ANNUAL REPORT
2022
Dear Shareholders,
When Fred Luddy founded ServiceNow, he dreamed
that this platform would become the foundation
for a different kind of software company. It’s no
coincidence that we framed our purpose in this spirit:
to make the world work better for everyone. We also
set a bold ambition: to be the Defining Enterprise
Software Company of the 21st Century.
These principles are more than words on a page.
They directly fuel our passion to build great products,
deliver an amazing service, tell a differentiated story
and inspire a proud team. Looking back on our
business performance over the past year, it’s clear
that our resolve delivers significant value for our
customers, our partners, our colleagues, and for
you, our shareholders.
ServiceNow’s position as the intelligent platform for
end-to-end digital transformation is stronger than ever.
The one constant in this world is change. The world’s
challenges are well-known. We at ServiceNow have
always looked at the greatest challenges as the
biggest opportunities. This is how we compose our
strategy. This is how we motivate the best product
and engineering team in enterprise software.
If there’s one takeaway, it’s that ServiceNow is on
the move. We are delivering net-new innovation and
profitable revenue growth. We are building a global
workforce and partner ecosystem to capture this
digital transformation market opportunity. We are
demonstrating that a fast-growth, highly profitable
software company, consistently operating above
the “rule of 50,” is best in class.
We take nothing for granted, least of all the confidence
you have in this company. Thank you for sharing in
our belief that the best is yet to come.
Results summary
ServiceNow again proven itself a beyond
expectations company, with $7.538 billion in total
revenues.1 We ended 2022 having met or exceeded
our aggressive goals across the top and bottom
line, with subscription revenue growing 28.5%
year-over-year in constant currency, and non-
GAAP operating margin of 26%.1
At a time when many other companies struggled, our
speed of innovation became the differentiator in this
tech-to-compete era.
A main factor driving this track record is our hungry
and humble culture. We continue to be recognized as
a world-class place to work. Glassdoor ranked us #9
Best Large Workplace in the U.S. and #2 in the U.K.
Fortune again named us to its World’s Most Admired
Companies and 100 Best Companies to Work For lists.
When Hurricane Ian struck, ServiceNow’s platform
demonstrated its mission-critical capabilities. The
State of Florida understood speed was everything.
With the Now Platform, they were live with a crisis
response application in a matter of hours. When
people needed help escaping conflict, ServiceNow
employees built an app to match Ukrainian refugees
with U.S. sponsors. We also worked with German
NGO Blue Yellow Cross to connect medical supply
depots to hospitals in Ukraine.
Financially, ServiceNow is an unmatched combination
of organic growth and profitability at scale. Socially,
we create a more hopeful future for all.
Organic innovation summary
The need for speed is driving the shift from operating
systems, databases, and on-premise applications
— to cloud platforms. This “Great Reprioritization”
demands time to value in days and weeks, not
months and years.
The world of technology is fragmented. Lack of
integration is why only one in five companies see ROI
from digital transformation. Herein lies the unique
differentiation for ServiceNow: We are the only born-
in-the-cloud platform that orchestrates work across
all departments and tech silos.
Our platform releases demonstrate the power of
our organic innovation engine. In 2022 alone, we
delivered more than 4,000 innovations to customers.
When every industry and buyer persona is looking
for fast time-to-value, ServiceNow is consistently
expanding our addressable market by helping to
digitize mission critical business processes. From better
customer service and employee engagement to
procurement and technology access management,
ServiceNow’s strategic relevance is second to none.
“San Diego,” our spring 2022 platform release —
named after our founding city — and “Tokyo,” our
fall 2022 platform release, named for a region where
we see incredible opportunity — established new
1 Revenue figures exclude the effects of foreign exchange rates. For more information about our non-GAAP measures, including a reconciliation to the most comparable
GAAP measures, please refer to our full year 2022 earnings release available at investors.servicenow.com.
benchmarks for innovation in the digital economy.
New digital-first, fully integrated workflow automation
solutions in each release were designed to address
the most pressing challenges facing every industry,
in every region.
We are here to show our customers they can say
YES to business growth and cost efficiencies, YES
to innovation and great experiences, YES to serving
customers and their employees. ServiceNow helps
them do it all.
We are a uniquely resilient company, driven by a
once-in-a-generation platform. The public markets
will continue to challenge companies who over-
indexed on “growth at all costs” and lack a durable
growth business model with strong unit economics. We
are still investing for growth to meet the exponential
demand for digital transformation — not pulling back.
What the market lacks in stability, we make up
in relentless execution. If we don’t do it, it won’t
get done. That’s why we’re investing in our RiseUp
program to skill 1 million people on ServiceNow
by 2024. We’ll fuel a new economy of in-demand,
job-ready talent with an emphasis on faster,
more equitable career paths in the high-growth
ServiceNow ecosystem.
I’ll leave you with words I used to rally 20,000+
ServiceNow employees this year: Success is a choice,
not a given. We worked hard to get here. We’re going
to work hard to stay here. We’re going to work harder
still to get to the next level.
Together, we make the world work. For our customers.
Our people. And for you. Thank you for your enduring
trust in ServiceNow.
In 2022, we:
• Accelerated hyper-automation with Automation
Engine, a complete solution with all-new robotic
process automation capabilities, promising an
average of three times faster time to value.
• Introduced Next Experience, an upgraded, modern
visual design, which brings applications together
into one powerful view with 25 purpose-built
workspaces.
• Delivered new, out-of-the-box industry solutions
to address the important digital needs of banks,
insurance companies, and telecom and
technology providers.
• Created Manager Hub to give people managers
a single destination to support and build
personalized training for their most critical
resource, their employees.
• Launched Vault to protect business critical
ServiceNow applications using premium platform
privacy and security controls.
• Automated Supplier Lifecycle Management to
manage relationships with suppliers, vendors and
partners, and Procurement Service Management
to connect ERP apps to the Now Platform for end-
to-end visibility.
These are a few highlights amongst thousands that
showcase ServiceNow’s innovation engine. It also
underscores our customer mandate as the intelligent
platform for end-to-end digital transformation.
And we’re just getting started! You can expect even
more from us in 2023 including significant investment in
the new frontier of Generative Artificial Intelligence (AI).
Bill McDermott
Chairman and Chief
Executive Officer
Closing
Since late 2019, ServiceNow has more than doubled
annual revenues and created more than $50 billion
in shareholder value. We’re the only ones who do
what we do, the way we do it — driving net-new
innovation, fast growth, operating leverage, and
value-creation.
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, 2022
OR
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Commission File Number: 001-35580
(cid:3)
(cid:2)
Delaware
(State or other jurisdiction of
incorporation or organization)
SERVICENOW, INC.
(Exact name of registrant as specified in its charter)
ServiceNow, Inc.
2225 Lawson Lane
Santa Clara, California 95054
(408) 501-8550
20-2056195
(I.R.S. Employer
Identification Number)
(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 (cid:3) No (cid:2)
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of Act. Yes (cid:2) No (cid:3)
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 (cid:3) No (cid:2)
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 (cid:3) No (cid:2)
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
(cid:3)
(cid:2)
Accelerated Filer
Smaller Reporting Company
Emerging Growth Company
(cid:2)
(cid:2)
(cid:2)
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. (cid:2)
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 (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
(cid:3)
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the
correction of an error to previously issued financial statements. (cid:2)
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the
registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). (cid:2)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes (cid:2) No (cid:3)
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, 2022, the aggregate market value of its shares (based on a closing price of $475.52 per share on June 30, 2022 as reported on the New York Stock Exchange) held
by non-affiliates was approximately $73.6 billion.
As of January 25, 2023, there were approximately 203 million shares of the registrant’s Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive proxy statement for its 2023 Annual Meeting of Stockholders (Proxy Statement) to be filed within 120 days of the registrant’s
fiscal year ended December 31, 2022, 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.
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 9C
Item 10
Item 11
Item 12
Item 13
Item 14
Item 15
Item 16
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
[Reserved]
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
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
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 Transactions and Director Independence
Principal Accountant Fees and Services
Exhibits and Financial Statement Schedules
Form 10-K Summary
PART IV
Exhibit Index
Signatures
Page
1
12
27
27
27
27
28
30
30
43
45
78
78
79
79
79
79
79
79
79
80
81
81
85
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,” as well as variations of these words and
similar expressions, are intended to identify those forward-looking statements. 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, those discussed in this Report under “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 our management’s reasonable expectations at the time that they are made, you should
not rely on those statements. 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 was founded on a simple premise: a better technology platform will help work flow better. Our purpose is to
make the world work better for everyone. We help global enterprises across industries, universities and governments to digitize
their workflows—the individual tasks that need to be executed to get a job done. Our technology platform, which we refer to as
the Now Platform, seamlessly connects workflows across siloed organizations and systems in a way that unlocks productivity,
improves experiences for both employees and customers and delivers real business outcomes.
We organize our workflow applications along four primary areas: Technology, Customer and Industry, Employee and
Creator. Our Technology Workflows give Information Technology (“IT”) departments the ability to plan, build, operate and
service across the entire technology lifecycle. Our Customer and Industry Workflows help organizations reimagine the
customer experience and increase customer loyalty. Our Employee Workflows help customers 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. Our Creator Workflows enable our customers to quickly create, test, and deploy their
own applications on the Now Platform.
Traditionally, business processes have been automated and embedded across enterprise technology systems from finance,
human resources (“HR”), sales, customer support and beyond. Over time, these systems have become disconnected, siloed and
complex, as they offer limited flexibility and adaptability and lack the intuition and empowerment that users have come to
expect from consumer-grade internet applications and sites. ServiceNow reduces these limitations. We offer the capability to
quickly change how work is done to keep pace with a rapidly changing environment. The Now Platform delivers a simple, user-
friendly experience, making work easier, faster and more productive.
We believe a better service and end-user experience is the ultimate desired outcome of digital transformation. The Now
Platform enables our customers’ digital transformation from non-integrated enterprise technology solutions with manual and
disconnected processes and activities, to integrated enterprise technology solutions with automation and connected processes
and activities. The transformation to digital operations, enabled by the Now Platform, increases our customers’ resiliency and
security and delivers great experiences and additional value to their employees and consumers.
Our success began with Information Technology Service Management (“ITSM”), a category in which ServiceNow
remains a market leader. Over time, we expanded beyond our ITSM capabilities to meet the needs of our customers’ expanding
digital requirements to modernize technology operations, employee experiences, customer experiences, industry-specific
challenges and application development and integration. We are recognized as a leader for multiple products across our
Technology, Customer and Industry, Employee and Creator Workflows.
The Now Platform’s task-based orientation allows work to be done with a single, aligned view of every service
experience. For example, a new employee uses ServiceNow to complete onboarding tasks with their new employer. The new
employee interfaces through an integrated ServiceNow platform that guides the employee through tasks originated from
ServiceNow or other systems. Similarly, customer service can be executed in a way that solves problems without creating
frustration.
1
Over the years, we have expanded our customer base, and our customers have expanded their use of the Now Platform.
For example, many companies now have multi-year digital transformation plans, many of which involve introducing uses of
additional ServiceNow products and services. From a single, out-of-the-box solution, companies recognize the value of using
additional products to strengthen the richness and quality of their data running through the Now Platform. As we help
organizations realize more value from the Now Platform and better serve their stakeholders, we do so in a manner that also
helps organizations accelerate their environmental, social and governance (“ESG”) ambitions. To serve the growing focus on
ESG, ServiceNow also offers an integrated ESG solution on the Now Platform as part of our Technology Workflows.
ServiceNow strives to help our customers solve their unique challenges, operate on their unique technologies and
systems and change at their unique pace. The foundation of our approach to customers and our ambition to be the defining
enterprise software company of the 21st century is grounded in our values.
• Wow our customers: Customers are the center of our world. We strive to deliver the best customer experiences and
innovations.
• Win as a team: We share the same goals and have clear roles in achieving them. We deliver results as a team and
enjoy the journey.
• Create belonging: Diversity, equity and inclusion are fundamental. Belonging is the breakthrough. We lead with
empathy, which means listening and acting to make everyone feel they belong with ServiceNow.
• Stay hungry and humble: We do not take success for granted. We are always ready to learn and evolve. We grow
together, bringing fresh ideas and new perspectives.
For all these reasons, our customers trust us with their mission critical operations, and we feel immensely proud that
“The World Works with ServiceNow.”
Our Products
ServiceNow’s product portfolio—which spans our Technology, Customer and Industry, Employee and Creator
Workflows—is delivered on the Now Platform. The products under each of our workflows help customers connect, automate
and empower work across systems and silos to enable great outcomes for businesses and great experiences for people. Each
year, two platform upgrades are released, delivering new standard functionality and new standalone products to further simplify
the way our customers work and enhance productivity.
Our portfolio of products streamline work across the enterprise
Technology
Workflows
Customer
and Industry
Workflows
IT Service Management
IT Operations Management
Customer Service
Management
Observability
Asset Management
IT
Enterprise
Security Operations
Field Service
Management
Industry
Telecommunications
Financial Services
Integrated Risk Management
Healthcare Life Sciences
Strategic Portfolio
Management
ESG Management
Manufacturing
Government
Employee
Workflows
HR Services
Delivery
Workplace
Service Delivery
Legal Service
Delivery
Creator Workflows
App Engine
Automation Engine
Platform Privacy
& Security
Procurement Operations
Management
Platform
2
The Now Platform
The Now Platform is a single platform with one data model, one code base and one architecture, enabling speed,
productivity and innovation and offering a one-stop shop for automation and simplification of manual processes. It is highly
flexible, scalable, and extensible. 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 with our customers’ cloud
platforms and systems of choice, allowing our customers to deliver workflows across their current and future preferred systems
of record and collaboration platforms. The automation of workflows on our platform can be enhanced by additional
functionality, such as artificial intelligence (“AI”), machine learning, robotic process automation, process mining, performance
analytics, electronic service catalogs and portals, configuration management systems, data benchmarking, encryption and
collaboration and low-code/no-code 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 to manage workflows across
all 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 leverage our platform’s consumer-like, mobile experiences to help them
deliver services such as HR information and tools or ordering a computer. Our goal is to make our customers’ work lives as
simple, easy and mobile-friendly as their personal lives.
Technology Workflows
Our Technology Workflows help companies unite IT, risk management, and security operations on a single platform to
deliver modern, resilient digital services aligned to our customers’ priorities. Our Technology products assist IT departments to
serve their customers, manage their networks, identify and remediate security vulnerabilities and threats, gain visibility across
their IT resources and asset lifecycles, optimize IT costs and reduce time spent on administrative tasks. We enable technology
departments through IT Service Management (“ITSM”), IT Operations Management, Observability, IT Asset Management,
Security Operations, Integrated Risk Management and Strategic Portfolio Management, among other products. We also enable
enterprise-wide outcomes
Integrated Risk Management, Strategic Portfolio
Management and ESG Management products. Many of these products also enable our Customer and Industry and Employee
Workflows.
through Enterprise Asset Management,
IT Service Management
As our flagship product suite, ITSM defines, structures, consolidates, manages and automates the digital services that an
enterprise offers its employees, customers and partners. Among ITSM’s capabilities are predictive intelligence, Virtual Agent,
recording incidents, remediating problems, automating routine tasks and requests, performance analytics and continual
improvement management capabilities.
IT Operations Management
Our IT Operations Management 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 digital 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.
Observability
Lightstep Observability provides deep, real-time visibility into cloud-native environments and custom applications that
power our customers’ internal- and external-facing products and services. Lightstep Observability empowers site reliability
engineering and application development teams to mitigate business disruption, accelerate innovation and deliver outstanding
customer experiences.
3
Asset Management
Our Asset Management product suite includes IT Asset Management and Enterprise Asset Management. Our IT Asset
Management product automates customers’ IT software, hardware and cloud asset lifecycles with workflows to track the
financial, contractual and inventory details of these IT assets from end-to-end. Our Enterprise Asset Management product
automates processes across the lifecycle of a customer's physical business assets from planning, deployment, inventory
management and maintenance through retirement.
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.
Integrated Risk Management
Our Integrated Risk Management (“IRM”) suite (formerly, Governance, Risk and Compliance) helps customers manage
risk and resilience in real time. Among the IRM product suite’s capabilities are policy and compliance management, risk
management, business continuity management, third-party risk management, privacy management, audit management and
operational risk management.
Strategic Portfolio Management
Our Strategic Portfolio Management (“SPM”) product suite (formerly, IT Business Management) enables customers to
drive business outcomes by aligning their strategy with investments and execution. SPM helps customers plan, visualize and
track value realization across their portfolio of projects, initiatives and digital products.
ESG Management
ServiceNow ESG Management helps customers elevate their environmental, social and governance (“ESG”) programs
with streamlined data collection, on-demand progress monitoring and automated reporting. Integrations with Strategic Portfolio
Management and Integrated Risk Management provide a holistic dashboard that enables our customers to accelerate and
operationalize their ESG strategies by setting material goals and policies, tracking metrics and risks, driving enterprise-wide
compliance and enabling investor-grade ESG disclosure.
Customer and Industry Workflows
Customer and Industry Workflows help drive customer loyalty with connected digital workflows that deliver modern
customer experiences. Customer and Industry Workflows help customers elevate their customer service with enhanced
resolution efficiency and improved service quality made possible with workflows, automation and location-based work tasks
management. Customer service departments no longer have to rely on agents searching multiple systems to find a single answer
to customer issues. Integrating front-end customer service capabilities with operations and field service resources, our Customer
and Industry Workflows products help 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 and Industry Workflows through
Customer Service Management, Field Service Management and Industry specific products, among other products.
Customer Service Management
Our Customer Service Management product defines, structures, consolidates, manages and automates common customer
service cases and requests, such as password resets. Additionally, with Customer Service Management, companies can route
work from the customer service agent to field service, engineering, operations, finance or legal personnel to resolve the
underlying issues.
Field Service Management
Our Field Service Management product allows field service agents to be assigned, deployed and managed on the same
underlying customer service management platform that created and managed the customer incident.
4
Industry
We offer industry solutions to better address the unique needs for specific industries, including financial services,
telecommunications, media and technology, healthcare and life sciences, manufacturing and the public sector. We intend to
offer other industry-specific solutions in addition to our other workflow products.
• With Telecommunications Service Management, Order Management and Network Inventory Management, customers
can scale their order management process, launch services quickly, enhance customer care, automate service
assurance, gain real-time data visibility and optimize their network management on a single platform.
• With Financial Services Operations, banking and insurance customers can unite their front, middle and back offices
to improve customer and employee experiences.
• With Healthcare and Life Sciences Service Management, customers can offer consumer-grade experiences, unlock
productivity, streamline operations and efficiently manage and service clinical devices.
• With Manufacturing Connected Workforce and Operational Technology Management, customers can empower their
workforce with digital tools and knowledge to improve efficiency and create a single system of action for their
operational environment, improve uptime and drive outcomes across their operations.
