servicenow inc (now) earnings report: q3 2015 conference ... · welcome to the servicenow q4 2015...
TRANSCRIPT
CompanyName:ServiceNowIncCompanyTicker:NOWSector:T echnologyIndustry:ComputerSof tware&Services
EventDescription:Q32015EarningsCallMarketCapasofEventDate:12.40BPriceasofEventDate:62.415
©2014TheStreet,Inc.Al l R ightsReserved Page1of22
ServicenowInc(NOW)EarningsReport:Q32015ConferenceCallTranscriptThefollowingServicenowIncconferencecalltookplaceonJanuary27,2016,05:00PMET.Thisisatranscriptofthatearningscall:
CompanyPart icipants
MichaelScarpelli;ServiceNowInc.;CFOFrankSlootman;ServiceNowInc.;President&CEO
OtherPart icipants
MichaelTurits;RaymondJames&AssociatesInc.;AnalystBrentThill;UBS;AnalystKeithWeiss;MorganStanley;AnalystMattHedberg;RBCCapitalMarkets;AnalystWalterPritchard;Citigroup;AnalystTedLin;EvercoreISI;AnalystAlexZukin;Stephens;AnalystUnidentifiedParticipant;MizuhoSecurities;AnalystRaimoLenschow;BarclaysCapital;AnalystKarlKierstead;DeutscheBank;AnalystRobOwens;PacificCrestSecurities;AnalystGregMcDowell;JMPSecurities;AnalystJustinFurby;WilliamBlair&Company;AnalystJesseHulsing;GoldmanSachs;AnalystSteveAshley;RobertW.Baird&Co.;AnalystKashRangan;BankofAmericaMerrillLynch;AnalystDerrickWood;SusquehannaFinancialGroup/SIG;AnalystPhilWinslow;CreditSuisse;Analyst
MANAGEMENTDISCUSSIONSECTION
Operator :
WelcometotheServiceNowQ42015earningsconferencecall.
(OperatorInstructions)
Asareminder,thisconferenceisbeingrecordedforreplaypurposes.
Iwouldnowliketoturntheconferenceovertoyourhostfortoday,Mr.MichaelScarpelli,ChiefFinancialOfficer.Pleaseproceed.
MichaelScarpelli(CFO):
Goodafternoon.Thankyouforjoiningus.
OnthecallwithmetodayisFrankSlootman,ourChiefExecutiveOfficer.Ourpressrelease,ourquarterlyIRdeckandthesimultaneousbroadcastofthiscallcanbeaccessedatinvestors.servicenow.com.
CompanyName:ServiceNowIncCompanyTicker:NOWSector:T echnologyIndustry:ComputerSof tware&Services
EventDescription:Q32015EarningsCallMarketCapasofEventDate:12.40BPriceasofEventDate:62.415
©2014TheStreet,Inc.Al l R ightsReserved Page2of22
Wemaymakeforward-lookingstatementsonthisconferencecallsuchasthoseusingthewordsmay,will,expects,believes,pipeline,prospects,forecast,vision,addressablemarketorsimilarphrasestoconveythatinformationisnothistoricalfact.Thesestatementsaresubjecttorisks,uncertaintiesandassumptions.
PleaserefertothepressreleaseandriskfactorsindocumentsfiledwiththeSecuritiesandExchangeCommission,includingourmostrecentquarterlyreportonForm10-QandourannualreportonForm10-Kforinformationonrisksanduncertaintiesthatmaycauseactualresultstodiffermateriallyfromthosesetforthinsuchstatements.
IwouldnowliketoturnthecallovertoFrank.
FrankSlootman (President&CEO):
Thanks,Mike.Goodafternoon,andthankyouforjoiningusontoday'scall.WiththecloseofFY15,ServiceNowbecamethesecondenterpriseSaaScompanyinhistorytoreportmorethan$1billioninannualrevenue.
Thismilestonewasdrivenbysolidexecutionacrosstheboard.Totalrevenuesforthefourthquartergrew44%year-on-yearto$286million,andwecontinuetoseestrongdemandfromourcustomerbasewitha99%renewalrateanda39%up-sellrate.ThefourthquartersetarecordfornetnewACV.Wenowhave230customerswithACVinexcessof$1million,anetincreaseof24.Additionally,wehave638Global2000customers,anetincreaseof26.
NewGlobal2000logosincludeMichelinandtheHersheyCompany.OuraverageACVperGlobal2000customerwas$868,000,a6%sequentialincrease.Atthebeginningof2015,werestructuredoursalesefforttoincreasefocusonthecommercialmarket.
Asaresult,wegrewourcommercialbusiness48%inthequarter.Inadditiontorobustgrowth,thecommercialsalesteamalsobookedmultipletransactionsinexcessof$1millionthroughouttheyear.Ourtotaladdressablemarketcontinuestoexpandandisnowestimatedat$60billion.
WithourlatestsoftwarereleaseinDecember,knownasGeneva,welaunchedtwomajornewservicesthatexpandourscopeintheservicemanagementmarket,customerserviceandsecurityoperations,addingmorethananestimated$13billiontoouraddressablemarket.Ourcustomerserviceofferingprovidesaholisticapproachthatintegratescustomerengagementwiththeunderlyingengineeringandoperationalprocesses.
WealreadysignedfivedealsforcustomerserviceincludingFiserv,aleadingglobalprovideroffinancialservicestechnology.Inaddition,wesignedfourcustomersforsecurityoperations,includingRaymondJamesFinancial,aleadingdiversifiedfinancialservicescompany.Thisnewofferingconnectssecurityeventsformarket-leadingtechnologieswithouradvancedworkflowcapabilities.
AkeyvaluepropositionistheinstitutionofasharedworkflowbetweenITandsecurityteams.Ourfocusisnotonthetechteam,butonprocessingsecurityincidentsinahighlystructured,expedientandtransparentfashion.Thishasbeensorelymissinginthebattleforcybersecurity.
In2016ourfocusonhelpingcustomerstransformtheirbusinessesusingaservice-centricapproachisintensifying.Inthisvision,everythingbecomesdefinedandoperatedasaserviceandeveryenterprisewillincreasinglymanifestitselfasasoftwarecloud.Tohelpcustomersachievethisoutcome,westoodupontheleadconsultingteamtomapouttheirjourney.
Thisnewteam,whichwecallInspire,iscurrentlyworkingwithalargecustomertodevelopalong-termstrategyaroundtheIndustrialInternetofThings.Thiscustomerplanstorolloutarangeofinternaland
CompanyName:ServiceNowIncCompanyTicker:NOWSector:T echnologyIndustry:ComputerSof tware&Services
EventDescription:Q32015EarningsCallMarketCapasofEventDate:12.40BPriceasofEventDate:62.415
©2014TheStreet,Inc.Al l R ightsReserved Page3of22
externalphasingcloudservicesthatwillmorethantripletheirsegmentrevenueby2020.Thisisanexistingcustomer,butthisnewengagementchangedthescopeofanoperationaldiscussiontoastrategicone.
Anothercustomerwasinthemidstofacorporatetransformationalongwiththeintegrationofamajoracquisition.InsteadoffocusingonjustonanITSMripandreplace,theInspireteamshowedthemhowITcouldsupportthecompany'slong-termtransformation.Asaresult,weworkedalongsidethecustomerstakeholderstobuildthestrategy,roadmap,andarchitectureforITandanewbusinessprocessservicecenter.Thatroadmapwillhaveusreplacesevensystemsintotal,startingwithITandmovingthroughoutthebusiness.Finally,IlookforwardtoseeingyouallattheKnowledge16theweekofMay16,inLasVegasatMandalayBay.
Withthat,IwillnowturnthecallbackovertoMike.
MichaelScarpelli(CFO):
Thankyou,Frank.Duringtoday'scallwewillreviewourfourthquarterfinancialresultsanddiscussourfinancialguidanceforQ1andfullyear2016.
Wewouldliketopointoutthatthecompanyreportsnon-GAAPresultsinadditionto,andnotasasubstitutefororsuperiorto,financialmeasurescalculatedinaccordancewithGAAP.Allfinancialfigureswewilldiscusstodayarenon-GAAPunlessstatedotherwise.Toseethereconciliationbetweenthesenon-GAAPandGAAPresults,pleaserefertoourpressreleasefiledearliertodayandforpriorquarterspreviouslyfiledpressreleases,allofwhicharepostedatinvestors.servicenow.com.
Ourtotalrevenuesforthefourthquarterwere$286million,increasing44%year-over-yearand51%inconstantcurrency,anegativeimpactof$13million.Ouraveragecontracttermsfornewcustomers,upsellsandrenewalswere31.9,26.1and23.8monthsrespectively.
Totalrevenuesbasedongeographywere$199millioninNorthAmerica,$67millioninEMEAand$20millioninAsiaPacificandotherrepresenting70%,23%and7%oftotalrevenuesrespectively.Ourcalculatedbillingswere$366millioninthequarter,increasing33%year-over-yearand39%inconstantcurrency,anegativeimpactof$16million.Ourweighted-averagesubscriptionbillingstermwas11.9monthsforthequarter,comparedto11.8monthsintheprioryear.
