ServiceNow Reports Financial Results for Third Quarter 2013

Third Quarter Revenues Exceed $110 Million and Grew 73% Year‑over‑Year

ServiceNow Q3 2013 complete financial tables (download PDF)

SANTA CLARA, Calif. – October 23, 2013 – ServiceNow® (NYSE: NOW), the enterprise IT cloud company, today announced its financial results for its third quarter of 2013.

Third quarter 2013 results:

  • Revenues of $111.3 million, an increase of 73% compared to the third quarter of 2012, and an increase of 9% from the second quarter of 2013.
  • GAAP net loss of $14.7 million, or a loss of $0.11 per basic and diluted share, compared to a GAAP net loss of $13.1 million, or a loss of $0.11 per basic and diluted share, in the third quarter of 2012.
  • Non‑GAAP net income of $1.6 million, or earnings of $0.01 per basic and diluted share, compared to a non‑GAAP net loss of $5.0 million, or a loss of $0.04 per basic and diluted share, in the third 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 $225.8 million, an 8% increase over the $210.0 million reported at the end of the prior quarter.
  • Billings were $127.0 million, an 8% increase over the $117.5 million reported in the previous quarter and a 56% increase over the $81.2 million in the same period last year (see the table entitled "Non‑GAAP Billings Reconciliation" for a reconciliation of non‑GAAP billings to GAAP revenues).

"ServiceNow delivered 73% year‑over‑year revenue growth and billed a record $127 million in the third quarter," said Frank Slootman, president and chief executive officer, ServiceNow.  "We grew our total customer count to 1,900, including the addition of 22 net new enterprises from the Forbes Global 2000 list. We also achieved a renewal rate of 97% and upsells comprised more than 29% of our total annual contract value signed during the quarter."

"We continued to show growth across our key financial metrics and exceeded our previously stated outlook on revenue and non‑GAAP EPS," added Michael Scarpelli, chief financial officer, ServiceNow. "We were profitable on a non‑GAAP basis for the first time in two years, and we generated $20.7 million in operating cash flow."

Financial Outlook

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

For the fourth quarter of 2013, we expect:

  • Total revenues between $119.0 and $121.0 million, representing year‑over‑year growth between 58% and 61%. Our total fourth quarter revenue estimate consists of subscription revenues between $100.0 and $101.0 million and professional services and other revenues between $19.0 and $20.0 million.
  • Subscription gross margin of approximately 76%, professional services and other gross margin of approximately 8%, and overall gross margin of approximately 65%.
  • Approximately break‑even operating margin.
  • A net loss per basic and diluted share of approximately ($0.02) with weighted‑average shares outstanding of approximately 140.0 million.

For the full year 2013, we expect total revenues to be in the range of $418.4 to $420.4 million, representing year‑over‑year growth between 72% and 73%. Our total annual revenues estimate consists of subscription revenues between $344.9 and $345.9 million and professional services and other revenues between $73.5 and $74.5 million.

Conference Call Details

The conference call will begin at 2:00 p.m. Pacific Time (21:00 GMT) on Wednesday, October 23, 2013. Interested parties may listen to the call by dialing 866.383.8009 (passcode:  18726358), or if outside North America, by dialing 617.597.5342 (passcode: 18726358). 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:  85963111), or if outside North America, by dialing 617.801.6888 (passcode: 85963111).

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. Management believes the presentation of operating results that excludes stock‑based compensation expense 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‑Q that will be filed for the third quarter ended September 30, 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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