Summary
ServiceNow reported total revenues of $2.10 billion for its fiscal 2023 first quarter, up 21.7% from the prior-year quarter. Subscription revenues, the core of the business, grew 24% year over year, or 27% adjusted for constant currency. Gross profit rose 22.5% to $1.66 billion, and gross margin improved 0.5 percentage points to 79.1%. Operating income climbed 65.5% to $144 million, lifting operating margin 1.8 percentage points to 6.9%. Net income doubled to $150 million, and diluted EPS rose 97.3% to $0.73.
The profitability picture looks stronger on a non-GAAP basis. Non-GAAP income from operations was $552 million, a 26% margin, and non-GAAP net income reached $483 million, or $2.37 per diluted share. Stock-based compensation totaled $381 million, up 17% and equal to 18% of revenues. Management flagged a possible release of the U.S. valuation allowance before the fourth quarter of 2023, which would reduce income tax expense by an estimated $1.0 billion to $1.2 billion in the year it is recorded. That release depends on sustained U.S. profitability.
Backlog and customer metrics held up. Remaining performance obligations were $14.0 billion as of March 31, 2023, up 21.7%, with half of that amount expected to convert to revenue within 12 months. Current remaining performance obligations were $7.01 billion, up 23% and 25% in constant currency. Current deferred revenue rose 23.2% to $4.74 billion. The company counted 1,682 customers with more than $1 million in annual contract value, up 20%, and closed 66 deals over $1 million in net new ACV, up 27%. The renewal rate stayed at 98%. Management noted that foreign exchange rates, contract duration, and renewal timing can all move RPO from period to period.
Cash generation was mixed. Operating cash flow rose 4.5% to $902 million, but capital expenditures jumped 77.4% to $165 million. Free cash flow, a non-GAAP measure, slipped to $737 million from $770 million, and its margin fell to 35% from 45%. Net cash used in investing activities was $524 million. The company ended the quarter with $7.2 billion in cash, cash equivalents, and investments. A stronger dollar weighed on reported results; at prior-year exchange rates, subscription revenues would have been $44 million higher.
Guidance points to steady growth. For the second quarter of 2023, management guided subscription revenues of $2,040 million to $2,045 million, or 23% to 23.5% growth, and 23.5% to 24% in constant currency. cRPO growth was guided to 23%, or 22.5% in constant currency, with a non-GAAP operating margin of 23%. For the full year 2023, subscription revenues are guided to $8,470 million to $8,520 million, 23% to 23.5% growth, with a non-GAAP subscription gross margin of 84%, a non-GAAP operating margin of 26%, and a free cash flow margin of 30%.
On the product side, the company launched its Utah platform release, adding AI-powered process mining with robotic process automation, search enhancements, and expanded workforce optimization. It also introduced a Telecommunications Network Inventory product built with AT&T. Risks include the Russia-Ukraine conflict, rising interest rates, global inflation, and recent bank failures, along with cybersecurity events, competition, and foreign currency swings. Professional services and other revenues fell 21%, and that segment's gross loss widened to 17% from 3%. The company said customers in Russia represented an immaterial portion of net assets and revenues, and that it has not seen an impact to liquidity from recent bank failures.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q1 FY2023 | Q4 FY2022 | QoQ | Q1 FY2022 | YoY |
|---|---|---|---|---|---|
| Revenue | $2.10B | $1.94B | +8.0% | $1.72B | +21.7% |
| Gross profit | $1.66B | $1.52B | +8.7% | $1.35B | +22.5% |
| Gross margin | 79.1% | 78.6% | +0.5 pp | 78.6% | +0.5 pp |
| Research & development | $492.0M | $454.0M | +8.4% | $414.0M | +18.8% |
| Sales & marketing | $823.0M | $722.0M | +14.0% | $673.0M | +22.3% |
| General & administrative | $199.0M | $194.0M | +2.6% | $179.0M | +11.2% |
| Total operating expenses | $1.51B | $1.37B | +10.5% | $1.27B | +19.6% |
| Operating income (loss) | $144.0M | $155.0M | -7.1% | $87.0M | +65.5% |
| Operating margin | 6.9% | 8.0% | -1.1 pp | 5.0% | +1.8 pp |
| Net income (loss) | $150.0M | $150.0M | ±0.0% | $75.0M | +100.0% |
| Net margin | 7.2% | 7.7% | -0.6 pp | 4.4% | +2.8 pp |
| Diluted EPS | $0.73 | $0.74 | -$0.01 | $0.37 | +$0.36 |
Risks
MD&A states that rising interest rates, global inflation and bank failures have led to further economic uncertainty, though ServiceNow has not experienced impact to liquidity or current and projected business operations. The company continues to monitor direct and indirect effects.
The Russia-Ukraine conflict remains uncertain; if it continues or worsens, leading to greater global economic disruptions, ServiceNow's business and results of operations could be materially impacted. Customers in Russia were immaterial to net assets and revenues.
The general strengthening of the U.S. Dollar relative to major foreign currencies, primarily the Euro and British Pound Sterling, had an unfavorable impact on revenues for the three months ended March 31, 2023. At prior-year exchange rates, reported subscription revenues would have been $44 million higher.
Professional services and other gross loss percentage increased to 17% for the three months ended March 31, 2023 from 3% for the three months ended March 31, 2022, and ServiceNow expects it to increase for the year ending December 31, 2023. Subscription gross profit percentage is expected to decrease slightly for the year ending December 31, 2023.
ServiceNow maintains a full valuation allowance against U.S. federal and state deferred tax assets as of March 31, 2023. A potential release could decrease income tax expense by an estimated $1.0 billion to $1.2 billion in the fiscal year recorded, but exact timing and amount depend on sustained U.S. profitability.
ServiceNow signs a significantly higher percentage of agreements in the fourth quarter, often in the last month or two weeks of a quarter, and RPO can vary due to foreign currency, mix of offerings, subscription start date, renewal timing and contract duration. Historical patterns should not be considered reliable indicators.
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
Transactions over $1 million in net new ACV
Customers with ACV > $1 million
Summary, forecast, risks and KPIs are extracted from ServiceNow, Inc.'s SEC filings for Q1 FY2023 (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.