ServiceNow(NOW)2024-01-24 16:00The Now Platform and Its Capabilities - The Now Platform is a cloud-based solution with embedded AI and ML capabilities, helping global enterprises unify and digitize workflows across industries[12] - ServiceNow's workflow applications are organized into four primary areas: Technology, Customer and Industry, Employee, and Creator, each enhanced with AI and ML capabilities[13][14] - The Now Platform enables rapid business process automation across enterprise technology systems, addressing disconnected and siloed processes[15] - The Now Platform integrates generative AI features through Now Assist, offering enterprise-ready, domain-specific large language models (LLMs) to enhance productivity and agility[23] - Technology Workflows help companies unite IT, risk management, and security operations on a single platform, optimizing IT costs and reducing administrative tasks[25] - Customer and Industry Workflows reduce costs while delivering seamless customer experiences through connected digital workflows and AI-driven automation[35] - Now Assist for Customer Service Management (CSM) accelerates case resolution, reduces manual work, and improves customer satisfaction through generative AI[37] - Employee Workflows transform the employee experience by simplifying access to services and improving productivity through automation[41] - HR Service Delivery automates HR services, including employee lifecycle events such as onboarding, transfers, and off-boarding[42] - Now Assist for HR Service Delivery, a generative AI solution, helps HR leaders drive productivity and operational efficiency, reducing redundant manual tasks and providing quick employee issue resolution[44] - Legal Service Delivery product modernizes internal legal operations with specialized workflows, automated responses, and real-time reporting[45] - Workplace Service Delivery optimizes workspace management with real-time analytics, indoor mapping, and automated workplace requests[46] - Creator Workflows enable low-code development for cross-enterprise workflows, accelerating digital transformation with pre-built templates and modular tools[47] - Now Assist for Creator, a generative AI solution, accelerates app development with text-to-code capabilities, improving productivity and scalability[48] - Automation Engine integrates workflows with robotic process automation, reducing manual processing time from days to minutes in specific use cases[49] Platform Upgrades and Customer Impact - ServiceNow's platform upgrades are released twice annually, delivering new functionality and standalone products to enhance customer productivity[20] - The company has over 8,100 customers as of December 31, 2023, spanning industries like government, financial services, healthcare, and technology[63] - The number of customers with ACV (Annual Contract Value) greater than 18.0 billion, with 48% representing cRPO (current RPO). RPO and cRPO increased by 29% and 24%, respectively, compared to December 31, 2022[197] - ServiceNow's free cash flow for the year ended December 31, 2023, was 2.180 billion in 2022 and 3.398 billion, up from 2.191 billion in 2021[198] - Purchases of property and equipment for the year ended December 31, 2023, were 550 million in 2022 and 24 million, compared to 53 million in 2021[198] - The company's cumulative total stockholder return from December 31, 2018 to December 31, 2023 was 396.79%, outperforming the NYSE Composite, S&P 500, and S&P 500 Systems Software indices[185] - The company repurchased 400,000 shares of its common stock in Q4 2023 at an average price of 1.5 billion share repurchase program authorized in May 2023[187] Intellectual Property and Innovation - The company holds over 2,000 U.S. and foreign patents and 600 pending patent applications as of December 31, 2023[69] - The company must innovate rapidly to address evolving customer needs, including AI, machine learning, and hyper automation[97] - Intellectual property litigation could result in substantial costs, damages, and operational disruptions[129] - Unauthorized use or copying of proprietary technology by third parties could harm the company's competitive advantage[132] - The company's use of open-source software may lead to legal risks, potential litigation, and obligations to offer products and services for free or disclose source code, which could harm its ability to sell products and services[134] ESG and Sustainability - ServiceNow's ESG strategy includes reducing its carbon footprint and enabling customers to achieve their emissions reduction goals[70] - Failure to meet ESG goals or maintain ESG practices could harm the company's reputation, impact employee and customer retention, and expose it to regulatory scrutiny or liability[138] - Natural disasters, climate change, and other uncontrollable events could disrupt operations, decrease demand for services, and result in significant expenses or data loss[139] - Climate change-driven impacts, such as extreme weather events, could increase costs, disrupt business operations, and affect the company's ability to maintain or resume operations[140] Cybersecurity and Risk Management - The company has a comprehensive cybersecurity program that includes regular risk assessments, technical safeguards, incident response planning, and third-party risk management[158][159][160][161][162][163][164] - The company's cybersecurity policies and practices are regularly assessed by external consultants and auditors, with significant assessments reported to management and the board[166] - The company's board and audit committee oversee cybersecurity risk management, with regular reports from management on security risks and incident response[167] - The company's CIO, CISO, CTO, and General Counsel have primary responsibility for assessing and managing cybersecurity risks as part of the Security Steering Committee[168] - The company's cybersecurity leadership team has extensive experience, with the CIO having over 20 years in IT and security roles and the CISO having nearly 20 years of experience[169] - The company faces risks related to cybersecurity events, including potential breaches and disruptions to its platform and operations[115] - The company's reliance on third-party service providers introduces new cybersecurity risks, including