ServiceNow, Inc. (NYSE:NOW) Q1 2024 Earnings Call Transcript

ServiceNow, Inc. (NYSE:NOW) Q1 2024 Earnings Call Transcript April 24, 2024

ServiceNow, Inc. beats earnings expectations. Reported EPS is $3.41, expectations were $3.15. ServiceNow, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good day, everyone, and welcome to the First Quarter 2024 ServiceNow Earnings Conference Call. Today’s call is being recorded. I would now like to turn the call over to Darren Yip, Group Vice President of Investor Relations. Please go ahead.

Darren Yip: Good afternoon, and thank you for joining ServiceNow’s first quarter 2024 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 first quarter 2024 results and discuss our guidance for the second 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.

Bill McDermott: Thank you very much, Darren, and thank you, everyone, for joining today’s call. ServiceNow’s first quarter results were outstanding. We once again outperformed our guidance across all top line and profitability metrics. Subscription revenue grew by 24.5% year-over-year in constant currency. That’s approximately 50 basis points above the high end of our guidance. CRPO grew 21% year-over-year in constant currency, 100 basis points above our guidance. Operating margin was over 30%, 150 basis points above our guidance. Even as Q1 is not traditionally a large quarter, we had eight deals over $5 million in net new ACV, a 100% increase year-over-year. Four deals were over $10 million, which is a 300% increase year-over-year.

ServiceNow is strengthening its position as the AI platform for business transformation. This is fueling strong performances for each of our key businesses. ITSM and ITOM were each in 16 of the top 20 deals. Security and risk, combined were an 11 of the top 20, customer creator and employee workflows were in 10 of the top 20 deals. GenAI adoption remained on a tear in Q1. Companies are leaning into GenAI as a powerful deflationary force to drive productivity. That’s why NNACV for Pro Plus is record-breaking. In fact, it’s the fastest selling offering in the company’s history. 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, really exciting.

Hitachi Energy is using case summarization with NowAssist for ITSM to resolve cases faster, saving millions. Equinix is the deploying NowAssist AI for HR workflows, aiming to increase agent productivity by 30%. ServiceNow at IBM are combining the power of the Now Platform with Watson X to increase productivity for IBM’s employees, customers, and partners. BNY Mellon and ServiceNow are exploring the utilization of AI and other leading technologies and IT service management helping to unlock additional value for the bank and its clients. We look forward to further demonstrating the exceptional Gen AI customer successes and a detailed roadmap at our Financial Analyst Day on May 6th in Las Vegas. From an industry perspective, public sector continues to excel globally.

Major transactions in Q1 included government of Australia’s Health Department and the government of Italy’s IT division, Sojek. The government of Sao Paulo Motor Vehicle Department created an app on ServiceNow to give customers, in that case, Citizens, a fast, transparent digital experience that handles requests in minutes. Our global footprint is booming. We’re seeing a vast expansion in our most important geographies. This quarter, our Japan team signed the largest NNHCV deal in its history. Novartis in Switzerland is implementing ServiceNow Gen AI technology to transform the business into one of the most innovative companies in therapeutic medicine. NEOM is harnessing ServiceNow’s single data model along with other partners to scale its IT services across the Middle East region, while seeking to create the first cognitive city where data-driven intelligence meets urban everyday needs.

Suzuki, Tokyo Gas iNet, ANA systems are all top deals signed in Q1. And this is just scratching the surface of what we achieved this quarter. There’s a lot of guesswork out there right now about the geopolitics and economic policies among other things. ServiceNow’s philosophy is simple. 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. And that’s why we perform well when some others don’t. It’s also why our guidance, as you’ll hear from Gina, remains ever strong. Let’s talk about the demand environment for enterprise software. AI is not simply a fast maturing technology. AI is a catalyst for business transformation.

When I speak to CEOs all over the world, they recognize this is a change moment. Over the past 15 years, enterprise has experienced a massive decentralization of technology governance. As every department became an IT buyer, the result was too many systems, too many apps, low data quality, and high vulnerability to cybersecurity risk. And here’s the key. Those decisions have been made. So, even as CEOs want to consolidate on to strategic platforms for the long-term, they also don’t want to delay the potential of net new innovation in the short-term. They want to derisk the past while getting immediate business value from AI. Process optimization is the number one Gen AI use case in the global economy today. This is why ServiceNow’s strategic relevance as the AI platform for business transformation has never been higher.

