The markets in which we participate are intensely competitive, and if we do not compete effectively our business and operating results ~~could~~will be ~~harmed.~~adversely affected.

The markets ~~in which we compete to manage services across the~~for our enterprise cloud solutions are ~~fragmented,~~ rapidly evolving and highly competitive, with relatively low barriers to entry. As the market for service management matures, we expect competition to intensify. We ~~face competition from~~compete primarily with large, well-established, enterprise application software vendors, in-house solutions, large integrated systems vendors, ~~and~~ established and emerging cloud vendors and ~~software vendors. Our competitors vary in size and in the breadth and scope~~vendors of ~~the~~ products and services ~~offered.~~for development operations. Many prospective customers have invested substantial personnel and financial resources to implement and integrate their current enterprise software into their businesses and therefore may be reluctant or unwilling to migrate away from their current solution to our enterprise cloud solutions. Many of our competitors and potential competitors are larger, have greater name recognition, longer operating histories, more established customer relationships, larger marketing budgets and greater resources than we do. ~~Our primary competitors include BMC Software, Inc., CA, Inc., Hewlett-Packard Company and International Business Machines Corporation.~~ Further, other potential competitors not currently offering competitive products may expand their services to compete with our services. ~~Moreover, as we expand~~We have expanded the breadth of our services to include offerings in the markets for IT operations management, customer service ~~domains outside~~management, security operations management, HR service delivery and use of ~~IT, and offerings for small and medium sized businesses,~~our platform by developers of custom applications. As a result, we ~~will face additional~~expect increasing competition from platform vendors ~~including Salesforce.com, Inc.~~ and from application development vendors focused on these other markets. Our competitors may be able to respond more quickly and effectively than we can to new or changing opportunities, technologies, standards and customer requirements. ~~An existing competitor or new entrant could introduce new technology that reduces demand for our services.~~ In addition, ~~to product and technology competition, we face pricing competition. Some~~some of our competitors offer their products or services at a lower price, which has resulted in pricing pressures. ~~Some~~Larger competitors with more diverse product and service offerings may reduce the price of products or subscriptions that compete with ours or may bundle them with other products and subscriptions. We expect that smaller competitors and new entrants may accelerate pricing pressures, including in the IT service management market, which is our more mature offering and from which we derive the substantial majority of our ~~larger competitors have the operating flexibility to bundle competing products and services with other software offerings, including offering them at a lower price as part of a larger sale.~~revenues. For all of these reasons, we may not be able to compete successfully and competition could result in reduced sales, reduced margins, losses or the failure of our ~~services~~solutions to achieve or maintain market acceptance, any of which could harm our business.

We may acquire or invest in companies, which may divert our management’s attention, and result in additional dilution to our stockholders. We may be unable to integrate acquired businesses and technologies successfully or achieve the expected benefits of such acquisitions or investments.

We have acquired companies in the past and may evaluate and consider potential strategic transactions, including acquisitions of, or investments in, businesses, technologies, services, products and other assets in the future. We also may enter into relationships with other businesses to expand our service offerings or our ability to provide services in international locations, whichLawsuits against us by third-parties that allege we infringe their intellectual property rights could involve preferred or exclusive licenses, additional channels of distribution, discount pricing or investments in other companies. An acquisition, investment or business relationship may result in unforeseen operating difficulties and expenditures. In particular, we may encounter difficulties assimilating or integrating the businesses, technologies, products, personnel or operations of the acquired companies, particularly if the key personnel of the acquired company choose not to work for us, their technology is not easily adapted to work with ours, or we have difficulty retaining the customers of any acquired business due to changes in ownership, management or otherwise.

Negotiating these transactions can be time-consuming, difficult and expensive, and our ability to close these transactions may often be subject to conditions or approvals that are beyond our control. Consequently, these transactions, even if undertaken and announced, may not close. For one or more of those transactions, we may:

~~issue additional equity securities that would dilute our stockholders;~~

~~use cash that we may need in the future to operate our business;~~

~~incur debt on terms unfavorable to us or that we are unable to repay;~~

~~incur large charges or substantial liabilities;~~

~~encounter difficulties retaining key employees of the acquired company or integrating diverse technologies, software or business cultures; and~~

~~become subject to adverse tax consequences, substantial depreciation or deferred compensation charges.~~

~~Acquisitions may also disrupt~~harm our business ~~divert our resources~~ and require significant management attention that would otherwise be available for development of our existing business. Moreover, the anticipated benefits of any acquisition, investment or business relationship may not be realized or we may be exposed to unknown risks or liabilities. For example, in July 2014 we completed the acquisition of a privately-held company based in Israel, Neebula Systems Ltd., or Neebula. To succeed with this acquisition, we need to successfully retain Neebula’s key personnel and implement Neebula’s technology on the ServiceNow platform. We may experience difficulties in this integration due to differences in operations, technology and culture between ServiceNow and Neebula, and other challenges associated with operating a business in a geography in which we did not previously have substantial engineering operations and which is currently involved in regional conflicts.

~~If the market for our technology delivery model develops more slowly than we expect, our growth may slow or stall, and our operating results would be harmed.~~

Use of cloud-based applications to automate and manage service relationships is at an early stage. We do not know whether the trend of adoption of enterprise cloud-based solutions we have experienced in the past will continue in the future. In particular, many organizations have invested substantial personnel and financial resources to integrate legacy software into their businesses over time, and some have been reluctant or unwilling to migrate to cloud-based solutions. Furthermore, some organizations, particularly large enterprises upon which we are dependent, have been reluctant or unwilling to use cloud-based solutions because they have concerns regarding the risks associated with the security of their data, the physical location of data centers in which their data is stored and processed, and the reliability of the technology delivery model associated with these solutions. It is possible that various governmental jurisdictions around the world in which we compete will adopt laws regarding access to, the processing of, or the location of storage of, data that prevents or imposes prohibitively expensive hurdles for us to provide our cloud-based solutions to enterprises within such jurisdictions. In addition, if either we or other cloud-based providers experience security incidents, loss of customer data, disruptions in delivery or other problems, the market for cloud-based solutions as a whole, including our services, will be negatively impacted. If the adoption of cloud-based solutions does not continue, the market for these solutions may stop developing or may develop more slowly than we expect, either of which would harm our operating results.

~~Failure~~There is considerable patent and other intellectual property development activity in our industry. Many companies in our industry, including our competitors and other third parties, as well as non-practicing entities, own large numbers of patents, copyrights, trademarks and trade secrets, which they may use to ~~effectively expand~~assert claims of patent infringement, misappropriation or other violations of intellectual property rights against us.

Moreover, the patent portfolios of most of our ~~sales~~competitors are larger than ours. This disparity may increase the risk that our competitors may sue us for patent infringement and ~~marketing capabilities could harm~~may limit our ability to ~~increase~~counterclaim for patent infringement or settle through patent cross-licenses. From time to time, our ~~customer base and achieve broader market acceptance~~competitors or other third parties, including patent holding companies seeking to monetize patents they have purchased or otherwise obtained, may claim that we are infringing upon their intellectual property rights. For example, we recorded charges for aggregate legal settlements of $270.0 million in our ~~services.~~

~~Increasing our customer base and achieving broader market acceptance~~consolidated statement of our services will depend, to a significant extent, on our ability to effectively expand our sales and marketing operations and activities. We are substantially dependent on our direct sales force to obtain new customers. Fromcomprehensive loss during the year ended December 31, ~~2013~~2016. The charge covers the fulfillment by us of all financial obligations under settlement agreements with BMC and HPE, with no remaining financial obligations under either settlement.

In any intellectual property litigation, regardless of the scope or merits of the claims at issue, we may incur substantial attorney’s fees and other litigation expenses and, if the claims are successfully asserted against us and we are found to ~~December 31, 2014,~~be infringing upon the intellectual property rights of others, we could be required to: pay substantial damages and make substantial ongoing royalty payments; cease offering our ~~sales~~products and ~~marketing organization increased from 615~~services; modify our products and services; comply with other unfavorable terms, including settlement terms; and indemnify our customers and business partners and obtain costly licenses on their behalf and refund fees or other payments previously paid to ~~1,011 employees. We plan~~us. Further, upon expiration of the term of any third-party agreements that allow us to continue to expand our direct sales force both domestically and internationally. There is significant competition for direct sales personnel with the sales skills and technical knowledge that we require. Our ability to achieve significant revenue growth in the future will depend, in large part, on our success in recruiting, training and retaining a sufficient number of direct sales personnel anduse their intellectual property, we may be unable to ~~hire~~renew such agreements on favorable terms, if at all, in which case we may face intellectual property litigation. The mere existence of any lawsuit, or ~~retain sufficient numbers~~any interim or final outcomes, and the course of ~~qualified individuals. Further, new hires require significant training~~its conduct and ~~time before they achieve full productivity, particularly in new sales territories~~the public statements related to it (or absence of such statements) by the courts, press, analysts and litigants, could be unsettling to our ~~recent hires~~customers and ~~planned hires may not become as productive as quickly as we plan, or at all. Moreover, we do not have significant experience as~~prospective customers and could cause an ~~organization developing~~adverse impact to our customer satisfaction and ~~implementing overseas~~related renewal rates and cause us to lose potential sales, and ~~marketing campaigns,~~could also be unsettling to investors or prospective investors in our common stock and ~~such campaigns may~~could cause a substantial decline in the price of our common stock. Accordingly, any claim or litigation against us could be ~~expensive~~costly, time-consuming and ~~difficult to implement,~~divert the attention of our management and ~~we may be unable to attract~~key personnel from our business operations and ~~retain qualified personnel to conduct such campaigns. Our business will be harmed if~~harm our ~~expansion efforts do not generate a significant increase in revenues.~~financial condition and operating results.

Our ~~growth depends in part on the success of our strategic relationships with third parties and their continued performance.~~

We depend on various third parties, such as implementation partners, systems integrators, managed services providers and sales partners in order to grow our business. Our sales efforts have focused on large enterprise customers and there are a limited number of partners with the capacity to provide these customers a significant level of services. In order to continue our growth, we need to recruit these partners and these partners need to devote substantial resources to our solutions. Accordingly, we need to build services, implement partner programs, and provide training and other resources to recruit, retain and enable these partners. Our agreements with partners are typically non-exclusive and do not prohibit them from working with our competitors or from offering competing solutions. Our competitors may be effective in providing incentives to our partners to favor their solutions or otherwise disrupt the relationships we have with our partners. In addition, global economic conditions could harm the businesses of our partners, and it is possible that theyintellectual property protections may not be able to devote the additional resources we expect to the relationship. If we are unsuccessful in establishing or maintaining our relationships with these third parties, our ability to compete in the marketplace or to grow our revenues could be impaired and our operating results would suffer. As we expand the breadth of our services to include offerings for service domains outside of IT, and offerings for small and medium sized businesses, we may need to establish relationships with additional sales and implementation partners. Further, reliance on third parties exposes us to risk of poor performance and failed customer expectations. If a customer is not satisfied with the quality of work performed by a third party, we could incur additional costs to address the situation, the profitability of that work might be impaired, and the customer’s dissatisfaction could damage our reputation or ability to obtain additional revenues from that customer or prospective customers.

Our business depends substantially on our existing customers purchasing additional subscriptions from us, and renewing their subscriptions upon expiration of the subscription term. Any decline in customer additional purchases or renewals would harm our operating results.

In order for us to maintain or improve our operating results, it is important that our existing customers expand their use of our service by adding new users and new applications of our service across the enterprise, and renew their subscriptions upon expiration of the subscription contract term. Our customers have no obligation to renew their subscriptions, and our customers may not renew subscriptions with a similar contract period or with the same or a greater number of users. Although our renewal rates have historically been high, some of our customers have elected not to renew their agreements with us and we cannot accurately predict renewal rates. Moreover, in some cases, some of our customers have the right to cancel their agreements prior to the expiration of the term. Our renewal rates may decline or fluctuate as a result of a number of factors, including our customers' satisfaction with our subscription service, professional services, customer support, or prices, the prices of competing solutions, mergers and acquisitions affecting our customer base, the effects of global economic conditions, or reductions in our customers’ spending levels. Our growth also depends in part on our ability to sell more subscriptions and additional professional services to our current customers. If our customers do not renew their subscriptions, renew on less favorable terms or fail to add more authorized users or fail to purchase additional professional services, our revenues may decline, and our operating results would be harmed.

Because our sales efforts are targeted at large enterprise customers, we face longer sales cycles, substantial upfront pre-sales costs and less predictability in completing some of our sales. If our sales cycle lengthens, or if our sales investments do not result in sufficient sales, our operating results could be harmed.

We target our sales efforts at large enterprise customers. Because these customers are often making an enterprise-wide decision to deploy our services, sometimes on a global basis, we face long sales cycles, complex customer requirements, substantial upfront pre-sales costs and less predictability in completing some of our sales. Our sales cycle is generally six to nine months, but is variable and difficult to predict and can be much longer. Large enterprises often undertake a prolonged evaluation of our services, including whether they need professional services performed by us or a third party for their service management needs, and a comparison of our services to products offered by our competitors. Some of our large enterprise customers initially deploy our services on a limited basis, with no guarantee that these customers will deploy our services widely enough across their organization to justify our substantial pre-sales investment. If our sales cycle lengthens or our substantial upfront pre-sales investments do not result in sufficient subscription revenues to justify our investments, our operating results could be harmed.

~~We may be unable to develop or obtain intellectual property that provides~~provide us with a competitive advantage, ~~or prevent third parties from infringing upon or misappropriating our intellectual property. Defending~~and defending our intellectual property may result in substantial expenses that harm our operating results.

Our success depends to a significant degree on our ability to protect our proprietary technology and our ~~brand. We rely on~~brand under a combination of ~~copyright, trademark, trade secret~~patent and other intellectual property laws of the United States and ~~confidentiality procedures to protect our proprietary rights. We have recently begun to~~other jurisdictions. Though we seek patent protection for our ~~technology. We~~technology, we may not be successful in obtaining patent protection, and any patents ~~issued~~acquired in the future may not provide us with competitive advantages, or may be successfully challenged by third parties. Furthermore, legal standards relating to the validity, enforceability and scope of protection of intellectual property rights are uncertain. Any of our intellectual property rights may be challenged by others or invalidated through administrative process or litigation. Effective patent, trademark, copyright and trade secret protection may not be available to us in every country in which our services are available. The laws of some foreign countries may not be as protective of intellectual property rights as those in the United States, and mechanisms for enforcement of intellectual property rights may be inadequate. We may be required to spend significant resources to monitor and protect our intellectual property rights. We have, and in the future may, initiate claims or litigation against third parties for infringement of our proprietary rights or to establish the validity of our proprietary rights. Any litigation, whether or not it is resolved in our favor, could result in significant expense to us, divert the efforts of our technical and management personnel and may result in counter-claims with respect to infringement of intellectual property rights by us. If we are unable to prevent third parties from infringing upon or misappropriating our intellectual property, or are required to incur substantial expenses in defending our intellectual property rights, our business and operating results may be ~~harmed.~~adversely affected.

~~We have been, and may in the future be, sued by third parties for alleged infringement of their proprietary rights.~~

There is considerable patent and other intellectual property development activity in our industry. Our success depends in part on not infringing upon the intellectual property rights of others. We may be unaware of the intellectual property rights of others that may cover some or all of our technology or services. From time to time, our competitors or other third parties may claim thatIf we are ~~infringing upon their intellectual property rights, and we may be found to be infringing upon such rights.~~

~~For example, on February 6, 2014, Hewlett-Packard Company filed a lawsuit against us~~unsuccessful in increasing our penetration of international markets or managing the U.S. District Court for the Northern District of California that alleges that some of our services infringe the claims of eight of Hewlett-Packard's patents. Hewlett-Packard is seeking unspecified damages and an injunction. We filed an answer to the complaint on March 28, 2014 denying the allegations and asserting various affirmative defenses. The court held case management conferences on June 26, 2014, September 4, 2014 and February 5, 2015. The parties are currently conducting discovery. Hewlett-Packard served infringement contentions on July 3, 2014 and November 18, 2014. We served invalidity contentions on January 9, 2015. A claim construction hearing is scheduled for June 12, 2015. Trial is currently scheduled to begin on May 16, 2016. We have filed petitions for ~~inter partes~~ ~~review of all eight asserted patents~~risks associated with ~~the United States Patent and Trademark Office.~~

On September 23, 2014, BMC Software, Inc. filed a lawsuit against us in the U.S. District Court for the Eastern District of Texas that alleges that some of our services willfully infringe the claims of seven of BMC’s patents. BMC is seeking unspecified damages and an injunction. Motions to dismiss and transfer venue are currently pending. BMC served infringement contentions on January 6, 2015. Our invalidity contentions are due March 3, 2015. A claim construction hearing is scheduled for July 10, 2015. Trial is currently scheduled to begin on March 14, 2016.

We intend to vigorously defend these lawsuits. These litigation matters are still in their early stages and the final outcome, including our liability, if any, with respect to the claims in the lawsuits, is uncertain. If an unfavorable outcome were to occur in either litigation, the impact could be material toforeign markets, our business ~~financial condition, cash flow or results of operations, depending on the specific circumstances of the outcome.~~

~~Any claims or litigation could cause us to incur significant expenses~~ and if successfully asserted against us, could require that we pay substantial damages or ongoing royalty payments, prevent us from offering our services, or require that we comply with other unfavorable terms. We may also be obligated to indemnify our customers or business partners in connection with any such litigation and to obtain licenses, modify our services or refund fees. Such disputes could also cause an adverse impact to our customer satisfaction and related renewal rates and could cause us to lose potential sales. Even if we were to prevail in the event of claims or litigation against us, any claim or litigation regarding our intellectual property could be costly and time-consuming and divert the attention of our management and key personnel from our business operations and harm our operating ~~results.~~

~~Our use of open source software could harm our ability to sell our services and subject us to possible litigation.~~

A significant portion of the technologies licensed or developed by us incorporate open source software and we may incorporate open source software into other services in the future. We attempt to monitor our use of open source software in an effort to avoid subjecting our services to adverse licensing conditions. However, there can be no assurance that our efforts have been or will be successful. There is little or no legal precedent governing the interpretation of the terms of open source licenses, and therefore the potential impact of these terms on our business is uncertain and enforcement of these terms may result in unanticipated obligations regarding our services and technologies. For example, depending on which open source license governs open source software included within our services or technologies, we may be subjected to conditions requiring us to offer our services to users at no cost; make available the source code for modifications and derivative works based upon, incorporating or using the open source software; and license such modifications or derivative works under the terms of the particular open source license. Moreover, if an author or other third party that distributes such open source software were to allege that we had not complied with the conditions of one or more of these licenses, we could be required to incur significant legal costs defending ourselves against such allegations, be subject to significant damages or be enjoined from the distribution of our services.

We need to continue to invest in the growth of our worldwide operations by opening new geographic markets. If our required investments in these markets are greater than anticipated, or if our customer growth in these markets does not meet our expectations, our financial results will be ~~negatively impacted.~~adversely affected.

We are continuing to expand worldwide and have recently significantly expanded our presence in Brazil and Asia. We have made and will continue to make substantial investments as we enter these and other new geographic markets. These include investments in data centers and cloud-based infrastructure, sales, marketing and administrative personnel and facilities. Often we must make these investments when it is still unclear whether future sales in the new market will justify the investments. In addition, these investments may be more expensive than we initially anticipate. If our required investments are greater than anticipated, or if our customer growth does not meet our expectations, our financial results will be negatively impacted.

~~Sales to customers outside North America expose us to risks inherent in international sales.~~

~~Because we sell our services throughout the world, we are subject to risks and challenges that we would otherwise not face if we conducted our business only in North America.~~ Sales outside of North America represented approximately 33% and 32% of our total revenues for each of the ~~year~~years ended December 31, ~~2014,~~2017 and ~~we intend to continue to expand our international sales efforts.~~2016, respectively. Our business and future prospects depend on increasing our international sales as a percentage of our total revenues, and the failure to grow internationally will harm our business. ~~The~~Additionally, operating in international markets requires significant investment and management attention and will subject us to regulatory and economic risks ~~and challenges associated with sales to customers outside North America~~that are different ~~in some ways~~ from those ~~associated with sales~~ in North America and we have a limited history addressing those risks and meeting those challenges. Furthermore, the business conduct and ethical standards of many other countries, including the emerging market countries that we are expanding into, are substantially different and much less rigorous than the United States. ~~The risks~~We have made, and ~~challenges~~will continue to make, substantial investments in data centers and cloud computing infrastructure, sales, marketing, personnel and facilities as we enter and expand in new geographic markets. When we make these investments, it is typically unclear whether, and when, sales in the new market will justify our investments, and we may significantly underestimate the level of investment and time required to be successful, or whether we will be successful. Our rate of acquisition of new Global 2000 customers, a key factor effecting our growth, has generally been lower in Africa, Asia, Eastern Europe, South America and other markets in which we are less established, as compared to North America, Australia and areas within Western Europe. Over time an increasing proportion of the Global 2000 companies that are not yet our customers are located in emerging markets where we are less established. We have experienced, and may continue to experience, difficulties in some of our investments in geographic expansion, including in hiring qualified sales management personnel and managing foreign operations.

Risks inherent with international sales ~~include:~~include without limitation:

~~foreign currency fluctuations which may cause exchange and translation losses;~~

compliance with multiple, conflicting and changing governmental laws and regulations, including employment, tax, competition, privacy and data protection laws and regulations;

compliance by us and our business partners with international bribery and ~~corruption~~anti-corruption laws, including the UK Bribery Act and the Foreign Corrupt Practices Act;

the risk that illegal or unethical activities of our business partners will be attributed to or result in liability to us;

~~compliance with regional data privacy laws that apply to the transmission of our customers’ data across international borders, many of which are stricter than the equivalent U.S. laws;~~

~~difficulties in staffing and managing foreign operations;~~

~~different or lesser protection of our intellectual property;~~

longer and potentially more complex sales cycles;

longer accounts receivable payment cycles and other collection difficulties;

tax treatment of revenues from international sources and changes to tax codes, including being subject to foreign tax laws and being liable for paying withholding, income or other taxes in foreign jurisdictions;

different pricing and distribution environments;

foreign currency fluctuations which may cause transactional and translational remeasurement losses;

potential changes in international trade policies and agreements;

local business practices and cultural norms that may favor local competitors; and

localization of our services, including translation into foreign languages and associated ~~expenses; and~~

~~regional economic and political conditions.~~expenses.

~~Any~~If we are unable to manage these risks, if our required investments in these international markets are greater than anticipated, or if we are unsuccessful in increasing sales in emerging markets, our revenue growth rate, business and operating results will be adversely affected.

If we lose key employees or are unable to attract and retain the employees we need, our business and operating results will be adversely affected.

Our success depends largely upon the continued services of ~~these factors~~our management team, including our Chief Executive Officer, and many key individual contributors. From time to time, there may be changes in our management team resulting from the hiring or departure of executives. For example, in 2017, Frank Slootman stepped down as our President and Chief Executive Officer, and John J. Donahoe was appointed as his successor. Such changes may result in a loss of institutional knowledge and cause disruptions to our business.

