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ServiceNow Reports Fourth Quarter and Full-Year 2020 Financial Results

·20-min read
  • Subscription revenues of $1,184 million in Q4 2020, representing 32% year-over-year growth, 29% adjusted for constant currency

  • Subscription billings of $1,828 million in Q4 2020, representing 41% year-over-year growth, 38% adjusted for constant currency and duration

  • 1,093 total customers with over $1 million in annual contract value

ServiceNow (NYSE: NOW), the leading digital workflow company making work, work better for people, today announced financial results for its fourth quarter ended December 31, 2020, with subscription revenues of $1,184 million in Q4 2020, representing 32% year-over-year growth.

During the quarter, ServiceNow closed 89 transactions with more than $1 million in net new annual contract value ("ACV"). The company now has 1,093 total customers with more than $1 million in ACV, representing 23% year-over-year growth in customers.

"ServiceNow delivered a market leading 2020 and significantly beat expectations across the board," said Bill McDermott, ServiceNow president and CEO. "The secular tailwinds of digital transformation, cloud computing, and business model innovation have all intersected at the perfect moment in time. ServiceNow is the platform for digital business, enabling seamless workflows that create the great experiences people deserve. Now, we are focused on managing the world’s greatest workflow challenge: helping convert vaccines into vaccinations. We are changing the world one workflow at a time and are well on our way to becoming the defining enterprise software company of the 21st century."

ServiceNow CFO Gina Mastantuono said, "We delivered another fantastic quarter to cap a very strong 2020, ending the year with nearly $9 billion in remaining performance obligations. These outstanding results continue to demonstrate ServiceNow’s strong platform and product portfolio, our focus on building deep customer relationships, and commitment to enabling their digital transformations. I’m extremely proud of our team’s performance and their unrelenting execution in a turbulent year. We are well on our way to becoming a $10 billion revenue company. I’m excited about the opportunities ahead of us in 2021."

During the quarter, ServiceNow saw continued progress and customer adoption across its IT, Employee, and Customer workflows, as well as with its artificial intelligence ("AI") and machine learning capabilities. The acquisition of Element AI, which closed in January, brings to ServiceNow a deep bench of world-class technical talent, underscoring our commitment to be the leader in AI-enabled workflows. As ServiceNow continues to innovate to help its customers navigate COVID-19, this week it launched its first vaccine management solution to solve last mile vaccine challenges and drive better healthcare outcomes for people. ServiceNow’s comprehensive approach enables workflow solutions that simplify the complex challenges of vaccine distribution, administration, and monitoring.

Fourth Quarter 2020 GAAP and Non-GAAP Results:

The following table summarizes our financial results for the fourth quarter 2020:

Fourth Quarter 2020
GAAP Results

Fourth Quarter 2020 Non-GAAP Results(1)

Amount
($ millions)

Year/Year
Growth (%)

Amount
($ millions)

Year/Year
Growth (%)

Adjusted
Amount
($ millions)(2)

Adjusted
Year/Year
Growth (%)

Subscription revenues

$1,184

32%

$1,161

29%

Professional services and other revenues

$66

26%

$65

23%

Total revenues

$1,250

31%

$1,226

29%

Subscription billings

$1,828

41%

$1,796

38%

Professional services and other billings

$80

31%

$78

29%

Total billings

$1,907

40%

$1,874

38%

Amount
($ millions)

Margin (%)

Amount
($ millions)

Margin (%)

Subscription gross profit

$974

82%

$1,009

85%

Professional services and other gross profit (loss)

($3)

(5%)

$11

16%

Total gross profit

$971

78%

$1,019

82%

Income from operations

$18

1%

$276

22%

Net cash provided by operating activities

$686

55%

Free cash flow

$565

45%

Amount
($ millions)

Earnings per
Basic/Diluted
Share ($)

Amount
($ millions)

Earnings per
Basic/Diluted
Share ($)

Net income

$17

$0.09/ $0.08

$235

$1.20/ $1.17

(1)

We report non-GAAP financial measures in addition to, and not as a substitute for, or superior to, financial measures calculated in accordance with GAAP. See the section entitled "Statement Regarding Use of Non-GAAP Financial Measures" for an explanation of non-GAAP measures, and the table entitled "GAAP to Non-GAAP Reconciliation" for a reconciliation of GAAP to non-GAAP measures.

