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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☒
☐
Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2020
OR
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Commission File Number: 001-35580
SERVICENOW, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
20-2056195
(I.R.S. Employer
Identification Number)
ServiceNow, Inc.
2225 Lawson Lane
Santa 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
Common stock, par value $0.001 per share
Trading Symbol
NOW
Name of each exchange on which registered
The New York Stock Exchange
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 ☒ 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 ☒
Indicate 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 ☒No ☐
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant 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 such files). Yes ☒ No ☐
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the
definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer
Non-Accelerated Filer
☒
☐
Accelerated Filer
Smaller Reporting Company
Emerging Growth Company
☐
☐
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section
404(b) of the Sarbanes-Oxley Act by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐No ☒
Based 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, 2020, the aggregate
market value of its shares (based on a closing price of $405.06 per share on June 30, 2020 as reported on the New York Stock Exchange) held by non-affiliates was approximately $57.8 billion.
As of January 31, 2021, there were approximately 196.1 million shares of the Registrant’s Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant’s definitive proxy statement for its 2021 Annual Meeting of Stockholders (Proxy Statement) to be filed within 120 days of the Registrant’s fiscal year ended December
31, 2020, 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.
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
TABLE OF CONTENTS
PART I
PART II
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Selected Consolidated Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Consolidated Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
PART III
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Party Transactions and Director Independence
Principal Accounting Fees and Services
Item 1
Item 1A
Item 1B
Item 2
Item 3
Item 4
Item 5
Item 6
Item 7
Item 7A
Item 8
Item 9
Item 9A
Item 9B
Item 10
Item 11
Item 12
Item 13
Item 14
Exhibits and Financial Statement Schedules
Form 10-K Summary
PART IV
Item 15
Item 16
Signatures
Index to Exhibits
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PART I
FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K, including the “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains
forward-looking statements regarding future events and our future results that are based on our current expectations, estimates, forecasts and projections
about 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 expressions are intended to identify those forward-looking statements. These forward-looking statements are only predictions and are subject to
risks, uncertainties, assumptions and other factors that are difficult to predict. Therefore, actual results may differ materially and adversely from those
expressed in any forward-looking statements. Factors that might cause or contribute to such differences include, but are not limited to, impacts on our
business, future financial performance and general economic conditions due to the current Coronavirus (“COVID-19”) pandemic, 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 Securities and Exchange
Commission (“SEC”). While forward-looking statements are based on the reasonable expectations 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 any forward-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.
BUSINESS
ServiceNow’s purpose is to make the world of work, work better for people. We believe that people want the technology they use in their work to be
more efficient and easier to use. We build applications to meet that demand by automating existing processes and creating efficient, digitized workflows
with a consumer grade user experience. Our products and services enable the steps of a job to flow naturally across disparate departments, systems and
processes of a business. When work flows naturally, great experiences follow.
Getting a job done in an enterprise (what we call a “workflow”) usually requires different people in various functions of an organization to work
together. Often, they rely on different technology systems and inefficient, manual processes to complete each step of the job before moving along to the
next. We believe that this approach is undergoing a transformation. Enterprises have to operate in new and faster ways and need digital processes and
systems that can quickly pivot and adapt to rapidly changing business needs. We believe that the most effective digital transformation initiatives utilize
tools that can integrate workflows across siloed systems, departments, processes and people. We also believe that many business challenges, whether it be
the need for a streaming service to quickly and efficiently initiate and support new customer accounts or the need for state governments to efficiently
manage the distribution of unemployment insurance payments, can be broken down into discrete tasks and those tasks can be managed digitally until the
job, or the workflow, is complete.
ServiceNow delivers digital workflows on a single enterprise cloud platform called the Now Platform®. Our product portfolio is currently focused on
providing Information Technology (“IT”), Employee and Customer workflows in standardized product offerings. We also enable our customers to design
and build their own custom workflow applications using our Creator workflows, formerly called the Now Platform App Engine, and to integrate those
applications with third party systems through our Integration Hub.
The Now Platform is the foundation of our IT, Employee, Customer and Creator workflow offerings. We call it "the platform of platforms," because it
connects people, functions and systems to drive innovation, increase business agility and unlock productivity. Because the Now Platform is built on a single
technology platform, our own developers, and developers working for our customers, can innovate quickly and deploy solutions rapidly. Our increasing use
of artificial intelligence and machine learning also allows for the creation of many workflows to quickly become fully automated. Our native mobile
applications greatly assist in delivering those automated workflows to our customers’ employees.
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While the importance of digital transformation has been increasing in recent years, the COVID-19 pandemic accelerated that need and underscored
the critical importance of digital and automated workflows. As the world economy underwent increasing disruption, companies further along in their digital
transformation were better able to maintain business continuity and improve productivity. When employees could no longer access their physical
workspaces because of public health safety concerns, enterprises needed processes and systems that could communicate with one another without manual
steps or intervention. The Now Platform became a critical tool to help many of our customers meet that need. The agility of the platform and the speed with
which developers could create and automate solutions accelerated their digital transformation, which better equipped our customers for the future of work.
Our standardized workflows helped our customers adapt and manage a remote workforce in a matter of weeks, not months, and our customers created
their own solutions on the Now Platform in a matter of days and weeks, not months and years. Our own engineers were able to develop workforce
management solutions in a matter of weeks, and update them on a regular cadence. When the pandemic first led to employers restricting their physical
locations, we quickly developed applications to allow employers to communicate with employees and manage potential exposures to the virus, and over the
course of the next months we developed applications to allow employers to manage their employees’ return to the workplace and maximize their safety in
physical facilities. As vaccines were developed and are being distributed, we developed applications to help governments allow their citizens to access
critical vaccine information, schedule appointments, and receive appointment notifications from vaccine providers. Our customers, from national, state and
local governments to large private enterprises, have built their own custom solutions utilizing the Creator workflow offering. These are just some examples
of how our customers leverage the Now Platform to optimize their investments in digital transformation and create a better experience for their employees
and customers.
We primarily deliver our software via the Internet as a service through a simple and easy-to-use interface so that we can rapidly deploy our packaged
offerings, and customers can easily build their custom applications. In a minority of cases, customers choose to host our software by themselves or through
a third-party service provider.
We market and sell our products and services to enterprises across industries, including government, financial services, healthcare,
telecommunications, manufacturing, IT services, technology, oil and gas, education and consumer products. We sell our products through subscription
services and primarily through direct sales. We also offer professional services, both directly and through partners, to help our customers deploy and utilize
our products and platform.
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, we
reincorporated in Delaware as ServiceNow, Inc.
Our Products
Our portfolio includes the Now Platform, and standardized applications specifically designed for automating IT, Employee and Customer workflows.
It also includes Creator workflows, which support custom workflow creation, application development, and integration with third party systems, and make
these custom applications available on the ServiceNow Store. Each of our products and services helps in critical aspects of our customers’ digital
transformation process, and some of these products and services, as captured in the graphic and described below, are used in multiple workflows.
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The Now Platform
The Now Platform is a single-cloud platform with one data model and one architecture, enabling speed, flexibility and innovation. The Now Platform
delivers workflows across siloed organizations and systems by connecting them together in a seamless way to unlock productivity and improve experiences
for both employees and customers. As the foundation for how we deliver our enterprise-wide digital workflows, the Now Platform integrates and
interoperates with our customers’ existing cloud platforms and legacy systems, allowing our customers to deliver workflows across their preferred systems
of record and collaboration platforms. Our IT, Employee, and Customer workflows can be implemented by customers quickly. Our Creator workflows
allow customers to design, build and integrate workflow applications on the Now Platform that are uniquely suited to their businesses. Among the many
services that our platform supports are workflow automation, artificial intelligence, machine learning, performance analytics, electronic service catalogs
and portals, configuration management systems, data benchmarking, encryption and collaboration and development tools. While every company has a
different suite of user interfaces from web-based to mobile to conversation applications, the Now Platform creates a common user experience for customers
to manage workflows across all of their interfaces.
The Now Platform also powers three native mobile experiences for everyday work across the enterprise: Virtual Agent, Now Mobile and Mobile
Onboarding. Enterprises can take advantage of consumer-like, mobile experiences, such as getting help from human resources or ordering a computer, from
our platform. Our goal is to make our customers’ work lives as simple, easy and mobile-friendly as their personal lives.
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IT Workflows
Our roots are in IT workflows. Our founder initially saw a need for an integrated system in IT that identified issues, assigned those issues to the right
people for resolution and remediated any systemic problems that created the issues. Our IT products have become increasingly sophisticated in assisting IT
departments to serve their customers, manage their networks, identify and remediate security vulnerabilities and threats and reduce time spent on
administrative tasks. With our IT workflows, on the Now Platform, we deliver one data model, and cross enterprise integration, which gives IT departments
the ability to plan, build, operate and service across the entire IT lifecycle. Our artificial intelligence technology enables features like Virtual Agents to help
employees using simple, human language, and predictive intelligence to power workflows with machine learning to automate routine tasks and get to
resolution faster. Many of these capabilities are also used in our Employee and Customer workflows.
IT Service Management
As our flagship product suite, IT Service Management (“ITSM”) defines, structures, consolidates, manages and automates the IT services an
enterprise offers its employees, customers and partners. Among the ITSM product suite’s capabilities are recording incidents, remediating problems and
automating routine tasks and requests. ITSM also offers artificial intelligence (AI), machine learning (ML), predictive intelligence, Virtual Agent,
performance analytics and continual improvement management capabilities. These AI and ML capabilities help our customers identify and recommend
steps to be taken by a customer in remediating issues, driving efficiency and end-user satisfaction. With ITSM our customers can elevate their IT service
experience by improving IT productivity, achieving new insights and consolidating IT services. For example, we enable our customers to provide service
portals where their employees can request IT services, order software and hardware and submit IT incidents all in one place.
IT Business Management
Our IT Business Management (“ITBM”) product suite enables customers to manage their IT priorities, including the scope and cost of IT projects, the
development of software related to those projects and the overall management of the customer’s IT project portfolio. With ITBM, we help our customers
gain visibility, track progress, and continuously plan and optimize resources as priorities shift.
DevOps
Our enterprise DevOps product provides visibility across a product development toolchain. It integrates with the leading DevOps toolchains to
provide automated change management, information gathering and collecting and a single dashboard across planning, development, testing, deployment
and operations. With DevOps, our customers can streamline their software development and deployment processes.
IT Operations Management
Our IT Operations Management (“ITOM”) product suite connects a customer’s physical and cloud-based IT infrastructure with our applications and
platform. It identifies a customer’s IT infrastructure components (e.g., servers) and associated business services (e.g., email) which are dependent upon that
infrastructure. It also maintains a single data record for all IT configurable items, which allows our customers to exercise control over their on-premises or
cloud-based infrastructures and orchestrate key processes and tasks. With ITOM, our customers can enhance visibility of IT resources, manage service
health and optimize cloud delivery and spend.
IT Asset Management
Our IT Asset Management (“ITAM”) product automates customers’ IT software, hardware and cloud asset lifecycles with workflows to track the
financial, contractual and inventory details of these IT assets throughout their lifecycles. With ITAM, our customers gain visibility into the full IT asset
lifecycles to help optimize costs and automate workflows.
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Security Operations
Our security operations product connects with internal and third-party security alerts from a customer’s infrastructure to prioritize and respond to
incidents and vulnerabilities according to their potential impact on a customer’s business. Our security operations product includes security incident
management, threat enrichment intelligence, vulnerability response management and security incident intelligence sharing. With our security operations
product, we help simplify our customers’ incident response by allowing them to replace manual tasks with automated security orchestration and to
prioritize and remediate vulnerabilities and security incidents.
Governance, Risk and Compliance
Our Governance, Risk and Compliance (“GRC”) product suite helps customers manage risk and resilience in real time. Among the GRC’s product
suite’s capabilities are policy and compliance management, risk management, including detection and assessment, business continuity management, vendor
risk management and operational risk management. GRC provides a unified data environment, dashboards, automated workflows and artificial intelligence
capabilities to help customers with risk-based decisions and align resilience initiatives across the enterprise. With GRC, customers can also assess risk and
make strategic decisions with confidence by being able to continuously monitor and prioritize risks.
Employee Workflows
Our Employee workflow products on the Now Platform can transform the employee experience and turn it into a competitive advantage. With our
Employee workflows, our customers can simplify how their employees get the services they need, creating a familiar, consumer-like way to get work done
from wherever an employee may be—at home, in the workplace or in the field. We enable Employee workflows through our HR Service Delivery, Safe
Workplace suite of applications, Workplace Service Delivery, and Legal Service Delivery.
HR Service Delivery
Our HR Service Delivery product defines, structures, consolidates, manages and automates HR services related to employee requests. HR Service
Delivery capabilities include HR case management, employee self-service, knowledge management and management of employee lifecycle events across
multiple departments, such as onboarding, transfers and off-boarding. For example, tasks that start in HR but require action from other departments, such as
new hire equipment selection and fulfillment, can be easily automated and orchestrated. With HR Service Delivery, we make it easy for our customers’
employees to get the services they need, allowing our customers to use fewer resources to serve more employees, streamline employee lifecycle events, and
increase visibility, staffing efficiency and delivery of services.
Safe Workplace Suite
In response to the COVID-19 pandemic, we rapidly innovated and created a Safe Workplace suite of applications and a dashboard, enabling business
functions to work together across department systems, hiding the underlying complexity and making it easy to get work done. For example, the Employee
Health Screening App for self-certification and self-screening helps companies determine who is eligible to re-enter the workplace and the Workplace
Service Delivery application helps companies determine if there is adequate space for employees to return to work and maintain safe social distance. These
products were developed to help companies keep employees safe, increase engagement, improve productivity and maintain business continuity, all while
creating a great user experience for employees. These products, including their bi-weekly releases and updates, demonstrate the Now Platform’s agile and
flexible product development capabilities and our ability to continue to deliver business solutions in response to rapidly changing operating conditions.
Workplace Service Delivery
Our Workplace Service Delivery product keeps our customers’ workplaces running smoothly with a multi-channel, mobile-enabled solution. With
Workplace Service Delivery, employees of our customers automate requests, reservations and repairs to help use space wisely, provide easy access to
services, manage requests efficiently and get real-time visibility. For example, a remote employee can reserve a desk for a week and book a conference
room for a team meeting, all from their mobile device.
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Legal Service Delivery
Our Legal Service Delivery product consolidates manual tools and modernizes internal legal operations processes to manage legal requests across the
enterprise. With Legal Service Delivery, legal teams can gain efficiency, deliver support efficiently with automated responses and get insight into demand
with real-time reporting and dashboards. Capabilities include practice-area request workflows, a workspace to route and manage requests, legal matter
management for multi-step legal requests, and reporting and dashboards to view demand and service levels. For example, a sales representative can submit
a request for a new customer contract, and the appropriate expert can manage the negotiation of the contract and obtain proper inputs from privacy,
security, finance and other specialists to ultimately bring the contract to execution.
Customer Workflows
Today’s customer service departments are filled with reactive agents searching multiple systems to find a single answer to customer issues. Our
Customer workflow products help organizations reimagine the customer experience and increase customer loyalty. Integrating front-end customer service
capabilities with operations and field service resources, our Customer workflow products help to create a seamless customer experience from issue to
resolution through connected digital workflows that deliver fast support on a customer’s channel of choice. We enable Customer workflows through
Customer Service Management, Field Service Management products, and Connected Operations.
Customer Service Management
Our Customer Service Management product defines, structures, consolidates, manages and automates common customer service cases and requests,
such as password resets, to be automated with out-of-the-box self-service, and for other cases it routes work from the customer service agent to field
service, engineering, operations, finance or legal personnel to resolve the underlying issues. With Customer Service Management, we help our customers
elevate their customer service by boosting resolution efficiency and improving service quality through workflows, automation and artificial intelligence.
Field Service Management
Our Field Service Management product allows field service agents to be effectively assigned, deployed and managed on the same underlying
customer service management platform that created and managed the customer incident. With Field Service Management, we help our customers
efficiently manage location-based work tasks, including dynamic scheduling and visual dispatch.
Connected Operations
Our Internet of Things (“IoT”) product, Connected Operations, unifies siloed data onto the Now Platform to help operations teams manage critical
assets and derive value from their IoT investments. Connected operations allows customers to monitor IoT devices remotely, detect issues in near real time,
manage incidents and take action across multiple teams.
Creator Workflows
As organizations digitally transform, they need to pivot faster with new processes and business models. This requires faster, more agile execution
with more automation delivered through software applications. Our Creator workflow products enable our customers to quickly create, test, and deploy
their own applications on the Now Platform. We enable Creator workflows through App Engine and IntegrationHub products.
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App Engine
Our App Engine product empowers enterprise-class low code application delivery with intuitive and intelligent experiences, at speed and scale. With
App Engine, customers and third-party developers can create, test and deploy their own consumer-grade applications that can be scaled from a single
department to the entire enterprise. Examples of applications our customers have developed include: an application developed by a company with a large
network of seasonal retail stores and offices to track progress and identify issues in opening and closing their seasonal locations, which enabled significant
cost savings; an application developed by the IT office of a university that allocated and billed costs associated with IT maintenance, allowing the
university to retire multiple legacy software systems; and an application developed by a mortgage company to ensure that loan files were complete and
accurate prior to packaging and selling the loans to investors. These types of applications, which extend the automation of our customers’ workflows, have
been developed and deployed by our customers and third-party developers using App Engine.
IntegrationHub
Our IntegrationHub product enables anyone who creates an application on the Now Platform to extend workflows into third-party products,
eliminating the need for other integration tools to connect a ServiceNow workflow with other software platforms. Integration hub provides a framework
that allows developers to create and publish integrations for use by anyone. The Now Platform provides connectors to over one hundred products in the
ServiceNow Store.
In addition, the ServiceNow Store has hundreds of certified, ready to use applications from a growing independent software vendor ecosystem. The
ServiceNow Store enables departments across an enterprise to do more with the Now Platform with certified applications that complement and extend the
Now Platform into new use cases.
Industry Solutions
We have expanded existing partnerships to deliver our industry-specific product solutions and better address the unique needs of specific industries.
We currently offer industry product solutions for financial services and telecommunications and intend to offer more industry specific solutions for other
industries. With Financial Services Operations as part of our Customer workflows, our financial services customers can unite their front, middle and back
offices to improve customer and employee experiences. It also facilitates agile security responses to enhance risk protection and provides artificial
intelligence capabilities and a unified system on a single cloud platform. With Telecommunications Network Performance Management as part of our IT
workflows and Telecommunications Service Management as part of our Customer workflows, our telecommunications customers can connect their entire
operation—from the network to the customer—with one platform, proactively monitor the health of their networks and services, enhance customer care,
automate service assurance and gain real-time data visibility.
Professional Services
Our Professional Services are offered by ServiceNow alone and in a co-delivery model with our network of partners to help customers maximize the
value of their ServiceNow investment. Our professional services include process design, implementation, configuration, architecture and optimization
services. With our Now Value methodology as the foundation for customer success, our services bring together our experts and leading practices enabling
our customers to create value and drive customer outcomes as they embark on enterprise digital transformations through the use of our platform. Our
training services include programs for all of our products.
Customer Support
Customers receive standard and enhanced support around the globe, from technical resources located in the United States and internationally. We also
offer self-service technical support through our support portal, which provides access to documentation, knowledge base articles, online training, online
support forums and online case creation.
Our Technology and Operations
We operate a multi-instance architecture that provides each customer with its own dedicated application logic and database. This architecture is
designed to deliver high-availability, scalability, performance, security and ease of upgrading. Our cloud infrastructure primarily consists of industry-
standard servers, networks and storage components. We host our full software-as-a-service experience on our own private cloud and use public cloud
service providers for certain highly regulated customers.
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Our data centers operate in paired configurations to enable replication for high-availability and redundancy. We currently operate data centers in
Australia, Brazil, Canada, Germany, Hong Kong, Ireland, Japan, South Korea, the Netherlands, Singapore, Switzerland, the United Kingdom, and the
United States, and we continuously evaluate our data center operations and capacity in existing and new geographies.
We offer customers the option to deploy our services on dedicated hardware in our data centers. Our architecture also gives us the added flexibility to
allow customers the option of deploying our services internally or under contract with a third party to host the software in order to support unique
regulatory or security requirements. While there are some limitations on agility and flexibility as compared to our cloud offering, a minority of our
customers have elected the third-party alternative. The standard and enhanced customer support we provide for self-hosted customers is similar to the
support we provide to customers deployed in our managed data centers.
Sales and Marketing
We sell our product offerings and services primarily through our global direct sales organization. We also sell services through managed services
providers and resale partners.
Our marketing efforts and lead generation activities consist primarily of customer referrals, digital advertising (including via our website), trade
shows, industry events, brand campaigns and press releases. We also host our annual Knowledge user conference, webinars and other user forums,
including regional forums which we call Now at Work, where customers and partners both participate in and present on a variety of programs designed to
educate them on industry best practices and help accelerate their success.
We continue to expand our sales capabilities in new geographies, including through investments in direct and indirect sales channels, professional
services capabilities, customer support resources, post-sales customer support resources and strategic alliance and implementation partners. We also plan to
increase our investment in our existing locations in order to achieve scale efficiencies in our sales and marketing efforts.
Partner Ecosystem
In addition to our global direct sales organization, we also have a strong and growing ecosystem of partners that helps accelerate our customers’
digital transformation initiatives and deliver customer value at scale. Our partners play a critical role in helping companies digitally transform their
business. Our industry and workflow capabilities paired with our partners’ industry and functional domain experience help customers of all sizes. Together
with our partners, we offer industry and domain-focused solutions at scale and are accelerating digital transformation as we help companies drive new
approaches in engaging their end users and employees. For example, we formed a “business group” with one of our partners to develop joint industry and
workflow solutions to help customers transform at scale and achieve their digital transform initiatives faster.
Customers
We primarily sell our services to large enterprise customers, and we host and support large, enterprise-wide deployments for our customers. As of
December 31, 2020, we had approximately 6,900 enterprise customers. Our customers operate in a wide variety of industries, including government,
financial services, healthcare, manufacturing, IT services, technology, oil and gas, telco, education and consumer products.
Research and Development
Our research and development organization is responsible for the design, development, testing and validation of our solutions. We focus on
innovating and developing new services and core technologies and further enhancing the functionality, reliability and performance of our existing solutions.
Using emerging technologies, we can anticipate customer demands and then bring new services and new versions of existing services to market quickly in
order to remain competitive in the marketplace. We have made, and will continue to make, significant investments in research and development to broaden
our platform capabilities, strengthen our existing applications, expand the number of applications on our platform, enhance our user experience and develop
additional mobile, automation and machine intelligence technologies.
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Acquisitions and Investments
In addition to continuing to invest in our own research and development efforts, we have made acquisitions and investments in the past and will
continue to assess opportunities for strategic acquisitions and investments to complement our technology and skill sets and expand our product reach. Our
focus is on building out our platform and products through both organic investments to support customer needs and acquisitions of talent and enhanced
capabilities. For example, a number of our acquisitions in 2020 focused on bringing AI capabilities to the Now Platform and across our suite of products.
Competition
We compete in markets that are rapidly evolving and highly competitive, with relatively low barriers to entry. As these markets continue to mature
and new technologies and competitors enter such markets, we expect competition to intensify. Our current competitors include:
large, well-established, enterprise application software vendors and large integrated systems vendors;
•
• new entrants to the market developing technologies to solve similar problems in different ways;
•
solutions developed in-house by our potential customers or using integrations with other tools;
• vendors of infrastructure-as-a-service, platform-as-a-service providers and development operations; and
•
established and emerging cloud vendors.
Many prospective customers have invested substantial personnel and financial resources to implement and integrate their current enterprise software
into their businesses and therefore may be reluctant or unwilling to migrate away from their current solution to ours. Accordingly, we compete with both
cloud-based and traditional, enterprise-application, software vendors. Our competitors vary in size and in the breadth and scope of the products and services
they offer. As we continue to expand the breadth of our services to include offerings in new markets and verticals, we expect increasing competition from
platform and application development vendors focused on these markets and verticals.
Various factors influence purchase decisions in our industry, including total cost of ownership, customer experience, level of customer satisfaction,
breadth and depth of product functionality, security, adherence to industry standards, brand awareness, flexibility, performance, relevance and traction. We
believe that we compete favorably with our competitors on each of these factors. However, many of our competitors have substantially greater financial,
technical and other resources. They may be able to respond more quickly and effectively than we can to new or changing opportunities, technologies,
standards, customer requirements and buying practices. An existing competitor or potential competitor could introduce new technology, or more effectively
utilize existing technology, that reduces demand for our services. Acquisitions, integrations and consolidation by and among other companies in our
industry may allow potential competitors to offer integrated or bundled products, enhanced functionality, or other advantages, which may impact our
competitive position. In addition, some of our competitors offer their products or services at a lower price, which has resulted in pricing pressures. Larger
competitors may also have the operating flexibility to bundle competing products and services with other offerings, which may enable them to offer their
products and services at a lower price. As competition intensifies, we expect pricing competition to continue or increase.
Intellectual Property
We rely upon a combination of U.S. and international copyright, trade secret, patent and trademark laws and confidentiality procedures and
contractual restrictions, such as confidentiality and license agreements, to establish, protect and grow our intellectual property (“IP”) rights. In addition, we
enter into confidentiality and proprietary rights agreements with our employees, partners, vendors, consultants and other third parties and control access to
our IP and other proprietary information. We also purchase or license technology that we incorporate into our products or services. In certain of our
partnership arrangements, our partners may develop technology on the Now Platform that may be subject to copyright or other intellectual property rights
that we agree to with the partner.
We continue to grow our global patent portfolio and IP rights that relate to our platform, applications, services, research and development and other
activities. Our success depends in part upon our ability to protect our core technology and IP. We have over 950 U.S. and foreign patents, including patents
acquired from third parties, and over 750 pending patent applications. We do not believe that our proprietary technology is dependent on any single patent
or other IP right or group of related patents or IP rights. We file patent applications to protect our IP and have and may continue to acquire additional
patents, patent portfolios, or patent applications. However, we cannot be certain that any of our patent applications will result in the issuance of a patent or
whether the examination process will result in patents of value or applicability. In addition, any patents that have been or may be issued or acquired may be
contested, circumvented, found unenforceable or invalidated, and we may not be able to prevent third parties from infringing upon them.
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Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy or obtain and use our technology to develop products
and services that provide features and functionality similar to ours. Policing unauthorized use of our technology is difficult. The laws of the countries in
which we operate may offer little or no effective protection of our proprietary technology. Our competitors could also independently develop services
equivalent to ours, and our IP rights may not be broad enough for us to prevent competitors from utilizing their developments to compete with us. Reverse
engineering, unauthorized copying or other misappropriation of our proprietary technology could enable third parties to benefit from our technology
without paying us for it, which would significantly harm our business.
Our industry is characterized by frequent claims and related litigation regarding patent and other IP rights. From time to time, third parties may assert
patent, copyright, trademark and other IP rights against us, our channel partners or our customers. In addition, based on our greater visibility, expanding
solutions footprint, and market exposure as a public company, we face a higher risk of being the subject of IP infringement claims. See “Risk Factors—
Lawsuits against us by third parties that allege we infringe their intellectual property rights could harm our business and operating results” for additional
information.
Human Capital Management
We have over 13,000 employees worldwide and strive to ensure that our employees understand, embrace and deliver on our purpose to make the
world of work, work better for people. We believe that our employees' commitment to our purpose contributes to higher employee satisfaction, productivity
and results in the creation of more customer-focused products and services. This year, much of our human capital management efforts focused on Diversity,
Inclusion and Belonging, and ensuring a proper and effective response to the COVID-19 pandemic for our employees.
As of December 31, 2020, we had 13,096 full-time employees worldwide. None of our U.S. employees are represented by a labor union. Employees
in certain European countries are represented by workers’ councils and have the benefits of collective bargaining arrangements at the national level. We
have not experienced interruptions of operations or work stoppages due to labor disagreements.
Purpose, Culture and Employee Engagement
As a company, we undertake numerous efforts to ensure that our employees understand, embrace and deliver on our purpose: to make the world of
work, work better for people. From a recruiting process in which we evaluate candidates in part based on their commitment to our purpose, to an
onboarding process that includes content on purpose and how our products impact our customers, to regular company-wide meetings in which our purpose
is a central theme, to department and individual discussions of purpose, we seek to provide education in a variety of formats. We regularly measure our
employees’ engagement to determine whether they see their work contributing to the Company’s larger purpose, including through an Employee Voice
Survey.
Our culture is driven by our core company values:
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Win as a team
Embrace diversity, create belonging
Enjoy the journey
Deliver customer success
Innovate and execute
Stay hungry and humble
We screen leadership hires and measure employee performance against these company values, and regularly measure employee engagement against
these values through our Employee Voice Survey. We believe our values-driven culture of open and transparent communication has contributed to our
recognition as a great place to work by our employees.
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Diversity, Inclusion and Belonging – Commitment to Equality of Opportunity, Pay Equity and Employee Well-Being
Embracing diversity, inclusion and belonging is a business imperative that is core to how we operate, recruit talent, develop our people, create culture
and innovate. Diverse, inclusive teams where everyone feels they belong are high performing teams that are more innovative, productive and engaged. We
have believed in this principle and invested resources in this area for some time, but the need for investment in diversity was more widely recognized in the
technology industry in 2020. In past years, we have evaluated pay equity practices for our workforce, and we plan to do so on an ongoing basis, to ensure
employees at the same job title and level are paid consistently.
We have regularly measured our representation of women in the Company, including in leadership and technical positions. As of December 2019, in
the US, where we have pay data by gender, race, and ethnicity, women and under-represented groups earn $1.00 and $1.01 for every $1.00 earned by their
male and white counterparts, respectively. As of December 2019, globally, where we have pay data by gender, women earn $0.99 for every $1.00 earned by
their male counterparts. We have published our gender representation and pay equity data in an annual Diversity Report, which we have posted on our
public-facing website.
We are committed to employee well-being and offer mental and behavioral health support to our employees, including therapy and educational
resources.
Human Capital Management in Response to COVID-19
In responding to the COVID-19 pandemic in 2020, we prioritized ensuring the safety and health of our employees. Before health guidance suggested
shelter in place initiatives, we began to limit business travel and encourage remote working. Then, in advance of shelter in place requirements, we adopted
a company policy encouraging all employees to work from home and closed most of our offices (including our headquarters), except for certain critical
positions. In April 2020, we committed to protect the jobs of our global workforce through 2020 with a “no layoff” pledge despite the economic uncertainty
of the COVID-19 pandemic. We met that commitment and did not conduct any layoffs in 2020. In addition to meeting our commitment to the no layoff
pledge, we had a net increase to our total headcount of approximately 26%. Since transitioning to a mostly work from home environment, we launched
regular employee surveys to check in on employee well-being and sentiment on return to workplace readiness. Recognizing the impact of COVID-19 on
our employees’ mental health, we also offered additional wellness and behavioral health education and resources to our employees. We also continued to
invest in the future of our workforce by hosting our summer intern program globally with more than 360 interns participating digitally.
Available Information
You can obtain copies of our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and other filings with
the SEC, and all amendments to these filings, free of charge from our website at www.servicenow.com/company/investor-relations/sec-filings.html as soon
as reasonably practicable following our filing of any of these reports with the SEC. The SEC maintains an Internet site that contains reports, proxy and
information statements and other information regarding issuers that file electronically with the SEC at www.sec.gov. The contents of these websites are not
incorporated into this filing and our references to the URLs for these websites are intended to be inactive textual references only.
Investors and others should note that we announce material financial information to our investors using our investor relations website
(https://www.servicenow.com/company/investor-relations.html), SEC filings, press releases, public conference calls and webcasts. We use these channels,
as well as social media, to communicate with our investors and the public about our company, our services and other issues. It is possible that the
information we post on social media could be deemed to be material information. Therefore, we encourage investors, the media, and others interested in
our company to review the information we post on the social media channels listed on our investor relations website.
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ITEM 1A.
RISK FACTORS
Investing in our securities involves a high degree of risk. You should consider carefully the risks and uncertainties described below, together with
all of the other information in this Annual Report on Form 10-K, including our consolidated financial statements and related notes, before making an
investment decision. We have identified the following risks and uncertainties that may have a material adverse effect on our business, financial condition,
results of operations and future prospects. Our business could be harmed by any of these risks. Our stock price could decline due to any of these risks, and
you may lose all or part of your investment.
The extent to which the ongoing COVID-19 pandemic, including the resulting global economic uncertainty, and measures taken in response will
continue to impact our business and future results of operations and financial condition will depend on future developments, which are highly
uncertain and difficult to predict.
Beginning in early 2020, the COVID-19 pandemic began to have widespread impact on the health of the population and a broader impact on the
markets. The COVID-19 pandemic disrupted the flow of the economy and put unprecedented strains on governments, health care systems, educational
institutions, businesses and individuals around the world. The pandemic had a significant impact in 2020, and its ongoing impact into 2021 and beyond is
difficult to assess or predict. It is even more difficult to predict the impact on the global economic market, which will be highly dependent upon the
continuing actions of governments, businesses and other enterprises in response to the pandemic and the effectiveness of those actions. If the pandemic
were to endure for the longer term, recession, depression or other sustained adverse market events may result.
Some customers or potential customers, particularly in industries most impacted by the COVID-19 pandemic including transportation, hospitality,
retail and energy, reduced their IT spending or delayed their digital transformation initiatives in 2020 and these reductions and delays in spend by our
customers and prospects could persist. We experienced some curtailed customer demand, reduced customer spend or contract duration, delayed collections,
lengthened payment terms, and impact on our ability to land new customers. If we should see an increase in such effects or increased competitive pressures
due to changes in terms and conditions and pricing of our competitors’ products and services, our business, results of operations and overall financial
performance in future periods could be materially and adversely impacted.
In response to the COVID-19 pandemic, we temporarily closed most of our offices (including our headquarters) around the world, encouraged our
employees to work remotely, implemented travel restrictions for all non-essential business, and canceled or shifted certain of our customer, industry,
analyst, investor, and employee events to virtual-only experiences. For the immediate future, we have deemed it advisable to continue to do so, though our
approach may vary among geographies depending on appropriate health protocols. Additionally, our efforts to re-open our offices safely may not be
successful, could expose our employees to health risks and could involve additional costs or liability. We expect that the COVID-19 pandemic will have a
long-term effect on the nature of our office environment, remote working and how we innovate. While we believe that this will be a positive development
over the longer term, there may be operational and workplace culture challenges that may adversely affect our business, including talent retention, in the
shorter term.
As a result of the impact of COVID-19 on our business, in our Q1 2020 earnings we revised our external guidance to investors as to our expectations
of our financial performance for the full year 2020 to account for impacts that have occurred and further expected impacts. Because we are a subscription
business, the reduction in performance for 2020 will impact future years as well. If the COVID-19 pandemic continues or worsens, especially in regions in
which we have material operations or sales, our business activities from impacted areas, including sales-related activities, could be adversely affected.
Disruptive activities could include continued business closures in impacted areas, further or continued restrictions on our employees’ and other service
providers’ ability to travel, impacts to productivity if our employees or their family members experience health issues, and potential delays in hiring and
onboarding mainly in our general and administrative functions. The COVID-19 pandemic could also impact our data center operations, including potential
disruptions to the supply chain of hardware needed to maintain these third-party systems, and primary vendors we rely on for products and services that
allow our employees to work remotely. Further, we may experience increased cyberattacks and security challenges as our global employee base and
vendors and other third parties work remotely on less secure systems.
The extent and continued impact of the COVID-19 pandemic on our business will depend on certain developments including the duration and spread
of the outbreak; future infection spikes resulting in additional preventative measures; the availability and timing of the distribution of an effective vaccine;
the severity of the economic decline attributable to the pandemic and timing and nature of a potential economic recovery; government responses, including
the effectiveness, extent and duration of efforts to limit the spread and impact of the disease, such as “shelter in place” and similar government directives,
all of which are highly uncertain and unpredictable. While our revenues, billings and earnings are relatively
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predictable as a result of our subscription-based business model, the effect of the COVID-19 pandemic may not be fully reflected in our results of
operations and overall financial performance until future periods and could cause our future results of operations to vary significantly from period to
period.
The effects of the COVID-19 pandemic also may heighten other risks, including significant volatility in the global markets, trading prices of our
common stock, interest rate and foreign currency described in this ‘‘Risk Factors’’ section. Risks caused or heightened by the COVID-19 pandemic may
continue for the duration of and possibly beyond the COVID-19 pandemic for an indefinite period.
Risks Related to Our Ability to Grow Our Business
We participate in intensely competitive markets, and if we do not compete effectively, our business and operating results will be harmed.
The markets for our enterprise cloud solutions are rapidly evolving and highly competitive, with relatively low barriers to entry. As the market for
digital workflow products matures and new technologies and competitors enter the market, we expect competition to intensify. Our current competitors
include:
large, well-established, enterprise application software vendors and large integrated systems vendors;
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• new entrants to the market developing technologies to solve similar problems in different ways;
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solutions developed in-house by our potential customers or using integrations with other tools;
• vendors of infrastructure-as-a-service, platform-as-a-service and development operations; and
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established and emerging cloud vendors.
Many prospective customers have invested substantial personnel and financial resources to implement and integrate their current enterprise software
into their businesses and therefore may be reluctant or unwilling to migrate away from their current solution to ours. As our offerings have become more
widely adopted and successful in the market, more competitors are developing competing offerings. Many of our existing competitors and potential
competitors are larger and have greater name recognition, longer operating histories, more established customer relationships (including at the executive
level of large enterprises), larger marketing budgets and greater resources than we do. While we believe that our platform and products can largely be
complementary to large, established systems that traditionally operate as “systems of record,” competitors may try to enter our space. They may be able to
respond more quickly and effectively to new or changing opportunities, technologies, standards, customer requirements and buying practices. They may
utilize acquisitions, integrations or consolidations to offer integrated or bundled products, enhanced functionality or other advantages. They may reduce the
price of competing products or subscriptions or may bundle them with other products and subscriptions, causing our products to appear relatively more
expensive. They may also invest in industry-specific solutions that purport to provide a unique solution for that industry. Additional companies may expand
their services to compete with our services, or we may shift our products and services to compete with current and future competitors in adjacent markets.
We have expanded, and expect to continue to expand the breadth of our services to include offerings in new markets and the use of our platform by
developers. As a result, we expect increasing competition from companies focused on these other markets. Smaller competitors and new entrants may
accelerate pricing pressures, including in the IT market, which includes our more mature offerings and from which we derive a large portion of our
revenues. For these reasons, we may not be able to compete successfully, and competition could result in reduced sales and margins, losses or failure of our
products to achieve or maintain market acceptance, any of which could harm our business.
If we do not accurately predict, prepare for, and respond promptly to rapidly evolving technological, market and customer developments, our
competitive position and business prospects may be harmed.
We compete in markets that continue to evolve rapidly. The pace of innovation will continue to accelerate as customers increasingly base their
purchases on digital technologies and shift to modern cloud-based infrastructure and agile ways of working. As digital transformation accelerates across the
enterprise, capabilities such as artificial intelligence, machine learning, robotic process automation, low-code application development, database scalability,
consumer-grade user experiences, collaboration, Internet-connected devices, security, cryptography, internal software development operations, and
application and service awareness become increasingly relevant to customers’ evolving needs. Our customers and prospective customers are either facing
competing imperatives to adopt digital technologies, or have already been built on fully-digital, modern, dynamic IT technologies. Accordingly, to compete
effectively, we must: identify and innovate in the right emerging technologies, knowing that we cannot make substantial investments in all of them;
accurately predict our customers’ changing business needs, priorities and adoption practices, including their technology infrastructures and buying and
budgetary practices; invest in and continually optimize our own technology platform so that it continues to meet the very high performance
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expectations of our customers; successfully deliver new, scalable platform and database technologies and products to meet these needs and priorities;
efficiently integrate with other technologies within our customers’ digital environments; expand our offerings into industries and to buyers who are not
familiar with our offerings; profitably market and sell products to companies and buyers in markets where our sales and marketing teams have less
experience; and effectively deliver, directly or through our partner ecosystem, the business process planning, IT systems architecture planning, and product
implementation services that our customers require to be successful. If we fail to meet any of these requirements, our competitive position, strategic
relevance and business prospects may be harmed.
If we are unsuccessful in increasing our penetration of international markets or managing the risks associated with foreign markets, our business and
operating results will be adversely affected.
Sales outside of North America represented 35% and 34% of our total revenues for the years ended December 31, 2020 and 2019, respectively. Our
business and future prospects depend on increasing our international sales as a percentage of our total revenues, including sales to enterprises in the public
sector outside the United States (the “US”). The failure to grow internationally will harm our business. Additionally, operating in international markets
requires significant investment and management attention and subjects us to different regulatory, political and economic risks from those in the US. We
have made, and will continue to make, substantial investments in data centers, cloud computing infrastructure, sales, marketing, partnership arrangements,
personnel and facilities as we enter and expand in new geographic markets. When we make these investments, it is typically unclear whether, and when,
sales in the new market will justify our investments. We may significantly underestimate the level of investment and time required to be successful, or
whether we will be successful. Our rate of acquisition of new large enterprise customers, a factor affecting our growth, has generally been lower in Africa,
Asia, Eastern Europe, South America and other markets in which we are less established and where there may be increased or changing regulations and
operational and intellectual property risks, as compared to North America, Australia and Western Europe. An increasing proportion of the large enterprises
that are not yet our customers are located in emerging markets where we are less established. We have experienced, and may continue to experience,
difficulties in some of our investments in geographic expansion, including hiring qualified sales management personnel, penetrating the target market,
anticipating and ensuring compliance with regulatory developments, and managing foreign operations in such locales.
Risks inherent with making our products and services available in international markets include without limitation:
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compliance with multiple, conflicting and changing governmental laws and regulations, including employment, tax, competition, requirements to
have local partner(s), local entity ownership limitations, technology transfer or sharing requirements, data residency and transfer laws and
regulations, privacy and data protection laws and regulations;
compliance by us and our business partners with international bribery and anti-corruption laws, including the UK Bribery Act and the U.S.
Foreign Corrupt Practices Act of 1977, as amended (the “FCPA”);
the risk that illegal or unethical activities of our local employees or business partners will be attributed to or result in liability to us or damage to
our reputation;
the risk that we will fail to meet the requirements of the rules and regulations relating to government or other public sector contracting;
longer and potentially more complex sales and accounts receivable payment cycles and other collection difficulties;
tax treatment of revenues from international sources and changes to tax codes, including being subject to foreign tax laws and being liable for
paying withholding, income or other taxes in foreign jurisdictions;
different pricing and distribution environments;
foreign currency fluctuations, which may cause transactional and translational remeasurement losses;
potential changes in international trade policies, tariffs, agreements and practices, including the adoption and expansion of formal or informal
trade restrictions or regulatory frameworks favoring local competitors;
potential threatening state-sponsored actions, including cybersecurity threats directed at local data centers, customers or end-users;
local business practices and cultural norms that may favor local competitors;
localization of our services, including translation into foreign languages and associated expenses; and
natural disasters, acts of war, terrorism or pandemics.
If we are unable to manage these risks, if our required investments in these international markets are greater than anticipated, or if we are
unsuccessful in increasing sales in emerging markets, our revenue growth rate, business and operating results will be adversely affected.
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Doing business with the public sector, including federal, state and local governments and agencies in the US, and heavily-regulated organizations and
governments globally, subjects us to risks related to the government procurement process, budget decisions driven by statutory and regulatory
determinations, termination of contracts, and compliance with government contracting requirements.
