ServiceNow Reports Third Quarter 2022 Financial Results

• Subscription revenues of $1,742 million in Q3 2022, representing 22% year‑over‑year growth, 28.5% adjusted for constant currency
• Total revenues of $1,831 million in Q3 2022, representing 21% year‑over‑year growth, 27.5% adjusted for constant currency
• Current remaining performance obligations of $5.87 billion as of Q3 2022, representing 18% year‑over‑year growth, 25% adjusted for constant currency
• Number of customers paying over $10 million in annual contract value in Q3 2022 grew 60% year‑over‑year

SANTA CLARA, Calif. ‑ October 26, 2022 ‑ ServiceNow (NYSE: NOW), the leading digital workflow company making the world work better for everyone, today announced financial results for its third quarter ended September 30, 2022, with subscription revenues of $1,742 million in Q3 2022, representing 22% year‑over‑year growth, 28.5% adjusted for constant currency.

"Once again, ServiceNow beat both our top and bottom‑line goals," said ServiceNow Chairman and CEO Bill McDermott. "Businesses are leaning into the generational shift from architectures built in the last century to platforms engineered for this one. Through dramatically improved experiences for customers, employees, and creators, ServiceNow is becoming the strategic center of gravity for digital transformation. Our focus on value creation is unmatched."

As of September 30, 2022, current remaining performance obligations ("cRPO"), contract revenue that will be recognized as revenue in the next 12 months, was $5.87 billion, representing 18% year‑over‑year growth and 25% adjusted for constant currency. The company now has 1,530 total customers with more than $1 million in annual contract value, representing 22% year‑over‑year growth in customers. The number of customers paying over $10 million in annual contract value in Q3 2022 grew 60% year‑over‑year.

"Q3’s outperformance is a testament to the mission critical nature of our platform and the strong execution of the ServiceNow team," said ServiceNow CFO Gina Mastantuono. "We continue to see a robust pipeline and are maintaining our investments in growth hires as the opportunity in front of us remains enormous. Our business is resilient, our teams are delivering, and we are as confident as ever about becoming the defining enterprise software company of the 21st century."

ServiceNow also announced today that McDermott was named Chairman of ServiceNow’s Board of Directors. Founder Fred Luddy, who has served as Chairman for the past four‑plus years, will remain a member of the Board.

"From the start, Fred’s vision for a platform that would make the world work better for everyone has inspired millions," said McDermott. "He is not only one of the great innovators of all time, he is a leader of unparalleled character and class. I'm especially grateful for his ongoing, long‑term commitment to this Board. Fred's love for our company and customers knows no bounds."

Recent Business Highlights  

• Today, the company announced RiseUp with ServiceNow to skill one million people on its platform by 2024, helping to fuel an economy of in‑demand, job‑ready talent for businesses with an emphasis on faster, more equitable paths to careers in the high‑growth ServiceNow ecosystem.
• During the quarter, ServiceNow delivered the Now Platform Tokyo release, designed to help businesses drive digital transformation amid an uncertain macro environment. With purpose‑built solutions such as Enterprise Asset Management, Manager Hub, and ServiceNow Vault, the new digital‑first, fully integrated workflow automation solutions in the Tokyo release increase the value customers realize from the ServiceNow Platform. Also released in Q3, the enhanced ServiceNow ESG Management solution removes the manual, time‑intensive parts of ESG reporting to help companies more efficiently meet increasing requirements for ESG data collection and disclosure.
• ServiceNow recently acquired observability and log management innovator Era Software to augment Lightstep for a unified observability solution at scale.

