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ServiceNow Reports Second Quarter 2019 Financial Results

  • Subscription revenues of $781 million in Q2 2019, representing 33% year‑over‑year growth
  • 39 transactions over $1 million in net new annual contract value in Q2 2019
  • 766 total customers with over $1 million in annual contract value, representing 33% year‑over‑year growth

SANTA CLARA, Calif. ‑ Jul. 24, 2019 ‑ ServiceNow (NYSE: NOW) today announced financial results for its second quarter ended June 30, 2019, with subscription revenues of $781 million in Q2 2019, representing 33% year‑over‑year growth.

ServiceNow, the leading digital workflow company making work, work better for people, serves almost 75% of Fortune 500 companies. During the quarter, ServiceNow closed 39 transactions with more than $1 million in net new annual contract value (ACV). The company now has 766 total customers with more than $1 million in ACV, representing 33% year‑over‑year growth in customers.

“We delivered another strong quarter, continuing our focus on driving customer success and enabling digital transformation as a strategic partner to the world’s largest enterprises,” said John Donahoe, ServiceNow president and chief executive officer. “Technology should make life at work as simple, easy and convenient as it has made our lives at home. That’s what we’re enabling with our customers through the power of our Now Platform, product portfolio and native mobile capabilities.”

“Total remaining performance obligations at the end of June 2019 was $5.4 billion, representing 35% year‑over‑year growth,” said Michael Scarpelli, ServiceNow chief financial officer. “This strong growth reflects the continued strength of our product portfolio and our focus on developing strategic relationships with our customers. We now have 98 customers with more than $5 million in ACV, representing 72% year‑over‑year growth in customers.”

Second Quarter 2019 GAAP and NonGAAP Results:

The following table summarizes our financial results for the second quarter 2019:

 

 

 

 

 

 

 

 

 

Second Quarter 2019
GAAP Results

 

Second Quarter 2019 Non‑GAAP Results(1)

 

Amount
($ millions)

Year/Year
Growth (%)

 

Amount
($ millions)

Year/Year
Growth (%)

Adjusted Amount
($ millions)(2)

Adjusted
Year/Year
Growth (%)

Subscription revenues

$781.0

 

33%

 

 

 

$797.6

 

36%

Professional services and other revenues

$52.9

 

16%

 

 

 

$54.4

 

19%

Total revenues

$833.9

 

32%

 

 

 

$851.9

 

35%

 

 

 

 

 

 

 

 

Subscription billings

 

 

 

$816.9

 

32%

$827.8

 

34%

Professional services and other billings

 

 

 

$54.1

 

10%

$55.6

 

13%

Total billings

 

 

 

$871.0

 

31%

$883.4

 

33%

 

 

 

 

 

 

 

 

 

Amount
($ millions)

Margin (%)

 

Amount
($ millions)

Margin (%)

 

 

Subscription gross profit

$645.5

 

83%

 

$670.2

 

86%

 

 

Professional services and other gross profit (loss)

($9.8)

 

(18%)

 

$1.2

 

2%

 

 

Total gross profit

$635.8

 

76%

 

$671.4

 

81%

 

 

Income (loss) from operations

($27.0)

 

(3%)

 

$153.0

 

18%

 

 

Net cash provided by operating activities

$243.7

 

29%

 

 

 

 

 

Free cash flow

 

 

 

$193.8

 

23%

 

 

 

 

 

 

 

 

 

 

 

Amount
($ millions)

Earnings per Basic/Diluted
Share ($)

 

Amount
($ millions)

Earnings per Basic/Diluted
Share ($)

 

 

Net income (loss)

($11.1)

($0.06)

 

$137.5

$0.74 / $0.71

 

 

 
  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 adjusted subscription revenues, professional services and other revenues, total revenues and professional services and other billings are adjusted for constant currency. Non‑GAAP adjusted 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 includes GAAP and non‑GAAP financial measures.

The following table summarizes our guidance for the third quarter 2019:

 

Third Quarter 2019
GAAP Guidance

 

Third Quarter 2019 Non‑GAAP Guidance(1)

 

Amount
($ millions)(2)

Year/Year
Growth (%)

 

Amount
($ millions)(2)

Year/Year
Growth (%)

Adjusted Amount
($ millions)(3)

Adjusted
Year/ Year
Growth (%)

Subscription revenues

$830 ‑ $835

 32% ‑ 33%

 

 

 

$836 ‑ $841

 33% ‑ 34%

Subscription billings

 

 

 

$848 ‑ $853

 26% ‑ 27%

$857 ‑ $862

 27% ‑ 28%

 

 

 

 

 

 

 

 

 

 

 

 

 

Margin (%)

 

 

Income from operations

 

 

 

 

 

23%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amount
(millions)

 

 

 

Weighted‑average shares used to compute diluted net income per share

 

 

 

195

 

 

 

 

                   
  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 “Reconciliation of Non‑GAAP Financial Guidance” for a reconciliation of GAAP to non‑GAAP measures.
  2. Guidance for GAAP subscription revenues and non‑GAAP subscription billings is based on foreign exchange rates as of June 30, 2019 for entities reporting in currencies other than U.S. Dollars.
  3. Non‑GAAP adjusted subscription revenues are adjusted for constant currency. Non‑GAAP adjusted 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 updated guidance for fiscal year 2019:

 

Full‑Year 2019
GAAP Guidance

 

Full‑Year 2019 Non‑GAAP Guidance(1)

 

Amount
($ millions)(2)

Year/Year
Growth (%)

 

