Q3 2024 ServiceNow Inc Earnings Call

In This Article:

Participants

Darren Yip; Investor Relations; ServiceNow Inc

Bill McDermott; Chairman & Chief Executive Officer; ServiceNow Inc

Gina Mastantuono; Chief Financial Officer; ServiceNow Inc

Alex Zukin; Analyst; Wolfe Research

Brad Zelnick; Analyst; Deutsche Bank

Mark Murphy; Analyst; JP Morgan

Kash Rangan; Analyst; Goldman Sachs

Keith Weiss; Analyst; Morgan Stanley

Brad Sills; Analyst; Bank of America

Michael Turrin; Analyst; Wells Fargo Securities

Karl Keirstead; Analyst; UBS

Gregg Moskowitz; Analyst; Mizuho Securities

Derek Lessard; Analyst; TD Cowen

Raimo Lenschow; Analyst; Barclays

Samad Samana; Analyst; Jeffries

Presentation

Operator

Good afternoon, and welcome to the ServiceNow third quarter 2024 earnings conference call. Please note that this call is being recorded at this time. (Operator Instructions)
I will now turn the call over to Darren Yip, Group Vice President, Investor Relations. Please go ahead, sir.

Darren Yip

Good afternoon, and thank you for joining ServiceNow third quarter 2024 earnings conference call. Joining me are Bill McDermott, our Chairman and Chief Executive Officer; and Gina Mastantuono, our Chief Financial Officer. During today's call, we'll review our third quarter 2024 results and discuss our guidance for the fourth quarter and full year 2024.
Before we get started, we want to emphasize that the information discussed on this call, including our guidance, is based on information as of today, and contains forward-looking statements that involve risks, uncertainties and assumptions.
We undertake no duty or obligation to update such statements as a result of new information or future events. Please refer to today's earnings press release and our SEC filings including our most recent 10-Q and 2023 10-K for factors that may cause actual results to differ materially from our forward-looking statements.
We'd also like to point out that we present non-GAAP measures in addition to and not as a substitute for financial measures calculated in accordance with GAAP. Unless otherwise noted, all financial measures and related growth rates we discussed today are non-GAAP except for revenues remaining performance obligations or RPO current RPO and cash and investments.
To see the reconciliation between these non-GAAP and GAAP measures, please refer to today's earnings press release and investor presentation which are both posted on our website at investors.servicenow.com. A replay of today's call will also be posted on our website.
With that, I'll turn the call over to Bill.

