ServiceNow Reports Record Fourth Quarter and Fiscal Year 2018 Financial Results

Growth in IT Products Reaccelerates, Leading Strong Overall Performance

  • Subscription revenues of $666 million in Q4 2018, representing 33% year-over-year growth
  • 51 transactions over $1 million in net new annual contract value in Q4 2018
  • Closed the year with 678 total customers with over $1 million in annual contract value, representing 33% year-over-year growth

SANTA CLARA, Calif.--()--ServiceNow (NYSE: NOW) today announced financial results for its fourth quarter and fiscal year ended December 31, 2018, with subscription revenues of $666 million in Q4 2018, representing 33% year-over-year growth.

ServiceNow, Forbes’ No. 1 World’s Most Innovative Company in 2018, now serves approximately 5,400 enterprise customers, including almost 75% of Fortune 500 companies. During the quarter, ServiceNow closed 51 transactions with more than $1 million in net new annual contract value. As of the end of the fiscal year 2018, the company had 678 total customers with more than $1 million in annual contract value, representing 33% year-over-year growth. Underlying its quarterly and full-year results, ServiceNow saw strength across its product portfolio and in every geography.

We finished 2018 with our strongest fourth quarter ever, continuing our momentum as the leading digital workflow company shaping the future of work,” said John Donahoe, ServiceNow president and chief executive officer. “Our role as a strategic partner to the world’s largest enterprises continues to accelerate. As we look to another strong year of growth in 2019, we remain committed to enabling companies’ digital transformation by making work, work better for people.”

Total backlog1 including deferred revenue at the end of 2018 was $5.1 billion, representing 35% year-over-year growth,” said Michael Scarpelli, ServiceNow chief financial officer. “Strength in the fourth quarter was driven by expansions of existing customer relationships, which contributed to a record $1.5 billion in total contract value booked.”

_______________

1 Please see our Form 10-Q filed for the quarter ended September 30, 2018 for our definition of total backlog.

Fourth Quarter 2018 GAAP and Non-GAAP Results:

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

           
Fourth Quarter 2018

GAAP Results

Fourth 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 $666.1 33% $673.6 35%
Professional services and other revenues $49.3 0% $50.1 2%
Total revenues $715.4 30% $723.7 32%
 
Subscription billings $952.0 38% $958.9 39%
Professional services and other billings $61.0 29% $61.9 30%
Total billings $1,013.0 38% $1,020.7 39%
 
   

Amount
($ millions)

  Margin (%) Amount
($ millions)
Margin (%)        
Subscription gross profit $552.6 83% $569.8 86%
Professional services and other gross profit (loss) ($5.4) (11%) $3.1 6%
Total gross profit $547.3 76% $573.0 80%
Income from operations $0.3 0% $150.0 21%
Net cash provided by operating activities $289.6 40%
Free cash flow $245.2 34%
 
   

Amount
($ millions)

 

Earnings per
Basic/Diluted
Share ($)

Amount
($ millions)

 

Earnings per
Basic/Diluted
Share ($)

       
Net income $7.0 $0.04 $145.6 $0.81 / $0.77
 
 
(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 September 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.
 

Fiscal Year 2018 GAAP and Non-GAAP Results:

The following table summarizes our financial results for the fiscal year 2018:

           
Full-Year 2018

GAAP Results

Full-Year 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 $2,421.3 39% $2,393.9 38%
Professional services and other revenues $187.5 5% $185.4 4%
Total revenues $2,608.8 36% $2,579.2 34%
 
Subscription billings $2,881.4 36% $2,845.1 34%
Professional services and other billings $207.4 18% $205.3 17%
Total billings $3,088.8 34% $3,050.4 33%
 
    Amount
($ millions)
  Margin (%) Amount
($ millions)
  Margin (%)        
Subscription gross profit $2,003.9 83% $2,071.6 86%
Professional services and other gross profit (loss) ($17.7) (9%) $15.1 8%
Total gross profit $1,986.2 76% $2,086.7 80%
Income (loss) from operations ($42.4) (2%) $527.8 20%
Net cash provided by operating activities $811.1 31%
Free cash flow $732.0 28%
 
    Amount
($ millions)
 

Earnings per
Basic/Diluted
Share ($)

Amount
($ millions)
 

Earnings per
Basic/Diluted
Share ($)

       
Net income (loss) ($26.7) ($0.15) $470.4 $2.64 / $2.49
 
 
(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 September 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 December 31, 2018 and includes GAAP and non-GAAP financial measures.

