Ladies and gentlemen, thank you for joining us today. My name is Terrell, and I will be your conference operator. I would like to welcome everyone to the Q4 2023 ServiceNow Earnings Conference Call. All lines are muted to minimize background noise. After the presentations, we will have a question-and-answer session. Now, I will turn the call over to Darren Yip, Vice President of Investor Relations. Darren, the floor is yours.

Good afternoon and thank you for joining ServiceNow's fourth quarter and full year 2023 earnings conference call. Joining me are Bill McDermott, our Chairman and Chief Executive Officer; Gina Mastantuono, our Chief Financial Officer; and CJ Desai, our President and Chief Operating Officer. During today's call, we will review our fourth quarter 2023 results and discuss our guidance for the first quarter and full year 2024. Before we get started, we want to emphasize that the information discussed on this call, including our guidance, is based on information as of today and contains forward-looking statements that involve risks, uncertainties, and assumptions. We undertake no duty or obligation to update such statements as a result of new information or future events. Please refer to today's earnings press release and our SEC filings, including our most recent 10-Q and 2022 10-K for factors that may cause actual results to differ materially from our forward-looking statements. We'd also like to point out that we present non-GAAP measures in addition to and not as a substitute for financial measures calculated in accordance with GAAP. Unless otherwise noted, all financial measures and related growth rates we discuss today are non-GAAP except for revenues, remaining performance obligations, or RPO, current RPO, and cash and investments. To see the reconciliation between these non-GAAP and GAAP measures, please refer to today's earnings press release and investor presentation, which are both posted on our website at investors.servicenow.com. A replay of today's call will also be posted on our website. With that, I'll turn the call over to Bill.

Thank you, Darren, and thank you very much everyone for joining today's call. ServiceNow closed an outstanding 2023 with a performance that exceeded expectations in Q4. Here's the state of our business. Artificial intelligence is injecting new fuel into our already high-performing growth engine. The company's Q4 results tell that story. Subscription revenue grew by 25.5% at constant currency, which is 200 basis points above the high end of our guidance. Current RPO growth is 23% at constant currency, also 200 basis points above our guidance. Operating margin was over 29%, approximately 200 basis points above our guidance. We had 168 deals greater than $1 million in net new ACV, up from 126 a year ago, a 33% increase. ServiceNow's Q4 performance is packed with milestones spanning the full breadth of our portfolio. With technology, customer, and creator, we now have three workflow businesses over $1 billion in ACV. We have 11 individual product lines with more than $250 million in ACV. ITSM, ITOM, and ITAM each had double-digit deals over $1 million in Q4. Security and risk combined for 12 of the top 20 with nine deals over $1 million. Customer, Employee, and Creator workflows, each had double-digit deals over $1 million. Our large new logo count continued to accelerate in Q4. We had a record 10 new customers signing deals over $1 million in net new ACV, including a $10 million win with a very large global financial services firm, which is our largest new customer logo in history. Global iconic brands such as Chipotle, Air France, TIAA, NTT, Data Group Corporation, and Busch are digitally transforming with ServiceNow. We are proud that TIAA, one of our first 10 customers, is still expanding their business with us through new out-of-the-box functionality so they can accelerate time-to-market. Following a record Q3, the public sector continued its strong growth in Q4 with key wins including in the United States Army, US Postal Service, and the Australian Department of Defense Digital Delivery Group. We are extremely proud to have finished 2023 operating at the rule of 55 plus. As you'll hear from Gina, our 2024 guidance reflects our ongoing belief in ServiceNow's strategic relevance. Our core business is rock solid and growing. Our perimeter is growing. Our platform adoption is growing. We are, in fact, in a new era of business transformation powered by AI. 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. Let's spend some time framing the dimensions of this new AI world. Gartner estimates $5 trillion in tech spending in 2024, growing to $6.5 trillion by 2027. That means that spending will grow another $1 trillion in only two years, accelerating from the decade plus it took for us to get to $5 trillion. 