ServiceNow Reports Financial Results for Fourth Quarter and Fiscal Year 2016

SANTA CLARA, Calif. – Jan. 25, 2017 – ServiceNow® (NYSE: NOW), the enterprise cloud company, today announced the financial results for its fourth quarter and fiscal year 2016.

Fourth Quarter 2016 GAAP Results:

  • Subscription revenues of $344.6 million, representing 41% year‑over‑year growth.
  • Professional services and other revenues of $41.1 million, representing 0% year‑over‑year growth.
  • Total revenues of $385.7 million, representing 35% year‑over‑year growth.
  • Subscription gross profit of $279.9 million, representing 81% of subscription revenues.
  • Professional services and other gross profit of $0.8 million, representing 2% of professional services and other revenues.
  • Total gross profit of $280.7 million, representing 73% of total revenues.
  • Loss from operations of $23.6 million, representing negative 6% of total revenues.
  • Net loss of $32.6 million, or loss of $0.20 per basic and diluted share.
  • Net cash provided by operating activities of $132.7 million, representing 34% of total revenues.

Fourth Quarter 2016 Non‑GAAP Results:

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. For the following non‑GAAP results, see the section entitled “Statement Regarding Use of Non‑GAAP Financial Measures” for an explanation of non‑GAAP measures and the corresponding growth rates, and the table entitled "GAAP to Non‑GAAP Reconciliation” for a reconciliation of non‑GAAP to GAAP measures and corresponding growth rates.

  • Subscription revenues of $350.3 million, representing 43% year‑over‑year growth adjusted for constant currency.
  • Professional services and other revenues of $41.4 million, representing 1% year‑over‑year growth adjusted for constant currency.
  • Total revenues of $391.7 million, representing 37% year‑over‑year growth adjusted for constant currency.
  • Subscription billings of $483.9 million, representing 52% year‑over‑year growth (or $457.0 million, representing 44% year‑over‑year growth adjusted for constant currency and constant weighted average billings duration).
  • Professional services and other billings of $50.9 million, representing 6% year‑over‑year growth (or $51.2 million, representing 7% year‑over‑year growth adjusted for constant currency).
  • Total billings of $534.8 million, representing 46% year‑over‑year growth (or $508.2 million, representing 39% year‑over‑year growth adjusted for constant currency and constant weighted average billings duration).
  • Subscription gross profit of $291.0 million, representing 84% of subscription revenues.
  • Professional services and other gross profit of $7.2 million, representing 18% of professional services and other revenues.
  • Total gross profit of $298.2 million, representing 77% of total revenues.
  • Income from operations of $63.8 million, representing 17% of total revenues.
  • Net income of $42.4 million, or earnings of $0.25 per basic share and $0.24 per diluted share.
  • Free cash flow of $111.2 million, representing 29% of total revenues.

Fiscal Year 2016 GAAP Results:

  • Subscription revenues of $1,221.6 million, representing 44% year‑over‑year growth.
  • Professional services and other revenues of $168.9 million, representing 7% year‑over‑year growth.
  • Total revenues of $1,390.5 million, representing 38% year‑over‑year growth.
  • Subscription gross profit of $986.2 million, representing 81% of subscription revenues.
  • Professional services and other gross profit of $5.6 million, representing 3% of professional services and other revenues.
  • Total gross profit of $991.8 million, representing 71% of total revenues.
  • Loss from operations of $422.8 million, representing negative 30% of total revenues.
  • Net loss of $451.8 million, or loss of $2.75 per basic and diluted share.
  • Net cash provided by operating activities of $159.9 million, representing 12% of total revenues.

Fiscal Year 2016 Non‑GAAP Results:

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. For the following non‑GAAP results, see the section entitled “Statement Regarding Use of Non‑GAAP Financial Measures” for an explanation of non‑GAAP measures and the corresponding growth rates, and the table entitled "GAAP to Non‑GAAP Reconciliation” for a reconciliation of non‑GAAP to GAAP measures and corresponding growth rates.

