What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-01-25 compared with 2023-01-31 · 352 added, 341 removed, 1069 unchanged (39% of the section changed)

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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.

A discussion of our financial condition and results of operations for the fiscal year ended December 31, 2021 and year-to-year comparisons between fiscal 2022 and fiscal 2021 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, 2022, filed on January 31, 2023.

Our free cash flow measure included in the section entitled “—Key Business Metrics—Free Cash Flow,” is not in accordance with GAAP.

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ServiceNow was founded on a simple premise:

a better technology platform will help work flow better.

to make 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:

Our intelligent platform, the Now Platform, is a cloud-based solution with embedded artificial intelligence and machine learning capabilities that helps global enterprises across industries, universities and governments unify and digitize their workflows.

The Now Platform automates workflows across an entire enterprise by connecting disparate departments, systems and silos in a seamless way to unlock productivity and improve experiences for both employees and customers.

Our workflow applications built on the Now Platform are organized 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 .

We are closely monitoring the unfolding events of the Russian invasion of Ukraine and the current armed conflict in Israel and the Gaza Strip.

While these events are still evolving and the outcome remains highly uncertain, we do not believe the conflicts will have a material impact on our business and results of operations.

However, if the conflicts continue or worsen, leading to greater global economic disruptions and uncertainty, our business and results of operations could be materially impacted.

Our customers in these regions represented an immaterial portion of our net assets and total consolidated revenues both as of and for the year ended December 31, 2023 and December 31, 2022.

Additionally, other macroeconomic events, including rising interest rates, global inflation and bank failures, have led to economic uncertainty in the global economy.

To mitigate risk, our cash and cash equivalents are distributed across several large financial institutions and are not concentrated in one financial institution.

We have not experienced any impact to our liquidity or to our current and projected business operations and financial condition due to recent bank failures.

Further, we have policy restrictions on the types of securities that can be purchased as part of our available-for-sale debt securities portfolio.

These restrictions take industry and company concentration limits into consideration among other things.

Furthermore, the majority of our non-marketable equity investments do not have material relationships with any one financial institution, and therefore, we believe that our exposure to loss is immaterial.

We will continue to monitor the direct and indirect impact of macroeconomic events on our business and financial results.

See the “Risk Factors” section in Part I, Item 1A of this Annual Report for further discussion of the possible impact of the above conflicts and macroeconomic events on our business and financial results .

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.

Transaction price allocated to remaining performance obligations (“RPO”) represents contracted revenue that has not yet been recognized, which includes deferred revenue and non-cancellable 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.

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As of December 31, 2023, our RPO was $18.0 billion, of which 48% represented cRPO.

RPO and cRPO increased by 22%, respectively, compared to December 31, 2021.

RPO and cRPO increased by 29% and 24%, respectively, compared to December 31, 2022.

Factors that may cause our RPO to vary from period to period include the following:

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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.

We define free cash flow, a non-GAAP financial measure, as GAAP net cash provided by operating activities plus cash outflows for legal settlements, repayments of convertible senior notes attributable to debt discount and business combination and other related costs including compensation expense, reduced by purchases of property and equipment.

Purchases of property and equipment are otherwise included in cash used in investing activities under GAAP.

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Purchases of property and equipment (694) (550) (392)

Repayments of convertible senior notes attributable to debt discount

Business combination and other related costs

Free cash flow

$ 2,728 $ 2,180 $ 1,867

(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.

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Actual results may differ from these estimates under different assumptions or conditions and such differences could be material.

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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.

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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.

Our contracts with customers typically include a fixed amount of consideration and are generally non-cancellable 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.

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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.

Critical estimates in valuing certain intangible assets include, but are not limited to, future expected cash flows, discount rates, revenue growth 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.

We evaluate 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.

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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.

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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.

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.

As of June 30, 2023, we achieved cumulative U.S.

income during the prior twelve quarters when considering pre-tax income adjusted for permanent differences and other comprehensive losses.

Based on all available positive and negative evidence, having demonstrated sustained profitability which is objective and verifiable, and taking into account anticipated future earnings, we concluded it is more likely than not that our U.S.

federal and state deferred tax assets will be realizable, with the exception of California.

We continue to maintain a valuation allowance against our California deferred tax assets due to the uncertainty regarding realizability of these deferred tax assets as they have not met the “more likely than not” realization criteria, particularly as we expect research and development tax credit generation to exceed our ability to use the credits in future years.

Of the $1.2 billion valuation allowance as of December 31, 2022, we released $1.05 billion of our valuation allowance during the year ended December 31, 2023.

We maintained a valuation allowance of $196 million against our California deferred tax assets.

We will continue to monitor the need for a valuation allowance against our deferred tax assets on a quarterly basis.

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.

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To the extent the assessment of such tax position changes, we record the change in estimate in the period in which we make the determination.

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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.

In January 2024, 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 four to five years.

This change in accounting estimate will be effective beginning fiscal year 2024.

Based on the carrying amount of data center equipment included in property and equipment, net that are in-service as of December 31, 2023, it is estimated this change will increase our fiscal year 2024 operating income by approximately $100 million.

Components of Results of Operations

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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.

Our contracts are generally non-cancellable during the subscription term, though a customer can terminate for breach if we materially fail to perform.

Professional services and other revenues .

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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.

Revenues from our direct sales organization represented 79% of our total revenues for each of the years ended December 31, 2023, 2022 and 2021.

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.

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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.

In addition, 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 third quarter, driven primarily by the timing of their annual budget expenditures.

This larger mix of contracts with 12-month renewal terms in the third quarter will generally cause variability in our RPO and cRPO in subsequent quarters until they are renewed.

Although these seasonal factors may be common in the technology industry, historical patterns should not be considered a reliable indicator of our future sales activity or performance.

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Cost of Revenues

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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.

(Benefit from) Provision for Income Taxes

(Benefit from) provision for income taxes consists of federal, state and foreign income taxes.

Our income tax benefit for the year ended December 31, 2023 is primarily attributable to the release of the valuation allowance against certain U.S.

federal and state deferred tax assets, excluding California.

