ServiceNow Inc at UBS Global TMT Conference Transcript

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

Question: Karl Emil Keirstead - UBS Investment Bank, Research Division - Analyst : Yes, you got it. So Gina, maybe what we'll do is start with a few higher-level questions, and we'll leave the financial zingers to the end. So maybe, Gina, you could describe how the environment feels these days and sort of the arc of the recovery in new bookings coming out of COVID. And specifically, what I'd love to get your take on is when I'm doing calls with some large enterprises, including some of your customers, it does feel like we're at that point now where there might be a greater focus on automating a lot of the internal workflows and processes, whereas the last 18 months might have been very front office focused. And I'm wondering whether you and your account execs and Bill see that same phenomenon.

Question: Karl Emil Keirstead - UBS Investment Bank, Research Division - Analyst : Yes. So I guess that's the merit of having a balanced portfolio, right, Gina. If, in fact, there is a little bit of a tapering of the frenzy around front office, you've got a long tail of "mid and back office applications" that can make up the slack. So I know you don't -- just to stay on the subject, I know you don't guide by application portfolio within the broader suite. But I'm wondering whether the front office piece, what you call your CSM business, does it feel like it benefited, Gina, in the last 12 months by sort of unusual demand surge that might make for tougher comps over the next 12 months or not really seeing any sign of that yet.

Question: Karl Emil Keirstead - UBS Investment Bank, Research Division - Analyst : Okay. Good stuff. Another one of the broader macro trends that we talked about a little bit, and the media certainly does, is just around the labor shortages that not just tech firms in the Bay Area are suffering from, but your clients actually. So I'm wondering how that affects ServiceNow. I can think of a couple of ways, good and bad. It would -- I guess on the challenge front, it would make hiring talent a little bit tougher. So I'd love to -- perhaps you to give an update on how you've been able to hire the requisite talent despite those shortages. But then the positive is more interesting, and that is, I wonder if your clients, your customers are suffering from labor shortages. There might actually be an even greater impetus to invest in technology that automates a lot of internal tasks to remove the need for labor or to make them more productive. So curious what you're seeing on that front.

Question: Karl Emil Keirstead - UBS Investment Bank, Research Division - Analyst : Yes. That makes sense to me. I'm certainly starting to hear that from your customers. So that's a good tailwind for everybody involved broadly in the workflow automation space. So Gina, maybe we'll talk a little bit about some of the bigger parts of the ServiceNow portfolio. And that core IT workflow automation remains your largest one. So let's hit on that for a second. One of the persistent fears to be candid since you guys went public, isn't that ITSM space going to run out of gas, like there's only so much BMC, HP software out there that can be standardized on ServiceNow, yet you keep chugging along with good ITSM numbers. So how would you address that concern about penetration and runway?

Question: Karl Emil Keirstead - UBS Investment Bank, Research Division - Analyst : But in the last quarter or so it reaccelerated. Can you help maybe everybody listening and me understand the kind of arc of the growth in ITOM, Gina?

Question: Karl Emil Keirstead - UBS Investment Bank, Research Division - Analyst : Yes. Good to see actually. So maybe while we're still on the ITSM or broadly IT workflow...

Question: Karl Emil Keirstead - UBS Investment Bank, Research Division - Analyst : Okay. Good stuff. And maybe while we're still on the ITSM side, Gina. Maybe you touched a little bit on enterprise being a relatively new SKU. I know it's only been in the market for 6 months. But any update on the progress you've seen to date?

Question: Karl Emil Keirstead - UBS Investment Bank, Research Division - Analyst : And probably in terms of having an impact on the P&L, Gina, more of a 2024 phenomenon? Is that how you would phrase it or perhaps even a little bit sooner.

Question: Karl Emil Keirstead - UBS Investment Bank, Research Division - Analyst : Okay. Okay, good. You mentioned that the enterprise SKU comes with process optimization features. So maybe that's a nice segue to the partnership that ServiceNow recently entered into with Celonis. So it seems like ServiceNow is offering your own process optimization, but you've just partnered with maybe the best-known process optimization software firm. So thread that needle for us, Gina. Maybe you can help us understand.

Question: Karl Emil Keirstead - UBS Investment Bank, Research Division - Analyst : Yes, it does. So it sounds like the strategy that you and Bill have is to utilize this process mining or optimization technology for the existing ServiceNow Platform, your swim lane, so to speak, but it doesn't sound like you've got internal aspirations to break too far beyond that. For that, you'll rely on the Celonis partnership.

Question: Karl Emil Keirstead - UBS Investment Bank, Research Division - Analyst : Yes. And Gina, is this discussion we've just had on process mining and optimization, does it carry over into the RPA space, where perhaps your ambitions are similar where you want to deploy RPA technology or bot technology to further automate the products you have, but that you don't have aspirations to go right up against the broader pure plays, like UiPath or Automation Anywhere. Would you apply a similar analogy? Or might your ambitions be a little bit broader on RPA?

