ServiceNow CEO Bill McDermott on AI impact: It's been an amazing uptake in our business

Summary

Servicenow reported strong fourth quarter subscription revenue growth and raised fiscal year guidance, fueled by demand for its AI capabilities. CEO Bill McDermott touted Servicenow's early mover advantage in bringing large language models to its platform, enabling companies like Visa, Siemens and EY to boost productivity through AI use cases. McDermott highlighted partnerships with AWS and Microsoft, as Servicenow becomes an enterprise standard. Despite some ongoing economic caution, McDermott expressed confidence in Servicenow's growth, with $18B in RPO, 99% renewal rates and outperformance versus peers.

Takeaways

• 😊 ServiceNow had very strong Q4 results, with subscription revenue growth and raised guidance
• 🚀 There is huge appetite and momentum for ServiceNow's generative AI capabilities
• 💰 ServiceNow's AI solutions are delivering 40-52% productivity gains for customers
• ⚡️ ServiceNow's platform is becoming the standard for enterprise digital transformation
• 👍 Strategic partnerships expanding with Microsoft, Amazon AWS and others
• 😎 ServiceNow landing deals with leading companies like Visa, Siemens, EY and Chipotle
• 💡 Use cases span HR, IT, customer service, risk management and more
• 📈 Exceptional financial performance - growing revenue at the Rule of 55
• 🔒 99% renewal rates show extremely sticky customer relationships
• 🤑 Activist investors approaching ServiceNow for advice before targeting companies

Q & A

What has been the customer appetite for ServiceNow's generative AI solutions?

ServiceNow said there is a "strong appetite" for its generative AI solutions based on the momentum seen in the market and demand from customers.

How does ServiceNow's AI platform help companies like Visa and Siemens?

ServiceNow's AI platform helps companies like Visa resolve payment disputes end-to-end and helps Siemens boost HR productivity by resolving cases automatically instead of tying up people on phone calls.

What percentage productivity boost does ServiceNow's AI platform provide?

ServiceNow's CEO said their generative AI solutions on the ServiceNow platform provide anywhere between a 40-52% increase in productivity.

Why does ServiceNow's COO say the demand environment continues to be tough?

He says there is a "new normal" where large deals at big corporations require multiple approval layers including the CEO, so cycle times for major deals are longer.

What major companies are now standardizing on ServiceNow?

Microsoft, Amazon AWS, and many major banks and manufacturers are standardizing on ServiceNow as their digital transformation platform.

What is ServiceNow's current ACV, RPO growth rate and margins?

ServiceNow has $10 billion in ACV, $18 billion in RPO growing over 50%, and expanding margins.

Why are activists approaching ServiceNow before targeting companies?

Because they are blown away by ServiceNow's business model - 55% growth rate at scale, 99% renewal rates, and strong margins.

How does ServiceNow plan to keep up its high growth rate?

By expanding within current customers as they see the value, and landing in new major corporations who want to standardize on their intelligent digital transformation platform.

What makes ServiceNow's AI solutions different from others?

ServiceNow focuses on domain-specific AI use cases that boost productivity, versus generic AI. Their solutions are tied to specific examples and business outcomes.

What is the benefit of ServiceNow listing its products in the AWS Marketplace?

It allows AWS customers to easily purchase and deploy ServiceNow's solutions alongside other cloud services, with the same performance as ServiceNow's own cloud.

Outlines

00:00

📈 ServiceNow's revenue growth and AI momentum

Paragraph 1 discusses ServiceNow's strong fourth quarter subscription revenue growth and raised fiscal year guidance. It highlights the company's momentum in generative AI, led by CEO Bill McDermott. There is great demand and analyst enthusiasm for ServiceNow's AI capabilities to drive digital transformation, with major customers like Visa, EY, and Chipotle.

05:00

😎 Longer sales cycles the new normal, ServiceNow still hot

Paragraph 2 covers how ServiceNow's COO indicates that despite ongoing platform relevance, the demand environment continues to involve longer approval cycles and CEO-level signoffs. Bill McDermott suggests this is the new normal but that strategic platforms like ServiceNow still see strong interest and expansion once adopted. He expresses confidence in ServiceNow's growth and 99% renewal rates.

