What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-04-23 compared with 2024-10-24 · 107 added, 130 removed, 215 unchanged (52% of the section changed)

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Forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by the forward-looking statements.

Factors that could cause or contribute to such differences include, but are not limited to those identified herein, and those discussed in the section titled “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K filed with the SEC on January 25, 2024 and in Part II, Item 1A of our Quarterly Report on Form 10-Q filed with the SEC on July 25, 2024 and in our other SEC filings.

Factors that could cause or contribute to such differences include, but are not limited to those identified herein, and those discussed in the section titled “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K filed with the SEC on January 30, 2025 and in Part II, Item 1A of this Quarterly Report on Form 10-Q and in our other SEC filings.

We disclaim any obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements.

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Therefore, we encourage investors, the media and others interested in our Company to review the information we post on the social media channels listed on our investor relations website.

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

Our free cash flow and non-GAAP consolidated income from operations measures included in the section entitled “Key Business Metrics—Free Cash Flow,” and “Key Business Metrics—Non-GAAP Consolidated Income from Operations” are not in accordance with U.S.

Generally Accepted Accounting Principles (“GAAP”).

This non-GAAP financial measure is not intended to be considered in isolation or as a substitute for, or superior to, financial information prepared and presented in accordance with GAAP.

This measure may be different from non-GAAP financial measures used by other companies, limiting its usefulness for comparison purposes.

These non-GAAP financial measures are not intended to be considered in isolation or as a substitute for, or superior to, financial information prepared and presented in accordance with GAAP.

These measures may be different from non-GAAP financial measures used by other companies, limiting their usefulness for comparison purposes.

We encourage investors to carefully consider our results under GAAP, as well as our supplemental non-GAAP results, to more fully understand our business.

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to make work flow better.

Our purpose is to make the world work better for everyone.

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 intelligent platform, the Now Platform, is a cloud-based solution that helps enterprises and organizations across public and private sectors digitize workflows, in line with our purpose of making the world work better for everyone.

Our workflow applications built on the Now Platform are organized along four primary areas:

Technology, Customer and Industry, Employee and Creator.

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 C-suite, employees and consumers.

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

Technology, CRM and Industry, Core Business and Creator.

The Now Platform is the AI platform for digital transformation.

Transformations enabled by the Now Platform rapidly automate business processes across an entire enterprise by seamlessly connecting disparate departments, systems and silos to unlock productivity and improve experiences for both employees and customers.

We are closely monitoring the ongoing conflicts in Russia/Ukraine and the Middle East.

While these events are still evolving and the outcomes remain highly uncertain, we do not believe these 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 as of September 30, 2024 and December 31, 2023, and of our total consolidated revenues for each of the three and nine months ended September 30, 2024 and 2023.

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

Our customers in these regions represented an immaterial portion of our net assets as of March 31, 2025 and December 31, 2024, and of our total consolidated revenues for each of the three months ended March 31, 2025 and 2024.

Additionally, other macroeconomic events, including interest rates, global inflation and tariffs, 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.

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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 as a result of bank failure is immaterial.

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

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Current remaining performance obligations (“cRPO”) represents RPO that will be recognized as revenue in the next 12 months.

As of September 30, 2024, our RPO was $19.5 billion, of which 48% represented cRPO.

RPO and cRPO increased by 36% and 26%, respectively, compared to September 30, 2023.

As of March 31, 2025, our RPO was $22.1 billion, of which 47% represented cRPO.

RPO and cRPO increased by 25% and 22%, respectively, compared to March 31, 2024.

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

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We count the total number of customers with annual contract value (“ACV”) greater than $5 million as of the end of the period.

We had 2,020 and 1,772 customers with ACV greater than $1 million as of September 30, 2024 and 2023, respectively.

We had 508 and 425 customers with ACV greater than $5 million as of March 31, 2025 and 2024, respectively.

For purposes of customer count, a customer is defined as an entity that has a unique Dunn & Bradstreet Global Ultimate (“GULT”) Data Universal Numbering System (“DUNS”) number and an active subscription contract as of the measurement date.

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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 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.

