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Welcome back, everybody. You guys know me, I'm Brad Zelnick with the software team here at Deutsche Bank. Thank you once again for being with us here at the twenty twenty-four tech conference in this amazing venue. For this session, really, truly delighted to be joined by Gina Mastantuono, Chief Financial Officer of ServiceNow. Format of this presentation, it's gonna be a fireside chat. Got a number of prepared questions that we're gonna go through, and hopefully, we're gonna come away a lot smarter and even more excited about ServiceNow.
Hopefully.
Gina, welcome.
Thank you so much. Great to be here. Thank you all for being here.
Excellent. Maybe just to kick it right off, ServiceNow has shown impressive, durable growth at scale, particularly when many other software companies are, you know, showing more susceptibility to the environment that we're in, which is clearly very tough. What is it about the opportunities in front of ServiceNow, how does the company, you know, that enables the company to execute and maintain 20% post growth?
Yeah, I think it's a few things. So first of all, our focus, our customer obsession shines through every single day. And that starts with innovation and ends with not closing a deal, but getting customers to value as quickly as possible. And so, you know, innovation is the bellwether of who we are, and I think ServiceNow, with our intelligent platform that really drives business transformation, is purpose-built for the moment that we're talking about, right? And that we're in. And I know at some point we'll talk about GenAI, so I'm not gonna jump the gun here.
But at the end of the day, the fact that we have this one beautiful platform that sits on top of any system of record across the enterprise, and we've been really purposeful in where we take the innovation, right? So we started in IT, and I love the story, and if any one of you have ever heard Fred Luddy talk, he talked about this platform from the get-go, that it was a platform, and he went to sell it, and the customer was like: "I don't understand what a platform is," right? "Give me a use case." Well, he was an IT developer, so he gave the IT developer a use case, and it was about how can he help his colleagues be better, faster, stronger in their job, right? And so built that use case out so strongly.
But then, when we brought in the portfolio, it was not because Fred and the engineering team said, "Oh, I think this would be interesting." It's because the customers were telling them, "Oh, we're using it. We're using it here. This would be just as amazing if you did it for HR, if you actually not only could do help desk, but if you could actually see what's going on in the operations of IT." So ITOM was born, right? And so really thinking about the product portfolio from the lens of the customer, I think, has always been part of our DNA. And so we've talked always, Brad, and you know this from Analyst Day and Investor Day, we've talked about the path to our profitability.
So 85% of our new business comes from existing customers, and we have a cohort, you know, over 10 years old, that's still growing at 20%. And why is that? It's because the plethora of products baked on and built on this one platform just helps really drive that flywheel of customer value. And it's really about getting customers to value quickly. So in this macro economy where, you know, quite frankly, it's a little bit more challenging because everyone is scrutinizing every last dollar, that quick time to value, the fact that it doesn't take 3 years to get implemented and see value on ServiceNow, in some cases, it can take 90 days, that's a really compelling value prop. And you're seeing it more and more with platform consolidation across the board, right?
A few years back, it was like point solution proliferation, application proliferation. Well, what does that cause? A lot of complexity, added cost to maintain, and then the risk from cyber. And so there's a lot of kind of factors kind of all coming together at the same time that I think is really positioning ServiceNow so broadly to continue to execute despite a challenging macro.
That's really helpful context, and the E word, execution, is critical, and you guys have clearly been doing a phenomenal job.
Hands down, we have the most incredible innovation engineers in the world, as well as our go-to-market, right? The execution quarter after quarter, despite the challenges in the macro, is testament to our incredible products, and it's testament to our incredible go-to-market that spends time really understanding what the customers are dealing with, what their issues are, how we can help them drive value. So, I always take the opportunity whenever I can to thank all of them.
It's not without a lot of incredible people, right? One of the things that's always impressed us about ServiceNow is the depth of the leadership bench, whether through hearing from people like Pablo, you know, in IT Workflows at our last conference, or alongside John Ball, Terence Cheshire, at Analyst Day back in May.
Yep.
Can you talk about how the company develops leadership in a way that makes it easier for people like Chris Bedi to step in, into what admittedly feels like large shoes with the departure of CJ Desai?
Absolutely. And CJ did have large shoes, right? And so I wanna be clear, like, there's no one saying anything different. The amazing thing, and one of the things that ServiceNow is always focused on, is leadership development. We're very focused on what we call the four E's, right? Education, experience, exposure, expectations, right? And so I've never been in a company where the leaders are spending so much time with customers, right? And so Chris Bedi, he was CIO for years and years. The interesting thing about ServiceNow is that we are also customer zero for all of our product introductions, all of our innovation. And so Chris, in his role as CIO, was implementing and very, very close with our product organization, making sure it worked for us.
Oh, and by the way, then he's talking to all the customers about the value we're seeing internally and how we can help them externally, so all of that exposure experience in areas that, quite frankly, most CIOs probably wouldn't get a chance to be exposed to, it helps raise the bench, and that's everyone. I've never met with more customers in my career than I do at ServiceNow. I'm actually leaving this conference to go meet with one right after, 5 P.M. meeting. Because that's what it takes to really understand the value of this platform, and so being with customers and hearing firsthand what it's all about, I think, is one of the differentiators and how we really grow talent.
It's about identifying hypos really early on and making sure that you're investing in them every single day, making sure that they are not just getting exposure and experience in their little domains, but how can they broaden outside, right? Leadership in today's world is so much different than leadership ten and twenty years ago. You can't just be a subject matter expert anymore. You really need to be an enterprise leader. What better way to get that enterprise leadership experience than spending a lot of time with customers?
Yeah, it's very clear that you have a strong operating system for talent and cultivating talent, and a lot of it inside the company. But I also think it stems from culture, which you've only been at ServiceNow as long as Bill has been at ServiceNow, and I am-
Five years, though.
You know, I'm a massive Bill fan.
It's five years. Can you believe that?
It's five years-
Five years
- and I think it flows down from the top.
It absolutely does. That passion for development of people and talent is something that obviously comes from the top. Bill is so passionate about that. It's one of the reasons why I wanted to come to work for him, because it's something that I'm super passionate about as well, as is all the exec leadership team. Clearly, CJ as well. We have a very strong bench of talent. So Chris is there to kind of lead interim. He has a strong relationship with that product org because of the years and years he's been with us. But then CJ has an incredible bench below him. So you named a few before. Pablo Stern, he runs our Technology Workflows, six-billion-dollar, has been with the company for years. There's no one more knowledgeable about our platform than Pablo.
Pat Casey, our Chief Technology Officer, he was employee number seven in the company. No one more knowledgeable about literally everything that goes on in that platform. You have Sigler, you know, twenty-five years, Apple and Salesforce, and Microsoft. You've got Amy Lokey, who's our Chief Experience Officer, you know, twenty-five years plus at Google, LinkedIn. Just incredible talent. And there's more. John Ball, who was at Salesforce for years, he runs our customer operations. So just from top to bottom-
Great
- it's. It has to be part of the culture, or else we wouldn't be as seamless as we are when you have changes, which are always inevitable.
What was Bill's comment years ago? We're only hiring A's or tens, no, no B's, C-
Tens.
Tens.
Tens, tens. And listen, A players only wanna come work for A players-
Yeah
-s o you gotta, you gotta up that game.
Just following on that question, since it's been very topical post Q2, does anything change in terms of cadence of the business, pipeline, forecast coverage? Anything that changes your confidence with the departures we've talked about, especially as we think about the U.S. federal vertical?
No.
Okay.
I'll talk more, but, like, flat out, no. Because we are... Listen, we're a twenty-five thousand employee company with robust processes. Was CJ meeting with a lot of customers? Absolutely. Was he alone in those meetings? No. Right. Chris Bedi, by the way, tag-teamed almost half of them. So the knowledge base exists not just with one person, right? The processes for forecasting are very heavily go-to-market led, and that is under Paul Smith, our Chief Commercial Officer, very specifically with our federal business. Steve Walters has been with the company over four years, has owned the U.S. public sector P&L from top to bottom for those four years. And so, there's nothing that makes me think anything different about the success of that business going forward, nor about our processes on how we forecast, how we close deals, how we think about pipeline.
We've talked about the fact that pipeline remains robust. We had our incredible Knowledge event back in Las Vegas in May, which I know you were there, Brad. 60% increase in pipeline generated from that event. And not only that, we've increased our processes on follow-up. Like, so it's great to build the pipeline, how are we following up and executing against it? And so, you know, pipeline maturity looks good, coverage rates look good, and so I'm as confident today as I was a month and a half ago.
Very comforting to hear. Thank you for that color, and I needed to ask that question. Maybe to move on, you'd mentioned the stat that's always been quite impressive, over 85% of net new ACV coming from the base. And I think I've asked you this over and over or in the past, but I'll ask you once again, you know, at some point, does that mix have to tilt more towards new customer, you know, where would those new customers come from, if so, and what might need to evolve in the business or economic model to go after them?
Yeah. A couple things. First of all, I love that 85% of my new business comes from existing customers. It shows you the runway for opportunity, right? We've talked about it at Investor Day. If you just looked at our 250 more top marquee customers, if you just took them, and you just looked at the opportunity, right, the TAM in our current innovations that we currently have, the pipeline that is there is, you know, upwards of $20 billion. It's huge. If you think about just our existing 250 top customers with our existing products, with our existing pricing. The opportunity, even within our existing customer base, remains very large. New customers are very important, right?
Now the thing is, with our scale, does 85% become, you know, 82 and 80, 20? That might happen, Brad. New customers are super important because those new customers today are going to be the existing of tomorrow. So we've been really focused on continuing to increase the pace of which we're getting our new logos. Huge area of focus for us. We've seen really great progress in the last, you know, 18 months. Let's be clear, it's always easier to sell to an existing customer, right? Because they see the value, they know the value of the platform. So how do we compensate? How do we get the sales force focused on spending time on those longer deal cycles and harder deals? We've been changing comp structures, changing plans.
We have people that are solely focused now on new logos because they are extremely important. But let's not forget, as I said earlier, the stat, that even our cohort of customers who started with us a decade ago, they're still growing at 20% today. So it's, and by the way, when they grow at 20% off a higher base, it's hard to get that 85% number down, even if we're having great success with new logos. So I don't look at the percentage, I look at the number of new customers. We're 8,000 strong. If you just take customers with 1,000 employees or more, $100 million in revenue or more, it's 50,000. That is, like, the opportunity in front of us. So even with new logos, there's plenty of opportunity.
Thank you for that. Makes sense.
Yeah.
Gina, something that I've heard from you guys consistently, but one of your top partners, Accenture Practice Head, global firm that you know very well, you know, referred to ServiceNow as an and solution versus an or solution.
Mm-hmm.
In terms of the complementarity, it's. And I think it's Bill, who's phrased it well to say, "In order for us to win, it's not like somebody else necessarily has to lose." Does that change in the world of generative AI, particularly with large front and back office software providers, you know, aligning strategic partnerships? Everybody out there in the world is going after this opportunity.
Yeah.
But, curious to hear your thoughts on how that might change or evolve.
So we've been really clear, right? No one has to lose for us to win. And I think one of the reasons why we continue to be successful is that we're not going in and saying, "You have to rip out this platform or that platform, and you have to take out, you know, hundreds of millions, and sometimes billions of dollars of investment to put us in." No, no, no. We are able to make your investment in those solutions even more effective by being that single pane of glass that sits on top and can connect and integrate with all of those systems, and drive real-time actions, insights in a much prettier UX in certain ways. So listen, I work in a Workday shop. I have Workday as my HCM, but I sit on top of that.
I, as a CFO, and most of my employees, don't really go into Workday except for HR. They're sitting on the ServiceNow platform. They're doing everything they need to do on mobile, on their phone, in the ServiceNow platform. That's fantastic. Now, by the way, it's that same platform that can go cross-enterprise, that if you're a person in legal, they're doing their work in the platform. If you're a person in customer service, same platform. So imagine that experience on that top layer, really driving that much cleaner set of user experience, hiding all the complexity, right, and sitting on top. That doesn't change in an AI world. In fact, I think it becomes more relevant because AI is really important. I truly believe it's gonna change. And it's been how many minutes?
I think it's like twenty, eighteen minutes before we actually talked about AI. That's really a record, but in that world, the ability to get the data from the disparate systems that don't interconnect to each other at all, but then can have the data all sitting on top and using that data and driving the action from that data, I think it becomes more relevant than ever.
It makes sense. You know, Gina, as I come away from Analyst Day, the new use cases that we saw around Sales and Order Management, really stood out to us as you move into the front office.
Mm-hmm.
Can you talk more about the opportunity there? What might we see next in terms of addressing front office use cases?
Yeah. So very similar to how we talked about going out of IT and into adjacencies, customer, HR, it's where the customers kind of were pulling us, right? And so, you know, where our customers are pulling us are to do a little bit more in the front office for sure. Sales and order management is a great example of where we are leaning in, where customers are taking us. So where it makes sense, where we're already doing a lot in the back and middle office, again, using the same platform, the same consistency to help drive much more engagement and productivity and efficiency at the front office is where you'll continue to see us play. And so sales and order management is a great example. We've had a couple of customers already leaning in.
Boomi is one, where they're replacing their CRM and order management CPQ with ServiceNow, really excited about it. Another large multinational in Japan doing the same thing, and so I think that, again, as you think about this changing landscape that AI is going to become for technology, and I truly believe every workflow in every company, in every industry, is going to be really transformed with AI at the forefront. Doing that all in one platform, where you have all the data and you can connect it to anything you want, I think is a real differentiator, and by the way, it's secure data, right? We're not. If the customer wants to pull it out and put it somewhere else, it's great, but we're not taking customers' data and doing anything with it. It's staying within their instance.
And so that's also been a pretty strong, compelling value prop for our customers.
I was savoring my AI questions for last.
I know.
But it's so exciting, it's hard not to talk about.
Yeah.
And you're so well-positioned for it. Maybe just with the, you know, with the platform as expansive and extensible as it is, you've got many directions you can invest in-
Mm-hmm.
And there's so many markets to go after. How do you think about prioritizing where to go next, and particularly as GenAI investments, you know, seem to be of such a high priority for customers as well?
Well, one of the benefits to the one platform is that all of the investments that we do into capabilities on that platform, whether it's machine learning, GenAI, it goes platform-wide. So I don't have to pick, "I'm gonna invest AI into HR or customer." I'm investing in AI, and it's going cross-platform. And so that ability to drive efficiency, productivity, and shifts in how people are working across the enterprise can be. It's ubiquitous across the product portfolio, which is fantastic. Secondarily, when you think about opportunities just for other investments in the space, how we think about that internally, it's a couple of things. So it's number one, where are customers asking for us to play? What's the addressable market? Do we have a right to play in that space? And how strong and great is that opportunity?
Because you're exactly right. Because we are such a broad portfolio, there are many different areas that we can go tackle first. I think about it from an ROI perspective. I think about it from a, "What's gonna drive the greatest growth? Not tomorrow, but in three, five, and ten years.
Got it. I wanna zoom out for a second, go back to macro, where we started, and why ServiceNow, and why ServiceNow is really performing, you know, differently than many others out there, and more durably. And I know we said it comes down to execution. I know we said it comes down to the platform and all the advantage that that creates.
Mm-hmm.
But I guess a question I have: any more color you can share in terms of what you're seeing out there, as others are struggling, and you guys seem to be doing far better? And is it reasonable to think that you might even be growing perhaps in the higher 20% range if macro were more cooperative?
It's a great question. What I would say is the macro has not, and I've been pretty consistent with this answer.
The message has been-
All, all year. The macro has not shifted significantly in either direction. I don't think it's getting any better. It's not getting any worse. I think what's happened this year versus last year is I think people are more comfortable operating in the uncertainty, right? And they like, "Okay, we gotta invest. We gotta, we gotta plan for the future." But that rigor around where they're spending money is absolutely still in play, right? And so deal cycles remain longer than they were in 2021, and historically. There's a real focus on ROI. There always was, but it's even more, and as deal sizes get bigger, there's just more scrutiny on spend, and that's a fact, and that hasn't. I haven't seen that shift or change.
One of the things that I think helps us is that, as I said, we stay really close to the customer. We understand who's in the approval process, what that timing is. You know, also helping my teams, like a lot of times now, CFOs are in the mix, approving. Well, what's important to a CFO? How can I get the sponsor and my customer when I say I meet with customers more? Like, how can I get the sponsor and the customer talking the right language to get the CFO to understand the value, right? So how can I help? You know, we're doing that all the time. We're spending time with customers, really understanding the value prop, understanding the process. So I think that's part of the differential.
Then I'll go back to what I said earlier: time to value. It's a very different conversation when you can say, "We can get people live in ninety days, you know, a hundred and twenty days.
Mm-hmm.
You're gonna start seeing value. It'll take a year or more to get all the value, but you're gonna start seeing value pretty immediately. How do we make sure that we're really focused on getting those customers to value also after we sell the deal, right? Our salespeople don't leave the room once the deal is done. How do we make sure that they're really focused on getting them to implementation and getting them to value much faster?
T hat resonates well, maybe even a little bit more into generative AI, particularly.
Yeah.
You know, when we talk to CIOs and partners, we hear a lot of themes, too. In particular, I wanna bounce off you as it relates to GenAI solution and-
Sure.
You know, implementation, proof of concept, adoption.
Yep.
One is that it's been hard to get customers to commit to spend offsets, you know, and the savings to justify the ROI case and the upfront investment around generative AI. And then number two, that many management teams and boards are just inundated by different messages out there, many different vendors claiming that they, you know, that they've got the Holy Grail in a way that actually slows things down.
All true
A nd creates some paralysis.
Yep.
How has ServiceNow been able to cut through and get past those upfront investment hurdles and ROI sensitivity, and how do you cut through all the gen AI noise?
So all of that is very true, right? And not surprising. It's a big new technology advancement that most people a year and a half ago just didn't understand. And the other thing that we get is: Is this a bubble, right? That must be another comment. Is this a bubble? Gen-
Is it a bubble, or how big of a bubble?
It's big, guys. Like, this is gonna change the way... And first of all, I'm not in the consumer space. I'm gonna talk consumer. But con- it's gonna change the way we do business, we interact with each other at work. It's gonna change how, you know, consumer businesses are operating as well. But we're at super early days. It's the same conversations that we had when cloud came in, right? Like, it took a while, and now the people who haven't moved to cloud, they're, like, scrambling like never before-
Right
-ri ght, to move to cloud. So it's not a bubble. Now, is there a bubble right now on spend? Maybe, but this is something that's going to be long term, right? And so we've gotta think about what does that mean. What does it mean when I say that every workflow in every industry is gonna shift because of AI, you know? I talk about... I love this example because it's I think it resonates really passionate with me. If you think about a pharmaceutical company, I might have said this to you already, but I love this example. Pharmaceutical companies, average time to get a product to market, right? So medicine in the hands of patients, 6.6 years on average. Why is that? Oh, my gosh.
Patients are dropping out. There's so much manual workload. AI can help that so much. Think about answering patients' questions. They drop out 'cause they can't get their questions answered, 'cause the doctors and the researchers are so busy. Get the answers, get the questions answered faster, get the paperwork out of manual, automated. If you can just shift six point six to five point six, it's billions of dollars of top line for the pharmaceutical company. It's tons of dollars to the bottom line, 'cause not only is the top line higher, but you're saving so much, and then it's billions of lives saved, billions of lives lived better. Like, that's where AI is going. If you think about... That's just within the enterprise, of fixing problems that are so manual, so complex.
So when I think about, you know, how do we tell that story? First of all, we've been investing in AI for years and years and years. One of the first acquisitions that I greenlit with CJ back in 2020 when I came, was Element AI, where we brought incredible AI talent, some of the best in the world. They've been working on this. So when ChatGPT came out, it was like this big thing. We'd already been working in the background, right? And so we actually have products in market from September of last year. And by the way, before that, we were POC-ing with, with customers on this. And so the fact that it's really enabling that quick time to value, and yes, people are not gonna get, you know, hundreds of millions of dollars tomorrow.
But if they really think about where they're gonna lean in, and you're right, some of it is taking a little bit of time, 'cause there is a lot of noise, and everyone's saying a lot. But if you think about what's happening already with platform consolidation and working with trusted platforms that have been innovating in this space forever, you know, I think you're gonna see real value add. And it's not just about cost savings and productivity, which is what everyone is talking about right now, which is very true and valid. You know, we have over 10 use cases piloting in ServiceNow already, and it's driving about $10 million in annualized savings to date. It's inning zero, right? So just imagine what that means going forward.
