8-K
ServiceNow, Inc. (NOW)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
_____________________
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of report (Date of earliest event reported): January 24, 2023
___________
SERVICENOW, INC.
(Exact name of registrant as specified in its charter)
___________
| Delaware | 001-35580 | 20-2056195 |
|---|---|---|
| (State or other jurisdiction of<br><br>incorporation or organization) | (Commission File Number) | (I.R.S. Employer<br><br>Identification Number) |
2225 Lawson Lane
Santa Clara, California 95054
(Address of Principal Executive Offices and Zip Code)
(408) 501-8550
(Registrant's telephone number, including area code)
| Not Applicable |
|---|
| (Former Name or Former Address, if Changed Since Last Report) |
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2 below):
| ☐ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
|---|---|
| ☐ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ☐ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ☐ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol | Name of each exchange on which registered |
|---|---|---|
| Common stock, par value $0.001 per share | NOW | The New York Stock Exchange |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Item 2.02 Results of Operations and Financial Condition.
On January 25, 2023, ServiceNow, Inc. (“ServiceNow” or the “Company”) issued a press release announcing financial results for the three months and year ended December 31, 2022.
A copy of the press release is furnished as Exhibit 99.1 to this Current Report on Form 8-K and is incorporated by reference herein.
The information above, including Exhibit 99.1, is furnished pursuant to Item 2.02 of Form 8-K and is not deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to liabilities of that section, nor shall it be deemed incorporated by reference in any filing of ServiceNow under the Securities Act of 1933, as amended, or the Exchange Act, whether made before or after the date hereof and irrespective of any general incorporation language in any filings.
Item 5.02 Departure of Directors or Certain officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.
On January 24, 2023, the Board of Directors of ServiceNow promoted Chirantan “CJ” Desai, 52, to President and Chief Operating Officer, effective immediately.
Mr. Desai’s biographical information and compensation information are included in the Company's proxy statement for its 2022 annual meeting of shareholders. There are no arrangements or understandings between Mr. Desai and any other person pursuant to which Mr. Desai was promoted as President and Chief Operating Officer. There are no family relationships between Mr. Desai and any of the Company's directors or other executive officers. Mr. Desai has not had an interest in any transaction since the beginning of the Company’s last fiscal year, or any currently proposed transaction, that requires disclosure pursuant to Item 404(a) of Regulation S-K.
For additional information, see the press release attached as Exhibit 99.1 to this Current Report on Form 8-K. The information in the press release attached hereto shall not be deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing of ServiceNow under the Securities Act or the Exchange Act whether made before or after the date hereof and irrespective of any general incorporation language in any filings.
Item 9.01 Financial Statements and Exhibits.
| (d) | Exhibits. | |
|---|---|---|
| 99.1 | Press release datedJanuary 25, 2023, announcing ServiceNow, Inc.'s financial results for the three monthsand yearendedDecember31, 2022. | |
| 104 | Cover Page Interactive Data File – the cover page XBRL tags are embedded within the Inline XBRL document |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| SERVICENOW, INC. | ||
|---|---|---|
| By: | /s/ Russell S. Elmer | |
| Russell S. Elmer<br>General Counsel | ||
| Date: January 25, 2023 |
Document
ServiceNow Reports Fourth Quarter and Full-Year 2022 Financial Results
•ServiceNow exceeds high end of guidance across Q4 2022 GAAP topline growth and profitability metrics
•Subscription revenues of $1,860 million in Q4 2022, representing 22% year-over-year growth, 27.5% adjusted for constant currency
•Total revenues of $1,940 million in Q4 2022, representing 20% year-over-year growth, 25.5% adjusted for constant currency
•Current remaining performance obligations (“cRPO”) of $6.94 billion as of Q4 2022, representing 22% year-over-year growth, 25.5% adjusted for constant currency
•Net new annual contract value (“NNACV”) contribution to cRPO outperformed company expectations in Q4 2022, driven by strong net expansion and over 30% NNACV growth year-over-year from new logos
SANTA CLARA, Calif. - January 25, 2023 - ServiceNow (NYSE: NOW), the leading digital workflow company making the world work better for everyone, today announced financial results for its fourth quarter ended December 31, 2022, with subscription revenues of $1,860 million in Q4 2022, representing 22% year-over-year growth, 27.5% adjusted for constant currency.
“ServiceNow continues to perform as a beyond expectations company,” said ServiceNow Chairman and CEO Bill McDermott. “Our Q4 surge in new business shows that the secular tailwinds of digitization aren’t going anywhere. We are driving net-new innovation, fast growth, and operating leverage. The world works with ServiceNow as the end-to-end platform for digital transformation.”
As of December 31, 2022, current remaining performance obligations (“cRPO”), contract revenue that will be recognized as revenue in the next 12 months, was $6.94 billion, representing 22% year-over-year growth and 25.5% adjusted for constant currency. The company now has 1,637 total customers with more than $1 million in annual contract value, representing 22% year-over-year growth in customers.
“Q4 was another great quarter of execution as we exceeded our subscription revenue and profitability guidance,” said ServiceNow CFO Gina Mastantuono. “We outperformed our NNACV expectations, driven by robust net expansion and over 30% NNACV growth year-over-year from new logos. What’s more, our results were generated with a lower mix of early renewals from 2023, providing us more opportunities to drive further expansion throughout the year. With our strong results it's clear that ServiceNow remains a strategic priority, generating durable demand that is positioning us well for 2023 and beyond.”