In addition, with our newly launched Public Sector Digital Services platform in 2022, public sector customers can
build a seamless experience to increase trust, empathy and transparency between government agencies and
constituents, and connect government agencies with each other on a single digital platform.
•
Employee Workflows
Our Employee Workflows can transform the employee experience and make work better for our customers’ employees by
letting their employees work and collaborate where and how they want, improving productivity and agility. Employee
Workflows products also help customers be more efficient with their employee resources, staffing and delivery services,
streamline employee lifecycle events and increase visibility as workforces continue to be remote. We enable Employee
Workflows through HR Service Delivery, Safe Workplace Suite, Workplace Service Delivery, and Legal Service Delivery,
among other products.
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, manager
experiences, knowledge management and management of employee lifecycle events across multiple departments, such as
onboarding, transfers and off-boarding.
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 can automate requests, reservations
and repairs and track health and safety incidents, which enables them to optimize space usage, receive easy access to services,
manage requests efficiently and get real-time visibility.
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.
Creator Workflows
Creator Workflows help customers build and manage cross-enterprise digital workflow applications fast with a low-code
platform that safely delivers agile services at scale and with enterprise-wide platform features such as those that allows
customers to manage security and privacy instances and storage. 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 and enterprise-wide features. With Creator Workflows, citizen developers have access to pre-built
templates, low-code tools and modular building blocks created by professional developers. The user experience is further
enhanced when such apps and features are used on the same platform on which they were built. We enable Creator Workflows
through App Engine and Automation Engine, among other products.
5
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 extend workflow automation by
creating, testing and deploying their own consumer-grade applications that can be scaled from a single department to the entire
enterprise. Examples of the types of applications our customers have developed include:
•
•
•
an application developed by a global company that allows its employees around the world to request compliance, data
privacy and legal services through a single self-service portal, freeing legal and compliance personnel to focus on
their core functions;
an application developed by a company to permit its sales personnel to view training materials remotely that has
become the primary medium for disseminating sales materials to employees and third-party brokers; and
a state-of-the-art supplier relationship management application developed by a technology research and advisory
firm, that facilitates the roll out of enhanced services at competitive prices.
Automation Engine
Our Automation Engine product enables anyone who creates an application on the Now Platform to extend workflows
into third-party products and leverage robotic process automation and document intelligence capabilities. Automation Engine
also provides a framework that allows developers to create and publish integrations for use by anyone. The Now Platform
provides connectors to hundreds of products and integrations in the ServiceNow Store.
Platform Privacy and Security
Our Platform Privacy and Security product provides premium security and privacy controls to help ServiceNow customers
protect and control their sensitive data in the cloud.
Procurement Operations Management
Our Procurement Operations Management suite connects to customer's existing ERP systems and provides a source-to-
pay workflow automation solution that enables procurement departments to create a unified work experience across teams. It
enables organizations to do more with their existing procurement teams when efficiency is critical and scale the business
without dramatically increasing staff.
Impact
ServiceNow Impact helps our customers accelerate their value realization with ServiceNow's products and solutions by
offering AI-based recommendations and dashboards, proactive and preventative tools and a team of experts, training and
coaching.
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 from technical resources located around the globe. We offer customer
support on a subscription-based model and we 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 (“SaaS”) experience on our own private cloud and use public cloud service providers for customers that
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are primarily in highly regulated markets.
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, India, 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. We also offer customers
the option to have their European Union (“EU”) hosted data handled exclusively within the EU. Our architecture 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 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 product offerings and services through subscription 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 World Forums, 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, strategic
alliances and partnerships, implementation partners and advisory councils. 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.
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, 2022, we had approximately 7,700 enterprise customers. Our customers operate in a
wide variety of industries, including government, financial services, healthcare, manufacturing, IT services, technology, oil and
gas, telecommunications, education and consumer products. The portion of our revenues generated by sales to government
customers has also increased over time. See “Risk Factors—Doing business with the public sector and heavily-regulated
organizations subjects us to risks related to the government procurement process, regulations, and contracting requirements” for
additional information about our sales to government customers.
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
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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.
Acquisitions and Investments
In addition to our own research and development investments, we have made strategic acquisitions and investments and
will continue to assess opportunities 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, our acquisitions and larger strategic investments in 2022 focused on bringing
observability and log management, additional AI capabilities, real-time process execution capabilities, process mining and skills
mapping intelligence to the Now Platform and across our suite of products.
Competition
As customers accelerate their digital transformation plans and digital operation initiatives, they demand less complexity
and lower total cost solutions for the implementation, sourcing, integration and ongoing maintenance of their IT environments.
The Now Platform is designed to meet customers’ demands and offers solutions that are complementary to the offerings of
many enterprise software vendors. We work directly with product and service offerings from a broad range of companies,
including some of the largest in the world, and continuously increase our strategic alliances with many of these companies as
we expand our integrations for customers. As we grow and the space where we operate develops and matures, we increasingly
find ourselves in competition with solutions and alternative approaches to solving customer needs, including:
•
•
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Enterprise application software vendors. We designed the Now Platform to quickly integrate with, and complement
the performance of well-established, enterprise application software vendors, such as Oracle, SAP, Salesforce and
Workday. Customers may choose to work directly with their application software vendors to improve integrations and
create connected workflows.
New technologies and entrants. Markets are rapidly evolving and highly competitive, with relatively low barriers to
entry. New technologies and competitors are entering the markets to solve similar problems in different ways,
intensifying competition. Customers may choose alternative technologies to improve integrations and create connected
workflows. New entrants may choose to offer software tailored to specific services, as opposed to competing across all
Now Platform capabilities.
In-house solutions. Customers may choose to work with their internal IT departments or other personnel to build
custom workflow solutions and integrations.
Cloud-based vendors. As businesses increasingly utilize public cloud and SaaS-based offerings, they are adopting a
hybrid (on-premises and off-premises) approach for their existing and new compute workloads. As a result, our
services will need to increasingly compete for customers’ hybrid IT workloads with off-premises public cloud and
SaaS-based offerings.
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 IP and technology that we incorporate into our products or services.
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. As of
December 31, 2022, we had over 2,000 U.S. and foreign patents, including patents acquired from third parties, and over 700
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. See “Risk Factors—Lawsuits against us by third parties that allege
we infringe their intellectual property rights could harm our business and operating results” and “Risk Factors—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” for additional information.
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Environmental, Social and Governance
Our ESG strategy is driven by our purpose to “make the world work better for everyone.” Our global impact programs
focus on areas where we can make our business, our communities and the world more equitable and sustainable. The challenges
we and our stakeholders have been facing in the last few years, such as the pandemic, racial injustice and climate change, have
emphasized the unique role we can have as a company in helping our customers manage their ESG priorities. Initiatives to
reduce the carbon footprint of our operations not only serve the purpose of sustaining our planet, but also make us more
attractive to our customers who are looking to reduce their own carbon footprint and that of their supply chains. Initiatives to
improve our diversity, equity and inclusion (“DEI”) serve to build a more inclusive workforce. They also help us to attract and
retain the diverse talent that allows us to innovate more quickly and create products that “wow our customers.” Initiatives to
strengthen the governance of our business—leading with ethics and focusing on security and data privacy— improve the
oversight of our business and also help us to earn trust with our customers that makes them comfortable managing more of their
core business operations with our products. In this way, our ESG strategy is embedded in our business priorities, culture and
values.
Our board of directors and management team oversee our ESG strategy. Specifically, our Nominating and Governance
Committee oversees our ESG activities, programs, risks and public disclosures; our Audit Committee oversees our processes,
procedures and validation surrounding our ESG disclosures; and our Compensation Committee oversees our human capital
management. Our enterprise-wide ESG Steering Committee, under the leadership of our CFO, helps guide our ESG strategy,
goals, progress and key initiatives. Our additional management steering committees and councils help address specific priorities
such as risk management, compliance and data governance. Activities and progress against our ESG priorities are regularly
reviewed by the board of directors.
We began issuing our annual Global Impact Report in 2021 to provide insights into the ESG areas where we are focusing
our efforts. For the environment, we are sustaining our planet by supporting the transition to a net-zero world for our customers
and our own operations. For governance, we are acting with integrity by building trust through ethical, transparent and secure
business practices. For social, we are creating work opportunities that are equitable, accessible and rewarding for all people.
Additional information about our social initiatives is discussed below in “—Human Capital Management.” In April 2022, we
announced an expansion of our carbon neutrality commitment to provide our customers with a carbon neutral cloud. In early
2022, we signed on our first customers for our new ESG Management solution and we were once again listed as a member of
the Dow Jones Sustainability Index (DJSI) for North America.
Human Capital Management
Our People Strategy
Our People Strategy is pivotal to our goal of becoming the defining enterprise software company of the 21st century. Our
People Strategy is designed to help us execute against our business strategy, while living our best lives, doing our best work and
fulfilling our purpose together. We aim to attract, recruit, develop and retain the best, most diverse talent, celebrating the
diversity and differences that drive our innovation and creativity. We are committed to a respectful, rewarding and inclusive
work environment that enables our people to grow themselves, grow their teams and grow the business with the mission to
make the world work better for everyone. Our People Strategy is based on two foundational principles and three key pillars.
Foundational principles
• We must always honor ServiceNow’s authentic culture and purpose as we continue to grow.
• We must ensure that our People Strategy is informed by data and insights as we strive to scale efficiently and make
informed and unbiased decisions.
Key focus areas
• Scale and Innovation: Build a talent system that helps us attract, grow and retain the people who will drive our
•
business forward.
Inclusive Employee Experience: Power our company with a more diverse workforce, equitable processes that drive
positive outcomes and inclusive employee experience.
• Growth and Development: Invest in new learning and development paths and resources for our people to grow
themselves and their teams.
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Our Culture
ServiceNow’s culture is grounded in our values, first discussed above. We live our culture by regularly listening to our
people and gathering feedback directly from our workforce to inform our programs and employee needs globally. We listen
through our Employee Voice Surveys (“EVS”), which measure and analyze employee engagement, including on such topics as
inclusion and belonging, learning and development, recognition, pay, and wellbeing. EVS insights are used to action plan at all
levels of the organization and inform the assessment of our human capital management approach and its alignment with our
purpose and business strategy.
We also listen by gaining insights across the employee lifecycle through onboarding, exit, and other check-in surveys.
Among other things, our listening in 2022 gave us invaluable insights into employees’ desire for more career development and
enablement tools and resources, which also led to the development and refinement of our performance management tools
available on the Now Platform.
As a result of our culture, we earned several external recognitions in 2022 that speak to our strong culture, including from
the Fortune World’s Most Admired Companies, the Fortune 100 Best Companies to Work For and the Glassdoor Best Places to
Work.
Diversity, Equity and Inclusion
“Creating Belonging” is one of our four company values. We expect each of our people to live our values both inside and
outside of the work environment. We have several initiatives focused on recruiting, learning and development, and culture to
weave DEI throughout our talent processes to drive sustainable progress as we strive to create a more diverse, equitable and
inclusive culture. In 2022, following the appointment of our Chief Equity and Inclusion Officer, we formalized our global DEI
strategic framework with a focus on inclusion in and through our business. The framework has three pillars:
• Enable and empower our people: Drive a relentless commitment to employee belonging and success by enhancing
equitable processes, policies and practices across the moments that matter for our employees.
• Hire with intent: Recruit high performing and diverse talent across all levels by designing a unique and exemplary
hiring process that is global and collaborative.
• Amplify DEI impact: Build on the global ESG/DEI movement with human ingenuity and technology by advancing
DEI with like-minded customers, suppliers and community partners.
Within ServiceNow, we support multiple Belonging Groups for women, racial and ethnic minorities, military veterans,
people with disabilities, people of different faiths and people who identify as LGBTQI+. These groups are intended to give
employees a safe space and help support our culture and community-building efforts across ServiceNow. We also publicly
disclose our progress on a multitude of workforce metrics in the various reports we issue that include information on gender,
race, and ethnic minority representation in our U.S. employee population. In addition, we launched an internal “Diversity
Advisory Council” tasked with identifying and addressing DEI opportunity areas within ServiceNow. These efforts are
enhanced through a new inclusive leadership development course required for all people managers.
We also create belonging in our communities. Our NextGen Professional Program (“NextGen”) supports our digital
readiness focus area. We recently launched RiseUp, a global program designed to skill one million people on the ServiceNow
Platform by 2024. It aspires to fuel a new economy of in-demand, job-ready talent with an emphasis on faster, more equitable
career paths in the high-growth ServiceNow ecosystem. While the program is currently focused on placing talent within
ServiceNow customers and partners, RiseUp also is expected to create a pipeline of new, diverse talent for ServiceNow in the
near future. The program invests in digital skills training for marginalized and underserved communities. In addition, we are
helping break down systemic barriers by offering digital experiences for students in Hispanic Serving Institutions, Puerto Rican
Universities and Historically Black Colleges and Universities to provide development opportunities, such as launching a
“women code to win” contest at those institutions.
Total Rewards
Our total rewards philosophy has at its core the goal of attracting, rewarding, and retaining top talent to help us execute
our strategy and mission. We believe in competitive pay practices and a pay-for-performance culture. In addition to base salary,
all our employees are eligible to participate in our annual cash bonus plan or in our sales commission plan. In order to attract
and retain the best talent, we have a broad-based discretionary equity program and an employee stock purchase plan, which
enable employees to participate in our success. Our employees enjoy expansive and diverse benefit offerings that focus on
physical, mental and financial wellbeing.
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Pay Equity
Everyone deserves to be treated fairly and respectfully. We believe there should be equity across the entire talent
ecosystem – from hiring through career advancement. To achieve that, we continue to build and scale equitable people practices
that foster inclusive and fair outcomes for all employees. This includes pay equity. Because pay equity is so dynamic at a high-
growth company like ours, we manage it on an ongoing basis and do regular analyses and adjustments, as warranted. We are
proud that our process led us to achieve systematic pay equity as of September 1, 2022, our latest company-wide analysis, and
helps ensure that we maintain pay equity on an ongoing basis.
Learning and Development
Our people have a deep desire to learn and grow. Our learning and development programs are designed to “grow self,
grow team, grow business.” In addition to the extensive functional learning program run by individual business units that focus
on technical skills and capabilities, our global Learning and Development program is focused on enabling all our people – from
our early-in-career talent who have access to programs that help them plan for professional growth and financial success to our
more tenured leaders who have access to programs focusing on the importance of inclusive leadership, strategy and trust in the
new world of work.
New Ways of Working and Wellbeing
Our Future of Work policy supports our people as they adapt to new ways of working that shift paradigms, embrace
flexibility, promote inclusion and drive innovation. Beginning in 2022, the majority of our employees are expected in a
workplace three days or fewer a week, which provides them flexibility to organize their schedules. Our flexible working
environment enables us to attract, recruit and retain the best talent and we believe such an environment will only serve to
strengthen our company. Our growing fully-remote workforce allows us to continue sourcing different, more diverse talent who
are not geographically close to a ServiceNow office location.
ServiceNow is committed to supporting wellbeing for employees at work and in their personal lives. Our standard,
comprehensive benefits package covers many physical, emotional and financial wellness programs. We also offer our
employees additional time-off with “Wellbeing Days” to further support their health and wellness.
Workforce Metrics
As of December 31, 2022, we employed 20,433 people on a full-time basis, 10,960 in the United States and 9,473
internationally. 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 and/or sector level.
We have not experienced interruptions of operations or work stoppages due to labor disagreements.
Available Information
filings with the SEC, and all amendments to these filings,
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
free of charge from our website at
www.servicenow.com/company/investor-relations/sec-filings.html as soon as reasonably practicable after we file or furnish
them 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, or accessible through, these
websites are not incorporated into this filing. 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
releases, public
(https://www.servicenow.com/company/investor-relations.html), SEC filings, press
conference calls and webcasts. We use these channels, including our website and social media, to communicate with our
investors and the public about our company, our products and solutions 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 make available on our website and the social media channels listed on
our website.
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ITEM 1A. RISK FACTORS
Investing in our securities involves risks. You should carefully consider the risks and uncertainties under “Risk Factors
Summary” and the more detailed descriptions immediately following the summary, 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. The risks and uncertainties described below are not the only ones we face. The occurrence of any of the
following risks or additional risks and uncertainties not presently known to us or that we currently believe to be immaterial
could materially and adversely affect our business, financial condition or results of operations. Many risks affect more than one
category, and the risks are not in order of significance or probability of occurrence because they have been grouped by
categories. Our stock price could decline due to any of these risks.
Risk Factors Summary
This summary of risks below is intended to provide an overview of the risks we face and should not be considered a substitute
for the more fulsome risk factors discussed immediately following this summary.
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Risks Related to Our Ability to Grow Our Business
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Laws, regulations and customer expectations regarding the use, storage and movement of data may restrict our ability
to continue to optimize our platform and adversely affect our business.
• We participate in intensely competitive markets, and if we do not compete effectively, our business and operating
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•
results will be harmed.
If we fail to innovate in response to rapidly evolving technological and market developments and customer needs, our
competitive position 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.
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• 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 impacted, and our operating results and growth rate may be harmed.
Doing business with the public sector and heavily-regulated organizations subjects us to risks related to government
procurement processes, regulations, and contracting requirements.
If we fail to comply with applicable anti-corruption and anti-bribery laws, export control laws, economic and trade
sanctions laws, or other global trade laws, we could be subject to penalties and civil and/or criminal sanctions and our
business could be materially adversely affected.
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
future product sales.
As more of our sales efforts are targeted at larger enterprise customers, our sales cycle may become longer and more
expensive and we may encounter pricing pressure and implementation and configuration challenges.
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 shareholder
dilution.
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Risks Related to the Operation of Our Business
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If we or our third-party service providers experience an actual or perceived cybersecurity event, our platform may be
perceived as not being secure, and we may lose customers or incur significant liabilities, which would harm our
business and operating results.
If we lose key members of our management team or qualified employees or are unable to attract and retain the
employees we need, our costs will increase and our business and operating results will be adversely affected.
Disruptions or defects in our services could damage our customers’ businesses, subject us to substantial liability and
harm our reputation and financial results.
Lawsuits against us by third parties that allege we infringe their intellectual property rights could harm our business
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 use of open source software could harm our ability to sell our products and services and subject us to possible
litigation.
Various factors, including our customers’ business, integration, migration, compliance 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.
Natural disasters, including climate change, and other events beyond our control could harm our business.
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Risks Related to the Financial Performance or Financial Position of Our Business
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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.
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.
As our business grows, we expect our revenue growth rate to decline over the long term.
Changes in our effective tax rate or disallowance of our tax positions may adversely affect our financial position and
results.
Our debt service obligations may adversely affect our financial condition and cash flows from operations.
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Risks Related to General Economic Conditions
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Global economic conditions may harm our industry, business and results of operations.
Foreign currency exchange rate fluctuations could harm our financial results.
