Managed services News
Joseph F. Kovar
‘Secular digital transformation tailwinds blow stronger than macro crosswinds. ServiceNow creates an unmatched combination of organic growth and profitability at scale. We believe there is a generation of value creation opportunity here at every level of our company. Therefore, we are hiring, expanding, and investing for the future. Growth companies don’t come much stronger than this one,” said ServiceNow President and CEO Bill McDermott.
ServiceNow continues to grow as businesses continue their digital transformation activities taking advantage of the company’s wide range of Workflow technologies, President and CEO Bill McDermott told investors.
McDermott, speaking to investors Wednesday during ServiceNow’s fiscal 2022 second quarter financial analysts and investor call, said the company’s results beat expectations on both the top and bottom lines. . However, he said macroeconomic factors meant it was scaling back its recently expanded full-year guidance to the guidance it set earlier this year.
That said, McDermott said in his prepared remarks that the company’s future aspirations remain unchanged, with expectations to record $11 billion-plus in revenue by 2024 and $16 billion-plus by 2026.
[Related: SERVICENOW CEO BILL MCDERMOTT: WE’RE ‘EXECUTING ON ALL CYLINDERS,’ SETTING SIGHTS ON $15B BY 2026]
“Simply put, the foundations of ServiceNow are unshakable,” he said. “Secular digital transformation tailwinds are stronger than macro crosswinds. ServiceNow builds an unmatched combination of organic growth and profitability at scale. We believe there is a generation of value creation opportunity here at every level of our company. Therefore, we are hiring, expanding, and investing for the future. Growth companies don’t get stronger than this one.”
Enterprise software is an all-time industry, with some businesses prioritizing improved productivity to lower costs while others are changing business models to fuel growth, McDermott said. And they all know that digital technology is the only answer, he said.
“So the demand environment of the software industry is consistent and strong. … We’re also seeing the consolidation of enterprise software as consumers move away from experimenting with unsustainable solutions,” he said.
Customers are prioritizing their digital transformation activities by making significant investments with fewer platforms to drive faster ROI, McDermott said.
“As this process unfolds, as sales cycles can lengthen, deal sizes grow as more materials are negotiated in those agreements,” he said. “And we at ServiceNow are on the right side of great reprioritization.”
ServiceNow’s ability to execute comes from maintaining a fully integrated workflow automation platform that gives everyone the great experiences they deserve, with artificial intelligence, robotic process automation, process mining, and local capabilities that all is embedded in its architecture, McDermott said.
ServiceNow is leading the low-code revolution, and its born-in-the-cloud suite of applications extends end-to-end to the enterprise, with all its Workflows working seamlessly, McDermott said. In the second quarter, ServiceNow’s ITSM (IT Service Management) Workflow was in 12 of the company’s top 20 deals with seven deals over $1 million; ITOM (IT Operations Management) was in 13 of the top 20, with nine deals over $1 million; Customer Workflows are in 14 of the top 20; and Creative Workflows are in 20 of the top 20, he said.
Overall, McDermott said, ServiceNow doesn’t hold back on opportunity.
“The need for digital transformation continues to grow,” he said. “And enterprise software remains a decidedly deflationary force in this marketplace.”
Because of these opportunities, ServiceNow is hiring a lot of people, McDermott said.
“There is tremendous opportunity for talented professionals looking to build their future with ServiceNow,” he said. “And as an employer, while others in the tech industry are slowing down or even stopping hiring, ServiceNow is hiring. And we’re hiring. We’re doubling down on our talent brand. And that’s a reflection of our deep believing in the amazing potential of this company.
ServiceNow customers and partners are also expanding their serviceNow workforces at a record clip, which McDermott said reflects the broad cross-enterprise adoption seen for the ServiceNow platform.
That said, ServiceNow has scaled back its financial performance guidance to what it originally set earlier this year, McDermott said.
“Like other leading technology companies, we are managing the current macro … just by returning to the vision that we originally set for you in January of this year, on a constant currency basis,” he said. “Unlike others, while the impact of currency also applies pressure to our margins, ServiceNow will maintain our full-year margin guidance of 25 percent. We will offset the impact through disciplined cost management as we run more efficiently on the ServiceNow platform.”
For its fiscal 2022 second quarter, which ended June 30, ServiceNow reported total revenue of $1.75 billion, up 25 percent from the $1.41 billion the company reported for its fiscal 2021 second quarter.
Quarterly results included subscription revenue of $1.66 billion, up nearly 30 percent from $1.33 billion, and professional services and other revenue of $94 million, up from $79 million.
The company also reported 1,463 customers with an annual contract value of more than $1 million, and more than 100 customers with an ACV of more than $10 million.
About 65 percent of total revenue comes from the North American market, which has been fairly consistent over time.
ServiceNow has a renewal rate of 99 percent, which McDermott calls the highest in the industry.
ServiceNow reported GAAP net income of $20 million or 10 cents per share, up significantly from $59 million or 30 cents per share last year. On a non-GAAP basis, ServiceNow reported net income of $329 million or $1.62 per share, up from a year earlier of $287 million or $1.42 per share.
Joseph F. Kovar
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