ServiceNow Reports Second Quarter 2020 Financial Results
ServiceNow (NYSE: NOW), the leading digital workflow company making work, work better for people, today announced financial results for its second quarter ended June 30, 2020, with subscription revenues of $1,016 million in Q2 2020, representing 30% year-over-year growth, 32% adjusted for constant currency.
During the quarter, ServiceNow closed 40 transactions with more than $1 million, including two transactions over $10 million, in net new annual contract value (ACV). The company now has 964 total customers with more than $1 million in ACV, representing 26% year-over-year growth in customers.
“ServiceNow is leading the workflow revolution, proven by our very strong Q2 results,” said ServiceNow CEO Bill McDermott. “Businesses need to rapidly digitize workflows to deliver great experiences for their customers, employees, and partners. We are the strategic workflow authority helping our customers solve once-in-a-generation challenges and capitalize on the immense opportunities of digital transformation. Every day we are manifesting our purpose — making the world of work, work better for people — on our journey to becoming the defining enterprise software company of the 21st century.”
“In Q2, we achieved our $4 billion revenues run rate milestone. We exceeded the high end of our subscription revenues and billings guidance, while continuing to drive margin expansion and strong free cash flow,” said ServiceNow CFO Gina Mastantuono. “Our best-in-class renewal rate remained at 97%, and customers continue to expand on the Now Platform, giving us conviction to raise our growth and profitability guidance for the year. I am confident in our ability to deliver our second half.”
During the quarter, ServiceNow continued rapid innovation delivering the capabilities customers need to protect revenue, improve productivity, and ensure business resilience. The company released the Safe Workplace apps and dashboard, designed to help make returning to the workplace work for everyone. This suite has now been downloaded by more than 550 organizations worldwide. ServiceNow also hosted its Knowledge 2020 Digital Experience – its largest ever, creating a global digital broadcast environment to engage nearly double the number of customers and partners from last year. ServiceNow’s core business remained very strong. With Now workflows on the Now Platform — the platform of platforms — ServiceNow is accelerating digital transformation for its customers by enabling the consumer-grade workflow experiences that are more important than ever for their employees and customers.
Second Quarter 2020 GAAP and Non-GAAP Results:
The following table summarizes our financial results for the second quarter 2020:
Second Quarter 2020
GAAP Results
Second Quarter 2020 Non-GAAP Results(1)
Amount
($ millions)
Year/Year
Growth (%)
Amount
($ millions)
Year/Year
Growth (%)
Adjusted
Amount
($ millions)(2)
Adjusted
Year/Year
Growth (%)
Subscription revenues
$1,016
30%
$1,027
32%
Professional services and other revenues
$55
5%
$56
6%
Total revenues
$1,071
28%
$1,083
30%
Subscription billings
$1,018
25%
$1,033
26%
Professional services and other billings
$61
13%
$62
14%
Total billings
$1,079
24%
$1,095
26%
Amount
($ millions)
Margin (%)
Amount
($ millions)
Margin (%)
Subscription gross profit
$844
83%
$881
87%
Professional services and other gross profit (loss)
($6)
(10%)
$7
13%
Total gross profit
$838
78%
$888
83%
Income from operations
$62
6%
$295
28%
Net cash provided by operating activities
$368
34%
Free cash flow
$259
24%
Amount
($ millions)
Earnings per
Basic/Diluted
Share ($)
Amount
($ millions)
Earnings per
Basic/Diluted
Share ($)
Net income
$41
$0.21 / $0.20
$243
$1.27 / $1.23
(1)
We report non-GAAP financial measures in addition to, and not as a substitute for, or superior to, financial measures calculated in accordance with GAAP. See the section entitled “Statement Regarding Use of Non-GAAP Financial Measures” for an explanation of non-GAAP measures, and the table entitled “GAAP to Non-GAAP Reconciliation” for a reconciliation of GAAP to non-GAAP measures.
