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| 8-K - 8-K - ServiceNow, Inc. | erq3fy18-8xk.htm |
ServiceNow Reports Strong Third Quarter 2018 Financial Results
Strength in Federal Sector as Government Agencies Move to Cloud
• | Subscription revenues of $627 million, representing 39% year-over-year growth |
• | 25 transactions over $1 million in net new annual contract value |
• | 614 total customers with over $1 million in annual contract value, representing 37% year-over-year growth |
SANTA CLARA, Calif. - Oct. 24, 2018 - ServiceNow (NYSE: NOW) today announced financial results for its fiscal third quarter ended September 30, 2018 with subscription revenues of $627 million, representing 39% year-over-year growth.
ServiceNow, Forbes’ No. 1 World’s Most Innovative Company in 2018, is now serving more than 5,000 enterprise customers. During the quarter, ServiceNow closed 25 transactions with more than $1 million in net new annual contract value. The company now has 614 total customers with more than $1 million in annual contract value, representing 37% year-over-year growth.
“We had a strong third quarter, continuing our global momentum and accelerating our role as a strategic partner enabling digital transformation,” said John Donahoe, ServiceNow president and chief executive officer. “This was our largest federal quarter ever, with the US government representing our biggest deals, and underscoring how digital transformation is becoming both a public and private sector imperative worldwide. Digital transformation is about delivering great experiences and unlocking productivity. Our digital workflows help deliver both, helping make work, work better for people.”
“Our first-half momentum continued in Q3 and we delivered another quarter of strong performance setting us up for a great finish in 2018,” said Michael Scarpelli, ServiceNow chief financial officer. “Due to the strong performance, we’re raising revenue, billings and free cash flow guidance for full-year 2018.”
Third Quarter 2018 GAAP and Non‑GAAP Results:
The following table summarizes our financial results for the third quarter 2018:
Third Quarter 2018 GAAP Results | Third Quarter 2018 Non-GAAP Results(1) | |||||||||
Amount ($ millions) | Year/Year Growth (%)(2) | Amount ($ millions) | Year/Year Growth (%)(2) | Adjusted Amount ($ millions)(3) | Adjusted Year/Year Growth (%)(2) | |||||
Subscription revenues | $626.6 | 39 | % | $629.2 | 40 | % | ||||
Professional services and other revenues | $46.5 | 9 | % | $47.0 | 10 | % | ||||
Total revenues | $673.1 | 37 | % | $676.2 | 37 | % | ||||
Subscription billings | $674.2 | 35 | % | $672.2 | 34 | % | ||||
Professional services and other billings | $46.4 | 1 | % | $46.8 | 2 | % | ||||
Total billings | $720.5 | 32 | % | $719.0 | 31 | % | ||||
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Amount ($ millions) | Margin (%) | Amount ($ millions) | Margin (%) | ||||||
Subscription gross profit | $519.7 | 83 | % | $537.4 | 86 | % | |||
Professional services and other gross profit (loss) | ($4.5) | (10 | %) | $3.9 | 8 | % | |||
Total gross profit | $515.2 | 77 | % | $541.3 | 80 | % | |||
Income from operations | $9.6 | 1 | % | $160.7 | 24 | % | |||
Net cash provided by operating activities | $145.5 | 22 | % | ||||||
Free cash flow | $111.6 | 17 | % | ||||||
Amount ($ millions) | Earnings per Basic/Diluted Share ($) | Amount ($ millions) | Earnings per Basic/Diluted Share ($) | ||||||
Net income | $8.4 | $0.05 / $0.04 | $129.0 | $0.72 / $0.68 | |||||
(1) | We report non-GAAP financial measures in addition to, and not as a substitute for, or superior to, financial measures calculated in accordance with GAAP. See the section entitled “Statement Regarding Use of Non-GAAP Financial Measures” for an explanation of non-GAAP measures, and the table entitled “GAAP to Non-GAAP Reconciliation” for a reconciliation of GAAP to non-GAAP measures. |
(2) | The comparison period amounts used to calculate growth rates have been restated from previously reported amounts to reflect the impact of the full retrospective adoption of Topic 606. For more information regarding Topic 606, refer to our Form 10-Q filed for the quarter ended June 30, 2018. |
(3) | Non-GAAP subscription revenues, professional services and other revenues, total revenues and professional services billings are adjusted for constant currency. Non-GAAP subscription billings and total billings are adjusted for constant currency and constant billings duration. See the section entitled “Statement Regarding Use of Non-GAAP Financial Measures” for an explanation of non-GAAP measures, and the table entitled “GAAP to Non-GAAP Reconciliation” for a reconciliation of GAAP to non-GAAP measures. |
Financial Outlook
Our guidance is based on foreign exchange rates as of September 30, 2018 and includes GAAP and non-GAAP financial measures.
