ServiceNow, Inc. (NYSE:NOW) Q1 2023 Earnings Call Transcript

CJ Desai: Yes. So Keith, this is CJ, and I’ll address it. We think in multiple buckets. So when we look at technology workflows, as you know, that CMDB is the core foundation. And all the ITSM processes or ITOM or our security and fast-growing products like risk and asset management, they are all driven through our CMDB for a single end-to-end platform for transformation from a technology standpoint. So when I look at that for the most part, as you know, Keith, we have good, better, best packages. And we are pretty consistent in how we drive the go-to-market, as Bill described, overall at a platform level. The same thing is true for customer service management and HR as an employee workflow. And then when I look at creator workflow, we also have opportunity to expand ServiceNow ecosystem significantly, where anybody could be a ServiceNow developer by using text to code or text to workflow or, someday, text to app that they can create.

So overall, when I look at the four buckets, the good, better, best mechanism that we have put in place is working beautifully. The traction is great. We are getting the uplift as we have shared with you and will share more at the Financial Analyst Day. Now in terms of additional pricing because now with generative AI, what I told Mark, is an and, as then you can get higher productivity for specific use cases, whether it’s incident deflection or whether it’s related to the agent productivity, we believe that we can absolutely monetize that. We are fairly early, I’ll share more with you at the Financial Analyst Day, on what that pricing model will look like, whether it’s an add-on, whether it’s a bundle. And we are working through the details, but we are only going to charge where we provide value for our customers, and that is the first principle we are looking at.

Keith Weiss: Got it. I will stay tuned for Analyst Day for more details. Appreciate the color.

Bill McDermott: Keith, you would have been very impressed if you saw CJ and his engineering team in yesterday’s Board meeting. We’re actually dealing with real technology, real-time demos, real customer references, which you’re going to get to see, and you’re going to get to see examples and business cases that we’re already working on at Financial Analyst Day. He’s a little bit modest, and he deserves to be because he’s got the best team in the business, but wait until you see Financial Analyst Day. It’s really – we’re going to knock your socks off.

Operator: Our next question comes from the line of Samad Samana from Jefferies. Please proceed.

Samad Samana: Hi good evening. Thanks for taking my question. So, I wanted to ask you, ServiceNow is one of the few tech companies that we focus on, that’s still growing headcount, and you guys added more employees in 1Q than you did the last couple of quarters of last year. I’m curious, what’s underlying that confidence in adding talent in what appears to be maybe a little bit of a slowing world? And how should we think about that strengthening your position in a world of maybe your competitors are actually going to have to go back and rehire when we come back on the other side of this?

Bill McDermott: Yes. Samad, thank you very much for the question. And first of all, everybody is entitled to their strategy, and there’s lots of great companies out there that have taken a different approach to managing headcount and the people packed. We have been highly intentional throughout the last four-year journey that I can personally speak to on hiring in the first place. And we have been very biased towards great engineering, especially fingers on keyboards, and go-to-market folks that actually carry a quota and keeping the company extremely lean on G&A, where most of our investments have been in F. So we started into this macro scenario that the world is in right now in a thoughtful position to begin with. And therefore, we’re still managing our headcount tightly.

It’s not like we’re boldly hiring, and especially now we’ve doubled down on exactly that, quota bearing and fingers on keyboards. And the good news, and I really believe, we have a new dimension here where our culture is actually attracting people in the marketplace, and we’re hiring truly best-in-class talent. We call it 9s and 10s here. If you’re an 8.5, you don’t get in the door now. So, I would like you to take away from this answer, they’re being very thoughtful about hiring. The numbers are commensurate with the new business they’re bringing in the door, not the existing business, and they’ll continue to do that in a way that manages the margin profile in importance with what shareholder value expectations are in the marketplace.

And I honestly believe we’ll look back at this moment and how we’re managing the people part of the business and putting people first as something that created a very special, highly-differentiated company as it relates to people’s desire to work here. It’s pretty interesting.

Gina Mastantuono: And Samad, I would just add, we’re remaining extremely flexible and agile with how we’re adding heads, and so we’re being very cautious in the current environment. And you could absolutely expect that we will continue to be cautious and disciplined with how we’re thinking about our hiring vis-à-vis our growth for the remainder of the year and really always.

Bill McDermott: Yes. I mean we – internally, we call it a checkout approach.

Samad Samana: Thanks to both of you, and we see it in the great margins, and look forward to seeing the TMS, the Analyst Day in a few weeks.

Bill McDermott: Thanks a lot, Samad.