10-QPeriod: Q2 FY2015

ServiceNow, Inc. Quarterly Report for Q2 Ended Jun 30, 2015

Filed August 6, 2015For Securities:NOW

Summary

ServiceNow, Inc. reported solid revenue growth for the first six months of 2015, with total revenues increasing by 50% year-over-year to $458.7 million. Subscription revenue, the primary driver of growth, was up 52% to $380.4 million. Despite this strong top-line performance, the company continued to operate at a net loss, reporting a net loss of $120.0 million for the first six months of 2015, an increase from $93.7 million in the prior year period. This widening loss is largely attributable to significant increases in operating expenses, particularly in sales and marketing and research and development, as well as a substantial rise in stock-based compensation costs. The company demonstrated improved operating cash flow, generating $147.0 million in the first six months of 2015, up from $66.3 million in the same period of 2014, indicating effective management of working capital and non-cash expenses. Despite the net loss, the company maintained a healthy liquidity position with $722.5 million in cash and cash equivalents and short-term investments as of June 30, 2015.

Financial Highlights

48 data points
Beta

Revenue

$246.72M

67.7% Gross Margin

Net Income

-$61.92M

-25.1% Net Margin

EPS (Diluted)

$-0.08

Total Assets

$1.56B

Cash & Equivalents

$325.35M

Free Cash Flow

$65.06M

Financial Statements
Beta
Revenue$246.72M
Cost of Revenue$79.72M
Gross Profit$167.00M
R&D Expenses$53.28M
Operating Expenses$220.23M
Operating Income-$53.23M
Interest Expense$7.71M
Net Income-$61.92M
EPS (Basic)$-0.08
Shares Outstanding (Basic)772.33M

Key Highlights

  • 1Total revenues for the first six months of 2015 grew by 50% to $458.7 million, driven by a 52% increase in subscription revenues to $380.4 million.
  • 2The company reported a net loss of $120.0 million for the first six months of 2015, compared to a net loss of $93.7 million in the prior year period.
  • 3Operating expenses increased significantly, with Sales and Marketing up 53% and Research and Development up 55% year-over-year for the six-month period.
  • 4Stock-based compensation expense more than doubled year-over-year, increasing by 86% to $124.4 million for the six months ended June 30, 2015, reflecting continued investment in employee incentives.
  • 5Operating cash flow saw substantial improvement, increasing by 122% to $147.0 million for the first six months of 2015.
  • 6The company's cash position remained strong, with $722.5 million in cash, cash equivalents, and short-term investments as of June 30, 2015.
  • 7ServiceNow faces ongoing litigation with Hewlett-Packard and BMC Software, though the company is vigorously defending these claims.

Frequently Asked Questions

ServiceNow's primary revenue driver is its subscription-based cloud service. For the first six months of 2015, subscription revenues increased by 52% year-over-year to $380.4 million, indicating strong demand for its core offerings.

ServiceNow is investing heavily in growth, which is reflected in its operating expenses. Significant increases in sales and marketing, research and development, and a substantial rise in stock-based compensation costs are contributing to the net loss. The company expects to continue incurring GAAP losses in the near term as it invests in expansion.

The company demonstrated a significant improvement in operating cash flow, which more than doubled year-over-year to $147.0 million for the first six months of 2015. With $722.5 million in cash, cash equivalents, and short-term investments as of June 30, 2015, ServiceNow appears to have sufficient liquidity to meet its short-term obligations and fund its growth initiatives.

ServiceNow faces several risks, including intense competition, potential cybersecurity threats, foreign currency exchange rate fluctuations, service disruptions, dependence on key employees, potential patent litigation (such as with HP and BMC), and challenges in scaling its operations and technology globally. The company also notes that its revenue growth rate is expected to decline, though it is investing to mitigate this.