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

   
First Quarter 2019

GAAP Guidance

First Quarter 2019 Non-GAAP Guidance(1)
    Amount
($ millions)
  Year/Year
Growth (%)
Amount
($ millions)
  Year/Year
Growth (%)
 

Adjusted
Amount
($ millions)(2)

 

Adjusted Year/
Year Growth (%)

Subscription revenues $715 - $720   32% - 33%   $736 - $741   35% - 36%
Subscription billings $790 - $795 24% - 25% $831 - $836 30% - 31%
 
              Margin (%)      
Income from operations

16%

 
          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) 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 guidance for fiscal year 2019:

   
Full-Year 2019

GAAP Guidance

Full-Year 2019 Non-GAAP Guidance(1)
    Amount
($ millions)
  Year/Year
Growth (%)
Amount
($ millions)
 

Year/Year
Growth (%)

 

Adjusted
Amount
($ millions)(2)

 

Adjusted
Year/ Year
Growth (%)

Subscription revenues $3,215 - $3,235   33% - 34%     $3,256 - $3,276   34% - 35%
Subscription billings $3,705 - $3,725 29% $3,772 - $3,792 31% - 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 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) 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.
 

Conference Call Details

The conference call will begin at 2 p.m. Pacific Time (22:00 GMT) on January 30, 2019. Interested parties may listen to the call by dialing 844.464.3153 (passcode: 1278924), or if outside North America, by dialing +1.508.637.5575 (passcode: 1278924). Individuals may access the live teleconference from this webcast link (https://edge.media-server.com/m6/p/kp9ox4w4).

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:1278924), or if outside North America, by dialing +1.404.537.3406 (passcode: 1278924).

Investor Presentation Details

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

Statement Regarding Use of Non-GAAP Financial Measures

We report 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 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: (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 September 30, 2018 and in other filings we make with the Securities and Exchange Commission from time to time, including our Form 10-K that will be 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 experiences that help people do their best work. 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

Twelve Months Ended

December 31, 2018   December 31, 2017 December 31, 2018   December 31, 2017
*As Adjusted *As Adjusted
Revenues:
Subscription $ 666,139 $ 499,738 $ 2,421,313 $ 1,739,500
Professional services and other 49,302   49,355   187,503   178,994  
Total revenues 715,441   549,093   2,608,816   1,918,494  
Cost of revenues (1):
Subscription 113,503 87,524 417,421 315,570
Professional services and other 54,659   46,640   205,237   184,292  
Total cost of revenues 168,162   134,164   622,658   499,862  
Gross profit 547,279   414,929   1,986,158   1,418,632  
Operating expenses (1):
Sales and marketing 319,163 250,979 1,203,056 894,977
Research and development 148,662 104,559 529,501 377,518
General and administrative 79,176   60,291   296,027   210,533  
Total operating expenses 547,001   415,829   2,028,584   1,483,028  
Income (loss) from operations 278 (900 ) (42,426 ) (64,396 )
Interest expense (8,938 ) (16,813 ) (52,733 ) (53,394 )
Interest income and other income (expense), net 10,615   4,561   56,135   4,384  
Income (loss) before income taxes 1,955 (13,152 ) (39,024 ) (113,406 )
Provision for (benefit from) income taxes (5,060 ) 4,194   (12,320 ) 3,440  
Net income (loss) $ 7,015   $ (17,346 ) $ (26,704 ) $ (116,846 )
Net income (loss) per share - basic $ 0.04   $ (0.10 ) $ (0.15 ) $ (0.68 )
Net income (loss) per share - diluted $ 0.04   $ (0.10 ) $ (0.15 ) $ (0.68 )
Weighted-average shares used to compute net income (loss) per share - basic 179,763,953   173,567,143   177,846,023   171,175,577  
Weighted-average shares used to compute net income (loss) per share - diluted 190,662,082   173,567,143   177,846,023   171,175,577  
 

