Q2 2020 ServiceNow Inc Earnings Call

Asking question during his section you we need to press star one on your telephone. Please be advised of today's conference is being recorded if you acquire any further assistance. Please press star Zero I would now like to handle conference over to your speaker today, It's Lisa banks Vice President of <unk>. Thank you. Please go ahead.

Good afternoon, and thank you for joining us for service now second quarter 2020 earnings conference call joining.

Joining me are Bill Mcdermott, our president and Chief Executive Officer, and Gene I loved and you know our Chief Financial Officer.

During today's call. We will review our second quarter 2020 financial result, I discuss our financial guidance for the third quarter of 2020 and full year 2020.

Before we get started we want to emphasize that some of the information discussed on this conference call, particularly our guidance and based on information as of July 29 2020.

These forward looking statements that involve risks uncertainties assumptions, including those related to the continued impact Kobe Nike on her business and global economic conditions.

The forward looking guidance, we will provide today based on our assumptions as to the macroeconomic environment in which we won't be operating those assumptions are based on the back as we know them today.

Many of these assumptions related matters that are beyond our control and changing rapidly, including but not limited to a timeframe sport and severity and social doesn't see and other mitigation requirements that continued impact of coven 19 on our customers purchasing decision and the length of our sales cycle, particularly for customers in certain.

Mystery.

Significant changes in the future cost a buyer biden higher or lower.

Please refer to the press release and risk factors and DNA in our FTC filings, including our 2019 10-K, and our 10-Q that will be filed for Q2 2020 for information regarding such risks uncertainties and assumption that may cause actual results to differ materially from those set forth in such forward looking statements.

We'd also like to point out that the company reported non-GAAP results. In addition to and not as a substitute or superior to financial measures calculated in accordance with gap.

All financial figures, we will discuss today, our non-GAAP, except for revenue net income and remain performance obligation.

I see the reconciliation between these non-GAAP and GAAP results. Please refer to our press release filed earlier today, our investor presentation and for corners. Previously filed press releases all of which are close that investors Dot Servicenow dotcom a replay of today's call will also be posted on the website with that I would now like to return the call over time.

Thank you Lisa and good afternoon, everyone. Welcome to our Q2 2020 earnings call. Let me begin by extending my hope that you and your loved ones are healthy and say.

It's cobrand barman continues to create challenges for many and we continue to support our stakeholders our employees and customers in every way possible.

Youre getting into our strong results fear or through trends shaping the overarching environment for service now.

It's unprecedented environment is breaking physical supply chain.

It is exposing the week links in the old value chains illuminating how companies strong they cross functionally to deliver the workflows that create great experiences for customers employees and partners.

World is experiencing seismic shift from the obsolete business process evolution to the new work flow Revolution.

Cxos or using the now blocking and to create new work flows for new value chains, transforming experiences across our old systems and functions across the entire enterprise.

Service now is the strategic authority workflow, we are a trusted C suite innovator.

We multiply the value of existing technology investments, we deliver exceptional time to value and our customers understand the business continuity and resilience that the now platform enables.

Driven by these factors and many others, we couldn't be prouder of our very strong Q2 performance, we beat expectations, beating consensus and guidance and became a 4 billion one rate <unk> company.

We're raising our topline.

And operating and free cash flow margin guidance and full year, 2020, which Gina will provide more detail on shortly.

We are delivering safe workplace product innovation in two weeks cycles, helping our customers succeed and keeping their employees healthy unsafe and he's done Precedented times service now is a great company, we are becoming even stronger on our journey to 10 billion in revenue.

And beyond.

We remain totally focused on our ambition to be the defining enterprise software company of the 21st century.

Let me share some additional perspective on how we're supporting customers Ceos and management teams are focused on protecting revenue.

Good good productivity and ensuring business resiliency.

Just turn digital transformation into a business imperative across all industries service now is on the front lines of getting companies reopen we're helping employees get back to the workplace safely in May we launched our state workplace application suite and dashboard.

Engineering teams continued to deliver product innovation every two weeks. These are real products with an architecture that makes it easy interconnect employee health data to their employee batches to ensure safety and security in the workplace.

More than 550 organizations worldwide have downloaded our safe workplace, we company such as ever Coca Cola European partners, and bank, United or using the ABS and dashboard to return to the workplace safely.

This is the power of the now blocking the ability to move fast be agile solve problems quickly with local Nokone App development.

Create new workflows that deliver great experiences, we're helping our customers. So they once in a generation challenges even as they capitalize on the opportunities of digital transformation, because we offer one platform.

One data model and one architecture.

Customers see the now platform as a smarter way to work flow.

Genome, we'll share our full financial results with you what do you have some highlights from another quarter and which service now.

Sam.

Despite the coal headwinds, we closed 40 deals greater than 1 million in HCV. This quarter. We now have 964 customers paying us more than 1 million ACB annually.

Are there any already was strong.

Renewal rate remains best in class at 97% demonstrating service now resilience.

Q2 deals underscore the strength of our product portfolio 18 of our top 20 deals included three or more products customer. Examples include equifax, the Commonwealth of Pennsylvania, and the state of California.

Our core business remains strong with continued momentum in IC assemble and well in risk and security.