We provide products and services to the U.S. federal, state and local governments and heavily-regulated organizations directly and through our
partners. We have made, and may continue to make, significant investments to support future sales opportunities in the federal, state and local government
sectors. This includes obtaining additional cloud security certification requirements for the ServiceNow Government Community Cloud, such as the U.S.
Federal Risk and Authorization Management Program (“FedRAMP”) High Provisional Authority to Operate (“P-ATO”) from the Joint Authorization
Board, and the U.S. Department of Defense Security Requirements Guide Impact Level 4 P-ATO for cloud computing by the Defense Information Systems
Agency. However, government certification requirements may change, or we may be unable to achieve or sustain one or more government certifications,
including those mentioned above. As a result, if such requirements change, our ability to sell into the government sector could be restricted until we
demonstrate that we meet any revised certification requirements.
A substantial majority of our sales to date to government entities have been made indirectly through our distributor, resellers or service provider
partners. Doing business with government entities presents a variety of risks. The procurement process for governments and their agencies is highly
competitive, time-consuming and may, in certain circumstances, be subject to political influence. We incur significant up-front time and expense, which
subjects us to additional compliance risks and costs, without any assurance that we (or a third-party distributor, reseller or service provider) will win a
contract. Beyond this, demand for our products and services may be adversely impacted by public sector budgetary cycles and funding availability that in
any given fiscal cycle may be reduced or delayed, including in connection with an extended federal government shutdown. Further, if we are or our partner
is successful in receiving a contract award, that award could be challenged by one or more aggrieved bidders through the applicable bid protest process. Bid
protests may result in an increase in expenses related to obtaining contract awards or an unfavorable modification or loss of an award. In the event a bid
protest is unsuccessful, the resulting delay in the startup and funding of the work under these contracts may cause our actual results to differ materially and
adversely from those anticipated.
In addition, public sector customers may have contractual, statutory or regulatory rights to terminate current contracts with us or our third-party
distributors or resellers for convenience or due to a default, though such risk may be assumed by such third-party distributor or reseller. If a contract is
terminated for convenience, we may only be able to collect fees for products or services delivered prior to termination and settlement expenses. If a
contract is terminated due to a default, we may be liable for excess costs incurred by the customer for procuring alternative products or services or be
precluded from doing further business with government entities. Further, entities providing services to governments are required to comply with a variety
of complex laws, regulations, and contractual provisions relating to the formation, administration, or performance of government contracts that give public
sector customers substantial rights and remedies, many of which are not typically found in commercial contracts. These may include rights with respect to
price protection, the accuracy of information provided to the government, contractor compliance with supplier diversity policies, and other obligations that
are particular to government contracts, such as termination rights. These obligations may apply to us and/or third-party resellers or distributors whose
practices we may not control. Such parties’ non-compliance could impose repercussions with respect to contractual and customer satisfaction issues.
In addition, federal, state, and local governments routinely investigate and audit contractors for compliance with these requirements. If, as a result of
an audit, it is determined that we have failed to comply with these requirements, we may be subject to civil and criminal penalties and administrative
sanctions, including termination of contracts, forfeiture of profits, cost associated with the triggering of price reduction clauses, fines, and suspensions or
debarment from future government business, all of which may cause us to suffer reputational harm.
Further, we are increasingly doing business in heavily regulated industries, such as the financial services and health care industries. Current and
prospective customers, such as those in these industries, may be required to comply with more stringent regulations in connection with subscribing to and
implementing our services or particular regulations regarding third-party vendors that may be interpreted differently by different customers. In addition,
regulatory agencies may impose requirements toward third-party vendors generally, or us in particular, that we may not be able to, or may not choose to,
meet. In addition, customers in these heavily-regulated areas often have a right to conduct audits of our systems, products and practices. If one or more
customers determines that some aspect of our business does not meet regulatory requirements, we may be limited in our ability to continue or expand our
business.
Our customers also include several non-U.S. governments, to which government procurement law risks similar to those present in U.S. government
contracting also apply, particularly in certain emerging markets where our customer base is less
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established. In addition, compliance with complex regulations and contracting provisions in a variety of jurisdictions can be expensive and consume
significant management resources. In certain jurisdictions, our ability to win business may be constrained by political and other factors unrelated to our
competitive position in the market. Each of these difficulties could materially adversely affect our business and results of operations.
If we fail to comply with applicable anti-corruption and anti-bribery laws, including the FCPA and similar laws of other countries, and general trade
regulations, we could be subject to penalties and civil and/or criminal sanctions and our business could be materially adversely affected.
As we continue to expand our business internationally, we will inevitably do more business with large enterprises and the public sector in countries
that are perceived to have heightened levels of public sector corruption. Increased business in countries perceived to have heightened levels of corruption
could subject us and our officers and directors to increased scrutiny and increased liability from our business operations. We have implemented and
continue to update our compliance program but there is a risk that our employees and agents, as well as those companies to which we outsource certain of
our business operations, could take actions in violation of our policies and applicable law, for which we may be ultimately held responsible. In addition, we
are subject to compliance with general trade regulations relating to doing business outside the US, including certain restrictions on conducting trade in
certain restricted countries or with certain entities or individuals. Any violation of the FCPA, other applicable anti-corruption and anti-bribery laws or
general trade regulations by our employees or our third-party intermediaries could subject us to significant risks and result in regulatory investigations,
whistleblower complaints, adverse media coverage and/or severe criminal or civil sanctions, which could have a materially adverse effect on our
reputation, business, operating results, and prospects.
We rely on our network of partners for an increasing portion of our revenues, and if these partners fail to perform, our ability to sell and distribute our
products may be limited, and our operating results and growth rate may be harmed.
An increasing portion of our revenues is generated by sales through our network of partners, including managed service providers and resellers.
Increasingly, we and our customers rely on our partners to provide professional services, including customer implementations, and there may not be enough
qualified implementation partners available to meet customer demand. While we provide our partners with training and programs, including accreditations
and certifications, these programs may not be effective or utilized consistently. In addition, new partners may require extensive training and may require
significant time and resources to achieve productivity. Our partners may subject us to lawsuits, potential liability, and reputational harm if, for example, any
of our partners misrepresent the functionality of our platform or products to customers, fail to perform services to our customers’ expectations, or violate
laws or our corporate policies. In addition, our partners may utilize our platform to develop products and services that could potentially compete with
products and services that we offer currently or in the future. Concerns over competitive matters or intellectual property ownership could constrain these
partnerships. If we fail to effectively manage and grow our network of partners, or properly monitor the quality and efficacy of their service delivery, our
ability to sell our products and efficiently provide our services may be impacted, and our operating results and growth rate may be harmed.
Privacy laws and concerns, evolving regulation of cloud computing, cross-border data transfer restrictions, other foreign and domestic regulations and
standards related to data and the Internet may adversely affect our business.
National and local governments or agencies have adopted, and may continue to adopt, laws and regulations affecting data privacy, the use of the
Internet as a commercial medium, the use of data in contexts referred to as artificial intelligence and machine learning, and data sovereignty or residency
requirements concerning the location of data centers and support services. As a cloud-based service provider, we optimize performance of our products and
services by utilizing data centers located in, and support provided from, different jurisdictions. Changing laws, regulations and standards applying to the
collection, use, sharing, transfer or other processing of data, including personal data, could affect our ability to develop our products and services to
maximize their utility, as well as our customers’ ability to use data or share data with service providers. Such changes may restrict our ability to use, store
or otherwise process data of our customers in connection with providing and supporting our services. In some cases, this could impact our ability to offer
our services in certain locations or our customers’ ability to deploy our services globally.
The costs of compliance with, and other obligations imposed by, the General Data Protection Regulation (the “GDPR”), the ruling of the European
Court of Justice in Schrems v. Facebook Ireland, Limited and interpretations of that ruling by regulators and customers, recommendations issued by the
European Data Protection Board, new Standard Contractual Clauses issued by the European Commission, the California Consumer Privacy Act, as recently
amended by a voter-approved proposition (the “CCPA”) and other privacy, data residency, sovereignty and transfer laws, regulations and standards
(including self-regulatory standards) may cause us to incur substantial operational costs or require us to modify our data handling practices
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and/or policies, may limit the development, use and adoption of our services, including artificial intelligence and machine learning features, and could
reduce overall demand for our services. In addition, non-compliance could result in proceedings or investigations against us by regulatory authorities or
others, lead to significant fines, damages, orders or reputational harm and may otherwise adversely impact our business, financial condition and operating
results. Changes in our developed or acquired products and how such products utilize data could also alter or increase our compliance requirements. As a
result, our innovation and business drivers in developing or acquiring new and emerging technologies and the demand for our products could be impacted.
Delays in the release of, or actual or perceived defects in, our products may slow the adoption of our latest technologies, reduce our ability to efficiently
provide services, decrease customer satisfaction, and adversely impact sales of additional products.
We must successfully continue to release new products and updates to existing products. The success of any release depends on a number of factors,
including our ability to manage the risks associated with quality or other defects or deficiencies, delays in the timing of releases or the adoption of releases
by customers, and other complications that may arise during the early stages of introduction. If releases are delayed or if customers perceive that our
releases contain bugs or other defects or are difficult to implement, customer adoption of our new products or updates may be adversely impacted,
customer satisfaction may decrease, our ability to efficiently provide our services may be reduced, and our growth prospects may be harmed.
As we acquire or invest in companies and technologies, we may not realize the expected business or financial benefits and the acquisitions and
investments may divert our management’s attention and result in additional dilution to our stockholders.
We have acquired or invested in companies and technologies in the past as part of our business strategy and may continue to evaluate and execute
potential strategic transactions, including acquisitions of or investments in businesses, technologies, services, products and other assets in the future. We
also may enter into relationships with other businesses to expand our service offerings, functionality or our ability to provide services in international
locations, which could involve preferred or exclusive licenses, additional channels of distribution, discount pricing or investments in other companies.
Although we conduct reasonably extensive due diligence with each of the entities we engage for a strategic transaction, our due diligence efforts may not
reveal every material concern that may exist either with respect to the target entity or our assumptions surrounding the resulting combination. These
strategic transactions involve numerous risks, including:
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assimilating or integrating the businesses, technologies, products, personnel or operations of the acquired companies;
failing to achieve the expected benefits of the acquisition or investment;
potential loss of key employees of the acquired company;
inability to maintain relationships with customers and partners of the acquired business;
potential adverse tax consequences;
disruption to our business and diversion of management attention and other resources;
potential financial and credit risks associated with acquired customers;
dependence on acquired technologies or licenses for which alternatives may not be available to us without significant cost or complexity;
in the case of foreign acquisitions, the challenges associated with integrating operations across different cultures and languages and any currency
and regulatory risks associated with specific countries;
introducing increased complexity and burden to maintain the technology platform or introducing vulnerabilities or threats by integrating acquired
technologies;
increased data privacy or security compliance requirements resulting from integrating the acquired technology or company with ours;
impairment to our investments if our investees are unable to obtain future funding on favorable terms or at all; and
potential unknown liabilities associated with the acquired businesses.
In addition, we may have to pay cash, incur debt, or issue equity or equity-linked securities to pay for any future acquisitions, each of which could
adversely affect our financial condition or our stock price. Furthermore, if we finance acquisitions by issuing equity, convertible or other debt securities or
loans, our existing stockholders may be diluted, or we could face constraints related to the terms of and repayment obligation related to the incurrence of
indebtedness that could affect our stock price. The occurrence of any of these risks could harm our business, operating results and financial condition.
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Risks Related to the Operation of Our Business
If we or our third-party service providers suffer a cyber-security event, we may lose customers and incur significant liabilities, any of which would
harm our business and operating results.
Our operations involve the storage, transmission and processing of our customers’ confidential, proprietary and sensitive data, including personally
identifiable information, protected health information, financial information and, in some cases, government information. While we have security measures
in place designed to protect customer information and prevent data loss, these measures may be breached because of employee error or third-party actions,
including unintentional events or deliberate attacks by cyber criminals, and result in someone obtaining unauthorized access to our customers’ data or our
data, including our intellectual property and other confidential business information. For example, third parties have attempted to fraudulently induce
employees, contractors, or users to disclose information to gain access to our data or our customers’ data, and we have been the target of email scams that
attempt to acquire personal information or company assets. Computer malware, ransomware, viruses, hacking, phishing and denial of service attacks by
third parties have become more prevalent in our industry, and they have occurred on our and our third-party service providers’ systems in the past and may
occur again on these systems in the future. Because techniques used to sabotage, obtain unauthorized access to systems or prohibit authorized access to
systems change frequently and generally are not detected until successfully launched against a target, we have been and may continue to be unable to
anticipate these techniques or to implement adequate preventative measures. This may also include underlying infiltration of pre-existing systems,
including those of our third-party service providers or customers, perpetrated by more sophisticated attackers, such as the late 2020 foreign cybersecurity
attack on a U.S. IT company. We devote significant financial and personnel resources to implement and maintain security measures; however, as cyber-
security threats develop and grow more complex over time, it may be necessary to make significant further investments to protect data and infrastructure. A
security breach suffered by us or our third-party service providers, an attack against our service availability or unauthorized access or loss of data could
result in a disruption to our service, litigation, service level agreement claims, indemnification and other contractual obligations, regulatory investigations,
government fines and penalties, reputational damage, loss of sales and customers, mitigation and remediation expenses and other significant costs and
liabilities. In addition, we may incur significant costs and operational consequences of paying to access data, investigating, remediating, eliminating,
complying with notice obligations and implementing additional measures designed to prevent actual or perceived security incidents. We also cannot be
certain that our existing insurance coverage will continue to be available on acceptable terms or will be available in sufficient amounts to cover the
potentially significant losses that may result from a security incident or breach or that the insurer will not deny coverage as to any future claim.
Further, in most instances, our customers administer access to the data held in their particular instance for their employees and service providers.
While we offer tools and support, customers are not required to utilize them and, accordingly, or for other reasons, a customer may suffer a cyber-security
event on its own systems, unrelated to our own, and allow a malicious actor to obtain access to the customer’s information held on our platform. Even if
such a breach is unrelated to our security programs or practices, such breach could result in our incurring significant economic and operational costs in
investigating, remediating, eliminating and implementing additional measures to further protect our customers from their own vulnerabilities, and could
result in reputational harm to us.
If we lose key employees or are unable to attract and retain the employees we need, our business and operating results will be adversely affected.
Our success depends largely upon the continued services of our management team and many key individual contributors. From time to time in the
ordinary course of business, there may be changes in our management team resulting from the hiring or departure of executives. For example, our current
President and Chief Executive Officer was appointed in November 2019 and our current Chief Financial Officer was appointed in January 2020. While we
seek to manage these transitions carefully, including by establishing strong processes and procedures and succession planning, such changes may result in a
loss of institutional knowledge and cause disruptions to our business.
In the technology industry, there is substantial and continuous competition for diverse, talented product and engineering, sales and operations
employees. We may not be successful in attracting and retaining such personnel, and we may experience increased compensation and training costs that
may not be offset by either improved productivity or higher sales. We have from time to time experienced, and we may continue to experience, difficulty in
hiring and retaining highly-skilled employees with appropriate qualifications, and may not be able to fill positions in desired geographic areas or at all. In
particular, competition for experienced software and cloud computing infrastructure engineers in the San Francisco Bay area, San Diego, Seattle,
Hyderabad, Dublin, London, and Amsterdam, our primary operating locations, is intense. Many of our employees, including all of our executive officers,
are employed “at-will” and may terminate their employment with us at any time. If we fail to attract
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new personnel or fail to retain and motivate our current personnel, our business and future growth prospects could be adversely affected.
In addition, we believe our corporate culture of fostering innovation, teamwork and employee satisfaction has been a key contributor to our success to
date. As we continue to grow and expand globally and navigate shifting workforce priorities, including an extended period of time in which our employees
are working from their home locations or an increase in remote workers, we may find it difficult to maintain important aspects of our corporate culture,
which could negatively affect our ability to retain and recruit personnel who are essential to our future success.
Lawsuits against us by third parties that allege we infringe their intellectual property rights could harm our business and operating results.
There is considerable patent and other intellectual property development activity in our industry. Our competitors, other third parties and non-
practicing entities, own large numbers of patents, copyrights, trademarks and trade secrets, which they may use to assert claims of patent infringement,
misappropriation or other violations of intellectual property rights against us. Moreover, the patent portfolios of many of our competitors are larger than
ours. This disparity may increase the risk that our competitors may sue us for patent infringement and may limit our ability to counterclaim for patent
infringement or settle through patent cross-licenses. For example, we have recorded material charges for legal settlements of such claims in the past.
In any intellectual property litigation, regardless of the scope or merit, we may incur substantial costs and attorney’s fees and, if the claims are
successfully asserted against us and we are found to be infringing upon the intellectual property rights of
others, we could be required to: pay substantial damages and/or make substantial ongoing royalty payments; cease offering or modify our products and
services; comply with other unfavorable terms, including settlement terms; and indemnify our customers and business partners, obtain costly licenses on
their behalf, and/or refund fees or other payments previously paid to us. Further, upon expiration of the term of any agreements that allow us to use third-
party intellectual property, we may be unable to renew such agreements on favorable terms, if at all, in which case we may face intellectual property
litigation. The mere existence of any lawsuit, or any interim or final outcomes, and the public statements related to it (or absence of such statements) by the
press, analysts and litigants could be unsettling to our customers and prospective customers. This could cause an adverse impact to our customer
satisfaction and related renewal rates, cause us to lose potential sales, and could also be unsettling to investors or prospective investors and cause a
substantial decline in our stock price. Any claim or litigation against us could be costly, time-consuming and divert the attention of management and key
personnel from our business operations and harm our financial condition and operating results.
Our intellectual property protections may not provide us with a competitive advantage, and defending our intellectual property may result in substantial
expenses that harm our operating results.
Our success depends to a significant degree on our ability to protect our proprietary technology and our brand under patent and other intellectual
property protections of the US and other jurisdictions. Though we seek patent protection for our technology, we may not be successful in obtaining patent
protection, and any patents acquired in the future may not provide us with competitive advantages, or may be successfully challenged by third parties.
Furthermore, legal standards relating to the validity, enforceability and scope of protection of intellectual property rights are uncertain. Any of our
intellectual property rights may be challenged by others or invalidated through administrative processes or litigation. Effective patent, trademark, copyright
and trade secret protection may not be available in every country in which we offer services. The laws of some foreign countries may not be as protective
of intellectual property rights as those in the US, and mechanisms for enforcement of intellectual property rights or available remedies may be inadequate.
We may be required to spend significant resources to monitor and protect our intellectual property rights. We have initiated and, in the future, may initiate
claims or litigation against third parties for infringement of our proprietary rights or to establish the validity of our proprietary rights. Any litigation,
whether or not resolved in our favor, could result in significant expense to us, divert the efforts of our technical and management personnel and may result
in counter-claims with respect to infringement of intellectual property rights by us. If we are unable to prevent third parties from infringing upon or
misappropriating our intellectual property, or are required to incur substantial expenses defending our intellectual property rights, our business and
operating results may be adversely affected.
Our use of open source software could harm our ability to sell our products and services and subject us to possible litigation.
Our products incorporate software licensed to us by third-party authors under open source licenses, and we expect to continue to incorporate open
source software into other products and services in the future. We attempt to monitor our use of open source software in an effort to avoid subjecting our
products and 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 terms of open source licenses, and therefore the potential impact of these terms on our business is
uncertain and enforcement of these terms may result in unanticipated obligations regarding our products and services. For example, depending on which
open source license governs open source software included within our products and services, we may be
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subjected to conditions requiring us to offer our products and services to users at no cost; make available the source code for modifications and derivative
works based upon, incorporating or using the open source software; and license such modifications or derivative works under the 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 had not complied with the
conditions of one or more of these licenses, we could be required to incur significant legal costs defending ourselves against such allegations, be subject to
significant damages or be enjoined from distributing our products and services.
Various factors, including our customers’ business, integration, migration and security requirements, or errors by us, our partners, or our customers,
may cause implementations of our products to be delayed, inefficient or otherwise unsuccessful.
Our business depends upon the successful implementation of our products by our customers either through us or our partners. Further, our customers’
business, integration, migration and security requirements, or errors by us, our partners, or our customers, or other factors may cause implementations to be
delayed, inefficient or otherwise unsuccessful. For example, changes in the functional requirements of our customers, delays in timeline, or deviations from
recommended best practices may occur during the course of an implementation project. As a result of these and other risks, we or our customers may incur
significant implementation costs in connection with the purchase, implementation and enablement of our products. Some customer implementations may
take longer than planned or fail to meet our customers’ expectations, which may delay our ability to sell additional products or result in customers
canceling or failing to renew their subscriptions before our products have been fully implemented. Some customers may lack the employee talent or
organizational capacity to manage a digital transformation such as our offering and, as a consequence, may be unable to see the benefits of our products.
Unsuccessful, lengthy, or costly customer implementation and integration projects could result in claims from customers, reputational harm, and
opportunities for competitors to displace our products, each of which could have an adverse effect on our business and operating results.
Disruptions or defects 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 experience defects in our services, and new defects may be detected in the future. For example, we provide regular updates to
our services, which frequently contain undetected defects when first released. Defects may also be introduced by our use of third-party software, including
open source software. Disruptions may result from errors we make in developing, delivering, configuring or hosting our services, or designing, installing,
expanding or maintaining our cloud infrastructure. Disruptions in service can also result from incidents that are outside of our control, including denial of
service or ransomware attacks. We currently serve our customers primarily using equipment managed by us and co-located in third-party data centers
operated by several different providers located around the world, and serve certain of our customers using data center facilities operated by public cloud
service providers. These data centers are vulnerable to damage or interruption from earthquakes, hurricanes, 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 or negligence. Despite precautions taken at these centers, problems at these centers have occurred, resulting in interruptions in our services.
Such problems could occur again and result in similar or lengthier service interruptions and the loss of customer data. In addition, our customers may use
our services in ways that cause disruptions in service for other customers. Our customers use our services to manage important aspects of their businesses,
and our reputation and business will be adversely affected if our customers and potential customers believe our services are unreliable. Disruptions or
defects in our services may reduce our revenues, 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 their subscriptions, and adversely affect our ability to attract new customers. Similarly, customers may have unique
requirements for system resiliency that we may not be able to, or may not choose to, meet. The occurrence of payment delays, service credit, warranty or
termination for material breach or other claims against us could result in an increase in our bad debt expense, an increase in collection cycles for accounts
receivable, an increase to our service level credit accruals, other increased expenses or risks of litigation. We may not have insurance sufficient to
compensate us for the potentially significant losses that may result from claims arising from disruptions in our services.
Risks Related to the Financial Performance or Financial Position of Our Business
Our operating results may vary significantly from period to period, and if we fail to meet the financial performance expectations of investors or
securities analysts, the price of our common stock could decline substantially.
Our operating results may vary significantly from period to period as a result of various factors, some of which are beyond our control. For any
quarterly or annual period, there is a risk that our financial performance will not meet the financial guidance we have previously given for that period, or
that we may otherwise fail to meet the financial performance expectations of the securities analysts who issue reports on our company and our common
stock price, or of investors in our common stock. There is also a risk that we may issue forward-looking financial guidance for a quarterly or annual period
that fails to meet the
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expectations of such securities analysts or investors. If any of the foregoing occurs, for any reason, either within or outside of our control, the price of our
common stock could decline substantially and investors in our common stock could incur substantial losses. Some of the important factors that may cause
our financial performance to vary widely, or cause our forward-looking financial guidance to fall below the expectations of such securities analysts or
investors, include:
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our ability to attract new customers, retain and increase sales to existing customers, and satisfy customers’ requirements;
changes in our mix of products and services, including changes in our mix of cloud and self-hosted offerings, market penetration of our products,
or use of our products by our customers;
our ability to increase sales of certain new products;
volatility in foreign currency exchange rates and our ability to effectively hedge our foreign currency exposure;
the rate of expansion, retention and productivity of our sales and engineering organizations;
the number of new employees added;
the cost, timing and management effort for our development of new products and services;
general economic conditions that may adversely affect our customers’ or prospective customers’ purchasing decisions;
the amount and timing of operating costs and capital expenditures related to business operation and expansion;
seasonality in terms of when we enter into customer agreements;
the length and complexity of the sales cycle and certification process for our services, especially for sales to larger enterprises, government and
regulated organizations;
changes in the size and complexity of our customer relationships;
changes to our management, sales and account management teams as we scale and evolve business priorities;
changes in our or our competitors’ pricing policies;
significant security breaches, technical difficulties or interruptions of our services;
new solutions or products introduced by our competitors;
changes in effective tax rates;
changes in the average contract term of our customer agreements, timing of renewals, renewal rates, expansion within our existing customers and
billings duration;
the timing of customer payments and payment defaults by customers;
extraordinary expenses such as litigation costs or damages, including settlement payments;
the costs associated with acquiring new businesses and technologies and the follow-on costs of integration, including the tax effects of
acquisitions;
changes in laws or regulations impacting the delivery of our services;
our ability to comply with privacy laws and regulations;
significant litigation or regulatory actions relating to claims of intellectual property infringement, violation of privacy laws, employment matters
or any other significant matter;
the amount and timing of equity awards and the related financial statement expenses;
the impact of new accounting pronouncements; and
our ability to accurately estimate the total addressable market for our products and services.
Because we generally recognize revenues from our subscription service over the subscription term, a decrease in new subscriptions or renewals during
a reporting period may not be immediately reflected in our operating results for that period.
We generally recognize revenues from customers ratably over the terms of their subscriptions. Net new annual contract value from new subscriptions
and expansion contracts entered into during a period can generally be expected to generate revenues for the duration of the subscription term. As a result, a
significant portion of the revenues we report in each period are derived from the recognition of deferred revenues relating to subscriptions entered into
during previous periods. Consequently, a decrease in new or renewed subscriptions in any single reporting period will have a limited impact on our
revenues for that period. In addition, our ability to adjust our cost structure in the event of a decrease in new or renewed subscriptions may be limited.
Further, a decline in new subscriptions, expansion contracts or renewals in a given period may not be fully reflected in our revenues for that period,
but they will negatively affect our revenues in future periods. Accordingly, the effect of significant downturns in sales and market acceptance of our
services, and changes in our 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 rapidly increase our revenues through additional sales in any period, as revenues from new customers are generally recognized over the
applicable subscription term. Additionally, due to the complexity of certain customer contracts, the actual revenue recognition treatment
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required under Accounting Standard Codification Topic 606, “Revenue from Contracts with Customers (“Topic 606”)” depends on contract-specific terms
and may result in greater variability in revenues from period to period.
In addition, a decrease in new subscriptions, expansion contracts or renewals in a reporting period may not have an immediate impact on billings for
that period due to factors that may offset the decrease, such as an increase in billings duration, the dollar value of contracts with future start dates, or the
dollar value of collections in the current period related to contracts with future start dates.
As our business grows, we expect our revenue growth rate to continue to decline.
We have experienced significant revenue growth in prior periods; however, our longer-term revenue growth rate is declining, and we expect that it
will continue to decline into the foreseeable future due to a number of reasons, which may include maturation of our business, increasing competition, or
decrease in the growth of our overall market. We also expect our costs to increase in future periods as we continue to invest in our strategic priorities,
which may not result in increased revenues or growth in our business. You should not rely on our revenue for any prior periods as any indication of our
future revenue growth. If we are unable to maintain consistent revenue or revenue growth, our stock price could be volatile.
Changes in our effective tax rate or rejection of our tax positions may adversely affect our financial position and results.
We are subject to income taxes in the US and various foreign jurisdictions. We believe that our provision for income taxes is reasonable, but the
ultimate tax outcome may differ from the amounts recorded in our consolidated financial statements and may materially affect our financial results in the
period or periods in which such outcome is determined. Our effective tax rate could be adversely affected by changes in the mix of earnings and losses in
countries with differing statutory tax rates, certain non-deductible expenses, the valuation of deferred tax assets and liabilities and the effects of
acquisitions. Increases in our effective tax rate would reduce our profitability or in some cases increase our losses.
Additionally, our future effective tax rate could be impacted by changes in accounting principles or changes in federal, state or international tax laws
or tax rulings. The U.S. Department of Treasury has broad authority to issue regulations and interpretative guidance that may significantly impact how we
will apply the law, which could affect our results of operations in the period issued. Many countries and organizations such as the Organization for
Economic Cooperation and Development are actively considering changes to existing tax laws or have proposed or enacted new laws that could increase
our tax obligations in countries where we do business or cause us to change the way we operate our business. Recent global tax developments applicable to
multinational businesses and increased scrutiny under tax examinations could have a material impact on our business and negatively affect our financial
results. Any changes in federal, state or international tax laws or tax rulings may increase our worldwide effective tax rate and harm our financial position
and results of operations.
In addition, we may be subject to income tax audits by tax jurisdictions throughout the world, many of which have not established clear guidance on
the tax treatment of cloud computing companies. Although we believe our income tax liabilities are reasonably estimated and accounted for in accordance
with applicable laws and principles, an adverse resolution of one or more uncertain tax positions in any period could have a material impact on our results
of operations for that period. Further, many of our most important intangible assets are held outside the US and are subject to inter-company agreements
regarding the development and distribution of those assets to other jurisdictions with potential challenge under permanent establishment or transfer pricing
principles. While we believe that our position is appropriate and well founded, in the event that our position was to be successfully challenged by taxing
authorities in other jurisdictions, we may become subject to significant tax liabilities, which could harm our financial position and financial results.
If we are unable to maintain effective internal control over financial reporting, the accuracy and timeliness of our financial reporting may be adversely
affected.
The Sarbanes-Oxley Act requires us, among other things, to assess and report on the effectiveness of our internal control over financial reporting
annually and the reasonable assurance level of our disclosure controls and procedures quarterly. In addition, our independent registered public accounting
firm is required to audit the effectiveness of our internal control over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act annually.
Our independent registered public accounting firm may issue a report that is adverse if it is not satisfied with the level at which our controls are
documented, designed or operating. Moreover, our testing, or the subsequent testing by our independent registered public accounting firm, may reveal
material weaknesses or significant deficiencies. If material weaknesses are identified or 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 could subsequently require restatement, we could receive an adverse opinion
regarding our internal control over financial reporting from our independent registered public accounting firm, we could be subject to investigations or
sanctions by regulatory
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authorities and we could incur substantial expenses. We may not be able to effectively implement system and process changes required for new standards
on a timely basis. Any delays or failure to update our systems and processes could also lead to a material weakness or significant deficiency.
Risks Related to General Economic Conditions
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,
and thus could have a negative effect on us. Our business operations are subject to interruption by natural disasters, flooding, fire, power shortages,
pandemics such as COVID-19, terrorism, political unrest, telecommunications failure, vandalism, cyber-attacks, geopolitical instability, war, the effects of
climate change (such as drought, wildfires, hurricanes, increased storm severity and sea level rise) and other events beyond our control. Although we
maintain crisis management and disaster response plans, such events could make it difficult or impossible for us to deliver our services to our customers,
could decrease demand for our services, and could cause us to incur substantial expense. Our insurance may not be sufficient to cover losses or additional
expense that we may sustain. The majority of our research and development activities, offices, information technology systems, and other critical business
operations are located near major seismic faults in California and Washington. Customer data could be lost, significant recovery time could be required to
resume operations and our financial condition and operating results could be adversely affected in the event of a major natural disaster or catastrophic
event. In addition, the impacts of climate change on the global economy and our industry are rapidly evolving. We may be subject to increased regulations,
reporting requirements, standards or expectations regarding the environmental impacts of our business.
Global economic conditions may harm our industry, business and results of operations.
We operate globally and as a result our business and revenues are impacted by global macroeconomic conditions. Global financial developments
seemingly unrelated to us or the software industry may harm us. From time to time, the US and other key international economies have been impacted by
geopolitical and economic instability, high levels of credit defaults, international trade disputes, falling demand for various goods and services, high levels
of persistent unemployment, wage and income stagnation, restricted credit, poor liquidity, reduced corporate profitability, volatility in credit, equity and
foreign exchange markets, bankruptcies, international trade agreements, trade restrictions and overall economic uncertainty. These conditions can arise
suddenly and affect the rate of information technology spending and could adversely affect our customers’ or prospective customers’ ability or willingness
to purchase our services, delay purchasing decisions, reduce the value or duration of their subscriptions, or affect renewal rates, all of which could harm our
operating results.
For example, the COVID-19 pandemic, global growth rates, tariffs or trade relations between the US and China or other countries, increased
restrictions on international data transfers, economic, political and labor conditions, including the impact on trade or any other instability surrounding the
United Kingdom’s exit from the EU (Brexit), political uncertainty and other geopolitical events could directly or indirectly affect our business. In addition,
the effects, if any, of global financial conditions on our business can be difficult to distinguish from the effects on our business from product, pricing, and
other developments in the markets specific to our products and our relative competitive strength. If we make incorrect judgments or assumptions about our
business for this reason, our business and results of operations could be adversely affected.
Foreign currency exchange rate fluctuations could harm our financial results.
We conduct significant transactions, including revenue transactions and intercompany transactions, in currencies other than the U.S. Dollar or the
functional operating currency of the transactional entities. In addition, our international subsidiaries maintain significant net assets that are denominated in
the functional operating currencies of these entities. Accordingly, changes in the value of currencies relative to the U.S. Dollar may impact our consolidated
revenues and operating results due to transactional and translational remeasurement that is reflected in our earnings. It is particularly difficult to forecast
any impact from exchange rate movements, so there is risk that unanticipated currency fluctuations could adversely affect our financial results or cause our
results to differ from investor expectations or our own guidance in any future periods. Volatility in exchange rates and global financial markets is expected
to continue due to political and economic uncertainty globally.
We use derivative instruments, such as foreign currency forwards, to hedge certain exposures to fluctuations in certain foreign currency exchange
rates. These hedging contracts may reduce, but cannot entirely eliminate, the impact of adverse currency exchange rate movements. Further, unanticipated
changes in currency exchange rates may result in poorer overall financial performance than if we had not engaged in any such hedging transactions.
Moreover, for a number of reasons, including our limited experience with these hedging contracts, we may not seek or be able to establish a perfect
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between such hedging instruments and the exposures being hedged. Any such imperfect correlation may prevent us from achieving the intended hedge, and
could expose us to a greater overall risk of loss than if we had not hedged.
Risks Related to Our 2030 Notes and 2022 Notes
Our debt service obligations, including the 2030 Notes, may adversely affect our financial condition and cash flows from operations.
As of December 31, 2020, we have $1.5 billion aggregate principal amount of the 2030 Notes payable outstanding due on September 1, 2030, as
described in Note 11 in the notes to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K. Our ability to make
payments on, repay or refinance the 2030 Notes in the future will depend on our future performance which is subject to a variety of risks and uncertainties,
many of which are beyond our control. If we decide to refinance the 2030 Notes, we may be required to do so on different or less favorable terms or we
may be unable to refinance the 2030 Notes at all, both of which may adversely affect our financial condition.
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Maintenance of our indebtedness, contractual restrictions, and additional issuances of indebtedness could:
cause us to dedicate a substantial portion of our cash flows from operations towards debt service obligations and principal repayments;
increase our vulnerability to adverse changes in general economic, industry and competitive conditions;
limit our flexibility in planning for, or reacting to, changes in our business and our industry;
impair our ability to obtain future financing for working capital, capital expenditures, acquisitions, general corporate or other purposes; and
due to limitations within the debt instruments, restrict our ability to grant liens on property, enter into certain mergers, dispose of all or
substantially all of our or our subsidiaries’ assets, taken as a whole, materially change our business or incur subsidiary indebtedness, subject to
customary exceptions.
We are required to comply with the covenants set forth in the indentures governing the 2030 Notes. Our ability to comply with these covenants may
be affected by events beyond our control. If we breach any of the covenants and do not obtain a waiver from the note holders or lenders, then, subject to
applicable cure periods, any outstanding indebtedness may be declared immediately due and payable. In addition, changes by any rating agency to our
credit rating may negatively impact the value and liquidity of our securities. Downgrades in our credit ratings could restrict our ability to obtain additional
financing in the future and could affect the terms of any such financing.
The conditional conversion feature of the 2022 Notes may adversely affect our financial condition and operating results.
Prior to the business day immediately preceding February 1, 2022, the holders of the 2022 Notes may elect to convert their notes during any calendar
quarter (and only during such calendar quarter) if the last reported sale price of our common stock for at least 20 trading days during the period of 30
consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to $175.18 (the “Conversion
Condition”). The Conversion Condition for the 2022 Notes was met for all the quarters ended June 30, 2018 through December 31, 2020, except for the
quarter ended December 31, 2018. Therefore, our 2022 Notes became convertible at the holders’ option beginning on July 1, 2018 and continue to be
convertible through March 31, 2021, except for the quarter ended March 31, 2019. We have settled conversion requests and expect to settle additional
conversion requests prior to the maturity of the 2022 Notes. Also, we intend to continue to settle all of our conversion obligations in cash, which could
adversely affect our liquidity and result in a material adverse effect on our financial position, results of operations and cash flows. In addition, to the extent
we receive conversion requests, we may also record a loss on early conversions of the 2022 Notes converted by note holders based on the difference
between the fair market value allocated to the liability component on the settlement date and the net carrying amount of the liability component and
unamortized debt discount and issuance cost on the settlement date.
The convertible note hedge and warrant transactions may affect the value of the 2022 Notes and our common stock.
In connection with the sale of the 2022 Notes, we entered into convertible note hedge (the “2022 Note Hedge”) transactions with certain financial
institutions (“option counterparties”). We also entered into warrant transactions with the option counterparties pursuant to which we sold warrants for the
purchase of our common stock (the “2022 Warrants”). The actual number of shares of our common stock issuable upon the automatic exercise of the
remaining portion of the 2022 Warrants, if any, is unknown at this time. Refer to Note 11 in the notes to our consolidated financial statements included
elsewhere in this Annual Report on Form 10-K for additional information.
The option counterparties and/or their respective affiliates may modify their hedge positions by entering into or unwinding various derivatives with
respect to our common stock and/or purchasing or selling our common stock in secondary
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market transactions prior to the maturity of the 2022 Notes (and are likely to do so during any observation period related to a conversion of the 2022 Notes,
or following any repurchase of the 2022 Notes by us on any fundamental change repurchase date (as defined in the Indenture) or otherwise). This activity
could also cause or avoid an increase or a decrease in our stock price or the 2022 Notes price, which could affect note holders’ ability to convert the 2022
Notes and, to the extent the activity occurs during any observation period related to a conversion of the 2022 Notes, it could affect the amount and value of
the consideration that note holders will receive upon conversion of the 2022 Notes.
The potential effect, if any, of these transactions and activities on our stock price or the 2022 Notes price will depend in part on market conditions 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 2022 Notes (and the
resulting amount of cash and/or number of shares, if any, that note holders would receive upon the conversion) and, under certain circumstances, the ability
of the note holders to convert the 2022 Notes.
We are subject to counterparty risk with respect to the 2022 Note Hedge.
The option counterparties are financial institutions, and we will be subject to the risk that any or all of them may default under the 2022 Note Hedge.
Our exposure to the credit risk of the option counterparties will not be secured by any collateral. Recent global economic conditions have resulted in 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 stock price and
in the volatility of our common stock. In addition, upon a default by an option counterparty, we may suffer adverse tax consequences and more dilution
than we currently anticipate with respect to our common stock. We can provide no assurances as to the financial stability or viability of the option
counterparties.
Risks Related to Ownership of Our Common Stock
Our stock price has historically been and is likely to continue to be volatile and could subject us to litigation.
Our stock price has been, and is likely to continue to be, volatile and could be subject to wide fluctuations in response to various factors, some of
which are beyond our control. In addition, technology companies in general have highly volatile stock prices, and the volatility in stock price and trading
volume of securities is often unrelated or disproportionate to the financial performance of the companies issuing the securities. Factors affecting our stock
price, some of which are beyond our control, include:
•
•
•
•
•
•
•
•
•
•
changes in the estimates of our operating results or changes in recommendations by securities analysts that elect to cover our common stock;
announcements of new products, services or technologies, new applications or enhancements to services, strategic alliances, acquisitions, or other
significant events by us or by our competitors;
fluctuations in the valuation of companies, such as high-growth or cloud companies, investors perceive to be comparable to us;
changes to our management team;
trading activity by directors, executive officers and significant stockholders, or the market’s perception that large stockholders intend to sell their
shares;
the inclusion, exclusion, or deletion of our stock from any trading indices, such as the S&P 500 Index;
the size of our market float;
the volume of trading in our common stock, including sales upon exercise of outstanding options or vesting of equity awards or sales and
purchases of any common stock issued upon conversion of the remaining portion of the 2022 Notes or in connection with the 2022 Note Hedge
and 2022 Warrant transactions;
the economy as a whole, market conditions in our industry, and the industries of our customers; and
overall performance of the equity markets.
Following periods of volatility in the market price of a company’s securities, securities class action litigation has often been brought against that
company. Securities litigation could result in substantial costs and divert our management’s attention and resources from our business. This could have a
material adverse effect on our business, operating results, and financial condition.
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We do not intend to pay dividends on our common stock, so any returns will be limited to changes in our stock price.
We have never declared or paid any cash dividends on our common stock. We anticipate that we will retain future earnings for the development,
operation and expansion of our business and do not anticipate declaring or paying any cash dividends for the foreseeable future. In addition, our ability to
pay cash dividends on our common stock may be prohibited or limited by the terms of any future debt financing arrangements. Any return to stockholders
will be limited to increased stock price, if any.
Provisions in our charter documents, Delaware law, 2030 Notes or our 2022 Notes might discourage, delay or prevent a change of control or changes
in our management and, therefore, depress our stock price.
Our restated certificate of incorporation, as amended, and restated bylaws contain provisions that could depress our stock price by acting to
discourage, delay or prevent a change in control of our company or changes in our management that the stockholders of our company may deem
advantageous. These provisions among other things:
•
•
•
•
•
•
•
•
•
established a classified board so not all directors are elected at one time, although our board will be fully declassified by our 2023 annual meeting
of shareholders;
permit the board 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 shareholders;
require super-majority voting to amend some provisions in our certificate of incorporation, as amended, and restated bylaws;
authorize issuance of “blank check” preferred stock that our board could use to implement a shareholder rights plan;
do not permit our shareholders to call special meetings of shareholders;
prohibit shareholder action by written consent, which requires all shareholder actions to be taken at a meeting;
provide that the board is expressly authorized to make, alter or repeal our restated bylaws; and
establish advance notice requirements for nominations for election to our board or proposing matters that can be acted upon by shareholders at
annual shareholder meetings (though our restated bylaws have shareholder proxy access).
In addition, Section 203 of the Delaware General Corporation Law may discourage, delay or prevent a change in control of our company. Section 203
imposes 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 2022 Notes or change in control repurchase event provisions of our 2030 Notes may delay or
prevent a change in control of our company, because those provisions allow note holders to require us to repurchase such notes upon the occurrence of a
fundamental change or change in control repurchase event.
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ITEM 1B.
UNRESOLVED STAFF COMMENTS
None.
ITEM 2.
PROPERTIES
Our principal office is located in Santa Clara, California, where we lease approximately 608,000 square feet of space under three lease agreements for
our business operations and product development. We also have approximately 510,000 square feet of expansion space that is currently under development
by the landlord under two additional lease agreements. We also maintain offices globally. All of our properties are currently leased. We believe our existing
facilities are adequate to meet our current requirements. See Note 18 in the notes to our consolidated financial statements included elsewhere in this Annual
Report on Form 10-K for more information about our lease commitments. We expect to expand our facilities capacity as our employee base grows. We
believe we will be able to obtain such space on acceptable and commercially reasonable terms.
