ServiceNow Reports Financial Results for Third Quarter 2017

SANTA CLARA, Calif. – Oct. 25, 2017 – ServiceNow® (NYSE: NOW) today announced the financial results for its third quarter 2017.

Third Quarter 2017 GAAP Results:

• Subscription revenues of $455.4 million, representing 43% year‑over‑year growth.
• Professional services and other revenues of $42.7 million, representing 10% year‑over‑year growth.
• Total revenues of $498.2 million, representing 39% year‑over‑year growth.
• Subscription gross profit of $373.5 million, representing 82% of subscription revenues.
• Professional services and other gross loss of $2.7 million, representing negative 6% of professional services and other revenues.
• Total gross profit of $370.9 million, representing 74% of total revenues.
• Loss from operations of $7.1 million.
• Net loss of $24.2 million, or loss of $0.14 per basic and diluted share.
• Net cash provided by operating activities of $141.9 million, representing 28% of total revenues.

Third Quarter 2017 Non‑GAAP Results:

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. For the following non‑GAAP results, see the section entitled “Statement Regarding Use of Non‑GAAP Financial Measures” for an explanation of non‑GAAP measures and the corresponding growth rates, and the table entitled “GAAP to Non‑GAAP Reconciliation” for a reconciliation of GAAP to non‑GAAP measures and corresponding growth rates.

• Subscription revenues of $449.5 million, representing 41% year‑over‑year growth adjusted for constant currency.
• Professional services and other revenues of $41.9 million, representing 8% year‑over‑year growth adjusted for constant currency.
• Total revenues of $491.4 million, representing 37% year‑over‑year growth adjusted for constant currency.
• Subscription billings of $499.7 million, representing 38% year‑over‑year growth (or $497.4 million, representing 37% year‑over‑year growth adjusted for constant currency and constant billings duration).
• Professional services and other billings of $46.5 million, representing 12% year‑over‑year growth (or $45.6 million, representing 10% year‑over‑year growth adjusted for constant currency).
• Total billings of $546.1 million, representing 35% year‑over‑year growth (or $543.0 million, representing 34% year‑over‑year growth adjusted for constant currency and constant billings duration).
• Subscription gross profit of $386.1 million, representing 85% of subscription revenues.
• Professional services and other gross profit of $4.4 million, representing 10% of professional services and other revenues.
• Total gross profit of $390.5 million, representing 78% of total revenues.
• Income from operations of $98.4 million, representing 20% of total revenues.
• Net income of $69.3 million, or earnings of $0.40 per basic share and $0.38 per diluted share.
• Free cash flow of $95.1 million, representing 19% of total revenues.

“Q3 was another strong quarter for ServiceNow, with great performance across every region,” said John Donahoe, ServiceNow president and chief executive officer. “We are focused on delivering best‑in‑class consumer‑like experiences and driving customer success. And we’re continuing to innovate, making technology such as machine learning native to all applications on our platform. We are committed to being a trusted cloud partner for our customers helping them navigate digital transformation and create the future of work.”

“We achieved $500 million of non‑GAAP subscription billings, while growing 38% year‑over‑year,” said Michael Scarpelli, chief financial officer, ServiceNow. “The strong quarter was driven by large new deals, including 22 greater than $1 million in net new ACV, 8 of which were to Federal customers.”

Financial Outlook

Our guidance is based on foreign exchange rates as of September 30, 2017 and includes GAAP and non‑GAAP financial measures. See the section entitled “Statement Regarding Use of Non‑GAAP Financial Measures” for an explanation of non‑GAAP measures and the corresponding growth rates, and the table entitled “Reconciliation of Non‑GAAP Financial Guidance” for a reconciliation of GAAP to non‑GAAP metrics and corresponding growth rates.

For the fourth quarter of 2017, we expect:

• GAAP subscription revenues between $485 and $490 million, representing 41% to 42% year‑over‑year growth (or non‑GAAP subscription revenues between $473 and $478 million, representing 37% to 39% year‑over‑year growth adjusted for constant currency).
• GAAP professional services and other revenues of $46 million, representing 12% year‑over‑year growth (or non‑GAAP professional services and other revenues of $44 million, representing 7% year‑over‑year growth adjusted for constant currency).
• GAAP total revenues between $531 and $536 million, representing 38% to 39% year‑over‑year growth (or non‑GAAP total revenues between $517 and $522 million, representing 34% to 35% year‑over‑year growth adjusted for constant currency).
• Non‑GAAP subscription billings and non‑GAAP subscription billings adjusted for constant currency and constant billings durations between $645 and $650 million, representing 33% to 34% year‑over‑year growth.
• Non‑GAAP professional services and other billings of $49 million, representing a 4% decline year‑over‑year (or $47 million, representing an 8% decline year‑over‑year adjusted for constant currency).
• Non‑GAAP total billings between $694 and $699 million, representing 30% to 31% year‑over‑year growth (or between $692 and $697 million, representing 29% to 30% year‑over‑year growth adjusted for constant currency and constant billings duration).
• Non‑GAAP operating margin of 17%.
• Non‑GAAP weighted average shares used to compute diluted net income per share of approximately 181 million shares.

