ServiceNow, Inc. - FORM 8-K - EX-99.1 - EXHIBIT 99.1

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8-K - SERVICENOW, INC. 8-K - ServiceNow, Inc.	a50734833.htm

Exhibit 99.1

ServiceNow Reports Financial Results for Third Quarter 2013

Third Quarter Revenues Exceed $110 Million and Grew 73% Year-over-Year

SANTA CLARA, Calif.--(BUSINESS WIRE)--October 23, 2013--ServiceNow® (NYSE: NOW), the enterprise IT cloud company, today announced its financial results for its third quarter of 2013.

Third quarter 2013 results:

Revenues of $111.3 million, an increase of 73% compared to the third quarter of 2012, and an increase of 9% from the second quarter of 2013.
GAAP net loss of $14.7 million, or a loss of $0.11 per basic and diluted share, compared to a GAAP net loss of $13.1 million, or a loss of $0.11 per basic and diluted share, in the third quarter of 2012.
Non-GAAP net income of $1.6 million, or earnings of $0.01 per basic and diluted share, compared to a non-GAAP net loss of $5.0 million, or a loss of $0.04 per basic and diluted share, in the third quarter of 2012 (see the table entitled "Results of Operations GAAP to Non-GAAP Reconciliation” for a reconciliation of these GAAP and non-GAAP financial measures).
Deferred revenue of $225.8 million, an 8% increase over the $210.0 million reported at the end of the prior quarter.
Billings were $127.0 million, an 8% increase over the $117.5 million reported in the previous quarter and a 56% increase over the $81.2 million in the same period last year (see the table entitled “Non-GAAP Billings Reconciliation” for a reconciliation of non-GAAP billings to GAAP revenues).

“ServiceNow delivered 73% year-over-year revenue growth and billed a record $127 million in the third quarter,” said Frank Slootman, president and chief executive officer, ServiceNow. “We grew our total customer count to 1,900, including the addition of 22 net new enterprises from the Forbes Global 2000 list. We also achieved a renewal rate of 97% and upsells comprised more than 29% of our total annual contract value signed during the quarter.”

“We continued to show growth across our key financial metrics and exceeded our previously stated outlook on revenue and non-GAAP EPS,” added Michael Scarpelli, chief financial officer, ServiceNow. “We were profitable on a non-GAAP basis for the first time in two years, and we generated $20.7 million in operating cash flow.”

Financial Outlook

The non-GAAP financial guidance discussed below excludes stock-based compensation expense and the related income tax effect (see table which reconciles these non-GAAP financial measures to the related GAAP measures). Negative numbers are shown in parentheses.

For the fourth quarter of 2013, we expect:

Total revenues between $119.0 and $121.0 million, representing year-over-year growth between 58% and 61%. Our total fourth quarter revenue estimate consists of subscription revenues between $100.0 and $101.0 million and professional services and other revenues between $19.0 and $20.0 million.
Subscription gross margin of approximately 76%, professional services and other gross margin of approximately 8%, and overall gross margin of approximately 65%.
Approximately break-even operating margin.
A net loss per basic and diluted share of approximately ($0.02) with weighted-average shares outstanding of approximately 140.0 million.

For the full year 2013, we expect total revenues to be in the range of $418.4 to $420.4 million, representing year-over-year growth between 72% and 73%. Our total annual revenues estimate consists of subscription revenues between $344.9 and $345.9 million and professional services and other revenues between $73.5 and $74.5 million.

Conference Call Details

The conference call will begin at 2:00 p.m. Pacific Time (21:00 GMT) on Wednesday, October 23, 2013. Interested parties may listen to the call by dialing 866.383.8009 (passcode: 18726358), or if outside North America, by dialing 617.597.5342 (passcode: 18726358). 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 888.286.8010 (passcode: 85963111), or if outside North America, by dialing 617.801.6888 (passcode: 85963111).

Statement regarding use of non-GAAP financial measures

The company reports non-GAAP results for gross margins, operating margins, net income or loss, basic and diluted income or loss per share, free cash flow and billings in addition to, and not as a substitute for, or superior to, financial measures calculated in accordance with GAAP.