(2)

Non-GAAP adjusted subscription revenues, professional services and other revenues, total revenues and professional services and other billings are adjusted for constant currency. Non-GAAP adjusted subscription billings and total billings are adjusted for constant currency and constant billings duration. See the section entitled "Statement Regarding Use of Non-GAAP Financial Measures" for an explanation of non-GAAP measures, and the table entitled "GAAP to Non-GAAP Reconciliation" for a reconciliation of GAAP to non-GAAP measures.

Note: Numbers rounded for presentation purposes.

Full-Year 2020 GAAP and Non-GAAP Results:

The following table summarizes our financial results for the full-year 2020:

Full-Year 2020
GAAP Results

Full-Year 2020 Non-GAAP Results(1)

Amount
($ millions)

Year/Year
Growth (%)

Amount
($ millions)

Year/Year
Growth (%)

Adjusted
Amount
($ millions)(2)

Adjusted
Year/Year
Growth (%)

Subscription revenues

$4,286

32%

$4,272

31%

Professional services and other revenues

$234

14%

$233

13%

Total revenues

$4,519

31%

$4,505

30%

Subscription billings

$4,982

32%

$4,963

31%

Professional services and other billings

$247

15%

$246

15%

Total billings

$5,229

31%

$5,209

30%

Amount
($ millions)

Margin (%)

Amount
($ millions)

Margin (%)

Subscription gross profit

$3,555

83%

$3,689

86%

Professional services and other gross profit (loss)

($23)

(10%)

$29

12%

Total gross profit

$3,532

78%

$3,718

82%

Income from operations

$199

5%

$1,121

25%

Net cash provided by operating activities

$1,787

39%

Free cash flow

$1,449

32%

Amount
($ millions)

Earnings per
Basic/Diluted
Share ($)

Amount
($ millions)

Earnings per
Basic/Diluted
Share ($)

Net income

$119

$0.61/ $0.59

$926

$4.79/ $4.63

(1)

We report non-GAAP financial measures in addition to, and not as a substitute for, or superior to, financial measures calculated in accordance with GAAP. See the section entitled "Statement Regarding Use of Non-GAAP Financial Measures" for an explanation of non-GAAP measures, and the table entitled "GAAP to Non-GAAP Reconciliation" for a reconciliation of GAAP to non-GAAP measures.

(2)

Non-GAAP adjusted subscription revenues, professional services and other revenues, total revenues and professional services and other billings are adjusted for constant currency. Non-GAAP adjusted subscription billings and total billings are adjusted for constant currency and constant billings duration. See the section entitled "Statement Regarding Use of Non-GAAP Financial Measures" for an explanation of non-GAAP measures, and the table entitled "GAAP to Non-GAAP Reconciliation" for a reconciliation of GAAP to non-GAAP measures.

Note: Numbers rounded for presentation purposes.

Financial Outlook

ServiceNow will provide forward-looking guidance in connection with this quarterly announcement on its earnings conference call and webcast, and it will introduce current remaining performance obligations ("cRPO") as a new guidance metric for Q1 2021.

Conference Call Details

The conference call will begin at 2 p.m. Pacific Time (22:00 GMT) on January 27, 2021. Interested parties may listen to the call by dialing (833) 513‑0567 (Passcode: 7862176), or if outside North America, by dialing (236) 714‑2186 (Passcode: 7862176). Individuals may access the live teleconference from this webcast link:

https://event.on24.com/wcc/r/2924209/3989884C5B58ED139BE2D9AE3152B4D5

An audio replay of the conference call and webcast will be available two hours after its completion and will be accessible for 30 days. To hear the replay, interested parties may go to the investor relations section of the ServiceNow website or dial (800) 585‑8367 (Passcode: 7862176), or if outside North America, by dialing (416) 621‑4642 (Passcode: 7862176).

Investor Presentation Details

An investor presentation providing additional information, including forward-looking guidance, and analysis can be found at http://investors.servicenow.com.

