ServiceNow(NOW) - 2024 Q1 - Quarterly Report

PART I Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements for ServiceNow, Inc. as of March 31, 2024, and for the three months ended March 31, 2024 and 2023, including balance sheets, income statements, equity statements, cash flow statements, and accompanying notes Condensed Consolidated Balance Sheets The balance sheet shows total assets of $17.54 billion as of March 31, 2024, a slight increase from $17.39 billion at December 31, 2023, with total liabilities decreasing and total stockholders' equity increasing Condensed Consolidated Balance Sheets (in millions) | | March 31, 2024 (unaudited) | December 31, 2023 | | :--- | :--- | :--- | | Total current assets | $7,372 | $7,777 | | Total assets | $17,544 | $17,387 | | Total current liabilities | $7,033 | $7,365 | | Total liabilities | $9,437 | $9,759 | | Total stockholders' equity | $8,107 | $7,628 | | Total liabilities and stockholders' equity | $17,544 | $17,387 | Condensed Consolidated Statements of Comprehensive Income For the three months ended March 31, 2024, total revenues grew 24% year-over-year to $2.60 billion, and net income more than doubled to $347 million, or $1.67 per diluted share Statements of Comprehensive Income Highlights (in millions, except per share data) | | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :--- | :--- | :--- | | Total revenues | $2,603 | $2,096 | | Subscription | $2,523 | $2,024 | | Gross profit | $2,083 | $1,658 | | Income from operations | $332 | $144 | | Net income | $347 | $150 | | Net income per share - diluted | $1.67 | $0.73 | Condensed Consolidated Statements of Stockholders' Equity Total stockholders' equity increased from $7.63 billion at the end of 2023 to $8.11 billion as of March 31, 2024, driven by net income and stock-based compensation, partially offset by common stock repurchases - Key changes in stockholders' equity for Q1 2024 include $347 million from net income, $422 million from stock-based compensation, and a reduction of $175 million due to common stock repurchases[13] Condensed Consolidated Statements of Cash Flows For the first three months of 2024, net cash provided by operating activities significantly increased to $1.34 billion, while net cash used in investing activities was $918 million, and financing activities used $259 million primarily due to stock repurchases Statements of Cash Flows Summary (in millions) | | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $1,341 | $902 | | Net cash used in investing activities | ($918) | ($524) | | Net cash (used in) provided by financing activities | ($259) | $5 | | Net change in cash, cash equivalents and restricted cash | $160 | $384 | Notes to Condensed Consolidated Financial Statements The notes provide detailed disclosures on accounting policies, business combinations, financial instruments, debt, equity, and contingencies, including a change in data center equipment useful life and the initiation of a cash flow hedging program - The company's intelligent cloud-based solution, the Now Platform, digitizes workflows across four primary areas: Technology, Customer and Industry, Employee, and Creator[18] - A change in the estimated useful life of data center equipment from four to five years, effective in fiscal year 2024, reduced depreciation expense by $29 million and increased net income by $23 million for Q1 2024[22] - As of March 31, 2024, total Remaining Performance Obligations (RPO) were $17.7 billion, with approximately 48% expected to be recognized as revenue in the next 12 months[49] - The company is defending a patent infringement lawsuit filed by InQuisient Inc., with a trial date set for January 27, 2025, where the outcome and potential loss cannot be reasonably estimated at this time[81] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management's discussion highlights Q1 2024 revenue growth of 24% to $2.6 billion, with RPO increasing 26% to $17.7 billion and free cash flow rising 66% to $1.23 billion Overview and Key Business Metrics ServiceNow's Now Platform continues to drive digital transformation, with key business metrics as of March 31, 2024, showing significant year-over-year growth in RPO, customers with ACV over $1 million, and free cash flow, while maintaining a strong renewal rate - Remaining Performance Obligations (RPO) were $17.7 billion as of March 31, 2024, an increase of 26% YoY, with Current RPO (cRPO) increasing by 21% YoY[96] - The number of customers with an Annual Contract Value (ACV) greater than $1 million increased to 1,933 as of March 31, 2024, up from 1,687 a year prior[97] Free Cash Flow (Non-GAAP) | | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | % Change | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $1,341 million | $902 million | 49% | | Purchases of property and equipment | ($135) million | ($165) million | (18%) | | Free cash flow | $1,225 million | $737 million | 66% | - The renewal rate was 98% for the three months ended March 31, 2024, consistent with the same period in 2023[99] Comparison of the Three Months Ended March 31, 2024 and 2023 Comparing Q1 2024 to Q1 2023, total revenues increased 24% to $2.6 billion, driven by a 25% rise in subscription revenues, leading