Ladies and gentlemen, thank you for standing by. My name is Terrell and I will be your conference operator today. At this time, I would like to welcome everyone to the Q4 2023 ServiceNow Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] I would now like to turn the call over to Darren Yip, Vice President of Investor Relations. Darren, the floor is yours.

Good afternoon and thank you for joining ServiceNow's fourth quarter and full year 2023 earnings conference call. Joining me are Bill McDermott, our Chairman and Chief Executive Officer; Gina Mastantuono, our Chief Financial Officer; and CJ Desai, our President and Chief Operating Officer. During today's call, we will review our fourth quarter 2023 results and discuss our guidance for the first quarter and full year 2024. Before we get started, we want to emphasize that the information discussed on this call, including our guidance, is based on information as of today and contains forward-looking statements that involve risks, uncertainties, and assumptions. We undertake no duty or obligation to update such statements as a result of new information or future events. Please refer to today's earnings press release and our SEC filings, including our most recent 10-Q and 2022 10-K for factors that may cause actual results to differ materially from our forward-looking statements. We'd also like to point out that we present non-GAAP measures in addition to and not as a substitute for financial measures calculated in accordance with GAAP. Unless otherwise noted, all financial measures and related growth rates we discuss today are non-GAAP except for revenues, remaining performance obligations, or RPO, current RPO, and cash and investments. To see the reconciliation between these non-GAAP and GAAP measures, please refer to today's earnings press release and investor presentation, which are both posted on our website at investors.servicenow.com. A replay of today's call will also be posted on our website. With that, I'll turn the call over to Bill.

Thank you, Darren and thank you very much everyone for joining today's call. ServiceNow closed an outstanding 2023 with a beyond expectations Q4. Here's the state of our business. Artificial intelligence is injecting new fuel into our already high-performing growth engine. The company's Q4 results tell that story. Subscription revenue grew by 25.5% at constant currency, that's 200 basis points above the high end of our guidance. cRPO growth is 23% at constant currency, also 200 basis points above our guidance. Operating margin was over 29%, that's approximately 200 basis points above our guidance. We had 168 deals greater than $1 million in net new ACV, up from 126 a year ago, a 33% increase. ServiceNow's Q4 performance is packed with milestones spanning the full breadth of our portfolio. With technology, customer, and creator, we now have three workflow businesses over $1 billion in ACV. We have 11 individual product lines with north of $250 million in ACV. ITSM, ITOM, and ITAM, each had double-digit deals over $1 million in Q4. Security and risk combined for 12 of the top 20 with nine deals over $1 million. Customer, Employee, and Creator workflows, each had double-digit deals over $1 million. Our large new logo count continued to accelerate in Q4. We had a record 10 new customers signing deals over $1 million in NNACV, including a $10 million win with a very large global financial services firm, which is our largest new customer logo in history. Global iconic brands such as Chipotle, Air France, TIAA, NTT, Data Group Corporation, and Busch are digitally transforming with ServiceNow. We are proud that TIAA, one of our first 10 customers, is still expanding their business with us through new out-of-the-box functionality so they can accelerate time-to-market. Following a record Q3, public sector continued its…