  • Subscription revenues of $1,227.9 million, representing 45% year‑over‑year growth adjusted for constant currency.
  • Professional services and other revenues of $169.1 million, representing 8% year‑over‑year growth adjusted for constant currency.
  • Total revenues of $1,397.0 million, representing 39% year‑over‑year growth adjusted for constant currency.
  • Subscription billings of $1,510.7 million, representing 46% year‑over‑year growth (or $1,494.3 million, representing 44% year‑over‑year growth adjusted for constant currency and constant weighted average billings duration).
  • Professional services and other billings of $180.0 million, representing 10% year‑over‑year growth (or $180.2 million, representing 10% year‑over‑year growth adjusted for constant currency).
  • Total billings of $1,690.7 million, representing 41% year‑over‑year growth (or $1,674.5 million, representing 39% year‑over‑year growth adjusted for constant currency and constant weighted average billings duration).
  • Subscription gross profit of $1,027.3 million, representing 84% of subscription revenues.
  • Professional services and other gross profit of $32.0 million, representing 19% of professional services and other revenues.
  • Total gross profit of $1,059.3 million, representing 76% of total revenues.
  • Income from operations of $180.9 million, representing 13% of total revenues.
  • Net income of $121.9 million, or earnings of $0.74 per basic share and $0.70 per diluted share.
  • Free cash flow of $321.9 million, representing 23% of total revenues.

"We finished 2016 with strong momentum and our business is firing on all cylinders," said Frank Slootman, chairman and chief executive officer, ServiceNow. “Total revenues in 2016 grew 38% making ServiceNow the fastest growing enterprise software company with more than $1 billion in revenue."

"Total backlog and deferred revenue at the end of 2016 was $2.8 billion, a 51% annual increase, up from a 35% annual increase in the prior year," said Michael Scarpelli, chief financial officer, ServiceNow. “Strength in Q4 was driven by a record 27 new deals greater than $1 million in net new annualized contract value, and 31 net new Global 2000 customer wins."

Financial Outlook

The forward‑looking financial guidance discussed below is on a non‑GAAP basis. See the section entitled “Statement Regarding Use of Non‑GAAP Financial Measures” for an explanation of non‑GAAP measures and the corresponding growth rates, and the table entitled "Reconciliation of Non‑GAAP Financial Guidance” for a reconciliation of non‑GAAP to GAAP metrics and corresponding growth rates. Our guidance is based on foreign exchange rates as of December 31, 2016.

For the first quarter of 2017, we expect:

  • Subscription revenues between $366 and $370 million, representing 37% to 38% year‑over‑year growth (or between $375 and $379 million, representing 40% to 42% year‑over‑year growth adjusted for constant currency).
  • Professional services and other revenues between $40 and $41 million, representing 4% to 7% year‑over‑year growth (or between $41 and $42 million, representing 7% to 9% year‑over‑year growth adjusted for constant currency).
  • Total revenues between $406 and $411 million, representing 33% to 34% year‑over‑year growth (or between $416 and $421 million, representing 36% to 38% year‑over‑year growth adjusted for constant currency).
  • Subscription billings between $443 and $447 million, representing 34% to 35% year‑over‑year growth (or between $450 and $454 million, representing 36% to 37% year‑over‑year growth adjusted for constant currency and constant weighted average billings duration).
  • Professional services and other billings between $47 and $48 million, representing 4% to 6% year‑over‑year growth (or between $48 and $49 million, representing 6% to 8% year‑over‑year growth adjusted for constant currency).
  • Total billings between $490 and $495 million, representing 30% to 31% year‑over‑year growth (or between $498 and $503 million, representing 32% to 34% year‑over‑year growth adjusted for constant currency and constant weighted average billings duration).
  • Operating margin of 11%.
  • Weighted average shares used to compute diluted net income per share of approximately 177 million shares.

