Good day, ladies and gentlemen, and welcome to the ServiceNow Q3 2015 Earnings Conference Call. My name is Steve, and I'll be your operator for today. At this time, all participants are in a listen only mode. We will conduct a question and answer session towards the end of this conference. I would now like to turn the call over to Mr.
Michael Scarpelli, Chief Financial Officer. Please proceed.
Good afternoon, and thank you for joining us. On the call with me today is Frank Slootman, our Chief Executive Officer. Our press release, our quarterly IR deck and broadcast of this call can be accessed at investors.servicenow.com. We may make forward looking statements on this conference call, such as those using the words may, will, expects, believes, pipeline, prospects or similar phrases to convey that information is not historical fact. These statements are subject to risks, uncertainties and assumptions.
Please refer to the press release and risk factors and documents filed with the Securities and Exchange Commission, including our most recent annual report on Form 10 ks for information on risks and uncertainties that may cause actual results to differ materially those set forth in such statements. I would now like to turn the call over to Frank.
Thanks, Mike, and good afternoon. Our 3rd quarter results were strong across the board. Total revenues for the quarter were $261,000,000 a 46% increase over last year. Landing new logos, renewing contracts and upselling existing customers continues to be our formula for growth. We now have 605 Global 2,000 customers, a net increase of 39 during the quarter.
New Global 2,000 logos include Humana, Alexion Pharmaceuticals, Express Scripts and the Dow Chemical Company. Additionally, our up sell rate was 37% and our renewal rate was 98%. There are 3 observations to the quarter worthy of note. 1st, CIOs increasingly view ServiceNow as an enterprise platform, not a portfolio of point products. We've been successful providing customers a single platform solution with many options to help them transform a variety of service domains.
Many of those services are within the realm of enterprise IT, but the scope has no limits and can be internal or external to the enterprise. We gauge our progress by tracking revenue per customer, not revenue per product. In the Q3, our ACV per Global 2000 customer was 816,000, a 28% increase over last year. We now have 2 0 6 customers with more than $1,000,000 in ACV, a 62% increase over last year. And on average, our customers increased their initial ACV by more than 50% every year.
While this trend of growing dollars per customer is being driven by success across the entire ServiceNow platform, We were pleased to see strong contribution during the quarter from our Itom products, which represented 14% of our net new ACV and grew 170% year over year and from Performance Analytics, which represented 5% of our net new ACV and grew 179% year over year. 2nd, our partner ecosystem is becoming a substantial vector of growth for our business. We believe CSC's acquisition of Frutition Partners and Accenture's acquisition of Cloud Sherpas during the quarter will fuel service transformations across a much broader range of businesses around the world. In addition to global system integrators, managed service providers are increasingly choosing ServiceNow to replace legacy solutions for their customers. Among them, Dell substantially stepped up its commitment to the ServiceNow platform during the quarter.
ACV for managed service providers grew 84% year over year and now represents approximately 10% of our total ACV. Finally, Q3 was our strongest federal government quarter to date. We signed 15 new federal partners and closed 58 deals, representing 9% of our net new ACV this quarter compared to 39 deals representing 6% of net new ACV last year. Additionally, net new ACV from federal increased 86% year over year. We were awarded contracts with the U.
S. Army, the Air Force, Homeland Security, Veteran Affairs and the Department of Justice. We also expanded our relationship with existing customers, including agencies within the intelligence community, the State Department, Health and Human Services and the Treasury Department. This quarter also marks the company punching through the $1,000,000,000 revenue run rate and ServiceNow is increasingly well positioned to achieve the long term objectives we outlined at our Financial Analyst Day in April this year. With that, I will now turn the call back over to Mike.
Thank you, Frank. During today's call, we will review our Q3 financial results and discuss our financial guidance for Q4 and full year 2015. We'd like to point out that the company reports non GAAP results in addition to and not as a substitute for or superior to financial measures calculated in accordance with GAAP. All financial figures we will discuss today are non GAAP unless stated otherwise. To see the reconciliation between these non GAAP and GAAP results, please refer to our press release filed earlier today and for prior quarters previously filed press releases, all of which are posted at investors.servicenow.com.