(1) Includes stock-based compensation as follows:

 

Three Months Ended

Twelve Months Ended

December 31, 2018 December 31, 2017 December 31, 2018 December 31, 2017
*As Adjusted *As Adjusted
Cost of revenues:
Subscription $ 12,134 $ 9,474 $ 48,738 $ 35,334
Professional services and other 8,506 5,853 32,816 27,401
Sales and marketing 58,762 45,877 228,045 170,527
Research and development 37,298 24,401 135,203 92,025
General and administrative 25,944 20,022 99,151 68,717
 

*As adjusted to reflect the impact of the full retrospective adoption of Topic 606.

 
   
ServiceNow, Inc.
Condensed Consolidated Balance Sheets
(in thousands)
(unaudited)
 
December 31, 2018 December 31, 2017
*As Adjusted
Assets
Current assets:
Cash and cash equivalents $ 566,204 $ 726,495
Short-term investments 931,718 1,052,803
Accounts receivable, net 574,810 437,051
Current portion of deferred commissions 139,890 109,643
Prepaid expenses and other current assets 132,071   95,959
Total current assets 2,344,693 2,421,951
Deferred commissions, less current portion 282,490 224,252
Long-term investments 581,856 391,442
Property and equipment, net 347,216 245,124
Intangible assets, net 100,582 86,916
Goodwill 148,845 128,728
Other assets 73,458   51,832
Total assets $ 3,879,140   $ 3,550,245
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable $ 30,733 $ 32,109
Accrued expenses and other current liabilities 330,246 253,257
Current portion of deferred revenue 1,651,594 1,210,695
Current portion of convertible senior notes, net   543,418
Total current liabilities 2,012,573 2,039,479
Deferred revenue, less current portion 38,597 36,120
Convertible senior notes, net 661,707 630,018
Other long-term liabilities 55,064 65,884
Stockholders’ equity 1,111,199   778,744
Total liabilities and stockholders’ equity $ 3,879,140   $ 3,550,245
 

*As adjusted to reflect the impact of the full retrospective adoption of Topic 606.

 
   
ServiceNow, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
 
Three Months Ended Twelve Months Ended

December 31,
2018

 

December 31,
2017

December 31,
2018

 

December 31,
2017

*As Adjusted *As Adjusted
 
Cash flows from operating activities:
Net income (loss) $ 7,015 $ (17,346 ) $ (26,704 ) $ (116,846 )
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization 43,112 32,067 149,604 113,875
Amortization of deferred commissions 35,991 30,951 143,358 99,105
Amortization of debt discount and issuance costs 8,938 16,813 52,733 53,394
Stock-based compensation 142,644 105,627 543,953 394,004
Deferred income tax (1,883 ) 331 (34,180 ) (5,724 )
Gain on marketable equity securities (19,257 )
Repayments of convertible senior notes attributable to debt discount (43,716 ) (145,349 )
Other 1,675 649 6,177 (905 )
Changes in operating assets and liabilities, net of effect of business combinations:
Accounts receivable (153,602 ) (145,572 ) (146,148 ) (99,693 )
Deferred commissions (86,861 ) (75,732 ) (239,382 ) (190,246 )
Prepaid expenses and other assets (21,405 ) (16,895 ) (19,886 ) (34,288 )
Accounts payable (9,815 ) 5,584 (4,757 ) (5,504 )
Deferred revenue 294,798 180,951 468,856 369,242
Accrued expenses and other liabilities 72,721   67,355   82,071   66,526  
Net cash provided by operating activities 289,612   184,783   811,089   642,940  
Cash flows from investing activities:
Purchases of property and equipment (88,113 ) (34,654 ) (224,462 ) (150,510 )
Business combinations, net of cash and restricted cash acquired (12,500 ) (31,666 ) (37,440 ) (58,203 )
Purchases of other intangibles (10,800 ) (500 ) (24,400 ) (6,670 )
Purchases of investments (467,784 ) (547,845 ) (1,285,943 ) (1,189,511 )
Purchases of strategic investments (1,000 ) (750 ) (9,839 ) (4,750 )
Sales of investments 7,138 39,975 85,106
Maturities of investments 333,058   89,993   1,194,687   440,590  
Net cash used in investing activities (247,139 ) (518,284 ) (347,422 ) (883,948 )
Cash flows from financing activities:
Net proceeds from borrowings on convertible senior notes 772,127
Repayments of convertible senior notes attributable to principal (118,125 ) (4 ) (429,645 ) (4 )
Proceeds from issuance of warrants 54,071
Purchases of convertible note hedges (128,017 )
Repurchases and retirement of common stock (55,000 )
Proceeds from employee stock plans 3,723 5,819 104,160 82,567
Taxes paid related to net share settlement of equity awards (59,742 ) (50,808 ) (281,010 ) (181,938 )
Payments on financing obligations (177 ) (2,233 ) (933 ) (4,914 )
Net cash (used in) provided by financing activities (174,321 ) (47,226 ) (607,428 ) 538,892  
Foreign currency effect on cash, cash equivalents and restricted cash (5,937 ) 2,248   (15,530 ) 28,013  
Net (decrease) increase in cash, cash equivalents and restricted cash (137,785 ) (378,479 ) (159,291 ) 325,897
Cash, cash equivalents and restricted cash at beginning of period 706,323   1,106,308   727,829   401,932  
Cash, cash equivalents and restricted cash at end of period $ 568,538   $ 727,829   $ 568,538   $ 727,829  
 

