ServiceNow, Inc.

Good day and thank you for standing by and welcome to the Q1 2021 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'll need to press star 1 on your telephone. Please be aware to limit your question to 1 and a follow-up. Please be advised that today's conference is being recorded. If you should require any further assistance, please press star 0. I would now like to hand the conference over to your speaker for today, Ms. Lisa Banks, Senior Vice President of Finance. Thank you, ma'am. Please go ahead.

Good afternoon, and thank you for joining us for ServiceNow's first quarter 2021 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 first quarter 2021 financial results and discuss our financial guidance for the second 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 April 28, 2021, and contains forward-looking statements that involve risk, 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 customer purchasing decisions, and the length of our sales cycle, particularly for customers in certain industries. Please refer to the press release and the risk factors and MD&A sections of our SEC filing, including our most recent 10-Q and our 10-K file 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 revenues, net income, remaining performance obligations, or RPO, and current RPO, or CRPO. To see the reconciliation between the non-GAAP and GAAP measures, please refer to our press release filed earlier today and our investors' 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 to all of you. Welcome to our Q1 earnings call. I hope everyone remains healthy and safe, and you and your loved ones are benefiting from broader vaccine availability. ServiceNow remains grateful to be in such a strong position to help support our families, communities, and customers. We started 2021 with another outstanding quarter, delivering a perfect balance of growth and profitability. Our team is executing, maintaining a swift pace towards our path to $10 billion in revenue and beyond. In Q1, we grew subscription revenue 30% year over year, exceeding the high end of our guidance. We delivered strong profitability with operating margin over 27%. And we increased free cash flow margin seven points year over year, to 46%. Our significant Q1 beat across the board represents the passion our culture has for innovating and our relentless focus on the customer. We are ideally positioned to deliver what our customers need. In the past year, the transformation of work has accelerated the adoption of digital products, services, and experiences. As a result, Digital investments are an all-time high and will total more than $7.8 trillion by 2024, according to IDC. ServiceNow is the strategic authority for digital transformation across the enterprise. We have expanded the boundaries from IT to employee, customer, and now creator workflows for citizen developers. The digital economy is firing on all cylinders, and so are we. Our culture was born for this moment. Our team of 14,000 colleagues are exponential thinkers. This is how we continuously bring innovation to everything we do. In just the past 18 months, we have more than doubled the features and functionality of our platform for our customers. We're at the epicenter of the workflow revolution. Our purpose has never been more relevant. We are making the world of work work better for people. We are helping our customers dream big and to build their digital bridge to the future. Xerox, for example, is working with ServiceNow to transform the services industry. Leveraging our field service management, their technicians will use machine learning to proactively solve customer problems. They're using virtual and augmented reality tools to resolve their customers' issues via desktop, mobile, and smart glass devices. In this bold new world, it's as if their agents are there in person. Digital transformation is about creating great employee and customer experiences. In an increasingly distributed hybrid workforce, companies need to create frictionless experiences that make it easy for employees to get work done. This requires seamless cross enterprise workflows, linking systems, silos, departments, and processes. Only the now platform can do this with native integrations, the platform of platforms, the power of one. one data model, one architecture, one enterprise solution to workflow every business challenge. This is what ServiceNow delivers. We are the only ones doing what we do the way we do it. Strong demand for ServiceNow is evident in our results. High growth, organically driven at mass scale, while aggressively investing in future growth and delivering significant profitability, an amazing business model, and a true testament to the power of the now platform. Our teams keep innovating. We're proud that Quebec, our latest platform release, delivered 1,700 new customer capabilities, breakthrough innovations like predictive AI operations, AI search, and virtual agents that enhance every experience, to name a few. ServiceNow is helping customers move to the cloud and invent new business models. The past year has demonstrated that giving people the right productivity tools is critical to success, especially in distributed work environments. It's why organizations like Adobe, Deutsche Telekom, Logitech, City of Los Angeles, and Discover are using our platform. Discover, in fact, is fully utilizing the Now platform's ease of upgrade, participating in the early adopter program for our pullback release. Now, Discover is able to focus on timely availability and adoption of new functionality. The Now platform is the gold standard for time to value. By the end of 2021, Forrester Research predicts that 75% of development shops will use low-code platforms. With Quebec, we are delivering new low-code tools that move app development beyond the borders of the engineering organization and into the hands of citizen developers, employees without software expertise who need to quickly create workflow applications. We're seeing strong response. The National Cancer Institute at the U.S. Department of Health and Human Services is a great example. NCI has established a digital service center around ServiceNow's low-code App Engine platform. In just 10 days, NCI leveraged ServiceNow to build a new application for an online portal to collect and track specimens from COVID-19 patients. ServiceNow's low-code app is helping NCI staff support the global research community in understanding how genetic factors contribute to the severity of COVID-19 cases. We also introduced process and workforce optimization capabilities in our new enterprise SKUs. This brings even more intelligence to our customers, allowing them to be more agile. We're putting new AI capabilities in the hands of our customers so they can enhance productivity while spending more time on human creativity. With our recent acquisition of Intellibot, ServiceNow will have an unmatched intelligent workflow automation solution with RPA, AI, machine learning, and process