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ServiceNow Reports Financial Results for Second Quarter 2015

July 29, 2015 4:05 PM

SANTA CLARA, Calif.--(BUSINESS WIRE)-- ServiceNow® (NYSE: NOW), the enterprise cloud company, today announced the financial results for its second quarter 2015.

Second Quarter 2015 Results:

“We had a strong second quarter on the heels of our Knowledge15 conference, with significant growth in our emerging product areas,” said Frank Slootman, president and chief executive officer, ServiceNow. “We also saw a 68% year-over-year increase in the total number of customers with annualized contract values in excess of $1 million, demonstrating that customers continue to expand their use of ServiceNow.”

“Our Global 2000 customers continued to grow their ServiceNow footprint with a 34% year-over-year increase in average annualized contract value,” said Michael Scarpelli, chief financial officer, ServiceNow. “In addition, both our billings and free cash flow from the quarter exceeded our expectations.”

Financial Outlook:

The financial guidance discussed below is on a non-GAAP basis, except for revenues, and excludes stock-based compensation expense, amortization of purchased intangibles, and acquisition related expenses. Please see the tables included at the end of this release for a reconciliation of these non-GAAP financial measures to the related GAAP financial measures. Negative numbers are shown in parentheses. For the third quarter of 2015, we expect:

For the full year 2015, we expect:

Updates Since Our Last Earnings Release:

Conference Call Details

The conference call will begin at 2 p.m. Pacific Time (21:00 GMT) on Wednesday, July 29, 2015. Interested parties may listen to the call by dialing 877.280.4953 (passcode: 66561394), or if outside North America, by dialing 857.244.7310 (passcode: 66561394). 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 three 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 888.286.8010 (passcode: 86323623), or if outside North America, by dialing 617.801.6888 (passcode: 86323623).

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.

Our financial measures under GAAP include foreign currency impact, stock-based compensation expense, the amortization of debt discount and issuance costs related to the convertible senior notes, amortization of purchased intangibles and acquisition-related expenses, and the related income tax effect of these adjustments. We believe the presentation of operating results that exclude these items provides useful supplemental information to investors and facilitates the analysis of our core operating results and comparison of operating results across reporting periods. We also believe that this supplemental non-GAAP information is therefore useful to investors in analyzing and assessing our past and future operating performance.

Free cash flow, which is a non-GAAP financial measure, is calculated as GAAP net cash provided by operating activities reduced by purchases of property and equipment. We believe information regarding free cash flow provides investors with an important perspective on the cash available to invest in our business and fund ongoing operations. However, our calculation of free cash flow may not be comparable to similar measures used by other companies.

Billings is calculated as revenue plus the change in total deferred revenue as presented on the statement of cash flows. We believe billings offers investors useful supplemental information regarding the performance of our business, and will help investors better understand the sales volumes and performance of our business.

We present constant currency information to provide a framework for assessing how our underlying 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.

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 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.

Among the important factors that could cause actual results to differ materially from those in any forward-looking statements are: (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, 2014 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, 2015.

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, Knowledge 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 Six Months Ended
June 30, 2015 June 30, 2014 June 30, 2015 June 30, 2014
Revenues:
Subscription $ 200,461 $ 132,724 $ 380,368 $ 250,099
Professional services and other 46,255 34,033 78,312 55,748
Total revenues 246,716 166,757 458,680 305,847
Cost of revenues (1):
Subscription 45,392 33,243 87,836 64,432
Professional services and other 34,325 25,695 68,780 47,620
Total cost of revenues 79,717 58,938 156,616 112,052
Gross profit 166,999 107,819 302,064 193,795
Operating expenses (1):
Sales and marketing 136,574 91,937 246,631 161,353
Research and development 53,276 35,439 103,124 66,549
General and administrative 30,384 24,914 59,776 46,545
Total operating expenses 220,234 152,290 409,531 274,447
Loss from operations (53,235 ) (44,471 ) (107,467 ) (80,652 )
Interest and other expense, net (7,186 ) (5,231 ) (10,060 ) (11,194 )
Loss before provision for income taxes (60,421 ) (49,702 ) (117,527 ) (91,846 )
Provision for income taxes 1,504 661 2,491 1,828
Net loss $ (61,925 ) $ (50,363 ) $ (120,018 ) $ (93,674 )
Net loss per share - Basic and Diluted $ (0.40 ) $ (0.35 ) $ (0.78 ) $ (0.65 )

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

154,465,367 144,456,675 153,041,433 143,267,181

(1) Includes total stock-based compensation expense for stock-based awards as follows:

