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ServiceNow Reports Financial Results for Fourth Quarter and Fiscal Year 2017

SANTA CLARA, Calif. – Jan. 31, 2018 – ServiceNow® (NYSE: NOW) today announced the financial results for its fourth quarter and fiscal year 2017.

Fourth Quarter 2017 and Fiscal Year 2017 Highlights:

  • GAAP subscription revenues of $497 million in Q4 2017, representing 44% year‑over‑year growth
  • Signed over $1 billion in total contract value in Q4 2017
  • Signed a record 41 deals over $1 million in net new annual contract value in Q4 2017
  • Closed the year with 500 customers with more than $1 million in annual contract value
  • Added more than 100 Global 2000 accounts in 2017

“We finished 2017 with our best quarter ever, closing a record 41 deals greater than $1 million, and giving us strong global momentum,” said John Donahoe, ServiceNow president and chief executive officer. “ServiceNow is becoming a clear strategic partner of choice for CIOs and other leaders digitally transforming their companies with simpler, easier, better ways to get work done and creating great experiences for their customers and employees.”

“Combined backlog and deferred revenue at the end of 2017 was $3.9 billion, a 39% annual increase,” said Michael Scarpelli, ServiceNow chief financial officer. “Strength in 2017 was driven by more than 100 new Global 2000 customers, and increasing our customers with greater than $1 million in annual contract value by 43% year over year.”

Fourth Quarter 2017 GAAP and Non‑GAAP Results:

The following table summarizes our financial results for the fourth quarter 2017.

     

 

       
 

Fourth Quarter 2017
GAAP Results

 

Fourth Quarter 2017 Non‑GAAP Results(1)

 

Amount
($ millions)

Year/Year
Growth (%)

 

Amount
($ millions)

Year/Year
Growth (%)

Adjusted Amount
($ millions)(2)

Adjusted Year/Year Growth (%)

Subscription revenues

$497.2

44%

 

 

 

$484.3

41%

Professional services and other revenues

$49.1

20%

 

   

$47.6

16%

Total revenues

$546.4

42%

 

 

 

$531.9

38%

   

 

 

       

Subscription billings

 

 

 

$684.0

41%

$678.4

40%

Professional services and other billings

 

 

 

$50.3

(1%)

$48.7

(4%)

Total billings

 

 

 

$734.3

37%

$727.1

36%

   

 

 

       
 

Amount
($ millions)

Margin (%)

 

Amount
($ millions)

Margin (%)

   

Subscription gross profit

$409.7

82%

 

$423.3

85%

 

 

Professional services and other gross profit

$2.3

5%

 

$8.2

17%

   

Total gross profit

$412.0

75%

 

$431.5

79%

 

 

Income (loss) from operations

($13.1)

(2%)

 

$98.8

18%

   

Net cash provided by operating activities

$184.8

34%

 

 

 

 

 

Free cash flow

 

 

 

$150.1

27%

   
   

 

 

       
 

Amount
($ millions)

Earnings per basic/diluted share ($)

 

Amount
($ millions)

Earnings per basic/diluted share ($)

   

Net income (loss)

($27.8)

$(0.16)

 

$63.6

$0.37 / $0.35

 

 

     

 

       

(1)     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. See the section entitled “Statement Regarding Use of Non‑GAAP Financial Measures” for an explanation of non‑GAAP measures, and the table entitled "GAAP to Non‑GAAP Reconciliation” for a reconciliation of GAAP to non‑GAAP measures.

(2)     Non‑GAAP subscription revenues, professional services and other revenues, total revenues and professional services and other billings are adjusted for constant currency. Non‑GAAP subscription billings and total billings are adjusted for constant currency and constant billings duration. See the section entitled “Statement Regarding Use of Non‑GAAP Financial Measures” for an explanation of non‑GAAP measures, and the table entitled "GAAP to Non‑GAAP Reconciliation” for a reconciliation of GAAP to non‑GAAP measures.

Fiscal Year 2017 GAAP and Non‑GAAP Results:

The following table summarizes our financial results for fiscal year 2017.

