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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 September 30, 2021
OR
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Commission File Number: 001-35580

now-20210930_g1.jpg
SERVICENOW, INC.
(Exact name of registrant as specified in its charter) 
Delaware20-2056195
(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 classTrading SymbolName of each exchange on which registered
Common stock, par value $0.001 per shareNOWThe 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 September 30, 2021, there were approximately 199 million shares of the Registrant’s Common Stock outstanding.



TABLE OF CONTENTS

 
Page
Item 1.
Item 2.
Item 3.
Item 4.
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
   
 
 
i

PART I

ITEM 1.     FINANCIAL STATEMENTS

SERVICENOW, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions)
(unaudited)
September 30, 2021December 31, 2020
Assets
Current assets:
Cash and cash equivalents$1,400 $1,677 
Short-term investments1,631 1,415 
Accounts receivable, net776 1,009 
Current portion of deferred commissions268 229 
Prepaid expenses and other current assets213 192 
Total current assets4,288 4,522 
Deferred commissions, less current portion524 444 
Long-term investments1,384 1,468 
Property and equipment, net740 660 
Operating lease right-of-use assets606 454 
Intangible assets, net302 153 
Goodwill770 241 
Deferred tax assets694 673 
Other assets170 100 
Total assets$9,478 $8,715 
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable$64 $34 
Accrued expenses and other current liabilities604 668 
Current portion of deferred revenue2,949 2,963 
Current portion of operating lease liabilities82 72 
Current debt, net93  
Total current liabilities3,792 3,737 
Deferred revenue, less current portion53 45 
Operating lease liabilities, less current portion568 423 
Long-term debt, net1,484 1,640 
Other long-term liabilities47 36 
Total liabilities5,944 5,881 
Commitments and contingencies
Stockholders’ equity:
Common stock  
Additional paid-in capital3,516 2,974 
Accumulated other comprehensive income48 94 
Accumulated deficit(30)(234)
Total stockholders’ equity3,534 2,834 
Total liabilities and stockholders’ equity$9,478 $8,715 


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 September 30,Nine Months Ended September 30,
2021202020212020
Revenues:
Subscription$1,427 $1,091 $4,050 $3,102 
Professional services and other85 61 232 167 
Total revenues1,512 1,152 4,282 3,269 
Cost of revenues(1):
Subscription264 189 740 521 
Professional services and other86 63 239 187 
Total cost of revenues350 252 979 708 
Gross profit1,162 900 3,303 2,561 
Operating expenses(1):
Sales and marketing579 454 1,660 1,321 
Research and development358 268 1,005 740 
General and administrative151 109 416 319 
Total operating expenses1,088 831 3,081 2,380 
Income from operations74 69 222 181 
Interest expense(7)(8)(21)(25)
Other income (expense), net1 (35)16 (20)
Income before income taxes68 26 217 136 
Provision for income taxes5 13 13 34 
Net income$63 $13 $204 $102 
Net income per share - basic$0.32 $0.07 $1.03 $0.53 
Net income per share - diluted$0.31 $0.06 $1.00 $0.50 
Weighted-average shares used to compute net income per share - basic198,600 193,237 197,680 193,203 
Weighted-average shares used to compute net income per share - diluted203,124 201,861 202,729 202,837 
Other comprehensive income:
Foreign currency translation adjustments$(20)$25 $(37)$23 
Unrealized gain (loss) on investments, net of tax(2)(3)(9)4 
Other comprehensive income (loss)(22)22 (46)27 
Comprehensive income$41 $35 $158 $129 

