Service Today (NOW – Free Report) reported fourth quarter of 2021 adjusted earnings of $ 1.46 per share, beating the Zacks Consensus Estimate of 2.1% and improving 24.8% year-over-year.
Revenues of $ 1.61 billion exceeded the consensus mark of 0.8% and increased 29.1% year-over-year. After adjusting for forex, revenues of $ 1.63 billion rose 30% annually.
Subscription revenues improved 29% annually to $ 1.52 billion. After adjusting for forex, subscription revenues rose 30% annually to $ 1.54 billion.
Professional services and other revenue increased 38% annually to $ 91 million. After adjusting for forex, professional services and other income rise at the same rate on a year-on-year basis.
ServiceNow is benefiting from the increasing use of its workflows by businesses undergoing digital transformation. The company now has 1,359 total customers with more than $ 1 million in annual contract value, representing 25.3% year-over-year customer growth.
During the reported quarter, ServiceNow closed 135 transactions with more than $ 1 million in net new annual contract value, representing 52% year-over-year growth.
Billing Details
Total charges, on a non-GAAP basis, rose 33% annually to $ 2.53 billion. After adjusting for forex, total charges rose 33% annually to $ 2.55 billion.
Subscription charges of $ 2.42 billion advanced 32% annually. After adjusting for forex, subscription charges were $ 2.43 billion, up 33%.
Professional services and other charges rose 43% to $ 113 million. After adjusting for forex, professional services and other charges rise at the same rate on a year-on-year basis.
Operation Details
In the fourth quarter, the non-GAAP gross margin was 81.1%, contracting 40 basis points (bps) on a year-over-year basis.
A total subscription margin of 85% is contracted at 10 bps annually. Professional services and other gross margin was 15.4% compared to the previous quarter’s figure of 16.7%.
Total operating expenses, on a non-GAAP basis, were $ 942 million in the reported quarter, up 26.8% year-over-year. As a percentage of revenues, operating costs dropped 110 bps on a year-on-year basis.
ServiceNow’s non-GAAP operating margin widened 70 bps on a year-over-year basis to 22.7%.
Balance Sheet and Cash Flow
Beginning Dec. 31, 2021, ServiceNow had cash and cash equivalents, and short -term investments of $ 3.30 billion compared to $ 3.03 billion on Sept. 30, 2021.
In the reported quarter, cash from operations was $ 844 million compared to $ 320 million in the previous quarter.
ServiceNow generated free cash flow of $ 744 million in the quarter, up from $ 228 million reported in the previous quarter.
At the end of the fourth quarter, outstanding performance obligations or RPOs were $ 9.7 billion, up 34% annually.
Guidance
For the first quarter of 2022, non-GAAP subscription revenues are projected to be between $ 1.610 billion and $ 1.615 billion, suggesting a 25% year-over-year improvement.
ServiceNow expects the non -GAAP operating margin to be 25%.
For 2022, ServiceNow expects non-GAAP subscription revenues to be $ 7.020- $ 7.040 billion, suggesting a 26% increase from last year’s reported number.
ServiceNow continues to rely on a non-GAAP gross margin of 86% and a non-GAAP operating margin of 25%. Moreover, the non-GAAP free cash flow margin is expected to be 31%.
Zacks Rank and Stocks to Consider
Currently, ServiceNow holds Zacks Rank #4 (Sell).
ServiceNow shares in the Zacks Computer & Technology sector performed poorly last year. While NOW shares dropped 6.2%, the Computer & Technology sector returned 4.5%.
Littelfuse (LFUS – Free Report), NETGEAR (NTGR – Free Report) and Mandiant (MNDT – Free Reports) are some better ranked stocks that investors in the broader sector can consider. All three stocks have Zacks Rank #1 (Strong Buy). Here you will find the complete list of Zacks #1 Rank stocks today.
Littelfuse shares surpassed the Zacks Computer & Technology sector last year. Littelfuse returned 5.1% compared to the sector’s rise of 4.5%.
LFUS is scheduled to report in the fourth quarter of 2021 on Feb. 1, 2022.
NETGEAR shares did not perform well in the Zacks Computer & Technology sector last year. NETGEAR shares were down 39.9%.
NTGR is scheduled to report fourth quarter 2021 results on Feb. 2.
Mandant shares dropped 31.9% last year.
MNDT is scheduled to report fourth quarter 2021 results on Feb. 8.
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