*As adjusted to reflect the impact of the full retrospective adoption of Topic 606.

 
       

ServiceNow, Inc.

GAAP to Non-GAAP Reconciliation

(in thousands, except share and per share data)

(unaudited)

 
Three Months Ended Twelve Months Ended

December 31,
2018

 

December 31,
2017 (3)

Growth
Rates

December 31,
2018

 

December 31,
2017 (3)

Growth
Rates

 
Subscription revenues:
GAAP subscription revenues $ 666,139 $ 499,738 33% $ 2,421,313 $ 1,739,500 39%
Effects of foreign currency rate fluctuations 7,427   (27,453 )
Non-GAAP adjusted subscription revenues (1) $ 673,566   35% $ 2,393,860   38%
 
Subscription billings:
GAAP subscription revenues $ 666,139 $ 499,738 33% $ 2,421,313 $ 1,739,500 39%
Change in subscription deferred revenue, unbilled receivables and customer deposits 285,856   188,540   460,117   384,316  
Non-GAAP subscription billings 951,995 688,278 38% 2,881,430 2,123,816 36%
Effects of foreign currency rate fluctuations 10,815 (28,883 )
Effects of fluctuations in billings duration (3,948 ) (7,419 )
Non-GAAP adjusted subscription billings (2) $ 958,862   39% $ 2,845,128   34%
 
Professional services and other revenues:
GAAP professional services and other revenues $ 49,302 $ 49,355 0% $ 187,503 $ 178,994 5%
Effects of foreign currency rate fluctuations 834   (2,151 )
Non-GAAP adjusted professional service and other revenues (1) $ 50,136   2% $ 185,352   4%
 
Professional services and other billings:
GAAP professional services and other revenues $ 49,302 $ 49,355 0% $ 187,503 $ 178,994 5%
Change in professional services and other deferred revenue 11,745   (1,915 ) 19,902   (3,156 )
Non-GAAP professional services and other billings 61,047 47,440 29% 207,405 175,838 18%
Effects of foreign currency rate fluctuations 834   (2,151 )
Non-GAAP adjusted professional services and other billings (2) $ 61,881   30% $ 205,254   17%
 
Total revenues:
GAAP total revenues $ 715,441 $ 549,093 30% $ 2,608,816 $ 1,918,494 36%
Effects of foreign currency rate fluctuations 8,261   (29,604 )
Non-GAAP adjusted total revenues (1) $ 723,702   32% $ 2,579,212   34%
 