Thank you, Bill. Happy New Year to all of you who are listening in. Q4 was another exceptional quarter to conclude what has been a phenomenal year. Once again, we exceeded our topline growth and operating margin guidance metrics, showcasing our team's relentless focus on execution. ServiceNow's agility in responding to enterprise needs has solidified our position as the trusted intelligent platform for driving digital transformation. In Q4, subscription revenues were $2.365 billion, growing 25.5% year-over-year in constant currency, exceeding the high end of our guidance range by 200 basis points. We closed out 2023 with $8.68 billion in subscription revenues, also representing 25.5% constant currency growth. All organic at a scale that hasn't been accomplished by any other enterprise software company. RPO ended the quarter at approximately $18 billion representing an acceleration to 27.5% year-over-year constant currency growth. cRPO was $8.6 billion, representing 23% year-over-year constant currency growth, a 200 basis point beat versus our guidance. From an industry perspective, energy and utilities, business and consumer services, and education were particularly robust in the quarter. Government control continued to show impressive growth and Telecom, Media, and Technology also saw strength. As Bill noted, I'm pleased to announce that customer workflows crossed $1 billion in ACV in Q4 fast following our Creator Workflows, which hit that momentous milestone in just Q3. We now have three workflow categories generating over $1 billion in ACV, highlighting the breadth of our portfolio. Our renewal rate was a best-in-class 99% in Q4, continuing to demonstrate the strategic relevance of the Now platform as it remains a mission-critical part of our customers' operations. We ended the year with over 8,100 customers with our focus on landing the right new customers continuing to bear fruit as large new logo growth accelerated for the fourth consecutive quarter.…

[Operator Instructions] Your first question comes from the line of Brad Zelnick with Deutsche Bank. Brad, your line is open.

Great. Thanks very much and congrats on an amazing finish to 2023. Bill, it's clear that Now platform is a destination of choice for enterprise AI and modern digital workflows. But I'd love to hear your view of the environment versus what you see is Now specific. It would be great if maybe you can share a bit about close rates, sales rep participation rates or even the net new ACV performance as you did last year, just to help us contextualize how it's going out there. Thanks.

Yes, Brad, thank you very much for the question. Things are going very well out there, and the momentum is terrific. What's really happening and I can say this after 186 CEO meetings in the last six months, the CEOs are now getting very involved with the Gen AI revolution. They realize there has to be architectural adjustments to their environment and the manner in which they manage their data and the platforms they're beholden to actually take advantage of Gen AI. And if you think about the half a century mess that exists out there with legacy systems, in many cases, multiples of the same system, we have one unifying force in these conversations, which is the Now platform because we cooperate with the complexity of this landscape without putting people in a position to rip and replace. So, they're looking for platforms that matter. We're one of those and I think as Gina said, we are the intelligent platform for end-to-end digital transformation. When you have that C-level executive meeting, they really get it now and with regard to Gen AI, the momentum is outstanding. As I said, that SKU has outsold any other new introduction we put into the marketplace. So, there's a real appetite to invest in Gen AI, and there's no price sensitivity around it because the business cases are so unbelievable. I mean if you're improving productivity, 40%, 50%, it just sells itself. So, I think we're in a really, really good place. The Gen AI investments are coming. We're actually getting orders because we have great product, thanks to CJ and his unbelievable engineering team. So, I would tell you at this time last year, compared to this time this year, you should be more bullish now.

Yes. And it's great to see it reflected in the guidance. Thanks so much for taking the question.

Thank you, Brad.

Your next question comes from the line of Mark Murphy with JPMorgan. Mark, the floor is yours.

Thank you very much. So, Bill, I don't think I've heard any other software companies say that its Gen AI products produced the strongest net new ACV of any product family. We had a contact saying it's really the only platform with real-life uses of AI right now. So, I'm wondering if you think that is accurate, and that's what's driving it or should we relate it more to the work you've done getting ahead on pricing and packaging? Should we think back to the efforts of that element AI team, which is so fantastic or maybe it's some other factor in your mind that's really allowing you to see faster adoption of AI?

