Summary
ServiceNow reported total revenue of $1.75 billion for fiscal 2022 second quarter, up 24.3% from the prior-year quarter. Subscription revenue grew 25% year over year and 29.5% at constant currency. The company ended June 30, 2022 with current remaining performance obligations of $5.75 billion, up 21% from a year earlier and 27% at constant currency. Total remaining performance obligations stood at $11.5 billion, up 21.1% from the prior-year quarter. ServiceNow counted 1,463 customers with more than $1 million in annual contract value, up 22% year over year. More than 100 customers now pay over $10 million in annual contract value, up more than 50% year over year. The renewal rate was 99% in the quarter.
GAAP profitability compressed even as revenue grew. Gross profit was $1.36 billion, up 26.2%. Gross margin reached 77.8%, up 1.1 percentage points. Operating income fell to $22 million, down 56.9%, leaving an operating margin of 1.3%, down 2.4 percentage points. Net income dropped to $19.77 million, down 66.5%. Diluted earnings per share were $0.10, down 65.5%. Non-GAAP results were much stronger. Non-GAAP operating income was $399 million, a 23% operating margin. Non-GAAP net income was $329 million, and non-GAAP diluted earnings per share were $1.62. The difference reflects items such as stock-based compensation and amortization of purchased intangibles, which ServiceNow excludes from its non-GAAP measures.
Cash generation improved. Operating cash flow was $433 million, up 44.3% from the prior-year quarter. Capital expenditures were $151 million, up 65.9%, shown as a cash outflow. Free cash flow, a non-GAAP measure, was $287 million, or a 16% margin. Deferred revenue, current portion, was $3.69 billion, up 21.9% from a year earlier.
Guidance points to continued growth but with foreign exchange and renewal timing pressure. For the third quarter of 2022, ServiceNow guided subscription revenue to $1,750 million to $1,755 million, or 23% growth, and 27.5% at constant currency. Third-quarter cRPO growth is guided to 20%, or 23.5% at constant currency. For full-year 2022, subscription revenue guidance is $6,915 million to $6,925 million, or 24% growth and 28% at constant currency. Full-year non-GAAP subscription gross margin is guided to 86%, non-GAAP operating margin to 25%, and non-GAAP free cash flow margin to 30%. The company estimated a $220 million (400 basis points) foreign exchange headwind to 2022 subscription revenue and a $180 million (350 basis points) headwind to third-quarter cRPO. Foreign exchange is also expected to be about a 1 point headwind to full-year 2022 operating margin. A larger-than-average customer cohort renewing in the fourth quarter of 2022 creates about 2 points of headwind to third-quarter cRPO growth, but ServiceNow expects that cohort to renew in the fourth quarter and cRPO growth to re-accelerate quarter over quarter.
Risks remain familiar for a high-growth software company. ServiceNow's 10-Q lists potential material effects from cyber-security events, evolving privacy and data transfer rules, service or data center interruptions, competition, and the ability to retain key employees. The company also cites the ongoing effects of COVID-19, the Russian invasion of Ukraine, inflation, and stock price volatility. Execution risk centers on converting the $11.5 billion RPO into revenue while managing a stronger U.S. dollar. ServiceNow still expects subscription revenue to increase in absolute dollars for the year ending December 31, 2022, but GAAP operating margin fell in the quarter and foreign currency pressure is expected to persist.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q2 FY2022 | Q1 FY2022 | QoQ | Q2 FY2021 | YoY |
|---|---|---|---|---|---|
| Revenue | $1.75B | $1.72B | +1.7% | $1.41B | +24.3% |
| Gross profit | $1.36B | $1.35B | +0.7% | $1.08B | +26.2% |
| Gross margin | 77.8% | 78.6% | -0.8 pp | 76.7% | +1.1 pp |
| Research & development | $444.0M | $414.0M | +7.2% | $333.0M | +33.3% |
| Sales & marketing | $722.0M | $673.0M | +7.3% | $557.0M | +29.6% |
| General & administrative | $175.0M | $179.0M | -2.2% | $139.0M | +25.9% |
| Total operating expenses | $1.34B | $1.27B | +5.9% | $1.03B | +30.3% |
| Operating income (loss) | $22.0M | $87.0M | -74.7% | $51.0M | -56.9% |
| Operating margin | 1.3% | 5.0% | -3.8 pp | 3.6% | -2.4 pp |
| Net income (loss) | $20.0M | $75.0M | -73.3% | $59.0M | -66.1% |
| Net margin | 1.1% | 4.4% | -3.2 pp | 4.2% | -3.1 pp |
| Diluted EPS | $0.10 | $0.37 | -$0.27 | $0.29 | -$0.19 |
Risks
Global economic conditions, including inflation, interest rates, and the Russia-Ukraine conflict, may reduce digital transformation spending and delay purchasing decisions. The filing notes that because typical contracts lock in prices for a few years, inflation could increase operating costs and negatively affect profitability.
The strengthening U.S. Dollar had an unfavorable impact on revenues for the three and six months ended June 30, 2022. The filing states that at prior-year exchange rates, subscription revenues would have been $66 million and $101 million higher, and it expects further foreign currency impact to subscription revenue in the second half of fiscal 2022.
The company faces increased cyberattack volume, frequency, and sophistication, including state-supported attacks tied to the Russia-Ukraine conflict, remote-work attack surface expansion, and supply chain risks such as the log4j vulnerability. A breach could disrupt service, trigger litigation and regulatory penalties, and harm customer trust.
Operating income decreased 56.9% to $22.0 million for the quarter and net income decreased 66.5% to $19.8 million, while operating margin decreased 2.4 percentage points to 1.3%. MD&A states professional services gross loss percentage increased to 9% for the quarter and is expected to worsen for the year ending December 31, 2022.
Expanded international business with large enterprises and the public sector in countries with heightened corruption risk increases exposure to anti-corruption, export control, and trade sanction laws. The filing cites Russia and Belarus sanctions following the invasion of Ukraine and related compliance reevaluation.
The company maintains a full valuation allowance on U.S. federal and state deferred tax assets, and MD&A states the effective tax rate could fluctuate significantly on a quarterly basis and be adversely affected by the mix of earnings in lower- or higher-tax jurisdictions.
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
Customers with ACV > $1 million
Summary, forecast, risks and KPIs are extracted from ServiceNow, Inc.'s SEC filings for Q2 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.