Keywords

💡artificial intelligence

Artificial intelligence (AI) is referenced multiple times in the discussion, highlighting ServiceNow's focus on using AI capabilities to enhance their platform and drive value for customers. Specific examples given include using 'generative AI' for automated dispute resolution and HR issue resolution. The AI capabilities are enabling productivity gains of 40-52%.

💡digital transformation

Digital transformation refers to companies leveraging digital technologies and capabilities to improve and evolve their business processes, products/services, and engagement with customers and partners. ServiceNow positions itself as an 'intelligent platform for end-to-end digital transformation'.

💡productivity

Increased productivity is touted as a major benefit delivered by ServiceNow's AI-enabled platform. Concrete examples cited include automated resolution of HR cases and governance/risk management processes being handled via AI, freeing up human employees.

💡legacy systems

The challenges of legacy IT systems, and the high cost of ripping and replacing them, is noted as a driver for companies to adopt ServiceNow's platform. It can 'reside above the chaos' of fragmented legacy infrastructures.

💡standardization

By meeting the needs of large, critical enterprise customers across many industries, ServiceNow sees itself increasingly becoming 'a standard' - reflecting the power and versatility of its platform.

💡growth

Strong, consistent growth is emphasized as setting ServiceNow apart, enabled by the expanding capabilities and applicability of its platform. Metrics cited include: 10 billion in ACV, $18 billion RPO, 55% combined revenue growth & cash flow.

💡renewal rates

An extremely high (99%) customer renewal rate highlights the stickiness and mission critical status ServiceNow's solutions achieve post-adoption.

💡CEO oversight

In the current heightened scrutiny economic environment, ServiceNow notes large deals increasingly require CEO signoff and oversight, lengthening sales cycles despite ongoing platform relevance.

💡activist investors

It is noted that even activist investors assessing potential target companies are proactively asking what those companies should look like, and ServiceNow is referenced as an exemplar model.

💡Partnerships

Collaborations with leading technology companies like Microsoft and AWS are noted as validation points and distribution channels that continue to expand ServiceNow's reach and adoption.

Highlights

ServiceNow saw strong appetite for generative AI and momentum in the space

ServiceNow was first mover in bringing domain-specific LLMs to their platform

Generative AI product has outperformed every other product ServiceNow has launched

Companies want an intelligent platform for end-to-end digital transformation

Generative AI delivering 40-52% productivity gains on ServiceNow platform

ServiceNow performing at Rule of 55 between growth and cash flow

Customers can now choose ServiceNow in AWS Marketplace

Major enterprises have longer sales cycles requiring CEO approval

Strategic platforms chosen by major corporations will have several approval layers

Clear value drives sales in this environment rather than digital transformation hype

ServiceNow expanding with every major company they present to

Activist investors coming to ServiceNow for advice before targeting companies

ServiceNow has $10B ACV and $18B RPO growing at Rule of 55

ServiceNow has 99% renewal rate, highest in software industry

McDermott credits CNBC hosts with believing in ServiceNow's strong quarter

Transcripts

SERVICENOW SUBSCRIPTION REVENUE

CLIMBING FOR THE FOURTH QUARTER

AND THE COMPANY RAISING FISCAL

YEAR GUIDANCE, COMPANY

SAYING, "STRONG APPETITE FOR

GENERATIVE A.I. AND MOMENTUM IN

THE SPACE.

BILL McDERMOTT, SERVICENOW,

PERHAPS THE CONFERENCE CALL I'VE

NEVER SEEN MORE ANALYSTS LOVE.

CONGRATULATIONS.

WE'RE EFFUSIVE

IT'S JOINING US NOW.

BILL, THANK YOU FOR COMING ON

"SQUAWK ON THE STREET.

>> THANK YOU, JIM.

THANK YOU VERY MUCH FOR HAVING

ME

>> LET'S GET RIGHT TO IT

THERE ARE A LOT OF PRETENDERS

OUT THERE, BILL.

THERE ARE PRETENDERS WHO USE THE

TERM A.I

THEY THROW IT AROUND AS IF IT'S

SOMETHING THAT THEY NEED TO MOVE

THEIR STOCK.

I THINK YOU, IF I CAN TELL

RIGHT, THERE MAY BE A BILLION

DOLLARS IN REVENUE THAT CAME

FROM A.I. IN THIS QUARTER FOR

YOU.

