The operator introduces the Q2 2024 ServiceNow earnings conference call and outlines the format of the call. Darren Yip, Group Vice President of Investor Relations, then begins the call by discussing the company's second quarter 2024 results and providing guidance for the third quarter and full year 2024. He reminds listeners that the information discussed may contain forward-looking statements and presents non-GAAP measures in addition to GAAP measures. A reconciliation between the two is available on the company's website.

The company has announced that a replay of the call will be posted on their website. The CEO, Bill McDermott, thanks everyone for joining and mentions that they had a strong quarter and raised their full year guidance. He also addresses leadership changes due to a violation of company policy and assures that they are committed to doing the right thing. The President and COO have offered their resignation and an interim Chief Product Officer has been named.

ServiceNow's products and engineering team is top-notch and focused on delivering the upcoming Xanadu release. The company's Q2 results show exceptional execution, with subscription revenue and CRPO exceeding guidance and a high number of deals over $1 million. The company's workflow businesses and AI platform, NowAssist, are also experiencing significant growth.

ServiceNow has had successful implementations of their Gen AI strategy across various industries, including banking, health care, and manufacturing. Companies like Stellantis, American Honda, Merck, Adobe, Dell, ST Microelectronics, and LTIMindtree are utilizing ServiceNow's AI platform to improve operations and increase efficiency. ServiceNow's Gen AI strategy focuses on infusing intelligence into the flow of work for every department and persona, allowing people to focus on higher-value tasks. The company's approach to Gen AI is based on domain-specific multimodal language models, making it more accurate and viable for businesses.

ServiceNow is leading the way in implementing Gen AI, a more efficient and sustainable way of using AI. Through their own deployment of NowAssist, they have seen significant time savings in various aspects of their business. This has caught the attention of other business leaders and has contributed to the overall growth of the global IT spending. ServiceNow has been a pioneer in modernizing enterprise software and is now seen as the intelligent action platform for the entire enterprise. CIOs are looking for a few market leading platforms, including ServiceNow, to work together as the key to unlocking the full potential of AI.

ServiceNow's success is due to its continuous improvement and relevance in the market, as shown by CIO surveys and customer feedback. The company is constantly innovating and expanding its capabilities, such as with the new Creator Studio and partnerships with major global brands like BT Group, Bell Canada, Boomi, and Deloitte. ServiceNow is also focused on expanding its presence in key geographic markets and verticals.

The Air Force has adopted new best-in-class technology from ServiceNow, including Gen AI solutions, to support their mission. Other organizations, such as the National Science Foundation, Bayer, and companies in Japan and the UAE, are also utilizing ServiceNow's technology for their business transformation needs. ServiceNow has also announced growth investments in their partner ecosystem in India and plans to expand into new categories, such as a powerful new database offering called RaptorDB. This will allow for faster data analysis and support for AI use cases. A lighthouse program has been launched for RaptorDB, similar to the successful Gen AI lighthouse program.

ServiceNow is introducing a new AI-powered offering for top customers and has acquired Raizen, a data company, to further enhance their capabilities. They have a growing data ambition and are seeing a lot of interest from new partnerships. The company is focused on expanding their platform, scaling their business, and delivering great results. Despite speculation about potential challenges in the second half, customers are investing in AI and business transformation. ServiceNow is optimistic about the future and has raised their full year guidance. They believe the next 20 years will be even more exciting than the first 20.

In the paragraph, Gina Mastantuono, the CFO of ServiceNow, discusses the company's strong performance in the second quarter of the year. She highlights their revenue growth, exceeding expectations in both net new ACV and Gen AI contributions. The Now Platform and NowAssist offerings continue to see strong demand. The company's RPO and average contract terms have also increased. U.S. Federal, Manufacturing, Energy and Utilities, Healthcare & Life Sciences, and Retail and Hospitality were all areas of strength for the company. The Now Platform remains a critical part of their customers' operations, with a high renewal rate and a strong customer base. The company closed 88 deals over $1 million in net new ACV, showing a 26% growth compared to the previous year.

In the second quarter, the company saw strong growth in large deals, with 14 deals over 5 million in net new ACV and four over 10 million. They also have a growing number of customers paying over 1 million in ACV and 20 million or more, with their new product Gen AI surpassing previous product launches in terms of ACV. The Plus SKU has seen a 30% price increase over Pro and has resulted in a 3x increase in average deal size. NowAssist is a popular tool in their Gen AI deals, appearing in over 70% of them and helping customers go live quickly. The company is also working on expanding their reach through partnerships. They exceeded their profitability expectations and ended the quarter with a strong balance sheet.

The company's strong Q2 results demonstrate their ability to drive growth, profitability, and shareholder value. They have raised their 2024 outlook, with a net increase of $13 million in subscription revenues and a higher operating margin target. They also expect continued growth in Q3 and have received positive feedback from customers at their recent event. Newly created pipeline has increased by 50% year-over-year and has surpassed $1 billion.

The company had a strong second quarter and is confident in their ability to reach their revenue goals. The CEO credits their success to their platform and the demand for digitization among CEOs. The company has been able to close contracts despite the uncertain economic climate. There were no unusual delays in deals from the first quarter to the second.

The speaker discusses the difficulty of selling to departments with narrow solutions, but credits their success to the Gen AI platform, a culture of delivering value, and a strong team. They also mention their Q2 performance and beat, driven by net new ACV and early renewals. The speaker then mentions a successful use case with BT using their fast language models.

The speaker, William McDermott, responds to a question about the potential of AI by highlighting the benefits of using domain-specific or smaller models. These models are quick, secure, and cost-effective, and they allow for a more efficient and innovative approach to digital transformation. Examples of successful implementation of these models are given, including BT, London Stock Exchange, TriMedx, and Kainos.

