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Table of Contents
a. ServiceNow 101
Throughout this piece, I will reference various products in the ServiceNow product suite. If you’re not familiar with something, definitions can be found in my ServiceNow 101 article here.
b. Key Points
- Middle East conflict holding revenue back a bit.
- Margins will be pressured by M&A in the near-term.
- Mixed guidance.
c. Demand
- Beat revenue estimates by 0.8%.
- Inorganic contributions from Veza (closed Mid-March) and Pyramid M&A were "tiny" and revenue was still ahead of expectations excluding them.
- Beat subscription revenue estimates by 0.5% & beat guidance by 0.4%.
- 19% constant currency (CC) subscription revenue growth was modestly ahead of 18.75% CC growth guidance.
- Subscription revenue growth was held back by ~150 bps via a shift from self-hosted to hosted revenue.
- Slightly beat current remaining performance obligation (cRPO) estimates.
- 21% Y/Y CC cRPO growth beat 20% guidance and beat 20.6% growth estimates.
- RPO rose by 25% Y/Y.
- Interestingly, the U.S. public sector outperformed internal expectations despite weak channel checks throughout the quarter.
- Subscription revenue growth was held back by delayed on-premise deal closings in the Middle East due to the ongoing conflict. All business in that region is on-premise (so lumpy recognition). Without this, subscription revenue would have been $200M higher. For evidence that this is truly timing based, a few of the deals that slipped from Q1 have already closed.
d. Profits & Margins
- Missed 82.5% subscription GPM estimates by 90 basis points (bps; 1 basis point = 0.01%).
- Beat EBIT estimates by 1.6% & beat EBIT margin guidance by 30 bps.
- Missed FCF estimates by 5%.
- Met $0.98 EPS estimates.
- Missed $0.53 GAAP EPS estimates by $0.08.
e. Balance Sheet
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