UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended June 30, ~~2021~~2022


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

Commission File Number: 001-35580

SERVICENOW, INC.

(Exact name of ~~registrant~~Registrant as specified in its charter)


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

ServiceNow, Inc.

2225 Lawson Lane

Santa Clara, California 95054

(Address, including zip code, of ~~registrant’s~~Registrant’s principal executive offices)

(408) 501-8550

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and formal fiscal year, if changed since last report.)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol

Name of each exchange on which registered

Common stock, par value $0.001 per share

NOW

The New York Stock Exchange

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes ☒ No ☐

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes ☒ No ☐

Table of Contents

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

~~Table of Contents~~


Large Accelerated Filer	☒	Accelerated Filer	☐
Non-Accelerated Filer	☐	Smaller Reporting Company	☐
		Emerging Growth Company	☐

If an emerging growth company, indicate by check mark if the ~~registrant~~Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of June 30, ~~2021,~~2022, there were approximately ~~198.1~~202 million shares of the Registrant’s Common Stock outstanding.

TABLE OF CONTENTS


		Page
	PART I
Item 1.	Financial Statements	1
	Condensed Consolidated Balance Sheets as of June 30, ~~2021~~2022 and December 31, ~~2020~~2021	1
	Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months Ended June 30, ~~2021~~2022 and ~~2020~~2021	2
	Condensed Consolidated Statements of Stockholders’ Equity for the Three and Six Months Ended June 30, ~~2021~~2022 and ~~2020~~2021	3
	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, ~~2021~~2022 and ~~2020~~2021	4
	Notes to Condensed Consolidated Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3432
Item 4.	Controls and Procedures	3432

	PART II
Item 1.	Legal Proceedings	3634
Item 1A.	Risk Factors	3634
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3836
Item 3.	Defaults Upon Senior Securities	3836
Item 4.	Mine Safety Disclosures	3836
Item 5.	Other Information	3836
Item 6.	Exhibits	3937
	Signatures

Table of Contents

PART I

ITEM 1. FINANCIAL STATEMENTS

SERVICENOW, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in millions)

~~(unaudited)~~


		June 30, 2021		December 31, 2020			June 30, 2022		December 31, 2021
Assets	Assets					Assets	(unaudited)
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	1,362	$	1,677	Cash and cash equivalents	$	1,664	$	1,728
Short-term investments	Short-term investments	1,622		1,415		Short-term investments	2,170		1,576
Accounts receivable, net	Accounts receivable, net	781		1,009		Accounts receivable, net	853		1,390
Current portion of deferred commissions	Current portion of deferred commissions	255		229		Current portion of deferred commissions	323		303
Prepaid expenses and other current assets	Prepaid expenses and other current assets	205		192		Prepaid expenses and other current assets	322		223
Total current assets	Total current assets	4,225		4,522		Total current assets	5,332		5,220
Deferred commissions, less current portion	Deferred commissions, less current portion	494		444		Deferred commissions, less current portion	640		623
Long-term investments	Long-term investments	1,350		1,468		Long-term investments	1,608		1,630
Property and equipment, net	Property and equipment, net	732		660		Property and equipment, net	876		766
Operating lease right-of-use assets	Operating lease right-of-use assets	466		454		Operating lease right-of-use assets	604		591
Intangible assets, net	Intangible assets, net	310		153		Intangible assets, net	257		287
Goodwill	Goodwill	793		241		Goodwill	803		777
Deferred tax assets	Deferred tax assets	665		673		Deferred tax assets	642		692
Other assets	Other assets	152		100		Other assets	340		212
Total assets	Total assets	$	9,187	$	8,715	Total assets	$	11,102	$	10,798
Liabilities and Stockholders’ Equity	Liabilities and Stockholders’ Equity					Liabilities and Stockholders’ Equity
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable	Accounts payable	$	98	$	34	Accounts payable	$	265	$	89
Accrued expenses and other current liabilities	Accrued expenses and other current liabilities	608		668		Accrued expenses and other current liabilities	705		850
Current portion of deferred revenue	Current portion of deferred revenue	3,023		2,963		Current portion of deferred revenue	3,686		3,836
Current portion of operating lease liabilities	Current portion of operating lease liabilities	80		72		Current portion of operating lease liabilities	87		82
Current debt, net	Current debt, net	99		0		Current debt, net	—		92
Total current liabilities	Total current liabilities	3,908		3,737		Total current liabilities	4,743		4,949
Deferred revenue, less current portion	Deferred revenue, less current portion	49		45		Deferred revenue, less current portion	58		63
Operating lease liabilities, less current portion	Operating lease liabilities, less current portion	427		423		Operating lease liabilities, less current portion	572		556
Long-term debt, net	Long-term debt, net	1,483		1,640		Long-term debt, net	1,485		1,484
Other long-term liabilities	Other long-term liabilities	45		36		Other long-term liabilities	50		51
Total liabilities	Total liabilities	5,912		5,881		Total liabilities	6,908		7,103
Commitments and contingencies	Commitments and contingencies	0		0		Commitments and contingencies	0		0
Stockholders’ equity:	Stockholders’ equity:					Stockholders’ equity:
Common stock	Common stock	0		0		Common stock	—		—
Additional paid-in capital	Additional paid-in capital	3,298		2,974		Additional paid-in capital	4,186		3,665
Accumulated other comprehensive income		70		94
Accumulated deficit		(93)		(234)
Accumulated other comprehensive income (loss)						Accumulated other comprehensive income (loss)	(100)		34
Retained earnings (accumulated deficit)						Retained earnings (accumulated deficit)	108		(4)
Total stockholders’ equity	Total stockholders’ equity	3,275		2,834		Total stockholders’ equity	4,194		3,695
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	9,187	$	8,715	Total liabilities and stockholders’ equity	$	11,102	$	10,798

See accompanying notes to condensed consolidated financial statements

Table of Contents

SERVICENOW, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in millions, except number of shares which are reflected in thousands and per share data)

(unaudited)


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended June 30,				Six Months Ended June 30,
		2021		2020		2021		2020			2022		2021		2022		2021
Revenues:	Revenues:									Revenues:
Subscription	Subscription	$	1,330	$	1,015	$	2,623	$	2,010	Subscription	$	1,658	$	1,330	$	3,289	$	2,623
Professional services and other	Professional services and other	79		56		146		107		Professional services and other	94		79		185		146
Total revenues	Total revenues	1,409		1,071		2,769		2,117		Total revenues	1,752		1,409		3,474		2,769
Cost of revenues(1):	Cost of revenues(1):									Cost of revenues(1):
Subscription	Subscription	248		172		476		332		Subscription	287		248		562		476
Professional services and other	Professional services and other	81		61		152		124		Professional services and other	102		81		196		152
Total cost of revenues	Total cost of revenues	329		233		628		456		Total cost of revenues	389		329		758		628
Gross profit	Gross profit	1,080		838		2,141		1,661		Gross profit	1,363		1,080		2,716		2,141
Operating expenses(1):	Operating expenses(1):									Operating expenses(1):
Sales and marketing	Sales and marketing	557		426		1,081		867		Sales and marketing	722		557		1,395		1,081
Research and development	Research and development	333		245		647		472		Research and development	444		333		858		647
General and administrative	General and administrative	139		104		265		210		General and administrative	175		139		354		265

Total operating expenses	Total operating expenses	1,029		775		1,993		1,549		Total operating expenses	1,341		1,029		2,607		1,993
Income from operations	Income from operations	51		63		148		112		Income from operations	22		51		109		148
Interest expense	Interest expense	(7)		(8)		(14)		(17)		Interest expense	(6)		(7)		(12)		(14)
Other income, net	Other income, net	6		7		15		15		Other income, net	13		6		17		15
Income before income taxes	Income before income taxes	50		62		149		110		Income before income taxes	29		50		114		149
Provision for (benefit from) income taxes	Provision for (benefit from) income taxes	(9)		21		8		21		Provision for (benefit from) income taxes	9		(9)		19		8
Net income	Net income	$	59	$	41	$	141	$	89	Net income	$	20	$	59	$	95	$	141

Net income per share - basic	Net income per share - basic	$	0.30	$	0.21	$	0.71	$	0.47	Net income per share - basic	$	0.10	$	0.30	$	0.47	$	0.71
Net income per share - diluted	Net income per share - diluted	$	0.29	$	0.20	$	0.70	$	0.44	Net income per share - diluted	$	0.10	$	0.29	$	0.47	$	0.70

Weighted-average shares used to compute net income per share - basic	Weighted-average shares used to compute net income per share - basic	197,815		191,319		197,216		190,731		Weighted-average shares used to compute net income per share - basic	200,955		197,815		200,517		197,216
Weighted-average shares used to compute net income per share - diluted	Weighted-average shares used to compute net income per share - diluted	202,273		201,453		202,348		200,843		Weighted-average shares used to compute net income per share - diluted	203,018		202,274		203,228		202,348
Other comprehensive income:
Other comprehensive income (loss):										Other comprehensive income (loss):
Foreign currency translation adjustments	Foreign currency translation adjustments	$	14	$	18	$	(17)	$	(2)	Foreign currency translation adjustments	$	(62)	$	14	$	(74)	$	(17)
Unrealized gain (loss) on investments, net of tax	Unrealized gain (loss) on investments, net of tax	0		27		(7)		7		Unrealized gain (loss) on investments, net of tax	(22)		—		(60)		(7)
Other comprehensive income (loss)	Other comprehensive income (loss)	14		45		(24)		5		Other comprehensive income (loss)	(84)		14		(134)		(24)
Comprehensive income		$	73	$	86	$	117	$	94
Comprehensive income (loss)										Comprehensive income (loss)	$	(64)	$	73	$	(39)	$	117

(1)Includes stock-based compensation as follows:


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended June 30,				Six Months Ended June 30,
		2021		2020		2021		2020			2022		2021		2022		2021
Cost of revenues:	Cost of revenues:									Cost of revenues:
Subscription	Subscription	$	33	$	25	$	62	$	46	Subscription	$	39	$	33	$	75	$	62
Professional services and other	Professional services and other	15		13		28		25		Professional services and other	$	18	$	15	34		28
Operating expenses:	Operating expenses:									Operating expenses:
Sales and marketing	Sales and marketing	99		79		192		149		Sales and marketing	$	113	$	99	218		192
Research and development	Research and development	98		70		186		129		Research and development	$	126	$	98	241		186
General and administrative	General and administrative	37		30		70		56		General and administrative	$	56	$	37	109		70

See accompanying notes to condensed consolidated financial statements

Table of Contents

SERVICENOW, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

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

(unaudited)


		Three Months Ended June 30, 2021											Three Months Ended June 30, 2020															Three Months Ended June 30, 2022																	Three Months Ended June 30, 2021
		Common Stock			Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Income		Total Stockholders’ Equity		Common Stock			Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Income				Total Stockholders’ Equity				Common Stock					Additional Paid-in Capital			Retained Earnings (Accumulated Deficit)			Accumulated Other Comprehensive Income (Loss)			Total Stockholders’ Equity			Common Stock					Additional Paid-in Capital			Retained Earnings (Accumulated Deficit)			Accumulated Other Comprehensive Income (Loss)		Total Stockholders’ Equity
		Shares	Amount										Shares	Amount														Shares		Amount															Shares		Amount
Balance at beginning of the period	Balance at beginning of the period	197,447	$	0	$	3,133	$	(152)	$	56	$	3,037	190,700	$	0	$	2,585	$	(304)	$	(15)			$	2,266	Balance at beginning of the period		200,457		$	—		$	3,925		$	88		$	(16)		$	3,997		197,447		$	—		$	3,133		$	(152)		$	56	$	3,037

Common stock issued under employee stock plans	Common stock issued under employee stock plans	688	—		1		—		—		1		1,101	—		24		—		—				24		Common stock issued under employee stock plans		554		—			1			—			—			1			688		—			1			—			—		1
Taxes paid related to net share settlement of equity awards	Taxes paid related to net share settlement of equity awards	—	—		(124)		—		—		(124)		—	—		(113)		—		—				(113)		Taxes paid related to net share settlement of equity awards		—		—			(91)			—			—			(91)			—		—			(124)			—			—		(124)
Stock-based compensation	Stock-based compensation	—	—		282		—		—		282		—	—		217		—		—				217		Stock-based compensation		—		—			351			—			—			351			—		—			282			—			—		282

Shares granted related to business combination	Shares granted related to business combination	—	—		6		—		—		6		—	—		—		—		—				—		Shares granted related to business combination		—		—			—			—			—			—			—		—			6			—			—		6
Settlement of 2022 Warrants																						Settlement of 2022 Warrants	603				—		—			—			—			—			—			—		—			—			—			—
Settlement of 2022 Notes conversion feature	Settlement of 2022 Notes conversion feature	—	—		(89)		—		—		(89)		—	—		(19)		—		—				(19)		Settlement of 2022 Notes conversion feature		—		—			(212)			—			—			(212)			—		—			(89)			—			—		(89)
Benefit from exercise of 2022 Note Hedge	Benefit from exercise of 2022 Note Hedge	—	—		89		—		—		89		—	—		18		—		—				18		Benefit from exercise of 2022 Note Hedge		—		—			212			—			—			212			—		—			89			—			—		89
Other comprehensive income, net of tax		—	—		—		—		14		14		—	—		—		—		45				45
Other comprehensive income (loss), net of tax																						Other comprehensive income (loss), net of tax	—				—		—			—			(84)			(84)			—			—		—			—			14			14
Net income	Net income		—				59				59		—	—		—		41		—				41		Net income		—		—			—			20			—			20			—		—			—			59			—		59
Balance at end of the period	Balance at end of the period	198,135	$	0	$	3,298	$	(93)	$	70	$	3,275	191,801	$	0	$	2,712	$	(263)	$	30			$	2,479	Balance at end of the period		201,614		$	—		$	4,186		$	108		$	(100)		$	4,194		198,135		$	—		$	3,298		$	(93)		$	70	$	3,275

Six Months Ended June 30, 2021 Six Months Ended June 30, 2020
Common Stock Additional
Paid-in
Capital Accumulated
Deficit Accumulated
Other
Comprehensive Income Total
Stockholders’
Equity Common Stock Additional
Paid-in
Capital Accumulated
Deficit Accumulated
Other
Comprehensive Income Total
Stockholders’
Equity
Shares Amount Shares Amount
Balance at beginning of the period 195,845 $ 0 $ 2,974 $ (234) $ 94 $ 2,834 $ 189,461 $ 0 $ 2,455 $ (352) $ 25 $ 2,128
Common stock issued under employee stock plans 1,754 — 95 — — 95 2,340 — 91 — — 91
Taxes paid related to net share settlement of equity awards — — (315) — — (315) — — (239) — — (239)
Stock-based compensation — 538 — — 538 — — 406 — — 406
Shares granted related to business combination — — 6 — — 6 — — — — — —
Settlement of 2022 Warrants 536 — — — — 0 — — — — — —
Settlement of 2022 Notes conversion feature — — (191) — — (191) — — (23) — — (23)
Benefit from exercise of 2022 Note Hedge — — 191 — — 191 — — 22 — — 22
Other comprehensive income (loss), net of tax — — — — (24) (24) — — — — 5 5
Net income — — — 141 — 141 — — — 89 — 89
Balance at end of the period 198,135 $ 0 $ 3,298 $ (93) $ 70 $ 3,275 $ 191,801 $ 0 $ 2,712 $ (263) $ 30 $ 2,479


	Six Months Ended June 30, 2022											Six Months Ended June 30, 2021
	Common Stock			Additional Paid-in Capital		Retained Earnings (Accumulated Deficit)		Accumulated Other Comprehensive Income (Loss)		Total Stockholders’ Equity		Common Stock			Additional Paid-in Capital		Retained Earnings (Accumulated Deficit)		Accumulated Other Comprehensive Income (Loss)		Total Stockholders’ Equity
	Shares	Amount										Shares	Amount
Balance at beginning of the period	199,608	$	—	$	3,665	$	(4)	$	34	$	3,695	195,845	$	—	$	2,974	$	(234)	$	94	$	2,834
Cumulative-effect adjustment from adoption of Accounting Standards Update (ASU) 2020-06	—	—		(19)		17		—		(2)		—	—		—		—		—		—
Common stock issued under employee stock plans	1,403	—		106		—		—		106		1,754	—		95		—		—		95
Taxes paid related to net share settlement of equity awards	—	—		(241)		—		—		(241)		—	—		(315)		—		—		(315)
Stock-based compensation	—	—		675		—		—		675		—	—		538		—		—		538
Shares granted related to business combination	—	—		—		—		—		—		—	—		6		—		—		6
Settlement of 2022 Warrants	603	—		—		—		—		—		536	—		—		—		—		—
Settlement of 2022 Notes conversion feature	—	—		(233)		—		—		(233)		—	—		(191)		—		—		(191)
Benefit from exercise of 2022 Note Hedge	—	—		233		—		—		233		—	—		191		—		—		191
Other comprehensive income (loss), net of tax	—	—		—		—		(134)		(134)		—	—		—		—		(24)		(24)
Net income	—	—		—		95		—		95		—	—		—		141		—		141
Balance at end of the period	201,614	$	—	$	4,186	$	108	$	(100)	$	4,194	198,135	$	—	$	3,298	$	(93)	$	70	$	3,275

See accompanying notes to condensed consolidated financial statements

Table of Contents

SERVICENOW, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)

(unaudited)


		Six Months Ended June 30,					Six Months Ended June 30,
		2021		2020			2022		2021
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net income	Net income	$	141	$	89	Net income	$	95	$	141
Adjustments to reconcile net income to net cash provided by operating activities:	Adjustments to reconcile net income to net cash provided by operating activities:					Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	Depreciation and amortization	221		159		Depreciation and amortization	206		221

Amortization of deferred commissions	Amortization of deferred commissions	136		101		Amortization of deferred commissions	169		136

Stock-based compensation	Stock-based compensation	537		405		Stock-based compensation	677		537
Deferred income taxes	Deferred income taxes	(16)		(3)		Deferred income taxes	(3)		(16)

Repayments of convertible senior notes attributable to debt discount	Repayments of convertible senior notes attributable to debt discount	(13)		(2)		Repayments of convertible senior notes attributable to debt discount	—		(13)

Other	Other	22		16		Other	19		22
Changes in operating assets and liabilities, net of effect of business combinations:	Changes in operating assets and liabilities, net of effect of business combinations:					Changes in operating assets and liabilities, net of effect of business combinations:
Accounts receivable	Accounts receivable	224		200		Accounts receivable	511		224
Deferred commissions	Deferred commissions	(217)		(144)		Deferred commissions	(237)		(217)
Prepaid expenses and other assets	Prepaid expenses and other assets	(57)		(32)		Prepaid expenses and other assets	(72)		(57)
Accounts payable	Accounts payable	75		38		Accounts payable	140		75
Deferred revenue	Deferred revenue	85		69		Deferred revenue	(44)		85
Accrued expenses and other liabilities	Accrued expenses and other liabilities	(111)		(36)		Accrued expenses and other liabilities	(165)		(111)
Net cash provided by operating activities	Net cash provided by operating activities	1,027		860		Net cash provided by operating activities	$	1,296	$	1,027
Cash flows from investing activities:	Cash flows from investing activities:					Cash flows from investing activities:
Purchases of property and equipment	Purchases of property and equipment	(198)		(194)		Purchases of property and equipment	(244)		(198)
Business combinations, net of cash acquired	Business combinations, net of cash acquired	(738)		(83)		Business combinations, net of cash acquired	(57)		(738)

Purchases of investments	Purchases of investments	(1,139)		(1,108)		Purchases of investments	(1,774)		(1,132)

Purchases of non-marketable investments						Purchases of non-marketable investments	(136)		(7)

Sales and maturities of investments	Sales and maturities of investments	1,023		766		Sales and maturities of investments	1,131		1,023

Other		1		(9)
Others						Others	—		1
Net cash used in investing activities	Net cash used in investing activities	(1,051)		(628)		Net cash used in investing activities	$	(1,080)	$	(1,051)
Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:

Repayments of convertible senior notes attributable to principal	Repayments of convertible senior notes attributable to principal	(53)		(16)		Repayments of convertible senior notes attributable to principal	(94)		(53)

Proceeds from employee stock plans	Proceeds from employee stock plans	95		91		Proceeds from employee stock plans	106		95
Taxes paid related to net share settlement of equity awards	Taxes paid related to net share settlement of equity awards	(315)		(239)		Taxes paid related to net share settlement of equity awards	(241)		(315)

