10-QPeriod: Q2 FY2023

ServiceNow, Inc. Quarterly Report for Q2 Ended Jun 30, 2023

Filed July 27, 2023For Securities:NOW

Summary

ServiceNow, Inc. (NOW) reported strong financial performance for the quarter ending June 30, 2023, with total revenues increasing by 23% year-over-year to $2.15 billion. Subscription revenues, the company's primary revenue driver, grew by 25% to $2.075 billion, indicating sustained demand for its workflow automation and digitization solutions. The company demonstrated robust profitability, with net income soaring to $1.044 billion, a significant increase from $20 million in the prior year's quarter, largely driven by a substantial tax benefit related to the release of a valuation allowance on deferred tax assets. Operationally, ServiceNow continues to expand its customer base, with the number of customers having an Annual Contract Value (ACV) greater than $1 million growing to 1,724. Remaining Performance Obligations (RPO), a key indicator of future revenue, increased by 24% year-over-year, reaching $14.2 billion, with current RPO (next 12 months) also showing strong growth. The company also highlighted its healthy free cash flow, which increased by 13% to $1.185 billion for the first six months of the year, underscoring its operational efficiency and ability to generate cash. Management's outlook remains positive, anticipating continued growth in subscription revenues.

Financial Highlights

50 data points
Beta

Revenue

$2.15B

78.1% Gross Margin

Net Income

$1.04B

48.6% Net Margin

EPS (Diluted)

$1.02

Total Assets

$14.92B

Cash & Equivalents

$1.66B

Free Cash Flow

$448.00M

Financial Statements
Beta
Revenue$2.15B
Cost of Revenue$471.00M
Gross Profit$1.68B
R&D Expenses$521.00M
Operating Expenses$1.56B
Operating Income$117.00M
Net Income$1.04B
EPS (Basic)$1.02
EPS (Diluted)$1.02
Shares Outstanding (Basic)1.02B
Shares Outstanding (Diluted)1.03B

Key Highlights

  • 1Total revenues grew 23% year-over-year to $2.15 billion for the quarter ended June 30, 2023.
  • 2Subscription revenues, a key indicator of recurring business, increased by 25% to $2.075 billion.
  • 3Net income dramatically increased to $1.044 billion, largely due to a significant tax benefit from releasing a valuation allowance on deferred tax assets.
  • 4Remaining Performance Obligations (RPO) grew 24% year-over-year to $14.2 billion, indicating strong future revenue potential.
  • 5The number of customers with an Annual Contract Value (ACV) greater than $1 million increased to 1,724.
  • 6Free cash flow for the first six months of the year rose 13% to $1.185 billion.
  • 7Renewal rate remained strong at 99% for the quarter and 98% for the first six months.

Frequently Asked Questions

The significant increase in net income to $1.044 billion for the quarter was primarily driven by a substantial income tax benefit of $870 million. This benefit resulted from the release of a valuation allowance against certain U.S. federal and state deferred tax assets, following a sustained period of profitability.

ServiceNow's future revenue visibility appears strong, as indicated by the increase in Remaining Performance Obligations (RPO) by 24% year-over-year to $14.2 billion as of June 30, 2023. Approximately 51% of this RPO is expected to be recognized as revenue in the next 12 months (current RPO).

ServiceNow expects professional services and other revenues to decrease in absolute dollars and slightly as a percentage of revenue for the full year 2023 compared to 2022. This is attributed to a strategic focus on deploying its internal professional services organization and leveraging its partner ecosystem for implementation services delivery.

Yes, in May 2023, ServiceNow's board of directors authorized a new share repurchase program of up to $1.5 billion. As of June 30, 2023, no shares had been repurchased under this new program.