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

Now my producers remind me, I do need to remind you that take a look, there are download resources within this whole webcast thing where you can get resources, the white papers, additional stuff, I'll talk about a little bit later. We are going to have a survey afterwards, et cetera, after this, and then we'll also send information in afterwards. So please take a look at that. And a little bit of a [ drum roll ], let's go take a look and see what the survey results. Again, our bet for both of us is down on #3, 3 stars. Look at that. Wow. Okay. Well, that's -- what is interesting is not only 3 stars, I would have probably bet more of a skew towards higher number to think about it, but we've got some folks 2 stars and 1 star. So there's a pretty self-critical audience. Interesting results.

Great. Pretty good to hear.

Okay. Let's move over into our discussion section. And I'll remind you folks take a look at that Q&A panel, send your questions in. We'll have -- I'll send questions to Kirsten. So while the audience is doing that, I wanted to ask you a little bit, Kirsten. So you really had this front row seat in procurement and I really just wondering what your thoughts are on -- my procurement is so late to the party. We've seen tectonic shifts in e-commerce, large shifts in omnichannel, offshoring and now back swinging into near-shoring, big investments and advancements in fulfillment logistics. So why does this feel like procurement is so stuck in even the 1990s.

Yes, I hear you. I would say it's not all bad. Procurement certainly has come a long way in the years that I've been working in this industry from the very first as I said earlier, clunky shopping carts that looked awful to. But we are functional to where we are today. But I agree with you that there is so much desire and much to be done. And given our current macro environment and given the need to be faster in terms of innovation, and of course, based -- we've all seen with our collective experience during COVID, which elevated so many issues that procurement had to deal with already for decades, but it was really in everybody's space. It feels like there's definitely -- it's -- the time is right for some serious innovation in procurement. People in the business know that if procurement is done right, helped along by technology, can really unlock transformative value for any company. But what I've seen in many of the interactions with customers is that, yes, while that is understood, there is a level of human barrier that organizations really need to overcome. First and foremost, from my perspective, the procurement as a function needs to be given the right standing in any organization. And it needs to be recognized that procurement does not just exist to pinch pennies and force of [ voice ] and to compliance. Procurement if done by it can really support strategic goals and competitive advantage of an organization, right? And because it can develop the right supplier relationships to help with the supply assurance, it can develop agile sourcing strategies that can respond to anything that is happening in the market. And so it doesn't only contribute to the bottom line. But on the other hand, through complying with the easy requirement through enabling users to do the right thing and be socially conscious and their purchases, procurement can also really create goodwill and can even help with brand recognition. One of the customers I'm working with had some serious issues with perception in the market space and is working really with the technology today to help correct quality issues and correct that perception in the market that has been impacting the brand. So procurement still is a bit in the shadow of other corporate functions. If something goes wrong during the acquisition of goods and services, you really won't read about that in the press. Even if it significantly impacts the ability of a company to deliver products to the market. But when a ship gets stuck in the Suez Canal and impacts logistics and supply chains around the world, it becomes global news. So it's definitely that aspect of human being in the shadows. And so what I see the most forward-looking organizations do is really 3 things. It's internally evangelize and educate about the broad impact that procurement as a practice can have, not just talking about cost cutting, but really highlight in the organization how a procurement department, if the -- if it has the sustaining [ organization ], the backing of C-level leadership, if it can deploy smart procurement policies can really contribute to the stability and growth of the company. Bringing the stakeholders along, I often see the separate discussions in IT in the procurement department. Procurement department wanting a very different solution to the table then the IT department, et cetera. There needs to be a continuous effort to create buy-in among stakeholders and this ties in again to evangelize and educating. These decisions for technology should not be made for example, in isolation in one department or the other. And I still see that there's a disconnect in many organizations. And the organizations who do it well usually bring these stakeholders together. And then just be very thoughtful with the deployment of the technology that you choose. There's not one tool that will address all the needs of your various stakeholders, be really mindful of what you choose and how you go about deploying this so that you don't overwhelm users that you don't under service functions in the organization. And when you couple this continued organization evolution of procurement with the technologies that are delivered by companies such as ServiceNow that are really groundbreaking in this space. Then I think if we have this conversation a few years from now, Dean, we'll see that we really made harvests and have some positive change in the procurement space.