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. And when you drill deeper into the Gartner forecast between 2023 and 2027, $3 trillion 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, which is why we're catching it so early. We have a long track record of commercializing breakthrough technologies. When our Pro SKUs were introduced, we saw very exciting traction and customer adoption. Our Pro Plus offerings, which we launched just four months ago with our Vancouver release, are outperforming the pace of the Pro upgrade cycle. The results in our first full quarter since launch validate this trajectory. Siemens AG is using Now Assist for HR service delivery to resolve HR cases faster for its entire global workforce. This is one example of many and as always, ServiceNow's strength and our capacity to deploy net new innovation, especially our ambitious Gen AI roadmap. In Q4, we released significant new capabilities. The Virtual Agent Update drives faster issue resolution through advanced conversational AI chat. Employees get the immediate answers they need, businesses get higher self-solve rates, and it only takes 15 minutes to set it up. Our text to workflow capability dramatically increases developer productivity. ServiceNow developers have been using text to code for several months. 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%. Now Assist for field service management reduces costs while increasing revenue by helping technicians get the job done in the first visit; identifying the necessary equipment, providing repair recommendations, and automating follow-up at speed. Beyond the platform itself, we see AI as a 360-degree strategic imperative. It's why ServiceNow joined the AI Alliance to advance open, safe, and responsible AI. It's also why we are continuing to grow our strategic partnerships to ensure every enterprise can use AI as the cornerstone of business transformation. Today, we expanded our strategic alliance with EY to co-create solutions for generative AI governance for our customers. And of course, EY will also be using ServiceNow's generative AI capabilities to enhance experiences for all of their employees. We also unveiled another major expansion to our partner program, the latest addition in a series of investments as partners are building new business models on the ServiceNow platform. These are two examples of many. I've told ServiceNow's team worldwide that the company is now moving into Phase 5. The culmination of our long-term goal of surpassing $10 billion 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. There are two key elements of our strategy, execution and scale. Execution, we know, is an art form. Scale is all about capitalizing on new opportunities as a truly global platform company. One of those in our market-making alliance was Visa. Today, ServiceNow and Visa announced a five-year strategic alliance to transform payment service experiences. In the initial phase of the alliance, the companies will launch ServiceNow Disputes Management built with Visa, a single connected solution for dispute resolution. This Gen AI-powered solution will offer end-to-end dispute resolution for customers globally, everything from the first indication of a questionable charge through early investigation to final resolution. Another example is our growing partnership with AWS. Beginning this month, ServiceNow will be available as a SaaS offering in the AWS marketplace. From an automation perspective, we have long believed that identifying legacy process challenges is an active stimulant for new workflows. That's the beauty of our platform. 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 UltimateSuite, a task mining company, to enhance intelligent automation across the Now platform. If we can help customers find it, ServiceNow can fix it. And we fix it in complete harmony with any existing software landscape, delivered in a consumer-grade user experience. CEOs don't want to wait another decade for technology to finally deliver on its promise. One told me, I'm tired of excuses coming into my boardroom. We need new innovation and new experiences, and we need it now. That's obviously music to our ears and nicely on brand for ServiceNow. There's plenty more to discuss about the company we are building and the progress we're making. We have more accolades than time to listen to them. Top analyst firms ranked ServiceNow as a leader in 14 separate reports in 2023 for our automation and AI capabilities. Glassdoor's recent US Best Places to Work lists ServiceNow as Number Three overall and Number One in software. One of our proudest achievements is the American Opportunity Index. This index is databased. They study what really happens to employees at America's largest companies over time. ServiceNow scored Fifth, and that's out of 400 companies overall, and ServiceNow was the Number One technology company on the index. That means that people who have fought hard to build a great company are being rewarded with a great life. This all means so much to us because culture is the glue that binds a winning team together. We have world-class professionals at ServiceNow who care deeply about our customers and our partners. Since Fred Luddy invented the company, we've all made our contributions to help ServiceNow emerge as the hungry and humble winner it is. We believe in our platform. We stick together, and we try to have some fun along the way too. That's why the results show up the way they do. It's also why over 1 million people applied to work here last year. To all of our shareholders who continue to invest your trust in ServiceNow, we thank you, and we've got your back. We're building a masterpiece here, and we're only getting started. 2024 will show that we're putting AI to work for the world because now, as ever, the world works with ServiceNow. I look forward to the questions and the discussion we'll have shortly. In the meantime, I'd like to turn the call over to our outstanding Chief Financial Officer, Gina.