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Comparison of the years ended December 31, 2023 and 2022

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Included in subscription revenues is $322 million and $253 million of revenues recognized upfront from the delivery of software associated with self-hosted offerings during the years ended December 31, 2023 and 2022, respectively.

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.

We expect subscription revenues for the year ending December 31, 2024 to increase in absolute dollars and remain relatively flat 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, 2023.

Our expectations for revenues, cost of revenues and operating expenses for the year ending December 31, 2024 are based on the 31-day average of foreign exchange rates for December 31, 2023.

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Total subscription revenues $ 8,680 $ 6,891 26 %

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.

Our digital workflow products include most of our product offerings and are generally priced on a per user basis.

Our remaining product offerings, primarily comprised of our IT Operations Management (“ITOM”) products are predominantly priced on a subscription unit basis.

Professional services and other revenues decreased by $63 million for the year ended December 31, 2023, compared to the prior year, due to a decrease in services and trainings provided to new and existing customers as we focused on deploying our internal professional services organization as a strategic resource and worked with our partner ecosystem to contract directly with customers for implementation services delivery.

We expect professional services and other revenues for the year ending December 31, 2024 to increase in absolute dollars and to remain relatively flat as a percentage of revenue compared to the year ended December 31, 2023 as we continue to execute our professional services strategy.

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Cost of Revenues and Gross Profit Percentage

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Personnel-related costs including stock-based compensation and overhead expenses increased by $229 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.

Depreciation expense related to infrastructure hardware equipment dedicated for customer use increased by $97 million for the year ended December 31, 2023, as compared to prior year and maintenance costs to support the expansion of our data center capacity, including public cloud service costs, increased by $77 million, as compared to prior year.

We expect our cost of subscription revenues for the year ending December 31, 2024 to increase in absolute dollars as we provide subscription services to more customers and increase usage within our customer instances but remain relatively flat as a percentage of revenue compared to the year ended December 31, 2023.

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.

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Our subscription gross profit percentage was 82% and 83% for the years ended December 31, 2023 and 2022, 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.

We expect our subscription gross profit percentage to remain relatively flat for the year ending December 31, 2024 compared to the year ended December 31, 2023.

Cost of professional services and other revenues decreased by $71 million for the year ended December 31, 2023 as compared to the prior year.

The decrease was primarily due to a decrease in contracted third-party partners spend and decreased headcount resulting in a decrease in personnel-related costs, including stock-based compensation.

Our professional services and other gross loss percentage improved to 8% for the year ended December 31, 2023, compared to 9% in the prior year, primarily due to decreased headcount resulting in a decrease in personnel-related costs and a decrease in contracted third-party partners spend.

We expect our professional services and other gross loss percentage to improve for the year ending December 31, 2024 compared to the year ended December 31, 2023.

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Sales and Marketing

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Amortization expenses associated with deferred commissions increased by $99 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.

Other sales and marketing program expenses, which include branding, costs associated with purchasing advertising, marketing events and market data, increased by $44 million compared to the prior year, primarily due to increased program costs and travel for our annual Sales Kickoff.

We expect sales and marketing expenses for the year ending December 31, 2024 to increase in absolute dollars and to decrease as a percentage of revenue compared to the year ended December 31, 2023, as we continue to see leverage from increased sales productivity and marketing efficiencies in 2024.

Research and Development

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Research and development expenses (“R&D”) increased by $356 million during the year ended December 31, 2023, 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 $312 million compared to prior year.

The remaining increase was primarily due to an increase in data center capacity costs and depreciation of infrastructure hardware equipment that is used solely for R&D purposes of $27 million for the year ended December 31, 2023, compared to the prior year.

We expect R&D expenses for the year ending December 31, 2024 to increase in absolute dollars but remain relatively flat as a percentage of revenue compared to the year ended December 31, 2023, as we continue to improve the existing functionality of our services, develop new applications to fill market needs and enhance our core platform.

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General and administrative expenses (“G&A”) increased by $128 million during the year ended December 31, 2023, 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 $83 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.

Non-personnel-related costs and outside services increased by $32 million for the year ended December 31, 2023 compared to the prior year.

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We expect G&A expenses for the year ending December 31, 2024 to increase in absolute dollars but decrease slightly as a percentage of revenue compared to the year ended December 31, 2023, as we continue to see leverage from continued G&A productivity.

Stock-based Compensation

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Professional services and other 52 67 (22 %)

Operating expenses:

Sales and marketing 505 459 10 %

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Revenues outside North America represented 36% and 35% of total revenues for the years ended December 31, 2023 and 2022, respectively.

Because we primarily transact in foreign currencies for sales outside of the United States, 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.

Because we primarily transact in foreign currencies for sales outside of the United States, the general weakening of the U.S.

Dollar relative to certain major foreign currencies (primarily the Euro and British Pound Sterling) during the year ended December 31, 2023 had a favorable impact on our revenues.

For entities reporting in currencies other than the U.S.

Dollar, if we had translated our results for the year ended December 31, 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 fo r the year ended December 31, 2022, respectively.

Dollar, if we had translated our results for the year ended December 31, 2023 at the exchange rates in effect for the year ended December 31, 2022 rather than the actual exchange rates in effect during the period, our reported subscription revenues would have been $34 million lower fo r the year ended December 31, 2023.

T he impact from the foreign currency movements from the year ended December 31, 2022 to the year ended December 31, 2023 was not material to professional services and other revenues.

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.

Dollar relative to other major foreign currencies had a favorable impact on our R&D expenses during the year ended December 31, 2023.

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

Dollar, if we had translated our results for the year ended December 31, 2023 at the exchange rates in effect for the year ended December 31, 2022 rather than the actual exchange rates in effect during the period, our reported R&D expenses would have been $12 million higher for the year ended December 31, 2023.

The impact from the foreign currency movements from the year ended December 31, 2022 to the year ended December 31, 2023 was not material to cost of revenues, sales and marketing and G&A expenses.

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Interest Income

Year Ended December 31, % Change

(dollars in millions)

Interest expense $ (27) $ (28) (4 %)

Interest income

$ 302 $ 82 268 %

Percentage of revenues 3 % 1 %

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 increased during the year ended December 31, 2023, compared to the prior year primarily driven by an increase in investment income from our managed portfolio resulting from higher portfolio balances and an increase in interest rates.