Very interesting. I noticed some themes, greater discussion about human experience. You mentioned silos and then discussions cross-functionally. You maybe think a little bit, even before COVID, I was not noticing some procurement folks kind of changing point of view not back at a house more into how do we transform the front of the house and some of these executives were not getting in the seat of the table at the C-level. So it's almost a bit of a shift in the mentality. I wonder if now with COVID, with so much focusing on procurement, if we're going to see that opportunity for some of those forward-looking folks being pushed in front of the house to make an opportunity to put procurement more as a business front part of the organization.

I believe so, Dean, because what we see now is that companies that we're talking to our customers are definitely asking -- how can we do more with less, right? So we have a talent shortage. We can't really do all the work that we have on the table. We have warned, I think, over -- particularly with COVID how important it is to innovate very quickly, to respond very quickly to these type of situations that literally can occur overnight, how to be agile. And I do believe that it gives rise to the people in the procurement organization who are more forward-looking and very creative in solving these problems and to understand doing more with less will not come from running transactions but will come from automation and intelligence workflow systems, for example, that can address these changing requirements.

Great. Let's change tack a little moment. I want to ask you a quick question. What is the most outlandish marketing claim you've seen in our business in the past decade?

Okay. So one that's personal to me was that we claimed at some point in time, it was claimed at some point in time that procurement would be awesome again. Promise, procurement is hard work. It's not glorious, it's not the sexy work that you often do in an organization. And so I always felt that, that was a claim that was too big and unless we fundamentally change the systems and experiences that involved in procurement and change completely mindset, where we probably end up at pretty good, but not necessarily at awesome. So it was something that I had a hard time buying into an understanding, and I don't think it ever really came to fruition. So it was a little bit overstated that I would say.

Got it. I asked that question for a specific reason, and matched a little bit into some of my observations working with you that I think is unique is that I've worked in tech 25 years. And one of the things that struck me working with you is your utter focus on usability and quality for the customer. I really want to have your point of view on what drives that? And how is it guiding when you're making the product decisions for ServiceNow or what have you. There's a very distinct point of view that you bring.

Thanks for saying that, Dean. I would say it's the experience gained over years. So it's marketing claims such as these. It's looking at roadmaps and putting roadmaps out there and convincing customers based on roadmap -- concerning roadmaps and not being a trusted adviser. These are all experiences that I learned over the 25 years that I've been in the space that have really formed my fundamental belief that there are 2 nonnegotiables for me. It's the usability and the quality of the solutions. What drives that approach is that I found I can always have a conversation with customers about the sequencing, the prioritization of a feature request that the customers have. There will be always another feature request. And so -- and oftentimes, we'll have to say, we're sorry, we can't do it in this quarter or next quarter, it will have to be another release. It will be probably 12 to 18 months until we can actually deliver the full capability to you. At the moment when I have features that can be adopted and can be consumed by customers and when I have features that are rich in quality in terms of the feature that I deliver is already functional even though it needs to grow over time, it performs well, then I have given my customers something that they can work with today and that they can consume and adopt. And then I find that the conversation about having to prioritize other feature requests into the future is a much, much easier one. So it's a little bit self-serving in a way in that I keep my customer busy with good usable capabilities that they can consume today and drive ROI from today and create the opportunity in the buffer from me and my team to work through strategy, to work through a roadmap and to prioritize what's coming in the future. And like customers see that you continue to deliver capabilities to them that are, as I said, from a quality perspective, very stable, rich enough to drive value that are usable so that they find the adoption in their user base. It's not shelf ware that we produce, then there's a level of trust that is being created that we will continue to do so going forward as we're showing roadmap as we're discussing what we're planning to do 12 to 18 months from now. So that's something that for me is nonnegotiable. And you will always hear me when interacting with the team, we're talking about it, always give the guidance, quality and usability first and we can always enrich features. If we get the usability and quality wrong in the beginning, we have a problem. And the other thing what guides me in principle is really that I have an expectation of myself to be a trusted adviser to the customer, my best customer relationships that can really into personal relationships and a lasting through today, no matter what company I'm at are the relationships we're just really keen to full fruition and where we could talk about the good, the bad and the ugly, and have an open dialogue with all cards on the table to be really transparent about what is in the best interest of the customer at this point in time, protecting my company as well and protecting my team, right, from escalations, nobody wants escalations. And so I find what our CEO, Bill McDermott talks about in terms of trust is the ultimate currency -- that is something that is incredibly important for me and my internal as well as my external customer relationships, and that's what I strive to live by. And I do find it if I focus on these 2 aspects, first and foremost, quality and usability and everything that we deliver, then I can develop that trust and my customers can trust in me and my team and the product, and we can work everything out from there.

