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

Great. I think we're live. Great, awesome. Welcome, everybody. I'm delighted to be welcoming ServiceNow to the conference. We're very fortunate to have CFO Gina Mastantuono. Thank you, Gina, for joining us, looking forward to the discussion.

Thank you, Brad. Happy to be here.

Thank you. And I've got some questions we'll go through and I look forward to the discussion. Thanks for coming, Gina.

Perfect. Likewise. Thank you.

So coming off of a nice Q1, why don't we start there, if you could? If -- is there anything you want to highlight, key points from the earnings call? What's the investor feedback been since?

Yes, really, really great results in Q1, 27% revenue growth in constant currency, 25% cRPO growth, with 26% margin, so really pleased; and all above the guidance pretty significantly, so felt really good about coming out of the year -- coming out of the gate and the year strong. What I'd say is that our demand remains resilient and durable. We've talked about pipeline metrics being strong. They're at probably the strongest point that we've seen in a few quarters now, so we feel good about that. From a demand perspective, we just came out of our big Knowledge events a few weeks back. And we had fantastic attendance, really strong decision-makers from customers with strong open pipe, so from an overarching perspective, demand remains strong. Q1, we saw continued 98% renewal rates, really healthy expansion rates. Our customers over $1 million continues to grow. We continue to land bigger, new deals. Our new logo ACV growth remained strong, so really from top to bottom, it was a solid quarter that we were really pleased with, especially given the current continued macro uncertainty. And so from that perspective, strong across the board.

Great, great. And why don't we switch to Knowledge? You mentioned the conference, some exciting product announcement. I want to get to AI, of course, but before I do: There were some other non-AI-related product announcements that were pretty exciting, so I wanted to ask you anything you'd want to highlight there that you're excited about.

Yes. We're really excited about our ERP workflows and specifically our procurement operations and supplier life cycle. So newly launched but getting pretty remarkable traction across the board and really strong interest from our customer base as well as the partner ecosystem. And if you think about the amount of money that's spent on ERP, it's a pretty interesting market for us to be in. And where we're focused is about innovating around the core, so we're not looking to rip out -- no one is looking to rip out ERPs, but how can we help our customers continue to drive even more value out of the investments that they've made in these big legacy ERP systems? And so if you think about also what's been happening in the marketplace over the past couple of years with supply chain dislocation, all things climate and ESG; scope 3 emissions, which is supply chain -- emissions from your supply chain, are most companies' biggest emissions issues and so the focus on this space right now is greater than ever. And it's complete white space and very messy and very manual, so how can the platform continue to innovate and help our customers really focus on procurement and supply chain, I think, is a really interesting, new vector for us; and certainly one where we're seeing really strong traction, really great interest. And in fact, our deployments are pretty quick, so customers are able to get to value very quickly. We had a big Q1 [ $1 million ] deal with a computer hardware company that we're excited about. And so that's probably another one area of great interest across the ecosystem outside of AI.

Great. And with that transition, why don't we get into AI? When I think of ServiceNow, I really think of the company ahead of the curve here on AI, some interesting product demos at Knowledge, at the Analyst Day. So if you could touch on the offering that was demoed and where you see the opportunity, [ please ].

Yes. So thank you for your commentary because we have been investing in AI and machine learning for years. So this is not ServiceNow jumping on the bandwagon of what's interesting today. It's an area that we have been innovating in for years. In fact, our acquisition of Element AI back in 2020, we brought in some of the best AI and machine learning minds in the world into ServiceNow. And so this has been an area of investment for us for years, and we've been able to monetize that successfully as well. And so as we think about how we continue to add AI capabilities and the demos that we showed back at Investor Day and Knowledge: It wasn't a demo that was spun up in a couple days to kind of demonstrate what could be. It was actually demos of products that we've been working with customers to build over the last several months -- and really, really excited. And how we think about it is -- and I don't know if anyone saw that demo, but it was a coffee company. And the demo was I placed my order at the wrong Starbucks and so now I want to fix it. I want to get my order at the right Starbucks and I want to get a refund. And so it was super interesting because you're able to pull from AI outside of ServiceNow to find out, okay, what's actually the nearest location to where I'm currently at, but then it's able to use our internal large language models and our internal AI to work through the process of getting the refund, changing the order and putting it in the right space. So I think it's a good example of how we're thinking about AI in that it's not one way, but how do we utilize kind of the AI that we've built internally into the platform and how we're enabling our customers to utilize AI to drive more value out of the data that's in the system, in their system? It's not about co-mingling data -- but at the same time also connecting in a way that you're able to potentially utilize some of the external AI databases as well.