Combinedbackloganddeferredrevenueattheendof2015wasapproximately$1.9billion,increasing35%year-over-yearand40%inconstantcurrency,anegativeimpactof$65million.Subscriptiongrossmargininthequarterwas83%comparedto80%intheprioryear.Professionalservicesandothergrossmarginwas15%comparedto16%intheprioryear.
Overallgrossmarginwas74%comparedto70%intheprioryear.Operatingmarginwas14%comparedto6%intheprioryear.Weendedthequarterwith3,686totalemployees,anetincreaseof284inthequarterand860intheyear.
Netincomeforthefourthquarterwas$33millionor$0.20perbasicand$0.19perdilutedsharecomparedtonetincomeof$5millionor$0.03perbasicanddilutedshareintheprioryear.Ourbasicweightedaveragesharesoutstandingwas160million,andourdilutedweightedaveragesharesoutstandingwas171million.
Duringthefourthquarterwegenerated$105millionincashflowfromoperations,andweused$25millionforcapitalexpenditures,resultingin$80millioninfreecashflow.Thiscomparesto$39millionoffreecashflowintheprioryear.Weendedthequarterwith$1.2billionincash,shorttermandlongterminvestments.
CompanyName:ServiceNowIncCompanyTicker:NOWSector:T echnologyIndustry:ComputerSof tware&Services
EventDescription:Q32015EarningsCallMarketCapasofEventDate:12.40BPriceasofEventDate:62.415
©2014TheStreet,Inc.Al l R ightsReserved Page4of22
Let'sturntoguidanceforthefirstquarterandfullyear2016basedonFXratesasoftheendofQ4.Forthefirst-quarterof2016weexpecttotalrevenuesbetween$298millionand$303million,representingyear-over-yeargrowthbetween41%and43%andbetween42%and44%inconstantcurrency,anegativeimpactof$2million.
Weexpectsubscriptionrevenuesbetween$261millionand$265millionandprofessionalservicesandotherrevenuesbetween$37millionand$38million.Asareminder,weareincreasinglyfocusedondeployingourinternalprofessionalservicesorganizationasastrategicresourceandrelyingonourpartnerecosystemforservicedelivery.Weexpectbillingsbetween$360millionand$365million,representingyear-over-yeargrowthbetween34%and36%andbetween36%and38%inconstantcurrency,anegativeimpactof$3million.
Weexpectsubscriptiongrossmarginofapproximately83%,professionalservicesandothergrossmarginofapproximately9%,andoverallgrossmarginofapproximately73%.Weexpectanoperatingmarginandfreecashflowmarginofapproximately5%and21%respectively.Weexpectdilutedweightedaveragesharesoutstandingtobeapproximately173million.
Thefull-year2016,weexpecttotalrevenuesbetween$1.34billionand$1.37billion,representingyear-over-yeargrowthbetween33%and36%andbetween34%and37%inconstantcurrency,anegativeimpactof$6million.Weexpectsubscriptionrevenuesbetween$1.18billionand$1.2billionandprofessionalservicesandotherrevenuesbetween$160millionand$170million.Weexpectbillingsofapproximately$1.6billion,representingyear-over-yeargrowthofapproximately33%and34%inconstantcurrency,anegativeimpactof$7million.
Weexpectanoperatingmarginandfreecashflowmarginofapproximately12%and24%respectively.Weexpectdilutedweightedaveragesharesoutstandingtobe177millionfortheyear,andweexpecttoaddapproximately1,000netemployeesin2016.Asareminder,ourfinancialforecastsincludeanticipatedattorneysfeesandexpensesforoutstandinglitigationswithBMCandHPEnterprises,butnotanyforecastrelatedtotheiroutcomes.
ThetrialsarecurrentlyscheduledforMarch2016andMay2017respectively.Beforeclosing,pleasenoteourFinancialAnalystDaywillbeheldinconjunctionwithKnowledge16onMonday,May16,inLasVegasatMandalayBay.Aftertheevent,wewillopenupourPartnerExpoHallearlytoFinancialAnalystDayattendees,givingthemanopportunitytoseeandspeakwithmorethan100ServiceNowpartners.In-personattendancewillbelimited,soifinterested,[email protected].
Forthosewhocannotjoininperson,wewillholdawebcastoftheeventaccessibleonourIRwebsite.
Withthat,Operator,youcannowopenupthelineforquestions.
QUESTIONS&ANSWERS
Operator :
(OperatorInstructions)
MichaelTurits,RaymondJames.
MichaelT urits (Analyst-RaymondJames&AssociatesInc.):
Verystrongmargins,butalittlelightrelativetothebillingsguidegrantedwithalittlebitmoreFXheadwind.Anythingthathappenedsimilartolastyearintermsofrestructuringaroundthesalesforce?
AndthenIhaveafollow-upquestion,justahousekeepingquestion.
CompanyName:ServiceNowIncCompanyTicker:NOWSector:T echnologyIndustry:ComputerSof tware&Services
EventDescription:Q32015EarningsCallMarketCapasofEventDate:12.40BPriceasofEventDate:62.415
©2014TheStreet,Inc.Al l R ightsReserved Page5of22
FrankSlootman (President&CEO):
Michael,thisisFrank.Wedon'thaveanyrestructuringsplannedforthisyearsotherealignmentthatyousawlastyearonthecommercialorganization,whichbythewaywehighlightedinourpreparedremarks,hasreallyworkedoutexcellentforourbusiness.Wearenotplanningondoinganythinglikethatcominginto2016.
MichaelT urits (Analyst-RaymondJames&AssociatesInc.):
Andthen,Mike,anythingfurtheronthatrelativetothebillingsatthelowendoftheguide,grantedalittlebitmoreFXheadwind?
MichaelScarpelli(CFO):
Well,there'sanumberofthingsgointobilling,thatarebothpositiveandnegative,whenyou'redoingtheforecasting.ButIwillsaythattherewasanerrorinourforecasting.Andifthaterrordidnotoccur,wewould'veended,wewouldhavelandedwithinthemidpointofourrange.
MichaelT urits (Analyst-RaymondJames&AssociatesInc.):
Okay.AndthenIjusthaveahousekeepingquestion.Canyouletusknowwhatyourexpectationsareforthenon-GAAPtaxratefor1Q2016and2016?ForQ1andallof2016weareanticipatingthatit'sgoingtobesomewherearound35%.Okay.Thanksverymuch.
Operator :
BrentThill,UBS.
BrentT hill(Analyst-UBS):
Thanks.Mike,justnottodwellonthebilling,butjustrelatedtotheerrorthatyoujustmentioned,whatwasthat?Andalsocanyoujusttalkalittlebitabouthowyou'refactoringinthemacroconditionforhowyoulookatthebillingsguide?
Ithinkeverythingisobviouslyobsessedwiththatmetric.Wasthereanymoreconservativeviewthatyouputintothatorareyounotseeingthemacroatallshowupinthepipelineintermsoftheforecastthatyougavetothestreet?
MichaelScarpelli(CFO):
Theerrorhadtodowithlookingatthesystemforwhatwasourrenewalopportunitythatwehad,anditwasclearlyanerrorthatwecapturedandidentifiedonDecember15.Soonceagain,ifwehadknownthatwewould'veguidedlowerandwewould'veendedwithinthemidpointofthat,oftheguidancewewould'vegiven.AndIwilljustsay,ourguidanceisbaseduponwhereweseethebusinessfor2016rightnow,andwe'recomfortablewiththeguidancewearegiving.
BrentT hill(Analyst-UBS):
Okay,sonoextramacrocushionthatyou'vefactoredin?
FrankSlootman (President&CEO):
ThisisFrank,Brent.We'renotreallyseeinganymacroeffectyet.We'resuchasecularbusiness.Wehavenotreallyfeltanyeffectsuptothispoint,norcanweseeitsortofdowntheroadthatisaffectingourbusinesssothat'snotinourguidance.
CompanyName:ServiceNowIncCompanyTicker:NOWSector:T echnologyIndustry:ComputerSof tware&Services
EventDescription:Q32015EarningsCallMarketCapasofEventDate:12.40BPriceasofEventDate:62.415
©2014TheStreet,Inc.Al l R ightsReserved Page6of22
BrentT hill(Analyst-UBS):
Okay,justoneclarification.Salesheadcountaccrued,totalheadcountinthislastyear,doyouanticipateyour1,000netaddsandwillthegrowthrateinsaleshiringout,continuedtooutpacetherestoftheheadcount?
MichaelScarpelli(CFO):
Yes.Soweaddedroughly405peopleintothesalesandmarketingorganizationinallof2015.Andweexpectin2016we'regoingtoaddaboutthatsameabsolutenumbergiveortake,dependingonthequalityofpeoplewefind.
BrentT hill(Analyst-UBS):
Greatthanksfortheclarification.
Operator :
KeithWeiss,MorganStanley.