In the technology industry, there is substantial and continuous competition for engineers with high levels of experience in designing, developing and managing software and Internet-related solutions, as well as competition for sales executives and operations personnel. We may not be successful in attracting and retaining qualified personnel. We have from time to time experienced, and we may continue to experience, difficulty in hiring and retaining highly skilled employees with appropriate qualifications, and may not be able to fill positions in desired geographic areas or at all. In particular, competition for experienced software and cloud computing infrastructure engineers in the San Francisco Bay area, San Diego, Seattle, London and Amsterdam, our primary operating locations, is intense. Our employees, including our executive officers, are employed by us on an “at-will” basis, which means they may terminate their employment with us at any time. If we fail to attract new personnel or fail to retain and motivate our current personnel, our business and future growth prospects could ~~negatively~~be adversely affected.

Privacy laws and concerns, evolving regulation of cloud computing, cross-border data transfer restrictions, other foreign and domestic regulations and standards related to personal data and the Internet may adversely affect our business.

National and local governments or agencies have in the past adopted, and may in the future adopt, laws and regulations affecting data privacy, the use of the Internet as a commercial medium, and data sovereignty requirements concerning the location of data centers that store and process data. Changing laws, regulations and standards applying to the collection, transfer, processing, storage or use of personal data could affect our customers’ ability to use and share data, potentially restricting our ability to store, process and share data with our customers in connection with providing our services, and in some cases, could impact our ability to offer our services in certain locations or our customers’ ability to deploy our services globally. For example, the European Union (EU) and United States agreed to a framework to facilitate the transfer of data from the EU to the United States, called Privacy Shield, but this new framework has been challenged by private parties and may face additional challenges by national regulators or private parties. Additionally, in 2016 the EU adopted a new regulation governing data privacy called the General Data Protection Regulation (GDPR), which takes effect in May 2018. Further, laws such as the EU’s proposed e-Privacy Regulation are increasingly aimed at the use of personal information for marketing purposes, and the tracking of individuals’ online activities.

The costs of compliance with, and other burdens imposed by, GDPR, the e-Privacy Regulation and other privacy laws, regulations and standards may cause us to incur substantial operational costs or require us to modify our data handling practices, may limit the use and adoption of our services and reduce overall demand for our services. In addition, non-compliance could result in proceedings against us by governmental entities or others, significant fines, and may otherwise adversely impact our business, financial condition and operating results.

In addition to government activity, privacy advocacy groups and the technology and other industries have established or may establish various new, additional or different self-regulatory standards that may place additional burdens on us. Our customers may expect us to meet voluntary certifications or adhere to other standards established by third parties. If we are unable to maintain these certifications or meet these standards, it could reduce demand for our applications and adversely affect our business.

Because we generally recognize revenues from our subscription service over the subscription term, a decrease in new or renewed subscriptions during a reporting period may not be immediately reflected in our operating results for that period.

We generally recognize revenues from customers ratably over the terms of their subscriptions. As a result, most of the revenues we report in each period are derived from the recognition of deferred revenues relating to subscriptions entered into during previous periods. Consequently, a decrease in new or renewed subscriptions in any single reporting period will have a limited impact on our revenues for that period. In addition, our ability to adjust our cost structure in the event of a decrease in new or renewed subscriptions may be limited.

Further, a decline in new or renewed subscriptions in a given period will negatively affect our revenues in future periods. Accordingly, the effect of significant downturns in sales and market acceptance of our services, and changes in our rate of renewals, may not be fully reflected in our results of ~~operations.~~operations until future periods. Our subscription model also makes it difficult for us to rapidly increase our revenues through additional sales in any period, as revenues from new customers are generally recognized over the applicable subscription term. Additionally, due to the complexity of certain of our customer contracts, the actual revenue recognition treatment required under Topic 606 will depend on contract-specific terms and may result in greater variability in revenues from period to period.

A decrease in new or renewed subscriptions in a reporting period may not be immediately reflected in our billings results for that period due to factors that may offset the decrease.

A decrease in new or renewed subscriptions in a reporting period may not have an immediate impact on billings for that period due to factors that may offset the decrease, such as an increase in billings duration, the dollar value of contracts with future start dates, or the dollar value of collections in the current period related to contracts with future start dates.

As we acquire or invest in companies and technologies, we may not realize the expected business or financial benefits and the acquisitions and investments may divert our management’s attention and result in additional dilution to our stockholders.

We have acquired or invested in companies and technologies in the past as part of our business strategy and may continue to evaluate potential strategic transactions, including acquisitions of, or investments in, businesses, technologies, services, products and other assets in the future. We also may enter into relationships with other businesses to expand our service offerings, functionality or our ability to provide services in international locations, which could involve preferred or exclusive licenses, additional channels of distribution, discount pricing or investments in other companies. Acquisitions and investments involve numerous risks, including:

assimilating or integrating the businesses, technologies, products, personnel or operations of the acquired companies;

failing to achieve the expected benefits of the acquisition or investment;

potential loss of key employees of the acquired company;

inability to maintain relationships with customers and partners of the acquired business;

unanticipated expenses related to acquired technology and its integration into our existing technology;

potential adverse tax consequences;

inability to generate sufficient revenue to offset acquisition or investment costs;

disruption to our business and diversion of management attention and other resources;

potential financial and credit risks associated with acquired customers;

dependence on acquired technologies or licenses for which alternatives may not be available to us without significant cost or complexity;

in the case of foreign acquisitions, the challenges associated with integrating operations across different cultures and languages and any currency and regulatory risks associated with specific countries; and

potential unknown liabilities associated with the acquired businesses.

In addition, we may have to pay cash, incur debt, or issue equity or equity-linked securities to pay for any future acquisitions, each of which could adversely affect our financial condition or the market price of our common stock. Furthermore, if we finance acquisitions by issuing equity or convertible or other debt securities or loans, our existing stockholders may be diluted, or we could face constraints related to the terms of and repayment obligation related to the incurrence of indebtedness that could affect the market price of our common stock. The occurrence of any of these risks could harm our business, operating results and financial condition.

A portion of our revenues are generated by sales to government entities and heavily regulated organizations, which are subject to a number of challenges and risks.

A portion of our sales are to governmental agencies. Additionally, many of our current and prospective customers, such as those in the financial services and health care industries, are highly regulated and may be required to comply with more stringent regulations in connection with subscribing to and implementing our services. Selling to these entities can be highly competitive, expensive and time consuming, often requiring significant upfront time and expense without any assurance that we will successfully complete a sale. Furthermore, engaging in sales activities to foreign governments introduces additional compliance risks specific to the Foreign Corrupt Practices Act, the UK Bribery Act and other similar statutory requirements prohibiting bribery and corruption in the jurisdictions in which we operate. Government and highly regulated entities often require contract terms that differ from our standard arrangements and impose compliance requirements that are complicated, require preferential pricing or “most favored nation” terms and conditions, or are otherwise time consuming and expensive to satisfy. If we undertake to meet special standards or requirements and do not meet them, we could be subject to increased liability from our customers or regulators. Even if we do meet them, the additional costs associated with providing our services to government and highly regulated customers could harm our margins. Moreover, changes in the underlying regulatory conditions that affect these types of customers could harm our ability to efficiently provide our services to them and to grow or maintain our customer base.

~~Because we recognize revenues from~~Our use of open source software could harm our ~~subscription service over the subscription term, downturns or upturns in new sales~~ability to sell our services and ~~renewals will not be immediately reflected in our operating results.~~subject us to possible litigation.

Our products incorporate software licensed to us by third-party authors under open source licenses, and we may continue to incorporate open source software into other services in the future. We ~~generally recognize revenues from customers ratably over~~attempt to monitor our use of open source software in an effort to avoid subjecting our services to adverse licensing conditions. However, there can be no assurance that our efforts have been or will be successful. There is little or no legal precedent governing the interpretation of the terms of ~~their subscriptions. As a result, most~~open source licenses, and therefore the potential impact of the revenues we report in each quarter are derived from the recognition of deferred revenues relating to subscriptions entered into during previous quarters. Consequently, a decline in new or renewed subscriptions in any single quarter will likely have only a small, and perhaps no apparent, impactthese terms on our ~~revenue results for that quarter. Such a decline, however, will negatively affect our revenues~~business is uncertain and enforcement of these terms may result in ~~future quarters. Accordingly, the effect of significant downturns in sales and market acceptance of~~unanticipated obligations regarding our services and ~~potential changes in~~technologies. For example, depending on which open source license governs open source software included within our rate of renewals may not be fully reflected in our results of operations until future periods. Our subscription model also makes it difficult for us to rapidly increase our revenues through additional sales in any period, as revenues from new customers must be recognized over the applicable subscription term. In addition,services or technologies, we may be ~~unable~~subjected to ~~adjust~~conditions requiring us to offer our ~~cost structure~~services to ~~reflect~~users at no cost; make available the ~~changes in revenues.~~

~~We face exposure to foreign currency exchange rate fluctuations.~~

~~We conduct significant transactions, including revenue transactions~~source code for modifications and ~~intercompany transactions, in currencies other than~~derivative works based upon, incorporating or using the ~~U.S. dollar~~open source software; and license such modifications or derivative works under the ~~functional operating currency~~terms of the ~~transactional entities. In addition, our international subsidiaries maintain significant net assets~~particular open source license. Moreover, if an author or other third party that ~~are denominated in currencies other than~~distributes such open source software were to allege that we had not complied with the functional operating currencies of these entities. Accordingly, changes in the value of currencies relative to the U.S. dollar can affect our consolidated revenues and operating results due to transactional and translational remeasurement that is reflected in our earnings. For example, the U.S. dollar has recently begun to strengthen relative to the Euro and other currencies. If this trend continues, it would have a negative impact on our consolidated revenues. It is particularly difficult to forecast any impact from exchange rate movements, so there is a risk that unanticipated currency fluctuations could adversely affect our results or cause our results to differ from investor expectations or our own guidance in any future periods.

We do not currently maintain a program to hedge transactional exposures in foreign currencies. However, in the future, we may use derivative instruments, such as foreign currency forward and option contracts, to hedge certain exposures to fluctuations in foreign currency exchange rates. The use of such hedging activities may not offset any or more than a portion of the adverse financial effects of unfavorable movements in foreign exchange rates over the limited time the hedges are in place. Moreover, the use of hedging instruments may introduce additional risks if we are unable to structure effective hedges with such instruments.

~~Unanticipated changes in our effective tax rate could harm our future results.~~

We are subject to income taxes in the United States and various foreign jurisdictions, and our domestic and international tax liabilities are subject to the allocation of earnings and losses in differing jurisdictions. Our effective tax rate could be adversely affected by changes in the mix of earnings and losses in countries with differing statutory tax rates, certain non-deductible expenses as a result of acquisitions, the valuation of deferred tax assets and liabilities and changes in federal, state or international tax laws and accounting principles. Increases in our effective tax rate would reduce our profitability or in some cases increase our losses.

In addition, we may be subject to income tax audits by tax jurisdictions throughout the world, many of which have not established clear guidance on the tax treatment of cloud-based companies. Although we believe our income tax liabilities are reasonably estimated and accounted for in accordance with applicable laws and principles, an adverse resolutionconditions of one or more ~~uncertain tax positions in any period~~of these licenses, we could ~~have a material impact on~~be required to incur significant legal costs defending ourselves against such allegations, be subject to significant damages or be enjoined from the ~~results~~distribution of ~~operations for that period.~~our services.

If we are unable to maintain effective internal control over financial reporting, the accuracy and timeliness of our financial reporting may be adversely affected.

The Sarbanes-Oxley Act requires us, among other things, to assess and report on the effectiveness of our internal control over financial reporting annually and disclosure controls and procedures quarterly. In addition, our independent registered public accounting firm is required to audit the effectiveness of our internal control over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act annually. Our independent registered public accounting firm may issue a report that is adverse in the event it is not satisfied with the level at which our controls are documented, designed or operating. Moreover, our testing, or the subsequent testing by our independent registered public accounting firm, may reveal material weaknesses. If material weaknesses are identified or we are not able to comply with the requirements of Section 404 in a timely manner, our reported financial results could be materially misstated or could subsequently require restatement, we could receive an adverse opinion regarding our internal control over financial reporting from our independent registered public accounting firm, we could be subject to investigations or sanctions by regulatory authorities and we could incur substantial expenses.

~~Changes in laws, regulations~~ New accounting principles, such as the new revenue recognition standards that became effective for us beginning January 1, 2018, require significant changes to our existing processes and ~~standards related~~controls. We may not be able to ~~the Internet may cause our business to suffer.~~

Federal, state or foreign government bodies or agencies have in the past adopted, and may in the future adopt, laws and regulations affecting data privacy, the use of the Internet as a commercial medium, and data sovereignty requirements concerning the location of data centers that storeeffectively implement system and process ~~data. Industry organizations also regularly adopt and advocate~~changes required for new standards on a timely basis. Any delays or failure to update our systems and processes could also lead to a material weakness.

Global economic conditions may harm our industry, business and results of operations.

We operate globally and as a result our business and revenues are impacted by global macroeconomic conditions. Global financial developments seemingly unrelated to us or the software industry may harm us. From time to time, the United States and other key international economies have been impacted by geopolitical instability, high levels of bad debt globally, falling demand for a variety of goods and services, high levels of persistent unemployment and wage and income stagnation in ~~this area. For instance, we believe increased regulation is likely~~some geographic markets, restricted credit, poor liquidity, reduced corporate profitability, volatility in ~~the area of data privacy,~~credit, equity and ~~changing laws, regulations~~foreign exchange markets, bankruptcies and ~~standards applying~~overall uncertainty with respect to the ~~solicitation, collection, processing or use~~economy. These conditions can arise suddenly and affect the rate of ~~personal or consumer~~ information technology spending and could adversely affect our customers’ ability or willingness to ~~use and share data, potentially restricting~~purchase our ~~ability to store, process and share data with~~services, delay prospective customers’ purchasing decisions, reduce the value or duration of their subscriptions, or affect renewal rates, all of which could harm our ~~customers in connection with providing our services.~~operating results. In addition, ~~government agencies or private organizations may begin~~the effects, if any, of global financial conditions on our business can be difficult to ~~impose taxes, fees or~~distinguish from the effects on our business from product, pricing, and other ~~charges for accessing~~developments in the ~~Internet, commerce conducted via the Internet or validation that particular processes follow the latest standards. These changes could limit the viability of Internet-based services such as ours.~~markets specific to our products and our relative competitive strength. If we ~~are not able to adjust to changing laws, regulations and standards related to the Internet,~~make incorrect judgments about our business ~~may~~for this reason our business and results of operations could be ~~harmed.~~adversely affected.

Natural disasters and other events beyond our control could harm our business.

Natural disasters or other catastrophic events may cause damage or disruption to our operations, international commerce and the global economy, and thus could have a negative effect on us. Our business operations are subject to interruption by natural disasters, flooding, fire, power shortages, pandemics, terrorism, political unrest and other events beyond our control. Although we maintain crisis management and disaster response plans, such events could make it difficult or impossible for us to deliver our services to our customers, could decrease demand for our services, and ~~would~~could cause us to incur substantial expense. Our insurance may not be sufficient to cover losses or additional expense that we may sustain in connection with any natural disaster. The majority of our research and development activities, corporate offices, information technology systems, and other critical business operations are located near major seismic faults in ~~California.~~California and Washington. Customer data could be lost, significant recovery time could be required to resume operations and our financial condition and operating results could be ~~harmed~~adversely affected in the event of a major natural disaster or catastrophic event.

~~Weakened global economic conditions may harm our industry, business and results of operations.~~

Our overall performance depends in part on worldwide economic conditions. Global financial developments seemingly unrelated to us or the software industry may harm us. The United States and other key international economies have been impacted by falling demand for a variety of goods and services, restricted credit, poor liquidity, reduced corporate profitability, volatility in credit, equity and foreign exchange markets, bankruptcies and overall uncertainty with respect to the economy. These conditions affect the rate of information technology spending and could adversely affect our customers’ ability or willingness to purchase our services, delay prospective customers’ purchasing decisions, reduce the value or duration of their subscriptions, or affect renewal rates, all of which could harm our operating results.

Risks Related to Our 0% Convertible Senior Notes Due 2022 (2022 Notes) and Our 0% Convertible Senior Notes Due 2018 ~~(the "Notes")~~

~~Although the Notes are referred to as convertible senior notes, they are effectively subordinated to any of our secured debt and any liabilities of our subsidiaries.~~

The Notes will rank senior in right of payment to any of our indebtedness that is expressly subordinated in right of payment to the Notes; equal in right of payment to any of our liabilities that are not so subordinated; effectively junior in right of payment to any of our secured indebtedness to the extent of the value of the assets securing such indebtedness; and structurally junior to all indebtedness and other liabilities (including trade payables) of our subsidiaries. In the event of our bankruptcy, liquidation, reorganization or other winding up, our assets that secure debt ranking senior in right of payment to the Notes will be available to pay obligations on the Notes only after the secured debt has been repaid in full from these assets, and the assets of our subsidiaries will be available to pay obligations on the Notes only after all claims senior to the Notes have been repaid in full. There may not be sufficient assets remaining to pay amounts due on any or all of the Notes then outstanding. The indenture governing the Notes does not prohibit us from incurring additional senior debt or secured debt, nor does it prohibit any of our current or future subsidiaries from incurring additional liabilities.

As of December 31, 2014, we and our subsidiaries had $443.8 million in consolidated indebtedness, and our subsidiaries had $162.8 million of liabilities (including trade payables but excluding intercompany obligations and liabilities of a type not required to be reflected on a balance sheet of such subsidiaries in accordance with GAAP) to which the Notes would have been structurally subordinated.

~~Recent and future regulatory actions and other events may adversely affect the trading price and liquidity of the Notes.~~

We expect that many investors in, and potential purchasers of, the Notes will employ, or seek to employ, a convertible arbitrage strategy with respect to the Notes. Investors would typically implement such a strategy by selling short the common stock underlying the Notes and dynamically adjusting their short position while continuing to hold the Notes. Investors may also implement this type of strategy by entering into swaps on our common stock in lieu of or in addition to short selling the common stock.

The SEC and other regulatory and self-regulatory authorities have implemented various rules and taken certain actions, and may in the future adopt additional rules and take other actions, that may impact those engaging in short selling activity involving equity securities (including our common stock). Such rules and actions include Rule 201 of SEC Regulation SHO, the adoption by the Financial Industry Regulatory Authority, Inc. and the national securities exchanges of a “Limit Up-Limit Down” program, the imposition of market-wide circuit breakers that halt trading of securities for certain periods following specific market declines, and the implementation of certain regulatory reforms required by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. Any governmental or regulatory action that restricts the ability of investors in, or potential purchasers of, the Notes to effect short sales of our common stock, borrow our common stock or enter into swaps on our common stock could adversely affect the trading price and the liquidity of the Notes.

~~We may still incur substantially more debt or take other actions which would diminish our ability to make payments on the Notes when due.~~

We and our subsidiaries may be able to incur substantial additional debt in the future, subject to the restrictions contained in our future debt instruments, some of which may be secured debt. We are not restricted under the terms of the indenture governing the Notes from incurring additional debt, securing existing or future debt, recapitalizing our debt or taking a number of other actions that are not limited by the terms of the indenture governing the Notes that could have the effect of diminishing our ability to make payments on the Notes when due.(2018 Notes)

We may not have the ability to raise the funds necessary to settle conversions of the ~~Notes~~convertible senior notes in cash or to repurchase the ~~Notes~~convertible senior notes upon a fundamental change, and our future debt may contain limitations on our ability to pay cash upon conversion or repurchase of the ~~Notes.~~convertible senior notes.

Holders of the 2022 Notes ~~will~~and 2018 Notes have the right to require us to repurchase all or a portion of their 2022 Notes and 2018 Notes upon the occurrence of a fundamental change (as defined in the indenture for each of the 2022 Notes and 2018 Notes, as applicable) at a repurchase price equal to 100% of the principal amount of the 2022 Notes and 2018 Notes to be repurchased, plus accrued and unpaid special interest, if any. In addition, ~~upon~~if a make-whole fundamental change (as defined in the indenture for each of the 2022 Notes and 2018 Notes, as applicable) occurs prior to the maturity date of the 2022 Notes or 2018 Notes, we will in some cases be required to increase the conversion rate for a holder that elects to convert its 2022 Notes or 2018 Notes in connection with such make-whole fundamental change. Upon conversion of the 2022 Notes or 2018 Notes, unless we elect to deliver solely shares of our common stock to settle such conversion (other than paying cash in lieu of delivering any fractional share), we will be required to make cash payments in respect of the 2022 Notes or 2018 Notes being converted. However, we may not have enough available cash or be able to obtain financing at the time we are required to make repurchases of the 2022 Notes or 2018 Notes surrendered therefor or pay cash with respect to the 2022 Notes or 2018 Notes being converted.

We and our subsidiaries may incur substantial additional debt in the future, subject to the restrictions contained in our future debt instruments, some of which may be secured debt. We are not restricted under the terms of the indentures governing each of the 2022 Notes and 2018 Notes from incurring additional debt, securing existing or future debt, recapitalizing our debt or taking a number of other actions that could have the effect of diminishing our ability to make payments on the 2022 Notes and 2018 Notes when due. Furthermore, the indentures for each of the 2022 Notes and 2018 Notes prohibit us from engaging in certain mergers or acquisitions unless, among other things, the surviving entity assumes our obligations under the 2022 Notes and 2018 Notes and their respective indentures. These and other provisions in each of the indentures could deter or prevent a third party from acquiring us even when the acquisition may be favorable to holders of the 2022 Notes and 2018 Notes.

In addition, our ability to repurchase or to pay cash upon conversion of the 2022 Notes or 2018 Notes may be limited by law, regulatory authority or agreements governing our future indebtedness. Our failure to repurchase 2022 Notes or 2018 Notes at a time when the repurchase is required by ~~the~~each indenture or to pay cash upon conversion of the 2022 Notes or 2018 Notes as required by ~~the~~each indenture would constitute a ~~default under the indenture.~~default. A default under ~~the~~each indenture or the fundamental change itself could also lead to a default under agreements governing our future indebtedness. Moreover, the occurrence of a fundamental change under ~~the~~each indenture could constitute an event of default under any such agreements. If the payment of the related indebtedness were to be accelerated after any applicable notice or grace periods, we may not have sufficient funds to repay the indebtedness and repurchase the 2022 Notes or 2018 Notes, or to pay cash upon conversion of the 2022 Notes or 2018 Notes.

The conditional conversion feature of the 2022 Notes and 2018 Notes, if triggered, may adversely affect our financial condition and operating results.

