Thank you for standing by. My name is JL, and I will be your conference operator today. At this time, I would like to welcome everyone to the Q2 2024 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 conference over to Darren Yip, Group Vice President of Investor Relations. You may begin.

Good afternoon, and thank you for joining ServiceNow's second quarter 2024 earnings conference call. Joining me are Bill McDermott, our Chairman and Chief Executive Officer; and Gina Mastantuono, our Chief Financial Officer. During today's call, we will review our second quarter 2024 results and discuss our guidance for the third 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 2023 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, everyone for joining us today. By now you've all seen the press release, we crushed the quarter, we raised the full year guidance, and we've never been more excited about the future of ServiceNow. But before we get into all the details, I just want to comment on the leadership announcements we made today. The company received an internal complaint earlier this year regarding the hiring of an individual who had previously been a U.S. government employee. As you would expect, we took the complaint very seriously. The Board of Directors conducted a thorough internal investigation with the assistance of outside counsel and determined that our company policy was violated. Acting with total transparency, the company proactively disclose the findings of the investigation to the proper government entities. And as a result, today, we're announcing the departure of the individual who's hiring was the subject of the original complaint. We also came to a mutual agreement that CJ Desai, our President and COO, would offer his resignation from the company effective immediately. While we believe this was an isolated incident, we are further sharpening our hiring policies and procedures as a result of the situation. And when it comes to compliance, let me be perfectly clear, we are fully committed to doing the right thing. And from a continuity standpoint, I'm extremely proud that our team has the incredible depth of talent and expertise to lead forward without any disruption. In fact, Chris Bedi, a respective ServiceNow executive for the past decade, who was recently named the MIT Sloan CIO Leadership Award winner for 2024. He'll serve as the interim Chief Product Officer, while I consider internal and external candidates alike. Our entire products and engineering team is the best in the enterprise software…

Thank you, Bill. Q2 was another fantastic quarter with tremendous beats across all of our top line and profitability metrics. ServiceNow's business remains resilient with net new ACV and Gen AI contributions exceeding expectations. Once again, the team demonstrated exceptional execution as we continue to see strong demand for the Now Platform and our NowAssist offerings. Q2 subscription revenues were $2.542 billion, growing 23% year-over-year in constant currency, exceeding the high end of our guidance range by 100 basis points. RPO ended the quarter at approximately $18.6 billion, representing 31.5% year-over-year constant currency growth. We continue to see average contract terms increase with TCV from five plus year deals more than tripling year-over-year. Current RPO was $8.78 billion, representing 22.5% year-over-year constant currency growth, a 200 basis point beat versus our guidance, and a 150 basis point acceleration from Q1. From an industry perspective, U.S. Federal had a great quarter, accelerating both quarter-over-quarter and year-over-year with net new ACV up well over 50% from last Q2. Manufacturing and Energy and utilities were also areas of strength, growing net new ACV over 50% year-over-year. Healthcare & Life Sciences and Retail and Hospitality, both had a great quarter, growing about 30% year-over-year. The Now Platform remains a mission critical part of our customers' operations, reflected by a strong 98% renewal rate. The stickiness of our customer base has served as a solid foundation for us to continue to build upon. We closed 88 deals greater than 1 million in net new ACV in the quarter, representing 26% growth year-over-year. This includes six new logos, two of which were G2K customers. We continue to see robust large deal momentum in the quarter closing 14 deals over 5 million in net new ACV and four deals over 10 million. Our focus on selling a…

Thank you. The floor is now open for questions. [Operator Instructions] Your first question comes from the line of Keith Weiss of Morgan Stanley. Your line is open.

Excellent. Thank you, guys for taking the question and congratulations on a really strong quarter. In an environment that, as you guys noted, a lot of people are concerned about -- Bill, can you talk to us a little bit more about what is it that enables you guys to get these contracts closed, if you will? What we're hearing from a lot of CIOs is, excitement about the opportunity but tentativeness in pulling the trigger, but you guys seem to be able to get people to pull the trigger. What is it that enables you to pull the trigger? And then, a follow-up for Gina. Was there any unusual activity in terms of like, deals slipping from Q1 to Q2 or was this just fundamentally the strength of Q2?