Actually as enterprises focus on business continuity.

I guess mtwo.

Hey, good 10, I see as dumb deals delivering customers increased automation and operational resiliency.

I see us down was included in 17 of the top 20 deals.

15 of the top 20 deals also included security, we did our largest ever risk deal with Providence Health in services, which has 51 hospitals 121000 employees and 800 non acute facilities and the heavily regulated business Providence is.

Partnering with Servicenow to manage risk and improved productivity across their business.

Employee experience is more relevant than ever our HR business now continues to be strong with over 750 customers. In Q2, we had eight deals that were greater than 1 million.

For example, the Commonwealth and Pennsylvania is using service now to improve improve efficiency of their HR shared services and to increase employee engagement. They are enhancing employee communications to support their Telework initiative Goldman Sachs.

Long time service now aren't you get some customer became a new HR customer in Q2, they are using our HR products to provide a more consistent employee experience and to drive cost savings.

Really the best customer experiences and rapidly scaling digital services matter now more than ever.

This is driving momentum in our customer service management business, we have more than 50 customer spending more than 1 million in HCV annually, we are delivering great consumer grade customer experiences powered by industry specific workflows.

Zoom partnership is a great customer example, zooms usage rocketed 30 times in four months.

X increase there now up to 300 million Daily meeting participants service now see you have some solution is enabling zoom just scale its customer service operations, providing critical communication capabilities, where its rapidly expanding global community CSM also provides program.

The case management and personalized self service options to help zoom manage the influx of customer requests were proud that soon chose CSM and the now platform to help manage it exponential growth zoom also is using our AI ops capabilities to win.

April it's new hardware as a service business model. Thank you Jim.

Underlying every one of our products if the now platform the platform platforms. Let me share. Some examples of how the now platform and products translated into strategic customer wins this quarter.

Great example is the U.S. State Department.

They use the now platform to create a dozen apps and just three weeks tracking Colbert requirements for every country on the plant to keep employees traveling safely.

With JP Morgan, we closed our largest I T business management, and our largest dep devops deal ever as they consolidate there aren't you give them they are improving their employees experiences leveraging advance workflows and intelligent automation, we're honored at JP Morgan Chase.

Selected the now platform to drive their digital transformation, creating great employee experiences and increasing productivity.

I serve a global fin Tech leader recently completed a merger and needed to consolidated systems and processes to gain greater visibility of their assets using the now platform. They can now gain visibility and insight into the newly combined infrastructure and they are emerging dependencies, yes, we do.

Yes, it's time to resolution improves customer experiences and reduces opex, all while proactively providing better services to their customers.

Also now working with the state of Montana to automate their citizen workflows with cobot, they needed to evolve face to face citizen interactions to remote services. They also wanted to reduce the cost and complexity of asset management across multiple agencies, while maintaining data privacy between all of them.

It was our ability to provide the single enterprise platform services all of Montana's agencies that earned us their trust and their business.

Service now is partnering with the war world's largest brands Disney is another example of how the now platform is driving business model innovation, Dan Schmidt VP and CIO busy streaming services join me as part of my keynote during our knowledge 20 experience with the support.

Service now she gets them workflows Disney plus quickly grew to more than 55 million subscribers in just a few months after launch.

During the knowledge Chino, Dan shared have surface now provided Disney and I quote and extremely flexible and extensible platform that allows them to develop a best in breed customer Health Center and best in breed tooling for their agents to support their customers around the world.

These customer stories, and so many others or why the industry now understands the magic of and now platform and the strength of our core business top I see analyst firms of named US the leader and Threed or markets. The service now she goes down Devops and software asset management.

We also were honored to be even named be over all digital Innovation Award winner I've been town research.

Every company has had to pivot and there's new environment to continue to engage customers in meaningful ways I am incredibly proud of how our team quickly pivoted knowledge from a four day physical event that was scheduled to be held in Orlando to a six week digital experience that brought the service now community.

He together worldwide.

It is we reached almost twice as many people globally. This year than we did it not was 29 team. We also delivered more than 820 hours of content, including 1100 customer led sessions and breakouts building a strong pipeline.

And our traction continues to grow.

Echo system continues to strengthen our partners play a critical role in accelerating customers digital transformation. For example, we recently announced an expanded alliance with Deloitte to help customers accelerate their HR service delivery efforts and to provide employees with exceptional digital experience.

And just anywhere.

With customer loyalty and a rolling Echo system, we are increasingly part of digital transformation conversations that give us comp absolute confidence in our business model and our strategic relevance with customers. Our innovation is inspired by solving the needs of customers.

Across geography industry and persona as we shape the work flow Revolution, our best ideas or ahead of us.

Our overarching focus is clear.

Innovating for customers as we scale surface now to 10 billion and beyond as strong management team and our 12000 employees will enable us to achieve our bold ambitions to continue driving I broke today, we are announcing the next evolution of our already outstanding go to market.

Organization.

We are leveraging our truck true and proven executive talent to continue strong momentum.

The effective immediately Kevin Haverty is named Chief revenue Officer as he continues leading our global sales organization, Kevin has been with the company for nine years and has been leading our sales organization, but the last six years, he's only been number the whole time.