Every business workflow in every enterprise will be engineered with Gen AI at its core. We are the single pane of glass that enables end-to-end digital transformation. 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. Gen AI depletion rates have doubled for both our employees and customers, and they are improving each and every month. So for engineers are accepting 48% of Texaco generation. These are meaningful productivity improvements and it’s only the beginning. That’s why IDC estimates an $11 trillion impact from AI in the next three years. It’s also why businesses will spend more than $0.5 trillion on Gen AI in 2027, according to IDC.

So contrary to some opinions out there, we are witnessing the biggest enterprise software market opportunity in a generation. Business leaders are waking up to the fact that they have a fresh choice now. They can radically simplify the tech stack. We are entering a new frontier. We are in a race to put AI to work for people, and that’s a ray ServiceNow intends to win for our customers. There’s a lot happening at ServiceNow that only heightens our optimism for the remainder of this year and beyond. Our recent Washington, D.C. platform release included very exciting new features for our customers. Now Assist AI for ITOM AIOPs supercharges ServiceNow’s market-leading solution, applying generative AI to speed up issue resolution. Sales and order management unites the sales order life cycles across the front, middle and back office teams on the ServiceNow platform.

ServiceNow is also staying at the forefront of building innovative enterprise Gen AI applications. As one example, Now Assist AI for telecommunications service management, what we call TSM, which also uses NVIDIA AI, will boost agent productivity and build on our great partnership. It’s also worth noting the ServiceNow research team is stacked with world-renowned AI experts helping our customers stay on the cutting edge. We’re expanding our ecosystem capacity to meet growing customer demand. One example is our investment in platformation, a global IT consultancy and leading ServiceNow implementation partner to enhance expertise and generative AI-enabled technology. And anyone who’d like to get the full story, I warmly invite you to join us for Knowledge 2024 in Las Vegas on May 7.

In closing, I’ll end how I began, the company is in a market-leading position. We have the product recognition from the industry analysts. All of them were showing up on all of the most admired company lists and we’re moving up the ranks every year. Those things are always encouraging, and we’re proud of it all. But the biggest indication I can give you is qualitative. It’s how our team feels about what we’re doing together. This culture is different. It’s rooted in ServiceNow as early as days as a customer-obsessed company. We are ever-hungry, ever-humble. So when I’m told that over 1 million people applied to join us last year, I’m not surprised. When you have a galvanizing ambition to become the defining enterprise software company in the 21st century, people want to be a part of that.

They recognize this is about more than technology. This is about helping people to know more, care more and do more. We’ll continue on this mission in Q2, I’d like to thank all of you for the trust that you’ve invested in ServiceNow. We’re going to keep working hard for you, and we’re going to keep striving to honor our brand promise. The world works with ServiceNow. I’ll now hand things over to our outstanding CFO, Gina Mastantuono. Gina, over to you.

Gina Mastantuono: Thank you, Bill. Q1 set a strong precedent for the year ahead. Building on the momentum from Q4, our team delivered another exceptional outperformance. We surpassed all of our top line and profitability guidance metrics for the quarter. With Gen AI conversations serving as a digital transformation catalyst, we see that momentum carrying into Q2. Turning to our results. In Q1, subscription revenues were $2.523 billion, growing 24.5% year-over-year in constant currency, exceeding the high end of our guidance range by approximately 50 basis points. RPO ended the quarter at approximately $17.7 billion, representing 27% year-over-year constant currency growth. We continue to see average contract terms increase year-over-year as the strategic importance of the Now Platform has driven longer duration deals.

Current RPO was $8.45 billion, representing 21% year-over-year constant currency growth, a 100 basis point beat versus our guidance. From an industry perspective, technology, media and telecom was extremely robust, growing net new ACV over 100% year-over-year. Education had a fantastic quarter, growing nearly 50% year-over-year. Transportation and Logistics, Business and Consumer Services and Retail and Hospitality also saw strength. Our renewal rate was a best-in-class 98% as the Now Platform remains a strategic imperative for our customers’ operations. We closed 59 deals greater than $1 million in net new ACV in the quarter with four deals greater than $10 million, representing 300% year-over-year growth. Our focus on selling a comprehensive platform continue to drive more multi-product deals as 15 of our top 20 deals included seven or more products.

