Q1 2023 ServiceNow Inc Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the surface Now Inc. Q1, 2023 earnings Conference call I would now like to turn the call over to Darren Yip <unk> Vice President of Investor Relations. Please go ahead.
Good afternoon, and thank you for joining serviced Alex first quarter of 2023 earnings Conference call.
Joining me are Bill Mcdermott, our chairman and Chief Executive Officer, <unk>, <unk>, our Chief Financial Officer, and CJ Desai, our president and Chief operating Officer.
During today's call. We will review, our first quarter 2023 results and discuss our guidance for the second quarter and full year 2023.
Before we get started we want to emphasize that the information discussed on this call, including our guidance is based on information as of today and contains forward looking statements that involve risks uncertainties and assumptions.
We undertake no duty or obligation to update such statements as a result of new information or future events.
Please refer to today's earnings press release, and our SEC filings, including our most recent 10-Q and 2022 10-K or factors that may cause actual results to differ materially from our forward looking statements.
We'd also like to point out that we present non-GAAP measures in addition to and not as a substitute for financial measures calculated in accordance with GAAP.
Unless otherwise noted all financial measures and related growth rates. We discussed today are non-GAAP , except for revenues remaining performance obligations or RVO current RVO and cash and investments.
Please see the reconciliation between these non-GAAP and GAAP measures. Please refer to today's earnings press release, and Investor presentation, which are both posted on our website at investors that service now dot com.
A replay of today's call will also be posted on our website.
With that I will turn the call over to Bill. Thank you very much Darren and thank you everyone for joining US today service now had an outstanding first quarter subscription revenue grew 27% in constant currency, which was 150 basis points above the high end of our guidance.
<unk> grew 25% in constant currency, a 100 basis points above our guidance operating margin was 26% to four points above our guidance, we have 66 deals greater than $1 million and net new HCV.
We saw strong sustained demand for service now platform.
In January we committed the company to performing beyond expectations.
Said it we did it our Q2 guidance reflects our strong conviction in the fundamentals of this business. We remain laser focused on net new innovation, new business growth and profitability.
Service now is a growth company that consistently executes in any environment and we will continue to do exactly that execute looking.
Looking at the Big picture. There's no question. This remains a complicated macro environment.
Level leaders of managing an endless array of headlines and mixed signals. When you filter all that noise. It comes down to one simple reality.
There is an app for everything but nobody wants every app.
This consolidation is a tailwind for service now as the intelligent platform for <unk>.
End to end digital transformation.
We are now seeing conversations up level to business transformation.
This is bringing CEO is directly answer the process as principal executive sponsors.
Nearly 40% of Ceos think they are company will no longer be economically viable in a decade, if they continue on the current path.
They arent interested in turf battles between departments, they want enterprise level investment to drive business impact.
This isn't merely an inspection of what historically has been a big cost center. This is Ceos engaging on a strategic level insisting on a clear roster of technology partners to drive very specific business outcomes. For example, when it comes to technology and the age of <unk>.
Turrets of AI, it's a build buy operate conversation.
<unk> for a single platform that can orchestrate the entire technology value chain.
This now does just that businesses are also working hard to transform their customer experience.
The AI opportunity here is when you integrate the front middle and back offices to better serve that customer.
This is a service now core competency.
On the internal side, it's about reducing the number of touch points for employees to get work done.
People can't maximize their potential by juggling multiple systems with different user experiences our customers use service now as the one stop digital hub to create a consumer grade experience at work.
Whether it's efficiency productivity and cost takeout or business model innovation service now has never been more relevant.
This is a message I hear directly from Ceos, who know they need to shake things up and they want our help to do it once again.
These secular trends are fueling service now.
70% of global Tech equity value comes from firms that rely on network effects and.
And we see growing platform adoption across all of our businesses.
It down was it 18 of our top 20 deals with three deals over $1 million.
Tom was in 14 of the top 20 with five deals over $1 million.
With increased focus on cost takeout.
<unk> had a very strong quarter and 14 of our top 20 with three deals over $1 million.
Security and risk we're in 12 of the top 20 with three deals over $1 million custom.
Customer workflows.
What's hot in Q1, and 18 of the top 20 with nine deals over $1 million and this is worth emphasizing.
Service now is more relevant than ever as businesses invest in a differentiated experience for their end consumers.
Exciting indeed, what we're doing with customer service management.
Employee workflows was at 10 of the top 20 with four deals over 1 million creative workflows was in 18 of the top 20 with three deals over $1 million made.
Major global brands continue to accelerate their own transformation by working with service now Marriott.
Look at banking as one example, PNC works with service now to modernize the way it manages disputes, which will reduce losses and improve case closures we.
We also saw a major co innovation milestones in the quarter for.
For example service now and AT&T have created a global telecom products.
<unk> Communications service providers manage five G and fiber network inventory.
Q1 was also the latest step forward for our organic innovation machine. The service now, Utah release was engineered to drive faster business outcomes for our customers.
