ServiceNow Reports Third Quarter 2023 Financial Results

• ServiceNow exceeds guidance across all Q3 2023 topline growth and profitability metrics; raises 2023 subscription revenues and operating margin guidance
• Subscription revenues of $2,216 million in Q3 2023, representing 27% year-over-year growth, 24.5% in constant currency
• Total revenues of $2,288 million in Q3 2023, representing 25% year-over-year growth, 22.5% in constant currency
• Current remaining performance obligations of $7.43 billion as of Q3 2023, representing 27% year-over-year growth, 24% in constant currency
• 83 transactions over $1 million in net new ACV in Q3 2023, up 20% year-over-year
• ServiceNow ended Q3 2023 with 49 customers with more than $20 million in ACV, representing 58% year-over-year increase

ServiceNow (NYSE:NOW), the leading digital workflow company making the world work better for everyone, today announced financial results for its third quarter ended September 30, 2023, with subscription revenues of $2,216 million in Q3 2023, representing 27% year-over-year growth and 24.5% in constant currency.

"ServiceNow had another beyond expectations quarter," said ServiceNow Chairman and CEO Bill McDermott. "We've released more than 5,000 new capabilities this year, including generative AI for the use cases that matter most to our customers. Innovation drives growth. This is a highly unique, differentiated company that is reshaping business as the intelligent super platform for the enterprise."

As of September 30, 2023, current remaining performance obligations ("cRPO"), contract revenue that will be recognized as revenue in the next 12 months, was $7.43 billion, representing 27% year-over-year growth and 24% in constant currency. The company now has 1,789 total customers with more than $1 million in annual contract value ("ACV"), representing 17% year-over-year growth in customers.

"Q3 marks another quarter of exceptional execution as we significantly surpassed the high end of our guidance metrics," said ServiceNow CFO Gina Mastantuono. "Our robust results show that the world's best-run enterprises are choosing ServiceNow to drive their digital transformation roadmaps. With the capabilities unlocked by generative AI, the window of opportunity is even more expansive, positioning us well to continue delivering a strong balance of growth and profitability."

Recent Business Highlights

• In Q3, ServiceNow launched its Vancouver Platform release, which embedded generative AI across all workflows on the Now Platform. Now Assist, ServiceNow's generative AI experience, expands the company's generative AI capabilities to further maximize productivity, improve agility, and drive cost efficiency. Now Assist incorporates previously announced generative AI features such as case, incident, and agent chat summarization, virtual agent, and search capabilities, as well as the Generative AI Controller. To power the new generative AI features in Now Assist, ServiceNow also released a domain-specific ServiceNow large language model (Now LLM) built for the enterprise, and released its generative AI pricing packages with premium SKU offerings.
• In October, building on the recent announcement of its AI Lighthouse program, ServiceNow welcomed Teleperformance, among other leading companies, to collaborate on new generative AI use cases that boost productivity and increase customer and employee satisfaction in key industries.
• ServiceNow also significantly expanded its partner ecosystem capabilities and partnerships. In Q3, the ServiceNow Ecosystem Ventures program made investments in Japan-based Blueship Co., Ltd. and Japan Systems Co., Ltd. Today, ServiceNow announced an expanded partnership with Deloitte, as well as a co-investment by the ServiceNow Ecosystem Ventures program in India-based global capability center leader ANSR.
• During the quarter, ServiceNow repurchased 500 thousand shares of its common stock for $282 million as part of its first-ever share repurchase program, with the primary objective of managing the impact of dilution from future employee equity grants and employee stock purchase programs. Approximately, $1.2 billion remains available for future share repurchases under the existing program.
• As a testament to its hungry and humble culture, ServiceNow was recognized as a Fortune Best Workplaces in Technology™⁽¹⁾ for the fourth consecutive year. For the first time, ServiceNow was named a 2023 Best Places to Work for People with Disabilities and received a perfect score of 100 on the Disability:IN 2023 Disability Equality Index.
• Around the world, the company continued to emphasize its environmental, social, and governance (ESG) commitments. ServiceNow partnered with FutureSkills Prime to train 5,000 learners across India in new digital skills and provide clear pathways to careers within the ServiceNow network, and partnered with GivePower to provide safe, affordable drinking water to drought-ridden Mombasa County, Kenya.

