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

Thank you all for coming. This is a huge treat for me. We're just delighted to have Bill McDermott, the Chairman and CEO of ServiceNow, joining us for a fireside chat. We'll go 40, 45 minutes, something like that. Thank you so much for coming, Bill.

Thank you for having me.

It's a real treat. I was trying to get Bill to come to this for so long. And this time, he sent me an e-mail. And he said, I would be honored to speak at your conference.

Thank you and I am. It's great to see you...

Fantastic. When did this book come out?

2013.

So I was reading it to -- just parts of it, like plenty parts of it to my wife and daughter who were home last night. And then this morning, when we were prepping for this meeting, I made all the associates come into my office. And I made -- who was reading -- was it Nick? Nick had to read it out loud. So I'm going to just share a little story with you, and I'll try to do it reasonably quick. So what year is this like? '83, something like that when you're at Xerox?

Yes, I got -- this was 1984, the story.

Yes. And your territory was from like 57th to 59th and then from like Park to Madison?

To Fifth Avenue.

It's four square blocks, and that's your territory. And it was a long time ago, but you're selling electric typewriters and what else?

Copy machines and facsimiles and some laser printers.

Yes. And Bill is new at this, right? He's the new guy. And you're with this guy, Bob, right? And Bob is like a year older than you. So you're like...

He's a lot older. Yes. Yes. A lot older than me. I was the junior apprentice learning from Bob.

Okay. And you got -- when they go to the buildings, if there's no elevator, they got to lug the typewriter-- I can't take a copy machine...

I got the copier on my back in a backpack. I got an electronic typewriter in my hand. And those weighed about 40 pounds, just you know. And then a briefcase with brochures filled to the top and the other one. So I'm like a mule. We couldn't get a cab. So we were working at a 9 West 57th and sometimes you can get a cab, sometimes you can't get a cab at that time. So we couldn't get a cab. And one thing I've learned about a lead, if you don't respond to a lead within the first hour, the probability of you getting the deal drops tremendously. So we respond quickly, couldn't get a cab. It was August, it was hot, and we were walking from 9 West 57th to Madison in like 59th. It might not sound like a lot, but in that kind of heat with that kind of weight. It was brutal.

Brutal.

Okay. Here we go, right. I'll try to do this reasonably quickly. So we go into a building and the elevator opens up in the person's office, right? And so there's a large wood desk, some filing cabinets in the middle of an elegant living space. A professionally dressed woman in a suit and heels walks out from the back room. I'm about to say hello when a cat attacks, leaps off the couch, flies at me and lands on my chest. I feel its claws sink in through my suit and into my skin. This cannot be happening. The lady is staring at me. Bob is staring at me. I'm sure his lips muttered a 4-letter word. And even though an instinct urges me to save the suit and remove the cat, I don't. The second, the animal hits my chest, a stronger instinct tells me, this is it. We have the deal. In that moment, I understand something that Bob does not. This cat is the boss. Bob is sweating. He just wants to unpack the machines and start the demo, but I know what to do next and it has nothing to do with the machines. Even at 22 as a nascent marketing rep in training, I was consumed by what people wanted and how I could give it to them. The intent sales was making sure that I found out what their desires were and making the connection between that and what I had to offer. This was the art I had tried to master. The cat is clinging to me like a tree, but I smile at the woman and I say, Garfield has got nothing on this cat. I'm not angry. I just want those claws out of my skin. So I peel the animal off my body, but I do not let it go. I hold on to it, I pet it. The lady walks over to where I'm standing, the expression on her face and the fact that she lets her pet wander around the office, tells me she loves this animal. Beautiful kitty, I say, what breed is it? Then they talk about cats and dogs and pets. And then at the end, Bob is finally about to do his demo and the lady says, hun, do I really need to see a demo and it's done. She orders one copier and one typewriter, boom. Bob looks at him and says, Bill McDermott, you're either going to be the next CEO of Xerox or you're going to jail.

What lessons from that story applied to today, Bill?

