Item 1. FINANCIAL STATEMENTS

SERVICENOW, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in millions)

			September 30, 2023						December 31, 2022
Assets			(unaudited)
Current assets:
Cash and cash equivalents			$	1,112					$	1,470
Short-term investments			2,955						2,810
Accounts receivable, net			1,168						1,725
Current portion of deferred commissions			417						369
Prepaid expenses and other current assets			394						280
Total current assets			6,046						6,654
Deferred commissions, less current portion			807						742
Long-term investments			2,939						2,117
Property and equipment, net			1,199						1,053
Operating lease right-of-use assets			699						682
Intangible assets, net			242						232
Goodwill			1,204						824
Deferred tax assets			1,505						636
Other assets			450						359
Total assets			$	15,091					$	13,299
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable			$	69					$	274
Accrued expenses and other current liabilities			1,001						975
Current portion of deferred revenue			4,440						4,660
Current portion of operating lease liabilities			91						96
Total current liabilities			5,601						6,005
Deferred revenue, less current portion			46						70
Operating lease liabilities, less current portion			682						650
Long-term debt, net			1,487						1,486
Other long-term liabilities			93						56
Total liabilities			7,909						8,267
Commitments and contingencies
Stockholders’ equity:
Common stock			—						—
Treasury stock, at cost			(282)						—
Additional paid-in capital			5,847						4,796
Accumulated other comprehensive loss			(157)						(102)
Retained earnings			1,774						338
Total stockholders’ equity			7,182						5,032
Total liabilities and stockholders’ equity			$	15,091					$	13,299

See accompanying notes to condensed consolidated financial statements

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 September 30,												Nine Months Ended September 30,
			2023						2022						2023						2022
Revenues:
Subscription			$	2,216					$	1,742					$	6,315					$	5,031
Professional services and other			72						89						219						274
Total revenues			2,288						1,831						6,534						5,305
Cost of revenues(1):
Subscription			420						301						1,163						863
Professional services and other			76						99						242						295
Total cost of revenues			496						400						1,405						1,158
Gross profit			1,792						1,431						5,129						4,147
Operating expenses(1):
Sales and marketing			799						697						2,454						2,092
Research and development			549						456						1,562						1,314
General and administrative			213						187						621						541
Total operating expenses			1,561						1,340						4,637						3,947
Income from operations			231						91						492						200
Interest income			82						26						216						43
Other expense, net			(14)						(15)						(47)						(27)
Income before income taxes			299						102						661						216
Provision for (benefit from) income taxes			57						22						(775)						41
Net income			$	242					$	80					$	1,436					$	175
Net income per share - basic			$	1.18					$	0.39					$	7.04					$	0.87
Net income per share - diluted			$	1.17					$	0.39					$	7.00					$	0.86
Weighted-average shares used to compute net income per share - basic			204,464						202,045						203,961						201,026
Weighted-average shares used to compute net income per share - diluted			206,277						203,121						205,194						203,350
Other comprehensive loss:
Foreign currency translation adjustments			$	(64)					$	(51)					$	(51)					$	(125)
Unrealized loss on investments, net of tax			(2)						(21)						(4)						(81)
Other comprehensive loss			(66)						(72)						(55)						(206)
Comprehensive income (loss)			$	176					$	8					$	1,381					$	(31)

(1)Includes stock-based compensation as follows:

			Three Months Ended September 30,												Nine Months Ended September 30,
			2023						2022						2023						2022
Cost of revenues:
Subscription			$	52					$	41					$	148					$	116
Professional services and other			11						17						40						51
Operating expenses:
Sales and marketing			132						119						378						337
Research and development			150						127						430						368
General and administrative			68						57						195						166

See accompanying notes to condensed consolidated financial statements

SERVICENOW, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

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

(unaudited)

