ServiceNow, Inc.

Good afternoon. My name is Jesse, and I'll be your conference operator today. At this time, I would like to welcome everyone to the ServiceNow Q1 2019 Earnings Conference Call. All lines stand placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question, please press star 1 on your telephone keypad. If you'd like to withdraw the question, press the pound key. Thank you. Michael Scarpelli, Chief Financial Officer, you may begin your conference.

Good afternoon. Thank you for joining us. see the reconciliation between these non-GAAP and GAAP results, please refer to our press release file earlier today and the prior quarter's previously filed press releases, all of which are posted at investors.servicenow.com. We may make forward-looking statements on this conference call, such as those using the words may, will, expects, believes, or similar phrases to convey that information I'd like to turn the call over to John.

Thanks, Mike. Good afternoon, everyone, and thank you for joining us on today's call. We delivered another strong quarter, continuing the momentum from our outstanding 2018 performance. We are focused on driving customer success, and we're expanding our footprint across almost 75% of the Fortune 500, enabling digital transformation as a strategic partner to the world's largest enterprises. And we're delivering digital workflows that create great experiences and unlock productivity. This is the future of work. Let's look at Key Q1 results. In the first quarter, we closed 25 deals with ATV greater than $1 million. We now have 717 customers doing more than $1 million in business with us, which represents a 33% increase year over year. Our renewal rate for the quarter continued to be strong at 98%. This quarter, we saw particular strength in the Americas region, led by strong performance with U.S. federal agencies. Three of our top 10 largest net new ACV deals were with federal agencies. And we now had six federal customers doing more than $10 million in ACV with us. These results show how the public sector is embracing cloud-based solutions. And it demonstrates our role as one of the core strategic partners to these government agencies, helping them digitally transform how they operate, serving their employees and citizens and delivering services. And our Q1 results also underscore our strong product portfolio. This quarter, our customer service management product saw significant growth. with 28 customers now spending more than a million dollars. Our customer workflow products enhance customer operations management. That means that our customers are able to deliver better experiences and outcomes for their customers. In fact, customer service management led to one of our largest deals during the quarter. This customer evaluated a number of competitors, including the legacy incumbent technology providers. and they chose ServiceNow because of our operations management capabilities. This is our sweet spot, managing inbound contacts to identify the root causes of customer issues, fixing those issues so that you can prevent future problems, and automating self-help solutions. And in other areas, our IT and HR products led a large expansion deal with Humana, a Fortune 100 company. Humana is now expanding their use of the ServiceNow platform across IT and HR to enable enterprise-wide focus on improving productivity and enhancing their employee experience. Across our customer base, we saw a positive response to the launch of our Madrid platform release in Q1. Early indications show that customers are adopting Madrid faster than previous releases. Madrid offers customers over 600 innovations, such as new mobile-first experiences and digital workflows that unlock productivity for IT, for employees, and for customers. This customer response shows our progress in making upgrades simple and easy, ensuring customers can quickly take advantage of our latest platform and product innovations. And I'm personally very excited about the mobile capabilities we're rolling out. We're delivering easy, intuitive, out-of-the-box mobile capabilities that enable consumer-like experiences across the enterprise. These are the kind of experiences that employees expect and demand today. We've also made significant strides in our product organization over the past year, led by Chief Product Officer, CJ Desai. We have a great global product team, and they're driving continuous quality enhancements and customer-focused innovation across our platform and product portfolio. This team is also focused on building a strong pipeline of product innovation as we look to meet a broader range of customer needs and leverage the power of our now platform across the entire enterprise. During the first quarter, I had an opportunity to visit Israel and spend time with our product teams there. As you recall, we acquired Sky Giraffe in late 2017 to enhance our mobile capabilities, and that Israeli-based team is fully integrated now. I met with this team and many other tech entrepreneurs throughout Israel. Israel has an incredible community of outstanding world-class technology talent, and we're building a strong product and tech hub there with more than 125 employees to date. I left Israel so impressed with the quality and caliber of our team and with the innovation happening there. I also traveled during the quarter to Amsterdam, Tokyo, and Sydney spending time with our teams and customers. My customer interactions worldwide continue to validate the business imperative of digital transformation. Customers continually tell me that the strength of our product portfolio and the capabilities of our now platform position us as one of their core strategic partners enabling digital transformation. Our focus on the now platform and three core workflows, IT, employee, and customer, are being well received by our customers. And it's empowering our product teams to focus on delivering even more integrated digital workflow solutions that drive great experiences and unlock productivity across the enterprise. A few weeks ago, we held our first CIO advisory board meeting. spending two days with roughly a dozen of the top CIOs in the world. We had a rich discussion, reaffirming that we are on the right path with our strategies, our product vision, and our focus on customer success. We've also been pleased with some of the positive feedback we've received throughout the quarter in response to our first ever company brand campaign, which launched in January and continues through early June. As I've said before, This campaign is designed to increase awareness of ServiceNow more broadly with C-suite executives. The campaign is also resonating very well with our employees and enhancing our recruiting efforts from a talent brand perspective. We'll continue to invest in company brand awareness to position ServiceNow as both a partner and employer of choice. In closing, I'm pleased with our strong start to 2019 and our continued progress against our priorities. We are committed to making the world of work work better for people, and we're focused on building deep, trust-based customer relationships to enable better digital transformation and create the future of work. Now, I know many of you are planning to join us in Las Vegas on the week of May 6th for our Financial Analyst Day and for Knowledge 19, our seminal customer event. We expect this year's conference to be our largest effort with 20,000 people registered to attend. Spending time with our customers is always my favorite activity, and Knowledge is one of the real highlights of the year. I'll look forward to seeing many of you there. With that, I'll turn the call back over to Mike.

Thank you, John. Q1, we delivered over-revenue of performance. We continue to see traction across the product portfolio, with 17 of our top 20 deals purchasing three or more products as customers realize the power of the platform in an enterprise-wide solution. We booked four customer service management deals with more than $1 million of ACB, including a $3 million deal to a federal agency, our largest CSM deal ever. Our U.S. federal business highlighted the quarter, representing 15% of total net new ACV, up from 6% in the prior year. We booked our largest Q1 deal ever with a federal agency who is now doing more than $18 million in ACV. We expect the U.S. federal sector will continue to purchase throughout the year as they accelerate their use of modern technology to digitally transform how they operate. We saw strong profitability in Q1. For Q2, we expect subscription revenues between $778 and $783 million, representing 35 to 36% year-over-year adjusted growth, including approximately $15 million of foreign exchange headwinds. We expect subscription billings between $798 and $803 million, representing 32 to 33% year-over-year adjusted growth, including approximately $17 million of foreign exchange headland. We expect a 17% operating margin, which is impacted by Q1 expenses moving to Q2, expenses related to our annual users conference, Knowledge19. We expect 193 million diluted weighted average shares outstanding. Coming off our strong Q1, we are raising our full-year approximately $45 million of foreign exchange headwinds. We are also raising our full year 2019 subscription billings guidance to between $3.725 and $3.740 billion, representing 32% year-over-year adjusted growth, including approximately $50 million and $22 million of foreign exchange and duration headwinds, respectively. While we are increasing our top-line revenue guidance, We are also increasing our investments and maintaining full-year 2019 margin guidance as follows. Subscription gross margin of 86%, operating margin of 21%, which includes record hiring in Q1, and free cash flow margin of 28%, which includes the opening of a new pair of data centers in Japan expected for later this year. For the year, we expect the weighted average shares outstanding of $193 million. Before closing, please note our Financial Analyst Day will be held on Monday, May 6th in Las Vegas in conjunction with College19. For those who cannot join in person, we will hold a webcast of the event accessible on our IR website. With that, operator, you can now open up the line for questions.

Thank you. At this time, I would like to remind everyone, in order to ask a question, please press star 1. Your first question comes from Raimo Lencha with Barclays. Your line is open.

Hey, thanks for taking my question. Two quick questions. First, can you talk a little bit about the platform strength this quarter? Obviously, you mentioned federal, but the 17% you got from platform still kind of seems to be like a step up from what we've seen before.

Yeah, well, included in that group, platform was strong, but you also have to of our customers.

Okay. And then can you talk a little bit, you talked about the record hiring in Q2, Mike, but you still talked about Q1 expenses kind of that slipped in Q2. Can you talk a little bit about what was going on there and the magnitude? Thank you.

So it was record hiring. into Q2.

Perfect. Well done. Congratulations.

Thank you. Your next question goes to Brad Zelnick with Credit Suisse. Your line is open.

