ServiceNow Q1 2024 Earnings Review
$NOW Q1'24 Results:
↗️$2,597M rev (+21.2% YoY, +18.6% LQ) beat est by 0.3%
↗️GM* (83.7%, +2.7%pp YoY)🟢
↗️Operating Margin* (30.5%, +4.7%pp YoY)🟢
↗️FCF Margin (47.2%, +12.8%pp YoY)
↗️EPS* $3.41 beat est by 8.6%🟢
*non-GAAP
Subscription Revenue
↗️$2,517.0M Subscription rev (+21.7% YoY)
↗️Subscription GM* (83.2%, +2.3%pp YoY)
Key Metrics
↘️сRPO $8.49B (+19.1% YoY)🟡
↗️RPO $17.80B (+25.4% YoY)🟢
➡️Transactions 8 new $5M+ ACV
↗️Net New ARR $740M ($636 LQ)
Customers
➡️1,933 customers (+15.0% YoY, +36)🔴
Guidance
↘️Q2'24 $2,525.0 - $2,530.0M guide (+21.9% YoY) missed est by -3.2%🔴
↘️$10,560.0 - $10,575.0M FY guide (+22.2% YoY) 0.0% missed est by -2.9%🔴
Key points from ServiceNow’s First Quarter 2024 Earnings Call:
Financial Performance:
ServiceNow outperformed guidance across top line and profitability metrics, with a 24.5% year-over-year growth in subscription revenue in constant currency, and an operating margin exceeding 30%.
Product Innovations:
ServiceNow introduced new Generative AI capabilities that have been integrated into various offerings including Now Assist AI and Copilot for enhancing employee experiences.
The company has launched specific Gen AI features such as Now Assist AI for ITOM AIOPs, aiming to speed up issue resolution by applying generative AI.
Significant emphasis was placed on domain-specific LLMs (Large Language Models) which offer better security, efficiency, and cost-effectiveness.
Continuous release of improvements in Pro Plus, enabling faster and more effective deployments and customer satisfaction.
Significant Deals and Customer Growth:
The company reported multiple large deals, including eight over $5 million and four over $10 million in net new ACV (Annual Contract Value).
Mention of significant clients like Hitachi Energy, Equinix, and Novartis, demonstrating ServiceNow’s engagement with large enterprises across various industries.
Emphasis on the public sector as a key growth area with examples of government clients globally benefiting from ServiceNow's solutions.
International Growth and Investments:
ServiceNow is making significant investments internationally, including a $500 million investment in Saudi Arabia, emphasizing the global demand for its platform.
Strategic Partnerships and Expansions:
The company highlighted strategic expansions and partnerships, notably with Microsoft, IBM, and NVIDIA, aimed at enhancing its AI capabilities and market reach.
Challenges:
The need for rapid implementation of AI solutions is both a challenge and an opportunity, as customers demand quick and effective integration.
Managing the balance between innovation (introducing AI capabilities) and operational efficiency (cost management, implementation speed) is crucial.
Management comments on the earnings call.
Product Innovations:
Bill McDermott (CEO): "Iconic brands are adopting ServiceNow's Now Assist AI as a standard for their GenAI roadmaps. This quarter, we expanded our long-standing partnership with Microsoft to include new Generative AI capabilities while also integrating Now Assist AI and Copilot into employee experiences."
CJ Desai (President & COO): "Our engineers have made the technology work for this regulated environment. So overall, not only the demand environment I'm seeing is better for Pro Plus than Pro. If you ask me the same question in 2019 April, which was five years ago. But I'm also seeing that customers are turning on Pro Plus and working with us saying, here is where I'm seeing the improvement, here is how I should think about it."
Bill McDermott (CEO): "At ServiceNow, we pride ourselves on being the living embodiment of an AI run company through our now on Now strategy. Every week that passes the impact of our own Now on Now AI deployments continues to grow."
International Growth:
Bill McDermott (CEO): "Our global footprint is booming. We're seeing a vast expansion in our most important geographies. This quarter, our Japan team signed the largest NNACV deal in its history."
Customers:
Bill McDermott (CEO): "We focus on the things we can control, building great products, delivering great service for our customers, and forging a winning culture, where people can do the best work of their careers."