			Three Months Ended September 30, 2023																																																Three Months Ended September 30, 2022
			Common Stock												Treasury Stock												Additional Paid-in Capital						Retained Earnings						Accumulated Other Comprehensive Loss						Total Stockholders’ Equity						Common Stock												Additional Paid-in Capital						Retained Earnings						Accumulated Other Comprehensive Loss						Total Stockholders’ Equity
			Shares						Amount						Shares						Amount									Shares						Amount
Balance at beginning of the period			204,267						—						—						—						5,485						1,532						(91)						6,926						201,614						$	—					$	4,186					$	108					$	(100)					$	4,194
Common stock issued under employee stock plans			788						—						—						—						76						—						—						76						751						—						71						—						—						71
Common stock repurchased			—						—						(500)						(282)						—						—						—						(282)						—						—						—						—						—						—
Taxes paid related to net share settlement of equity awards			—						—						—						—						(127)						—						—						(127)						—						—						(111)						—						—						(111)
Stock-based compensation			—						—						—						—						413						—						—						413						—						—						361						—						—						361
Other comprehensive loss, net of tax			—						—						—						—						—						—						(66)						(66)						—						—						—						—						(72)						(72)
Net income			—						—						—						—						—						242						—						242						—						—						—						80						—						80
Balance at end of the period			205,055						$	—					(500)						$	(282)					$	5,847					$	1,774					$	(157)					$	7,182					202,365						$	—					$	4,507					$	188					$	(172)					$	4,523

			Nine Months Ended September 30, 2023																																																Nine Months Ended September 30, 2022
			Common Stock												Treasury Stock												Additional Paid-in Capital						Retained Earnings						Accumulated Other Comprehensive 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
Balance at beginning of the period			202,882						$	—					—						$	—					$	4,796					$	338					$	(102)					$	5,032					199,608						$	—					$	3,665					$	(4)					$	34					$	3,695
Cumulative-effect adjustment from adoption of Accounting Standards Update (ASU) 2020-06			—						—						—						—						—						—						—						—						—						—						(19)						17						—						(2)
Common stock issued under employee stock plans			2,173						—						—						—						193						—						—						193						2,154						—						177						—						—						177
Common stock repurchased			—						—						(500)						(282)						—						—						—						(282)						—						—						—						—						—						—
Taxes paid related to net share settlement of equity awards			—						—						—						—						(333)						—						—						(333)						—						—						(352)						—						—						(352)
Stock-based compensation			—						—						—						—						1,191						—						—						1,191						—						—						1,036						—						—						1,036
Settlement of 2022 Warrants			—						—						—						—						—						—						—						—						603						—						—						—						—						—
Settlement of 2022 Notes conversion feature			—						—						—						—						—						—						—						—						—						—						(233)						—						—						(233)
Benefit from exercise of 2022 Note Hedge			—						—						—						—						—						—						—						—						—						—						233						—						—						233
Other comprehensive loss, net of tax			—						—						—						—						—						—						(55)						(55)						—						—						—						—						(206)						(206)
Net income			—						—						—						—						—						1,436						—						1,436						—						—						—						175						—						175
Balance at end of the period			205,055						$	—					(500)						$	(282)					$	5,847					$	1,774					$	(157)					$	7,182					202,365						$	—					$	4,507					$	188					$	(172)					$	4,523

See accompanying notes to condensed consolidated financial statements

SERVICENOW, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)

(unaudited)

			Nine Months Ended September 30,
			2023						2022
Cash flows from operating activities:
Net income			$	1,436					$	175
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			408						315
Amortization of deferred commissions			333						261
Stock-based compensation			1,191						1,038
Deferred income taxes			(874)						(3)
Other			(13)						9
Changes in operating assets and liabilities, net of effect of business combinations:
Accounts receivable			552						445
Deferred commissions			(453)						(369)
Prepaid expenses and other assets			(183)						(73)
Accounts payable			(188)						116
Deferred revenue			(217)						(156)
Accrued expenses and other liabilities			(199)						(197)
Net cash provided by operating activities			$	1,793					$	1,561
Cash flows from investing activities:
Purchases of property and equipment			(433)						(406)
Business combinations, net of cash acquired			(282)						(57)
Purchases of investments			(3,805)						(2,811)
Purchases of non-marketable investments			(56)						(138)
Sales and maturities of investments			2,868						1,700
Other			(15)						3
Net cash used in investing activities			$	(1,723)					$	(1,709)
Cash flows from financing activities:
Repayments of convertible senior notes attributable to principal			—						(94)
Proceeds from employee stock plans			193						177
Repurchases of common stock			(282)						—
Taxes paid related to net share settlement of equity awards			(333)						(352)
Net cash used in financing activities			$	(422)					$	(269)
Foreign currency effect on cash, cash equivalents and restricted cash			(4)						(61)
Net change in cash, cash equivalents and restricted cash			(356)						(478)
Cash, cash equivalents and restricted cash at beginning of period			1,475						1,732
Cash, cash equivalents and restricted cash at end of period			$	1,119					$	1,254
Cash, cash equivalents and restricted cash at end of period:
Cash and cash equivalents			$	1,112					$	1,248
Restricted cash included in prepaid expenses and other current assets			7						6
Total cash, cash equivalents and restricted cash shown in the condensed consolidated statements of cash flows			$	1,119					$	1,254
Supplemental disclosures of other cash flow information:
Interest paid			$	23					$	23
Income taxes paid, net of refunds			103						33
Non-cash investing and financing activities:
Settlement of 2022 Notes conversion feature			—						233
Benefit from exercise of 2022 Note Hedge			—						233
Property and equipment included in accounts payable, accrued expenses and other liabilities			63						34