Other Expense, net

Year Ended December 31, % Change

(dollars in millions)

Interest income $ 82 $ 20 310 %

Other (11) — NM

Other income (expense), net $ 71 $ 20 255 %

NM - Not meaningful

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.

Interest expense $ (24) $ (27) (11 %)

Other (32) (11) 191 %

Other expense, net

$ (56) $ (38) 47 %

Percentage of revenues (1 %) (1%)

Other expense, net increased by $18 million during the year ended December 31, 2023, compared to the prior year, primarily driven by higher unrealized losses on foreign currency forward contracts.

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.

Provision for Income Taxes

The gains (losses) recognized for these foreign currency forward contracts in other expense, net, were immaterial for each of the years ended December 31, 2023 and 2022.

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(Benefit from) provision for Income Taxes

Year Ended December 31, % Change

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Income before income taxes $ 1,008 $ 399 153 %

Provision for income taxes 74 19 289 %

Effective tax rate 19 % 8 % 138 %

(Benefit from) provision for income taxes

Effective tax rate (72 %) 19 % NM

NM - Not meaningful

Our effective tax rate was (72%) and 19% for the year ended December 31, 2023 and December 31, 2022.

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.

The difference in rates was primarily attributable to the release of the valuation allowance against certain U.S.

federal and state deferred tax assets, excluding California in the year ended December 31, 2023.

The income tax benefit was $723 million for the year ended December 31, 2023.

The income tax benefit was primarily attributable to the release of the valuation allowance of certain U.S.

federal and state deferred tax assets.

We regularly assess the need for a valuation allowance against our deferred tax assets.

As of June 30, 2023, we achieved cumulative U.S.

income during the prior twelve quarters when considering pre-tax income adjusted for permanent differences and other comprehensive losses.

federal and state deferred tax assets will be realizable, with the exception of California.

Of the $1.2 billion valuation allowance as of December 31, 2022, we released $1.05 billion of our valuation allowance during the year ended December 31, 2023.

We maintained a valuation allowance of $196 million against our California deferred tax assets.

We will continue to monitor the need for a valuation allowance against our deferred tax assets on a quarterly basis.

In December 2021, the Organization for Economic Cooperation and Development adopted model rules for a 15% global minimum tax (Pillar 2) and has continued to issue administrative guidance and interpretations.

Approximately 20 countries have enacted the rules into their domestic tax legislation.

The United States has not enacted the rules.

Due to the uncertainty of whether the United States and other countries will enact the rules, the timing of individual country legislative action and the underlying complexity of the rules, the impact, if any, on the Company is not reasonably estimable.

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.

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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.

Subscription services arrangements typically have a three-year duration, and we have experienced a renewal rate of 98% for each of the years ended December 31, 2023, 2022 and 2021.

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 2024.

When assessing sources of liquidity, we also include cash and cash equivalents, short-term investments and long-term investments totaling $8.1 billion as of December 31, 2023.

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.

Our working capital requirements are principally comprised of non-contract workforce salaries, bonuses, commissions, and benefits and, to a lesser extent, cancellable and non-cancellable licenses and services arrangements that are integral to our business operations, and operating lease obligations.

Non-cancellable purchase commitments for business operations total $1.6 billion as of December 31, 2023, due primarily over the next five years.

Operating lease obligations totaling $937 million are principally associated with leased facilities and have varying maturities with $515 million due over the next five years.

We may repurchase our shares of common stock in the open market, in privately negotiated transactions or by other means, with the objective to return value to our stockholders and manage the dilution from future employee equity grants and employee stock purchase programs.

In May 2023, our board of directors authorized a program to repurchase up to $1.5 billion of our common stock.

During the year ended December 31, 2023, we repurchased 0.9 million shares of our common stock for $538 million.

All repurchases were made in open market transactions.

Repurchases of common stock are recognized as treasury stock and held for future issuance.

As of December 31, 2023, $962 million of the originally authorized amount under the Share Repurchase Program remained available for future repurchases.

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.

Our capital expenditures are typically under cancellable 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.

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Net cash used in financing activities (803) (344)

Net (decrease)/increase in cash, cash equivalents and restricted cash (257) 53

Net increase/(decrease) in cash, cash equivalents and restricted cash

Operating Activities

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The net increase in operating cash flow was primarily due to higher collections driven by revenue growth.

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Investing Activities

Net cash used in investing activities for the year ended December 31, 2023 was $2.2 billion compared to $2.6 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.

The net decrease in cash used in investing activities was primarily due to a $681 million decrease in net purchases of investments, a $92 million decrease in purchases of non-marketable investments, offset by a $191 million increase in business combinations and a $144 million increase in purchases of property and equipment.

Financing Activities

Net cash used in financing activities for the year ended December 31, 2023 was $803 million compared to $344 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.

The net increase in cash used in financing activities is primarily due to repurchases of common stock for $538 million, a $32 million increase in taxes paid related to net share settlement of equity awards, offset by a $17 million increase in proceeds from employee stock plans and a $94 million decrease 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.

Our estimated future obligations consist of leases, a non-cancellable $500 million agreement with Microsoft to purchase cloud services over five years for accelerating the Azure adoption for mutual customers, the second installment of the consideration for the G2K acquisition to be paid in February 2024, purchase obligations, debt and unrecognized tax benefits as of December 31, 2023.

Refer to Note 17 “Commitments and Contingencies,” Note 5 “Business Combinations” and Note 16 “(Benefit from) Provision for Income Taxes” to our consolidated financial statements included in this Annual Report on Form 10-K for more information.

QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

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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.

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Interest Rate Sensitivity

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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.

As of December 31, 2023, a hypothetical 100 basis point increase in interest rates would have resulted in an approximate $60 million decline of the fair value of our available-for-sale debt 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.

As of December 31, 2022, we had an aggregate of $6.4 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 $39 million decline of the fair value of our available-for-sale debt securities.

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.

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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.

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 our 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.

We hold cash balances with multiple financial institutions in various countries and these balances routinely exceed deposit insurance limits.