Wow, Okay me his name to the new role of Chief customer and partner officer, leading all customer success programs and the development of strategic partner activities. She joined service now in 2017 as Chief strategy Officer and have led nine acquisitions. They will go.

Reports directly to me I'm really excited.

We also recently welcome Paul Smith, as senior Vice President and General manager of our EMEA business.

Which by the way just reached a billion revenue run rate.

Joining us from Salesforce. He has a track record for triple digit growth.

All this is a great example of how service now is attracting premier talent worldwide.

We are fast becoming the employer of choice for our industry Best town.

In closing I want to take a moment our favorite Tonight, David has decided to retire at the end of 2020 after a stellar nine years and service now and more than 35 years in the industry.

David truly has earned the right the step away and began a new personal chapter in his life, David epitomizes the purpose and values its been a tremendous honored to work so closely with such a beloved leader.

He is service now family he always will be and I wish him. The very best in his retirement, David will remain president ever readers and an adviser to me until the end of the year. In summary, we are service now strong and extraordinary times are born extraordinary opportunities and is once in a lifetime.

No. We are at the top of our game our people are rising up to seize the opportunities before us I'm incredibly proud of our culture, our focus discipline and execution service now people have never been more engaged more focused on serving the enormous needs of our customers are part.

There's a witness service now echo system is truly thriving.

Brand continues to resonate and we are creating greater awareness and relevance with the C suite.

Constantly here, how people deeply connect to our brand and the humanity of our purpose, ladies and gentlemen surface now its special.

We're leading the work flow Revolution, which leaves the future of our business now work flows on the now platform. The opportunity has never been greater we will fill our purpose to make the world to work work better for people, we're hungry well humble and would take it nothing for granted we're on the move towards Destiny.

To become the defining enterprise software company a bit 20 Onest century. Thank you very much for your time and attention today I look forward to your questions now I'll turn the call over to Jim Gina.

Thank you Bill.

Q2 was another exceptionally strong corridor for service now despite the macro economic headwinds created by club at 19.

We exceeded the high end of our subscription revenues and subscription billings guidance, while continuing to drive margin expansion and very healthy recast though.

Q2 subscription revenues were 1.016 billion, representing 32% year over year constant currency growth, making service now a 4 billion revenue by May company, a milestone on a way to like 10 billion.

Q2 subscription billings for 1.18 billing.

Representing 26% year over year adjusted growth driven by solid execution from ourselves.

Remaining performance obligations or RPL ended the quarter at approximately 7 billion, representing 31% year over year constant currency growth.

Hi, RPL was approximately 3.5 billion, representing 32% year over year constant currency growth.

Topline strength in the quarter was driven by continued expansion of our existing customers are best in class renewal rate remained at 97% demonstrating the resilience of our business as the now platform remains a mission critical part of our customers operation.

Our sales teams continue to win large deals in the quarter.

As Bill mentioned, we closed 40 deals greater than 1 million in HCV, an increase from Q1.

What's more the average size of those deals is bigger than in any quarter over the past here in Q2 was our first quarter and which we closed two deals over 10 million all during a challenging time for our customers.

Turning to profitability.

Q2, operating margin was 28% above 900 basis points year over year, driven by a subscription revenue outperformance as well as lower expenses due to co that.

Putting approximately two points of savings of knowledge 2020, moving to a digital only format.

I'll be castle margin was 24% up 100 basis points year over year, driven by a strong operating margin expansion, partially offset by higher capex and an increase in DSS.

Together these results demonstrate the strength of our business model and our ability to drive a balance of growth and profit.

Before I missed the guidance I want to get a brief update on how cobot 19 is impacting our business.

The highly affected industries, we outlined in Q1, which represent about 20% type business and include areas such as transportation hospitality retail energy.

Continues to hold up well in Q2 as renewals of existing customers remains strong.

We also closed big deals in spite of the macro headwinds these enterprises face.

Now more than other they recognize the importance of digital transformation and the quick time to values service now can deliver.

We closed five deals over $1 million verticals, including oil and gas transportation and health care.

We also won a large security deal with the U.S. based multinationals hotel chain.

Customer and one of the most impacted industries.

As Bill mentioned the work flow Revolution is underway, we've adopted our go to market play, but the focus on the things that madam both to our customers.

And speaking with customers they recognize the strategic relevance of now work flows on the now platform.

One platform when data model and one architecture.

This is kept our pipeline generation very healthy.

Our coverage ratio today is better than at the same time last year, giving a high confidence in the second half of the year.

The great thing about our business model is that it is resilient unpredictable, we have a robust backlog and we generate 80% of a new business from existing customers that understands service now its mission critical.

With these attributes and our visibility into the pipeline, we feel confident executing our class.

As a result, we are raising guidance for the full year 2020.

We are raising our subscription revenues range to between 4.185 billion and 4.2 billion, representing approximately 29% to 30% year over year constant currency growth.

This range reflects 18 million dollar tailwind aren't exchange first our previous guidance.

We are raising our subscription billings range to between 4.66 billion, a 4.7 billion, representing 24% to 25% year over year adjusted gross.

This range reflects the 22 million tailwind and foreign exchange first our previous guidance.