Yes, I mean, I'll obviously let CJ comment on this also. But you look at the Visa strategic partnership using Gen AI solution to manage end-to-end dispute resolutions with customers. I mean this is one of the great brands in the world, one of the substantial companies. And just think about the impact Gen AI has in a radically simplifying their conversation with their customer and deflecting all the human capital it takes to resolve these cases when technology can do it. If you look at EY and the idea of instilling Gen AI governance on a single pane of glass to manage risk and compliance for some of the biggest corporations in the world. If you look at the opportunity, every single industry has a great opportunity. I was in Germany recently, and I was talking to a home appliance industry participant. Post-COVID, they went from 25% online sales to much more than 50%, and it's growing. So, when CJ and his team brought Field Service Management with Gen AI to the marketplace, just think about one call where the agent instead of -- the rep instead of using a clipboard and a pencil, he's got it on the mobile, knows exactly what part to bring, resolves the case on the spot. That's one part of it, but here is another part of it. The consumer will pay a lot more if they can get a same-day repairs agreement along with the appliance. And the margins on same-day repair are far greater than the box itself, plus you create a nice annuity stream. So, what we're talking about here is fundamentally rethinking the way business is transformed using our platform and Gen AI. And CJ, I know, and I do want to congratulate you and thank you for the job that you continue to do, bringing this innovation to the marketplace. Please give us your thoughts.

Thank you, Bill. And Mark, here is how I would say some of the questions that you asked are absolutely spot on. Element AI team was absolutely a game changer from talent perspective. And our investments in AI, that you're very familiar with since 2017, continue for us, not only on the speed of innovation, but what we learned from our customers. Let me give you a couple of quick insights. We were the first ones -- one of the first ones to release the product with use case specific generative AI starting in September. So we definitely had first mover's advantage from that perspective. However, from a customer sentiment perspective, I will tell you there were two Wall Street banks telling me specifically that they wanted to be the first ones on the Street, Wall Street in New York, to go with our Gen AI solution and one of them signed with us. And you work for one, but in the sense that this is a highly regulated environment, regulators want to know how AI is done, and we were able to sign with the first Wall Street Bank in New York in Q4. In addition, we also signed with a large manufacturing company that wants to fundamentally transform their employee productivity. And then we also signed with a very large restaurant food retailer who wanted to transform employee experience and overall shared services productivity so that their margins can go up. This is definitely a game changer. We are learning a lot from our customers. We are seeing very significant momentum and I was here when we launched 2018 September, ITSM Pro, and as Bill and Gina shared that this has exceeded all of our expectations on how well we did on the monetization of our Pro Plus SKUS. Thank you, Mark.

Thank you. Congrats on being so far ahead.

Thanks a lot Mark.

Our next question comes from the line of Arjun Bhatia with William Blair. Your line is open.

Perfect. Thank you guys so much and I'll add my congrats. I wanted to maybe touch on the strength that you're seeing in customer and employee workflows because if I look at the net new ACV that you're driving there, the mix is relatively stronger than IT workflows there this quarter. Is that attributed to some of this AI adoption and plus SKU? Or are there other drivers there that you're seeing driving momentum in those solutions?

Thank you very much, Arjun, and I really appreciate it. Just a couple of statistics on the customer workflows, 18 of our top 20 deals, what we're seeing is there's a tremendous opportunity to really take ServiceNow and squarely place it on the Customer Relationship Management category. When you think about front, mid and back office and the fact that we can align all three of those things, and nobody has to lose for us to win. We could fill in all the blanks for what the current participants don't do, especially with their integration problems. It's just a fantastic opportunity for our customers. And I think it's important to note, when I gave the Field Service Management example, our net new ACV in Field Service Management, specifically was up over 50% and year-over-year. So, I think it's important to recognize that we have a whole list of new logos in this space. And employee workflows, nine of our top 20 deals and was kind of interesting. Every single CEO now is looking to make the people packed far more productive than it is and with natural language to have your employees seek the data and the information they want and have it reported back to them in just a very nice paragraph of content and data so they can do their jobs better, is kind of like in the no-brainer category. And we have some really great logos that I'm sure CJ would like to share with you as well. But both of those areas are really good. And incidentally, that employee spot that I mentioned was up 80% year-over-year.

