ServiceNow CEO On First $2B Quarter: ‘Laser-Focused On Net-New Innovation’

‘Our future guidance reflects our strong conviction in the fundamentals of this business. We remain laser-focused on net-new innovation, new business growth and profitability. ServiceNow is a growth company that consistently executes in any environment. And we will continue to do exactly that: execute,’ says ServiceNow Chairman and CEO Bill McDermott.

Digital workflow platform developer ServiceNow continues its fast-growth trajectory, reaching record quarterly revenue of $2 billion for the first time on the back of its single platform for automated management of many of the workflows businesses use, said Bill McDermott, chairman and CEO of the Santa Clara, Calif.-based company.

McDermott, speaking Wednesday to financial analysts on the company’s first fiscal quarter 2023 financial analyst conference call, said ServiceNow had an outstanding first fiscal quarter 2023, with subscription revenue growth of 27 percent in constant currency.

“We saw a strong, sustained demand for the ServiceNow platform,” he said. “In January, we committed the company to performing beyond expectations. We said it. We did it.”

[Related: ServiceNow CEO Bill McDermott: ‘We’re In A Market Of One’]

ServiceNow also raised its second fiscal quarter and full fiscal year 2023 guidance, McDermott said.

“Our future guidance reflects our strong conviction in the fundamentals of this business,” he said. “We remain laser-focused on net-new innovation, new business growth and profitability. ServiceNow is a growth company that consistently executes in any environment. And we will continue to do exactly that: execute.”

Looking at the big picture, McDermott said, there is no question that ServiceNow is working in a complicated macro environment.

“C-level leaders are managing an endless array of headlines and mixed signals,” he said. “When you filter all that noise, it comes down to one simple reality: There is an app for everything, but nobody wants every app. This consolidation is a tailwind for ServiceNow as the intelligent platform for end-to-end digital transformation.”

Indeed, ServiceNow is now seeing those conversations turn to business transformation, McDermott said.

“This is bringing CEOs directly into the process,” he said. “As principal executive sponsors, nearly 40 percent of CEOs think their company will no longer be economically viable in a decade if they continue on the current path. They aren’t interested in turf battles between departments. They want enterprise-level investments to drive business impact. This isn’t merely an inspection of what historically has been a big cost center. This is CEOs engaging on a strategic level, insisting on a clear roster of technology partners to drive very specific business outcomes.”

For example, McDermott said, when it comes to technology in the age of generative AI, businesses look for a single platform to orchestrate the entire technology value chain.

“ServiceNow does just that,” he said. “Businesses are also working hard to transform their customer experience. The AI opportunity here is when you integrate the front, middle and back offices to better serve that customer. This is a ServiceNow core competency.”

Businesses also want to reduce the number of touchpoints for employees to get work done so they no longer need to juggle multiple systems with different user experiences, McDermott said.

“Our customers use ServiceNow as the one-stop digital hub to create a consumer-grade experience at work,” he said. “Whether it’s efficiency, productivity, cost takeout or business model innovation, ServiceNow has never been more relevant.”

The first fiscal quarter rollout of the new ServiceNow Utah release also highlighted the company’s organic innovation, McDermott said.

“The ServiceNow Utah release was engineered to drive faster business outcomes for our customers,” he said. “The release includes AI-powered process mining with robotic process automation capabilities, additional search enhancements, expanded workforce optimization, and health and safety incident management. These are all designed to help increase automation, simplify experiences and offer greater organizational agility.”

While businesses are aware of market excitement for individual technologies like generative AI, they expect a platform strategy to integrate their various tools, McDermott said.

“ServiceNow has AI process mining, RPA [robotic process automation], low code, and many other technologies built natively into a single workflow automation platform,” he said.

ServiceNow President and COO Chirantan “CJ” Desai told CRN after the financial conference call that channel partners remain an essential part of the company’s business, with over 90 percent of ServiceNow implementations going through partners.

ServiceNow has two types of partners, Desai said. The first type are implementation partners ranging from local partners to global systems integrators, he said. “Our company is still a high-growth company with many partners doing implementation services for ServiceNow,” he said.

The second type are self-service type partners like MSPs who may or may not implement the ServiceNow platform on their own, Desai said.

Partners are already doing very well with ServiceNow’s new Utah platform release, Desai said.

“Given today’s environment, where every customer is focused on profitability, automation and doing more with less, we are seeing that Utah was really well received because it has opportunities for automation, process optimization, AI and many other technologies that we provide,” he said. “So the momentum with our partners has never been better.”

ServiceNow has enabled partners to move ahead with the ServiceNow Utah release and will do so with the upcoming Vancouver release, Desai said.

“More and more automation technology, because right now the focus is in this macro environment of profitability, is an ongoing exercise with our partners where we are constantly training and certifying them.”

For its first fiscal quarter 2023, which ended March 31, ServiceNow reported revenue of $2.10 billion, up 22.1 percent from the $1.72 billion the company reported for its first fiscal quarter 2022. The quarter’s reported revenue beat analyst expectations by $10 million, according to Seeking Alpha.

This included subscription revenue of $2.02 billion, up from $1.63 billion, and professional service and other revenue of $72 million, down from last year’s $91 million.

The company also reported GAAP net income of $150 million, or 73 cents per share, double the $75 million, or 37 cents per share, the company reported last year. On a non-GAAP basis, the company also reported net income of $483 million, or $2.37 per share, up from last year’s $352 million, or $1.73 per share. Non-GAAP earnings beat analyst expectations by 33 cents per share, according to Seeking Alpha.

Look ahead, ServiceNow raised its second fiscal quarter 2023 subscription revenue guidance to between $2.040 billion and $2.045 billion, which represents year-over-year growth of 23.0 percent to 23.5 percent.

For its full fiscal year 2023, the company is guiding subscription revenue of $8.47 billion to $8.52 billion, which represents a 23.0 percent to 23.5 percent growth over fiscal 2022. The company last quarter originally guided fiscal year 2023 revenue of $8.44 billion to $8.50 billion.