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ServiceNow Reports Financial Results for Fourth Quarter and Fiscal Year 2016

SANTA CLARA, Calif.--(BUSINESS WIRE)--Jan. 25, 2017-- ServiceNow® (NYSE: NOW), the enterprise cloud company, today announced the financial results for its fourth quarter and fiscal year 2016.

Fourth Quarter 2016 GAAP Results:

  • Subscription revenues of $344.6 million, representing 41% year-over-year growth.
  • Professional services and other revenues of $41.1 million, representing 0% year-over-year growth.
  • Total revenues of $385.7 million, representing 35% year-over-year growth.
  • Subscription gross profit of $279.9 million, representing 81% of subscription revenues.
  • Professional services and other gross profit of $0.8 million, representing 2% of professional services and other revenues.
  • Total gross profit of $280.7 million, representing 73% of total revenues.
  • Loss from operations of $23.6 million, representing negative 6% of total revenues.
  • Net loss of $32.6 million, or loss of $0.20 per basic and diluted share.
  • Net cash provided by operating activities of $132.7 million, representing 34% of total revenues.

Fourth Quarter 2016 Non-GAAP Results:

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. For the following non-GAAP results, see the section entitled “Statement Regarding Use of Non-GAAP Financial Measures” for an explanation of non-GAAP measures and the corresponding growth rates, and the table entitled “GAAP to Non-GAAP Reconciliation” for a reconciliation of non-GAAP to GAAP measures and corresponding growth rates.

  • Subscription revenues of $350.3 million, representing 43% year-over-year growth adjusted for constant currency.
  • Professional services and other revenues of $41.4 million, representing 1% year-over-year growth adjusted for constant currency.
  • Total revenues of $391.7 million, representing 37% year-over-year growth adjusted for constant currency.
  • Subscription billings of $483.9 million, representing 52% year-over-year growth (or $457.0 million, representing 44% year-over-year growth adjusted for constant currency and constant weighted average billings duration).
  • Professional services and other billings of $50.9 million, representing 6% year-over-year growth (or $51.2 million, representing 7% year-over-year growth adjusted for constant currency).
  • Total billings of $534.8 million, representing 46% year-over-year growth (or $508.2 million, representing 39% year-over-year growth adjusted for constant currency and constant weighted average billings duration).
  • Subscription gross profit of $291.0 million, representing 84% of subscription revenues.
  • Professional services and other gross profit of $7.2 million, representing 18% of professional services and other revenues.
  • Total gross profit of $298.2 million, representing 77% of total revenues.
  • Income from operations of $63.8 million, representing 17% of total revenues.
  • Net income of $42.4 million, or earnings of $0.25 per basic share and $0.24 per diluted share.
  • Free cash flow of $111.2 million, representing 29% of total revenues.

Fiscal Year 2016 GAAP Results:

  • Subscription revenues of $1,221.6 million, representing 44% year-over-year growth.
  • Professional services and other revenues of $168.9 million, representing 7% year-over-year growth.
  • Total revenues of $1,390.5 million, representing 38% year-over-year growth.
  • Subscription gross profit of $986.2 million, representing 81% of subscription revenues.
  • Professional services and other gross profit of $5.6 million, representing 3% of professional services and other revenues.
  • Total gross profit of $991.8 million, representing 71% of total revenues.
  • Loss from operations of $422.8 million, representing negative 30% of total revenues.
  • Net loss of $451.8 million, or loss of $2.75 per basic and diluted share.
  • Net cash provided by operating activities of $159.9 million, representing 12% of total revenues.

Fiscal Year 2016 Non-GAAP Results:

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. For the following non-GAAP results, see the section entitled “Statement Regarding Use of Non-GAAP Financial Measures” for an explanation of non-GAAP measures and the corresponding growth rates, and the table entitled “GAAP to Non-GAAP Reconciliation” for a reconciliation of non-GAAP to GAAP measures and corresponding growth rates.

  • Subscription revenues of $1,227.9 million, representing 45% year-over-year growth adjusted for constant currency.
  • Professional services and other revenues of $169.1 million, representing 8% year-over-year growth adjusted for constant currency.
  • Total revenues of $1,397.0 million, representing 39% year-over-year growth adjusted for constant currency.
  • Subscription billings of $1,510.7 million, representing 46% year-over-year growth (or $1,494.3 million, representing 44% year-over-year growth adjusted for constant currency and constant weighted average billings duration).
  • Professional services and other billings of $180.0 million, representing 10% year-over-year growth (or $180.2 million, representing 10% year-over-year growth adjusted for constant currency).
  • Total billings of $1,690.7 million, representing 41% year-over-year growth (or $1,674.5 million, representing 39% year-over-year growth adjusted for constant currency and constant weighted average billings duration).
  • Subscription gross profit of $1,027.3 million, representing 84% of subscription revenues.
  • Professional services and other gross profit of $32.0 million, representing 19% of professional services and other revenues.
  • Total gross profit of $1,059.3 million, representing 76% of total revenues.
  • Income from operations of $180.9 million, representing 13% of total revenues.
  • Net income of $121.9 million, or earnings of $0.74 per basic share and $0.70 per diluted share.
  • Free cash flow of $321.9 million, representing 23% of total revenues.

