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

Excellent. You're well on your way. Maybe we can pivot more into product. When we think about control tower, I mean, massive opportunity. I get asked this question a lot. I think I know the answer, but I want to ask of you because I think it would be great for everybody else to hear you describe it. The question often gets asked, what is ServiceNow is right to win the AI governance layer with control tower because you've got so many other vendors out there from various positions seeming to close in on it from multiple angles including horizontal app vendors, infrastructure and even security -- stand-alone security providers, even the AI labs themselves, make it very clear for us.

So it goes back to this incredible platform that ubiquitous across the enterprise, right? So whether you're using us for IT, HR, finance, legal, customer service, you name it, the platform is the same, right? And the ability now to connect to any model, any hyperscaler, any software provider, any data model, any data provider and to be able to manage it. So we're agnostic, right? And by the way, our customers want to be able to move between. Most of the customers are not using only one, any of the things that I just named. And so the ability to connect to any data model, any software or any agentic AI agents and manage it all in one place, well, that's historically what we've always been able to do. We've always been vendor-agnostic, data agnostic. And so the ability now to manage it all in one place, no matter where the information is coming from or what underlying platform you're using, it's kind of the legacy of who ServiceNow has always been. And so you asked a question before about token maxing in these budgets. Well, the AI Control Tower -- and by the way, when I talk to CFOs, I can manage spend across every vendor, every AI vendor and more importantly, well, as importantly, to managing the spend is actually seeing the ROI. And so the ability there in the AI Control Tower to see it all, to manage it all and then even more importantly, govern it all, right? Kill switch if something is doing something it shouldn't do, to really be able to manage that across, I think that's unique to ServiceNow. A lot of people can do it vertically in one place, in one stack, in one area, ServiceNow can do it across the entirety of the enterprise.

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[Audio Gap] security and risk business also overachieved. And it's not just security and risk. It's pulling our CMDB and our ITOM business as well. And why is that? It's because you have the entirety of the customer journey with security in one platform, right? Some companies detect an alert. We can now detect alert decision, remediate all in one place. And so the importance of security post-Mythos in an AI world is more important than ever before. And so now our customers have one place where they can really get the alerts, understand them and then remediate them. We've always sat on top of other security providers. So it's not like we're going in and taking out. This is an incremental budget that we're seeing. And then you combine that with AI Control Tower and the ability to manage everything in one place, it's just -- it's just a very compelling value proposition for our customers, especially today.

Awesome. You mentioned earlier data and analytics as another key opportunity. Not something that I was thinking to ask you about. But since you mentioned it, why don't you share for us why that's so exciting and how it's going to drive the next few years?

Well, I think if you think about what's really required in an AI world, there's a few things, right? It's data, it's AI and the reasoning and the intelligence, it's the workflow to actually drive action on that data and intelligence. And then it's the governance and security wrapped all around it. So if we're really trying to provide the full value to our customers, data is a clear piece. We've got the AI. We've got the workflow for sure, and the security, data is increasingly important. And we've talked about Workflow Data Fabric. We've talked about Data Action and the ability to connect to your company's data and again, agnostic of platform, right? We've got the connectors that enable this very seamlessly and the ability to use that data no matter where it is in an organization. And this, I think, when you connect data to everything else, it not only ends up being a productivity delivering machine AI but it's, I think, that's how you inflect top line as well. Like what's the data in the market telling you? How do you think about things? And getting a time at the speed a machine and then actioning it throughout your organization immediately, it's a top line and an efficiency play. And so we're really excited about our data and analytics is growing extremely well. And yes, the ability for our customers to connect to any data no matter where it is, is a huge selling point is something that they're very focused on right now.

Got it. I'm going to pull on one other thread that you touched on earlier, which is CRM and I mean, there's another small company last night that coincidentally reported and put up exciting results. But let's make it about ServiceNow. Can you just bring us up to speed? I know you guys acquired Logik.ai. I think that's a year ago or so now.

Yes, a little over year.

Which was -- we always knew to be the best in its category in the market. But where are we in the journey? And what can we expect ahead?

