ServiceNow, Inc.

Ladies and gentlemen, thank you for standing by and welcome to the Q2 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 has been recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today. It's Lisa Banks, Vice President of Binance. Thank you. Please go ahead, ma'am.

Good afternoon, and thank you for joining us for ServiceNow's second quarter 2020 earnings conference call. Joining me are Bill McDermott, our President and Chief Executive Officer, and Gina Mastantino, our Chief Financial Officer. During today's call, we will review our second quarter 2020 financial results and discuss our financial guidance for the third 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 July 29, 2020, and contains forward-looking statements that involve risks, uncertainties, and assumptions, including those related to the continued 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 matters that are beyond our control and changing rapidly, including but not limited to the timeframe score and severity of social distancing and other mitigation requirements that continue to impact of COVID-19 on our customers' purchasing decisions and the length of our sales cycle. 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 filings, including our 2019 10-K and our 10-Q that will be filed for Q2 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 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. With that, I would now like to return the call over to Bill.

Thank you, Lisa, and good afternoon, everyone. Welcome to our Q2 2020 earnings call. Let me begin by extending my hope that you and your loved ones are healthy and safe. This COVID environment continues to create challenges for many, and we continue to support our stakeholders, our employees, and customers in every way possible. Before getting into our strong results, here are a few trends shaping the overarching environment for ServiceNow. This unprecedented environment is breaking physical supply chains. It is exposing the weak links in the old value chains, illuminating how companies struggle cross-functionally to deliver the workflows that create great experiences for customers, employees, and partners. The world is experiencing a seismic shift from the obsolete business process evolution to the new workflow revolution. CXOs are using the Now platform to create new workflows for new value chains, transforming experiences across siloed systems and functions across the entire enterprise. ServiceNow is the strategic authority for workflow. We are a trusted C-suite innovator. We multiply the value of existing technology investments. We deliver exceptional time to value, and our customers understand the business continuity and resilience that the now platform enables. Driven by these factors and many others, we couldn't be prouder of our very strong Q2 performance. We beat expectations, beating consensus and guidance, and became a 4 billion run rate cloud company. We're raising our top line and operating in free cash flow margin guidance for the full year 2020, which Gina will provide more detail on shortly. We are delivering safe workplace product innovation in two-week cycles, helping our customers succeed and keeping their employees healthy and safe in these unprecedented times. ServiceNow is a growth company. We are becoming even stronger on our journey to $10 billion in revenue and beyond. We remain totally focused on our ambition to be the defining enterprise software company of the 21st century. Let me share some additional perspective on how we are supporting customers. CEOs and management teams are focused on protecting revenue, improving productivity, and ensuring business resiliency. This has turned digital transformation into a business imperative across all industries. ServiceNow is on the front lines of getting companies reopened. We are helping employees get back to the workplace safely. In May, we launched our safe workplace application suite and dashboard. Our engineering teams continue to deliver product innovations every two weeks. These are real products with an architecture that makes it easy to connect employee health data to their employee badges to ensure safety and security in the workplace. More than 550 organizations worldwide have downloaded our Safe Workplace suite. Companies such as Uber, Coca-Cola European Partners, and Bank United are using the apps and dashboard to return to the workplace safely. This is the power of the Now platform, the ability to move fast, Be agile. Solve problems quickly with low-code, no-code app development. Create new workflows that deliver great experiences. We're helping our customers solve for once-in-a-generation challenges, even as they capitalize on the opportunities of digital transformation. Because we offer one platform, one data model, and one architecture, customers see the Now platform as as a smarter way to workflow. Gina will share our full financial results with you. But here are some highlights from another quarter in which ServiceNow outperformed. Despite the COVID headwinds, we closed 40 deals, greater than 1 million in ACV this quarter. We now have 964 customers paying us more than 1 million ACV annually. Our linearity was strong. our renewal rate remains best in class at 97%, demonstrating ServiceNow resilience. Q2 deals underscore the strength of our product portfolio. 18 of our top 20 deals included three or more products. Customer examples include Equifax, the Commonwealth of Pennsylvania, and the State of California. Our core business remains ever strong, with continued momentum in ITSM Pro, and growth in risk and security, especially as enterprises focus on business continuity. ITSM Pro led eight of the 10 ITSM deals, delivering customers increased automation and operational resiliency. ITSM was included in 17 of the top 20 deals. 15 of the top 20 deals also included security. We did our largest ever risk deal with Providence Health and Services, which has 51 hospitals, 121,000 employees, and 800 non-acute facilities. As a heavily regulated business, Providence is partnering with ServiceNow to manage risk and improve productivity across their business. Employee experience is more relevant than ever. Our HR business now continues to be strong with over 750 customers. In Q2, we had eight deals that were greater than 1 million. For example, the Commonwealth of Pennsylvania is using ServiceNow to improve efficiency of their HR shared services and to increase employee engagement. They are enhancing employee communications to support their telework initiative. Goldman Sachs, a longtime ServiceNow ITSM customer, became a new HR customer in Q2. They are using our HR products to provide a more consistent employee experience and to drive cost savings. Creating the best customer experiences and rapidly scaling digital services matter now more than ever. This is driving momentum in our customer service management business. We have more than 50 customers spending more than $1 million in ACV annually. We are delivering great consumer-grade customer experiences powered by industry-specific workflows. Our Zoom partnership is a great customer example. Zoom's usage rocketed 30 times in four months, 30x increase. They're now up to 300 million daily meeting participants. ServiceNow's CSN solution is enabling Zoom to scale its customer service operations, providing critical communication capabilities for its rapidly expanding global community. CSM also provides proactive case management and personalized self-service options to help Zoom manage