Well, I think the whole world needs to get a good dose of EQ. And everything that people plan so carefully for always changes the second you're in front of the customer. And in that moment, it was quite clear that the President and Chief Operating Officer of the corporation was the cat. And the woman in her tremendous Chanel suit was obviously in charge, and she wanted to get connected on a human level. She didn't want demos and all the fuss and fortunately, we were able to come up with that and close that sale. But things really haven't changed much. I think in the long run, people buy from people. And I think more and more, the precious interactions between people are going to matter a lot, including in the AI era.

That's -- yes, we're totally skipping ahead, but let's just talk on that. So is it really going to -- is the human touch and sales and appreciating that someone's cat is really the one who is in charge, is all that stuff still going to matter you think?

I think what we have in our hands here, Pat, is a world where there's so much information and there's so much knowledge and that intellectual capital that comes from knowledge is being quickly commoditized. There's just so much of it. And so the price and performance of information will continue to drop and drop and drop. And what's going to happen now, especially with $2.5 trillion being invested in AI in 2026. And still today, most of the projects in these enterprises are little pet, proof of concepts. And so you say, why is that? Because there's plenty of thinking, but there's a tremendous deficit of acting. And therefore, I think the people that can convey a message, have a platform that drives action and outcomes will outperform the ones that don't. And we've seen this before, by the way. If you think about the dot-com era, there were a lot of market participants. Everybody had the latest and greatest idea on how they were going to rule the world. But in the end, the control plane where the money meets the road was all about Amazon and digital commerce. It was all about Google and the incredible information and advertising that they could drive in those corporations as two examples are still market leaders today. So I think we're now in the action phase of AI, where it's not a proof of concept. It's not just a game where I can push information and summaries at you. Someone's got to be able to put that in a formative way so decisions can be made from it. And I'm sure we'll talk about how we do that versus others.

We'll get there. Okay. So we -- in our -- what we'll do is we'll spend like, I don't know, a good 10, 15 minutes talking about the dot-com meltdown, the transition from on-prem to SaaS, SAP era and then we'll talk about ServiceNow today and ServiceNow in the AI era. And so let's start with Xerox, you're there 17 years, right?

Yes.

Left in 2000? Where do you go next?

Siebel Systems.

Siebel Systems...

Absolutely. And that was the early days of CRM. They were the market leader...

It went from like $1 billion to $2 billion in a year, right?

Yes. Very quick. And I think it was important because I actually -- I had to stop at Gartner Group where it was all about the voice of IT and really understanding the advisory services of technology, but the application of that technology at that time, CRM was in its highly formative phase. Siebel was clearly the market leader. It was an honor to really get my feet wet in enterprise software. And so I've been at this now a little over a quarter of a century, and it's been a blast man. And I'm just getting warmed up.

Are you just getting -- I'm so glad that you signed back up. I was so glad...

Was cool. I talk to people all the time. There was the high school quarterback who was hitting his prime at 18, and then there were some of the corporate types that bottomed out when they got about 40 and tired. I have not even come close to my peak. So not even close. So we're going to let it rip.

I love it. Okay. So Siebel, then SAP and then ServiceNow. So from October 2000 to March 2002, right, the NASDAQ went down 70% as the bubble burst, right? And I remember just looking -- it was right about when I got fired from that in -- my previous employer, right? Every day, everything went down and it didn't stop. And there's a guy named Dan Niles, who is still sort of around. But I remember he went on CNBC, and he had absolutely nailed the downgrade of all the hardware stocks. And I remember Maria Bartiromo asking him, Dan, when can we buy these stocks? And he goes, hey, it was 5 or 6 years on the way up. It's not going to be a month or two on the way down, right? When you look at that period compared to today -- and then you were also there, obviously, for the great financial crisis, another huge downturn. S&P dropped 57%. So talk to us a little bit about what it was like trying to sell software and what the situations were like in those two downturns and how it feels compared to today.

