Servicenow reports third quarter 2019 financial results
Santa clara, calif.--(business wire)--servicenow (nyse: now), the leading digital workflow company making work, work better for people, today announced financial results for its third quarter ended september 30, 2019, with subscription revenues of $835 million in q3 2019, representing 33% year-over-year growth, 35% adjusted for foreign currency exchange rates. during the quarter, servicenow closed 46 transactions with more than $1 million in net new annual contract value (acv), representing 84% year-over-year growth. the company now has 809 total customers with more than $1 million in acv, representing 32% year-over-year growth in customers. “we delivered another strong quarter, continuing our focus on driving customer success and expanding our footprint across 75% of the fortune 500,” said john donahoe, servicenow president and ceo. “we are pleased that companies are turning to servicenow to be their strategic partner for digital transformation when they want to unlock productivity and create leverage with their technology investments.” today’s results follow yesterday’s announcement of servicenow’s preliminary third quarter 2019 financial results, along with the news that bill mcdermott will succeed john donahoe as president and ceo of servicenow by year-end 2019. third quarter 2019 gaap and non‑gaap results: the following table summarizes our financial results for the third quarter 2019: third quarter 2019 gaap results third quarter 2019 non-gaap results(1) amount ($ millions) year/year growth (%) amount ($ millions) year/year growth (%) adjusted amount ($ millions)(2) adjusted year/year growth (%) subscription revenues $834.9 33% $847.6 35% professional services and other revenues $50.9 9% $51.7 11% total revenues $885.8 32% $899.2 34% subscription billings $864.0 28% $869.1 29% professional services and other billings $51.2 10% $51.9 12% total billings $915.2 27% $921.0 28% amount ($ millions) margin (%) amount ($ millions) margin (%) subscription gross profit $695.6 83% $720.7 86% professional services and other gross profit (loss) ($10.5) (21%) $0.3 1% total gross profit $685.0 77% $721.1 81% income from operations $56.3 6% $228.2 26% net cash provided by operating activities $210.2 24% free cash flow $121.3 14% amount ($ millions) earnings per basic/diluted share ($) amount ($ millions) earnings per basic/diluted share ($) net income $40.6 $0.22 / $0.21 $192.9 $1.03 / $0.99 (1) we report non-gaap financial measures in addition to, and not as a substitute for, or superior to, financial measures calculated in accordance with gaap. see the section entitled “statement regarding use of non-gaap financial measures” for an explanation of non-gaap measures, and the table entitled “gaap to non-gaap reconciliation” for a reconciliation of gaap to non-gaap measures. (2) non-gaap adjusted subscription revenues, professional services and other revenues, total revenues and professional services and other billings are adjusted for constant currency. non-gaap adjusted subscription billings and total billings are adjusted for constant currency and constant billings duration. see the section entitled “statement regarding use of non-gaap financial measures” for an explanation of non-gaap measures, and the table entitled “gaap to non-gaap reconciliation” for a reconciliation of gaap to non-gaap measures. financial outlook our guidance includes gaap and non-gaap financial measures. the following table summarizes our guidance for the fourth quarter 2019: fourth quarter 2019 gaap guidance fourth quarter 2019 non-gaap guidance(1) amount ($ millions)(2) year/year growth (%) amount ($ millions)(2) year/year growth (%) adjusted amount ($ millions)(3) adjusted year/ year growth (%) subscription revenues $884 - $889 33% $897 - $902 35% subscription billings $1,249 - $1,254 31% - 32% $1,270 - $1,275 33% - 34% margin (%) income from operations 21% amount (millions) weighted-average shares used to compute diluted net income per share 195 we report non-gaap financial measures in addition to, and not as a substitute for, or superior to, financial measures calculated in accordance with gaap. see the section entitled “statement regarding use of non-gaap financial measures” for an explanation of non-gaap measures, and the table entitled “reconciliation of non-gaap financial guidance” for a reconciliation of gaap to non-gaap measures. (2) guidance for gaap subscription revenues and non-gaap