Q3 2023 ServiceNow Inc Earnings Call

Good day, everyone and welcome to the third quarter 2023 service now earnings call. Today's call is being recorded all lines have been placed on mute to prevent any background noise and after the Speakers' remarks, there will be a question and answer session.

In the interest of time, we do ask that you. Please limit yourself to one question I would now like to turn the conference over to Daniel <unk>, Vice President of Investor Relations. Please go ahead Sir.

Good afternoon, and thank you for joining service now third quarter of 2023 earnings Conference call. Joining me are John Mcdermott, Our chairman and Chief Executive Officer. She didn't know that you know, our chief financial Officer, and T. J Desai, our president and Chief operating Officer.

During today's call, we will review, our third quarter 2020 premium adult and discuss our guidance for the fourth quarter and full year of 2023.

Before we get started what I emphasized 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 were factors that may cause actual results to differ materially from our forward looking statements.

We would also like to point out that would be present non-GAAP measures in addition to and not as a.

Q4 financial measures calculated in accordance with GAAP.

Unless otherwise noted all financial measures and related growth rates, we discuss today are non-GAAP except for revenues.

Remaining performance obligation or RTL current RVO and cash and investments.

You 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 Dot service now dot com.

A replay of today's call will also be posted on our website.

That I will turn the call over to Bill. Thank you Darren and thank you everyone for joining us today on behalf of Gina CJ and our entire company I'd like to first make a brief statement about recent events service now has a very special team in Israel, one of our own colleagues.

So video was it the supernova music festival it was.

Murdered and the unprecedented enhanced attack.

<unk> was highly respected admired and good friend to many we stand in solidarity with our team and with their families terrorism has caused the unfathomable human Terry humanitarian crisis.

And one golf millions of people in Israel, and our bond spreads at the NSS on all sides, even without the midterm insurance supply we chose to honor the dream of a peaceful and prosperous future for the Middle East region.

And protect although it's in harm's way.

Now if a business.

Of course, that's the reason we're here is this.

Scott service now as Q3 results.

We're proud that our company once again delivered beyond expectation.

This now has delivered subscription revenue that grew by 24, 5% in constant currency.

Over one point above our guidance.

<unk> grew a strong 24%.

It's two five points.

Our guidance.

Operating margin was 30%.

More than two five points above our guidance.

We had 83 deals greater than $1 million and net new HCV.

From 69, a year ago, a 20% increase year over year.

Our focus on landing the right new customers continued to deliver large new logo growth accelerated for the third consecutive quarter.

Service now has traction as the intelligent platform for end to end digital transformation has intensified.

All of our workflow businesses, we're in 14 or more of the top 20 deals.

I'm, Tom item security and risk customer employee and creator.

Within our technology workflows security and risk at a very strong quarter with 10 deals over 1 million <unk>.

Employee workflow had a stellar quarter with seven deals over $1 million and one deal over $10 million.

From an industry perspective. This was the best U S federal quarter in service now its history.

In HCV was up over 75% year over year.

U S. Federal agencies are standardizing on a single platform with a core set of end to end solutions. We had 19 federal deals over 1 million, including three deals over $10 million.

Our top deal in the quarter and United States Air Force was the third largest deal in the company's history Youll hear from Gena. If this performance has heightened our confidence for a strong Q4, we're increasing our full year guidance on the top line and the bottom line and he.

The key takeaway AI had strength in the market dynamics for enterprise software service now is the fastest growing company in this market at relative scale, we have the highest rule of 50 plus across our peer set with the highest growth of any.

Other large cap software company.

We are the best performing enterprise software company.

This is a unique highly differentiated company that is rewriting the benchmarks to be best in class in the SaaS industry.

Looking beyond the quarterly results, while the world's challenges a sobering the digitization imperative is stronger than ever.

Gartner forecast <unk> three trillion.

We will be spent on AI and <unk> AI between 2023 and 2027 Gen. AI represents 36% of AI spending overall, we believe every dollar of global GDP will be impacted by AI over the.

Next several years.

Isn't a hype cycle. It is a generational movement in the last year service now has doubled down on our AI investments. Our Vancouver release includes generates of AI powered now assist for every workflow.

Others issued press releases, we released product.

Service now our strategy isn't about exuberance, it's about execution.

We've carefully laid the groundwork for success and talent and resources and technology.

This investment is accelerating our already robust pipeline with customers lining up to be first movers in this next wave of business transformation.

Question, we've been asked repeatedly does AI drive growth there.

Definitive answer is yes. It does Jan AI represents a tailwind of growth. The service now we have over 300 customers in our pipeline from every industry every buying center in every stage of testing Amgen AI SKU drove the highest number of customer requests.

Or a pre release product in our history, we launched Vancouver on September 29.

One day in Q3 signed deals and we signed four large deals.

S Government agency selected our premium SKU offerings to be an early adopter of Gen AI.

Real estate leader CBRE is harnessing generative AI with service now to deliver superior service to customers and employees, while reducing costs Nvidia is accelerating its only service now journey, we generate today.

Among other leading companies tailored performance Julien service now AI lighthouse program. They will collaborate on new generative AI use cases.

Boost productivity, while increasing customer and employee satisfaction and key industries, we have a wide range of other customer wins in the quarter as well Fedex is using service now to simplify their workflows, while building a universal employee.

Portal to improve employee experience or a half a million global employees one of the world's largest automakers selected service now to help consolidate dozens of applications and to a new modern platform to accelerate their push into.

The EV market.

Mars Banc of California, Cleveland Clinic, the U S Department of Defense, Fujitsu Asahi mutual insurance and the state of California are among many others.

We see a meaningful path for all customers to recognize value from generative AI in the quarters to come are.

Our innovation velocity is very high pipeline is growing fast and capacity to execute as well proven and this is just the beginning.

Looking holistically at our business, we see progress everywhere, we have an aspiration to significantly increase the percentage of net new revenue sourced by our partners in the coming years. This is about partners, making the service now platform the core of their emerging business models.

One exciting example is our customer trane technologies.

They are a global climate innovator, which recently announced plans to acquire service now partner, New Bolo with new Volvo Trane technologies can bring world class Digital solutions engineered on this service now platform to their global customer base.

This creates a flywheel effect of service now more used cases drive more workflow automation and today, we're excited to share that Deloitte and service now announced an expansion to our alliance.

Lloyd will become a pioneering partner integrating our generative AI capabilities into their leading operate services globally.

This addition, underscores the Lloyds commitment to enhance performance with cross industry solutions built on the service now platform.

We're also scaling our ecosystem globally with today's announcement of our co investment and answer a market leader in enabling companies to scale technology centers.

Other area that we expect to fuel long term sustainable growth is industry vertical as they ship our product development roadmap is expanding with new use cases, and telecommunications financial services retail and the public sector and beyond any one industry.

Recently see both intra and inter enterprise workflow opportunities on the service now platform.

This new generation of business networks is creating value chains that transcend traditional business boundaries, our rapid pace of workflow innovation creates an even greater demand for our training and skills initiatives rise up with service now as one example.

Ample future skills Prime a digital scaling initiatives of the Indian government well trained thousands of learners across India and new digital skills. This partnership offers clear pathways to build careers as businesses worldwide.

So its service now workforce bottomline.

All points to growth in service now.

In closing.

We are building a company for the ages by concentrating on customer value, we are creating immense shareholder value at a strategic level. We'd show is to set the bar high to be the defining enterprise software company of the 20 <unk> century, we have an inspired team that is committed.

Two our exponential drink.

A company is only as great as each member of the team and the team is only as great. As the company that is would culture is all about our employee engagement scores increased across the board. This year. So did our retention rates, which are already best in class.

Yes.

We never went for layoffs, we went the thoughtful careful expansion.

When you look at the ongoing momentum from knowledge 'twenty three it's clear the approach is working.

Profitability growth profile of this company speaks for itself. The market is there for us and now we're focused on Q4, delivering a strong full year and a fast start in 2024 as well. Thank you for your time today I look forward to your questions now I will turn it over.

Our two outstanding CFO, Ciena mess and tuna gena over to you.

Thank you Bill Q3 marks another quarter of strong execution as we once again significantly surpassed the high end of our topline growth and profitability guidance metrics.

Service now continues to demonstrate its resilience as the intelligent platforms for end to end digital transformation.

Customers are seeking enhanced productivity deletions in the current macro environment and service now is deliberate.

In Q3 subscription revenue that you point to one 6 billion growing 24, 5% year over year and constant currency exceeding the high end of our guidance range by over 100 basis points.

Amazing organic growth at massive scale.

Arpaio ended the quarter at approximately $14 4 billion, representing 23, 5% year over year constant currency growth.

RPM was approximately $7 3 billion, representing 24% year over year constant currency growth and a 250 basis point beat versus our guidance.

As Bill highlighted several had its best net new ACD quarter ever growing over 75% year over year.

To give a quick shout out to the federal team, who has just been crushing it.

Among the other industries transportation and logistics was very strong growing over 100% year over year, followed by education, which grew over 75% manufacturing in CMC also saw robust growth.

He has some outstanding achievements of a workflow standpoint as well.

I'm pleased to announce that created workflows 1 billion ACB in Q3, a monumental milestone.

And our employee pro skus to over 100% growth in net new ACD here over year.

Retention remains exceptional with a renewal rate of 98% in Q3, we are affirming the essential role of the now platform plays in our customers' operation.

