ServiceNow Reports Financial Results for First Quarter 2016

SANTA CLARA, Calif. – April. 20, 2016 – ServiceNow® (NYSE: NOW), the enterprise cloud company, today announced the financial results for its first quarter 2016.

First Quarter 2016 Results:

  • Total revenues of $305.9 million, an increase of 44% year‑over‑year.
  • GAAP net loss of $333.3 million, or loss of $2.06 per basic and diluted share, compared to a GAAP net loss of $58.1 million, or loss of $0.38 per basic and diluted share, in the first quarter of 2015.
  • Non‑GAAP net income of $14.5 million, or income of $0.09 per basic and diluted share, compared to a non‑GAAP net income of $2.5 million, or income of $0.02 per basic share and $0.01 per diluted share, in the first quarter of 2015 (see the table entitled "Results of Operations GAAP to Non‑GAAP Reconciliation” for a reconciliation of these GAAP and non‑GAAP financial measures).
  • Billings were $376.7 million, an increase of 41% year‑over‑year (see the table entitled "Results of Operations GAAP to Non‑GAAP Reconciliation” for a reconciliation of non‑GAAP billings to GAAP revenues).
  • Free cash flow was $67.1 million, or 22% of revenue (see the table entitled "Results of Operations GAAP to Non‑GAAP Reconciliation” for a reconciliation of these GAAP and non‑GAAP financial measures).
  • Foreign exchange rate fluctuations did not significantly impact our actual year‑over‑year revenue or billings growth.

“We’re off to a strong start with our best first quarter ever,” said Frank Slootman, president and chief executive officer, ServiceNow. “Strong upsells and traction with our emerging products were two key growth vectors during the quarter.”

“We now have 249 customers each paying us more than $1 million in annualized contract value, an increase of 48% year‑over‑year,” said Michael Scarpelli, chief financial officer, ServiceNow. “We also landed a record 13 upsells in the quarter each with an annualized contract value greater than $1 million.”

Financial Outlook:

The financial guidance discussed below is on a non‑GAAP basis, except for revenues, and excludes stock‑based compensation expense, amortization of purchased intangibles, amortization of debt discount and issuance costs related to the convertible senior notes, legal settlement expense and business combination related expenses (see table which reconciles these non‑GAAP financial measures to the related GAAP measures).

Based on foreign exchange rates at the end of the first quarter, we are not forecasting a significant impact to our expected year‑over‑year revenue or billings growth due to foreign exchange rate fluctuations.

For the second quarter of 2016, we are forecasting average billings duration of 11.7 months, compared to average billings duration of 12.2 months in the second quarter of 2015. The forecasted decrease in average billings duration is due to one large customer order in the second quarter of 2015 that requested multi‑year billings. We do not anticipate significant multi‑year billings to occur in the second quarter of 2016. Our guidance below includes a comparison of billings growth rates on a constant average billings duration basis.

Please refer to our first quarter 2016 investor presentation, posted on our website at investors.servicenow.com, for additional information.

For the second quarter of 2016, we expect:

  • Subscription revenues between $284 and $286 million, representing year‑over‑year growth between 42% and 43%.
  • Professional services and other revenues between $48 and $49 million, representing year‑over‑year growth between 4% and 6%.
  • Total revenues between $332 and $335 million, representing year‑over‑year growth between 35% and 36%.
  • Subscription billings between $330 and $335 million, representing year‑over‑year growth between 37% and 39%, and 43% and 45% in constant average billings duration.
  • Professional services and other billings of $40 million, flat year‑over‑year.
  • Total billings between $370 and $375 million, representing year‑over‑year growth between 31% and 33%, and 36% and 38% in constant average billings duration.
  • Subscription gross margin of approximately 83%, professional services and other gross margin, excluding Knowledge16 revenue, of approximately 11%, and overall gross margin, excluding Knowledge16 revenue, of approximately 75%. We expect Knowledge16 revenue to be approximately $11 million.
  • Operating margin of approximately 7%, including $15 million of Knowledge16 net expenses.
  • Free cash flow margin of approximately 22%.
  • Weighted average shares used to compute diluted net income per share of approximately 172 million shares. 

For full‑year 2016, we expect:

  • Subscription revenues between $1,195 and $1,210 million, representing year‑over‑year growth between 41% and 43%.
  • Professional services and other revenues between $160 and $170 million, representing year‑over‑year growth between 2% and 8%.
  • Total revenues between $1,355 and $1,380 million, representing year‑over‑year growth between 35% and 37%.
  • Subscription billings of approximately $1.42 billion, representing year‑over‑year growth of 37%.
  • Professional services and other billings of approximately $180 million, representing year‑over‑year growth of 10%.
  • Total billings of approximately $1.60 billion, representing year‑over‑year growth of 33%.
  • Operating margin and free cash flow margin of approximately 12% and 24%, respectively.
  • Weighted average shares used to compute diluted net income per share of approximately 173 million shares.

