Cloud computing company ServiceNow (NYSE: NOW) reported a strong fourth quarter for fiscal year 2016 with subscription revenue of $344.6 million, which represents 41 percent growth year-over-year, and total revenue of $387.5 million, which represents 35 percent growth year-over-year. For the full year, ServiceNow reported subscription revenue of $1.2 billion, representing 44 percent growth year-over-year, and total revenue of $1.40 billion, representing 38 percent growth year-over-year.

Other financial highlights* for the fourth quarter include:

• Professional services and other revenue of $41.1 million, remaining flat year-over-year
• Subscription gross profit of $279.9 million
• Professional services and other gross profit of $0.8 million
• Total gross profit of $280.7 million
• Loss from operations of $23.6 million
• Net loss of $32.6 million, or $0.20 per basic and diluted share

Other financial highlights* for the full year include:

• Professional services and other revenue of $168.9 million, a 7 percent increase year-over-year
• Subscription gross profit of $986.2 million
• Professional services and other gross profit of $5.6 million
• Total gross profit of $991.8 million
• Loss from operations of $422.8 million
• Net loss of $451.8 million, or $2.75 per basic and diluted share

*All figures reported are GAAP

“Total backlog and deferred revenue at the end of 2016 was $2.8 billion, a 51% annual increase, up from a 35% annual increase in the prior year,” said Michael Scarpelli, ServiceNow CFO, said in a statement. “Strength in Q4 was driven by a record 27 new deals greater than $1 million in net new annualized contract value, and 31 net new Global 2000 customer wins.”

From an operational perspective, ServiceNow reported these highlights to investors in its January 25 earnings call:

• 18 of top 20 new deals in Q4 included 3 or more products
• Number of multi-product customers increased to 72 percent, the highest point in the last two years
• Renewal rate of 97 percent for Q4

For the first quarter of 2017, ServiceNow anticipates the following results:

• Subscription revenue between $366 million and $370 million, representing an increase of 37 percent to 38 percent year-over-year
• Professional services and other revenue between $40 million and $41 million, representing an increase of 4 percent to 7 percent year-over-year
• Total revenue between $406 million and $411 million, an increase of 33 percent to 34 percent year-over-year
• Subscription billings between $443 million and $447 million, an increase of 34 percent to 35 percent year-over-year
• Professional services and other billings between $47 million and $48 million, an increase of 4 percent to 6 percent year-over-year
• Total billings between $490 million and $495 million, an increase of 30 percent to 31 percent year-over-year
• Operating margin of 11 percent

For the full year 2017, ServiceNow anticipates the following results:

• Subscription revenue between $1.63 billion and $1.65 billion, representing an increase of 34 percent to 35 percent year-over-year
• Professional services and other revenue between $185 million and $195 million, representing an increase of 10 percent to 15 percent year-over-year
• Total revenue between $1.82 billion and $1.85 billion, an increase of 31 percent to 33 percent year-over-year
• Subscription billings between $1.97 billion and $1.99 million, an increase of 31 percent to 32 percent year-over-year
• Professional services and other billings between $195 million and $205 million, an increase of 8 percent to 14 percent year-over-year
• Total billings between $2.16 billion and $2.19 million, an increase of 28 percent to 30 percent year-over-year
• Subscription gross margin of 84 percent
• Professional services and other gross margin of 20 percent
• Total gross margin of 77 percent
• Operating margin of 16 percent

A week prior to the earnings report, the SaaS provider announced it would acquire DxContinuum in an all-cash transaction expected to close by month end.

“The pioneer in intelligent automation, ServiceNow can further increase productivity for its customers by applying machine-learning capabilities and data models developed by DxContinuum. As more Internet of Things devices make service requests, it is increasingly important that those requests be categorized, routed and responded to. Hundreds of thousands of machine and manual work requests can now be effectively and automatically categorized and routed for each ServiceNow customer, bringing the ‘intelligent automation’ of today’s manual processes one step closer,” ServiceNow said in the January 18 announcement.

“ServiceNow is at the forefront of intelligent automation,” said Dave Wright, chief strategy officer, ServiceNow. “Adding DxContinuum to the ServiceNow platform will move much more of the heavy lifting of work processes to machines, freeing people to focus on the highest value work.”

“ServiceNow already offers the industry’s most advanced software platform for automating enterprise work, and our technology will make it the smartest by far,” said Debu Chatterjee, founder and CEO of DxContinuum. “Their customers’ rich operational data sets will produce highly accurate predictions to speed work across the enterprise.”  

The advanced capabilities would be rolled out later this year, ServiceNow said.

Investors reacted favorably to the news with stock at $90.62 per share at 4:21 PM ET, a $6.65 bump from its closing price of $83.97 the day before the earnings report was released, and a significant increase over the $61.96 per share price on February 1, 2016.

Insider Take:

Despite its big losses, ServiceNow is in growth mode and anticipates a strong first quarter and fiscal year 2017, predicting increases of 30 percent or more in most categories. With its new acquisition, the company will be able to boost its capabilities later in the year, perhaps attracting new customers. ServiceNow’s steady renewal rate of 97 percent to 99 percent signifies it will retain most of its existing clients, while it is busily acquiring new ones. If the company’s financials are anywhere close to predictions, ServiceNow is looking at a strong 2017.