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 March 31, 2022

OR

☐ 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 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 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  ☐

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.

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 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 Act). Yes ☐ No ☒

As of March 31, 2022, there were approximately 200 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 March 31, 2022 and December 31, 2021	1
	Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2022 and 2021	2
	Condensed Consolidated Statements of Stockholders’ Equity for the Three Months Ended March 31, 2022 and 2021	3
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2022 and 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	32
Item 4.	Controls and Procedures	32
	PART II
Item 1.	Legal Proceedings	34
Item 1A.	Risk Factors	34
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	36
Item 3.	Defaults Upon Senior Securities	36
Item 4.	Mine Safety Disclosures	36
Item 5.	Other Information	36
Item 6.	Exhibits	37
	Signatures

i

PART I

ITEM 1.     FINANCIAL STATEMENTS

SERVICENOW, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in millions)

	March 31, 2022		December 31, 2021
Assets	(unaudited)
Current assets:
Cash and cash equivalents	$	2,252	$	1,728
Short-term investments	1,762		1,576
Accounts receivable, net	824		1,390
Current portion of deferred commissions	322		303
Prepaid expenses and other current assets	282		223
Total current assets	5,442		5,220
Deferred commissions, less current portion	655		623
Long-term investments	1,484		1,630
Property and equipment, net	798		766
Operating lease right-of-use assets	583		591
Intangible assets, net	266		287
Goodwill	774		777
Deferred tax assets	686		692
Other assets	305		212
Total assets	$	10,993	$	10,798
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	166	$	89
Accrued expenses and other current liabilities	661		850
Current portion of deferred revenue	3,850		3,836
Current portion of operating lease liabilities	87		82
Current debt, net	88		92
Total current liabilities	4,852		4,949
Deferred revenue, less current portion	57		63
Operating lease liabilities, less current portion	548		556
Long-term debt, net	1,484		1,484
Other long-term liabilities	55		51
Total liabilities	6,996		7,103
Commitments and contingencies
Stockholders’ equity:
Common stock	—		—
Additional paid-in capital	3,925		3,665
Accumulated other comprehensive income/(loss)	(16)		34
Retained earnings (accumulated deficit)	88		(4)
Total stockholders’ equity	3,997		3,695
Total liabilities and stockholders’ equity	$	10,993	$	10,798

See accompanying notes to condensed consolidated financial statements

1

SERVICENOW, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

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

(unaudited) 

	Three Months Ended March 31,
	2022		2021
Revenues:
Subscription	$	1,631	$	1,293
Professional services and other	91		67
Total revenues	1,722		1,360
Cost of revenues(1):
Subscription	275		228
Professional services and other	94		71
Total cost of revenues	369		299
Gross profit	1,353		1,061
Operating expenses(1):
Sales and marketing	673		524
Research and development	414		314
General and administrative	179		126
Total operating expenses	1,266		964
Income from operations	87		97
Interest expense	(6)		(7)
Other income, net	4		9
Income before income taxes	85		99
Provision for income taxes	10		17
Net income	$	75	$	82
Net income per share - basic	$	0.38	$	0.42
Net income per share - diluted	$	0.37	$	0.41
Weighted-average shares used to compute net income per share - basic	200,088		196,624
Weighted-average shares used to compute net income per share - diluted	202,800		202,268
Other comprehensive loss:
Foreign currency translation adjustments	$	(12)	$	(31)
Unrealized losses on investments, net of tax	(38)		(7)
Other comprehensive loss	(50)		(38)
Comprehensive income	$	25	$	44

(1)Includes stock-based compensation as follows:

	Three Months Ended March 31,
	2022		2021
Cost of revenues:
Subscription	$	36	$	29
Professional services and other	$	16	$	13
Operating expenses:
Sales and marketing	$	105	$	93
Research and development	$	115	$	88
General and administrative	$	53	$	33

See accompanying notes to condensed consolidated financial statements

2

SERVICENOW, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

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

(unaudited)

