Market Overview

ServiceNow Outperforms Second Quarter and Raises Top Line Guidance for Full-Year 2018

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ServiceNow (NYSE:NOW) today announced financial results for the quarter
ended June 30, 2018.

Second Quarter 2018 Highlights:

  • Subscription revenues of $585.3 million, representing 45%
    year-over-year growth
  • 28 transactions over $1 million in net new annual contract value
  • 575 total customers with over $1 million in annual contract value,
    representing 40% year-over-year growth

"We had a strong second quarter, continuing our global momentum as we
head into the second half," said John Donahoe, ServiceNow president and
chief executive officer. "Digital transformation is no longer just a
business buzzword. It's fast becoming a business priority worldwide. We
are becoming a strategic partner of choice to help enable the digital
future and make the world of work, work better for people."

"Subscription revenues grew 45% year-over-year," said Michael Scarpelli,
ServiceNow chief financial officer. "Outperformance in the quarter was
driven by 28 transactions greater than $1 million in net new annual
contract value and continued strength from our entire product portfolio."

Second Quarter 2018 GAAP and Non-GAAP Results:

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

             

Second Quarter 2018
GAAP Results

Second 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 $585.3 45% $571.0 42%
Professional services and other revenues $45.8 0% $44.5 (2)%
Total revenues $631.1 41% $615.5 37%
 
Subscription billings $616.9 36% $601.2 32%
Professional services and other billings $49.0 14% $47.7 11%
Total billings $665.9 34% $648.9 30%
 
      Amount
($ millions)
  Margin (%) Amount
($ millions)
  Margin (%)        
Subscription gross profit $483.6 83% $500.8 86%
Professional services and other gross profit (loss) ($5.7) (12%) $2.7 6%
Total gross profit $477.9 76% $503.4 80%
Income (loss) from operations ($32.0) (5%) $110.2 17%
Net cash provided by operating activities $125.9 20%
Free cash flow $151.8 24%
 
      Amount
($ millions)
 

Earnings per
Basic/Diluted
Share ($)

Amount
($ millions)
 

Earnings per
Basic/Diluted
Share ($)

       
Net income (loss) ($52.7) ($0.30) $91.2 $0.51 / $0.49
(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 March 31, 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 June 30, 2018 and
includes GAAP and non-GAAP financial measures.

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

     

 

Third Quarter 2018
GAAP Guidance

Third Quarter 2018 Non-GAAP Guidance(1)
      Amount
($ millions)
  Year/Year
Growth (%)(2)
Amount
($ millions)
  Year/Year
Growth (%)(2)
 

Adjusted
Amount
($ millions)(3)

 

Adjusted Year/
Year Growth(%)(2)

Subscription revenues $610 - $615   36% - 37%     $611 - $616   36% - 37%
Subscription billings $648 - $653 29% - 30% $649 - $654 30% - 31%
 
                Margin (%)        
Income from operations 21%
 
            Amount
(millions)
           
Weighted-average shares used to compute diluted net income per share 188
(1)   We report non-GAAP financial measures in addition to, and not as a
substitute for, or superior to, financial measures calculated in
accordance with GAAP. See the section entitled "Statement Regarding
Use of Non-GAAP Financial Measures" for an explanation of non-GAAP
measures, and the table entitled "Reconciliation of Non-GAAP
Financial Guidance" for a reconciliation of GAAP to non-GAAP
measures.
(2) The comparison period amounts used to calculate growth rates have
been restated from previously reported amounts to reflect the impact
of the full retrospective adoption of Topic 606. For more
information regarding Topic 606, refer to our Form 10-Q filed for
the quarter ended March 31, 2018.
(3) Non-GAAP subscription revenues are adjusted for constant currency.
Non-GAAP subscription billings are adjusted for constant currency
and constant billings duration. See the section entitled "Statement
Regarding Use of Non-GAAP Financial Measures" for an explanation of
non-GAAP measures, and the table entitled "Reconciliation of
Non-GAAP Financial Guidance" for a reconciliation of GAAP to
non-GAAP measures.
 

