ServiceNow Reports Financial Results for First Quarter 2013

  ServiceNow Reports Financial Results for First Quarter 2013

                First Quarter Revenues Grew 81% Year-over-Year

Business Wire

SAN DIEGO -- April 24, 2013

ServiceNow (NYSE: NOW), the enterprise IT cloud company, today announced its
financial results for its first quarter of 2013.

First quarter 2013 results:

  *Revenues of $85.9 million, an increase of 81% compared to the first
    quarter of 2012, and an increase of 14% from the fourth quarter of 2012.
  *A GAAP net loss for the quarter of $13.4 million, or a loss of $0.10 per
    basic and diluted share, compared to a GAAP net loss of $5.6 million, or a
    loss of $0.23 per basic and diluted share, in the first quarter of 2012.
  *A non-GAAP net loss for the quarter of $1.9 million, or a loss of $0.01
    per basic and diluted share, compared to a non-GAAP net loss of $2.5
    million, or a loss of $0.11 per basic and diluted share, in the first
    quarter of 2012 (see the table entitled "Results of Operations GAAP to
    Non-GAAP Reconciliation” for a reconciliation of these GAAP and non-GAAP
    financial measures).
  *Deferred revenue of $194.8 million, a 14% increase over the $170.4 million
    reported at the end of the prior quarter.
  *Billings were $110.3 million, a 13% increase over the $97.6 million
    reported in the previous quarter and an 88% increase over the $58.6
    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).

“The first quarter was a strong start to 2013. We exceeded our previously
stated outlook on revenue and non-GAAP earnings per share, added 128 net new
customers and achieved a customer renewal rate of 96%,” said Frank Slootman,
president and chief executive officer, ServiceNow. “We also continued to
penetrate our existing customer base, with upsells comprising a third of our
annual contract value signed in the quarter.”

“We sawstrength across our key financial metrics in the quarter, highlighted
by our first quarter with billings in excess of $100 million, a significant
milestone in our growth story,"added Michael Scarpelli, chief financial
officer, ServiceNow. “Deferred revenue grew sequentially by 14% and we
generated $15.0 million in operating cash flow for the quarter."

Financial Outlook

The financial guidance discussed below is on a non-GAAP basis, except for
revenues, and 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 second quarter of 2013, we expect:

  *Total revenues between $94 and $96 million, representing year-over-year
    growth between 66% and 69%. Our total second quarter revenue estimate
    consists of subscription revenues between $77 and $78 million and
    professional services and other revenues between $17 and $18 million.
  *Subscription gross margin between 74% and 75%, professional services and
    other gross margin between 23% and 25%, and overall gross margin between
    64% and 65%. Our professional services and other revenues outlook includes
    approximately $4 million related to Knowledge, our annual user conference
    to be held in May, with related expenses of approximately $8 - $9 million
    recorded in sales and marketing.
  *Operating margin between (6%) and (5%).
  *A net loss per basic and diluted share between ($0.06) and ($0.04) with
    weighted-average shares outstanding of approximately 135 million.

For the full year 2013, we expect revenues to be in the range of $394 to $398
million, representing year-over-year growth between 62% and 63%. Our total
annual revenues estimate consists of subscription revenues between $332 and
$334 million and professional services and other revenues between $62 and $64
million.

First quarter highlights

  *On April 1st, ServiceNow received Federal Information Security Management
    Act (FISMA) Moderate Authority to Operate (ATO) from the U.S. General
    Services Administration (GSA). The authorization will allow federal, state
    and local government agencies to securely leverageServiceNowforIT
    system consolidationand business process automation.

  *In February, ServiceNow announced Hitachi Solutions has become the first
    business partner in Japan to provide ServiceNow to the Japanese market.
    Hitachi Solutions will resell the ServiceNow Service Automation
    applications and the ServiceNow Service Automation Platform. Hitachi
    Solutions will also provide implementation, training and first-level
    support for Japanese customers.

Conference Call Details

ServiceNow will host a conference call to discuss its financial results for
the first quarter of 2013 to begin today at 2 p.m. PDT (21:00 GMT). Interested
parties may listen to the call by dialing 877.546.5018 (passcode: 78194644),
or if outside North America, by dialing 857.244.7550 (passcode: 78194644).
Individuals may access the live teleconference from the investor relations
section of the ServiceNow web site at http://investors.servicenow.com. The
webcast will be archived for a period of 30 days.