Thank you, Bill. And Arjun, some of the questions that you asked, you're spot on. So, AI and specifically Pro Plus SKU was a catalyst, both for our employee and customer workflow. So, that's number one. Number two, within customer workflow, which had an amazing quarter, and I'm so proud of that team and ServiceNow to cross $1 billion which just a few years ago was $10 million. That's a multiple orders of magnitude growth on the difference we are making in customer service because we are ServiceNow, and we know how to do customer service. So, ServiceNow growth was unbelievable from customer service and customer workflow perspective. Two sectors, I'll call out besides Bill's point on Field Service Management. Number one, our telco products, specifically designed for telco industry, saw triple-digit growth with some of the largest telcos in the world related to customer service. And also, we saw in public sector from a direct to citizen perspective, Customer Service Management Did really well in Q4. And on employee workflow, as Gina outlined, we had many million-dollar deals across the industries, including public sector and that business, in addition to HR service delivery with workplace service delivery and legal service delivery, continues to do very well, growing very strongly.

Great to hear. Thank you, CJ, thank you, Bill. Congrats again.

Thank you so much Arjun.

Thank you.

Your next question comes from the line of Kash Rangan with Goldman Sachs. Your line is open Kash.

Congratulations, Bill, Gina, CJ. Great to hear that you're among the first sort of software companies to give us splendid results and we feel better about 2024 already just based on your numbers. Bill, a question for you. It looks like generative AI making sales cycles easier, if I could say that, and has the potential to bring in repeat business with existing customers at a faster pace and magnitude. Can you talk a little bit about how much easier it has gotten despite the environment staying tough, but for generative AI, how much easier has it gotten for the company to generate that initial lead and close that deal and do more repeat business? That's it for me. Thank you.

Hey Kash. So, I will touch on this from a couple of things. demand environment, as Gina has outlined, it continues to be still tough, right? We are not ready to say that things have improved significantly. It is our platform's strategic relevance, as Gina called out, is very high, which has allowed us to what you saw million-dollar deals and large deals that happened in our Q4 across the globe, across the industries, the performance was very strong. So, let me just touch on that. On generative AI the demand for generative AI varies by industry, but we are -- I'll give you an example of a large manufacturing company, the CIO reached out to me in October, wanted to do a four weeks POC and purchase it in December. So, from a sales cycle perspective, that was a top-down decision moving very, very fast. A large retailer is currently also doing a proof of concept with ServiceNow Pro Plus SKU because it is a CEO initiative that Bill talked about. So, from a demand on Gen AI specifically, it is very, very clear that customers are pulling us in that direction in certain industries. And for those sales cycles, yes, they are very fast. They want to see a large manufacturing company CEO that Bill met in Germany, I had a follow-up call in December, and he said, CJ, I want to kick off on Pro Plus SKU for the specific use cases on ITSM. And you and I should review the results end of February. This is faster than ITSM Pro sales cycle. And so I would say overall environment is still similar from what we saw in Q3 to Q4, and Gina will touch on it, but Gen AI, it's on a faster cycle.

Yes. May I also just add one thing, Kash. If you think about every single industry, they all have their own personality. So, for example, I had the opportunity to meet a pharma company. And as you know, the average life cycle, for example, for clinical trials is over six and a half years. And this is an industry that drops $200 billion a year on this clinical trial process and 90% of them fail. So, if you just think about that for a minute, you say, well, what can generative AI do to automate document generation, for example, that would be in line with regulatory protocols and you come up with site contracting agreements, for example, that also include the patient, because the patient has to be engaged in the process, otherwise, they won't stay in the trial. And every time a patient opts out, they lose money, $20,000 per patient. So, generative AI on the ServiceNow platform obviously can go in there and radically cut down the cycle-time of these clinical trials. So, CEOs right out of the gates are ready to go. Your team, my team, let's figure this out. So, there's a real appetite. And I think why I'm so bullish is we have a platform that already has it.

Amazing. Thank you so much.

Thank you, Kash.

Your next question comes from the line of Keith Weiss with Morgan Stanley. Keith, the floor is yours.