Statement Regarding Use of Non-GAAP Financial Measures

We report the following non-GAAP financial measures in addition to, and not as a substitute for, or superior to, financial measures calculated in accordance with GAAP.

  • Adjusted revenues. We present revenues adjusted for constant currency to provide a framework for assessing how our business performed excluding the effect of foreign currency rate fluctuations. To present this information, current period results for entities reporting in currencies other than U.S. Dollars ("USD") are converted into USD at the average exchange rates in effect during the comparison period (for Q4 2019, the average exchange rates in effect for our major currencies were 1 USD to 0.90 Euros and 1 USD to 0.78 British Pound Sterling ("GBP"), rather than the actual average exchange rates in effect during the current period (for Q4 2020, the average exchange rates in effect for our major currencies were 1 USD to 0.84 Euros and 1 USD to 0.76 GBP). We believe the presentation of revenues adjusted for constant currency facilitates the comparison of revenues year-over-year.

  • Billings and Adjusted billings. We define subscription billings, professional services and other billings, and total billings as the applicable revenue plus the applicable change in deferred revenue, unbilled receivables and customer deposits as presented or derived from the statement of cash flows. We adjust billings for constant currency, as described above, and for constant duration by replacing the portion of multi-year billings in excess of twelve months during the current period with the portion of multi-year billings in excess of twelve months during the comparison period. We believe these adjustments facilitate greater comparability in our billings information year-over-year. We believe billings is one indicator of the performance of our business.

  • Gross profit, Income from operations, Net income and Net income per share - diluted. Our non-GAAP presentation of gross profit, income from operations, and net income measures exclude certain non-cash or non-recurring items, including stock-based compensation expense, amortization of debt discount and issuance costs related to our convertible senior notes, loss on early note conversions, amortization of purchased intangibles, legal settlements, business combination and other related costs, and the related income tax effect of these adjustments. The non-GAAP weighted-average shares used to compute our non-GAAP net income per share - diluted excludes the dilutive effect of the in-the-money portion of convertible senior notes as they are covered by our note hedges, and includes the dilutive effect of time-based stock awards, the dilutive effect of warrants and the potentially dilutive effect of our stock awards with performance conditions not yet satisfied at forecasted attainment levels to the extent we believe it is probable that the performance condition will be met. We believe these adjustments provide useful supplemental information to investors and facilitates the analysis of our operating results and comparison of operating results across reporting periods.

  • Free cash flow. Free cash flow is defined as net cash provided by (used in) operating activities plus cash paid for legal settlements and repayments of convertible senior notes attributable to debt discount, reduced by purchases of property and equipment. Free cash flow margin is calculated as free cash flow as a percentage of total revenues. We believe information regarding free cash flow and free cash flow margin provides useful information to investors because it is an indicator of the strength and performance of our business operations.

Our presentation of non-GAAP financial measures may not be comparable to similar measures used by other companies. We encourage investors to carefully consider our results under GAAP, as well as our supplemental non-GAAP information and the reconciliation between these presentations, to more fully understand our business. Please see the tables included at the end of this release for the reconciliation of GAAP and non-GAAP results.

Use of Forward-Looking Statements

This release contains "forward-looking statements" regarding our performance, including but not limited to statements in the section entitled "Financial Outlook." Forward-looking statements are subject to known and unknown risks and uncertainties and are based on potentially inaccurate assumptions that could cause actual results to differ materially from those expected or implied by the forward-looking statements. If any such risks or uncertainties materialize or if any of the assumptions prove incorrect, our results could differ materially from the results expressed or implied by the forward-looking statements we make.

