ServiceNow, Inc. (NOW) Earnings Call Transcript & Summary

All right. Great. Welcome back, everybody. I hope you all are having a good day. So look, we're just delighted to have ServiceNow joining us. Not sure where on your screen, but to my left on screen stream is Lisa Banks, who's the SVP of Strategic Finance. Lisa has been with ServiceNow for about 6 years. And so here's my plan for the next 22 minutes, right, which is, first of all, we're going to talk about Lisa a little bit, what she did before ServiceNow, why she joined this company. And then also, she's been there through some of the leadership changes. So I do want to hear a little bit what she thinks about working under Bill, who, a lot of people who are watching this have seen over 20 years at different companies. Then number two, I'm going to ask my 3 standard questions. How is business? Long term, are you a work-from-home company? And is there something you learned last year that worked really well? And then we'll chat a little bit about current topics for ServiceNow, assuming we have time. So Lisa, thank you so much for missing the beautiful day in Northern California today to talk to us and do a gazillion one-on-ones.

Thanks for having us.

We know that's a big sacrifice.

So you were, where were you at? You were at Cisco, right, for...

Yes. For 9 years.

Quite a while, 9 years before. And you were at E&Y for a while before that.

Yes.

So tell us a little bit about what you did at Cisco and then we'll talk about your move to ServiceNow.

Absolutely. So like I said, I was there for 9 years at Cisco and just an incredible opportunity. And the fact that I got to do, I think, 5 different roles at Cisco and really focused on, I started there in accounting actually in Amsterdam. So I was there for about 2 years in Amsterdam.

Oh, come on, I didn't realize that part.

Yes. So I got the fortunate opportunity to do that. And really, what we did was centralize their accounting function into a shared service center. So that was really great. And then I came and supported the business in the Bay Area, and I supported the channel sales organization from a go-to-market perspective. And then my last year there was supporting the technical services organization, so really good experience. And after the 9 years there, I really wanted to get into software and to enterprise software. And I started to look for opportunities and heard of ServiceNow, and the name wasn't widely known back then.

This is 2015, right?

2015. Yes.

How big was ServiceNow back then? Not very big, I think.

Oh, gosh, when I joined ServiceNow in 2015, we had hit a $1 billion of revenue. And when I joined, I think, we were 2,600 employees.

Wow. So not so big then I realized.

Yes. Now we're 13,000, right? And so just I joined, one, because I wanted to get into enterprise software. And then also when I was doing my homework, I think what I learned was customers really love the product, right? And so that is another reason I joined as well and just a great career opportunity. I joined to run the FP&A organization. And so great company, great career opportunity and so glad, right, here I am 6 years later.

So wait, so were you hired by Scarpelli or is there someone in between?

I was hired by Scarpelli. Yes.

You were. Wow. How was that?

Well, Scarpelli, I would say, it was interesting. I actually interviewed for a different role. And Scarpelli was part of the interview process. And he says, no, I need you to come run FP&A for me. And so that was, it was great. I mean, being here 6 years, I've had the incredible opportunity to work with 3 amazing best-in-class CEOs with Frank and then John and now Bill and 2 really best-in-class CFOs as well.

It is quite a remarkable lineup actually when you put it that way. Yes.

Yes. So I'm very fortunate. I look back. And like I said, 2 incredible CFOs as well, so with Mike and with Gina.

All right. Let's go through the Frank, John, Bill. How are they similar and different? Let's do it chronologically. So when you joined, it was Frank, right? What was he like?

Yes. Frank was great to work with, very focused on building a go-to-market engine. And Frank, when I joined is really when we started to dabble into multiproduct, right? So it was ITSM, ITOM, but that's when we started to launch product around HR and CSM and so forth. So Frank, very honest, candid, will tell you how it is, drive for execution.

Direct. Direct is the word he uses a lot.

Yes. Exactly. Yes. Yes. So really, really good from that perspective, right? And I think that when he decided to move on and bring John on, I think I look back at the team and I tell my team, we had really amazing CFOs for every point of where we were from a company perspective, and they all added their mark and did really great things for the company, right? John came in and very much had a very long-term strategic focus on how do you build that strategic rigor within the company with his background and his experience, right? His focus on customer success, his focus on elevating conversations to the C-suite and focused on developing leaders and leadership and career opportunities within ServiceNow, right? And so John was really great in bringing that strategic rigor into the company and the focus on, we've always been focused on customer success, but how do we elevate that, right? And so that was really good. And then Bill, I mean, Bill is, he's a very inspiring CEO. And he is making all our employees really dream big. And I think Bill's expertise in enterprise software and the connections and the relationships he has is very, very good for ServiceNow. And again, he is still focused on how do we elevate to the C-suite. How do we ensure that we're selling a solution and a platform versus specific point products, right, and very focused on that. So I think all of them bring their own element and really helped bring ServiceNow now to where we are today. And then I will say something around the culture, right? I think one of the things we talk about is being hungry and humble. And the great thing about all of these CEOs is that culture has remained, right? And the culture is really driven from Fred Luddy, who is our Founder. And so that's what's so great about this company as well is that culture, and it has remained across all those CEOs.

