Summary
ServiceNow closed fiscal 2023 with a fourth quarter that showed broad growth across its top and bottom lines. Total revenues for the quarter ended December 31, 2023 were $2.44 billion, up 25.6% from the prior-year quarter. Gross profit rose to $1.92 billion, up 26.0%, and operating income climbed to $270 million, up 74.2%. Net income for the quarter was $295 million, up 96.7% from the prior-year quarter. The company also reported full-year revenue of $8.97 billion, up 23.8%, and full-year net income of $1.73 billion, up 432.6%. Diluted earnings per share for the full year were $8.42, up from $1.60 in the prior year.
Margins expanded. Fourth-quarter gross margin was 78.8%, up 0.2 percentage points from the prior-year quarter. Operating margin was 11.1%, up 3.1 percentage points. For the full year, gross margin was 78.6%, up 0.3 percentage points, and operating margin was 8.5%, up 3.6 percentage points. Cash generation remained a highlight. Operating cash flow was $1.60 billion in the fourth quarter, up 38.1%, and $3.40 billion for the full year, up 24.8%. Capital expenditures were $261 million in the quarter, up 81.2%, and $694 million for the full year, up 26.2%. Free cash flow, a non-GAAP measure, was $1.34 billion in the fourth quarter and $2.73 billion for the full year.
The balance sheet showed rising deferred revenue and remaining performance obligations. Current portion of deferred revenue was $5.78 billion as of December 31, 2023, up 24.1% from the prior-year date. Remaining performance obligations were $18.00 billion, up 28.6%. The press release reported current remaining performance obligations of $8.60 billion, up 24% year over year, and 168 transactions over $1 million in net new annual contract value in the fourth quarter, up 33% year over year. ServiceNow ended the quarter with 1,897 customers with more than $1 million in annual contract value, up 15% year over year. The company said its renewal rate was 99% in the fourth quarter. It also highlighted the first full quarter of Now Assist, which had the largest net-new annual contract value contribution for a first quarter of any new product family release. Partnerships with AWS, DXC, EY, and Visa were announced, along with the acquisition of task mining company UltimateSuite.
Guidance points to continued growth. For the first quarter of 2024, ServiceNow guided cRPO growth of 20% and non-GAAP operating margin of 29%. For the full fiscal year 2024, it guided non-GAAP subscription gross margin of 84.5%, non-GAAP operating margin of 29%, and free cash flow margin of 31%. The company noted that Q1 2024 cRPO guidance reflects a higher mix of 12-month contracts and self-hosted deals from the public sector business. It also said the Q3 2023 strength in U.S. Federal business will create a negative 1.5-point impact to Q1 2024 cRPO growth and a negative 2-point impact to Q2 2024 cRPO growth as those contracts amortize into revenue. ServiceNow expects those contracts to renew in Q3 2024, citing 99% U.S. Federal renewal rates.
Risks remain familiar for a high-growth software company. The 10-K lists potential cyber-security events, privacy and data transfer restrictions, service interruptions, competition, and the ability to convert remaining performance obligations into revenue. It also cites global economic conditions, foreign currency fluctuations, interest rates, inflation, bank failures, and armed conflicts, including the Russian invasion of Ukraine and the conflict in Israel and the Gaza Strip. The company said those conflicts are not expected to have a material impact, but warned that worsening conditions could disrupt the business. ServiceNow also flagged execution risks around hiring, product development, partnerships, and larger enterprise and government sales cycles. The company repurchased 400,000 shares for $256 million in the fourth quarter, leaving $962 million available under its existing repurchase program.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q4 FY2023 | Q3 FY2023 | QoQ | Q4 FY2022 | YoY |
|---|---|---|---|---|---|
| Revenue | $2.44B | $2.29B | +6.5% | $1.94B | +25.6% |
| Gross profit | $1.92B | $1.79B | +7.2% | $1.52B | +26.0% |
| Gross margin | 78.8% | 78.3% | +0.5 pp | 78.6% | +0.2 pp |
| Research & development | $562.0M | $549.0M | +2.4% | $454.0M | +23.8% |
| Sales & marketing | $847.0M | $799.0M | +6.0% | $722.0M | +17.3% |
| General & administrative | $242.0M | $213.0M | +13.6% | $194.0M | +24.7% |
| Total operating expenses | $1.65B | $1.56B | +5.8% | $1.37B | +20.5% |
| Operating income (loss) | $270.0M | $231.0M | +16.9% | $155.0M | +74.2% |
| Operating margin | 11.1% | 10.1% | +1.0 pp | 8.0% | +3.1 pp |
| Net income (loss) | $295.0M | $242.0M | +21.9% | $150.0M | +96.7% |
| Net margin | 12.1% | 10.6% | +1.5 pp | 7.7% | +4.4 pp |
| Diluted EPS | $1.43 | $1.17 | +$0.26 | $0.74 | +$0.69 |
Risks
The filing states AI and machine learning may disrupt talent needs and the enterprise software marketplace, and the company must keep pace with rapidly changing technologies such as AI. Failure to innovate in response to these developments could harm its competitive position and business prospects.