Risks Related to Ownership of Our Common Stock
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Our stock price is likely to continue to be volatile and could subject us to litigation.
Provisions in our governing documents, Delaware law or 2030 Notes might discourage, delay or prevent a change of
control or changes in our management and, therefore, depress our stock price.
Risks Related to Our Ability to Grow Our Business
Laws, regulations and customer expectations regarding the use, storage and movement of data may restrict our ability to
continue to optimize our platform and adversely affect our business.
Governments have adopted, and may likely continue to adopt, laws and regulations affecting the use, storage and
movement of data, including laws related to data privacy, the use of machine learning and artificial intelligence (“AI”), and data
sovereignty or residency requirements. 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. As we continue to innovate and
improve the offerings on our platform, we leverage machine learning and AI to create more efficient and effective workflows
for our customers. Changing laws, regulations and standards applying to the collection, storage, use, sharing, transfer or other
control or processing of data, including personal data such as employee or marketing data, could affect our ability to efficiently
and cost-effectively offer our services, 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.
Existing and upcoming laws and regulations globally, including European and state specific privacy laws in the United
States (“U.S.”), global trends to regulate the use of AI and machine learning, the ruling of the European Court of Justice in
Schrems v. Facebook Ireland and interpretations of that ruling by regulators and customers, recommendations issued by the
European Data Protection Board, Standard Contractual Clauses issued by the European Commission, and other global 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 and/or policies, may limit
the
development, use and adoption of our services, and could reduce overall demand for our services. While a new Privacy Shield
has been proposed to permit the transfer of data between the U.S. and the European Union, the timing and precise requirements
of the Privacy Shield are uncertain, as is the possibility that any agreement would be challenged in court. Laws or regulations
related to the use of AI and machine learning technology may impact our ability to use certain data for developing our products
and may also become an impediment to the adoption of our products for customers regulated by such laws and regulations. In
2022, we began offering an EU-centric services delivery model, by which customers may elect to receive support from
EU-based ServiceNow teams, with an EU, cloud-hosted digital workflow solution. This offering required a significant
investment in financial and human resources, and we may see similar requests for local solutions in other territories. In addition,
actual or perceived non-compliance with those laws and regulations 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.
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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 and offerings matures and new technologies, in-house solutions and
competitors enter the market, we find ourselves increasingly competing with solutions and alternative approaches to solving
customer needs or experiencing reluctance or unwillingness from customers to migrate away from their current solutions.
Further, as our offerings have become more widely adopted and successful in the market, more competitors are developing
competing offerings, including those competitors from adjacent segments. For example, while the Now Platform was designed
to quickly integrate with and offers solutions that are complementary to the offerings of many well-established systems
traditionally operating as “systems of record,” competition from those companies has been increasing. Additionally, sources of
alternative solutions and approaches include those provided by:
enterprise application software vendors, such as Oracle, SAP, Salesforce and Workday;
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• new technology vendors and entrants;
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in-house solutions of current and prospective customers; and
cloud-based vendors.
Some of our existing competitors and potential competitors are larger and have greater name recognition and scale, longer
operating histories, more established customer relationships, larger marketing budgets and greater financial and technical
resources than we do. Competitors and new entrants may be able to respond more quickly and effectively to new or changing
opportunities, technologies, standards, customer requirements and buying practices. They may introduce new technology, solve
similar problems in different ways or more effectively utilize existing technology that reduces demand for our services. They
may utilize acquisitions, integrations or consolidations to offer integrated or bundled products, enhanced functionality or other
advantages. “Systems of record” operators may attempt to create technology solutions that would prevent our systems from
integrating with theirs. Enterprise software application vendors may reduce the price of or offer free-of-charge competing
products, services or subscriptions creating pricing pressures, or bundle them with their other offerings causing our offerings to
appear relatively more expensive. Smaller competitors, new technology vendors and new entrants may also accelerate pricing
pressures in the various markets in which we compete.
Additionally, 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 industries, the use of our platform by developers and
generally in low-code/no-code capabilities. As a result, we expect increasing competition from companies focused on these
other areas. Also, as customers increasingly adopt a hybrid (on-premises and off-premises) approach for their IT workloads, our
cloud services may fail to address evolving customer requirements, including data localization, which could cause a decline in
demand for our services and cause us to experience lower growth. Competition from cloud-based vendors may increase as they
partner with on-premises hardware providers to deliver their cloud platform as an on-premises or data localized solution. If we
are not able to compete successfully, we could experience 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 fail to innovate in response to rapidly evolving technological and market developments and customer needs, 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 evaluate their purchases based on the advantages of digital technologies and their need to shift to modern cloud-
based infrastructure. As digital transformation accelerates across a customer’s enterprise, capabilities such as AI, machine
learning, hyper automation, low-code/no-code application development, system observability, 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 the customer’s evolving needs. Our
customers and prospective customers are either facing competing imperatives to adopt digital technologies, or their systems are
already built on fully digital, modern, dynamic IT technologies. Accordingly, to compete effectively, we must:
identify and innovate in the right emerging technologies;
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• keep pace with rapidly changing technological developments, such as AI, that may disrupt the enterprise software
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marketplace;
accurately predict our customers’ changing digital transformation 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 we continue to meet the very high-performance
expectations of our customers;
successfully deliver new, scalable platform and database technologies and products to meet customer 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;
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• profitably market and sell products to companies in markets where our sales and marketing teams have less experience;
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successfully adapt new pricing models;
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effectively secure our platform, data and customers’ data, and
effectively deliver, directly or through our partner ecosystem, the digital transformation 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. Further, we may make significant investments in changing the way we offer our products or services, such as bundling
offerings and shifting to a subscription-based model for support services, in response to evolving customer needs. Customers
may be dissatisfied with the change in the manner and scope of how the services are delivered and the resulting change in the
pricing model and may resist or be slow to adopt changes to our offerings, all of which may adversely impact our ability to
compete.
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 36% of our total revenues for the years ended December 31, 2022
and 2021, respectively. The growth of our business and future prospects depend on our ability to increase our sales outside the
U.S. as a percentage of our total revenues. 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 U.S. We have
made, and will continue to make, substantial investments in data centers, geographic specific service delivery models, advisory
councils, 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. Our rate of acquisition of new large enterprise customers, a factor affecting our growth, has been generally lower in
territories where we are less established and where there may be increased or changing regulations and operational and IP risks,
as compared to our more established locations. 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,
and managing foreign operations in such locales. Risks inherent with making our products and services available in
international markets include, for example:
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compliance with multiple, conflicting and changing governmental laws and regulations, including with respect to
employment, tax, competition, COVID-19 and ESG matters;
requirements to have local partner(s), local entity ownership limitations or technology transfer or sharing requirements, or
to comply with data residency and transfer laws and regulations, privacy and data protection laws and regulations, which
may increase operational costs and restrictions;
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 our reputation;
longer and potentially more complex sales and accounts receivable payment cycles and other collection difficulties;
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• different pricing and distribution environments;
• 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;
local governmental direction, business practices and/or cultural norms that may favor local competitors;
cybersecurity and intellectual property risks that are more prevalent in jurisdictions in which we have historically chosen
not to operate; and
localization of our services, including translation into foreign languages and associated expenses.
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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.
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 impacted, 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 also rely on our partners to provide professional services, including
custom 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 by partners. In addition, new partners may require extensive training and/or may require
significant time and resources to achieve productivity. Changes to our direct go-to-market models may cause friction with our
partners and may increase the risk in our partner ecosystem. The actions of 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 IP ownership could constrain these partnerships. If
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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.
Doing business with the public sector and heavily-regulated organizations subjects us to risks related to government
procurement processes, regulations, and contracting requirements.
We provide products and services to 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 various government
sectors, including to obtain security authorizations and certifications. However, government certification processes are lengthy
and can often be delayed, affecting our business and results of operations. Furthermore, government certification requirements
may change, or we may be unable to achieve or sustain one or more government certifications or authorizations. As a result, if
such requirements change, our ability to sell into the government sector could be restricted until we meet any revised
requirements.
A substantial majority of our sales to date to government entities in the U.S. have been made indirectly through our
distributors, 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 be subject to political
influence and may involve different rules and conditions on the offering or pricing of products and services. 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, partisan gridlock that results in the
inability of Congress to take action or changes to government policy. Further, if we or our partners are successful in receiving a
contract award, that award could be challenged during a 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. Even if a bid protest were unsuccessful,
the 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.
Our customers also include non-U.S. governments, to which government procurement risks similar to those present in
U.S. government contracting and regulatory compliance also apply, particularly in certain emerging markets where our
customer base is less established. We have seen challenges to successful awards through bid protest procedures in jurisdictions
outside the U.S. As our non-U.S. government business grows, we may see an increase in bid protests as part of the standard
government procurement legal procedures that exist in many jurisdictions. 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.
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, we 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. For example, a U.S.
cybersecurity Executive Order released recently may create heightened future compliance and incident reporting standards.
These may also include rights with respect to price protection, refund and setoff, the accuracy of information provided to the
government, contractor compliance with supplier diversity policies, constraints on sales practices and other obligations that are
particular to government contracts. These obligations may apply to us and/or our 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, governments routinely investigate and audit contractors for compliance with these requirements. If, from 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.
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Further, we are increasingly doing business in heavily regulated industries, such as the financial services,
telecommunication, media and television and health care industries. Current and prospective customers in such 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 that we may not be able to, or may not choose to,
meet. In addition, customers in these heavily-regulated industries often have a right to conduct audits of our systems, products
and practices. If one or more customers determine that some aspect of our business does not meet regulatory requirements, we
may be limited in our ability to continue or expand our business.
If we fail to comply with applicable anti-corruption and anti-bribery laws, export control laws, economic and trade sanctions
laws, or other global trade laws, 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 subjects us and our officers and directors to increased scrutiny and
liability from our business operations. We have implemented and continue to update our compliance program, but there is a risk
that our employees, partners 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, thereby exposing us to additional scrutiny and liability. We
have experienced this in the past and may experience it again in the future. In addition, we are subject to global trade laws that
apply to our worldwide operations, including prohibitions or restrictions on conducting business in certain countries and
territories, with certain entities or individuals, and involving certain end-users. For example, as a result of the Russia-Ukraine
conflict, the U.S. and other countries have imposed economic and trade sanctions and export control restrictions against Russia
and Belarus. If the conflict continues, the U.S. and other jurisdictions could impose wider economic and trade sanctions as well
as export restrictions, which could impact our business opportunities and operations. Any violation of the U.S. Foreign Corrupt
Practices Act of 1977, as amended (the “FCPA”), the UK Bribery Act, other applicable anti-corruption and anti-bribery laws, or
applicable export control or economic and trade sanctions laws by our employees or third-party intermediaries could result in
regulatory investigations and whistleblower complaints, which could subject us to significant risks such as adverse media
coverage and/or severe criminal or civil sanctions, which could materially adversely affect our reputation, business, operating
results, and prospects.
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 future product sales.
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 actual or perceived 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 introducing our products. 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 more of our sales efforts are targeted at larger enterprise customers, our sales cycle may become longer and more
expensive and we may encounter pricing pressure and implementation and configuration challenges.
As we target more of our sales efforts at larger enterprise customers, we may face heightened costs, longer sales cycles,
greater competition and less predictability in completing some of our sales. With such customers, their decision to use our
services may be an enterprise-wide decision, requiring multiple levels of sign off. Such sales require considerable time for the
customer to evaluate and test our platform prior to making a purchasing decision and the customer may even rely on third
parties with whom we do not have a relationship, which require us to provide greater levels of education regarding the use and
benefits of our services, as well as addressing concerns regarding data security, compliance with privacy and data protection
laws and regulations of prospective customers with international operations or whose own customers operate internationally. In
addition, larger enterprise customers may demand more configuration, integration services and features, particularly when
switching from legacy on-premises solutions. As a result of these factors, these sales opportunities may require us to devote
greater sales support and professional services resources to individual customers, driving up costs and time required to complete
sales and diverting our sales and professional services resources to a smaller number of larger transactions. If we fail to
effectively manage these risks associated with sales cycles and sales to larger enterprise customers, our business, financial
condition, and results of operations may be affected.
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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 shareholder dilution.
We have acquired or invested in companies and technologies as part of our business strategy and will continue to evaluate
and execute potential strategic transactions, including acquisitions of or investments in businesses, technologies, services,
products and other assets. We have and will continue to enter into strategic transactions or relationships with other businesses to
expand our service offerings, go-to-market and sales efforts, functionality or our ability to provide services in international
locations. Although we conduct reasonably extensive due diligence of these businesses, our efforts may not reveal every
material issue. Strategic transactions involve numerous risks, including:
• difficulties 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;
inability to maintain relationships with customers and partners of the acquired business;
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• potential loss of key employees of the acquired company;
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• 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
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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 security or privacy compliance requirements from integrating the acquired technology or company;
impairment to our investments if our investees are unable to obtain future funding on favorable terms or at all; and
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• potential unknown liabilities associated with the acquired businesses.
In addition, we may pay cash, incur debt or issue equity or equity-linked securities to pay for acquisitions, any of which
could adversely affect our financial condition or stock price. Furthermore, if we finance acquisitions by issuing equity,
convertible or other debt securities or loans, our existing shareholders 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.
Natural disasters, including climate change, 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, extreme heat, power shortages, pandemics such as COVID-19, terrorism, political unrest,
telecommunications failure, vandalism, cyberattacks, geopolitical instability, war, the effects of climate change 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 expenses we may sustain. The majority of
our research and development activities, offices, IT systems, and other critical business operations are located near major
seismic faults in California and Washington. Customer data could be lost, resumption of operations could require significant
time 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 costs, regulations, reporting requirements, standards or expectations regarding the environmental impacts of
our business. While we seek to mitigate our business risks associated with climate change by establishing robust environmental
programs as part of our ESG strategy and partnering with organizations who are focused on mitigating their own climate-related
risks, certain of those risks are inherent wherever business is conducted. Any of our primary locations may be vulnerable to the
adverse effects of climate change. For example, our California headquarters have experienced, and may continue to experience,
climate-related events at an increasing frequency and severity, including drought, water scarcity, heat waves, wildfires and air
quality impacts and power shutoffs associated with wildfires. Changing market dynamics, global policy developments and
increasing frequency and impact of extreme weather events on critical infrastructure in the U.S. and elsewhere have the
potential to disrupt our business, the business of our customers and third-party suppliers and may cause us to experience higher
attrition, losses and additional costs to maintain or resume operations.
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Risks Related to the Operation of Our Business
If we or our third-party service providers experience an actual or perceived cybersecurity event, our platform may be
perceived as not being secure, and we may lose customers or incur significant liabilities, which would harm our business
and operating results.
Our operations involve the storage, transmission and processing of our customers’ confidential, proprietary and sensitive
data, which may include personally identifiable information, protected health information, financial information and, in some
cases, government information. While we have security measures and a data governance framework in place designed to protect
customer information and prevent data loss, these protective mechanisms we have implemented may not be effective at
preventing material breaches caused by intentional or unintentional action or inaction by employees or third parties, which may
result in the unauthorized access or release of our instances and ultimately our or our customers’ data, IP and other confidential
business information. Third parties have attempted to fraudulently induce employees, contractors, or users to disclose
information or to gain access to our or our customers’ data, and we have been the target of increasingly sophisticated email and
text message scams that attempt to acquire personal information or company assets. Further, we have experienced an increase in
the number and sophistication of cyberattacks and security challenges as the growing number of employees, vendors and other
third parties that remotely access our systems increase our exposure to attack.
Computer malware, ransomware, viruses, hacking, phishing and denial of service attacks by third parties have become
more prevalent in our industry, and similar malicious attacks have been made against our and our third-party service providers’
systems in the past and may occur again in the future. Our employees have fallen victim to phishing attacks in the past and may
again in the future. The frequency and sophistication of these attacks have increased, and it appears that cyber crimes and cyber
criminal networks, some of which may be state-supported, have substantial resources and may target U.S. enterprises or our
customers and their use of our products.
In addition, we have established extensive development and testing environments for our engineers developing new
products and features. Security protocols in those environments have necessarily been less rigorous than in environments
housing customer data, but a vulnerability or security defect arising out of our development and testing environment could
become incorporated in code imported to our environments housing customer data. Similarly, in the unique circumstances
where customer data may be utilized in developer environments for testing or learning, that data may be at greater risk. Because
techniques used to sabotage, obtain unauthorized access to systems or prohibit authorized access to systems change frequently
and generally may not be 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 has included and may continue to include
underlying infiltration of pre-existing systems, including those of our third-party service providers or customers, perpetrated by
more sophisticated or state-supported attackers, including foreign cybersecurity attacks on U.S. technology companies and
retaliatory cybersecurity attacks stemming from the Russian invasion of Ukraine or other geopolitical tensions. It may also
include exploitation of vulnerabilities in third party or open source software code that may be incorporated into our own or our
customers’ systems, such as the vulnerability in the Java logging library known as “log4j” identified in late 2021 that affected
our industry. The occurrence of these and other more sophisticated or state-supported attack campaigns may increase as
geopolitical tensions and intermittent warfare continue or escalate outside of the U.S. For example, due to the Russia-Ukraine
conflict, rising tensions between the U.S. and North Korea and rising tensions with China, we and our customers, third-party
vendors and service providers are subject to a heightened risk of cybersecurity attacks, phishing attacks, viruses, malware,
ransomware, hacking or similar breaches from state-supported actors, including attacks that could materially disrupt our
systems and operations, supply chain, and ability to make available or sell our products and services.
We devote significant financial and personnel resources to implement and maintain security measures while meeting
customer expectations as to the performance of our systems; however, as cybersecurity threats develop and grow more complex
and sophisticated over time, such as in connection with geopolitical warfare, we will continue to make significant further
investments to protect data and infrastructure, but a residual risk may remain despite our preventative efforts. 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 economic
and operational consequences in order to appropriately assess and respond to security incidents and to implement appropriate
safeguards to protect against future incidents. We also cannot be certain that insurance coverage will continue to be available on
acceptable terms or in sufficient amounts to cover the potentially significant losses that may result from a security incident or an
insurer will not deny coverage as to any future claim.
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Additionally, as we increase reliance on third-party and public cloud infrastructure, we depend in part on third-party
security measures to protect against unauthorized access, cyberattacks and the mishandling of data. However, our ability to
monitor our third-party service providers’ data security is limited. Similarly, employee error or malfeasance in configuring,
maintaining, and using services offered by third-party providers may affect our ability to monitor and secure such services.
Employees have made errors in this area in the past and may do so again in the future. Any breach of our providers’ security
measures or misconfiguration or misuse of our software or our providers’ services may result in unauthorized access to, or the
misuse, loss or destruction of, our and our customers’ data or in a violation of our terms or applicable law, which may result in
reputational harm or liability.
