Summary
ServiceNow closed FY2021 Q2 with total revenue of $1.41 billion, up 31.6% from $1.07 billion in the prior-year quarter. Subscription revenue reached $1,330 million, growth of 31% and 27% adjusted for constant currency. Gross profit was $1.08 billion, up 28.9%, yet gross margin slipped to 76.7% from 78.2%. Data center, support and personnel costs grew faster than the top line, and management expects subscription gross profit percentage to fall slightly for the full year as the company absorbs public cloud and data residency costs.
The profit picture was mixed. Operating income for the quarter came in at $51 million, down 19.0%, and operating margin dropped to 3.6% from 5.9%. Stock-based compensation of $282 million and a 36% rise in research and development expense drove the increase in operating costs. Net income still climbed 44.7% to $59 million, helped by a benefit from income taxes in the quarter against a provision a year earlier. Diluted EPS was $0.29, up from $0.20. Non-GAAP income from operations was $353 million at a 25% margin, and non-GAAP diluted EPS was $1.42.
Backlog and customer metrics held up well. Remaining performance obligations were $9.5 billion as of June 30, 2021, up 35.7%, with half of that amount representing current RPO. Current RPO was $4.7 billion, up 34% and 31% in constant currency. The current portion of deferred revenue was $3.02 billion, up 34.3%. ServiceNow finished the quarter with 1,201 customers spending more than $1 million in annual contract value, up from 964 a year ago, and the renewal rate was 97%. Total billings reached $1,417 million, up 31%. The company used Knowledge 2021 to launch new manufacturing and healthcare and life sciences solutions, and it closed the acquisition of observability vendor Lightstep.
Cash generation was the soft spot. Operating cash flow was $300 million, down 18.5%, and capital expenditures were $91 million, down 18.0%. Free cash flow was $268 million, a 19% margin. Through the first six months, operating cash flow was $1.03 billion, up 19.4%. Management points to the seasonality of collections and disbursements, with the March and December quarters historically the strongest for cash and the March and September quarters heavier on payouts.
Guidance points to steady momentum. For the third quarter of 2021, ServiceNow guides to subscription revenue of $1,400 million to $1,405 million, growth of 28% to 29%, subscription billings of $1,320 million to $1,325 million, growth of 22% to 23%, current RPO growth of 30%, and a non-GAAP operating margin of 23.0%. For the full year 2021, subscription revenue guidance is $5,530 million to $5,540 million, growth of 29%, subscription billings of $6,315 million to $6,325 million, growth of 27%, a non-GAAP subscription gross margin of 85%, a non-GAAP operating margin of 24.5%, and a free cash flow margin of 31.0%.
Risks are the familiar set. COVID-19 remains an open question, and the filing warns of curtailed customer demand, reduced contract duration, delayed collections, lengthened payment terms and longer sales cycles. Competition, evolving privacy and data transfer rules, and security or availability failures at data centers are all flagged. Foreign currency swings cut both ways: management notes that at prior-year exchange rates subscription revenue would have been $45 million lower for the quarter, while costs would also have been lower. The company also carries $1.5 billion of 2030 Notes and expects to settle roughly $8 million of principal on its 2022 Notes in the third quarter of 2021.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q2 FY2021 | Q1 FY2021 | QoQ | Q2 FY2020 | YoY |
|---|---|---|---|---|---|
| Revenue | $1.41B | $1.36B | +3.6% | $1.07B | +31.6% |
| Gross profit | $1.08B | $1.06B | +1.8% | $837.9M | +28.9% |
| Gross margin | 76.7% | 78.0% | -1.4 pp | 78.3% | -1.6 pp |
| Research & development | $333.0M | $314.0M | +6.1% | $245.1M | +35.9% |
| Sales & marketing | $557.0M | $524.0M | +6.3% | $426.5M | +30.6% |
| General & administrative | $139.0M | $126.0M | +10.3% | $104.0M | +33.6% |
| Total operating expenses | $1.03B | $964.0M | +6.7% | $775.6M | +32.7% |
| Operating income (loss) | $51.0M | $97.0M | -47.4% | $62.3M | -18.1% |
| Operating margin | 3.6% | 7.1% | -3.5 pp | 5.8% | -2.2 pp |
| Net income (loss) | $59.0M | $82.0M | -28.0% | $40.8M | +44.7% |
| Net margin | 4.2% | 6.0% | -1.8 pp | 3.8% | +0.4 pp |
| Diluted EPS | $0.29 | $0.41 | -$0.12 | $0.20 | +$0.09 |
Risks
COVID-19 remains a material uncertainty: the Risk Factors state the pandemic had a significant impact in 2020 and its ongoing impact into 2021 and beyond is difficult to assess or predict. MD&A says ServiceNow may experience an increase in curtailed customer demand, reduced customer spend or contract duration, delayed collections, lengthened payment terms and lengthened sales cycles, especially if new variant strains or re-closures occur.
Evolving privacy and cross-border data transfer rules, including GDPR, the Schrems II ruling, new Standard Contractual Clauses and the CCPA, may require ServiceNow to modify data handling and could limit artificial intelligence and machine learning features or reduce demand. ServiceNow announced a planned EU-centric services delivery model requiring significant financial and human resources, and it may face similar local-solution requests in other territories.
Risk Factors state the frequency and sophistication of malicious attacks has increased, third parties have attempted to fraudulently induce employees to disclose information, and ServiceNow has been the target of email scams; they also cite recent foreign cybersecurity attacks on U.S. technology companies. A breach could cause service disruption, litigation, regulatory fines, reputational damage and customer loss.
Risk Factors note the COVID-19 pandemic may have a long-term effect on office environments and remote work, and there may be operational and workplace culture challenges that adversely affect the business, including talent retention, in the shorter term. MD&A also cites potential delays in hiring and onboarding mainly in general and administrative functions.
MD&A states that as COVID-19 uncertainty continues, ServiceNow may experience lengthened sales cycles or competition due to changes in terms and conditions and pricing of competitors' products and services. It also describes strong seasonality, with a significantly higher percentage of new and expansion agreements signed in the fourth quarter, often in the last month or last two weeks of a quarter.
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
Non-GAAP income from operations
Subscription Billings
Total Billings
Customers with > $1M Annual Contract Value
Summary, forecast, risks and KPIs are extracted from ServiceNow, Inc.'s SEC filings for Q2 FY2021 (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 2, 2026.