ServiceNow Reports Financial Results for Second Quarter 2013

ServiceNow Reports Financial Results for Second Quarter 2013

Second Quarter Revenues Exceed $100 Million and Grew 80% Year-over-Year

SAN DIEGO--(BUSINESS WIRE)-- ServiceNow® (NYS: NOW) , the enterprise IT cloud company, today announced its financial results for its second quarter of 2013.


Second quarter 2013 results:

  • Revenues of $102.2 million, an increase of 80% compared to the second quarter of 2012, and an increase of 19% from the first quarter of 2013.

  • A GAAP net loss for the quarter of $21.4 million, or a loss of $0.16 per basic and diluted share, compared to a GAAP net loss of $8.7 million, or a loss of $0.32 per basic and diluted share, in the second quarter of 2012.

  • A non-GAAP net loss for the quarter of $7.8 million, or a loss of $0.06 per basic and diluted share, compared to a non-GAAP net loss of $1.6 million, or a loss of $0.06 per basic and diluted share, in the second quarter of 2012 (see the table entitled "Results of Operations GAAP to Non-GAAP Reconciliation" for a reconciliation of these GAAP and non-GAAP financial measures).

  • Deferred revenue of $210.0 million, an 8% increase over the $194.8 million reported at the end of the prior quarter.

  • Billings were $117.5 million, a 6% increase over the $110.3 million reported in the previous quarter and a 63% increase over the $72.1 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).

"In the second quarter we added 138 new customers, bringing our cumulative customer count to 1,778 worldwide, achieved a customer renewal rate of 94.2%, and continued to penetrate our installed base with upsells comprising 25% of our total annual contract value signed during the quarter," said Frank Slootman, president and chief executive officer, ServiceNow. "We also hosted nearly 4,000 attendees at our annual user conference, Knowledge, and announced several key product innovations."

"ServiceNow crossed the $100 million revenue mark for the first time with $102.2 million in total revenue in the quarter, and billed $117.5 million, our second consecutive quarter in excess of $100 million," added Michael Scarpelli, chief financial officer, ServiceNow. "In addition, we generated $9.7 million in operating cash flow in the quarter."

Financial Outlook

The non-GAAP financial guidance discussed below excludes stock-based compensation expense and the related income tax effect (see table which reconciles these non-GAAP financial measures to the related GAAP measures). We completed the acquisition of Mirror42 on July 1, 2013 and incorporated the expected revenues and operating expenses associated with the acquisition in our guidance. The accounting treatment for the acquisition is pending completion and therefore we have excluded the related amortization of acquired intangible assets, acquisition-related expenses, and income tax expense from our guidance for the third quarter. In the future, we will include these acquisition related expenses in our non-GAAP results. Negative numbers are shown in parentheses.

For the third quarter of 2013, we expect:

  • Total revenues between $104 and $106 million, representing year-over-year growth between 62% and 65%. Our total third quarter revenue estimate consists of subscription revenues between $88 and $89 million and professional services and other revenues between $16 and $17 million.

  • Subscription gross margin of approximately 75%, professional services and other gross margin between 7% and 9%, and overall gross margin of approximately 65%.

  • Operating margin between (3%) and (2%).

  • A net loss per basic and diluted share between ($0.03) and ($0.02) with weighted-average shares outstanding of approximately 137.5 million.

For the full year 2013, we expect revenues to be in the range of $406 to $410 million, representing year-over-year growth between 67% and 68%. Our total annual revenues estimate consists of subscription revenues between $337 and $339 million and professional services and other revenues between $69 and $71 million.

Updates since our last earnings release:

  • In May, ServiceNow hosted Knowledge13™, our annual global user conference, in Las Vegas. With nearly 4,000 attendees, doubling last year's attendance, Knowledge is the largest gathering of IT professionals using cloud services to transform service delivery across the enterprise.

  • In May, ServiceNow announced:

    • ServiceNow App Creator enabling 'citizen developers' to easily create intuitive enterprise applications on the ServiceNow Service Automation Platform.

    • ServiceNow for iPad which provides IT with the ability to view and interact with their work anytime, anywhere.

    • ServiceNow Cloud Provisioning, a new orchestration application that enables IT to automate the entire cloud management lifecycle.

    • ServiceNow CMDB data certification, a new capability in the ServiceNow CMDB (Configuration Management Database) that ensures data remains accurate, current and relevant.

  • In July, ServiceNow announced the acquisition of Mirror42. The new ServiceNow Performance Analytics product provides users with Key Performance Indicator (KPI)-driven dashboards and scorecards that work transparently with all ServiceNow applications.

Conference Call Details

The conference call will begin at 2:00 p.m. Pacific Time (21:00 GMT) on Wednesday, July 31, 2013. Interested parties may listen to the call by dialing 866.270.6057 (passcode: 37292950), or if outside North America, by dialing 617.213.8891 (passcode: 37292950). Individuals may access the live teleconference from the investor relations section of the ServiceNow website at http://investors.servicenow.com. The webcast will be archived for a period of 30 days.

An audio replay of the conference call and webcast will be available two hours after its completion and will be accessible for 30 days. To hear the replay, interested parties may go to the investor relations section of the ServiceNow website or dial 888.286.8010 (passcode: 11018243), or if outside North America, by dialing 617.801.6888 (passcode: 11018243).

