satisfy our conversion obligation in cash or a combination of cash and shares of our common stock, theamount of consideration that a note holder will receive upon conversion of such18holder’s Notes will be determined by reference to the volume weighted average prices of our common stock for each trading day in a 30 trading-day observationperiod. This period would be: (i) if the relevant conversion date occurs prior to July 1, 2018, the 30 consecutive trading days beginning on, and including, thesecond trading day immediately succeeding such conversion date; and (ii) if the relevant conversion date occurs during the period from, and including, July1, 2018 to the close of business on the second scheduled trading day immediately preceding November 1, 2018, the 30 consecutive trading days beginning on,and including, the 32nd scheduled trading day immediately preceding the maturity date. Accordingly, if the price of our common stock decreases during thisperiod, the amount and/or value of consideration note holders receive will be adversely affected. In addition, if the market price of our common stock at the endof such period is below the average of the daily volume weighted average prices of our common stock during such period, the value of any shares of ourcommon stock that note holders will receive in satisfaction of our conversion obligation will be less than the value used to determine the number of shares thatholders will receive.If we elect to satisfy our conversion obligation solely in shares of our common stock upon conversion of the Notes, we will be required to deliver theshares of our common stock, together with cash for any fractional share, on the third business day following the relevant conversion date (or, for conversionsoccurring on or after July 1, 2018, on the maturity date). Accordingly, if the price of our common stock decreases during this period, the value of the sharesthat holders receive will be adversely affected and would be less than the conversion value of the Notes on the conversion date.The Notes are not protected by restrictive covenants.The indenture governing the Notes does not contain any financial or operating covenants or restrictions on the payments of dividends, the incurrence ofindebtedness or the issuance or repurchase of securities by us or any of our subsidiaries. The indenture contains no covenants or other provisions to affordprotection to holders of the Notes in the event of a fundamental change or other corporate transaction involving us except in certain cases described in theindenture connected with fundamental changes, consolidations, mergers or sales of assets.The increase in the conversion rate for Notes converted in connection with a make-whole fundamental change may not adequately compensateholders of the Notes for any lost value of the Notes as a result of such transaction.If a make-whole fundamental change occurs prior to maturity, under certain circumstances, we will increase the conversion rate by a number ofadditional shares of our common stock for Notes converted in connection with such make-whole fundamental change. The increase in the conversion rate willbe determined based on the date on which the specified corporate transaction becomes effective and the price paid (or deemed to be paid) per share of ourcommon stock in such transaction. The increase in the conversion rate for Notes converted in connection with a make-whole fundamental change may notadequately compensate holders for any lost value of the Notes as a result of such transaction. In addition, if the price of our common stock in the transactionis greater than $250.00 per share or less than $53.73 per share (in each case, subject to adjustment), no additional shares will be added to the conversion rate.Moreover, in no event will the conversion rate per $1,000 principal amount of Notes as a result of this adjustment exceed 18.6115 shares of common stock,subject to adjustment in the same manner as the conversion rate.Our obligation to increase the conversion rate for Notes converted in connection with a make-whole fundamental change could be considered a penalty, inwhich case the enforceability thereof would be subject to general principles of reasonableness and equitable remedies.The conversion rate of the Notes may not be adjusted for all dilutive events.The conversion rate of the Notes is subject to adjustment for certain events, including, but not limited to, the issuance of certain stock dividends on ourcommon stock, the issuance of certain rights or warrants, subdivisions, combinations, distributions of capital stock, indebtedness, or assets, cash dividendsand certain issuer tender or exchange offers. However, the conversion rate will not be adjusted for other events, such as a third-party tender or exchange offer oran issuance of common stock for cash, that may adversely affect the trading price of the Notes or our common stock. An event that adversely affects the valueof the Notes may occur, and that event may not result in an adjustment to the conversion rate.Provisions in the indenture for the Notes may deter or prevent a business combination that may be favorable to note holders.If a fundamental change occurs prior to the maturity date of the Notes, holders of the Notes will have the right, at their option, to require us torepurchase all or a portion of their Notes. In addition, if a make-whole fundamental change occurs prior to the maturity date of the Notes, we will in somecases be required to increase the conversion rate for a holder that elects to convert its Notes in connection with such make-whole fundamental change.Furthermore, the indenture for the Notes prohibits us from engaging in certain mergers or acquisitions unless, among other things, the surviving entityassumes our obligations under the19Notes and the indenture. These and other provisions in the indenture could deter or prevent a third party from acquiring us even when the acquisition may befavorable to note holders.Some significant restructuring transactions may not constitute a fundamental change, in which case we would not be obligated to offer torepurchase the Notes.Upon the occurrence of a fundamental change, note holders have the right to require us to repurchase all or a portion of the Notes. However, thefundamental change provisions will not afford protection to holders of Notes in the event of other transactions that could adversely affect the Notes. Forexample, transactions such as leveraged recapitalizations, refinancings, restructurings, or acquisitions initiated by us may not constitute a fundamentalchange requiring us to offer to repurchase the Notes. In the event of any such transaction, the holders would not have the right to require us to repurchase theNotes, even though each of these transactions could increase the amount of our indebtedness, or otherwise adversely affect our capital structure or any creditratings, thereby adversely affecting the holders of Notes.In addition, absent the occurrence of a fundamental change or a make-whole fundamental change, changes in the composition of our board of directorswill not provide holders with the right to require us to repurchase the Notes or to an increase in the conversion rate upon conversion.We have not registered the Notes or the common stock issuable upon conversion of the Notes, if any, which will limit the ability of note holders toresell them.The Notes and the shares of common stock issuable upon conversion of the Notes, if any, have not been registered under the Securities Act or any statesecurities laws. Unless the Notes and any shares of common stock issuable upon conversion of the Notes have been registered, they may not be transferred orresold except in a transaction exempt from or not subject to the registration requirements of the Securities Act and applicable state securities laws. We do notintend to file a registration statement for the resale of the Notes and the common stock, if any, into which the Notes are convertible.We cannot guarantee an active trading market for the Notes.We have not listed and do not intend to apply to list the Notes on any securities exchange or to arrange for quotation on any automated dealer quotationsystem. Moreover, the initial purchasers of the Notes may cease making a market in the Notes at any time without notice. In addition, the liquidity of thetrading market in the Notes, and the market price quoted for the Notes, may be adversely affected by changes in the overall market for this type of securityand by changes in our financial performance or prospects or in the prospects for companies in our industry generally. As a result, we cannot assure noteholders that there will be an active trading market for the Notes. If an active trading market is not maintained, the market price and liquidity of the Notes maybe adversely affected. In that case, note holders might not be able to sell the Notes at a particular time or at a favorable price.Any adverse rating of the Notes may cause their trading price to fall.We have not obtained and do not intend to seek a rating on the Notes. However, if a rating service were to rate the Notes and if such rating service were tolower its rating on the Notes below the rating initially assigned to the Notes or otherwise announces its intention to put the Notes on credit watch, the tradingprice of the Notes could decline.Note holders may be subject to tax if we make or fail to make certain adjustments to the conversion rate of the Notes even though note holders donot receive a corresponding cash distribution.The conversion rate of the Notes is subject to adjustment in certain circumstances, including the payment of cash dividends. If the conversion rate isadjusted as a result of a distribution that is taxable to our common stockholders, such as a cash dividend, note holders may be deemed to have received adividend subject to U.S. federal income tax without the receipt of any cash. In addition, a failure to adjust (or to adjust adequately) the conversion rate after anevent that increases a note holder’s proportionate interest in us could be treated as a deemed taxable dividend to such note holder. If a make-whole fundamentalchange occurs prior to maturity, under some circumstances, we will increase the conversion rate for Notes converted in connection with the make-wholefundamental change. Such increase may also be treated as a distribution subject to U.S. federal income tax as a dividend. If a holder is a non-U.S. holder, anydeemed dividend generally would be subject to U.S. federal withholding tax at a 30% rate, or such lower rate as may be specified by an applicable treaty,which may be set off against subsequent payments on the Notes.Future sales of our common stock in the public market could lower the market price for our common stock and adversely impact the trading priceof the Notes.20In the future, we may sell additional shares of our common stock to raise capital. In addition, a substantial number of shares of our common stock isreserved for issuance upon the exercise of stock options, the vesting of restricted stock, settlement of restricted stock units and issuance of performance sharespursuant to our employee benefit plans, for purchase by employees under our employee stock purchase plan, upon conversion of the Notes and in relation tothe warrant transactions we entered into in connection with the pricing of the Notes. We cannot predict the size of future issuances or the effect, if any, thatthey may have on the market price for our common stock. The issuance and sale of substantial amounts of common stock, or the perception that suchissuances and sales may occur, could adversely affect the trading price of the Notes and the market price of our common stock and impair our ability to raisecapital through the sale of additional equity securities.The convertible note hedge and warrant transactions may affect the value of the Notes and our common stock.In connection with the sale of the Notes, we entered into convertible note hedge ("Note Hedge") transactions with certain financial institutions (the “optioncounterparties”). We also entered into warrant transactions with the option counterparties pursuant to which we sold warrants for the purchase of our commonstock ("Warrants"). The Note Hedge transactions are expected generally to reduce the potential dilution upon any conversion of Notes and/or offset any cashpayments we are required to make in excess of the principal amount of converted Notes, as the case may be. The warrant transactions could separately have adilutive effect to the extent that the market price per share of our common stock exceeds the strike price of the Warrants.The option counterparties and/or their respective affiliates may modify their hedge positions by entering into or unwinding various derivatives withrespect to our common stock and/or purchasing or selling our common stock in secondary market transactions prior to the maturity of the Notes (and arelikely to do so during any observation period related to a conversion of Notes or following any repurchase of Notes by us on any fundamental changerepurchase date or otherwise). This activity could also cause or avoid an increase or a decrease in the market price of our common stock or the Notes, whichcould affect note holders’ ability to convert the Notes and, to the extent the activity occurs during any observation period related to a conversion of Notes, itcould affect the amount and value of the consideration that note holders will receive upon conversion of the Notes.The potential effect, if any, of these transactions and activities on the market price of our common stock or the Notes will depend in part on marketconditions and cannot be ascertained at this time. Any of these activities could adversely affect the value of our common stock and the value of the Notes (andas a result, the value of the consideration, the amount of cash and/or the number of shares, if any, that note holders would receive upon the conversion of anyNotes) and, under certain circumstances, the ability of the note holders to convert the Notes.We do not make any representation or prediction as to the direction or magnitude of any potential effect that the transactions described above may haveon the price of the Notes or our common stock. In addition, we do not make any representation that the option counterparties will engage in these transactionsor that these transactions, once commenced, will not be discontinued without notice.We are subject to counterparty risk with respect to the Note Hedge transactions.The option counterparties are financial institutions, and we will be subject to the risk that any or all of them may default under the Note Hedgetransactions. Our exposure to the credit risk of the option counterparties will not be secured by any collateral. Recent global economic conditions have resultedin the actual or perceived failure or financial difficulties of many financial institutions. If an option counterparty becomes subject to insolvency proceedings,we will become an unsecured creditor in those proceedings, with a claim equal to our exposure at that time under our transactions with that option counterparty.Our exposure will depend on many factors but, generally, an increase in our exposure will be correlated to an increase in the market price and in the volatilityof our common stock. In addition, upon a default by an option counterparty, we may suffer adverse tax consequences and more dilution than we currentlyanticipate with respect to our common stock. We can provide no assurances as to the financial stability or viability of the option counterparties.Risks Relating to Ownership of Our Common Stock The market price of our common stock has historically been and is likely to continue to be volatile, could adversely impact the trading price of theNotes and could subject us to litigation.The trading price of our common stock has been, and is likely to continue to be, volatile and could be subject to wide fluctuations in response to variousfactors, some of which are beyond our control. Since shares of our common stock were sold in our initial public offering in June 2012 at a price of $18.00 pershare, our stock price has ranged from $22.62 to $58.41 through21December 31, 2013. In addition, the trading prices of the securities of technology companies in general have been highly volatile, and the volatility in marketprice and trading volume of securities is often unrelated or disproportionate to the financial performance of the companies issuing the securities. Factorsaffecting the market price of our common stock include: •variations in our growth rate, operating results, earnings per share, cash flows from operating activities, deferred revenue, and other financialmetrics and non-financial metrics, and how those results compare to analyst expectations;•forward-looking statements related to future revenues and earnings per share;•the net increases in the number of customers, either independently or as compared with published expectations of industry, financial or otheranalysts that cover our company;•changes in the estimates of our operating results or changes in recommendations by securities analysts that elect to follow our common stock;•announcements of technological innovations, new solutions or enhancements to services, strategic alliances or significant agreements by us or byour competitors;•announcements regarding our efforts to expand our offerings for service domains outside of IT, and offerings for small and medium-sizedbusinesses;•announcements by us or by our competitors of mergers or other strategic acquisitions, or rumors of such transactions involving us or ourcompetitors;•announcements of customer additions and customer cancellations or delays in customer purchases;•recruitment or departure of key personnel;•disruptions in our services due to computer hardware, software or network problems, security breaches, or other man-made or natural disasters;•the economy as a whole, and market conditions in our industry and the industries of our customers;•trading activity by a limited number of stockholders who together beneficially own a majority of our outstanding common stock;•the size of our market float and the volume of trading in our common stock, including sales upon exercise of outstanding options or vesting ofequity awards or sales and purchases of any common stock issued upon conversion of the Notes or in connection with the Note Hedge andWarrant transactions relating to the Notes; and•any other factors discussed herein.In addition, if the market for technology stocks or the stock market in general experiences uneven investor confidence, the market price of our common stockcould decline for reasons unrelated to our business, operating results or financial condition. The market price of our common stock might also decline inreaction to events that affect other companies within, or outside, our industry even if these events do not directly affect us. A decrease in the market price ofour common stock would likely adversely impact the trading price of our Notes. The price of our common stock could also be affected by possible sales ofour common stock by investors who view the Notes as a more attractive means of equity participation in us and by hedging or arbitrage trading activity thatwe expect to develop involving our common stock. This trading activity could, in turn, affect the trading price of the Notes. Some companies that haveexperienced volatility in the trading price of their stock have been the subject of securities class action litigation. If we are the subject of such litigation, it couldresult in substantial costs and a diversion of our management’s attention and resources.We do not intend to pay dividends on our common stock so any returns will be limited to changes in the value of our common stock. We have never declared or paid any cash dividends on our common stock. We currently anticipate that we will retain future earnings for thedevelopment, operation and expansion of our business and do not anticipate declaring or paying any cash dividends for the foreseeable future. In addition, ourability to pay cash dividends on our common stock may be prohibited or limited by the terms of any future debt financing arrangement. Any return tostockholders will therefore be limited to the increase, if any, of our stock price. Our directors and executive officers beneficially own a significant percentage of our stock and are able to exert control over matters subject tostockholder approval. As of December 31, 2013, our directors and executive officers and their respective affiliates beneficially owned in the aggregate approximately 15% ofour outstanding voting stock. Together, these stockholders have the ability to influence us through this ownership position. For example, these stockholdersmay be able to influence elections of directors, amendments of our organizational documents, or the approval of any merger, sale of assets, or other majorcorporate transaction. This may prevent or discourage unsolicited acquisition proposals or offers for our common stock that you may feel are in your bestinterest as one of our stockholders. 22Provisions in our charter documents, Delaware law and our Notes might discourage, delay or prevent a change of control of our company orchanges in our management and, therefore, depress the market price of our common stock. Our restated certificate of incorporation and restated bylaws contain provisions that could depress the market price of our common stock by acting todiscourage, delay or prevent a change in control of our company or changes in our management that the stockholders of our company may deemadvantageous. These provisions among other things: •establish a classified board of directors so that not all members of our board are elected at one time;•permit the board of directors to establish the number of directors;•provide that directors may only be removed “for cause” and only with the approval of 66 2/3% of our stockholders;•require super-majority voting to amend some provisions in our restated certificate of incorporation and restated bylaws;•authorize the issuance of “blank check” preferred stock that our board could use to implement a stockholder rights plan;•eliminate the ability of our stockholders to call special meetings of stockholders;•prohibit stockholder action by written consent, which requires all stockholder actions to be taken at a meeting of our stockholders;•provide that the board of directors is expressly authorized to make, alter or repeal our restated bylaws; and•establish advance notice requirements for nominations for election to our board or for proposing matters that can be acted upon by stockholders atannual stockholder meetings.In addition, Section 203 of the Delaware General Corporation Law may discourage, delay or prevent a change in control of our company. Section 203imposes certain restrictions on merger, business combinations and other transactions between us and holders of 15% or more of our common stock.Further, the fundamental change provisions of our Notes may delay or prevent a change in control of our company, because those provisions allow noteholders to require us to repurchase such notes upon the occurrence of a fundamental change (as defined in the indenture for the Notes).23ITEM 1B. UNRESOLVED STAFF COMMENTSNone.ITEM 2. PROPERTIESOur principal office is located in Santa Clara, California. We also maintain offices in multiple locations in the United States and internationally,including Amsterdam and London. All of our properties are currently leased. We believe our existing facilities are adequate to meet our current requirements.See Note 17 to the consolidated financial statements for more information about our lease commitments. If we were to require additional space, we believe wewill be able to obtain such space on acceptable, commercially reasonable, terms.ITEM 3. LEGAL PROCEEDINGSOn February 6, 2014, Hewlett-Packard Company filed a lawsuit against us in the U.S. District Court for the Northern District of California thatalleges that some of our services infringe the claims of eight of Hewlett-Packard's patents. Hewlett-Packard is seeking unspecified damages and an injunction.We intend to vigorously defend this lawsuit. This litigation is still in its early stages and the final outcome, including our liability, if any, with respect toHewlett-Packard’s claims, is uncertain. If an unfavorable outcome were to occur in this litigation, the impact could be material to our business, financialcondition, or results of operations depending on the specific circumstances of the outcome.From time to time, we may become involved in legal proceedings arising in the ordinary course of our business. Other than as described above, weare not presently a party to any legal proceedings that, if determined adversely to us, we believe would individually or taken together have a material adverseeffect on our business, financial condition or results of operations.ITEM 4. MINE SAFETY DISCLOSURESNot applicable.PART IIITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OFEQUITY SECURITIESMarket Information for Common StockOur common stock is listed on the New York Stock Exchange under the symbol “NOW.”The following table sets forth for the indicated periods the high and low sales prices of our common stock as reported by the New York StockExchange. High LowYear ended December 31, 2013 First Quarter$38.22 $25.54 Second Quarter$43.99 $33.95 Third Quarter$53.11 $39.83 Fourth Quarter$58.41 $47.37 Year ended December 31, 2012 First Quarter Second Quarter$24.75 $22.83 Third Quarter$41.77 $22.62 Fourth Quarter$38.14 $28.1524Dividend PolicyWe have never paid any cash dividends on our common stock. Our board of directors currently intends to retain any future earnings to supportoperations and to finance the growth and development of our business and does not intend to pay cash dividends on our common stock for the foreseeablefuture. Any future determination related to our dividend policy will be made at the discretion of our board.StockholdersAs of December 31, 2013, there were 37 registered stockholders of record (not including beneficial holders of stock held in street names) of our commonstockSecurities Authorized for Issuance under Equity Compensation PlansThe information required by this item will be included in an amendment to this Annual Report on Form 10-K or incorporated by reference from ourdefinitive proxy statement to be filed pursuant to Regulation 14A.Stock Performance GraphThe following shall not be deemed incorporated by reference into any of our other filings under the Securities Exchange Act of 1934, as amended, or theSecurities Act of 1933, as amended, except to the extent we specifically incorporate it by reference into such filing.The graph below compares the cumulative total stockholder return on our common stock with the cumulative total return on the NYSE CompositeIndex and the Standard & Poor Systems Software Index for the period beginning on June 29, 2012 (the date our common stock commenced trading on theNew York Stock Exchange) through December 31, 2013, assuming an initial investment of $100. Data for the NYSE Composite Index and the Standard &Poor Systems Software Index assume reinvestment of dividends.The comparisons in the graph below are based upon historical data and are not indicative of, nor intended to forecast, future performance of ourcommon stock. 6/29/2012 9/30/2012 12/31/2012 3/31/2013 6/30/2013 9/30/2013 12/31/2013ServiceNow, Inc.100.00 157.24 122.07 147.15 164.19 211.18 227.68NYSE Composite100.00 106.46 109.60 118.97 120.54 127.34 138.40S&P Systems Software100.00 101.19 97.22 102.05 112.75 113.91 129.2025ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA The following selected consolidated financial data should be read together with our consolidated financial statements and accompanying notes and“Management’s Discussion and Analysis of Financial Condition and Results of Operations” appearing elsewhere in this filing. The selected consolidatedfinancial data in this section are not intended to replace our consolidated financial statements and the related notes. Our historical results are not necessarilyindicative of our future results. The selected consolidated statements of operations data for the years ended December 31, 2013 and 2012, for the six months ended December 31, 2011,and fiscal 2011, and the selected consolidated balance sheet data as of December 31, 2013 and 2012 are derived from our audited consolidated financialstatements and are included in this Form 10-K. The consolidated statements of operations data for fiscal 2009 and 2010 and the consolidated balance sheetdata as of December 31, 2011, June 30, 2011, 2010, and 2009 are derived from our audited consolidated financial statements which are not included in thisForm 10-K. The consolidated statement of operations data for the year ended December 31, 2011 and the six months ended December 31, 2010 are derivedfrom our unaudited consolidated financial statements which are not included in this Form 10-K. We have prepared the unaudited financial information on thesame basis as the audited consolidated financial statements and have included, in our opinion, all adjustments, consisting only of normal recurringadjustments, we consider necessary for a fair statement of the financial information set forth in those statements. 26 Year Ended December 31, Six Months EndedDecember 31, Fiscal Year Ended June 30, 2013 2012 2011 2011 2010 2011 2010 2009 (in thousands, except share and per share data)Consolidated Statements ofOperations Data: Revenues(1): Subscription$349,804 $204,526 $110,886 $64,886 $33,191 $79,191 $40,078 $17,841Professional services and other74,846 39,186 17,186 8,489 4,753 13,450 3,251 1,474Total revenues424,650 243,712 128,072 73,375 37,944 92,641 43,329 19,315Cost of revenues(2)(3): Subscription87,928 63,258 24,288 15,073 6,096 15,311 6,378 3,140Professional services and other67,331 40,751 22,336 12,850 6,778 16,264 9,812 4,711Total cost of revenues155,259 104,009 46,624 27,923 12,874 31,575 16,190 7,851Gross profit269,391 139,703 81,448 45,452 25,070 61,066 27,139 11,464Operating expenses(2)(3): Sales and marketing195,190 103,837 52,896 32,501 13,728 34,123 19,334 8,499Research and development78,678 39,333 11,276 7,030 2,758 7,004 7,194 2,433General and administrative61,790 34,117 16,046 10,084 3,417 9,379 28,810 6,363Total operating expenses335,658 177,287 80,218 49,615 19,903 50,506 55,338 17,295Income (loss) from operations(66,267) (37,584) 1,230 (4,163) 5,167 10,560 (28,199) (5,831)Interest and other income (expense),net(4,930) 1,604 (1,129) (1,446) 289 606 (1,226) (27)Income (loss) before provision forincome taxes(71,197) (35,980) 101 (5,609) 5,456 11,166 (29,425) (5,858)Provision for income taxes2,511 1,368 1,758 1,075 653 1,336 280 48Net income (loss)$(73,708) $(37,348) $(1,657) $(6,684) $4,803 $9,830 $(29,705) $(5,906)Net income (loss) attributable tocommon stockholders(4): Basic$(73,708) $(37,656) $(2,282) $(6,996) $762 $1,639 $(30,345) $(6,531)Diluted$(73,708) $(37,656) $(2,282) $(6,996) $1,111 $2,310 $(30,345) $(6,531)Net income (loss) per shareattributable to commonstockholders(4): Basic$(0.54) $(0.51) $(0.11) $(0.33) $0.04 $0.09 $(1.31) $(0.17)Diluted$(0.54) $(0.51) $(0.11) $(0.33) $0.04 $0.08 $(1.31) $(0.17)Weighted-average shares used tocompute net income (loss) per shareattributable to commonstockholders(4): Basic135,415,809 73,908,631 20,154,088 21,104,219 17,156,445 18,163,977 23,157,576 39,039,066Diluted135,415,809 73,908,631 20,154,088 21,104,219 27,622,357 28,095,486 23,157,576 39,039,066(1)Revenues for the years ended December 31, 2013, 2012 and 2011, the six months ended December 31, 2011 and 2010 and the fiscal year ended June 30, 2011 reflect theprospective adoption of new revenue accounting guidance commencing on July 1, 2010. Please refer to Note 2 to our consolidated financial statements for impact of our adoption.(2)Stock-based compensation included in the statements of operations data above was as follows:27 Year Ended December 31, Six Months EndedDecember 31, Fiscal Year Ended June 30, 2013 2012 2011 2011 2010 2011 2010 2009 (in thousands)Cost of revenues: Subscription$8,434 $3,929 $997 $674 $225 $548 $48 $6Professional services and other4,749 1,574 273 193 37 117 28 11Sales and marketing21,609 10,189 2,583 2,010 431 1,004 277 45Research and development16,223 6,496 965 704 207 468 90 50General and administrative14,566 5,749 2,652 2,056 221 817 102 15 (3)Cost of revenues and operating expenses for the fiscal year ended June 30, 2010 reflect compensation expense of $0.7 million and $30.1 million, respectively, related to therepurchase of shares from eligible stockholders in connection with our sale and issuance of Series D preferred stock. Operating expenses for the fiscal year ended June 30, 2009reflect compensation expense of $3.8 million related to the stock settlement of an outstanding promissory note in connection with our sale and issuance of Series C preferred stock.