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

Business Wire

SAN DIEGO -- October 24, 2012

ServiceNow, Inc. (NYSE: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,ServiceNowenables 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 managingVMwarevirtual 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 newVMwarelifecycle
    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
http://investors.servicenow.com. 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 http://www.servicenow.com.

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,
                   2012              2011             2012             2011
                   (Unaudited)
Revenues:                                                           
Subscription       $ 55,279          $ 30,331         $ 141,640        $ 76,331
Professional
services and        9,066           3,866          26,910         12,563     
other
Total revenues      64,345          34,197         168,550        88,894     
Cost of revenues
^(1):
Subscription         17,931            6,323            43,182           15,538
Professional
services and        9,643           5,609          28,519         15,095     
other
Total cost of       27,574          11,932         71,701         30,633     
revenues
Gross profit        36,771          22,265         96,849         58,261     
Operating
expenses ^(1):
Sales and            28,140            13,980           74,356           34,375
marketing
Research and         10,783            2,757            26,098           7,003
development
General and         11,195          4,509          24,441         10,471     
administrative
Total operating     50,118          21,246         124,895        51,849     
expenses
Income (loss)        (13,347     )     1,019            (28,046    )     6,412
from operations
Interest and
other income        615             (729       )    1,148          (412       )
(expense), net
Income (loss)
before provision     (12,732     )     290              (26,898    )     6,000
for income taxes
Provision for       321             169            519            852        
income taxes
Net income         $ (13,053     )   $ 121           $ (27,417    )   $ 5,148      
(loss)
Net income
(loss) per share
attributable to
common
stockholders:
Basic              $ (0.11       )   $ 0.00          $ (0.49      )   $ 0.05       
Diluted            $ (0.11       )   $ 0.00          $ (0.49      )   $ 0.04       
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 Ended                 Nine Months Ended
                   September 30,    September 30,   September 30,   September 30,
                   2012              2011             2012             2011
Cost of
revenues:
Subscription       $ 1,276           $ 201            $ 2,514          $ 524
Professional
services and         495               71               964              151
other
Sales and            2,899             800              6,852            1,373
marketing
Research and         1,919             263              4,121            524
development
General and          1,624             1,056            4,137            1,652
administrative




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

                                       September 30, 2012  December 31, 2011
ASSETS                                  (unaudited)
Current assets:
Cash and cash equivalents               $      116,976       $   68,088
Restricted cash                                37                45
Short-term investments                         139,485           -
Accounts receivable, net                       55,924            44,860
Current portion of deferred                    12,236            6,087
commissions
Prepaid expenses and other current             5,675             9,883
assets
Current portion of deferred tax               1,544            1,544     
assets
Total current assets                           331,877           130,507
Deferred commissions, less current             9,734             4,597
portion
Property and equipment, net                    39,086            20,695
Other assets                                  1,507            524       
Total assets                            $      382,204       $   156,323   
                                                             
LIABILITIES, CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Accounts payable                        $      5,680         $   9,411
Accrued expenses and other current             32,038            25,608
liabilities
Current portion of deferred revenue            128,970           91,087
Current portion of deferred rent              -                455       
Total current liabilities                      166,688           126,561
Deferred revenue, less current                 18,976            13,549
portion
Deferred rent, less current portion            433               2,935
Other long-term liabilities                    4,839             2,532
Convertible preferred stock                    -                 68,172
Stockholders’ equity (deficit)                191,268          (57,426   )
Total liabilities, convertible
preferred stock and                     $      382,204       $   156,323   
stockholders’equity (deficit)
                                                                           


