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ServiceNow (NOW - Free Report) reported first-quarter 2022 adjusted earnings of $1.73 per share, which beat the Zacks Consensus Estimate by 2.37% and improved 13.8% year over year.
Revenues of $1.72 billion surpassed the consensus mark by 1.71% and increased 26.6% year over year. After adjusting for forex, revenues of $1.76 billion surged 29% year over year.
Subscription revenues improved 26% year over year to $1.63 billion. After adjusting for forex, subscription revenues increased 29% year over year to $1.67 billion.
Professional services and other revenues increased 36% year over year to $91 million. After adjusting for forex, professional services and other revenues jumped 39% on a year-over-year basis to $93 million.
ServiceNow has been benefiting from the rising adoption of its workflows by enterprises undergoing digital transformation. The company now has 1,401 total customers with more than $1 million in annual contract value, representing 24% year-over-year growth in customers.
ServiceNow, Inc. Price, Consensus and EPS Surprise
Renewal rate was 98% in the reported quarter compared with 97% reported in the year-ago quarter.
During the reported quarter, ServiceNow closed 52 transactions with more than $1 million in net new annual contract value, representing 41% year-over-year growth.
As of Mar 31, 2022, current remaining performance obligations (“RPO”) of $5.69 billion up 29% year-over-year. On a constant currency basis, current RPO increased 30.5%.
RPO, on a constant currency basis, rose 31.5% year over year to $11.6 billion.
Operating Details
In the first quarter, non-GAAP gross margin was 82.6%, which expanded 70 basis points (bps) on a year-over-year basis.
Subscription gross margin of 86.5% expanded 90 bps year over year. Professional services and other gross margin were 14.3% compared with the year-ago quarter’s figure of 13.4%.
Total operating expenses, on a non-GAAP basis, were $986 million in the reported quarter, up 32.7% year over year. As a percentage of revenues, operating expenses increased 260 bps on a year-over-year basis.
ServiceNow’s non-GAAP operating margin contracted 200 bps on a year-over-year basis to 25.4%.
Balance Sheet & Cash Flow
As of Mar 31, 2022, ServiceNow had cash and cash equivalents, and short-term investments of $4.01 billion compared with $3.30 billion as of Dec 31, 2021.
During the reported quarter, cash from operations was $863 million compared with $844 million in the previous quarter.
ServiceNow generated free cash flow of $770 million in the quarter, up from $744 million reported in the prior quarter.
Guidance
For second-quarter 2022, non-GAAP subscription revenues are projected between $1.715 billion and $1.720 billion, which suggests an improvement of 29% year over year.
ServiceNow expects non-GAAP operating margin to be 22%.
For 2022, ServiceNow expects non-GAAP subscription revenues to be $7.155-$7.170 billion, which suggests a rise of 28.5% from the year-ago reported figure.
ServiceNow expects non-GAAP subscription gross margin to be 86% and non-GAAP operating margin to be 25%. Moreover, non-GAAP free cash flow margin is expected to be 31%.
Zacks Rank & Stocks to Consider
Currently, ServiceNow has a Zacks Rank #4 (Sell).
ServiceNow shares have underperformed the Zacks Computer & Technology sector year to date. While NOW shares have lost 28.1%, the Computer & Technology sector decreased 23.7%.
Image: Bigstock
ServiceNow (NOW) Q1 Earnings & Revenues Surpass Estimates
ServiceNow (NOW - Free Report) reported first-quarter 2022 adjusted earnings of $1.73 per share, which beat the Zacks Consensus Estimate by 2.37% and improved 13.8% year over year.
Revenues of $1.72 billion surpassed the consensus mark by 1.71% and increased 26.6% year over year. After adjusting for forex, revenues of $1.76 billion surged 29% year over year.
Subscription revenues improved 26% year over year to $1.63 billion. After adjusting for forex, subscription revenues increased 29% year over year to $1.67 billion.
Professional services and other revenues increased 36% year over year to $91 million. After adjusting for forex, professional services and other revenues jumped 39% on a year-over-year basis to $93 million.
ServiceNow has been benefiting from the rising adoption of its workflows by enterprises undergoing digital transformation. The company now has 1,401 total customers with more than $1 million in annual contract value, representing 24% year-over-year growth in customers.
ServiceNow, Inc. Price, Consensus and EPS Surprise
ServiceNow, Inc. price-consensus-eps-surprise-chart | ServiceNow, Inc. Quote
Renewal rate was 98% in the reported quarter compared with 97% reported in the year-ago quarter.
During the reported quarter, ServiceNow closed 52 transactions with more than $1 million in net new annual contract value, representing 41% year-over-year growth.
As of Mar 31, 2022, current remaining performance obligations (“RPO”) of $5.69 billion up 29% year-over-year. On a constant currency basis, current RPO increased 30.5%.
RPO, on a constant currency basis, rose 31.5% year over year to $11.6 billion.
Operating Details
In the first quarter, non-GAAP gross margin was 82.6%, which expanded 70 basis points (bps) on a year-over-year basis.
Subscription gross margin of 86.5% expanded 90 bps year over year. Professional services and other gross margin were 14.3% compared with the year-ago quarter’s figure of 13.4%.
Total operating expenses, on a non-GAAP basis, were $986 million in the reported quarter, up 32.7% year over year. As a percentage of revenues, operating expenses increased 260 bps on a year-over-year basis.
ServiceNow’s non-GAAP operating margin contracted 200 bps on a year-over-year basis to 25.4%.
Balance Sheet & Cash Flow
As of Mar 31, 2022, ServiceNow had cash and cash equivalents, and short-term investments of $4.01 billion compared with $3.30 billion as of Dec 31, 2021.
During the reported quarter, cash from operations was $863 million compared with $844 million in the previous quarter.
ServiceNow generated free cash flow of $770 million in the quarter, up from $744 million reported in the prior quarter.
Guidance
For second-quarter 2022, non-GAAP subscription revenues are projected between $1.715 billion and $1.720 billion, which suggests an improvement of 29% year over year.
ServiceNow expects non-GAAP operating margin to be 22%.
For 2022, ServiceNow expects non-GAAP subscription revenues to be $7.155-$7.170 billion, which suggests a rise of 28.5% from the year-ago reported figure.
ServiceNow expects non-GAAP subscription gross margin to be 86% and non-GAAP operating margin to be 25%. Moreover, non-GAAP free cash flow margin is expected to be 31%.
Zacks Rank & Stocks to Consider
Currently, ServiceNow has a Zacks Rank #4 (Sell).
ServiceNow shares have underperformed the Zacks Computer & Technology sector year to date. While NOW shares have lost 28.1%, the Computer & Technology sector decreased 23.7%.
Camtek (CAMT - Free Report) , CDW (CDW - Free Report) and Fabrinet (FN - Free Report) are some better-ranked stocks that investors can consider in the broader sector. All the three stocks have a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
CAMT shares are down 36.4% compared with sector’s decline of 23.7%. The company is set to report first-quarter 2022 on May 12, 2022.
CDW shares are down 19.8% year to date. The company is set to report first-quarter 2022 results on May 4.
Fabrinet shares are down 17.5% year to date. FN is set to report third-quarter fiscal 2022 results on May 2.