Release includes AI powered process mining.
<unk> robotic process automation capabilities.
Additional search enhancements expanded workforce optimization and health and safety incident management.
These are all designed to help increase automation simplify experiences and offer greater organizational agility.
Bears repeating.
Customers are aware of market excitement for individual technologies like generative AI. They expect a platform strategy to integrate the various tools.
Service now has AI process mining RBA low code and many other technologies built natively into a single workflow automation platform.
Of course, we will have much more to say about all of this and our knowledge event in Las Vegas on May 16, I Hope you can join us.
I'd also like to extend a warm welcome to Debra Black Vice President Engineering at Netflix who is the newest member service now as board of directors with so proud to have debbie's leadership on our journey to be the defining enterprise software company of the 20 <unk> century.
In closing I will simply reiterate things, we've said consistently first businesses need service now.
Enterprise software is mission critical the demand environment is robust.
Service now is a unique company performing at a very high level.
We are delivering strong growth aggressively managing costs and creating immense shareholder value.
Company has momentum everywhere we're at.
Performing very well across the best places to work scorecards, including glass door.
Our brand recognition is increasing as we rise on lists like fortune's most admired companies our market opportunity is expanding and this is the early days of a truly generational growth story. Finally, we know the trusts as the ultimate human currency, what we have.
Here is a platform a culture and a company that has built entirely on trust. The results tell that story, we just eclipsed the $2 billion threshold in a single quarter and we were the fastest ever to do that on an organic basis.
This is about a fast growth durable predictable cloud business model. This will be the red thread at our financial analyst day in a few weeks, we look forward to seeing you all there.
Businesses work with service now people work with service now the World works with service now and we're only getting started I'd like to thank you very much for your time today and we're looking forward to your questions and for now I'll hand things over to Gina.
Thank you Phil Q1 was a tremendous quarter with strong beads across our top line and profitability guidance metrics.
We saw resilient demand as the now platform continues to deliver the productivity improvements enterprises are looking for in the current macro environment.
According with yet another example of consistent execution from our team.
In Q1 subscription revenues achieved 2 billion growing 27% year over year in constant currency exceeding the high end of our guidance range by 150 basis points.
<unk> ended the quarter at approximately $14 billion, representing 24% year over year constant currency growth.
Current Rps was approximately seven 1 billion, representing 25% year over year constant currency growth.
Basis points beat versus our guidance.
From an industry perspective, energy and utilities government and transportation and logistics led the way followed by strong growth in education.
Financial Services' net new HCV also continued to grow despite a tough comp and volatility in the banking sector.
New customer ACD growth remained an area of strength.
As the average deal size was up significantly year over year.
Our renewal rate was the best in class, 98% in Q1.
And to demonstrate the stickiness of our business as the now platform remains a mission critical part of our customers' operations.
Our customer cohorts are also continued to show solid expenses, we ended the quarter with 682 customers paying us over $1 million in ACD up 20% year over year.
We're continuing to see healthy customer engagement with enterprise buying pattern, demonstrating the extensibility of the now platform.
Closed 66 deals greater than $1 million and net new ACD in the quarter up from 52, a year ago in.
In Q1, 18 of our top 20 deals contained five or more products.
Chasing how service now is providing customers a single platform they need to orchestrate the technology value chain.
Turning to profitability non-GAAP operating margin was 26% 200 basis points above our guidance driven by continued disciplined spend management.
Our free cash flow margin was 35%.
We ended the quarter with a robust balance sheet, including seven $2 billion in cash and investments.
Together. These results continue to demonstrate our ability to drive a strong balance of world class growth and profitability.
Moving to our outlook.
Pipeline continues to deliver robust for the remainder of the year.
Excited about what the Utah relief and knowledge 2023 can further contribute to those opportunities.
While we've seen market resiliency, we continue to prudently faster in the evolving macro caution into our guidance.
As Bill mentioned, we remain laser focused on balancing net new innovation and new business growth with cost management and profitability.
With that in mind, let's turn to our 2020 guidance.
We are raising our subscription revenue outlook by $25 million at the midpoint to a range of $8 four 7 billion and $8 five 2 billion, representing 23 to 23, 5% year over year growth on both a reported and constant currency basis.
We expect subscription gross margin of 84%.
Operating margin of 26% of free cash flow of 30%.
And we continue to expect GAAP diluted weighted average outstanding shares of $206 million.
For Q2, we expect subscription revenues between $2 4 billion and two play out or $5 billion, representing 23, 5% to 24% year over year growth on a constant currency basis, excluding a 50 basis point FX headwind.
We expect CRP upwards of 22, 5% on a constant currency basis.
Leading a 50 basis point, FX tailwind or 23% on a reported basis.
We expect an operating margin of 23% and we expect 205 million GAAP diluted weighted average outstanding shares for the quarter.
In summary, Q1 was a very strong quarter, we're extremely proud of our team's performance and we can take you can't thank our employees enough for their continued hard work and dedication.