“We finished 2016 with strong momentum and our business is firing on all cylinders,” said Frank Slootman, chairman and chief executive officer, ServiceNow. “Total revenues in 2016 grew 38% making ServiceNow the fastest growing enterprise software company with more than $1 billion in revenue.”

“Total backlog and deferred revenue at the end of 2016 was $2.8 billion, a 51% annual increase, up from a 35% annual increase in the prior year,” said Michael Scarpelli, chief financial officer, ServiceNow. “Strength in Q4 was driven by a record 27 new deals greater than $1 million in net new annualized contract value, and 31 net new Global 2000 customer wins.”

Financial Outlook

The forward-looking financial guidance discussed below is on a non-GAAP basis. See the section entitled “Statement Regarding Use of Non-GAAP Financial Measures” for an explanation of non-GAAP measures and the corresponding growth rates, and the table entitled “Reconciliation of Non-GAAP Financial Guidance” for a reconciliation of non-GAAP to GAAP metrics and corresponding growth rates. Our guidance is based on foreign exchange rates as of December 31, 2016.

For the first quarter of 2017, we expect:

  • Subscription revenues between $366 and $370 million, representing 37% to 38% year-over-year growth (or between $375 and $379 million, representing 40% to 42% year-over-year growth adjusted for constant currency).
  • Professional services and other revenues between $40 and $41 million, representing 4% to 7% year-over-year growth (or between $41 and $42 million, representing 7% to 9% year-over-year growth adjusted for constant currency).
  • Total revenues between $406 and $411 million, representing 33% to 34% year-over-year growth (or between $416 and $421 million, representing 36% to 38% year-over-year growth adjusted for constant currency).
  • Subscription billings between $443 and $447 million, representing 34% to 35% year-over-year growth (or between $450 and $454 million, representing 36% to 37% year-over-year growth adjusted for constant currency and constant weighted average billings duration).
  • Professional services and other billings between $47 and $48 million, representing 4% to 6% year-over-year growth (or between $48 and $49 million, representing 6% to 8% year-over-year growth adjusted for constant currency).
  • Total billings between $490 and $495 million, representing 30% to 31% year-over-year growth (or between $498 and $503 million, representing 32% to 34% year-over-year growth adjusted for constant currency and constant weighted average billings duration).
  • Operating margin of 11%.
  • Weighted average shares used to compute diluted net income per share of approximately 177 million shares.

For the full year 2017, we expect:

  • Subscription revenues between $1,635 and $1,655 million, representing 34% to 35% year-over-year growth (or between $1,670 and $1,690 million, representing 37% to 38% year-over-year growth adjusted for constant currency).
  • Professional services and other revenues between $185 and $195 million, representing 10% to 15% year-over-year growth (or between $190 and $200 million, representing 13% to 18% year-over-year growth adjusted for constant currency).
  • Total revenues between $1,820 and $1,850 million, representing 31% to 33% year-over-year growth (or between $1,860 and $1,890 million, representing 34% to 36% year-over-year growth adjusted for constant currency).
  • Subscription billings between $1,970 and $1,990 million, representing 30% to 32% year-over-year growth (or between $2,058 and $2,078 million, representing 36% to 38% year-over-year growth adjusted for constant currency and constant weighted average billings duration).
  • Professional services and other billings between $195 and $205 million, representing 8% to 14% year-over-year growth (or between $200 and $210 million, representing 11% to 17% year-over-year growth adjusted for constant currency).
  • Total billings between $2,165 and $2,195 million, representing 28% to 30% year-over-year growth (or between $2,258 and $2,288 million, representing 34% to 35% year-over-year growth adjusted for constant currency and constant weighted average billings duration).
  • Subscription gross margin of 84%.
  • Professional services and other gross margin of 20%.
  • Total gross margin of 77%.
  • Operating margin of 16%.
  • Free cash flow margin of 24%.
  • Weighted average shares used to compute diluted net income per share of approximately 179 million shares.

