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Servicenow Reports Financial Results For First Quarter 2016

The following excerpt is from the company's SEC filing.

SANTA CLARA, Calif.--(BUSINESS WIRE)--April 20, 2016--ServiceNow (NYSE: NOW), the enterprise cloud company, today announced the financial results for its first quarter 2016.

First Quarter 2016 Results:

Total revenues of $305.9 million, an increase of 44% year-over-year.

GAAP net loss of $333.3 million, or loss of $2.06 per basic and diluted share, compared to a GAAP net loss of $58.1 million, or loss of $0.38 per basic and diluted share, in the first quarter of 2015.

Non-GAAP net income of $14.5 million, or income of $0.09 per basic and diluted share, compared to a non-GAAP net income of $2.5 million, or income of $0.02 per basic share and $0.01 per diluted share, in the first quarter of 2015 (see the table entitled "Results of Operations GAAP to Non-GAAP Reconciliation” for a reconciliation of these GAAP and non-GAAP financial measures).

Billings were $376.7 million, an increase of 41% year-over-year (see the table entitled "Results of Operations GAAP to Non-GAAP Reconciliation” for a reconciliation of non-GAAP billings to GAAP revenues).

Free cash flow was $67.1 million, or 22% of revenue (see the table entitled "Results of Operations GAAP to Non-GAAP Reconciliation” for a reconciliation of these GAAP and non-GAAP financial measures).

Foreign exchange rate fluctuations did not significantly impact our actual year-over-year revenue or billings growth.

“We’re off to a strong start with our best first quarter ever,” said Frank Slootman, president and chief executive officer, ServiceNow. “Strong upsells and traction with our emerging products were two key growth vectors during the quarter.”

“We now have 249 customers each paying us more than $1 million in annualized contract value, an increase of 48% year-over-year,” said Michael Scarpelli, chief financial officer, ServiceNow. “We also landed a record 13 upsells in the quarter each with an annualized contract value greater than $1 million.”

Financial Outlook

The financial guidance discussed below is on a non-GAAP basis, except for revenues, and excludes stock-based compensation expense, amortization of purchased intangibles, amortization of debt discount and issuance costs related to the convertible senior notes, legal settlement expense and business combination related expenses (see table which reconciles these non-GAAP financial measures to the related GAAP measures).

Based on foreign exchange rates at the end of the first quarter, we are not forecasting a significant impact to our expected year-over-year revenue or billings growth due to foreign exchange rate fluctuations.

For the second quarter of 2016, we are forecasting average billings duration of 11.7 months, compared to average billings duration of 12.2 months in the second quarter of 2015. The forecasted decrease in average billings duration is due to one large customer order in the second quarter of 2015 that requested multi-year billings. We do not anticipate significant multi-year billings to occur in the second quarter of 2016. Our guidance below includes a comparison of billings growth rates on a constant average billings duration basis.

Please refer to our first quarter 2016 investor presentation, posted on our website at investors.servicenow.com, for additional information.

For the second quarter of 2016, we expect:

Subscription revenues between $284 and $286 million, representing year-over-year growth between 42% and 43%.

Professional services and other revenues between $48 and $49 million, representing year-over-year growth between 4% and 6%.

Total revenues between $332 and $335 million, representing year-over-year growth between 35% and 36%.

Subscription billings between $330 and $335 million, representing year-over-year growth between 37% and 39%, and 43% and 45% in constant average billings duration.

Professional services and other billings of $40 million, flat year-over-year.

Total billings between $370 and $375 million, representing year-over-year growth between 31% and 33%, and 36% and 38% in constant average billings duration.

Subscription gross margin of approximately 83%, professional services and other gross margin, excluding Knowledge16 revenue, of approximately 11%, and overall gross margin, excluding Knowledge16 revenue, of approximately 75%. We expect Knowledge16 revenue to be approximately $11 million.

Operating margin of approximately 7%, including $15 million of Knowledge16 net expenses.

Free cash flow margin of approximately 22%.

Weighted average shares used to compute diluted net income per share of approximately 172 million shares.

For full-year 2016, we expect:

Subscription revenues between $1,195 and $1,210 million, representing year-over-year growth between 41% and 43%.

Professional services and other revenues between $160 and $170 million, representing year-over-year growth between 2% and 8%.

