ServiceNow Reports Fourth Quarter and Full-Year 2023 Financial Results
ServiceNow (NYSE: NOW), the leading digital workflow company making the world work better for everyone, today announced financial results for its fourth quarter ended December 31, 2023, with subscript...
- ServiceNow exceeds guidance across all Q4 2023 topline growth and profitability metrics; raises 2024 subscription revenues and operating margin outlook
- Subscription revenues of $2,365 million in Q4 2023, representing 27% year-over-year growth, 25.5% in constant currency
- Total revenues of $2,437 million in Q4 2023, representing 26% year-over-year growth, 24% in constant currency
- Current remaining performance obligations of $8.60 billion as of Q4 2023, representing 24% year-over-year growth, 23% in constant currency
- 168 transactions over $1 million in net new ACV in Q4 2023, up 33% year-over-year
SANTA CLARA, Calif.SANTA CLARA, Calif.: ServiceNow (NYSE: NOW), the leading digital workflow company making the world work better for everyone, today announced financial results for its fourth quarter ended December 31, 2023, with subscription revenues of $2,365 million in Q4 2023, representing 27% year-over-year growth and 25.5% in constant currency.
“ServiceNow closed out the year with another outstanding quarter,” said ServiceNow Chairman and CEO Bill McDermott. “Generative AI is injecting new fuel into our already high-performing engine. ServiceNow’s intelligent platform for end-to-end digital transformation is driving massive leaps in productivity and explosive growth. This is a breakthrough moment.”
As of December 31, 2023, current remaining performance obligations (“cRPO”), contract revenue that will be recognized as revenue in the next 12 months, was $8.60 billion, representing 24% year-over-year growth and 23% in constant currency. The company now has 1,897 total customers with more than $1 million in annual contract value (“ACV”), representing 15% year-over-year growth in customers.
“Once again we exceeded our topline growth and operating margin guidance metrics, showcasing ServiceNow’s consistent and relentless focus on execution,” said ServiceNow CFO Gina Mastantuono. “We ended Q4 with a 99% renewal rate, accelerating large new logo growth, and the strongest NNACV contribution for any new product family with the introduction of our Plus SKUs. The accelerating pace of investment in workflow automation and generative AI positions us well for another strong year and we are raising our outlook for 2024.”
Recent Business Highlights
- In its first full quarter since the launch of Now Assist, ServiceNow saw the largest net-new ACV contribution for a first quarter of any new product family release. The company also continued to execute on its ambitious generative AI roadmap, launching a major expansion to its Now Assist generative AI portfolio with Now Assist in Virtual Agent, flow generation, and Now Assist for Field Service Management.
- The company continued to grow its AI-related partnerships—including a strategic partnership with DXC—to integrate ServiceNow advanced analytics and enhanced AI capabilities into DXC Platform XTM. ServiceNow also announced a five-year Strategic Collaboration Agreement with Amazon Web Services (AWS) to offer the ServiceNow Platform and full suite of solutions in the AWS Marketplace. The two companies will also co-develop and launch industry-specific, AI powered applications.
- Today, ServiceNow announced a broader strategic alliance with EY to empower responsible AI use for enterprise customers, deliver unified solutions for AI compliance and governance, and bring AI-enhanced experiences to EY employees and clients with ServiceNow Now Assist.
- Additionally, ServiceNow and Visa today announced a five-year strategic alliance to transform payment services experiences. The initial phase includes the launch of ServiceNow Disputes Management, Built with Visa–– a single, connected solution for disputes resolution.
- In Q4, ServiceNow joined the AI Alliance launched by IBM and Meta, to advance open, safe, and responsible AI. The AI Alliance consists of a broad range of organizations that are working across aspects of AI education, research, development and deployment, and governance to support open innovation and open science in AI.
- The company announced its acquisition of task mining company UltimateSuite to bolster automation and AI capabilities, helping customers identify process bottlenecks and drive stronger operational efficiencies.
- Aston Martin Aramco Cognizant Formula One® Team announced ServiceNow as the intelligent platform partner to streamline the team’s AMR Technology Campus.
- During the quarter, ServiceNow repurchased 400,000 shares of its common stock for $256 million as part of its share repurchase program, with the primary objective of managing the impact of dilution from future employee equity grants and employee stock purchase programs. $962 million of the original authorized amount remains available for future share repurchases under the existing program.
- The company received significant recognition during the quarter, ranking #1 in the software category and #5 overall in the American Opportunity Index, as well as #3 on Glassdoor’s Best Places to Work 2023. ServiceNow was further recognized by placing on Fortune World’s 25 Best Workplaces™ and Fortune 100 Best Large Workplaces for Women™ lists(1). The company was also named a Leader in both the Forrester Wave™: Governance, Risk, and Compliance and The Forrester Wave™: Digital Process Automation Software.
| (1) | ©2023 FORTUNE Media IP Limited All rights reserved. Used under license. FORTUNE and FORTUNE Media IP Limited are not affiliated with, and do not endorse products or services of, ServiceNow. |
Fourth Quarter 2023 GAAP and Non-GAAP Results:
The following table summarizes our financial results for the fourth quarter 2023:
| Fourth Quarter 2023 GAAP Results |
| Fourth Quarter 2023 Non-GAAP Results(1) | ||
| Amount | Year/Year |
| Amount | Year/Year |
Subscription revenues | $2,365 | 27% |
| $2,332 | 25.5% |
Professional services and other revenues | $72 | (10%) |
| $71 | (11%) |
Total revenues | $2,437 | 26% |
| $2,403 | 24% |
|
|
|
|
|
|
| Amount | Year/Year |
| Amount | Year/Year |
cRPO | $8.60 | 24% |
| $8.52 | 23% |
RPO | $18.0 | 29% |
| $17.9 | 27.5% |
|
|
|
|
|
|
| Amount | Margin (%) |
| Amount | Margin (%)(2) |
Subscription gross profit | $1,922 | 81% |
| $1,996 | 84% |
Professional services and other gross profit (loss) | ($1) | (1%) |
| $11 | 15% |
Total gross profit | $1,921 | 79% |
| $2,007 | 82% |
Income from operations | $270 | 11% |
| $717 | 29% |
Net cash provided by operating activities | $1,605 | 66% |
|
|
|
Free cash flow |
|
|
| $1,344 | 55% |
|
|
|
|
|
|
| Amount | Earnings per |
| Amount | Earnings per |
Net income | $295 | $1.44 / 1.43 |
| $643 | $3.14 / 3.11 |
| (1) | We report non-GAAP financial measures in addition to, and not as a substitute for, or superior to, financial measures calculated in accordance with GAAP. See the section entitled “Statement Regarding Use of Non-GAAP Financial Measures” for an explanation of non-GAAP measures. |
| (2) | Refer to the table entitled “GAAP to Non-GAAP Reconciliation” for a reconciliation of GAAP to non-GAAP measures. |
| (3) | Non-GAAP subscription revenues, professional services and other revenues, total revenues, cRPO and RPO are adjusted only for constant currency. See the section entitled “Statement Regarding Use of Non-GAAP Financial Measures” for an explanation of non-GAAP measures. |
| Note: Numbers rounded for presentation purposes and may not foot. | |
Full-Year 2023 GAAP and Non-GAAP Results:
The following table summarizes our financial results for the full-year 2023:
|
|
|
|
|
|
| Full-Year 2023 GAAP Results |
| Full-Year 2023 Non-GAAP Results(1) | ||
| Amount | Year/Year |
| Amount | Year/Year |
Subscription revenues | $8,680 | 26 % |
| $8,647 | 25.5% |
Professional services and other revenues | $291 | (18%) |
| $290 | (18%) |
Total revenues | $8,971 | 24 % |
| $8,937 | 23.5% |
|
|
|
|
|
|
| Amount | Year/Year |
| Amount | Year/Year |
cRPO | $8.60 | 24% |
| $8.52 | 23% |
RPO | $18.0 | 29% |
| $17.9 | 27.5% |
|
|
|
|
|
|
| Amount | Margin (%) |
| Amount | Margin (%)(2) |
Subscription gross profit | $7,074 | 82% |
| $7,353 | 85% |
Professional services and other gross profit (loss) | ($24) | (8%) |
| $28 | 10% |
Total gross profit | $7,050 | 79% |
| $7,381 | 82% |
Income from operations | $762 | 8% |
| $2,489 | 28% |
Net cash provided by operating activities | $3,398 | 38% |
|
|
|
Free cash flow |
|
|
| $2,728 | 30% |
|
|
|
|
|
|
| Amount | Earnings per |
| Amount ($ millions)(2) | Earnings per |
Net income | $1,731 | $8.48 / $8.42 |
| $2,215 | $10.85 / $10.78 |
| (1) | We report non-GAAP financial measures in addition to, and not as a substitute for, or superior to, financial measures calculated in accordance with GAAP. See the section entitled “Statement Regarding Use of Non-GAAP Financial Measures” for an explanation of non-GAAP measures. |
| (2) | Refer to the table entitled “GAAP to Non-GAAP Reconciliation” for a reconciliation of GAAP to non-GAAP measures. |
