Samad Samana : Very helpful. And then I had a quick follow-up for you. On cRPO, you mentioned, I think, in response to another question about maybe some early renewals in 1Q. Can you maybe just help us understand if it was material enough to impact the guidance or just I know the guidance was good, but just trying to think through on that timing, if there’s anything we should consider for 2Q and then maybe even the back half based on your expectations on renewals?
Gina Mastantuono: Yes. So if you remember, Samad, last year, we’ve been — over the last year, we’ve been more prudent in how we’ve been forecasting early renewals, because it’s hard to forecast. It’s very customer specific and customer by customer. And so in Q1, our beat was really strong on our net new ACV growth, but we also saw early renewals than our prudent forecast. I haven’t changed how we’re thinking about forecasting. I’m still remaining prudent given the macro, and so as we think about seasonality. I talked about Q2 being lower, slightly lower, but then it bounced back up in Q3 when Fed is our strong quarter. And so again, it wasn’t material enough to impact the Q2 guidance, but I’m not assuming better early renewals in Q2 like we saw in Q1.
Samad Samana : Awesome. So you guys in a week and a bit.
Gina Mastantuono: Awesome. Thanks, Samad.
Bill McDermott : By the way, Samad, when you show up, you’ll notice that it will be a stunning knowledge, and you’ll see thousands more people than you saw last year. We just keep getting bigger and bigger. So get ready for the best Vegas show you’ve ever seen.
Samad Samana : Looking forward to it Bil006C. Thank you.
Bill McDermott : Thank you.
Operator: We’ll take our next question from Patrick Walravens with JMP Securities. Patrick, your line is open. Please go ahead.
Patrick Walravens: Great. Thank you. Bill and CJ, can you help us understand how important it is to have and release your own LLMs, so you guys had StarCoder in February, Databricks and DBRX in March. Let’s just say Snowflake did their Arctic family?
CJ Desai: I would say it is extremely important, Patrick, is the simple answer. Here are the three things we are solving for with our own LLMs. First of all, they are use case specific. And ServiceNow has many use cases that are used by our customers, whether it’s IT service management, customer service, our ITOM, all of our key product lines. These are use case specific. And sometimes you would say, even for what Bill talked about agent summarization and other things or text to code, we always want use case-specific LLMs. So then the question is why; one, the accuracy is higher; number two, these are smaller models, which are efficient to run, as you have seen, our gross margin guidance that Gina provided that we feel comfortable with the cost to run these models, because when the models are smaller, the cost to run them is not high; and number three, from an end user perspective, a smaller model always performs better.
So I consider this as a unique strategy that we are fortunate to have a great AI teams at ServiceNow, focused on not only the engineering execution, but combine that with research and experience on how our customers will consume Pro Plus, these things matter. And that’s why domain-specific small language models is the right strategy for ServiceNow. We can run it in our cloud, customers’ data is protected, and they have higher throughput and get higher value.
Patrick Walravens: That’s super helpful. Thank you.
Operator: We’ll take our next question from John DiFucci with Guggenheim.
John DiFucci: Thank you for taking my question. Gina and Bill, you both talked about the strong government across the world and emphasizing international. I know the US government is strong for you. And I suppose it’s still pretty good for you. But Gina, you didn’t mention it in the list of verticals that did well this quarter. Can you comment a little bit more on the US federal government and what you expect for the rest of the year?
Gina Mastantuono: Absolutely, John. Thanks for the question. I didn’t mention it because we had such great results in so many other industries and sectors. But our federal business also was strong and had its biggest Q1 ever with $8 million plus deals and net new ACV growth that accelerated. And so we hosted our largest Fed forum ever with customers representing more than $1 billion in ACV and triple the number of attendees at our executive circle and over 35 partner sponsorships. And so really strong federal business. And actually, our GenAI offerings are reinforcing our ability to help accelerate the transformation journey for our federal customers. And so we’re seeing early adopters and healthy industry — sorry, healthy interest in our domain-specific models, which offer better security that CJ just talked about and really can drive tremendous efficiency gains.
And so exciting themes ahead for 2024 and feel really good about what the federal business will continue to do for us as well as public sector as a whole. So thanks so much for the question.
John DiFucci: Thanks, Gina.