Our total revenues for the Q3 were 261,000,000 dollars increasing 46% year over year and 55% in constant currency, a negative impact of 16,000,000 dollars Our average contract terms for new customers, upsells and renewals were 31.6, 27.8 and 22.9 months respectively. Total revenues based on geography were $181,000,000 in North America, dollars 62,000,000 in EMEA and $18,000,000 in Asia Pacific and other, representing 69%, 24% and 7% of total revenues respectively. Our calculated billings were $286,000,000 in the quarter, increasing 38% year over year and 46% in constant currency, a negative impact of 16,000,000 dollars Our weighted average subscription billings term was 11.8 months for the 3rd quarter compared to 11.9 months in the prior year or a negative impact of $3,000,000 year over year and compared to $12,200,000 in the prior quarter sorry, 12.2 months in the prior quarter or a negative impact of $9,000,000 sequentially. Subscription gross margin in the quarter was 83 percent compared to 79% in the prior year. Professional services and other gross margin was 21% compared to 13% in the prior year.
Overall gross margin was 74% compared to 69% in the prior year. Operating margin was 15% compared to 6% in the prior year. We ended the quarter with 3,000 402 employees, a net increase of 215 from the prior quarter. For full year 2015, we expect to 825 net new employees. Net income for the 3rd quarter was $25,000,000 or 0
point
dollars per basic and $0.03 per diluted share in the prior year. Our basic weighted average shares outstanding was 157,000,000 and our diluted weighted average shares outstanding was 169,000,000. During the Q3, we generated $63,000,000 in cash flow from operations and we used $21,000,000 for capital expenditures, resulting in $42,000,000 in free cash flow. This compares to $7,000,000 of free cash flow in the prior year. We ended the quarter with $1,100,000,000 in cash, short term and long term investments.
Let's turn to guidance for the Q4 and full year 2015 based on foreign exchange rates as of the end of Q3. For the Q4 2015, we expect total revenues between $277,000,000 and $282,000,000 representing year over year growth between 40% 42% and between 44% 47% in constant currency, a negative impact of $9,000,000 We expect subscription revenues between $239,000,000 $243,000,000 dollars and professional services and other revenues between $38,000,000 $39,000,000 We expect billings between $370,000,000 $375,000,000 representing year over year growth between 35% 37% and between 39% 41% in constant currency, a negative impact of $12,000,000 We expect subscription gross margin of approximately 80 percent, professional services and other gross margin of approximately 15% and overall gross margin of approximately 73%. We expect an operating margin of 9% and free cash flow of approximately $60,000,000 Based on Q4 guidance, the implied full year 2015 guidance for total revenue is approximately $1,000,000,000 representing year over year growth of 47% and approximately 55% in constant currency, a negative impact of 56,000,000 dollars The implied full year 2015 guidance for billings is approximately $1,200,000,000 representing year over year growth of approximately 41% and 49% in constant currency, a negative impact of $71,000,000 The implied full year 20 15 guidance for operating margin and free cash flow is approximately 9% 207,000,000 dollars respectively.
We expect to end the year with approximately 180,000,000 fully diluted gross shares outstanding, which includes all basic shares, stock options and RSUs outstanding before applying the treasury stock method. As a final reminder, we've included a high level reconciliation of constant currency for Q3 results and guidance in the appendix of our quarterly investors deck posted at investors.servicenow.com. With that, operator, you can now open up the line for questions.
Your next question comes from the line of Brent Thill from UBS. Please go ahead, Brent.
Thanks. Good afternoon. Mike, there was just some open questions on the billings this quarter and the deceleration from Q2. I'm just curious if you could comment and I know you don't give out the backlog, but I know billings only paints a smaller picture of the overall momentum at the company, but if you could comment that would be great.
Well, if you're looking at from Q2 to Q3, as a reminder, Q2 was abnormally high because of the 12.2 weighted average billings, which we disclosed last quarter and we said that's not normal. We're normally running in the 11.7 to 11.9 months. We're 11.8 months this quarter. And as a result, that actually cost us about $9,000,000 in this quarter billings. However, we were expecting that to come down and hence why we're just slightly ahead of where we guided our billings.
Okay. And just as a quick follow-up on the operating margins, you exceeded expectations pretty handily this quarter, 15% operating margin, yet you're bringing the margin guide down for Q4. Q4. Just maybe walk through why you saw such overage this quarter and why it will contract by 600 basis points in Q4?
Yes. So this quarter, a lot of it was because of the timing of expenses and a lot of our hiring was back end loaded in the quarter. What's really driving though the Q4 coming down is more so, as many people know, we're moving our head office. There's a provision in our Q4 guidance where we still have yet to sublease our space here. And the move cost is about $10,000,000 in one time costs associated with moving out of our facility here to our new facility that's running through our forecast on top of that.
We are also running our NOW forums in Europe in Q4 as well as in Asia Pacific and our Federal NOW forum, which are kind of mini knowledge conferences where there's about $2,000,000 in expenses running through that as well. The new lease and some other leases we have that are full quarters next quarter that are partially came on this quarter and will come on next quarter into the future.