We define free cash flow, a non-GAAP financial measure, as GAAP net cash provided by operating activities plus cash outflows for legal settlements 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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A calculation of free cash flow is provided below:

Nine Months Ended September 30, % Change

Three Months Ended March 31, % Change

(dollars in millions)

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Additionally, we have historically seen higher disbursements in the quarters ended March 31 and September 30 due to payouts under our annual commission plans, purchases under our employee stock purchase plan, payouts under our bonus plans and coupon payments related to our 2030 Notes.

Non-GAAP consolidated income from operations.

Non-GAAP consolidated income from operations is identified as an additional measure of profit or loss.

This non-GAAP measure is used by the chief operating decision maker to allocate resources and assess performance.

We define non-GAAP consolidated income from operations as income from operations excluding certain non-cash or non-recurring items, including stock-based compensation expense, amortization of purchased intangibles, legal settlements and business combination and other related costs.

We believe these adjustments provide useful supplemental information to investors and facilitate the analysis of our operating results and comparison of those results across reporting periods.

The following table shows the reconciliation of our reported consolidated income from operations to non-GAAP consolidated income from operations.

Three Months Ended March 31, % Change

(dollars in millions)

GAAP income from operations

$ 451 $ 332 36%

Stock-based compensation

Amortization of purchased intangibles

Business combination and other related costs

Non-GAAP income from operations

$ 953 $ 791 20%

Renewal rate.

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We adjust our renewal rate for acquisitions, consolidations and other customer events that cause the merging of two or more accounts occurring at the time of renewal.

Our renewal rate was 98% for each of the three and nine months ended September 30, 2024 and 2023.

Our renewal rate was 98% for each of the three months ended March 31, 2025 and 2024.

As our renewal rate is impacted by the timing of renewals, which could occur in advance of, or subsequent to the original contract end date, period-to-period comparison of renewal rates may not be meaningful.

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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 sales channel.

Revenues from our direct sales organization represented 78% of our total revenues for each of the three and nine months ended September 30, 2024 and 79% of our total revenues for each of the three and nine months ended September 30, 2023.

Revenues from our direct sales organization represented 77% of our total revenues for the three months ended March 31, 2025 and 78% of our total revenues for the three months ended March 31, 2024.

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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Fees paid by us to third-party partners are primarily recognized as cost of revenues as the professional services are delivered.

Cost of revenues associated with our professional services engagements contracted with third-party partners as a percentage of professional services and other revenues was 27% and 21% for the three and nine months ended September 30, 2024, respectively, and 10% for each of the three and nine months ended September 30, 2023.

Cost of revenues associated with our professional services engagements contracted with third-party partners as a percentage of professional services and other revenues was 34% for the three months ended March 31, 2025 and 15% for the three months ended March 31, 2024.

Sales and Marketing

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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, stock-based compensation, external legal, accounting and other professional services fees, other corporate expenses, amortization of intangible assets and allocated overhead.

Provision for (Benefit from) Income Taxes

Provision for (benefit from) income taxes consists of federal, state and foreign income taxes.

Our income tax provision for the three and nine months ended September 30, 2024 is primarily attributable to the mix of earnings and losses in countries with differing statutory tax rates, offset by excess tax benefits of stock-based compensation.

Provision for Income Taxes

Provision for income taxes consists of federal, state and foreign income taxes.

Our income tax provision for the three months ended March 31, 2025 is primarily attributable to the mix of earnings and losses in countries with differing statutory tax rates, offset by excess tax benefits of stock-based compensation.

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.

Comparison of the Three and Nine Months Ended September 30, 2024 and 2023

Three Months Ended September 30, % Change Nine Months Ended September 30, % Change

2024 2023 2024 2023

(dollars in millions) (dollars in millions)

Comparison of the Three Months Ended March 31, 2025 and 2024

Three Months Ended March 31, % Change

(dollars in millions)

Subscription $ 3,005 $ 2,523 19%

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Total 100% 100%

Subscription revenues increased by $499 million and $1,465 million for the three and nine months ended September 30, 2024, respectively, compared to the three and nine months ended September 30, 2023, primarily driven by increased purchases by new and existing customers.

Included in subscription revenues is $81 million and $67 million of revenues recognized upfront from the delivery of software associated with self-hosted offerings during the three months ended September 30, 2024 and 2023, respectively, and $275 million and $210 million during the nine months ended September 30, 2024 and 2023, respectively.

Subscription revenues increased by $482 million for the three months ended March 31, 2025 compared to the three months ended March 31, 2024, primarily driven by increased purchases by new and existing customers.

Included in subscription revenues is $157 million and $126 million of revenues recognized upfront from the delivery of software associated with self-hosted offerings during the three months ended March 31, 2025 and 2024, respectively.

We expect subscription revenues for the year ending December 31, 2025 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, 2024.

Our expectations for revenues, cost of revenues and operating expenses for the remainder of 2024 are based on the 30-day average of foreign exchange rates for September 30, 2024.

Subscription revenues consist of the following:

Three Months Ended September 30, % Change Nine Months Ended September 30, % Change

2024 2023 2024 2023

(dollars in millions) (dollars in millions)

Digital workflow products $ 2,398 $ 1,961 22% $ 6,877 $ 5,587 23%

ITOM products 317 255 24% 903 728 24%

Total subscription revenues $ 2,715 $ 2,216 23% $ 7,780 $ 6,315 23%

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 increased by $10 million and $28 million during the three and nine months ended September 30, 2024, respectively, compared to the three and nine months ended September 30, 2023, primarily 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, 2024 to increase in absolute dollars and remain relatively flat as a percentage of revenue compared to the year ended December 31, 2023.

Our expectations for revenues, cost of revenues and operating expenses for the remainder of 2025 are based on the 31-day average of foreign exchange rates for March 31, 2025.

Professional services and other revenues increased by $3 million during the three months ended March 31, 2025 compared to the three months ended March 31, 2024.

We expect professional services and other revenues for the year ending December 31, 2025 to increase in absolute dollars and to remain relatively flat as a percentage of revenue compared to the year ended December 31, 2024.

Cost of Revenues and Gross Profit Percentage

Three Months Ended September 30, % Change Nine Months Ended September 30, % Change

2024 2023 2024 2023

(dollars in millions) (dollars in millions)

Three Months Ended March 31, % Change

(dollars in millions)

Cost of revenues:

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Gross profit $ 2,437 $ 2,083

Cost of subscription revenues increased by $76 million and $243 million for the three and nine months ended September 30, 2024, respectively, compared to the three and nine months ended September 30, 2023, primarily due to increased headcount and increased costs to support the growth of our subscription offerings including costs to support customers in regulated markets.

Personnel-related costs, including stock-based compensation and overhead expenses, increased by $57 million and $172 million for the three and nine months ended September 30, 2024, respectively, compared to the three and nine months ended September 30, 2023.

Expenses associated with software, maintenance, and other costs to support the expansion of our data center capacity increased by $19 million and $62 million for the three and nine months ended September 30, 2024, respectively, compared to the three and nine months ended September 30, 2023.

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.

Cost of subscription revenues increased by $120 million for the three months ended March 31, 2025 compared to the three months ended March 31, 2024, primarily due to increased headcount and increased costs to support the growth of our subscription offerings including costs to support customers in regulated markets.

Personnel-related costs, including stock-based compensation and overhead expenses, increased by $62 million for the three months ended March 31, 2025 compared to the three months ended March 31, 2024.

Depreciation expense related to infrastructure hardware equipment and expenses associated with software, maintenance, and other costs, which together support the expansion of our data center capacity, increased by $32 million and $19 million, respectively, for the three months ended March 31, 2025 compared to the three months ended March 31, 2024.

We expect our cost of subscription revenues for the year ending December 31, 2025 to increase in absolute dollars as we provide subscription services to more customers and increase usage within our customer instances and increase slightly as a percentage of revenue compared to the year ended December 31, 2024.

We will continue to incur incremental costs to attract customers in regulated markets by adopting public cloud offerings as well as increased support for customers impacted by new and evolving data residency requirements.

To the extent future acquisitions are consummated, our cost of subscription revenues may increase due to additional non-cash charges associated with the amortization of intangible assets acquired.

Our subscription gross profit percentage was 82% for each of the three and nine months ended September 30, 2024 and 81% and 82% for the three and nine months ended September 30, 2023, respectively.