Following McDermott’s elevation to Chairman and CEO late in 2022, ServiceNow has appointed Chirantan CJ Desai President and COO of ServiceNow. Desai joined ServiceNow in December 2016 as the Chief Product Officer and was promoted to the role of Chief Operating Officer in January 2022. Prior to joining ServiceNow, Desai held product leadership roles at EMC, Symantec, and Oracle.
“CJ has established himself as a leader of consequence in this industry,” said McDermott. “His track record – from strengthening our platform to driving our customer experience – has helped establish ServiceNow as the enterprise juggernaut it is today. I’d like to personally congratulate CJ for this latest, well-deserved endorsement of his leadership.”
Recent Business Highlights
•New innovations rolled out in fourth quarter – including automated service suggestions, Service Request Playbook, and Workplace Scenario Planning – were designed to help address today's most pressing workplace productivity challenges by accelerating automation to eliminate complexity and improve service operations for a better customer, employee, and constituent experience.
•During the quarter, ServiceNow also enhanced its observability capabilities by launching Lightstep UQL (Unified Query Language) to help companies extend visibility across highly complex and dynamic Kubernetes applications and ensure they’re fully instrumented and observable by default.
•In addition, ServiceNow and Zoom Communications expanded their partnership with new integrations to help joint customers elevate employee productivity and improve collaboration across their organizations.
•The company welcomed Masatoshi Suzuki as president of ServiceNow Japan, designating Japan as a fourth geographic region alongside EMEA, APAC, and Americas. Suzuki-san joins ServiceNow after a decades-long, distinguished career in leading industry organizations including UiPath, Symantec, SAP, and Oracle.
•Last week, ServiceNow also announced a multi-year transformation of its Partner Program to support the estimated $500 billion market opportunity for the Now Platform and associated partner services. It will create new opportunities for partners to expand and collaborate with ServiceNow, giving partners more flexibility to create value, incentives to enable growth, and an improved experience.
Fourth Quarter 2022 GAAP and Non-GAAP Results:
The following table summarizes our financial results for the fourth quarter 2022:
| Fourth Quarter 2022 GAAP Results | Fourth Quarter 2022 Non-GAAP Results(1) | |||
|---|---|---|---|---|
| Amount <br>($ millions) | Year/Year Growth (%) | Amount<br><br>($ millions)(2) | Year/Year Growth (%) | |
| Subscription revenues | $1,860 | 22 | $1,941 | 27.5 |
| Professional services and other revenues | $80 | (12 | $85 | (6.5 |
| Total revenues | $1,940 | 20 | $2,026 | 25.5 |
| Amount <br>($ billions) | Year/Year Growth (%) | Amount <br>($ billions)(2) | Year/Year Growth (%) | |
| cRPO | $6.94 | 22 | $7.12 | 25.5 |
| RPO | $14.0 | 22 | $14.4 | 25 |
| Amount <br>($ millions) | Margin (%) | Amount <br>($ millions) | Margin (%) | |
| Subscription gross profit | $1,536 | 83 | $1,595 | 86 |
| Professional services and other gross profit (loss) | ($11) | (14 | $5 | 6 |
| Total gross profit | $1,525 | 79 | $1,600 | 83 |
| Income from operations | $155 | 8 | $544 | 28 |
| Net cash provided by operating activities | $1,162 | 60 | ||
| Free cash flow | $1,020 | 53 | ||
| Amount <br>($ millions) | Earnings per Basic/Diluted Share () | Amount <br>($ millions) | Earnings per Basic/Diluted Share () | |
| Net income | $150 | 0.74 / 0.74 | $464 | 2.29 / 2.28 |
All values are in US Dollars.
(1)We report non-GAAP financial measures in addition to, and not as a substitute for, or superior to, financial measures calculated in accordance with GAAP. See the section entitled “Statement Regarding Use of Non-GAAP Financial Measures” for an explanation of non-GAAP measures, and the table entitled “GAAP to Non-GAAP Reconciliation” for a reconciliation of GAAP to non-GAAP measures.
(2)Non-GAAP subscription revenues, professional services and other revenues, total revenues, cRPO and RPO are adjusted for constant currency. See the section entitled “Statement Regarding Use of Non-GAAP Financial Measures” for an explanation of non-GAAP measures, and the table entitled “GAAP to Non-GAAP Reconciliation” for a reconciliation of GAAP to non-GAAP measures.
Note: Numbers rounded for presentation purposes.
Full-Year 2022 GAAP and Non-GAAP Results:
The following table summarizes our financial results for the full-year 2022:
| Full-Year 2022 GAAP Results | Full-Year 2022 Non-GAAP Results(1) | |||
|---|---|---|---|---|
| Amount <br>($ millions) | Year/Year Growth (%) | Amount<br><br>($ millions)(2) | Year/Year Growth (%) | |
| Subscription revenues | $6,891 | 24 | $7,165 | 28.5 |
| Professional services and other revenues | $354 | 10 | $373 | 15.5 |
| Total revenues | $7,245 | 23 | $7,538 | 28 |
| Amount <br>($ billions) | Year/Year Growth (%) | Amount <br>($ billions)(2) | Year/Year Growth (%) | |
| cRPO | $6.94 | 22 | $7.12 | 25.5 |
| RPO | $14.0 | 22 | $14.4 | 25 |
| Amount <br>($ millions) | Margin (%) | Amount <br>($ millions) | Margin (%) | |
| Subscription gross profit | $5,704 | 83 | $5,935 | 86 |
| Professional services and other gross profit (loss) | ($32) | (9 | $35 | 10 |
| Total gross profit | $5,672 | 78 | $5,970 | 82 |
| Income from operations | $355 | 5 | $1,860 | 26 |
| Net cash provided by operating activities | $2,723 | 38 | ||
| Free cash flow | $2,180 | 30 | ||
| Amount <br>($ millions) | Earnings per Basic/Diluted Share () | Amount <br>($ millions) | Earnings per Basic/Diluted Share () | |
| Net income | 325 | 1.61 / 1.60 | $1,543 | 7.66 / 7.59 |
All values are in US Dollars.