See accompanying notes to condensed consolidated financial statements

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 was founded on a simple premise: a better technology platform will help work flow better. We help global enterprises across industries, universities and governments to digitize their workflows. We organize our workflow applications along four primary areas: Technology, Customer and Industry, Employee and Creator. The products under each of our workflows help customers connect, automate and empower work across systems and silos to enable great outcomes for businesses and great experiences for people. The Now Platform integrates with our customers’ cloud platforms and systems of choice, allowing our customers to deliver workflows across their current and future preferred systems of record and collaboration platforms.

(2) Summary of Significant Accounting Policies

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 United States (“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 condensed consolidated financial statements and footnote tables. The results of operations for the three and nine months ended September 30, 2023 are not necessarily indicative of the results to be expected for the year ending December 31, 2023 or for other interim periods or future years. The condensed consolidated balance sheet as of December 31, 2022 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, 2022, which was filed with the SEC on January 31, 2023.

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.

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, 2022, which was filed with the SEC on January 31, 2023.

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 September 30, 2023, we had one customer, a U.S. federal channel partner and systems integrator, that represented 26% of our accounts receivable balance. Based on our periodic credit evaluations, there have been no historical collection concerns with this customer. As of December 31, 2022, there were no customers that represented more than 10% of our accounts receivable balance. There were no customers that individually exceeded 10% of our total revenues in any of the periods presented. For purposes of assessing concentration of credit risk and significant customers, a group of customers under common control or customers that are affiliates of each other are regarded as a single customer.

Prior Period Reclassifications

Certain prior period amounts have been reclassified to conform to the current period presentation. These reclassifications did not result in a restatement of prior period condensed consolidated financial statements.

(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):

			September 30, 2023
			Amortized Cost						Gross Unrealized Gains						Gross Unrealized Losses						Estimated Fair Value
Available-for-sale debt securities:
Commercial paper			$	475					$	—					$	(1)					$	474
Corporate notes and bonds			3,324						—						(33)						3,291
Certificates of deposit			112						—						—						112
U.S. government and agency securities			1,958						—						(22)						1,936
Mortgage-backed and asset-backed securities			103						—						(22)						81
Total available-for-sale debt securities			$	5,972					$	—					$	(78)					$	5,894

			December 31, 2022
			Amortized Cost						Gross Unrealized Gains						Gross Unrealized Losses						Estimated Fair Value
Available-for-sale debt securities:
Commercial paper			$	558					$	—					$	(2)					$	556
Corporate notes and bonds			3,414						—						(52)						3,362
Certificates of deposit			162						—						—						162
U.S. government and agency securities			768						—						(2)						766
Mortgage-backed and asset-backed securities			98						—						(17)						81
Total available-for-sale debt securities			$	5,000					$	—					$	(73)					$	4,927

As of September 30, 2023, 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-backed and asset-backed securities that do not have a single maturity, did not exceed 36 months. The fair values of available-for-sale debt securities, by remaining contractual maturity, are as follows (in millions):

			September 30, 2023
Due within 1 year			$	2,955
Due in 1 year through 5 years			2,858
Instruments not due in single maturity			81
Total			$	5,894

As of September 30, 2023 and December 31, 2022, the fair value of available-for-sale debt securities in a continuous unrealized loss position totaled $5,289 million and $4,232 million, respectively. As of September 30, 2023, unrealized losses of $41 million from available-for-sale debt securities is from securities in a continuous unrealized loss position greater than 12 months.

For all available-for-sale debt securities that were in unrealized loss positions, we have determined that it is more likely than not we will hold the securities until maturity or a recovery of the cost basis. Unrealized losses on available-for-sale debt securities were due primarily to changes in market interest rates, and credit-related impairment losses were not material as of September 30, 2023.