ITEM 3.
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 other
legal proceedings are uncertain, we are not presently a party to any legal proceedings that, if determined adversely to us, would individually or taken
together have a material adverse effect on our business, financial position, results of operations or cash flows.
ITEM 4.
MINE SAFETY DISCLOSURES
Not applicable.
27
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES
OF EQUITY SECURITIES
PART II
Market Information for Common Stock
Our common stock is listed on the New York Stock Exchange under the symbol “NOW.”
Dividends
Our board of directors currently intends to retain any future earnings to support operations and to finance the growth and development of our
business, and therefore does not intend to pay cash dividends on our common stock for the foreseeable future.
Stockholders
As of December 31, 2020, there were 9 registered stockholders of record (not including an indeterminate number of beneficial holders of stock held in
street name through brokers and other intermediaries) of our common stock.
Securities Authorized for Issuance under Equity Compensation Plans
The information required by this item will be included in an amendment to this Annual Report on Form 10-K or incorporated by reference from our
definitive proxy statement to be filed with the SEC pursuant to Regulation 14A.
Stock Performance Graph
The following shall not be deemed incorporated by reference into any of our other filings under the Securities Exchange Act of 1934, as amended (the
“Exchange Act”) or the Securities Act 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 S&P 500 Index,
NYSE Composite Index and the Standard & Poor Systems Software Index for each of the last five fiscal years ended December 31, 2016 through
December 31, 2020, assuming an initial investment of $100. Data for the S&P 500 Index, 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 our
common stock.
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ServiceNow, Inc.
NYSE Composite
S&P 500
S&P Systems Software
Base Period
Dec 31, 2015
100.00
100.00
100.00
100.00
Dec 31, 2016
Dec 31, 2017
Dec 31, 2018
Dec 31, 2019
Dec 31, 2020
85.88
111.94
111.96
113.24
150.64
132.90
136.40
155.56
205.70
121.01
130.42
181.04
326.16
151.87
171.49
274.06
635.89
162.49
203.04
392.13
Unregistered Sales of Equity Securities
In connection with the acquisition of Sweagle NV (“Sweagle”) in July 2020, we issued 18,728 shares of our common stock to ServiceNow Belgium
BVBA. The shares of common stock were issued in reliance on the exemption from registration pursuant to Section 4(a)(2) of the Securities Act of 1933,
as amended (the “Securities Act”).
In August 2020, concurrently with the offering of the 2030 Notes, we completed the 2022 Notes Repurchase. In connection with the 2022 Notes
Repurchase, we entered into partial unwind agreements that reduced the aggregate number of warrants to 1,828,876. In connection with the partial unwind
of the 2022 Warrants, we delivered, in an exchange pursuant to Section 3(a)(9) of the Securities Act, an aggregate of 2,284,930 shares of our common stock
to the holders of the 2022 Warrants, which were Citibank, N.A., Goldman Sachs & Co LLC, JPMorgan Chase Bank, National Association, London Branch,
and Morgan Stanley & Co. International plc. We did not receive any proceeds from the partial unwind agreements in connection with our 2022 Warrants,
nor were they subject to underwriting discounts or commissions.
Issuer Purchases of Equity Securities
None.
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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,” which are included elsewhere in this Annual Report on Form
10-K.
The selected consolidated statements of comprehensive income (loss) data for each of the years ended December 31, 2020, 2019 and 2018 and the
selected consolidated balance sheets data as of December 31, 2020 and 2019 set forth in the tables below are derived from our audited consolidated
financial statements included elsewhere in this Annual Report on Form 10-K. The selected consolidated statements of comprehensive income (loss) data
for the each of the years ended December 31, 2017 and 2016 and the selected consolidated balance sheets data as of December 31, 2018, 2017 and 2016 set
forth in the tables below are derived from audited consolidated financial statements which are not included in this Annual Report on Form 10-K. The
selected consolidated financial data in this section are not intended to replace our consolidated financial statements and the related notes. Our historical
results are not necessarily indicative of our future results.
(1)
(1) (2) (3)
Consolidated Statements of Comprehensive Income (Loss) Data:
Total revenues
Net income (loss)
Net income (loss) per share - basic
Net income (loss) per share - diluted
Weighted-average shares used to compute net income (loss) per share -
basic
Weighted-average shares used to compute net income (loss) per share -
diluted
(1) (2) (3)
(1) (2) (3)
2020
2019
Year Ended December 31,
2018
(in thousands, except per share data)
2017
2016
$
$
$
$
4,519,484
118,503
0.61
0.59
$
$
$
$
193,096
202,478
3,460,437
626,698
3.36
3.18
$
$
$
$
186,466
197,223
2,608,816
(26,704)
(0.15)
(0.15)
$
$
$
$
177,846
177,846
1,918,494
(116,846)
(0.68)
(0.68)
$
$
$
$
171,176
171,176
1,390,985
(414,249)
(2.52)
(2.52)
164,534
164,534
(1) The amounts for the years ended December 31, 2017 and 2016 reflect the impact of the full retrospective adoption of Topic 606 as of January 31, 2018.
(2) The amount for the year ended December 31, 2016 includes legal settlement expenses of $270 million.
(3) The amount for the year ended December 31, 2019 reflect the impact of an income tax benefit of $574 million from the release of the valuation allowance on the Irish deferred tax assets.
Refer to Note 17 in the notes to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for further details.
(1) (2)
Consolidated Balance Sheet Data:
Total assets
Deferred revenue, current and non-current portion
Long-term debt
(1)
2020
2019
As of December 31,
2018
(in thousands)
2017
2016
$
$
$
8,715,057
3,007,925
1,640,153
$
$
$
6,022,430
2,225,792
694,981
$
$
$
3,879,140
1,690,191
661,707
$
$
$
3,550,245
1,246,815
630,018
$
$
$
2,033,767
895,101
507,812
(1) The amount for the year ended December 31, 2017 reflects the impact of the full retrospective adoption of Topic 606 as of January 1, 2018.
(2) The amount as of December 31, 2019 reflects the impact of the adoption of Topic 842 as of January 1, 2019. Refer to Note 2 in the notes to our consolidated financial statements included
elsewhere in this Annual Report on Form 10-K for further details.
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ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition, results of operations and cash flows should be read in conjunction with the
consolidated financial statements and the related notes appearing under “Consolidated Financial Statements and Supplementary Data” in Item 8 of this
filing. Some of the information contained in this discussion and analysis or set forth elsewhere in this filing, including information with respect to our plans
and strategy for our business, includes forward-looking statements that involve risks, uncertainties and other factors. You should carefully read the “Risk
Factors” section of this filing for a discussion of important factors, including, but not limited to, impacts on our business, future financial performance and
general economic conditions due to the current COVID-19 pandemic, that could cause actual results and the timing of certain events to differ materially
from future results expressed or implied by the forward-looking statements contained in the following discussion and analysis.
Our free cash flow and billings measures included in the sections entitled “—Key Business Metrics—Free Cash Flow” and “—Key Business Metrics
—Billings” are not in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”). These non-GAAP financial measures are not intended
to be considered in isolation or as a substitute for, or superior to, financial information prepared and presented in accordance with GAAP. These measures
may be different from non-GAAP financial measures used by other companies, limiting their usefulness for comparison purposes. We encourage investors
to carefully consider our results under GAAP, as well as our supplemental non-GAAP results, to more fully understand our business.
This section of our Annual Report on Form 10-K discusses our financial condition and results of operations for the fiscal years ended December 31,
2020 and 2019, and year-to-year comparisons between fiscal 2020 and fiscal 2019. A discussion of our financial condition and results of operations for the
fiscal year ended December 31, 2018 and year-to-year comparisons between fiscal 2019 and fiscal 2018 that is not included in this Annual Report on Form
10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report
on Form 10-K for the fiscal year ended December 31, 2019, filed on February 20, 2020.
COVID-19 Environment
The COVID-19 pandemic has created significant global economic uncertainty, adversely impacted the business of our customers, partners and
vendors, and impacted our business and results of operations. As of the filing date, the extent to which the COVID-19 pandemic may continue to impact
our business and future financial condition or results of operations remains uncertain. We are continuing to monitor the actual and potential effects of the
COVID-19 pandemic across our business. While our revenues, billings and earnings are relatively predictable as a result of our subscription-based business
model, the effect of the COVID-19 pandemic, along with the seasonality we historically experience, may not be fully reflected in our results of operations
and overall financial performance until future periods, if at all, and could cause our future results of operations to vary significantly from period to period.
As the uncertainty continues, we may experience an increase in curtailed customer demand, reduced customer spend or contract duration, delayed
collections, lengthened payment terms, lengthened sales cycles or competition due to changes in terms and conditions and pricing of our competitors’
products and services, our business, results of operations and overall financial performance in future periods could be materially adversely affected.
Additionally, it is unclear to what extent certain reduction in expenditures noted in the current year due to actions taken in response to COVID-19 will
continue to be reduced below historical levels. The extent and continued impact of the COVID-19 pandemic on our operational and financial performance
will depend on certain developments, including: the duration and spread of the outbreak; government responses, including the effectiveness, extent and
duration of mitigation efforts such as “shelter in place” and similar directives; impact on our customers, sales cycles and ability to generate new business;
impact on our customer, industry or employee events; extent of delays in hiring and onboarding new employees mainly in our general and administrative
functions; and effect on our partners, vendors and supply chains; all of which are highly uncertain and difficult to predict.
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In response to the COVID-19 pandemic, we focused on maintaining business continuity, helping our employees, customers and communities, and
preparing for the future and the long-term success of our business. In 2020, we released four Emergency Response applications to help customers navigate
the COVID-19 pandemic management and the Safe Workplace applications, a four-application suite and dashboard, designed to help companies manage
the essential steps for returning employees to the workplace and to support their health and safety. Additionally, we canceled our in-person, annual
Knowledge user conference (“Knowledge”) and replaced it with a digital event experience. In the first quarter of 2020, we also temporarily closed most of
our offices and encouraged our employees to work remotely. These changes remain in effect in the first quarter of 2021 and could extend into future
quarters. The impact, if any, of these and any additional operational changes we may implement is uncertain, but changes we have implemented have not
affected and are not expected to affect our ability to maintain operations, including financial reporting systems, internal control over financial reporting and
disclosure controls and procedures. See the section “Risk Factors” for further discussion of the possible impact of the COVID-19 pandemic on our
business.
Overview
ServiceNow’s purpose is to make the world of work, work better for people. We believe that people want the technology they use in their work to be
more efficient and easier to use. We build applications to meet that demand by automating existing processes and creating efficient, digitized workflows
with a consumer grade user experience. Our products and services enable the steps of a job to flow naturally across disparate departments, systems and
processes of a business. When work flows naturally, great experiences follow. We primarily deliver our software via the Internet as a service through a
simple and easy-to-use interface so that we can rapidly deploy our packaged offerings, and customers can easily build their custom applications. In a
minority of cases, customers choose to host our software by themselves or through a third-party service provider.
We generally offer our services on an annual subscription fee basis, which includes access to the ordered subscription service and related standard and
enhanced support, including updates to the subscription service during the subscription term. Pricing for our subscription services is based on a number of
factors, including duration of subscription term, volume, mix of products purchased, and discounts. We generate sales through our direct sales team and, to
a lesser extent, indirectly through resale partners and third-party referrals. We also generate revenues from professional services and for training of
customer and partner personnel. Our professional services organization is focused on strategic advisory, implementation and consulting services to
accelerate platform adoption and drive customer outcomes. We generally bill our customers annually in advance for subscription services and monthly in
arrears for our professional services as the work is performed.
A majority of our revenues come from large global enterprise customers. We continue to invest in the development of our services, infrastructure and
sales and marketing to drive long-term growth.
Key Business Metrics
Remaining performance obligations. Transaction price allocated to remaining performance obligations (“RPO”) represents contracted revenue that
has not yet been recognized, which includes deferred revenue and non-cancelable amounts that will be invoiced and recognized as revenue in future
periods. RPO excludes contracts that are billed in arrears, such as certain time and materials contracts, as we apply the “right to invoice” practical expedient
under relevant accounting guidance. Current remaining performance obligations (“cRPO”) represents RPO that will be recognized as revenue in the next 12
months.
As of December 31, 2020, our RPO was $8.9 billion, of which 49% represented cRPO. Factors that may cause our RPO to vary from period to period
include the following:
•
Foreign currency exchange rates. While a majority of our contracts have historically been in U.S. Dollars, an increasing percentage of our
contracts in recent periods has been in foreign currencies, particularly the Euro and British Pound Sterling. Fluctuations in foreign currency
exchange rates as of the balance sheet date will cause variability in our RPO.
• Mix of offerings. In a minority of cases, we allow our customers to host our software by themselves or through a third-party service provider. In
self-hosted offerings, we recognize a portion of the revenue upfront upon the delivery of the software and as a result, such revenue is excluded
from RPO.
•
Subscription start date. From time to time, we enter into contracts with a subscription start date in the future and these amounts are included in
RPO if such contracts are signed by the balance sheet date.
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•
•
Timing of contract renewals. While customers typically renew their contracts at the end of the contract term, from time to time, customers may
do so either before or after the scheduled expiration date. For example, in cases where we are successful in selling additional products or services
to an existing customer, a customer may decide to renew its existing contract early to ensure that all its contracts expire on the same date. In other
cases, prolonged negotiations or other factors may result in a contract not being renewed until after it has expired.
Contract duration. While we typically enter into multi-year subscription services, the duration of our contracts varies. Further, we continue to see
an increase in the number of 12-month agreements entered into with the U.S. Federal government throughout the year which has been the highest
in the quarter ended September 30, driven primarily by timing of their annual budget expenditures. We sometimes also enter into contracts with
durations that have a 12-month or shorter term to enable the contracts to co-terminate with the existing contract. The contract duration will cause
variability in our RPO.
Number of customers with ACV greater than $1 million. We count the total number of customers with annual contract value (“ACV”) greater than $1
million as of the end of the period. We had 1,093, 891, and 682 customers with ACV greater than $1 million as of December 31, 2020, 2019 and 2018,
respectively. For purposes of customer count, a customer is defined as an entity that has a unique Dunn & Bradstreet Global Ultimate (“GULT”) Data
Universal Numbering System (“DUNS”) number and an active subscription contract as of the measurement date. The DUNS number is a global standard
for business identification and tracking. We make exceptions for holding companies, government entities and other organizations for which the GULT, in
our judgment, does not accurately represent the ServiceNow customer. For example, while all U.S. government agencies roll up to “Government of the
United States” under the GULT, we count each government agency that we contract with as a separate customer. Our customer count is subject to
adjustments for acquisitions, spin-offs and other market activity; accordingly, we restate previously disclosed number of customers with ACV greater than
$1 million calculations to allow for comparability. ACV is calculated based on the foreign exchange rate in effect at the time the contract was signed.
Foreign exchange rate fluctuations could cause some variability in the number of customers with ACV greater than $1 million. We believe information
regarding the total number of customers with ACV greater than $1 million provides useful information to investors because it is an indicator of our
growing customer base and demonstrates the value customers are receiving from the Now Platform.
Free cash flow. We define free cash flow, a non-GAAP financial measure, as GAAP net cash provided by operating activities reduced by purchases of
property and equipment. Purchases of property and equipment are otherwise included in cash used in investing activities under GAAP. We believe
information regarding free cash flow provides useful information to investors because it is an indicator of the strength and performance of our business
operations. However, our calculation of free cash flow may not be comparable to similar measures used by other companies. A calculation of free cash flow
is provided below:
Free cash flow:
Net cash provided by operating activities
Purchases of property and equipment
Free cash flow
(1)
2020
Year Ended December 31,
2019
(in thousands)
2018
$
$
1,786,599 $
(419,327)
1,367,272 $
1,235,972 $
(264,892)
971,080 $
811,089
(224,462)
586,627
(1)
Free cash flow for the years ended December 31, 2020 and 2018 include the effect of $82 million and $145 million, respectively relating to the repayments of convertible senior notes
attributable to debt discount. Refer to Note 11 in the notes to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for further details.
We have historically seen higher collections in the quarter ended March 31 due to seasonality in timing of entering into customer contracts which is
significantly higher with new customers, as well as expansion with existing customers, in the quarter ended December 31. Additionally, we have
historically seen higher disbursements in the quarters ended March 31 and September 30 due to payouts under our annual commission plans, purchases
under our employee stock purchase plan and payouts under our bonus plans.
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Renewal rate. We calculate our renewal rate by subtracting our attrition rate from 100%. Our attrition rate for a period is equal to the ACV from
customers lost during the period, divided by the sum of (i) the total ACV from all customers that renewed during the period, excluding changes in price or
users, and (ii) the total ACV from all customers lost during the period. Accordingly, our renewal rate is calculated based on ACV and is not based on the
number of customers that have renewed. Further, our renewal rate does not reflect increased or decreased purchases from our customers to the extent such
customers are not lost customers or lapsed renewal. A lost customer is a customer that did not renew an expiring contract and that, in our judgment, will not
be renewed. Typically, a customer that reduces its subscription upon renewal is not considered a lost customer. However, in instances where the
subscription decrease represents the majority of the customer’s ACV, we may deem the renewal as a lost customer. For our renewal rate calculation, we
define a customer as an entity with a separate production instance of our service and an active subscription contract as of the measurement date, instead of
an entity with a unique GULT or DUNS number. We adjust our renewal rate for acquisitions, consolidations and other customer events that cause the
merging of two or more accounts occurring at the time of renewal. Additionally, starting in 2020, we simplified our methodology related to contracts less
than 12 months to derive ACV used to calculate renewal rate. Previously disclosed renewal rates may be restated to reflect such adjustments or
methodology simplification to allow for comparability. While the previously disclosed renewal rates for the years ended December 31, 2019 and 2018 were
restated due to the methodology simplification to allow for comparability, there were no material changes to such previously disclosed renewal rates. Our
renewal rate was 98% for each of the years ended December 31, 2020, 2019 and 2018. As our renewal rate is impacted by the timing of renewals, which
could occur in advance of, or subsequent to the original contract end date, period-to-period comparison of renewal rates may not be meaningful
Billings. We define billings, a non-GAAP financial measure, as GAAP revenues recognized plus the change in total GAAP unbilled receivables,
deferred revenue and customer deposits as presented on the consolidated statements of cash flows. The calculation of billings is provided below:
2020
Year Ended December 31,
2019
(dollars in thousands)
2018
Billings:
Total revenues
Change in deferred revenue, unbilled receivables and customer
deposits
(1)
Total billings
Year-over-year percentage change in total billings
$
$
4,519,484
709,522
5,229,006
$
$
31 %
3,460,437
541,776
4,002,213
$
$
30 %
2,608,816
480,019
3,088,835
34 %
(1)
As presented on or derived from our consolidated statements of cash flows.
Billings consists of amounts invoiced for subscription contracts with existing customers, renewal contracts, expansion contracts, contracts with new
customers, and contracts for professional services and training. Factors that may cause our billings results to vary from period to period include the
following:
•
•
•
•
Billings duration. While we typically bill customers annually in advance for our subscription services, customers sometimes request, and we
accommodate, billings with durations less than or greater than the typical 12-month term.
Contract start date. From time to time, we enter into contracts with a contract start date in the future, and we exclude these amounts from billings
as these amounts are not included in our consolidated balance sheets, unless such amounts have been paid as of the balance sheet date.
Foreign currency exchange rates. While a majority of our billings have historically been in U.S. Dollars, an increasing percentage of our billings
in recent periods has been in foreign currencies, particularly the Euro and British Pound Sterling. Fluctuations in foreign currency exchange rates
will cause variability in our billings. Foreign currency rate fluctuations had a favorable impact of $21 million and $68 million on billings for the
years ended December 31, 2020 and 2019, respectively.
Timing of contract renewals. While customers typically renew their contracts at the end of the contract term, from time to time customers may do
so either before or after the scheduled expiration date. For example, in cases where we are successful in selling additional products or services to
an existing customer, a customer may decide to renew its existing contract early to ensure that all its contracts expire on the same date. In other
cases, prolonged negotiations or other factors may result in a contract not being renewed until after it has expired.
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•
Seasonality. We have historically experienced seasonality in terms of when we enter into customer agreements for our services. We sign a
significantly higher percentage of agreements with new customers, as well as expansion with existing customers, in the fourth quarter of each year.
The increase in customer agreements for the fourth quarter is primarily a result of both large enterprise account buying patterns typical in the
software industry, which are driven primarily by the expiration of annual authorized budgeted expenditures, and the terms of our commission
plans which incentivize our direct sales organization to meet their annual quotas by December 31. Furthermore, we usually sign a significant
portion of these agreements during the last month, and often the last two weeks, of each quarter. This seasonality in the timing of entering into
customer contracts is sometimes not immediately apparent in our billings, due to the fact that we typically exclude cloud-offering contracts with a
future start date from our billings, unless such amounts have been paid as of the balance sheet date. Similarly, this seasonality is reflected to a
much lesser extent, and sometimes is not immediately apparent in our revenues, due to the fact that we recognize subscription revenues from our
cloud offering contracts over the term of the subscription agreement, which is generally 12 to 36 months. Although these seasonal factors are
common in the technology industry, historical patterns should not be considered a reliable indicator of our future sales activity or performance.
Further, the seasonal factors could be heightened due to the impact of the current gross domestic product contraction and other impacts unknown
at this time on our customers and sales cycles caused by the COVID-19 pandemic.
While we believe billings is one indicator of the performance of our business, due to the factors described above, an increase or decrease in billings
may not reflect the actual performance for that reporting period.
To facilitate greater year-over-year comparability in our billings results, we disclose the impact that foreign currency rate fluctuations and fluctuations
in billings duration had on our billings. The impact of foreign currency rate fluctuations is calculated by translating the current period results for entities
reporting in currencies other than U.S. Dollars into U.S. Dollars at the exchange rates in effect during the prior period presented, rather than the actual
exchange rates in effect during the current period. The impact of fluctuations in billings duration is calculated by replacing the portion of multi-year billings
in excess of 12 months during the current period with the portion of multi-year billings in excess of 12 months during the prior period presented.
Notwithstanding the adjustments described above, the comparability of billings results from period to period remains subject to the impact of variations in
the dollar value of contracts with future start dates and the timing of contract renewals, for which no adjustments have been presented.
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, which
have been prepared in accordance with GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial
statements, as well as the reported revenues and expenses during the reporting periods. These items are monitored and analyzed by us for changes in facts
and circumstances, and material changes in these estimates could occur in the future. We base our estimates on historical experience and on various other
factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets
and liabilities that are not readily apparent from other sources. Changes in estimates are reflected in reported results for the period in which they become
known. Actual results may differ from these estimates under different assumptions or conditions and such differences could be material.
While our significant accounting policies are more fully described in Note 2 in the notes to our consolidated financial statements included elsewhere
in this Annual Report on Form 10-K, we believe that the following accounting policies are critical to the process of making significant judgments and
estimates in the preparation of our audited consolidated financial statements.
Revenue Recognition
We derive our revenues predominately from subscription revenues which are primarily comprised of subscription fees that give customers access to
the ordered subscription service, related support and updates, if any, to the subscribed service during the subscription term. For our cloud services, we
recognize subscription revenues ratably over the contract term beginning on the commencement date of each contract, the date we make our services
available to our customers. Our contracts with customers typically include a fixed amount of consideration and are generally non-cancelable and without
any refund-type provisions.
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Subscription revenues also include revenues from self-hosted offerings in which customers deploy, or we grant customers the option to deploy
without significant penalty, our subscription service internally or contract with a third party to host the software. For these contracts, we account for the
software element separately from the related support and updates as they are distinct performance obligations. The transaction price is allocated to separate
performance obligations on a relative standalone selling price (“SSP”) basis. The transaction price allocated to the software element is recognized when
transfer of control of the software to the customer is complete. The transaction price allocated to the related support and updates are recognized ratably over
the contract term.
We enter into contracts that can include various combinations of products and services, which are generally capable of being distinct and accounted
for as separate performance obligations. For these contracts, the transaction price is allocated to the separate performance obligations on a relative SSP
basis. Evaluating the terms and conditions included within our customer contracts for appropriate revenue recognition and determining whether products
and services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment.
Deferred Commissions
Deferred commissions are the incremental selling costs that are associated with acquiring customer contracts and consist primarily of sales
commissions paid to our sales organization and referral fees paid to independent third-parties. Commissions and referral fees earned upon the execution of
initial and expansion contracts are primarily deferred and amortized over a period of benefit that we have determined to be five years. Commissions earned
upon the renewal of customer contracts are deferred and amortized over the average renewal term. Additionally, for self-hosted offerings, consistent with
the recognition of subscription revenues for self-hosted offerings, a portion of the commission cost is expensed upfront when the self-hosted offering is
made available. Determining the period of benefit including average renewal term requires judgment for which we take into consideration our customer
contracts, our technology life cycle and other factors.
Business combinations
The allocation of the purchase price in a business combination requires us to make significant estimates in determining the fair value of acquired
assets and assumed liabilities, especially with respect to intangible assets. The excess of the purchase price in a business combination over the fair value of
these tangible and intangible assets acquired and liabilities assumed is recorded as goodwill. Critical estimates in valuing certain intangible assets include,
but are not limited to, future expected cash flows, discount rates, the time and expense to recreate the assets and profit margin a market participant would
receive. These estimates are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates.
Income Taxes
Our annual tax rate is based on our income, statutory tax rates and tax planning opportunities available to us in the various jurisdictions in which we
operate. Tax laws are complex and subject to different interpretations by the taxpayer and respective government taxing authorities. Significant judgment is
required in determining our tax expense (benefit) and in evaluating our tax positions, including evaluating uncertainties and the complexity of taxes on
foreign earnings. We review our tax positions quarterly and adjust the balances as new information becomes available.
Deferred tax assets represent amounts available to reduce income taxes payable on taxable income in future years. Such assets arise because of
temporary differences between the financial reporting and tax bases of assets and liabilities, as well as from net operating loss and tax credit carryforwards.
We evaluate the recoverability of these future tax deductions and credits by assessing the adequacy of future expected taxable income from all sources,
including future growth, forecasted earnings, future taxable income, the mix of earnings in the jurisdictions in which we operate, historical earnings,
taxable income in prior years, if carryback is permitted under the law, carryforward periods and prudent and feasible tax planning strategies. A valuation
allowance is established if it is more likely than not that all or a portion of the deferred tax asset will not be realized. To the extent sufficient positive
evidence becomes available, we may release all or a portion of our valuation allowance in one or more future periods. A release of the valuation allowance,
if any, would result in the recognition of certain deferred tax assets and a material income tax benefit for the period in which such release is recorded.
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Due to cumulative losses over recent years and based on all available positive and negative evidence, we have determined that it is more likely than
not that our U.S. deferred tax assets will not be realizable as of December 31, 2020. We recognized an income tax benefit of $574 million due to the release
of the valuation allowance on the Irish deferred tax assets for the year ended December 31, 2019. These Irish deferred tax assets were created primarily as a
result of the difference between the tax basis in our Irish subsidiary and the cost reported in our consolidated financial statements resulting from the transfer
of intangible assets to the Irish subsidiary as part of our foreign restructuring in 2018. Management applied significant judgment in assessing the positive
and negative evidence available in the determination of the amount of deferred tax assets that were more likely than not to be realized in the future. In
determining the need, or continued need, for a valuation allowance, we considered the weighting of the positive and negative evidence, which includes,
among other things, emergence from a cumulative loss position over the previous three years during the fourth quarter of 2020, historical earnings, future
growth, forecasted earnings, and future taxable income.
Our tax positions are subject to income tax audits by multiple tax jurisdictions throughout the world. We recognize the tax benefit of an uncertain tax
position 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 the
tax benefit recognized as the largest amount of benefit which is more likely than not to be realized upon settlement with the taxing authority. We recognize
interest accrued and penalties related to unrecognized tax benefits in our tax provision. Significant judgment is required to evaluate uncertain tax positions.
Our evaluations are based upon a number of factors, including changes in facts or circumstances, changes in tax law or guidance, correspondence with tax
authorities during the course of audits and effective settlement of audit issues. Changes in the recognition or measurement of uncertain tax positions could
result in material increases or decreases in our income tax expense in the period in which we make the change, which could have a material impact on our
effective tax rate and operating results.
We calculate the current and deferred income tax provision based on estimates and assumptions that could differ from the actual results reflected in
income tax returns filed in subsequent years and record adjustments based on filed income tax returns 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 potential outcome of any uncertain tax issue is subject to
management’s assessment of relevant risks, facts and 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 make the determination.
New Accounting Pronouncements Pending Adoption
The impact of recently issued accounting standards is set forth in Note 2, Summary of Significant Accounting Policies, of the notes to our
consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
Components of Results of Operations
Revenues
Subscription revenues. Subscription revenues are primarily comprised of fees that give customers access to the ordered subscription service for both
self-hosted offerings and cloud-based subscription offerings, and related standard and enhanced support and updates, if any, to the subscription service
during the subscription term. For our cloud-based offerings, we recognize revenue ratably over the subscription term. For self-hosted offerings, a
substantial portion of the sales price is recognized upon delivery of the software, which may cause greater variability in our subscription revenues and
subscription gross margin. Pricing includes multiple instances, hosting and support services, data backup and disaster recovery services, as well as future
updates, when and if available, offered during the subscription term. We typically invoice our customers for subscription fees in annual increments upon
execution of the initial contract or subsequent renewal. Our contracts are generally non-cancelable during the subscription term, though a customer can
terminate for breach if we materially fail to perform.
Professional services and other revenues. Our arrangements for professional services are primarily on a time-and-materials basis, and we generally
invoice our customers monthly in arrears for the professional services based on actual hours and expenses incurred. Some of our professional services
arrangements are on a fixed fee or subscription basis. Professional services revenues are recognized as services are delivered. Other revenues primarily
consist of fees from customer training delivered on-site or through publicly available classes. Typical payment terms require our customers to pay us within
30 days of invoice.
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We sell our subscription services primarily through our direct sales organization. We also sell services through managed service providers and resale
partners. We also generate revenues from certain professional services and from training of customers and partner personnel, through both our direct team
and indirect channel sales. Revenues from our direct sales organization represented 81%, 82% and 84% of our total revenues for the years ended December
31, 2020, 2019 and 2018, respectively. For purposes of calculating revenues from our direct sales organization, revenues from systems integrators and
managed services providers are included as part of the direct sales organization.
Cost of Revenues
Cost of subscription revenues. Cost of subscription revenues consists primarily of expenses related to hosting our services and providing support to
our customers. These expenses are comprised of data center capacity costs, which include colocation costs associated with our data centers as well as
interconnectivity between data centers, depreciation related to our infrastructure hardware equipment dedicated for customer use, amortization of intangible
assets, expenses associated with software, IT services and dedicated customer support, personnel-related costs directly associated with data center
operations and customer 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 costs
directly associated with our professional services and training departments, including salaries, benefits, bonuses and stock-based compensation, the costs of
contracted third-party partners, travel expenses and allocated overhead.
Professional services are performed directly by our services team, as well as by contracted third-party partners. Fees paid by us to third-party partners
are primarily recognized as cost of revenues as the professional services are delivered. Cost of revenues associated with our professional services
engagements contracted with third-party partners as a percentage of professional services and other revenues was 10%, 15% and 18% for the years ended
December 31, 2020, 2019 and 2018, respectively.
Sales and Marketing
Sales and marketing expenses consist primarily of personnel-related expenses directly associated with our sales and marketing staff, including
salaries, benefits, bonuses and stock-based compensation. Sales and marketing expenses also include the amortization of commissions paid to our sales
employees, including related payroll taxes and fringe benefits. From time to time, third parties provide us referrals for which we pay a referral fee. We
include revenues associated with these referrals as part of revenues from our direct sales organization. Referral fees paid to these third parties are generally
10% of the customer’s net new ACV. We defer referral fees paid as they are considered incremental selling costs associated with acquiring customer
contracts, and include the amortization of these referral fees in sales and marketing expense. In addition, sales and marketing expenses include branding
expenses, expenses offset by proceeds related to Knowledge, other marketing program expenses, which include events other than Knowledge, and costs
associated with purchasing advertising and marketing data, software and subscription services dedicated for sales and marketing use and allocated
overhead.
Research and Development
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. Research and development expenses also include data center
capacity costs, costs associated with outside services contracted for research and development purposes and depreciation of infrastructure hardware
equipment that is used solely for research and development purposes.
General and Administrative
General and administrative expenses consist primarily of personnel-related expenses for our executive, finance, legal, human resources, facilities and
administrative personnel, including salaries, benefits, bonuses and stock-based compensation, external legal, accounting and other professional services
fees, other corporate expenses, amortization of intangible assets and allocated overhead.
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Provision for Income Taxes
Provision for income taxes consists of federal, state and foreign income taxes. Due to cumulative losses, we maintain a valuation allowance against
our U.S. deferred tax assets as of December 31, 2020 and 2019. 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 a
valuation allowance should be applied against our U.S. and foreign deferred tax assets.
Comparison of the years ended December 31, 2020 and 2019
Revenues
Revenues:
Subscription
Professional services and other
Total revenues
Percentage of revenues:
Subscription
Professional services and other
Total
Year Ended December 31,
2020
2019
% Change
(dollars in thousands)
$
$
4,285,797
233,687
4,519,484
$
$
3,255,079
205,358
3,460,437
32 %
14 %
31 %
95 %
5 %
100 %
94 %
6 %
100 %
Subscription revenues increased by $1.0 billion for the year ended December 31, 2020, compared to the prior year, driven by increased purchases by
existing customers and an increase in customer count. Included in subscription revenues is $205 million and $164 million of revenues recognized upfront
from the delivery of software associated with self-hosted offerings during the years ended December 31, 2020 and 2019, respectively.
We expect subscription revenues for the year ending December 31, 2021 to increase in absolute dollars as we continue to add new customers and
existing customers increase their usage of our products, but remain relatively flat as a percentage of revenue compared to the year ended December 31,
2020. We continue to monitor the COVID-19 pandemic in 2021 and its impact on customer acquisition and renewal rates.
Our expectations for revenues, cost of revenues and operating expenses for the year ending December 31, 2021 are based on foreign exchange rates as
of December 31, 2020.
Subscription revenues consist of the following:
Digital workflow products
ITOM products
Total subscription revenues
Year Ended December 31,
2020
2019
% Change
$
$
(dollars in thousands)
3,749,118 $
536,679
4,285,797 $
2,810,887
444,192
3,255,079
33 %
21 %
32 %
Our digital workflow products include the Now Platform, IT Service Management, IT Business Management, DevOps, IT Asset Management,
Security Operations, Governance, Risk and Compliance, HR Service Delivery, Safe Workplace Suite of applications, Workplace Service Delivery, Legal
Service Delivery, Customer Service Management, Field Service Management, Connected Operations, App Engine and IntegrationHub, and are generally
priced on a per user basis. Our ITOM products are generally priced on a per node (physical or virtual server) basis. In previously issued consolidated
financial statements, we referred to digital workflow products as “service management products.”
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Professional services and other revenues increased by $28 million for the year ended December 31, 2020, compared to the prior year, due to an
increase in services and trainings provided to new and existing customers. We expect professional services and other revenues for the year ending
December 31, 2021 to increase in absolute dollars, but remain relatively flat as a percentage of revenue compared to the year ended December 31, 2020.
We are increasingly focused on deploying our internal professional services organization as a strategic resource and relying on our partner ecosystem to
contract directly with customers for implementation services delivery.
Cost of Revenues and Gross Profit Percentage
Cost of revenues:
Subscription
Professional services and other
Total cost of revenues
Gross profit percentage:
Subscription
Professional services and other
Total gross profit percentage
Gross profit:
Year Ended December 31,
2020
2019
% Change
(dollars in thousands)
$
$
$
730,835
256,278
987,113
$
$
83 %
(10)%
78 %
549,642
247,003
796,645
83 %
(20)%
77 %
33 %
4 %
24 %
3,532,371
$
2,663,792
33 %
Cost of subscription revenues increased by $181 million for the year ended December 31, 2020, compared to the prior year, primarily due to increased
headcount and increased costs to support the growth of our subscription offerings. Personnel-related costs including stock-based compensation and
overhead expenses increased by $80 million and depreciation expense related to data center hardware and software and maintenance costs to support the
expansion of our data center capacity increased by $88 million as compared to the prior year. In addition, amortization of intangibles increased by $12
million as a result of acquisitions.
We expect our cost of subscription revenues for the year ending December 31, 2021 to increase in absolute dollars as we provide subscription services
to more customers and increase usage within our customer instances.
Our subscription gross profit percentage was 83% for each of the years ended December 31, 2020 and 2019. We expect our subscription gross profit
percentage to slightly decrease for the year ended December 31, 2021 compared to the year ended December 31, 2020. To the extent future acquisitions are
consummated, our cost of subscription revenues may increase due to additional non-cash charges associated with the amortization of intangible assets
acquired.
Cost of professional services and other revenues increased by $9 million for the year ended December 31, 2020 as compared to the prior year,
primarily due to increased headcount resulting in increase of personnel-related costs including stock-based compensation offset by a decrease in third-party
implementation costs as we continue to invest and deploy our internal professional service organization to increase their utilization and a reduction in travel
expenses resulting from travel restrictions due to the COVID-19 pandemic.
Our professional services and other gross loss percentage decreased to 10% for the year ended December 31, 2020, compared to 20% in the prior
year, primarily driven by the increased utilization of our internal professional services organization and the reduction in certain travel expenses. We expect
our professional services and other gross loss percentage to increase for the year ending December 31, 2021 as we expect utilization of our internal
professional services organization to stabilize resulting in additional support cost for the business growth and increases in travel expenses compared to the
year ended December 31, 2020.
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Sales and Marketing
Sales and marketing
Percentage of revenues
Year Ended December 31,
2020
2019
% Change
(dollars in thousands)
$
1,855,016
$
41 %
1,534,284
44 %
21 %
Sales and marketing expenses increased by $321 million for the year ended December 31, 2020, compared to the prior year. The increase was
primarily due to increased headcount, resulting in an increase in personnel-related costs including stock-based compensation and overhead expenses of
$255 million, compared to the prior year. Amortization of deferred commissions and third-party referral fees increased by $51 million, compared to the
prior year, due to an increase in contracts with new customers, expansion and renewal contracts. Other sales and marketing program expenses, which
include branding, purchase of advertising and market data and outside services, increased by $73 million compared to the prior year.
Amid the ongoing regulatory restrictions imposed by governments worldwide in response to the COVID-19 pandemic, we temporarily closed most of
our offices to ensure the well-being and safety of our global employees, office staff and communities, and encouraged our employees to work remotely and
limit travel. Further, in response to the pandemic, we canceled Knowledge and other in-person events and either replaced them with digital events or
postponed them to future periods and implemented travel restrictions which resulted in a decrease of $66 million for the year ended December 31, 2020
compared to prior year.
Despite the uncertainty around the continued impact of COVID-19 and its duration, we expect sales and marketing expenses for the year ending
December 31, 2021 to increase in absolute dollars, but remain relatively flat as a percentage of revenue compared to the year ended December 31, 2020, as
we continue to expand our direct sales organization, increase our marketing activities, grow our international operations and build brand awareness.
Research and Development
Research and development
Percentage of revenues
Year Ended December 31,
2020
2019
% Change
(dollars in thousands)
$
1,024,327
$
23 %
748,369
22 %
37 %
Research and development expenses increased by $276 million during the year ended December 31, 2020, compared to the prior year. The increase
was primarily due to increased headcount, resulting in an increase in personnel-related costs including stock-based compensation and overhead expenses of
$251 million compared to prior year. The remaining increase was primarily due to increase in hosting costs and data center related depreciation costs to
support research and development activities.
We expect research and development expenses for the year ending December 31, 2021 to increase in absolute dollars, but remain relatively flat as a
percentage of revenue compared to the year ended December 31, 2020, as we continue to improve the existing functionality of our services, develop new
applications to fill market needs and enhance our core platform.
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General and Administrative
General and administrative
Percentage of revenues
Year Ended December 31,
2020
2019
% Change
$
(dollars in thousands)
454,165
$
10 %
339,016
10 %
34 %
General and administrative expenses increased by $115 million during the year ended December 31, 2020, compared to the prior year. The increase
was primarily due to increased headcount, resulting in an increase in personnel-related costs including stock-based compensation and overhead expenses of
$91 million and $12 million increase in outside services, compared to the prior year, primarily from digital transformation projects across functions to
improve processes.
We expect general and administrative expenses for the year ending December 31, 2021 to increase in absolute dollars, but remain relatively flat as a
percentage of revenue compared to the year ended December 31, 2020, as we continue to hire new employees and focus on digital transformation.
Stock-based Compensation
Cost of revenues:
Subscription
Professional services and other
Sales and marketing
Research and development
General and administrative
Total stock-based compensation
Percentage of revenues
Year Ended December 31,
2020
2019
% Change
(dollars in thousands)
$
$
98,258
51,553
320,328
282,244
118,070
870,453
$
$
72,728
43,123
268,408
194,821
83,115
662,195
19 %
19 %
35 %
20 %
19 %
45 %
42 %
31 %
Stock-based compensation increased by $208 million during the year ended December 31, 2020, compared to the prior year, primarily due to
additional grants to current and new employees and increased weighted-average grant date fair value of stock awards.
Stock-based compensation is inherently difficult to forecast due to fluctuations in our stock price. Based upon our stock price as of December 31,
2020, we expect stock-based compensation to continue to increase in absolute dollars for the year ending December 31, 2021 as we continue to issue stock-
based awards to our employees, but remain relatively flat as a percentage of revenue compared to the year ended December 31, 2020 but we expect this to
decline over time as we continue to grow.
Foreign Currency Exchange
Our international operations have provided and will continue to provide a significant portion of our total revenues. Revenues outside North America
represented 35% and 34% of total revenues for the years ended December 31, 2020 and 2019, respectively. Because we primarily transact in foreign
currencies for sales outside of the United States, the general weakening of the U.S. Dollar relative to other major foreign currencies (primarily the Euro and
British Pound Sterling) during the year ended December 31, 2020 had a favorable impact on our revenues. For entities reporting in currencies other than the
U.S. Dollar, if we had translated our results for the year ended December 31, 2020 at the exchange rates in effect for the year ended December 31, 2019
rather than the actual exchange rates in effect during the period, our reported subscription revenues would have been $14 million lower. The impact from
the foreign currency movements was not material for professional services and other revenues for the year ended December 31, 2020.
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In addition, because we primarily transact in foreign currencies for cost of revenues and operating expenses outside of the United States, the general
weakening of the U.S. Dollar relative to other major foreign currencies during the year ended December 31, 2020, for the most part, had an unfavorable
impact but overall, did not have a material impact if we had translated our results for the year ended December 31, 2020 at the average exchange rates in
effect for the year ended December 31, 2019 rather than the actual exchange rates in effect during the period.
Interest Expense
Interest expense
Percentage of revenues
Year Ended December 31,
2020
2019
% Change
$
(dollars in thousands)
(32,746)
$
(1 %)
(33,283)
(1 %)
(2 %)
Interest expense slightly decreased during the year ended December 31, 2020, compared to the prior year, due to the decrease in amortization expense
of debt discount and issuance costs as a result of the 2022 Notes Repurchase offset by increase in debt discount, issuance cost and interest related to 2030
Notes. For the year ending December 31, 2021, we expect to incur approximately $30 million related to the 2030 Notes and 2022 Notes.
