ServiceNow fell short of its third-quarter revenue guidance according to regular accounting standards, while also lowering its full year forecast on Wednesday. But like many companies reporting earnings this week, the SaaS giant was susceptible to foreign exchange impacts, and CEO Bill McDermott was pleased with its results.
ServiceNow reported subscription revenues of $1.74 billion for the quarter, a tad under its projected $1.75 billion, while also forecasting $6.87 billion in revenue for the year, down from its previously lowered guidance of $6.92 billion in 2022 revenue. In an interview with Protocol, McDermott’s explanation was that when adjusted for constant currency, the company actually exceeded its guidance and Wall Street expectations for subscription revenue, gross profit, and net income with results of $1.83 billion, $1.51 billion, and $398 million, respectively.
“You guide in constant currency, and you operationally are judged by your constant currency performance, which is why it's a beat,” he said. ServiceNow also had the highest operating margins in its history at 26%, which McDermott was quick to point out is not adjusted for constant currency.
ServiceNow can’t control the macroeconomic environment or currency exchange rates, much of which has been caused by geopolitical uncertainty in Europe. But ServiceNow is still mostly focused on the U.S. market, with plans to expand globally over the coming years to reach $11 billion in sales by 2024.
Regardless of the world around him, McDermott is, as usual, unfazed. “We’re built for this moment,” he said. McDermott has no plans to slow down, saying ServiceNow will continue to hire, stay the course with its M&A strategy of tuck-in acquisitions, and double down on organic innovation.
But to reach those goals, ServiceNow did feel the need to make a few changes. McDermott has long been the face of ServiceNow, but now he is taking ownership in a new way: McDermott will replace founder Fred Luddy as chairman of the board of directors, the company said Wednesday. Luddy will remain on the board.
“I think this is a long-term commitment signal of Fred and me,” said McDermott. Already, McDermott is thinking about making board appointments to accelerate the company’s future. “We have to make bold moves: Japan, India, certain industry verticals, and there might be operators, considering we have a highly desirable board, that can strengthen us over time,” he said.
As McDermott takes an even firmer grip over ServiceNow, he will increasingly mold the company into his image. Part of that image comes from being a consummate salesman who remains optimistic, even when the numbers might suggest otherwise.