We now have 1,933 customers paying us over $1 million in ACV. In addition, the number of customers paying us $20 million or more grew over 50% year-over-year. In Q1, our Gen AI products continue to see very healthy adoption. As Bill mentioned, our Pro Plus net new ACV to-date continued the trend ahead of any new product family launched for the comparable period. Our Gen AI products were in seven of our top 10 deals, and we closed seven deals over $1 million in ACV in the quarter. We had wins at a second Wall Street Bank, a leading cybersecurity firm and many more, including a significant win for ITOM Pro Plus, which just launched in March. Turning to profitability. Non-GAAP operating margin was over 30%, approximately 150 basis points above our guidance, driven by the timing of marketing spend, OpEx efficiencies and our top line outperformance.

Our free cash flow margin was 47%, up 12 points year-over-year. We ended the quarter with a robust balance sheet, including $8.8 billion in cash and investments. In Q1, we bought back 225,000 shares as part of our share repurchase program with the primary objective of managing the impact of dilution. As of the end of the quarter, we have approximately $787 million remaining of the original $1.5 billion authorization. Together, these results continue to demonstrate our ability to drive a strong balance of world-class growth, profitability and shareholder value. Moving to our guidance. In Q1, we initiated a program to hedge a portion of our foreign currency denominated revenues. The initiative is expected to lessen the impact of recent movements in the euro and pound, but the incremental strengthening of the US dollar has still resulted in FX headwinds compared to our previous guidance.

Given our Q1 outperformance, we are raising our 2024 top line outlook to more than offset those moves. For 2024, we are raising our subscription revenues by $20 million at the midpoint of the range to more than offset an incremental $17 million headwind from FX. This raises a net increase of $3 million on a narrowed range of $10.560 billion to $10.575 billion, representing 21.5% to 22% year-over-year growth or 21.5% on a constant currency basis. We continue to expect subscription gross margin of 84.5%, operating margin of 29% and free cash flow margin of 31%. Finally, we expect GAAP diluted weighted average outstanding shares of $208 million. For Q2, we expect subscription revenues between $2.525 billion and $2.530 billion, representing 21.5% to 22% year-over-year growth or 22% on a constant currency basis.

We expect CRPO growth of 20.5%, both on a reported and constant currency basis. We expect an operating margin of 25%. Finally, we expect 208 million GAAP diluted weighted average outstanding shares for the quarter. In summary, Q1 was a great start to what we expect to be another tremendous year. Organizations are under more pressure than ever to maximize the benefits of the technology investments. In this environment, ServiceNow’s traction as the intelligent platform for end-to-end digital transformation continues to intensify. GenAI is only as powerful as the platform is built on. The Now platform gives us deep insights with the remarkable ability to tailor AI outputs to the specific needs of our customers. Business users need AI to power actions across the enterprise.

Our workflows are designed to do just that, deliver complete solutions to supercharge experiences, creating extraordinary value. You’ll hear more about these experiences, our strategy and long-term opportunities at our upcoming Investor Day on May 6, which will be webcast on our Investor Relations website. Finally, before moving on to Q&A, I want to thank all of our employees worldwide for helping make ServiceNow one of the Fortune 100 Best Places to Work yet again in 2024. ServiceNow’s greatest asset is its people, and you all continue to make us, ServiceNow strong. Bill and I couldn’t be prouder of this incredible team. With that, I’ll open it up for Q&A.

See also 20 Most Powerful Drag Queens In The US and 20 Fastest Growing Health Tech Companies in the World.

Q&A Session

Operator: [Operator Instructions] We’ll now take our first question from Kash Rangan with Goldman Sachs.

KashRangan: Thank you very much. First earnings report and software for the year, Bill, good to see the optimism. My question on AI is at what point does AI get more broadly adopted, at least from a sales cycle standpoint that despite the tough economic environment, you can actually draw in more potential prospects into the category because of the cost savings here. And one for Gina, I noticed that — it’s still too early in the year, cRPO — RPO, a bit of seasonality there. Can you give us some insight into what to make of the rest of the year? Thank you so much and congratulations.

