Summary
ServiceNow's third quarter of fiscal 2022 produced total revenues of $1.83 billion, up 21.1% year over year, with subscription revenues of $1,742 million, up 22%. Constant currency growth was faster. Total revenues rose 27.5% and subscription revenues 28.5% on that basis. Gross profit was $1.43 billion, up 23.1%, and gross margin was 78.2%, up 1.3 percentage points. GAAP operating income rose 23.0% to $91 million, while operating margin was flat at 5.0%. Net income of $79.75 million rose 26.8%, and diluted EPS of $0.39 rose 25.8%. Non-GAAP net income reached $398 million, or $1.96 per diluted share.
Backlog and customer metrics point to durable demand. Remaining performance obligations were $11.4 billion as of September 30, 2022, up 17%, while cRPO was $5.87 billion, up 18%, and cRPO equaled 52% of RPO. Adjusted for constant currency, cRPO grew 25%. The current portion of deferred revenue was $3.49 billion, up 18.4%. ServiceNow ended the quarter with 1,530 customers spending more than $1 million in annual contract value, up 22%, and the number of customers paying over $10 million in annual contract value grew 60%. The renewal rate was 98%. Subscription revenue split between digital workflow products at $1,534 million, up 22%, and ITOM products at $208 million, up 20%. Product news in the quarter included the Tokyo platform release, the RiseUp with ServiceNow skills program, an ESG management solution, and the acquisition of Era Software.
Expenses grew faster than the top line. Sales and marketing rose 20% to $697 million, research and development rose 27% to $456 million, and general and administrative rose 24% to $187 million. Stock-based compensation totaled $361 million, or 20% of revenues. The year-to-date picture shows the strain. Operating income of $200 million fell 9.9%, net income of $174.87 million fell 14.2%, and diluted EPS of $0.86 fell 14.0%. Cash generation also softened in the quarter. Operating cash flow was $265 million, down 17.2%, while capital expenditures rose 72.3% to $162 million. Free cash flow was $103 million, a free cash flow margin of 6%. Over the nine months, operating cash flow was $1,561 million, up 15.9%, and free cash flow was $1,160 million, a 22% margin.
Guidance for the fourth quarter of fiscal 2022 calls for subscription revenues of $1,834 million to $1,839 million, growth of 20% to 21% on a GAAP basis and 26% to 27% in constant currency. Fourth quarter cRPO growth is guided to 20% on a GAAP basis and 26% in constant currency. For the full fiscal year 2022, subscription revenues are guided to $6,865 million to $6,870 million, or 23% growth on a GAAP basis and 28.5% in constant currency, alongside a non-GAAP operating margin of 25% and a free cash flow margin of 29%.
Currency remains the biggest swing factor. ServiceNow estimates foreign exchange as a $290 million, or 5.5%, headwind to 2022 subscription revenues and a $330 million, or 6%, headwind to fourth-quarter cRPO. It also expects roughly a 1 point drag on both full-year operating margin and free cash flow margin. Management listed the Russia-Ukraine conflict, inflation, cyber-security events, competition, and the ability to convert remaining performance obligations into revenue among the risks. Seasonality matters too. ServiceNow signs a larger share of new and expansion agreements in the fourth quarter, which supports RPO but makes quarterly comparisons noisy.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q3 FY2022 | Q2 FY2022 | QoQ | Q3 FY2021 | YoY |
|---|---|---|---|---|---|
| Revenue | $1.83B | $1.75B | +4.5% | $1.51B | +21.1% |
| Gross profit | $1.43B | $1.36B | +5.0% | $1.16B | +23.1% |
| Gross margin | 78.2% | 77.8% | +0.4 pp | 76.8% | +1.3 pp |
| Research & development | $456.0M | $444.0M | +2.7% | $358.0M | +27.4% |
| Sales & marketing | $697.0M | $722.0M | -3.5% | $579.0M | +20.4% |
| General & administrative | $187.0M | $175.0M | +6.9% | $151.0M | +23.8% |
| Total operating expenses | $1.34B | $1.34B | -0.1% | $1.09B | +23.2% |
| Operating income (loss) | $91.0M | $22.0M | +313.6% | $74.0M | +23.0% |
| Operating margin | 5.0% | 1.3% | +3.7 pp | 4.9% | +0.1 pp |
| Net income (loss) | $80.0M | $20.0M | +300.0% | $63.0M | +27.0% |
| Net margin | 4.4% | 1.1% | +3.2 pp | 4.2% | +0.2 pp |
| Diluted EPS | $0.39 | $0.10 | +$0.29 | $0.31 | +$0.08 |
Risks
Global economic conditions, including U.S. inflation at levels not seen in decades, interest rates, economic uncertainty, and the Russia-Ukraine conflict, could reduce customers' ability or willingness to purchase services, delay purchasing decisions, reduce subscription value or duration, and affect renewal rates. Because contracts lock in prices for a few years, rising operating costs could negatively affect profitability.
The risk factor was expanded to note increased cyberattack volume and sophistication, remote-work attack surface, state-supported attackers, and heightened risk from the Russia-Ukraine conflict. A breach or unauthorized access could disrupt service, trigger litigation, regulatory investigations, fines, reputational damage, and significant remediation costs.
MD&A states the strengthening U.S. Dollar had an unfavorable impact on revenues for the three and nine months ended September 30, 2022. If results had been translated at prior-year exchange rates, subscription revenues would have been $92 million and $193 million higher, respectively, and the company expects further foreign currency impact to subscription revenue in Q4 fiscal 2022.
As international expansion continues, increased business with large enterprises and the public sector in countries perceived to have heightened public sector corruption increases scrutiny and liability under the FCPA, UK Bribery Act, export controls, and trade sanctions. Russia and Belarus sanctions following the invasion of Ukraine required reevaluating business opportunities and enforcing compliance measures.
Professional services and other gross loss percentage increased to 11% and 8% for the three and nine months ended September 30, 2022 from 1% and 3% in the prior-year periods, driven by planned headcount costs and higher travel for customer implementations. The company expects the professional services and other gross loss percentage to worsen for the year ending December 31, 2022.
MD&A states the effective tax rate was 22% and 19% for the three and nine months ended September 30, 2022, and the company expects the effective tax rate could fluctuate significantly on a quarterly basis due to the full U.S. valuation allowance, local tax rules, and foreign structuring.
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)
Customers with > $1M ACV
Summary, forecast, risks and KPIs are extracted from ServiceNow, Inc.'s SEC filings for Q3 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 2, 2026.