Net cash used in financing activities	Net cash used in financing activities	(273)		(164)		Net cash used in financing activities	$	(229)	$	(273)
Foreign currency effect on cash, cash equivalents and restricted cash	Foreign currency effect on cash, cash equivalents and restricted cash	(11)		(5)		Foreign currency effect on cash, cash equivalents and restricted cash	(49)		(11)
Net change in cash, cash equivalents and restricted cash	Net change in cash, cash equivalents and restricted cash	(308)		63		Net change in cash, cash equivalents and restricted cash	(62)		(308)
Cash, cash equivalents and restricted cash at beginning of period	Cash, cash equivalents and restricted cash at beginning of period	1,679		778		Cash, cash equivalents and restricted cash at beginning of period	1,732		1,679
Cash, cash equivalents and restricted cash at end of period	Cash, cash equivalents and restricted cash at end of period	$	1,371	$	841	Cash, cash equivalents and restricted cash at end of period	$	1,670	$	1,371
Cash, cash equivalents and restricted cash at end of period:	Cash, cash equivalents and restricted cash at end of period:					Cash, cash equivalents and restricted cash at end of period:
Cash and cash equivalents	Cash and cash equivalents	$	1,362	$	837	Cash and cash equivalents	$	1,664	$	1,362
Restricted cash included in prepaid expenses and other current assets	Restricted cash included in prepaid expenses and other current assets	9		4		Restricted cash included in prepaid expenses and other current assets	6		9

Total cash, cash equivalents and restricted cash shown in the condensed consolidated statements of cash flows	Total cash, cash equivalents and restricted cash shown in the condensed consolidated statements of cash flows	$	1,371	$	841	Total cash, cash equivalents and restricted cash shown in the condensed consolidated statements of cash flows	$	1,670	$	1,371
Supplemental disclosures of other cash flow information:	Supplemental disclosures of other cash flow information:					Supplemental disclosures of other cash flow information:
Interest paid	Interest paid	$	15	$	0	Interest paid	$	11	$	15
Income taxes paid, net of refunds	Income taxes paid, net of refunds	20		10		Income taxes paid, net of refunds	$	21	$	20
Non-cash investing and financing activities:	Non-cash investing and financing activities:					Non-cash investing and financing activities:
Settlement of 2022 Notes conversion feature	Settlement of 2022 Notes conversion feature	$	191	$	23	Settlement of 2022 Notes conversion feature	$	233	$	191

Benefit from exercise of 2022 Note Hedge	Benefit from exercise of 2022 Note Hedge	191		22		Benefit from exercise of 2022 Note Hedge	$	233	$	191
Property and equipment included in accounts payable and accrued expenses		49		95
Property and equipment included in accounts payable, accrued expenses and other liabilities						Property and equipment included in accounts payable, accrued expenses and other liabilities	$	59	$	49

See accompanying notes to condensed consolidated financial statements

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SERVICENOW, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

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

(1) Description of the Business

~~ServiceNow’s purpose is~~ServiceNow was founded on a simple premise: a better technology platform will help work flow better. We help global enterprises across industries, universities and governments to ~~make~~digitize their workflows. We categorize the ~~world~~workflows we provide into four primary areas: Technology (formerly known as Information Technology), Employee, Customer and Creator. The products under each of our workflows help customers connect work ~~work better~~across systems and silos to enable great experiences for people. ~~We believe that people want the~~The Now Platform is uniquely positioned to enable our customers’ digital transformation from non-integrated enterprise technology ~~they use in their work to be more efficient~~solutions with manual and ~~easier to use. We build applications to meet that demand by automating existing~~disconnected processes and ~~creating efficient, digitized workflows~~activities, to integrated enterprise technology solutions with ~~a consumer grade user experience. Our products~~automation and ~~services enable the steps of a job~~connected processes and activities which increases our customers’ resiliency and security and delivers additional value to ~~flow naturally across disparate departments, systems~~their employees and processes of a business. ServiceNow delivers digital workflows on a single enterprise cloud platform called the Now Platform®. Our product portfolio is currently focused on providing Information Technology (“IT”), Employee and Customer workflows in standardized product offerings. We also enable our customers to design and build their own custom workflow applications using our Creator workflows, formerly called the Now Platform App Engine, and to integrate those applications with third party systems through our Integration Hub.

consumers.

(2) Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements and condensed footnotes have been prepared in accordance with the applicable rules and regulations of the Securities and Exchange Commission (the “SEC”) regarding interim financial reporting. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles (“GAAP”) for complete financial statements due to the permitted exclusion of certain disclosures for interim reporting. In the opinion of management, all adjustments (consisting of normal recurring items) considered necessary under GAAP for fair statement of results for the interim periods presented have been included. As a result of displaying amounts in millions, rounding differences may exist in the consolidated financial statements and footnote tables. The results of operations for the three and six months ended June 30, ~~2021~~2022 are not necessarily indicative of the results to be expected for the year ending December 31, ~~2021~~2022 or for other interim periods or future years. The condensed consolidated balance sheet as of December 31, ~~2020~~2021 is derived from audited consolidated financial statements; however, it does not include all of the information and footnotes required by GAAP for complete financial statements. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, ~~2020,~~2021, which was filed with the SEC on February ~~12, 2021.~~3, 2022.

Principles of Consolidation

The accompanying condensed consolidated financial statements have been prepared in conformity with GAAP, and include our accounts and the accounts of our wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated upon consolidation.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make certain estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, as well as reported amounts of revenues and expenses during the reporting period. Such management estimates and assumptions include, but are not limited to, standalone selling price for each distinct performance obligation included in customer contracts with multiple performance obligations, the period of benefit for deferred commissions, valuation of intangible assets, the useful life of property and equipment and identifiable intangible assets, stock-based compensation expense and income taxes. Actual results could differ from those estimates. We assessed the impact of COVID-19 on the estimates and assumptions and determined there was no material impact.

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In January 2022, we completed an assessment of the useful life of our data center equipment and determined we should increase the estimated useful life of data center equipment from three years to four years. This change in accounting estimate was effective beginning fiscal year 2022. Based on the carrying amount of data center equipment included in property and equipment, net as of December 31, 2021, the effect of this change in estimate for the three and six months ended June 30, 2022, was a reduction in depreciation expense of $19 million and $40 million, respectively, and an increase in net income of $16 million and $36 million, or $0.07 and $0.17 per share basic and $0.08 and $0.18 per share diluted, respectively.

Significant Accounting Policies

There were no significant changes to our significant accounting policies disclosed in “Note 2 – Summary of Significant Accounting Policies” of our Annual Report on Form 10-K for the year ended December 31, ~~2020,~~2021, which was filed with the SEC on February ~~12, 2021.~~3, 2022, other than the change in useful life of our data center equipment, discussed above.

Concentration of Credit Risk and Significant Customers

Credit risk arising from accounts receivable is mitigated to a certain extent due to our large number of customers and their dispersion across various industries and geographies. As of June 30, ~~2021,~~2022, we had one customer, a channel partner, that represented ~~14%~~more than 10% of our accounts receivable ~~and~~balance. As of December 31, 2021, there were no customers that represented more than 10% of our accounts receivable balance. Further, there were no customers that individually exceeded 10% of our total revenues in any of the periods presented. AsOur customers in Russia represented an immaterial portion of ~~December 31, 2020, there were no customers that represented more than 10% of~~our total consolidated revenues and our accounts receivable ~~balance.~~balance in each 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.

Recently Adopted Accounting ~~Pronouncement Adopted in 2021~~Pronouncements

~~Income taxes~~Debt with Conversion Options

In ~~December 2019,~~August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update ~~2019-12, “Income Taxes~~ (“~~Topic 740”~~ASU”): Simplifying the Accounting for Income Taxes,” which simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and amending existing guidance to improve consistent application. Most amendments within this standard are required to be applied on a prospective basis, while certain amendments must be applied on a retrospective or modified retrospective basis. We adopted this standard on a prospective basis as of January 1, 2021. The adoption of this standard did not result in any material impact on our condensed consolidated financial statements upon adoption.

~~Recently Issued Accounting Pronouncement Pending Adoption~~

2020-06, “Debt–Debt with Conversion and Other Options

~~In August 2020, the FASB issued new guidance~~ (Subtopic 470-20) and Derivatives and Hedging–Contracts in Entity’s Own Equity (Subtopic 815-40)” to simplify the accounting for ~~certain financial instruments with characteristics of liabilities and equity, including~~ convertible instruments and contracts on an entity’s own equity. The standard ~~eliminates beneficial conversion feature and cash conversion models resulting~~results in ~~more convertible instruments~~our 2022 Notes being accounted for as a single ~~unit; and simplifies classification~~unit of debt onand requires the ~~balance sheet and~~if-converted method to calculate diluted earnings per share calculation. ~~This~~We adopted this standard effective January 1, 2022 using a modified retrospective method, under which the basis of all convertible instruments outstanding at adoption have been adjusted to the amounts that would have been recorded had the new guidance been applied from inception. The previously recorded equity component of the convertible instrument outstanding and amortization of the debt discount and issuance costs classified as equity are reclassified from equity to debt through an adjustment to the opening balance of accumulated deficit as of January 1, 2022 which will result in reduced interest expense in future periods. Adoption of the standard resulted in a decrease to accumulated deficit of $17 million, decrease to additional paid-in capital of $19 million and an increase to debt, current of $2 million.

Further, we utilized the if-converted method for purposes of diluted net income per share. The impact of the change in methodology to determine diluted net income per share of common stock attributable to common stockholders is immaterial.

Acquired Contract Assets and Contract Liabilities

In October 2021, the FASB issued ASU 2021-08, “Business Combinations (Topic 805): Accounting for Acquired Contract Assets and Contract Liabilities,” which requires contract assets and contract liabilities acquired in a business combination to be recognized and measured in accordance with Topic 606, Revenue from Contracts with Customers, as if the acquirer had originated the contracts. The new standard is effective for ~~our~~ interim and annual periods beginning ~~January 1, 2022 and earlier~~after December 15, 2022. Early adoption is ~~permitted. Amendments within~~permitted, including in an interim period, for any period for which financial statements have not yet been issued. However, adoption in an interim period other than the first fiscal quarter requires an entity to apply the new guidance to all prior business combinations that have occurred since the beginning of the annual period in which the new guidance is adopted. We elected to early adopt this standard ~~are required~~in the second quarter beginning April 1, 2022. The adoption had no impact to ~~be applied on a retrospective or modified retrospective basis. We are currently evaluating the impact of the adoption of this standard on~~ our condensed consolidated financial ~~statements.~~statements during the three and six months ended June 30, 2022.

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(3) Investments

Marketable Debt Securities

The following is a summary of our available-for-sale debt securities recorded within short-term and long-term investments on the condensed consolidated balance sheets (in millions):


		June 30, 2021									June 30, 2022
		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:	Available-for-sale securities:									Available-for-sale securities:
Commercial paper	Commercial paper	$	430	$	0	$	0	$	430	Commercial paper	$	576	$	—	$	(2)	$	574
Corporate notes and bonds	Corporate notes and bonds	2,324		5		(1)		2,328		Corporate notes and bonds	2,969		—		(51)		2,918
Certificates of deposit	Certificates of deposit	61		0		0		61		Certificates of deposit	132		—		—		132
U.S. government and agency securities	U.S. government and agency securities	107		0		0		107		U.S. government and agency securities	68		—		(1)		67
Mortgage and asset backed securities		47		0		(1)		46
Mortgage-backed and asset-backed securities										Mortgage-backed and asset-backed securities	100		—		(13)		87

Total available-for-sale securities	Total available-for-sale securities	$	2,969	$	5	$	(2)	$	2,972	Total available-for-sale securities	$	3,845	$	—	$	(67)	$	3,778


		December 31, 2020									December 31, 2021
		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:	Available-for-sale securities:									Available-for-sale securities:
Commercial paper	Commercial paper	$	406	$	0	$	0	$	406	Commercial paper	$	528	$	—	$	—	$	528
Corporate notes and bonds	Corporate notes and bonds	2,298		10		0		2,308		Corporate notes and bonds	2,418		1		(7)		2,412
Certificates of deposit	Certificates of deposit	23		0		0		23		Certificates of deposit	28		—		—		28
U.S. government and agency securities	U.S. government and agency securities	145		1		0		146		U.S. government and agency securities	140		—		—		140
Mortgage-backed and asset-backed securities										Mortgage-backed and asset-backed securities	100		—		(2)		98

Total available-for-sale securities	Total available-for-sale securities	$	2,872	$	11	$	0	$	2,883	Total available-for-sale securities	$	3,214	$	1	$	(9)	$	3,206

As of June 30, ~~2021,~~2022, the contractual maturities of our available-for-sale debt securities, excluding those securities classified within cash and cash equivalents on the condensed consolidated balance sheet and ~~mortgage~~mortgage-backed and ~~asset backed~~asset-backed securities that do not have a single maturity, did not exceed 36 months. The fair values of available-for-sale securities, by remaining contractual maturity, are as follows (in millions):


	June 30, ~~2021~~2022
Due within 1 year	$	~~1,622~~2,170
Due in 1 year through 5 years	~~1,304~~1,521
Instruments not due in single maturity	4687
Total	$	~~2,972~~3,778

As of June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, the ~~gross unrealized losses that have~~fair value of available-for-sale securities in a continuous loss position totaled $3,640 million and $2,416 million, the majority of which has been in a continuous unrealized loss position ~~related to $875 million and $637 million available-for-sale debt securities, respectively, were not material.~~for less than 12 months.

The decline in fair value below amortized cost basis was not considered other than temporary as it is more likely than not we will hold the securities until maturity or a recovery of the cost basis, and credit-related impairment losses were not deemed material as of June 30, ~~2021.~~2022.

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~~Strategic~~Non-Marketable Equity Investments

As of June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, the total amount of non-marketable equity investments in privately-held companies included in other assets on our condensed consolidated balance sheets was ~~$44~~$231 million and ~~$28~~$99 million, respectively. Our non-marketable equity investments are accounted for using the measurement alternative which measures the investments at cost minus impairment, if any, plus or minus changes resulting from qualifying observable price changes resulting from the issuance of similar or identical securities in an orderly transaction by the same issuer. Determining whether an observed transaction is similar to a security within our portfolio requires judgment based on the rights and preferences of the securities. Recording upward and downward adjustments to the carrying value of our equity securities as a result of observable price changes requires quantitative assessments of the fair value of our securities using various valuation methodologies and involves the use of estimates. We classify these ~~assets~~fair value measurements as Level 3 within the fair value ~~hierarchy as only an impairment or observable adjustment is recognized based on observable~~hierarchy.

On December 31, 2021, we agreed to purchase $100 million of common and preferred shares of Celonis SE (“Celonis”), a privately held company that develops and sells process mining software, in exchange for cash. The transaction ~~price at the transaction date of identical or similar investment of the same issuer and other unobservable inputs such as volatility.~~was completed in March 2022.

(4) Fair Value Measurements

The following table presents our fair value hierarchy for our assets measured at fair value on a recurring basis as of June 30, ~~2021~~2022 (in millions):


		Level 1		Level 2		Total			Level 1		Level 2		Total
Cash equivalents:	Cash equivalents:							Cash equivalents:
Money market funds	Money market funds	$	561	$	0	$	561	Money market funds	$	727	$	—	$	727
Commercial paper	Commercial paper	0		48		48		Commercial paper	—		228		228
Corporate notes and bonds								Corporate notes and bonds	—		15		15
Certificates of deposit								Certificates of deposit	—		—		—
Deposits								Deposits	236		—		236

Deposits		140		0		140
U.S. government and agency securities		0		53		53
Marketable securities:	Marketable securities:							Marketable securities:
Commercial paper	Commercial paper	0		430		430		Commercial paper	—		574		574
Corporate notes and bonds	Corporate notes and bonds	0		2,328		2,328		Corporate notes and bonds	—		2,918		2,918
Certificates of deposit	Certificates of deposit	0		61		61		Certificates of deposit	—		132		132
Mortgage-backed and asset-backed securities								Mortgage-backed and asset-backed securities	—		87		87
U.S. government and agency securities	U.S. government and agency securities	0		107		107		U.S. government and agency securities	—		67		67
Mortgage and asset backed securities		0		46		46

Total	Total	$	701	$	3,073	$	3,774	Total	$	963	$	4,021	$	4,984

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The following table presents our fair value hierarchy for our assets measured at fair value on a recurring basis as of December 31, ~~2020~~2021 (in millions):


		Level 1		Level 2		Total			Level 1		Level 2		Total
Cash equivalents:	Cash equivalents:							Cash equivalents:
Money market funds	Money market funds	$	1,305	$	0	$	1,305	Money market funds	$	706	$	—	$	706
Commercial paper								Commercial paper	—		110		110
Corporate notes and bonds								Corporate notes and bonds	—		28		28
Certificates of deposit								Certificates of deposit	—		8		8
Deposits								Deposits	235		—		235

U.S. government and agency securities		0		2		2
Marketable securities:	Marketable securities:							Marketable securities:
Commercial paper	Commercial paper	0		406		406		Commercial paper	—		528		528
Corporate notes and bonds	Corporate notes and bonds	0		2,308		2,308		Corporate notes and bonds	—		2,412		2,412
Certificates of deposit	Certificates of deposit	0		23		23		Certificates of deposit	—		28		28
Mortgage-backed and asset-backed securities								Mortgage-backed and asset-backed securities	—		98		98
U.S. government and agency securities	U.S. government and agency securities	0		146		146		U.S. government and agency securities	—		140		140

Total	Total	$	1,305	$	2,885	$	4,190	Total	$	941	$	3,352	$	4,293

We determine the fair value of our security holdings based on pricing from our service providers and market prices from industry-standard independent data providers. Such market prices may be quoted prices in active markets for identical assets (Level 1 inputs) or pricing determined using inputs other than quoted prices that are observable either directly or indirectly (Level 2 inputs)~~, such as yield curve, volatility factors, credit spreads, default rates, loss severity, current~~ or using unobservable inputs which are supported by little or no market ~~and contractual prices for the underlying instruments or debt, broker and dealer quotes, as well as other relevant economic measures.~~

activity (Level 3 inputs). Our non-marketable equity investments ~~in privately-held companies~~ are not included in the table above and are discussed in Note 3. See Note 8 for the fair value measurement of our derivative contracts and Note 10 for the fair value measurement of our long-term debt, which are also not included in the table above.

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(5) Business Combinations

On January 8, 2021, we acquired all outstanding stock of Element AI Inc., a leading enterprise artificial intelligence (“AI”) solution provider for $228 million in an all-cash transaction. The purchase price was preliminarily allocated based on the estimated fair value of developed technology intangible asset of $85 million (~~five~~-year estimated useful life), net tangible assets of $16 million and goodwill of $126 million, which is partially deductible for income tax purposes. We established an unrecognized tax benefit of $43 million on pre-acquisition net operating loss carryforwards and other tax attributes. Goodwill is primarily attributed to the assembled workforce and expanded market opportunities.

On June 15, ~~2021,~~2022, we acquired ~~LightStep~~Hitch Works, Inc., a ~~leading observability solution provider~~skills mapping and intelligence company, to help our customers address talent gaps by connecting employee learning and development to workforce planning, for ~~$512~~$57 million in a cash transaction. The purchase price was preliminarily allocated based on the estimated fair value of developed technology intangible asset of ~~$85~~$14 million (~~five-year~~(five-year estimated useful life), ~~customer related and brand assets of $11 million, net tangible assets of $8 million,~~ deferred tax liabilities of $6$2 million and goodwill of ~~$413~~$45 million, which is not deductible for income tax purposes.

Goodwill is primarily attributed to the ~~assembled workforce and expanded market opportunities.~~

value expected from synergies resulting from the Hitch Works, Inc. acquisition. The fair values assigned to tangible and intangible assets acquired and liabilities assumed are based on management’s estimates and assumptions and may be subject to change as additional information is received. The provisional measurements of fair value for income taxes payable and deferred taxes may be subject to change as additional information is received and certain tax returns are finalized. The Company expects to finalize the ~~valuation~~fair value measurements as soon as practicable, but not later than one year from the acquisition date.

On ~~April 16,~~June 15, 2021, we ~~also~~ acquired ~~all outstanding stock of Uber Techlabs Private Limited, d/b/~~LightStep, Inc., a ~~Intellibot, a robotic process automation~~leading observability solution provider, for $512 million in ~~an all-cash~~a cash transaction. The purchase price was allocated based on the estimated fair value of developed technology intangible asset of $85 million (five-year estimated useful life), customer-related and brand assets of $11 million, net tangible assets of $8 million, deferred tax liabilities of $6 million and goodwill of $413 million, which is not deductible for income tax purposes.