Total revenues between $1,355 and $1,380 million, representing year-over-year growth between 35% and 37%.

Subscription billings of approximately $1.42 billion, representing year-over-year growth of 37%.

Professional services and other billings of approximately $180 million, representing year-over-year growth of 10%.

Total billings of approximately $1.60 billion, representing year-over-year growth of 33%.

Operating margin and free cash flow margin of approximately 12% and 24%, respectively.

Weighted average shares used to compute diluted net income per share of approximately 173 million shares.

Conference Call Details

The conference call will begin at 2 p.m. Pacific Time (21:00 GMT) on Wednesday, April 20, 2016. Interested parties may listen to the call by dialing 877.546.2781 (passcode: 77663505), or if outside North America, by dialing +1.281.973.6269 (passcode: 77663505). Individuals may access the live teleconference from the investor relations section of the ServiceNow website at

http://investors.servicenow.com

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: 77663505), or if outside North America, by dialing +1.404.537.3406 (passcode: 77663505).

Statement regarding use of non-GAAP financial measures

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.

Our financial measures under GAAP include stock-based compensation expense, the amortization of debt discount and issuance costs related to the convertible senior notes, amortization of purchased intangibles, legal settlement expense, business combination related expenses, and the related income tax effect of these adjustments. We believe the presentation of operating results that exclude these items provides useful supplemental information to investors and facilitates the analysis of our core operating results and comparison of operating results across reporting periods.

Free cash flow, which is a non-GAAP financial measure, is calculated as GAAP net cash provided by operating activities plus cash paid on legal settlements, reduced by purchases of property and equipment. Free cash flow margin is calculated as free cash flow as a percentage of revenues. We believe information regarding free cash flow and free cash flow margin provide 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 and free cash flow margin may not be comparable to similar measures used by other companies.

Total billings is calculated as revenue plus the change in total deferred revenue as presented on the statement of cash flows. We also provide the breakdown of billings information by subscription billings and professional services and other billings. These are calculated based on the respective revenue in each category plus the respective change in deferred revenues for each category. We believe 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. For guidance purposes, we present a billings growth rate adjusted for constant average billings duration when our subscription billings term for the comparison quarter is greater than twelve months. Subscription billings growth rates adjusted for constant average billings duration, and the corresponding total billings growth rate adjusted for constant average billings duration, are calculated by applying the average billings duration in effect for the comparison quarter instead of the forecasted average billings duration for the guidance period.

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. 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 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 include: (i) errors, interruptions, delays, or security breaches 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, 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, 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, 2015 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 March 31, 2016.

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 changing the way people work. With a service-orientation toward the activities, tasks and processes that make up day-to-day work life, we help the modern enterprise operate faster and be more scalable than ever before. Customers use our service model to define, structure and automate the flow of work, removing dependencies on email and spreadsheets to transform the delivery and management of services for the enterprise. ServiceNow enables service management for every department in the enterprise including IT, human resources, facilities, field service and more. We deliver a ‘lights-out, light-speed’ experience through our enterprise cloud – built to manage everything as a service. To find out how, visit

www.servicenow.com

ServiceNow and the ServiceNow logo are registered 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)

(Unaudited)

Three Months Ended

Revenues:

Subscription

267,422

179,907

Professional services and other

38,457

32,057

Total revenues

305,879

211,964

Cost of revenues

52,781

42,444

41,479

34,455

Total cost of revenues

94,260

76,899

Gross profit

211,619

135,065

Operating expenses

Sales and marketing

158,610

110,057

Research and development

65,924

49,848

General and administrative

41,237

29,392

Legal settlement

270,000

Total operating expenses

535,771

189,297

Loss from operations

(324,152

(54,232

Interest expense

(8,109

(7,578

Interest income and other income (expense), net

702

4,704

Loss before provision for income taxes

(331,559

(57,106

Provision for income taxes

1,773

987

Net loss

(333,332

(58,093

Net loss per share - Basic and Diluted

(2.06

(0.38

Weighted-average shares used to compute net loss

per share - Basic and Diluted

162,067,108

151,601,880

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

Cost of revenues:

6,607

5,165

6,759

5,213

30,998

22,574

20,533

15,638

10,411

9,484

Condensed Consolidated Balance Sheets

(in thousands)

ASSETS

Current assets:

Cash and cash equivalents

453,450

412,305

Short-term investments

447,423

388,945

Accounts receivable, net

190,263

203,333

Current portion of deferred commissions

55,588

51,976

Prepaid expenses and other current assets

46,534

29,076

Total current assets

1,193,258

1,085,635

Deferred commissions, less current portion

36,417

33,016

Long-term investments

361,831

422,667

Property and equipment, net

154,244

144,714

Intangible assets, net

46,246

43,005

Goodwill

57,364

55,669

Other assets

24,683

22,346

Total assets

1,874,043

1,807,052

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Accounts payable

39,621

37,369

Accrued expenses and other current liabilities

336,613

101,264

Current portion of deferred revenue

672,049

593,003

Total current liabilities

1,048,283

731,636

Deferred revenue, less current portion

10,468

10,751

Convertible senior notes, net

482,643

474,534

Other long-term liabilities

30,293

23,317

Stockholders’ equity

302,356

566,814

Total liabilities and stockholders’equity

Condensed Consolidated Statements of Cash Flows

Cash flows from operating activities:

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

Depreciation and amortization

17,452

13,824

Amortization of premiums on investments

1,490

1,830

Amortization of deferred commissions

18,033

15,597

Amortization of debt discount and issuance costs

8,109

7,578

Stock-based compensation

75,308

58,074

Other

(330

(1,943

Changes in operating assets and liabilities:

Accounts receivable

15,811

10,436

Deferred commissions

(23,971

(15,400

Prepaid expenses and other assets

(19,808

(18,887

3,387

6

Deferred revenue

70,803

55,861

Accrued expenses and other liabilities

245,735

(1,517

Net cash provided by operating activities

78,687

67,366

Cash flows from investing activities:

Purchases of property and equipment

(29,077

(26,699

Acquisition, net of cash acquired

(500

(1,100

Purchase of other intangibles

(5,750

Purchases of investments

(180,365

(132,364

Sale of investments

92,885

49,412

Maturities of investments

91,858

76,386

Restricted cash

(457

31

Net cash used in investing activities

(31,406

(34,334

Cash flows from financing activities:

Proceeds from employee stock plans

19,873

30,474

Taxes paid related to net share settlement of equity awards

(28,453

(735

Payments on financing obligation

(110

Net cash (used in) provided by financing activities

(8,690

29,739

Foreign currency effect on cash and cash equivalents

2,554

(7,245

Net increase in cash and cash equivalents

41,145

55,526

Cash and cash equivalents at beginning of period

252,455

Cash and cash equivalents at end of period

307,981

Calculation of free cash flows (a non-GAAP measure):

Cash paid on legal settlement

17,500

Free cash flows

67,110

40,667

(in thousands except share and per share data)

Growth rates

Subscription revenues:

GAAP subscription revenues

49%

Increase in subscription deferred revenue

63,873

53,442

Non-GAAP subscription billings

331,295

233,349

42%

Professional services and other revenues:

GAAP professional services and other revenues

20%

Increase in professional services and other deferred revenue

6,930

2,419

Non-GAAP professional services and other billings

45,387

34,476

32%

Total revenues:

GAAP total revenues

44%

Increase in total deferred revenue from consolidated statements of cash flows

Non-GAAP total billings

376,682

267,825

41%

GAAP subscription cost of revenues

Add back:

(6,607

(5,165

Amortization of purchased intangibles

(2,768

(2,783

Non-GAAP subscription cost of revenues

43,406

34,496

GAAP professional services and other cost of revenues

(6,759

(5,213

Non-GAAP professional services and other cost of revenues

34,720

29,242

Gross profit:

Non-GAAP subscription gross profit

224,016

145,411

Non-GAAP professional services and other gross profit

3,737

2,815

Non-GAAP gross profit

227,753

148,226

Operating expenses:

GAAP sales and marketing expenses

(30,998

(22,574

Amortization of purchased intangibles

(18

(146

Non-GAAP sales and marketing expenses

127,594

87,337

GAAP research and development expenses

(20,533

(15,638

Non-GAAP research and development expenses

45,391

34,210

GAAP general and administrative expenses

(10,411

(9,484

(101

(23

Business combination and other related costs

(311

Non-GAAP general and administrative expenses

30,414

19,885

GAAP legal settlement expense

(270,000

Non-GAAP legal settlement expense

GAAP total operating expenses

(61,942

(47,696

(119

(169

Non-GAAP total operating expenses

203,399

141,432

Income (loss) from operations:

GAAP loss from operations

(324,152

2,887

2,952

311

Non-GAAP income from operations

24,354

6,794

GAAP interest expense

Amortization of debt discount and issuance costs for the convertible senior notes

Non-GAAP interest expense

Income/ (loss) before provision for income taxes

GAAP loss before provision for income taxes

Non-GAAP income before provision for income taxes

25,056

11,498

Provision for income taxes:

GAAP provision for income taxes

Income tax expense effects related to the above adjustments

8,803

8,031

Non-GAAP provision for income taxes

10,576

9,018

Net income (loss):

GAAP net loss

(8,803

(8,031

Non-GAAP net income

14,480

2,480

Net income (loss) per share - basic and diluted:

GAAP net loss per share - basic and diluted

Non-GAAP net income per share - basic

0.09

0.02

Non-GAAP net income per share - diluted

0.01

Weighted-average shares used to compute net income (loss) per share - basic

GAAP weighted-average shares used to compute net loss per share - diluted

Effect of dilutive securities (stock options, restricted stock units and common stock subject to repurchase)

8,265,897

14,713,153

Non-GAAP weighted-average shares used to compute net income per share - diluted

170,333,005

166,315,033

The Non-GAAP amounts presented for the three months ended March 31, 2015 have been revised to exclude the amortization of other intangibles and their related tax effects.

Reconciliation of Non-GAAP Financial Guidance

The financial guidance provided below is an estimate based on information available as of March 31, 2016. 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. More information on potential factors that could affect the company’s financial results is included from time to time in the company’s public reports filed with the SEC, including the company's Annual Report on Form 10-K filed on February 25, 2016, and the company's Form 10-Q for the three months ended March 31, 2016 to be filed with the SEC. The company assumes no obligation to update any forward-looking statements or information, which speak as of their respective dates.

June 30, 2016

June 30, 2015

Constant billings

duration growth

Non-GAAP subscription billings

$330 - $335 million

$241 million

37% - 39%

43% - 45%

46 - 49 million

40 million

$284 - $286 million

$201 million

42% - 43%

$40 million

0%

Decrease in professional services and other deferred revenue

8 - 9 million

6 million

$48 - $49 million

$46 million

4% - 6%

$370 - $375 million

$281 million

31% - 33%

36% - 38%

38 - 40 million

34 million

$332 - $335 million

$247 million

35% - 36%

Non-GAAP subscription gross margin

83%

Stock-based compensation expense

(2%)

(1%)

Non-GAAP professional services and other gross margin

31%

(13%)

Non-GAAP total gross margin

75%

(3%)

Non-GAAP operating margin

7%

(24%)

Non-GAAP free cash flow margin

22%

Purchases of property and equipment as % of revenue

8%

GAAP net cash provided by operating activities as % of revenue

172 million

Effect of dilutive securities (stock options, restricted stock units)

(8 million)

164 million

Subscription billings growth rates adjusted for constant average billings duration, and the corresponding total billings growth rate adjusted for constant average billings duration, are calculated by applying the average billings duration in effect for the comparison quarter instead of the forecasted average billings duration for the guidance period.

Twelve Months Ended

December 31, 2016

~$1,420 million

$1,038 million

37%

210 - 225 million

190 million

$1,195 - $1,210 million

$848 million

41% - 43%

~$180 million

$163 million

10%

10 - 20 million

$160 - $170 million

$157 million

2% - 8%

~$1,600 million

$1,201 million

33%

220 - 245 million

196 million

$1,355 - $1,380 million

$1,005 million

35% - 37%

12%

(22%)

(20%)

24%

173 million

165 million

CONTACT:

Media Contact:

Colleen Haikes, 669-262-2001

press@servicenow.com

Investor Contact:

ir@servicenow.com

The above information was disclosed in a filing to the SEC. To see the filing, click here.

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Other recent filings from the company include the following:

ServiceNow's CHIEF PRODUCT OFFICER just disposed of 150,000 shares - April 15, 2016
ServiceNow's Chief Revenue Officer just cashed-in 13,500 options - April 15, 2016
ServiceNow's Chief Revenue Officer just cashed-in 2,400 options - April 13, 2016
Entry into a Material Definitive - April 13, 2016