Non-Marketable Equity Investments

As of September 30, 2023 and December 31, 2022, the total amount of non-marketable equity investments in privately held companies included in other assets on our condensed consolidated balance sheets was $288 million and $252 million, respectively. These balances include a $100 million investment in the common and preferred shares of Celonis SE, a privately held company that develops and sells process mining software. Our non-marketable equity investments are accounted for using the measurement alternative, which measures the investments at cost minus impairment, if any, plus or minus changes resulting from qualifying observable price changes resulting from the issuance of similar or identical securities in an orderly transaction by the same issuer. Determining whether an observed transaction is similar to a security within our portfolio requires judgment based on the rights and preferences of the securities. Recording upward and downward adjustments to the carrying value of our non-marketable equity investments as a result of observable price changes requires quantitative assessments of the fair value of our non-marketable equity investments using various valuation methodologies and involves the use of estimates. The adjustments made during the three and nine months ended September 30, 2023 and 2022 are immaterial. We classify these fair value measurements as Level 3 within the fair value hierarchy.

(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 September 30, 2023 (in millions):

			Level 1						Level 2															Total
Cash equivalents:
Money market funds			$	457					$	—														$	457
Commercial paper			—						36															36
Corporate notes and bonds			—						1															1
Deposits			291						—															291
U.S. government and agency securities			—						64															64
Marketable securities:
Commercial paper			—						474															474
Corporate notes and bonds			—						3,291															3,291
Certificates of deposit			—						112															112
U.S. government and agency securities			—						1,936															1,936
Mortgage-backed and asset-backed securities			—						81															81
Total			$	748					$	5,995														$	6,743

The following table presents our fair value hierarchy for our assets measured at fair value on a recurring basis as of December 31, 2022 (in millions):

			Level 1						Level 2												Total
Cash equivalents:
Money market funds			$	738					$	—											$	738
Commercial paper			—						36												36
Corporate notes and bonds			—						10												10
Certificates of deposit			—						2												2
Deposits			124						—												124
U.S. government and agency securities			—						8												8
Marketable securities:
Commercial paper			—						556												556
Corporate notes and bonds			—						3,362												3,362
Certificates of deposit			—						162												162
U.S. government and agency securities			—						766												766
Mortgage-backed and asset-backed securities			—						81												81
Total			$	862					$	4,983											$	5,845

We determine the fair value of our security holdings based on pricing from our service providers and market prices from industry-standard independent data providers. Such market prices may be quoted prices in active markets for identical assets (Level 1 inputs), pricing determined using inputs other than quoted prices that are observable either directly or indirectly (Level 2 inputs) or using unobservable inputs that are supported by little or no market activity (Level 3 inputs). Our non-marketable equity investments are not included in the table above and are discussed in Note 3. See Note 8 for the fair value measurement of our derivative contracts and Note 10 for the fair value measurement of our long-term debt, which are also not included in the table above. Our marketable equity investments are classified within Level 1 and are immaterial as of September 30, 2023 and December 31, 2022.

(5) Business Combinations

On July 17, 2023, we acquired all outstanding shares of G2K Group GmbH, an artificial intelligence powered platform, for $464 million in a cash transaction. The consideration is paid in two installments. The first installment was made at the close of the transaction in July 2023. The second installment will be paid in February 2024 and is recognized as accrued expenses and other current liabilities, which is a non-cash financing activity as of September 30, 2023. The acquisition is intended to enhance our Now Platform with the acquired smart Internet of Things (“IoT”) technology, enabling businesses to intelligently action digital and in-store data with enterprise-grade workflows.

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

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

We have included the financial results of the business combination in the condensed consolidated financial statements from the date of acquisition, which was not material.

During the nine months ended September 30, 2022, we completed an acquisition for total consideration of $57 million primarily to enhance our products with the acquired technology and engineering workforce. The acquisition was not material to our condensed consolidated financial statements.

(6) Goodwill and Intangible Assets

Goodwill balance consists of the following (in millions):

			Carrying Amount
Balance as of December 31, 2022			$	824
Goodwill acquired			413
Foreign currency translation adjustments			(33)
Balance as of September 30, 2023			$	1,204

`Intangible assets consist of the following (in millions):

			September 30, 2023						December 31, 2022
Developed technology			$	507					$	434
Patents			72						72
Other			11						15
Intangible assets, gross			590						521
Less: accumulated amortization			(348)						(289)
Intangible assets, net			$	242					$	232

The weighted-average useful life of the acquired developed technology for the nine months ended September 30, 2023 and 2022 was approximately five years. Amortization expense for intangible assets for the three months ended September 30, 2023 and 2022 was $21 million and $20 million, respectively, and for the nine months ended September 30, 2023 and 2022 was $63 million and $60 million, respectively.

