Q4 2020 ServiceNow Inc Earnings Call
Star one on your telephone please be.
For today's conference is being recorded I would now like to turn the conference over to your speaker today, and he said the VP of finance.
And thank you. Please go ahead.
Thank you and good afternoon, and thank you for joining us for service now and fourth quarter of 2020 earnings Conference call.
Joining me are Belnick, Jeremy our President and Chief Executive Officer, and Jean M. S. Since Youre now our Chief Financial Officer Darren.
During today's call, we will review, our fourth quarter, and 'twenty and 'twenty financial results and discuss our financial guidance for the first quarter of 'twenty 'twenty, one and full year 2021.
Before we get started points of emphasis.
And other information discussed on this call, particularly our guidance is based on information as of January 27, 2021 and contains forward looking statements that involve risks uncertainties and assumptions and.
Including those related to the continued impact of COVID-19 on our business and global economic condition.
The guidance, we will provide today and based on our assumption is for that.
Economic environment, and which we will be operating.
And those assumptions are based on the facts.
Many of these assumptions relate to matters that are beyond our control and changing rapidly, including but not limited to you.
And timeframes for severity of social distancing and other mitigation requirements and.
And the impact of COVID-19.
Purchasing decisions and the length of our sales cycles, and you can't really for customers and certain industry.
Please refer to the press release, and the risk factors and MD&A sections of our SEC filings.
Including our most recent 10-Q and our people.
And now its full year of 2020 for information regarding such risks uncertainties and assumptions that may cause actual results to differ materially from those debt for export E.
These statements.
I'd also like to point out that the company presents non-GAAP measures and addition to and not us.
And I just calculated in accordance with GAAP.
Financial figures and he will discuss today are non-GAAP revenue net income remaining performance obligation or Rps and current RPM of CRP.
Just ease of reconciliation between these non-GAAP and GAAP measures. Please refer to one of your press release filed earlier today, and our investor presentation and for prior quarters previously filed.
All of which are posted at investors Dot dot com.
A replay of today's call will also be for you on the website with that I would now like to turn the call over to Bill. Thank you Lisa and good afternoon, everyone and welcome to our Q4 earnings call. Let me begin by extending that new and <unk>.
Your loved ones are healthy and safe, having confronted and unprecedented global environment. We are looking ahead with optimism and I'm thankful to be so well positioned to serve our customers Needless to say, we delivered from our market leading 2020.
You significantly beat your expectations across the board, bringing great momentum into the new year.
Could not be prouder of our team's execution.
We delivered over 30% organic top line growth, 25% operating margins and one 4 billion and free cash flow.
Just an outstanding performance and a testament to our services now strong culture.
The year, we led with courage and conviction retail share of our team our customers and our communities and most importantly, we lead with service now.
To make the world of work work better for people.
We strive to think of world of our customer sites with empathy to address their needs the workflow of revolution.
And the pandemic.
Celebrating digital transformation.
Free business need speed agility, and resilience and every leader wants to deliver great.
And for their employees and their customers.
And this was of changing the way they operate they need to deliver bierce parts of the memorial day and deep employee engagement. So when it's all about people efficacy at mass scale as the business imperative of this morning per se.
The secular tailwind of digital transformation cloud computing and business model innovation have all intersected at the perfect moment in time, a paradigm shift happening worldwide and.
<unk> for the for.
First line.
We saw of digital transformation spending accelerate despite GDP decline and global.
Digital investments are and an all time line and are expected to continue growing according to IDC.
Worldwide digital transformation of investments will total more than seven for <unk>.
By 2020 for them.
And is.
And is firing on all zone.
Service now.
Platform company for digital.
And now platform, what I call of the platform of platforms offers and speed flexibility and innovation companies need our simple low code App development enables fast workflows.
And John.
Delivering consumer great digital experience.
And how platform enables easier and.
And the implementation of delivering on vehicle times of value.
Ottawa.
Beauty of announced that one.
One platform one day to model and one architecture, we seamlessly integrated and all of this and through our system.
And that system integrates seamlessly with all systems of record that matter most to our customers. We go live of workflows their preferred collaboration platform as well.
And give our customers of freedom of choice to use their preferred tools and the unique ability to build outs at record speed.
Hungry and humble as a core services now value it's true for now.
We are grateful to be and such a strong position and such a pivotal moment and we all of whom we are eager to use our strength to help our customers succeed help make our community of stronger and help create great experiences for people.
We are seeing and extraordinary expansion of new spaces and our business.
Healthcare organization for use and service now to improve operations and service delivery, which means better outcomes for people St. Jude Children's hospital has been on a journey to accelerate progress towards blank and.
And saving children and 2020, COVID-19 created significant headwinds for that mission.
With much of the hospital staff required to work from home and.
And the need to digitize.
And what was became more important than M.
First of all beverage service now low code App engine and new.
Hum.
And integrate disparate systems and build custom and.
And then worked loans ultimately, allowing them to ensure seamless delivery of critical services, Inc. And there are four weeks this service now.
<unk> implemented and St. Jude Children's hospital, and everybody was moving towards their goal. We're also proud to be supporting John Scotland and their efforts to vaccinate.
Millions of citizens and inkjet, Scotland.
Our platform.
And our customer workflow simple.
Boy and customized solution design and meet their specific needs.
Appointment of only six weeks showing the agility of the now platform.
Service now of enabling a comprehensive solution for the schedule and boarding of vaccination.
And most vulnerable.
Within 12 hours of rollout.
And in Scotland, and booked over 220000 appointments.