(1)Includes stock-based compensation as follows:
 Three Months Ended September 30,Nine Months Ended September 30,
2021202020212020
Cost of revenues:
Subscription$33 $26 $95 $72 
Professional services and other15 13 43 38 
Operating expenses:
Sales and marketing101 79 293 228 
Research and development102 74 288 203 
General and administrative40 28 110 84 
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 September 30, 2021Three Months Ended September 30, 2020
Common StockAdditional
Paid-in
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive Income
Total
Stockholders’
Equity
Common StockAdditional
Paid-in
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive Income
Total
Stockholders’
Equity
 SharesAmountSharesAmount
Balance at beginning of the period198,135 $ $3,298 $(93)$70 $3,275 191,801 $ $2,712 $(263)$30 $2,479 
Common stock issued under employee stock plans860 — 71 — — 71 964 — 58 — — 58 
Taxes paid related to net share settlement of equity awards— — (142)— — (142)— — (122)— — (122)
Stock-based compensation— — 290 — — 290 — — 220 — — 220 
Settlement of 2022 Warrants — — — —  2,285 — — — — — 
Settlement of 2022 Notes conversion feature— — (25)— — (25)— — (1,158)— — (1158)
Benefit from exercise of 2022 Note Hedge— — 24 — — 24 — — 1,162 — — 1162 
Other comprehensive income (loss), net of tax— — — — (22)(22)— — — — 22 22 
Net income— 63 63 — — — 13 — 13 
Balance at end of the period198,995 $ $3,516 $(30)$48 $3,534 195,050 $ $2,872 $(250)$52 $2,674 
Nine Months Ended September 30, 2021Nine Months Ended September 30, 2020
Common StockAdditional
Paid-in
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive Income
Total
Stockholders’
Equity
Common StockAdditional
Paid-in
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive Income
Total
Stockholders’
Equity
 SharesAmountSharesAmount
Balance at beginning of the period195,845 $ $2,974 $(234)$94 $2,834 189,461 $ $2,455 $(352)$25 $2,128 
Common stock issued under employee stock plans2,614 — 166 — — 166 3,304 — 149 — — 149 
Taxes paid related to net share settlement of equity awards— — (457)— — (457)— — (361)— — (361)
Stock-based compensation— — 828 — — 828 — — 626 — — 626 
Shares granted related to business combination— — 6 — — 6 — — — — — — 
Settlement of 2022 Warrants536 — — — —  2,285 — — — —  
Settlement of 2022 Notes conversion feature— — (216)— — (216)— — (1,181)— — (1,181)
Benefit from exercise of 2022 Note Hedge— — 215 — — 215 — — 1,184 — — 1,184 
Other comprehensive income (loss), net of tax— — — — (46)(46)— — — — 27 27 
Net income— — — 204 — 204 — — — 102 — 102 
Balance at end of the period198,995 $ $3,516 $(30)$48 $3,534 195,050 $ $2,872 $(250)$52 $2,674 
See accompanying notes to condensed consolidated financial statements
3

SERVICENOW, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(unaudited)
 Nine Months Ended September 30,
20212020
Cash flows from operating activities:
Net income$204 $102 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization346 243 
Amortization of deferred commissions211 157 
Stock-based compensation828 625 
Deferred income taxes(21)(6)
Repayments of convertible senior notes attributable to debt discount(15)(69)
Loss on extinguishment of 2022 Notes3 42 
Other34 23 
Changes in operating assets and liabilities, net of effect of business combinations:
Accounts receivable219 210 
Deferred commissions(344)(221)
Prepaid expenses and other assets(78)(42)
Accounts payable39 2 
Deferred revenue47 66 
Accrued expenses and other liabilities(126)(31)
Net cash provided by operating activities1,347 1,101 
Cash flows from investing activities:
Purchases of property and equipment(292)(285)
Business combinations, net of cash acquired(778)(108)
Purchases of investments(1,769)(2,229)
Sales and maturities of investments1,579 1,299 
Other12 (7)
Net cash used in investing activities(1,248)(1,330)
Cash flows from financing activities:
Net proceeds from borrowings on 2030 Notes 1,482 
Repayments of convertible senior notes attributable to principal(59)(1,569)
Net proceeds from unwind of 2022 Note Hedge 1,106 
Proceeds from employee stock plans165 142 
Taxes paid related to net share settlement of equity awards(457)(361)
Net cash (used in) provided by financing activities(351)800 
Foreign currency effect on cash, cash equivalents and restricted cash(21)3 
Net change in cash, cash equivalents and restricted cash(273)574 
Cash, cash equivalents and restricted cash at beginning of period1,679 778 
Cash, cash equivalents and restricted cash at end of period$1,406 $1,352 
Cash, cash equivalents and restricted cash at end of period:
Cash and cash equivalents$1,400 $1,348 
Restricted cash included in prepaid expenses and other current assets6 4 
Total cash, cash equivalents and restricted cash shown in the condensed consolidated statements of cash flows$1,406 $1,352 
Supplemental disclosures of other cash flow information:
Interest paid$36 $ 
Income taxes paid, net of refunds46 26 
Non-cash investing and financing activities:
Settlement of 2022 Notes conversion feature$216 $79 
Benefit from exercise of 2022 Note Hedge215 78 
Property and equipment included in accounts payable and accrued expenses 54 27 

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’s purpose is to make the world of work, work better for people. We believe that people want the technology they use in their work to be more efficient and easier to use. We build applications to meet that demand by automating existing processes and creating efficient, digitized workflows with a consumer grade user experience. Our products and services enable the steps of a job to flow naturally across disparate departments, systems and processes of a business. ServiceNow delivers digital workflows on a single enterprise cloud platform called the Now Platform®. Our product portfolio is currently focused on providing Information Technology (“IT”), Employee and Customer workflows in standardized product offerings. We also enable our customers to design and build their own custom workflow applications using our Creator workflows, formerly called the Now Platform App Engine, and to integrate those applications with third party systems through our Integration Hub.