The following table presents the estimated future amortization expense related to intangible assets held at September 30, 2023 (in millions):

Years Ending December 31,
Remainder of 2023															$	22
2024															82
2025															62
2026															33
2027															19
Thereafter															24
Total future amortization expense															$	242

(7) Property and Equipment

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

			September 30, 2023						December 31, 2022
Computer equipment			$	1,902					$	1,606
Computer software			94						82
Leasehold and other improvements			280						226
Furniture and fixtures			89						81
Construction in progress			14						53
Property and equipment, gross			2,379						2,048
Less: Accumulated depreciation			(1,180)						(995)
Property and equipment, net			$	1,199					$	1,053

Construction in progress consists of costs primarily related to leasehold and other improvements. Depreciation expense for the three months ended September 30, 2023 and 2022 was $98 million and $66 million, respectively, and for the nine months ended September 30, 2023 and 2022 was $267 million and $185 million, respectively.

(8) Derivative Contracts

As of September 30, 2023 and December 31, 2022, we had foreign currency forward contracts with total notional values of $1,592 million and $1,360 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 foreign currency forward contracts was immaterial as of September 30, 2023 and December 31, 2022. The gains (losses) recognized for these foreign currency forward contracts were immaterial for each of the three and nine months ended September 30, 2023 and 2022.

(9) Deferred Revenue and Performance Obligations

Revenues recognized during the three months ended September 30, 2023 and 2022 from amounts included in deferred revenue as of June 30, 2023 and 2022 were $2.0 billion and $1.6 billion, respectively.

Revenues recognized during the nine months ended September 30, 2023 and 2022 from amounts included in deferred revenue as of December 31, 2022 and 2021 were $4.1 billion and $3.3 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-cancellable amounts that will be invoiced and recognized as revenues in future periods. RPO excludes contracts that are billed in arrears, such as certain time and materials contracts, as we apply the “right to invoice” practical expedient under relevant accounting guidance.

As of September 30, 2023, the total non-cancellable RPO under our contracts with customers was $14.4 billion and we expect to recognize revenues on approximately 52% of these RPO over the following 12 months. The majority of the non-current RPO will be recognized over the next 13 to 36 months.

(10) Debt

For the periods ended September 30, 2023 and December 31, 2022, the carrying value of our outstanding debt was $1,487 million and $1,486 million, respectively, net of unamortized debt discount and issuance costs of $13 million and $14 million, respectively.

We consider the fair value of the 2030 Notes at September 30, 2023 and December 31, 2022 to be a Level 2 measurement. The estimated fair value of the 2030 Notes based on the closing trading price per $100, was $1,152 million and $1,144 million at September 30, 2023 and December 31, 2022, respectively.

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

2022 Notes, Note Hedge and Warrants

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

			Convertible Date						Initial Conversion Price per Share						Initial Conversion Rate per $1,000 Par Value						Initial Number of Shares
																					(in millions)
2022 Notes			February 1, 2022						$	134.75					7.42 shares						6

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

			Purchase						Initial Shares						Shares as of September 30, 2023
			(in millions)
2022 Note Hedge			$	128					6						—

Separately, we entered into warrant transactions with certain investment banks, whereby we sold warrants to acquire 6 million shares of our common stock with aggregate proceeds of $54 million (the “2022 Warrants”). The 2022 Warrants were separate transactions and were not remeasured through earnings each reporting period. The 2022 Warrants were not part of the 2022 Notes or 2022 Note Hedge.

During the quarter ended June 30, 2022, we entered into unwind agreements to settle the remaining portion of the 2022 Warrants by delivering an aggregate of 0.6 million shares of our common stock. Accordingly, the 2022 Warrants were no longer outstanding as of June 30, 2022.