Thank you very much for the question, Keith. I would, first of all, begin by discussing this incredible platform and the difference that it makes. If you take all the complexity that's out there, and you think about what CEOs today want, they're looking for new vectors of growth to have to radically simplify their companies and digitization is really the only way out. But the difficult thing is most people are selling into a department where they have a narrow threaded solution and that doesn't necessarily change the way work flows and the way business processes get executed. So we're able, -- especially with our Gen AI built into this incredible platform, we're able to demonstrate real value, and that ROI is undeniable and we have a culture built to deliver value. We have a team in who knows how to describe value. And obviously, we're very market connected. I do give the culture here credit for what I call an elite level of execution. So that's just built into the fabric of our DNA, great innovation, great execution, great integration between what we build, how we take it to market, and how in the post-sale world, we care for that value to be ultimately delivered quickly and provable ROI.

And then, Keith, on your question about any unusual activity of deals slipping from Q1 to Q2? No. Actually, we just saw pretty incredible great execution across the board in Q2. From a revenue perspective, net new ACV outperformance that we talked about strong execution of the ServiceNow incredible go-to-market team, as you would expect. On-prem did come in a little bit ahead of expectations, but the net new ACV outperformance was more -- was much more impactful. With respect to the CRPO beat, also, again, primarily driven by net new ACV outperformance, a little bit higher or early renewals. As you know, I’ve been pretty prudent in how I’ve been guiding for early renewals and continue to do so. But the beat was really a function of incredible execution by this team once again.

Your next question comes from the line of Raimo Lenschow of Barclays. Your line is open.

Perfect. Thank you. Congrats from me as well. Bill, you talked about some of the used cases like BT, where you kind of -- with your slightly smaller, more efficient fast language models are achieving very good results. And is that like a blueprint of the way we think -- we should think about AI going forward in terms of like [indiscernible] very large models that you -- as a small and more nimblest play, actually can do achieve a lot more because you're more specialized. Thank you and congrats.

Yeah. Raimo, thank you very much for the question. And I think the key to our domain specific or smaller models, as you mentioned it, they're lightning quick. There's no latency because we're working with the customers' data. They are highly secure again because it's the customer's data, and they're inexpensive to run. And when companies see the bandwidth of a platform that goes end-to-end. So everywhere from the entire IT estate for digital transformation, or recreating an employee experience where employees actually get excited to come to work and do their job, because we take the busy work out of their life or the customer experience can be totally reimagined and then inspiring developers to do what they do best, which is dream about net new innovation and building new business models. You see this, obviously, you mentioned BT, I could have easily said London Stock Exchange, where they deployed us for a core business transformation, and they unified 15 siloed platforms and 14 lines of business on the ServiceNow platform. And they actually saw a deflection rates increase to 85% of the cases, and 35% time improved and summarizing incidents. And by the way, NowAssist does this in seconds. So we're talking about two days per employee improvement and productivity. I could have gone to TriMedx. A biotech company and basically, what they're doing NowAssist is they're enhancing developer productivity, which has increased for them 22%, and they saw 50% of their developers actively using NowAssist in just three months. I could have also mentioned Kainos, a digital technology solutions provider. They created 600 knowledge articles with NowAssist and they were able to improve access to their knowledge content for their customers and employees. Their satisfaction from a customer standpoint went from 80 to 99 and this is just amazing stuff. We just went general availability with our Gen AI SKUs for our government Community Cloud. This is June 28, by the way. One customer had a go live in implementation schedule for Q3, but their pilot went so well that they decided, they needed it immediately activated in Q2. So you’re into a whole different program here with rapid time to value a product that people love to use and the executives get excited because their people are so happy. Their customers are so happy. Their innovators are so happy. And we’re so market connected that we know what’s going on in every one of these instances, they know we’re not mailing it in from a deck.

