10-KPeriod: FY2012

ServiceNow, Inc. Annual Report, Year Ended Dec 31, 2012

Filed March 8, 2013For Securities:NOW

Summary

ServiceNow, Inc. filed its 10-K for the period ending December 30, 2012, showcasing strong revenue growth driven primarily by its subscription services. The company experienced a significant increase in total revenues, growing by 90% year-over-year, largely attributed to adding new customers and expanding offerings to existing ones. While operating expenses also rose considerably due to investments in sales, marketing, and R&D, the company's strategic shift towards a time-and-materials model for professional services began to improve its gross profit margins in that segment. As a newly public company in 2012, ServiceNow is navigating the complexities of public company compliance and investing heavily in growth initiatives, including expanding its sales force and cloud infrastructure. Despite incurring net losses, the company's robust customer growth, high renewal rates, and increasing average revenue per customer indicate positive underlying business momentum. Investors should note the company's significant investments in growth, its focus on expanding its platform and service offerings, and the ongoing efforts to strengthen internal controls.

Financial Statements
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Key Highlights

  • 1Revenue Growth: Total revenues increased by 90% year-over-year, reaching $243.7 million for the year ended December 31, 2012, primarily driven by subscription revenues.
  • 2Customer Acquisition and Retention: Total customers grew by 55% to 1,512, with a strong renewal rate of 97% for both 2011 and 2012.
  • 3Improving Professional Services Margins: The shift to a time-and-materials pricing model for professional services led to a significant improvement in gross profit percentage, moving from -30% in 2011 to -4% in 2012.
  • 4Investment in Growth: Significant increases in Sales & Marketing and Research & Development expenses reflect substantial investment in expanding the sales force, marketing programs, and developing new technologies.
  • 5Internal Control Remediation Efforts: The company acknowledges historical material weaknesses in internal controls and details efforts made to remediate them, while also noting ongoing work to fully document and test these controls.
  • 6Public Company Transition: ServiceNow is actively managing the costs and compliance requirements associated with being a public company, including increased legal, accounting, and administrative expenses.
  • 7Strategic Infrastructure Investments: Investments in data center capacity and cloud infrastructure are ongoing to support customer growth and enhance service scalability and reliability.

Frequently Asked Questions

ServiceNow operates on a Software-as-a-Service (SaaS) model, primarily generating revenue from subscription fees for access to its cloud-based platform and applications that automate enterprise IT operations. Professional services for implementation and training also contribute to revenue.

The company demonstrated strong revenue growth in 2012, nearly doubling its total revenue year-over-year. This growth was accompanied by significant increases in operating expenses, particularly in sales, marketing, and R&D, reflecting aggressive investment in growth. Despite these investments leading to a net loss, key metrics like customer growth and renewal rates are positive.

ServiceNow acknowledges past material weaknesses in internal control over financial reporting, primarily due to limited accounting personnel. The company has hired new finance and accounting personnel and engaged third-party consultants to address these issues. While they believe these weaknesses have been remediated, they are still in the process of completing the necessary documentation and testing under Sarbanes-Oxley Act requirements.

No, ServiceNow does not currently pay cash dividends on its common stock. The company intends to retain future earnings for business development, operations, and expansion, and does not anticipate paying dividends in the foreseeable future.