(1)We report non-GAAP financial measures in addition to, and not as a substitute for, or superior to, financial measures calculated in accordance with GAAP. See the section entitled “Statement Regarding Use of Non-GAAP Financial Measures” for an explanation of non-GAAP measures, and the table entitled “GAAP to Non-GAAP Reconciliation” for a reconciliation of GAAP to non-GAAP measures.
(2)Non-GAAP subscription revenues, professional services and other revenues, total revenues, cRPO and RPO are adjusted for constant currency. See the section entitled “Statement Regarding Use of Non-GAAP Financial Measures” for an explanation of non-GAAP measures, and the table entitled “GAAP to Non-GAAP Reconciliation” for a reconciliation of GAAP to non-GAAP measures.
Note: Numbers rounded for presentation purposes.
Financial Outlook
Our guidance includes GAAP and non-GAAP financial measures. The non-GAAP growth rates for subscription revenues and cRPO are only adjusted for constant currency to provide better visibility into the underlying business trends.
The following table summarizes our guidance for the first quarter 2023:
| First Quarter 2023<br>GAAP Guidance | First Quarter 2023<br><br>Non-GAAP Guidance(1) | ||||
|---|---|---|---|---|---|
| Amount <br>($ millions)(2) | Year/Year<br><br>Growth (%)(2) | Constant Currency <br>Year/Year Growth (%) | |||
| Subscription revenues | $1,990 - $2,000 | 22% - 22.5% | 25% - 25.5% | ||
| cRPO | 21 | % | 24 | % | |
| Margin (%) | |||||
| Income from operations | 24 | % | |||
| Amount <br>(millions) | |||||
| Weighted-average shares used to compute diluted net income per share | 204 |
(1)We report non-GAAP financial measures in addition to, and not as a substitute for, or superior to, financial measures calculated in accordance with GAAP. See the section entitled “Statement Regarding Use of Non-GAAP Financial Measures” for an explanation of non-GAAP measures, and the table entitled “Reconciliation of Non-GAAP Financial Guidance” for a reconciliation of GAAP to non-GAAP measures.
(2)Guidance for GAAP subscription revenues and GAAP subscription revenue and cRPO growth rate is based on the 31-day average of foreign exchange rates for December 2022 for entities reporting in currencies other than U.S. Dollars.
The following table summarizes our guidance for the full-year 2023:
| Full-Year 2023<br>GAAP Guidance | Full-Year 2023<br><br>Non-GAAP Guidance(1) | |||
|---|---|---|---|---|
| Amount <br>($ millions)(2) | Year/Year<br><br>Growth (%)(2) | Constant Currency <br>Year/Year Growth (%) | ||
| Subscription revenues | $8,440 - $8,500 | 22.5% - 23.5% | 22.5% - 23.5% | |
| Margin (%) | ||||
| Subscription gross profit | 84 | % | ||
| Income from operations | 26 | % | ||
| Free cash flow | 30 | % | ||
| Amount <br>(millions) | ||||
| Weighted-average shares used to compute diluted net income per share | 206 |
(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)GAAP subscription revenues and related growth rate for the future quarters included in our full-year 2023 guidance are based on the 31-day average of foreign exchange rates for December 2022 for entities reporting in currencies other than U.S. Dollars.
Note: Numbers are rounded for presentation purposes and may not foot.
Conference Call Details
The conference call will begin at 2 p.m. Pacific Time (22:00 GMT) on January 25, 2023. Interested parties may listen to the call by dialing (888) 330‑2455 (Passcode: 8135305), or if outside North America, by dialing (240) 789-2717 (Passcode: 8135305). Individuals may access the live teleconference from this webcast.
https://events.q4inc.com/attendee/623018365
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 (800) 770‑2030 (Passcode: 8135305), or if outside North America, by dialing (647) 362‑9199 (Passcode: 8135305).
Investor Presentation Details
An investor presentation providing additional information, including forward-looking guidance, and analysis can be found at https://www.servicenow.com/company/investor-relations.html
Statement Regarding Use of Non-GAAP Financial Measures
We use 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.
•Revenues. We adjust revenues and related growth rates 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 (“USD”) are converted into USD at the average exchange rates in effect during the comparison period (for Q4 2021, the average exchange rates in effect for our major currencies were 1 USD to 0.87 Euros and 1 USD to 0.74 British Pound Sterling (“GBP”)), rather than the actual average exchange rates in effect during the current period (for Q4 2022, the average exchange rates in effect for our major currencies were 1 USD to 0.98 Euros and 1 USD to 0.85 GBP). Guidance for related growth rates are derived by applying the average exchange rates in effect during the comparison period rather than the exchange rates for the guidance period. We believe the presentation of revenues and related growth rates adjusted for constant currency facilitates the comparison of revenues year-over-year.