Excellent, excellent. And as you know, there's a debate across software as to how AI could be additive versus deflationary. CJ Desai, at the conference, talked about a similar debate underway when you launched ITSM Pro. And he used that example because his point was that the p times q for customers that adopted ITSM Pro was 2x what it was prior, so you got more price. You got more quantity, so curious to get your perspective on where you think this -- how you think this is going to unfold with regard to these new offerings. And how can we get better p and q?

Well, as a CFO, you would imagine, I'm pretty data-driven and evidence-based in how I think about things. And so the great thing is, as I said earlier, we've been investing and monetizing AI for years with our pro SKUs. So we launched our ITSM Pro SKU back in 2018. And here are some data points for you: So we are currently at 40% penetration in our customer base. And we got to 40% much faster than we had initially thought we would. We continue to see 25% price uplifts within the customer base, and that's 4 years after launch, so -- and we're currently seeing 60% of our new customers landing with that pro SKU, so the value that they're getting is clearly demonstrated in the increased pricing and the fact that we continue to drive penetration. And so we had the same debate back in 2018. Okay, yes, you might be able to get more pricing, but are you going to see the seat compression? And we actually saw the complete opposite. So our growth trajectory #1 driver is actually seat expansion and has been and continues to be even subsequent to 2018. And you ask, why is that? If it's really driving the productivity and efficiency that they're seeing. And the reason for that is that most customers land in one part of the business. And they see the value, productivity and efficiency; and then they expand more broadly. And in fact, even in many of our customers that are downsizing head count right now, we're actually seeing seat count expansion because of the productivity and efficiency. And so we've run the models, and again evidence-based and data-driven based upon what we've seen already and the ability to monetize, that generative AI, if you compare that to current form of AI, is likely to drive significantly incremental value. And so we've been able to continue to drive pricing with the uplifts with value while at the same time really drive incremental seat count as well. So we believe that p and q will both increase, which really drives significant tailwind to our business, but that being said, if there was a different dynamic than what we've seen in the past and did see some seat compression, we think we'd be able to drive p to offset, more than offset. But then if we need to rethink pricing models usage-based or something different, it's things that we do already and it's something that we would absolutely look at. What we've been able to clearly see from our customers is that they're willing to pay more for value. And so the more value we create and drive, the more tailwinds we see to the overarching business.

Wonderful, wonderful. And when you think about just the monetization opportunity, do you think of AI as kind of core to the offerings, embedded into the offerings and delivering more value there? Or do you think of them as separate SKUs? I imagine it's a combination of both.

It is.

And you're not -- you haven't announced pricing yet for these new products. They're still in beta, but I'm just curious to get your perspective on that.

I think you'll see us continue to do what we've always done. And one of the great things about the ServiceNow platform and the model is our single database, single architecture such that, when we're innovating on the platform, that value is integrated within the platform throughout all of our product portfolio, so you'll continue to see us innovate with AI within the platform itself. And then as we enhance the capabilities in our pro or premium SKUs, you get even more incremental pricing there. And so I would say it's a strategy that will continue to be the same in that we'll build it into the platform as well as be able to drive incremental premium SKUs. We'll continue to do the same.

Wonderful, great. And why don't we shift gears to Employee and Customer Workflows, big market opportunities? Still early, in my opinion; I'm sure, yours as well. When I think about the market you're going after there, I think of it as custom apps. A lot -- there's a lot of legacy apps that are -- have not been modernized for workflow. And it's the second largest market in applications, so a big TAM here. Is that a fair way to kind of assess how -- the market opportunity you're addressing? How do you think about the TAM for Customer and Employee Workflow?