Excellent. Thanks so much and congrats on a great start to the year. My first question is for John. John, the momentum you're seeing in U.S. Federal is really impressive and Mike's comments suggest you're seeing a lot more demand in this market throughout the year. Can you help us understand the size of the opportunity in context of 15% of your ACV mix today, where can it go? And how do you think about this translating to other governments around the world looking to transform the citizen engagement and the way government employees work?

Well, Brad, I think the way you put the question is exactly the right way to think about it. Because if I just step back, let me describe this as a public sector. And included in public sector would be federal, state, regional, and local governments. And in the first quarter, I think in my global travel, I met with all flavors of that. Simply put, those institutions are under more pressure than ever to deliver better experiences for their employees and their citizens and to drive real productivity in a time of, you know, economic challenge. And the key thing is that they are now realizing that cloud is a great way to do this. And by and large, they've largely overcome their security concerns around cloud. So whether it's at the U.S. federal government, other federal governments, state, regional, local, we see a pretty aggressive appetite to both understand and embrace cloud. And so, as you know, let me just now zoom in on the U.S. federal a little bit. We, over the last several years, have built a dedicated U.S. federal team. who've been focused on both orienting and packaging and ensuring that our platform and our products conform to the requirements of the U.S. federal agencies. And, you know, in 2018, that was roughly 10% of our ACB, and as Mike mentioned in Q1 of this year, it was roughly 15%. And, you know, over time, it's hard to gauge any given piece, but I think Mike and I would both say that overall public sector, when you add not just the U.S. federal government but other federal governments, state and local, could be up to 20% of our business over time.

I would agree. There's no reason why it can't be 20% plus from what we're seeing right now.

And one of the interesting things, Brad, that is, to me, one of the most exciting pieces of this is that Interestingly, these government public sector organizations are often some of the most innovative users of our platform. And what's interesting is these federal agencies and many of the state and regional in Australia and the U.K. and other markets think platform first, and they see the power of our platform to adopt their ability to deliver better experiences. Let me give an example. The Veterans Affairs U.S. agency as adopting a ServiceNow first philosophy, both for their employees and for their customers who are veterans. And so, for instance, they've got a global service desk for over 550,000 veterans and parrots employees, powered by ServiceNow. And they're using ServiceNow to allow their customers, that is veterans, to help schedule some of their procedures in their respective hospitals. So because our assets are in the Veterans Affairs CMDB, if a veteran has to schedule an MRI, ServiceNow's platform can help that veteran figure out which hospitals have which openings with which equipment and actually schedule their appointment. So I find it very energizing to spend time with, whether it's the defense-oriented federal agencies or other federal agencies because they are some of the most creative and innovative users of our platform.

Thanks very much for that, Collar. And, Mike, just a competitive question for you, but more in the context of pricing, especially in HR and customer service clouds where you're seeing large players stepping up investments. Can you talk a bit about pricing trends and average discount specifically in those clouds? Thank you.

Yeah, we haven't seen anything noticeable from So no change there.

Excellent. Thanks again.

Your next question comes from Kirk Maturin with Evercore IC. Your line is open.

Thanks very much, and thanks for taking the question. I guess, John, just to start off with, given the success you all have had in the federal government, and I realize it's somewhat unique, how are you thinking just about the broader sort of verticalization of your sales organization as you go deeper into big enterprises, you know, sort of being able to speak, you know, the language of industry and be able to sort of help them solve their biggest problems. I guess, how are you thinking about that evolving as you look at maybe over the next, you know, 12 to 24 months?

Yeah, well, Kirk, it's an area that we're leading into. And as you mentioned, federal was sort of the first area where we really focused on it. And that is both a go-to-market motion where you have dedicated people who speak the language, but also, you know, tailoring the product to making sure we're meeting the federal security and other requirements. A second area that I think you know is we have a dedicated, we call it MedSledZ, but a dedicated team around some of the healthcare market, again, both to meet the go-to-market expectations of those customers that we understand their deep needs, and to ensure that our product complies with the regulatory compliance requirements in the healthcare sector broadly defined. And obviously, there's several subsectors within healthcare. The third area where we have a, I would call a quasi-formal vertical is financial services. Now, this is just by virtue that a large portion of the financial services world is either in New York or London. And so if you were to look at our New York and London teams, you see a lot of dedicated resources toward the financial services sector. Obviously, within that, you've got banking, you've got insurance, you have other subsectors. And there is both a go-to-market motion, also some focus on the encryption and other security requirements required for compliance and regulatory capabilities. And then, so those three, I would say, were furthest along. And we're increasing to invest in those and making sure that they're becoming more globally oriented in our ability to share experience and our ability to, you know, ensure that we're tying our roadmaps to them. And then we have a set of, you know, next verticals to telecom. It's an area where, again, the needs are very common globally, whether you're, you know, Telstra on Australia or or AT&T or Verizon in the U.S. or, you know, SoftBank in Japan. And so that's an area where I would say is next on our stage of building out a global, you know, a bit of a global vertical focus. I'll just finish up, Kirk. There are a couple others, a variety of others where it's more packaging and communicating that we understand the industry, we speak their language, we can share best practice. Those would be further down the road.