Conference Call Details

The conference call will begin at 2 p.m. Pacific Time (22:00 GMT) on Wednesday, Jan. 25, 2017. Interested parties may listen to the call by dialing 844.464.3153 (passcode: 38496501), or if outside North America, by dialing +1.508.637.5575 (passcode: 38496501). Individuals may access the live teleconference from the investor relations section of the ServiceNow website at http://investors.servicenow.com.

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: 38496501), or if outside North America, by dialing +1.404.537.3406 (passcode: 38496501).

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 non-GAAP financial measures in addition to, and not as a substitute for, or superior to, financial measures calculated in accordance with GAAP.

We present revenues adjusted for constant currency and corresponding growth rates 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.

We believe billings is a useful leading indicator regarding the performance of our business. We present subscription billings, professional services and other billings, and total billings, and corresponding growth rates, as the applicable revenue plus the applicable change in deferred revenue as presented or derived from the statement of cash flows. While we typically bill customers annually for our subscription services, customers sometimes request, and we accommodate, billings durations that differ from the typical twelve month term. Accordingly, to facilitate greater comparability in our billings information, we further present billings adjusted for constant weighted average billings duration, in addition to adjusting for constant currency. To present this information, we adjust subscription billings and total billings for constant currency as described above, and apply the weighted average billings duration in effect during the prior period presented rather than the actual weighted average billings duration in effect during the current period. Weighted average billings duration refers to the weighted average billings duration for all our customer contracts commencing during the period. We also present professional services and other billings and corresponding growth rates adjusted for constant currency as described above.

Our non-GAAP presentation of gross profit, income from operations and net income measures exclude stock-based compensation expense, the amortization of debt discount and issuance costs related to the convertible senior notes, 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, which is a non-GAAP financial measure, is calculated as net cash provided by operating activities plus cash paid for legal settlements, reduced by purchases of property and equipment. Free cash flow margin is calculated as free cash flow as a percentage of 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. However, our calculation of free cash flow and free cash flow margin may not be comparable to similar measures used by other companies.

The company encourages investors to carefully consider its results under GAAP, as well as its supplemental non-GAAP information and the reconciliation between these presentations, to more fully understand its 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 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.

Among the important factors that could 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 web hosting, (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, and (v) our ability to compete successfully against existing and new competitors.

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, 2015 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, 2016.

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 is changing the way people work. With a service-orientation toward the activities, tasks and processes that make up day-to-day work life, we help the modern enterprise operate faster and be more scalable than ever before. Customers use our service model to define, structure and automate the flow of work, removing dependencies on email and spreadsheets to transform the delivery and management of services for the enterprise. ServiceNow enables service management for every department in the enterprise including IT, human resources, facilities, field service and more. We deliver a ‘lights-out, light-speed’ experience through our enterprise cloud – built to manage everything as a service. To find out how, visit www.servicenow.com.

ServiceNow and the ServiceNow logo are registered trademarks of ServiceNow. All other brand and product names are trademarks or registered trademarks of their respective holders.

 
ServiceNow, Inc.
Condensed Consolidated Statements of Operations

(in thousands, except share and per share data)

(unaudited)

                 
Three Months Ended Twelve Months Ended

December 31, 2016

December 31, 2015 December 31, 2016 December 31, 2015

 

 

 
Revenues:
Subscription $ 344,604 $ 244,702 $ 1,221,639 $ 848,278
Professional services and other   41,062     40,948     168,874     157,202  
Total revenues   385,666     285,650     1,390,513     1,005,480  
Cost of revenues (1):
Subscription 64,707 49,511 235,414 183,400
Professional services and other   40,229     41,398     163,268     146,013  
Total cost of revenues   104,936     90,909     398,682     329,413  
Gross profit   280,730     194,741     991,831     676,067  
Operating expenses (1):
Sales and marketing 188,857 133,909 700,464 498,439
Research and development 73,933 58,443 285,239 217,389
General and administrative 41,543 33,247 158,936 126,604
Legal settlements           270,000      
Total operating expenses   304,333     225,599     1,414,639     842,432  
Loss from operations (23,603 ) (30,858 ) (422,808 ) (166,365 )
Loss before provision for income taxes (30,845 ) (35,654 ) (450,051 ) (193,012 )
Provision for income taxes   1,744     1,724     1,753     5,414  
Net loss $ (32,589 ) $ (37,378 ) $ (451,804 ) $ (198,426 )

Net loss per share - Basic and Diluted

$ (0.20 ) $ (0.23 ) $ (2.75 ) $ (1.27 )