Laws and customer expectations regarding data privacy, AI, data sovereignty, and residency could restrict the company's ability to optimize its platform and offer region-specific services. The filing specifically notes the EU Data Act and the possibility that the Trans-Atlantic Data Privacy Framework could be challenged in court.
The company participates in intensely competitive markets with relatively low barriers to entry, and larger competitors may bundle offerings, create pricing pressure, or block integration as systems of record operators. This could reduce sales and margins or cause products to fail to achieve market acceptance.
The company faces intense competition for technology talent, particularly in AI and machine learning, sales, operations, and cybersecurity roles. Increased compensation costs may not be offset by improved productivity or higher sales, potentially reducing profitability.
Actual or perceived cybersecurity events, including third-party provider breaches, supply chain attacks, and customer misconfigurations, could lead to data exposure, litigation, regulatory fines, and loss of customers. The filing states the company has experienced security incidents and phishing attacks in the past.
Targeting larger enterprise customers may result in longer and more expensive sales cycles, increased pricing pressure, and implementation and configuration challenges. These opportunities can require significant sales support and professional services, diverting resources from other sales opportunities.
An increasing portion of revenues is generated through partners, including managed service providers and resellers, and there may be insufficient qualified implementation partners to meet customer demand. Partner misrepresentation, non-performance, or competing products could harm sales, growth, and reputation.
Doing business with public sector and heavily regulated entities subjects the company to government procurement processes, bid protests, budget cycles, audits, and termination for convenience. A substantial majority of U.S. government sales are made indirectly through distributors, resellers, or service provider partners.
Acquisitions and investments may not realize expected business or financial benefits, may divert management attention, and may result in additional shareholder dilution or unknown liabilities. The company continues to evaluate and enter into strategic transactions.
The company expects its revenue growth rate to decline over the long term due to increasing competition and market maturity. Because subscription revenues are generally recognized over the subscription term, a decrease in new subscriptions or renewals may not be immediately reflected in operating results.
Changes in tax laws, including the OECD Pillar 2 15% global minimum tax, could increase the company's worldwide effective tax rate. The company released $1.05 billion of its valuation allowance during FY2023 and still maintains a $196 million valuation allowance against California deferred tax assets.
Global economic conditions, including inflation, interest rates, and geopolitical conflicts such as the Russia-Ukraine conflict and the Israel-Gaza conflict, could reduce digital transformation spending and delay customer purchasing decisions. The company states these conflicts are still evolving and could materially impact results if they worsen.
The company has $1.5 billion of 1.40% fixed rate ten-year notes due 2030, and its ability to repay or refinance them depends on future performance and compliance with covenants. Downgrades in credit ratings could restrict future financing and affect terms.
Foreign currency exchange rate fluctuations affect revenues, RPO, and expenses, and hedging contracts cannot entirely eliminate the impact. The filing notes that a weaker U.S. Dollar had a favorable impact on FY2023 subscription revenues of $34 million.
SaaS KPIs
All quarters →Non-GAAP operating margin
Free cash flow margin
Free cash flow
Renewal rate
Non-GAAP subscription gross margin
RPO
cRPO
Summary, forecast, risks and KPIs are extracted from ServiceNow, Inc.'s SEC filings for Q4 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 1, 2026.