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ServiceNow (NOW) Q2 Earnings & Revenues Surpass Estimates

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ServiceNow (NOW - Free Report) reported second-quarter 2021 adjusted earnings of $1.42 per share, which beat the Zacks Consensus Estimate by 18.3% and improved 15.4% year over year.

Revenues of $1.41 billion surpassed the consensus mark by 3.9% and increased 31.6% year over year. After adjusting for forex, revenues of $1.36 billion surged 27.2% year over year.

Subscription revenues improved 31% year over year to $1.33 billion. After adjusting for forex, subscription revenues increased 27% year over year to $1.29 billion.

Professional services and other revenues increased 41% year over year to $79 million. After adjusting for forex, professional services and other revenues climbed 36% to $76 million.
 

ServiceNow, Inc. Price, Consensus and EPS Surprise

ServiceNow, Inc. Price, Consensus and EPS Surprise

ServiceNow, Inc. price-consensus-eps-surprise-chart | ServiceNow, Inc. Quote

 

ServiceNow has been benefiting from rising adoption of its workflows by enterprises undergoing digital transformation. The company now has 1,201 total customers with more than $1 million in annual contract value, representing 25% year-over-year growth in customers.

The company’s expanding partner base is a positive. During the reported quarter, ServiceNow announced an integration with Microsoft’s (MSFT - Free Report) new Windows 365 solution to let users easily access Cloud PCs directly through Microsoft Teams.

Billing Details

Total billings, on a non-GAAP basis, rose 31.2% year over year to $1.42 billion. After adjusting for forex, total billings increased 26% year over year to $1.36 billion.

Subscription billings of $1.33 billion advanced 30.5% year over year. After adjusting for forex, subscription billings were $1.28 billion, up 25%.

Professional services and other billings increased 43.5% to $89 million. After adjusting for forex, professional services and other billings were $86 million, up 39%.

Operating Details

In the second quarter, non-GAAP gross margin was 85%, which contracted 200 basis points (bps) on a year-over-year basis.

Subscription gross margin of 85% contracted 200 bps year over year. Professional services and other gross margin was 17% compared with year-ago quarter’s figure of 14%.

Total operating expenses, on a non-GAAP basis, were $789 million in the reported quarter, up 33.3% year over year.

ServiceNow’s non-GAAP operating margin contracted 300 bps on a year-over-year basis to 25%.

Balance Sheet & Cash Flow

As of Jun 30, 2021, ServiceNow had cash and cash equivalents, and short-term investments of $2.98 billion compared with $3.46 billion as of Mar 31, 2021.

During the reported quarter, cash from operations was $300 million compared with $727 million in the previous quarter.

ServiceNow generated free cash flow of $268 million in the quarter, down from $627 million reported in the prior quarter.

At the end of the second quarter, remaining performance obligations (RPO) were $4.7 billion, surging 34% year over year.

Guidance

For third-quarter 2021, non-GAAP subscription billings are projected between $1.32 billion and $1.325 billion, which suggests an improvement of 23% year over year.

ServiceNow expects non-GAAP operating margin to be 23%.

For 2021, ServiceNow expects non-GAAP subscription billings to be $6.32-$6.325 billion, which suggests a rise of 27% from the year-ago reported figure.

ServiceNow continues to expect non-GAAP gross margin to be 85% and non-GAAP operating margin to be 24.5%. Moreover, non-GAAP free cash flow margin is expected to be 31%.

Zacks Rank & Stocks to Consider

Currently, ServiceNow has a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Similarly-ranked stocks in the broader technology sector include Avnet (AVT - Free Report) and Digital Turbine (APPS - Free Report) .

Digital Turbine and Avnet are set to report their earnings results on Aug 9 and 11, respectively.