Perfect. Just amazing. Thank you.

Thank you.

Thanks, Raimo.

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

Bill, you'd be the last person to mail it from the desk. That's for sure. Congratulations to the team from amazing results and Gina, I couldn't help but notice that RPO growth overall hit 30% plus for the first time in eight years, so certainly kudos on that front. Bill, one for you. You've been through multiple macro cycles, if there is a rate reduction and there's a regime change for more Pro-business, if you want to call it that way and count the '25. Have there been certain things that have been holding back so much to the extent that you guys have done really, really well. What could be the bigger macro unlocks as we head towards more rate cuts ahead? And also on the AI front, it’s remarkable how much productivity improvement you've been able to give your clients with just three quarters of shipping the product. Where do you see NowAssist go forward? I mean, is it going to follow the path created by employ workflows, customer service workflows, greater workflows. I mean are we going to go deeper into each of these domains and unveil more and more AI unlocks there? Thank you so much and congratulations.

Thank you very much, Kash. I really appreciate your thoughtful comments and your question. I think the bottom line is consolidating the past is really not moving the ball forward and innovating the future is. I think we have a dream for the company. I think we know how to describe that dream to the C-suite. I think we're now toggling across the entire C-suite, where we've expanded the perimeter in the relationship plan and the solution road map. And obviously, internally, we've scaled the company where it's ready to make a bold move now and be the defining one in the enterprise. So I think all that's coming together once for us. In terms of the broader macro, you saw the investment in hardware, obviously, for the AI world. You saw the incredible success of the great NVIDIA company and the work that they're doing. You see great companies like Microsoft doing incredibly well with Office and dynamics and teams and copilot, so they're standard. And then you see the hyperscalers all doing well, whether it's Azure, it's AWS or its GCP, they're all doing well. And good news is we integrate with all of them. So we know the hyperscaler trend, okay? We built our Gen AI strategy with NVIDIA. We knew they were going to be the winner. We had no doubt about that. And we knew that the world of the 20th century would eventually get the picture that you can't upgrade the past and expect it to give you a different result. And any time we get a chance to tell that story and prove it with a great demo and great success cases, we blow people away with innovation. But to answer your question in terms of where are we headed? Where we're headed…

Thank you. Your next question comes from the line of Peter Weed of Bernstein. Your line is open.

Thank you and congratulations on the continued momentum. I think the big surprising news of the day was, obviously, some of the changes in leadership. CJ obviously is a really important part of the senior leadership team one of the people that I often pointed out to clients about the success and leadership there. Beyond naming Chris as the Chief Product Officer, what do you see the key operational steps to ensure a smooth transition? And what additional actions are you taking to kind of ensure continuity and one of those keys to success. And I guess it's probably not just operationally with the team, but also probably with the public sector business, given that was a bit of where this work came from.

Thank you very much, Peter. I appreciate your question. We have an unbelievable team. And actually, we've already been in execution mode on where we're taking the company and the leadership team. I met with all of them today, including Pat Casey, who is one of the co-founders of the company, and he actually runs the cloud for the company. and all of the line of business development leaders. Chris Bedi is in there on an acting capacity because he knows my decision making style and he can integrate beautifully with the great engineers that we have and the great grow to market people we have, so we don’t drop a single step in our March to be the defining one. So everybody is fired up. They understand the mission, and they’re ready to go. And I will hire a Chief Product Officer. It could come from the inside of the company or the outside of the company on a more permanent basis. But we’re not going to miss a step in execution. We’re already on the move. So very, very, very confident in our company. And by the way, they’re very, very confident that our business is in great shape. And I do want to mention the U.S. public sector remains a substantially important industry vertical to our company, and we continue to believe that, that is poised for further growth, especially in third quarter because that’s when a lot of the decisions get made. And we have our arms around that. Our great public service companies love us. We love them. We’re doing a great job for them, and we don’t intend to miss a beat here, Peter.

