Summary
ServiceNow reported first quarter fiscal 2022 total revenue of $1.72 billion, up 26.6% from the prior-year quarter. Gross profit was $1.35 billion, up 27.5%, and gross margin was 78.6%, up 0.6 percentage points. Operating income fell to $87 million, down 10.3%, and operating margin was 5.1%, down 2.1 percentage points. Net income was $75.35 million, down 8.6%, and diluted EPS was $0.37, down 9.8%. The revenue growth came with lower GAAP profitability because operating expenses rose faster than revenue. Sales and marketing, research and development, and general and administrative expenses all increased by double-digit percentages, according to the MD&A. Non-GAAP operating margin was 25%, and non-GAAP net income was $352 million. The company still generated strong cash.
Operating cash flow was $863 million for the quarter, up 18.7% from the prior-year quarter. Capital expenditures were $93 million, down 13.1%. Free cash flow, a non-GAAP measure, was $770 million. Deferred revenue was $3.85 billion, up 28.6%. Remaining performance obligations were $11.50 billion, up 30.7%. Current remaining performance obligations were $5.69 billion, up 29% year over year, or 30.5% adjusted for constant currency. The company closed 52 transactions with more than $1 million in net new annual contract value, up 41% year over year. It ended the quarter with 1,401 customers with more than $1 million in annual contract value, up 24%. The renewal rate was 98%, compared with 97% a year earlier. These metrics point to a healthy demand environment.
Guidance for the second quarter of 2022 calls for subscription revenues of $1,670 million to $1,675 million, representing 26% growth, or 29% on a constant currency basis. Second quarter cRPO growth is expected at 25%, or 28% on a constant currency basis. For the full year 2022, subscription revenues are guided to $7,025 million to $7,040 million, representing 26% growth, or 28.5% on a constant currency basis. Full-year non-GAAP operating margin is guided to 25%, and full-year non-GAAP free cash flow margin is guided to 31%. The company raised the midpoint of its 2022 subscription revenues guidance. Foreign exchange is a notable headwind. ServiceNow estimates a $130 million currency headwind for 2022 subscription revenues and a $135 million currency headwind for second quarter cRPO. A larger-than-average customer cohort renewing in the fourth quarter of 2022 will create between 1 and 2 points of increasing headwinds to cRPO growth in the second and third quarters. The company expects those headwinds to subside and cRPO growth to reaccelerate quarter over quarter once that cohort renews in the fourth quarter.
Operationally, ServiceNow delivered the Now Platform San Diego release, obtained a U.S. Department of Defense Impact Level 5 provisional authorization for its National Security Cloud, launched Lightstep Incident Response, and created a Center of Excellence for Accessibility. The company also released its annual Diversity, Equity, and Inclusion and Global Impact Reports. Management pointed to a sustained demand environment and the mission-critical nature of the Now Platform. Risks include a complex macro environment, the Russian invasion of Ukraine, the continued impact of COVID-19, competition, cyber-security events, and the ability to convert remaining performance obligations into revenue. Foreign currency fluctuations remain a real drag on reported results. The company also faces execution risk as it invests heavily in headcount and data center capacity. Revenues outside North America represented 35% of total revenues for the quarter. On a non-GAAP basis, subscription revenues were $1,666 million, total revenues were $1,759 million, and operating margin was 25%. Non-GAAP net income was $352 million, and non-GAAP diluted EPS was $1.73. Those figures exclude stock-based compensation and other items. The gap between GAAP and non-GAAP profitability remains wide.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q1 FY2022 | Q4 FY2021 | QoQ | Q1 FY2021 | YoY |
|---|---|---|---|---|---|
| Revenue | $1.72B | $1.61B | +6.7% | $1.36B | +26.6% |
| Gross profit | $1.35B | $1.24B | +9.1% | $1.06B | +27.5% |
| Gross margin | 78.6% | 76.8% | +1.7 pp | 78.0% | +0.6 pp |
| Research & development | $414.0M | $392.0M | +5.6% | $314.0M | +31.8% |
| Sales & marketing | $673.0M | $632.0M | +6.5% | $524.0M | +28.4% |
| General & administrative | $179.0M | $181.0M | -1.1% | $126.0M | +42.1% |
| Total operating expenses | $1.27B | $1.21B | +5.1% | $964.0M | +31.3% |
| Operating income (loss) | $87.0M | $35.0M | +148.6% | $97.0M | -10.3% |
| Operating margin | 5.0% | 2.2% | +2.9 pp | 7.1% | -2.1 pp |
| Net income (loss) | $75.0M | $26.0M | +188.5% | $82.0M | -8.5% |
| Net margin | 4.4% | 1.6% | +2.8 pp | 6.0% | -1.7 pp |
| Diluted EPS | $0.37 | $0.13 | +$0.24 | $0.41 | -$0.04 |
Risks
Global economic conditions, including U.S. inflation at levels not seen in decades and volatility following the Russia-Ukraine invasion, could increase operating costs; because typical customer contracts lock in prices for a few years, profitability could be negatively affected. MD&A also notes the strengthening U.S. Dollar had an unfavorable impact on revenue for the three months ended March 31, 2022.
Risk factors materially expand cyber risk, citing increased attack volume and sophistication from remote work, state-supported actors, and the Russia-Ukraine conflict, plus the log4j vulnerability and less rigorous security in development and testing environments that could introduce defects into customer-facing code.
The Russia-Ukraine conflict and related sanctions and export controls against Russia and Belarus have required ServiceNow to reevaluate business opportunities and enforce compliance measures. While Russia customers were immaterial to net assets and total consolidated revenue for the three months ended March 31, 2022, continued or worsened conflict could materially impact results.
Expansion into large enterprises and the public sector in countries perceived to have heightened corruption increases scrutiny and liability under the FCPA, UK Bribery Act, export controls, and trade sanctions. Violations by employees, partners, or agents could lead to investigations, penalties, and reputational harm.
Economic volatility and geopolitical instability could affect digital transformation spending, delay customer purchasing decisions, reduce subscription value or duration, and affect renewal rates, which would harm operating results.
MD&A states professional services and other gross loss percentage improved to 3% for the three months ended March 31, 2022 from a loss of 6% in the prior-year period, but expects it to worsen for the year ending December 31, 2022 due to additional costs to support business growth and increases in travel expenses.
MD&A notes incremental costs to attract customers in regulated markets by adopting public cloud offerings and increased support for customers impacted by new and evolving data residency requirements.
MD&A states the strengthening U.S. Dollar had an unfavorable impact on revenues for the three months ended March 31, 2022; at prior-year exchange rates, reported subscription revenues would have been $35 million higher, and RPO can vary with foreign currency exchange rate fluctuations.
SaaS KPIs
All quarters →Non-GAAP operating margin
Free cash flow margin
Free cash flow
Renewal rate
Current remaining performance obligations (cRPO)
Remaining performance obligations (RPO)
Non-GAAP subscription gross margin
Summary, forecast, risks and KPIs are extracted from ServiceNow, Inc.'s SEC filings for Q1 FY2022 (10-Q / 10-K and the 8-K earnings release); GAAP figures in the summary are checked against the reported XBRL data. They can contain errors; the filings are authoritative. Processed Oct 1, 2026.