ServiceNow Inc (NOW)

• ServiceNow's Raptor DB Pro delivers up to 53% faster transaction times and 27x faster analytics, offering an upsell opportunity for every existing installation - . Companies like Amadeus are already adopting Raptor DB, showcasing its potential to unify disparate data and enhance future growth - .
• The strategic hiring of Amit Zavery as President, Chief Product Officer, and COO brings expertise in packaging and pricing, expanding ServiceNow's capabilities and bandwidth - . His experience enhances the company's focus on product innovation and engineering excellence - .
• With global IT spending expected to grow almost 10.5% next year and software at 15%, ServiceNow is well-positioned to capitalize on the secular tailwinds in gen AI and workflow automation, which are clear C-suite priorities - . The company is gaining market share, has an expanding partner ecosystem, and its pipelines are doubling compared to last year, indicating strong future demand - - .

• The macroeconomic environment remains challenging and "not dissimilar" from prior periods, indicating ongoing market uncertainties. -
• Analysts express skepticism about the sustainability of the company's elite-level execution, questioning whether it can be maintained or will revert to average levels. -
• Large investments in AI and AI data centers could increase costs and may not yield immediate returns, potentially impacting profitability. -

1. Market Demand and AI Impact
   Q: Are we back to steady demand; is AI helping?
   A: Bill McDermott noted that the overall macro environment remains value-based, much like before. He emphasized that companies with real innovation, platforms, and genuine AI use cases are succeeding. The market is excited about AI, shifting from experimentation to selecting meaningful platforms. ServiceNow's pipelines are great, and they are ready to win, working closely with customers. -

2. Now Assist ACV and Doubling TAM
   Q: What is the opportunity with the new data platform?
   A: Bill McDermott explained that rolling out Raptor DB Pro is an upsell opportunity across the entire install base. It's a simple sale offering faster performance. By accessing data from any source and aligning it with workflows, they deliver significant benefits. Analysts believe that if ServiceNow succeeds, they could double their total addressable market. -

3. Federal Business and Carasoft Issues
   Q: Are there concerns about federal business and Carasoft?
   A: Bill McDermott stated they didn't see any impact in Q3 and are not involved in any issues regarding Carasoft with the U.S. federal business. The federal business could not be stronger, with net new ACV growth being fantastic, including five deals over $5 million and a couple over $20 million. ServiceNow has become the standard platform for federal agencies consolidating contracts. -

4. Headcount Growth and Investments
   Q: What drives the uptick in headcount and OpEx growth?
   A: Gina Mastantuono explained that the vast majority of sales and marketing hiring is quota-bearing reps, reflecting confidence in the opportunity ahead. They plan to continue accelerating headcount growth prudently, leaning into opportunities with Now Assist, AI, and workflow data fabric. Similar levels of headcount growth are expected in the next few quarters. -

5. Data Platform Monetization
   Q: How will the data platform generate new revenue?
   A: Bill McDermott highlighted that Raptor DB Pro delivers enormous value, improving transaction times by up to 53% and running reports and analytics 27x faster. This brings next-generation performance and scale to customers. Migrations take hours, not days or weeks. It's an upsell opportunity across the entire global install base, offering significant customer benefits. -

6. CRPO Duration Headwinds
   Q: What's the impact of duration headwinds on CRPO?
   A: Gina Mastantuono noted that while Q3's duration headwinds from federal business have gone away as federal contracts re-up, they will see continued headwinds quarter-over-quarter in Q1 and Q2 until they get back to Q3 next year. This is due to longer contract terms and the mix not changing significantly. -

7. Customer Workflows and Front Office
   Q: How is demand in customer workflows and the front office?
   A: Bill McDermott reported that customer workflows were in 15 of the top 20 deals, with net new ACV growth over 50%. They are seeing significant traction in front office solutions like sales and order management across industries. The value proposition centers on sales productivity, reduced time to quote, higher deal sizes, and optimized customer lifetime value. -

8. Execution Excellence
   Q: How do you achieve elite-level execution; is it durable?
   A: Bill McDermott attributed their success to hiring great people and leaders, emphasizing they have the best leadership team in the industry. They have a clear plan, overcommunicate, and believe execution comes down to wanting it more. With 26,000 people eager to win, they feel they're not close to hitting their peak and see plenty of areas to improve. -

9. Amit's Expertise in Pricing
   Q: Why emphasize Amit's expertise in packaging and pricing?
   A: Bill McDermott mentioned that Amit called out his skills in packaging and pricing as a unique professional strength during his interview. Bill sees this as a skill that will help them tremendously, expanding the bandwidth of what ServiceNow is about. Amit is expected to focus on being an engineer's engineer, working with their top engineering team. -

10. R&D vs. Sales & Marketing Hiring
    Q: Why is R&D headcount outpacing sales and marketing?
    A: Gina Mastantuono explained that while sales and marketing headcount includes more than just quota-bearing reps, they continue to grow their feet-on-the-street sales force. The R&D headcount has been consistently up and will continue at a similar pace, reflecting their focus on innovation, especially in the age of AI. They're investing in engineering talent while scaling sales prudently. -

Quarterly guidance for Q4 2024:

• Subscription Revenues: $2.875B to $2.88B (21.5% to 22% y/y) - (raised from $2.660B to $2.665B, 20% to 20.5% y/y - )
• CRPO Growth: 21.5% - (lowered from 22.5% - )
• Operating Margin: 29% - (lowered from 29.5% - )
• GAAP Diluted Weighted Average Outstanding Shares: 209 million - (no change from prior guidance - )

Annual guidance for FY 2024:

• Subscription Revenues: $10.655B to $10.66B (23% y/y) - (raised from $10.575B to $10.585B, 22% y/y - )
• Subscription Gross Margin: 84.5% - (no change from prior guidance - )
• Operating Margin: 29.5% - (no change from prior guidance - )
• Free Cash Flow Margin: 31% - (no change from prior guidance - )
• GAAP Diluted Weighted Average Outstanding Shares: 208 million - (no change from prior guidance - )