ServiceNow, Inc. - FORM 8-K - EX-99.1 - EXHIBIT 99.1

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8-K - SERVICENOW, INC. 8-K - ServiceNow, Inc.	a51324175.htm

Exhibit 99.1

ServiceNow Reports Financial Results for First Quarter 2016

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
					March 31, 2016			March 31, 2015

	Revenues:
		Subscription			$	267,422		$	179,907
		Professional services and other				38,457			32,057
			Total revenues			305,879			211,964
	Cost of revenues ⁽¹⁾:
		Subscription				52,781			42,444
		Professional services and other				41,479			34,455
			Total cost of revenues			94,260			76,899
				Gross profit		211,619			135,065
	Operating expenses ⁽¹⁾:
		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

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

					Three Months Ended
					March 31, 2016			March 31, 2015
	Cost of revenues:
		Subscription			$	6,607		$	5,165
		Professional services and other				6,759			5,213
	Sales and marketing					30,998			22,574
	Research and development					20,533			15,638
	General and administrative					10,411			9,484

ServiceNow, Inc.
Condensed Consolidated Balance Sheets
(in thousands)

				March 31, 2016		December 31, 2015
				(Unaudited)
	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	$	1,874,043	$	1,807,052

ServiceNow, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)

					Three Months Ended
					March 31, 2016			March 31, 2015

	Cash flows from operating activities:
	Net loss				$	(333,332	)	$	(58,093	)
		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	)
			Accounts payable			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					412,305			252,455
	Cash and cash equivalents at end of period				$	453,450		$	307,981

	Calculation of free cash flows (a non-GAAP measure):
	Net cash provided by operating activities				$	78,687		$	67,366
	Purchases of property and equipment					(29,077	)		(26,699	)
	Cash paid on legal settlement					17,500			—
	Free cash flows				$	67,110		$	40,667

ServiceNow, Inc.
Results of Operations GAAP to Non-GAAP Reconciliation
(in thousands except share and per share data)
(Unaudited)

				Three Months Ended
				March 31, 2016			March 31, 2015			Growth rates

	Subscription revenues:
		GAAP subscription revenues		$	267,422		$	179,907		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		$	38,457		$	32,057		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			305,879			211,964		44%
		Increase in total deferred revenue from consolidated statements of cash flows			70,803			55,861
		Non-GAAP total billings		$	376,682		$	267,825		41%

	Cost of revenues:
		GAAP subscription cost of revenues		$	52,781		$	42,444
		Add back:
			Stock-based compensation		(6,607	)		(5,165	)
			Amortization of purchased intangibles ⁽¹⁾		(2,768	)		(2,783	)
		Non-GAAP subscription cost of revenues		$	43,406		$	34,496

		GAAP professional services and other cost of revenues		$	41,479		$	34,455
		Add back:
			Stock-based compensation		(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		$	158,610		$	110,057
		Add back:
			Stock-based compensation		(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		$	65,924		$	49,848
		Add back:
			Stock-based compensation		(20,533	)		(15,638	)
		Non-GAAP research and development expenses		$	45,391		$	34,210

		GAAP general and administrative expenses		$	41,237		$	29,392
		Add back:
			Stock-based compensation		(10,411	)		(9,484	)
			Amortization of purchased intangibles⁽¹⁾		(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		$	—
		Add back:
			Legal settlement		(270,000	)		—
		Non-GAAP legal settlement expense		$	—		$	—

		GAAP total operating expenses		$	535,771		$	189,297
		Add back:
			Stock-based compensation		(61,942	)		(47,696	)
			Amortization of purchased intangibles ⁽¹⁾		(119	)		(169	)
			Business combination and other related costs		(311	)		—
			Legal settlement		(270,000	)		—
		Non-GAAP total operating expenses		$	203,399		$	141,432

	Income (loss) from operations:
		GAAP loss from operations		$	(324,152	)	$	(54,232	)
		Add back:
			Stock-based compensation		75,308			58,074
			Amortization of purchased intangibles ⁽¹⁾		2,887			2,952
			Business combination and other related costs		311			—
			Legal settlement		270,000			—
		Non-GAAP income from operations		$	24,354		$	6,794

	Interest expense
		GAAP interest expense		$	(8,109	)	$	(7,578	)
		Add back:
			Amortization of debt discount and issuance costs for the convertible senior notes		8,109			7,578
		Non-GAAP interest expense		$	—		$	—

	Income/ (loss) before provision for income taxes
		GAAP loss before provision for income taxes		$	(331,559	)	$	(57,106	)
		Add back:
			Stock-based compensation		75,308			58,074
			Amortization of purchased intangibles ⁽¹⁾		2,887			2,952
			Business combination and other related costs		311			—
			Legal settlement		270,000			—
			Amortization of debt discount and issuance costs for the convertible senior notes		8,109			7,578
		Non-GAAP income before provision for income taxes		$	25,056		$	11,498