(4)Please refer to Note 14 to our consolidated financial statements for an explanation of the method used to calculate the historical net income (loss) and net income (loss) per shareattributable to common stockholders and the number of shares used in the computation of the per share amounts. As of December 31, As of June 30, 2013 2012 2011 2011 2010 2009 (in thousands)Consolidated Balance Sheet Data: Cash and cash equivalents$366,303 $118,989 $68,088 $59,853 $29,402 $7,788Working capital, excluding deferred revenue722,214 364,426 95,033 75,801 33,080 10,090Total assets1,168,476 478,114 156,323 108,746 51,369 15,327Deferred revenue, current and non-current portion266,722 170,361 104,636 74,646 40,731 16,778Convertible senior notes, net414,777 — — — — —Convertible preferred stock— — 68,172 67,860 67,227 15,342Total stockholders’ equity (deficit)394,259 243,405 (57,426) (58,381) (71,262) (21,690)28ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS You should read the following discussion and analysis of our financial condition and results of operations together with our consolidatedfinancial statements and the related notes appearing at the end of this filing. Some of the information contained in this discussion and analysis or setforth elsewhere in this filing, including information with respect to our plans and strategy for our business, includes forward-looking statements thatinvolve risks and uncertainties. You should read the “Risk Factors” section of this filing for a discussion of important factors that could cause actualresults and the timing of certain events to differ materially from future results expressed or implied by the forward-looking statements contained in thefollowing discussion and analysis. Overview ServiceNow is a leading provider of cloud-based services to automate and manage IT service relationships across the global enterprise. Our servicesinclude a suite of IT service automation applications built on our proprietary platform that can be rapidly deployed and configured. Customers use ourservices to create a single system of record for enterprise IT, automate manual tasks, standardize processes and consolidate legacy systems. UsingServiceNow, enterprise IT departments can accelerate their shift from the management of IT infrastructure to the management of IT service relationships acrossthe enterprise with greater transparency, accountability and auditability. Our proprietary platform enables our customers to create custom applications andevolve the IT service model to service domains inside and outside the enterprise. We offer our services under a SaaS business model. Our subscription fees include access to the ordered subscription service and related support andinclude updates of the subscribed service during the subscription term. We provide a scaled pricing model based on the duration of the subscription term andwe frequently extend discounts to our customers based on the number of users. We generate sales through our direct sales team and indirectly through channelpartners and third-party referrals. We also generate revenues from professional services for implementation and training of customer personnel. We generallybill our customers annually in advance for subscription services and monthly in arrears for our professional services as the work is performed. Many customers initially subscribe to our services to solve a specific and immediate problem. Once that problem is solved, many of our customersdeploy additional applications as they become more familiar with our services and apply them to new IT processes. In addition, many customers eitherrepurpose our IT applications or build custom applications that automate various processes for business uses outside of IT such as human resources,facilities and quality control management. A majority of our revenues come from large global enterprise customers. We continue to invest in the development ofour services, infrastructure and sales and marketing to drive long-term growth. We increased our overall employee headcount to 1,830 as of December 31, 2013from 1,077 as of December 31, 2012. Fiscal Year End On February 3, 2012, our board of directors approved a change to our fiscal year-end from June 30 to December 31. Included in this filing is thetransition period for the six months ended December 31, 2011. References to “fiscal 2011” and “fiscal 2010” refer to the fiscal years ended June 30, 2011 and2010, respectively. Key Factors Affecting Our Performance Upsell rate. To grow our business it is important for us to generate additional sales from existing customers, which we refer to as our upsell rate. Wecalculate our upsell rate as the annual contract value of upsells signed during the period, net of any decreases in annual contract value of renewals during theperiod, divided by our total annual contract value signed during the period. The upsell rate was 31%, 30% and 29% for the years ended December 31, 2013,2012 and 2011, respectively, and 28% and 25% for the six months ended December 31, 2011 and 2010, respectively, and 27% and 25% for fiscal 2011 andfiscal 2010, respectively. Our upsells are primarily derived by an increase in the number of seat licenses purchased by our customers and are also derivedfrom the addition of other subscription services. Renewal rate. We calculate our renewal rate by subtracting our attrition rate from 100%. Our attrition rate for a period is equal to the annual contractvalue from lost customers, divided by the total annual contract value from all customers that renewed during the period and from all lost customers. A lostcustomer is a customer that did not renew a contract expiring in the period and that, in our judgment, will not renew. Annual contract value is equal to the first12 months of expected subscription revenues under a contract. Typically a customer that reduces its subscription upon renewal is not considered a lostcustomer. However, in instances where the subscription decrease represents the majority of the customer's annual contract value, we may deem the renewal as alost customer. We believe our renewal rate is an important metric to measure the long-term value of customer agreements and our ability to retain our customers.Our renewal rate was 96%, 97% and 97% for the years ended December 31, 2013, 2012 and 2011, respectively, 97% and 99% for the six months endedDecember 31, 2011 and 2010, respectively, and 97% and 95% for fiscal 2011 and fiscal 2010, respectively.29Total customers. We believe our total customer count is a key indicator of our market penetration, growth and future revenues. We have aggressivelyinvested in, and intend to continue to invest in, our direct sales force and additional partnerships with our indirect sales channel. We generally define acustomer as an entity with an active service contract as of the measurement date. In situations where there is a single contract that applies to entities withmultiple subsidiaries or divisions, universities or governmental organizations, each entity that has contracted for a separate production instance of our servicesare counted as a separate customer. As of December 31, 2013 and 2012, our total customer count was 2,061 and 1,512, respectively.Investment in growth. We have invested, and intend to continue to invest in, expanding our operations, including increasing our headcount, expandingour cloud-based infrastructure, increasing access for our partners to utilize our tools and resources, and developing technology to support our growth. We haverecently, and may in the future, also enter into acquisition transactions.Expansion beyond IT. Our customers can purchase access to our application suite for use outside of the IT department. Customers may also purchaseaccess to our services to develop custom applications using our platform. Although in the near term we expect our revenue growth to be primarily driven byadoption and penetration of our suite of applications for use within IT, we continue to enhance the development capabilities within our platform, allowingcustom application development to expand within our customer base. We believe the extensibility and simplicity of our platform is resulting in an increased useof our application suite outside of the IT department as well as an increase in customer application development. Components of Results of Operations Revenues Subscription revenues. Subscription revenues are primarily comprised of fees that give customers access to the ordered subscription service, relatedsupport and updates to the subscribed service during the subscription term. Pricing includes multiple instances, hosting and support services, data backupand disaster recovery services, as well as future upgrades, when and if available, offered during the subscription period. In addition, we offer three separatelypriced enabling technologies: Discovery, Orchestration and Performance Analytics. We typically invoice our customers for subscription fees in annualincrements upon execution of the initial contract or subsequent renewal. Our average initial contract term was approximately 33 months for 2013. Our contractsare generally non-cancelable, though customers can terminate for breach if we materially fail to perform.We generate sales directly through our sales team and, to a lesser extent, through our channel partners. Sales to our channel partners are made at adiscount and revenues are recorded at the discounted price when all revenue recognition criteria are met. From time to time, our channel partners also provideus referrals for which we pay a referral fee. We pay referral fees to channel partners and other third parties typically ranging from 2% to 34% of the first year’sannual contract value. These fees are included in sales and marketing expense. Professional services and other revenues. Professional services revenues consist of fees associated with the implementation and configuration of oursubscription service.Our pricing for professional services are primarily on a time-and-materials basis. We generally invoice our professional services monthlyin arrears based on actual hours and expenses incurred. Other revenues include primarily fees from customer training delivered on-site or publicly availableclasses, royalties from licensing training materials, attendance and sponsorship fees for our annual Knowledge user conference and other customer forums.Typical payment terms require our customers to pay us within 30 days of invoice.Refer to “Critical Accounting Policies and Significant Judgments and Estimates” below for further discussion of our revenue recognition accountingpolicy. Backlog. Backlog represents future amounts to be invoiced under our agreements and is not included in deferred revenue. As of December 31, 2013 and2012, we had backlog of approximately $608.4 million and $379.0 million, respectively. We expect backlog will change from period to period for severalreasons, including the timing and duration of customer subscription and professional services agreements, varying billing cycles of subscription agreements,and the timing of customer renewals.Allocation of Overhead Costs Overhead costs associated with facilities, IT and certain depreciation related to noncloud-based infrastructure are allocated to cost of revenues andoperating expenses based on headcount. Depreciation related to our cloud-based infrastructure hardware equipment is classified as cost of subscriptionrevenues. We anticipate overhead costs to increase in absolute dollars in 2014 due to growth in new geographic locations. During the year ended December 31,2013, facilities expenses increased by $5.3 million compared to prior year, primarily due to expansion in our current headquarters and growth to newgeographic locations. 30Cost of Revenues Cost of subscription revenues. Cost of subscription revenues consists primarily of expenses related to hosting our services and providing support toour customers. These expenses are comprised of data center capacity costs; personnel related costs directly associated with our cloud-based infrastructure andcustomer support, including salaries, benefits, bonuses and stock-based compensation; and allocated overhead. Cost of professional services and other revenues. Cost of professional services and other revenues consists primarily of personnel related costsdirectly associated with our professional services and training departments, including salaries, benefits, bonuses and stock-based compensation; the costs ofcontracted third-party vendors; and allocated overhead.Professional services associated with the implementation and configuration of our subscription services are performed directly by our services team, aswell as by contracted third-party vendors. Fees paid to third-party vendors are primarily recognized as cost of revenues as the professional services aredelivered. Cost of revenues associated with our professional services engagements contracted with third-party vendors as a percentage of professional servicesand other revenues was 17%, 26% and 55% for the years ended December 31, 2013, 2012 and 2011, respectively, 64% and 70% for the six months endedDecember 31, 2011 and 2010, and 54% and 135% in fiscal 2011 and fiscal 2010, respectively. Sales and Marketing Expenses Sales and marketing expenses consist primarily of personnel related expenses directly associated with our sales and marketing staff, including salaries,benefits, bonuses, commissions and stock-based compensation. Sales and marketing expenses also includes third-party referral fees, marketing andpromotional events, including our annual Knowledge user conference, online marketing, product marketing and allocated overhead. Research and Development Expenses Research and development expenses consist primarily of personnel related expenses directly associated with our research and development staff,including salaries, benefits, bonuses and stock-based compensation, and allocated overhead. General and Administrative Expenses General and administrative expenses consist primarily of personnel related expenses for our executive, finance, legal, human resources andadministrative personnel, including salaries, benefits, bonuses and stock-based compensation; external legal, accounting and other professional services fees;other corporate expenses; and allocated overhead. Provision for Income Taxes The provision for income taxes consists of federal, state and foreign income taxes. Due to cumulative losses, we maintain a valuation allowance againstour U.S. deferred tax assets as of December 31, 2013 and 2012. We consider all available evidence, both positive and negative, including but not limited to,earnings history, projected future outcomes, industry and market trends and the nature of each of the deferred tax assets in assessing the extent to which avaluation allowance should be applied against our U.S. deferred tax assets.31Results of Operations To enhance comparability, the following table sets forth our results of operations for the periods presented. The period-to-period comparison of financialresults is not necessarily indicative of future results. Year Ended December 31, Six Months EndedDecember 31, Fiscal Year Ended June 30, 2013 2012 2011 2011 2010 2011 2010 (in thousands)Revenues(1): Subscription$349,804$204,526$110,886 $64,886 $33,191 $79,191$40,078Professional services and other74,84639,18617,186 8,489 4,753 13,4503,251Total revenues424,650243,712128,072 73,375 37,944 92,64143,329Cost of revenues(2)(3): Subscription87,92863,25824,288 15,073 6,096 15,3116,378Professional services and other67,33140,75122,336 12,850 6,778 16,2649,812Total cost of revenues155,259104,00946,624 27,923 12,874 31,57516,190Gross profit269,391139,70381,448 45,452 25,070 61,06627,139Operating expenses(2)(3): Sales and marketing195,190103,83752,896 32,501 13,728 34,12319,334Research and development78,67839,33311,276 7,030 2,758 7,0047,194General and administrative61,79034,11716,046 10,084 3,417 9,37928,810Total operating expenses335,658177,28780,218 49,615 19,903 50,50655,338Income (loss) from operations(66,267)(37,584)1,230 (4,163) 5,167 10,560(28,199)Interest and other income (expense), net(4,930)1,604(1,129) (1,446) 289 606(1,226)Income (loss) before provision for income taxes(71,197)(35,980)101 (5,609) 5,456 11,166(29,425)Provision for income taxes2,5111,3681,758 1,075 653 1,336280Net income (loss)$(73,708)$(37,348)$(1,657) $(6,684) $4,803 $9,830$(29,705) (1)Revenues for the years ended December 31, 2013, 2012 and 2011, the six months ended December 31, 2011 and 2010 and the fiscal year ended June 30, 2011 reflect theprospective adoption of new revenue accounting guidance commencing on July 1, 2010. Please refer to Note 2 to our consolidated financial statements for impact of our adoption.(2)Stock-based compensation included in the statements of operations data above was as follows: Year Ended December 31, Six Months EndedDecember 31, Fiscal Year Ended June 30, 2013 2012 2011 2011 2010 2011 2010 (in thousands)Cost of revenues: Subscription$8,434 $3,929 $997 $674 $225 $548 $48Professional services and other4,749 1,574 273 193 37 117 28Sales and marketing21,609 10,189 2,583 2,010 431 1,004 277Research and development16,223 6,496 965 704 207 468 90General and administrative14,566 5,749 2,652 2,056 221 817 102(3)Cost of revenues and operating expenses for the fiscal year ended June 30, 2010 reflect compensation expense of $0.7 million and $30.1 million, respectively, related to therepurchase of shares from eligible stockholders in connection with our sale and issuance of Series D preferred stock.32 Year Ended December 31, Six Months EndedDecember 31, Fiscal Year Ended June 30, 2013 2012 2011 2011 2010 2011 2010Revenues: Subscription82 % 84 % 87 % 88 % 87% 85% 92 %Professional services and other18 16 13 12 13 15 8Total revenues100 100 100 100 100 100 100Cost of revenues: Subscription21 26 19 20 16 16 15Professional services and other16 17 17 18 18 18 22Total cost of revenues37 43 36 38 34 34 37Gross profit63 57 64 62 66 66 63Operating expenses: Sales and marketing46 42 41 44 36 37 45Research and development18 16 9 10 7 8 17General and administrative14 14 13 14 9 10 66Total operating expenses78 72 63 68 52 55 128Income (loss) from operations(15) (15) 1 (6) 14 11 65Interest and other income (expense), net(1) 1 (1) (2) 1 1 (3)Income (loss) before provision for income taxes(16) (14) — (8) 15 12 68Provision for income taxes1 1 1 1 2 1 1Net income (loss)(17)% (15)% (1)% (9)% 13% 11% (69)% Year Ended December 31, Six Months EndedDecember 31, Fiscal Year Ended June 30, 2013 2012 2011 2011 2010 2011 2010 (in thousands)Revenues by geography North America$295,400 $173,001 $93,315 $51,901 $27,919 $69,333 $31,396Europe105,177 60,579 30,242 18,842 8,693 20,093 10,708Asia Pacific and other24,073 10,132 4,515 2,632 1,332 3,215 1,225Total revenues$424,650 $243,712 $128,072 $73,375 $37,944 $92,641 $43,329 Year Ended December 31, Six Months EndedDecember 31, Fiscal Year Ended June 30, 2013 2012 2011 2011 2010 2011 2010Revenues by geography North America69% 71% 73% 71% 74% 75% 72%Europe25 25 24 26 23 22 25Asia Pacific and other6 4 3 3 3 3 3Total revenues100% 100% 100% 100% 100% 100% 100%Comparison of the years ended December 31, 2013 and 2012 Revenues 33 Year Ended December 31, % Change 2013 2012 (dollars in thousands) Revenues: Subscription$349,804 $204,526 71%Professional services and other74,846 39,186 91%Total revenues$424,650 $243,712 74%Percentage of revenues: Subscription82% 84% Professional services and other18 16 Total100% 100% Subscription revenues increased $145.3 million during the year ended December 31, 2013, compared to the prior year, driven by our upsells, renewalsand an increase in our customer count. Our upsell rate and renewal rate for the trailing twelve months ending December 31, 2013 were 31% and 96%,respectively, compared to 30% and 97%, respectively, for the trailing twelve months ending December 31, 2012. Total customer count at December 31, 2013was 2,061 compared to 1,512 at December 31, 2012, an increase of 36%. Revenues from our direct sales organization and channel partners represented 88%and 12%, respectively, for the years ended December 31, 2013 and 2012.Professional services and other revenues increased $35.7 million during the year ended December 31, 2013, compared to the prior year, due to anincrease in the services provided to our growing customer base, increase in utilization and improvements in pricing of our professional services engagements.In addition, revenues from our annual Knowledge user conference increased to $5.0 million during the year ended December 31, 2013 compared to $2.0million in the prior year due to increased sponsorship and paid registrations.Our average total revenues per customer, defined as trailing four quarters' revenues divided by the average number of customers during the trailing fourquarters, increased to approximately $230,000 for the year ended December 31, 2013 compared to approximately $190,000 for the year ended December 31,2012. In addition, during the year ended December 31, 2013, we expanded to several new markets primarily in Europe, the Middle East and Africa, orEMEA, and Asia Pacific and other regions.Cost of Revenues and Gross Profit Percentage Year Ended December 31, % Change 2013 2012 (dollars in thousands) Cost of revenues: Subscription$87,928 $63,258 39%Professional services and other67,331 40,751 65%Total cost of revenues$155,259 $104,009 49%Gross profit percentage: Subscription75% 69 % Professional services and other10% (4)% Total gross profit percentage63% 57 % Gross profit:$269,391 $139,703 93%Headcount (at period end) Subscription341 218 56%Professional services and other295 183 61%Total headcount636 401 59% Cost of subscription revenues increased $24.7 million during the year ended December 31, 2013, compared to the prior year, primarily due to increasedheadcount resulting in an increase of $14.6 million in employee-related costs, an increase of $4.5 million in stock-based compensation, an increase of $4.7million in depreciation expense primarily due to purchases of cloud-based34infrastructure hardware equipment for our data centers and an increase of $2.7 million in other overhead expenses. Employee-related costs primarily consist ofsalaries and wages, benefits and travel. Hosting expenses decreased $1.8 million primarily due to the migration of customers from our managed service datacenters to our co-location data centers.Our subscription gross profit percentage was 75% for the year ended December 31, 2013 compared to 69% for the prior year. We expect oursubscription gross profit percentage to remain relatively flat for the year ended December 31, 2014.Cost of professional services and other revenues increased $26.6 million during the year ended December 31, 2013 as compared to the prior yearprimarily due to increased headcount resulting in an increase of $17.3 million in employee-related costs, an increase of $3.2 million in stock-basedcompensation, an increase of $2.1 million in overhead expenses, and an increase of $3.7 million in outside services costs.Our professional services and other gross profit (loss) percentage increased to 10% during the year ended December 31, 2013 compared to (4)% in theprior year due to improved scoping and pricing on customer engagements, better resource utilization and an increase in revenues from our annual Knowledgeuser conference which contributed six percentage points to the professional services and other gross profit percentage for the year ended December 31, 2013 and2012. All related expenses from our annual Knowledge user conference are recorded in sales and marketing. We expect our gross profit percentage fromprofessional services and other to remain relatively flat for the year ended December 31, 2014 primarily due to the anticipated increase in headcount in theprofessional services organization. Sales and Marketing Year Ended December 31 % Change 2013 2012 (dollars in thousands) Sales and marketing$195,190 $103,837 88%Percentage of revenues46% 42% Headcount (at period end)615 350 76% Sales and marketing expenses increased $91.4 million during the year ended December 31, 2013 as compared to the prior year, primarily due toincreased headcount that resulted in an increase of $45.2 million in employee-related costs, an increase of $11.4 million in stock-based compensation, anincrease of $5.2 million in overhead expenses and an increase of $17.5 million in commissions expense. Commissions increased primarily due to growth inbookings and current year changes to our commission plans that place more emphasis on achieving quarterly targets and allow for participants in the plan toincrease their compensation at a higher rate for exceeding their annual targets. Commissions and referral fees amounted to 10% and 8% of subscriptionrevenues for the years ended December 31, 2013 and 2012, respectively. Marketing and event expenses increased $10.7 million, which included a $4.7 millionincrease in expenses related to our annual Knowledge user conference due to attendance more than doubling compared to the prior year.We expect sales and marketing expenses to increase for the year ended December 31, 2014 in terms of dollars and as a percentage of total revenues as wecontinue to expand our direct sales force, increase our marketing activities, grow our international operations, build brand awareness and sponsor additionalmarketing events.Research and Development Year Ended December 31 % Change 2013 2012 (dollars in thousands) Research and development$78,678 $39,333 100%Percentage of revenues18% 16% Headcount (at period end)352 200 76% Research and development expenses increased $39.3 million during the year ended December 31, 2013 as compared to the prior year, primarily due toincreased headcount which resulted in an increase of $23.9 million in employee-related costs, an increase of $9.7 million in stock-based compensation, anincrease of $4.0 million in overhead expenses and an increase of $1.5 million in outside services related to increase use of consultants.35 We expect research and development expenses to increase for the year ended December 31, 2014 in absolute dollar terms and as a percentage of totalrevenues as we continue to improve the existing functionality of our services, develop new applications to fill market needs and continue to enhance our coreplatform. General and Administrative Year Ended December 31 % Change 2013 2012 (dollars in thousands) General and administrative$61,790 $34,117 81%Percentage of revenues14% 16% Headcount (at period end)227 126 80% General and administrative expenses increased $27.7 million during the year ended December 31, 2013 as compared to the prior year, primarily due toincreased headcount which resulted in an increase of $13.4 million in employee-related costs, an increase of $8.8 million in stock-based compensation and anincrease of $2.8 million in overhead expenses. Outside services increased $2.9 million primarily due to our international expansion and the acquisition ofMirror42 Holding B.V. The increase is also related to costs associated with our first full year of being a public company.We expect general and administrative expenses to increase for the year ended December 31, 2014, in absolute dollar terms, but to remain flat as apercentage of total revenues as we continue to grow. Interest and Other Income, net Year Ended December 31 % Change 2013 2012 (dollars in thousands) Interest and other income (expense), net$(4,930) $1,604 NMPercentage of revenues(1)% 1% Interest and other income (expense), net, decreased $6.5 million during the year ended December 31, 2013 as compared to the prior year, primarily dueto a loss from foreign currency transactions and $3.5 million in amortization expense of debt discount and issuance costs related to our convertible seniornotes (the "Notes") issued in November 2013. We had a foreign currency transaction loss of $2.5 million for the year ended December 31, 2013 as comparedto a gain of $1.1 million for the prior year, primarily due to the strengthening of the Euro against other major currencies and an increase in our foreignoperations. The decrease was partially offset by an increase of $0.7 million in interest income due to the higher investment balances during the year endedDecember 31, 2013 compared to the prior year. During 2014, we expect to incur approximately $29.1 million in amortization expense of debt discount andissuance costs related to the Notes. Our expanding international operations will continue to increase our exposure to currency risks, though we cannot presentlypredict the impact of this exposure on our consolidated financial statements.While we have not engaged in the hedging of our foreign currency transactions to date, we are presently evaluating the costs and benefits of initiatingsuch a program and may hedge selected significant transactions denominated in currencies other than the U.S. dollar in the future. Provision for Income Taxes Year Ended December 31 % Change 2013 2012 (dollars in thousands) Loss before income taxes$(71,197) $(35,980) 98%Provision for income taxes2,511 1,368 84%Effective tax rate(4)% (4)% 36Our effective tax rate remained at (4)% during the years ended December 31, 2013 and 2012. Our tax expense increased $1.1 million during the yearended December 31, 2013 as compared to the prior year due to a higher proportion of earnings in foreign jurisdictions with high statutory tax rates, a higherloss from U.S. operations, the tax effect of acquired companies, and the issuance of the Notes. See Note 15 to our consolidated financial statements for ourreconciliation of income taxes at the statutory federal rate to the provision for income taxes.We continue to maintain a full valuation allowance on our federal and state deferred tax assets and the significant components of the tax expense recordedare current cash taxes in various jurisdictions. The cash tax expenses are impacted by each jurisdiction’s individual tax rates, laws on timing of recognition ofincome and deductions, and availability of net operating losses and tax credits. Given the full valuation allowance, sensitivity of current cash taxes to localrules and our foreign structuring, we expect our effective tax rate could fluctuate significantly on a quarterly basis and could be adversely affected to the extentearnings are lower than anticipated in countries that have lower statutory rates and higher than anticipated in countries that have higher statutory rates. Weconsider the earnings of our foreign subsidiaries to be indefinitely reinvested outside of the United States. Comparison of the years ended December 31, 2012 and 2011 Revenues Year Ended December 31, % Change 2012 2011 (dollars in thousands) Revenues: Subscription$204,526 $110,886 84%Professional services and other39,186 17,186 128%Total revenues$243,712 $128,072 90%Percentage of revenues: Subscription84% 87% Professional services and other16 13 Total100% 100% Revenues increased $115.6 million, primarily due to the increase in subscription revenues of $93.6 million. Of the total increase in subscriptionrevenues, 34% represented revenues from new customers acquired after December 31, 2011, and 66% represented revenues from existing customers at or priorto December 31, 2011. Our total customers increased 55% to 1,512 at December 31, 2012 from 974 at December 31, 2011. The average total revenues percustomer, defined as revenue during the trailing four quarters divided by the average number of customers during the trailing four quarters, increased toapproximately $190,000 from approximately $157,000 over this period primarily due to an increase in the number of subscriptions sold to existing customersand an increase in average new customer deal size. Of the $93.6 million total increase in subscription revenues for the year ended December 31, 2012, 86% represented sales to customers by our directsales organization and 14% represented revenues from channel partners. Subscription revenues in North America represented 68% of the $93.6 million totalincrease in subscription revenues and 32% represented subscription revenues outside North America. During the year ended December 31, 2012, we continuedto increase our focus on international markets through the addition of new channel partners, the expansion of our direct sales organization and the opening ofadditional sales and marketing offices in Sweden and Israel. The increase in professional services and other revenues of $22.0 million was primarily due to an increase in the services provided to our growingcustomer base in addition to a shift in our pricing model to a time-and-materials basis. We had an increase in revenues of $3.4 million associated withacceptances received in 2012 and an increase of $0.9 million associated with our Knowledge conference, held in May 2012. Revenues in North Americarepresented 71% of the $22.0 million total increase in professional services and other revenues. Revenues outside North America represented the remaining29%.37Cost of Revenues and Gross Profit Percentage Year Ended December 31, % Change 2012 2011 (dollars in thousands) Cost of revenues: Subscription$63,258 $24,288 160%Professional services and other40,751 22,336 82%Total cost of revenues$104,009 $46,624 123%Gross profit percentage: Subscription69 % 78 % Professional services and other(4)% (30)% Total gross profit percentage57 % 64 % Gross profit$139,703 $81,448 72%Headcount (at period end) Subscription218 119 83%Professional services and other183 98 87%Total headcount401 217 85% Cost of subscription revenues increased $39.0 million during the year ended December 31, 2012 compared to the prior year, primarily due to increasesin personnel-related and overhead expenses and expenses related to our data centers. Personnel-related expenses increased $18.6 million, consisting primarily ofincreased employee compensation, benefits and travel expenses of $15.5 million and additional stock-based compensation of $2.9 million. Overhead expensesincreased $1.7 million. Growth in personnel-related and overhead expenses was driven by headcount growth and investments in our cloud infrastructure andsupport organizations.Hosting expenses related to our network infrastructure increased $6.9 million as we increased data center capacity to migrate customers from ourmanaged service data centers to our co-location data centers and to support our customer growth. We also opened six new data centers since December 31,2011. In the fourth quarter of 2012, we completed the transition of all our managed services data centers to our co-location data centers. Depreciation expenserelated to our equipment in our data centers increased $8.3 million, of which $6.6 million is due to purchases of network infrastructure to support our newdata centers and growth within our existing data centers and $1.7 million is due to the accelerated depreciation of the assets located in our managed servicesdata centers. Depreciation expense related to our managed services data centers for the year ended December 31, 2012 was $3.1 million. Additionally, outsideservices primarily related to enhancements to our data center security and the migration of our customers increased $2.0 million for the year ended December31, 2012. Cost of professional services and other revenues increased $18.4 million during the year ended December 31, 2012 as compared to prior year. Theoverall increase was primarily attributable to increased personnel-related expenses of $15.5 million, consisting primarily of increased employee compensation,benefits and travel expenses of $13.8 million and additional stock-based compensation of $1.3 million, driven by headcount growth and an increase in ourstock price. Overhead expenses increased $1.1 million also due to headcount growth. In addition, outside services expenses increased $1.8 million primarilydue to an increase in implementation services as a result of our increased sales volume.Our professional services and other gross profit (loss) percentage improved from (30)% during the year ended December 31, 2011 to (4)% during the yearended December 31, 2012. The improved gross profit percentage was primarily attributable to a shift in our pricing model to a time-and-materials basis and anincreased focus on scoping projects and managing resource utilization. Additionally, during the year ended December 31, 2012, the amount of work we sub-contracted to our partners decreased as a percentage of total professional services and other revenues compared to prior year. Professional services and otherrevenues include $2.0 million and $1.1 million for our Knowledge conference, for the years ended December 31, 2012 and 2011, respectively. Revenues fromour Knowledge conference contributed six percentage points and nine percentage points to the professional services and other gross profit percentage for theyears ended December 31, 2012 and 2011, respectively. Expenses associated with the conference are included in sales and marketing expense. Sales and Marketing 38 Year Ended December 31 % Change 2012 2011 (dollars in thousands) Sales and marketing$103,837 $52,896 96%Percentage of revenues42% 41% Headcount (at period end)350 242 45% Sales and marketing expenses increased $50.9 million due to the expansion of our sales force and increases in marketing programs to address additionalopportunities in new and existing markets. Total headcount in sales and marketing increased 45% from December 31, 2011 to December 31, 2012,contributing to a $34.1 million increase in personnel-related expenses, consisting primarily of increased employee compensation, benefits and travel expensesassociated with our marketing team and direct sales force of $25.5 million and additional stock-based compensation of $7.6 million. The increase is also dueto increased overhead expenses of $2.3 million due to increased headcount. In addition, we incurred an increase of $4.8 million in marketing and eventexpenses primarily attributable to our Knowledge conference, which experienced a 102% increase in attendance year-over-year. Commissions increased $9.0million for the year ended December 31, 2012 as compared to the year ended December 31, 2011, which was directly attributable to increased revenues andchanges made to our commission plans. Commissions and referral fees amounted to 8% and 7% of subscription revenues in 2012 and 2011, respectively.These fees are deferred and amortized on a straight-line basis over the non-cancelable terms of the related customer contracts.Research and Development Year Ended December 31 % Change 2012 2011 (dollars in thousands) Research and development$39,333 $11,276 249%Percentage of revenues16% 9% Headcount (at period end)200 83 141% Research and development expenses increased $28.1 million primarily due to increased personnel-related expenses of $25.3 million, consistingprimarily of increased employee compensation, benefits and travel expenses associated with our research and development team of $19.3 million andadditional stock-based compensation of $5.5 million. Overhead expenses also increased $1.5 million due to headcount growth. Total headcount in researchand development increased 141% from December 31, 2011 to December 31, 2012 as we upgraded and extended our service offerings and developed newtechnologies. General and Administrative Year Ended December 31 % Change 2012 2011 (dollars in thousands) General and administrative$34,117 $16,046 113%Percentage of revenues16% 9% Headcount (at period end)126 61 107% General and administrative expenses increased $18.1 million primarily due to increased headcount, expenses associated with being a public companyand our international expansion. Personnel-related expenses increased $10.6 million, consisting primarily of increased employee compensation, benefits andtravel expenses of $7.4 million and additional stock-based compensation of $3.1 million, as we added employees to support the growth of our business.Professional and outside service expenses increased $2.7 million, comprised primarily of accounting fees related to our external audit and tax consulting feesassociated with our international expansion. Expenses from third-party software and service license agreements increased $1.5 million due to theimplementation of additional systems to support the growth of our business. In August 2012, we relocated our San Diego, California office to another facilityin the same city. As part of this move, we incurred $2.5 million in lease abandonment costs, which included a loss on disposal of our leasehold improvementsand furniture and fixtures and a cease-use loss. Interest and Other Income, net 39 Year Ended December 31 % Change 2012 2011 (dollars in thousands) Interest and other income, net$1,604 $(1,129) NMPercentage of revenues1% (1)% Interest and other income, net, primarily consists of foreign currency transaction gains and losses. The increase is due to the strengthening of the U.S.dollar compared to the prior year and an increase in interest income of $0.3 million related to our investments in marketable securities. Provision for Income Taxes Year Ended December 31 % Change 2012 2011 (dollars in thousands) Income (Loss) before income taxes$(35,980) $101 NMProvision for income taxes1,368 1,758 (22)%Effective tax rate(4)% 1,741% The provision for income taxes decreased $0.4 million, primarily as a result of our operating loss, a lower proportion of earnings in taxablejurisdictions, and benefit from California research and development credits for the year ended December 31, 2012 compared to the prior year.We continue to maintain a full valuation allowance on our federal and state deferred tax assets, and the significant components of the tax expenserecorded are current cash taxes in various jurisdictions. The cash tax expenses are impacted by each jurisdiction’s individual tax rates, laws on timing ofrecognition of income and deductions and availability of net operating losses and tax credits. In December 2011, we reorganized our international operationsand established our non-U.S. headquarters in the Netherlands, which has an effective tax rate that is lower than the U.S. federal statutory rate. Given the fullvaluation allowance, sensitivity of current cash taxes to local rules and our foreign restructuring, we expect our effective tax rate could fluctuate significantlyon a quarterly basis and could be adversely affected to the extent earnings are lower than anticipated in countries that have lower statutory rates and higher thananticipated in countries that have higher statutory rates. The earnings of our foreign subsidiaries are considered to be permanently reinvested outside of theUnited States. Comparison of the six months ended December 31, 2011 and 2010 Revenues Six Months Ended December 31, % Change 2011 2010 (dollars in thousands) Revenues: Subscription$64,886 $33,191 95%Professional services and other8,489 4,753 79%Total revenues$73,375 $37,944 93%Percentage of revenues: Subscription88% 87% Professional services and other12 13 Total100% 100% Revenues increased $35.4 million, primarily due to the increase in subscription revenues of $31.7 million. Of the total increase in subscriptionrevenues, 55% represented revenues from new customers acquired after December 31, 2010, and 45% represented revenues from existing customers at or priorto December 31, 2010. Our total customers increased 62% from December 31, 2010 to December 31, 2011. The average subscription revenues per customerincreased 19% over this period primarily due to an increase in the number of subscriptions sold to existing customers. 40Of the $31.7 million total increase in subscription revenues for the six months ended December 31, 2011, 81% represented sales to customers by ourdirect sales organization and 19% represented revenues from channel partners. Subscription revenues in North America represented 67% of the $31.7 milliontotal increase in subscription revenues and 33% represented subscription revenues outside North America. The increase in revenues from channel partners wasdue primarily to increased market adoption of our subscription service through sales by our existing channel partners and to a lesser extent the addition of newchannel partners. The increase in subscription revenues outside North America was due primarily to increased adoption of our subscription service throughsales by our existing channel partners and direct sales organization, and to a lesser extent the addition of new channel partners and the expansion of our directsales organization. During the six months ended December 31, 2011, we opened additional sales and marketing offices in Denmark and France, which did notaccount for a significant portion of increased revenues during the period. The increase in professional services and other revenues of $3.7 million was primarily due to the growth in our customer base. Revenues in NorthAmerica represented 73% of the $3.7 million total increase in professional services and other revenues. Revenues outside North America represented theremaining 27%. Cost of Revenues and Gross Profit Percentage Six Months Ended December 31, % Change 2011 2010 (dollars in thousands) Cost of revenues: Subscription$15,073 $6,096 147%Professional services and other12,850 6,778 90%Total cost of revenues$27,923 $12,874 117%Gross profit percentage: Subscription77 % 82 % Professional services and other(51) (43) Total gross profit percentage62 % 66 % Gross profit$45,452 $25,070 81%Headcount (at period end): Subscription119 51 133%Professional services and other98 50 96%Total headcount217 101 115% Cost of subscription revenues increased $9.0 million during the six months ended December 31, 2011 as compared to the same period in the prior year.The overall increase in cost of subscription revenues was primarily attributed to increased personnel-related expenses of $4.9 million, consisting of increasedemployee compensation, benefits and travel expenses of $4.5 million and additional stock-based compensation of $0.4 million. The increase in personnel-related expenses was driven by headcount growth. In addition, hosting fees for our network infrastructure increased $1.6 million as we increased data centercapacity to support our growth. At December 31, 2011, we delivered our services from six data centers in North America and seven data centersinternationally, compared to three data centers in North America and five data centers internationally at December 31, 2010. Depreciation expense alsoincreased $1.1 million as we started the transition of our network infrastructure from a managed services hosting model to a co-location model.Our subscription gross profit percentage decreased from 82% to 77% during the six months ended December 31, 2011 as compared to the same periodin the prior year primarily due to these increased expenses. Cost of professional services and other revenues increased $6.1 million during the six months ended December 31, 2011 as compared to the same periodin the prior year. The overall increase was primarily attributed to increased personnel-related expenses of $3.7 million, consisting of increased employeecompensation, benefits and travel expenses of $3.5 million and additional stock-based compensation of $0.2 million driven by headcount growth. In addition,outside services expenses increased $1.9 million primarily due to additional fees paid to third-parties to provide implementation services. Our professional services and other gross profit percentage decreased from (43)% to (51)% during the six months ended December 31, 2011 as comparedto the same period in the prior year primarily due to these increased expenses. 41Sales and Marketing Six Months Ended December 31, % Change 2011 2010 (dollars in thousands) Sales and marketing$32,501 $13,728 137%Percentage of revenues44% 36% Headcount (at period end)242 90 169% Sales and marketing expenses increased $18.8 million due to the expansion of our sales force and increases in marketing programs to address additionalopportunities in new and existing markets. Total headcount in sales and marketing increased, 169% from December 31, 2010 to December 31, 2011,contributing to a $13.3 million increase in personnel-related expenses, consisting primarily of increased employee compensation, benefits and travel expensesassociated with our direct sales force of $11.8 million, and additional stock-based compensation of $1.6 million. In addition, we incurred an increase of $3.1million in commissions, which was directly attributed to increased revenues and changes made to our commission plans in the six months ended December31, 2011. Marketing and event expenses increased $1.3 million due to our continued efforts to generate sales leads and build brand awareness. Research and Development Six Months Ended December 31, % Change 2011 2010 (dollars in thousands) Research and development$7,030 $2,758 155%Percentage of revenues10% 7% Headcount (at period end)83 34 144% Research and development expenses increased $4.3 million primarily due to increased personnel-related expenses of $4.0 million, consisting of increasedemployee compensation, benefits and travel expenses associated with our research and development team of $3.5 million and additional stock-basedcompensation of $0.5 million. Total headcount in research and development increased as we upgraded and extended our service offerings and developed newtechnologies. General and Administrative Six Months Ended December 31, % Change 2011 2010 (dollars in thousands) General and administrative$10,084 $3,417 195%Percentage of revenues14% 9% Headcount (at period end)61 25 144%General and administrative expenses increased $6.7 million primarily due to increased headcount. Personnel-related expenses increased $4.1 million,consisting of increased employee compensation, benefits and travel expenses of $2.3 million and additional stock-based compensation of $1.8 million, as weadded employees to support the growth of our business. Professional and outside service expenses increased $1.6 million, comprised primarily of legal andaccounting fees associated with our international expansion. Interest and Other Income (Expense), net 42 Six Months Ended December 31, % Change 2011 2010 (dollars in thousands) Interest and other income (expense), net$(1,446) $289 NMPercentage of revenues(2)% 1% Interest and other income (expense), net primarily consist of foreign currency transaction gains and losses. The decrease of $1.7 million is primarily dueto unrealized losses on amounts invoiced to customers that are denominated in British Pounds and Euros as the U.S. Dollar strengthened over the six monthsended December 31, 2011 as compared to the six months ended December 31, 2010. Provision for Income Taxes Six Months Ended December 31, % Change 2011 2010 (dollars in thousands) Income (Loss) before income taxes$(5,609) $5,456 NMProvision for income taxes1,075 653 65%Effective tax rate(19)% 12% The provision for income taxes increased $0.4 million, primarily as a result of the increase in pre-tax income related to international operations andCalifornia taxes for the six months ended December 31, 2011 compared to the same period in the prior year. During the six months ended December 31, 2011,we recorded a provision for income taxes principally attributable to foreign taxes, U.S. federal taxes and California taxes. We maintain a full valuation allowance on our federal and state deferred tax assets, and the significant components of the tax expense recorded arecurrent cash taxes in various jurisdictions. The cash tax expenses are impacted by each jurisdiction’s individual tax rates, laws on timing of recognition ofincome and deductions and availability of net operating losses and tax credits. In December 2011, we reorganized our international operations and establishedour non-U.S. headquarters in the Netherlands, which has an effective tax rate that is lower than the U.S. federal statutory rate. Given the full valuationallowance, sensitivity of current cash taxes to local rules and our foreign restructuring, our effective tax rate fluctuates significantly on a quarterly basis andcould be adversely affected to the extent earnings are lower than anticipated in countries that have lower statutory rates and higher than anticipated in countriesthat have higher statutory rates. Comparison of Fiscal 2011 and 2010 Revenues Fiscal Year Ended June 30, % Change 2011 2010 (dollars in thousands) Revenues: Subscription$79,191 $40,078 98%Professional services and other13,450 3,251 314%Total revenues$92,641 $43,329 114%Percentage of revenues: Subscription85% 92% Professional services and other15 8 Total100% 100% Revenues increased $49.3 million, primarily due to the increase in subscription revenues of $39.1 million. Of the total increase in subscriptionrevenues, 46% represented revenues from new customers acquired after June 30, 2010, and 54% represented revenues from existing customers at or prior toJune 30, 2010. Our total customers increased 68% from June 30, 2010 to June 30,432011. The average subscription revenues per customer increased 19% over this period primarily due to an increase in the number of subscriptions sold toexisting customers. Of the $39.1 million total increase in subscription revenues for fiscal 2011, 87% represented sales to customers by our direct sales organization and13% represented revenues from channel partners. Subscription revenues in North America represented 75% of the $39.1 million total increase in subscriptionrevenues and 25% represented subscription revenues outside North America. The increase in professional services and other revenues of $10.2 million was primarily due to the prospective adoption of new revenue accountingguidance resulting in an increase to professional services and other revenues of $5.5 million in fiscal 2011. The remaining increase of $4.7 million wasattributable to the growth in our customer base. Revenues in North America represented 83% of the $10.2 million total increase in professional services andother revenues. Revenues outside North America represented 17% of the $10.2 million total increase in professional services and other revenues. The increasein subscription revenues outside North America was due primarily to increased adoption of our subscription service through sales from new channel partnersand to a lesser extent, sales by our existing channel partners and the expansion of our direct sales organization. During fiscal 2011, we opened additional salesand marketing offices in Australia and the Netherlands. Cost of Revenues and Gross Profit Percentage Fiscal Year Ended June 30, % Change 2011 2010 (dollars in thousands) Cost of revenues: Subscription$15,311 $6,378 140%Professional services and other16,264 9,812 66%Total cost of revenues$31,575 $16,190 95%Gross profit percentage: Subscription81 % 84 % Professional services and other(21) (202) Total gross profit percentage66 % 63 % Gross profit$61,066 $27,139 125%Headcount (at period end): Subscription83 30 177%Professional services and other67 36 86%Total headcount150 66 127% Cost of subscription revenues increased $8.9 million during fiscal 2011 as compared to the same period in the prior year. The overall increase in cost ofsubscription revenues was primarily attributed to increased personnel-related expenses of $5.0 million, consisting of increased employee compensation,benefits and travel expenses of $4.5 million and additional stock-based compensation of $0.5 million. These personnel-related expenses increases were drivenby headcount. In addition, hosting fees for our network infrastructure increased $2.1 million as we increased data center capacity to support our growth. AtJune 30, 2011, we delivered our services from six data centers in North America and five data centers internationally compared to three data centers in theUnited States and five data centers internationally at June 30, 2010. Depreciation expense also increased $0.8 million as we started the transition of ournetwork infrastructure from a managed service hosting model to a co-location model. Our subscription gross profit percentage decreased from 84% to 81% from fiscal 2010 to fiscal 2011 primarily due to these increased expenses. Cost of professional services and other revenues increased $6.5 million during fiscal 2011 as compared to the same period in the prior year. The overallincrease in cost of professional services and other revenues was primarily attributed to increased employee compensation, benefits and travel expenses of $3.1million driven by headcount growth. In addition, outside services expenses increased $3.1 million primarily due to additional fees paid to third parties toprovide implementation services. 44Our professional services and other gross profit percentage improved from (202)% to (21)% from fiscal 2010 to fiscal 2011, primarily due to increasedrevenues as a result of the prospective adoption of new revenue recognition accounting guidance. This guidance enabled us to recognize professional servicesrevenues as the services are delivered. Sales and Marketing Fiscal Year Ended June 30, % Change 2011 2010 (dollars in thousands) Sales and marketing$34,123 $19,334 76%Percentage of revenues37% 45% Headcount (at period end)140 72 94% Sales and marketing expenses increased $14.8 million. Employee-related expenses increased $13.3 million, consisting of increased employeecompensation, benefits and travel expenses in connection with our direct sales force of $11.5 million, increased commissions of $1.1 million, and an increasein stock-based compensation of $0.7 million, which was primarily driven by an increase in sales and marketing headcount. In addition, we incurred anincrease of $2.7 million in marketing and event expenses primarily attributable to our annual Knowledge conference, which experienced a 107% increase inattendance year-over-year. Offsetting these increases was a decrease of $2.0 million in compensation expenses related to the fiscal 2010 repurchase of sharesfrom eligible stockholders in connection with our sale and issuance of Series D preferred stock. Research and Development Fiscal Year Ended June 30, % Change 2011 2010 (dollars in thousands) Research and development$7,004 $7,194 (3)%Percentage of revenues8% 17% Headcount (at period end)44 28 57 % Research and development expenses decreased $0.2 million. Personnel-related costs increased $2.8 million, consisting of increased employeecompensation, benefits and travel expenses of $2.4 million and increased stock-based compensation of $0.4 million, which was primarily driven by anincrease in research and development headcount. In addition, outside services expenses increased $0.4 million. Offsetting these increases was a decrease of$3.6 million in compensation expenses related to the fiscal 2010 repurchase of shares from eligible stockholders in connection with our sale and issuance ofSeries D preferred stock. General and Administrative Fiscal Year Ended June 30, % Change 2011 2010 (dollars in thousands) General and administrative$9,379 $28,810 (67)%Percentage of revenues10% 66% Headcount (at period end)41 12 242 % General and administrative expenses decreased $19.4 million. Personnel-related expenses increased $3.3 million, consisting of increased employeecompensation, benefits and travel costs of $2.6 million and increased stock-based compensation of 0.7 million primarily driven by an increase in general andadministrative headcount. Professional and outside service costs, comprised primarily of legal and accounting and auditing fees, increased $1.1 million.Offsetting these increases was a decrease of $24.5 million in compensation expenses related to the fiscal 2010 repurchase of shares from eligible stockholdersin connection with our sale and issuance of Series D preferred stock.45 Interest and Other Income (Expense), net Fiscal Year Ended June 30, % Change 2011 2010 (dollars in thousands) Interest and other income (expense), net$606 $(1,226) NMPercentage of revenues— (3)% The interest and other income (expense), net, increased $1.8 million during fiscal 2011 as compared to the prior fiscal year. We had a foreign currencytransaction gain of $0.6 million for fiscal 2011 as compared to a loss of $0.5 million for fiscal 2010, primarily due to the strengthening of the U.S. dollaragainst other major currencies in which we denominate our invoices. Additionally, during fiscal 2010, we marked to market our preferred stock warrants andrevalued them upon settlement as part of the sale and issuance of Series D preferred stock, resulting in additional expense of $0.7 million.Provision for Income Taxes Fiscal Year Ended June 30, % Change 2011 2010 (dollars in thousands) Income (Loss) before income taxes$11,166 $(29,425) NMProvision for income taxes1,336 280 377%Effective tax rate12% (1)% The provision for income taxes increased $1.1 million primarily as a result of the increase in pre-tax income related to international operations andCalifornia taxes. We maintain a full valuation allowance on our U.S. federal and state deferred tax assets, and the significant components of the tax expense recorded arecurrent cash taxes in various jurisdictions. The cash tax expenses are impacted by each jurisdiction’s individual tax rates, laws on timing of recognition ofincome and deductions and availability of net operating losses and tax credits. Given the full valuation allowance and sensitivity of current cash taxes to localrules, our effective tax rate fluctuates significantly on an annual basis and could be adversely affected to the extent earnings are lower than anticipated incountries that have lower statutory rates and higher than anticipated in countries that have higher statutory rates. Quarterly Results of Operations The following table set forth our quarterly consolidated statements of operations. We have prepared the quarterly data on a consistent basis with theaudited consolidated financial statements included in this Annual Report on Form 10-K. In the opinion of management, the financial information reflects allnecessary adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of this data. This information should be read inconjunction with the audited consolidated financial statements and related notes included in this Annual Report on Form 10-K. The results of historical periodsare not necessarily indicative of the results of operations for a full year or any future period.46 For the Three Months Ended Dec 30,2013 Sep 30,2013 June 30,2013 March 31,2013 Dec 30,2012 Sep 30,2012 June 30,2012 March 31,2012 (in thousands, except per share data)Revenues: Subscription$104,878 $92,992 $80,376 $71,558 $62,886 $55,279 $46,820 $39,541Professionalservices and other20,352 18,267 21,846 14,381 12,276 9,066 9,954 7,890Totalrevenues125,230 111,259 102,222 85,939 75,162 64,345 56,774 47,431Cost of revenues(1): Subscription25,968 23,429 20,219 18,312 20,076 17,931 14,239 11,012Professionalservices and other19,410 18,146 15,779 13,996 12,232 9,643 8,652 10,224Total cost ofrevenues45,378 41,575 35,998 32,308 32,308 27,574 22,891 21,236Gross profit79,852 69,684 66,224 53,631 42,854 36,771 33,883 26,195Operating expenses: Sales andmarketing57,337 47,336 52,291 38,226 29,481 28,140 26,909 19,307Research anddevelopment23,869 20,819 17,951 16,039 13,235 10,783 9,272 6,043General andadministrative18,007 16,179 15,325 12,279 9,676 11,195 6,819 6,427Totaloperatingexpenses99,213 84,334 85,567 66,544 52,392 50,118 43,000 31,777Income (loss) fromoperations(19,361) (14,650) (19,343) (12,913) (9,538) (13,347) (9,117) (5,582)Interest and otherincome (expense), net(4,326) 600 (1,323) 119 456 615 41 492Income (loss) beforeprovision for incometaxes(23,687) (14,050) (20,666) (12,794) (9,082) (12,732) (9,076) (5,090)Provision for incometaxes545 663 739 564 849 321 (352) 550Net income (loss)$(24,232) $(14,713) $(21,405) $(13,358) $(9,931) $(13,053) $(8,724) $(5,640)Net income (loss) pershare attributable tocommon stockholders -Basic$(24,232) $14,713 $21,405 $(13,358) $(9,931) $(13,053) $(8,878) $(5,794)Net income (loss) pershare attributable tocommon stockholders -Diluted$(24,232) $14,713 $21,405 $(13,358) $(9,931) $(13,053) $(8,878) $(5,794) Basic$(0.17) $(0.11) $(0.16) $(0.10) $(0.08) $(0.11) $(0.32) $(0.23) Diluted$(0.17) $(0.11) $(0.16) $(0.10) $(0.08) $(0.11) $(0.32) $(0.23)Seasonality, Cyclicality and Quarterly Trends We have historically experienced seasonality in terms of when we enter into customer agreements for our services. We sign a significantly higherpercentage of agreements with new customers, as well as renewal agreements with existing customers, in the quarter ended December 31. The increase incustomer agreements for the quarter ended December 31 is primarily a result of the terms of our commission plans to incentivize our direct sales force to meettheir quotas by December 31 and large enterprise account buying patterns typical in the software industry. Furthermore, we usually sign a significant portionof these agreements during the last month, and often the last two weeks, of each quarter. This seasonality is reflected to a much lesser extent, and sometimes isnot immediately apparent, in our revenues, due to the fact that we recognize subscription revenues over the term of the license agreement, which is generally 12to 36 months. Although these seasonal factors are common in the technology industry, historical patterns should not be considered a reliable indicator of ourfuture sales activity or performance. Our revenues have increased over the periods presented due to increased sales to new customers, as well as upsells to existing customers. Our operatingexpenses have increased sequentially every quarter primarily due to increases in headcount and other related expenses to support our growth. We anticipatethese expenses will continue to increase in future periods as we continue to focus on investing in the long-term growth of our business.47 Liquidity and Capital Resources Year Ended December 31, Six Months EndedDecember 31, Fiscal Year Ended June 30, 2013 2012 2011 2011 2010 2011 2010 (dollars in thousands)Net cash provided by (used in) operatingactivities$81,746$48,766 $39,977 $13,220$10,711 $37,468$(7,532)Net cash used in investing activities(402,795)(239,149) (14,485) (7,959)(1,857) (8,383)(1,455)Net cash provided by financing activities568,570241,839 3,159 2,154222 1,22730,672Net increase in cash and cash equivalents, netof impact of exchange rates on cash247,31450,901 29,631 8,2359,055 30,45121,614 Our principal sources of liquidity are our cash and cash equivalents, investments, and cash generated from operations. As of December 31, 2013, wehad $634.6 million in cash and cash equivalents and short-term investments, of which $33.4 million represented cash located overseas. In addition, we had$255.4 million in long-term investments which provide additional capital resources.In November 2013, we issued $575.0 million in aggregate principal amount of the Notes and concurrently entered into a hedge (the "Note Hedge") andwarrant transaction (the "Warrants"). The net proceeds of this debt issuance will be used for general corporate purposes, including potential acquisitions andstrategic transactions. The Warrants are exercisable at a strike price of $107.46 per share. Upon conversion of the Notes, we may choose to pay or deliver, asthe case may be, cash, shares of our common stock or a combination of cash and shares of our common stock. As of December 31, 2013, the Notes were notconvertible.We anticipate our current cash and cash equivalents balance and cash generated from operations will be sufficient to meet our liquidity needs includingthe expansion of data centers, lease obligations, expenditures related to the growth of our headcount and the acquisition of fixed assets and investments in officefacilities to accommodate our growth for at least the next 12 months. Whether these resources are adequate to meet our liquidity needs beyond that period willdepend on our growth, operating results and the capital expenditures required to meet possible increased demand for our services. If we require additionalcapital resources to grow our business at any time in the future, we may seek to finance our operations from the current funds available or seek additionalequity or debt financing. Operating Activities Cash provided by operating activities mainly consists of net income adjusted for certain non-cash items, including depreciation and amortization,amortization of issuance cost and debt discount, stock-based compensation, tax benefits from employee stock plans and changes in operating assets andliabilities during the year.Net cash provided by operating activities was $81.7 million for the year ended December 31, 2013 compared to $48.8 million for the prior year. Theincrease in operating cash flow was primarily due to the increased net income after adjusting for the non-cash activities and favorable impacts of changes inoperating assets and liabilities. Net cash flow from the aggregate of changes in accounts receivable, deferred commissions and deferred revenue increased dueto increased sales for the year ended December 31, 2013. The increase was offset by a decrease in net cash flows from the aggregate of changes in accruedliabilities, accounts payable and prepaid expenses due to the growth of our business and increased headcount of 70% for the year ended December 31, 2013.Net cash provided by operating activities was $48.8 million for the year ended December 31, 2012 compared to $40.0 million for the prior year. Theincrease in operating cash flow was primarily due to the increased net incomes after adjusting for the non-cash activities and favorable impacts of change inoperating assets and liabilities. Net cash flow from accounts receivable, deferred commissions and deferred revenue increased due to increased sales forthe year ended December 31, 2012. The increase was offset by decrease in net cash flows from accrued liabilities, accounts payable and prepaid expenses dueto growth of our business and increased headcount of 79% for the year ended December 31, 2012 compared to the prior year.48Net cash provided by operating activities was $13.2 million for the six months ended December 31, 2011 compared to $10.7 million for the six monthsended December 31, 2010. The increase in operating cash flow was primarily due to the increased net incomes after adjusting for the non-cash activities andfavorable impacts of change in operating assets and liabilities. Net cash flow from accounts receivable, deferred commissions and deferred revenue increaseddue to increased sales. Our sales and marketing headcount increased 73% during the six months ended December 31, 2011 compared to the prior period. Theincrease in accrued liabilities was primarily driven by the growth in our business and increased headcount.Net cash provided by operating activities was $37.5 million for fiscal 2011 compared to $7.5 million for fiscal 2010. The increase in operating cashflow was primarily due to the increased net incomes driven by the growth of our business. Investing Activities Net cash used in investing activities for the year ended December 31, 2013 was $402.8 million compared to $239.1 million for the year ended December31, 2012. The increase in cash used in investing activities was mainly due to increases in the net purchases of investments of $136.8 million and capitalexpenditures of $13.3 million related to the purchase of cloud-based infrastructure hardware equipment to support the expansion of our data centers as well asinvestments in leasehold improvements, furniture and equipment to support our headcount growth. Additionally, in 2013 we paid $13.3 million for theacquisition of Mirror42 Holding B.V.Net cash used in investing activities for the year ended December 31, 2012 was $239.1 million compared to $14.5 million for the year ended December31, 2011. The increase in cash used in investing activities was mainly due the increases in the net purchases of investments of $197.1 million and capitalexpenditures of $27.4 million related to the purchase of cloud-based infrastructure hardware equipment to support the expansion of our data centers as well asinvestments in leasehold improvements, furniture and equipment to support our headcount growth.Net cash used in investing activities for the six months ended December 31, 2011 was $8.0 million compared to $1.9 million for the six months endedDecember 31, 2010. The increase in cash used in investing activities was mainly due to increase in capital expenditures of $5.9 million related to the purchaseof cloud-based infrastructure hardware equipment to support the expansion of our data centers as well as investments in leasehold improvements, furnitureand equipment to support our headcount growth.In fiscal 2011 and 2010, our investing activities primarily consisted of capital expenditures related to the purchase of cloud-based infrastructurehardware equipment to support the expansion of our data centers as well as investments in leasehold improvements and furniture and equipment to supportour headcount growth. Financing Activities Net cash provided by financing activities for the year ended December 31, 2013 was $568.6 million compared to $241.8 million for the year endedDecember 31, 2012. The increase in cash provided by financing activities was primarily due to net proceeds of $511.7 million from issuance of the Notesand Warrants and purchase of the Note Hedge, and $38.8 million increase in proceeds from exercise of employee stock options and $13.2 million proceedsfrom our Employee Stock Purchase Plan, or ESPP. For the year ended December 31, 2012, we received $169.8 million net proceeds from our IPO, $50.6million net proceeds from our follow-on offering, and $17.8 million net proceeds from the issuance of common stock.Net cash provided by financing activities for the year ended December 31, 2012 was $241.8 million compared to $3.2 million for the year endedDecember 31, 2011. The increase in cash provided by financing activities was primarily due to net proceeds from IPO of $169.8 million, net proceeds fromour follow-on offering of $50.6 million, $17.8 million in gross proceeds from the issuance of common stock through a private placement with a newstockholder $1.6 million increase in tax benefits from employee stock plan, partially offset by our purchases of common stock and restricted stock fromstockholders of $2.0 million.Net cash provided by financing activities for the six months ended December 31, 2011 was $2.2 million compared to $0.2 million for the six monthsended December 31, 2010. The increase in cash provided by financing activities was primarily due to $2.0 million increase in proceeds from employee stockoptions.Net cash provided by financing activities for fiscal 2011 was $1.2 million compared to $30.7 million for fiscal year 2010. The decrease in cashprovided by financing activities was primarily due to the sale and issuance of Series D preferred stock of $51.2 million in fiscal 2010, $21.0 million ofwhich was used to repurchase and subsequently cancel shares of common stock from eligible stockholders and warrants to purchase Series B preferred stockfrom a warrant holder.Contractual Obligations and Commitments 49Contractual obligations represent future cash commitments and liabilities under agreements with third parties, and exclude orders for goods and servicesentered into in the normal course of business that are not enforceable or legally binding.The following table represents our known contractual obligations as of December 31, 2013, aggregated by type: Payments Due by PeriodContractual ObligationsTotal LessThan1 Year 1 – 3Years 3 – 5Years MoreThan5 Years (in thousands)Operating leases: Data centers(1)$21,603 $9,797 $9,820 $1,306 $680Facilities space(2)117,965 10,314 27,851 28,530 51,270Convertible Senior Notes575,000 — — 575,000 —Total operating leases$714,568 $20,111 $37,671 $604,836 $51,950 (1)Operating leases for data centers represent our principal commitment for co-location facilities for data center capacity.(2)Operating leases for facilities space represents our principal commitments, which consists of obligations under office space leases. Lease commitments of $8.4 million related to thelease for our former San Diego office are also included in the table above.In addition to the obligations in the table above, approximately $0.9 million of unrecognized tax benefits have been recorded as liabilities as of December31, 2013. It is uncertain as to if or when such amounts may be settled. We have also recorded a liability for potential penalties of $0.3 million and interest of$0.1 million related to these unrecognized tax benefits.Off-Balance Sheet Arrangements During all periods presented, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred toas structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or othercontractually narrow or limited purposes. As such, we are not exposed to any financing, liquidity, market or credit risk that could arise if we had engaged inthose types of relationships. Critical Accounting Policies and Significant Judgments and Estimates Our management’s discussion and analysis of financial condition and results of operations is based on our consolidated financial statements, whichhave been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these consolidated financial statementsrequires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities atthe date of the consolidated financial statements, as well as the reported revenues and expenses during the reporting periods. These items are monitored andanalyzed by us for changes in facts and circumstances, and material changes in these estimates could occur in the future. We base our estimates on historicalexperience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgmentsabout the carrying value of assets and liabilities that are not readily apparent from other sources. Changes in estimates are reflected in reported results for theperiod in which they become known. Actual results may differ from these estimates under different assumptions or conditions. While our significant accounting policies are more fully described in Note 2 to our consolidated financial statements, we believe that the followingaccounting policies are critical to the process of making significant judgments and estimates in the preparation of our audited consolidated financialstatements. Revenue RecognitionWe derive our revenues from two sources: (i) subscriptions and (ii) professional services and other. Subscription revenues are primarily comprised ofsubscription fees that give customers access to the ordered subscription service, related support and updates to the subscribed service during the subscriptionterm.Our contracts typically do not give the customer the right to take possession of the software supporting the services. Professional services and otherrevenues consist of fees associated with the implementation and configuration of our services. Professional services and other revenues also include customertraining and attendance and sponsorship fees for Knowledge, our annual user conference.50We commence revenue recognition when all of the following conditions are met: •There is persuasive evidence of an arrangement;•The service has been provided to the customer;•The collection of related fees is reasonably assured; and•The amount of fees to be paid by the customer is fixed or determinable.We use a signed contract together with a signed order form or a purchase order as evidence of an arrangement for a new customer. In subsequenttransactions with an existing customer, including an upsell or a renewal, we consider the existing signed contract and either the new signed order form or newpurchase order as evidence of an arrangement. We recognize subscription revenues ratably over the contract term beginning on the commencement date of each contract, the date we make our servicesavailable to our customers. Once our services are available to customers, we record amounts due in accounts receivable and in deferred revenue. We priceprofessional services primarily on a time-and-materials basis and recognize professional services revenues as the services are delivered using a proportionalperformance model. Such services are delivered over a short period of time. In instances where final acceptance of the services are required before revenues arerecognized, we defer professional services revenues and the associated costs until all acceptance criteria have been met. We assess collectibility based on a number of factors such as past collection history with the customer and creditworthiness of the customer. If wedetermine collectibility is not reasonably assured, we defer revenue recognition until collectibility becomes reasonably assured. We assess whether the fee isfixed or determinable based on the payment terms associated with the transaction and whether the sales price is subject to refund or adjustment. Ourarrangements do not include general rights of return. We have multiple element arrangements comprised of subscription fees and professional services. In October 2009, the Financial Accounting StandardsBoard, or FASB, ratified authoritative accounting guidance regarding revenue recognition for arrangements with multiple deliverables effective for fiscalperiods beginning on or after June 15, 2010. As a result, this guidance was applied to all revenue arrangements entered into or materially modified sinceJuly 1, 2010. For fiscal 2011, total revenues increased $6.4 million and deferred revenue decreased $6.4 million due to adoption of the new guidance.Upon adoption of this authoritative accounting guidance, we began to account for subscription and professional services revenues as separate units ofaccounting. To qualify as a separate unit of accounting, the delivered item must have value to the customer on a standalone basis. We have concluded that oursubscription service has standalone value as it is routinely sold separately by us. In addition, the applications offered through this subscription service arefully functional without any additional development, modification or customization. We provide customers access to our subscription service at the beginningof the contract term. In determining whether professional services have standalone value, we considered the following factors for each professional servicesagreement: availability of the services from other vendors, the nature of the professional services, the timing of when the professional services contract wassigned in comparison to the subscription service start date and the contractual dependence of the subscription service on the customer’s satisfaction with theprofessional services work. Our professional services, including implementation and configuration services, are not so unique and complex that other vendorscannot provide them. In some instances, customers independently contract with third-party vendors to do the implementation and we regularly outsourceimplementation services to contracted third-party vendors. As a result, we concluded professional services, including implementation and configurationservices, have standalone value. We determine the selling price of each deliverable in the arrangement using the selling price hierarchy. Under the selling price hierarchy, the selling pricefor each deliverable is determined using vendor-specific objective evidence, or VSOE, of selling price or third-party evidence, or TPE, of selling price if VSOEdoes not exist. If neither VSOE nor TPE of selling price exists for a deliverable, the selling price is determined using the best estimate of selling price, or BESP.The selling price for each unit of accounting is based on the BESP since VSOE and TPE are not available for our subscription service or professional servicesand other. The BESP for each deliverable is determined primarily by considering the historical selling price of these deliverables in similar transactions as wellas other factors, including, but not limited to, market competition, review of stand-alone sales and current pricing practices. In determining the appropriatepricing structure, we consider the extent of competitive pricing of similar products and marketing analysis. The total arrangement fee for these multiple elementarrangements is then allocated to the separate units of accounting based on the relative selling price. The BESP for our subscription service is based upon thehistorical selling price of these deliverables. In limited circumstances, we grant certain customers the right to deploy our subscription service on the customers’ own servers without significantpenalty. These arrangements are subject to software revenue recognition guidance since the customer deploys our software. We have analyzed all of the elementsin these particular multiple element arrangements and determined that we do not have sufficient VSOE of fair value to allocate revenue to our subscriptionservice and professional services. Consequently, we defer all revenue and related costs under the arrangement until the last element in the transaction has beendelivered or started51to be delivered. Once the subscription service and the professional services have commenced, we recognize the entire fee and related costs from the arrangementratably over the remaining period of the arrangement. Deferred Revenue Deferred revenue consists primarily of payments received in advance of revenue recognition for our subscriptions and professional services and otherrevenues and is recognized as the revenue recognition criteria are met. We generally invoice our customers in annual installments for our subscription service.Accordingly, the deferred revenue balance does not represent the total contract value of annual or multi-year subscription license agreements. Deferred revenuethat will be recognized during the succeeding 12-month period is recorded as current portion of deferred revenue and the remaining portion is recorded as long-term.Deferred Commissions Deferred commissions are the incremental selling costs that are directly associated with our non-cancelable subscription contracts with customers andconsist of sales commissions paid to our direct sales force and referral fees paid to independent third-parties. The majority of commissions and referral fees aredeferred and amortized on a straight-line basis over the non-cancelable terms of the related customer contracts. We include amortization of deferredcommissions in sales and marketing expense in the consolidated statements of comprehensive income (loss).Goodwill, Intangible Assets and Other Long Lived AssetsGoodwill represents the excess of the purchase price in a business combination over the fair value of net tangible and intangible assets acquired. Weevaluate and test the recoverability of goodwill for impairment at least annually, or more frequently if circumstances indicate that goodwill may not berecoverable.Intangible assets are amortized over their useful lives ranging from 18 months to six years. Each period we evaluate the estimated remaining useful life ofpurchased intangible assets to determine whether events or changes in circumstances warrant a revision to the remaining period of amortization.We periodically review the carrying amounts of these assets for impairment whenever events or changes in circumstances indicate that the carrying valueof these assets may not be recoverable. We measure the recoverability of these assets by comparing the carrying amount of each asset to the futureundiscounted cash flows we expect the asset to generate. If we consider any of these assets to be impaired, the impairment to be recognized equals the amountby which the carrying value of the asset exceeds its fair market value. Stock-based Compensation We recognize compensation expense related to stock options and restricted stock units, or RSUs, on a straight-line basis over the requisite service period,which is generally the vesting term of four years. We recognize compensation expense related to shares issued pursuant to the ESPP, on a straight-line basisover the offering period. We recognize compensation expense net of estimated forfeiture activity. We estimate the fair value of options using the Black-Scholesoptions pricing model and fair value of RSU awards using the fair value of our common stock on the date of grant.Income Taxes We use the asset and liability method of accounting for income taxes, in which deferred tax assets and liabilities are recognized for the future taxconsequences attributable to differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective taxbases. We measure deferred tax assets and liabilities using enacted tax rates expected to apply to taxable income in the years in which those temporarydifferences are expected to be reversed. We recognize the effect on deferred tax assets and liabilities of a change in tax rates as income and expense in the periodthat includes the enactment date. A valuation allowance is established if it is more likely than not that all or a portion of the deferred tax asset will not berealized. Our tax positions are subject to income tax audits by multiple tax jurisdictions throughout the world. We recognize the tax benefit of an uncertain taxposition only if it is more likely than not the position is sustainable upon examination by the taxing authority, based on the technical merits. We measure thetax benefit recognized as the largest amount of benefit which is more likely than not to be realized upon settlement with the taxing authority. We recognizeinterest accrued and penalties related to unrecognized tax benefits in our tax provision.We calculate the current and deferred income tax provision based on estimates and assumptions that could differ from the actual results reflected inincome tax returns filed in subsequent years and record adjustments based on filed income tax returns52when identified. The amount of income taxes paid is subject to examination by U.S. federal, state and foreign tax authorities. The estimate of the potentialoutcome of any uncertain tax issue is subject to management’s assessment of relevant risks, facts and circumstances existing at that time. To the extent theassessment of such tax position changes, we record the change in estimate in the period in which we make the determination. Recent Accounting PronouncementsIn July 2013, the FASB issued an accounting standard update that provides explicit guidance on the financial statement presentation of an unrecognizedtax benefit when a net operating loss carryforward or a tax credit carryforward exists. Under the new standard update, unrecognized tax benefit, or a portion ofan unrecognized tax benefit, is to be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward or a taxcredit carryforward. The new guidance becomes effective for us on January 1, 2014 and it should be applied prospectively to unrecognized tax benefits thatexist at the effective date with retrospective application permitted. We determined the impact of this new guidance is not material to the consolidated financialstatements.ITEM 7A.QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK Foreign Currency Exchange Risk We have foreign currency risks related to our revenue and operating expenses denominated in currencies other than the U.S. dollar, primarily the Euroand British Pound Sterling. Revenues outside of North America as a percentage of revenue was 30%, 29% and 27% during the year ended December 31, 2013,2012 and 2011, respectively, 29% and 26% during the six months ended December 31, 2011 and 2010, respectively, and 25% and 28% in fiscal 2011 andfiscal 2010, respectively. Changes in exchange rates may negatively affect our revenue and other operating results as expressed in U.S. dollars. We have experienced and will continue to experience fluctuations in our net income (loss) as a result of transaction gains or losses related to revaluingcertain current asset and current liability balances that are denominated in currencies other than the functional currency of the entities in which they arerecorded. For the most part, we are unable to accurately forecast the changes in exchange rates and consequent gains and losses from such fluctuations. Werecognized foreign currency net losses of $2.5 million, $1.3 million, $0.6 million and $0.3 million for the year ended December 31, 2013 and 2011, fiscal2011 and the six months ended December 31, 2010, respectively. We recognized foreign currency net gains of $1.1 million, $1.6 million and $0.5 million forthe year ended December 31, 2012, the six months ended December 31, 2011 and fiscal 2010, respectively. While we have not engaged in the hedging of ourforeign currency transactions to date, we may in the future hedge selected significant transactions denominated in currencies other than the U.S. dollar.We estimate that a decline in the value of the U.S. dollar as measured against the other currencies in which our transactions are denominated would havewidened our operating loss in the year ended December 31, 2013. A hypothetical 10% decrease in the U.S. dollar against other currencies would result in anapproximate $0.3 million increase in operating loss for the year ended December 31, 2013. This analysis disregards the possibilities that rates can move inopposite directions and that losses from one geographic area may be offset by gains from another geographic area. Interest Rate Sensitivity In February 2012, we began investing in corporate debt securities. The primary objectives of our investment activities are the preservation of capital andsupport of our liquidity requirements. We do not enter into investments for trading or speculative purposes. Our investments are exposed to market risk due toa fluctuation in interest rates, which may affect our interest income and the fair market value of our investments. As of December 31, 2013, a hypothetical 50basis point increase in interest rates would result in an approximate $2.6 million decline of the fair value of our available-for-sale securities. This estimate isbased on a sensitivity model that measures market value changes when changes in interest rates occur.Market RiskIn November 2013, we issued Notes with aggregate principal amount of $575.0 million. We carry this instrument at face value less unamortizeddiscount on our balance sheet. Because this instrument does not bear interest, we have no financial statement risk associated with changes in interest rates.However, the fair value of fixed rate instruments fluctuate when interest rates change, and in the case of convertible notes, when the market price of our stockfluctuates.53ITEM 8.CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA SERVICENOW, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS PageReport of Independent Registered Public Accounting Firm55 Consolidated Financial Statements Consolidated Balance Sheets56 Consolidated Statements of Comprehensive Income (Loss)57 Consolidated Statements of Changes in Convertible Preferred Stock and Stockholders’ Equity (Deficit)59 Consolidated Statements of Cash Flows63 Notes to Consolidated Financial Statements6454Report of Independent Registered Public Accounting Firm To the Board of Directors and Stockholders of ServiceNow, Inc.In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of comprehensive income (loss), of changes inconvertible preferred stock and stockholders’ equity (deficit), and of cash flows present fairly, in all material respects, the financial position of ServiceNow,Inc. and its subsidiaries at December 31, 2013 and December 31, 2012, and the results of their operations and their cash flows for the years ended December31, 2013 and December 31, 2012, the six months ended December 31, 2011, and the fiscal year ended June 30, 2011 in conformity with accounting principlesgenerally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control overfinancial reporting as of December 31, 2013 based on criteria established in Internal Control - Integrated Framework (1992) issued by the Committee ofSponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for these financial statements, for maintainingeffective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included inManagement's Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on these financialstatements and on the Company's internal control over financial reporting based on our audit (which was an integrated audit in 2013). We conducted ouraudits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan andperform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal controlover financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidencesupporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management,and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding ofinternal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness ofinternal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. Webelieve that our audits provide a reasonable basis for our opinions.A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting andthe preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control overfinancial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflectthe transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are beingmade only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention ortimely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation ofeffectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliancewith the policies or procedures may deteriorate. /s/ PricewaterhouseCoopers LLP San Jose, CaliforniaFebruary 28, 201455SERVICENOW, INC.CONSOLIDATED BALANCE SHEETS(in thousands, except share and per share data) December 31, 2013 December 31, 2012Assets Current assets: Cash and cash equivalents$366,303 $118,989Short-term investments268,251 195,702Accounts receivable, net108,339 78,163Current portion of deferred commissions31,123 14,979Prepaid expenses and other current assets23,733 14,256Total current assets797,749 422,089Deferred commissions, less current portion21,318 11,296Long-term investments255,356 —Property and equipment, net75,560 42,342Intangible assets, net5,796 596Goodwill8,724 —Other assets3,973 1,791Total assets$1,168,476 $478,114Liabilities and Stockholders’ Equity Current liabilities: Accounts payable$7,405 $9,604Accrued expenses and other current liabilities68,130 48,059Current portion of deferred revenue252,553 153,964Total current liabilities328,088 211,627Deferred revenue, less current portion14,169 16,397Convertible senior notes, net414,777 —Other long-term liabilities17,183 6,685Total liabilities774,217 234,709Commitments and contingencies Stockholders’ equity: Preferred stock, $0.001 par value; 10,000,000 shares authorized; no shares issued or outstanding— —Common stock $0.001 par value; 600,000,000 shares authorized; 140,354,605 and 126,367,700 shares issued andoutstanding at December 31, 2013 and 2012, respectively140 126Additional paid-in capital573,791 348,803Accumulated other comprehensive loss(476) (36)Accumulated deficit(179,196) (105,488)Total stockholders’ equity394,259 243,405Total liabilities and stockholders’ equity$1,168,476 $478,114 See accompanying notes to consolidated financial statements56SERVICENOW, INC.CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)(in thousands, except share and per share data) Year Ended December 31,Six Months Ended December 31,Fiscal Year EndedJune 30, 20132012201120102011 (Unaudited)Revenues: Subscription$349,804 $204,526 $64,886 $33,191 $79,191Professional services and other74,846 39,186 8,489 4,753 13,450Total revenues424,650 243,712 73,375 37,944 92,641Cost of revenues(1): Subscription87,928 63,258 15,073 6,096 15,311Professional services and other67,331 40,751 12,850 6,778 16,264Total cost of revenues155,259 104,009 27,923 12,874 31,575Gross profit269,391 139,703 45,452 25,070 61,066Operating expenses(1): Sales and marketing195,190 103,837 32,501 13,728 34,123Research and development78,678 39,333 7,030 2,758 7,004General and administrative61,790 34,117 10,084 3,417 9,379Total operating expenses335,658 177,287 49,615 19,903 50,506Income (loss) from operations(66,267) (37,584) (4,163) 5,167 10,560Interest and other income (expense), net(4,930) 1,604 (1,446) 289 606Income (loss) before provision for income taxes(71,197) (35,980) (5,609) 5,456 11,166Provision for income taxes2,511 1,368 1,075 653 1,336Net income (loss)$(73,708) $(37,348) $(6,684) $4,803 $9,830Net income (loss) attributable to common stockholders Basic$(73,708) $(37,656) $(6,996) $762 $1,639Diluted$(73,708) $(37,656) $(6,996) $1,111 $2,310Net income (loss) per share attributable to common stockholders: Basic$(0.54) $(0.51) $(0.33) $0.04 $0.09Diluted$(0.54) $(0.51) $(0.33) $0.04 $0.08Weighted-average shares used to compute net income (loss) pershare attributable to common stockholders: Basic135,415,809 73,908,631 21,104,219 17,156,445 18,163,977Diluted135,415,809 73,908,631 21,104,219 27,622,357 28,095,486Other comprehensive income (loss): Foreign currency translation adjustments$(303) $(830) $807 $(49) $167Unrealized loss on investments(137) (105) — — —Provision for (benefit from) income taxes— — 26 (14) 57Other comprehensive income (loss), net of tax(440) (935) 781 (35) 110Comprehensive income (loss)$(74,148) $(38,283) $(5,903) $4,768 $9,940 See accompanying notes to consolidated financial statements57SERVICENOW, INC.CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (continued)(in thousands, except share and per share data)(1)Includes stock-based compensation as follows: Year Ended December 31, Six Months Ended December 31, Fiscal Year EndedJune 30, 2013 2012 2011 2010 2011 (Unaudited) Cost of revenues: Subscription$8,434 $3,929 $674 $225 $548Professional services and other4,749 1,574 193 37 117Sales and marketing21,609 10,189 2,010 431 1,004Research and development16,223 6,496 704 207 468General and administrative14,566 5,749 2,056 221 817 See accompanying notes to consolidated financial statements58SERVICENOW, INC.CONSOLIDATED STATEMENTS OF CHANGES IN CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)(in thousands, except share data) Series CRedeemableConvertiblePreferred Stock Series ARedeemableConvertiblePreferred Stock Series BRedeemableConvertiblePreferred Stock Series DConvertiblePreferred Stock Common Stock AdditionalPaid-inCapital AccumulatedDeficit AccumulatedOtherComprehensiveIncome (Loss) TotalStockholders’Equity(Deficit) Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount Balance atJune 30, 2010983,606 $5,930 2,500,000 $3,504 3,988,636 $6,548 2,990,635 $51,245 16,493,488 $16 $— $(71,286) $8 $(71,262)Commonstock issuedunderemployeestock plan— — — — — — — — 4,279,456 5 441 — — 446Tax benefitfromemployeestock plan— — — — — — — — — — 138 — — 138Vesting ofearly exercisedstock options— — — — — — — — — — 36 — — 36Stock-basedcompensation— — — — — — — — — — 2,954 — — 2,954Accretion ofpreferred stockdividends andissuance costs— 18 — 200 — 415 — — — — (633) — — (633)Othercomprehensiveincome, net— — — — — — — — — — — — 110 110Net income— — — — — — — — — — — 9,830 — 9,830Balance atJune 30, 2011983,606 $5,948 2,500,000 $3,704 3,988,636 $6,963 2,990,635 $51,245 20,772,944 $21 $2,936 $(61,456) $118 $(58,381)59SERVICENOW, INC.CONSOLIDATED STATEMENTS OF CHANGES IN CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)(in thousands, except share data) Series CRedeemableConvertiblePreferred Stock Series ARedeemableConvertiblePreferred Stock Series BRedeemableConvertiblePreferred Stock Series DConvertiblePreferred Stock Common Stock AdditionalPaid-inCapital AccumulatedDeficit AccumulatedOtherComprehensiveIncome (Loss) TotalStockholders’Equity(Deficit) Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount Commonstock issuedunderemployeestock plan— — — — — — — — 1,469,118 1 1,283 — — 1,284Tax benefitfromemployeestock plan— — — — — — — — — — 41 — — 41Vesting ofearly exercisedstock options— — — — — — — — — — 208 — — 208Buyback ofrestrictedcommonstock— — — — — — — — (12,084) — — — — —Stock-basedcompensation— — — — — — — — — — 5,637 — — 5,637Accretion ofpreferred stockdividends andissuance costs— 9 — 101 — 202 — — — — (312) — — (312)Othercomprehensiveincome, net— — — — — — — — — — — — 781 781Net loss— — — — — — — — — — — (6,684) — (6,684)Balance atDecember 31,2011983,606 $5,957 2,500,000 $3,805 3,988,636 $7,165 2,990,635 $51,245 22,229,978 $22 $9,793 $(68,140) $899 $(57,426)60SERVICENOW, INC.CONSOLIDATED STATEMENTS OF CHANGES IN CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)(in thousands, except share data) Series CRedeemableConvertiblePreferred Stock Series ARedeemableConvertiblePreferred Stock Series BRedeemableConvertiblePreferred Stock Series DConvertiblePreferred Stock Common Stock AdditionalPaid-inCapital AccumulatedDeficit AccumulatedOtherComprehensiveIncome (Loss) TotalStockholders’Equity(Deficit) Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount Issuance ofcommonstock uponinitial publicoffering, net ofoffering costs— — — — — — — — 10,350,000 10 169,774 — — 169,784Conversion ofpreferred stockto commonstock uponinitial publicoffering(983,606) (5,966) (2,500,000) (3,905) (3,988,636) (7,364) (2,990,635) (51,245) 83,703,016 84 68,396 — — 68,480Issuance ofcommonstock uponfollow-onoffering, net ofissuance costs— — — — — — — — 1,897,500 2 49,848 — — 49,850Commonstock issuedunderemployeestock plans— — — — — — — — 6,654,558 6 4,047 — — 4,053Issuance ofcommonstock to thirdpartyinvestors, netof issuancecosts— — — — — — — — 1,750,980 2 17,846 — — 17,848Tax benefitfromemployeestock plans— — — — — — — — — — 1,694 — — 1,694Vesting ofearly exercisedstock options— — — — — — — — — — 1,606 — — 1,606Buyback ofrestrictedcommonstock— — — — — — — — (34,168) — — — — —Buyback andretirement ofcommonstock— — — — — — — — (184,164) — (1,960) — — (1,960)Stock-basedcompensation— — — — — — — — — — 28,067 — — 28,067Accretion ofpreferred stockdividends andissuance costs— 9 — 100 — 199 — — — — (308) — — (308)Othercomprehensiveloss, net— — — — — — — — — — — — (935) (935)Net loss— — — — — — — — — — — (37,348) — (37,348)Balance atDecember 31,2012— $— — $— — $— — $— 126,367,700 $126 $348,803 $(105,488) $(36) $243,40561SERVICENOW, INC.CONSOLIDATED STATEMENTS OF CHANGES IN CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)(in thousands, except share data) Series CRedeemableConvertiblePreferred Stock Series ARedeemableConvertiblePreferred Stock Series BRedeemableConvertiblePreferred Stock Series DConvertiblePreferred Stock Common Stock AdditionalPaid-inCapital AccumulatedDeficit AccumulatedOtherComprehensiveIncome (Loss) TotalStockholders’Equity(Deficit) Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount Commonstock issuedunderemployeestock plans— — — — — — — — 13,986,905 14 56,484 — — 56,498Tax benefitfromemployeestock plans— — — — — — — — — — 1,658 — — 1,658Vesting ofearly exercisedstock options— — — — — — — — — — 381 — — 381Stock-basedcompensation— — — — — — — — — — 65,694 — — 65,694Equitycomponent ofthe convertiblenotes, net— — — — — — — — — — 152,061 — — 152,061Purchase ofconvertiblenote hedge— — — — — — — — — — (135,815) — — (135,815)Sales ofwarrants— — — — — — — — — — 84,525 — — 84,525Othercomprehensiveloss, net— — — — — — — — — — (440) (440)Net loss— — — — — — — — — (73,708) — (73,708)Balance atDecember 31,2013— $— — $— — $— — $— 140,354,605 $140 $573,791 $(179,196) $(476) $394,259 See accompanying notes to consolidated financial statements62SERVICENOW, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS(in thousands) Year Ended December 31, Six Months Ended December 31, Fiscal Year EndedJune 30, 2013 2012 2011 2010 2011 (Unaudited) Cash flows from operating activities: Net income (loss)$(73,708) $(37,348) $(6,684) $4,803 $9,830Adjustments to reconcile net income (loss) to net cash provided byoperating activities: Depreciation and amortization24,152 13,506 2,045 502 1,472Amortization of premiums on investments4,758 1,337 — — —Amortization of deferred commissions29,364 13,710 3,492 1,642 4,023Amortization of debt discount and issuance costs3,498 — — — —Stock-based compensation65,581 27,937 5,637 1,121 2,954Tax benefit from employee stock plans(1,658) (1,694) (41) (117) (138)Deferred income tax(231) (746) — — —Other558 2,850 72 — 60Changes in operating assets and liabilities: Accounts receivable(29,506) (33,341) (20,365) (7,631) (14,762)Deferred commissions(54,943) (29,175) (8,313) (2,180) (5,568)Prepaid expenses and other assets3,471 (2,904)(1) (1,445) (648) (3,180)Accounts payable(252) 4,887 1,490 (845) 254Deferred revenue94,405 64,845 29,990 12,557 33,915Accrued expenses and other liabilities16,257 24,902 7,342 1,507 8,608Net cash provided by operating activities81,746 48,766 13,220 10,711 37,468Cash flows from investing activities: Purchases of property and equipment(55,321) (42,066) (7,959) (2,057) (8,733)Acquisition, net of cash acquired(13,330) — — — —Purchases of investments(570,679) (240,626) — — —Sale of investments55,158 1,025 — — —Maturities of investments181,554 42,473 — — —Restricted cash(177) 45 — 200 350Net cash used in investing activities(402,795) (239,149) (7,959) (1,857) (8,383)Cash flows from financing activities: Net proceeds from initial public offering— 169,784 — — —Net proceeds from (offering costs paid in connection with)follow-on offering(698) 50,561 — — —Net proceeds from borrowings on convertible senior notes562,941 — — — —Proceeds from issuance of warrants84,525 — — — —Purchase of convertible note hedge(135,815) — — — —Proceeds from employee stock plans55,959 3,912 2,128 105 1,089Tax benefit from employee stock plans1,658 1,694 41 117 138Net proceeds from issuance of common stock— 17,848 — — —Purchases of common stock and restricted stock fromstockholders— (1,960) (15) — —Net cash provided by financing activities568,570 241,839 2,154 222 1,227Foreign currency effect on cash and cash equivalents(207) (555) 820 (21) 139Net increase in cash and cash equivalents247,314 50,901 8,235 9,055 30,451Cash and cash equivalents at beginning of period118,989 68,088 59,853 29,402 29,402Cash and cash equivalents at end of period$366,303 $118,989 $68,088 $38,457 $59,853Supplemental disclosures of other cash flow information: Taxes paid$920 $1,524 $360 $— $1,403Non-cash investing and financing activities: Conversion of preferred stock to common stock$— $68,480 $— $— $—Property and equipment included in accounts payable andaccrued expenses3,741 1,234 6,296 369 756Exercise of stock options included in prepaid and other assets10 1,089 — — —Offering costs not yet paid— 711 — — — (1)Includes $5.3 million payment received from our founder during the year ended December 31, 2012. Refer to Note 16.See accompanying notes to consolidated financial statements63SERVICENOW, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(1) Description of the Business ServiceNow is a leading provider of cloud-based services to automate and manage IT service relationships across the global enterprise. Our servicesinclude a suite of IT service automation applications built on our proprietary platform that can be rapidly deployed and configured. Customers use ourservices to create a single system of record for enterprise IT, automate manual tasks, standardize processes and consolidate legacy systems. UsingServiceNow, enterprise IT departments can accelerate their shift from the management of IT infrastructure to the management of IT service relationships acrossthe enterprise with greater transparency, accountability and auditability. Our proprietary platform enables our customers to create custom applications andevolve the IT service model to service domains inside and outside the enterprise.(2) Summary of Significant Accounting Policies Principles of Consolidation The consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles, or GAAP, and include ouraccounts and the accounts of our wholly-owned subsidiaries. All significant intercompany transactions and balances have been eliminated upon consolidation. Fiscal Year Change On February 3, 2012, our board of directors approved a change to our fiscal year end from June 30 to December 31. Included in this report is thetransition period for the six months ended December 31, 2011. Accordingly, we included the unaudited consolidated statements of comprehensive income(loss) and cash flows for the six months ended December 31, 2010 for comparative purposes. In the opinion of management, the unaudited consolidatedfinancial information reflects all adjustments, consisting of normal and recurring adjustments, necessary for the fair statement of the results of our operationsand our cash flows for the six months ended December 31, 2010. References to "fiscal 2011" refer to the fiscal year ended June 30, 2011. Use of Estimates The preparation of consolidated financial statements in conformity with GAAP requires management to make certain estimates and assumptions. Theseestimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidatedfinancial statements, as well as reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Segments We define the term “chief operating decision maker” to be our Chief Executive Officer. Our chief operating decision maker allocates resources andassesses financial performance based upon discrete financial information at the consolidated level. Accordingly, we have determined that we operate in a singlereporting segment. Foreign Currency Translation The functional currencies for our foreign subsidiaries are primarily their local currencies. Assets and liabilities of the wholly-owned foreign subsidiariesare translated into U.S. dollars at exchange rates in effect at each period end. Amounts classified in stockholders’ equity are translated at historical exchangerates. Revenues and expenses are translated at the average exchange rates during the period. The resulting translation adjustments are recorded in accumulatedother comprehensive income (loss) as a component of stockholders’ equity. Foreign currency transaction gains and losses are included in interest and otherincome (expense), net within the consolidated statements of comprehensive income (loss). Allocation of Overhead Costs Overhead costs associated with facilities, IT and certain depreciation related to non cloud-based infrastructure hardware equipment are allocated to costof revenues and operating expenses based on headcount. Depreciation related to our cloud-based infrastructure hardware equipment is classified as cost ofsubscription revenues. Revenue Recognition 64We derive our revenues from two sources: (i) subscriptions and (ii) professional services and other. Subscription revenues are primarily comprised ofsubscription fees that give customers access to the ordered subscription service, related support and updates to the subscribed service during the subscriptionterm.Our contracts typically do not give the customer the right to take possession of the software supporting the services. Professional services and otherrevenues consist of fees associated with the implementation and configuration of our services. Professional services and other revenues also include customertraining and attendance and sponsorship fees for Knowledge, our annual user conference.We commence revenue recognition when all of the following conditions are met: •There is persuasive evidence of an arrangement;•The service has been provided to the customer;•The collection of related fees is reasonably assured; and•The amount of fees to be paid by the customer is fixed or determinable.We use a signed contract together with a signed order form or a purchase order as evidence of an arrangement for a new customer. In subsequenttransactions with an existing customer, including an upsell or a renewal, we consider the existing signed contract and either the new signed order form or newpurchase order as evidence of an arrangement. We recognize subscription revenues ratably over the contract term beginning on the commencement date of each contract, the date we make our servicesavailable to our customers. Once our services are available to customers, we record amounts due in accounts receivable and in deferred revenue. We priceprofessional services primarily on a time-and-materials basis and recognize professional services revenues as the services are delivered using a proportionalperformance model. Such services are delivered over a short period of time. In instances where final acceptance of the services are required before revenues arerecognized, we defer professional services revenues and the associated costs until all acceptance criteria have been met. We assess collectibility based on a number of factors such as past collection history with the customer and creditworthiness of the customer. If wedetermine collectibility is not reasonably assured, we defer revenue recognition until collectibility becomes reasonably assured. We assess whether the fee isfixed or determinable based on the payment terms associated with the transaction and whether the sales price is subject to refund or adjustment. Ourarrangements do not include general rights of return. We have multiple element arrangements comprised of subscription fees and professional services. In October 2009, the Financial Accounting StandardsBoard, or FASB, ratified authoritative accounting guidance regarding revenue recognition for arrangements with multiple deliverables effective for fiscalperiods beginning on or after June 15, 2010. As a result, this guidance was applied to all revenue arrangements entered into or materially modified sinceJuly 1, 2010. For fiscal 2011, total revenues increased $6.4 million and deferred revenue decreased $6.4 million due to adoption of the new guidance.Upon adoption of this authoritative accounting guidance, we began to account for subscription and professional services revenues as separate units ofaccounting. To qualify as a separate unit of accounting, the delivered item must have value to the customer on a standalone basis. We have concluded that oursubscription service has standalone value as it is routinely sold separately by us. In addition, the applications offered through this subscription service arefully functional without any additional development, modification or customization. We provide customers access to our subscription service at the beginningof the contract term. In determining whether professional services have standalone value, we considered the following factors for each professional servicesagreement: availability of the services from other vendors, the nature of the professional services, the timing of when the professional services contract wassigned in comparison to the subscription service start date and the contractual dependence of the subscription service on the customer’s satisfaction with theprofessional services work. Our professional services, including implementation and configuration services, are not so unique and complex that other vendorscannot provide them. In some instances, customers independently contract with third-party vendors to do the implementation and we regularly outsourceimplementation services to contracted third-party vendors. As a result, we concluded professional services, including implementation and configurationservices, have standalone value. We determine the selling price of each deliverable in the arrangement using the selling price hierarchy. Under the selling price hierarchy, the selling pricefor each deliverable is determined using vendor-specific objective evidence, or VSOE, of selling price or third-party evidence, or TPE, of selling price if VSOEdoes not exist. If neither VSOE nor TPE of selling price exists for a deliverable, the selling price is determined using the best estimate of selling price, or BESP.The selling price for each unit of accounting is based on the BESP since VSOE and TPE are not available for our subscription service or professional servicesand other. The BESP for each deliverable is determined primarily by considering the historical selling price of these deliverables in65similar transactions as well as other factors, including, but not limited to, market competition, review of stand-alone sales and current pricing practices. Indetermining the appropriate pricing structure, we consider the extent of competitive pricing of similar products and marketing analysis. The total arrangementfee for these multiple element arrangements is then allocated to the separate units of accounting based on the relative selling price. The BESP for oursubscription service is based upon the historical selling price of these deliverables. In limited circumstances, we grant certain customers the right to deploy our subscription service on the customers’ own servers without significantpenalty. These arrangements are subject to software revenue recognition guidance since the customer deploys our software. We have analyzed all of the elementsin these particular multiple element arrangements and determined that we do not have sufficient VSOE of fair value to allocate revenue to our subscriptionservice and professional services. Consequently, we defer all revenue and related costs under the arrangement until the last element in the transaction has beendelivered or started to be delivered. Once the subscription service and the professional services have commenced, we recognize the entire fee and related costsfrom the arrangement ratably over the remaining period of the arrangement. Deferred Revenue Deferred revenue consists primarily of payments received in advance of revenue recognition for our subscriptions and professional services and otherrevenues and is recognized as the revenue recognition criteria are met. We generally invoice our customers in annual installments for our subscription service.Accordingly, the deferred revenue balance does not represent the total contract value of annual or multi-year subscription license agreements. Deferred revenuethat will be recognized during the succeeding 12-month period is recorded as current portion of deferred revenue and the remaining portion is recorded as long-term. Deferred Commissions Deferred commissions are the incremental selling costs that are directly associated with our non-cancelable subscription contracts with customers andconsist of sales commissions paid to our direct sales force and referral fees paid to independent third-parties. The majority of commissions and referral fees aredeferred and amortized on a straight-line basis over the non-cancelable terms of the related customer contracts. We include amortization of deferredcommissions in sales and marketing expense in the consolidated statements of comprehensive income (loss). Fair Value Measurements We apply fair value accounting for all financial assets and liabilities and non-financial assets and liabilities that are recognized in the financialstatements on a non-recurring basis or disclosed at fair value in the financial statements on a recurring basis. Fair value is defined as the exchange price thatwould be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderlytransaction between market participants on the measurement date. We use a fair value hierarchy that is based on three levels of inputs, of which the first twoare considered observable and the last unobservable. The three levels of the fair value hierarchy are as follows: Level 1—Quoted prices (unadjusted) in active markets for identical assets or liabilities that we have the ability to access; Level 2—Inputs other than Level 1 that are directly or indirectly observable, such as quoted prices for identical or similar assets and liabilities, quotedprices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of theassets or liabilities, such as interest rates, yield curves and foreign currency spot rates; and Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities. Cash and Cash Equivalents Cash and cash equivalents consist of highly liquid investments with original maturities of three months or less. Cash and cash equivalents are stated atcost, which approximates fair value. Investments Investments consist of commercial paper, corporate notes and bonds and U.S. government agency securities. We classify investments as available-for-sale at the time of purchase and reevaluate such classification as of each balance sheet date. All investments are recorded at estimated fair value. Unrealizedgains and losses for available-for-sale securities are included in accumulated other comprehensive income (loss), a component of stockholders’ equity (deficit).We evaluate our investments to assess whether those with unrealized loss positions are other than temporarily impaired. We consider impairments to be otherthan66temporary if they are related to deterioration in credit risk or if it is likely we will sell the securities before the recovery of their cost basis. Realized gains andlosses and declines in value judged to be other than temporary are determined based on the specific identification method and are reported in interest and otherincome (expense), net in the consolidated statements of comprehensive income (loss). Accounts Receivable We record trade accounts receivable at the net invoice value and such receivables are non-interest bearing. We consider receivables past due based on thecontractual payment terms. We review our exposure to accounts receivable and reserve for specific amounts if collectibility is no longer reasonably assured. Property and Equipment Property and equipment, net, are stated at cost, subject to review of impairment, and depreciated using the straight-line method over the estimated usefullives of the assets as follows: Computer equipment and software 3—5 yearsFurniture and fixtures 3—5 yearsLeasehold improvements shorter of the lease term or estimated useful life When assets are sold, or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts and any gain or loss isincluded in operating expenses. Repairs and maintenance are charged to operations as incurred. Capitalized Software Costs Costs incurred to develop our internal administration, finance and accounting systems are capitalized during the application development stage andamortized over the software’s estimated useful life of three to five years. Leases Leases are reviewed and classified as capital or operating at their inception. For leases that contain rent escalations or periods during the lease term whererent is not required, we recognize rent expense based on allocating the total rent payable on a straight-line basis over the term of the lease excluding leaseextension periods. The difference between rent payments and straight-line rent expense is recorded as deferred rent in the consolidated balance sheets. Deferredrent that will be recognized during the succeeding 12-month period is recorded as the current portion of deferred rent and the remainder is recorded as long-termdeferred rent. Goodwill, Intangible Assets and Other Long Lived AssetsGoodwill represents the excess of the purchase price in a business combination over the fair value of net tangible and intangible assets acquired. Weevaluate and test the recoverability of goodwill for impairment at least annually, or more frequently if circumstances indicate that goodwill may not berecoverable.Intangible assets are amortized over their useful lives ranging from 18 months to six years. Each period we evaluate the estimated remaining useful life ofpurchased intangible assets to determine whether events or changes in circumstances warrant a revision to the remaining period of amortization.We periodically review the carrying amounts of these assets for impairment whenever events or changes in circumstances indicate that the carrying valueof these assets may not be recoverable. We measure the recoverability of these assets by comparing the carrying amount of each asset to the futureundiscounted cash flows we expect the asset to generate. If we consider any of these assets to be impaired, the impairment to be recognized equals the amountby which the carrying value of the asset exceeds its fair market value. Convertible Preferred StockPrior to the closing of the initial public offering, or IPO, we had four series of convertible preferred stock outstanding. We recorded the convertiblepreferred stock at fair value on the dates of issuance, net of issuance costs. We classified the convertible preferred stock outside of stockholders’ equitybecause the shares contained liquidation features that were not solely within our control.67Upon the closing of our IPO on July 5, 2012, all of the outstanding 10,462,877 shares of convertible preferred stock automatically converted into anaggregate of 83,703,016 shares of common stock. As of December 31, 2013 and 2012, we had no shares of preferred stock outstanding. Stock-based Compensation We recognize compensation expense related to stock options and restricted stock units, or RSUs, on a straight-line basis over the requisite service period,which is generally the vesting term of four years. We recognize compensation expense related to shares issued pursuant to the employee stock purchase plan, orESPP, on a straight-line basis over the offering period. We recognize compensation expense net of estimated forfeiture activity. We estimate the fair value ofoptions using the Black-Scholes options pricing model and fair value of RSUs using the fair value of our common stock on the date of grant. Net Income (Loss) Per Share Attributable to Common Stockholders We compute net income (loss) attributable to common stockholders using the two-class method required for participating securities. We consider ourconvertible preferred stock that was outstanding prior to the close of our IPO and shares of common stock subject to repurchase resulting from the earlyexercise of stock options to be participating securities since they contain non-forfeitable rights to dividends or dividend equivalents in the event we declare adividend for common stock. In accordance with the two-class method, earnings allocated to these participating securities, are subtracted from net income afterdeducting preferred stock dividends and accretion to the redemption value of the Series A, Series B and Series C to determine total undistributed earnings to beallocated to common stockholders. The holders of our convertible preferred stock did not have a contractual obligation to share in our net losses and suchshares were excluded from the computation of basic earnings per share in periods of net loss. Basic net income (loss) per share attributable to common stockholders is computed by dividing net income (loss) attributable to common stockholdersby the weighted-average number of common shares outstanding during the period. All participating securities are excluded from basic weighted-averagecommon shares outstanding. Diluted net income (loss) per share is computed by dividing net income (loss) attributable to common stockholders by theweighted-average number of shares of common stock outstanding during the period, adjusted for the effects of dilutive common shares, which are comprisedof outstanding common stock options, convertible preferred stock, RSUs, common stock subject to repurchase, ESPP obligations, convertible senior notesand warrants. The dilutive potential common shares are computed using the treasury stock method or the as-if converted method, as applicable. In periodswhere the effect of the conversion of preferred stock is dilutive, net income (loss) attributable to common stockholders is adjusted by the associated preferreddividends and accretions. The effects of outstanding common stock options, convertible preferred stock, RSUs, common stock subject to repurchase, ESPPobligations, convertible senior notes and warrants are excluded from the computation of diluted net income (loss) per common share in periods in which theeffect would be antidilutive. Concentration of Credit Risk and Significant Customers Financial instruments potentially exposing us to credit risk consist primarily of cash, cash equivalents, investments, accounts receivable. We maintaincash, cash equivalents and investments at financial institutions that management believes are high credit, quality financial institutions. We invest in securitieswith a minimum rating of A by Standard & Poor's and A-2 by Moody's. We are also exposed to credit risk under the convertible note hedge ("Note Hedge")transactions that may result from counterparties' non-performance. Credit risk arising from accounts receivable is mitigated due to our large number of customers and their dispersion across various industries andgeographies. As of December 31, 2013 and 2012, there were no customers that represented more than 10% of our accounts receivable balance. There were nocustomers that individually exceeded 10% of our revenues in any of the periods presented. We review the composition of the accounts receivable balance, historical write-off experience and the potential risk of loss associated with delinquentaccounts to determine if an allowance for doubtful accounts is necessary. Individual accounts receivable are written off when we become aware of a specificcustomer’s inability to meet its financial obligation, and all collection efforts are exhausted. The following table presents the changes in the allowance fordoubtful accounts (in thousands):68 Balance atBeginning of Year Additions: Chargedto Operations Additions: Chargedto DeferredRevenue Less:Write-offs Balance at End ofYearYear ended December 31, 2013 Allowance for doubtful accounts$742 (43) 946 502 $1,143Year ended December 31, 2012 Allowance for doubtful accounts$— 570 172 — $742Warranties and Indemnification Our cloud-based service to automate enterprise IT operations is typically warranted to perform in material conformance with specifications. We include service level commitments to our customers that permit those customers to receive credits in the event we fail to meet those levels. Weestablish an accrual based on historical credits paid and an evaluation of the performance of our services including an assessment of the impact, if any, ofany known service disruptions. Service level credit accrual charges are recorded against revenue. The following table presents the changes in the service levelcredit accrual (in thousands): Balance at Beginningof Year Additions: Chargedagainst revenue Less: Usage Balance at End ofYearYear ended December 31, 2013 Service level credit accrual$1,196 430 978 $648Year ended December 31, 2012 Service level credit accrual$250 1,574 628 $1,196 We have also agreed to indemnify our directors and executive officers for costs associated with any fees, expenses, judgments, fines and settlementamounts incurred by any of these persons in any action or proceeding to which any of those persons is, or is threatened to be, made a party by reason of theperson’s service as a director or officer, including any action by us, arising out of that person’s services as a director or officer of our company or thatperson’s services provided to any other company or enterprise at our request. We maintain director and officer insurance coverage that may enable us to recovera portion of any future amounts paid. The fair values of these obligations are not material as of each balance sheet date. Our arrangements include provisions indemnifying customers against intellectual property and other third-party claims. We have not incurred any costsas a result of such indemnifications and have not recorded any liabilities related to such obligations in the consolidated financial statements. Income Taxes We use the asset and liability method of accounting for income taxes, in which deferred tax assets and liabilities are recognized for the future taxconsequences attributable to differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective taxbases. We measure deferred tax assets and liabilities using enacted tax rates expected to apply to taxable income in the years in which those temporarydifferences are expected to be reversed. We recognize the effect on deferred tax assets and liabilities of a change in tax rates as income and expense in the periodthat includes the enactment date. A valuation allowance is established if it is more likely than not that all or a portion of the deferred tax asset will not berealized. Our tax positions are subject to income tax audits by multiple tax jurisdictions throughout the world. We recognize the tax benefit of an uncertain taxposition only if it is more likely than not the position is sustainable upon examination by the taxing authority, based on the technical merits. We measure thetax benefit recognized as the largest amount of benefit which is more likely than not to be realized upon settlement with the taxing authority. We recognizeinterest accrued and penalties related to unrecognized tax benefits in our tax provision.We calculate the current and deferred income tax provision based on estimates and assumptions that could differ from the actual results reflected inincome tax returns filed in subsequent years and record adjustments based on filed income tax returns when identified. The amount of income taxes paid issubject to examination by U.S. federal, state and foreign tax authorities. The estimate of the potential outcome of any uncertain tax issue is subject tomanagement’s assessment of relevant risks, facts and69circumstances existing at that time. To the extent the assessment of such tax position changes, we record the change in estimate in the period in which we makethe determination. Recent Accounting PronouncementsIn July 2013, the FASB issued an accounting standard update that provides explicit guidance on the financial statement presentation of an unrecognizedtax benefit when a net operating loss carryforward or a tax credit carryforward exists. Under the new standard update, unrecognized tax benefit, or a portion ofan unrecognized tax benefit, is to be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward or a taxcredit carryforward. The new guidance becomes effective for us on January 1, 2014 and it should be applied prospectively to unrecognized tax benefits thatexist at the effective date with retrospective application permitted. We determined the impact of this new guidance is not material to the consolidated financialstatements.(3) Investments The following is a summary of our investments (in thousands): December 31, 2013 AmortizedCost GrossUnrealizedGains GrossUnrealizedLosses EstimatedFair ValueAvailable-for-sale securities: Commercial paper$124,330 $10 $(21) $124,319Corporate notes and bonds399,519 129 (360) 399,288Total available-for-sale securities$523,849 $139 $(381) $523,607 December 31, 2012 AmortizedCost GrossUnrealizedGains GrossUnrealizedLosses EstimatedFair ValueAvailable-for-sale securities: Commercial paper$72,850 $— $(15) $72,835Corporate notes and bonds158,038 8 (98) 157,948U.S. government agency securities1,001 — — 1,001Total available-for-sale securities$231,889 $8 $(113) $231,784As of December 31, 2013, the contractual maturities of our investments did not exceed 24 months. The fair values of available-for-sale investments, bycontractual maturity, are as follows: December 31, 2013Due in 1 year or less$268,251Due in 1 year through 3 years255,356Total$523,607We had certain available-for-sale securities in a gross unrealized loss position, all of which had been in such position for less than twelve months. Therewere no impairments considered "other-than-temporary" as it is more likely than not we will hold the securities until maturity or a recovery of the cost basis.The following table shows the fair values and the gross unrealized losses of these available-for-sale securities aggregated by investment types (in thousands): 70 December 31, 2013 December 31, 2012 Fair Value GrossUnrealizedLosses Fair Value GrossUnrealizedLossesCommercial paper$81,467 $(21) $36,753 $(15)Corporate notes and bonds293,642 (360) 137,558 (98)Total$375,109 $(381) $174,311 $(113) As of December 31, 2013, we had a total of 122 available-for-sale securities in an unrealized loss position.(4) Fair Value Measurements The following table presents our fair value hierarchy for our assets and liabilities measured at fair value on a recurring basis at December 31, 2013 (inthousands): Level 1 Level 2 Level 3 TotalCash and cash equivalents: Cash$69,333 $— $— $69,333Money market funds35,248 — — 35,248Commercial paper— 261,722 — 261,722Short-term investments: Commercial paper— 124,319 — 124,319Corporate notes and bonds— 143,932 — 143,932Long-term investments: Corporate notes and bonds— 255,356 — 255,356Total$104,581 $785,329 $— $889,910 The following table presents our fair value hierarchy for our assets and liabilities measured at fair value on a recurring basis at December 31, 2012 (inthousands): Level 1 Level 2 Level 3 TotalCash and cash equivalents: Cash$47,478 $— $— $47,478Money market funds35,429 — — 35,429Commercial paper— 36,082 — 36,082Short-term investments: Commercial paper— 36,753 — 36,753Corporate notes and bonds— 157,948 — 157,948U.S. government agency securities— 1,001 — 1,001Total$82,907 $231,784 $— $314,691We determine the fair value of our security holdings based on pricing from our service provider and market prices from industry-standard independentdata providers. Such market prices may be quoted prices in active markets for identical assets (Level 1 inputs) or pricing determined using inputs other thanquoted prices that are observable either directly or indirectly (Level 2 inputs), such as yield curve, volatility factors, credit spreads, default rates, lossseverity, current market and contractual prices for the underlying instruments or debt, broker and dealer quotes, as well as other relevant economic measures.(5) AcquisitionOn July 1, 2013, we acquired all the outstanding stock of Mirror42 Holding B.V., a cloud-based performance analytics company, for total cashconsideration of $13.3 million. We believe this acquisition accelerates our ability to deliver on enterprise requirements for advanced business intelligence.71The following table summarizes the allocation of the purchase price to the fair value of the tangible and intangible assets acquired and liabilities assumedas of the acquisition date: Purchase Price Allocation(in thousands) Useful Life(in years)Net tangible liabilities acquired$(595) Intangible assets: Developed technology5,530 4Contracts297 1.5Non-compete agreements31 1.5Goodwill8,218 Net deferred tax liabilities(139) Total purchase price$13,342 The excess of purchase consideration over the fair value of net tangible and identifiable intangible assets acquired was recorded as goodwill. Managementbelieves that the goodwill represents the synergies expected from expanded market opportunities when integrating the Mirror42 Holding B.V.’s technologies withour offerings. $8.1 million of the goodwill balance is deductible for income tax purposes.The results of operations of Mirror42 Holding B.V. described above have been included in our consolidated financial statements from the date ofpurchase. Our business combination did not have a material impact on our consolidated financial statements, and therefore pro forma disclosures have notbeen presented.(6) Goodwill and Intangible AssetsGoodwill balances are presented below (in thousands): Carrying AmountBalance as of December 31, 2012$—Goodwill acquired8,218Foreign currency translation adjustments506Balance as of December 31, 2013$8,724Intangible assets consisted of the following (in thousands): December 31, 2013 Gross CarryingAmount AccumulatedAmortization Net Carrying AmountDeveloped technology$5,783 $(723) $5,060Contracts315 (104) 211Non-compete agreements33 (11) 22 Acquisition-related intangible assets6,131 (838) 5,293Other intangible assets650 (147) 503Total intangible assets$6,781 $(985) $5,796 December 31, 2012 Gross CarryingAmount AccumulatedAmortization Net Carrying AmountOther intangible assets$650 $(54) $596Total intangible assets$650 $(54) $59672Amortization expense for intangible assets was approximately $925,000 and $54,000, respectively, for the years ended December 31, 2013 and 2012.There were no amortization expense prior to the year ended December 31, 2012.The following table presents the estimated future amortization expense related to intangible assets held at December 31, 2013(in thousands): Acquisition-relatedintangible assets Other intangible assets TotalYears Ending December 31, 2014$1,678 $93 $1,77120151,446 93 1,53920161,446 93 1,5392017723 93 8162018— 93 93Thereafter— 38 38Total future amortization expense$5,293 $503 $5,796(7) Property and Equipment Property and equipment, net consists of the following (in thousands): December 31, 2013 2012Computer equipment and software$90,617 $46,541Furniture and fixtures13,751 4,691Leasehold improvements8,371 2,649Construction in progress928 4,855 113,667 58,736Less: Accumulated depreciation(38,107) (16,394)Total property and equipment, net$75,560 $42,342 Construction in progress consists primarily of in-process software development costs. Depreciation expense for the years ended December 31, 2013 and2012 was $22.6 million and $13.5 million, respectively, the six months ended December 31, 2011 and December 31, 2010 (unaudited) was $2.0 million and$0.5 million, respectively, and fiscal 2011 was $1.5 million.(8) Accrued Expenses and Other Current Liabilities Accrued expenses and other current liabilities consist of the following (in thousands): December 31, 2013 2012Taxes payable$4,187 $1,941Bonuses and commissions22,322 10,999Accrued compensation16,610 18,392Other employee expenses11,926 7,796Current portion of facility exit obligation1,042 1,515Other12,043 7,416Total accrued expenses and other current liabilities$68,130 $48,059 (9) Convertible Senior Notes73In November 2013, we issued 0% convertible senior notes due November 1, 2018 with aggregate principal amount of $575 million (the "Notes"). TheNotes will not bear interest. The Notes mature on November 1, 2018 unless converted or repurchased in accordance with their terms prior to such date. Wecannot redeem the Notes prior to maturity.The Notes are unsecured obligations and do not contain any financial covenants or restrictions on the payments of dividends, the incurrence ofindebtedness or the issuance or repurchase of securities by us or any of our subsidiaries.Upon conversion, we may choose to pay or deliver, as the case may be, cash, shares of our common stock or a combination of cash and shares of ourcommon stock. We intend to settle the principal amount of the Notes with cash.The Notes are convertible up to 7.8 million shares of our common stock at an initial conversion rate of approximately 13.54 shares of common stockper $1,000 principal amount, which is equal to an initial conversion price of approximately $73.88 per share of common stock, subject to adjustment.Holders of the Notes may convert their Notes at their option at any time prior to the close of business on the business day immediately preceding July 1, 2018,only under the following circumstances:•during any calendar quarter commencing after the calendar quarter ending on March 31, 2014 (and only during such calendar quarter), if the lastreported sale price of the common stock for at least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading daysending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on eachapplicable trading day;•during the five business day period after any five consecutive trading day period (the “measurement period”) in which the trading price per $1,000principal amount of notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of ourcommon stock and the conversion rate on each such trading day; or•upon the occurrence of specified corporate events.On or after July 1, 2018, a holder may convert all or any portion of its notes at any time prior to the close of business on the second scheduled tradingday immediately preceding the maturity date regardless of the foregoing conditions. Upon conversion, we will pay or deliver, as the case may be, cash, sharesof our common stock or a combination of cash and shares of our common stock, at our electionThe conversion price will be subject to adjustment in some events. Holders of the Notes who convert their notes in connection with certain corporateevents that constitute a “make-whole fundamental change” are, under certain circumstances, entitled to an increase in the conversion rate. Additionally, in theevent of a corporate event that constitutes a “fundamental change,” holders of the Notes may require us to purchase with cash all or a portion of the Notesupon the occurrence of a fundamental change, at a purchase price equal to 100% of the principal amount of the Notes plus any accrued and unpaid interest.In accounting for the issuance of the notes, we separated the Notes into liability and equity components. The carrying cost of the liability component wascalculated by measuring the fair value of a similar liability that does not have an associated convertible feature. The carrying amount of the equity componentrepresenting the conversion option was determined by deducting the fair value of the liability component from the par value of the Notes. The differencebetween the principal amount of the Notes and the proceeds allocated to the liability component (“debt discount”) is amortized to interest expense using theeffective interest method over the term of the Note. The equity component is not remeasured as long as it continues to meet the conditions for equityclassification.In accounting for the transaction costs related to the issuance of the Notes, we allocated the total amount incurred to the liability and equity componentsbased on their relative values. Transaction costs attributable to the liability component are being amortized to interest expense over the term of the Notes, andtransaction costs attributable to the equity component were netted with the equity component of the Notes in stockholders’ equity. Additionally, we recorded anet deferred tax liability of $6.6 million in connection with the Notes and convertible notes hedge transactions described below. The Notes consisted of thefollowing (in thousands): December 31, 2013Liability: Principal$575,000Less: debt discount, net of amortization(160,223)Net carrying amount$414,777 Equity(1):$152,06174(1)Included in the consolidated balance sheets within additional paid-in capital.We consider the fair value of the Notes at December 31, 2013 to be a Level 2 measurement. The fair value of the Notes is primarily affected by thetrading price of our common stock and interest rate. Based on the closing price of our common stock of $56.01 on December 31, 2013, the if-converted valueof the Notes was less than its principal amount.As of December 31, 2013, the remaining life of the Notes is 58 months. The following table sets forth total interest expense recognized related to theNotes (in thousands): Year ended December 31,2013Amortization of debt issuance cost$188Amortization of debt discount3,310Total$3,498Effective interest rate of the liability component6.5%Note HedgeTo minimize the impact of potential economic dilution upon conversion of the Notes, we entered into convertible note hedge transactions with respect toour common stock concurrent with the issuance of the Notes. The Note Hedge covers approximately 7.8 million shares of our common stock at a strike priceper share that corresponds to the initial conversion price of the Notes, are also subject to adjustment, and are exercisable upon conversion of the Notes. Wepaid an aggregate amount of $135.8 million for the Note Hedge. The Note Hedge will expire upon maturity of the Notes. The Note Hedge is intended to reducethe potential economic dilution upon conversion of the Notes in the event that the fair value per share of our common stock at the time of exercise is greater thanthe conversion price of the Notes. The Note Hedge is a separate transaction and is not part of the terms of the Notes. The Note Hedge does not impact earningsper share, as it was entered into to offset any dilution from the Notes.WarrantsSeparately, we entered into warrant transactions (the “Warrants”) whereby we sold warrants to acquire up to 7.8 million shares of our common stock, ata strike price of $107.46 per share, subject to adjustments. We received aggregate proceeds of $84.5 million from the sale of the Warrants. If the averagemarket value per share of our common stock for the reporting period, as measured under the Warrants, exceeds the strike price of the Warrants, the Warrantswill have a dilutive effect on our earnings per share. The Warrants are separate transactions and are not remeasured through earnings each reporting period.The Warrants are not part of the Notes or the Note Hedge, and have been accounted for as part of additional paid-in capital.(10) Accumulated Other Comprehensive Loss, NetThe components of accumulated other comprehensive loss, net of tax, consist of the following (in thousands): December 31, 2013 2012Foreign currency translation adjustment$(234) $69Net unrealized loss on investments(242) (105) Accumulated other comprehensive income (loss)$(476) $(36)(11) Stockholders' EquityCommon Stock In February 2012, we issued and sold 1,750,980 shares of common stock at a price of $10.20 per share for gross proceeds of $17.9 million in aprivate placement with a new stockholder. As part of this private placement, our founder sold 700,000 shares of common stock at the same price per share tothis new stockholder.In July 2012, we closed our IPO of 13,397,500 shares of common stock at an offering price of $18.00 per share. The offering included 10,350,000shares sold and issued by us and 3,047,500 shares sold by our founder. The 13,397,500 shares sold in the75offering included the overallotment option exercised in full by the underwriters to purchase 1,350,000 shares and 397,500 shares from us and our founder,respectively. The net proceeds to us from the offering were $173.3 million after deducting underwriting discounts and commissions, and before deducting totalexpenses in connection with the offering of $3.5 million. In November 2012, we and the selling shareholders sold 16,100,000 shares of common stock at an offering price of $28.00 per share. The offeringincluded 1,897,500 shares sold and issued by us and 14,202,500 shares sold by the selling stockholders. The 16,100,000 shares sold included theoverallotment option exercised in full by the underwriters to purchase 247,500 shares and 1,852,500 shares from us and the selling stockholders,respectively. The net proceeds to us from the offering were $51.0 million after deducting underwriting discounts and commissions, and before deducting totalexpenses in connection with the offering of $1.2 million.During the year ended December 31, 2012, we repurchased and subsequently canceled 100,000 shares, 77,498 shares and 6,666 shares of commonstock at a price of $10.00, $11.50 and $12.00 per share, respectively.During the years ended December 31, 2013 and 2012, we issued a total of 13,986,905 shares and 6,654,558 shares, respectively, from stock optionexercises, vesting of RSUs and ESPP. We were authorized to issue 600,000,000 shares of common stock as of December 31, 2013. Holders of our common stock are not entitled to receivedividends unless declared by our board of directors. As of December 31, 2013, we had 140,354,605 shares of common stock outstanding and had reservedshares of common stock for future issuance as follows: December 31, 2013Stock option plan: Options outstanding23,399,374RSUs5,427,509Stock awards available for future grants: 2005 Stock Option Plan(1)—2012 Equity Incentive Plan(1)13,169,3162012 Employee Stock Purchase Plan(1)5,549,918Total reserved shares of common stock for future issuance47,546,117 (1)Refer to Note 12 for a description of these plans.Preferred StockOur board of directors has the authority, without further action by stockholders, to issue up to 10,000,000 shares of preferred stock in one or moreseries. Our board of directors may designate the rights, preferences, privileges and restrictions of the preferred stock, including dividend rights, conversionrights, voting rights, terms of redemption, liquidation preference and number of shares constituting any series or the designation of any series. The issuance ofpreferred stock could have the effect of restricting dividends on our common stock, diluting the voting power of our common stock, impairing the liquidationrights of our common stock, or delaying or preventing a change in control. At December 31, 2013 and 2012, no shares of preferred stock were outstanding.(12) Stock Awards We have a 2005 Stock Option Plan, or 2005 Plan, which provides for grants of stock awards, including options to purchase shares of common stock,stock purchase rights and RSUs to certain employees, officers, directors and consultants. As of December 31, 2013, there were 53,731,033 total shares ofcommon stock authorized for issuance under the 2005 Plan, which includes shares already issued under such plan and shares reserved for issuance pursuantto outstanding options and RSUs.On April 27, 2012, the board of directors approved the 2012 Equity Incentive Plan, or 2012 Plan and the 2012 Employee Stock Purchase Plan, or the2012 ESPP, which became effective on June 27, 2012 and June 28, 2012, respectively. Our 2012 Plan provides for the grant of incentive stock options, nonqualified stock options, stock appreciation rights, RSUs, performance-based stockawards and other forms of equity compensation, or collectively, stock awards. In addition, the 2012 Plan provides for the grant of performance cash awards.Incentive stock options may be granted only to employees. All other awards may be granted to employees, including officers, as well as directors andconsultants. The share reserve may increase to the extent that outstanding stock options under the 2005 Plan expire or terminate unexercised. The share reservealso automatically increases76on January 1 of each year until January 1, 2022, by up to 5% of the total number of shares of the common stock outstanding on December 31 of the precedingyear as determined by the board of directors. As of December 31, 2013, there were 21,767,792 total shares of common stock authorized for issuance underthe 2012 Plan, excluding 7,017,730 shares of common stock automatically added to the 2012 Plan on January 1, 2014 pursuant to the provision described inthe preceding sentence. Our 2012 ESPP authorizes the issuance of shares of common stock pursuant to purchase rights granted to our employees. The number of shares ofcommon stock reserved for issuance automatically increases on January 1 of each year, from January 1, 2013 through January 1, 2022, by up to 1% of thetotal number of shares of the common stock outstanding on December 31 of the preceding year. The price at which common stock is purchased under the2012 ESPP is equal to 85% of the fair market value of the common stock on the first or last day of the offering period, whichever is lower. Offering periodsare six months long and begin on February 1 and August 1 of each year. As of December 31, 2013, we had 6,263,677 total shares of common stock reservedfor issuance under the 2012 ESPP, excluding 1,403,546 shares of common stock automatically added to the 2012 Plan on January 1, 2014.Stock Options The stock options are exercisable at a price equal to the market value of the underlying shares of common stock on the date of the grant as determined byour board of directors or, for those stock options issued subsequent to our IPO, the closing price of our common stock as reported on the New York StockExchange on the date of grant. Stock options granted under our 2005 Plan and the 2012 Plan to new employees generally vest 25% one year from the date therequisite service period begins and continue to vest monthly for each month of continued employment over the remaining three years. Options granted generallyare exercisable for a period of up to 10 years. Option holders under the 2005 Plan can exercise unvested options to acquire restricted stock. Upon termination ofservice, we have the right to repurchase at the original purchase price any unvested (but issued) shares of common stock. A summary of the stock option activity for the year ended December 31, 2013 is as follows: Number ofShares Weighted-AverageExercisePrice Weighted-AverageRemainingContractualTerm (Years) AggregateIntrinsic Value(in thousands)Outstanding at December 31, 201139,601,640 $2.20 Granted7,695,730 15.03 Exercised(6,654,558) 0.76 $84,215Canceled/forfeited(4,527,352) 3.35 Outstanding at December 31, 201236,115,460 5.05 Granted2,339,523 38.07 Exercised(12,951,123) 3.34 $446,054Canceled/forfeited(2,104,486) 7.66 Outstanding at December 31, 201323,399,374 $9.07 7.70 $1,097,746Vested and expected to vest as of December 31, 201322,304,397 $8.71 7.73 $1,054,997Vested and exercisable as of December 31, 20139,333,628 $4.43 7.30 $481,448 Aggregate intrinsic value represents the difference between the estimated fair value of our common stock and the exercise price of outstanding, in-the-money options. The total intrinsic value of the options exercised was $2.4 million and $7.5 million for the six months ended December 31, 2011 and fiscal2011, respectively. The weighted-average grant date per share fair value of options granted was $18.70, $7.68, $2.52 and $1.16 for the years endedDecember 31, 2013 and 2012, the six months ended December 31, 2011 and fiscal 2011, respectively. The total fair value of shares vested was $33.1 million,$19.2 million, $2.6 million and $2.0 million for the years ended December 31, 2013 and 2012, the six months ended December 31, 2011 and fiscal 2011,respectively. As of December 31, 2013, total unrecognized compensation cost, adjusted for estimated forfeitures, related to unvested stock options was approximately$75.3 million. The weighted-average remaining vesting period of unvested stock options at December 31, 2013 was 2.62 years. RSUs77Activity with respect to outstanding RSUs in the year ended December 31, 2013 was as follows: Number ofShares Weighted Average Grant DateFair Value(Per Share) AggregateFair Value(in thousands)Outstanding at December 31, 2011— $— Granted1,470,072 17.02 Vested— — $—Forfeited(12,202) 31.97 Outstanding at December 31, 20121,457,870 16.89 Granted4,558,929 38.15 Vested(322,623) 15.15 $13,510Forfeited(266,667) 30.65 Outstanding at December 31, 20135,427,509 $34.02 $303,995Expected to vest as of December 31, 20135,018,553 $281,089RSUs granted under the 2005 Plan and the 2012 Plan to employees generally vest annually over a four-year period. As of December 31, 2013, totalunrecognized compensation cost, adjusted for estimated forfeitures, related to unvested RSUs was approximately $145.7 million and the weighted-averageremaining vesting period was 3.51 years.(13) Stock-Based Compensation We use the Black-Scholes options pricing model to estimate the fair value of our stock option grants. This model incorporates various assumptionsincluding expected volatility, expected term, risk-free interest rates and expected dividend yields. The following assumptions were used for each respectiveperiod to calculate our stock-based compensation for each stock option grant on the date of the grant: Year Ended December 31,Six Months Ended December 31,Fiscal Year EndedJune 30, 20132012201120102011 (Unaudited)Stock Options: Expected volatility50% - 52% 53% - 57% 56% - 69% 57% - 67% 50% - 69%Expected term (in years)6.02 6.05 5.75 6.04 6.05Risk-free interest rate0.91% - 2.05% 0.83% - 1.18% 0% - 1.92% 1.43% - 2.06% 1.43% - 2.96%Dividend yield— — — — — The following assumptions were used to calculate our stock-based compensation for each stock purchase right granted under the 2012 ESPP: Year Ended December 31, 2013 2012 ESPP: Expected volatility35% - 42% 42%Expected term (in years)0.50 0.58Risk-free interest rate0.08% - 0.16% 0.16%Dividend yield— — Expected volatility. We use the historic volatility of publicly traded peer companies as an estimate for expected volatility. In considering peer companies,characteristics such as industry, stage of development, size and financial leverage are considered. We intend to continue to consistently apply this processusing the same or similar public companies until a sufficient amount of historical information regarding the volatility of our own common stock share pricebecomes available.78 Expected term. We estimate the expected term for stock options using the simplified method due to the lack of historical exercise activity for ourcompany. The simplified method calculates the expected term as the mid-point between the vesting date and the contractual expiration date of the award. Weestimate the expected term for ESPP using the purchase period. Risk-free interest rate. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for the expected term of thestock-based award. Expected dividend yield. Our expected dividend yield is zero, as we have not and do not currently intend to declare dividends in the foreseeable future. Fair value of common stock. Prior to our IPO in June 2012, the fair value of our common stock was determined by our board of directors, whichintended all options granted to be exercisable at a price per share not less than the per share fair value of the common stock underlying those options on the dateof grant. The valuations of our common stock were determined in accordance with the guidelines outlined in the American Institute of Certified PublicAccountants Practice Aid, Valuation of Privately-Held-Company Equity Securities Issued as Compensation. The assumptions used in the valuationmodel are based on future expectations combined with management judgment. From March 2010 until our IPO in June 2012, we utilized the probability weighted expected return method, or PWERM, approach to allocate value to ourcommon shares. The PWERM approach employs various market approach and income approach calculations depending upon the likelihood of variousliquidation scenarios. For each of the various scenarios, an equity value is estimated and the rights and preferences for each stockholder class are considered toallocate the equity value to common shares. The common share value is then multiplied by a discount factor reflecting the calculated discount rate and thetiming of the event. Lastly, the common share value is multiplied by an estimated probability for each scenario. The probability and timing of each scenariowas based upon discussions between our board of directors and our management team. Under the PWERM, the value of our common stock was based uponfour possible future events for our company: an IPO; a strategic merger or sale; remaining a private company; and dissolution. For stock options granted subsequent to our IPO, the fair value is based on the closing price of our common stock as reported on the New York StockExchange on the date of grant. (14) Net Income (Loss) Per Share Attributable to Common Stockholders The following tables present the calculation of basic and diluted net income (loss) per share attributable to common stockholders (in thousands, exceptshare and per share data): 79 Year Ended December 31,Six Months Ended December 31,Fiscal Year EndedJune 30, 20132012201120102011 (Unaudited)Numerator: Net income (loss)$(73,708) $(37,348) $(6,684) $4,803 $9,830Accretion of redeemable convertible preferred stock— (308) (312) (320) (633)Net income attributable to participating securities— — — (3,721) (7,558)Net income (loss) attributable to common stockholders—basic$(73,708) $(37,656) $(6,996) $762 $1,639Undistributed earnings reallocated to participatingsecurities$— $— $— $349 $671Net income (loss) attributable to common stockholders—diluted$(73,708) $(37,656) $(6,996) $1,111 $2,310Denominator: Weighted-average shares outstanding Basic135,415,809 73,908,631 21,104,219 17,156,445 18,163,977Effect of potentially dilutive securities: Common stock options— — — 10,465,912 9,931,509Weighted-average shares outstanding Diluted135,415,809 73,908,631 21,104,219 27,622,357 28,095,486Net income (loss) per share attributable to commonstockholders: Basic$(0.54) $(0.51) $(0.33) $0.04 $0.09Diluted$(0.54) $(0.51) $(0.33) $0.04 $0.08 Potentially dilutive securities that are not included in the calculation of diluted net income (loss) per share because doing so would be antidilutive are asfollows: Year Ended December 31, Six Months Ended December 31, Fiscal Year EndedJune 30, 2013 2012 2011 2010 2011 (Unaudited) Common stock options23,399,374 36,115,460 39,601,640 7,890,844 7,635,190Convertible preferred stock— — 83,703,016 83,703,016 83,703,016Restricted stock units5,427,509 1,457,870 — — —Common stock subject to repurchase91,504 235,066 578,616 — 83,551ESPP obligations226,093 435,945 — — —Convertible senior notes7,783,023 — — — —Warrants related to the issuance of convertible senior notes7,783,023 — — — —Total potentially dilutive securities44,710,526 38,244,341 123,883,272 91,593,860 91,421,757 (15) Income Taxes The provision for income taxes consists of the following (in thousands): 80 Year Ended December 31, Six Months Ended December 31, Fiscal Year EndedJune 30, 2013 2012 2011 2010 2011 (Unaudited) Current provision: Federal$2 $187 $325 $111 $62State287 200 396 449 988Foreign2,454 1,787 329 93 286 2,743 2,174 1,050 653 1,336Deferred provision: Federal— (55) 22 — —State— (5) 3 — —Foreign(232) (746) — — — (232) (806) 25 — —Provision for income taxes$2,511 $1,368 $1,075 $653 $1,336 The components of income (loss) from continuing operations before income taxes by U.S. and foreign jurisdictions were as follows (in thousands): Year Ended December 31, Six Months Ended December 31, Fiscal Year EndedJune 30, 2013 2012 2011 2010 2011 (Unaudited) United States$(35,901) $(7,903) $(1,375) $5,368 $10,585Foreign(35,296) (28,077) (4,234) 88 581Total$(71,197) $(35,980) $(5,609) $5,456 $11,166 The effective income tax rate differs from the federal statutory income tax rate applied to the income (loss) before provision for income taxes due to thefollowing (in thousands): Year Ended December 31, Six Months Ended December 31, Fiscal Year EndedJune 30, 2013 2012 2011 2010 2011 (Unaudited) Tax computed at U.S. federal statutory rate$(24,207) $(12,234) $(1,907) $1,857 $3,799State taxes, net of federal benefit148 329 82 122 250Tax rate differential for international subsidiaries14,542 10,743 1,589 (23) (47)Stock-based compensation3,447 3,926 978 244 727Tax credits(12,529) (1,056) (378) (150) (409)Tax contingencies76 452 178 74 171Non-deductible expenses550 532 244 120 305Change in state rate14 (68) 8 295 662Other242 (697) 146 379 344Valuation allowance20,228 (559) 135 (2,265) (4,466)Provision for income taxes$2,511 $1,368 $1,075 $653 $1,336Significant components of our deferred tax assets are shown below (in thousands). A valuation allowance has been recognized to offset our deferred taxassets, as necessary, by the amount of any tax benefits that, based on evidence, are not expected to be realized.81 December 31, 2013 2012Deferred tax assets: Net operating loss carryforwards$4,306 $2,647Deferred revenue3,739 2,421Accrued expenses2,549 1,357Deferred rent1,119 322Credit carryforwards14,871 2,342Facility exit obligation698 1,102Stock-based compensation15,464 7,474Note Hedge and others48,241 —Other1,448 1,367Total deferred tax assets92,435 19,032Less valuation allowance(25,795) (13,270) 66,640 5,762Deferred tax liabilities: Depreciation(9,608) (5,016)Convertible notes(54,817) —Purchased intangibles(1,239) —Net deferred tax assets$976 $746 As of December 31, 2013, we had U.S. federal net operating loss and federal tax credit carryforwards of approximately $364.9 million and $10.7million, respectively. The federal net operating loss carryforwards and federal tax credits will begin to expire in 2024 if not utilized. In addition, we had statenet operating loss and state tax credit carryforwards of approximately$192.6 million and $7.3 million, respectively. The state net operating loss and tax credit carryforwards will begin to expire in2018 if not utilized. Utilization of our net operating loss and credit carryforwards may be subject to annual limitation due to the ownership change limitationsprovided by the Internal Revenue Code and similar state provisions. Such an annual limitation could result in the expiration of the net operating loss and taxcredit carry forwards before utilization. Approximately $356.9 million of federal net operating losses and $164.8 million of state net operating losses relate to stock-based compensationdeductions in excess of book expense, the tax effect of which would be to credit additional paid-in capital, if realized. We maintain a full valuation allowance against our U.S. deferred tax assets as of December 31, 2013. We regularly assess the need for a valuationallowance against our deferred tax assets. In making that assessment, we consider both positive and negative evidence related to the likelihood of realization ofthe deferred tax assets to determine, based on the weight of available evidence, whether it is more likely than not that some or all of the deferred tax assets willnot be realized. Due to cumulative losses over recent years and based on all available evidence, we have determined that it is more likely than not that netdeferred tax assets in the U.S. will not be realized. We have determined that $1.0 million related to foreign deferred tax assets will be realized. The valuationallowance increased $12.5 million for the year ended December 31, 2013, decreased $0.6 million for the year ended December 31, 2012, increased $0.1million and decreased $2.2 million for the six months ended December 31, 2011 and 2010 (unaudited), respectively, and decreased $4.5 million for fiscal2011. The change in valuation allowance between the years ended December 31, 2013 and 2012 is primarily attributable to an increase of deferred tax liabilitiesrelated to purchased intangibles, the Notes and depreciation of fixed assets, and an increase of deferred tax assets resulting primarily from stock-basedcompensation, the extension of the federal research and development tax credit for the year ended December 31, 2013 and the Note Hedge. We will continue toassess the likelihood of realization of the deferred tax assets in each of the applicable jurisdictions in future periods and will adjust the valuation allowanceaccordingly. We have not recorded a provision for deferred U.S. tax expense that could result from the remittance of foreign undistributed earnings since we intend toreinvest the earnings of these foreign subsidiaries indefinitely. Our share of the undistributed earnings of foreign corporations not included in our consolidated federal income tax returns that could be subject toadditional U.S. income tax if remitted was approximately $0.5 million and $0.3 million as of December8231, 2013 and 2012, respectively. The determination of the amount of unrecognized U.S federal deferred income tax liability for undistributed earnings is notpracticable.A reconciliation of the beginning and ending balance of total unrecognized tax benefits is as follows (in thousands): Year Ended December 31, Six Months Ended December 31, Fiscal Year EndedJune 30, 2013 2012 2011 2010 2011 (Unaudited) Balance, beginning period$1,725 $710 $519 $374 $374Tax positions taken in prior period: Gross increases333 827 — — —Gross decreases(14) (65) — — —Tax positions taken in current period: Gross increases2,784 264 191 73 145Gross decreases— — — — —Lapse of statute of limitations(18) (11) — — —Balance, end of period$4,810 $1,725 $710 $447 $519 As of December 31, 2013, we had gross unrecognized tax benefits of approximately $4.8 million, of which $0.9 million would impact the effective taxrate, if recognized. We recognize accrued interest and penalties related to unrecognized tax benefits as income tax expense. Accrued interest and penaltiesincluded in our liability related to unrecognized tax benefits were $0.4 million at December 31, 2013 and 2012. The amount of unrecognized tax benefits couldbe reduced upon expiration of the applicable statutes of limitations. The potential reduction in unrecognized tax benefits during the next 12 months is notexpected to be material. Interest and penalties accrued on these uncertain tax positions will be released upon the expiration of the statutes of limitations and theseamounts are also not material. We are subject to taxation in the United States and foreign jurisdictions. As of December 31, 2013, our tax years of 2005 to 2013 remain subject toexamination in most jurisdictions. We are currently under examination by the U.S. Internal Revenue Service for the June 30, 2011 and December 31, 2011 taxyears.There are differing interpretations of tax laws and regulations, and as a result, disputes may arise with tax authorities involving issues of the timing andamount of deductions and allocations of income among various tax jurisdictions. We periodically evaluate our exposures associated with our tax filingpositions. We believe that adequate amounts have been reserved for any adjustments that may ultimately result from these examinations, and we do notanticipate a significant impact to our gross unrecognized tax benefits within the next twelve months related to these years. Although the timing of the resolution,settlement, and closure of any audit is highly uncertain, it is reasonably possible that the balance of gross unrecognized tax benefits could significantly changein the next twelve months. However, given the number of years that remain subject to examination, we are unable to estimate the full range of possibleadjustments to the balance of gross unrecognized tax benefits.