 

 

Full Year 2017 GAAP Results

 

Full Year 2017 Non‑GAAP Results(1)

 

 

Amount
($ millions)

Year/Year
Growth (%)

 

Amount
($ millions)

Year/Year
Growth (%)

Adjusted Amount
($ millions)(2)

Adjusted Year/Year Growth (%)

 

Subscription revenues

$1,739.8

42%

 

 

 

$1,733.5

42%

 

Professional services and other revenues

$193.2

14%

 

   

$192.3

14%

 

Total revenues

$1,933.0

39%

 

 

 

$1,925.8

38%

 

   

 

 

       

 

Subscription billings

 

 

 

$2,119.0

40%

$2,110.0

40%

 

Professional services and other billings

 

 

 

$195.6

9%

$194.7

8%

 

Total billings

 

 

 

$2,314.6

37%

$2,304.7

36%

 

   

 

 

       

 

 

Amount
($ millions)

Margin (%)

 

Amount
($ millions)

Margin (%)

   

 

Subscription gross profit

$1,424.2

82%

 

$1,474.5

85%

 

 

 

Professional services and other gross profit

$9.0

5%

 

$36.5

19%

   

 

Total gross profit

$1,433.3

74%

 

$1,511.0

78%

 

 

 

Income (loss) from operations

($101.4)

(5%)

 

$314.7

16%

   

 

Net cash provided by operating activities

$642.8

33%

 

 

 

 

 

 

Free cash flow

 

 

 

$492.3

25%

   

 

   

 

 

       

 

 

Amount
($ millions)

Earnings per basic/diluted share ($)

 

Amount
($ millions)

Earnings per basic/diluted share ($)

   

 

Net income (loss)

($149.1)

($0.87)

 

$214.7

$1.25 / $1.19

 

 

 

 

 

 

 

 

 

 

 

 

(1)     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. See the section entitled “Statement Regarding Use of Non‑GAAP Financial Measures” for an explanation of non‑GAAP measures, and the table entitled "GAAP to Non‑GAAP Reconciliation” for a reconciliation of GAAP to non‑GAAP measures.

(2)    Non‑GAAP subscription revenues, professional services and other revenues, total revenues and professional services and other billings are adjusted for constant currency. Non‑GAAP subscription billings and total billings are adjusted for constant currency and constant billings duration. See the section entitled “Statement Regarding Use of Non‑GAAP Financial Measures” for an explanation of non‑GAAP measures, and the table entitled "GAAP to Non‑GAAP Reconciliation” for a reconciliation of GAAP to non‑GAAP measures.

                   

Financial Outlook

Our guidance is based on foreign exchange rates as of December 31, 2017 and includes GAAP and non‑GAAP financial measures. As described in the “New Revenue Recognition Standard Under Topic 606” section below, our guidance is based on the new Topic 606 revenue recognition standard that is effective beginning January 1, 2018. The comparison period amounts used to calculate related growth rates have been restated from previously reported amounts to conform to the requirements of Topic 606.

The following table summarizes our guidance for the first quarter 2018:

 

First Quarter 2018
GAAP Guidance

 

First Quarter 2018 Non‑GAAP Guidance(1)

 

Amount
($ millions)

Year/Year
Growth (%)

 

Amount
($ millions)

Year/Year
Growth (%)

Adjusted Amount
($ millions)(2)

Adjusted Year/Year Growth (%)

Subscription revenues

$525 ‑ $530

35% ‑ 37%

 

 

 

$507 ‑ $512

31% ‑ 32%

Subscription billings

 

 

 

$601 ‑ $605

 25% ‑ 26%

$600 ‑ $604

 25% ‑ 26%

   

 

 

       
   

 

 

 

Margin (%)

 

 

Income from operations

 

 

 

 

16%

   

 

 

 

 

 

 

 

 

   

 

 

Amount
(millions)

     

Weighted average shares used to compute diluted net income per share

 

 

 

184

 

 

 

 

 

 

 

       

(1)     See the section entitled “Statement Regarding Use of Non‑GAAP Financial Measures” for an explanation of non‑GAAP measures, and the table entitled "Reconciliation of Non‑GAAP Financial Guidance” for a reconciliation of GAAP to non‑GAAP measures.