Thanks Mike.
And your next question comes from the line of Keith Fizz from Morgan Stanley. Please go
I just want to ask a little bit about professional services. It looks like as you're ramping up sort of the partner ecosystem, the growth that we're seeing on the professional services line seems to be coming down and it definitely seems true in Q4 as well. Is this a concerted effort on your part to push out more professional services as a partner? And then maybe sort of take some of that off for you guys?
Yes. This is Frank. It is a concerted effort and we've talked about this consistently over the years that we were not driving our professional services revenue to big numbers. Obviously, professional services is always a drag on the margin profile of the overall business and it really exists as a strategic resource and we're sizing it to where it needs to be for us to be able to deliver on our core mission. The good news is that our partner ecosystem, which we have very aggressively fostered over the years, has grown enormously both in size as well as in capability.
There were a bunch of inflection points during the quarter and we highlighted that during the prepared remarks where CSC made a big acquisition in the space, Accenture made a big acquisition in the space. So a lot of our big GSI partners are really putting their money where their mouth is. They're doubling and tripling down our business. That's very, very positive for ServiceNow because we can sort of retreat from the primary pole position, if you will, in terms of delivering services and really yield to our partners. It doesn't mean we're going to be exiting the business.
It just means that in relative terms that contribution will be coming down gradually.
Excellent. Thank you very much.
Your next question comes from the line of Kirk Materne from Evercore ISI. Please go ahead.
Congrats on the quarter. Frank, actually just a follow-up on your point earlier about the acquisitions we've seen in some of your bigger GSI or some of your bigger partners. Longer term clearly having Cloud Sherpas and fruition on bigger platforms would seem to be a huge benefit from you guys. I guess is there any concern as they get integrated that some of the deals that they might have been working on get caught up or delayed? I think the longer term benefit clearly outstrips any sort of near term noise.
But I was just kind of curious about how you think about that in the near term and if that impacts your, I guess, your near term guidance at all?
I don't think so. We really have no reason to believe that. I think our market has really very positively embraced that news. We're very happy with these very large integrators stepping up the way they are. This is really good for our customer base.
We highlighted the fact that we have an enormous presence in Global 2,000 accounts. And of course, that's where Accenture and CSC and all the others, that's where they are. So this increases the confidence of our customers to really invest more broadly, more deeply in the ServiceNow platform because the ecosystem just growing in size and prominence. So this is all good.
Okay. And just if
I could ask
a quick follow-up for Mike, just on cash flow, obviously incredibly strong cash flow this quarter and I assume some of that just drops down from the margin outperformance. But as we think at the 16%, I guess how should we be thinking about cash flow maybe relative to revenue growth next year? I guess, does that kind of come back into line with revenue growth? Or are there anything, I guess, we should contemplate as we're building out our models on cash flow for next year?
I expect that 20 16 cash flow will out pace our revenue growth for next year. And in January, we'll give you formal guidance around where we're seeing cash flow for 2016.
Perfect. Thanks very much.
Your next question comes from the line of Matt Hedberg from RBC Capital Markets. Please go ahead.
Yeah. Thanks guys for taking my questions. I
just wanted
to ask another one on the SI movement this quarter. Certainly, we like to see that the mix shift here. Frank, can you talk about the composition of some of these wins coming from the platform? Do they look more like your classic ITSM or are they more HR or finance? Just sort of what are some of the composition of those deals look like?
Are you asking me about platform deals specifically what they look like?
Well, I guess maybe more specifically, like with Cloud Sherpa or with Fruition, what is the mix of those deals look like? I would assume it would look more like HR, more like sort of non core ITSM deals, but just wanted to get a confirmation of that.
Those guys are definitely core ITSM. They've really sort of grown up in the business with us just Cloud Service, obviously. They got into the ServiceNow business through an acquisition as well of one of our long term partners. And these are all folks that have been in the Service Management business with ServiceNow going all the way back to the mid-2000s. So they're very much meat and potatoes type of partners in the core business.
It's really the Accenture's of the world that are sort of branching out into the higher levels of process design, business process optimization, things that are not core service management type applications.
That's great. And then maybe just a quick one for Mike. Maybe sort of a follow on to the services offloading again here. Is there a way to quantify the impact to your Q4 billings guide if you were to not be offloading that revenue component?
Well, first of all, professional services is not that big a component of our overall billings as you can see last quarter. We're guiding $38,000,000 to $39,000,000 in professional services and pretty much what the billings, what the revenue is that's equal to the billings, because everything is done on a time and material basis in general. So, I think from where consensus is for the full year, we're taking down our PS revenue, but we're increasing our subscription revenue relative to consensus. And I think subscription is going up the top end of the range by close to $7,000,000 and PS is coming down about $2,000,000 to $3,000,000 And so as a result, you could say that $2,000,000 to $3,000,000 of our billings is coming out of professional services.