KeithWeiss (Analyst-MorganStanley):
Thankyoufortakingthequestion.Twoquestions,oneonthetoplineandoneonthebottomline.Onthetopline,ifwelookatyourguidanceforthefullyear,particularlythebillingguidance,youguyshaveaverygoodsustainabilityofgrowththroughoutthefullyear,statingmid-tolow-30sthroughoutthefullyear.Whichisn'ttoomuchdifferentwhatyouhavedoneinthemostrecentquarteronaconstantcurrencybasis.
Whatgivesyouconfidenceinthesustainabilityofthatgrowth?Whatyouseeinginyourpipelineintermsoftheopportunitythatcouldhelpsustainthathighlevelgrowthdespitethefactyouguysarecomingtoaprettybigscaledyearatoverat$1billion.Andthenonthebottomline,reallynicefreecashflowsthisquarter.
Anythingonetimeinnatureoranythingweshouldkeepinmindintermsofforecastingcashflowsonagoingforwardbasisthatmightneedtobecaughtupatsomepoint?Ordoyouthinkthesesortofcashflowmarginimprovementsaredurableonagoforwardbasis?
MichaelScarpelli(CFO):
So,Iwillanswerthecashflowfirst,Keith.Youaregoingtogetsomevariabilityincashflowonaquarter-to-quarterbasisandthetwoquarterswherewearegoingtogenerallyhaveourlowercashflowisgoingtobeQ1andQ2andalotofthathastodo--orQ1andQ3,andthathastodowithourESPPplanandthewaythat,thatgetsfunded.
Youcanseethatonthecashflowstatement.But,wefeelprettygoodaboutshowingsomemoreleverageinourcashflowthisyearandhencewhywe'reguidingto24%forthefullyear.
There'snothingbigthat'sgoingtohappenthere.CapEx,asapercentofrevenue,isgoingtobesomewhereinthe,slightlydownfromlastyear,Ithinkweareabout9.5%,9.4%in2015.I'mexpectingit'sgoingtobesomewherearound8%,8.5%in2016.
Andthenintermsofyourotherquestion,intermsofwhatwe'reseeinginourpipeline,IwillletFranktalkaboutwhatgivesustheconfidencethere.
FrankSlootman (President&CEO):
CompanyName:ServiceNowIncCompanyTicker:NOWSector:T echnologyIndustry:ComputerSof tware&Services
EventDescription:Q32015EarningsCallMarketCapasofEventDate:12.40BPriceasofEventDate:62.415
©2014TheStreet,Inc.Al l R ightsReserved Page7of22
Theconfidence,thisisFrank,theconfidencecomesfromthefactthatwenowhavequiteafewyearsofoperatinghistoryunderourbelts,sowehaveseen,thosepatternsareverypersistentintermsofthewayourrenewalsareworking,thewayourupsellsareworking,thewaywelandnewlogos,ouraveragedealsizes,thewholecohortanalysis.Whenyoutakeallofthatintoaccount,wereallyhavequitestrongvisibilityandhowthebusinessplaysoutfromonequartertothenext,andit'sanicethingaboutaSaaSbusinesswehavealsobigbacklogsinthefirst.It'sreallyrocksolidthatway.
Wereallydon'tdependononequarteroranotherbeinganoutliereithertothepositiveorthenegative.Soit'sreallyafunctionofourhistoryinthebusinessandthepersistenceofthepatternsthatwe'vebeenabletoobserve.
KeithWeiss (Analyst-MorganStanley):
Excellent.Thankyouguys.
Operator :
MattHedberg,RBCCapitalMarkets.
MattHedberg (Analyst-RBCCapitalMarkets):
Thanks,guys.IguessIamwonderingintoyear-end,Iknowthere'salwayssomedealsthatmoveinandoutofthequarter,butwasthereanythingabnormal,guys,thisquarterintermsoflargedealsthatmayhaveslippedinto2016?
MichaelScarpelli(CFO):
There'salwaysdealsthatslipfromonequartertotheother.Likewise,youarealwayspullingdealsin.Iwillsay,likemostQ4s,itwasaverybackendloadedquarter.ButasFrankmentioned,wehadrecordnetnewACVinQ4andwe'reverypleasedwithwhatwesaw.
MattHedberg (Analyst-RBCCapitalMarkets):
Okay.Andthenintermsofthefull-yearguide.Servicesrevenue,Ithink,wasabout$30millionlightofconsensusinournumberandobviouslyyou'rehavingsomesuccessthisquarter.IsthatacceleratingtotheSIchannelsandisthatsomethingweshouldsortofcontinuetobakeintoourmodellongerterm?
MichaelScarpelli(CFO):
Yes,it'sdefinitelysomethingyoushouldbakeintoyourmodel.Aswe'vebeensayingforawhile,theSIsarebecomingmoreimportanttousfordoingservicedelivery,andwedon'twanttobeseenascompetingwiththeSIs.AsImentioned,we'retryingtomakeourowninternalPSresourceskindofmorestrategicandwewouldlikethe,kindofthebasicimplementationworktobedonemoreandmorebyourpartners.
And,hey,that'swhytheguyslikeCSCboughtFruitionandAccentureboughtCloudSherpas.Andwe'regoingtoletthoseguyscontinuetogrowtheirbusinesses.We'remoreinterestedinthelongtermsubscriptionrevenuefromourcustomers.
Wejustneedtomakesurethatourpartnersaredoingagoodjobofstandingupourcustomersandwe'regoingtoreallyfocusonthat.
MattHedberg (Analyst-RBCCapitalMarkets):
Maybejustaquickfollowuptothatthen.WiththisoffloadingtoSIs,isthereanecdotalevidencethat
CompanyName:ServiceNowIncCompanyTicker:NOWSector:T echnologyIndustry:ComputerSof tware&Services
EventDescription:Q32015EarningsCallMarketCapasofEventDate:12.40BPriceasofEventDate:62.415
©2014TheStreet,Inc.Al l R ightsReserved Page8of22
yourseeinganaccelerationtheninthatSIbusinessduetoCloudSherpaorFruitionorthingsofthatnature?
FrankSlootman (President&CEO):
Yes,thisisFrank.Thereisanacceleration.OurSIbusinessusedtobeopportunisticinthattherewere,whentheopportunitiespresenteditself,theywouldbidontheseopportunities,butit'sdifferentnow.Becausetheseorganizations,theyhaveboughtcompanies,theyhavemadeinvestmentsandtheynowhaverealplansaroundtheServiceNowbusinessandthey'redrivingittotarget.Sotheyaremuchmoredisciplined,muchmoremethodical,muchmoregoaldriveninthewaytheygoaboutpursuingtheServiceNowbusiness.Andthat'svery,verydifferentfromthewayitwasinyearspast.
AsMikesaid,wereallywanttomakeroomforthem,makesurethatweenablethem,theyalsoplayastrategicrolewithourcustomers.Andthat'sreallyimportant.WewantourcustomerstohavereallyabroadvarietyofchoicesandoftentimeswepartnerwiththeseSIsaswell.Inotherwords,wewillsubthemorsometimestheysubus.Soit'saverycollaborativerelationshipthatwehavewiththem,withourcustomers.
MattHedberg (Analyst-RBCCapitalMarkets):
Thanks,guys.
Operator :
WalterPritchard,Citi.
WalterPritchard (Analyst-Citigroup):
Mike,Ijustwantedtodiveintothequestion,orthestatementyoumadeinthereleaseandyoujustmentionedonnewACVbeingatrecordlevels,whichIguesswe'dexpectgivenit'saQ4andyou'reagrowingcompany.Iamwondering,ifIlookatdeferredcommissionsonthatcashflowstatement,itlookslikethecashimpactofthatwasroughlyflattishyear-over-yearandyourbillings,Ithinkwetalkedabout,forecasting,butyourbillingsdefinitelybenefitedfromthe99%renewalrate,whichIthinkisanall-timehighforyourcompany.SojustwonderinghowwekindofquantifythenewACV,anditgrew,butdiditgrowattheratesithadgrownearlierintheyearbecauseitseemslikemaybeitsloweddownabitrightthere?
MichaelScarpelli(CFO):
Well,Iguessthefirstthing,Walter,iswedon'tdisclosetheactualnetnewACVbutyoucanseeinlookingatourdeferredrevenueandbacklogthatwejustsigned,youcanseethegrossincreaseinbacklogindeferredrevenue.Anddoingaapples-to-applescomparisonof2014,deferredcommissionsto2016isnotan--or2015,isnotanapples-to-applesbecausethe2015compplanwasnotnearlyasrichasthe2014compplan.
Iwillsayinourguidancegoingforwardfor2016,we'remakingourcompplanalittlebitrichernextyear.Andthatitalldepends,Iwouldsayin2014wehadalotmore,wehadalotofrepswhoreally,reallyblewtheirnumberawaywithacceleration.
Thisyearwehadguidancetoacceleration,buttheyweren'tblowingthenumbersawayasmuchinacceleration.Soyoudidn'thaveasmuch,asbigacommissionpaymentsbeingpaidout,butnetnetornetnewACVwasupquitenicelyyear-over-yearquarter.