Other Income (Expense), net
Interest income
Foreign currency exchange loss, net of derivative contracts
Loss on extinguishment of 2022 Notes
Other
Other income (expense), net
NM - Not meaningful.
$
$
Year Ended December 31,
2020
2019
% Change
(dollars in thousands)
39,483 $
(14,076)
(46,614)
4,275
(16,932) $
55,409
(594)
—
3,530
58,345
(29)%
NM
NM
21 %
(129)%
Other income (expense), net decreased by $75 million during the year ended December 31, 2020, compared to the prior year, primarily driven by loss
on extinguishment resulting from the 2022 Notes Repurchase and the early conversions of $47 million and increase in foreign currency exchange loss, net
of derivative contracts of $13 million compared to the prior year. Additionally, interest income decreased compared to the same period in the prior year
despite an increase in investments primarily due to the decline in interest rates during the year and change in our investment strategy to higher quality
bonds in response to the global market disruptions and uncertainties resulting from the COVID-19 pandemic.
To mitigate our risks associated with fluctuations in foreign currency exchange rates, we enter into foreign currency derivative contracts with
maturities of 12 months or less to hedge a portion of our net outstanding monetary assets and liabilities. These hedging contracts may reduce, but cannot
entirely eliminate, the impact of adverse currency exchange rate movements.
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Provision for (benefit from) Income Taxes
Income before income taxes
Provision for (benefit from) income taxes
Effective tax rate
Year Ended December 31,
2020
2019
% Change
$
(dollars in thousands)
149,185
30,682
$
21 %
67,185
(559,513)
(833)%
122 %
(105 %)
(103) %
Our effective tax rate was 21% for the year ended December 31, 2020 compared to (833)% for the prior year ended December 31, 2019, primarily
due to the release of the valuation allowance on the Irish deferred tax assets of $574 million in the year ended December 31, 2019. The income tax
provision for the year ended December 31, 2020 was primarily attributable to the mix of earnings and losses in countries with differing statutory tax rates,
the valuation allowance in the U.S. and the intercompany sale of certain intellectual property rights. See Note 17 in the notes to our consolidated financial
statements included elsewhere in this Annual Report on Form 10-K for our reconciliation of income taxes at the statutory federal rate to the provision for
income taxes.
We maintained a full valuation allowance on our U.S. federal and state deferred tax assets as of December 31, 2020 and 2019, respectively. The
significant components of the tax expense recorded are current cash taxes payable in various jurisdictions. The cash tax expenses are impacted by each
jurisdiction’s individual tax rates, laws on timing of recognition of income and deductions, and availability of net operating losses and tax credits. Given
the full valuation allowance on our U.S. federal and state deferred tax assets, sensitivity of current cash taxes to local rules and our foreign structuring, we
expect that our effective tax rate could fluctuate significantly on 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 than anticipated in countries that have higher statutory rates. To the extent sufficient
positive evidence becomes available, we may release all or a portion of our valuation allowance in one or more future periods. A release of the valuation
allowance, if any, would result in the recognition of certain deferred tax assets and a material income tax benefit for the period in which such release is
recorded.
Quarterly Results of Operations
The following table sets forth our selected unaudited quarterly consolidated statements of comprehensive income (loss). We have prepared the
quarterly data on a consistent basis with the audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K. In the
opinion of management, the financial information reflects all necessary adjustments, consisting only of normal recurring adjustments, necessary for a fair
statement of this data. This information should be read in conjunction with the audited consolidated financial statements and related notes thereto included
elsewhere in this Annual Report on Form 10-K. The results of historical periods are not necessarily indicative of the results of operations for a full year or
any future period.
(1)
(1)
Total revenues
Gross profit
Net income (loss)
Net income (loss) per share -
basic
Net income (loss) per share -
diluted
Weighted-average shares used
to compute net income (loss)
per share - basic
Weighted-average shares used
to compute net income (loss)
per share - diluted
(1)
December 31,
2020
September 30,
2020
June 30, 2020
For the Three Months Ended
December 31,
2019
March 31,
2020
(in thousands, except per share data)
September 30,
2019
June 30, 2019
March 31,
2019
$
$
$
$
$
1,250,330 $
971,226 $
16,648 $
1,151,972 $
900,268 $
12,858 $
1,070,842 $
837,903 $
40,766 $
1,046,340 $
822,974 $
48,231 $
951,774 $
740,321 $
598,724 $
885,833 $
685,040 $
40,598 $
833,904 $
635,757 $
(11,079) $
788,926
602,674
(1,545)
0.09 $
0.07 $
0.21 $
0.25 $
3.17 $
0.22 $
(0.06) $
0.08 $
0.06 $
0.20 $
0.24 $
3.03 $
0.21 $
(0.06) $
(0.01)
(0.01)
195,461
193,237
191,319
190,163
189,042
188,074
186,678
182,062
202,455
201,861
201,453
199,938
197,843
197,878
186,678
182,062
44
Table of Contents
(1) The amounts for the three months ended December 31, 2019 reflect the impact of an income tax benefit of $574 million from the release of the valuation allowance on the Irish deferred tax
assets. Refer to Note 17 in the notes to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for further details.
Our revenues have increased over the periods presented due to increased sales to new and existing customers. Our operating expenses have increased
over the periods presented due to increases in headcount, data center operations and other related expenses to support our growth. We have historically seen
an increase in marketing expenses in the quarter ended June 30, and a corresponding decrease in marketing expenses in the quarter ended September 30 due
to the expenses incurred for our annual Knowledge user conference, partially offset by related proceeds. Marketing expenses in the quarter ended
December 31 are also historically higher due to user forums we generally conduct in that quarter. However, during the year ended December 31, 2020, in
response to the COVID-19 pandemic, we took several measures to ensure the well-being and safety of our employees including reduction of travel and
cancellation of live events to be replaced with digital events. Accordingly, timing and amount of marketing expense might not be consistent with historical
trends prior to COVID-19. Nonetheless, we still anticipate operating expenses will continue to increase in future periods as we continue to focus on
investing in the long-term growth of our business.
Liquidity and Capital Resources
Our principal sources of liquidity are our cash and cash equivalents, investments, and cash generated from operations. As of December 31, 2020, we
had $3 billion in cash and cash equivalents and short-term investments, of which $450 million represented cash held by foreign subsidiaries and $417
million is denominated in currencies other than the U.S. Dollar. In addition, we had $1 billion in long-term investments that provide additional capital
resources. We do not anticipate that we will need funds generated from foreign operations to fund our domestic operations.
In August 2020, we issued 1.40% fixed rate ten-year notes with an aggregate principal amount of $1.5 billion due on September 1, 2030 (the “2030
Notes”). The 2030 Notes were issued at 99.63% of principal and we incurred approximately $13 million for debt issuance costs. Interest is payable semi-
annually in arrears on March 1 and September 1 of each year, beginning on March 1, 2021, and the entire outstanding principal amount is due at maturity
on September 1, 2030. The 2030 Notes are unsecured obligations and the indentures governing the 2030 Notes contain customary events of default and
customary covenants that, among others and subject to exceptions, restrict the Company’s ability to incur or guarantee debt secured by liens on specified
assets or enter into sale and lease-back transactions with respect to specified properties.
In May and June 2017, we issued the 2022 Notes with an aggregate principal amount of $782.5 million. In connection with the issuance of the 2022
Notes, we entered into the 2022 Note Hedge transactions and 2022 Warrants transactions with certain financial institutions. The price of our common stock
was greater than or equal to 130% of the conversion price of the 2022 Notes for at least 20 trading days during the 30 consecutive trading days ending on
the last trading day of the quarters ended June 30, 2018 through December 31, 2020, except for the quarter ended December 31, 2018. Therefore, our 2022
Notes became convertible at the holders’ option beginning on July 1, 2018 and continue to be convertible through March 31, 2021, except for the quarter
ended March 31, 2019 because the Conversion Condition for the 2022 Notes was not met for the quarter ended December 31, 2018. The impact of the 2022
Notes on our liquidity will depend on the settlement method we elect. We currently intend to settle the principal amount of any converted 2022 Notes in
cash. During the year ended December 31, 2020, we paid cash to settle $116 million in principal of the 2022 Notes. Additionally, we repurchased $497
million in aggregate principal amount of the 2022 Notes (the “2022 Notes Repurchase”) which was accounted for as a debt extinguishment. We used
proceeds from the partial unwind of the 2022 Note Hedge of $1.1 billion for the 2022 Notes Repurchase.
Based on conversion requests received through the filing date, we expect to settle in cash an aggregate of approximately $34 million in principal
amount of the 2022 Notes during the first quarter of 2021. We may receive additional conversion requests that require settlement after the first quarter of
2021.
During the year ended December 31, 2020, we issued 2.3 million shares of our common stock upon partial unwind of the 2022 Warrants. We expect
to issue additional shares of our common stock in the second half of 2022 upon the automatic exercise of the remaining portion of the 2022 Warrants. As
the remaining portion of the 2022 Warrants will be net share settled, there will be no impact on our liquidity. The total number of shares of our common
stock we will issue depends on the daily volume-weighted average stock prices over a 60 trading day period beginning on the first expiration date of the
remaining portion of the 2022 Warrants, which will be September 1, 2022. In addition, we issued 4.3 million shares of our common stock upon the
automatic exercise of a portion of the 2018 Warrants during the year ended December 31, 2019. The 2018 Warrants were no longer outstanding as of June
30, 2019. Refer to Note 11 in the notes to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional
information.
45
Table of Contents
Cash from operations could be affected by various risks and uncertainties, including, but not limited to, the effects of the COVID-19 pandemic and
other risks detailed in Part I, Item 1A titled “Risk Factors”. However, we anticipate our current cash, cash equivalents and investments balance and
anticipated cash flows generated from operations based on our current business plan and revenue prospects will be sufficient to meet our liquidity needs,
including the repayment of any early conversions of our 2022 Notes, debt service costs, expansion of data centers, lease obligations, expenditures related to
the growth of our headcount and the acquisition of property and equipment, intangibles, and investments in office facilities, to accommodate our operations
for at least the next 12 months. Whether these resources are adequate to meet our liquidity needs beyond that period will depend on our growth, operating
results, cash utilized for acquisitions and/or debt retirements if any are consummated, and the capital expenditures required to meet possible increased
demand for our services. If we require additional capital resources to grow our business or repay our 2022 Notes at any time in the future, we may seek to
finance our operations from the current funds available or seek additional equity or debt financing.
Net cash provided by operating activities
Net cash used in investing activities
Net cash provided by (used in) financing activities
Net increase in cash, cash equivalents and restricted cash
Operating Activities
Year Ended December 31,
December 31, 2020
December 31, 2019
$
(in thousands)
1,786,599 $
(1,506,872)
596,647
901,439
1,235,972
(724,477)
(301,856)
209,453
Net cash provided by operating activities was $1.8 billion for the year ended December 31, 2020 compared to $1.2 billion for the prior year. The net
increase in operating cash flow was primarily due to an increase in adjustments for non-cash items to reconcile net income to net cash provided by
operations, driven by stock-based compensation, depreciation and amortization from increased capital expenditures and deferred commissions and the
overall favorable impact from changes in operating assets and liabilities offset by the repayment of 2022 Notes attributable to debt discount.
Investing Activities
Net cash used in investing activities for the year ended December 31, 2020 was $1.5 billion compared to $724 million for the prior year. The increase
in cash used in investing activities was primarily due to $566 million increase in net purchases of investments, $154 million increase in capital expenditures
related to infrastructure hardware equipment as well as office related expenditures to support our headcount growth and $40 million, net increase in
business combinations, net of cash and restricted cash acquired, and purchases of intangibles.
Financing Activities
Net cash provided by financing activities for the year ended December 31, 2020 was $597 million compared to net cash used in financing activities of
$302 million for the prior year due to proceeds of $1.5 billion from the issuance of the 2030 Notes, net of discount and issuance costs, offset by the 2022
Notes Repurchase of $1.6 billion attributable to principal, funded in part by the proceeds received from the partial unwind of the 2022 Note Hedge of $1.1
billion. In addition, an increase in proceeds from employee equity plans by $38 million was offset by a $99 million increase in taxes paid related to net
share settlement of equity awards.
46
Table of Contents
Contractual Obligations and Commitments
The following table represents our future non-cancelable contractual obligations as of December 31, 2020, aggregated by type:
Operating leases, including imputed interest
(2)
Purchase obligations
Principal amount payable on our long-term debt
Total contractual obligations
(1)
(3)
Total
Less
Than
1 Year
Payments Due by Period
1 – 3
Years
(in thousands)
3 – 5
Years
More
Than
5 Years
$
$
582,907 $
283,230
1,669,224
2,535,361 $
87,832 $
119,990
— $
207,822 $
166,034 $
122,301
169,224
457,559 $
116,029 $
36,938
—
152,967 $
213,012
4,001
1,500,000
1,717,013
(1)
(2)
(3)
Consists of future non-cancelable minimum rental payments under operating leases for offices and data centers.
Consists of future minimum payments under non-cancelable purchase commitments related to our daily business operations. Not included in the table above are certain purchase
commitments related to our future annual Knowledge user conferences and other customer or sales conferences to be held in 2021 and future years. If we were to cancel these contractual
commitments as of December 31, 2020, we would have been obligated to pay cancellation penalties of approximately $36 million in aggregate.
For additional information regarding our long-term debt, refer to Note 11 in the notes to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
In addition to the obligations in the table above, $20 million of unrecognized tax benefits have been recorded as liabilities as of December 31, 2020. It
is uncertain if or when such amounts may be settled.
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 to
as structured finance or special purpose entities, which would have been established for purposes of facilitating off-balance sheet arrangements or other
contractually 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 in
those types of relationships.
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
Euro and British Pound Sterling. We are a net receiver of Euro and British Pound Sterling, and therefore benefit from a weakening of the U.S. Dollar
relative to these currencies and, conversely, are adversely affected by a strengthening of the U.S. Dollar relative to these currencies. Revenues denominated
in U.S. Dollar as a percentage of total revenues was 71% during each of the years ended December 31, 2020, 2019 and 2018.
To mitigate our risks associated with fluctuations in foreign currency exchange rates, we enter into foreign currency derivative contracts to hedge a
portion of our net outstanding monetary assets and liabilities. These derivative contracts are intended to offset gains or losses related to remeasuring
monetary assets and liabilities that are denominated in currencies other than the functional currency of the entities in which they are recorded.
A hypothetical 10% increase in the U.S. Dollar against other currencies would have resulted in a decrease in operating income of $47 million and $31
million for the years ended December 31, 2020 and 2019, respectively, and an increase in operating loss of $23 million for the year ended December 31,
2018. This analysis disregards the possibilities that rates can move in opposite directions and that losses from one geographic area may be offset by gains
from another geographic area.
47
These derivative contracts expose us to credit risk to the extent that the counterparties may be unable to meet the terms of the arrangement. We
mitigate this credit risk by transacting with major financial institutions with high credit ratings and entering into master netting arrangements, which permit
net settlement of transactions with the same counterparty. While the contract or notional amount is often used to express the volume of foreign currency
derivative contracts, the amounts potentially subject to credit risk are generally limited to the amounts, if any, by which the counterparties’ obligations
under the agreements exceed our obligations to the counterparties. We are not required to pledge, and are not entitled to receive, cash collateral related to
these derivative instruments. We do not enter into derivative contracts for trading or speculative purposes. Refer to Note 8 in the notes to our consolidated
financial statements included elsewhere in this Annual Report on Form 10-K for additional information.
Interest Rate Sensitivity
We had an aggregate of $4.6 billion in cash, cash equivalents, short-term investments and long-term investments as of December 31, 2020. This
amount was invested primarily in money market funds, certificates of deposit, corporate notes and bonds, government and agency securities and other debt
securities with a minimum rating of BBB by Standard & Poor’s, Baa2 by Moody’s, or BBB by Fitch. The primary objectives of our investment activities
are the preservation of capital and support of our liquidity requirements. Our investments are exposed to market risk due to fluctuations in interest rates,
which may affect our interest income and the fair market value of our investments.
A hypothetical 100 basis point increase in interest rates would have resulted in an approximate $29 million decline of the fair value of our available-
for-sale securities. This estimate is based on a sensitivity model that measures market value changes when changes in interest rates occur.
As of December 31, 2019, we had an aggregate of $2.7 billion in cash, cash equivalents, short-term investments and long-term investments, and a
hypothetical 100 basis point increase in interest rates would have resulted in an approximate $14 million decline of the fair value of our available-for-sale
securities.
Market Risk
In August 2020, we issued 1.40% fixed rate ten-year notes with an aggregate principal amount of $1.5 billion due on September 1, 2030 (the “2030
Notes”). The 2030 Notes were issued at 99.63% of principal and we incurred approximately $13 million for debt issuance costs. Interest is payable semi-
annually in arrears on March 1 and September 1 of each year, beginning on March 1, 2021, and the entire outstanding principal amount is due at maturity
on September 1, 2030. The 2030 Notes are unsecured obligations and the indentures governing the 2030 Notes contain customary events of default and
covenants that, among others and subject to exceptions, restrict the Company’s ability to incur or guarantee debt secured by liens on specified assets or
enter into sale and lease-back transactions with respect to specified properties.
In May and June 2017, we issued the 2022 Notes with an aggregate principal amount of $782.5 million. We carry these instruments at face value less
unamortized discount on our consolidated balance sheet. Because these instruments do not bear interest, we have no economic interest rate exposure on our
2022 Notes associated with changes in interest rates. However, the fair value of our 2022 Notes is exposed to interest rate risks. Generally, the fair market
value of our 2022 Notes will increase as interest rates fall and decrease as interest rates rise. In addition, the fair value of the 2022 Notes is affected by our
stock price due to the conversion feature, and will generally increase as the stock price increases.
We hold cash balances with multiple financial institutions in various countries and these balances routinely exceed deposit insurance limits.
As of December 31, 2020 and 2019, we had $28 million and $22 million, respectively, of equity investments in privately-held companies that are in
the development stage. The fair value of these strategic investments may fluctuate depending on the financial condition and near-term prospects of these
companies, and we may be required to record an impairment charge if the carrying value of these investments exceed their fair value. We are required to
measure equity securities at fair value with changes in fair value recognized through our consolidated statements of comprehensive income (loss). As a
result, we anticipate additional volatility to our consolidated statements of comprehensive income (loss) in future periods, due to the valuation and timing
of observable price changes of our investments in privately held securities. These changes could be material based on market conditions and events.
48
ITEM 8.
CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
SERVICENOW, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
Consolidated Financial Statements
Consolidated Balance Sheets
Consolidated Statements of Comprehensive Income (Loss)
Consolidated Statements of Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Page
50
52
53
54
55
56
The supplementary financial information required by this Item 8 is included in Part II, Item 7 under the caption “Quarterly Results of Operations”, which is
incorporated herein by reference.
49
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of ServiceNow, Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of ServiceNow, Inc. and its subsidiaries (the “Company”) as of December 31, 2020 and
2019, and the related consolidated statements of comprehensive income (loss), of stockholders’ equity and of cash flows for each of the three years in the
period ended December 31, 2020, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the
Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework
(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of
December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020 in
conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated
Framework (2013) issued by the COSO.
Change in Accounting Principle
As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2019.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting,
and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control Over Financial
Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's
internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight
Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable
assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective
internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used
and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal
control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness
exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing
such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
50
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control
over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding
prevention or timely 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 of
effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was
communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated
financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not
alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below,
providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Subscription revenue recognition - contracts with multiple performance obligations
As described in Note 2 to the consolidated financial statements, the Company enters into contracts that can include various combinations of products and
services, which are generally capable of being distinct and accounted for as separate performance obligations. Subscription revenues include self-hosted
offerings in which customers deploy, or the Company grants customers the option to deploy without significant penalty, the Company’s subscription
services internally or contract with a third party to host the software. For these contracts, management accounts for the software element separately from
the related support and updates as they are distinct performance obligations. The transaction price allocated to the software element is recognized when
transfer of control of the software to the customer is complete. The transaction price allocated to the related support and updates are recognized ratably over
the contract term. As disclosed by management, evaluating the terms and conditions included within the Company’s customer contracts for appropriate
revenue recognition and determining whether products and services are considered distinct performance obligations that should be accounted for separately
versus together may require significant judgment. The Company recognized subscription revenues of $4.3 billion for the year ended December 31, 2020.
The principal considerations for our determination that performing procedures relating to subscription revenue recognition - contracts with multiple
performance obligations is a critical audit matter are the significant judgment by management in identifying distinct performance obligations and
evaluating the terms and conditions that may impact revenue recognition. This in turn resulted in significant effort and subjectivity in performing our audit
procedures and in evaluating audit evidence.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated
financial statements. These procedures included testing the effectiveness of controls relating to the revenue recognition process, including controls over the
identification of performance obligations and evaluation of terms and conditions that may impact revenue recognition. These procedures also included,
among others, testing management’s process for identifying distinct performance obligations and evaluating the revenue recognition impact of contractual
terms and conditions by examining contracts on a test basis.
/s/ PricewaterhouseCoopers LLP
San Jose, California
February 11, 2021
We have served as the Company’s auditor since 2011.
51
SERVICENOW, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
December 31,
2020
2019
Assets
Current assets:
Cash and cash equivalents
Short-term investments
Accounts receivable, net
Current portion of deferred commissions
Prepaid expenses and other current assets
Total current assets
Deferred commissions, less current portion
Long-term investments
Property and equipment, net
Operating lease right-of-use assets
Intangible assets, net
Goodwill
Deferred tax assets
Other assets
Total assets
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable
Accrued expenses and other current liabilities
Current portion of deferred revenue
Current portion of operating lease liabilities
Total current liabilities
Deferred revenue, less current portion
Operating lease liabilities, less current portion
Long-term debt
Other long-term liabilities
Total liabilities
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.001 par value; 10,000 shares authorized; no shares issued or outstanding
Common stock $0.001 par value; 600,000 shares authorized; 195,844 and 189,461 shares issued
and outstanding at December 31, 2020 and 2019, respectively
Additional paid-in capital
Accumulated other comprehensive income
Accumulated deficit
Total stockholders’ equity
Total liabilities and stockholders’ equity
$
$
$
$
1,676,794 $
1,415,242
1,009,415
228,924
191,467
4,521,842
444,068
1,468,006
659,641
454,218
153,367
240,764
673,111
100,040
8,715,057 $
34,236 $
668,093
2,962,579
72,236
3,737,144
45,346
422,779
1,640,153
35,154
5,880,576
—
196
2,973,797
94,229
(233,741)
2,834,481
8,715,057 $
775,778
915,317
835,279
175,039
125,488
2,826,901
333,448
1,013,332
468,085
402,428
143,850
156,756
599,633
77,997
6,022,430
52,960
461,403
2,185,754
52,668
2,752,785
40,038
383,221
694,981
23,464
3,894,489
—
189
2,454,741
25,255
(352,244)
2,127,941
6,022,430
See accompanying notes to consolidated financial statements
52
SERVICENOW, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands, except per share data)
2020
Year Ended December 31,
2019
2018
Revenues:
Subscription
Professional services and other
Total revenues
(1)
:
Cost of revenues
Subscription
Professional services and other
Total cost of revenues
Gross profit
(1)
:
Operating expenses
Sales and marketing
Research and development
General and administrative
Total operating expenses
Income (loss) from operations
Interest expense
Other income (expense), net
Income (loss) before income taxes
Provision for (benefit from) income taxes
Net income (loss)
Net income (loss) per share - basic
Net income (loss) per share - diluted
Weighted-average shares used to compute net income (loss) per share -
basic
Weighted-average shares used to compute net income (loss) per share -
diluted
Other comprehensive income (loss):
Foreign currency translation adjustments
Unrealized gains (losses) on investments, net of tax
Other comprehensive income (loss)
Comprehensive income (loss)
(1)
Includes stock-based compensation as follows:
Cost of revenues:
Subscription
Professional services and other
Sales and marketing
Research and development
General and administrative
$
$
$
$
$
$
$
4,285,797 $
233,687
4,519,484
730,835
256,278
987,113
3,532,371
1,855,016
1,024,327
454,165
3,333,508
198,863
(32,746)
(16,932)
149,185
30,682
118,503 $
0.61 $
0.59 $
193,096
202,478
66,243 $
2,731
68,974
187,477 $
3,255,079 $
205,358
3,460,437
549,642
247,003
796,645
2,663,792
1,534,284
748,369
339,016
2,621,669
42,123
(33,283)
58,345
67,185
(559,513)
626,698 $
3.36 $
3.18 $
186,466
197,223
20,539 $
8,751
29,290
655,988 $
2,421,313
187,503
2,608,816
417,421
205,237
622,658
1,986,158
1,203,056
529,501
296,027
2,028,584
(42,426)
(52,733)
56,135
(39,024)
(12,320)
(26,704)
(0.15)
(0.15)
177,846
177,846
(1,903)
(665)
(2,568)
(29,272)
2020
Year Ended December 31,
2019
2018
98,258 $
51,553
320,328
282,244
118,070
72,728 $
43,123
268,408
194,821
83,115
48,738
32,816
228,045
135,203
99,151
See accompanying notes to consolidated financial statements
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SERVICENOW, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands)
Common Stock
Shares
Amount
174,276 $
174 $
Additional
Paid-in
Capital
1,731,367 $
Accumulated
Deficit
Accumulated
Other
Comprehensive
Income (Loss)
Total
Stockholders’
Equity
(958,564) $
5,767 $
778,744
Balance at December 31, 2017
Cumulative effect adjustment for ASU 2016-01
adoption
Cumulative effect adjustment for ASU 2016-16
adoption
Common stock issued under employee stock plans
Taxes paid related to net share settlement of equity
awards
Stock-based compensation
Settlement of 2018 Notes conversion feature
Benefit from exercise of 2018 Note Hedges
Other comprehensive loss, net of tax
Net loss
—
—
5,899
—
—
1,314
(1,314)
—
—
Balance at December 31, 2018
180,175 $
Cumulative effect adjustment for Topic 842
adoption
Common stock issued under employee stock plans
Taxes paid related to net share settlement of equity
awards
Stock-based compensation
Settlement of 2018 Warrants
Other comprehensive income, net of tax
Net income
Balance at December 31, 2019
Common stock issued under employee stock plans
Taxes paid related to net share settlement of equity
awards
Stock-based compensation
Settlement of 2022 Warrants
Settlement of 2022 Notes conversion feature
Benefit from exercise of 2022 Note Hedge
Other comprehensive income, net of tax
Net income
—
5,003
—
—
4,283
—
—
189,461 $
4,098
—
—
2,285
—
—
—
—
Balance at December 31, 2020
195,844 $
—
—
6
—
—
1
(1)
—
—
180 $
—
4
—
—
5
—
—
189 $
4
—
—
3
—
—
—
—
196 $
—
—
104,167
(281,061)
545,805
(773,302)
766,858
—
—
2,093,834 $
—
107,905
(409,703)
662,710
(5)
—
—
2,454,741 $
151,623
(508,600)
873,816
(2)
(1,376,765)
1,378,984
—
—
2,973,797 $
7,234
(746)
—
—
—
—
—
—
(26,704)
(978,780) $
(162)
—
—
—
—
—
626,698
(352,244) $
—
—
—
—
—
—
—
118,503
(233,741) $
(7,234)
—
—
—
—
—
—
—
(2,568)
—
(4,035) $
—
—
—
—
—
29,290
—
25,255 $
—
—
—
—
—
—
68,974
94,229 $
(746)
104,173
(281,061)
545,805
(773,301)
766,857
(2,568)
(26,704)
1,111,199
(162)
107,909
(409,703)
662,710
—
29,290
626,698
2,127,941
151,627
(508,600)
873,816
1
(1,376,765)
1,378,984
68,974
118,503
2,834,481
See accompanying notes to consolidated financial statements
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SERVICENOW, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Cash flows from operating activities:
Net income (loss)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
$
Depreciation and amortization
Amortization of deferred commissions
Amortization of debt discount and issuance costs
Stock-based compensation
Deferred income taxes
Repayments of convertible senior notes attributable to debt discount
Loss on extinguishment of 2022 Notes
Other
Changes in operating assets and liabilities, net of effect of business combinations:
Accounts receivable
Deferred commissions
Prepaid expenses and other assets
Accounts payable
Deferred revenue
Accrued expenses and other liabilities
Net cash provided by operating activities
Cash flows from investing activities:
Purchases of property and equipment
Business combinations, net of cash acquired
Purchases of intangibles
Purchases of investments
Sales and maturities of investments
Realized gains on derivatives not designated as hedging instruments, net
Net cash used in investing activities
Cash flows from financing activities:
Net proceeds from borrowings on 2030 Notes
Repayments of convertible senior notes attributable to principal
Net proceeds from unwind of 2022 Note Hedge
Proceeds from employee stock plans
Taxes paid related to net share settlement of equity awards
Payments on financing obligations
Net cash provided by (used in) financing activities
Foreign currency effect on cash, cash equivalents and restricted cash
Net increase in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash at beginning of period
Cash, cash equivalents and restricted cash at end of period
Cash, cash equivalents and restricted cash at end of period:
Cash and cash equivalents
Current portion of restricted cash included in prepaid expenses and other current
assets
Total cash, cash equivalents and restricted cash shown in the consolidated statement of
cash flows
Supplemental disclosures of other cash flow information:
Income taxes paid, net of refunds
Non-cash investing and financing activities:
Settlement of 2022 Notes conversion feature
Benefit from exercise of 2022 Note Hedge
Settlement of 2018 Notes conversion feature
Benefit from exercise of 2018 Note Hedge
Property and equipment included in accounts payable and accrued expenses
Purchase of intangible assets included in accrued expenses and other liabilities
$
$
$
$
$
$
$
$
$
$
2020
Year Ended December 31,
2019
2018
118,503 $
626,698 $
(26,704)
336,381
217,631
24,478
870,453
(24,481)
(81,958)
46,611
(2,493)
(151,431)
(365,264)
(54,203)
(33,583)
710,998
174,957
1,786,599
(419,327)
(107,236)
(13,190)
(2,933,876)
1,965,429
1,328
(1,506,872)
1,481,633
(1,627,690)
1,105,542
145,766
(508,604)
—
596,647
25,065
901,439
777,991
1,679,430 $
252,114
168,014
33,283
662,195
(575,765)
—
—
(8,921)
(259,835)
(255,605)
(29,907)
21,355
537,249
65,097
1,235,972
(264,892)
(7,414)
(72,689)
(1,595,667)
1,192,750
23,435
(724,477)
—
(9)
—
107,868
(409,715)
—
(301,856)
(186)
209,453
568,538
777,991 $
149,604
143,358
52,733
543,953
(34,180)
(145,349)
—
(13,080)
(146,148)
(239,382)
(19,886)
(4,757)
468,856
82,071
811,089
(224,462)
(37,440)
(24,400)
(1,295,782)
1,234,662
—
(347,422)
—
(429,645)
—
104,160
(281,010)
(933)
(607,428)
(15,530)
(159,291)
727,829
568,538
1,676,794 $
775,778 $
566,204
2,636
2,213
2,334
1,679,430 $
777,991 $
568,538
39,212 $
20,471 $
17,507
275,273 $
273,442 $
— $
— $
34,839 $
— $
— $
— $
— $
— $
56,966 $
— $
—
—
773,302
766,858
25,767
8,500
See accompanying notes to consolidated financial statements
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SERVICENOW, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unless the context requires otherwise, references in this report to “ServiceNow,” the “Company,” “we,” “us,” and “our” refer to ServiceNow, Inc.
and its consolidated subsidiaries.
(1) Description of the Business
ServiceNow’s purpose is to make the world of work, work better for people. We believe that people want the technology they use in their work to be
more efficient and easier to use. We build applications to meet that demand by automating existing processes and creating efficient, digitized workflows
with a consumer grade user experience. Our products and services enable the steps of a job to flow naturally across disparate departments, systems and
processes of a business. ServiceNow delivers digital workflows on a single enterprise cloud platform called the Now Platform®. Our product portfolio is
currently focused on providing Information Technology (“IT”), Employee and Customer workflows in standardized product offerings. We also enable our
customers to design and build their own custom workflow applications using our Creator workflows, formerly called the Now Platform App Engine, and to
integrate those applications with third party systems through our Integration Hub.
(2) Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United
States (“GAAP”), and include our accounts and the accounts of our wholly-owned subsidiaries. All intercompany transactions and balances have been
eliminated upon consolidation.
Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP requires management to make certain estimates and assumptions.
These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the
consolidated financial statements, as well as reported amounts of revenues and expenses during the reporting period. Such management estimates and
assumptions include, but are not limited to, standalone selling price (“SSP”) for each distinct performance obligation included in customer contracts with
multiple performance obligations, the period of benefit for deferred commissions, valuation of intangible assets, the useful life of property and equipment
and identifiable intangible assets, stock-based compensation expense and income taxes. Actual results could differ from those estimates. We assessed the
impact of COVID-19 on the estimates and assumptions and determined there was no material impact.
Segments
Our chief operating decision maker allocates resources and assesses financial performance based upon discrete financial information at the
consolidated level. There are no segment managers who are held accountable by the chief operating decision maker, or anyone else, for operations,
operating results and planning for levels or components below the consolidated unit level. Accordingly, we have determined that we operate as a single
operating and reportable segment.
Foreign Currency Translation and Transactions
The functional currencies for our foreign subsidiaries are primarily their local currencies. Assets and liabilities of the wholly-owned foreign
subsidiaries are translated into U.S. Dollars at exchange rates in effect at each period end. Amounts classified in stockholders’ equity are translated at
historical exchange rates. Revenues and expenses are translated at the average exchange rates during the period. The resulting translation adjustments are
recorded in accumulated other comprehensive income (loss) as a component of stockholders’ equity. Foreign currency transaction gains and losses are
included in other income (expense), net within the consolidated statements of comprehensive income (loss), and have not been material for all periods
presented.
Revenue Recognition
Revenues are recognized when control of services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled
to in exchange for those services.
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Subscription revenues
Subscription revenues are primarily comprised of subscription fees that give customers access to the ordered subscription service, related support and
updates, if any, to the subscribed service during the subscription term. We recognize subscription revenues ratably over the contract term beginning on the
commencement date of each contract, which is the date we make our services available to our customers. Our contracts with customers typically include a
fixed amount of consideration and are generally non-cancelable and without any refund-type provisions. We typically invoice our customers annually in
advance for our subscription services upon execution of the initial contract or subsequent renewal, and our invoices are typically due within 30 days from
the invoice date.
Subscription revenues also include revenues from self-hosted offerings in which customers deploy, or we grant customers the option to deploy
without significant penalty, our subscription service internally or contract with a third party to host the software. For these contracts, we account for the
software element separately from the related support and updates as they are distinct performance obligations. Refer to the discussion below related to
contracts with multiple performance obligations for further details. The transaction price is allocated to separate performance obligations on a relative SSP
basis. The transaction price allocated to the software element is recognized when transfer of control of the software to the customer is complete. The
transaction price allocated to the related support and updates are recognized ratably over the contract term.
Professional services and other revenues
Our professional services arrangements are primarily on a time-and-materials basis, and we generally invoice our customers monthly in arrears for
these professional services based on actual hours and expenses incurred. Some of our professional services arrangements are on a fixed fee or subscription
basis. Professional services revenues are recognized as services are delivered. Other revenues consist of fees from customer training delivered on-site or
through publicly available classes. Typical payment terms require our customers to pay us within 30 days of invoice.
Contracts with multiple performance obligations
We enter into contracts that can include various combinations of products and services, which are generally capable of being distinct and accounted
for as separate performance obligations. We evaluate the terms and conditions included within our customer contracts to ensure appropriate revenue
recognition, including whether products and services are considered distinct performance obligations that should be accounted for separately versus
together. For contracts with multiple performance obligations, the transaction price is allocated to the separate performance obligations on a relative SSP
basis. We determine SSP by considering the historical selling price of these performance obligations in similar transactions as well as other factors,
including, but not limited to, competitive pricing of similar products, other software vendor pricing, industry publications and current pricing practices.
Contract balances
Unbilled receivables represent subscription revenues that are recognized upon delivery of the software prior to being invoiced. Unbilled receivables
are primarily presented under prepaid expenses and other current assets on our consolidated balance sheets.
Deferred revenue consists primarily of payments received related to unsatisfied performance obligations at the end of the period. Once our services
are available to customers, we record amounts due in accounts receivable and in deferred revenue. To the extent we bill customers in advance of the billing
period commencement date, the accounts receivable and corresponding deferred revenue amounts are netted to zero on our consolidated balance sheets,
unless such amounts have been paid as of the balance sheet date.
Customer deposits primarily relate to payments received from customers which could be refundable pursuant to the terms of the contract and are
presented under accrued expenses and other current liabilities on our consolidated balance sheets.
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Deferred Commissions
Deferred commissions are the incremental selling costs that are associated with acquiring customer contracts and consist primarily of sales
commissions paid to our sales organization and referral fees paid to independent third-parties. Deferred commissions also include the associated payroll
taxes and fringe benefit costs associated with payments to our sales employees to the extent they are incremental. Commissions and referral fees earned
upon the execution of initial and expansion contracts are primarily deferred and amortized over a period of benefit that we have determined to be five years.
Commissions earned upon the renewal of customer contracts are deferred and amortized over the average renewal term. Additionally, for self-hosted
offerings, consistent with the recognition of subscription revenue for self-hosted offerings, a portion of the commission cost is expensed upfront when the
self-hosted offering is made available. We determine the period of benefit by taking into consideration our customer contracts, our technology life cycle
and other factors. We include amortization of deferred commissions in sales and marketing expense in our consolidated statements of comprehensive
income (loss). There was no impairment loss in relation to the incremental selling costs capitalized for all periods presented.
Fair Value Measurements
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability in the principal or most advantageous
market for the asset or liability in an orderly transaction 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 two are 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;
Level 2—Other inputs that are directly or indirectly observable in the marketplace; and
Level 3— Significant unobservable inputs that are supported by little or no market activity.
Cash and Cash Equivalents
Cash and cash equivalents consist of highly liquid investments with original or remaining maturities of three months or less at the date of purchase.
Cash and cash equivalents are stated at fair value.
Accounts Receivable, net
We record trade accounts receivable at the net invoice value and such receivables are non-interest bearing. We consider receivables past due based on
the contractual payment terms. We reserve for specific amounts if collectability is no longer reasonably assured based on assessment of various factors
including historical loss rates and expectations of forward-looking loss estimates. Individual accounts receivable are written off when we become aware of
a specific customer’s inability to meet its financial obligation, and all collection efforts are exhausted.
Investments
Investments consist of commercial paper, corporate notes and bonds, certificates of deposit and U.S. government and agency securities. We classify
investments as available-for-sale at the time of purchase. All investments are recorded at estimated fair value and investments with original maturities of
less than one year at time of purchase is classified as short-term. Unrealized gains and losses are included in accumulated other comprehensive income
(loss), net of tax, a component of stockholders’ equity, except for credit-related impairment losses for available-for-sale debt securities.
We evaluate investments with unrealized loss positions for other than temporary impairment by assessing if they are related to deterioration in credit
risk and whether we expect to recover the entire amortized cost basis of the security, our intent to sell and whether it is more likely than not that we will be
required to sell the securities before the recovery of their cost basis. Credit-related impairment losses, not to exceed the amount that fair value is less than
the amortized cost basis, are recognized through an allowance for credit losses with changes in the allowance for credit losses recorded in other income
(expense), net in the consolidated statements of comprehensive income (loss). For purposes of identifying and measuring impairment, the policy election
was made to exclude the applicable accrued interest from both the fair value and amortized cost basis. Applicable accrued interest, net of the allowance for
credit losses (if any) of $13 million and $11 million, is recorded in prepaid expenses and other current assets on the consolidated balance sheets as of
December 31, 2020 and 2019, respectively.
Realized gains and losses and declines in value judged to be other than temporary are determined based on the specific identification method and are
reported in other income (expense), net in the consolidated statements of comprehensive income (loss).
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Strategic investments
Strategic investments consist of debt and non-marketable equity investments in privately-held companies in which we do not have a controlling
interest or significant influence. Debt investments in privately-held companies are classified as available-for-sale and are recorded at their estimated fair
value with changes in fair value recorded through accumulated other comprehensive income (loss). We have elected to apply the measurement alternative
for equity investments that do not have readily determinable fair values, measuring them at cost, less any impairment, plus or minus adjustments resulting
from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. An impairment loss is recorded when
event or circumstance indicates a decline in value has occurred. We include these strategic investments in other assets on our consolidated balance sheets.
Derivative Financial Instruments
We use derivative financial instruments, mainly forward contracts with maturities of 12 months or less, to manage foreign currency risks. These
derivative contracts are not designated as hedging instruments and changes in the fair value are recorded in other income (expense), net on the consolidated
statements of comprehensive income (loss). Realized gains (losses) from settlement of the derivative assets and liabilities are classified as investing
activities in the consolidated statements of cash flows.
Property and Equipment, net
Property and equipment are stated at cost net of accumulated depreciation. Depreciation is calculated using the straight-line method over the
estimated useful lives of the assets as follows:
Building
Computer equipment and software
Furniture and fixtures
Leasehold and other improvements
Capitalized Software Development Costs
39 years
3-5 years
3-7 years
shorter of the lease term or estimated useful life
Software development costs for software to be sold, leased, or otherwise marketed are expensed as incurred until the establishment of technological
feasibility, at which time those costs are capitalized until the product is available for general release to customers and amortized over the estimated life of
the product. Costs and time incurred between the establishment of technological feasibility and product release have not been material, and all software
development costs have been charged to research and development expense in our consolidated statements of comprehensive income (loss).
Costs incurred to develop our internal administration, finance and accounting systems are capitalized during the application development stage and
generally amortized over the software’s estimated useful life of three to five years. Costs related to preliminary project activities and post implementation
activities are expensed as incurred.
Leases
We determine if an arrangement is or contains a lease at inception. Operating lease right-of-use assets and liabilities are recognized at the lease
commencement date based on the present value of lease payments over the lease term. Lease payments consist primarily of the fixed payments under the
arrangement, less any lease incentives. We generally use an incremental borrowing rate estimated based on the information available at the lease
commencement date to determine the present value of lease payments, unless the implicit rate is readily determinable. Lease expense for lease payments is
recognized on a straight-line basis over the lease term.
We account for lease and non-lease components as a single lease component for office leases. Lease and non-lease components for all other leases are
generally accounted for separately. Additionally, we do not record leases on the balance sheet that, at the lease commencement date, have a lease term of 12
months or less.
Operating leases are included in operating lease right-of-use assets, current portion of operating lease liabilities, and operating lease liabilities, less
current portion in our consolidated balance sheets. We did not have any material financing leases in any of the periods presented.
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Business Combinations
We allocate the acquisition purchase price to the tangible and intangible assets acquired and liabilities assumed, based on their estimated fair values.
The excess of the purchase price over the fair value of these assets acquired and liabilities assumed is recorded as goodwill. Allocation of the purchase
price requires significant estimates in determining the fair value of acquired assets and assumed liabilities, especially with respect to intangible assets.
Critical estimates include, but are not limited to, future expected cash flows, discount rates, the time and expense to recreate the assets and profit margin a
market participant would receive. These estimates are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates.