•Remaining performance obligations and current remaining performance obligations. We adjust cRPO and remaining performance obligations (“RPO”) and related growth rates for constant currency to provide a framework for assessing how our business performed. To present this information, current period results for entities reporting in currencies other than USD are converted into USD at the exchange rates in effect at the end of the comparison period (for Q4 2021, the end of the period exchange rates in effect for our major currencies were 1 USD to 0.88 Euros and 1 USD to 0.74 GBP), rather than the actual end of the period exchange rates in effect during the current period (for Q4 2022, the end of the period exchange rates in effect for our major currencies were 1 USD to 0.93 Euros and 1 USD to 0.83 GBP). Guidance for the related growth rate is derived by applying the end of period exchange rates in effect during the comparison period rather than the exchange rates in effect during the guidance period. We believe the presentation of cRPO and RPO and related growth rates adjusted for constant currency facilitates the comparison of cRPO and RPO year-over-year, respectively.
•Gross profit, Income from operations, Net income and Net income per share - diluted. Our non-GAAP presentation of gross profit, income from operations, and net income measures exclude certain non-cash or non-recurring items, including 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. The non-GAAP weighted-average shares used to compute our non-GAAP net income per share - diluted excludes the dilutive effect of the in-the-money portion of convertible senior notes as they are covered by our note hedges, and includes the dilutive effect of time-based stock awards, the dilutive effect of warrants and the potentially dilutive effect of our stock awards with performance conditions not yet satisfied at forecasted attainment levels to the extent we believe it is probable that the performance condition will be met. We believe these adjustments provide 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, repayments of convertible senior notes attributable to debt discount and business combination and other related costs including compensation expense, 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, among others, experiencing an actual or perceived cyber-security event; our ability to comply with evolving privacy laws, data transfer restrictions, and other foreign and domestic standards related to data and the Internet; errors, interruptions, delays, or security breaches in or of our service or data centers; our ability to maintain and attract key employees and manage workplace culture; alleged violations of laws and regulations, including those relating to anti-bribery and anti-corruption and those relating to public sector contracting requirements; our ability to compete successfully against existing and new competitors; our ability to predict, prepare for and respond promptly to rapidly evolving technological, market and customer developments; our ability to grow our business, including converting remaining performance obligations into revenue, adding and retaining customers, selling additional subscriptions to existing customers, selling to larger enterprises, government and regulated organizations with complex sales cycles and certification processes, and entering new geographies and markets; our ability to develop and gain customer demand for and acceptance of existing, new and improved products and services; our ability to expand and maintain our partnerships and partner programs, including expected market opportunity from such relationships; global economic conditions; fluctuations in the value of foreign currencies relative to the U.S. Dollar; fluctuations in interest rates; our ability to consummate and realize the benefits of any strategic transactions or acquisitions; the impact of the Russian invasion of Ukraine on macroeconomic conditions; inflation; and fluctuations and volatility in our stock price.
Further information on these and other factors that could affect our financial results are included in our Form 10-Q for the quarter ended September 30, 2022 and in other filings we make with the Securities and Exchange Commission from time to time, including our Form 10-K that will be filed for the year ended December 31, 2022.
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) makes the world work better for everyone. Our cloud-based platform and solutions help digitize and unify organizations so that they can find smarter, faster, better ways to make work flow. So employees and customers can be more connected, more innovative, and more agile. And we can all create the future we imagine. The world works with ServiceNowTM. For more information, visit: www.servicenow.com.
© 2023 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:
Johnna Hoff
408.250.8644
press@servicenow.com
Investor Contact:
Darren Yip
925.388.7205
ir@servicenow.com
ServiceNow, Inc.
Condensed Consolidated Statements of Operations
(in millions, except per share data)
(unaudited)
| Three Months Ended | Year Ended | |||||||
|---|---|---|---|---|---|---|---|---|
| December 31, 2022 | December 31, 2021 | December 31, 2022 | December 31, 2021 | |||||
| Revenues: | ||||||||
| Subscription | $ | 1,860 | $ | 1,523 | $ | 6,891 | $ | 5,573 |
| Professional services and other | 80 | 91 | 354 | 323 | ||||
| Total revenues | 1,940 | 1,614 | 7,245 | 5,896 | ||||
| Cost of revenues (1): | ||||||||
| Subscription | 324 | 282 | 1,187 | 1,022 | ||||
| Professional services and other | 91 | 93 | 386 | 331 | ||||
| Total cost of revenues | 415 | 375 | 1,573 | 1,353 | ||||
| Gross profit | 1,525 | 1,239 | 5,672 | 4,543 | ||||
| Operating expenses (1): | ||||||||
| Sales and marketing | 722 | 632 | 2,814 | 2,292 | ||||
| Research and development | 454 | 392 | 1,768 | 1,397 | ||||
| General and administrative | 194 | 180 | 735 | 597 | ||||
| Total operating expenses | 1,370 | 1,204 | 5,317 | 4,286 | ||||
| Income from operations | 155 | 35 | 355 | 257 | ||||
| Interest expense | (7) | (7) | (27) | (28) | ||||
| Other income, net | 35 | 4 | 71 | 20 | ||||
| Income before income taxes | 183 | 32 | 399 | 249 | ||||
| Provision for income taxes | 33 | 6 | 74 | 19 | ||||
| Net income | $ | 150 | $ | 26 | $ | 325 | $ | 230 |
| Net income per share - basic | $ | 0.74 | $ | 0.13 | $ | 1.61 | $ | 1.16 |
| Net income per share - diluted | $ | 0.74 | $ | 0.13 | $ | 1.60 | $ | 1.13 |
| Weighted-average shares used to compute net income per share - basic | 203 | 199 | 201 | 198 | ||||
| Weighted-average shares used to compute net income per share - diluted | 203 | 204 | 204 | 203 |
(1)Includes stock-based compensation as follows:
| Three Months Ended | Year Ended | |||||||
|---|---|---|---|---|---|---|---|---|
| December 31, 2022 | December 31, 2021 | December 31, 2022 | December 31, 2021 | |||||
| Cost of revenues: | ||||||||
| Subscription | $ | 41 | $ | 33 | $ | 157 | $ | 128 |
| Professional services and other | 16 | 16 | 67 | 59 | ||||
| Operating expenses: | ||||||||
| Sales and marketing | 122 | 96 | 459 | 389 | ||||
| Research and development | 127 | 107 | 495 | 395 | ||||
| General and administrative | 57 | 50 | 223 | 160 |
ServiceNow, Inc.
