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 speakers’ presentation, there will be a question-and-answer session. [Operator instructions] 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, SVP 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 Mastantuono, 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 decision and the length of our sales cycles particularly for customers in certain industries. Please refer to the press release and the risk factors in MD&A sections of our SEC filings, including our most recent 10-Q and our 10-K 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 revenues, 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 proud 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 21 century. The secular tailwinds of digital transformation, cloud computing and business model innovations have all intersected at the perfect moment in time, a paradigm here is happening worldwide. In 2020, for the first time in history, we saw a digital transformation spending accelerate despite GDP declining globally. Digital investments are at an all-time high and are expected to continue growing. According to…

Thank you, Bill. Happy New Year, everyone. I want to start-off by echoing Bill's praise for all the employees of ServiceNow. It has been a year of unprecedented challenges, but the team has remained focused on executing and meeting the needs of our customers. I couldn't be more impressed with our resilience, which is a testament to our great culture here at ServiceNow. And thanks to our people that we delivered another fantastic quarter to cap a strong year. We exceeded the high-end of our subscription revenues and subscription billing guidance, which carried through to strong free cash flow generation. Q4 subscription revenues were $1.184 billion representing 32% year-over-year growth, inclusive of a three-point tailwind from FX. Q4 subscriptions billing were very strong at $1.828 billion representing 41% year-over-year growth and a $183 million beat versus the high end of our guidance. Adjusted growth was 38% year-over-year. Remaining performance obligations, or RPO, ended the quarter at approximately $8.9 billion, representing 35% year-over-year growth. And current RPO was approximately $4.4 billion, representing 33% year-over-year growth. FX was about a three-point tailwind. The traction we are seeing in our top line results, reflect our focus on meeting the needs of our customers and their employees. As Bill noted, the workflow revolution is underway and is centered around the best experiences. And that’s the Now Platform’s super power, the ability to deliver workflows that create those great experiences for people. The NOW Platform is playing a critical role in accelerating digital transformation. We're treating our customers as partners, listening and learning about their challenges so we can help solve them. We aren't selling point products. We’re providing them with comprehensive solutions with measurable results and quick time to value. Better together, that's the power of our portfolio. It's this attention to our customers'…

[Operator Instructions] For our first question, we have Sterling Auty from JPMorgan. Sterling, your line is open.

Yes. Thanks. Hi guys. So in relation to the margin outlook, understand the investment opportunity that you have, but also curious what you've factored in, in terms of any increased T&E and maybe perhaps even there I say the return to a little bit of business travel throughout the year. And can you help us understand kind of what assumptions underlie the margin outlook on that front?

Sure, Sterling. Thanks for the question. We talked about really continuing to focus on driving a balance of growth and profitability, and I've been pretty transparent and open about those margins. We are currently expecting that a more normalized T&E will come back towards the back-half of 2021. And so the expectations on the front-half will be similar to what we've been seeing, but that we would expect some more normalized T&E to start again in the back-half.

Great. And then one just follow-up. In terms of the digital transformations in the applications that you're tying into, I'd be kind of curious beyond HR and CSM, what are perhaps some of the other applications that you think that customers are going to more rely on your platform as hopefully the economy picks up on the back of vaccinations?

Well, thank you very much, Sterling. This is Bill. What you're seeing out there is each industry has its own nuances. For example, in financial services, I talked about security. Obviously, the future of work is a big movement to work from anywhere and certainly enable that modern work environment and do that in a way where people can be onboarded without actually even meeting them, train them appropriately and do the ongoing management of people where they can truly execute their mission and they know all the information and they have all the data to do their job. So this is happening in every industry and it's happened in every geo and each persona has its own unique needs. What we think is unique about ServiceNow is that this platform, think of it as the workflow automation platform, comprehends all the opportunities with App Engine to customize things very rapidly like vaccine management, for example. It also offers the IntegrationHub. And what the IntegrationHub enables is all the things from RPA, process mining, API integration, process analytics, native mobile, contextual interfaces, and all the other things that CIOs and leaders of businesses are counting on to create end-to-end continuity in the business. And that's what makes us so unique. So having that platform advantage and our well-known position in IT is equally as relevant with the employee experience, because now you have one portal with a consumer-grade UX, all the complexity is hidden, all the onboarding caring for the employee is done and they are right off and running with their mission. In some cases, I had one very high-level executive tell me, I haven't met the 5,000 people I hired this year because of the Now Platform. And then on customer service management, in every industry, and I…

Thanks, Bill.