Goodwill and Intangible Assets
Goodwill is evaluated for impairment at least annually or more frequently if circumstances indicate that goodwill may not be recoverable. We
changed the timing of our annual assessment from fourth quarter to third quarter and did not consider this change to be material. We believe the change in
timing is preferable as it better aligns with the Company’s closing processes. This change did not delay, accelerate or avoid any impairment charge. A
qualitative assessment is performed to determine whether it is more likely than not that the fair value of its reporting unit is less than its carrying amount. If
the reporting unit does not pass the qualitative assessment, the carrying amount of the reporting unit, including goodwill, is compared to fair value and
goodwill is considered impaired if the carrying value of the reporting unit exceeds its fair value. Any excess is recognized as an impairment loss.
Intangible assets consist of developed technologies and other intangible assets, including patents and contractual agreements. Intangible assets are
amortized over the period of estimated benefit using the straight-line method and estimated useful lives ranging from four to eleven years.
Impairment of Long-Lived Assets
We evaluate long-lived assets, including purchased intangible assets, for impairment whenever events or changes in circumstances indicate that the
carrying amount of the assets may not be recoverable. Recoverability is measured by comparing the carrying amount to the future undiscounted cash flows
we expect the asset to generate. Any excess of the carrying value of the asset above its fair value is recognized as an impairment loss.
Advertising Costs
Advertising costs, excluding costs related to our annual Knowledge user conference and other user forums, are expensed as incurred and are included
in sales and marketing expense. These costs for the years ended December 31, 2020, 2019 and 2018 were $172 million, $115 million and $65 million,
respectively.
Stock-based Compensation
We recognize compensation expense related to stock options and restricted stock units (“RSUs”) with only service conditions on a straight-line basis
over the requisite service period. For stock options and RSUs with both service and performance or market conditions (performance-based RSUs
(“PRSUs”)), expenses are recognized on a graded vesting basis over the requisite service period and for awards with performance conditions, when it is
probable that the performance condition will be achieved. We recognize compensation expense related to shares issued pursuant to the employee stock
purchase plan (“ESPP”) on a straight-line basis over the six-month offering period. We recognize compensation expense net of estimated forfeiture activity.
Amounts withheld related to the minimum statutory tax withholding requirements paid by us on behalf of our employees are recorded as a liability and a
reduction to additional paid-in capital when paid, and are included as a reduction of cash flows from financing activities.
We estimate the fair value of stock options with only service conditions and shares issued pursuant to the ESPP using the Black-Scholes options
pricing model and the fair value of RSU awards (including PRSUs) using the fair value of our common stock on the date of grant. For stock options with
both service and market conditions, we estimate the fair value of the options granted and the corresponding derived service periods using the Monte Carlo
simulation, which requires the use of various assumptions, including the stock price volatility and risk-free interest rate as of the valuation date
corresponding to the length of time remaining in the performance period and expected dividend yield.
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Concentration of Credit Risk and Significant Customers
Financial instruments potentially exposing us to credit risk consist primarily of cash, cash equivalents, derivative contracts, investments and accounts
receivable. We hold cash at financial institutions that management believes are high credit, quality financial institutions and invest in investment-grade debt
securities. Our derivative contracts expose us to credit risk to the extent that the counterparties may be unable to meet the terms of the arrangement. We
mitigate this credit risk by transacting with major financial institutions with high credit ratings and entering into master netting arrangements, which permit
net settlement of transactions with the same counterparty. We are not required to pledge, and are not entitled to receive, cash collateral related to these
derivative instruments. We are also exposed to credit risk under the convertible note hedge transactions that may result from counterparties’ non-
performance.
Credit risk arising from accounts receivable is mitigated to a certain extent due to our large number of customers and their dispersion across various
industries and geographies. As of December 31, 2020 and 2019, there were no customers that represented more than 10% of our accounts receivable
balance. There were no customers that individually exceeded 10% of our total revenues in any of the periods presented. For purposes of assessing
concentration of credit risk and significant customers, a group of customers under common control or customers that are affiliates of each other are
regarded as a single customer.
The following table presents the changes in the allowance for doubtful accounts (in thousands):
Year ended December 31, 2020
Allowance for doubtful accounts
Year ended December 31, 2019
Allowance for doubtful accounts
Year ended December 31, 2018
Allowance for doubtful accounts
Income Taxes
Balance at
Beginning of
Year
Additions:
Charged to
Operations
Additions:
Charged to
Deferred Revenue
Less:
Write-offs
Balance at End
of Year
$
$
$
6,196
4,649
3,115
2,544
1,284
1,255
1,382
1,306
1,177
1,514 $
1,043 $
898 $
8,608
6,196
4,649
We use the asset and liability method of accounting for income taxes, in which deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective
tax bases. We measure deferred tax assets and liabilities using enacted tax rates expected to apply to taxable income in the years in which those temporary
differences are expected to be reversed. We recognize the effect on deferred tax assets and liabilities of a change in tax rates within the provision for
income taxes as income and expense in the period that 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 be realized. In determining the need for a valuation allowance, we consider future growth, forecasted earnings,
future taxable income, the mix of earnings in the jurisdictions in which we operate, historical earnings, taxable income in prior years, if carryback is
permitted under the law, carryforward periods and prudent and feasible tax planning strategies.
Our tax positions are subject to income tax audits by multiple tax jurisdictions throughout the world. We recognize the tax benefit of an uncertain tax
position 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 the
tax benefit recognized as the largest amount of benefit which is more likely than not to be realized upon settlement with the taxing authority. We recognize
interest 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 in
income tax returns filed in subsequent years and record adjustments based on filed income tax returns 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 potential outcome of any uncertain tax issue is subject to
management’s assessment of relevant risks, facts and 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 make the determination.
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Prior Period Reclassifications
Certain prior period amounts have been reclassified to conform to the current period presentation. These reclassifications did not result in a
restatement of prior period financial statements.
Recently Adopted Accounting Pronouncements
Accounting Pronouncements Adopted in 2020
Cloud computing arrangements implementation costs
In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2018-15, “Intangibles-Goodwill
and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That
Is a Service Contract,” which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with
the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The new standard requires capitalized costs to
be amortized on a straight-line basis generally over the term of the arrangement, and the financial statement presentation for these capitalized costs would
be the same as that of the fees related to the hosting arrangements. We adopted this standard on a prospective basis as of January 1, 2020. The adoption of
this standard did not have a material impact on our consolidated financial statements.
Credit losses
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial
Instruments,” which requires a financial asset measured at amortized cost basis to be presented at the net amount expected to be collected, with further
clarifications made more recently regarding the treatment of accrued interest, transfers between classifications for loans and debt securities, recoveries and
the option to irrevocably elect the fair value option (on an instrument-by-instrument basis) for eligible financial assets at amortized costs. For trade
receivables, loans, and other financial assets, we will be required to use a forward-looking expected loss model rather than the incurred loss model for
recognizing credit losses which reflects losses that are probable. Credit losses relating to available-for-sale debt securities are required to be recorded
through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities. We adopted ASU 2016-13 on a modified
retrospective basis as of January 1, 2020. The adoption of this standard did not result in any cumulative effect adjustment on our consolidated financial
statements upon adoption as of January 1, 2020.
Accounting Pronouncement Adopted in 2019
Leases
In February 2016, the FASB issued ASU 2016-02, “Leases (“Topic 842”),” which requires lessees to generally recognize on the balance sheet
operating and financing lease liabilities and corresponding right-of-use assets, and to recognize on the income statement the expenses in a manner similar to
prior practice. We adopted Topic 842 using the modified retrospective method as of January 1, 2019 with an immaterial amount of cumulative effect
adjustment recorded to our accumulated deficit as of January 1, 2019 and elected not to restate the comparative periods in our financial statements in the
year of adoption. We also elected the package of transition expedients available for expired or existing contracts, which allowed us to carryforward our
historical assessment of (1) whether contracts are or contain leases, (2) lease classification and (3) initial direct costs. The adoption of this standard did not
impact our previously reported consolidated financial statements for periods ended on or prior to December 31, 2018. Upon adoption, we recorded
operating lease right-of-use assets of approximately $335 million and corresponding operating lease liabilities of $363 million on our consolidated balance
sheets.
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Recently Issued Accounting Pronouncements Pending Adoption
Debt with Conversion Options
In August 2020, the FASB issued new guidance to simplify the accounting for certain financial instruments with characteristics of liabilities and
equity, including convertible instruments and contracts on an entity’s own equity. The standard eliminates beneficial conversion feature and cash
conversion models resulting in more convertible instruments being accounted for as a single unit; and simplifies classification of debt on the balance sheet
and earnings per share calculation. This new standard is effective for our interim and annual periods beginning January 1, 2022 and earlier adoption is
permitted. Amendments within this standard are required to be applied on a retrospective or modified retrospective basis. We are currently evaluating the
impact of the adoption of this standard on our consolidated financial statements.
Income taxes
In December 2019, the FASB issued ASU 2019-12, “Income Taxes (“Topic 740”): Simplifying the Accounting for Income Taxes,” which simplifies
the accounting for incomes taxes by removing certain exceptions to the general principles in Topic 740 and amending existing guidance to improve
consistent application. This new standard is effective for our interim and annual periods beginning January 1, 2021 and earlier adoption is permitted. Most
amendments within this standard are required to be applied on a prospective basis, while certain amendments must be applied on a retrospective or
modified retrospective basis. We do not anticipate that the adoption of this standard will have a material impact on our consolidated financial statements.
(3) Investments
Marketable Debt Securities
The following is a summary of our available-for-sale debt securities recorded within short-term and long-term investments on the consolidated
balance sheets (in thousands):
Available-for-sale securities:
Commercial paper
Corporate notes and bonds
Certificates of deposit
U.S. government and agency securities
Total available-for-sale securities
Available-for-sale securities:
Commercial paper
Corporate notes and bonds
Certificates of deposit
U.S. government and agency securities
Total available-for-sale securities
Amortized
Cost
December 31, 2020
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair Value
405,429 $
2,298,306
23,081
145,243
2,872,059 $
79 $
10,478
8
942
11,507 $
(13) $
(298)
—
(7)
(318) $
405,495
2,308,486
23,089
146,178
2,883,248
Amortized
Cost
December 31, 2019
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair Value
101,416 $
1,654,166
38,007
127,544
1,921,133 $
83 $
7,360
38
254
7,735 $
(9) $
(196)
—
(14)
(219) $
101,490
1,661,330
38,045
127,784
1,928,649
$
$
$
$
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As of December 31, 2020, the contractual maturities of our available-for-sale debt securities, excluding those securities classified within cash and
cash equivalents on the consolidated balance sheet, did not exceed 36 months. The fair values of available-for-sale securities, by remaining contractual
maturity, are as follows (in thousands):
Due within 1 year
Due in 1 year through 5 years
Total
December 31, 2020
$
$
1,415,242
1,468,006
2,883,248
The following table shows the fair values and the gross unrealized losses of these available-for-sale debt securities, classified by the length of time
that the securities have been in a continuous unrealized loss position, and aggregated by investment types, excluding those securities classified within cash
and cash equivalents on the consolidated balance sheets (in thousands):
Commercial paper
Corporate notes and bonds
U.S. government and agency securities
Total
Commercial paper
Corporate notes and bonds
U.S. government and agency securities
Total
$
$
$
$
Less than 12 Months
Gross
Unrealized
Losses
Fair Value
94,980 $
534,126
7,985
637,091 $
December 31, 2020
12 Months or Greater
Gross
Unrealized
Losses
Fair Value
Total
Gross
Unrealized
Losses
Fair Value
(13) $
(298)
(7)
(318) $
— $
—
—
— $
— $
—
—
— $
94,980 $
534,126
7,985
637,091 $
(13)
(298)
(7)
(318)
Less than 12 Months
December 31, 2019
12 Months or Greater
Gross
Unrealized
Losses
Fair Value
Gross
Unrealized
Losses
Total
Gross
Unrealized
Losses
Fair Value
(9) $
(181)
(14)
(204) $
— $
16,264
—
16,264 $
— $
(15)
—
(15) $
20,752 $
258,276
17,806
296,834 $
(9)
(196)
(14)
(219)
Fair Value
20,752 $
242,012
17,806
280,570 $
The decline in fair value below amortized cost basis was not 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, and credit-related impairment losses were not deemed material as of December 31, 2020.
Strategic Investments
As of December 31, 2020 and 2019, the total amount of equity investments in privately-held companies included in other assets on our consolidated
balance sheets was $28 million and $22 million, respectively. We classify these assets as Level 3 within the fair value hierarchy as only an impairment or
observable adjustment is recognized based on observable transaction price at the transaction date of identical or similar investment of the same issuer and
other unobservable inputs such as volatility.
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(4) Fair Value Measurements
The following table presents our fair value hierarchy for our assets measured at fair value on a recurring basis as of December 31, 2020 (in
thousands):
Cash equivalents:
Money market funds
U.S. government and agency securities
Marketable securities:
Commercial paper
Corporate notes and bonds
Certificates of deposit
U.S. government and agency securities
Total
Level 1
Level 2
Total
$
$
1,305,372 $
—
—
—
—
—
1,305,372 $
— $
2,000
405,495
2,308,486
23,089
146,178
2,885,248 $
1,305,372
2,000
405,495
2,308,486
23,089
146,178
4,190,620
The following table presents our fair value hierarchy for our assets measured at fair value on a recurring basis as of December 31, 2019 (in
thousands):
Cash equivalents:
Money market funds
Commercial paper
Marketable securities:
Commercial paper
Corporate notes and bonds
Certificates of deposit
U.S. government and agency securities
Total
Level 1
Level 2
Total
$
$
486,982 $
—
—
—
—
—
486,982 $
— $
86,388
101,490
1,661,330
38,045
127,784
2,015,037 $
486,982
86,388
101,490
1,661,330
38,045
127,784
2,502,019
We determine the fair value of our security holdings based on pricing from our service providers and market prices from industry-standard
independent data providers. Such market prices may be quoted prices in active markets for identical assets (Level 1 inputs) or pricing determined using
inputs other than quoted prices that are observable either directly or indirectly (Level 2 inputs), such as yield curve, volatility factors, credit spreads, default
rates, loss severity, current market and contractual prices for the underlying instruments or debt, broker and dealer quotes, as well as other relevant
economic measures.
Our equity investments in privately-held companies are not included in the table above and are discussed in Note 3. See Note 8 for the fair value
measurement of our derivative contracts and Note 11 for the fair value measurement of our long-term debt, which are also not included in the table above.
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(5) Business Combinations
2020 Business Combinations
On July 1, 2020, we acquired Sweagle NV for $25 million in an all-cash transaction to extend our DevOps and IT operations management (“ITOM”)
capabilities. The purchase price was allocated based on the estimated fair value to intangible assets of $8 million comprised mainly of developed
technology of $7 million, deferred tax liabilities of $2 million, and goodwill of $19 million.
On February 7, 2020, we acquired Rupert Labs, Inc. d/b/a Passage AI for $33 million in an all-cash transaction to advance our deep learning of
conversational artificial intelligence (“AI”) capabilities. The purchase price was allocated based on the estimated fair value to developed technology
intangible assets of $22 million, deferred tax liabilities of $5 million and $15 million of goodwill.
On February 6, 2020, we acquired Loom Systems Ltd. for $58 million in an all-cash transaction to extend our AI capabilities for ITOM by providing
customers with analytics solutions. The purchase price was allocated based on the estimated fair value to developed technology intangible assets of $17
million, deferred tax liabilities of $4 million and goodwill of $40 million.
Developed technology intangible assets acquired during the year are amortized over a five-year estimated useful life and goodwill is not tax
deductible for income tax purposes.
2019 Business Combination
During the year ended December 31, 2019, we completed a business combination for $8 million in cash in which we acquired certain intangible
assets, including developed technology and customer arrangements.
2018 Business Combinations
During the year ended December 31, 2018, we completed four business combinations for an aggregate purchase price of $38 million in cash. The
aggregate purchase price was allocated based on the estimated fair value to $14 million of developed technology intangible assets (to be amortized over a
five-year estimated useful life) $2 million of deferred tax liabilities and $26 million of goodwill, of which $8 million of the goodwill is deductible for
income tax purposes.
We believe the goodwill associated with these business combinations represents the synergies expected from expanded market opportunities when
integrating the acquired developed technologies with our offerings.
Aggregate acquisition-related costs associated with our business combinations are not material for each of the years presented and are included in
general and administrative expenses in our consolidated statement of comprehensive income (loss). The results of operations of these business
combinations have been included in our consolidated financial statements from their respective dates of purchase. These business combinations did not
have a material impact on our consolidated financial statements, and therefore historical and pro forma disclosures have not been presented.
(6) Goodwill and Intangible Assets
Goodwill balances are presented below (in thousands):
Balance as of December 31, 2018
Goodwill acquired
Foreign currency translation adjustments
Balance as of December 31, 2019
Goodwill acquired
Foreign currency translation adjustments
Balance as of December 31, 2020
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Carrying Amount
148,845
2,246
5,665
156,756
74,172
9,836
240,764
$
$
$
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Intangible assets consist of the following (in thousands):
Developed technology
Patents
Other
Intangible assets, gross
Less: accumulated amortization
Intangible assets, net
December 31,
2020
December 31,
2019
$
$
226,290 $
64,942
3,616
294,848
(141,481)
153,367 $
177,746
67,730
3,594
249,070
(105,220)
143,850
Apart from the business combinations described in Note 5, we acquired $7 million of developed technology and $7 million of patents with weighted-
average useful life of approximately five and nine years, respectively, for the year ended December 31, 2020 and $73 million comprising primarily of $61
million in developed technology and $11 million in patents with weighted-average useful life of five and eight years, respectively, for the year ended
December 31, 2019.
Amortization expense for intangible assets was approximately $46 million, $35 million and $25 million for the years ended December 31, 2020, 2019
and 2018, respectively.
The following table presents the estimated future amortization expense related to intangible assets held at December 31, 2020 (in thousands):
Years Ending December 31,
2021
2022
2023
2024
2025
Thereafter
Total future amortization expense
(7) Property and Equipment
$
$
Property and equipment, net consists of the following (in thousands):
Computer equipment
Computer software
Leasehold and other improvements
Furniture and fixtures
Construction in progress
Property and equipment, gross
Less: Accumulated depreciation
Property and equipment, net
December 31,
2020
2019
$
$
974,319 $
71,688
167,697
68,678
9,257
1,291,639
(631,998)
659,641 $
42,466
38,253
32,962
27,322
5,228
7,136
153,367
680,160
59,511
125,299
53,651
6,830
925,451
(457,366)
468,085
Construction in progress consists primarily of leasehold and other improvements and in-process software development costs. Depreciation expense
was $225 million, $168 million and $123 million for the years ended December 31, 2020, 2019 and 2018, respectively.
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(8) Derivative Contracts
As of December 31, 2020 and 2019, we had foreign currency forward contracts with total notional values of $583 million and $358 million,
respectively, which are not designated as hedging instruments. Our foreign currency contracts are classified within Level 2 as the valuation inputs are based
on quoted prices and market observable data of similar instruments in active markets, such as currency spot and forward rates. The fair value of these
outstanding derivative contracts was as follows (in thousands):
Derivative Assets:
Foreign currency derivative contracts
Derivative Liabilities
Foreign currency derivative contracts
Consolidated Balance Sheet Location
December 31, 2020 December 31, 2019
Prepaid expenses and other current assets
Accrued expenses and other current liabilities
$
$
7,541 $
9,879 $
2,237
1,362
(9) Deferred Revenue and Performance Obligations
Revenues recognized during the year ended December 31, 2020 from amounts included in deferred revenue as of December 31, 2019 were $2.1
billion. Revenues recognized during the year ended December 31, 2019 from amounts included in deferred revenue as of December 31, 2018 were $1.6
billion.
Remaining Performance Obligations
Transaction price allocated to remaining performance obligations (“RPO”) represents contracted revenue that has not yet been recognized, which
includes deferred revenue and non-cancelable amounts that will be invoiced and recognized as revenues in future periods. RPO excludes contracts that are
billed in arrears, such as certain time and materials contracts, as we apply the “right to invoice” practical expedient under relevant accounting guidance.
As of December 31, 2020, the total non-cancelable RPO under our contracts with customers was $8.9 billion, and we expect to recognize revenues on
approximately 49% of these RPO over the following 12 months, with the balance to be recognized thereafter.
(10) Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consist of the following (in thousands):
Accrued payroll
Taxes payable
Other employee related liabilities
Other
Total accrued expenses and other current liabilities
December 31,
2020
2019
$
$
371,861 $
58,466
91,654
146,112
668,093 $
230,682
38,326
74,853
117,542
461,403
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(11) Long-Term Debt
The following table summarizes the carrying value of our outstanding debt (in thousands, except percentages):
Long-term debt
Principal
Less: debt issuance cost and debt discount, net of amortization
Net carrying amount
Effective interest rate of the liability component - 2022 Notes
Effective interest rate - 2030 Notes
December 31, 2020
2030 Notes
2022 Notes
December 31, 2019
2022 Notes
$
$
1,500,000 $
(17,703)
1,482,297 $
169,224 $
(11,368)
157,856 $
782,491
(87,510)
694,981
4.75%
1.53%
The effective interest rates for the 2030 Notes and 2022 Notes include interest payable, amortization of debt issuance cost and amortization of debt
discount, as applicable.
We consider the fair value of the 2030 Notes and 2022 Notes at December 31, 2020 to be a Level 2 measurement. The estimated fair value of the
2030 Notes and 2022 Notes at December 31, 2020 and December 31, 2019 based on the closing trading price per $100 of the 2030 Notes and 2022 Notes
were as follows (in thousands):
2022 Notes
2030 Notes
2030 Notes
December 31, 2020
December 31, 2019
$
$
687,049 $
1,463,475 $
1,645,970
—
In August 2020, we issued 1.40% fixed rate ten-year notes with an aggregate principal amount of $1.5 billion due on September 1, 2030 (the “2030
Notes”). The 2030 Notes were issued at 99.63% of principal and we incurred approximately $13 million for debt issuance costs. Interest is payable semi-
annually in arrears on March 1 and September 1 of each year, beginning on March 1, 2021, and the entire outstanding principal amount is due at maturity
on September 1, 2030. The 2030 Notes are unsecured obligations and the indentures governing the 2030 Notes contain customary events of default and
covenants that, among others and subject to exceptions, restrict the Company’s ability to incur or guarantee debt secured by liens on specified assets or
enter into sale and lease-back transactions with respect to specified properties.
2022 Notes
In May and June 2017, we issued an aggregate of $782.5 million of 0% convertible senior notes (the “2022 Notes”), which are due June 1, 2022
unless earlier converted or repurchased in accordance with their terms. The 2022 Notes do not bear interest, and we cannot redeem the 2022 Notes prior to
maturity. The 2022 Notes are unsecured obligations and do not contain any financial covenants or restrictions on the payments of dividends, the incurrence
of indebtedness or the issuance or repurchase of securities by us or any of our subsidiaries. In accounting for the issuance of the 2022 Notes and the related
transaction costs, we valued and bifurcated the conversion option from the host debt instrument, referred to as debt discount, and recorded the conversion
option of $160 million in equity at issuance. The resulting debt discount and transactions costs allocated to the liability component are amortized to interest
expense using the effective interest method over the term of the 2022 Notes.
Upon conversion of the 2022 Notes, 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 our common stock upon settlement. We currently intend to settle the principal amount of the 2022 Notes with cash.
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2022 Notes
February 1, 2022
$
134.75
7.42 shares
5,807
Convertible Date
Initial Conversion
Price per Share
Initial Conversion
Rate per $1,000 Par
Value
Initial Number of
Shares
(in thousands)
Conversion of the 2022 Notes prior to the Convertible Date. At any time prior to the close of business on the business day immediately preceding
February 1, 2022 (“Convertible Date”), holders of the 2022 Notes may convert their Notes at their option, only if one of the following conditions are met:
• during any calendar quarter (and only during such calendar quarter) if the last reported sale price of our common stock for at least 20 trading days
(whether or not consecutive) during the period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar
quarter is greater than or equal to 130% of the conversion price on each applicable trading day (in each case, the “Conversion Condition”); or
• during the five-business day period after any five-consecutive trading day period, or the measurement period, in which the trading price per $1,000
principal amount of the 2022 Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price
of our common stock and the conversion rate on each such trading day; or
• upon the occurrence of specified corporate events.
For conversion requests received prior to maturity, the difference between the fair value and the amortized book value is recorded as a gain or loss on
early note conversion.
Conversion of the 2022 Notes on or after the Convertible Date. On or after the Convertible Date, a holder may convert all or any portion of its 2022
Notes at any time prior to the close of business on the second scheduled trading day immediately preceding maturity regardless of the foregoing conditions,
and such conversions will settle upon maturity. Upon settlement, we will pay or deliver, as the case may be, cash, shares of our common stock or a
combination of cash and shares of our common stock, at our election.
The conversion price of the 2022 Notes will be subject to adjustment in some events. Holders of the 2022 Notes who convert their 2022 Notes in
connection with certain corporate events that constitute a “make-whole fundamental change” are, under certain circumstances, entitled to an increase in the
conversion rate. Additionally, in the event of a corporate event that constitutes a “fundamental change,” holders of the 2022 Notes may require us to
purchase with cash all or a portion of the 2022 Notes upon the occurrence of a fundamental change, at a purchase price equal to 100% of the principal
amount of the 2022 Notes plus any accrued and unpaid special interest, if any.
The Conversion Condition for the 2022 Notes was met for all the quarters ended June 30, 2018 through December 31, 2020, except for the quarter
ended December 31, 2018. Therefore, our 2022 Notes became convertible at the holders’ option beginning on July 1, 2018 and continue to be convertible
through March 31, 2021, except for the quarter ended March 31, 2019 because the Conversion Condition for the 2022 Notes was not met for the quarter
ended December 31, 2018.
During the year ended December 31, 2020, we paid cash to settle $116 million in principal of the 2022 Notes and the loss on the early note
conversions was not material. As a result of the settlements, we also recorded a net reduction to additional paid-in capital, reflecting $275 million fair value
adjustments to the settled conversion option partially offset by $273 million benefit from the 2022 Note Hedge (as defined below).
Based on conversion requests received through the filing date, we expect to settle in cash an aggregate of approximately $34 million in principal
amount of the 2022 Notes during the first quarter of 2021. We may receive additional conversion requests that require settlement after the first quarter of
2021.
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Repurchase of 2022 Notes
On August 11, 2020, we repurchased $497 million in aggregate principal amount of the 2022 Notes (the “2022 Notes Repurchase”) funded in part by
the $1.1 billion proceeds received from the partial unwind of the 2022 Note Hedge (as defined below). The 2022 Notes Repurchase was accounted for as a
debt extinguishment in which $493 million and $1.1 billion were allocated to the liability and equity components of the 2022 Notes, respectively. The cash
consideration allocated to the liability component was based on the estimated fair value of the liability component utilizing a discount rate assuming a
similar liability per the Company’s credit rating with the same maturity, but without the conversion option, as of the repurchase date. The cash
consideration allocated to the equity component was based on the aggregate cash consideration less the estimated fair value of the liability component. The
loss on extinguishment of $39 million recorded as other income (expense), net, represents the difference between the allocated cash consideration and the
carrying value of the liability component, which includes the proportionate amounts of unamortized debt discount and unamortized debt issuance costs in
the amount of $43 million.
Note Hedge
To minimize the impact of potential economic dilution upon conversion of the 2022 Notes, we entered into convertible note hedge transactions (the
“2022 Note Hedge”) with certain investment banks, with respect to our common stock concurrently with the issuance of the 2022 Notes.
Purchase
Initial Shares
(in thousands)
Shares as of
December 31, 2020
2022 Note Hedge
$
128,017
5,807
1,256
The 2022 Note Hedge covers shares of our common stock at a strike price per share that corresponds to the initial conversion price of the 2022 Notes,
subject to adjustment, and are exercisable upon conversion of the 2022 Notes. If exercised, we may elect to receive cash, shares of our common stock, or a
combination of cash and shares. The 2022 Note Hedge will expire upon the maturity of the 2022 Notes. The 2022 Note Hedge is intended to reduce the
potential economic dilution upon conversion of the 2022 Notes in the event that the fair value per share of our common stock at the time of exercise is
greater than the conversion price of the 2022 Notes. The 2022 Note Hedge is a separate transaction and is not part of the terms of the 2022 Notes. Holders
of the 2022 Notes will not have any rights with respect to the 2022 Note Hedge. The 2022 Note Hedge does not impact earnings per share, as it was entered
into to offset any dilution from the 2022 Notes.
On August 11, 2020, in connection with the 2022 Notes Repurchase, we entered into partial unwind agreements (the “Note Hedge Unwind”) to
reduce the number of options corresponding to the principal amount of the 2022 Notes Repurchase. We received $1.1 billion for the Note Hedge Unwind
and the aggregate number of shares underlying the call options under the 2022 Note Hedge was reduced by 3.7 million shares. Consistent with early
conversions of the 2022 Notes, proceeds received by the Company from the Note Hedge Unwind were used to settle a portion of the 2022 Notes
Repurchase.
Warrants
2022 Warrants
$
54,071
5,807 $
203.40
September 1, 2022
1,829
Proceeds
(in thousands)
Initial Shares
(in thousands)
Strike Price
First Expiration Date
Shares as of
December 31, 2020
(in thousands)
Separately, we entered into warrant transactions with certain investment banks, whereby we sold warrants to acquire, subject to adjustment, the
number of shares of our common stock shown in the table above (the “2022 Warrants”). If the average market value per share of our common stock for the
reporting period, as measured under the 2022 Warrants, exceeds the strike price of the respective 2022 Warrants, such 2022 Warrants would have a dilutive
effect on our earnings per share to the extent we report net income. The 2022 Warrants are separate transactions and are not remeasured through earnings
each reporting period. The 2022 Warrants are not part of the 2022 Notes or 2022 Note Hedge.
In connection with the 2022 Notes Repurchase, we also entered into partial unwind agreements to reduce the number of warrants outstanding under
the 2022 Warrants by delivering an aggregate of 2.3 million shares of our common stock to the holders of the 2022 Warrants.
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According to the terms, the remaining portion of the 2022 Warrants will be net share settled and automatically exercised over a 60 trading day period
beginning on the first expiration date as set forth above based on the daily volume-weighted average stock prices over the same 60 trading day period.
We expect to issue additional shares of our common stock in the second half of 2022 upon the automatic exercise of the remaining portion of the
2022 Warrants. The remaining portion of the 2022 Warrants could have a dilutive effect to the extent that the daily volume-weighted average stock prices
over a 60 trading day period beginning on September 1, 2022 exceeds the strike price of the 2022 Warrants. Based on the volume-weighted average stock
price on December 31, 2020, the total number of shares of our common stock to be issued upon the automatic exercise of the remaining portion of the 2022
Warrants would be approximately 1.1 million. The actual number of shares of our common stock issuable upon the automatic exercise of the remaining
portion of the 2022 Warrants, if any, is unknown at this time.
In November 2013, we issued $575 million of 0% convertible senior notes, which $413 million principal amount was early converted prior to and the
remaining principal amount of $162 million was cash settled at maturity on November 1, 2018, in accordance with their terms. As a result of the
settlements, we recorded an aggregate net reduction to additional paid-in capital, reflecting $773 million of fair value adjustments to the conversion option
settled, offset by a $767 million benefit from the exercise of the convertible note hedge transactions (“2018 Note Hedge”). The related warrant transactions
with certain investment banks (the “2018 Warrants”) were net share settled based on the daily volume-weighted average stock prices over a 60 trading day
period beginning on the first expiration date, February 1, 2019. According to the terms of the 2018 Warrants, we issued 4.3 million and 1.3 million shares
of our common stock upon the automatic exercise of the 2018 Warrants during the year ended December 31, 2019 and 2018, respectively. The 2018
Warrants were no longer outstanding as of June 30, 2019.
(12) Accumulated Other Comprehensive Income
The components of accumulated other comprehensive income, net of tax, consist of the following (in thousands):
Foreign currency translation adjustment
Net unrealized gain on investments, net of tax
Accumulated other comprehensive income
December 31,
2020
2019
$
$
87,127 $
7,102
94,229 $
20,884
4,371
25,255
Reclassification adjustments out of accumulated other comprehensive income into net income were not material for all periods presented.
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(13) Stockholders' Equity
Common Stock
We are authorized to issue a total of 600.0 million shares of common stock as of December 31, 2020. Holders of our common stock are not entitled to
receive dividends unless declared by our board of directors. As of December 31, 2020, we had 195.8 million shares of common stock outstanding and had
reserved shares of common stock for future issuance as follows (in thousands):
Stock plans:
Options outstanding
RSUs
Shares of common stock available for future grants:
(1)
2012 Equity Incentive Plan
2012 Employee Stock Purchase Plan
Total shares of common stock reserved for future issuance
(2)
(2)
December 31, 2020
522
7,362
28,004
9,755
45,643
(1)
(2)
Represents the number of shares issuable upon settlement of outstanding RSUs and performance-based RSUs, as discussed under in Note 14.
Refer to Note 14 for a description of these plans.
During the years ended December 31, 2020 and 2019, we issued a total of 4.1 million shares and 5.0 million shares, respectively, from stock option
exercises, vesting of RSUs, net of employee payroll taxes and purchases from ESPP. In addition, as described in Note 11, we issued 2.3 million shares of
our common stock upon unwind of the 2022 Warrants during the year ended December 31, 2020 and 4.3 million and 1.3 million shares of our common
stock upon the automatic exercise of the 2018 Warrants during the year end December 31, 2019 and 2018, respectively.
Preferred Stock
Our board of directors has the authority, without further action by stockholders, to issue up to 10 million shares of preferred stock in one or more
series. Our board of directors may designate the rights, preferences, privileges and restrictions of the preferred stock, including dividend rights, conversion
rights, voting rights, terms of redemption, liquidation preference and number of shares constituting any series or the designation of any series. The issuance
of preferred stock could have the effect of restricting dividends on our common stock, diluting the voting power of our common stock, impairing the
liquidation rights of our common stock, or delaying or preventing a change in control. At December 31, 2020 and 2019, no shares of preferred stock were
outstanding.
(14) Equity Awards
We currently have two equity incentive plans, our 2005 Stock Option Plan (the “2005 Plan”) and our 2012 Equity Incentive Plan (the “2012 Plan”).
Our 2005 Plan was terminated in connection with our initial public offering in 2012 but continues to govern the terms of outstanding stock options that
were granted prior to the termination of the 2005 Plan. We no longer grant equity awards pursuant to our 2005 Plan.
Our 2012 Plan provides for the grant of incentive stock options, nonqualified stock options, stock appreciation rights, RSUs, performance-based stock
awards and other forms of equity compensation (collectively, “equity 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 equity awards may be granted to employees, including officers, as well as
directors and consultants. The share reserve may increase to the extent outstanding stock options under the 2005 Plan expire or terminate unexercised. Prior
to January 2019, the share reserve also automatically increased on January 1 of each year, by up to 5% of the total number of shares of common stock
outstanding on December 31 of the preceding year as determined by our board of directors. In January 2019, our Board of Directors amended the 2012 Plan
to remove the automatic increase provision. Therefore, for the remaining term of the 2012 Plan, the share reserve will not be increased without stockholder
approval.
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Our 2012 Employee Stock Purchase Plan (the “2012 ESPP”) authorizes the issuance of shares of common stock pursuant to purchase rights granted to
our employees. The price at which common stock is purchased under the 2012 ESPP is equal to 85% of the fair market value of our common stock on the
first or last day of the offering period, whichever is lower. Offering periods are six months long and begin on February 1 and August 1 of each year. The
number of shares of common stock reserved for issuance automatically increases on January 1 of each year until January 1, 2022, by up to 1% of the total
number of shares of common stock outstanding on December 31 of the preceding year as determined by our board of directors. Our board of directors
elected not to increase the number of shares of common stock reserved for issuance under the 2012 ESPP pursuant to the provision described in the
preceding sentence for the years ending December 31, 2021 and December 31, 2020.
Stock Options
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 by
our board of directors or, for those stock options issued subsequent to our initial public offering, the closing price of our common stock as reported on the
New York Stock Exchange 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 the requisite service period begins and continue to vest monthly for each month of continued employment over the remaining three
years. Options granted generally are exercisable for a period of up to ten years contingent on each holder’s continuous status as a service provider.
A summary of stock option activity was as follows:
Outstanding at December 31, 2018
Granted
Exercised
Canceled
Outstanding at December 31, 2019
Exercised
Canceled
Outstanding at December 31, 2020
Vested and expected to vest as of December 31, 2020
Vested and exercisable as of December 31, 2020
Weighted-
Average
Exercise
Price Per Share
Weighted-
Average
Remaining
Contractual
Term
(in years)
Number of
Shares
(in thousands)
Aggregate
Intrinsic Value
(in thousands)
1,811 $
161 $
(640) $
(178) $
1,154 $
(621) $
(11) $
522 $
503 $
391 $
46.55
266.31
34.61
86.02
77.70
52.98
75.77
107.14
100.95
55.98
$
$
4.5 $
4.4 $
3.1 $
138,389
199,094
231,456
225,866
193,374
The total intrinsic value of the options exercised was $204 million for the year ended December 31, 2018. No stock options were granted during the
years ended December 31, 2020 and 2018. The weighted-average grant date fair value per share of options granted was $266.31 for the year ended
December 31, 2019. The total fair value of shares vested was $7 million, $8 million and $12 million for the years ended December 31, 2020, 2019 and
2018, respectively.
The options granted during the year ended December 31, 2019 are options with both service and market-based vesting conditions granted to our Chief
Executive Officer in connection with the commencement of his employment during the year. Included in the number of shares canceled during the year
ended December 31, 2019 are 171,912 options with both service and market-based vesting conditions granted to our former Chief Executive Officer during
the year ended December 31, 2017 in connection with the commencement of his employment which were canceled upon termination of his employment
during the year ended December 31, 2019.
As of December 31, 2020, total unrecognized compensation cost, adjusted for estimated forfeitures, related to unvested stock options was
approximately $11 million. The weighted-average remaining vesting period of unvested stock options at December 31, 2020 was 3.9 years.
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RSUs
A summary of RSU activity was as follows:
Outstanding at December 31, 2018
Granted
Vested
Forfeited
Outstanding at December 31, 2019
Granted
Vested
Forfeited
Outstanding at December 31, 2020
Expected to vest as of December 31, 2020
Number of
Shares
(in thousands)
Weighted-Average
Grant-Date Fair Value
Per Share
Aggregate
Intrinsic Value
(in thousands)
10,202 $
5,338 $
(5,487) $
(1,320) $
8,733 $
3,643 $
(4,250) $
(764) $
7,362 $
6,408
121.84
240.32
126.85 $
145.34
185.39
367.52
181.85 $
221.84
274.23 $
$
1,369,918
1,759,996
4,052,092
3,526,957
RSUs outstanding as of December 31, 2020 were comprised of 7.0 million RSUs with only service conditions and 0.4 million RSUs with both
service conditions and performance conditions. RSUs granted with only service conditions under the 2012 Plan to employees generally vest over a four-
year period. The total intrinsic value of the RSUs vested was $932 million for the year ended December 31, 2018.
PRSUs with both service and performance conditions are considered as eligible to vest when approved by the compensation committee of our board
of directors in January of the year following the grant. The ultimate number of shares eligible to vest for PRSUs range from 0% to 180% of the target
number of shares depending on achievement relative to the performance metric over the applicable period. The PRSUs shares granted in the years ended
December 31, 2020 and 2019 will vest 33% in February of the following year and continue to vest quarterly for the remaining two subsequent
years, contingent on each holder’s continuous status as a service provider on the applicable vesting dates. The number of PRSUs granted shown in the table
above reflects the shares that could be eligible to vest at 100% of target for PRSUs and includes adjustments for over or under achievement for PRSUs
granted in the prior year. In July 2020, our board of directors approved a modification to the fiscal year 2020 performance target. As a result, we will
recognize an incremental expense of $29 million over the remaining vesting period. We recognized $70 million, $68 million, and $92 million of stock-
based compensation expense, net of actual and estimated forfeitures, associated with PRSUs on a graded vesting basis during the year ended December 31,
2020, 2019, and 2018, respectively.
As of December 31, 2020, total unrecognized compensation cost, adjusted for estimated forfeitures, related to unvested RSUs was approximately
$1.8 billion and the weighted-average remaining vesting period was 2.7 years.
(15) Stock-based Compensation
The following assumptions were used in the Black-Scholes options pricing model to calculate our stock-based compensation on the date of the grant:
ESPP:
Expected volatility
Expected term (in years)
Risk-free interest rate
Dividend yield
2020
Year Ended December 31,
2019
2018
30%- 60%
0.5
0.11%-2.04%
— %
30%-49%
0.5
2.04%-2.46%
— %
26%-31%
0.5
1.15%-2.22%
— %
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Expected volatility. The expected volatility is based on the historical volatility of our common stock for a period similar to our expected term.
Expected term. We determine the expected term for stock options based on historical experience of similar awards, giving consideration to the
contractual terms of the stock-based awards, vesting schedules and expectations of future employee behavior. We estimate 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 the
stock-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.
(16) Net Income (Loss) Per Share
Basic net income (loss) per share attributable to common stockholders is computed by dividing net income (loss) attributable to common stockholders
by the weighted-average number of shares of common stock outstanding during the period. Diluted net income (loss) per share is computed by dividing net
income (loss) attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period, adjusted for
the effects of dilutive shares of common stock, which are comprised of outstanding stock options, RSUs, ESPP obligations, the 2022 Notes and the 2022
and 2018 Warrants. Stock awards with performance conditions are included in dilutive shares to the extent the performance condition is met. The dilutive
potential shares of common stock are computed using the treasury stock method or the as-if converted method, as applicable. The effects of outstanding
stock options, RSUs, ESPP obligations, 2022 Notes and 2022 and 2018 Warrants are excluded from the computation of diluted net income (loss) per share
in periods in which the effect would be antidilutive.
The following tables present the calculation of basic and diluted net income (loss) per share attributable to common stockholders (in thousands,
except per share data):
Numerator:
Net income (loss)
Denominator:
Weighted-average shares outstanding - basic
Weighted-average effect of potentially dilutive securities:
Common stock options
RSUs
2018 Warrants
2022 Notes
2022 Notes settlements
2022 Warrants
Partial settlement of 2022 Warrants
Weighted-average shares outstanding - diluted
Net income (loss) per share - basic
Net income (loss) per share - diluted
2020
Year Ended December 31,
2019
2018
$
118,503 $
626,698 $
(26,704)
193,096
547
4,421
—
842
1,931
920
721
202,478
186,466
1,109
4,897
842
2,737
—
1,172
—
197,223
$
$
0.61 $
0.59 $
3.36 $
3.18 $
177,846
—
—
—
—
—
—
—
177,846
(0.15)
(0.15)
76
Potentially dilutive securities that are not included in the calculation of diluted net income (loss) per share because doing so would be antidilutive are
as follows (in thousands):
Common stock options
Restricted stock units
ESPP obligations
2018 Warrants
2022 Notes
2022 Warrants
Total potentially dilutive securities
(17) Income Taxes
2020
Year Ended December 31,
2019
2018
—
347
224
—
—
—
571
161
413
273
—
—
—
847
1,811
10,202
318
7,783
5,807
5,807
31,728
The components of income (loss) before income taxes by U.S. and foreign jurisdictions were as follows (in thousands):
United States
Foreign
Total
2020
Year Ended December 31,
2019
2018
$
$
11,940 $
137,245
149,185 $
(48,558) $
115,743
67,185 $
(153,290)
114,266
(39,024)
The provision for (benefit from) income taxes consists of the following (in thousands):
Current provision:
Federal
State
Foreign
Deferred provision:
Federal
State
Foreign
Provision for (benefit from) income taxes
2020
Year Ended December 31,
2019
2018
— $
285
53,055
53,340
(5,241)
(1,160)
(16,257)
(22,658)
30,682 $
391 $
204
15,657
16,252
(3,481)
(882)
(571,402)
(575,765)
(559,513) $
(336)
163
22,204
22,031
(2,026)
(377)
(31,948)
(34,351)
(12,320)
$
$
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The effective income tax rate differs from the federal statutory income tax rate applied to the income (loss) before income taxes due to the following
(in thousands):
Tax computed at U.S. federal statutory rate
State taxes, net of federal benefit
Tax rate differential for international subsidiaries
Stock-based compensation
Tax credits
Foreign restructuring and amortization
Non-deductible expenses
Tax effects associated with Topic 606
Executive Compensation
Valuation allowance
Provision for (benefit from) income taxes
2020
Year Ended December 31,
2019
2018
$
$
31,329 $
210
1,342
(157,237)
(63,716)
7,319
3,601
—
24,503
183,331
30,682 $
14,109 $
122
(5,005)
(108,023)
(51,237)
—
3,112
—
19,289
(431,880)
(559,513) $
(8,195)
98
(41,429)
(93,073)
(44,695)
(625,292)
1,757
(23,073)
8,308
813,274
(12,320)
Significant components of our deferred tax assets are shown below (in thousands). A valuation allowance has been recognized to offset our deferred
tax assets, as necessary, by the amount of any tax benefits that, based on evidence, are not expected to be realized.