Customer cohorts displayed solid expansion at the quarter close to 1700 89 customers contributing over $1 million in ACB.

With 58% year over year growth in those contributing over $20 million.

In Q3, we successfully closed 83 deals greater than $1 million and net new ACD with four deals greater than $10 million.

Notably 18 of our top 20, net new ACB deals included eight or more products.

By launching at the end of the quarter.

We have already we have also already closed or Jedi related to enterprise deals and we're seeing strong pipeline Bill plus skus.

Unknown Executive: Good day everyone and welcome to the third quarter 2023 ServiceNow earnings call. Today's call is being recorded. All lines have been placed on mute to prevent any background noise.

Turning to profitability non-GAAP operating margin was 30% of our 250 basis points above our guidance driven by disciplined spend management and the top line outperformance.

Unknown Executive: And after the speakers remarks, you will be a question and answer session. In the interest of time, we do ask that you please let me yourself to one question.

Darren Yip: I would now like to turn this conference over to Darren Yip, Vice President of Investor Relations. Please go ahead, sir.

Our free cash flow margin was 9%.

Darren Yip: Good afternoon and thank you for joining ServiceNow's third quarter 2023 earnings conference call. Joining me are Bill McDermott, our Chairman and Chief Executive Officer, Gina M. Centuto, our Chief Financial Officer, and T.J. Desai, our President and Chief Operating Officer. During today's call, we will review our third quarter 2023 results and discuss our guidance for the fourth 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 four looking statements that involve risks, uncertainties, and assumptions.

300 basis points year over year.

We ended the quarter with a robust balance sheet, including 7 billion in cash and investments.

In Q3, we repurchased half a million shares as part of our first ever share repurchase program with the primary objective of managing the impact of dilution.

As of the end of the quarter, we have approximately one 2 billion remaining of the original $1 billion authorization.

Together. These results continue to demonstrate our ability to drive a strong balance of world class growth.

Darren Yip: We need to take no due to your obligations to update such statements as a result of new information or future events. Please refer to today's earnings press release and our FTP filing, including our most recent 10Q and 2022 10K for factors that may cause actual results to differ materially from our fourth looking statement. We'd also like to point out that we present non-GAP measures in addition to and not as a substitute for financial measures calculated in accordance with GAP.

Profitability and shareholder value.

Moving to our guidance.

We are raising our full year outlook to reflect the strength of Q3.

As we have done all year, we continue to prudently back to the macro cost wind into our guidance.

This includes incremental FX headwinds from a strengthening U S dollar.

For 2023, we are raising our subscription revenues outlook by $48 million at the midpoint to a range of $8 635 billion to $8, six or 8 billion, representing 25% year over year growth or 25% on a constant.

Darren Yip: Unless otherwise noted, all financial measures and related growth rates we discussed today are non-GAP except for revenues, remaining performance obligations, or RPO, current RPO, and cash and investment. To see the reconciliation between these non-GAP and GAP measures, please refer to today's earnings press release and investor presentation, which are both posted on our website at investors.servicenow.com. A replay of today's call will also be posted on our website.

Currency basis.

We're also raising our full year operating margin target from 26, 5%.

27%.

Bill Mcdermott: With that, I'll turn the call over to Bill. Thank you, Darren, and thank you, everyone, for joining us today.

Okay.

Bill Mcdermott: On behalf of Gina, CJ, and our entire company, I'd like to first make a brief statement about recent events. Terrorism has caused the unfathomable humanitarian crisis, and now engulfs millions of people in Israel and in Gaza. Our hearts break for the innocent on all sides. Even without optimism and short supply, we choose to honor the dream of a peaceful and prosperous future for the Middle East region. God bless and protect all those in harm's way.

And we continue to expect subscription gross margin of 84% free cash flow margin of 30% and GAAP diluted weighted average outstanding shares of $206 million.

For Q4, we expect subscription revenues between $2 321, 1 billion and $2 32, 5 billion, representing 24, 5% to 25% year over year growth of 23% to 23, 5% on a constant currency basis.

We expect CRP outgrowth of 25% by 21% on a constant currency basis.

Notably the strength of our federal business has resulted in a higher mix of 12 month contract that will create a one point headwind to Q4, the ERP that PRP Oprah and remain a headwind into 2024, we expect that these contracts will renew in place or a service now federal contract renewal rate.

Bill Mcdermott: Now for business. Of course, that's the reason we're here to discuss ServiceNow's Q3 results. We're proud that our company once again delivered beyond expectation. ServiceNow has delivered subscription revenue that grew by 24.5% in constant currency. Over one point above our guide. , PRPO, grew a strong 24%, that's 2.5 points above our guidance, operating margin with 30% more than 2.5 points above our guidance. We had 83 deals greater than 1 million in net new ACV up from 69 a year ago, a 20% increase year over year.

<unk>, 9%.

We expect an operating margin of 27, 5% and we expect $206 million GAAP diluted weighted average outstanding shares for the quarter.

In conclusion, our team delivered an exceptional performance across the board.

A culture focused on customer success. Our people have worked relentlessly to provide solutions to meet enterprises' need and it's showing in our robust results.

Businesses are looking to consolidate vendors.

And standardize on our platform.

With a core set of products. So they can build a predictable and reliable pelvic mass to drive digital transformation.

Service now is that strategic platform.

With the addition of our Vancouver release, and the capabilities presented by Gen. AI the window of opportunity is even more expensive than ever before.

Bill Mcdermott: Our focus on landing the right new customers continued to deliver, large new logo growth accelerated with a third consecutive quarter. ServiceNow's traction as the intelligent platform for end-to-end digital transformation has intensified. All of our workflow businesses were in 14 or more of the top 20 deals, ITSM, ITAM, security and risk customer, employee and creator. Within our technology workflows, security and risk at a very strong quarter with 10 deals over a million.

Result is a more powerful and intelligent platform that enables customers to ignite end to end action across the enterprise in ways not seen before.

An exciting opportunity to further improve productivity and employee satisfaction optimize processes reduce cost and create organizational agility.

The possibilities are endless.

Bill and I extend our gratitude to all our employees worldwide for their unwavering dedication and commitment that puts us at the forefront of this opportunity and further driving service now towards its ambition of becoming the defining enterprise software company of the 20 <unk> century.

Bill Mcdermott: Employee workflows had a stellar quarter with 7 deals over a million and one deal over 10 million. From an industry perspective, this was the best US federal quarter in ServiceNow's history. NNACV was up over 75% year over year. US federal agency is standardizing on a single platform with a core set of end-to-end solutions. We had 19 federal deals over a million, including 3 deals over 10 million. Our top deal in the quarter, the United States Air Force was the third largest deal in the company's history.

With that I'll open it up for Q&A.

Thank you if you would like to ask a question on the phone lines today. Please press star one on your telephone keypad.

Remove yourself from the queue Star one again.

Please limit yourself to one question, we will take our first question from Raimo <unk> with Barclays. Please go ahead.

Thank you.

The.

If I look at the <unk>.

Mix.

And product.

Product side, it looks like <unk> was very strong this quarter.

Can you give me a little bit to speak to that.

Hence it is probably the peak federal deals, but maybe more broadly what you see in the different product categories. Many thanks and congrats from me.

Bill Mcdermott: You'll hear from Gina that this performance has heightened our confidence for a strong Q4. We're increasing the four year guidance on the top line and the bottom line.

Hey, Thank you. So much this is C. J for the question great to hear from you.

Bill Mcdermott: And here is the key takeaway. AI has strengthened the market dynamics for enterprise software. ServiceNow is the fastest growing company in this market at relative scale. We have the highest rule of 50 plus across our peer set with the highest growth of any other large cap software company. We are the best performing enterprise software company and IPO. This is a unique, highly differentiated company that is rewriting the benchmarks to be best in class in the SaaS industry.

PSM and <unk>, which were defined from a solution perspective as service operation is quota of our core so as bill outlined that we had very strong.

New logo business and new logos that matter.

We almost always lend with Hyatt DSM in Idaho and in General we are.

Seeing that DSM continues to have expansion rates, whether it's we outgrow skus or just recently added pro plus and with <unk> and AI ops strategy, we continued to execute on not only the product roadmap, but how our customers.

Bill Mcdermott: Looking beyond the quarterly results, while the world's challenges are sobering, the digitization imperative is stronger than ever. Gardener forecast, that $3 trillion will be spent on AI and Gen AI between 2000 and 23 and 2027. Gen AI represents 36% of AI spending overall. We believe every dollar of global GDP will be impacted by AI over the next several years. This isn't a hype cycle. It is a generational movement. In the last year, ServiceNow has doubled down on our AI investments.

Averaging those innovations from visibility all the way to help in the digital real estate.

Thank you.

Okay.

We will take our next question from Kash Rangan with Goldman Sachs.

Hello, Thank you very much congratulations Bill C J and Ciena outstanding results Bill.

We've all been waiting for this recession, some houses have been calling for a hard landing and some others arent. It looks like we've been waiting for everybody for this session to happen, it's not happening and I am sure. Let's see here is that you do business with are have been somewhat cautious the last three to four quarters.

But it looks like things are stable and.

Bill Mcdermott: Our Vancouver release includes generous of AI powered, now it's missed for every workflow. Others issued press releases. We released products. At ServiceNow, our strategy isn't about exuberance. It's about execution. We've carefully laid the groundwork for success, and talent, and resources, and technology. This investment is accelerating our already robust pipeline, with customers lining up to be first movers in this next wave of business transformation.

The tailwind of potentially soft landing if I could use that expression.

Software lending and AI as Vince is wind in your sales what does the company's growth prospects look like in.

24 versus the last couple of years that we've all been slogging through this granted that you have been executing really well outperforming our peer group what does the growth curve looks like with all these tailings ahead of it. Thank you so much and congrats.

What cash. Thank you I think that's the reason why we've raised our guidance on top of an outstanding quarter like this because we have great confidence in the core business all Ceos right now.

Bill Mcdermott: The question we've been asked repeatedly, does AI drive growth? The definitive answer is yes, it does. We have over 300 customers in our pipeline, from every industry, every buying center, and every stage of testing. Our Gen AI SKU, drove the highest number of customer requests, or a pre-release product in our history. We launched Vancouver on September 29th. That left us one day in Q3 to sign deals, and we signed four large deals.

Are either in a move to increase productivity because of the cross wins that you referenced in the macro or take cost out.

Obviously, while doing so they also have the added challenge of new business model innovations such as the auto industry dealing with the transition to E rate, what's unique about service now.

As digital transformation can deflect so many of the cost intensive labor intensive procedures.

Companies have to deal with to properly serve their market.

Bill Mcdermott: A U.S, government agency selected our premium SKU offering to be an early adopter of Gen AI. Real estate leader, CBRE, is harnessing generative AI, with ServiceNow to deliver superior service to customers and employees, while reducing costs. Nvidia is accelerating its own ServiceNow journey with generative AI. Among other leading companies, Keller Performance joined ServiceNow's AI Lighthouse program. They will collaborate on new generative AI use cases that boost productivity, while increasing customer and employee satisfaction in key industries.

On top of that you have one third of the productivity of knowledge workers getting.

Torn apart by swiveled sharing between on average 13 individual applications a day.

Now you add the productivity tailwind of generative AI on this once in a generation service now platform.

And you have achieved a very important.

Business transformation.

And I think right now Ceos are focused on business transformation.

And when you can give him one common UX that as consumer grade that integrates with the half a century old legacy mess that they have to contend with and we can get the actions that they need done done done to achieve cost out productivity and growth on theyre all about <unk>.

Bill Mcdermott: We had a wide range of other customer wins in the quarter as well. FedEx is using ServiceNow to simplify their IT workflows, while building a universal employee portal to improve employee experience for a half a million global employees. One of the world's largest auto makers selected ServiceNow to help consolidate dozens of applications into a new modern platform to accelerate their push into the EV market. Billets, Mars, Bank of California, Cleveland Clinic, the U.S. Department of Defense, Fujitsu, Asahi Mutual Insurance, and the state of California are among many others.

This now now and that's why you're seeing these results and they are sustainable.

Amazing. Thank you so much very inspiring.

Thank you Kash.

We will take our next question from Tyler Radke with Citi.

Yes. Thank you very much for taking the question. So the beat on constant currency current IPO was one of the largest we've seen in quite a while could you just unpack was that mostly federal or was it was it broad based and then second Regina on the current <unk> out.

Bill Mcdermott: We see a meaningful path for all customers to recognize value from generative AI in the quarters to come. Our innovation velocity is very high. Pipeline is growing fast, and capacity to execute is well proven, and this is just the beginning.

Look for Q4 could you just help us understand the dynamic with a one point headwind.

A little bit better.

Did Q3 also face that headwind given you booked so many of these large federal contracts. Thank you.

Sure thing Tyler. Thanks, so much for the question. So yes. We're very excited Q3 results are just phenomenal across the board and then be on constant currency <unk> was two things.

Bill Mcdermott: Looking holistically at our business, we see progress everywhere. We have an aspiration to significantly increase the percentage of net new revenue sourced by our partners in the coming years. This is about partners making the ServiceNow platform the core of their emerging business models. One exciting example is our customer train technologies. They are a global climate innovator, which recently announced plans to acquire ServiceNow partner NewVolo. With NewVolo, train technologies can bring world-class digital solutions engineered on the ServiceNow platform to their global customer base. Service. This creates a flywheel effect to ServiceNow. More use cases drive more workflow automation.

Typically.

<unk> net new ACB growth and that was primarily driven but not entirely primarily not entirely driven by very strong federal business.

It's just fantastic and great business for us.

We also did have better early renewals if you remember we've been really prudent in how we have been forecasting early renewals given the current macro environment and so the beat this quarter was two pronged right. So strong net new ACB growth as well as strong early renewals.

To your question on the impact of Q4, <unk> and the one and the one point headwind.

Bill Mcdermott: And today, we're excited to share that Deloitte and ServiceNow announce an expansion to our Alliance. Deloitte will become a pioneering partner integrating our generative AI capabilities and to their leading operating services globally. Deloitte scores Deloitte's commitment to enhance performance with cross industry solutions built on the ServiceNow platform.

Federal agencies, usually contract is one year out right. So theyre contractor only 12 months in duration. So it doesn't have a negative impact on Q3 right because at the end of Q3, you have it in there for a full year, but at the end of Q4 with one quarter of those contracts roll off.

So it means that there is a headwind to Q4, because Q4 cycle because federal was so strong and the mix of federal in Q3 was stronger than we've ever seen before there is that that headwind into Q4, but again as you think about the underlying.

Bill Mcdermott: We're also scaling our ecosystem globally with today's announcement of a co-investment and answer a market leader in enabling companies to scale technology centers. Another area that we expect a few long-term sustainable growth is industry verticalization. Our product development roadmap is expanding with use cases in telecommunications, financial services, retail, and the public sector. And beyond any one industry, we increasingly see both intro and inter and surprise workflow opportunities on the ServiceNow platform. This new generation of business networks is creating value chains that transcend traditional business boundaries.

<unk> business extremely strong results in fact federal business has a strong renewal rate at 99%.

So as you think about the underlying health of the business going into 'twenty four it remains very strong.

Thank you.

Thanks Alan.

We will take our next question from Keith Weiss with Morgan Stanley.

Yes. This is Sanjay Singh for Keith.

I wanted to congratulate the team on the 24% constant.

On the current Rps growth was really impressive.

Bill when I looked at what you were talking about in terms of the Gen II trials and lending for customers right at the end of the quarter in terms of your the team's expectation about adoption of it.

Bill Mcdermott: Our rapid pace of workflow innovation creates an even greater demand for our training and skills initiative rise up with ServiceNow. As one example, future skills prime, a digital scaling initiative of the Indian government will train thousands of learners across India in new digital skills. This partnership offers clear pathways to build careers as businesses worldwide grow at ServiceNow workforce. Bottom line, there's all points to growing the ServiceNow.

Thank you some pro plus versus pro.

Is there do you see a scenario where that adoption could potentially happen faster than the cadence of adoption that <unk> seen over the last five years with Enbrel I. Appreciate for you I appreciate the thoughts.

Well I can I can tell you that.

First of all I appreciate your question.

You know how well we have done with the pro version of the platform and there is still plenty of room to expand on that but the demand that we've seen so far or pro plus and the transformational nature of what customers are now able to do on the now platform has led.

Bill Mcdermott: In closing, we're building a company for the ages. By concentrating on customer value, we are creating immense shareholder value. At a strategic level, we show is to set the bar high to be the defining enterprise software company of the 21st century. We have an inspired team that is committed to our exponential dream. A company is only as great as each member of the team, and the team is only as great as the company.

Two the single best pipe.

We have seen.

Ed service now.

T. J gave you some color on individual customers and some of the actual stories that I think youll find illuminating absolutely. Thank you bill and thanks for the question.

So we.

We have one data point from the last week of September, which I do not want to set the trend. However.

Bill Mcdermott: That is what culture is all about. Our employee engagement scores increase across the board this year, so did our retention rates, which are already fifth in class. We never went for layoffs. We went for thoughtful, careful expansion. When you look at the ongoing momentum from Knowledge 23, it's clear the approach is working. The profitable growth profile of this company speaks for itself.

We are having many many conversations with some of the iconic companies and public sector customers, but.

Service now agenda do AI offering so when we launch in 2018 Q3, the gross skus.

Herb that's Paul or.

Multiple quarters now 20 quarters.

And we know what that looks like with plus.

Bill Mcdermott: The market is there for us, and now we're focused on Q4 delivering a strong poll year and a fast start in 2024 as well.

Plus what I am seeing is it is no longer about the potential of <unk> AI.

Questioning <unk> good put us in context, I'll start with our platform, but the conversations have shifted to a C. J.

Bill Mcdermott: Thank you for your time today. I look forward to your questions.

Gina Mastantuono: Now I'll turn it over to our outstanding CFO, Gina Mastintuno. Gina, over to you. Thank you, Bill.

How long would it be would it take for us to implement does our data strategy needs to be aligned and one of our security et cetera. So the positive side of this is that we are seeing good demand.

Gina Mastantuono: Q3 marks another quarter of strong execution as we once again significantly surpassed the high end of our top line growth and profitability guidance. Tricks. ServiceNow continues to demonstrate its resilience as the intelligent platforms for end-to-end digital transformation. Customers are seeking enhanced productivity solutions in the current macro environment, and ServiceNow is delivering. In Q3, subscription revenues are 2.216 billion, going 24.5% year-to-year in constant currency, exceeding the high-end of our guidance range by over a hundred basis points.

