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

Good. Wonderful. All right. Look, we are just delighted to have CJ Desai, who is the COO of ServiceNow, joining us for our last meeting of the day. Thank you so much. How are you holding up?

I'm holding up well. How are you?

I'm good, actually. I'm good.

So I thought what we do for, I don't know, maybe the first 5 or 10 minutes is actually go through your background and talk a little bit about what brought you to this pretty amazing role being the COO of ServiceNow, right? So we'll go all the way back to the beginning. So you went to the University of Illinois. Where are you from originally. Where were you born?

Originally, Bombay.

In Bombay. And when did you come to the U.S.?

I want to say, it was early '90s.

Yes. For college?

For college.

For college, right. And you've got a undergrad and a masters from University of Illinois?

I did computer science and business school at University of Illinois, masters both. Yes.

Yes. And do you know who is sitting in that chair right before you?

Tom Siebel.

Yes. It's the Tom Siebel school of something, right?

Yes, yes. It's now called Siebel School of Computer Science and he has the same degrees as I do.

That's so funny, really. And you've met him before, I'm guessing.

No, no.

No, I should have connected you. Darn it. Darn it. And then did you join Symantec right out of college?

No, right out of University of Illinois, I joined Oracle.

Oh, you did not, okay.

So followed the same path as Tom Siebel, Sohaib Abbasi and a few others from the University of Illinois also.

So what year did you join Oracle?

'95. It was high-growth years at Oracle. And then I was there for 7-plus years.

And what were you working on when you joined?

Oracle, I worked in a variety of roles, but the last few roles were on the application side, Oracle applications. So first, I did Oracle applications technology stack, which was called -- I think it was call applications technology guru back in the day. And then I joined CRM applications, which was run back then by Mark Barrenechea and Larry Ellison.

And how long did you last at Oracle?

So I was there through 2002. After that, joined Symantec on the security side, as I felt that security is something that is a critical skill to have for somebody on the engineering side. So on Symantec, I worked on endpoint security, server security, virtualization security, e-mail, web security...

Endpoint -- all right, let's go slower. So you start with endpoint and then?

Server security, virtualization security, then e-mail and web security, and then...

And you were there for 9 years?

9 years.

9 years. And at the end, you were -- that was covering it back then. I don't cover it anymore but I was covering back then. I don't cover it anymore. You were running all the products, what were you doing...

Yes. So at the end, they asked me, hey, you did security, but we really need help of a strong product and engineering leader on the backup side, which was the Veritas business at that time. So I ran net backup, backup exac, a bunch of storage products. I want to say, for the last couple of years I was there. So mostly to security. Our last couple of years was storage. And then EMC, Joe called me. So I joined EMC, and he wanted me to focus...

He just picked up the phone and he just called you?

Yes. He just called me, yes.

That's awesome.

Yes. He's a good man. Very good man.

And how did he convince you to switch? What did he have to say?

That I'll get to work on new technologies. Flash was a new technology back then. This is in 2013. Software-defined storage. So he said EMC wants to make a pivot in these interesting areas. So did that, then EMC got bought by Mr. Dell? And interestingly, Pat, my daughter was in high school at the time. So even though I have a lot of respect for Michael and the team, I wanted to work locally in San Francisco Bay Area because Dell EMC together would be a lot of Boston and Austin. That's where most of the engineering sites were.

Yes. So then your phone rang again.

So Frank hired me at ServiceNow, which was a...

Did he call you himself too?

No, he did not. It was through recruiting.

This was through head owner. And what was their pitch? Why did you -- so this is 2016 at ServiceNow. And the role was Chief Product Officer, right?

Yes. So Chief Product officer...

Trying to remember how big was ServiceNow in 2016?

Let's say, 5,000 employees and $1.3 billion.

All right. So yes, it was already clear that it was going to work.

Specifically the product rule included product engineering cloud operations.

And so when you landed at ServiceNow. So a while ago, but what was -- what were the 2 or 3 things that were your priorities when you first started?

Yes. You understand our portfolio, but I think 1 of the biggest things was ITSM, ITOM, where the innovation is going, looking at the competitive landscape, what do we need to do within the -- Frank called it...

This is 2016? Okay.

Frank called it ERP of IT. So what do you need within ERP of IT? What are the new products that we are going to create was number one. And Frank had made the pivot to products like security, HR and customer service, which were super -- I would -- if I use kids analogy, in diapers at the time, and CJ can we grow this and make them stand-alone large businesses over time. And what Frank, I would say, from a background perspective, given that I had done IT security, I had done CRM applications at Oracle back in the day, and I understood how business applications worked and platform worked.

So let's talk about those because I think it's so interesting to people the success that you're seeing in those categories because it seems like there's leaders in the space, right? So from an outsider, for an investor looking they like, gosh, how can they be having that much success, right? So let's go back, sorry, to the beginning, which 1 do you want to do first, customer service or HR?

Let's do HR.

So what was the idea?