Weighted-average shares used to compute net loss per share - Basic and Diluted

  166,816,643     159,718,874     164,533,823     155,706,643  
 
                           
(1) Includes total stock-based compensation expense for stock-based awards as follows:
Three Months Ended Twelve Months Ended
December 31, 2016 December 31, 2015 December 31, 2016 December 31, 2015

 

 

Cost of revenues:

 

Subscription $ 7,722 $ 6,233 $ 28,420 $ 23,416
Professional services and other 6,397 6,477 26,442 23,265
Sales and marketing 35,814 27,659 131,571 102,349
Research and development 18,775 18,623 81,731 70,326
General and administrative   14,412     9,190     49,416     38,357  
Total $ 83,120   $ 68,182   $ 317,580   $ 257,713  
                                           

         
ServiceNow, Inc.
Condensed Consolidated Balance Sheets

(in thousands)

(unaudited)

 
December 31, 2016 December 31, 2015

 

ASSETS
Current assets:
Cash and cash equivalents $ 401,238 $ 412,305
Short-term investments 498,124 388,945
Accounts receivable, net 322,757 203,333
Current portion of deferred commissions 76,780 51,976

Prepaid expenses and other current assets

  43,636   29,076
Total current assets 1,342,535 1,085,635
Deferred commissions, less current portion 61,990 33,016
Long-term investments 262,658 422,667
Property and equipment, net 181,620 144,714
Intangible assets, net 65,854 43,005
Goodwill 82,534 55,669
Other assets   36,576   22,346
Total assets $ 2,033,767 $ 1,807,052
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 38,080 $ 37,369
Accrued expenses and other current liabilities 171,636 101,264
Current portion of deferred revenue   864,940   593,003
Total current liabilities 1,074,656 731,636
Deferred revenue, less current portion 30,161 10,751
Convertible senior notes, net 507,812 474,534
Other long-term liabilities 34,177 23,317
Stockholders’ equity   386,961   566,814
Total liabilities and stockholders’equity $ 2,033,767 $ 1,807,052
 

                 
ServiceNow, Inc.
Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

         
 
Three Months Ended Twelve Months Ended
December 31, 2016 December 31, 2015 December 31, 2016 December 31, 2015

 

 

Cash flows from operating activities:
Net loss $ (32,589 ) $ (37,378 ) $ (451,804 ) $ (198,426 )
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization 23,366 16,399 83,082 60,356
Amortization of premiums on investments 980 1,684 4,725 7,064
Amortization of deferred commissions 23,475 17,486 81,217 65,541
Amortization of debt discount and issuance costs 8,532 7,973 33,278 31,097
Stock-based compensation 83,120 68,182 317,580 257,713
Deferred income tax 1,671 (1,282 ) (3,424 ) (1,282 )
Other (105 ) (830 ) (962 ) (6,223 )
Changes in operating assets and liabilities, net of effect of business combinations:
Accounts receivable (109,345 ) (45,552 ) (125,106 ) (50,855 )
Deferred commissions (57,269 ) (25,974 ) (136,459 ) (80,142 )
Prepaid expenses and other assets (9,767 ) (2,046 ) (21,500 ) (10,961 )
Accounts payable 5,071 6,473 (3,554 ) 14,785
Deferred revenue 149,148 80,088 300,167 195,900
Accrued expenses and other liabilities   46,399     21,331     82,681     33,187  
Net cash provided by operating activities(1)   132,687     106,554     159,921     317,754  
Cash flows from investing activities:
Purchases of property and equipment (21,450 ) (24,893 ) (105,562 ) (87,481 )
Business combinations, net of cash acquired (34,297 ) (1,100 )
Purchases of other intangibles (8,000 ) (1,750 ) (22,850 ) (1,750 )
Purchases of investments (84,267 ) (169,615 ) (518,664 ) (712,782 )
Purchases of strategic investments (500 ) (500 ) (500 ) (10,500 )
Sale of investments 31,710 34,414 297,998 277,045
Maturities of investments 53,085 101,415 271,537 305,047
Restricted cash   112     186     (210 )   (222 )
Net cash used in investing activities   (29,310 )   (60,743 )   (112,548 )   (231,743 )
Cash flows from financing activities:
Proceeds related to deferred payments on purchase of other intangibles 4,100
Payments related to deferred payments on purchase of other intangibles (750 ) (1,775 )
Proceeds from employee stock plans 11,315 20,001 66,378 93,348
Taxes paid related to net share settlement of equity awards (31,340 ) (192 ) (119,907 ) (12,795 )
Payments on financing obligation   (112 )   (111 )   (448 )   (223 )
Net cash (used in) provided by financing activities(1)   (20,887 )   19,698     (51,652 )   80,330  
Foreign currency effect on cash and cash equivalents   (6,319 )   (2,277 )   (6,788 )   (6,491 )
Net increase (decrease) in cash and cash equivalents 76,171 63,232 (11,067 ) 159,850
Cash and cash equivalents at beginning of period   325,067     349,073     412,305     252,455  
Cash and cash equivalents at end of period $ 401,238   $ 412,305   $ 401,238   $ 412,305  
 