(2)     Non‑GAAP subscription revenues are adjusted for constant currency. Non‑GAAP subscription billings are adjusted for constant currency and constant billings duration. See the section entitled “Statement Regarding Use of Non‑GAAP Financial Measures” for an explanation of non‑GAAP measures, and the table entitled "Reconciliation of Non‑GAAP Financial Guidance” for a reconciliation of GAAP to non‑GAAP measures.

 

The following table summarizes our guidance for fiscal year 2018:

 

Full Year 2018
GAAP Guidance

 

Full Year 2018 Non‑GAAP Guidance(1)

 

Amount
($ millions)

Year/Year
Growth (%)

 

Amount
($ millions)

Year/Year
Growth (%)

Adjusted Amount
($ millions)(2)

Adjusted Year/Year Growth (%)

Subscription revenues

$2,355 ‑ $2,375

35% ‑ 37%

 

 

 

$2,314 ‑ $2,334

33% ‑ 34%

Subscription billings

   

 

$2,770 ‑ $2,790

30% ‑ 31%

$2,742 ‑ $2,762

29% ‑ 30%

   

 

 

       
   

 

 

 

Margin (%)

   

Subscription gross profit

 

 

 

 

85%

 

 

Income from operations

 

 

 

 

20%

   

Free cash flow

 

 

 

 

27%

 

 

   

 

 

       
   

 

 

Amount
(millions)

     

Weighted average shares used to compute diluted net income per share

 

 

 

185

 

 

 

 

   

 

       

(1)     See the section entitled “Statement Regarding Use of Non‑GAAP Financial Measures” for an explanation of non‑GAAP measures, and the table entitled "Reconciliation of Non‑GAAP Financial Guidance” for a reconciliation of GAAP to non‑GAAP measures.

(2)     Non‑GAAP subscription revenues are adjusted for constant currency. Non‑GAAP subscription billings are adjusted for constant currency and constant billings duration. See the section entitled “Statement Regarding Use of Non‑GAAP Financial Measures” for an explanation of non‑GAAP measures, and the table entitled "Reconciliation of Non‑GAAP Financial Guidance” for a reconciliation of GAAP to non‑GAAP measures.

 

                 

Conference Call Details

ServiceNow will host a conference call to discuss our fourth quarter and fiscal year 2017 financial results and financial outlook beginning at 2 p.m. Pacific Time (22:00 GMT) on Wednesday, Jan. 31, 2018. Interested parties may listen to the call by dialing 844.464.3153 (passcode: 5999121), or if outside North America, by dialing +1.508.637.5575 (passcode: 5999121). Individuals may access the live teleconference from this webcast link (https://edge.media‑server.com/m6/p/gwkadhyi).

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: 5999121), or if outside North America, by dialing +1.404.537.3406 (passcode: 5999121).

Investor Presentation Details

An investor presentation providing additional information and analysis can be found at http://investors.servicenow.com.

New Revenue Recognition Standard Under Topic 606

In May 2014, the Financial Accounting Standards Board issued a new standard related to revenue recognition from contracts with customers (“Topic 606”), which is effective beginning January 1, 2018. Topic 606 supersedes the prior revenue recognition standard ("Topic 605"). The financial information under the heading “Financial Outlook” above is prepared in accordance with Topic 606, and the comparison period amounts used to calculate related growth rates are based on amounts that have been restated from previously reported amounts to conform to the requirements of Topic 606. Unless otherwise indicated, all other financial information in this release is prepared in accordance with Topic 605.

Under Topic 606, for our on‑premises offerings, we will recognize a portion of the subscription revenue when the on‑premises offering is made available, resulting in a larger amount of upfront subscription revenue, and a smaller amount of deferred revenue compared with Topic 605, which required ratable revenue recognition over the contract period. Due to the complexity of certain customer contracts, the actual revenue recognition treatment required under Topic 606 will depend on contract‑specific terms and may result in greater variability in revenue from period to period. Proceeds for attendance and sponsorship related to Knowledge and other user forums will be classified as a reduction in sales and marketing expenses instead of professional services and other revenues.

Under Topic 606, we will defer all incremental commission costs to obtain customer contracts, including indirect costs that are not tied to a specific contract. On initial contracts, only the portion equivalent to a renewal commission will be amortized over the contract term, while the portion incremental to a renewal commission will be amortized over a period of benefit that we have determined to be five years. On renewal contracts, these costs will be amortized over the renewal term. Additionally, for our on‑premises offerings, consistent with the recognition of subscription revenue for on‑premises offerings as described above, a portion of the commission costs will be expensed upfront when the on‑premises offering is made available. Under Topic 605, we deferred only direct and incremental commission costs to obtain a contract and amortized those costs over the contract term, which is generally 12 to 36 months.