Yes. I think we're in a situation where if you take anything away from that, you know tough times don't last, tough people do and resilient with durable business models always shine through all difficult times. So first, on the dot-com era. I mean, this is when Global Crossings was laying fiber cable under the ocean on the prospect of this unbelievable new world order of things. So it was kind of like buy and invest and worry about whether you have a customer for it later. The financial crisis was different in 2008. I can remember at that time, I was an Executive Board member of SAP running global field operations for the company and losing EUR 1 billion in license revenue in 30 days, just gone. And so this -- always remedies for companies that have durable business...

Again, EUR 1 billion?

EUR 1 billion in pipeline in a month, gone, just gone. And so at that time, you can adjust your business model. That's the beauty of strong, durable software companies that will run on very strong margins. You can do other things with your business model and still pull out a profitable outcome even when revenue is under enormous pressure. And then in 2009, it was a slow recovery. You'll all remember that. And I became CEO in 2010. And what was amazing then the cloud had already formed and enterprise SaaS was already well underway, and we had exactly zero in the cloud. And so the idea then was to have a resilient core ERP nervous system that connected to these best-of-breed clouds and really run a knowledge enterprise powered by an in-memory database. And that worked out pretty well since we quintupled the value of the company and the revenues of the company. And looking at where we're at now with the current environment, it is such a good opportunity. First of all, I've never seen entry points like this. And I think the opinion is already changing, where at first, it was like any time a new language model would release something, it was like, oh, this is a catastrophe for enterprise software. And I love this innovation. And I think it's fantastic. What we have tried to do as a company is always be open to the innovation. So for example, if you remember with the hyperscalers, that was going to be the end of enterprise software, especially in the SaaS category because everybody would do everything through the hyperscaler. And we opened our platform. We're the only one to all 3, AWS, Azure and GCP because we knew these are fabulous companies. These are significant important companies. And so not only do we integrate at a deep engineering level, but we even let the customer retire their revenue commitments to these companies if they want to run ServiceNow in their clouds. No problem. And so today, they do billions in revenue on the back of ServiceNow, and I'm happy for them because it opens up the lanes for us to do more business as a friendly open platform. Today, if you look at the language models, whether it's OpenAI or Anthropic or Bedrock or any of the other ones, we're completely open to these platforms. And here's what's really happening. All of that thinking power is great. But I'll give you the simplest of examples. If you're trying to get your VPN operationalized and for some reason, your IT department tells you, "Hey, man, it's expired. Your license has expired." A large language model can tell you the steps in which you take to get your license renewed or get your network rebooted, but it can't actually do it for you. It's a simple example, but it's representative of thousands more that I can give you. So they do something very important, but not the action of actually doing the work. And so we team up with all of them. For example, OpenAI on natural language, they can make a really big difference on our platform, Anthropic in developing software more quickly, the setup work is done. But we find that because we're so open, the context awareness of 85 billion workflows that are in flight right now in the global economy, almost 7 trillion transactions matter for context, awareness, all the things about governance, audits, controls and just like that individual trying to get their VPN to cooperate, all of that is done at enterprise scale for the biggest corporations in the world. So it's not better or worse. It's different. Take advantage of it, work with it and make the customer better because of it. Furthermore, if you think about data, data is everywhere. Databricks is an important company. Snowflake is an important company. In fact, all the systems of records, they matter. They're actually important companies, whether it's the SAPs of the world or the Oracles of the world or even some of the SaaS companies. We cooperate with all of them because that data in those systems matters in the workflow, data fabric and how you actually execute your business processes in a corporation. So while it's also true that we have the world's best database with [ RouteDB, ] we never started that to be a database company. We wanted to have a workflow data fabric that enabled all the data to come together for the customer in real time. And therefore, they could either run it in ServiceNow or make a zero copy, and it's intrinsically executed in our workflow automation platform in real time. I think it's important to mention, Pat, if I may. Today, the deal for Veza closed today. And as you know, Moveworks closed at the end of last year, and we're on course for Armis to close in the first half of this year, which is going very well and very fast. So what that's going to enable you to do is form the AI control tower for business reinvention. So for example, agentic business is the future, not at the expense of people to actually drive productivity outcomes and competitiveness for corporations so they can, in fact, thrive in this new era. So with the ServiceNow AI control tower, you're not only going to manage human identities, machine identities, but now we're going to also manage our agents and everyone else's agents, third-party agents. We're going to onboard them. We're going to monitor them. And we're going to manage them with the same governance and efficiency and scale as we manage people. And so it's the combination now of human and agents that's going to give us such a competitive advantage for our customers. That is huge. Now with Moveworks, take a CVS, for example, Pat. They got 200 million roughly employees that use Moveworks as the front door for the whole employee experience, not just to like get on a website and see what the payroll looks like, but actually think about that since I mentioned payroll. You have a payroll issue. They can't hear me back there. Is that better? You're okay back there? Let's say you have a payroll issue. If you use a language model to straighten out the payroll issue, it will tell you have a payroll issue. It will explain to you the various steps in the process that are required to remediate this issue. With ServiceNow, the issue is not only explained, the issue is automatically resolved across multiple legacy systems in a very complex infrastructure of a global enterprise. It's a different kettle of fish, not better nor worse. They just perform different things. And so it is the power of this idea of having the control tower for business reinvention to manage the people, the agents, deal with all, all of the cases and the workflow associated with them through this front door called Moveworks, Veza managing the agents, human machines, nonhuman identities, third party. Remember, onboard, monitor, secure, govern the whole thing. So you can't have rogue agents get out of control with ServiceNow because we treat it just like a person. And then finally, with Armis, I think Armis may, in fact, be our Instagram. And the reason for that is this. When you think about the security plane right now, each security breach in these companies cost the company $4.4 million. In the world of AI and agents, you're going to have more breaches than ever, and that's why it's going to make us stronger than ever because with our IT platform, people, places, things, context, governance, rules, compliance, auditable, rollback security, all that's in there. And now you get OT where it's like all the operating technology, think about infrastructure, networks, devices, IoT, medical manufacturing equipment, manufacturing industrial controllers, shadow IT, all the things that OT does and secures in an agentless fashion is now combined on one platform. So I give this one example. It's another bank, but I think it's a good example. If you think about JPMorgan as an example, and Jamie has a pretty nice building on Park Avenue, he's got to be thinking about the hard infrastructure, the networks, the devices, the people, the whole thing, $4 billion investment, you want to protect it. All of it's done by Armis. I could have also said Honeywell and many others. They do business with 40% of the Fortune 100 already, and they don't have a sales force, certainly one of our size, scale and capability. So this is the vision. for ServiceNow to embrace all participants on this once-in-a-generation platform that enables you to change the game. And if I may, Pat, I was thinking about doing this on X, but I have this great interview with one of the real luminaries in the industry. That's why I'm here today. I'm here because of Pat. And I want it to come.