On the cautionary side is we will work with our customers. They are learning like Bill said before customers, who leaned in and bought our products on the last day of the quarter, but as we move forward. We will work with these customers and as we get couple of quarters under the belt, we wouldn't be able to tell you. How this is looking.

Got it.

So progress towards Pittsboro.

I appreciate the additional thoughts on C. J. Thank you very much.

And then Keith one thing to keep in mind is pro as a necessary stepping stone to probe plus so from a shareholder value creation.

Gina Mastantuono: Amazing, organic growth at massive scale. RPO ended the quarter at approximately 14.4 billion, representing 23.5% year-to-year constant currency growth. Current RPO was approximately 7.43 billion, representing 24% year-to-year constant currency growth, and a 250 basis point beat versus our guidance. As Bill highlighted, federal had its best net new ACV quarter ever growing over 75% year-to-year. I want to give a quick shout-out to the federal team who has just been crushing it. Among the other industries, transportation and logistics was very strong growing over 100% year-to-year, followed by education, which grew over 75%.

Plus plus.

Well noted thanks Bill.

Thank you very much Keith.

We will take our next question from Jonathan <unk> with Guggenheim.

Thanks for taking my question.

And gena, thanks for all the detail around CRP.

That's really helpful in understanding that metric and I know we've talked about this in the past.

That is helpful.

My question is really around the federal business, which is really it's been really strong for at least a year more than offsetting any commercial weakness when it happens like maybe a year ago or so.

Just adding to what at least.

What I think is surprising commercial strength cash sort of hit on that in periods like this quarter.

Gina Mastantuono: Manufacturing in TMC also saw robust growth. We had some outstanding achievements from a workflow standpoint as well. I'm pleased to announce that Creator Work Clothes crossed 1 billion in ACV in Q3, a monumental milestone, and our employee proscues the over 100% growth in net new ACV year-to-year. Retention remained exceptional with the renewal rate of 98% in Q3, reaffirming the essential roles and now spot-ball plays in our customers' operations. Our customer cohorts displayed solid expansion, as the quarter closed with 1789 customers contributing over 1 million in ACV, with 58% year-to-year growth in those contributing over 20 million.

My question is how sustainable is that federal business in regards to new ACD, which it sounds like it's just continues its like the money.

Keeps on giving.

Yeah.

John I'll start it off and then let <unk> give you some of her color as well, but our federal business as I said the biggest quarter in service now its history with 75% year over year growth in NAV, and we had 19 deals that were more than $1 million, including three over $10 million with the U S Air forces the third big.

This deal in the history of service now.

And what we're seeing.

Is across all areas of federal agencies are really looking to consolidate.

Gina Mastantuono: In Q3, we successfully closed 83 deals greater than 1 million in net new ACV, with 4 deals greater than 10 million. Notably, 18 of our top 20 net new ACV deals included 8 or more products. By launching at the end of the quarter, we have also already closed 4 GenI-related enterprise deals and we're seeing strong pipeline bills for our plus queues.

On tracks point solutions, the messy middle and they really want to standardize on our platform with a core set of products that they can grow with and our Gen. AI offerings. For example are really reinforcing our ability to help accelerate their transformation journey.

And they are seeing.

Really tremendous tremendous opportunity and Jenny I on our platform and we're already seeing early adopters show an interest in domain specific models.

Gina Mastantuono: Turning to profitability, non-gap operating margin was 30% over 250 basis points above our guidance, driven by disciplines, send management, and the top line out performance. Our free capsule margin was 9%, up 300 basis points year-to-year. We ended the quarter with a robust balance sheet including 7 billion in cash and investments. In Q3, we purchased half a million shares as part of our first ever share repurchase program, with the primary objective of managing the impact of dilution. As of the end of the quarter, we have approximately 1.2 billion remaining of the original 1.5 billion authorization.

Which offer better security as C. J set and we're working with some agencies that I can tell you care a lot about security.

So I think it's.

Really a tribute to.

Service now is engineering and the waste service now runs our cloud and the manner in which we care for our customers at a deep technical level and they know that they can count on that and every agency, where we've done business is highly referenced triple and near telling our story to us.

The agencies for us, it's really a beautiful force multiplying situation I want to leave you with one thought.

Gina Mastantuono: Reformation. Together, these results continue to demonstrate our ability to drive a strong balance of world-class growth, profitability, and shareholder value.

We're only getting started.

With federal with state with local to business transformation that is going to go on in the next decade across all of those categories will play beautifully into our growth agenda and will continue to service it with 100% customer satisfaction. We are fired up with what we're able to do to transform government.

Gina Mastantuono: Moving to our guidance, we are raising the full-year outlook to reflect the strength of Q3. As we have done all year, we continue to prudently factor the macro crosswind into our guidance. This includes incremental effects, headwinds,[inaudible] than ever before. The result is a more powerful and intelligent platform that enables customers to ignite end-to-end action across the enterprise in ways not seen before. It's an exciting opportunity to further improve productivity and employee satisfaction, optimize processes, reduce costs, and create organizational agility. We're raising our full-year operating market target from 25% on a constant currency basis. , the possibilities are endless.

And make a run like a best fluent business.

The only thing I would add and build fantastic answer the only thing I would add John is that this is durable demand.

The Federal agency visited the digitalization agenda is only growing and the success that we've had at payroll we absolutely have the ability to replicate that outside of the U S and public sector around the world.

Thank you very much.

Thanks, John Thank you John.

We will take our next question from Mark Murphy with J P. Morgan.

Thank you very much feel the level of confidence that we hear from our size on.

Maintaining this kind of 20% plus growth trajectory for their service now practices is truly standing out.

The software landscape one of them survey their customers and the top three topics of interest that came back were Microsoft Azure and service now so just in light of that that joint prioritization. There could you shed a little light on the traction with your Microsoft relationship is.

That kicking in already at this stage and.

Are you able to go to market as a bit of a one two punch with the Azure co pilots and now assist.

Yes.

I'll start off and then please feel free to add on this as well, but our partnership with Microsoft is really.

Geared to open additional addressable market for service now and we're doing that by creating and expanding co sell motion with Microsoft Enterprise sales team. So that would talk to you one two punch.

And service now is really helping streamline their migrations to azure, while azure exposes us to a much wider spectrum of customers. So we saw the partnership influence deals across Geos in Q3, including government wins in Americas, and APAC as real driving forces between both Microsoft.

<unk> been in service now and we really are confident that the partnership and the synergy with Microsoft does enable us to bring value to more customers and do so at an unprecedented speed and I do want to say that we've been friends.

Sorry to hear myself on a personal level for a long time and we've done a lot of business together and the friendship that exist with CJ and the engineering team at Microsoft is very rock solid.

We trust each other and we see that our mutual interest it better by working together, but also we're doing it in the name of the customer and I think that's the big thing and I, just want to compliment CJ and our engineering team not just for the 5000.

New innovations as they brought to the platform. This year that would have been enough, but also for the hands on relationship with great partners like Microsoft because you've got to remember everything we have has been integrated into Microsoft from office 365, the dynamics the teams to Azure to AI.

Gina Mastantuono: Bill and I extend our gratitude to all our employees worldwide for their unwavering dedication and commitment that puts us at the forefront of this opportunity and further driving service now toward the submission of the coming, the defining enterprise software company of the 21st century.

It's pretty.

Pretty amazing when you think about the engineering work and talent that went into putting this together. So this isn't just like let's go to market and two is better than one this is deep technical integration to serve customers at an unprecedented level.

Unknown Executive: With that, I'll open it up for Q&A. Thank you. Dave, please press star one on your telephone keypad to remove yourself from the queue, but if star one again, please limit yourself to one question.

Bill you said it well mark the only thing good to hear from you. The only thing I would add is the engineering collaboration is absolutely necessary, but not sufficient when it comes to go to market partnership and relationship we have working with Microsoft So whether it's our financial services customers.

Raimo Lenschow: We'll take our first question from Raimo Lenschow with Barclays, please go ahead. Thank you. If I look at the mix in product on a product side, it looked like ITSM item was very strong this quarter. Can you a little bit speak to that? I sense it's probably the big federal deals, but maybe more broadly, what do you see in the different product categories? Many things from Congress from me.

That helped get our government customers when they are trying to leverage service no hey, where are my assets.

My assets help eight are the secure whether they're running on Pam on in Azure, we have the best in class partnership with Microsoft and that is definitely.

Chirantan Desai: Hey, Raimo, thank you so much. This is CJ for the question. I'd like to hear from you. ITSM and I term which we define from a solution perspective as service operation is core of our core. So, as Bill outlined, that we had very strong new logo business and new logos that matter where we almost always land with ITSM and item. And in general, we are seeing that ITSM continues to have expansion rates, whether it's we are proscuse or just recently added pro plus.

Chirantan Desai: And with ITSM and our AI of strategy, we continue to execute on not only the product roadmap, but how our customers are leveraging those innovations from visibility all the way to health in their digital real estate. Thank you.

<unk> noticed by some of our largest as well as mid sized customers and brand new customers.

Thank you for that extra texture and congrats.

Thank you very much for.

We will take our next question from Karl Keirstead with UBS.