	Three Months Ended March 31, 2022
	Common Stock			Additional Paid-in Capital		Retained Earnings (Accumulated Deficit)		Accumulated Other Comprehensive Income (Loss)		Total Stockholders’ Equity
	Shares	Amount
Balance at December 31, 2021	199,608	$	—	$	3,665	$	(4)	$	34	$	3,695
Cumulative-effect adjustment from adoption of Accounting Standards Update (ASU) 2020-06	—	—		(19)		17		—		(2)
Common stock issued under employee stock plans	849	—		105		—		—		105
Taxes paid related to net share settlement of equity awards	—	—		(150)		—		—		(150)
Stock-based compensation	—	—		324		—		—		324
Settlement of 2022 Notes conversion feature	—	—		(21)		—		—		(21)
Benefit from exercise of 2022 Note Hedge	—	—		21		—		—		21
Other comprehensive loss, net of tax	—	—		—		—		(50)		(50)
Net income	—	—		—		75		—		75
Balance at March 31, 2022	200,457	$	—	$	3,925	$	88	$	(16)	$	3,997

	Three Months Ended March 31, 2021
	Common Stock			Additional Paid-in Capital		Retained Earnings (Accumulated Deficit)		Accumulated Other Comprehensive Income (Loss)		Total Stockholders’ Equity
	Shares	Amount
Balance at December 31, 2020	195,845	$	—	$	2,974	$	(234)	$	94	$	2,834
Common stock issued under employee stock plans	1,066	—		94		—		—		94
Taxes paid related to net share settlement of equity awards	—	—		(191)		—		—		(191)
Stock-based compensation	—	—		256		—		—		256
Settlement of 2022 Warrants	536	—		—		—		—		—
Settlement of 2022 Notes conversion feature	—	—		(102)		—		—		(102)
Benefit from exercise of 2022 Note Hedge	—	—		102		—		—		102
Other comprehensive loss, net of tax	—	—		—		—		(38)		(38)
Net income	—	—		—		82		—		82
Balance at March 31, 2021	197,447	$	—	$	3,133	$	(152)	$	56	$	3,037

See accompanying notes to condensed consolidated financial statements

3

SERVICENOW, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)

(unaudited)

	Three Months Ended March 31,
	2022		2021
Cash flows from operating activities:
Net income	$	75	$	82
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	101		106
Amortization of deferred commissions	83		66
Stock-based compensation	325		256
Deferred income taxes	(2)		1
Repayments of convertible senior notes attributable to debt discount	—		(7)
Other	15		17
Changes in operating assets and liabilities, net of effect of business combinations:
Accounts receivable	562		354
Deferred commissions	(137)		(114)
Prepaid expenses and other assets	(46)		(3)
Accounts payable	69		89
Deferred revenue	21		75
Accrued expenses and other liabilities	(203)		(195)
Net cash provided by operating activities	$	863	$	727
Cash flows from investing activities:
Purchases of property and equipment	(93)		(107)
Business combinations, net of cash acquired	—		(225)
Purchases of investments	(662)		(644)
Purchases of non-marketable investments	(101)		—
Sales and maturities of investments	577		532
Others	(1)		7
Net cash used in investing activities	$	(280)	$	(437)
Cash flows from financing activities:
Repayments of convertible senior notes attributable to principal	(6)		(28)
Proceeds from employee stock plans	105		95
Taxes paid related to net share settlement of equity awards	(150)		(191)
Net cash used in financing activities	$	(51)	$	(124)
Foreign currency effect on cash, cash equivalents and restricted cash	(5)		(18)
Net change in cash, cash equivalents and restricted cash	527		148
Cash, cash equivalents and restricted cash at beginning of period	1,732		1,679
Cash, cash equivalents and restricted cash at end of period	$	2,259	$	1,827
Cash, cash equivalents and restricted cash at end of period:
Cash and cash equivalents	$	2,252	$	1,821
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	$	2,259	$	1,827
Supplemental disclosures of other cash flow information:
Interest paid	$	11	$	15
Income taxes paid, net of refunds	$	9	$	12
Non-cash investing and financing activities:
Settlement of 2022 Notes conversion feature	$	21	$	102
Benefit from exercise of 2022 Note Hedge	$	21	$	102
Property and equipment included in accounts payable, accrued expenses and other liabilities	$	73	$	28

See accompanying notes to condensed consolidated financial statements

4

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 categorize the 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 across systems and silos to enable great experiences for people. 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 which increases our customers’ resiliency and security and delivers additional value to their employees and 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 months ended March 31, 2022 are not necessarily indicative of the results to be expected for the year ending December 31, 2022 or for other interim periods or future years. The condensed consolidated balance sheet as of December 31, 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, 2021, which was filed with the SEC on February 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.

5

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 months ended March 31, 2022, was a reduction in depreciation expense of $21 million and an increase in net income of $20 million, or $0.10 per share basic and diluted.