An audio replay of the conference call and webcast will be available two hours
after its completion and will be accessible for 30 days. To hear the replay,
interested parties may go to the investor relations section of the ServiceNow
website or dial 888.286.8010 (passcode: 60952020), or if outside North
America, by dialing 617.801.6888 (passcode: 60952020).

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 information regarding free cash flow provides
investors with an important perspective on the cash available to invest in our
business and fund ongoing operations. However, our calculation of free cash
flow may not be comparable to similar measures used by other companies.

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

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

Use of forward looking statements

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

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

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

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

About ServiceNow

ServiceNow is the enterprise IT cloud company. We focus on transforming
enterprise IT by automating and standardizing business processes and
consolidating IT across the global enterprise. Organizations deploy our
service to create a single system of record for enterprise IT, lower
operational costs and enhance efficiency. Additionally, our customers use our
extensible platform to build custom applications for automating activities
unique to their business requirements. For more information, visit
www.servicenow.com.

ServiceNow and the ServiceNow logo are registered trademarks of ServiceNow.
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,          March 31,

                                             2013               2012
                                                                
  Revenues:
     Subscription                            $  71,558          $ 39,541
     Professional services and other           14,381          7,890      
         Total revenues                        85,939          47,431     
  Cost of revenues ^(1):
     Subscription                               18,312            11,012
     Professional services and other           13,996          10,224     
         Total cost of revenues                32,308          21,236     
            Gross profit                       53,631          26,195     
  Operating expenses ^(1):
     Sales and marketing                        38,226            19,307
     Research and development                   16,039            6,043
     General and administrative                12,279          6,427      
         Total operating expenses              66,544          31,777     
            Loss from operations                (12,913     )     (5,582     )
     Interest and other income, net            119             492        
            Loss before provision for           (12,794     )     (5,090     )
            income taxes
  Provision for income taxes                   564             550        
            Net loss                         $  (13,358     )   $ (5,640     )
            Net loss attributable to common
                                             $  (13,358     )   $ (5,794     )
            stockholders - Basic and Diluted
  Net loss per share attributable to common
  stockholders:
     Basic                                   $  (0.10       )   $ (0.23      )
     Diluted                                 $  (0.10       )   $ (0.23      )
  Weighted-average shares used to compute net loss
  per share attributable to common stockholders:
     Basic                                     129,782,029     25,123,582 
     Diluted                                   129,782,029     25,123,582 
                                                                
                                                         
  ^(1) Includes total stock-based compensation expense for stock-based awards
  as follows:
                                             
                                             Three Months Ended
                                             March 31,          March 31,

                                             2013               2012
  Cost of revenues:
     Subscription                            $  1,794           $ 532
     Professional services and other            821               192
  Sales and marketing                           3,985             1,471
  Research and development                      3,114             661
  General and administrative                  2,332          1,062      


ServiceNow, Inc.
Condensed Consolidated Balance Sheets
(in thousands)
                                                            
                                               March 31, 2013     December 31,
                                                                  2012
  ASSETS                                       (Unaudited)
  Current assets:
       Cash and cash equivalents               $    144,782       $   118,989
       Short-term investments                       194,084           195,702
       Accounts receivable, net                     79,844            78,163
       Current portion of deferred                  17,690            14,979
       commissions
       Prepaid expenses and other current           10,176            13,596
       assets
       Current portion of deferred tax             660              660
       assets
            Total current assets                    447,236           422,089
  Deferred commissions, less current portion        12,295            11,296
  Property and equipment, net                       54,284            42,342
  Other assets                                     2,138            2,387
            Total assets                       $    515,953       $   478,114
                                                                  
  LIABILITIES AND STOCKHOLDERS’ EQUITY
  Current liabilities:
       Accounts payable                        $    9,770         $   9,604
       Accrued expenses and other current           40,432            48,059
       liabilities
       Current portion of deferred revenue         178,911          153,964
            Total current liabilities               229,113           211,627
  Deferred revenue, less current portion            15,854            16,397
  Other long-term liabilities                       7,059             6,685
  Stockholders’ equity                             263,927          243,405
            Total liabilities and              $    515,953       $   478,114
            stockholders’equity