Thank you.

Thank you very much. Operator, do we lose you there?

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

Hi. Good evening. Thanks for taking my question. Just an exceptional quarter, guys. Thanks for making our evening easier. So maybe, Bill, first question for you. Just as I think through AI, clearly, you're one of the few companies that's seeing significant demand upfront and strong early traction. I guess what I'm trying to figure out is, for the companies that you're talking to about AI that have attached it, what do you think is causing them to hold out? And what do you think is the trigger that makes them join the party?

Yeah. In terms of the companies that are buying AI products in the companies that aren't?

Correct. For the ones that haven't adopted it yet, that you're still having that conversation with how do you get them to join the party?

Yeah. It's a really important question, Samad, because I think what's happened is they've heard so many whitewashed AI stories from pretenders that they are a little jaded. So we have to get in there and show them all the use cases, show them the demos, show them the customer success stories, give them the handful of references that are already doing it. And before you know it, were off to the races. And then we show them our road map for where we're taking the company and they realize they don't want second-mover advantage, because if other participants in their industry move out and they don't, they could lose. And also, if you think about employees, soon, employees won't tolerate the nonsenses going on with 800 numbers, busy work, silly work that doesn't make a difference and they'll go work somewhere else. So the same thing is true with customers. So I think that it's an education. It's a demonstration. And it's having the validity of success where you have permission to go into the C-suite and they're interested in listening to your story. Once they hear our story and once they see us in action, it's an order. And then it's a quick install and then it's a go-live and then it's amazing productivity. That's what's happening.

And Samad, I would just add, and I talked about this in my script that we're just scratching the surface of that opportunity and the vast majority of our current sales are direct, right? So we're working now really strongly with our partners and the ecosystem to arm them with the tools to sell, and that's going to extend our go-to-market reach even broader. Those partners are so critical and so important and they are leaning in very heavily with us. And so that's going to be another part of kind of the continued acceleration here.

I think Gina makes a great point there, and I did hear one analyst one say, yes, I've been talking to the partner checks and the channel and I'm not hearing a lot from the partners. Yes, that's because, as Gina said, they're still getting activated. But can you imagine when they do, if you see these results when we're doing it on our own and then you get thousands and thousands and thousands of more feet on the street telling the same story, it's a wow factor.

Your next question comes from the line of Karl Keirstead of UBS. Your line is open.

Well, thanks. Maybe I'll direct this one to Gina. Gina, three months ago, you had signaled an expected pretty solid sequential acceleration in CRPO in 3Q. I know things change. So I'm just wondering if you might revisit that second half outlook. And specifically, given the second half election uncertainty that Bill flagged I'm wondering if you're being a shade more conservative on the 3Q CRPO guide, given how big 3Q is in the public sector.

Yes, Karl. It’s a great question. I think that as expected, and I talked a little bit earlier that part of the beat, most of the beat for Q2 was all about execution and net new ACV, but there was part of the beat that was early renewals. I’m continuing to be prudent in how I’m factoring in early renewals because they are so customer-by-customer specific. And so what I would say is that I continue to be prudent in how we think about guide for Q3 and the full year. But I remain extremely confident in that pipeline that I talked about. So pipeline coverage ratios are strong maturity is better than same time last year. We came out of knowledge with 50% more pipe generated in the first 60 days. And that number, I spoke earlier, has surpassed $1 billion. And so pipe remains strong. Opportunity, as you’ve heard Bill and I talk about so far today is fantastic. Demand seems healthy, but you’re right, there’s definitely a little bit of uncertainty in the back half of the year, and we continue to be prudent in some of our assumptions.

Thank you. Your next question comes from the line of Brad Sills of Bank of America Securities. Your line is open.

Great. Thank you so much. I wanted to ask a question around that on that same note there on pipeline. With 50% increase since knowledge, sounds impressive, sounds exciting. Would love to get some color as to where you're seeing that strength, maybe a glimpse into what that pipeline looks like across the stack. Are there any standouts whether it's in IT or customer employee creator? Obviously, NowAssist I'm sure, has a large part to do with that as well. So I just would love to get a little color there. Thank you.