(1) During the twelve months ended December 31, 2016, we early adopted Accounting Standards Update 2016-09, "Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting," which addresses among other items, updates to the presentation and treatment of excess tax benefits related to stock-based compensation. We have adopted changes to the condensed consolidated statements of cash flows on a retrospective basis. This resulted in a $1.5 million increase in net cash provided by operating activities and a corresponding $1.5 million decrease in net cash provided by financing activities for the three months ended December 31, 2015, and a $2.7 million increase in net cash provided by operating activities and a corresponding $2.7 million decrease in net cash provided by financing activities for the twelve months ended December 31, 2015.
 

                         

ServiceNow, Inc.

GAAP to Non-GAAP Reconciliation

(in thousands, except share and per share data)

(unaudited)

 
 
Three Months Ended Twelve Months Ended
December 31, 2016

December 31, 2015

Growth Rates December 31, 2016 December 31, 2015 Growth Rates
 
 
Subscription revenues:
GAAP subscription revenues

$

344,604

$ 244,702 41% $ 1,221,639 $ 848,278 44%
Effects of foreign currency rate fluctuations   5,703   -   6,261   -
Non-GAAP adjusted subscription revenues (1) $ 350,307 $ 244,702 43% $ 1,227,900 $ 848,278 45%
 
Subscription billings:
GAAP subscription revenues $ 344,604 $ 244,702 41% $ 1,221,639 $ 848,278 44%
Increase in subscription deferred revenue   139,303   73,226   289,053   189,981
Non-GAAP subscription billings 483,907 317,928 52% 1,510,692 1,038,259 46%
Effects of foreign currency rate fluctuations 6,461 - 8,178 -
Effects of fluctuations in billings duration   (33,399)   -   (24,589)   -
Non-GAAP adjusted subscription billings (2) $ 456,969 $ 317,928 44% $ 1,494,281 $ 1,038,259 44%
 
Professional services and other revenues:
GAAP professional services and other revenues $ 41,062 $ 40,948 0% $ 168,874 $ 157,202 7%
Effects of foreign currency rate fluctuations   315   -   204   -

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

$ 41,377 $ 40,948 1% $ 169,078 $ 157,202 8%
 
Professional services and other billings:
GAAP professional services and other revenues $ 41,062 $ 40,948 0% $ 168,874 $ 157,202 7%
Increase in professional services and other deferred revenue   9,845   6,862   11,114   5,919
Non-GAAP professional services and other billings 50,907 47,810 6% 179,988 163,121 10%
Effects of foreign currency rate fluctuations   315   -   204   -
Non-GAAP adjusted professional services and other billings (2) $ 51,222 $ 47,810 7% $ 180,192 $ 163,121 10%
 
Total revenues:
GAAP total revenues $ 385,666 $ 285,650 35% $ 1,390,513 $ 1,005,480 38%
Effects of foreign currency rate fluctuations   6,018   -   6,465   -
Non-GAAP adjusted total revenues (1) $ 391,684 $ 285,650 37% $ 1,396,978 $ 1,005,480 39%
 
Total billings:
GAAP total revenues $ 385,666 $ 285,650 35% $ 1,390,513 $ 1,005,480 38%
Increase in total deferred revenue from consolidated statements of cash flows   149,148   80,088   300,167   195,900
Non-GAAP total billings 534,814 365,738 46% 1,690,680 1,201,380 41%
Effects of foreign currency rate fluctuations 6,776 - 8,382 -
Effects of fluctuations in billings duration   (33,399)   -   (24,589)   -
Non-GAAP adjusted total billings (2) $ 508,191 $ 365,738 39% $ 1,674,473 $ 1,201,380 39%
 
Cost of revenues:
GAAP subscription cost of revenues $ 64,707 $ 49,511 $ 235,414 $ 183,400
Stock-based compensation (7,722) (6,233) (28,420) (23,416)
Amortization of purchased intangibles   (3,334)   (2,762)   (12,633)   (11,087)
Non-GAAP subscription cost of revenues $ 53,651 $ 40,516 $ 194,361 $ 148,897
 
