ServiceNow Reports Financial Results for Second Quarter 2016

SANTA CLARA, Calif. – July 27, 2016 – ServiceNow® (NYSE: NOW), the enterprise cloud company, today announced the financial results for its second quarter 2016.

Second Quarter 2016 Results:

  • Total revenues of $341.3 million, an increase of 38% year‑over‑year.
  • Billings of $374.9 million, an increase of 33% year‑over‑year (see the table entitled "Results of Operations GAAP to Non‑GAAP Reconciliation” for a reconciliation).
  • GAAP net loss of $49.6 million, or loss of $0.30 per basic and diluted share, compared to a GAAP net loss of $61.9 million, or loss of $0.40 per basic and diluted share, in the second quarter of 2015.
  • Non‑GAAP net income of $25.6 million, or income of $0.16 per basic and $0.15 per diluted share, compared to a non‑GAAP net income of $7.3 million, or income of $0.05 per basic share and $0.04 per diluted share, in the second quarter of 2015 (see the table entitled "Results of Operations GAAP to Non‑GAAP Reconciliation” for a reconciliation).
  • Net cash used in operating activities of $148.2 million.
  • Free cash flow of $78.0 million, or 23% of revenue (see the table entitled "Condensed Consolidated Statements of Cash Flows” for a reconciliation).
  • Based on average second quarter exchange rates, our year‑over‑year revenue or billings growth rates were not significantly impacted due to foreign exchange rate fluctuations.

“Our business mix continues to diversify with emerging products representing 40% of our new business, up from 24% during the same period last year,” said Frank Slootman, president and chief executive officer, ServiceNow. “Two‑thirds of our customers now license more than one product, and 15 of our top 20 new deals included three or more products.”

“We landed 26 new Global 2000 customers in the quarter,” said Michael Scarpelli, chief financial officer, ServiceNow. “Additionally, we now have 272 customers each paying us more than $1 million in annualized contract value, a record increase of 26 in the quarter.”

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, legal settlements and business combination and other related costs (see table which reconciles these non‑GAAP financial measures to the related GAAP measures).

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

For the third quarter of 2016, we expect:

  • Subscription revenues between $312 and $315 million, representing year‑over‑year growth between 40% and 41%.
  • Professional services and other revenues between $38 and $39 million, representing year‑over‑year growth between 0% and 3%.
  • Total revenues between $350 and $354 million, representing year‑over‑year growth between 34% and 36%.
  • Subscription billings between $339 and $343 million, representing year‑over‑year growth between 38% and 39%.
  • Professional services and other billings between $41 and $42 million, representing year‑over‑year growth between 2% and 4%.
  • Total billings between $380 and $385 million, representing year‑over‑year growth between 33% and 34%.
  • Subscription gross margin of approximately 84%, professional services and other gross margin of approximately 13%, and overall gross margin of approximately 76%.
  • Operating margin of approximately 15%.
  • Free cash flow margin of approximately 16%.
  • Weighted average shares used to compute diluted net income per share of approximately 174 million shares. 

For full‑year 2016, we expect:

  • Subscription revenues between $1,203 and $1,211 million, representing year‑over‑year growth between 42% and 43%.
  • Professional services and other revenues between $167 and $169 million, representing year‑over‑year growth between 6% and 8%.
  • Total revenues between $1,370 and $1,380 million, representing year‑over‑year growth between 36% and 37%.
  • Subscription billings between $1,427 and $1,435 million, representing year‑over‑year growth between 37% and 38%.
  • Professional services and other billings between $178 and $180 million, representing year‑over‑year growth between 9% and 10%.
  • Total billings between $1,605 and $1,615 million, representing year‑over‑year growth of 34%.
  • Operating margin of approximately 12%.
  • Free cash flow margin of approximately 24%.
  • 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, July 27, 2016. Interested parties may listen to the call by dialing 844.464.3153 (passcode:32458029), or if outside North America, by dialing +1.508.637.5575 (passcode:32458029). 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:32458029), or if outside North America, by dialing +1.404.537.3406 (passcode:32458029).

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 settlements, business combination and other related costs, and the related income tax effects 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 net cash (used in) 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 ongoing 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.

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.

Emerging products include ServiceWatch, Discovery, Cloud Management, Orchestration, Event Management, HR, Security Operations, Customer Service Management, Performance Analytics, Service Strategy, Platform, and Governance, Risk and Compliance.

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‑Q that will be filed for the quarter ended June 30, 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 Q2 2016 complete financial tables (download PDF)