ServiceNow, Inc.

Ladies and gentlemen, thank you for standing by and welcome to the Q1 2020 ServiceNow Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Vice President of Investor Relations, Lisa Banks. Thank you. Please go ahead.

Good afternoon, and thank you for joining us for ServiceNow's first quarter 2020 earnings conference call. Consistent with how we are operating globally, our call today is work from home. Joining me are Bill McDermott, our President and Chief Executive Officer, and Gina Mastituno, our Chief Financial Officer. During today's call, we will look at our first quarter 2020 financial results and discuss our financial guidance for the second quarter of 2020 and full year 2020. Before we get started, we want to emphasize that some of the information discussed on this conference call, particularly our guidance, is based on information as of April 29, 2020, and contains forward-looking statements that involve risks, uncertainties, and assumptions. including those related to the impact of COVID-19 on our business and global economic conditions. The forward-looking guidance we will provide today is based on our assumptions as to the macroeconomic environment in which we will be operating. Those assumptions are based on the facts as we know them today. Many of these assumptions relate to the matters that are beyond our control and changing rapidly, including, but not limited, the timeframes for and severity of social distancing and other mitigation requirements, the impact of COVID-19 on our customers' purchasing decisions, and the length of our sales cycles, particularly for customers in certain industries. Significant changes in the future could cause us to modify our guidance higher or lower. Please refer to the press release and risk factors and MD&A in our SEC filing, including our most recent 10-K and our 10-Q, that will be filed for Q1 2020 for information regarding such risks, uncertainties, and assumptions that may cause actual results to differ materially from those set forth in such forward-looking statements. We'd also like to point out that the company reports non-GAAP results in addition to and not as a substitute for or superior to financial measures calculated in accordance with GAAP. All financial figures we will discuss today are non-GAAP except for revenues, net income, and remaining performance obligations. To see the reconciliation between these non-GAAP and GAAP results, please refer to our press release filed earlier today, our investor presentation, and for prior quarters, previously filed press releases, all of which are posted at investors.servicenow.com. A replay of today's call will also be posted on the website. Please note that due to the short-term uncertainty of the ongoing COVID-19 crisis, we have decided to postpone our financial analyst day for a future date. We expect it will occur in the second half of the year so we can provide more visibility into 2021 and the long-term operating environment. With that, I would now like to turn the call over to Joe.