Factors that may cause actual results to differ materially from those in any forward-looking statements include: (i) the impact and duration of the health impact of COVID-19 and the economic impact of safety measures to mitigate its impact, including the effectiveness, extent and duration of efforts to limit the spread and impact of the disease, such as "shelter in place" and similar government directives; (ii) our ability to compete successfully against existing and new competitors, (iii) our ability to comply with evolving privacy laws, data transfer restrictions, and other foreign and domestic standards related to data and the Internet, (iv) our ability to predict, prepare for and respond promptly to rapidly evolving technological, market and customer developments, (v) errors, interruptions, delays, or security breaches in or of our service or data centers, (vi) our ability to grow our business, including converting remaining performance obligations into revenue, adding and retaining customers, selling additional subscriptions to existing customers, selling to larger enterprises, government and regulated organizations with complex sales cycles and certification processes, and entering new geographies and markets, (vii) our ability to develop and gain customer acceptance of new and improved products and services, including those acquired through strategic transactions, and (viii) material changes in the value of foreign currencies relative to the U.S. Dollar. Additionally, these forward-looking statements involve risk, uncertainties and assumptions, including those related to the continued impacts of COVID-19 on our business and global economic conditions. Many of these assumptions relate to matters that are beyond our control and changing rapidly, including, but not limited to, the timeframes for and severity of social distancing and other mitigation requirements, the timing of headwinds from COVID-19, the continued impact of COVID-19 on new or existing customers’ purchasing decisions and the length of our sales cycles, renewal timing or billings terms, particularly for customers in certain industries highly affected by COVID-19. Significant variation from the assumptions underlying our forward-looking statements could cause our actual results to vary, and the impact could be significant.

Further information on these and other factors that could affect our financial results are included in our Form 10-Q for the quarter ended September 30, 2020 and in other filings we make with the Securities and Exchange Commission from time to time, including our Form 10-K that will be filed for the year ended December 31, 2020.

We undertake no obligation, and do not intend, to update these forward-looking statements, to review or confirm analysts’ expectations, or to provide interim reports or updates on the progress of the current financial quarter.

About ServiceNow

ServiceNow (NYSE: NOW) is making the world of work, work better for people. Our cloud-based platform and solutions deliver digital workflows that create great experiences and unlock productivity for employees and the enterprise. For more information, visit: www.servicenow.com.

© 2021 ServiceNow, Inc. All rights reserved. ServiceNow, the ServiceNow logo, Now, and other ServiceNow marks are trademarks and/or registered trademarks of ServiceNow, Inc. in the United States and/or other countries. Other company names, product names, and logos may be trademarks of the respective companies with which they are associated.

ServiceNow, Inc.

Condensed Consolidated Statements of Operations

(in thousands, except per share data)

(unaudited)

Three Months Ended

Twelve Months Ended

December 31,
2020

December 31,
2019

December 31,
2020

December 31,
2019

Revenues:

Subscription

$

1,184,181

$

899,194

$

4,285,797

$

3,255,079

Professional services and other

66,149

52,580

233,687

205,358

Total revenues

1,250,330

951,774

4,519,484

3,460,437

Cost of revenues (1):

Subscription

209,900

148,244

730,835

549,642

Professional services and other

69,204

63,209

256,278

247,003

Total cost of revenues

279,104

211,453

987,113

796,645

Gross profit

971,226

740,321

3,532,371

2,663,792

Operating expenses (1):

Sales and marketing

533,853

416,005

1,855,016

1,534,284

Research and development

284,297

202,328

1,024,327

748,369

General and administrative

135,146

93,476

454,165

339,016

Total operating expenses

953,296

711,809

3,333,508

2,621,669

Income from operations

17,930

28,512

198,863

42,123

Interest expense

(7,708

)

(8,475

)

(32,746

)

(33,283

)

Other income (expense), net

3,138

14,149

(16,932

)

58,345

Income before income taxes

13,360

34,186

149,185

67,185

Provision for (benefit from) income taxes

(3,288

)

(564,538

)

30,682

(559,513

)

Net income

$

16,648

$

598,724

$

118,503

$

626,698

Net income per share - basic

$

0.09

$

3.17

$

0.61

$

3.36

Net income per share - diluted

$

0.08

$

3.03

$

0.59

$

3.18

Weighted-average shares used to compute net income per share - basic

195,461

189,042

193,096

186,466

Weighted-average shares used to compute net income per share - diluted

202,455

197,843

202,478

197,223

(1) Includes stock-based compensation as follows:

Three Months Ended

Twelve Months Ended

December 31,
2020

December 31,
2019

December 31,
2020

December 31,
2019

Cost of revenues:

Subscription

$

26,172

$

18,709

$

98,258

$

72,728

Professional services and other

13,696

11,374

51,553

43,123

Sales and marketing

92,330

68,337

320,328

268,408

Research and development

78,965

50,562

282,244

194,821

General and administrative

34,236

21,069

118,070

83,115

ServiceNow, Inc.

Condensed Consolidated Balance Sheets

(in thousands)

(unaudited)

December 31, 2020

December 31, 2019

Assets

Current assets:

Cash and cash equivalents

$

1,676,794

$

775,778

Short-term investments

1,415,242

915,317

Accounts receivable, net

1,009,415

835,279

Current portion of deferred commissions

228,924

175,039

Prepaid expenses and other current assets

191,467

125,488

Total current assets

4,521,842

2,826,901

Deferred commissions, less current portion

444,068

333,448

Long-term investments

1,468,006

1,013,332

Property and equipment, net

659,641

468,085

Operating lease right-of-use assets

454,218

402,428

Intangible assets, net

153,367

143,850

Goodwill

240,764

156,756

Deferred tax assets

673,111

599,633

Other assets

100,040

77,997

Total assets

$

8,715,057

$

6,022,430

Liabilities and Stockholders’ Equity

Current liabilities:

Accounts payable

$

34,236

$

52,960

Accrued expenses and other current liabilities

668,093

461,403

Current portion of deferred revenue

2,962,579

2,185,754

Current portion of operating lease liabilities

72,236

52,668

Total current liabilities

3,737,144

2,752,785

Deferred revenue, less current portion

45,346

40,038

Operating lease liabilities, less current portion

422,779

383,221

Long-term debt

1,640,153

694,981

Other long-term liabilities

35,154

23,464

Stockholders’ equity

2,834,481

2,127,941

Total liabilities and stockholders’ equity

$

8,715,057

$

6,022,430

ServiceNow, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

Three Months Ended

Twelve Months Ended

December 31,
2020

December 31,
2019

December 31,
2020

December 31,
2019

Cash flows from operating activities:

Net income

$

16,648

$

598,724

$

118,503

$

626,698

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

93,033

72,331

336,381

252,114

Amortization of deferred commissions

60,440

45,788

217,631

168,014

Amortization of debt discount and issuance costs

2,492

8,475

24,478

33,283

Stock-based compensation

245,399

170,051

870,453

662,195

Deferred income taxes

(18,041

)

(572,923

)

(24,481

)

(575,765

)

Repayments of convertible senior notes attributable to debt discount

(13,449

)

(81,958

)

Loss on extinguishment of 2022 Notes

4,954

46,611

Other

(3,134

)

(4,300

)

(2,493

)

(8,921

)

Changes in operating assets and liabilities, net of effect of business combinations:

Accounts receivable

(361,706

)

(288,166

)

(151,431

)

(259,835

)

Deferred commissions

(143,863

)

(97,296

)

(365,264

)

(255,605

)

Prepaid expenses and other assets

(12,507

)

(4,338

)

(54,203

)

(29,907

)

Accounts payable

(35,375

)

(8,733

)

(33,583

)

21,355

Deferred revenue

644,453

401,794

710,998

537,249

Accrued expenses and other liabilities

206,181

99,804

174,957

65,097

Net cash provided by operating activities

685,525

421,211

1,786,599

1,235,972

Cash flows from investing activities:

Purchases of property and equipment

(134,000

)

(79,003

)

(419,327

)

(264,892

)

Business combinations, net of cash acquired

411

(7,414

)

(107,236

)

(7,414

)

Purchases of intangibles

(6,690

)

(35,329

)

(13,190

)

(72,689

)

Purchases of investments

(704,791

)

(339,976

)

(2,933,876

)

(1,595,667

)

Sales and maturities of investments

666,460

261,297

1,965,429

1,192,750

Realized gains on derivatives not designated as hedging instruments, net

2,091

1,693

1,328

23,435

Net cash used in investing activities

(176,519

)

(198,732

)

(1,506,872

)

(724,477

)

Cash flows from financing activities:

Net proceeds from borrowings on 2030 Notes

1,481,633

Repayments of convertible senior notes attributable to principal

(58,824

)

(9

)

(1,627,690

)

(9

)