So here was the idea on HR. First of all, that market actually does not exist. So there is no analyst quadrant or an analyst rating on HR. But what we saw is that there were some customers who were using ServiceNow for HR cases. So Pat is moving from San Francisco to Boston. What needs to happen if Pat moves from San Francisco to Boston? Well, his security badge needs to work in the Boston office. He needs maybe a desk there even if it's a hoteling desk. Maybe his compensation changes, maybe his benefits change because Massachusetts is XYZ, security credentials change, maybe he's in a different role, he's moving to Boston. And some customers started using ServiceNow for those kind of workflows related to HR. Similarly, if you think about moments that really matter to the employees, going on a paternity leave, maternity leave, leave of absence. So many things need to happen...

So many things you have to do.

So really one of the banks in my first month told me, 1 of the large banks in the U.K., I said so -- because this product line, Pat, was low double-digit millions at this point in time, when I joined, low double-digit millions, and it's now 3-digit millions growing gangbusters. So 1 of the banks told me that CJ, do you know if you are an employee of our bank, and all you say is that I want to change my maiden name. That needs to touch 77 systems inside the bank.

As an employee.

As an employee. So the employee may say, my maiden needs to change from X to Y, but that has to change this many systems. So basically, what we are trying -- we tried to figure out is what are these things where you require lots of workflows. Where employees are trying to get something done, look for information. Can I sell my stock? Am I in a quiet period, not quite period? Nobody remembers that. Simple things like what are the holidays. I'm a employee in San Francisco, but I work with a team in India. Is that team in India on a holiday? How do you know that? Exactly. So that's where we saw the opportunity. So even though there was not a category, we saw our customers who are taking that and using our platform. So the product was created. And it's doing really well. That product is doing really well.

Those are great examples, by the way.

Yes.

Yes. Those are -- maybe roll those out on the earnings call. Like the change in the maiden name is a fabulous example.

And people just don't realize that at a large bank, a large health care company, they have, even within HR, a different system for recruiting, a different system for compensation, different system for benefits, different systems for learning. And the changes need to propagate everywhere, and that's where ServiceNow came in. So it's a great business. We call it employee workflow. And about 2 years ago, we also saw the need around -- when COVID started, Pat, as you know, if you are a retail employee at a large retailer, you still had to show up, knowledge workers could stay home during the 2020 phase. But if you are a retail or a health care person -- let's take an example, Stanford Medicine. You still have to show up as a doctor.

My brother-in-law and my sister both work there. So right there with you.

That's great. So they had to show up and my sister-in-law works there. So we created an app or a application that you can sign for test, if you're healthy over time then vaccine this and that. So we created an application that is doing really well about just dealing with vaccination requirements or...

I haven't had a fever, I don't have a cough...

Self-attestation is what they call it, that's the attestation that you do health check. And some companies make you do that every day as a retail employee or a health care employer or a manufacturing, people had to still show up at manufacturing, city, state, local government. And then a year ago, we created a product around facilities because people then started saying, "Hey, I got vaccinated. I may just show up as a hotelier, meaning once in a while, 2 days a week, can I book a space rather than having a permanent desk?" So we have to facilitate. So our employee workflow category has people aspect, places aspect and a health aspect. And this is top of mind because currently for every employer, like I'll tell you, till 2020, no matter which customer I spoke to, they always spoke about their customers, "Oh, we want to serve our customers the best." It was in 2020, in 2021 and even now -- most of the organizations I speak to, they say we want to take care of our employees. They are safe, they are healthy, they can have flexible work lifestyle. They don't have to come to the office. They come to the office 2 days, 1 day, whatever it is. Whatever it is. It's a pretty dynamic situation.

That was a big change, yes.

Yes. But there is no category. For the product lines we do, there is still no category. There is no analyst quadrants, there is no TAM size -- so I don't know how you define it, but that's a great...

Great examples, yes. So we're going to come back to customer service in a second, but I need to ask you my picture question I'm asking everyone, which is how's business? What would you say?

Business is what we shared on our earnings on January 26, we still see demand from ServiceNow standpoint that is very robust. The way customers talk to us, Pat, is very simple. Technology operations or technology transformation, I'm moving XYZ to public cloud. I'm modernizing systems. My systems need to be up and running, not changed. It's something -- I would tell you those sort of the same conversations happening pre-COVID that are still happening today that I'm moving to public...

Would you call it technology modernization...

Technology operations.

Operations...

Technology operations in ServiceNow is the platform for technology operations in a hybrid cloud world, like we are.

And that hasn't changed?

That hasn't changed. Customer service, they will say, okay, CJ, most of the customers come via some digital channel. But then there are so many things that need to happen behind the scene. And ServiceNow workflows are very relevant on customer operations side and then employee we just talked about. And the last thing is we want things to be as digital as possible where our platform comes in play. So I am just saying the same thing that was there before. The only thing is we are seeing even higher demand on the employee side, because that is top of mind. And it's not a COVID specific, COVID changed the way people work. And that's why this is now becoming a thing where they are like, okay, how do we solve these problems.