BillMcDermott: Thank you very much for the question, Kash. As I said, process optimization is the single biggest GenAI use case in the enterprise. Any process that exists in the enterprise today will be reengineered or engineered depending on how messy the process is with GenAI. So every workflow in every enterprise will be rethought. So just think about the sales process, for example, and the whole order to cash process, for example, or think about employees and onboarding and training and providing all the services to them. Think about agent productivity, which is something that we’re obviously moving very quickly on where you can bypass the systems that don’t integrate very well. And instead of swivel sharing around or putting customers on hold or I’ll get back to you tomorrow have real-time data where most of the cases are deflected from virtual agent, but if an agent is involved, they have choice A or B, which one is more pleasing to the customer.

Okay, you like B, you got B. And the case is closed. Think about managing complex cases across an enterprise where all those screens are open and data is being processed instead of having spreadsheets and workarounds and e-mails and text. Now you have everything done on one platform with full case information and case closure. So literally, from running a business in every department to building software, like I said, with the breakthrough on natural language tech turning into code. Every single enterprise will run completely differently because of GenAI and because of our clean sheet platform.

GinaMastantuono: Yeah. And Kash, on your question around seasonality about the cRPO. So first and foremost, really proud of the fact that we beat our guide in Q1 by 100 basis points. That beat was twofold; one, strong net new ACV growth as well as higher early renewals. And so from a seasonality perspective you’ll remember, we talked about the Fed duration. And so Q2 is slightly more impacted before it pops up again in Q3. And so we feel really good about the trends that we’re seeing. And again, feel really good. We continue to be prudent in our guide around early renewals, while we are seeing them stronger than we saw last year, again, from a guidance perspective and a forecast perspective, we’re continuing to be prudent there.

KashRangan: Awesome. Thank you.

GinaMastantuono: Thanks, Kash.

Operator: We’ll take our next question from Karl Keirstead with UBS.

Karl Keirstead: Yeah, hi. Thanks, Bill and Gina, maybe even CJ. I wonder if you could just comment on the environment that you’re seeing. I think in prior quarters, you’ve described it as after a pretty rough, call it, year stretch, it started to stabilize in 3Q and stabilized again in 4Q. Was that still the case in Q1? Were there one or two verticals that maybe lag, maybe some of the puts and takes about how the environment broadly felt? Thank you.

CJ Desai: So, I would say, Karl, I would start first is environment — and we shared this in January, Bill, Gina and I, it remains pretty much the same from our perspective as it — and what we mean by that, it is not 2021, specifically. So, it still takes many approvals and all the things that we discussed from a sales perspective in trying to get business validation done or a purchase being made. And pretty much, I would say, that’s a standard across industries and geographies. We are absolutely executing well within that environment given our promise of efficiency and automation so that is absolutely resonating and combine that with our in-platform generative AI, which also resonates really well because that is an accelerant to the productivity enhancements that an organization can take.

So, whether it’s Wall Street banks, whether it’s a life sciences corporation, whether it’s governments, that story of automation, digital, productivity, enhance via Gen AI is absolutely resonating and that is what is helping us, despite the environment continuing to be the same.

Bill McDermott: And I would just build on that, Karl, just for your benefit on the budgets themselves. The budgets are going up. And what I definitely see is the preference for Gen AI now. I think we’re ending one era in the enterprise, and we’ve begun another. And we’re into a new frontier now where gen AI has opened up the eyes of the customer to say, there might be a different way of doing this and that’s creating real opportunity for us. So, CJ is exactly right on the value-based economy, but also I do see the budgets not only going up in IT, but also just see gen AI becoming more of a business imperative. And if you can increase productivity, take cost out and show that in a value case this money that will be spent and maybe different people approving it, but the money will be spent.

I also want to acknowledge some really great partnerships that we’ve achieved with Microsoft and IBM and NVIDIA. And I look at great companies like Novartis really rethinking the whole pharma process altogether with Gen AI. There’s just so much goodness going on in this market. And I feel that you’re coming off a strong Q4 to have a great print like this in Q1 with the momentum going into knowledge. I don’t think I’ve ever felt this good in the five years that I’ve been here than I do right now on this call with you right now, absolutely best I’ve felt.