That's exactly how we think about it. And yes, the total addressable market for Customer is probably the largest that we have; and Employee is not far behind. And you're absolutely right. As you think about custom applications and the messy middle, in most organizations and in most industries, it's ripe for innovation and plays very well into the platform capabilities. And so you've seen some of that in our industry SKUs which are "out of the box" functionality for specific industries, TMT, financial services. And you've -- we've seen real success in those places and not only with penetration in the industry base but also with pricing. So we're able to garner higher pricing because of the value add. So that's one piece. Specific, if I want to talk Employee and Customer: Employee, we're able to sit on top of any HCM system and make it more productive, right, really help employees action across the enterprise anything that they need. And even in a period of time where some folks are downsizing employees, the employee experience remains as important as ever, as well as employee productivity. And so we see continued upside as we think about Employee Workflows. Customer Workflows. We are unique in our ability to differentiate by really driving end-to-end resolution from when a ticket is created to being resolved. And we can do that all in one system, so the customer service reps are not having to go to this system and this system, so they can really spend time focusing more broadly on the customer problem. And that absolutely is probably the largest TAM that we have out there and so continues to do extremely well. And what it -- what we're also seeing is, in a time where people are really focused on costs, Customer is driving even more value because it's, again, a ton of messy middle with a lot of cost. And so how do they drive more productivity and efficiency? We're seeing some really strong wins there as well.

Great. And at the Analyst Day, you all talked about some changes in go-to-market, more of a focus on the large customer base and selling into that base. Can you comment a bit more on that effort and that focus on some of those largest customers and the expansion opportunity, [ please ]?

Yes. So we've basically identified our kind of marquee accounts, over 200 big accounts that have the largest opportunity to continue to expand with us. And how do we enable that expansion and ease the complexity of continuing to grow with us? We talked about, in those 200-plus customers, the current ACV for them is around $3 billion. And if we just think about our current product portfolio -- so we didn't innovate and bring out any new products. And if you just talked about real-world pricing, so not list price but real-world pricing; and their employee count, that 3 million (sic) [ $3 billion ] has the ability to grow to over $20 billion. And so clearly that's got to be a huge focus for us, and is. And while we talked about it for the first time at length at Investor Day, it certainly has been a focus for us for quite a while; and so we've really elevated the go-to-market motion at the C-suite. Historically we started out, within IT, a couple levels below the CIO. The conversations have more broadly expanded to the C-suite, CIO, the COO, the CFO even, right, Chief Legal Officer. And the conversations are becoming more strategic than ever, and why is that? A lot of that has to do with the innovation that we've built within the platform, so we're not only selling to the CIO and the CIO persona now. Our product suite really crosses the enterprise holistically. And so those conversations are much more strategic, are much more elevated. And you're absolutely seeing a trend of platform consolidation here, and ServiceNow continues to be top of mind. And so if we think about the opportunity with those marquee largest accounts, the opportunity is huge; and where we've been really focused on really strengthening those relationships, really understanding what those customers need and how the ServiceNow platform can really help drive not only business model innovation for them but also increased productivity, efficiencies and cost savings, which is what everyone is talking about right now.

Absolutely. And when you think about that expansion opportunity, I -- it feels to me like AI could actually enable more rapid deployment. You can apply the AI lens to your own no-code, low-code capabilities such that you can start to get out more Customer and Employee Workflow.

Absolutely.

Is that -- I mean I think CJ talked about 4- to 12-week deployment cycles. Could that go to 1 week, a day, over time, with AI? Or...

I think it's too early to call it a week, but I think there's a ton of opportunity. He showed an example of literally like text to coding and the ability to have AI right -- ServiceNow code right in. What does that mean for our Creator Workflows? Well, the ability for more developers to be able to code and develop on ServiceNow, I think, is a real interesting broad application of AI. If you think about we -- a year ago, we were talking about, "Gina, your growth trajectory looks great, but we keep hearing about talent shortages in the ecosystem; and the talent shortage that is coming in the next 2, 3, 5 years." We're not talking about that anymore, right? We're talking about, "Are seats going down? No." I think the ability for AI to bring more people into the ServiceNow ecosystem and to democratize coding and digital careers. We announced last year our RiseUp program, which is our program to train over 1 million folks on the ServiceNow platform in -- by 2024. And that's not to say we're going to hire 1 million people, but it's to say, with our customers, with our partners, how do we expand the breadth of knowledge of ServiceNow in the ecosystem. That's how we're going to help make sure that we continue on our trajectory for growth, so I think AI has a lot of interesting ways of rearing its head to help drive growth for us.