mining native to the Now platform. You'll hear more about this from our Chief Product and Engineering Officer, CJ Desai, at our upcoming Investor Day. Please be there. Now, let's look more closely at Q1 performance highlights across our portfolio. Our better together solutions continue to drive more multi-product deals. Our core IT workflows remain strong. ICSM was in 12 of our top 20 deals. Our AI and ML capabilities embedded with our pros queue continue to resonate with customers. ITOM had a strong quarter and was in 13 of the top 20 deals. EMEA was especially strong. we're hitting a new gear with CEO engagement. We're seeing more demand across industries, including financial services, as EU banking regulations require companies to have full visibility into their assets while also managing risk. HSBC, for example, chose ServiceNow in a multi-year partnership as their workflow partner of choice to help them digitize at scale Supporting HSBC's employees, ServiceNow will deliver the technologies needed to simplify their architectural landscape. It creates efficiencies, better controls, and compliance. Australia and New Zealand Banking Group also chose the ServiceNow platform to consolidate, simplify its IT systems, and streamline operations to improve the employee experience. The now platform gives them the advantage of a fully integrated view of technology and risk. We continue to see strength in our customer workflows. Our investments in the telco vertical are gaining traction daily, and it's materializing in winds across the globe. Lumen Technologies, a leading telecommunications company, is transforming its customer care and assurance function with ServiceNow customer workflows. They will use the Now platform to deliver best-in-class customer experiences across their networking, cloud, and security solutions. Telia, a leading multinational telecommunications company, selected ServiceNow to transform service operations connecting network operations, employees, and customers around the world. Creator Workflows, our platform business, was in 19 of our top 20 deals. Three of our top 10 App Engine wins came from APJ, where we are seeing increased awareness of ServiceNow and it's continuing to drive demand. A large global manufacturing company in Japan, is planning to use our App Engine to automate manual processes, take out costs and risks associated with migrating on-premise applications to the cloud. This will be a movement in Japan. In the US, the Now platform is at the heart of the city of Los Angeles' digital transformation, helping to provide reliable access to essential services for its 4 million citizens. The city is expanding its use of digital technology to provide immediate access services, which enables citizens to get the assistance they deserve. Employee workflows were included in eight of our top 20 deals. Zalando is a leading online platform for fashion and lifestyle, connecting customers, brands, and partners. As part of their HR transformation, they will implement a central employee services portal using ServiceNow's employee workflows. Zalando sees this as a critical component in supporting their growth and improving their employee experiences. Employee and workplace safety are top of mind for our customers. We are the only company with a complete suite of applications to meet these critical needs. Since the start of the pandemic, ServiceNow has been at the forefront of solving unprecedented challenges. We saw the need early and acted quickly first with our emergency response apps, then our safe workplace apps. And now with vaccine administration management, we leverage the speed and agility of the now platform and the incredible talent of our product team to innovate fast, deliver market leading solutions to support our customers and help keep them safe. You see, Organizations are trapped in the last mile of vaccine management as they lack the processes and infrastructure needed to vaccinate people quickly. This is the workflow challenge of our time. To address these challenges, organizations are using the Now platform as their vaccine management command center. Our workflows are connecting organizations' existing technology infrastructure to help orchestrate the critical elements of the vaccine management process, including distributing, administering, and monitoring vaccines. The Minnesota Children's Hospital implemented our vaccine administration management in five days, so they could stay focused on their number one priority, caring for children. The hospital is using ServiceNow Virtual Assistant to answer questions and schedule patient vaccinations. They are leveraging inventory tracking and scheduling to ensure appointments, staffing levels, and vaccines are all in sync. Germany's largest state, North Rhine-Westphalia, is using ServiceNow to support vaccinations for millions of people. Within two hours of the portal going live, 120,000 people had registered and received an appointment. ServiceNow ended Q1 working with over 100 organizations and governments globally to help vaccinate people at scale. We are supporting the delivery and management of millions of vaccines globally. We will continue to do more. The workflow revolution is all about helping people We are humbled to be helping so many people around the world manage this workflow challenge. In summary, we had a great start to the year with strong momentum. I'm so proud of what our team has accomplished over the past year and what they continue to achieve. From the beginning of this pandemic, we have focused on taking care of our people and taking care of our customers. that's why we're so grateful to be named to the fortune 100 best places to work list for the first time and we're proud to have increased our position on the fortune best workplaces and technology list by more than 10 points our culture demonstrates time and again how we power through all weather conditions our engineering pride is unmatched our innovation relentless in our customer focus We have a very, very robust pipeline, substantially greater than anything we've seen before. We have all the learnings of digital customer relationship management. Our strong go-to-market organization is operating in high gear. Our customer services and partner ecosystem is accelerating time to value. Our business is ever resilient. Our opportunities never greater. We continue to work with some of the world's greatest brands, including BMW, Bristol-Myers Squibb, FIS, Subway, Standard & Poor's. We're honored to be their digital transformation partner. We're also excited to highlight even more customers at our upcoming Knowledge 21 experience in May. which will be our biggest customer event ever, and we look forward to seeing all of you at our upcoming investor day. This ServiceNow machine is firing on all cylinders. We're not slowing down. We are well on our way to $10 billion and beyond, and we are striving with all we have to be the defining enterprise software company of the 21st century. Gina? Over to you.