                                                                             
ServiceNow, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
                                                          
                                                     Three Months Ended      
                                                     March 31,     March 31,

                                                     2013          2012
                                                                             
  Cash flows from operating activities:
  Net loss                                           $ (13,358 )   $ (5,640  )
       Adjustments to reconcile net loss to net
       cash provided by operating activities:
       Depreciation and amortization                   4,364         2,046
       Amorization of premiums on short-term           1,095         -
       investments, net
       Amortization of deferred commissions            5,366         2,343
       Stock-based compensation                        12,046        3,918
       Tax benefit from exercise of stock              (1,851  )     (960    )
       options
       Bad debt expense                                283           -
       Lease abandonment costs                         298           -
       Changes in operating assets and
       liabilities:
       Accounts receivable                             (2,938  )     2,058
       Deferred commissions                            (9,269  )     (5,253  )
       Prepaid expenses and other current assets       3,918         4,172
       Other assets                                    (230    )     (74     )
       Accounts payable                                (1,471  )     1,433
       Accrued expenses and other current              (9,012  )     1,045
       liabilities
       Deferred revenue                                25,729        11,022
       Other long-term liabilities                    53          (31     )
       Net cash provided by operating activities      15,023      16,079  
  Cash flows from investing activities:
       Purchases of property and equipment             (10,415 )     (8,558  )
       Purchases of short-term investments             (55,946 )     (15,344 )
       Maturities of short-term investments            55,350        -
       Restricted cash                                -           8       
       Net cash used in investing activities          (11,011 )    (23,894 )
  Cash flows from financing activities:
       Financing costs paid on follow-on               (698    )     -
       offering
       Proceeds from employee stock plans              21,468        1,301
       Proceeds from early exercise of stock           -             887
       options
       Tax benefit from exercise of stock              1,851         960
       options
       Net proceeds from issuance of common            -             17,848
       stock
       Purchases of common stock and restricted       -           (1,069  )
       stock from stockholders
       Net cash provided by financing activities      22,621      19,927  
  Foreign currency effect on cash and cash            (840    )    (60     )
  equivalents
       Net increase in cash and cash equivalents       25,793        12,052
  Cash and cash equivalents at beginning of           118,989     68,088  
  period
  Cash and cash equivalents at end of period         $ 144,782    $ 80,140  
                                                                             
  Calculation of free cash flow (a non-GAAP
  measure):
  Net cash provided by operating activities          $ 15,023      $ 16,079
  Purchases of property and equipment                 (10,415 )    (8,558  )
  Free cash flow                                     $ 4,608      $ 7,521   


ServiceNow, Inc.
Results of Operations GAAP to Non-GAAP Reconciliation
(in thousands, except share and per share data)
(Unaudited)
                                                                                                
                         
                         Three Months Ended
                         March 31, 2013                                      March 31, 2012
                         GAAP              Adjustments   Non-GAAP            GAAP             Adjustments   Non-GAAP
  Reconciliation of gross profit:
  Revenues:
    Subscription         $ 71,558          $  -          $ 71,558            $ 39,541         $  -          $ 39,541
    Professional
    services and          14,381           -          14,381            7,890           -          7,890      
    other
        Total             85,939           -          85,939            47,431          -          47,431     
        revenues
  Cost of revenues
  ^(1):
    Subscription           18,312             (1,794 )     16,518              11,012            (532   )     10,480
    Professional
    services and          13,996           (821   )    13,175            10,224          (192   )    10,032     
    other
        Total cost        32,308           (2,615 )    29,693            21,236          (724   )    20,512     
        of revenues
  Gross profit:
    Subscription           53,246             1,794        55,040              28,529            532          29,061
    Professional
    services and          385              821        1,206             (2,334     )     192        (2,142     )
    other
        Total gross      $ 53,631         $  2,615     $ 56,246           $ 26,195        $  724       $ 26,919     
        profit
                                                                                                            