(2)Non-GAAP adjusted subscription revenues, professional services and other revenues, total revenues and professional services and other billings are adjusted for constant currency. Non-GAAP adjusted subscription billings and total billings are adjusted for constant currency and constant billings duration. See the section entitled “Statement Regarding Use of Non-GAAP Financial Measures” for an explanation of non-GAAP measures, and the table entitled “GAAP to Non-GAAP Reconciliation” for a reconciliation of GAAP to non-GAAP measures.
Note: Numbers rounded for presentation purposes.
Financial Outlook
Our guidance includes GAAP and non-GAAP financial measures.
The following table summarizes our guidance for the third quarter 2020:
Third Quarter 2020
GAAP Guidance
Third Quarter 2020 Non-GAAP Guidance(1)
Amount
($ millions)(2)
Year/Year
Growth (%)
Amount
($ millions)(2)
Year/Year
Growth (%)
Adjusted
Amount
($ millions)(3)
Adjusted
Year/ Year
Growth (%)
Subscription revenues
$1,055 - $1,060
26% - 27%
$1,055 - $1,060
26% - 27%
Subscription billings
$995 - $1,015
15% - 17%
$1,003 - $1,023
16% - 18%
Margin (%)
Income from operations
22%
Amount
(millions)
Weighted-average shares used to compute diluted net income per share
199
(1)
We report non-GAAP financial measures in addition to, and not as a substitute for, or superior to, financial measures calculated in accordance with GAAP. See the section entitled “Statement Regarding Use of Non-GAAP Financial Measures” for an explanation of non-GAAP measures, and the table entitled “Reconciliation of Non-GAAP Financial Guidance” for a reconciliation of GAAP to non-GAAP measures.
(2)Guidance for GAAP subscription revenues and non-GAAP subscription billings is based on foreign exchange rates as of June 30, 2020 for entities reporting in currencies other than U.S. Dollars.
(3)Non-GAAP adjusted subscription revenues are adjusted for constant currency. Non-GAAP adjusted subscription billings are adjusted for constant currency and constant billings duration. See the section entitled “Statement Regarding Use of Non-GAAP Financial Measures” for an explanation of non-GAAP measures, and the table entitled “Reconciliation of Non-GAAP Financial Guidance” for a reconciliation of GAAP to non-GAAP measures.
The following table summarizes our guidance for full-year 2020:
Full-Year 2020
GAAP Guidance
Full-Year 2020 Non-GAAP Guidance(1)
Amount
($ millions)(2)
Year/Year
Growth (%)
Amount
($ millions)(2)
Year/Year
Growth (%)
Adjusted
Amount
($ millions)(3)
Adjusted
Year/ Year
Growth (%)
Subscription revenues
$4,185 - $4,200
29%
$4,210 - $4,225
29% - 30%
Subscription billings
$4,660 - $4,700
23% - 24%
$4,702 - $4,742
24% - 25%
Margin (%)
Subscription gross profit
86%
Income from operations
24%
Free cash flow
29.5%
Amount
(millions)
Weighted-average shares used to compute diluted net income per share
198
(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 2020 guidance are based on foreign exchange rates as of June 30, 2020 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.
As with our previously issued full-year 2020 guidance dated April 29, 2020, our guidance factors in assumptions regarding the expected impacts of COVID-19 on our business. This assumes that generally the most significant headwinds would occur in the second and third quarter of 2020, that there will be uncertainty around new business, renewal timing or billings terms, particularly with customers in industries highly affected by COVID-19, and that these economic conditions could persist throughout the remainder of the year. These assumptions are based on information available to us today. Significant variation from these assumptions could cause us to modify our guidance higher or lower.
The following table compares our updated full-year 2020 guidance against our previously issued full-year 2020 guidance dated April 29, 2020:
Comparison of Updated Full-Year 2020 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
$4,135
$19
$0
$39
$4,193
Non-GAAP subscription billings(6)
$4,630
$22
$0
$28
$4,680
(1)
Numbers rounded for presentation purposes.
(2)Refers to previously issued full-year 2020 guidance dated April 29, 2020.
