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ServiceNow Reports First Quarter 2019 Financial Results

  • Subscription revenues of $740 million in Q1 2019, representing 36% year‑over‑year growth
  • 25 transactions over $1 million in net new annual contract value in Q1 2019
  • 717 total customers with over $1 million in annual contract value, representing 33% year‑over‑year growth

SANTA CLARA, Calif. ‑ Apr. 24, 2019 ‑ ServiceNow (NYSE: NOW) today announced financial results for its first quarter ended March 31, 2019, with subscription revenues of $740 million in Q1 2019, representing 36% year‑over‑year growth.

ServiceNow, Forbes’ No. 1 World’s Most Innovative Company in 2018, serves more than 5,400 enterprise customers, including almost 75% of Fortune 500 companies. During the quarter, ServiceNow closed 25 transactions with more than $1 million in net new annual contract value (ACV). The company now has 717 total customers with more than $1 million in ACV, representing 33% year‑over‑year growth.

“The first quarter represented a strong start to the new year, as we continued the momentum from our outstanding 2018 performance,” said John Donahoe, ServiceNow president and chief executive officer. “Our performance shows the strength of our product and platform portfolio, and the core strategic partner role we are playing in enabling digital transformation for large public sector agencies, Fortune 500 companies and leading global enterprises.”

“Subscription revenues grew 36% year‑over‑year,” said Michael Scarpelli, ServiceNow chief financial officer. “Our U.S. federal business highlighted the quarter, representing 15% of our total net new ACV, up from 6% in the prior year.”

First Quarter 2019 GAAP and NonGAAP Results:

The following table summarizes our financial results for the first quarter 2019:

 

 

 

 

 

 

 

 

 

First Quarter 2019
GAAP Results

 

First Quarter 2019 Non‑GAAP Results(1)

 

Amount
($ millions)

Year/Year
Growth (%)

 

Amount
($ millions)

Year/Year
Growth (%)

Adjusted Amount
($ millions)(2)

Adjusted
Year/Year
Growth (%)

Subscription revenues

$740.0

 

36%

 

 

 

$760.4

 

40%

Professional services and other revenues

$48.9

 

7%

 

 

 

$50.8

 

11%

Total revenues

$788.9

 

34%

 

 

 

$811.3

 

38%

 

 

 

 

 

 

 

 

Subscription billings

 

 

 

$809.6

 

27%

$849.7

 

33%

Professional services and other billings

 

 

 

$47.9

 

(6%)

$49.8

 

(2%)

Total billings

 

 

 

$857.5

 

24%

$899.5

 

30%

 

 

 

 

 

 

 

 

 

Amount
($ millions)

Margin (%)

 

Amount
($ millions)

Margin (%)

 

 

 

Subscription gross profit

$613.4

 

83%

 

$634.1

 

86%

 

 

Professional services and other gross loss

($10.7)

 

(22%)

 

($0.8)

 

(2%)

 

 

Total gross profit

$602.7

 

76%

 

$633.3

 

80%

 

 

Income (loss) from operations

($15.7)

 

(2%)

 

$148.8

 

19%

 

 

Net cash provided by operating activities

$360.8

 

46%

 

 

 

 

 

Free cash flow

 

 

 

$313.7

 

40%

 

 

 

 

 

 

 

 

 

 

 

Amount
($ millions)

Earnings per Basic/Diluted
Share ($)

 

Amount
($ millions)

Earnings per Basic/Diluted
Share ($)

 

 

 

Net income (loss)

($1.5)

($0.01)

 

$128.9

$0.71 / $0.67

 

 

 

 

  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 and professional services billings are adjusted for constant currency. Non‑GAAP subscription billings and total billings are adjusted for constant currency and constant billings duration. 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.

Financial Outlook

Our guidance is based on foreign exchange rates as of March 31, 2019 and includes GAAP and non‑GAAP financial measures.

The following table summarizes our guidance for the second quarter 2019:

 

Second Quarter 2019
GAAP Guidance

 

Second Quarter 2019 Non‑GAAP Guidance(1)

 

Amount
($ millions)

Year/Year
Growth (%)

 

Amount
($ millions)

Year/Year
Growth (%)

Adjusted Amount
($ millions)(2)

Adjusted
Year/ Year
Growth (%)

Subscription revenues

$778 ‑ $783

 33% ‑ 34%

 

 

 

$793 ‑ $798

 35% ‑ 36%

Subscription billings

 

 

 

$798 ‑ $803

 29% ‑ 30%

$814 ‑ $819

 32% ‑ 33%

 

 

 

 

 

 

 

 

 

 

 

 

 

Margin (%)

 

 

Income from operations

 

 

 

 

 

17%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amount
(millions)

 

 

 

Weighted‑average shares used to compute diluted net income per share

 

 

 

193

 

 

 

 

                   

 

  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. Non‑GAAP subscription revenues are adjusted for constant currency. Non‑GAAP subscription billings are adjusted for constant currency and constant billings duration. 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.