subscription billings is based on foreign exchange rates as of september 30, 2019 for entities reporting in currencies other than u.s. dollars. (3) non-gaap adjusted subscription revenues are adjusted for constant currency. non-gaap adjusted subscription billings are adjusted for constant currency and constant billings duration. see the section entitled “statement regarding use of non-gaap financial measures” for an explanation of non-gaap measures, and the table entitled “reconciliation of non-gaap financial guidance” for a reconciliation of gaap to non-gaap measures. the following table summarizes our updated guidance for full-year 2019: full-year 2019 gaap guidance full-year 2019 non-gaap guidance(1) amount ($ millions)(2) year/year growth (%) amount ($ millions)(2) year/year growth (%) adjusted amount ($ millions)(3) adjusted year/ year growth (%) subscription revenues $3,240 - $3,245 34% $3,302 - $3,307 36% - 37% subscription billings $3,740 - $3,745 30% $3,817 - $3,822 32% - 33% margin (%) subscription gross profit 86% income from operations 21% free cash flow 28% amount (millions) weighted-average shares used to compute diluted net income per share 194 we report non-gaap financial measures in addition to, and not as a substitute for, or superior to, financial measures calculated in accordance with gaap. see the section entitled “statement regarding use of non-gaap financial measures” for an explanation of non-gaap measures, and the table entitled “reconciliation of non-gaap financial guidance” for a reconciliation of gaap to non-gaap measures. (2) gaap subscription revenues and non-gaap subscription billings for the future quarters included in our full-year 2019 guidance are based on foreign exchange rates as of september 30, 2019 for entities reporting in currencies other than u.s. dollars. (3) non-gaap adjusted subscription revenues are adjusted for constant currency. non-gaap adjusted subscription billings are adjusted for constant currency and constant billings duration. see the section entitled “statement regarding use of non-gaap financial measures” for an explanation of non-gaap measures, and the table entitled “reconciliation of non-gaap financial guidance” for a reconciliation of gaap to non-gaap measures. the following table compares our updated full-year 2019 guidance against our previously issued full-year 2019 guidance dated july 24, 2019: comparison of updated full-year 2019 guidance to previously issued guidance(1) ($ millions) previous guidance midpoint(2) currency impact(3) duration impact(4) guidance change current guidance midpoint(5) gaap subscription revenues $3,250 ($18) $0 $11 $3,243 non-gaap subscription billings(6) $3,745 ($23) $10 $11 $3,743 (1) numbers are rounded for presentation purposes. (2) refers to previously issued full-year 2019 guidance dated july 24, 2019. (3) gaap subscription revenues and non-gaap subscription billings for the future quarters included in our full-year 2019 guidance are based on foreign exchange rates in effect at the end of the current quarter for entities reporting in currencies other than u.s. dollars. currency impact represents the sum of (i) the impact of the difference between the actual average rates in the period used to calculate our q3 2019 actual results and the rates as of june 30, 2019 assumed in our previously issued guidance dated july 24, 2019 plus (ii) the impact of the difference between the exchange rates in effect as of september 30, 2019 assumed in our updated full-year 2019 guidance, and the rates as of june 30, 2019 assumed in our previously issued guidance dated july 24, 2019. (4) represents the impact of billings greater than 12 months in excess of guidance assumptions. (5) represents the updated full-year 2019 guidance presented in the table above. (6) 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 “reconciliation of non-gaap financial guidance” for a reconciliation of gaap to non-gaap measures. conference call details the conference call will begin at 2 p.m. pacific time (22:00 bst) on october 23, 2019. interested parties may listen to the call by dialing (877) 824‑2843 (passcode: 9197834), or if outside north america, by dialing (647) 689‑5665 (passcode: 9197834). individuals may access the live teleconference from this webcast link: https://event.on24.com/wcc/r/2078426/17c64c4b1449180887a4708bc36cb6e7 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: 9197834), or if outside north america, by dialing (416) 621‑4642 (passcode: 9197834). investor presentation details an investor presentation providing additional information 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 q3 2018, the average exchange rates in effect for our major currencies were 1 usd to 0.8601 euros and 1 usd to 0.7679 british pound sterling (gbp)), rather than the actual average exchange rates in effect during the current period (for q3 2019, the average exchange rates in effect for our major currencies were 1 usd to 0.8995 euros and 1 usd 0.8116 gbp). similarly, in our guidance, we apply the average exchange rates in effect during the comparison period rather than the exchange rates for the guidance period. we believe the presentation of revenues adjusted for constant currency facilitates the comparison of revenues year-over-year. billings and adjusted billings. we believe billings is a useful leading indicator regarding the performance of our business. 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 or guidance 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. gross profit, income from operations and net income. our non-gaap presentation of gross profit, income from operations, and net income measures exclude 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. we believe the presentation of operating results that exclude these non-cash or non-recurring items provides 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 and guidance. 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) errors, interruptions, delays, or security breaches in or of our service or datacenters, (ii) our ability to grow at our expected rate of growth, including our ability to convert deferred revenue and backlog into revenue, add and retain customers, sell additional subscriptions to existing customers, sell to very large and regulated organizations with complex sales cycles, and enter new geographies and markets, (iii) our ability to continue to release, and gain customer acceptance of, improved versions of our services, (iv) our ability to develop and gain customer acceptance of new products and services, including our platform and those acquired through strategic transactions, (v) our ability to compete successfully against existing and new competitors, and (vi) material changes in the value of foreign currencies relative to the u.s. dollar. further information on these and other factors that could affect our financial results are included in our form 10-q that will be filed for the quarter ended september 30, 2019 and in other filings we make with the securities and exchange commission from time to time, including our form 10-k filed for the year ended december 31, 2018. 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. © 2019 servicenow, inc. all rights reserved. servicenow, the servicenow logo, now, now platform, 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 share and per share data) (unaudited) three months ended nine months ended september 30, 2019 september 30, 2018 september 30, 2019 september 30, 2018 revenues: subscription $ 834,910 $ 626,567 $ 2,355,885 $ 1,755,174 professional services and other 50,923 46,530 152,778 138,201 total revenues 885,833 673,097 2,508,663 1,893,375 cost of revenues (1): subscription 139,330 106,821 401,398 303,918 professional services and other 61,463 51,037 183,794 150,578 total cost of revenues 200,793 157,858 585,192 454,496 gross profit 685,040 515,239 1,923,471 1,438,879 operating expenses (1): sales and marketing 362,975 289,323 1,118,279 883,893 research and development 190,099 135,655 546,041 380,839 general and administrative 75,642 80,693 245,540 216,851 total operating expenses 628,716 505,671 1,909,860 1,481,583 income (loss) from operations 56,324 9,568 13,611 (42,704 ) interest expense (8,371 ) (11,233 ) (24,808 ) (43,795 ) interest income and other income (expense), net 12,817 8,895 44,196 45,520 income (loss) before income taxes 60,770 7,230 32,999 (40,979 ) provision for (benefit from) income taxes 20,172 (1,175 ) 5,025 (7,260 ) net income (loss) $ 40,598 $ 8,405 $ 27,974 $ (33,719 ) net income (loss) per share - basic $ 0.22 $ 0.05 $ 0.15 $ (0.19 ) net income (loss) per share - diluted $ 0.21 $ 0.04 $ 0.14 $ (0.19 ) weighted-average shares used to compute net income (loss) per share - basic 188,074,303 178,719,694 185,676,049 177,198,179 weighted-average shares used to compute net income (loss) per share - diluted 197,878,215 192,190,899 196,738,774 177,198,179 (1) includes stock-based