WalterPritchard (Analyst-Citigroup):
CompanyName:ServiceNowIncCompanyTicker:NOWSector:T echnologyIndustry:ComputerSof tware&Services
EventDescription:Q32015EarningsCallMarketCapasofEventDate:12.40BPriceasofEventDate:62.415
©2014TheStreet,Inc.Al l R ightsReserved Page9of22
Gotit.AndjustaquickclarificationonwhatMattaskedontheimpactofservices.Iguessifwelookatthedeltabetweenwhereyouguidedpro-servrevenueandwherewewereat,Iamwondering,isthedelta,theimpactonthelowerpro-servtopro-servbillingthesame?Inotherwords,theimpactthat,that$1.6billionnumber,justtryingtogetasenseastohowtheservicesmayhaveimpactedthatnumber.
MichaelScarpelli(CFO):
Well,theservicesis,prettymuchanyservicesrevenuethatisrecognizedflowsthroughimmediatelyintobilling.Thereisnothingupfrontwiththat.
WalterPritchard (Analyst-Citigroup):
Okay,(inaudible).
MichaelScarpelli(CFO):
Yes.
WalterPritchard (Analyst-Citigroup):
Thankyou.
Operator :
KirkMaterne,EvercoreISI.
T edLin (Analyst-EvercoreISI):
Hi,thisisactuallyTedLinonbehalfofKirk.Justwantedtoask,canyouguystalkaboutwhetheryousawanyextensionofdealcyclesorifyousawtheinitialsizeofdealschangeoverthecourseofthequarter?
MichaelScarpelli(CFO):
No,reallydidn'tseeanythingdifferentintermsofdealcycleanddealsizeswasprettyconsistentfromwhatwe'veseeninthepast.Wehadabout10dealsthatwerenorthof$1millionandthat'sbeenprettyconsistentinthatrange.
T edLin (Analyst-EvercoreISI):
Okaythanks.Justaquickfollowup.Canyoutalkaboutanysortofmomentumtrendsthatyouaresayingwithrespecttoyourappstore?
FrankSlootman (President&CEO):
ThisisFrank.Thatcontinuestogrowquitenicelyquarter-to-quarter.Idon'thavethenumbersrightoffthetopofmyhead.Butthenumberofappsthathavebeencontributedtothestore,numberofdownloads,allthosemetrics,theymovesequentiallyquiteabit.SoIthinkthere'sabout140,150applicationsuponthestorenow.Andit'sgoingtobequiteactive.Sogoodprogresstheresinceweintroduceditinthesummer.
T edLin (Analyst-EvercoreISI):
Great,thankyou.
Operator :
AlexZukin,Stephens.
CompanyName:ServiceNowIncCompanyTicker:NOWSector:T echnologyIndustry:ComputerSof tware&Services
EventDescription:Q32015EarningsCallMarketCapasofEventDate:12.40BPriceasofEventDate:62.415
©2014TheStreet,Inc.Al l R ightsReserved Page10of22
AlexZukin (Analyst-Stephens):
Hey,guys,thanksfortakingmyquestion.Justtwoquickones.MaybeoneforMikefirst.
Wasthereanythingthatyouweredisappointedbyinthequarter?IfIlookatthenetnewcustomeraddsin4Qversus3Q,theyweredownalittlebit,176to174.IfIlookattheGlobal2000adds,theywerealsodownsequentiallyalittlebit.Andobviouslydeferredrevenuesequentially,thegrowthwasalittleweakerthanthelasttwoyears,isthereanythingatallthatyouweredisappointedbyoutsideofkindoftheerroraroundbillingsguidance?
MichaelScarpelli(CFO):
ReallyjusttheerrorinthebillingsandItakefullresponsibilityforthat.
AlexZukin (Analyst-Stephens):
Okaygotit.Andthen,Frank,maybejustaquestionaboutproduct.One,we'veheardalotaboutverticalizationintheindustry,particularlyfromSalesforcemostly,butasyoulookattheglobalSIchannelandhowimportantcertainverticalsareforyouguys,canyoutalkatallaboutthestrategyaroundverticalization?Eitherfromaproductperspectivefromago-to-marketperspectivein2016?
FrankSlootman (President&CEO):
Yes,soyouarecorrectthattheSIsofcoursehaveaverystrongverticalizedgo-to-marketmotion.Wehavenothadthat.Thechangesthatweintroducedduring2015isthatwewenttoabusinessunitstructure.ImeanServiceNowusedtobesingle-product,single-market,mostlysingle-channeltypecompany.Lastyearthatallchanged.
Wehavebrokenourwholeorganizationintobusinessunits.Theyarenotverticalized,weareorganizedbyproduct.Andwe'veseentheeffectsofthatquitedramaticallybecausetheemergentproductshavetakenoffvery,verystronglyovertheyear.
Thebusinessmixischangingvery,veryrapidlyforServiceNowbecausethesenewproductsaretakingoffwithalotofmomentumandthatisinpartbecauseoftheorganizationalstructureandtheresourcesthatarebehindthat.Sowe'reexecutinginthatmoderightnow.
I'mcertainlynotexcludingthepossibilitythatwewillhaveaverticalvectortoourgo-to-marketmotionaswell,butwe'restillinthemiddleofgoingthroughthetransitiontoproductwhichisworkingoutreally,reallywellforus,really,reallyhappywiththeprogresswemadein2015becausethatwasreallyabigtransitionforthecompanytoexecuteinthatmode.
Ididtalkaboutcustomerservice.That'scertainlysomethingthatinitiallyisgoingtogetreallyfocusedontechnology-typebusinessesbecausewehavevery,verystrongfitwiththeproductthere.Butintheforumsoftime,Ithinkthatwilltakeonaverticalfocusaswellbecausethatbusinessisverydifferentfromoneverticaltothenext.
AlexZukin (Analyst-Stephens):
Gotit.Andthenmaybeoncompetition,asyougo,asyoulookat,asyoulaunchcustomerserviceandtheadjacenciesbetweenyouandSalesforcegrow,howoftendoyouseeSalesforceindeals?What'sthatcompetitiveaframeworklooklike,goingforward?
FrankSlootman (President&CEO):
Well,weseeSalesforceinanumberofplaces.Obviously,wefeelwe'vehadsortofabordersskirmish
CompanyName:ServiceNowIncCompanyTicker:NOWSector:T echnologyIndustry:ComputerSof tware&Services
EventDescription:Q32015EarningsCallMarketCapasofEventDate:12.40BPriceasofEventDate:62.415
©2014TheStreet,Inc.Al l R ightsReserved Page11of22
aroundaproductthattheycallRemedyforce,whichisreallyaproductbyBMCthatSalesforcealsomarketsthat'sbasedontheForceplatform.ThatisnotbeenabigcompetitivefactorbetweenusandSalesforce.Wherewehaveseenthemmoreisinplatformopportunitieswherecustomersarestandingupcustomapplicationsandthey'retryingtofigureoutwhetherthey'regoingtodoitonForceoraretheyaregoingtodoitonServiceNow.
WhatIwilltellyouis,thatwithourentryintocustomerservicemanagement,that'saheadoncollisionwithServiceCloud.AndIsaidinthepreparedremarkswehavedonefiveorsixmajortransactionsalready,andmostofthemwerecontentiouswithSalesforceandthere'snohidingfromthatreality.Soit'sgoingtobecomemoreintensebetweenusandSalesforceaswegetfurtherinto2016.
AlexZukin (Analyst-Stephens):
Gotit.Thanks,guys.
Operator :
AbheyLamba,MizuhoSecurities.
Unidentif iedPart icipant (Analyst-MizuhoSecurities):
Thanks,thisisParthastandinginforAbhey.AreyouseeingcustomersimplementtheGenevareleaseforanynewusedcases?And,anycoloronthepossibleeffectsofthereleaseonACVswouldbeveryhelpfulthanks.
FrankSlootman (President&CEO):
Well,GenevajustcameoutandDecember,soallnewprojectswillbe,thathavegonelivesincethattime,they'regoinglive,hopefullymostofthemwillbeonGeneva.Typicallyourcustomerbaseshiftsgearsquiterapidlyandfrom,intermsofnewapplicationsandGeneva,thetwothatImentioned,securitymanagementthereisahugeamountofinterestinthatnewproductbecauseit'ssuchano-brainertolayerthatontotheplatformstrategythatourcustomershavewithServiceNow.
Andthentheotheronethatisalittlebitfurtherafieldpositioning-wise,aroundcustomerservice.Andwewerequitesortofsurprisedhowrapidlythattookoffaswellbecausethat'sadifferentsalesmotionforustraditionallythensellingtoacoreIT.ButIThasalwaysbeenaconduitandsomethingthatwecanleverageverystronglytogetintothesenewusecases.Butwehaveveryhighexpectationstocontinueonsellingalotofoperationsmanagementsoftwareapplications.