The following table summarizes our updated guidance for fiscal year 2019:

 

Full‑Year 2019
GAAP Guidance

 

Full‑Year 2019 Non‑GAAP Guidance(1)

 

Amount
($ millions)

Year/Year
Growth (%)

 

Amount
($ millions)

Year/Year
Growth (%)

Adjusted Amount
($ millions)(2)

Adjusted
Year/ Year
Growth (%)

Subscription revenues

$3,235 ‑ $3,250

 34%

 

 

 

$3,280 ‑ $3,295

 35% ‑ 36%

Subscription billings

 

 

 

$3,725 ‑ $3,740

 29% ‑ 30%

$3,797 ‑ $3,812

 32%

 

 

 

 

 

 

 

 

 

 

 

 

 

Margin (%)

 

 

Subscription gross profit

 

 

 

 

 

86%

 

 

Income from operations

 

 

 

 

 

21%

 

 

Free cash flow

 

 

 

 

 

28%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amount
(millions)

 

 

 

Weighted‑average shares used to compute diluted net income per share

 

 

 

193

 

 

 

 

                   
  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. Non‑GAAP subscription revenues are adjusted for constant currency. Non‑GAAP subscription billings are adjusted for constant currency and constant billings duration. 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.

The following table compares our updated full‑year 2019 guidance against our previously issued full‑year 2019 guidance dated January 30, 2019:

 

Comparison of Updated Full‑Year 2019 Guidance to Previously Issued Guidance(1)
($ millions)

 

Previous Guidance Midpoint(2)

Currency Impact(3)

Duration Impact(4)

Guidance Change

Current Guidance Midpoint(5)

GAAP subscription revenues

$3,225

($5)

$0

$23

$3,243

 

 

 

 

 

 

Non‑GAAP subscription billings(6)

$3,715

($6)

$0

$24

$3,733

 

 

 

 

 

 

  1. Numbers are rounded for presentation purposes.
  2. Refers to previously issued full‑year 2019 guidance dated January 30, 2019.
  3. In our guidance, we assume an average daily currency exchange rate for the guidance period based on the rates at the end of the prior quarter for entities reporting in currencies other than U.S. Dollars. Currency impact represents the sum of (i) the impact of the difference between the actual average rates in the period used to calculate our Q1 2019 actual results and the rates as of December 31, 2018 assumed in our previously issued guidance dated January 30, 2019 plus (ii) the impact of the difference between the exchange rates in effect as of March 31, 2019 assumed in our updated full‑year 2019 guidance, and the rates as of December 31, 2018 assumed in our previously issued guidance dated January 30, 2019.
  4. Represents the impact of billings greater than 12 months in excess of guidance assumptions.
  5. Represents the updated full‑year 2019 guidance presented in the table above.
  6. 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.

Conference Call Details

The conference call will begin at 2 p.m. Pacific Time (22:00 BST) on April 24, 2019.  Interested parties may listen to the call by dialing 866.393.4306 (passcode: 3149948), or if outside North America, by dialing 734.385.2616 (passcode: 3149948). Individuals may access the live teleconference from this webcast link (https://event.on24.com/wcc/r/1971097/1E9013C67D921362CDBB25CB0DC94F40).

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: 3149948), or if outside North America, by dialing 404.537.3406 (passcode: 3149948).

Investor Presentation Details

An investor presentation providing additional information and analysis can be found at http://investors.servicenow.com.

Statement Regarding Use of NonGAAP Financial Measures

We report 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.

  • Revenue Adjusted for Constant Currency. We present revenues adjusted 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 prior period presented (for Q1 2018, the average exchange rates in effect for our major currencies were 1 USD to 0.8135 Euros and 1 USD to 0.7185 British Pound Sterling (GBP)), rather than the actual average exchange rates in effect during the current period (for Q1 2019, the average exchange rates in effect for our major currencies were 1 USD to 0.8804 Euros and 1 USD 0.7679 GBP). We believe the presentation of revenues adjusted for constant currency facilitates the comparison of revenues year‑over‑year.
  • Billings. We believe billings is a useful leading indicator regarding the performance of our business. We define subscription billings, professional services and other billings, and total billings as the applicable revenue plus the applicable change in deferred revenue, unbilled receivables and customer deposits as presented or derived from the statement of cash flows. We adjust for constant currency, as described above, and adjust for constant duration by replacing the portion of multi‑year billings in excess of twelve months during the current period with the portion of multi‑year billings in excess of twelve months during the prior period presented. We believe these adjustments facilitate greater comparability in our billings information year‑over‑year.
  • Gross Profit, Income from Operations and Net Income. Our non‑GAAP presentation of gross profit, income from operations, and net income measures exclude 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. We believe the presentation of operating results that exclude these non‑cash or non‑recurring items provides 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 and repayments of convertible senior notes attributable to debt discount, 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 ForwardLooking 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: (i) errors, interruptions, delays, or security breaches in or of our service or datacenters, (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, (v) our ability to compete successfully against existing and new competitors, and (vi) material changes in the value of foreign currencies relative to the U.S. Dollar.

Further information on these and other factors that could affect our financial results are included in our Form 10‑Q  that will be filed for the quarter ended March 31, 2019 and in other filings we make with the Securities and Exchange Commission from time to time, including our Form 10‑K filed for the year ended December 31, 2018.

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) is making the world of work, work better for people. Our cloud‑based platform and solutions deliver digital workflows that create great experiences and unlock productivity for employees and the enterprise.  For more information, visit: www.servicenow.com.

© 2019 ServiceNow, Inc. All rights reserved. ServiceNow, the ServiceNow logo, Now, Now Platform, and other ServiceNow marks are trademarks and/or registered trademarks of ServiceNow, Inc. in the United States and/or other countries. Other company and product names may be trademarks of the respective companies with which they are associated.

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ServiceNow Q1 2019 complete financial tables (download PDF)

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