And your And your next question is from the line of Michael Turits from Raymond James. Please go ahead, Michael.
Hey, guys. A couple of quick questions. First, Mike, are we now at a point where that 11.9, does that look stable for the future? Or should we see any change?
You're always going to see some variability. But on average, we've been running at around 11.7 to 11.9 months is what our weighted average billings. I'm not going to say we're never going to be above or below that, but in general, we should be there. As we get bigger as a company, you should see less variability, but there could one day be a very large customer that wants to prepay multiple years in advance that will skew that. And unfortunately, we don't have much visibility.
Hence, why every quarter we disclose what our weighted average billings are and we normalize for that.
Okay. 2 other quick ones. 1, it looks like you did upside on the subscription gross margin. And also, it looks like your headcount target headcount ad target might be a little lower than it was. Can you just address that?
Yes. We've taken down part of our numbers for hiring. Most of it is coming out of our support and cloud infrastructure as well as our G and A functions, our sales and marketing and R and D are pretty much the same from where they were at the beginning of the year. Professional services is one from beginning of it we talked about before that we've taken quite a bit out of that headcount add. But that matches with what we're taking down our PS because we want our partners to be doing more of the PS work.
And the gross margin that I
asked you.
So that
was pretty much
sorry, what was that?
And then I didn't interrupt
you, Mike, sorry, but I was just going to ask on the upside on the subscription gross margin?
That's really timing on certain assets within our data center starting to depreciate them as well as we're starting to see a little bit more scale in our data center and timing with some of those headcount starts.
Okay, great. Thanks a lot.
Your next question is from the line of Sarah Hindlian from Breen Capital. Please go ahead.
Thank you for taking my question guys and congratulations on the quarter. I think looking through the numbers, it's pretty clear. There's a nice mix shift away from professional services, which looks like we didn't take full account for in our numbers, but it's certainly a good thing. I was wondering if you could talk a little bit about, the Itom business, which I heard you comment has grown to 14% of new billings. What are you guys seeing there?
And how is that shaping up?
This is Frank, Sarah. We've had a pretty good focus on the Itom business really since the beginning of the year since we reorganized our product organization and got a lot more dedicated focus in terms of building and supporting and marketing those products. So we've got a lot more deliberate in terms of our outbound go to market motion with these products. And we've seen the last couple of quarters as a percentage of the mix, these things are moving in leaps and bounds. Itom is a very strategic component of our business because operations management and service management share the underlying CMDB, the asset repository.
There's sort of like 2 sides of the coin. It is absolutely imperative for us that we are present and that we compete in that business. And we're just pleased that we're making the kind of headway that we are. It's exactly the same buyer. It's the same budgets.
So it's extremely compatible with the business that we were already in. It's sort of, you will, the closest cousin of our core service management business is what the Itown business is. And the moving parts there are discovery, orchestration, obviously, the service mapping technology that we acquired last year are all in the mix. We've created ITOM portfolios and a lot of our customers are sort of consuming the whole portfolio now rather than just some of the individual components. So we're looking to put more fuel on the fire in this business, and our sales organization is pretty charged up about having these products to sell.
Your next question is from the line of Walter Pritchard from Citi. Please go ahead.
Hi, thanks. Actually a follow-up there on the ITOM question. I'm wondering, given your success, Frank, so far this year and I guess late last year this year with those ITOM products, does it make you look at potentially expanding the product line more aggressively in ITOM into sort of what we've considered in the past, some of the manager and managers, event management, APM type areas that you're not in today? And then just had a follow-up for Mike.
Yes. So Walter, we are in event management because our acquisition of Nivisla last year actually had an event management component that we actually combined with our own capabilities. And our next major software release, which is now imminent, has a full blown event manager in it. And we already recorded very substantial ACV in Q3 to the event management category. So we're in it.
But to answer your question more specifically, absolutely, we are evaluating assets continually in terms of things that we want to build, things that we want to buy. As you know, we are an acquirer of assets, but we're not ultra aggressive because we have a hard time convincing ourselves that we want to own something. But when we do, we move and I think we're so far our track record on buying assets and converting them to yield has been quite good. But this is a focus area and we see opportunities we will absolutely be pursuing.