to a doubling of operating income despite increased operating expenses due to higher headcount and program costs Revenue Comparison (in millions) | | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | % Change | | :--- | :--- | :--- | :--- | | Subscription | $2,523 | $2,024 | 25% | | Professional services and other | $80 | $72 | 11% | | Total revenues | $2,603 | $2,096 | 24% | Cost of Revenues and Gross Profit (in millions) | | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | % Change | | :--- | :--- | :--- | :--- | | Cost of subscription revenues | $441 | $354 | 25% | | Cost of professional services | $79 | $84 | (6%) | | Total cost of revenues | $520 | $438 | 19% | | Total gross profit | $2,083 | $1,658 | | - Sales and marketing expenses increased by $100 million (12%) YoY, primarily due to a $61 million increase in personnel-related costs and a $22 million increase in amortization of deferred commissions[122] - Research and development expenses increased by $114 million (23%) YoY, mainly due to a $98 million increase in personnel-related costs from increased headcount[124] Liquidity and Capital Resources The company maintains a strong liquidity position with $8.8 billion in cash, cash equivalents, and investments as of March 31, 2024, generating $1.34 billion in cash from operations in Q1 2024, and believes it has sufficient liquidity for the next 12 months - As of March 31, 2024, the company had $8.8 billion in cash, cash equivalents, short-term investments, and long-term investments[140] - During Q1 2024, the company repurchased 0.2 million shares of its common stock for $175 million, with approximately $787 million remaining available for future repurchases under the program as of March 31, 2024[142] - Net cash from operating activities increased to $1,341 million in Q1 2024 from $902 million in Q1 2023, primarily due to higher collections from revenue growth[146] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's market risk disclosures remain largely unchanged from the 2023 Annual Report, with the addition of a cash flow hedging program initiated in Q1 2024 using foreign currency forward contracts to mitigate exchange rate fluctuations on revenues - During Q1 2024, the company began using foreign currency forward contracts to hedge a portion of its forecasted foreign currency denominated revenues, designating them as cash flow hedges[150][151] - The company mitigates counterparty credit risk for its derivative contracts by transacting with major financial institutions with high credit ratings[152] Item 4. Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level as of March 31, 2024, with no material changes to internal control over financial reporting during the quarter - The Chief Executive Officer and Chief Financial Officer concluded that as of March 31, 2024, the company's disclosure controls and procedures were effective at the reasonable assurance level[153] - No changes occurred during the quarter ended March 31, 2024, that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[154] PART II Item 1. Legal Proceedings The company is party to various legal proceedings but does not believe that their ultimate resolution will have a material adverse effect on its business, financial position, or cash flows, with further details provided in Note 16 of the financial statements - The company does not believe the ultimate resolution of any current legal proceedings is likely to result in a material loss[157] Item 1A. Risk Factors There have been no material changes to the company's risk factors since the filing of its Annual Report on Form 10-K for the year ended December 31, 2023 - No material changes have been made to the Company's risk factors since the Annual Report on Form 10-K for the year ended December 31, 2023[159] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details the company's share repurchase activity for the first quarter of 2024, where 225,000 shares were repurchased at an average price of $776.62 per share, with approximately $0.79 billion remaining available under the authorized program Issuer Purchases of Equity Securities (First Quarter 2024) | Period | Total Number of Shares Purchased (in thousands) | Average Price Paid Per Share | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program (in billions) | | :--- | :--- | :--- | :--- | | January 1 - 31 | 29 | $776.60 | $0.94 | | February 1 - 29 | 196 | $776.63 | $0.79 | | March 1 - 31 | — | — | $0.79 | | First Quarter 2024 | 225 | $776.62 | $0.79 | Item 5. Other Information During the first quarter of 2024, several directors and Section 16 officers, including the CFO, Chief People Officer, and Chief Digital Information Officer, adopted new Rule 10b5-1 trading plans, while the General Counsel terminated a previously established trading plan - During Q1 2024, several executive officers, including CFO Gina Mastantuono, adopted new Rule 10b5-1 trading plans for the sale of company stock[162] - General Counsel Russell Elmer terminated his Rule 10b5-1 trading plan on February 20, 2024[162] Item 6. Exhibits This section provides an index of the exhibits filed with the Quarterly Report on Form 10-Q, including certifications by the CEO and CFO, and Inline XBRL documents