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ServiceNow Reports Strong Third Quarter 2018 Financial Results

Strength in Federal Sector as Government Agencies Move to Cloud

  • Subscription revenues of $627 million, representing 39% year‑over‑year growth
  • 25 transactions over $1 million in net new annual contract value
  • 614 total customers with over $1 million in annual contract value, representing 37% year‑over‑year growth

SANTA CLARA, Calif. ‑ Oct. 24, 2018 ‑ ServiceNow (NYSE: NOW) today announced financial results for its fiscal third quarter ended September 30, 2018 with subscription revenues of $627 million, representing 39% year‑over‑year growth.

ServiceNow, Forbes’ No. 1 World’s Most Innovative Company in 2018, is now serving more than 5,000 enterprise customers. During the quarter, ServiceNow closed 25 transactions with more than $1 million in net new annual contract value. The company now has 614 total customers with more than $1 million in annual contract value, representing 37% year‑over‑year growth.

“We had a strong third quarter, continuing our global momentum and accelerating our role as a strategic partner enabling digital transformation,” said John Donahoe, ServiceNow president and chief executive officer. “This was our largest federal quarter ever, with the US government representing our biggest deals, and underscoring how digital transformation is becoming both a public and private sector imperative worldwide. Digital transformation is about delivering great experiences and unlocking productivity. Our digital workflows help deliver both, helping make work, work better for people.”

“Our first‑half momentum continued in Q3 and we delivered another quarter of strong performance setting us up for a great finish in 2018,” said Michael Scarpelli, ServiceNow chief financial officer. “Due to the strong performance, we’re raising revenue, billings and free cash flow guidance for full‑year 2018.”

Third Quarter 2018 GAAP and NonGAAP Results:

The following table summarizes our financial results for the third quarter 2018:

 

 

 

 

 

 

 

 

 

Third Quarter 2018
GAAP Results

 

Third Quarter 2018 Non‑GAAP Results(1)

 

Amount
($ millions)

Year/Year 
Growth (%)(2)

 

Amount
($ millions)

Year/Year 
Growth (%)(2)

Adjusted Amount
($ millions)(3)

Adjusted
Year/Year
Growth (%)(2)

Subscription revenues

$626.6

 

39%

 

 

 

$629.2

 

40%

Professional services and other revenues

$46.5

 

9%

 

 

 

$47.0

 

10%

Total revenues

$673.1

 

37%

 

 

 

$676.2

 

37%

 

 

 

 

 

 

 

 

Subscription billings

 

 

 

$674.2

 

35%

$672.2

 

34%

Professional services and other billings

 

 

 

$46.4

 

1%

$46.8

 

2%

Total billings

 

 

 

$720.5

 

32%

$719.0

 

31%

 

 

 

 

 

 

 

 

 

Amount
($ millions)

Margin (%)

 

Amount
($ millions)

Margin (%)

 

 

Subscription gross profit

$519.7

 

83%

 

$537.4

 

86%

 

 

Professional services and other gross profit (loss)

($4.5)

 

(10%)

 

$3.9

 

8%

 

 

Total gross profit

$515.2

 

77%

 

$541.3

 

80%

 

 

Income from operations

$9.6

 

1%

 

$160.7

 

24%

 

 

Net cash provided by operating activities

$145.5

 

22%

 

 

 

 

 

Free cash flow

 

 

 

$111.6

 

17%

 

 

 

 

 

 

 

 

 

 

 

Amount
($ millions)

Earnings per Basic/Diluted
Share ($)

 

Amount
($ millions)

Earnings per Basic/Diluted
Share ($)

 

 

Net income

$8.4

$0.05 / $0.04

 

$129.0

$0.72 / $0.68

 

 

 

  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. The comparison period amounts used to calculate growth rates have been restated from previously reported amounts to reflect the impact of the full retrospective adoption of Topic 606. For more information regarding Topic 606, refer to our Form 10‑Q filed for the quarter ended June 30, 2018.
  3. Non‑GAAP subscription revenues, professional services and other revenues, total revenues and professional services 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 September 30, 2018 and includes GAAP and non‑GAAP financial measures.