The following table summarizes our guidance for the fourth quarter 2018:
Fourth Quarter 2018 GAAP Guidance | Fourth Quarter 2018 Non-GAAP Guidance(1) | ||||||||
Amount ($ millions) | Year/Year Growth (%)(2) | Amount ($ millions) | Year/Year Growth (%)(2) | Adjusted Amount ($ millions)(3) | Adjusted Year/ Year Growth (%)(2) | ||||
Subscription revenues | $660 - $665 | 32% - 33% | $664 - $669 | 33% - 34% | |||||
Subscription billings | $900 - $905 | 31% | $906 - $911 | 32% | |||||
Margin (%) | |||||||||
Income from operations | 21 | % | |||||||
Amount (millions) | |||||||||
Weighted-average shares used to compute diluted net income per share | 190 | ||||||||
(1) | We report non-GAAP financial measures in addition to, and not as a substitute for, or superior to, financial measures calculated in accordance with GAAP. See the section entitled “Statement Regarding Use of Non-GAAP Financial Measures” for an explanation of non-GAAP measures, and the table entitled “Reconciliation of Non-GAAP Financial Guidance” for a reconciliation of GAAP to non-GAAP measures. |
(2) | The comparison period amounts used to calculate growth rates have been restated from previously reported amounts to reflect the impact of the full retrospective adoption of Topic 606. For more information regarding Topic 606, refer to our Form 10-Q filed for the quarter ended June 30, 2018. |
(3) | Non-GAAP subscription revenues are adjusted for constant currency. Non-GAAP subscription billings are adjusted for constant currency and constant billings duration. See the section entitled “Statement Regarding Use of Non-GAAP Financial Measures” for an explanation of non-GAAP measures, and the table entitled “Reconciliation of Non-GAAP Financial Guidance” for a reconciliation of GAAP to non-GAAP measures. |
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The following table summarizes our updated guidance for full-year 2018:
Full-Year 2018 GAAP Guidance | Full-Year 2018 Non-GAAP Guidance(1) | ||||||||
Amount ($ millions) | Year/Year Growth (%)(2) | Amount ($ millions) | Year/Year Growth (%)(2) | Adjusted Amount ($ millions)(3) | Adjusted Year/ Year Growth (%)(2) | ||||
Subscription revenues | $2,415 - $2,420 | 39% | $2,384 - $2,389 | 37% | |||||
Subscription billings | $2,830 - $2,835 | 33% | $2,793 - $2,798 | 31% - 32% | |||||
Margin (%) | |||||||||
Subscription gross profit | 85 | % | |||||||
Income from operations | 20 | % | |||||||
Free cash flow | 28 | % | |||||||
Amount (millions) | |||||||||
Weighted-average shares used to compute diluted net income per share | 188 | ||||||||
(1) | We report non-GAAP financial measures in addition to, and not as a substitute for, or superior to, financial measures calculated in accordance with GAAP. See the section entitled “Statement Regarding Use of Non-GAAP Financial Measures” for an explanation of non-GAAP measures, and the table entitled “Reconciliation of Non-GAAP Financial Guidance” for a reconciliation of GAAP to non-GAAP measures. |
(2) | The comparison period amounts used to calculate growth rates have been restated from previously reported amounts to reflect the impact of the full retrospective adoption of Topic 606. For more information regarding Topic 606, refer to our Form 10-Q filed for the quarter ended June 30, 2018. |
(3) | Non-GAAP subscription revenues are adjusted for constant currency. Non-GAAP subscription billings are adjusted for constant currency and constant billings duration. See the section entitled “Statement Regarding Use of Non-GAAP Financial Measures” for an explanation of non-GAAP measures, and the table entitled “Reconciliation of Non-GAAP Financial Guidance” for a reconciliation of GAAP to non-GAAP measures. |
The following table compares our updated full-year 2018 guidance against our previously issued full-year 2018 guidance dated July 25, 2018:
Comparison of Updated Full-Year 2018 Guidance to Previously Issued Guidance(1) ($ millions) | |||||
Previous Guidance Midpoint(2) | Currency Impact(3) | Duration Impact(4) | Guidance Change | Current Guidance Midpoint(5) | |
GAAP subscription revenues | $2,410 | ($3) | $0 | $11 | $2,418 |
Non-GAAP subscription billings(6) | $2,820 | ($4) | $4 | $13 | $2,833 |
(1) | Numbers are rounded for presentation purposes. |
(2) | Refers to previously issued full-year 2018 guidance dated July 25, 2018. |
(3) | In our guidance, we assume an average daily currency exchange rate for the guidance period based on the rates at the end of the prior quarter for entities reporting in currencies other than U.S. Dollars. Currency impact represents the sum of (i) the impact of the difference between the actual average rates in the period used to calculate our Q3-2018 actual results and the rates as of June 30, 2018 assumed in our previously issued guidance dated July 25, 2018 plus (ii) the impact of the difference between the exchange rates in effect as of September 30, 2018 assumed in our updated full-year 2018 guidance, and the rates as of June 30, 2018 assumed in our previously issued guidance dated July 25, 2018. |
(4) | Represents the impact of billings greater than 12 months in excess of guidance assumptions. |
(5) | Represents the updated full-year 2018 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 (21:00 GMT) on October 24, 2018. Interested parties may listen to the call by dialing 844.464.3153 (passcode: 2184619), or if outside North America, by dialing 508.637.5575 (passcode: 2184619). Individuals may access the live teleconference from this webcast link (http://edge.media-server.com/m6/p/ierumzt4).
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:2184619), or if outside North America, by dialing 404.537.3406 (passcode: 2184619).
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Investor Presentation Details
An investor presentation providing additional information and analysis can be found at http://investors.servicenow.com.
Statement Regarding Use of Non‑GAAP Financial Measures
We report the following non-GAAP financial measures in addition to, and not as a substitute for, or superior to, financial measures calculated in accordance with GAAP.
