ServiceNow ( NOW Quick Quote NOW - Free Report) reported second-quarter 2023 adjusted earnings of $2.37 per share, which beat the Zacks Consensus Estimate by 15.61% and jumped 46.3% year over year. Revenues of $2.15 billion beat the consensus mark by 0.99% and increased 22.7% year over year. At constant currency, revenues increased 22.5%. Subscription revenues improved 25.2% year over year to $2.08 billion. Professional services and other revenues decreased 20.2% year over year to $75 million. The company’s shares have outperformed the Zacks Computer & Technology sector year to date. While NOW shares have gained 48.7%, the Computer & Technology sector increased 40.5%. ServiceNow has been benefiting from the rising adoption of its workflows by enterprises undergoing digital transformation. The company had 1,724 total customers with more than $1 million in annual contract value (ACV) at the end of the second quarter.
ServiceNow ended second-quarter 2023 with 45 customers with more than $20 million in ACV, up 55% year over year.
The renewal rate was 99% in the reported quarter, unchanged year over year. At the end of the second quarter, the current remaining performance obligations (cRPO) were $7.2 billion, up 25% year over year. On a constant currency basis, cRPO increased 24%. Remaining performance obligations, on a constant currency basis, rose 22.5% year over year to $14.2 billion. Operating Details
In the second quarter, the non-GAAP gross margin was 82%, unchanged on a year-over-year basis.
Subscription gross margin of 84.6% contracted 150 bps year over year. Professional services and other gross margins were 10.7%, unchanged year over year. Total operating expenses, on a non-GAAP basis, were $1.56 billion in the reported quarter, up 16.5% year over year. As a percentage of revenues, operating expenses decreased 390 bps on a year-over-year basis. ServiceNow’s non-GAAP operating margin expanded 250 bps on a year-over-year basis to 25.3%. Balance Sheet & Cash Flow
As of Jun 30, 2023, the company had cash and cash equivalents and short-term investments of $4.75 billion compared with $4.91 billion as of Mar 31, 2023.
During the reported quarter, cash from operations was $580 million compared with $902 million in the previous quarter. ServiceNow generated a free cash flow of $451 million in the reported quarter, down from $737 million reported in the prior quarter. Guidance
For third-quarter 2023, subscription revenues are projected between $2.185 billion and $2.195 billion, suggesting an improvement in the range of 25.5-26% year over year on a GAAP basis. At constant currency, subscription revenues are expected to grow in the 23-23.5% range.
cRPO is expected to grow 21.5% year over year on a non-GAAP basis and 25.5% on a GAAP basis. ServiceNow expects the non-GAAP operating margin to be 27%. For 2023, the company expects subscription revenues to be $8.580-$8.600 billion, which suggests a rise of 24.5-25% over 2022 on a GAAP basis. At constant currency, subscription revenues are expected to grow 25% over 2022. ServiceNow expects the non-GAAP subscription gross margin to be 84% and the non-GAAP operating margin to be 26.5%. Moreover, the free cash flow margin is expected to be 30%. Zacks Rank & Other Stocks to Consider
Currently, ServiceNow sports a Zacks Rank #1 (Strong Buy).
Stratasys ( SSYS Quick Quote SSYS - Free Report) , Fortinet ( FTNT Quick Quote FTNT - Free Report) and Itron ( ITRI Quick Quote ITRI - Free Report) are some other top-ranked stocks that investors can consider in the broader sector, each sporting a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here. Stratasys shares have gained 68% year to date. SSYS is set to report its second-quarter 2023 results on Aug 9. Fortinet shares have gained 58% year to date. FTNT is set to report its second-quarter 2023 results on Aug 3. Itron shares have returned 33.6% year to date. ITRI is set to report its second-quarter 2023 results on Aug 3.