Third Quarter 2023 GAAP and Non-GAAP Results:

The following table summarizes our financial results for the third quarter 2023:

Financial Outlook

Our guidance includes GAAP and non-GAAP financial measures. The non-GAAP growth rates for subscription revenues and cRPO are adjusted only for constant currency to provide better visibility into the underlying business trends. Since December 31, 2022, ServiceNow has seen an incremental strengthening of the U.S. dollar resulting in foreign exchange ("FX") headwinds. The total FX impact is estimated to be an approximately $30 million (~0.5%) year-over-year headwind for Q4 2023 cRPO. Additionally, the Q3 2023 strength of our US Federal business has resulted in a higher mix of contracts containing 12-month renewal terms. This will create a 1-point headwind to Q4 2023 cRPO growth and remain a headwind into 2024 as that balance is amortized into revenue. We expect that these contracts will renew in Q3 2024 as ServiceNow's US Federal renewal rates have been 99%.

The following table summarizes our guidance for the fourth quarter 2023:

The following table summarizes our guidance for the full-year 2023:

Conference Call Details

The conference call will begin at 2 p.m. Pacific Time (21:00 GMT) on October 25, 2023. Interested parties may listen to the call by dialing (888) 330‑2455 (Passcode: 8135305), or if outside North America, by dialing (240) 789‑2717 (Passcode: 8135305). Individuals may access the live teleconference from this webcast

https://events.q4inc.com/attendee/932913620

An audio replay of the conference call and webcast will be available two hours after its completion and will be accessible for 30 days. To hear the replay, interested parties may go to the investor relations section of the ServiceNow website or dial (800) 770‑2030 (Passcode: 8135305), or if outside North America, by dialing (647) 362‑9199 (Passcode: 8135305).

Investor Presentation Details

An investor presentation providing additional information, including forward-looking guidance, and analysis can be found at https://investors.servicenow.com.

Upcoming Investor Conferences

ServiceNow today announced that it will attend and have executives present at three upcoming investor conferences.

These include:

• ServiceNow President and Chief Operating Officer CJ Desai will participate in a fireside chat at the UBS Global Technology Conference on Tuesday, November 28, 2023, at 1:15pm PT.
• ServiceNow Chief Financial Officer Gina Mastantuono will participate in a keynote presentation at the Wells Fargo TMT Summit on Wednesday, November 29, 2023, at 12:00pm PT.
• ServiceNow Chairman and Chief Executive Officer Bill McDermott will participate in a keynote presentation at the Barclays Global Technology Conference on Wednesday, December 6, 2023, at 12:10pm PT.

The live webcasts will be accessible on the investor relations section of the ServiceNow website at https://investors.servicenow.com and archived on the ServiceNow site for a period of 30 days.

Statement Regarding Use of Non-GAAP Financial Measures

We use the following non-GAAP financial measures in addition to, and not as a substitute for, or superior to, financial measures calculated in accordance with GAAP.

• Revenues. We adjust revenues and related growth rates for constant currency to provide a framework for assessing how our business performed excluding the effect of foreign currency rate fluctuations. To present this information, current period results for entities reporting in currencies other than U.S. Dollars ("USD") are converted into USD at the average exchange rates in effect during the comparison period (for Q3 2022, the average exchange rates in effect for our major currencies were 1 USD to 0.99 Euros and 1 USD to 0.85 British Pound Sterling ("GBP")), rather than the actual average exchange rates in effect during the current period (for Q3 2023, the average exchange rates in effect for our major currencies were 1 USD to 0.92 Euros and 1 USD to 0.79 GBP). Guidance for related growth rates are derived by applying the average exchange rates in effect during the comparison period rather than the exchange rates for the guidance period. We believe the presentation of revenues and related growth rates adjusted for constant currency facilitates the comparison of revenues year-over-year.
• Remaining performance obligations and current remaining performance obligations. We adjust cRPO and remaining performance obligations ("RPO") and related growth rates for constant currency to provide a framework for assessing how our business performed. To present this information, current period results for entities reporting in currencies other than USD are converted into USD at the exchange rates in effect at the end of the comparison period (for Q3 2022, the end of the period exchange rates in effect for our major currencies were 1 USD to 1.02 Euros and 1 USD to 0.90 GBP), rather than the actual end of the period exchange rates in effect during the current period (for Q3 2023, the end of the period exchange rates in effect for our major currencies were 1 USD to 0.95 Euros and 1 USD to 0.82 GBP). Guidance for the related growth rate is derived by applying the end of period exchange rates in effect during the comparison period rather than the exchange rates in effect during the guidance period. We believe the presentation of cRPO and RPO and related growth rates adjusted for constant currency facilitates the comparison of cRPO and RPO year-over-year, respectively.
• Gross profit, Income from operations, Net income and Net income per share - diluted. Our non-GAAP presentation of gross profit, income from operations, and net income measures exclude certain non-cash or non-recurring items, including stock-based compensation expense, amortization of debt discount and issuance costs related to our convertible senior notes, loss on early note conversions, amortization of purchased intangibles, legal settlements, business combination and other related costs, income tax effects and adjustments, and the income tax benefit from the release of a valuation allowance on deferred tax assets. The non-GAAP weighted-average shares used to compute our non-GAAP net income per share - diluted excludes the dilutive effect of the in-the-money portion of convertible senior notes as they are covered by our note hedges, and includes the dilutive effect of time-based stock awards, the dilutive effect of warrants and the potentially dilutive effect of our stock awards with performance conditions not yet satisfied at forecasted attainment levels to the extent we believe it is probable that the performance condition will be met. We believe these adjustments provide useful supplemental information to investors and facilitates the analysis of our operating results and comparison of operating results across reporting periods.
• Free cash flow. Free cash flow is defined as net cash provided by operating activities plus cash paid for legal settlements, repayments of convertible senior notes attributable to debt discount and business combination and other related costs including compensation expense, reduced by purchases of property and equipment. Free cash flow margin is calculated as free cash flow as a percentage of total revenues. We believe information regarding free cash flow and free cash flow margin provides useful information to investors because it is an indicator of the strength and performance of our business operations.