  Reconciliation of operating expenses:
  Operating expenses
  ^(1):
    Sales and            $ 38,226          $  (3,985 )   $ 34,241            $ 19,307         $  (1,471 )   $ 17,836
    marketing
    Research and           16,039             (3,114 )     12,925              6,043             71           6,114
    development ^(2)
    General and           12,279           (2,332 )    9,947             6,427           (1,062 )    5,365      
    administrative
        Total
        operating        $ 66,544         $  (9,431 )   $ 57,113           $ 31,777        $  (2,462 )   $ 29,315     
        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)        $ (12,913     )   $  12,046    $ (867        )     $ (5,582     )   $  3,186     $ (2,396     )
    from operations
    Income (loss)
    before provision     $ (12,794     )   $  12,046     $ (748        )     $ (5,090     )   $  3,186      $ (1,904     )
    for income taxes
    Provision for
    income taxes          564              539        1,103             550             31         581        
    ^(1), (2)
    Net income           $ (13,358     )   $  11,507    $ (1,851      )     $ (5,640     )   $  3,155     $ (2,485     )
    (loss)
    Net income
    (loss)
    attributable to
    common               $ (13,358     )   $  11,507    $ (1,851      )     $ (5,794     )   $  3,155     $ (2,639     )

    stockholders -
    Basic and
    Diluted
    Net income
    (loss) per share
    attributable to

    common
    stockholders:
        Basic            $ (0.10       )   $  0.09      $ (0.01       )     $ (0.23      )   $  0.12      $ (0.11      )
        Diluted          $ (0.10       )   $  0.09      $ (0.01       )     $ (0.23      )   $  0.12      $ (0.11      )
    Weighted-average
    shares used to
    compute net

    income (loss)
    per share
    attributable to

    common
    stockholders:
        Basic             129,782,029      -          129,782,029       25,123,582      -          25,123,582 
        Diluted           129,782,029      -          129,782,029       25,123,582      -          25,123,582 
                                                                                                            
                                                                                           

^(1) Adjustments include stock-based compensation and the related tax effect.

^(2) Adjustment includes $0.7 million of research and development expenses that were improperly capitalized related to
software development costs incurred during the development of the company's feature release for its service offering and
the related tax effect for the quarter ended March 31, 2012.



ServiceNow, Inc.
Non-GAAP Billings Reconciliation
(in thousands)
(Unaudited)
                                                             
                                         Three Months Ended
                                          March 31,   December 31,   March 31,
                                          2013        2012           2012
                                                                     
  Total revenues                          $ 85,939    $   75,162     $ 47,431
  Deferred revenue, end of period           194,765       170,361      115,757
  Less: deferred revenue, beginning        170,361      147,946     104,636
  of period
  Billings                                $ 110,343   $   97,577     $ 58,552

                                             
                                                        
ServiceNow, Inc.
Reconciliation of Non-GAAP Financial Guidance
                                                        
  The financial guidance provided below is an estimate based on information
  available as of April 24, 2013. 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 March 8, 2013 and the company's Form 10-Q for
  the fiscal quarter ended March 31, 2013 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, 2013
                                                        
  Non-GAAP subscription gross                           74% - 75%
  margin
                                                        
  Stock-based compensation                              (2%)
  expense
                                                        
  GAAP subscription gross                               72% - 73%
  margin
                                                        
  Non-GAAP professional
  services and other gross                              23% - 25%
  margin
                                                        
  Stock-based compensation                              (6%)
  expense
                                                        
  GAAP professional services                            17% - 19%
  and other gross margin
                                                        
  Non-GAAP total gross margin                           64% - 65%
                                                        
  Stock-based compensation                              (3%)
  expense
                                                        
  GAAP total gross margin                               61% - 62%
                                                        
  Non-GAAP operating margin                             (6%) - (5%)
                                                        
  Stock-based compensation                              (15%)
  expense
                                                        
  GAAP operating margin                                 (21%) - (20%)
                                                        
  Non-GAAP basic and diluted                            ($0.06) - ($0.04)
  net loss per share
                                                        
  Stock-based compensation                              ($0.11)
  expense
                                                        
  Incremental non-GAAP tax                              $0.01
  expense  ^(1)
                                                        
  GAAP basic and diluted net                            ($0.16) - ($0.14)
  loss per share
                                                    
  
  ^(1) Incremental non-GAAP tax expense reflects the increase to GAAP tax
  expense related to the non-GAAP stock-based compensation expense
  adjustments.
  

Contact:

ServiceNow
Liza Goldberg, 408-501-8553
liza.goldberg@servicenow.com
 
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