~~In the event the conditional conversion feature~~The holders of the 2022 Notes ~~is triggered, holders of~~and 2018 Notes ~~will be entitled~~may elect to convert their notes during any calendar quarter (and only during such calendar quarter) if the last reported sale price of our common stock for at least 20 trading days during the period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to $175.18, in the case of the 2022 Notes, or $96.04, in the case of the 2018 Notes (in each case, the Conversion Condition). The Conversion Condition was met for the 2018 Notes during the three months ended June 30, 2017, September 30, 2017, and December 31, 2017, respectively. Accordingly, the 2018 Notes were convertible at ~~any time~~the holders’ option during ~~specified periods~~each of the three months ended September 30, 2017 and December 31, 2017 and will continue to be convertible at ~~their option.~~the holders’ option through the three months ending March 31, 2018. During the year ended December 31, 2017, we paid cash to settle an immaterial principal amount of the 2018 Notes. Based on additional conversion requests we have received through the filing date, we expect to settle in cash an aggregate of $37.3 million in principal amount of the 2018 Notes during the first quarter of 2018 and $7.3 million in principal amount of the 2018 Notes during the second quarter of 2018. We may receive additional conversion requests that require settlement in the second quarter or the remainder of the year 2018. If one or more holders elect to convert their 2018 Notes (or 2022 Notes, if the Conversion Condition is triggered) in future periods, unless we elect to satisfy our conversion obligation by delivering solely shares of our common stock (other than paying cash in lieu of delivering any fractional share), we ~~would be required to~~may settle all or a portion ~~or all~~ of our conversion obligation in cash, which could adversely affect our liquidity. In addition, even if holders do not elect to convert their Notes, we could be required under applicable accounting rules to reclassify all or a portion of the outstanding principal of the Notes as a current rather than long-term liability, which wouldliquidity and result in a material ~~reduction of our net working capital.~~

~~The accounting method for convertible debt securities that may be settled in cash, such as the Notes, could have a material~~adverse effect on our ~~reported~~ financial ~~results.~~

position, results of operations and cash flows. In ~~May 2008, FASB issued FASB Staff Position No. APB 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash upon~~addition, to the extent we receive conversion requests, we may also record a loss on extinguishment of the 2018 Notes (or 2022 Notes, if the Conversion (Including Partial Cash Settlement), which has subsequently been codified as Accounting Standards Codification 470-20, Debt with Conversion and Other Options (“ASC 470-20”). Under ASC 470-20, an entity must separately account forCondition is triggered) converted by noteholders based on the difference between the fair market value allocated to the liability and equity components of the convertible debt instruments (such as the Notes) that may be settled entirely or partially in cash upon conversion in a manner that reflects the issuer’s economic interest cost. The effect of ASC 470-20component on the ~~accounting for the Notes is that the equity component is required to be included in the additional paid-in capital section of stockholders’ equity on our consolidated balance sheet at the issuance~~settlement date and the ~~value~~net carrying amount of the ~~equity~~liability component ~~would be treated as~~and unamortized debt discount for purposes of accounting for the debt component of the Notes. As a result, we are required to record a greater amount of non-cash interest expense as a result of the amortization of the discounted carrying value of the Notes to their face amount over the term of the Notes. We will report lower net income (or larger net losses) in our financial results because ASC 470-20 requires interest to include both the amortization of the debt discount and the instrument’s non-convertible coupon interest rate, which could adversely affect our future financial results, the trading price of our common stock and the trading price of the Notes.

Holders of Notes will not be entitled to any rights with respect to our common stock, but they will be subject to all changes made with respect to them to the extent our conversion obligation includes shares of our common stock.

Holders of Notes will not be entitled to any rights with respect to our common stock (including, without limitation, voting rights and rights to receive any dividends or other distributions on our common stock) prior to the conversion date relating to such Notes (if we have elected to settle the relevant conversion by delivering solely shares of our common stock (other than paying cash in lieu of delivering any fractional share)) or the last trading day of the relevant observation period (if we elect to pay and deliver, as the case may be, a combination of cash and shares of our common stock in respect of the relevant conversion), but holders of Notes will be subject to all changes affecting our common stock. For example, if an amendment is proposed to our restated certificate of incorporation or restated bylaws requiring stockholder approval and the record date for determining the stockholders of record entitled to voteissuance on the amendment occurs prior to the conversion date related to a holder’s conversion of its Notes (if we have elected to settle the relevant conversion by delivering solely shares of our common stock (other than paying cash in lieu of delivering any fractional share)) or the last trading day of the relevant observation period (if we elect to pay and deliver, as the case may be, a combination of cash and shares of our common stock in respect of the relevant conversion), such holder will not be entitled to vote on the amendment, although such holder will nevertheless be subject to any changes affecting our common stock.

~~The conditional conversion feature of the Notes could result in note holders receiving less than the value of our common stock into which the Notes would otherwise be convertible.~~

Prior to the close of business on the business day immediately preceding July 1, 2018, holders of our Notes may convert their Notes only if specified conditions are met. If the specific conditions for conversion are not met, holders will not be able to convert their Notes, and they may not be able to receive the value of the cash, common stock or a combination of cash and common stock, as applicable, into which their Notes would otherwise be convertible.

Upon conversion of the Notes, note holders may receive less valuable consideration than expected because the value of our common stock may decline after holders exercise their conversion right but before we settle our conversion obligation.

Under the Notes, a converting holder will be exposed to fluctuations in the value of our common stock during the period from the date such holder surrenders Notes for conversion until the date we settle our conversion obligation.

Upon conversion of the Notes, we have the option to pay or deliver, as the case may be, cash, shares of our common stock, or a combination of cash and shares of our common stock. If we elect to satisfy our conversion obligation in cash or a combination of cash and shares of our common stock, the amount of consideration that a note holder will receive upon conversion of such holder’s Notes will be determined by reference to the volume weighted average prices of our common stock for each trading day in a 30 trading-day observation period. This period would be: (i) if the relevant conversion date occurs prior to July 1, 2018, the 30 consecutive trading days beginning on, and including, the second trading day immediately succeeding such conversion date; and (ii) if the relevant conversion date occurs during the period from, and including, July 1, 2018 to the close of business on the second scheduled trading day immediately preceding November 1, 2018, the 30 consecutive trading days beginning on, and including, the 32nd scheduled trading day immediately preceding the maturitysettlement date. Accordingly, if the price of our common stock decreases during this period, the amount and/or value of consideration note holders receive will be adversely affected. In addition, if the market price of our common stock at the end of such period is below the average of the daily volume weighted average prices of our common stock during such period, the value of any shares of our common stock that note holders will receive in satisfaction of our conversion obligation will be less than the value used to determine the number of shares that holders will receive.

If we elect to satisfy our conversion obligation solely in shares of our common stock upon conversion of the Notes, we will be required to deliver the shares of our common stock, together with cash for any fractional share, on the third business day following the relevant conversion date (or, for conversions occurring on or after July 1, 2018, on the maturity date). Accordingly, if the price of our common stock decreases during this period, the value of the shares that holders receive will be adversely affected and would be less than the conversion value of the Notes on the conversion date.

~~The Notes are not protected by restrictive covenants.~~

The indenture governing the Notes does not contain any financial or operating covenants or restrictions on the payments of dividends, the incurrence of indebtedness or the issuance or repurchase of securities by us or any of our subsidiaries. The indenture contains no covenants or other provisions to afford protection to holders of the Notes in the event of a fundamental change or other corporate transaction involving us except in certain cases described in the indenture connected with fundamental changes, consolidations, mergers or sales of assets.

The increase in the conversion rate for Notes converted in connection with a make-whole fundamental change may not adequately compensate holders of the Notes for any lost value of the Notes as a result of such transaction.

If a make-whole fundamental change occurs prior to maturity, under certain circumstances, we will increase the conversion rate by a number of additional shares of our common stock for Notes converted in connection with such make-whole fundamental change. The increase in the conversion rate will be determined based on the date on which the specified corporate transaction becomes effective and the price paid (or deemed to be paid) per share of our common stock in such transaction. The increase in the conversion rate for Notes converted in connection with a make-whole fundamental change may not adequately compensate holders for any lost value of the Notes as a result of such transaction. In addition, if the price of our common stock in the transaction is greater than $250.00 per share or less than $53.73 per share (in each case, subject to adjustment), no additional shares will be added to the conversion rate. Moreover, in no event will the conversion rate per $1,000 principal amount of Notes as a result of this adjustment exceed 18.6115 shares of common stock, subject to adjustment in the same manner as the conversion rate.

Our obligation to increase the conversion rate for Notes converted in connection with a make-whole fundamental change could be considered a penalty, in which case the enforceability thereof would be subject to general principles of reasonableness and equitable remedies.

~~The conversion rate of the Notes may not be adjusted for all dilutive events.~~

The conversion rate of the Notes is subject to adjustment for certain events, including, but not limited to, the issuance of certain stock dividends on our common stock, the issuance of certain rights or warrants, subdivisions, combinations, distributions of capital stock, indebtedness, or assets, cash dividends and certain issuer tender or exchange offers. However, the conversion rate will not be adjusted for other events, such as a third-party tender or exchange offer or an issuance of common stock for cash, that may adversely affect the trading price of the Notes or our common stock. An event that adversely affects the value of the Notes may occur, and that event may not result in an adjustment to the conversion rate.

~~Provisions in the indenture for the Notes may deter or prevent a business combination that may be favorable to note holders.~~

If a fundamental change occurs prior to the maturity date of the Notes, holders of the Notes will have the right, at their option, to require us to repurchase all or a portion of their Notes. In addition, if a make-whole fundamental change occurs prior to the maturity date of the Notes, we will in some cases be required to increase the conversion rate for a holder that elects to convert its Notes in connection with such make-whole fundamental change. Furthermore, the indenture for the Notes prohibits us from engaging in certain mergers or acquisitions unless, among other things, the surviving entity assumes our obligations under the Notes and the indenture. These and other provisions in the indenture could deter or prevent a third party from acquiring us even when the acquisition may be favorable to note holders.

~~Some significant restructuring transactions may not constitute a fundamental change, in which case we would not be obligated to offer to repurchase the Notes.~~

Upon the occurrence of a fundamental change, note holders have the right to require us to repurchase all or a portion of the Notes. However, the fundamental change provisions will not afford protection to holders of Notes in the event of other transactions that could adversely affect the Notes. For example, transactions such as leveraged recapitalizations, refinancings, restructurings, or acquisitions initiated by us may not constitute a fundamental change requiring us to offer to repurchase the Notes. In the event of any such transaction, the holders would not have the right to require us to repurchase the Notes, even though each of these transactions could increase the amount of our indebtedness, or otherwise adversely affect our capital structure or any credit ratings, thereby adversely affecting the holders of Notes.

In addition, absent the occurrence of a fundamental change or a make-whole fundamental change, changes in the composition of our board of directors will not provide holders with the right to require us to repurchase the Notes or to an increase in the conversion rate upon conversion.

~~We have not registered the Notes or the common stock issuable upon conversion of the Notes, if any, which will limit the ability of note holders to resell them.~~

The Notes and the shares of common stock issuable upon conversion of the Notes, if any, have not been registered under the Securities Act of 1933, as amended, or the Securities Act, or any state securities laws. Unless the Notes and any shares of common stock issuable upon conversion of the Notes have been registered, they may not be transferred or resold except in a transaction exempt from or not subject to the registration requirements of the Securities Act and applicable state securities laws. We do not intend to file a registration statement for the resale of the Notes and the common stock, if any, into which the Notes are convertible.

~~We cannot guarantee an active trading market for the Notes.~~

We have not listed and do not intend to apply to list the Notes on any securities exchange or to arrange for quotation on any automated dealer quotation system. Moreover, the initial purchasers of the Notes may cease making a market in the Notes at any time without notice. In addition, the liquidity of the trading market in the Notes, and the market price quoted for the Notes, may be adversely affected by changes in the overall market for this type of security and by changes in our financial performance or prospects or in the prospects for companies in our industry generally. As a result, we cannot assure note holders that there will be an active trading market for the Notes. If an active trading market is not maintained, the market price and liquidity of the Notes may be adversely affected. In that case, note holders might not be able to sell the Notes at a particular time or at a favorable price.

~~Any adverse rating of the Notes may cause their trading price to fall.~~

We have not obtained and do not intend to seek a rating on the Notes. However, if a rating service were to rate the Notes and if such rating service were to lower its rating on the Notes below the rating initially assigned to the Notes or otherwise announces its intention to put the Notes on credit watch, the trading price of the Notes could decline.

~~Note holders may be subject to tax if we make or fail to make certain adjustments to the conversion rate of the Notes even though note holders do not receive a corresponding cash distribution.~~

The conversion rate of the Notes is subject to adjustment in certain circumstances, including the payment of cash dividends. If the conversion rate is adjusted as a result of a distribution that is taxable to our common stockholders, such as a cash dividend, note holders may be deemed to have received a dividend subject to U.S. federal income tax without the receipt of any cash. In addition, a failure to adjust (or to adjust adequately) the conversion rate after an event that increases a note holder’s proportionate interest in us could be treated as a deemed taxable dividend to such note holder. If a make-whole fundamental change occurs prior to maturity, under some circumstances, we will increase the conversion rate for Notes converted in connection with the make-whole fundamental change. Such increase may also be treated as a distribution subject to U.S. federal income tax as a dividend. If a holder is a non-U.S. holder, any deemed dividend generally would be subject to U.S. federal withholding tax at a 30% rate, or such lower rate as may be specified by an applicable treaty, which may be set off against subsequent payments on the Notes.

~~Future sales of our common stock in the public market could lower the market price for our common stock and adversely impact the trading price of the Notes.~~

In the future, we may sell additional shares of our common stock to raise capital. In addition, a substantial number of shares of our common stock is reserved for issuance upon the exercise of stock options, the vesting of restricted stock, settlement of restricted stock units and issuance of performance shares pursuant to our employee benefit plans, for purchase by employees under our employee stock purchase plan, upon conversion of the Notes and in relation to the warrant transactions we entered into in connection with the pricing of the Notes. We cannot predict the size of future issuances or the effect, if any, that they may have on the market price for our common stock. The issuance and sale of substantial amounts of common stock, or the perception that such issuances and sales may occur, could adversely affect the trading price of the Notes and the market price of our common stock and impair our ability to raise capital through the sale of additional equity securities.

The convertible note hedge and warrant transactions may affect the value of the 2022 Notes and 2018 Notes and our common stock.

In connection with the sale of the 2022 Notes and 2018 Notes, we entered into convertible note hedge ("(the 2022 Note ~~Hedge")~~Hedge and 2018 Note Hedge, respectively) transactions with certain financial institutions ~~(the “option counterparties”)~~(option counterparties). We also entered into warrant transactions with the option counterparties pursuant to which we sold warrants for the purchase of our common stock ~~("Warrants")~~(the 2022 Warrants and 2018 Warrants, respectively). The 2022 Note Hedge and 2018 Note Hedge transactions are expected generally to reduce the potential dilution upon any conversion of the 2022 Notes or 2018 Notes and/or offset any cash payments we are required to make in excess of the principal amount of converted 2022 Notes or 2018 Notes, as the case may be. The warrant transactions could separately have a dilutive effect to the extent that the market price per share of our common stock exceeds the ~~strike~~exercise price of the ~~Warrants.~~2022 Warrants or 2018 Warrants, which is $203.40 and $107.46, respectively.

The option counterparties and/or their respective affiliates may modify their hedge positions by entering into or unwinding various derivatives with respect to our common stock and/or purchasing or selling our common stock in secondary market transactions prior to the maturity of the 2022 Notes or 2018 Notes (and are likely to do so during any observation period related to a conversion of 2022 Notes or 2018 Notes, or following any repurchase of 2022 Notes or 2018 Notes by us on any fundamental change repurchase date (as defined in the indentures for the 2022 Notes and 2018 Notes) or otherwise). This activity could also cause or avoid an increase or a decrease in the market price of our common stock or the 2022 Notes or 2018 Notes, which could affect note holders’ ability to convert the 2022 Notes or 2018 Notes and, to the extent the activity occurs during any observation period related to a conversion of the 2022 Notes or 2018 Notes, it could affect the amount and value of the consideration that note holders will receive upon conversion of the 2022 Notes or 2018 Notes.

The potential effect, if any, of these transactions and activities on the market price of our common stock or the 2022 Notes or 2018 Notes will depend in part on market conditions and cannot be ascertained at this time. Any of these activities could adversely affect the value of our common stock and the value of the 2022 Notes and 2018 Notes (and as a result, the value of the consideration, the amount of cash and/or the number of shares, if any, that note holders would receive upon the conversion of any 2022 Notes or 2018 Notes) and, under certain circumstances, the ability of the note holders to convert the 2022 Notes or 2018 Notes.

We do not make any representation or prediction as to the direction or magnitude of any potential effect that the transactions described above may have on the price of the 2022 Notes or 2018 Notes or our common stock. In addition, we do not make any representation that the option counterparties will engage in these transactions or that these transactions, once commenced, will not be discontinued without notice.

We are subject to counterparty risk with respect to the 2022 Note Hedge and 2018 Note Hedge transactions.

The option counterparties are financial institutions, and we will be subject to the risk that any or all of them may default under the 2022 Note Hedge or 2018 Note Hedge transactions. Our exposure to the credit risk of the option counterparties will not be secured by any collateral. Recent global economic conditions have resulted in the actual or perceived failure or financial difficulties of many financial institutions. If an option counterparty becomes subject to insolvency proceedings, we will become an unsecured creditor in those proceedings, with a claim equal to our exposure at that time under our transactions with that option counterparty. Our exposure will depend on many factors but, generally, an increase in our exposure will be correlated to an increase in the market price and in the volatility of our common stock. In addition, upon a default by an option counterparty, we may suffer adverse tax consequences and more dilution than we currently anticipate with respect to our common stock. We can provide no assurances as to the financial stability or viability of the option counterparties.

Risks ~~Relating~~Related to Ownership of Our Common Stock

The market price of our common stock has historically been and is likely to continue to be volatile ~~could adversely impact the trading price of the Notes~~ and could subject us to litigation.

The trading price of our common stock has been, and is likely to continue to be, volatile and could be subject to wide fluctuations in response to various factors, some of which are beyond our control. ~~Since shares of our common stock were sold in our initial public offering in June 2012 at a price of $18.00 per share, our stock price has ranged from $22.62 to $71.80 through December 31, 2014.~~ In addition, the trading prices of the securities of technology companies in general have been highly volatile, and the volatility in market price and trading volume of securities is often unrelated or disproportionate to the financial performance of the companies issuing the securities. Factors affecting the market price of our common stock, some of which are beyond our control, include:

variations in our growth rate, operating results, earnings per share, cash flows from operating activities, deferred revenue, and other financial metrics and non-financial metrics, and how those results compare to analyst expectations;

~~forward-looking statements related to future revenues and earnings per share;~~

~~the net increases in the number of customers, either independently or as compared with published expectations of industry, financial or other analysts that cover our company;~~

changes in the estimates of our operating results or changes in recommendations by securities analysts that elect to follow our common stock;

announcements of ~~technological innovations,~~ new ~~solutions~~products, services or technologies, new applications or enhancements to services, strategic alliances, acquisitions, or other significant ~~agreements~~events by us or by our competitors;

~~announcements regarding~~fluctuations in the valuation of companies perceived by investors to be comparable to us, such as high-growth or cloud companies;

changes to our ~~efforts to expand our offerings for service domains outside of IT, and offerings for small and medium-sized businesses;~~

~~announcements by us or by our competitors of mergers or other strategic acquisitions, or rumors of such transactions involving us or our competitors;~~

~~announcements of customer additions and customer cancellations or delays in customer purchases;~~

~~recruitment or departure of key personnel;~~

~~disruptions in our services due to computer hardware, software or network problems, security breaches, or other man-made or natural disasters;~~

~~the economy as a whole, and market conditions in our industry and the industries of our customers;~~management team;

trading activity by directors, executive officers and significant stockholders, or the perception in the market that the holders of a ~~limited~~large number of ~~stockholders who together beneficially own a majority of our outstanding common stock;~~shares intend to sell their shares;

the size of our market ~~float and~~ float;

the volume of trading in our common stock, including sales upon exercise of outstanding options or vesting of equity awards or sales and purchases of any common stock issued upon conversion of the 2022 Notes or 2018 Notes or in connection with the 2022 Note Hedge and 2022 Warrant transactions relating to the 2022 Notes, or 2018 Note Hedge and 2018 Warrant transactions relating to the 2018 Notes;

the economy as a whole, market conditions in our industry, and the industries of our customers; and

~~any other factors discussed herein.~~overall performance of the equity markets.

~~In addition, if the market for technology stocks or the stock market in general experiences uneven investor confidence, the market price~~Following periods of our common stock could decline for reasons unrelated to our business, operating results or financial condition. The market price of our common stock might also decline in reaction to events that affect other companies within, or outside, our industry even if these events do not directly affect us. A decreasevolatility in the market price of our common stock would likely adversely impact the trading price of our Notes. The price of our common stock could also be affected by possible sales of our common stock by investors who view the Notes as a more attractive means of equity participation in us and by hedging or arbitrage trading activity that we expect to develop involving our common stock. This trading activity could, in turn, affect the trading price of the Notes. Some companies that have experienced volatility in the trading price of their stock have been the subject ofcompany’s securities, securities class action ~~litigation. If we are the subject of such~~ litigation ithas often been brought against that company. Securities litigation could result in substantial costs and ~~a diversion of~~divert our management’s attention and ~~resources.~~resources from our business. This could have a material adverse effect on our business, operating results, and financial condition.

We do not intend to pay dividends on our common stock so any returns will be limited to changes in the value of our common stock.

We have never declared or paid any cash dividends on our common stock. We currently anticipate that we will retain future earnings for the development, operation and expansion of our business and do not anticipate declaring or paying any cash dividends for the foreseeable future. In addition, our ability to pay cash dividends on our common stock may be prohibited or limited by the terms of any future debt financing arrangement. Any return to stockholders will therefore be limited to the increase, if any, of our stock price.

~~Our directors and executive officers beneficially own a significant percentage of our stock and are able to exert control over matters subject to stockholder approval.~~

As of December 31, 2014, our directors and executive officers and their respective affiliates beneficially owned in the aggregate approximately 11% of our outstanding voting stock. Together, these stockholders have the ability to influence us through this ownership position. For example, these stockholders may be able to influence elections of directors, amendments of our organizational documents, or the approval of any merger, sale of assets, or other major corporate transaction. This may prevent or discourage unsolicited acquisition proposals or offers for our common stock that you may feel are in your best interest as one of our stockholders.

Provisions in our charter documents, Delaware law, our 2022 Notes and our 2018 Notes might discourage, delay or prevent a change of control of our company or changes in our management and, therefore, depress the market price of our common stock.