Absolutely. No, that's exciting. And since you touched on it: The SI channel, I know, has been an increased focus under Bill's leadership, yes. It'd be helpful, I think, if you, we could -- if you could provide a little bit of color as to how deep are those partnerships. You've talked about $1 billion-plus pipelines at some of these global SIs. That's a big number. I know that's service. It's not software, but how are those partnerships going? Are there -- are we at the point now where they are productive enough that we should start to see potentially more conversion of that pipeline?

Yes. I mean our partner ecosystem remains crucially important to us and has been. And yes, under Bill, there's been a real focus there. And all of the large SIs have committed to $1 billion and sometimes $2 billion businesses with us. And I know you all do your channel checks, so I know that you know that ServiceNow in many cases is one of the fastest-growing practices in these SI partners. So the partnerships are going really well. And absolutely, as you think about -- we talked at Analyst Day not only about the marquee but also about new logos. And I've talked over the last couple of quarters that new logo ACV continues to remain robust. And that's kind of counterintuitive sometimes in a difficult macro because it's usually much easier to sell into existing customers, and I think what you're seeing is partners being really an integral part of that process as well. So a couple of key tidbits there to demonstrate the value that we find in our partners and also, I think, the value that those partners are finding with their ServiceNow practices.

And how big a role does Creator play in that? I think to me it feels like they could play with Creator. They could develop some solutions that could be ultimately packaged in multiple engagements. Is that fair?

Absolutely. It's definitely part of the equation, for sure.

Yes, okay, great. And why don't we shift gears to ITSM Pro? I think it's at 40% penetration last I saw. And I think on new deals it's generating about 60%, so a nice ramp there. What's driving that? Are there any milestones you think about? Could this ultimately be at 80%? And then you -- the next look is towards enterprise edition, and then that becomes the next premium SKU.

Right, yes. So we've historically talked about enterprise getting to 50 to -- sorry, pro getting to 50% to 55% penetration; and then enterprise getting to 20%, 25%. So we can see kind of our total premium SKUs getting upwards of 75% of the -- of penetration. I don't -- I haven't given a time frame for that. Generative AI could shift that slightly. I think that's interesting, where that could potentially go, but regardless, I think the reason for the attraction of these premium SKUs is all about the incremental value. It's about the incremental productivity and efficiency that's being driven in the platform by the incremental capabilities, so we feel confident that there's only upwards to go from kind of those numbers.

That's great, awesome. And CJ talked about the opportunity for observability coming into view, some interesting new release coming in the summer, where I think you'll have logs integrated with metrics and traces, Lightstep. We're hearing some very positive feedback on that already, so it seems like the channel is already gearing up for a nice cycle here, so just curious for your perspective on where is the opportunity for ServiceNow in observability. How big of a deal is this, to have this integration with logs? Now you have logs, metrics and traces. And where do you see the opportunity?

Yes. So Lightstep was born in cloud-native environments, right, more modern architecture, so kind of where the puck is going, not where it's been, which is one of the reasons why we were so attracted to that asset when we bought them. They have metrics and tracing but not logging, right? And so Era acquisition that we just made last year brings the full telemetry under one roof, which gives us more of a competitive edge, right, because now there is the potential of displacement. And we've actually had a couple of interesting big wins that we've talked about with -- one that comes to mind is a big digital fintech that obviously processes tons of transactions, all on modern architecture. And we're going to be their sole provider for observability. That being said, many, many organizations are slowly morphing parts of their business to modern architecture, so in many cases, we're also [ an and ], right? And the ability of Lightstep to scale in these modern architectures much more efficiently drives better costing for customers, and so we're seeing a lot of interest in the customers who know the ServiceNow platform and love the fact that it can all be combined. So you have the monitoring and the alerts, but now it's combined with ServiceNow workflow system of action to do something about it. It's quite natural adjacency. So super excited. Logging will be fully integrated into the platform in the release late summer, so really excited about that.