compensation as follows: three months ended nine months ended september 30, 2019 september 30, 2018 september 30, 2019 september 30, 2018 cost of revenues: subscription $ 18,880 $ 12,775 $ 54,019 $ 36,604 professional services and other 10,867 8,407 31,749 24,310 sales and marketing 68,712 60,132 200,071 169,283 research and development 50,636 35,527 144,259 97,905 general and administrative 13,839 27,567 62,046 73,207 servicenow, inc. condensed consolidated balance sheets (in thousands) (unaudited) september 30, 2019 december 31, 2018 assets current assets: cash and cash equivalents $ 622,925 $ 566,204 short-term investments 848,148 931,718 accounts receivable, net 539,416 574,810 current portion of deferred commissions 158,241 139,890 prepaid expenses and other current assets 128,483 132,071 total current assets 2,297,213 2,344,693 deferred commissions, less current portion 293,086 282,490 long-term investments 1,001,513 581,856 property and equipment, net (1) 400,858 347,216 operating lease right-of-use assets (1) 405,424 — intangible assets, net 112,947 100,582 goodwill 153,902 148,845 other assets 91,865 73,458 total assets $ 4,756,808 $ 3,879,140 liabilities and stockholders’ equity current liabilities: accounts payable $ 61,906 $ 30,733 accrued expenses and other current liabilities (1) 319,792 330,246 current portion of deferred revenue 1,761,532 1,651,594 current portion of operating lease liabilities (1) 49,331 — total current liabilities 2,192,561 2,012,573 deferred revenue, less current portion 41,286 38,597 operating lease liabilities, less current portion (1) 388,483 — convertible senior notes, net 686,516 661,707 other long-term liabilities (1) 18,489 55,064 stockholders’ equity (1) 1,429,473 1,111,199 total liabilities and stockholders’ equity $ 4,756,808 $ 3,879,140 (1) we adopted topic 842 using the modified retrospective method as of january 1, 2019 and elected the transition option that allows us not to restate the comparative periods in our financial statements in the year of adoption. servicenow, inc. condensed consolidated statements of cash flows (in thousands) (unaudited) three months ended nine months ended september 30, 2019 september 30, 2018 september 30, 2019 september 30, 2018 cash flows from operating activities: net income (loss) $ 40,598 $ 8,405 $ 27,974 $ (33,719 ) adjustments to reconcile net income (loss) to net cash provided by operating activities: depreciation and amortization 64,006 37,874 179,783 106,492 amortization of deferred commissions 42,695 43,063 122,226 107,367 amortization of debt discount and issuance costs 8,371 11,233 24,808 43,795 stock-based compensation 162,934 144,408 492,144 401,309 deferred income taxes 231 (1,371 ) (2,842 ) (32,297 ) gain on marketable equity securities — — — (19,257 ) repayments of convertible senior notes attributable to debt discount — (14,076 ) — (101,633 ) other (1,298 ) 6,209 (4,621 ) 4,502 changes in operating assets and liabilities, net of effect of business combinations: accounts receivable (43,023 ) (58,486 ) 28,331 7,454 deferred commissions (61,115 ) (59,526 ) (158,309 ) (152,521 ) prepaid expenses and other assets 2,914 (521 ) (25,569 ) 1,519 accounts payable 4,995 7,690 30,088 5,058 deferred revenue 35,265 42,969 135,455 174,058 accrued expenses and other liabilities (46,395 ) (22,370 ) (34,707 ) 9,350 net cash provided by operating activities 210,178 145,501 814,761 521,477 cash flows from investing activities: purchases of property and equipment (88,869 ) (47,987 ) (185,889 ) (136,349 ) business combinations, net of cash and restricted cash acquired — — — (24,940 ) purchases of other intangibles (1,200 ) (2,750 ) (37,360 ) (13,600 ) purchases of investments (455,050 ) (447,085 ) (1,255,691 ) (826,998 ) sales of investments 22,877 — 31,046 39,975 maturities of investments 400,258 408,473 900,407 861,629 realized (losses) gains on derivatives not designated as hedging instruments, net (371 ) — 21,742 — net cash used in investing activities (122,355 ) (89,349 ) (525,745 ) (100,283 ) cash flows from financing activities: repayments of convertible senior notes attributable to principal — (40,335 ) — (311,520 ) proceeds from employee stock plans 41,927 39,018 105,227 100,437 taxes paid related to net share settlement of equity awards (83,183 ) (66,737 ) (330,802 ) (221,268 ) payments on financing obligations — (180 ) — (756 ) net cash used in financing activities (41,256 ) (68,234 ) (225,575 ) (433,107 ) foreign currency effect on