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, 2021, which was filed with the SEC on February 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 March 31, 2022, we had one customer, a channel partner, that represented 10% of our accounts receivable. 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. Our customers in Russia represented an immaterial portion of our total consolidated revenues and our accounts receivable balance 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.

Recently Adopted Accounting Pronouncement

Debt with Conversion Options

In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-06, “Debt–Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging–Contracts in Entity’s Own Equity (Subtopic 815-40)” to simplify the accounting for convertible instruments and contracts on an entity’s own equity. The standard results in our 2022 Notes being accounted for as a single unit of debt and requires the if-converted method to calculate diluted earnings per share calculation. We adopted this standard effective January 1, 2022 using a modified retrospective method, under which the basis of all convertible instruments outstanding at adoption have been adjusted to the amounts that would have been recorded had the new guidance been applied from inception. The previously recorded equity component of the convertible instrument outstanding and amortization of the debt discount and issuance costs classified as equity are reclassified from equity to debt through an adjustment to the opening balance of accumulated deficit as of January 1, 2022 which will result in reduced interest expense in future periods. Adoption of the standard resulted in a decrease to accumulated deficit of $17 million, decrease to additional paid-in capital of $19 million and an increase to debt, current of $2 million.

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.

Recently Issued Accounting Pronouncement Pending Adoption

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 improves comparability for both the recognition and measurement of acquired revenue contracts with customers at the date of and after a business combination by providing consistent recognition guidance. This standard is effective for fiscal years beginning after December 15, 2022. Early adoption is 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. The Company is currently evaluating the timing of adoption and impact, if any, of this new standard on our consolidated financial statements.

6

(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):

	March 31, 2022
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Available-for-sale securities:
Commercial paper	$	575	$	—	$	(2)	$	573
Corporate notes and bonds	2,424		—		(35)		2,389
Certificates of deposit	122		—		—		122
U.S. government and agency securities	71		—		(1)		70
Mortgage-backed and asset-backed securities	99		—		(7)		92
Total available-for-sale securities	$	3,291	$	—	$	(45)	$	3,246

	December 31, 2021
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Available-for-sale securities:
Commercial paper	$	528	$	—	$	—	$	528
Corporate notes and bonds	2,418		1		(7)		2,412
Certificates of deposit	28		—		—		28
U.S. government and agency securities	140		—		—		140
Mortgage-backed and asset-backed securities	100		—		(2)		98
Total available-for-sale securities	$	3,214	$	1	$	(9)	$	3,206

As of March 31, 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-backed and 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):

	March 31, 2022
Due within 1 year	$	1,762
Due in 1 year through 5 years	1,392
Instruments not due in single maturity	92
Total	$	3,246

As of March 31, 2022, the fair value of available-for-sale securities in a continuous loss position totaled $3,024 million, the majority of which has been in a continuous unrealized loss position 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 March 31, 2022.

7

Non-Marketable Equity Investments

As of March 31, 2022 and December 31, 2021, the total amount of non-marketable equity investments in privately-held companies included in other assets on our condensed consolidated balance sheets was $195 million and $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 fair value measurements as Level 3 within the fair value hierarchy.

On December 31, 2021, we agreed to purchase $100 million of common and preferred shares Celonis SE (“Celonis”), a privately held company that develops and sells process mining software, in exchange for cash. The transaction 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 March 31, 2022 (in millions): 

	Level 1		Level 2		Total
Cash equivalents:
Money market funds	$	957	$	—	$	957
Commercial paper	—		112		112
Corporate notes and bonds	—		7		7
Certificates of deposit	—		4		4
Deposits	236		—		236
Marketable securities:
Commercial paper	—		573		573
Corporate notes and bonds	—		2,389		2,389
Certificates of deposit	—		122		122
Mortgage-backed and asset-backed securities	—		92		92
U.S. government and agency securities	—		70		70
Total	$	1,193	$	3,369	$	4,562

8

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

	Level 1		Level 2		Total
Cash equivalents:
Money market funds	$	706	$	—	$	706
Commercial paper	—		110		110
Corporate notes and bonds	—		28		28
Certificates of deposit	—		8		8
Deposits	235		—		235
Marketable securities:
Commercial paper	—		528		528
Corporate notes and bonds	—		2,412		2,412
Certificates of deposit	—		28		28
Mortgage-backed and asset-backed securities	—		98		98
U.S. government and agency securities	—		140		140
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) or using unobservable inputs which 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.