For the full year 2017, we expect:

  • Subscription revenues between $1,635 and $1,655 million, representing 34% to 35% year‑over‑year growth (or between $1,670 and $1,690 million, representing 37% to 38% year‑over‑year growth adjusted for constant currency).
  • Professional services and other revenues between $185 and $195 million, representing 10% to 15% year‑over‑year growth (or between $190 and $200 million, representing 13% to 18% year‑over‑year growth adjusted for constant currency).
  • Total revenues between $1,820 and $1,850 million, representing 31% to 33% year‑over‑year growth (or between $1,860 and $1,890 million, representing 34% to 36% year‑over‑year growth adjusted for constant currency).
  • Subscription billings between $1,970 and $1,990 million, representing 30% to 32% year‑over‑year growth (or between $2,058 and $2,078 million, representing 36% to 38% year‑over‑year growth adjusted for constant currency and constant weighted average billings duration).
  • Professional services and other billings between $195 and $205 million, representing 8% to 14% year‑over‑year growth (or between $200 and $210 million, representing 11% to 17% year‑over‑year growth adjusted for constant currency).
  • Total billings between $2,165 and $2,195 million, representing 28% to 30% year‑over‑year growth (or between $2,258 and $2,288 million, representing 34% to 35% year‑over‑year growth adjusted for constant currency and constant weighted average billings duration).
  • Subscription gross margin of 84%.
  • Professional services and other gross margin of 20%.
  • Total gross margin of 77%.
  • Operating margin of 16%.
  • Free cash flow margin of 24%.
  • Weighted average shares used to compute diluted net income per share of approximately 179 million shares.

Conference Call Details

The conference call will begin at 2 p.m. Pacific Time (22:00 GMT) on Wednesday, Jan. 25, 2017. Interested parties may listen to the call by dialing 844.464.3153 (passcode: 38496501), or if outside North America, by dialing +1.508.637.5575 (passcode: 38496501). 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: 38496501), or if outside North America, by dialing +1.404.537.3406 (passcode: 38496501).

Investor Presentation Details

An investor presentation providing additional information and analysis can be found at http://investors.servicenow.com.

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.

We present revenues adjusted for constant currency and corresponding growth rates to provide a framework for assessing how our business performed excluding the effect of foreign currency rate fluctuations. To present this information, current period results for entities reporting in currencies other than U.S. Dollars are converted into U.S. Dollars at the exchange rates in effect during the prior period presented, rather than the actual exchange rates in effect during the current period. We believe the presentation of revenues adjusted for constant currency facilitates the comparison of revenues year‑over‑year.

We believe billings is a useful leading indicator regarding the performance of our business. We present subscription billings, professional services and other billings, and total billings, and corresponding growth rates, as the applicable revenue plus the applicable change in deferred revenue as presented or derived from the statement of cash flows. While we typically bill customers annually for our subscription services, customers sometimes request, and we accommodate, billings durations that differ from the typical twelve month term. Accordingly, to facilitate greater comparability in our billings information, we further present billings adjusted for constant weighted average billings duration, in addition to adjusting for constant currency. To present this information, we adjust subscription billings and total billings for constant currency as described above, and apply the weighted average billings duration in effect during the prior period presented rather than the actual weighted average billings duration in effect during the current period. Weighted average billings duration refers to the weighted average billings duration for all our customer contracts commencing during the period. We also present professional services and other billings and corresponding growth rates adjusted for constant currency as described above.

Our non‑GAAP presentation of gross profit, income from operations and net income measures exclude stock‑based compensation expense, the amortization of debt discount and issuance costs related to the convertible senior notes, amortization of purchased intangibles, legal settlements, business combination and other related costs, and the related income tax effect of these adjustments. We believe the presentation of operating results that exclude these non‑cash or non‑recurring items provides useful supplemental information to investors and facilitates the analysis of our operating results and comparison of operating results across reporting periods.

Free cash flow, which is a non‑GAAP financial measure, is calculated as net cash provided by operating activities plus cash paid for 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 provides useful information to investors because it is an indicator of the strength and performance of our business operations. However, our calculation of free cash flow and free cash flow margin may not be comparable to similar measures used by other companies.

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 in or 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‑K that will be filed for the year ended December 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 Q4 and Fiscal Year 2016 complete financial tables (download PDF)