Net proceeds from unwind of 2022 Note Hedge

1,105,542

Proceeds from employee stock plans

3,266

2,641

145,766

107,868

Taxes paid related to net share settlement of equity awards

(147,934

)

(78,913

)

(508,604

)

(409,715

)

Net cash provided by (used in) financing activities

(203,492

)

(76,281

)

596,647

(301,856

)

Foreign currency effect on cash, cash equivalents and restricted cash

22,106

6,253

25,065

(186

)

Net increase in cash, cash equivalents and restricted cash

327,620

152,451

901,439

209,453

Cash, cash equivalents and restricted cash at beginning of period

1,351,810

625,540

777,991

568,538

Cash, cash equivalents and restricted cash at end of period

$

1,679,430

$

777,991

$

1,679,430

$

777,991

ServiceNow, Inc.

GAAP to Non-GAAP Reconciliation

(in thousands, except per share data)

(unaudited)

Three Months Ended

Twelve Months Ended

December 31,
2020

December 31,
2019

Growth
Rates

December 31,
2020

December 31,
2019

Growth
Rates

Subscription revenues:

GAAP subscription revenues

$

1,184,181

$

899,194

32%

$

4,285,797

$

3,255,079

32%

Effects of foreign currency rate fluctuations

(22,878

)

(13,786

)

Non-GAAP adjusted subscription revenues(1)

$

1,161,303

29%

$

4,272,011

31%

Subscription billings:

GAAP subscription revenues

$

1,184,181

$

899,194

32%

$

4,285,797

$

3,255,079

32%

Change in subscription deferred revenue, unbilled receivables and customer deposits

643,344

398,564

696,437

533,227

Non-GAAP subscription billings

1,827,525

1,297,758

41%

4,982,234

3,788,306

32%

Effects of foreign currency rate fluctuations

(31,440

)

(19,966

)

Effects of fluctuations in billings duration

(242

)

295

Non-GAAP adjusted subscription billings(2)

$

1,795,843

38%

$

4,962,563

31%

Professional services and other revenues:

GAAP professional services and other revenues

$

66,149

$

52,580

26%

$

233,687

$

205,358

14%

Effects of foreign currency rate fluctuations

(1,470

)

(639

)

Non-GAAP adjusted professional service and other revenues(1)

$

64,679

23%

$

233,048

13%

Professional services and other billings:

GAAP professional services and other revenues

$

66,149

$

52,580

26%

$

233,687

$

205,358

14%

Change in professional services and other deferred revenue

13,433

8,114

13,085

8,549

Non-GAAP professional services and other billings

79,582

60,694

31%

246,772

213,907

15%

Effects of foreign currency rate fluctuations

(1,470

)

(639

)

Non-GAAP adjusted professional services and other billings(2)

$

78,112

29%

$

246,133

15%

Total revenues:

GAAP total revenues

$

1,250,330

$

951,774

31%

$

4,519,484

$

3,460,437

31%

Effects of foreign currency rate fluctuations

(24,348

)

(14,425

)

Non-GAAP adjusted total revenues(1)

$

1,225,982

29%

$

4,505,059

30%

Total billings:

GAAP total revenues

$

1,250,330

$

951,774

31%

$

4,519,484

$

3,460,437

31%

Change in total deferred revenue, unbilled receivables and customer deposits

656,777

406,678

709,522

541,776

Non-GAAP total billings

1,907,107

1,358,452

40%

5,229,006

4,002,213

31%

Effects of foreign currency rate fluctuations

(32,910

)

(20,605

)

Effects of fluctuations in billings duration

(242

)

295

Non-GAAP adjusted total billings(2)

$

1,873,955

38%

$

5,208,696

30%

Cost of revenues:

GAAP subscription cost of revenues

$

209,900

$

148,244

$

730,835

$

549,642

Stock-based compensation

(26,172

)

(18,709

)

(98,258

)

(72,728

)

Amortization of purchased intangibles

(8,142

)

(7,538

)

(35,823

)

(24,133

)

Non-GAAP subscription cost of revenues

$

175,586

$

121,997

$

596,754

$

452,781

GAAP professional services and other cost of revenues

$

69,204

$

63,209

$

256,278

$

247,003

Stock-based compensation

(13,696

)