Super. Thanks very much. I'll pass it on to others. Congrats on the quarter.

Your next question comes from Sarah Hindley with McQuarrie. Your line is open.

All right, great. Thank you so much, and thank you for taking my questions, and congrats. I'll add my congratulations on a really nice start to the year. My first is for you, John. John, as you're looking at digital workflows, how are you thinking about the next near adjacencies for you guys? And maybe you could give us an update on how you're thinking about your M&A strategy as well at this time. And then, Mike, I have a follow-up for you. It would be great if you could give us a little bit of incremental color on what you're seeing in terms of new logo additions, I think in particular in international markets. Thanks, guys.

Yes, Sarah, on the first part of your question, in terms of organic product innovation, I think we've talked before that we, at the beginning of last year, formed something we call NowX, which is a dedicated team focused on defining and building products that will launch one to three years out. And what's interesting is we have an abundance of ideas. And it's ideas that come from our customers, ideas that come from developers, ideas that come from our people. And frankly, many of these ideas come from examples where customers have built an automated workflow on our platform. And they come to us and said, hey, you know, we just did this. We built this for our own use, but we would love it if you built it out of the box. And so what the NowX team, which is now up to well over 100 people, do is they take all these ideas on top of the funnel, they prioritize, work their way down to basically build out working prototypes of, let's say, three to five, maybe eight of them, and then actually get some early, I'll call it alpha customers, to see if they really resonate and then get a beta customer to see if they come out. or if they have the kind of value we think they do. And then our goal is each knowledge to announce, you know, one to two, I don't know if you call them new products. I would call them extensions, adjacent extensions of our product portfolio, and you'll hear about one of those this coming knowledge. And so I think you'll see a series of incremental new capabilities and new products that come out of us, you know, each year. Building that organic innovation muscle is really important. And then, you know, M&A, M&A to date has largely been focused on what I would call, we call acquihires. That's probably defined as acquiring technologies and teams that help build out and accelerate the building of our platform. We'll continue to do those. But, you know, if and when we see opportunities to acquire adjacent capabilities, acquire, you know, new growth engines, we'll continue. Obviously, we've got the resources to do it. We'll act on it. One of the luxuries we have is the luxury of choice and time because we have such a strong organic innovation agenda.

And then, Sarah, on your question with regards to new logo acquisitions, what I'll remind you is roughly 80% plus of our net new ACV comes from

All right, that's great, caller. Thank you so much. Appreciate it.

Your next question comes from Matt Hedberg with RBC Capital Markets. Your line is open.

Hi, guys. Thanks for taking my questions. Congrats from me as well. I guess for either of you, ITSM was included, I believe, in 15 of the top 20 deals this quarter. And I think you talked last year about how ITSM reaccelerated. I guess I'm wondering, did you see that same trend this quarter? And can you put a finer point on maybe what's driving such strong results in your core?

I would say that ITSM, there was no reacceleration in ITSM in Q1, but ITSM was ITSM and IT products in general were extremely strong for us and continue to be the big driver of our net new ACV, and we expect that to continue throughout the year, especially when we're landing new logos, but there's still a lot of room for expansion within our existing customers within ITSM.

And, you know, just building on that, Here's what I think can be a little misleading and I think frankly we as an organization really embraced this aggressively last year and maybe late 2017 but throughout last year. We may have an ITSM presence in a large global bank but it may be in the private wealth business and not yet enterprise-wide or it may be in Europe but not in the other regions. And so when we look at – we have a strong ITSM presence, and as I said earlier, 75 of the Fortune 500 are customers. But in many of those cases, we landed in a division or a geography or a certain part of the organization, and we're in a world where increasingly customers want to drive platform adoption across the enterprise. And so – Some reasonable portion of the ITSM growth or the quote-unquote reacceleration is simply existing customers saying, you know what, we got great results in Division A. Let's drive this enterprise wide. We got great results in Geography A. Let's extend that to be a more global rollout. And so that's why I don't think it's considered a quote-unquote mature product. I think it's a significant opportunity.