Our restated certificate of incorporation and restated bylaws contain provisions that could depress the market price of our common stock by acting to discourage, delay or prevent a change in control of our company or changes in our management that the stockholders of our company may deem advantageous. These provisions among other things:

establish a classified board of directors so that not all members of our board are elected at one time;

permit the board of directors to establish the number of directors;

provide that directors may only be removed “for cause” and only with the approval of 66 2/3% of our stockholders;

require super-majority voting to amend some provisions in our restated certificate of incorporation and restated bylaws;

authorize the issuance of “blank check” preferred stock that our board could use to implement a stockholder rights plan;

eliminate the ability of our stockholders to call special meetings of stockholders;

prohibit stockholder action by written consent, which requires all stockholder actions to be taken at a meeting of our stockholders;

provide that the board of directors is expressly authorized to make, alter or repeal our restated bylaws; and

establish advance notice requirements for nominations for election to our board or for proposing matters that can be acted upon by stockholders at annual stockholder ~~meetings.~~meetings (though our restated bylaws have implemented stockholder proxy access).

In addition, Section 203 of the Delaware General Corporation Law may discourage, delay or prevent a change in control of our company. Section 203 imposes certain restrictions on merger, business combinations and other transactions between us and holders of 15% or more of our common stock.

Further, the fundamental change provisions of our 2022 Notes or 2018 Notes may delay or prevent a change in control of our company, because those provisions allow note holders to require us to repurchase such notes upon the occurrence of a fundamental ~~change (as defined in the indenture for the Notes).~~change.

~~ITEM 1B.~~



ITEM 1B.	UNRESOLVED STAFF COMMENTS

None.

~~ITEM 2.~~



ITEM 2.	PROPERTIES

Our principal office is located ~~at 3260 Jay Street~~ in Santa Clara, California. On December 12, 2014, we entered into a lease agreement pursuant to which we will lease approximately 328,867 square feet of space, located at 2215 Lawson Lane, 2225 Lawson Lane, and 2235 Lawson Lane, Santa Clara, California. The initial term of the lease is expected to commence on August 15, 2015, although the commencement date may be extended in certain circumstances if specified improvements to the premises have not been completed by such date.

We also maintain offices in various North American, South American, European and Asian countries. All of our properties are currently leased. We believe our existing facilities are adequate to meet our current requirements. See Note 1816 in the notes to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for more information about our lease commitments. ~~If we were~~We expect to ~~require additional space, we~~expand our facilities capacity as our employee base grows. We believe we will be able to obtain such space on acceptable and commercially reasonable terms.

~~ITEM 3.~~



ITEM 3.	LEGAL PROCEEDINGS On February 6, 2014, Hewlett-Packard Company filed a lawsuit against us in the U.S. District Court for the Northern District of California that alleges that some of our services infringe the claims of eight of Hewlett-Packard's patents. Hewlett-Packard is seeking unspecified damages and an injunction. We filed an answer to the complaint on March 28, 2014 denying the allegations and asserting various affirmative defenses. The court held case management conferences on June 26, 2014, September 4, 2014 and February 5, 2015. The parties are currently conducting discovery. Hewlett-Packard served infringement contentions on July 3, 2014 and November 18, 2014. We served invalidity contentions on January 9, 2015. A claim construction hearing is scheduled for June 12, 2015. Trial is currently scheduled to begin on May 16, 2016. We have filed petitions for ~~inter partes~~ ~~review of all eight asserted patents with the United States Patent and Trademark Office.~~ On September 23, 2014, BMC Software, Inc. filed a lawsuit against us in the U.S. District Court for the Eastern District of Texas that alleges that some of our services willfully infringe the claims of seven of BMC’s patents. BMC is seeking unspecified damages and an injunction. Motions to dismiss and transfer venue are currently pending. BMC served infringement contentions on January 6, 2015. Our invalidity contentions are due March 3, 2015. A claim construction hearing is scheduled for July 10, 2015. Trial is currently scheduled to begin on March 14, 2016. We intend to vigorously defend these lawsuits. These litigation matters are still in their early stages and the final outcome, including our liability, if any, with respect to the claims in the lawsuits, is uncertain. If an unfavorable outcome were to occur in either litigation, the impact could be material to our business, financial condition, cash flow or results of operations, depending on the specific circumstances of the outcome.

From time to time, we ~~may become involved in~~are party to litigation and other legal proceedings ~~arising~~ in the ordinary course of ~~our~~ business. ~~Other than as described above,~~While the results of any litigation or other legal proceedings are uncertain, we are not presently a party to any legal proceedings that, if determined adversely to us, ~~we believe~~ would individually or taken together have a material adverse effect on our business, financial ~~condition, cash flows or~~position, results of ~~operations.~~operations or cash flows.

~~ITEM 4.~~



ITEM 4.	MINE SAFETY DISCLOSURES

Not applicable.

PART II

~~ITEM 5.~~



ITEM 5.	MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information for Common Stock

Our common stock is listed on the New York Stock Exchange under the symbol “NOW.”

The following table sets forth for the indicated periods the high and low sales prices of our common stock as reported by the New York Stock Exchange.


	High		Low		High		Low
Year ended December 31, 2014
Year ended December 31, 2017
First Quarter	$	71.80	$	54.36	$	94.72	$	74.63
Second Quarter	$	63.96	$	44.17	$	110.66	$	84.03
Third Quarter	$	64.98	$	54.11	$	118.64	$	103.00
Fourth Quarter	$	70.90	$	54.05	$	131.26	$	112.84

Year ended December 31, 2013
Year ended December 31, 2016
First Quarter	$	38.22	$	25.54	$	85.67	$	46.00
Second Quarter	$	43.99	$	33.95	$	77.76	$	60.05
Third Quarter	$	53.11	$	39.83	$	80.31	$	64.31
Fourth Quarter	$	58.41	$	47.37	$	89.79	$	72.80

Dividend Policy

We have never paid any cash dividends on our common stock. Our board of directors currently intends to retain any future earnings to support operations and to finance the growth and development of our business, and therefore does not intend to pay cash dividends on our common stock for the foreseeable future. Any future determination related to our dividend policy will be made at the discretion of our board of directors.

Stockholders

As of December 31, ~~2014,~~2017, there were 2511 registered stockholders of record (not including an indeterminate number of beneficial holders of stock held in street ~~names)~~name through brokers and other intermediaries) of our common ~~stock~~stock.

Securities Authorized for Issuance under Equity Compensation Plans

The information required by this item will be included in an amendment to this Annual Report on Form 10-K or incorporated by reference from our definitive proxy statement to be filed with the SEC pursuant to Regulation 14A.

Stock Performance Graph

The following shall not be deemed incorporated by reference into any of our other filings under the Securities Exchange Act of 1934, as amended ~~the~~(the Exchange ~~Act,~~Act) or the Securities Act except to the extent we specifically incorporate it by reference into such filing.

The graph below compares the cumulative total stockholder return on our common stock with the cumulative total return on the NYSE Composite Index and the Standard & Poor Systems Software Index for each of the ~~period beginning on June 29, 2012 (the date our common stock commenced trading on the New York Stock Exchange)~~last five fiscal years ended December 31, 2013 through December 31, ~~2014,~~2017, assuming an initial investment of $100. Data for the NYSE Composite Index and the Standard & Poor Systems Software Index assume reinvestment of dividends.

The comparisons in the graph below are based upon historical data and are not indicative of, nor intended to forecast, future performance of our common stock.


												Base Period
	Jun 29, 2012	Sep 30, 2012	Dec 31, 2012	Mar 31, 2013	Jun 30, 2013	Sep 30, 2013	Dec 31, 2013	Mar 31, 2014	Jun 30, 2014	Sep 30, 2014	Dec 31, 2014	Dec 31, 2012		Dec 31, 2013		Dec 31, 2014		Dec 31, 2015		Dec 31, 2016		Dec 31, 2017
ServiceNow, Inc.	100.00	157.24	122.07	147.15	164.19	211.18	227.68	243.58	251.87	238.94	275.81	$	100.00	$	186.51	$	225.94	$	288.25	$	247.55	$	434.20
NYSE Composite	100.00	106.46	109.60	118.97	120.54	127.34	138.40	140.95	147.96	145.06	147.74	100.00		126.28		134.81		129.29		144.73		171.83
S&P Systems Software	100.00	101.19	97.22	102.05	112.75	113.91	129.20	139.18	141.64	150.50	158.92	100.00		132.90		163.47		180.59		204.49		280.92

Unregistered Sales of Equity Securities

There were no unregistered sales of equity securities which have not been previously disclosed in a quarterly report on Form 10-Q or a current report on Form 8-K during the year ended December 31, ~~2014.~~2017.

Issuer Purchases of Equity Securities

During the ~~year~~quarter ended December 31, ~~2014,~~2017, we did not purchase any of our equity securities that are registered under Section 12 of the Exchange Act.

~~ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA~~



ITEM 6.	SELECTED CONSOLIDATED FINANCIAL DATA

The following selected consolidated financial data should be read together with our consolidated financial statements and accompanying notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” appearing elsewhere in this filing. The selected consolidated financial data in this section are not intended to replace our consolidated financial statements and the related notes. Our historical results are not necessarily indicative of our future results.

The selected consolidated statements of operations data for each of the years ended December 31, ~~2014, 2013~~2017, 2016 and ~~2012,~~2015, and the selected consolidated balance sheet data as of December 31, ~~2014~~2017 and ~~2013~~2016 are derived from our audited consolidated financial statements and are included in this Form 10-K. The consolidated statements of operations data for the ~~six months~~year ended December 31, ~~2011, fiscal 2011~~2014, and ~~2010~~2013, and the selected consolidated balance sheet data as of December 31, ~~2012, 2011,~~2015, 2014, and ~~June 30, 2011 and 2010~~2013 are derived from our audited consolidated financial statements which are not included in this Annual Report on Form 10-K.

~~In February 2012, we changed our fiscal year-end from June 30 to December 31. References to “fiscal 2010” and “fiscal 2011” are to~~ The consolidated financial information below reflects the ~~fiscal years ended June 30, 2010 and 2011, while references to 2011, 2012, 2013 and 2014 refer to~~impact of the ~~respective years ending on December 31.~~Company’s acquisitions.

Year Ended December 31,
Six Months Ended
December 31,
Fiscal Year Ended June 30,
2014 2013 2012 2011 2011 2010
(in thousands, except share and per share data)
Consolidated Statements of Operations Data:
Revenues⁽¹⁾:

Subscription $ 567,217
$ 349,804
$ 204,526
$ 64,886
$ 79,191
$ 40,078
Professional services and other 115,346
74,846
39,186
8,489
13,450
3,251
Total revenues 682,563
424,650
243,712
73,375
92,641
43,329
Cost of revenues⁽²⁾⁽³⁾:

Subscription 142,687
87,928
63,258
15,073
15,311
6,378
Professional services and other 106,089
67,331
40,751
12,850
16,264
9,812
Total cost of revenues 248,776
155,259
104,009
27,923
31,575
16,190
Gross profit 433,787
269,391
139,703
45,452
61,066
27,139
Operating expenses⁽²⁾⁽³⁾:

Sales and marketing 341,119
195,190
103,837
32,501
34,123
19,334
Research and development 148,258
78,678
39,333
7,030
7,004
7,194
General and administrative 96,245
61,790
34,117
10,084
9,379
28,810
Total operating expenses 585,622
335,658
177,287
49,615
50,506
55,338
Income (loss) from operations (151,835 ) (66,267 ) (37,584 ) (4,163 ) 10,560
(28,199 )
Interest and other income (expense), net (23,705 ) (4,930 ) 1,604
(1,446 ) 606
(1,226 )
Income (loss) before provision for income taxes (175,540 ) (71,197 ) (35,980 ) (5,609 ) 11,166
(29,425 )
Provision for income taxes 3,847
2,511
1,368
1,075
1,336
280
Net income (loss) $ (179,387 ) $ (73,708 ) $ (37,348 ) $ (6,684 ) $ 9,830
$ (29,705 )
Net income (loss) attributable to common stockholders:
Basic $ (179,387 ) $ (73,708 ) $ (37,656 ) $ (6,996 ) $ 1,639
$ (30,345 )
Diluted $ (179,387 ) $ (73,708 ) $ (37,656 ) $ (6,996 ) $ 2,310
$ (30,345 )
Net income (loss) per share attributable to common stockholders:
Basic $ (1.23 ) $ (0.54 ) $ (0.51 ) $ (0.33 ) $ 0.09
$ (1.31 )
Diluted $ (1.23 ) $ (0.54 ) $ (0.51 ) $ (0.33 ) $ 0.08
$ (1.31 )
Weighted-average shares used to compute net income (loss) per share attributable to common stockholders:
Basic 145,355,543
135,415,809
73,908,631
21,104,219
18,163,977
23,157,576
Diluted 145,355,543
135,415,808
73,908,630
21,104,219
28,095,486
23,157,576



	Year Ended December 31,
	2017			2016			2015			2014			2013
	(in thousands, except share and per share data)
Consolidated Statements of Operations Data:
Revenues:
Subscription	$	1,739,795		$	1,221,639		$	848,278		$	567,217		$	349,804
Professional services and other	193,231			168,874			157,202			115,346			74,846
Total revenues	1,933,026			1,390,513			1,005,480			682,563			424,650
Cost of revenues ⁽¹⁾:
Subscription	315,570			235,414			183,400			142,687			87,928
Professional services and other	184,202			163,268			146,013			106,089			67,331
Total cost of revenues	499,772			398,682			329,413			248,776			155,259
Gross profit	1,433,254			991,831			676,067			433,787			269,391
Operating expenses ⁽¹⁾:
Sales and marketing	946,617			700,464			498,439			341,119			195,190
Research and development	377,518			285,239			217,389			148,258			78,678
General and administrative	210,533			158,936			126,604			96,245			61,790
Legal settlements ⁽²⁾	—			270,000			—			—			—
Total operating expenses	1,534,668			1,414,639			842,432			585,622			335,658
Loss from operations	(101,414		)	(422,808		)	(166,365		)	(151,835		)	(66,267		)
Interest expense	(53,394		)	(33,278		)	(31,097		)	(29,059		)	(3,498		)
Interest income and other income (expense), net	5,804			6,035			4,450			5,354			(1,432		)
Loss before income taxes	(149,004		)	(450,051		)	(193,012		)	(175,540		)	(71,197		)
Provision for income taxes	126			1,753			5,414			3,847			2,511
Net loss	$	(149,130	)	$	(451,804	)	$	(198,426	)	$	(179,387	)	$	(73,708	)
Net loss per share - basic and diluted	$	(0.87	)	$	(2.75	)	$	(1.27	)	$	(1.23	)	$	(0.54	)
Weighted-average shares used to compute net loss per share - basic and diluted	171,175,577			164,533,823			155,706,643			145,355,543			135,415,809


(1)	Revenues subsequent to July 1, 2010 reflect the prospective adoption of new revenue accounting guidance for arrangements with multiple deliverables. Please refer to Note 2 to our consolidated financial statements for further discussion of our revenue recognition policies.


~~(2)~~	Stock-based compensation included in the statements of operations data above was as follows:


	Year Ended December 31,						Six Months Ended December 31,		Fiscal Year Ended June 30,				Year Ended December 31,
	2014		2013		2012		2011		2011		2010		2017		2016		2015		2014		2013
	(in thousands)												(in thousands)
Cost of revenues:
Subscription	$	14,988	$	8,434	$	3,929	$	674	$	548	$	48	$	35,334	$	28,420	$	23,416	$	14,988	$	8,434
Professional services and other	13,116		4,749		1,574		193		117		28		27,475		26,442		23,265		13,116		4,749
Sales and marketing	54,006		21,609		10,189		2,010		1,004		277		170,527		131,571		102,349		54,006		21,609
Research and development	42,535		16,223		6,496		704		468		90		92,025		81,731		70,326		42,535		16,223
General and administrative	29,674		14,566		5,749		2,056		817		102		68,717		49,416		38,357		29,674		14,566
Total stock-based compensation													$	394,078	$	317,580	$	257,713	$	154,319	$	65,581

~~(3)~~(2)

~~Cost~~

For details regarding the legal settlements expenses of ~~revenues and operating expenses for~~$270.0 million included in the ~~fiscal~~ year ended ~~June 30, 2010 reflect compensation expense of $0.7 million and $30.1 million, respectively, related~~December 31, 2016, refer to Note 16 in the ~~repurchase of shares from eligible stockholders~~notes to our consolidated financial statements included elsewhere in ~~connection with our sale and issuance of Series D preferred stock.~~this Annual Report on Form 10-K.

As of December 31, As of June 30,
2014 2013 2012 2011 2011 2010
(in thousands)
Consolidated Balance Sheet Data:
Cash and cash equivalents $ 252,455
$ 366,303
$ 118,989
$ 68,088
$ 59,853
$ 29,402
Working capital, excluding deferred revenue 809,660
722,214
364,426
95,033
75,801
33,080
Total assets 1,425,079
1,168,476
478,114
156,323
108,746
51,369
Deferred revenue, current and non-current portion 422,238
266,722
170,361
104,636
74,646
40,731
Convertible senior notes, net 443,764
414,777
—
—
—
—
Convertible preferred stock —
—
—
68,172
67,860
67,227
Total stockholders’ equity (deficit) 428,675
394,259
243,405
(57,426 ) (58,381 ) (71,262 )



	As of December 31,
	2017		2016		2015		2014		2013
	(in thousands)
Consolidated Balance Sheet Data:
Cash and cash equivalents and investments	$	2,170,740	$	1,162,020	$	1,223,917	$	935,563	$	889,910
Working capital, excluding current portion of deferred revenue and convertible senior notes, net	2,133,850		1,132,819		947,002		809,660		722,214
Total assets	3,397,904		2,033,767		1,807,052		1,424,752		1,168,077
Deferred revenue, current and non-current portion	1,320,383		895,101		603,754		422,238		266,722
Convertible senior notes, net, current and non-current portion	1,173,436		507,812		474,534		443,437		414,378
Total stockholders’ equity	584,132		386,961		566,814		428,675		394,259

~~ITEM 7.~~



ITEM 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and the related notes appearing under ~~"Consolidated~~“Consolidated Financial Statements and Supplementary ~~Data"~~Data” in Item 8 of this filing. Some of the information contained in this discussion and analysis or set forth elsewhere in this filing, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. You should carefully read the ~~“Forward Looking Statements" and "Risk~~“Risk Factors” ~~sections~~section of this filing for a discussion of important 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 contained in the following discussion and analysis.

Our billings and free cash flow measures included in the sections entitled “—Key Business Metrics—Billings,” and “—Key Business Metrics—Free Cash Flow” are not in accordance with U.S. Generally Accepted Accounting Principles (GAAP). These non-GAAP financial measures are not intended to be considered in isolation or as a substitute for, or superior to, financial information prepared and presented in accordance with GAAP. These measures may be different from non-GAAP financial measures used by other companies, limiting their usefulness for comparison purposes. We encourage investors to carefully consider our results under GAAP, as well as our supplemental non-GAAP results, to more fully understand our business.

Overview

ServiceNow is a leading provider of ~~cloud-based~~enterprise cloud computing solutions that define, structure, manage and automate services ~~across the~~for global ~~enterprise. By applying a service-oriented lens to the activities, tasks~~enterprises. We help our customers improve service quality and ~~processes that comprise day-to-day work life, we help the modern enterprise operate faster~~reduce costs while scaling and ~~be more scalable than ever before.~~ automating their businesses.

We generally offer our services on an annual subscription fee basis, which includes access to the ordered subscription service and related support, including updates to the ~~subscribed~~subscription service during the subscription term. We provide a scaled pricing model based on the duration of the subscription term, and we frequently extend discounts to our customers based on the number of users. We generate sales through our direct sales team and, to a lesser extent, indirectly through ~~channel~~resale partners and third-party referrals. We also generate revenues from professional services and for ~~implementation and~~ training of customer and partner personnel. We generally bill our customers annually in advance for subscription services and monthly in arrears for our professional services as the work is performed.

A majority of our revenues come from large global enterprise customers. We continue to invest in the development of our services, infrastructure and sales and marketing to drive long-term growth. We increased our overall employee headcount to ~~2,826~~6,222 as of December 31, ~~2014~~2017 from ~~1,830~~4,801 as of December 31, ~~2013.~~2016.

New Revenue Recognition Standard under Topic 606

~~Key Factors Affecting Our Performance~~

~~Upsell rate. To grow~~In May 2014, the Financial Accounting Standards Board issued a new standard related to revenue recognition from contracts with customers (Topic 606), which is effective beginning January 1, 2018. Topic 606 supersedes the prior revenue recognition standard (Topic 605) for periods beginning January 1, 2018. The most significant impacts of the standard relate to the timing of revenue recognition related to our ~~business it is important for us to generate additional sales from existing customers,~~on-premises offerings, in which we ~~refer~~grant customers the right to deploy our software on the customer’s own servers without significant penalty, the accounting for incremental costs to obtain a contract and the classification of proceeds from Knowledge and other user forums as ~~our upsell rate. We calculate our upsell rate as the annualized contract value, or ACV,~~a reduction in sales and marketing expenses instead of ~~upsells, net of losses during the period, divided by our total ACV signed during the period. The upsell rate was 36%, 31%~~professional services and 30% for the years ended December 31, 2014, 2013 and 2012, respectively. Our upsells are primarily derived by an increase in the number of seat licenses purchased by our customers and are also derived from the addition of other ~~subscription services.~~revenues.

~~Renewal rate. We calculate~~Our results of operations below are presented under Topic 605. Our expectations for 2018 revenues, cost of revenues and operating expenses, including the comparison period amounts used to derive the expected trends, are based on Topic 606. In addition, our ~~renewal rate by subtracting our attrition rate from 100%. Our attrition rate~~expectations for ~~a period is equal to the ACV from lost customers, divided by the total ACV from all customers that renewed during the period~~2018 revenues, cost of revenues and from all lost customers. A lost customer is a customer that did not renew a contract expiring in the period and that, in our judgment, will not renew. Typically a customer that reduces its subscription upon renewal is not considered a lost customer. However, in instances where the subscription decrease represents the majority of the customer's ACV, we may deem the renewaloperating expenses are based on foreign exchange rates as ~~a lost customer. Our renewal rate was 97%, 96% and 97% for the years ended December 31, 2014, 2013 and 2012, respectively.~~

~~Total customers~~. We believe our total customer count is a key indicator of our market penetration, growth and future revenues. We have aggressively invested in, and intend to continue to invest in, our direct sales force and additional partnerships with our indirect sales channel. We generally define a customer as an entity with an active subscription contract as of the measurement date. In situations where there is a single contract that applies to entities with multiple subsidiaries or divisions, universities or governmental organizations, each entity that has contracted for a separate production instance of our services are counted as a separate customer. As of December 31, ~~2014, 2013 and 2012,~~2017. Refer to Note 2 in the notes to our total customer count was 2,725, 2,061 and 1,512, respectively. Our customer count excludes customers of our Express product offering, which is our recently launched standardized IT service management solution.consolidated financial statements included elsewhere in this Annual Report on Form 10-K for details regarding Topic 606, including adjusted amounts for historical periods.