My pleasure, Sterling.

For our next question, we have Keith Bachman from Bank of Montreal. Keith, your line is open.

Yes, thank you very much. I'll ask my questions - my two questions concurrently if I could. One, in the comments you mentioned that you thought you would see an acceleration of net new ACV, which – in 2021, which I thought was very interesting. I was wondering if you could just drill down a little bit more on, a, the visibility into that; and b, anything that's bubbling up in terms of there seems to be a greater emphasis to drive that net new ACV what area? The follow-on question I want to direct to you, Bill, if I could. Last year, you're pretty clear that acquisitions was not part of your strategy and maybe some tuck-ins here and there. 2021 is a new year, lots of changes. The digital landscape is a greater priority. Is there any change in your thoughts as you're considering how ServiceNow could effectively build that long-term model as it relates to M&A? That's it for me and many thanks.

Yes. Well, thank you very much, Keith. Maybe I'll start off and then give Gina a chance to build as she wishes on the net new ACV inquiry. First of all, I'll just say that net new ACV on a year-over-year basis will increase and the pipelines that we have in the company and we manage the company on what we call a CEO dashboard in real-time give us much greater coverage than we had last year. So we know that the facts substantiate the net new ACV increase. One of the interesting things that is fascinating is actually our executive briefings have increased 70% on a year-over-year basis. So if you think about our ability to get to the C-suite and increase the contact in this kind of virtual environment, it's actually gone way up. So a lot of people, I guess, need a good meeting and they want to figure out how they're going to digitally transform and the Now Platform has just dynamite tailwind key. Now, in terms of the whole digital landscape, IDC, I think, the $7.4 trillion is very interesting statistic. This is factual. If you just look at the way companies are prioritizing their investments, the one thing that's not going to get deep prioritized is digital transformation and things that enable digital business, because it's really the only way to either get your stuff competitive or to increase your competitive advantage and your peer group, and every CEO completely understand that. And within that context, I think the uniqueness of ServiceNow to have so much, so much momentum, not just in exciting new areas like the future of work with our employee experience or customer service management, which is really a frictionless economy now more and more coming ServiceNow's way, but even in…

I wouldn't add anything more on that. I think that that was a great answer, Bill, on the acceleration of net new ACV. On the M&A conversation, I think, Bill, I know you have a perspective.

Yes. I mean, look here's the situation, Keith. We are not against M&A. So far we have done technology tuck-ins or we've done, what I would call, human capital tuck-ins such as we've done with AI. We've gotten tremendous people into the organization to put all the value into the Now Platform and to generate net new revenue growth in the SKUs such as what we did with IT, we'll do with employee, we'll do with customer and obviously we'll do with the low code, no code innovation that we can give to the creator, which is literally a business analyst or anyone that wants to write a low code application in an enterprise. So the way we look at large scale or larger scale M&A, we wouldn't be doing our job if we didn't look at every opportunity to satisfy our customers and our shareholders, but it's important just to register with you that our projection on the 10 billion is clearly in hand with our organic innovation and the momentum we have in the marketplace with our customers, and also the non-customers that want to join the team. So, there's nothing on the table right now for a larger deal, but it's not like we don't have our eyes wide open at the various opportunities. And if they ever presented themselves, you would know that we thought through it rigorously and it was part of our strategic imperative to really do the best we can for our shareholders and our customers. But right now that is not on the table and it's not something that's actionable at this time.

Thank you guys very much.

For our next question we have Raimo Lenschow from Barclays. Raimo, your line is open.

Hi. Thank you and congrats from me as well. I have two quick questions. One number question I'll start with that before I forget. Gina, like I got a couple of questions in the 200 basis points headwind you got in 2020, like, can you just walk us through the math how that becomes like 350 basis point in 2021? They had a good few guys that just kind of struggle with that one. And then let's start with the one for Bill. Bill, ITSM Pro should give you like we see the early momentum there. You talked about the 20% penetration. Just how does it help you on the on the expansion and the renewal and the conversations you get with clients has a really good tool to engage the client base? Thank you.