Deferred tax assets:
Net operating loss carryforwards
Credit carryforwards
Lease liability
Depreciation and amortization
Other
Total deferred tax assets
Less valuation allowance
Deferred tax liabilities:
Right of use asset
Other
Net deferred tax assets
December 31,
2020
2019
$
$
882,256 $
235,572
114,639
635,904
102,926
1,971,297
(1,128,936)
842,361
(105,641)
(70,805)
665,915 $
740,141
171,856
108,224
577,599
91,149
1,688,969
(918,596)
770,373
(101,091)
(73,818)
595,464
The unremitted earnings of our foreign subsidiaries are not considered indefinitely reinvested, except in certain designated jurisdictions in which the
resident entity is a service provider that is not expected to generate substantial amounts of cash in excess of what may be reinvested by the local entity. We
have not provided for state income or withholding taxes on the undistributed earnings of foreign subsidiaries which are considered indefinitely invested
outside of the U.S. The amount of unrecognized deferred tax liability on these undistributed earnings is not material as of December 31, 2020.
As of December 31, 2020, we had U.S. federal net operating loss and federal tax credit carryforwards of approximately $3.4 billion and $184 million,
respectively. The federal tax credits and a portion of the federal net operating loss carryforwards will begin to expire in 2024 if not utilized. In addition, as
of December 31, 2020, we had state net operating loss and state tax credit carryforwards of approximately $2.0 billion and $133 million, respectively. The
state net operating loss will begin to expire in 2021 if not utilized, however the tax effected amount due to expire in 2021 is immaterial. State tax credits
and a portion of the federal net operating loss carryforwards can be carried forward indefinitely. Utilization of our net operating loss and credit
carryforwards may be subject to annual limitation due to the ownership change limitations provided by the Internal Revenue Code and similar state
provisions. Such an annual limitation could result in the expiration of the net operating loss and tax credit carryforwards before utilization.
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We maintain a full valuation allowance against our U.S. deferred tax assets as of December 31, 2020. We regularly assess the need for a valuation
allowance against our deferred tax assets. In making that assessment, we consider both positive and negative evidence related to the likelihood of
realization of the 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 will not 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 our U.S. deferred tax assets will not be realized as of December 31, 2020.
We recognized an income tax benefit of $574 million due to the release of the valuation allowance on the Irish deferred tax assets for the year ended
December 31, 2019. These Irish deferred tax assets were created primarily as a result of the difference between the tax basis in our Irish subsidiary and the
cost reported in our consolidated financial statements resulting from the transfer of intangible assets to the Irish subsidiary as part of our foreign
restructuring in 2018. Management applied significant judgment in assessing the positive and negative evidence available in the determination of the
amount of deferred tax assets that were more-likely-than-not to be realized in the future. The $210 million increase in the 2020 valuation allowance was
primarily attributable to an increase in deferred tax assets related to net operating losses. The $424 million decrease in the 2019 valuation allowance was
primarily attributable to the release of the valuation allowance on the Irish deferred tax assets. The $760 million increase in the 2018 valuation allowance
was primarily attributable to an increase of approximately $590 million in deferred tax assets that are not realizable related to our foreign restructuring
completed during 2018 giving rise to foreign amortizable assets. To the extent sufficient positive evidence becomes available, we may release a portion, or
all, of our valuation allowance in one or more future periods. A release of the valuation allowance, if any, would result in the recognition of certain deferred
tax assets and a material income tax benefit for the period in which such release is recorded.
A reconciliation of the beginning and ending balance of total unrecognized tax benefits is as follows (in thousands):
Balance, beginning period
Tax positions taken in prior period:
Gross increases
Gross decreases
Tax positions taken in current period:
Gross increases
Lapse of statute of limitations
Settlements
Balance, end of period
2020
Year Ended December 31,
2019
2018
36,789 $
27,591 $
5,775
(1,051)
38,812
—
—
80,325 $
1,516
—
7,682
—
—
36,789 $
27,648
3,721
(2,896)
5,796
(1,078)
(5,600)
27,591
$
$
As of December 31, 2020, we had gross unrecognized tax benefits of approximately $80 million, of which $20 million would impact the effective tax
rate, if recognized. We recognize accrued interest and penalties related to unrecognized tax benefits as income tax expense. Accrued interest and penalties
included in our liability related to unrecognized tax benefits were $2 million and $1 million at December 31, 2020 and 2019, respectively. The amount of
unrecognized tax benefits could be reduced upon expiration of the applicable statutes of limitations. The potential reduction in unrecognized tax benefits
during the next 12 months is not expected to be material. Interest and penalties accrued on these uncertain tax positions are recognized as income tax
expense and will be released upon the expiration of the statutes of limitations. These amounts are also not material for any periods presented.
We are subject to taxation in the United States and foreign jurisdictions. As of December 31, 2020, our tax years 2004 to 2019 remain subject to
examination in most jurisdictions.
Governments in certain countries where we do business have enacted legislation in response to the COVID-19 pandemic, including the Coronavirus
Aid, Relief, and Economic Security Act (the “CARES Act”) enacted by the United States on March 27, 2020. We are continuing to analyze these
legislative developments which are not material for the year ended December 31, 2020.
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There are differing interpretations of tax laws and regulations, and as a result, disputes may arise with tax authorities involving issues of the timing
and amount of deductions and allocations of income among various tax jurisdictions. We periodically evaluate our exposures associated with our tax filing
positions. We believe that adequate amounts have been reserved for any adjustments that may ultimately result from these examinations, and we do not
anticipate a significant impact to our gross unrecognized tax benefits within the next 12 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 change in the next 12 months. However, given the number of years that remain subject to examination, we are unable to estimate the full range
of possible adjustments to the balance of gross unrecognized tax benefits.
(18) Commitments and Contingencies
Operating Leases
For some of our offices and data centers, we have entered into non-cancelable operating lease agreements with various expiration dates through
2035. Certain lease agreements include options to renew or terminate the lease, which are not reasonably certain to be exercised and therefore are not
factored into our determination of lease payments.
Total operating lease costs was $83 million and $64 million, excluding short-term lease costs, variable lease costs and sublease income each of which
were immaterial, for each of the years ended December 31, 2020 and 2019, respectively.
Total cash paid for amounts included in the measurement of operating lease liabilities was $59 million and $44 million for the years ended December
31, 2020 and 2019, respectively. Operating lease liabilities arising from obtaining operating right-of-use assets was $112 million and $115 million for the
years ended December 31, 2020 and 2019, respectively.
As of December 31, 2020, the weighted-average remaining lease term is 8.5 years, and the weighted-average discount rate is 3.5%.
Maturities of operating lease liabilities as of December 31, 2020 are presented in the table below (in thousands):
Years Ending December 31,
2021
2022
2023
2024
2025
Thereafter
Total operating lease payments
Less: imputed interest
Present value of operating lease liabilities
$
$
87,832
86,128
79,906
62,211
53,818
213,012
582,907
(87,892)
495,015
In addition to the amounts above, as of December 31, 2020, we have operating leases, primarily for offices, that have not yet commenced with
undiscounted cash flows of $342 million. These operating leases will commence between 2021 and 2022 with lease terms of 4 to 14 years.
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Other Contractual Commitments
Other contractual commitments consist of data center and IT operations and sales and marketing activities related to our daily business operations.
Future minimum payments under our non-cancelable purchase commitments as of December 31, 2020 are presented in the table below (in thousands):
Years Ending December 31,
2021
2022
2023
2024
2025
Thereafter
Total
Purchase Obligations
(1)
$
$
119,990
91,156
31,145
23,444
13,494
4,001
283,230
(1)
Not included in the table above are certain purchase commitments related to our future annual Knowledge user conferences and other customer or sales conferences to be held in 2022 and
future years. If we had canceled these contractual commitments as of December 31, 2020 we would have been obligated to pay cancellation penalties of approximately $36 million in
aggregate.
In addition to the amounts above, the repayments of our 2022 Notes and 2030 Notes with an aggregate principal amount of $169 million and
$1.5 billion are due on June 1, 2022 and September 1, 2030, respectively. Refer to Note 11 for further information regarding our Notes.
Further, $20 million of unrecognized tax benefits have been recorded as liabilities as of December 31, 2020.
Letters of Credit
As of December 31, 2020, we had letters of credit in the aggregate amount of $21 million, primarily in connection with our customer contracts and
operating leases.
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 other
legal proceedings are uncertain, management does not believe the ultimate resolution of any pending legal matters is likely to have a material adverse effect
on our financial position, results of operations or cash flows, except for those matters for which we have recorded a loss contingency. We accrue 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 or range of loss.
Generally, our subscription agreements require us to defend our customers for third-party intellectual property infringement and other claims. Any
adverse determination related to intellectual property claims or other litigation could prevent us from offering our services and adversely affect our
financial condition and results of operations.
Indemnification Provisions
Our agreements include provisions indemnifying customers against intellectual property and other third-party claims. In addition, we have entered
into indemnification agreements with our directors, executive officers and certain other officers that will require us, among other things, to indemnify them
against certain liabilities that may arise as a result of their affiliation with us. We have not incurred any costs as a result of such indemnification obligations
and have not recorded any liabilities related to such obligations in the consolidated financial statements.
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(19) Information about Geographic Areas and Products
Revenues by geographic area, based on the location of our users, were as follows for the periods presented (in thousands):
(1)
North America
(2)
EMEA
Asia Pacific and other
Total revenues
2020
Year Ended December 31,
2019
2018
$
$
2,959,827 $
1,132,417
427,240
4,519,484 $
2,276,549 $
865,661
318,227
3,460,437 $
1,725,255
654,677
228,884
2,608,816
Property and equipment, net by geographic area were as follows (in thousands):
Property and equipment, net:
(3)
North America
(2)
EMEA
Asia Pacific and other
Total property and equipment, net
December 31,
2020
2019
$
$
394,215 $
172,136
93,290
659,641 $
269,754
118,399
79,932
468,085
(1)
(2)
(3)
Revenues attributed to the United States were 94% of North America revenues for each of the years ended December 31, 2020, 2019 and 2018.
Europe, the Middle East and Africa (“EMEA”)
Property and equipment, net attributed to the United States were approximately 78% and 73% of property and equipment, net attributable to North America as of December 31, 2020 and
2019, respectively.
Subscription revenues consist of the following (in thousands):
Digital workflow products
ITOM products
Total subscription revenues
2020
Year Ended December 31,
2019
$
$
3,749,118 $
536,679
4,285,797 $
2,810,887 $
444,192
3,255,079 $
2018
2,111,702
309,611
2,421,313
Our digital workflow products include the Now Platform, IT Service Management, IT Business Management, DevOps, IT Asset Management,
Security Operations, Governance, Risk and Compliance, HR Service Delivery, Safe Workplace Suite of applications, Workplace Service Delivery, Legal
Service Delivery, Customer Service Management, Field Service Management, Connected Operations, App Engine and IntegrationHub, and are generally
priced on a per user basis. Our ITOM products are generally priced on a per node (physical or virtual server) basis. In previously issued consolidated
financial statements, we referred to digital workflow products as “service management products.”
(20) Subsequent Events
On January 8, 2021, we completed the acquisition of Element AI Inc., a Canadian company, by acquiring all issued and outstanding shares for
approximately $230 million, subject to certain customary adjustments, in an all-cash transaction to accelerate artificial intelligence capabilities across our
Now Platform. We are currently evaluating the purchase price allocation for this transaction.
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINACIAL DISCLOSURE
None.
82
ITEM 9A.
CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures
Regulations under the Exchange Act require public companies, including our company, to maintain “disclosure controls and procedures,” which are
defined in Rule 13a-15(e) and Rule 15d-15(e) to mean a company’s controls and other procedures that are designed to ensure that information required to
be disclosed in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods
specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that
information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our principal
executive officer and principal financial officer, or persons performing similar functions, as appropriate, to allow timely decisions regarding required or
necessary disclosures. In designing and evaluating our disclosure controls and procedures, management recognizes that disclosure controls and procedures,
no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and
procedures are met. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in
evaluating the cost-benefit relationship of possible disclosure controls and procedures. Our Chief Executive Officer and Chief Financial Officer have
concluded, based on the evaluation of the effectiveness of the disclosure controls and procedures by our management as of December 31, 2020, that our
disclosure controls and procedures were effective at the reasonable assurance level for this purpose.
(b) Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and
15d-15(f) under the Exchange Act) to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of consolidated
financial 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
our internal control over financial reporting based on the framework in Internal Control—Integrated Framework (2013), issued by the Committee of
Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that our internal control over financial reporting
was effective as of December 31, 2020.
The effectiveness of our internal control over financial reporting as of December 31, 2020 has been audited by PricewaterhouseCoopers LLP, an
independent 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 Reporting
Regulations under the Exchange Act require public companies, including our company, to evaluate any change in our “internal control over financial
reporting” as such term is defined in Rule 13a-15(f) and Rule 15d-15(f) of the Exchange Act. Under the supervision and with the participation of our
management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of any changes in our internal control over
financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during our most recently completed
fiscal quarter. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer did not identify any change in our internal control over
financial reporting during the most recently completed fiscal quarter that materially affected, or is reasonably likely to materially affect, our internal control
over financial reporting.
ITEM 9B.
OTHER INFORMATION
None.
83
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
PART III
The information required by this item will be included in an amendment to this Annual Report on Form 10-K or incorporated by reference from our
definitive proxy statement to be filed pursuant to Regulation 14A.
ITEM 11.
EXECUTIVE COMPENSATION
The information required by this item will be included in an amendment to this Annual Report on Form 10-K or incorporated by reference from our
definitive proxy statement to be filed pursuant to Regulation 14A.
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
The information required by this item will be included in an amendment to this Annual Report on Form 10-K or incorporated by reference from our
definitive proxy statement to be filed pursuant to Regulation 14A.
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
The information required by this item will be included in an amendment to this Annual Report on Form 10-K or incorporated by reference from our
definitive proxy statement to be filed pursuant to Regulation 14A.
ITEM 14.
PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by this item will be included in an amendment to this Annual Report on Form 10-K or incorporated by reference from our
definitive proxy statement to be filed pursuant to Regulation 14A.
ITEM 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
PART IV
The following documents are filed as a part of this Annual Report on Form 10-K:
(a) Financial Statements
The information concerning our financial statements, and Report of Independent Registered Public Accounting Firm required by this Item is
incorporated by reference herein to the section of this Annual Report on Form 10-K in Item 8, entitled “Consolidated Financial Statements and
Supplementary Data.”
(b) Financial Statement Schedules
All schedules have been omitted because the required information is not present or not present in amounts sufficient to require submission of the
schedules, or because the information required is included in Item 8, entitled the “Consolidated Financial Statements and Supplementary Data.”
(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.
84
Table of Contents
ITEM 16.
FORM 10-K SUMMARY
None.
EXHIBIT INDEX
Incorporated by Reference
Description of Document
Restated Certificate of Incorporation, as amended
Restated Bylaws
Form of Common Stock Certificate
Indenture dated May 30, 2017 between the Registrant
and Wells Fargo Bank, National Association
Indenture, dated August 11, 2020, by and between the
Registrant and Wells Fargo Bank, National Association
First Supplemental Indenture (including Form of Note),
dated August 11, 2020, by and between the Registrant
and Wells Fargo Bank, National Association
Description of Registrant’s Securities Registered Under
Section 12 of the Exchange Act
Form of Indemnification Agreement
2005 Stock Plan, Forms of Stock Option Agreement and
Form of Restricted Stock Unit Agreement thereunder
2012 Equity Incentive Plan, as amended through
January 29, 2019
Form of Stock Option Award Agreement under 2012
Equity Incentive Plan, adopted as of April 16, 2020
Form of Restricted Stock Unit Award Agreement under
2012 Equity Incentive Plan, adopted as of April 16,
2020
2012 Employee Stock Purchase Plan and Form of
Subscription Agreement thereunder
Form of Subscription Agreement under 2012 Employee
Stock Purchase Plan, adopted as of October 26, 2020
Employment Agreement dated October 22, 2019
between the Registrant and William R. McDermott
Employment Agreement dated November 15, 2019
between the Registrant and Gina Mastantuono
Employment Agreement dated May 21, 2011 between
the Registrant and David L. Schneider
Form
8-K
8-K
S-1/A
8-K
8-K
8-K
10-K
10-K
S-1
10-K
10-Q
File No.
001-35580
001-35580
333-180486
001-35580
001-35580
001-35580
001-35580
001-35580
333-180486
001-35580
001-35580
10-Q
001-35580
10-K
001-35580
8-K
8-K
S-1
001-35580
001-35580
333-180486
Exhibit
3.1
3.2
4.1
4.1
4.1
4.2
4.4
10.1
10.2
10.3
10.1
10.2
10.4
10.1
10.1
10.7
Exhibit
Number
3.1
3.2
4.1
4.2
4.3
4.4
4.5
10.1*
10.2*
10.3*
10.4*
10.5*
10.6*
10.7*
10.8*
10.9*
10.10*
Filed
Herewith
Filing Date
6/19/2020
6/19/2020
6/19/2012
5/30/2017
8/11/2020
8/11/2020
2/20/2020
2/27/2015
3/30/2012
2/27/2019
7/30/2020
7/30/2020
3/8/2013
X
10/23/2019
11/18/2019
3/30/2012
Table of Contents
Exhibit
Number
10.11*
10.12*
10.13*
10.14*
10.15*
10.16*
10.18*
10.19*
10.20
10.21
10.22
10.23
10.24
10.26
10.29
10.30
10.31
10.32
Description of Document
First Amendment to Employment Agreement dated July
3, 2014 between the Registrant and David L. Schneider
Amendment No. 2 to Employment Agreement, dated
June 6, 2017, between the Registrant and David L.
Schneider
Confirmatory Employment Letter Agreement dated
October 31, 2017, between the Registrant and Chirantan
J. Desai
Confirmatory Employment Letter Agreement dated
December 30, 2017, between the Registrant and Pat
Wadors
Compromise and Release Agreement dated October 26,
2020 by and between the Registrant and Pat Wadors
Confirmatory Employment Letter Agreement dated
November 13, 2018, between the Registrant and Russell
Elmer
Confirmatory Employment Letter Agreement dated
February 22, 2018, between the Registrant and Kevin
Haverty
Employment Agreement dated October 21, 2020
between the Registrant and Gabrielle Toledano
Lease Agreement dated November 8, 2012 between the
Registrant and Jay Ridge LLC
Office Lease dated December 12, 2014 between
Registrant and S1 55 LLC
Third Amendment to Lease dated May 3, 2018 between
the Registrant and SI 55, LLC
Lease dated May 3, 2018, between the Registrant and SI
55, LLC
Lease dated May 3, 2018, between the Registrant and SI
55, LLC
Form of Base Convertible Note Hedge Transaction
Confirmation
Form of Base Warrant Transaction Confirmation
Form of Additional Convertible Note Hedge
Transaction Confirmation
Form of Additional Warrant Transaction Confirmation
Form of Repurchase Agreement
10.33
10.34
10.35+
21.1
Form of Call Option Termination Agreement
Form of Warrant Termination Agreement
Settlement Agreement between the Registrant and BMC
Software, Inc., dated March 7, 2016
Subsidiaries of the Registrant
Incorporated by Reference
Form
10-Q
File No.
001-35580
Exhibit
10.1
10-Q
001-35580
10-Q
001-35580
10-Q
001-35580
10-Q
001-35580
10.1
10.1
10.4
10.5
Filing Date
11/5/2014
8/8/2017
11/6/2017
8/8/2018
10/29/2020
10-K
001-35580
10.17
2/27/2019
10-Q
001-35580
10.1
10/29/2020
S-1/A
333-184674
10.12
11/9/2012
001-35580
001-35580
001-35580
001-35580
001-35580
001-35580
001-35580
001-35580
001-35580
001-35580
001-35580
001-35580
10.1
10.1
10.2
10.3
99.1
99.2
99.1
99.2
10.2
10.3
10.4
10.1
12/15/2014
5/8/2018
5/8/2018
5/8/2018
5/30/2017
5/30/2017
6/22/2017
6/22/2017
10/29/2020
10/29/2020
10/29/2020
8/3/2016
8-K
10-Q
10-Q
10-Q
8-K
8-K
8-K
8-K
10-Q
10-Q
10-Q
10-Q
86
Filed
Herewith
X
X
Table of Contents
Exhibit
Number
23.1
24.1
31.1
31.2
32.1**
32.2**
101.INS
Description of Document
Consent of independent registered public accounting
firm
Power of Attorney. Reference is made to the signature
page hereto
Certification of Periodic Report by Chief Executive
Officer under Section 302 of the Sarbanes-Oxley Act of
2002
Certification of Periodic Report by Chief Financial
Officer under Section 302 of the Sarbanes-Oxley Act of
2002
Certification of Chief Executive Officer Pursuant to 18
to
U.S.C. Section 1350 as Adopted Pursuant
Section 906 of the Sarbanes-Oxley Act of 2002
Certification of Chief Financial Officer Pursuant to 18
U.S.C. Section 1350 as Adopted Pursuant
to
Section 906 of the Sarbanes-Oxley Act of 2002
XBRL Instance Document - the instance document does
not appear in the Interactive Data File because its XBRL
tags are embedded within the Inline XBRL document
101.SCH
Inline XBRL Taxonomy Extension Schema Document
101.CAL
Inline XBRL Taxonomy Extension Calculation
Linkbase Document
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase
Document
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase
Document
101.PRE
104
Inline XBRL Taxonomy Extension Presentation
Linkbase Document
Cover Page Interactive Data File (formatted as inline
XBRL and contained in Exhibit 101)
Form
File No.
Exhibit
Filing Date
Incorporated by Reference
Filed
Herewith
X
X
X
X
X
X
X
X
X
X
X
X
X
+ Registrant has omitted portions of the relevant exhibit and filed such exhibit separately with the Securities and Exchange Commission pursuant to a
request for confidential treatment granted under Rule 406 under the Securities Act of 1933, as amended.
* Indicates a management contract, compensatory plan or arrangement.
** The certifications on Exhibit 32 hereto are deemed not “filed” for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, or
otherwise subject to the liability of that Section. Such certifications will not be deemed incorporated by reference into any filing under the Securities Act or
the Exchange Act.
87
Table of Contents
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
its behalf by the undersigned thereunto duly authorized.
SIGNATURES
Dated: February 11, 2021
SERVICENOW, INC.
By:
/s/ William R. McDermott
William R. McDermott
President and Chief Executive Officer
88
Table of Contents
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints William R. McDermott and Gina
Mastantuono, and each of them, as his or her true and lawful attorneys-in-fact and agents, each with the full power of substitution, for him or her and in his
or her name, place or stead, 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 connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full
power and authority to do and 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 or could 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 or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons in the capacities and on the
dates indicated.
Signature
/s/ William R. McDermott
William R. McDermott
/s/ Gina Mastantuono
Gina Mastantuono
/s/ Fay Sien Goon
Fay Sien Goon
/s/ Frederic B. Luddy
Frederic B. Luddy
/s/ Susan L. Bostrom
Susan L. Bostrom
/s/ Teresa Briggs
Teresa Briggs
/s/ Jonathan C. Chadwick
Jonathan C. Chadwick
/s/ Paul E. Chamberlain
Paul E. Chamberlain
/s/ Lawrence J. Jackson, Jr.
Lawrence J. Jackson, Jr.
/s/ Jeffrey A. Miller
Jeffrey A. Miller
/s/ Anita M. Sands
Anita M. Sands
/s/ Dennis M. Woodside
Dennis M. Woodside
Title
President, Chief Executive Officer and Director
(Principal Executive Officer)
Chief Financial Officer
(Principal Financial Officer)
Chief Accounting Officer
(Principal Accounting Officer)
Date
February 11, 2021
February 11, 2021
February 11, 2021
Chairman of the Board of Directors
February 11, 2021
February 11, 2021
February 11, 2021
February 11, 2021
February 11, 2021
February 11, 2021
February 11, 2021
February 11, 2021
February 11, 2021
Director
Director
Director
Director
Director
Director
Director
Director
89
UK Participants:
Note that by accepting this Enrollment/Change Form on the Fidelity Brokerage Services LLC enrollment page you hereby agree to
accept all liability for secondary Class 1 NICs that may be payable by the Company and/or the Employer in connection with your
participation in the ESPP and any event giving rise to Tax-Related Items. You further agree to the “Election To Transfer the
Employer’s National Insurance Liability to the Employee” agreement with the Company in the form attached to this Enrollment
/Change Form below (the “Joint Election Agreement”) as if you had manually signed and returned the Joint Election Agreement to
the Company.
Exhibit 10.7
SERVICENOW, INC. (the “Company”)
2012 Employee Stock Purchase Plan (“ESPP”)
(Capitalized terms not defined in this form shall have the meaning set forth in the ESPP.)
Enrollment/Change Form
Section 1:
Actions
Section 2:
Personal Data
Section 3:
Enroll
Check Desired Action: And Complete Sections
Enroll in the ESPP 2 + 3 + 4 + 1
Change Contribution Percentage 2 + 4 + 1
Discontinue Contributions 2 + 5 + 1
Name:_____________________________
Department:
____________________________
Home Address:______________________
___________________________________
Social Security / Identification No.:______
I hereby elect to participate in the ESPP, effective at the beginning of the next Offering Period. I elect to
purchase shares of the Common Stock of the Company subject to the terms and conditions of the ESPP and
this Enrollment/Change Form, including any applicable country-specific provisions in the Appendix attached
hereto (together, the “Enrollment/Change Form”). I understand that shares of Common Stock purchased on
my behalf will be issued in street name and deposited directly into my brokerage account with Fidelity
Brokerage Services LLC or its affiliates. I hereby agree to take all steps, and sign all forms, required to
establish an account with Fidelity Brokerage Services LLC or its affiliates for this purpose.
My participation will continue as long as I remain eligible, unless I withdraw from the ESPP by filing a new
Enrollment/Change Form with the Company. If I transfer from the Company to a Participating Corporation or
visa-versa or between Participating Corporations, my contributions as of the date of transfer will be used to
purchase shares on the next Purchase Date, unless I choose to have such funds refunded to me. I understand
that I cannot resume participation following my transfer until the start of the next Offering Period and must
timely file a new enrollment form to do so. I understand that if I am a U.S. taxpayer, I must notify the
Company of any disposition of shares of Common Stock purchased under the ESPP.
Section 4:
Elect Contribution
Percentage
I hereby authorize the Company to withhold from each of my paychecks such amount as is necessary to equal
at the end of the applicable Offering Period __% of my Compensation (as defined in the ESPP) paid during
such Offering Period as long as I continue to participate in the ESPP. That amount will be applied to the
purchase of shares of the Company’s Common Stock pursuant to the ESPP. If I am paid in a currency other
than U.S. dollars, my contributions will be converted into U.S. dollars prior to the purchase of the Common
Stock. The percentage must be a whole number (from 1%, up to a maximum of 15%)
Section 5:
Discontinue Contributions
Please -increase -decrease my contribution percentage.
Note: You may change your contribution percentage only once within a Purchase Period to be
effective during such Purchase Period and such change can only be to decrease your contribution percentage.
An increase in your contribution percentage can only take effect with the next Offering Period. Each change
will become effective as soon as reasonably practicable after the form is received by the Company.
I hereby elect to stop my contributions under the ESPP, effective as soon as reasonably practicable after
this form is received by the Company. Please refund all contributions to me in cash, without interest OR use
my contributions to purchase shares on the next Purchase Date. I understand that I cannot resume
participation until the start of the next Offering Period and must timely file a new enrollment
form to do so.
Section 6:
Responsibility for Taxes
I acknowledge that, regardless of any action the Company or, if different, my employer (the “Employer”)
takes with respect to any or all income tax, social insurance, payroll tax, fringe benefit, payment on account or
other tax-related items related to my participation in the ESPP and legally applicable to me or deemed by the
Company or the Employer to be an appropriate charge to me even if technically due by the Company or the
Employer (“Tax-Related Items”), I hereby acknowledge and agree that the ultimate liability for all Tax-
Related Items is, and remains, my responsibility and may exceed the amount actually withheld by the
Company, the Employer and/or the trustee, if any. I further acknowledge and agree that the Company and/or
the Employer (a) make no representations or undertakings regarding the treatment of any Tax-Related Items in
connection with any aspect of my participation in the ESPP, including, but not limited to, the grant or exercise
of the options, the subsequent sale of shares of Common Stock acquired under the ESPP and the receipt of
any dividends; and (b) do not commit to and are under no obligation to structure the terms of the grant or any
aspect of the options to reduce or eliminate my liability for Tax-Related Items or achieve any particular tax
result. Further, if I have become subject to tax in more than one jurisdiction, I acknowledge that the Company,
the Employer (or former employer, as applicable) and/or any trustee may be required to withhold or account
for Tax-Related Items in more than one jurisdiction.
Prior to the relevant taxable or taxable withholding event, as applicable, I agree to pay or make adequate
arrangements satisfactory to the Company and/or the Employer, as applicable, to satisfy all Tax-Related Items.
In this regard, I authorize the Company and/or the Employer, or their respective agents, which are qualified to
deduct tax at source, to withhold all applicable Tax-Related Items by one or a combination of the following:
(i) withholding from my wages or other cash compensation paid to me by the Company and/or the Employer;
(ii) withholding from the proceeds of the sale of shares of Common Stock purchased under the ESPP either
through a voluntary sale or through a mandatory sale arranged by the Company (on my behalf pursuant to this
authorization); (iii) withholding in shares of Common Stock to be issued upon purchase; and/or (iv) requiring
that I pay the Tax-Related Items to the Company or my employer in the form of cash, check or wire transfer.
The Company may withhold or account for Tax-Related Items by considering applicable minimum statutory
withholding amounts or other applicable withholding rates, including the maximum rate in my jurisdiction(s),
in which case I may receive a refund of any over-withheld amount in cash and will have no entitlement to the
equivalent in shares of Common Stock. If the obligation for Tax-Related Items is satisfied by withholding in
shares of Common Stock, for tax purposes, I am deemed to have been issued the full number of shares of
Common Stock subject to the options, notwithstanding that a number of the shares of Common Stock are held
back solely for the purpose of paying the Tax-Related Items due as a result of any aspect of my participation
in the ESPP.
Finally, I shall pay to the Company or the Employer any amount of any Tax-Related Items that the Company
or the Employer may be required to withhold or account for as a result of my participation in the ESPP or my
purchase of shares of Common Stock that cannot be satisfied by the means previously described. The
Company may refuse to allow me to purchase shares of Common Stock and/or refuse to deliver shares of
Common Stock or proceeds of the sale of shares of Common Stock if I fail to comply with my obligations in
connection with the payment of Tax-Related Items.
Section 7:
No Advice Regarding Grant
Section 8:
Electronic Delivery and
Acceptance.
Section 9:
Severability
Section 10:
Appendix
Section 11:
Imposition of Other
Requirements
Section 12:
Governing Law
Section 13:
Waiver
The Company is not providing any tax, legal or financial advice, nor is the Company making any
recommendations regarding my participation in the ESPP, or my acquisition or sale of the underlying shares
of Common Stock. I am hereby advised to consult with my own personal tax, legal and financial advisors
regarding my participation in the ESPP before taking any action related to the ESPP
The Company may, in its sole discretion, decide to deliver any documents related to current or future
participation in the ESPP by electronic means. I hereby consent to receive such documents by electronic
delivery and agree to participate in the ESPP through an on-line or electronic system established and
maintained by the Company or a third party designated by the Company
The provisions of this Enrollment/Change Form are severable and if any one or more provisions are
determined to be illegal or otherwise unenforceable, in whole or in part, the remaining provisions shall
nevertheless be binding and enforceable.
Notwithstanding any provisions in this Enrollment/Change Form, the right to participate in the ESPP shall be
subject to any special terms and conditions set forth in any Appendix to this Enrollment/Change Form for my
country. Moreover, if I relocate to another country, the special terms and conditions for such country will
apply to me, to the extent the Company determines that the application of such terms and conditions is
necessary or advisable for legal or administrative reasons. The Appendix constitutes part of this
Enrollment/Change Form.
The Company, at its option, may elect to terminate, suspend or modify the terms of the ESPP at any time, to
the extent permitted by the ESPP. I agree to be bound by such termination, suspension or modification
regardless of whether notice is given to me of such event, subject in any case to my right to timely withdraw
from the ESPP in accordance with the ESPP withdrawal procedures then in effect. In addition, the Company
reserves the right to impose other requirements on my participation in the ESPP, on any shares of Common
Stock purchased under the ESPP, to the extent the Company determines it is necessary or advisable for legal
or administrative reasons, and to require me to sign any additional agreements or undertakings that may be
necessary to accomplish the foregoing.
The interpretation, performance and enforcement of this Enrollment/Change Form shall be governed by the
laws of the State of Delaware without resort to that State’s conflict-of-laws rules. For purposes of litigating
any dispute that arises directly or indirectly from the relationship of the parties evidenced by this grant or the
Enrollment/Change Form, the parties hereby submit to and consent to the exclusive jurisdiction of the State of
California and agree that such litigation shall be conducted only in the courts of San Jose, California, or the
federal courts for the United States for the Northern District of California, and no other courts, where this
grant is made and/or to be performed.
I acknowledge that a waiver by the Company of breach of any provision of this Enrollment/Change Form
shall not operate or be construed as a waiver of any other provision of this Enrollment/Change Form or of any
subsequent breach by me or any other Participant.
Section 14:
Acknowledgment and
Signature
I acknowledge that I have received a copy of the ESPP and of the Prospectus (which summarizes the major
features of the ESPP). I have read the Prospectus and my signature below (or my acceptance of this
Enrollment/Change Form on the Fidelity Brokerage Services LLC enrollment page) indicates that I hereby
agree to be bound by the terms of the ESPP and this Enrollment/Change Form
Signature:_______________ Date: _________________
\\
APPENDIX
SERVICENOW, INC. 2012 EMPLOYEE STOCK PURCHASE PLAN
COUNTRY SPECIFIC PROVISIONS FOR NON-U.S. EMPLOYEES
I understand that this Appendix includes special terms and conditions applicable to me if I reside outside the United States or am otherwise
subject to the laws of a country other than the United States. Unless otherwise stated, these terms and conditions are in addition to those set
forth in the Enrollment/Change Form. Any capitalized term used in this Appendix without definition shall have the meaning ascribed to it in
the Enrollment/Change Form or the ESPP, as applicable.
I further understand that this Appendix also includes information relating to exchange control, securities laws and other issues of which I
should be aware with respect to my participation in the ESPP. The information is based on the laws in effect in the respective countries as of
April 2020.[1] Such laws are often complex and change frequently. As a result, I understand that the Company strongly recommends that I
not rely on the information herein as the only source of information relating to the consequences of my participation in the ESPP because the
information may be out of date at the time that I purchase shares of Common Stock or sell shares of Common Stock purchased under the
ESPP.
In addition, the information contained herein is general in nature and may not apply to my particular situation and the Company is not in a
position to assure me of any particular result. Accordingly, I should seek appropriate professional advice as to how the relevant laws in my
country may apply to my situation.
Finally, I understand that if I am a citizen or resident of a country other than the one in which I am currently working and/or residing, transfer
employment and/or residency after enrolling in the ESPP, or am considered a resident of another country for local law purposes, the
information contained herein may not apply to me, and the Company shall, in its discretion, determine to what extent the terms and
conditions contained herein shall apply.
All Participants Outside the U.S.
1. Nature of Grant. By enrolling and participating in the ESPP, I acknowledge, understand and agree that:
a.
the ESPP is established voluntarily by the Company and it is discretionary in nature;
b.
the grant of the option is exceptional, voluntary and occasional and does not create any contractual or other right to receive future
options to purchase shares of Common Stock, or benefits in lieu of options, even if options have been granted in the past;
c. all decisions with respect to future options or other grants, if any, will be at the sole discretion of the Company;
d.
the grant of the option and my participation in the ESPP shall not create a right to employment or be interpreted as forming or
amending an employment or service contract with the Company, the Employer or any Subsidiary and shall not interfere with the
ability of the Company, the Employer or any Subsidiary to terminate my employment relationship (if any);
e.
I am voluntarily participating in the ESPP;
f.
g.
h.
i.
j.
k.
l.
the ESPP and the shares of Common Stock purchased under the ESPP and the income and value of same, are extraordinary items
that do not constitute compensation of any kind for services of any kind rendered to the Company or Employer, and which is
outside the scope of my employment or service contract, if any;
the ESPP and the shares of Common Stock subject to the ESPP and the income and value of same are not intended to replace any
pension rights or compensation;
the ESPP and the shares of Common Stock subject to the ESPP and the income and value of same, are not part of normal or
expected compensation for purposes of calculating any severance, resignation, termination, redundancy, dismissal, end-of-service
payments, bonuses, long-service awards, pension or retirement or welfare benefits or similar payments;
the future value of the underlying shares of Common Stock is unknown, indeterminable and cannot be predicted with certainty;
the value of the shares of Common Stock purchased under the ESPP may increase or decrease in the future, even below the
purchase price;
in the event of termination of my employment (for any reason whatsoever, whether or not later found to be invalid or in breach of
employment laws in the jurisdiction where I am employed or the terms of my employment agreement, if any), except for certain
leave of absences set forth in Section 12 of the ESPP, my right to participate in the ESPP will terminate effective as of the date I
cease to actively provide services and will not be extended by any notice period (e.g., employment would not include any
contractual notice or any period of “garden leave” or similar period mandated under employment laws in the jurisdiction where I
am employed or the terms of my employment agreement, if any); the Committee shall have exclusive discretion to determine
when I am no longer actively employed for purposes of my option;
unless otherwise provided in the ESPP or by the Company in its discretion, the option to purchase shares of Common Stock and
the benefits evidenced by this Enrollment/Change Form do not create any entitlement to have the ESPP or any such benefits
granted thereunder, transferred to, or assumed by, another company nor to be exchanged, cashed out or substituted for, in
connection with any corporate transaction affecting the shares of the Company;
m. unless otherwise agreed with the Company, the ESPP and any shares of Common Stock acquired thereunder, and the income and
value of same, are not granted as consideration for, or in connection with, the service I may provide as a director of a Subsidiary;
n.
I acknowledge and agree that neither the Company, the Employer nor any Subsidiary, shall be liable for any foreign exchange
rate fluctuation between my local currency and the U.S. dollar that may affect the value of the shares of Common Stock or any
amounts due pursuant to the purchase of the shares or the subsequent sale of any shares of Common Stock purchased under the
ESPP; and
o. no claim or entitlement to compensation or damages shall arise when I withdraw from the ESPP due to my termination of
employment (for any reason whatsoever, whether or not later found to be invalid or in breach of employment laws in the
jurisdiction where I am employed or the terms of my employment agreement, if any) and in consideration of the grant of the
option and the issuance of shares of Common Stock under the ESPP, I agree not to institute any claim against the Company, its
Subsidiaries or the Employer.
2. Data Privacy Information and Consent. The Company is located at 2225 Lawson Lane, Santa Clara, California 95054 U.S.A. and
grants options to employees of the Company and its Subsidiaries and affiliates, at its sole discretion. If I would like to participate
in the ESPP, I should review the following information about the Company’s data processing practices.
a. Data Collection and Usage. The Company (as well as my Employer and the Company’s other Subsidiaries) collects, processes
and uses personal data of employees, including name, home address, email address and telephone number, date of birth,
social insurance, passport or other identification number, salary, citizenship, job title, any shares of Common Stock or
directorships held in the Company, and details of all options canceled, vested, or outstanding in my favor, which the Company
receives from me or the Employer. If the Company offers me an option under the ESPP, then the Company will collect my
personal data for purposes of allocating shares of Common Stock and implementing, administering and managing the ESPP.
The Company relies on my explicit consent for the processing of my personal data in this manner and as otherwise set out
below.
b. Stock Plan Administration Service Providers. The Company transfers employee data amongst its’ Subsidiaries and affiliates
and also to Fidelity Brokerage Services LLC or its affiliates (“Fidelity”) an independent service provider based in the United
States which assists the Company with the implementation, administration and management of the ESPP. In the future, the
Company may select a different service provider and share my data with another company that serves in a similar manner. By
participating in the ESPP, I give my consent to such transfer of data, or to such alternative third party service provider that
the Company may select in the future. The Company’s service provider will open an account for me to receive and trade
shares of Common Stock. I will be asked to agree on separate terms and data processing practices with the service provider,
which is a condition of my ability to participate in the ESPP.
c.
International Data Transfers. The Company and its service providers are based in the United States. If I am outside the
United States, I should note that my country has enacted data privacy laws that are different from the United States. By
participating in the ESPP, I give my consent to the transfer of my data to the United States, or to such other jurisdiction as
may be necessary for the delivery of the ESPP and administration thereof.
d. Data Retention. The Company will use my personal data only as long as is necessary to implement, administer and manage
my participation in the ESPP or as required to comply with, or satisfy, any legal or regulatory obligations, including under
tax and security laws. The Company may also keep data longer as part of my normal employee file and record, based on such
retention policy as may be notified from time to time.
e. Voluntariness and Consequences of Consent Denial or Withdrawal. My participation in the ESPP and my grant of consent is
purely voluntary. I may deny or withdraw my consent at any time. If I do not consent, or if I withdraw my consent, I cannot
participate in the ESPP. This would not affect my salary as an employee or my career; I would merely forfeit the opportunities
associated with the ESPP.
f. Data Subject Rights. I may have a number of rights under data privacy laws in my particular country. Depending on where I
am based, my rights may include the right to (a) to request access or copies of personal data the Company’s processes, (b)
rectification of incorrect data, (c) deletion of data, (d) restrictions on processing, (e) portability of data, (f) lodge complaints
with competent authorities in my country, and/or (g) a list with the names and addresses of any potential recipients of my
personal data. To receive clarification regarding my rights or to exercise my rights please contact Stock Plan Administration.
If I agree with the data processing practices as described in this notice, I should declare my consent by accepting this
Enrollment/Change Form on the Fidelity enrollment page.