Yes, that's great. That's exciting. Why don't we shift to industry solutions? I think you've talked about 30% to 40% uplift from those solutions. If you could elaborate on which ones you're seeing the progress in. Where is the effort on the R&D side? And where do you see that heading?

Yes. So I gave specific kind of uplift pricing for 2 specific -- so financial services continues to do really well, good traction within the global big banks as well as within our customer base and seeing really strong pricing uplifts; and that's all about the value add. And it goes back to the conversation we talked about earlier. Like how are we getting rid of the messy-middle homegrown systems that are super manual, super complex; and making them a bit more modern and easier to use from a customer perspective and an employee perspective? Our TMT products, also seeing really strong traction and great uplifts. These are both like 30% to 40% pricing uplifts and that's all about the value created. Our biggest deal, industry deal, in Q1 was in health care and life sciences. So that's another area where we've continued to focus. And then we just recently launched public sector; and so very early days but getting strong interest, especially right now from state and local, which has been fantastic. And so our industry strategy in verticalization is definitely a big part of how we think about growth in the future.

That's great. It's exciting. Okay, I mean, there's verticalization at the product level and there's go-to-market. It sounds simple, but you need that domain expertise speak the language of these end markets, especially at the CIO level and in the lines of business, so is there an effort here on go-to-market that we will see going forward where you hire those industry...

We've already been doing that, right, so you're exactly right. We actually hired a lot of the go-to-market, kind of even before we launched, to make sure that we're building the product that makes sense and that the customers really need and want. And so if you think about financial services and you think about TMT, health care -- public sector has always been a go-to-market well, well before we built the product. And so you'll continue to see more industry verticalization in go-to-market, but it's not new. It's something that we've been doing already for years.

Great. CJ touched on this at the Analyst Day and it absolutely resonates with us, is that ServiceNow is a true platform. It's an extensible platform at its core, with organic innovation on top of it. And you've expanded into these other adjacencies through just organic innovation, yes.

Yes.

Could you elaborate a bit on what are those core components of the platform? This obviously goes back to the Fred Luddy days. And I know he's still involved, but where did the company start with the platform? Where is it today? And why is that important, especially as you -- we think about AI? I feel like, platform companies like yourself, it's a lot easier to execute on data-driven products when you have the data in one place, yes.

Absolutely, absolutely. So I love that you brought Fred Luddy up because he is -- first of all, he is just a remarkable human being. He's fantastic, but he'll tell you, if you talk to him, his vision when he built the ServiceNow platform was a platform. But no one understood what that meant back then, right? And so the customers were intrigued, but they were like, "I don't know what you're talking about when you're talking about platform. Come back to me with use cases," right? And he was a developer, so his first use cases were in IT, which is actually how ServiceNow was born, but he'll go back and say the whole vision was how do you make work more accessible and easier across the enterprise. And so that's how he's always built. And that's how the company has always kind of built innovation into that same platform. It's one of the reasons why we've been able to drive such best-in-class margins, because the ability to innovate is pretty unique because all the innovation is built into the platform regardless of the product. So when you talk about specifically AI. You're innovating once and you're not trying to build that into different technologies. You're not trying to learn, "Well, how do I do it in this technology versus that?" And so the inherent leverage from an R&D perspective has enabled us to reinvest that leverage and those dollars into more innovation. We have 11 products all organically grown, with more than $200 million in ACV already and continuing to grow. And that innovation all comes from the ability and Fred's vision of being a platform. And so that ability to build capabilities into the entirety of the product portfolio with one set of innovation is pretty remarkable. CJ talked about building the risk product with 14 engineers in India. That product is $250 million in ACV today, right? And so that couldn't happen if it wasn't a platform. And as you think about customers and what customers are looking for right now, it's connected enterprise across. They're focusing on 4 or 5 key platforms; and ServiceNow, more often than not, is in that top 4 or 5. And so I think that's pretty telling of the power of being a platform; and why we believe and why we felt strongly about the growth targets that we put out there, the margin targets that we continue to accrete and the leverage that's inherent in the power of the platform.

Right, that's great, yes. And I know R&D is a key source of leverage longer term. You highlighted that at the Analyst Day, beyond that 28% target. Where are the investments? Obviously AI is a big opportunity. You need to continue to invest in the platform. How are you balancing the need for more innovation with that leverage that you're expecting to get out of R&D?