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 and adjustments for capitalized software. Management believes the presentation of operating results that excludes these items provides useful supplemental information to investors and facilitates the analysis of the company's core operating results and comparison of operating results across reporting periods. Management also believes that this supplemental non-GAAP information is therefore useful to investors in analyzing and assessing the company's past and future operating performance.

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

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

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

Use of forward looking statements

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

Among the important factors that could cause actual results to differ materially from those in any forward-looking statements are: (i) errors, interruptions, delays, or security breaches in or of our service or web hosting, (ii) our ability to grow at our expected rate of growth, including our ability to convert deferred revenue and backlog into revenue, add and retain customers, and enter new geographies and markets, (iii) our ability to continue to release, and gain customer acceptance of, improved versions of our services, (iv) our ability to develop and gain customer acceptance of new products and services, including our platform, and (v) our ability to compete successfully against existing and new competitors.

Further information on these and other factors that could affect our financial results are included in our Form 10-K for the year ended December 31, 2012 and in other filings we make with the Securities and Exchange Commission from time to time, including our Form 10-Q that will be filed for the second quarter ended June 30, 2013.

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

About ServiceNow

ServiceNow is the enterprise IT cloud company. We 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 www.servicenow.com.

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

ServiceNow, Inc.

Condensed Consolidated Statements of Operations

(in thousands, except share and per share data)

(Unaudited)

Three Months Ended

Six Months Ended

June 30,

2013

June 30,

2012

June 30,

2013

June 30,

2012

Revenues:

Subscription

$

80,376

$

46,820

$

151,934

$

86,361

Professional services and other

21,846

9,954

36,227

17,844

Total revenues

102,222

56,774

188,161

104,205

Cost of revenues (1):

Subscription

20,219

14,239

38,531

25,251

Professional services and other

15,779

8,652

29,775

18,876

Total cost of revenues

35,998

22,891

68,306

44,127

Gross profit

66,224

33,883

119,855

60,078

Operating expenses (1):

Sales and marketing

52,291

26,909

90,517

46,216

Research and development (2)

17,951

9,272

33,990

15,315

General and administrative

15,325

6,819

27,604

13,246

Total operating expenses

85,567

43,000

152,111

74,777

Loss from operations

(19,343

)

(9,117

)

(32,256

)

(14,699

)

Interest and other income (expense), net

(1,323

)

41

(1,204

)

533

Loss before provision for (benefit from) income taxes

(20,666

)

(9,076

)

(33,460

)

(14,166

)

Provision for (benefit from) income taxes

739

(352

)

1,303

198

Net loss

$

(21,405

)

$

(8,724

)

$

(34,763

)

$

(14,364

)

Net loss attributable to common stockholders - Basic and Diluted

$

(21,405

)

$

(8,878

)

$

(34,763

)

$

(14,672

)

Net loss per share attributable to common stockholders:

Basic

$

(0.16

)

$

(0.32

)

$

(0.26

)

$

(0.55

)

Diluted

$

(0.16

)

$

(0.32

)

$

(0.26

)

$

(0.55

)

Weighted-average shares used to compute net loss per share attributable to common stockholders:

Basic

134,454,085

27,788,547

132,298,095

26,452,100

Diluted

134,454,085

27,788,547

132,298,095

26,452,100

(1)

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

Three Months Ended

Six Months Ended

June 30,

2013

June 30,

2012

June 30,

2013

June 30,

2012

Cost of revenues:

Subscription

$

1,996

$

706

$

3,790

$

1,238

Professional services and other

1,065

277

1,886

469

Sales and marketing

4,822

2,482

8,807

3,953

Research and development

3,715

1,541

6,829

2,202

General and administrative

3,230

1,451

5,562

2,513

(2)

The Company recorded an out of period adjustment during the quarter ended June 30, 2012 to reflect the correction of an immaterial error related to software development costs of $0.7 million that was improperly capitalized during the quarter ended March 31, 2012. The correction of this error had no effect on the results of operations for the six months ended June 30, 2012.

ServiceNow, Inc.

Condensed Consolidated Balance Sheets

(in thousands)

June 30, 2013

December 31, 2012

ASSETS

(Unaudited)

Current assets:

Cash and cash equivalents

$

120,233

$

118,989

Short-term investments

133,547

195,702

Accounts receivable, net

92,765

78,163

Current portion of deferred commissions

21,171

14,979

Prepaid expenses and other current assets

9,093

14,256

Total current assets

376,809

422,089

Deferred commissions, less current portion

13,786

11,296

Long-term investments

92,342

-

Property and equipment, net

57,253

42,342

Other assets

2,143

2,387

Total assets

$

542,333

$

478,114

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Accounts payable

$

10,016

$

9,604

Accrued expenses and other current liabilities

46,791

48,059

Current portion of deferred revenue

192,365

153,964

Total current liabilities

249,172

211,627

Deferred revenue, less current portion

17,675

16,397

Other long-term liabilities

7,591

6,685

Stockholders' equity

267,895

243,405

Total liabilities and stockholders' equity

$

542,333

$

478,114

ServiceNow, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)

Three Months Ended

Six Months Ended

June 30,

2013

June 30,

2012

June 30,

2013

June 30,

2012

Cash flows from operating activities:

Net loss

$

(21,405

)

$

(8,724

)

$

(34,763

)

$

(14,364

)

Adjustments to reconcile net loss to net cash provided by operating activities: