ServiceNow, Inc.

Ladies and gentlemen, thank you for standing by and welcome to the Q4 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. I would now like to turn the conference over to your speaker today, Lisa Banks, as VP of Finance. Thank you. Please go ahead.

Thank you, and good afternoon. Thank you for joining us for ServiceNow's fourth quarter 2020 earnings conference call. Joining me are Bill McDermott, our President and Chief Executive Officer, and Gina Mastantuno, our Chief Financial Officer. During today's call, we will review our fourth quarter 2020 financial results and discuss our financial guidance for the first quarter of 2021 and full year 2021. Before we get started, we want to emphasize that some of the information discussed on this call, particularly our guidance, is based on information as of January 27, 2021, 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 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 we know today. Many of these assumptions relate to matters that are beyond our control and changing rapidly, including but not limited to the timeframes for and severity of social distancing and other mitigation requirements. The continued impact of COVID-19 on customers' purchasing decisions and the length of our sales cycles, particularly for customers in certain industries. Please refer to the press release and the risk factors and MD&A sections of our SEC filings, including our most recent 10Q and our 10K that will be filed for fiscal year 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 presents non-GAAP measures in addition to and not as a substitute for financial measures calculated in accordance with GAAP. All financial figures we will discuss today are non-GAAP except for revenue, net income, remaining performance obligations, or RPO, and current RPO or CRPO. To see the reconciliation between these non-GAAP and GAAP measures, please refer to our press release filed earlier today and 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. With that, I would now like to turn the call over to Bill.

Thank you, Lisa, and good afternoon, everyone. Welcome to our Q4 earnings call. Let me begin by extending my hope that you and your loved ones are healthy and safe. Having confronted an unprecedented global environment, we are looking ahead with optimism and are thankful to be so well positioned to serve our customers. Needless to say, we delivered a market-leading 2020. We significantly beat expectations across the board, bringing great momentum into the new year. I could not be prouder of our team's execution. We delivered over 30% organic top-line growth, 25% operating margins, and $1.4 billion in free cash flow. Just an outstanding performance and a testament to our ServiceNow strong culture. Throughout the year, we led with courage and conviction. We took care of our team, our customers, and our communities. And most importantly, we led with ServiceNow's purpose to make the world of work work better for people. We strive to see the world through our customers' eyes with empathy to address their needs. The workflow revolution is happening, and the pandemic is accelerating digital transformation. Every business needs speed, agility, and resilience. And every C-suite leader wants to deliver great experiences for their employees and their customers. Businesses are changing the way they operate. They need to deliver fierce customer loyalty and deep employee engagement to win. It's all about people. Empathy at mass scale is the business imperative of the 21st century. The secular tailwinds of digital transformation, cloud computing, and business model innovation have all intersected at the perfect moment in time. A paradigm shift is happening worldwide. In 2020, for the first time in history, we saw digital transformation spending accelerate despite GDP declining globally. Digital investments are at an all-time high and are expected to continue growing. According to IDC, worldwide digital transformation investments will total more than $7.4 trillion by 2044. The digital economy is firing on all cylinders. ServiceNow is the platform company for digital business. The Now platform, what I call the platform of platforms, offers the speed, flexibility, and innovation companies need. Our simple low-code app development enables fast workflows to solve any business challenge, delivering consumer-grade digital experiences. The Now platform enables easier and faster implementation, delivering unbeatable time-to-value and fast ROI. That's the beauty of the Now platform, one platform one data model, and one architecture. We seamlessly integrated all of this into our system. And that system integrates seamlessly with all systems of record that matter most to our customers. We deliver workflows through their preferred collaboration platform as well. We give our customers the freedom of choice to use their preferred tools and the unique ability to build apps at record speed. Hungry and Humble is a core ServiceNow value. It's truer now than ever. We are grateful to be in such a strong position at such a pivotal moment, and we are hungry. We are eager to use our strengths to help our customers succeed, help make our community stronger, and help create great experiences for people. We are seeing an extraordinary expansion of use cases in our business. Healthcare organizations are using ServiceNow to improve operations and service delivery, which means better outcomes for people. St. Jude Children's Hospital has been on a journey to accelerate progress towards finding cures and saving children. In 2020, COVID-19 created a significant headwind to that mission. With much of the hospital staff required to work from home, the need to digitize manual workflows became more important than ever. The hospital leveraged ServiceNow, low-code App Engine, and Integration Hub to integrate disparate systems and build custom end-to-end workflows, ultimately allowing them to ensure seamless delivery of critical services in under four weeks. The ServiceNow solution was implemented at St. Jude's Children's Hospital, and everybody was moving toward their goal. We're also proud to be supporting NHS Scotland and their efforts to vaccinate 5.5 million citizens. NHS Scotland is using the Now platform and our customer workflow to deploy a customized solution designed to meet their specific needs. Deployment took only six weeks. showing the agility of the Now platform. ServiceNow is enabling a comprehensive solution for the scheduling and reporting of vaccinations for Scotland's most vulnerable citizens. Within 12 hours of go live, NHS Scotland booked over 220,000 appointments. So as you can see, it's not just about business workflows, it's about real people. Enterprise digital transformation is how every organization in every sector, in every geo, are adapting, growing, creating new business models, and empowering their people to be productive in any environment, under any conditions. That's modern, agile, resilient business at work. And it's being powered by the now platforms. Our unique platform and innovative product suite, our strong brand, high customer satisfaction, and compelling value proposition are the differentiating factors and competitive advantages fueling our performance. Our Q4 results are testament. We dream big and deliver. We grew billing by more than 40% year over year, organically. We delivered 89 deals. greater than $1 million, and now have close to 1,100 customers paying us over $1 million annually. We landed our largest deal ever, surpassing the deal record we set in Q3 with the U.S. Department of Veteran Affairs. Deal sizes overall keep getting larger. Our renewal rate remained best in class at 99%. Here are some key customer wins from Q4. We signed a multi-year and multi-product strategic deal with AT&T. They are transforming by focusing on broadband connectivity, 5G, and software-based entertainment, while relentlessly focusing on digital consumer preferences and experiences. We're delighted to work with AT&T Communications in its transformation. ServiceNow's AI-powered platform and service operations product lines will provide AT&T accurate and real-time operational visibility into every layer of the network fabric and help deliver the best-in-class customer experience. Better experiences for people enabled by ServiceNow. One of the UK's big four banks is using multiple ServiceNow products, including our purpose-built new financial services operations product to help transform the way it operates and to deliver better customer experiences. The bank has seen a 70% efficiency and improvement of payment processing by integrating the Now platform into its core banking systems. With ServiceNow, this bank implemented new automated processes in 60 workdays. In their words, Employees moved from cut and paste, swivel chair manual processes to efficient automated workflows. In one case, employees went from managing 10 requests an hour to 1,000 requests in three minutes on the Now platform. Better experiences for people. PayPal recently expanded their relationship with ServiceNow as a key partner for elements of their digital transformation. And we're proud to have expanded our relationship with Nike, who is using the Now platform to create better customer and employee experiences. Other Q4 deals across our portfolio represented wins with major customers in key sectors, such as booking.com and travel and hospitality, BP and energy, Santander, UK, and USAA in financial services. And the list goes on and on. I hear so many ServiceNow success stories every day. Companies are onboarding thousands of people in a work-from-home environment, making them feel productive and part of the team from day one. Customers are going live on the Now platform in days, not months, making a difference for people now, not next month or next year, now. More productive employees, happier customers, more efficient operations. There's not a CEO on the planet who doesn't want that. The now platform delivers. These examples show how technology is no longer supporting the business. Technology is the business. Our IT leadership and workflows gives us a uniquely strong foundation to be the leading platform for digital transformation across the enterprise. In Q4, IT workflow products remained strong. ITSM delivered 17 deals over a million dollars. Our AI and machine learning capabilities embedded within our