The following table summarizes our updated guidance for fiscal year 2018:

     

Full-Year 2018
GAAP Guidance

Full-Year 2018 Non-GAAP Guidance(1)

      Amount
($ millions)
  Year/Year
Growth (%)(2)
Amount
($ millions)
  Year/Year
Growth (%)(2)
 

Adjusted
Amount
($ millions)(3)

 

Adjusted
Year/ Year
Growth (%)(2)

Subscription revenues $2,405 - $2,415   38% - 39%     $2,372 - $2,382   36% - 37%
Subscription billings $2,815 - $2,825 33% $2,779 - $2,789 31%
 
                Margin (%)        
Subscription gross profit 85%
Income from operations 20%
Free cash flow 27%
 
            Amount
(millions)
           
Weighted-average shares used to compute diluted net income per share 187
(1)   We report non-GAAP financial measures in addition to, and not as a
substitute for, or superior to, financial measures calculated in
accordance with GAAP. See the section entitled "Statement Regarding
Use of Non-GAAP Financial Measures" for an explanation of non-GAAP
measures, and the table entitled "Reconciliation of Non-GAAP
Financial Guidance" for a reconciliation of GAAP to non-GAAP
measures.
(2) The comparison period amounts used to calculate growth rates have
been restated from previously reported amounts to reflect the impact
of the full retrospective adoption of Topic 606. For more
information regarding Topic 606, refer to our Form 10-Q filed for
the quarter ended March 31, 2018.
(3) Non-GAAP subscription revenues are adjusted for constant currency.
Non-GAAP subscription billings are adjusted for constant currency
and constant billings duration. See the section entitled "Statement
Regarding Use of Non-GAAP Financial Measures" for an explanation of
non-GAAP measures, and the table entitled "Reconciliation of
Non-GAAP Financial Guidance" for a reconciliation of GAAP to
non-GAAP measures.
 

The following table compares our updated full-year 2018 guidance against
our previously issued full-year 2018 guidance dated April 25, 2018:

 
Comparison of Updated Full-Year 2018 Guidance to Previously
Issued Guidance
(1)

($ millions)

   

Previous Guidance
Midpoint(2)

  Currency Impact(3)   Guidance Change  

Current Guidance
Midpoint(4)

GAAP subscription revenues $2,408   ($31)   $33   $2,410
 
Non-GAAP subscription billings(5) $2,838 ($38) $21 $2,820
(1)   Numbers are rounded for presentation purposes.
(2) Refers to previously issued full-year 2018 guidance dated April 25,
2018.
(3) In our guidance, we assume an average daily currency exchange rate
for the guidance period based on the rates at the end of the prior
quarter for entities reporting in currencies other than U.S.
Dollars. Currency impact represents the sum of (i) the impact of the
difference between the actual average rates in the period used to
calculate our Q2-2018 actual results and the rates as of March 31,
2018 assumed in our previously issued guidance dated April 25, 2018
plus (ii) the impact of the difference between the exchange rates in
effect as of June 30, 2018 assumed in our updated full-year
guidance, and the rates as of March 31, 2018 assumed in our
previously issued guidance dated April 25, 2018.
(4) Represents the updated full-year 2018 guidance presented in the
table above.
(5) We report non-GAAP financial measures in addition to, and not as a
substitute for, or superior to, financial measures calculated in
accordance with GAAP. See the section entitled "Statement Regarding
Use of Non-GAAP Financial Measures" for an explanation of non-GAAP
measures, and the table entitled "Reconciliation of Non-GAAP
Financial Guidance" for a reconciliation of GAAP to non-GAAP
measures.
 

Conference Call Details

The conference call will begin at 2 p.m. Pacific Time (21:00 GMT) on
July 25, 2018. Interested parties may listen to the call by dialing
844.464.3153 (passcode: 5062499), or if outside North America, by
dialing 508.637.5575 (passcode: 5062499). Individuals may access the
live teleconference from this
webcast link (http://edge.media-server.com/m6/p/oevdm8j7).

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:5062499), or if
outside North America, by dialing 404.537.3406 (passcode: 5062499).

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
March 31, 2018 and in other filings we make with the Securities and
Exchange Commission from time to time.

We undertake no obligation, and do not intend, to update these
forward-looking statements, to review or confirm analysts' expectations,
or to provide interim reports or updates on the progress of the current
financial quarter.

About ServiceNow

ServiceNow (NYSE:NOW) makes work, work better for people. Our
cloud-based platform and solutions deliver digital experiences that help
people do their best work. For more information, visit: www.servicenow.com.

© 2018 ServiceNow, Inc. All rights reserved. ServiceNow, the ServiceNow
logo, Now, and other ServiceNow marks are trademarks and/or registered
trademarks of ServiceNow, Inc., in the United States and/or other
countries. Other company names, product names, and logos may be
trademarks of the respective companies with which they are associated.