(11) Accumulated Other Comprehensive Loss

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

			September 30, 2023						December 31, 2022
Foreign currency translation adjustment			$	(76)					$	(25)
Net unrealized loss on investments			(81)						(77)
Accumulated other comprehensive loss			$	(157)					$	(102)

Reclassification adjustments out of accumulated other comprehensive 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 September 30, 2023. Holders of our common stock are not entitled to receive dividends unless declared by our board of directors. As of September 30, 2023, we had 204.6 million shares of common stock outstanding and had reserved shares of common stock for future issuance as follows (in thousands):

			September 30, 2023
Stock plans:
Options outstanding			1,158
RSUs(1)			6,964
Shares of common stock available for future grants:
Amended and Restated 2021 Equity Incentive Plan(2)			11,934
Amended and Restated 2012 Employee Stock Purchase Plan(2)			8,508
Total shares of common stock reserved for future issuance			28,564

(1)Represents the number of shares issuable upon settlement of outstanding restricted stock units (“RSUs”) and performance-based RSUs (“PRSUs”), as discussed in Note 13.

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

We issued a total of 2.2 million shares for each of the nine months ended September 30, 2023 and 2022, from stock option exercises, vesting of RSUs, net of employee payroll taxes, and purchases from the employee stock purchase plan (“ESPP”).

Treasury Stock

In May 2023, our board of directors authorized a program to repurchase up to $1.5 billion of our common stock (the “Share Repurchase Program”). Under this new program, we may repurchase our common stock from time to time through open market purchases, in privately negotiated transactions, or by other means, including through the use of trading plans intended to qualify under Rule 10b5-1 under the Securities Exchange Act of 1934, as amended, in accordance with applicable securities laws and other restrictions. The Share Repurchase Program does not have a fixed expiration date, may be suspended or discontinued at any time, and does not obligate us to acquire any amount of common stock. The timing, manner, price, and amount of any repurchases will be determined by us at our discretion and will depend on a variety of factors, including business, economic and market conditions, prevailing stock prices, corporate and regulatory requirements, and other considerations.

During the three months ended September 30, 2023, the Company repurchased 0.5 million shares of its common stock for $282 million. All repurchases were made in open market transactions. Repurchases of common stock are recognized as treasury stock and held for future issuance. As of September 30, 2023, approximately $1.2 billion of the originally authorized amount under the Share Repurchase Program remained available for future repurchases.

(13) Equity Awards

We currently have three equity incentive plans: 2012 Equity Incentive Plan (the “2012 Plan”), amended and restated 2021 Equity Incentive Plan (the “Restated 2021 Plan”) and 2022 New-Hire Equity Incentive Plan (the “2022 Plan”). The 2012 Plan was terminated in connection with the approval of the 2021 Plan on June 7, 2021 but continues to govern the terms of outstanding equity awards that were granted prior to the termination of the 2012 Plan. As of June 7, 2021, we no longer grant equity awards pursuant to the 2012 Plan. The Restated 2021 Plan was approved by the shareholders on June 1, 2023 to increase shares available for future grants by approximately 10 million shares. Upon effectiveness of the Restated 2021 Plan, the 2022 Plan was terminated, and no additional awards under the 2022 Plan have been made since the effective date of the Restated 2021 Plan. Outstanding equity awards under the 2022 Plan continue to be subject to the terms and conditions of the 2022 Plan.

The Restated 2021 Plan and the 2012 Plan provide for the grant of incentive stock options, nonqualified stock options, stock appreciation rights, RSUs, performance-based stock awards and other forms of equity compensation (collectively, “equity awards”). The 2022 Plan permits the grant of any of the foregoing awards with the exception of incentive stock options. In addition, the 2022 Plan, the Restated 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.

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. The number of shares of common stock reserved for issuance will not be increased without shareholder approval.

Stock Options

A summary of stock option activity for the nine months ended September 30, 2023 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, 2022			1,237						$	590.36
Exercised			(24)						$	66.20											$	11
Forfeited			(55)						$	626.10
Outstanding at September 30, 2023			1,158						$	599.26					7.7						$	68
Vested and expected to vest as of September 30, 2023			940						$	582.46					7.6						$	67
Vested and exercisable as of September 30, 2023			149						$	193.82					5.2						$	54

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 nine months ended September 30, 2023 was $5 million. No stock options were granted during the nine months ended September 30, 2023.

As of September 30, 2023, total unrecognized compensation cost, adjusted for estimated forfeitures, related to unvested stock options was $30 million. The weighted-average remaining vesting period of unvested stock options at September 30, 2023 was approximately one year.