Got it. And then Mike, just I'm
not sure how much you're willing to talk about this, but from a Q1 seasonality perspective, back in 2014, you had a really strong Q1 with billings actually up sequentially. And then last year or this year, you sort of had more of a normal kind of company getting bigger seasonality in there. I'm wondering if you could help us just sort of think about Q1 the right way and just we're not surprised in 3 months as you guide?
Q1, Q4 to Q1 historically has been pretty, you'd expect it to almost be flat, don't expect it to go up. It's really Q4 every quarter when you look at it, it's historically that has the big jump. Remember, a lot of the deals we sign in Q4 have January 1 start dates and hence that becomes part of our January one billing. And historically, there's a lot of backlog that gets built in January as well too, which impacts our Q1 Q1 billings.
So flattish more than DAC is what you're saying?
Yes. And you'll get more detailed guidance in January.
Okay. Thank you.
Your next question is from the line of Karl Keirstead from Deutsche Bank. Please go ahead.
Yes. Hi, Mike. Just wanted to ask a question about the 4th quarter billings guide at 39% to 41% constant currency. It assumes more moderate growth. Think we understand the 3Q just given the tough compare and that $9,000,000 hit.
But on 4Q, it's a slower growth, yet it feels like the momentum of the business is pretty solid. So I'm wondering if you could help reconcile that and let us know whether the Geneva release, assuming it's coming in 4Q, has any impact at all on your guide? Thank you.
The Geneva release has no impact on our billings at all. And we are guiding $370,000,000 to $375,000,000 in billings, which is up from the 286 that we just did right now. So we think that is a reasonable guidance. I really don't have anything else to add to that. The consensus right now is at $370,000,000 for this quarter for Q4.
Okay. Thank you, Mike.
Your next question is from the line of Ashley Lambert from Mizuho. Please go ahead.
Yes. Thank you. Frank, can you share some success stories outside of IT where you've had the most success and how is your pipeline looking for that?
I didn't catch that. Try me again. Successfully in regards to what?
Outside of IT, in HR.
Outside of IT.
Yes. And areas where you're having the most success and how is your pipeline looking for those types of implementations?
Yes. So one of the things to remember, and we keep reminding people sort of every quarter of this notion, right? We don't manage our business sort of IT, non IT, because most of the time, we don't even know when people are inside of IT or outside of IT, there are application areas that cross the boundaries of IT. For example, purchase requisitioning apps involve IT because they process IT purchase requisitions. They can also relate to non IT.
The same thing is true project management. Those workflows are IT and non IT. So we don't manage the business that way. These days, we talk about service management and the context will indicate whether that service management for IT that are known as ITSM, whether it's service management for customer service, whether it's service management for human resources or any other sort of global service domain that you find in the enterprise. It is becoming much more accepted in large institutions, large enterprises to sort of view service management in the context of global business services.
A lot of big companies now have global business service executives that are sort of peers of the CIO. Sometimes the CIO is the head of global business services. So they're addressing the service domain in a much more global manner versus having systems for IT, systems for HR and so on. So we've come a long way in the last 4 years and really sort of moving the market in terms of how they have to think about service management. As I said in my prepared remarks, we're really not so much trying to measure every single variety of service management.
We're really looking at what is the overall investment that customers have in ServiceNow that really indicates what their degree of commitment to our platform is and it varies quite a lot where it's coming from because some people are very heavy on the ITOM side. We have customers that start out with us in HR and end up on the IT side much later on. We had one customer this quarter who bought one of our partners application solutions that was built on our platform that actually dragged a platform deal for us, but then downstream is going to yield opportunities for IT. So our business arrives in many forms and flavors. I'm sorry for your long answer, but I just don't have an answer to your question because that's not the way we think about the business, not the way we manage and report it to ourselves.
No, thanks. That was helpful. Frank and I'm sorry, Mike, I know you're not talking about 2016 yet, but can you give some qualitative color on how we should think about your need for investments versus margin expansion? You have a 2020 target of 30% margin. How should we expect the trajectory of your margin from the current level?
Thanks.
So at a very high level, and we'll give more detailed guidance later on. As we mentioned, we expect about a 9% operating margin this year and I would expect that to be of in the at a high level right now somewhere in the 11% to 14% margin, 13% margin. We're still planning our 2016 investments right
now. Thank you.
Your next question comes from the line of Rob Owens from Pacific Securities. Please go ahead.
Hey, guys. Thanks for taking my call. This is actually Ben McFadgen on for Rob. I wanted to start with just a question on kind of what you're seeing with the broad macro environment. Was there any I mean, I know you guys are still seeing healthy growth, but was there any verticals or geos where you saw slippage in deals in the quarter?