Yeah, Brad. I would say, it’s very much across the board. Similar to the results that you saw in Q3, it’s really strength across the platform. Whether it’s IT, customer employee creator as well as NowAssist. And so what I would say is, we’re operating on all cylinders here and pipeline being generated is really very across the board. But as you would imagine, with respect to Gen AI, there is such excitement and such attention there that we absolutely see very strong pipeline as we think about Gen AI in the back half and then moving into ‘25 and beyond.

Your next question comes from the line of Kirk Materne of Evercore ISI. Your line is open.

Yeah. Thanks very much And I'll echo the congrats on a really nice quarter. Bill, you alluded to this a little bit earlier in one of your answers, but I was just wondering if you could expand a little bit on the opportunity around operational technology for you all. Where are you in terms of starting to have those conversations with customers? And can you just expand a little bit on your thoughts and hopes for that product set as we look out over the next six, 12 months? Thanks.

Yeah. Thank you very much, Kirk, for the question. I really do appreciate it. It’s really amazing. The initial demand for this product and this offering, as you saw from the Washington, D.C. release and what you saw at knowledge ‘24 has really surprised us on the upside how quickly it’s taken off. In Q2, as an example, we had a large biopharmaceutical company, Golfer OT. They mix it with IT. We had a huge biotech and pharma company and a large Japanese auto company. And what we’re already seeing is partners like Boomi, STMicro and a multinational electronics company also based in Japan go for it. So we think that there’s a big opportunity here for both of these products. OT has increased our technology workflow TAM by about $5 billion. In addition, we see sales and order management. This is helping us address the $68 billion customer workflow TAM. So it’s still early days, but we are super encouraged by the traction that we see so far and we’ll continue to monitor and update you guys on this, but it’s a meaningful part of our portfolio now. And again, one of the beauties of this company is the beauty of linking the engineering development effort with the feet on the street and having that high-touch intimacy with the customer and the virtuous cycle back into development where the customer feels that they are the developers developing their dreams and our great engineers are capable of doing things so quickly here. And this is yet another example.

Your next question comes from the line of Alex Zukin of Wolfe Research. Your line is open.

Hey, guys. Thanks for taking the questions. Maybe just the first one. This was like I think by far the strongest RPO quarter that you had in, I think, three years since 2021, and I guess the question is if I look at -- if I think about the inverse of Keith's questions around deals that pushed from Q1 to Q2, are there any deals that you feel like got done earlier than you otherwise would have thought that you may be pulled in any deals because the confidence, Gina, that you're referring to in the pipeline, help us just give us a sense for that? And then I've got a quick follow-up.

Yeah. So you're absolutely right. RPO growing at 31% year-over-year is pretty incredible, especially at our scale. We continue to see average contract terms increase right? And so Q2 had the largest quarterly average contract term for Q2 since 2018. And so we're seeing TCV from five plus year deals more than tripling. I said that in my script. And so we're really seeing a meaningful uptick in multiyear duration contracts as customers are really seeing the power of the Now platform and just making longer, more strategic deals, which is resulting in that. And so no big differences in kind of any pull forwards of deals, a slight uptick in early renewals, as I talked about, but that was only against a prudent guide. So again, it's really about the power of the platform customers really understanding how we're using Gen AI into that platform and really becoming the AI platform for business transformation. That's it.

Perfect. And maybe just linearity in the quarter, any commentary there? And maybe also if AI conversations are already driving just much larger, more strategic engagements that are leading to some of this RPO growth.

Yes. So linearity in Q2 was good. I feel really good about what we saw. And absolutely, AI is AI conversations are driving very strategic engagements and obviously, driving larger average contract terms, right? Again, it's customers really leaning into a longer strategic partnership and getting it now. And so I think all of that is a big part of what you're seeing in our results.