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 may suffer a
cybersecurity attack on their own systems, unrelated to our own, and allow a malicious actor 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
cause us reputational harm and require us to incur significant economic and operational consequences in order to adequately
assess and respond to the breach, including further protecting our customers from their own vulnerabilities, and to implement
appropriate safeguards to protect against future breaches.
Digital supply chain attacks have increased in frequency and severity. We cannot guarantee that third parties and our
supply chain infrastructure have not been compromised or that they do not contain exploitable defects or bugs that could result
in a breach of or disruption to our platform, systems and network or the systems and networks of third parties that support us
and our business. Third parties may also exploit vulnerabilities in, or obtain unauthorized access to, platforms, systems,
networks, or physical facilities utilized by us or our third-party vendors or service providers. Furthermore, supply chain
disruptions due to the Russian invasion of Ukraine (and resulting legal or regulatory developments) and any indirect effects
may further complicate any existing supply chain constraints.
If we lose key members of our management team or qualified employees or are unable to attract and retain the employees we
need, our costs will increase and our business and operating results will be adversely affected.
Competition for talent in the technology industry has become increasingly intense. Our success depends substantially
upon the continued services of our management team, particularly of our chief executive officer, chief operating officer and the
other members of our executive staff. Although, in response to this highly competitive talent environment, we made significant
performance-based equity awards to our executive staff outside of our regular compensation program, we cannot guarantee
those awards will be sufficient to retain all of these individuals. From time to time in the ordinary course of business, there have
been and may continue to be changes in our management team. While we seek to manage these transitions carefully, such
changes may result in a loss of institutional knowledge, cause disruptions to our business and negatively affect our business.
The technology industry is subject to substantial and continuous competition for diverse talent in product development
and engineering (particularly with AI and machine learning backgrounds), sales, operations, and cybersecurity. Many key
individual contributors, particularly in research and development, engineering and sales, are critical to our success and can
command very significant compensation in the market. Our ability to achieve significant revenue growth may depend on our
success in recruiting, training and retaining sufficient qualified personnel to support our growth. We have faced and may
continue to face difficulties attracting, hiring and retaining highly-skilled, qualified personnel and may not be able to fill
positions in desired geographic areas or at all. While our hybrid work model, where some employees work remote for part of
the week and some employees are fully remote, increased our access to talent, we may not be able to take advantage of a
broader talent pool if our competitors offer the same work model or if we continue to lean heavily on our primary operating
locations for talent. We are continually evaluating and, as appropriate, enhancing the attractiveness of our compensation
packages. As a result, we have experienced and may continue to experience increased costs that may not be offset by either
improved productivity or higher sales, potentially resulting in a reduction in our profitability. 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 qualified, 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 the hybrid work model, 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 and could ultimately have a
negative impact on our ability to innovate our technology and our business. Further, as of December 31, 2022, approximately
27.6% of our employees have been employed by us for a year or less. We must be able to effectively integrate, develop and
motivate a large number of new employees, while maintaining the effectiveness of our business execution and the beneficial
aspects of our corporate culture. Such challenges may be exacerbated by the hybrid work model.
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Disruptions or defects in our services could damage our customers’ businesses, subject us to substantial liability and harm
our reputation and financial results.
Our business depends on our platform to be available without disruption. From time to time, we experience defects,
disruptions, outages and other performance and quality problems with our platform. New defects may be detected in the future
and may arise from our increasing use of the public cloud. For example, we provide regular updates to our services, which can
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 we serve certain of our customers that are primarily in highly regulated markets, using data center
facilities operated by public cloud service providers. These data centers are vulnerable to damage or interruption from
earthquakes, hurricanes, floods, fires, energy grid constraints resulting in 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. In addition, an increased use of the public cloud increases our vulnerability to
cyberattacks. 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. In addition
to data center providers, we also have a large ecosystem of service providers that we use to deliver our products. If there is a
compromise to data or other incident with our critical service providers, it may impact our ability to provide our services and
reduce our productivity. 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 and performance depending on their
business models and customers in highly regulated markets may have more demanding requirements 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, 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 potentially significant losses that may result from claims arising from disruptions to our services.
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 IP development activity and claims and related litigation regarding patent and IP
rights in our industry. Our competitors, other third parties, including practicing entities and non-practicing entities, own large
numbers of patents, copyrights, trademarks and trade secrets, which they may use and have used to assert claims of
infringement, misappropriation or other violations of IP rights against us. Moreover, the patent portfolios of many of our
competitors and other third parties are larger than ours. This disparity may increase the risk that our competitors or other third
parties may sue us for patent infringement and may limit our ability to counterclaim for patent infringement or settle through
patent cross-licenses. We have recorded material charges for legal settlements of such claims in the past. In any IP 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, misappropriating or otherwise violating the IP rights of others, we could be
required to pay substantial damages and/or make substantial ongoing royalty payments; comply with an injunction and 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 IP, we may be unable to renew
such agreements on favorable terms, if at all, in which case we may face IP 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 adversely impact 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.
21
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, copyright, trademark, trade secret and other IP protections in the U.S. 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 competitive advantages or other value. 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. Further, legal standards relating to the validity, enforceability and scope of protection of IP rights vary.
Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy or obtain and use, or may
have copied or obtained and used, our technology to develop products and services that provide features and functionality
similar to ours. Policing unauthorized use of our IP and technology is difficult. 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 IP rights may be challenged by others or invalidated through administrative proceedings 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 offer effective protection for, or be as protective of, IP rights as those in the U.S., and
mechanisms for enforcement of IP rights or available remedies may be inadequate, ineffective or scarce. We may be required to
spend significant resources to monitor and protect our IP rights. We have initiated and, in the future, may initiate claims or
litigation against third parties for infringement or misappropriation 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
to infringement or
misappropriation of IP rights by us. If we are unable to prevent third parties from infringing upon or misappropriating our IP
rights or are required to incur substantial expenses defending our IP rights, our business and operating results may be adversely
affected.
in counterclaims with respect
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 our products and services in the future. We 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 certain open source software included within our products and services, we may be 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 such 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, compliance 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, compliance 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. 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,
delay our ability to sell additional products or fail to meet our customers’ expectations, resulting in customers canceling or
failing to renew their subscriptions before our products have been fully implemented. Some customers may lack the internal
resources to manage a digital transformation such as our offering and, as a consequence, may be unable to see the benefits of
22
our products. Unsuccessful, lengthy, or costly implementations and integrations 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.
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 period, there is a risk that our financial performance will not meet the financial guidance we have
previously given for that period, or 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 our investors. We also may issue financial guidance
for a period that fails to meet the 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:
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;
• 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 cloud and self-hosted offerings or customers use of our products;
• our ability to increase sales and market penetration of our products or services;
• volatility in foreign currency exchange rates and our ability to effectively hedge our foreign currency exposure;
•
•
•
• 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 of when we enter into customer agreements, including the timing of renewing certain customer cohorts;
the length and complexity of the sales cycle and certification process for our services, especially for larger deals and sales
to larger enterprises, government and regulated organizations;
changes in the size, complexity and priorities 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 or models;
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, and expansion within
our existing customers;
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;
changes in the level of scrutiny applied by regulators and investors on our ESG program;
•
•
•
•
•
• our ability to comply with privacy laws and regulations;
•
significant litigation or regulatory actions relating to claims of IP 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
23
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. Also, our ability to adjust our cost structure in the event of a decrease in new or renewed subscriptions may be limited.
A decline in new subscriptions, expansion contracts, renewals or sales and market acceptance of our services, in a given
period may not be fully reflected in our operating results for that period, but they will negatively affect our operating results in
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.
As our business grows, we expect our revenue growth rate to decline over the long term.
You should not rely on our prior revenue growth as an indication of our future revenue growth. While we have
experienced significant revenue growth in prior periods, our revenue growth rate has declined more recently, and we expect it to
decline over the long term due to increasing competition, a decrease in the growth rate of our overall market or other reasons.
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.
Changes in our effective tax rate or disallowance of our tax positions may adversely affect our financial position and results.
We are subject to income taxes in the U.S. 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. For example, in August 2022, the Inflation Reduction Act was signed into law
incorporating some of the Biden Administration’s proposals for corporate tax reform. The U.S. Department of Treasury has
broad authority to issue regulations and interpretative guidance that may significantly impact how we will comply with 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 U.S. 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, if our position were
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.
Our debt service obligations may adversely affect our financial condition and cash flows from operations.
As of December 31, 2022, 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. 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;
24
•
•
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.
Risks Related to General Economic Conditions
Global economic conditions may harm our industry, business and results of operations.
We operate globally and as a result, our business, revenues and profitability are impacted by global macroeconomic
conditions. The success of our activities is affected by general economic and market conditions, including, among others,
inflation, interest rates, tax rates, foreign exchange rates, economic downturns, recession, economic uncertainty, political
instability, warfare, changes in laws, trade barriers, and economic and trade sanctions. The U.S. capital markets experienced
and continue to experience extreme volatility and disruption. Furthermore, inflation rates in the U.S. have recently increased to
levels not seen in decades resulting in federal action to increase interest rates, affecting capital markets. Such economic
volatility could adversely affect our business, financial condition, results of operations and cash flows, and future market
disruptions could negatively impact us. These unfavorable economic conditions could increase our operating costs and, because
our typical contracts with customers lock in our price for a few years, our profitability could be negatively affected.
Geopolitical destabilization and warfare have impacted and may continue to impact global currency exchange rates, commodity
prices, energy markets, trade and movement of resources, which may adversely affect the buying power of our customers, our
access to and cost of resources from our suppliers, and ability to operate or grow our business. In addition, from time to time,
the U.S. and other key international economies have been impacted and may continue to be impacted by geopolitical and
economic instability, high levels of credit defaults, international trade disputes, changes in 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, inflation, bankruptcies, international trade
agreements, export controls, economic and trade sanctions, health crisis such as the COVID-19 pandemic and overall economic
uncertainty. These conditions can arise suddenly and affect the rate of digital transformation 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.
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 have impacted and may continue to 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, unanticipated currency fluctuations have adversely
affected and could continue to 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 exposures that certain of our balance sheet
items have to changes in foreign currency rates. These hedging contracts have reduced and may continue to reduce, but they
have not and 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 as we may not be able to establish a perfect correlation between such hedging instruments and the
exposures being hedged.
25
Risks Related to Ownership of Our Common Stock
Our stock price is likely to continue to be volatile and could subject us to litigation.
Our stock price is likely to continue to be volatile and subject to wide fluctuations. 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, revenue growth, or changes in recommendations by securities analysts;
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 company valuations, such as high-growth or cloud companies, perceived to be comparable to us;
changes to our management team;
trading activity by directors, executive officers and significant shareholders, or the market’s perception that large
shareholders intend to sell their shares;
the inclusion, exclusion, or removal of our stock from any major trading indices;
the size of our market float;
the trading volume of our common stock, including sales following the exercise of outstanding options or vesting of
equity awards;
the economy as a whole, including, among others, macroeconomic uncertainty, economic and market downturns,
geopolitical destabilization, inflation, increases in interest rates and fluctuations in foreign exchange rates;
• market conditions in our industry and the industries of our customers;
•
•
•
changes to our credit ratings;
the inability to conclude that our internal controls over financial reporting are effective;
investor, customers, and potential customers perception of our ESG program and other issues impacting our reputation;
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 management’s attention and
resources from our business. This could materially adversely affect our business, operating results, and financial condition.
Provisions in our governing documents, Delaware law or 2030 Notes might discourage, delay or prevent a change of control
or changes in our management and, therefore, depress our stock price.
Our certificate of incorporation and bylaws contain provisions that could depress our stock price by acting to discourage,
delay or prevent a change in control or changes in our management that our shareholders may deem advantageous. These
provisions, among other things:
established a classified board (although our board will be fully declassified by our 2023 annual shareholders meeting);
•
• permit our 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;
•
•
• prohibit shareholder action by written consent, which requires all shareholder actions to be taken at a meeting;
• permit our board to make, alter or repeal our bylaws; and
•
require super-majority voting to amend certain provisions in our certificate of incorporation and bylaws;
authorize issuance of “blank check” preferred stock that our board could use to implement a shareholder rights plan;
require advance notice for shareholders to submit director nominations or other business at annual shareholders meetings
(although our bylaws permit shareholders proxy access).
Further, 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
certain shareholders. In addition, the terms of our 2030 Notes may cause a delay or prevent a change in control of our company,
as they allow noteholders to require us to repurchase their notes upon the occurrence of a change in control repurchase event.
26
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2.
PROPERTIES
Our principal office is located in Santa Clara, California, where we lease approximately 1,101,000 square feet of space
under lease agreements for our business operations and product development. 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 17 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.
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, 2022, there were 15 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 incorporated by reference from our definitive proxy statement to be filed
with the SEC pursuant to Regulation 14A.
Stock Performance Graph
This performance graph shall not be deemed “soliciting material” or to be “filed” with the SEC, for purposes of Section
18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities under that
section, and shall not be deemed incorporated by reference into any of our other filings under the Securities Act of 1933, (the
“Securities Act”) or the Exchange 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, 2018 through December 31, 2022, 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.
28
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among ServiceNow, Inc., the NYSE Composite Index,
the S&P 500 Index and the S&P Systems Software Index
$600
$500
$400
$300
$200
$100
$0
12/17
12/18
12/19
12/20
12/21
12/22
ServiceNow, Inc.
NYSE Composite
S&P 500
S&P Systems Software
*$100 invested on 12/31/17 in stock or index, including reinvestment of dividends.
Fiscal year ending December 31.
Base Period
Dec 31, 2017
Dec 31, 2018
Dec 31, 2019
Dec 31, 2020
Dec 31, 2021
Dec 31, 2022
ServiceNow, Inc.
NYSE Composite
S&P 500
S&P Systems Software
100.00
100.00
100.00
100.00
136.55
91.05
95.62
116.38
216.52
114.28
125.72
176.18
422.14
122.26
148.85
252.08
497.82
147.54
191.58
379.36
297.78
133.75
156.89
275.12
Unregistered Sales of Equity Securities
In May 2022, we entered into unwind agreements to settle the remaining portion of the 2022 Warrants. In connection
with the settlement of the remaining portion of the 2022 Warrants, we delivered, in an exchange pursuant to Section 3(a)(9) of
the Securities Act of 1933, as amended, an aggregate of 602,752 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 unwind agreements in
connection with the 2022 Warrants, nor were they subject to underwriting discounts or commissions.
Issuer Purchases of Equity Securities
None.
29
ITEM 6.
SELECTED CONSOLIDATED FINANCIAL DATA
Part II, Item 6 is no longer required as the Company has adopted certain provisions within the amendments to Regulation S-K
that eliminate Item 301.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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, 2022 and 2021, and year-to-year comparisons between fiscal 2022 and fiscal 2021 in accordance
with U.S. Generally Accepted Accounting Principles (“GAAP”). A discussion of our financial condition and results of
operations for the fiscal year ended December 31, 2020 and year-to-year comparisons between fiscal 2021 and fiscal 2020 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, 2021, filed on February 3, 2022.
Our free cash flow measure included in the section entitled “—Key Business Metrics—Free Cash Flow,” is not in
accordance with GAAP. This non-GAAP financial measure is not intended to be considered in isolation or as a substitute for,
or superior to, financial information prepared and presented in accordance with GAAP. This measure may be different from
non-GAAP financial measures used by other companies, limiting its 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.
Overview
ServiceNow was founded on a simple premise: a better technology platform will help work flow better. Our purpose is to
make the world work better for everyone. We help global enterprises across industries, universities and governments to digitize
their workflows. The Now Platform, seamlessly connects workflows across siloed organizations and systems in a way that
unlocks productivity, improves experiences for both employees and customers and delivers real business outcomes. We
organize our workflow applications along four primary areas: Technology, Customer and Industry, Employee and Creator. The
Now Platform enables our customers’ digital transformation from non-integrated enterprise technology solutions with manual
and disconnected processes and activities, to integrated enterprise technology solutions with automation and connected
processes and activities. The transformation to digital operations, enabled by the Now Platform, increases our customers’
resiliency and security and delivers great experiences and additional value to their employees and consumers.
We are closely monitoring the unfolding events of the Russian invasion of Ukraine. While the Russia-Ukraine conflict is
still evolving and the outcome remains highly uncertain, we do not believe the Russia-Ukraine conflict will have a material
impact on our business and results of operations. However, if the Russia-Ukraine conflict continues or worsens, leading to
greater global economic disruptions and uncertainty, our business and results of operations could be materially impacted. Our
customers in Russia represented an immaterial portion of our net assets and total consolidated revenues both as of and for the
year ended December 31, 2022 and December 31, 2021.
See the “Risk Factors” section in Part I, Item 1A of this Annual Report for further discussion of the possible impact of the
Russia-Ukraine conflict on our business.
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.
30
As of December 31, 2022, our RPO was $14 billion, of which 49% represented cRPO. RPO and cRPO increased by 22%,
respectively, compared to December 31, 2021. 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.
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, with the highest number of agreements entered into 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 1,637, 1,346, and 1,082 customers with ACV greater
than $1 million as of December 31, 2022, 2021 and 2020, 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:
31
Free cash flow:
Net cash provided by operating activities
Purchases of property and equipment
Free cash flow (1)
Year Ended December 31,
2022
2021
2020
(in millions)
$
$
2,723
(550)
2,173
$
$
2,191
(392)
1,799
$
$
1,786
(419)
1,367
(1)
Free cash flow for the years ended December 31, 2021 and 2020 include the effect of $15 million and $82 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 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, payouts under our bonus plans and coupon payments related to our 2030
Notes beginning in 2021.
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 renewals. 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. Our renewal rate was 98% for each of the years ended December 31,
2022, 2021 and 2020. 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.
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.
32
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.
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 consistent with prior year. 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 management 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.
The Company evaluates these estimates and assumptions as new information is obtained and may record adjustments to the fair
value of the tangible and intangible assets acquired and liabilities assumed but not later than one year from the acquisition date.
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.
33
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.
Due to cumulative losses, including tax deductible stock compensation, 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, 2022. 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, cumulative losses including tax deductible stock compensation expense, future growth, forecasted
earnings and future taxable income. However, given our current earnings, anticipated future earnings and future taxable income,
we believe there is a reasonable possibility that within the next 12 months, sufficient positive evidence may become available to
allow us to reach a conclusion that the U.S. valuation allowance will no longer be needed. The exact timing and amount of the
valuation allowance release are subject to change on the basis of the level of sustained U.S. profitability that the Company is
able to actually achieve, as well as the amount of tax deductible stock compensation dependent upon our publicly traded share
price, foreign currency movements and macroeconomic conditions, among other factors. See Note 16 – Income Taxes, in the
notes to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional
information on discussion on valuation allowance.
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.
Change in Accounting Estimate
See Note 2 —Summary of Significant Accounting Policies — Use of Estimates, of the notes to our consolidated
financial statements included in this Annual Report on Form 10-K for additional information on our change in estimated useful
life of our data center equipment during 2022.
