ServiceNow(NOW) - 2024 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Subscription revenue for Q1 2024 was $2.523 billion, growing 24.5$8.45 billion, representing 21% year-over-year constant currency growth, beating guidance by 100 basis points [23][11] - Non-GAAP operating margin was over 30%, approximately 150 basis points above guidance, with free cash flow margin at 47%, up 12 points year-over-year [25][22] Business Line Data and Key Metrics Changes - IT Service Management (ITSM) and IT Operations Management (ITOM) were included in 16 of the top 20 deals, while Security and Risk were in 11 of the top 20 [4][11] - The number of customers paying over $1 million in Annual Contract Value (ACV) reached 1,933, with those paying$20 million or more growing over 50% year-over-year [24][50] - Gen AI products were in seven of the top 10 deals, indicating strong adoption [52][40] Market Data and Key Metrics Changes - The public sector showed strong performance globally, with significant transactions from the government of Australia and Italy [13][14] - The technology, media, and telecom sectors saw over 100% year-over-year growth in net new ACV, while education grew nearly 50% year-over-year [23][22] Company Strategy and Development Direction - The company is positioning itself as the AI platform for business transformation, emphasizing the importance of Gen AI in driving productivity and efficiency [4][15] - There is a focus on expanding partnerships, such as with Microsoft for Generative AI capabilities, to enhance customer experiences [12][41] - The company is investing in global expansion, particularly in regions like Saudi Arabia, with a $500 million investment aimed at enhancing data center capabilities [134][133] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the demand environment for enterprise software, highlighting that AI is a catalyst for business transformation [15][46] - The company anticipates continued strong performance in Q2, driven by Gen AI conversations serving as a digital transformation catalyst [22][27] - Management noted that the current economic environment is not as challenging as in previous years, with budgets increasing for IT and Gen AI initiatives [87][88] Other Important Information - The company ended Q1 with$8.8 billion in cash and investments, and a share repurchase program is in place to manage dilution [25][26] - The company is preparing for its upcoming Investor Day, where more details on strategy and performance will be shared [27][41] Q&A Session Summary Question: Insights on cRPO and seasonality - Management noted that early renewals were stronger than last year, but they remain prudent in forecasting for Q2 due to seasonality [28][83] Question: Gen AI adoption and its impact on hiring - Management confirmed that Gen AI is increasing engineering productivity and innovation velocity, positively impacting hiring plans [72][73] Question: RPO growth and its implications - RPO growth was 27% year-over-year, indicating a strong long-term opportunity for the company [68][69] Question: Federal government business performance - The federal business had its biggest Q1 ever, with significant net new ACV growth and strong interest in Gen AI offerings [188][176] Question: Pro Plus adoption rates - Pro Plus is seeing faster adoption compared to Pro, exceeding internal projections and driving significant interest from customers [191][190]