Yes. Listen, I think at the end of the day, Hopefully, the narrative is shifting, right? ServiceNow had really strong results. Other software companies also having strong results. The narrative is shifting, right? The value is not in the intelligence. It's important. The reasoning is important in an AI world. But the context and the the domain expertise that software providers have is more relevant than ever in an AI world. So that's number one. CRM specifically and that acquisition of Logik.ai that we did a year ago, CPQ, phenomenal AI-first technology. And if you think about ServiceNow's, I think, history in really helping our customers manage the most complex workflows. CPQ is arguably the most complex workflow in the whole CRM stack. And so the ability to have such incredible products, then connected to not only the CPQ process, but the sales and order management and servicing, you have one-stop shop on one platform, where you can really -- you can quote you can fulfill and you can service all in one place. And so what CPQ did for us was make us even more relevant in the front office conversations. We talked about the fact that our CRM business in totality crossed $2 billion and continues to perform extremely well. So we remain extremely excited about that product portfolio, the residents. I actually had a conversation just last week with the CFO of a great company that's looking at closing our CRM deal in the next day or so. And so again, the ability to really sell, "sell, fulfill and service" all on one platform with modern architecture is a definite compelling conversation that we're having with customers every day.

Thank you for that. I think all investors are really hungry to see AI come to life and really get their heads around tangible use cases. What are some of your early adopter Lighthouse now assist customers doing with AI today? And what steps do they take in the early days that have enabled that success?

Yes. I think that the Lighthouse customers that started early with us are just -- they're in prime position, right? They clean their data. They have simplified their stack, and they're really leaning in on, for example, our L1 specialists. So we have the city of Raleigh that leaned in heavily. They implemented our L1 specialist with no back-end engineering big workload having to do. They're seeing 98% accuracy, and they're able to autonomize. So autonomous, 65% of the requires 0 touch, 65%. And this is in a 10- to 15-week time frame. So really, really fast. And this is one use case. And so now they're looking at going much more broadly across across the platform, which is really exciting. We have another customer that we did a 10- to 12-week pilot with a few of our FTEs, and we were able to very quickly in 12 weeks drive over $5 million of efficiency benefits with one use case with our L1 specialist, right? And now they're looking at -- and by the way, a lot of the companies, they're starting pretty small at complex but less risky use cases to get the proof points and now they're going much more broadly. And so it's extremely exciting right now. We're seeing EmployeeWorks, which is our Moveworks product portfolio, combined with our historical employee service portfolio. And we are building out now efficiency experts and productivity experts for legal, for finance, for HR, for customer service that really helps any person within that domain function, drive incredible productivity. And so it's -- the use cases are endless, and it's really, really exciting to see and what you're seeing from a customer base is that even those customers that were slower to kind of lean into the AI moment are very, very quickly wanting to understand what they can do and how fast they can drive really incredible value. And so there's definitely a shift happening that it's not just the top 100 customers, but even the ones that historically were slower to adopt AI are really leaning in very, very fast. And so I think the next few years are really exciting time for software.

The future is bright. I agree with you.

The future is bright.

Gina, in terms of the other opportunities, if I reflect back on the past, I mean many years ago, I think even predating your journey at ServiceNow. We were so focused on counting Global 2000 customers and what the penetration was and your track record and presence in the largest of enterprises and the largest of governments, everybody is very familiar with. And more recently, if we listen to Bill, I think Bill was quoted as saying that now is the time to address the Fortune 500,000. Why -- what does that mean? Why is this now the moment to maybe look a little bit further down market and address that opportunity?