34
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. 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.
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 79%, 79% and 81% of our total revenues for the years ended December 31, 2022, 2021 and 2020,
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.
Seasonality. We have historically experienced seasonality in terms of when we enter into customer agreements. 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 of entering into customer agreements is sometimes 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, leading to a higher RPO in the fourth quarter.
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.
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, public cloud service costs, 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 12%, 14% and 10% for the years ended December 31, 2022, 2021 and 2020,
respectively.
35
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. In addition,
sales and marketing expenses include branding expenses, marketing program expenses, which include events such as
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.
Provision for Income Taxes
Provision for income taxes consist 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, 2022 and 2021. 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, 2022 and 2021
Revenues
Revenues:
Subscription
Professional services and other
Total revenues
Percentage of revenues:
Subscription
Professional services and other
Total
Year Ended December 31,
2022
2021
(dollars in millions)
% Change
$
$
6,891
354
7,245
$
$
95%
5%
100%
5,573
323
5,896
95%
5%
100%
24%
10%
23%
Subscription revenues increased by $1.3 billion for the year ended December 31, 2022, compared to the prior year,
primarily driven by increased purchases by new and existing customers. Included in subscription revenues is $253 million and
$241 million of revenues recognized upfront from the delivery of software associated with self-hosted offerings during the
years ended December 31, 2022 and 2021, respectively.
36
We expect subscription revenues for the year ending December 31, 2023 to increase in absolute dollars and increase
slightly as a percentage of revenue as we continue to add new customers and existing customers increase their usage of our
products compared to the year ended December 31, 2022.
Our expectations for revenues, cost of revenues and operating expenses for the year ending December 31, 2023 are based
on the 31-day average of foreign exchange rates for December 31, 2022.
Subscription revenues consist of the following:
Digital workflow products
ITOM products
Total subscription revenues
Year Ended December 31,
2022
2021
(dollars in millions)
% Change
$
$
6,077
814
6,891
$
$
4,882
691
5,573
24%
18%
24%
Our digital workflow products include the Now Platform, IT Service Management, Strategic Portfolio Management
(formerly known as IT Business Management), IT Asset Management and Enterprise Management, Security Operations,
Integrated Risk Management (formerly, Governance, Risk and Compliance), ESG Management, HR Service Delivery,
Workplace Service Delivery, Legal Service Delivery, Customer Service Management, Field Service Management, Industry
Solutions, App Engine, Automation Engine, Platform Privacy and Security, Procurement Operation Management and Impact
are generally priced on a per user basis. Our IT Operations Management (“ITOM”) products are generally priced on a
subscription unit basis, which allows us to measure customers’ management of various IT resources, and decreasingly on a per
node (physical or virtual server) basis.
Professional services and other revenues increased by $31 million for the year ended December 31, 2022, 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, 2023 to decrease in absolute dollars and to decrease slightly as a
percentage of revenue compared to the year ended December 31, 2022. We continue to be focused on deploying our internal
professional services organization as a strategic resource and working with 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,
2022
2021
% Change
(dollars in millions)
1,187
386
1,573
$
$
83 %
(9)%
78 %
1,022
331
1,353
82 %
(2)%
77 %
16%
17%
16%
5,672
$
4,543
25%
$
$
$
37
Cost of subscription revenues increased by $165 million for the year ended December 31, 2022, compared to the prior
year, primarily due to increased headcount and increased costs to support the growth of our subscription offerings including
costs to support customers in regulated markets. Personnel-related costs including stock-based compensation and overhead
expenses increased by $142 million as compared to prior year. Maintenance costs to support the expansion of our data center
capacity, including public cloud service costs, increased by $46 million and amortization of intangible assets increased by $8
million as a result of recent acquisitions as compared to the prior year. Depreciation expense related to data center hardware and
software decreased by $45 million, primarily due to the change in estimated useful life of data center equipment from three
years to four years, for the year ended December 31, 2022, as compared to prior year.
We expect our cost of subscription revenues for the year ending December 31, 2023 to increase in absolute dollars as we
provide subscription services to more customers and increase usage within our customer instances and to increase slightly as a
percentage of revenue compared to the year ended December 31, 2022. We will continue to incur incremental costs to attract
customers in regulated markets by adopting public cloud offerings as well as increased support for customers impacted by new
and evolving data residency requirements. 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. Our subscription
gross profit percentage was 83% and 82% for the years ended December 31, 2022 and 2021, respectively. We expect our
subscription gross profit percentage to decrease slightly for the year ending December 31, 2023 compared to the year
ended December 31, 2022.
Cost of professional services and other revenues increased by $55 million for the year ended December 31, 2022 as
compared to the prior year. The increase was primarily due to increased headcount to support growth resulting in an increase in
personnel-related costs including stock-based compensation, travel and overhead expenses.
Our professional services and other gross loss percentage increased to 9% for the year ended December 31, 2022,
compared to 2% in the prior year, primarily driven by planned increase in headcount costs to support the business growth,
increase in travel expense for customer implementations and investment in strategic initiatives. We expect our professional
services and other gross loss percentage to increase for the year ending December 31, 2023 compared to the year ended
December 31, 2022.
Sales and Marketing
Sales and marketing
Percentage of revenues
Year Ended December 31,
2022
2021
% Change
(dollars in millions)
$
2,814
$
39%
2,292
39%
23%
Sales and marketing expenses increased by $522 million for the year ended December 31, 2022, compared to the prior
year, primarily due to increased headcount resulting in an increase in personnel-related costs including stock-based
compensation and overhead expenses of $411 million, compared to the prior year. Amortization expenses associated with
deferred commissions increased by $68 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, costs associated with
purchasing advertising, marketing events and market data, increased by $33 million compared to the prior year, primarily due to
increased program costs and travel for our annual Knowledge user conference.
We expect sales and marketing expenses for the year ending December 31, 2023 to increase in absolute dollars and to
decrease slightly as a percentage of revenue compared to the year ended December 31, 2022, as we continue to see leverage
from increased sales productivity and marketing efficiencies offset by growth in our international operations in 2023.
Research and Development
Research and development
Percentage of revenues
$
1,768
$
24%
1,397
24%
Year Ended December 31,
2021
2022
(dollars in millions)
% Change
27%
38
Research and development expenses (“R&D”) increased by $371 million during the year ended December 31, 2022,
compared to the prior year, primarily due to increased headcount resulting in an increase in personnel-related costs including
stock-based compensation and overhead expenses of $363 million compared to prior year.
We expect R&D expenses for the year ending December 31, 2023 to increase in absolute dollars, but remain relatively flat
as a percentage of revenue compared to the year ended December 31, 2022, as we continue to improve the existing functionality
of our services, develop new applications to fill market needs and enhance our core platform.
General and Administrative
General and administrative
Percentage of revenues
Year Ended December 31,
2022
2021
% Change
(dollars in millions)
$
735
$
10%
597
10%
23%
General and administrative expenses (“G&A”) increased by $138 million during the year ended December 31, 2022,
compared to the prior year, primarily due to increased headcount resulting in an increase in personnel-related costs including
stock-based compensation and overhead expenses of $142 million.
We expect G&A expenses for the year ending December 31, 2023 to increase in absolute dollars but remain relatively flat
as a percentage of revenue compared to the year ended December 31, 2022, as we continue to see leverage from continued
G&A productivity.
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,
2022
2021
% Change
(dollars in millions)
$
$
$
157
67
459
495
223
128
59
389
395
160
1,401
$
19%
1,131
19%
23%
14%
18%
25%
39%
24%
Stock-based compensation increased by $270 million during the year ended December 31, 2022, compared to the prior
year, primarily due to additional grants to current and new employees.
Stock-based compensation is inherently difficult to forecast due to fluctuations in our stock price. Based upon our stock
price as of December 31, 2022, we expect stock-based compensation to continue to increase in absolute dollars for the year
ending December 31, 2023 as we continue to issue stock-based awards to our employees, but decrease slightly as a percentage
of revenue compared to the year ended December 31, 2022. We expect stock-based compensation as a percentage of revenue to
decline over time as we continue to grow.
39
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 36% of total revenues for the years ended December 31, 2022 and 2021,
respectively. Because we primarily transact
the general
strengthening of the U.S. Dollar relative to other major foreign currencies (primarily the Euro and British Pound Sterling)
during the year ended December 31, 2022 had an unfavorable 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, 2022 at the exchange rates in effect for
the year ended December 31, 2021 rather than the actual exchange rates in effect during the period, our reported subscription
revenues and professional services and other revenues would have been $274 million and $19 million higher for the year ended
December 31, 2022, respectively.
in foreign currencies for sales outside of the United States,
In addition, because we primarily transact in foreign currencies for cost of revenues and operating expenses outside of the
United States, the general strengthening of the U.S. Dollar relative to other major foreign currencies had a favorable impact on
our cost of revenue, sales and marketing expense and R&D expenses during the year ended December 31, 2022. For entities
reporting in currencies other than the U.S. Dollar, if we had translated our results for the year ended December 31, 2022 at the
exchange rates in effect for the year ended December 31, 2021 rather than the actual exchange rates in effect during the period,
our reported cost of revenues, sales and marketing and R&D expenses would have been $48 million, $78 million and $19
million higher for the year ended December 31, 2022, respectively. The impact from the foreign currency movements from the
year ended December 31, 2021 to the year ended December 31, 2022 was not material to G&A expenses.
Interest Expense
Year Ended December 31,
2021
2022
(dollars in millions)
% Change
Interest expense
Percentage of revenues
$
(27)
$
—%
(28)
—%
(4%)
Interest expense decreased during the year ended December 31, 2022, compared to the prior year. For the year ending
December 31, 2023, we expect to incur approximately $23 million of interest expense related to the 2030 Notes.
Other Income (Expense), net
Interest income
Other
Other income (expense), net
NM - Not meaningful
Year Ended December 31,
2022
2021
% Change
$
$
(dollars in millions)
82
(11)
71
$
$
20
—
20
310%
NM
255%
Other income (expense), net increased by $51 million during the year ended December 31, 2022, compared to the prior
year, primarily driven by an increase in investment income from our managed portfolio resulting from the increase in interest
rates.
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. The gains (losses) recognized for these foreign currency forward contracts in other income (expense), net were
immaterial for the years ended December 31, 2022 and 2021.
40
Provision for Income Taxes
Income before income taxes
Provision for income taxes
Effective tax rate
Year Ended December 31,
2022
2021
% Change
$
(dollars in millions)
$
399
74
19%
249
19
8 %
60%
289%
138%
Our effective tax rate was 19% and 8% for the year ended December 31, 2022 and December 31, 2021. The difference in
rates was primarily attributable to revaluation of our deferred taxes to account for a change in United Kingdom tax rate and a
partial valuation allowance related to acquired Lightstep, Inc. deferred tax liabilities in the year ended December 31, 2021. The
income tax provision for the year ended December 31, 2022 was primarily attributable to the mix of earnings and losses in
foreign jurisdictions with differing tax rates, state tax expense and the valuation allowance in the United States.
We continue to maintain a full valuation allowance on our U.S. federal and state deferred tax assets and 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.
See Note 16– Income Taxes, 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.
Liquidity and Capital Resources
We generate cash inflows from operations primarily from selling subscription services which are generally paid in
advance of provisioning services, and cash outflows to develop new services and core technologies that further enhance the
Now Platform, engage our customer and enhance their experience, and enable and transform our business operations.
Subscription services arrangements typically have a three-year duration, and we have experienced a renewal rate of 98% for the
years ended December 31, 2022, 2021 and 2020. Cash outflows from operations are principally comprised of the salaries,
bonuses, commissions, and benefits for our workforce; licenses and services arrangements that are integral to our business
operations and data centers; and operating lease arrangements that underlie our facilities. We have generated positive operating
cash flows for more than ten years as we continue to grow our business in pursuit of our business strategy, and we expect to
grow our business and generate positive cash flows from operations during 2023. When assessing sources of liquidity, we also
include cash and cash equivalents, short-term investments and long-term investments totaling $6.4 billion as of December 31,
2022.
Our working capital requirements are principally comprised of non-contract workforce salaries, bonuses, commissions,
and benefits and, to a lesser extent, cancellable and non-cancelable licenses and services arrangements that are integral to our
business operations, and operating lease obligations. In addition, we made the payment for the investment in Celonis SE of
$100 million during the year ended December 31, 2022. Non-cancelable purchase commitments for business operations total
$1,271 million as of December 31, 2022, due primarily over the next five years. Operating lease obligations totaling
$895 million are principally associated with leased facilities and have varying maturities with $467 million due over the next
five years.
41
To grow our business, we also invest in capital and other resources to expand our data centers and enable our workforce,
and we acquire technology and businesses to supplement our technology portfolio. Our capital expenditures are typically under
cancelable arrangements primarily used to support the installed base and growth of our hosted business. We have also issued
long-term debt to finance our business. 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”). In May and June 2017, we issued the 2022 Notes with an
aggregate principal amount of $782.5 million. During the year ended December 31, 2022, we paid cash to settle $94 million in
principal of the 2022 Notes, which was comprised of early conversions of $6 million and remaining principal of $88 million for
final settlement on June 1, 2022, the maturity date of our 2022 Notes.
Our free cash flows, together with our other sources of liquidity, are available to service our liabilities as well as our
cancellable and non-cancellable arrangements. We anticipate cash flows generated from operations, cash, cash equivalents and
investments will be sufficient to meet our liquidity needs for at least the next 12 months. As we look beyond the next 12
months, we seek to continue to grow free cash flows necessary to fund our operations and grow our business. If we require
additional capital resources, we may seek to finance our operations from the current funds available or additional equity or debt
financing.
Net cash provided by operating activities
Net cash used in investing activities
Net cash used in financing activities
Net (decrease)/increase in cash, cash equivalents and restricted cash
Operating Activities
$
Year Ended December 31,
2022
2021
(in millions)
2,723
$
(2,583)
(344)
(257)
2,191
(1,607)
(506)
53
Net cash provided by operating activities was $2.7 billion for the year ended December 31, 2022 compared to $2.2 billion
for the prior year. The net increase in operating cash flow was primarily due to higher collections driven by revenue growth.
Investing Activities
Net cash used in investing activities for the year ended December 31, 2022 was $2.6 billion compared to $1.6 billion for
the prior year. The net increase in cash used in investing activities was primarily due to a $1,427 million increase in net
purchases of investments, a $96 million increase in non-marketable investments mainly in Celonis SE and a $158 million
increase in purchases of property and equipment, offset by a $694 million decrease in business combinations.
Financing Activities
Net cash used in financing activities for the year ended December 31, 2022 was $344 million compared to $506 million
for the prior year. The net decrease in cash used in financing activities is primarily due to a $185 million decrease in taxes paid
related to net share settlement of equity awards, a $10 million increase in proceeds from employee stock plans, offset by a $33
million increase in repayments of convertible senior notes attributable to principal.
Contractual Obligations and Commitments
Our estimated future obligations consist of leases, a non-cancelable $500 million agreement with Microsoft to purchase
cloud services over five years for accelerating the Azure adoption for mutual customers, purchase obligations, debt and
unrecognized tax benefits as of December 31, 2022. Refer to Note 17 “Commitments and Contingencies” to our consolidated
financial statements included in this Annual Report on Form 10-K for more information.
42
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 72%, 70% and 71% for the years ended December 31, 2022, 2021 and 2020, respectively.
A hypothetical 10% increase in the U.S. Dollar against other currencies would have resulted in a decrease in operating
income of $75 million, $62 million and $47 million for the years ended December 31, 2022, 2021 and 2020, respectively. 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.
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.
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 $6.4 billion in cash, cash equivalents, short-term investments and long-term investments as
of December 31, 2022. 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.
As of December 31, 2022, a hypothetical 100 basis point increase in interest rates would have resulted in an approximate
$39 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, 2021, we had an aggregate of $4.9 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
$30 million decline of the fair value of our available-for-sale securities.
43
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 were issued at 99.63% of principal and we incurred approximately $13 million of 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. These 2022 Notes
were recorded at face value less unamortized discount on our consolidated balance sheet. Because these instruments do not bear
interest, we had no economic interest rate exposure associated with changes in interest rates. However, the fair value of our
2022 Notes was exposed to interest rate risks. In addition, the fair value of the 2022 Notes was affected by our stock price due
to the conversion feature and would generally increase as the stock price increases. The remaining principal of 2022 Notes was
settled on June 1, 2022.
We hold cash balances with multiple financial institutions in various countries and these balances routinely exceed deposit
insurance limits.
As of December 31, 2022 and 2021, we had $252 million and $99 million, respectively, of non-marketable equity
investments in privately held companies. Recording upward and downward adjustments to the carrying value of our non-
marketable equity investments requires quantitative assessments of the fair value of our non-marketable equity investments
using various valuation methodologies and involves the use of estimates. The timing and amount of observable price changes
are influenced by market dynamics that can impact the valuation of our non-marketable equity investments. These changes
could be material based on market conditions and events.
44
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
SERVICENOW, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm (PCAOB ID 238)
Consolidated Financial Statements
Consolidated Balance Sheets
Consolidated Statements of Comprehensive Income
Consolidated Statements of Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Page
46
48
49
50
51
53
45
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, 2022 and 2021, and the related consolidated statements of comprehensive income, of stockholders’ equity and of
cash flows for each of the three years in the period ended December 31, 2022, 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, 2022, 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, 2022 and 2021, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 2022 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, 2022, based on criteria established in Internal Control - Integrated Framework (2013)
issued by the COSO.
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.
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.
46
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 - customer 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 $6.9 billion for the year ended December 31, 2022.
The principal consideration for our determination that performing procedures relating to subscription revenue recognition for
customer contracts with multiple performance obligations is a critical audit matter is the matter involved significant audit effort
in performing procedures related to management’s identification of distinct performance obligations.
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 the terms
and conditions within the customer contracts for appropriate revenue recognition. These procedures also included, among
others, testing management’s process for identifying distinct performance obligations and evaluating the terms and conditions
within the customer contracts by examining the customer contracts on a test basis for appropriate revenue recognition.
/s/ PricewaterhouseCoopers LLP
San Jose, California
January 30, 2023
We have served as the Company’s auditor since 2011.
47
SERVICENOW, INC.
