ServiceNow, Inc. (NYSE:NOW) Q3 2023 Earnings Call Transcript

Mark Murphy: Thank you very much. Bill, the level of confidence that we hear from SIs on maintaining this kind of 20% plus growth trajectory for their ServiceNow practices is truly standing out across the software landscape. One of them surveyed their customers, and the top three topics of interest that came back were Microsoft, Azure, and ServiceNow. So, just in light of that, that joint prioritization there, could you shed a little light on traction with your Microsoft relationship? Is that kicking in already at this stage, and are you able to go to market as a bit of a one-two punch with the Azure co-pilots and Now Assist?

Bill McDermott: Yeah. I’ll start off, and then please, CJ, feel free to add your opinion on this as well, but our partnership with Microsoft is really geared to open additional addressable market for ServiceNow. And we’re doing that by creating and expanding co-sell motion with Microsoft’s enterprise sales teams. So that would talk to one-two punch, and ServiceNow is really helping streamline their migrations to Azure, while Azure exposes us to a much wider spectrum of customers. So we saw the partnership influence deals across geos in Q3, including government wins in Americas, and APAC as real driving forces between both Microsoft and ServiceNow. And we really are confident that the partnership, and the synergy with Microsoft does enable us to bring value to more customers, and do so at an unprecedented speed, and I do want to say, that we’ve been friends, with Satya and myself on a personal level for a long time, and we’ve done a lot of business together, and the friendship that exists with CJ and the engineering team at Microsoft is very rock-solid, and we trust each other, and we see that our mutual interest is better by working together, but also, we’re doing it in the name of the customer.

And I think that’s the big thing. And I just want to complement CJ and our engineering team, not just for the 5,00 new innovations they brought to the platform this year, that would have been enough, but also for the hands-on relationship with great partners like Microsoft because you got to remember, everything we have has been integrated into Microsoft, from Office 365, to Dynamics, to Teams, to Azure, to AIOps, it’s pretty — pretty amazing when you think about the engineering work and talent that went into putting this together. So this isn’t just by let’s go to market and two is better than one. This is deep technical integration to serve customers at an unprecedented level.

CJ Desai: Bill, you said it well. Mark, the only thing, great to hear from you. The only thing I would add is the engineering collaboration is absolutely necessary, but not sufficient when it comes to go-to-market partnership and relationship we have, working with Microsoft. So, whether it’s our financial services customers or healthcare or government customers, when they are trying to leverage ServiceNow, hey, where are my assets? Are my assets healthy? Are they secure? Whether they are running on-prem, or in Azure, we have the best-in class partnership with Microsoft and that is definitely being noticed by some of our largest, as well as mid-sized customers, and brand-new customers.

Mark Murphy: Thank you for that extra texture and congrats.

Bill McDermott: Thank you very much, Mark.

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

Karl Keirstead: Okay, great. Maybe I’ll direct this one to Gina. Gina, I know from the past when you’ve had strong Fed quarters that by virtue of those deals, they tend to have, I think, correct me if I’m wrong, a little bit more upfront RevRec. So I’m just curious, you laid out the impact on cRPO, but how does that strong Fed quarter that you saw in September impact the reported subscription revenue, and margins that you put up, and if you could, in any way, maybe size that lift given that, I think, there is more upfront RevRec? Much appreciate it.

Gina Mastantuono: Yeah, it’s a great question, Karl. Actually quarter-over quarter, year-over-year on-prem has remained consistent. So that hasn’t been an impact and so the strength in our revenue in the quarter was the result of extremely fantastic execution by the team.