Yes. I think a couple of things. So first, we talked about our legacy and where we've come from, right? And we have been very customer-centric. We're an incredible culture. If you talk to anyone who's ever even worked at ServiceNow or walk down the halls of Knowledge, the culture of ServiceNow is pretty amazing. And part of that culture has been customer first, customer obsession. And so our customers have always been the Fortune 500, like the enterprise and commercial plus, our products were built for that, right, at the end of the day. And there was so much opportunity to expand horizontally into HR, into customer service, into finance and supply chain that we were really focused there on serving our customer base across the enterprise. Well, today, we're at an inflection point. And as we think about trying to serve other customers in other markets, it just felt like the right time, right? The ability to build a product that is much more suited for the small and medium businesses is easier than ever. And with ServiceNow's context and history and understanding of the workflow and understanding of how companies get work done, we're in prime position to do just that. And so you'll be hearing pretty soon about an incredible product that we're coming out with to serve that customer base that we are extremely excited about.

Awesome. Very, very cool. Another opportunity, I don't -- I want to make sure I don't get over my skis. As we think about U.S. Federal, am I too aggressive to think that there's an inflection point where agencies are standardizing on ServiceNow, viewing AI as a core way to modernize and capture cost savings?

You're not. So that's exactly what's happening. There's such a great opportunity because so much of the agencies have so much opportunity to modernize. And you've seen us -- our success in that area is because our platform and our product portfolio is so well suited for them. Add AI into it, and the ability to drive even more incredible efficiencies and labor productivity, it's right in the sweet spot. And so we're very excited. We talked in Q2 about overachieving the plan in Q2. We're set up for a very successful back half. Pipeline looks good. And then more broadly, the longer-term opportunity in Fed is enormous. And then even more broadly, public sector, right? What we've done in Fed is absolutely replicable across every other government across the world as well as within state and local in the U.S. And so you'll continue to see us push in that space, and you'll continue to see us -- you'll continue to see that vertical be a pretty significant growth vector for us.

This is the time of the year, at least here in the U.S., looking forward to great things ahead. We are just about out of time for this session, but Gina, what haven't we maybe talked about that investors might still be underappreciating about ServiceNow today?

Yes. I'd say a couple of things. So I mentioned it earlier, but I think it's really interesting. And I've been -- it was part of our thesis, our acquisition thesis for sure, but the fact that the acquisitions that we've been doing not only being very successful very early days as we've acquired them, but they're pulling the core more broadly across the board. And I think that, that is -- that was underappreciated and it still is. We're trying to talk about it because it's -- as people keep saying, oh, is the core starting to decel? Well, actually, we're building incredible AI innovation into our core. And then we're doing, I think, really smart acquisitions that build out the product portfolio that pull the core with it. And that, I think, is probably a little bit underappreciated. The second thing I'd say is that we have 6 unicorn business that will be bigger than $1 billion, all built within ServiceNow, right? And so I think that's a little bit underappreciated. We talked a little bit about the security and risk being part of it. But we have 6 businesses that we've basically organically built from scratch that are over $1 billion. And I think that's pretty -- that's a testament to the DNA I talked about earlier about the organic innovation that will always be who ServiceNow is. And then lastly, I would say -- I talk about Now on Now quite often, right? I like to say we drink our own champagne and we do. We are customer zero from every single product we put forth. And so our own platform and Now on Now internally has enabled us and is driving $500 million of efficiency savings this year alone, which enables us to grow our top line and drive incredible efficiencies and keep head count flat even though we're acquiring some companies this year. And that efficiency is only going to continue to expand. So when we talked about the targets we put out for [ 2030 ], it wasn't just $30 billion and $32 billion. We said we'd be able to do $60 million. And that's because we're seeing real accretion on the bottom line because of the efficiencies of our own AI products that we're using internally. Like we are the best reference for any customer conversation, which is why when I talk to customers, when -- what finance teams get to talk to customers. My finance teams love that because it's another area of growth for them because they can show how even within finance, we're able to use the ServiceNow platform to drive incredible productivity. Our HR teams, they talk to customers all the time about the incredible products that we use internally and the value creation that we continue to see. And so that's just going to continue to expand. And I think it's one of the reasons why ServiceNow remains extremely relevant in an AI age, and I think, a leader in the space.

That is amazing. Gina, it's always great to see you.

Likewise.

This was fantastic. And really appreciate you being here.

Thanks so much. Thanks, everyone.