Bill McDermott

Thank you very much, Darren. Good afternoon, everyone, I really appreciate you joining today. Because a lot to cover in this latest beat and raise report, I'll focus on five powerful tailwinds that underscore our strong confidence in ServiceNow is growth trajectory. First is elite level execution, with our Q3 results we have demonstrated once again ServiceNow's strong execution.
We outperformed all top line and profitability metrics. Subscription revenue growth was 22.5% at constant currency, 200 basis points above the high end of our guidance. CRPO was 23.5% at constant currency, 150 basis points above our guidance. Operating margin was over 31% more than 150 basis points above our guidance. We had 96 deals greater than 1 million and net new ACV.
We landed our second largest new logo deal ever, and our second customer crossed the 100 million mark in total ACV. Customer adoption of ServiceNow platform continues to move across the enterprise end to end. For CIOs and their tech teams ITSM and ITOM were each in at least 15 of our top 20 deals, with double digit deals over 1 million.
It's also worth noting that it asset management was in all of our top 20 deals, and Q3 was another strong performance for security and risk as they combined for 14 of the top 20 deals with 11 deals that were over 1 million.
As we see more opportunity to disrupt the front office, customer workflows had a great Q3 with 15 of the top 20 deals and 17 deals over 1 million. Employee workflows were in 13 of the top 20 with nine deals over 1 million and create a workflow is strong again and 17 of the top 20 with 13 deals over 1 million, here's the headline. Many companies have struggled to execute in what has been a complex macro environment ServiceNow has delivered consistently beyond the rule of 50. We are the benchmark for elite level execution.
The second tailwind behind ServiceNow success is our growing strategic relevance. Three years, we've been talking about the mess of the 20th century enterprise systems organizations around the world needed a platform to help them clean up that mess so they can modernize for the AI world. ServiceNow is that chosen strategic platform, and we integrate with all those other systems orchestrate the silos into modern workflows and create a consistent consumer grade user experience. It's important to understand the history here.
When public cloud solutions came online as the last secular shift in the enterprise, they created sprawling governance challenges. CIOs at the direction of their CEOs were asked to get things under control of cost, security, and integration, and ServiceNow played that role. Now the C-suite is looking to ServiceNow to prevent another mess with AI.
Leaders see the risk that every vendor's bots and agents will scatter like hornets fleeing the nest and they trust ServiceNow as the governance control tower which is a privileged position for our platform. This brings me to the third momentum driver ServiceNow has emerged as the AI platform for business transformation. The secular shift to AI is validated and is unfolding in real time. With now assist we have 44 customers spending more than $1 million in ACV including $6 million over $5 million and $2 million over $10 million.
And this continues to be our fastest growing product ever and an accelerant to our cross enterprise expansion. In Q3, we announced our biggest GenAI release to date Xanadu.
This included over 350 net new innovations delivered through 5 million-plus engineering hours. Xanadu has supercharged now assist with analytics generation, custom skills development, Microsoft co-pilot integration and more.
Xanadu expanded industry vertical AI powered automation, the telco, tech, public sector, banking insurance, and manufacturing we released now assist for security procurement and an integrated development solution for software engineers.
Xanadu showcased ServiceNow leadership with Agentic AI and until now, Agentic AI and the enterprise requires human prompts to initiate action. We're now deploying autonomous AI agents that work with people, not just for them. Using ServiceNow, single architecture platform and cross enterprise data ServiceNow AI agents can uniquely advance beyond prompt based activity to deep contextual comprehension.
This is like hiring an additional workforce to support people by doing the jobs they've never wanted to do in the first place. We intend to be the control point that governs the deployment of Agentic AI across the enterprise. As this AI innovation on ServiceNow contributes to what IDC says will be a nearly $20 trillion global impact by 2030. That means every $1 spent on AI solutions and services will generate nearly $5 in value to the global economy.
This is why IDC also forecasts businesses will spend more than $0.5 trillion on AI in 2027 alone. So when you combine a massive once in a generation technological shift with a platform that is engineered to lead the transformation ServiceNow's momentum is the result.
The fourth factor is our growing brand awareness and addressable market. When you consider the countless success stories, the world works with ServiceNow was a present identity for our brand. The defense logistics agency works with ServiceNow assist to digitally transform, following a highly successful citizen development project. Bangkok de Brazil works with ServiceNow to increase visibility and automation.
The Veterans Affairs IT office works with ServiceNow to ensure their mission critical systems perform with minimal disruptions to the Veterans, their families and the employees who serve them. Lloyds Banking Group works with ServiceNow to transform its people operations with AI powered solutions to improve its colleague experience.
After rolling out now assist globally, EY works with ServiceNow to automate a wide range of tasks to deliver faster resolutions for enhanced client service. The American Red Cross works with ServiceNow to automate risk management so they can concentrate on their life saving mission.