Excellent. Thank you guys and again, congratulations on really strong end to 2023. I wanted to talk a little bit on the expense side of the equation. You guys really outperformed nicely on the operating margin side of the equation this quarter looking for further expansion next year. And looking at sort of where you guys are hiring, I was a little bit surprised to see more strength on the R&D side of the equation than sales and marketing. Sales and marketing headcount is only up 6%. So, you talk to us about sort of that relationship changing a little bit. R&D headcount is almost matching sales and marketing head count right now. If we went back five years ago, sales and marketing was 50% ahead of R&D. So how are the investment priorities changing now, especially as we go to 2024? And how are you guys feeling about sales capacity and sort of the necessity to expand sales capacity heading into 2024?

Hi Keith, this is Gina. Thanks so much for the question. So, yes, we're really proud of the beat on the topline as well as the bottom-line in Q4 and obviously continuing to expand those margins in 2024. Specifically, when you think about investments in R&D head count, it's all around continued innovation and our investments in Gen AI and AI. And so not surprising given the commentary that you've already heard, we're continuing to double down in investments on fingers on keyboards, engineers really driving the Gen AI revolution. So, you'll continue to see more of that. On the sales side, it's really about scale and leverage, right? And so sales and marketing head count, there's a lot in there. It's not just quota-bearing feet on the street sales, right? So, you've got marketing, you've got marketing operations, you have sales operations in there. If you actually were able to break it down to feet-on-the-street quota-bearing sales, you would see that growth rate much higher. And in fact, as I think about sales capacity going into 2024, we have a larger increase in ramped reps going into 2024 than we've had in years. So, from a capacity perspective, we feel great about how we're entering 2024.

Excellent.

Awesome. Thanks for the question Keith.

It seems like it really speaks to an increasing sales efficiency then. You just need less people to support any given quota-bearing sales reps.

Absolutely. Productivity and efficiency is going up as well as the fact that from a scale perspective, you're not growing some of the operational heads as much.

Got it. Super helpful. Thank you guys.

And we'll be definitely increasing hiring as we go into 2024 as you would expect.

And Keith, Gina doesn't brag about this, neither does Russ Elmer, who is our Office of General Counsel lead. We're using the Now platform. So, in all the back office functions of the company, we're so automated, so productive. And they're getting things done on the Now platform that it would take other companies five and six times the headcount to do the same job. And that is really something. We actually even had with legal service delivery, AI tell us that we're spending too much time on contracts less than $250,000. Our office of General Counsel, Russ made the decision based on AI that we could fundamentally change that and reorient the workflow around those kinds of agreements, which gave us a huge rush, and he didn't have to hire anybody. And then he actually took that product and our great engineering team built it. We call it LSD, Legal Service Delivery and now lawyers all over the world, they want to jump on. So, everything we do internally with Now on Now as an external marketing force associated with it.

Yes. And Keith, Gina handled this really well in terms of sales efficiency. But one of the things that Bill mentioned that I just wanted to call out that we are really proud of our sales teams besides expansion of our platform in different buying centers, but also the new logo growth. The new logo growth for 2023 was way ahead of what our expectations were specifically in Americas and Europe compared to 2022, including the large transaction that Bill referenced. But when your sales capacity and sales efficiency specifically is improving, while you're also gaining new logos, which is just a very super proud moment for us in 2023.

Your next question comes from the line of Samad Samana with Jefferies. Samad, your line is open.

Hi, thanks. Congrats on a great close to 2023. Gina, I was wondering if maybe you could help us understand that on the cRPO upside, if you think about the 200 basis points and could you kind of break down for us how much of it was adoption of Gen AI and the net new ACV that, that drove exceeding expectations versus just kind of more strength than expected on the renewal cohort and what drove -- what's the mechanic of the upside was in the quarter?

Yes, sure. So, we beat our Q4 cRPO growth guidance by 200 basis points as you know. And I would say it's driven probably half and half by net new ACV outperformance and certainly, Gen AI is in there, but it's not all Gen AI. So, our core business is also doing well. And then we also did see higher early renewals than we had assumed in our guidance. And I would say it's about half and half of the total beat.