(3)GAAP subscription revenues and non-GAAP subscription billings for the future quarters included in our full-year 2020 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 Q2 2020 actual results and the rates as of March 31, 2020 assumed in our previously issued guidance dated April 29, 2020 plus (ii) the impact of the difference between the exchange rates in effect as of June 30, 2020 assumed in our updated full-year 2020 guidance, and the rates as of March 31, 2020 assumed in our previously issued guidance dated April 29, 2020.
(4)Represents the impact of billings greater than 12 months in excess of guidance assumptions.
(5)Represents the updated full-year 2020 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 July 29, 2020. Interested parties may listen to the call by dialing (833) 513-0567 (Passcode: 3395375), or if outside North America, by dialing (236) 714-2186 (Passcode: 3395375). Individuals may access the live teleconference from this webcast link:
https://event.on24.com/wcc/r/2399486/795C3DADBA1B185511D571A263A6CCAE
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: 3395375), or if outside North America, by dialing (416) 621-4642 (Passcode: 3395375).
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.
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 Q2 2019, the average exchange rates in effect for our major currencies were 1 USD to 0.8899 Euros and 1 USD to 0.7781 British Pound Sterling (GBP)), rather than the actual average exchange rates in effect during the current period (for Q2 2020, the average exchange rates in effect for our major currencies were 1 USD to 0.9083 Euros and 1 USD to 0.8059 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, Net income and Net income per share - diluted. Our non-GAAP presentation of gross profit, income from operations, and net income measures exclude certain non-cash or non-recurring items, including stock-based compensation expense, amortization of debt discount and issuance costs related to our convertible senior notes, loss on early note conversions, amortization of purchased intangibles, legal settlements, business combination and other related costs, and the related income tax effect of these adjustments. The non-GAAP weighted-average shares used to compute our non-GAAP net income per share - diluted excludes the dilutive effect of the in-the-money portion of convertible senior notes as they are covered by our note hedges, and includes the dilutive effect of time-based stock awards, the dilutive effect of warrants and the potentially dilutive effect of our stock awards with performance conditions not yet satisfied at forecasted attainment levels to the extent we believe it is probable that the performance condition will be met. We believe these adjustments provide useful supplemental information to investors and facilitates the analysis of our operating results and comparison of operating results across reporting periods. Free cash flow. Free cash flow is defined as net cash provided by (used in) operating activities plus cash paid for legal settlements 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 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) the impact and duration of the health impact of COVID-19 and the economic impact of safety measures to mitigate its impact, including the effectiveness, extent and duration of efforts to limit the spread and impact of the disease, such as “shelter in place” and similar government directives; (ii) our ability to compete successfully against existing and new competitors, (iii) our ability to comply with evolving privacy laws, data transfer restrictions, and other foreign and domestic standards related to data and the Internet, (iv) our ability to predict, prepare for and respond promptly to rapidly evolving technological, market and customer developments, (v) errors, interruptions, delays, or security breaches in or of our service or data centers, (vi) our ability to grow our business, including converting remaining performance obligations into revenue, adding and retaining customers, selling additional subscriptions to existing customers, selling to larger enterprises, government and regulated organizations with complex sales cycles and certification processes, and entering new geographies and markets, (vii) our ability to develop and gain customer acceptance of new and improved products and services, including those acquired through strategic transactions, and (viii) material changes in the value of foreign currencies relative to the U.S. Dollar. Additionally, these forward-looking statements, particularly our guidance, involve risk, uncertainties and assumptions, including those related to the continued impacts of COVID-19 on our business and global economic conditions. Many of these assumptions relate to matters that are beyond our control and changing rapidly, including, but not limited to, the timeframes for and severity of social distancing and other mitigation requirements, the continued impact of COVID-19 on our customers’ purchasing decisions and the length of our sales cycles, particularly for customers in certain industries highly affected by COVID-19. Significant variation from the assumptions underlying our forward-looking statements could cause our actual results to vary, and the impact could be significant.