Total billings:
GAAP total revenues $ 715,441 $ 549,093 30% $ 2,608,816 $ 1,918,494 36%
Change in total deferred revenue, unbilled receivables and customer deposits 297,601   186,625   480,019   381,160  
Non-GAAP total billings 1,013,042 735,718 38% 3,088,835 2,299,654 34%
Effects of foreign currency rate fluctuations 11,649 (31,034 )
Effects of fluctuations in billings duration (3,948 ) (7,419 )
Non-GAAP adjusted total billings (2) $ 1,020,743   39% $ 3,050,382   33%
 
Cost of revenues:
GAAP subscription cost of revenues $ 113,503 $ 87,524 $ 417,421 $ 315,570
Stock-based compensation (12,134 ) (9,474 ) (48,738 ) (35,334 )
Amortization of purchased intangibles (5,063 ) (4,118 ) (18,993 ) (14,967 )
Non-GAAP subscription cost of revenues $ 96,306   $ 73,932   $ 349,690   $ 265,269  
 
GAAP professional services and other cost of revenues $ 54,659 $ 46,640 $ 205,237 $ 184,292
Stock-based compensation (8,506 ) (5,853 ) (32,816 ) (27,401 )
Non-GAAP professional services and other cost of revenues $ 46,153   $ 40,787   $ 172,421   $ 156,891  
 
Gross profit (loss):
GAAP subscription gross profit $ 552,636 $ 412,214 $ 2,003,892 $ 1,423,930
Stock-based compensation 12,134 9,474 48,738 35,334
Amortization of purchased intangibles 5,063   4,118   18,993   14,967  
Non-GAAP subscription gross profit $ 569,833   $ 425,806   $ 2,071,623   $ 1,474,231  
 
GAAP professional services and other gross loss $ (5,357 ) $ 2,715 $ (17,734 ) $ (5,298 )
Stock-based compensation 8,506   5,853   32,816   27,401  
Non-GAAP professional services and other gross profit $ 3,149   $ 8,568   $ 15,082   $ 22,103  
 
GAAP gross profit $ 547,279 $ 414,929 $ 1,986,158 $ 1,418,632
Stock-based compensation 20,640 15,327 81,554 62,735
Amortization of purchased intangibles 5,063   4,118   18,993   14,967  
Non-GAAP gross profit $ 572,982   $ 434,374   $ 2,086,705   $ 1,496,334  
 
Gross margin:
GAAP subscription gross margin 83 % 82 % 83 % 82 %
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 % 85 % 86 % 85 %
 
GAAP professional services and other gross margin (11 %) 6 % (9 %) (3 %)
Stock-based compensation as % of professional services and other revenues 17 % 12 % 17 % 15 %
Non-GAAP professional services and other gross margin 6 % 18 % 8 % 12 %
 
GAAP gross margin 76 % 76 % 76 % 74 %
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 80 % 79 % 80 % 78 %
 
Operating expenses:
GAAP sales and marketing expenses $ 319,163 $ 250,979 $ 1,203,056 $ 894,977
Stock-based compensation (58,762 ) (45,877 ) (228,045 ) (170,527 )
Amortization of purchased intangibles   (56 )   (407 )
Non-GAAP sales and marketing expenses $ 260,401   $ 205,046   $ 975,011   $ 724,043  
 
GAAP research and development expenses $ 148,662 $ 104,559 $ 529,501 $ 377,518
Stock-based compensation (37,298 ) (24,401 ) (135,203 ) (92,025 )
Amortization of purchased intangibles (455 ) (455 ) (1,820 ) (1,820 )
Non-GAAP research and development expenses $ 110,909   $ 79,703   $ 392,478   $ 283,673  
 
GAAP general and administrative expenses $ 79,176 $ 60,291 $ 296,027 $ 210,533
Stock-based compensation (25,944 ) (20,022 ) (99,151 ) (68,717 )
Amortization of purchased intangibles (1,534 ) (730 ) (4,416 ) (2,464 )
Business combination and other related costs (43 ) (917 ) (1,007 ) (2,421 )
Non-GAAP general and administrative expenses $ 51,655   $ 38,622   $ 191,453   $ 136,931  
 
