ServiceNow Inc Q3 2024 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Alex Zukin - Wolfe Research - Analyst : Hey guys. Thanks for taking the question. I want to maybe ask just a market environment demand question first, and then a quick follow up on product. Bill -- I mean, Gina, you called out some unbelievable growth rates from the TMT vertical from the retail vertical, appreciate that this is a much better year seemingly in those areas versus last year. But maybe are we back to kind of some sort of a steady medium? How do you think about it for the next 12 months given all the tailwinds that you're seeing just maybe a quick tangent on how you're viewing the buying and demand environment if AI is helping you in that or not?

Question: Alex Zukin - Wolfe Research - Analyst : Well, just by our calculations, just under $90 million in pro and now assist ACV, definitely is a real number. So congratulations on that. Maybe, maybe just to follow up. Again, we haven't heard you talk about a product that doubles your TAM in quite a long time. So maybe just help us understand what, what the incremental opportunity is with within your existing customers, with this new data platform product. And how you expect, how long do you expect it to take to kind of start seeing some meaningful traction there and P&L?

Question: Alex Zukin - Wolfe Research - Analyst : Excellent. Congratulations guys.

Question: Brad Zelnick - Deutsche Bank - Analyst : Great. Thank you so much for taking the question. I wanted to ask about the meaningful uptick in head count additions and OpEx growth in the back half of the year. How much of this should we think of as catch up for what had been more modest, sub 20% growth in OpEx over the past year versus a reflection of the opportunity you see ahead and anything else you can share on the expected pace of investment beyond Q4 would be really helpful. Thank you. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 23, 2024 / 9:00PM, NOW.N - Q3 2024 ServiceNow Inc Earnings Call

Question: Brad Zelnick - Deutsche Bank - Analyst : Thanks for that, Gina. If I could just slip in one more for Bill because I'm dying to ask him. Bill, you've mentioned multiple times now, something that I think, for some go in one year and out the other, but that's elite level execution, you're clearly out executing others. Can you shed light on how you do it, how durable it is, and what you might say to skeptics concerned that? We're going to begin to lap the strong execution or that there may be some pay the piper moment where you risk reverting to the mean of the more average execution levels of so many other companies? Thank you so much, and congrats.

Question: Brad Zelnick - Deutsche Bank - Analyst : Awesome Bill. Thank you so much.

Question: Mark Murphy - JP Morgan - Analyst : Thank you very much. I'll give you just one long question. Bill, congrats on everything. Our field work was showing a big ramp up in your AI bookings in Q3. There were some comments that it could explode heading into next year. And by the way, I can't believe the now assist numbers that you gave. They're just so big, and I happen to see a mention in the media about ServiceNow and CORE. We've investing billions into the UK and it included for AI data center. So I'm curious if we should connect the dots to think that this AI inflection point is just getting so material that it's going to drive that kind of investment in specific countries or maybe leads you to work with the GPU as a service provide just to be able to power all your AI agents.

Question: Mark Murphy - JP Morgan - Analyst : Thank you so much.

Question: Kash Rangan - Goldman Sachs - Analyst : Okay, great. Thank you so much. I'll fire off two questions very quickly. The one congrats Bill. First of all. Secondly, that was not a question. Secondly, the data platform, what does that allow ServiceNow to do for its customers that you could make money and generate revenue that you could not do previously? Gina, the strength in RPO 35% besides long term contracts. What's driving that? nd finally, congratulations on hiring. I think is going to be great.

Question: Kash Rangan - Goldman Sachs - Analyst : Thank you so much. It sounds really truely.

Question: Keith Weiss - Morgan Stanley - Analyst : Excellent. Thank you guys for taking the question and congratulations on a great quarter. One question for Gina. One question for Bill. Gina last quarter, you talked to us about 200 basis points of duration headwinds that came from the strong federal business last year given that you had such a strong federal quarter this year, I'm assuming those duration bene or headwinds don't exist in Q3. So is that correct that you don't have that duration headwind in Q3? And then the question for Bill, agents kind of came onto the scene in, in a really big way over the last couple of months. You guys have your new agent solution as well. A lot of people are talking about agents. Does that change like the sales cycle at all about for like now assist and the pro plus KW. Now that there's this new sort of technology, people are talking about in terms of agents or does it just kind of flow naturally into the conversation?

Question: Keith Weiss - Morgan Stanley - Analyst : Yeah, so like on the duration adjusted basis, it Q2 was stronger than what was reported in Q3 didn't really have a duration headwind, but that duration headwind is going to come back into the numbers as we go through the year and get further away from the federal quarter.

Question: Keith Weiss - Morgan Stanley - Analyst : Okay, perfect.