supply chain attacks[117] - Vulnerabilities in products and services may not be fully identified or addressed, with delays in developing effective patches[118] - Customers and ServiceNow have misconfigured platform settings, leading to unintended data exposure[119] - Security incidents have occurred, including unauthorized access and phishing attacks, which may reoccur[120] - Actual or perceived security breaches can result in financial losses, litigation, and reputational damage[121] Talent and Workforce - The company employs 22,668 full-time employees as of December 31, 2023, with 11,797 in the United States and 10,871 internationally[82] - The company aims to skill one million people on the Now Platform by 2024 through its RiseUp with ServiceNow program[76] - The company maintains systematic pay equity as of September 1, 2023, following regular analyses and adjustments[79] - The company's NextGen Professionals Program focuses on digital skills training for marginalized and underserved communities[76] - The company's global inclusion framework focuses on business, community, and strategic partnerships to drive structural inclusion[74] - Intense competition for talent, particularly in AI, machine learning, and cybersecurity, may increase costs and impact growth[124] Market and Competitive Landscape - The company competes in highly competitive markets with low barriers to entry, facing pricing pressures and technological challenges[95] - The company's revenue growth rate is expected to decline over the long term as its business grows[94] - Sales outside of North America represented 36% and 35% of total revenues for the years ended December 31, 2023 and 2022, respectively[99] - The company relies on its network of partners for an increasing portion of revenues, with potential risks if partners fail to perform[102] - The company faces challenges in new geographic markets, including hiring qualified sales personnel and managing local operations[100] - The company is subject to risks related to government procurement processes, regulations, and contracting requirements, particularly in the public sector[103] - The company has experienced challenges in non-U.S. government business, including bid protests and compliance with complex regulations[106] - The company is increasingly doing business in heavily regulated industries, such as financial services and healthcare, which may impose more stringent requirements[109] - The company's expansion into international markets subjects it to varying regulatory, political, and economic risks[99] - The company's investments in new geographic markets, including data centers and cloud infrastructure, may not yield immediate returns[100] Operational and Financial Risks - Delays or defects in product releases can reduce customer satisfaction and harm growth prospects[125] - Service disruptions or defects may lead to revenue loss, litigation, and reputational damage[126] - Delays in improving information systems could negatively impact business operations and scalability[128] - Revenue recognition over subscription terms means decreases in new or renewed subscriptions may not immediately impact financial results but could negatively affect future periods[141] - The company expects its revenue growth rate to decline over the long term due to increasing competition and market saturation, despite prior significant growth[142] - Changes in effective tax rates, tax laws, or adverse outcomes from tax audits could materially impact the company's financial position and results of operations[144][145][146] - Debt service obligations and compliance with covenants for the 2030 Notes could limit financial flexibility, increase vulnerability to economic changes, and restrict future financing options[147] - Global economic conditions, including inflation, interest rates, and geopolitical instability, could harm the company's business, revenues, and profitability[148] - The company's cash and cash equivalents are distributed across several large financial institutions to mitigate risk from macroeconomic events such as rising interest rates, global inflation, and bank failures[194] - ServiceNow's customers in regions affected by the Russian invasion of Ukraine and the conflict in Israel and the Gaza Strip represented an immaterial portion of the company's net assets and total consolidated revenues as of December 31, 2023, and December 31, 2022[193] - The majority of ServiceNow's non-marketable equity investments do not have material relationships with any one financial institution, reducing exposure to loss[194] Tax and Financial Reporting - The company released 1.2 billion as of December 31, 2022[210] - A valuation allowance of $196 million was maintained against the company's California deferred tax assets due to uncertainty regarding realizability[210] - The company achieved cumulative U.S. income during the prior twelve quarters as of June 30, 2023, considering pre-tax income adjusted for permanent differences and other comprehensive losses[210] - The company concluded that it is more likely than not that its U.S. federal and state deferred tax assets will be realizable, except for California[210] - The company continues to monitor the need for a valuation allowance against its deferred tax assets on a quarterly basis[210] - The company recognizes the tax benefit of an uncertain tax position only if it is more likely than not the position is sustainable upon examination by the taxing authority[211] - Changes in the recognition or measurement of uncertain tax positions could result in material increases or decreases in the company's income tax expense[211] - The company's evaluations of uncertain tax positions are based on factors such as changes in facts or circumstances, tax law or guidance, and correspondence with tax authorities[211] Corporate Governance and Stockholder Information - The company's common stock is listed on the New York Stock Exchange under the symbol "NOW" and the board does not intend to pay cash dividends for the foreseeable future[176] - As of December 31, 2023, there were 13 registered stockholders of record of the company's common stock[177] - The company leases approximately 1,120,000 square feet of office space in Santa Clara, California for its principal office and business operations[170]