ServiceNow(US:NOW)2023-10-26 00:49Financial Data and Key Metrics Changes - Subscription revenues for Q3 reached $2.216 billion, growing 24.5% year-over-year in constant currency, exceeding guidance by over 100 basis points [71][66] - Remaining performance obligation (RPO) ended at approximately $14.4 billion, representing 23.5% year-over-year constant-currency growth [72] - Current RPO was approximately $7.43 billion, reflecting a 24% year-over-year constant-currency growth, beating guidance by 250 basis points [72] - Non-GAAP operating margin was 30%, over 250 basis points above guidance, driven by disciplined spend management and top-line outperformance [80] Business Line Data and Key Metrics Changes - The company closed 83 deals greater than $1 million in net new annual contract value (ACV), with four deals exceeding $10 million [64] - Creator Workflows crossed $1 billion in ACV in Q3, marking a significant milestone [63] - Employee Pro SKU saw over 100% growth in net new ACV year-over-year [63] - Security and risk workflows had a strong quarter with 10 deals over $1 million, while employee workflows had seven deals over $1 million and one over $10 million [52] Market Data and Key Metrics Changes - The US Federal business had its best net new ACV quarter ever, growing over 75% year-over-year, with 19 federal deals over $1 million [62][53] - In the Americas, the number of deals over $5 million more than quadrupled [15] - EMEA saw a 70% year-over-year increase in deals over $1 million, with significant growth in government and manufacturing sectors [29] - APJ region experienced a 40% year-over-year increase in deals over $1 million [29] Company Strategy and Development Direction - The company aims to be the defining enterprise software company of the 21st century, focusing on customer value and creating immense shareholder value [59][69] - The strategy includes significant investments in generative AI, with the Vancouver release featuring generative AI-powered Now Assist for every workflow [55] - The company is expanding its product development roadmap with use cases in telecommunications, financial services, retail, and public sector [58] - The partnership with Microsoft is aimed at expanding the addressable market and enhancing co-sell opportunities [126] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the core business, raising guidance for the full year based on strong Q3 performance [19][95] - The digitization imperative is stronger than ever, with Gartner forecasting $3 trillion to be spent on AI and GenAI between 2023 and 2027 [54] - Management noted that the demand for generative AI is driving business transformation and productivity improvements across various sectors [95][56] - The federal business is expected to continue its strong performance, with a renewal rate of 99% [97][121] Other Important Information - The company repurchased 0.5 million shares as part of its first-ever share repurchase program, with approximately $1.2 billion remaining of the original $1.5 billion authorization [74] - The company is seeing a growing pipeline for generative AI solutions, with over 300 customers in the pipeline from various industries [56] Q&A Session Summary Question: What is the story of the quarter excluding Federal growth? - Management indicated that the overall performance was strong, with significant contributions from various sectors, not solely reliant on Federal growth [7] Question: Can you discuss the competitive environment and large deals? - Management noted that the competitive dynamics are favorable, with the company taking market share from peers and seeing strong demand for Pro Plus offerings [10][15] Question: What are the priorities in sales and marketing investments? - The company is focused on adding quota-bearing sales and R&D resources, with continued investment in these critical areas [17][22] Question: How does the federal business impact revenue recognition? - Management explained that the strong federal quarter leads to more upfront revenue recognition, which impacts reported subscription revenue and margins positively [130] Question: What is the outlook for growth in 2024? - Management expressed optimism about growth prospects in 2024, driven by strong core business performance and the tailwinds from generative AI [95][121]