(2) Summary of Significant Accounting Policies

Basis of Presentation

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

Principles of Consolidation

The 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

Significant Accounting Policies

There were no significant changes to our significant accounting policies disclosed in “Note 2 – Summary of Significant Accounting Policies” of our Annual Report on Form 10-K for the year ended December 31, 2020, which was filed with the SEC on February 12, 2021.

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, 2021, we had one customer, a channel partner, that represented 22% of our accounts receivable and no customers that individually exceeded 10% of our total revenues in any of the periods presented. As of December 31, 2020, there were no customers that represented more than 10% of our accounts receivable balance. 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.

Accounting Pronouncement Adopted in 2021

Income taxes

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

Recently Issued Accounting Pronouncement Pending Adoption

Debt with Conversion Options

In August 2020, the FASB issued new guidance to simplify the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. The standard eliminates beneficial conversion feature and cash conversion models resulting in more convertible instruments being accounted for as a single unit; and simplifies classification of debt on the balance sheet and earnings per share calculation. This new standard is effective for our interim and annual periods beginning January 1, 2022 and earlier adoption is permitted. Amendments within this standard are required to be applied on a retrospective or modified retrospective basis. We are currently evaluating the impact of the adoption of this standard on our condensed consolidated financial statements.

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):
 September 30, 2021
 Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair Value
Available-for-sale securities:
Commercial paper$553 $ $ $553 
Corporate notes and bonds2,261 4 (1)2,264 
Certificates of deposit40   40 
U.S. government and agency securities97   97 
Mortgage and asset backed securities62  (1)61 
Total available-for-sale securities$3,013 $4 $(2)$3,015 

December 31, 2020
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair Value
Available-for-sale securities:
Commercial paper$406 $ $ $406 
Corporate notes and bonds2,298 10  2,308 
Certificates of deposit23   23 
U.S. government and agency securities145 1  146 
Total available-for-sale securities$2,872 $11 $ $2,883 

As of September 30, 2021, 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 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):
September 30, 2021
Due within 1 year$1,631 
Due in 1 year through 5 years1,323 
Instruments not due in single maturity61 
Total$3,015 

As of September 30, 2021 and December 31, 2020, the gross unrealized losses that have been in a continuous unrealized loss position related to $942 million and $637 million available-for-sale debt securities, respectively, were not material.

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 September 30, 2021.
7


Strategic Investments

As of September 30, 2021 and December 31, 2020, the total amount of equity investments in privately-held companies included in other assets on our condensed consolidated balance sheets was $64 million and $28 million, respectively. We classify these assets as Level 3 within the fair value hierarchy as only an impairment or observable adjustment is recognized based on observable transaction price at the transaction date of identical or similar investment of the same issuer and other unobservable inputs such as volatility.

(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, 2021 (in millions): 
Level 1Level 2Total
Cash equivalents:
Money market funds$563 $ $563 
Deposits235  235 
U.S. government and agency securities 38 38 
Marketable securities:
Commercial paper 553 553 
Corporate notes and bonds 2,264 2,264 
Certificates of deposit 40 40 
U.S. government and agency securities 97 97 
Mortgage and asset backed securities 61 61 
Total$798 $3,053 $3,851 
 
The following table presents our fair value hierarchy for our assets measured at fair value on a recurring basis as of December 31, 2020 (in millions): 
Level 1Level 2Total
Cash equivalents:
Money market funds$1,305 $ $1,305 
U.S. government and agency securities 2 2 
Marketable securities:
Commercial paper 406 406 
Corporate notes and bonds 2,308 2,308 
Certificates of deposit 23 23 
U.S. government and agency securities 146 146 
Total$1,305 $2,885 $4,190 
 
We determine the fair value of our security holdings based on pricing from our service providers and market prices from industry-standard independent data providers. Such market prices may be quoted prices in active markets for identical assets (Level 1 inputs) or pricing determined using inputs other than quoted prices that are observable either directly or indirectly (Level 2 inputs), such as yield curve, volatility factors, credit spreads, default rates, loss severity, current market and contractual prices for the underlying instruments or debt, broker and dealer quotes, as well as other relevant economic measures.

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

8

(5) Business Combinations

On January 8, 2021, we acquired all outstanding stock of Element AI Inc., a leading enterprise artificial intelligence (“AI”) solution provider, for $228 million in an all-cash transaction. The purchase price was allocated based on the estimated fair value of developed technology intangible asset of $85 million (five-year estimated useful life), net tangible assets of $16 million, and goodwill of $81 million, which is partially deductible for income tax purposes. At time of acquisition, we established an unrecognized tax benefit of $43 million on pre-acquisition net operating loss carryforwards and other tax attributes which was subsequently released resulting in establishment of deferred tax asset based on completion of valuation and filing certain tax returns in the third quarter of 2021. Goodwill is primarily attributed to the value expected from synergies resulting from the combination.