This is Frank, Ben. One area that immediately jumps out, and I've been in recent months to Houston, Calgary, the oil patch is brutal. It has come through in a very abrupt halt and basically businesses that are dependent on those sectors are hurting in a huge way. So we felt that as well as everybody else, it doesn't matter what you do or where you are, you're not going to escape that trend. So that one is sort of 1st and foremost.
We don't have too much sort of macroeconomic overhang. Sometimes it's even hard for us to sort of know whether something is macro or micro or secular or whatever it is. And we don't have too many excuses because I think we have the ability to drive our business sort of regardless of what's going on in the macro because we're driving transformations and optimizations that people are going to need no matter what's going on out there.
So when we think of linearity in the quarter, was it pretty linear? Or was it or did you see a shift as far as how that was weighted?
We thought it was very similar to most quarters. Remember, as I've said many times at conferences, this is no different than any other typical enterprise software company. There's majority of businesses in month 3 of any quarter and there's a lot of business that's booked in the last 2 weeks of the quarter. And we continue to see that this quarter like we've done every quarter. Sure.
And I just wanted to follow-up real quick with just any metrics that you can give us as far as kind of what you're seeing with CreateNow and the ServiceNow store, just something any metrics you can provide as far as what you're seeing with developer traction there would be great? Thanks.
Yes. This is Frank. I think we've given the metrics in the past on our cohort analysis about 85% of our customers have custom applications built on average there about I think it's about 6 to 7 apps now that they have. So that's still something that continues to move up into the right. In terms of our store, we see the amount of content in terms of number of entries growing sequentially in a sort of 20% to 25% range.
Those are some things that sort of come to mind that gives you some character to
that.
And your next question comes from the line of Philip Winslow from Credit Suisse. Please go ahead.
Hey, it's actually Joanna Kamey in on for Phil. I was wondering if you could comment at all on the customer uptake of discovery and orchestration and if you could give any feedback from customers? Thanks.
Yes. This is Frank. It's been very good. Certainly, it's helped that we really have combined discovery with our service mapping technology, which has made that a more integral solution that's made actually both products more marketable. Orchestration is something where we have built some out of the box applications for in terms of provisioning.
That's actually made that easier to sell and more marketable. They are a pretty good sized component of the overall ITAM component. So it's going well, and we're pushing on that. They are foundational to the ITAM suite.
Great. And congrats on
Your next question comes from the line of Kash Rangan from Merrill Lynch. Please go ahead.
Hi. Thank you very much. I'm trying to get a better handle on the guidance. Mike, I appreciate the fact that contract duration came down to 11.8. It was 11.8 months Q4 of last year.
So I'm assuming you're using 11.8 for your Q4 forecast. So contract duration is not going to hurt you. And I'm looking at ACV for your G2 ks. It's been steadily going up 10% sequentially, so no problem there. And then I'm looking at your customers paying more than $1,000,000 in ACV and the average ACV per customer paying you more than $1,000,000 is up from $2,000,000 to $2,100,000 and you added more new customers paying $1,000,000 in ACV this quarter than you did in Q2 or in Q1 for the past 4 quarters.
This is the record high. So help us understand why you're guiding to report a deceleration in billings terms. Are you just assuming some conservatism, which I completely respect, given that we're living in uncertain times? But otherwise, outside of that, I had a question for Frank, if you get the time to get through my questions on the financial side. Thank you very much.
So first of all, we're not guiding to a deceleration in billings term because we're still assuming that we're going to be somewhere in that 11 point 7 to 11.9 months weighted average billing term, that's not changing. And the billings that we are giving guidance for, we think is a reasonable amount of $3.70 to $3.75 as we said last quarter. We expect that the number to be in the $1,200,000,000 for the full year. When you apply that to what we just did, I think it comes in around $12,000,000 or 1.207 $1,000,000,000 is what our full year billings guidance is. And we'll see December 31 what our actual billings was.
Got it. And Mike, did you did I catch it right that we said from Q4 to Q1, you think billings will be flat and not down? Just to clarify Walter's question.
Right now, based upon where we're looking without me giving full guidance, because once again, it depends a lot on the terms of what we sign right now. I expect that Q1 will be roughly equal to what Q4 is and you saw that last year we were slightly up actually last year.
Got it. Question for you Frank. Something
for FX.
Yes, I got it. ITom, significant, fantastic statistics here. Are you going to have a specialist sales force and go to market changes next year? That's it for me. Thank you.
We have established a sales team with it's essentially an overlay function to have we have hired experts for not just for ITOM, but for a whole series of product lines. We also do it for performance analytics. We do it for human resources. We have it around financial management and DRC. So we have embarked on really overlaying our sales force with sales experts in all these categories for some time now, which is one of the reasons why we're having really, really strong traction in a lot of these emerging product areas is because of the focus that we've had on it.