The company’s financial measures under GAAP include stock-based compensation expense. Management believes the presentation of operating results that excludes stock-based compensation expense provides useful supplemental information to investors and facilitates the analysis of the company’s core operating results and comparison of operating results across reporting periods. Management also believes that this supplemental non-GAAP information is therefore useful to investors in analyzing and assessing the company’s 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. Management believes 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. Management believes 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.

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. Reconciliations between GAAP and non-GAAP results are presented in the tables of this release.

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, 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, 2012 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 third quarter ended September 30, 2013.

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 the enterprise IT cloud company. We transform IT by automating and managing IT service relationships across the global enterprise. Organizations deploy our service to create a single system of record for IT and automate manual tasks, standardize processes and consolidate legacy systems. Using our extensible platform, our customers create custom applications and evolve the IT service model to service domains inside and outside the enterprise. ServiceNow transforms IT from the department of no to the department of now. For more information, 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						Nine Months Ended
				September 30, 2013			September 30, 2012			September 30, 2013			September 30, 2012

Revenues:
	Subscription			$	92,992		$	55,279		$	244,926		$	141,640
	Professional services and other				18,267			9,066			54,494			26,910
		Total revenues			111,259			64,345			299,420			168,550
Cost of revenues ⁽¹⁾:
	Subscription				23,429			17,931			61,960			43,182
	Professional services and other				18,146			9,643			47,921			28,519
		Total cost of revenues			41,575			27,574			109,881			71,701
			Gross profit		69,684			36,771			189,539			96,849
Operating expenses ⁽¹⁾:
	Sales and marketing				47,336			28,140			137,853			74,356
	Research and development				20,819			10,783			54,809			26,098
	General and administrative				16,179			11,195			43,783			24,441
		Total operating expenses			84,334			50,118			236,445			124,895
			Loss from operations		(14,650	)		(13,347	)		(46,906	)		(28,046	)
	Interest and other income (expense), net				600			615			(604	)		1,148
			Loss before provision for income taxes		(14,050	)		(12,732	)		(47,510	)		(26,898	)
Provision for income taxes					663			321			1,966			519
			Net loss	$	(14,713	)	$	(13,053	)	$	(49,476	)	$	(27,417	)
			Net loss attributable to common stockholders - Basic and Diluted	$	(14,713	)	$	(13,053	)	$	(49,476	)	$	(27,725	)
Net loss per share attributable to common stockholders:
	Basic			$	(0.11	)	$	(0.11	)	$	(0.37	)	$	(0.49	)
	Diluted			$	(0.11	)	$	(0.11	)	$	(0.37	)	$	(0.49	)
Weighted-average shares used to compute net loss per share attributable to common stockholders:
	Basic				137,456,531			117,698,005			134,036,466			57,089,411
	Diluted				137,456,531			117,698,005			134,036,466			57,089,411

⁽¹⁾Includes total stock-based compensation expense for stock-based awards as follows:
				Three Months Ended						Nine Months Ended
				September 30, 2013			September 30, 2012			September 30, 2013			September 30, 2012
Cost of revenues:
	Subscription			$	2,190		$	1,276		$	5,980		$	2,514
	Professional services and other				1,209			495			3,095			964
Sales and marketing					5,945			2,899			14,752			6,852
Research and development					4,176			1,919			11,005			4,121
General and administrative					4,331			1,624			9,893			4,137

ServiceNow, Inc.
Condensed Consolidated Balance Sheets
(in thousands)

			September 30, 2013		December 31, 2012
ASSETS			(Unaudited)
Current assets:
	Cash and cash equivalents		$	121,094	$	118,989
	Short-term investments			99,044		195,702
	Accounts receivable, net			84,527		78,163
	Current portion of deferred commissions			24,835		14,979
	Prepaid expenses and other current assets			12,919		14,256
		Total current assets		342,419		422,089
Deferred commissions, less current portion				16,716		11,296
Long-term investments				132,619		—
Property and equipment, net				68,642		42,342
Intangible assets, net				6,189		596
Goodwill				8,526		—
Other assets				3,625		1,791
		Total assets	$	578,736	$	478,114

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
	Accounts payable		$	7,930	$	9,604
	Accrued expenses and other current liabilities			49,664		48,059
	Current portion of deferred revenue			210,545		153,964
		Total current liabilities		268,139		211,627
Deferred revenue, less current portion				15,256		16,397
Other long-term liabilities				7,745		6,685
Stockholders’ equity				287,596		243,405
		Total liabilities and stockholders’ equity	$	578,736	$	478,114

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

				Three Months Ended						Nine Months Ended
				September 30, 2013			September 30, 2012			September 30, 2013			September 30, 2012

Cash flows from operating activities:
Net loss				$	(14,713	)	$	(13,053	)		(49,476	)	$	(27,417	)
	Adjustments to reconcile net loss to net cash provided by operating activities:
	Depreciation and amortization				6,613			3,969			16,316			8,841
	Amortization of premiums on investments				1,208			496			3,441			594
	Amortization of deferred commissions				7,828			3,920			19,825			9,264
	Stock-based compensation				17,851			8,213			44,725			18,588
	Tax benefit from exercise of stock options				754			(276	)		(1,817	)		(533	)
	Bad debt expense				295			148			882			148
	Lease abandonment costs				28			2,922			354			2,922
	Changes in operating assets and liabilities:
		Accounts receivable			8,903			(8,342	)		(6,988	)		(11,065	)
		Deferred commissions			(14,114	)		(7,449	)		(34,894	)		(20,525	)
		Prepaid expenses and other current assets			(3,015	)		(961	)		2,827			4,242
		Other assets			(1,503	)		2,095			(1,750	)		(35	)
		Accounts payable			(283	)		(1,069	)		(408	)		(106	)
		Accrued expenses and other current liabilities			(2,928	)		2,229			(2,646	)		4,189
		Deferred revenue			13,758			16,295			54,332			43,081
		Other long-term liabilities			38			(60	)		756			(93	)
			Net cash provided by operating activities		20,720			9,077			45,479			32,095
Cash flows from investing activities:
	Purchases of property and equipment				(16,824	)		(11,930	)		(39,059	)		(32,156	)
	Acquisition, net of cash acquired				(13,330	)		—			(13,330	)		—
	Purchases of investments				(48,681	)		(123,003	)		(233,444	)		(146,922	)
	Sale of investments				7,105			—			50,403			1,025
	Maturities of investments ⁽¹⁾				35,005			5,800			142,456			5,800
	Restricted cash				(11	)		—			(174	)		8
			Net cash used in investing activities		(36,736	)		(129,133	)		(93,148	)		(172,245	)
Cash flows from financing activities:
	Net proceeds from initial public offering				—			170,963			—			169,799
	Payment of follow-on offering costs				—			—			(698	)		—
	Proceeds from employee stock plans				16,003			216			47,833			2,349
	Proceeds from early exercise of stock options, net				—			—			—			1,024
	Tax benefit from exercise of stock options				(754	)		276			1,817			533
	Net proceeds from issuance of common stock				—			—			—			17,848
	Purchase of common stock and restricted stock from stockholders				—			—			—			(1,960	)
			Net cash provided by financing activities		15,249			171,455			48,952			189,593
Foreign currency effect on cash and cash equivalents					1,628			95			822			(555	)
			Net increase in cash and cash equivalents		861			51,494			2,105			48,888
Cash and cash equivalents at beginning of period					120,233			65,482			118,989			68,088
Cash and cash equivalents at end of period				$	121,094		$	116,976		$	121,094		$	116,976

Calculation of free cash flows (a non-GAAP measure):
Net cash provided by operating activities				$	20,720		$	9,077		$	45,479		$	32,095
Purchases of property and equipment					(16,824	)		(11,930	)		(39,059	)		(32,156	)
Free cash flows				$	3,896		$	(2,853	)	$	6,420		$	(61	)


⁽¹⁾	In the nine months ended September 30, 2013, maturities of investments includes the effect of the correction of an immaterial error of $3.0 million related to securities that were improperly classified as short-term investments instead of cash and cash equivalents as of December 31, 2012.

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

			Three Months Ended
			September 30, 2013									September 30, 2012
			GAAP			Adjustments				Non-GAAP		GAAP			Adjustments			Non-GAAP
Reconciliation of gross profit:
Revenues:
	Subscription		$	92,992		$	—			$	92,992	$	55,279		$	—		$	55,279
	Professional services and other			18,267			—				18,267		9,066			—			9,066
		Total revenues		111,259			—				111,259		64,345			—			64,345
Cost of revenues ⁽¹⁾:
	Subscription			23,429			(2,190	)			21,239		17,931			(1,276	)		16,655
	Professional services and other			18,146			(1,209	)			16,937		9,643			(495	)		9,148
		Total cost of revenues		41,575			(3,399	)			38,176		27,574			(1,771	)		25,803
Gross profit:
	Subscription			69,563			2,190				71,753		37,348			1,276			38,624
	Professional services and other			121			1,209				1,330		(577	)		495			(82	)
		Total gross profit	$	69,684		$	3,399			$	73,083	$	36,771		$	1,771		$	38,542

Reconciliation of operating expenses:
Operating expenses ⁽¹⁾:
	Sales and marketing		$	47,336		$	(5,945	)		$	41,391	$	28,140		$	(2,899	)	$	25,241
	Research and development			20,819			(4,176	)			16,643		10,783			(1,919	)		8,864
	General and administrative			16,179			(4,331	)			11,848		11,195			(1,624	)		9,571
		Total operating expenses	$	84,334		$	(14,452	)		$	69,882	$	50,118		$	(6,442	)	$	43,676

Reconciliation of loss from operations, provision for income taxes, net loss, net loss per share, and pro forma net loss per share:
	Income (Loss) from operations		$	(14,650	)	$	17,851			$	3,201	$	(13,347	)	$	8,213		$	(5,134	)
	Income (Loss) before provision for income taxes		$	(14,050	)	$	17,851			$	3,801	$	(12,732	)	$	8,213		$	(4,519	)
	Provision for income taxes⁽¹⁾			663			1,521				2,184		321			160			481
	Net income (loss)		$	(14,713	)	$	16,330			$	1,617	$	(13,053	)	$	8,053		$	(5,000	)
	Net income (loss) attributable to common stockholders - Basic and Diluted		$	(14,713	)	$	16,330			$	1,617	$	(13,053	)	$	8,053			(5,000	)
	Net income (loss) per share attributable to common stockholders:
		Basic	$	(0.11	)	$	0.12			$	0.01	$	(0.11	)	$	0.07		$	(0.04	)
		Diluted	$	(0.11	)	$	0.12			$	0.01	$	(0.11	)	$	0.07		$	(0.04	)
	Weighted-average shares used to compute net income (loss) per share attributable to common stockholders:
		Basic		137,456,531			—				137,456,531		117,698,005			—			117,698,005
		Diluted		137,456,531			20,892,410		⁽²⁾		158,348,941		117,698,005			—			117,698,005

⁽¹⁾Adjustments include stock-based compensation and the related tax effect.

⁽²⁾ The effects of these dilutive securities were not included in the GAAP calculation of diluted income (loss) per share for the three months ended September 30, 2013 because the effect would have been anti-dilutive.

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

			Nine Months Ended
			September 30, 2013									September 30, 2012
			GAAP			Adjustments			Non-GAAP			GAAP			Adjustments			Non-GAAP
Reconciliation of gross profit:
Revenues:
	Subscription		$	244,926		$	—		$	244,926		$	141,640		$	—		$	141,640
	Professional services and other			54,494			—			54,494			26,910			—			26,910
		Total revenues		299,420			—			299,420			168,550			—			168,550
Cost of revenues ⁽¹⁾:
	Subscription			61,960			(5,980	)		55,980			43,182			(2,514	)		40,668
	Professional services and other			47,921			(3,095	)		44,826			28,519			(964	)		27,555
		Total cost of revenues		109,881			(9,075	)		100,806			71,701			(3,478	)		68,223
Gross profit:
	Subscription			182,966			5,980			188,946			98,458			2,514			100,972
	Professional services and other			6,573			3,095			9,668			(1,609	)		964			(645	)
		Total gross profit	$	189,539		$	9,075		$	198,614		$	96,849		$	3,478		$	100,327

Reconciliation of operating expenses:
Operating expenses ⁽¹⁾:
	Sales and marketing		$	137,853		$	(14,752	)	$	123,101		$	74,356		$	(6,852	)	$	67,504
	Research and development			54,809			(11,005	)		43,804			26,098			(4,121	)		21,977
	General and administrative			43,783			(9,893	)		33,890			24,441			(4,137	)		20,304
		Total operating expenses	$	236,445		$	(35,650	)	$	200,795		$	124,895		$	(15,110	)	$	109,785

Reconciliation of loss from operations, provision for income taxes, net loss, net loss per share, and pro forma net loss per share:
	Loss from operations		$	(46,906	)	$	44,725		$	(2,181	)	$	(28,046	)	$	18,588		$	(9,458	)
	Loss before provision for income taxes		$	(47,510	)	$	44,725		$	(2,785	)	$	(26,898	)	$	18,588		$	(8,310	)
	Provision for income taxes ⁽¹⁾			1,966			3,313			5,279			519			301			820
	Net loss		$	(49,476	)	$	41,412		$	(8,064	)	$	(27,417	)	$	18,287		$	(9,130	)
	Net loss attributable to common stockholders - Basic and Diluted		$	(49,476	)	$	41,412		$	(8,064	)	$	(27,725	)	$	18,287			(9,438	)
	Net loss per share attributable to common stockholders:
		Basic	$	(0.37	)	$	0.31		$	(0.06	)	$	(0.49	)	$	0.32		$	(0.17	)
		Diluted	$	(0.37	)	$	0.31		$	(0.06	)	$	(0.49	)	$	0.32		$	(0.17	)
	Weighted-average shares used to compute net loss per share attributable to common stockholders:
		Basic		134,036,466			—			134,036,466			57,089,411			—			57,089,411
		Diluted		134,036,466			—			134,036,466			57,089,411			—			57,089,411

⁽¹⁾Adjustments include stock-based compensation and the related tax effect.

ServiceNow, Inc.
Non-GAAP Billings Reconciliation
(in thousands)
(Unaudited)

	Three Months Ended
	September 30,		June 30,		September 30,
	2013		2013		2012
Total revenues		111,259	$	102,222	$	64,345
Deferred revenue, end of period		225,801		210,040		147,946
Less: deferred revenue, beginning of period		210,040		194,765		131,069
Billings	$	127,020	$	117,497	$	81,222

ServiceNow, Inc.
Reconciliation of Non-GAAP Financial Guidance

The financial guidance provided below is an estimate based on information available as of October 23, 2013. 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 March 8, 2013, the company's Form 10-Q for the quarter ended June 30, 2013 filed on August 7, 2013 and the company's Form 10-Q for the quarter ended September 30, 2013 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
		December 31, 2013

Non-GAAP subscription gross margin		76%

Stock-based compensation expense		(3%)

GAAP subscription gross margin		73%

Non-GAAP professional services and other gross margin		8%

Stock-based compensation expense		(9%)

GAAP professional services and other gross margin		(1%)

Non-GAAP total gross margin		65%

Stock-based compensation expense		(4%)

GAAP total gross margin		61%

Non-GAAP operating margin		0%

Stock-based compensation expense		(18%)

GAAP operating margin		(18%)

Non-GAAP basic and diluted net loss per share		($0.02)

Stock-based compensation expense		($0.15)

Incremental non-GAAP tax expense ⁽¹⁾		$0.01

GAAP basic and diluted net loss per share		($0.16)

⁽¹⁾Incremental non-GAAP tax expense reflects the increase to GAAP tax expense related to the non-GAAP stock-based compensation expense adjustments.

CONTACT:
Media Contacts:
ServiceNow
Liza S. Goldberg, 408-501-8553
liza.goldberg@servicenow.com
or
Schwartz MSL
Kim McCrossen, 781-684-6253
servicenow@schwartzmsl.com
or
Investor Contact:
ir@servicenow.com

Attached files

ServiceNow, Inc. Reports

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