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 combination.

On August 20, 2021, we acquired all outstanding stock of Swarm64 AS, a leader in database performance and scale digital workflows, for $32 million in an all-cash transaction. The purchase price was allocated based on the estimated fair value of developed technology intangible asset of $14 million (five-year estimated useful life) and goodwill of $20 million, which is not deductible for income tax purposes. Goodwill is primarily attributed to the value expected from synergies resulting from the combination.

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.

During the nine months ended September 30, 2021, we also completed certain acquisitions for total purchase consideration of $27 million primarily to enhance our products. These acquisitions were not material to our condensed consolidated financial statements, either individually or in the aggregate.

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

9

(6) Goodwill and Intangible Assets

Goodwill balances are presented below (in millions):
Carrying Amount
Balance as of December 31, 2020$241 
Goodwill acquired533 
Foreign currency translation adjustments(4)
Balance as of September 30, 2021$770 

Intangible assets consist of the following (in millions):
 September 30, 2021December 31, 2020
Developed technology$414 $226 
Patents62 65 
Other15 3 
Intangible assets, gross491 294 
Less: accumulated amortization(189)(141)
Intangible assets, net$302 $153 

The weighted-average useful life for the developed technology acquired during each of the nine months ended September 30, 2021 and September 30, 2020 was approximately five years.

Amortization expense for intangible assets for the three months ended September 30, 2021 and 2020 was $20 million and $10 million, respectively, and for the nine months ended September 30, 2021 and 2020 was $53 million and $35 million, respectively.

The following table presents the estimated future amortization expense related to intangible assets held at September 30, 2021 (in millions):
Years Ending December 31,
Remainder of 2021$21 
202280 
202373 
202466 
202545 
Thereafter17 
Total future amortization expense$302 

10

(7) Property and Equipment
 
Property and equipment, net consists of the following (in millions):
 September 30, 2021December 31, 2020
Computer equipment$1,154 $974 
Computer software77 72 
Leasehold and other improvements184 168 
Furniture and fixtures70 69 
Construction in progress21 9 
Property and equipment, gross1,506 1,292 
Less: Accumulated depreciation(766)(632)
Property and equipment, net$740 $660 

Construction in progress consists primarily of leasehold and other improvements and in-process software development costs. Depreciation expense for the three months ended September 30, 2021 and 2020 was $83 million and $58 million, respectively, and for the nine months ended September 30, 2021 and 2020 was $232 million and $160 million, respectively.

(8) Derivative Contracts

As of September 30, 2021 and December 31, 2020, we had foreign currency forward contracts with total notional values of $367 million and $583 million, respectively, which are not designated as hedging instruments. Our foreign currency 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 LocationSeptember 30, 2021December 31, 2020
Derivative Assets:
Foreign currency derivative contractsPrepaid expenses and other current assets$1 $8 
Derivative Liabilities:
Foreign currency derivative contractsAccrued expenses and other current liabilities$1 $10 

(9) Deferred Revenue and Performance Obligations

Revenues recognized during the three months ended September 30, 2021 and 2020 from amounts included in deferred revenue as of June 30, 2021 and June 30, 2020 were $1.3 billion and $1.0 billion, respectively.

Revenues recognized during the nine months ended September 30, 2021 and 2020 from amounts included in deferred revenue as of December 31, 2020 and December 31, 2019 were $2.6 billion and $1.9 billion, respectively.

Remaining Performance Obligations

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

As of September 30, 2021, the total non-cancelable RPO under our contracts with customers was $9.7 billion and we expect to recognize revenues on approximately 51% of these RPO over the following 12 months, with the balance to be recognized thereafter.

11

(10) Debt

The following table summarizes the carrying value of our outstanding debt (in millions, except percentages):
September 30, 2021December 31, 2020
2030 Notes2022 Notes2030 Notes2022 Notes
Current, net of unamortized debt discount and issuance costs of $3 million
 93  
Long-term, net of unamortized debt discount and issuance costs of $16 million and $29 million, respectively
1,484  1,482 158 
Total debt$1,484 $93 $1,482 $158 
Effective interest rate of the liability component - 2022 Notes4.75%
Effective interest rate - 2030 Notes1.53%
The effective interest rates for the 2030 Notes and 2022 Notes include interest payable, amortization of debt issuance cost and amortization of debt discount, as applicable.
We consider the fair value of the 2030 Notes and 2022 Notes to be a Level 2 measurement. The estimated fair value of the 2030 Notes and 2022 Notes at September 30, 2021 and December 31, 2020 is based on the closing trading price per $100 of the 2030 Notes and 2022 Notes were as follows (in millions):
September 30, 2021December 31, 2020
2022 Notes$437 $