I love that. That's great. So it's interesting how getting to the C-suite came up twice with your CEO discussion. And so the issue or it's not the issue. But where you started was really with IT, right?

Right. Yes.

And so what have been the tricks to get to the C-suite? And how is that going?

Well, I think a couple of things. One is just building out our portfolio, right? I think when Frank was here, we were very focused on the CIO and CIO minus one, right? Now when building out our portfolio and building the capabilities around HR and CSM and even we talked about the app engine is, we're able to solve issues and to automate workflow across the enterprise, not just for IT anymore, right? And so because we are having, when we go to have conversations with our customers, we want to understand what are some of the issues they're dealing with. What are the business outcomes that they're trying to achieve and how can ServiceNow help them achieve those outcomes, right? And so our product, we're able to do that. We're able to automate workflow across the enterprise. And so I think one is our product portfolio, right? The second is really enabling our sales team to have those conversations, right? How do you make connections? How do you elevate the conversations to solving the business outcomes for the customer, right? So that's the other thing. And then I think the third is around our industry focus. We started to focus on industries about 2 years ago. Last year, we focused on telco and financial services. This year, we're expanding to health care and manufacturing. And what's really important there in having that C-level conversation is, you're going into the conversations with customers with specific use cases in their industry, specific to their industry of what we can solve, right? And that changes the conversation. It elevates the conversation to going back to helping customers solve their business outcomes. And so I think that's helped a lot as well.

Yes. We had a sales leadership panel earlier today. And one of the people who's on it was an old-time SAP rep, back in the period when they were just selling huge, huge deals, automating industries, which really hadn't been before. And he said that, the way they used to differentiate themselves from Oracle is they would say, Oracle is a technology company that happened to service industries and SAP was a business process company, not a technology company. And regardless of how it's played out, I just thought that distinction was so interesting. And if you're going to be a business process company, you better understand the industry really well. Otherwise, you're not going to be able to get the processes right.

Absolutely. Absolutely. And that's, I think you'll see us continue to expand in different industries. It just changes the conversation with the customer, especially because we are already deep within financial services, we can share specific use cases that are already working, right, and really accelerate that conversation and then help the customer accelerate their business outcomes as well.

Yes. Okay. I'm going too slow here. All right. So my general -- we'll see how far we get. My general question, number one, if I ask how is business, what would you say? I mean, you guys just reported recently, but how?

Yes. Great. Yes. Business is good, right? You saw our Q4 performance, and we beat expectations. And I would say, even looking into 2021, there's a couple of things that happened in 2020 that I think that really has strengthened ServiceNow's business. One is, as customers now need to -- and everyone needed to work from home, right, I think it's been eye-opening for customers of the manual processes that are out there, right, that need to be automated, the broken processes, right? And so when you think about in the future and companies are going to have to support their employees and their customers from a hybrid world is most likely what we're all looking at. And when you think about, how do we automate the workflow around that? How do you make it better processes for our employees and our customers? And so I think that has been eye-opening for customers and definitely where ServiceNow can help. The other thing that I would say in 2020 that has been good for ServiceNow is the focus on around the app engine and the platform and the ability to create custom apps on the platform. And so when you think about some of the applications that ServiceNow launched for our customers to help them navigate through the crisis, right? And once the pandemic hit, we created emergency response apps, which was in weeks. We have our Safe Workplace apps which is helping customers navigate back into the office and making sure all their employees are safe. And then most recently, we launched a vaccine management application as well. And so what that's done is, it's been very eye-opening for customers of the ability to quickly deploy, create and deploy apps on the ServiceNow platform and the quick time to value as well. And so I think that's opened up eyes for our customers. And so I think that the business is strong. I think customers needing to automate and digitally transform is really where ServiceNow can help around the workflow automation across the enterprise.

Yes. Great. And you just touched on this a little bit but. So my question, I'll give you a little lead-up to it first. But my question is, long term, is ServiceNow a work-from-home company? And here's my little lead-up. I'll be the bad guy. So we had a great year last year, right? But we do feel like we were burning human capital that we had developed when we were all working together in person. And so a few weeks ago, our leadership had a town hall meeting. And the message was, we don't know exactly when, but at some point this summer, we're going to expect people to come back to their offices. And we understand, okay? We understand that people are caring for aging parents or they have little kids or you're in your 20s and you're living in your parent's basement again, right? But -- so we're telling you now and if there's challenges that we need to help you work through, talk to your manager and let's figure them out, but we do expect people to come back to the office. We're not going to be a work-from-home company. So anyway, so we're the bad people. So anyway, where is ServiceNow's mindset in terms of, long term, is it a work-from-home company?