Condensed Consolidated Balance Sheets
(in millions)
| December 31, 2022 | December 31, 2021 | |||
|---|---|---|---|---|
| (unaudited) | ||||
| Assets | ||||
| Current assets: | ||||
| Cash and cash equivalents | $ | 1,470 | $ | 1,728 |
| Short-term investments | 2,810 | 1,576 | ||
| Accounts receivable, net | 1,725 | 1,390 | ||
| Current portion of deferred commissions | 369 | 303 | ||
| Prepaid expenses and other current assets | 280 | 223 | ||
| Total current assets | 6,654 | 5,220 | ||
| Deferred commissions, less current portion | 742 | 623 | ||
| Long-term investments | 2,117 | 1,630 | ||
| Property and equipment, net | 1,053 | 766 | ||
| Operating lease right-of-use assets | 682 | 591 | ||
| Intangible assets, net | 232 | 287 | ||
| Goodwill | 824 | 777 | ||
| Deferred tax assets | 636 | 692 | ||
| Other assets | 359 | 212 | ||
| Total assets | $ | 13,299 | $ | 10,798 |
| Liabilities and Stockholders’ Equity | ||||
| Current liabilities: | ||||
| Accounts payable | $ | 274 | $ | 89 |
| Accrued expenses and other current liabilities | 975 | 850 | ||
| Current portion of deferred revenue | 4,660 | 3,836 | ||
| Current portion of operating lease liabilities | 96 | 82 | ||
| Current debt, net | — | 92 | ||
| Total current liabilities | 6,005 | 4,949 | ||
| Deferred revenue, less current portion | 70 | 63 | ||
| Operating lease liabilities, less current portion | 650 | 556 | ||
| Long-term debt, net | 1,486 | 1,484 | ||
| Other long-term liabilities | 56 | 51 | ||
| Stockholders’ equity | 5,032 | 3,695 | ||
| Total liabilities and stockholders’ equity | $ | 13,299 | $ | 10,798 |
ServiceNow, Inc.
Condensed Consolidated Statements of Cash Flows
(in millions)
(unaudited)
| Three Months Ended | Year Ended | |||||||
|---|---|---|---|---|---|---|---|---|
| December 31, 2022 | December 31, 2021 | December 31, 2022 | December 31, 2021 | |||||
| Cash flows from operating activities: | ||||||||
| Net income | $ | 150 | $ | 26 | $ | 325 | $ | 230 |
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Depreciation and amortization | 118 | 126 | 433 | 472 | ||||
| Amortization of deferred commissions | 97 | 83 | 358 | 294 | ||||
| Amortization of debt discount and issuance costs | — | 2 | — | 7 | ||||
| Stock-based compensation | 363 | 302 | 1,401 | 1,131 | ||||
| Deferred income taxes | 18 | (13) | 15 | (34) | ||||
| Repayments of convertible senior notes attributable to debt discount | — | — | — | (15) | ||||
| Loss on extinguishment of 2022 notes | — | — | — | 3 | ||||
| Other | 8 | 17 | 17 | 45 | ||||
| Changes in operating assets and liabilities, net of effect of business combinations: | ||||||||
| Accounts receivable | (785) | (620) | (340) | (401) | ||||
| Deferred commissions | (197) | (221) | (566) | (565) | ||||
| Prepaid expenses and other assets | 34 | (15) | (39) | (93) | ||||
| Accounts payable | 56 | 16 | 172 | 55 | ||||
| Deferred revenue | 1,060 | 913 | 904 | 960 | ||||
| Accrued expenses and other liabilities | 240 | 228 | 43 | 102 | ||||
| Net cash provided by operating activities | 1,162 | 844 | 2,723 | 2,191 | ||||
| Cash flows from investing activities: | ||||||||
| Purchases of property and equipment | (144) | (100) | (550) | (392) | ||||
| Business combinations, net of cash acquired | (34) | (7) | (91) | (785) | ||||
| Purchases of intangibles | — | (7) | — | (7) | ||||
| Purchases of investments | (1,227) | (744) | (4,038) | (2,485) | ||||
| Purchases of non-marketable investments | (29) | (43) | (167) | (71) | ||||
| Sales and maturities of investments | 545 | 540 | 2,245 | 2,119 | ||||
| Other | 15 | 2 | 18 | 14 | ||||
| Net cash used in investing activities | (874) | (359) | (2,583) | (1,607) | ||||
| Cash flows from financing activities: | ||||||||
| Repayments of convertible senior notes attributable to principal | — | (2) | (94) | (61) | ||||
| Proceeds from employee stock plans | — | 2 | 177 | 167 | ||||
| Taxes paid related to net share settlement of equity awards | (75) | (155) | (427) | (612) | ||||
| Net cash used in financing activities | (75) | (155) | (344) | (506) | ||||
| Foreign currency effect on cash, cash equivalents and restricted cash | 8 | (4) | (53) | (25) | ||||
| Net change in cash, cash equivalents and restricted cash | 221 | 326 | (257) | 53 | ||||
| Cash, cash equivalents and restricted cash at beginning of period | 1,254 | 1,406 | 1,732 | 1,679 | ||||
| Cash, cash equivalents and restricted cash at end of period | $ | 1,475 | $ | 1,732 | $ | 1,475 | $ | 1,732 |
ServiceNow, Inc.