     

ServiceNow, Inc.

Condensed Consolidated Statements of Operations

(in thousands, except share and per share data)

(unaudited)

 
Three Months Ended Six Months Ended
June 30, 2018   June 30, 2017 June 30, 2018   June 30, 2017

*As Adjusted

*As Adjusted
Revenues:
Subscription $ 585,282 $ 402,672 $ 1,128,607 $ 790,256
Professional services and other 45,774   45,586   91,671   86,773  
Total revenues 631,056   448,258   1,220,278   877,029  
Cost of revenues (1):
Subscription 101,699 75,793 197,097 146,168
Professional services and other 51,466   46,335   99,541   92,044  
Total cost of revenues 153,165   122,128   296,638   238,212  
Gross profit 477,891   326,130   923,640   638,817  
Operating expenses (1):
Sales and marketing 310,869 222,393 594,570 426,132
Research and development 127,916 90,005 245,184 174,494
General and administrative 71,095   51,526   136,158   97,777  
Total operating expenses 509,880   363,924   975,912   698,403  
Loss from operations (31,989 ) (37,794 ) (52,272 ) (59,586 )
Interest expense (15,498 ) (11,337 ) (32,562 ) (20,015 )
Interest income and other income (expense), net 6,638   (8,485 ) 36,625   (756 )
Loss before income taxes (40,849 ) (57,616 ) (48,209 ) (80,357 )
Provision for (benefit from) income taxes 11,897   (1,812 ) (6,085 ) (3,039 )
Net loss $ (52,746 ) $ (55,804 ) $ (42,124 ) $ (77,318 )
Net loss per share - basic and diluted $ (0.30 ) $ (0.33 ) $ (0.24 ) $ (0.46 )
Weighted-average shares used to compute net loss per share - basic
and diluted
177,343,176   170,419,083   176,418,984   169,585,356  

(1)  Includes stock-based compensation as follows:

 

Three Months Ended

Six Months Ended

June 30, 2018

June 30, 2017

June 30, 2018

June 30, 2017

*As Adjusted

*As Adjusted

Cost of revenues:

 

 

Subscription

$

12,538

$

8,942

$

23,829

$

16,880

Professional services and other

8,342

7,617

15,903

14,492

Sales and marketing

57,069

42,287

109,151

80,688

Research and development

33,780

22,731

62,378

44,532

General and administrative

23,831

16,489

45,640

31,343

 

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

     

ServiceNow, Inc.

Condensed Consolidated Balance Sheets

(in thousands)

(unaudited)

 
June 30, 2018 December 31, 2017
*As Adjusted
Assets

Current assets:

Cash and cash equivalents $ 704,846 $ 726,495
Short-term investments 1,044,812 1,052,803
Accounts receivable, net 367,598 437,051
Current portion of deferred commissions 119,068 109,643
Prepaid expenses and other current assets 115,305   95,959  
Total current assets 2,351,629 2,421,951
Deferred commissions, less current portion 239,523 224,252
Long-term investments 304,629 391,442
Property and equipment, net 286,953 245,124
Intangible assets, net 87,726 86,916
Goodwill 143,007 128,728
Other assets 59,417   51,832  
Total assets $ 3,472,884   $ 3,550,245  
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 30,656 $ 32,109
Accrued expenses and other current liabilities 273,994 253,257
Current portion of deferred revenue 1,320,928 1,210,695
Current portion of convertible senior notes, net 211,463   543,418  
Total current liabilities 1,837,041 2,039,479
Deferred revenue, less current portion 44,389 36,120
Convertible senior notes, net 645,668 630,018
Other long-term liabilities 54,076 65,884
Stockholders' equity 891,710   778,744  
Total liabilities and stockholders' equity $ 3,472,884   $ 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 Six Months Ended
June 30, 2018   June 30, 2017 June 30, 2018   June 30, 2017
*As Adjusted *As Adjusted
Cash flows from operating activities:
Net loss $ (52,746 ) $ (55,804 ) $ (42,124 ) $ (77,318 )
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization 35,207 27,181 68,618 52,407
Amortization of deferred commissions 33,885 21,048 64,304 43,086
Amortization of debt discount and issuance costs 15,498 11,337 32,562 20,015
Stock-based compensation 135,560 98,066 256,901 187,935
Deferred income tax (6,578 ) (1,460 ) (30,926 ) (4,751 )
Gain on marketable equity securities (802 ) (19,257 )
Repayments of convertible senior notes attributable to debt discount (78,897 ) (87,557 )
Other 4,098 (741 ) (1,707 ) (2,014 )
Changes in operating assets and liabilities, net of effect of
business combinations:
Accounts receivable (3,562 ) 6,671 65,940 55,186
Deferred commissions (50,520 ) (38,991 ) (92,995 ) (69,947 )
Prepaid expenses and other assets 17,848 12,862 2,040 (3,606 )
Accounts payable (3,507 ) (8,535 ) (2,632 ) (7,860 )
Deferred revenue 47,356 48,553 131,089 133,416
Accrued expenses and other liabilities 33,056   8,538   31,720   (10,216 )
Net cash provided by operating activities 125,896   128,725   375,976   316,333  
Cash flows from investing activities:
Purchases of property and equipment (52,991 ) (35,917 ) (88,362 ) (69,103 )
Business combinations, net of cash and restricted cash acquired (24,940 ) (6,502 ) (24,940 ) (21,537 )
Purchases of other intangibles (3,000 ) (6,170 ) (10,850 ) (6,170 )
Purchases of investments (3,783 ) (134,994 ) (379,913 ) (358,590 )
Sales of investments 39,975 56,179 39,975 77,968
Maturities of investments 271,051   99,686   453,156   221,949  
Net cash provided by (used in) investing activities (1) 226,312   (27,718 ) (10,934 ) (155,483 )
Cash flows from financing activities:
Net proceeds from borrowings on convertible senior notes 772,127 772,127
Repayments of convertible senior notes attributable to principal (242,579 ) (271,185 )
Proceeds from issuance of warrants 54,071 54,071
Purchases of convertible note hedges (128,017 ) (128,017 )
Repurchases and retirement of common stock (55,000 ) (55,000 )
Proceeds from employee stock plans 8,762 6,085 61,419 40,892
Taxes paid related to net share settlement of equity awards (68,976 ) (34,326 ) (154,531 ) (87,349 )
Payments on financing obligations (288 ) (1,145 ) (576 ) (2,560 )
Net cash (used in) provided by financing activities (303,081 ) 613,795   (364,873 ) 594,164  
Foreign currency effect on cash, cash equivalents and restricted cash
(1)
(13,996 ) 18,883   (7,505 ) 18,040  
Net increase (decrease) in cash, cash equivalents and restricted
cash (1)
35,131 733,685 (7,336 ) 773,054
Cash, cash equivalents and restricted cash at beginning of period (1) 685,362   441,301   727,829   401,932  
Cash, cash equivalents and restricted cash at end of period (1) $ 720,493   $ 1,174,986   $ 720,493   $ 1,174,986  
 

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

(1)   During the three months ended December 31, 2017, we adopted
Accounting Standards Update 2016-18, "Statement of Cash Flows (Topic
230): Restricted Cash," which requires that amounts generally
described as restricted cash or restricted cash equivalents be
included with cash and cash equivalents when reconciling the
beginning-of-period and end-of-period total amounts shown on the
statement of cash flows. Accordingly, we have recast our prior
period condensed consolidated statement of cash flows to conform to
the current presentation. The impact of the adoption for the three
and six months ended June 30, 2017 are not material.
 
         

ServiceNow, Inc.

GAAP to Non-GAAP Reconciliation

(in thousands, except share and per share data)

(unaudited)

 
Three Months Ended Six Months Ended
June 30, 2018   June 30, 2017(3)

Growth
Rates

June 30, 2018   June 30, 2017(3)

Growth
Rates

 
Subscription revenues:
GAAP subscription revenues $ 585,282 $ 402,672 45 % $ 1,128,607 $ 790,256 43 %
Effects of foreign currency rate fluctuations (14,253 ) (37,523 )
Non-GAAP adjusted subscription revenues (1) $ 571,029   42 % $ 1,091,084   38 %
 
Subscription billings:
GAAP subscription revenues $ 585,282 $ 402,672 45 % $ 1,128,607 $ 790,256 43 %
Change in subscription deferred revenue, unbilled receivables and
customer deposits
31,597   52,098   126,669   144,324  
Non-GAAP subscription billings 616,879 454,770 36 % 1,255,276 934,580 34 %
Effects of foreign currency rate fluctuations (15,059 ) (42,548 )
Effects of fluctuations in billings duration (583 ) 1,369  
Non-GAAP adjusted subscription billings (2) $ 601,237   32 % $ 1,214,097   30 %
 
Professional services and other revenues:
GAAP professional services and other revenues $ 45,774 $ 45,586 0 % $ 91,671 $ 86,773 6 %
Effects of foreign currency rate fluctuations (1,303 ) (3,414 )
Non-GAAP adjusted professional service and other revenues (1) $ 44,471   (2 )% $ 88,257   2 %
 
Professional services and other billings:
GAAP professional services and other revenues $ 45,774 $ 45,586 0 % $ 91,671 $ 86,773 6 %
Change in professional services and other deferred revenue 3,213   (2,749 ) 8,305   (4,275 )
Non-GAAP professional services and other billings 48,987 42,837 14 % 99,976 82,498 21 %
Effects of foreign currency rate fluctuations (1,303 ) (3,414 )
Non-GAAP adjusted professional services and other billings (2) $ 47,684   11 % $ 96,562   17 %
 
Total revenues:
GAAP total revenues $ 631,056 $ 448,258 41 % $ 1,220,278 $ 877,029 39 %
Effects of foreign currency rate fluctuations (15,556 ) (40,937 )
Non-GAAP adjusted total revenues (1) $ 615,500   37 % $ 1,179,341   34 %
 
Total billings:
GAAP total revenues $ 631,056 $ 448,258 41 % $ 1,220,278 $ 877,029 39 %
Change in total deferred revenue, unbilled receivables and customer
deposits
34,810   49,349   134,974   140,049  
Non-GAAP total billings 665,866 497,607 34 % 1,355,252 1,017,078 33 %
Effects of foreign currency rate fluctuations (16,362 ) (45,962 )
Effects of fluctuations in billings duration (583 ) 1,369  
Non-GAAP adjusted total billings (2) $ 648,921   30 % $ 1,310,659   29 %
 
Cost of revenues:
GAAP subscription cost of revenues $ 101,699 $ 75,793 $ 197,097 $ 146,168
Stock-based compensation (12,538 ) (8,942 ) (23,829 ) (16,880 )
Amortization of purchased intangibles (4,637 ) (3,696 ) (9,051 ) (7,268 )
Non-GAAP subscription cost of revenues $ 84,524   $ 63,155   $ 164,217   $ 122,020  
 
GAAP professional services and other cost of revenues $ 51,466 $ 46,335 $ 99,541 $ 92,044
Stock-based compensation (8,342 ) (7,617 ) (15,903 ) (14,492 )
Non-GAAP professional services and other cost of revenues $ 43,124   $ 38,718   $ 83,638   $ 77,552  
 
Gross profit (loss):
GAAP subscription gross profit $ 483,583 $ 326,879 $ 931,510 $ 644,088
Stock-based compensation 12,538 8,942 23,829 16,880
Amortization of purchased intangibles 4,637   3,696   9,051   7,268  
Non-GAAP subscription gross profit $ 500,758   $ 339,517   $ 964,390   $ 668,236  
 
GAAP professional services and other gross loss $ (5,692 ) $ (749 ) $ (7,870 ) $ (5,271 )
Stock-based compensation 8,342   7,617   15,903   14,492  
Non-GAAP professional services and other gross profit $ 2,650   $ 6,868   $ 8,033   $ 9,221  
 
GAAP gross profit $ 477,891 $ 326,130 $ 923,640 $ 638,817
Stock-based compensation 20,880 16,559 39,732 31,372
Amortization of purchased intangibles 4,637   3,696   9,051   7,268  
Non-GAAP gross profit $ 503,408   $ 346,385   $ 972,423   $ 677,457  
 
Gross margin:
GAAP subscription gross margin 83 % 81 % 83 % 82 %
Stock-based compensation as % of subscription revenues 2 % 2 % 1 % 2 %
Amortization of purchased intangibles as % of subscription revenues 1 % 1 % 1 % 1 %
Non-GAAP subscription gross margin 86 % 84 % 85 % 85 %
 
GAAP professional services and other gross margin (12 %) (2 %) (9 %) (6 %)
Stock-based compensation as % of professional services and other
revenues
18 % 17 % 18 % 17 %
Non-GAAP professional services and other gross margin 6 % 15 % 9 % 11 %
 
GAAP gross margin 76 % 73 % 76 % 73 %
Stock-based compensation as % of total revenues 3 % 4 % 3 % 4 %
Amortization of purchased intangibles as % of total revenues 1 %

0

% 1 %

0

%
Non-GAAP gross margin 80 % 77 % 80 % 77 %
 
Operating expenses:
GAAP sales and marketing expenses $ 310,869 $ 222,393 $ 594,570 $ 426,132
Stock-based compensation (57,069 ) (42,287 ) (109,151 ) (80,688 )
Amortization of purchased intangibles   (117 )   (234 )
Non-GAAP sales and marketing expenses $ 253,800   $ 179,989   $ 485,419   $ 345,210  
 
GAAP research and development expenses $ 127,916 $ 90,005 $ 245,184 $ 174,494
Stock-based compensation (33,780 ) (22,731 ) (62,378 ) (44,532 )
Amortization of purchased intangibles (455 ) (455 ) (910 ) (910 )
Non-GAAP research and development expenses $ 93,681   $ 66,819   $ 181,896   $ 129,052  
 
GAAP general and administrative expenses $ 71,095 $ 51,526 $ 136,158 $ 97,777
Stock-based compensation (23,831 ) (16,489 ) (45,640 ) (31,343 )
Amortization of purchased intangibles (959 ) (528 ) (1,835 ) (1,053 )
Business combination and other related costs (597 ) (1,131 ) (664 ) (1,350 )
Non-GAAP general and administrative expenses $ 45,708   $ 33,378   $ 88,019   $ 64,031  
 
GAAP total operating expenses $ 509,880 $ 363,924 $ 975,912 $ 698,403
Stock-based compensation (114,680 ) (81,507 ) (217,169 ) (156,563 )
Amortization of purchased intangibles (1,414 ) (1,100 ) (2,745 ) (2,197 )
Business combination and other related costs (597 ) (1,131 ) (664 ) (1,350 )
Non-GAAP total operating expenses $ 393,189   $ 280,186   $ 755,334   $ 538,293  
 
Income (loss) from operations:
GAAP loss from operations $ (31,989 ) $ (37,794 ) $ (52,272 ) $ (59,586 )
Stock-based compensation 135,560 98,066 256,901 187,935
Amortization of purchased intangibles 6,051 4,796 11,796 9,465
Business combination and other related costs 597   1,131   664   1,350  
Non-GAAP income from operations $ 110,219   $ 66,199   $ 217,089   $ 139,164  
 
Operating margin:
GAAP operating margin (5 %) (8 %) (4 %) (7 %)
Stock-based compensation as % of total revenues 21 % 22 % 21 % 22 %
Amortization of purchased intangibles as % of total revenues 1 % 1 % 1 % 1 %
Business combination and other related costs as % of total revenues 0 % 0 % 0 % 0 %
Non-GAAP operating margin 17 % 15 % 18 % 16 %
 
 
Net income (loss):
GAAP net loss $ (52,746 ) $ (55,804 ) $ (42,124 ) $ (77,318 )
Stock-based compensation 135,560 98,066 256,901 187,935
Amortization of purchased intangibles 6,051 4,796 11,796 9,465
Business combination and other related costs 597 1,131 664 1,350
Amortization of debt discount and issuance costs for the convertible
senior notes
15,498 11,337 32,562 20,015
Loss on early note conversions 3,093 3,873
Income tax expense effects related to the above adjustments (16,891 ) (20,280 ) (67,906 ) (47,329 )
Non-GAAP net income $ 91,162   $ 39,246   $ 195,766   $ 94,118  
 
Net income (loss) per share - basic and diluted:
GAAP net loss per share - basic and diluted $ (0.30 ) $ (0.33 ) $ (0.24 ) $ (0.46 )
Non-GAAP net income per share - basic $ 0.51   $ 0.23   $ 1.11   $ 0.55  
Non-GAAP net income per share - diluted $ 0.49   $ 0.22   $ 1.05   $ 0.53  
 
GAAP weighted-average shares used to compute net loss per share -
basic
177,343,176   170,419,083   176,418,984   169,585,356  
 
GAAP weighted-average shares used to compute net loss per share -
diluted
177,343,176 170,419,083 176,418,984 169,585,356
Effect of dilutive securities (stock options, restricted stock units
and warrants)
10,475,635   8,279,274   10,576,413   8,470,084  
Non-GAAP weighted-average shares used to compute net income per
share - diluted
187,818,811   178,698,357   186,995,397   178,055,440  
 