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

 

Fourth Quarter 2018
GAAP Guidance

 

Fourth Quarter 2018 Non‑GAAP Guidance(1)

 

Amount
($ millions)

Year/Year 
Growth (%)(2)

 

Amount
($ millions)

Year/Year 
Growth (%)(2)

Adjusted Amount  
($ millions)(3)

Adjusted Year/ Year Growth (%)(2)

Subscription revenues

$660 ‑ $665

 32% ‑ 33%

 

 

 

$664 ‑ $669

 33% ‑ 34%

Subscription billings

 

 

 

$900 ‑ $905

 31%

$906 ‑ $911

 32%

 

 

 

 

 

 

 

 

 

 

 

 

 

Margin (%)

 

 

Income from operations

 

 

 

 

21

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amount
(millions)

 

 

 

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

 

 

 

190

 

 

 

 

                   

 

  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. The comparison period amounts used to calculate growth rates have been restated from previously reported amounts to reflect the impact of the full retrospective adoption of Topic 606. For more information regarding Topic 606, refer to our Form 10‑Q filed for the quarter ended June 30, 2018.
  3. 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 updated guidance for full‑year 2018:

 

Full‑Year 2018
GAAP Guidance

 

Full‑Year 2018 Non‑GAAP Guidance(1)

 

Amount
($ millions)

Year/Year 
Growth (%)(2)

 

Amount
($ millions)

Year/Year 
Growth (%)(2)

Adjusted Amount  
($ millions)(3)

Adjusted Year/ Year Growth (%)(2)

Subscription revenues

$2,415 ‑ $2,420

 39%

 

 

 

$2,384 ‑ $2,389

 37%

Subscription billings

 

 

 

$2,830 ‑ $2,835

 33%

$2,793 ‑ $2,798

 31% ‑ 32%

 

 

 

 

 

 

 

 

 

 

 

 

 

Margin (%)

 

 

Subscription gross profit

 

 

 

 

85

%

 

 

Income from operations

 

 

 

 

20

%

 

 

Free cash flow

 

 

 

 

28

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amount
(millions)

 

 

 

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

 

 

 

188

 

 

 

 

                   
  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. The comparison period amounts used to calculate growth rates have been restated from previously reported amounts to reflect the impact of the full retrospective adoption of Topic 606. For more information regarding Topic 606, refer to our Form 10‑Q filed for the quarter ended June 30, 2018.
  3. 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 compares our updated full‑year 2018 guidance against our previously issued full‑year 2018 guidance dated July 25, 2018:

 

Comparison of Updated Full‑Year 2018 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

$2,410

($3)

$0

$11

$2,418

 

 

 

 

 

 

Non‑GAAP subscription billings(6)

$2,820

($4)

$4

$13

$2,833

 

 

 

 

 

 

  1. Numbers are rounded for presentation purposes.
  2. Refers to previously issued full‑year 2018 guidance dated July 25, 2018.
  3. In our guidance, we assume an average daily currency exchange rate for the guidance period based on the rates at the end of the prior 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 Q3‑2018 actual results and the rates as of June 30, 2018 assumed in our previously issued guidance dated July 25, 2018 plus (ii) the impact of the difference between the exchange rates in effect as of September 30, 2018 assumed in our updated full‑year 2018 guidance, and the rates as of June 30, 2018 assumed in our previously issued guidance dated July 25, 2018.
  4. Represents the impact of billings greater than 12 months in excess of guidance assumptions.
  5. Represents the updated full‑year 2018 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 (21:00 GMT) on October 24, 2018.  Interested parties may listen to the call by dialing 844.464.3153 (passcode: 2184619), or if outside North America, by dialing 508.637.5575 (passcode: 2184619). Individuals may access the live teleconference from this webcast link (http://edge.media‑server.com/m6/p/ierumzt4).

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:2184619), or if outside North America, by dialing 404.537.3406 (passcode: 2184619).

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.

  • 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. 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 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 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.

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 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 June 30, 2018 and in other filings we make with the Securities and Exchange Commission from time to time.

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 experiences that help people do their best work. 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 Q3 2018 complete financial tables (download PDF)

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