GAAP to Non-GAAP Reconciliation
(in millions, except cRPO, RPO and per share data)
(unaudited)
| Three Months Ended | Year Ended | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| December 31, 2022 | December 31, 2021 | Growth Rates | December 31, 2022 | December 31, 2021 | Growth Rates | |||||||||
| Subscription revenues: | ||||||||||||||
| GAAP subscription revenues | $ | 1,860 | $ | 1,523 | 22% | $ | 6,891 | $ | 5,573 | 24% | ||||
| Effects of foreign currency rate fluctuations | 81 | 274 | ||||||||||||
| Non-GAAP subscription revenues(1) | $ | 1,941 | 27.5% | $ | 7,165 | 28.5% | ||||||||
| Professional services and other revenues: | ||||||||||||||
| GAAP professional services and other revenues | $ | 80 | $ | 91 | (12%) | $ | 354 | $ | 323 | 10% | ||||
| Effects of foreign currency rate fluctuations | 5 | 19 | ||||||||||||
| Non-GAAP professional service and other revenues(1) | $ | 85 | (6.5%) | $ | 373 | 15.5% | ||||||||
| Total revenues: | ||||||||||||||
| GAAP total revenues | $ | 1,940 | $ | 1,614 | 20% | $ | 7,245 | $ | 5,896 | 23% | ||||
| Effects of foreign currency rate fluctuations | 86 | 293 | ||||||||||||
| Non-GAAP total revenues(1) | $ | 2,026 | 25.5% | $ | 7,538 | 28% | ||||||||
| cRPO (in billions): | ||||||||||||||
| GAAP cRPO | $ | 6.94 | $ | 5.68 | 22% | $ | 6.94 | $ | 5.68 | 22% | ||||
| Effects of foreign currency rate fluctuations | 0.18 | 0.18 | ||||||||||||
| Non-GAAP cRPO(2) | $ | 7.12 | 25.5% | $ | 7.12 | 25.5% | ||||||||
| RPO (in billions): | ||||||||||||||
| GAAP RPO | $ | 14.0 | $ | 11.5 | 22% | $ | 14.0 | $ | 11.5 | 22% | ||||
| Effects of foreign currency rate fluctuations | 0.4 | 0.4 | ||||||||||||
| Non-GAAP RPO(2) | $ | 14.4 | 25% | $ | 14.4 | 25% | ||||||||
| Three Months Ended | Year Ended | |||||||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| December 31, 2022 | December 31, 2021 | Growth Rates | December 31, 2022 | December 31, 2021 | Growth Rates | |||||||||
| Cost of revenues: | ||||||||||||||
| GAAP subscription cost of revenues | $ | 324 | $ | 282 | $ | 1,187 | $ | 1,022 | ||||||
| Stock-based compensation | (41) | (33) | (157) | (128) | ||||||||||
| Amortization of purchased intangibles | (18) | (21) | (72) | (64) | ||||||||||
| Business combination and other related costs | — | — | (2) | — | ||||||||||
| Non-GAAP subscription cost of revenues | $ | 265 | $ | 228 | $ | 956 | $ | 830 | ||||||
| GAAP professional services and other cost of revenues | $ | 91 | $ | 93 | $ | 386 | $ | 331 | ||||||
| Stock-based compensation | (16) | (16) | (67) | (59) | ||||||||||
| Non-GAAP professional services and other cost of revenues | $ | 75 | $ | 77 | $ | 319 | $ | 272 | ||||||
| Gross profit: | ||||||||||||||
| GAAP subscription gross profit | $ | 1,536 | $ | 1,241 | $ | 5,704 | $ | 4,551 | ||||||
| Stock-based compensation | 41 | 33 | 157 | 128 | ||||||||||
| Amortization of purchased intangibles | 18 | 21 | 72 | 64 | ||||||||||
| Business combination and other related costs | — | — | 2 | — | ||||||||||
| Non-GAAP subscription gross profit | $ | 1,595 | $ | 1,295 | $ | 5,935 | $ | 4,743 | ||||||
| GAAP professional services and other gross loss | $ | (11) | $ | (2) | $ | (32) | $ | (8) | ||||||
| Stock-based compensation | 16 | 16 | 67 | 59 | ||||||||||
| Non-GAAP professional services and other gross profit | $ | 5 | $ | 14 | $ | 35 | $ | 51 | ||||||
| GAAP gross profit | $ | 1,525 | $ | 1,239 | $ | 5,672 | $ | 4,543 | ||||||
| Stock-based compensation | 57 | 49 | 224 | 187 | ||||||||||
| Amortization of purchased intangibles | 18 | 21 | 72 | 64 | ||||||||||
| Business combination and other related costs | — | — | 2 | — | ||||||||||
| Non-GAAP gross profit | $ | 1,600 | $ | 1,309 | $ | 5,970 | $ | 4,794 | ||||||
| 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 | % | ||||||
| Business combination and other related costs as % of subscription revenues | — | % | — | % | — | % | — | % | ||||||
| Non-GAAP subscription gross margin | 86 | % | 85 | % | 86 | % | 85 | % | ||||||
| GAAP professional services and other gross margin | (14 | %) | (2 | %) | (9 | %) | (2 | %) | ||||||
| Stock-based compensation as % of professional services and other revenues | 20 | % | 17 | % | 19 | % | 18 | % | ||||||
| Non-GAAP professional services and other gross margin | 6 | % | 15 | % | 10 | % | 16 | % | ||||||
| GAAP gross margin | 79 | % | 77 | % | 78 | % | 77 | % | ||||||
