10-QPeriod: Q2 FY2014

ServiceNow, Inc. Quarterly Report for Q2 Ended Jun 30, 2014

Filed August 7, 2014For Securities:NOW

Summary

ServiceNow, Inc. (NOW) reported strong revenue growth in the second quarter of 2014, with total revenues reaching $166.8 million, a 63% increase year-over-year. Subscription revenue, the primary driver of this growth, surged by 65% to $132.7 million, indicating robust customer adoption and expansion. Despite this top-line performance, the company continued to experience a net loss of $50.4 million for the quarter, widening from $21.4 million in the prior year. This loss is largely attributed to significant investments in sales and marketing (up 76%) and research and development (up 97%), as the company aggressively pursues market share and product innovation. Key financial metrics highlight continued customer engagement, with a strong upsell rate of 33% and a high renewal rate of 98%. The customer base grew by 33% to 2,364. The company also completed a significant acquisition of Neebula Systems Ltd. for $100 million in July 2014, aimed at expanding its IT offerings. While the company maintains a healthy cash position, investors should monitor the increasing operating expenses and the path to profitability, alongside the impact of the Neebula acquisition on future financial performance.

Financial Highlights

47 data points
Beta

Revenue

$166.76M

64.7% Gross Margin

Net Income

-$50.36M

-30.2% Net Margin

EPS (Diluted)

$-0.07

Total Assets

$1.26B

Cash & Equivalents

$329.27M

Free Cash Flow

$25.62M

Financial Statements
Beta
Revenue$166.76M
Cost of Revenue$58.94M
Gross Profit$107.82M
R&D Expenses$35.44M
Operating Expenses$152.29M
Operating Income-$44.47M
Net Income-$50.36M
EPS (Basic)$-0.07
Shares Outstanding (Basic)722.28M

Key Highlights

  • 1Total revenues increased by 63% to $166.8 million for the three months ended June 30, 2014, compared to $102.2 million in the prior year.
  • 2Subscription revenue grew by 65% to $132.7 million, driven by strong customer acquisition and upsells.
  • 3Net loss widened to $50.4 million for the quarter, compared to $21.4 million in the prior year, reflecting significant investments in growth.
  • 4Operating expenses rose substantially, with Sales & Marketing up 76% and R&D up 97%, indicating a focus on expansion.
  • 5Customer count increased by 33% to 2,364 as of June 30, 2014.
  • 6The company completed the acquisition of Neebula Systems Ltd. for $100 million in July 2014 to enhance its IT service automation capabilities.

Frequently Asked Questions

ServiceNow demonstrated significant revenue growth, with total revenues up 63% year-over-year to $166.8 million, primarily driven by a 65% increase in subscription revenue. However, the company reported a net loss of $50.4 million for the quarter, which is a widening loss compared to the $21.4 million loss in the same period last year. This indicates that the company is prioritizing growth through increased investment in sales, marketing, and R&D, rather than short-term profitability.

ServiceNow is effectively retaining and growing its customer base. The customer count increased by 33% to 2,364 as of June 30, 2014. Key metrics supporting this growth include a strong upsell rate of 33% for the quarter and a high renewal rate of 98%, demonstrating customer satisfaction and the ability to expand within existing accounts.

In July 2014, shortly after the quarter's end, ServiceNow acquired Neebula Systems Ltd. for $100 million in cash. This acquisition is strategic, aimed at enhancing ServiceNow's IT service automation capabilities, particularly in IT discovery, mapping, and monitoring. While the full financial impact will be seen in future quarters, it represents a significant investment in expanding the company's product suite and market reach.

Operating expenses, particularly in sales and marketing (up 76%) and research and development (up 97%), have increased significantly, reflecting ServiceNow's commitment to aggressive growth. While these investments are driving top-line revenue growth, they are also widening the net loss. The company's strategy appears to be focused on market leadership and expansion, with profitability expected to improve as the company scales and its investments mature. Investors should monitor the efficiency of these spending increases and the long-term trajectory towards profitability.