snlogo23.jpg

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
%
 
 
 
 
 
 
 
 


1


 
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.






2


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).


3


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.


4


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

5



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