ServiceNow Reports Financial Results for Fourth Quarter and Fiscal Year 2013

Fourth Quarter Revenues of $125.2 Million, up 67% Year‑over‑Year

ServiceNow Q4 2013 complete financial tables (download PDF)

SANTA CLARA, Calif. – January 29, 2014 – ServiceNow® (NYSE: NOW), the enterprise IT cloud company, today announced its financial results for its fourth quarter and fiscal year 2013.

Fourth quarter 2013 results:

  • Revenues of $125.2 million, an increase of 67% compared to the fourth quarter of 2012, and an increase of 13% from the third quarter of 2013.
  • GAAP net loss of $24.2 million, or a loss of $0.17 per basic and diluted share, compared to a GAAP net loss of $9.9 million, or a loss of $0.08 per basic and diluted share, in the fourth quarter of 2012.
  • Non‑GAAP net loss of $3.0 million, or loss of $0.02 per basic and diluted share, compared to a non‑GAAP net loss of $0.6 million, or $0.00 per basic and diluted share, in the fourth quarter of 2012 (see the table entitled "Results of Operations GAAP to Non‑GAAP Reconciliation” for a reconciliation of these GAAP and non‑GAAP financial measures).
  • Deferred revenue of $266.7 million, an 18% increase over the $225.8 million reported at the end of the prior quarter.
  • Billings were $166.2 million, a 70% increase over the $97.6 million in the same period last year, and a 31% increase over the $127.0 million reported in the previous quarter (see the table entitled “Non‑GAAP Billings Reconciliation” for a reconciliation of non‑GAAP billings to GAAP revenues).
  • Backlog of $608.4 million, a 61% increase over the $379.0 million reported at the end of 2012. Backlog represents future amounts to be invoiced under our agreements and is not included in deferred revenue. Backlog and deferred revenue combined totaled $875.1 million.

Fiscal 2013 results:

  • Revenues of $424.7 million, an increase of 74% compared to the prior year.
  • A GAAP net loss of $73.7 million, or a loss of $0.54 per basic and diluted share, compared to a GAAP net loss of $37.3 million, or a loss of $0.51 per basic and diluted share, in the prior year.
  • A non‑GAAP net loss of $11.0 million, or a loss of $0.08 per basic and diluted share, compared to non‑GAAP net loss of $9.7 million, or a loss of $0.14 per basic and diluted share, in the prior year (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 $521.0 million, a 68% increase over the $309.4 million reported in the prior year (see the table entitled “Non‑GAAP Billings Reconciliation” for a reconciliation of non‑GAAP billings to GAAP revenues).

“ServiceNow grew revenues 67% year‑over‑year in the fourth quarter, a strong finish to a year in which we grew revenues by 74% and added 549 customers, bringing our cumulative customer count to over 2,060 worldwide,” said Frank Slootman, president and chief executive officer, ServiceNow. “During the quarter we also achieved a 96% customer renewal rate, continued to penetrate our installed base with upsells comprising 36% of our total annual contract value signed during the quarter and announced several important product additions.”

“In the fourth quarter we set a company record for billings of $166 million and exited the year with a combined deferred revenue and backlog balance of $875 million, up 59% over the prior year,” added Michael Scarpelli, chief financial officer, ServiceNow. “We also generated $20 million in free cash flows and raised net proceeds of $512 million from our convertible debt offering at a 0% coupon, ending 2013 with $890 million in cash and investments.”

Financial Outlook

The non‑GAAP financial guidance discussed below excludes stock‑based compensation expense and the related income tax effect of these adjustments (see table which reconciles these non‑GAAP financial measures to the related GAAP measures). Negative numbers are shown in parentheses.

For the first quarter of 2014, we expect:

  • Total revenues between $133 and $135 million, representing year‑over‑year growth between 55% and 57%. Our total first quarter revenue estimate consists of subscription revenues between $112 and $113 million and professional services and other revenues between $21 and $22 million.
  • Subscription gross margin of approximately 76%, professional services and other gross margin of approximately 6% and overall gross margin of approximately 64%.
  • Operating margin of approximately (9%).

