The paragraph serves as the introduction to ServiceNow's Fourth Quarter 2024 Earnings Conference Call. The operator, Abby, introduces Darren Yip, the Group Vice President of Investor Relations and Market Insights, who begins the call by noting the participation of Bill McDermott, the CEO, and Gina Mastantuono, the CFO. They plan to review the fourth-quarter results and discuss future guidance. Darren emphasizes that the discussion will include forward-looking statements subject to risks and uncertainties, and he refers to the earnings press release and SEC filings for more information. He also mentions that the call will present non-GAAP financial measures alongside GAAP measures, except for specific financial indicators like revenues and cash and investments.

The paragraph highlights two main themes discussed by William McDermott regarding ServiceNow's performance. First, he emphasizes ServiceNow's strong business fundamentals, noting their significant quarterly results that surpassed expectations, a robust balance sheet, and ambitious growth targets including reaching $15 billion by 2026. Second, he addresses ServiceNow's leadership in AI innovation, mentioning a notable 150% growth in AI offerings and their strategic positioning in AI value creation. The discussion reflects ServiceNow's consistent success in exceeding expectations and raising guidance, especially in their strong Q4 performance.

The paragraph highlights ServiceNow's strong financial performance in 2024, with subscription revenue and CRPO growth outpacing industry averages and a high operating margin. The company achieved significant customer deals, including two customers crossing $100 million in ACV and landing its largest new logo deal. ServiceNow's AI platform is gaining traction, contributing to impressive deal figures in tech workflows and product areas like ITSM, ITOM, ITAM, and Security and Risk. The company anticipates another successful year in 2025, emphasizing its innovative and fast-growing nature. Additionally, IDC predicts significant growth for AI platform software, with the market expected to reach $153 billion by 2028.

The paragraph highlights the significant growth in AI software spending, forecasting a 46% increase in 2025, and its transformative impact on the enterprise technology landscape. ServiceNow is positioned as a leader in this change, already working with 1,000 customers on their AI journey due to its comprehensive platform that integrates AI agents, workflows, and data management solutions. The company leverages its extensive experience and partnerships, notably with NVIDIA, to streamline complex processes and prevent the chaos of unmanaged AI adoption. ServiceNow's platform is presented as the central control plane for enterprise AI, appealing to new tech leadership roles. Additionally, the company's marketing efforts include work featuring Idris Elba to promote its brand.

The paragraph outlines a business strategy focused on future growth by maintaining a stable seat-based subscription model while offering upgrades to new products like Pro Plus, RaptorDB, and Workflow Data Fabric. The company is embracing consumption-based pricing as AI agents become key value drivers, opting to accelerate adoption over immediate revenue by integrating rather than offering them as add-ons. This approach aims for faster market penetration and increased usage over time, complementing the foundational seat-based subscriptions. The strategy emphasizes simplifying access to AI capabilities, solidifying the company’s position as a leader in business transformation technology.

The paragraph highlights the various ways organizations, including Petrobras, a large Department of Defense agency, New Zealand Parliamentary Service, Scouting America, Grupo Bimbo, Toyota, Rolls-Royce, and others, are utilizing ServiceNow to enhance efficiency and decision-making by connecting data and automating processes. It mentions ServiceNow's efforts to expand its market through new offerings like Workflow Data Fabric and RaptorDB, as well as new integrations with Oracle and Google Cloud. Additionally, there is a focus on modernizing the public sector, with particular reference to the United States government's efforts to improve IT efficiency and the new Department of Government Efficiency mandate initiated under President Trump.

The paragraph discusses ServiceNow's efforts to enhance efficiency and reduce costs through automation and strategic partnerships. ServiceNow has expanded collaborations with AWS to accelerate AI transformation and with Google Cloud to offer AI-powered tools, increasing their availability on cloud marketplaces. Their alliance with Visa focuses on disputes management using combined AI capabilities. ServiceNow's partnership with Five9 aims to improve contact center operations through AI-powered solutions. Additionally, a strengthened partnership with Microsoft leverages AI for CRM advancements. ServiceNow emphasizes its architectural advantage, enabling seamless automation across enterprises and contributing to growth in its CRM and industry workflows business.

The paragraph highlights ServiceNow's advantages over other software vendors, emphasizing its seamless AI integration across a single architecture, which enables effective enterprise-wide collaboration and complex problem-solving. It contrasts this with the complexity and higher failure rates seen in platforms with fragmented systems. The paragraph also lists several recognitions ServiceNow has received, including being named a leader in the Gartner Magic Quadrant and Forrester Wave, as well as high rankings in Fortune's most admired software companies, Forbes' most trusted companies list, and the American Opportunity Index for creating employee opportunities, underscoring its industry leadership and innovation.

The paragraph highlights ServiceNow's commitment to growth and innovation, particularly through the integration of AI in its offerings. It underscores the company's strategic vision to significantly increase revenue, aiming for $15 billion by 2026 and $30 billion thereafter. With strong performance in the past year, marked by surpassing growth and profitability metrics, ServiceNow is positioned as a leader in enterprise software. The President and CFO, Gina Mastantuono, emphasizes the company's success in driving customer adoption of AI solutions, leading to new efficiencies and opportunities across industries. The focus is on sustaining profitable growth while continuously expanding the platform's capabilities.

In Q4, subscription revenues reached $2.866 billion, marking a 21% year-over-year growth in constant currency, and exceeded guidance. RPO totaled $22.3 billion, growing 26%, with current RPO at $10.27 billion. Industries like manufacturing and the public sector saw significant growth, particularly in the U.S. government sector. The renewal rate was strong at 98%, and the number of customers generating over $1 million in ACV increased to 2,109, with substantial gains also in customers contributing $20 million or more. The company ended the year with approximately 8,400 customers, boasting the largest new logo deal in its history in Q4. A total of 170 deals exceeded $1 million in new ACV, including 15 new logos, with 19 deals surpassing $5 million and three over $20 million. Gen AI net new ACV showed strong growth, with a significant increase from Q3 to Q4. "Now Assist" service desk deals grew by more than 150% quarter-over-quarter.

The paragraph highlights the company's strong financial performance and strategic initiatives. There was significant growth in customers purchasing multiple Gen AI capabilities, with Plus SKUs maintaining a significant price premium over Pro. Notably, a multinational conglomerate achieved a 45% reduction in live chat usage, projecting to save millions by 2025 with AI integrations. The RaptorDB Pro offering gained early traction, with substantial performance improvements and cost savings for clients. The company reported a 29.5% non-GAAP operating margin and a 47.5% free cash flow margin, with total free cash flow for 2024 at $3.5 billion. The company concluded the year with $10 billion in cash and investments. It also repurchased a substantial number of shares and announced an additional $3 billion authorization for share repurchases, indicating its strong cash position and commitment to managing dilution.

The article discusses the company's strategic outlook for 2025, emphasizing its focus on sustainable growth and increased adoption of AI and data solutions through consumption-based monetization. The company plans to optimize its go-to-market strategy and business model to capitalize on AI opportunities. Financial guidance includes expected subscription revenues of $12.635 billion to $12.675 billion, a 20% year-over-year growth, assuming FX headwinds and changes in U.S. federal business seasonality. They anticipate a subscription gross margin of 83.5%, an operating margin of 30.5% due to operational efficiencies, and a free cash flow margin of 32%.

The paragraph discusses the company's financial expectations and performance. It anticipates a 50 basis points margin expansion for 2024 despite a 100 basis points cash tax headwind. Subscription revenues for Q1 are expected to be between $2.995 billion and $3 billion, reflecting 20% year-over-year growth. The company also anticipates a 20.5% CRPO growth and an operating margin of 30%, projecting 210 million GAAP diluted weighted average outstanding shares. The company aims to enhance its leadership in AI-powered automation and business transformation, emphasizing gratitude to its employees. The paragraph concludes by opening the floor for questions.

William McDermott explains the company's decision to implement a hybrid pricing model that combines subscription and consumption. Customers can start with a base subscription for predictable spending and ROI, while also taking advantage of advanced AI capabilities through a metered consumption model. This approach is designed to allow customers to scale with the company's innovations and benefit from AI-driven efficiencies. McDermott is confident that this "Goldilocks model" will offer the dual advantages of consistent revenue and potential for significant growth, driven by customer satisfaction and mutual financial gain. He also praises the company's engineering team for their innovative efforts.

The paragraph discusses the challenge of unfilled technical jobs worldwide and the role of agentic AI in addressing this issue by enhancing human and business productivity. Amit Zavery explains that their Pro Plus service has over 1,000 customers who benefit from this AI innovation, which operates on a subscription model. This model provides customers with the flexibility to scale and tier their usage according to their needs, offering predictability and value. It is not strictly pay-as-you-go; instead, it uses "assist packs" that grow as usage increases, allowing customers to see immediate value.

In this paragraph, Gina Mastantuono discusses the company's guidance for the year, mentioning factors they've considered, like the monetization of their AI and the anticipation of back-end weighted deals due to the U.S. election outcome. They aim for a 20% constant currency guide while minimizing risk. Mark Murphy then asks William McDermott about ServiceNow's strategy in light of cheaper Chinese AI models and whether they pose a risk. McDermott responds positively, suggesting it's beneficial for ServiceNow as it shifts the competitive focus to their platform and applications, highlighting how they help businesses achieve better outcomes amid rapidly commoditizing AI models.

The paragraph discusses ServiceNow's financial benefits from its platform's capability to efficiently integrate and operationalize AI, allowing customers to utilize AI-derived insights for concrete actions like workflow automation and issue resolution. The platform supports integrations with third-party large language models and continuously evolves to incorporate innovations, aiming to provide the best outcomes for customers. The commitment to responsible AI practices is emphasized, and there is ongoing exploration of technologies like DeepSeek. The company collaborates with large language model providers and focuses on combining AI with workflows and data to enhance customer outcomes.

The paragraph involves a discussion among ServiceNow executives and analysts about the company's strategy in the context of AI innovation and market positioning. Gina Mastantuono highlights ServiceNow's cost discipline and margin growth while investing in AI innovation. William McDermott emphasizes ServiceNow's AI orchestration as a central element in business transformation, leveraging their strengths in IT, employee experience, and customer service on a unified platform. The discussion touches on how the company is navigating a competitive landscape and adapting its go-to-market strategy to address the evolving needs of enterprise customers with its agent-centric capabilities.

The paragraph discusses ServiceNow's technological capabilities, particularly in integrating and orchestrating various systems and solutions. It highlights the company's agentic AI solution and the newly introduced RaptorDB, which enhances speed and automation. RaptorDB's integration with platforms like Snowflake, Databricks, Oracle, AWS, and GCP is emphasized, showcasing ServiceNow's comprehensive platform advantages. The paragraph concludes by noting the potential for customers to consolidate data into ServiceNow, avoiding fragmented legacy systems.

The paragraph discusses a company offering flexibility in how clients manage and run their data, whether keeping it in place or moving it to platforms like ServiceNow or hyperscalers. The company already integrates with various large language models (LLMs) and helps clients reimagine their business models through AI, particularly for those looking to transition from traditional models. The CEO shares a conversation with an insurance company executive who wants to transform into a data-driven and AI-focused company. The challenge for the company is effectively communicating its capabilities and vision to clients and the media. Following this, a question-and-answer session occurs, addressing AI enthusiasm and IT spending trends.

In the paragraph, William McDermott discusses the current IT spending environment, noting that while it's similar to last year, there is a significant shift towards AI business model innovation. He highlights that top CEOs now prioritize AI, often creating dedicated AI leadership roles and integrating them into their core organizational structures. This focus on AI is seen as crucial for companies to maintain a competitive edge. McDermott also mentions that with a strong AI strategy, like their agentic AI portfolio, companies can achieve mutually beneficial outcomes, which encourages investment. Additionally, he observes a renaissance in the public sector regarding AI adoption.

The paragraph discusses the effectiveness and reputation of the ServiceNow solution in both the public and private sectors. It highlights the company's ability to simplify work processes, enhance productivity, and reduce costs, which makes its services highly relevant, especially when organizations transition back to office environments. In the public sector, there's a focus on modernizing without completely overhauling existing systems, leveraging ServiceNow's ability to integrate and manage data efficiently, and achieve AI transformation affordably and quickly. This positions ServiceNow as a preferred choice for government agencies. The paragraph concludes with acknowledgments from William McDermott and Gina Mastantuono before the discussion shifts to a question from Brad Sills of Bank of America.

In the paragraph, Brad Sills asks William McDermott about the drivers of growth in customer and employee workflows and if the introduction of Now Assist is influencing this growth. William responds by discussing the mutually reinforcing relationship between agentic AI and the core workflows at their company. He highlights strong performance in customer workflows and mentions the rapid growth of industry-specific workflows. McDermott emphasizes their company's competitive edge in CRM, noting their ability to manage sales, fulfillment, and service across channels on a single platform, supported by their comprehensive knowledge of assets, operations, and customer data within the ServiceNow platform.

The paragraph highlights ServiceNow's successful integration of agentic AI into its customer service and sales processes, significantly enhancing efficiency and effectiveness. The company uses AI to automate 85% of customer self-service tasks and 37% of support workflows, leading to a huge reduction in labor hours and a substantial increase in case deflection. This technology also boosts developer productivity and markedly improves prospect conversion rates by prioritizing leads efficiently. The AI's ability to quickly provide customer solutions has drawn positive attention, and the company anticipates a considerable increase in its customer engagements this year.

The paragraph discusses how ServiceNow is enhancing its employee-related processes, such as recruiting, hiring, and onboarding, by integrating all company functions into a mobile platform that anticipates and rapidly responds to employee needs. This approach has reportedly saved the company 3 million hours of capability. William McDermott, discussing ServiceNow's operational strategies, mentions a significant margin improvement and emphasizes that the company is fully integrated on their platform, transforming their approach to enterprise software. In a Q&A session, Samad Samana of Jefferies asks about the impact of reduced computing costs on budget allocations for ServiceNow, inquiring if there are signs of shifting budgets in early customer interactions. McDermott responds by noting ongoing discussions with customers, indicating a continued focus on this topic.

The paragraph emphasizes the importance of hard work and a structured approach when implementing best-in-class solutions in the industry. It discusses the potential of agentic AI to reinvent business models and drive innovation by allowing companies to rethink their offerings and optimize workforce management. The author believes this AI-driven transformation could have a larger impact than past technological breakthroughs, generating significant economic value with a high return on investment. The paragraph concludes with a mention of Samad Samana asking Gina a follow-up question related to token development in the Pro Plus SKU.

In the discussion, Gina Mastantuono explains that the company's product, Now Assist, includes a consumptive component where customers may need to purchase additional tokens if they exceed anticipated usage. Although this extra token monetization has not been significant so far, the introduction of new agentic capabilities within Now Assist is expected to accelerate usage significantly, leading to increased monetization. The initial subscription is necessary, but the real growth is anticipated as these agentic features are more widely adopted. Amit Zavery further elaborates that the complexity of tasks handled by agentic capabilities requires more backend processing, which increases token usage and the associated consumption. This consumption growth will contribute to the revenue metrics, specifically CRPO, in the future.

The paragraph discusses ServiceNow's strategic enhancements and future plans, emphasizing the company's robust foundational business model, which includes subscription-based pricing and industry-specific solutions. It highlights the acquisition of Swarm64 and the introduction of RaptorDB, a database based on PostgreSQL, that enhances ServiceNow’s offerings with advanced data integration capabilities. Additionally, these innovative solutions are positioned to drive growth in a $250 billion total addressable market (TAM), marking a significant opportunity for the company. William McDermott expresses optimism about early positive developments.

The paragraph discusses a platform enhanced with a feature called Now Assist, which incorporates agentic AI agents in its Pro Plus version. Customers benefit from these agents doing tasks, providing significant return on investment and value. The company profits from increased usage as a metered system activates. The leadership, including Paul Smith and Paul Fipps, is focused on executing quarterly goals while working towards expanding the company's value to $30 billion. The company aims to cater not only to large enterprises but also to commercial and direct-to-consumer markets, valuing both high-value and high-volume deals, while maintaining strong business performance.

The paragraph discusses a company's significant financial investments and ambitious future goals, highlighting its strong management team and integration of advanced AI technologies to enhance operations. It mentions the leadership of Amit, the COO and President, emphasizing his expertise in product packaging and pricing. The company recently showcased how AI can optimize territory management at a sales kickoff event, exciting sales professionals by streamlining their work. The impact of these strategies is incorporated into the company's comprehensive guidance plans.

In the paragraph, during a discussion involving Michael Cikos, Gina Mastantuono, and William McDermott, Derek Wood from TD Cowen asks about the company's strategy regarding new subscription revenue and the shift towards a consumption-based model using agents. Gina clarifies that they are not foregoing new subscription revenue. She highlights the strong growth of the Now Assist product, noting a 150% quarter-on-quarter increase and expects continued growth. She also mentions that while the adoption of agentic AI may take some time, it will eventually provide significant value and contribute to growth. Gina emphasizes that their strategy includes both subscription growth and the adoption of AI, not one or the other. William McDermott supports Gina's explanation.

The paragraph discusses a change to the existing pricing model for the Now Assist portfolio, introducing a consumption-based aspect as an "accelerator" to the subscription model. The aim is to encourage customers to purchase more subscriptions by including agents, with the expectation that increased value and consumption will drive subscription growth. The speaker anticipates this change will be well-received by investors, ultimately enhancing ServiceNow's appeal. Derek Wood and Gina Mastantuono express understanding and appreciation for the explanation, concluding the discussion.

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