Okay, Great maybe I'll direct this one to Gina Gina I know from the past when you've had strong fed quarters that by virtue of those deals. They tend to have I think correct me, if I'm wrong, a little bit more upfront.

<unk>. So I'm just curious you laid out.

Impact on <unk>, but how does that strong fed quarter that you saw in September impact the reported subscription revenue and margins that you put up if you could in any way maybe size that lift given that I think there's more upfront Rev. Rec much appreciate it.

Cash Ringen: We'll take our next question from cash ringen with Goldman Sachs. Hello, thank you very much. Congratulations, Bill, CJ, and Gina, outstanding results. We've all been waiting for this recession. Some houses have been calling for hard landing and some others aren't. It looks like we've been waiting forever for this recession to happen. It's not happening. And I'm sure it's the years that you do business with or haven't somewhat cautious the last three to four quarters, but it looks like things are stable.

Yeah, It's a great question, Carl actually quarter over quarter year over year <unk> has remained consistent so that hasn't been an impact and so the.

The strength in our revenue in the quarter was.

The results of extremely fantastic execution.

Okay good to hear thanks.

Thank you.

We'll take our next question from Gregg Moskowitz with Mizuho.

Bill Mcdermott: And with the tailwind of potentially a soft landing if I could use that expression or software landing and AI as wind as wind in your sales, what does the company's growth prospects look like in 24 versus the last couple of years that we've all been slogging through this granted that you have an executing really well. How performing your peer groups, what does the growth curve look like with all these tailwinds? Thank you so much.

Okay. Thank you very much. So it's really interesting that you signed four large deals on September 30th literally right. After the availability of Vancouver, and now assist in it. It sounds like you are gaining itek with a clear catalyst if not be catalysts for these transactions. So I guess for for Bill or T. J I assume these are all existing <unk>.

Customers, but do they all purchase pro plus did any of them purchase enterprise plus are any of them deploying your new Texaco with functionality just curious to hear any additional color that you might be able to share. Thank you.

Bill Mcdermott: Thanks for that. What cash, thank you. I think that's the reason why we've raised the guidance on top of an outstanding quarter like this because we have great confidence in the core business. All CEOs right now are either in a move to increase productivity because of the cross winds that you reference in the macro. Working right take cost out. And obviously while doing so, they also have the added challenge of new business model innovations such as the auto industry now dealing with the transition to EV.

Hey, guys. Thanks for the question I'll take this question.

I would say just to summarize because we in the Vancouver release launched Nava says.

Our four flagship product lines, which is ipso HR customer service and creator so let's start with that and those are all resonating well.

Our customers want techs to court, our techs to workflow capabilities are they want their employees to be more productive or they weren't that IP staff, our customer service agents to be more productive so depending on the customer and what they're solving for all of them are resonating really well. So this was driven.

Bill Mcdermott: What's unique about service now is digital transformation can deflect so many of the cost intensive labor intensive procedures. The companies have to deal with the properly serve their mark, on top of that, you have one third of the productivity of knowledge workers getting torn apart by swivel chairing between on average 13 individual applications a day. Now you add the productivity tailwind of Generative AI on this once in a generation service now platform and you have achieved a very important business transformation.

Lee on pro plus but this was pro customers, who also bought broke plus so one example, one of the customers who did buy this on September 29, specifically said to me a P J.

We had the most successful IPSA rollout now we wanted to buy.

And then on ideas and pro already and we just won an employee experience to be great versus another customer that Bill mentioned, they said not only began to talk about our employees, but also to end customers. So this sports specific transactions, but across the board resulting in.

Bill Mcdermott: And I think right now CEO is are focused on business transformation and when you can give them one common UX that is consume a grade that integrates with the half a century old legacy mess that they have to contend with and we can get the actions that they need done done done to achieve cost out productivity and growth on. They're all about service now now and that's why you're seeing these results and they are sustainable.

Very strategic and significant wins as we move forward I would tell you that what is still resonating with our customers is the speed to value. This is not something that now large languish bartow needs to be fine tuned for one customer at a time and the way our engineering team has implemented this.

Sure I can tell you <unk> is probably one of the best if not the best compliment I think to serve as a platform. Then you can use them to do AI to look up something to summarize something and then you take action via service cloud platform.

Cash Ringen: Amazing, thank you so much, very inspiring. Thank you, Keshe.

Tyler Radke: We'll take our next question from Tyler Radke with city. Yes, thank you very much for taking the question. So the beat on constant currency current RPO was one of the largest we've seen in in quite a while.

Okay fantastic. Thanks C J.

We will take our next question from Kirk <unk> with Evercore ISI.

Gina Mastantuono: Could you just unpack was that mostly federal or was it was it broad based? And then second Regina on the current RPO outlook for Q4. Could you just help us understand the dynamic with the one point headwind a little bit better? Did Q3 also face that headwind give me you booked so many of these large federal contracts? Thank you. Thank you, Tyler. Thanks so much for the question. So yes, we're very excited.

Hi, yes, thanks, very much and congrats on the quarter Bill C. J I was wondering if you can just talk about the concept of starting to deliver AI solutions that are more vertically oriented.

How far away are you from that how much of the virtualization do you want to take on and how much do you want to leave to your partners to sort of take some of these use cases, which nai.

The verticals.

With specific vertical technology. Thanks.

Gina Mastantuono: Q3 results were just phenomenal across the board. And the beat on constant currency RPO was two things specifically strong net new ACB growth and that was primarily driven but not entirely primarily not entirely driven by very strong federal business which was just fantastic and great business for us. We also did have better early renewals. If you remember we've been really prudent in how we've been forecasting early renewals given the current macro environment.

So first of all thank you for the question.

When we started yesterday, we had our board of directors meeting that in similar question was asked via our first prioritize on our core set of use cases that cut across every single industry. We are very focused on that we have ideas and customer service HR as well as a creator.

Offerings as we look forward, though.

There are specific use cases, and then a financial services auto healthcare types of customers or even government. So I'll give you. An example, our some of our public sector customers. They asked us.

Gina Mastantuono: And so the beat this quarter was two prongs. So strong net new ACB growth as well as strong early renewals. So your question on the impact of Q4 the RPO and the one and the one point headwind. How federal agencies usually contract is one year out? So their contract are only 12 month in duration. So it doesn't have a negative impact on Q3 because at the end of Q3 you have it in there for a full year.

Hey, TJ and the team can you provide us a solution that can potentially run on plan given the nature of that agency and our engineering team delivered that bought our public sector customers. So I would consider that as a vertical solution that we had to create one.

Our public sector customers, but as we take it to the next level post. This core set of use cases across our border workflows, we will definitely be prioritizing financial services and TMT moving forward.

Gina Mastantuono: But at the end of Q4 when one quarter of those contracts roll off the RPO it means that there is a headwind to Q4 and because federal was so strong and the mix of federal and Q3 was stronger than we've ever seen before there is that headwind into Q4. But again as you think about the underlying business extremely strong results in fact federal business has a stronger renewal rate at 99 percent. So as you think about the underlying health of the business going into 24 it remains very strong. Thank you.

Thank you.

We will take our next question from Alex Zukin with Wolfe Research.

Hey, guys congrats on another great quarter.

Maybe just.

Two quick ones for me.

Clearly the story of this quarter was the unbelievable federal growth that you guys post.

Maybe ex federal.

Set of.

The incremental challenges or lack of thereof from the macro and pipelines like what's the story of the quarter ex fed and then some of the deals that you guys referenced either.

On the plus side or just the very large deal side, maybe talk a little bit about the competitive environment are you taking them away from some of your front office peers or kind of how does that shape up.

Keith Weiss: We'll take our next question from Keith Weiss with Morgan Stanley. Yeah, this is Sanjit Singh for Keith. I wanted to congratulate the team on the 24% constant on the Kernar Pio Grow, that was really impressive.

As you look at the pipeline.

Yeah, Alex Thanks for the question C. J first of all.

Keith Weiss: You know, Bill, when I looked at what you were talking about in terms of Genai trials and landing for customers right at the end of the quarter, in terms of your, the team's expectation about adoption of IT, IT7 Pro Plus versus Pro, is there, do you see a scenario where that adoption could potentially happen faster than the, the cadence of adoption that you've seen over the last five years with IT7 Pro. Appreciate the, appreciate the stuff.

Yes, <unk> had a phenomenal quarter than it had been talked about by both bill and Gina.

We also saw strength in certain industries and certain geographies across the board, we won't be able to produce these kind of results and this kind of beat on CRP.

With our strength in other industries and other geographies. So that's what I would say at the highest level that there were a lot of other strengths and even from a use case on a workflow perspective, bill already outlined there not employee workflow, which is you know now customers are asking us. This.

Keith Weiss: Well, I can, I can tell you that we first of all appreciate you question Keith. You know how well we've done with the pro version of the platform, and there's still plenty of room to expand on that. But the demand that we've seen so far for Pro Plus and the transformational nature of what customers are now able to do on the now platform has led to the single best pipe that we have seen at ServiceNow.

Question that we werent that employee productivity to be high.

What I said with our solution because employees waste too much time swivel chairing theyre looking for information. So we saw significant growth there, but the growth was across the board given from a workflow perspective at all for workforce grew very very nicely and Alex you know how much I pay attention to that.