Key Business Metrics

Number of customers with ACV greater than $1 million.We count the total number of customers with ~~ACV~~annualized contract value (ACV) greater than $1 million as of the end of the period. We had ~~129, 67~~500, 350 and 37231 customers with ACV greater than $1 million as of December 31, ~~2014, 2013~~2017, 2016 and ~~2012,~~2015, respectively. For purposes of customer count, a customer is defined as an entity with a unique Dunn & Bradstreet Global Ultimate (GULT), Data Universal Numbering System (DUNS) number and an active subscription contract as of the measurement date. The DUNS number is a global standard for business identification and tracking. We make exceptions for holding companies, government entities and other organizations for which the GULT, in our judgment, does not accurately represent the ServiceNow customer. For example, while all U.S. government agencies roll up to “Government of the United States” under the GULT, we count each government agency that we contract with as a separate customer. Our customer count is subject to adjustments for acquisitions, spin-offs and other market activity. Previously disclosed number of customers with ACV greater than $1 million as well as our average contract term calculations are restated to allow for comparability. ACV is calculated based on the foreign exchange rate in effect at the time the contract was signed. Foreign exchange rate fluctuations could cause some variability in the number of customers with ACV greater than $1 million.

G2K customer count.The Global 2000 ~~("G2K")~~(G2K) customer count is defined as the total number of G2K companies in our customer base as of the end of the period. The Forbes Global 2000 is an annual ranking of the top ~~2000~~2,000 public companies in the world by Forbes magazine. The ranking is based on a mix of four metrics: sales, profit, assets, and market value. The Forbes ~~list~~Global 2000 is updated annually in the second quarter of the calendar year. Current and prior period G2K customer counts are based on the most recent list for comparability purposes. We adjust the G2K count for acquisitions, spin-offs and other market ~~activity to ensure the~~activity. For example, we add a G2K customer ~~count is accurately captured. For example,~~ when a G2K company that is not our customer acquires a company in our existing customer base that is not a G2K ~~company, a new G2K customer will be added in the quarter the acquisition occurs.~~company. When we enter into a contract with a G2K parent company, or any of its related subsidiaries, or any combination of entities within a G2K company, we count only one G2K ~~customer will be counted. Further~~customer. We do not count further penetration into entities within ~~the~~a given G2K ~~customer is not counted~~ as a new customer in the G2K customer count. Our G2K customer count also excludes customers that have only purchased our Express product offering, which is our entry-level IT service management solution. Our G2K customer count was ~~522, 400~~840, 737 and ~~265~~637 as of December 31, ~~2014, 2013~~2017, 2016 and ~~2012,~~2015, respectively.

Average ACV per G2K customer. We calculate average ACV for our G2K customers by taking aggregate ACV from G2K customers as of the end of the period divided by the total number of G2K customers as of the end of the period. ACV is calculated based on the foreign exchange rate in effect at the time the contract was entered into, and as a result, foreign currency rate fluctuations could cause variability in the average ACV per G2K customer. Prior G2K customer counts used in calculating ACV per G2K are adjusted for the most recent Forbes Global 2000 list for comparability purposes. Our average ACV per G2K customer was approximately $1.3 million, $1.1 million and $0.9 million as of December 31, 2017, 2016 and 2015, respectively.

Renewal rate. We calculate our renewal rate by subtracting our attrition rate from 100%. Our attrition rate for a period is equal to the ACV from customers lost during the period, divided by the total ACV from all customers that renewed during the period, excluding changes in price or users, and total ACV from all customers lost during the period. Accordingly, our renewal rate is calculated based on ACV and is not based on the number of customers that have renewed. A lost customer is a customer that did not renew an expiring contract and that, in our judgment, will not be renewed. Typically, a customer that reduces its subscription upon renewal is not considered a lost customer. However, in instances where the subscription decrease represents the majority of the customer's ACV, we may deem the renewal as a lost customer. For our renewal rate calculation, we define a customer as an entity with a separate production instance of our service and an active subscription contract as of the measurement date, instead of an entity with a unique GULT or DUNS number. Our renewal rate was 97% for the year ended December 31, 2017 and 98% for the years ended December 31, 2016 and 2015. As our renewal rate is impacted by the timing of renewals, which could occur in advance of, or subsequent to the original contract end date, period-to-period comparison of renewal rates may not be meaningful.

Billings. We define billings, a non-GAAP financial measure, as revenues recognized plus the change in total deferred revenue as presented on the consolidated statements of cash flows. The change in total deferred revenue as presented on the consolidated statements of cash flows represents the change in deferred revenues in local currencies translated into U.S. dollars using an average foreign currency exchange rate, and aligns actual billings with the exchange rates in effect at the time of the billings. We believe billings is a useful leading indicator regarding the performance of our business.

A calculation of billings is provided below:



	Year Ended December 31,
	2017			2016			2015
	(dollars in thousands)
Billings:
Total revenues	$	1,933,026		$	1,390,513		$	1,005,480
Change in deferred revenue from the consolidated statements of cash flows	381,562			300,167			195,900
Total billings	$	2,314,588		$	1,690,680		$	1,201,380
Year-over-year percentage change in total billings	37		%	41		%	41		%

Billings consists of amounts invoiced for subscription contracts with existing customers, renewals, upsells and new customers, and contracts for professional services, training, and our Knowledge and other user forum events. Factors that may cause our billings results to vary from period to period include the following:

Billings duration. While we typically bill customers annually for our subscription services, customers sometimes request, and we accommodate, billings with durations less than or greater than the typical 12-month term.

Contract start date. From time to time, we enter into contracts with a contract start date in the future, and we exclude these amounts from billings as these amounts are not included in our consolidated balance sheets, unless such amounts have been paid as of the balance sheet date.

Foreign currency exchange rates. While a majority of our billings have historically been in U.S. Dollars, an increasing percentage of our billings in recent periods has been in foreign currencies, particularly the Euro and British Pound Sterling.

Timing of contract renewals. While customers typically renew their contracts at the end of the contract term, from time to time customers may do so either before or after the scheduled expiration date. For example, in cases where we are successful in upselling additional products or services, a customer may decide to renew its existing contract early to ensure that all its contracts expire on the same date. In other cases, prolonged negotiations or other factors may result in a contract not being renewed until after it has expired.

Accordingly, while we believe billings is a useful leading indicator regarding the performance of our business, an increase or decrease in new or renewed subscriptions in a reporting period may not have an immediate impact on billings for that reporting period.

To facilitate greater year-over-year comparability in our billings results, we disclose the impact that foreign currency rate fluctuations and fluctuations in billings duration had on our billings. The impact of foreign currency rate fluctuations is calculated by translating the current period results for entities reporting in currencies other than U.S. Dollars into U.S. Dollars at the average exchange rates in effect during the prior period presented, rather than the actual exchange rates in effect during the current period. The impact of fluctuations in billings duration is calculated by replacing the portion of multi-year billings in excess of 12 months during the current period with the portion of multi-year billings in excess of 12 months during the prior period presented. Notwithstanding the adjustments described above, the comparability of billings results from period to period remains subject to the impact of variations in the dollar value of contracts with future start dates and the timing of contract renewals, for which no adjustments have been presented.

Foreign currency rate fluctuations had a favorable impact of $8.3 million and an unfavorable impact of $8.4 million on billings for the years ended December 31, 2017 and 2016, respectively. Changes in billings duration had a favorable impact of $1.6 million and $16.3 million for the years ended December 31, 2017 and 2016, respectively.

In May 2014, the Financial Accounting Standards Board issued a new standard related to revenue recognition from contracts with customers (Topic 606), which is effective beginning on January 1, 2018. Under Topic 606, due to the change in timing of revenue recognition under certain of our contracts, our definition of billings will be revenues recognized plus the change in total deferred revenue, unbilled receivables, and customer deposits as presented on or derived from our consolidated statements of cash flows. Refer to Note 2 in the notes to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for details regarding Topic 606.

Free cash flow. We define free cash flow, a non-GAAP financial measure, as GAAP net cash provided by operating activities reduced by purchases of property and equipment. Purchases of property and equipment are otherwise included in cash used in investing activities under GAAP. We believe information regarding free cash flow provides useful information to investors because it is an indicator of the strength and performance of our business operations. However, our calculation of free cash flow may not be comparable to similar measures used by other companies. A calculation of free cash flow is provided below:



	Year Ended December 31,
	2017			2016			2015
	(dollars in thousands)
Free cash flow:
Net cash provided by operating activities	$	642,825		$	159,921		$	317,754
Purchases of property and equipment	(150,510		)	(105,562		)	(87,481		)
Free cash flow ⁽¹⁾	$	492,315		$	54,359		$	230,273

(1) Free cash flow includes the effect of a $267.5 million payment for aggregate legal settlements for the year ended December 31, 2016. Refer to Note 16 in the notes to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for further details.

Average contract term. We calculate the average contract term for new customers, upsells and renewals based on the term of those contracts entered into during the period weighted by their ACV. The average new customer contract term was 32 months for the years ended December 31, 2017, 2016 and 2015. The average upsell contract term was 26 months for the years ended December 31, 2017, 2016 and 2015. The average renewal contract term was 27 months, 28 months, and 25 months for the years ended December 31, 2017, 2016 and 2015, respectively.

Components of Results of Operations

Revenues

Subscription revenues. Subscription revenues are primarily comprised of fees that give customers access to the ordered subscription service, and related support and updates, if any, to the ~~subscribed~~subscription service during the subscription term. Pricing includes multiple instances, hosting and support services, data backup and disaster recovery services, as well as future ~~upgrades,~~updates, when and if available, offered during the subscription ~~period.~~term. We typically invoice our customers for subscription fees in annual increments upon execution of the initial contract or subsequent renewal. Our ~~contract is~~contracts are generally non-cancelable during the subscription term, though a customer can terminate for breach if we materially fail to perform.

We generate sales directly through our sales team and, to a lesser extent, through our channel partners. Sales to our channel partners are made at a discount and revenues are recorded at the discounted price when all revenue recognition criteria are met. From time to time, our channel partners also provide us referrals for which we pay a referral fee. We pay referral fees to channel partners and other third parties, which is typically 15% of the customer's ACV. The referral fees paid could vary depending on the level of activity the partner performs in the sales process. These fees are included in sales and marketing expense.

Professional services and other revenues. Professional services revenues consist of fees associated with ~~the implementation and configuration of our subscription service.~~professional services. Our ~~pricing~~arrangements for professional services are primarily on a time-and-materials basis. We generally invoice our professional services monthly in arrears based on actual hours and expenses incurred. Other revenues ~~include~~ primarily consist of fees from customer training delivered on-site or through publicly available classes ~~royalties from licensing training materials, attendance~~and registration and sponsorship fees for our annual Knowledge user conference and other ~~customer~~user forums. Typical payment terms require our customers to pay us within 30 days of invoice.

~~Refer~~We generate sales directly through our sales team and, to ~~“Critical Accounting Policies and Significant Judgments and Estimates” below for further discussion~~a lesser extent, through our resale partners. Revenues from our direct sales organization represented 88% of our total revenues for the years ended December 31, 2017 and 2016 and 89% of our total revenues for the year ended December 31, 2015. We make sales to our resale partners at a discount and record those revenues at the discounted price when all revenue recognition ~~accounting policy.~~criteria have been met. From time to time, other third parties provide us referrals for which we pay a referral fee. We include revenues associated with these referrals as part of revenues from our direct sales organization. Referral fees paid to these third parties are between 5% and 15% of the customer's ACV, depending on the level of activity these third parties perform in the sales process. We include these fees in sales and marketing expense.

Allocation of Overhead Costs

Overhead costs associated with office facilities, IT and certain depreciation related to ~~non-cloud-based~~ infrastructure that is not dedicated for customer use or research and development use are allocated to cost of revenues and operating expenses based on headcount. Facility costs associated with our data centers (included as part of data center capacity costs) as well as depreciation related to our cloud-based infrastructure hardware equipment are classified as cost of subscription revenues.

Cost of Revenues

Cost of subscription revenues. Cost of subscription revenues consists primarily of expenses related to hosting our services and providing support to our customers. These expenses are comprised of data center capacity costs, which include facility costs associated with our data centers as well as interconnectivity between data centers, depreciation related to our ~~cloud-based~~ infrastructure hardware equipment dedicated for customer use, amortization of ~~acquired developed technology intangibles, personnel related~~intangible assets and personnel-related costs directly associated with ~~our cloud-based infrastructure~~data center operations and customer support, including salaries, benefits, bonuses and stock-based compensation and allocated overhead.

Cost of professional services and other revenues. Cost of professional services and other revenues consists primarily of ~~personnel related~~personnel-related costs directly associated with our professional services and training departments, including salaries, benefits, bonuses and stock-based compensation, the costs of contracted third-party ~~vendors~~partners, travel expenses and allocated overhead.

Professional ~~services associated with the implementation and configuration of our subscription~~ services are performed directly by our services team, as well as by contracted third-party ~~vendors.~~partners. Fees paid to third-party ~~vendors~~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 ~~vendors~~partners as a percentage of professional services and other revenues was ~~17%, 17% and 26%~~19% for the years ended December 31, ~~2014, 2013~~2017 and ~~2012, respectively.~~2016 and 21% for the year ended December 31, 2015.

Sales and Marketing ~~Expenses~~

Sales and marketing expenses consist primarily of ~~personnel related~~personnel-related expenses directly associated with our sales and marketing staff, including salaries, benefits, bonuses, commissions and stock-based compensation. Sales and marketing expenses also ~~includes~~include third-party referral fees, ~~marketing and promotional events, including~~expenses related to our annual Knowledge user conference, ~~online~~other marketing ~~product~~program expenses, which include events other than Knowledge, and costs associated with purchasing advertising and marketing data, and allocated overhead.

Research and Development ~~Expenses~~

Research and development expenses consist primarily of ~~personnel related~~personnel-related expenses directly associated with our research and development staff, including salaries, benefits, bonuses and stock-based compensation and allocated overhead. Research and development expenses also include data center capacity costs, costs associated with outside services contracted for research and development purposes, amortization of intangible assets and depreciation of infrastructure hardware equipment that is used solely for research and development purposes.

General and Administrative ~~Expenses~~

General and administrative expenses consist primarily of ~~personnel related~~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.

Legal Settlements

Legal settlements consist of one-time aggregate charges related to the settlement agreements with Hewlett Packard Enterprise Company (HPE) and BMC Software, Inc. (BMC). Refer to Note 16 in the notes to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for further details regarding these matters.

Provision for Income Taxes

~~The provision~~Provision for income taxes consists of federal, state and foreign income taxes. Due to cumulative losses, we maintain a valuation allowance against our U.S. deferred tax assets as of December 31, ~~2014~~2017 and ~~2013.~~2016. 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. deferred tax assets.

Results of Operations

To enhance comparability, the following table sets forth our results of operations for the periods presented. The period-to-period comparison of financial results is not necessarily indicative of future results.


	Year Ended December 31,									Year Ended December 31,
	2014			2013			2012			2017			2016			2015
	(in thousands)									(in thousands)
Revenues:
Subscription	$	567,217		$	349,804		$	204,526		$	1,739,795		$	1,221,639		$	848,278
Professional services and other	115,346			74,846			39,186			193,231			168,874			157,202
Total revenues	682,563			424,650			243,712			1,933,026			1,390,513			1,005,480
Cost of revenues⁽¹⁾:
Subscription	142,687			87,928			63,258			315,570			235,414			183,400
Professional services and other	106,089			67,331			40,751			184,202			163,268			146,013
Total cost of revenues	248,776			155,259			104,009			499,772			398,682			329,413
Gross profit	433,787			269,391			139,703			1,433,254			991,831			676,067
Operating expenses⁽¹⁾:
Sales and marketing	341,119			195,190			103,837			946,617			700,464			498,439
Research and development	148,258			78,678			39,333			377,518			285,239			217,389
General and administrative	96,245			61,790			34,117			210,533			158,936			126,604
Legal settlements ⁽²⁾										—			270,000			—
Total operating expenses	585,622			335,658			177,287			1,534,668			1,414,639			842,432
Loss from operations	(151,835		)	(66,267		)	(37,584		)	(101,414		)	(422,808		)	(166,365		)
Interest and other income (expense), net	(23,705		)	(4,930		)	1,604
Loss before provision for income taxes	(175,540		)	(71,197		)	(35,980		)
Interest expense										(53,394		)	(33,278		)	(31,097		)
Interest income and other income (expense), net										5,804			6,035			4,450
Loss before income taxes										(149,004		)	(450,051		)	(193,012		)
Provision for income taxes	3,847			2,511			1,368			126			1,753			5,414
Net loss	$	(179,387	)	$	(73,708	)	$	(37,348	)	$	(149,130	)	$	(451,804	)	$	(198,426	)


(1)	Stock-based compensation included in the statements of operations data above was as follows:


	Year Ended December 31,						Year Ended December 31,
	2014		2013		2012		2017		2016		2015
	(in thousands)						(in thousands)
Cost of revenues:
Subscription	$	14,988	$	8,434	$	3,929	$	35,334	$	28,420	$	23,416
Professional services and other	13,116		4,749		1,574		27,475		26,442		23,265
Sales and marketing	54,006		21,609		10,189		170,527		131,571		102,349
Research and development	42,535		16,223		6,496		92,025		81,731		70,326
General and administrative	29,674		14,566		5,749		68,717		49,416		38,357
Total stock-based compensation							$	394,078	$	317,580	$	257,713


(2)	For details regarding the legal settlements expenses of $270.0 million included in the year endedDecember 31, 2016, refer to Note 16 in the notes to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

Year Ended December 31,
2014 2013 2012
Revenues:
Subscription 83 % 82 % 84 %
Professional services and other 17
18
16
Total revenues 100
100
100
Cost of revenues:

Subscription 21
21
26
Professional services and other 16
16
17
Total cost of revenues 37
37
43
Gross profit 63
63
57
Operating expenses:

Sales and marketing 50
46
42
Research and development 22
18
16
General and administrative 14
14
14
Total operating expenses 86
78
72
Loss from operations (23 ) (15 ) (15 )
Interest and other income (expense), net (2 ) (1 ) 1
Loss before provision for income taxes (25 ) (16 ) (14 )
Provision for income taxes 1
1
1
Net loss (26 )% (17 )% (15 )%

Year Ended December 31,
2014 2013 2012
(in thousands)
Revenues by geography
North America $ 465,332
$ 295,400
$ 173,001
Europe 173,635
105,177
60,579
Asia Pacific and other 43,596
24,073
10,132
Total revenues $ 682,563
$ 424,650
$ 243,712



	Year Ended December 31,
	2017		2016		2015
Revenues:
Subscription	90	%	88	%	84	%
Professional services and other	10		12		16
Total revenues	100		100		100
Cost of revenues ⁽¹⁾:
Subscription	16		17		18
Professional services and other	10		12		15
Total cost of revenues	26		29		33
Gross profit	74		71		67
Operating expenses ⁽¹⁾:
Sales and marketing	49		50		50
Research and development	19		21		22
General and administrative	11		11		12
Legal settlements ⁽²⁾	—		19		—
Total operating expenses	79		101		84
Loss from operations	(5	)	(30	)	(17	)
Interest expense	(3	)	(2	)	(3	)
Interest income and other income (expense), net	—		—		1
Loss before income taxes	(8	)	(32	)	(19	)
Provision for income taxes	—		—		1
Net loss	(8	)%	(32	)%	(20	)%


(1)	Stock-based compensation included in the statements of operations above as a percentage of revenues was as follows:

Year Ended December 31,
2014 2013 2012
Revenues by geography
North America 68 % 69 % 71 %
Europe 26
25
25
Asia Pacific and other 6
6
4
Total revenues 100 % 100 % 100 %



	Year Ended December 31,
	2017		2016		2015
	(in thousands)
Cost of revenues:
Subscription	2	%	2	%	2	%
Professional services and other	1		2		2
Sales and marketing	9		9		10
Research and development	5		6		8
General and administrative	3		4		4
Total stock-based compensation	20	%	23	%	26	%


(2)	For details regarding the legal settlements expenses of $270.0 million included in the year endedDecember 31, 2016, refer to Note 16 in the notes to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

Comparison of the years ended December 31, ~~2014~~2017 and ~~2013~~2016

As described above under the section entitled “New Revenue Recognition Standard under Topic 606,” the results of operations below are presented under Topic 605. Our expectations for 2018 revenues, cost of revenues and operating expenses, including the comparison period amounts used to derive the expected trends are based on the new Topic 606 revenue recognition standard. In addition, our expectations for 2018 revenues, cost of revenues and operating expenses are based on foreign exchange rates as of December 31, 2017. Refer to Note 2 in the notes to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for details regarding Topic 606, including adjusted amounts for historical periods.

Revenues


	Year Ended December 31,						% Change		Year Ended December 31,						% Change
	2014			2013					2017			2016
	(dollars in thousands)								(dollars in thousands)
Revenues:
Subscription	$	567,217		$	349,804		62	%	$	1,739,795		$	1,221,639		42	%
Professional services and other	115,346			74,846			54	%	193,231			168,874			14	%
Total revenues	$	682,563		$	424,650		61	%	$	1,933,026		$	1,390,513		39	%
Percentage of revenues:
Subscription	83		%	82		%			90		%	88		%
Professional services and other	17			18					10			12
Total	100		%	100		%			100		%	100		%

Subscription revenues increased ~~$217.4~~$518.2 million during the year endedDecember 31, ~~2014~~,2017, compared to the prior year, driven by our upsells ~~renewals~~ and an increase in ~~our~~ customer count. ~~The number~~We expect subscription revenues to grow in absolute dollars and as a percentage of ~~deals with new ACV greater than $1 million entered into during~~total revenues in the ~~years~~year ended December 31, ~~2014~~ ~~and 2013 were 36 and 14, respectively. We define new ACV~~2018 as ~~ACV from~~we continue to add new customers and ~~upsells~~upsell to existing customers. The average new customer contract term were 34 months and 33 months for the years ended December 31, 2014 and 2013, respectively. The average upsell contract term and average renewal contract term remained at 24 months and 26 months, respectively, for the years ended December 31, 2014 and 2013. We calculate the average contract term for new customers, upsells, and renewals based on the term of those contracts entered into during the period weighted by their ACV. Revenues from our direct sales organization and channel partners represented 87% and 13%, respectively, for the year ended ~~December 31, 2014~~ ~~and 88% and 12%, respectively for the year ended~~ ~~December 31, 2013~~.

Subscription revenues consist of the following:



	Year Ended December 31,				% Change
	2017		2016		% Change
	(dollars in thousands)
Service management products	$	1,526,382	$	1,108,846	38	%
ITOM products	213,413		112,793		89	%
Total subscription revenues	$	1,739,795	$	1,221,639	42	%

Our service management products include our platform, ITSM, ITBM, customer service management, HR service delivery and security operations, which have similar features and functions and are generally priced on a per user basis. Our ITOM products, which improve visibility, availability and agility of enterprise services, are generally priced on a per node basis.