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These changes could be material based on market conditions and events.

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CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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Notes to Consolidated Financial Statements

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Report of Independent Registered Public Accounting Firm

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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.

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Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

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We have served as the Company’s auditor since 2011.

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SERVICENOW, INC.

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Current portion of operating lease liabilities 89 96

Current debt, net — 92

Total current liabilities 7,365 6,005

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shares authorized:

202,882 and 199,608 shares issued and outstanding at December 31, 2022 and 2021, respectively

shares issued:

205,619 and 202,882 ;

shares outstanding:

204,724 and 202,882

Treasury stock, at cost (shares held:

Additional paid-in capital 6,131 4,796

Accumulated other comprehensive income (loss) ( 102 ) 34

Retained earnings (accumulated deficit) 338 ( 4 )

Accumulated other comprehensive loss ( 37 ) ( 102 )

Retained earnings 2,069 338

Total stockholders’ equity 7,628 5,032

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See accompanying notes to consolidated financial statements

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SERVICENOW, INC.

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Income from operations 762 355 257

Interest expense ( 27 ) ( 28 ) ( 33 )

Other income (expense), net 71 20 ( 16 )

Interest income 302 82 20

Other expense, net

( 56 ) ( 38 ) ( 28 )

Income before income taxes 1,008 399 249

Provision for income taxes 74 19 31

(Benefit from) provision for income taxes ( 723 ) 74 19

Net income $ 1,731 $ 325 $ 230

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(in millions, except number of shares which are reflected in thousands)

Common Stock Additional

Common Stock Treasury Stock

Capital Retained Earnings (Accumulated Deficit) Accumulated

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Stockholders’

Shares Amount

Balance at December 31, 2019 189,461 $ — $ 2,455 $ ( 353 ) $ 25 $ 2,127

Shares Amount Shares Amount

Balance as of December 31, 2020 195,845 $ — — $ — $ 2,974 $ ( 234 ) $ 94 $ 2,834

Common stock issued under employee stock plans 3,227 — — — 168 — — 168

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Stock-based compensation — — — — 1,130 — — 1,130

Shares granted related to business combinations — — — — 6 — — 6

Settlement of 2022 Warrants 536 — — — — — — —

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Benefit from exercise of 2022 Note Hedge — — — — 224 — — 224

Other comprehensive income, net of tax — — — — 69 69

Other comprehensive loss, net of tax — — — — — — ( 60 ) ( 60 )

Net income — — — — — 230 — 230

Balance at December 31, 2020 195,845 $ — $ 2,974 $ ( 234 ) $ 94 $ 2,834

Balance as of December 31, 2021 199,608 $ — — $ — $ 3,665 $ ( 4 ) $ 34 $ 3,695

Cumulative effect adjustment from adoption of Accounting Standards Update (ASU) 2020-06 — — — — ( 19 ) 17 — ( 2 )

Common stock issued under employee stock plans 2,671 — — — 177 — — 177

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Stock-based compensation — — — — 1,400 — — 1,400

Shares granted related to business combination — — 6 — — 6

Settlement of 2022 Warrants 603 — — — — — — —

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Net income — — — — — 325 — 325

Balance at December 31, 2021 199,608 $ — $ 3,665 $ ( 4 ) $ 34 $ 3,695

Cumulative-effect adjustment from adoption of Accounting Standards Update (ASU) 2020-06 — — ( 19 ) 17 — ( 2 )

Common stock issued under employee stock plans 2,671 — 177 — — 177

Balance as of December 31, 2022 202,882 $ — — $ — $ 4,796 $ 338 $ ( 102 ) $ 5,032

Common stock and Treasury stock issued under employee stock plans 2,737 — 5 3 190 — — 193

Common stock repurchased

— — ( 900 ) ( 538 ) — — — ( 538 )

Taxes paid related to net share settlement of equity awards — — — — ( 459 ) — — ( 459 )

Stock-based compensation — — — — 1,604 — — 1,604

Settlement of 2022 Warrants 603 — — — — —

Settlement of 2022 Notes conversion feature — — ( 233 ) — — ( 233 )

Benefit from exercise of 2022 Note Hedge — — 233 — — 233

Other comprehensive loss, net of tax — — — — ( 136 ) ( 136 )

Other comprehensive income, net of tax — — — — — — 65 65

Net income — — — — — 1,731 — 1,731

Balance at December 31, 2022 202,882 $ — $ 4,796 $ 338 $ ( 102 ) $ 5,032

Balance as of December 31, 2023 205,619 $ — ( 895 ) $ ( 535 ) $ 6,131 $ 2,069 $ ( 37 ) $ 7,628

See accompanying notes to consolidated financial statements

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Amortization of deferred commissions 459 358 294

Amortization of debt discount and issuance costs — 7 24

Stock-based compensation 1,604 1,401 1,131

Deferred income taxes ( 857 ) 15 ( 34 )

Repayments of convertible senior notes attributable to debt discount — ( 15 ) ( 82 )

Loss on extinguishment of 2022 Notes — 3 47

Other — 17 40

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Business combinations, net of cash acquired ( 282 ) ( 91 ) ( 785 )

Purchases of intangibles — ( 7 ) ( 13 )

Purchases of investments ( 4,634 ) ( 4,038 ) ( 2,485 )

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Cash flows from financing activities:

Net proceeds from borrowings on 2030 Notes — — 1,482

Repayments of convertible senior notes attributable to principal — ( 94 ) ( 61 )

Net proceeds from unwind of 2022 Note Hedge — — 1,106

Proceeds from employee stock plans 194 177 167

Repurchases of common stock

Taxes paid related to net share settlement of equity awards ( 459 ) ( 427 ) ( 612 )

Net cash provided by (used in) financing activities ( 344 ) ( 506 ) 597

Net cash used in financing activities

( 803 ) ( 344 ) ( 506 )

Foreign currency effect on cash, cash equivalents and restricted cash 1 ( 53 ) ( 25 )

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(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:

ServiceNow was founded on a simple premise to make work flow better.

Our workflow applications built on the Now Platform are organized 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.

