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Wells Fargo 7th Annual TMT Summit 2023

Nov 29, 2023

Michael Turrin
Managing Director, Equity Research Analyst, Software, Wells Fargo

Thanks very much for joining us for day two of the Wells Fargo TMT Summit. I'm Michael Turrin, software analyst here at Wells. We're very pleased to have ServiceNow's CFO, Gina Mastantuono, with us.

Gina Mastantuono
CFO, ServiceNow

Nice job.

Michael Turrin
Managing Director, Equity Research Analyst, Software, Wells Fargo

I phonetically worked that out. Looking forward to the conversation.

Gina Mastantuono
CFO, ServiceNow

Thank you.

Michael Turrin
Managing Director, Equity Research Analyst, Software, Wells Fargo

There's a lot of good things to talk about, and so-

Gina Mastantuono
CFO, ServiceNow

I'm looking forward to it.

Michael Turrin
Managing Director, Equity Research Analyst, Software, Wells Fargo

We can fit.

Gina Mastantuono
CFO, ServiceNow

Thank you for having me.

Michael Turrin
Managing Director, Equity Research Analyst, Software, Wells Fargo

Settle in. But I think there've been a lot of lessons learned in software over the past year. If I look back, ServiceNow, middle of last year, was on the earlier side in terms of companies to call out the macro crosswinds and some of the things that you talked about. And since then, the business has executed exceptionally well, from our perspective. There's been a resilience factor that not all companies have found, and so I'm just wondering, lessons learned from the stress test of the past year that maybe you thought were there for ServiceNow, but now you've developed a deeper appreciation for-

Gina Mastantuono
CFO, ServiceNow

Yeah

Michael Turrin
Managing Director, Equity Research Analyst, Software, Wells Fargo

-as a starting point.

Gina Mastantuono
CFO, ServiceNow

It's a great question, actually. So I think, first and foremost, ServiceNow has been and has always been a really customer-centric company.

Michael Turrin
Managing Director, Equity Research Analyst, Software, Wells Fargo

Yeah.

Gina Mastantuono
CFO, ServiceNow

And so we are very connected to our customers and always have been. It's why we have been able to, I believe, so successfully broaden outside of IT across HR, customer, creator. It's really because our customers took us there, and it's that relationship and that connectivity to customers that I think is a big part of our success. I also think that connectivity enabled us to see pretty early on-

Michael Turrin
Managing Director, Equity Research Analyst, Software, Wells Fargo

Right

Gina Mastantuono
CFO, ServiceNow

... some of the stressors, right? And the fact that we kept getting signs that deals are gonna take a little bit longer. "Oh, this needs CFO approval now," when before it hadn't, right? And so I think that connectivity and that customer relationship enabled us to-

Michael Turrin
Managing Director, Equity Research Analyst, Software, Wells Fargo

Yeah

Gina Mastantuono
CFO, ServiceNow

really kinda see that a little bit earlier. I also think it helped us react really well because we were able to be super proactive in, "Okay, if the deals are getting elongated, what does that mean? Who needs to be in the approval process, and what can we do to help you?

Michael Turrin
Managing Director, Equity Research Analyst, Software, Wells Fargo

Mm-hmm.

Gina Mastantuono
CFO, ServiceNow

owner in really driving that conversation about-

Michael Turrin
Managing Director, Equity Research Analyst, Software, Wells Fargo

Yeah

Gina Mastantuono
CFO, ServiceNow

Business value, right?

Michael Turrin
Managing Director, Equity Research Analyst, Software, Wells Fargo

Yep.

Gina Mastantuono
CFO, ServiceNow

Value, and quick time to value. So I think that's part of, I think, a really great learning, in that our sales teams got really even closer to the customers in understanding, "Okay, what is important today? What's the value driver? What do you need to show value to be able to get that deal across the line?

Michael Turrin
Managing Director, Equity Research Analyst, Software, Wells Fargo

Yeah.

Gina Mastantuono
CFO, ServiceNow

And really making sure that we were able to articulate and help the business owner articulate that value prop. Because what we're seeing, quite frankly, is you get approval really fast if you're driving cost savings, if you're driving productivity, if you're really able to articulate the value. And so value selling and understanding that has been a key part of, kind of, our sales organization for a long time, and I think-

Michael Turrin
Managing Director, Equity Research Analyst, Software, Wells Fargo

Yeah

Gina Mastantuono
CFO, ServiceNow

Has served us well.

Michael Turrin
Managing Director, Equity Research Analyst, Software, Wells Fargo

That's why I was smiling. Those words have close association with ServiceNow already.

Gina Mastantuono
CFO, ServiceNow

Yeah.

Michael Turrin
Managing Director, Equity Research Analyst, Software, Wells Fargo

I'm curious, as CFO, does that bring you into more of the decision-making process? Because there's... We hear all the time now, CFOs are more cost-focused, they're involved in the decision-making. There are more checks that are in place-

Gina Mastantuono
CFO, ServiceNow

Yeah

Michael Turrin
Managing Director, Equity Research Analyst, Software, Wells Fargo

today than was the case a few years ago. So does that bring you into more of those conversations?

Gina Mastantuono
CFO, ServiceNow

Well, I think in general, I am closer to customers in my role as CFO of ServiceNow than I've ever been before. What's unique, and I think what's been super interesting over the last year and a half, the sales teams are coming to me and saying: "Can you like, how do I articulate value to a CFO?" A lot of times they're nervous to be in front of the CFO, right?