That's great. Maybe just one more quick one about GSI momentum. You know, I know we've talked about it in the past in terms of how significant GSIs can become for you guys. I'm wondering if there's any update there, and perhaps was that some of the strength in platform sales this quarter?

Well, you know, what's interesting, I was with Mike Lowry from DXC yesterday. We had our quarterly top-to-top. I was with Janet, the chairman of Deloitte last month. We had a half-day top-to-top. I'll see Andrew Wilson. Accenture next week at Financial Analyst Day. And I think he'll even be a guest of honor there. And in each of these conversations, and obviously the same with KPMG, IBM, some of our – basically what they're saying is they see the same digital transformation opportunity in need. They see ServiceNow as one of the fastest growing portions of their practice. And I think we've gotten significantly better over the past 12 to 18 months of basically calling on, selling to, and serving customers in a coordinated way with these GSIs. And that's actually healthy for customers. Because in many cases, to get full value out of the ServiceNow platform, you need to re-engineer your processes. You know, it's one thing to lift and shift historical processes and put it on the ServiceNow platform, and you get some benefits of that. But the real power is when you take the time to also re-engineer how you operate. That's how you get digital transformation to operate. And so our platform is increasingly at the epicenter of that, not just in IT, but across many of the various products and services. And some of these GSIs, you know, DXA, who I was talking with Mike yesterday, they have a They have platform TFC, right? They are building their own platform of which ServiceNow is a core component along with some of the cloud providers and others. And so we sell both with the GSIs directly to the customers where there's a direct ServiceNow instance. And in other situations, the customer is buying the platform, if you will, from the of which ServiceNow is a piece of it. And frankly, we're indifferent. Whatever allows the customer to get the best results. So they're a critical part, not just of our future, but I think, frankly, a critical determinant about whether digital transformation actually transforms customers' businesses and drives significant improvement in results. It's got to require us working closely with the GSIs. I think they see that. We see that. And so there's stronger... focus and energy than ever on making sure that happens. I'm also delighted, I forget if I mentioned this last quarter, we hired David Parsons to run our partner ecosystem. He's just a fabulous leader in this area, and so I'm really pleased with the progress that our teams are making in this area.

Well done. Thanks again, guys.

Your next question comes from Walter Pritchard with Citi. Your line is open.

Hi, thanks. Question for John and a question for Mike. John, on the CSM side, you mentioned legacy, incumbent, replacement. Could you talk through the competitive landscape there, what you're seeing given the success this quarter? How much is the big sales force in the market versus legacy and then some of the smaller emerging players that you're seeing in that space?

Yeah, so most of the CSM deal that we're doing is we're not replacing implementation from a Siebel implementation. It may be there is a lot of remedy that was used out there as well for CSM or a home-your-own solution. And that's typically what we're seeing. There usually is modern technology competing at the table for the same business we're going after. It's really about our approach to CSM, why customers choose us when they do choose us is because they like the fact that we are all the problem so you never see that incident again. That's just a very different approach to customer service management from a CRM-centric approach.

Walter, let me just build on that. CSM is clearly a huge segment, huge market, $20 billion market, and I think way too many people think that somehow it's all the same, and it's not. There are distinct segments in that market. And different providers align better with different segments. So as Mike said, we're not focused on going after the full $20 billion. There are certain segments of the CRM – I'm sorry, the customer service market that require a strong CRM-based system. We're not the best provider of that. Salesforce is the best provider of that. But there are other segments that want to take inbound contacts identify root cause, which is a cross-functional workflow, fix what the problem was, which again requires cross-functional coordination workflow, so that that problem doesn't happen in the future, and segments where you want the customer to be able to address in a self-help or automated fashion, resolving their problem, understanding where it stands. And our platform is well geared for that segment of the market. And so, If you were to see where we focus our go-to-market teams and CSM, it's not across the entire CSM market. It's against the subsegment of the market where our product lines up well with needs. That tends to be B2B, technology companies, services businesses, and ones where there's, I would call, sophisticated customer needs to be served. And so this is not a zero-sum market. It's a $20 billion market. And as Mike said, there's a lot of old legacy software there, and so I think there will be multiple winners in this segment.