Thiswasverystrongin2015andwillbeverystrongin2016,andwehavegreatexpectationsofthesenewserviceswithGenevain2016aswell.WejusthadourglobalsaleskickoffinOrlandolastweekandtheywereintroducedtooursalesorganizationforthefirsttime.Sothereisalotofenergybrewingbehindthoseinitiatives.
Unidentif iedPart icipant (Analyst-MizuhoSecurities):
Great.Thanks.
Operator :
RaimoLenschow,Barclays.
RaimoLenschow(Analyst-BarclaysCapital):
Thanksfortakingmyquestion.Twoquickquestions.Frank,youtalkedaboutITalsoinyourlastanswer,
CompanyName:ServiceNowIncCompanyTicker:NOWSector:T echnologyIndustry:ComputerSof tware&Services
EventDescription:Q32015EarningsCallMarketCapasofEventDate:12.40BPriceasofEventDate:62.415
©2014TheStreet,Inc.Al l R ightsReserved Page12of22
canyoutalkalittlebitabouthowdoyouseethatevolvingin2016withGenevaintermsofhowmeaningfulwillthatbeforyouguys?Isitjustafirstforay,firststepforcustomerstogointhereordoyouthinkthat'sgoingtobealreadymeaningfulandthenIhaveonefollowupforMike.
FrankSlootman (President&CEO):
Well,IToperationsmanagement,andIthinklastyearitwentfrom10%to12%ofourbusiness,andit'snoteasytodotogrowyourshareofthepie,consideringthatthewholepieisstillgrowingatablisteringrateaswell.IToperationsmanagementisanidealadd-onopportunityforoursalesorganization.It'sjustanaturalleverageofthecoreplatform.
Weareonly,forexamplewithServiceWatch,whichisaproductthatweacquiredaboutayearandahalfago,wejustgotdownintheGenevareleasewithcompletelyre-platformingthatacquisition.Thatmeansthatitrunsonourclouds,it'sre-implementedinourplatform,ourUIframework.Itisacompletelynativeservicenow,thatyoucan'treallytellthatitwasacquiredorthatithasoriginsfromanothercompany.
Weonlyhavepenetrated5%ofourcustomerswithourproductsofar.Andit'saredhotproduct,sothere'sanenormousupsideforustonottosellthatbutitleverageseverythingelse.It'susedbyoursecurityproduct.It'susedineventmanagementapplications.Sooperationsmanagementis--thereisanenormousamountofrunwayforusthere,andwe'regoingtobebuildingotherassetsandpotentialacquiringassetsinthatareaaswell.
RaimoLenschow(Analyst-BarclaysCapital):
Okay,perfect.Interesting.AndthenaquestionforMike.Mike,ifyoukeepthehiringonsalesandmarketingconstant,inawaythatkindofmeansis,unlesssalesproductivityfortheexistentguyskeepsgoinghigher,thatbasicallymeansyouhaveaglidepathgoingdown.
What'stheputsandtakesonyourplanfor2016tokindofsay,orkeepitconstant,becauseit'sdifficulttofindnewpeopleversusIneedtoincreasethisifIwanttokeepthegrowthratehigherforlonger.Thanks.
MichaelScarpelli(CFO):
Thedrivingfactorbehindaddingroughly400pluspeopleintooursalesandmarketingorganizationin2016is,westilltrulydobelievewe'remoremarketconstrained,orImeandistributionconstrainedthanthemarkets.There'salotofmarkets,especiallyinAsiaPacific,wherewe'rejuststartingtogointoChinaandsomeoftheotheremergingmarketsintheworld.AndSouthAmerica,weactuallyhadaverygoodquarterinSouthAmericalastquarter,andwehavehighhopes.
Rememberthisisalongsalescycle.Soit'sgoingtotakeayearwhenwehirethesepeopletoreallyseewereweabletogetthesepeopleproductive.Andbasedupontheopportunitywesee,wethinkthat'stherightnumbertocontinuetoaddpeopleatthatpace.
RaimoLenschow(Analyst-BarclaysCapital):
Yes.Sotheaccelerationcanonlylikealotoftheseareingreenfieldmarketswehavetokindofseethemarketandgrowthemarketandthenyoucoulddosomethingmoreisthatthewayweshouldthinkaboutit?
MichaelScarpelli(CFO):
Well,that'spartofit,butrememberweareaswellcontinuingtosplitterritoriesinNorthAmericaandEMEAbecausewe'renotsaturatedwithsalespeople.Listen,westilldon'tevenhave50%oftheGlobal2000inNorthAmerica.There'salotofthosethatstillaren'tuncoveredyet.Weneedtohavemore
CompanyName:ServiceNowIncCompanyTicker:NOWSector:T echnologyIndustry:ComputerSof tware&Services
EventDescription:Q32015EarningsCallMarketCapasofEventDate:12.40BPriceasofEventDate:62.415
©2014TheStreet,Inc.Al l R ightsReserved Page13of22
people.
RaimoLenschow(Analyst-BarclaysCapital):
Okay.Perfect.Thankyou.
Operator :
KarlKierstead,DeutscheBank.
KarlKierstead (Analyst-DeutscheBank):
Thanks.OneforMike,oneforFrank.Mike,justtobeclear,andIthinkit'saquestionthatWalterwastryingtodriveatalittlebitearlier,ifyoulookatyourbillingsguidancefor2016of33%to34%inconstantcurrency,isthereanywayforyoutosortofquantifywhattheslowergrowthinservicesandnarrowingyourservicesfocusishavingonthatconstantcurrencygrowth?Andifyouwouldencouragethestreetasaresulttofocusalittlebitmoreonsubscriptionbillings?
AndthenforFrank,Iwilljustthrowitinnow.InvestorinterestinAWS,Azureandthepubliccloudshiftisveryhigh.It'sprobablyveryearlyforyouguys,butI'mcurious,amongServiceNow'scustomersthataremakingthatjourney,haveyouseenanyimpactandarethereanyITOMorothertoolsthatcouldactuallyseeademandliftascustomersmoveworkloads?Thankyou,both.
MichaelScarpelli(CFO):
SoIguess,Karl,Iwillanswerfirst.Thebulkofourbillingscomesfromsubscription,notfromprofessionalservices.Ifyoulookatwhereourprofessionalserviceguideinrevenue,thatisprettymuchdollar-for-dollarwhatourtotalbillingsisgoingtobeforsubscription--orforprofessionalservices.
Now,whenyoulookatthebalancewhichisleftthere,whichisthebulkofthe$1.6billion,thesubscription,mostofthatisactuallycomingoutofbillingourcontractedbacklogthenrenewalsandthennewbusiness.Andourguidanceisthe$1.6billionandthat'swhatwe'recomfortablewithrightnow.
FrankSlootman (President&CEO):
Karl,thisisFrank.Yourquestionaboutpublichybridcloud.Weactuallythinkthat,thattrendisverybeneficialtoServiceNow.Andthereasonis,wehaveneverreallyfocusedonmanagingdeepinfrastructure,that'smorebeenthelegacyfocusofcompanieslikeBMCandHPandIBMandCA.
Whatwe'vealwaysdone,we'vealwaysfocusedontheserviceorientation,understandingtheoperationalcharacteristicsandavailabilityperformanceoftheservices.Thatisjustasimportant,actuallyit'sevenmoreimportantinthepubliccloudtypeofenvironmentbecausecustomerswillbedeployingandredeployedconstantlybetweenthesedifferentplatformsandunderstandingwhatservicesareaffectedbywhatcloudiswhatwedo,andit'sgoingtobereallyimportant.
Secondly,Iwouldtellyouthatourfocusonserviceintegrationwhichreallymeans,isthatwecanreallycreateasingleserviceexperienceforallthesedifferentcloudresources,right?Alltherequestingoftheseresources,theprovisioningoftheseresources,that'sbecominganintensefocusofourbusinessaswell.Wearethecompanytoprovidethatserviceintegrationinfrastructureforthepubliccloud.
Sothesearethingsthataregoingtohelpandfuelourbusinessasopposedtobecomeanimpedimenttoourbusinessbecausewe'rereallynotfocusedondeepinfrastructure.That'sbeenwherethelegacycompanieshavebeen,that'snotwhereServiceNowhasbeenorwherewearegoing.
KarlKierstead (Analyst-DeutscheBank):
CompanyName:ServiceNowIncCompanyTicker:NOWSector:T echnologyIndustry:ComputerSof tware&Services
EventDescription:Q32015EarningsCallMarketCapasofEventDate:12.40BPriceasofEventDate:62.415
©2014TheStreet,Inc.Al l R ightsReserved Page14of22
Okay.Greatcolor.Thankyou,both.
Operator :
RobOwens
RobOwens (Analyst-PacificCrestSecurities):
Yes.Hi,guys.RobOwensatPacCrest.CoupleofquestionsaroundtheITOMopportunity.Youmuchabouta5%penetrationrateatthispoint.Canyouhelpmeunderstandjustwiththosecustomerswhatit'sdonetoACVoverall?
AndIthinkthe2016waspointedtoaskindofacriticalyearandinflexionpointforServiceWatch.Whatmetricsshouldweexpecttoseeoutofthatportionofthebusiness?Thanks.