The Now Platform orchestrates work across our customers’ cloud platforms and systems of choice, allowing our customers to get work done regardless of their current and future preferred systems of record and collaboration platforms.

(2) Summary of Significant Accounting Policies

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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.

Our chief operating decision maker allocates resources and assesses financial performance based upon discrete financial information at the consolidated level.

This change in accounting estimate will be effective beginning fiscal year 2024.

Our chief operating decision maker, the Chief Executive Officer, 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.

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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.

Foreign currency transaction gains and losses are included in other expense, net within the consolidated statements of comprehensive income, and have not been material for all periods presented.

Revenue Recognition

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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.

Our contracts with customers typically include a fixed amount of consideration and are generally non-cancellable 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.

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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.

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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

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government and agency securities and mortgage-backed and asset-backed securities.

We classify investments as available-for-sale at the time of purchase.

We classify investments in debt securities 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 all our available-for-sale debt securities with unrealized loss positions we have determined it is more likely than not we will hold the securities until maturity or a recovery of the cost basis.

Available-for-sale securities in an unrealized loss position are written down to its fair value with the corresponding charge recorded in other expense, net on our consolidated statement of comprehensive income, if it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis, or we have the intention to sell the security.

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 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 $ 51 million and $ 28 million, is recorded in prepaid expenses and other current assets on the consolidated balance sheets as of December 31, 2023 and 2022, respectively.

Realized gains and losses and declines in value judged to be other than temporary are determined based on the specific identification method and are reported in other income (expense), net in the consolidated statements of comprehensive income.

Realized gains and losses from the sales of available-for-sale debt securities are determined based on the specific identification method and are reported in other 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.

Strategic investments consist of debt and non-marketable equity investments in privately held companies in which we do not have a controlling interest.

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.

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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.

We use derivative financial instruments, mainly foreign currency 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 expense, net on the consolidated statements of comprehensive income.

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.

Realized gains (losses) from settlement of the derivative assets and liabilities are classified as investing activities in the consolidated statements of cash flows.

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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.

Critical estimates include, but are not limited to, future expected cash flows, discount rates, revenue growth 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.

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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 .

Intangible assets are amortized over the period of estimated benefit using the straight-line method and estimated useful lives ranging from three to twelve years .

Impairment of Long-Lived Assets

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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.

When there is a change in the probability of achievement, any cumulative effect of the change is recognized in the period of the change and the remaining unrecognized compensation will be amortized prospectively 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.

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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.

The allowance for credit losses and write offs were not material for each of the periods ending December 31, 2023, 2022 and 2021.

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.

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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.

In determining the need for a valuation allowance, we consider future growth, forecasted earnings, forecasted 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.

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Certain prior period amounts have been reclassified to conform to the current period presentation.

These reclassifications did not result in a restatement of prior period financial statements.

Recently Adopted Accounting Pronouncements

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.

These reclassifications did not result in a restatement of prior period consolidated financial statements.

Recently Issued Accounting Pronouncement Pending Adoption

In December 2023, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) 2023-09, “Income Taxes - Improvements to Income Tax Disclosures” requiring enhancements and further transparency to certain income tax disclosures, most notably the tax rate reconciliation and income taxes paid.

This ASU is effective for fiscal years beginning after December 15, 2024 on a prospective basis and retrospective application is permitted.

We are currently evaluating the impact of the adoption of this standard.

(3) Investments

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Losses Estimated

Available-for-sale securities:

Available-for-sale debt securities:

Commercial paper $ 349 $ — $ — $ 349

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Mortgage-backed and asset-backed securities 102 — ( 16 ) 86

Total available-for-sale securities $ 5,000 $ — $ ( 73 ) $ 4,927

Total available-for-sale debt securities

$ 6,205 $ 13 $ ( 35 ) $ 6,183

December 31, 2022

Losses Estimated

Available-for-sale securities:

Available-for-sale debt securities:

Commercial paper $ 558 $ — $ ( 2 ) $ 556

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Mortgage-backed and asset-backed securities 98 — ( 17 ) 81

Total available-for-sale securities $ 3,214 $ 1 $ ( 9 ) $ 3,206

Total available-for-sale debt securities $ 5,000 $ — $ ( 73 ) $ 4,927

As of December 31, 2023, 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 37 months.

The fair values of available-for-sale securities, by remaining contractual maturity, are as follows (in millions):

The fair values of available-for-sale debt securities, by remaining contractual maturity, are as follows (in millions):

December 31, 2023

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Total $ 6,183

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.

As of December 31, 2023 and 2022, the fair value of available-for-sale debt securities in a continuous unrealized loss position totaled $ 3,731 million and $ 4,232 million, respectively.

As of December 31, 2023, unrealized losses of $ 26 million from available-for-sale debt securities are from securities in a continuous unrealized loss position greater than 12 months.

For all available-for-sale debt securities that were in unrealized loss positions, we have determined that it is more likely than not we will hold the securities until maturity or a recovery of the cost basis.

Unrealized losses on available-for-sale debt securities were primarily due to changes in market interest rates, and credit-related impairment losses were not material as of December 31, 2023.

Non-Marketable Equity Investments

As of December 31, 2023 and 2022, the total amount of non-marketable equity investments in privately held companies included in other assets on our consolidated balance sheets was $ 268 million and $ 252 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.

These balances include a $ 100 million investment in the common and preferred shares of Celonis SE, a privately held company that develops and sells process mining software.

Our non-marketable equity investments are primarily 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.

The adjustments made during the years ended December 31, 2023, 2022 and 2021 were immaterial.

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

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Corporate notes and bonds — 2 2

Certificates of deposit — 2 2

Deposits 295 — 295

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Deposits 124 — 124

government and agency securities — 8 8

Marketable securities:

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2023 Business Combinations

On July 17, 2023, we acquired all outstanding shares of G2K Group GmbH, an artificial intelligence powered platform, for $ 464 million in a cash transaction.

The consideration is paid in two installments.

The first installment was made at the close of the transaction in July 2023.

The second installment will be paid in February 2024 and is recognized as accrued expenses and other current liabilities, which is a non-cash financing activity as of December 31, 2023.