Yes. Really good question, Pat. So a couple of things I'll say is, one, we're actively evaluating the best way for our 13,000 employees to work globally in this post-pandemic environment, right? And so we haven't messaged anything to our employees yet. A couple of things I will tell you that we do know, right? So we do think that the learnings from this remote work environment definitely will have lasting effects on our overall efficiency, right, as we're leaning into the future of work, right? So when we think about our go-to-market engine, while new customers may require in-person meetings, we likely can do more renewals and expansion deals remotely given we have existing relationships with customers, right? We all know how to use Zoom more effectively now, right? I think it's been eye-opening to see, we don't necessarily need to travel to get some of these things done, right? And the other thing I'll think about is, while nothing can replace seeing in-person demos or asking questions live at a user conference, right? We see a future where we have hybrid events that have elements of both digital experiences and then that enables us to extend our reach to customers that couldn't make the trip, for example, right? So we'll benefit from these virtual efficiencies and we'll continue to enable digital experiences. And then as it relates to our employees, what we do know is they want flexibility, right? And so we're certainly focused on ensuring whatever the plan we implement will enable flexibility, right? We're thinking through several options such as a hybrid structure where employees will spend a certain portion of the week away from the office. But ultimately, that's remained to be seen. And it may vary by organization as well within ServiceNow. So what we do know is that we can execute well in this remote environment. And I think our 2020 results are a testament to that. But I think more to come. I do expect that we will give some flexibility.

Okay. Great. Okay. So let's talk a little bit about, and I think we can sort of roll all these topics together. The Element AI acquisition, the role of machine learning AI for ServiceNow and then maybe we can fit sort of RPA and process mining into that same discussion. So where is ServiceNow going in this sort of broadly AI/RPA world?

Right. So Pat, what we're hearing from our customers is that they want to improve customer and employee satisfaction rates, right? And they want to do this by modernizing their service experience. And so when you think about that, it's automate time-consuming processes to increase productivity, it's drive continuous optimization of existing processes really that support business operations, right? And so our goal is, we want to create intelligent workflows for our customers so employees can work smarter, they can work faster, streamline business decisions and really unlock new levels of productivity. So what you've seen ServiceNow do is make several investments over the last couple of years to build these intelligent workflow capabilities, right? So we acquired DxContinuum, for example, in 2017, focused on machine learning and predictive models. With our acquisition of Qlue, we gained our virtual agent capabilities. And then we've made other acquisitions to add AI and natural language understanding capabilities. So most recently, we acquired Element AI, as you mentioned. And what this is doing is it's bringing a real deep bench of world-class AI scientists and practitioners really bringing their expertise so we can apply modern AI to text and language and chat, for example. And what this will do is help accelerate the AI innovation on the Now Platform. So in particular with Element AI, what we're going to be able to do is deliver workflows that can learn more efficiently from smaller data sets and then improve the quality of the AI capabilities like content and language understanding of the capabilities that we've built today. And so we're really excited to have these practitioners onboard.

Give us an example of that? What's an example of learning more from smaller data sets? What's the problem that this...

Well, if you think about, so from a machine learning perspective, right, you need a large data set to be able to learn, to be able to make predictive analytics, right, to be able to predict of, hey, we've got this issue. This is what the next best set of resolution should be based off of historics, right? And so with Element AI, we're going to be able to do that in smaller data sets, which means you're going to be able to do it quicker, more time to value, right? And so you don't need to gain all of these massive data sets, right? And so obviously, more data, the better analysis you get to do, but this is going to enable quicker time to value.

Okay. Awesome. All right. Last one for you, Lisa, and we really appreciate you taking the time to chat with us today. So if there are 1 or 2 things that you think are really important about ServiceNow that investors don't get as well as maybe they should, what would those 1 or 2 things be?

Yes. I would say, so 2 things I would say is around CSM and our differentiation from a CSM perspective, right? We get a lot of questions around competing with some of the more modern technologies and where does ServiceNow differentiate, right? And so I would say 2 areas from a CSM perspective where we differentiate. One is being able to automate complex workflows. And what I mean by that is, if you're a support agent, right? Oftentimes, you need something from other organizations within the company, if it's from engineering or from IT, et cetera. When you do that, there's a lot of complex workflow in the background, right? And so we really are focused on the the mid-office of helping that service agent be more productive, to be able to solve issues quickly, give visibility to that service agent, really managing those complex workflows. So that's one. The second area of differentiation is when you're able to tie...

That's a good example, by the way. So a complex workflow is when you got to get out of your department and get into engineering or IT to get what you need to solve the problem. Okay.

Correct. And then get the visibility all in one place on the status of that resolution. The second area, Pat, is really around being able to take CSM and tie it back to your IT infrastructure with something like IT operations management. So if you think about more and more companies are providing digital services, the ability to tie back to your IT infrastructure and to be able to understand and get visibility to the network and what business processes those are running, it enables you to see if something is down to provide proactive customer support. So being able to tie it back to the IT infrastructure is also a differentiation from a ServiceNow perspective. So I would say that's the area from a CSM perspective. And then, Pat, the second area is around platform and our app engine and the ability to build custom applications on the platform. And as I mentioned, I think COVID's been very eye-opening for customers of the quick time to value and the ability to quickly develop a custom application to solve unique workflow needs has been very eye-opening and we believe a very large opportunity for ServiceNow.

Awesome. Lisa, thank you so much. Thank you for doing this. Thank you for doing all the one-on-one meetings. I know it's exhausting, and we really appreciate it.

Thank you. Good to see you.

Nice to see you, too. Bye-bye.

Bye-bye.