Keith Weiss: I'll let PJ give you some color on individual customers and some of the actual stories that I think you'll find illuminating. Absolutely. Thank you, Bill. And thanks for the question. So we have one data point from the last week of September, which I do not want to translate it to trend. However, we are having many, many conversations with some of the iconic companies and public sector customers around ServiceNow's gendered AI offering.

Second thing I would say on pro and pro plus what we are seeing is that customers understand service and our strategy is very specific to service that we use cases and one of the things that I realized after having this group plus conversations with customers on a large sample size.

That agenda.

Our proved plus SKU is the productivity.

Keith Weiss: So when we launch in 2018 Q3, the pros cues, you know, there was a curve that followed over multiple quarters, now 20 quarters. And we know what that looks like with Pro Plus. What I'm seeing is it is no longer about the potential of gendered AI where they are questioning is gendered AI good for us in context of ServiceNow platform. But the conversations have shifted to ACJ. How long would we would take for us to implement does our data strategy need to be aligned and what about security, etc.

Productivity multiplier is not a productivity enhancer. So when you have a productivity multiplier and you can articulate what kind of productivity gains that we get that is when they say, okay. We got it and now let's figure out what are the pricing and other competitive dynamic space from agenda do AI span.

But overall this pro plus SKU. It is still in the context of service, though how much value. We will look at how fast will they get that value and how much they are willing to pay.

And.

Alex if I may build on what T. J said I can give you. Some additional color. If you like one thing that might be of interest to you is in America is the number of $5 million plus deals.

Keith Weiss: So the positive side of this is that we are seeing good demand. And on the cautionary side is we will work with our customers. They are learning like Bill said, the poor customers who lean then and bought our products on the last day of the quarter. But as we move forward, we'll work with these customers. And as we get couple of quarters under the belt, we will be able to tell you how this is looking versus Pro.

Actually more than quadrupled year over year.

And the number of $10 million plus deal doubled year over year.

And I think as C J laid out beautifully technology and employee workflows.

Enormously successful and in EMEA.

Our 1 million plus deals grew 70% year over year.

Which means that the platform and multiple components of the solutions that are great engineering team builds is resonating and we're seeing particular uplift now in government and manufacturing and one interesting fact.

Keith Weiss: So Pro Plus versus Pro. I appreciate the additional thoughts of CJ. Thank you very much. And Keith, one thing to keep in mind is Pro is a necessary stepping stone to Pro Plus. So from a general to value creations point, it's plus plus. We'll note it. Thanks Bill. Thank you very much, Keith.

We have these world forums coming up in London, Paris, Frankfurt, and Rotterdam, and we have a $1 billion plus pipeline that's registered for those events.

John Davucci: We'll take our next question from John Davucci with Google. Thanks for taking my question. In Gina, thanks for all the detail around CRPO. That's really helpful in understanding that metric, and I know we've talked about this in the past, but I mean, it's helpful. My question is really around the federal business, which has really, it's been really strong for at least a year, more than offsetting any commercial weakness when it happens like maybe a year ago or so.

So we feel good about that and a P. J when you think about it at 1 million plus deals increased 40% year over year.

And Japan is continuing to impress us with the unprecedented opportunity of the world's third largest economy as Germany as well so we're seeing.

John Davucci: And just adding, adding to what, at least what I think is surprising commercial strength as cash sort of hit on that in periods like this quarter. I guess my question is, how sustainable is that federal business in regards to new ACV, which it sounds like it just continues, it's like the energizer bunny to sort of keep on giving.

Lots of.

Our real growth opportunities on the global stage, and I think Gino pointed that out earlier as well.

Super insightful guys. Thank you very much.

Thank you thanks, Alex.

We will take our next question from Brad Sills with Bank of America.

Oh, great. Thank you so much it looks like.

An uptick here in head count this quarter sales and marketing hires net adds looks like.

More than 500, R&D, almost 400 would love to get some color on some of those areas of prioritizing that youre prioritizing in the investment both in sales and marketing and R&D. Thank you.

Bill Mcdermott: Yeah, you know, John, I'll start it off and then let Gina give you some of her color as well, but our federal business, as I said, had the biggest quarter in service now's history with 75% year-over-year growth in NNACV, and we had 19 deals that were more than a million including 3 over 10 million with the USA Air Force as the third biggest deal in the history of service now. And what we're seeing is across all areas, you know, federal agencies are really looking to consolidate contracts, point solutions, the messy middle, and they really want to standardize on a platform with a core set of products that they can grow with.

Yeah, Brad this is.

Taylor continued.

Execution, we've been very focused on adding heads and investing in R&D resources in our quota bearing sales and so you will continue to see us invest in those critics.

Critical areas for us.

And that's been something that we've been doing for quarters now and so we'll continue to add the quite a bank sales the direct sales folks.

As we enter into 'twenty or you could expect to see similar levels of growth as we enter.

Bill Mcdermott: And our GNI offerings, for example, are really reinforcing our ability to help accelerate their transformation journey and they're seeing a really tremendous, tremendous opportunity in GNI on our platform. And we're already seeing early adopters show an interest in domain specific model, which offer better security as CJ said. And we're working with some agencies that I can tell you care a lot about security. So I think it's really a trick to service now is engineering and the way service now runs our clouds and the manner in which we care for our customers at a deep technical level, and they know that they can count on that. And every agency where we've done business is highly referenceable. And they're telling our story to other agencies for us. It's really a beautiful force multiplying situation.

The following year, so feel really good about where we've been investing in those same areas that we've been talking about quite a very direct sales heads as well as <unk>.

Critical key engineering as we think about it.

Great innovation that comes from our R&D and engineering teams across the world.

Thank you.

We will take our next question from Michael <unk> with Wells Fargo Securities.

Hey, great. Thanks, I appreciate you taking the question and fantastic job with the Q3 results. Gina you gave us some 2020 for Biomarkers at the Analyst day earlier. This year. It's now October a lot's changed but the growth profile is proven impressively durable throughout is there anything you're seeing that's meaningfully different here today versus.

This is where things were in may it sounds more clearer in terms of some of the initial value youre seeing from the Gen AI capabilities with or are there. Other swing factors, we should keep in mind understanding Q4 is very important but anything you can add as useful thanks.

Gina Mastantuono: But I want to leave you with one thought. We're only getting started with federal, with state, with local, the business transformation that's going to go on in the next decade across all of those categories will play beautifully into our growth agenda. And we'll continue to service it with 100% customer satisfaction. We are fired up with what we're able to do to transform government and make it run like a best run business.

Yeah, Michael Thanks for the question.

We don't provide formal fiscal year guidance until next quarter that said.

Given our increase in revenue this year, we remain ever confident in the goals that we put forth back in May at analyst day for 2024, as well as 2026, the strength of our underlying business does provide solid momentum and the potential for upside heading into 'twenty four.

Gina Mastantuono: The only thing I would add and fill fantastic answer, the only thing I would add John is that this is durable demand. The federal agency, the digitization agenda is only growing. And the success that we've had at federal, we absolutely have the ability to replicate that outside of the US in public sector around the world. Thank you very much.

But as you said Q4 is it a quite a broad we expect great things, but it has a significant impact on next year. So we'll wait for the formal guide but.

Very very confident in the numbers that we laid out for you back in May and stay.

Stay tuned as we head into 'twenty.

Mark Murphy: Thank you, John. We'll take our next question from Mark Murphy with JP Morgan. Thank you very much, Phil. The level of confidence that we hear from SIs on maintaining this kind of 20% plus growth trajectory for their ServiceNow practices is truly standing out across the software landscape. One of them surveyed their customers and the top three topics of interest that came back were Microsoft, Azure, and ServiceNow. Just in light of that joint prioritization there, could you shed a little light on traction with your Microsoft relationship? Is that kicking in already at the stage? Are you able to go to market as a bit of a one, two punch with the Azure co-pilots and now assist?

Well thank you.

Thanks, Michael.

We will take our next question from Samad Samana with Jefferies.

Hey, Gena.

I wanted to follow up on that I had a different version of that.

A question, which is just more precisely journey. When you gave when you gave the outlook at the time of the analyst day. There was on CRD a lot of discussion about AI, but the products that have been rolled out to when you gave the 'twenty four targets does that embed any potential impact from Gen. II, specifically or was that something that was just on the horizon or on the <unk>.

It wasn't included just for clarification I've gotten the question a lot.

Sure, Yes, great question.

At Analyst day, we actually showed a lot of live demos of the work that we were doing around jet engine AI.

Bill Mcdermott: Yeah, I'll start off and then please, CJ, feel free to add your opinion on this as well. But our partnership with Microsoft is really geared to open additional addressable market for ServiceNow. And we're doing that by creating an expanding co-pilotion with Microsoft Enterprise Sales Team. So that would talk to you one, two punch. And ServiceNow is really helping streamline their migrations to Azure, while Azure exposes us to a much wider spectrum of customers.

We talked also about the fact that we're not jumping on this AI bandwagon, but we've been investing in AI for years and years and generated AI with quite a part of that so as you think about our roadmap and our plans.

I was part of that now that being said.

The interest and the understanding and the excitement about NII today versus back in May is extremely exciting to us and so if your question is is there potential upside as a result of Gen II absolutely.

Bill Mcdermott: So we saw the partnership influence deals across geos in Q3, including government wins in America as an APAC as real driving forces between both Microsoft and ServiceNow. And we really are confident that the partnership and the synergy with Microsoft does enable us to bring value to more customers and do so at an unprecedented speed. And I do want to say that we've been friends with Satya, myself on a personal level for a long time.