Karl Keirstead: Thank you both.

Operator: Thanks Karl. We’ll take our next question from Matt Hedberg with RBC Capital Markets.

Matt Hedberg: Great. Thanks for taking my question guys. Bill, given your comments on Pro Plus net new ACV growth, are you seeing faster Pro Plus deal cycles relative to what you saw when the Pro was first launched? And anything you just need to call out from a discounting perspective on Pro Plus relative to maybe some of your initial expectations?

Gina Mastantuono: Yes. Hey Matt, I’ll take that one. So, yes, we are absolutely seeing faster Pro Plus adoption versus Pro. It’s two quarters out, right? So, it’s early days, but we feel really good about the adoption curve. And we’ve been talking about whether or not that adoption curve would be faster. And we posited that it would be, and that’s certainly proving out to be the case, although again, early days. With respect to discounting versus initial expectations, we feel really good about the realized pricing and it has been very much in line with our initial expectations. And we’ll talk a lot more as you would expect at Investor Day about the overall Gen AI opportunity for ServiceNow as well as where we are to-date. But we feel very good about what we’re seeing in the markets.

Customers are really leaning in. We talked about seven deals in the top 10 had Gen AI in it, significant deals over $1 million as well. So we’re definitely seeing monetization happening already.

Matt Hedberg: Thank you, Gina. A – Gina Mastantuono Thanks, Matt.

Operator: We’ll take our next question from Brad Sills with Bank of America Securities.

Brad Sills: Great. Thank you so much. A question for Gina, please. Real nice results on RPO. I think this is the second quarter since we’ve seen significant outperformance there versus CRPO. Just curious what’s driving that? And does that give you some visibility perhaps for CRPO to ramp from here given perhaps a ramping component in there? Thank you.

Gina Mastantuono: Yes, it’s a great point, and I did call that out. So RPO growth was 27% year-over-year in constant currency, which is 300 basis points improvement versus last year. And yes, that is our longer-term backlog. So as you think more longer term about the opportunity in ServiceNow, I couldn’t be more excited about that. We are seeing the average duration growing. And in fact, duration this Q1 is the largest it’s been in the Q1 since, I think, 2019. And so I feel really good about what that means for the mid- and long-term opportunity here for sure.

Brad Sills: Great to hear. Thanks, Gina.

Gina Mastantuono: Thanks, Brad.

Operator: We’ll take our next question from Keith Weiss with Morgan Stanley.

Sanjit Singh: Hi. Sanjit Singh in for Keith Weiss. Bill, I wanted to ask a little bit about Gen AI adoption within ServiceNow, you mentioned Now on Now, but in terms of just like the Gen AI adoption, both broadly and with the engineering team, it looks like you’re hiring for this quarter in R&D, you kept a pace. How is Gen AI adoption changing or not changing your hiring plans more broadly and specifically in some of the engineering team.

CJ Desai: This is CJ. And here is where I would say that specifically, we absolutely believe, and we have seen it that Gen AI is helping our software engineers code faster. I mean, straight up. It helps us our software engineers code faster, whether they are junior software engineers or very senior software engineers, they still can leverage and continue to leverage generative AI. So I’ll start with that is increasing our engineering productivity and it varies depending on how senior the engineer is or how junior the engineer is. And number two, it helps us increase our innovation velocity. So that is really, really important to us that it increases our innovation velocity. When I flip that for our customers is that when customers leverage ServiceNow generative AI, and if they can do automation faster, whether he’s using text to code or text to workflow types of use cases that they can not only increase the number of workflows that they put on ServiceNow, but second, it also increases that digital efficiency.

So it’s both ways. Our engineers are able to innovate faster and then our customers are able to workflow faster because of generative AI.

Bill McDermott: And one thing just to share with you, Keith, we have 20 Gen AI cases on the Now on Now story within ServiceNow. And our Chief Information Officer, Chris Bedi, put a very interesting LinkedIn post out there. Please take a look at it. Not only is he doing a great job. But if you think about ServiceNow, we have a financial system in ServiceNow. It’s a system of record. We have one of them. Unlike many customers out there that have hundreds, we have a CRM system. We have one of them. And we have an HR system. We have one of them. But they are feeding the ServiceNow platform. So, all the data from those systems of record in terms of how we run this company, we run the whole company on ServiceNow. And now we have 20 different Gen AI use cases across all the departments of the company.