Operator: We’ll take our next question from Ethan Brook with Wolfe Research.
Alex Zukin: Hey, guys. This is Alex Zukin from Wolfe. Thanks for taking the question. Maybe just the question that you guys have gotten a couple of times on Pro Plus adoption. Listen, it’s very clear that the enthusiasm is there, the interest level is there. You talked about it at length in terms of the new product launch being the fastest ever. Is there a way to kind of stratify or at a high level, just give us a sense for what percentage of your deals or pipeline, either for Q1 included Pro Plus and how it looks for the rest of the year? And how — like that compares to your kind of expectations when you set on this journey? And then I’ve got a quick follow-up.
CJ Desai: Hey, Alex, great to hear from you. So I’ll take this on. So there are a couple of things we are seeing. So when we launched Pro in 2018, September, and we launched Pro Plus in 2023 September. As Bill outlined in his comments, the Pro Plus uptake by our customers is at a higher pace than Pro uptake was across not only just ITSM, but also CSM and also HR, which are three big product lines for ServiceNow. So when you look at exactly two quarters and two days that we have been in the market, it has exceeded our internal projections on what Pro Plus will do and our ability to sell them. And as Gina outlined, that not only it was in the seven out of 10 deals, which are the top deals for ServiceNow in Q1, we had $7 million plus deals, including public sector deals in a regulated environment where our engineers have made the technology work for this regulated environment.
So overall, when I see what is happening on the demand environment, it is at a higher pace given very clear metrics around productivity for whether it’s IT agents, customer service agents, HR staff, or for the employees. And that’s what is driving the demand because it accelerates the productivity or multiplies it however you want to call it. The second thing I would say is when I look out Q2, Q3, Q4, I still see significant interest from customers, and they are saying, okay, CJ, what’s going on with the customers who purchased this in, say, for example, Q4. Now here is a really positive news that I do want to report, and we will share more details at our Financial Analyst Day, Alex, is that customers are, for the first time very eager to turn on Pro Plus and want to see and work with us on where the productivity improvements they are seeing and say, help us understand, I saw that when a call got transferred from one IT agent to the other IT agent on Follow the Sun model, the quick summarization help them significantly, so they didn’t ask the end user same question.
So there are a lot of nuances we are learning as we work with our customers, but they are deploying and when I say deploying, as in implementing Pro Plus at a much faster rate than Pro, which is allowing us and our sales team to use this as an example, while convincing other customers to sell. 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. And our engineering teams are doing a phenomenal job, releasing improvements literally on a monthly basis to make sure that our customers are successful with Pro Plus.
Operator: And we’ll take our next question from Michael Turrin with Wells Fargo Securities.
Michael Turrin: Hey, great. Thanks. I appreciate you squeezing me. Gina, 47% free cash flow margin certainly stands out, maybe walk us through the drivers of strength there for Q1. Anything onetime for us to consider, maybe just given we’re holding on to the margin guide for the year, just how we should think about seasonality of free cash flow throughout the rest of the year. Thank you.
Gina Mastantuono: Yeah. Thanks, Michael, for noticing. We’re really proud of the 47% free cash flow margin. Year-over-year, though, you have to remember that Q1 of last year was lower than normal given the Silicon Valley Bank and regional bank prices that happened that quarter. All of that being said, even if you normalize for that, we are significantly higher. And that’s testament to the strong margin, operating margin and some nice work that we’ve been doing on working capital efficiencies. And so we feel really good seasonality for free cash flow will be similar to what you’ve seen historically. And so just really strong results. The team has done an outstanding job on working capital efficiencies, and we’ll continue to see that as well.
Operator: And we have time for one last question. We’ll take our last question from Derrick Wood with Cowen.
Derrick Wood: Great. Thanks. CJ, just to kind of follow-up on that last discussion. Just in terms of how you’re seeing adoption of Gen AI. I guess on one end of the spectrum, perhaps it’s easy to drop this into the hands of workers, let them experiment quickly figure out how to drive productivity. On the other end of the spectrum, perhaps there’s a lot of data hygiene investments needed. You need SIs to come in and help drive real process change and really drive the learning curve. I guess where do you guys — what end of the spectrum are you seeing when it comes to adopting LLMs within the ServiceNow platform?