Pro SKU continue to resonate with our customers. ITSM Pro penetration is now over 20%. The AI ML capabilities of our Pro SKUs are automating processes to allow people to focus on the work that really matters. We saw a three times increase in usage of our virtual agent technology in 2020. And our Element AI acquisition underscores our commitment to being the leader in AI-enabled workflows. Element AI's deep bench of world-class scientists and practitioners will accelerate our AI innovation on the now platform. delivering not only better capabilities for IT, but for employee and customer experiences as well. ITOM was included in 16 of the top 20 deals and had 15 deals over a million dollars. Risk had a very strong Q4, booking more wins than all of the prior year combined. Our ability to manage risk is really resonating with customers. ServiceNow is no longer viewed as back-end IT-oriented solution. We're now seen as a strategic partner that impacts the entire business. Customer workflows is our next $1 billion plus market opportunity for ServiceNow, and Q4 showed strong momentum. Customer workflows were included in 11 of our top 20 deals, driving such wins as AT&T. 10 of our customer workflow deals were greater than $1 million. In this pandemic, the employee experience is more important than ever, and our employee workflows are seeing strong demand. In Q4, 11 of our top 20 deals included employee workflows. The pandemic is creating the greatest workflow challenge of our time, and ServiceNow is responding with agility, speed, and continuous innovation. We began last spring, as you'll remember, with our emergency response apps, helping the state of Washington and many others respond to COVID. We fast followed that release with our safe workplace suite of apps that has demonstrated the power of the now platform and great employee workflows that we can deliver very quickly. In fact, more than 900 organizations now have downloaded the suite already. This week, we just launched the first in a suite of planned vaccine administration applications delivered out of the box functionality for our customers. Our comprehensive approach enables workflow solutions to the complex challenges of vaccine distribution, administration, and monitoring. As we have done with Safe Workplace, we will be delivering continuous innovation with our vaccine administration management applications. I'm excited to announce that the state of North Carolina Department of Health and Human Services is already leveraging the ServiceNow platform to power its COVID vaccine management system to help quickly and efficiently vaccinate 10 million North Carolinians. President Biden has declared the distribution of COVID vaccines a top priority for his administration. This is one of the great workflow challenges of our time. As we are doing right now in Scotland, North Carolina, and many other places, ServiceNow is ready to ensure vaccine distribution, administration, and monitoring that it's simple, it's fast, and it's effective. It'll be so at the federal, state, and local levels. In summary, we had an outstanding close to 2020, and we are not slowing down. We are changing the world one workflow at a time, and our vision is really resonating. C-level executives realize that behind every great experience is a great workflow. Our company is hitting on all cylinders. In 2020, we grew our global workforce by 26%. hiring 3,000 people in 25 countries, with most hired and onboarded digitally. We are hiring incredible talent, including some of the greatest minds in the AI industry. Our culture is incredibly strong. Our employee engagement is at historic highs. So too is our employee retention. Our brand is strong. C-suite awareness increased in double digits. Our innovation pipeline is robust. We delivered 70% more features and innovations on the platform in 2020. Our partner ecosystem is expanding. IBM, Microsoft, Accenture, Deloitte, EY, KPMG, and all the great partners in India and many others have joined the workflow revolution with us. Together, we're bringing the innovation speed of a startup with the scale and reach of a rapidly growing $5 billion-plus pure-play SaaS company. And our RPO is nearly double that at $9 billion. We're the only born-in-the-cloud software company to have reached this size with our large-scale M&A, and we have a clear path to achieve our $10 billion revenue target. We are also deeply committed to making the world of work work better for people, to helping our customers succeed. We are deeply committed to making the world work better too. Gina will share more about our focus on elevating our global impact. I'm incredibly proud of our just announced $100 million investment in an impact fund benefiting underserved communities. And we're deeply committed to being a leader in building a diverse, inclusive workforce in which everyone feels that they belong. Because diverse teams with an indomitable will to win create great companies. ServiceNow is such a company. And we are well on our way to becoming the defining enterprise software company of the 21st century. That's our dream. And we will pursue it tirelessly with courage, passion, and conviction. Thank you. Over to you, Jim.