MichaelScarpelli(CFO):
Sotheonlynewthingthatwe'regoingtostarttodisclosewithourK,whichisgoingtogetfiled,isaswe'vetoldpeople,isnowweare,westartedtrackingITOMrevenueseparatelybecauseitislicenseddifferentthantherestofourproducts,it'sdoneonaper-deviceorper-scriptbasis.Andsofor2015,ITOMrevenuewas8%ofourtotalsubscriptionrevenue.Ithinkforthequarteritwasactuallya8.2%.ForQ4.Andsothat'stheonenewmetricthatyou'regoingtostarttosee,andyouwillseethatinourquarterlynumbersaswegoforwardfor2016.
RobOwens (Analyst-PacificCrestSecurities):
Soifwethinkaboutthatfromabiggerpicture,whatit'stypicallyaddtoacustomerthat'stakingit,intermsofACV?
MichaelScarpelli(CFO):
Youknow,itdependsuponthecustomer'senvironment.WehavesomecustomersthathavealmostdoubledtheirACV.
Wehaveothersthatareintheseorwehaveanumberof$1millionplusdealsandit'sreally,ServiceWatchhasbeenakeypieceofthat,butit'snotjustServiceWatch,there'sotherthingsaswellto.Wehaveanothercustomerwhoispayingusoverabout$6millioninalmost2/3ofthatisITOM.Soitdependsuponthecustomer.
RobOwens (Analyst-PacificCrestSecurities):
Thanksforthecolor,Mike.
FrankSlootman (President&CEO):
ThisisFrank,Rob.WebelievethattheITOMbusinessis,fromarevenuestandpoint,abookingstandpoint,iseasilyequivalenttowhatwehavehadinservicemanagementandovertimewillbebiggerthanthat.
RobOwens (Analyst-PacificCrestSecurities):
Thanks,Frank.
FrankSlootman (President&CEO):
Youbet.
CompanyName:ServiceNowIncCompanyTicker:NOWSector:T echnologyIndustry:ComputerSof tware&Services
EventDescription:Q32015EarningsCallMarketCapasofEventDate:12.40BPriceasofEventDate:62.415
©2014TheStreet,Inc.Al l R ightsReserved Page15of22
Operator :
GregMcDowell,JMPSecurities.
GregMcDowell(Analyst-JMPSecurities):
Thankyou.Justonequestionforyou,Mike.WeonlygetthatbacklognumberonceayearorsoIwantedtodrillalittlebitintothatforthefull-year,up40%constantcurrency.
Ijustwanttoask,Imeantherehasbeenaprettyclosehistoricalrelationshipbetweenthebackloganddeferredandnextyear'srevenue,anditdoessuggestagainthatitcouldbe,your2016revenuecouldbehigherthanyourguidanceyoujustprovided.Soit'sjustwonderingisthereanythingdifferentaboutthecomponentsofbacklogthisyearthanpreviousyears,andmaybehowFXisimpactingwhat'sinbacklog?Thanks.
MichaelScarpelli(CFO):
Soaswedidmentionthatourbacklog,ourreportedbacklog,asofDecember31,is$65millionyear-over-yearjustbecauseofFXisdown.Andonceagain,ourguidance,we'recomfortablewiththeguidancewegaveforbothourbillingsandrevenuefor2016.
GregMcDowell(Analyst-JMPSecurities):
Okay,thanks.
Operator :
JustinFurby,WilliamBlair&Co.
Just inFurby(Analyst-WilliamBlair&Company):
QuestionsfirstonITOM,Frank.Imighthavemissedthis,butcouldyoucallout,intermsofnewACVinQ4,whatthatwasandwhatitgrewyear-on-year.AndjustcuriouswhenyouthinkaboutFY16andyourbillingsguidance,andthedifferentareasofpotentialupside,whatyouthinkmaybeisthebiggestopportunity,whetherit'splatform,ITOM,certaingeographies,differentpackagedApps,justanythingthatmaysurpriseyoutotheupsideandthenIgotafollowup.
FrankSlootman (President&CEO):
Yes,IthinkITOMforthefullyearIthinkwe'rearound66%,somewherearoundthere.Sothat'sthatnumber.AsIsaidearlier,Ihavehugeexpectationsofourefforts.We'redoingverylargetransactionsinthisarea.
IthinkthemarketforITOM,youknow,isbigger,willbebigger,thanforITservicemanagementandthecombinationoftheseproducts,especiallywiththewaywe'reapproachingit,whichisverydifferentfromwhathistoricallyhasbeendone.
ItissupercompellingandServiceWatchisaverycatalytictechnologybecauseithelpscustomersunderstandwhatopportunitiestheyhavetoreallyadvancehowyoumanageservicesinanenterpriseversusjustmanaginginfrastructure.Sothat'sabigone.
Obviouslywehavealotmoreironsinthefirerightnowsoweknowourbusinessisjustbecomingveryexcitingbecausewe'rejustpushingonanumberofdifferentareasandtheyareallmoving.Andthisjust,weusedtobeabusinessthatwasdrivenprimarilyonthereplacementoflegacyhelpdeskbusinessesandwehavecomeanawfullongwaysincethattime.Wearejustbecomingaverystrategicplatformfor
CompanyName:ServiceNowIncCompanyTicker:NOWSector:T echnologyIndustry:ComputerSof tware&Services
EventDescription:Q32015EarningsCallMarketCapasofEventDate:12.40BPriceasofEventDate:62.415
©2014TheStreet,Inc.Al l R ightsReserved Page16of22
ourcustomers.
Just inFurby(Analyst-WilliamBlair&Company):
Gotit.Andthen,Frank,justafollowup.Youtalkedalittlebitaboutit,IthinkmaybeMikedid,aboutthedifferentcompplans.I'mcuriousifyoucangivealittlemorecolorontermsofthethoughtprocessofFY14versusFY15andFY16andwhyitsortofchangesbackandforththere?
MichaelScarpelli(CFO):
Youarealwaystrytotweakyourcompplan.Andthroughoursalesorganizationthereweredecisionstochangetheplanandcominginto2016now,wedecidedwewantedtomakeourplanalittlebitricherbecausethatwillhelpattractpeopleandretainpeopleinoursalesandmarketingorganization.
FrankSlootman (President&CEO):
ThisisFrank.TheonethingIcanaddtothat,you'reprobablywondering,whydon'ttheseplansallgetcheaperconsistentlyovertime.Againit'snotaspreadsheet.Sometimeswhenwe'readdingterritorieswherepeoplearegoingtoneedmoretimetogetproductive,we'renotgoingtohaveanaggressive,wearegoingtohaveanaggressivecompplanthere,right?
Sothebiggeryouget,themoreyournascentterritories,youhavetotweakyourplanstomakesurethatpeoplehaveanopportunitytomakemoney.Sodependingonwhatphasewe'rein,whatterritorywe'rein,youaregoingtoseethatmovearound.SoIthinkwearebeingjustverythoughtfulthatwearedoingittherightwayratherthantakingpurelyaspreadsheet-mentalitytothat.
Just inFurby(Analyst-WilliamBlair&Company):
Gotit.Thanks.AndthenifIcouldaskonemorejustonQ4billings,andIhatetogobacktoitbut,servicesrevenue,Mike,I'mjustcuriousifthedifferencebetweenyoubeingthemidpointofguidanceversusbeatingit,doesithavetodowithservices?IguessdiditsurpriseyouintermsofthedeflectiontothepartnerecosystemorwasitinlinewithwhatyouthoughtforQ4?
MichaelScarpelli(CFO):
ItwasinlinewithwhatwethoughtforQ4anditwaspurelyasubscriptionrenewalerror.
Just inFurby(Analyst-WilliamBlair&Company):
Gotit.Thankyou.
Operator :
JesseHulsing,GoldmanSachs.
JesseHulsing (Analyst-GoldmanSachs):
Thanksfortakingmyquestion.Frank,whenyoulookatthemixofopportunitiesontheservicemanagementsideofthehouse,howisthemixtrendingbetweenwhatyoumightcalltraditionalITSMandfinancefacilities,HR,kindofthenewerplatformopportunities?
FrankSlootman (President&CEO):
Yes,Idon'thaveanysortofharddatatosortofcharacterizethatinaveryfundamentalway.Butmoreinaqualitativesense,thevastmajorityofourcustomersarenowlookingatservicemanagementreallyasanenterpriseinitiative,asanenterpriseplatform.Theyarelookingatserviceintegrationstrategies.
CompanyName:ServiceNowIncCompanyTicker:NOWSector:T echnologyIndustry:ComputerSof tware&Services
EventDescription:Q32015EarningsCallMarketCapasofEventDate:12.40BPriceasofEventDate:62.415
©2014TheStreet,Inc.Al l R ightsReserved Page17of22
Theyreallydon'twanttheirorganizationtohavetoknowthatyouhavetogotoITforthisthing,you'vegottogotheHRforthatthing,peopleshouldn'thavetoknowwhattheboundariesbetweenorganizationsare,especiallywhenitcomestoprocurement.DoesthisgothroughIT,doesthisgothroughfacilities,doesisgothroughpurchasing?Sothat'swhereorganizationsarelookingtoputaservicecloudinfrastructureinplacewherenobodyneedstoknowwhathappensbehindthecurtain.