So my full expectation is that someday, we could do the earnings call where we’re all in this room together and we’ll take you through the living, learning lab of a Gen AI run company here at ServiceNow.

Gina Mastantuono: Yes. And I would just add — I think I would just add, we are absolutely customer zero, 100% on all of our Gen AI use cases. Deflection rates have doubled for both our employees and customers and they’re improving every month, right? It’s really early days. So it’s learning faster and faster. Software engineers are accepting 48% of text to code generation. So there’s absolutely the ability to see leverage in our R&D, as we look to the mid- and long term. So thank you for the question.

Sanjit Singh: Appreciate all the thoughts. Thank you.

Operator: We’ll take our next question from Keith Bachman with BMO.

Keith Bachman : Hi. Many thanks. And I have two questions, but I’ll ask them as one. First, Gina, I don’t know if this is for you or not, but acknowledge that the adoption does seem quite strong for the various Gen AI offerings. And so how would you characterize — and yet you’re pointing to decelerating growth through 2024. So what’s not growing as well? If Gen AI is getting great adoption probably small dollar amounts contribution. But what’s not growing as well? And the second part is perhaps going to come at the Analyst Day, but is there any specific metrics you could give us on dollars of ACV or anything else related to the Gen AI SKUs? Or should we wait for Analyst Day perhaps to some more specific indications on what the adoption is? Thank you.

Gina Mastantuono: Yes. So we’ll definitely give you a lot more details on all things of Gen AI at Investor Day, and that’s in a week and a bit. So stay tuned there. Yes, the adoption curve is stronger than we’ve seen in any new product category launch, but that’s starting from zero, right? So it’s a small dollar at this point in time, but the speed at which it’s going to grow to be a really meaningful contributor is faster than anything we’ve seen. And so what I’d say is that 24.5% revenue growth at the scale at which we are, the larger numbers is pretty incredible. And we see continued traction across the board, whether it’s our technology workflows, it’s our customer workflows or our creator as well. And so really across the board, employees had a really strong quarter, customer had a really strong quarter.

ITSM core remains healthy in 16 of our top 20 deals, 10 deals over $1 million. ITOM was included also in 16 of the top 20 deals with nine deals over $1 million, security and risk in totality, still doing well. And so it’s the great thing about having a platform with the breadth that ServiceNow has, that we continue to drive really, really good growth at our scale across the platform.

CJ Desai: Yes. And the only thing I would add there is every single workflow continues to still grow double-digits plus, plus. So we have no, hey, this has been taken out of x or this been taken out of y besides Gina individually calling out all our growth vectors, whether it’s our core, which is ITSM and ITOM or whether it’s our growth, which our CSM and other products, AppEngine, part of creator and customer, all of them continue to grow very nicely, and they grew very nicely in Q1.

Keith Bachman: Many thanks.

Gina Mastantuono: Thanks, Keith.

Operator: We’ll take our next question from Tyler Radke with Citi.

Tyler Radke: Yes. Thanks for taking the question. I wanted to ask you how you’re seeing the momentum just in terms of standard to Pro migrations. We talked a lot about Pro Plus, but it would seem that still a huge opportunity in terms of, I think close to 50% of the installed base on standard. Have you started to see an acceleration in those migrations. Can you just talk about the opportunity there? Thank you.

CJ Desai: So first, I’ll use Tyler, one quick example that I was in a conversation at a bank, very technical audience in their technology organization. They were still on ITSM standard. Once they saw what we have done with Pro Plus, they actually bought Pro and Pro Plus together. And that is just amazing that they bought both technologies together, not just saying, “hey, I’m going to go to Pro and then staircase to Pro Plus.” That’s a very specific example. But the way we look at this specific product line, whether it’s ITSM or whether it’s CSM, our customer service, is I look at both Pro and Enterprise in total. So when I look at Pro and Enterprise in total, so I’m excluding Pro Plus on purpose here, so Pro and enterprise, which are the bigger SKUs at a higher priced amount, they grew nicely for ITSM, for CSM for our HR service delivery.