Thank you.

And the thing I wanted to tell you is I had to be patient because when I saw an unhinged podcast earnings call done by a legacy CRM company, I thought to myself, my God, what is going on here? Have we really gotten that far under their skin that they're doing this type of a thing? But then I said, well, let's check out those companies that they're talking about replacing us at. And so there was 1 out of 5 that represented $42,000. Okay, $42,000. All the other ones are still doing business with us. Most of them are renewals that haven't even come up yet for 2 years. And most of them right now are in flight on another sales cycle with us. There was one called [indiscernible] for $42,000. So I want you to understand that just because somebody says they did something, doesn't actually mean they did it. I can give you anything I want. I can toss it over the fence to you because I'm big, I said, here it is. You can have it for free actually. That doesn't mean you're ever going to go live on it because none of them have. So I just want to set the record straight because we got $2 billion today, as I sit here in pipeline in CRM, okay? And I thought maybe you get a kick out of this since we're talking about names. This might turn you on, DraftKings, Zoom, Starbucks, Xerox, Boomi, Swisscom, Micron, Iron Mountain, Bell Canada, Panasonic Avionics, NVIDIA. Because NVIDIA is the world's most valuable company, I thought you might get a kick out of this. We use CPQ to configure and quote some of the most complex products of the world's supercomputers and turnkey AI data center installations. This is one of Jensen's direct reports. ServiceNow CPQ is the best in the industry. There's simply no question about that, the best. A lot of other people think that too. So $2 billion and marching. So I think it's really a great opportunity to level set. Okay. Thank you.