(5) Business Combinations

On June 15, 2021, we acquired LightStep, Inc., a leading observability solution provider, for $512 million in a 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), 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.

Goodwill is primarily attributed to the value expected from synergies resulting from the business combinations. 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 fair value measurements as soon as practicable, but not later than one year from the acquisition date.

We have included the financial results of business combinations in the consolidated financial statements from the respective dates of acquisition, which were not material. Pro forma revenue and earnings amounts on a combined basis have not been presented as it is impracticable due to the lack of availability of historical financial statements that comply with GAAP.

9

(6) Intangible Assets

Intangible assets consist of the following (in millions):

	March 31, 2022		December 31, 2021
Developed technology	$	413	$	415
Patents	69		69
Other	15		14
Intangible assets, gross	497		498
Less: accumulated amortization	(231)		(211)
Intangible assets, net	$	266	$	287

The weighted-average useful life for the acquired developed technology for the three months ended March 31, 2022 and 2021 was approximately five years. Amortization expense for intangible assets for the three months ended March 31, 2022 and 2021 was $20 million and $17 million, respectively.

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

Years Ending December 31,
Remainder of 2022	$	60
2023	74
2024	66
2025	45
2026	15
Thereafter	6
Total future amortization expense	$	266

(7) Property and Equipment

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

	March 31, 2022		December 31, 2021
Computer equipment	$	1,312	$	1,226
Computer software	75		77
Leasehold and other improvements	200		200
Furniture and fixtures	76		74
Construction in progress	10		14
Property and equipment, gross	1,673		1,591
Less: Accumulated depreciation	(875)		(825)
Property and equipment, net	$	798	$	766

Construction in progress consists primarily of leasehold and other improvements and in-process software development costs. Depreciation expense for the three months ended March 31, 2022 and 2021 was $58 million and $71 million, respectively.

10

(8) Derivative Contracts

As of March 31, 2022 and December 31, 2021, we had foreign currency forward contracts with total notional values of $443 million and $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. The fair value of these outstanding derivative contracts was as follows (in millions):

	Condensed Consolidated Balance Sheet Location	March 31, 2022		December 31, 2021
Derivative Assets:
Foreign currency derivative contracts	Prepaid expenses and other current assets	$	3	$	2
Derivative Liabilities:
Foreign currency derivative contracts	Accrued expenses and other current liabilities	$	4	$	3

(9) Deferred Revenue and Performance Obligations

Revenues recognized during the three months ended March 31, 2022 from amounts included in deferred revenue as of December 31, 2021 were $1.4 billion. Revenues recognized during the three months ended March 31, 2021 from amounts included in deferred revenue as of December 31, 2020 were $1.1 billion.

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 March 31, 2022, the total non-cancelable RPO under our contracts with customers was $11.5 billion and we expect to recognize revenues on approximately 50% of these RPO over the following 12 months. The majority of the remaining non-current performance obligation will be recognized over the next 13 to 36 months.

(10) Debt

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

	March 31, 2022				December 31, 2021
	2030 Notes		2022 Notes		2030 Notes		2022 Notes
Current, net of unamortized debt discount and issuance costs of $0.04 million and $2 million, respectively	$	—	$	88	$	—	$	92
Long-term, net of unamortized debt discount and issuance costs of $16 million and $16 million, respectively	1,484		—		1,484		—
Total debt	$	1,484	$	88	$	1,484	$	92

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

	March 31, 2022		December 31, 2021
2022 Notes	$	371	$	440
2030 Notes	$	1,276	$	1,400

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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.

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 due June 1, 2022 unless earlier converted or repurchased in accordance with their terms. The 2022 Notes do not bear interest, and we cannot redeem the 2022 Notes prior to maturity. The 2022 Notes are unsecured obligations and do not contain any financial covenants or restrictions on the payments of dividends, the incurrence of indebtedness or the issuance or repurchase of securities by us or any of our subsidiaries.

As described in Note 2, we adopted the new accounting standard for debt with conversion options effective January 1, 2022 using a modified retrospective method, under which financial results reported in prior periods were not adjusted. Prior to the adoption of the new standard, in accounting for the issuance of the 2022 Notes and the related transaction costs, we valued and bifurcated the conversion option from the host debt instrument, referred to as debt discount, and recorded the conversion option of $160 million in equity at issuance. The resulting debt discount and transactions costs allocated to the liability component are 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 are 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. As of March 31, 2022, the effective interest rate for the 2022 Notes was 0.267%.