RSUs

A summary of RSU activity for the nine months ended September 30, 2023 was as follows:

			Number of Shares						Weighted-Average Grant-Date Fair Value Per Share
			(in thousands)
Outstanding at December 31, 2022			5,737						$	505.79
Granted			3,951						$	472.32
Vested			(2,338)						$	469.05
Forfeited			(386)						$	507.13
Outstanding at September 30, 2023			6,964						$	499.57
Expected to vest as of September 30, 2023			6,135

RSUs outstanding as of September 30, 2023 were comprised of 6.5 million RSUs with only service conditions and 0.5 million RSUs with both service and performance conditions, including certain RSUs with additional market conditions. The total intrinsic value of the RSUs vested was $1.2 billion for the nine months ended September 30, 2023. As of September 30, 2023, the aggregate intrinsic value of RSUs outstanding was $3.9 billion and RSUs expected to vest was $3.4 billion.

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 nine months ended September 30, 2023 will vest in February of the following year and semi-annually for the remaining two years contingent on each holder’s continuous status as a service provider on the applicable vesting dates. The number of PRSUs granted included in the table above reflects the shares that could be eligible to vest at 100% of target for PRSUs and includes adjustments for over or under achievement for PRSUs granted in the prior year. We recognized $111 million and $91 million of stock-based compensation, net of actual and estimated forfeitures, associated with PRSUs on a graded vesting basis during the nine months ended September 30, 2023 and 2022, respectively.

As of September 30, 2023, total unrecognized compensation cost, adjusted for estimated forfeitures, related to unvested RSUs was $2.7 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 potentially dilutive shares of common stock are computed using the treasury stock method or the as-if converted method, as applicable. The effects of outstanding stock options, RSUs, ESPP obligations, 2022 Notes and 2022 Warrants are excluded from the computation of diluted net income per share in periods in which the effect would be antidilutive.

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

			Three Months Ended September 30,												Nine Months Ended September 30,
			2023						2022						2023						2022
Numerator:
Net income			$	242					$	80					$	1,436					$	175
Denominator:
Weighted-average shares outstanding - basic			204,464						202,045						203,961						201,026
Weighted-average effect of potentially dilutive securities:
Common stock options			122						120						118						146
RSUs			1,674						956						1,113						1,598
ESPP obligations			17						—						2						—
2022 Notes settlements			—						—						—						375
Settlement of 2022 Warrants			—						—						—						205
Weighted-average shares outstanding - diluted			206,277						203,121						205,194						203,350
Net income per share - basic			$	1.18					$	0.39					$	7.04					$	0.87
Net income per share - diluted			$	1.17					$	0.39					$	7.00					$	0.86
Common stock options, RSUs and ESPP obligations excluded from diluted net income per share because their effect would have been anti-dilutive			3,068						5,255						3,647						4,836

(15) Provision for (Benefit from) 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.

The income tax provision was $57 million for the three months ended September 30, 2023, and our income tax benefit was $775 million for the nine months ended September 30, 2023. The income tax provision was primarily attributable to the mix of earnings and losses in countries with differing statutory tax rates, tax deductible research and development costs and the valuation allowance release through the effective tax rate. The income tax benefit was primarily attributable to the release of the valuation allowance of certain U.S. federal and state deferred tax assets. We regularly assess the need for a valuation allowance against our deferred tax assets. In making that assessment, we consider both positive and negative evidence related to the likelihood of realization of the deferred tax assets to determine, based on the weight of available evidence, whether it is more likely than not that some or all of the deferred tax assets will not be realized. As of June 30, 2023, we achieved cumulative U.S. income during the prior twelve quarters when considering pre-tax income adjusted for permanent differences and other comprehensive losses. Based on all available positive and negative evidence, having demonstrated sustained profitability which is objective and verifiable, and taking into account anticipated future earnings, we concluded it is more likely than not that our U.S. federal and state deferred tax assets will be realizable, with the exception of California. We continue to maintain a valuation allowance against our California deferred tax assets due to the uncertainty regarding realizability of these deferred tax assets as they have not met the “more likely than not” realization criteria, particularly as we expect research and development tax credit generation to exceed our ability to use the credits in future years. When a change in valuation allowance is recognized during an interim period, the change in valuation allowance resulting from current year income is included in the annual effective tax rate and the release of valuation allowance supported by projections of future taxable income is recorded as a discrete tax benefit in the interim period. Of the $1.2 billion valuation allowance as of December 31, 2022, we released $843 million as a discrete tax benefit and $142 million as part of the effective tax rate during the nine months ended September 30, 2023. $65 million of the valuation allowance will be released during the fourth quarter of 2023, and we will continue to maintain a valuation allowance of $177 million against our California deferred tax assets. We will continue to monitor the need for a valuation allowance against our deferred tax assets on a quarterly basis.