Sure. So I'll take the first one. So yes, in Q4, we talked about 80 million of billings that were accelerated in Q4 out of Q1 of 2020. And so basically if you take that 80 out of Q4 and put it back into 2020 – and put it back into 2021 that's where you see that double impact, right. And so, you might take it out of 2020 and add it back into 2021. And so it's about a 200 basis point tailwind to 2020, but then about 350 basis headwind in 2021. So we try to do all the math for you, so that's pretty clear. And just to be clear that these were early customer payments. And we feel like it's one time in nature, and it was really results of our customers having excess cash driven by the OpEx savings that we said they were seeing in 2020. And so, I hope that that clarifies you, Raimo.

Perfect. That really helps. Thank you. Appreciate that.

Thanks.

Great. And then Raimo, I’ll just give you a view for our ITSM Pro because that was your question. First of all, it’s growing in steep double-digits, very important. And while we’ve penetrated 20%, that means we still have 80% to go. So it's a really, really one of the growth opportunity from a shareholder value creation perspective. But what you’re looking at is the remote IT services requests growing exponentially, and many of the IT organizations out there are looking for ways to deflect lower-tier cases. So by leveraging chatbots and streamlining processes part of the AI ML capabilities are embedded with our Pro SKU. So that’s one aspect of it. And when you start to think about all the innovation that we’ve built in to this platform and the latest product releases, again the value is so much greater because of the organic innovation the team has put into it. But customers are loving, gee, wow, I can transform IT, which then has an impact on the employee experience and the whole future of work. And incidentally, there isn’t a customer out there now that’s not asking us to revolutionize their call center operations or enable people to work from a virtual environment better and obviously in this frictionless economy how can I do things with a no-touch or possibly the lowest touch possible, how can I eliminate the middleman in my margin pursuit as companies trying to grow in different industries. All of that requires the IT backbone. So what you’re seeing is a multiplying effect of one story compounding into another and really stretching the perimeter of what we’re doing for executives across the enterprise. That’s why you’re seeing deal sizes get larger and larger. You are seeing us be in a very strong position in terms of the product, the value that it delivers, and the processes that we’ve built for not only pre-sale sale value creation but also post-sale value creation. So ML, AI and the leadership that we’ve built into this platform is really unique.

Perfect, very clear. Congrats again.

Thank you very much, Raimo.

For our next question, we have Kash Rangan from Goldman Sachs. Kash, your line is open.

Hi. Thank you very much. Congratulations, Bill and Gina and the rest of the team. My question for you, Bill, is the company has done a phenomenal job increasing its wallet share with really large companies through ITSM Pro, CSM workflow, HR, et cetera. The question for you is, as you approach the $10 billion journey and you look at other markets and software, you tend to have companies that’s in database market or ERP, have a customer base that’s closer to 100,000, 200,000, maybe even 400,000, 500,000. So as you look at the – how do we put it, the scaling up of ServiceNow into a company that can serve not just 8,000, 9,000 customers, but more like 100,000, 200,000 customers, what does that journey look like? And what are your plans to make this excellent piece of technology that’s known to less than 10,000, to be actually known and adopted by 100,000, maybe 200,000 customers? Thank you so much. That’s my only question.

It’s my pleasure, Kash. Thank you very much for your kind remarks. As you think about our company, what’s the beauty of us right now is we execute with the speed of a start-up, but we have the scale of a global company. So you’re seeing us now expand in Europe quite dramatically. We’re hiring amazing, amazing talent. You’re seeing us make moves into the Middle East. You’re seeing the expansion in Latin America. We’re really like starting to kick it into high gear in Asia with an expansion in South Korea. We have lots of plans and we have a well known brand, of course, in Australia, in other more mature markets. In the United States, I feel like we’re just getting started based upon the amazing receptivity to this Now Platform. And I think that a lot of that came from our emergency response to COVID and now the vaccine management. And you look at markets and industries like financial services, like telecommunications, like our government business and so many more. So, I would say, we’re just getting started in terms of the real extents in for scale. The brand has now become a very well-known brand. The ecosystem tailwind has really kicked in, in the last 12 months. And once you get calls from amazing big brands and they say I have to team up with you, my customers are demanding that I team up with you and integrate beautifully in the Now Platform. My customers are telling me. That’s a large telco company. In fact, it’s not the one that I mentioned as the example, and they said, we got to do more with you. So you’re seeing now a world where the Fortune 2000 gives us an extreme opportunity for growth beyond $10 billion. But our brand and industry and geography and persona, and same account revenue growth and net new logos, which Gina and I also have an operating plan that increases pretty large this year-over-year in addition to the NNACV, net new ACV. So Kash, it’s going to be – look at our four businesses that we already are in, look at every one of them as multibillion opportunities and then don’t forget the platform because I think more and more as the citizen developer concept takes off the ServiceNow. It will find this in locations that go way beyond the Fortune 2000. And keep in mind, a lot of those large companies that you mentioned, they might have about 1,000 companies and they say they have a couple of hundred thousand because of all the subsidiaries and so on. So we’re talking about real companies with real names. And I think the subsidiaries of those and all peers, the world will really take off as well. We’re in the early days here.

Very exciting. Thank you so much.

Thank you, Kash.

For our next question, we have Walter Pritchard from Citi. Walter, your line is open.

Hi, thank you. Bill, a question for you just broadly. I think if we were sitting here – when we were sitting here three or four years ago, we wouldn’t have imagined the success that the employee product and the customer service product have had. And I’m wondering how you think about, over the next several years, your growth from more prescribed SaaS applications versus the past that I feel like you’ve talked about more on this call. And what would you point to in terms of some of the emerging SaaS products that might be today where HR and customer service were three or four years ago? Thanks.

Yes, sure, absolutely. Well, first of all, I would feature, Walter, the platform itself. And I believe strongly that ServiceNow has now pivoted to be that platform company for digital transformation. And that is a big difference from being, “what some used to say was the ERP of IT”. So think about this as a platform company. Think about the core business and the continuous innovation that we’re doing in the core to stretch the core into new frontiers. We have a whole organization that is focused on the next big thing. So all the businesses that you would understand well, whether we invented it or someone else did, they all want to cooperate with the Now Platform, because the IntegrationHub enables them to get in. And once they get in, then they can build their imagination and their dreams with ServiceNow. So, I think, there’s a big business model in that that we have only scratched the surface on. If you think about employee experience, I think the companies that I talked to including ours, we run someone else’s system of record. But if you talk to 13,000 people in ServiceNow, nobody could possibly pick the system of record out of a lineup because all they look at is this gorgeous consumer-grade UI that’s driven by the ServiceNow portal, where all the services that they need based on their job profile are right there for them, I mean how big is that market. And the same thing with customer service management. We’re learning fast in this new world that we’ve gone way beyond SFA and up-sells and cross-sells and conditioning that around a marketing campaign. We’re into business model innovation, where great companies like Disney or AT&T are rethinking their business model entirely and they’re capitalizing on the streaming…

Thanks, Bill.

Thank you, Walter.

Next, we have Tom Roderick from Stifel. Tom, your line is open.

Hi, good afternoon. Thanks for taking my questions and I’ll echo the sentiments on congratulations on a great finish to a challenging but phenomenal year. Bill, I wanted to ask you just a question on the App Engine. Just looking at this percentage of ACV mix surged to 15%, you’re seeing certainly larger and larger customers and more customers lean in on the App Engine vision. I’d love to hear a little bit more about that. In particular, if you could talk about what the App Engine vision has meant for your relationship with the channel partners, Accenture, Deloitte and others? Just broadly speaking, it would be fantastic to hear about how you look at that today and how that’s changing, how big customers and partners like your SIs are leaning in here?

Yes, fantastic. So let’s start with the whole idea of the partners. There isn’t a partner that’s a global partner right now that does not have a business plan that’s $1 billion or more with ServiceNow. And many of them are in the multiple billions, and they’re building their business model. Some of them tell me, they look at the Now Platform as the cross-platform integration engine of their business model with the various other companies, whether it’s system of record software company or collaborative software company that they also have partnerships with. But they’re looking at us as the center of that digital transformation effort. That is a very, very big tailwind. Many of the net new innovative applications that they will bring to their customers, they’re building on the Now Platform because the low-code, no-code simplicity of the platform can enable them to do things at record speeds, and I think that is a big, big unlock for them. So platform is really big. I also think the ML and the AI movement that we’re on, Element AI was kind of the finishing touch of four M&A moves that we made, which was really about acquiring not just patents and thought leadership, but real enablement of the Now Platform, so we can truly unleash humanity in ways that heretofore were not possible. And the computer and the human now can do things in terms of decision-making, removing soul-crushing work that nobody really wants to do, issuing workflow orders only when it’s necessary because the virtual agent can solve 90% of the problems and most engagement with customers. And this is now like a whole new universe because many of those partners looked at us an IT. And now the employee experience, for example, is one of Deloitte's most…

That’s great color, Bill. Congratulations. I’ll jump back in the queue. Thank you.

Thank you very much.

Next question, we have Gregg Moskowitz from Mizuho. Gregg, your line is open.

All right. Thanks very much, and congratulations as well on a very strong end to the year. I’ll just ask one question in the interest of time. Bill, you recently hired a leader for your customer workflows business, and you’ve obviously done well here. But can you walk through what you see as incremental solutions or monetization opportunities in this area?

Yes, absolutely. Again, we’re hiring best-in-class talent. We obviously have extremely bold ambitions to what we think we can do in the customer service management arena. Also, John Ball, who is the gentleman that we hired as you know, he ran the Einstein initiative over another software company in the area. And we feel that he has domain expertise. And when he saw what we were doing in customer service management, he said, this is where I want to work. He said, this is the biggest thing that I've seen. He said I can't get over this NOW Platform, its simplicity, how quickly I can innovate on it. I'll give you an example. He was front and center on the vaccine management innovation. Literally, that whole process took us three weeks where vaccine management as a concept and an application was developed in three weeks and launched to the global marketplace. And it's in Scotland, it's in UK, it's in many states now in the United States. And in the not too distant future, hopefully it’s helping many of the federal agencies help the Biden administration save lives here in America and obviously in other parts of the world too. So it's the speed at which you can innovate on this platform. It's the pristine nature of this platform that you don't have to work with multiple different platforms from different M&A moves or different levels of complexity that others have built up over time. Here, it's just like there it is innovate on, it. What's the idea, let's code it and let's get it out to the market. We did emergency response apps, if you remember, over a weekend and we launched them globally in a week. I mean it’s just unheard of. And that's what's really exciting that our engineers are spending all of their time coding new innovations as opposed to integrating past applications.

It's great. Thanks Bill.

Thank you very much, Gregg.

We have time for one more question, and it's from Fred Havemeyer from Macquarie. Fred, your line is open.

Thank you very much for taking my question. I thought I'd actually go on a bit of a different direction here. And I'd like to ask as someone who actually led No-Code projects for Fortune 500 companies during the pandemic, I'd love to dig into your Low-Code vision a little bit more. How do you see ServiceNow positioned within the Low- and No-Code markets, to be able to enable line of business users to develop workflow automation and really deliver on that promise of democratizing development?

Yes, that's the whole point. That’s what we're talking about here. I'll give you an example. I had one CEO said to me, hey, I want to get a good score on Glassdoor. And he said there doesn't seem to be an application on the market for it. I said yes why don't you get a business analyst and we'll design a workflow around that, and then you can launch it out into your company in record speed like a couple of days. So, what's unique here in the case of vaccine management as an example, you took the platform and you customized something in a few days basically to vaccinate 5.5 million people. But in the case of something where you just need to flow chart a workflow and rethink a process to, for example, roll out a rewards program or a recognition program that could be done by a business analyst. So we're not inhibited by prepackaged software or doing things that are quite complex in development in the case of the platform because all you need is an idea. And if you have an idea, a business analyst can code on this platform. If you have an idea that's a little bit more complex, you can have a Low-Code situation where somebody with a little bit of computer intelligence skills can navigate this platform. So this is kind of the secret sauce. I tell you, when I think about what it can be because of the architecture and the simplicity of the platform itself, our imaginations just keep getting more and more fulfilled with dreams and excitement. And I’m just so excited by our engineering teams. And Gina and I have made sure that we fund them now appropriately and most of the investments around here go to the great engineers and the people that serve our customers. There's zero bureaucracy in this company, just like there's zero bureaucracy in the platform.

Thank you.

Thank you.

And ladies and gentlemen, this concludes today's conference call. Thank you all for participating. You may now disconnect.