Okay. I love it, Kirsten. One thing that excites me is we talked about the human experience, we start talking about making a solutions almost like consumer, but I love your utter focus on the trust, and this is for a serious business, serious people. So I love that commitment. So we could do this all day, but I know we're running short of time. So what I want to do is give you guys a chance to ask her any questions. I'm actually going to be a quick little demo. So you see what this stuff looks like, while, I do that, Kirsten, do you want to give just kind of your description of what our products or solutions while I get ready.

Yes. So certainly, so on the slide earlier, you saw 3 solutions highlighted for these source-to-pay operations workflows that we are delivering. So we have 2 products that are currently in GA and one product, which is going to be launched tomorrow. So one product for source-to-pay, which really focuses on the internal users, the requisitioners, the casual users that you have in the organization and procurement users as well to really run the intake process and do all of this workflow and task management that the ServiceNow platform is capable of. And then we have extended the same experience to the supplier with a supplier life cycle solution that helps with onboarding, offboarding and the management of suppliers in between, and that has collaboration capabilities built in to be able to extend the workflow and the intelligence also to the suppliers. And then last but not least, we're launching accounts payable. Again, an area that is just very prone to finding issues, right, in terms of invoices being incorrect or it's just not matching with a deal, whatever else is happening in this space. So again, an area that can benefit a lot from automation and workflows through exception management handling, and that's what we are launching tomorrow. So we have a full source-to-pay suite at this point in time that from a workflow perspective, again, not from a transactional perspective, a workflow perspective that can sit on top of the existing transactional systems and really provide that one layer of engagement from end to end.

