10-QPeriod: Q1 FY2014

ServiceNow, Inc. Quarterly Report for Q1 Ended Mar 31, 2014

Filed May 7, 2014For Securities:NOW

Summary

ServiceNow, Inc. (NOW) reported strong revenue growth in the first quarter of 2014, with total revenues increasing by 62% year-over-year to $139.1 million. Subscription revenues, the primary revenue driver, surged by 64% to $117.4 million, reflecting successful upsells, renewals, and a growing customer base, which expanded by 34% to 2,195 customers. Despite the robust top-line performance and a high customer renewal rate of 97%, the company continued to invest heavily in growth, leading to an operating loss of $36.2 million for the quarter, a widening from the previous year's loss of $12.9 million. This increased loss is largely attributable to significant investments in sales and marketing (up 82%) and research and development (up 94%), as well as a substantial increase in stock-based compensation expenses across all departments.

Financial Highlights

47 data points
Beta

Revenue

$139.09M

61.8% Gross Margin

Net Income

-$43.31M

-31.1% Net Margin

EPS (Diluted)

$-0.06

Total Assets

$1.22B

Cash & Equivalents

$337.92M

Free Cash Flow

$13.25M

Financial Statements
Beta
Revenue$139.09M
Cost of Revenue$53.11M
Gross Profit$85.98M
R&D Expenses$31.11M
Operating Expenses$122.16M
Operating Income-$36.18M
Net Income-$43.31M
EPS (Basic)$-0.06
Shares Outstanding (Basic)710.30M

Key Highlights

  • 1Total revenues grew 62% year-over-year to $139.1 million, driven by a 64% increase in subscription revenue to $117.4 million.
  • 2Customer base expanded by 34% to 2,195 customers as of March 31, 2014.
  • 3Customer renewal rate remained strong at 97%.
  • 4Operating expenses increased significantly, particularly sales & marketing (up 82%) and R&D (up 94%), reflecting ongoing investment in growth.
  • 5The company reported a net loss of $43.3 million, an increase from $13.4 million in the prior year, due to the substantial operating expense growth.
  • 6Cash provided by operating activities was $24.2 million, an improvement from $15.0 million in the prior year, indicating positive cash generation despite net loss.
  • 7ServiceNow issued $575 million in 0% convertible senior notes in November 2013, which has led to increased amortization of debt discount and issuance costs impacting interest expense.

Frequently Asked Questions

ServiceNow's primary growth driver is its subscription revenue, which increased by 64% year-over-year to $117.4 million in Q1 2014. This growth is fueled by attracting new customers and expanding relationships with existing ones through upsells and renewals.

Although ServiceNow experienced substantial revenue growth, it also significantly increased its operating expenses, particularly in sales and marketing and research and development, to fund future growth. These investments, along with higher stock-based compensation costs, led to a wider net loss compared to the prior year.

ServiceNow generated $24.2 million in cash from operating activities in the first quarter of 2014, which is an improvement from the previous year. This positive operating cash flow indicates that the company is able to generate cash from its core business operations, even while reporting a net loss.

The issuance of $575 million in 0% convertible senior notes in November 2013 has led to increased non-cash interest expense due to the amortization of debt discount and issuance costs. This is impacting the company's reported net income, although the notes do not carry a cash interest payment.