CONSOLIDATED BALANCE SHEETS
(in millions, except number of shares which are reflected in thousands and per share data)
December 31,
2022
2021
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
Current debt, net
Total current liabilities
Deferred revenue, less current portion
Operating lease liabilities, less current portion
Long-term debt, net
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; 202,882 and
199,608 shares issued and outstanding at December 31, 2022 and 2021,
respectively
Additional paid-in capital
Accumulated other comprehensive income (loss)
Retained earnings (accumulated deficit)
Total stockholders’ equity
Total liabilities and stockholders’ equity
$
$
$
$
$
$
$
1,470
2,810
1,725
369
280
6,654
742
2,117
1,053
682
232
824
636
359
13,299
274
975
4,660
96
—
6,005
70
650
1,486
56
8,267
1,728
1,576
1,390
303
223
5,220
623
1,630
766
591
287
777
692
212
10,798
89
850
3,836
82
92
4,949
63
556
1,484
51
7,103
—
—
—
4,796
(102)
338
5,032
13,299
$
—
3,665
34
(4)
3,695
10,798
See accompanying notes to consolidated financial statements
48
SERVICENOW, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in millions, except number of shares which are reflected in thousands and per share data)
2022
Year Ended December 31,
2021
2020
Revenues:
Subscription
Professional services and other
Total revenues
Cost of revenues (1):
Subscription
Professional services and other
Total cost of revenues
Gross profit
Operating expenses (1):
Sales and marketing
Research and development
General and administrative
Total operating expenses
Income from operations
Interest expense
Other income (expense), net
Income before income taxes
Provision for income taxes
Net income
Net income per share - basic
Net income per share - diluted
Weighted-average shares used to compute net income per
share - basic
Weighted-average shares used to compute net income 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
(1)
Includes stock-based compensation as follows:
Cost of revenues:
Subscription
Professional services and other
Operating expenses:
Sales and marketing
Research and development
General and administrative
$
$
$
$
$
$
$
6,891
354
7,245
1,187
386
1,573
5,672
2,814
1,768
735
5,317
355
(27)
71
399
74
325
1.61
1.60
$
$
$
$
5,573
323
5,896
1,022
331
1,353
4,543
2,292
1,397
597
4,286
257
(28)
20
249
19
230
1.16
1.13
$
$
$
$
4,286
233
4,519
731
256
987
3,532
1,855
1,024
454
3,333
199
(33)
(16)
150
31
119
0.61
0.59
201,430
203,535
198,094
203,167
193,096
202,478
(70) $
(66)
(136)
189
$
(41) $
(19)
(60)
170
$
2022
Year Ended December 31,
2021
2020
$
157
67
459
495
223
$
128
59
389
395
160
66
3
69
188
98
52
320
282
118
See accompanying notes to consolidated financial statements
49
(cid:39)(cid:25)(cid:38)(cid:42)(cid:29)(cid:23)(cid:25)(cid:34)(cid:35)(cid:43)(cid:7)(cid:1)(cid:29)(cid:34)(cid:23)(cid:9)
(cid:23)(cid:35)(cid:34)(cid:39)(cid:35)(cid:32)(cid:29)(cid:24)(cid:21)(cid:40)(cid:25)(cid:24)(cid:1)(cid:39)(cid:40)(cid:21)(cid:40)(cid:25)(cid:33)(cid:25)(cid:34)(cid:40)(cid:39)(cid:1)(cid:35)(cid:26)(cid:1)(cid:39)(cid:40)(cid:35)(cid:23)(cid:31)(cid:28)(cid:35)(cid:32)(cid:24)(cid:25)(cid:38)(cid:39)(cid:73)(cid:1)(cid:25)(cid:37)(cid:41)(cid:29)(cid:40)(cid:45)
(cid:3)(cid:43)(cid:48)(cid:1)(cid:47)(cid:43)(cid:46)(cid:46)(cid:43)(cid:49)(cid:48)(cid:53)(cid:5)(cid:1)(cid:39)(cid:58)(cid:37)(cid:39)(cid:50)(cid:54)(cid:1)(cid:48)(cid:55)(cid:47)(cid:36)(cid:39)(cid:52)(cid:1)(cid:49)(cid:40)(cid:1)(cid:53)(cid:42)(cid:35)(cid:52)(cid:39)(cid:53)(cid:1)(cid:57)(cid:42)(cid:43)(cid:37)(cid:42)(cid:1)(cid:35)(cid:52)(cid:39)(cid:1)(cid:52)(cid:39)(cid:40)(cid:46)(cid:39)(cid:37)(cid:54)(cid:39)(cid:38)(cid:1)(cid:43)(cid:48)(cid:1)(cid:54)(cid:42)(cid:49)(cid:55)(cid:53)(cid:35)(cid:48)(cid:38)(cid:53)(cid:4)
Common Stock
Shares
Amount
Additional
Paid-in
Capital
Retained
Earnings
(Accumulated
Deficit)
Total
Stockholders’
Equity
$
$
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
Balance at December 31, 2020
Common stock issued under employee stock plans
Taxes paid related to net share settlement of equity awards
Stock-based compensation
Shares granted related to business combination
Settlement of 2022 Warrants
Settlement of 2022 Notes conversion feature
Benefit from exercise of 2022 Note Hedge
Other comprehensive loss, net of tax
Net income
Balance at December 31, 2021
Cumulative-effect adjustment from adoption of Accounting
Standards Update (ASU) 2020-06
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 loss, net of tax
Net income
Balance at December 31, 2022
189,461
4,099
—
—
2,285
—
—
—
—
195,845
3,227
—
—
—
536
—
—
—
—
199,608
—
2,671
—
—
603
—
—
—
—
202,882
$
$
$
$
— $
—
—
—
—
—
—
—
—
— $
—
—
—
—
—
—
—
—
—
— $
—
—
—
—
—
—
—
—
—
— $
2,455
152
(509)
874
—
(1,377)
1,379
—
—
2,974
168
(612)
1,130
6
—
(225)
224
—
—
3,665
(19)
177
(427)
1,400
—
(233)
233
—
—
4,796
Accumulated
Other
Comprehensive
Income (Loss)
25
—
—
—
—
—
—
69
$
$
$
94
—
—
—
—
—
—
—
(60)
—
34
(353) $
—
—
—
—
—
—
—
119
(234) $
—
—
—
—
—
—
—
—
230
$
(4) $
17
—
—
—
—
—
—
—
325
338
$
—
—
—
—
—
—
—
(136)
—
(102) $
$
2,127
152
(509)
874
—
(1,377)
1,379
69
119
2,834
168
(612)
1,130
6
—
(225)
224
(60)
230
3,695
(2)
177
(427)
1,400
—
(233)
233
(136)
325
5,032
See accompanying notes to consolidated financial statements
50
SERVICENOW, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
Year Ended December 31,
2021
2020
2022
$
325
$
230
$
Cash flows from operating activities:
Net income
Adjustments to reconcile net income 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
Purchases of non-marketable investments
Sales and maturities of investments
Other
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
Net cash provided by (used in) financing activities
Foreign currency effect on cash, cash equivalents and restricted cash
Net change 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
$
51
433
358
—
1,401
15
—
—
17
(340)
(566)
(39)
172
904
43
2,723
(550)
(91)
—
(4,038)
(167)
2,245
18
(2,583)
—
(94)
—
177
(427)
(344)
(53)
(257)
1,732
1,475
$
472
294
7
1,131
(34)
(15)
3
45
(401)
(565)
(93)
55
960
102
2,191
(392)
(785)
(7)
(2,485)
(71)
2,119
14
(1,607)
—
(61)
—
167
(612)
(506)
(25)
53
1,679
1,732
$
119
336
218
24
870
(24)
(82)
47
(2)
(152)
(365)
(55)
(34)
711
175
1,786
(419)
(107)
(13)
(2,922)
(12)
1,965
1
(1,507)
1,482
(1,628)
1,106
146
(509)
597
25
901
778
1,679
SERVICENOW, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
Cash, cash equivalents and restricted cash at end of period:
Cash and cash equivalents
Restricted cash included in prepaid expenses and other current
assets
Total cash, cash equivalents and restricted cash shown in the
consolidated statements of cash flows
Supplemental disclosures of other cash flow information:
Interest paid
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
Property and equipment included in accounts payable, accrued
expenses and other liabilities
$
$
$
Year Ended December 31,
2021
2020
2022
1,470
$
1,728
$
1,677
$
$
5
1,475
24
45
233
233
74
$
$
4
1,732
41
36
225
224
63
2
1,679
—
39
275
273
35
See accompanying notes to consolidated financial statements
52
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 was founded on a simple premise: a better technology platform will help work flow better. We help global
enterprises across industries, universities and governments to digitize their workflows. We organize our workflow applications
along four primary areas: Technology, Customer and Industry, Employee and Creator. The products under each of our
workflows help customers connect, automate and empower work across systems and silos to enable great outcomes for
businesses and great experiences for people. The Now Platform integrates with our customers’ cloud platforms and systems of
choice, allowing our customers to deliver workflows across their current and future preferred systems of record and
collaboration platforms.
(2) Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements have been prepared in conformity with U.S. Generally Accepted
Accounting Principles (“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.
In January 2022, we completed an assessment of the useful life of our data center equipment and determined we should
increase the estimated useful life of data center equipment from three to four years. This change in accounting estimate was
effective beginning fiscal year 2022. Based on the carrying amount of data center equipment included in property and
equipment, net as of December 31, 2021, the effect of this change in estimate for the year ended December 31, 2022, was a
reduction in depreciation expense of $81 million and an increase in net income of $76 million, or $0.38 per share basic and
$0.37 per share diluted.
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 respective 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, and have not been
material for all periods presented.
53
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.
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. Professional services revenues are recognized as services are delivered.
Other revenues mainly 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 from the invoice date.
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.
54
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 and the remaining portion of the commission cost is expensed
over the period of benefit. We determine the period of benefit by taking into consideration our customer contracts, our
technology life cycle and other factors. The amortization of deferred commissions is included in sales and marketing expense in
our consolidated statements of comprehensive income. 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, U.S. government and agency
securities and mortgage-backed and asset-backed 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. 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 $28 million and $12 million, is recorded in prepaid expenses
and other current assets on the consolidated balance sheets as of December 31, 2022 and 2021, respectively.
55
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.
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. 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 an 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. 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:
Computer equipment and software
Furniture and fixtures
Leasehold and other improvements
3-5 years
3-7 years
shorter of the lease term or estimated useful life
Capitalized Software Development Costs
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.
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 financing leases in any
of the periods presented.
56
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. During the measurement period, which may not be later than one year from the acquisition date, the Company may
record adjustments to the fair value of these tangible and intangible assets acquired and liabilities assumed, with the
corresponding offset to goodwill.
Goodwill and Intangible Assets
Goodwill is evaluated for impairment at least annually or more frequently if circumstances indicate that goodwill may not
be recoverable. 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 of the carrying value of the goodwill above its fair value 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 two to twelve 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, 2022, 2021 and
2020 were $201 million, $198 million and $172 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 service, performance and
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.
The probability of achievement is assessed periodically to determine whether the performance metric continues to be probable.
When there is a change in the probability of achievement, any cumulative effect of the change in requisite service period is
recognized in the period of the change with the change to be amortized over the respective vesting period. 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 and PRSUs with service, performance 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.
57
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.
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, 2022 and 2021, 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
allowance for doubtful accounts and write offs were not material for each of the periods ending December 31, 2022, 2021 and
2020.
Income Taxes
We use the asset and liability method of accounting for income taxes, in which deferred tax assets and liabilities are
recognized for the future 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.
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.
58
Recently Adopted Accounting Pronouncements
Debt with Conversion Options
In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
2020-06, “Debt–Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging–Contracts in
Entity’s Own Equity (Subtopic 815-40)” to simplify the accounting for convertible instruments and contracts on an entity’s own
equity. The standard results in our 2022 Notes being accounted for as a single unit of debt and requires the if-converted method
to calculate diluted earnings per share calculation. We adopted this standard effective January 1, 2022 using a modified
retrospective method, under which the basis of all convertible instruments outstanding at adoption have been adjusted to the
amounts that would have been recorded had the new guidance been applied from inception. The previously recorded equity
component of the convertible instrument outstanding and amortization of the debt discount and issuance costs classified as
equity are reclassified from equity to debt through an adjustment to the opening balance of accumulated deficit as of January 1,
2022, which will result in reduced interest expense in future periods. Adoption of the standard resulted in a decrease to
accumulated deficit of $17 million, decrease to additional paid-in capital of $19 million and an increase to debt, current of
$2 million.
Acquired Contract Assets and Contract Liabilities
In October 2021, the FASB issued ASU 2021-08, “Business Combinations (Topic 805): Accounting for Acquired
Contract Assets and Contract Liabilities,” which requires contract assets and contract liabilities acquired in a business
combination to be recognized and measured in accordance with Topic 606, Revenue from Contracts with Customers, as if the
acquirer had originated the contracts. The new standard is effective for interim and annual periods beginning after December
15, 2022. We adopted this standard in the second quarter beginning April 1, 2022. The adoption had no impact to our
consolidated financial statements for the year ended December 31, 2022.
59
(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 millions):
Available-for-sale securities:
Commercial paper
Corporate notes and bonds
Certificates of deposit
U.S. government and agency securities
Mortgage-backed and asset-backed securities
December 31, 2022
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Amortized
Cost
Estimated
Fair Value
$
558
$
— $
(2) $
3,414
162
768
98
—
—
—
—
(52)
—
(2)
(17)
556
3,362
162
766
81
Total available-for-sale securities
$
5,000
$
— $
(73) $
4,927
December 31, 2021
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Amortized
Cost
Estimated
Fair Value
Available-for-sale securities:
Commercial paper
Corporate notes and bonds
Certificates of deposit
U.S. government and agency securities
Mortgage-backed and asset-backed securities
$
528
$
— $
— $
2,418
28
140
100
1
—
—
—
1
(7)
—
—
(2)
528
2,412
28
140
98
Total available-for-sale securities
$
3,214
$
$
(9) $
3,206
As of December 31, 2022, the contractual maturities of our available-for-sale debt securities, excluding those securities
classified within cash and cash equivalents on the consolidated balance sheet and mortgage-backed and asset-backed securities
that do not have a single maturity, did not exceed 36 months. The fair values of available-for-sale securities, by remaining
contractual maturity, are as follows (in millions):
Due within 1 year
Due in 1 year through 5 years
Instruments not due in single maturity
Total
December 31,
2022
$
$
2,810
2,036
81
4,927
As of December 31, 2022 and 2021, the fair value of available-for-sale securities in a continuous unrealized loss position
totaled $4,232 million and $2,416 million, respectively, the majority of which has been in a continuous unrealized loss position
for greater than 12 months.
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, 2022.
60
Non-Marketable Equity Investments
As of December 31, 2022 and 2021, the total amount of non-marketable equity investments in privately held companies
included in other assets on our consolidated balance sheets was $252 million and $99 million, respectively. Our non-marketable
equity investments are accounted for using the measurement alternative, which measures the investments at cost minus
impairment, if any, plus or minus changes resulting from qualifying observable price changes resulting from the issuance of
similar or identical securities in an orderly transaction by the same issuer. Determining whether an observed transaction is
similar to a security within our portfolio requires judgment based on the rights and preferences of the securities. Recording
upward and downward adjustments to the carrying value of our non-marketable equity investments as a result of observable
price changes requires quantitative assessments of the fair value of our non-marketable equity investments using various
valuation methodologies and involves the use of estimates. We classify these fair value measurements as Level 3 within the fair
value hierarchy.
In March 2022, we purchased $100 million of common and preferred shares of Celonis SE, a privately held company that
develops and sells process mining software, in exchange for cash.
(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, 2022 (in millions):
Cash equivalents:
Money market funds
Commercial paper
Corporate notes and bonds
Certificates of deposit
Deposits
U.S. government and agency securities
Marketable securities:
Commercial paper
Corporate notes and bonds
Certificates of deposit
U.S. government and agency securities
Mortgage-backed and asset-backed securities
Level 1
Level 2
Total
$
738
$
— $
—
—
—
124
—
—
—
—
—
—
36
10
2
—
8
556
3,362
162
766
81
Total
$
862
$
4,983
$
738
36
10
2
124
8
556
3,362
162
766
81
5,845
61
The following table presents our fair value hierarchy for our assets measured at fair value on a recurring basis as of
December 31, 2021 (in millions):
Cash equivalents:
Money market funds
Commercial paper
Corporate notes and bonds
Certificates of deposit
Deposits
Marketable securities:
Commercial paper
Corporate notes and bonds
Certificates of deposit
U.S. government and agency securities
Mortgage-backed and asset-backed securities
Level 1
Level 2
Total
$
706
$
— $
—
—
—
235
—
—
—
—
—
110
28
8
—
528
2,412
28
140
98
Total
$
941
$
3,352
$
706
110
28
8
235
528
2,412
28
140
98
4,293
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), pricing determined using inputs other than quoted prices that are observable either directly or indirectly (Level
2 inputs) or using unobservable inputs that are supported by little or no market activity (Level 3 inputs). Our non-marketable
equity investments 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. Our marketable equity investments are classified within Level 1 and are immaterial as of December 31, 2022 and
2021.
(5) Business Combinations
2022 Business Combinations
During the year ended December 31, 2022, we completed certain acquisitions for total purchase consideration of $92
million primarily to enhance our products with the acquired technology and engineering workforce. The acquisitions were not
material to our consolidated financial statements, either individually or in the aggregate.
2021 Business Combinations
On June 15, 2021, we acquired Lightstep, Inc., a leading observability solution provider, for $512 million in a cash
transaction. The purchase price was allocated based on the estimated fair value of developed technology intangible asset of $85
million (five-year estimated useful life), customer related and brand assets of $11 million, net tangible assets of $8 million,
deferred tax liabilities of $6 million and goodwill of $413 million, which is not deductible for income tax purposes.
On January 8, 2021, we acquired all outstanding stock of Element AI Inc., a leading enterprise artificial intelligence
solution provider, for $228 million in an all-cash transaction. The purchase price was allocated based on the estimated fair value
of developed technology intangible asset of $85 million (five-year estimated useful life), net tangible assets of $16 million and
goodwill of $81 million, which is partially deductible for income tax purposes. At time of acquisition, we established an
unrecognized tax benefit of $43 million on pre-acquisition net operating loss carryforwards and other tax attributes which was
subsequently released resulting in establishment of deferred tax asset based on completion of valuation and filing certain tax
returns in the third quarter of 2021.
Goodwill is primarily attributed to the value expected from synergies resulting from the business combinations. The fair
values assigned to tangible and intangible assets acquired, liabilities assumed and income taxes payable and deferred taxes are
based on management’s estimates and assumptions. The Company finalized the fair value measurements within one year from
the acquisition date.
62
During the year ended December 31, 2021, we also completed certain acquisitions for total purchase consideration of $66
million primarily to enhance our products with the acquired technology and engineering workforce. These acquisitions were not
material to our consolidated financial statements, either individually or in the aggregate.
2020 Business Combinations
During the year ended December 31, 2020, we completed certain acquisitions for total purchase consideration of $116
million primarily to enhance our products with the acquired technology and engineering workforce. These acquisitions were not
material to our consolidated financial statements, either individually or in the aggregate.
We have included the financial results of business combinations in the consolidated financial statements from the
respective dates of acquisition, which were not material. Pro forma revenue and earnings amounts on a combined basis have not
been presented as it is impracticable due to the lack of availability of historical financial statements that comply with GAAP.
Aggregate acquisition-related costs associated with business combinations are not material for the years ended December 31,
2022, 2021 and 2020, respectively, and are included in general and administrative expenses in our consolidated statements of
comprehensive income as incurred.
(6) Goodwill and Intangible Assets
Goodwill balances consist of the following (in millions):
Balance as of December 31, 2020
Goodwill acquired
Foreign currency translation adjustments
Balance as of December 31, 2021
Goodwill acquired
Foreign currency translation adjustments
Balance as of December 31, 2022
Intangible assets consist of the following (in millions):
Developed technology
Patents
Other
Intangible assets, gross
Less: accumulated amortization
Intangible assets, net
Carrying Amount
$
$
$
241
538
(2)
777
68
(21)
824
December 31, 2022 December 31, 2021
$
$
$
434 $
72
15
521 $
(289)
232 $
415
69
14
498
(211)
287
The weighted-average useful life of the acquired developed technology for each of the years ended December 31, 2022
and 2021 was approximately five years. Amortization expense for intangible assets was approximately $81 million, $76
million and $46 million for the years ended December 31, 2022, 2021 and 2020, respectively.
63
The following table presents the estimated future amortization expense related to intangible assets held at December 31,
2022 (in millions):
Years Ending December 31,
2023
2024
2025
2026
2027
Thereafter
Total future amortization expense
(7) Property and Equipment
Property and equipment, net consists of the following (in millions):
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,
2022
2021
1,606
$
82
226
81
53
2,048
(995)
1,053
$
$
$
78
71
51
20
6
6
232
1,226
77
200
74
14
1,591
(825)
766
Construction in progress consists of costs related to leasehold and other improvements. Depreciation expense was $261
million, $312 million and $225 million for the years ended December 31, 2022, 2021 and 2020, respectively.
(8) Derivative Contracts
As of December 31, 2022 and 2021, we had foreign currency forward contracts with total notional values of $1,360
million and $833 million, respectively, which are not designated as hedging instruments. Our foreign currency forward
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. Outstanding foreign currency forward contracts are
recorded at gross fair value as prepaid expenses and other current assets as well as accrued expenses and other current liabilities
on the consolidated balance sheets. The gross fair value of these foreign currency forward contracts was immaterial as of
December 31, 2022 and 2021. The gains (losses) recognized for these foreign currency forward contracts were immaterial for
each of the years ended December 31, 2022, 2021 and 2020.
(9) Deferred Revenue and Performance Obligations
Revenues recognized during the year ended December 31, 2022 from amounts included in deferred revenue as of
December 31, 2021 were $3.7 billion. Revenues recognized during the year ended December 31, 2021 from amounts included
in deferred revenue as of December 31, 2020 were $2.9 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.
64
As of December 31, 2022, the total non-cancelable RPO under our contracts with customers was $14 billion, and we
expect to recognize revenues on approximately 49% of these RPO over the following 12 months. The majority of the non-
current RPO will be recognized over the next 13 to 36 months.
(10) Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consist of the following (in millions):
Accrued payroll
Taxes payable
Other employee related liabilities
Other
Total accrued expenses and other current liabilities
(11) Debt
December 31,
2022
2021
$
$
490
109
150
226
975
$
$
444
101
121
184
850
The following table summarizes the carrying value of our outstanding debt (in millions), net of unamortized debt discount
and issuance costs of $14 million and $18 million at December 31, 2022 and 2021, respectively:
Current, net
Long-term, net
Total debt
December 31, 2022
December 31, 2021
2030 Notes
2022 Notes
2030 Notes
2022 Notes
$
$
— $
1,486
1,486 $
— $
—
— $
— $
1,484
1,484 $
92
—
92
We consider the fair value of the 2030 Notes at December 31, 2022, and the 2022 Notes and 2030 Notes at December 31,
2021 to be a Level 2 measurement. The estimated fair value of the 2030 Notes at December 31, 2022, and the 2022 Notes and
2030 Notes at December 31, 2021 is based on the closing trading price per $100 of the 2030 Notes and 2022 Notes as follows
(in millions):
2022 Notes
2030 Notes
2030 Notes
December 31, 2022
December 31, 2021
$
$
— $
1,144
$
440
1,400
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. The effective interest rate for the 2030 Notes was 1.53%, including coupon interest,
amortization of debt issuance costs and amortization of the debt discount. 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.
65
2022 Notes
In May and June 2017, we issued an aggregate of $782.5 million of 0% convertible senior notes (the “2022 Notes”),
which were due June 1, 2022 unless earlier converted or repurchased in accordance with their terms. The 2022 Notes did not
bear interest, and we could not redeem the 2022 Notes prior to maturity. The 2022 Notes were unsecured obligations and did
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.
As described in Note 2, we adopted the new accounting standard for debt with conversion options effective January 1,
2022 using a modified retrospective method, under which financial results reported in prior periods were not adjusted. Prior to
the adoption of the new standard, 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 transaction costs allocated to the liability
component were amortized to interest expense using the effective interest method over the term of the 2022 Notes. Upon
adoption of the new accounting standard on January 1, 2022, we recombined the liability and equity components of the 2022
Notes, including the related issuance costs, assuming the instrument was accounted for as a single liability from inception to the
date of adoption. Issuance costs were presented as a deduction from the outstanding principal balance of the 2022 Notes and
amortized to interest expense using the effective interest method over the term of the 2022 Notes.
Initial
Conversion Price
per Share
Initial
Conversion Rate
per $1,000 Par
Value
Convertible Date
Initial Number of
Shares
(in millions)
2022 Notes
February 1, 2022
$
134.75
7.42 shares
6
Conversion of the 2022 Notes. On or after February 1, 2022 (the “Convertible Date”), a holder was able to 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, and such conversions were settled on the maturity date.
Prior to the Convertible Date, holders of the 2022 Notes could convert their 2022 Notes at their option if, during any
calendar quarter 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 130% of the
conversion price on each applicable trading day (in each case, the “Conversion Condition”).
The Conversion Condition for the 2022 Notes was met for all the quarters ended June 30, 2018 through December 31,
2021, except for the quarter ended December 31, 2018. Therefore, our 2022 Notes became convertible at the holders’ option
beginning on July 1, 2018 through January 31, 2022, 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, 2022, we paid cash to settle $94 million in principal of the 2022 Notes, which was
comprised of early conversions of $6 million and the remaining principal of $88 million for the final settlement on June 1,
2022, the maturity date of our 2022 Notes. As a result of the settlements, we also recorded a net reduction to additional paid-in
capital of $212 million offset by $212 million benefit from the 2022 Note Hedge (as defined below).
66
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
Shares as of
December 31, 2022
(in millions)
2022 Note Hedge
$
128
6
—
The 2022 Note Hedge covered shares of our common stock at a strike price per share that corresponded to the initial
conversion price of the 2022 Notes, subject to adjustment, and were exercisable upon conversion of the 2022 Notes. The 2022
Note Hedge expired upon the maturity of the 2022 Notes and since the quarter ended June 30, 2022, the 2022 Note Hedge is no
longer outstanding. The 2022 Note Hedge was 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 was a separate transaction and was not part of the terms of the 2022 Notes. Holders of
the 2022 Notes did not have any rights with respect to the 2022 Note Hedge. The 2022 Note Hedge did 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
Proceeds
Initial Shares
Strike Price
First Expiration
Date
Shares as of
December 31, 2022
(in millions)
(in millions)
(in millions)
2022 Warrants
$
54
6
$
203.40 September 1, 2022
—
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, exceeded
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 were separate transactions and were not remeasured through earnings each
reporting period. The 2022 Warrants were not part of the 2022 Notes or 2022 Note Hedge.
In connection with the 2022 Notes Repurchase and early note conversions, we entered into partial unwind agreements to
reduce the number of warrants outstanding under the 2022 Warrants by delivering an aggregate of 0.5 million shares of our
common stock during the year ended December 31, 2021.
67
During the quarter ended June 30, 2022. we entered into unwind agreements to settle the remaining portion of the 2022
Warrants by delivering an aggregate of 0.6 million shares of our common stock. Accordingly, the 2022 Warrants were no
longer outstanding as of June 30, 2022.
(12) Accumulated Other Comprehensive Income (Loss)
The following table shows the components of accumulated other comprehensive income (loss), net of tax, in the
stockholders’ equity section of our consolidated balance sheets (in millions):
Foreign currency translation adjustment
Net unrealized loss on investments
Accumulated other comprehensive income (loss)
December 31,
2022
2021
$
$
(25) $
(77)
(102) $
46
(12)
34
Reclassification adjustments out of accumulated other comprehensive income (loss) into net income were not material for
all periods presented.
(13) Stockholders' Equity
Common Stock
We are authorized to issue a total of 600 million shares of common stock as of December 31, 2022. Holders of our
common stock are not entitled to receive dividends unless declared by our board of directors. As of December 31, 2022, we had
202.9 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 (1)
Shares of common stock available for future grants:
2021 Equity Incentive Plan (2)
Amended and Restated 2012 Employee Stock Purchase Plan (2)
2022 New-Hire Equity Incentive Plan (2)
Total shares of common stock reserved for future issuance
December 31, 2022
1,237
5,737
5,312
8,996
1,045
22,327
(1)
(2)
Represents the number of shares issuable upon settlement of outstanding RSUs and PRSUs, as discussed in Note 14.
Refer to Note 14 for a description of these plans.
During the years ended December 31, 2022 and 2021, we issued a total of 2.7 million shares and 3.2 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, during the years ended December 31, 2022 and 2021, we issued 0.6 million and 0.5 million
shares of our common stock upon the settlement of the remaining portion and partial unwind of the 2022 Warrants,
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, 2022 and 2021, no shares of preferred
stock were outstanding.
68
(14) Equity Awards
We currently have three equity incentive plans: 2012 Equity Incentive Plan (the “2012 Plan”), 2021 Equity Incentive Plan
(the “2021 Plan”) and 2022 New-Hire Equity Incentive Plan (the “2022 Plan”). The 2012 Plan was terminated in connection
with the approval of the 2021 Plan on June 7, 2021 but continues to govern the terms of outstanding equity awards that were
granted prior to the termination of the 2012 Plan. As of June 7, 2021, we no longer grant equity awards pursuant to the 2012
Plan. On November 7, 2022, the 2022 Plan was approved for newly hired employees prospectively.
The 2021 Plan and the 2012 Plan provide 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”). The 2022 Plan permits the grant of any of the foregoing awards with the exception of incentive stock options. In
addition, the 2022 Plan, the 2021 Plan and the 2012 Plan provide 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. Prior to June 7, 2021, the 2012 Plan share reserve was increased to the extent outstanding stock
options under the 2005 Plan expire or terminate unexercised.
Our Amended and Restated 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. Prior to June 7,
2021, the number of shares of common stock reserved for issuance automatically increased on January 1 of each year, 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. As of June 7, 2021, the automatic increase provision was removed. Therefore, for the remaining term of the
2012 ESPP, the share reserve will not be increased without shareholder approval.
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 the 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:
Weighted-
Average
Exercise
Price Per
Share
Weighted-
Average
Remaining
Contractual
Term
Aggregate
Intrinsic
Value
(in years)
(in millions)
Number of
Shares
(in thousands)
Outstanding at December 31, 2021
Granted
Exercised
Canceled
Outstanding at December 31, 2022
Vested and expected to vest as of December 31, 2022
Vested and exercisable as of December 31, 2022
1,305
23
$
$
(85) $
(6) $
$
$
1,237
1,075
142
$
551.39
591.66
32.30
66.58
590.36
578.24
165.31
$
8.3 $
8.3 $
5.2 $
40
43
43
32
Aggregate intrinsic value represents the difference between the estimated fair value of our common stock and the exercise
price of outstanding, in-the-money options. The total intrinsic value for stock options exercised for the years ended December
31, 2022, 2021 and 2020, was $40 million, $140 million and $199 million, respectively.
69
The total fair value of shares vested was $11 million, $10 million and $7 million for the years ended December 31, 2022,
2021 and 2020, respectively. The weighted-average grant-date fair values of stock options granted was $273.63 and $248.85
per share for the years ended December 31, 2022 and 2021, respectively. No stock options were granted during the year ended
December 31, 2020.
During the year ended December 31, 2021, a one-time long-term performance-based option award was granted to the
Chief Executive Officer (“2021 CEO Performance Award") and to certain executives (collectively “2021 Performance
Awards”) under the 2021 Plan at a total grant date fair value of $232 million. The 2021 Performance Awards will vest in eight
equal tranches based on service and achievement of both performance and market conditions, subject to continued employment
and specifically for the 2021 CEO Performance Award, as CEO or Executive Chairman of the Company, through each vesting
date. The performance and market condition for a particular tranche may be achieved at different points in time and in any order
but will become eligible to vest only when all service, performance and market conditions for the respective tranche are met but
no earlier than two years. The performance and market condition must be achieved by September 30, 2026 (the "Performance
Period"). The stock price metric will be achieved when both the 180-Day volume weighted-average price ("VWAP") and the
30-Day VWAP equal or exceed the respective tranche stock price metric on any day during the Performance Period. The
performance metric is achieved when the trailing four quarter cumulative GAAP subscription revenues equal or exceed the
respective tranche performance target. Shares acquired upon exercise of the options cannot be sold, transferred or disposed until
after the end of the Performance Period and the 2021 Performance Awards will expire ten years from the respective date of
grant.
The fair value of the 2021 Performance Awards and the corresponding derived service periods were estimated using the
Monte Carlo simulation. Stock-based compensation expense is recognized on a graded vesting basis over the requisite service
period for each respective tranche, but not shorter than the two-year minimum service period, and includes an assessment of
when it is probable the performance condition will be achieved, which involves a subjective assessment of our future financial
projection.
As of December 31, 2022, total unrecognized compensation cost, adjusted for estimated forfeitures, related to unvested
stock options was approximately $84 million. The weighted-average remaining vesting period of unvested stock options at
December 31, 2022 was two years.
RSUs
A summary of RSU activity was as follows:
Outstanding at December 31, 2021
Granted
Vested
Forfeited
Outstanding at December 31, 2022
Expected to vest as of December 31, 2022
Weighted-
Average
Grant-Date
Fair Value Per
Share
Number of
Shares
(in thousands)
5,808 $
3,719 $
(3,075) $
(715) $
5,737 $
4,983
416.00
541.24
389.27
469.06
505.79
RSUs outstanding as of December 31, 2022 were comprised of 5.3 million RSUs with only service conditions and
0.4 million RSUs with both service conditions and performance conditions, including certain RSUs with additional market
conditions. The total intrinsic value of the RSUs vested was $1.5 billion, $2.1 billion and $1.8 billion for the years ended
December 31, 2022, 2021 and 2020, respectively. As of December 31, 2022, the aggregate intrinsic value of RSUs outstanding
was $2.2 billion and RSUs expected to vest was $1.9 billion. The weighted-average grant-date fair value of RSUs granted was
$541.24, $577.26 and $367.52 per share for the years ended December 31, 2022, 2021 and 2020, respectively.
70
For the years ended December 31, 2022 and 2021, PRSUs with service, performance and market vesting criteria 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 200% of the target number of
shares depending on achievement relative to the performance metrics and, for certain PRSUs, depend on our total shareholder
return relative to that of the S&P 500 index over the applicable measurement period. The eligible shares subject to PRSUs
granted during the year ended December 31, 2022 will vest in February of the following year and semi-annually for the
remaining two years contingent on each holder’s continuous status as a service provider on the applicable vesting dates. The
number of PRSUs granted included 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.
We recognized $121 million, $124 million, and $70 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, 2022, 2021 and
2020, respectively.
As of December 31, 2022, total unrecognized compensation cost, adjusted for estimated forfeitures, related to unvested
RSUs was approximately $2.2 billion and the weighted-average remaining vesting period was approximately three years.
Valuation Assumptions
The following assumptions were used in the Black-Scholes options pricing model and the Monte Carlo simulation model,
to estimate our stock-based compensation on the date of grant for ESPP, stock options and PRSUs, respectively, as applicable.
Risk Free Interest Rate
ESPP
Stock Options
PRSU
Expected Term (in years)
ESPP
Stock Options
Expected Volatility
ESPP
Stock Options
PRSU
2022
Year Ended December 31,
2021
2020
0.06% - 2.96%
2.04%
1.76%
0.5
10
35% - 59%
40 %
42 %
0.06% - 0.11%
1.20% - 1.45%
0.19% - 0.20%
0.5
7.5 - 10
35% - 60%
38% - 41%
41% - 42%
0.11% - 2.04%
*
**
0.5
*
30% - 60%
*
**
* There were no stock option grants in 2020.
** There were no grants with market conditions for the respective fiscal year.
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 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.
71
(15) Net Income Per Share
Basic net income per share attributable to common stockholders is computed by dividing net income attributable to
common stockholders by the weighted-average number of shares of common stock outstanding during the period. Diluted net
income per share is computed by dividing net income 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 Warrants. Stock awards with
performance or market conditions are included in dilutive shares to the extent all conditions are 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 Warrants are excluded from the computation of
diluted net income per share in periods in which the effect would be antidilutive.
The following tables present the calculation of basic and diluted net income per share attributable to common stockholders
(in millions, except for number of shares reflected in thousands and per share data):
Numerator:
Net income
Denominator:
Year Ended December 31,
2022
2021
2020
$
325
$
230
$
119
Weighted-average shares outstanding - basic
201,430
198,094
193,096
Weighted-average effect of potentially dilutive securities:
Common stock options
RSUs
2022 Notes
2022 Notes settlements
2022 Warrants
Settlement of 2022 Warrants
117
1,555
—
280
—
153
293
3,429
535
116
649
51
547
4,421
842
1,931
920
721
Weighted-average shares outstanding - diluted
203,535
203,167
202,478
Net income per share - basic
Net income per share - diluted
$
$
1.61
1.60
$
$
1.16
1.13
$
$
0.61
0.59
Potentially dilutive securities that are not included in the calculation of diluted net income per share because doing so
would be antidilutive are as follows (in thousands):
Common stock options
RSUs
ESPP obligations
Total potentially dilutive securities
Year Ended December 31,
2022
2021
2020
1,084
3,265
309
4,658
998
381
209
1,588
—
347
224
571
72
(16) Income Taxes
The components of income before income taxes by U.S. and foreign jurisdictions were as follows (in millions):
United States
Foreign
Total
Year Ended December 31,
2022
2021
2020
$
$
173
226
399
$
$
152
97
249
$
$
The provision for income taxes consists of the following (in millions):
Current provision:
Federal
State
Foreign
Deferred provision:
Federal
State
Foreign
Provision for income taxes
Year Ended December 31,
2022
2021
2020
— $
— $
13
46
59
(1)
(1)
17
15
74
1
52
53
(3)
(3)
(28)
(34)
$
19
$
$
$
13
137
150
—
—
53
53
(5)
(1)
(16)
(22)
31
The effective income tax rate differs from the federal statutory income tax rate applied to the income before income taxes
due to the following (in millions):
Year Ended December 31,
2022
2021
2020
Tax computed at U.S. federal statutory rate
State taxes, net of federal benefit
U.S. tax on foreign earnings
Tax rate differential for international subsidiaries
Stock-based compensation
Executive compensation
Tax credits
Other
Valuation allowance
Provision for income taxes
$
$
$
84
10
96
18
7
22
(70)
7
(100)
74
$
$
53
—
—
6
(160)
23
(76)
4
169
19
$
31
—
—
8
(157)
25
(64)
4
184
31
Significant components of our deferred tax assets are shown below (in millions). 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.