Their collective commitment to our culture that has enabled us to be named one of Fortune's 100, best companies to work for yet again and slightly great.
The consistency of our results exemplifies the strength of our platform and our people we are delivering great experiences that drive powerful employee engagement fierce customer loyalty and significant productivity gains.
Service now as intelligent automation is a deflationary force that help enterprises retool their best business to get more done with less.
And since we use the now platform ourselves extensively we continue to see the benefit from those efficiencies generating incremental opportunities for further operational leverage.
On Slide service now is so well positioned to become the defining enterprise software company of the 20 <unk> century.
Can hear more about that momentum and our new products and long term opportunities.
Our coming Investor day on May 16th in Las Vegas, We look forward to seeing you there.
That I will open it up for Q&A.
The floor is now open for your questions to ask a question at this time. Please press star one on your telephone keypad, if at any point you'd like to withdraw from the queue. Please press star one again.
We please ask that you limit yourself to one question.
We will now take a moment to Kampala roster.
Our first question comes from the line of Mark Murphy from Jpmorgan. Please proceed.
So thank you very much and congratulations on another excellent quarter.
So.
I wanted to ask T J or bill you seem to be in a great position to embed AI into your pro Skus and try to unlock new efficiencies could you speak to how you see that opportunity playing out and chat bots become more powerful do you see that affecting the head count or.
Seat count of typical it helpdesk or contact center, if you try to.
Project that forward a few years down the road.
Mark first of all thanks for the question here is what I would say when we started the DSM ROE journey in 2018 Q4. The exact question was asked because we embedded machine learning and AI into DSM pro and that was a game changer, both for our customers than ours.
Shareholders.
I look at specifically generative AI.
Absolutely believe that besides our core machine learning and AI features that platform today. It is a clear and and this particular and persistent org.
<unk> more productivity not only for the employees of product customers, but for the customer service agent or IV agents as you asked.
And wherever we can capture that additional value.
We'll monetize that further.
Additional skus that we offer on top of our current offerings. So overall I feel very good about generative AI and what it does what our business and we have learned a lot through our <unk> probe traction over loss.
Now four plus years and I feel very optimistic for next three to five years related to it is an accretive to our topline.
Excellent. Thank you very much and I will stick to the one question limit.
Yes.
Our next question.
Our next question comes from the line of Brad Sills from Bank of America. Please proceed.
Oh wonderful, thank you and great to see a nice start to the fiscal year here.
I wanted to ask a question around the non mix, if you take customer and employee plus creator combined it's 43% of new ACD. This quarter, which is the highest I can remember the question is what is it about now that you are seeing success kind of taking service now outside of the it Department. Obviously you have these great products to address.
Our workflow automation, but is there something about the go to market, whether it's direct or in the in the channel that you'd call out here, where youre seeing that real traction outside of it. Thank you yeah. Thank you very much for the question, Brad and I think it underscores the importance of now becoming the intelligence platform.
And digital transformation.
As I said the C level decision makers now.
CEO CFO , obviously ahead of technology, along with the head of HR and the various other departments in the company are aligning their business strategy on technology platforms that truly matter and can impact business results and they are moving away from the App is the.
De and platforms that don't matter. They are also taking antiquated platforms and building our innovation on top of them.
So if you want to think about our unfair advantage, we actually started in <unk>.
And have extended that beautifully into HR into customer service management and into creator think about the importance of creators 75% of the App development that will take place in the next two years will be done by the customers themselves on a low code platform like service now.
We feel we have a pole position.
Some are service management, everybody is trying to align the front mid and back office to give a seamless self service direct to consumer experience on mobile it's our core competency.
And when you think about the employee experience is wonderful systems of record out there that do what they're supposed to do for our expertise is really taking the technology view of recruiting hiring onboarding, providing all the services and regenerative AI actually giving the employee.
Next best action and fundamentally changing the game on the productivity curve.
All of this is aligning the executive team around our platform strategy and our teammates here at service now are proud and confident in that platform. They can tell the story by industry by persona and they can bring countless examples to the first meeting now.
And they are aligning the executives one of the biggest request we get it.
Hey, can we have an off site with our entire management team with your team. So we can figure out the best next step for the relationship that's a very different outcome than we were doing four years ago, where it was a more land and expand kind of approach.
Great to hear thanks, so much bill.
Thank you very much Brad.
Our next question comes from the line of Keith Weiss from Morgan Stanley . Please proceed.
Excellent. Thank you guys for the question.
Congratulations on a really nice start of the year I wanted to dig in a little bit on the thread that Mark Murphy started calling on.
In terms of the impacts of generative AI and the question that I get a lot from investors is.
Does it necessitate that service now has to change their pricing models and is there an ability to do that so maybe if you could kind of walk us through like as this functionality creates more automation and it's more just the workflows in the platform the data in the platform Thats driving the value is there a necessity or a potential of changing the pricing model to be.
More consumption or volume oriented versus like a seat based model.
Yeah. So Keith this is Jay and I'll address it.
Pink in multiple buckets. So when we look at technology workflows as you know that <unk>, the core foundation and all the DSM.
DSO processes, our item with our security and fast growing products like risk and asset management, yes, all driven through our <unk> bought a single end to end platform for transformation from a technology standpoint, so when I look at that for the most part as you know Keith we have good better best packages.
And we are pretty consistent in how we drive the go to market as Bill described overall at a platform level. The same thing is true for customer service management and HR as an employee workflow and then when I look at creative workflow. We also have the opportunity to expand service now ecosystem.
<unk>, where anybody could be of service now developed by using text to court, our techs to workflow or Sunday techs to app that they can create so overall when I look at the four buckets.
Good better best Mccann and something that we have put in place is working beautifully the traction is great. We are getting the uplift as we have shared with you and we'll share more at the.
Financial Analyst day now in terms of.
It is both pricing because now with vendor do AI would I told Mark.
And as you can get higher productivity for specific use cases, whether it's this incident. The collection all of it that is related to the agent productivity.
We believe that we can absolutely monetize debt we are fairly early I'll share more with you at the financial analyst day on what that pricing model will look like whether it's an add on whether it's a bundle and we are working through the details, but we are only going to charge, where we provide value for our customers and that is the.
First principle, we haven't begun.
Got it I will stay tuned for analyst day for more details I appreciate the.
Good color.
Keith you would've been very impressed of you sort of see Jay and his engineering team in yesterday's Board meeting, we're actually dealing with real technology real time demos real customer references, which youre going to get to see and youre going to get to see examples and business cases that we're already working on add financial analyst day is a little bit.
Modest and it deserves to be because he's got the best team in the business, but wait till you see financial analyst day really is going to knock your socks off.
Our next question comes from the line of Samad Samana from Jefferies. Please proceed.
Hi, Good evening. Thanks for taking my question. So I wanted to ask you service that was one of the few tech companies.
We focus on Thats still growing head count and you guys added more employees than in <unk> than you did the last couple of quarters of last year, I'm curious, what's underlying that confidence and adding talent in what appears to be maybe a little bit of a slowing world and how should we think about that strengthening your position and are all there and maybe your competitors are actually going to happen.
Go back and rehire, when we come back on the other side of this.
Yes. Thank you very much for the question and first of all everybody is entitled to their strategy and there's lots of great companies out there that have taken a different approach to managing head count and the people packed.
We have been highly intentional throughout the last four year journey that I can personally speak to on hiring in the first place.
And we have been very biased towards great engineering, especially fingers on keyboards and go to market folks that actually carry a quota and keeping the company extremely lean on G&A, where most of our investments have been in S. So we started into this macro scenario.
Is that the world's in right now and the thoughtful position to begin with and.
And therefore, we're still managing our head count tightly it's not like we are boldly hiring and especially now we've doubled down on exactly that quota bearing and fingers on keyboards and the good news and I really believe we have a new dimension here where our.
Culture is actually attracting people in the marketplace and we're hiring truly best in class talent, we call. It <unk> intense here. If you are an eight and a half you don't get in the door now.
I would like you to take away from this answer theyre being very thoughtful about hiring.
The numbers are commensurate with the new business they are bringing in the door not the existing business.
And they'll continue to do that in a way that manages the margin profile.
In accordance with what shareholder value expectations are in the marketplace and I honestly believe we'll look back at this moment and how we're managing the people part of the business and putting people first as something that created a very special highly differentiated company as it relates to people's desire to work.
Here.
It's pretty interesting.
So a lot of I would just add we are we're remaining extremely flexible and agile with how we are adding head and so we're being very cautious in the current environment and you could absolutely expect that we will continue to be cautious and disciplined with how we're thinking about our hiring this VR growth, but the.
The remainder of the year and really always.
Yes, I mean, we internally we call it a checkbook approach.
Thanks to both of you and when we see it in the great margins and look forward to seeing the team at the analyst day.
Thanks, a lot tomorrow.
Our next question comes from the line of Matt Hedberg from RBC capital markets. Please proceed.
Great. Thanks for taking my question and then I'll offer my congrats as well.
You talked about a strong pipeline exiting <unk> and obviously delivered a strong quarter here, how do you feel about the pipeline as we entered the quarter and obviously, there's been some additional volatility in financial services and it sounds like that was fairly stable for you guys. This quarter, but maybe talk about the visibility you have entering entering the quarter.
Yeah, absolutely Matt. Thanks for the question so pipeline Romain remains robust we feel really good about pipeline moving into Q2 and beyond.
From a metrics perspective versus same time last last year, Boston Board, we're in better shape.
As you talked about the direct exposure to financial services, we actually saw growth and had some great customer wins in the quarter. Despite the macro headwinds and so really feel great about where with where were currently landing on pipe and knowledge of that I would call release, we're really excited.
About how we can continue to increase the opportunities in the back half of the year as a result.
So from that perspective, we feel really good about where we are and as always because 85% of our net new comes from existing customers the visibility to our pipe for Q2 and the back half remained strong as well.
And one thing you may have.
Matt.
One thing you may find interesting is financial services as Gino said continued to perform.
Including one with one of Europe's largest banks.
Got it thanks for the color guys see in a couple of weeks.
Thank you.
Our next question comes from the line of Kirk Mattern from Evercore ISI. Please proceed yes.
Thanks, very much and I'll add my congrats on the quarter Youll Bill I was kind of curious in your impressions on just consolidation in this kind of macro environment I think for a while you've always said you know no. One has to lose for you to win I'm. Just wondering if that's changing a little bit in terms of your opportunity to go in and maybe replace systems that have just gotten either Anna.
Weighted or go after more greenfield, that's adjacent to where you're selling so just kind of curious if the consolidation wave is picking up I guess from your point of view. Thanks.
Yes. Thank you very much for the question Kurt we standby no one has to lose for us to win and I really do believe the systems of record that team up with service now would see dramatic increases in their win rates.
That's obviously up to them, but theres no question that that would happen because the power of the service now platform versus point solution is pretty clear.
C level decision makers want an enterprise wide workflow capability to drive their performance and it's just that simple and when you have a lot of point solutions that optimize the department, but don't tie in to the greater workflow across the domains of the functions it doesn't.
Really held at the corporate level and I think thats the key.
Coherence that we bring to the enterprise productivity story and frankly.
The one thing I would say is that customers arent interested in forced marches with upgrades to technology, that's not delivering business impact it's kind of like thinking about why would I do a heart transplant when I can do a simple bypass and gained massive new productivity.
With a platform that drives a great user experience empowers my employees satisfies my customers and enables my creators.
In fact on the banking case in particular, what you were seeing is some.
Serious focus on risk management across the whole bank and using us to consolidate all the point solutions.
Would be one dashboard of one version of the truth to protect that house, so you're seeing more and more of a platform approach to decision making in the market.
Super Thank you Sue in Vegas.
Thank you very much Kirk Cedar.
Yeah.
Our next question comes from the line of Kash Rangan from Goldman Sachs. Please proceed.
Alright, Thank you very much great start to the year ability team of both.
Curious.
That is due to expanding the base of customers you've done a great job, we've got 7700 customers a lot of money.
But if you look at enterprise software.
10 to $15 billion to $20 billion in revenue those companies have always had a base of the pyramid that has a big chunk of commercial customers SMB customers I'm curious how you think about.
Service strategy to expand the base of the pyramid going forward. Thank you so much congrats.
Thank you very much cash I mean think of it this way.
We are very focused and I mentioned this is one of the three things that we'll focus we're very focused on net new business.
And this is going to come from upper mid market in particular lots of new logos there.
There's a lot of India.
Individual companies that talk a lot about their climb into the enterprise, we might just meet them, where they live right now and smaller establishment. So we'll see how that goes.
But I can also tell you we have a great focus on the fortune 2000, and in particular, we have an amazing focus on the marquee $2 50, with a true build out of our go to market machine and we're doing that by industry and we're doing that with all the assets across the company and we've collectively put that.
Together in a way with a full power of the platform the content the thought leadership and obviously the solution power, where the customer gets everything from service now so I would like you to think about the top of the pyramid the larger part of the big part of the pyramid and obviously the mid market up as areas.
In which we are getting stronger by the minute and extremely focused.
I'll just add one thing cash debt.
Our product strategy perspective, as Gino shared we are very focused on top of the house of the pyramid as you call. It in terms of expansion strategy, whether it's just additional products that we continue to deliver release after release or creating vertical specific solutions for those industries.
Where we can get higher ASP uplift vis vis falling.
Mid market segment.
Absolutely focused on that as well from a new logo perspective, we have a commercial go to market selling motion that allows us to move up and those customers, sometimes become massu customers and that is an area of focus for new logos.
New business in addition to the existing one.
And I would just add on new logo piece that are net new customer HPV growth remains an area of strength for us I talked about this in my script that the average deal size is up significantly year over year and that really is demonstrating the durable demand and the mission critical nature of our platform in this environment.
Yeah.
We actually landed our largest net new logo deal in EMEA this quarter with ITC brewery.
And we've evolved our focus to really make sure that we're going after those light new logos those lightning customers, though.
That offer us the best RLI and have the greatest opportunity to continue to expand with US not all logos are created equal and we're really targeted those logos that can grow with us over time and so you know.
It's easier to expand an existing customer the fact that our new logo ACB continues to grow and do well is a continued area that we're very proud of.
Thanks Gino.
Thank you thanks Kash.
Our next question comes from the line of Gregg Moskowitz from Mizuho. Please proceed.
Okay. Thank you very much and congratulations on the strong start to the year. The last time that service now had grown CRP oh sequentially into Q1.
We'd have to go back to 2019, but you just stated that you didn't need a really challenging environment. So aside from it sounded like good sales execution clearly would you attribute the <unk> outperformance of the fact that you add fewer early renewals into Q4 or is there. Another reason that you would highlight thank you.
Yes, I would say I would say that our beat versus the guide was fully due to higher debt new ACD in the quarter. So great results from our incredible sales execution team across the board.
Terrific, Thanks, very much and seeing a few weeks.
Thanks, Greg Thanks, Greg.
Our next question comes from the line of Arjun Bhatia from William Blair. Please proceed.
Hey, guys. Thanks for taking the question.
Maybe just to follow up on that.
Spansion from one of the things that we've been hearing.
The sector is that there are steep headwinds.
<unk> growth is moderating at some customers what are you seeing in your growth algorithm from a seat expansion versus upsell cross sell dynamic and how has that changed at all.
Yes, it's a great question and we got that question a lot. If you remember back in 2020, we're not really seeing any contraction right where we.
We're continuing to see expansion across the enterprise expansion geographically within our company and a customer and really as.
As an up sell on the other workflows themselves see compression has not been an issue that we've been seeing obviously, keeping a close eye on it given the macro but not something that's been issued breath.
Stock.
Okay perfect. Thank you.
Our next question comes from the line of.
Alex Zukin from Wolfe Research. Please proceed.
Hey, guys. Thanks for taking the question congrats on the solid quarter, maybe bill can you talk a little bit about the macro from two different respects one being are you starting to kind of settle into this new longer sales cycle.
Customers, making you pitch ROI every time everywhere and youre getting ready to kind of anniversary. This in June meaning it's a sense of like a stabilization or a new normal.
And then maybe just comment on the demand environment vis vis U S versus international because it does feel a little bit different.
Depending on which Julian.
Alright, Thank you very much for the question Alex.
And it's a really good question. It is absolutely clear to everybody that our customers are operating in a complex environment and the environment, they're operating differs by industry, but all of them have a set of challenges that they are dealing with so we have completely retooled.
The go to market machine, an acknowledgement of our customers' challenges. So we're able to go in with content and thought leadership, that's very specific to their industry.
We have tremendous insight and depth and what's going on specifically with their business. We have excellent outside in protocols and real detailed account plans and relationship plans and obviously at the end of the day all of.
The sales that happen in this environment has to be backed by an unbreakable business case, not just the business case and unbreakable one.
And we have built that resilience into the go to market machine and I am extremely proud of our sales leadership in this company and that goes for all the executives that report to me on that before but also the regional leaders and our feet on the street I believe to be the best in the business. So that's one thing the demand.
Environment.
There is no shortage of demand.
Whole idea here is to educate our customers on the art of the possible.
And make sure that we aligned business and.
So the business executives are participating in this conversation because leaving them out.
<unk> the size of the deal and Thats why Gina telling you. The ACB is growing including a new business gives you a good signal that we are really educated and know what we're doing.
But also by aligning the entire executive team.
Risk the last minute surprise or the last minute push because you have multiple executives pushing for the service now brand as an answer to their problems. So I would say the demand environment. There is no shortage of it you just have to understand how to manage it but our coverage today and we manage all of this on service.
Now in his CEO dashboard is better than ever.
I would just add.
<unk> perspective.
Demand pretty strong across the board Americas had a strong quarter in Q1 with particular strength in health care life Sciences, and state local and education, we focused vertical adjacent strategy has really driven some strong <unk> strong momentum that we feel really good about results in Americas.
As well as demand the number of million dollar deals increased over 30% year over year.
So that's great news EMEA had a really strong Q1 as well.
<unk> demand great momentum essentially Europe continued to outperform renewal rates continued to be strong at 99% in EMEA. Despite the macro cell again strong durable demand across the board and then some in Asia Pac perspective, selling into the C suite has been working well and really helping to drive.
Larger transformational deals.
<unk>.
We landed seven 1 million plus deals in APAC in Q1, so really strong demand across the board from a geography perspective as well Alec.
Thank you guys Youre unfair advantage is very clear.
Thank you very much Alex Alex.
Our next question comes from the line of Michael <unk> from Wells Fargo. Please proceed.
Hey, great. Thanks. Good afternoon. Appreciate the strong set of results for Q1, but the <unk> guide for <unk> suggest growth down.
A bit from what you just delivered Gina you've talked about prudence over the past several quarters can you maybe step through what you are factoring into Q2 for <unk>, how much is seasonality versus anything more specific to this year and any update you can provide just around the change in early renewal dynamics you saw last quarter I think it is also useful context.
Thank you yeah, great question, so from an overarching perspective as I said before the durable demand that we're seeing is really kept our business resilient. So strong Q1 ERP all of the Q2 guide if you remember beginning in Q2 of last year is when the macro headwinds really started to hit us.
And so.
We see muted growth in the past couple of quarters as a result, which is driving.
A little bit of a decile in Q2, the other thing as you rightly recall on absolutely continuing to remain prudent in our guidance assumptions given the uncertainty in the macro environment and so.
