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ServiceNow Reports Third Quarter 2019 Financial Results

ServiceNow (NYSE: NOW), the leading digital workflow company making work, work better for people, today announced financial results for its third quarter ended September 30, 2019, with subscription revenues of $835 million in Q3 2019, representing 33% year-over-year growth, 35% adjusted for foreign currency exchange rates.

During the quarter, ServiceNow closed 46 transactions with more than $1 million in net new annual contract value (ACV), representing 84% year-over-year growth. The company now has 809 total customers with more than $1 million in ACV, representing 32% year-over-year growth in customers.

“We delivered another strong quarter, continuing our focus on driving customer success and expanding our footprint across 75% of the Fortune 500,” said John Donahoe, ServiceNow president and CEO. “We are pleased that companies are turning to ServiceNow to be their strategic partner for digital transformation when they want to unlock productivity and create leverage with their technology investments.”

Today’s results follow yesterday’s announcement of ServiceNow’s preliminary third quarter 2019 financial results, along with the news that Bill McDermott will succeed John Donahoe as President and CEO of ServiceNow by year-end 2019.

Third Quarter 2019 GAAP and NonGAAP Results:

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

Third Quarter 2019
GAAP Results

Third 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

$834.9

33%

$847.6

35%

Professional services and other revenues

$50.9

9%

$51.7

11%

Total revenues

$885.8

32%

$899.2

34%

Subscription billings

$864.0

28%

$869.1

29%

Professional services and other billings

$51.2

10%

$51.9

12%

Total billings

$915.2

27%

$921.0

28%

Amount
($ millions)

Margin (%)

Amount
($ millions)

Margin (%)

Subscription gross profit

$695.6

83%

$720.7

86%

Professional services and other gross profit (loss)

($10.5)

(21%)

$0.3

1%

 

Total gross profit

$685.0

77%

$721.1

81%

Income from operations

$56.3

6%

$228.2

26%

Net cash provided by operating activities

$210.2

24%

Free cash flow

$121.3

14%

Amount
($ millions)

Earnings per
Basic/Diluted
Share ($)

Amount
($ millions)

Earnings per
Basic/Diluted
Share ($)

Net income

$40.6

$0.22 / $0.21

$192.9

$1.03 / $0.99

(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 fourth quarter 2019:

Fourth Quarter 2019
GAAP Guidance

Fourth 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

$884 - $889

33%

$897 - $902

35%

Subscription billings

$1,249 - $1,254

31% - 32%

$1,270 - $1,275

33% - 34%

Margin (%)

Income from operations

21%

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 September 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 full-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

$3,240 - $3,245

34%

$3,302 - $3,307

36% - 37%

Subscription billings

$3,740 - $3,745

30%

$3,817 - $3,822

32% - 33%

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 September 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 July 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

$3,250

($18)

$0

$11

$3,243

Non-GAAP subscription billings(6)

$3,745

($23)

$10

$11

$3,743

(1)

Numbers are rounded for presentation purposes.

(2)

Refers to previously issued full-year 2019 guidance dated July 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 Q3 2019 actual results and the rates as of June 30, 2019 assumed in our previously issued guidance dated July 24, 2019 plus (ii) the impact of the difference between the exchange rates in effect as of September 30, 2019 assumed in our updated full-year 2019 guidance, and the rates as of June 30, 2019 assumed in our previously issued guidance dated July 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 October 23, 2019. Interested parties may listen to the call by dialing (877) 824‑2843 (passcode: 9197834), or if outside North America, by dialing (647) 689‑5665 (passcode: 9197834). Individuals may access the live teleconference from this webcast link:

https://event.on24.com/wcc/r/2078426/17C64C4B1449180887A4708BC36CB6E7

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: 9197834), or if outside North America, by dialing (416) 621‑4642 (passcode: 9197834).

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 Q3 2018, the average exchange rates in effect for our major currencies were 1 USD to 0.8601 Euros and 1 USD to 0.7679 British Pound Sterling (GBP)), rather than the actual average exchange rates in effect during the current period (for Q3 2019, the average exchange rates in effect for our major currencies were 1 USD to 0.8995 Euros and 1 USD 0.8116 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 and those acquired through strategic transactions, (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 September 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, Inc.

