10-QPeriod: Q1 FY2016

ServiceNow, Inc. Quarterly Report for Q1 Ended Mar 31, 2016

Filed May 6, 2016For Securities:NOW

Summary

ServiceNow, Inc. reported revenue of $305.9 million for the first quarter of 2016, a significant 44% increase year-over-year, driven primarily by a 49% surge in subscription revenues. Despite this strong top-line growth, the company reported a substantial net loss of $333.3 million, largely impacted by a $270 million legal settlement charge related to patent infringement lawsuits with Hewlett Packard Enterprise and BMC Software. Excluding this one-time charge, operating expenses increased due to investments in sales, marketing, and R&D, reflecting the company's continued focus on expansion. Financially, ServiceNow maintained a healthy cash position with $900.9 million in cash and cash equivalents and short-term investments. Operating cash flow showed a modest increase to $78.7 million. While the company is investing heavily for growth, the significant legal settlement expense overshadowed operational performance, leading to a reported net loss and a substantial increase in operating expenses as a percentage of revenue for the quarter. Investors should monitor the impact of recent legal settlements and continued investment in growth initiatives on future profitability.

Financial Highlights

48 data points
Beta

Revenue

$305.88M

69.2% Gross Margin

Net Income

-$333.33M

-109.0% Net Margin

EPS (Diluted)

$-0.41

Total Assets

$1.87B

Cash & Equivalents

$453.45M

Free Cash Flow

$49.61M

Financial Statements
Beta
Revenue$305.88M
Cost of Revenue$94.26M
Gross Profit$211.62M
R&D Expenses$65.92M
Operating Expenses$535.77M
Operating Income-$324.15M
Interest Expense$8.11M
Net Income-$333.33M
EPS (Basic)$-0.41
Shares Outstanding (Basic)810.34M

Key Highlights

  • 1Total revenues grew 44% year-over-year to $305.9 million, primarily driven by a 49% increase in subscription revenue.
  • 2A significant legal settlement charge of $270 million was recorded, leading to a reported net loss of $333.3 million for the quarter.
  • 3The company's cash and cash equivalents, along with short-term investments, totaled $900.9 million, indicating a strong liquidity position.
  • 4Operating cash flow increased by 17% year-over-year to $78.7 million.
  • 5Sales and marketing expenses increased 44% year-over-year, consistent with revenue growth and investments in expansion.
  • 6The renewal rate remained strong at 97%.
  • 7The company expanded its customer base, with G2K customer count increasing to 653 from 556 in the prior year.

Frequently Asked Questions

The significant net loss of $333.3 million was primarily due to a one-time legal settlement charge of $270 million related to patent infringement lawsuits with Hewlett Packard Enterprise and BMC Software. This charge significantly impacted operating expenses and the overall net loss for the period.

ServiceNow demonstrated strong revenue growth, with total revenues increasing by 44% year-over-year to $305.9 million. This growth was largely fueled by a 49% increase in subscription revenues, indicating continued demand for its core cloud-based solutions.

The company maintains a solid financial position, reporting $900.9 million in cash and cash equivalents and short-term investments as of March 31, 2016. This, combined with positive operating cash flow of $78.7 million, suggests adequate liquidity to meet its obligations and fund ongoing operations and growth initiatives.

Operating expenses increased substantially, largely due to the aforementioned $270 million legal settlement. Excluding this charge, increases in sales and marketing (up 44%) and research and development (up 32%) reflect continued investment in business expansion, customer acquisition, and product development. Headcount also increased significantly across all departments.