YOU ARE NOT A PRETENDER.

TELL US HOW YOU'RE DOING IT.

>> WE'RE DEFINITELY NOT A

PRETENDER, JIM

WE WERE THE FIRST MOVER IN

ACTUALLY BRINGING

DOMAIN-SPECIFIC LLMs, LARGE

LANGUAGE MODELS, TO THE

SERVICENOW PLATFORM.

WE HAD THIS PRODUCT ON THE

MARKET FOR JUST A LITTLE OVER A

QUARTER, AND IT HAS OUTPERFORMED

EVERY OTHER PRODUCT THAT WE HAVE

EVER BROUGHT TO MARKET

AND YOU KNOW, WHAT'S HAPPENING

OUT THERE IS COMPANIES REALIZE

THAT THEY NEED AN INTELLIGENT

PLATFORM FOR END-TO-END DIGITAL

TRANSFORMATION

THIS PLATFORM IS DOING THE JOB

FOR GREAT COMPANIES LIKE VISA

WHERE THEY WANT A FIVE-YEAR

STRATEGIC ALLIANCE TO TRANSFORM

THEIR PAYMENT SERVICES USING GEN

A.I. SOLUTION FOR END-TO-END

DISPUTE RESOLUTION, AND I CAN GO

ON WITH EY AND MANY OTHER

COMPANIES LIKE CHIPOTLE AND

OTHERS

IT'S JUST BEEN AN AMAZING,

AMAZING UPTAKE IN OUR BUSINESS

>> BILL, A LOT OF TIMES, ALSO, I

HEAR PEOPLE SAYING, LOOK, IT

HELPS PRODUCTIVITY

YOU'VE GOT ACTUAL USE CASES.

I'M GOING TO GIVE YOU A CHOICE

HERE

YOU CAN TALK ABOUT THE GERMAN

APPLIANCE COMPANY, OR YOU CAN

GIVE ME VISA OR TELCO OR BANKS,

BUT YOU'RE TALKING ABOUT DISPUTE

RESOLUTIONS, CONCRETE THINGS

THAT A.I. IS DOING THAT FREE UP

OTHER PEOPLE TO BE MORE

PRODUCTIVE

I NEED SOME EXAMPLES

>> YEAH, EXACTLY

SO, IF YOU THINK ABOUT SIEMENS,

THEY'RE TRANSFORMING THEIR

EMPLOYEE EXPERIENCE USING GEN

A.I. TO BOOST PRODUCTIVITY SO

THAT CASES IN HR CAN BE RESOLVED

BY THE SYSTEM, NOT TIE PEOPLE UP

ON 800 LINES

IF YOU THINK ABOUT COMPANIES

LIKE EY, YOU KNOW, THEY HAVE

400,000 EMPLOYEES, AND THEY HAVE

TO MANAGE GOVERNANCE AND RISK.

THEY'RE USING SPECIFIC USE CASES

ON THE SERVICENOW PLATFORM TO DO

THAT

SO, EVERYTHING WE DO IS TIED TO

VERY SPECIFIC EXAMPLES

IF YOU LOOK AT BANKING, BANKING

RIGHT NOW, IF YOU THINK ABOUT

INTEGRATED RISK MANAGEMENT,

MANAGING AN MRA PROCESS, THESE

ARE VERY DETAILED, SPECIFIC GEN

A.I. USE CASES, YOU KNOW, AND

PEOPLE DO IT RIGHT, THEY GET

PROMOTED

PEOPLE DO IT WRONG, THEY GET

FIRED.

SO, THE WORK THAT WE'RE DOING

HAS A PROFOUND IMPACT ON THE

PERFORMANCE OF COMPANIES, AND I

ALWAYS SAID THAT THIS WOULD BE

JET FUEL INJECTED INTO AN

ALREADY HIGH-PERFORMING ENGINE

NO COMPANY IN OUR CLASS HAS

PERFORMED LIKE SERVICENOW, NOT

ONLY BEATING OUR GUIDANCE BUT

DOING SO AT THE HIGHEST FORM OF

THE HIGHEST CONSENSUS ON WALL

STREET, AND WE'RE PERFORMING AT

THE RULE OF 55, YOU KNOW,

BETWEEN REVENUE GROWTH AND FREE

CASH FLOW AND NO OTHER COMPANY

IN THE WORLD IS DOING THAT AT

OUR SCALE.