Condensed Consolidated Statements of Operations

(in thousands, except share and per share data)

(unaudited)

 

Three Months Ended

Nine Months Ended

September 30,
2019

September 30,
2018

September 30,
2019

September 30,
2018

Revenues:

Subscription

$

834,910

$

626,567

$

2,355,885

$

1,755,174

Professional services and other

50,923

46,530

152,778

138,201

Total revenues

885,833

673,097

2,508,663

1,893,375

Cost of revenues (1):

Subscription

139,330

106,821

401,398

303,918

Professional services and other

61,463

51,037

183,794

150,578

Total cost of revenues

200,793

157,858

585,192

454,496

Gross profit

685,040

515,239

1,923,471

1,438,879

Operating expenses (1):

Sales and marketing

362,975

289,323

1,118,279

883,893

Research and development

190,099

135,655

546,041

380,839

General and administrative

75,642

80,693

245,540

216,851

Total operating expenses

628,716

505,671

1,909,860

1,481,583

Income (loss) from operations

56,324

9,568

13,611

(42,704

)

Interest expense

(8,371

)

(11,233

)

(24,808

)

(43,795

)

Interest income and other income (expense), net

12,817

8,895

44,196

45,520

Income (loss) before income taxes

60,770

7,230

32,999

(40,979

)

Provision for (benefit from) income taxes

20,172

(1,175

)

5,025

(7,260

)

Net income (loss)

$

40,598

$

8,405

$

27,974

$

(33,719

)

Net income (loss) per share - basic

$

0.22

$

0.05

$

0.15

$

(0.19

)

Net income (loss) per share - diluted

$

0.21

$

0.04

$

0.14

$

(0.19

)

Weighted-average shares used to compute net income (loss) per share - basic

188,074,303

178,719,694

185,676,049

177,198,179

Weighted-average shares used to compute net income (loss) per share - diluted

197,878,215

192,190,899

196,738,774

177,198,179

(1) Includes stock-based compensation as follows:

Three Months Ended

Nine Months Ended

September 30,
2019

September 30,
2018

September 30,
2019

September 30,
2018

Cost of revenues:

Subscription

$

18,880

$

12,775

$

54,019

$

36,604

Professional services and other

10,867

8,407

31,749

24,310

Sales and marketing

68,712

60,132

200,071

169,283

Research and development

50,636

35,527

144,259

97,905

General and administrative

13,839

27,567

62,046

73,207

ServiceNow, Inc.

Condensed Consolidated Balance Sheets

(in thousands)

(unaudited)

September 30, 2019

December 31, 2018

Assets

Current assets:

Cash and cash equivalents

$

622,925

$

566,204

Short-term investments

848,148

931,718

Accounts receivable, net

539,416

574,810

Current portion of deferred commissions

158,241

139,890

Prepaid expenses and other current assets

128,483

132,071

Total current assets

2,297,213

2,344,693

Deferred commissions, less current portion

293,086

282,490

Long-term investments

1,001,513

581,856

Property and equipment, net (1)

400,858

347,216

Operating lease right-of-use assets (1)

405,424

Intangible assets, net

112,947

100,582

Goodwill

153,902

148,845

Other assets

91,865

73,458

Total assets

$

4,756,808

$

3,879,140

Liabilities and Stockholders’ Equity

Current liabilities:

Accounts payable

$

61,906

$

30,733

Accrued expenses and other current liabilities (1)

319,792

330,246

Current portion of deferred revenue

1,761,532

1,651,594

Current portion of operating lease liabilities (1)

49,331

Total current liabilities

2,192,561

2,012,573

Deferred revenue, less current portion

41,286

38,597

Operating lease liabilities, less current portion (1)

388,483

Convertible senior notes, net

686,516

661,707

Other long-term liabilities (1)

18,489

55,064

Stockholders’ equity (1)

1,429,473

1,111,199

Total liabilities and stockholders’ equity

$

4,756,808

$

3,879,140

(1)

We adopted Topic 842 using the modified retrospective method as of January 1, 2019 and elected the transition option that allows us not to restate the comparative periods in our financial statements in the year of adoption.