Again feel really good about the guide is a strong guide given the current uncertainty.
But those are the kind of a couple of the things that are going into the number with respect to early renewals. What I'll say is that early renewals actually exceeded our forecast slightly this quarter and so as I talked about at the end of Q4, we really factored in some prudent assumptions with respect to early.
Nevertheless, given the current macro and basically they are lining up as expected.
Very helpful. Thank you.
Thank you Michael.
Our next question comes from the line of Derrick Wood from Cowen. Please proceed.
Okay.
Great and my congrats and thanks for taking my question Bill I wanted to ask about the Microsoft partnership and the co sell agreement I think you.
You guys announced that a year ago I imagine you've been laying some groundwork can you just give an update as to how that partnership is trending what what kind of dividends you see in 2023, and what you may look to be looking to do around generative AI with them.
Yes, absolutely those conversations Derek are very active as you know, we're very proud of our relationship with Microsoft also a big tip of the cap to Microsoft and <unk> and his team for an outstanding quarter as very very happy to see that for them and then at the end of the day we continue.
To help accelerate azure adoption for our mutual customers, which is opening additional addressable market for service now, particularly with Italian item I agree with you 100%.
C. J can give you an update on what we're doing in the area of generative AI, but I think that.
That work is in flight and in progress and we think that's a big opportunity for both companies to work closely together to Jay absolutely. So it's what I would say Eric is at the highest level. When we think about our partnership with Microsoft certain products, such as up item product, which gives you visibility into azure and <unk>.
Overall, our product set that allows you to consume public cloud services is going in the right direction.
Footprint of item with Azure cloud continues to expect so that's number one from a go to market standpoint, whether it's in the U S. Federal cloud with our IL five certification just going live on Microsoft Azure cloud or the Australian government's certification. We have had some recent wins in Australia and a few of their job.
We're pleased that our go to market teams that are working really well together.
We will share more on generative AI with Microsoft where we absolutely plan to leverage open AI as well as Microsoft Azure capabilities. When it comes to how service now use cases with work in conjunction with open AI and Microsoft Azure.
Great look forward to knowledge.
Thank you Derek.
Our next question comes from the line of Sterling Auty from Moffett Nathanson. Please proceed.
Yes, Thanks, Hi, guys you touched a little bit on my question in the last answer, but I just wanted to dive deeper and better understand the traction what's driving the traction youre seeing in euro observed mobility solutions, how much of it is maturation in the late step functionality, what you've built on top of it how much of it might just be price and what youre able to bundle.
Together as a platform.
Yes, so I would say overall.
<unk> book, including absorbing all of that in the item umbrella you can point out our cloud of durability that our life setting has done well and they've had an amazing win with a very large fintech company, where we are going to actually displace an incumbent that does metrics.
Tracy.
We bid all of the top competitors to win that deal in Q1, just as an example, but overall when I look at <unk> and.
And that deals with the cloud it stayed whether it's private or public cloud and as customers. Our joint customers with Hyperscale is theyre trying to optimize that a cloud spend on expand.
We are the right workflow platform when it comes to the workloads that are running in those clouds and with items. Specifically, we saw that our grew in enterprise adoption has actually increased including higher selling volume in Q1 of this year.
Sure.
In addition to that our cloud discovery that happens we have item Azure AWS DCP is also on the rise with number of customers using those different mix.
And Sterling the one build I would give on this just for you to know.
Microsoft and service now understand each other and have like minded ways of going to market and including not just geographically, but an industry. So as TJ said.
This Australian government agency, we're referring to is one example, but then you can go to South Africa, and you would see us doing something very interesting for an insurance provider, where we also.
Displaced an aging legacy system.
We're on the front end of innovation.
The industry in Geo and we really have common goals and shared values around making these customers successful and we both know how to do it.
Understood. Thank you.
Thank you very much sir.
Our next question comes from the line of Tyler Radke from Citi. Please proceed.
Yes. Thank you for taking the question Gena just as we look at the updated guidance for the full year I'm wondering if you could just walk us through some of the assumptions both on the subscription revenue side and margin side. It looked like you did beat by more than you raised.
The full year guide if you account for currency. So just wondering if there's any extra conservatism or moving pieces and then the same thing on margins. There is strong outperformance this quarter.
Yeah, Todd Thanks for the question. So we did raise the full year revenue guide by FX, and we did raise it lightly about $4 million.
Or RFP, but given the current macro uncertainty and given our only at the end of Q1, we wanted to remain prudent in our guidance.
For the full year.
Shouldnt be surprising to you. There's many many years that we haven't really raised in Q1 with such.
A big portion of the year still to go so it's really about being prudent in the current uncertainty more so than than anything else.
Really good about the beat in Q1, and our guy well prudent to reflect the current macro I think still should send a strong signal to our investors on the durability and strength of the now platform.
Yes, it makes sense. Thank you.
Thanks Pat.
Our next question comes from the line of Brad Zelnick from Deutsche Bank. Please proceed.