And then, Mike, on the upfront business, you had a strong quarter there with the Fed. How should we think about what you're expecting as we move throughout the year? It seems like that was light in Q4, and then it was stronger this quarter. Is there any way for us to get an expectation there for the year or think about how it will vary quarter to quarter?

You know, unfortunately, it depends upon the new business that's happening. Renewal business, we know, for instance, I know in Q2 there's a pretty big renewal that will take place that's on-prem. We did suspect that this business was going to happen in the quarter, but we kind of hedged that a little bit because I just don't know if it doesn't come in. It was really driven by the federal government, a big chunk of our federal government. And so it's hard to forecast. I will say it is about 7%, 6% to 7% of our revenue for the full year is associated with self-hosted deals.

Great. Thanks.

Your next question comes from Jennifer Lowe with UBS. Your line is open.

Hi, thanks. This is Rakesh Kumar sitting in for Jen Lowe. I wanted to talk about this Adobe partnership that you guys discussed a couple of weeks ago. What does this specifically mean for ServiceNow, and what more can we expect in the future?

Well, Rakesh, this frankly came to Shantanu and my attention based on our respective customer visits. It wasn't something, even though he's a very good friend of mine, it wasn't something we thought up in isolation. We both came back from the ongoing customer visits we do and had a growing number of customers asking, hey, could you connect some of the ServiceNow platform with some of the Adobe capabilities we have? And Shantanu was hearing the same. And we're a big Adobe user ourselves internally. So we've got our platform team and to a lesser extent our CSM team together with the Adobe team about how can we ensure that a shared customer that's using Adobe and ServiceNow, we make one plus one equals three, making it easier to use, getting more value. And it's often about linking the data. Adobe provides tremendous marketing analytics and other data. Our platform has a lot of data. And if you're going to get a 360 view of the customer, if you're going to get the kind of actionability until we generate the insights, we often are the system of action. And so linking them together is, you know, wherever possible, making it easier for customers to get value. It sort of was the spirit. And so, you know, Sean Canoe announced it at their customer conference. Feedback from our customers has been strong, and our teams are excited about it. We think it also can offer some incremental opportunity for each company.

Great. And then I have one more. You talked about adding two new data centers in Japan. Does that potentially accelerate G2K penetration in that region?

Well, the whole reason why we're building those data centers is because we think it's going to drive business. And there are a lot of G2Ks in Japan specifically. And based upon our feedback to get into some of those larger So, yes.

Thank you. Your next question comes from Keith Weiss with Morgan Stanley. Your line is open.

Thank you. This is Sanjit Singh for Keith Weiss, and congrats on a nice start to the year. I had two questions, and maybe we can start off with a question on Madrid. John, you mentioned about 600 new features with this release. And I think a key highlight was sort of the mobile application development, making it easier to build applications on top of the platform. Do you see any of these, any of the new features or capabilities sort of force multipliers for some of your core products? Or does that sort of fuel growth in just the overall platform business?

Well, as I said, I'm very excited about mobile. In my prior life, I had a chance to have a front-row seat in the consumer mobile revolution and got to see firsthand how born-in-the-cloud applications like an eBay, like a PayPal, like Amazon, a Lyft, have completely transformed our lives at home by taking what's complex and are personalized and making it simple, easy, and intuitive. That's now going to happen in the enterprise. And with Madrid, was the first time we launched, in essence, the replatformed Sky Giraffe, native mobile capabilities in the ServiceNow platform. And Madrid started with the Fulfiller experience. And so I see some nice pickup by our customers who are excited about that. New York, which comes this summer, has the employee experience. And so you'll hear us talking at Knowledge about how the mobile employee onboarding capability, the true enterprise-wide onboarding. We're using it internally now at ServiceNow, and it's awesome. And then secondly, what I would call shared services portal, that in a mobile lab. I think you're seeing the most progressive companies realizing that, Employees don't care if they have an IT problem, an HR problem, a facilities problem, a legal problem, a finance problem. They just want to get their problem addressed. They just want to get their questions answered. And so if you're going to get people to migrate from change their behavior from picking up the phone and calling to going one place to get their questions answered and their problems addressed, That must be a shared services portal, internally branded, right? So we see that. We have that as a web product. Today, in New York, there'll be a – I think just a killer mobile app that'll be out of the box, low code, no code requirement for the customer, branded in the customer's name, where they can then allow their employees to – go one place to get their issues resolved. And so will that lead to an acceleration? You called it an acceleration of ITSM and HR case management and some of the other products. I think it will certainly be an enhancer, and we hope an accelerator. And it is. You see more and more companies taking a shared services mindset to driving a great end-to-end employee experience. And I think mobile will be an accelerator of that.

