ServiceNow, Inc. Q3 FY2024 earnings call

• Elite level execution: ServiceNow outperformed top line and profitability metrics, with subscription revenue growth at constant currency 22.5%, cRPO at constant currency 23.5%, and operating margin over 31%. Had 96 deals greater than $1 million in net new ACV.
• Strategic relevance: ServiceNow is trusted as the governance control tower for AI by the C-suite, a privileged position for its platform.
• AI as business transformation platform: Now Assist has 44 customers spending over $1 million in ACV, including six over $5 million and two over $10 million. Q3 saw the biggest gen AI release Xanadu with over 350 net new innovations, and deployment of autonomous AI agents.
• Brand awareness and new initiatives: Doubled Total Addressable Market (TAM) to $0.5 trillion, launched RaptorDB, workflow data fabric, ServiceNow University, and ranked highly in workplace assessments.

Subscription revenues for Q3 were $2.715 billion, growing 22.5% year-over-year in constant currency. Remaining Performance Obligations (RPO) ended the quarter at approximately $19.5 billion, representing 33% year-over-year constant currency growth. Current RPO was $9.36 billion, a 23.5% year-over-year constant currency growth. In terms of industry verticals, Technology, Media and Telecom saw net new ACV growth over 100% year-over-year, Retail and Hospitality over 80%, while Health care and life sciences and manufacturing also showed strength. The number of customers paying over $1 million in annual contract value (ACV) reached 2020, and the number of customers paying $20 million or more grew nearly 40% year-over-year.

• For 2024, subscription revenues are raised to a range of $10.655 billion to $10.66 billion, representing 23% year-over-year growth at constant currency.
• Q4 subscription revenues are expected between $2.875 billion and $2.88 billion, representing 21.5% to 22% year-over-year growth at constant currency.
• cRPO growth is expected at 21.5% on both reported and constant currency basis.
• Operating margin expected to be 29% in Q4.

The information discussed involves forward-looking statements that involve risks, uncertainties and assumptions. Refer to today's earnings press release and SEC filings for factors that may cause actual results to differ materially from forward-looking statements.

Q: Alex Zukin with Wolfe Research asked about market environment demand and Now Assist ACV.

A: Bill McDermott responded that the macro is value-based, AI is driving demand, pipelines are strong, and global events are double subscribed compared to last year.

Q: Brad Zelnick with Deutsche Bank asked about headcount additions and OpEx growth.

A: Gina Mastantuono responded that headcount growth in the back half is due to confidence in opportunities, with sales and marketing hiring quota-bearing reps and R&D headcount consistently up.

Q: Mark Murphy with JPMorgan asked about AI inflection point and investment.

A: Bill McDermott stated that best days of growth are ahead, with many referenceable customers and public/private sector C-suite interest in AI.

Q: Kash Rangan with Goldman Sachs asked about data platform monetization and RPO strength.

A: Gina Mastantuono said RPO strength is due to customers leaning in strategically with longer contract terms, and William McDermott discussed the workflow data fabric's upsell opportunity for customers.

Q: Keith Weiss with Morgan Stanley asked about federal business duration and sales cycle with agents.

A: Gina Mastantuono explained duration headwind dynamics, and William McDermott said agents integrate naturally into the conversation as an upsell opportunity.

Q: Brad Sills with Bank of America asked about R&D vs sales and marketing headcount.

A: Gina Mastantuono said sales and marketing include operations headcount, and R&D is a focus area for AI innovation.

Q: Michael Turrin with Wells Fargo Securities asked about customer workflows demand.

A: William McDermott discussed strong adoption in customer workflows, with industry SKUs driving growth.

Q: Karl Keirstead with UBS asked about federal business issues.

A: William McDermott stated no impact in Q3 and confidence in continued strong Fed bookings.

Q: Gregg Moskowitz with Mizuho asked about Pro Plus upgrades and second wave.

A: William McDermott said he expects a second wave with Pro Plus and RaptorDB gaining traction.

Q: Derek Wood with TD Cowen asked about Agentic networks technology and GA release.

A: William McDermott highlighted Now Assist, RaptorDB, workflow data fabric, and front office innovation as key, with Q4 being a big quarter for these.

Q: Raimo Lenschow with Barclays asked about IT budget and AI investment dynamics.

A: William McDermott said IT budgets are growing, Gen AI is a C-suite priority, and consolidation to ServiceNow is occurring.

Q: Samad Samana with Jefferies asked about Amit Zavery's expertise and role.

A: William McDermott discussed Amit's expertise in packaging and pricing, and his role as President to expand ServiceNow's bandwidth with a focus on product and engineering