We have included the financial results of business combinations in the ~~condensed~~ consolidated financial statements from the respective dates of acquisition, which were not material. Pro forma revenue and earnings amounts on a combined basis have not been presented as it is impracticable due to the lack of availability of historical financial statements that comply with GAAP. Aggregate acquisition-related costs associated with business combinations are not material for the three and six months ended June 30, 2021 and 2020, respectively, and are included in general and administrative expenses in our condensed consolidated statements of comprehensive income as incurred.

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(6) Goodwill and Intangible Assets

Goodwill ~~balances are presented below~~balance consists of the following (in millions):



	Carrying Amount
Balance as of December 31, ~~2020~~2021	$	~~241~~777
Goodwill acquired	~~551~~45
Foreign currency translation adjustments	1 (19)
Balance as of June 30, ~~2021~~2022	$	~~793~~803

Intangible assets consist of the following (in millions):


		June 30, 2021		December 31, 2020			June 30, 2022		December 31, 2021
Developed technology	Developed technology	$	403	$	226	Developed technology	$	420	$	415
Patents	Patents	62		65		Patents	69		69
Other	Other	15		3		Other	15		14
Intangible assets, gross	Intangible assets, gross	480		294		Intangible assets, gross	504		498
Less: accumulated amortization	Less: accumulated amortization	(170)		(141)		Less: accumulated amortization	(247)		(211)
Intangible assets, net	Intangible assets, net	$	310	$	153	Intangible assets, net	$	257	$	287

The weighted-average useful life ~~for~~of the acquired developed technology ~~acquired during~~for the six months ended June 30, ~~2021~~2022 and ~~June 30, 2020~~2021 was approximately five ~~years, respectively.~~

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years. Amortization expense for intangible assets for the three months ended June 30, 2022 and 2021 ~~and 2020~~ was ~~$16~~$20 million and ~~$15~~$16 million, respectively, and for the six months ended June 30, 2022 and 2021 ~~and 2020~~ was ~~$33~~$40 million and ~~$25~~$33 million, respectively.

The following table presents the estimated future amortization expense related to intangible assets held at June 30, ~~2021~~2022 (in millions):


Years Ending December 31,	Years Ending December 31,			Years Ending December 31,
Remainder of 2021		$	40
2022		78
Remainder of 2022				Remainder of 2022	$	40
2023	2023	71		2023	75
2024	2024	64		2024	68
2025	2025	42		2025	48
2026				2026	18
Thereafter	Thereafter	15		Thereafter	8
Total future amortization expense	Total future amortization expense	$	310	Total future amortization expense	$	257

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(7) Property and Equipment

Property and equipment, net consists of the following (in millions):


		June 30, 2021		December 31, 2020			June 30, 2022		December 31, 2021
Computer equipment	Computer equipment	$	1,104	$	974	Computer equipment	$	1,402	$	1,226
Computer software	Computer software	77		72		Computer software	75		77
Leasehold and other improvements	Leasehold and other improvements	183		168		Leasehold and other improvements	214		200
Furniture and fixtures	Furniture and fixtures	70		69		Furniture and fixtures	78		74

Construction in progress	Construction in progress	12		9		Construction in progress	8		14
Property and equipment, gross	Property and equipment, gross	1,446		1,292		Property and equipment, gross	1,777		1,591
Less: Accumulated depreciation	Less: Accumulated depreciation	(714)		(632)		Less: Accumulated depreciation	(901)		(825)
Property and equipment, net	Property and equipment, net	$	732	$	660	Property and equipment, net	$	876	$	766

Construction in progress consists primarily of leasehold and other improvements and in-process software development costs. Depreciation expense for the three months ended June 30, 2022 and 2021 ~~and 2020~~ was ~~$78~~$61 million and ~~$51~~$78 million, respectively, and for the six months ended June 30, 2022 and 2021 ~~and 2020~~ was ~~$149~~$119 million and ~~$102~~$149 million, respectively.

(8) Derivative Contracts

As of June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, we had foreign currency forward contracts with total notional values of ~~$555~~$511 million and ~~$583~~$833 million, respectively, which are not designated as hedging instruments. Our foreign currency forward contracts are classified within Level 2 as the valuation inputs are based on quoted prices and market observable data of similar instruments in active markets, such as currency spot and forward rates. Outstanding foreign currency forward contracts are recorded at gross fair value as prepaid expenses and other current assets as well as accrued expenses and other current liabilities on the condensed consolidated balance sheets. The gross fair value of these ~~outstanding derivative~~foreign currency forward contracts was immaterial as ~~follows (in millions):~~

Condensed Consolidated Balance Sheet Location June 30, 2021 December 31, 2020
Derivative Assets:
Foreign currency derivative contracts Prepaid expenses and other current assets $ 8 $ 8
Derivative Liabilities:
Foreign currency derivative contracts Accrued expenses and other current liabilities $ 3 $ 10
of June 30, 2022 and December 31, 2021.

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(9) Deferred Revenue and Performance Obligations

Revenues recognized during the three months ended June 30, 2022 and 2021 from amounts included in deferred revenue as of March 31, 2022 and 2021 were $1.5 billion and $1.2 ~~billion. Revenues recognized during the three months ended June 30, 2020 from amounts included in deferred revenue as of March 31, 2020 were $0.9 billion.~~billion, respectively.

Revenues recognized during the six months ended June 30, 2022 and 2021 from amounts included in deferred revenue as of December 31, 2021 and 2020 were $2.5 billion and $2.0 ~~billion. Revenues recognized during the six months ended June 30, 2020 from amounts included in deferred revenue as of December 31, 2019 were $1.5 billion.~~billion, respectively.

Remaining Performance Obligations

Transaction price allocated to remaining performance obligations (“RPO”) represents contracted revenue that has not yet been recognized, which includes deferred revenue and non-cancelable amounts that will be invoiced and recognized as revenues in future periods. RPO excludes contracts that are billed in arrears, such as certain time and materials contracts, as we apply the “right to invoice” practical expedient under relevant accounting guidance.

As of June 30, ~~2021,~~2022, the total non-cancelable RPO under our contracts with customers was ~~$9.5~~$11.5 billion and we expect to recognize revenues on approximately 50% of these RPO over the following 12 ~~months, with~~months. The majority of the ~~balance to~~non-current RPO will be recognized ~~thereafter.~~over the next 13 to 36 months.

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(10) Debt

The following table summarizes the carrying value of our outstanding debt (in millions, except percentages):

June 30, 2021 December 31, 2020
2030 Notes 2022 Notes 2030 Notes 2022 Notes
Current, net of unamortized debt discount and issuance costs of $5 million 0 99 0 0
Long-term, net of unamortized debt discount and issuance costs of $17 million and $29 million, respectively 1,483 0 1,482 158
Total debt $ 1,483 $ 99 $ 1,482 $ 158
Effective interest rate of the liability component - 2022 Notes 4.75%
Effective interest rate - 2030 Notes 1.53%

~~The effective interest rates for the 2030 Notes and 2022 Notes include interest payable, amortization of debt issuance cost and amortization of debt discount, as applicable.~~


	June 30, 2022				December 31, 2021
	2030 Notes		2022 Notes		2030 Notes		2022 Notes
Current, net of unamortized debt discount and issuance costs of $0 million and $2 million, respectively	$	—	$	—	$	—	$	92
Long-term, net of unamortized debt discount and issuance costs of $15 million and $16 million, respectively	1,485		—		1,484		—
Total debt	$	1,485	$	—	$	1,484	$	92

We consider the fair value of the 2030 Notes and 2022 Notes at June 30, 2022 and December 31, 2021 to be a Level 2 measurement. The estimated fair value of the 2030 Notes and 2022 Notes at June 30, ~~2021~~2022 and December 31, ~~2020~~2021 is based on the closing trading price per $100 of the 2030 Notes and 2022 Notes ~~were~~ as follows (in millions):


		June 30, 2021		December 31, 2020			June 30, 2022		December 31, 2021
2022 Notes	2022 Notes	$	425	$	687	2022 Notes	$	—	$	440
2030 Notes	2030 Notes	$	1,405	$	1,463	2030 Notes	$	1,174	$	1,400

2030 Notes

In August 2020, we issued 1.40% fixed rate ten-year notes with an aggregate principal amount of $1.5 billion due on September 1, 2030 (the “2030 Notes”). The 2030 Notes were issued at 99.63% of principal and we incurred approximately $13 million for debt issuance costs. The effective interest rate for the 2030 Notes was 1.53% and included interest payable, amortization of debt issuance cost and amortization of debt discount, as applicable. Interest is payable semi-annually in arrears on March 1 and September 1 of each year, beginning on March 1, 2021, and the entire outstanding principal amount is due at maturity on September 1, 2030. The 2030 Notes are unsecured obligations and the indentures governing the 2030 Notes contain customary events of default and covenants that, among others and subject to exceptions, restrict the Company’s ability to incur or guarantee debt secured by liens on specified assets or enter into sale and lease-back transactions with respect to specified properties.

~~Table of Contents~~

2022 Notes

In May and June 2017, we issued an aggregate of $782.5 million of 0% convertible senior notes (the “2022 Notes”), which ~~are~~were due June 1, 2022 unless earlier converted or repurchased in accordance with their terms. The 2022 Notes dodid not bear interest, and we ~~cannot~~could not redeem the 2022 Notes prior to maturity. The 2022 Notes ~~are~~were unsecured obligations and dodid not contain any financial covenants or restrictions on the payments of dividends, the incurrence of indebtedness or the issuance or repurchase of securities by us or any of our subsidiaries. In

As described in Note 2, we adopted the new accounting standard for debt with conversion options effective January 1, 2022 using a modified retrospective method, under which financial results reported in prior periods were not adjusted. Prior to the adoption of the new standard, in accounting for the issuance of the 2022 Notes and the related transaction costs, we valued and bifurcated the conversion option from the host debt instrument, referred to as debt discount, and recorded the conversion option of $160 million in equity at issuance. The resulting debt discount and transactions costs allocated to the liability component ~~are~~were amortized to interest expense using the effective interest method over the term of the 2022 Notes. Upon adoption of the new accounting standard on January 1, 2022, we recombined the liability and equity components of the 2022 Notes, including the related issuance costs, assuming the instrument was accounted for as a single liability from inception to the date of adoption. Issuance costs were presented as a deduction from the outstanding principal balance of the 2022 Notes and amortized to interest expense using the effective interest method over the term of the 2022 Notes.

Upon conversion of the 2022 Notes, we may choose to pay or deliver, as the case may be, cash, shares of our common stock or a combination of cash and shares of our common stock upon settlement. We currently intend to settle the principal amount of the 2022 Notes with cash.

Convertible Date

Initial Conversion Price per Share

Initial Conversion Rate per $1,000 Par Value

Initial Number of Shares (in millions)

2022 Notes

February 1, 2022

134.75

7.42 shares

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Conversion of the 2022 Notes ~~prior to~~on or after the Convertible ~~Date~~Date. ~~. At~~On or after February 1, 2022 (the “Convertible Date”), a holder was able to convert all or any portion of its 2022 Notes at any time prior to the close of business on the ~~business~~second scheduled trading day immediately preceding ~~February 1, 2022 (“~~maturity, and such conversions were settled on the maturity date.

Prior to the Convertible ~~Date”),~~Date, holders of the 2022 Notes ~~may~~could convert their 2022 Notes at their option ~~only~~ if ~~one of the following conditions are met:~~

•during any calendar quarter ~~(and only during such calendar quarter)~~ if the last reported sale price of our common stock for at least 20 trading days ~~(whether or not consecutive)~~ during the period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day (in each case, the “Conversion Condition”)~~; or~~

•during the 5-business day period after any 5-consecutive trading day period, or the measurement period, in which the trading price per $1,000 principal amount of the 2022 Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of our common stock and the conversion rate on each such trading day; or

•~~upon the occurrence of specified corporate events.~~

~~For conversion requests received prior to maturity, the difference between the fair value and the amortized book value is recorded as a gain or loss on early note conversion.~~

~~Conversion of the 2022 Notes on or after the Convertible Date.~~ On or after the Convertible Date, a holder may convert all or any portion of its 2022 Notes at any time prior to the close of business on the second scheduled trading day immediately preceding maturity, regardless of the foregoing conditions, and such conversions will settle upon maturity. Upon settlement, we will pay or deliver, as the case may be, cash, shares of our common stock or a combination of cash and shares of our common stock, at our election.

The conversion price of the 2022 Notes will be subject to adjustment in some events. Holders of the 2022 Notes who convert their 2022 Notes in connection with certain corporate events that constitute a “make-whole fundamental change” are, under certain circumstances, entitled to an increase in the conversion rate. Additionally, in the event of a corporate event that constitutes a “fundamental change,” holders of the 2022 Notes may require us to purchase with cash all or a portion of the 2022 Notes upon the occurrence of a fundamental change, at a purchase price equal to 100% of the principal amount of the 2022 Notes plus any accrued and unpaid special interest, if any..

The Conversion Condition for the 2022 Notes was met for all the quarters ended June 30, 2018 through ~~June 30,~~December 31, 2021, except for the quarter ended December 31, 2018. Therefore, our 2022 Notes ~~became~~were convertible at the holders’ option beginning on July 1, 2018 ~~and continue to be convertible~~ through ~~September 30, 2021,~~January 31, 2022, except for the quarter ended March 31, 2019 because the Conversion Condition for the 2022 Notes was not met for the quarter ended December 31, 2018.

~~Table of Contents~~

During the six months ended June 30, ~~2021,~~2022, we paid cash to settle ~~$65~~$94 million in principal of the 2022 Notes, which was comprised of early conversions of $6 million and the ~~loss~~remaining principal of $88 million for the final settlement on June 1, 2022, the ~~early note conversions was not material.~~maturity date of our 2022 Notes. As a result of the settlements, we also recorded a net reduction to additional paid-in capital ~~reflecting $89~~of $212 million ~~fair value adjustments to the settled conversion option partially~~ offset by ~~a $89~~$212 million benefit from the 2022 Note Hedge (as defined below).

Based on conversion requests received through the filing date, we expect to settle in cash an aggregate of approximately $8 million in principal amount of the 2022 Notes during the third quarter of 2021. We may receive additional conversion requests that require settlement in the third quarter of 2021 and future periods.

Repurchase of 2022 Notes

On August 11, 2020, we repurchased $497 million in aggregate principal amount of the 2022 Notes (the “2022 Notes Repurchase”) funded in part by the $1.1 billion proceeds received from the partial unwind of the 2022 Note Hedge (as defined below). The 2022 Notes Repurchase was accounted for as a debt extinguishment in which $493 million and $1.1 billion were allocated to the liability and equity components of the 2022 Notes, respectively. The cash consideration allocated to the liability component was based on the estimated fair value of the liability component utilizing a discount rate assuming a similar liability per the Company’s credit rating with the same maturity, but without the conversion option, as of the repurchase date. The cash consideration allocated to the equity component was based on the aggregate cash consideration less the estimated fair value of the liability component. The loss on extinguishment of $39 million recorded as other income (expense), net, represents the difference between the allocated cash consideration and the carrying value of the liability component, which includes the proportionate amounts of unamortized debt discount and unamortized debt issuance costs in the amount of $43 million.

Note Hedge

To minimize the impact of potential economic dilution upon conversion of the 2022 Notes, we entered into convertible note hedge transactions (the “2022 Note Hedge”) with certain investment banks, with respect to our common stock concurrently with the issuance of the 2022 Notes.

Purchase Initial Shares Shares as of
June 30, 2021
(in millions)
2022 Note Hedge $ 128 6 1


	Purchase		Initial Shares	Shares as of June 30, 2022

	(in millions)
2022 Note Hedge	$	128	6	—

The 2022 Note Hedge ~~covers~~covered shares of our common stock at a strike price per share that ~~corresponds~~corresponded to the initial conversion price of the 2022 Notes, subject to adjustment, and ~~are~~were exercisable upon conversion ~~of the 2022 Notes. If exercised, we may elect to receive cash, shares of our common stock, or a combination of cash and shares. The 2022 Note Hedge will expire upon the maturity~~ of the 2022 Notes. The 2022 Note Hedge expired upon the maturity of the 2022 Notes and as of June 30, 2022, the 2022 Note Hedge is no longer outstanding. The 2022 Note Hedge was intended to reduce the potential economic dilution upon conversion of the 2022 Notes in the event that the fair value per share of our common stock at the time of exercise is greater than the conversion price of the 2022 Notes. The 2022 Note Hedge iswas a separate transaction and iswas not part of the terms of the 2022 Notes. Holders of the 2022 Notes ~~will~~did not have any rights with respect to the 2022 Note Hedge. The 2022 Note Hedge ~~does~~did not impact earnings per share, as it was entered into to offset any dilution from the 2022 Notes.

On August 11, 2020, in connection with the 2022 Notes Repurchase, we entered into partial unwind agreements (the “Note Hedge Unwind”) to reduce the number of options corresponding to the principal amount of the 2022 Notes Repurchase. We received $1.1 billion for the Note Hedge Unwind and the aggregate number of shares underlying the call options under the 2022 Note Hedge was reduced by 3.7 million shares. Consistent with early conversions of the 2022 Notes, proceeds received by the Company from the Note Hedge Unwind were used to settle a portion of the 2022 Notes Repurchase.

~~Warrants~~

Proceeds Initial Shares Strike Price First Expiration Date Shares as of
June 30, 2021
(in millions) (in millions) (in millions)
2022 Warrants $ 54 6 $ 203.40 September 1, 2022 1

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Warrants

Proceeds

Initial Shares

Strike Price

First Expiration Date

Shares as of
June 30, 2022

(in millions)

2022 Warrants

203.40

September 1, 2022

—

Separately, we entered into warrant transactions with certain investment banks, whereby we sold warrants to acquire, subject to adjustment, the number of shares of our common stock shown in the table above (the “2022 Warrants”). If the average market value per share of our common stock for the reporting period, as measured under the 2022 Warrants, ~~exceeds~~exceeded the strike price of the respective 2022 Warrants, such 2022 Warrants would have a dilutive effect on our earnings per share to the extent we report net income. The 2022 Warrants ~~are~~were separate transactions and ~~are~~were not remeasured through earnings each reporting period. The 2022 Warrants ~~are~~were not part of the 2022 Notes or 2022 Note Hedge.

In connection with the 2022 Notes Repurchase and early note conversions, we entered into partial unwind agreements to reduce the number of warrants outstanding under the 2022 Warrants by delivering an aggregate of 0.5 million ~~and 2.3~~shares of our common stock during the six months ended June 30, 2021.

In May 2022, we entered into unwind agreements to settle the remaining portion of the 2022 Warrants by delivering an aggregate of 0.6 million shares of our common stock during the six months ended June 30, ~~2021 and year ended December 31, 2020, respectively.~~

~~According to the terms, the remaining portion~~2022. Accordingly, as of ~~the~~June 30, 2022, ~~Warrants will be net share settled and automatically exercised over a 60 trading day period beginning on the first expiration date as set forth above based on the~~ ~~daily volume-weighted average stock prices over the same 60 trading day period~~.

~~We expect to issue additional shares of our common stock in the second half of 2022 upon the automatic exercise of the remaining portion of the 2022 Warrants. The remaining portion of~~ the 2022 Warrants ~~could have a dilutive effect to the extent that the daily volume-weighted average stock prices over a~~ 60 trading day period beginning on September 1, 2022 exceeds the strike price of the 2022 Warrants. Based on the volume-weighted average stock price on June 30, 2021, the total number of shares of our common stock to be issued upon the automatic exercise of the remaining portion of the 2022 Warrants would be approximately 0.6 million. The actual number of shares of our common stock issuable upon the automatic exercise of the remaining portion of the 2022 Warrants, if any, is unknown at this time.are no longer outstanding.