ServiceNow, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

 

Three Months Ended

Nine Months Ended

September 30,
2019

September 30,
2018

September 30,
2019

September 30,
2018

Cash flows from operating activities:

Net income (loss)

$

40,598

$

8,405

$

27,974

$

(33,719

)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Depreciation and amortization

64,006

37,874

179,783

106,492

Amortization of deferred commissions

42,695

43,063

122,226

107,367

Amortization of debt discount and issuance costs

8,371

11,233

24,808

43,795

Stock-based compensation

162,934

144,408

492,144

401,309

Deferred income taxes

231

(1,371

)

(2,842

)

(32,297

)

Gain on marketable equity securities

(19,257

)

Repayments of convertible senior notes attributable to debt discount

(14,076

)

(101,633

)

Other

(1,298

)

6,209

(4,621

)

4,502

Changes in operating assets and liabilities, net of effect of business combinations:

Accounts receivable

(43,023

)

(58,486

)

28,331

7,454

Deferred commissions

(61,115

)

(59,526

)

(158,309

)

(152,521

)

Prepaid expenses and other assets

2,914

(521

)

(25,569

)

1,519

Accounts payable

4,995

7,690

30,088

5,058

Deferred revenue

35,265

42,969

135,455

174,058

Accrued expenses and other liabilities

(46,395

)

(22,370

)

(34,707

)

9,350

Net cash provided by operating activities

210,178

145,501

814,761

521,477

Cash flows from investing activities:

Purchases of property and equipment

(88,869

)

(47,987

)

(185,889

)

(136,349

)

Business combinations, net of cash and restricted cash acquired

(24,940

)

Purchases of other intangibles

(1,200

)

(2,750

)

(37,360

)

(13,600

)

Purchases of investments

(455,050

)

(447,085

)

(1,255,691

)

(826,998

)

Sales of investments

22,877

31,046

39,975

Maturities of investments

400,258

408,473

900,407

861,629

Realized (losses) gains on derivatives not designated as hedging instruments, net

(371

)

21,742

Net cash used in investing activities

(122,355

)

(89,349

)

(525,745

)

(100,283

)

Cash flows from financing activities:

Repayments of convertible senior notes attributable to principal

(40,335

)

(311,520

)

Proceeds from employee stock plans

41,927

39,018

105,227

100,437

Taxes paid related to net share settlement of equity awards

(83,183

)

(66,737

)

(330,802

)

(221,268

)

Payments on financing obligations

(180

)

(756

)

Net cash used in financing activities

(41,256

)

(68,234

)

(225,575

)

(433,107

)

Foreign currency effect on cash, cash equivalents and restricted cash

(7,725

)

(2,088

)

(6,439

)

(9,593

)

Net increase (decrease) in cash, cash equivalents and restricted cash

38,842

(14,170

)

57,002

(21,506

)

Cash, cash equivalents and restricted cash at beginning of period

586,698

720,493

568,538

727,829

Cash, cash equivalents and restricted cash at end of period

$

625,540

$

706,323

$

625,540

$

706,323

ServiceNow, Inc.

GAAP to Non-GAAP Reconciliation

(in thousands, except share and per share data)

(unaudited)

Three Months Ended

Nine Months Ended

September 30,
2019

September 30,
2018

Growth
Rates

September 30,
2019

September 30,
2018

Growth
Rates

Subscription revenues:

GAAP subscription revenues

$

834,910

$

626,567

33%

$

2,355,885

$

1,755,174

34%

Effects of foreign currency rate fluctuations

12,672

49,706

Non-GAAP adjusted subscription revenues (1)

$

847,582

35%

$

2,405,591

37%

Subscription billings:

GAAP subscription revenues

$

834,910

$

626,567

33%

$

2,355,885

$

1,755,174

34%

Change in subscription deferred revenue, unbilled receivables and customer deposits

29,137

47,592

134,663

174,261

Non-GAAP subscription billings

864,047

674,159

28%

2,490,548

1,929,435

29%

Effects of foreign currency rate fluctuations

12,309

50,996

Effects of fluctuations in billings duration

(7,272

)

5,039

Non-GAAP adjusted subscription billings (2)

$

869,084

29%

$

2,546,583

32%

Professional services and other revenues:

GAAP professional services and other revenues

$

50,923

$

46,530

9%

$

152,778

$

138,201

11%

Effects of foreign currency rate fluctuations

728

4,082

Non-GAAP adjusted professional service and other revenues (1)

$

51,651

11%

$

156,860

14%

Professional services and other billings:

GAAP professional services and other revenues

$

50,923

$

46,530

9%

$

152,778

$

138,201

11%

Change in professional services and other deferred revenue

245

(148

)

435

8,157

Non-GAAP professional services and other billings

51,168

46,382

10%

153,213

146,358

5%

Effects of foreign currency rate fluctuations

728

4,082

Non-GAAP adjusted professional services and other billings (2)

$

51,896

12%

$

157,295

7%

Total revenues:

GAAP total revenues

$

885,833

$

673,097

32%

$

2,508,663

$

1,893,375

32%

Effects of foreign currency rate fluctuations

13,400

53,788

Non-GAAP adjusted total revenues (1)

$

899,233

34%

$

2,562,451

35%

Total billings:

GAAP total revenues

$

885,833

$

673,097

32%

$

2,508,663

$

1,893,375

32%

Change in total deferred revenue, unbilled receivables and customer deposits

29,382

47,444

135,098

182,418

Non-GAAP total billings

915,215

720,541

27%

2,643,761

2,075,793

27%

Effects of foreign currency rate fluctuations

13,037

55,078

Effects of fluctuations in billings duration

(7,272

)

5,039

Non-GAAP adjusted total billings (2)

$

920,980

28%

$

2,703,878

30%

Cost of revenues:

GAAP subscription cost of revenues

$

139,330

$

106,821

$

401,398

$

303,918

Stock-based compensation

(18,880

)

(12,775

)

(54,019

)

(36,604

)

Amortization of purchased intangibles

(6,281

)

(4,879

)

(16,595

)

(13,930

)

Non-GAAP subscription cost of revenues

$

114,169

$

89,167

$

330,784

$

253,384

GAAP professional services and other cost of revenues

$

61,463

$

51,037

$

183,794

$

150,578

Stock-based compensation

(10,867

)

(8,407

)

(31,749

)

(24,310

)

Non-GAAP professional services and other cost of revenues

$

50,596

$

42,630

$

152,045

$

126,268

Gross profit (loss):

GAAP subscription gross profit

$

695,580

$

519,746

$

1,954,487

$

1,451,256

Stock-based compensation

18,880

12,775

54,019

36,604

Amortization of purchased intangibles

6,281

4,879

16,595

13,930

Non-GAAP subscription gross profit

$

720,741

$

537,400

$

2,025,101

$

1,501,790

GAAP professional services and other gross loss

$

(10,540

)

$

(4,507

)

$

(31,016

)

$

(12,377

)

Stock-based compensation

10,867

8,407

31,749

24,310

Non-GAAP professional services and other gross profit

$

327

$

3,900

$

733

$

11,933

GAAP gross profit

$

685,040

$

515,239

$

1,923,471

$

1,438,879

Stock-based compensation

29,747

21,182

85,768

60,914

Amortization of purchased intangibles

6,281

4,879

16,595

13,930

Non-GAAP gross profit

$

721,068

$

541,300

$

2,025,834

$

1,513,723

Gross margin:

GAAP subscription gross margin

83

%

83

%

83

%

83

%

Stock-based compensation as % of subscription revenues

2

%

2

%

2

%

2

%

Amortization of purchased intangibles as % of subscription revenues

1

%

1

%

1

%

1

%

Non-GAAP subscription gross margin

86

%

86

%

86

%

86

%

GAAP professional services and other gross margin

(21

%)

(10

%)

(20

%)

(9

%)

Stock-based compensation as % of professional services and other revenues

22

%

18

%

20

%

18

%

Non-GAAP professional services and other gross margin

1

%

8

%

0

%

9

%

GAAP gross margin

77

%

77

%

77

%

76

%

Stock-based compensation as % of total revenues

3

%

3

%

3

%

3

%

Amortization of purchased intangibles as % of total revenues

1

%

0

%

1

%

1

%

Non-GAAP gross margin

81

%

80

%

81

%

80

%

Operating expenses:

GAAP sales and marketing expenses

$

362,975

$

289,323

$

1,118,279

$

883,893

Stock-based compensation

(68,712

)

(60,132

)

(200,071

)

(169,283

)

Non-GAAP sales and marketing expenses

$

294,263

$

229,191

$

918,208

$

714,610

GAAP research and development expenses

$

190,099

$

135,655

$

546,041

$

380,839

Stock-based compensation

(50,636

)

(35,527

)

(144,259

)

(97,905

)

Amortization of purchased intangibles

(455

)

(455

)

(1,365

)

(1,365

)

Non-GAAP research and development expenses

$

139,008

$

99,673

$

400,417

$

281,569

GAAP general and administrative expenses

$

75,642

$

80,693

$

245,540

$

216,851

Stock-based compensation

(13,839

)

(27,567

)

(62,046

)

(73,207

)

Amortization of purchased intangibles

(2,281

)

(1,047

)

(6,118

)

(2,882

)