Question: Brad Sills - Bank of America - Analyst : Oh, great. Thank you so much. A question on head count here as well. Yeah, it's pretty remarkable really since the beginning of last year that you're starting to see R&D headcount out pace sales and marketing historically, that was the opposite. And and it looks pretty pretty significant here by almost, you know, 2 to 1 ratio there. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 23, 2024 / 9:00PM, NOW.N - Q3 2024 ServiceNow Inc Earnings Call So I guess the question is, what does that say about the business is the gating factor to growth here really? Just about your ability to get out more product and categories like AI and some of these newer application categories that you're going after with the platform and less so about hiring the next rep to go win new business and go find that bigger expansion deal? Thank you.

Question: Brad Sills - Bank of America - Analyst : Wonderful. Thanks, Gina.

Question: Michael Turrin - Wells Fargo Securities - Analyst : Hey, great, good afternoon. Thanks for taking the question. Know the numbers can bounce around a bit, but we've seen and heard the focus on customer workflows and now see the customer and employee workflow segment hit a high at 31% of net new ACV. Bill, you mentioned the opportunity to disrupt the front office there in the prepared remarks. So I was hoping you could maybe frame what you're hearing from a demand perspective there for us and maybe couple that with what the Xanadu release and agent solutions could do to help further that opportunity. Thanks.

Question: Michael Turrin - Wells Fargo Securities - Analyst : So very clear. Thanks very much.

Question: Karl Keirstead - UBS - Analyst : Okay, great. Maybe I'll direct this to to Bill. Bill, I think a lot of your shareholders are pretty confident about how ServiceNow is doing in your enterprise commercial segments. But I'm sure you're aware there's been a debate over the last two to three months about the, the Federal Business partly because of the issues that you and Gina raised with us three months ago that led to the leadership changes, but also in the interim where there's been issues with one of your partners at Carahsoft. I'm wondering if you could hit that, hit those issues head on, maybe give us an update and talk about how confident you are in continued good fed bookings over the next couple of quarters. Thank you.

Question: Karl Keirstead - UBS - Analyst : Okay. Good. Nice to hear. Thanks, Bill.

Question: Gregg Moskowitz - Mizuho Securities - Analyst : All right. Thank you very much for taking the question. So, the growth for analysis and Pro-plus has obviously been highly impressive, but we've also been hearing about a real uptick in customers choosing to upgrade from standard to Pro as an intermediate step towards adoption and obviously that drives in our uplift as well. So, you know, Bill when you look across your install base, is that something you're seeing quite a bit more of today as compared with three, six, nine months ago to the point where you would expect a second wave with the set of customers going forward?

Question: Gregg Moskowitz - Mizuho Securities - Analyst : Fantastic. Thank you, Bill. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 23, 2024 / 9:00PM, NOW.N - Q3 2024 ServiceNow Inc Earnings Call

Question: Derek Lessard - TD Cowen - Analyst : Thanks. Bill. Really exciting to see this next new chapter of AI with autonomous agents. Just wanted to kind of touch on like what technology is coming to market to power these agentic networks. It sounds like it's technology from RaptorDB, Data Fabric, Zero Copy integration, maybe NVIDIA's NIM advancements with various LLMs. But could you just kind of share the highlights on what is key to unlocking these new autonomous capabilities on the ServiceNow platform and when some of these capabilities are going to be coming in [GA]?

Question: Derek Lessard - TD Cowen - Analyst : Fantastic. Thanks. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 23, 2024 / 9:00PM, NOW.N - Q3 2024 ServiceNow Inc Earnings Call

Question: Raimo Lenschow - Barclays - Analyst : Thanks for squeezing me in and congrats from me as well. Bill, you talk with a lot of like [C-suite] level executives. How do we think about like AI and as we go into next year in terms of, is that like coming out of the it budget? Do you do a second budget, and how do you make sure that you kind of continue to gain share in that one? Just kind of talk us through the dynamic you're seeing in your conversations. Thank you.

Question: Raimo Lenschow - Barclays - Analyst : Yeah. Okay, perfect. That's really clear. Thank you, congrats. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 23, 2024 / 9:00PM, NOW.N - Q3 2024 ServiceNow Inc Earnings Call

Question: Samad Samana - Jeffries - Analyst : Great. Thank you. I will talk fast. Bill, I couldn't help but have my ears perk up a little when you said that it has expertise in packaging and pricing. And I was wondering if there's a reason why you called that out specifically, just especially as we think about kind of this big AI boom period for ServiceNow and related just how his responsibilities as the President when he comes over and joins, how they differ from maybe kind of prior iterations of that role?

Question: Samad Samana - Jeffries - Analyst : Exciting times and congrats on all the success to the whole team.