For the full year 2017, we expect:

• GAAP subscription revenues between $1,728 and $1,733 million, representing 41% to 42% year‑over‑year growth (or non‑GAAP subscription revenues between $1,722 and $1,727 million, representing 41% year‑over‑year growth adjusted for constant currency).
• GAAP professional services and other revenues of $190 million, representing 13% year‑over‑year growth or (non‑GAAP professional services and other revenues adjusted for constant currency of $189 million, representing 12% year‑over‑year growth).
• GAAP total revenues between $1,918 and $1,923 million, representing 38% year‑over‑year growth (or non‑GAAP total revenues between $1,911 and $1,916 million, representing 37% to 38% year‑over‑year growth adjusted for constant currency).
• Non‑GAAP subscription billings between $2,080 and $2,085 million, representing 38% year‑over‑year growth (or between $2,077 and $2,082 million, representing 37% to 38% year‑over‑year growth adjusted for constant currency and constant billings duration).
• Non‑GAAP professional services and other billings of $194 million, or 8% year‑over‑year growth or (non‑GAAP professional services and other billings adjusted for constant currency of $193 million, representing 7% year‑over‑year growth).
• Non‑GAAP total billings between $2,274 and $2,279 million, representing 35% year‑over‑year growth (or between $2,270 and $2,275 million, representing 34% to 35% year‑over‑year growth adjusted for constant currency and constant billings duration).
• Non‑GAAP subscription gross margin of 85%.
• Non‑GAAP professional services and other gross margin of 16%.
• Non‑GAAP total gross margin of 78%.
• Non‑GAAP operating margin of 16%.
• Non‑GAAP free cash flow margin of 25%.
• Non‑GAAP weighted average shares used to compute diluted net income per share of approximately 179 million shares.

Conference Call Details

ServiceNow will host a conference call to discuss our third quarter financial results and financial outlook beginning at 2 p.m. Pacific Time (21:00 GMT) on Wednesday, October 25, 2017. Interested parties may listen to the call by dialing 844.464.3153 (passcode: 91890596), or if outside North America, by dialing +1.508.637.5575 (passcode: 91890596). 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: 91890596), or if outside North America, by dialing +1.404.537.3406 (passcode: 91890596).

Investor Presentation Details

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

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.

We present revenues adjusted for constant currency and corresponding growth rates 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.

We believe billings is a useful leading indicator regarding the performance of our business. We present subscription billings, professional services and other billings, and total billings, and corresponding growth rates, as the applicable revenue plus the applicable change in deferred revenue as presented or derived from the statement of cash flows. While we typically bill customers annually for our subscription services, customers sometimes request, and we accommodate, multi‑year billings, which are billings with durations in excess of the typical 12 month term. Accordingly, to facilitate greater comparability in our billings information, we further present billings adjusted for constant billings duration, in addition to adjusting for constant currency. To present this information, we adjust subscription billings and total billings 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 also present professional services and other billings and corresponding growth rates adjusted for constant currency as described above.

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 the convertible senior notes, 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, which is a non‑GAAP financial measure, is calculated as net cash provided by (used in) 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 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. However, our calculation of free cash flow and free cash flow margin may not be comparable to similar measures used by other companies.

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‑Q for the quarter ended June 30, 2017 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, 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, from IT to Customer Service to Security Operations and to Human Resources, creating a better experience for your employees, users and customers while transforming your enterprise. ServiceNow (NYSE:NOW) is how work gets done. For more information, visit: www.servicenow.com.

© 2017 ServiceNow, Inc. All rights reserved. ServiceNow, the ServiceNow logo, and other ServiceNow marks are trademarks and/or registered trademarks of ServiceNow, Inc., in the United States and/or other countries. Other company and product names may be trademarks of the respective companies with which they are associated.

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ServiceNow Q3 2017 complete financial tables (download PDF)