(11) Accumulated Other Comprehensive Income (Loss)

The components of accumulated other comprehensive income (loss), net of tax, consist of the following (in millions):

June 30, 2021 December 31, 2020
Foreign currency translation adjustment $ 70 $ 87
Net unrealized gains on investments, net of tax 0 7
Accumulated other comprehensive income $ 70 $ 94


	June 30, 2022		December 31, 2021

Foreign currency translation adjustment	$	(28)	$	46
Net unrealized gain (loss) on investments, net of tax	(72)		(12)
Accumulated other comprehensive income (loss)	$	(100)	$	34

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

(12) Stockholders' Equity

Common Stock

We are authorized to issue a total of 600 million shares of common stock as of June 30, ~~2021.~~2022. Holders of our common stock are not entitled to receive dividends unless declared by our board of directors. As of June 30, ~~2021,~~2022, we had ~~198.1~~201.6 million shares of common stock outstanding and had reserved shares of common stock for future issuance as follows (in thousands):


			June 30, ~~2021~~2022
Stock plans:
Options outstanding			~~484~~1,260
RSUs(1)			~~7,305~~6,794
Shares of common stock available for future grants:
2021 Equity Incentive Plan(2)			~~9,985~~5,690
Amended and Restated 2012 Employee Stock Purchase Plan(2)			~~9,526~~9,179
Total shares of common stock reserved for future issuance			~~27,300~~22,923

(1)Represents the number of shares issuable upon settlement of outstanding restricted stock units (“RSUs”) and performance-based RSUs (“PRSUs”), ~~assuming 100% of the target number of shares for performance-based RSUs,~~ as discussed under ~~the section entitled “RSUs” in~~ Note 13.

(2)Refer to Note 13 for a description of these plans.

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During the six months ended June 30, ~~2021~~2022 and ~~2020,~~2021, we issued a total of ~~1.8~~1.4 million shares and ~~2.3~~1.8 million shares, respectively, from stock option exercises, vesting of RSUs, net of employee payroll taxes and purchases from the employee stock purchase plan (“ESPP”). In addition, as described in Note 10, we during the six months ended June 30, 2022 and 2021, we issued 0.6 million and 0.5 million shares of our common stock upon the settlement of the remaining portion and partial unwind of the 2022 Warrants, ~~during the~~ ~~six months ended June 30, 2021.~~respectively.

(13) Equity Awards

We currently have 3 equity incentive plans, our 2005 Stock Option Plan (the “2005 Plan”), 2012 Equity Incentive Plan (the “2012 Plan”) and 2021 Equity Incentive Plan (the “2021 Plan”). The 2005 Plan was terminated in connection with our initial public offering in 2012 but continues to govern the terms of outstanding stock options that were granted prior to the termination of the 2005 Plan. We no longer grant equity awards pursuant to the 2005 Plan. The 2012 Plan was terminated in connection with the approval of the 2021 Plan on June 7, 2021 but continues to govern the terms of outstanding equity awards that were granted prior to the termination of the 2012 Plan. As of June 7, 2021, we no longer grant equity awards pursuant to the 2012 Plan.

The 2021 Plan and the 2012 Plan provide for the grant of incentive stock options, nonqualified stock options, stock appreciation rights, RSUs, performance-based stock awards and other forms of equity compensation (collectively, “equity awards”). In addition, the 2021 Plan and the 2012 Plan provide for the grant of performance cash awards. Incentive stock options may be granted only to employees. All other equity awards may be granted to employees, including officers, as well as directors and consultants. Prior to June 7, 2021, the 2012 Plan share reserve was increased to the extent outstanding stock options under the 2005 Plan expire or terminate unexercised.

Our Amended and Restated 2012 Employee Stock Purchase Plan (the “2012 ESPP”) authorizes the issuance of shares of common stock pursuant to purchase rights granted to our employees. The price at which common stock is purchased under the 2012 ESPP is equal to 85% of the fair market value of our common stock on the first or last day of the offering period, whichever is lower. Offering periods are six months long and begin on February 1 and August 1 of each year. Prior to June 7, 2021, the number of shares of common stock reserved for issuance automatically increased on January 1 of each year, by up to 1% of the total number of shares of common stock outstanding on December 31 of the preceding year as determined by our board of directors. Our board of directors elected not to increase the number of shares of common stock reserved for issuance under the 2012 ESPP pursuant to the provision described in the preceding sentence for the year ending December 31, ~~2021,~~2022, and for the remaining term of the 2012 ESPP, the share reserve will not be increased without shareholder approval.

Stock Options

Stock options are exercisable at a price equal to the market value of the underlying shares of common stock on the date of the grant as determined by our board of directors or, for those stock options issued subsequent to our initial public offering, the closing price of our common stock as reported on the New York Stock Exchange on the date of grant. Stock options granted under the 2005 Plan and the 2012 Plan to new employees generally vest 25% one year from the date the requisite service period begins and continue to vest monthly for each month of continued employment over the remaining three years. One-time long-term performance-based options granted to the Chief Executive Officer (“2021 CEO Performance Award") and to certain executives (collectively “2021 Performance Awards”) in the fourth quarter of 2021 under the 2021 Plan vest in 8 equal tranches based on service conditions and achievement of both performance and market conditions. Options granted generally are exercisable for a period of up to ten years contingent on each holder’s continuous status as a service provider.

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A summary of stock option activity for the six months ended June 30, ~~2021~~2022 was as follows:

Number of
Shares Weighted-
Average
Exercise
Price Per Share Weighted-
Average
Remaining
Contractual
Term Aggregate
Intrinsic Value
(in thousands) (in years) (in millions)
Outstanding at December 31, 2020 522 $ 107.14
Granted 36 $ 587.91
Exercised (104) $ 88.28 $ 47
Outstanding at March 31, 2021 454 $ 149.23
Granted (1)
54 $ 77.96
Exercised (24) $ 16.46 $ 11
Outstanding at June 30, 2021 484 $ 147.70 4.8 $ 171
Vested and expected to vest as of June 30, 2021 449 $ 139.55 4.6 $ 166
Vested and exercisable as of June 30, 2021 285 $ 60.12 2.9 $ 140

~~(1) Includes awards assumed in business combinations~~


	Number of Shares	Weighted- Average Exercise Price Per Share		Weighted- Average Remaining Contractual Term	Aggregate Intrinsic Value
	(in thousands)			(in years)	(in millions)
Outstanding at December 31, 2021	1,305	$	551.39
Granted	23	$	591.66
Exercised	(41)	$	24.76		$	22
Canceled	(2)	$	84.80
Outstanding at March 31, 2022	1,285	$	569.70
Granted	—	$	—
Exercised	(24)	$	24.92		$	11
Canceled	(1)	$	84.53
Outstanding at June 30, 2022	1,260	$	580.61	8.8	$	71




Vested and expected to vest as of June 30, 2022	1,033	$	564.45	8.7	$	68
Vested and exercisable as of June 30, 2022	138	$	143.25	5.3	$	46

Aggregate intrinsic value represents the difference between the estimated fair value of our common stock and the exercise price of outstanding, in-the-money options. The total fair value of stock options vested during the six months ended June 30, ~~2021~~2022 was $2$6 million.

As of June 30, ~~2021,~~2022, total unrecognized compensation cost, adjusted for estimated forfeitures, related to unvested stock options was approximately ~~$25~~$115 million. The weighted-average remaining vesting period of unvested stock options at June 30, ~~2021~~2022 was approximately ~~four~~three years.

RSUs

A summary of RSU activity for the six months ended June 30, ~~2021~~2022 was as follows:

Number of
Shares Weighted-Average Grant-Date Fair Value
Per Share Aggregate
Intrinsic Value
(in thousands) (in millions)
Outstanding at December 31, 2020 7,362 $ 274.23
Granted (1)
2,004 $ 577.94
Vested (1,060) $ 226.59 $ 620
Forfeited (259) $ 330.43
Outstanding at March 31, 2021 8,047 $ 352.48
Granted (1)
378 $ 500.01
Vested (932) $ 274.86 $ 435
Forfeited (188) $ 341.70
Outstanding at June 30, 2021 7,305 $ 370.32 $ 4,014

~~(1) Includes awards assumed in business combinations~~


	Number of Shares	Weighted-Average Grant-Date Fair Value Per Share		Aggregate Intrinsic Value
	(in thousands)			(in millions)
Outstanding at December 31, 2021	5,808	$	416.00
Granted	2,612	$	589.15
Vested	(859)	$	339.22	$	494
Forfeited	(211)	$	438.39
Outstanding at March 31, 2022	7,350	$	486.01
Granted	390	$	460.49
Vested	(736)	$	389.11	$	324
Forfeited	(210)	$	472.89
Outstanding at June 30, 2022	6,794	$	495.48

RSUs outstanding as of June 30, ~~2021~~2022 were comprised of ~~6.9~~6.3 million RSUs with only service conditions and ~~0.4~~0.5 million RSUs with both service and performance conditions, including certain RSUs with additional market conditions.

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PRSUs with service, performance and market vesting criteria are considered as eligible to vest when approved by the compensation committee of our board of directors in January of the year following the grant. The ultimate number of shares eligible to vest for PRSUs range from 0% to 200% of the target number of shares depending on achievement relative to the performance metrics and, for certain PRSUs, depend on our total shareholder return relative to that of the S&P 500 index over the applicable measurement period. The eligible shares subject to PRSUs granted during the six months ended June 30, ~~2021~~2022 will vest in February of the following year and semi-annually for the remaining two years contingent on each holder’s continuous status as a service provider on the applicable vesting date. The number of PRSUs granted shown in the table above reflects the shares that could be eligible to vest at 100% of target for PRSUs and includes adjustments for over or under achievement for PRSUs granted in the prior year. We recognized ~~$54~~$65 million and ~~$30~~$54 million of stock-based compensation, net of actual and estimated forfeitures, associated with PRSUs on a graded vesting basis during the six months ended June 30, 2022 and 2021, ~~and 2020,~~ respectively.

As of June 30, ~~2021,~~2022, total unrecognized compensation cost, adjusted for estimated forfeitures, related to unvested RSUs was approximately ~~$2.1~~$2.6 billion and the weighted-average remaining vesting period was approximately three years.

(14) Net Income Per Share

Basic net income per share attributable to common stockholders is computed by dividing net income attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period. Diluted net income per share is computed by dividing net income attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period, adjusted for the effects of dilutive shares of common stock, which are comprised of outstanding stock options, RSUs, ESPP obligations, the 2022 Notes and the 2022 Warrants. Stock awards with performance or market conditions are included in dilutive shares to the extent all conditions are met. The dilutive potential shares of common stock are computed using the treasury stock method or the as-if converted method, as applicable. The effects of outstanding stock options, RSUs, ESPP obligations, 2022 Notes and 2022 Warrants are excluded from the computation of diluted net income per share in periods in which the effect would be antidilutive.

The following tables present the calculation of basic and diluted net income per share attributable to common stockholders (in thousands, except per share data):


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended June 30,				Six Months Ended June 30,
		2021		2020		2021		2020			2022		2021		2022		2021
Numerator:	Numerator:									Numerator:
Net income	Net income	$	58,396	$	40,766	$	140,835	$	88,997	Net income	$	19,772	$	58,396	$	95,122	$	140,835
Denominator:	Denominator:									Denominator:
Weighted-average shares outstanding - basic	Weighted-average shares outstanding - basic	197,815		191,319		197,216		190,731		Weighted-average shares outstanding - basic	200,955		197,815		200,517		197,216
Weighted-average effect of potentially dilutive securities:	Weighted-average effect of potentially dilutive securities:									Weighted-average effect of potentially dilutive securities:
Common stock options	Common stock options	297		538		323		647		Common stock options	137		297		159		323
RSUs	RSUs	2,913		3,613		3,375		3,791		RSUs	1,251		2,913		1,678		3,375
ESPP obligations		0		11		0		0

2022 Notes	2022 Notes	567		3,500		571		3,370		2022 Notes	—		567		—		571
2022 Notes settlements	2022 Notes settlements	80		10		151		44		2022 Notes settlements	443		80		565		151
2022 Warrants	2022 Warrants	602		2,462		610		2,260		2022 Warrants	—		602		—		610
Partial settlement of 2022 Warrants		0		0		102		0
Settlement of 2022 Warrants										Settlement of 2022 Warrants	232		—		309		102
Weighted-average shares outstanding - diluted	Weighted-average shares outstanding - diluted	202,274		201,453		202,348		200,843		Weighted-average shares outstanding - diluted	203,018		202,274		203,228		202,348
Net income per share - basic	Net income per share - basic	$	0.30	$	0.21	$	0.71	$	0.47	Net income per share - basic	$	0.10	$	0.30	$	0.47	$	0.71
Net income per share - diluted	Net income per share - diluted	$	0.29	$	0.20	$	0.70	$	0.44	Net income per share - diluted	$	0.10	$	0.29	$	0.47	$	0.70

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Potentially dilutive securities that are not included in the calculation of diluted net income per share because doing so would be antidilutive are as follows (in thousands):


		Three Months Ended June 30,		Six Months Ended June 30,			Three Months Ended June 30,		Six Months Ended June 30,
		2021	2020	2021	2020		2022	2021	2022	2021
Common stock options	Common stock options	89	161	89	161	Common stock options	1,022	89	1,022	89
RSUs	RSUs	1,619	195	1,658	2,537	RSUs	3,875	1,619	3,457	1,658
ESPP obligations	ESPP obligations	137	0	137	178	ESPP obligations	159	137	159	137

Total potentially dilutive securities	Total potentially dilutive securities	1,845	356	1,884	2,876	Total potentially dilutive securities	5,056	1,845	4,638	1,884

(15) Income Taxes

We compute our provision for income taxes by applying the estimated annual effective tax rate to year-to-date income from recurring operations and adjust the provision for discrete tax items recorded in the period.

Our income tax ~~(benefit)~~ provision was ~~($9 million)~~$9 million and $8$19 million for the three and six months ended June 30, ~~2021,~~2022, respectively. ~~For the three months ended June 30, 2021, the~~The income tax ~~benefit~~provision was primarily attributable to the mix of earnings and losses in countries with differing statutory tax rates and the valuation allowance in the United ~~States, a~~States.

Our income tax ~~rate change in a foreign jurisdiction~~(benefit) provision was $(9) million and ~~a valuation allowance release resulting from an acquisition. For~~$8 million for the three and six months ended June 30, 2021, ~~the~~respectively. The income tax (benefit) provision was primarily attributable to the mix of earnings and losses in countries with differing statutory tax rates, the valuation allowance in the United States, a tax rate change in a foreign jurisdiction and a valuation allowance release resulting from an acquisition.

Our income tax provision was $21 million for each of the three and six months ended June 30, 2020. For the three months ended June 30, 2020, the income tax provision was primarily attributable to the mix of earnings and losses in countries with differing statutory tax rates, the valuation allowance in the United States and the intercompany sale of certain intellectual property rights. For the six months ended June 30, 2020, the income tax provision was primarily attributable to the mix of earnings and losses in countries with differing statutory tax rates and the valuation allowance in the United States.

Governments in certain countries where we do business have enacted legislation in response to the COVID-19 pandemic, including the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) enacted by the United States on March 27, 2020. We are continuing to analyze these legislative developments but they have not had a material impact on our provision for income taxes for the three and six months ended June 30, 2021.

We are subject to taxation in the United States and foreign jurisdictions. As of June 30, ~~2021,~~2022, our tax years 2004 to ~~2020~~2021 remain subject to examination in most jurisdictions.

Due to differing interpretations of tax laws and regulations, tax authorities may dispute our tax ~~filings~~filing positions. We periodically evaluate our exposures associated with our tax filing positions and believe that adequate amounts have been reserved for adjustments that may result from tax examinations.

(16) Commitments and Contingencies

Operating Leases

For some of our offices and data centers, we have entered into non-cancelable operating lease agreements with various expiration dates through 2035. Certain lease agreements include options to renew or terminate the lease, which are not reasonably certain to be exercised and therefore are not factored into our determination of lease payments.

Total operating lease costs were $28 million and $56 million excluding short-term lease costs, variable lease costs and sublease income, each of which were immaterial, for the three and six months ended June 30, 2022, respectively.

Total operating lease costs were $23 million and $46 million excluding short-term lease costs, variable lease costs and sublease income, each of which were immaterial, for the three and six months ended June 30, 2021, respectively.

Total operating lease costs were $21 million and $40 million excluding short-term lease costs, variable lease costs and sublease income, each of which were immaterial, for the three and six months ended June 30, 2020, respectively.

For the six months ended June 30, ~~2021~~2022 and ~~2020,~~2021, cash paid for amounts included in the measurement of operating lease liabilities was $38 million and $37 million, ~~and $26 million, respectively, and operating~~respectively. Operating lease liabilities arising from obtaining operating right-of-use assets totaled $68 million and $51 million for the six months ended June 30, 2022 and ~~$94 million,~~2021, respectively.

As of June 30, 2022, the weighted-average remaining lease term is approximately nine years, and the weighted-average discount rate is 3%.

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~~As of June 30, 2021, the weighted-average remaining lease term is 8.1 years, and the weighted-average discount rate is 3.3%.~~

Maturities of operating lease liabilities as of June 30, ~~2021~~2022 are presented in the table below (in millions):


Remainder of 2021		$	48
2022		94
Remainder of 2022				Remainder of 2022	$	53
2023	2023	89		2023	104
2024	2024	71		2024	92
2025	2025	61		2025	84
2026				2026	64
Thereafter	Thereafter	225		Thereafter	372
Total operating lease payments	Total operating lease payments	588		Total operating lease payments	769
Less: imputed interest	Less: imputed interest	(81)		Less: imputed interest	(110)
Present value of operating lease liabilities	Present value of operating lease liabilities	$	507	Present value of operating lease liabilities	$	659

In addition to the amounts above, as of June 30, ~~2021,~~2022, we have operating leases, primarily for offices, that have not yet commenced with undiscounted cash flows of ~~$341~~$214 million. These operating leases will commence between ~~2021~~2022 and ~~2022~~2023 with lease terms of 412 years to 1413 years.

Other Commitments

Other contractual commitments consist of data center and IT operations and sales and marketing activities. There were no material contractual obligations that were entered into during the six months ended June 30, ~~2021~~2022 that were outside the ordinary course of business.

In addition to the amounts above, the repayment of our ~~2022 Notes and~~ 2030 Notes with an aggregate principal amount of ~~$104 million and~~ $1.5 billion is due on ~~June 1, 2022 and~~ September 1, ~~2030, respectively.~~2030. Refer to Note 10 for further information regarding our Notes.

~~Also, $25~~Further, $27 million of unrecognized tax benefits have been recorded as liabilities as of June 30, ~~2021.~~

~~Letters of Credit~~

~~As of June 30, 2021, we had letters of credit in the aggregate amount of $21 million, primarily in connection with our customer contracts and operating leases.~~2022.

Legal Proceedings

From time to time, we are party to litigation and other legal proceedings in the ordinary course of business. While the results of any litigation or other legal proceedings are uncertain, management does not believe the ultimate resolution of any pending legal matters is likely to have a material adverse effect on our financial position, results of operations or cash flows, except for those matters for which we have recorded a loss contingency. We accrue for loss contingencies when it is both probable that we will incur the loss and when we can reasonably estimate the amount of the loss or range of loss.

Generally, our subscription agreements require us to defend our customers for third-party intellectual property infringement and other claims. Any adverse determination related to intellectual property claims or other litigation could prevent us from offering our services and adversely affect our financial condition and results of operations.

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Indemnification Provisions

Our agreements include provisions indemnifying customers against intellectual property and other third-party claims. In addition, we have entered into indemnification agreements with our directors, executive officers and certain other officers that will require us, among other things, to indemnify them against certain liabilities that may arise as a result of their affiliation with us. We have not incurred any costs as a result of such indemnification obligations and have not recorded any liabilities related to such obligations in the condensed consolidated financial statements.

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(17) Information about Geographic Areas and Products

Revenues by geographic area, based on the location of our users, were as follows for the periods presented (in millions):


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended June 30,				Six Months Ended June 30,
		2021		2020		2021		2020			2022		2021		2022		2021
North America(1)	North America(1)	$	888	$	705	$	1,771	$	1,407	North America(1)	$	1,139	$	888	$	2,255	$	1,771
EMEA(2)	EMEA(2)	378		265		721		516		EMEA(2)	433		378		867		721
Asia Pacific and other	Asia Pacific and other	143		101		277		194		Asia Pacific and other	180		143		352		277
Total revenues	Total revenues	$	1,409	$	1,071	$	2,769	$	2,117	Total revenues	$	1,752	$	1,409	$	3,474	$	2,769

Property and equipment, net by geographic area were as follows (in millions):


		June 30, 2021		December 31, 2020			June 30, 2022		December 31, 2021
North America(3)	North America(3)	$	454	$	395	North America(3)	$	538	$	484
EMEA(2)	EMEA(2)	184		172		EMEA(2)	199		176
Asia Pacific and other	Asia Pacific and other	94		93		Asia Pacific and other	139		106
Total property and equipment, net	Total property and equipment, net	$	732	$	660	Total property and equipment, net	$	876	$	766

(1)Revenues attributed to the United States were 94% of North America revenues for each of the three and six months ended June 30, ~~2021~~2022 and ~~2020,~~2021, respectively.