That was fantastic. Thank you, Bill. Let's talk about competition. Let's talk about competition. So let's talk about competition broadly, and you just definitely started that, but -- and then also talk about competition in terms of your right to win for control tower.

Competition broadly and right to win because of Control tower. We're on the right side of what the customer needs. If you talk to CEOs today, they want to take advantage of all the AI in this really amazing super cycle for AI, and we're leaning into that as well. Today, we resolve 90% of the issues related to customer service that used to be done by people with agents. We're well on our way to $0.5 billion in cost/productivity as a result of doing this. And you say, well, how do I know? Well, if you look at our revenue growth -- and by the way, I think when people have this multiple debate, gee, why is their multiple -- it came down a lot, but why is their multiple still the highest? Because we grow more than twice as fast as all the other ones. And our margin performance at a free cash flow level is also higher than all of them, even as we hire and build not a make-believe culture, but a real culture where we level with people and we train people and we let them know your very employability is dependent on your AI skills because this is a new economy, and it is a disruptive economy, and we want to take you on this journey with us, which is what we've done. But there's huge, huge opportunities in really driving AI in service to people. Because what good is it if it doesn't make people better. And so as a culture, CEOs rarely talk about that. I think that's one of our superpowers, not to mention this amazing platform. So competitively speaking, I think when you look at NVIDIA and ServiceNow being the 1 and 2 most trusted companies in the world, I'll take #2 if it means being next to Jensen and his amazing fantastic company. So that's my feeling on the big picture. As it relates to sort of the micro idea, I've already told you, we embrace the language models. We embrace the hyperscalers. We respect all the systems of records. Most of them obviously have gotten the memo on working with ServiceNow because their win rates go up when they work with us. And we're only too happy to help them because for the most part, we don't really want to be a legacy database supporting legacy applications. We want to be the system of action driving this AI superpower through these corporations in every industry, in every corner of the global marketplace. And we want to do that at a consistent rule of 50, 50-plus company. Right now, we're in the mid-50s, and we want to keep that momentum going. It's pretty special. I hope you see what I see. As it relates to CRM, I think it's really simple. It's no longer customer relationship management. It's all about resolution. Nobody wants just the front-end conversation. That has been commoditized. We do it, others do it. legacy players do it. That's fine. But what they want is the connectedness to the mid and the back office so they can sell, okay, provide, provision the service and service all on one platform, selling, fulfilling, provisioning, servicing, all on one platform. If, for example, a legacy CRM provider is doing the conversation, no problem. That's up to the customer. They can still do the fulfillment and the servicing on the ServiceNow platform, which many of them are choosing in record numbers. And a lot of them now are saying, I choose to rip and replace it in a methodical way because the cost is high and the benefits from the legacy is not doing it for me anymore. And you can't almost blame them because they took something that was okay as a rental in the cloud for certain applications, but it's gotten colossal where an employee on average is swivel chairing in and out of 33 applications a day. So to service a customer in AI, it has to be a smooth magic carpet end-to-end business process. I order something, you fulfill it, you service me, you keep me loyal. It's bang, bang, bang. You meet me in any channel I'm in and you take care of me for life. The net present value of a very satisfied customer is the greatest asset of any corporation. So we have changed from customer relationship management to the comprehensive resolution and full service of AI to a customer. And no, the human touch has not gone. but it is going to be segmented based on the size, complexity, industry, vertical, micro vertical heuristics of the customer you're servicing. So that's a big thing. On HR, as an example, I mean, it's more of the same. I think right now, the legacy has a place. If a customer has it in their database and they want to keep that, that's fine. But the AI front door, that agentic front door to the full employee experience. So for example, recruit me, hire me, onboard me, train me, give me all my benefits, Show me all my compensation logistics and all the things in real time. If I have an error in something in the corporation, AI should remediate that across any system, across any particular management hierarchy within a corporation because I, as an employee, want to be treated like a customer. And then also when you offboard me, make sure it's clean, it's concise. I stay loyal to your brand, and I'm not mixed up in your data. So all those things we do and so much more. On the financial supply chain and operations side, I think that the ERP providers, while they may not be growth companies anymore, I don't think it's on the top priority list of companies to like x them out. But I think the innovation above them is this workflow orientation that I'm explaining to you where they get all the benefits of AI without going through a lot of the pain of either upgrading something that they've done many times before or even thinking about switching it out because with ServiceNow, they don't have to. So this is like a quick thumbnail sketch on what's going on in the market. I do think, and I put together a white paper on this, and Darren will happily give it to you if you send him your interest in having it. It's a white paper with a deep technical architectural view of things, which I think is a great read for you. It won't even be boring. And then if you are bored by reading, it has an executive summary that would be very consumable to a CEO. And I think you're entitled to both of them. And believe me, great care and precision has been put into this document, and it does tell you what all of the language models do and what they don't do. We think they're all fine companies, but we also think that last mile of the action is where it's at in terms of that control plane analogy I gave you earlier in the conversation. Does that help you, Pat?

