ServiceNow Reports Third Quarter 2012 Financial Results

ServiceNow Reports Third Quarter 2012 Financial Results

88% Year-over-Year and 13% Quarter-over-Quarter Revenue Growth

SAN DIEGO--(BUSINESS WIRE)-- ServiceNow, Inc. (NYS: NOW) , a leading provider of cloud-based services to automate enterprise IT operations, today announced its financial results for its third quarter of 2012.

Third quarter 2012 results:

  • Revenues of $64.3 million, an increase of 88% compared to the third quarter of 2011, and an increase of 13% from the second quarter of 2012.
  • A GAAP net loss for the quarter of $13.1 million, or a loss of $0.11 per basic and diluted share, compared to GAAP net income of $0.1 million, or net income of $0.00 per diluted share, in the third quarter of 2011.
  • A non-GAAP net loss for the quarter of $7.1 million, or a net loss of $ 0.06 per basic and diluted share, compared to non-GAAP net income of $1.7 million, or net income of $0.05 per diluted share, in the third quarter of 2011 (see the table entitled "Results of Operations GAAP to Non-GAAP Reconciliation " for a reconciliation of these GAAP and non-GAAP financial measures).
  • Deferred Revenue of $147.9 million, a 13% increase over the $131.1 million reported at the end of the prior quarter.
  • Billings were $81.2 million, a 13% increase over the $72.1 million reported in the previous quarter and a 96% increase over the $41.4 million in the same period last year (see the table entitled "Non-GAAP Billings Reconciliation" for a reconciliation of non-GAAP billings to GAAP revenues).

"ServiceNow's third quarter results were highlighted by continued growth across our key financial metrics and we exceeded our previously stated outlook on revenue and non-GAAP EPS," said Frank Slootman, president and chief executive officer of ServiceNow. "In our first full quarter as a public company, we added over 145 customers, bringing our cumulative customer count to 1,346 worldwide, and we achieved a customer renewal rate of 96%."

"We continued to show strong revenue execution during the third quarter and nearly doubled our billings over the same period last year," added Michael Scarpelli, chief financial officer of ServiceNow. "Deferred revenue grew sequentially by 13%, marking the fourth consecutive quarter of double-digit sequential growth, and we generated approximately $9.1 million in operating cash flow for the quarter."

Financial Outlook

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

For the fourth quarter of 2012, we now expect:

  • Total revenues between $69 and $71 million, representing year-over-year growth between 76% and 81%. Our total fourth quarter revenues estimate consists of subscription revenues between $60 and $61 million and professional services and other revenues between $9 and $10 million.
  • Subscription gross margin between 68% and 69%, professional services and other gross margin between (1%) and (5%), and overall gross margin between 58% and 59%.
  • Operating margin between (5%) and (7%).
  • A loss per basic and diluted share between $0.05 and $0.06 with weighted-average shares outstanding of approximately 123.5 million.

For the full year 2012 we expect revenues to be in the range of $237.5 to $239.5 million, representing year-over-year growth between 85% and 87%. Our total annual revenues estimate consists of subscription revenues between $201.6 and $202.6 million and professional services and other revenues between $35.9 and $36.9 million.

Third quarter highlights

  • In October, ServiceNow announced a new release of its cloud-based IT service automation software. With the new IT Asset Management application embedded in the product, ServiceNow enables companies to more efficiently utilize software and can help achieve compliance with license terms and requirements. At the same time, companies can avoid over-purchasing software licenses and maintenance or support contracts. The release also includes new capabilities for agile software development to improve user experience.
  • In August, ServiceNow announced it added end-to-end lifecycle automation for managing VMware virtual machines (VMs) from creation to retirement. The new capabilities can help prevent inefficient or wasteful use of VMs, saving administrative time and reducing cost. The new VMware lifecycle automation capabilities can also substantially reduce the amount of time and effort required to initially provision a VM, transforming a process that might take up to several weeks to one completed in only minutes.

Conference Call Details

ServiceNow will host a conference call to discuss its financial results for the third quarter of 2012 to begin today at 2 p.m. PDT (21:00 GMT). Interested parties may listen to the call by dialing 800.299.7098 (passcode: 41658837), or if outside North America, by dialing 617.801.9715 (passcode: 41658837). Individuals may also access the live teleconference from the investor relations section of the ServiceNow website at The webcast will be archived for a period of 30 days.

An audio replay of the conference call will also be available two hours after the call and be available for seven days. To hear the replay interested parties may dial 888.286.8010 (passcode: 68782712), or if outside North America, by dialing 617.801.6888 (passcode: 68782712).

Statement regarding use of non-GAAP financial measures

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

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

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

Billings is calculated as revenue plus the change in total deferred revenue. Management believes that billings offers investors useful supplemental information regarding the performance of our business and will help investors better understand sales volumes.

The company encourages investors to carefully consider its results under GAAP, as well as its supplemental non-GAAP information and the reconciliation between these presentations, to more fully understand its business. Reconciliations between GAAP and non-GAAP results are presented in the tables of this release.