The acquisition is intended to enhance our Now Platform with the acquired smart Internet of Things technology, enabling businesses to intelligently action digital and in-store data with enterprise-grade workflows.

The purchase price was preliminarily allocated based on the estimated fair value of the developed technology intangible asset of $ 75 million ( six-year estimated useful life), net tangible liabilities of $ 1 million, deferred tax liabilities of $ 23 million and goodwill of $ 413 million, which is not deductible for income tax purposes.

Goodwill is primarily attributed to the value expected from synergies resulting from the business combination.

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 provisional measurements of fair value for certain assets and liabilities, which encompass primarily deferred taxes and income taxes payable, may be subject to change as additional information is received.

The Company expects to finalize the valuation as soon as practicable, but not later than one year from the acquisition date.

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.

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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.

Aggregate acquisition-related costs associated with business combinations are not material for each of the years ended December 31, 2023, 2022 and 2021, 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):

The changes in the carrying amounts of g oodwill were as follows (in millions):

Carrying Amount

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Amortization expense for intangible assets was approximately $ 85 million, $ 81 million and $ 76 million for the years ended December 31, 2023, 2022 and 2021, respectively.

The following table presents the estimated future amortization expense related to intangible assets held at December 31, 2022 (in millions):

The following table presents the estimated future amortization expense related to intangible assets held as of December 31, 2023 (in millions):

Years Ending December 31,

Thereafter 10

Total future amortization expense $ 224

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Property and equipment, net $ 1,358 $ 1,053

Construction in progress consists of costs related to leasehold and other improvements.

Construction in progress consists of costs primarily related to leasehold and other improvements.

Depreciation expense was $ 372 million, $ 261 million and $ 312 million for the years ended December 31, 2023, 2022 and 2021, respectively.

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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.

The gross fair value of these foreign currency forward contracts was immaterial as of December 31, 2023 and 2022.

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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-cancellable amounts that will be invoiced and recognized as revenues in future periods.

RPO excludes contracts that are billed in arrears, such as certain time and materials contracts, as we apply the “right to invoice” practical expedient under relevant accounting guidance.

As of December 31, 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.

As of December 31, 2023, the total non-cancellable RPO under our contracts with customers was $ 18.0 billion, and we expect to recognize revenues on approximately 48 % 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.

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Total accrued expenses and other current liabilities $ 1,365 $ 975

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:

December 31, 2022 December 31, 2021

2030 Notes 2022 Notes 2030 Notes 2022 Notes

Current, net $ — $ — $ — $ 92

Long-term, net 1,486 — 1,484 —

Total debt $ 1,486 $ — $ 1,484 $ 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):

December 31, 2022 December 31, 2021

2022 Notes $ — $ 440

2030 Notes $ 1,144 $ 1,400

For the periods ended December 31, 2023 and 2022, the carrying value of our outstanding debt was $ 1,488 million and $ 1,486 million, respectively, net of unamortized debt discount and issuance costs of $ 12 million and $ 14 million, respectively.

We consider the fair value of the 2030 Notes as of December 31, 2023 and December 31, 2022 to be a Level 2 measurement.

The estimated fair value of the 2030 Notes based on the closing trading price per $100, was $ 1,236 million and $ 1,144 million as of December 31, 2023 and December 31, 2022, respectively.

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.

The 2030 Notes were issued at 99.63 % of principal and we incurred $ 13 million for debt issuance costs.

The effective interest rate for the 2030 Notes was 1.53 % and included interest payable, amortization of debt issuance cost 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.

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.

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 our ability to incur or guarantee debt secured by liens on specified assets or enter into sale and lease-back transactions with respect to specified properties.

2022 Notes, Note Hedge and Warrants

In May and June 2017, we issued an aggregate of $ 782.5 million of 0 % convertible senior notes (the “2022 Notes”), which were converted prior to or settled on June 1, 2022, in accordance with their terms.

Convertible Date Initial Conversion Price per Share Initial Conversion Rate per $1,000 Par Value Initial Number of Shares

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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).

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.

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.

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.

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 to purchase 6 million shares for $ 128 million with respect to our common stock concurrently with the issuance of the 2022 Notes.

The 2022 Note Hedge offsets the dilution and cash payments in excess of the principal amount of the converted 2022 Notes and expired upon the maturity date of the 2022 Notes, which was on June 1, 2022.

Separately, we entered into warrant transactions with certain investment banks, whereby we sold warrants to acquire 6 million shares of our common stock with aggregate proceeds of $ 54 million (the “2022 Warrants”).

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.

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.

During the quarter ended June 30, 2022, we settled 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):

(12) Accumulated Other Comprehensive Loss

The following table shows the components of accumulated other comprehensive loss, net of tax, in the stockholders’ equity section of our consolidated balance sheets (in millions):

Foreign currency translation adjustment $ 2 $ ( 25 )

Net unrealized loss on investments ( 39 ) ( 77 )

Accumulated other comprehensive income (loss) $ ( 102 ) $ 34

Reclassification adjustments out of accumulated other comprehensive income (loss) into net income were not material for all periods presented.

Accumulated other comprehensive loss $ ( 37 ) $ ( 102 )

Reclassification adjustments out of accumulated other comprehensive loss into net income were not material for all periods presented.

(13) Stockholders' Equity

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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):

As of December 31, 2023, we had 204.7 million shares of common stock, net of treasury stock, outstanding and had reserved shares of common stock for future issuance as follows (in thousands):

December 31, 2023

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Shares of common stock available for future grants:

2021 Equity Incentive Plan (2)

Amended and Restated 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 27,828

(1) Represents the number of shares issuable upon settlement of outstanding RSUs and PRSUs, as discussed in Note 14.

(1) Represents the number of shares issuable upon settlement of outstanding restricted stock units (“RSUs”) and performance-based RSUs (“PRSUs”), as discussed in Note 14.

(2) 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.

During each of the years ended December 31, 2023 and 2022, we issued a total of 2.7 million shares from stock option exercises, vesting of RSUs, net of employee payroll taxes and purchases from the employee stock purchase plan (“ESPP”).

Treasury Stock

In May 2023, our board of directors authorized a program to repurchase up to $ 1.5 billion of our common stock (the “Share Repurchase Program”).