But one quarter does not a trend make so we will absolutely continue to keep you posted on the adoption rate of our Ginnie skus, but we are extremely excited about the pipeline build that we've seen already and it's just been out for a very short amount of time.

So more to come on where did I got it right.

But rest assured service now is going to be a winner in the jet AI space and we're extremely excited about pipeline build and where we are today.

Bill Mcdermott: And we've done a lot of business together and the friendship that exists with CJ and the engineering team at Microsoft is very rock solid. And we trust each other. And we see that our mutual interests get better by working together. But also we're doing it in the name of the customer. And I think that's the big thing. And I just want to compliment CJ and our engineering team, not just for the 5,000 new innovations they brought to the platform this year.

Great and Bill if I could squeeze one in for you.

You've talked about how much.

Interest in Buzz that's been generated and increase the velocity of conversations when you think about your board level conversations.

Are you seeing that the budget, that's being carved out for spend on Gen. AI is that being taken away from other parts of the O'brien he budget or is that hey, this is a strategic imperative and we need to find the money, whether we're growing our it budget or not just how are they thinking about that those dollars north.

Bill Mcdermott: That would have been enough. But also for the hands-on relationship with great partners like Microsoft, because you got to remember everything we have has been integrated into Microsoft from Office 365 to Dynamics to Teams to Azure to AIOPS. And this is pretty amazing when you think about the engineering work and talent that went into putting this together. Because this isn't just like let's go to market and two is better than one. This is deep technical integration to serve customers at an unprecedented level.

Yes.

The Ceos all have boards of directors and they don't want to show up without a gen AI plan.

This is a CEO level decision and I think that is why we meet with so many ceos in the C. Suite is now completely embedded in the service now go to market plan and it's working beautifully.

What theyre doing is as follows.

Chirantan Desai: Well, Mark, the only thing I could hear from you, the only thing I would add is the engineering collaboration is absolutely necessary, but not sufficient when it comes to go to market partnership and relationship we have working with Microsoft. So whether it's our financial services customers or healthcare or government customers, when they are trying to leverage service now. Hey, where are my assets? Are my assets healthy? Are they secure? Whether they are running on prem or in Azure, we have the best in class partnership with Microsoft. And that is definitely being noticed by some of our largest as well as midsize customers and brands. Thank you for that extra texture and congrats. Thank you very much for it.

According to IDC.

Budget. This year would have been about three 5% spend.

And next year, it's expected to go to.

Instead of incrementally increasing three 5%, which is your typical year its expected according to IDC to incrementally go up 7% and that's the budget itself.

What I believe is going to happen and based upon the CEO discussions that I'm, having and also based on my own way of thinking.

I would very much like to take.

The position of looking at the world through the customers eyes in a bottom now 7% may or may not get it done.

Might look to G&A functions to further fuel.

Karl Keirstead: We'll take our next question from Karl Keirstead with UBS. Okay, great.

This generative AI Revolution, because this is really about business transformation.

Gina Mastantuono: Maybe I'll direct this one to Gina. Gina, I know from the past when you've had strong fed quarters that by virtue of those deals, they tend to have, I think, correct me if I'm wrong, a little bit more upfront revrex. So I'm just curious, you laid out the impact on C. R.P.O. But how does that strong fed quarter that you saw on September impact the reported subscription revenue in margins that you put up? And if you could, you know, in any way maybe size that lift, given that I think there's more upfront revrex much appreciated.

And truly transforming the way you run your company and it's not a nice to have it project.

Do think that is one of the interesting question you had because I think it's one of the reasons why I.

I have said repeatedly the strategy has become the business strategy.

Digital transformation is an end to end.

<unk> now generated AI across platforms that matter and there's only a few and we're one of them is really to me going to get a very nice tailwind investment in 2020 for regardless.

Gina Mastantuono: Yeah, it's a great question. Karl, actually quarter of a quarter year of a year on fam has remained consistent. So that hasn't been an impact. And so the strength in our revenue in the quarter was the result of extremely fantastic execution. Okay, good to hear. Thanks.

Of the macro.

Great I really appreciate you guys, taking my questions. Thank you.

My pleasure. Thank you so much.

We will take our next question from Derrick Wood with TD Cowen.

Oh, great. Thanks for taking my question.

Greg Mosquitz: Thank you. We'll take our next question from Greg Mosquitz with the Zuhu. Okay, thank you very much.

I guess either for bill or C. J, but was hoping you could expand on your new AI lighthouse program with Nvidia and Accenture.

Chirantan Desai: So it's really interesting that you signed four large deals on September 30th, literally right after the availability of Vancouver and now it's this. And it, it sounds like your Gen. A.I. Tech was a clear catalyst. It's not the catalyst for these transactions. So I guess for, you know, for Bill or CJ, I assume these were all existing customers. But did they all purchase pro plus? Did any of them purchase enterprise plus? Are any of them deploying your new tech to code functionality? Just curious to hear any additional color that you might be able to share.

You guys announced this initiative a couple of months ago. It would be great just to get a bit more color on the undertakings around this program.

How these particular partners are helping to drive more kind of general generative AI investments on the surface now platform.

Yes.

I'll start off and then C. J can build on it I'd like to first acknowledge.

In video.

Particularly with it being such a great partner.

Really.

Chirantan Desai: Thank you. Hey, thanks for the question. I'll take this question. I would say just to summarize because we in the when who are released launched now assist for our four flagship product lines, which is ITSM HR customer service and creator. So start with that and those are all resonating whether our customers want text to code or text to workflow capabilities or they want their employees to be more productive or they want their IT staff or customer service agents to be more productive.

Taking their fantastic GPU technology, and then working hand in glove with them on fine tuning. These large language models, especially beginning in it but even more recognizing that one of the great brands and great companies of the World is using service now.

Transform their company on our platform were generative AI is such a complement and so I just wanted to say thank you Jensen. Thank you and video for being a great partner and yes with regard to Accenture and Julie and so forth. We are really doing some great things with accenture, they're a fantastic partner and.

Chirantan Desai: So depending on the customer and what they're solving for all of them are resonating really well. So this was driven mainly on pro plus. So these were pro customers who also bought pro plus. So one example, one of the customers who did buy this on September 29, specifically sent to me. And CJ, you know, we had the most successful ITSM roll out. Now we want to buy pro plus and they are on ITSM Pro already.

We are building now generative AI use cases across 300 different customers with our ecosystem and that doesn't even touch on the broader pipeline.

C. J can give you some detail on exactly what we're doing but I really do want to say that I am incredibly appreciative of our partners and I want to thank our partners.

Recognizing that we're a good partner and it takes a good partner to know one and we have really built foundational trust with the ecosystem and I appreciate the mall and I think that is another <unk>.

Chirantan Desai: And we just want our employee experience to be great. So this is another customer that will mention they said not only will want to solve for our employees, but also our end customers. So these were specific transactions but across the board resulting in, you know, very strategic and significant wins. As we move forward, I would tell you that what is still resonating with our customers is the speed to value. This is not something where now large language model need to be fine tuned for one customer at a time.

Tailwind effect that we're getting.

Because I believe we're moving into a world of not just intra enterprise, but inter enterprise business network opportunities and I believe our platform and generative AI will fuel a completely new frontier of <unk>.

Solutions and offerings in the global economy, and I think that this is only just begun I just want to really give you that as a thought because well have more to say about that in the future absolutely.

Chirantan Desai: And the way our engineering team has implemented this solution, I can tell you gender TVI is probably one of the best if not the best compliment. I've seen to service our platform where you can use gender TVI to look up something to summarize something and then you take action via service our platform.

Absolutely built right on that.

Eric.

Unknown Executive: That's fantastic.

One of the things with this lighthouse program that we were solving for is have a great technology partner.

And Jensen and the team on a great technology partner most of them most of US know Nvidia as a great CPU provider that among other engineered systems, but in this specific program or.

Kirk Materne: We'll take our next question from Kirk Materne with Evercore ISI. Hiya, thanks very much and congrats on the quarter.

Chirantan Desai: Bill and CJ, I was wondering if you just talk about the concept of starting to deliver AI solutions that are more vertically oriented. You know, how far away are you from that? How much of the verticalization do you want to take on? And how much do you want to leave to your partners to sort of take some of these use cases with GNI into verticals with specific vertical technology? Thanks.

Most do not know is that in Vps software team is working very closely with service now engineering team to really innovate.

Timna do AI and that is a very important point as part of this <unk> program is the engineering collaboration between Nvidia and service now and a software layer, which obviously that pushes the hardware in the right direction and then.

Chirantan Desai: So first of all, thank you for the question. When we start and yesterday we had our board of directors meeting and similar question was asked, we are first prioritized on our core set of use case that cut across every single industry. We are very focused on that we are ITSM customer service HR as well as our creator offerings. As we look forward though, there are specific use cases within a financial services or a health care types of customers or even governments.

When these customers we've talked about before customers there'll be many would start using this product as they need to get adopted.

Accenture and would be other partners that we are also training, enabling so that they can implement really really fast as solutions that come out of service now. So overall this is a holistic strategy engineering collaboration and as Bill said ecosystem collaboration so that.

