A record number of US$1-million-plus deals along with huge growth in revenue and rising profitability in fiscal 2021 has ServiceNow looking toward a bright future, , ServiceNow President and CEO Bill McDermott told financial analysts Wednesday.
McDermott, in prepared remarks during an analyst call to discuss the company’s fourth fiscal quarter 2021 results, said that ServiceNow is uniquely positioned for growth.
“We’re growing like a fast-moving startup with the profitability of a global market leader,” he said. “We’re on a clear growth trajectory to US$15 billion-plus by 2026. While our strong cash position preserves optionality, we don’t depend on M&A for growth. While rising interest rates challenge others, ServiceNow’s business model is built to flourish in any economic environment.”
McDermott’s optimism is centred on growth in multiple indices, including fourth fiscal quarter 2021 subscription revenue growth of 30 percent, current remaining performance obligations growth of 32 percent, free cash flow growth of 32 percent, adjusted subscription billings growth of 33 percent, operating margin of 23 percent and a renewal rate of 99 percent.
The company also had a record 135 deals over US$1 million, which McDermott said was up 50 percent over last year.
“There has long been a ‘Rule of 40’ benchmark for highly successful software companies,” he said, referring to a rule of thumb that a software company’s combined growth rate and profit margin should exceed 40 percent. “These results demonstrate that ServiceNow operates beyond the ‘Rule of 60.’ The company is expanding in all geographies, industries and buyer personas.”
ServiceNow is doing business in what McDermott called a sustained demand environment. He said that environment is characterized by structural challenges facing every industry in every geographic region, including supply chain disruption, inflation and more.
“These underscore points we have made consistently: That technology strategy has become the business strategy,” he said.
“Digital technologies are a growth-stimulating deflationary force. They power new business models, accelerating productivity while reducing costs. Eighty-five percent of chief executives will sustain or increase technology budgets this year.”
Customers have responded by implementing multiple ServiceNow technologies, McDermott said. Of the company’s top 20 deals in the fourth fiscal quarter, ServiceNow IT Service Management was in 16 of them, IT Operations Management in 18, Employee Workflows human resources service delivery in 11, Customer Service Management in 13 and Creator Workflows in 19 of them.
The digital opportunity keeps expanding for ServiceNow, McDermott said.
“Already in 2022, we’re taking significant steps on our long-term road map,” he said. “We’re introducing a state-of-the-art new solution, ServiceNow Impact. Leaders need a command center to navigate the fully connected world. ServiceNow Impact includes an intuitive consumer-grade mobile application that visualizes the value from transformation investments in real time on their device. As this experience speeds up user adoption, we anticipate a significant halo effect with broader consumption of our growing solutions portfolio.”
To meet the scale of ServiceNow’s growing business, McDermott unveiled several significant changes to its executive team.
ServiceNow has promoted Chirantan “CJ” Desai to the role of COO. Desai, who most recently served as the company’s chief product and engineering officer, is now responsible for industries and solution sales in addition to product, design and engineering, he said.
Kevin Haverty, ServiceNow’s CRO, was promoted to a new strategic role as senior adviser to the CEO where he will be responsible for expanding the company’s public sector business and mentor the company’s early‑in‑career professionals.
Paul Smith, the president of ServiceNow’s Europe, Middle East and Africa business, was promoted to chief commercial officer where he will oversee regional sales teams as well as sales enablement and sales operations.
The company also brought in Karen Pavlin in as the company’s new chief diversity, equity and inclusion officer. She previously held the same role at Accenture.
“As our market opportunities expand, we are promoting strong leaders for scale,” he said.
Looking forward, ServiceNow’s ambition is to be the defining enterprise software company of the 21st century, McDermott said.
“ServiceNow’s 2021 results and strong 2022 guidance signal our unshakable confidence in that goal,” he said. “Our performance should leave no doubt: We are executing on all cylinders, and we will continue to do so. The world is looking for market leaders to build a new, inclusive, sustainable way of economic value. And ServiceNow is delivering. This is why we embrace the brand, the motto and the maxim ‘The world works with ServiceNow.’”
For its fourth fiscal quarter 2021, which ended Dec. 31, ServiceNow reported revenue of US$1.61 billion, up 29 percent over the US$1.25 billion the company reported for its fourth fiscal quarter 2020. This includes subscription revenue of US$1.52 billion, up from last year’s US$1.18 billion, and professional services and other revenue of US$91 million, up from last year’s US$66 million.
ServiceNow also reported fourth fiscal quarter 2021 GAAP net income of US$26 million, or 13 cents per share, up from last year’s US$17 million, or 8 cents per share.
Net income on a non-GAAP basis for the quarter was US$296 million, or US$1.49 per share, up from last year’s US$235 million, or US$1.20 per share.
For all of fiscal 2021, ServiceNow reported revenue of US$5.90 billion, up 30 percent versus the US$4.52 billion the company reported last year. That revenue included subscription revenue of US$5.57 billion, up 30 percent over last year, and professional services and other revenue of US$323 million, up 39 percent.
On a GAAP basis, ServiceNow reported net income of US$230 million, or US$1.16 per share, up from the US$119 million, or 61 cents per share, reported last year. On a non-GAAP basis, the company reported net income of US$1.20 billion, or US$6.07 per share, up from last year’s US$926 million, or US$4.79 per share.
Looking forward, ServiceNow expects fiscal first quarter 2022 subscription revenue to grow by about 25 percent over the revenue of its fiscal first quarter 2021, while full year 2022 subscription revenue is expected to grow 26 percent over 2021.
ServiceNow share prices fell 2.15 percent during the trading day to US$484.42. However, after the company reported its financials after the close of the trading day, share prices jumped to well over US$530 in after-hours trading.