That'sthewholenatureofcloudisyouobfuscatethewholebackendinfrastructureandyoujustdon'tneedtoknow.Youjustsubmityourrequestanditgetsautomaticallyprovisioned.ItworksthesamewayasFederalExpressandAmazon,informationwillfindyou.Youdon'thavetokeepcheckingback.That'sreallywhatourcustomersareafter.
Yes,oftentimesITisthestartingpoint.IthinkthatwillbethecaseforalongtimetocomebecauseITtendstobetheleaderintheorganizationthat'sreallybringingtheservicemodeltotheotherservicedomainintheenterprise.Butweprobablyhave300,400customersnowthatareonHRservicemanagement.
That'sgrowinginleapsandbounds.Wehaveawholebusinessunitaroundthat.Customerservicealsotiesinfacilitiesmanagement.That'sabigareabecausethat'snowbeexternalfacingsideofservicemanagement.
Sowejustthinkthatwehavejusttonsandtonsofopportunity.ThedaysthatthiswasstrictlyanITfunction,theyarewellinthepastatthispoint.
JesseHulsing (Analyst-GoldmanSachs):
Andaquickfollowup.Iamlookingatyourinvestordeckandyou'vebrokenoutyouraddressablemarketsandprovidedalotofgranularityabouthowyou'rearrivingatthosenumbers.ButalotofthemareoutsideoftraditionalITSM.
OutsideofITOM,whichyouhavebrokenoutmetricsfor,whichoneofthosebuckets,whetherit'scustomerserviceorPPMoranotherbucket,doyouexpecttohavethemostgrowthin2016into2017?
FrankSlootman (President&CEO):
Well,Idon'thaveacrystalball.Allofthosethingsarehot.Theyreallyare.Theyareonthemove.Dependingonwhoyouask,youwillgetadifferentanswer.
Securityisred-hot.Customerservicesurprisedthehelloutofus.Thedealswereverylarge.Theywereveryrapid.Theycamefromplacesthatwedidnecessarilyexpect.Sowearelearningallkindsofthings.
ThecombinationofPPM,whichisprojectmanagement,andfinancialsisbecomingaveryhotcommodityaswell.Wehavesuchaniceopportunityupsellingfromourplatformwithallthesedifferentservices.Soit'sgreattobeinsalesatthiscompany.
JesseHulsing (Analyst-GoldmanSachs):
Thanks.
Operator :
SteveAshley,RobertW.Baird.
SteveAshley(Analyst-RobertW.Baird&Co.):
Thankssomuch.Wonderifyoucouldjustcomment,firstofallonEOAactivityintheperiod,iftherewas
CompanyName:ServiceNowIncCompanyTicker:NOWSector:T echnologyIndustry:ComputerSof tware&Services
EventDescription:Q32015EarningsCallMarketCapasofEventDate:12.40BPriceasofEventDate:62.415
©2014TheStreet,Inc.Al l R ightsReserved Page18of22
much.Andifyou'reseeinganincreaseinthat.
MichaelScarpelli(CFO):
No,wereallydidn'tseeEOAsintheperiodatall.Itwasourtypicallicensing.
SteveAshley(Analyst-RobertW.Baird&Co.):
Great.Andthenlastly,ITOM,everyonehasbeendrillingonitandyouguyshavepointedoutthatreallythere'sagreatenterpriseopportunity.Istherealsoacommercial/mid-marketopportunitywiththeITOMproducts?
FrankSlootman (President&CEO):
Absolutelythereis.Idon'tknowifwe'veeversaidsomethingtothecontrarybutthatreallydoesn'tstopatthelargeenterprisedoors.Ourproductsscaledownverynicely.EveninExpress,oneofthethingsthatwehadtoaddtoExpresswasourdiscoverycapability.Thatwasoneofthethingsthatwasglaringlymissinginthefirstincarnationofthatproduct.Peoplehadtohavethat.
Youaretalkingaboutreallysmallshopsnowthatwanttobeabletodiscoverallthelaptopsanddesktopsandserversthattheyhaveandbeabletomanagetheoperatinghistories.So,no,ITOMisintegraltoanyservicemanagementdeploymentwhetherit'shugeorwhetherit'ssmall.
SteveAshley(Analyst-RobertW.Baird&Co.):
Perfect.Thankssomuch.
Operator :
KashRangan,BankofAmericaMerrillLynch.
KashRangan (Analyst-BankofAmericaMerrillLynch):
Hey,guys.Thankyou.I'mjustlookingatthestockdownabout15%%,bigmove,andI'mwonderingtomyself,assolidasyourgrowthis,thereisabitofdecelerationinbillingsRelativetowhereyouwereatthestartoftheyearwhereyoulookatACVofyourG2Kthegrowthratethere,thesequentialdeferredrevenuegrowthrate.Nowontheflipside,youareturningwaythehellmoreprofitablethananybodyexpectedaboutayearbackorso.Soclearlyyourcashflow,notincomegeneration,aresignificantlyaheadofpeople'sexpectations.
Butthegrowth,itdiddeceleratealittlebitandIdocompletelyappreciatethepointthatyou,hadyouknownwhatyouknewonDecember15,thenumberswould'vebeenrightinline,mid-pointorevenhighendperhaps.Isthismerelyaconsciousdecisiononyourparttoslowdowntherateatwhichyou're,notslowdowntherateatwhichyourhiring,butthesecondderivativesalesheadcount,you'readding400,youaddedlastyear400.
Isthisaconsciousdecisionthatasyouprogressbeingalargercompany,goingtorevenuedeceleration,thatyougetthenationalmarginexpansionorisit,isitthatthemarketitselfissomewhatlimitedthatyouhavetoslowdownthegrowthrateandnotnecessarilykeepupthatbilliondollarbusiness,growing50%,asyouhavebeenatthestartofthisyear?
FrankSlootman (President&CEO):
ThisisFrank.Maybeagain,Icanputalittlebitofanangletothis.Wewent,andwearestillgoingthroughabitofatransformationinthesensethatwearebecomingamulti-product,multi-marketand
CompanyName:ServiceNowIncCompanyTicker:NOWSector:T echnologyIndustry:ComputerSof tware&Services
EventDescription:Q32015EarningsCallMarketCapasofEventDate:12.40BPriceasofEventDate:62.415
©2014TheStreet,Inc.Al l R ightsReserved Page19of22
evenamulti-channeltypecompany.Beforewewereliterallyscalingonthesingle-product,single-marketsingle-channel,andbythewaythatwentexceptionallywellforus,butthetransformationasIjustdescribeditisnotattributableon,overayearagowecompletelychangedourproductorganizationtobeabletodriveonmultiplefrontsatthesametime.
Andwehavegraduallyimplementedthatfocusthroughouttheorganizationinthesolutionconsultingteams,whichisapre-salesorganizationandthesalesorganizationitself,sothatwecanbringthatmulti-productorientationtotheentirecompany.That'snotaneasytransitiontogothrough.Youjustdon'tkeepsortofrandombodiesandmaintainthesamemomentumbecausethey'redifferentkindofhiringprofiles,skillprofiles,differentorganizationsthatabsorbedthesepeople.
Butwewentthroughatonofthattransitionand2015andwefeelweareinareally,reallygoodplacetobeabletogrowandexpandwiththestructureandthemodelthatwehave.Wewillbeabletobuyassets,we'reabletobuildassetsandreallyaddontoourmodel.Sothat'sprobablythebestexplanationthatIcangive.
Obviously,thereislargenumbersaswell.Wejustcruisedthroughthe$1billionfull-yearrevenue.Wehaven'tbeenthereyet,right?And,sowearealsogettingusedtothescaleandsizeofeverythingthat'sgoingoninthiscompany.Wehaveofficesin64differentplacesaroundtheworld.
It'sbecomingagoodsizebusinessandwearegrowingintoitandwearepushinghard.Sofeelinggood.Feelingverygoodaboutwhereweareinourevolution.
KashRangan (Analyst-BankofAmericaMerrillLynch):
Gotit.AndoneforScarpelli.NochangetocloseratesinQ4relativetoQ4lastyearorwasthereanychangesequentiallyoryear-over-year?Andifyes,whatkindofcloserateassumptionareyouusingforyourbillingsforecast,Mike,for2016.That'sitforme.Thankyou.
MichaelScarpelli(CFO):
Sofirstofall,weneverdisclosecloserates.TherewasnothingunusualaboutthisQ4incomparisontolastQ4.AndIamcomfortablewiththeguidancewegavefor2016.
KashRangan (Analyst-BankofAmericaMerrillLynch):
Thanksguys.
Operator :
DerrickWood,SusquehannaInternationalGroup.