Question: Karl Emil Keirstead - UBS Investment Bank, Research Division - Analyst : Got it. Okay. Gina, let's talk about some of the -- no longer new modules because they're now $300 million, $400 million in revenues. But applications like CSM and HR has probably been one of the most pleasant, surprising aspects of the whole ServiceNow story over the last 5 years, how they've scaled up to be really big businesses in their own right. When you look at and are starting to do your preliminary planning for calendar '22, are there 1 or 2 of those non-ITSM products that you're looking at to drive a larger portion of the growth? What's inflecting that's giving you confidence in your '22 outlook that you'll share with us, I guess, in due course? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 07, 2021 / 6:00PM, NOW.N - ServiceNow Inc at UBS Global TMT Conference

Question: Karl Emil Keirstead - UBS Investment Bank, Research Division - Analyst : And Gina, on the CSM side, it's getting to a scale where we wouldn't be surprised to hear that you're bumping up against some of the larger incumbents is, in fact, that starting to happen, where you're finding yourself a little bit more in head-to-head to Salesforce? Or are you attacking a different vector within that broad customer support area, where you're, in fact, not bumping up to them as much as outside parties might think?

Question: Karl Emil Keirstead - UBS Investment Bank, Research Division - Analyst : And Gina, as those CSM and HR application scale and are growing likely faster than obviously overall ServiceNow. Is there a margin issue that we should be cognizant of? Or is the margin structure on those non-ITSM applications, frankly, not that different than the core?

Question: Karl Emil Keirstead - UBS Investment Bank, Research Division - Analyst : Okay. Good to know. So maybe that's a good segue to spend our last 10 minutes or so hitting on some of the financial metrics. So I guess one thing that was encouraging from this last print is that your constant currency subscription revenue growth rate, Gina, has been accelerating modestly over the last several quarters and hit almost 30% in this most recent quarter. So if you could break down what's fundamentally driving that acceleration we're seeing in the sub revs growth? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 07, 2021 / 6:00PM, NOW.N - ServiceNow Inc at UBS Global TMT Conference

Question: Karl Emil Keirstead - UBS Investment Bank, Research Division - Analyst : Yes. (technical difficulty). Great. Well, Gina, maybe on the -- on the revenue growth side, the acceleration that we've seen in the third quarter, super impressive. And maybe you could unpack what caused that.

Question: Karl Emil Keirstead - UBS Investment Bank, Research Division - Analyst : Got it. And then, Gina, if we think about the fourth quarter, I know the adjusted or constant currency subscription billings growth metric gets a lot of attention. You're probably -- you and Darren are going to be relieved that this is the last time you have to guide to that, I think, correct? You're going to move to cRPO starting next quarter, right?

Question: Karl Emil Keirstead - UBS Investment Bank, Research Division - Analyst : Well, certainly, the fourth quarter adjusted billings guide gets a lot of attention, and it requires a modest acceleration, I think, to hit your guidance? And maybe one logical question, Gina, is that's always a tough setup for stocks, but I think you've been communicating your confidence level and a modest acceleration in that metric. Maybe you can refresh us as to what gives you that confidence?

Question: Karl Emil Keirstead - UBS Investment Bank, Research Division - Analyst : Yes, Q4 adjusted billings guidance. What gives you the confidence in at least a slight acceleration? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 07, 2021 / 6:00PM, NOW.N - ServiceNow Inc at UBS Global TMT Conference

Question: Karl Emil Keirstead - UBS Investment Bank, Research Division - Analyst : Got it. Okay. Good. And then if we close the discussion with a little bit of conversation about 2022, Gina, you've talked a little bit about having a relatively large renewal pool. Can you comment on what that renewal pool looks like next year?

Question: Karl Emil Keirstead - UBS Investment Bank, Research Division - Analyst : Yes. Got it. So if perhaps we get at least a modest increase in that renewal pool and the uptick this year in net new ACV bookings layers into next year, that seems like a prospect for revenue growth to stabilize next year. Is that an unreasonable outlook, Gina?

Question: Karl Emil Keirstead - UBS Investment Bank, Research Division - Analyst : Got it. And maybe I'll close with a comment on margins. Gina, at the Analyst Day, you and Darren and the team guided to a 3-year out 300 basis point increase. But on the most recent call, I interpreted as you communicating that, that's not going to be a linear improvement, that, for some reasons, next year, we'll see a more modest increase or maybe even a decline. Maybe you could just comment on why calendar '22 might not see that 100 bps improvement.

Question: Karl Emil Keirstead - UBS Investment Bank, Research Division - Analyst : Great. Thank you, Gina, for that. So maybe we'll end it there. We're up against time. But Gina, Darren, thanks for updating everybody listening in, all of the UBS clients on the state of affairs with ServiceNow. It sounds like the business is continuing to hum along. It's encouraging message to hear. Thank you both. And if we don't speak beforehand, happy holidays to both of you and your families.