And Alex, I would build on what Gina stand by just thinking about the time line that you mentioned, we became a platform company, that's what happened. We've gone from a product company with a land and expand mentality to an AI platform for business transformation that's looking at industry that we're looking at the complete bandwidth of what a company is trying to pull off. And then to give you a piece of the brand, I think we differentiated ourselves by putting AI to work for people. And people include people like us. It includes employees. It includes customers. It includes people that build the software and includes people to keep the place secure. So all these things were taken into account in the strategic direction of how we would build a strategic platform company. And when Gina tells you, the deal sizes are expanding. The duration of the agreements are expanding. It’s consistent with the company that is scaling, right, before your eyes.

Your next question comes from the line of Mark Murphy of JPMorgan. Your line is open.

Thank you very much, amazing quarter. Bill, I'm wondering what did you experience? And what type of opportunity do you see perhaps in response to the crowd strike issues and outages. Is it reasonable to think that you could have some large companies that would want more telemetry across the IP estate more ability to monitor and detect outages and improve incident response. It would seem like that could play a directly into your ITOM and SecOps capabilities. And then, Gina, I saw the sales and marketing headcount growth picked up. And I was wondering if you just reached a point where something is signaling to you to move into a more aggressive kind of a hiring posture?

Okay. Well, I'll start off and then Gina can talk about our hiring strategy, and thank you for your kind remarks, Mark. There was 0 impact on customer systems from CrowdStrike outage on July '18 as it relates to ServiceNow. There was zero impact to data integrity financial systems and the integrity of the operations of the companies as it relates to ServiceNow. And thanks to our CMDB, I think you're onto a very good marketing and sales idea and the service mapping of the CMDB we had instant visibility into which systems, which business services and infrastructure were impacted in our customers' environment. And our automated workflows sped up the remediation and the employees were kept up to date via our ServiceNow portal. So I think this could actually lead to more sales opportunities once non-ServiceNow customers see what's possible with a platform like this.

And on your question on sales and marketing, I highlighted that it would be picking up even in Q1, right? So Q1 was a little bit lower because last year, Q1 was a big hiring quarter. But yes, we absolutely are focused on ensuring that we're hiring feet on the street, quota bearing sales to go and drive these opportunities that we keep talking about. So we do expect hiring and sales and marketing to kind of continue to tick up a bit that very much in line with our original plans. And obviously, the more we over exceed and the opportunity grows, we will continue to hire to ensure that we have those feet on the street driving and closing those deals.

Your next question comes from the line of Joel Fishbein of Truist Securities. Your line is open.

Thanks for taking the question and congrats on the fantastic quarter. Bill, for you, you acknowledge you announced a further strategic partnership with Microsoft now assisting copilot integration. Just love to hear from you how that's actually proceeding and if you're driving deals together for those solutions. Thanks. A – William McDermott: Thank you very much, Joel. We have a really fantastic partnership with Microsoft. And I think that has actually opened additional addressable market for ServiceNow. And there is a co-sell motion with Microsoft’s enterprise sales team. We do work together very closely with them. And we’re a good teammates, and we’re good partners. And we know that both of us working together is what the customer wants. That’s why we do it. And ServiceNow is really helping customers streamline their migrations to Azure. And while Azure exposes us to a much wider spectrum of customers, I think we also help the relevance of Azure because we’re getting big. And we’re expanding in multiple industries and geographies. And we’re really thinking strategically about how we can win net new logos together, and we’ve had some examples of them. We closed seven $1 million-plus now on Azure deals in Q2, with two of them as new logo wins, and one deal, in fact, was over $30 million in net new ACV. So we’re quite confident that the partnership and synergy will enable us to bring value to more customers and we’ll do it at unprecedented speed and scale. And I have been very straight up with everybody. I don’t go any place without acknowledging Microsoft as a standard. And I recognize the copilot does very important things, and it gets even more interesting when all the capability of NowAssist and the things that we built our platform to do is complementary and fully integrated into Microsoft. And that’s really the winning formula, and it has been from day one.