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

(3)Property and equipment, net attributed to the United States were approximately ~~81%~~82% and ~~78%~~84% of property and equipment, net attributable to North America as of June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively.

Subscription revenues consist of the following (in millions):


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended June 30,				Six Months Ended June 30,
		2021		2020		2021		2020			2022		2021		2022		2021
Digital workflow products	Digital workflow products	$	1,164	$	886	$	2,295	$	1,754	Digital workflow products	$	1,463	$	1,164	$	2,903	$	2,295
ITOM products	ITOM products	166		129		328		256		ITOM products	195		166		386		328
Total subscription revenues	Total subscription revenues	$	1,330	$	1,015	$	2,623	$	2,010	Total subscription revenues	$	1,658	$	1,330	$	3,289	$	2,623

Our digital workflow products include the Now Platform, IT Service Management, IT Business Management, ~~DevOps,~~ IT Asset Management, Security Operations, Governance, Risk and Compliance, HR Service Delivery, Safe Workplace Suite of applications, Workplace Service Delivery, Legal Service Delivery, Customer Service Management, Field Service Management, ~~Connected Operations, Financial Services Operations, Telecommunications Service Management, Telecommunications Network Performance Management,~~Industry Solutions, App Engine and IntegrationHub, and are generally priced on a per user basis. Our ~~ITOM~~IT Operations Management (“ITOM”) products are generally priced on a subscription unit basis which allows us to measure customers’ management of various IT resources, and decreasingly on a per node (physical or virtual server) basis.

(18) Subsequent Events

Subsequent to June 30, 2022, we entered into a non-cancelable, $500 million agreement with Microsoft to purchase cloud services over five years, as we accelerate Azure adoption for mutual customers.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition, results of operations and cash flows should be read in conjunction with the (1) unaudited condensed consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q, and (2) the audited consolidated financial statements and notes thereto and management’s discussion and analysis of financial condition and results of operations for the year ended December 31, ~~2020~~2021 included in the Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”), on February ~~12, 2021.~~3, 2022. This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements are often identified by the use of words such as “may,” “will,” “expect,” “believe,” “anticipate,” “intend,” “could,” “estimate,” or “continue,” and similar expressions or variations. Such forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to ~~impacts on our business, future financial performance and general economic conditions due to the current COVID-19 pandemic,~~ those identified herein, and those discussed in the section titled “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K filed with the SEC on February ~~12, 2021~~3, 2022 and in Part II, Item 1A of this Quarterly Report on Form 10-Q and in our other SEC filings. We disclaim any obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements.

Investors and others should note that we announce material financial information to our investors using our investor relations website (https://www.servicenow.com/company/investor-relations.html), SEC filings, press releases, public conference calls and webcasts. We use these channels, as well as social media, to communicate with our investors and the public about our company, our services and other issues. It is possible that the information we post on social media could be deemed to be material information. Therefore, we encourage investors, the media, and others interested in our company to review the information we post on the social media channels listed on our investor relations website.

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

~~COVID-19 Environment~~

The COVID-19 pandemic has created significant global economic uncertainty, adversely impacted the business of our customers, partners and vendors, and impacted our business and results of operations. As of the filing date, the extent to which the COVID-19 pandemic may continue to impact our business and future financial condition or results of operations remains uncertain. We are continuing to monitor the actual and potential effects of the COVID-19 pandemic across our business. While our revenues, billings and earnings are relatively predictable as a result of our subscription-based business model, the effect of the COVID-19 pandemic, along with the seasonality we historically experience, may not be fully reflected in our results of operations and overall financial performance until future periods, if at all, and could cause our future results of operations to vary significantly from period to period. As the uncertainty continues, we may experience an increase in curtailed customer demand, reduced customer spend or contract duration, delayed collections, lengthened payment terms, lengthened sales cycles or competition due to changes in terms and conditions and pricing of our competitors’ products and services, our business, results of operations and overall financial performance in future periods could be materially adversely affected. Additionally, it is unclear to what extent certain reductions in expenditures noted in the year ended December 31, 2020 into the second quarter of 2021 due to actions taken in response to the COVID-19 pandemic will continue to be reduced below historical levels. The extent and continued impact of the COVID-19 pandemic on our operational and financial performance will depend on certain developments, including: the duration and spread of the outbreak, such as in India; government responses, including the effectiveness, extent and duration of mitigation efforts such as “shelter in place”, availability of vaccinations and similar directives; impact on our customers, sales cycles and ability to generate new business; impact on our customer, industry or employee events; extent of delays in hiring and onboarding new employees mainly in our general and administrative functions; and effect on our partners, vendors and supply chains; all of which are highly uncertain and difficult to predict.Overview

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ServiceNow was founded on a simple premise: a better technology platform will help work flow better. The company’s purpose is to make the world work better for everyone. We help global enterprises across industries, universities and governments to digitize their workflows. The Now Platform enables us to connect systems, silos, departments and processes with digital workflows that are simple and easy to use. We categorize the workflows we provide into four primary areas: Technology (formerly known as Information Technology), Employee, Customer and Creator. The Now Platform is uniquely positioned to enable our customers’ digital transformation from non-integrated enterprise technology solutions with manual and disconnected processes and activities, to integrated enterprise technology solutions with automation and connected processes and activities. The transformation to digital operations, enabled by the Now Platform, increases our customers’ resiliency and security and delivers great experiences and additional value to their employees and consumers.

In response to the COVID-19 pandemic, we continue to focus on maintaining business continuity, helping our employees, customers and communities, and preparing for the future and the long-term success of our business. We ~~released various applications beginning in~~are continuing to monitor the ~~first quarter~~actual and potential effects of ~~2020 to help customers navigate~~ the COVID-19 pandemic across our business. The extent and continued impact of the COVID-19 pandemic on our business will depend on certain developments including the ~~essential steps for returning employees~~duration and spread of the outbreak and new variant strains of the virus; the availability and distribution of effective vaccines; the severity of the economic decline attributable to the ~~workplace~~pandemic and timing, nature and sustainability of economic recovery; and government responses, including vaccination or testing mandates, all of which are highly uncertain and unpredictable. Starting late 2021, many employees began to support their health and safety and help users, healthcare providers and clinics to manage vaccinations from start to finish. Further, we temporarily closed most of our offices in the first quarter of 2020 and encouraged our employees to work remotely. During the second quarter of 2021, a limited number of employees returnedreturn to our offices ~~in certain locations, taking into consideration government restrictions, employee safety and~~for at least part of the week. Our return to work approach may vary among geographies depending on appropriate health ~~risks. Re-opening of our offices remains limited~~protocols, and may change at any time. depending on the severity of or spikes in COVID-19. The impact, if any, of these and any additional operational changes we may implement is uncertain but changes we have implemented have not affected and are not expected to affect our ability to maintain ~~operations,~~operations, including financial reporting systems, internal control over financial reporting and disclosure controls and procedures.

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We are closely monitoring the unfolding events of the Russian invasion of Ukraine and its global impacts. While the conflict is still evolving and the outcome remains highly uncertain, we do not believe the Russia-Ukraine conflict will have a material impact on our business and results of operation. However, if the Russia-Ukraine conflict continues or worsens, leading to greater global economic disruptions and uncertainty, our business and results of operations could be materially impacted. Our customers in Russia represented an immaterial portion of our net assets and total consolidated revenues both as of and for the three months ended June 30, 2022 and December 31, 2021.

See the section “Risk Factors” in Part 1, Item 1A of our Annual Report on Form 10-K filed with the SEC on February ~~12, 2021~~3, 2022 and in Part II, Item 1A of this Quarterly Report on Form 10-Q for further discussion of the possible impact of the COVID-19 pandemic and Russia-Ukraine conflict on our business.

~~Overview~~

ServiceNow’s purpose is to make the world of work, work better for people. We believe that people want the technology they use in their work to be more efficient and easier to use. We build applications to meet that demand by automating existing processes and creating efficient, digitized workflows with a consumer grade user experience. Our products and services enable the steps of a job to flow naturally across disparate departments, systems and processes of a business. When work flows naturally, great experiences follow. We primarily deliver our software via the Internet as a service through a simple and easy-to-use interface so that we can rapidly deploy our packaged offerings, and customers can easily build their custom applications. In a minority of cases, customers choose to host our software by themselves or through a third-party service provider.

We generally offer our services on an annual subscription fee basis, which includes access to the ordered subscription service and related standard and enhanced support, including updates to the subscription service during the subscription term. Pricing for our subscription services is based on a number of factors, including duration of subscription term, volume, mix of products purchased, and discounts. We generate sales through our direct sales team and, to a lesser extent, indirectly through resale partners and third-party referrals. We also generate revenues from professional services and for training of customer and partner personnel. Our professional services organization is focused on strategic advisory, implementation and consulting services to accelerate platform adoption and drive customer outcomes. We generally bill our customers annually in advance for subscription services and monthly in arrears for our professional services as the work is performed.

~~A majority of our revenues come from large global enterprise customers. We continue to invest in the development of our services, infrastructure and sales and marketing to drive long-term growth.~~

Key Business Metrics

Remaining performance obligations. Transaction price allocated to remaining performance obligations (“RPO”) represents contracted ~~revenue~~revenues that has not yet been recognized, which includes deferred revenue and non-cancelable amounts that will be invoiced and recognized as revenue in future periods. RPO excludes contracts that are billed in arrears, such as certain time and materials contracts, as we apply the “right to invoice” practical expedient under relevant accounting guidance. Current remaining performance obligations (“cRPO”) represents RPO that will be recognized as revenue in the next 12 months.

As of June 30, ~~2021,~~2022, our RPO was ~~$9.5~~$11.5 billion, of which 50% represented cRPO. RPO and cRPO increased by 21% each, compared to June 30, 2021. Factors that may cause our RPO to vary from period to period include the following:

•Foreign currency exchange rates. While a majority of our contracts have historically been in U.S. Dollars, an increasing percentage of our contracts in recent periods has been in foreign currencies, particularly the Euro and British Pound Sterling. Fluctuations in foreign currency exchange rates as of the balance sheet date will cause variability in our RPO.

•Mix of offerings. In a minority of cases, we allow our customers to host our software by themselves or through a third-party service provider. In self-hosted offerings, we recognize a portion of the revenue upfront upon the delivery of the software and as a result, such revenue is excluded from RPO.

•Subscription start date. From time to time, we enter into contracts with a subscription start date in the future and these amounts are included in RPO if such contracts are signed by the balance sheet date.

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

•Contract duration. While we typically enter into multi-year subscription services, the duration of our contracts varies. Further, we continue to see an increase in the number of 12-month agreements entered into with the U.S. Federal government throughout the year, ~~which has been~~with the highest number of agreements entered into in the quarter ended September 30 of each year, driven primarily by timing of their annual budget expenditures. We sometimes also enter into contracts with durations that have a 12-month or shorter term to enable ~~the~~such contracts to co-terminate with ~~the~~ existing ~~contract.~~contracts. The contract duration will cause variability in our RPO.

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Number of customers with ACV greater than $1 million. We count the total number of customers with annual contract value (“ACV”) greater than $1 million as of the end of the period. We had ~~1,201~~1,463 and ~~964~~1,196 customers with ACV greater than $1 million as of June 30, ~~2021~~2022 and ~~2020,~~2021, respectively. For purposes of customer count, a customer is defined as an entity that has a unique Dunn & Bradstreet Global Ultimate (“GULT”) Data Universal Numbering System (“DUNS”) number and an active subscription contract as of the measurement date. The DUNS number is a global standard for business identification and tracking. We make exceptions for holding companies, government entities and other organizations for which the GULT, in our judgment, does not accurately represent the ServiceNow customer. For example, while all U.S. government agencies roll up to “Government of the United States” under the GULT, we count each government agency that we contract with as a separate customer. Our customer count is subject to adjustments for acquisitions, spin-offs and other market activity; accordingly, we restate previously disclosed number of customers with ACV greater than $1 million calculations to allow for comparability. ACV is calculated based on the foreign exchange rate in effect at the time the contract was signed. Foreign exchange rate fluctuations could cause some variability in the number of customers with ACV greater than $1 million. We believe information regarding the total number of customers with ACV greater than $1 million provides useful information to investors because it is an indicator of our growing customer base and demonstrates the value customers are receiving from the Now Platform.

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


		Six Months Ended June 30,				% Change			Six Months Ended June 30,				% Change
		2021		2020					2022		2021

		(dollars in millions)							(dollars in millions)
Free cash flow:	Free cash flow:							Free cash flow:
Net cash provided by operating activities	Net cash provided by operating activities	$	1,027	$	860	19	%	Net cash provided by operating activities	$	1,296	$	1,027	26	%
Purchases of property and equipment	Purchases of property and equipment	(198)		(194)		2	%	Purchases of property and equipment	(244)		(198)		23	%
Free cash flow(1)	Free cash flow(1)	$	829	$	666	24	%	Free cash flow(1)	$	1,052	$	829	27	%

(1)Free cash flow for the six months ended June 30, 2021 includes the effect of $13 million relating to the repayments of convertible senior notes attributable to debt discount. Refer to Note 10 in the notes to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for further details.

We have historically seen higher collections in the quarter ended March 31 due to seasonality in timing of entering into customer contracts, which is significantly higher in the quarter ended December 31. Additionally, we have historically seen higher disbursements in the quarters ended March 31 and September 30 due to payouts under our annual commission plans, purchases under our employee stock purchase plan, payouts under our bonus plans and coupon payments related to our 2030 Notes beginning in 2021.

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Renewal rate. We calculate our renewal rate by subtracting our attrition rate from 100%. Our attrition rate for a period is equal to the ACV from customers lost during the period, divided by the sum of (i) the total ACV from all customers that renewed during the period, excluding changes in price or users, and (ii) the total ACV from all customers lost during the period. Accordingly, our renewal rate is calculated based on ACV and is not based on the number of customers that have renewed. Further, our renewal rate does not reflect increased or decreased purchases from our customers to the extent such customers are not lost customers or lapsed renewal. A lost customer is a customer that did not renew an expiring contract and that, in our judgment, will not be renewed. Typically, a customer that reduces its subscription upon renewal is not considered a lost customer. However, in instances where the subscription decrease represents the majority of the customer’s ACV, we may deem the renewal as a lost customer. For our renewal rate calculation, we define a customer as an entity with a separate production instance of our service and an active subscription contract as of the measurement date, instead of an entity with a unique GULT or DUNS number. We adjust our renewal rate for acquisitions, consolidations and other customer events that cause the merging of two or more accounts occurring at the time of renewal. Additionally, starting in 2020, we simplified our methodology related to contracts less than 12 months to derive ACV used to calculate renewal rate. Previously disclosed renewal rates may be restated to reflect such adjustments or methodology simplification to allow for comparability. However, there were no material changes to such previously disclosed renewal rates. Our renewal rate was 99% and 98% for the three and six months ended June 30, 2022, respectively, and 97% for each of the three and six months ended June 30, ~~2021 and 2020, respectively.~~2021. As our renewal rate is impacted by the timing of renewals, which could occur in advance of, or subsequent to the original contract end date, period-to-period comparison of renewal rates may not be meaningful.

~~Billings.~~ We define billings, a non-GAAP financial measure, as GAAP revenues recognized plus the change in total GAAP unbilled receivables, deferred revenue and customer deposits as presented on the condensed consolidated statements of cash flows. The calculation of billings is provided below:

Three Months Ended June 30, % Change Six Months Ended June 30, % Change
2021 2020 2021 2020
(dollars in millions) (dollars in millions)
Billings:
Total revenues $ 1,409 $ 1,071 32 % $ 2,769 $ 2,117 31 %
Change in deferred revenue, unbilled receivables and customer deposits(1)
8 8 — % 83 65 28 %
Total billings $ 1,417 $ 1,079 31 % $ 2,852 $ 2,182 31 %
Year over year percentage change in total billings 31 % 24 % 31 % 26 %

~~(1)As presented on or derived from our condensed consolidated statements of cash flows.~~

Billings consists of amounts invoiced for subscription contracts with existing customers, renewal contracts, expansion contracts, contracts with new customers, and contracts for professional services and training. Factors that may cause our billings results to vary from period to period include the following:

•~~Billings duration~~. While we typically bill customers annually in advance for our subscription services, customers sometimes request, and we accommodate, billings with durations less than or greater than the typical 12-month term. Changes in billings duration had a favorable impact of $9 million and $20 million for the three and six months ended June 30, 2021, respectively.

•~~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 condensed consolidated balance sheets, unless such amounts have been paid as of the balance sheet date.

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

~~Foreign currency rate fluctuations had a favorable impact of $47 million and $88 million on billings for the three and six months ended June 30, 2021, respectively.~~

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

•~~Seasonality~~. We have historically experienced seasonality in terms of when we enter into customer agreements for our services. We sign a significantly higher percentage of agreements with new customers, as well as expansion with existing customers, in the fourth quarter of each year. The increase in customer agreements for the fourth quarter is primarily a result of both large enterprise account buying patterns typical in the software industry, which are driven primarily by the expiration of annual authorized budgeted expenditures, and the terms of our commission plans, which incentivize our direct sales organization to meet their annual quotas by December 31. Furthermore, we usually sign a significant portion of these agreements during the last month, and often the last two weeks, of each quarter. This seasonality in the timing of entering into customer contracts is sometimes not immediately apparent in our billings, due to the fact that we typically exclude cloud-offering contracts with a future start date from our billings, unless such amounts have been paid as of the balance sheet date. Similarly, this seasonality is reflected to a much lesser extent, and sometimes is not immediately apparent in our revenues, due to the fact that we recognize subscription revenues from our cloud offering contracts over the term of the subscription agreement, which is generally 12 to 36 months. Although these seasonal factors are common in the technology industry, historical patterns should not be considered a reliable indicator of our future sales activity or performance. Further, the seasonal factors could be heightened due to the impact of the current gross domestic product contraction and other impacts unknown at this time on our customers and sales cycles caused by the COVID-19 pandemic.

While we believe billings is one indicator of the performance of our business, due to the factors described above, an increase or decrease in billings may not reflect the actual performance for that reporting period.

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

Components of Results of Operations

Revenues

Subscription revenues. Subscription revenues are primarily comprised of fees that give customers access to the ordered subscription service for both self-hosted offerings and cloud-based subscription offerings, and related standard and enhanced support and updates, if any, to the subscription service during the subscription term. For our cloud-based offerings, we recognize revenue ratably over the subscription term. For self-hosted offerings, a substantial portion of the sales price is recognized upon delivery of the software, which may cause greater variability in our subscription revenues and subscription gross margin. Pricing includes multiple instances, hosting and support services, data backup and disaster recovery services, as well as future updates, when and if available, offered during the subscription term. We typically invoice our customers for subscription fees in annual increments upon execution of the initial contract or subsequent renewal. Our contracts are generally non-cancelable during the subscription term, though a customer can terminate for breach if we materially fail to perform.

Professional services and other revenues. Our arrangements for professional services are primarily on a time-and-materials basis and we generally invoice our customers monthly in arrears for the professional services based on actual hours and expenses incurred. Some of our professional services arrangements are on a fixed fee or subscription basis. Professional services revenues are recognized as services are delivered. Other revenues primarily consist of fees from customer training delivered on-site or through publicly available classes. Typical payment terms require our customers to pay us within 30 days of invoice.

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We sell our subscription services primarily through our direct sales organization. We also sell services through managed service providers and resale partners. We also generate revenues from certain professional services and from training of customers and partner personnel, through both our direct team and indirect channel sales. Revenues from our direct sales organization represented 79% of our total revenues for each of the three and six months ended June 30, 2022 and 80% of our total revenues for each of the three and six months ended June 30, ~~2021 and 81% of our total revenues for each of the three and six months ended June 30, 2020.~~2021. For purposes of calculating revenues from our direct sales organization, revenues from systems integrators and managed services providers are included as part of the direct sales organization.

Seasonality. We have historically experienced seasonality in terms of when we enter into customer agreements. We sign a significantly higher percentage of agreements with new customers, as well as expansion with existing customers, in the fourth quarter of each year. The increase in customer agreements for the fourth quarter is primarily a result of both large enterprise account buying patterns typical in the software industry, which are driven primarily by the expiration of annual authorized budgeted expenditures, and the terms of our commission plans, which incentivize our direct sales organization to meet their annual quotas by December 31. Furthermore, we usually sign a significant portion of these agreements during the last month, and often the last two weeks, of each quarter. This seasonality of entering into customer contracts is sometimes not immediately apparent in our revenues, due to the fact that we recognize subscription revenues from our cloud offering contracts over the term of the subscription agreement, which is generally 12 to 36 months, leading to a higher RPO in the fourth quarter and thereafter. Although these seasonal factors are common in the technology industry, historical patterns should not be considered a reliable indicator of our future sales activity or performance.