GAAP professional services and other cost of revenues $ 40,229 $ 41,398 $ 163,268 $ 146,013
Stock-based compensation   (6,397)   (6,477)   (26,442)   (23,265)
Non-GAAP professional services and other cost of revenues $ 33,832 $ 34,921 $ 136,826 $ 122,748
 
Gross profit (loss):
GAAP subscription gross profit $ 279,897 $ 195,191 $ 986,225 $ 664,878
Stock-based compensation 7,722 6,233 28,420 23,416
Amortization of purchased intangibles   3,334   2,762   12,633   11,087
Non-GAAP subscription gross profit $ 290,953 $ 204,186 $ 1,027,278 $ 699,381
 
GAAP professional services and other gross profit (loss) $ 833 $ (450) $ 5,606 $ 11,189
Stock-based compensation   6,397   6,477   26,442   23,265
Non-GAAP professional services and other gross profit $ 7,230 $ 6,027 $ 32,048 $ 34,454
 
GAAP gross profit $ 280,730 $ 194,741 $ 991,831 $ 676,067
Stock-based compensation 14,119 12,710 54,862 46,681
Amortization of purchased intangibles   3,334   2,762   12,633   11,087
Non-GAAP gross profit $ 298,183 $ 210,213 $ 1,059,326 $ 733,835
 
Gross margin:
GAAP subscription gross margin 81% 80% 81% 78%
Stock-based compensation as % of subscription revenues 2% 2% 2% 3%
Amortization of purchased intangibles as % of subscription revenues   1%   1%   1%   1%
Non-GAAP subscription gross margin   84%   83%   84%   82%
 
GAAP professional services and other gross margin 2% (1%) 3% 7%
Stock-based compensation as % of professional services and other revenues   16%   16%   16%   15%
Non-GAAP professional services and other gross margin   18%   15%   19%   22%
 
GAAP gross margin 73% 68% 71% 67%
Stock-based compensation as % of total revenues 3% 5% 4% 5%
Amortization of purchased intangibles as % of total revenues   1%   1%   1%   1%
Non-GAAP gross margin   77%   74%   76%   73%
 
Operating expenses:
GAAP sales and marketing expenses $ 188,857 $ 133,909 $ 700,464 $ 498,439
Stock-based compensation (35,814) (27,659) (131,571) (102,349)
Amortization of purchased intangibles   (117)   (145)   (312)   (581)
Non-GAAP sales and marketing expenses $ 152,926 $ 106,105 $ 568,581 $ 395,509
 
GAAP research and development expenses $ 73,933 $ 58,443 $ 285,239 $ 217,389
Stock-based compensation (18,775) (18,623) (81,731) (70,326)
Amortization of purchased intangibles   (455)   -   (1,213)   -
Non-GAAP research and development expenses $ 54,703 $ 39,820 $ 202,295 $ 147,063
 
GAAP general and administrative expenses $ 41,543 $ 33,247 $ 158,936 $ 126,604
Stock-based compensation (14,412) (9,190) (49,416) (38,357)
Amortization of purchased intangibles (314) (23) (960) (93)
Business combination and other related costs   (27)   -   (989)   -
Non-GAAP general and administrative expenses $ 26,790 $ 24,034 $ 107,571 $ 88,154
 
GAAP legal settlements $ - $ - $ 270,000 $ -
Legal settlements   -   -   (270,000)   -
Non-GAAP legal settlements $ - $ - $ - $ -
 
Income (loss) from operations:
GAAP loss from operations (23,603) (30,858) (422,808) (166,365)
Stock-based compensation 83,120 68,182 317,580 257,713
Amortization of purchased intangibles 4,220 2,930 15,118 11,761
Business combination and other related costs 27 - 989 -
Legal settlements   -   -   270,000   -
Non-GAAP income from operations $ 63,764 $ 40,254 $ 180,879 $ 103,109
 
Operating margin:
GAAP operating margin (6%) (11%) (30%) (17%)
Stock-based compensation as % of total revenues 22% 24% 23% 26%
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%
Legal settlements as % of total revenues   0%   0%   19%   0%
Non-GAAP operating margin   17%   14%   13%   10%
 
Net income (loss):
GAAP net loss (32,589) (37,378) (451,804) (198,426)
Stock-based compensation 83,120 68,182 317,580 257,713
Amortization of purchased intangibles 4,220 2,930 15,118 11,761
Business combination and other related costs 27 - 989 -
Legal settlements - - 270,000 -
Amortization of debt discount and issuance costs for the convertible senior notes 8,532 7,973 33,278 31,097
Income tax expense effects related to the above adjustments   (20,954)   (9,108)   (63,216)   (34,750)
Non-GAAP net income $ 42,356 $ 32,599 $ 121,945 $ 67,395
 