Your next question comes from the line of Rob Owens of Piper Sandler. Your line is open.

Great. Thank you very much for taking my question. Bill, somewhat curious just where customer conversations are around data governance as we think about these modern architectures as you're thinking about RaptorDB, is that an area that we should expect ServiceNow to play in directly or play in via partnership? Thanks.

Thank you very much for the question, Rob. I would say at this point, I want you to think about workflow automation, Gen AI on our platform and our ability to take RaptorDB and gather any data source, regardless of who’s governing it or where it is and activating that in to automate the way things get done. And as an example, this lighthouse program that we have has a group right now of design partners and early adapters of RaptorDB. And I think it will further accelerate our pro version of the ServiceNow platform in addition to entering us into a whole new TAM to complement the Now platform, Pro+, NowAssist and then the RaptorDB-Pro. And we’re going to use the learnings from this program to further develop our offering. And we do see our role as integrating as opposed to competing with other data providers because the customer wants to activate our platform to do good work with all of the data estates that they have because we have the only AI platform for business transformation in the enterprise. And if we can go everywhere, it just extends our reach and the bandwidth of our TAM and the executional excellence that we can bring to stakeholders. So it’s all part of our thinking big and activating all this in industry-specific use cases. So when we show up, we’re not funding through a brochure, we got a demo in our hands, and we’re showing you how you can transform a business process.

Your next question comes from the line of Brad Zelnick of Deutsche Bank. Your line is open.

Great. Thank you so much and congrats on the elite level execution and the great results. Gina, I just got a couple of quick ones for you. You had a big step-up in CapEx this quarter. Can you comment on what drove that and the cadence we should expect going forward? And then also just a point of clarification. Is there any federal business you foresee having to unwind as a result of the investigation you conducted? And should we assume that, that would all be factored into guidance? Thanks.

Yeah. So I’ll take that second question first. So no, there’s no federal business that we foresee we will need to unwind full stop. And then with respect to the step-up in CapEx, it’s more quarterly timing than anything else. Expectations for full year has not changed. And as you would imagine, focus of our CapEx is on AI and Gen AI. But as we talked about at Financial Analyst Day, it’s already baked into any guidance that I would have given you. So I wouldn’t take into account an any quarterly kind of timing-related stuff.

Awesome. Very helpful and congrats again.

Thanks, Brad.

Thank you, Brad.

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

Great. Thanks for getting me on, guys. I just had a couple of quick questions. The first I think that you guys had expected, call it, about 200 basis points of headwind to 2Q CRPO in relation to the public sector. Did that play out as expected? And then can you remind us – off the top of my head, I want to say that normalizes as we lap those contracts in Q3. But does that federal headwind go away now.

So yes, that headwind to Q2 CRPO did play out as expected. And yes, it will normalize in Q3. But remember, depending on the size of our Fed business in Q3, it could pop up again as we play out Q4 and beyond. Obviously, we’ll let you know as that comes to fruition or not. But yes, it should normalize now in Q3 as expected.

Understood. Thank you very much and congrats on a strong quarter.

Thanks so much, Mike.

We have time for one last question. Your last question comes from the line of Matt Hedberg of RBC Capital Markets. Your line is open.

Great. Thanks for taking my questions. Maybe just a quick one for Gina. Kind of following up on the last few questions. Subscription revenue has been decelerating here, but CRPO has been accelerating and obviously, even put the guide. Is that just a function, Gina, of the renewals that we’re seeing, whether it’s Q2 or Q3? Just maybe a little bit of the divergence between subscription revenue and CRPO growth.

Yeah. So basically, what that really is showing you is that net new ACV has reaccelerated in first half ‘24 versus first half ‘23. The other piece has nothing to do with early renewals really. The other piece is that are expected on-prem mix in Q3 of this year is lower than – is a little bit lower than last year. So all good things as you think about the results for Q2 and what it means going forward.

Great. Congrats on the quarter guys.

Thanks, Matt.

Thank you very much, Matt.

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