And we're having really good success cross selling, up selling these products right behind our core platform.
Thank you very much. Congrats.
Thank you.
The next question comes from the line of Greg MacDowell from JMP Securities. Please go ahead.
Great. Thank you very much. Just one quick question. Obviously, the 29 new Global 2,000 customers is really impressive and that's even more than what you added in your last Q4. My question has to do with the ACV per G2K customer.
It looks like it was up 3% sequentially. And on a sequential basis, that's lower than it traditionally is. I was just wondering what drove that? Is that a function of just the sheer amount of customers you added? Or does it have to do with the mix of what was sold or was it something else?
Thank you.
It's a number of things, but one of the things is the if you look at the average ACV for most net 29 Global 2,000, it was relatively low amount relative to what our average Global 2,000 is. It was somewhere in the mid-two 100 and 50,000. We seeded a lot of Global 2,000 accounts. There were a couple of big ones in there. But what I will say is, and we had a couple of deals where we're stepping in as an example.
We have 1 Global 2,000 we landed now, which was well below our average, but they have a contractual upsell of $4,500,000 on December 31. So we did some of those deals that aren't reflected now that you'll see next quarter. So I'm not concerned about the long term 4% sequential growth. We need to see out of our Global 2,000. As a reminder, we did 7% last quarter.
And so you will see some variability, but long term, we think that 4% is very reasonable. And if you look at our cohort slide that is in our investor deck, you can continue to see that our customers that we brought in, in 20 14, we've already grown the ACV in those on average by 50%. So and we still have another quarter to go of upsells to those.
Great. Thank you.
Your next question comes from the line of Steve Ashley from Robert W. Baird.
This is Jason Valkovar on for Steve. I'm hoping you could talk about the Fuji release, What's customer response been to that? And how actively is that being adopted versus past releases?
Yes. It's Frank here. Foote is already sort of ancient history for us because we're literally on the eve now of our Geneva release. So we're about ready to start upgrading our internal systems, all this kind of stuff. So Fruci has been out there, and people have moved very aggressively towards it because the content has been very compelling.
It's been a very good release. We expect the same thing out of Geneva. We have even higher hopes for because there's just a lot of reasons for people to want to move to Geneva. So because our organization has grown so much, I mean, there's ever more and more compelling content in these releases, which keeps our customers moving from one to the other. So it's all been good.
Great. And then just one follow-up to dig into ITOM a bit more. Just in general, have you seen your customers, your IT ops customers been able to reduce headcount in the wake of adoption of your ITOM products?
I don't have any real authoritative evidence to say yes, no, anecdotally, sure, we hear about that. But a lot of it has to do with organizations really trying to lighten up and modernize this kind of portfolio of tools. I think as many of you know, the tools in the ITOM space are just like they used to be on the service management side. They're quite old. They date back to the '80s and the '90s.
They're often very expensive. They're really not well suited for modern platforms and architectures. So this is often driven by organizations that really want to go through tool consolidations, tool modernizations. And the big advantage that we have is the single platform orientation and the complete integration with the CNDB. It's an extremely compelling way of going about modernizing this portfolio of capabilities.
So that's really what it's about. People are saving money on the software side. And obviously, they're after automation in the process as well and sort of lighting up on staffing along the way.
Great. Thank you.
Your next question comes from the line of Alex Zukin from Stephens PH. Please go ahead.
Hey, guys. Thank you for taking my question. Maybe the first one, can you guys talk about the number of new 7 figure deals? Also mention if there were any elephant sized deals in the quarter?
Sure. We did I think we did 9 deals that were north of $1,000,000 3 were new customers, 6 were upsells and there were no elephant deals in the quarter defining what you I'm assuming what you mean by elephant is more than $3,000,000 in net new ACV. There were none of those in the quarter.
Got it. And then are you seeing any change in the closing in cadence that you're closing some of your larger deals or upsells? And maybe also just talk about sales rep productivity and where hiring came in versus your expectations for sales reps?
So in terms of the cadence of closing deals, as we said before, this is a very long sales cycle. This is a 9 plus month sales cycle for large deals. Haven't really seen any change there since the time I've been with the company. In terms of productivity, we saw pretty even productivity in the Americas and Asia Pacific. It was down quarter over quarter in EMEA.
But remember Q2 was very high and EMEA unusually high because we had one deal in particular that was very large that skewed that. Nothing that gives us any concern this quarter. The pipeline looks good. And staffing. We don't talk about sales reps themselves.