For the full year 2014, we expect total revenues to be in the range of $640 to $645 million, representing year‑over‑year growth between 51% and 52%. Our total annual revenues estimate consists of subscription revenues between $533 and $535 million and professional services and other revenues between $107 and $110 million.

Updates since our last earnings release

  • ServiceNow issued $575 million aggregate principal amount of 0% convertible senior notes due 2018. The offering generated proceeds of $512 million, net of offering costs, costs of the related bond hedge and proceeds from warrants.
  • Charles Giancarlo joined the board of directors as a ninth member in an additional seat the company has added.
  • ServiceNow HR Service Management was introduced as a new application that makes it easier for organizations to automate HR case management.
  • ServiceNow Configuration Automation was introduced as a new orchestration application that controls automated configuration of data center infrastructure based on the ServiceNow Configuration Management Database (CMDB).
  • ServiceNow and customer‑created applications are made instantly mobile on devices such as iPhones, iPads and Android smartphones and tablets with the latest ServiceNow release.
  • ServiceNow Vendor Performance Management was introduced as a new application to help users derive more value from vendors and suppliers by evaluating performance relative to commitments and comparing vendors to each other across common criteria.
  • ServiceNow Resource Management was introduced as a new application to help forecast all IT work and resources reliably through a real‑time, single system of record for efficient, accurate resource utilization.
  • ServiceNow Automated Password Reset was introduced as a new application providing end users with the ability to reset passwords through self‑service and automation and reduce what industry analysts consider to be at least 20% of IT service requests.
  • ServiceNow was awarded “SaaS Product of the Year” from Techworld.

Conference Call Details

The conference call will begin at 2:00 p.m. Pacific Time (22:00 GMT) on Wednesday, January 29, 2014. Interested parties may listen to the call by dialing 866.700.6067 (passcode: 75988250), or if outside North America, by dialing 617.213.8834 (passcode: 75988250). 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 888.286.8010 (passcode: 48173227), or if outside North America, by dialing 617.801.6888 (passcode: 48173227).

Statement regarding use of non‑GAAP financial measures

The company reports non‑GAAP results for gross margins, operating margins, net income or loss, basic and diluted income or loss per share, free cash flow and billings in addition to, and not as a substitute for, or superior to, financial measures calculated in accordance with GAAP.

The company’s financial measures under GAAP include stock‑based compensation expense, the amortization of debt discount and issuance costs related to the convertible senior notes, and the related income tax effect of these adjustments. Management believes the presentation of operating results that excludes these items provides useful supplemental information to investors and facilitates the analysis of the company’s core operating results and comparison of operating results across reporting periods. Management also believes that this supplemental non‑GAAP information is therefore useful to investors in analyzing and assessing the company’s past and future operating performance.

Free cash flow, which is a non‑GAAP financial measure, is calculated as GAAP net cash provided by operating activities reduced by purchases of property and equipment. Management believes information regarding free cash flow provides 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 may not be comparable to similar measures used by other companies.

Billings is calculated as revenue plus the change in total deferred revenue. Management believes 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.

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. Reconciliations between GAAP and non‑GAAP results are presented in the tables of this release.

Use of forward looking statements

This release contains “forward‑looking statements” regarding our performance, including in 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 are: (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, 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, 2012 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 fiscal year ended December 31, 2013.

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 the enterprise IT cloud company. We transform IT by automating and managing IT service relationships across the global enterprise. Organizations deploy our service to create a single system of record for IT and automate manual tasks, standardize processes and consolidate legacy systems. Using our extensible platform, our customers create custom applications and evolve the IT service model to service domains inside and outside the enterprise. ServiceNow transforms IT from the department of no to the department of now. For more information, visit www.servicenow.com.

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