Three Months Ended Six Months Ended
June 30, 2015 June 30, 2014 June 30, 2015 June 30, 2014
Cost of revenues:
Subscription $ 6,067 $ 3,825 $ 11,232 $ 6,901
Professional services and other 5,771 3,224 10,984 5,616
Sales and marketing 26,105 12,383 48,679 21,426
Research and development 17,935 10,452 33,573 18,291
General and administrative 10,468 7,720 19,952 14,599

ServiceNow, Inc.
Condensed Consolidated Balance Sheets
(in thousands)
June 30, 2015 December 31, 2014
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 325,354 $ 252,455
Short-term investments 397,170 416,336
Accounts receivable, net 143,206 159,171
Current portion of deferred commissions 44,346 43,232
Prepaid expenses and other current assets 43,998 35,792
Total current assets 954,074 906,986
Deferred commissions, less current portion 28,193 29,453
Long-term investments 333,284 266,772
Property and equipment, net 124,902 104,237
Intangible assets, net 47,432 54,526
Goodwill 57,412 55,016
Other assets 18,014 8,089
Total assets $ 1,563,311 $ 1,425,079
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 20,966 $ 17,829
Accrued expenses and other current liabilities 83,085 79,497
Current portion of deferred revenue 487,582 409,671
Total current liabilities 591,633 506,997
Deferred revenue, less current portion 15,112 12,567
Convertible senior notes, net 459,011 443,764
Other long-term liabilities 34,442 33,076
Stockholders’ equity

463,113

428,675

Total liabilities and stockholders’ equity

$ 1,563,311 $ 1,425,079

ServiceNow, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)

Three Months Ended

Six Months Ended

June 30, 2015 June 30, 2014 June 30, 2015 June 30, 2014
Cash flows from operating activities:
Net loss $ (61,925 ) $ (50,363 ) $ (120,018 ) $ (93,674 )
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization 15,033 8,692 28,857 16,630
Amortization of premiums on investments 1,782 2,045 3,612 3,859
Amortization of deferred commissions 15,684 12,486 31,281 23,635
Amortization of debt discount and issuance costs 7,707 7,202 15,285 14,283
Stock-based compensation 66,346 37,604 124,420 66,833
Tax benefit from employee stock plans (597 ) 323 (597 ) (617 )
Other (2,297 ) (2,097 ) (4,240 ) (1,590 )
Changes in operating assets and liabilities:
Accounts receivable 903 (2,071 ) 11,339 (2,098 )
Deferred commissions (17,432 ) (14,734 ) (32,832 ) (27,966 )
Prepaid expenses and other assets 10,861 7,809 (8,026 ) (1,101 )
Accounts payable 1,628 (1,099 ) 1,634 10,976
Deferred revenue 34,696 21,140 90,557 63,312
Accrued expenses and other liabilities 7,199 15,122 5,682 (6,206 )
Net cash provided by operating activities 79,588 42,059 146,954 66,276
Cash flows from investing activities:
Purchases of property and equipment (15,121 ) (16,437 ) (41,820 ) (27,405 )
Acquisition, net of cash acquired — — (1,100 ) —
Purchases of investments (199,132 ) (106,456 ) (331,496 ) (241,312 )
Sale of investments 88,950 43,365 138,362 68,893
Maturities of investments 70,274 22,500 146,660 67,168
Purchase of strategic investment (10,000 ) — (10,000 ) —
Restricted cash 35 — 66 (55 )
Net cash used in investing activities (64,994 ) (57,028 ) (99,328 ) (132,711 )
Cash flows from financing activities:
Proceeds from employee stock plans 11,210 6,966 41,684 29,180
Taxes paid related to net share settlement of equity awards (11,711 ) (369 ) (12,446 ) (369 )
Tax benefit from employee stock plans 597 (323 ) 597 617
Net cash provided by financing activities 96 6,274 29,835 29,428
Foreign currency effect on cash and cash equivalents 2,683 50 (4,562 ) (21 )

Net increase/(decrease) in cash and cash equivalents

17,373 (8,645 ) 72,899 (37,028 )
Cash and cash equivalents at beginning of period 307,981 337,920 252,455 366,303
Cash and cash equivalents at end of period $ 325,354 $ 329,275 $ 325,354 $ 329,275
Calculation of free cash flows (a non-GAAP measure):
Net cash provided by operating activities $ 79,588 $ 42,059 $ 146,954 $ 66,276
Purchases of property and equipment (15,121 ) (16,437 ) (41,820 ) (27,405 )
Free cash flows $ 64,467 $ 25,622 $ 105,134 $ 38,871

