ServiceNow Inc (NOW - Free Report) reported earnings of 24 cents per share in first-quarter 2017, surging 166.7% from the year-ago quarter. Including stock-based compensation, the company reported loss of 18 cents per share, which was wider than the Zacks Consensus Estimate of a loss of 16 cents.
Revenues of almost $424 million surged 38.6% year over year and easily surpassed the Zacks Consensus Estimate of $409 million. This was also outdid management’s guided range of 33–34% year-over-year growth, which reflected a range of $406–$411 million.
Shares were up almost 6% in pre-market trading. ServiceNow has gained 26.4% as compared with the Zacks IT Services industry’s return of 6.5% on a year-to-date basis.
Quarter Details
Subscription revenues (90.2% of total revenue) surged 43.1% from the year-ago quarter to $382.7 million. Revenues were forecasted between $366 and $370 million, representing 37–38% year-over-year growth.
Professional services and other revenues increased 7.5% to $41.3 million. Revenues were expected to grow 4–7% to $40–$41 million.
Total billings surged 37% year over year to $517.5 million. This was substantially better than management’s guided range of 30–31% year-over-year growth.
Subscription billings of $466.2 million represented 41% year-over-year growth, while Professional services and other billings increased 13% to $51.2 million. Both were much better than management’s guidance.
During the quarter, ServiceNow won 28 new deals greater than $1 million in net new annualized contract value (ACV), and 26 net new Global 2K customers. Renewal rate was 97% in the reported quarter.
Management stated 93% of all customers now license more than one product and 47% of the quarter’s net new ACV came outside of ITSM compared with 33% from the year-ago quarter.
Adjusted gross margin (including stock-based compensation) expanded 330 basis points (bps) year over year to 73.4%. The expansion was primarily driven by 120 bps growth in subscription gross margin.
Operating expenses, as percentage of revenues declined 620 bps to 80.5%, primarily due to lower sales & marketing, research & development, and general & administrative expenses, which declined 190, 170 and 260 bps, respectively.
As a result, operating loss (including stock-based compensation) narrowed to $37.6 million as compared with loss of almost $51 million reported in the year-ago quarter.
ServiceNow generated free cash flow of $154.2 million (37% of revenues) as compared with $111.2 million (29% of revenues) in the fourth quarter.
Guidance
For second-quarter 2017, total revenue is expected to grow 37–39% year over year in the range of $469–$474 million. Subscription revenues are forecasted between $409 and $413 million, representing 41–42% year-over-year growth. Professional services and other revenues are expected to grow 18–20% to $60–$61 million.
Total billings are anticipated to grow 36–37% year over year in the range $509–$514 million.
Subscription billings are projected between $460 million and $464 million, representing 38–39% year-over-year growth. Professional services and other billings expected to grow 16–19% in the range of $49–$50 million.
Operating margin is anticipated to be 11%.
For full-year 2017, total revenue is forecasted between $1.886 and $1.906 billion (up from previous guidance of $1.820 and $1.850 billion), representing 36–37% year-over-year growth. Subscription revenues are expected to grow 39–40%, while Professional services and other revenues to grow 14–17%.
Total billings are anticipated between $2.272 billion and $2.292 billion (up from $2.165 billion and $2.195 billion), representing 34–36% year-over-year growth. Subscription billings are expected to grow 37–38% year over year, while Professional services and other billings to grow 16–18%.
Subscription and Professional services & other gross margin are forecasted to be 84% and 15% (down from 20%), respectively. Total gross margin is anticipated to be 77%, while operating margin is still pegged at 16%.
Zacks Rank & Key Picks
ServiceNow currently carries a Zacks Rank #3 (Hold). CSRA , Amdocs (DOX - Free Report) and Inovalon Holdings (INOV - Free Report) , all carrying a Zacks Rank #2 (Buy) are better-ranked stocks in the sector. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Long-term earnings growth rate for CSRA, Amdocs and Inovalon are pegged at 10%, 7.5% and 17.7%, respectively.
The Best & Worst of Zacks
Today you are invited to download the full, up-to-the-minute list of 220 Zacks Rank #1 "Strong Buys" free of charge. From 1988 through 2015 this list has averaged a stellar gain of +25% per year. Plus, you may download 220 Zacks Rank #5 "Strong Sells." Even though this list holds many stocks that seem to be solid, it has historically performed 6X worse than the market. See these critical buys and sells free >>
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ServiceNow Inc (NOW - Free Report) reported earnings of 24 cents per share in first-quarter 2017, surging 166.7% from the year-ago quarter. Including stock-based compensation, the company reported loss of 18 cents per share, which was wider than the Zacks Consensus Estimate of a loss of 16 cents.
