Summary
ServiceNow reported total revenue of $1.51 billion for its fiscal 2021 third quarter, up 31.2% from the prior-year quarter. Subscription revenue, the bulk of the business, reached $1,427 million, a 31% increase that the company said was 30% on a constant currency basis. Gross profit was $1.16 billion, up 29.1%, but the gross margin fell to 76.9% from 78.1%, a decline of 1.3 percentage points. Higher headcount, expanded data center and public cloud costs, and amortization of purchased intangibles all pushed cost of subscription revenue higher. For the nine months ended September 30, 2021, revenue was $4.28 billion, up 31.0%, and gross profit was $3.30 billion, up 29.0%.
Contracted backlog shows the demand is still there. Remaining performance obligations were $9.70 billion as of September 30, 2021, up 32.9%, and the current portion, cRPO, was $5.0 billion, up 32%. Management said 51% of RPO will be recognized within the next twelve months. Deferred revenue, current portion, was $2.95 billion, up 29.7%. The count of customers with more than $1 million in annual contract value rose 25% to 1,266, and the renewal rate stayed at 98% for the quarter and the nine-month period.
GAAP profitability improved, though not as quickly as the top line. Operating income was $74 million for the quarter, up 7.2%, and the operating margin was 4.9%, down 1.1 percentage points from 6.0%. Net income was $62.89 million, up 389.1%, and diluted earnings per share were $0.31, up 416.7% from $0.06. The net income gain leans on non-operating items, including the absence of the prior-year loss on extinguishment of the 2022 Notes. On a non-GAAP basis, income from operations was $391 million at a 26% margin, and non-GAAP net income was $314 million, or $1.55 per diluted share. Stock-based compensation was $291 million, or 19% of revenue, and the full-year outlook keeps that ratio at 19%.
Cash generation remains a strength. Operating cash flow was $320 million in the quarter, up 32.8%, and capital expenditures were $94 million, up 3.3%. Free cash flow, which the company reports separately from operating cash flow, was $228 million, a 15% margin. Year to date operating cash flow was $1.35 billion, up 22.3%, and capital expenditures were $292 million, up 2.5%. Total billings were $1,465 million, up 29%, and non-GAAP subscription billings were $1,380 million, up 28%.
For the fourth quarter of 2021, ServiceNow guided GAAP subscription revenues of $1,515 million to $1,520 million, growth of 28%, and non-GAAP subscription billings of $2,305 million to $2,310 million, growth of 26%. It expects cRPO growth of 27% and a non-GAAP operating margin of 22% in that quarter. For the full year 2021, guidance calls for subscription revenues of $5,565 million to $5,570 million, growth of 30%, with a non-GAAP operating margin of 25.0% and a free cash flow margin of 31.5%. The fourth-quarter view assumes a negative currency impact of $1 million on subscription revenues, $2 million on subscription billings and 150 basis points on cRPO growth.