GAAP total operating expenses $ 547,001 $ 415,829 $ 2,028,584 $ 1,483,028
Stock-based compensation (122,004 ) (90,300 ) (462,399 ) (331,269 )
Amortization of purchased intangibles (1,989 ) (1,241 ) (6,236 ) (4,691 )
Business combination and other related costs (43 ) (917 ) (1,007 ) (2,421 )
Non-GAAP total operating expenses $ 422,965   $ 323,371   $ 1,558,942   $ 1,144,647  
 
Income (loss) from operations:
GAAP income (loss) from operations $ 278 $ (900 ) $ (42,426 ) $ (64,396 )
Stock-based compensation 142,644 105,627 543,953 394,004
Amortization of purchased intangibles 7,052 5,359 25,229 19,658
Business combination and other related costs 43   917   1,007   2,421  
Non-GAAP income from operations $ 150,017   $ 111,003   $ 527,763   $ 351,687  
 
Operating margin:
GAAP operating margin 0 % 0 % (2 %) (3 %)
Stock-based compensation as % of total revenues 20 % 19 % 21 % 21 %
Amortization of purchased intangibles as % of total revenues 1 % 1 % 1 % 0 %
Business combination and other related costs as % of total revenues 0 % 0 % 0 % 0 %
Non-GAAP operating margin 21 % 20 % 20 % 18 %
 
 
Net income (loss):
GAAP net income (loss) $ 7,015 $ (17,346 ) $ (26,704 ) $ (116,846 )
Stock-based compensation 142,644 105,627 543,953 394,004
Amortization of purchased intangibles 7,052 5,359 25,229 19,658
Business combination and other related costs 43 917 1,007 2,421
Amortization of debt discount and issuance costs for the convertible senior notes 8,938 16,813 52,733 53,394
Loss on early note conversions 4,063
Income tax expense effects related to the above adjustments (20,093 ) (32,786 ) (129,912 ) (110,502 )
Non-GAAP net income $ 145,599   $ 78,584   $ 470,369   $ 242,129  
 
Net income (loss) per share - basic and diluted:
GAAP net income (loss) per share - basic $ 0.04   $ (0.10 ) $ (0.15 ) $ (0.68 )
GAAP net income (loss) per share - diluted $ 0.04   $ (0.10 ) $ (0.15 ) $ (0.68 )
Non-GAAP net income per share - basic $ 0.81   $ 0.45   $ 2.64   $ 1.41  
Non-GAAP net income per share - diluted $ 0.77   $ 0.43   $ 2.49   $ 1.35  
 
GAAP weighted-average shares used to compute net income (loss) per share - basic 179,763,953   173,567,143   177,846,023   171,175,577  
 
GAAP weighted-average shares used to compute net income (loss) per share - diluted 190,662,082 173,567,143 177,846,023 171,175,577
Effect of dilutive time-based stock awards (4) 7,988,601 7,873,351 8,773,040
In-the-money portion of convertible senior notes (4) (1,396,949 )
Warrants (4)   1,055,388   2,967,725    
Non-GAAP weighted-average shares used to compute net income per share - diluted 189,265,133   182,611,132   188,687,099   179,948,617  
 
Free cash flow:
GAAP net cash provided by operating activities $ 289,612 $ 184,783 $ 811,089 $ 642,940
Purchases of property and equipment (88,113 ) (34,654 ) (224,462 ) (150,510 )
Repayments of convertible senior notes attributable to debt discount 43,716   2   145,349   2  
Non-GAAP free cash flow $ 245,215   $ 150,131   $ 731,976   $ 492,432  
 
Free cash flow margin:
GAAP net cash provided by operating activities as % of total revenues 40 % 34 % 31 % 34 %
Purchases of property and equipment as % of total revenues (12 %) (7 %) (9 %) (8 %)
Repayments of convertible senior notes attributable to debt discount as % of total revenues 6 % 0 % 6 % 0 %
Non-GAAP free cash flow margin 34 % 27 % 28 % 26 %
 
(1)   Adjusted revenues and the corresponding growth rates are derived by applying the exchange rates in effect during the comparison period rather than the actual exchange rates in effect during the current period.
(2) Adjusted billings and the corresponding growth rates are derived by applying the exchange rates in effect during the comparison period rather than the actual 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) Amounts in the comparison period have been restated for Topic 606 and are unaudited. Effects of foreign currency rate fluctuations and fluctuations in billing durations are not applicable for the comparison period.
(4) Effect 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.