Great. And then, Bill, this is maybe for you or for CJ. But as you think about the product portfolio and some of the newer products you've talked about over the last year or so beyond Gen AI's observability or ERP workflows, where are you seeing the most demand or interest outside of Gen AI? And what are you most optimistic about in 2024 beyond Gen AI?

Absolutely. So, Samad, here is what I would say. In general, every single workflow grew for us on net new ACV, which is always a great thing that, that's a balanced performance across every single workflow. And so really proud of the team, both our go-to-market and engineering teams that we continue to deliver innovations and our go-to-market teams, they know how to sell that innovation across our product lines. So, that's number one. Number two, when I look at some of our industry products that I called out, specifically for TMT as in telco, media and tech, they are seeing very nice traction. We also released in our technology workflow under the leadership of Pablo Stern, operational technology product that also grew very nicely. Bill called out Field Service Management, Customer Service Management had an amazing not only Q4 but 2023, and then employee workflow also grew. So, as I'm walking through this list besides Gen AI and then I can tell you the same thing about security, risk, and so our asset management had a phenomenal 2023. So, I expect all these product lines to continue to have momentum besides generative AI.

Great. Thank you so much for taking my questions.

Your next question comes from the line of Alex Zukin with Wolfe Research. Alex, the floor is yours.

Thanks guys. So, first of all, congratulations on a fantastic quarter. And I think the amount of conversation about Gen AI and the tangible impacts of it on the model and the quarter were really great to hear about and see. I just -- I wanted to dig in a little bit to see if you could dimensionalize further either from a revenue contribution kind of cRPO or bookings contribution in the quarter or attach rate that you're seeing with Pro Plus as you go to market? And how should we think about that for fiscal 2024? What's the aspiration here for Q1? Just give us a better -- I'd say, a better indicator or something that we can kind of monitor and track where we can see the Gen AI penetration going forward? And I have a quick follow-up.

Sure, Alex, it's Gina. What I'd say is and we called this out in my script, right? At the end of the day, Gen AI products drove the largest net new ACV contribution in the first full quarter of any of our new product family releases ever, including original Pro SKU. So, I get the question often, do we the adoption curve to be steeper for our Pro Plus than our Pro. Certainly, in the first full quarter of launch, it absolutely has shown that. That being said, it's very early days. And so from a revenue contribution perspective, it's not going to be huge, but it's certainly helped when I thought about my guide for 2024 and that increase of $165 million at the midpoint, right? So Gen AI, early days, but the adoption curve so far is steeper than the original Pro. We will keep an eye on it. And as the numbers get larger, we will continue to update you and everyone else as to the penetration. But right now, excitement and interest from our customer base is much stronger than we ever saw in the first -- in early days of our Pro SKU, and we're excited by that momentum at the same time being conservative as I think about the guidance for 2024 because it's still so early.

Super helpful. And then I guess, if I think about just the opportunity around or actually just cRPO linearity throughout the year, you talked about the headwinds in the first half. How does that trend through the second half of the year? And then what other things should we be paying attention to there?

Yes. So, we called out the 150 basis point impact in Q1 that increases to about 200 basis points in Q2, so we expect similar levels from Q1 to Q2. I'm not going to guide out any further than that at this point. But what I'll tell you is that I increased the full year 2024 guide by $165 million. We remain as confident as ever in our guide of $15 billion plus in 2026. And Gen AI and the innovation in our -- all of our product portfolio is going to help drive that growth.

Perfect. Thank you guys. Congrats again.

Thank you, Alex.

Thanks Alex.

Your next question comes from the line of Mike Cikos with Needham & Co. Your line is open Mike.

Hey guys, thanks for taking the question here and I'll echo my sentiment as well along with my peers. I just wanted to come back, I think earlier during the Q&A, CJ had kind of teased and maybe the monetization here for the Plus SKUs relative to the Pro SKU exceeding your expectations. And just wanted to make sure I was interpreting that properly. Can you give us any indication for what that price capture is like relative the Pro SKUs which we've had out in the market now for a couple of years?