DerrickWood (Analyst-SusquehannaFinancialGroup/SIG):
Thanks.Frank,youmentionedinyourpreparedremarksthestrengthoutofthecommercialbusinessandtheproductivityyou'veseenthere,butdidn'thearanycommentaryontheenterpriseside.Couldyoujustcharacterizethe,kindofthelevelofproductivitytrackingoutofthatsegment?
FrankSlootman (President&CEO):
Yes,therewasareasonImentionedthecommercialbusinessisbecauseyouguysgotsorattledayearagoandittookseveralquarterstoshakethatoffsoIthoughtI'djust,makeafew,putsomecoloronthatbusinessbecauseit'sbeenaverysuccessfultransformationforus.Therealityis,ourbusinessis50/50,largeenterpriseglobalsontheonehandandthenthecommercialbusinesstheotherhalf.Sowehavetoreallydrivebothsidesofthatbusinessequallyhard.
CompanyName:ServiceNowIncCompanyTicker:NOWSector:T echnologyIndustry:ComputerSof tware&Services
EventDescription:Q32015EarningsCallMarketCapasofEventDate:12.40BPriceasofEventDate:62.415
©2014TheStreet,Inc.Al l R ightsReserved Page20of22
Ourgrowthassumptionsarebasedonboththosebusinessesbeingabletosortofmaintainthat50%shareoftheoverallpie.Butthereisnodoubtthatifyoulefteverybodyheretotheirowndeviceswewouldgravitatetowardstheverylargeenterprisebecausethosearethemostproductive,mostlucrativebusinessrelationshipsthatwehaveinthiscompanyandthat'sthereasonwhywecreatedthecommercialorganizationbecauseweknewwewerenotgoingtoletthathappen.
Weweregoingtomakesurethatwewouldhavededicatedfocusontheseothermarkets.It'smorefragmented,dealsaresmaller,butstilloutstandingbusinessforusandwelikeit.
MichaelScarpelli(CFO):
And,Derrick,justtosupportthestrengthinenterprise,wedidadd26Global2000inthequarter.Itwasactually33withadjustmentswithacquisitionsandstuff.Sowenowhave638Global2000andyousawthatwenowhaveover,orwehave230customersthatpayusover$1millionayeareach.Ithinktheaverageisrightaround$2.1million.
DerrickWood (Analyst-SusquehannaFinancialGroup/SIG):
Okay.That'shelpful.
MichaelScarpelli(CFO):
Andthatcontinuestogrow.
DerrickWood (Analyst-SusquehannaFinancialGroup/SIG):
Okay.Andthen,Frank,youmentionedtheCSCandAccenturehavingacquiredtwoofyourbiggestpartners.Justbecurioustohearhowthoserelationshipshaveevolved.Hastherebeenanydisruptionorviceversa,areyouseeingmoretailwindswithkindofresourcesandpullthrough?Justtohearabouthowthoseevolvedwouldbehelpfulthanks.
FrankSlootman (President&CEO):
Yes,it'sactuallymadeourrelationshipswiththosefolks,youknow,moreintense,morestrategic.Wehavejustbecomemoreimportant,inrelativeterms,tothemasaplatformthanwewerebeforetheymaketheseacquisitions,right?Sothefunandgamesisoverwith.
Wenowhaverealliveinvestmentsinitandthey'rerealbusinesses,theyhavemanagers,theyhaveplans,theyhavetargets.Accenturewasapremiersponsoratourglobalsaleskickofflastweek.Thisisareallybiggrowthopportunityforthemandwearehappytobepartneringwiththem.
Wewere,thenicethingabouthavingfolkslikeCSCandAccentureistheyhavetransformationalcapabilitiesthattheycanbringtoourverylargecustomers.WearereallyraisingtheexpectationsonwhatoutcomespeoplereallyshouldexpectfromaServiceNowdeployment.Sowe'rethrilledtohavethesepeopleinourbusinessandourcustomersarehappyaswell.Theyhaverealgoodvarietyofchoices.Verybroadpooloftalenttoengage.
That'sbeenacomplaintthatwehistoricallyhavehad,isthatwegrewveryrapidlywewerealwaysexhaustingtheresourcesinthemarketplace.Sothisisoneofthereasonswhywehavecarefullycultivatedourecosystem.Wedidn'twanttocrowdoutourpartnersbecausewewouldreallyconstrainourowngrowthifwedidthat.SoIthinktheserelationshipsaregreatandtheyaregoingtobegrowingandmoreimportant,becomemoreimportantaswegoonhere.
DerrickWood (Analyst-SusquehannaFinancialGroup/SIG):
CompanyName:ServiceNowIncCompanyTicker:NOWSector:T echnologyIndustry:ComputerSof tware&Services
EventDescription:Q32015EarningsCallMarketCapasofEventDate:12.40BPriceasofEventDate:62.415
©2014TheStreet,Inc.Al l R ightsReserved Page21of22
Thankyou.
Operator :
PhilWinslow,CreditSuisse.
PhilWinslow(Analyst-CreditSuisse):
Thanks,guys,fortakingmyquestions.Youknow,Frank,youmentionedthisincontinuingsortofincreasingTAMorjustapplicabilityofyourguysservicesorsecurity,customerservice,etc.Whenyouthinkaboutjustthego-to-marketstrategyhere,isthereanythingchangingasyoujustcontinuetoexpandtheapplicabilityin2016versus2015?Iknowyoutalkedaboutacompplanbutanythingsortofstructuraltothesalesforceorthego-to-marketstrategy?Andthenaquickfollowup,too,justforhousekeepingitems.Wonderifyoucanjustquantifythebillingserrorthere,wasit$4million,$5millionjusthowmuchlowerwiththeguidancehavebeen?
MichaelScarpelli(CFO):
Sobillingerrorwas$5million.
FrankSlootman (President&CEO):
Onyourquestion,Phil,thisisFrank.Thestructuraldifferencethatwestarted,thatwehaveembarkedon,that'sstillgoingon,isthatwehaveahighdegreeofproductspecializationinthevariousorganizations,andwestartedthatonthepre-salesside.
Wehaveitonthesalesside.Wehaveitontheprofessionalservicesside.Obviouslythisallstartedinthe,withtheproductteam.Soourwholeorganizationhasafullybuilt-outproductdimensiontoit.
Butnotalldealshavethesameamountofproductspecializationsothatinvestmentwillbeongoingaswescale.Wewillbehavingmoreandmorededicatedresourcesthatrelatetothespecificareas.Youcanimaginesecuritymanagement,wearenotasecuritycompanybyourDNAsetifyouwill,butwestoodupaproductorganizationwithnothingbutsecuritypeopleinthere.Wehavealwayshadsecuritypeopleinthefieldbecause,beingacloudcompany,securityisareallybigtopicofconversationwithourcustomers.
Butwehavetohaveverydedicated,veryspecializedpeopletobeveryeffectiveandcrediblewithourcustomerstodrivethosekindofbusinesses.Buttheopportunityissogreatthatforustomakethoseinvestmentsisano-brainerandthat'swhatwearedoing.
PhilWinslow(Analyst-CreditSuisse):
Gotit.Thanks,guys.
Operator :
Therearenofurtherquestions,thankyou.IwillnowturnthecallbacktoMichaelScarpelliforclosingremarksthat
MichaelScarpelli(CFO):
Thankyou.Asareminder,areplayofthiscallwillbeavailableintheinvestorssectionofourwebsite.Thanksforjoiningustoday.
Operator :
CompanyName:ServiceNowIncCompanyTicker:NOWSector:T echnologyIndustry:ComputerSof tware&Services
EventDescription:Q32015EarningsCallMarketCapasofEventDate:12.40BPriceasofEventDate:62.415
©2014TheStreet,Inc.Al l R ightsReserved Page22of22
Ladiesandgentlemen,thatconcludestoday'sconference.
Allrightsreserved(c)2014TheStreet,Inc.
Pleasefeelfreetoquoteupto200wordspertranscript.Anyquoteshouldbeaccompaniedby"ProvidedbyTheStreet"andalinktothecompletetranscriptandwww.thestreet.com.Anyotheruseormethodofdistributionisstrictlyprohibited.
THEINFORMATIONCONTAINEDINEACHWRITTENORAUDIOTRANSCRIPT(the"TRANSCRIPT")ISAREPRODUCTIONOFAPARTICULARCOMPANY'SCONFERENCECALL,CONFERENCEPRESENTATIONOROTHERAUDIOPRESENTATION.THETRANSCRIPTSAREPROVIDED"ASIS"AND"ASAVAILABLE"ANDTHESTREETISNOTRESPONSIBLEINANYWAYNORDOESITMAKEANYREPRESENTATIONORWARRANTYREGARDINGTHEACCURACYORCOMPLETENESSOFTHETRANSCRIPTSASPRODUCED,NORTHESUBSTANCEOFAPARTICULARCOMPANY'SINFORMATION.
THETRANSCRIPTSAREPROVIDEDFORINFORMATIONALPURPOSESONLY.THESTREETISNOTPROVIDINGANYINVESTMENTADVICEORENDORSINGANYPARTICULARCOMPANY.