It's a great question. I got a question earlier today. I don't know if the person is in the room. Like what's the biggest debate at ServiceNow right now? And I'd say it's the same debate that we continue to have. And it's prioritization for opportunities because we are in a position where there is so much opportunity in front of us. And so the ability to really think through -- and I think we've done a really strong job of being really disciplined from not only a top line perspective but a bottom line perspective and really thinking about how do you reinvest leverage but making sure that you're getting the leverage that you expected so that you're able to continue to innovate. And so think about AI, machine learning obviously being primary. Think about the ERP workflows that I talked about earlier. We are just at the early stages of what we think is a really large opportunity, so you'll continue to see us innovate there, but it's not only about investment on the platform and in R&D but if you think about markets that are underpenetrated. I'm thinking Japan. I'm thinking India. How do we make sure that we have the right go-to-market? And really investing in the right places not only from an R&D perspective but also a go-to-market perspective. And so as you can imagine, there is healthy debate. The great thing is that the executive committee is pretty much aligned on the North Star and where we're headed.

Yes. That's great. And you outlined at the Analyst Day focus on repurchases, share repurchases; managing less than a 1.5-point annual dilution; stock-based comp coming down to below 15% over time, so curious if you could just elaborate on the program and how you're thinking about managing stock-based comp and getting -- generating leverage going forward.

Yes. 2 questions, so I'll talk about the buyback and capital allocation, first. We've always been focused -- I think most of our investors would agree that we've been extremely focused on driving exceptional shareholder value. And we've done that, I would say, in 3 primary ways: so first and foremost, that beautiful organic innovation that we've been talking about; secondly, strategic tuck-in M&A and adding capabilities, Element AI acquisition I talked about earlier being one example; and the third, management philosophy. What do I mean by that? Well, we've been always focused on a really strong balance of growth and profitability, which I think has really helped deliver exceptional shareholder value. And so Q1, our cash balance exceeded $7 billion for the first time. Thinking about what's going in the marketplace felt like the right time to add a fourth lever in capital allocation with the buybacks and so $1.5 billion really to manage employee dilution. As you know, stock-based comp has been a huge area of focus. We've been focused on bringing dilution down for years. I think our dilution was upwards of 4.5% 4 or 5 years ago, down to 1.5% now. And so we've always been focused on managing dilution. I think we've done a really remarkable job despite a very competitive talent landscape that we have found ourselves in, in the last 2 to 3 years. And so the buyback enables another lever to help drive strong shareholder returns, but to your second question, on philosophy on stock-based compensation: We still remain very focused and believe in equity compensation for our employees. Our compensation philosophy and strategy is not changing, but you're seeing stock-based comp as a percentage of revenue coming down really as a result of the leverage in the business model. As well as, we scale, the pace of hiring scales, right, and -- or slows. And so that enables some nice leverage in the stock-based compensation metrics.

Great. And as part of the Analyst Day, you lowered the targets for fiscal '24 revenue, $10.4 billion from $11 billion, FX and macro related. Could you help us unpack those two a little bit? I think we do get this question. How much was currency? How much was macro? And what was the macro impact on the business? How did it manifest?

Yes. So specific to the 2024 number, we saw upwards -- FX has moved around very significantly over the last year. And at its top, we talked about $550 million was just coming out of the top line purely as a result of the change in FX. That's bounced back a bit but remains pretty significant headwind. That being said, we've also seen and we've talked about the fact that we have absolutely seen elongated deal cycles since the middle of last year. And so revenue is a -- is not a forward-looking metric, and so the macro that we've seen both last year and this year will obviously impact 2024 revenue. And so those were the key components of what I think is a pretty strong guide considering the continued uncertainty that we find ourselves in.

Great. Why don't we go back to go-to-market? And I know there's a big focus on expansion deals within the installed base, the larger accounts. I think it's 85% of Global 2000s are customers, yes. What about that other 15%? Obviously there are laggards. They're probably not customers for a reason. They're harder to close, but where is the effort there? I mean, can you close that gap, do you think, over time?