Business combination and other related costs

26

(300

)

(120

)

(964

)

Non-GAAP general and administrative expenses

$

59,548

$

51,779

$

177,256

$

139,798

GAAP total operating expenses

$

628,716

$

505,671

$

1,909,860

$

1,481,583

Stock-based compensation

(133,187

)

(123,226

)

(406,376

)

(340,395

)

Amortization of purchased intangibles

(2,736

)

(1,502

)

(7,483

)

(4,247

)

Business combination and other related costs

26

(300

)

(120

)

(964

)

Non-GAAP total operating expenses

$

492,819

$

380,643

$

1,495,881

$

1,135,977

Income (loss) from operations:

GAAP income (loss) from operations

$

56,324

$

9,568

$

13,611

$

(42,704

)

Stock-based compensation

162,934

144,408

492,144

401,309

Amortization of purchased intangibles

9,017

6,381

24,078

18,177

Business combination and other related costs

(26

)

300

120

964

Non-GAAP income from operations

$

228,249

$

160,657

$

529,953

$

377,746

Operating margin:

GAAP operating margin

6

%

1

%

1

%

(2

%)

Stock-based compensation as % of total revenues

18

%

21

%

20

%

21

%

Amortization of purchased intangibles as % of total revenues

2

%

2

%

0

%

1

%

Business combination and other related costs as % of total revenues

0

%

0

%

0

%

0

%

Non-GAAP operating margin

26

%

24

%

21

%

20

%

Net income (loss):

GAAP net income (loss)

$

40,598

$

8,405

$

27,974

$

(33,719

)

Stock-based compensation

162,934

144,408

492,144

401,309

Amortization of purchased intangibles

9,017

6,381

24,078

18,177

Business combination and other related costs

(26

)

300

120

964

Amortization of debt discount and issuance costs for the convertible senior notes

8,371

11,233

24,808

43,795

Loss on early note conversions

190

4,063

Income tax expense effects related to the above adjustments

(28,041

)

(41,913

)

(109,804

)

(109,819

)

Non-GAAP net income

$

192,853

$

129,004

$

459,320

$

324,770

Net income (loss) per share - basic and diluted:

GAAP net income (loss) per share - basic

$

0.22

$

0.05

$

0.15

$

(0.19

)

GAAP net income (loss) per share - diluted

$

0.21

$

0.04

$

0.14

$

(0.19

)

Non-GAAP net income per share - basic

$

1.03

$

0.72

$

2.47

$

1.83

Non-GAAP net income per share - diluted

$

0.99

$

0.68

$

2.37

$

1.73

GAAP weighted-average shares used to compute net income (loss) per share - basic

188,074,303

178,719,694

185,676,049

177,198,179

GAAP weighted-average shares used to compute net income (loss) per share - diluted

197,878,215

192,190,899

196,738,774

177,198,179

Effects of dilutive time-based stock awards (3)

7,670,540

Effects of in-the-money portion of convertible senior notes (3)

(2,928,795

)

(3,192,806

)

(2,701,072

)

Effects of warrants (3)

2,932,637

Effects of stock awards with performance conditions not yet satisfied (3)

135,902

348,689

62,189

239,162

Non-GAAP weighted-average shares used to compute net income per share - diluted

195,085,322

189,346,782

194,099,891

188,040,518

Free cash flow:

GAAP net cash provided by operating activities

$

210,178

$

145,501

$

814,761

$

521,477

Purchases of property and equipment

(88,869

)

(47,987

)

(185,889

)

(136,349

)

Repayments of convertible senior notes attributable to debt discount

14,076

101,633

Non-GAAP free cash flow

$

121,309

$

111,590

$

628,872

$

486,761

Free cash flow margin:

GAAP net cash provided by operating activities as % of total revenues

24

%

22

%

32

%

28

%

Purchases of property and equipment as % of total revenues

(10

%)

(7

%)

(7

%)

(7

%)

Repayments of convertible senior notes attributable to debt discount as % of total revenues

%

2

%

%

5

%

Non-GAAP free cash flow margin

14

%

17

%

25

%

26

%

(1)

Adjusted revenues and the corresponding growth rates are derived by applying the average exchange rates in effect during the comparison period rather than the actual average exchange rates in effect during the current period.

(2)

Adjusted billings and the corresponding growth rates are derived by applying the average exchange rates in effect during the comparison period rather than the actual average exchange rates in effect during the current period, and 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 comparison period.