cash, cash equivalents and restricted cash (7,725 ) (2,088 ) (6,439 ) (9,593 ) net increase (decrease) in cash, cash equivalents and restricted cash 38,842 (14,170 ) 57,002 (21,506 ) cash, cash equivalents and restricted cash at beginning of period 586,698 720,493 568,538 727,829 cash, cash equivalents and restricted cash at end of period $ 625,540 $ 706,323 $ 625,540 $ 706,323 servicenow, inc. gaap to non-gaap reconciliation (in thousands, except share and per share data) (unaudited) three months ended nine months ended september 30, 2019 september 30, 2018 growth rates september 30, 2019 september 30, 2018 growth rates subscription revenues: gaap subscription revenues $ 834,910 $ 626,567 33% $ 2,355,885 $ 1,755,174 34% effects of foreign currency rate fluctuations 12,672 49,706 non-gaap adjusted subscription revenues (1) $ 847,582 35% $ 2,405,591 37% subscription billings: gaap subscription revenues $ 834,910 $ 626,567 33% $ 2,355,885 $ 1,755,174 34% change in subscription deferred revenue, unbilled receivables and customer deposits 29,137 47,592 134,663 174,261 non-gaap subscription billings 864,047 674,159 28% 2,490,548 1,929,435 29% effects of foreign currency rate fluctuations 12,309 50,996 effects of fluctuations in billings duration (7,272 ) 5,039 non-gaap adjusted subscription billings (2) $ 869,084 29% $ 2,546,583 32% professional services and other revenues: gaap professional services and other revenues $ 50,923 $ 46,530 9% $ 152,778 $ 138,201 11% effects of foreign currency rate fluctuations 728 4,082 non-gaap adjusted professional service and other revenues (1) $ 51,651 11% $ 156,860 14% professional services and other billings: gaap professional services and other revenues $ 50,923 $ 46,530 9% $ 152,778 $ 138,201 11% change in professional services and other deferred revenue 245 (148 ) 435 8,157 non-gaap professional services and other billings 51,168 46,382 10% 153,213 146,358 5% effects of foreign currency rate fluctuations 728 4,082 non-gaap adjusted professional services and other billings (2) $ 51,896 12% $ 157,295 7% total revenues: gaap total revenues $ 885,833 $ 673,097 32% $ 2,508,663 $ 1,893,375 32% effects of foreign currency rate fluctuations 13,400 53,788 non-gaap adjusted total revenues (1) $ 899,233 34% $ 2,562,451 35% total billings: gaap total revenues $ 885,833 $ 673,097 32% $ 2,508,663 $ 1,893,375 32% change in total deferred revenue, unbilled receivables and customer deposits 29,382 47,444 135,098 182,418 non-gaap total billings 915,215 720,541 27% 2,643,761 2,075,793 27% effects of foreign currency rate fluctuations 13,037 55,078 effects of fluctuations in billings duration (7,272 ) 5,039 non-gaap adjusted total billings (2) $ 920,980 28% $ 2,703,878 30% cost of revenues: gaap subscription cost of revenues $ 139,330 $ 106,821 $ 401,398 $ 303,918 stock-based compensation (18,880 ) (12,775 ) (54,019 ) (36,604 ) amortization of purchased intangibles (6,281 ) (4,879 ) (16,595 ) (13,930 ) non-gaap subscription cost of revenues $ 114,169 $ 89,167 $ 330,784 $ 253,384 gaap professional services and other cost of revenues $ 61,463 $ 51,037 $ 183,794 $ 150,578 stock-based compensation (10,867 ) (8,407 ) (31,749 ) (24,310 ) non-gaap professional services and other cost of revenues $ 50,596 $ 42,630 $ 152,045 $ 126,268 gross profit (loss): gaap subscription gross profit $ 695,580 $ 519,746 $ 1,954,487 $ 1,451,256 stock-based compensation 18,880 12,775 54,019 36,604 amortization of purchased intangibles 6,281 4,879 16,595 13,930 non-gaap subscription gross profit $ 720,741 $ 537,400 $ 2,025,101 $ 1,501,790 gaap professional services and other gross loss $ (10,540 ) $ (4,507 ) $ (31,016 ) $ (12,377 ) stock-based compensation 10,867 8,407 31,749 24,310 non-gaap professional services and other gross profit $ 327 $ 3,900 $ 733 $ 11,933 gaap gross profit $ 685,040 $ 515,239 $ 1,923,471 $ 1,438,879 stock-based compensation 29,747 21,182 85,768 60,914 amortization of purchased intangibles 6,281 4,879 16,595 13,930 non-gaap gross profit $ 721,068 $ 541,300 $ 2,025,834 $ 1,513,723 gross margin: gaap subscription gross margin 83 % 83 % 83 % 83 % stock-based compensation as % of subscription revenues 2 % 2 % 2 % 2 % amortization of purchased intangibles as % of subscription revenues 1 % 1 % 1 % 1 % non-gaap subscription gross margin 86 % 86 % 86 % 86 % gaap professional services and other gross margin (21 %) (10 %) (20 %) (9 %) stock-based compensation as % of professional services and other revenues 22 % 