(16) Related Party Transactions As part of our sale of Series C and Series D preferred stock, we recorded a liability of $5.3 million for withholding taxes associated with the repurchaseof our founder’s shares plus potential interest and penalties that may be imposed by the tax authorities. We recorded an offsetting receivable of $5.3 million inprepaid expenses and other current assets at June 30, 2010, representing the total amount that was subsequently paid to us by our founder in February 2012for these withholding taxes. In April 2012, we paid $5.3 million to the tax authorities for these withholding taxes. (17) Commitments and Contingencies Leases We lease facilities for data center capacity and office space under non-cancelable operating lease agreements with various expiration dates. Rent expenseassociated with data center leases, included in cost of revenues, was $9.5 million and $13.3 million for the years ended December 31, 2013 and 2012,respectively, $3.7 million and $2.1 million for the six months ended December 31, 2011 and 2010 (unaudited), respectively and $4.8 million for fiscal 2011.Rent expense associated with office space leases83was $8.1 million and $4.5 million for the years ended December 31, 2013 and 2012, respectively, $1.2 million and $0.5 million for the six months endedDecember 31, 2011 and 2010 (unaudited), respectively and $2.3 million for fiscal 2011. Annual future minimum payments under these operating leases as of December 31, 2013 (in thousands) are presented in the table below. Data Centers Office Leases TotalFiscal Period: 2014$9,797 $10,314 $20,11120156,989 13,629 20,61820162,831 14,222 17,0532017670 14,754 15,4242018636 13,776 14,412Thereafter680 51,270 51,950Total minimum lease payments$21,603 $117,965 $139,568 Future minimum lease payments under non-cancelable sublease of $3.7 million are included in the table above.In February 2012, we signed a lease for our new San Diego office that was subsequently amended in December 2013. The lease is for approximately155,443 square feet of office space with total minimum lease commitments of approximately $27.8 million. The lease commenced in August 2012 and willexpire in September 2022.During the year ended December 31, 2012, we relocated our San Diego office to another facility in San Diego. As part of this move, we incurred $2.5million in lease abandonment costs, which primarily consists of a loss on disposal of assets recorded upon vacating our prior facility in August 2012. Thelease on our prior San Diego facility does not expire until 2019. The cease-use loss was calculated as the present value of the remaining lease obligation offsetby estimated sublease rental receipts during the remaining lease period, adjusted for deferred items and estimated lease incentives. As of December 31, 2013and 2012, our facility exit obligation balance was $1.4 million and $2.3 million, respectively. The lease abandonment costs are included in general andadministrative expense on our consolidated statement of comprehensive income (loss).In September 2012, we signed a lease for a total of 43,590 square feet of office space located in Amsterdam. The square-footage for the first year isapproximately 17,857 and increases incrementally over the term of the lease, with total minimum lease commitments of approximately $10.5 million. Thelease commenced in October 2012 and has a term of 10.5 years. In November, 2012, we entered into a lease agreement for 148,704 square feet of office space located in San Jose. The lease commenced in April 2013and has a term of approximately 11 years. Rent is paid on a monthly basis and will increase incrementally over the term of the lease for total minimum leasepayments of approximately $48.8 million. Legal Proceedings From time to time, we are party to litigation and other legal proceedings in the ordinary course of business. While the results of any litigation or otherlegal proceedings are uncertain, management does not believe the ultimate resolution of any pending legal matters is likely to have a material adverse effect onour financial position, results of operations or cash flows, except as discussed below and for those matters for which we have recorded a loss contingency. Weaccrue for loss contingencies when it is both probable that we will incur the loss and when we can reasonably estimate the amount of the loss. Generally, our subscription agreements require us to indemnify our customers for third-party intellectual property infringement and other claims. Anyadverse determination related to intellectual property claims or other litigation could prevent us from offering our services and adversely affect our financialcondition and results of operations.On February 6, 2014, Hewlett-Packard Company filed a lawsuit against us in the U.S. District Court for the Northern District of California that allegesthat some of our services infringe the claims of eight of Hewlett-Packard's patents. Hewlett-Packard is seeking unspecified damages and an injunction. Weintend to vigorously defend this lawsuit. We cannot make a reasonable estimate of the potential loss or range of loss, if any, arising from this matter. (18) Information about Geographic Areas 84Revenues by geographic area, based on the billing location of the customer, were as follows for the periods presented (in thousands): Year Ended December 31, Six Months Ended December 31, Fiscal Year EndedJune 30, 2013 2012 2011 2010 2011 (Unaudited) Revenues by geography North America (1)$295,400 $173,001 $51,901 $27,919 $69,333EMEA (2)105,177 60,579 18,842 8,693 20,093Asia Pacific and other24,073 10,132 2,632 1,332 3,215Total revenues$424,650 $243,712 $73,375 $37,944 $92,641 (1) Revenues attributed to the United States were approximately 94% of North America revenues for each of the years ended December 31, 2013 and 2012, 92% and 97% for the sixmonths ended December 31, 2011 and 2010 (unaudited), respectively, and 96% for fiscal 2011.(2) Europe, the Middle East and Africa, or EMEALong-lived assets by geographic area were as follows (in thousands): December 31, 2013 2012Long-lived assets: North America$52,937 $30,209EMEA (1)18,017 10,513Asia Pacific and other4,606 1,620Total long-lived assets$75,560 $42,342 (1) Europe, the Middle East and Africa, or EMEAITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINACIALDISCLOSURENone.ITEM 9A.CONTROLS AND PROCEDURES(a) Evaluation of disclosure controls and proceduresOur management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosurecontrols and procedures as of December 31, 2013. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under theExchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in thereports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC's rulesand forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to bedisclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company's management,including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Managementrecognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives,and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.Based on the evaluation of our disclosure controls and procedures as of December 31, 2013, our Chief Executive Officer and Chief Financial Officerconcluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.(b) Management's Report on Internal Control Over Financial Reporting85Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and15d-15(f) under the Exchange Act) to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of consolidatedfinancial statements for external purposes in accordance with generally accepted accounting principles.Our management, under the supervision of our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of ourinternal control over financial reporting based on the framework in Internal Control—Integrated Framework (1992), issued by the Committee of SponsoringOrganizations of the Treadway Commission. Based on this evaluation, management concluded that our internal control over financial reporting was effectiveas of December 31, 2013.The effectiveness of our internal control over financial reporting as of December 31, 2013 has been audited by PricewaterhouseCoopers LLP, anindependent registered public accounting firm, as stated in their report which is included in Item 8 of this Annual Report on Form 10-K.(c) Changes in internal control over financial reportingThere were no changes in our internal control over financial reporting identified in management's evaluation pursuant to Rules 13a-15(d) or 15d-15(d) ofthe Exchange Act during the most recent fiscal quarter that materially affected, or are reasonably likely to materially affect, our internal control over financialreporting.ITEM 9B.OTHER INFORMATION Annual Meeting Date Our next Annual Meeting of Stockholders is scheduled for July 8, 2014. This date is more than 30 days after the 1 year anniversary of the 2013Annual Meeting. Any ServiceNow stockholder who intends to present a proposal at the annual meeting must submit the proposal, in writing, so thatServiceNow receives it at our principal executive offices by March 10, 2014 in order for the proposal to be included in our proxy statement and proxy for themeeting. Any ServiceNow stockholder who wishes to submit a proposal for the annual meeting, but does not seek to include it in our proxy materials, mustprovide written notice of the proposal to our Secretary, at our principal executive offices, between March 25, 2014 and April 24, 2014. In addition, ourstockholders must comply with the procedural requirements in our bylaws. Stockholders can obtain a copy of our bylaws from us upon request. The bylawsare also on file with the SEC. We reserve the right to reject, rule out of order or take other appropriate action with respect to any proposal that does not complywith these and other applicable requirementsPART IIIITEM 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCEThe information required by this item will be included in an amendment to this Annual Report on Form 10-K or incorporated by reference from ourdefinitive proxy statement to be filed pursuant to Regulation 14A.ITEM 11.EXECUTIVE COMPENSATIONThe information required by this item will be included in an amendment to this Annual Report on Form 10-K or incorporated by reference from ourdefinitive proxy statement to be filed pursuant to Regulation 14A.ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERMATTERSThe information required by this item will be included in an amendment to this Annual Report on Form 10-K or incorporated by reference from ourdefinitive proxy statement to be filed pursuant to Regulation 14A.ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCEThe information required by this item will be included in an amendment to this Annual Report on Form 10-K or incorporated by reference from ourdefinitive proxy statement to be filed pursuant to Regulation 14A.ITEM 14.PRINCIPAL ACCOUNTING FEES AND SERVICESThe information required by this item will be included in an amendment to this Annual Report on Form 10-K or incorporated by reference from ourdefinitive proxy statement to be filed pursuant to Regulation 14A.PART IVITEM 15.EXHIBITS AND FINANCIAL STATEMENT SCHEDULES The following documents are filed as a part of this Annual Report on Form 10-K:(a) Financial Statements86The information concerning our financial statements, and Report of Independent Registered Public Accounting Firm required by this Item is incorporatedby reference herein to the section of this Annual Report on Form 10-K in Item 8, entitled “Financial Statements and Supplementary Data.”(b) Financial Statement SchedulesAll schedules have been omitted because the required information is not present or not present in amounts sufficient to require submission of theschedules, or because the information required is included in the Consolidated Financial Statements or notes thereto.(c) Exhibits. The list of exhibits filed with this report is set forth in the Exhibit Index following the signature pages and is incorporated herein by reference.SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on itsbehalf by the undersigned thereunto duly authorized.Dated: February 28, 2014 SERVICENOW, INC. By: /s/ Frank Slootman Frank SlootmanPresident and Chief Executive Officer POWER OF ATTORNEYKNOW ALL BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Frank Slootman and Michael P.Scarpelli, and each of them, as his true and lawful attorneys-in-fact and agents, each with the full power of substitution, for him and in his name, place orstead, in any and all capacities, to sign any and all amendments to this report, and to file the same, with exhibits thereto and other documents in connectiontherewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to doand perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might orcould do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or their or his substitute or substitutes, may lawfully do orcause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this report has been signed by the following persons in the capacities and on the datesindicated.Signature Title Date /s/ Frank Slootman President, Chief Executive Officer and Director(Principal Executive Officer) February 28, 2014Frank Slootman /s/ Michael P. Scarpelli Chief Financial Officer(Principal Financial Officer and Principal AccountingOfficer) February 28, 2014Michael P. Scarpelli /s/ Frederic B. Luddy Chief Product Officer and Director February 28, 2014Frederic B. Luddy /s/ Paul V. Barber Director February 28, 2014Paul V. Barber /s/ Ronald E.F. Codd Director February 28, 2014Ronald E. F. Codd /s/ Charles Giancarlo Director February 28, 2014Charles Giancarlo /s/ Douglas M. Leone Director February 28, 2014Douglas M. Leone /s/ Jeffrey A. Miller Director February 28, 2014Jeffrey A. Miller /s/ Charles E. Noell, III Director February 28, 2014Charles E. Noell, III /s/ William L. Strauss Director February 28, 2014William L. Strauss EXHIBIT INDEXExhibitNumberDescription of Document Incorporated by Reference FiledHerewithForm File No. Exhibit Filing Date 3.1Restated Certificate of Incorporation. 10-Q 001-35580 3.1 8/10/2012 3.2Restated Bylaws. S-1 333-180486 3.4 5/4/2012 4.1Form of Common Stock Certificate. S-1 333-180486 4.1 6/19/2012 4.2Third Amended and Restated Investors RightsAgreement dated November 25, 2009 among theRegistrant and certain of its stockholders, as amended. S-1 333-180486 4.2 3/30/2012 4.3Indenture dated November 13, 2013 betweenServiceNow, Inc. and Wells Fargo Bank, NationalAssociation. 8-K 001-35580 4.1 11/13/2013 10.1*Form of Indemnification Agreement. S-1 333-180486 10.1 6/19/2012 10.2*2005 Stock Plan, Forms of Stock Option Agreementand Form of Restricted Stock Unit Agreementthereunder. S-1 333-180486 10.2 3/30/2012 10.3*2012 Equity Incentive Plan, Forms of Stock OptionAward Agreement, Restricted Stock Agreement, StockAppreciation Right Award Agreement and RestrictedStock Unit Award Agreement thereunder. S-1 333-180486 10.3 6/19/2012 10.4*2012 Employee Stock Purchase Plan and Form ofSubscription Agreement thereunder. 10-K 001-32224 10.4 3/8/2013 10.5*Employment Agreement dated May 2, 2011 among theRegistrant and Frank Slootman. S-1 333-180486 10.5 3/30/2012 10.6*Employment Agreement dated May 12, 2011 amongthe Registrant and Michael P. Scarpelli. S-1 333-180486 10.6 3/30/2012 10.7*Employment Agreement dated May 21, 2011 amongthe Registrant and David L. Schneider. S-1 333-180486 10.7 3/30/2012 10.8*Employment Agreement dated August 1, 2011 amongthe Registrant and Daniel R. McGee. S-1 333-180486 10.8 3/30/2012 10.9Office Lease dated February 14, 2012 between theRegistrant and The Irvine Company LLC. S-1 333-180486 10.11 3/30/2012 10.10Lease Agreement dated November 8, 2012 between theRegistrant and Jay Ridge LLC. S-1 333-184674 10.12 11/9/2012 10.11Form of Base Convertible Note Hedge TransactionConfirmation. 8-K 001-32224 99.1 11/13/2013 10.12Form of Base Warrant Transaction Confirmation. 8-K 001-32224 99.2 11/13/2013 10.13Form of Additional Convertible Note HedgeTransaction Confirmation. 8-K 001-32224 99.3 11/13/2013 10.14Form of Additional Warrant TransactionConfirmation. 8-K 001-32224 99.4 11/13/2013 10.15First Amendment dated December 30, 2013 to LeaseAgreement dated February 14, 2012 between theRegistrant and the Irvine Company LLC. x10.16Second Amendment dated February 13, 2014 to LeaseAgreement dated February 14, 2012 between theRegistrant and the Irvine Company LLC. x21.1Subsidiaries of the Registrant. xExhibitNumberDescription of Document Incorporated by Reference FiledHerewithForm File No. Exhibit Filing Date 23.1Consent of independent registered public accountingfirm. x24.1Power of Attorney. Reference is made to the signaturepage hereto. x31.1Certification of Periodic Report by Chief ExecutiveOfficer under Section 302 of the Sarbanes-Oxley Act of2002 x31.2Certification of Periodic Report by Chief FinancialOfficer under Section 302 of the Sarbanes-Oxley Act of2002 x32.1Certification of Chief Executive Officer Pursuant to 18U.S.C. Section 1350 as Adopted Pursuant toSection 906 of the Sarbanes-Oxley Act of 2002 x32.2Certification of Chief Financial Officer Pursuant to 18U.S.C. Section 1350 as Adopted Pursuant toSection 906 of the Sarbanes-Oxley Act of 2002 x101.INSXBRL Instance Document x101.SCHXBRL Taxonomy Schema Linkbase Document x101.CALXBRL Taxonomy Calculation Linkbase Document x101.DEFXBRL Taxonomy Definition Linkbase Document x101.LABXBRL Taxonomy Labels Linkbase Document x101.PREXBRL Taxonomy Presentation Linkbase Document x*Indicates a management contract, compensatory plan or arrangement.EXHIBIT 10.15FIRST AMENDMENTTHIS FIRST AMENDMENT (the "Amendment") is made and entered into as of December 30, 2013, by and between THE IRVINECOMPANY LLC, Delaware limited liability company ("Landlord") and ServiceNow, Inc., a Delaware corporation (“Tenant”).RECITALSA.Landlord and Tenant (as successor in interest to Service-Now.Com, a California corporation) are parties to that certain lease datedFebruary 14, 2012 (the "Lease"). Pursuant to the Lease, Landlord has leased to Tenant space currently containing approximately94,543 rentable square feet (the “Original Premises”) described as Suite Nos. 100, 200 and 300 at the building located at 4810Eastgate Mall, San Diego, CA 92121 (the "Building").B.Tenant has requested that additional space containing approximately 60,900 rentable square feet described as Suite No. 100 at thebuilding located at 4770 Eastgate Mall, San Diego, CA 92121 (the “4770 Building”) shown on Exhibit A hereto (the “ExpansionSpace”) be added to the Original Premises and that the Lease be appropriately amended and Landlord is willing to do the same onthe following terms and conditions.C.The Lease by its terms shall expire on August 31, 2020 ("Prior Expiration Date"), and the parties desire to extend the Term of theLease, all on the following terms and conditions.NOW, THEREFORE, in consideration of the above recitals which by this reference are incorporated herein, the mutual covenantsand conditions contained herein and other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Landlordand Tenant agree as follows:I.Expansion and Effective Date.A.The Term for the Expansion Space shall commence (“Expansion Effective Date”) on the later of (a) the date theExpansion Space is deemed ready for occupancy pursuant to Section I.B below, or (b) October 1, 2014 (“EstimatedExpansion Effective Date”), and shall expire upon the Extended Expiration Date (hereinafter defined). Promptly followingrequest by Landlord, the parties shall memorialize on a form provided by Landlord (the "Expansion Effective DateMemorandum") the actual Expansion Effective Date; should Tenant fail to execute and return the Expansion Effective DateMemorandum to Landlord within ten (10) business days (or provide specific written objections thereto within that period),then Landlord's determination of the Expansion Effective Date as set forth in the Expansion Effective Date Memorandumshall be conclusive. Effective as of the Expansion Effective Date, the “Premises,” as defined in the Lease, shall be increasedfrom 94,543 rentable square feet at the Building to 155,443 rentable square feet at the Building and 4770 Building.B.Delay in Possession. If Landlord, for any reason whatsoever, cannot deliver possession of Expansion Space to Tenant on orbefore the Expansion Effective Date set forth in Section I.A above, this Amendment shall not be void or voidable nor shallLandlord be liable to Tenant for any resulting loss or damage. However, Tenant shall not be liable for any rent for theExpansion Space and the Expansion Effective Date shall not occur until Landlord delivers possession of the ExpansionSpace and the Expansion Space is in fact ready for occupancy as defined below, except that if Landlord’s failure to so deliverpossession is attributable to any action or inaction by Tenant (including without limitation any Tenant Delay described in theWork Letter, if any, attached to this Amendment), then the Expansion Space shall be deemed ready for occupancy, andLandlord shall be entitled to full performance by Tenant (including the payment of rent), as of the date Landlord would havebeen able to deliver the Expansion Space to Tenant but for Tenant’s delay(s). Subject to the foregoing, The Expansion Spaceshall be deemed “ready for occupancy” when Landlord, to the extent applicable, has substantially completed all the workrequired to be completed by Landlord pursuant to the Work Letter attached to this Amendment but for minor punch listmatters which will be completed within 30 days after substantial completion (or commence to complete if it cannot bereasonably completed within 30 days) of the Tenant Improvements, and has obtained the requisite governmental approvalsfor Tenant’s occupancy in connection with such work. II.Extension. The Term of the Lease is hereby extended and shall expire on September 30, 2022 ("Extended Expiration Date"),unless sooner terminated in accordance with the terms of the Lease. That portion of the Term commencing the day immediatelyfollowing the Prior Expiration Date ("Extension Date") and ending on the Extended Expiration Date shall be referred to herein asthe "Extended Term".III.Basic Rent.A.Original Premises From and After Extension Date. As of the Extension Date, the schedule of Basic Rent payable withrespect to the Original Premises during the Extended Term is the following:Months of Term or PeriodMonthly Rate PerSquare FootMonthly Basic Rent9/1/20-9/30/21$2.08$196,649.0010/1/21-9/30/22$2.18$206,104.00All such Basic Rent shall be payable by Tenant in accordance with the terms of the Lease.B.Expansion Space From Expansion Effective Date Through Extended Expiration Date. As of the Expansion EffectiveDate, the schedule of Basic Rent payable with respect to the Expansion Space for the balance of the original Term and theExtended Term is the following:Months of Term or PeriodMonthly Rate PerSquare FootMonthly Basic Rent10/1/14-9/30/15$1.254$56,430.00*10/1/15-3/31/16$1.319$59,355.00*4/1/16-9/30/16$1.339$66,950.00**10/1/16-9/30/17$1.58$96,222.0010/1/17-9/30/18$1.65$100,485.0010/1/18-9/30/19$1.73$105,357.0010/1/19-9/30/20$1.81$110,229.0010/1/20-9/30/21$1.89$115,101.0010/1/21-9/30/22$1.97$119,973.00*Based on 45,000 rentable square feet**Based on 50,000 rentable square feetAll such Basic Rent shall be payable by Tenant in accordance with the terms of the Lease, provided that the first installmentof Basic Rent at the initial rate specified above shall be delivered to Landlord concurrently with Tenant’s execution of thisAmendment and shall be applied against the Basic Rent first due hereunder.Notwithstanding the above schedule of Basic Rent to the contrary, as long as Tenant is not in Default under the Lease,Tenant shall be entitled to an abatement of 3 full calendar months of Basic Rent in the aggregate amount of $169,290.00(i.e. $56,430.00 per month) (the “Expansion Space Abated Basic Rent”) for the 2nd through 4th full calendar monthsfollowing the Expansion Effective Date (the “Expansion Space Abatement Period”). Only Basic Rent shall be abatedduring the Expansion Space Abatement Period and all other additional rent and other costs and charges specified in theLease shall remain as due and payable pursuant to the provisions of the Lease.Landlord and Tenant acknowledge that the foregoing schedule is based on the assumption that the Expansion Effective Dateis the Estimated Expansion Effective Date. If the Expansion Effective Date is other than the Estimated Expansion EffectiveDate, the schedule set forth above with respect to the payment of any installment(s) of Basic Rent for the Expansion Spaceshall be appropriately adjusted on a per diem basis to reflect the actual Expansion Effective Date, and the actual ExpansionEffective Date shall be set forth in the Expansion Effective Date Memorandum. The effective date of anyincreases or decreases in the Basic Rent rate shall be postponed as a result of an adjustment of the Expansion EffectiveDate as provided above.IV.Project Costs and Property Taxes.A.Original Premises for the Extended Term. Tenant shall be obligated to pay Tenant’s Share of Project Costs and PropertyTaxes accruing in connection with the Original Premises in accordance with the terms of the Lease through the ExtendedTerm.B.Expansion Space From Expansion Effective Date Through Extended Expiration Date. Tenant shall be obligated topay Tenant’s Share of Project Costs and Property Taxes accruing in connection with the Expansion Space in accordancewith the terms of the Lease through the Extended Term.V.Letter of Credit. Concurrently with Tenant’s delivery of this Amendment, Tenant shall deliver the sum of $58,645.00 to Landlord,which sum shall be added to the letter of credit presently being held by Landlord in accordance with Section 4.3 of the Lease.Accordingly, the letter of credit is increased from $191,355.00 to $250,000.00. Tenant may either amend its current letter of credit orsubmit a new letter of credit in the amount of $250,000.00, in which case Landlord will simultaneously return to Tenant the existingletter of credit in the amount of $191,355.00.VI.Improvements to Expansion Space.A.Condition of Expansion Space. Tenant has inspected the Expansion Space and, except for the Tenant Improvementsdescribed in Exhibit B of this Amendment, agrees to accept the same "as is" without any agreements, representations,understandings or obligations on the part of Landlord to perform any alterations, repairs or improvements, except as may beexpressly provided otherwise in this Amendment.B.Tenant Improvements. Landlord hereby agrees to complete the Tenant Improvements for the Expansion Space inaccordance with the provisions of Exhibit B, Work Letter, attached hereto.C. Landlord Responsibilities.(1)Landlord will deliver the Expansion Space and Parking Area for the 4770 Building in conformance with theprovisions of Title III of the Americans With Disabilities Act (“ADA”) and in compliance with all life safety, Title 24and seismic codes. Said costs of compliance shall be Landlord’s sole cost and expense and shall not be part ofProject Costs. Landlord shall correct, repair or replace any non-compliance of the 4770 Building (including anyrestrooms) and the Common Areas with any revisions or amendments to applicable building codes, including theADA, becoming effective after the Commencement Date, provided that the amortized cost of such repairs orreplacements (amortized over the useful life thereof) shall be included as Project Costs payable by Tenant. All otherADA compliance issues which pertain to the Expansion Space after the Expansion Effective Date in connectionwith Tenant’s construction of any future Alterations or other improvements in the Expansion Space and theoperation of Tenant’s business and employment practices in the Expansion Space, shall be the responsibility ofTenant at its sole cost and expense. The repairs, corrections or replacements required of Landlord or of Tenantunder the foregoing provisions of this Section shall be made promptly following notice of non-compliance from anyapplicable governmental agency.(2)Landlord warrants to Tenant that the roof, plumbing, fire sprinkler system, lighting, heating, ventilation and airconditioning systems and electrical systems serving the Expansion Space and Parking Area for the 4770 Buildingshall be in good operating condition on the Expansion Effective Date. Landlord shall correct all HVAC deficienciesprior to the Expansion Effective Date as delineated in the Alpha Mechanical, Inc. report dated November 27, 2013and attached hereto as Exhibit C-1 and the National Air & Energy report dated December 16, 2013 and attachedhereto as Exhibit C-2. In addition, Landlord shall correct the roof deficiencies in the Irvine Company roof reportdated June 3, 2013 and attached hereto as Exhibit C-3 and the Hess Roofing Inc. roof report dated December 18,2013 and attached hereto as Exhibit C-4with the exception that Landlord shall complete the one-time repair work only (as referenced in the Hess RoofingInc. report) and that Landlord shall have the option to complete such work itself. Provided that Tenant shall notifyLandlord of a non-compliance with the foregoing warranty not later than 6 months following the Expansion EffectiveDate and further provided that such condition was not caused by Tenant, its agents, employees or contractors, thenLandlord shall, except as otherwise provided in the Lease or this Amendment, promptly after receipt of writtennotice from Tenant setting forth the nature and extent of such non-compliance, rectify same at Landlord’s sole costand expense (and not as a Project Cost). Landlord will cause any existing warranties Landlord has or will have forthe above items to be assigned to Tenant.