Summary
ServiceNow closed FY2023 Q3 with total revenues of $2.29 billion, up 25.0% from the prior-year quarter. Gross profit reached $1.79 billion, up 25.2%. Operating income was $231.00 million, up 153.8%. Net income was $242.00 million, up 202.5%. Diluted EPS was $1.17, up 200.0%. Gross margin was 78.3%, up 0.2 percentage points. Operating margin was 10.1%, up 5.1 percentage points. On a non-GAAP basis, income from operations was $676 million, net income was $603 million, and diluted EPS was $2.92. Year to date, revenue was $6.53 billion, up 23.2%. Net income was $1.44 billion, up 720.6%. Diluted EPS was $7.00, up 714.0%. Operating cash flow for the quarter was $311.00 million, up 17.4%. Capital expenditures were $136.00 million, down 16.0%. Free cash flow was $196 million, with a 9% margin. Deferred revenue was $4.44 billion, up 27.2%. RPO was $14.40 billion, up 26.3%.
Operational momentum was broad. Current remaining performance obligations were $7.43 billion as of September 30, 2023, up 27% year over year and 24% in constant currency. The company signed 83 transactions over $1 million in net new ACV in Q3 2023, up 20% year over year. It ended the quarter with 49 customers with more than $20 million in ACV, up 58% year over year. Total customers with more than $1 million in ACV reached 1,789, up 17% year over year. The renewal rate was 98% for the three and nine months ended September 30, 2023. ServiceNow launched its Vancouver Platform release, which embedded generative AI across all workflows on the Now Platform. Now Assist expanded generative AI capabilities, and the company released a domain-specific ServiceNow large language model and generative AI pricing packages. Partner ecosystem investments included Japan-based Blueship and Japan Systems, plus an expanded partnership with Deloitte and a co-investment in India-based ANSR. The company repurchased 500 thousand shares for $282 million during the quarter, leaving approximately $1.2 billion available under its repurchase program.
Guidance points to continued growth but with some near-term headwinds. For the fourth quarter of 2023, ServiceNow guided cRPO growth to 20.5% to 21.0% and non-GAAP operating margin to 27.5%. For the full year 2023, non-GAAP subscription gross margin is guided to 84%, non-GAAP operating margin to 27%, and free cash flow margin to 30%. Management flagged an approximately $30 million, or 0.5%, year-over-year FX headwind for fourth-quarter 2023 cRPO. The strength of the US Federal business created a higher mix of contracts with 12-month renewal terms, which is expected to create a 1-point headwind to fourth-quarter 2023 cRPO growth and remain a headwind into 2024 as that balance is amortized into revenue. Those contracts are expected to renew in Q3 2024, and US Federal renewal rates have been 99%.
Risks remain familiar. The company monitors the Russian invasion of Ukraine and the armed conflict in Israel and the Gaza Strip, though it does not believe these conflicts will have a material impact on its business and results of operations. Other macroeconomic events include rising interest rates, global inflation, and bank failures. ServiceNow also lists risks such as cyber-security events, evolving privacy laws and data transfer restrictions, competition, the ability to convert remaining performance obligations into revenue, foreign currency fluctuations, interest rate fluctuations, and stock price volatility. On taxes, the company released $843 million of valuation allowance as a discrete tax benefit and $142 million as part of the effective tax rate during the nine months ended September 30, 2023. It expects to release $65 million more in the fourth quarter of 2023 and will maintain a $177 million valuation allowance against California deferred tax assets. Operating cash flow for the nine months ended September 30, 2023 was $1.79 billion, up 14.9% from the prior-year period. Capital expenditures for the same period were $433.00 million, up 6.7%. Free cash flow for the nine months was $1,384 million, up 19% from the prior-year period. The company ended the quarter with $7 billion in cash, cash equivalents, short-term investments, and long-term investments.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q3 FY2023 | Q2 FY2023 | QoQ | Q3 FY2022 | YoY |
|---|---|---|---|---|---|
| Revenue | $2.29B | $2.15B | +6.4% | $1.83B | +25.0% |
| Gross profit | $1.79B | $1.68B | +6.7% | $1.43B | +25.2% |
| Gross margin | 78.3% | 78.1% | +0.2 pp | 78.2% | +0.2 pp |
| Research & development | $549.0M | $521.0M | +5.4% | $456.0M | +20.4% |
| Sales & marketing | $799.0M | $832.0M | -4.0% | $697.0M | +14.6% |
| General & administrative | $213.0M | $209.0M | +1.9% | $187.0M | +13.9% |
| Total operating expenses | $1.56B | $1.56B | -0.1% | $1.34B | +16.5% |
| Operating income (loss) | $231.0M | $117.0M | +97.4% | $91.0M | +153.8% |
| Operating margin | 10.1% | 5.4% | +4.7 pp | 5.0% | +5.1 pp |
| Net income (loss) | $242.0M | $1.04B | -76.8% | $80.0M | +202.5% |
| Net margin | 10.6% | 48.6% | -38.0 pp | 4.4% | +6.2 pp |
| Diluted EPS | $1.17 | $5.08 | -$3.91 | $0.39 | +$0.78 |
Risks
The filing describes an actual or perceived cybersecurity event as a material risk, noting employees have fallen victim to phishing attacks, increased cyberattack frequency and sophistication, state-supported actors linked to geopolitical conflicts, less rigorous development and testing environments, and customer or ServiceNow misconfigurations that have made information more widely accessible. A breach could lead to customer loss, litigation, regulatory fines, reputational damage and significant remediation costs.
MD&A says ServiceNow is monitoring the Russian invasion of Ukraine and the armed conflict in Israel and Gaza, and cites rising interest rates, global inflation and bank failures as creating further economic uncertainty. It states these conflicts and conditions have not materially impacted results but could if they worsen and lead to greater global economic disruption.
MD&A says ServiceNow signs a significantly higher percentage of new and expansion agreements in the fourth quarter, often in the last month or last two weeks of a quarter, and that U.S. federal 12-month agreements are highest in the quarter ended September 30 due to annual budget timing. This seasonality can make period-to-period sales activity and RPO comparisons less reliable.
RPO was $14.4 billion as of September 30, 2023, up 26% from September 30, 2022, with 52% represented by cRPO, but MD&A identifies foreign exchange rates, self-hosted upfront recognition, future subscription start dates, renewal timing and contract duration as factors that may cause RPO to vary. An increasing number of 12-month U.S. federal agreements can also affect RPO comparability.
Cost of subscription revenues increased 40% for the quarter ended September 30, 2023 and 35% for the nine months ended September 30, 2023, while subscription gross profit percentage decreased to 81% for the quarter and 82% for the nine months from 83% in each prior-year period. ServiceNow expects subscription gross profit percentage to decrease slightly for the year ending December 31, 2023 as it incurs costs for regulated markets and data residency requirements.
MD&A states the weakening U.S. Dollar had a favorable impact on revenue for the quarter ended September 30, 2023, and if that quarter had been translated at prior-year exchange rates, subscription revenues would have been $43 million lower. It also lists foreign currency exchange rates as a factor that may cause RPO to vary from period to period.
Professional services and other revenues decreased 19% for the quarter ended September 30, 2023 and 20% for the nine months ended September 30, 2023, and MD&A expects them to decrease in absolute dollars and slightly as a percentage of revenue for the year ending December 31, 2023. Professional services and other gross loss percentage improved to 6% for the quarter but increased to 11% for the nine months.
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
Summary, forecast, risks and KPIs are extracted from ServiceNow, Inc.'s SEC filings for Q3 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 2, 2026.