Net income (loss) per share - basic and diluted:
GAAP net loss per share - basic and diluted $ (0.20) $ (0.23) $ (2.75) $ (1.27)
Non-GAAP net income per share - basic $ 0.25 $ 0.20 $ 0.74 $ 0.43
Non-GAAP net income per share - diluted $ 0.24 $ 0.19 $ 0.70 $ 0.40
 
Weighted-average shares used to compute net income (loss) per share - basic   166,816,643   159,718,874   164,533,823   155,706,643
 
GAAP weighted-average shares used to compute net loss per share - diluted 166,816,643 159,718,874 164,533,823 155,706,643
Effect of dilutive securities (stock options, restricted stock units and common stock subject to repurchase)   8,780,764   11,047,627   9,257,608   13,056,123
Non-GAAP weighted-average shares used to compute net income per share - diluted   175,597,407   170,766,501   173,791,431   168,762,766
 
Free cash flow:
GAAP net cash provided by operating activities(3) $ 132,687 $ 106,554 $ 159,921 $ 317,754
Purchases of property and equipment (21,450) (24,893) (105,562) (87,481)
Cash paid for legal settlements   -   -   267,500   -
Non-GAAP free cash flow $ 111,237 $ 81,661 $ 321,859 $ 230,273
 
Free cash flow margin:
GAAP net cash provided by operating activities as % of total revenues(3) 34% 37% 12% 32%
Purchases of property and equipment as % of total revenues (5%) (8%) (8%) (9%)
Cash paid for legal settlements as % of total revenues   0%   0%   19%   0%
Non-GAAP free cash flow margin   29%   29%   23%   23%
 
(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 rate and weighted average billings duration in effect during the comparison period rather than the actual exchange rates and weighted average billings duration in effect during the current period.
(3)   During the twelve months ended December 31, 2016, we early adopted Accounting Standards Update 2016-09, "Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting," which addresses among other items, updates to the presentation and treatment of excess tax benefits related to stock-based compensation. We have adopted changes to the condensed consolidated statements of cash flows on a retrospective basis. This resulted in a $1.5 million increase in net cash provided by operating activities and a corresponding $1.5 million decrease in net cash provided by financing activities for the three months ended December 31, 2015, and a $2.7 million increase in net cash provided by operating activities and a corresponding $2.7 million decrease in net cash provided by financing activities for the twelve months ended December 31, 2015.
 

             
ServiceNow, Inc.
Reconciliation of Non-GAAP Financial Guidance
         

The financial guidance provided below is an estimate based on information available as of December 31, 2016. 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. More information on potential factors that could affect the company’s financial results is included from time to time in the company’s public reports filed with the SEC, including the company’s Annual Report on Form 10-K filed on February 25, 2016, the company’s Form 10-Q for the quarter ended September 30, 2016 filed on November 4, 2016 and the company’s Form 10-K for the year ended December 31, 2016 to be filed with the SEC. The company assumes no obligation to update any forward-looking statements or information, which speak as of their respective dates.

 
Three Months Ended Three Months Ended Growth rates
March 31, 2017 March 31, 2016  
 
GAAP subscription revenues $366 - $370 million $267 million 37% - 38%
 
Effects of foreign currency rate fluctuations 9 million -
   
Non-GAAP adjusted subscription revenues (1) $375 - $379 million $267 million 40% - 42%
 
GAAP subscription revenues $366 - $370 million $267 million 37% - 38%
 
Increase in subscription deferred revenue 77 million 64 million
   
Non-GAAP subscription billings $443 - $447 million $331 million 34% - 35%
 
Effects of foreign currency rate fluctuations 11 million -
 
Effects of fluctuations in billings duration (4) million -
   
Non-GAAP adjusted subscription billings (2) $450 - $454 million $331 million 36% - 37%
 
GAAP professional services and other revenues $40 - $41 million $38 million 4% - 7%
 
Effects of foreign currency rate fluctuations 1 million -
   
Non-GAAP adjusted professional services and other revenues (1) $41 - $42 million $38 million 7% - 9%
 
GAAP professional services and other revenues $40 - $41 million $38 million 4% - 7%
 
Increase in professional services and other deferred revenue 7 million 7 million
   
Non-GAAP professional services and other billings $47 - $48 million $45 million 4% - 6%
 
Effects of foreign currency rate fluctuations 1 million -
   
Non-GAAP adjusted professional services and other billings (2) $48 - $49 million $45 million 6% - 8%
 