Cost of Revenues

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

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

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Professional services are performed directly by our services team, as well as by contracted third-party partners. Fees paid by us to third-party partners are primarily recognized as cost of revenues as the professional services are delivered. Cost of revenues associated with our professional services engagements contracted with third-party partners as a percentage of professional services and other revenues was 13% and 12% for the three and six months ended June 30, 2022, respectively, and 14% and 12% for the three and six months ended June 30, 2021, ~~respectively, and 11% for each of the three and six months ended June 30, 2020.~~respectively.

Sales and Marketing

Sales and marketing expenses consist primarily of personnel-related expenses directly associated with our sales and marketing staff, including salaries, benefits and bonuses and stock-based compensation. Sales and marketing expenses also include the amortization of commissions paid to our sales employees, including related payroll taxes and fringe benefits. From time to time, third parties provide us referrals for which we pay a referral fee. We include revenues associated with these referrals as part of revenues from our direct sales organization. Referral fees paid to these third parties are generally 10% of the customer’s net new ACV. We defer referral fees paid as they are considered incremental selling costs associated with acquiring customer contracts and include the amortization of these referral fees in sales and marketing expense. In addition, sales and marketing expenses include branding expenses, marketing program expenses, which include events such as Knowledge, and costs associated with purchasing advertising and marketing data, software and subscription services dedicated for sales and marketing use and allocated overhead.

Research and Development

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

General and Administrative

General and administrative expenses consist primarily of personnel-related expenses for our executive, finance, legal, human resources, facilities and administrative personnel, including salaries, benefits, bonuses and stock-based compensation, external legal, accounting and other professional services fees, other corporate expenses, amortization of intangible assets and allocated overhead.

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Provision for (Benefit from) Income Taxes

Provision for (benefit from) 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 June 30, ~~2021.~~2022. We consider all available evidence, both positive and negative, including but not limited to earnings history, projected future outcomes, industry and market trends and the nature of each of the deferred tax assets in assessing the extent to which a valuation allowance should be applied against our U.S. and foreign deferred tax assets.

~~Results~~Comparison of ~~Operations~~the Three Months Ended March 31, 2022 and 2021

Revenues


		Three Months Ended June 30,				% Change			Six Months Ended June 30,						% Change			Three Months Ended June 30,					% Change		Six Months Ended June 30,				% Change
		2021		2020				2021			2020			2022					2021			2022			2021

		(dollars in millions)							(dollars in thousands)									(dollars in millions)								(dollars in millions)
Revenues:	Revenues:																Revenues:
Subscription	Subscription	$	1,330	$	1,015	31	%		$	2,623		$	2,010		30	%	Subscription	$	1,658	$	1,330		25	%	$	3,289	$	2,623	25	%
Professional services and other	Professional services and other	79		56		41	%		146			107			36	%	Professional services and other	94		79			19	%	185		146		27	%
Total revenues	Total revenues	$	1,409	$	1,071	32	%		$	2,769		$	2,117		31	%	Total revenues	$	1,752	$	1,409		24	%	$	3,474	$	2,769	25	%
Percentage of revenues:	Percentage of revenues:																Percentage of revenues:
Subscription	Subscription	94%		95%					95%			95%					Subscription	95%		94%					95%		95%
Professional services and other	Professional services and other	6%		5%					5%			5%					Professional services and other	5%		6%					5%		5%
Total	Total	100%		100%					100%			100%					Total	100%		100%					100%		100%

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Subscription revenues increased by ~~$315~~$328 million and ~~$613~~$666 million for the three and six months ended June 30, ~~2021~~2022, respectively, compared to the three and six months ended June 30, ~~2020, respectively,~~2021, primarily driven by increased purchases by new and existing ~~customers and an increase in customer count.~~customers. Included in subscription revenues is ~~$41~~$49 million and ~~$45~~$41 million of revenues recognized upfront from the delivery of software associated with self-hosted offerings during the three months ended June 30, ~~2021~~2022 and ~~2020,~~2021, respectively, and ~~$114~~$126 million and ~~$112~~$114 million during the six months ended June 30, ~~2021~~2022 and ~~2020,~~2021, respectively.

We expect subscription revenues for the year ending December 31, ~~2021~~2022 to increase in absolute dollars as we continue to add new customers and existing customers increase their usage of our products, but remain relatively flat as a percentage of ~~revenue~~revenues compared to the year ended December 31, ~~2020. We continue to monitor the COVID-19 pandemic in 2021 and its impact on customer acquisition and renewal rates.~~2021.

Our expectations for revenues, cost of revenues and operating expenses for the remainder of ~~2021~~2022 are based on the 30-day average of foreign exchange rates ~~as of~~for June ~~30, 2021.~~2022.

Subscription revenues consist of the following:


		Three Months Ended June 30,				% Change				Six Months Ended June 30,									% Change			Three Months Ended June 30,									% Change			Six Months Ended June 30,					% Change
		2021		2020				2021				2020						2022					2021						2022					2021

		(dollars in millions)								(dollars in thousands)												(dollars in millions)												(dollars in millions)
Digital workflow products	Digital workflow products	$	1,164	$	886			31	%			$	2,295			$	1,754					31		%	Digital workflow products	$	1,463			$		1,164		26		%	$	2,903	$	2,295		26	%
ITOM products	ITOM products	166		129		29	%			328				256					28	%	ITOM products	195					166				17		%	386			328		18		%
Total subscription revenues	Total subscription revenues	$	1,330	$	1,015	31	%			$	2,623			$	2,010				30	%	Total subscription revenues	$	1,658				$	1,330			25		%	$	3,289		$	2,623	25		%

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Professional services and other revenues increased by ~~$23~~$15 million and $39 million during the three and six months ended June 30, ~~2021~~2022 compared to the three and six months ended June 30, ~~2020,~~2021, respectively, due to an increase in services and trainings provided to new and existing customers. We expect professional services and other revenues for the year ending December 31, ~~2021~~2022 to increase in absolute dollars but remain relatively flat as a percentage of ~~revenue~~revenues compared to the year ended December 31, ~~2020.~~2021. We are increasingly focused on deploying our internal professional services organization as a strategic resource and relying on our partner ecosystem to contract directly with customers for implementation services delivery.

Cost of Revenues and Gross Profit Percentage


		Three Months Ended June 30,				% Change			Six Months Ended June 30,						% Change			Three Months Ended June 30,					% Change		Six Months Ended June 30,				% Change
		2021		2020				2021			2020			2022					2021			2022			2021

		(dollars in millions)							(dollars in thousands)									(dollars in millions)								(dollars in millions)
Cost of revenues:	Cost of revenues:																Cost of revenues:
Subscription	Subscription	$	248	$	172	44	%		$	476		$	332		43	%	Subscription	$	287	$	248		16	%	$	562	$	476	18	%
Professional services and other	Professional services and other	81		61		33	%		152			124			23	%	Professional services and other	102		81			26	%	196		152		29	%
Total cost of revenues	Total cost of revenues	$	329	$	233	41	%		$	628		$	456		38	%	Total cost of revenues	$	389	$	329		18	%	$	758	$	628	21	%
Gross profit percentage:	Gross profit percentage:																Gross profit percentage:
Subscription	Subscription	81%		83%					82%			83%					Subscription	83%		81%					83%		82%
Professional services and other	Professional services and other	(3%)		(9%)					(4%)			(16%)					Professional services and other	(9%)		(3%)					(6%)		(4%)
Total gross profit percentage	Total gross profit percentage	77%		78%					77%			78%					Total gross profit percentage	78%		77%					78%		77%
Gross profit	Gross profit	$	1,080	$	838				$	2,141		$	1,661				Gross profit	$	1,363	$	1,080				$	2,716	$	2,141

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Cost of subscription revenues increased by ~~$76~~$39 million and ~~$144~~$86 million for the three and six months ended June 30, ~~2021~~2022, respectively compared to the three and six months ended June 30, ~~2020, respectively,~~2021, primarily due to increased headcount and increased costs to support the growth of our subscription ~~offerings.~~offerings including costs to support customers in regulated markets. Personnel-related costs including stock-based compensation and overhead expenses increased by $33 million and ~~$61~~$68 million for the three and six months ended June 30, ~~2021,~~2022, respectively, compared to the same periods in the prior year. ~~In addition, depreciation expense related to data center hardware, software and maintenance~~Maintenance costs to support the expansion of our data center capacity, including public cloud service costs, increased by ~~$42~~$15 million and ~~$77~~$30 million for the three and six months ended June 30, ~~2021,~~2022, respectively, compared to the same periods in the prior year. Amortization of intangible assets increased by $4 million and $10 million for the three and six months ended June 30, 2022, respectively, compared to the same periods in the prior year. Depreciation expense related to data center hardware and software decreased by $15 million and $27 million, primarily due to the change in estimated useful life of data center equipment from three years to four years, for the three and six months ended June 30, 2022, respectively, compared to the same periods in the prior year.

We expect our cost of subscription revenues for the year ending December 31, 2022 to increase in absolute dollars as we provide subscription services to more customers and increase usage within our customer ~~instances.~~instances but remain relatively flat as a percentage of revenues compared to the year ended December 31, 2021. Our subscription gross profit percentage was 83% for each of the three and six months ended June 30, 2022, compared to 81% and 82% for the three and six months ended June 30, 2021, ~~respectively, compared to 83% for each of the three and six months ended June 30, 2020.~~respectively. We expect our subscription gross profit percentage to ~~slightly decrease~~remain relatively flat for the year ending December 31, ~~2021~~2022 compared to the year ended December 31, ~~2020 primarily due~~2021. We will continue to incur incremental costs to ~~acquire~~attract customers in regulated markets by adopting public cloud offerings as well as increased support for customers impacted by new and evolving data residency requirements. To the extent future acquisitions are consummated, our cost of subscription revenues may increase due to additional non-cash charges associated with the amortization of intangible assets acquired.

Cost of professional services and other revenues increased by ~~$20~~$21 million and ~~$28~~$44 million for the three and six months ended June 30, ~~2021,~~2022, respectively, compared to the ~~same periods in the prior year,~~three and six months ended June 30, 2021, primarily due to increased headcount to support growth resulting in an increase in personnel-related costs including stock-based ~~compensation.~~compensation, travel and overhead expenses.

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Our professional services and other gross ~~margin~~loss percentage increased to 9% and 6% for the three and six months ended June 30, 2022, respectively, from a loss of 3% and 4% for the three and six months ended June 30, 2021, respectively, ~~from loss of 9% and 16% for the three and six months ended June 30, 2020, respectively,~~ primarily driven by planned increase in headcount costs to support the ~~increased utilization of our internal professional services organization~~business growth and ~~the reduction~~increase in ~~certain~~ travel ~~expenses.~~expense for customer implementations. We expect our professional services and other gross ~~margin~~loss percentage to ~~increase~~worsen for the year ending December 31, ~~2021~~2022 as we expect additional costs to support business growth and increases in travel expenses compared to the year ended December 31, ~~2020 as we continue to optimize our utilization of our internal professional services organization.~~2021.

Sales and Marketing


		Three Months Ended June 30,				% Change			Six Months Ended June 30,						% Change			Three Months Ended June 30,					% Change		Six Months Ended June 30,				% Change
		2021		2020				2021			2020			2022					2021			2022			2021

		(dollars in millions)							(dollars in thousands)									(dollars in millions)								(dollars in millions)
Sales and marketing	Sales and marketing	$	557	$	426	31	%		$	1,081		$	867		25	%	Sales and marketing	$	722	$	557		30	%	$	1,395	$	1,081	29	%
Percentage of revenues	Percentage of revenues	40%		40%					39%			41%					Percentage of revenues	41%		40%					40%		39%

Sales and marketing expenses increased by ~~$131~~$165 million and ~~$214~~$314 million for the three and six months ended June 30, ~~2021~~2022, respectively, compared to the three and six months ended June 30, ~~2020, respectively,~~2021, primarily due to increased headcount, resulting in an increase in personnel-related costs including stock-based compensation and overhead expenses of ~~$87~~$110 million and ~~$159~~$202 million for the three and six months ended June 30, ~~2021,~~2022, respectively, compared to the same periods in the prior year. Amortization expenses associated with deferred commissions ~~and third-party referral fees~~ increased ~~$19~~by $17 million and ~~$37~~$35 million for the three and six months ended June 30, ~~2021,~~2022, respectively, compared to the same periods in the prior year, due to an increase in contracts with new customers, expansion and renewal contracts. Other sales and marketing program expenses, which ~~include~~includes branding, ~~expenses and~~ costs associated with purchasing advertising, marketing events and market data, ~~and outside services,~~ increased by ~~$24~~$32 million and ~~$21~~$68 million during the three and six months ended June 30, ~~2021,~~2022, respectively, compared to the same periods in the prior ~~year.~~year, primarily due to increased program costs and travel for our annual Knowledge user conference.

Amid the ongoing regulatory restrictions imposed by governments worldwide in response to the COVID-19 pandemic, we continue to temporarily close many of our offices to ensure the well-being and safety of our global employees, office staff and communities.Further, we converted certain in-person events to digital events in the second quarter of 2021, which resulted in certain savings for the six months ended June 30, 2021 compared to the same period in the prior year.

~~Despite the uncertainty around the continued impact of the COVID-19 pandemic and its duration, we~~We expect sales and marketing expenses for the year ending December 31, 2022 to increase in absolute dollars, but ~~slightly decrease~~remain relatively flat as a percentage of ~~revenue~~revenues compared to the year ended December 31, ~~2020,~~2021, as we continue to ~~expand our direct~~see leverage from increased sales ~~organization, increase our~~productivity and marketing ~~activities, grow~~efficiencies offset by growth in our international operations and ~~continue to build brand awareness.~~increases in travel expenses in 2022.

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Research and Development


		Three Months Ended June 30,				% Change			Six Months Ended June 30,						% Change			Three Months Ended June 30,					% Change		Six Months Ended June 30,				% Change
		2021		2020				2021			2020			2022					2021			2022			2021

		(dollars in millions)							(dollars in millions)									(dollars in millions)								(dollars in millions)
Research and development	Research and development	$	333	$	245	36	%		$	647		$	472		37	%	Research and development	$	444	$	333		33	%	$	858	$	647	33	%
Percentage of revenues	Percentage of revenues	24%		23%					23%			22%					Percentage of revenues	25%		24%					25%		23%

Research and development expenses increased by ~~$88~~$111 million and ~~$175~~$211 million for the three and six months ended June 30, ~~2021~~2022, respectively, compared to the three and six months ended June 30, ~~2020, respectively,~~2021, primarily due to increased headcount, resulting in an increase in personnel-related costs including stock-based compensation and overhead expenses of ~~$82~~$103 million and ~~$165~~$197 million for the three and six months ended June 30, ~~2021,~~2022, respectively, compared to the same periods in the prior year. ~~The remaining increase was primarily due to an increase in outside service costs, hosting costs and data center related depreciation costs to support~~ ~~research and development activities~~.

We expect research and development expenses for the year ending December 31, ~~2021~~2022 to increase in absolute dollars but remain relatively flat as a percentage of ~~revenue~~revenues compared to the year ended December 31, ~~2020~~2021 as we continue to improve the existing functionality of our services, develop new applications to fill market needs and enhance our core platform.

~~Table of~~ ~~Contents~~

General and Administrative


		Three Months Ended June 30,				% Change			Six Months Ended June 30,						% Change			Three Months Ended June 30,					% Change		Six Months Ended June 30,				% Change
		2021		2020				2021			2020			2022					2021			2022			2021

		(dollars in millions)							(dollars in millions)									(dollars in millions)								(dollars in millions)
General and administrative	General and administrative	$	139	$	104	34	%		$	265		$	210		26	%	General and administrative	$	175	$	139		26	%	$	354	$	265	34	%
Percentage of revenues	Percentage of revenues	10%		10%					10%			10%					Percentage of revenues	10%		10%					10%		10%

General and administrative expenses (“G&A”) increased by ~~$35~~$36 million and ~~$55~~$89 million for the three and six months ended June 30, ~~2021~~2022, respectively, compared to the three and six months ended June 30, ~~2020, respectively,~~2021, primarily due to increased headcount, resulting in an increase in personnel-related costs including stock-based compensation ~~and overhead expenses~~ of ~~$24~~$37 million and ~~$41~~$82 million for the three and six months ended June 30, ~~2021,~~2022, respectively, compared to the same periods in the prior year. ~~The remaining increase was primarily due to~~ ~~costs to support digital transformation projects across functions to improve processes as we scale as well as incremental investment in environmental, social and corporate governance initiatives~~.

We expect ~~general and administrative~~G&A expenses to increase in absolute dollars for the year ending December 31, ~~2021~~2022 but remain relatively flat as a percentage of ~~revenue~~revenues compared to the year ended December 31, ~~2020,~~2021, as we continue to ~~increase headcount.~~see leverage from continued G&A productivity, offset by higher stock-based compensation related to one-time long-term performance-based options granted to the Chief Executive Officer (“2021 CEO Performance Award") and to certain executives (collectively “2021 Performance Awards”).

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Stock-based Compensation


		Three Months Ended June 30,				% Change			Six Months Ended June 30,						% Change			Three Months Ended June 30,					% Change		Six Months Ended June 30,				% Change
		2021		2020				2021			2020			2022					2021			2022			2021

		(dollars in millions)							(dollars in thousands)									(dollars in millions)								(dollars in millions)
Cost of revenues:	Cost of revenues:																Cost of revenues:
Subscription	Subscription	$	33	$	25	32	%		$	62		$	46		35	%	Subscription	$	39	$	33		18	%	$	75	$	62	21	%
Professional services and other	Professional services and other	15		13		15	%		28			25			12	%	Professional services and other	18		15			20	%	34		28		21	%
Operating expenses:	Operating expenses:																Operating expenses:
Sales and marketing	Sales and marketing	99		79		25	%		192			149			29	%	Sales and marketing	113		99			14	%	218		192		14	%
Research and development	Research and development	98		70		40	%		186			129			44	%	Research and development	126		98			29	%	241		186		30	%
General and administrative	General and administrative	37		30		23	%		70			56			25	%	General and administrative	56		37			51	%	109		70		56	%
Total stock-based compensation	Total stock-based compensation	$	282	$	217	30	%		$	538		$	405		33	%	Total stock-based compensation	$	352	$	282		25	%	$	677	$	538	26	%
Percentage of revenues	Percentage of revenues	20%		20%					19%			19%					Percentage of revenues	20%		20%					19%		19%

Stock-based compensation increased by ~~$65~~$70 million and ~~$133~~$139 million for the three and six months ended June 30, ~~2021,~~2022, respectively, compared to the same periods in the prior year, primarily due to additional grants to current and new employees.

Stock-based compensation is inherently difficult to forecast due to fluctuations in our stock price. Based upon our stock price as of June 30, ~~2021,~~2022, we expect stock-based compensation to continue to increase in absolute dollars for the year ending December 31, ~~2021~~2022 as we continue to issue stock-based awards to our employees, but remain relatively flat as a percentage of revenues compared to the year ended December 31, ~~2020, and we~~2021. We expect ~~this~~stock-based compensation as a percentage of revenues to decline over time as we continue to grow.

Foreign Currency Exchange

Our international operations have provided and will continue to provide a significant portion of our total revenues. Revenues outside North America represented ~~37% and 36%~~35% of total revenues for each of the three and six months ended June 30, ~~2021, respectively,~~2022, and ~~34%~~37% and 36% of total revenues for the three and six months ended June 30, ~~2020,~~2021, respectively.

~~Table of~~ ~~Contents~~

Because we primarily transact in foreign currencies for sales outside of the United States, the general ~~weakening~~strengthening of the U.S. Dollar relative to other major foreign currencies (primarily the Euro and British Pound Sterling) had ~~a favorable~~an unfavorable impact on our revenues for ~~each of~~ the three and six months ended June 30, ~~2021.~~2022. For entities reporting in currencies other than the U.S. Dollar, if we had translated our results for the three and six months ended June 30, ~~2021~~2022 at the exchange rates in effect for the three and six months ended June 30, ~~2020~~2021 rather than the actual exchange rates in effect during the period, our reported subscription revenues would have been ~~$45~~$66 million and ~~$82~~$101 million ~~lower,~~higher, respectively. We expect to see an incremental strengthening of the US dollar resulting in further foreign currency impact to subscription revenue for the second half of fiscal 2022. The impact from the foreign currency movements from the three and six months ended June 30, ~~2020~~2021 to the three and six months ended June 30, ~~2021~~2022 was not material for professional services and other revenues.

