ServiceNow Reports Financial Results for Third Quarter 2016

SANTA CLARA, Calif. – October 26, 2016 – ServiceNow (NYSE: NOW), the enterprise cloud company, today announced the financial results for its third quarter 2016.

Third Quarter 2016 Results:

  • Total revenues of $357.7 million, an increase of 37% year‑over‑year.
  • Billings of $404.3 million, an increase of 41% year‑over‑year (see the table entitled "Results of Operations GAAP to Non‑GAAP Reconciliation” for a reconciliation).
  • GAAP net loss of $36.3 million, or loss of $0.22 per basic and diluted share.
  • Non‑GAAP net income of $39.5 million, or income of $0.24 per basic and $0.23 per diluted share (see the table entitled "Results of Operations GAAP to Non‑GAAP Reconciliation” for a reconciliation).
  • Net cash provided by operating activities of $96.7 million.
  • Free cash flow of $65.5 million, or 18% of total revenues (see the table entitled "Condensed Consolidated Statements of Cash Flows” for a reconciliation).

“We are very pleased with the third quarter results,” said Frank Slootman, chairman and chief executive officer, ServiceNow. “The company saw broad based contribution and large deal activity across all major sales regions and product segments.”

“Subscription billings were $363 million and grew 47% year‑over‑year, re‑accelerating from 38% last quarter and 39% last year,” said Michael Scarpelli, chief financial officer, ServiceNow. “We now have 705 Global 2000 customers, an increase of 23 in the quarter, that pay us an average of $1 million per year.”

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 the table entitled “Reconciliation of Non‑GAAP Financial Guidance” for a reconciliation).  

For the fourth quarter of 2016, we expect:

  • Subscription revenues between $335 and $340 million, representing year‑over‑year growth between 37% and 39%.
  • Professional services and other revenues of $41 million, representing year‑over‑year growth of 0%.
  • Total revenues between $376 and $381 million, representing year‑over‑year growth between 32% and 33%.
  • Subscription billings between $427 and $431 million, representing year‑over‑year growth between 34% and 36%.
  • Professional services and other billings between $47 and $48 million, representing year‑over‑year growth between ‑2% and 0%.
  • Total billings between $474 and $479 million, representing year‑over‑year growth between 30% and 31%.
  • Subscription gross margin of approximately 84%, professional services and other gross margin of approximately 16%, and overall gross margin of approximately 77%.
  • Operating margin of approximately 16%.
  • Free cash flow margin of approximately 30%.
  • Weighted average shares used to compute diluted net income per share of approximately 176 million shares.
  • Net employee additions of approximately 275.

For full‑year 2016, we expect:

  • Subscription revenues between $1,212 and $1,217 million, representing year‑over‑year growth of 43%.
  • Professional services and other revenues of $169 million, representing year‑over‑year growth of 7%.
  • Total revenues between $1,381 and $1,386 million, representing year‑over‑year growth between 37% and 38%.
  • Subscription billings between $1,454 and $1,458 million, representing year‑over‑year growth of 40%.
  • Professional services and other billings between $176 and $177 million, representing year‑over‑year growth between 8% and 9%.
  • Total billings between $1,630 and $1,635 million, representing year‑over‑year growth of 36%.
  • Operating margin of approximately 13%.
  • 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, October 26, 2016. Interested parties may listen to the call by dialing 844.464.3153 (passcode: 91366810), or if outside North America, by dialing +1.508.637.5575 (passcode: 91366810). 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: 91366810), or if outside North America, by dialing +1.404.537.3406 (passcode: 91366810).

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 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, IT Business Management, 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 September 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 Q3 2016 complete financial tables (download PDF)