Okay. Thanks, Kirsten. Okay. Let me kick things off and kind of show you a quick preview of what you're going to see. So we're going to walk through a pretty simple straightforward process in procurement. I'm not going to go through details. One of the things I want to point out is like most of you folks know, this involves a lot of different people who need to happen in a certain sequence. And a lot of it is driven by manual process. So let's go and start with kind of the simpler process, and we've only got a few minutes here, we could do a full demo for an hour long, but let's at least see some of the highlights. So one of the key things is folks have to buy something. And for us, that experience starts in something we call Employee Center. And if we have folks who are on this webcast who are already ServiceNow customers, you're probably using the Employee Center, is your place for employees to go for HR things, to manage their employees, to manage their benefits, get IT resources, buy laptops, what have you. It's the one-stop shop for everything employee but we leveraged that same technology and added driven as part of that experience so that I can integrate buying things and procuring things as part of that overall employee experience. Now of course, there are places they can go, dedicated procurement, there's a knowledge base, but I think one of the more exciting things on how folks know the procurement is straight through something we call a virtual agent. And again, this is also used in other products. We've added technology now for to have a computation, specifically about procurements. So if you look at your screen, ask us a very simple question. I need to buy something virtual agents say, "Great. I recognize that. What would you like to buy?" And for the user it's simple of saying, this is what I want to buy. It's going to be smart enough to start thinking, okay, you put the request in your well, it turns out being, you've got a bunch of matching products. And what it did here is you can see it brought me into the shopping hub, which is the catalog experience I can see everything that was matched in the virtual agent conversation, and I can do my procurement from there. No spreadsheets, nothing complicated. I didn't have to call anyone for it. It was pretty straightforward. Similarly, when I click my product. It's pulling in all the master data. It knows something about me. So all I need to do is go through a drop box item and say, okay, here's what I'm looking for. Here's my needed to ship, here's when I need it. And anything around a project, cost centers all automatically entered here, and I get my justification for the actual purchase. And as simple as that, it kicks off into the ether to start self-fulfilling itself. Now depending how you configured it, what I'm showing you here is an approval to the manager. So for a lot of folks just a microphone, probably doesn't go up the manager. But in this case, I just want to show you -- if I'm a manager, I might be using now mobile to manage my employees HR things. And I get a pop-up saying, "Hey, you know what, Dean has just requested a microphone" popped up here. So it's very easy for me to see that same request that I just filled in. And I can actually have a conversation quickly back with the employee and saying, why do you need to buy this or you can go ahead and actually make my day real simple and go ahead and accept. And bam, took out gone through approval, -- now you might notice no one in procurement was involved at this point. Nice way to take all that work of procurement, didn't have to call my buddy, they didn't have things to make things complicated. In fact, now is a procurement person, as you can see here, I go into procurement workspace. I'm a procurement professional. I've got one-stop place just like employee center with employees. I've got procurement workspace for procurement. And I do all my procurement activities, as you can see here, I've got an overview of my tasks, et cetera. You're going to see in there, one thing that popped up was that purchase request that just popped up. So during my regular task and to go through my list, I see that request that I just made, and you're going to see I could go ahead and view just like the manager have conversations, maybe clarify some information. But since that was all done through a drop box, it was from the employee probably already done, so I can actually create a purchase order right from here. So overlying the system -- in fact, we're probably already talking to [indiscernible] peer, our system are running, so it's very easy for us to have a [indiscernible] direct conversation go ahead, create the purchase order. So that goes into the system and starts working with your suppliers to fulfill the PO, et cetera. Now reversing back to the buyer, when I bought the microphone, a lot of times these things disappear and I have no idea what the status is. Nice thing is Employee Center is very easy for me to either chat with a virtual agent or look at my request. And I can see here what is the status of request? And I'll see it move to the system, just like Amazon and even at the end, saying, "Yes, I got it, we're good. [indiscernible] looks good and then close it out, all without involving procurement. So that was a pretty simple example of procurement. You might be asking yourselves, well, that was a catalog by -- that's fairly straightforward. But what if its not in the catalog, what if it's something brand new on a defined supplier. Well, let me give you a preview of what that process looks like. And again, you can see here pretty complicated. One of the biggest more complicated thing is when you start getting in a servicing you're getting other teams from legal, from finance, from ESG group, from your GRC to look at risk, lots of different folks intended to get involved. Let's take a look and see what that looks like. So similarly before -- if I was buying something that wasn't in the catalog, I start with the same place or the same virtual agent and basically saying, I need something new and it's going to route me into, I need a service or a brand new product, basically ask me several questions the procurement organization needs. They start sourcing for this, you can see there, what do you need to buy, what are the requirements? Have you worked with a supplier already, et cetera. I can also customize that, but I fill all the information, and that moves on to procurement just like the other request. If I turn around into the procurement side, just like I saw the catalog request, I'll see this as a new sourcing request. And then I can start actually from here, do workflow automation to kick off all the teams and all the activities need to go into contracting RFI, qualifying an onboarding supplier here and clicking on begin qualification. And it turns out we will automatically start creating multiple workflows in the background. You can see some exact in the background here. Some good examples of things that are run in parallel is I will get legal involved for working with the NDAs, contract reviews, I'll get a finance review for financial review as the whole workflow there. So people are working on parallel. I'll get the supplier team, supplier managers to do supplier onboarding and vetting. And then for a lot of organizations, we want to bring our risk modules in so were onboarding suppliers, reviewing risk and ESG requirements, all automatically done in the same platform. And just to click through double click, that onboarding process, each one of these playbooks has their own process. You can see on the onboarding, we go through all the processes. We can even pull automatic data from our information intelligence providers on the supply chains about where the suppliers are, what their financial reviews or look like, et cetera, as part of the overall process. And then this now what you're looking forward is the supplier point of view. We have a supplier collaboration portal, which is, again, they're one-stop for everything, all conversations with their vendor so they can ask those questions about what's my banking information? Do I have a certificate of insurance, can I answer the questions from my ESG risk review, all inside of the portal, so all my teams are working in parallel. Now you've seen all that and you're probably asking yourself, you know what I mean, that was great, but I'm a little bit different. In fact, I actually estimate that probably about 98% of you are going to want to customize here in process -- so what I have shown here is actually from a platform perspective, all of this can be done from the platform in a low-code no-code environment. And so what you're actually seeing is that onboarding process I just showed you how easy it is to move around and change that process dynamically for yourselves to make things as complex or as simple as dynamic as you want to. Okay. So at this point, let me take a look here and take a look and see if we have questions for the GENUINE group, give me one second to take a review here. Okay. Let me ask, there's a couple of questions here. Let me abstract them. It looks like folks who currently have an SAP Ariba or they might have a Coupa, would I need to replace it? How would I work with ServiceNow environment. Kirsten, do you want to take this one?