Our income tax provision was $22 million and $41 million for the three and nine months ended September 30, 2022, respectively. 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.

We are subject to taxation in the United States and foreign jurisdictions. As of September 30, 2023, our tax years 2004 to 2022 remain subject to examination in most jurisdictions.

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

(16) Commitments and Contingencies

Operating Leases

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

Total operating lease costs were $33 million and $96 million, excluding short-term lease costs, variable lease costs and sublease income, each of which were immaterial, for the three and nine months ended September 30, 2023, respectively.

Total operating lease costs were $28 million and $84 million, excluding short-term lease costs, variable lease costs and sublease income, each of which were immaterial, for the three and nine months ended September 30, 2022, respectively.

For the nine months ended September 30, 2023 and 2022, total cash paid for amounts included in the measurement of operating lease liabilities was $61 million and $56 million, respectively. Operating lease liabilities arising from obtaining operating right-of-use assets totaled $93 million and $73 million for the nine months ended September 30, 2023 and 2022, respectively, of which the increase is largely related to additional office facilities located in Dublin, Ireland in line with the original commitment.

As of September 30, 2023, the weighted-average remaining lease term is approximately nine years, and the weighted-average discount rate is 4%.

Maturities of operating lease liabilities as of September 30, 2023 are presented in the table below (in millions):

Remainder of 2023			$	28
2024			107
2025			118
2026			96
2027			80
Thereafter			490
Total operating lease payments			919
Less: imputed interest			(146)
Present value of operating lease liabilities			$	773

As of September 30, 2023, we have no operating leases that have not yet commenced.

Other Commitments

Other contractual commitments consist of data center and IT operations and sales and marketing activities related to our daily business operations. There were no material contractual obligations that were entered into during the nine months ended September 30, 2023 that were outside the ordinary course of business. During the three months ended September 30, 2022, we entered into a non-cancellable, $500 million agreement with Microsoft to purchase cloud services over five years, as we accelerate Azure adoption for mutual customers.

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

Further, $45 million of unrecognized tax benefits have been recorded as liabilities as of September 30, 2023.

Legal Proceedings

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

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

Indemnification Provisions

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

(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 September 30,												Nine Months Ended September 30,
			2023						2022						2023						2022
North America(1)			$	1,452					$	1,209					$	4,165					$	3,464
EMEA(2)			585						432						1,664						1,299
Asia Pacific and other			251						190						705						542
Total revenues			$	2,288					$	1,831					$	6,534					$	5,305

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

			September 30, 2023						December 31, 2022
North America(3)			$	786					$	664
EMEA(2)			257						221
Asia Pacific and other			156						168
Total property and equipment, net			$	1,199					$	1,053

(1)Revenues attributed to the United States were 94% of North America revenues for each of the three and nine months ended September 30, 2023 and 2022.

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

(3)Property and equipment, net attributed to the United States was 83% and 85% of property and equipment, net attributable to North America as of September 30, 2023 and December 31, 2022, respectively.

Subscription revenues consist of the following (in millions):

			Three Months Ended September 30,												Nine Months Ended September 30,
			2023						2022						2023						2022
Digital workflow products			$	1,961					$	1,534					$	5,587					$	4,437
ITOM products			255						208						728						594
Total subscription revenues			$	2,216					$	1,742					$	6,315					$	5,031

Our digital workflow products are generally priced on a per user basis and include the Now Platform, IT Service Management, Strategic Portfolio Management (formerly known as IT Business Management), IT Asset Management and Enterprise Asset Management, Security Operations, Integrated Risk Management (formerly known as Governance, Risk and Compliance), ESG Management, HR Service Delivery, Workplace Service Delivery, Legal Service Delivery, Customer Service Management, Field Service Management, Industry Solutions, App Engine, Automation Engine, Platform Privacy and Security, Source-to-Pay Operations (formerly known as Procurement Operations Management), Supplier Lifecycle Operations, Accounts Payable Operations and Impact. Our IT Operations Management (“ITOM”) products are generally priced on a subscription unit basis, which allows us to measure customers’ management of various IT resources, and decreasingly on a per node (physical or virtual server) basis.