As you can see knowledge.
And now business workflows, it's about real people.
Enterprise digital transformation without every organization in every sector and every geo are adapting well and reading new business models and empowering our people to be productive and Andy Barnard and ambition ex modern.
We are still at work and being powered by the now platform.
Our unique platform and integrated product suite, our small brands.
And the satisfaction and compelling value proposition for them.
Differentiating factors and competitive advantage and fuel.
And our performance.
Our Q4 results our test and.
We dream debt and deliberate we grew billings by more than 40% year over year.
Organically.
We delivered 89 deals greater than $1 billion and now have close to 1100 customers paying us over $1 million annually.
We landed our largest deal ever surpassing the deal record we set in Q3 with the U S Department of veteran Affairs.
Sizes overall keep getting larger and renewal rate remained best in class at 99%.
Here are some key customer wins from Q4, we signed a multiyear and multi product strategic deal with AT&T and they are transforming by focusing on broadband connectivity.
And software based entertainment, while relentlessly focusing on digital and consumer preferences and experiences. We are delighted to work with AT&T communications and ex transformation services now AI powered platform and service operations and product lines will provide ATM.
C accurate and real time operational visibility and every layer of the network fabric and helped deliver a best in class customer experience better experiences for people enabled by services now.
One of the Uk's big for banks and <unk>.
And using multiple services and our products, including our purpose built new financial services operations products to help transform the way it operates and to deliver better customer experiences. The bank has seen a 70% efficiency and improvement of payment process.
By integrating the now platform and to its core banking systems.
With service now of this bank implemented new automated processes, and 60 workdays and their works employees moving from cut and paste swivel chair of manual processes to efficient automated workflows and one case employees went from managing 10.
Western power to 1000 requests and three minutes on the now platform.
Better experiences for people.
Hey, Pal recently expanded their relationship with services now as a key partner for elements of their digital transformation and we're proud to have expanded our relationship with Nike who is using the now platform to create better customer and employee experiences other Q4 deals across our portfolio represented wins.
With major customers and key sectors, such as <unk> dot com and travel and hospitality BP and energy Santander, UK and USAA and financial services and the list goes on and all are used so many services now success stories every day.
Companies are onboarding thousands of people and a work from home environment, making them productive and part of the team from day, one and customers are going live on the now platform and days not months, making a difference for people now not next month for next year now more productive employees happier.
For customers more efficient operations and it's not a CEO on the planet, who doesn't want that and now platform delivers. These examples show how technology is no longer supporting the business technology is the business.
Our I T leadership, and workflows and gives us a uniquely strong foundation to be the leading platform of digital transformation across the enterprise and.
And Q4, I T workflow products remains strong.
T S M delivered 17 deals over $1 million.
And our AI and machine learning capabilities embedded within our pro SKU continued to resonate with our customers.
S M Pro penetration is now over 20% VA.
And the AI ml capabilities of our CRO skus of automating processes to allow people to focus on the work that really matters and we saw a three times increase and usage of our virtual agent technology and 2020.
And our element AI acquisition underscores our commitment to being the leader and AI enabled workflows element AI and deep bench of World class scientists and practitioners will accelerate our AI innovation on the now platform delivering not only better capabilities for what.
But for employee and customer experiences as well.
Hi, Tom was included in 16 of the top 20 deals and had 15 deals over $1 million.
Risk has very strong Q4 bookings more wins than all of the prior year combine our ability to manage risk is really resonating with customers and service now is no longer viewed as backend IC oriented solution. We're now seeing.
As a strategic partner that impacts the entire business custom of workflows as our next $1 billion plus market opportunity for service now and Q4 showed strong momentum customer workflows were included in 11 of our top 20 deals driving such wins the day.
And T 10 of our customer workflow deals were greater than $1 million and.
And this pandemic the employee experience is more important than ever and our employee workflows and seeing strong demand and Q4 11 of our top 20 deals include and employee workflows.
Pandemic is creating the greatest workflow challenge of our time and services now is responding with agility and speed and continuous innovation. We began last spring as you'll remember with our emergency response apps, helping the state of Washington, and many others response of Covid, we fast followed that release.
And with our safe workplace suite of apps and has demonstrated the power of the now platform and great employee workflows that we can deliver very quickly and fact more than 900 organizations now have downloaded the suite already.
And this week, we just launched the first and a suite of planned vaccine administration applications.
Liver out of the box functionality for our customers. Our comprehensive approach enables workflow solutions to the complex challenges of vaccine distribution and administration and monitoring as we have done with safe workplace, we will be delivering continuous innovation with our banks.
Senior administration management applications.
Excited to announce that the state of North Carolina Department of Health and Human services has already leveraging the services now platform.
Our it's Covid vaccine management system to help quickly and efficiently vaccinate 10 million North Carolinians per.
President Biden has declared the distribution of Covid vaccines of top priority for his administration.
This is one of the great work flow challenges of our time.
As we are doing right now and Scotland, North Carolina and many other places service now is ready to ensure vaccine distribution and administration and monitoring that it's simple, it's fast and it's effective and it'll be so as of federal state and local low and summary.
We had an outstanding close to 2020, and we are not slowing down we are changing the world one workflow at a time and our vision is really resonating C level executives realize that behind every great experience is of great workflow. Our company is hitting on all set.
Lenders and 2020, we grew our global workforce by 26% hiring 3000 people and 25 countries with most hired and on boarded digitally we are hiring incredible talent, including some of the greatest mines and the AI industry.