Michael Turrin
Managing Director, Equity Research Analyst, Software, Wells Fargo

Yeah.

Gina Mastantuono
CFO, ServiceNow

Or they're nervous to put a presentation together for the business owner to be in front of the CFO. So they come to me and say: "What should we be focused on, and what should we be talking about?

Michael Turrin
Managing Director, Equity Research Analyst, Software, Wells Fargo

Yeah.

Gina Mastantuono
CFO, ServiceNow

I can't tell you, not that many, thank goodness, but there have been a couple of conversations when I'm like: "Guys, this business value document that's showing, you know, hundreds of millions..." Like, come on, let's be, because the CFO is gonna see right through that.

Michael Turrin
Managing Director, Equity Research Analyst, Software, Wells Fargo

Right.

Gina Mastantuono
CFO, ServiceNow

What is really articulated? What is known today versus what is potential for the future? You can talk about the big number, but like talk more realistically about what they're gonna see in the short term, and then you'll get the CFO's attention pretty quickly.

Michael Turrin
Managing Director, Equity Research Analyst, Software, Wells Fargo

Yeah. So given that positioning and where we are in the calendar year, and just ServiceNow's seasonal profile in general, can you just help characterize customer conversations? Currently, how is the macro still the same level of consideration? Do you have plays in place that are more established this year than you had in years past? Just maybe start with what's coming up in conversations and how you'd characterize the macro discussion, and then we can talk about the ServiceNow piece afterwards.

Gina Mastantuono
CFO, ServiceNow

Perfect. I think from the macro perspective, what I'm hearing in the ecosystem is not all roses for 2024. I know everyone wants to hear that, and I wish I could tell you that, but that's not what-

Michael Turrin
Managing Director, Equity Research Analyst, Software, Wells Fargo

Yeah

Gina Mastantuono
CFO, ServiceNow

-I'm hearing. I am hearing, a little bit more cautious optimism-

Michael Turrin
Managing Director, Equity Research Analyst, Software, Wells Fargo

Mm-hmm

Gina Mastantuono
CFO, ServiceNow

-about the world and the economy at large, and what IT spending will look like, which is fantastic. I do think, though, that the uncertainty remains, and what I'm hearing is that people are just a little bit more comfortable, a year and a bit in, to the uncertainty than they were when it first happened, right? So 2021, everything was gangbusters, right?

Michael Turrin
Managing Director, Equity Research Analyst, Software, Wells Fargo

Yeah.

Gina Mastantuono
CFO, ServiceNow

And so I think everyone-

Michael Turrin
Managing Director, Equity Research Analyst, Software, Wells Fargo

It did

Gina Mastantuono
CFO, ServiceNow

... got caught a little bit off guard-

Michael Turrin
Managing Director, Equity Research Analyst, Software, Wells Fargo

Yeah

Gina Mastantuono
CFO, ServiceNow

and didn't know what, how long the uncertainty would be here.

Michael Turrin
Managing Director, Equity Research Analyst, Software, Wells Fargo

Right.

Gina Mastantuono
CFO, ServiceNow

I think people are a little bit more comfortable in the uncertainty, and realizing that life is going on, and business is going on. If they want to be successful, at when we come out of this, that they've got to continue to invest. And so they did the work on prioritization of spend, which took a little bit of time, and they are more comfortable now executing.

Michael Turrin
Managing Director, Equity Research Analyst, Software, Wells Fargo

Yeah.

Gina Mastantuono
CFO, ServiceNow

All of that being said, deal cycles are still longer. I think the scrutiny on costs is here. I don't think that's going away anytime soon, even if the economy does get better, because I think everyone is demanding a little bit more discipline on the cost side and focus on profitability.

Michael Turrin
Managing Director, Equity Research Analyst, Software, Wells Fargo

Yeah.

Gina Mastantuono
CFO, ServiceNow

I think that level of scrutiny remains-

Michael Turrin
Managing Director, Equity Research Analyst, Software, Wells Fargo

Yeah

Gina Mastantuono
CFO, ServiceNow

... regardless, but I do, I do feel a little bit more cautiously optimistic that, that folks are going to need to continue to invest in IT. I think but going back to the other part of your, your conversation, the conversations about GenAI, about what productivity benefits are really gonna be driven by GenAI, I think is real.

Michael Turrin
Managing Director, Equity Research Analyst, Software, Wells Fargo

Yeah.

Gina Mastantuono
CFO, ServiceNow

Those, especially at the C-suite level, where I'm talking to folks, those are the conversations that I'm having every single day, which I think is pretty exciting.

Michael Turrin
Managing Director, Equity Research Analyst, Software, Wells Fargo

Okay. Before we get into... I wanna just kinda transition in a few different directions, but before we get into sort of Q4 and the plays that you might have in place, having lived through this for 18 months now, most investors were paying close attention to Q3. But if you could talk through the highlights, I think Public Sector strength was one thing that we were focused on-

Gina Mastantuono
CFO, ServiceNow

Yeah

Michael Turrin
Managing Director, Equity Research Analyst, Software, Wells Fargo

and had been hearing good things about. That came through pretty strongly, and then early traction with Vancouver also was quite encouraging. So maybe you can just provide some of the highlights of Q3 from your perspective, and we'll build from there.