(3)

Effects of dilutive time-based stock awards, in-the-money portion of convertible senior notes and warrants are included in the GAAP weighted-average diluted shares in periods where we have GAAP net income. We exclude the in-the-money portion of convertible senior notes for non-GAAP weighted-average diluted shares as they are covered by our note hedges. We include stock awards with performance conditions not yet satisfied for non-GAAP weighted-average diluted shares at forecasted attainment levels to the extent we believe it is probable that the performance condition will be met.

ServiceNow, Inc.

Reconciliation of Non-GAAP Financial Guidance

The financial guidance provided below is an estimate based on information available as of September 30, 2019. The company’s future performance and financial results are subject to risks and uncertainties, and actual results could differ materially from the guidance set forth below. Some of the factors that could affect the company’s financial results are stated above in this press release. Further information on these and other factors that could affect our financial results are included in our Form 10-Q for the three months ended June 30, 2019 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 three months ended September 30, 2019. The company assumes no obligation to update any forward-looking statements or information, which speak as of their respective dates.

Three Months Ended

December 31, 2019

December 31, 2018 (3)

Growth Rates

GAAP subscription revenues

$884 - $889 million

$666 million

33%

Effects of foreign currency rate fluctuations

13 million

Non-GAAP adjusted subscription revenues (1)

$897 - $902 million

35%

GAAP subscription revenues

$884 - $889 million

$666 million

33%

Change in subscription deferred revenue, unbilled receivables and customer deposits

365 million

286 million

Non-GAAP subscription billings

$1,249 - $1,254 million

$952 million

31% - 32%

Effects of foreign currency rate fluctuations

19 million

Effects of fluctuations in billings duration

2 million

Non-GAAP adjusted subscription billings (2)

$1,270 - $1,275 million

33% - 34%

GAAP operating margin

2%

Stock-based compensation expense as % of total revenues

18%

Amortization of purchased intangibles as % of total revenues

1%

Business combination and other related costs as % of total revenues

0%

Non-GAAP operating margin

21%

GAAP weighted-average shares used to compute net income per share - diluted

198 million

Effects of in-the-money portion of convertible senior notes(4)

(3) million

Non-GAAP weighted-average shares used to compute net income per share - diluted

195 million

Twelve Months Ended

December 31, 2019

December 31, 2018 (3)

Growth Rates

GAAP subscription revenues

$3,240 - $3,245 million

$2,421 million

34%

Effects of foreign currency rate fluctuations

62 million

Non-GAAP adjusted subscription revenues (1)

$3,302 - $3,307 million

36% - 37%

GAAP subscription revenues

$3,240 - $3,245 million

$2,421 million

34%

Change in subscription deferred revenue, unbilled receivables and customer deposits

500 million

460 million

Non-GAAP subscription billings

$3,740 - $3,745 million

$2,881 million

30%

Effects of foreign currency rate fluctuations

70 million

Effects of fluctuations in billings duration

7 million

Non-GAAP adjusted subscription billings (2)

$3,817 - $3,822 million

32% - 33%

GAAP subscription gross margin

83%

Stock-based compensation expense as % of subscription revenues

2%

Amortization of purchased intangibles as % of subscription revenues

1%

Non-GAAP subscription margin

86%

GAAP operating margin

1%

Stock-based compensation expense as % of total revenues

19%

Amortization of purchased intangibles as % of total revenues

1%

Business combination and other related costs as % of total revenues

0%

Non-GAAP operating margin

21%

GAAP net cash provided by operating activities as % of total revenues

36%

Purchases of property and equipment as % of total revenues

(8%)

Non-GAAP free cash flow margin

28%

GAAP weighted-average shares used to compute net income per share - diluted

197 million

Effects of in-the-money portion of convertible senior notes(4)

(3) million

Non-GAAP weighted-average shares used to compute net income per share - diluted

194 million

(1)

Adjusted revenues and the corresponding 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.

(2)

Adjusted billings and the corresponding 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, and by replacing the portion of multi-year billings in excess of twelve months for the guidance period with the actual portion of multi-year billings in excess of twelve months during the comparison period.

(3)

Effects of foreign currency rate fluctuations and fluctuations in billing durations are not applicable for the comparison period.

(4)

We exclude the in-the-money portion of convertible senior notes for non-GAAP weighted-average diluted shares as they are covered by our note hedges.

Contacts:

Media Contact:
Sara Day
650.336.3123
press@servicenow.com
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