>> I WISH I COULD -- THAT'S THE

SUPERLATIVE THAT THE ANALYSTS

FOCUS ON, AND OF COURSE THAT'S

ABSOLUTELY RIGHT

27.5 RPO GROWTH.

$18 BILLION RUN RATE AT THE END.

THESE ARE NUMBERS -- YOU WERE

TALKING ABOUT WHEN IT STARTED.

I MEAN, I DON'T KNOW IF YOU HAD

$1.8 BILLION

BUT I DO -- WHAT I CONTINUE TO

DRAW DOWN, THERE ARE CUSTOMERS

THAT YOU WANT.

YOU WANT THE FEDERAL GOVERNMENT.

IT SEEMS LIKE YOU ALMOST OWN THE

FEDERAL GOVERNMENT

YOU WANT DEFENSE

THAT'S YOU

YOU WANT TELCO

THAT'S YOU

YOU HAD 23 OUT OF 24 BANKS

COMING IN.

I WAS VERY DISAPPOINTED THAT YOU

DIDN'T HAVE THE 24th BANK.

YOU GOT THAT

YOU GOT VISA

THE MOST IMPORTANT ONE THAT YOU

JUST DROPPED IN THERE OUT OF

NOWHERE WAS AWS.

WILL YOU PLEASE FLESH THAT OUT

FOR US

>> YOU KNOW, IT'S AMAZING, JIM

GREAT COMPANIES LIKE AMAZON/AWS

ARE REALIZING THE IMPORTANCE OF

SERVICENOW, AND THEIR CUSTOMERS

ARE ASKING THEM TO HAVE

SERVICENOW IN THE AWS

MARKETPLACE, AND AS OF THIS

MONTH, CUSTOMERS ARE ABLE TO

CHOOSE SERVICENOW IN THE AWS

MARKETPLACE AND DO SO WITH THE

SAME PERFORMANCE AS YOU WOULD

GET OUT OF SERVICENOW'S CLOUD.

SO, WE REALLY HAVE GREAT

PARTNERSHIPS WITH WONDERFUL

COMPANIES LIKE MICROSOFT,

AMAZON, AND MANY OTHERS, AND I

THINK WHAT'S HAPPENING IS IT'S

TRULY BECOMING A STANDARD.

SERVICENOW IS A PLATFORM THAT IS

BECOMING A STANDARD BECAUSE

THESE ENTERPRISES ARE SO MESSED

UP WITH LEGACY TECHNOLOGY, AND

THESE CEOs DON'T HAVE TIME TO

THINK IT OVER AGAIN AND RIP AND

REPLACE THINGS, SO WE JUST

RESIDE ABOVE THE CHAOS, AND WE

GIVE PEOPLE AN UNBELIEVABLE

EXPERIENCE, BECAUSE THEY UPLOAD

THEIR DATA INTO THE SERVICENOW

PLATFORM, THEY OPTIMIZE THEIR

PROCESSES AND THEIR EXECUTION,

AND THEN WE APPLY GENERATIVE

A.I. ON THE USE CASES THAT

REALLY MATTER, AND RIGHT NOW,

WE'RE GETTING ANYWHERE BETWEEN A

40 AND A 52% INCREASE IN

PRODUCTIVITY ON GENERATIVE A.I.

ON THE SERVICENOW PLATFORM,

WHICH IS LIGHTS-OUT FANTASTIC.

>> HEY, BILL, JUST ON WANT TO

WRAP UP HERE TO COME BACK TO THE

CALL ITSELF AND THE DEMAND

ENVIRONMENT, YOU KNOW, I THINK

YOUR C.O.O. SAID IN SORT OF

DISCUSSING THE DEMAND

ENVIRONMENT, "IT CONTINUES TO

STILL BE TOUGH

WE'RE NOT READY TO SAY THAT

THINGS HAVE IMPROVED

SIGNIFICANTLY.

OBVIOUSLY, ALSO SAYING HOW

RELEVANT YOUR PLATFORM IS.