Yes. So, Mike, first of all, the Pro SKUs, as you know, that we launched it in 2018 Q3, so we have five years of consistent trajectory and measures on how we did on Pro across ITSM, CSM and so on. And that we shared at Financial Analyst Day in May. Gina shared that number that we got 25% uplift. When I look at Pro Plus, first, just to underscore what Gina said that it definitely exceeded our expectation, did really, really well and the fastest growth. We have launched so many products over so many years. This definitely exceeded our expectations. So, that's number one. Number two, just simple thing. When I'm looking at what, based on the volume discounts, customers leaning in, asking us to try out from POC, POE perspective, it is in line with what my expectations were on how we would get the price uplift. So, right now, as Bill said, I did not get any, Oh my God, CJ, this is not going to work for us, where is the value. We have to always earn our right and deliver the value for our customers. But right now, it is in line with my expectations.

Terrific. Thank you very much guys.

Thank you, Mike.

Thanks Mike.

Your next question comes from the line of Karl with UBS. Karl, the floor is yours.

Okay, great. Maybe I'll direct this to Bill and CJ. You both mentioned ServiceNow's largest ever new customer win with the bank. I guess I'm surprised that there's big bank out there that's not already on ServiceNow, but I'd love to hear a little bit more about that, and I'm not even sure how big a deal would have to be to be your largest new win? So, any size and color would be fabulous.

Yes, I think we were -- I think, Mike, you called it. I think we were at 23 out of 24 of the world's largest and most significant ones. And now we're at 24 out of 24. And I just seriously want to credit the amazing platform of ServiceNow, the MRA process and integrated risk management and the complexity of going into an environment like that is pretty serious stuff. And to have a marquee brand trust us and believe in us and believe in ServiceNow the way they did is really inspiring. And I really have to turn it over to CJ and give him so much credit for the hard work that he put into it. And I know firsthand because I had the front row seat to watching it and how we spent time with this wonderful customer. And CJ, I'm sure you got some color that you might want to put on that.

Yes. Karl, great to hear from you. I would say fundamentally, when I look at that particular financial services institution, 100% is true that it is on our core of the core. So, from an IT service management perspective, IT operations management perspective, this is not generative AI-specific deal, but it was very much a very strategic transaction on the foundational platform for automation and digital services at this large financial services institution. It is the largest new logo win that we had there, and it is in eight-figures of net new ACV. So, that is material.

Okay. Congrats on that.

Thank you very Karl. Appreciate it.

Thanks Karl.

Your next question comes from the line of Joel Fishbein with Truist Securities. Joel, the floor is yours.

Thank you for taking the question. I will also echo the outstanding execution you guys have done. Bill, I guess this is for you. Just around the public sector vertical, it's been very strong for you for several quarters. I guess two things. Number one is, how is the spending remain subsistent, it used to be very cyclical there? And the second question around public sector is, what do you think their AI adoption cadence is going to look like from your perspective?

Yes. Well, thank you very much for the question. I really appreciate it. Our federal business is really outstanding. And for the benefit of our shareholders, I think that there's a tremendous opportunity to replicate what we're doing in the United States federal and many other governments around the world. That is clearly an ambition that we have, and we have many use cases and many references to back that up. So, CJ, I think you spent a lot of time with our team. And I know that I mentioned some of the names like United States Army, United States Postal Service as an example, really marquee wins, really, really important stuff. Why don't you build on that?

Yes. So, Joel, everything that we have seen, as you saw in 2023, consistent performance in our what we call global public sector. So, let me start there. US Federal, we highlighted the strength in Q3, followed by some of the logos that Bill discussed. However, I do want to state that we are also doing really well. Our platform is for state and local governments in the United States and that growth was also very inspiring in 2023. So not only US Federal, but also US state and local. Now, let me take an example for Q4. Besides United States, we also did really well in public sector in United Kingdom. On Bill's ask and our customers' ask, I spent some time in London with our public sector customers, and they continue to also leverage ServiceNow for similar use cases that we have seen in the US Federal. And then in Q4, our Australia public sector team also did really well, and we had significant platform expansion with some of the large central governments their agencies, including generative AI. So, it is a pretty good picture. And we see in 2024, besides these nations. When I look at Canada, when I look at Germany and many others, the opportunity remains large, as Bill called it out.