3. Language. I acknowledge that I am proficient in the English language, or have consulted with an advisor who is sufficiently
proficient in English, so as to allow me to understand the terms and conditions of this Enrollment/Change Form. If I have received
this Enrollment/Change Form or any other document related to the ESPP translated into a language other than English and if the
meaning of the translated version is different than the English version, the English version will control.
4.
Insider Trading Restrictions / Market Abuse Laws. I acknowledge I may be subject to insider trading restrictions and/or market abuse
laws based on the exchange on which the shares of Common Stock are listed and in applicable jurisdictions, including my country
and the designated broker’s country, which may affect my ability to accept, acquire, sell or otherwise dispose of the shares of
Common Stock, rights to the shares of Common Stock (i.e., options) or rights linked to the value of the shares of Common Stock
under the ESPP during such times as I am considered to have “inside information” regarding the Company (as defined by the laws in
the applicable jurisdictions). Local insider trading laws and regulations may prohibit the cancellation or amendment of orders I
placed before I possessed inside information. Furthermore, I could be prohibited from (i) disclosing the inside information to any
third party, which may include fellow employees and (ii) “tipping” third parties or causing them otherwise to buy or sell securities.
Any restrictions under these laws or regulations are separate from and in addition to any restrictions that may be imposed under any
applicable Company insider trading policy. I acknowledge that it is my responsibility to comply with any applicable restrictions and I
am encouraged to speak to my personal legal advisor for further details regarding any applicable insider-trading and/or market-abuse
laws in my country.
5. Foreign Asset/Account Reporting. I acknowledge that depending on my country of residence, I may be subject to certain foreign
asset and/or account reporting requirements which may affect my ability to acquire or hold shares of Common Stock under the ESPP
in a brokerage or bank account outside of my country of residence. Further, I may be required to report such amounts, assets or
transactions to the tax or other authorities in my country. I also may be required to repatriate sale proceeds or other funds received as
a result of my participation in the ESPP to my country through a designated bank or broker and/or within a certain time after receipt.
In addition, I may be subject to tax payment and/or reporting obligations in connection with any income realized under the ESPP
and/or from the sale of shares of Common Stock. I acknowledge I am responsible for ensuring compliance with such regulations and
should speak with a personal legal and tax advisors, as applicable, regarding this matter.
Securities Law Notification.
AUSTRALIA
I acknowledge and agree that my rights to participate in the ESPP and purchase shares of Common Stock are subject to the terms and
conditions stated in the Offer Document distributed to me with the Enrollment/Change
Form and other ESPP documents, and to the requirements of Class Order exemption 14/1000 of the Australian Securities and Investments
Commission.
Exchange Control Notification.
I understand that if I am an Australian resident, exchange control reporting is required for cash transactions exceeding A$10,000 and
international fund transfers. If an Australian bank is assisting with the transaction, the bank will file the report on my behalf. If there is no
Australian bank involved in the transfer, I will be required to file the report.
Interest Waiver.
AUSTRIA
By enrolling in the ESPP and accepting the terms of the Enrollment/Change Form, I unambiguously consent to waive my right to any interest
with respect to payroll deductions accumulated for me during an Offering Period.
Exchange Control Notification.
If I hold shares of Common Stock acquired under the ESPP outside of Austria, I may be required to submit a report to the Austrian National
Bank. An exemption applies if the value of the shares of Common Stock as of any given quarter does not meet or exceed €30,000,000 or as
of December 31 does not meet or exceed €5,000,000. If the former threshold is exceeded, quarterly reporting obligations are imposed,
whereas if the latter threshold is exceeded, annual reporting obligations are imposed. The deadline for filing the quarterly report is the 15th of
the month following the respective quarter. The deadline for filing the annual report is January 31 of the following year.
I also understand that when I sell shares of Common Stock acquired under the ESPP, there may be exchange control obligations if the cash
proceeds are held outside of Austria. If the transaction volume of all accounts abroad meets or exceeds €10,000,000, the movements and
balances of all accounts must be reported monthly, as of the last day of the month, on or before the 15th day of the following month, on the
prescribed form (Meldungen SI-Forderungen und/oder SI-Verpflichtungen).
Foreign Asset/Account Reporting Notification.
BELGIUM
If I am a Belgian resident, I am required to report any bank or securities accounts, including an account in which shares of Common Stock
are held, opened outside Belgium in my annual tax return. The first time I report such accounts, in a separate report, certain details regarding
such foreign accounts (including the account number, bank name and country in which such account was opened) must be provided to the
Central Contact Point of the National Bank of Belgium. The forms to complete this report, as well as additional information on how to
complete the forms are available on the website of the National Bank of Belgium, www.nbb.be, under the Kredietcentrales / Centrales des
crédits caption.
Stock Exchange Tax Notification.
A stock exchange tax applies to transactions executed by a Belgian resident through a non-Belgian financial intermediary, such as a U.S.
broker. The stock exchange tax likely will apply when shares of Common Stock are purchased and when such shares are sold. I understand I
should consult with my tax or financial advisor for additional details on my obligations with respect to the stock exchange tax.
Authorization for ESPP Participation.
BRAZIL
I hereby authorize the Employer to make payroll deductions from each of my paychecks in that percentage of my Compensation (up to 15%)
that I have specified in the Enrollment/Change Form and I authorize the Employer to remit such accumulated payroll deductions, on my
behalf, to the United States of America, to purchase the shares of Common Stock, as provided by Ruling No. 3,691/13 of the Central Bank,
under the terms of the ESPP.
Upon request by the Company or the Employer, I agree to execute a letter of authorization and any other agreements or consents that may be
required to enable the Employer, the Company, any Subsidiary or any third party designated by the Employer or the Company to remit my
accumulated payroll deductions from Brazil for the purchase of shares of Common Stock. I understand that if I fail to execute a letter of
authorization or any other form of agreement or consent that is required for the remittance of my payroll deductions, I will not be able to
participate in the ESPP.
Compliance with Law.
By participating in the ESPP, I agree to comply with applicable Brazilian laws and to report and pay any and all Tax-Related Items associated
with participation in the ESPP, including the purchase and subsequent sale of shares of Common Stock acquired under the ESPP.
Labor Law Acknowledgment.
By participating in the ESPP, I acknowledge that (i) I am making an investment decision, (ii) shares
of Common Stock will be issued to me only if I continue to be an eligible employee through the Purchase
Date, and (iii) the value of the underlying shares of Common Stock is not fixed and may increase or decrease without compensation to me.
Foreign Asset/Account Reporting Notification.
If I am resident or domiciled in Brazil, I understand that I will be required to submit an annual declaration of assets and rights held outside
Brazil to the Central Bank of Brazil if the aggregate value of such assets and rights equals or exceeds US$100,000. Assets and rights that
must be reported include any shares of Common Stock acquired under the ESPP. Foreign individuals holding Brazilian visas are considered
Brazilian residents for purposes of this reporting requirement. It is my responsibility to comply with this reporting obligation and I should
consult my personal advisor in this regard.
Tax on Financial Transactions (IOF).
Cross-border financial transactions related to the ESPP may be subject to the IOF (tax on financial transactions). I understand I should
consult with my personal tax advisor for additional details.
Termination of Service.
This provision replaces Section 7(j) of the Enrollment/Change Form:
CANADA
In the event of termination of my employment (for any reason whatsoever, whether or not later found to be invalid or in breach of
employment laws in the jurisdiction where I am employed or the terms of my employment agreement, if any), except for certain leave of
absences set forth in Section 12 of the ESPP, my right to participate in the ESPP, if any, will terminate effective as of the earlier of (i) the date
of termination, (ii) the date upon which I receive notice of termination, or (iii) the date on which I am not longer actively providing services
to the Employer, regardless of any notice period under Canadian provincial laws (including, but not limited to, statutory law, regulatory law
and/or common law). In the event that the date I am no longer actively providing services cannot be reasonably determined under the terms
of the Enrollment/Change Form and the ESPP, the Committee shall have exclusive discretion to determine when I am no longer actively
providing services for purposes of my option.
Securities Law Notification.
I understand that I am permitted to sell shares of Common Stock purchased under the ESPP through the designated broker appointed under
the ESPP, provided the resale of shares of Common Stock takes place outside Canada through the facilities of a stock exchange on which the
shares are listed. The shares are currently listed on New York Stock Exchange.
Foreign Asset/Account Reporting Notification.
I am required to report any foreign specified property on form T1135 (Foreign Income Verification Statement) if the total cost of my foreign
specified property exceeds C$100,000 at any time in the year. Foreign specified property includes shares of Common Stock acquired under
the ESPP and their cost generally is the adjusted cost base (“ACB”) of the Common Stock acquired under the ESPP. The ACB would
ordinarily equal the fair market value of the shares at the time of acquisition, but if I own other shares of Common Stock (e.g., acquired under
other circumstances or at another time), this ACB may be averaged with the ACB of the other shares of Common Stock. The form T1135
must be filed by April 30 of the following year. I am advised to consult with a personal advisor to ensure that I comply with the applicable
requirements.
THE FOLLOWING PROVISIONS WILL APPLY IF I AM A RESIDENT OF QUEBEC:
Language Consent.
The parties acknowledge that it is their express wish that the Enrollment/Change Form, as well as all documents, notices and legal
proceedings entered into, given or instituted pursuant hereto or relating directly or indirectly hereto, be drawn up in English.
Les parties reconnaissent avoir exigé la rédaction en anglais de la convention, ainsi que de tous documents exécutés, avis donnés et
procédures judiciaires intentées, directement ou indirectement, relativement à ou suite à la convention.
Danish Stock Option Act.
DENMARK
I acknowledge that I have received an Employer Statement translated into Danish, which is being provided to comply with the Danish Stock
Option Act.
Foreign Asset/Account Reporting Notification.
I acknowledge and understand if I establish an account holding shares of Common Stock or cash outside of Denmark, I must report the
account to the Danish Tax Administration. The form which should be used in this respect can be obtained from a local bank.
There are no country-specific provisions.
FINLAND
France
FRENCH TRANSLATIONS OF PROVISIONS CONCERNING AUTHORIZATION TO PARTICIPATE IN ESPP
Participation in the ESPP (Section 6 of the ESPP).
(a) Any employee who is an eligible employee determined in accordance with section 4 of the ESPP immediately prior to the initial
Offering Period will be automatically enrolled in the initial Offering Period under the ESPP. With respect to subsequent Offering Periods, any
eligible employee determined in accordance with Section 4 of the ESPP will be eligible to participate in the ESPP, subject to the requirement
of Section (b) hereof and the other terms and provisions of the ESPP.
(b) Notwithstanding the foregoing, (i) an eligible employee may elect to decrease the number of shares of Common Stock that such
employee would otherwise be permitted to purchase for the initial Offering Period under the ESPP and/or purchase shares of Common Stock
for the initial Offering Period through payroll deductions by delivering a Enrollment/Change Form to the Company within thirty (30) days
after the filing of an effective registration statement pursuant to Form S-8 and (ii) the Committee may set a later time for filing the
Enrollment/Change Form authorizing payroll deductions for all eligible employees with respect to a given Offering Period. With respect to
Offering Periods after the initial Offering Period, a Participant may elect to participate in the ESPP by submitting an Enrollment/Change
Form prior to the commencement of the Offering Period (or such earlier date as the Committee may determine) to which such agreement
relates.
(c) Once an employee becomes a Participant in an Offering Period, then such Participant will automatically participate in the
Offering Period commencing immediately following the last day of such prior Offering Period unless the Participant withdraws or is deemed
to withdraw from the ESPP or terminates further participation in the Offering Period as set forth in section 11 of the ESPP. Such Participant is
not required to file any additional Enrollment / Change Form in order to continue participation in the ESPP.
Participation dans l’ESPP (Section 6 du ESPP).
(a) Tout salarié qui est un salarié éligible conformément à la section 4 de l’ESPP immédiatement avant la Période initiale d’Offre
participera automatiquement à la Période intiale d’Offre de l’ESPP. Concernant les Périodes d’Offres suivantes, tout salarié éligible
conformément à la Section 4 de l’ESPP sera éligible pour participer à l’ESPP, à la condition de respecter les conditions énoncées Section (b)
des présentes et tous les autres termes et conditions de l’ESPP.
(b) Nonobstant ce qui précède, (i) un salarié éligible peut choisir de diminuer le nombre d’Actions Ordinaires dont il aurait pu être
autorisé à faire l’acquisition au titre de la Période initiale d’Offre de l’ESPP, et/ou d’acquérir des Actions Ordinaires au titre de la Période
initiale d’Offre par prélèvement sur son salaire par la remise d’un Formulaire de Participation/Modification à la Société dans les trente (30)
jours suivant le dépôt d’une déclaration d’enregistrement conformément au Formulaire S-8, et, (ii) le Comité peut décider, concernant une
Période d’Offre donnée, que le dépôt du Formulaire de Participation/Modification, autorisant le prélèvement sur salaire de tout salarié
éligible, peut être repoussé. Concernant les Périodes d’Offres qui suivent la Période initiale d’Offre, un Participant peut choisir de participer
à l’ESPP par le dépôt d’un Formulaire de Participation/Modification avant le début de la Période d’Offre concernée (ou toute date
antérieure décidée par le Comité).
(c) Dès lors qu’un salarié devient un Participant pour une Période d’Offre, alors ledit Participant participera automatiquement à la
Période d’Offre commençant immédiament après le dernier jour de la Période d’Offre antérieure à moins que le Participant se retire, ou soit
considéré comme se retirant de l’ESPP, ou cesse sa participation à la Période d’Offre tel que cela est prévu à la Section 11 de l’ESPP. Ledit
Participant n’a pas à déposer de Formulaire pour continuer à participer à l’ESPP.
Payroll Deduction Authorization.
This provision replaces Section 4 of the Enrollment/Change Form:
I hereby authorize the Company to withhold from each of my paychecks such amount as is necessary to equal at the end of the applicable
Offering Period __% of my Compensation (as defined in the ESPP) paid during such Offering Period as long as I continue to participate in
the ESPP. That amount will be applied to the purchase of shares of the Company’s Common Stock pursuant to the ESPP. If I am paid in a
currency other than U.S. dollars, my contributions will be converted into U.S. dollars prior to the purchase of the Common Stock. The
percentage must be a whole number (from 1%, up to a maximum of 5%).
Please -increase -decrease my contribution percentage.
Note: You may change your contribution percentage only once within a Purchase Period to be effective during such Purchase Period and
such change can only be to decrease your contribution percentage. An increase in your contribution percentage can only take effect
with the next Offering Period. Each change will become effective as soon as reasonably practicable after the form is received by the
Company.
Autorisation du Prélèvement sur Salaire.
Cette disposition remplace Section 4 du Formulaire de Participation/Modification:
Par les présentes, j’autorise la Société à prélever sur chacun de mes salaires le montant nécessaire afin d’égaler, à la fin de ladite Période
d’Offre, __% de ma Rémunération (telle que définie dans l’ESPP) payée pendant ladite Période d’Offre et ce, aussi longtemps que je
continuerais à participer à l’ESPP. Ce montant servira à l’acquisition d’Actions Ordinaires de la Société conformément à l’ESPP. Si je suis
payé dans une devise autre que le dollar U.S., mes contributions devront être converties en dollars U.S. avant l’acquisition des Actions
Ordinaires. Le pourcentage doit être un chiffre entier (de 1% à un maximum de 5%).
Veuillez -augmenter- diminuer mon pourcentage de contribution.
Remarque : Vous pouvez modifier le pourcentage de votre contribution seulement une fois lors d’une Période d’Acquisition pour que cette
modification soit effective lors de cette même Période d’Acquisition, et cette modification ne peut que diminuer votre pourcentage de
contribution. Une augmentation de votre pourcentage de contribution ne peut prendre effet que lors de la Période d’Offre suivante. Toute
modification deviendra effective aussitôt que cela sera raisonnablement pratiquement possible après réception du formulaire par la Société.
Limitations on Shares of Common Stock to be Purchased.
Notwithstanding anything in Section 10 of the ESPP to the contrary, I understand that I am subject to the following additional requirements:
(i) I may not purchase more than two hundred (200) whole shares of Common Stock in any individual Purchase Period; and (ii) I will not be
granted a right to purchase Common Stock under the ESPP at a rate which exceeds one thousand two hundred and fifty dollars ($1,250) of
the fair market value of such shares of Common Stock (determined at the time such right is granted) for each calendar year in which such
right is outstanding at any time.
Language Consent.
By signing and returning or by otherwise accepting the Enrollment/Change Form, I confirm having read and understood the documents
relating to the ESPP (the ESPP, the Enrollment/Change Form and this Appendix) which were provided to me in the English language, except
for the payroll authorization set forth in French above. I accept the terms of those documents accordingly.
Consentement relatif à la Langue utilisée.
En signant et en renvoyant le présent Formulaire de Participation/Modification ou en l’approuvant d’une quelconque manière, je confirme
avoir lu et compris les documents relatifs à cette attribution de droits d’achat d’actions qui m’ont été remis en langue anglaise hormis
l’autorisation du prélèvement sur salaire tel que stipulé en français ci-dessus (l’ESPP, le Formulaire de Participation/Modification ainsi que
la présente Annexe). J’accepte les conditions afférentes à ces documents en connaissance de cause.
Exchange Control Notification.
I acknowledge and understand I must declare to the customs and excise authorities any cash or securities I import or export without the use of
a financial institution when the value of the cash or securities is equal to or exceeds €10,000. With respect to any foreign account balances
exceeding €1,000,000, I must report any transactions carried out on those accounts to the Bank of France on a monthly basis.
Foreign Asset/Account Reporting Notification.
I acknowledge and understand that I may hold shares of Common Stock acquired under the ESPP outside France provided that I declare all
foreign accounts, whether open, current, or closed in my income tax return. Failure to comply could trigger significant penalties.
Exchange Control Notification.
GERMANY
Cross-border payments in excess of €12,500 in connection with the sale of securities must be reported monthly to the German Central Bank
(Bundesbank). In case of payments in connection with securities (including proceeds realized upon the sale of share of Common Stock), the
report must be made electronically by the 5th day of the month following the month in which the payment was received. The form of the
report (Allgemeine Meldeportal Statistik) can be accessed via the Bundesbank’s website (www.bundesbank.de) and is available in both
German and English. I am responsible for obtaining the appropriate form from the bank and complying with the applicable reporting
obligations.
Foreign Asset/Account Reporting Information.
German residents holding shares of Common Stock must notify their local tax office of the acquisition of shares of Common Stock when
they file their tax returns for the relevant year if (i) the value of the shares of Common Stock acquired exceeds €150,000 and I own 1% or
more of the total shares of Common Stock of the Company, or (ii) in the unlikely event that the resident holds Common Stock exceeding
10% of the Company’s total Common Stock.
Restriction on Sale of Shares of Common Stock.
HONG KONG
I understand that shares of Common Stock received at purchase are acquired as a personal investment. To facilitate compliance with
securities laws in Hong Kong, I agree that I will not dispose of any shares of Common Stock acquired under the ESPP within six (6) months
of the beginning of the relevant Offering Period under which such shares of Common Stock were acquired.
Securities Law Notification.
WARNING: The contents of the ESPP, the Enrollment/Change Form and this Appendix have not been reviewed by any regulatory authority
in Hong Kong. I am advised to exercise caution in relation to the offer. If there is any doubt about any of the contents of the ESPP, the
Enrollment/Change Form, including this Appendix, or any other communication materials, I should obtain independent professional advice.
The option to purchase shares of Common Stock and the shares of Common Stock to be issued under the ESPP do not constitute a public
offer of securities and are available only for employees of the Company or any of its Participating Corporations. The ESPP, the
Enrollment/Change Form, including this Appendix, and other incidental communication materials (i) have not been prepared in accordance
with and are not intended to constitute a “prospectus” for a public offering of securities under the applicable securities legislation in Hong
Kong and (ii) are intended only for the personal use of each Participant and may not be distributed to any other person.
INDIA
Exchange Control Notification.
Due to exchange control restrictions in India, I understand that I am required to repatriate any cash dividends paid on shares of Common
Stock acquired under the ESPP within such time as prescribed under applicable Indian exchange control laws, as may be amended from time
to time. I understand I must obtain a foreign inward remittance certificate (“FIRC”) from the bank where I deposit the funds and must
maintain the FIRC as evidence of the repatriation of funds in the event the Reserve Bank of India or the Employer requests proof of
repatriation. I understand that it is my responsibility to comply with exchange control laws in India.
Foreign Asset/Account Reporting Notification.
I understand if I am an Indian resident I am required to declare any foreign bank accounts and any foreign financial assets (including shares
of Common Stock acquired under the ESPP) in my annual tax returns. It is my responsibility to comply with this reporting obligation and I
should consult my personal advisor in this regard.
There are no country-specific provisions.
IRELAND
ISRAEL
Immediate Sale Restriction.
Notwithstanding anything to the contrary in the ESPP or Enrollment/Change Form, due to tax requirements in Israel, the Company reserves
the right to immediately sell shares of Common Stock acquired upon exercise of my options. If the Company forces the sale of shares
acquired upon exercise of my options, I agree that the Company is authorized to instruct its designated broker to assist with the mandatory
sale of the shares of Common Stock (on my behalf pursuant to this authorization) and I expressly authorize such broker to complete the sale
of such shares. I acknowledge that the Company’s designated broker is under no obligation to arrange for the sale of the shares of Common
Stock at any particular price. Upon the sale of the shares of Common Stock, the Company agrees to pay the cash proceeds from the sale, less
any brokerage fees or commissions, to me provided any liability for Tax-Related Items resulting from the exercise of my options has been
satisfied. Due to fluctuations in the share price and/or the U.S. dollar exchange rate between the purchase date and (if later) the date on which
the shares are sold, the sale proceeds may be more or less than the market value of the shares on the purchase date (which is the amount
relevant to determining my tax liability). I understand and agree that the Company is not responsible for the amount of any loss I may incur
and that the Company assumes no liability for any fluctuations in the share price and/or U.S. dollar exchange rate.
Securities Law Information.
The offer to participate in the ESPP is being made pursuant to an exemption from the requirement to file and publish a prospectus in Israel
regarding the ESPP obtained from the Israeli Securities Authority. Copies of the ESPP and the Form S-8 registration statement for the ESPP
filed with the U.S. Securities and Exchange Commission will be made available by request. Alternatively, copies of the ESPP and the Form
S-8 registration statement for the Plan filed with the U.S. Securities and Exchange Commission will be available on the respective Fidelity
online portal for employees.
ITALY
ESPP Document Acknowledgment.
By enrolling and participating in the ESPP, I acknowledge that I have received a copy of the ESPP and the Enrollment/Change Form and
have reviewed the ESPP and the Enrollment/Change Form in their entirety and fully understand and accept all provisions of the ESPP and the
Enrollment/Change Form. I further acknowledge that I have read and specifically and expressly approve the Sections of the
Enrollment/Change Form addressing (i) Responsibility for Taxes (Section 6), (ii) Imposition of Other Requirements (Section 11), and (iii)
Governing Law (Section 12) and the Nature of Grant (Section 1) and Data Privacy (Section 2) of this Appendix.
Tax Notification.
I acknowledge I may be eligible to exempt up to EUR 2,065 per year of the discount from income tax and social insurance contributions,
provided that I do not sell my shares of Common Stock purchased under the ESPP to the Company or to my Employer and I do not otherwise
sell the shares of Common Stock within three (3) years of purchase. If I sell my shares of Common Stock purchased under the ESPP to the
Company or my Employer or otherwise sell the shares of Common Stock within three (3) years of purchase, the previously exempted
amount, if any, will be subject to income tax and social insurance contributions in the year of sale and I must notify my Employer of such
sale. I should consult my personal tax advisor for additional information.
Foreign Asset/Account Reporting Notification.
Italian residents who, during any fiscal year, hold investments or financial assets outside of Italy (e.g., cash, shares of Common Stock) which
may generate income taxable in Italy (or who are the beneficial owners of such an investment or asset even if not directly holding the
investment or asset), are required to report such investments or assets on the annual tax return for such fiscal year (on UNICO Form, RW
Schedule, or on a special form if not required to file a tax return).
Foreign Financial Asset Tax Notification.
The value of any shares of Common Stock (and certain other foreign assets) an Italian resident holds outside Italy may be subject to a foreign
financial assets tax. The taxable amount is equal to the fair market value of the shares of Common Stock on December 31 or on the last day
the shares of Common Stock were held (the tax is levied in proportion to the number of days the shares of Common Stock were held over the
calendar year). The value of financial assets held abroad must be reported in Form RM of the annual tax return. I should consult my personal
tax advisor for additional information about the foreign financial assets tax.
Limitation on Offering.
JAPAN
If I reside and/or work in Japan, my participation in the ESPP may be limited as a result of applicable securities laws. Specifically, the
aggregate value of shares of Common Stock to be offered for purchase by all ESPP participants residing and/or working in Japan will be
limited to less than an aggregate amount of ¥100,000,000 on an annual basis. It is also possible that certain other equity awards in Japan will
count against this ¥100,000,000 threshold. If ESPP participants in the Japan elect to contribute more than this amount during any year,
contribution rates will be prorated to ensure that this threshold is not exceeded. If my participation is prorated, I understand that I will receive
a notice from the Company explaining the proration.
Exchange Control Notification.
I understand if I am a Japanese resident and I pay more than ¥30,000,000 for the purchase of shares of Common Stock in any one transaction,
I must file a Payment Report with the Ministry of Finance (through the Bank of Japan or the bank carrying out the transaction). The precise
reporting requirements vary depending on whether the relevant payment is made through a bank in Japan. If I acquire shares of Common
Stock whose value exceeds ¥100,000,000 in a single transaction, I must also file a Securities Acquisition Report with the Ministry of Finance
through the Bank of Japan within 20 days of acquiring the shares of Common Stock. The forms to make these reports can be acquired at the
Bank of Japan.
A Payment Report is required independently of a Securities Acquisition Report. Consequently, if the total amount that I pay on a one-time
basis to purchase shares exceeds ¥100,000,000, I must file both a Payment Report and a Securities Acquisition Report.
Foreign Asset/Account Reporting Notification.
I am required to report details of any assets held outside Japan as of December 31 (including shares of Common Stock acquired under the
ESPP), to the extent such assets have a total net fair market value exceeding ¥50,000,000. Such report will be due by March 15 each year. I
am advised to consult with my personal tax advisor to determine if the reporting obligation applies to my personal situation.
MEXICO
No Entitlement or Claims for Compensation.
The following provisions supplement Section 1 of this Appendix.
Modification.
By participating in the ESPP, I understand and agree that any modification of the ESPP or the Enrollment/Change Form or its termination
shall not constitute a change or impairment of the terms and conditions of my employment.
Policy Statement.
I acknowledge that the option to purchase shares of Common Stock is making under the ESPP is unilateral and discretionary and, therefore,
the Company reserves the absolute right to amend it and discontinue it at any time without any liability.
I acknowledge that the Company, with registered offices at 2225 Lawson Lane, Santa Clara, CA 95054, U.S.A., is solely responsible for the
administration of the ESPP and participation in the ESPP and the acquisition of shares does not, in any way, establish an employment
relationship between myself and the Company since I am participating in the ESPP on a wholly commercial basis, nor does it establish any
rights between myself and the Employer.
Plan Document Acknowledgment.
By participating in the ESPP, I acknowledge that I have received copies of the ESPP, have reviewed the ESPP and the Enrollment/Change
Form in their entirety and fully understand and accept all provisions of the ESPP and the Enrollment/Change Form.
In addition, by accepting the Enrollment/Change Form, I further acknowledge that I have read and specifically and expressly approved the
terms and conditions in Section 1 of this Appendix, in which the following is clearly described and established: (i) participation in the ESPP
does not constitute an acquired right; (ii) the ESPP and participation in the ESPP is offered by the Company on a wholly discretionary basis;
(iii) participation in the ESPP is voluntary; and (iv) the Company and any Subsidiary are not responsible for any decrease in the value of the
shares.
Finally, I hereby declare that I do not reserve any action or right to bring any claim against the Company for any compensation or damages as
a result of my participation in the ESPP and therefore grant a full and broad release to the Employer, the Company and any Subsidiary with
respect to any claim that may arise under the ESPP.
Spanish Translation
Sin derecho a compensación o reclamaciones por compensación
Las siguientes disposiciones complementan la Sección 1 del Apéndice:
Modificación.
Al participar en el ESPP, entiendo y acuerdo que cualquier modificación el ESPP o al Contrato o su terminación no constituirá un cambio o
perjuicio a los términos y condiciones de empleo.
Declaración de Política.
El Reconozco que el otorgamiento de la opción que la Compañía está haciendo de conformidad con el ESPP es unilateral y discrecional y,
por lo tanto, la Compañía se reserva el derecho absoluto de modificar y discontinuar el mismo en cualquier momento, sin responsabilidad
alguna.
Reconozco que la Compañía, con oficinas registradas ubicadas en 2225 Lawson Lane, Santa Clara, CA 95054, EE.UU. es únicamente
responsable de la administración del ESPP y la participación en el ESPP y la adquisición de acciones no establece, de forma alguna, una
relación de trabajo entre la Compañía y yo, ya que estoy participando en el ESPP de una forma totalmente comercial, y tampoco establece
ningún derecho entre el Patrón y yo.
Reconocimiento del Documento del ESPP. Al participar en el ESPP, reconozco que he recibido copias del ESPP, he revisado el ESPP y el
Contrato en su totalidad y entiendo y acepto completamente todas las disposiciones contenidas en el ESPP y en el Contrato.
Adicionalmente, al aceptar el Contrato, reconozco que he leído y específica y expresamente he aprobado los términos y condiciones de la
Sección 1 del Apéndice, en la que lo siguiente está claramente descrito y establecido: (i) la participación en el ESPP no constituye un
derecho adquirido; (ii) el ESPP y la participación en el ESPP es ofrecida por la Compañía de forma enteramente discrecional; (iii) la
participación en el ESPP es voluntaria; y (iv) la Compañía y cualquier empresa Subsidiaria no son responsables por cualquier disminución
en el valor de las acciones.
Finalmente, declaro que no me reservo ninguna acción o derecho para interponer cualquier demanda o reclamación en contra de la
Compañía por compensación, daño o perjuicio alguno como resultado de mi participación en el ESPP y, por lo tanto, otorgo el más amplio
finiquito al Patrón, la Compañía y cualquier empresa Subsidiaria con respecto a cualquier demanda o reclamación que pudiera surgir en
virtud del ESPP.
Labor Law Acknowledgment.
NETHERLANDS
By enrolling in the ESPP, I acknowledge that the options and shares of Common Stock purchased under the ESPP are intended as an
incentive for me to remain employed with the Company or Employer and are not intended as remuneration for labor performed.
Securities Law Notification.
NEW ZEALAND
Warning: This is an offer of options to purchase shares of Common Stock under the ESPP. Options to purchase shares of Common Stock
under the ESPP give me the opportunity to acquire a stake in the ownership of the Company. I may receive a return if dividends are paid on
the shares of Common Stock.
If the Company runs into financial difficulties and is wound up, I will be paid only after all creditors have been paid. I may lose some or all
of my investment.
New Zealand law normally requires people who offer financial products to give information to investors before they invest. This information
is designed to help investors to make an informed decision.
The usual rules do not apply to this offer because it is made under an employee share purchase scheme. As a result, I may not be given all the
information usually required. I will also have fewer other legal protections for this investment.
I should ask questions, read all documents carefully, and seek independent financial advice before committing myself.
For information on risk factors impacting the Company’s business that may affect the value of the shares of Common Stock, I should refer to
the risk factors discussion in the Company’s Annual Report on Form 10-K and Quarterly Reports on Form 10-Q, which are filed with the
U.S. Securities and Exchange Commission and are available online at www.sec.gov, as well as on the Company’s “Investor Relations”
website at http://www.servicenow.com/company/investor-relations.html.
There are no country-specific provisions.
NORWAY
Restriction on Sale of Shares of Common Stock.
SINGAPORE
I understand, to the extent I sell, offer to sell or otherwise dispose of shares of Common Stock purchased under the ESPP within six months
of the beginning of the relevant Offering Period, I am permitted to dispose of such shares of Common Stock through the designated broker
under the ESPP, if any, provided the resale of shares of Common Stock acquired under the ESPP takes place outside of Singapore through the
facilities of a stock exchange on which the shares of Common Stock are listed. The shares are currently listed on New York Stock Exchange.
Securities Law Notification.
I understand that the option is being granted to me pursuant to the “Qualifying Person” exemption under section 273(1)(f) of the Singapore
Securities and Futures Act (Chapter 289, 2006 Ed.) (“SFA”). I further understand that the ESPP has not been lodged or registered as a
prospectus with the Monetary Authority of Singapore. I understand and acknowledge that my option to purchase shares of Common Stock is
subject to section 257 of the SFA and I am not permitted to sell, or offer to sell any shares of Common Stock in Singapore unless such sale or
offer is made (i) within six months from the date of offering or (ii) pursuant to exemptions under Part XIII Division (1) Subdivision (4) (other
than section 280) of the SFA.
Director Notification Obligation.
I acknowledge that if I am a director, associate director or shadow director of a Singapore Subsidiary, I am subject to certain notification
requirements under the Singapore Companies Act. Among these requirements is an obligation to notify the Singapore Subsidiary in writing
when I receive an interest (e.g., an option or shares of Common Stock) in the Company or any Subsidiary within two business days of (i) its
acquisition or disposal, (ii) any change in previously disclosed interest (e.g., when the shares of Common Stock are sold), or (iii) becoming a
director, associate director or shadow director.
Power of Attorney.
SOUTH KOREA
I am an employee working for a Subsidiary or affiliate of the Company in Korea (“ServiceNow Korea”), a corporation duly organized and
existing under the laws of the Republic of Korea, and, by my election to participate in the Plan, I hereby appoint attorney-in-fact,
ServiceNow Korea (including any successor entity), through its duly appointed representative, as my true and lawful representative, with full
power and authority to do the following:
1. To prepare, execute and file any report/application and all other documents required for implementation of the ServiceNow, Inc. 2012
Employee Stock Purchase Plan (the “ESPP”) in Korea;
2. To take any action that may be necessary or appropriate for implementation of the ESPP with the competent Korean authorities,
including but not limited to the transfer of my payroll deductions through a foreign exchange bank; and
3. To constitute and appoint, in its place and stead, and as its substitute, one or more representatives, with power of revocation.
I hereby ratify and confirm as my own act and deed all that such representative may do or cause to be done by virtue of this instrument.
Foreign Asset/Account Reporting Information.
Korean residents must declare all foreign financial accounts (i.e., non-Korean bank accounts, brokerage accounts, etc.) to the Korean tax
authority and file a report with respect to such accounts if the value of such accounts exceeds KRW 500 million (or an equivalent amount in
foreign currency) on any month-end during the calendar year. I understand that I should consult with my personal tax advisor to determine
how to value my foreign accounts for purposes of this reporting requirement and whether I am required to file a report with respect to such
accounts.
Nature of Grant.
The following provision supplements Section 1 of this Appendix:
SPAIN
By completing the enrollment process and accepting the Enrollment/Change Form, I consent to participation in the ESPP and acknowledge
that I have received a copy of the ESPP.
I understand that the Company has unilaterally, gratuitously and discretionally decided to offer participation in the ESPP to eligible
employees of the Company or any Subsidiary. This decision is a limited decision that is entered into upon the express assumption and
condition that any grant will not bind the Company or any Subsidiary other than as expressly set forth in the Enrollment/Change Form.
Consequently, I understand that the ESPP is offered on the assumption and condition that the ESPP and any shares of Common Stock issued
upon exercise of this purchase right are not a part of any employment or service contract (either with the Company or any Parent or any
Subsidiary) and shall not be considered a mandatory benefit, salary for any purpose (including severance compensation) or any other right
whatsoever.
Further, I understand and agree that, unless otherwise expressly provided for by the Company or set forth in the ESPP or the
Enrollment/Change Form, I will cease to be a Participant in the ESPP upon the termination of my status as an eligible employee for any
reason (including for the following reasons) and my contributions to the ESPP shall cease and the amounts returned to me, without interest,
as soon as administratively possible. Such reasons for termination include, but are not limited to resignation, retirement, disciplinary
dismissal adjudged to be with cause, disciplinary dismissal adjudged or recognized to be without cause, material modification of the terms of
employment under Article 41 of the Workers’ Statute, relocation under Article 40 of the Workers’ Statute, Article 50 of the Workers’ Statute,
or under Article 10.3 of Royal Decree 1382/1985. The Company, in its sole discretion, shall determine the date when my status as an eligible
employee has terminated for purposes of the right to purchase shares of Common Stock under the ESPP.
In addition, I understand that this grant would not be made to me but for the assumptions and conditions referred to above; thus, I
acknowledge and freely accept that, should any or all of the assumptions be mistaken or should any of the conditions not be met for any
reason, then any offer of the right to participate in the ESPP shall be null and void.
Securities Law Notification.
The offer of the option to purchase shares of Common Stock described in the Enrollment/Change Form does not qualify under Spanish
regulations as a security. No “offer of securities to the public,” as defined under Spanish law, has taken place or will take place in the Spanish
territory in connection with the offer of the ESPP. The Enrollment/Change Form (including this Appendix) has not been, nor will it be,
registered with the Comisión Nacional del Mercado de Valores, and does not constitute a public offering prospectus.
Foreign Asset/Account Reporting Notification.
To the extent that I hold assets (e.g., shares of Common Stock, cash, etc.) in a bank or brokerage account outside of Spain with a value in
excess of €50,000 per type of asset as of December 31 each year, I am required to report information on such rights and assets on my tax
return for such year. Shares of Common Stock acquired under the ESPP constitute securities for purposes of this requirement, but unvested
awards (e.g., the right to purchase shares of Common Stock under the ESPP) will not be considered an asset for purposes of this requirement.
If applicable, I must report the assets on Form 720 by no later than March 31 following the end of the relevant year. After such assets are
initially reported, the reporting obligation will only apply for subsequent years if the value of any previously-reported assets increases by
more than €20,000. Failure to comply with this reporting requirement may result in penalties to me. Accordingly, Spanish residents should
consult with personal tax and legal advisors to ensure proper compliance with their reporting obligations.
Spanish residents are required to electronically declare to the Bank of Spain any securities accounts (including brokerage accounts held
abroad), as well as the securities held in such accounts (including shares of Common Stock), if the value of the transactions for all such
accounts during the prior tax year or the balances in such accounts as of December 31 of the prior tax year exceeds €1,000,000. I understand I
should consult with my personal tax or legal advisor for further information regarding my exchange control reporting obligations.
Exchange Control Notification.
Spanish residents who acquire shares of Common Stock under the ESPP must declare such acquisition to the Spanish Dirección General de
Comercio e Inversiones (the “DGCI”), the Bureau for Commerce and Investments, which is a department of the Ministry of Economy and
Competitiveness. Residents also must declare ownership of any shares of Common Stock by filing a Form D-6 with the Directorate of
Foreign Transactions each January while such shares of Common Stock are owned. In addition, the sale of shares of Common Stock must
also be declared on Form D-6 filed with the DGCI in January, unless the sale proceeds exceed the applicable threshold (currently
€1,502,530), in which case, the filing is due within one month after the sale.
Responsibility for Taxes.
The following provisions supplement Section 6 of the Enrollment/Change Form:
SWEDEN
Without limiting the Company’s and the Employer's authority to satisfy their withholding obligations for Tax-Related Items as set forth in
Section 6 of the Enrollment/Change Form, in enrolling in the ESPP I authorize the Company and/or the Employer to withhold shares of
Common Stock or to sell shares of Common Stock otherwise deliverable to me upon purchase to satisfy Tax-Related Items, regardless of
whether the Company and/or the Employer have an obligation to withhold such Tax-Related Items.
Securities Law Notification.
SWITZERLAND
The ESPP is not intended to be publicly offered in or from Switzerland. Because the offer of participation in the ESPP is considered a private
offering, it is not subject to registration in Switzerland. Neither this document nor any other materials relating to the ESPP (i) constitute a
prospectus according to articles 35 et seq. of the Swiss Federal Act on Financial Services (“FinSA”), (ii) may be publicly distributed nor
otherwise made publicly available in Switzerland to any person other than an employee of the Company or Employer or (iii) has been or will
be filed with, approved or supervised by any Swiss reviewing body according to article 51 FinSA or any Swiss regulatory authority,
including the Swiss Financial Market Supervisory Authority (FINMA).
Securities Law Notification.
UNITED ARAB EMIRATES
Participation in the ESPP is being offered only to eligible employees and is in the nature of providing equity incentives to employees in the
United Arab Emirates. The ESPP and the Enrollment/Change Form are intended for distribution only to such employees and must not be
delivered to, or relied on by, any other person. Prospective purchasers of the securities offered should conduct their own due diligence on the
securities. If I do not understand the contents of the ESPP or this Enrollment/Change Form, I should consult an authorized financial adviser.
The Emirates Securities and Commodities Authority has no responsibility for reviewing or verifying any documents in connection with the
ESPP. Neither the Ministry of Economy nor the Dubai Department of Economic Development have approved the ESPP or the
Enrollment/Change Form nor taken steps to verify the information set out therein, and have no responsibility for such documents.
Responsibility for Taxes.
The following provisions supplement Section 6 of the Enrollment/Change Form:
United Kingdom
Without limitation to Section 6 of the Enrollment/Change Form, I agree that I am liable for all Tax-Related Items and hereby covenant to pay
all such Tax-Related Items, as and when requested by the Company or, if different, the Employer or by Her Majesty’s Revenue & Customs
(“HRMC”) (or any other tax authority or any other relevant authority). I also agree to indemnify and keep indemnified the Company and, if
different, the Employer against any Tax-Related Items that they are required to pay or withhold or have paid or will pay to HMRC (or any
other tax authority or any other relevant authority) on my behalf.
Notwithstanding the foregoing, if I am a director or executive officer of the Company (within the meaning of Section 13(k) of the Exchange
Act), I understand that I may not be able to indemnify the Company for the amount of any income tax not collected from or paid by me
within ninety (90) days of the end of the U.K. tax year in which the event giving rise to the Tax-Related Items occurs as it may be considered
to be a loan and therefore, it may constitute a benefit to me on which additional income tax and National Insurance contributions (“NICs”)
may be payable. I understand that I will be responsible for reporting and paying any income tax due on this additional benefit directly to
HMRC under the self-assessment regime and for paying to the Company and/or the Employer (as appropriate) the amount of any NICs
(including Employer NICs, as
defined below) due on this additional benefit, which may also be recovered from me by any of the means referred to in Section 6 of the
Enrollment/Change Form.
If I fail to comply with my obligations in connection with the income tax as described in this section, the Company may refuse to deliver the
shares of Common Stock subject to the ESPP.
National Insurance Contributions Acknowledgment.
As a condition of participation in the ESPP and the purchase of shares of Common Stock, I agree to accept any liability for secondary Class 1
NICs which may be payable by the Company and/or the Employer in connection with the option/purchase of shares and any event giving rise
to Tax-Related Items (the “Employer NICs”). Without limitation to the foregoing, I agree to execute a joint election with the Company, the
form of such joint election being formally approved by HMRC (the “Joint Election”), and any other required consent or election. I further
agree to execute such other joint elections as may be required between me and any successor to the Company and/or the Employer. I further
agree that the Company and/or the Employer may collect the Employer NICs from me by any of the means set forth in section 6 of the
Enrollment/Change Form.