Our culture is.
Strong our employee engagement is at historic highs so too is our employee retention.
Our brand is strong C suite of awareness increased and double digits.
Our innovation pipeline is robust we delivered 70% more features and innovations on the platform and 2020, our partner ecosystem is expanding.
B M. Microsoft Accenture, Deloitte E Y KPMG and all of the Great partners in India, and many others have joined the workflow Revolution with US together, we're bringing the innovation speed of of startup with the scale and reach of a rapidly growing 5 billion.
Dollar plus pure play SaaS company.
And all of our P. O is nearly double that at $9 billion.
We're the only borne and the cloud software company to have reached this size without large scale M&A and we have a clear path to achieve our 10 billion dollar of revenue target.
We are also deeply committed to making of world of work work better for people to helping our customers succeed we are deeply committed to making the world work better to Ciena will share more about our focus on elevating our global impact I'm incredibly proud of our just announced 100 million.
Dollar of investment and an impact on benefiting underserved communities and we're deeply committed to being a leader and building a diverse and inclusive workforce and which everyone feels that they belong because diverse teams with and indomitable will to win create great.
Company's service now is such a company and we are well on our way of becoming the defining enterprise software company of the 20 <unk> century, that's our dream and we will pursue it tirelessly with courage and passion and conviction. Thank you over to you Jim.
Thank you Bill happy new year of Epsilon I wanted to start off by echoing Bill's praised for all of the employees of services now.
Has been a year of unprecedented challenges.
The team has remained focused on executing and meeting the needs of our customers and I couldn't be more impressed with our resilience, which is a testament of our great culture here and service now.
And thanks to our people that we delivered another fantastic quarter for cap a strong year.
He is of high end of our subscription revenues and subscription billings guidance, which carried through to strong free cash flow generation.
He for subscription revenues of $1 24 billion, representing 32% year over year growth inclusive of a three point tailwind from that.
Kim for subscription billings were very strong at 182, 8 billion, representing 41% year over year growth and of $183 million beat versus the high end of our guidance and.
And just take was three 8% year over year.
The outperformance was driven by tremendous execution from our sales team, which resulted in significant net new HCV upside for the quarter as well as 80 million of billings away from 'twenty 'twenty, one due to early customer payments.
We believe the high level of early payments for one time in nature and the result of customers, having excess cash at the end of the year, given the incremental cost savings enterprise of stock from Covid.
Excluding these early payments normalized Q4 billings would have grown 35 for that year over year still well ahead of our guidance.
Remaining performance obligations, our RPM and ended the quarter and approximately $8 $9 billion.
We think 35% year over year credit.
And Kai R. P. M was approximately four 1 billion, representing 33% year over year of growth.
That was about a three point tailwind.
The tracks and we are seeing a top line results reflect our focus on meeting the needs of our customers and their employees.
As Bill noted the work the work flow Revolution is underway and it's centered around the best experiences and that's the now platform superpower, the ability to deliver workflows that create great experiences for people.
And our platform is playing a critical role and accelerating digital transformation.
We're treating our customers and partners listening and learning about their challenges and we can help.
We are selling point products, we're providing them with comprehensive solution with measurable results and quick time to value better together, that's the power of our portfolio.
It is this attention to our customers' needs and that's driving a best in class renewal rate of 99% demonstrating the stickiness of our business as the now platform remains of mission critical part of our customers' operations.
Our sales teams continue to win bigger deals in Q4, including our largest deal ever which is three times the size of our previous lives of steel because 89 deals greater than 1 million and ACD in the quarter with average deal size is up 18% year over year and.
And 2020, we added nearly 700 net new customers and in the year with almost 6900 enterprises.
The number of customers paying us 5 million or more and E C D well over 40% and fiscal 'twenty funding.
Customers are realizing the strategic value of combining services now IC workload with everything from HR, and CSM and our App engine to deliver greater value across the enterprise and.
Our ability to land, new logos and expand our existing relationships amid of pandemic further validates the strength of our platform and the value, we're delivering and of ICC.
Turning to profitability Q4, operating margin was 22% and 100 basis point beat versus our guidance driven by our strong top line outperformance.
Over here are key for operating margins consistent with last year and <unk> expenses were offset by planned incremental R&D investments and marketing spend and pipeline generation.
Our cash they are free.
Cash from margin with 45% up 900 basis points year over year, driven by low at tenet and and strong collection.
For full year, 'twenty, and 'twenty operating margin of 25% of 300 basis points year over year and free cash loans of 32% up 400 basis year over year.
Together these results and the power of our business model and our ability to drive and balance of growth and profitability.
Before I move to guidance I wanted to give a brief update on the macro trends were seeing and the business.
And highly affected industries, we outlined early last year, which represented about 20% of our business continue to see and macro headwinds, but remained resilient and three.
Three of our top 20 deals in the quarter with new highly impacted industries, including retail and a modest and energy.
We do expect headwinds and some severely impacted industries to present in 'twenty and 'twenty. One however retention of existing customers remains very strong and Q4.
Overall, we are entering 2021 strong secular tailwind created by a surge and demand for digital transformation of pipeline continues to look healthy and our brand continues to resonate with enterprise Nita.
And this now is exceptionally well positioned to seize this opportunity we have the unique platform and innovative product suite businesses need the workflow standard for enterprise transformation.
Turning to guidance for transparency and clarity I'd like to call out of few items.
And they noted earlier, we saw 80 million of early payments from customers and Q4, which was an approximately 200 basis point tailwind so full.