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 June 30, 2020 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, 2019.
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.
© 2020 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 per share data)
(unaudited)
Three Months Ended
Six Months Ended
June 30, 2020
June 30, 2019
June 30, 2020
June 30, 2019
Revenues:
Subscription
$
1,015,528
$
780,989
$
2,010,230
$
1,520,975
Professional services and other
55,314
52,915
106,952
101,855
Total revenues
1,070,842
833,904
2,117,182
1,622,830
Cost of revenues (1):
Subscription
171,934
135,479
331,655
262,068
Professional services and other
61,005
62,668
124,650
122,331
Total cost of revenues
232,939
198,147
456,305
384,399
Gross profit
837,903
635,757
1,660,877
1,238,431
Operating expenses (1):
Sales and marketing
426,519
393,895
867,753
755,304
Research and development
245,081
183,420
471,738
355,942
General and administrative
104,037
85,442
209,785
169,898
Total operating expenses
775,637
662,757
1,549,276
1,281,144
Income (loss) from operations
62,266
(27,000
)
111,601
(42,713
)
Interest expense
(8,488
)
(8,269
)
(17,058
)
(16,437
)
Interest income and other income, net
8,252
18,954
15,849
31,379
Income (loss) before income taxes
62,030
(16,315
)
110,392
(27,771
)
Provision for (benefit from) income taxes
21,264
(5,236
)
21,395
(15,147
)
Net income (loss)
$
40,766
$
(11,079
)
$
88,997
$
(12,624
)
Net income (loss) per share - basic
$
0.21
$
(0.06
)
$
0.47
$
(0.07
)
Net income (loss) per share - diluted
$
0.20
$
(0.06
)
$
0.44
$
(0.07
)
Weighted-average shares used to compute net income (loss) per share - basic
191,319
186,678
190,731
184,419
Weighted-average shares used to compute net income (loss) per share - diluted
201,453
186,678
200,843
184,419
(1) Includes stock-based compensation as follows:
Three Months Ended
Six Months Ended
June 30, 2020
June 30, 2019
June 30, 2020
June 30, 2019
Cost of revenues:
Subscription
$
24,960
$
19,117
$
46,484
$
35,139
Professional services and other
12,791
10,951
24,803
20,882
Operating expenses:
Sales and marketing
78,967
69,229
149,127
131,359
Research and development
70,163
50,041
129,066
93,623
General and administrative
29,959
22,422
55,645
48,207
ServiceNow, Inc.
Condensed Consolidated Balance Sheets
(in thousands)
(unaudited)
June 30, 2020
December 31, 2019
Assets
Current assets:
Cash and cash equivalents
$
837,309
$
775,778
Short-term investments
1,505,362
915,317
Accounts receivable, net
631,992
835,279
Current portion of deferred commissions
191,877
175,039
Prepaid expenses and other current assets
170,582
125,488
Total current assets
3,337,122
2,826,901
Deferred commissions, less current portion
355,684
333,448
Long-term investments
776,807
1,013,332
Property and equipment, net
547,253
468,085
Operating lease right-of-use assets
463,220
402,428
Intangible assets, net
163,857
143,850
Goodwill
211,416
156,756
Deferred tax assets
594,155
599,633
Other assets
71,795
77,997
Total assets
$
6,521,309
$
6,022,430
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable
$
85,757
$
52,960
Accrued expenses and other current liabilities
446,653
461,403