Risks run from the pandemic to the tax line. Management warned that COVID-19 could still bring curtailed customer demand, reduced spend or contract duration, delayed collections, longer sales cycles and tougher competition. Other named risks include the ability to compete, compliance with privacy and data transfer rules, service interruptions or security breaches, conversion of remaining performance obligations into revenue, and currency swings. The company holds a full valuation allowance against its U.S. federal and state deferred tax assets, which keeps the effective tax rate sensitive to the geographic mix of earnings. ServiceNow ended the quarter with $3.0 billion in cash, cash equivalents and short-term investments, and it closed the acquisitions of Swarm64 and Mapwize and extended partnerships with Microsoft and Celonis.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q3 FY2021 | Q2 FY2021 | QoQ | Q3 FY2020 | YoY |
|---|---|---|---|---|---|
| Revenue | $1.51B | $1.41B | +7.3% | $1.15B | +31.3% |
| Gross profit | $1.16B | $1.08B | +7.6% | $900.3M | +29.1% |
| Gross margin | 76.8% | 76.7% | +0.2 pp | 78.2% | -1.3 pp |
| Research & development | $358.0M | $333.0M | +7.5% | $268.3M | +33.4% |
| Sales & marketing | $579.0M | $557.0M | +3.9% | $453.4M | +27.7% |
| General & administrative | $151.0M | $139.0M | +8.6% | $109.2M | +38.2% |
| Total operating expenses | $1.09B | $1.03B | +5.7% | $830.9M | +30.9% |
| Operating income (loss) | $74.0M | $51.0M | +45.1% | $69.3M | +6.7% |
| Operating margin | 4.9% | 3.6% | +1.3 pp | 6.0% | -1.1 pp |
| Net income (loss) | $63.0M | $59.0M | +6.8% | $12.9M | +390.0% |
| Net margin | 4.2% | 4.2% | -0.0 pp | 1.1% | +3.0 pp |
| Diluted EPS | $0.31 | $0.29 | +$0.02 | $0.06 | +$0.25 |
Risks
The ongoing COVID-19 pandemic and related global economic uncertainty continue to impact the business, with possible increases in curtailed customer demand, reduced customer spend or contract duration, delayed collections, lengthened payment terms, lengthened sales cycles, and competition from changes in competitor terms and pricing. MD&A states the extent and continued impact remains uncertain and could cause future results to vary significantly from period to period.
Privacy and data sovereignty rules, including GDPR, the Schrems ruling, new Standard Contractual Clauses, and CCPA, may require changes to data handling and limit AI and machine learning features. ServiceNow plans an EU-centric services delivery model requiring significant financial and human resources, and may face similar local-solution requests in other territories.
The company and its third-party service providers face increasingly frequent and sophisticated cyberattacks, including ransomware, phishing, and state-supported attacks, with remote work increasing security challenges. A breach could cause service disruption, litigation, regulatory fines, reputational damage, and customer loss.
MD&A and risk factors highlight lengthened sales cycles and increased competition due to changes in competitor terms and pricing, especially as COVID-19 uncertainty continues. The company may also see curtailed customer demand and reduced contract duration.
An increasing percentage of contracts and billings are in foreign currencies, particularly the Euro and British Pound Sterling, causing variability in RPO and billings. In the three and nine months ended September 30, 2021, foreign currency rate fluctuations had a favorable impact of $10 million and $99 million on billings, respectively, and a favorable impact on revenues but an unfavorable impact on cost of revenues and sales and marketing expenses.
COVID-19 is expected to have a long-term effect on the office environment and remote working, with operational and workplace culture challenges that may adversely affect talent retention in the shorter term. Re-opening offices safely may not be successful and could expose employees to health risks or additional costs.
Subscription gross profit percentage was 81% for the three months ended September 30, 2021 compared to 83% for the prior-year period, and management expects it to slightly decrease for the year ending December 31, 2021 due to incremental costs to acquire customers in regulated markets by adopting public cloud offerings and increased support for data residency requirements.
The 2022 Notes remain convertible through December 31, 2021, and the company expects to settle approximately $2 million in principal in cash during Q4 2021, with possible additional conversion requests. The impact on liquidity depends on settlement method, and the company may need additional financing.
The company maintains a full valuation allowance on U.S. federal and state deferred tax assets, and expects its effective tax rate could fluctuate significantly quarterly and be adversely affected if earnings are lower than anticipated in lower-tax countries or higher than anticipated in higher-tax countries.
ServiceNow signs a significantly higher percentage of new and expansion agreements in Q4, often in the last month or two weeks of a quarter, and this seasonality may be heightened by COVID-19 impacts on customers and sales cycles. Billings can vary due to duration, start date, foreign exchange, renewal timing, and seasonality.
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
Subscription Billings
Total Billings
Customers with > $1M Annual Contract Value
Summary, forecast, risks and KPIs are extracted from ServiceNow, Inc.'s SEC filings for Q3 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.