Fantastic. Okay. I asked my trademark question, Bill. And you kind of hit on this, but how is business?

Business is great. I mean the thing is we have so consistently performed. I said to myself, sometimes a company can almost seem boring if their executional excellence is at an art form level. It's like, oh, yes, here we go another quarter, they're over 20%. The free cash flow margin is going through feeling -- right. And it's like okay like can we find something wrong here? And I get it like in the fourth quarter of last year, I really did empathize with the shareholders because we hadn't really done any M&A. And then Moveworks took 9 months between when we actually decided to do it, and I think it's a pristine move, by the way, and you will, too, and actual closing. And that so happened to be within like 24 hours of Veza and then shortly after Armis, so people might have said, what's you doing? Like what are they up to over there at ServiceNow? Are they doing this because they need the revenue? And let me take that on directly. No, we didn't do it because we needed the revenue. If we did it because we needed the revenue, we would have done some of the ones that you've seen some legacy companies in the CRM category do because they're desperate for the revenue, and they have to chunk in something about every 11 months before you realize their core isn't growing. So let's chunk it in and get a few points and you know how it works. These companies are innovative AI companies. They're young and they don't have those big revenue pops. So if I was buying the revenue, I wouldn't have done any one of the three. It would have been a bad idea. But if I was buying you the defining AI software company of the 21st century, I would have been negligent not to do all three. And that will prove itself out for sure. So that's kind of the deal on how I feel about this idea of executional excellence at an art form level so consistently well above the Rule of 50 and also the fact that you guys deserve clear answers on why did you do those three? And hopefully, today, I've cleared that up. The other thing the shareholders had a question about is like, hey, man, because of this AI world, are seats going away? And I think that's a very fair question because I think agentic business is here to stay. But uniquely, the ServiceNow franchise grew seats 20 active users, 25% year-over-year. And I told that in the earnings script. But I realized that, hey, like don't let facts get in the way when people's minds are already made up. And so I think at that point, there was like just questions in the overall macro and the environment around business software companies or SaaS companies, as people like to say, that no matter what I said on the earnings call, no matter how good the revenue or the guide was, there was still going to be these resounding questions. And that's totally fair. But business is great. And the one thing I also want to point out that's unique about our architecture, I never get to talk about this. When I hear SaaS, I always tell you guys, we don't live in a SaaS neighborhood. And I say that because the SaaS companies you're familiar with are multi-tenant clouds. We're a single-tenant cloud. I can run it in a sovereign way in Germany or France today, meaning if you want it in your own data center, no problem. If you want it sovereign because of the issues that are going on with data and [indiscernible] relations between national interests, I can run it in a sovereign cloud in your country or in your government. I can also run it in the ServiceNow cloud or any one of the hyperscalers clouds or any hybrid of that. I can give you a pricing mechanism based on the seats. But also when I give you my Pro Plus version of our software, there is an allotment of all the AI resources and capabilities. Once you run through that allotment, which you're more than happy to do because you wouldn't do it if you weren't getting business benefits, then we can reload the tokens on a hybrid basis. I have another one that's quickly developing, where our business cases are so good, and that's really what it's all about. What are you doing for the customer? What is their outcome? Is it a great ROI story or isn't it? We have one legacy CRM replacement in Europe where the business case was $682 million and a large SI actually is underwriting the business case. So the customer, your CEO, you're like, hey, it seems good, everything looks good, but we're really not that great at execution. Am I going to get the money out of this investment? The SI says, "Well, I'll tell you what, we think it's so good, we'll underwrite it for you." So you have that developing, the hybrid business model developing. DraftKings, which was an example I gave you, have already reloaded. They're so happy the way they can customize the bets, especially for the best betters and so forth. And there's many other stories like that. And the seats are growing. So all these things are in very, very nice formation. Will it shift? Will it adjust over time? Yes. But we're ready for that. We've actually anticipated it now for the 7 years I've been here, we started building it with Jensen 7 years ago in NVIDIA, and we're more than ready for this race. In fact, it's our best moment as a corporation because we happen to have what the customer wants.

