10-QPeriod: Q1 FY2013

ServiceNow, Inc. Quarterly Report for Q1 Ended Mar 31, 2013

Filed May 8, 2013For Securities:NOW

Summary

ServiceNow, Inc. (NOW) filed its 10-Q for the period ending March 30, 2013, highlighting its status as an "emerging growth company" and the implications for reporting requirements under the JOBS Act. The company is nearing the end of its emerging growth company status, expected by December 31, 2013, which will bring increased reporting obligations and associated costs. A significant focus of this filing is the remediation of previously identified material weaknesses in internal control over financial reporting, which the company believes have been addressed but are still undergoing required documentation and testing. Investors should note that while the company has made efforts to strengthen its financial reporting processes and team, the full effectiveness of these controls under Sarbanes-Oxley Act Section 404 will be a key area to monitor. The company also outlined its strategy regarding potential acquisitions and investments, noting the risks associated with integration, dilution, and diversion of management attention. Furthermore, ServiceNow emphasized the inherent volatility of its stock price, common among technology companies, and listed numerous factors that could influence its market value. Investors should be aware that the company currently does not intend to pay dividends, meaning returns will be primarily derived from potential stock price appreciation.

Financial Highlights

43 data points
Beta

Revenue

$85.94M

62.4% Gross Margin

Net Income

-$13.36M

-15.5% Net Margin

EPS (Diluted)

$-0.02

Total Assets

$515.95M

Cash & Equivalents

$144.78M

Free Cash Flow

$4.61M

Financial Statements
Beta
Revenue$85.94M
Cost of Revenue$32.31M
Gross Profit$53.63M
R&D Expenses$16.04M
Operating Expenses$66.54M
Operating Income-$12.91M
Net Income-$13.36M
EPS (Basic)$-0.02
EPS (Diluted)$-0.02
Shares Outstanding (Basic)648.91M

Key Highlights

  • 1ServiceNow is nearing the end of its "emerging growth company" status (expected December 31, 2013), which will increase reporting burdens and costs.
  • 2The company has taken steps to remediate previously identified material weaknesses in internal control over financial reporting and believes they are addressed, though ongoing testing under SOX 404 is required.
  • 3Significant investment has been made in hiring experienced finance and accounting personnel, including a new CFO, VP of Finance, and internal audit staff, to bolster financial reporting capabilities.
  • 4Potential for acquisitions or investments is highlighted as a strategic option, alongside cautionary notes on integration risks, management distraction, and potential stock dilution.
  • 5The company acknowledges the high volatility of its common stock price, common in the technology sector, and lists various internal and external factors that could impact it.
  • 6ServiceNow does not currently intend to pay dividends, with all stockholder returns dependent on stock price appreciation.

Frequently Asked Questions

As an "emerging growth company" under the JOBS Act, ServiceNow can take advantage of exemptions from various reporting requirements. This includes reduced disclosure obligations and delayed adoption of new accounting standards. However, this status is temporary and expected to end by December 31, 2013, after which the company will face increased compliance costs and reporting obligations.

ServiceNow previously identified material weaknesses in its internal controls over financial reporting, primarily due to a lack of experienced accounting personnel. While the company states these weaknesses have been remediated through hiring and process improvements, it's still undergoing documentation and testing under Sarbanes-Oxley Act Section 404. Investors should monitor the effectiveness and successful implementation of these improved controls.

As of March 31, 2013, ServiceNow had used approximately $94.9 million of its IPO proceeds for data center expansion, office facilities build-out, and general corporate purposes, including working capital. The remaining proceeds are invested in short-term, investment-grade securities, and management has broad discretion in their application.

ServiceNow has never declared or paid cash dividends on its common stock and does not anticipate doing so in the foreseeable future. The company intends to retain future earnings for business development and expansion. Therefore, any return for stockholders is currently limited to potential increases in the stock price.