I think so. I do. We talked about 85% of our net new comes from existing customers, so that means 15% is new. So we continue to always see growth in new logo. What we have really shifted our focus on over the past several years is making sure that we're focused on the right new logos. So the larger ones, for sure, but also some of the mid-market. So we've focused on customers with 1,000 or more employees, $100 million in revenue or greater. That doesn't mean we won't go into customers that are smaller, but our focus is kind of on that commercial sized and bigger. And there's a lot of white space still out there. And what we're seeing right now is the focus on new logos, making sure it's the right new logo and then really thinking about compensation structures for new logos because those no -- those new logos today are the big enterprises of tomorrow. And so making sure that we're continuing to seed our future growth with new logos remains really important. And so a couple of things that we've done. We've started hiring folks that are 100% dedicated to hunters, right, going after those new logos; targeted marketing programs towards new logos; really thinking about compensation and incentive programs that incents our sales force to do the harder work of going after new logos because, let's face it, it's easier to sell into an installed base that knows and sees the value that we've continued to provide. And so I think all of these kind of tweaks to how we think about new logos has really helped drive some of those growth numbers in ACV that we talked about. So we're landing new logos with more new products and the initial ACV lands have been bigger. And actually, last year, at Investor Day, we actually showed investor cohorts from like 7 years ago and 3 years ago. And you can very clearly see that we're landing bigger to start with and we're getting larger faster. So they're deploying faster. They're getting quicker time to value and they're upselling more quickly. Now a lot of that has to do with the fact that our product portfolio is more robust today than it was 7 years ago, but I think it's also testament to the power of the value that our customers are seeing in the platform and the products that they're implementing.

Sure. And how do you move that along for customers, these larger customers? There's -- I assume there's a customer success organization that's involved. Is that an emphasis? And -- yes.

There is, yes. There has been. And well -- and then we have our impact SKU. So our impact SKU is a product that enables a company to see their deployment in action and to see when things are coming online and to see the value generated. On top of that, it's some success architects, depending on which SKU they buy, success architects to help them get to value much more quickly. And so that's been a keen area of focus for us. We launched that a year ago and have seen great uptick in the market.

Wonderful, great. Well, last one, maybe we could go back to verticals and the public sector vertical. I think it eclipsed $1 billion of ACV. You talked about some of the strength earlier. Why has public sector been the one that has achieved that scale as soon as it has? Maybe you can unpack state, local versus federal. What's been driving that? And then which is the next up-and-coming vertical that could actually eclipse that level as well?

Yes. So we've had tremendous success with federal. The $1 billion is public sector in totality, but federal is a large portion of that. It's an area that we invested in pretty early on, and so the team has built out. It's really robust. And I think what you've been seeing, especially over the last 3 years, is the federal government, state and local as well as public sector outside the U.S. super focused on digitizing their manual processes. I think COVID caught a lot of these agencies well off guard. And so the mandate has been really, really clear, that they've got to transform and they've got to drive resiliency into their processes and into their systems. And ServiceNow has been really well positioned to help them do that. Oftentimes, we only heard us talk about federal; in Q3, which is the big quarter for federal business, but it was one of our lead industries in Q4. I mentioned it again in Q1 because the demand remains really robust; and the focus on digitization at federal, state and local and now more broadly public. So we haven't really invested nearly as much outside the U.S., which is a huge area of focus for us in '23, '24 and beyond. We actually just hired Dr. Raj Iyer to lead our global public sector. He was most recently the CIO of the U.S. Army and is extremely well regarded as being a key driver of the incredible transformation digitally that happened at U.S. Army. So he is just finishing his first 90 days. And he's been to all of the key public sector markets around the globe and is more excited and more pumped up about the opportunity than ever before. That's another that's going to be coming for investment dollars, but I think the opportunity remains really robust. And pipeline across the board for federal and public sector remains strong.

That's great. And then the next vertical that could get to that level, do you think...

Goodness. I haven't talked about that. I think right now, if you look at the -- where we are today, our telco is pretty great. Financial services, I think it's a bit longer but probably has even more wind long term.

Sure, sure. Gina, this was great. Thank you so much for joining us. Great discussion.

Thank you. Thanks for having me back.

Great to see you.