Professional services and other revenues increased ~~$40.5~~$24.4 million during the year endedDecember 31, ~~2014~~,2017, compared to the prior year, due to an increase in the services provided to our growing customer base. ~~In addition,~~Included within our total professional services and other revenues are the revenues from our annual Knowledge user conference, which increased to ~~$8.2~~$17.1 million during the year endedDecember 31, ~~2014~~2017, compared to ~~$5.0~~$12.8 million in the prior year, due to ~~increased~~an increase in registration and sponsorship ~~and paid registrations~~fees in the current year.

~~Our annual total~~We expect professional services and other revenues ~~per customer increased to approximately $287,000~~under Topic 606 for the year ~~ended~~ending December 31, ~~2014~~,2018 to remain flat in absolute dollar terms when compared to ~~approximately $238,000 for the~~ ~~year endedDecember 31, 2013. Our annual total revenues per customer is the sum of average quarterly~~professional services and other revenues for the ~~trailing four quarters. We calculate average quarterly revenues per customer by dividing~~year ended December 31, 2017, as adjusted for Topic 606. This reflects our plan to focus on deploying our internal professional services organization as a strategic resource while relying on our partner ecosystem to contract directly with customers for service delivery. As described above under the ~~quarter’s revenues by~~section entitled “New Revenue Recognition Standard under Topic 606,” with the ~~average number~~adoption of ~~customers~~Topic 606, proceeds from Knowledge and other user forums will be classified as a reduction in ~~the quarter. In the second quarter~~sales and marketing expense instead of ~~2014, we made~~as professional services and other revenues.

Our international operations have provided and will continue to provide a ~~change to our calculation to improve the accuracy~~significant portion of our ~~average~~total revenues. Revenues outside North America represented 33% and 32% of total revenues ~~per customer. In this filing, we have used this updated calculation~~ for ~~each of~~ the years ended December 31, ~~2014~~2017 and ~~2013. The change~~2016, respectively. Because we primarily transact in ~~methodology increased~~foreign currencies for sales outside of the ~~annual total revenues per customer that~~United States, the general weakening of the U.S. Dollar relative to other major foreign currencies (primarily the Euro and British Pound Sterling) from the year ended December 31, 2016 to the year ended December 31, 2017 had a favorable impact on our revenues. For entities reporting in currencies other than the U.S. Dollar, if we had ~~disclosed~~translated our results for the year ended December 31, 2017 at the average exchange rates in effect for the ~~prior~~ year ~~by 3%.~~ended December 31, 2016 rather than the actual exchange rates in effect during the period, our reported subscription revenues would have been $6.3 million lower. The impact from the foreign currency movements from the year ended December 31, 2016 to the year ended December 31, 2017 is not material to professional services and other revenues.

Cost of Revenues and Gross Profit Percentage


	Year Ended December 31,						% Change		Year Ended December 31,						% Change
	2014			2013			% Change		2017			2016			% Change
	(dollars in thousands)								(dollars in thousands)
Cost of revenues:
Subscription	$	142,687		$	87,928		62	%	$	315,570		$	235,414		34	%
Professional services and other	106,089			67,331			58	%	184,202			163,268			13	%
Total cost of revenues	$	248,776		$	155,259		60	%	$	499,772		$	398,682		25	%
Gross profit percentage:
Subscription	75		%	75		%			82		%	81		%
Professional services and other	8		%	10		%			5		%	3		%
Total gross profit percentage	63		%	63		%			74		%	71		%
Gross profit:	$	433,787		$	269,391		61	%	$	1,433,254		$	991,831		45	%
Headcount (at period end)
Subscription	478			341			40	%	936			729			28	%
Professional services and other	416			295			41	%	562			496			13	%
Total headcount	894			636			41	%	1,498			1,225			22	%

Contractual Obligations and Commitments

Contractual obligations represent future cash commitments and liabilities under agreements with third parties, and exclude orders for goods and services entered into in the normal course of business that are not enforceable or legally binding.

The following table represents our ~~known~~future non-cancelable contractual obligations as of December 31, ~~2014~~,2017, aggregated by type:

Payments Due by Period
Contractual Obligations Total
Less
Than
1 Year

1 – 3
Years

3 – 5
Years

More
Than
5 Years
(in thousands)
Operating leases:
Data centers⁽¹⁾
$ 20,009
$ 9,561
$ 9,186
$ 1,238
$ 24
Facilities space⁽²⁾
263,563
15,511
52,872
51,337
143,843
Convertible Senior Notes 575,000
—
—
575,000
—
Other 4,876
297
1,018
1,018
2,543
Total contractual obligations $ 863,448
$ 25,369
$ 63,076
$ 628,593
$ 146,410



	Payments Due by Period
	Total		Less Than 1 Year		1 – 3 Years		3 – 5 Years		More Than 5 Years
	(in thousands)
Operating leases ⁽¹⁾	$	353,859	$	44,713	$	96,204	$	88,828	$	124,114
Purchase obligations ⁽²⁾	80,974		31,394		34,434		11,053		4,093
Principal amount payable on our convertible senior notes ⁽³⁾	1,357,494		574,994		—		782,500		—
Other	3,923		574		1,148		1,148		1,053
Total contractual obligations	$	1,796,250	$	651,675	$	131,786	$	883,529	$	129,260


(1)	~~Operating~~Consists of future non-cancelable minimum rental payments under operating leases for some of our offices and data ~~centers represent our principal commitment for co-location facilities for data center capacity.~~centers.

(2)

~~Operating leases for facilities space represent~~Consists of future minimum payments under non-cancelable purchase commitments primarily related to data center and IT operations and sales and marketing activities. Not included in the table above are certain purchase commitments related to our ~~principal~~future annual Knowledge user conferences and other customer or sales conferences to be held in 2019 and 2020. If we were to cancel these contractual commitments ~~which consists~~as of ~~obligations under office space leases.~~December 31, 2017, we would have been obligated to pay cancellation penalties of approximately $13.9 million in aggregate.


(3)	For additional information regarding our convertible senior notes, refer to Note 9 in the notes to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

In addition to the obligations in the table above, approximately ~~$2.9~~$4.8 million of unrecognized tax benefits have been recorded as liabilities as of December 31, ~~2014~~.2017. It is uncertain as to if or when such amounts may be settled. ~~We have also recorded a liability for potential penalties of $0.2 million and interest of $0.2 million related to these unrecognized tax benefits.~~

Off-Balance Sheet Arrangements

During all periods presented, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As such, we are not exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in those types of relationships.

Critical Accounting Policies and Significant Judgments and Estimates

Our management’s discussion and analysis of financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, as well as the reported revenues and expenses during the reporting periods. These items are monitored and analyzed by us for changes in facts and circumstances, and material changes in these estimates could occur in the future. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Changes in estimates are reflected in reported results for the period in which they become known. Actual results may differ from these estimates under different assumptions or conditions and such differences could be material.

While our significant accounting policies are more fully described in Note 2 in the notes to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K, we believe that the following accounting policies are critical to the process of making significant judgments and estimates in the preparation of our audited consolidated financial statements.

Revenue Recognition

We derive our revenues from two sources: (i) subscriptions and (ii) professional services and other. Subscription revenues are primarily comprised of subscription fees that give customers access to the ordered subscription service, related support and updates, if any, to the subscribed service during the subscription term.

products. Professional services and other revenues also include customer training and ~~attendance~~registration and sponsorship fees for ~~Knowledge,~~ our annual Knowledge user ~~conference.~~conference and other user forums.

We commence revenue recognition when all of the following conditions are met:

•There is persuasive evidence of an arrangement;

•The service has been provided to the customer;

•The collection of related fees is reasonably assured; and

•The amount of fees to be paid by the customer is fixed or determinable.

We use a signed contract together with a signed order form ~~or a purchase order,~~ as evidence of an arrangement for a new customer. In subsequent transactions with an existing customer, including an upsell or a renewal, we consider the existing signed contract and either the new signed order form or new purchase order as evidence of an arrangement.

We recognize subscription revenues ratably over the contract term beginning on the commencement date of each contract, the date we make our services available to our customers. Once our services are available to customers, we record amounts due in accounts receivable and in deferred revenue. ~~We price~~To the extent we bill customers in advance of the contract commencement date, the accounts receivable and corresponding deferred revenue amounts are netted to zero on our consolidated balance sheets, unless such amounts have been paid as of the balance sheet date.

Our professional services arrangements are primarily on a time-and-materials basis and ~~recognize professional services~~ revenues on these arrangements are recognized as the services are ~~delivered~~delivered. Professional services revenues associated with fixed fee arrangements are recognized using a proportional performance model. ~~Such services are delivered over a short period of time.~~ In instances where ~~final acceptance of the services~~certain milestones are required to be met before revenues are recognized, we defer professional services revenues and the associated costs until ~~all acceptance~~milestone criteria have been met.

We assess collectibility based on a number of factors such as past collection history with the customer and creditworthiness of the customer. If we determine collectibility is not reasonably assured, we defer revenue recognition until collectibility becomes reasonably assured. We assess whether the fee is fixed or determinable based on the payment terms associated with the transaction and whether the sales price is subject to refund or adjustment. Our arrangements are generally non-cancelable and do not ~~include general rights of return.~~contain refund-type provisions.

We have multiple element arrangements comprised of subscription fees and professional services. We account for subscription and professional services revenues as separate units of accounting. To qualify as a separate unit of accounting, the delivered item must have value to the customer on a standalone basis. We have concluded that our subscription service has standalone value as it is routinely sold separately by us. In addition, the applications offered through this subscription service are fully functional without any additional development, modification or customization. We provide customers access to our subscription service at the beginning of the contract term. In determining whether professional services have standalone value, we considered the following factors for each professional services agreement: availability of the services from other vendors, the nature of the professional services, the timing of when the professional services contract was signed in comparison to the subscription service start date and the contractual dependence of the subscription service on the customer’s satisfaction with the professional services work. Our professional services, including implementation and configuration services, are not so unique and complex that other vendors cannot provide them. In some instances, customers independently contract with third-party vendors to do the implementation and we regularly outsource implementation services to contracted third-party vendors. As a result, we concluded professional services, including implementation and configuration services, have standalone value.

~~We determine~~The total arrangement consideration for a multiple element arrangement is allocated to the ~~selling price~~identifiable separate units of ~~each deliverable in the arrangement using the~~accounting based on a relative selling price hierarchy. ~~Under~~We determined the ~~selling price hierarchy, the~~relative selling price for ~~each~~a deliverable ~~is determined using~~based on its vendor-specific objective evidence ~~or VSOE,~~(VSOE) of selling price or third-party evidence ~~or TPE,~~(TPE) of selling price if VSOE does not exist. If neither VSOE nor TPE of selling price exists for a deliverable, the selling price is determined using the best estimate of selling price ~~or BESP. The selling price for each unit of accounting is based on~~(BESP). We determine the ~~BESP since VSOE and TPE are not available for our subscription service or professional services and other. The~~ BESP for each deliverable ~~is determined~~ primarily by considering the historical selling price of these deliverables in similar transactions as well as other factors, including, but not limited to, market competition, review of stand-alone sales and current pricing practices. In determining the appropriate pricing structure, we consider the ~~extent of~~available information regarding the competitive pricing of similar products and marketing analysis. The total arrangement fee for these multiple element arrangements is then allocated to the separate units of accounting based on the relative selling price. The BESP for our subscription service is based upon the historical selling price of these deliverables.

In limited circumstances, we grant certain customers the right to deploy our subscription service on the customers’ own ~~servers without significant penalty.~~servers. These arrangements are subject to software revenue recognition guidance since the customer deploys our software. WeAs we never sell the non-software elements separately from the software elements, we have ~~analyzed all of the elements in these particular multiple element arrangements and~~ determined that we do not have sufficient VSOE of fair value ~~to allocate revenue to our subscription service and professional services.~~for all undelivered non-software elements. Consequently, we defer all revenue and related costs under the arrangement until the last element in the transaction has been delivered or ~~started~~starts to be delivered. Once the ~~subscription service and~~delivery of the ~~professional services have~~last element has commenced, we recognize the entire fee and related costs from the arrangement ratably over the remaining period of the arrangement.

Deferred revenue consists primarily of payments received in advance of revenue recognition for our subscriptions and professional services and other revenues and is recognized as the revenue recognition criteria are met.

Deferred Commissions

Deferred commissions are the incremental selling costs that are directly associated with our customer contracts and consist of sales commissions paid to our direct sales force and referral fees paid to independent third-parties. The majority of commissions and referral fees are deferred and amortized on a straight-line basis over the ~~non-cancelable~~ terms of the related customer contracts. We include amortization of deferred commissions in sales and marketing expense in the consolidated statements of comprehensive loss. We believe this is the preferable method of accounting as the commission charges are so closely related to the revenue from the customer contracts that they should be recorded as an asset and charged to expense over the same period that the revenue is recognized. The commission payments are generally paid in full the month after the customer’s initial service under the contract commences.

Goodwill, Intangible Assets and Other Long Lived Assets

Goodwill represents the excess of the purchase price in a business combination over the fair value of net tangible and intangible assets acquired. The allocation of the purchase price requires us to make significant estimates in determining the fair value of acquired assets and assumed liabilities, especially with respect to intangible assets. These estimates are based upon a number of factors, including historical experience, market conditions and information obtained from the management of the acquired company. Critical estimates in valuing certain intangible assets included, but are not limited to, cash flows that an asset is expected to generate in the future, discount rates, the time and expense that would be necessary to recreate the assets and the profit margin a market participant would receive. These estimates are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates.

We evaluate and test the recoverability of goodwill for impairment at least annually during our fourth quarter or more frequently if circumstances indicate that goodwill may not be recoverable. We perform the impairment testing by first assessing qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of its reporting unit is less than its carrying amount. If, after assessing the totality of events or circumstances, we determine it is more likely than not that the fair value of a reporting unit is less than its carrying amount, we perform a ~~two-step~~goodwill impairment test. ~~The first step requires the identification of the reporting units and comparison of~~To calculate any potential impairment, we compare the fair value of a reporting unit with its carrying amount, including goodwill. If the fair value of the reporting unit is less than its carrying value, an indication of goodwill impairment exists for the reporting unit and the second step of the impairment test is performed to compute the amount of the impairment. Under the second step, an impairment loss is recognized for anyAny excess of the carrying amount of the reporting unit's goodwill over ~~the implied~~its fair value is recognized as an impairment loss, and the carrying value of ~~that goodwill.~~goodwill is written down. We have determined that we have ~~only one~~a single reporting unit. We ~~did~~have not ~~recognize~~recognized any impairment charges related to goodwill during the years ended December 31, ~~2014~~2017, 2016 and ~~2013.~~2015 because the aggregate fair value of our company has consistently and materially exceeded the carrying value of our single reporting unit.

Intangible assets are amortized over their useful lives ranging from 18 months to seven years. Each period we evaluate the estimated remaining useful life of purchased intangible assets to determine whether events or changes in circumstances warrant a revision to the remaining period of amortization. We periodically review the carrying amounts of ~~these~~long-lived assets, such as property and equipment, and purchased intangible assets for impairment whenever events or changes in circumstances indicate that the carrying ~~value~~amount of ~~these~~the assets may not be recoverable. We measure the recoverability of these assets by comparing the carrying amount of each asset to the future undiscounted cash flows we expect the asset to generate. If we consider any of these assets to be impaired, the impairment to be recognized equals the amount by which the carrying value of the asset exceeds its fair value. In addition, we periodically evaluate the estimated remaining useful lives of long-lived assets to determine whether events or changes in circumstances warrant a revision to the remaining period of depreciation or amortization. Our intangible assets are amortized over their useful lives ranging from 18 months to ten years.

Screening for and assessing whether impairment indicators exist or if events or changes in circumstances have occurred, including market conditions, operating fundamentals, competition and general economic conditions, requires significant judgment. Additionally, changes in the technology industry occur frequently and quickly. Therefore, there can be no assurance that a charge to operating expenses will not occur as a result of future goodwill, intangible assets and other long-lived assets impairment tests.

Stock-based Compensation

We recognize compensation expense related to stock options and restricted stock units ~~or RSUs,~~(RSUs) on a straight-line basis over the requisite service period, which is generally the vesting term of four years. For RSUs granted with a performance condition, the expenses are recognized on a graded vesting basis over the vesting period, after assessing the probability of achieving requisite performance criteria. This has the impact of greater stock-based compensation expense during the initial years of the vesting period as stock-based compensation cost is recognized over the requisite service period for each separately vesting tranche of the award as though the award were, in substance, multiple awards. We recognize compensation expense related to shares issued pursuant to the ~~ESPP,~~employee stock purchase plan (ESPP) on a straight-line basis over the offering period. We estimate the fair value of options using the Black-Scholes options pricing model and fair value of RSU awards using the fair value of our common stock on the date of grant. We recognize compensation expense net of estimated forfeiture activity, which is based on historical forfeiture rates. We evaluate the forfeiture rates at least annually or when events or circumstances indicate a change may be needed. This may cause a fluctuation in our stock-based compensation in the period of change.

Income Taxes

We use the asset and liability method of accounting for income taxes, in which deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases. We measure deferred tax assets and liabilities using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be reversed. We recognize the effect on deferred tax assets and liabilities of a change in tax rates as income and expense in the period that includes the enactment date. A valuation allowance is established if it is more likely than not that all or a portion of the deferred tax asset will not be realized. In determining the need for a valuation allowance, we consider future growth, forecasted earnings, future taxable income, the mix of earnings in the jurisdictions in which we operate, historical earnings, taxable income in prior years, if carryback is permitted under the law, ~~carry-forward~~carryforward periods and prudent and feasible tax planning strategies.

Our tax positions are subject to income tax audits by multiple tax jurisdictions throughout the world. We recognize the tax benefit of an uncertain tax position only if it is more likely than not the position is sustainable upon examination by the taxing authority, based on the technical merits. We measure the tax benefit recognized as the largest amount of benefit which is more likely than not to be realized upon settlement with the taxing authority. We recognize interest accrued and penalties related to unrecognized tax benefits in our tax provision. Significant judgment is required to evaluate uncertain tax positions. Our evaluations are based upon a number of factors, including changes in facts or circumstances, changes in tax law or guidance, correspondence with tax authorities during the course of audits and effective settlement of audit issues. Changes in the recognition or measurement of uncertain tax positions could result in material increases or decreases in our income tax expense in the period in which we make the change, which could have a material impact on our effective tax rate and operating results.

We calculate the current and deferred income tax provision based on estimates and assumptions that could differ from the actual results reflected in income tax returns filed in subsequent years and record adjustments based on filed income tax returns when identified. The amount of income taxes paid is subject to examination by U.S. federal, state and foreign tax authorities. The estimate of the potential outcome of any uncertain tax issue is subject to management’s assessment of relevant risks, facts and circumstances existing at that time. To the extent the assessment of such tax position changes, we record the change in estimate in the period in which we make the determination.

~~Recent~~New Accounting Pronouncements

On December 22, 2017, the 2017 Tax Cuts and Jobs Act (the Tax Act) was enacted into law and significantly changed how the U.S. imposes income tax on multinational corporations. Changes include, but are not limited to, a reduction of the corporate income tax rate from 35% to 21%, a transition tax on accumulated foreign earnings, and a transition from a worldwide to a territorial tax system. We are required to recognize the effect of the Tax Act in the period of enactment, such as remeasuring our U.S. deferred tax assets and liabilities as well as reassessing the net realizability of our deferred tax assets and liabilities.

In December 2017, the SEC staff issued Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (SAB 118), which allows us to record provisional amounts during a measurement period not to extend more than one year beyond the Tax Act enactment date. Since the Tax Act was passed late in the fourth quarter of 2017, and ongoing guidance and accounting interpretation are expected over the next 12 months, we consider the accounting for deferred tax remeasurements, the impact of the transition of U.S. international taxation from a worldwide tax system to a territorial system and other provisions to be incomplete due to the forthcoming guidance and our ongoing analysis. We expect to complete our analysis within the measurement period in accordance with SAB 118.

In May 2014, the Financial Accounting Standards Board ~~or FASB,~~ issued ~~an update~~a new standard related to ~~ASC 606 Revenue~~revenue recognition from ~~Contracts~~contracts with ~~Customers, or ASC 606, that will supersede virtually all existing revenue guidance. Under this update, an entity~~customers (Topic 606), which is required to recognize revenue upon transfer of promised goods or services to customers, in an amount that reflects the expected consideration received in exchange for those goods or services. As such, an entity will need to use more judgment and make more estimates than under the current guidance. This update should be applied retrospectively either to each prior reporting period presented in the financial statements, or only to the most current reporting period presented in the financial statements with a cumulative effect adjustment recorded in the retained earnings. This guidance will become effective ~~for us for our interim and annual reporting periods~~ beginning January 1, ~~2017. We~~2018. Topic 606 supersedes the prior revenue recognition standard (Topic 605). Under Topic 606, for our on‑premises offerings, we will recognize a portion of the subscription revenue when the on-premises offering is made available, resulting in a larger amount of upfront subscription revenue, and a smaller amount of deferred revenue compared with Topic 605, which required ratable revenue recognition over the contract period. Due to the complexity of certain customer contracts, the actual revenue recognition treatment required under Topic 606 will depend on contract-specific terms and may result in greater variability in revenue from period to period.

Under Topic 606, we will defer all incremental commission costs to obtain customer contracts, including indirect costs that are ~~currently evaluating~~not tied to a specific contract. On initial contracts, only the ~~impact~~portion equivalent to a renewal commission will be amortized over the contract term, while the portion incremental to a renewal commission will be amortized over a period of ~~this update on~~benefit that we have determined to be five years. On renewal contracts, these costs will be amortized over the renewal term. Additionally, for our on-premises offerings, consistent with the recognition of subscription revenue for on-premises offerings as described above, a portion of the commission costs will be expensed upfront when the on-premises offering is made available. Under Topic 605, we deferred only direct and incremental commission costs to obtain a contract and amortized those costs over the contract term, which is generally 12 to 36 months.

For details regarding these and other recently issued accounting standards, refer to Note 2, Summary of Significant Accounting Policies, of the notes to our consolidated financial ~~statements.~~statements included elsewhere in this Annual Report on Form 10-K.



ITEM 7A.	QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

Foreign Currency Exchange Risk

We have foreign currency risks related to our revenue and operating expenses denominated in currencies other than the U.S. ~~dollar,~~Dollar, primarily the Euro and British Pound Sterling. We are a net receiver of Euro and therefore benefit from a weakening of the U.S. Dollar relative to the Euro and, conversely, are adversely affected by a strengthening of the U.S. ~~dollar~~Dollar relative to ~~these currencies.~~the Euro. Revenues denominated in U.S. ~~dollar~~Dollar as a percentage of total ~~revenue~~revenues was ~~72%, 77% and 80%~~73% during the years ended December 31, ~~2014, 2013~~2017 and ~~2012, respectively.~~2016 and 74% during the year ended December 31, 2015. Changes in exchange rates have recently positively affected, and may continue to ~~negatively~~positively affect, our ~~revenues as denominated in U.S. dollars.~~total revenues.