Great. Thank you so much and I'll Echo my congrats on a strong start to the year.
For Bill or Regina I've been getting a lot of questions on your net new ACB growth for last year, which was disclosed in your proxy at 14% and considering the backdrop of tough prior year compare it seems very healthy to me, but what factors should we consider in bridging to your $16 billion plus target, which implies close to.
The mid Twenty's compounded growth.
And how would you characterize the companys net new ACB target for this year.
Yes, Brian Great question. So, yes, net new ACB growth declined 22, given the current macro backdrop with very healthy given that environment, we've talked about the fact that.
The current macro as well as the FX movements.
Likely weigh on that guide for 2020 six what I can tell you and what I'm excited about it makes a financial.
Financial Analyst day in May we'll be really focused on the longer term strategy as well as updating those relative numbers for you and so.
We don't we don't guide for net new HCV as you know, but we will give a lot of clarity as to what we're thinking.
The mid and longer term add in just net next month, so let's call it you're seeing there.
Awesome.
See you even better in Vegas. Thank you.
Okay.
Thanks, Brett.
Our next question comes from the line of Karl Keirstead from UBS. Please proceed.
Hi, Thank you maybe this one for Gina Gina on the call three months ago. When you were asked about the shape of the CRP oak trajectory throughout the year you guided to.
The deceleration throughout calendar 'twenty three just given that you outperformed in Q1 and Conversely, the <unk> guide is a little bit below expectations is that still the right framework to think about the second half. Thanks, so much.
Yeah, I mean listen call I think that given the current macro deceleration is very normal and expected, but youll continue to see us really driving strong demand across the board and so we absolutely think that demand remains robust and strong.
Throughout the year got it thanks Gina.
Our next question comes from the line of <unk>.
Demo Lynn Zhao from Barclays. Please proceed.
Thank you.
One quick question on the on the platform side. So that's the one product area that really kind of gained relative share for you guys. This quarter. What are you seeing in terms of platform adoption out there because there's obviously a lot of like sits from a record costs that have a platform that the standalone low cold guys I kind of want to be a platform.
And then your guys, but you seem to be gaining share is that kind of a function of in the downturn.
In tougher times, you have a consolidation to the core strategic vendors and that's playing out there or is this more longer term. Thank you.
This happened to be our first of all Raimo Super pleased with our creator workflow of performance that has many aspects to it but the key aspect believes is of course, our low cord engine and automation technologies. This platform. As you described it you had a 100% right that there are many companies even with points.
Solutions that market themselves as a platform company, we are truly a platform company.
And where do we sell create their workflows that is sometimes used to extend that out of box applications and sometimes as bill mentioned customer used to create many many new applications to digitize the processes that business in itself is a very nice business that has been growing significantly or.
3% to 40 years, and I feel very optimistic on that and the reason I feel optimistic versus point solutions that you described audit system of record because you cannot how all of these applications being developed randomly without governments, our key buyer tends to be.
The organization, we survived the organization we have governance features but how do you develop this apps where does the data side and when we say that to our customers.
We would rather use your platform to create new applications that are point solution or from a system of record that only has system of record data and the second thing that's really working for our platform is we organically build our integration our automation engine that not only integrated with all the 600.
700, plus applications are getting the word but allows you to automate any processes via RP machine learning and many new technologies that we're going to deliver.
Extremely optimistic and bullish on this aspect of our platform. He gave me a better workflows.
Thanks, Ron Good question.
Okay. So it does appear we do have time for one more question. Our final question comes from Michael <unk> from Keybanc. Please proceed.
Hey, Thanks, great quarter, Im very happy to get it. Thank you.
You mentioned that you saw strong demand across the front middle and back office and you also mentioned that you saw strong demand for customer workflows.
No.
In a down market one wonders about about front office. So I was wondering how you were seeing that demand and what specifically what type of customer workflows that you were you were you were addressing whether they were competitive or not with some of the systems of record.
Yes, so Michael first of all I'll, just address on customer workflow customer workflow as bill called it was hot and shows a great quarter, what we saw Michael what we shared last year at the financial Analyst day with you and the team is.
<unk> now created industry specific solutions, whether that's for insurance for state local and federal government, whether it's about healthcare and life Sciences.
All of those investments that we have made in the past few years are working really well in the context of customer service and we are getting higher ASP. In addition, our field service management product is also resonating and that our some of our competitors who have announced end of.
By our re platforming better field service management offering we are absolutely capturing that opportunity because single platform company to have British service management solution alongside of customer service management solution that is industry specific I'm really proud of the product and engineering teams as well as the sales team.
On how they executed out of horizontal and vertical capabilities for largest insurance companies healthcare companies or state local and federal government.
Thanks, Steve Thanks, everybody.
Thank you very much Greg.
Thank you Michael.
Thank you ladies and gentlemen, this does conclude today's call. Thank you for your participation you may now disconnect Goodbye.
Please wait the conference will begin shortly.
Yes.