| (3) | Non-GAAP subscription revenues, professional services and other revenues, total revenues, cRPO and RPO are adjusted only for constant currency. See the section entitled “Statement Regarding Use of Non-GAAP Financial Measures” for an explanation of non-GAAP measures. |
| |
| Note: Numbers rounded for presentation purposes and may not foot. | |
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. Our Q1 2024 cRPO guidance reflects the continued strength of our public sector business, which drives a higher mix of 12-month contracts and self-hosted deals, both of which contribute to subscription revenue growth but whose economic benefits are not fully represented in cRPO growth. As we have previously mentioned, the Q3 2023 strength of our U.S. Federal business has resulted in a higher mix of contracts containing 12-month renewal terms. This will create a negative 1.5-point impact and negative 2-point impact to Q1 and Q2 2024 cRPO growth, respectively, as that balance is amortized into revenue. We expect that these contracts will renew in Q3 2024 as ServiceNow’s U.S. Federal renewal rates have been 99%.
The following table summarizes our guidance for the first quarter 2024:
| First Quarter 2024 |
| First Quarter 2024 | ||
| Amount | Year/Year |
| Constant Currency |
|
Subscription revenues | $2,510 - $2,515 | 24% - 24.5% |
| 23.5% - 24% |
|
|
|
|
|
|
|
cRPO |
| 20% |
| 20% |
|
Note: Includes impact from strength of public sector business noted above |
|
|
|
|
|
|
|
|
| Margin (%)(2) |
|
Income from operations |
|
|
| 29% |
|
|
|
|
|
|
|
|
| Amount |
|
|
|
Weighted-average shares used to compute diluted net income per share |
| 208 |
|
|
|
| (1) | We report non-GAAP financial measures in addition to, and not as a substitute for, or superior to, financial measures calculated in accordance with GAAP. See the section entitled “Statement Regarding Use of Non-GAAP Financial Measures” for an explanation of non-GAAP measures. |
| (2) | Refer to the table entitled “Reconciliation of Non-GAAP Financial Guidance” for a reconciliation of GAAP to non-GAAP measures. |
| (3) | Guidance for GAAP subscription revenues and GAAP subscription revenues and cRPO growth rates are based on the 31-day average of foreign exchange rates for December 2023 for entities reporting in currencies other than U.S. Dollars. |
The following table summarizes our guidance for the full-year 2024:
| Full-Year 2024 |
| Full-Year 2024 | ||
| Amount | Year/Year |
| Constant Currency | |
Subscription revenues | $10,555 - $10,575 | 21.5% - 22% |
| 21.5% | |
|
|
|
|
| |
|
|
|
| Margin (%)(2) | |
Subscription gross profit |
|
|
| 84.5% | |
Income from operations |
|
|
| 29% | |
Free cash flow |
|
|
| 31% | |
|
|
|
|
| |
|
| Amount |
|
| |
Weighted-average shares used to compute diluted net income per share |
| 208 |
|
| |
| (1) | We report non-GAAP financial measures in addition to, and not as a substitute for, or superior to, financial measures calculated in accordance with GAAP. See the section entitled “Statement Regarding Use of Non-GAAP Financial Measures” for an explanation of non-GAAP measures. |
| (2) | Refer to the table entitled “Reconciliation of Non-GAAP Financial Guidance” for a reconciliation of GAAP to non-GAAP measures. |
| (3) | GAAP subscription revenues and related growth rate for the future quarter included in our full-year 2024 guidance are based on the 31-day average of foreign exchange rates for December 2023 for entities reporting in currencies other than U.S. Dollars. |
| |
| Note: Numbers are rounded for presentation purposes and may not foot. | |
Conference Call Details
The conference call will begin at 2 p.m. Pacific Time (22:00 GMT) on January 24, 2024. 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/685457644
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 Chief Financial Officer Gina Mastantuono will participate in a fireside chat at the Morgan Stanley Technology, Media & Telecom Conference on Monday, March 4, 2024, at 2:10 p.m. PT.
The live webcast 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, fina
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