the influx of customer requests. We're proud that Zoom chose CSM and the Now platform to help manage its exponential growth. Zoom also is using our AIOps capabilities to enable its new hardware-as-a-service business model. Thank you, Zoom. Underlying every one of our products is the Now platform, the platform of platforms. Let me share some examples of how the Now platform and products translated into strategic customer wins this quarter. A great example is the U.S. State Department. They used the Now platform to create a dozen apps in just three weeks, tracking COVID requirements, every country on the planet to keep employees traveling safely. With JPMorgan, we closed our largest IT business management and our largest DevOps deal ever. As they consolidate their ITSM, they are improving their employees' experiences, leveraging advanced workflows and intelligent automation. We're honored that JPMorgan Chase selected the Now platform to drive their digital transformation. creating great employee experiences and increasing productivity. Fiserv, a global fintech leader, recently completed a merger and needed to consolidate systems and processes to gain greater visibility of their assets. Using the Now platform, they can now gain visibility and insight into their newly combined infrastructure and their emerging dependencies. This reduces time to resolution, improves customer experiences, and reduces op-ex, all while proactively providing better services to their customers. We're also now working with the state of Montana to automate their citizen workflows. With COVID, they needed to evolve face-to-face citizen interactions to remote services. They also wanted to reduce the cost and complexity of asset management across multiple agencies, while maintaining data privacy between all of them. It was our ability to provide a single enterprise platform to service all of Montana's agencies that earned us their trust and their business. ServiceNow is partnering with the world's largest brands. Disney is another example of how the Now platform is driving business model innovation. Dan Schmidt, VP and CIO of Disney Streaming Services, joined me as part of my keynote during our Knowledge20 experience. With the support of ServiceNow's CSM workflows, Disney Plus quickly grew to more than 55 million subscribers in just a few months after launch. During the knowledge keynote, Dan shared how ServiceNow provided Disney, and I quote, an extremely flexible and extensible platform that allowed them to develop a best-in-breed customer health center and best-in-breed tooling for their agents to support their customers around the world. These customer stories and so many others are why the industry now understands the magic of the now platform and the strength of our core business. Top IT analyst firms have named us a leader in three new markets to serve us now, CSM, DevOps, and software asset management. We also were honored to be named the overall digital innovation award winner by Ventana Research. Every company has had to pivot in this new environment to continue to engage customers in meaningful ways. I am incredibly proud of how our team quickly pivoted knowledge from a four-day physical event that was scheduled to be held in Orlando to a six-week digital experience that brought the ServiceNow community together worldwide. And listen to this. We reached almost twice as many people globally this year than we did at Knowledge 2019. We also delivered more than 820 hours of content, including 1,100 customer-led sessions and breakouts, building a strong pipeline. As our traction continues to grow, our ecosystem continues to strengthen. Our partners play a critical role in accelerating customers' digital transformation. For example, we recently announced an expanded alliance with Deloitte to help customers accelerate their HR service delivery efforts and to provide employees with exceptional digital experiences anywhere. With customer loyalty and our growing ecosystem, we are increasingly part of digital transformation conversations that give us absolute confidence in our business model and our strategic relevance with customers. Our innovation is inspired by solving the needs of customers across geography, industry, and persona. As we shape the workflow revolution, our best ideas are ahead of us. Our overarching focus is clear, innovating for customers as we scale ServiceNow to 10 billion and beyond. Our strong management team and our 12,000 employees will enable us to achieve our bold ambitions. To continue driving our growth today, we are announcing the next evolution of our already outstanding go-to-market organization. We are leveraging our tried, true, and proven executive talent to continue our strong momentum. Effective immediately, Kevin Haverty is named Chief Revenue Officer as he continues leading our global sales organization. Kevin has been with the company for nine years and has been leading our sales organization for the last six years. He's owned the number the whole time. Laura Kamey is named to the new role of Chief Customer and Partner Officer, leading all customer success programs and the development of strategic partner activities. She joined ServiceNow in 2017 as Chief Strategy Officer and has led nine acquisitions. They will both report directly to me. I'm really excited. We also recently welcomed Paul Smith as Senior Vice President and General Manager of our EMEA business, which, by the way, just reached a billion revenue run rate. Joining us from Salesforce, he has a track record for triple-digit growth. Paul is a great example of how ServiceNow is attracting premier talent worldwide. We are fast becoming the employer of choice for our industry's best talent. Before closing, I want to take a moment to honor David Schneider. David has decided to retire at the end of 2020 after a stellar nine years at ServiceNow and more than 35 years in the industry. David truly has earned the right to step away and begin a new personal chapter in his life. David epitomizes our purpose and values. It has been a tremendous honor to work so closely with such a beloved leader. He is ServiceNow family. He always will be. and I wish him the very best in his retirement. David will remain President Emeritus and an advisor to me until the end of the year. In summary, we are service now strong. In extraordinary times are born extraordinary opportunities. In this once-in-a-lifetime moment, we are at the top of our game. Our people are rising up to seize the opportunities before us, I'm incredibly proud of our culture, our focus, discipline, and execution. ServiceNow people have never been more engaged, more focused on serving the enormous needs of our customers. Our partners are with us. The ServiceNow ecosystem is truly thriving. Our brand continues to resonate, and we are creating greater awareness and relevance with the C-suite. I constantly hear how people deeply connect to our brand and the humanity of our purpose. Ladies and gentlemen, ServiceNow is special. We're leading the workflow revolution, which leads the future of our business. Now workflows on the Now platform. The opportunity has never been greater. We will fulfill our purpose to make the world of work work better for people. We are hungry, we are humble, and we're taking nothing for granted. We're on the move to our destiny to become the defining enterprise software company of the 21st century. Thank you very much for your time and attention today. I look forward to your questions. Now I'll turn the call over to Gina. Gina?