We continue to expect 2020 subscription gross margin of 86% and we are raising our full year 2020, <unk> operating margin on 23% to 24%.

This reflects additional savings from travel expenses and the transition of our Q4 now at work events living to digital experiences.

Many about learnings from working remotely well have lasting effect on our overall efficiency, giving us the agility to redeploy those savings elsewhere.

Importantly, we are a growth company with a lot of runway ahead of us.

We continue to feel confident about the long term opportunity a path to 10 billion. A revenue went beyond we will continue to sebastien strategic areas, such as R&D and go to market.

As always.

The discipline as we evaluate our investments to ensure we generate the greatest ROI possible.

Turning to free cash so we are raising our full year 20 to 2020 free cash and margin to 29.5%, reflecting the increase in operating margin, partially offset by decreasing collection due to expected DSL increases.

We remain committed to helping our customers nice through this challenging time unless required let's take a measured to provide greater paying a flexibility.

Turning to Q3.

We expect subscription revenues between 1.55 billion and 1.6 billion, representing 26% to 27% year over year constant currency growth.

We expect subscription billings between 995 million and 1.15 billion, representing 16% to 18% year over year adjusted.

I would note here that the seasonality of billings has changed this year due to shifts and the timing of renewal.

About 18 million of billings was pulled into Q2 from Q3, and we also expect the proportion of Q threes historical invoicing mix.

Shifted into Q4.

I want to be clear.

The change in billing seasonality reflects the timing of invoices only not any changes in the trends of our business.

As customers expand that purchases of service now Scott.

Often realign their new contract to coach terminate with existing contract.

These changes only affect the timing of our billing and do not impact our revenue expectation.

Moving on to profitability, but Q3, we expect a 22% operating margin, which includes some spend that shifted from Q2 to Q3 and increased investments as we continue to develop pipeline based on the opportunities we are seeing.

As a management team we have died prudent about marketing spend entering into our full first kobin quarter in Q2.

However, the outstanding execution, we've seen from the team, including the success of knowledge 2020, other digital a bad as demonstrated our ability to get great returns on our investment.

Finally, we expect third quarter and fully here 2020 diluted weighted average outstanding status of 199 million and 198 million respectively.

In summary, as it continues to navigate through this unprecedented operating environment, a few things have become clear.

Digital transformation is accelerating as companies react to unexpected disruptions and reimagine the future of their business.

Service now is the strategic work flow Oh, sorry, I see epicenter of this digital transformation.

Customers need us more now than ever and the organization is galvanize to deliver.

The power of the now platform has become self evident to customers.

Our custom made is innovating on the now platform to meet their crisis management business continuity and connectivity needs.

We have a world class management team in the right product portfolio to weather the short term covert challenge as.

We will continue to help our customers about I will emerge from this crisis, and even stronger and better company.

When a very strong financial position exiting Q2, it's 7 billion in RPL and a strong net cash position of $2.4 billion.

We have never been prouder of our employees and their continued focus on survey our customers partners and communities.

Oh highway and humble culture is stronger than ever and we can't think please enough for their hard work and dedication.

With that operator, we'd like to now turn over the call for questions.

As a reminder to ask a question you need to press star one on your telephone to withdraw your question press the pound or Heskey.

Please limit to one question maybe into the queue. After your question has been answered we'll pause for just a moment to compared to current a roster.

And your first question is from Kash Rangan from.

America.

Right.

Well you budget on one for you then if I could see there can you just expand a little bit about this on the seasonality of Sterling. So this is something that service now there's not typically experience to your point to your credit clearly the CRP on number is rock solid and so it's a the subscription billing system. If you could dig a little bit deeper to do the emerging seasonality of billings that'd be good.

Great and build question for you once we come out of this pandemic what does the demand picture looks like the service Starbuck back to it in some sense. Some investors are concerned this might be pulling in accelerating spend because of the pandemic, but do you really agree with that and what the stuff the shape of fatherless post pandemic demand picture looks like for service not thank you. So.

Thank you congratulations.

Thanks, Kash sure. So the seasonality of our billings is changing I'm a bit this year due to shifts and the timing of certain renewal as I talked about in my script. Some customers are realigning their new contract for additional product to co term with existing contract as a result, we.

That's the proportion of Q3's historical billings men mix to now land in Q4.

They also previously mentioned, we saw about 18 million of billings shifts out of Q3 and into Q2 due to the timing of renewal.

If you add those point back to growth, you'll get a more normalized 20% plus which puts us at the midpoint of up the current consensus. So again I want to know these changes only affect the timing of billing and do not impact revenue expectations or business performance at all.

Okay and cash. Thank you very much for your question and you very nice comments post pandemic a service now gets even stronger.

And the reason for that is our customers have a less limitations around them and their businesses.

So you should feel very bullish about our company are a 10 billion aspiration way beyond that here's what I see the platform. The now platform is resonating everywhere.

Ecosystem looks at it as a cross platform integration engine, because there's so many silo systems out there from the Twentyth century system of record 'em, we don't compete with them, we simply make them better so they layer in the now platform and enable business operations to execute even without having to change.