Use of forward looking statements

This release contains "forward-looking statements" regarding our performance, including in the section entitled "Financial Outlook." Forward-looking statements are subject to known and unknown risks and uncertainties and are based on potentially inaccurate assumptions. If any such risks or uncertainties materialize or if any of the assumptions prove incorrect, our results could differ materially from the results expressed or implied by the forward-looking statements we make.

Among the important factors that could cause actual results to differ materially from those in any forward-looking statements are (i) possible fluctuations in our financial and operating results, (ii) our ability to grow at our expected rate of growth and anticipated revenue run rate, including our ability to convert deferred revenue and unbilled deferred revenue into revenue, successfully deploy new customers, and continue to release, and gain customer acceptance of, new and improved versions of our service, and (iii) errors, interruptions, delays, or security breaches of our service or web hosting.

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, 2012 and in other filings we make with the Securities and Exchange Commission from time to time, including our Form 10-Q that will be filed for the third quarter ended September 30, 2012.

We undertake no obligation, and do not intend, to update these forward-looking statements, to review or confirm analysts' expectations, or to provide interim reports or updates on the progress of the current financial quarter.

About ServiceNow

ServiceNow is a leading provider of cloud-based services that automate enterprise IT operations. We focus on transforming enterprise IT by automating and standardizing business processes and consolidating IT across the global enterprise. Organizations deploy our service to create a single system of record for enterprise IT, lower operational costs and enhance efficiency. Additionally, our customers use our extensible platform to build custom applications for automating activities unique to their business requirements. For more information visit

Any unreleased services, features or functions referenced in this document, our website or other press releases or public statements that are not currently available are subject to change at the discretion of ServiceNow and may not be delivered as planned or at all. Customers who purchase ServiceNow services should make their purchase decisions based upon services, features and functions that are currently available.

ServiceNow and the ServiceNow logo are trademarks of ServiceNow. All other brand and product names are trademarks or registered trademarks of their respective holders.

ServiceNow, Inc.
Condensed Consolidated Statements of Operations
(in thousands, except share and per share data)
 Three Months Ended Nine Months Ended

September 30,


September 30,

September 30,


September 30,

Professional services and other 9,066  3,866  26,910  12,563 
Total revenues 64,345  34,197  168,550  88,894 
Cost of revenues (1):
Professional services and other 9,643  5,609  28,519  15,095 
Total cost of revenues 27,574  11,932  71,701  30,633 
Gross profit 36,771  22,265  96,849  58,261 
Operating expenses (1):
Sales and marketing28,14013,98074,35634,375
Research and development10,7832,75726,0987,003
General and administrative 11,195  4,509  24,441  10,471 
Total operating expenses 50,118  21,246  124,895  51,849 
Income (loss) from operations(13,347)1,019(28,046)6,412
Interest and other income (expense), net 615  (729) 1,148  (412)
Income (loss) before provision for income taxes(12,732)290(26,898)6,000
Provision for income taxes 321  169  519  852 
Net income (loss)$(13,053)$121 $(27,417)$5,148 
Net income (loss) per share attributable to common stockholders:




Weighted-average shares used to compute net income (loss) per share attributable to common stockholders:
Basic 117,698,005  20,693,359  57,089,411  19,695,440 
Diluted 117,698,005  32,126,535  57,089,411  30,612,539 

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

Three Months EndedNine Months Ended

September 30,


September 30,


September 30,


September 30,

Cost of revenues:
Professional services and other49571964151
Sales and marketing2,8998006,8521,373
Research and development1,9192634,121524
General and administrative1,6241,0564,1371,652
ServiceNow, Inc.
Condensed Consolidated Balance Sheets
(in thousands)

September 30, 2012


December 31, 2011

Current assets:
Cash and cash equivalents$116,976$68,088
Restricted cash3745
Short-term investments139,485-
Accounts receivable, net55,92444,860
Current portion of deferred commissions12,2366,087
Prepaid expenses and other current assets5,6759,883
Current portion of deferred tax assets 1,544 1,544 
Total current assets331,877130,507
Deferred commissions, less current portion9,7344,597
Property and equipment, net39,08620,695
Other assets 1,507 524 
Total assets$382,204$156,323 
Current liabilities:
Accounts payable$5,680$9,411
Accrued expenses and other current liabilities32,03825,608
Current portion of deferred revenue128,97091,087
Current portion of deferred rent - 455 
Total current liabilities166,688126,561
Deferred revenue, less current portion18,97613,549
Deferred rent, less current portion4332,935
Other long-term liabilities4,8392,532
Convertible preferred stock-68,172
Stockholders' equity (deficit) 191,268 (57,426)
Total liabilities, convertible preferred stock and stockholders'equity (deficit)$382,204$156,323 
ServiceNow, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
 Three Months Ended Nine Months Ended

September 30,



September 30,

September 30,


September 30,

Cash flows from operating activities:
Net income (loss)$(13,053)$121$(27,417)$5,148

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Depreciation and amortization3,9698248,8421,794
Amorization of premiums on short-term investments, net496-594-
Amortization of deferred commissions3,9201,5619,2643,942
Stock-based compensation8,2132,39118,5884,224
Tax benefit from exercise of stock options(276)-(533)(21)
Bad debt expense148-148-

(Gain) loss on disposal of property and equipment

Lease abandonment costs2,922-2,922-
Changes in operating assets and liabilities:
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