The conference call for Q4 2023 ServiceNow earnings is about to begin, with the conference operator welcoming everyone and introducing the speakers. The call will include a question-and-answer session. The Vice President of Investor Relations then introduces the CEO, CFO, and COO. Forward-looking statements and non-GAAP measures will be discussed, and attendees are reminded to refer to the earnings press release and SEC filings for more information.

In the second paragraph, Bill McDermott discusses the reconciliation between non-GAAP and GAAP measures and directs listeners to the company's website for more information. He then highlights the company's outstanding Q4 results, including strong subscription revenue and cRPO growth, high operating margin, and a significant increase in deals over $1 million in net new ACV. He also mentions several milestones achieved in different areas of the company's portfolio, such as having three workflow businesses over $1 billion in ACV and 11 product lines with over $250 million in ACV. McDermott also notes the acceleration of new logo acquisitions, including a record-breaking deal with a global financial services firm.

The paragraph discusses the success of ServiceNow in 2023 and their plans for 2024. They highlight their strong growth in the public sector and their belief in the strategic relevance of their company. They also mention the massive opportunity in the enterprise software industry, with a focus on AI. The paragraph then goes on to discuss the projected growth in tech spending and the role of software and IT services in that growth, particularly in the area of AI. ServiceNow has been preparing for this trend and is well-positioned to lead it.

ServiceNow has a successful history of bringing innovative technologies to market, with their Pro and Pro Plus offerings seeing strong adoption. The company's recent Vancouver release has been particularly successful, with Siemens AG using their Now Assist platform for HR services. In addition to their ambitious Gen AI roadmap, ServiceNow has recently released new capabilities such as Virtual Agent Update and text-to-workflow, which have increased developer productivity by 52%. They also see AI as a strategic imperative and have joined the AI Alliance and expanded their partnership with EY to develop solutions for generative AI governance.

ServiceNow is expanding its partner program and has announced a strategic alliance with Visa to transform payment service experiences. They will also be partnering with AWS to offer their services in the AWS marketplace. The company is focused on execution and scale to achieve their long-term goal of surpassing $10 billion in ACV. They have also acquired UltimateSuite to enhance intelligent automation on their platform.

The CEO of ServiceNow shares the company's success and achievements, including being ranked as a leader in multiple reports and being listed as a top place to work. The company's culture is highlighted as a key factor in their success, with a focus on customer satisfaction and employee well-being. The CEO expresses gratitude to shareholders and declares that the company is just getting started.

In the year 2024, ServiceNow plans to showcase how they are using AI to benefit the world and continue to be a trusted platform for digital transformation. The Chief Financial Officer, Gina Mastantuono, reports that Q4 of 2023 was another exceptional quarter for the company, with subscription revenues exceeding expectations and RPO showing strong growth. The company also reached a milestone of having three workflow categories generating over $1 billion in ACV.

In the fourth quarter, the company's renewal rate was 99%, demonstrating the importance of the Now platform for customers. They ended the year with over 8,100 customers and saw a 33% increase in deals over $1 million in net new ACV. The Gen AI products were a significant contributor to net new ACV, and the company's non-GAAP operating margin exceeded expectations. They ended the year with a strong balance sheet and have repurchased shares as part of their share repurchase program. The company is raising their 2024 outlook to reflect their strong momentum.

In summary, the company is seeing early success with their Gen AI products, leading to a strong pipeline of customers. They are raising their subscription revenue outlook for 2024 and expect a subscription gross margin of 84.5%. They are also raising their operating margin target and expect a free cash flow margin of 31%. For Q1, they anticipate strong subscription revenue growth and cRPO growth, but with a negative impact from a higher mix of 12-month contracts. They also expect an operating margin of 29% and 208 million GAAP diluted weighted average outstanding shares for the quarter.

The ServiceNow team's success in 2023 has set the stage for continued growth in 2024. The company's platform and people have proven to be strong and leaders are shifting their investments towards proven strategic platforms that utilize AI. The company is well positioned for success in the future and the CEOs are getting more involved in the Gen AI revolution. The Q4 outperformance is a testament to the company's strength and the team's contributions. The company's leadership expresses gratitude to employees and looks forward to an even more exciting year in 2024.

Bill McDermott, CEO of software company ServiceNow, discusses the importance of architectural adjustments and platform management in taking advantage of Gen AI. He notes that the company's Now platform is a unifying force in this complex landscape and is seen as the intelligent platform for end-to-end digital transformation. McDermott also mentions the strong momentum and appetite for Gen AI investments, with no price sensitivity due to the impressive business cases. He concludes by saying that compared to last year, investors should be more bullish now. Analyst Mark Murphy notes that ServiceNow is the only platform with real-life uses of AI and has produced the strongest net new ACV of any product family.

The speaker is discussing the factors that are driving the faster adoption of AI, including their strategic partnerships with companies like Visa and EY. They also mention the potential for AI to radically simplify processes and create new revenue streams for businesses. The speaker highlights the success of their Field Service Management with Gen AI in the home appliance industry, where it has increased online sales and created a new revenue stream through same-day repair agreements. Overall, the speaker believes that their platform and Gen AI are fundamentally transforming the way businesses operate.

CJ Desai, who is being congratulated by Bill McDermott, discusses the success of Element AI and their investments in AI since 2017. He mentions that they were the first to release a product with use case specific generative AI and how this has been a game changer for their customers, including a Wall Street bank, a large manufacturing company, and a restaurant food retailer. Desai also mentions the success of their ITSM Pro launch in 2018.

The operator introduces a question from an analyst about the strength of customer and employee workflows in ServiceNow's recent earnings report. The CEO, Bill McDermott, responds by highlighting the company's success in aligning with the Customer Relationship Management category and the increase in net new ACV in Field Service Management. He also mentions the growing trend of using natural language to improve employee productivity and shares some notable logos that have joined ServiceNow in this area. Overall, both customer and employee workflows have shown strong growth for the company.

In paragraph 15, CJ Desai and Bill McDermott discuss the growth of ServiceNow, specifically in relation to their AI and Pro Plus SKU. They also mention the success of their telco and public sector products in customer service and the strong performance of their employee workflow, including HR, workplace, and legal service delivery. Kash Rangan congratulates them on their impressive results and expresses optimism for the company's future.

The speaker discusses the impact of generative AI on sales cycles, stating that it has the potential to make them easier and bring in repeat business. They mention that while the demand environment is still tough, the company has seen success with million-dollar deals and large deals. They also give examples of how generative AI has led to faster sales cycles in certain industries, with customers pulling them in that direction. The speaker concludes by mentioning a specific instance where they were able to close a deal for a Pro Plus SKU in a shorter time frame than a regular ITSM Pro sale.

In the Q&A section of the earnings call, Bill McDermott and Gina Mastantuono discuss the overall environment and the potential impact of generative AI on various industries, such as pharma. McDermott highlights the potential for generative AI to streamline processes and cut down cycle-times, leading to a strong appetite from CEOs. The analysts also ask about the company's expenses and are surprised to see more hiring in R&D than sales and marketing.

The company's sales and marketing headcount has only increased by 6%, while R&D headcount is almost equal to it. This is a change from five years ago when sales and marketing were 50% ahead of R&D. The company is prioritizing investments in R&D for innovation and Gen AI, while also focusing on increasing sales efficiency and ramping up sales capacity for 2024.

The company's productivity and efficiency is increasing due to automation and the use of the Now platform in back office functions. The Office of General Counsel has implemented AI to streamline legal service delivery and has seen success in new logo growth for 2023, exceeding expectations. The sales capacity and efficiency have also improved, resulting in a proud moment for the company in 2023.

During a Q&A session, an operator introduces a question from Samad Samana with Jefferies. Samad asks about the 200 basis point upside in cRPO growth and how much of it was due to adoption of Gen AI and net new ACV versus renewal cohort strength. Gina Mastantuono, the speaker, explains that it was about half and half, with the core business also performing well and higher early renewals. Samad then asks about other products beyond Gen AI that are seeing demand or interest. CJ Desai, another speaker, responds that all workflows saw growth and industry products like telco, media, and tech are seeing traction.

Salesforce released several new products, including Gen AI, which had a significant impact on the company's revenue and growth. The product was well received and had a higher adoption rate than previous products, indicating strong potential for future growth. However, it is still early in the launch and the full impact is yet to be seen.

The company's revenue contribution from Gen AI is not expected to be significant, but it has helped with the 2024 revenue guide increase. The adoption curve for Gen AI is steeper than the original Pro SKU and the company will continue to update on its penetration. The company is conservative in its 2024 guidance due to the early stage of Gen AI. The company expects similar levels of cRPO linearity in Q1 and Q2, but has increased its 2024 guide by $165 million and remains confident in its 2026 guide of $15 billion+.

During the Q&A portion of the call, CJ Desai mentioned that the monetization for the Plus SKUs has exceeded their expectations, and they have seen a 25% uplift in Pro SKUs. The Pro Plus has also exceeded their expectations and is in line with their volume discounts. They have not received any negative feedback from customers and are confident in the value they are providing. They also mentioned their largest new customer win with a bank.

During a recent earnings call, ServiceNow CEO Bill McDermott and CTO CJ Desai discussed their company's success in landing a major new client in the financial services industry. McDermott credited the company's platform and integrated risk management process for their success in winning over this high-profile client. Desai provided more details, stating that the client was a top global institution and the largest new logo win for ServiceNow, with a significant eight-figure net new ACV.

The speaker praises the outstanding execution of the company and directs a question to Bill McDermott regarding the strong performance in the public sector vertical. They ask about the sustainability of spending and the adoption of AI in this sector. Bill McDermott responds by highlighting the company's success in the federal and state and local government markets and mentions specific clients such as the United States Army and Postal Service. CJ Desai adds that the company has also seen growth in the UK public sector and mentions his recent visit with customers there.

In Q4, the Australia public sector team had significant platform expansion with large central governments and agencies, including generative AI. The opportunity for AI adoption in public sector remains large in countries like Canada and Germany. The company has had initial success in the public sector, with more demand expected in the second half of 2024. However, there has been some deceleration in customer expansion due to macroeconomic factors.

The speaker, Gina Mastantuono, responds to a question about the potential for growth in net retention rate (NRR) in 2024. She mentions that the company has strong expansion rates and net new logo growth, especially in larger customers. She also points out that the company's expansion rates are best-in-class and remain strong at their current scale. The next question from Brad Sills asks about the strength of large new logo wins in a tough environment, and the potential impact on expansion opportunities. CJ Desai responds by mentioning that they have seen success in industries such as financial services and manufacturing, specifically in the automotive sector.

In paragraph 28, the speaker discusses the success of ServiceNow in obtaining new logos and clients in the public sector, commercial business, and various industries. They highlight the company's focus on high-quality logos and their ability to expand within these accounts. The team has also been successful in securing additional business from these new clients, setting the company up for continued growth in 2024.

This summary was generated with AI and may contain some inaccuracies.