And redo their systems of record so that's a big tailwind and the eco system. All has multibillion plans around service now and they will even be very large tech companies that will declare that very soon I guess enpro, we're only 15% penetrated cash and that is absolutely paradigm that'll have a 100% parity.

Ration.

Employee experience the simplicity of the employee experience, it's become not just the Chr Roe, but a CEO imperative because the war for talent is only going to get greater I'm not less premium talent is everything and we're doing just a great job and employee experience. So we make all the other ones that are already there look better I see compass.

Steve with one system of record per 1000 employees in very.

Very consistently and with US you just take one portal approach to simplify the whole scenario for the employee, especially with a hybrid a future work environment work from home work in the office work somewhere in between we own that and see it down I mean looking to Disney example, the Holy Grail has always been direct to consumer where.

Oh, great product company Didnt have to split their money through different channels and different routes to market, where they could just go direct to their consumer look at Disney how they intubated with Disney plus I think that example, when you think about virtual agents you think about machine learning in a high a platform to run your operations.

That provide some work order in a work flow instantaneously, but customers struggled with an internet order. So they get the subscription they when the customer customer happy experience and then finally, one I think about CSM. Its did you just town. So we're in a to win it and I. Thank God Disney plus is a perfect example of the bright.

Future for the now platform and finally look at this cash you know this very well locally no code edge application.

Our customers are building applications and ours and in a couple of days deploying them to in some cases, one and a half million employees within two days, that's the kind of rapid prototyping innovation and development that has to be done in and out platform gives them that these are major transformations.

In the enterprise and service now will be at the forefront of leading this initiative.

Crystal clear and a compelling and congrats congratulations bill thank you.

Thank you so much cash.

Your next question is from Walter Pritchard up city.

Hi, Thanks, I'm wondering on the I.P.S.M. side, and I guess Im pro has been a you know we think the success that maybe we didnt anticipate as much as it's been I'm, what I'm wondering where you are in terms of the installed base moving over to IPO, sendpro and and how how much longer do you see that as a yes as the short tail one that you've seen that so far thanks.

Oh, Thank you very much the question I, Walter we're about 15% penetrated and I'd assume pro and more than eight out of 10 customers automatically choose if I'm right out of the gates. So we still have the entire installed base to continue though our spread or wings in and what's really great about I see us down probably no credit the C.J. upgrade ended.

Nearing team, you're bringing now all the machine learning the AI the operational excellence to comes on the platform and you start to get into the predictive world of business automation all with service now so that is gonna be huge tailwind for long time for us for what I really love about is it opens up all the other conversation.

The ones with the employee experience customer service management, the edge application and then even innovation on the now platform itself. So I believe you should feel very very very confident and I see us enpro and the pipeline is sort of great. Thanks, Doug.

Thank you Walter.

Your next question is from Brad Zelnick of credit Suisse.

Great. Thank you very much and congrats on the strong quarter Bill I recall when you join service now you were shortest there'd be no interruption and you've delivered just that even in the face of cobot, but we're now seeing a transition and sales leadership at the midpoint of the year. The timing seems a little unusual and I just wanted to understand how much of any of it.

Billings timing that we're seeing from Q2, three and four might be related to 20 transition of roles and and what if anything might change in terms of go to market strategy with the new configuration. Thanks.

Brad first of all thank you very much for acknowledging that you know I know a lot of people thought I was going to pull up the van with.

Crews that I might have had another company and I start, making big changes I found a great management team here John Donahoe, our did a great job Frank Slootman before him and Fred Bloody built an unbelievable company and I'm proud to stand on the shoulder those giants and as it relates to me personally with this team I'm not.

Changes even now so David Schneider is a great guy on him and I have a wonderful friendship and he's going to be with me all the way to the end of this year. So after 35 years nine its service now he set a stellar career by the way he still living but he really wants to spend time with his family. He has an eight and nine year old and 35 years on.

On the road has been a lot and he told me when I first met on that this is something he was interested in so please know that in a certain sense, we're actually simplifying service now because Kevin Haverty Who's now the Chief revenue officer has been running the number to surface now for six years and he's the guy.

So when you think about our sales sales operations the industry go to market Kevin had it he still has it and all of his leaders are perfectly held in place. There's no change the second thing with Laura.

As you know she runs strategy for us very accomplished person I just wanted to give you maybe just a little GE too because sometimes when you run a strategy you don't know everything about the person.

This is a college basketball player for four years as a start so talk about competitive she led along with Kevin The go to market for our company. She has 20 years experience a with cxo level transformations and she led our M&A events and she's been my right hand on so many strategic issue.

Since I've been here. So now she gets to put the value chain together, so our services business, we align presale, we align sale, we align post sale, we like the eco system any value motion to deliver extreme upside for our customers and she really gets that with the pain background.

And her experience. It service now she too is the tried true and proven leader that I was fortunate enough to get to work with when I came here. So no change the only thing that's mildly different is that the ended the year, David there's going to pursue his retirement spend a little bit more time with his family, but in the meantime, you know he's right by my side it will be.

Focused on sponsoring large customers and mentoring, our Kevin and Laura for anything that they need and obviously our culture is on fire on our net promoter score the customer satisfaction loyalty and our employee satisfaction as an all time high. Please know Brad there's really no disruption here whatsoever.