Gina Mastantuono
CFO, ServiceNow

Yeah, listen, we were super pleased with the results and the continued strong execution across the board, top line and bottom line, right? And so 24.5% revenue growth at our scale is pretty remarkable in this environment. So we were really pleased about that, obviously, beating top line and bottom line guidance by a fair bit. You know, CRPO, 24% growth at this scale, margins at 30%. So really across the board, strong execution. A few points to note. You mentioned federal. Obviously, Q3 is the big federal quarter, but we've been calling out federal every quarter, really, since last Q3-

Michael Turrin
Managing Director, Equity Research Analyst, Software, Wells Fargo

Right

Gina Mastantuono
CFO, ServiceNow

... as strength. And what we're seeing is Public Sector and Federal government in general really looking to modernize and to lean into IT investments, and they've been standardizing on the Now Platform for years. And what we're also seeing is, you know, once the U.S. Army gets really successful, then all of a sudden, the U.S. Air Force starts to knock on their door, right? And so they talk to each other, clearly. And so I think the resonance and the value proposition that ServiceNow has been able to provide the federal government, in particular agencies, has been really strong. And so we talked about 75% growth. I get the question: "Oh, you know, are you guys gonna be able to... Is it done?" No, it's not done.

Michael Turrin
Managing Director, Equity Research Analyst, Software, Wells Fargo

Yeah.

Gina Mastantuono
CFO, ServiceNow

There's so much automation that the federal government needs to continue to do.

Michael Turrin
Managing Director, Equity Research Analyst, Software, Wells Fargo

Yeah.

Gina Mastantuono
CFO, ServiceNow

So there's no lack of continued opportunity in the federal space. But then think more broadly about public sector. Federal was the first kind of vertical we really leaned heavily into, but state and local, we're in many states, but there's still many more we're not. If you look at public sector outside the U.S., what we've done is replicable, really, across the globe, and so that's a key investment area for us-

Michael Turrin
Managing Director, Equity Research Analyst, Software, Wells Fargo

Yeah

Gina Mastantuono
CFO, ServiceNow

... as you think about public sector in general, going forward. So really excited about that.

Michael Turrin
Managing Director, Equity Research Analyst, Software, Wells Fargo

Yeah.

Gina Mastantuono
CFO, ServiceNow

But there were other really cool things that happened in the quarter. Creative Workflows crossed $1 billion in ACV, which is amazing. Customers right on its heels. There's a real big competition there, as you can imagine, internally.

Michael Turrin
Managing Director, Equity Research Analyst, Software, Wells Fargo

Good.

Gina Mastantuono
CFO, ServiceNow

But we continue to see great results with respect to Pro adoption, which was our initial AI SKUs. We continue to see HRSD, which is our HR product, doing extremely well at 100% growth in the quarter. So really great strength, broad-based in the business. That's not to say that there's not some pockets that could be doing better, but really consistent execution across the board has been really remarkable, and I'm super proud of the entire team.

Michael Turrin
Managing Director, Equity Research Analyst, Software, Wells Fargo

As you should be.

Gina Mastantuono
CFO, ServiceNow

I am.

Michael Turrin
Managing Director, Equity Research Analyst, Software, Wells Fargo

Given that, puts and takes to consider for Q4. You've executed exceptionally well for a number of quarters now. There's been this kind of bias in customer behavior towards waiting in a lot of circumstances, and I wonder how that manifests this year. Just help us think through the puts and takes that could push you in either direction with Q4, and how you're managing towards those, if there are plays that you have in place this year, based on us having seen this for at least six quarters of this kind of similar crosswind dynamic.

Gina Mastantuono
CFO, ServiceNow

Yeah, I mean, what I'd say is I feel really good about our guide, right? I feel as strong about the guide today as I did when I gave it. You know, if I think about the plays, the Vancouver release and the new GenAI SKUs, getting a ton of excitement from our customers, and so we're leaning in pretty heavily there, as you would imagine. But across the board, I feel really good about the traction that we're seeing within IT, within customer, within employee, and creator. And so, you know, no specific change in plays, but what I can say is, you know, continuing to stay really close to that customer, understanding strategically what's important to them, what their priorities are, so we can have those conversations, making sure that we are laser-focused on ROI-

Michael Turrin
Managing Director, Equity Research Analyst, Software, Wells Fargo

Mm-hmm.

Gina Mastantuono
CFO, ServiceNow

- laser-focused on value creation and time to value, super important in this market. And so we'll just continue to run those same plays.

Michael Turrin
Managing Director, Equity Research Analyst, Software, Wells Fargo

Good. I wanna spend some time on Vancouver. You've touched on it a couple of times already.

Gina Mastantuono
CFO, ServiceNow

Yeah.

Michael Turrin
Managing Director, Equity Research Analyst, Software, Wells Fargo

Just, there were, was it four deals in the course of a day or a couple of days at the end of the quarter?

Gina Mastantuono
CFO, ServiceNow

A day and a half, I think, right?

Michael Turrin
Managing Director, Equity Research Analyst, Software, Wells Fargo

Yeah. So that's encouraging.

Gina Mastantuono
CFO, ServiceNow

Yep.

Michael Turrin
Managing Director, Equity Research Analyst, Software, Wells Fargo

Our conversations with CIOs around awareness of AI enablement from ServiceNow, there are encouraging.

Gina Mastantuono
CFO, ServiceNow

Yep.

Michael Turrin
Managing Director, Equity Research Analyst, Software, Wells Fargo

Anything you can add on early customer feedback, use cases that you think Vancouver is able to open up, or just where the sort of key opportunities lie from the release?

Gina Mastantuono
CFO, ServiceNow

Yeah, so super excited that we literally launched on September 29, Vancouver, and had 4 significant deals in the quarter on that last day. Now, obviously, we were working those deals throughout the quarter. But really excited. The customer interest and the customer understanding of the GenAI capabilities is pretty remarkable, given that they're only just released. And so if you think about what we're doing, we're being really targeted in virtual assistant, and how can we assist folks in getting the right information at the right time? How are we able to really help case summarization for the IT service folks or customer service folks? And we're continuing to iterate. So even though Vancouver was just launched September 29, we've already updated with more capabilities to help augment virtual assist, to really drive text to flow, and text to code.

And so we're excited about the applications, we're excited about the productivity that our customers are gonna be able to drive, and we've actually launched these SKUs internally over the last quarter and a half, and the productivity gains that we're seeing, we're really excited by as well. And so I think... I get the question often: Well, is the uptake to the Pro Plus SKU gonna be the same as your original Pro SKUs? And I say it's super early to-

Michael Turrin
Managing Director, Equity Research Analyst, Software, Wells Fargo

Yeah

Gina Mastantuono
CFO, ServiceNow

...to make that call. But if you think about the understanding about what the GenAI capabilities are, and AI in general, you know, in November of 2023 versus November of 2018, which is when we first launched in September of 2018, our Pro SKUs-

Michael Turrin
Managing Director, Equity Research Analyst, Software, Wells Fargo

Right

Gina Mastantuono
CFO, ServiceNow

... It's night and day, right? The excitement over it is night and day. The C-suite focus and the C-suite strategies around how AI is gonna help my business be bigger, better, faster, is pretty unique. So I'm really excited about potential upside, while it's super early days.

Michael Turrin
Managing Director, Equity Research Analyst, Software, Wells Fargo

Yes. Appreciating there are scenarios to consider with Excel modeling and where it shows up.

Gina Mastantuono
CFO, ServiceNow

Yeah.

Michael Turrin
Managing Director, Equity Research Analyst, Software, Wells Fargo

You mentioned some of the productivity gains you've seen internally. We've fielded a lot of questions. You've fielded a lot of questions just around the pricing, strategy, concerns around seats, and how you accommodate for productivity gains within your pricing strategy. So maybe you can help share where that-

Gina Mastantuono
CFO, ServiceNow

I'm really surprised you're asking me that question.

Michael Turrin
Managing Director, Equity Research Analyst, Software, Wells Fargo

I know.

Gina Mastantuono
CFO, ServiceNow

I canceled the outcome.

Michael Turrin
Managing Director, Equity Research Analyst, Software, Wells Fargo

I know. I know. I assume you have a fine-tuned answer by this point.

Gina Mastantuono
CFO, ServiceNow

A fine-tuned answer, for sure. So a couple things. So first of all, interestingly enough, when people upgrade to our Pro SKU, we actually see a 10% increase in seats because they understand and see the value, and they want more people to be using it.

Michael Turrin
Managing Director, Equity Research Analyst, Software, Wells Fargo

Yeah.

Gina Mastantuono
CFO, ServiceNow

Historically, even like throughout, you know, we're 4.5 years in, 40% penetration with the Pro SKUs, we continue to see actually seat increases.

Michael Turrin
Managing Director, Equity Research Analyst, Software, Wells Fargo

Yeah.

Gina Mastantuono
CFO, ServiceNow

So that's just first and foremost. Now, even if you don't assume seat increases, the productivity benefits that we've been seeing, and how we thought about the pricing. So I go back to... I'm a data person, right? So we launched Pro SKUs, we launched AI capabilities back in 2018. What did we do and what did we see? A couple things. So we saw productivity gains expected by the task that we expected the people using the products to be doing.

Michael Turrin
Managing Director, Equity Research Analyst, Software, Wells Fargo

Yeah.

Gina Mastantuono
CFO, ServiceNow

So we said very similarly, "Okay, what's the value expectation? We're gonna take a piece of it. We're gonna give the bulk of that value to customers." And when I say a piece, 10%, 90% goes to customers.

Michael Turrin
Managing Director, Equity Research Analyst, Software, Wells Fargo

Mm-hmm.

Gina Mastantuono
CFO, ServiceNow

We did that math back on the Pro SKU, and that was a 50% list price uplift. 4.5 years in, we have consistently, throughout that 4-year period, seen an average price uplift of 25% after enterprise volume discounts, which we're all familiar with. We did the exact same thing when thinking about pricing for the ProPlus SKUs.

Michael Turrin
Managing Director, Equity Research Analyst, Software, Wells Fargo

Mm.

Gina Mastantuono
CFO, ServiceNow

And so Pro, 50%, and then 25% price uplift. Generative AI, ProPlus SKUs. Are you surprised that we might see a little bit more value? I'm not.

Michael Turrin
Managing Director, Equity Research Analyst, Software, Wells Fargo

Not at all.

Gina Mastantuono
CFO, ServiceNow

Customers are not. Right. So the conversations we have with customers, "Okay, so the list price is gonna be 60%." We don't know what the actual price uplift will be.

Michael Turrin
Managing Director, Equity Research Analyst, Software, Wells Fargo

Yeah.

Gina Mastantuono
CFO, ServiceNow

I don't expect volume discounts to be more with GenAI.

Michael Turrin
Managing Director, Equity Research Analyst, Software, Wells Fargo

Sure.

Gina Mastantuono
CFO, ServiceNow

I'm not planning on less, but I can see a path where maybe it's less.

Michael Turrin
Managing Director, Equity Research Analyst, Software, Wells Fargo

Sure.

Gina Mastantuono
CFO, ServiceNow

And it's the same thing, 90% of the value is going to the customer. We're keeping 10% because of all the R&D investment that needed to go into producing it and to continue to evolve it. The customer conversations have been pretty straightforward when you kinda show them that math and talk them through it.

Michael Turrin
Managing Director, Equity Research Analyst, Software, Wells Fargo

Yeah.

Gina Mastantuono
CFO, ServiceNow

That's how we've been seeing it. We've been super transparent in how we've been thinking about it with customers, and so far, the excitement is palpable.

Michael Turrin
Managing Director, Equity Research Analyst, Software, Wells Fargo

Yeah.

Gina Mastantuono
CFO, ServiceNow

The interest is pretty significant, and we're excited. We're also really excited that we were able to actually get a SKU out and launched in September, when people just started talking about GenAI, not too-

Michael Turrin
Managing Director, Equity Research Analyst, Software, Wells Fargo

Mm

Gina Mastantuono
CFO, ServiceNow

... early, not too much earlier, and that's really because we've been investing in AI for years and years.

Michael Turrin
Managing Director, Equity Research Analyst, Software, Wells Fargo

Yeah, that's a great answer. I mean, I think... So I wanna just spend some time on the expansion profile because I think some of your metrics have been spoilsome, in that we've seen 125% expansion so many times that we take it for granted. I think another thing that's often lost is you said you still see seat growth in certain situations, and a lot of this is tied to the extensibility of the platform, right? And so you're unlocking new persona types often, and just I think investors tend to focus in on ITSM-

Gina Mastantuono
CFO, ServiceNow

Yeah

Michael Turrin
Managing Director, Equity Research Analyst, Software, Wells Fargo

... too tightly.

Gina Mastantuono
CFO, ServiceNow

Yeah

Michael Turrin
Managing Director, Equity Research Analyst, Software, Wells Fargo

... when some of these questions are framed, and so maybe you can just characterize the expansion opportunity. And one of the things that I'm thinking about is, I thought one of the most interesting slides that you presented at the Investor Day was the marquee customer slide.

Gina Mastantuono
CFO, ServiceNow

Mm-hmm.

Michael Turrin
Managing Director, Equity Research Analyst, Software, Wells Fargo

Right? That was simplistically, the top 200-ish customers are spending $3 billion in ACV currently, but there's a near 7x-

Gina Mastantuono
CFO, ServiceNow

Yep

Michael Turrin
Managing Director, Equity Research Analyst, Software, Wells Fargo

... uplift potential. So I would love to hear you talk more about the expansion opportunity that you see from customers, and particularly those marquee customers, and what that could drive for ServiceNow.

Gina Mastantuono
CFO, ServiceNow

Listen, I think that's it, it's unique, and I... Part of the success has been the incredible innovations that's come out of this company for years, and the product portfolio continues to grow. So I'll talk in a minute about expansion outside of IT, 'cause it's a huge opportunity, but there's still a lot of opportunity even within IT, right? We talk about Pro SKU, we talk about Pro Plus SKU. Then you talk about the newer pieces of our IT portfolio, risk, security, Hardware Asset Management-

Michael Turrin
Managing Director, Equity Research Analyst, Software, Wells Fargo

Okay

Gina Mastantuono
CFO, ServiceNow

... Software Asset.

Michael Turrin
Managing Director, Equity Research Analyst, Software, Wells Fargo

Yeah.

Gina Mastantuono
CFO, ServiceNow

Like, that continues to grow. So we, we've been able to continue to expand the total addressable market, even within IT, before you even talk about expansion opportunities outside of IT. And I got this question earlier in one of my investor meetings, and they're like: "How have you been successful?" Because it's different buying centers, right?

Michael Turrin
Managing Director, Equity Research Analyst, Software, Wells Fargo

Mm-hmm.

Gina Mastantuono
CFO, ServiceNow

And so the thing about expanding outside of IT into HR or customer service, even in Creator, right now, even if it's the chief people officer who's buying our HR product, they're not implementing by themselves. They're implementing with the IT org. And the IT org, maybe years ago, the people organization was trying to do it on their own and buying it on their own without input from IT, but gone are those days.

Michael Turrin
Managing Director, Equity Research Analyst, Software, Wells Fargo

Right.

Gina Mastantuono
CFO, ServiceNow

There's too much security risk and complexity in the IT stack that the CIO in that organization is involved in all of these conversations, and in fact, oftentimes is the one who's introducing us to the Chief People Officer or the buying persona outside of IT. And so that opportunity remains pretty remarkable because our penetration, even within our customer base, in those HR, customer, and creative work, workflows, is very small, even though we're doing so well. And so the opportunity is really large.

Michael Turrin
Managing Director, Equity Research Analyst, Software, Wells Fargo

Sure.

Gina Mastantuono
CFO, ServiceNow

And then you think about the, you know, ERP workflows and some newer areas that we've been investing in. Opens up that aperture for a total addressable market even further, and so lots of opportunity, even if you just looked at our marquee 250, which obviously is not all that we do.

Michael Turrin
Managing Director, Equity Research Analyst, Software, Wells Fargo

Yeah. Just, sort of coupled with this conversation, there's also been an admirable focus on organic revenue, growth from the company.

Gina Mastantuono
CFO, ServiceNow

Yep.

Michael Turrin
Managing Director, Equity Research Analyst, Software, Wells Fargo

Not lost on us as you're at this scale, and you're delivering the growth organically. Can you just talk about, as CFO, if that changes the hurdle rate of M&A consideration, given this extensibility and the attributes of organic growth that you appreciate, that investors should appreciate-

Gina Mastantuono
CFO, ServiceNow

Yeah

Michael Turrin
Managing Director, Equity Research Analyst, Software, Wells Fargo

... with the right context?

Gina Mastantuono
CFO, ServiceNow

I mean, of course, it changes the hurdle rates, right?

Michael Turrin
Managing Director, Equity Research Analyst, Software, Wells Fargo

Yeah.

Gina Mastantuono
CFO, ServiceNow

When you're able to be so successful, driving organic growth and organic innovation at, by the way, best-in-class margins, you know, it makes the hurdle rates for any M&A pretty high. We've been really successful in our strategy of buying, tuck-in talent and capabilities and really, you know, building them into our platform. Look at our acquisition of Element AI, which was, I think, the first that I greenlit when I joined as CFO. Without that talent, we would not be anywhere near where we are today in the whole conversation we just had about Vancouver and our AI capabilities, and so that has been the strategy. I think it has served us extremely well, and certainly, it means the hurdle rate on other type of M&A is higher. But listen, you—I know there's some bankers in the room here.

It's not like I'm not getting called all the time on looking at deals. What we have always been focused on-

Michael Turrin
Managing Director, Equity Research Analyst, Software, Wells Fargo

Yeah

Gina Mastantuono
CFO, ServiceNow

... first and foremost, is customer value.

Michael Turrin
Managing Director, Equity Research Analyst, Software, Wells Fargo

Yeah.

Gina Mastantuono
CFO, ServiceNow

Does one plus one equal two? Well, that doesn't make sense. Does one plus one equal three? Well, that could be interesting.

Michael Turrin
Managing Director, Equity Research Analyst, Software, Wells Fargo

Sure.

Gina Mastantuono
CFO, ServiceNow

How do we do it in a way that we're not layering on all the complexity from an acquisition onto the backs of our customers? That has always been kind of first and foremost how we think about it... as well as these high hurdle rates, and it needs to make sense from a customer value perspective, as well as a shareholder value perspective.

Michael Turrin
Managing Director, Equity Research Analyst, Software, Wells Fargo

It's a great answer. I think investors are well aligned there. In terms of customer growth, 7,700 customers is a substantial number, but at your revenue scale, it's not as substantial as some other software companies might be. You've had the advantage of focusing on enterprise, and we've talked about the marquee customers. There's still a huge opportunity there.

Gina Mastantuono
CFO, ServiceNow

Yep.

Michael Turrin
Managing Director, Equity Research Analyst, Software, Wells Fargo

We're seeing companies like Workday start to move down market towards what they call medium enterprise.

Gina Mastantuono
CFO, ServiceNow

Mm-hmm.

Michael Turrin
Managing Director, Equity Research Analyst, Software, Wells Fargo

And find good plays and competitive opportunities there. So how does ServiceNow weigh the trade-offs with continuing to go at the sort of extending the larger customer economic profile versus contemplating pressing your advantages-

Gina Mastantuono
CFO, ServiceNow

Yeah

Michael Turrin
Managing Director, Equity Research Analyst, Software, Wells Fargo

Further down market?

Gina Mastantuono
CFO, ServiceNow

Yeah. Well, we've always had a decent-sized commercial business, right? So when we talk about our opportunity set, and I think we've talked about 50,000 customers with $100 million in revenue and 1,000 or more employees, excluding China, because we're not in China-

Michael Turrin
Managing Director, Equity Research Analyst, Software, Wells Fargo

Sure

Gina Mastantuono
CFO, ServiceNow

... as kind of the field, right? And so that's where our platform really differentiates and where we really add value. And our commercial business, which is on the smaller side of that, so think $100 million, 1,000 employees, has been growing extremely well for us and doing very well, and we will continue to focus there. I get the question, are you gonna go down further? That is not where we're focused right now.

Michael Turrin
Managing Director, Equity Research Analyst, Software, Wells Fargo

Yeah

Gina Mastantuono
CFO, ServiceNow

... because there's so much opportunity. We talked about 7,800-50,000. I don't need to go down market further than that.

Michael Turrin
Managing Director, Equity Research Analyst, Software, Wells Fargo

Yeah.

Gina Mastantuono
CFO, ServiceNow

To be quite honest, our platform is made for the more complex workflows-

Michael Turrin
Managing Director, Equity Research Analyst, Software, Wells Fargo

Yep

Gina Mastantuono
CFO, ServiceNow

... that some of these small SMBs don't need to pay the higher price point for.

Michael Turrin
Managing Director, Equity Research Analyst, Software, Wells Fargo

Yeah. Okay. Switching gears to margin, another kind of spoils some attribute of the model. Like, I get the. I'm sure you've gotten discussions, how much margin expansion can there be when it's already this efficient? And this is kind of an unfair, like, what have you done for me lately, type of question. I think one of the underappreciated comments from the Analyst Day was around your ability to maintain free cash flow margins in a sort of a similar range, even into fiscal 25 with becoming a cash taxpayer.

Gina Mastantuono
CFO, ServiceNow

Yep.

Michael Turrin
Managing Director, Equity Research Analyst, Software, Wells Fargo

Can you just walk through the mechanics of what's enabling still free cash flow margin expansion, even as some of the sort of inputs are changing there?

Gina Mastantuono
CFO, ServiceNow

Well, I think it's the inherent leverage that you see in the model. So, 85% of our business, new business comes from existing customers, right? So from a sales and marketing, that gives you the ability to leverage. Now, we've offset some of that leverage over the past several years as we've been augmenting our sales force, as we go outside of IT and have more specialized sales force, and as we invest in public sector outside the US, for example, or new markets such as, you know, Japan and India, which aren't new to us, but we're investing at a higher rate because the opportunity and our penetration is still low and the opportunity is high. But there's inherent leverage that comes from sales and marketing. There's inherent leverage that comes from R&D, because we have this incredible platform.

So all of the investment in AI or RPA or process mining, all goes throughout the platform in, in its entirety, right? And so there's inherent leverage there. And by the way, we've also done a fairly good job about, you know, hiring in some best cost locations and not all in really high-cost locations as well. So that inherent leverage has... We invest some of it back, don't get me wrong, but we've been able to accrete margins, both operating and free cash flow, as a result of that, even when we start to become a cash taxpayer, next year.

Michael Turrin
Managing Director, Equity Research Analyst, Software, Wells Fargo

Okay. Flipping through your Investor Day slides in preparation for this, I think an area that doesn't get as much attention or focus as maybe it should is the ESG characteristics. And part of why I say that is because I'm flipping through your slides, and then Thanksgiving week is happening, and everyone's talking up in arms about governance, about a certain company and the board structure, and how could we not have seen this? So I wanna zoom out, and when you get to a certain scale, right, like, these things become important.

Gina Mastantuono
CFO, ServiceNow

Yeah.

Michael Turrin
Managing Director, Equity Research Analyst, Software, Wells Fargo

ESG, cultural considerations, those things-

Gina Mastantuono
CFO, ServiceNow

Yep

Michael Turrin
Managing Director, Equity Research Analyst, Software, Wells Fargo

Kinda keep you moving in a steady direction. So I'm gonna give you the opportunity to just expound on that for investors who maybe aren't asking as many questions there.

Gina Mastantuono
CFO, ServiceNow

Yeah. I think first and foremost, ESG governance has been core to who ServiceNow is since our inception. And our product set is actually really geared towards governance in a big way within IT and now outside of IT. And so, you know, we are a software company, so security and risk is a big part of who we are, and has been. And so, you know, we have an incredible board, very diverse, very inclusive, that really thinks about ESG in a very strategic way. But it's about the why, and it's about value, right? It's about the value creation. So we have customers who ESG is a big part of what they're doing. And so when they come to us with questions on their ESG for RFPs, like, we got to be able to say-

Michael Turrin
Managing Director, Equity Research Analyst, Software, Wells Fargo

Sure

Gina Mastantuono
CFO, ServiceNow

... we do this, we do that, because it's the right thing to do for business, not just the right thing to do for society. And so I, as the CFO-

Michael Turrin
Managing Director, Equity Research Analyst, Software, Wells Fargo

Yeah

Gina Mastantuono
CFO, ServiceNow

... really make sure that we, when we talk about it, we're connecting the dots, right? I wanna do what's right from a social perspective. I wanna—but I wanna do what's right also from a business perspective, right? And so the lens with which we drive ESG, and by the way, ESG from a strategy perspective, roles under my purview as CFO, which isn't always the case, has been really leaning towards the value creation, right? And what's the value that we can, we can create? So we build a product around it that we can sell, value creation. We talk to customers all the time who they have ESG goals that they have to hit-

Michael Turrin
Managing Director, Equity Research Analyst, Software, Wells Fargo

Yeah.

Gina Mastantuono
CFO, ServiceNow

Working with us helps them hit that, right? And so I like to think about ESG in a holistic way and not just piecemeal, because I think that's the right way to do it.

Michael Turrin
Managing Director, Equity Research Analyst, Software, Wells Fargo

Mm.

Gina Mastantuono
CFO, ServiceNow

I just think it's good for business, which is why it needs to be important at the C-suite.

Michael Turrin
Managing Director, Equity Research Analyst, Software, Wells Fargo

Yeah.

Gina Mastantuono
CFO, ServiceNow

The C-suite does care about it-

Michael Turrin
Managing Director, Equity Research Analyst, Software, Wells Fargo

Yeah

Gina Mastantuono
CFO, ServiceNow

in our customers.

Michael Turrin
Managing Director, Equity Research Analyst, Software, Wells Fargo

It's a good answer.

Gina Mastantuono
CFO, ServiceNow

As do most investors.

Michael Turrin
Managing Director, Equity Research Analyst, Software, Wells Fargo

So just time for a couple more. The time flies. We don't even have the sunny skies to look at. Everything we've talked about has been relatively optimistic, and the company has executed exceptionally well. But when you're having conversations, like, what are the things that executives worry about or the board level conversations? Like, what are the things that you're aiming to stay one step ahead of? Like, what are the things that you worry could go wrong that-

Gina Mastantuono
CFO, ServiceNow

Yeah

Michael Turrin
Managing Director, Equity Research Analyst, Software, Wells Fargo

We should just introduce into what's been a very upbeat conversation to the right?

Gina Mastantuono
CFO, ServiceNow

Yeah. Yeah. Listen, as a CFO, I'm trying to look not out, not out at next quarter, as you all would like me to only, but I'm looking at, you know, two, three, five years down the road.

Michael Turrin
Managing Director, Equity Research Analyst, Software, Wells Fargo

Mm.

Gina Mastantuono
CFO, ServiceNow

What are those growth shoots that we need to be investing in today, right? I need to be a CFO that's okay with investing for the future and not all about the bottom line. Those are the conversations that we're having with customers. They wanna make sure that they are thinking ahead so that they are very well equipped for what's coming down the pike in three and five and 10 years. So one of the things that I'm super focused on is – and most people are – is talent, right? A little bit different today than maybe a year and a half ago, but, you know, I get the question all the time, you know: "Is GenAI gonna drive these huge headcount reductions?

Michael Turrin
Managing Director, Equity Research Analyst, Software, Wells Fargo

Mm-hmm.

Gina Mastantuono
CFO, ServiceNow

- and what does that mean?" I'm like: "Guys, a year and a half ago, you were worried about the talent shortages, right? That we were all going to be experiencing." Well, maybe now the talent shortages gets cut in half because GenAI means that you need less people in the future. It doesn't mean that you have to cut them all today.

Michael Turrin
Managing Director, Equity Research Analyst, Software, Wells Fargo

Yeah.

Gina Mastantuono
CFO, ServiceNow

Right? And so, talent strategy is something I, you know, I talk of, everyone's like the CEO. I'm, I spend as much time with my Chief People Officer as I do with my Chief Revenue Officer.

Michael Turrin
Managing Director, Equity Research Analyst, Software, Wells Fargo

Mm.

Gina Mastantuono
CFO, ServiceNow

Because I got to think about what talent do we need to make sure that we're able to hit these growth plans that I have in place, right? So that relationship is more important than ever. So talent is something that I'm always super focused on, and obviously, the uncertainty that we find ourselves, right? Geopolitical, economic stuff. You know, how do we, how do we just stay a little bit ahead to, to maybe foresee, so that you can plan and be really nimble? You know, I'm, I'm super proud of the fact that we didn't have to do any layoffs in this environment because we stopped hiring. Not stopped, we, we, we reduced our pace of hiring pretty early on, which allowed us to not have to do these layoffs.

So, how can we continue to stay a little bit ahead and moderate and be able to pivot really fast?

Michael Turrin
Managing Director, Equity Research Analyst, Software, Wells Fargo

Yeah

Gina Mastantuono
CFO, ServiceNow

... so that you're not in a situation like that? So that's kinda... It's not doom and gloom, but you're always thinking about-

Michael Turrin
Managing Director, Equity Research Analyst, Software, Wells Fargo

Yeah

Gina Mastantuono
CFO, ServiceNow

Not the worst, but you're thinking about what could happen.

Michael Turrin
Managing Director, Equity Research Analyst, Software, Wells Fargo

Yeah.

Gina Mastantuono
CFO, ServiceNow

Scenario planning, so that you can really pivot very, very quickly.

Michael Turrin
Managing Director, Equity Research Analyst, Software, Wells Fargo

Mm.

Gina Mastantuono
CFO, ServiceNow

And I think as CFOs, it's just really important to be able to do that.

Michael Turrin
Managing Director, Equity Research Analyst, Software, Wells Fargo

Yeah. It's a really good comprehensive view into your thought process. So the last question that I have is just around kind of things that we should be looking at as swing factors over the next three years. Like, things, trends that could go favorably for ServiceNow. We've talked about AI a lot, so maybe a large part of the conversation is focused on there, but we're having this conversation in a few years, and ServiceNow is reaching other milestones. Like, what are the kind of the critical points of focus now that can enable that?

Gina Mastantuono
CFO, ServiceNow

Yeah. I won't talk GenAI again, 'cause I think we have.

Michael Turrin
Managing Director, Equity Research Analyst, Software, Wells Fargo

Yeah.

Gina Mastantuono
CFO, ServiceNow

But obviously, GenAI, I think our investment in our ERP workflows is super interesting, and the ability to innovate around that core ERP, we've done it successfully with HR, we've done it successfully with customer. You know, we're really excited about our procurement and AP tools and how we can do the same thing and really elevate the employee experience, and the system of action without creating a whole lot of risk on that core ERP, I think is super interesting, and we're getting a lot of interest from customers across the board, as well as our partners. So that's pretty interesting. And then, you know, continued innovation in our space, like, you know, HR and employee experience, there's more that we can continue to do.

The same thing with customer and creator. And the GenAI capabilities in Creator and the ability to, you know, text to code and text to flow. I was talking about this earlier. You know, I don't, because I'm afraid, but I could actually code-

Michael Turrin
Managing Director, Equity Research Analyst, Software, Wells Fargo

Yeah

Gina Mastantuono
CFO, ServiceNow

These applications. It really is that simple, and so that's pretty exciting.

Michael Turrin
Managing Director, Equity Research Analyst, Software, Wells Fargo

You've got a lot to be excited about. One of the best CFO roles in all of software.

Gina Mastantuono
CFO, ServiceNow

That's what I say, for sure.

Michael Turrin
Managing Director, Equity Research Analyst, Software, Wells Fargo

Thanks so much for spending time, Gina.

Gina Mastantuono
CFO, ServiceNow

Thanks so much.

Michael Turrin
Managing Director, Equity Research Analyst, Software, Wells Fargo

Really appreciate it.

Gina Mastantuono
CFO, ServiceNow

Great to be here.

Michael Turrin
Managing Director, Equity Research Analyst, Software, Wells Fargo

Thank you for joining.

Gina Mastantuono
CFO, ServiceNow

Thank you. Thank you.

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