Current portion of deferred revenue
2,250,719
2,185,754
Current portion of operating lease liabilities
65,742
52,668
Total current liabilities
2,848,871
2,752,785
Deferred revenue, less current portion
31,399
40,038
Operating lease liabilities, less current portion
436,499
383,221
Convertible senior notes, net
696,123
694,981
Other long-term liabilities
29,611
23,464
Stockholders’ equity
2,478,806
2,127,941
Total liabilities and stockholders’ equity
$
6,521,309
$
6,022,430
ServiceNow, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
Three Months Ended
Six Months Ended
June 30, 2020
June 30, 2019
June 30, 2020
June 30, 2019
Cash flows from operating activities:
Net income (loss)
$
40,766
$
(11,079
)
$
88,997
$
(12,624
)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization
82,390
60,328
158,628
115,777
Amortization of deferred commissions
51,734
39,974
101,215
79,531
Amortization of debt discount and issuance costs
8,488
8,269
17,058
16,437
Stock-based compensation
216,840
171,760
405,125
329,210
Deferred income taxes
(1,650
)
(1,593
)
(3,177
)
(3,073
)
Repayments of convertible senior notes attributable to debt discount
(1,693
)
—
(1,975
)
—
Unrealized gains on non-marketable equity securities
(2,007
)
(2,932
)
(1,944
)
(2,932
)
Other
(906
)
(1,115
)
1,302
(391
)
Changes in operating assets and liabilities, net of effect of business combinations:
Accounts receivable
(8,774
)
(79,751
)
200,015
71,354
Deferred commissions
(73,184
)
(50,595
)
(143,981
)
(97,194
)
Prepaid expenses and other assets
(12,038
)
5,176
(32,429
)
(28,483
)
Accounts payable
16,645
18,531
37,324
25,093
Deferred revenue
9,401
38,820
69,248
100,190
Accrued expenses and other liabilities
42,042
47,942
(35,784
)
11,688
Net cash provided by operating activities
368,054
243,735
859,622
604,583
Cash flows from investing activities:
Purchases of property and equipment
(110,464
)
(49,896
)
(193,671
)
(97,020
)
Business combinations, net of cash acquired
—
—
(82,948
)
—
Purchases of intangibles
(6,500
)
(36,160
)
(6,500
)
(36,160
)
Purchases of investments
(579,919
)
(361,859
)
(1,107,738
)
(800,641
)
Sales and maturities of investments
452,824
245,433
765,384
508,318
Realized gains (losses) on derivatives not designated as hedging instruments, net
984
(35
)
(2,636
)
22,113
Net cash used in investing activities
(243,075
)
(202,517
)
(628,109
)
(403,390
)
Cash flows from financing activities:
Repayments of convertible senior notes attributable to principal
(13,502
)
—
(15,738
)
—
Proceeds from employee stock plans
24,148
10,207
91,056
63,300
Taxes paid related to net share settlement of equity awards
(112,857
)
(108,126
)
(238,557
)
(247,619
)
Net cash used in financing activities
(102,211
)
(97,919
)
(163,239
)
(184,319
)
Foreign currency effect on cash, cash equivalents and restricted cash
5,787
207
(4,862
)
1,286
Net increase (decrease) in cash, cash equivalents and restricted cash
28,555
(56,494
)
63,412
18,160
Cash, cash equivalents and restricted cash at beginning of period
812,848
643,192
777,991
568,538
Cash, cash equivalents and restricted cash at end of period
$
841,403
$
586,698
$
841,403
$
586,698
ServiceNow, Inc.