Under this new program, we may repurchase our common stock from time to time through open market purchases, in privately negotiated transactions, or by other means, including through the use of trading plans intended to qualify under Rule 10b5-1 under the Securities Exchange Act of 1934, as amended, in accordance with applicable securities laws and other restrictions.

The Share Repurchase Program does not have a fixed expiration date, may be suspended or discontinued at any time, and does not obligate us to acquire any amount of common stock.

The timing, manner, price, and amount of any repurchases will be determined by us at our discretion and will depend on a variety of factors, including business, economic and market conditions, prevailing stock prices, corporate and regulatory requirements, and other considerations.

During the year ended December 31, 2023, the Company repurchased 0.9 million shares of its common stock for $ 538 million.

All repurchases were made in open market transactions.

Repurchases of common stock are recognized as treasury stock and held for future issuance.

As of December 31, 2023, $ 962 million of the originally authorized amount remained available for future repurchases.

Preferred Stock

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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.

As of December 31, 2023 and 2022, no shares of preferred stock were outstanding.

(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.

2012 Equity Incentive Plan (the “2012 Plan”), amended and restated 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 initial 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, as amended and restated, was approved by the shareholders on June 1, 2023 to increase shares available for future grants by approximately 10 million shares.

Upon effectiveness of the 2021 Plan, as amended and restated, the 2022 Plan was terminated, and no additional awards under the 2022 Plan have been made since the amendment and restatement of the 2021 Plan.

Outstanding equity awards under the 2022 Plan continue to be subject to the terms and conditions of the 2022 Plan.

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”).

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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.

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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.

The number of shares of common stock reserved for issuance 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 .

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 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 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:

A summary of stock option activity for the year ended December 31, 2023 was as follows:

Shares Weighted-

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(in thousands) (in years) (in millions)

Outstanding at December 31, 2021 1,305 $ 551.39

Outstanding as of December 31, 2022 1,237 $ 590.36

Exercised ( 32 ) $ 68.06 $ 15

Canceled ( 6 ) $ 66.58

Outstanding at December 31, 2022 1,237 $ 590.36 8.3 $ 43

Forfeited ( 55 ) $ 625.99

Outstanding as of December 31, 2023 1,150 $ 603.30 7.4 $ 119

Vested and expected to vest as of December 31, 2023 948 $ 588.32 7.4 $ 112

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The total fair value of shares vested was $ 7 million, $ 11 million and $ 10 million for the years ended December 31, 2023, 2022 and 2021, 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, 2023.

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.

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.

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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.

As of December 31, 2023, none of the tranches have vested.

The fair value of the 2021 Performance Awards and the corresponding derived service periods were estimated using the Monte Carlo simulation.

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As of December 31, 2023, total unrecognized compensation cost, adjusted for estimated forfeitures, related to unvested stock options was approximately $ 28 million.

The weighted-average remaining vesting period of unvested stock options at December 31, 2022 was two years .

A summary of RSU activity was as follows:

The weighted-average remaining vesting period of unvested stock options as of December 31, 2023 was one year .

A summary of RSU activity for the year ended December 31, 2023 was as follows:

Shares Weighted-Average Grant-Date Fair Value Per Share

(in thousands)

Outstanding at December 31, 2021 5,808 $ 416.00

Outstanding as of December 31, 2022 5,737 $ 505.79

Granted 4,134 $ 479.18

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Forfeited ( 513 ) $ 506.98

Outstanding at December 31, 2022 5,737 $ 505.79

Outstanding as of December 31, 2023 6,262 $ 506.77

Expected to vest as of December 31, 2023 5,553

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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 .

We recognized $ 145 million, $ 121 million, and $ 124 million of stock-based compensation expense, net of actual and estimated forfeitures, associated with PRSUs on a graded vesting basis during the years ended December 31, 2023, 2022 and 2021, respectively.

As of December 31, 2023, total unrecognized compensation cost, adjusted for estimated forfeitures, related to unvested RSUs was $ 2.5 billion and the weighted-average remaining vesting period was approximately three years .

Total stock-based compensation expense for the years ended December 31 2023, 2022 and 2021 was $ 1,604 million, $ 1,401 million and $ 1,131 million, respectively.

For the year ended December 31, 2023, we recorded $ 296 million of tax benefits on total stock-based compensation expense, which are reflected in the benefit from income taxes in the consolidated statements of comprehensive income.

Tax benefits on stock-based compensation for the years ended December 31, 2022 and 2021 were no t material.

Valuation Assumption s

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Stock Options * 40 %

PRSU 42 % 41 % - 42 %

* There were no stock option grants in 2023.

** There were no grants with market conditions for the respective fiscal year.

Expected volatility .

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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):

The following table presents 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):

Year Ended December 31,

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RSUs 1,332 1,555 3,429

ESPP Obligations

2022 Notes — — 535

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Net income per share - diluted $ 8.42 $ 1.60 $ 1.13

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):

Year Ended December 31,

Common stock options, RSUs, and ESPP obligations excluded from diluted net income per share because their effect would have been anti-dilutive

3,191 4,658 1,588

Common stock options 1,084 998 —

RSUs 3,265 381 347

ESPP obligations 309 209 224

Total potentially dilutive securities 4,658 1,588 571

(16) Income Taxes

Table of Conten t s

(16) (Benefit from) Provision for Income Taxes

The components of income before income taxes by U.S.

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Total $ 1,008 $ 399 $ 249

The provision for income taxes consists of the following (in millions):

The (benefit from) provision for income taxes consists of the following (in millions):

Year Ended December 31,

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Federal $ 2 $ — $ —

State 31 13 1

Foreign 101 46 52

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( 857 ) 15 ( 34 )

Provision for income taxes $ 74 $ 19 $ 31

(Benefit from) provision for income taxes $ ( 723 ) $ 74 $ 19

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):

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Valuation allowance ( 1,032 ) ( 100 ) 169

Provision for income taxes $ 74 $ 19 $ 31

(Benefit from) provision for income taxes $ ( 723 ) $ 74 $ 19

Table of Conten t s

Significant components of our deferred tax assets are shown below (in millions).