Free cash flow:
GAAP net cash provided by operating activities $ 125,896 $ 128,725 $ 375,976 $ 316,333
Purchases of property and equipment (52,991 ) (35,917 ) (88,362 ) (69,103 )
Repayments of convertible senior notes attributable to debt discount 78,897     87,557    
Non-GAAP free cash flow $ 151,802   $ 92,808   $ 375,171   $ 247,230  
 
Free cash flow margin:
GAAP net cash provided by operating activities as % of total revenues 20 % 29 % 31 % 36 %
Purchases of property and equipment as % of total revenues (8 %) (8 %) (7 %) (8 %)
Repayments of convertible senior notes attributable to debt discount
as % of total revenues
12 % % 7 % %
Non-GAAP free cash flow margin 24 % 21 % 31 % 28 %
(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.
 
   

ServiceNow, Inc.

Reconciliation of Non-GAAP Financial Guidance

 

The financial guidance provided below is an estimate based on
information available as of June 30, 2018. The comparison period
amounts and the related growth rates have been adjusted from
previously reported amounts to reflect the impact of the full
retrospective adoption of Topic 606. 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 March 31, 2018 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 quarter ended June 30,
2018. The company assumes no obligation to update any
forward-looking statements or information, which speak as of their
respective dates.

 
Three Months Ended  
September 30, 2018   September 30, 2017 (3) Growth Rates
 
GAAP subscription revenues $610 - $615 million $450 million 36% - 37%
 
Effects of foreign currency rate fluctuations 1 million
 
Non-GAAP adjusted subscription revenues (1) $611 - $616 million 36% - 37%
 
GAAP subscription revenues $610 - $615 million $450 million 36% - 37%
 
Change in subscription deferred revenue, unbilled receivables and
customer deposits
38 million 51 million
   
Non-GAAP subscription billings $648 - $653 million $501 million 29% - 30%
 
Effects of foreign currency rate fluctuations 2 million
 
Effects of fluctuations in billings duration (1) million
 
Non-GAAP adjusted subscription billings (2) $649 - $654 million 30% - 31%
 
GAAP operating margin 0%
 
Stock-based compensation expense as % of total revenues 20%
 
Amortization of purchased intangibles as % of total revenues 1%
 
Non-GAAP operating margin 21%
 
GAAP weighted-average shares used to compute net loss per share -
diluted
179 million
 
Effect of dilutive securities (stock options, restricted stock units
and warrants)
9 million
 
Non-GAAP weighted-average shares used to compute net income per
share - diluted
188 million
 
Twelve Months Ended  
December 31, 2018

December 31, 2017 (3)

Growth Rates
 
GAAP subscription revenues $2,405 - $2,415 million $1,740 million 38% - 39%
 
Effects of foreign currency rate fluctuations (33) million
 
Non-GAAP adjusted subscription revenues (1) $2,372 - $2,382 million 36% - 37%
 
GAAP subscription revenues $2,405 - $2,415 million $1,740 million 38% - 39%
 
Change in subscription deferred revenue, unbilled receivables and
customer deposits
410 million 384 million
   
Non-GAAP subscription billings $2,815 - $2,825 million $2,124 million 33%
 
Effects of foreign currency rate fluctuations (37) million
 
Effects of fluctuations in billings duration 1 million
 
Non-GAAP adjusted subscription billings (2) $2,779 - $2,789 million 31%
 
GAAP subscription gross margin 82%
 
Stock-based compensation expense as % of subscription revenues 2%
 
Amortization of purchased intangibles as % of subscription revenues 1%
 
Non-GAAP subscription margin 85%
 
GAAP operating margin (2%)
 
Stock-based compensation expense as % of total revenues 21%
 
Amortization of purchased intangibles as % of total revenues 1%
 
Business combination and other related costs as % of total revenues 0%
 
Non-GAAP operating margin 20%
 
GAAP net cash provided by operating activities as % of total revenues 28%
 
Purchases of property and equipment as % of total revenues (7%)
 
Repayments of convertible senior notes attributable to debt discount
as % of total revenues
6%
 
Non-GAAP free cash flow margin 27%
 
GAAP weighted-average shares used to compute net loss per share -
diluted
178 million
 
Effect of dilutive securities (stock options, restricted stock units
and warrants)
9 million
 
Non-GAAP weighted-average shares used to compute net income per
share - diluted
187 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.

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