That makes a ton of sense. I'm looking forward to hearing more, Adam. at the end of this day in a couple of weeks. My second question was sort of around sales, and with so many big opportunities ahead of the company, whether it's ITOM or CSM or HR, from a sales perspective, were there any changes made this year to moving to a more specialized sales force, or do you really feel that the current sales force can go to a customer who's selling the entire platform, whatever use case the customer may be interested in?

Well, I think the biggest change is, I don't know if you classically call it sales, but it's the other parts of the full go-to-market motion, which includes post-sales coverage. So I mentioned in my remarks that we met with 10 to 15 of the top CIOs in the world in their CIO advisory council. And one of the things our best and largest customers are looking for is dedicated ServiceNow resources who are solutions architects who are on-site helping them ensure that they are architecting their implementation of ServiceNow to get maximum value from the platform and advising them on how to extend the platform. And so if we think about our entire go-to-market motion, it's not just the as the solution consultant product line specialist. But we also now the solutions architects who are also often part of our professional services organization, who are training and certification and our partner ecosystem referred to earlier. It's that whole combination of capabilities that allows us to deliver the kind of end-to-end customer coverage that allows us to expand those customer relationships in the way Mike described earlier in a healthy manner. In our case, we're quite fortunate that all that reports to Dave Schneider. Dave is architecting right from the very beginning a seamless experience where when we both sell to a customer initially and then serve them and expand our relationship and help deliver real value to them over time. We're doing that, bringing the full breadth of our capabilities to bear, that full end-to-end we call it go-to-market experience that includes customer success, solutions architects, and coordinating with our partners. And so in that sense, yes, our quote-unquote sales motion is evolving, and Dave's doing a great job and his team. They mentioned Dave Parsons, Jimmy Fitzgerald, Kat Lang, who are on the post-sale coverage areas. coordinating along with Kevin Aberdee and the really strong pre-sales team we have. And it's now increasingly, we aren't even talking about pre-sales, post-sales. We're just talking about customer coverage.

Got it. I appreciate the thoughts. Thanks, John.

Your next question comes from Samad Samana with Jefferies. Your line is open.

Hi. Good afternoon. Thanks for taking my questions. So I wanted to ask about traction for the add-on products outside of the U.S., or maybe if you could give us a little bit more color around whether you're seeing more traction for CSM and HR service delivery in the U.S. or outside of the U.S., and within the newer products, what's having more success with your international customers?

We're really not seeing any difference from a customer's to be global large enterprises that all have the same problems. So I'm not seeing any noticeable difference. Yes, one quarter you may have because there's big deals in CFM or HR may be stronger in one region over another, but when you look at it over a year, there's really no difference that I've been able to see.

Great. And then maybe just one follow-up. The ITSM Pro, SKU, I believe that's priced quite a bit higher than the core SKU. I'm curious if that's having an impact on the size of new deals and as existing customers come up for renewal, maybe you could comment on whether they're upgrading to the higher dollar SKU or if that's driving a positive impact on getting them to adopt additional products rather than eating a price increase. So maybe it would be helpful if you could just walk us through that as well. Thanks.

Yeah, so the ITSM Pro Bundle was released a way to monetize

Great. Thanks for taking my questions today. Congrats on the quarter.

Your next question comes from Derek Wood with Cohen. Your line is open.

Great. Thanks, John. Given the brand marketing you've invested in over the last few months, and I know you mentioned it's increased awareness with C-level executives, but I'm curious, has this already helped kind of in the field surface new conversations and engagement at the C-level? I guess if we were to fast forward a year or two from now, is one of the hopes that it drives more executives to be buyers of ServiceNow, or how do you think it could help transform high-level engagements?