Our presentation of non-GAAP financial measures may not be comparable to similar measures used by other companies. We encourage investors to carefully consider our results under GAAP, as well as our supplemental non-GAAP information and the reconciliation between these presentations, to more fully understand our business. Please see the tables included at the end of this release for the reconciliation of GAAP and non-GAAP results for gross profit, income from operations, net income, net income per share and free cash flow.

Use of Forward-Looking Statements

This release contains "forward-looking statements" regarding our performance, including but not limited to statements in the section entitled "Financial Outlook." Forward-looking statements are subject to known and unknown risks and uncertainties and are based on potentially inaccurate assumptions that could cause actual results to differ materially from those expected or implied by the forward-looking statements. If any such risks or uncertainties materialize or if any of the assumptions prove incorrect, our results could differ materially from the results expressed or implied by the forward-looking statements we make.

Factors that may cause actual results to differ materially from those in any forward-looking statements include, among others, experiencing an actual or perceived cyber-security event or weakness; our ability to comply with evolving privacy laws, data transfer restrictions, and other foreign and domestic standards related to data and the Internet; errors, interruptions, delays or security breaches in or of our service or data centers; our ability to maintain and attract key employees and manage workplace culture; alleged violations of laws and regulations, including those relating to anti-bribery and anti-corruption and those relating to public sector contracting requirements; our ability to compete successfully against existing and new competitors; our ability to predict, prepare for and respond promptly to rapidly evolving technological, market and customer developments; our ability to grow our business, including converting remaining performance obligations into revenue, adding and retaining customers, selling additional subscriptions to existing customers, selling to larger enterprises, government and regulated organizations with complex sales cycles and certification processes, and entering new geographies and markets; our ability to develop and gain customer demand for and acceptance of existing, new and improved products and services; our ability to expand and maintain our partnerships and partner programs, including expected market opportunity from such relationships; global economic conditions; fluctuations in the value of foreign currencies relative to the U.S. Dollar; fluctuations in interest rates; our ability to consummate and realize the benefits of any strategic transactions or acquisitions; the impact of the conflicts in Ukraine and the Middle East and bank failures on macroeconomic conditions; inflation; and fluctuations and volatility in our stock price.

Further information on these and other factors that could affect our financial results are included in our Form 10-K for the year ended December 31, 2022, our Forms 10-Q and other filings we make with the Securities and Exchange Commission from time to time.

We undertake no obligation, and do not intend, to update these forward-looking statements, to review or confirm analysts' expectations, or to provide interim reports or updates on the progress of the current financial quarter.

About ServiceNow

ServiceNow (NYSE:NOW) makes the world work better for everyone. Our cloud-based platform and solutions help digitize and unify organizations so that they can find smarter, faster, better ways to make work flow. So employees and customers can be more connected, more innovative, and more agile. And we can all create the future we imagine. The world works with ServiceNow^™. For more information, visit: www.servicenow.com.

© 2023 ServiceNow, Inc. All rights reserved. ServiceNow, the ServiceNow logo, Now, and other ServiceNow marks are trademarks and/or registered trademarks of ServiceNow, Inc. in the United States and/or other countries. Other company names, product names, and logos may be trademarks of the respective companies with which they are associated.

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