(3)Landlord shall correct, repair and/or replace, at its sole cost and expense and not as a Project Cost, the structuralcomponents of the roof, the load-bearing walls and the foundations and footings of the 4770 Building serving theExpansion Space. Notwithstanding the foregoing, Landlord’s obligation contained in this Section to bear such costsand expenses shall not apply: (i) to the cost of replacing the roof membrane and accompanying roof materials asand when such replacement is required, nor (ii) to the extent of the negligence or willful misconduct by Tenant, itsemployees, agents, contractors, licensees or invitees (in which case Tenant shall be responsible for the reasonablecosts of such repairs and/or replacements). The repairs or replacements required of Landlord pursuant to thisSection shall be made promptly following notice from Tenant.VII.Other Pertinent Provisions. Landlord and Tenant agree that, effective as of the date of this Amendment (unless different effectivedate(s) is/are specifically referenced in this Section), the Lease shall be amended in the following additional respects:A.Parking. Notwithstanding any contrary provision in Exhibit F to the Lease, “Parking,” (i) effective as of the ExpansionEffective Date, Landlord shall lease to Tenant, and Tenant shall lease from Landlord, an additional 239 unreserved parkingpasses and 5 stenciled visitor parking spaces near the front main lobby area of the 4770 Building for the Expansion Space atno charge through the Extended Expiration Date and (ii) effective as of the Extension Date Landlord shall continue to leaseto Tenant, and Tenant shall continue to lease from Landlord, 402 unreserved parking passes and 5 stenciled visitor parkingspaces located in the front main lobby area of the Building for the Original Premises at no charge through the ExtendedExpiration Date.B.Right to Extend. Section 3 of Exhibit G shall remain in full force and effect during the Extended Term.C.Right of First Offer. The “First Right Space” defined in the first sentence of Section 4 of Exhibit G of the Lease shall beamended by deleting “(i) approximately 47,000 rentable square feet of office space at the building known as 4760 EastgateMall and (ii) approximately 65,000 rentable square feet of office space at the building known as 4820 Eastgate Mall” andsubstituting “approximately 47,000 rentable square feet of office space at the building known as 4760 Eastgate Mall” in lieuthereof. Except as modified herein, Section 4 of Exhibit G shall remain in full force and effect.D.Right of First Refusal. Provided Tenant is not then in Default hereunder beyond any applicable cure period, Tenant shallhave a one-time right (“First Refusal Right”) to lease approximately 65,000 rentable square feet of office space at thebuilding known as 4820 Eastgate Mall as shown on the attached Exhibit D (“First Refusal Space”) in accordance withand subject to the provisions of this Section. Following the receipt by Landlord of a bona fide letter of intent, then providedLandlord intends to pursue such leasing opportunity, Landlord shall give Tenant written notice (“First Refusal Notice”) ofthe basic economic terms, including but not limited to the Basic Rent, term, operating expense base, security deposit, andtenant improvement allowance (collectively, the “Economic Terms”), upon which Landlord intends to lease such FirstRefusal Space to the applicable third party; provided that the Economic Terms shall exclude brokerage commissions andother Landlord payments that do not directly inure to the tenant’s benefit. It is understood that should Landlord intend tolease other office space in addition to the First Refusal Space as part of a single transaction, then the First Refusal Noticeshall so provide and all such space shall collectively be subject to the following provisions. Within 7 business days afterreceipt of the First Refusal Notice, Tenant may, by written notice to Landlord, elect to lease all, but not less than all, of thespace specified in the First RefusalNotice (the “Designated First Refusal Space”) upon such Economic Terms and the same non-Economic Terms as setforth in the Lease. In the event that Tenant does not timely commit in writing to lease the Designated First Refusal Spaceon the foregoing terms, then Landlord shall be free to lease same thereafter without any constraint, and Tenant shall haveno further rights to any such Designated First Refusal Space unless Landlord fails to enter into the Lease per the presentedletter of intent. Should Tenant timely elect to lease the Designated First Refusal Space, then Landlord shall promptlyprepare and deliver to Tenant an amendment to the Lease consistent with the foregoing, and Tenant shall execute andreturn same to Landlord within 10 days. Tenant’s failure to timely return the amendment shall entitle Landlord tospecifically enforce Tenant’s commitment to lease the Designated First Refusal Space, to lease such space to a third partywithout any obligation pursuant to this Section, and/or to pursue any other available legal remedy. Tenant’s rights underthis Section shall be personal to the original Tenant named in the Lease and may not be assigned or transferred (except inconnection with a Permitted Transfer as described in Section 9.1(e) of the Lease). Any other attempted assignment ortransfer shall be void and of no force or effect.E.Exterior/Monument Signage for 4770 Building. Tenant shall have the right to install: (i) two (2) exterior 4770 Buildingtop signs as follows (one facing Eastgate Mall and one above the lobby entrance or to the side of the lobby entrance facingwest) and (ii) one (1) non-exclusive monument sign facing Eastgate Mall (collectively the “4770 Building ExteriorSignage”) on the monument sign located either on 1A1 or 1A2 as delineated in Exhibit E attached hereto in addition toTenant’s one (1) non-exclusive monument sign for the 4810 Eastgate Mall building on the monument sign located at 1.1 asdelineated in Exhibit E attached hereto. F.Tenant’s Security System. Tenant shall have the right to install its own security system at the 4770 Building inaccordance with the terms set forth in Section 6 of Exhibit G of the Lease.G.Satellite Dish. Tenant shall have the right to maintain and operate within an area designated by Landlord on the roof of the4770 Building communication equipment at a location determined by Landlord (of which the height, appearance andinstallation procedures must be approved in writing by Landlord) in accordance with and subject to the terms set forth inSection 7 of Exhibit G of the Lease.H.Supplemental HVAC Unit. Tenant shall have the right to install and maintain up to 2 supplemental air condition units ormore subject to Landlord’s approval, which approval shall not be unreasonably withheld, servicing the Expansion Space onthe roof of the 4770 Building in accordance with Section 8 of Exhibit G of the Lease.I.SDN List. Tenant hereby represents and warrants that neither Tenant nor any officer, director, employee, partner, memberor other principal of Tenant (collectively, "Tenant Parties") is listed as a Specially Designated National and Blocked Person("SDN") on the list of such persons and entities issued by the U.S. Treasury Office of Foreign Assets Control (“OFAC”). Inthe event Tenant or any Tenant Party is or becomes listed as an SDN, Tenant shall be deemed in breach of this Lease andLandlord shall have the right to terminate the Lease immediately upon written notice to Tenant.VIII. GENERAL.A.Effect of Amendments. The Lease shall remain in full force and effect except to the extent that it is modified by thisAmendment.B.Entire Agreement. This Amendment embodies the entire understanding between Landlord and Tenant and can bechanged only by a writing signed by Landlord and Tenant.C.Counterparts; Digital Signatures. If this Amendment is executed in counterparts, each is hereby declared to be anoriginal; all, however, shall constitute but one and the same amendment. In any action or proceeding, any photographic,photostatic, or other copy of this Amendment may be introduced into evidence without foundation. The parties agree toaccept a digital image (including but not limited to an image in the form of a PDF, JPEG, GIF file, or other e-signature) ofthis Amendment, if applicable, reflecting the execution of one or both of the parties, as a true and correct original.D.Notice. Paragraph 12 of the Basic Lease Provisions are changed to the following:To the Premises:ServiceNow, Inc.4810 Eastgate MallSan Diego, CA 92121With a copy to:ServiceNow, Inc.3260 Jay StreetSanta Clara, CA 95054Attn: CFOAttn: Director of Real EstateE.Defined Terms. All words commencing with initial capital letters in this Amendment and defined in the Lease shall havethe same meaning in this Amendment as in the Lease, unless they are otherwise defined in this Amendment.F.Authority. If Tenant is a corporation, limited liability company or partnership, or is comprised of any of them, eachindividual executing this Amendment for the corporation, limited liability company or partnership represents that he or sheis duly authorized to execute and deliver this Amendment on behalf of such entity and that this Amendment is binding uponsuch entity in accordance with its terms.G.Attorneys' Fees. The provisions of the Lease respecting payment of attorneys' fees shall also apply to this Amendment.A.Execution of Amendment. Submission of this Amendment by Landlord is not an offer to enter into this Amendment but ratheris a solicitation for such an offer by Tenant. Landlord shall not be bound by this Amendment until Landlord has executed anddelivered the same to Tenant.[SIGNATURES ARE ON FOLLOWING PAGE]IN WITNESS WHEREOF, Landlord and Tenant have duly executed this Amendment as of the day and year first above written.LANDLORD:TENANT: THE IRVINE COMPANY LLC,a Delaware limited liability companyBy: /s/ Ray Wirtha Ray Wirta President, IPGBy: /s/ Douglas G. Holte Douglas G. Holte President, Office PropertiesServiceNow, Inc.,a Delaware corporationBy:/s/ Michael P. Scarpelli Printed Name: Michael P. Scarpelli Title: CFO By:_________________________________Printed Name:________________________Title:________________________________EXHIBIT AOUTLINE AND LOCATION OF EXPANSION SPACE4770 Eastgate Mall EXHIBIT BWORK LETTERAs used in this Work Letter, the “Premises” shall be deemed to mean the Expansion Space, as defined in the attached Amendment.The Tenant Improvement work (herein “Tenant Improvements”) shall consist of any work required to complete the Premises pursuant toplans and specifications approved by both Landlord and Tenant. All of the Tenant Improvement work shall be performed by a contractorengaged by Landlord and selected on the basis of competitive bids submitted by 3 general contractors designated by Landlord and reasonablyapproved by Tenant. The work shall be undertaken in accordance with the procedures and requirements set forth below.I. ARCHITECTURAL AND CONSTRUCTION PROCEDURESA.Tenant has approved, or shall approve within the time period set forth below, a detailed space plan for the Premises,prepared by the architect engaged by Landlord for the work described herein (“Landlord’s Architect”), which includesinterior partitions, ceilings, interior finishes, interior office doors, suite entrance, floor coverings, window coverings, lighting,electrical and telephone outlets, plumbing connections, heavy floor loads and other special requirements (“PreliminaryPlan”), and (ii) an estimate, prepared by the contractor engaged by Landlord for the work herein (“Landlord’s Contractor”),of the cost for which Landlord will complete or cause to be completed the Tenant Improvements (“Preliminary CostEstimate”). Tenant shall approve or disapprove the Preliminary Plan by signing and delivering same to Landlord within 3business days of its receipt by Tenant. If Tenant disapproves any matter, Tenant shall specify in detail the reasons fordisapproval and Landlord shall attempt to modify the Preliminary Plan to incorporate Tenant’s suggested revisions in amutually satisfactory manner. Notwithstanding the foregoing, however, Tenant shall approve in all respects a PreliminaryPlan not later than February 28, 2014 (“Plan Approval Date”), it being understood that Tenant’s failure to do so shallconstitute a “Tenant Delay” for purposes of this Lease.B.On or before the Plan Approval Date, Tenant shall provide in writing to Landlord or Landlord’s Architect all specifications andinformation requested by Landlord for the preparation of final construction documents and costing, including withoutlimitation Tenant’s final selection of wall and floor finishes, complete specifications and locations (including load and HVACrequirements) of Tenant’s equipment, and details of all other non-building standard improvements to be installed in thePremises (collectively, “Programming Information”). Tenant’s failure to provide the Programming Information by the PlanApproval Date shall constitute a Tenant Delay for purposes of this Lease . Tenant understands that final constructiondocuments for the Tenant Improvements shall be predicated on the Programming Information, and accordingly that suchinformation must be accurate and complete.C.Upon Tenant’s approval of the Preliminary Plan and Preliminary Cost Estimate and delivery of the complete ProgrammingInformation, Landlord’s Architect and engineers shall prepare and deliver to the parties working drawings and specifications(“Working Drawings and Specifications”), and Landlord’s Contractor shall prepare a final construction cost estimate (“Final Cost Estimate”) for the Tenant Improvements in conformity with the Working Drawings and Specifications. Tenantshall have 5 business days from the receipt thereof to approve or disapprove the Working Drawings and Specifications andthe Final Cost Estimate, and any disapproval or requested modification shall be limited to items not contained in theapproved Preliminary Plan or Preliminary Cost Estimate. Tenant shall also have the right to change the plans if it finds thecosts do not meet the Landlord Contribution. Should Tenant disapprove the Working Drawings and Specifications and theFinal Cost Estimate, such disapproval shall be accompanied by a detailed list of revisions. Any revision requested by Tenantand accepted by Landlord shall be incorporated by Landlord’s Architect into a revised set of Working Drawings andSpecifications and Final Cost Estimate, and Tenant shall approve same in writing within 3 business days of receipt withoutfurther revision. Tenant’s failure to comply in a timely manner with any of the requirements of this paragraph shallconstitute a Tenant Delay. Tenant shall approve both the Working Drawings and Specifications and the Final Cost Estimatewithin 100 days following the date of this Amendment, provided this Amendment is executed by Tenant and returned toLandlord by December 31, 2013. Without limiting the rights of Landlord for Tenant Delays as set forth herein,in the event Tenant has not approved both the Working Drawings and Specifications and Final Cost Estimate by April 30,2014, then such delay shall constitute a Tenant Delay, or, Landlord may, at its option, elect to terminate this Amendment bywritten notice to Tenant. In the event Landlord elects to effect such a termination, Tenant shall, within 10 days followingdemand by Landlord, pay to Landlord any costs incurred by Landlord in connection with the preparation or review of plans,construction estimates, price quotations, drawings or specifications under this Work Letter and for all costs incurred in thepreparation and execution of this Lease, including any leasing commissions.D.It is understood that the Preliminary Plan and the Working Drawings and Specifications, together with any Changesthereto, shall be subject to the prior approval of Landlord. Landlord shall identify any disapproved items within 3 businessdays (or 2 business days in the case of Changes) after receipt of the applicable document. Should Landlord approve workthat would necessitate any ancillary Building modification or other expenditure by Landlord, then except to the extent of anyremaining balance of the “Landlord Contribution” as described below, Tenant shall, in addition to its other obligations herein,fund the cost thereof to Landlord as follows: (i) 33% by June 1, 2014, (ii) 33% upon 50% of the completion of the TenantImprovements and (iii) the remaining balance upon substantial completion of the Tenant Improvements. All payments shallbe made to Landlord within 30 days upon receipt of invoices.E.Upon approval of the Working Drawings and Specifications, Landlord shall submit them to competitive bid as providedabove. Each bidding contractor shall use the electrical, mechanical, plumbing and fire/life safety engineers andsubcontractors designated by Landlord. All other subcontractors shall be subject to Landlord’s reasonable approval, andLandlord may require that one or more designated subtrades be union contractors. The lowest responsible bidder orotherwise as requested by Tenant shall be selected as Landlord’s general contractor and the bid amount shall be deemed the“Final Cost Estimate” for purposes hereof.F.In the event that Tenant requests in writing a revision in the approved Working Drawings and Specifications (“Change”),then provided such Change is acceptable to Landlord, Landlord shall advise Tenant by written change order as soon as ispractical of any increase in the Completion Cost and/or any Tenant Delay such Change would cause. Tenant shall approveor disapprove such change order in writing within 2 business days following its receipt from Landlord. It is understood thatLandlord shall have no obligation to interrupt or modify the Tenant Improvement work pending Tenant’s approval of achange order.G.Notwithstanding any provision in the Lease to the contrary, if Tenant fails to comply with any of the time periods specified inthis Work Letter, fails otherwise to approve or reasonably disapprove any submittal within 3 business days, fails to approvein writing the Preliminary Plan by the Plan Approval Date, fails to provide all of the Programming Information requested byLandlord by the Plan Approval Date, fails to approve in writing the Working Drawings and Specifications within the timeprovided herein, requests any Changes, fails to make timely payment of any sum due hereunder, furnishes inaccurate orerroneous specifications or other information, or otherwise delays in any manner the completion of the TenantImprovements (including without limitation by specifying materials that are not readily available) or the issuance of anoccupancy certificate (any of the foregoing being referred to in this Lease as “Tenant Delay”), then Tenant shall bear anyresulting additional construction cost or other expenses, and the Commencement Date shall be deemed to have occurred forall purposes, including Tenant’s obligation to pay Rent, as of the date Landlord reasonably determines that it would havebeen able to deliver the Premises to Tenant but for the collective Tenant Delays. Landlord will provide Tenant written noticeof any Tenant Delay and give Tenant three (3) days to correct before it is a Tenant Delay. Should Landlord determine that theCommencement Date should be advanced in accordance with the foregoing, it shall so notify Tenant in writing. Landlord’sdetermination shall be conclusive unless Tenant notifies Landlord in writing, within 5 business days thereafter, of Tenant’selection to contest same by binding arbitration with the American Arbitration Association under its Arbitration Rules for theReal Estate Industry, and judgment on the arbitration award may be entered in any court having jurisdiction thereof.Pending the outcome of such arbitration proceedings, Tenant shall make timely payment of all rent due under this Leasebased upon the Commencement Date set forth in the aforesaid notice from Landlord.H.Landlord shall permit Tenant and its agents to enter the Premises 30 days prior to the Expansion Effective Date in order thatTenant may perform any work to be performed by Tenant hereunder through its own contractors, subject to Landlord’s priorwritten approval, and in a manner and upon terms and conditions and at times satisfactory to Landlord’s representative. Theforegoing license to enter the Premises prior to the Expansion Effective Date is, however, conditioned upon Tenant’scontractors and their subcontractors and employees working in harmony and not interfering with the work being performedby Landlord. If at any time that entry shall cause disharmony or interfere with the work being performed by Landlord, thislicense may be withdrawn by Landlord upon 24 hours written notice to Tenant. That license is further conditioned upon thecompliance by Tenant’s contractors with all requirements imposed by Landlord on third party contractors and subcontractors,including without limitation the maintenance by Tenant and its contractors and subcontractors of workers’ compensation andpublic liability and property damage insurance in amounts and with companies and on forms satisfactory to Landlord, withcertificates of such insurance being furnished to Landlord prior to proceeding with any such entry. The entry shall be deemedto be under all of the provisions of the Lease except as to the covenants to pay Rent unless Tenant commences businessactivities within the Premises. Landlord shall not be liable in any way for any injury, loss or damage which may occur toany such work being performed by Tenant, the same being solely at Tenant’s risk. In no event shall the failure of Tenant’scontractors to complete any work in the Premises extend the Expansion Effective Date.I.Tenant hereby designates Deborah Oxendine, Telephone No. (408) 606-2733, as its representative, agent and attorney-in-fact for the purpose of receiving notices, approving submittals and issuing requests for Changes, and Landlord shall beentitled to rely upon authorizations and directives of such person(s) as if given directly by Tenant. Landlord shall also providecopies of any notices to Mike Scarpelli, CFO, at the address provided in Item 12 of the Basic Lease Provisions. Tenant mayamend the designation of its construction representative(s) at any time upon delivery of written notice to Landlord.II. COST OF TENANT IMPROVEMENTSA.Landlord shall complete, or cause to be completed, the Tenant Improvements, at the construction cost shown in the FinalCost Estimate (subject to the provisions of this Work Letter), in accordance with final Working Drawings and Specificationsapproved by both Landlord and Tenant. Landlord shall pay towards the final construction costs (“Completion Cost”) asincurred a maximum of $3,045,000.00 (“Landlord Contribution”), based on $50.00 per rentable square foot of thePremises, and Tenant shall be fully responsible for the remainder (“Tenant Contribution”). Notwithstanding the foregoing,Tenant may utilize a portion of the Landlord Contribution not to exceed $304,500.00 toward the out-of-pocket expensesincurred by Tenant for relocating to the Premises, including furniture moving, data cabling costs and consulting costs (“Moving Allowance”). Tenant shall be reimbursed for such expenses by submitting copies of all supporting third-partyinvoices to Landlord within 120 days after the Expansion Effective Date. Landlord shall reimburse Tenant in one installmentwithin 30 days following receipt of all such invoices. If the actual cost of completion of the Tenant Improvements is less thanthe maximum amount provided for the Landlord Contribution or remains after December 31, 2014, such savings shallinure to the benefit of Landlord and Tenant shall not be entitled to any credit or payment or to apply the savings towardadditional work.In addition to the Landlord Contribution, Landlord shall make available to Tenant an amount not to exceed $1,218,000.00 (“Additional Expansion Space Contribution”) for the Tenant Improvements hereunder to be utilized by Tenant not laterthan December 31, 2014 in connection with the initial Tenant Improvement work, which amount shall be amortized overthe 84 month Lease Term at 8% per annum and repaid in monthly installments with the Basic Rent. Upon determinationof the amount of the Additional Expansion Contribution, if any, Landlord shall memorialize same, together with the monthlyrepayment schedule, in writing and Tenant shall promptly acknowledge same.B.The Completion Cost shall include all direct costs of Landlord in completing the Tenant Improvements, including but notlimited to the following: (i) payments made to architects, engineers, contractors, subcontractors and other third partyconsultants in the performance of the work, (ii) permit fees and other sums paid to governmental agencies, (iii) costs of allmaterials incorporated into the work orused in connection with the work (excluding any furniture, trade fixtures and personal property equipment relating to thePremises), and (iv) interior keying and signage costs. The Completion Cost shall also include an administrative/supervisionfee to be paid to Landlord in the amount of 3% of the Landlord Contribution (which shall not include any AdditionalExpansion Space Contribution or any portion of the Landlord Contribution used for Moving Allowance).C.Tenant shall pay to Landlord the amount of the Tenant Contribution set forth in the approved Final Cost Estimate as follows:(i) 33% by June 1, 2014, (ii) 33% upon 50% of the completion of the Tenant Improvements and (iii) the remaining balanceupon substantial completion of the Tenant Improvements. All payments shall be made to Landlord within 30 days uponreceipt of invoices. In addition, if the actual Completion Cost of the Tenant Improvements is greater than the Final CostEstimate because of modifications or extras requested by Tenant and not reflected on the approved working drawings, orbecause of Tenant Delays, then to the extent it is in excess of any unused portion of the Landlord Contribution, Tenant shallpay to Landlord, within 30 days following submission of an invoice therefor, all such additional costs, including anyadditional architectural fee. If Tenant defaults in the payment of any sums due under this Work Letter, Landlord shall (inaddition to all other remedies) have the same rights as in the case of Tenant’s failure to pay rent under the Lease.III. LANDLORD WORK.A.Landlord, at Landlord’s sole cost and expense and not as a Completion Cost or Project Cost, shall demolish all existingimprovements in the Expansion Space, including the ceiling, and leave the floors in a “warm shell” condition. Landlord shalldemolish the 4770 Building in accordance with the plan set forth in Exhibit B-1. Landlord will do the upgrades and changes tothe middle aisle as shown on Exhibit B-4.B.Landlord, at Landlord’s sole cost and expense and not as a Completion Cost or Project Cost, provide a walkway from the reareast corner of the Building down to the Parking Area of the 4770 Building as described in Exhibits B-2 and B-3 attachedhereto.EXHIBIT B-1Demolition Work4770 Eastgate MallEXHIBIT B-2Project WalkwayEXHIBIT B-3Project WalkwayExhibit B-4EXHIBIT C-1HVAC Condition ReportEXHIBIT C-24770 Eastgate MallEXHIBIT C-3EXHIBIT C-4EXHIBIT DFIRST REFUSAL SPACE4820 Eastgate MallEXHIBIT EEXHIBIT 10.16SECOND AMENDMENTTHIS SECOND AMENDMENT (the "Amendment") is made and entered into as of February 13, 2014, by and between THEIRVINE COMPANY LLC, a Delaware limited liability company ("Landlord") and ServiceNow, Inc., a Delaware corporation (“Tenant”).RECITALSA.Landlord and Tenant (as successor in interest to Service-Now.Com, a California corporation) are parties to that certain lease datedFebruary 14, 2012, which lease has been previously amended by that certain First Amendment dated December 30, 2013 (the“First Amendment”) (collectively, the "Lease"). Pursuant to the Lease, Landlord has leased to Tenant space containingapproximately 155,443 rentable square feet (the “Premises”) described as Suite Nos.100, 200 and 300 at the building located at4810 Eastgate Mall and Suite 100 at the building located at 4770 Eastgate Mall all located in San Diego, California.B.Tenant and Landlord mutually desire that the Lease be amended on and subject to the following terms and conditions.NOW, THEREFORE, in consideration of the above recitals which by this reference are incorporated herein, the mutual covenantsand conditions contained herein and other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Landlordand Tenant agree as follows:I.Amendment. Effective as of the date hereof (unless different effective date(s) is/are specifically referenced in this Section), Landlordand Tenant agree that the Lease shall be amended in accordance with the following terms and conditions:A.Security Deposit. Tenant has deposited with Landlord the sum of $58,645.00 (the “Security Deposit”), to be held by Landlordas security for the full and faithful performance of Tenant’s obligations under the Lease, to pay any rental sums, includingwithout limitation such additional rent as may be owing under any provision hereof, and to maintain the Premises as requiredby the Lease. Upon any breach of the foregoing obligations by Tenant, Landlord may apply all or part of the Security Deposit asfull or partial compensation. If any portion of the Security Deposit is so applied, Tenant shall within 5 days after written demandby Landlord deposit cash with Landlord in an amount sufficient to restore the Security Deposit to its original amount. Landlordshall not be required to keep this Security Deposit separate from its general funds, and Tenant shall not be entitled to interest onthe Security Deposit. In no event may Tenant utilize all or any portion of the Security Deposit as a payment toward any rentalsum due under the Lease. Any unapplied balance of the Security Deposit shall be returned to Tenant or, at Landlord’s option, tothe last assignee of Tenant’s interest in this Lease within 30 days following the termination of the Lease and Tenant's vacationof the Premises. Tenant hereby waives the provisions of Section 1950.7 (except for Subsection 1950.(7.(b)) of the California CivilCode, or any similar or successor laws now or hereafter in effect.B.Letter of Credit. Landlord is currently holding a letter of credit in the amount of $191,355.00 (“Letter of Credit”) pursuant to Item9 of the Basic Lease Provisions and Section 4.3 of the Lease. On or prior to July 31, 2014 (“Security Deposit ConversionDate”), Tenant shall tender a cash security deposit in the amount of $191,355.00 (“Converted Security Deposit”). Landlordshall promptly return the Letter of Credit to Tenant upon receipt of the Converted Security Deposit. Accordingly, as of the SecurityDeposit Conversion Date (i) the total Security Deposit held by Landlord under the Lease shall be $250,000.00, (ii) Item 9 of theBasic Lease Provisions shall be deleted and “Security Deposit: $250,000.00” shall be substituted in lieu thereof and (iii) Section4.3 (Letter of Credit) of the Lease shall be deleted in its entirety and of no further force or effect.C.Deleted Provision. Section V (Letter of Credit) of the First Amendment shall be deleted in its entirety and of no further force oreffect.II. GENERAL.A.Effect of Amendments. The Lease shall remain in full force and effect except to the extent that it is modified by thisAmendment.B.Entire Agreement. This Amendment embodies the entire understanding between Landlord and Tenant and can be changedonly by a writing signed by Landlord and Tenant.C.Counterparts; Digital Signatures. If this Amendment is executed in counterparts, each is hereby declared to be an original;all, however, shall constitute but one and the same amendment. In any action or proceeding, any photographic, photostatic,or other copy of this Amendment may be introduced into evidence without foundation. The parties agree to accept a digitalimage (including but not limited to an image in the form of a PDF, JPEG, GIF file, or other e-signature) of this Amendment,if applicable, reflecting the execution of one or both of the parties, as a true and correct original.D.Defined Terms. All words commencing with initial capital letters in this Amendment and defined in the Lease shall have thesame meaning in this Amendment as in the Lease, unless they are otherwise defined in this Amendment.E.Authority. If Tenant is a corporation, limited liability company or partnership, or is comprised of any of them, each individualexecuting this Amendment for the corporation, limited liability company or partnership represents that he or she is dulyauthorized to execute and deliver this Amendment on behalf of such entity and that this Amendment is binding upon suchentity in accordance with its terms.F.Attorneys' Fees. The provisions of the Lease respecting payment of attorneys' fees shall also apply to this Amendment.A.Execution of Amendment. Submission of this Amendment by Landlord is not an offer to enter into this Amendment but rather isa solicitation for such an offer by Tenant. Landlord shall not be bound by this Amendment until Landlord has executed anddelivered the same to Tenant.IN WITNESS WHEREOF, Landlord and Tenant have duly executed this Amendment as of the day and year first above written.LANDLORD:TENANT: THE IRVINE COMPANY LLC,a Delaware limited liability companyBy /s/ Steven M. Case Steven M. Case Executive Vice President Office PropertiesBy: /s/ Michael T. Bennett Michael T. Bennett Senior Vice President, OperationsOffice PropertiesServiceNow, Inc.,a Delaware corporationBy: /s/ Michael P. Scarpelli Printed Name: Michael P. Scarpelli Title: CFO By:_________________________________Printed Name:________________________Title:________________________________EXHIBIT 21.1SUBSIDIARIES Name of Subsidiary Jurisdiction of Incorporation or Organization ServiceNow Australia Pty Ltd AustraliaServiceNow Austria AustriaServiceNow Belgium BVBA BelgiumSN Europe CV BermudaServiceNow Canada Inc. CanadaServiceNow Delaware LLC DelawareServiceNow Denmark ApS DenmarkServiceNow Finland Oy FinlandServiceNow France SAS FranceService-now.com GmbH GermanyServiceNow Hong Kong Limited Hong KongServiceNow Software Development India Private Limited IndiaServiceNow A.B. Israel Ltd IsraelServiceNow Italy ItalyServiceNow Japan KK JapanServiceNow Operations Mexico MexicoServiceNow Nederland BV NetherlandsServiceNow Norway AS NorwayServiceNow Pte. Ltd. SingaporeServiceNow South Africa (Pty) Ltd. South AfricaServiceNow Spain S.L. SpainServiceNow Sweden AB SwedenServiceNow Switzerland GmbH SwitzerlandService-now.com UK Ltd United KingdomEXHIBIT 23.1CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMWe hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-182445 and 333-188462) of ServiceNow, Inc. of ourreport dated February 28, 2014 relating to the financial statements and the effectiveness of internal control over financial reporting, which appears in this Form10-K./s/ PricewaterhouseCoopers LLPSan Jose, CaliforniaFebruary 28, 2014EXHIBIT 31.1CERTIFICATION OF PERIODIC REPORT UNDER SECTION 302 OFTHE SARBANES-OXLEY ACT OF 2002I, Frank Slootman, certify that:1.I have reviewed this annual report on Form 10-K of ServiceNow, Inc.;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4.The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, toensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within thoseentities, particularly during the period in which this report is being prepared;b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles;c.Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; andd.Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recentfiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely tomaterially affect, the registrant's internal control over financial reporting; and5.The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonablylikely to adversely affect the registrant's ability to record, process, summarize and report financial information; andb.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controlover financial reporting.Date: February 28, 2014 /s/ Frank Slootman Frank SlootmanChief Executive Officer(Principal Executive Officer)EXHIBIT 31.2CERTIFICATION OF PERIODIC REPORT UNDER SECTION 302 OFTHE SARBANES-OXLEY ACT OF 2002I, Michael P. Scarpelli, certify that:1.I have reviewed this annual report on Form 10-K of ServiceNow, Inc.;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4.The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, toensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within thoseentities, particularly during the period in which this report is being prepared;b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles;c.Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; andd.Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recentfiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely tomaterially affect, the registrant's internal control over financial reporting; and5.The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonablylikely to adversely affect the registrant's ability to record, process, summarize and report financial information; andb.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controlover financial reporting.Date: February 28, 2014 /s/ Michael P. Scarpelli Michael P. ScarpelliChief Financial Officer(Principal Financial and Accounting Officer)EXHIBIT 32.1CERTIFICATION PURSUANT TO18 U.S.C. SECTION 1350AS ADOPTED PURSUANT TO SECTION 906OF THE SARBANES-OXLEY ACT OF 2002I, Frank Slootman, Chief Executive Officer of ServiceNow, Inc. (the “Company”), do hereby certify, pursuant to 18 U.S.C. Section 1350, as adoptedpursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:•the Annual Report on Form 10-K of the Company for the period ended December 31, 2013 fully complies with the requirements of Section 13(a) or15(d) of the Securities Exchange Act of 1934; and•the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company forthe periods presented therein.Date: February 28, 2014 /s/ Frank Slootman Frank SlootmanChief Executive Officer(Principal Executive Officer)A signed original of this written statement required by Section 906 has been provided to ServiceNow, Inc. and will be retained by it and furnished to theSecurities and Exchange Commission or its staff upon request.EXHIBIT 32.2CERTIFICATION PURSUANT TO18 U.S.C. SECTION 1350AS ADOPTED PURSUANT TO SECTION 906OF THE SARBANES-OXLEY ACT OF 2002I, Michael P. Scarpelli, Chief Financial Officer of ServiceNow, Inc. (the “Company”), do hereby certify, pursuant to 18 U.S.C. Section 1350, as adoptedpursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:•the Annual Report on Form 10-K of the Company for the period ended December 31, 2013 fully complies with the requirements of Section 13(a) or15(d) of the Securities Exchange Act of 1934; and•the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company forthe periods presented therein.Date: February 28, 2014 /s/ Michael P. Scarpelli Michael P. ScarpelliChief Financial Officer(Principal Financial and Accounting Officer)A signed original of this written statement required by Section 906 has been provided to ServiceNow, Inc. and will be retained by it and furnished to theSecurities and Exchange Commission or its staff upon request.

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