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Total deferred tax assets 1,960 2,145

Less valuation allowance ( 1,228 ) ( 1,326 )

valuation allowance

( 196 ) ( 1,228 )

Deferred tax liabilities:

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As of December 31, 2023, we had U.S.

federal net operating loss and federal tax credit carryforwards of approximately $ 2.0 billion and $ 313 million, respectively.

federal net operating loss and federal tax credit carryforwards of $ 470 million and $ 404 million, respectively.

The federal tax credits will begin to expire in 2033 if not utilized.

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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.

As of December 31, 2023, we had Canada net operating loss and tax credit carryforwards of $ 170 million and $ 11 million, respectively.

The Canada net operating loss and tax credits will begin to expire in 2039 and 2037, respectively, if not utilized.

In addition, as of December 31, 2023, we had United Kingdom net operating loss carryforwards of $ 145 million.

The United Kingdom net operating loss can be carried forward indefinitely.

Table of Conten t s

The income tax benefit was $ 723 million for the year ended December 31, 2023.

The income tax benefit was primarily attributable to the release of the valuation allowance of certain U.S.

federal and state deferred tax assets.

We regularly assess the need for a valuation allowance against our deferred tax assets.

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.

As of June 30, 2023, we achieved cumulative U.S.

income during the prior twelve quarters when considering pre-tax income adjusted for permanent differences and other comprehensive losses.

federal and state deferred tax assets will be realizable, with the exception of California.

Of the $ 1.2 billion valuation allowance as of December 31, 2022, we released $ 1.05 billion of our valuation allowance during the year ended December 31, 2023.

We maintained a valuation allowance of $ 196 million against our California deferred tax assets.

We will continue to monitor the need for a valuation allowance against our deferred tax assets on a quarterly basis.

The decrease in the 2023 valuation allowance of $ 1.03 billion was primarily attributable to the $ 1.05 billion release of certain U.S.

federal and state valuation allowance offset by approximately a $ 20 million increase in the California valuation allowance.

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.

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 research and development 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.

A reconciliation of the beginning and ending balance of total unrecognized tax benefits is as follows (in millions):

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Gross increases 63 38 38

Lapse of statute of limitations — — —

Settlements ( 1 ) ( 2 ) —

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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.

Accrued interest and penalties included in our liability related to unrecognized tax benefits were $ 6 million and $ 5 million as of December 31, 2023 and 2022, respectively.

The amount of unrecognized tax benefits could be reduced upon expiration of the applicable statutes of limitations.

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These amounts are also not material for any periods presented.

Further, $ 51 million and $ 31 million of unrecognized tax benefits have been recorded as liabilities as of December 31, 2023 and 2022, respectively.

We are subject to taxation in the United States and foreign jurisdictions.

As of December 31, 2023, our tax years 2004 to 2022 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.

Due to differing interpretations of tax laws and regulations, tax authorities may dispute our tax filing positions.

We periodically evaluate our exposures associated with our tax filing positions and believe that adequate amounts have been reserved for adjustments that may result from tax examinations.

Table of Conten t s

(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.

For some of our offices and data centers, we have entered into non-cancellable 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 $ 129 million, $ 112 million and $ 100 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, 2023, 2022 and 2021, respectively.

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 %.

Total cash paid for amounts included in the measurement of operating lease liabilities was $ 82 million and $ 75 million for the years ended December 31, 2023 and 2022, respectively.

Operating lease liabilities arising from obtaining operating right-of-use assets was $ 130 million and $ 192 million for the years ended December 31, 2023 and 2022, respectively.

As of December 31, 2023, the weighted-average remaining lease term is approximately nine years and the weighted-average discount rate is 3.8 %.

Maturities of operating lease liabilities as of December 31, 2023 are presented in the table below (in millions):

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In addition to the amounts above, as of December 31, 2023, we have operating leases, primarily for offices, that have not yet commenced with undiscounted cash flows of $ 61 million.

These operating leases are expected to commence in 2023 with lease terms of ten to twelve years .

Othe r 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):

These operating leases are expected to commence between 2024 and 2025 with lease terms of three to ten years .

Table of Conten t s

Other Commitments

Other 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-cancellable purchase commitments as of December 31, 2023 are presented in the table below (in millions):

Purchase Obligations (1)

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If we had canceled these contractual commitments as of December 31, 2023, we would have been obligated to pay cancellation penalties of approximately $ 51 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.

During 2022, we entered into a non-cancellable, $ 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.

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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.

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 are party to certain litigation and other legal proceedings.

While legal proceedings are inherently unpredictable and subject to uncertainties, we do not believe the ultimate resolution of any such proceedings is likely to result in a material loss.

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.

On July 5, 2022, InQuisient Inc.

(“Plaintiff”) filed a complaint against ServiceNow, Inc.

District Court for the District of Delaware, alleging the Now Platform’s use of relational databases infringes three of Plaintiff’s patents.

Plaintiff is seeking injunctive relief and unspecified damages.

ServiceNow filed an answer denying Plaintiff’s allegations and asserts Plaintiff’s patents are, among other things, invalid, not infringed and otherwise unenforceable.

A trial date has been set for October 7, 2024.

While ServiceNow continues to vigorously defend this matter, we cannot predict the outcome with any degree of certainty.

We also cannot provide an estimate of the possible loss or range of loss.

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.

For additional information regarding intellectual property litigation, see “Risk Factors—Lawsuits 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.”

Indemnification Provisions

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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.

Table of Conten t s

(18) Information about Geographic Areas and Products

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(2) Europe, the Middle East and Africa (“EMEA”)

(3) 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.

(3) Property and equipment, net attributed to the United States were 79 % and 85 % of property and equipment, net attributable to North America as of December 31, 2023 and 2022, respectively.

Subscription revenues consist of the following (in millions):

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Total subscription revenues $ 8,680 $ 6,891 $ 5,573

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.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND

FINANCIAL DISCLOSURE

Our digital workflow products include most of our product offerings and are generally priced on a per user basis.

Our remaining product offerings, primarily comprised of our ITOM products are predominantly priced on a subscription unit basis.

Table of Conten t s

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis