Thanks for joining day two of Citi's TMT conference. I'm Tyler Radke, Citi's Co-Head of U.S. Software. We got a packed room, probably standing room only at this point. Really excited to kick off the discussion with ServiceNow. We have Gina Mastantuono, the President and CFO of ServiceNow. Gina, thank you for coming to the Citi Tech Conference once again. I know we were just catching up. You've been busy on the road, meeting with customers, partners, obviously investors as well today. Maybe just give us a sense, what are your conversations like with customers as you're meeting with them? How would you compare the level of enthusiasm, all the dynamics that go into their conversations with ServiceNow versus three months, six months ago?
Thanks for the question. Thanks for having me. Love being here, back in New York in September. It's perfect. Number one, conversations with customers are just fantastic. It's one of my favorite parts of the job, as you can imagine. We're so focused on helping customers really drive value in this agentic AI world that we find ourselves in. What I'd say is that AI is just top of mind for everyone, right? What it means for these companies, not only from a productivity perspective, but from a business model innovation perspective. I think that a lot of people focus right now, and it's not surprising, immediately on the productivity and efficiency gains that can come from AI. Even more importantly sometimes, or certainly as important, is the business model innovation that they can really drive.
How can AI really help them drive not only incredible productivity and efficiency, but top-line growth. One of the things that has been a huge focus over the last several years, and we got this comment so much from customers when we would ask, "What's the biggest obstacle to large-scale deployment of AI?" Uniformly across the board over the last several years, it's all been about security and risk.
How do we really make sure that if we scale deploy these assets, that we're able to manage them, govern them, and secure them. We've been super focused on how do we help customers think about that, and how do we help customers solve that problem. One of the reasons why we have had incredible success now with our AI Control Tower, and the ability for our customers to really manage end-to-end across their tech estate any assets, whether it's an AI asset, whether it's an OT, IT asset, and really manage it, secure it, in one spot, in one place. By the way, this is for any agentic capability, whether it's ServiceNow's agentic platform or it's a third-party agentic platform, or it's agents that are homegrown.
The ability to manage it in one place end-to-end, the ability to really govern it, to make sure it's secure, to kill it if it's doing things it's not supposed to be doing. Kill switch is a big top-of-mind subject today. Then manage it from a cost perspective, right? You hear all of the articles about costs going through the roof and managing that. Well, you can manage it literally in the AI Control Tower, by department, by manager. You can shut it off if they're exceeding. You can override the shutoff if it's valid. You can optimize. Lots of people are looking at how to optimize spend. Do you really need the Rolls-Royce of models to do a task like driving to the 7-Eleven? No. But you might need the Rolls-Royce if those agents are building your products, right, that are going to touch your customers every day.
The ability to manage that and optimize that. Then in the same place, AI Control Tower, the ability to really see the ROI on each and every investment.
So that you can redeploy and make sure that you're focused on allocating capital that's driving the best return.
Yep
All in, AI first, how to manage it, how to control it, how to secure it. Really leaning into this conversation on AI Control Tower has just been the number one conversation across the board.
Okay. For investors that may not be as familiar with AI Control Tower, can you just give an overview? How does a customer buy it from ServiceNow? How does that translate into ACV growth for you?
Yeah. It's the same way they buy any other product from us, right? It's an area of focus. It's part of the product portfolio. They usually don't buy it in isolation. It's part of their strategy with AI and how to deploy it. We talk about really the value capture. It's an ability for customers to be able to really think about scaled deployment in a secure, governed way that's managed from a cost perspective, that's really enabling insights to ROI. At the same time, delivering incredible value to the organization.
Right. Got it. One of the dynamics we've seen on and off within software is just this issue of deal elongation, extended sales cycles. You were one of the first software companies to report and had very strong results. I think were a bit measured in your outlook. It sort of seems like we've seen a little bit of an attenuation in this SaaSpocalypse concern, at least up until Labor Day. As you're speaking to customers, is there still this sense of hesitation or AI distraction that we had at the beginning of the year, or has that kind of moved away, especially now that you're obviously leading with a lot of really interesting AI products?
Yeah. Listen, I think there's been a ton of noise in the market, right? What customers six months ago were dealing with was everyone saying the same thing. It's interesting to be first in the market when we announce, when we do a lot of things, because everyone's like, "Oh, that's interesting." Then literally a minute later, you hear the same thing coming out of 20 other folks' mouths, literally word for word. There's a lot of noise in the market, or there was a lot of noise. How customers can break through that, there was lots of conversation on build versus buy. Fast-forward today, a lot of those conversations are much cleaner, right? I think the build versus buy and the understanding that the large language models aren't going to do it all and can't do it all.
We see announcement after announcement of partnership agreements, right, with software providers and the models. ServiceNow has always been very focused on openness. How do we integrate with any large language model, any hyperscaler, any application provider, any data warehouse, so our customers have the choice on how they want to evolve their tech stack? That has always been innate to ServiceNow and is, I think, helping us in this environment because customers really want to have choice and want to have the ability to change their minds sometimes, right? For a long time, folks were like, "Oh, we're going to go with this model provider because they're the best." Very, very quickly, open source is coming up to speed. Very quickly, the models are competing with each other and getting better and better.
The ability to morph the strategy somewhat, optimize, and then you have ServiceNow that allows you to do that pretty easily and more broadly, I think has been a real differentiator in the space. At the end of the day, I think there is still noise in the market. You continue to see ServiceNow execute and perform extremely well. We've been very focused in our entire existence on value selling, and I think value today is as important as ever. The ability to POC really quickly and show customers how they can get to value very quickly enables you to cut through the noise pretty dramatically.
Yeah
Which is what we're seeing today.
Yeah. Back a few months ago at Knowledge, it doesn't feel like that long ago, but you announced some new product changes, different SKUs, and pricing packages. Can you just talk about that? It's come up a lot in our investor conversations and customer conversations. Just for folks in the room, what did you announce and what's been the feedback that you're hearing from customers?
So we announced some new native AI packaging and pricing. The real reason for that was, again, very focused on what customers were asking us and what customers wanted from us. Prior to the AI native pricing and packaging SKUs, in order for you to really get our incredible AI portfolio, you had to really go to the highest tier, which was our Pro Plus SKU, which now we're calling our Prime SKU. So that has the most Advanced AI capabilities, and that has not changed. We will continue to put the most Advanced capabilities in that family of packaging and pricing, and that pricing didn't change. What did change is that we launched these other tiers. So we have Foundation and we have Advanced, which allows customers, if you're not ready to really go all in on AI, but you want to get some AI capabilities.
It's about how do we get our customers to value with AI a lot quicker? If they're not ready for full-scale deployment, maybe they want to test the waters with some basic AI functionality. Well, that's our Foundation model. Then we have an Advanced, which is somewhere in the middle. Between Foundation and Advanced, the pricing uplift expectations were 20%-30%. With the most Advanced Prime SKU, again, that pricing didn't change, and we continue to see about 30% pricing uplifts. So what this enables customers to do is to really pick and choose the bundling of what's most important to them and what capabilities are most important dependent on where they are in their trajectory.
What we didn't do that I think was a little confusing to folks. Listen, there's always a little bit of noise when you have some pricing and packaging changes. But what we didn't do is we didn't raise like for like pricings on the base standard SKUs. If you don't want any AI, the price did not go up. But we certainly were encouraging customers to expand into our AI functionality, really because we see the value. The value capture is great even at a 20% price uplift. So that's really what we announced. The takeaway has been really great. We have more than 50 customers paying $1 million + for these new AI packages. We see continued growth, 45% increase in folks that never bought AI, buying AI for us in Q2. So, so far so good.
The pricing uplifts that we expected, we are seeing in actual realized pricing. So that's basically what we did.
Yeah. I wanted to spend some time on the product side, which is probably the most exciting thing that's going on. I know we don't have Amit here, but take us through some of the key announcements from Knowledge. To me, some of the ones that stood out was this vision for the L1, L2-
Yeah
the port agents, this theme we've been hearing throughout this conference of agentic labor, right? You talked about 30% uplift. This could be much larger than that. So walk us through the vision on agentifying the ServiceNow workforce and what are customers doing with those agents?
Yeah. It's extremely exciting, and if you think about automating, we have billions of workflows running through the ServiceNow platform every single year. If you agentify just a small fraction of that, the ability to drive real value for customers, and obviously a consumption flywheel is fantastic. We announced them early innings, but we're seeing incredible uptake. The City of Raleigh was the first municipal government to go live with our L1 IT specialist. By the way, they put it in place with no engineering backbone at all. Very limited. It went live pretty quickly. First touch, seeing 98% accuracy and driving 65% reduction in IT service desk costs.
That's one use case with one L1 specialist.
Real value add for the customers. Now what they are doing is they are going one ticket desk at a time, and they are agentifying the whole thing. That is one great example of where we really see incredible uptake value for customer, and then the flywheel of that consumption is going to really-
They buy more credits.
Exactly.
Yeah. Got it.
It kicks in.
Yeah.
We have another incredible energy company in Europe working with our FTEs. They looked to automate 500,000 IT service requests a year. That one use case is generating over $5 million in savings. That was just a POC that we did in 8 to 12 weeks. Now they're leaning in on us and saying, "What more can we do? What other use cases can we tackle with these specialists?" Very early days, but this is the dream of agentic, right? How do you really automate less touch, more accuracy, driving real value for customers? The more you automate, the more consumption is required, which means that the flywheel really starts to move.
Right.
Extremely exciting product offerings. While very early, very strong uptake so far.
Yeah. As you look at the customer base as well as the products that are coming out, how do you think about the timing of when that flywheel really starts to kick in, meaning customers are starting to buy these top-up credits-
Yeah
...en masse? Is that something that could happen this year? Is it more 2027, 2028? How do you just think about the timing of that?
I think it's important to understand, I've been trying to educate investors that even the initial subscription is consumption.
Right. Credits.
Because you get so much. By the way, initial subscription in that highest tier was a 30% price uplift. So we gave them a very good amount to be able to really drive innovation and use. But it's all consumption. What happens is if they don't necessarily top up on the assist packs on top, they renew early. Right? There's lots of actual consumption happening. What we saw in Q2 that I talked about is the actual usage. Right? How do you manage the usage was up 9x Q2 to Q1. The last thing I'll just say is that that consumption increase is actually trending better than initial expectations.
Okay.
It's in the number. It's the reason why we were able to increase our $1 billion target to 2026 to $1.5 billion.
Yeah.
We crossed $1 billion in Q2, well on our way to $1.5 billion.
Yeah.
The flywheel's already-
Right
...kicking in.
Right. Would you say that increase from $1 billion to $1.5 billion, a lot of that was consumption driven, either new customers buying consumption packets included with a subscription or top-ups?
Absolutely.
Yeah. Okay.
Sure.
Got it. I guess as you think about just your long-term targets, right, you basically said you are going to double the company by 2030. I think the AI ACV will be about 30% of the business by then. How do we get there? What are the things that need to go right, and how do you get maybe above 30%? What are the things that could take that even higher?
Surprising. That is like the biggest question I got all day today from all of the investors. I love it. You put a target out not two months ago, and everyone is like, "How can you get more than that?" Which is fantastic. I love that question. Because by the way, we are asking ourselves that every single day.
Sure.
A couple of things. Two very big assumptions in the $30 billion - $32 billion model. Number one is on penetration, customer base penetration for AI. The AI starter packs, the AI native pricing, getting more people, even in the base foundational, getting them used to working with AI, seeing the value that the base capabilities are giving you, it is going to drive even more penetration to the higher level SKUs. But that penetration rate and that number is a big part of the assumptions. What I will tell you is the assumptions that we put in there for even the $32 billion model is more conservative than the penetration that we saw from our base product to our Pro product when we first launched our base AI capabilities back in 2018. Penetration rates arguably should be faster in this world in 2026.
So far you're seeing that.
So far we're seeing that. But I wasn't getting a whole lot of credit back in May to be super overaggressive, so I wasn't. But that's a big area of focus, penetration. By the way, that AI-native packaging was a very big part of the strategy to really drive that penetration, even though to date we are ahead of those models. The second big piece is usage. How do we get more people using more agentic capabilities, driving more of that consumption flywheel? What does that look like in 2030 versus today? We had fairly conservative assumptions in there. Obviously, these L1 specialists are part of that. But if we're able to just agentify a fraction more than what's in the conservative model, there's a very clear path to something potentially even higher than $32 billion.
Right.
So that's kind of the AI piece of it.
Yeah.
Then we talked about security and risk, CRM, data and analytics, all growing in excess of 25% from a CAGR perspective over that timeframe, and you'll continue to see us invest there.
Yeah.
CRM, we just announced a small acquisition, very small tuck-in of agentic capabilities to easily deploy CRM in new customers. If you are able to take down implementation time in CRM from on average 12 to 18 months to 3 to 6 months, well, that drives huge value for customers, and it is a competitive differentiation. You will see us continue to lean in on CRM, security, and risk.
Yeah.
I talked earlier about, again, customers' perspective on the most important thing to scale deployment of AI being all around security and risk. You saw us do the acquisition of Veza. You saw us do the acquisition of Armis, which closed three weeks before Mythos, right? That should tell you a little something, and the ability now for customers to really end-to-end manage AI deployment in a Mythos world. Our security and risk business prior to that crossed $1 billion back in Q3 of last year. Add on now Armis and Veza and continued organic investment in our security and risk business. That should show you how important not only is AI, but all of those other pieces, too, to the puzzle. It all comes back to the strategy of being the AI platform for business reinvention across the board.
Right. Yeah. We should probably be approaching $2 billion here soon with the additions of those.
We are a top 10 security vendor.
Yeah.
Fastest growing top 10 security vendor. I think that's actually something that's underknown.
Yeah
We've been talking about a lot now.
Well, let's dive into that a little bit. As you think about that scale, the growth rate, but also the product portfolio. Obviously, you're not approaching this from a traditional security standpoint, selling firewalls or things like that. A, what gives you the right to win? Should we expect to see more M&A in this category? How big of an aspiration is this?
Yeah, I think at the end of the day, it goes back to what's really important and what's top of mind for CEOs, for Boards, for CISOs, for CIOs. It's AI first. When you talk AI, you cannot talk AI without talking security and risk. Right? The ability to really end-to-end have a security journey where most vendors are able to detect and alert, but we're able to detect, alert, reason what we should do about it next, and then act on the resolution all end to end. Right? You have with Veza and Armis, you have the visibility piece, you have the identity and access and privilege controls, and then you have the ServiceNow platform that enables resolution once something is highlighted.
The ability to do that, the ability to build that security and risk into AI Control Tower enables AI Control Tower to be stronger than ever. It is a continuation of what we believe is the most important thing right now on the minds of any CEO, any CIO, any CISO, any Board. We are very excited about that, what we have been able to build. I am super excited that the M&A has gone so well. Armis will tell you, the CEO, they are closing deals so much faster being under the ServiceNow umbrella than a small private company. Most importantly, the conversation with the CISOs and the CIOs, not only are we selling Armis and Veza, it is pulling the core. Not just the core security and risk products, but ITOM.
Our IT portfolio, the core is actually being pulled as a result, which I think is really, really strong M&A. Not only is able to drive the incremental revenue of the company you buy. When it is able to pull the core along with it is pretty fantastic. That is what we are seeing. We have talked about the fact that we are not looking at large-scale M&A. We feel really good about what we have had in this space. We never say never, but the hurdle rates are always high with us, right? We are able to, within a year, offset any dilution from that acquisition.
We are able to integrate the product portfolio within months, and driving very strong top line, because we are able to really push these incredible products that are very adjacent to what we are talking about with our customers into our strong go-to-market pretty quickly.
Yeah.
So excited about what we have seen so far as well as what is to come.
I think Bill commented that the Armis acquisition was like buying an Instagram-
Yes
...at the time.
Well, it's interesting, Mythos happened right after that.
Right.
So again, it goes back to when you really think about any acquisition and you want to drive real shareholder value, it has to start with the customer. You're not going to drive shareholder value if you're not driving customer value.
It goes back to what do customers need? What are customers asking us for? When they literally tell you for two years, security and risk, security and risk in AI world, we bought some incredible assets, and it's resonating extremely well.
Yeah. Great. I guess you touched on the high-level M&A philosophy, no major transformational deals. Tuck-ins, there is some stuff going on in ServiceNow CRM. What other focus areas would you say are topical in terms of M&A?
Yeah. Well, M&A, I was talking specifically, you asked me about security.
Yeah.
More broadly from an M&A perspective, I say our philosophy is unchanged.
Right.
First and foremost, we are an organic innovation company.
Right? That is the DNA of who ServiceNow has been and will be from the founding of Fred. You will continue to see that. So organic innovation first and foremost. We are incredible at that, and that will always be primary. You have seen us do tons of small tuck-in of talent and capabilities integrated into the platform. You will continue to see us do that. A tuck-in at our scale today probably looks a little bit different than a tuck-in 3 and 5 years ago. Arguably, Veza and Moveworks, tuck-ins, a little bit larger.
But tuck-ins. We continue to do share buybacks. So return to capital. We started that a few years back. We did $2 billion in Q1 alone. We have got $4.2 billion remaining. So we are super focused on capital allocation across the board. I would say the one thing that might be different is that the technology landscape is shifting so quickly.
The ability to think you can build everything organically and not maybe do a little bit of M&A, probably is a little bit different today than in the past. But what is not different is the high bar that we will always think about. Number one, first and foremost, can we build it ourselves better? Number two, is it accelerating our roadmap, and does it really drive something of value to customers? The bar is super high from a financial perspective. Does it really drive customer value? But at the end of the day, the philosophy has not changed, and you will continue to see us do more of these tuck-ins. You will continue to see us do more focus on capabilities, but we would not be doing our job if we are not looking at the market. But nothing has changed significantly from how we are thinking about it.
Yeah. One of the questions we often get from investors, just about software in general, but also ServiceNow specifically, is as we see the AI kind of drivers of these businesses hit mainstream, does that drive an overall revenue acceleration? I think for you, clearly you are at a massive scale. Your growth rates pre-AI were best in class for the scale. But if I look at your long-term targets, we do not really see. We kind of see more of a sustained growth versus an acceleration. So is there some offset to that AI, or should we just think about that as being prudent and obviously you gave those targets in May when we were in a different environment? Or can there be a reasonable scenario where AI does accelerate the top line?
I think there's a reasonable assumption that it could. I think I'd argue you're seeing it already in that most companies at our scale would be decelerating at this scale and large, and you're not really seeing that, right?
Yeah.
Part of that is because AI is offsetting that and accelerating. There is prudence. I talked about there's some real conservative assumptions in the model. There's definitely the ability to really have AI supercharge the numbers. I think at the end of the day, time will tell what that looks like. But if we really think about the ability to agentify these billions of workflows and really drive that consumption flywheel, there's absolutely upside.
Yeah. Got it. Gina, maybe in the last minute or two here, if you are sitting in this seat next year, which we hope you come back, and we get nice weather in September too. What are the one or two areas that you want to be able to sit here and say, "These were the top two things we executed on and got right?
Yeah. Listen, we have to get AI right. The continuous innovation, the ability for these L1 specialists to go more broad and really do more complex workflows, huge area of focus for us. We've got to get that right. What I'd say is, I think you've seen us execute pretty darn well over the last few years, and we'll continue to do that. The other thing I'd say, really excited about the fact that AI gives us the ability now to really think about the mid-market and SMB in a different way.
We are going to be announcing in the back half, some AI-native products to help serve those markets, mid-market and SMB, with a much lighter go-to-market touch required, that we are very excited about. I think that is something that is super exciting. I cannot just pick one or two, though.
Sure.
The other couple, I talked about it, continued execution on the M&A that we have done. We have seen such incredible traction with the customers, and how do we continue to execute there and continue to really drive security and risk, data analytics, CRM, the incredible growth trajectory product lines for us. That is the ball game. If we can execute all of those in a great way, I think you are absolutely correct that $32 billion is a scratch on the surface-
Yeah
...of what we can do.
Awesome. We will look forward to asking you why $40 billion next year is [inaudible] . Gina, thanks so much.
Thank you.
Appreciate it. Thanks everyone for joining.
Thanks everyone.
Packed house. Thanks.