• | Revenue Adjusted for Constant Currency. We present revenues adjusted for constant currency to provide a framework for assessing how our business performed excluding the effect of foreign currency rate fluctuations. To present this information, current period results for entities reporting in currencies other than U.S. Dollars are converted into U.S. Dollars at the exchange rates in effect during the prior period presented, rather than the actual exchange rates in effect during the current period. We believe the presentation of revenues adjusted for constant currency facilitates the comparison of revenues year-over-year. |
• | Billings. We believe billings is a useful leading indicator regarding the performance of our business. We define subscription billings, professional services and other billings, and total billings as the applicable revenue plus the applicable change in deferred revenue, unbilled receivables and customer deposits as presented or derived from the statement of cash flows. We adjust for constant currency, as described above, and adjust for constant duration by replacing the portion of multi-year billings in excess of twelve months during the current period with the portion of multi-year billings in excess of twelve months during the prior period presented. We believe these adjustments facilitate greater comparability in our billings information year-over-year. |
• | Gross Profit, Income from Operations and Net Income. Our non-GAAP presentation of gross profit, income from operations, and net income measures exclude stock-based compensation expense, amortization of debt discount and issuance costs related to our convertible senior notes, loss on early note conversions, amortization of purchased intangibles, legal settlements, business combination and other related costs, and the related income tax effect of these adjustments. We believe the presentation of operating results that exclude these non-cash or non-recurring items provides useful supplemental information to investors and facilitates the analysis of our operating results and comparison of operating results across reporting periods. |
• | Free Cash Flow. Free cash flow is defined as net cash provided by (used in) operating activities plus cash paid for legal settlements and repayments of convertible senior notes attributable to debt discount, reduced by purchases of property and equipment. Free cash flow margin is calculated as free cash flow as a percentage of total revenues. We believe information regarding free cash flow and free cash flow margin provides useful information to investors because it is an indicator of the strength and performance of our business operations. |
Our presentation of non-GAAP financial measures may not be comparable to similar measures used by other companies. We encourage investors to carefully consider our results under GAAP, as well as our supplemental non-GAAP information and the reconciliation between these presentations, to more fully understand our business. Please see the tables included at the end of this release for the reconciliation of GAAP and non-GAAP results.
Use of Forward‑Looking Statements
This release contains “forward-looking statements” regarding our performance, including but not limited to statements in the section entitled “Financial Outlook.” Forward-looking statements are subject to known and unknown risks and uncertainties and are based on potentially inaccurate assumptions that could cause actual results to differ materially from those expected or implied by the forward-looking statements. If any such risks or uncertainties materialize or if any of the assumptions prove incorrect, our results could differ materially from the results expressed or implied by the forward‑looking statements we make.
Factors that may cause actual results to differ materially from those in any forward-looking statements include: (i) errors, interruptions, delays, or security breaches in or of our service or datacenters, (ii) our ability to grow at our expected rate of growth, including our ability to convert deferred revenue and backlog into revenue, add and retain customers, sell additional subscriptions to existing customers and enter new geographies and markets, (iii) our ability to continue to release, and gain customer acceptance of, improved versions of our services, (iv) our ability to develop and gain customer acceptance of new products and services, including our platform, (v) our ability to compete successfully against existing and new competitors, and (vi) material changes in the value of foreign currencies relative to the U.S. Dollar.
Further information on these and other factors that could affect our financial results are included in our Form 10-Q for the quarter ended June 30, 2018 and in other filings we make with the Securities and Exchange Commission from time to time.
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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 peopleTM. Our cloud‑based platform and solutions deliver digital experiences that help people do their best work. For more information, visit: www.servicenow.com.
© 2018 ServiceNow, Inc. All rights reserved. ServiceNow, the ServiceNow logo, Now, and other ServiceNow marks are trademarks and/or registered trademarks of ServiceNow, Inc., in the United States and/or other countries. Other company names, product names, and logos may be trademarks of the respective companies with which they are associated.
Media Contact:
Joanne Blum
310.489.7278
press@servicenow.com
Investor Contact:
Jimmy Sexton
669.262.1430
ir@servicenow.com
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ServiceNow, Inc.
Condensed Consolidated Statements of Operations
(in thousands, except share and per share data)
(unaudited)
Three Months Ended | Nine Months Ended | ||||||||||||||
September 30, 2018 | September 30, 2017 | September 30, 2018 | September 30, 2017 | ||||||||||||
*As Adjusted | *As Adjusted | ||||||||||||||
Revenues: | |||||||||||||||
Subscription | $ | 626,567 | $ | 449,506 | $ | 1,755,174 | $ | 1,239,762 | |||||||
Professional services and other | 46,530 | 42,866 | 138,201 | 129,639 | |||||||||||
Total revenues | 673,097 | 492,372 | 1,893,375 | 1,369,401 | |||||||||||
Cost of revenues (1): | |||||||||||||||
Subscription | 106,821 | 81,878 | 303,918 | 228,046 | |||||||||||
Professional services and other | 51,037 | 45,608 | 150,578 | 137,652 | |||||||||||
Total cost of revenues | 157,858 | 127,486 | 454,496 | 365,698 | |||||||||||
Gross profit | 515,239 | 364,886 | 1,438,879 | 1,003,703 | |||||||||||
Operating expenses (1): | |||||||||||||||
Sales and marketing | 289,323 | 217,866 | 883,893 | 643,998 | |||||||||||
Research and development | 135,655 | 98,465 | 380,839 | 272,959 | |||||||||||
General and administrative | 80,693 | 52,465 | 216,851 | 150,242 | |||||||||||
Total operating expenses | 505,671 | 368,796 | 1,481,583 | 1,067,199 | |||||||||||
Income (loss) from operations | 9,568 | (3,910 | ) | (42,704 | ) | (63,496 | ) | ||||||||
Interest expense | (11,233 | ) | (16,566 | ) | (43,795 | ) | (36,581 | ) | |||||||
Interest income and other income (expense), net | 8,895 | 579 | 45,520 | (177 | ) | ||||||||||
Income (loss) before income taxes | 7,230 | (19,897 | ) | (40,979 | ) | (100,254 | ) | ||||||||
Provision for (benefit from) income taxes | (1,175 | ) | 2,285 | (7,260 | ) | (754 | ) | ||||||||
Net income (loss) | $ | 8,405 | $ | (22,182 | ) | $ | (33,719 | ) | $ | (99,500 | ) | ||||
Net income (loss) per share - basic | $ | 0.05 | $ | (0.13 | ) | $ | (0.19 | ) | $ | (0.58 | ) | ||||
Net income (loss) per share - diluted | $ | 0.04 | $ | (0.13 | ) | $ | (0.19 | ) | $ | (0.58 | ) | ||||
Weighted-average shares used to compute net income (loss) per share - basic | 178,719,694 | 171,883,190 | 177,198,179 | 170,359,717 | |||||||||||
Weighted-average shares used to compute net income (loss) per share - diluted | 192,190,899 | 171,883,190 | 177,198,179 | 170,359,717 | |||||||||||
(1) | Includes stock-based compensation as follows: |
Three Months Ended | Nine Months Ended | ||||||||||||||
September 30, 2018 | September 30, 2017 | September 30, 2018 | September 30, 2017 | ||||||||||||
*As Adjusted | *As Adjusted | ||||||||||||||
Cost of revenues: | |||||||||||||||
Subscription | $ | 12,775 | $ | 8,980 | $ | 36,604 | $ | 25,860 | |||||||
Professional services and other | 8,407 | 7,056 | 24,310 | 21,548 | |||||||||||
Sales and marketing | 60,132 | 43,962 | 169,283 | 124,650 | |||||||||||
Research and development | 35,527 | 23,092 | 97,905 | 67,624 | |||||||||||
General and administrative | 27,567 | 17,352 | 73,207 | 48,695 | |||||||||||
*As adjusted to reflect the impact of the full retrospective adoption of Topic 606.
ServiceNow, Inc.
Condensed Consolidated Balance Sheets
(in thousands)
(unaudited)
September 30, 2018 | December 31, 2017 | ||||||
*As Adjusted | |||||||
Assets | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 703,629 | $ | 726,495 | |||
Short-term investments | 922,411 | 1,052,803 | |||||
Accounts receivable, net | 424,698 | 437,051 | |||||
Current portion of deferred commissions | 126,185 | 109,643 | |||||
Prepaid expenses and other current assets | 115,262 | 95,959 | |||||
Total current assets | 2,292,185 | 2,421,951 | |||||
Deferred commissions, less current portion | 247,681 | 224,252 | |||||
Long-term investments | 457,561 | 391,442 | |||||
Property and equipment, net | 297,371 | 245,124 | |||||
Intangible assets, net | 84,006 | 86,916 | |||||
Goodwill | 143,133 | 128,728 | |||||
Other assets | 59,505 | 51,832 | |||||
Total assets | $ | 3,581,442 | $ | 3,550,245 | |||
Liabilities and Stockholders’ Equity | |||||||
Current liabilities: | |||||||
Accounts payable | $ | 43,223 | $ | 32,109 | |||
Accrued expenses and other current liabilities | 251,545 | 253,257 | |||||
Current portion of deferred revenue | 1,363,217 | 1,210,695 | |||||
Current portion of convertible senior notes, net | 160,972 | 543,418 | |||||
Total current liabilities | 1,818,957 | 2,039,479 | |||||
Deferred revenue, less current portion | 41,244 | 36,120 | |||||
Convertible senior notes, net | 653,638 | 630,018 | |||||
Other long-term liabilities | 47,419 | 65,884 | |||||
Stockholders’ equity | 1,020,184 | 778,744 | |||||
Total liabilities and stockholders’ equity | $ | 3,581,442 | $ | 3,550,245 | |||
*As adjusted to reflect the impact of the full retrospective adoption of Topic 606.
ServiceNow, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
Three Months Ended | Nine Months Ended | ||||||||||||||
September 30, 2018 | September 30, 2017 | September 30, 2018 | September 30, 2017 | ||||||||||||
*As Adjusted | *As Adjusted | ||||||||||||||
Cash flows from operating activities: | |||||||||||||||
Net income (loss) | $ | 8,405 | $ | (22,182 | ) | $ | (33,719 | ) | $ | (99,500 | ) | ||||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | |||||||||||||||
Depreciation and amortization | 37,874 | 29,401 | 106,492 | 81,808 | |||||||||||
Amortization of deferred commissions | 43,063 | 25,068 | 107,367 | 68,154 | |||||||||||
Amortization of debt discount and issuance costs | 11,233 | 16,566 | 43,795 | 36,581 | |||||||||||
Stock-based compensation | 144,408 | 100,442 | 401,309 | 288,377 | |||||||||||
Deferred income tax | (1,371 | ) | (1,304 | ) | (32,297 | ) | (6,055 | ) | |||||||
Gain on marketable equity securities | — | — | (19,257 | ) | — | ||||||||||
Repayments of convertible senior notes attributable to debt discount | (14,076 | ) | — | (101,633 | ) | — | |||||||||
Other | 6,209 | 460 | 4,502 | (1,554 | ) | ||||||||||
Changes in operating assets and liabilities, net of effect of business combinations: | |||||||||||||||
Accounts receivable | (58,486 | ) | (9,307 | ) | 7,454 | 45,879 | |||||||||
Deferred commissions | (59,526 | ) | (44,567 | ) | (152,521 | ) | (114,514 | ) | |||||||
Prepaid expenses and other assets | (521 | ) | (13,787 | ) | 1,519 | (17,393 | ) | ||||||||
Accounts payable | 7,690 | (3,228 | ) | 5,058 | (11,088 | ) | |||||||||
Deferred revenue | 42,969 | 54,875 | 174,058 | 188,291 | |||||||||||
Accrued expenses and other liabilities | (22,370 | ) | 9,387 | 9,350 | (829 | ) | |||||||||
Net cash provided by operating activities | 145,501 | 141,824 | 521,477 | 458,157 | |||||||||||
Cash flows from investing activities: | |||||||||||||||
Purchases of property and equipment | (47,987 | ) | (46,753 | ) | (136,349 | ) | (115,856 | ) | |||||||
Business combinations, net of cash and restricted cash acquired | — | (5,000 | ) | (24,940 | ) | (26,537 | ) | ||||||||
Purchases of other intangibles | (2,750 | ) | — | (13,600 | ) | (6,170 | ) | ||||||||
Purchases of investments | (438,246 | ) | (286,976 | ) | (818,159 | ) | (641,666 | ) | |||||||
Purchase of strategic investments | (8,839 | ) | (100 | ) | (8,839 | ) | (4,000 | ) | |||||||
Sales of investments | — | — | 39,975 | 77,968 | |||||||||||
Maturities of investments | 408,473 | 128,648 | 861,629 | 350,597 | |||||||||||
Net cash used in investing activities (1) | (89,349 | ) | (210,181 | ) | (100,283 | ) | (365,664 | ) | |||||||
Cash flows from financing activities: | |||||||||||||||
Net proceeds from borrowings on convertible senior notes | — | — | — | 772,127 | |||||||||||
Repayments of convertible senior notes attributable to principal | (40,335 | ) | — | (311,520 | ) | — | |||||||||
Proceeds from issuance of warrants | — | — | — | 54,071 | |||||||||||
Purchases of convertible note hedges | — | — | — | (128,017 | ) | ||||||||||
Repurchases and retirement of common stock | — | — | — | (55,000 | ) | ||||||||||
Proceeds from employee stock plans | 39,018 | 35,856 | 100,437 | 76,748 | |||||||||||
Taxes paid related to net share settlement of equity awards | (66,737 | ) | (43,781 | ) | (221,268 | ) | (131,130 | ) | |||||||
Three Months Ended | Nine Months Ended | ||||||||||||||
September 30, 2018 | September 30, 2017 | September 30, 2018 | September 30, 2017 | ||||||||||||
*As Adjusted | *As Adjusted | ||||||||||||||
Payments on financing obligations | (180 | ) | (121 | ) | (756 | ) | (2,681 | ) | |||||||
Net cash (used in) provided by financing activities | (68,234 | ) | (8,046 | ) | (433,107 | ) | 586,118 | ||||||||
Foreign currency effect on cash, cash equivalents and restricted cash (1) | (2,088 | ) | 7,725 | (9,593 | ) | 25,765 | |||||||||
Net (decrease) increase in cash, cash equivalents and restricted cash (1) | (14,170 | ) | (68,678 | ) | (21,506 | ) | 704,376 | ||||||||
Cash, cash equivalents and restricted cash at beginning of period (1) | 720,493 | 1,174,986 | 727,829 | 401,932 | |||||||||||
Cash, cash equivalents and restricted cash at end of period (1) | $ | 706,323 | $ | 1,106,308 | $ | 706,323 | $ | 1,106,308 | |||||||
*As adjusted to reflect the impact of the full retrospective adoption of Topic 606.
(1) | During the three months ended December 31, 2017, we adopted Accounting Standards Update 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash,” which requires that amounts generally described as restricted cash or restricted cash equivalents be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. Accordingly, we have recast our prior period condensed consolidated statement of cash flows to conform to the current presentation. The impact of the adoption for the three and nine months ended September 30, 2017 are not material. |
ServiceNow, Inc.
GAAP to Non-GAAP Reconciliation
(in thousands, except share and per share data)
(unaudited)
Three Months Ended | Nine Months Ended | ||||||||||||||||||
September 30, 2018 | September 30, 2017 (3) | Growth Rates | September 30, 2018 | September 30, 2017 (3) | Growth Rates | ||||||||||||||
Subscription revenues: | |||||||||||||||||||
GAAP subscription revenues | $ | 626,567 | $ | 449,506 | 39% | $ | 1,755,174 | $ | 1,239,762 | 42% | |||||||||
Effects of foreign currency rate fluctuations | 2,643 | (34,880 | ) | ||||||||||||||||
Non-GAAP adjusted subscription revenues (1) | $ | 629,210 | 40% | $ | 1,720,294 | 39% | |||||||||||||
Subscription billings: | |||||||||||||||||||
GAAP subscription revenues | $ | 626,567 | $ | 449,506 | 39% | $ | 1,755,174 | $ | 1,239,762 | 42% | |||||||||
Change in subscription deferred revenue, unbilled receivables and customer deposits | 47,592 | 51,452 | 174,261 | 195,776 | |||||||||||||||
Non-GAAP subscription billings | 674,159 | 500,958 | 35% | 1,929,435 | 1,435,538 | 34% | |||||||||||||
Effects of foreign currency rate fluctuations | 2,850 | (39,698 | ) | ||||||||||||||||
Effects of fluctuations in billings duration | (4,840 | ) | (3,471 | ) | |||||||||||||||
Non-GAAP adjusted subscription billings (2) | $ | 672,169 | 34% | $ | 1,886,266 | 31% | |||||||||||||
Professional services and other revenues: | |||||||||||||||||||
GAAP professional services and other revenues | $ | 46,530 | $ | 42,866 | 9% | $ | 138,201 | $ | 129,639 | 7% | |||||||||
Effects of foreign currency rate fluctuations | 429 | (2,985 | ) | ||||||||||||||||
Non-GAAP adjusted professional service and other revenues (1) | $ | 46,959 | 10% | $ | 135,216 | 4% | |||||||||||||
Professional services and other billings: | |||||||||||||||||||
GAAP professional services and other revenues | $ | 46,530 | $ | 42,866 | 9% | $ | 138,201 | $ | 129,639 | 7% | |||||||||
Change in professional services and other deferred revenue | (148 | ) | 3,034 | 8,157 | (1,241 | ) | |||||||||||||
Non-GAAP professional services and other billings | 46,382 | 45,900 | 1% | 146,358 | 128,398 | 14% | |||||||||||||
Effects of foreign currency rate fluctuations | 429 | (2,985 | ) | ||||||||||||||||
Non-GAAP adjusted professional services and other billings (2) | $ | 46,811 | 2% | $ | 143,373 | 12% | |||||||||||||
Total revenues: | |||||||||||||||||||
GAAP total revenues | $ | 673,097 | $ | 492,372 | 37% | $ | 1,893,375 | $ | 1,369,401 | 38% | |||||||||
Effects of foreign currency rate fluctuations | 3,072 | (37,865 | ) | ||||||||||||||||
Non-GAAP adjusted total revenues (1) | $ | 676,169 | 37% | $ | 1,855,510 | 35% | |||||||||||||
Total billings: | |||||||||||||||||||
GAAP total revenues | $ | 673,097 | $ | 492,372 | 37% | $ | 1,893,375 | $ | 1,369,401 | 38% | |||||||||
Change in total deferred revenue, unbilled receivables and customer deposits | 47,444 | 54,486 | 182,418 | 194,535 | |||||||||||||||
Non-GAAP total billings | 720,541 | 546,858 | 32% | 2,075,793 | 1,563,936 | 33% | |||||||||||||
Effects of foreign currency rate fluctuations | 3,279 | (42,683 | ) | ||||||||||||||||
Effects of fluctuations in billings duration | (4,840 | ) | (3,471 | ) | |||||||||||||||
Non-GAAP adjusted total billings (2) | $ | 718,980 | 31% | $ | 2,029,639 | 30% | |||||||||||||
Cost of revenues: | |||||||||||||||||||
GAAP subscription cost of revenues | $ | 106,821 | $ | 81,878 | $ | 303,918 | $ | 228,046 | |||||||||||
Stock-based compensation | (12,775 | ) | (8,980 | ) | (36,604 | ) | (25,860 | ) | |||||||||||
Amortization of purchased intangibles | (4,879 | ) | (3,581 | ) | (13,930 | ) | (10,849 | ) | |||||||||||
Non-GAAP subscription cost of revenues | $ | 89,167 | $ | 69,317 | $ | 253,384 | $ | 191,337 | |||||||||||
GAAP professional services and other cost of revenues | $ | 51,037 | $ | 45,608 | $ | 150,578 | $ | 137,652 | |||||||||||
Stock-based compensation | (8,407 | ) | (7,056 | ) | (24,310 | ) | (21,548 | ) | |||||||||||
Non-GAAP professional services and other cost of revenues | $ | 42,630 | $ | 38,552 | $ | 126,268 | $ | 116,104 | |||||||||||
Gross profit (loss): | |||||||||||||||||||
GAAP subscription gross profit | $ | 519,746 | $ | 367,628 | $ | 1,451,256 | $ | 1,011,716 | |||||||||||
Stock-based compensation | 12,775 | 8,980 | 36,604 | 25,860 | |||||||||||||||
Amortization of purchased intangibles | 4,879 | 3,581 | 13,930 | 10,849 | |||||||||||||||
Non-GAAP subscription gross profit | $ | 537,400 | $ | 380,189 | $ | 1,501,790 | $ | 1,048,425 | |||||||||||
GAAP professional services and other gross loss | $ | (4,507 | ) | $ | (2,742 | ) | $ | (12,377 | ) | $ | (8,013 | ) | |||||||
Stock-based compensation | 8,407 | 7,056 | 24,310 | 21,548 | |||||||||||||||
Non-GAAP professional services and other gross profit | $ | 3,900 | $ | 4,314 | $ | 11,933 | $ | 13,535 | |||||||||||
GAAP gross profit | $ | 515,239 | $ | 364,886 | $ | 1,438,879 | $ | 1,003,703 | |||||||||||
Stock-based compensation | 21,182 | 16,036 | 60,914 | 47,408 | |||||||||||||||
Amortization of purchased intangibles | 4,879 | 3,581 | 13,930 | 10,849 | |||||||||||||||
Non-GAAP gross profit | $ | 541,300 | $ | 384,503 | $ | 1,513,723 | $ | 1,061,960 | |||||||||||
Gross margin: | |||||||||||||||||||
GAAP subscription gross margin | 83 | % | 82 | % | 83 | % | 82 | % | |||||||||||
Stock-based compensation as % of subscription revenues | 2 | % | 2 | % | 2 | % | 2 | % | |||||||||||
Amortization of purchased intangibles as % of subscription revenues | 1 | % | 1 | % | 1 | % | 1 | % | |||||||||||
Non-GAAP subscription gross margin | 86 | % | 85 | % | 86 | % | 85 | % | |||||||||||
GAAP professional services and other gross margin | (10 | %) | (6 | %) | (9 | %) | (6 | %) | |||||||||||
Stock-based compensation as % of professional services and other revenues | 18 | % | 16 | % | 18 | % | 16 | % | |||||||||||
Non-GAAP professional services and other gross margin | 8 | % | 10 | % | 9 | % | 10 | % | |||||||||||
GAAP gross margin | 77 | % | 74 | % | 76 | % | 73 | % | |||||||||||
Stock-based compensation as % of total revenues | 3 | % | 3 | % | 3 | % | 3 | % | |||||||||||
Amortization of purchased intangibles as % of total revenues | 0 | % | 1 | % | 1 | % | 2 | % | |||||||||||
Non-GAAP gross margin | 80 | % | 78 | % | 80 | % | 78 | % | |||||||||||
Operating expenses: | |||||||||||||||||||
GAAP sales and marketing expenses | $ | 289,323 | $ | 217,866 | $ | 883,893 | $ | 643,998 | |||||||||||
Stock-based compensation | (60,132 | ) | (43,962 | ) | (169,283 | ) | (124,650 | ) | |||||||||||
Amortization of purchased intangibles | — | (117 | ) | — | (351 | ) | |||||||||||||
Non-GAAP sales and marketing expenses | $ | 229,191 | $ | 173,787 | $ | 714,610 | $ | 518,997 | |||||||||||
GAAP research and development expenses | $ | 135,655 | $ | 98,465 | $ | 380,839 | $ | 272,959 | |||||||||||
Stock-based compensation | (35,527 | ) | (23,092 | ) | (97,905 | ) | (67,624 | ) | |||||||||||
Amortization of purchased intangibles | (455 | ) | (455 | ) | (1,365 | ) | (1,365 | ) | |||||||||||
Non-GAAP research and development expenses | $ | 99,673 | $ | 74,918 | $ | 281,569 | $ | 203,970 | |||||||||||
GAAP general and administrative expenses | $ | 80,693 | $ | 52,465 | $ | 216,851 | $ | 150,242 | |||||||||||
Stock-based compensation | (27,567 | ) | (17,352 | ) | (73,207 | ) | (48,695 | ) | |||||||||||
Amortization of purchased intangibles | (1,047 | ) | (681 | ) | (2,882 | ) | (1,734 | ) | |||||||||||
Business combination and other related costs | (300 | ) | (154 | ) | (964 | ) | (1,504 | ) | |||||||||||
Non-GAAP general and administrative expenses | $ | 51,779 | $ | 34,278 | $ | 139,798 | $ | 98,309 | |||||||||||
GAAP total operating expenses | $ | 505,671 | $ | 368,796 | $ | 1,481,583 | $ | 1,067,199 | |||||||||||
Stock-based compensation | (123,226 | ) | (84,406 | ) | (340,395 | ) | (240,969 | ) | |||||||||||
Amortization of purchased intangibles | (1,502 | ) | (1,253 | ) | (4,247 | ) | (3,450 | ) | |||||||||||
Business combination and other related costs | (300 | ) | (154 | ) | (964 | ) | (1,504 | ) | |||||||||||
Non-GAAP total operating expenses | $ | 380,643 | $ | 282,983 | $ | 1,135,977 | $ | 821,276 | |||||||||||
Income (loss) from operations: | |||||||||||||||||||
GAAP income (loss) from operations | $ | 9,568 | $ | (3,910 | ) | $ | (42,704 | ) | $ | (63,496 | ) | ||||||||
Stock-based compensation | 144,408 | 100,442 | 401,309 | 288,377 | |||||||||||||||
Amortization of purchased intangibles | 6,381 | 4,834 | 18,177 | 14,299 | |||||||||||||||
Business combination and other related costs | 300 | 154 | 964 | 1,504 | |||||||||||||||
Non-GAAP income from operations | $ | 160,657 | $ | 101,520 | $ | 377,746 | $ | 240,684 | |||||||||||
Operating margin: | |||||||||||||||||||
GAAP operating margin | 1 | % | (1 | %) | (2 | %) | (5 | %) | |||||||||||
Stock-based compensation as % of total revenues | 21 | % | 20 | % | 21 | % | 21 | % | |||||||||||
Amortization of purchased intangibles as % of total revenues | 2 | % | 2 | % | 1 | % | 2 | % | |||||||||||
Business combination and other related costs as % of total revenues | 0 | % | 0 | % | 0 | % | 0 | % | |||||||||||
Non-GAAP operating margin | 24 | % | 21 | % | 20 | % | 18 | % | |||||||||||
Net income (loss): | |||||||||||||||||||
GAAP net income (loss) | $ | 8,405 | $ | (22,182 | ) | $ | (33,719 | ) | $ | (99,500 | ) | ||||||||
Stock-based compensation | 144,408 | 100,442 | 401,309 | 288,377 | |||||||||||||||
Amortization of purchased intangibles | 6,381 | 4,834 | 18,177 | 14,299 | |||||||||||||||
Business combination and other related costs | 300 | 154 | 964 | 1,504 | |||||||||||||||
Amortization of debt discount and issuance costs for the convertible senior notes | 11,233 | 16,566 | 43,795 | 36,581 | |||||||||||||||
Loss on early note conversions | 190 | — | 4,063 | — | |||||||||||||||
Income tax expense effects related to the above adjustments | (41,913 | ) | (30,387 | ) | (109,819 | ) | (77,716 | ) | |||||||||||
Non-GAAP net income | $ | 129,004 | $ | 69,427 | $ | 324,770 | $ | 163,545 | |||||||||||
Net income (loss) per share - basic and diluted: | |||||||||||||||||||
GAAP net income (loss) per share - basic | $ | 0.05 | $ | (0.13 | ) | $ | (0.19 | ) | $ | (0.58 | ) | ||||||||
GAAP net income (loss) per share - diluted | $ | 0.04 | $ | (0.13 | ) | $ | (0.19 | ) | $ | (0.58 | ) | ||||||||
Non-GAAP net income per share - basic | $ | 0.72 | $ | 0.40 | $ | 1.83 | $ | 0.96 | |||||||||||
Non-GAAP net income per share - diluted | $ | 0.68 | $ | 0.38 | $ | 1.73 | $ | 0.91 | |||||||||||
GAAP weighted-average shares used to compute net income (loss) per share - basic | 178,719,694 | 171,883,190 | 177,198,179 | 170,359,717 | |||||||||||||||
GAAP weighted-average shares used to compute net income (loss) per share - diluted | 192,190,899 | 171,883,190 | 177,198,179 | 170,359,717 | |||||||||||||||
Effect of dilutive time-based stock awards (4) | — | 8,104,457 | 7,670,540 | 8,562,871 | |||||||||||||||
In-the-money portion of convertible senior notes (4) | (3,192,806 | ) | — | — | — | ||||||||||||||
Warrants (4) | — | 261,456 | 2,932,637 | — | |||||||||||||||
Stock awards with performance conditions not yet satisfied (4) | 348,689 | 171,401 | 239,162 | 90,125 | |||||||||||||||
Non-GAAP weighted-average shares used to compute net income per share - diluted | 189,346,782 | 180,420,504 | 188,040,518 | 179,012,713 | |||||||||||||||
Free cash flow: | |||||||||||||||||||
GAAP net cash provided by operating activities | $ | 145,501 | $ | 141,824 | $ | 521,477 | $ | 458,157 | |||||||||||
Purchases of property and equipment | (47,987 | ) | (46,753 | ) | (136,349 | ) | (115,856 | ) | |||||||||||
Repayments of convertible senior notes attributable to debt discount | 14,076 | — | 101,633 | — | |||||||||||||||
Non-GAAP free cash flow | $ | 111,590 | $ | 95,071 | $ | 486,761 | $ | 342,301 | |||||||||||
Free cash flow margin: | |||||||||||||||||||
GAAP net cash provided by operating activities as % of total revenues | 22 | % | 29 | % | 28 | % | 33 | % | |||||||||||
Purchases of property and equipment as % of total revenues | (7 | %) | (10 | %) | (7 | %) | (8 | %) | |||||||||||
Repayments of convertible senior notes attributable to debt discount as % of total revenues | 2 | % | — | % | 5 | % | — | % | |||||||||||
Non-GAAP free cash flow margin | 17 | % | 19 | % | 26 | % | 25 | % | |||||||||||
(1) | Adjusted revenues and the corresponding growth rates are derived by applying the exchange rates in effect during the comparison period rather than the actual exchange rates in effect during the current period. |
(2) | Adjusted billings and the corresponding growth rates are derived by applying the exchange rates in effect during the comparison period rather than the actual exchange rates in effect during the current period, and by replacing the portion of multi-year billings in excess of twelve months during the current period with the portion of multi-year billings in excess of twelve months during the comparison period. |
(3) | Amounts in the comparison period have been restated for Topic 606 and are unaudited. Effects of foreign currency rate fluctuations and fluctuations in billing durations are not applicable for the comparison period. |
(4) | Effect 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 as 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 September 30, 2018. The comparison period amounts and the related growth rates have been adjusted from previously reported amounts to reflect the impact of the full retrospective adoption of Topic 606. The company’s future performance and financial results are subject to risks and uncertainties, and actual results could differ materially from the guidance set forth below. Some of the factors that could affect the company’s financial results are stated above in this press release. Further information on these and other factors that could affect our financial results are included in our Form 10-Q for the quarter ended June 30, 2018 and in other filings we make with the Securities and Exchange Commission from time to time, including our Form 10-Q that will be filed for the quarter ended September 30, 2018. The company assumes no obligation to update any forward-looking statements or information, which speak as of their respective dates.
Three Months Ended | |||||
December 31, 2018 | December 31, 2017 (3) | Growth Rates | |||
GAAP subscription revenues | $660 - $665 million | $500 million | 32% - 33% | ||
Effects of foreign currency rate fluctuations | 4 million | ||||
Non-GAAP adjusted subscription revenues (1) | $664 - $669 million | 33% - 34% | |||
GAAP subscription revenues | $660 - $665 million | $500 million | 32% - 33% | ||
Change in subscription deferred revenue, unbilled receivables and customer deposits | 240 million | 188 million | |||
Non-GAAP subscription billings | $900 - $905 million | $688 million | 31% | ||
Effects of foreign currency rate fluctuations | 6 million | ||||
Effects of fluctuations in billings duration | 0 million | ||||
Non-GAAP adjusted subscription billings (2) | $906 - $911 million | 32% | |||
GAAP operating margin | 1% | ||||
Stock-based compensation expense as % of total revenues | 19% | ||||
Amortization of purchased intangibles as % of total revenues | 1% | ||||
Non-GAAP operating margin | 21% | ||||
GAAP weighted-average shares used to compute net income per share - diluted | 192 million | ||||
In-the-money portion of convertible senior notes (4) | (2) million | ||||
Non-GAAP weighted-average shares used to compute net income per share - diluted | 190 million | ||||
Twelve Months Ended | |||||
December 31, 2018 | December 31, 2017 (3) | Growth Rates | |||
GAAP subscription revenues | $2,415 - $2,420 million | $1,740 million | 39% | ||
Effects of foreign currency rate fluctuations | (31) million | ||||
Non-GAAP adjusted subscription revenues (1) | $2,384 - $2,389 million | 37% | |||
GAAP subscription revenues | $2,415 - $2,420 million | $1,740 million | 39% | ||
Change in subscription deferred revenue, unbilled receivables and customer deposits | 415 million | 384 million | |||
Non-GAAP subscription billings | $2,830 - $2,835 million | $2,124 million | 33% | ||
Effects of foreign currency rate fluctuations | (34) million | ||||
Effects of fluctuations in billings duration | (3) million | ||||
Non-GAAP adjusted subscription billings (2) | $2,793 - $2,798 million | 31% - 32% | |||
GAAP subscription gross margin | 82% | ||||
Stock-based compensation expense as % of subscription revenues | 2% | ||||
Amortization of purchased intangibles as % of subscription revenues | 1% | ||||
Non-GAAP subscription margin | 85% | ||||
GAAP operating margin | (2%) | ||||
Stock-based compensation expense as % of total revenues | 21% | ||||
Amortization of purchased intangibles as % of total revenues | 1% | ||||
Business combination and other related costs as % of total revenues | 0% | ||||
Non-GAAP operating margin | 20% | ||||
GAAP net cash provided by operating activities as % of total revenues | 30% | ||||
Purchases of property and equipment as % of total revenues | (8%) | ||||
Repayments of convertible senior notes attributable to debt discount as % of total revenues | 6% | ||||
Non-GAAP free cash flow margin | 28% | ||||
GAAP weighted-average shares used to compute net loss per share - diluted | 178 million | ||||
Effect of dilutive securities (stock options, restricted stock units and warrants) | 10 million | ||||
Non-GAAP weighted-average shares used to compute net income per share - diluted | 188 million | ||||
(1) | Adjusted revenues and the corresponding growth rates are derived by applying the exchange rates in effect during the comparison period rather than the forecasted exchange rates for the guidance period. |
(2) | Adjusted billings and the corresponding growth rates are derived by applying the exchange rates in effect during the comparison period rather than the forecasted exchange rates for the guidance period, and by replacing the forecasted portion of multi-year billings in excess of twelve months for the guidance period with the actual portion of multi-year billings in excess of twelve months during the comparison period. |
(3) | Effects of foreign currency rate fluctuations and fluctuations in billing durations are not applicable for the comparison period. |
(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. |