Third Quarter 2022 GAAP and Non‑GAAP Results:

The following table summarizes our financial results for the third quarter 2022:

	Third Quarter 2022 GAAP Results			Third  Quarter 2022 Non‑GAAP Results(1)
	Amount ($ millions)	Year/Year Growth (%)		Amount ($ millions)(2)	Year/Year Growth (%)
Subscription revenues	$1,742	22%		$1,834	28.5%
Professional services and other revenues	$89	5%		$95	12%
Total revenues	$1,831	21%		$1,929	27.5%
	Amount ($ billions)	Year/Year Growth (%)		Amount ($ billions)(2)	Year/Year Growth (%)
cRPO	$5.87	18%		$6.22	25%
RPO	$11.4	17%		$12.1	24.5%
	Amount ($ millions)	Margin (%)		Amount ($ millions)	Margin (%)
Subscription gross profit	$1,441	83%		$1,502	86%
Professional services and other gross profit (loss)	($10)	(11%)		$7	8%
Total gross profit	$1,431	78%		$1,509	82%
Income from operations	$91	5%		$480	26%
Net cash provided by operating activities	$265	15%
Free cash flow				$103	6%
	Amount ($ millions)	Earnings per Basic/Diluted Share ($)		Amount ($ millions)	Earnings per Basic/Diluted Share ($)
Net income	$80	$0.39/ $0.39		$398	$1.97/ $1.96

 

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, cRPO and RPO are adjusted for constant currency. 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.

Note: Numbers rounded for presentation purposes.

Financial Outlook

Our guidance includes GAAP and non‑GAAP financial measures. The non‑GAAP growth rates for subscription revenues and cRPO are only adjusted for constant currency to provide better visibility into the underlying business trends. Since December 31, 2021, ServiceNow has seen an incremental strengthening of the U.S. dollar resulting in foreign exchange ("FX") headwinds. Total FX impact estimated to be approximately a $290 million (~5.5%) headwind for 2022 subscription revenues and a $330 million (~6%) headwind for Q4 2022 cRPO. FX is also expected to be approximately a 1 point headwind to both FY 2022 operating margin and free cash flow margin.

The following table summarizes our guidance for the fourth quarter 2022:

 

	Fourth Quarter 2022 GAAP Guidance			Fourth Quarter 2022 Non‑GAAP Guidance(1)
	Amount ($ millions)(2)	Year/Year Growth (%)(2)		Constant Currency Year/ Year Growth (%)
Subscription revenues	$1,834 ‑ $1,839	20% ‑ 21%		26% ‑ 27%
cRPO		20%		26%
				Margin (%)
Income from operations				26%
		Amount (millions)
Weighted‑average shares used to compute diluted net income per share		204

 

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 GAAP subscription revenue and cRPO growth rate is based on the 30‑day average of foreign exchange rates for September 2022 for entities reporting in currencies other than U.S. Dollars.

 

The following table summarizes our guidance for the full‑year 2022:

 

	Full‑Year 2022 GAAP Guidance			Full‑Year 2022 Non‑GAAP Guidance(1)
	Amount  ($ millions)(2)	Year/Year Growth (%)(2)		Constant Currency Year/ Year Growth (%)
Subscription revenues	$6,865 ‑ $6,870	23%		28.5%
				Margin (%)
Subscription gross profit				86%
Income from operations				25%
Free cash flow				29%
				Amount (millions)
Weighted‑average shares used to compute diluted net income per share				203

 

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 related growth rate for the future quarters included in our full‑year 2022 guidance are based on the 30‑day average of foreign exchange rates for September 2022 for entities reporting in currencies other than U.S. Dollars.

Conference Call Details

The conference call will begin at 2 p.m. Pacific Time (21:00 GMT) on October 26, 2022. Interested parties may listen to the call by dialing (888) 330‑2455 (Passcode: 8135305), or if outside North America, by dialing (240) 789‑2717 (Passcode: 8135305). Individuals may access the live teleconference from this webcast. https://events.q4inc.com/attendee/133177732

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) 770‑2030 (Passcode: 8135305), or if outside North America, by dialing (647) 362‑9199 (Passcode: 8135305). 

Investor Presentation Details

An investor presentation providing additional information, including forward‑looking guidance, and analysis can be found at https://www.servicenow.com/company/investor‑relations.html.

Statement Regarding Use of Non‑GAAP Financial Measures

We use 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.