Chirantan Desai: I'll give you an example. For some of our public sector customers, they asked us, hey, CJ and the team, can you provide us a solution that can potentially run on prem given the nature of that agency? And our engineering team delivered that for our public sector customers. So I would consider that as a vertical solution that we had to create for our public sector customers. But as we take it to the next level, both this core set of use cases across our board workflows, we will definitely be prioritizing financial services and TMT moving forward. Thank you.

We can deliver the value for our customers customers' demands are high on the value that we will deliver and we need.

<unk> set of friends between technology and system integrators to deliver value.

Thank you for that color. Thank you.

And we have time for one last question, we'll take that question from Matt Hedberg with RBC capital markets.

Oh, great. Thanks for squeezing me in guys see Jay a question for you what's changed in the Absorbability market with the Splunk proposed acquisition I'm curious could you give us a sense for your positioning in the cloud visibility market with light step and other advancements there how well positioned do you feel to gain additional share there. Thank you.

Chirantan Desai: We'll take our next question from Alex Zupin with Wolf Research. Hey guys, congrats on another great quarter. Maybe just two quick ones for me. Clearly, you know, the story of this quarter was the unbelievable federal growth that you guys posted. Maybe X federal, to the extent of, you know, the incremental challenges or lack of thereof from the macro and pipeline, like what's the story of the quarter X fed? And then some of the deals that you guys reference either on the bro plus side or just a very large deal side.

Absolutely so.

I would say observable it is still fundamentally a big market, it's a big market that continues to grow.

We started with light step and as you are aware that they are.

<unk> had a great solution for tracing and with OTT.

Open telemetry they had done some phenomenal work.

Then we added the metrics capability and just ended up September. We finally added logging capabilities. So now we feel that we have a full blown cloud absolutely. The solution that we can take to the enterprise market.

Chirantan Desai: Like maybe talk a little bit about the competitive environment or you, you know, taking them away from, you know, some of your front office peers or kind of how does that tape up as you look at the pipeline? Yeah, Alex. Thanks for the question, CJ. First of all, you know, yes, federal had a phenomenal quarter and it's been talked about by both Dylan Gina. But we also saw trends in certain industries and certain geographies across the board.

And we will compete head on while the types of use cases that we need to with whoever we need to and that's how I look at it so I'm optimistic.

We have a lot of work to do finally, the product is that full blown cloud absolutely product metrics.

Metrics traces of logging and we are ready to go.

Okay.

Thank you ma'am.

Chirantan Desai: We won't be able to produce these kind of results and this kind of beat on CRPO without strengths in other industries and other geographies. So that's what I would say at the highest level that there were a lot of other strengths. And even from a use case or a workflow perspective, we'll already outline that our employee workflow, which is, you know, now customers are asking us this question that we want our employee productivity to be high.

And that does conclude today's presentation. We thank you for your participation and you may now disconnect.

Goodbye.

Please wait the conference will begin shortly.

Chirantan Desai: And, you know, what is service now solution? Because employees waste too much time, we will sharing or looking for information. So we saw a significant growth there. But the growth was across the board, even from a workflow perspective and all four workflows grew very, very nicely. And Alex, you know, how much I pay attention to that. The second thing I would say on CRPO and CRPO Plus, what we are seeing is that customers understand service and our strategy is very specific to service now use cases.

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Chirantan Desai: And one of the things that I have realized after having this CRPO Plus conversations with customers on a large sample site, that generative AI or our CRPO Plus queue is a productivity multiplier. It's not a productivity enhancer. So when you have a productivity multiplier and you can articulate what kind of productivity gains they will get. That is when they say, okay, we got it. And now let's figure out what are the pricing and other things.

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Chirantan Desai: A competitive dynamic size from a generative AI standpoint or overall this CRPO Plus queue, it is still in the context of service now. How much value will they get? How fast will they get that value and how much they are willing? [inaudible] of work. It's a lot of work.

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Bill Mcdermott: [inaudible] Dr. Dr. Dr. Dr. Dr. Dr. Dr. Dr. Dr. Dr. Dr. Dr. Dr. Dr. Dr. Dr. Dr. Yeah, Samad, the CEOs all have boards of directors, and they don't want to show up without a Gen. A.I, plan. So this is a CEO-level decision. And I think that is why we meet with so many CEOs and the C-suite is now completely embedded in the service now, go to market plan and it's working beautifully.

Bill Mcdermott: What they are doing is, as follows, according to IDC, the IT budget issue would have been about 3.5% bend. And next year, it's expected to go to, instead of incrementally increasing 3.5%, which is your typical year, it's expected, according to IDC, to incrementally go up 7%. And that's the IT budget itself. What I believe is going to happen, and based upon the CEO discussion that I'm having, and also based on my own way of thinking, I would very much like to take the position of looking at the world through the customer's eyes and upon them.

Bill Mcdermott: 7% may or may not get it done. I might look to GNA functions to further fuel this generative AI revolution, because this is really about business transformation, and truly transforming the way you run your company. And it's not a nice to have IT project. And I do think that is one of the interesting questions you have, because I think it's one of the reasons why I have said repeatedly the IT strategy has become the business strategy, because digital transformation is an end-to-end imperative, now generative AI across platforms that matter. And there's only a few, and where one of them is really, to me, going to get a very nice tailwind investment in 2024, regardless of the macro.

Unknown Executive: Great. I really appreciate you guys taking my questions.

Unknown Executive: Thank you. Thanks so much.

Derek Wood: We'll take our next question from Derek Woodwood, PD Cowan. Oh, great. Thanks for taking my questions.

Bill Mcdermott: I guess either for Bill or CJ, but it was hoping you could expand on your new AI lighthouse program with Nvidia and Accenture. You guys announced this initiative a couple months ago. It'd be great just to get a bit more color on the undertaking around this program, and how these particular partners are helping to drive more generative AI investments on the service now platform. Yeah, you know, I'll start off and then CJ can build on it.

Bill Mcdermott: I'd like to first acknowledge Nvidia in particular, being such a great partner, really taking their fantastic GPU technology and then working hand in glove with them on fine tuning these large language models, especially beginning and IT. But even more recognizing that one of the great brands and great companies who world is using service now, to transform their company on our platform with generative AI is such a compliment. And so I just want to say thank you, Jensen, thank you and Vitya for being a great partner.

Bill Mcdermott: And yes, with regards to Accenture and Julie and so forth, we are really doing some great things with Accenture. They're a fantastic partner. And we're building now generative AI use cases across 300 different customers with our ecosystem. And that doesn't even touch on the broader pipeline. CJ can give you some detail on exactly what we're doing. But I really do want to say that I'm incredibly appreciative of our partners. And I want to thank our partners for recognizing that we're a good partner.

Bill Mcdermott: And it takes the good partner to no one. And we have really built foundational trust with the ecosystem. And I appreciate them all. And I think that is another tailwind effect that we're doing. We're getting because I believe we're moving into a world of not just intra enterprise, but enter enterprise business network opportunities. And I believe our platform and generative AI will fuel a completely new frontier of solutions and offerings and the global economy.

Bill Mcdermott: And I think that this is only just begun. I just want to really give you that as a thought. Because we'll have more to say about that in the future. Absolutely built right on. And Derek. You know, one of the things with this lighthouse program that we were solving for is have a great technology partner. And Jensen and the team are a great technology partner. Most of them, most of us know.

Bill Mcdermott: NVIDIA has a great CPU provider among other engineered systems. But in this specific program. What most do not know is that NVIDIA's software team is working very closely with service now engineering team to really innovate on generative AI. And that is a very important point as part of the lighthouse program is the engineering collaboration between NVIDIA and service now at a software layer, which obviously then pushes the hardware in the right direction.

Bill Mcdermott: And then, you know, when these customers, you know, we talked about the poor customers, there will be many who start using this product as they need to get adopted. Besides Accenture, there will be other partners that we are also training enabling so that they can implement really, really fast the solutions that come out of service now. So overall, this is a holistic strategy engineering collaboration and it's build set ecosystem collaboration so that we can deliver the value for our customers customers demands are high on the value that we deliver. And we need great set of friends between technology and system integrators to deliver the value. Thank you for that.

Matt Hedberg: And we have time for one last question. We'll take that question from Matt Hedberg with RBC Capital. Markets.

Chirantan Desai: Oh great, thanks for squeezing me in, guys. CJ, a question for you. A lot's changing the observability market with the Splunk proposed acquisition. I'm curious, could you give us a sense for, you know, you're positioning in the cloud observability market with light step and other advancements there? How, how will position do you feel to gain additional share there? Thank you. Absolutely, so, you know, I would say observability is still fundamentally a big market.

Chirantan Desai: It's a big market that continues to grow. We started with light step and as you are aware that they provided a great solution for tracing and with OTL as an open telemetry they had done some phenomenal work. Then we added the metrics capability and just end of September. We finally added logging capabilities. So now we feel that we have a full blown cloud observability solution that we can take to the enterprise market.

Chirantan Desai: And we will compete head on for the types of use cases that we need to with whoever we need to. And that's how I look at it. So I'm optimistic. We have a lot of work to do. Finally, the product is there, full blown cloud observability product between metric spaces and logging and we are ready to go. Thank you, man.

Unknown Executive: And that does conclude today's presentation. We thank you for your participation and you may now disconnect. Goodbye. Please wait.

Unknown Executive: The conference will begin shortly. Thank you very much.