The speaker discusses the success of their NowAssist product, which has helped improve access to knowledge content for customers and employees. They have received positive feedback and increased satisfaction from customers and executives. They also mention the recent general availability of their Gen AI SKUs for government Community Cloud and a successful pilot implementation. The speaker also mentions the potential for further growth and productivity improvement with the product. The question then turns to the potential impact of macroeconomic factors and the speaker's experience with previous cycles, as well as the future potential for NowAssist.

The speaker responds to a question about the company's future plans and explains that they are focused on innovating and moving forward rather than consolidating the past. They mention investments in AI and partnerships with companies like NVIDIA and Microsoft. The company's goal is to transform entire industries.

The speaker gives the example of the utility industry and how they are using the ServiceNow platform to improve their operations and customer experience. They plan to do the same for other industries such as manufacturing, consumer goods, and healthcare. They also mention the importance of automation and workflow in these industries. The speaker then mentions changes in leadership and congratulates the company on their momentum.

William McDermott, the CEO of ServiceNow, praises the company's senior leadership team, including Chris Bedi, the Chief Product Officer. He discusses the key operational steps being taken to ensure a smooth transition in leadership and continuity in the company's success, particularly in the public sector business. McDermott expresses confidence in the team and their ability to continue executing the company's mission. He also mentions the importance of the U.S. public sector as a key industry vertical for the company's growth.

The speaker, William McDermott, expresses confidence in the relationship between public service companies and their customers. He discusses the success of their AI products and the challenge of convincing companies who have not yet adopted AI to do so. He explains that these companies may be hesitant due to false promises from other companies, but once they see the potential and success of AI, they will be motivated to join in order to stay competitive and retain employees.

The speaker discusses the importance of educating and demonstrating the value of their product to potential customers in order to gain their interest and make sales. They also mention the role of partners and the potential for even more success through their help. The next question asks about the previously expected acceleration in CRPO in the third quarter and if that outlook has changed.

Gina Mastantuono, during a Q&A session, was asked about the company's conservative approach to their third quarter CRPO guide, considering the uncertainty of the upcoming election. She responded by saying that they are being prudent in their assumptions, but remain confident in their pipeline, which has seen a 50% increase since the knowledge conference. She also mentioned that the demand for their services is strong, but they are being cautious due to the uncertainty in the back half of the year. Another question was asked about the strength of their pipeline, and Mastantuono stated that it is strong across the board, with no specific standout areas.

In Q3, the company saw strength across all areas of its platform, including IT, customer employee creator, and NowAssist. There is excitement and strong pipeline for Gen AI, which is expected to continue into the second half of the year and beyond. The company is also seeing a significant demand for its operational technology product, with several major companies already using it. This product has expanded the company's technology workflow TAM by $5 billion and is expected to help address the $68 billion customer workflow TAM.

The company is encouraged by the traction they are seeing with their portfolio and will continue to update investors. They attribute their success to the close relationship between engineering and customer feedback. The next question comes from Alex Zukin, who notes that this was the strongest RPO quarter in three years. Gina Mastantuono confirms this, stating that they are seeing an increase in average contract terms and more multiyear deals.

The paragraph discusses the growth and success of the company, with no major differences in deals and an increase in early renewals. The company's AI platform is driving larger, more strategic engagements and longer contract terms. The company has transitioned from a product company to an AI platform for business transformation and has differentiated itself by putting AI to work for people. This strategic direction has led to larger deal sizes and longer agreements.

Mark Murphy from JPMorgan asks about potential opportunities for ServiceNow in response to the CrowdStrike outages. Bill McDermott explains that there was zero impact on customer systems and thanks to their CMDB, they were able to quickly identify and remediate any issues. Gina Mastantuono mentions that sales and marketing headcount growth has picked up and will continue to do so.

The speaker discusses the strategic partnership between ServiceNow and Microsoft and how it has opened up new opportunities for both companies. They mention a co-sell motion and working closely together to meet customer needs. The speaker also highlights the success of the partnership, with several $1 million-plus deals closed in the second quarter, including new logo wins and a large net new deal.

The speaker expresses confidence in the partnership between ServiceNow and Microsoft, and acknowledges Microsoft as a standard. They also mention the importance of data governance in modern architectures and suggest that ServiceNow's workflow automation and Gen AI capabilities, along with RaptorDB, will allow them to gather data from various sources and automate processes. They also mention a lighthouse program that will use RaptorDB to further develop their platform and enter into a new market.

The company sees its role as integrating with other data providers rather than competing with them, as customers want to use their AI platform to transform business processes. They aim to expand their reach and bring executional excellence to stakeholders through industry-specific use cases. The recent increase in CapEx is due to quarterly timing and there is no federal business that needs to be unwound as a result of an investigation.

The operator introduces Michael Cikos from Needham & Company who asks about the expected headwind to 2Q CRPO in relation to the public sector. Gina Mastantuono confirms that it played out as expected and will normalize in Q3, but may pop up again in Q4 depending on the size of their Fed business. The operator then introduces Matt Hedberg from RBC Capital Markets who asks about the deceleration of subscription revenue compared to the acceleration of CRPO. Gina explains that this is due to reacceleration of net new ACV in the first half of 2024 and a lower expected on-prem mix in Q3 compared to last year.

Matt Hedberg congratulates the team on their successful quarter. Gina Mastantuono and William McDermott thank him for his congratulatory message. The operator ends the call and thanks everyone for participating. The conference call is now over.

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