Here's a question that wasn't on the list, sorry. How you like working with Bill?

I love working with Bill.

Because I concurred him for a long time.

Yes, yes. I love working with Bill. He's a force. Very optimist. A lot of energy. Bill is the same whether you see him here or in one-on-one or whether it's in a small group meeting, he's the same Bill McDermott. So when Bill joined, I did not know him before, I had heard of him, but I never met him before, but he is the same person.

It's pretty big difference, right, in terms of Frank versus Bill. So how is it -- from your experience as an executive who's been there in both worlds...

And John was in...

And John was there too, yes. Why I say, he's like the only software CEO who's doing something really cool.

I would say all 3 men are very different. I have learned significantly from all of them. Frank is very focused and very clear on execution. John was extremely strategic and he always thought of competition. How does product strategy work, how do you differentiate, just amazing, amazing leader. And then Bill, Bill is a force. I mean he understands enterprise software left, right, center. And the buyer patterns and how do you scale across industries, so...

So I have a friend who used to be in Oracle HR, and he says that he knows the person who's running your HR business.

Oh, Gretchen.

And he goes, they have a huge business just connecting Oracle HR products, that alone. And so that was -- I was like, wait a minute, when I think of workflows, I think of like, you have to connect all these different things from different companies. And he goes now, no. He was like, you could have bought 20 different systems from Oracle, which they've acquired over the years and they don't speak to each other.

Like Taleo, like Taleo.

Taleo, for example.

Yes, right? So absolutely, Gretchen is great. We hired her tail end of 2019.

Okay. Can we do on customer service, what we just did on HR. So help us really understand customer service.

All right. So I'll tell you transparently. Customer service, even when I joined and if you asked Frank at the time, he would say, is this something we really want to do? Because this -- yes, the market is huge, but there are many players. You just talked about Tom Siebel, he went to create Siebel Systems and left Oracle to go after that CRM space in '90s, yes, in early '90s, right, early '90s. So the market has been around for a long time. Our differentiation was workflows behind the scenes. So let me give you a simple example, but could be a complex example. If you have been using DoorDash okay? They are not a customer. I'm just using this as an example to make a point. If you're using DoorDash and you get cappuccino instead of latte, that means you didn't get what you wanted. So you want to refund it. It happens all the time, right, on an order. What do you think happens behind the scene? That's pretty complicated stuff. So 1 thing is you can say my order was wrong. What you may want them to still give you the same order. So go back, there could be a workflow related to that. Or you could say, just give me refund and I'll use it next time or give me points or whatever the case might be. So customer engagement has been around for a long time that I'm Pat, I had my DoorDash order and DoorDash order was wrong, and I filed that case. Like if you have -- talking about moving, if you guys have ever moved, try to call a bank and say, my address changed. And then it takes a while for that to be reflected. Why? Because they have so many systems behind the scene that, that needs to get reflected too. So when you think about customer operations, to take a case their -- Pat's address need to change because he's moving from San Francisco to Palo Alto. That's 1 thing. But what are the things that are behind the scene that needs to happen. You require still a lot of streamlined workflows before you serve a customer. Same thing if there are U.S. large states where if you say my unemployment check was not correct amount. So you can say, okay, I live in state of Tennessee, just making an example. And my unemployment check is not correct amount. So you can file that case with state of Tennessee, but there are so many things that need to happen behind the scene to make sure why was the amount incorrect, what is the correct amount? Are we going to reissue the check? Think about those workflows that need to happen. That's what ServiceNow does really, really well. So originally, we started in 2016 with some high-tech customers because high-tech customers have -- if you are a large hardware company and you shipped a wrong hardware to your customer, think about the return. And then you need to ship, like, say, you're a networking company in San Jose, just using as an example. You sent a router, router was wrong. Customers said the router is wrong. What needs to happen behind the scene to get the right router or maybe refund the customer? That's where ServiceNow shines.

Because a lot of people get a lot of things wrong. All right. So I meant to leave way more time for questions. We have 2 minutes, if anyone has a question for CJ.

Yes.

So where is ServiceNow going as a enterprise firm? Are you going after the [indiscernible] because you see you make moves into that area, right, [indiscernible].

Here is what I would say. Like the HR example we used, we work with SAP, HR, like Pat said, Oracle HR or Workday or whoever it is, okay, system of record. Similarly, in ERP world, there are many things where we can connect systems to get the work done between, say, an SAP Ariba with Oracle's product X or somebody else's product Y. So our value add is always in the workflow. We have not looked at all the ERP workflows, but we have just started looking at some, where our customers are taking us, we will definitely address that over long term on where we can add value in the ERP landscape, but our goal is not to replace ERP. Like if you're moving from SAP ECC to S/4HANA, excellent. Please do that. If there is anywhere we can provide a system of action, we will do so.

All right. CJ, I learned a lot. So thank you very much. We really appreciate you coming and spending time with us.

Thank you. So it was the last call?

Yes. Now cocktails, upstairs. 4 O'clock.

Thank you.