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	6

Conversion of the 2022 Notes prior to the Convertible Date. At any time prior to the close of business on the business day immediately preceding February 1, 2022 (“Convertible Date”), holders of the 2022 Notes may 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 five-business day period after any five-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.

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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. Subsequent to adoption of the new accounting standard on January 1, 2022, no gain or loss is recorded 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 December 31, 2021, except for the quarter ended December 31, 2018. Therefore, our 2022 Notes were convertible at the holders’ option beginning on July 1, 2018 through January 31, 2022, except for the quarter ended March 31, 2019 because the Conversion Condition for the 2022 Notes was not met for the quarter ended December 31, 2018. Any conversion requests received subsequent to January 31, 2022, will be settled on the maturity date, which is June 1, 2022.

During the three months ended March 31, 2022, we paid cash to settle $6 million in principal of the 2022 Notes. As a result of the settlements, we also recorded a net reduction to additional paid-in capital of $21 million offset by $21 million benefit from the 2022 Note Hedge (as defined below).

Repurchase of 2022 Notes

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

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 March 31, 2022
	(in millions)
2022 Note Hedge	$	128	6	1

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The 2022 Note Hedge covers shares of our common stock at a strike price per share that corresponds to the initial conversion price of the 2022 Notes, subject to adjustment, and are 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 is 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 is a separate transaction and is not part of the terms of the 2022 Notes. Holders of the 2022 Notes will not have any rights with respect to the 2022 Note Hedge. The 2022 Note Hedge does 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 March 31, 2022
	(in millions)		(in millions)				(in millions)
2022 Warrants	$	54	6	$	203.40	September 1, 2022	1

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 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 separate transactions and are not remeasured through earnings each reporting period. The 2022 Warrants are 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 0.5 million shares of our common stock during the three months ended March 31, 2021.

According to the terms, the remaining portion of the 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 March 31, 2022, 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.

(11) Accumulated Other Comprehensive Income (Loss)

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

	March 31, 2022		December 31, 2021
Foreign currency translation adjustment	$	33	$	46
Net unrealized losses on investments, net of tax	(49)		(12)
Accumulated other comprehensive income (loss)	$	(16)	$	34

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

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(12) Stockholders' Equity

Common Stock

We are authorized to issue a total of 600 million shares of common stock as of March 31, 2022. Holders of our common stock are not entitled to receive dividends unless declared by our board of directors. As of March 31, 2022, we had 200.5 million shares of common stock outstanding and had reserved shares of common stock for future issuance as follows (in thousands): 

	March 31, 2022
Stock plans:
Options outstanding	1,285
RSUs(1)	7,350
Shares of common stock available for future grants:
2021 Equity Incentive Plan(2)	6,002
Amended and Restated 2012 Employee Stock Purchase Plan(2)	9,179
Total shares of common stock reserved for future issuance	23,816

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

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

During the three months ended March 31, 2022 and 2021, we issued a total of 0.8 million shares and 1.1 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, during the three months ended March 31, 2021, we issued 0.5 million shares of our common stock upon partial unwind of the 2022 Warrants.

(13)  Equity Awards

We currently have three 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, 2022, and for the remaining term of the 2012 ESPP, the share reserve will not be increased without shareholder approval.

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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 eight 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.

A summary of stock option activity for the three months ended March 31, 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, 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	8.9	$	104
Vested and expected to vest as of March 31, 2022	1,036	$	550.79	8.7	$	99
Vested and exercisable as of March 31, 2022	150	$	119.24	4.5	$	66

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 three months ended March 31, 2022 was $3 million.

As of March 31, 2022, total unrecognized compensation cost, adjusted for estimated forfeitures, related to unvested stock options was approximately $129 million. The weighted-average remaining vesting period of unvested stock options at March 31, 2022 was approximately three years.

RSUs

A summary of RSU activity for the three months ended March 31, 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, 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

    

RSUs outstanding as of March 31, 2022 were comprised of 6.8 million RSUs with only service conditions and 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 three months ended March 31, 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 $29 million and $24 million of stock-based compensation, net of actual and estimated forfeitures, associated with PRSUs on a graded vesting basis during the three months ended March 31, 2022 and 2021, respectively.

As of March 31, 2022, total unrecognized compensation cost, adjusted for estimated forfeitures, related to unvested RSUs was approximately $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 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):