And I wasn't bad and I would just at all so that the management changes have no impact on invoicing or billings right. Our billings guide for the full year is strong and we remain highly confident in our ability to see that.

Thank you Jamie Thank you Bill that's it for me thanks.

Thanks, a lot Brett Thanks, Brad.

A question is from Sterling Auty.

Yeah. Thanks, Hi, guys I wondered if you could comment in terms of what you expect experienced geographically and specifically looking at the U.S. results the looks more flattish versus the growth in EMEA was there any driving factor whether its government contribution or others that that you would point to.

Yeah. So we had we had good growth in the America as we had good growth in EMEA as well, we're really pleased with our results for Q2 really to out throughout the region really they all achieved our expectations, which really helped drive the.

The performance for all of Q2.

Alright, great. Thank you.

And Sterling one thing you know that you may want to know is immediate just broke through the billion run rate threshold, which is an exciting achievement and getting Paul Smith and at a run EMEA, which is a proven enterprise software executive.

For.

Many many years in the enterprise space and you know him, leaving a pretty well known brands to come here I think is sending a statement.

So we're a rock solid in every single region, where rock solid at the top leadership level and there's nothing but trusted service now with our customers and our people.

Makes sense. Thank you.

Thanks, a lot appreciate it.

Your next question is from Alex Zukin of RBC capital markets.

[noise] Hey, guys. Thanks for taking my question and congratulations on another great quarter.

Just a quick one for me Bill it Doesnt seem like the core buyer in the I'd see a department seems like they've gotten adrenalin shot here from from the Koby crisis I wanted out no. If you think about your playbook in this environment versus maybe 90 days ago, what's the playbook to take incremental share and and on the pipeline if you could comment.

Got it federal vertical what you're seeing there and in the quarter and then apologies for the multi part question, but yes. It could you just help US bridge the growth that you're putting up and kind of current RPL and current LPL bookings versus the adjusted subscription billings growth.

Sure sure how long I'll, let you give you the the our PEO numbers the great but look the reality is this.

The Ceos of enterprises around the world are going to be doubling down on their investment and digital transformation.

They recognized in a pre covered world that you have to transform put in a post color coded world you have to be digital to survive I mean, just think about it your employees half actually you know work from anywhere now if not all away from home for quite Awhile. So digital transformation has hit everybody at home nine out of 10.

You always have a digital first strategy yet only four out of those 10 say I'm ready for digital disruption in other words, if somebody comes out their company with a digital playbook, that's better than there has been I don't feel ready for that so this is playing right into the hands of service now what's interesting is the I'd assume backbone to really be before.

Leader and I see enough strategic authority it carries over to the employee experience. It carries over to the customer service management side and also an edge applications take a great company like lows.

The heart of Cobras, they had to basically they feel with leave requests with their employees, how do I build an application in less than 96 hours into poised to 323000 people well you do it on a low code platform like the now platform and you get it out there so you're seeing everything comes together now service.

Now because we're a platform company I think that's the big breakthrough that all more shareholder should realize because that platform now if you talk to Microsoft is one of the top six strategic platforms from Microsoft If you talk to any one of the big six systems integrators, it's one of their top platforms.

Now people are realizing my goodness. The Twentyth century architectures are too slow and these digital first environments are white guest fast how do I get speed and that's where the work flow revolution, it's hitting its stride because behind every great employee or customer experience is a great workflow.

And if you listen to my comments today. It's also security because now we have to take a worker and match the I.T. batch with their rights in privileges and this safety protocols around coming back to the office or having to be quarantined or allowing their team.

Needs to understand the dynamics of who is doing and who's out. This is also happening in professional sports were highly involved as well. So all of these forces and more are saying platform companies win in a digital transformation environment, especially if they are born in the cloud.

And on your question with respect to the RPL and thank Keith I noted thing such strong growth in our with our RPL and our current RPL. The difference in the buildings schedule right. So invoicing schedule in past filling but it will not impact on our RTL. So this goes back to the.

And that I made earlier that the changes in the invoicing and billing are just timing related and do not impact on revenue expectations or business performance and so this is why billings is not always the best in indicator, it's just timing and the core of our business remain ever shop.

So please admin.

Not content and business. Okay. Adnan, we added handled billings and revenue are fine margin free cash flow growth everything where you wanted.

Thank you guys.

Thank you very much tanks out.

Your next question is on Gregg Moskowitz.

Hi, guys. So thanks for taking the question and congrats as well in a very good quarter. So it was impressive to see the mix of business from now platform add ons. Another rights to 13% of total this quarter and Bill you talked about the power of low code. No code are you seeing broader base adoption of the now platform or with the second.

Typically influenced by does they take or deals I'm, just trying to get a sense of whether you're seeing clear signs a growing trend here. Thanks.

It's it's absolutely a growing a growing trend if you want examples I gave was the U.S. State Department.

About this they use the now platform to create a dozen applications in three weeks tracking covert.

For every country around the world.

If you think about customers like Petrobras, a global energy conglomerate and Brazil's largest company by the way they are using the now platform to lead their digital transformation strategy. So it is clear that this idea of internal business process on an end to end.