When you look at -- hopefully, you're good coming on this, if not, it's fine...

You give me anything you want.

I know.

This is real.

Yes, the layoffs of block, right? So you have a company that 10,000 employees that letting 4,000 of them go and then everyone is like, oh, no, that's, do they run ServiceNow? How many seats do they have? So what are your thoughts on that and your reactions...

Yes. Again, like, for example, let's just say you take block or -- first of all, that's a pretty bold move that [ Jack Dorsey ] made. I hope that those people quickly find employment elsewhere. I do have a heart for people, and I'm sure he does, too. But the reality is he's betting on agentic business to supersede the need for lots of humans in his particular enterprise. CEOs have the right to do that. And therefore, with our business model, the AI control tower for business reinvention, he's betting on those agents. And so if you're betting on those agents, which is a logical thing to do, you now have people, humans. You're now going to have the nonhuman agents that you're going to have to onboard them. You're going to have to monitor them. You're going to have to control them with very tight security guardrails, which we've already built into our system. It's already there. And those agents that are machines, thinking machines will work in tandem with the humans. But we can take the thinking machines alone across any business process in our control tower and let them run a fully formed business process. Let's say it's order to cash or lead to cash or procure to pay or design to build or recruit to retire. We've already thought about all this, and we're already doing it at ServiceNow, and we're already doing it for many, many customers, which is why our AI business is growing so fast. So I think that's a bold step. It's a larger step than most will take, but I expect that others will take similar steps at a smaller scale, and that will benefit the hybrid pricing model. Similarly, any time anybody says, Hey, Bill, tell you what, let's go for our own model. You have a share of my revenue growth or my savings. done. Let's go. And the second I say that to them, they're like, "Oh, actually, I'm good with the seats plus the hybrid. Thank you. Thank you very much.

Have you done one of those for real?

Of course.

You do?

Of course. And when they see the size of the prize, they realize the percentage of the value that we get with our traditional licensing mechanism even with the hybrid approach on the AI, which they haven't fully formed in their mind in terms of business impact. They're like, let's go with that. So the real world is where I live. I live where the customer lives, and I know what's going on in these relationships. And truthfully, the biggest challenge is a bunch of confused CEOs that just want to know what they are supposed to do, not for anybody or against anybody, for their self-interest. And therefore, I suggest you take a look at this white paper again, [email protected], is that right? And I give you my authentic fact-based architectural design and executive summary. And I think you'll find it extremely compelling. It's a body of work I'm extremely proud of and put the best people on it, reviewed every single line, and it's factual and it's fantastic. And CEOs around the world told me, thank you very much. The first CEO that actually gave me something that I understand it actually makes sense. And it's not a sales pitch. It's not a marketing brochure. It's not even a made-up sales story in a podcast.

Oh my gosh. All right. Can we -- so many directions I want to go and got 5 minutes. But let's -- can we hit the federal business?

Yes, sure.