ServiceNow, Inc.
Results of Operations GAAP to Non-GAAP Reconciliation
(in thousands except share and per share data)
(Unaudited)

Constant

currency growth

rates (1)

Three Months Ended Growth rates Six Months Ended

June 30, 2015

June 30, 2014

June 30, 2015

June 30, 2014

Revenues:
GAAP subscription revenues $ 200,461 $ 132,724 $ 380,368 $ 250,099
GAAP professional services and other revenues 46,255 34,033 78,312 55,748
GAAP total revenues 246,716 166,757 48 % 59 % 458,680 305,847
Change in deferred revenue from Consolidated Statements of Cash Flows 34,696 21,140 90,557 63,312
Non-GAAP billings $ 281,412 $ 187,897 50 % 62 % $ 549,237 $ 369,159
Cost of revenues:
GAAP subscription cost of revenues $ 45,392 $ 33,243 $ 87,836 $ 64,432
Add back:
Stock-based compensation (6,067 ) (3,825 ) (11,232 ) (6,901 )
Amortization of purchased intangibles (2) (2,743 ) (387 ) (5,499 ) (748 )
Non-GAAP subscription cost of revenues $ 36,582 $ 29,031 $ 71,105 $ 56,783
GAAP professional services and other cost of revenues $ 34,325 $ 25,695 $ 68,780 $ 47,620
Add back:
Stock-based compensation (5,771 ) (3,224 ) (10,984 ) (5,616 )
Non-GAAP professional services and other cost of revenues $ 28,554 $ 22,471 $ 57,796 $ 42,004
Gross profit:
Non-GAAP subscription gross profit $ 163,879 $ 103,693 $ 309,263 $ 193,316
Non-GAAP professional services and other gross profit 17,701 11,562 20,516 13,744
Non-GAAP gross profit $ 181,580 $ 115,255 $ 329,779 $ 207,060
Operating expenses:
GAAP sales and marketing expenses $ 136,574 $ 91,937 $ 246,631 $ 161,353
Add back:
Stock-based compensation (26,105 ) (12,383 ) (48,679 ) (21,426 )
Amortization of purchased intangibles (2) (145 ) (52 ) (291 ) (104 )
Acquisition and other related costs (2) — (1 ) — (1 )
Non-GAAP sales and marketing expenses $ 110,324 $ 79,501 $ 197,661 $ 139,822
GAAP research and development expenses $ 53,276 $ 35,439 $ 103,124 $ 66,549
Add back:
Stock-based compensation (17,935 ) (10,452 ) (33,573 ) (18,291 )
Acquisition and other related costs (2) — (21 ) — (21 )
Non-GAAP research and development expenses $ 35,341 $ 24,966 $ 69,551 $ 48,237
GAAP general and administrative expenses $ 30,384 $ 24,914 $ 59,776 $ 46,545
Add back:
Stock-based compensation (10,468 ) (7,720 ) (19,952 ) (14,599 )
Amortization of purchased intangibles (2) — (5 ) — (10 )
Acquisition and other related costs (2) — (701 ) — (701 )
Non-GAAP general and administrative expenses $ 19,916 $ 16,488 $ 39,824 $ 31,235
GAAP total operating expenses $ 220,234 $ 152,290 $ 409,531 $ 274,447
Add back:
Stock-based compensation (54,508 ) (30,555 ) (102,204 ) (54,316 )
Amortization of purchased intangibles (2) (145 ) (57 ) (291 ) (114 )
Acquisition and other related costs (2) — (723 ) — (723 )
Non-GAAP total operating expenses $ 165,581 $ 120,955 $ 307,036 $ 219,294
Income (loss) from operations:
GAAP loss from operations $ (53,235 ) $ (44,471 ) $ (107,467 ) $ (80,652 )
Add back:
Stock-based compensation 66,346 37,604 124,420 66,833
Amortization of purchased intangibles (2) 2,888 444 5,790 862
Acquisition and other related costs (2) — 723 — 723
Non-GAAP income (loss) from operations $ 15,999 $ (5,700 ) $ 22,743 $ (12,234 )
Interest and other expense, net
GAAP interest and other expense, net $ (7,186 ) $ (5,231 ) $ (10,060 ) $ (11,194 )
Add back:
Amortization of debt discount and issuance costs for the convertible senior notes 7,707 7,202 15,285 14,283
Non-GAAP interest and other expense, net $ 521 $ 1,971 $ 5,225 $ 3,089
Income/ (loss) before provision for income taxes
GAAP loss before provision for income taxes $ (60,421 ) $ (49,702 ) $ (117,527 ) $ (91,846 )
Add back:
Stock-based compensation 66,346 37,604 124,420 66,833
Amortization of purchased intangibles (2) 2,888 444 5,790 862
Acquisition and other related costs (2) — 723 — 723
Amortization of debt discount and issuance costs for the convertible senior notes 7,707 7,202 15,285 14,283
Non-GAAP income (loss) before provision for income taxes $ 16,520 $ (3,729 ) $ 27,968 $ (9,145 )
Provision for income taxes:
GAAP provision for income taxes $ 1,504 $ 661 $ 2,491 $ 1,828
Add back:
Income tax expense effects related to the above adjustments (2) 7,730 5,004 15,743 $ 9,685
Non-GAAP provision for income taxes $ 9,234 $ 5,665 $ 18,234 $ 11,513
Net income (loss):
GAAP net loss $ (61,925 ) $ (50,363 ) $ (120,018 ) $ (93,674 )
Add back:
Stock-based compensation 66,346 37,604 124,420 66,833
Amortization of purchased intangibles (2) 2,888 444 5,790 862
Acquisition and other related costs (2) — 723 — 723
Amortization of debt discount and issuance costs for the convertible senior notes 7,707 7,202 15,285 14,283
Income tax expense effects related to the above adjustments (2) (7,730 ) (5,004 ) (15,743 ) (9,685 )
Non-GAAP net income (loss) $ 7,286 $ (9,394 ) $ 9,734 $ (20,658 )
Net income (loss) per share - basic and diluted:
GAAP net loss per share - basic and diluted $ (0.40 ) $ (0.35 ) $ (0.78 ) $ (0.65 )
Non-GAAP net income (loss) per share - basic $ 0.05 $ (0.07 ) $ 0.06 $ (0.14 )
Non-GAAP net income (loss) per share - diluted $ 0.04 $ (0.07 ) $ 0.06 $ (0.14 )
Weighted-average shares used to compute net income (loss) per share - basic 154,465,367 144,456,675 153,041,433 143,267,181
GAAP weighted-average shares used to compute net loss per share - diluted 154,465,367 144,456,675 153,041,433 143,267,181
Effect of dilutive securities (stock options, restricted stock units and common stock subject to repurchase) 13,613,976 — 14,275,802 —
Non-GAAP weighted-average shares used to compute net income per share - diluted 168,079,343 144,456,675 167,317,235 143,267,181