	Provision for income taxes:
		GAAP provision for income taxes		$	1,773		$	987
		Add back:
			Income tax expense effects related to the above adjustments ⁽¹⁾		8,803			8,031
		Non-GAAP provision for income taxes		$	10,576		$	9,018

	Net income (loss):
		GAAP net loss		$	(333,332	)	$	(58,093	)
		Add back:
			Stock-based compensation		75,308			58,074
			Amortization of purchased intangibles ⁽¹⁾		2,887			2,952
			Business combination and other related costs		311			—
			Legal settlement		270,000			—
			Amortization of debt discount and issuance costs for the convertible senior notes		8,109			7,578
			Income tax expense effects related to the above adjustments ⁽¹⁾		(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		$	(2.06	)	$	(0.38	)
		Non-GAAP net income per share - basic		$	0.09		$	0.02
		Non-GAAP net income per share - diluted		$	0.09		$	0.01

		Weighted-average shares used to compute net income (loss) per share - basic			162,067,108			151,601,880

		GAAP weighted-average shares used to compute net loss per share - diluted			162,067,108			151,601,880
			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

		⁽¹⁾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.

ServiceNow, Inc.
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.

	Three Months Ended June 30, 2016	Three Months Ended June 30, 2015	Growth rates	Constant billings duration growth rates ⁽¹⁾

Non-GAAP subscription billings	$330 - $335 million	$241 million	37% - 39%	43% - 45%

Increase in subscription deferred revenue	46 - 49 million	40 million

GAAP subscription revenue	$284 - $286 million	$201 million	42% - 43%

Non-GAAP professional services and other billings	$40 million	$40 million	0%

Decrease in professional services and other deferred revenue	8 - 9 million	6 million

GAAP professional services and other revenue	$48 - $49 million	$46 million	4% - 6%

Non-GAAP total billings	$370 - $375 million	$281 million	31% - 33%	36% - 38%

Increase in total deferred revenue from consolidated statements of cash flows	38 - 40 million	34 million

GAAP total revenue	$332 - $335 million	$247 million	35% - 36%

Non-GAAP subscription gross margin	83%

Stock-based compensation expense	(2%)

Amortization of purchased intangibles	(1%)

GAAP subscription gross margin	80%

Non-GAAP professional services and other gross margin	31%

Stock-based compensation expense	(13%)

GAAP professional services and other gross margin	18%

Non-GAAP total gross margin	75%

Stock-based compensation expense	(3%)

Amortization of purchased intangibles	(1%)

GAAP total gross margin	71%

Non-GAAP operating margin	7%

Stock-based compensation expense	(24%)

Amortization of purchased intangibles	(1%)

GAAP operating margin	(18%)

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	30%

Non-GAAP weighted-average shares used to compute net income per share - diluted	172 million

Effect of dilutive securities (stock options, restricted stock units)	(8 million)

GAAP weighted-average shares used to compute net loss per share - diluted	164 million

⁽¹⁾ 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	Twelve Months Ended December 31, 2015	Growth rates

Non-GAAP subscription billings	~$1,420 million	$1,038 million	37%

Increase in subscription deferred revenue	210 - 225 million	190 million

GAAP subscription revenue	$1,195 - $1,210 million	$848 million	41% - 43%

Non-GAAP professional services and other billings	~$180 million	$163 million	10%

Increase in professional services and other deferred revenue	10 - 20 million	6 million

GAAP professional services and other revenue	$160 - $170 million	$157 million	2% - 8%

Non-GAAP total billings	~$1,600 million	$1,201 million	33%

Increase in total deferred revenue from consolidated statements of cash flows	220 - 245 million	196 million

GAAP total revenue	$1,355 - $1,380 million	$1,005 million	35% - 37%

Non-GAAP operating margin	12%

Stock-based compensation expense	(22%)

Amortization of purchased intangibles	(1%)

Legal settlement	(20%)

GAAP operating margin	(31%)

Non-GAAP free cash flow margin	24%

Purchases of property and equipment as % of revenue	8%

GAAP net cash provided by operating activities as % of revenue	32%

Non-GAAP weighted-average shares used to compute net income per share - diluted	173 million

Effect of dilutive securities (stock options, restricted stock units)	(8 million)

GAAP weighted-average shares used to compute net loss per share - diluted	165 million

CONTACT:
ServiceNow
Media Contact:
Colleen Haikes, 669-262-2001
press@servicenow.com
Investor Contact:
ir@servicenow.com

ServiceNow, Inc. - FORM 8-K - EX-99.1 - EXHIBIT 99.1 - April 20, 2016

Attached files

ServiceNow, Inc. Reports