| Stock-based compensation as % of total revenues | 3 | % | 3 | % | 3 | % | 3 | % | ||||||
| Amortization of purchased intangibles as % of total revenues | 1 | % | 1 | % | 1 | % | 1 | % | ||||||
| Business combination and other related costs as % of total revenues | — | % | — | % | — | % | — | % | ||||||
| Non-GAAP gross margin | 83 | % | 81 | % | 82 | % | 81 | % | ||||||
| Three Months Ended | Year Ended | |||||||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| December 31, 2022 | December 31, 2021 | Growth Rates | December 31, 2022 | December 31, 2021 | Growth Rates | |||||||||
| Operating expenses: | ||||||||||||||
| GAAP sales and marketing expenses | $ | 722 | $ | 632 | $ | 2,814 | $ | 2,292 | ||||||
| Stock-based compensation | (122) | (96) | (459) | (389) | ||||||||||
| Amortization of purchased intangibles | — | — | — | (1) | ||||||||||
| Non-GAAP sales and marketing expenses | $ | 600 | $ | 536 | $ | 2,355 | $ | 1,902 | ||||||
| GAAP research and development expenses | $ | 454 | $ | 392 | $ | 1,768 | $ | 1,397 | ||||||
| Stock-based compensation | (127) | (107) | (495) | (395) | ||||||||||
| Amortization of purchased intangibles | — | (1) | — | (1) | ||||||||||
| Business combination and other related costs | (5) | (5) | $ | (21) | $ | (10) | ||||||||
| Non-GAAP research and development expenses | $ | 322 | $ | 279 | $ | 1,252 | $ | 991 | ||||||
| GAAP general and administrative expenses | $ | 194 | $ | 180 | $ | 735 | $ | 597 | ||||||
| Stock-based compensation | (57) | (50) | (223) | (160) | ||||||||||
| Amortization of purchased intangibles | (2) | (2) | (8) | (10) | ||||||||||
| Business combination and other related costs | (1) | (1) | (1) | (8) | ||||||||||
| Non-GAAP general and administrative expenses | $ | 134 | $ | 127 | $ | 503 | $ | 419 | ||||||
| GAAP total operating expenses | $ | 1,370 | $ | 1,204 | $ | 5,317 | $ | 4,286 | ||||||
| Stock-based compensation | (306) | (253) | (1,177) | (944) | ||||||||||
| Amortization of purchased intangibles | (2) | (3) | (8) | (12) | ||||||||||
| Business combination and other related costs | (6) | (6) | (22) | (18) | ||||||||||
| Non-GAAP total operating expenses | $ | 1,056 | $ | 942 | $ | 4,110 | $ | 3,312 | ||||||
| Income from operations: | ||||||||||||||
| GAAP income from operations | $ | 155 | $ | 35 | $ | 355 | $ | 257 | ||||||
| Stock-based compensation | 363 | 302 | 1,401 | 1,131 | ||||||||||
| Amortization of purchased intangibles | 20 | 24 | 80 | 76 | ||||||||||
| Business combination and other related costs | 6 | 6 | 24 | 18 | ||||||||||
| Non-GAAP income from operations | $ | 544 | $ | 367 | $ | 1,860 | $ | 1,482 | ||||||
| Operating margin: | ||||||||||||||
| GAAP operating margin | 8 | % | 2 | % | 5 | % | 4 | % | ||||||
| Stock-based compensation as % of total revenues | 19 | % | 19 | % | 19 | % | 19 | % | ||||||
| Amortization of purchased intangibles as % of total revenues | 1 | % | 2 | % | 1 | % | 2 | % | ||||||
| Business combination and other related costs as % of total revenues | — | % | — | % | — | % | — | % | ||||||
| Non-GAAP operating margin | 28 | % | 23 | % | 26 | % | 25 | % | ||||||
| Three Months Ended | Year Ended | |||||||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| December 31, 2022 | December 31, 2021 | Growth Rates | December 31, 2022 | December 31, 2021 | Growth Rates | |||||||||
| Net income: | ||||||||||||||
| GAAP net income | $ | 150 | $ | 26 | $ | 325 | $ | 230 | ||||||
| Stock-based compensation | 363 | 302 | 1,401 | 1,131 | ||||||||||
| Amortization of purchased intangibles | 20 | 24 | 80 | 76 | ||||||||||
| Business combination and other related costs | 6 | 6 | 24 | 18 | ||||||||||
| Amortization of debt discount and issuance costs | — | 2 | — | 7 | ||||||||||
| Other | — | — | — | 3 | ||||||||||
| Income tax expense effects related to the above adjustments | (75) | (64) | (287) | (264) | ||||||||||
| Non-GAAP net income | $ | 464 | $ | 296 | $ | 1,543 | $ | 1,201 | ||||||
| Net income per share - basic and diluted: | ||||||||||||||
| GAAP net income per share - basic | $ | 0.74 | $ | 0.13 | $ | 1.61 | $ | 1.16 | ||||||
| GAAP net income per share - diluted | $ | 0.74 | $ | 0.13 | $ | 1.60 | $ | 1.13 | ||||||
| Non-GAAP net income per share - basic | $ | 2.29 | $ | 1.49 | $ | 7.66 | $ | 6.07 | ||||||
| Non-GAAP net income per share - diluted | $ | 2.28 | $ | 1.46 | $ | 7.59 | $ | 5.92 | ||||||