Thank you, Lisa, and good afternoon, everyone. Welcome to our Q1 earnings call. Let me begin by extending my hope that you and your loved ones are healthy and safe. We wish a speedy recovery for anyone affected by COVID-19. And of course, our hearts go out to those who tragically lost a loved one. For the millions of people economically impacted, we're doing our part to support those in need and to get the world working again. We are truly in this together. Here are the key takeaways I'll reinforce in today's remarks. First, ServiceNow is a unique platform, a very strong company. We are well positioned in this seminal moment. Next, digital transformation was a business imperative pre-COVID with $7.4 trillion of projected spend over the next three years. Post-COVID, digital transformation will accelerate, and ServiceNow is the workflow standard for digital transformation. And most important, the now platform, the platform of platforms, has become the standard for workflow design experiences. As the COVID-19 pandemic spread around the world in Q1, ServiceNow focused on protecting the health and safety of our employees, serving our customers, and supporting our communities. Leadership, by example, has never been more important. We never stop pushing. We will not slow down. You've seen our earnings release. We delivered a strong Q1, beating guidance and consensus. We have shown we can deliver. In March, as the pandemic was being felt everywhere in the world, our more than 11,000 employees seamlessly transitioned to a work-from-home environment. I'm so incredibly proud of how ServiceNow employees adjusted. Our team focused, they executed, they delivered. Employees feel motivated, inspired, and proud. After shifting to work from home, we held our biggest all-hands company meeting ever, a live global digital event where we laid out our plans to support each other and to serve our customers. Feedback from our recent employee satisfaction survey is also very encouraging. 99% are excited about our future. 95% feel more inspired by our purpose than ever. 98% feel confident in our crisis response. ServiceNow employees are ready to lead. We're strengthening the amazing purpose, culture, and character of our company. Our seamless transition to work from home is a powerful demonstration of the Now platform. Our cloud-native Now on Now solutions enabled our employees to maintain and often improve productivity. Our virtual agent technology, our now mobile app, our digitized workflows on the now platform allowed employees to easily self manage their work requirements. We didn't miss a beat supporting our customers. Our cloud uptime numbers remained world class. Cloud consumption stayed high, as customers relied on the Now platform as a workflow workhorse. Around the world, we see that customers who are farthest along in their digital transformation are better equipped to manage this crisis. Companies lagging behind are realizing that they now have a burning platform. Accelerating digital transformation has become a business imperative. Behind every great experience is a great workflow. Today, that matters more than ever. The power of the Now platform has become self-evident to customers in this pandemic. They are leveraging the Now platform to quickly deploy workflow apps that enable better crisis management and business outcomes. Our COVID-19 emergency response apps are a great example. These four apps, one developed in partnership with the Washington State Department of Health, and three developed by our own team, were released at no charge at the end of March. More than 5,000 installations have taken place. Washington State, San Francisco, and Los Angeles are just a few examples of how we are helping government agencies respond. CIOs are telling us that their teams are using the Now platform to deliver workflow-designed experiences that their companies need now. For example, the Lowe's Corporation was facing a surge of emergency paid leave requests due to COVID-19. Within 96 hours, they built a mobile leave request app on the Now platform and deployed it to 330,000 employees. This is what Q1 was all about, leading, helping our customers deal with reality, helping them do what needs to be done. Let's look at some of the results now. We had 37 deals greater than $1 million this quarter. That is up 48% year over year. In fact, most deals closed in the final weeks of March, consistent with normal linearity. Our renewal rate remained best in class at 97%. We saw strength in the Americas, our largest region. We also saw strong growth in APJ, despite the impact of COVID-19 throughout the quarter. Our now cloud went live in Seoul, South Korea in March, where we signed two new customers representing major brands. We also saw strong deals completed in EMEA, despite the challenging environment. Q1 results reinforce the strength of our portfolio. Hear this. 18 of our top 20 deals with companies such as Merck, Humana, and Siemens included three or more products. This included our second largest new customer transaction ever, which was signed with a Fortune 50 leading U.S. insurance company. We saw great momentum with ITSM Pro, which delivers increased automation and operational resiliency for our customers. Our business continuity and integrated risk management products continued their strong momentum. Sixteen of our top deals included multiple IT products. Chevron, for example, is realizing the power of the Now platform by using multiple ServiceNow products across their business to drive productivity. They're now using our suite of IT products and they deployed our HR products to their entire 44,000 person workforce. We saw continued traction in HR and customer service management. Customers such as the US Department of Health and Human Services are leveraging HR service delivery to respond to COVID-19. Half of our top 20 deals included HR. We now have more than 50 CSM customers greater than a million dollars, including one of the fastest growing digital streaming services. This company launched an innovative game changing digital business. They did it with ServiceNow. Our customer service management technology is foundational helping them scale faster than anyone imagined possible. In Q1, we also landed our largest CSM deal ever in APJ. Japanese-based Morata Manufacturing purchased CSM to enhance their customer support, reduce time to resolution, and increase customer satisfaction. We also launched Orlando in March, our most innovative Now platform release ever. Our day one adoption was ServiceNow's highest ever. Orlando features Now Intelligence, which gives customers unmatched AI, analytics, and mobile capabilities across the Now platform to support any workflow-designed experience. Driving new levels of enterprise productivity is what Orlando is all about. The Office of Information Technology at Princeton University, for example, successfully upgraded to Orlando and went live with CSM. Princeton CIO Jay Dominick says they moved fast to implement CSM functionality to serve current, and prospective graduate students, staff, faculty, and other stakeholders. And I'm talking to many CEOs and C-suite leaders worldwide. Here's what they're telling me. In crisis, they are focused on protecting revenue, ensuring business continuity, and driving productivity. They want an enterprise workflow platform that delivers ROI, in 12 months or less. The good news is fast time to value is a ServiceNow core strength. The ServiceNow advantage is one architecture, one data model, one platform. This gives us strategic authority to be the clear choice for all customers across IT, employee, and customer workflows. across all geographies, industries, and personas. Our partner ecosystem sees this clearly, and they're doubling down on ServiceNow. We value how our partners, Accenture, Deloitte, VXC, EY, KPMG, and many others have stepped up to support our shared customers. Our Q2 Fast Start Playbook is focused on the priorities that matter most to our customers. We're engaging our customers like never before. Our Q2 Fast Start Playbook includes five key messages. Digitally scale operations quickly and efficiently. Reduce technology debt. There's a lot out there. Ensure resilience for critical business operations. Deliver employees the right digital experience from anywhere. and create new workflows fast. Each one of these priorities drives great employee and customer experiences. Last week, in fact, we engaged current and potential customers with these. These solutions, in a global company-wide prospecting day, were built to drive pipeline. The results were simply outstanding. Our teams delivered three times greater pipeline than any previous prospecting day ever. Our messages and solutions are resonating in every sector and every geography around the world. We're also engaging customers and building pipeline through our digital knowledge event. This launches on May 5th. I encourage everyone to join us. We have six weeks of incredible content and digital experiences for our ServiceNow community. Knowledge already has more than twice the number of registered attendees that we had anticipated in the physical event we planned in Orlando. We expect the audience to keep growing throughout the next six weeks. It is going to be one heck of an experience. And this is a great example of how we have pivoted We remain focused on delivering our customers and partners the connection, inspiration, and education that makes knowledge such a special event every year. And most importantly, it keeps the ServiceNow community strong. Okay, I've covered a lot here, so let me recap. We seamlessly transitioned to a work-from-home environment and drove very strong Q1 performance. Our customers are innovating on the NOW platform to meet their crisis management, business continuity, and productivity needs. Service NOW is enabling customers to do what they must do to get the job done. Our pipeline is really strong. Our solutions are resonating. Our customers are asking for more. These are the actions and insights. that have informed our outlook. Gina will provide more details on our guidance. She has led an exceptional analysis and thorough bottoms-up effort on all possible scenarios. Our guidance reflects a slightly broader range, considering the well-known uncertainties our customers face as a result of COVID-19 in the marketplace. Even as I say that, Please keep in mind that ServiceNow is strong in all industries across the Fortune 500, and we are confident in our opportunities, our ongoing customer demand, and our solutions, and in the strong pipeline we see in our business. We are aware of the hard work ahead. We are taking nothing for granted. This is an innovation-led company. with an incredible team. We have a proven track record and an unwavering commitment to customer success. Ladies and gentlemen, if it can be done, ServiceNow will do it. We are on the move. I'd like to thank you very much for your time and attention. And I'll now turn over the call to Gina.