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 increased by $12 million and $8 million for the three and nine months ended September 30, 2024, respectively, compared to the three and nine months ended September 30, 2023, primarily due to an increase in partner ecosystem investments to further accelerate customer value realization, partially offset by a decrease in fixed personnel-related costs including stock-based compensation due to decreased internal headcount.

Our professional services and other gross loss percentage increased to 7% for the three months ended September 30, 2024 compared to 6% for the three months ended September 30, 2023 primarily driven by an increase in partner ecosystem investments to further accelerate customer value realization.

Professional services and other gross loss percentage improved to 1% for the nine months ended September 30, 2024 compared to 11% for the nine months ended September 30, 2023, primarily due to an increase in revenue and a decrease in fixed personnel-related costs including stock-based compensation, as we execute our strategy to shift a portion of professional services to variable spending with strategic third-party partners.

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.

Our subscription gross profit percentage was 81% for the three months ended March 31, 2025 and 83% for the three months ended March 31, 2024.

We expect our subscription gross profit percentage to decrease slightly for the year ending December 31, 2025 compared to the year ended December 31, 2024.

Cost of professional services and other revenues increased by $11 million for the three months ended March 31, 2025 compared to the three months ended March 31, 2024, primarily driven by an increase in partner ecosystem spend to further help accelerate customer value realization.

Our professional services and other gross loss percentage was 8% for the three months ended March 31, 2025, compared to a gross profit percentage of 1% for the three months ended March 31, 2024, and was primarily driven by partner ecosystem spend to further help accelerate customer value realization increasing at a faster rate than revenue.

We expect our professional services and other gross loss percentage to increase for the year ending December 31, 2025 compared to the year ended December 31, 2024.

Sales and Marketing

Three Months Ended September 30, % Change Nine Months Ended September 30, % Change

2024 2023 2024 2023

(dollars in millions) (dollars in millions)

Three Months Ended March 31, % Change

(dollars in millions)

Sales and marketing $ 1,054 $ 923 14%

Percentage of revenues 34% 35%

Sales and marketing expenses increased by $145 million and $373 million for the three and nine months ended September 30, 2024, respectively, compared to the three and nine months ended September 30, 2023, primarily due to increased headcount resulting in an increase in personnel-related costs including stock-based compensation and overhead expenses of $89 million and $230 million for the three and nine months ended September 30, 2024, respectively, compared to the three and nine months ended September 30, 2023.

Amortization expenses associated with deferred commissions increased $26 million and $68 million for the three and nine months ended September 30, 2024, respectively, compared to the three and nine months ended September 30, 2023, primarily 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 $21 million and $51 million for the three and nine months ended September 30, 2024, respectively, compared to the three and nine months ended September 30, 2023, primarily due to increased program costs and travel for our annual Sales Kickoff and Knowledge user conference.

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.

Sales and marketing expenses increased by $131 million for the three months ended March 31, 2025 compared to the three months ended March 31, 2024, primarily due to increased headcount resulting in an increase in personnel-related costs including stock-based compensation and overhead expenses of $100 million for the three months ended March 31, 2025 compared to the three months ended March 31, 2024.

Amortization expenses associated with deferred commissions increased $13 million for the three months ended March 31, 2025 compared to the three months ended March 31, 2024, primarily 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 $11 million for the three months ended March 31, 2025 compared to the three months ended March 31, 2024.

We expect sales and marketing expenses for the year ending December 31, 2025 to increase in absolute dollars and to decrease slightly as a percentage of revenue compared to the year ended December 31, 2024, as we continue to see leverage from increased sales productivity and marketing efficiencies.

Research and Development

Three Months Ended September 30, % Change Nine Months Ended September 30, % Change

2024 2023 2024 2023

(dollars in millions) (dollars in millions)

Three Months Ended March 31, % Change

(dollars in millions)

Research and development $ 703 $ 606 16%

Percentage of revenues 23% 23%

Research and development (“R&D”) expenses increased by $77 million and $313 million for the three and nine months ended September 30, 2024, respectively, compared to the three and nine months ended September 30, 2023, primarily due to increased headcount, resulting in an increase in personnel-related costs including stock-based compensation and overhead expenses of $68 million and $266 million for the three and nine months ended September 30, 2024, respectively, compared to the three and nine months ended September 30, 2023.

Outside services increased $12 million and $33 million for the three and nine months ended September 30, 2024, respectively, compared to the three and nine months ended September 30, 2023.