| GAAP weighted-average shares used to compute net income per share - basic | 203 | 199 | 201 | 198 | ||||||||||
| GAAP weighted-average shares used to compute net income per share - diluted | 203 | 204 | 204 | 203 | ||||||||||
| Effects of in-the-money portion of convertible senior notes(3) | — | (1) | (1) | — | ||||||||||
| Non-GAAP weighted-average shares used to compute net income per share - diluted | 203 | 203 | 203 | 203 | ||||||||||
| Free cash flow: | ||||||||||||||
| GAAP net cash provided by operating activities | $ | 1,162 | $ | 844 | $ | 2,723 | $ | 2,191 | ||||||
| Purchases of property and equipment | (144) | (100) | (550) | (392) | ||||||||||
| Repayments of convertible senior notes attributable to debt discount | — | — | — | 15 | ||||||||||
| Business combination and other related costs | 2 | — | 7 | 53 | ||||||||||
| Non-GAAP free cash flow | $ | 1,020 | $ | 744 | $ | 2,180 | $ | 1,867 | ||||||
| Free cash flow margin: | ||||||||||||||
| GAAP net cash provided by operating activities as % of total revenues | 60 | % | 52 | % | 38 | % | 37 | % | ||||||
| Purchases of property and equipment as % of total revenues | (7 | %) | (6 | %) | (8 | %) | (7 | %) | ||||||
| Repayments of convertible senior notes attributable to debt discount as % of total revenues | — | % | — | % | — | % | — | % | ||||||
| Business combination and other related costs as % of total revenues | — | % | — | % | — | % | 1 | % | ||||||
| Non-GAAP free cash flow margin | 53 | % | 46 | % | 30 | % | 32 | % |
(1)Non-GAAP revenues and the corresponding growth rates are derived by applying the average exchange rates in effect during the comparison period rather than the actual average exchange rates in effect during the current period.
(2)Non-GAAP cRPO, RPO and the corresponding growth rates are derived by applying the end of period exchange rates in effect during the comparison period rather than the actual end of period exchange rates in effect during the current period.
(3)Effects 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 for non-GAAP weighted average diluted shares at forecasted attainment levels to the extent we believe it is probable that the performance condition will be met.
Note: Numbers are rounded for presentation purposes and may not foot.
ServiceNow, Inc.
Reconciliation of Non-GAAP Financial Guidance
| Three Months Ending | |
|---|---|
| March 31, 2023 | |
| GAAP subscription revenues growth rate | 22% - 22.5% |
| Effects of foreign currency rate fluctuations | 3% |
| Non-GAAP subscription revenues growth rate (1) | 25% - 25.5% |
| cRPO growth rate | 21% |
| Effects of foreign currency rate fluctuations | 3% |
| Non-GAAP cRPO growth rate(2) | 24% |
| GAAP operating margin | 4% |
| Stock-based compensation expense as % of total revenues | 19% |
| Amortization of purchased intangibles as % of total revenues | 1% |
| Business combination and other related costs as % of total revenues | —% |
| Non-GAAP operating margin | 24% |
| Twelve Months Ending | |
| --- | --- |
| December 31, 2023 | |
| GAAP subscription revenues growth rate | 22.5% - 23.5% |
| Effects of foreign currency rate fluctuations | —% |
| Non-GAAP subscription revenues growth rate (1) | 22.5% - 23.5% |
| GAAP subscription gross margin | 81% |
| Stock-based compensation expense as % of subscription revenues | 2% |
| Amortization of purchased intangibles as % of subscription revenues | 1% |
| Non-GAAP subscription margin | 84% |
| GAAP operating margin | 7% |
| Stock-based compensation expense as % of total revenues | 18% |
| Amortization of purchased intangibles as % of total revenues | 1% |
| Business combination and other related costs as % of total revenues | —% |
| Non-GAAP operating margin | 26% |
| GAAP net cash provided by operating activities as % of total revenues | 37% |
| Purchases of property and equipment as % of total revenues | (7)% |
| Business combination and other related costs as % of total revenues | —% |
| Non-GAAP free cash flow margin | 30% |
(1)Non-GAAP subscription revenue growth rates are derived by applying the average exchange rates in effect during the comparison period rather than the exchange rates for the guidance period.
(2)Non-GAAP cRPO growth rate is derived by applying the end of period exchange rates in effect during the comparison period rather than the exchange rates in effect during the guidance period.
Note: Numbers are rounded for presentation purposes and may not foot.
15