Full year of subscription billings growth and funny funny.
This result, and a more significant headwind of about 350 basis points for 'twenty 'twenty, one billings growth to.
To be clear and early payments has no impact on the timing of revenue.
It's also for you just talked about how early renewals and success of very large customers, we're impacting billings cycle and they can add additional volatility and timing and duration. This makes billings of less reliable leading indicator of top line growth.
Given this noise and to provide investors with even greater transparency, we are introducing quarterly CRP of guidance.
We believe C. R. P M will provide better visibility and as a more consistent indicators in this department normalizing for timing and duration noise and we'll continue to provide billings guidance for our 'twenty and 'twenty, one and the transition period.
Second the need to digitally transform has been accelerated by the current macro environment, creating a very large opportunity for circuits now.
With the savings we are recognizing from our more efficient operating environment with continuing to invest in R&D and quote of Bang, we saw strength to drive innovation and pipeline and to fuel our tremendous organic growth engine and ensuring that we maintain our market leadership and are well positioned to take advantage of the digital acceleration.
These investments include those legal and making an AI such as the acquisition of element.
Similar to previous investments and successful growth initiatives like our CRO skus or geographic expansion, we will be disciplined about our spend.
Beyond our business investment, we will also be investing and people and communities, we've always and focus on diversity inclusion and belonging and as Bill noted, we recently announced our first ever of 100 million dollar of investment and a ratio of equity fund it does equitable opportunity for black knee.
This investment is expected to earn a solid return, while facilitating sustainable wealth creation to homeownership entrepreneurship and neighborhood revitalization.
And finally, Covid cases have been spiking and recently and some regions have we entered lockdown protocols.
And we haven't seen any significant impact on our business, we will continue to monitor and be transparent and our disclosures throughout 2021.
With that in line for Q1, we expect subscription revenues of between 1.27, and 5 billion and 1.28 billion, representing 28% to 29% year over year growth, including a four point FX tailwind.
We expect subscription billings between 131 billion and $1 315 billion, representing 24% to 25% year over year growth ex.
Excluding the early payments from customers and 'twenty 'twenty, our Q1 normalized subscription billings growth outlook would be 32% year over year gross includes a net tailwind from FX and duration of four points.
We expect CRP of 32% year over year, including a five point of FX tailwind and we expect and operating margin of 25% and 202 million diluted weighted outstanding shares for the quarter.
For the full year 'twenty 'twenty, one we expect subscription revenues between five point for 8 billion and $5 5 billion, representing 28% year over year growth Inc.
<unk> net to meet point of FX tailwind.
We expect subscription billings between between $6 two zero of 5 billion and $6 225 billion, representing 25% year over year of growth.
Excluding the early customer payments since late 'twenty or 'twenty 'twenty, one normalized subscription billings growth outlook, and the 28% to 29% year over year credit.
This growth reflects an acceleration and net new HCV and 'twenty 'twenty, one and it also includes a net tailwind from FX and duration of two points.
We expect subscription gross margin of 85%, reflecting some federal and public sector customers moving to our newly launched Azure offering as well as increased support for customers impacted by new and evolving data residency requirement.
We expect and operating margin of 23, 5%, representing 100 and state 50 basis points of expansion off of our pre Covid 'twenty 'twenty one way I would note that this is also an incremental 50 basis points more than the 100 basis points of expansion, we target each year.
Finally, we expect free cash flow margin of 30% and 202 million diluted weighted outstanding shares for the year.
In summary, and 'twenty and 'twenty, we delivered a combination of both strong top line growth and profitability and incredible accomplishment and a COVID-19 environment.
Our outstanding results continued to demonstrate our strong product portfolio, our focus on building deep customer relationships and a commitment to enabling their digital transformation.
We're delivering great experiences that drive powerful employee engagement fears of customer loyalty and significant productivity gains. We are the platform company and digital business I'm extremely proud of our team's performance and their unrelenting execution and of turbulent year, you can't think of our planes and.
And for their hard work and dedication.
We're well on our way to becoming a $10 billion revenue company on the strength of incredible organic innovation.
I'm excited about the opportunities ahead of us in 'twenty and 'twenty one.
With that operator, we'd like to now turn over the call for questions.
And ladies and gentlemen, if you would like to ask a question press Star one on your telephone against press Star one on your telephone we'll pause for just a moment to compile the Q&A roster.
For our first question, we had sterling Auty from J P. Morgan.
Your line is open.
Yeah. Thanks, Hi, guys. So in relation to the margin outlook understand the investment opportunity that you have but also curious what you factored in in terms of any increased T. M D and maybe perhaps even dare I say the return to a little bit of business travel held throughout the year.
And can you help us understand and kind of what assumptions underlie the March and outlook on that front.
Sure Sterling. Thanks for the question you know, we talked about really continuing to focus on driving a balance of growth and profitability and.
And I've been praised tranche and panning out and about so and those margins. We are currently expecting that a more normalized G&A will come back towards the back half of 2021, and so the expectations of the front half will be similar to what we've been seeing but that we would expect some more normalized T need too.
To start again in the back half.
Great and then one just follow up in terms of the digital transformations and the applications that you're that you're tying into it'd be kind of curious beyond HR and CSM what are perhaps some of the other applications that you think that customers are going to have more rely on your platform as hopefully the <unk>.
Out of me picks up on the back of vaccinations.
Well. Thank you very much Sterling. This is bill what you're seeing out there is each industry.
It has its own nuances for example, and financial services I talked about security obviously, the future of work is a big movement to work from anywhere and certainly enable that modern work environment.