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

                Three Months Ended             Nine Months Ended
                 September 30,   September 30,   September 30,   September 30,
                                2011            2012           2011
                 2012
                 (Unaudited)
Cash flows
from operating
activities:
Net income       $  (13,053  )   $  121          $  (27,417  )   $  5,148
(loss)
Adjustments to
reconcile net
income (loss)
to net cash
provided by
operating
activities:
Depreciation
and                 3,969           824             8,842           1,794
amortization
Amorization of
premiums on
short-term          496             -               594             -
investments,
net
Amortization
of deferred         3,920           1,561           9,264           3,942
commissions
Stock-based         8,213           2,391           18,588          4,224
compensation
Tax benefit
from exercise       (276     )      -               (533     )      (21     )
of stock
options
Bad debt            148             -               148             -
expense
(Gain) loss on
disposal of         -               -               (1       )      60
property and
equipment
Lease
abandonment         2,922           -               2,922           -
costs
Changes in
operating
assets and
liabilities:
Accounts            (8,342   )      (637    )       (11,065  )      (7,768  )
receivable
Deferred            (7,449   )      (3,031  )       (20,525  )      (6,419  )
commissions
Prepaid
expenses and        (961     )      220             4,242           (2,092  )
other current
assets
Other assets        2,095           (48     )       (35      )      (268    )
Accounts            (1,069   )      767             (106     )      1,866
payable
Accrued
expenses and        2,659           370             4,644           4,239
other current
liabilities
Deferred rent       (2,899   )      (83     )       (2,957   )      3,153
Deferred            16,295          7,231           43,081          28,589
revenue
Other
long-term          2,409         (2      )      2,409         (6      )
liabilities
Net cash
provided by        9,077         9,684         32,095        36,441  
operating
activities
Cash flows
from investing
activities:
Purchases of
property and        (11,930  )      (2,517  )       (32,156  )      (9,193  )
equipment
Purchases of
short-term          (123,003 )      -               (146,922 )      -
investments
Sale of
short-term          -               -               1,025           -
investments
Maturities of
short-term          5,800           -               5,800           -
investments
Restricted         -             -             8             150     
cash
Net cash used
in investing       (129,133 )     (2,517  )      (172,245 )     (9,043  )
activities
Cash flows
from financing
activities:
Net proceeds
from initial        170,963         -               169,799         -
public
offering
Proceeds from
exercise of         216             968             2,349           1,309
stock options
Proceeds from
early exercise      -               814             1,024           1,457
of stock
options
Tax benefit
from exercise       276             -               533             21
of stock
options
Net proceeds
from issuance       -               -               17,848          -
of common
stock
Purchases of
common stock
and restricted     -             -             (1,960   )     -       
stock from
stockholders
Net cash
provided by        171,455       1,782         189,593       2,787   
financing
activities
Foreign
currency
effect on cash     95            234           (555     )     394     
and cash
equivalents
Net increase
in cash and         51,494          9,183           48,888          30,579
cash
equivalents
Cash and cash
equivalents at     65,482        59,853        68,088        38,457  
beginning of
period
Cash and cash
equivalents at   $  116,976     $  69,036      $  116,976     $  69,036  
end of period
                                                                 
Calculation of
free cash flow
(a non-GAAP
measure):
Net cash
provided by      $  9,077        $  9,684        $  32,095       $  36,441
operating
activities
Purchases of
property and       (11,930  )     (2,517  )      (32,156  )     (9,193  )
equipment
Free cash flow   $  (2,853   )   $  7,167       $  (61      )   $  27,248  



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

                  Three Months Ended
                   September 30, 2012                                   September 30, 2011
                   GAAP             Adjustments^(1)  Non-GAAP          GAAP            Adjustments^(1)  Non-GAAP
Reconciliation                                                                                         
of gross profit:
Revenues:
Subscription       $ 55,279          $   -             $ 55,279          $ 30,331         $   -             $ 30,331
Professional
services and        9,066             -             9,066           3,866            -             3,866      
other
Total revenues      64,345            -             64,345          34,197           -             34,197     
Cost of
revenues:
Subscription         17,931              (1,276   )      16,655            6,323              (201     )      6,122
Professional
services and        9,643             (495     )     9,148           5,609            (71      )     5,538      
other
Total cost of       27,574            (1,771   )     25,803          11,932           (272     )     11,660     
revenues
Gross profit:
Subscription         37,348              1,276           38,624            24,008             201             24,209
Professional
services and        (577        )      495           (82         )    (1,743     )      71            (1,672     )
other
Total gross        $ 36,771         $   1,771        $ 38,542         $ 22,265        $   272          $ 22,537     
profit
                                                                                                            
Reconciliation
of operating
expenses:
Operating
expenses:
Sales and          $ 28,140          $   (2,899   )    $ 25,241          $ 13,980         $   (800     )    $ 13,180
marketing
Research and         10,783              (1,919   )      8,864             2,757              (263     )      2,494
development
General and         11,195            (1,624   )     9,571           4,509            (1,056   )     3,453      
administrative
Total operating    $ 50,118         $   (6,442   )    $ 43,676         $ 21,246        $   (2,119   )    $ 19,127     
expenses
                                                                                                            
Reconciliation of income (loss) from operations, provision for income taxes, net income (loss), net income (loss) per
share, and pro forma net income (loss) per share:
Income (loss)      $ (13,347     )   $   8,213        $ (5,134      )   $ 1,019         $   2,391        $ 3,410      
from operations
Income (loss)
before provision   $ (12,732     )   $   8,213         $ (4,519      )   $ 290            $   2,391         $ 2,681
for income taxes
Provision for       321               2,222         2,543           169              858           1,027      
income taxes
Net income         $ (13,053     )   $   5,991        $ (7,062      )   $ 121           $   1,533        $ 1,654      
(loss)
Net income
(loss) per share
attributable to
common
stockholders:
Basic              $ (0.11       )   $   0.05         $ (0.06       )   $ 0.00          $   0.07         $ 0.07       
Diluted            $ (0.11       )   $   0.05         $ (0.06       )   $ 0.00          $   0.05         $ 0.05       
Weighted-average
shares used to
compute net
income (loss)
per share
attributable to
common
stockholders:
Basic               117,698,005                       117,698,005     20,693,359                       20,693,359 
Diluted             117,698,005                       117,698,005     32,126,535                       32,126,535 
                                                                                                            
                                                                                                
^(1) Adjustments include stock-based compensation and the related tax effect.