In addition, because we primarily transact in foreign currencies for cost of revenues and operating expenses outside of the United States, the general ~~weakening~~strengthening of the U.S. Dollar relative to other major foreign currencies had ~~an unfavorable~~a favorable impact on our cost of revenues and sales and marketing expenses for each of the three and six months ended June 30, ~~2021.~~2022. For entities reporting in currencies other than the U.S. Dollar, if we had translated our results for the three and six months ended June 30, ~~2021~~2022 at the exchange rates in effect for the three and six months ended June 30, ~~2020~~2021 rather than the actual exchange rates in effect during the period, our reported cost of revenues would have been ~~$13~~$12 million and ~~$21~~$18 million ~~lower~~higher, respectively and sales and marketing expenses would have been ~~$14~~$21 million and ~~$24~~$30 million ~~lower~~higher for the three and six months ended June 30, ~~2021,~~2022, respectively. The impact from the foreign currency movements from the three and six months ended June 30, ~~2020~~2021 to the three and six months ended June 30, ~~2021~~2022 was not material to research and development and general and administrative expenses.

Table of Contents

Interest Expense


		Three Months Ended June 30,					% Change			Six Months Ended June 30,							% Change		Three Months Ended June 30,								% Change		Six Months Ended June 30,				% Change
		2021			2020			2021			2020					2022				2021					2022				2021

		(dollars in millions)								(dollars in thousands)									(dollars in millions)										(dollars in millions)
Interest expense	Interest expense	$	(7)		$	(8)		(13	%)		$	(14)		$	(17)				(18		%)	Interest expense	$	(6)		$		(7)	(14	%)	$	(12)	$	(14)	(14	%)
Percentage of revenues	Percentage of revenues	—		%	(1%)					(1%)			(1%)					Percentage of revenues	—		%			—%					—	%	(1%)

Interest expense decreased for ~~each of~~ the three and six months ended June 30, ~~2021~~2022 compared to the same periods in the prior year, due to a decrease in amortization expense of the debt discount and issuance costs as a result of settlement of the outstanding principal balance of the 2022 Notes ~~Repurchase offset by increase in debt discount, issuance cost~~ and ~~interest related~~due to the ~~2030 Notes. For~~adoption of the ~~year ending December 31, 2021, we~~new accounting standard for debt with conversion options. We expect to incur approximately ~~$14~~$11 million of ~~additional~~ interest expense related to the ~~2022~~2030 Notes ~~and~~in the ~~2030 Notes.~~second half of fiscal 2022.

Other Income, net


		Three Months Ended June 30,				% Change			Six Months Ended June 30,						% Change
		2021		2020				2021			2020			Three Months Ended June 30,						% Change			Six Months Ended June 30,					% Change
																						2022			2021					2022			2021
		(dollars in millions)							(dollars in millions)									(dollars in millions)								(dollars in millions)
Interest income	Interest income	$	5	$	10	(50	%)		$	11		$	24		(54	%)	Interest income	$	12	$	5		140	%		$	17	$	11		55	%

Other	Other	1		(3)		NM			4			(9)			(144	%)	Other	1		1			—	%		—		4			(100	%)
Other income, net	Other income, net	$	6	$	7	(14	%)		$	15		$	15		—	%	Other income, net	$	13	$	6		117	%		$	17	$	15		13	%
Percentage of revenues	Percentage of revenues	—%		1%					1%			1%					Percentage of revenues	1%		—%						—%		1%

~~NM - Not meaningful~~

Other income, net, ~~remained relatively consistent~~increased by $7 million and $2 million for ~~each of~~ the three and six months ended June 30, ~~2021~~2022, respectively, compared to the same periods in the prior year, primarily driven by ~~a decrease~~an increase in ~~interest~~investment income ~~compared to the same periods in the prior year due to decline in interest rates offset by gain~~ from ~~foreign currency derivative contracts and unrealized gain on equity investments in privately-held companies.~~our managed portfolio.

To mitigate our risks associated with fluctuations in foreign currency exchange rates, we enter into foreign currency derivative contracts with maturities of 12 months or less to hedge a portion of our net outstanding monetary assets and liabilities. These hedging contracts may reduce, but cannot entirely eliminate, the impact of adverse currency exchange rate movements.

~~Table of~~ ~~Contents~~

~~Benefit from (Provision for)~~Provision for (Benefit from) Income Taxes


		Three Months Ended June 30,				% Change			Six Months Ended June 30,						% Change			Three Months Ended June 30,					% Change		Six Months Ended June 30,				% Change
		2021		2020				2021			2020			2022					2021			2022			2021

		(dollars in millions)							(dollars in millions)									(dollars in millions)								(dollars in millions)
Income before income taxes	Income before income taxes	$	50	$	62	(19	%)		$	149		$	110		35	%	Income before income taxes	$	29	$	50		(42	%)	$	114	$	149	(23	%)
Provision for (benefit from) income taxes	Provision for (benefit from) income taxes	(9)		21		(143	%)		8			21			(62	%)	Provision for (benefit from) income taxes	$	9	$	(9)		(200	%)	19		8		138	%
Effective tax rate	Effective tax rate	(18%)		34%					5%			19%					Effective tax rate	31%		(18%)					17%		5%

~~Our income tax provision was $21 million for each~~

Table of the three and six months ended June 30, 2020. For the three months ended June 30, 2020, the income tax provision was primarily attributable to the mix of earnings and losses in countries with differing statutory tax rates, the valuation allowance in the United States and the intercompany sale of certain intellectual property rights. For the six months ended June 30, 2020, the income tax provision was primarily attributable to the mix of earnings and losses in countries with differing statutory tax rates and the valuation allowance in the United States.Contents

We continue to maintain a full valuation allowance on our U.S. federal and state deferred tax assets and the significant components of the tax expense recorded are current cash taxes payable in various jurisdictions. The cash tax expenses are impacted by each jurisdiction’s individual tax rates, laws on timing of recognition of income and deductions, and availability of net operating losses and tax credits. Given the full valuation allowance on our U.S. federal and state deferred tax assets, sensitivity of current cash taxes to local rules and our foreign structuring, we expect that our effective tax rate could fluctuate significantly on a quarterly basis and could be adversely affected to the extent earnings are lower than anticipated in countries that have lower statutory rates and higher than anticipated in countries that have higher statutory rates. To the extent sufficient positive evidence becomes available, we may release all or a portion of our valuation allowance in one or more future periods. A release of the valuation allowance, if any, would result in the recognition of certain deferred tax assets and a material income tax benefit for the period in which such release is recorded.

Liquidity and Capital Resources

~~Our principal~~We generate cash inflows from operations primarily from selling subscription services which are generally paid in advance of provisioning services, and cash outflows to develop new services and core technologies that further enhance the Now Platform, engage our customer and enhance their experience, and enable and transform our business operations. Subscription services arrangements typically have a three-year duration, and we have experienced a renewal rate of 98% over the last three years. Cash outflows from operations are principally comprised of the salaries, bonuses, commissions, and benefits for our workforce; licenses and services arrangements that are integral to our business operations and data centers; and operating lease arrangements that underlie our facilities. We have generated positive operating cash flows over the last ten years as we continue to grow our business in pursuit of our business strategy, and we expect to grow our business and generate positive cash flows from operations during 2022. When assessing sources of liquidity, ~~are our~~we also include cash and cash equivalents, short-term investments and ~~cash generated from operations. As~~long-term investments totaling $5.4 billion as of June 30, ~~2021, we had $3.0 billion in cash~~2022.

Our working capital requirements are principally comprised of non-contract workforce salaries, bonuses, commissions, and ~~cash equivalents~~benefits and, ~~short-term investments, of which $454 million represented cash held by foreign subsidiaries~~to a lesser extent, cancelable and ~~$442 million is denominated in currencies other than the U.S. Dollar.~~non-cancelable licenses and services arrangements that are integral to our business operations, and operating lease obligations. In addition, we ~~had $1.4 billion~~made the payment for the investment in ~~long-term investments that provide additional capital resources. We do not anticipate that we will need funds generated from foreign operations to fund our domestic operations.~~Celonis SE of $100 million during the six months ended June 30, 2022. Operating lease obligations totaling $769 million are principally associated with leased facilities and have varying maturities with $425 million due over the next five years.

To grow our business, we also invest in capital and other resources to expand our data centers and enable our workforce, and we acquire technology and businesses to supplement our technology portfolio. Our capital expenditures are typically under cancelable arrangements primarily used to support the installed base and growth of our hosted business. We have also issued long-term debt to finance our business. In August 2020, we issued 1.40% fixed rate ten-year notes with an aggregate principal amount of $1.5 billion due on September 1, 2030 (the “2030 Notes”). The 2030 Notes were issued at 99.63% of principal and we incurred approximately $13 million for debt issuance costs. Interest is payable semi-annually in arrears on March 1 and September 1 of each year, beginning on March 1, 2021, and the entire outstanding principal amount is due at maturity on September 1, 2030. The 2030 Notes are unsecured obligations and the indentures governing the 2030 Notes contain customary events of default and customary covenants that, among others and subject to exceptions, restrict the Company’s ability to incur or guarantee debt secured by liens on specified assets or enter into sale and lease-back transactions with respect to specified properties.

~~Table of~~ ~~Contents~~

In May and June 2017, we issued the 2022 Notes with an aggregate principal amount of $782.5 million. In connection with the issuance of the 2022 Notes, we entered into the 2022 Note Hedge transactions and 2022 Warrants transactions with certain financial institutions. The price of our common stock was greater than or equal to 130% of the conversion price of the 2022 Notes for at least 20 trading days during the 30 consecutive trading days ending on the last trading day of the quarters ended June 30, 2018 through June 30, 2021, except for the quarter ended December 31, 2018. Therefore, our 2022 Notes became convertible at the holders’ option beginning on July 1, 2018 and continue to be convertible through September 30, 2021, except for the quarter ended March 31, 2019 because the Conversion Condition for the 2022 Notes was not met for the quarter ended December 31, 2018. The impact of the 2022 Notes on our liquidity will depend on the settlement method we elect. We currently intend to settle the principal amount of any converted 2022 Notes in cash. During the six months ended June 30, ~~2021,~~2022, we paid cash to settle ~~$65~~$94 million in principal of the 2022 ~~Notes. Additionally, we repurchased $497 million in aggregate principal amount of the 2022~~ Notes, ~~(the “2022 Notes Repurchase”)~~ which was ~~accounted~~comprised of early conversions of $6 million and remaining principal of $88 million for ~~as a debt extinguishment. We used proceeds from~~final settlement on June 1, 2022, the ~~partial unwind~~maturity date of ~~the~~our 2022 ~~Note Hedge of $1.1 billion for the 2022 Notes Repurchase.~~Notes.

~~Based on conversion requests received through the filing date, we expect~~Our free cash flows, together with our other sources of liquidity, are available to ~~settle in~~service our liabilities as well as our cancelable and non-cancelable arrangements. We anticipate cash an aggregate of approximately $8 million in principal amount of the 2022 Notes during the third quarter of 2021. We may receive additional conversion requests that require settlement in the third quarter of 2021 and future periods.

During the six months ended June 30, 2021 and year ended December 31, 2020, we issued 0.5 million and 2.3 million shares of our common stock upon partial unwind of the 2022 Warrants, respectively. We expect to issue additional shares of our common stock in the second half of 2022 upon the automatic exercise of the remaining portion of the 2022 Warrants. As the remaining portion of the 2022 Warrants will be net share settled, there will be no impact on our liquidity. The total number of shares of our common stock we will issue depends on the daily volume-weighted average stock prices over a 60 trading day period beginning on the first expiration date of the remaining portion of the 2022 Warrants, which will be September 1, 2022. Refer to Note 10 in the notes to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for additional information.

~~Cash~~flows generated from operations, could be affected by various risks and uncertainties, including, but not limited to, the effects of the COVID-19 pandemic and other risks detailed in the section “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K filed with the SEC on February 12, 2021 and in Part II, Item 1A of this Quarterly Report on Form 10-Q. However, we anticipate our current cash, cash equivalents and investments ~~balance and anticipated cash flows generated from operations based on our current business plan and revenue prospects~~ will be sufficient to meet our liquidity needs including the repayment of any early conversions of our 2022 Notes, debt service costs, expansion of data centers, lease obligations, expenditures related to the growth of our headcount and the acquisition of property and equipment, intangibles, and investments in office facilities, to accommodate our operations for at least the next 12 months. ~~Whether these resources are adequate~~As we look beyond the next 12 months, we seek to ~~meet~~continue to grow free cash flows necessary to fund our ~~liquidity needs beyond that period will depend on~~operations and grow our ~~growth, operating results, cash utilized for acquisitions and/or debt retirements if any are consummated, and the capital expenditures required to meet possible increased demand for our services.~~business. If we require additional capital resources, ~~to grow our business or repay our 2022 Notes at any time in the future,~~ we may seek to finance our operations from the current funds available or ~~seek~~ additional equity or debt financing.


		Six Months Ended June 30,					Six Months Ended June 30,
		2021		2020			2022		2021

		(dollars in millions)					(dollars in millions)
Net cash provided by operating activities	Net cash provided by operating activities	$	1,027	$	860	Net cash provided by operating activities	$	1,296	$	1,027
Net cash used in investing activities	Net cash used in investing activities	(1,051)		(628)		Net cash used in investing activities	$	(1,080)	$	(1,051)
Net cash used in financing activities	Net cash used in financing activities	(273)		(164)		Net cash used in financing activities	$	(229)	$	(273)
Net change in cash, cash equivalents and restricted cash	Net change in cash, cash equivalents and restricted cash	(308)		63		Net change in cash, cash equivalents and restricted cash	$	(62)	$	(308)

Table of Contents

Operating Activities

Net cash provided by operating activities was $1,296 million for the six months ended June 30, 2022 compared to $1,027 million for the six months ended June 30, ~~2021 compared to $860 million for the six months ended June 30, 2020.~~2021. The net increase in operating cash flow was primarily due to ~~increases in operating income,~~ higher ~~cash~~ collections ~~from customers and lower settlement of payables.~~driven by revenue growth.

~~Table of~~ ~~Contents~~

Investing Activities

Net cash used in investing activities for the six months ended June 30, ~~2021~~2022 was ~~$1,051~~$1,080 million compared to ~~$628~~$1,051 million for the six months ended June 30, ~~2020.~~2021. The increase in cash used in investing activities was ~~mainly~~primarily due to ~~$655~~a $534 million ~~for business combinations, net of cash and restricted cash acquired partially offset by $226 million decrease~~increase in net purchases of ~~investments.~~investments, a $129 million increase in non-marketable investments mainly in Celonis SE, and a $46 million increase in purchases of property and equipment, offset by a $681 million decrease in business combinations.

Financing Activities

Net cash used in financing activities was $229 million for the six months ended June 30, 2022 compared to $273 million for the six months ended June 30, ~~2021 compared to $164 million for the six months ended June 30, 2020.~~2021. The ~~increase was~~decrease in cash used in financing activities is primarily due to ~~additional $76~~a $74 million decrease in taxes paid related to net share settlement of equity awards, ~~and $37~~a $11 million increase in proceeds from employee stock plans, offset by a $41 million increase in repayments of convertible senior notes ~~offset by $4 million in proceeds from employee equity plans.~~attributable to principal.

Critical Accounting Policies and Significant Judgments and Estimates

There have been no significant changes to our critical accounting policies and estimates as described in our Annual Report on Form 10-K for the year ended December 31, ~~2020,~~2021, which was filed with the SEC on February ~~12, 2021.~~3, 2022, other than the change in useful life of our data center equipment, discussed in Note 2.

New Accounting Pronouncements Pending Adoption

The impact of recently issued accounting standards is set forth in Note 2, Summary of Significant Accounting Policies, of the notes to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes in our market risk compared to the disclosures in Part II, Item 7A in our Annual Report on Form 10-K for the year ended December 31, ~~2020,~~2021, which was filed with the SEC on February 12, 2021, other than market risk that is created by the global market disruptions and uncertainties resulting from the COVID-19 pandemic. See the section “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2020, which was filed with the SEC on February 12, 2021, and in Part II, Item 1A of this Quarterly Report on Form 10-Q for further discussion of the possible impact to our business.3, 2022.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Regulations under the Exchange Act require public companies, including our company, to maintain “disclosure controls and procedures,” which are defined in Rule 13a-15(e) and Rule 15d-15(e) to mean a company’s controls and other procedures that are designed to ensure that information required to be disclosed in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our principal executive officer and principal financial officer, or persons performing similar functions, as appropriate, to allow timely decisions regarding required or necessary disclosures. In designing and evaluating our disclosure controls and procedures, management recognizes that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. Our Chief Executive Officer and Chief Financial Officer have concluded, based on the evaluation of the effectiveness of the disclosure controls and procedures by our management as of ~~the end of the quarter covered by this Quarterly Report on Form 10-Q,~~June 30, 2022, that our disclosure controls and procedures were effective at the reasonable assurance level for this purpose.

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Changes in Internal Control over Financial Reporting

~~Regulations under the Exchange Act require public companies, including our company,~~There were no changes to evaluate any change in our “internal control over financial reporting” as such term is defined in Rule 13a-15(f) and Rule 15d-15(f) of the Exchange Act. Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during our most recently completed fiscal quarter. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer did not identify any change in our internal control over financial reporting during the quarter ~~covered by this Quarterly Report on Form 10-Q~~ended June 30, 2022 that have materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II

ITEM 1. LEGAL PROCEEDINGS

From time to time, we are party to litigation and other legal proceedings in the ordinary course of business. While the results of any litigation or other legal proceedings are uncertain, we are not presently a party to any legal proceedings that, if determined adversely to us, would individually or taken together have a material adverse effect on our business, financial position, results of operations or cash flows.

ITEM 1A. RISK FACTORS

Investing in our securities involves ~~a high degree of risk.~~risks. You should carefully consider ~~carefully~~ the risks and uncertainties described under the section “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K filed with the SEC on February ~~12, 2021~~3, 2022 and below and all of the other information in this Quarterly Report on Form 10-Q, including our condensed consolidated financial statements and related notes, before making an investment decision. The section “Risk Factors” in our Annual Report on Form 10-K ~~for the year ended December 31, 2020, which was~~ filed with the SEC on February ~~12, 2021, identified~~3, 2022 and subsequent Quarterly Reports on Form 10-Q identify the risks and uncertainties, though they are not the only ones we face, that ~~may have a material adverse effect on~~could materially and adversely affect our business, financial condition or results of ~~operations and future prospects.~~operations. Our business could be harmed by any of these ~~risks.~~risks or additional risks and uncertainties not presently known to us or that we currently believe to be immaterial. Our stock price could decline due to any of these ~~risks, and you may lose all or part of your investment.~~

The extent to which the ongoing COVID-19 pandemic, including the resulting global economic uncertainty, and measures taken in response will continue to impact our business and future results of operations and financial condition will depend on future developments, which are highly uncertain and difficult to predict.

Beginning in early 2020, the COVID-19 pandemic began to have widespread impact on the health of the population and a broader impact on the markets. The COVID-19 pandemic disrupted the flow of the economy and put unprecedented strains on governments, health care systems, educational institutions, businesses and individuals around the world. The pandemic had a significant impact in 2020, and its ongoing impact into 2021 and beyond is difficult to assess or predict. It is even more difficult to predict the impact on the global economic market, which will be highly dependent upon the continuing actions of governments, businesses and other enterprises in response to the pandemic and the effectiveness of those actions. While vaccines have become widely available in certain countries and businesses and economies have recently reopened, the status of global economic recovery remains uncertain and unpredictable, and will be impacted by developments in the pandemic including any subsequent waves of outbreak or new variant strains of the COVID-19 virus which may require re-closures or other preventative measures. If the pandemic were to endure for the longer term, recession, depression or other sustained adverse market events may result.