And do that and a way where people can be on boarded without actually even meeting them.
Train them appropriately and do the ongoing management of people, where they can truly execute their mission and they know all the information and they have all of the data to do their job. So this is happening and every industry and it's happening and every geo and each persona has its own unique needs. What we think is <unk>.
<unk> about service now is that this platform.
Think of it as the workflow automation platform comp.
Comprehend all of the opportunities with App engine to customize things very rapidly like vaccine management. For example, it also offers the integration hub and with the integration hub enables is all of those things from our P. A.
Process mining API integration process analytics native mobile contextual and interfaces and all of the other things that.
Cio's and leaders of businesses are counting on to create and and continuity and the business and that's what makes us. So unique so having that platform advantage and are well known physician and <unk>.
<unk> is equally as relevant with the employee experience because now you have one portal with a consumer grade you ex all the complexities hidden all of the onboard and caring for the employee is done and they are right off and running with their mission and some cases I had one of them very high level of executive tell me I Havent met.
5000 people I hired this year because of the now platform and then on customer service management and every industry and I gave the AT&T example, as one youre seeing this frictionless business environment really take off so how do we deal with the and consumer and do so directly and a way.
And that enables our services to be consumed so you're seeing this ease of use around service now you're seeing the virtual agent guide people through subscription processes and you're seeing all of our deep assurance of machine learning and AI helped the customer and navigate this ion processes, and so forth and the workflow of them.
<unk> becomes the exception because humans shouldn't have to get involved and these processes and less of the computer didn't get the job done and that gives us such an advantage because we're seeing situations, where we can literally consolidate hundreds of systems that are now platform.
Huge cost give the customer a great experience and obviously not put so much pressure on human capital because people are only engaged when theyre, absolutely necessary and the customer satisfaction process. So youre seeing of mass consolidation of all of the old stuff to the now platform.
You're seeing I see.
Employee customer and all of the App engine and integration of hub of opportunities really come together on one common platform one day to model and one of architecture. So it's now of solutions company is now selling of suite and the broad spectrum of offerings gives us reach for the whole C level executive team.
Not just one persona on the executive team.
Thanks Bill.
My pleasure Sterling.
For our next question do we have Keith Bachman from Bank of Montreal, Keith Your line is open.
Yes. Thank you very much I'll ask my questions. My two questions concurrently if I could.
John and the comments you mentioned that you thought you would see.
And acceleration of net new ACD, which in 2021, which I thought was very interesting I was wondering if you could just drill down a little bit more on.
A the visibility into that and be anything that's bubbling up and in terms of just seems to be a greater emphasis.
Drive that net new ACB, what what area.
The follow on question and I wanted to direct to you Bill if I could.
And last year, you're pretty clear that.
Acquisitions was not part of your strategy and maybe some tuck ins here and there.
M 21 of the new year lots of changes the digital landscape is a greater priority is there any change and your thoughts.
As you are considering health services now could effectively build that long term model as it relates to M&A. That's it for me and many thanks.
Yeah, well. Thanks. Thank you very much Keith maybe I'll start off and then give a gina of chance to build as she wishes on the net new HCV.
And Corey first of all I'll, just say that net new HCV on a year over year basis will increase.
And the pipelines that we have and the company and we manage the company on what we call the CEO dashboard and real time give us much greater coverage and we had last year. So we know that the facts substantiate the net new HCV increase.
One of the interesting things hit.
Fascinating is actually our executive briefings have increased 17% on a year over year basis. So if you think about our ability to get to the C suite and increase the contact and this all kind of virtual environment, It's actually gone way up so a lot of people I guess need of good meeting.
And they want and figure out how they're going to digitally transform and the now platform has just dynamite tailwind.
In terms of.
And the whole digital landscape.
And I D. C. I think for seven four trillion is very interesting statistic on this is factual. If you just look at the way companies of prioritizing their investments, but one thing that's not going to get the prioritized is digital transformation and things that enable digital business, because it's really the <unk>.
Only way to either get you still competitive or to increase your competitive advantage and and your peer group and every CEO of <unk>.
<unk> understands that and within that context.
I think the uniqueness of service now to have so much so much momentum not just in exciting new areas like the future of work with our employee experience for customer service management, which is really a frictionless economy now more and more common service now is way, but even in our core.
And I T.
Look at our Ics and core business and some it's outgrown our internal expectations by a lot and you've seen with the pro SKU, where we add on and machine learning and the AI capabilities on our platform approach that too is growing fast and our engineering teams and incredible here.
I mean, the level of innovation of pushing out with 70% increased 2020 over 2019, and we have major releases coming this year commensurate with what we did last year. So I wanted to give you a lot of confidence that the net new HCV is going up the customers are buying and the pipeline of Super strong and here's why.
One thing that I found it fascinating.
There was of studies done by Deloitte.
And with all of this digital transformation of lot of executives of looking back and saying Hey, why didn't I get a better return on all I've put into digital and what they found is that about three quarters of the digital transformation projects Didnt give the yielded a return on investment that's a and hoped for and the number one root cause was integration.
And as you think about the now platform integrating with 550 systems of record out of the box and all of the collaboration tools and the amount of which won the customer likes and have that completely synchronized into the now platform out of the box and you're up and running and days is kind of an attractive value proposition to our customers and.
Even non customers that want to jump on board.
I wouldn't add anything more on that I think that that was a great and to sell on the acceleration of net new AC D. On the M&A conversation I think bill I know you have of perspective, yeah, I mean look here's the situation we are not against.