Basis has moved from a system of record idea because they realize that data gets trapped in a solo and a silo to streamlining things in a workflow. So this is how people are looking at product development. Now. This is how they're looking at process innovation. This is how they're thinking about reduce.

During a time from discovery, all the way through to actually getting products and services to market. So I really believe were onto something here and we're at the forefront of these early days of the work flow Revolution.

And I was just add to that the launch of our state workplace application.

Goodness. This product was designed and launch in just a matter or weeks and in the quarter. We saw over 30 deals close now that's product innovation incredible sales execution and quick time to value added staff.

Really really strong traction here and if I could build on that on June is absolutely right I want it I want you know something.

We referenced a few names in my comments today and in all cases, we went against some other people out there that is heavily marketed by their brands and their offerings and why did the customers choose us.

They said because you actually have a real product.

It's not a prototype it's not an idea, it's a product and incidentally when hoover actually implemented it in less than two weeks. They were stunned and I was very proud to have them talk about that success at our board meeting the other day. So what you're seeing now is people realizing the difference between marketing and prototype.

Burst real products and scale.

That's very helpful. Thanks for the color that.

Thank you.

Your next question is some field, Phil Winslow of wells five.

Hi, Thanks for taking my question on congrats on a a great quarter.

Two questions for Bill Bill, obviously, another strong quarter in sales and marketing hiring whatever your product from some color on just what you're seeing in terms of pipeline build from some of these new hires and then what are the just that strong hiring made in terms of your comment for the second to happen next year and then just a one fault.

Yeah. So it's great question, what we have done which is very interesting. If you look at it was actually increase the size of the workforce, 20% and we powered right through the first half of the year in the midst of a koeppen environment.

So we have the feet on the street, we have everyone through shark count, which is what we call our training camp here.

And we also have 323 summer interns that are early adopters to service now brand that want to join the company. So we're hiring young brilliant inspired people to be part of the movement and right now we have enough feet on the street to actually achieve our goals and we're looking at everything Gina and I. When we go through the math a year in advance.

To make sure we have the bandwidth. We're also making sure we invest properly in our engineering strength and I want to basically say base between engineering and go to market. There's nobody that can do it any better than us. So we really are looking at our own ideas our own ability to invent and then having the couple.

After the on the Street and then the marketing savvy and the brand reach to get the people not just in the Americas, but all around the world to get them on the service now train. So we're ready and we're going to keep building the machine and I would just add to that with respect to our pipeline a coverage ratio today, it's better than.

The same time this time last year and so from a confidence in our guide for the back half as I said in my in my prepared remarks and build it has all were highly confident in our died and our ability to execute in the back half idea.

Got it and then just a follow up for you in terms of just the HR. Obviously, you called out a lot of wins in terms of returned to work.

Obviously, our tech set of similar thing how are you thinking about how it returned to work impacted the Q3 results, but also the second half not just simply for of as an add on to existing your HR service delivery customers, but as a potential that should drive.

<unk>.

I think the idea there is you know the 550 downloads the 30 wins the Gina talked proving that we are a head over heels better than the offerings oil and the alternative scenario with some other people in the market. We know that so now it's just a question of how much upside can we get in the back.

Ended the year didn't materially impacted this quarter, it's upside, but it's not material, but in the future. You know I think if you look at employee experience as a holistic part of our business model you take the core employee experience and now the return to work suite and they'll always be.

The next new innovation on top what I'm impressed with Phil is every two weeks, we have new releases that keep up with the ever changing market dynamics. There's two things that are going on here that I really want you to register number one the architecture that others have cannot innovate into we'd cycles ends up.

Ploy with customers and get big companies running within and fully deployed within two weeks architecturally.

Through various things of M&A and other things they don't have to clean platform that we have and secondly, our engineering team because the now platform assemble can interact on this platform. So quickly. So we actually got a whole suite out the door in two weeks. The emergency response apps in March were done in three days deployed in a way.

So that is the difference the time to market and so I would like the shareholders understand that that is upside, but not required to deliver the dream that Gina and I laid out.

And I would just that also that our legacy Saar is performing extremely well as well you know at the end of the day employee experience is more relevant than ever and C. Suite budgets are shifting really to drive better employee experiences. We closed eight deals over 1 million in each on the quarter an h. always included.

Important teen of the top 20 deals we now have over 750 customers.

And Bill spoke about the Commonwealth of Pennsylvania, and Goldman Sachs in his prepared remarks, but another when we're proud of is it with a multinational pharmaceutical company.

Really shows now to consolidate all of their systems into one portal to reduce the complexity to the employee try more self service and really seen line and automate broke and processes. So you're absolutely right. It's definitely on the forefront of of all C suite executives today.

Great. Thanks.

Thank you Bill.

Your next question is from Chris Merwin.

All right. Thanks, so much for taking the question I wanted to ask about the soccer asset management product I imagine, that's particularly relevant these days with many companies burden with lot of tech that and looking to digitally transform. So can you talk about many I guess any updates there and how significant a contributor that might be TV going forward. Thank you Joe.

Sure sure. Thank you very much for the question I appreciate Chris as you know the environment is right for this.

There are enormous opportunities with underutilized software assets lots of Shelfware and obviously this also is true in the hardware business and our our product addresses both of them.

