ServiceNow Reports Financial Results for Second Quarter 2014

Second Quarter Revenues Grew 63% Year‑over‑Year to $166.8 Million

ServiceNow Q2 2014 complete financial tables (download PDF)

SANTA CLARA, Calif. – July 30, 2014 – ServiceNow® (NYSE: NOW),the enterprise IT cloud company, today announced the financial results for its second quarter of 2014.

Second quarter 2014 results:

  • Revenues of $166.8 million, an increase of 63% compared to the second quarter of 2013, and an increase of 20% from the first quarter of 2014.
  • A GAAP net loss for the quarter of $50.4 million, or a $0.35 loss per basic and diluted share, compared with a GAAP net loss of $21.4 million, or a $0.16 loss per basic and diluted share, in the second quarter of 2013.
  • A non‑GAAP net loss for the quarter of $9.8 million, or a $0.07 loss per basic and diluted share, compared with a non‑GAAP net loss of $7.8 million, or a $0.06 loss per basic and diluted share, in the second quarter of 2013 (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 $328.9 million, a 7% increase compared to the $308.5 million reported at the end of the prior quarter.
  • Billings of $187.1 million, a 3% increase compared to the $180.8 million reported in the previous quarter and a 59% increase compared to the $117.5 million reported for the same period last year (see the table entitled “Non‑GAAP Billings Reconciliation” for a reconciliation of non‑GAAP billings to GAAP revenues).

“We continued our momentum in the second quarter, generating greater than expected revenue and adding 169 new customers, bringing our total to 2,364,” said Frank Slootman, president and chief executive officer, ServiceNow. “Our renewal rate remains strong at 98 percent, with upsells representing 33 percent of the total annual contract value booked in the quarter. ”

“Our average revenue per customer grew 21 percent in the quarter compared to last year,” added Michael Scarpelli, chief financial officer, ServiceNow. “We also raised our full‑year 2014 total revenue guidance by $16 million this quarter, our largest guidance raise ever.”

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, and acquisition related expenses (see table which reconciles these non‑GAAP financial measures to the related GAAP measures). We completed the acquisition of Neebula Systems on July 11, 2014 and incorporated the expected revenues and operating expenses associated with the acquisition in our guidance. Negative numbers are shown in parentheses.

For the third quarter of 2014, we expect:

  • Total revenues between $173 and $175 million, representing year‑over‑year growth between 55% and 57%. Our total third quarter revenue estimate consists of subscription revenues between $147 and $148 million and professional services and other revenues between $26 and $27 million.
  • Billings between $190 and $193 million, representing year‑over‑year growth between 50% and 52%.
  • Subscription gross margin of approximately 77%, professional services and other gross margin of approximately 8%, and overall gross margin of approximately 66%.
  • Operating margin of approximately 1%.

For the full year 2014, we expect revenues to be in the range of $668 to $673 million, representing year‑over‑year growth of 58%. Our total annual revenues estimate consists of subscription revenues between $558 and $560 million and professional services and other revenues between $110 and $113 million.

Updates since our last earnings release:

  • In April, ServiceNow hosted Knowledge14™, its annual global IT conference, in San Francisco, with a record‑setting more than 6,500 attendees, including more than 100 CIOs from global enterprises. Knowledge is the largest gathering of IT professionals using cloud services to transform service delivery across the enterprise.
  • In June, the company announced the availability of new products and features built on the extensible ServiceNow platform that leverage the common data model shared by the entire ServiceNow application portfolio. The new release offers customers:
  • Enhancements to the Custom Application Creation Experience with Service Creator and Form Designer.
  • New Service Automation Products including Facilities Service Management that routes requests to the appropriate facilities specialists and displays incidents on floor plan visualizations; as well as Visual Task Boards to better organize services and other tasks.
  • Executive Management and Visualization Tools such as Demand Management to consolidate requests to IT and automate the steps in the investment decision process; in addition to the CIO Roadmap that provides a visualization of prioritized investment decisions on a timeline.
  • New IT Operations Management Applications including Event Management to collect and transform infrastructure events into meaningful alerts that trigger service workflows and Configuration Automation that controls and governs infrastructure configuration changes.
  • In July, ServiceNow announced the acquisition of Neebula Systems. The new ServiceNow ServiceWatch automates the discovery, mapping and monitoring of IT‑enabled enterprise services and augments other ServiceNow IT Operations Management products such as Event Management, Orchestration and Discovery. ServiceWatch will become an integral part of the ServiceNow platform.

 

Conference Call Details

ServiceNow will host a conference call to discuss its financial results for the second quarter of 2014 to begin today at 2 p.m. PDT (21:00 GMT). Interested parties may listen to the call by dialing 877.703.6107 (passcode: 22163419), or if outside North America, by dialing 857.244.7306 (passcode: 22163419). Individuals may access the live teleconference from the investor relations section of the ServiceNow web site at http://investors.servicenow.com. The webcast will be archived for a period of 30 days.

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: 43860752), or if outside North America, by dialing 617.801.6888 (passcode: 43860752).

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 convertible senior notes, amortization of purchased intangibles, and acquisition related expenses and the related income tax effect of these adjustments. Management believes the presentation of operating results that excludes one or more of 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, 2013 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 June 30, 2014.

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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