M&A.
And so far we have done technology tuck ins or we've done what I would call human capital Tuck ins such as we've done with AI.
And tremendous people and to the organization to put all of the value into the now platform and to generate net new revenue growth and new skus such as what we did with <unk>, we'll do with employee will do with customer and obviously, we will do with a low code no code innovation that we can give to the creator which is literally.
A business analyst for anyone that wants to write of low code application and and enterprise. So the way we look at large scale or larger scale M&A. You know we wouldn't be doing our job. If we didn't look at every opportunity to satisfy our customers and our shareholders.
But it's important just to register with you that our projection on the $10 billion is clearly and hand with our organic innovation and the momentum we have and the marketplace with our customers and also the non customers that want to join the team.
You know if there's nothing on the table right now for on a larger deal, but it's not like we don't have our eyes wide open at the various opportunities and if they ever presented themselves you would know that we thought through it rigorously and it was part of our strategic imperative to really do the best we can for.
All of our shareholders and our customers, but right now that is not on the table and it's not something that's actionable at this time.
Thank you guys very much.
For every next question, we have ran a luncheon from Barclays Raimo. Your line is open.
Hey, Thank you and congrats from me as well I have two quick questions.
And one number question and I'll start with that before I forget the gene of like I've got a couple of questions and the 200 basis point headwind you've got in 'twenty and 'twenty like can you just walk us for demand how that becomes like free 50 in <unk> and 'twenty 'twenty, one and they had a good for you guys that just kind of struggled without one.
And then let's start with the one for Bill Bill and I T. S. M. Pro should keep you like we see the early momentum there you talked about a 20% penetration just how does it of how Q on the.
And on the expansion and the renewal and the conversations that you've got reclines as a really good tool to engage declined basis. Thank you.
So I thought I'll take the first line so yeah.
And in Q4, we talked about 80 million of field.
And that was accelerated in Q4 out of one of the funny.
Honey and.
So basically you take that 80 out of Q4 and put it back and be plenty and put it back into 'twenty and 'twenty, one that we see net the double and.
Right.
And taking out in 'twenty, and 'twenty and added back into 'twenty and 'twenty, one and so it's about a 200 basis point tailwind from flying 20 and above.
Ebay, Inc.
And when and plenty one so we tried to do all of the math for you.
And that's pretty clear and.
And just to be clear that these were early repayment and we feel like its one time and needs for relief.
Results of our estimate of having excess cash.
And as driven by the Opex savings that we that they were seeing in 'twenty and 'twenty and so I hope that that clarified for you.
John.
Perfect and it really helps thank you I appreciate that.
Okay, Great and then.
And just give you a few of our I T and.
And brokers that was your question.
First of all it's growing and steep double digits for important and while we're penetrating new 20% and that means we still have 80% of to go and so it really really one of the growth opportunities from a shareholder value creation perspective, but what youre looking and remote items and services requests growing exponentially.
And many of the ICU organizations of Bureau, looking for ways to reflect lower tier of cases, and so by leveraging chatbot and green line responses being part of the AI capabilities are embedded with our gross skewed. So that's one aspect of it and when.
Smart and think about all the innovation that we've built in to this platform and the latest product releases again, the value and is much greater because of the organic innovation and the team has put into it but customers are loving G. Wow I can try and smooth line C, which then has an impact.
On the employee experience and the whole future of work and incidentally, there isn't a customer out there now.
And as to revolutionize their.
Of course and through operations or enable people to work from a virtual environment better and moving.
And this frictionless economy, how can I do things with a no touch or possibly the lowest touch and.
Possible, how kind of way of eliminating the middleman and my margin receivables of companies trying to grow and different industries and all of that requires the IP backbone.
So what you're seeing is a multiplying effect of one story.
And to another and really stretching and bring them of what we're doing for executives across the enterprise and that's why you're seeing deal sizes get larger and larger.
You're seeing us.
And being a very strong position in terms of the product the value and it delivers and the processes that we built for not only resale value creation for wholesale wholesale value breach, so and now aegon and the leadership that we built into this platform is really unique.
Perfect very clear congrats again.
Thank you very much for them.
And for our next question, we have cash Brueggen from Goldman Sachs cash.
Your line is open.
Alright, Thank you very much congratulations bill and.
Gina and the rest of the team My question for you Bill is the company has done a phenomenal job increasing wallet share with really large companies through <unk> and pro C of some workflow HR et cetera of question. Please as you approach the 10 billion butter, Joni and you look at other markets and software.
You tend to have companies slippage database market or ERP.
For our customer base, that's closer to 100000, and 200000 and maybe even 400 500000. So as you look at the of the the.
How do we put it.
Turning up of services now into a into a company that can serve not just 8000 9000 customers, but more of like 100000, and 200000 customers. What does that journey look like and what are your plans to make this excellent piece of technology, that's known to lessen and 10000 to be actually known and adopted by 100000, maybe 200000 customers. Thank you. So much that's all.
My only question.
It's my pleasure to cash. Thank you very much for euro you kind of remarks.
As you think about our company.
The beauty of US right now as we execute for the speed of of startup, but we have the scale of a global company. So youre seeing us now expand and Europe quite dramatically and we're hiring needs and amazing talent.
And you're seeing us make moves into the middle East.
Youre seeing the expands and in Latin America, we're really starting to kick it into high gear and in Asia with an expansion and.
And South Korea, we have lots of plans.