BUT, SO, GIVE ME A LITTLE MORE

FEEL AS TO WHY YOUR C.O.O. SAID

THAT

>> WELL, I THINK WHAT HE WAS

REALLY REFERRING TO IS IN THE

ENVIRONMENT TODAY -- AND I JUST

CONSIDER IT A NEW NORM

I DON'T THINK IT'S ANYTHING

ESPECIALLY GOOD OR OTHERWISE

IT'S REALLY A NEW NORMAL WHERE

STRATEGIC PLATFORMS THAT ARE

CHOSEN IN MAJOR CORPORATIONS

AROUND THE WORLD WILL HAVE

SEVERAL DIFFERENT APPROVAL

PROCESSES, AND THAT WILL VERY

OFTEN INCLUDE THE CEO.

SO, THE CYCLE TIME FOR

SIGNIFICANT TRANSACTIONS IS

LONGER THAN IT USED TO BE.

BUT THAT IS REALLY THE NEW NORM,

AND I DON'T THINK THAT'S EVER

GOING BACK TO, YOU KNOW, FAST

TRANSACTIONS JUST BECAUSE

DIGITAL TRANSFORMATION IS HOT.

THIS IS A WORLD THAT NOW NEEDS

CLEAR VALUE, AND IF THE VALUE'S

THERE, THEY BUY.

>> REALLY INTERESTING.

>> WHAT WE GET FROM PALO ALTO,

WE GET THAT FROM SALESFORCE.

THIS IS THE NEW NORMAL, AND I

THINK YOU NEED TO TALK ABOUT

THAT, BECAUSE OTHER PEOPLE KEEP

EXPECTING THINGS TO RURP

RETURN

>> EXACTLY

AND YOU KNOW, JIM, I SIT DOWN

WITH MAJOR, YOU KNOW, JUST

COMING OFF OF DAVOS, SITTING

DOWN WITH MAJOR MANUFACTURERS OF

VERY LARGE COMPANIES, AND I TELL

THEM THE SERVICENOW STORY, AND

IN SOME CASES, THEY REALLY DON'T

KNOW ANYTHING ABOUT IT, BUT WHEN

THEY HEAR IT, THEY IMMEDIATELY

INVITE ME IN TO MEET THEM AND

THEIR MANAGEMENT TEAM TO GO

THROUGH THE POSSIBILITIES.

SO ANY PLACE WE LAND, WE

ABSOLUTELY EXPAND, AND WE'RE A

GROWTH COMPANY, AND WE'VE NEVER

BEEN HOTTER THAN WE ARE RIGHT

NOW, AND I'M REAL CONFIDENT.

>> SO, BILL, WE DO HAVE TO GO,

BUT I WANT TO DO SOMETHING FOR

DAVID FABER IF YOU CAN CONFIRM

THIS

I UNDERSTAND THERE ARE ACTIVISTS

WHO ARE COMING TO YOU BEFORE

THEY TARGET A COMPANY, SAYING,

WHAT SHOULD THE COMPANY LOOK

LIKE

>> THAT'S TRUE

>> IT IS TRUE?

>> LOTS OF -- IT IS TRUE

LOTS OF PEOPLE ARE COMING TO US

BECAUSE THEY ARE ABSOLUTELY

BLOWN AWAY BY THE BUSINESS

MODEL.

YOU'RE LOOKING AT A COMPANY WITH

10 BILLION ACV NOW AS YOU

RIGHTFULLY SAID, JIM

$18 BILLION RPO, GROWING AT THE

RULE OF 55, AND PEOPLE ARE LIKE,

HOW ARE YOU DOING IT

YOU'RE GROWING, YOU'RE EXPANDING

YOUR MARGINS, YOU HAVE 99%

RENEWAL RATE, WHICH IS THE

HIGHEST IN THE WORLD

HOW ARE YOU GUYS DOING IT?

BY THE WAY, JIM, I WANT TO THANK

YOU BECAUSE I DID HEAR YOU SAY

YOU BELIEVED IN SERVICENOW, AND

YOU BELIEVE SERVICENOW IS GOING

TO DELIVER A GREAT QUARTER

SO, YOU, DAVID, AND CARL KNOW

SERVICENOW WELL, AND I THANK YOU

GUYS FOR THE COMPLIMENT.

>> THAT'S VERY KIND.

THANK YOU, BILL.

I'M ALL IN

IT WAS AN AMAZING CONFERENCE

CALL AND AN AMAZING QUARTER.

BILL, TH