Yes. So again, no, you do not need to replace any of these systems. These systems are again, doing the work in their own right. And are perfectly fine and functional. What you would do is take the ServiceNow solution, our workflows to layer on top of the system. And what we see customers do is often start in layering on top of the system often start, for example, with workflow management in terms of being able to do all this case management, everything that the transactional system will not provide you because usually transaction assistants have workflows that are restricted to basically approvals but not workflows that really run horizontal across teams and across departments. And so what we do see customers do is the typical architect customer right now is to layer the workflow on top of the existing systems that they have, let the transactions continue to run through those systems and simplify the intake process for requests, particularly off catalog type requests that are a bit more complicated and require an upfront collaboration between different teams and departments before they ever result in a transaction as well as the case management, all of the noise that I was alluding to earlier, I didn't get my stuff. How do I go about X, Y and Z? Why did I not get paid? All of those issues that are not easily resolved within the context of a transactional system. That's what customers are running through our workflows mainly at this point in time. And it's a complementary approach between the systems. There's some integration, of course there's always education in software projects, but it's limited. There's not a whole lot that needs to be done there. It is truly a complementary approach by leveraging the transactional systems and then enriching them with the case management capabilities and automation capabilities and surfacing knowledge to users, et cetera, and providing a unified user experience, particularly if you're already using, for example, Employee Center and some of the employee workflow capabilities. So no one need to replace. It's a complementary approach.

Okay. Great. Thanks, Kirsten. I'm looking at time, we only have time for one more question. I'm going to use this because it's also a good transition here. And Kirsten, I'll try and take this one. The question is what is the likely cost of the solution -- is it per license or enterprise? How long does it take to implement? And what are the implication costs? Overall costs, I'm not a sales guy, trying to avoid that. So I will just give you more of a general. Our pricing model is around the user more on the fulfiller side, it's more like the strong power users and allowing low cost no cost for the general users, so you get many people on the platform. And I will defer that to an actual salesperson to give you a specific information. Now how long does it take to implement and implements cost? There's 2 interesting examples there. One is we're looking at the overall implementation of our early customers to surprisingly fast implementation. So we're seeing implementation times around 12 weeks so far. I think maybe part of that is being an overlay model to existing systems makes it a little bit simpler than easy to deploy. I did see an interesting example of a customer who is middle of an ERP transformation and they were in over a year long product or project trying to automate procurement with their ERP, bringing consultants in, and they just couldn't do it. Their users weren't happy and there were data issues, and we were able to come in -- and I think we did that implementation in somewhere between 8 and 12 weeks. So there's a relatively fast implementation. Now it also depends on what you're trying to do with it because like Kirsten mentioned, when you have the customer who has 400 workflows for working with suppliers, the question becomes, should you have 400 workflows for the suppliers. So there are some customers who want to take a chance and work with some of our system integrators and look at their process and seeing like what really should our supplier process or a workflow process look like and rationalize it. So it's kind of up to and how much you want to do this as part of your transformation. But in general, we're seeing about 12 weeks, which is a good transition into the next asset. So you'll take a look at your downloads, you'll be able to see these assets afterwards. But we have something called the value calculator online and we tried to make this as approachable as possible. I'll ask you 4 simple questions about your organization that are key to figure out what the value is. And from that, we'll give you actually a very detailed report about 5 different value areas that you can get your ROI. So that question, I think David had asked, this is a great way for you to go into the value calculator. Take a look there and see where your ROI is. Take a look at that as a great resource -- all our webinars are online. Again, I talked about the fact this is the platform. We have a whole bunch of webinars around the platform, if you want to start looking at that. Again, I mentioned this interface with things like Employee Center, their virtual agents. Those are things we use in other part of the products as well. There are webinars, as well as dedicated for our finance and supply chain areas. So kind of ton of places to get resources. There is a very exciting event coming up in a couple of weeks, and that's Knowledge 2023. I will be there. We're having this in Las Vegas. If you're going to be there, come by, say hi to me, I love to have a chat with you but come to Knowledge and you can see all your experts there. It's going to be a great environment as well so it will be a very exciting place to go. And then finally, if you are existing product, we have our latest release called Utah, which includes some new features from our product lines we talked about today. There is a webcast that we recently did to talk about those releases. So those are some examples of resources that you can see after this event. I really want to say, Kirsten, thank you for your expertise. It's been a pleasure here. I look forward to speaking to you guys, hopefully, at Knowledge 2023. If you have other questions, feel free to send our way. And I will wish you a good day.