GAAP total revenues $406 - $411 million $306 million 33% - 34%
 
Effects of foreign currency rate fluctuations 10 million -
   
Non-GAAP adjusted total revenues (1) $416 - $421 million $306 million 36% - 38%
 
GAAP total revenues $406 - $411 million $306 million 33% - 34%
 
Increase in total deferred revenue from consolidated statements of cash flows 84 million 71 million
   
Non-GAAP total billings $490 - $495 million $377 million 30% - 31%
 
Effects of foreign currency rate fluctuations 12 million -
 
Effects of fluctuations in billings duration (4) million -
   
Non-GAAP adjusted total billings (2) $498 - $503 million $377 million 32% - 34%
 
GAAP operating margin (11%)
 
Stock-based compensation expense 21%
 
Amortization of purchased intangibles 1%
 
Non-GAAP operating margin 11%
 
GAAP weighted-average shares used to compute net loss per share - diluted 169 million
 
Effect of dilutive securities (stock options, restricted stock units) 8 million
 
Non-GAAP weighted-average shares used to compute net income per share - diluted 177 million
 
 
Twelve Months Ended Twelve Months Ended Growth rates
December 31, 2017 December 31, 2016  
 
GAAP subscription revenues $1,635 - $1,655 million $1,222 million 34% - 35%
 
Effects of foreign currency rate fluctuations 35 million -
   
Non-GAAP adjusted subscription revenues (1) $1,670 - $1,690 million   $1,222 million 37% - 38%
 
GAAP subscription revenues $1,635 - $1,655 million $1,222 million 34% - 35%
 
Increase in subscription deferred revenue 335 million 289 million
   
Non-GAAP subscription billings $1,970 - $1,990 million $1,511 million 30% - 32%
 
Effects of foreign currency rate fluctuations 43 million -
 
Effects of fluctuations in billings duration 45 million -
   
Non-GAAP adjusted subscription billings (2) $2,058 - $2,078 million $1,511 million 36% - 38%
 
GAAP professional services and other revenues $185 - $195 million $169 million 10% - 15%
 
Effects of foreign currency rate fluctuations 5 million -
   
Non-GAAP adjusted professional services and other revenues (1) $190 - $200 million $169 million 13% - 18%
 
GAAP professional services and other revenues $185 - $195 million $169 million 10% - 15%
 
Increase in professional services and other deferred revenue 10 million 11 million
   
Non-GAAP professional services and other billings $195 - $205 million $180 million 8% - 14%
 
Effects of foreign currency rate fluctuations 5 million -
   
Non-GAAP adjusted professional services and other billings (2) $200 - $210 million $180 million 11% - 17%
 
GAAP total revenues $1,820 - $1,850 million $1,391 million 31% - 33%
 
Effects of foreign currency rate fluctuations 40 million -
   
Non-GAAP adjusted total revenues (1) $1,860 - $1,890 million   $1,391 million 34% - 36%
 
GAAP total revenues $1,820 - $1,850 million $1,391 million 31% - 33%
 
Increase in total deferred revenue from consolidated statements of cash flows 345 million 300 million
   
Non-GAAP total billings $2,165 - $2,195 million $1,691 million 28% - 30%
 
Effects of foreign currency rate fluctuations 48 million -
 
Effects of fluctuations in billings duration 45 million -
   
Non-GAAP adjusted total billings (2) $2,258 - $2,288 million   $1,691 million 34% - 35%
 
GAAP subscription gross margin 81%
 
Stock-based compensation expense 2%
 
Amortization of purchased intangibles 1%
 
Non-GAAP subscription gross margin 84%
 
GAAP professional services and other gross margin 4%
 
Stock-based compensation expense 16%
 
Non-GAAP professional services and other gross margin 20%
 
GAAP total gross margin 73%
 
Stock-based compensation expense 3%
 
Amortization of purchased intangibles 1%
 
Non-GAAP total gross margin 77%
 
GAAP operating margin (5%)
 
Stock-based compensation expense 20%
 
Amortization of purchased intangibles 1%
 
Non-GAAP operating margin 16%
 
GAAP net cash provided by operating activities as % of total revenues 31%
 
Purchases of property and equipment as % of total revenues (7%)
 
Non-GAAP free cash flow margin 24%
 
GAAP weighted-average shares used to compute net loss per share - diluted 170 million
 
Effect of dilutive securities (stock options, restricted stock units) 9 million
 
Non-GAAP weighted-average shares used to compute net income per share - diluted 179 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 and weighted average billings duration in effect during the comparison period rather than the forecasted exchange rates and weighted average billings duration for the guidance period.

Source: ServiceNow

ServiceNow
Media Contact:
Joanne Blum, 310-489-7278
press@servicenow.com
or
Investor Contact:
ir@servicenow.com