Revenues of almost $424 million surged 38.6% year over year and easily surpassed the Zacks Consensus Estimate of $409 million. This was also outdid management’s guided range of 33–34% year-over-year growth, which reflected a range of $406–$411 million.
Shares were up almost 6% in pre-market trading. ServiceNow has gained 26.4% as compared with the Zacks IT Services industry’s return of 6.5% on a year-to-date basis.
Quarter Details
Subscription revenues (90.2% of total revenue) surged 43.1% from the year-ago quarter to $382.7 million. Revenues were forecasted between $366 and $370 million, representing 37–38% year-over-year growth.
Professional services and other revenues increased 7.5% to $41.3 million. Revenues were expected to grow 4–7% to $40–$41 million.
Total billings surged 37% year over year to $517.5 million. This was substantially better than management’s guided range of 30–31% year-over-year growth.
Subscription billings of $466.2 million represented 41% year-over-year growth, while Professional services and other billings increased 13% to $51.2 million. Both were much better than management’s guidance.
During the quarter, ServiceNow won 28 new deals greater than $1 million in net new annualized contract value (ACV), and 26 net new Global 2K customers. Renewal rate was 97% in the reported quarter.
Management stated 93% of all customers now license more than one product and 47% of the quarter’s net new ACV came outside of ITSM compared with 33% from the year-ago quarter.
Adjusted gross margin (including stock-based compensation) expanded 330 basis points (bps) year over year to 73.4%. The expansion was primarily driven by 120 bps growth in subscription gross margin.
Operating expenses, as percentage of revenues declined 620 bps to 80.5%, primarily due to lower sales & marketing, research & development, and general & administrative expenses, which declined 190, 170 and 260 bps, respectively.
As a result, operating loss (including stock-based compensation) narrowed to $37.6 million as compared with loss of almost $51 million reported in the year-ago quarter.
ServiceNow generated free cash flow of $154.2 million (37% of revenues) as compared with $111.2 million (29% of revenues) in the fourth quarter.
Guidance
For second-quarter 2017, total revenue is expected to grow 37–39% year over year in the range of $469–$474 million. Subscription revenues are forecasted between $409 and $413 million, representing 41–42% year-over-year growth. Professional services and other revenues are expected to grow 18–20% to $60–$61 million.
Total billings are anticipated to grow 36–37% year over year in the range $509–$514 million.
Subscription billings are projected between $460 million and $464 million, representing 38–39% year-over-year growth. Professional services and other billings expected to grow 16–19% in the range of $49–$50 million.
Operating margin is anticipated to be 11%.
For full-year 2017, total revenue is forecasted between $1.886 and $1.906 billion (up from previous guidance of $1.820 and $1.850 billion), representing 36–37% year-over-year growth. Subscription revenues are expected to grow 39–40%, while Professional services and other revenues to grow 14–17%.
Total billings are anticipated between $2.272 billion and $2.292 billion (up from $2.165 billion and $2.195 billion), representing 34–36% year-over-year growth. Subscription billings are expected to grow 37–38% year over year, while Professional services and other billings to grow 16–18%.
Subscription and Professional services & other gross margin are forecasted to be 84% and 15% (down from 20%), respectively. Total gross margin is anticipated to be 77%, while operating margin is still pegged at 16%.
Zacks Rank & Key Picks
ServiceNow currently carries a Zacks Rank #3 (Hold). CSRA , Amdocs (DOX - Free Report) and Inovalon Holdings (INOV - Free Report) , all carrying a Zacks Rank #2 (Buy) are better-ranked stocks in the sector. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Long-term earnings growth rate for CSRA, Amdocs and Inovalon are pegged at 10%, 7.5% and 17.7%, respectively.
The Best & Worst of Zacks
Today you are invited to download the full, up-to-the-minute list of 220 Zacks Rank #1 "Strong Buys" free of charge. From 1988 through 2015 this list has averaged a stellar gain of +25% per year. Plus, you may download 220 Zacks Rank #5 "Strong Sells." Even though this list holds many stocks that seem to be solid, it has historically performed 6X worse than the market. See these critical buys and sells free >>
Zacks Names "Single Best Pick to Double"
From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all.
It’s a little-known chemical company that’s up 65% over last year, yet still dirt cheap. With unrelenting demand, soaring 2022 earnings estimates, and $1.5 billion for repurchasing shares, retail investors could jump in at any time.
This company could rival or surpass other recent Zacks’ Stocks Set to Double like Boston Beer Company which shot up +143.0% in little more than 9 months and NVIDIA which boomed +175.9% in one year.
Free: See Our Top Stock and 4 Runners Up >>
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