01—Abstract
Summary
Summary of the 10-K filed January 31, 2023. Cited figures are marked; the original filing is the authoritative source.
ServiceNow, Inc. (NOW) reported a solid fiscal year 2022, demonstrating continued growth in its core subscription revenue, which increased by 24% year-over-year to $6.9 billiona.
The company's platform-centric approach, the "Now Platform," underpins its four primary workflow areas: Technology, Customer and Industry, Employee, and Creator. This integrated platform enables customers to digitize workflows, enhance productivity, and improve user experiences, driving ServiceNow's value proposition. Despite a challenging macroeconomic environment, the company maintained strong customer relationships, evidenced by a high renewal rate of 98% and growth in customers with Annual Contract Value (ACV) exceeding $1 millionb, reaching 1,637.
Remaining Performance Obligations (RPO) also saw a healthy increase of 22% to $14 billionc, indicating strong future revenue visibility. Operationally, ServiceNow is investing in research and development to maintain its competitive edge, with R&D expenses increasing by 27% to $1.8 billion. Sales and marketing expenses grew by 23% to $2.8 billion, reflecting continued efforts to expand market reach.
The company generated substantial free cash flow of $2.2 billiond, showcasing its ability to convert revenue growth into strong cash generation. While facing competition and macroeconomic headwinds, ServiceNow's diversified product portfolio and commitment to innovation position it well for continued expansion in the digital transformation market.
02—Key points
Key Highlights
- Subscription revenue grew by 24% year-over-year to $6.9 billion, driven by new and existing customer adoption.
- Remaining Performance Obligations (RPO) increased by 22% to $14 billion, indicating strong future revenue visibility.
- The number of customers with Annual Contract Value (ACV) greater than $1 million grew to 1,637, up from 1,346 in the prior year.
- Free cash flow generation remained robust at $2.2 billion for the year.
- The company maintained a high customer renewal rate of 98%.
- Investments in Research and Development increased by 27% to $1.8 billion to support ongoing innovation and platform enhancement.
- ServiceNow continues to expand its global presence, with 35% of total revenues generated from international markets.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2022, ServiceNow kept $0.04.
- Revenue$7.25B100.0%
- Cost of revenue−$1.57B21.7%
- Gross profit$5.67B78.3%
- Operating costs−$5.32B73.4%
- Operating income$355.0M4.9%
- Interest, other & tax−$30.0M0.4%
- Net income$325.0M4.5%
Where FY2022 revenue went
$7.25B- Other operating costs: $3.55B, 49% of revenue
- R&D: $1.77B, 24% of revenue
- Cost of revenue: $1.57B, 22% of revenue
- Net income: $325.0M, 4.5% of revenue
Kept 4.5% as net incomeNet income $325.0M · 4.5%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2022filed January 31, 2023Financial Statements
FY2022 against FY2021
| Line item | FY2022FY2021 | Change |
|---|---|---|
| Revenue | $7.25B$5.90B | +22.9% |
| Cost of Revenue | $1.57B$1.35B | +16.3% |
| Gross Profit | $5.67B$4.54B | +24.9% |
| R&D Expenses | $1.77B$1.40B | +26.6% |
| Operating Expenses | $5.32B$4.29B | +24.1% |
| Operating Income | $355.00M$257.00M | +38.1% |
| Interest Expense | $27.00M$28.00M | −3.6% |
| Net Income | $325.00M$230.00M | +41.3% |
| EPS (Basic) | $0.32$0.23 | +38.8% |
| EPS (Diluted) | $0.32$0.23 | +41.6% |
| Shares Outstanding (Basic) | 1.01B990.47M | +1.7% |
| Shares Outstanding (Diluted) | 1.02B1.02B | +0.2% |
05—Questions
Frequently Asked Questions
What is ServiceNow's primary revenue driver and how did it perform in 2022?
ServiceNow's primary revenue driver is its subscription revenue from the Now Platform and its associated workflow applications. In 2022, subscription revenue increased by 24% year-over-year to $6.9 billion, demonstrating strong demand for its digital workflow solutions.
How does ServiceNow manage customer retention and what does its renewal rate indicate?
ServiceNow maintains a strong focus on customer success and platform value realization. The company reported a consistent customer renewal rate of 98% for 2022, which indicates high customer satisfaction and the sticky nature of its platform, suggesting that customers find significant ongoing value in ServiceNow's services.
What is the significance of Remaining Performance Obligations (RPO) for ServiceNow?
Remaining Performance Obligations (RPO) represent contracted revenue that has not yet been recognized. ServiceNow's RPO increased by 22% to $14 billion as of December 31, 2022. This metric is crucial for investors as it provides visibility into future revenue and demonstrates the strength of the company's multi-year contract pipeline and future revenue streams.
What are the key investments ServiceNow is making for future growth?
ServiceNow is strategically investing in Research and Development (R&D) to enhance its platform capabilities and develop new applications, with R&D expenses growing by 27% in 2022. The company also continues to invest in its sales and marketing operations to expand its market reach and customer acquisition efforts.
06—Continue