The operator introduces the First Quarter 2024 ServiceNow Earnings Conference Call and turns it over to Darren Yip, who is joined by Bill McDermott, Gina Mastantuono, and CJ Desai. They will discuss the first quarter results, guidance for the second quarter and full year 2024, and present non-GAAP measures in addition to GAAP measures. They emphasize that the information discussed is based on today's date and contains forward-looking statements. They also mention that financial measures and related growth rates are non-GAAP except for certain measures, and provide a link to view the reconciliation between the two. A replay of the call will be available on the company's website.

ServiceNow's first quarter results exceeded expectations, with strong growth in subscription revenue and CRPO. The company is becoming a leading AI platform for business transformation, with key businesses such as ITSM, ITOM, and security and risk driving success. The adoption of GenAI is on the rise, with Pro Plus being the fastest selling offering in the company's history. ServiceNow is also expanding partnerships with companies like Microsoft and IBM to further enhance their AI capabilities and increase productivity for employees, customers, and partners.

BNY Mellon and ServiceNow are working together to utilize AI and other technologies to provide value for the bank and its clients. Public sector continues to excel globally, with major transactions including government departments in Australia, Italy, and Sao Paulo. ServiceNow's global footprint is expanding, with significant deals signed in Japan, Switzerland, and the Middle East. The company's philosophy is to focus on what they can control and deliver great products and services for their customers, leading to strong performance and guidance. The demand for enterprise software remains strong.

AI is a transformative technology that is driving business transformation. CEOs recognize the need to consolidate their technology systems while still embracing new innovations. ServiceNow is positioned as the leading AI platform for this transformation, with process optimization being the top use case. The company's own AI deployments have shown significant improvements in productivity and there is a huge market opportunity for AI in the next few years. Business leaders are realizing the need to simplify their technology stack and are turning to AI as a solution.

The company ServiceNow is optimistic about their future and their recent platform release in Washington, D.C. Their new features, such as Now Assist AI for ITOM AIOPs, Sales and order management, and Now Assist AI for telecommunications service management, show their commitment to using AI to benefit their customers. They also have a strong research team and are expanding their ecosystem to meet customer demand. The company's success is reflected in their market-leading position, recognition from industry analysts, and positive company culture.

In the first quarter, ServiceNow had a strong performance, exceeding all of their top line and profitability guidance metrics. They saw a 24.5% year-over-year growth in subscription revenues and a 27% year-over-year growth in RPO. The average contract terms have also increased due to the strategic importance of the Now Platform. In terms of industries, technology, media, and telecom saw significant growth, while education, transportation and logistics, business and consumer services, and retail and hospitality also showed strength.

In the first quarter, the company had a renewal rate of 98%, closed 59 deals worth over $1 million, and saw a 300% year-over-year growth in deals worth over $10 million. Their focus on selling a comprehensive platform led to more multi-product deals and an increase in customers paying over $1 million in annual contract value (ACV). Their Gen AI products also saw strong adoption, with seven of the top 10 deals and seven deals worth over $1 million in ACV. The company's non-GAAP operating margin was over 30% and free cash flow margin was 47%, and they ended the quarter with a strong balance sheet. They also bought back shares as part of their share repurchase program. The company continues to demonstrate strong growth, profitability, and shareholder value. They have also initiated a program to hedge a portion of their foreign currency denominated revenues.

The company's initiative is expected to lessen the impact of recent currency movements, but there are still FX headwinds compared to previous guidance. Despite this, the company has raised its 2024 top line outlook and expects strong growth in subscription revenues. They also expect to maintain high margins and continue to see strong demand for their platform as organizations seek to maximize the benefits of technology investments. The Now platform is seen as a powerful tool for digital transformation and the company is focused on delivering complete solutions to drive value for customers.

ServiceNow's upcoming Investor Day on May 6 will discuss their experiences, strategy, and long-term opportunities. The company was once again named one of the Fortune 100 Best Places to Work in 2024, thanks to their employees. The first question from Goldman Sachs was about the adoption of AI and the potential for cost savings. CEO Bill McDermott responded by saying that process optimization is the biggest use case for AI in the enterprise and every workflow will be rethought. The second question was about the company's cRPO and RPO, and CFO Gina gave insight into the rest of the year.

The speaker discusses the benefits of using real-time data and virtual agents in customer service, as well as the impact of GenAI on enterprise operations. They also mention beating their guide in Q1 and being prudent with early renewals, while seeing strong trends in net new ACV growth. They then address the current environment and express confidence in their strategies.

In the first quarter, the environment remained the same in terms of sales and purchasing approvals, but the company is still performing well due to its promise of efficiency and automation, as well as its in-platform generative AI. Budgets are increasing and there is a growing preference for gen AI, which is opening up new opportunities for the company.

The speaker, Gina Mastantuono, responds to a question about the growth of Pro Plus net new ACV and the speed of its adoption compared to Pro. She confirms that there has been faster adoption of Pro Plus and that the realized pricing has been in line with initial expectations.

Gina Mastantuono, ServiceNow's CFO, discusses the company's Gen AI opportunity and its current progress in the market. She mentions that customers are showing interest and there have been significant deals over $1 million. The company is seeing growth in RPO, which is a positive sign for future growth. Bill, the CEO, mentions that Gen AI adoption within ServiceNow is strong, with Now on Now being a notable example. The company is also continuing to invest in R&D.

CJ Desai and Bill McDermott from ServiceNow discuss how the adoption of Gen AI is impacting their hiring plans and the engineering team. They believe that Gen AI is helping their software engineers code faster and increasing their innovation velocity. This not only benefits their own team, but also their customers who can automate processes faster and increase digital efficiency. They have 20 Gen AI cases and their Chief Information Officer, Chris Bedi, has shared a LinkedIn post showcasing the success of Gen AI within their company.

The company runs on ServiceNow and has implemented 20 Gen AI use cases across all departments. They expect to see increased efficiency and productivity in the long term. Adoption of Gen AI offerings is strong, but growth is expected to decelerate through 2024. More details on Gen AI will be provided at the upcoming Investor Day.

In the paragraph, the speaker discusses the strong adoption curve of ServiceNow's new product category launch and its potential for growth. They also mention the company's 24.5% revenue growth and continued traction across all areas of the business. The speaker also notes that all of the company's workflows are experiencing double-digit growth. The question from the analyst asks about the momentum of standard to Pro migrations and the potential for growth in this area, as nearly 50% of the installed base is still on standard.

The speaker, CJ Desai, shares an example of a bank that bought both Pro and Pro Plus together, showing an acceleration in migrations. He also discusses the growth of Pro and Enterprise in the ITSM, CSM, and HR service delivery areas. The moderator, Tyler Radke, asks about the impact of IT budgets on ServiceNow, to which Bill McDermott responds that IT budgets will continue to increase.

Business executives are becoming more involved in the Generative AI revolution as they realize its potential for transforming their businesses. They are motivated by the success of companies like Microsoft and Novartis, who are using GenAI to improve their operations and address challenges like inflation and high rates. These companies are rethinking their processes and systems, and GenAI is opening up opportunities for transformational conversations. As a result, GenAI is seen as the AI platform for business transformation, as it allows businesses to run more efficiently and reduce costs.

Bill McDermott discusses the growing importance of artificial intelligence (AI) in business budgets, with Microsoft and ServiceNow leading the way. IBM has also joined as a partner, and ServiceNow is open to working with other technology companies. McDermott also mentions recent deals in various international markets.

During a press release, Bill and Gina discussed a $500 million investment in the Kingdom of Saudi Arabia, which will mainly go towards data centers. The investment will be spread out over a long period of time and will be within the company's CapEx guide. The company is excited about the growth opportunities in the Middle East and is looking to expand its presence there. Mark Murphy also asked about the onboarding of talent into the ServiceNow ecosystem, as demand for ServiceNow consultants is currently high.

In response to a question about the economy's ability to create enough jobs to keep up with the demand for ServiceNow's services, CEO Bill McDermott discusses the company's hiring strategy and commitment to training and building its ecosystem. He also mentions a new leader who will drive training initiatives globally and emphasizes the importance of partnerships with the ecosystem. McDermott also mentions the company's goal to have 1 million people trained on the ServiceNow platform and the impact of the company's Six Sigma knowledge team.

The speaker is responding to a question about the increase in sales and marketing hiring in the first quarter. They explain that this is due to the company's belief in the potential of the Gen AI revolution and their focus on building and selling the best software. They also mention the need for leaders who can run businesses and take accountability for their actions.

Gina and Samad discuss how they manage their company using a CEO dashboard and a rolling four quarter average pipeline. They make hiring decisions based on the probability of closure and are committed to running a super efficient company. They also mention that many companies are interested in their Now on Now story and how they are entering a new era. Gina adds that they have been focused on hiring sales reps and plan to reaccelerate their growth. They feel confident about their pipeline and demand.

Gina Mastantuono, the CFO of the company, clarifies that they did not stop hiring salespeople last year and they will continue to do so due to strong demand. There were some early renewals in Q1, but they are remaining prudent in their forecasting for the rest of the year. The guidance for Q2 was not impacted by the early renewals, but they are not assuming better renewals for Q2. The company is expecting a strong presence at an upcoming event in Las Vegas. Patrick Walravens from JMP Securities asks a question.

Patrick Walravens asks about the importance of having and releasing their own LLMs, citing StarCoder in February, Databricks and DBRX in March, and Snowflake's Arctic family. CJ Desai explains that it is extremely important for ServiceNow to have use case-specific LLMs for higher accuracy, efficiency, and performance. He credits their unique strategy to their AI teams and research on customer consumption. John DiFucci asks about the strength of the US government for ServiceNow, which was also emphasized by Gina and Bill.

Gina Mastantuono discusses the strong performance of the US federal government sector, which had its biggest Q1 ever with $8 million plus deals and net new ACV growth. The company also hosted its largest Fed forum and saw healthy interest in their GenAI offerings. While she did not mention it in the list of verticals that did well this quarter, she believes the federal business will continue to be a strong contributor. Analysts have also asked about the adoption of Pro Plus, to which Gina states that the enthusiasm and interest are high, with the new product launch being the fastest ever. However, she does not provide specific numbers for the percentage of deals or pipeline that include Pro Plus.

CJ Desai, speaking to Alex, discusses the success of ServiceNow's Pro Plus product, which has exceeded internal projections and has seen high demand from customers in various industries. This is due to its ability to increase productivity for IT, customer service, and HR staff, as well as employees. Interest from customers continues for future quarters.

Customers are eager to turn on Pro Plus and are deploying it at a faster rate than Pro. This has led to an improved demand environment and customers are working with the company to understand the productivity improvements. The engineering teams are releasing improvements on a monthly basis to ensure customer success. In Q1, the company achieved a 47% free cash flow margin, with no one-time drivers. Seasonality of free cash flow throughout the rest of the year is expected to remain consistent.

The speaker explains that the company's first quarter results were significantly higher than the previous year, even after normalizing for lower prices from the Silicon Valley Bank and regional banks. This is due to strong operating margins and efforts to improve working capital efficiencies. The speaker also discusses the adoption of their Gen AI technology, which is designed to be simple to use and has seen improvements in productivity for agents and employees.

The speaker states that the implementation of generative AI on the ServiceNow platform is not as complex and time-consuming as traditional machine learning. They expect it to be faster and more cost-effective, and system integrators can help with redefining processes and identifying new use cases. The urgency for implementation is coming from CEOs who see it as a way to drive change and accelerate processes, with Novartis being an example. The desire for implementation speed is unprecedented and driven by the C-suite.

The speaker believes that understanding the business model and category of Gen AI is crucial for success in the industry. They also mention the importance of identifying customers who are eager for the solution and the potential for fast adoption. The operator then concludes the presentation.

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