Amount
($ millions)(2)

Year/Year
Growth (%)

Adjusted Amount
($ millions)(3)

Adjusted
Year/ Year
Growth (%)

Subscription revenues

$3,245 ‑ $3,255

 34%

 

 

 

$3,289 ‑ $3,299

 36%

Subscription billings

 

 

 

$3,740 ‑ $3,750

30%

$3,804 ‑ $3,814

32%

 

 

 

 

 

 

 

 

 

 

 

 

 

Margin (%)

 

 

Subscription gross profit

 

 

 

 

 

86%

 

 

Income from operations

 

 

 

 

 

21%

 

 

Free cash flow

 

 

 

 

 

28%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amount
(millions)

 

 

 

Weighted‑average shares used to compute diluted net income per share

 

 

 

194

 

 

 

 

                   
  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 “Reconciliation of Non‑GAAP Financial Guidance” for a reconciliation of GAAP to non‑GAAP measures.
  2. GAAP subscription revenues and non‑GAAP subscription billings for the future quarters included in our full‑year 2019 guidance are based on foreign exchange rates as of June 30, 2019 for entities reporting in currencies other than U.S. Dollars.
  3. Non‑GAAP adjusted subscription revenues are adjusted for constant currency. Non‑GAAP adjusted 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 compares our updated full‑year 2019 guidance against our previously issued full‑year 2019 guidance dated April 24, 2019:

 

Comparison of Updated Full‑Year 2019 Guidance to Previously Issued Guidance(1)
($ millions)

 

Previous Guidance Midpoint(2)

Currency Impact(3)

Duration Impact(4)

Guidance Change

Current Guidance Midpoint(5)

GAAP subscription revenues

$3,243

$2

$0

$5

$3,250

 

 

 

 

 

 

Non‑GAAP subscription billings(6)

$3,733

$2

$5

$5

$3,745

 

 

 

 

 

 

  1. Numbers are rounded for presentation purposes.
  2. Refers to previously issued full‑year 2019 guidance dated April 24, 2019.
  3. GAAP subscription revenues and non‑GAAP subscription billings for the future quarters included in our full‑year 2019 guidance are based on foreign exchange rates in effect at the end of the current quarter for entities reporting in currencies other than U.S. Dollars. Currency impact represents the sum of (i) the impact of the difference between the actual average rates in the period used to calculate our Q2 2019 actual results and the rates as of March 31, 2019 assumed in our previously issued guidance dated April 24, 2019 plus (ii) the impact of the difference between the exchange rates in effect as of June 30, 2019 assumed in our updated full‑year 2019 guidance, and the rates as of March 31, 2019 assumed in our previously issued guidance dated April 24, 2019.
  4. Represents the impact of billings greater than 12 months in excess of guidance assumptions.
  5. Represents the updated full‑year 2019 guidance presented in the table above.
  6. 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 “Reconciliation of Non‑GAAP Financial Guidance” for a reconciliation of GAAP to non‑GAAP measures.

Conference Call Details

The conference call will begin at 2 p.m. Pacific Time (22:00 BST) on July 24, 2019.  Interested parties may listen to the call by dialing (877) 824‑2843 (passcode: 6382847), or if outside North America, by dialing (647) 689‑5665 (passcode: 6382847). Individuals may access the live teleconference from this webcast link:

https://event.on24.com/wcc/r/2019846/2ADE1BEE718F0016DF30AAB494DFBE7C

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 (800) 585‑8367 (passcode: 6382847), or if outside North America, by dialing (416) 621‑4642 (passcode: 6382847).

Investor Presentation Details

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

Statement Regarding Use of NonGAAP 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.

  • Adjusted revenues. 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 (USD) are converted into USD at the average exchange rates in effect during the comparison period (for Q2 2018, the average exchange rates in effect for our major currencies were 1 USD to 0.8387 Euros and 1 USD to 0.7350 British Pound Sterling (GBP)), rather than the actual average exchange rates in effect during the current period (for Q2 2019, the average exchange rates in effect for our major currencies were 1 USD to 0.8899 Euros and 1 USD 0.7781 GBP). Similarly, in our guidance, we apply the average exchange rates in effect during the comparison period rather than the exchange rates for the guidance period. We believe the presentation of revenues adjusted for constant currency facilitates the comparison of revenues year‑over‑year.
  • Billings and Adjusted billings. We believe billings is a useful leading indicator regarding the performance of our business. 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. We adjust billings for constant currency, as described above, and for constant duration by replacing the portion of multi‑year billings in excess of twelve months during the current or guidance period with the portion of multi‑year billings in excess of twelve months during the comparison period. 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 repayments 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 and guidance.

Use of ForwardLooking 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, sell to very large and regulated organizations with complex sales cycles, 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  that will be filed for the quarter ended June 30, 2019 and in other filings we make with the Securities and Exchange Commission from time to time, including our Form 10‑K filed for the year ended December 31, 2018.

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 (NYSE: NOW) is making the world of work, work better for people. Our cloud‑based platform and solutions deliver digital workflows that create great experiences and unlock productivity for employees and the enterprise.  For more information, visit: www.servicenow.com.

© 2019 ServiceNow, Inc. All rights reserved. ServiceNow, the ServiceNow logo, Now, Now Platform, 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.

# # #

ServiceNow Q2 2019 complete financial tables (download PDF)

 

Media Contact:

Kari Ramirez

408.607.1315

press@servicenow.com

Investor Contact:

Kendall Toyne

408.831.6040

ir@servicenow.com

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