Some customers or potential customers, particularly in industries most impacted by the COVID-19 pandemic including transportation, hospitality, retail and energy, reduced their IT spending or delayed their digital transformation initiatives in 2020 and these reductions and delays in spend by our customers and prospects could persist. We experienced some curtailed customer demand, reduced customer spend or contract duration, delayed collections, lengthened payment terms, and impact on our ability to land new customers. If we should see an increase in such effects or increased competitive pressures due to changes in terms and conditions and pricing of our competitors’ products and services, our business, results of operations and overall financial performance in future periods could be materially and adversely impacted.

In response to the COVID-19 pandemic, we temporarily closed most of our offices (including our headquarters) around the world, encouraged our employees to work remotely, implemented travel restrictions for all non-essential business, and canceled or shifted certain of our customer, industry, analyst, investor, and employee events to virtual-only experiences. During the second quarter of 2021, a limited number of employees returned to our offices in certain locations, taking into consideration government restrictions, employee safety and health risks. Our approach may vary among geographies depending on appropriate health protocols, and may change at any time. Additionally, our efforts to re-open our offices safely may not be successful, could expose our employees to health risks and could involve additional costs or liability. We expect that the COVID-19 pandemic will have a long-term effect on the nature of our office environment, remote working and how we innovate. While we believe that this will be a positive development over the longer term, there may be operational and workplace culture challenges that may adversely affect our business, including talent retention, in the shorter term.

~~Table of~~ ~~Contents~~

As a result of the impact of COVID-19 on our business, in our Q1 2020 earnings we revised our external guidance to investors as to our expectations of our financial performance for the full year 2020 to account for impacts that have occurred and further expected impacts. Because we are a subscription business, the reduction in performance for 2020 will impact future years as well. If the COVID-19 pandemic continues or worsens, especially in regions in which we have material operations or sales, our business activities from impacted areas, including sales-related activities, could be adversely affected. Disruptive activities could include continued business closures in impacted areas, further or continued restrictions on our employees’ and other service providers’ ability to travel, impacts to productivity if our employees or their family members experience health issues, and potential delays in hiring and onboarding mainly in our general and administrative functions. The COVID-19 pandemic could also impact our data center operations, including potential disruptions to the supply chain of hardware needed to maintain these third-party systems, and primary vendors we rely on for products and services that allow our employees to work remotely. Further, we may experience increased cyberattacks and security challenges as our global employee base and vendors and other third parties work remotely on less secure systems.

The extent and continued impact of the COVID-19 pandemic on our business will depend on certain developments including the duration and spread of the outbreak; future infection spikes including new variant strains of the virus resulting in additional preventative measures; the availability and distribution of effective vaccines; the severity of the economic decline attributable to the pandemic and timing, nature and sustainability of economic recovery; government responses, including the effectiveness, extent and duration of efforts to limit the spread and impact of the disease, such as “shelter in place” and similar government directives, all of which are highly uncertain and unpredictable. While our revenues, billings and earnings are relatively predictable as a result of our subscription-based business model, the effect of the COVID-19 pandemic may not be fully reflected in our results of operations and overall financial performance until future periods and could cause our future results of operations to vary significantly from period to period.

The effects of the COVID-19 pandemic also may heighten other risks, including significant volatility in the global markets, trading prices of our common stock, interest rate and foreign currency described in the section ‘‘Risk Factors’’ in Part I, Item 1A of our Annual Report on Form 10-K filed with the SEC on February 12, 2021. Risks caused or heightened by the COVID-19 pandemic may continue for the duration of and possibly beyond the COVID-19 pandemic for an indefinite period.

Risks Related to Our Ability to Grow Our Business

~~Privacy~~If we fail to comply with applicable anti-corruption and anti-bribery laws, export control laws, trade sanction laws, or other global trade laws, we could be subject to penalties and ~~concerns, evolving regulation of cloud computing, cross-border data transfer restrictions, other foreign~~civil and/or criminal sanctions and ~~domestic regulations and standards related~~our business could be materially adversely affected.

As we continue to ~~data~~expand our business internationally, we will inevitably do more business with large enterprises and the ~~Internet~~public sector in countries that are perceived to have heightened levels of public sector corruption. Increased business in countries perceived to have heightened levels of corruption subjects us and our officers and directors to increased scrutiny and increased liability from our business operations. We have implemented and continue to update our compliance program but there is a risk that our employees, partners and agents, as well as those companies to which we outsource certain of our business operations, could take actions in violation of our policies and applicable law, for which we may be ultimately held responsible. In addition, we are subject to global trade laws that apply to our worldwide operations, including restrictions on conducting business in certain restricted countries or with certain entities or individuals. For example, the U.S. and other countries have imposed economic and trade sanctions and export control restrictions against Russia and Belarus following the Russian invasion of Ukraine. Similarly, Russia has imposed counter sanctions that could jeopardize business in that region. While we had very little business in Russia, the restrictions and conflict have required us to reevaluate certain business opportunities and enforce compliance measures against certain existing customers and users. The full extent of the impact of Russia's invasion remains uncertain, but it may affect the purchasing decisions and digital transformation initiatives of some customers and potential customers. If the Russia-Ukraine conflict continues, the U.S., the European Union, the United Kingdom, and other jurisdictions could impose wider economic and trade sanctions as well as export restrictions, which could impact our business opportunities. Any violation of the U.S. Foreign Corrupt Practices Act of 1977, as amended (the “FCPA”), the UK Bribery Act, other applicable anti-corruption and anti-bribery laws, or applicable export control or trade sanctions laws by our employees or third-party intermediaries could result in regulatory investigations and whistleblower complaints, which could subject us to significant risks such as adverse media coverage and/or severe criminal or civil sanctions, which could materially adversely affect our reputation, business,.

~~National~~ operating results, and local governments or agencies have adopted, and may continue to adopt, laws and regulations affecting data privacy, the use of the Internet as a commercial medium, the use of data in contexts referred to as artificial intelligence and machine learning, and data sovereignty or residency requirements concerning the location of data centers and support services. As a cloud-based service provider, we optimize performance of our products and services by utilizing data centers located in, and support provided from, different jurisdictions. Changing laws, regulations and standards applying to the collection, use, sharing, transfer or other processing of data, including personal data, could affect our ability to develop our products and services to maximize their utility, as well as our customers’ ability to use data or share data with service providers. Such changes may restrict our ability to use, store or otherwise process data of our customers in connection with providing and supporting our services. In some cases, this could impact our ability to offer our services in certain locations or our customers’ ability to deploy our services globally.

Compliance with, and other obligations imposed by, the General Data Protection Regulation (the “GDPR”), the ruling of the European Court of Justice in Schrems v. Facebook Ireland, Limited and interpretations of that ruling by regulators and customers, recommendations issued by the European Data Protection Board, new Standard Contractual Clauses issued by the European Commission, the California Consumer Privacy Act, as recently amended by a voter-approved proposition (the “CCPA”) and other privacy, data residency, sovereignty and transfer laws, regulations and standards (including self-regulatory standards) may cause us to incur substantial operational costs or require us to modify our data handling practices and/or policies, may limit the development, use and adoption of our services, including artificial intelligence and machine learning features, and could reduce overall demand for our services. Recently we announced that we plan to offer a European Union-centric services delivery model, by which customers may elect to receive support from EU‑based ServiceNow teams, with an EU, cloud‑hosted digital workflow solution. This offering requires a significant investment in financial and human resources, and we may see similar requests for local solutions in other territories. In addition, actual or perceived non-compliance could result in proceedings or investigations against us by regulatory authorities or others, lead to significant fines, damages, orders or reputational harm and may otherwise adversely impact our business, financial condition and operating results.

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Changes in our developed or acquired products and how such products utilize data could also alter or increase our compliance requirements. As a result, our innovation and business drivers in developing or acquiring new and emerging technologies and the demand for our products could be impacted.prospects.

Risks Related to the Operation of Our Business

If we or our third-party service providers ~~suffer a~~experience an actual or perceived cyber-security event, our platform may be perceived as not being secure and we may lose customers and incur significant liabilities, any of which would harm our business and operating results.

Our operations involve the storage, transmission and processing of our customers’ confidential, proprietary and sensitive data, ~~including~~which may include personally identifiable information, protected health information, financial information and, in some cases, government information. While we have security measures and a data governance framework in place designed to protect customer information and prevent data loss, these measures may contain legacy code vulnerabilities, have limited implementation or be breached because of employee error ~~unaddressed vulnerabilities that may leave our systems susceptible to compromise,~~or intentional action or third-party actions, including unintentional

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events or deliberate attacks by cyber criminals or foreign state actors, and result in someone obtaining unauthorized access to our instances and ultimately our customers’ data or our data, ~~including our~~ intellectual property and other confidential business information. For example, third parties have attempted to fraudulently induce employees, contractors, or users to disclose information or to gain access to our data or our customers’ data, and we have been the target of email scams that attempt to acquire personal information or company assets. Further, we have experienced increased cyberattacks and security challenges as the growing number of employees, vendors and other third parties that remotely access our systems increases our attack surface. We have also seen an increase in cyberattack volume, frequency, and sophistication driven by the global enablement of remote workforces.

Computer malware, ransomware, viruses, hacking, phishing and denial of service attacks by third parties have become more prevalent in our industry, and they, ~~have occurred,~~ or attempts, have occurred on our and our third-party service providers’ systems in the past and may occur again on these systems in the future. The frequency and sophistication of these malicious attacks ~~has~~have increased, and it appears that cyber crimes and cyber criminal networks, some of which may be state-supported, have been provided substantial resources and may target U.S. enterprises or our customers and their use of our products. In addition, we have established extensive development and testing environments for our engineers developing new products and features. Security protocols in those environments have necessarily been less rigorous than in environments housing customer data, but a vulnerability or security defect developed in that environment could become incorporated in code imported to our environments housing customer data. Similarly, in the unique circumstances where customer data may be utilized in developer environments for testing or learning, that data may be at greater risk. Because techniques used to sabotage, obtain unauthorized access to systems or prohibit authorized access to systems change frequently and generally ~~are~~may not be detected until successfully launched against a target, we have been and may continue to be unable to anticipate these techniques or to implement adequate preventative measures. This has included and may ~~also~~continue to include underlying infiltration of pre-existing systems, including those of our third-party service providers or customers, perpetrated by more sophisticated or state-supported attackers,including ~~recent~~ foreign cybersecurity attacks on U.S. technology ~~companies.~~companies identified in late 2020 and retaliatory cybersecurity attacks stemming from the Russian invasion of Ukraine. It may also include exploitation of vulnerabilities in third party or open source software code that may be incorporated into our own or our customers’ systems, such as the vulnerability in the Java logging library known as “log4j” identified in late 2021 that affected many in our industry. The occurrence of these and other more sophisticated or state-supported attack campaigns may increase as geopolitical tensions and intermittent warfare continue or escalate outside of the U.S. For example, due to the Russia-Ukraine conflict, we and our customers, third-party vendors and service providers are subject to a heightened risk of cybersecurity attacks, phishing attacks, viruses, malware, ransomware, hacking or similar breaches from state-supported actors, including attacks that could materially disrupt our systems and operations, supply chain, and ability to make available or sell our products and services. We devote significant financial and personnel resources to implement and maintain security measures while meeting customer expectations as to the performance of our systems; however, as cyber-security threats develop and grow more complex and sophisticated over time, such as in connection with geopolitical warfare, we will continue to make significant further investments to protect data and infrastructure, but a residual risk may remain despite our preventative efforts. A security breach suffered by us or our third-party service providers, an attack against our service availability or unauthorized access or loss of data could result in a disruption to our service, litigation, service level agreement claims, indemnification and other contractual obligations, regulatory investigations, government fines and penalties, reputational damage, loss of sales and customers, mitigation and remediation expenses and other significant costs and liabilities. In addition, we may incur significant costs and operational consequences of paying to access data, investigating, remediating, ~~eliminating,~~ complying with notice obligations and implementing additional measures designed to prevent actual or perceived security incidents. We also cannot be certain that our existing insurance coverage will continue to be available on acceptable terms or ~~will be available~~ in sufficient amounts to cover the potentially significant losses that may result from a security incident or breach or ~~that~~ the insurer will not deny coverage as to any future claim.

Further, in most instances, our customers administer access to the data held in their particular instance for their employees and service providers. While we offer tools and support, customers are not required to utilize them and may suffer a cyber-security event on their own systems, unrelated to our own, and allow a malicious actor to obtain access to the customer’s information held on our platform. Even if such a breach is unrelated to our security programs or practices, such breach could result in our incurring significant economic and operational costs in investigating, remediating, and implementing additional measures to further protect our customers from their own vulnerabilities, and could result in reputational harm to us.

Digital supply chain attacks have increased in frequency and severity. We cannot guarantee that third parties and our supply chain infrastructure have not been compromised or that they do not contain exploitable defects or bugs that could result in a breach of or disruption to our platform, systems and network or the systems and networks of third parties that support us and our business. Third parties may also exploit vulnerabilities in, or obtain unauthorized access to, platforms, systems, networks, or physical facilities utilized by us or our third-party vendors or service providers. Furthermore, supply chain

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disruptions due to the Russian invasion of Ukraine (and resulting legal developments) and any indirect effects may further complicate any existing supply chain constraints.

Risks Related to General Economic Conditions

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

We operate globally and as a result, our business, revenues and profitability are impacted by global macroeconomic conditions. The success of our activities is affected by general economic and market conditions, including, among others, inflation, interest rates, tax rates, economic uncertainty, political instability, warfare, changes in laws, trade barriers, and economic and trade sanctions. The U.S. capital markets experienced and continue to experience extreme volatility and disruption following the global outbreak of COVID-19 in 2020 and the Russian invasion of Ukraine in 2022. Furthermore, inflation rates in the U.S. have recently increased to levels not seen in decades. Such economic volatility could adversely affect our business, financial condition, results of operations and cash flows, and future market disruptions could negatively impact us. These unfavorable economic conditions could increase our operating costs and, because our typical contracts with customers lock in our price for a few years, our profitability could be negatively affected. Geopolitical destabilization and warfare have impacted and could continue to impact global currency exchange rates, commodity prices, trade and movement of resources, which may adversely affect the buying power of our customers, our access to and cost of resources from our suppliers, and ability to operate or grow our business. In addition, from time to time, the U.S. and other key international economies have been impacted by geopolitical and economic instability, high levels of credit defaults, international trade disputes, changes in demand for various goods and services, high levels of persistent unemployment, wage and income stagnation, restricted credit, poor liquidity, reduced corporate profitability, volatility in credit, equity and foreign exchange markets, inflation, bankruptcies, international trade agreements, export controls, economic and trade sanctions, and overall economic uncertainty. These conditions can arise suddenly and affect the rate of digital transformation spending and could adversely affect our customers’ or prospective customers’ ability or willingness to purchase our services, delay purchasing decisions, reduce the value or duration of their subscriptions, or affect renewal rates, all of which could harm our operating results. Further, while our ability to do business has not been materially affected, the Russian invasion of Ukraine and the global restrictive measures that have been taken, and could be taken in the future, have created significant global economic uncertainty that could prolong and escalate tensions and expand the geopolitical conflict, which could have a lasting impact on regional and global economies, any of which could harm our business and operating results.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

~~None.~~In May 2022, we entered into unwind agreements to settle the remaining portion of the 2022 Warrants. In connection with the settlement of the remaining portion of the 2022 Warrants, we delivered, in an exchange pursuant to Section 3(a)(9) of the Securities Act of 1933, as amended, an aggregate of 602,752 shares of our common stock to the holders of the 2022 Warrants, which were Citibank, N.A., Goldman Sachs & Co. LLC, JPMorgan Chase Bank, National Association, London Branch, and Morgan Stanley & Co. International plc. We did not receive any proceeds from the unwind agreements in connection with the 2022 Warrants, nor were they subject to underwriting discounts or commissions.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

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ITEM 6. EXHIBITS

EXHIBIT INDEX

Exhibit
Number
Description of Document Incorporated by Reference Filed
Herewith
Form File No. Exhibit Filing Date
3.1
Restated Certificate of Incorporation of ServiceNow, Inc., as amended
8-K 001-35580 3.1 6/9/2021
3.2
Restated Bylaws of ServiceNow, Inc.
8-K 001-35580 3.2 6/9/2021
10.1*
ServiceNow, Inc. 2021 Equity Incentive Plan
S-8 333-256854 4.5 6/7/2021
10.2*
ServiceNow, Inc. Amended and Restated 2012 Employee Stock Purchase Plan
8-K 001-35580 10.2 6/9/2021
10.3*
Amended and Restated LightStep, Inc. 2013 Stock Plan
S-8 333-257171 4.5 6/17/2021
10.4*
Related form of equity agreements under the ServiceNow, Inc. 2021 Equity Incentive Plan
X
10.5*
Form of Subscription Agreement under the ServiceNow, Inc. Amended and Restated 2012 Employee Stock Purchase Plan
X
10.6*
Related form of equity agreements under the Amended and Restated LightStep, Inc. 2013 Stock Plan
X
31.1
Certification of Periodic Report by Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002
X
31.2
Certification of Periodic Report by Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002
X
32.1**
Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
X
32.2**
Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
X
101.INS Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. X

Exhibit

Number

Description of Document

Incorporated by Reference

Filed
Herewith

Form

File No.

Exhibit

Filing Date

3.1

Restated Certificate of Incorporation of Registrant, as amended

8-K

001-35580

3.1

6/9/2021

3.2

Restated Bylaws of Registrant

8-K

001-35580

3.2

6/9/2021

10.1*

10.2*

Form of Global Subscription Agreement under the Amended and Restated 2012 Employee Stock Purchase Plan

10.3*

Letter of Understanding - International Assignment dated June 22, 2022 between the Registrant and Nicholas Tzitzon

10.4

Form of 2022 Warrant Termination Agreement

31.1

Certification of Periodic Report by Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002

31.2

Certification of Periodic Report by Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002

32.1**

Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2**

Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS

Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH

Inline XBRL Taxonomy Extension Schema Document.

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document.

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~~101.SCH~~

~~Inline XBRL Taxonomy Extension Schema Document.~~

~~101.CAL~~

~~Inline XBRL Taxonomy Extension Calculation Linkbase Document.~~

~~101.DEF~~

~~Inline XBRL Taxonomy Extension Definition Linkbase Document.~~

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document.

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document.

104

Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

* Indicates a management contract, compensatory plan or arrangement.

** The certifications on Exhibit 32 hereto are deemed not “filed” for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended (the ~~Exchange Act)~~“Exchange Act”), or otherwise subject to the liability of that Section. Such certifications will not be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the ~~registrant~~Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	SERVICENOW, INC.

Date: July ~~28, 2021~~27, 2022	By:	/s/ William R. McDermott
		William R. McDermott
		President and Chief Executive Officer
		(Principal Executive Officer)

Date: July ~~28, 2021~~27, 2022	By:	/s/ Gina Mastantuono
		Gina Mastantuono
		Chief Financial Officer
		(Principal Financial Officer)

Date: July ~~28, 2021~~27, 2022	By:	/s/ ~~Fay Sien Goon~~Kevin McBride
		~~Fay Sien Goon~~Kevin McBride
		Chief Accounting Officer
		(Principal Accounting Officer)

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	Six Months Ended June 30, 2021											Six Months Ended June 30, 2020
	Common Stock			Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Income		Total Stockholders’ Equity		Common Stock				Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Income		Total Stockholders’ Equity
	Shares	Amount										Shares		Amount
Balance at beginning of the period	195,845	$	0	$	2,974	$	(234)	$	94	$	2,834	$	189,461	$	0	$	2,455	$	(352)	$	25	$	2,128
Common stock issued under employee stock plans	1,754	—		95		—		—		95		2,340		—		91		—		—		91
Taxes paid related to net share settlement of equity awards	—	—		(315)		—		—		(315)		—		—		(239)		—		—		(239)
Stock-based compensation		—		538		—		—		538		—		—		406		—		—		406
Shares granted related to business combination	—	—		6		—		—		6		—		—		—		—		—		—
Settlement of 2022 Warrants	536	—		—		—		—		0		—		—		—		—		—		—
Settlement of 2022 Notes conversion feature	—	—		(191)		—		—		(191)		—		—		(23)		—		—		(23)
Benefit from exercise of 2022 Note Hedge	—	—		191		—		—		191		—		—		22		—		—		22
Other comprehensive income (loss), net of tax	—	—		—		—		(24)		(24)		—		—		—		—		5		5
Net income	—	—		—		141		—		141		—		—		—		89		—		89
Balance at end of the period	198,135	$	0	$	3,298	$	(93)	$	70	$	3,275	$	191,801	$	0	$	2,712	$	(263)	$	30	$	2,479


	Purchase		Initial Shares	Shares as of June 30, 2021

	(in millions)
2022 Note Hedge	$	128	6	1