ServiceNow CEO: GenAI a 'once-in-a-generation secular trend'
‘There's a real appetite to invest in GenAI. And there's no price sensitivity around it because the business cases are so unbelievable. I mean, if you're improving productivity 40 percent, 50 percent, it just sells itself. So I think we're at a really, really good place. The GenAI investments are coming. We're actually getting orders because we have great product,’ says ServiceNow chairman and CEO Bill McDermott.
Artificial intelligence and genAI are already driving ServiceNow's growth, and will only continue to grow in significance in the future, Chairman and CEO Bill McDermott told analysts Wednesday.
ServiceNow's core business is rock solid and growing, and its perimeter and platform adoption is growing in large part due to AI, McDermott told financial analysts during his prepared remarks at the company's fiscal year 2023 quarterly financial conference call.
"We are in fact in a new era of business transformation powered by AI," he said.
"This is unlocking massive opportunity in the enterprise software industry. And ServiceNow is extremely well positioned not only to lead this movement, but to define it. 2023 was the latest successful milestone on this journey. And we intend to make 2024 an even greater success. To say we're fired up would be an understatement."
McDermott, citing data from analyst firm Gartner, said there will be an estimated $5tn in tech spending in 2024, growing to $6.5tn by 2027. And, he said, for the first time in a decade, IT services will become bigger than communication services in 2024.
"Gartner estimates that by 2027, nearly all of the growth in worldwide IT spending will come from software and IT services," he said. "And when you drill deeper into the Gartner forecast, between 2023 and 2027, $3tn will be spent on AI. What we have here is a strong durable market being supercharged by a once-in-a-generation secular trend."
ServiceNow has been investing, innovating, and preparing for this wave for years, and has a long track record of commercializing breakthrough technologies, McDermott said. When the Pro SKUs were introduced as GenAI extension to four of the company's ServiceNow SKUs as part of the ServiceNow Vancouver release in September, adoption outpaced its Pro upgrade cycle, he said.
During the fourth fiscal quarter of 2024, ServiceNow released significant new capabilities, McDermott said.
For instance, he said, the Virtual Agent update drives faster issue resolution through advanced conversational AI chats. "Employees get the immediate answers they need," he said.
"Businesses get higher self-service solve rates. And it only takes 15 minutes to set it up."
The company's text to workflow capability dramatically increases developer productivity, McDermott said. "ServiceNow's developers have been using text-to-code for several months," he said.
"They are generating high-quality code using text to describe the type of code they want. This has increased our developer innovation speed by 52 per cent."
Now Assist for Field Service Management uses AI to help reduce costs and increase revenue by helping identify the necessary equipment they need for repairs, provide repair recommendations, and automate follow up, he said.
AI is a 360-degree strategic imperative for ServiceNow, which McDermott said is helping grow its strategic partnerships to ensure every enterprise can use AI as the cornerstone of business transformation, McDermott said.
This includes a new partnership with New York-based global business consultant EY to co-create solutions for GenAI governance and to enhance experiences for all its employees, he said.
During the question and answer period, when asked about how customer CEOs are seeing GenAI, McDermott said the ServiceNow Now platform is helping solve complex issues stemming from legacy systems without the need to rip and replace those systems.
"We are the intelligent platform for end-to-end digital transformation," he said. "When you have that C-level executive meeting, they really get it now."
And with regard to GenAI, the momentum is outstanding, McDermott said.
"There's a real appetite to invest in GenAI," he said.
"And there's no price sensitivity around it because the business cases are so unbelievable. I mean, if you're improving productivity 40 per cent, 50 per cent, it just sells itself. So I think we're at a really, really good place. The GenAI investments are coming. We're actually getting orders because we have great product."
Looking beyond AI and GenAI, ServiceNow continues to perform well across the board, McDermott said in his prepared remarks.
The company in the fourth fiscal quarter had 168 deals greater than $1m dollars in net new ACV (annual contract value), up from 126 a year ago, he said. ServiceNow's Technology, Customer, and Creator Workflow businesses all have over $1bn in ACV, while 11 individual product lines now have ACV of over $250m each, he said.
"Our large new logo count continued to accelerate," he said.
"In Q4, we had a record 10 new customers signing deals over $1m in NNACV (net new ACV), including a $10m win with a very large global financial services firm, which is our largest new customer logo in history."
McDermott said he told ServiceNow's team worldwide that the company is now moving into Phase Five, the culmination of is long-term goal of surpassing $10bn in ACV, which incidentally only a handful of software companies have ever achieved.
"We have so much runway ahead for the long-term growth of this company," he said.
From an automation perspective, ServiceNow has long believed that identifying legacy process challenges is an active stimulant for new Workflows, McDermott said.
"That's the beauty of our platform," he said.
"The architecture gives us limitless ways to accelerate speed to value for our customers. And the more Workflows we drive, the more value we create. That's why we tucked in Ultimate Suite, a task mining company, to enhance intelligent automation across the Now platform. If we can help customers find it, ServiceNow can fix it."
ServiceNow by the numbers
For its fourth fiscal quarter 2023, which ended December 31, ServiceNow reported total revenue of $2.44bn, up 26 per cent over the $1.94bn the company reported for is fourth fiscal quarter 2022.
That included subscription revenue of $2.37bn, up 27 per cent, and professional services and other revenue of $72m, down 10 per cent.
About 63 per cent of revenue came from North America, vs. 26 per cent from EMEA and 11 per cent from APAC and other areas.
GAAP net income for the quarter was $295m or $1.43 per share, up significantly from last year's $150m or 74 cents per share. On a non-GAAP basis, ServiceNow reported net income of $643m or $3.11 per share, up from last year's $464m or $2.28 per share.
For all of fiscal 2023, ServiceNow reported revenue of $8.97bn, up 24 per cent from last year's $7.25bn.
That included subscription revenue of $8.68bn, up 26 per cent, and professional services and other revenue of $291m, down 18 per cent.
GAAP net income for the year was $1.73bn or $8.42 per share, up significantly from last year's $325m or $1.60 per share. On a non-GAAP basis, ServiceNow reported $2.22bn or $10.78 per share, up from last year's $1.54bn or $7.59 per share.
ServiceNow headcount at the end of fiscal 2023 reached 22,668 people, up from 20,433 people at the end of fiscal 2022.
Looking ahead, ServiceNow expects fiscal first quarter 2024 revenue of $2.51bn to $2.52, up by 24-plus per cent over last year. The company also expects full fiscal year 2024 revenue of $10.56bn to $10.58 billion, up about 22 per cent.