GAAP to Non-GAAP Reconciliation
(in thousands, except per share data)
(unaudited)
Three Months Ended
Six Months Ended
June 30, 2020
June 30, 2019
Growth Rates
June 30, 2020
June 30, 2019
Growth Rates
Subscription revenues:
GAAP subscription revenues
$
1,015,528
$
780,989
30%
$
2,010,230
$
1,520,975
32%
Effects of foreign currency rate fluctuations
11,531
23,106
Non-GAAP adjusted subscription revenues(1)
$
1,027,059
32%
$
2,033,336
34%
Subscription billings:
GAAP subscription revenues
$
1,015,528
$
780,989
30%
$
2,010,230
$
1,520,975
32%
Change in subscription deferred revenue, unbilled receivables and customer deposits
2,704
35,915
63,061
105,526
Non-GAAP subscription billings
1,018,232
816,904
25%
2,073,291
1,626,501
27%
Effects of foreign currency rate fluctuations
12,121
23,904
Effects of fluctuations in billings duration
2,774
899
Non-GAAP adjusted subscription billings(2)
$
1,033,127
26%
$
2,098,094
29%
Professional services and other revenues:
GAAP professional services and other revenues
$
55,314
$
52,915
5%
$
106,952
$
101,855
5%
Effects of foreign currency rate fluctuations
720
1,639
Non-GAAP adjusted professional service and other revenues(1)
$
56,034
6%
$
108,591
7%
Professional services and other billings:
GAAP professional services and other revenues
$
55,314
$
52,915
5%
$
106,952
$
101,855
5%
Change in professional services and other deferred revenue
5,670
1,196
2,163
190
Non-GAAP professional services and other billings
60,984
54,111
13%
109,115
102,045
7%
Effects of foreign currency rate fluctuations
720
1,639
Non-GAAP adjusted professional services and other billings(2)
$
61,704
14%
$
110,754
9%
Total revenues:
GAAP total revenues
$
1,070,842
$
833,904
28%
$
2,117,182
$
1,622,830
30%
Effects of foreign currency rate fluctuations
12,251
24,745
Non-GAAP adjusted total revenues(1)
$
1,083,093
30%
$
2,141,927
32%
Total billings:
GAAP total revenues
$
1,070,842
$
833,904
28%
$
2,117,182
$
1,622,830
30%
Change in total deferred revenue, unbilled receivables and customer deposits
8,374
37,111
65,224
105,716
Non-GAAP total billings
1,079,216
871,015
24%
2,182,406
1,728,546
26%
Effects of foreign currency rate fluctuations
12,841
25,543
Effects of fluctuations in billings duration
2,774
899
Non-GAAP adjusted total billings(2)
$
1,094,831
26%
$
2,208,848
28%
Cost of revenues:
GAAP subscription cost of revenues
$
171,934
$
135,479
$
331,655
$
262,068
Stock-based compensation
(24,960
)
(19,117
)
(46,484
)
(35,139
)
Amortization of purchased intangibles
(11,998
)
(5,614
)
(18,854
)
(10,314
)
Non-GAAP subscription cost of revenues
$
134,976
$
110,748
$
266,317
$
216,615
GAAP professional services and other cost of revenues
$
61,005
$
62,668
$
124,650
$
122,331
Stock-based compensation
(12,791
)
(10,951
)
(24,803
)
(20,882
)
Non-GAAP professional services and other cost of revenues
$
48,214
$
51,717
$
99,847
$
101,449
Gross profit (loss):
GAAP subscription gross profit
$
843,594
$
645,510
$
1,678,575
$
1,258,907
Stock-based compensation
24,960
19,117
46,484
35,139
Amortization of purchased intangibles
11,998
5,614
18,854
10,314
Non-GAAP subscription gross profit
$
880,552
$
670,241
$
1,743,913
$
1,304,360
GAAP professional services and other gross loss
$
(5,691
)
$
(9,753
)
$
(17,698
)
$
(20,476
)
Stock-based compensation
12,791
10,951
24,803
20,882
Non-GAAP professional services and other gross profit
$
7,100
$
1,198
$
7,105
$
406
GAAP gross profit
$
837,903
$
635,757
$
1,660,877
$
1,238,431
Stock-based compensation
37,751
30,068
71,287
56,021
Amortization of purchased intangibles
11,998
5,614
18,854
10,314
Non-GAAP gross profit
$
887,652
$
671,439
$
1,751,018
$
1,304,766
Gross margin:
GAAP subscription gross margin
83
%
83
%
84
%
83
%
Stock-based compensation as % of subscription revenues
2
%
2
%
2
%
2
%
