10-QPeriod: Q3 FY2022

ServiceNow, Inc. Quarterly Report for Q3 Ended Sep 30, 2022

Filed October 27, 2022For Securities:NOW

Summary

ServiceNow, Inc.'s (NOW) third-quarter 2022 results demonstrate continued robust revenue growth, with total revenues increasing by 21% year-over-year to $1.83 billion. This growth was primarily driven by a 22% increase in subscription revenues, highlighting the company's strong recurring revenue model. The company also reported an increase in operating income to $91 million, up from $74 million in the prior year period, indicating improved operational efficiency. Despite a challenging macroeconomic environment and foreign currency headwinds impacting revenue by $92 million, ServiceNow maintained its strategic investments in sales and marketing, and research and development to fuel future growth. Financially, the company maintained a healthy balance sheet with total assets of $11.1 billion and total stockholders' equity of $4.5 billion. Cash flow from operations remained strong at $1.56 billion for the nine months ended September 30, 2022, and free cash flow increased by 9% to $1.16 billion. Remaining Performance Obligations (RPO) grew 17% year-over-year to $11.4 billion, signaling strong future revenue potential. The company also ended the quarter with a significant cash and investments balance of $5.5 billion, providing ample liquidity.

Financial Highlights

52 data points
Beta

Revenue

$1.83B

78.2% Gross Margin

Net Income

$80.00M

4.4% Net Margin

EPS (Diluted)

$0.08

Total Assets

$11.11B

Cash & Equivalents

$1.25B

Free Cash Flow

$103.00M

Financial Statements
Beta
Revenue$1.83B
Cost of Revenue$400.00M
Gross Profit$1.43B
R&D Expenses$456.00M
Operating Expenses$1.34B
Operating Income$91.00M
Interest Expense$8.00M
Net Income$80.00M
EPS (Basic)$0.08
EPS (Diluted)$0.08
Shares Outstanding (Basic)1.01B
Shares Outstanding (Diluted)1.02B

Key Highlights

  • 1Total revenues grew 21% year-over-year to $1.83 billion for the third quarter of 2022.
  • 2Subscription revenues, the primary revenue driver, increased by 22% year-over-year to $1.74 billion.
  • 3Operating income improved to $91 million, up from $74 million in Q3 2021, showing enhanced profitability.
  • 4Remaining Performance Obligations (RPO) reached $11.4 billion, a 17% increase year-over-year, indicating strong future revenue visibility.
  • 5The company generated $1.56 billion in cash from operating activities for the first nine months of 2022, a 16% increase compared to the prior year period.
  • 6Free cash flow increased by 9% year-over-year to $1.16 billion for the first nine months of 2022.
  • 7ServiceNow experienced a $92 million negative impact on subscription revenue due to foreign currency exchange rate fluctuations during the quarter.

Frequently Asked Questions

For the three months ended September 30, 2022, the strengthening U.S. Dollar negatively impacted reported subscription revenues by approximately $92 million. This headwind also favorably impacted cost of revenues and sales and marketing expenses. For the nine months ended September 30, 2022, the unfavorable impact on subscription revenues was approximately $193 million.

ServiceNow has a significant portion of its debt in the form of $1.5 billion of 1.40% fixed rate notes due in 2030. The 0% convertible senior notes due in 2022 matured and were settled during the nine months ended September 30, 2022. The fair value of the 2030 Notes was approximately $1.115 billion as of September 30, 2022.

Sales and marketing expenses increased by 20% year-over-year to $697 million for the third quarter of 2022, representing 38% of total revenues. This increase was primarily due to higher headcount and related personnel costs, as well as increased amortization of deferred commissions and marketing program expenses. Management expects sales and marketing expenses to increase in absolute dollars but remain relatively flat as a percentage of revenues due to sales productivity gains and marketing efficiencies.

ServiceNow's RPO, representing contracted revenue not yet recognized, stood at $11.4 billion as of September 30, 2022, a 17% increase year-over-year. The company expects to recognize approximately 52% of this RPO over the next 12 months, indicating strong near-term revenue visibility. The majority of the non-current RPO is expected to be recognized over the following 13 to 36 months.