Yes, Derek. I think it's too early to point out that direct cause and effect, but I can tell you, for instance, as I engage with C-suite execs, either at customers or just more generally the number of people that said, hey, I saw that ServiceNow ad. Boy, that was funny or that was great, which is exactly what the point was. Alan Barks, who's sitting here next to me, is our chief brand and creative officer and was the real architect behind these commercials. And, again, here's the way I think about it, and I think Mike and I would think similarly about this, A year from now, when a CIO or a CIO and CHRO are bringing to a CFO a $10 million contract for ServiceNow, we want that CFO to say, oh, yeah, I've heard of ServiceNow. And so there's just a general awareness as being one of the top strategic platforms that we're trying to build. Whether that will lead to new leads across the C-suite, you know, I don't know. I think, frankly, that – That's not the direct goal because usually the new leads come from more direct selling activities. This provides kind of the air cover, legitimacy, and brand building that, you know, establishes us as a leading, innovative, very human, with maybe a little sense of humor, company. I also think, frankly, the value is as much on the employee brand side. You know, talent is the lifeblood of any technology company, and we are growing rapidly and growing globally rapidly. And so it matters if students on the top universities have heard of ServiceNow. It matters if someone in a local market can say, go home to their parents, to their proverbial mother and say, yeah, I'm joining ServiceNow, and his or her mother have heard of ServiceNow. You may laugh about that, but that kind of stuff matters as you're kind of scaling in the way we are, and we are absolutely focusing on attracting and retaining top talent. And so the global brand building is also part of that, is both C-suite executives and talent. So good start. We're going to get the data in on our aided and unaided awareness, which I'm sure has increased, and we'll continue to invest to build that over time.

Got it. Thanks. And I was hoping to touch on the SecOps product. It doesn't seem to get as much attention as CSM or HR, but can you talk about how you see the opportunity shaping out over the next 12 to 18 months and maybe what you can do to help drive more penetration in the security budget?

Well, I mean, I think, you know, interestingly, one of the things that we've done is by bundling our products into the free I think that's a little bit more symptomatic or emblematic and aligned with how the decision-making often happens. Because where we thrive is when a CISO and a CIO are both jointly involved in our product's decision. You know, we do vulnerability response, incident response. And so it's part of, I think, a healthy and natural ServiceNow bundle, if you will, ServiceNow suite of solutions. I'll also say I mentioned earlier I was with Mike Lowry and his team from DXC yesterday, and they had some very interesting security offerings that they were saying that they believe ServiceNow can be a really important component to it. So I think partnerships with people like DXC, with people like Accenture and Deloitte and KPMG can also accelerate that part of our business. If we aren't offering the full security solution, We have an important component of it with our security, our incident response, our vulnerability response, and to some extent our GRC capabilities.

Right. Okay. Thank you.

Your last question comes from Michael Turitz with Raymond Chance. Your line is open.

Hey, Mike and John. I just want to talk about the mid-market and commercial market. Who are you seeing competitively down there, and are you adjusting your go-to-market in any way?

You know, we tend to see in the lower market, that's where you hear of more of the Atlassian with their service desk and Zendesk, and you have Freshworks. It's been the same people that we've seen there for a number of years, but it's a very small piece of our business. As you know, we tend to focus more on enterprise. The commercial segment now is model. We are trying to do more through the channel, but at the end of the day, when you have customer data, they want to have a direct relationship with you. So channel partners are more involved in that segment, but we still have direct contracting relationships with those customers. And I've got to say, there's really been no change in that market for the last five or six years that I've seen. But the one exception I would say is we in that segment.

And Michael, just building with what Mike said, my observation would be, one, we have a terrific leader there, John Sapone, and he's got a really, really strong team, a talented commercial sales team. But what you see is there are certain businesses that are in that, we define commercial as 1,000 to 5,000 people, that are high growth and are on their way to becoming an enterprise. And almost inevitably, the larger you get, the more you want a platform, and the more you want to scale a platform like ServiceNow. And that's really where we're strong. If someone is going to stay right at 1,000 employees and be there three to five years from now, they have to make a fundamental decision. Do they want to go with one of the companies Mike mentioned earlier, or do they want to go with ServiceNow? But what we really like about our position is those companies in that market that are growing understand that they need to – Once you get to a certain size, you have to have the kind of fundamental platform that we offer. And so John and his team do a nice job of segmenting that market and ensuring we're focusing our energies on where customers have a real legitimate need for what we deliver and offer. But it's my guess. Thank you.

Oh, sorry.

Okay.

Thanks very much, guys. Really appreciate it.

Okay. Thank you, everyone. As a reminder, a replay of this call will be available as a webcast in the investor section of our website. Thank you for joining us today.

This concludes today's conference call. You may now disconnect.