(11,374

)

(51,553

)

(43,123

)

Non-GAAP professional services and other cost of revenues

$

55,508

$

51,835

$

204,725

$

203,880

Gross profit:

GAAP subscription gross profit

$

974,281

$

750,950

$

3,554,962

$

2,705,437

Stock-based compensation

26,172

18,709

98,258

72,728

Amortization of purchased intangibles

8,142

7,538

35,823

24,133

Non-GAAP subscription gross profit

$

1,008,595

$

777,197

$

3,689,043

$

2,802,298

GAAP professional services and other gross loss

$

(3,055

)

$

(10,629

)

$

(22,591

)

$

(41,645

)

Stock-based compensation

13,696

11,374

51,553

43,123

Non-GAAP professional services and other gross profit

$

10,641

$

745

$

28,962

$

1,478

GAAP gross profit

$

971,226

$

740,321

$

3,532,371

$

2,663,792

Stock-based compensation

39,868

30,083

149,811

115,851

Amortization of purchased intangibles

8,142

7,538

35,823

24,133

Non-GAAP gross profit

$

1,019,236

$

777,942

$

3,718,005

$

2,803,776

Gross margin:

GAAP subscription gross margin

82

%

84

%

83

%

83

%

Stock-based compensation as % of subscription revenues

2

%

2

%

2

%

2

%

Amortization of purchased intangibles as % of subscription revenues

1

%

0

%

1

%

1

%

Non-GAAP subscription gross margin

85

%

86

%

86

%

86

%

GAAP professional services and other gross margin

(5

%)

(20

%)

(10

%)

(20

%)

Stock-based compensation as % of professional services and other revenues

21

%

21

%

22

%

21

%

Non-GAAP professional services and other gross margin

16

%

1

%

12

%

1

%

GAAP gross margin

78

%

78

%

78

%

77

%

Stock-based compensation as % of total revenues

3

%

3

%

3

%

3

%

Amortization of purchased intangibles as % of total revenues

1

%

1

%

1

%

1

%

Non-GAAP gross margin

82

%

82

%

82

%

81

%

Operating expenses:

GAAP sales and marketing expenses

$

533,853

$

416,005

$

1,855,016

$

1,534,284

Stock-based compensation

(92,330

)

(68,337

)

(320,328

)

(268,408

)

Amortization of purchased intangibles

(314

)

(161

)

(1,250

)

(161

)

Non-GAAP sales and marketing expenses

$

441,209

$

347,507

$

1,533,438

$

1,265,715

GAAP research and development expenses

$

284,297

$

202,328

$

1,024,327

$

748,369

Stock-based compensation

(78,965

)

(50,562

)

(282,244

)

(194,821

)

Amortization of purchased intangibles

(455

)

(455

)

(1,820

)

(1,820

)

Non-GAAP research and development expenses

$

204,877

$

151,311

$

740,263

$

551,728

GAAP general and administrative expenses

$

135,146

$

93,476

$

454,165

$

339,016

Stock-based compensation

(34,236

)

(21,069

)

(118,070

)

(83,115

)

Amortization of purchased intangibles

(2,202

)

(2,341

)

(6,867

)

(8,459

)

Business combination and other related costs

(2,050

)

(505

)

(6,143

)

(625

)

Non-GAAP general and administrative expenses

$

96,658

$

69,561

$

323,085

$

246,817

GAAP total operating expenses

$

953,296

$

711,809

$

3,333,508

$

2,621,669

Stock-based compensation

(205,531

)

(139,968

)

(720,642

)

(546,344

)

Amortization of purchased intangibles

(2,971

)

(2,957

)

(9,937

)

(10,440

)

Business combination and other related costs

(2,050

)

(505

)

(6,143

)

(625

)

Non-GAAP total operating expenses

$

742,744

$

568,379

$

2,596,786

$

2,064,260

Income from operations:

GAAP income from operations

$

17,930

$

28,512

$

198,863

$

42,123

Stock-based compensation

245,399

170,051

870,453

662,195

Amortization of purchased intangibles

11,113

10,495

45,760

34,573

Business combination and other related costs

2,050

505

6,143

625

Non-GAAP income from operations

$

276,492

$

209,563

$

1,121,219

$

739,516

Operating margin:

GAAP operating margin

1

%

3

%

5

%

1

%

Stock-based compensation as % of total revenues

20

%

18

%

19

%

19

%

Amortization of purchased intangibles as % of total revenues

1

%

1

%

1

%

1

%

Business combination and other related costs as % of total revenues

0

%

0

%

0

%

0

%

Non-GAAP operating margin

22

%

22

%

25

%

21

%

Net income:

GAAP net income

$

16,648

$

598,724

$

118,503

$

626,698

Stock-based compensation

245,399

170,051

870,453

662,195

Amortization of purchased intangibles

11,113

10,495

45,760

34,573

Business combination and other related costs

2,050

505

6,143

625

Amortization of debt discount and issuance costs

2,492

8,475

24,478

33,283

Loss on extinguishment of 2022 Notes

4,954

46,611

Income tax expense effects related to the above adjustments

(47,735

)

(27,153

)

(186,417

)

(136,957

)

Income tax benefit from the release of a valuation allowance on the deferred tax assets (3)

(574,150

)

(574,150

)

Non-GAAP net income

$

234,921

$

186,947

$

925,531

$

646,267

Net income per share - basic and diluted:

GAAP net income per share - basic

$

0.09

$

3.17

$

0.61

$

3.36

GAAP net income per share - diluted

$

0.08

$

3.03

$

0.59

$

3.18

Non-GAAP net income per share - basic

$

1.20

$

0.99

$

4.79

$

3.47

Non-GAAP net income per share - diluted

$

1.17

$

0.96

$

4.63

$

3.32

GAAP weighted-average shares used to compute net income per share - basic

195,461

189,042

193,096

186,466

GAAP weighted-average shares used to compute net income per share - diluted

202,455

197,843

202,478

197,223

Effects of in-the-money portion of convertible senior notes(4)

(1,092

)

(2,837

)

(2,773

)

(2,736

)

Non-GAAP weighted-average shares used to compute net income per share - diluted

201,363

195,006

199,705

194,487

Free cash flow:

GAAP net cash provided by operating activities

$

685,525

$

421,211

$

1,786,599

$

1,235,972

Purchases of property and equipment

(134,000

)

(79,003

)

(419,327

)

(264,892

)

Repayments of convertible senior notes attributable to debt discount

13,449

81,958

Non-GAAP free cash flow

$

564,974

$

342,208

$

1,449,230

$

971,080

Free cash flow margin:

GAAP net cash provided by operating activities as % of total revenues

55

%

44

%

39

%

36

%

Purchases of property and equipment as % of total revenues

(11

%)

(8

%)

(9

%)

(8

%)

Repayments of convertible senior notes attributable to debt discount as % of total revenues

1

%

%

2

%

%

Non-GAAP free cash flow margin

45

%

36

%

32

%

28

%

(1)

Adjusted revenues and the corresponding growth rates are derived by applying the average exchange rates in effect during the comparison period rather than the actual average exchange rates in effect during the current period.

(2)

Adjusted billings and the corresponding growth rates are derived by applying the average exchange rates in effect during the comparison period rather than the actual average exchange rates in effect during the current period, and by replacing the portion of multi-year billings in excess of twelve months during the current period with the portion of multi-year billings in excess of twelve months during the comparison period.

(3)

Fourth quarter and full-year 2019 GAAP net income was impacted by a $574 million one-time income tax benefit from the release of a valuation allowance on our deferred tax assets.

(4)

Effects of dilutive time-based stock awards, in-the-money portion of convertible senior notes and warrants are included in the GAAP weighted-average diluted shares in periods where we have GAAP net income. We exclude the in-the-money portion of convertible senior notes for non-GAAP weighted-average diluted shares as they are covered by our note hedges. We include stock awards with performance conditions not yet satisfied for non-GAAP weighted average diluted shares at forecasted attainment levels to the extent we believe it is probable that the performance condition will be met.

View source version on businesswire.com: https://www.businesswire.com/news/home/20210127005938/en/

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