What I would say to you is the rating that I gave you know my remarks, the independent research companies now have claimed us as a leader in the space and the pipeline in this area is extremely good customers have activated us and all the scenarios that I personally been involved.

And they are looking at us in multiple ways. So typically does so for us that management is coupled with I see us some pro and some other pieces and put a clearly will grow faster in the second half and beyond because of the leg work that we did in the first half, especially now bringing hardware asset management market.

So we can take a holistic look at both hardware and software and both of those products have been rated by the independent researchers as the leader.

Great. Thanks, so much.

Thank you.

Okay.

Your next question, if some Tom Roderick off people.

Hi, Thank you for taking my questions really appreciate it great job on a a successful quarter Bill I was hoping you could just take a second and address the a the security product a little bit more detail certainly seems like that is coming up right in the middle of a lot of your strategic deals right now and security of course is right at the heart of digital.

Transformation.

I'll talk a little bit more about how that's progressing in the pipeline, who you're facing off against competitive lead there and I'm you know how you're trying to structure. These deals what are the what a typical size the sizes of the security deals right now thanks.

Yes sure of course on thank you very much for the question I definitely appreciate it in terms of on our quarter.

If you look at it we had our largest security our quarter ever for the company. A security was included in 15 at the top 20 deals I spoke about by served and JP Morgan, which incidentally I can speak to with authorities since I was on the executive sponsor for both of those great businesses. Another example.

It would be very large defense contractor.

That worked with us they saw a tremendous value in an automated approach to security risks and vulnerability response and all on the now platform. So I think what you should take away from this is well when they're competing with people. We are actually compete with anybody we don't talk badly about system of record we have no problem with any brands.

In the market or any particular security company, what they seem to like the most is as they think about streamlining and automating their workflow they like to have all of it on the now platform. So these are very smooth attach rate deals for us because it's all.

All in the workflow and the companies like JP Morgan for example, as you know have.

Roughly run companies extraordinary I see talent and they really like to combine everything that they do in the workflow itself. One example of a company that I was personally involved in its as simple as this and employee comes into a building they have a batch that bad.

Best understood by the I TSM pro anything concerning that employee.

For example, their rights and privileges their office on access their computer access we know everything about them, but also we know everything about vulnerabilities and responses and attacks that might be coming into the company as well and as you know early detection is the whole key.

To solving you security problems before they get out of control all of this is mastered in there now and the now platform. So think of US as platform company. Thank goodness as work flow and everything is that's a business process or work flow and these companies has to be highly secure and including the return to workplace that June was just.

Looking about I mean half of the to competitive advantage that we bring is knowing everything about the talent their rights privileges and what they shouldn't shouldn't be doing and that has been a big differentiator. That's why I think the IC backbone of our platform is a huge advantage.

Yeah.

Yes really helpful. Thank you appreciate it.

Thanks much.

And we have type one more question. Your last question is from Sarah Handsomely Boulder.

Macquarie capital.

Hi, great. Thank you for squeezing me and I appreciate it good to hear your voices that Regina and congrats on another great quarter.

That's the RPL growth is really something can Marvel at Bill I think one question that would be really helpful. Just kind of here. Your perspective on is if you could look at your sales quite your sales organization your pipeline your closure rate.

Do you feel better or worse than you did three months ago and why.

I feel much better I Didnt feel bad then I told you that then and promises made promises kept but I feel even better now and the reason why is you know I think people have come to know that the coven environment is a reality and this.

The reality is not going away anytime soon and business is still left to run governments still up to serve their citizens partners still have to acclimate and this climate and meet the ever changing and diverse needs of digital transformation for our customers. So digital business is moving forward as.

In the digital event, we call knowledge 2020 was double the attendance in the prior year and I think that tells you that people are looking for content, they're looking for solutions they need us now more than they ever did before the other thing I find very interesting is.

You mentioned this error being in four continents in a day.

On zoom no no I can't wait.

Right, we have divide the logic.

Uptime and travel.

Because of these modern digital technologies, so as a productive person I think that all leaders would probably tell you. The same thing if you interviewed a 100 Ceos in the business Council I think 98 would tell you they can be in more places.

And more time zones than they ever could have imagined and the physical world. So I think the whole world is adapting to this I'll give you. Another example, if you look at our engineering team they have written more cone.

Because we have all the analytics on the code in the productivity per engineer and it's obviously a good code everything works here and then in terms of the customers using our platform all of the use rates are sky high higher than ever before so this is just telling me that people have adjusted the.

Talk of March has now become a norm and business is going on and that's evident in the pipeline is evident in the linearity is evident in all of the communications I've had with our sales leadership.

Our industry leadership, our various go to market teams, what we're doing in marketing what we're doing in product marketing are you people are amped up here.

My biggest challenge here is telling them Hey, you guys got to take an afternoon. All go take a walk relax because they're really just going full speed. So I believe you should feel very confident in service now today and very confident in the second half outlook and extremely confident and inspire.

Our workforce to get the jobs on for our customers. So they could serve their customers.

Thank you Bill that was really helpful gene I'll follow up with you on a call back.

All right side nice Alexa voice as well, thank you be well you.

Thank you Sarah.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.

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