Great. And just as the follow-up on the public sector adopting AI. Can you just give us a little color on what you think the trajectory is there?

The trajectory, so I just want to make sure that you understand, first is that our Gen AI conversations have started with the government. One of our first logos in Q3 was with a large public sector agency, as I call it. We also had a few wins in Q4 in public sector. And as we go into 2024, across state, local and federal, across countries, we will continue to see the demand. It's early days. I would say, compared to like a financial services or manufacturing and others. But given our position of our platform and the strength we have with AI, we are definitely going to see in the second half adoption of generative AI.

Great. Thank you so much.

Thank you.

The next question comes from the line of Peter Weed from AllianceBernstein. Peter, the floor is yours.

Thank you and congratulations on the major continued momentum and wins that you are seeing with the latest releases. And I guess building on that, I'd say, prior to this year, for several years, I think there have been some really nice stability in kind of expansion in NRR or customers that I think Gina had and really comforted. But I think this year, there has been some deceleration in that driven by macro. As you look out to 2024, do you see signals that we may be able to see some acceleration where NRR in 2024 might exceed what they kind of dipped to this year or is this kind of like the new normal and kind of from here, things may continue to trend down?

Thanks Peter for the question. What I'd say is that we are -- we feel great about our expansion rates at the scale that we're at as well as on new logo growth. So, CJ mentioned earlier, our new logo growth, especially in our larger customers, has been an accelerating each and every year and each and every quarter over the last several years. And so at our scale, our expansion rates remain extremely strong, and as does our net new logo growth. And so you will continue to see a nice mix of existing customers upselling with us as well as new logos joining us. And so we hit $8.7 billion in revenue going to $10.575 billion next year. At our scale, these expansion rates are best-in-class, and we remain extremely proud of them.

We have time for one more question. And that question will come from the line of Brad Sills with Bank of America. Brad, the floor is yours.

Great. Thank you so much. I wanted to ask about the large new logo strength. We just haven't heard from a lot of enterprise applications companies around that this year. It seems like a tough environment to close big transformational new application deals. So, I wanted to ask why now? I know this has been a focus, but any color on where you're at in kind of closing that gap on some of these large global organizations? And then also, what does that mean for your expansion opportunity, does this give you more line of sight to that given that these are large organizations with big wallets just getting started with ServiceNow? Thank you.

Yes. So, Brad, I will touch on it. Besides financial services institution, we also saw many large new customer wins in manufacturing, specifically automotive. We also saw in public sector. We got new logos with new agencies and commercial business which is a massive strength for ServiceNow continue to outperform large new logos. And in my initial commentary, I stated that Americas and Europe also had large logo, new growth. So, this is something that Paul Smith and the team focused on starting with the first quarter and continued to build throughout the year. And as I told, Keith Weiss, this is something we are really, really proud of in terms of just our ability to focus on high-quality logos that matter. And even these logos, whether it's in public sector, manufacturing, financial services or our commercial segment, it's not that we have maxed out. Even this large financial services, they just bought ITSM and ITOM. When I look at a large automotive, it was just ITSM and ITOM. So, yes, we are starting at a bigger scale, but this specific account will continue to expand for us. And one last thing I'll touch on that some of the big ones who became our customer for the first time, our teams did a beautiful job working with the customer that, hey, once you implement, say, ITSM in the next six to nine months, then they have set aside budget for IT asset management or for security or risk. So, that has been also built in as we go into 2024.

Thank you, CJ. Great to hear.

Thank you, Brad.

Thanks Brad.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.