If I do not enter into a Joint Election prior to purchasing shares or if approval of the Joint Election has been withdrawn by HMRC, the option
shall become null and void without any liability to the Company and/or the Employer and I may not purchase shares under the ESPP.
SPECIAL NOTICE FOR EMPLOYEES IN DENMARK
EMPLOYER STATEMENT
Pursuant to Section 3(1) of the Act on Stock Options in employment relations, as amended effective January 1, 2019 (the “Stock Option
Act”), you are entitled to receive the following information regarding participation in the ServiceNow, Inc. 2012 Employee Stock Purchase
Plan (the “ESPP”) in a separate written statement.
This statement contains only the information mentioned in the Stock Option Act, while the other terms and conditions of your grant of stock
options to purchase shares of the common stock of ServiceNow, Inc. (the “Company”) are described in detail in the ESPP, the
Enrollment/Change Form and the applicable country-specific supplement, which have been made available to you.
1. Time of grant of right to purchase stock
Provided always that at the relevant time you are eligible to participate in the ESPP, at the beginning of successive six (6)-month
offering periods, the Company will grant you a right to purchase shares of stock in the Company that may be exercised on the last day of
each offering period.
2. Terms or conditions for grant of a right to future purchase of stock
The ESPP is offered at the discretion of the Company’s Board of Directors.
3. Purchase Date
If you are employed by the Company or one of its participating subsidiaries or affiliates on the last day of an offering period, shares of
common stock will automatically be purchased for you with your accumulated payroll deductions. If shares are purchased for you at the end
of an offering period, the number of shares purchased will depend on the purchase price, the amount of your accumulated payroll deductions
and the share purchase limits in the ESPP. You will be the immediate owner of the common stock purchased with your
accumulated payroll deductions and, subject to the limitations in the ESPP, you may sell your shares of common stock purchased under the
ESPP at any time, subject to any Company insider trading restrictions.
4. Purchase Price
The purchase price per share is the lower of 85% of the fair market value of the Company’s common stock on the first market day of
the offering period or on the date the stock purchase right is exercised, i.e., the last market day of the offering period.
5. Your rights upon termination of employment
Termination of your employment for any reason, including retirement, death, disability, or the failure to remain an eligible employee
under the ESPP, immediately terminates your participation in the ESPP. In such event, accumulated payroll deductions credited to your
account will be returned to you or, in the case of your death, to your legal representative, without interest (except to the extent required due to
local legal requirements).
6. Financial aspects of participating in the ESPP
Aside from the payroll deductions which will start after you enroll in the ESPP, the ESPP offering has no immediate financial
consequences for you. The value of the purchase rights and the value of the shares purchased for you under the ESPP are not taken into
account when calculating holiday allowances, pension contributions or other statutory consideration calculated on the basis of salary.
Shares of stock are financial instruments and investing in stocks will always have financial risk. The possibility of profit at the time
you sell your shares will not only be dependent on the Company’s financial development, but inter alia also on the general development on
the stock market. In addition, after you purchase shares, the shares could decrease in value even below the purchase price.
SERVICENOW, INC.
2225 Lawson Lane
Santa Clara, CA 95054
U.S.A.
SÆRLIG MEDDELELSE TIL MEDARBEJDERE I DANMARK
ARBEJDSGIVERERKLÆRING
I henhold til § 3, stk. 1, i lov om brug af køberet eller tegningsret m.v. i ansættelsesforhold som ændret pr. 1. januar 2019
(“Aktieoptionsloven”) er du berettiget til i en særskilt skriftlig erklæring at modtage følgende oplysninger om deltagelse i ServiceNow, Inc.’s
medarbejderaktieordning - 2012 Employee Stock Purchase Plan (“ESPP-planen”).
Denne erklæring indeholder kun de oplysninger, der er nævnt i Aktieoptionsloven, mens de øvrige vilkår og betingelser for din tildeling af
aktieoptioner til køb af ordinære aktier i ServiceNow, Inc. (“Selskabet”) er nærmere beskrevet i ESPP-planen, Tilmeldings-/
Ændringsblanketten (Enrollment/Change Form) og det gældende landespecifikke tillæg, som du har modtaget.
1. Tidspunkt for tildeling af retten til at købe aktier
Forudsat at du er berettiget til at deltage i ESPP-planen på det pågældende tidspunkt vil Selskabet ved påbegyndelsen af successive
tilbudsperioder på seks (6) måneder tildele dig retten til at købe aktier i Selskabet, som kan udøves på den sidste dag i hver tilbudsperiode.
2. Kriterier og betingelser for tildeling af retten til senere at købe aktier
ESPP-planen tilbydes efter Selskabets bestyrelses eget skøn.
3. Købsdato
Hvis du er ansat i Selskabet eller i et af de deltagende datterselskaber eller en af de deltagende tilknyttede virksomheder på den sidste
dag i en tilbudsperiode, vil der automatisk blive købt ordinære aktier til dig for det akkumulerede beløb, der er fratrukket dine
nettolønudbetalinger. Hvis der købes aktier til dig ved udløbet af en tilbudsperiode, vil antallet af købte aktier afhænge af købskursen,
størrelsen på det akkumulerede beløb, der er fratrukket dine nettolønudbetalinger, samt af de begrænsninger for aktiekøb, der er fastsat i
ESPP-planen. Du vil blive indehaver af de ordinære aktier, der er købt for det akkumulerede beløb, der er fratrukket dine
nettolønudbetalinger, og du kan, med de begrænsninger, der følger af ESPP-planen, til enhver tid sælge de ordinære aktier, som du har købt i
henhold til ESPP-planen, med forbehold for eventuelle begrænsninger i Selskabets regler om insiderhandel.
4. Købskurs
Købskursen pr. aktie er den værdi, der er lavest af 85 % af kursværdien af Selskabets ordinære aktier på enten den første handelsdag i
tilbudsperioden eller på den dato, hvor retten til at købe aktier udøves, dvs. den sidste handelsdag i tilbudsperioden.
5. Din retsstilling i forbindelse med fratræden
Opsigelse af din ansættelse, uanset årsagen hertil, herunder pensionering, død, invaliditet eller den manglende fortsatte opfyldelse af at
forblive en berettiget medarbejder under ESPP'en, medfører øjeblikkeligt ophør af din deltagelse i ESPP. I et sådant tilfælde vil akkumulerede
løntræks beløb krediteret til din konto blive returneret til dig, eller i tilfælde af din død, til din juridiske repræsentant, uden renter (bortset fra i
det omfang, det er påkrævet af lokale juridiske krav).
6. Økonomiske aspekter ved at deltage i ESPP-planen
Bortset fra de fradrag i dine nettolønudbetalinger, som påbegynder, når du er blevet tilmeldt ESPP-planen, har deltagelsen i ESPP-
planen ingen umiddelbare økonomiske konsekvenser for dig. Værdien af købsretten og af de aktier, der købes til dig i henhold til ESPP-
planen, indgår ikke i beregningen af feriepenge, pensionsbidrag eller øvrige lovpligtige, vederlagsafhængige ydelser.
Aktier er finansielle instrumenter, og investering i aktier vil altid være forbundet med en økonomisk risiko. Muligheden for at opnå en
gevinst, når du sælger dine aktier, afhænger ikke alene af Selskabets økonomiske udvikling, men også af den generelle udvikling på
aktiemarkedet. Derudover kan aktierne efter købet falde til en værdi, der måske endda ligger under købskursen.
SERVICENOW, INC.
2225 Lawson Lane
Santa Clara, CA 95054
U.S.A.
SERVICENOW, INC. 2012 EMPLOYEE STOCK PURCHASE PLAN
Election To Transfer the Employer’s National Insurance Liability to the Employee
This Election is between:
A. The individual who has obtained authorised access to this Election (the “Employee”), who is employed by one of the employing
companies listed in the attached schedule (the “Employer”) and who is eligible to participate in the Employee Stock Purchase Plan
pursuant to the 2012 Employee Stock Purchase Plan (the “ESPP”), and
B. ServiceNow, Inc., 2225 Lawson Lane, Santa Clara, CA 95054, U.S.A. (the “Company”), which may grant options under the ESPP and is
entering into this Election on behalf of the Employer.
Introduction
1.
1.1 This Election relates to the options granted to the Employee under the ESPP on or after June 19, 2012, up to the termination date of the
ESPP.
1.2. In this Election the following words and phrases have the following meanings:
a. “Chargeable Event” means, in relation to the ESPP:
i.
ii.
the acquisition of securities pursuant to the options (within section 477(3)(a) of ITEPA);
the assignment (if applicable) or release of the options in return for consideration (within section 477(3)(b) of ITEPA);
the receipt of a benefit in connection with the options, other than a benefit within (i) or (ii) above (within section 477(3)(c) of
iii.
ITEPA);
iv.
v.
vi.
post-acquisition charges relating to the shares acquired pursuant to the ESPP (within section 427 of ITEPA); and/or
post-acquisition charges relating to the shares acquired pursuant to the ESPP (within section 439 of ITEPA).
“ITEPA” means the Income Tax (Earnings and Pensions) Act 2003.
vii.
“SSCBA” means the Social Security Contributions and Benefits Act 1992.
1.3 This Election relates to the employer’s secondary Class 1 National Insurance Contributions (the “Employer’s Liability”) which may arise
on the occurrence of a Chargeable Event in respect of the ESPP pursuant to section 4(4)(a) and/or paragraph 3B(1A) of Schedule 1 of
the SSCBA.
1.4 This Election does not apply in relation to any liability, or any part of any liability, arising as a result of regulations being given
retrospective effect by virtue of section 4B(2) of either the SSCBA, or the Social Security Contributions and Benefits (Northern Ireland)
Act 1992.
1.5 This Election does not apply to the extent that it relates to relevant employment income which is employment income of the earner by
virtue of Chapter 3A of Part VII of ITEPA (employment income: securities with artificially depressed market value).
2. The Election
The Employee and the Company jointly elect that the entire liability of the Employer to pay the Employer’s Liability on the Chargeable
Event is hereby transferred to the Employee. The Employee understands that, by signing or electronically accepting this Election, he or
she will become personally liable for the Employer’s Liability covered by this Election. This Election is made in accordance with
paragraph 3B(1) of Schedule 1 of the SSCBA.
3. Payment of the Employer’s Liability
3.1 The Employee hereby authorises the Company and/or the Employer to collect the Employer’s Liability from the Employee at any time
after the Chargeable Event:
a. by deduction from salary or any other payment payable to the Employee at any time on or after the date of the Chargeable Event;
and/or
b. directly from the Employee by payment in cash or cleared funds; and/or
c. by arranging, on behalf of the Employee, for the sale of some of the securities which the Employee is entitled to receive pursuant to
the options, the proceeds of which must be delivered to the Employer in sufficient time for payment to be made to HMRC by the due
date; and/or
d. where the proceeds of the gain are to be made through a third party, the Employee will authorize that party to withhold an amount
from the payment or to sell some of the securities which the Employee is entitled to receive pursuant to the options, such amount to
be paid in sufficient time to enable the Company to make payment to HMRC by the due date; and/or
e.
through any other method as set forth in the applicable Enrollment/Change Form entered into between the Employee and the
Company.
3.2 The Company hereby reserves for itself and the Employer the right to withhold the transfer of any securities to the Employee in respect of
the ESPP until full payment of the Employer’s Liability is received.
3.3 The Company agrees to remit the Employer’s Liability to HM Revenue & Customs on behalf of the Employee within 14 days after the
end of the UK tax month during which the Chargeable Event occurs (or within 17 days if payments are made electronically).
4. Duration of Election
4.1 The Employee and the Company agree to be bound by the terms of this Election regardless of whether the Employee is transferred abroad
or is not employed by the Employer on the date on which the Employer’s Liability becomes due.
4.2 This Election will continue in effect until the earliest of the following:
i.
ii.
iii.
iv.
the Employee and the Company agree in writing that it should cease to have effect;
on the date the Company serves written notice on the Employee terminating its effect;
on the date HMRC withdraws approval of this Election; or
after due payment of the Employer’s Liability in respect of the ESPP to which this Election relates or could relate, such that the
Election ceases to have effect in accordance with its terms.
Acceptance by the Employee
The Employee acknowledges that by accepting enrolling in the ESPP where indicated on the Fidelity enrollment page, the Employee
agrees to be bound by the terms of this Election as stated above.
Acceptance by the Company
The Company acknowledges that, by signing this Election or arranging for the scanned signature of an authorised representative to
appear on this Election, the Company agrees to be bound by the terms of this Election.
Signature for and on
behalf of the Company ____________________________
Name [insert name]
Position [insert position]
The following are employer companies to which this Election may apply:
SCHEDULE OF EMPLOYER COMPANIES
Service-now.com UK Limited
Registered Office:
Company Registration Number:
Corporation Tax District:
Corporation Tax Reference:
PAYE Reference:
Standard House, Weyside Park, Catteshall Lane, Godalming,
Surrey, Gu7 1XE
6299383
201 South London
6359720602
581/LA08194
[1] The information about the United Arab Emirates is as of October 2020.
Exhibit 10.19
October 21, 2020
Gabrielle Toledano
Dear Gaby:
On behalf of ServiceNow, Inc. (the “Company”), this letter agreement (the “Agreement”) sets forth the terms and conditions of your
employment as Chief Talent Officer of the Company.
1. Position. Effective on your Start Date (as defined below), you will serve as the Company’s Chief Talent Officer reporting to the
Company’s Chief Executive Officer (the “CEO”). You will have all of the duties, responsibilities and authority commensurate with
the position. Your employment with the Company will commence as soon as practicable on a date to be determined by you and the
CEO, which shall be no later than January 4, 2021 (such start date, your “Start Date”). Your office will be at the Company’s
headquarters, currently located in Santa Clara, CA. You will be expected to devote your full working time and attention to the
business of the Company. Notwithstanding the foregoing, you may manage personal investments, participate in civic, charitable,
professional and academic activities (including serving on boards and committees), and, subject to prior approval, serve on the board
of directors (and any committees) of outside entities, provided that such activities do not at the time the activity or activities
commence or thereafter (i) create an actual or potential business or fiduciary conflict of interest or (ii) individually or in the
aggregate, interfere materially with the performance of your duties to the Company.
2. Term. Subject to the terms of this Agreement, this Agreement will remain in effect for a period commencing on the Start Date and
continuing until termination of your employment as set forth herein (the “Employment Term”).
3. Cash Compensation.
a. Base Salary. Your initial annual base salary (the “Base Salary”) will be Four Hundred Seventy-Five thousand Dollars
($475,000.00), less required deductions and withholdings, payable in accordance with the Company’s normal payroll practices.
Thereafter, your annual base salary will be determined by the Leadership Development and Compensation Committee of the
Company’s Board of Directors (the “Compensation Committee”). Your Base Salary will be pro-rated for any partial years of
employment during your Employment Term.
b. Sign-on Bonus Advance: In the first payroll period following your Start Date, you will receive a one-time bonus advance
payment of One Hundred Fifty Thousand dollars ($150,000.00), subject to clawback or repayment pursuant to Section 6 of this
Agreement.
c. Target Bonus. During the Employment Term, you will be eligible to participate in our executive corporate bonus program. Your
initial annual bonus target will be Seventy-Five percent (75%) of your Base Salary which equals Three Hundred Fifty- Six
Thousand, Two Hundred Fifty Dollars ($356,250.00) for the applicable fiscal year (your “Target Bonus”). Whether you receive
the Target Bonus, and the amount of actual bonus amount awarded (your “Actual Bonus”) will be determined by the
Compensation Committee in its sole discretion based in all cases upon the achievement of both Company and individual
performance objectives as established by the Compensation Committee. To earn any Actual Bonus, you must be employed by the
Company on the last day of the period to which such bonus relates and at the time bonuses are paid, except as otherwise provided
herein. Your bonus participation will be subject to all the terms, conditions and restrictions of the applicable Company bonus
plan, as amended from time to time. The Actual Bonus shall be subject to required deductions and withholdings.
4. Relocation. The Company will provide you with a relocation package that is commensurate with your position as a member of the
Company’s senior executive team. The Company’s head of Global Mobility will reach out to you separately to address the details and
terms of your relocation package.
5. Benefits, Vacation & Expenses.
a. You will be entitled to participate in all employee retirement, welfare, insurance, benefit and vacation programs of the Company
as are in effect from time to time and in which other senior executives of the Company are eligible to participate, on the same
terms as such other senior executives, pursuant to the governing plan documents.
b. The Company will, in accordance with applicable Company policies and guidelines, reimburse you for all reasonable and
necessary expenses incurred by you in connection with your performance of services on behalf of the Company.
6. Clawback. Each of the Sign On Bonus and the Relocation Bonus shall be subject to clawback or repayment to the Company in full if
you are terminated by the Company for Cause or you voluntarily resign without Good Reason, in either case before the second
anniversary of the Start Date.
7. Equity Awards. Subject to this Section 7 and subject to the approval of the Company’s Board of Directors (the “Board”) or the
Compensation Committee, we will recommend that you be granted equity awards as follows:
a. New-Hire RSU. On the first regularly scheduled new hire grant date following your Start Date (the “New-Hire RSU Grant
Date”) The Company will grant you a restricted stock unit award to acquire such number of shares of the Company’s common
stock equal to Six Million Dollars ($6,000,000.00) divided by the average daily closing price of the Company’s common stock
on the New York Stock Exchange for the twenty (20) trading days ending on the third trading day immediately prior to the Grant
Date, rounded up to the nearest whole share (the“New- Hire RSU”) under the Company’s 2012 Equity Incentive Plan (the
“Equity Plan”). The New-Hire RSU will vest as follows: 25% of the shares subject to the New-Hire RSU shall vest and settle on
the one year anniversary of the Start Date, and the remaining shares will vest and settle in equal quarterly installments thereafter
over the next twelve (12) quarters; provided that, subject to Section 8 below, vesting will be contingent on your continued
employment with the Company on the applicable time-based vesting dates, and will be subject to the terms and conditions of the
Equity Plan and the Company’s standard form of restricted stock unit award agreement as approved by the Compensation
Committee for use under the Equity Plan (the “Standard RSU Agreement”), and this Agreement.
b. Fiscal Year 2021 LTIP Award. At the same time that it grants fiscal year 2021 equity awards to other senior executives of the
Company (the “Fiscal 2020 Equity Award Grant Date”) The Company will grant you a Fiscal Year 2020 LTIP Award to acquire
such number of shares of the Company’s common stock equal to Three Million Dollars ($3,000,000) (the “Fiscal 2020 Equity
Award”). Twenty (20%) percent of any Fiscal 2021 Equity Award shall be time-based restricted stock units (the “FY20 RSU”)
and will vest and become exercisable over sixteen (16) quarters following such grant; provided that, subject to Section 8 below,
vesting will depend on your current employment with the Company on the applicable time-based vesting dates, and will be
subject to the terms and conditions of the current form of RSU agreement, the Equity Plan and this Agreement, Eighty (80%)
percent of any Fiscal Year 2021 Equity Award shall be subject to the same performance metrics and vesting schedule as the
Fiscal Year 2021 performance restricted stock units granted to other senior executives of the Company (the “FY21 PRSU”).
Subject to
Section 8 below, vesting will depend on your continued employment by the Company on the applicable time-based or
performance-based vesting dates, and will be subject to the terms and conditions of the written agreement governing such grant,
the Equity Plan and this Agreement.
c. Future Equity. You may be eligible for future equity grants as determined by and pursuant to the terms established by the
Compensation Committee.
8. Definitions. As used in this Agreement, the following terms have the following meanings.
a. Cause. For purposes of this Agreement, “Cause” for the Company to terminate your employment hereunder shall mean the
occurrence of any of the following events, as determined by the Company in its sole and absolute discretion:
i.
your conviction of, or plea of nolo contendere to, any felony or any crime involving fraud, dishonesty or moral turpitude;
ii. your commission of or participation in a fraud or act of dishonesty against the Company that results in (or would reasonably
be expected to result in) material harm to the business of the Company;
iii. your intentional, material violation of any contract or agreement between you and the Company or any statutory duty you
owe to the Company or the improper disclosure of confidential information (as defined in the Company’s standard
confidentiality agreement);
iv. your conduct that constitutes gross insubordination, incompetence or habitual neglect of duties and that results in (or would
reasonably be expected to result in) material harm to the business of the Company;
v. your material failure to perform the duties of your position as Chief Talent Officer;
vi. your material failure to follow the Company’s material policies; or
vii. your failure to cooperate with the Company in any investigation or formal proceeding;
provided, however, that the action or conduct described in clauses (iii), (iv), (v), (vi) and (vii) above will constitute “Cause” only if
such action or conduct continues after the Company has provided you with written notice thereof and thirty (30) days to cure the
same if such action or conduct is curable.
b. Change in Control. For purposes of this Agreement, “Change in Control” means the occurrence, in a single transaction or in a
series of related transactions, of any one or more of the following events (excluding in any case transactions in which the
Company or its successors issues securites to investors primarily for capital raising purposes):
i.
the acquisition by a third party of securities of the Company representing fifty percent (50%) or more of the combined voting
power of the Company’s then outstanding securities other than by virtue of a merger, consolidation or similar transaction;
ii. a merger, consolidation or similar transaction following which the stockholders of the Company immediately prior thereto do
not own at least fifty percent (50%) of the combined outstanding voting power of the surviving entity (or that entity’s parent)
in such merger, consolidation or similar transaction;
iii. the dissolution or liquidation of the Company; or
iv. the sale, lease, exclusive license or other disposition of all or substantially all of the assets of the Company.
Notwithstanding any of the foregoing, any transaction or transactions effected solely for purposes of changing the Company’s
domicile will not constitute a Change in Control pursuant to the foregoing definition.
c. COBRA. For purposes of this Agreement, “COBRA” means the Consolidated Omnibus Budget Reconciliation Act of 1985, as
amended.
d. Code. For purposes of this Agreement, “Code” means the Internal Revenue Code of 1986, as amended.
e. Disability. For purposes of this Agreement, “Disability” shall have that meaning set forth in Section 22(e)(3) of the Code.
f. Good Reason. For purposes of this Agreement, “Good Reason” for you to terminate your employment hereunder shall mean the
occurrence of any of the following events without your consent:
i.
any material diminution in your authority, duties or responsibilities as in effect immediately prior to such reduction or a
material diminution in the authority, duties or responsibilities of the person or persons to whom you are required to report;
ii. a material reduction by the Company in your annual Base Salary or Target Bonus, as initially set forth herein or as increased
thereafter; provided, however, that Good Reason shall not be deemed to have occurred in the event of a reduction in your
annual Base Salary or Target Bonus that is pursuant to a salary or bonus reduction program affecting substantially all of the
employees of the Company or substantially all similarly situated executive employees and that does not adversely affect you
to a greater extent than other similarly situated employees;
iii. a relocation of your business office to a location that would increase your one-way commute distance by more than thirty-
five (35) miles from the current location at which you performed your duties immediately prior to the relocation, except for
required travel by you on the Company’s business to an extent substantially consistent with your business travel obligations
prior to the relocation; or
iv. failure of a successor entity to assume this Agreement;
provided, however, that, any such termination by you shall only be deemed for Good Reason pursuant to this definition if: (1)
you give the Company written notice of your intent to resign for Good Reason within ninety (90) days following the first
occurrence of the condition(s) that you believe constitute(s) Good Reason, which notice shall describe such condition(s);(2)
the Company fails to remedy such condition(s) within thirty (30) days following receipt of the written notice (the “Cure
Period”); and (3) you voluntarily resign your employment within one hundred twenty (120) days following the end of the
Cure Period.
9. Effect of Termination of Employment.
a. Termination by the Company for Cause, Death or Disability or Resignation without Good Reason. In the event your employment
is terminated by the Company for Cause, your employment terminates due to your death or Disability (which termination may be
implemented by written notice by the Company if you have a Disability), or you resign your employment other than for Good
Reason, you will be paid only: (i) any earned but unpaid Base Salary; (ii) except in the case of termination for Cause or
resignation without Good Reason, the amount of any Actual Bonus earned and payable from a prior bonus period which remains
unpaid by the Company as of the date of the termination of employment determined in good faith in accordance with customary
practice, to be paid at the same time as bonuses are paid for that period to other eligible executives; (iii) other unpaid and then-
vested amounts, including any amount payable to you under the specific terms of any agreements, plans or awards, including
insurance and health and benefit plans in which you participate, unless otherwise specifically provided in this Agreement; and
(iv) reimbursement for all reasonable and necessary expenses incurred by you in connection with your performance of services
on behalf of the Company in accordance with applicable Company policies and guidelines, in each case as of the effective date of
such termination of employment (the “Accrued Compensation”).
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b. Termination without Cause or Resignation for Good Reason, Absent a Change in Control. During the time period from the Start
Date through the third (3 ) anniversary of the Start Date, if the Company terminates your employment without Cause or you
resign your employment for Good Reason, in either case not in connection with a Change in Control (which is dealt with in
Section 8(c) below), provided that (except with respect to the Accrued Compensation) you deliver to the Company a signed
general release of claims in favor of the Company on the Company’s standard form of release (the “Release”) and satisfy all
conditions to make the Release effective within sixty (60) days following your termination of employment, then, you shall be
entitled to:
i.
ii.
iii.
the Accrued Compensation; and
a lump sum payment equal to six (6) months of your then-current Base Salary, less required deductions and
withholdings;
a lump sum payment equal to fifty percent (50%) of your Actual Bonus for the then-current fiscal year based on: (x)
actual achievement of Company performance objectives and (y) deemed 100% achievement of personal performance
objectives, if any, less any quarterly payment previously paid, if any, subject to required deductions and withholdings
and paid when annual bonuses are otherwise paid to active employees, but no later than March 15 of the year following
the year in which the termination of employment occurs; and
iv.
a payment of the COBRA premiums (or reimbursement to you of such premiums) for continued health coverage for you
and your dependents for a period of six (6) months.
c. Termination without Cause or Resignation for Good Reason, in Connection with a Change in Control. During the time period
from the Start Date through the third (3 ) anniversary of the Start Date, in the event a Change in Control occurs and if the
Company terminates your employment without Cause or if you resign your employment for Good Reason, in either case within
the period beginning three (3) months before, and ending twelve (12) months following, such Change in Control; and provided
that (except with respect to the Accrued Compensation) you deliver to the Company the signed Release and satisfy all conditions
to make the Release effective within sixty (60) days following your termination of employment, then, (in lieu of any benefits
pursuant to Section 8(b)), you shall be entitled to:
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i.
the Accrued Compensation;
a lump sum payment equal to six (6) months of your then-current Base Salary, less required deductions and
ii.
withholdings;
a lump sum payment equal to one hundred percent (100%) of your Target Bonus for the then-current fiscal year less
iii.
any quarterly payment previously paid, if any, subject to required deductions and withholdings;
a payment of the COBRA premiums (or reimbursement to you of such premiums) for continued health coverage for
iv.
you and your dependents for a period of six (6) months; and
immediate acceleration of one hundred percent (100%) of the number of then-unvested shares subject to equity
v.
grants, unless otherwise provided (and to the extent specified) by the terms of such grants.
d. Miscellaneous. For the avoidance of doubt, the benefits payable pursuant to Sections 9(b) through (c) are mutually exclusive
and not cumulative. All lump sum payments provided in this Section 9 shall be made no later than the 60 day following
your termination of employment (unless explicitly provided otherwise above). In addition, Sections 9(b) and 9(c) and the
benefits conferred therein shall expire and terminate on the third (3 ) anniversary of the Start Date. Notwithstanding
anything to the contrary in this Agreement, (i) any reference herein to a termination of your employment is intended to
constitute a “separation from service” within the meaning of Section 409A of the Code, and Section 1.409A-1(h) of the
regulations promulgated thereunder, and shall be so construed, and (ii) no payment will be made or become due to you
during any period that you continue in a role with the Company that does not constitute a separation from service, and will
be paid once you experience a “separation from service” from the Company within the meaning of Section 409A of the
Code. In addition, notwithstanding anything to the contrary in this Agreement, upon a termination of your employment, you
agree to resign prior to the time you deliver the Release from all positions you may hold with the Company and any of its
subsidiaries or affiliated entities at such time, and no payment will be made or become due to you until you resign from all
such positions, unless requested otherwise by the Board.
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th
10. Parachute Payments. In the event that the severance and other benefits provided for in this Agreement or otherwise payable to you (i)
constitute “parachute payments” within the meaning of Section 280G of the Code and (ii) but for this Section, would be subject to
the excise tax imposed by Section 4999 of the Code, then, at your discretion, your severance and other benefits under this Agreement
shall be payable either (i) in full, or (ii) as to such lesser amount which would result in no portion of such severance and other
benefits being subject to the excise tax under Section 4999 of the Code, whichever of the foregoing amounts, taking into account the
applicable federal, state and local income taxes and the excise tax imposed by Section 4999, results in the receipt by you on an after-
tax basis, of the greatest amount of severance benefits under this Agreement, notwithstanding that all or some portion of such
severance benefits may be taxable under Section 4999 of the Code. Any reduction shall be made in the following manner: first a pro-
rata reduction of (i) cash payments subject to Section 409A of the Code as deferred compensation and (ii) cash payments not subject
to Section 409A of the Code, and second a pro rata cancellation of (i) equity-based compensation subject to Section 409A of the
Code as deferred compensation and (ii) equity-based compensation not subject to Section 409A of the Code, with equity all being
reduced in reverse order of vesting and equity not subject to treatment under Treasury regulation 1.280G- Q & A 24(c) being reduced
before equity that is so subject. Unless the Company and you otherwise agree in writing, any determination required under this
Section shall be made in writing by the Company’s independent public accountants (the “Accountants”), whose determination shall
be conclusive and binding upon you and the Company for all purposes. For purposes of making the calculations required by this
Section, the Accountants may make reasonable assumptions and approximations concerning applicable taxes and may rely on
reasonable, good faith interpretations concerning the application of Sections 280G and 4999 of the Code. The Company and you
shall furnish to the Accountants such information and documents as the Accountants may reasonably request in order to make a
determination under this Section. The Accountants shall deliver to the Company and you sufficient documentation for you to rely on
it for purpose of filing your tax returns. The Company shall bear all costs the Accountants may reasonably incur in connection with
any calculations contemplated by this Section.
11. Section 409A. To the extent (i) any payments to which you become entitled under this Agreement, or any agreement or plan
referenced herein, in connection with your termination of employment with the Company constitute deferred compensation subject to
Section 409A of the Code and (ii) you are deemed at the time of such termination of employment to be a “specified” employee under
Section 409A of the Code, then such payment or payments shall not be made or commence until the earlier of (i) the expiration of the
six (6)-month period measured from the date of your “separation from service” (as such term is at the time defined in regulations
under Section 409A of the Code) with the Company; or (ii) the date of your death following such separation from service; provided,
however, that such deferral shall only be effected to the extent required to avoid adverse tax treatment to you, including (without
limitation) the additional twenty percent (20%) tax for which you would otherwise be liable under Section 409A(a)(1)(B) of the
Code in the absence of such deferral. Upon the expiration of the applicable deferral period, any payments which would have
otherwise been made during that period (whether in a single sum or in installments) in the absence of this paragraph shall be paid to
you or your beneficiary in one lump sum (without interest).
Except as otherwise expressly provided herein, to the extent any expense reimbursement or the provision of any in-kind benefit under
this Agreement (or otherwise referenced herein) is determined to be subject to (and not exempt from) Section 409A of the Code, the
amount of any such expenses eligible for reimbursement, or the provision of any in-kind benefit, in one calendar year shall not affect
the expenses eligible for reimbursement or in kind benefits to be provided in any other calendar year, in no event shall any expenses
be reimbursed after the last day of the calendar year following the calendar year in which you incurred such expenses, and in no
event shall any right to reimbursement or the provision of any in-kind benefit be subject to liquidation or exchange for another
benefit.
To the extent that any provision of this Agreement is ambiguous as to its exemption or compliance with Section 409A, the provision
will be read in such a manner so that all payments hereunder are exempt from Section 409A to the maximum permissible extent, and
for any payments where such construction is not tenable, that those payments comply with Section 409A to the maximum
permissible extent. To the extent any payment under this Agreement may be classified as a “short-term deferral” within the meaning
of Section 409A, such payment shall be deemed a short-term deferral, even if it may also qualify for an exemption from Section
409A under another provision of Section 409A. Payments pursuant to this Agreement (or referenced in this Agreement), and each
installment thereof, are intended to constitute separate payments for purposes of Section 1.409A-2(b)(2) of the regulations under
Section 409A.
12. At Will Employment. Employment with the Company is for no specific period of time. Your employment with the Company will be
“at will,” meaning that either you or the Company may terminate your employment at any time, with or without cause, and with or
without advance notice. Any contrary representations that may have been made to you are superseded by this Agreement. This is the
full and complete agreement between you and the Company on this term. Although your compensation and benefits, as well as the
Company’s personnel policies and procedures, may change from time to time, the “at will” nature of your employment may only be
changed in an express written agreement signed by you and a duly authorized officer of the Company (other than you).
13. Confidential Information and Other Company Policies. You will be bound by and comply fully with the Company’s standard
confidentiality agreement (a form of which was been provided to you), insider trading policy, code of conduct, and any other policies
and programs adopted by the Company regulating the behavior of its employees, as such policies and programs may be amended
from time to time to the extent the same are not inconsistent with this Agreement, unless you consent to the same at the time of such
amendment.
14. Company Records and Confidential Information.
i. Records. All records, files, documents and the like, or abstracts, summaries or copies thereof, relating to the business of the
Company or the business of any subsidiary or affiliated companies, which the Company or you prepare or use or come into
contact with, will remain the sole property of the Company or the affiliated or subsidiary company, as the case may be, and will
be promptly returned upon termination of employment.
ii. Confidentiality. You acknowledge that you have acquired and will acquire knowledge regarding confidential, proprietary and/or
trade secret information in the course of performing your responsibilities for the Company, and you further acknowledge that
such knowledge and information is the sole and exclusive property of the Company. You recognize that disclosure of such
knowledge and information, or use of such knowledge and information, to or by a competitor could cause serious and
irreparable harm to the Company.
15. Indemnification. You and the Company will enter into the form of indemnification agreement provided to other similarly situated
officers of the Company.
16. Arbitration. You and the Company agree to submit to mandatory binding arbitration, in Santa Clara County, California, before a
single neutral arbitrator, any and all claims arising out of or related to this Agreement and your employment with the Company and
the termination thereof, except that each party may, at its or his option, seek injunctive relief in court prior to such arbitration
proceeding pursuant to applicable law. YOU AND THE COMPANY HEREBY WAIVE ANY RIGHTS TO TRIAL BY JURY IN
REGARD TO SUCH CLAIMS. This agreement to arbitrate does not restrict your right to file administrative claims you may bring
before any government agency where, as a matter of law, the parties may not restrict your ability to file such claims (including, but
not limited to, the National Labor Relations Board, the Equal Employment Opportunity Commission and the Department of Labor).
However, you and the Company agree that, to the fullest extent permitted by law, arbitration shall be the exclusive remedy for the
subject matter of such administrative claims. The arbitration shall be conducted through the American Arbitration Association (the
“AAA”). The arbitrator shall issue a written decision that contains the essential findings and conclusions on which the decision is
based. The arbitration will be conducted in accordance with the AAA employment arbitration rules then in effect. The AAA rules
may be found and reviewed at http://www.adr.org. If you are unable to access these rules, please let me know and I will provide you
with a hardcopy. The parties acknowledge that they are hereby waiving any rights to trial by jury in any action, proceeding or
counterclaim brought by either of the parties against the other in connection with any matter whatsoever arising out of or in any way
connected with this Agreement.
17. Compensation Recoupment. All amounts payable to you hereunder shall be subject to recoupment pursuant to the Company’s current
compensation recoupment policy, and any additional compensation recoupment policy or amendments to the current policy adopted
by the Board from time to time hereafter, as allowed by applicable law.
18. Miscellaneous.
a. Employment Eligibility Verification. For purposes of federal immigration law, you will be required to provide to the Company
documentary evidence of your identity and eligibility for employment in the United States. Such documentation must be
provided to us within three (3) business days of your Start Date, or our employment relationship with you may be terminated.
b. Background Check. This offer is contingent upon successful completion of a criminal background check and a standard pre-
employment drug test, if applicable. The Company reserves the right to withdraw its job offer based on information discovered
during the pre-employment screening process. Until you have been informed in writing by the Company that such checks have
been completed and the results satisfactory, you should defer reliance on this offer.
c. At-Will Employment, Confidential Information and invention Assignment Agreement and Arbitration Agreement. This offer is
also contingent on you signing the Company’s At-Will Employment, Confidential Information and Invention Assignment
Agreement and Arbitration Agreement.
d. Absence of Conflicts; Competition with Prior Employer. You represent that your performance of your duties under this
Agreement will not breach any other agreement as to which you are a party. You agree that you have disclosed to the Company
all of your existing employment and/or business relationships, including, but not limited to, any consulting or advising
relationships, outside directorships,investments in privately held companies, and any other relationships that may create a
conflict of interest. You are not to bring with you to the Company, or use or disclose to any person associated with the Company,
any confidential or proprietary information belonging to any former employer or other person or entity with respect to which you
owe an obligation of confidentiality under any agreement or otherwise. The Company does not need and will not use such
information and we will assist you in any way possible to preserve and protect the confidentiality of proprietary information
belonging to third parties. Also, we expect you to abide by any obligations to refrain from soliciting any person employed by or
otherwise associated with any former employer and suggest that you refrain from having any contact with such persons until
such time as any non-solicitation obligation expires.
e. Successors. This Agreement is binding on and may be enforced by the Company and its successors and permitted assigns and is
binding on and may be enforced by you and your heirs and legal representatives. Any successor to the Company or substantially
all of its business (whether by purchase, merger, consolidation or otherwise) will in advance assume in writing and be bound by
all of the Company’s obligations under this Agreement and shall be the only permitted assignee.
f. Notices. Notices under this Agreement must be in writing and will be deemed to have been given when personally delivered or
two days after mailed by U.S. registered or certified mail, return receipt requested and postage prepaid. Mailed notices to you
will be addressed to you at the home address which you have most recently communicated to the Company in writing. Notices to
the Company will be addressed to the CEO at the Company’s corporate headquarters.
g. Waiver. No provision of this Agreement will be modified or waived except in writing signed by you and an officer of the
Company duly authorized by its Board. No waiver by either party of any breach of this Agreement by the other party will be
considered a waiver of any other breach of this Agreement.
h. Severability. In the event that any provision hereof becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect without said provision.
i. Withholding. All sums payable to you hereunder shall be reduced by all federal, state, local and other withholding and similar
taxes and payments required by applicable law.
j. Entire Agreement. This Agreement represents the entire agreement between the parties concerning the subject matter herein and
supersedes all prior agreements and understandings between you and the Company. It may be amended, or any of its provisions
waived, only by a written document executed by both parties in the case of an amendment, or by the party against whom the
waiver is asserted.
k. Governing Law. This Agreement will be governed by the laws of the State of California without reference to conflict of laws
provisions.
l. Survival. The provisions of this Agreement shall survive the termination of your employment for any reason to the extent
necessary to enable the parties to enforce their respective rights under this Agreement.
[SIGNATURE PAGE TO AGREEMENT FOLLOWS]
Please sign and date this Agreement, and return it to me if you wish to accept employment at the Company under the terms
described above.
Best regards,
/s/ Bill McDermott
Bill McDermott
Chief Executive Officer
ServiceNow, Inc.
I, the undersigned, hereby accept and agree to the terms and conditions of my employment with the Company as set forth in this
Agreement.
Accepted and agreed to this 22nd day of October, 2020:
By: /s/ Gabrielle Toledano
Gabrielle Toledano
[SIGNATURE PAGE TO AGREEMENT]
Name of Subsidiary
Jurisdiction of Incorporation or Organization
SUBSIDIARIES
EXHIBIT 21.1
ServiceNow Australia Pty Ltd
ServiceNow GmbH
ServiceNow Belgium BV
ServiceNow Brasil Gerenciamento de Servicos Ltda
ServiceNow Canada Inc.
ITapp Inc.
Loom Systems, Inc.
Rupert Labs, Inc.
ServiceNow Delaware LLC
ServiceNow Denmark ApS
ServiceNow Finland Oy
ServiceNow France SAS
Service-now.com GmbH
ServiceNow Hong Kong Limited
ServiceNow Software Development India Private Limited
ITapp Software Private Limited
ServiceNow Ireland Limited
Loom Systems Limited
Service Now Israel A.B 2012 Ltd
SkyGiraffe Ltd.
ServiceNow Italy S.R.L.
ServiceNow Japan G.K.
Fairchild Consulting Services LLC
ServiceNow Operations Mexico S. de R.L. de C.V.
ServiceNow Nederland B.V.
ServiceNow Norway AS
ServiceNow Pte. Ltd.
ServiceNow South Africa (Pty) Ltd.
ServiceNow Korea Limited
ServiceNow Spain SL
ServiceNow Sweden AB
ServiceNow Switzerland GmbH
ServiceNow Middle East FZ-LLC
ServiceNow UK Ltd.
Australia
Austria
Belgium
Brazil
Canada
Delaware
Delaware
Delaware
Delaware
Denmark
Finland
France
Germany
Hong Kong
India
India
Ireland
Israel
Israel
Israel
Italy
Japan
Massachusetts
Mexico
Netherlands
Norway
Singapore
South Africa
South Korea
Spain
Sweden
Switzerland
UAE
United Kingdom
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
EXHIBIT 23.1
We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (No. 333-224670) and Form S-8 (Nos. 333-
182445, 333-188462, 333-194210, 333-202331, 333-209785, 333-216330, and 333-223331) of ServiceNow, Inc. of our report dated
February 11, 2021 relating to the financial statements and the effectiveness of internal control over financial reporting, which appears in this
Form 10-K.
/s/ PricewaterhouseCoopers LLP
San Jose, California
February 11, 2021
CERTIFICATION OF PERIODIC REPORT UNDER SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
EXHIBIT 31.1
I, William R. McDermott, 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 the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial 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 in
Exchange 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, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, 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 our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external 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 the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent
fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant'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
reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal
control over financial reporting.
Date: February 11, 2021
/s/ William R. McDermott
William R. McDermott
President and Chief Executive Officer
(Principal Executive Officer)
CERTIFICATION OF PERIODIC REPORT UNDER SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
EXHIBIT 31.2
I, Gina Mastantuono, 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 the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial 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 in
Exchange 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, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, 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 our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external 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 the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent
fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant'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 reasonably
likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control
over financial reporting.
Date: February 11, 2021
/s/ Gina Mastantuono
Gina Mastantuono
Chief Financial Officer
(Principal Financial Officer)
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
EXHIBIT 32.1
I, William R. McDermott, Chief Executive Officer of ServiceNow, Inc. (the “Company”), do hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
•
•
the Annual Report on Form 10-K of the Company for the period ended December 31, 2020 (the "Report") fully complies with the requirements of
Section 13(a) or 15(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.
Date: February 11, 2021
/s/ William R. McDermott
William R. McDermott
President and Chief 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 the
Securities and Exchange Commission or its staff upon request.
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
EXHIBIT 32.2
I, Gina Mastantuono, Chief Financial Officer of ServiceNow, Inc. (the “Company”), do hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
•
•
the Annual Report on Form 10-K of the Company for the period ended December 31, 2020 (the "Report") fully complies with the requirements of
Section 13(a) or 15(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.
Date: February 11, 2021
/s/ Gina Mastantuono
Gina Mastantuono
Chief Financial Officer
(Principal Financial 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 the
Securities and Exchange Commission or its staff upon request.