• Revenues. We adjust revenues and related growth rates 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 Q3 2021, the average exchange rates in effect for our major currencies were 1 USD to 0.848 Euros and 1 USD to 0.725 British Pound Sterling ("GBP")), rather than the actual average exchange rates in effect during the current period (for Q3 2022, the average exchange rates in effect for our major currencies were 1 USD to 0.992 Euros and 1 USD to 0.850 GBP). Guidance for related growth rates are derived by applying 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 and related growth rates adjusted for constant currency facilitates the comparison of revenues year‑over‑year.
• Remaining performance obligations and current remaining performance obligations. We adjust cRPO and remaining performance obligations ("RPO") and related growth rates for constant currency to provide a framework for assessing how our business performed. To present this information, current period results for entities reporting in currencies other than USD are converted into USD at the exchange rates in effect at the end of the comparison period (for Q3 2021, the end of the period exchange rates in effect for our major currencies were 1 USD to 0.862 Euros and 1 USD to 0.745 GBP), rather than the actual end of the period exchange rates in effect during the current period (for Q3 2022, the end of the period exchange rates in effect for our major currencies were 1 USD to 1.019 Euros and 1 USD to 0.900 GBP). Guidance for the related growth rate is derived by applying the end of period exchange rates in effect during the comparison period rather than the exchange rates in effect during the guidance period. We believe the presentation of cRPO and RPO and related growth rates adjusted for constant currency facilitates the comparison of cRPO and RPO year‑over‑year, respectively.
• Gross profit, Income from operations, Net income and Net income per share ‑ diluted. Our non‑GAAP presentation of gross profit, income from operations, and net income measures exclude certain non‑cash or non‑recurring items, including 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. The non‑GAAP weighted‑average shares used to compute our non‑GAAP net income per share ‑ diluted excludes the dilutive effect of the in‑the‑money portion of convertible senior notes as they are covered by our note hedges, and includes the dilutive effect of time‑based stock awards, the dilutive effect of warrants and the potentially dilutive effect of our stock awards with performance conditions not yet satisfied at forecasted attainment levels to the extent we believe it is probable that the performance condition will be met. We believe these adjustments provide 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, repayments of convertible senior notes attributable to debt discount and business combination and other related costs including compensation expense, 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, among others, experiencing an actual or perceived cyber‑security event; our ability to comply with evolving privacy laws, data transfer restrictions, and other foreign and domestic standards related to data and the Internet; errors, interruptions, delays, or security breaches in or of our service or data centers; our ability to maintain and attract key employees and manage workplace culture; alleged violations of laws and regulations, including those relating to anti‑bribery and anti‑corruption and those relating to public sector contracting requirements; our ability to compete successfully against existing and new competitors; our ability to predict, prepare for and respond promptly to rapidly evolving technological, market and customer developments; our ability to grow our business, including converting remaining performance obligations into revenue, adding and retaining customers, selling additional subscriptions to existing customers, selling to larger enterprises, government and regulated organizations with complex sales cycles and certification processes, and entering new geographies and markets; our ability to develop and gain customer demand for and acceptance of new and improved products and services; fluctuations in the value of foreign currencies relative to the U.S. Dollar; fluctuations in interest rates; the continued impact and duration of COVID‑19 on our business, future financial performance and global economic conditions, including any subsequent waves of outbreak or new variant strains of the COVID‑19 virus, the effectiveness, extent and duration of mitigation efforts such as "shelter in place" and other government responses, and the availability of vaccinations; our ability to consummate and realize the benefits of any strategic transactions or acquisitions; the impact of the Russian invasion of Ukraine on macroeconomic conditions; inflation; and fluctuations and volatility in our stock price. 

Further information on these and other factors that could affect our financial results are included in our Form 10‑K filed for the year ended December 31, 2021, our Form 10‑Q that will be filed for the quarter ended September 30, 2022 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) makes the world work better for everyone. Our cloud‑based platform and solutions help digitize and unify organizations so that they can find smarter, faster, better ways to make work flow. So employees and customers can be more connected, more innovative, and more agile. And we can all create the future we imagine. The world works with ServiceNow^TM. For more information, visit: www.servicenow.com.

© 2022 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. Overig company names, product names, and logos may be trademarks of the respective companies with which they are associated.

ServiceNow Q3 2022 complete financial tables (download PDF)

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