18 % 20 % 18 % non-gaap professional services and other gross margin 1 % 8 % 0 % 9 % gaap gross margin 77 % 77 % 77 % 76 % stock-based compensation as % of total revenues 3 % 3 % 3 % 3 % amortization of purchased intangibles as % of total revenues 1 % 0 % 1 % 1 % non-gaap gross margin 81 % 80 % 81 % 80 % operating expenses: gaap sales and marketing expenses $ 362,975 $ 289,323 $ 1,118,279 $ 883,893 stock-based compensation (68,712 ) (60,132 ) (200,071 ) (169,283 ) non-gaap sales and marketing expenses $ 294,263 $ 229,191 $ 918,208 $ 714,610 gaap research and development expenses $ 190,099 $ 135,655 $ 546,041 $ 380,839 stock-based compensation (50,636 ) (35,527 ) (144,259 ) (97,905 ) amortization of purchased intangibles (455 ) (455 ) (1,365 ) (1,365 ) non-gaap research and development expenses $ 139,008 $ 99,673 $ 400,417 $ 281,569 gaap general and administrative expenses $ 75,642 $ 80,693 $ 245,540 $ 216,851 stock-based compensation (13,839 ) (27,567 ) (62,046 ) (73,207 ) amortization of purchased intangibles (2,281 ) (1,047 ) (6,118 ) (2,882 ) business combination and other related costs 26 (300 ) (120 ) (964 ) non-gaap general and administrative expenses $ 59,548 $ 51,779 $ 177,256 $ 139,798 gaap total operating expenses $ 628,716 $ 505,671 $ 1,909,860 $ 1,481,583 stock-based compensation (133,187 ) (123,226 ) (406,376 ) (340,395 ) amortization of purchased intangibles (2,736 ) (1,502 ) (7,483 ) (4,247 ) business combination and other related costs 26 (300 ) (120 ) (964 ) non-gaap total operating expenses $ 492,819 $ 380,643 $ 1,495,881 $ 1,135,977 income (loss) from operations: gaap income (loss) from operations $ 56,324 $ 9,568 $ 13,611 $ (42,704 ) stock-based compensation 162,934 144,408 492,144 401,309 amortization of purchased intangibles 9,017 6,381 24,078 18,177 business combination and other related costs (26 ) 300 120 964 non-gaap income from operations $ 228,249 $ 160,657 $ 529,953 $ 377,746 operating margin: gaap operating margin 6 % 1 % 1 % (2 %) stock-based compensation as % of total revenues 18 % 21 % 20 % 21 % amortization of purchased intangibles as % of total revenues 2 % 2 % 0 % 1 % business combination and other related costs as % of total revenues 0 % 0 % 0 % 0 % non-gaap operating margin 26 % 24 % 21 % 20 % net income (loss): gaap net income (loss) $ 40,598 $ 8,405 $ 27,974 $ (33,719 ) stock-based compensation 162,934 144,408 492,144 401,309 amortization of purchased intangibles 9,017 6,381 24,078 18,177 business combination and other related costs (26 ) 300 120 964 amortization of debt discount and issuance costs for the convertible senior notes 8,371 11,233 24,808 43,795 loss on early note conversions — 190 — 4,063 income tax expense effects related to the above adjustments (28,041 ) (41,913 ) (109,804 ) (109,819 ) non-gaap net income $ 192,853 $ 129,004 $ 459,320 $ 324,770 net income (loss) per share - basic and diluted: gaap net income (loss) per share - basic $ 0.22 $ 0.05 $ 0.15 $ (0.19 ) gaap net income (loss) per share - diluted $ 0.21 $ 0.04 $ 0.14 $ (0.19 ) non-gaap net income per share - basic $ 1.03 $ 0.72 $ 2.47 $ 1.83 non-gaap net income per share - diluted $ 0.99 $ 0.68 $ 2.37 $ 1.73 gaap weighted-average shares used to compute net income (loss) per share - basic 188,074,303 178,719,694 185,676,049 177,198,179 gaap weighted-average shares used to compute net income (loss) per share - diluted 197,878,215 192,190,899 196,738,774 177,198,179 effects of dilutive time-based stock awards (3) — — — 7,670,540 effects of in-the-money portion of convertible senior notes (3) (2,928,795 ) (3,192,806 ) (2,701,072 ) — effects of warrants (3) — — — 2,932,637 effects of stock awards with performance conditions not yet satisfied (3) 135,902 348,689 62,189 239,162 non-gaap weighted-average shares used to compute net income per share - diluted 195,085,322 189,346,782 194,099,891 188,040,518 free cash flow: gaap net cash provided by operating activities $ 210,178 $ 145,501 $ 814,761 $ 521,477 purchases of property and equipment (88,869 ) (47,987 ) (185,889 ) (136,349 ) repayments of convertible senior notes attributable to debt discount — 14,076 — 101,633 non-gaap free cash flow $ 121,309 $ 111,590 $ 628,872 $ 486,761 free cash flow margin: gaap net cash provided by operating activities as % of total revenues 24 % 22 % 32 % 28 % purchases of property and equipment as % of total revenues (10 %) (7 %) (7 %) (7 %) repayments of convertible senior notes attributable to debt discount as % of total revenues — % 2 % — % 5 % non-gaap free cash flow margin 14 % 17 % 25 % 26 % (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) 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. servicenow, inc. reconciliation of non-gaap financial guidance the financial guidance provided below is an estimate based on information available as of september 30, 2019. the company’s future performance and financial results are subject to risks and uncertainties, and actual results could differ materially from the guidance set forth below. some of the factors that could affect the company’s financial results are stated above in this press release. further information on these and other factors that could affect our financial results are included in our form 10-q for the three months ended june 30, 2019 and in other filings we make with the securities and exchange commission from time to time, including our form 10-q that will be filed for the three months ended september 30, 2019. the company assumes no obligation to update any forward-looking statements or information, which speak as of their respective dates. three months ended december 31, 2019 december 31, 2018 (3) growth rates gaap subscription revenues $884 - $889 million $666 million 33% effects of foreign currency rate fluctuations 13 million non-gaap adjusted subscription revenues (1) $897 - $902 million 35% gaap subscription revenues $884 - $889 million $666 million 33% change in subscription deferred revenue, unbilled receivables and customer deposits 365 million 286 million non-gaap subscription billings $1,249 - $1,254 million $952 million 31% - 32% effects of foreign currency rate fluctuations 19 million effects of fluctuations in billings duration 2 million non-gaap adjusted subscription billings (2) $1,270 - $1,275 million 33% - 34% gaap operating margin 2% stock-based compensation expense as % of total revenues 18% amortization of purchased intangibles as % of total revenues 1% business combination and other related costs as % of total revenues 0% non-gaap operating margin 21% gaap weighted-average shares used to compute net income per share - diluted 198 million effects of in-the-money portion of convertible senior notes(4) (3) million non-gaap weighted-average shares used to compute net income per share - diluted 195 million twelve months ended december 31, 2019 december 31, 2018 (3) growth rates gaap subscription revenues $3,240 - $3,245 million $2,421 million 34% effects of foreign currency rate fluctuations 62 million non-gaap adjusted subscription revenues (1) $3,302 - $3,307 million 36% - 37% gaap subscription revenues $3,240 - $3,245 million $2,421 million 34% change in subscription deferred revenue, unbilled receivables and customer deposits 500 million 460 million non-gaap subscription billings $3,740 - $3,745 million $2,881 million 30% effects of foreign currency rate fluctuations 70 million effects of fluctuations in billings duration 7 million non-gaap adjusted subscription billings (2) $3,817 - $3,822 million 32% - 33% gaap subscription gross margin 83% stock-based compensation expense as % of subscription revenues 2% amortization of purchased intangibles as % of subscription revenues 1% non-gaap subscription margin 86% gaap operating margin 1% stock-based compensation expense as % of total revenues 19% amortization of purchased intangibles as % of total revenues 1% business combination and other related costs as % of total revenues 0% non-gaap operating margin 21% gaap net cash provided by operating activities as % of total revenues 36% purchases of property and equipment as % of total revenues (8%) non-gaap free cash flow margin 28% gaap weighted-average shares used to compute net income per share - diluted 197 million effects of in-the-money portion of convertible senior notes(4) (3) million non-gaap weighted-average shares used to compute net income per share - diluted 194 million (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 exchange rates for the guidance 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 exchange rates for the guidance period, and by replacing the portion of multi-year billings in excess of twelve months for the guidance period with the actual portion of multi-year billings in excess of twelve months during the comparison period. (3) effects of foreign currency rate fluctuations and fluctuations in billing durations are not applicable for the comparison period. (4) 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.