Statement Regarding Use of Non‑GAAP Financial Measures

We report the following non‑GAAP financial measures in addition to, and not as a substitute for, or superior to, financial measures calculated in accordance with GAAP.

  • Revenue Adjusted for Constant Currency. We present revenues adjusted for constant currency to provide a framework for assessing how our business performed excluding the effect of foreign currency rate fluctuations. To present this information, current period results for entities reporting in currencies other than U.S. Dollars are converted into U.S. Dollars at the exchange rates in effect during the prior period presented, rather than the actual exchange rates in effect during the current period. We believe the presentation of revenues adjusted for constant currency facilitates the comparison of revenues year‑over‑year.
  • Billings. We believe billings is a useful leading indicator regarding the performance of our business. Because billings is derived from our GAAP revenues, the definition of billings varies depending on whether our revenues have been calculated under Topic 605 or Topic 606. Under Topic 605, we define subscription billings, professional services and other billings, and total billings as the applicable revenue plus the applicable change in deferred revenue as presented or derived from the statement of cash flows. Under Topic 606, due to the change in timing of revenue recognition under certain of our contracts, we define subscription billings, professional services and other billings, and total billings as the applicable revenue plus the applicable change in deferred revenue, unbilled receivables and customer deposits as presented or derived from the statement of cash flows. Under Topic 606, unbilled receivables are amounts recognized as revenue that have not yet been billed, and customer deposits are refundable amounts associated with customer contracts. In presenting billings under either definition, we adjust for constant currency, as described above, and adjust for constant duration by replacing the portion of multi‑year billings in excess of twelve months during the current period with the portion of multi‑year billings in excess of twelve months during the prior period presented. We believe these adjustments facilitate greater comparability in our billings information year‑over‑year.
  • Gross Profit, Income from Operations and Net Income. Our non‑GAAP presentation of gross profit, income from operations, and net income measures exclude stock‑based compensation expense, amortization of debt discount and issuance costs related to our convertible senior notes, loss on early note conversions, amortization of purchased intangibles, legal settlements, business combination and other related costs, and the related income tax effect of these adjustments. We believe the presentation of operating results that exclude these non‑cash or non‑recurring items provides useful supplemental information to investors and facilitates the analysis of our operating results and comparison of operating results across reporting periods.
  • Free Cash Flow. Free cash flow is defined as net cash provided by (used in) operating activities plus cash paid for legal settlements and repayment of convertible senior notes attributable to debt discount, reduced by purchases of property and equipment. Free cash flow margin is calculated as free cash flow as a percentage of total 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 our business operations.

Our presentation of non‑GAAP financial measures may not be comparable to similar measures used by other companies. We encourage investors to carefully consider our results under GAAP, as well as our supplemental non‑GAAP information and the reconciliation between these presentations, to more fully understand our 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 statements 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.

Factors that may 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 datacenters, (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, (v) our ability to compete successfully against existing and new competitors, and (vi) material changes in the value of foreign currencies relative to the U.S. Dollar.

Further information on these and other factors that could affect our financial results are included in our Form 10‑Q for the quarter ended September 30, 2017 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 year ended December 31, 2017.

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 makes work better across the enterprise. Getting simple stuff done at work can be easy, and getting complex multi‑step tasks completed can be painless. Our applications automate, predict, digitize and optimize business processes and tasks, across IT, customer service, security operations and HR service delivery, creating a better experience for your employees and customers while transforming your enterprise. ServiceNow (NYSE:NOW) is how work gets done. For more information, visit: www.servicenow.com.

© 2018 ServiceNow, Inc. All rights reserved. ServiceNow, the ServiceNow logo, Now, and other ServiceNow marks are trademarks and/or registered trademarks of ServiceNow, Inc., in the United States and/or other countries. Other company names, product names, and logos may be trademarks of the respective companies with which they are associated.

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ServiceNow Q4 and Fiscal Year 2017 complete financial tables (download PDF)