And address it to whatever extent you think is okay. But you have a huge federal business. What's your relationship with Anthropic like? And what's the current standoff between Anthropic and the Department of War maybe mean for ServiceNow?

Yes. We actually do not use Anthropic for our public sector entities at all. So there's zero impact to ServiceNow related to the Anthropic public sector U.S. government matter. So cross that one off your worry list. It's not there. We have a great relationship, as you know, with the federal government, with state and local governments. It's literally one of our truly greatest verticals. We work extremely closely with GSA. I admire the work that Josh and his team have done on behalf of the President and the administration, I think it's fantastic. We were very, very forward leaning with one gov where we put a contract together for all of the government that they can procure from, which gives them tremendous privileges and rights, but it also encourages all the agencies to jump on board. So if you had an issue with negotiating or going through these long boring processes, don't worry about it. ServiceNow already leaned in and we're rolling. So our business is great. And even when our business, when there were questions about the public sector and the change to the public sector and everybody was so worried, you might even remember that quarter, we grew 30% in that quarter. So we're very well positioned. What's happening now is the greatness of the U.S. government is being replicated in other governments around the world. And the reason I touched on that sovereign cloud issue is we're out in front of all these issues. Like we are the protagonist in the story. If there's a concern or there's a customer requirement, we have supplier specifications lined up and measurables ready to go to prevail in any environment. So no excuses, no shortcuts. We're on top of our business.

Fantastic. All right. Last question. Biggest -- and you hit this so hard on your earnings call. It was great. It's a little while later, you've had 1 million conversations. Biggest misunderstanding that you think is still out there with the investor community in ServiceNow.

Well, I think I've touched on quite a bit of them. I think I touched on the seat-based licensing. I think I've touched on if that were to adjust -- our hybrid pricing, obviously, is there today, and it's already kicking in. And I think that will be a continued prevailing theme, the combination of those 2 things. And then I also think because we're so strong in the Global 2000, we're prepared for any business model against the value creation or the ROI that we can put forward for the customer. And because we are an end-to-end platform company, we can talk to the customer about their IT, their security asset estate. We can talk to them about their human employee experience portfolio. We can talk to them about what I really truly do believe is a much broader topic than just CRM. I truly believe it's all about customer resolution at AI speed from order, fulfill and service. And then obviously, the engineers and the innovators, they deserve everybody to give them the best tools possible. And I think Anthropic has done a great job of that. I'm sure OpenAI, we have a partnership with them, too, is doing some really important things, especially with natural language and voice that we've embedded into our product. And they also both showed in our product release from an autonomous platform standpoint in ways that I think will continue to come clear when we have everybody present in Las Vegas for the keynote at Knowledge, the Financial Analyst Day at Knowledge and so forth. So I just think that if those were misunderstandings, you just need to have some peace of mind that they should be cleared up at this moment in time. And I really do believe that I had a dream when I came here. SAP was a wonderful company. I loved all 17 years and all nearly 10 as CEO. Why did I do it? Because when I as CEO of SAP hired ServiceNow, they took my very complex 100,000-person, $30 billion in revenue organization with some cloud formations that were not organic, and they unified that on one platform where I could see my employees, I could see my customers, I could execute my mission. And I said, "Man, if they could do that for me," they could do it for a lot of other companies, too, which was the reason I came here with the dream to be the AI-defining enterprise software company of the 21st century. And I'm only getting warmed up. But the cool thing is I got 29,000 other people that feel the same way. And we did 3 very nice M&As. Certainly, as a percent of our revenue, I think they're extremely minor in the big picture. But in terms of the capability of the control tower for business reinvention, they're huge. And they all love the idea of being part of ServiceNow. I go back to the culture because, you know what, -- it was real cool when CEOs in Silicon Valley in certain areas talked about culture, and that was their advantage. Notice when things got tough, the culture was the first thing they threw out the window. And so we didn't. And I think that, that's holding a strength in our fabric that's built for this moment. And I think that's going to be a major differentiator for ServiceNow going forward.

Bill, thank you so much for coming.

Pat, thank you for having me. Great pleasure to be here...

Thank you for your...

Thank you so much. Appreciate you.