ServiceNow sets strong guidance for 2023

Celebrates strong end to the fiscal year

Digital workflow management platform developer ServiceNow Wednesday celebrated a strong end to its fiscal year 2022 that it expects will lead to momentum for fiscal year 2023.

ServiceNow Chairman and CEO Bill McDermott used his prepared remarks during Wednesday's quarterly financial analyst conference call to introduce Chirantan "CJ" Desai as ServiceNow's new president and COO.

The promotion of Desai, who joined ServiceNow in December 2016 as chief product and engineering officer after three years as president of EMC's emerging technologies division, is part of what McDermott called a plan to make ServiceNow the defining enterprise software company of the 21st century.

"CJ is a leader of consequence well-known in the industry," he said. "His track record at ServiceNow speaks for itself, from strengthening our platform to driving our customer experience. This is exactly how we are orchestrating our company to perform on an end-to-end basis from innovation to execution with our customers."

The fourth fiscal quarter 2022 was a strong one for ServiceNow, which beat guidance for subscription revenue growth, operating margin and free cash flow margin. The company also had 126 $1-million-plus deals during the quarter, McDermott said.

"ServiceNow continues to perform as a 'beyond expectations' company."

Those milestones lead ServiceNow to expect fiscal year 2023 to be a year of growth.

"Based on this new business surge, we are giving a very strong guidance for 2023. Our guidance reflects a disciplined forecast that appropriately balances our well-founded optimism for ServiceNow's business. We'll will work hard to go beyond this, and we'll begin that march in Q1."

ServiceNow is being aided by the need for businesses to digitally transform as their operating environment becomes increasingly complex, McDermott said.

"The secular tailwinds of digital transformation aren't going anywhere. IDC's research makes it clear that technology budgets are growing. They forecast IT spend will grow 5% in 2023, software spend 8% and Software-as-a-Service spend at 15%. So as businesses increase spend, the only question then is where will that investment go? And this answer has everything to do with the great reprioritisation."

Businesses want integration, automation, great experiences and business impact, all of which need a cohesive plan with a trusted platform, McDermott said.

"So this is now without any doubt a platform economy, and only a few platforms will be relevant in this shift. And none are as well positioned as ServiceNow."

ServiceNow was born in the cloud and has expanded from that core to be able to handle the realities of the multi-cloud world, McDermott said.

"Many enterprises are struggling to use public cloud capacity that they have already procured into ServiceNow, which directly enables cloud workload migrations. We are the control tower for any architecture: public, hybrid or multi-cloud. And with open telemetry, we help businesses build and monitor cloud-native applications."

The ServiceNow CEO said the company integrates the enterprise to deliver better customer service, employee experiences, security, risk management and next-generation business processes.

"With its completeness of vision, ServiceNow is the end-to-end platform for digital transformation. If all we did was help existing customers consume everything this platform can do, we would stay a fast-growth company but of course our strategy goes well beyond our proven ability to execute."

For its fourth fiscal quarter 2022, which ended 31st December, ServiceNow reported total revenue of $1.94 billion, up 20% over the company's fourth fiscal quarter 2021 revenue of $1.61 billion.

Total revenue for the quarter was in line with analyst expectations, according to Seeking Alpha.

That included subscription revenue of $1.86 billion, up 22% over last year, and professional services and other revenue of $80 million, down 12%. About 65% of the company's revenue came from its North America business, compared with 25% through EMEA and 10% via Asia-Pacific and Japan and other areas.

ServiceNow reported GAAP net income for the quarter of $150 million, or 74 cents per share, up from $26 million, or 13 cents per share, in the fourth fiscal quarter of 2021. On a non-GAAP basis, the company reported net income of $464 million, or $2.28 per share, up from last year's $296 million, or $1.49 per share.

Analysts had been expecting non-GAAP earnings per share of $2.02.

For its full fiscal year 2022, ServiceNow reported revenue of $7.25 billion, up 23% over last year's $5.90 billion. That included subscription revenue of $6.89 billion, up 24%, and professional services and other revenue of $354 million, up 10%.

For the year, the company reported GAAP net income of $325 million, or $1.60 per share, up from last year's $230 million, or $1.16 per share. On a non-GAAP basis, net income for the year was $1.54 billion, or $7.59 per share, up from $1.20 billion, or $6.07 per share.

Looking ahead, ServiceNow expects first fiscal quarter 2023 subscription revenue of between $1.99 billion and $2 billion, or up between 22% and 22.5% over the first fiscal quarter 2022.

For its full fiscal year 2023, ServiceNow expects subscription revenue of $8.44 billion to $8.5 billion, which would be an increase of 22.5% to 23.5% over fiscal 2022.

Despite the strong earnings, investors drove ServiceNow shares down by nearly 3% in late after-market trading.