We're a few headcount behind in our sales and marketing organization, but nothing that has us concerned there.
Got it. Thank you guys for taking my questions.
Your next question comes from the line of Derrick Wood from Susquehanna International Group. Please go ahead.
Thanks. You guys had 35% growth in new customer wins. It looks like that's the highest in 3 years and obviously had a strong uptick in Global 2,000 as well. Just could you talk about the new coverage model, how that's playing into driving kind of broader new customer strength and what the key ingredients in the segmentation strategy are right now?
Frank, I don't have too much to add to this. I mean, you remember that the 1st of the year, we split our Americas organization up in commercial and enterprise, which I think people are still trying to get over. But that is that actually was a very good thing for us to do because we've had we've made really good progress in the commercial market that's trending really, really well. But it's also made our enterprise organization a lot more focused at the same time. So a lot of the progress that you're seeing that we're making is because our deployment model is just much more precise, much more fine grained.
And I actually think we have quite a bit of room up in 2016 in really optimizing the deployment model. How we're taking resources and where we're putting them in is really one of the key things that drives growth and productivity in our organization. So I think we have a bit of runway there to see more benefit.
That's great. And then, Mike, what's the channel contribution right now? And do you have any longer term targets for indirect?
So first of all, very little of our business goes directly through the channel. It's under 15% of our business goes through the channel. However, the channel does heavily influence our deals. The problem is it's hard to track to what extent they influence and we definitely do not have any target for what amount of our business needs to go through the channel. I don't think it's going to go I think it will be for quite some time below 20%.
Your next question comes from the line of Justin Furby from William Blair Company. Please go ahead.
Thanks guys. Frank, I was wondering if you look at the remaining Global 2,000 that you don't count as customers today, what percent of them do you think are using MSPs? And just how important are some of these acquisitions like CSC and the Dell announcement and Accenture in terms of further penetrating that opportunity?
It's not the MSPs. That's the GSIs. That's probably what you mean. The Global System Integrators. They're super important.
These the Accentures and KPMGs and Deloitte are enormous influencers of these kind of transactions. So that's why what's going on in that part of the business is very, very good for us. So it's we still have a long ways to go. We have 30%, but there's a ton of them out there. The saturation that we have in the ones where we have footprint is still a long ways in terms of being as business.
So the GSIs are very, very important in our business. I can't overstate the importance of it in the Global 2000 segment of our business.
Okay. But I guess what I was getting at is like CSC, for example, a big MSP provider. They acquire and it sounds like they have aspirations now going into a
lot of these DMC accounts
and ripping that out and putting in services. I'm wondering like how much of that Global 2,000 that's not today a customer are using outsourced ITSM? And what you think some of these deals and adult stuff does for you to penetrate that opportunity?
Yes. I don't think they're using outsourced. That's what I meant to say. They're not MSPs. They're not using so much outsourced ITSM.
They have and own their own systems, but they use the GSIs to do process design and due to general consulting and implementation around it. So when it comes time to change systems that have been sitting there for 10, 15, 20 years, having a very trusted global system integrator in the account is very important to give the account the confidence to go on that journey. It's not easy to turn off systems that have been around for that long and replace them. These are night point transition. They had turn one off, turn another one on and having a GSI in the account sort of handhold the account through it is a big part of making this business happen.
You are correct, Justin, in that a number. CSC has a very big MSP practice, but they also have a very big GSI practice as well. And but most of the Global 2,000 use the GSIs. There are many Global 2,000 who do use the MSPs, but the vast majority are running their own systems. They may augment their staff with some of the GSIs, but it's the Global 2,000 who are making the purchase decisions, not the MSP for them.
Got it. That's helpful. And then just quickly on the pipeline, if you look at it today, just curious what the mix of ITSM versus non ITSM looks like maybe versus a year ago? And then if you think about ITOM and Platform, those two together, what do you think will be sort of the more meaningful of the 2 as a growth driver getting you to that $4,000,000,000 number over the next several years? Thanks.
So Justin, as Frank said at the beginning, when our customers are buying in the way we sell, we really manage our business by the dollars we extract out of our customer and most of our customers are buying service management, not necessarily distinguishing between ITSM and the different service management applications we have. Long term on that road to $4,000,000,000 Yes, ITOM will become a more meaningful piece of our business, but the majority of that revenue will still be coming from service management, which ITSM is a part of.
Got it. Thank you.
I would now like to turn the call back over to Michael Scarpelli for closing remarks.
Thank you. As a reminder, a replay of this call will be available in the Investors section of our website. Thank you for joining us today.
Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Thank you very much and have a very good day.