Conference Call Details

The conference call will begin at 2 p.m. Pacific Time (21:00 GMT) on Wednesday, April 20, 2016. Interested parties may listen to the call by dialing 877.546.2781 (passcode: 77663505), or if outside North America, by dialing +1.281.973.6269 (passcode: 77663505). Individuals may access the live teleconference from the investor relations section of the ServiceNow website at http://investors.servicenow.com.

An audio replay of the conference call and webcast will be available two hours after its completion and will be accessible for 30 days. To hear the replay, interested parties may go to the investor relations section of the ServiceNow website or dial 855.859.2056 (passcode: 77663505), or if outside North America, by dialing +1.404.537.3406 (passcode: 77663505).

Statement regarding use of non‑GAAP financial measures

We report non‑GAAP financial measures in addition to, and not as a substitute for, or superior to, financial measures calculated in accordance with GAAP.

Our financial measures under GAAP include stock‑based compensation expense, the amortization of debt discount and issuance costs related to the convertible senior notes, amortization of purchased intangibles, legal settlement expense, business combination related expenses, and the related income tax effect of these adjustments. We believe the presentation of operating results that exclude these items provides useful supplemental information to investors and facilitates the analysis of our core operating results and comparison of operating results across reporting periods.

Free cash flow, which is a non‑GAAP financial measure, is calculated as GAAP net cash provided by operating activities plus cash paid on legal settlements, reduced by purchases of property and equipment. Free cash flow margin is calculated as free cash flow as a percentage of revenues. We believe information regarding free cash flow and free cash flow margin provide investors with an important perspective on the cash available to invest in our business and fund ongoing operations. However, our calculation of free cash flow and free cash flow margin may not be comparable to similar measures used by other companies.

Total billings is calculated as revenue plus the change in total deferred revenue as presented on the statement of cash flows. We also provide the breakdown of billings information by subscription billings and professional services and other billings. These are calculated based on the respective revenue in each category plus the respective change in deferred revenues for each category.  We believe billings offers investors useful supplemental information regarding the performance of our business, and will help investors better understand the sales volumes and performance of our business. For guidance purposes, we present a billings growth rate adjusted for constant average billings duration when our subscription billings term for the comparison quarter is greater than twelve months. Subscription billings growth rates adjusted for constant average billings duration, and the corresponding total billings growth rate adjusted for constant average billings duration, are calculated by applying the average billings duration in effect for the comparison quarter instead of the forecasted average billings duration for the guidance period.

The company encourages investors to carefully consider its results under GAAP, as well as its supplemental non‑GAAP information and the reconciliation between these presentations, to more fully understand its business. Please see the tables included at the end of this release for the reconciliation of GAAP and non‑GAAP results.

Use of forward‑looking statements

This release contains “forward‑looking statements” regarding our performance, including but not limited to the section entitled “Financial Outlook.” Forward‑looking statements are subject to known and unknown risks and uncertainties and are based on potentially inaccurate assumptions that could cause actual results to differ materially from those expected or implied by the forward‑looking statements. If any such risks or uncertainties materialize or if any of the assumptions prove incorrect, our results could differ materially from the results expressed or implied by the forward‑looking statements we make.

Among the important factors that could cause actual results to differ materially from those in any forward‑looking statements include: (i) errors, interruptions, delays, or security breaches of our service or web hosting, (ii) our ability to grow at our expected rate of growth, including our ability to convert deferred revenue and backlog into revenue, add and retain customers, sell additional subscriptions to existing customers and enter new geographies and markets, (iii) our ability to continue to release, and gain customer acceptance of, improved versions of our services, (iv) our ability to develop and gain customer acceptance of new products and services, including our platform, and (v) our ability to compete successfully against existing and new competitors.

Further information on these and other factors that could affect our financial results are included in our Form 10‑K for the year ended December 31, 2015 and in other filings we make with the Securities and Exchange Commission from time to time, including our Form 10‑Q that will be filed for the quarter ended March 31, 2016.

We undertake no obligation, and do not intend, to update these forward‑looking statements, to review or confirm analysts’ expectations, or to provide interim reports or updates on the progress of the current financial quarter.

About ServiceNow

ServiceNow is changing the way people work. With a service‑orientation toward the activities, tasks and processes that make up day‑to‑day work life, we help the modern enterprise operate faster and be more scalable than ever before. Customers use our service model to define, structure and automate the flow of work, removing dependencies on email and spreadsheets to transform the delivery and management of services for the enterprise. ServiceNow enables service management for every department in the enterprise including IT, human resources, facilities, field service and more. We deliver a ‘lights‑out, light‑speed’ experience through our enterprise cloud – built to manage everything as a service. To find out how, visit www.servicenow.com.

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ServiceNow and the ServiceNow logo are registered trademarks of ServiceNow. All other brand and product names are trademarks or registered trademarks of their respective holders.

ServiceNow Q1 2016 complete financial tables (download PDF)