73
Deferred tax assets:
Net operating loss carryforwards
Credit carryforwards
Lease liability
Capitalized research and development
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,
2022
2021
$
1,061
605
388
178
262
553
159
2,145
(1,228)
917
(162)
(129)
626
$
318
152
—
587
126
2,244
(1,326)
918
(141)
(94)
683
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, 2022.
As of December 31, 2022, we had U.S. federal net operating loss and federal tax credit carryforwards of approximately
$2.0 billion and $313 million, respectively. The federal tax credits will begin to expire in 2024 if not utilized. In addition, as of
December 31, 2022, we had state net operating loss and state tax credit carryforwards of approximately $1.5 billion and $229
million, respectively. The state net operating loss will begin to expire in 2023 if not utilized; however, the tax-effected amount
due to expire in 2023 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.
We maintain a full valuation allowance against our U.S. deferred tax assets as of December 31, 2022. 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 in the U.S. during the prior three years, including tax deductible stock compensation, 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 realized as of December 31, 2022. However, given our current earnings and anticipated future earnings, we believe that
there is a reasonable possibility that within the next 12 months, sufficient positive evidence may become available to allow us to
reach a conclusion that the U.S. valuation allowance will no longer be needed. Release of the valuation allowance would result
in the recognition of material U.S. federal and state deferred tax assets and a corresponding decrease to income tax expense for
the period the release is recorded. The exact timing and amount of the valuation allowance release are subject to change on the
basis of the level of sustained U.S. profitability that the Company is able to actually achieve, as well as the amount of tax
deductible stock compensation dependent upon our publicly traded share price,
foreign currency movements and
macroeconomic conditions, among other factors.
The $98 million decrease in the 2022 valuation allowance was primarily attributable to a decrease in deferred tax assets
related to the utilization of net operating losses. The $197 million increase in the 2021 valuation allowance was primarily
attributable to an increase in deferred tax assets related to net operating losses and R&D tax credits partially offset by a
valuation allowance release related to Lightstep, Inc. acquired deferred tax liabilities. The $210 million increase in the 2020
valuation allowance was primarily attributable to an increase in deferred tax assets related to net operating losses.
74
A reconciliation of the beginning and ending balance of total unrecognized tax benefits is as follows (in millions):
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
$
$
Year Ended December 31,
2022
2021
2020
124
$
81
$
—
(1)
38
—
(2)
5
—
38
—
—
159
$
124
$
37
6
(1)
39
—
—
81
As of December 31, 2022, we had gross unrecognized tax benefits of approximately $159 million, of which $31 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
$5 million and $4 million at December 31, 2022 and 2021, 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, 2022, our tax years 2004 to
2021 remain subject to examination in most jurisdictions.
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.
(17) 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 $112 million, $100 million and $83 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, 2022, 2021 and
2020, respectively.
75
Total cash paid for amounts included in the measurement of operating lease liabilities was $75 million for each of the
years ended December 31, 2022 and 2021. Operating lease liabilities arising from obtaining operating right-of-use assets was
$192 million and $223 million for the years ended December 31, 2022 and 2021, respectively, which is largely related to
additional office facilities located in Santa Clara, California in line with the original commitment.
As of December 31, 2022, the weighted-average remaining lease term is approximately ten years and the weighted-
average discount rate is 3.5%.
Maturities of operating lease liabilities as of December 31, 2022 are presented in the table below (in millions):
Years Ending December 31,
2023
2024
2025
2026
2027
Thereafter
Total operating lease payments
Less: imputed interest
Present value of operating lease liabilities
$
$
115
100
100
81
71
428
895
(149)
746
In addition to the amounts above, as of December 31, 2022, we have operating leases, primarily for offices, that have not
yet commenced with undiscounted cash flows of $103 million. These operating leases are expected to commence in 2023 with
lease terms of ten to twelve years.
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,
2022 are presented in the table below (in millions):
Years Ending December 31,
2023
2024
2025
2026
2027
Thereafter
Total
Purchase
Obligations (1)
$
$
289
219
98
69
542
54
1,271
(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 2023 and future years. If we had canceled these contractual commitments as of December 31, 2022, we would have been
obligated to pay cancellation penalties of approximately $56 million in aggregate. In addition, during 2022, we entered into a non-cancelable
$500 million agreement with Microsoft to purchase cloud services over five years, as we accelerate Azure adoption for mutual customers. The unutilized
consumption is included within the table above.
In addition to the amounts above, the repayment of our 2030 Notes with an aggregate principal amount of $1.5 billion is
due on September 1, 2030. Refer to Note 11 for further information regarding our 2030 Notes. Further, $31 million of
unrecognized tax benefits have been recorded as liabilities as of December 31, 2022.
76
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.
(18) 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 millions):
North America (1)
EMEA (2)
Asia Pacific and other
Total revenues
Year Ended December 31,
2022
2021
2020
$
$
4,723
$
3,752
$
1,778
744
1,551
593
7,245
$
5,896
$
Property and equipment, net by geographic area were as follows (in millions):
Property and equipment, net:
North America (3)
EMEA (2)
Asia Pacific and other
Total property and equipment, net
December 31,
2022
2021
$
$
664
$
221
168
1,053
$
2,960
1,132
427
4,519
484
176
106
766
(1)
(2)
(3)
Revenues attributed to the United States were 94% of North America revenues for each of the years ended December 31, 2022, 2021 and 2020.
Europe, the Middle East and Africa (“EMEA”)
Property and equipment, net attributed to the United States were approximately 85% and 84% of property and equipment, net attributable to North
America as of December 31, 2022 and 2021, respectively.
77
Subscription revenues consist of the following (in millions):
Digital workflow products
ITOM products
Total subscription revenues
2022
Year Ended December 31,
2021
2020
$
$
6,077
814
6,891
$
$
4,882
691
5,573
$
$
3,749
537
4,286
Our digital workflow products include the Now Platform, IT Service Management, Strategic Portfolio Management
(formerly known as IT Business Management), IT Asset Management and Enterprise Asset Management, Security Operations,
Integrated Risk Management (formerly Governance, Risk and Compliance), ESG Management, HR Service Delivery,
Workplace Service Delivery, Legal Service Delivery, Customer Service Management, Field Service Management, Industry
Solutions, App Engine, Automation Engine, Platform Privacy and Security, Procurement Operations Management and Impact,
and are generally priced on a per user basis. Our ITOM products are generally priced on a subscription unit basis, which allows
us to measure customers’ management of various IT resources, and decreasingly on a per node (physical or virtual server) basis.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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 or submitted 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, 2022, 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, 2022.
The effectiveness of our internal control over financial reporting as of December 31, 2022 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.
78
(c) Changes in Internal Control over Financial Reporting
There were no changes to 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 the quarter ended December 31, 2022 that have materially affected, or
is reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
ITEM 9C. DISCLOSURES REGARDING FOREIGN JURISDICTION THAT PREVENT INSPECTIONS
Not Applicable.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
PART III
The information required by this item will be 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 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 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 incorporated by reference from our definitive proxy statement to be filed
pursuant to Regulation 14A.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this item will be incorporated by reference from our definitive proxy statement to be filed
pursuant to Regulation 14A.
79
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.
80
None.
Exhibit
Number
3.1
3.2
4.1
4.2
4.3
4.4
4.5
10.2*
10.3*
10.4*
ITEM 16. FORM 10-K SUMMARY
EXHIBIT INDEX
Incorporated by Reference
Form
File No.
Exhibit
Filing Date
Filed
Herewith
Description of Document
Restated Certificate of
Registrant, as amended
Incorporation of
Restated Bylaws of Registrant
8-K
8-K
001-35580
001-35580
Form of Common Stock Certificate
S-1/A
333-180486
Indenture dated May 30, 2017 between the
Registrant and Wells Fargo Bank, National
Association
8-K
001-35580
3.1
3.2
4.1
4.1
6/9/2021
6/9/2021
6/19/2012
5/30/2017
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
Securities
Registered Under Section 12 of the Exchange
Act
Registrant’s
of
8-K
001-35580
4.1
8/11/2020
8-K
001-35580
4.2
8/11/2020
10-K
001-35580
4.5
2/3/2022
10.1*
Form of Indemnification Agreement
10-K
001-35580
2012 Equity Incentive Plan, as amended
through January 29, 2019
10-K
001-35580
10.1
10.3
2/27/2015
2/27/2019
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
10-Q
001-35580
10.1
7/30/2020
10-Q
001-35580
10.2
7/30/2020
10.5*
2021 Equity Incentive Plan
S-8
333-256854
4.5
6/7/2021
10.6*
Related form of equity agreements under the
2021 Equity Incentive Plan
10-Q
001-35580
10.4
7/29/2021
10.7*
Related form of global equity agreements
under the 2021 Equity Incentive Plan
10-Q
001-35580
10.1
7/28/2022
10.8*
Amended and Restated 2012 Employee Stock
Purchase Plan
8-K
001-35580
10.2
6/9/2021
10.9*
10.10*
Form of Subscription Agreement under the
Amended and Restated 2012 Employee Stock
Purchase Plan
Form of Global Subscription Agreement
under
the Amended and Restated 2012
Employee Stock Purchase Plan
10-Q
001-35580
10.5
7/29/2021
10-Q
001-35580
10.2
7/28/2022
81
Exhibit
Number
Description of Document
Incorporated by Reference
Form
File No.
Exhibit
Filing Date
Filed
Herewith
10.11*
2022 New-Hire Equity Incentive Plan
S-8
333-268298
4.4
11/10/2022
10.12*
10.13*
10.14*
10.15*
10.16*
10.17*
10.18*
Employment Agreement dated October 22,
2019 between the Registrant and William R.
McDermott
Amendment to Employment Agreement dated
March 24, 2020 between the Registrant and
William R. McDermott
Employment Agreement dated November 15,
2019 between the Registrant
and Gina
Mastantuono
Confirmatory Employment Letter Agreement
dated October
the
Registrant and Chirantan J. Desai
between
2017,
31,
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
Form of Amendment
to Employment
Agreement between the Registrant and each
of Gina Mastantuono, Chirantan J. Desai,
Kevin Haverty and Russell S. Elmer.
8-K
001-35580
10.1
10/23/2019
8-K
001-35580
10.1
3/27/2020
8-K
001-35580
10.1
11/18/2019
10-Q
001-35580
10.1
11/6/2017
10-K
001-35580
10.17
2/27/2019
10-Q
001-35580
10.1
10/29/2020
8-K
001-35580
10.1
4/16/2021
10.19*
Employment Letter Agreement dated June 18,
2021 by and between the Registrant and
Jacqueline Canney.
10-Q
001-35580
10.1
10/28/2021
10.20*
10.21*
10.22*
10.23*
10.24*
10.25
10.26
10.27
10.28
Employment Agreement dated August 20,
2021 by and between Registrant and Nicholas
Tzitzon.
10-K
001-35580
10.25
2/3/2022
of Understanding
Letter
International
Assignment dated June 22, 2022, between the
Registrant and Nicholas Tzitzon
-
10-Q
001-35580
10.3
7/28/2022
Confirmatory Employment Letter Agreement
dated January 2, 2018, as amended by and
between the Registrant and Christopher Bedi
10-Q
001-35580
10.1
4/28/2022
Employment
dated
November 6, 2017, as amended, by and
between Registrant and Lara Caimi
Agreement
Letter
Employment Letter Agreement dated April
26, 2022, as amended, by and between
Registrant and Paul Smith
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
2018 between the Registrant and SI 55, LLC
to Lease dated May 3,
Lease dated May 3, 2018, between the
Registrant and SI 55, LLC
10-Q
001-35580
10.2
4/28/2022
10-Q
001-35580
10.3
4/28/2022
S-1/A
333-184674
10.12
11/9/2012
8-K
001-35580
10.1
12/15/2014
10-Q
001-35580
10.1
5/8/2018
10-Q
001-35580
10.2
5/8/2018
82
Filed
Herewith
Incorporated by Reference
Description of Document
Form
File No.
Exhibit
Filing Date
Lease dated May 3, 2018, between the
Registrant and SI 55, LLC
Form of Base Convertible Note Hedge
Transaction Confirmation
Form of
Confirmation
Base Warrant
Transaction
Form of Additional Convertible Note Hedge
Transaction Confirmation
10-Q
001-35580
10.3
5/8/2018
8-K
001-35580
99.1
5/30/2017
8-K
001-35580
99.2
5/30/2017
8-K
001-35580
99.1
6/22/2017
Form of Additional Warrant Transaction
Confirmation
8-K
001-35580
Form of Repurchase Agreement
Form of Call Option Termination Agreement
Form of Warrant Termination Agreement
Form of Warrant Termination Agreement
Form of
Agreement
2022 Warrant
Termination
10-Q
10-Q
10-Q
10-Q
001-35580
001-35580
001-35580
001-35580
10-Q
001-35580
99.2
10.2
10.3
10.4
10.3
10.4
6/22/2017
10/29/2020
10/29/2020
10/29/2020
4/29/2021
7/28/2022
Exhibit
Number
10.29
10.30
10.31
10.32
10.33
10.34
10.35
10.36
10.37
10.38
21.1
23.1
24.1
31.1
31.2
32.1**
32.2**
Subsidiaries of the Registrant
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
to 18 U.S.C. Section 1350 as
Pursuant
Adopted Pursuant
the
Sarbanes-Oxley Act of 2002
to Section 906 of
Certification of Chief Financial Officer
to 18 U.S.C. Section 1350 as
Pursuant
Adopted Pursuant
the
Sarbanes-Oxley Act of 2002
to Section 906 of
101.INS
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
83
X
X
X
X
X
X
X
X
X
X
X
X
Exhibit
Number
Description of Document
101.PRE
Inline XBRL Taxonomy Extension
Presentation Linkbase Document
104
Cover Page Interactive Data File (formatted as
inline XBRL and contained in Exhibit 101)
Incorporated by Reference
Form
File No.
Exhibit
Filing Date
Filed
Herewith
X
X
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.
84
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: January 30, 2023
SERVICENOW, INC.
By:
/s/ William R. McDermott
William R. McDermott
Chief Executive Officer
85
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
Date
January 30, 2023
January 30, 2023
January 30, 2023
January 30, 2023
January 30, 2023
January 30, 2023
January 30, 2023
January 30, 2023
January 30, 2023
January 30, 2023
January 30, 2023
January 30, 2023
in the capacities and on the dates indicated.
Signature
Title
/s/ William R. McDermott
William R. McDermott
/s/ Gina Mastantuono
Gina Mastantuono
/s/ Kevin T. McBride
Kevin T. McBride
/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/ Joseph M. Quinlan
Joseph M. Quinlan
/s/ Anita M. Sands
Anita M. Sands
Chairman and Chief Executive Officer
(Principal Executive Officer)
Chief Financial Officer
(Principal Financial Officer)
Chief Accounting Officer
(Principal Accounting Officer)
Director
Director
Director
Director
Director
Director
Director
Director
Director
86
PUT YES
TO WORK.
THE WORLD WORKS WITH SERVICENOW™
INVESTOR INFORMATION
BOARD OF DIRECTORS
SHAREHOLDER SERVICES
Susan L. Bostrom
Former Executive Vice President, Chief Marketing Officer and
Head of Worldwide Government Affairs of Cisco Systems, Inc.
Teresa Briggs
Former Vice Chair & West Region Managing Partner of Deloitte LLP
Computershare Trust Company N.A. Investor Services
P.O. BOX 43078
Providence, RI 02940-3078
www.computershare.com
(877) 373-6374 or (781) 575-3120
Jonathan C. Chadwick
Former Executive Vice President, Chief Financial Officer and
Chief Operating Officer of VMware, Inc.
Paul E. Chamberlain
Financial Advisor; Former Managing Director and Co-Head
of Global Technology Banking of Morgan Stanley
Lawrence J. Jackson, Jr.
Founder and Chief Executive Officer, gamma
Frederic B. Luddy
Founder and Former President, Chief Executive Officer and
Chief Product Officer of ServiceNow, Inc.
Bill McDermott
Chairman and Chief Executive Officer of ServiceNow, Inc.
Jeffrey A. Miller
Lead Independent Director
Chief Executive Officer of JAMM Ventures
Joseph “Larry” Quinlan
Former Global Chief Information Officer of Deloitte LLP
Anita M. Sands
Former Group Managing Director, Head of Change Leadership
of UBS Financial Services
EXECUTIVE OFFICERS
Bill McDermott
Chairman and Chief Executive Officer
Chirantan “CJ” Desai
President and Chief Operating Officer
Gina Mastantuono
Chief Financial Officer
Christopher Bedi
Chief Information Officer
Jacqueline Canney
Chief People Officer
Lara Caimi
Chief Customer Officer and GM, Impact and Services
Nicholas Tzitzon
Chief Strategy and Corporate Affairs Officer
Paul Smith
Chief Commercial Officer
Russell S. Elmer
General Counsel and Secretary
AVAILABLE INFORMATION
Our Annual Report on Form 10-K, other SEC reports and filings,
Code of Ethics, Corporate Governance Guidelines, charters of
our Board committees and other governance documents and
information are available on our website, www.servicenow.com.
STOCK LISTING
ServiceNow trades on the New York Stock Exchange
under the ticker symbol “NOW.”
SERVICENOW ANNUAL MEETING
June 1, 2023 at 10:00 a.m. (Pacific Time)
Conducted via live webcast at
www.virtualshareholdermeeting.com/NOW2023
COMPANY HEADQUARTERS
2225 Lawson Lane
Santa Clara, California 95054
P: (408) 501-8550
E: info@servicenow.com
www.servicenow.com
FOR INVESTOR INQUIRIES
Email: ir@servicenow.com
SAFE HARBOR STATEMENT
This annual report contains forward-looking statements within the
meaning of the federal securities laws. Please refer to page one
of our Annual Report on Form 10-K filed with the Securities and
Exchange Commission on January 31, 2023, for a fuller description
of such forward-looking statements.
© 2023 ServiceNow, Inc. All rights reserved. ServiceNow, the
ServiceNow logo, Now, and other ServiceNow marks are trademarks
and/or registered trademarks of ServiceNow, Inc. in the United States
and/or other countries. Other company names, product names, and
logos may be trademarks of the respective companies with which
they are associated.