And we have a well known brand and of course, and Australia and other more mature markets and the United States I feel like we're just getting started and based upon the amazing receptivity to the now platform and I think that a lot of that came from our emergency response to COVID-19.
And now the vaccine management and you look at markets and industries line.
For services like Telecommunications law.
Our global new business and so many more so I would say, we're just getting started in terms of the real expense and to scale. The brand and has now become a very well known brand. The ecosystem tailwind has really kicked in and the last 12 months and once.
And you get calls from Amazing Big brands and these day.
The team up with you my customers are demanding that I came up with you and integrate beautifully and now platform of my customers are telling me and Thats, a large telco company and in fact, it's not.
The one that I mentioned of the example, and Thats, what we got to do more of it.
So you are seeing now of a world where the fortune 2000.
It gives a scream opportunity for growth beyond 10 billion, but offering and industry and geography and for some of them in the same account revenue from in net new logos, which gene and in line.
And this will have an operating plan that increase for a large this year over year and addition to the M and T V net new H D D.
Cash and it's going to be.
Look at all for businesses that we already are in look at every one of them is multibillion opportunities and then don't forget the platform because I think more and more as the citizen developer.
The concept makes all of the services now it'll find us and you know.
Well locations to go way beyond 2000, and keep in mind of lot of those large companies that you mentioned, you know and might have a couple of thousand companies and new state.
100000, because of all the subsidiaries and so on so.
We're talking about real companies with real names and I think the subsidiaries of those and we'll see as the world really big box as well.
We're in the early day too.
Very exciting thank you so much of it.
Thank you Pat.
For our next question and we have Walter P charts from Citi. Sir Your line is open.
Alright, thank you.
Bill a question for you just broadly.
And I think if we were sitting here when we were sitting here three or four years ago, we wouldn't have imagined success debt.
And the employee product and the customer service product of had and I'm wondering how you think about over the next several years your gross from from more prescribed SaaS applications versus the past and feel like you've talked about more on this call and and what would you point to in terms of some of the emerging SaaS products that might be today, where each of.
And customer service work for four years ago. Thanks.
Yeah sure absolutely well first of all I would feature Walter the platform itself.
And I believe strongly that service now has now pivoted to be that platform company for digital transformation and that is a big difference from being quote unquote with some used to say was the ERP of I T.
So think about this as a platform company think about the core business and the continuous innovation that we're doing and the core to stretch the core and two new frontiers.
We have a whole organization that is focused on the next big thing. So all of the businesses that you would understand well, whether we invented it for someone else did they all want to cooperate with the now platform because the integration hub enables them.
To get in and once they get in there and they can build their imagination and their dreams with services now so I think there's a big business model and that debt, we have only scratched the surface on music about employee experience I think the.
Companies that I talked to including ours, we run someone else's system of record, but if you talked of 13000 people and service now nobody could possibly pick the system of record and of our lineup because all they look at is this gorgeous consumer grade UI and that's driven by the service now portal where.
All of the services that they need based on their job profile of right. There for them I mean, how big is that market.
And the same thing with customer service management.
We're learning fast and this new world that we've gone way beyond SFA and up sells and cross sells and conditioning that around of marketing campaign, and we're into business model innovation, where great companies like Disney or AT&T of rethinking their business model entirely and their cash.
Capitalizing on the streaming rage, and Theyre coming up with subscription business models that reinvent the customer experience and give them net new businesses service now and that's a win.
And I think that Tam is absolutely unbelievable the other Tam that's pretty interesting and nobody spent much time talking about but it's one of the reasons of ICT services now as future of soap right. If you do.
Take paper based processes that are clogging up all of these companies and you digitize them to the now platform.
There is a well known banks out there that says the U S market alone is of $280 billion, Mark, which you know maybe globally, that's a 400 billion market.
And then I think this platform business I really see and amazing amazing future for the platform business just think about this.
If you're the state of North Carolina, and your service now customer and you've got a vaccine management challenge like literally and.
And days they can build a custom application tailored to 10 million citizens to get them to vaccine and they're on to protect them from this terrible virus again that is just built onto the now platform using the App engine the integration.
And all of the innovation that our great engineers have built so we're at the early days and there are some things that we have plans for debt will be forthcoming in the months and year ahead, but right now I just want to keep you focused on what we're doing because literally we've only scratched the services of these businesses.
Thanks Bill.
Thank you Walter.
Next we have Tom Roderick from Stifel.
Your line is open.
Hey, good afternoon, and thanks for taking my questions and I'll Echo the sentiments other on congratulations on a great finish to a challenging but phenomenal year.
Bill I wanted to ask you just a question on the App engine is just looking at this percentage of of HCV mixed surge to 15% Youre seeing certainly larger and larger customers and more customers lean in on the App engine vision I'd love to hear a little bit more about that in particular, if you could talk about what the App engine vision has.
<unk> for your relationship with the channel partners et cetera of Deloitte and others.
Just just broadly speaking of be fantastic to hear about how you look at that today and how that's changing.
How big customers and partners like you're a size of leaning in here.
Yes, that's fantastic so let's start with the <unk>.
All ideas of partners there isn't a partner that's of global partner right now that does not have a business plan, that's $1 billion of more with service now.
And many of them are and the multiple billions and Theyre building their business model. Some of them told me. They look at the now platform as the cross platform integration engine of their business model with the various other companies whether its system of record software company for collaborative software.
Company that they also have partnerships with but theyre looking us at US is the center of that digital transformation effort that is a very very big tailwind.
Many of the net new in.