ServiceNow, Inc.
Results of Operations GAAP to Non-GAAP Reconciliation
(in thousands except share and per share data)
(Unaudited)
                                                  
                 Nine Months Ended
                 September 30, 2012                                 September 30, 2011
                 GAAP            Adjustments^(1)  Non-GAAP         GAAP            Adjustments^(1)  Non-GAAP
Reconciliation                                                                                     
of gross profit:
Revenues:
Subscription     $ 141,640        $   -             $ 141,640        $ 76,331         $   -             $ 76,331
Professional
services and      26,910           -             26,910         12,563           -             12,563     
other
Total revenues    168,550          -             168,550        88,894           -             88,894     
Cost of
revenues:
Subscription       43,182             (2,514   )      40,668           15,538             (524     )      15,014
Professional
services and      28,519           (964     )     27,555         15,095           (151     )     14,944     
other
Total cost of     71,701           (3,478   )     68,223         30,633           (675     )     29,958     
revenues
Gross profit:
Subscription       98,458             2,514           100,972          60,793             524             61,317
Professional
services and      (1,609     )      964           (645       )    (2,532     )      151           (2,381     )
other
Total gross      $ 96,849        $   3,478        $ 100,327       $ 58,261        $   675          $ 58,936     
profit
                                                                                                        
Reconciliation
of operating
expenses:
Operating
expenses:
Sales and        $ 74,356         $   (6,852   )    $ 67,504         $ 34,375         $   (1,373   )    $ 33,002
marketing
Research and       26,098             (4,121   )      21,977           7,003              (524     )      6,479
development
General and       24,441           (4,137   )     20,304         10,471           (1,652   )     8,819      
administrative
Total operating  $ 124,895       $   (15,110  )    $ 109,785       $ 51,849        $   (3,549   )    $ 48,300     
expenses
                                                                                                        
Reconciliation of income (loss) from operations, provision for income taxes, net income (loss), net income (loss) per
share, and pro forma net income (loss) per share:
Income (loss)    $ (28,046    )   $   18,588       $ (9,458     )   $ 6,412         $   4,224        $ 10,636     
from operations
Income (loss)
before provision $ (26,898    )   $   18,588        $ (8,310     )   $ 6,000          $   4,224         $ 10,224
for income taxes
Provision for     519              4,353         4,872          852              1,135         1,987      
income taxes
Net income       $ (27,417    )   $   14,235       $ (13,182    )   $ 5,148         $   3,089        $ 8,237      
(loss)
Net income
(loss) per share
attributable to
common
stockholders:
Basic            $ (0.49      )   $   0.25         $ (0.24      )   $ 0.05          $   0.15         $ 0.20       
Diluted          $ (0.49      )   $   0.25         $ (0.24      )   $ 0.04          $   0.10         $ 0.14       
Weighted-average
shares used to
compute net
income (loss)
per share
attributable to
common
stockholders:
Basic             57,089,411                       57,089,411     19,695,440                       19,695,440 
Diluted           57,089,411                       57,089,411     30,612,539                       30,612,539 
                                                                                             
^(1) Adjustments include stock-based compensation and the related tax effect.
                                                  


ServiceNow, Inc.
Non-GAAP Billings Reconciliation
(in thousands)
(Unaudited)

                                    Three Months Ended
                                     September 30,  June 30,   September 30,
                                     2012            2012        2011
Total revenues                       $   64,345      $ 56,774    $    34,197
Deferred revenue, end of period          147,946       131,069        81,877
Less: deferred revenue, beginning       131,069      115,757       74,646
of period
Billings                             $   81,222      $ 72,086    $    41,428
                                                                      


ServiceNow, Inc.
Reconciliation of Non-GAAP Financial Guidance

The financial guidance provided below is an estimate based on information
available as of October 24, 2012. 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 prospectus filed on
June 29, 2012, the company's Form 10-Q for the quarter ended June 30, 2012
filed on August 10, 2012, and the company's Form 10-Q for the quarter ended
September 30, 2012 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
                                                     December 31, 2012
                                                     
Non-GAAP subscription gross margin                   68% - 69%
                                                     
Stock-based compensation expense                     (3%)
                                                     
GAAP subscription gross margin                       65% - 66%
                                                     
Non-GAAP professional services and other             (5%) - (1%)
gross margin
                                                     
Stock-based compensation expense                     (10%)
                                                     
GAAP professional services and other                 (15%) - (11%)
gross margin
                                                     
Non-GAAP total gross margin                          58% - 59%
                                                     
Stock-based compensation expense                     (4%)
                                                     
GAAP total gross margin                              54% - 55%
                                                     
Non-GAAP operating margin                            (7%) - (5%)
                                                     
Stock-based compensation expense                     (15%)
                                                     
GAAP operating margin                                (22%) - (20%)
                                                     
Non-GAAP basic and diluted net loss per              ($0.06) - ($0.05)
share
                                                     
Stock-based compensation expense                     ($0.09)
                                                     
Incremental non-GAAP tax expense  ^(1)               $0.02
                                                     
GAAP basic and diluted net loss per share            ($0.13) - ($0.12)
                                                   
^(1) Incremental non-GAAP tax expense reflects the increase to GAAP tax
expense related to the non-GAAP stock-based compensation expense adjustments.

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or
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858-345-1756
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