We have experienced and ~~will~~expect to continue to experience fluctuations in our net loss as a result of transaction gains or losses related to remeasuring ~~certain~~ monetary assets and liabilities that are denominated in currencies other than the functional currency of the entities in which they are recorded. We ~~are unable to accurately forecast the changes in exchange rates and consequent gains and losses from such fluctuations. We~~ recognized ~~a net foreign currency gain of $2.5 million for the year ended December 31, 2014, and~~ net foreign currency losses of ~~$2.5~~$11.1 million and ~~$1.3~~$2.2 million for the years ended December 31, ~~2013~~2017 and ~~2012,~~2016, respectively. While we have not engaged in the hedging of our foreign currency transactions to date, we may do so in ~~the future hedge selected significant transactions denominated in currencies other than the U.S. dollar.~~2018.

We estimate that a decline in the value of the U.S. dollar as measured against the other currencies in which our transactions are denominated would have widened our operating loss in the year ended December 31, 2014. A hypothetical 10% ~~decrease~~increase in the U.S. ~~dollar~~Dollar against other currencies would ~~result~~have resulted in an increase in operating loss of approximately ~~$3.5~~$13.7 million and $7.7 million for the years ended December 31, 2017 and 2016, respectively. The hypothetical increase in operating loss for the year ended December 31, ~~2014.~~2017 compared to the year ended December 31, 2016 is due to an assumed decrease in the mix of foreign currency revenue relative to foreign currency expenses. This analysis disregards the possibilities that rates can move in opposite directions and that losses from one geographic area may be offset by gains from another geographic area.

Interest Rate Sensitivity

~~In February 2012, we began investing~~We had an aggregate of $2.2 billion in cash, cash equivalents, short-term investments and long-term investments as of December 31, 2017. This amount was invested primarily in money market funds, time deposits, corporate notes and bonds, government securities and other debt ~~securities.~~securities with a minimum rating of BBB by Standard & Poor's, Baa2 by Moody's, or BBB by Fitch. The primary objectives of our investment activities are the preservation of capital and support of our liquidity requirements. ~~We do not enter into investments for trading or speculative purposes.~~ 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, ~~2014,~~2017, a hypothetical 100 basis point increase in interest rates would ~~result~~have resulted in an approximate ~~$5.6~~$10.7 million decline ~~of the fair value of our available-for-sale securities and a hypothetical 100 basis point decrease in interest rates would result in an approximate $5.0 million increase~~ of the fair value of our available-for-sale securities. This estimate is based on a sensitivity model that measures market value changes when changes in interest rates occur.

As of December 31, 2016, we had an aggregate of $1.2 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 $5.7 million decline of the fair value of our available-for-sale securities.

Market Risk

In November 2013, we issued the 2018 Notes with an aggregate principal amount of $575.0 million, and in May and June 2017, we issued the 2022 Notes with an aggregate principal amount of $782.5 million. We carry ~~this instrument~~these instruments at face value less unamortized discount on our consolidated balance sheet. Because ~~this instrument~~these instruments does not bear interest, we have no financial statement risk associated with changes in interest rates. However, the fair value of fixed rate instruments ~~fluctuate~~fluctuates when interest rates change, and in the case of convertible notes, when the market price of our stock fluctuates.

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

As of December 31, 2017, we had $5.8 million invested in privately-held companies that are in the development stage. The fair value of these investments may fluctuate depending on the financial condition and near-term prospects of these companies, and we may be required to record an impairment charge if the carrying value of these investments exceed their fair value.



ITEM 8.	CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

SERVICENOW, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



	Page
Report of Independent Registered Public Accounting Firm	5257

Consolidated Financial Statements

Consolidated Balance Sheets	5359

Consolidated Statements of Comprehensive Loss	5460

Consolidated Statements of ~~Changes in Convertible Preferred Stock and~~ Stockholders’ Equity ~~(Deficit)~~	5561

Consolidated Statements of Cash Flows	5762

Notes to Consolidated Financial Statements	5863

The supplementary financial information required by this Item 8, is included in Part II, Item 7 under the caption “Quarterly Results of Operations”, which is incorporated herein by reference.

SERVICENOW, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Unless the context requires otherwise, references in this report to “ServiceNow,” the “Company,”, “we,” “us,” and “our” refer to ServiceNow, Inc. and its consolidated subsidiaries.

(1) Description of the Business

ServiceNow is a leading provider of ~~cloud-based~~enterprise cloud computing solutions that define, structure, manage and automate services ~~across~~for global enterprises. We help our customers improve service quality and reduce costs while scaling and automating their businesses. We typically deliver our software via the ~~global enterprise. By applying~~Internet as a ~~service-oriented lens~~service, through an easy-to-use, consumer product-like interface, which means it can be easily configured and rapidly deployed. In a minority of cases, we deploy our software on-premises at a customer data center to ~~the activities, tasks and processes that comprise day-to-day work life, we help the modern enterprise operate faster and be more scalable than ever before.~~support a customer's unique regulatory or security requirements.

(2) Summary of Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements have been prepared in conformity with ~~U.S.~~accounting principles generally accepted ~~accounting principles, or GAAP,~~in the United States (U.S. GAAP), and include our accounts and the accounts of our wholly-owned subsidiaries. All ~~significant~~ intercompany transactions and balances have been eliminated upon consolidation.

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements, as well as reported amounts of revenues and expenses during the reporting period. Such management estimates and assumptions include, but are not limited to, the best estimate of selling price of the deliverables included in multiple elements revenue arrangements, the fair value of assets acquired and liabilities assumed for business combinations, stock-based compensation expenses, the assessment of the useful life and recoverability of our property and equipment, goodwill and identifiable intangible assets, and legal contingencies. Actual results could differ from those estimates.

Segments

We define the term “chief operating decision maker” to be our Chief Executive Officer. Our chief operating decision maker allocates resources and assesses financial performance based upon discrete financial information at the consolidated level. Accordingly, we have determined that we operate inas a single ~~reporting~~operating and reportable segment.

Foreign Currency Translation and Transactions

The functional currencies for our foreign subsidiaries are primarily their local currencies. Assets and liabilities of the wholly-owned foreign subsidiaries are translated into U.S. ~~dollars~~Dollars at exchange rates in effect at each period end. Amounts classified in stockholders’ equity are translated at historical exchange rates. Revenues and expenses are translated at the average exchange rates during the period. The resulting translation adjustments are recorded in accumulated other comprehensive loss as a component of stockholders’ equity. Foreign currency transaction gains and losses are included in interest income and other income (expense), net within the consolidated statements of comprehensive ~~loss.~~loss, and have not been material for all periods presented.

Allocation of Overhead Costs

Overhead costs associated with office facilities, IT and certain depreciation related to ~~non cloud-based~~ infrastructure ~~hardware equipment~~that is not dedicated for customer use or research and development use are allocated to cost of revenues and operating expenses based on headcount. ~~Facility costs associated with our data centers as well as depreciation related to our cloud-based infrastructure hardware equipment is classified as cost of subscription revenues.~~

Revenue Recognition

We derive our revenues from two sources: (i) subscriptions and (ii) professional services and other. Subscription revenues are primarily comprised of subscription fees that give customers access to the ordered subscription service, related support and updates to the subscribed service during the subscription term.

Our contracts typically do not give the customer the right to take possession of the software supporting the services. Professional services and other revenues consist of fees associated with ~~the~~services provided to customers for process design, implementation, configuration and ~~configuration~~optimization of our ~~services.~~products. Professional services and other revenues also include customer training and ~~attendance~~registration and sponsorship fees for ~~Knowledge,~~ our annual Knowledge user ~~conference.~~conference and other user forums.

We commence revenue recognition when all of the following conditions are met:

•There is persuasive evidence of an arrangement;

•The service has been provided to the customer;

•The collection of related fees is reasonably assured; and

•The amount of fees to be paid by the customer is fixed or determinable.

Our arrangements are generally non-cancelable and do not contain refund-type provisions.

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. Once our services are available to customers, we record amounts due in accounts receivable and in deferred revenue. To the extent we bill customers in advance of the contract commencement date, the accounts receivable and corresponding deferred revenue amounts are netted to zero on our consolidated balance sheets, unless such amounts have been paid as of the balance sheet date.

~~We recognize professional~~Professional services revenues on our time-and materials arrangements are recognized as the services are ~~delivered~~delivered. Professional services revenues associated with fixed fee arrangements are recognized using a proportional performance model. ~~Such services are delivered over a short period of time.~~ In instances where ~~final acceptance of the services~~certain milestones are required to be met before revenues are recognized, we defer professional services revenues and the associated costs until ~~all acceptance~~milestone criteria have been met.

We have multiple element arrangements comprised of subscription fees and professional services. In October 2009, the Financial Accounting Standards Board, or FASB, ratified authoritative accounting guidance regarding revenue recognition for arrangements with multiple deliverables effective for fiscal periods beginning on or after June 15, 2010. Upon adoption of this authoritative accounting guidance, we began to account for subscription and professional services revenues as separate units of accounting. To qualify as a separate unit of accounting, the delivered item must have value to the customer on a standalone basis. We have concluded that our subscription service has standalone value as it is routinely sold separately by us. In addition, the applications offered through this subscription service are fully functional without any additional development, modification or customization. We provide customers access to our subscription service at the beginning of the contract term. In determining whether professional services have standalone value, we considered the following factors for each professional services agreement: availability of the services from other vendors, the nature of the professional services, the timing of when the professional services contract was signed in comparison to the subscription service start date and the contractual dependence of the subscription service on the customer’s satisfaction with the professional services work. Our professional services, including implementation and configuration services, are not so unique and complex that other vendors cannot provide them. In some instances, customers independently contract with third-party vendors to do the implementation and we regularly outsource implementation services to contracted third-party vendors. As a result, we concluded professional services, including implementation and configuration services, have standalone value.

~~We determine~~The total arrangement consideration for a multiple element arrangement is allocated to the ~~selling price~~identifiable separate units of ~~each deliverable in the arrangement using the~~accounting based on a relative selling price hierarchy. ~~Under~~We determined the ~~selling price hierarchy, the~~relative selling price for ~~each~~a deliverable ~~is determined using~~based on its vendor-specific objective evidence ~~or VSOE,~~(VSOE) of selling price or third-party evidence ~~or TPE,~~(TPE) of selling price if VSOE does not exist. If neither VSOE nor TPE of selling price exists for a deliverable, the selling price is determined using the best estimate of selling price ~~or BESP. The selling price for each unit of accounting is based on~~(BESP). We determine the ~~BESP since VSOE and TPE are not available for our subscription service or professional services and other. The~~ BESP for each deliverable ~~is determined~~ primarily by considering the historical selling price of these deliverables in similar transactions as well as other factors, including, but not limited to, market competition, review of stand-alone sales and current pricing practices. In determining the appropriate pricing structure, we consider the extent of competitive pricing of similar products and marketing analysis. The total arrangement fee for these multiple element arrangements is then allocated to the separate units of accounting based on the relative selling price. The BESP for our subscription service is based upon the historical selling price of these deliverables.

Deferred Commissions

Fair Value Measurements

We apply fair value accounting for all financial assets and liabilities and non-financial assets and liabilities that are recognized in the financial statements on a non-recurring basis or disclosed at fair value in the financial statements on a recurring basis. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. We use a fair value hierarchy that is based on three levels of inputs, of which the first two are considered observable and the last unobservable. The three levels of the fair value hierarchy are as follows:

Level 1—Quoted prices (unadjusted) in active markets for identical assets or liabilities that we have the ability to access;

Level 2—Inputs other than Level 1 that are directly or indirectly observable, such as quoted prices for identical or similar assets and liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities, such as interest rates, yield curves and foreign currency spot rates; and

Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities.

Cash and Cash Equivalents

Cash and cash equivalents consist of highly liquid investments with original or remaining maturities of three months or ~~less.~~less when purchased. Cash and cash equivalents are stated at ~~cost, which approximates~~ fair value.

Investments

Investments consist of commercial paper, corporate notes and bonds, certificates of deposit and U.S. government and agency securities. We classify investments as available-for-sale at the time of purchase and reevaluate such classification as of each balance sheet date. All investments are recorded at estimated fair value. Unrealized gains and losses for available-for-sale securities are included in accumulated other comprehensive ~~loss,~~income (loss), a component of stockholders’ equity. We evaluate our investments to assess whether those with unrealized loss positions are other than temporarily impaired. We consider impairments to be other than temporary if they are related to deterioration in credit risk or if it is likely we will sell the securities before the recovery of their cost basis. Realized gains and losses and declines in value judged to be other than temporary are determined based on the specific identification method and are reported in interest income and other income (expense), net in the consolidated statements of comprehensive loss.

Strategic Investments

Our strategic investments consist of debt and non-marketable equity investments in privately-held companies. Debt investments in privately-held companies are classified as available-for-sale and are recorded at their estimated fair value with changes in fair value recorded through accumulated other comprehensive income (loss). We report our investments in non-marketable equity securities in privately-held companies, in which we do not have a controlling interest or significant influence, at cost or fair value when an event or circumstance indicates an other-than-temporary decline in value has occurred. We include these strategic investments in “Other assets” on the consolidated balance sheets.

Accounts Receivable

We record trade accounts receivable at the net invoice value and such receivables are non-interest bearing. We consider receivables past due based on the contractual payment terms. We review our exposure to accounts receivable and reserve for specific amounts if ~~collectibility~~collectability is no longer reasonably assured.

Property and Equipment

Property and equipment, net, are stated at cost, subject to review of impairment, and depreciated using the straight-line method over the estimated useful lives of the assets as follows:



Building		39 years
Computer equipment and software		3—5 years
Furniture and fixtures		3—57 years
Leasehold and other improvements		shorter of the lease term or estimated useful life

When assets are sold, or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts and any gain or loss is included in cost of revenues or operating ~~expenses.~~expenses depending on whether the asset sold is being used in our provision of services to our customers. Repairs and maintenance expenses are charged to our statements of comprehensive loss as incurred.

Capitalized Software Development Costs

Software development costs for software to be sold, leased, or otherwise marketed are expensed as incurred until the establishment of technological feasibility, at which time those costs are capitalized until the product is available for general release to customers and amortized over the estimated life of the product. Technological feasibility is established upon the completion of a working prototype that has been certified as having no critical bugs and is a release candidate. To date, costs and time incurred between the establishment of technological feasibility and product release have not been significant, and all software development costs have been charged to research and development expense in our consolidated statements of comprehensive loss.

Costs incurred to develop our internal administration, finance and accounting systems are capitalized during the application development stage and generally amortized over the software’s estimated useful life of three to five years.

Leases

Leases are reviewed and classified as capital or operating at their inception. ~~For leases that~~Some of our lease agreements contain rent ~~escalations or periods during~~escalation, rent holidays, lease incentives and renewal options. Rent escalation and rent holidays are included in the determination of rent expenses to be recorded over the lease ~~term where~~term. Unless determined to be landlord assets, lease incentives to pay for our costs or assets are recognized as a reduction of rent ~~is not required, we recognize rent~~ expense ~~based on allocating the total rent payable~~ on a straight-line basis over the term of the lease. Renewals are not assumed in the determination of the lease ~~excluding lease extension periods.~~term unless they are deemed to be reasonably assured at the inception of the lease. We begin recognizing rent expense on the date that we obtain the legal right to use and control the leased space. The difference between rent payments and straight-line rent expense is recorded as deferred rent in the consolidated balance sheets. Deferred rent that will be recognized during the ensuing 12-month period is recorded as the current portion of deferred rent included in “Accrued expenses and other current liabilities” and the remainder is recorded as long term deferred rent included in “Other long-term ~~deferred rent.~~liabilities”.

Goodwill, Intangible Assets and Other Long Lived Assets

Goodwill represents the excess of the purchase price in a business combination over the fair value of the net tangible and intangible assets acquired. We evaluate and test the recoverability of goodwill for impairment at least annually, during the fourth quarter, or more frequently if circumstances indicate that goodwill may not be recoverable.

~~Intangible assets are amortized over their useful lives ranging from 18 months to seven years. Each period we evaluate~~ We perform the ~~estimated remaining useful life of purchased intangible assets~~impairment testing by first assessing qualitative factors to determine whether the existence of events or ~~changes in~~ circumstances ~~warrant~~leads to a ~~revision to~~determination that it is more likely than not that the ~~remaining period~~fair value of ~~amortization.~~its reporting unit is less than its carrying amount. If, after assessing the totality of events or circumstances, we determine it is more likely than not that the fair value of a reporting unit is less than its carrying amount, we perform a goodwill impairment test. To calculate any potential impairment, we compare the fair value of a reporting unit with its carrying amount, including goodwill. Any excess of the carrying amount of the reporting unit's goodwill over its fair value is recognized as an impairment loss, and the carrying value of goodwill is written down. For purposes of goodwill impairment testing, we have one reporting unit.

We periodically review the carrying amounts of ~~these~~long-lived assets, such as property and equipment, and purchased intangible assets for impairment whenever events or changes in circumstances indicate that the carrying ~~value~~amount of ~~these~~the assets may not be recoverable. We measure the recoverability of these assets by comparing the carrying amount of each asset to the future undiscounted cash flows we expect the asset to generate. If we consider any of these assets to be impaired, the impairment to be recognized equals the amount by which the carrying value of the asset exceeds its fair value. In addition, we periodically evaluate the estimated remaining useful lives of long-lived assets to determine whether events or changes in circumstances warrant a revision to the remaining period of depreciation or amortization. Our intangible assets are amortized over their useful lives ranging from 18 months to ten years.

~~Convertible Preferred Stock~~Advertising Costs

~~Prior~~Advertising costs, excluding costs related to our annual Knowledge user conference and other user forums, are expensed as incurred and are included in sales and marketing expense. These costs for the ~~closing~~years ended December 31, 2017, 2016 and 2015 were $57.3 million, $42.1 million and $26.0 million, respectively. Costs related to our annual Knowledge user conference and other user forums are deferred and expensed when the respective events occur.

Legal Contingencies

From time to time, we are a party to litigation and other legal proceedings in the ordinary course of business. We accrue for loss contingencies when we can reasonably estimate the ~~initial public offering,~~amount of loss or ~~IPO, we had four series~~range of ~~convertible preferred stock outstanding. We recorded the convertible preferred stock at fair value~~loss and when, based on the ~~dates~~advice of ~~issuance, net~~counsel, it is probable that we will incur the loss. Because of ~~issuance costs. We classified~~uncertainties related to these matters, we base our estimate on the ~~convertible preferred stock outside of stockholders’ equity because~~information available at the ~~shares contained liquidation features that were not solely within our control.~~

~~Upon the closing~~time of our ~~IPO on July 5, 2012, all of the outstanding 10,462,877 shares of convertible preferred stock automatically converted into an aggregate of 83,703,016 shares of common stock.~~assessment. As ~~of December 31, 2014~~additional information becomes available, we reassess our potential liability and ~~2013, we had no shares of preferred stock outstanding.~~may revise our estimate.

Stock-based Compensation

We recognize compensation expense related to stock options and restricted stock units ~~or RSUs,~~(RSUs) on a straight-line basis over the requisite service period, which is generally the vesting term of four years. For RSUs granted with a performance condition, the expenses are recognized on a graded vesting basis over the vesting period, after assessing the probability of achieving requisite performance criteria. This has the impact of greater stock-based compensation expense during the initial years of the vesting period as stock-based compensation cost is recognized over the requisite service period for each separately vesting tranche of the award as though the award were, in substance, multiple awards. We recognize compensation expense related to shares issued pursuant to the employee stock purchase plan ~~or ESPP,~~(ESPP) on a straight-line basis over the offering period. We estimate the fair value of options using the Black-Scholes options pricing model and fair value of RSUs using the fair value of our common stock on the date of grant. We recognize compensation expense net of estimated forfeiture activity, which is based on historical forfeiture rates. In some instances, shares are issued on the vesting dates net of the minimum statutory tax withholding requirements to be paid by us on behalf of our employees. In these instances, we record the liability for withholding amounts to be paid by us as a reduction to additional paid-in capital when paid, and include these payments as a reduction of cash flows from financing activities.

Net Loss Per Share ~~Attributable to Common Stockholders~~

We compute net income (loss) attributable to common stockholders using the two-class method required for participating securities. We consider our convertible preferred stock that was outstanding prior to the close of our IPO and shares of common stock subject to repurchase resulting from the early exercise of stock options to be participating securities since they contain non-forfeitable rights to dividends or dividend equivalents in the event we declare a dividend for common stock. In accordance with the two-class method, earnings allocated to these participating securities, are subtracted from net income after deducting preferred stock dividends and accretion to the redemption value of the Series A, Series B and Series C to determine total undistributed earnings to be allocated to common stockholders. The holders of our convertible preferred stock did not have a contractual obligation to share in our net losses and such shares were excluded from the computation of basic earnings per share in periods of net loss.

Basic net ~~income (loss)~~loss per share attributable to common stockholders is computed by dividing net ~~income (loss)~~loss attributable to common stockholders by the weighted-average number of common shares outstanding during the period. ~~All participating securities are excluded from basic weighted-average common shares outstanding.~~ Diluted net ~~income (loss)~~loss per share is computed by dividing net ~~income (loss)~~loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period, adjusted for the effects of dilutive common shares, which are comprised of outstanding common stock options, ~~convertible preferred stock,~~ RSUs, ~~common stock subject to repurchase,~~ ESPP obligations, convertible senior notes and warrants. The dilutive potential common shares are computed using the treasury stock method or the as-if converted method, as applicable. ~~In periods where the effect of the conversion of preferred stock is dilutive, net income (loss) attributable to common stockholders is adjusted by the associated preferred dividends and accretions.~~ The effects of outstanding common stock options, ~~convertible preferred stock,~~ RSUs, ~~common stock subject to repurchase,~~ ESPP obligations, convertible senior notes and warrants are excluded from the computation of diluted net ~~income (loss)~~loss per common share in periods in which the effect would be antidilutive.

Concentration of Credit Risk and Significant Customers

Financial instruments potentially exposing us to credit risk consist primarily of cash, cash equivalents, investments and accounts receivable. We ~~maintain~~hold cash ~~cash equivalents and investments~~ at financial institutions that management believes are high credit, quality financial ~~institutions. We~~institutions and invest in securities with a minimum rating of ABBB by Standard & Poor's, ~~and A-2~~Baa2 by ~~Moody's.~~Moody's, or BBB by Fitch. We are also exposed to credit risk under the convertible note hedge ~~(the "Note Hedge")~~ transactions that may result from counterparties' non-performance.

Credit risk arising from accounts receivable is mitigated due to our large number of customers and their dispersion across various industries and geographies. As of December 31, ~~2014~~2017 and ~~2013,~~2016, there were no customers that represented more than 10% of our accounts receivable balance. There were no customers that individually exceeded 10% of our revenues in any of the periods presented. For purposes of assessing concentration of credit risk and significant customers, a group of customers under common control or customers that are affiliates of each other are regarded as a single customer.

We review the composition of the accounts receivable balance, historical write-off experience and the potential risk of loss associated with delinquent accounts to determine if an allowance for doubtful accounts is necessary. Individual accounts receivable are written off when we become aware of a specific customer’s inability to meet its financial obligation, and all collection efforts are exhausted. The following table presents the changes in the allowance for doubtful accounts (in thousands):


	Balance at Beginning of Year		Additions (deductions): Charged to Operations		Additions (deductions): Charged to Deferred Revenue		Less: Write-offs	Balance at End of Year		Balance at Beginning of Year		Additions (Deductions): Charged to Operations	Additions (Deductions): Charged to Deferred Revenue		Less: Write-offs	Balance at End of Year
Year ended December 31, 2014
Year ended December 31, 2017
Allowance for doubtful accounts	$	1,143	395		(523	)	206	$	809	$	2,323	1,688	194		1,090	$	3,115
Year ended December 31, 2013
Year ended December 31, 2016
Allowance for doubtful accounts	$	742	(43	)	946		502	$	1,143	$	1,179	2,219	(391	)	684	$	2,323
Year ended December 31, 2015
Allowance for doubtful accounts										$	809	841	(70	)	401	$	1,179



Delaware		20-2056195
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)



Title of each class		Name of each exchange on which registered
Common stock, par value $0.001 per share		New York Stock Exchange, Inc.



		Page
	PART I
Item 1	Business	1
Item 1A	Risk Factors	86
Item 1B	Unresolved Staff Comments	2520
Item 2	Properties	2520
Item 3	Legal Proceedings	2520
Item 4	Mine Safety Disclosures	2520

	PART II
Item 5	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	2621
Item 6	Selected Consolidated Financial Data	2823
Item 7	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3025
Item 7A	Quantitative and Qualitative Disclosures About Market Risk	5054
Item 8	Consolidated Financial Statements and Supplementary Data	5156
Item 9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	8194
Item 9A	Controls and Procedures	8294
Item 9B	Other Information	8294

	PART III
Item 10	Directors, Executive Officers and Corporate Governance	8295
Item 11	Executive Compensation	8395
Item 12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	8395
Item 13	Certain Relationships and Related Party Transactions and Director Independence	8395
Item 14	Principal Accounting Fees and Services	8395

	PART IV
Item 15	Exhibits and Financial Statement Schedules	8395
Item 16	Form 10-K Summary	99
Signatures		8399
Index to Exhibits		97


	For the Three Months Ended																								For the Three Months Ended
	Dec 30, 2014			Sep 30, 2014			June 30, 2014			March 31, 2014			Dec 30, 2013			Sep 30, 2013			June 30, 2013			March 31, 2013			Dec 31, 2017			Sep 30, 2017			June 30, 2017			March 31, 2017			Dec 31, 2016			Sep 30, 2016			June 30, 2016			March 31, 2016
	(in thousands, except per share data)																								(in thousands, except per share data)
Revenues:
Subscription	$	166,751		$	150,367		$	132,724		$	117,375		$	104,878		$	92,992		$	80,376		$	71,558		$	497,232		$	455,421		$	411,007		$	376,135		$	344,604		$	318,934		$	290,679		$	267,422
Professional services and other	31,253			28,345			34,033			21,715			20,352			18,267			21,846			14,381			49,138			42,749			60,696			40,648			41,062			38,722			50,633			38,457
Total revenues	198,004			178,712			166,757			139,090			125,230			111,259			102,222			85,939			546,370			498,170			471,703			416,783			385,666			357,656			341,312			305,879
Cost of revenues:
Subscription	40,330			37,925			33,243			31,189			25,968			23,429			20,219			18,312			87,524			81,878			75,793			70,375			64,707			61,566			56,360			52,781
Professional services and other	30,308			28,161			25,695			21,925			19,410			18,146			15,779			13,996			46,836			45,402			45,892			46,072			40,229			41,271			40,289			41,479
Total cost of revenues	70,638			66,086			58,938			53,114			45,378			41,575			35,998			32,308			134,360			127,280			121,685			116,447			104,936			102,837			96,649			94,260
Gross profit	127,366			112,626			107,819			85,976			79,852			69,684			66,224			53,631			412,010			370,890			350,018			300,336			280,730			254,819			244,663			211,619
Operating expenses:
Sales and marketing	95,764			84,002			91,937			69,416			57,337			47,336			52,291			38,226			260,292			227,015			247,224			212,086			188,857			166,491			186,506			158,610
Research and development	42,026			39,683			35,439			31,110			23,869			20,819			17,951			16,039			104,559			98,465			90,005			84,489			73,933			75,018			70,364			65,924
General and administrative	26,260			23,440			24,914			21,631			18,007			16,179			15,325			12,279			60,291			52,465			51,526			46,251			41,543			40,085			36,071			41,237
Legal settlements ⁽¹⁾																									—			—			—			—			—			—			—			270,000
Total operating expenses	164,050			147,125			152,290			122,157			99,213			84,334			85,567			66,544			425,142			377,945			388,755			342,826			304,333			281,594			292,941			535,771
Loss from operations	(36,684		)	(34,499		)	(44,471		)	(36,181		)	(19,361		)	(14,650		)	(19,343		)	(12,913		)	(13,132		)	(7,055		)	(38,737		)	(42,490		)	(23,603		)	(26,775		)	(48,278		)	(324,152		)
Interest and other income (expense), net	(6,562		)	(5,949		)	(5,231		)	(5,963		)	(4,326		)	600			(1,323		)	119
Loss before provision for income taxes	(43,246		)	(40,448		)	(49,702		)	(42,144		)	(23,687		)	(14,050		)	(20,666		)	(12,794		)
Provision for income taxes	1,417			602			661			1,167			545			663			739			564
Interest expense																									(16,813		)	(16,566		)	(11,337		)	(8,678		)	(8,532		)	(8,389		)	(8,248		)	(8,109		)
Interest income and other income (expense), net																									5,065			853			(7,830		)	7,716			1,290			1,783			2,260			702
Loss before income taxes																									(24,880		)	(22,768		)	(57,904		)	(43,452		)	(30,845		)	(33,381		)	(54,266		)	(331,559		)
Provision for (benefit from) income taxes																									2,927			1,420			(1,431		)	(2,790		)	1,744			2,877			(4,641		)	1,773
Net loss	$	(44,663	)	$	(41,050	)	$	(50,363	)	$	(43,311	)	$	(24,232	)	$	(14,713	)	$	(21,405	)	$	(13,358	)	$	(27,807	)	$	(24,188	)	$	(56,473	)	$	(40,662	)	$	(32,589	)	$	(36,258	)	$	(49,625	)	$	(333,332	)
Net loss attributable to common stockholders - basic and diluted	$	(44,663	)	$	(41,050	)	$	(50,363	)	$	(43,311	)	$	(24,232	)	$	(14,713	)	$	(21,405	)	$	(13,358	)
Net loss per share attributable to common stockholders - basic and diluted	$	(0.30	)	$	(0.28	)	$	(0.35	)	$	(0.30	)	$	(0.17	)	$	(0.11	)	$	(0.16	)	$	(0.10	)
Net loss per share - basic and diluted																									$	(0.16	)	$	(0.14	)	$	(0.33	)	$	(0.24	)	$	(0.20	)	$	(0.22	)	$	(0.30	)	$	(2.06	)



	Year Ended December 31,
	2014			2013			2012
	(dollars in thousands)
Net cash provided by operating activities	$	138,900		$	81,746		$	48,766
Net cash used in investing activities	(316,928		)	(402,795		)	(239,149		)
Net cash provided by financing activities	70,772			568,570			241,839
Net increase (decrease) in cash and cash equivalents, net of impact of exchange rates on cash	(113,848		)	247,314			50,901



x	Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934



¨	Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934


(Do not check if a smaller reporting company)	Emerging growth company ¨



	As of December 31,									As of June 30,
	2014		2013		2012		2011			2011			2010
	(in thousands)
Consolidated Balance Sheet Data:
Cash and cash equivalents	$	252,455	$	366,303	$	118,989	$	68,088		$	59,853		$	29,402
Working capital, excluding deferred revenue	809,660		722,214		364,426		95,033			75,801			33,080
Total assets	1,425,079		1,168,476		478,114		156,323			108,746			51,369
Deferred revenue, current and non-current portion	422,238		266,722		170,361		104,636			74,646			40,731
Convertible senior notes, net	443,764		414,777		—		—			—			—
Convertible preferred stock	—		—		—		68,172			67,860			67,227
Total stockholders’ equity (deficit)	428,675		394,259		243,405		(57,426		)	(58,381		)	(71,262		)


	Year Ended December 31						% Change		Year Ended December 31						% Change
	2014			2013					2017			2016
	(dollars in thousands)								(dollars in thousands)
Sales and marketing	$	341,119		$	195,190		75	%	$	946,617		$	700,464		35	%
Percentage of revenues	50		%	46		%			49		%	50		%
Headcount (at period end)	1,011			615			64	%	2,413			1,875			29	%



	Payments Due by Period
Contractual Obligations	Total		Less Than 1 Year		1 – 3 Years		3 – 5 Years		More Than 5 Years
	(in thousands)
Operating leases:
Data centers⁽¹⁾	$	20,009	$	9,561	$	9,186	$	1,238	$	24
Facilities space⁽²⁾	263,563		15,511		52,872		51,337		143,843
Convertible Senior Notes	575,000		—		—		575,000		—
Other	4,876		297		1,018		1,018		2,543
Total contractual obligations	$	863,448	$	25,369	$	63,076	$	628,593	$	146,410


	December 31,						December 31,
	2014			2013			2017			2016
Assets
Current assets:
Cash and cash equivalents	$	252,455		$	366,303		$	726,495		$	401,238
Short-term investments	416,336			268,251			1,052,803			498,124
Accounts receivable, net	159,171			108,339			434,895			322,757
Current portion of deferred commissions	43,232			31,123			118,690			76,780
Prepaid expenses and other current assets	35,792			23,733			77,681			43,636
Total current assets	906,986			797,749			2,410,564			1,342,535
Deferred commissions, less current portion	29,453			21,318			85,530			61,990
Long-term investments	266,772			255,356			391,442			262,658
Property and equipment, net	104,237			75,560			245,124			181,620
Intangible assets, net	54,526			5,796			86,916			65,854
Goodwill	55,016			8,724			128,728			82,534
Other assets	8,089			3,973			49,600			36,576
Total assets	$	1,425,079		$	1,168,476		$	3,397,904		$	2,033,767
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	17,829		$	7,405		$	32,109		$	38,080
Accrued expenses and other current liabilities	79,497			68,130			244,605			171,636
Current portion of deferred revenue	409,671			252,553			1,280,499			861,782
Current portion of convertible senior notes, net							543,418			—
Total current liabilities	506,997			328,088			2,100,631			1,071,498
Deferred revenue, less current portion	12,567			14,169			39,884			33,319
Convertible senior notes, net	443,764			414,777			630,018			507,812
Other long-term liabilities	33,076			17,183			43,239			34,177
Total liabilities	996,404			774,217			2,813,772			1,646,806
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.001 par value; 10,000,000 shares authorized; no shares issued or outstanding	—			—			—			—
Common stock $0.001 par value; 600,000,000 shares authorized; 149,509,092 and 140,354,605 shares issued and outstanding at December 31, 2014 and 2013, respectively	150			140
Common stock $0.001 par value; 600,000,000 shares authorized; 174,275,864 and 167,430,773 shares issued and outstanding at December 31, 2017 and 2016, respectively							174			167
Additional paid-in capital	799,221			573,791			1,731,367			1,405,317
Accumulated other comprehensive loss	(12,113		)	(476		)	(889		)	(21,133		)
Accumulated deficit	(358,583		)	(179,196		)	(1,146,520		)	(997,390		)
Total stockholders’ equity	428,675			394,259			584,132			386,961
Total liabilities and stockholders’ equity	$	1,425,079		$	1,168,476		$	3,397,904		$	2,033,767



	Series C Redeemable Convertible Preferred Stock					Series A Redeemable Convertible Preferred Stock					Series B Redeemable Convertible Preferred Stock					Series D Convertible Preferred Stock					Common Stock				Additional Paid-in Capital			Accumulated Deficit			Accumulated Other Comprehensive Income (Loss)			Total Stockholders’ Equity (Deficit)
	Shares		Amount			Shares		Amount			Shares		Amount			Shares		Amount			Shares		Amount		Additional Paid-in Capital			Accumulated Deficit			Accumulated Other Comprehensive Income (Loss)			Total Stockholders’ Equity (Deficit)
Balance at December 31, 2011	983,606		$	5,957		2,500,000		$	3,805		3,988,636		$	7,165		2,990,635		$	51,245		22,229,978		$	22	$	9,793		$	(68,140	)	$	899		$	(57,426	)
Issuance of common stock upon initial public offering, net of offering costs	—		—			—		—			—		—			—		—			10,350,000		10		169,774			—			—			169,784
Conversion of preferred stock to common stock upon initial public offering	(983,606	)	(5,966		)	(2,500,000	)	(3,905		)	(3,988,636	)	(7,364		)	(2,990,635	)	(51,245		)	83,703,016		84		68,396			—			—			68,480
Issuance of common stock upon follow-on offering, net of issuance costs	—		—			—		—			—		—			—		—			1,897,500		2		49,848			—			—			49,850
Common stock issued under employee stock plans	—		—			—		—			—		—			—		—			6,654,558		6		4,047			—			—			4,053
Issuance of common stock to third party investors, net of issuance costs	—		—			—		—			—		—			—		—			1,750,980		2		17,846			—			—			17,848
Tax benefit from employee stock plans	—		—			—		—			—		—			—		—			—		—		1,694			—			—			1,694
Vesting of early exercised stock options	—		—			—		—			—		—			—		—			—		—		1,606			—			—			1,606
Buyback of restricted common stock	—		—			—		—			—		—			—		—			(34,168	)	—		—			—			—			—
Buyback and retirement of common stock	—		—			—		—			—		—			—		—			(184,164	)	—		(1,960		)	—			—			(1,960		)
Stock-based compensation	—		—			—		—			—		—			—		—			—		—		28,067			—			—			28,067
Accretion of preferred stock dividends and issuance costs	—		9			—		100			—		199			—		—			—		—		(308		)	—			—			(308		)
Other comprehensive loss, net	—		—			—		—			—		—			—		—			—		—		—			—			(935		)	(935		)
Net loss	—		—			—		—			—		—			—		—			—		—		—			(37,348		)	—			(37,348		)
Balance at December 31, 2012	—		$	—		—		$	—		—		$	—		—		$	—		126,367,700		$	126	$	348,803		$	(105,488	)	$	(36	)	$	243,405



	Balance at Beginning of Year		Additions: Charged Against Revenue	Less: Usage	Balance at End of Year
Year ended December 31, 2014
Service level credit accrual	$	648	481	201	$	928
Year ended December 31, 2013
Service level credit accrual	$	1,196	430	978	$	648



	Year Ended December 31, 2017
	As Reported			As Adjusted
Assets
Accounts receivable, net	$	434,895		$	437,051
Current portion of deferred commissions	118,690			109,643
Prepaid expenses and other current assets	77,681			95,959
Deferred commissions, less current portion	85,530			224,252
Other assets	49,600			51,832
Liabilities
Accrued expenses and other current liabilities	244,605			253,257
Current portion of deferred revenue	1,280,499			1,210,695
Deferred revenue, less current portion	39,884			36,120
Other long-term liabilities	43,239			65,884
Stockholder's equity
Accumulated other comprehensive (loss) income	(889		)	5,767
Accumulated deficit	(1,146,520		)	(958,564		)



ITEM 1.	BUSINESS



ITEM 1A.	RISK FACTORS



	December 31, 2017
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
Available-for-sale securities:
Commercial paper	$	258,348	$	1	$	(5	)	$	258,344
Corporate notes and bonds	1,006,302		26		(3,084		)	1,003,244
Certificates of deposit	33,084		—		—			33,084
U.S. government agency securities	129,494		—		(638		)	128,856
Marketable equity securities	10,000		10,717		—			20,717
Total available-for-sale securities	$	1,437,228	$	10,744	$	(3,727	)	$	1,444,245



	December 31, 2014
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
Available-for-sale securities:
Commercial paper	$	8,195	$	1	$	—		$	8,196
Corporate notes and bonds	554,421		56		(845		)	553,632
Certificates of deposit	27,251		8		(2		)	27,257
U.S. government agency securities	94,093		2		(72		)	94,023
Total available-for-sale securities	$	683,960	$	67	$	(919	)	$	683,108


	December 31, 2013									December 31, 2016
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
Available-for-sale securities:
Commercial paper	$	124,330	$	10	$	(21	)	$	124,319	$	56,839	$	—	$	—		$	56,839
Corporate notes and bonds	399,519		129		(360		)	399,288		628,054		91		(1,590		)	626,555
Certificates of deposit										35,355		—		—			35,355
U.S. government agency securities										42,088		7		(62		)	42,033
Total available-for-sale securities	$	523,849	$	139	$	(381	)	$	523,607	$	762,336	$	98	$	(1,652	)	$	760,782



	December 31, 2014
Due in 1 year or less	$	416,336
Due in 1 year through 2 years	266,772
Total	$	683,108



	December 31, 2017
Due in one year or less	$	1,032,086
Due in one year through two years	391,442
Total	$	1,423,528



	December 31, 2017
	Less than 12 Months					12 Months or Greater					Total
	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
Commercial paper	$	14,809	$	(5	)	$	—	$	—		$	14,809	$	(5	)
Corporate notes and bonds	819,113		(2,703		)	141,874		(381		)	960,987		(3,084		)
U.S. government agency securities	106,301		(593		)	22,555		(45		)	128,856		(638		)
Total	$	940,223	$	(3,301	)	$	164,429	$	(426	)	$	1,104,652	$	(3,727	)


	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Total
Cash and cash equivalents:
Cash	$	201,314	$	—	$	—	$	201,314
Cash equivalents:
Money market funds	46,541		—		—		46,541		$	282,507	$	—	$	282,507
Commercial paper	—		4,600		—		4,600		—		100,456		100,456
Corporate notes and bonds									—		50,437		50,437
Short-term investments:
Commercial paper	—		8,196		—		8,196		—		258,344		258,344
Corporate notes and bonds	—		342,864		—		342,864		—		688,316		688,316
Certificates of deposit	—		25,258		—		25,258		—		17,950		17,950
U.S. government agency securities	—		40,018		—		40,018		—		67,476		67,476
Marketable equity securities									20,717		—		20,717
Long-term investments:
Corporate notes and bonds	—		210,768		—		210,768		—		314,928		314,928
Certificates of deposit	—		1,999		—		1,999		—		15,134		15,134
U.S. government agency securities	—		54,005		—		54,005		—		61,380		61,380
Total	$	247,855	$	687,708	$	—	$	935,563	$	303,224	$	1,574,421	$	1,877,645


	Purchase Price Allocation (in thousands)			Useful Life (in years)	Purchase Price Allocation (in thousands)			Useful Life (in years)
Net tangible assets acquired	$	102			$	675
Intangible assets:
Developed technology	56,200			5.5	15,600			5
Order backlog	600			1.5
Trade names	300			1.5
Goodwill	53,788				19,386
Net deferred tax liabilities⁽¹⁾	(10,527		)		(3,341		)
Total purchase price	$	100,463			$	32,320


(1)	Deferred tax liabilities, net primarily relates to purchased identifiable intangible assets and is shown net of deferred tax assets.



	Purchase Price Allocation (in thousands)			Useful Life (in years)
Net tangible liabilities acquired	$	(595	)
Intangible assets:
Developed technology	5,530			4
Contracts	297			1.5
Non-compete agreements	31			1.5
Goodwill	8,218
Net deferred tax liabilities	(139		)
Total purchase price	$	13,342


	Carrying Amount				Carrying Amount
Balance as of December 31, 2013	$	8,724
Balance as of December 31, 2015				Balance as of December 31, 2015	$	55,669
Goodwill acquired	53,788			Goodwill acquired	26,695
Foreign currency translation adjustments	(7,496		)	Foreign currency translation adjustments	170
Balance as of December 31, 2014	$	55,016
Balance as of December 31, 2016				Balance as of December 31, 2016	82,534
Goodwill acquired				Goodwill acquired	39,668
Foreign currency translation adjustments				Foreign currency translation adjustments	6,526
Balance as of December 31, 2017				Balance as of December 31, 2017	$	128,728



	December 31, 2014
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Developed technology	$	59,895	$	(6,727	)	$	53,168
Backlog	588		(184		)	404
Other acquisition-related intangible assets	597		(398		)	199
Acquisition-related intangible assets	61,080		(7,309		)	53,771
Other intangible assets	1,075		(320		)	755
Total intangible assets	$	62,155	$	(7,629	)	$	54,526



	Convertible Date	Initial Conversion Price per Share		Initial Conversion Rate per $1,000 Par Value	Initial Number of Shares
2022 Notes	February 1, 2022	$	134.75	7.42 shares	5,806,936
2018 Notes	July 1, 2018	$	73.88	13.54 shares	7,783,023



	December 31, 2017			December 31, 2016
Liability component:
Principal:
2022 Notes	$	782,500		$	—
2018 Notes	574,994			575,000
Less: debt issuance cost and debt discount, net of amortization
2022 Notes	(152,482		)	—
2018 Notes	(31,576		)	(67,188		)
Net carrying amount	$	1,173,436		$	507,812



	2022 Notes			2018 Notes
Equity component recorded at issuance:
Note	$	162,039		$	155,319
Issuance cost	(2,148		)	(3,257		)
Net amount recorded in equity	$	159,891		$	152,062


~~(1)~~	~~Included in the consolidated balance sheets within additional paid-in capital.~~



	Proceeds		Shares	Strike Price		First Expiration Date
	(in thousands)
2022 Warrants	$	54,071	5,806,936	$	203.40	September 2022
2018 Warrants	$	84,525	7,783,023	$	107.46	February 2019



				December 31, ~~2014~~2017
Stock ~~option plan:~~	plans:
Options outstanding			~~15,897,422~~3,369,732
RSUs⁽¹⁾			~~9,941,074~~11,403,341
Stock awards available for future grants:
~~2005 Stock Option Plan~~⁽¹⁾		—
2012 Equity Incentive Plan⁽¹⁾⁽²⁾			~~14,444,894~~25,813,848
2012 Employee Stock Purchase Plan⁽¹⁾⁽²⁾			~~6,529,516~~9,581,944
Total reserved shares of common stock for future issuance			~~46,812,906~~50,168,865


(1)	Represents the number of shares issuable upon settlement of outstanding RSUs and performance RSUs, assuming 100% of the target number of shares for performance RSUs, as discussed under the section entitled “RSUs” in Note 12.

(in thousands)

2022 Note Hedge

2018 Note Hedge