ServiceNow beats on Q2 FY2015, flat outlook, markets relieved
- Summary:
- ServiceNow Q2 FY2015 showed a much better outcome than Q1. Management was clearly relieved but is guiding cautiously for the second half.
Like many other vendors, ServiceNow was significantly impacted by currency headwinds in the range 9-11%, depending on the number you are reviewing. This should be no surprise since 29% of its business is non-US based. For the full year, currency impact is expected to be about 5.4-5.6%
I have no special insight but management must be eyeing that $1 billion barrier in hopes that they can round out the year in better shape than the market expects.
Billings, which were well ahead of expectations, were also $34.7M above revenue. That result helped free cash flow of $64 million stay well ahead of a $7.3 million non-GAAP net income. GAAP losses widened from $50.4 million to $61.9 million in comparable quarters.
On the earnings call Frank Slootman, CEO was clearly happy with the pull through coming from past initiatives. Alongside reporting the addition of 21 Global 2000 customers, he said:
During Q2, we saw strong performance of the emerging products that are outside our core service management offerings. Our Performance Analytics solutions had a quarterly record for new customers and ACV including its single – its largest single transaction ever. The ACV for our IT operations management portfolio nearly doubled year-over-year driven by 21 deals larger than $100,000. The ServiceWatch solution had a record quarter and was our best performing product in the ITOM portfolio with strong interest from our existing customer base. On the heels of our acquisition of Intréis, our GRC solution recorded its largest transaction with ACV of nearly $2 million and growing interest from our existing customers.
At the customer conference held during the quarter, the company opened a commerce store where software developers can start monetizing content that in the past was only shared. This is a new offering but even so, early results are impressive:
...we signed up 10,000 developers to the program. We're now provisioning developer instances to developers for free. All we need is an email address. So we've really lowered the bar to allow people to come in, stay a while, learn, really explore and experience what it's like to be on our platform.
We have long held the view that ecosystems of developers are an important and integral part of enterprise offerings and will be tracking ServiceNow's progress in this part of the business model. This may, to some extent offset challenges around hiring which left the company short of where it wants to be.
Overall, while the company had a much better outcome in this quarter, it remains conservative for the full year. My sense is that seasonality in parts of the business; for example Q3 is expected to be good for government deals; means that management are not prepared to put their necks out. Who can blame them when they got hammered so badly last quarter. The market seems to appreciate that and the stock price barely moved following the results.