The remaining increase was primarily due to expenses associated with software, maintenance and other costs to support the expansion of our data center capacity of $5 million and $21 million for the three and nine months ended September 30, 2024, respectively, compared to the three and nine months ended September 30, 2023.

These costs were partially offset by a decrease in program spend of $9 million and $11 million for the three and nine months ended September 30, 2024, respectively, compared to the three and nine months ended September 30, 2023.

Research and development (“R&D”) expenses increased by $97 million for the three months ended March 31, 2025 compared to the three months ended March 31, 2024, primarily due to increased headcount, resulting in an increase in personnel-related costs including stock-based compensation and overhead expenses of $83 million for the three months ended March 31, 2025 compared to the three months ended March 31, 2024.

Outside services increased $10 million for the three months ended March 31, 2025 compared to the three months ended March 31, 2024.

We expect R&D expenses for the year ending December 31, 2025 to increase in absolute dollars but remain relatively flat as a percentage of revenue compared to the year ended December 31, 2024, as we continue to improve the existing functionality of our services, develop new applications to fill market needs and enhance our core platform.

General and Administrative

Three Months Ended September 30, % Change Nine Months Ended September 30, % Change

2024 2023 2024 2023

(dollars in millions) (dollars in millions)

Three Months Ended March 31, % Change

(dollars in millions)

General and administrative $ 229 $ 222 3%

Percentage of revenues 7% 9%

General and administrative (“G&A”) expenses increased by $12 million and $58 million for the three and nine months ended September 30, 2024, respectively, compared to the three and nine months ended September 30, 2023, primarily due to increased headcount, resulting in an increase in personnel-related costs, excluding stock-based compensation, of $9 million and $27 million.

The remaining increase was primarily due to an increase in other corporate expenses and outside services of $13 million and $50 million for the three and nine months ended September 30, 2024, respectively, compared to the three and nine months ended September 30, 2023.

These costs were partially offset by a decrease in stock-based compensation of $11 million and $20 million for the three and nine months ended September 30, 2024, respectively, compared to the three and nine months ended September 30, 2023, primarily due to the requisite service period of certain performance awards being met.

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.

General and administrative (“G&A”) expenses increased by $7 million for the three months ended March 31, 2025 compared to the three months ended March 31, 2024, primarily due to an increase in personnel-related costs, including stock-based compensation.

We expect G&A expenses for the year ending December 31, 2025 to increase in absolute dollars and to decrease slightly as a percentage of revenue compared to the year ended December 31, 2024, as we continue to see leverage from continued G&A productivity.

Stock-based Compensation

Three Months Ended September 30, % Change Nine Months Ended September 30, % Change

2024 2023 2024 2023

(dollars in millions) (dollars in millions)

Three Months Ended March 31, % Change

(dollars in millions)

Cost of revenues:

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Percentage of revenues 15% 16%

Stock-based compensation increased by $13 million and $101 million for the three and nine months ended September 30, 2024, respectively, compared to the three and nine months ended September 30, 2023, primarily due to additional grants to current and new employees, partially offset by the forfeiture of unvested stock-based awards of the Company’s former President and Chief Operating Officer and the requisite service period of certain performance awards being met.

Stock-based compensation increased by $48 million for the three months ended March 31, 2025 compared to the three months ended March 31, 2024, primarily due to additional grants to current and new employees.

Stock-based compensation is inherently difficult to forecast due to fluctuations in our stock price.

Based upon our stock price as of September 30, 2024, we expect stock-based compensation to continue to increase in absolute dollars for the year ending December 31, 2024 as we continue to issue stock-based awards to our employees, but decrease as a percentage of revenue compared to the year ended December 31, 2023.

Based upon our stock price as of March 31, 2025, we expect stock-based compensation to continue to increase in absolute dollars for the year ending December 31, 2025 as we continue to issue stock-based awards to our employees, but remain relatively flat as a percentage of revenue compared to the year ended December 31, 2024.

We expect stock-based compensation as a percentage of revenue to decline over time as we continue to grow.

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Our international operations have provided and will continue to provide a significant portion of our total revenues.