Mercedes Benz work to its ServiceNow to support their business transformation. It's no surprise our partnerships are expanding as well. Siemens in ServiceNow announced a new collaboration aimed at enhancing industrial cyber security, driving the integration of gen AI into shop floor operations. Bell Canada recently announced the acquisition of HGC technologies a ServiceNow partner to increase their leadership in the North American marketplace.
We announced an expanded strategic alliance with Zoom to integrate our gen AI technologies, and we're just getting started. In fact, today, we unveiled a series of powerful new growth initiatives. Our partnership with NVIDIA has been a game changer for enterprises embracing AI. We're taking that to the next level by co-creating a shared vision on Agentic AI together, NVIDIA and ServiceNow are developing out of the box use cases for AI agents on the now platform using NVIDIA NIM Agent Blueprints.
Customers simply turn on these capabilities and start reinventing workflows across the enterprise, the small single issue resolutions all the way to entire incident response workflows. You heard a knowledge that ServiceNow launched RaptorDB our new ultra fast database built for AI first enterprises which processes transactions 12 times faster analytics 27 times faster customers including Amadeus are already in the process of implementing RaptorDB to supercharge processing speeds across their global systems.
Our data ambition doesn't end there. We are expanding deeper with our new workflow data fabric which will unify business and technology data, so it flows seamlessly across the enterprise. Companies have always trusted us to bring order to the chaos of 20th century enterprise architectures. Now we could do the same with their data by powering automation and AI with real time secure access to data from any source.
Workflow data fabric also includes Zero Copy partnerships with established leaders like Databricks and Snowflake. So customers can turn data into instant AI powered action all on the ServiceNow platform. One of the world's leading professional services companies, Cognizant became the first systems integrator taking workflow data fabric to market.
These innovations, open the door to massive market opportunity for ServiceNow. Nearly doubling our TAM to a $0.5 trillion. We also announced a partnership with Rimini Street to unlock value in the existing ERP market for net new innovation, digital growth, and scale. All this momentum is creating an even bigger flywheel for our business, this is why we created ServiceNow university encompassing all ServiceNow learning experiences.
ServiceNow university represents a strategic investment in the global workforce with the goal to skill another 3 million learners in the next few years. With all this momentum, it's no surprise that our recognition is also growing. The American Opportunity Index assesses how well employers develop their talent. We have learned that ServiceNow will be the highest ranking technology company again this year, ranking fifth overall among 400 brands.
Even more importantly, when it comes to internal advancement as measured by the index, how well we promote and build the careers of our people. ServiceNow is the top company overall with the best score among all firms across all sectors.
We also rank on list for best places to work in technology in Europe and Singapore for women and for parents, which is why we have already more than 1.5 million candidates for our open roles this year. This brings me to the final tailwind, the best people want to be at ServiceNow. I'm very proud to announce that Amit Zavery will join ServiceNow as our President, Chief Product Officer and COO.
Amit joins from Alphabet where he was General Manager of the Google Cloud platform. During his tenure, he helped build Google Cloud into the fourth largest enterprise software company by increasing annualized revenue from $7 billion to over $41 billion. Before joining Google Cloud Amit had a distinguished career at Oracle where he presided over their growth and platform as a service and data analytics.
With sterling educational and career credentials, Amit is a world class engineer and engineering leader. From a commercialization perspective, he's also an expert in packaging and pricing. With a compelling vision for AI business transformation, he is hungry and humble to his core. He joins an exemplar engineering leadership team that is full of highly accomplished innovators. I'd like to warmly welcome Amit and all our new hires who have joined the defining enterprise software company of the 21st century.
And I'd also like to give a special shout out to Mr. Chris Beatty, our Chief Customer Officer who did a great job in filling in Q3 and aligning our whole company with our partners and customers to ensure that, we as a company also did a great job.
In closing, I could have focused on any number of factors that make ServiceNow the standout growth company, it is today. There's a lot of speculation out there about which companies will be the winners in AI. We shouldn't look past the companies that are already winning ServiceNow is putting AI to work for people. Our World Forum events are over subscribed in some cases, more than double the attendance year over year.
By definition, a safe haven is a place of refuge or security by virtue of our team, our technology, and our strategic choices, no company is more closely aligned to where our customers need to go, that not only makes us a safe haven for customers, it also fuels our rocket ship to hit new milestones as we grow to $30 billion and beyond.
I couldn't be more proud to celebrate my fifth -ear anniversary as CEO and to redouble my commitment to serving Fred Luddy's dream for the full potential of ServiceNow. Thank you all very much for your time. I hand things over to Gina Mastantuono, our Chief Financial Officer.