I think it helps that we're customer zero in everything we do, so we have real metrics to show, real value add to show. And I think hopefully the noise will kind of calm down, but people and companies like ServiceNow, who are continuing to innovate and lean in, and I think really helping customers solve their most pressing issues, is what's gonna really change how we run in the enterprise.
It seems very real, very powerful. ServiceNow is demonstrating it, and these last two days, we've heard from other luminaries right here on this stage. It seems pretty clear. But to the old adage of overestimating what can happen in a year, underestimating the decade-
Exactly
- it seems that's exactly where we are.
Again, why would this be any different than any of the other technological advances we've seen in the last 10 and 20 years? So-
Sure.
I think that's exactly right.
I wanna go back to something that you had actually said on the last earnings call about arming partners with the tools to sell Now Assist.
Yep.
Can you give more color on the work here? How long does it take before partners are effectively out there creating demand, and how much can it accelerate adoption? Like, where are we on that curve?
Yeah, yeah. So very similarly to all new product launches, we're heavily direct initially.
Sure.
Right? It's about getting customers to value quicker, flywheel, how do we then use those stories and references to get the partners excited, get them engaged, get them enabled? And so, you know, a lot. We said that on the earnings call, and I think it was in reference to a question, because some partner checks were saying that it wasn't going as well as they might have thought, and that was not the case. But at the end of the day, there's many partners that are already driving demand.
You know, I had, we had a global leaders meeting back in July, and I had someone on the stage talking about, and she was a big partner, one of our largest, and she's like: "Not only do I..." And she named, she named names of four or five customers where they were driving Now Assist at the customer level. But she's like: "I'm launching it for my hundred plus, hundred-plus thousand employee base as we speak." And so it depends on the size of the partner, how quickly they're gonna be able to be enabled, but they're already doing it. But as in all product launches, to get the ecosystem fully up and running, it takes a little while, right?
End of the year into 2025, we'll be in a really good cadence with the bulk of our partner ecosystem.
Good to hear. With respect to time, there's so many things to cover, and we're not gonna get to them all, but one that I'll touch on, an impressive stat I think that may have flown a little bit under the radar from the earnings call.
Yep
I s that Pro Plus deals are seeing roughly three X average deal size versus a comparable upgrade from Pro.
Yeah.
Can you talk about what's driving that increase?
It's larger deals, right? It's larger customers leaning in. So I think going back to your comment before on a noise that some customers are a little bit in analysis paralysis about where to go, the bigger customers know they gotta go fast, right? They're worried about not tomorrow, they're worried about three, five years. If they don't get on this AI bandwagon quickly, like, and their competition is, are they gonna be left behind, right? And so big customers are leaning in pretty heavily. I think what's also interesting about that stat, if you go back to Pro, you know, Pro was about a 25% pricing uplift, but it also saw seat expansion. So usually when people went to Pro, it was not only increase in price, but it was also seat expansion, which drove the deal sizes.
We're not seeing seat expansion yet, it's just pricing. So that's showing you that it is larger deals that are really driving, and it's people leaning in, bigger customers, and then the smaller customers going more broadly, right? They don't wanna start small, they wanna start big.
Awesome. Gina, we're just about out of time. Any final thoughts? Anything you wanna leave us with?
I would just say, you know, I get the question a lot, "Is AI real?" It's real. It's here. We are in very early innings, and exactly what you said, we tend to overestimate what we can do in a year and underestimate what we're gonna do in ten, and I think that ServiceNow is perfectly positioned for this moment. We are the platform that sits on top to drive system of action, and AI is only as good as the platform it's built on and what it can do for you. So it's great if it can deflect, it's great if it can, you know, answer questions. It's incredible if it drives action and actually resolves the more complex issues that are, you know, the bane of everything we do every day at work.
That is a perfect point to end on.
Awesome.
With that, Gina, always fantastic to talk to you.
Thank you so much. Likewise.
Thank you so much for joining us.
Thank you for having me. Thanks, everyone.
For DB.com.