Revenues outside North America represented 36% and 37% of total revenues for the three and nine months ended September 30, 2024, respectively, and 37% and 36% for the three and nine months ended September 30, 2023, respectively.

Revenues outside North America represented 36% and 37% of total revenues for the three months ended March 31, 2025 and 2024, respectively.

We primarily transact in certain foreign currencies for sales outside of the United States.

The general weakening of the U.S.

Dollar relative to certain major foreign currencies had an immaterial favorable impact on our revenues for the three and nine months ended September 30, 2024.

The movement of the U.S.

Dollar had an immaterial impact on our revenues for the three months ended March 31, 2025.

In addition, we primarily transact in several foreign currencies for cost of revenues and operating expenses outside of the United States.

The movement of the U.S.

Dollar had an immaterial impact on our expenses for the three and nine months ended September 30, 2024.

Dollar had an immaterial impact on our expenses for the three months ended March 31, 2025.

Interest Income

Three Months Ended September 30, % Change Nine Months Ended September 30, % Change

2024 2023 2024 2023

(dollars in millions) (dollars in millions)

Three Months Ended March 31, % Change

(dollars in millions)

Interest income $ 115 $ 101 14%

Percentage of revenues 4 % 4%

Interest income increased by $26 million and $97 million for the three and nine months ended September 30, 2024, respectively, compared to the three and nine months ended September 30, 2023, primarily driven by an increase in investment income from our managed portfolio resulting from higher portfolio balances and an increase in interest rates.

Interest income increased by $14 million for the three months ended March 31, 2025 compared to the three months ended March 31, 2024, primarily driven by an increase in investment income from our managed portfolio resulting from higher portfolio balances.

Other Expense, net

Three Months Ended September 30, % Change Nine Months Ended September 30, % Change

2024 2023 2024 2023

(dollars in millions) (dollars in millions)

Three Months Ended March 31, % Change

(dollars in millions)

Interest expense $ (6) $ (6) —%

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Percentage of revenues —% —%

Other expense, net decreased by $4 million and $19 million for the three and nine months ended September 30, 2024, respectively, compared to the three and nine months ended September 30, 2023 primarily due to gains on equity investments.

Other expense, net increased by $3 million for the three months ended March 31, 2025 compared to the three months ended March 31, 2024.

To mitigate our risks associated with fluctuations in foreign currency exchange rates, we enter into foreign currency forward 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 expense, net were immaterial for the three and nine months ended September 30, 2024 and 2023.

Provision for (Benefit from) Income Taxes

Three Months Ended September 30, % Change Nine Months Ended September 30, % Change

2024 2023 2024 2023

(dollars in millions) (dollars in millions)

The gains (losses) recognized for these foreign currency forward contracts in other expense, net were immaterial for the three months ended March 31, 2025 and 2024.

Provision for Income Taxes

Three Months Ended March 31, % Change

(dollars in millions)

Income before income taxes $ 555 $ 425 31%

Provision for (benefit from) income taxes

$ 84 $ 57 47% $ 234 $ (775) NM

Provision for income taxes

$ 95 $ 78 22%

Effective tax rate 17% 18%

NM - Not meaningful

The income tax provision was $84 million and $234 million for the three and nine months ended September 30, 2024, respectively.

Our income tax provision was $95 million and $78 million for the three months ended March 31, 2025 and 2024, respectively.

The income tax provision was primarily attributable to the mix of earnings and losses in countries with differing statutory tax rates, offset by excess tax benefits of stock-based compensation.

The income tax provision was $57 million for the three months ended September 30, 2023 and our income tax benefit was $775 million for the nine months ended September 30, 2023.

The income tax provision was primarily attributable to the mix of earnings and losses in countries with differing statutory tax rates, tax deductible R&D costs and the valuation allowance release through the effective tax rate.

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.

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 released $985 million of our valuation allowance during the nine months ended September 30, 2023.

As of September 30, 2024, 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 R&D tax credit generation to exceed our ability to use the credits in future years.

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

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.

We generate cash inflows from operations primarily from selling subscription services which are generally paid in advance of provisioning services, and expend cash outflows to develop new services and core technologies that further enhance the Now Platform, engage our customers 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% over the last three years.

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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 2025.

When assessing sources of liquidity, we also include cash and cash equivalents, short-term investments and long-term investments totaling $9.1 billion as of September 30, 2024.

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.

When assessing sources of liquidity, we also include cash and cash equivalents, short-term investments and long-term investments totaling $10.9 billion as of March 31, 2025.

Our capital requirements are principally comprised of capital expenditures to support data center capacity expansion, non-contract workforce salaries, bonuses, commissions and benefits and, to a lesser extent, cancellable and non-cancellable licenses, operating leases and services arrangements that are integral to our business operations.

We also acquire technology and businesses to expand our service offerings and functionality.

Operating lease obligations totaling $1,073 million are principally associated with leased facilities and have varying maturities with $630 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 nine months ended September 30, 2024, the Company repurchased 0.5 million shares of its common stock for $400 million.

In May 2023, our board of directors authorized a program to repurchase up to $1.5 billion of our common stock and authorized an additional $3.0 billion in repurchases under the program in January 2025.

During the three months ended March 31, 2025, the Company repurchased 0.3 million shares of our common stock for $298 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 September 30, 2024, approximately $562 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 cancellable arrangements primarily used to support the installed base and growth of our hosted business.

As of March 31, 2025, approximately $3.0 billion of the authorized amount under the share repurchase program remained available for future repurchases.

We have also issued long-term debt to finance our business.

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If we require additional capital resources, we may seek to finance our operations from the current funds available or additional equity or debt financing.

Nine Months Ended September 30,

Three Months Ended March 31,

(dollars in millions)

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Net cash used in financing activities $ (398) $ (443)

Net decrease in cash, cash equivalents and restricted cash

Net increase in cash, cash equivalents and restricted cash

$ 1,067 $ 160

Operating Activities

Net cash provided by operating activities was $2,632 million for the nine months ended September 30, 2024 compared to $1,793 million for the nine months ended September 30, 2023.

Net cash provided by operating activities was $1,677 million for the three months ended March 31, 2025 compared to $1,341 million for the three months ended March 31, 2024.

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

Investing Activities

Net cash used in investing activities was $1,763 million for the nine months ended September 30, 2024 compared to $1,723 million for the nine months ended September 30, 2023.

The net increase in cash used in investing activities was primarily due to a $166 million increase in purchases of property and equipment, a $93 million increase in purchases of non-marketable investments and a $27 million increase in purchases of other intangible assets, partially offset by a $197 million decrease in business combinations and a $9 million decrease in net purchases of investments.

Net cash used in investing activities was $217 million for the three months ended March 31, 2025 compared to $734 million for the three months ended March 31, 2024.

The net decrease in cash used in investing activities was primarily due to a $573 million decrease in net purchases of investments, a $38 million decrease in purchases of non-marketable investments, partially offset by a $70 million increase in purchases of property and equipment, a $13 million increase in purchases of other intangible assets, and an $8 million increase in business combinations.

Financing Activities

Net cash used in financing activities was $872 million for the nine months ended September 30, 2024 compared to $422 million for the nine months ended September 30, 2023.

The net increase in cash used in financing activities was due to a $192 million increase in taxes paid related to net share settlement of equity awards, a $184 million increase in business combination related to the second installment payment in the acquisition of G2K Group GmbH and an increase in repurchases of common stock of $118 million, partially offset by a $44 million increase in proceeds from employee stock plans.

Net cash used in financing activities was $398 million for the three months ended March 31, 2025 compared to $443 million for the three months ended March 31, 2024.

The net decrease in cash used in financing activities is primarily due to an $184 million decrease in business combination related to the second installment payment in the acquisition of G2K Group GmbH made during the three months ended March 31, 2024 and a $22 million increase in proceeds from employee stock plans, partially offset by an increase in repurchases of common stock of $123 million and a $38 million increase in taxes paid related to net share settlement of equity awards.

Critical Accounting Policies and Significant Judgments and Estimates

There have been no significant changes to our critical accounting policies and estimates as described in our Annual Report on Form 10-K for the year ended December 31, 2024, which was filed with the SEC on January 30, 2025.

QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes in our market risk compared to the disclosures in Part II, Item 7A in our Annual Report on Form 10-K for the year ended December 31, 2024, which was filed with the SEC on January 30, 2025.

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-Q

Item 2. Management’s Discussion and Analysis