Amortization of purchased intangibles as % of subscription revenues
2
%
1
%
1
%
1
%
Non-GAAP subscription gross margin
87
%
86
%
87
%
86
%
GAAP professional services and other gross margin
(10
%)
(18
%)
(17
%)
(20
%)
Stock-based compensation as % of professional services and other revenues
23
%
20
%
24
%
20
%
Non-GAAP professional services and other gross margin
13
%
2
%
7
%
0
%
GAAP gross margin
78
%
76
%
78
%
76
%
Stock-based compensation as % of total revenues
4
%
4
%
4
%
3
%
Amortization of purchased intangibles as % of total revenues
1
%
1
%
1
%
1
%
Non-GAAP gross margin
83
%
81
%
83
%
80
%
Operating expenses:
GAAP sales and marketing expenses
$
426,519
$
393,895
$
867,753
$
755,304
Stock-based compensation
(78,967
)
(69,229
)
(149,127
)
(131,359
)
Amortization of purchased intangibles
(311
)
—
(622
)
—
Non-GAAP sales and marketing expenses
$
347,241
$
324,666
$
718,004
$
623,945
GAAP research and development expenses
$
245,081
$
183,420
$
471,738
$
355,942
Stock-based compensation
(70,163
)
(50,041
)
(129,066
)
(93,623
)
Amortization of purchased intangibles
(455
)
(455
)
(910
)
(910
)
Non-GAAP research and development expenses
$
174,463
$
132,924
$
341,762
$
261,409
GAAP general and administrative expenses
$
104,037
$
85,442
$
209,785
$
169,898
Stock-based compensation
(29,959
)
(22,422
)
(55,645
)
(48,207
)
Amortization of purchased intangibles
(1,939
)
(1,950
)
(4,632
)
(3,837
)
Business combination and other related costs
(1,186
)
(173
)
(4,061
)
(146
)
Non-GAAP general and administrative expenses
$
70,953
$
60,897
$
145,447
$
117,708
GAAP total operating expenses
$
775,637
$
662,757
$
1,549,276
$
1,281,144
Stock-based compensation
(179,089
)
(141,692
)
(333,838
)
(273,189
)
Amortization of purchased intangibles
(2,705
)
(2,405
)
(6,164
)
(4,747
)
Business combination and other related costs
(1,186
)
(173
)
(4,061
)
(146
)
Non-GAAP total operating expenses
$
592,657
$
518,487
$
1,205,213
$
1,003,062
Income (loss) from operations:
GAAP income (loss) from operations
$
62,266
$
(27,000
)
$
111,601
$
(42,713
)
Stock-based compensation
216,840
171,760
405,125
329,210
Amortization of purchased intangibles
14,703
8,019
25,018
15,061
Business combination and other related costs
1,186
173
4,061
146
Non-GAAP income from operations
$
294,995
$
152,952
$
545,805
$
301,704
Operating margin:
GAAP operating margin
6
%
(3
%)
5
%
(3
%)
Stock-based compensation as % of total revenues
20
%
21
%
19
%
20
%
Amortization of purchased intangibles as % of total revenues
2
%
0
%
2
%
2
%
Business combination and other related costs as % of total revenues
0
%
0
%
0
%
0
%
Non-GAAP operating margin
28
%
18
%
26
%
19
%
Net income (loss):
GAAP net income (loss)
$
40,766
$
(11,079
)
$
88,997
$
(12,624
)
Stock-based compensation
216,840
171,760
405,125
329,210
Amortization of purchased intangibles
14,703
8,019
25,018
15,061
Business combination and other related costs
1,186
173
4,061
146
Amortization of debt discount and issuance costs for the convertible senior notes
8,488
8,269
17,058
16,437
Loss on early note conversions
817
—
907
—
Income tax expense effects related to the above adjustments
(39,549
)
(39,617
)
(91,117
)
(81,763
)
Non-GAAP net income
$
243,251
$
137,525
$
450,049
$
266,467
Net income (loss) per share - basic and diluted:
GAAP net income (loss) per share - basic
$
0.21
$
(0.06
)
$
0.47
$
(0.07
)
GAAP net income (loss) per share - diluted
$
0.20
$
(0.06
)
$
0.44
$
(0.07
)
Non-GAAP net income per share - basic
$
1.27
$
0.74
$
2.36
$
1.44
Non-GAAP net income per share - diluted
$
1.23
$
0.71
$
2.28
$
1.38
GAAP weighted-average shares used to compute net income (loss) per share - basic
191,319
186,678
190,731
184,419
GAAP weighted-average shares used to compute net income (loss) per share - diluted
201,453
186,678
200,843