Innovative applications that they will bring to their customers they're building onto on the now platform because the low code no code simplicity of the platform.
And enable them to do things at record speeds.
And I think that is a big big unlock for them. So.
That for them is really big and I also think the ml and the AI movement that were on element AI was kind of the finishing touch of.
For M&A moves that we made which was really about acquiring not just patents and thought leadership, but real enablement of the now platform. So we can truly unleash humanity and ways that tier two for were not possible and.
And the computer and the human now can do things in terms of decision, making and removing sold crush and work that nobody really wants to do.
Issuing work flow orders.
Only when it's necessary because of the virtual agent and solve 90 per cent of the problems and most engagement with customers and this is now like a whole new universe.
As many of those partners looked at us and 90.
And now the employee experience for example.
As one of the Lloyds most desired.
And for Sonus, and Theyre actually extraordinarily good at the employee experience and they give us reach globally and there are others on customer service management now that of saying what we're doing.
Especially with digitizing business processes.
He's of use on subscription models like Disney plus.
So honored to see Disney plus day, you know.
And that's our <unk>.
Digital bridge to the future we have great core businesses, but this is the digital bridge for the future and service now is right and the mix of all of that so look it's a one set of its of once of the generation opportunity and.
And I'm really really happy and I also look at the technology partners that we have now a bit of just adopted as the standard for it.
And so many other things we made the announcement on IBM, where they basically looked at there at DSM on premise business and said, we gotta go to the cloud we'd rather go to the cloud with you that's where the innovation and we've won very good partnerships look what we're doing with Microsoft.
And connecting with over 365 teams dynamics and bringing a whole new understanding of what's possible with the now platform working interdependent Lee with Microsoft So all of that and more.
And as oil and the mix for our growth plan.
That's great color Bill Congratulations al I'll jump back in the queue. Thank you.
Thank you very much.
Next question, we have Gregg Moskowitz from Mizuho, Greg Your line is open.
Alright, thanks, very much and congratulations as well and a very strong end of the year I'll just ask one question and the interest of time Bill you recently hired a leader for your customer workflows business and you've obviously done well here, but can you walk through what you see as incremental solutions or monetization opportunities in this area.
Yes, absolutely.
And again you know we're hiring.
Best in class talent.
And we obviously have extremely bold ambitions for what we think we can do and the customer service management Arena.
M.
And also John ball Who's the gentleman that we hired as you know.
And he ran the Einstein initiative over at another software company.
And the area and.
And we feel that he has domain expertise and when he saw what we're doing and customer service management and he.
You said this is where I want to work. He said this is the biggest thing that I've seen he said I can't get over this now a platform for simplicity, how quickly I can innovate on and I'll give you an example.
He was front and center.
And the vaccine management.
Innovation literally that whole process took us three weeks.
We're vaccine management as a concept and.
And and application was developed and three weeks and launched a global marketplace and it's in Scotland, and then U K and many states now and the United States and.
And then not too distant future hopefully is helping many of the federal agencies health of the.
By the administration.
Live lives here in America, and and obviously and other parts of the world too. So it's the speed at which you can innovate on this platform. It's the pristine nature of this platform that you don't have to work with multiple different platforms from.
And different M&A moves or different levels of complexity that others have built up over time here. It's just like there is innovate on it what's the idea, let's coded and lets get it out for the market. We did emergency response apps. If you remember over a weekend and we launched them globally and a week.
And just unheard of and that's what's really exciting that our engineers of spending all of their time.
And coding new innovations as opposed to integrating past applications.
That's great. Thanks Bill.
Thank you very much Greg.
We have time for one more question and it's from Fred He's Mayer from Macquarie friend of your line is open.
Thank you very much for taking my question.
I thought I'd actually go and a bit of a different direction here and I'd like to ask someone who actually led no-code projects for fortune 500 companies during the pandemic I'd love to dig into your of low code vision of a little bit more.
How do you see service now positioned within the low and no code markets of people to enable line of business users to develop workflow automation and really deliver on that promise of democratizing development.
Yeah. That's that's the whole point, that's what we're talking about here give you. An example, I had one of.
CEO said to me, Hey, I want to get a good score on Glassdoor.
And.
And he said there doesn't seem to be and application on the market for it I said, yes, why don't you get a business analyst and we will design of workflow around that and you can launch it out into your company and and record speed like a couple of days.
So what's unique here and the case of vaccine management as an example, you took the platform and new customized something in a few days basically to vaccinate five and a half million people, but in the case of something where you just need to flow chart.
Workflow and rethink of process to for example rollout of rewards program or our recognition program that can be done by of business analysts. So we're not inhibited.
By pre packaged software or doing things that are quite complex and development.
And the case of the platform.
Cause all you need is and ideas and.
And if you have an idea of business analysts and code on this platform. If you have an idea that's a little bit more complex you can have a low code situations, where somebody with a little bit of computer and intelligence skills can navigate this platform. So this is a kind of a secret sauce.
I'm sorry.
Think about what it can be because of the architecture and the simplicity of the platform itself.
Of our imaginations and just keep getting more and more fulfilled with dreams and excitement and and I'm. Just so excited by our engineering teams and.
Gina and I have made sure that we funded them appropriately and most of the investments around here go to the great engineers and the people that serve our customers the zero of bureaucracy and this company just like the zero bureaucracy and the platform.
Thank you.
Thank you.
Yes.
And ladies and gentlemen. This concludes today's conference call. Thank you all for participating you may now disconnect.
Goodbye.
Okay.
And then.
Okay.
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David.
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