(1)

Constant currency growth rates presented are derived from converting the current period results for entities reporting in currencies other than U.S. Dollars 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.

(2)

The Non-GAAP amounts presented for the three and six months ended June 30, 2014 have been revised to exclude the amortization of purchased intangibles, acquisition and other related costs and their related tax effects associated with an acquisition completed in 2013.

ServiceNow, Inc.
Reconciliation of Non-GAAP Financial Guidance
The financial guidance provided below is an estimate based on information available as of June 30, 2015. 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 27, 2015 and the company's Form 10-Q for the quarter ended June 30, 2015 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

Constant currency

growth rates (1)

September 30, 2015 September 30, 2014
Non-GAAP billings $280 - $285 million $208 million 35% - 37% 42% - 45%
Change in deferred revenue from Consolidated Statements of Cash Flows 28 million 29 million
GAAP revenue $252 - $257 million $179 million 41% - 44% 49% - 52%
Non-GAAP subscription gross margin 80%
Stock-based compensation expense (2%)
Amortization of acquired intangible assets (1%)
GAAP subscription gross margin 77%
Non-GAAP professional services and other gross margin 14%
Stock-based compensation expense (2%)
GAAP professional services and other gross margin 12%
Non-GAAP total gross margin 71%
Stock-based compensation expense (6%)
GAAP total gross margin 65%
Non-GAAP operating margin 8%
Stock-based compensation expense (27%)
Amortization of acquired intangible assets (1%)
GAAP operating margin (20%)
Non-GAAP free cash flows $35 million
Purchases of property and equipment 25 million
GAAP net cash provided by operating activities $60 million
Twelve Months Ended Twelve Months Ended Growth rates

Constant currency

growth rates (1)

December 31, 2015 December 31, 2014
Non-GAAP billings $1,200 million $851 million 41% 49%
Change in deferred revenue from cash flow 200 - 215 million 168 million
GAAP revenue

$985 - $1,000 million

$683 million 44% - 47% 52% - 55%

(1)

Constant currency growth rates presented are derived from converting the current period results for entities reporting in currencies other than U.S. Dollars 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.

ServiceNow

Media Contacts:

Candice Garmoe, 408-450-7287

[email protected]

Colleen Haikes, 408-816-2592

[email protected]

Investor Contact:

[email protected]

Source: ServiceNow

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