184,419
Effects of dilutive time-based stock awards(3)
—
6,100
—
6,199
Effects of in-the-money portion of convertible senior notes(3)
(3,510
)
—
(3,414
)
—
Effects of warrants(3)
—
1,584
—
2,617
Effects of stock awards with performance conditions not yet satisfied(3)
19
100
1
43
Non-GAAP weighted-average shares used to compute net income per share - diluted
197,962
194,462
197,430
193,278
Free cash flow:
GAAP net cash provided by operating activities
$
368,054
$
243,735
$
859,622
$
604,583
Purchases of property and equipment
(110,464
)
(49,896
)
(193,671
)
(97,020
)
Repayments of convertible senior notes attributable to debt discount
1,693
—
1,975
—
Non-GAAP free cash flow
$
259,283
$
193,839
$
667,926
$
507,563
Free cash flow margin:
GAAP net cash provided by operating activities as % of total revenues
34
%
29
%
41
%
37
%
Purchases of property and equipment as % of total revenues
(10
%)
(6
%)
(9
%)
(6
%)
Repayments of convertible senior notes attributable to debt discount as % of total revenues
0
%
—
%
0
%
—
%
Non-GAAP free cash flow margin
24
%
23
%
32
%
31
%
(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 June 30, 2020. 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-K for the year ended December 31, 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 June 30, 2020. 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, 2020
September 30, 2019(3)
Growth Rates
GAAP subscription revenues
$1,055 - $1,060 million
$835 million
26% - 27%
Effects of foreign currency rate fluctuations
NM(5)
Non-GAAP adjusted subscription revenues(1)
$1,055 - $1,060 million
26% - 27%
GAAP subscription revenues
$1,055 - $1,060 million
$835 million
26% - 27%
Change in subscription deferred revenue, unbilled receivables and customer deposits
(60) - (45) million
$29 million
Non-GAAP subscription billings
$995 - $1,015 million
$864 million
15% - 17%
Effects of foreign currency rate fluctuations
NM(5)
Effects of fluctuations in billings duration
8 million
Non-GAAP adjusted subscription billings(2)
$1,003 - $1,023 million
16% - 18%
GAAP operating margin
1%
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
22%
GAAP weighted-average shares used to compute net income per share - diluted
203 million
Effects of in-the-money portion of convertible senior notes(4)
(4) million
Non-GAAP weighted-average shares used to compute net income per share - diluted
199 million
Twelve Months Ended
December 31, 2020
December 31, 2019(3)
Growth Rates
GAAP subscription revenues
$4,185 - $4,200 million
$3,255 million
29%
Effects of foreign currency rate fluctuations
25 million
Non-GAAP adjusted subscription revenues(1)
$4,210 - $4,225 million
29% - 30%
GAAP subscription revenues
$4,185 - $4,200 million
$3,255 million
29%
Change in subscription deferred revenue, unbilled receivables and customer deposits
475 - 500 million
533 million
Non-GAAP subscription billings
$4,660 - $4,700 million
$3,788 million
23% - 24%
Effects of foreign currency rate fluctuations
28 million
Effects of fluctuations in billings duration
14 million
Non-GAAP adjusted subscription billings(2)
$4,702 - $4,742 million
24% - 25%
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
4%
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
24%
GAAP net cash provided by operating activities as % of total revenues
37.5%
Purchases of property and equipment as % of total revenues
(8%)
Repayments of convertible senior notes attributable to debt discount as % of total revenues
0%
Non-GAAP free cash flow margin
29.5%
GAAP weighted-average shares used to compute net income per share - diluted
201 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
198 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.
(5)NM - Not meaningful.
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