ServiceNow, Inc.

Reconciliation of Non-GAAP Financial Guidance

The financial guidance provided below is an estimate based on information available as of December 31, 2018. 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 quarter ended September 30, 2018 and in other filings we make with the Securities and Exchange Commission from time to time, including our Form 10-K that will be filed for the year ended December 31, 2018. The company assumes no obligation to update any forward-looking statements or information, which speak as of their respective dates.

   

Three Months Ended

 
March 31, 2019   March 31, 2018 (3) Growth Rates
 
GAAP subscription revenues $715 - $720 million $543 million 32% - 33%
 
Effects of foreign currency rate fluctuations 21 million
 
Non-GAAP adjusted subscription revenues (1) $736 - $741 million 35% - 36%
 
GAAP subscription revenues $715 - $720 million $543 million 32% - 33%
 
Change in subscription deferred revenue, unbilled receivables and customer deposits 75 million 95 million
   
Non-GAAP subscription billings $790 - $795 million $638 million 24% - 25%
 
Effects of foreign currency rate fluctuations 23 million
 
Effects of fluctuations in billings duration 18 million
 
Non-GAAP adjusted subscription billings (2) $831 - $836 million 30% - 31%
 
GAAP operating margin (6%)
 
Stock-based compensation expense as % of total revenues 21%
 
Amortization of purchased intangibles as % of total revenues 1%
 
Non-GAAP operating margin 16%
 
GAAP weighted-average shares used to compute net loss per share - diluted 182 million
 
Effect of dilutive securities (stock options, restricted stock units and warrants) 8 million
 
Non-GAAP weighted-average shares used to compute net income per share - diluted 190 million
 

Twelve Months Ended

 
December 31, 2019 December 31, 2018 (3) Growth Rates
 
GAAP subscription revenues $3,215 - $3,235 million $2,421 million 33% - 34%
 
Effects of foreign currency rate fluctuations 41 million
 
Non-GAAP adjusted subscription revenues (1) $3,256 - $3,276 million 34% - 35%
 
GAAP subscription revenues $3,215 - $3,235 million $2,421 million 33% - 34%
 
Change in subscription deferred revenue, unbilled receivables and customer deposits 490 million 460 million
   
Non-GAAP subscription billings $3,705 - $3,725 million $2,881 million 29%
 
Effects of foreign currency rate fluctuations 45 million
 
Effects of fluctuations in billings duration 22 million
 
Non-GAAP adjusted subscription billings (2) $3,772 - $3,792 million 31% - 32%
 
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 0%
 
Stock-based compensation expense as % of total revenues 20%
 
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 35%
 
Purchases of property and equipment as % of total revenues (7%)
 
Non-GAAP free cash flow margin 28%
 
GAAP weighted-average shares used to compute net loss per share - diluted (4) 185 million
 
Effect of dilutive securities (stock options, restricted stock units and warrants) 5 million
 
Non-GAAP weighted-average shares used to compute net income per share - diluted 190 million
 
(1)   Adjusted revenues and the corresponding growth rates are derived by applying the exchange rates in effect during the comparison period rather than the forecasted exchange rates for the guidance period.
(2) Adjusted billings and the corresponding growth rates are derived by applying the exchange rates in effect during the comparison period rather than the forecasted exchange rates for the guidance period, and by replacing the forecasted 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) GAAP net income or loss for the year ending December 31, 2019 will depend in part on costs associated with non-cash charges associated with equity awards which vary depending on the grant date stock price and actual attainment for our performance-based RSUs, business combinations and other related expenses which are not known at this time.

Contacts

Media Contact:
Kari Ramirez
408.607.1315
press@servicenow.com

Investor Contact:
Jimmy Sexton
669.262.1430
ir@servicenow.com

Contacts

Media Contact:
Kari Ramirez
408.607.1315
press@servicenow.com

Investor Contact:
Jimmy Sexton
669.262.1430
ir@servicenow.com