Thank you, Bill. Happy New Year to all of you who are listening in. Q4 was another exceptional quarter to conclude what has been a phenomenal year. Once again, we exceeded our topline growth and operating margin guidance metrics, showcasing our team's relentless focus on execution. ServiceNow's agility in responding to enterprise needs has solidified our position as the trusted intelligent platform for driving digital transformation. In Q4, subscription revenues were $2.365 billion, growing 25.5% year-over-year in constant currency, exceeding the high end of our guidance range by 200 basis points. We closed out 2023 with $8.68 billion in subscription revenues, also representing 25.5% constant currency growth, all organic at a scale that hasn't been accomplished by any other enterprise software company. RPO ended the quarter at approximately $18 billion, representing an acceleration to 27.5% year-over-year constant currency growth. Current RPO was $8.6 billion, representing 23% year-over-year constant currency growth, a 200 basis point beat versus our guidance. From an industry perspective, energy and utilities, business and consumer services, and education were particularly robust in the quarter. Government continued to show impressive growth and Telecom, Media, and Technology also saw strength. As Bill noted, I'm pleased to announce that customer workflows crossed $1 billion in ACV in Q4 following our Creator Workflows, which hit that momentous milestone in just Q3. We now have three workflow categories generating over $1 billion in ACV, highlighting the breadth of our portfolio. Our renewal rate was a best-in-class 99% in Q4, continuing to demonstrate the strategic relevance of the Now platform as it remains a mission-critical part of our customers' operations. We ended the year with over 8,100 customers, with our focus on landing the right new customers continuing to bear fruit as large new logo growth accelerated for the fourth consecutive quarter. We ended Q4 with 1,897 customers paying us over $1 million in ACV. We closed 168 deals greater than $1 million in net new ACV in the quarter, a 33% increase year-over-year that includes five deals over $10 million. For the full year 2023, we saw an approximate 30% increase in deals greater than $1 million in net new ACV. In Q4, our Gen AI products drove the largest net new ACV contribution for our first full quarter of any of our new product family releases ever, including our original Pro SKU. Turning to profitability, non-GAAP operating margin exceeded 29%, approximately 200 basis points above our guidance, driven by the topline outperformance and disciplined spend management. Our free cash flow margin was 55%, up 250 basis points year-over-year. For the full year 2023, operating margin was 28% and free cash flow margin was 30%. Total free cash flow for 2023 was a robust $2.7 billion. We ended the year with a healthy balance sheet, including $8.1 billion in cash and investments. In Q4, we repurchased 400,000 shares as part of our share repurchase program with the primary objective of managing the impact of dilution. As of the end of the quarter, we have $962 million remaining of the original $1.5 billion authorization. Together, these results continue to demonstrate our ability to drive a strong balance of world-class growth, profitability, and shareholder value. Moving to our guidance. We are raising our 2024 outlook to reflect the strong momentum with which we exited 2023. This partially reflects the early success we've seen with our Gen AI products as those investments are accelerating the build of our already robust pipeline with customers lining up to be first movers in this next wave of business transformation. As always, we continue to be prudent around our assumptions for incremental customer budgets and the macro cost in our guidance. With that in mind, let's turn to 2024 guidance. We are raising our subscription revenue outlook by $165 million at the midpoint to a range of $10.555 billion to $10.575 billion, representing 21.5% to 22% year-over-year growth or 21.5% on a constant currency basis. We expect subscription gross margin of 84.5%, reflecting investments in our data centers and emerging growth opportunities, offset by a 100 basis point benefit from a change in useful life of our data center equipment from four to five years as a result of an assessment completed earlier this month. We're also raising our full year operating margin target from 28% to 29%, driven by continued operating expense efficiencies. We expect a free cash flow margin of 31%, up 50 basis points year-over-year, overcoming an incremental point of cash tax headwinds. Finally, we expect GAAP diluted weighted average outstanding shares of 208 million. For Q1, we expect subscription revenues between $2.510 billion and $2.515 billion, representing 24% to 24.5% year-over-year growth or 23.5% to 24% on a constant currency basis. We expect current RPO growth of 20% on both a reported and constant currency basis. This reflects the tremendous strength of our federal business, which has resulted in a higher mix of 12-month contracts that will create a negative 150 basis point impact to Q1 current RPO growth. We expect that these contracts will renew in Q3 as ServiceNow's federal contract renewal rates are 99%. We expect an operating margin of 29%. Finally, we expect 208 million GAAP diluted weighted average outstanding shares for the quarter. In summary, ServiceNow's Q4 outperformance is another example of the strength of our platform and our people. This team's amazing accomplishments in 2023 set the stage for continued success in 2024. ServiceNow is positioned as the intelligent platform for end-to-end digital transformation, gaining momentum throughout the year. Leaders are shifting their investments into proven strategic platforms that leverage the power of AI to deliver growth across the top and bottom lines, with customers prioritizing quick time to value that the Now Platform delivers. The accelerating pace of investment in workflow automation and interest in Gen AI positions us well on our journey to become the defining enterprise software company of the 21st century. Bill, CJ, and I would like to extend our gratitude to all our employees worldwide for their outstanding contributions to ServiceNow's success this past year. 2023 was a remarkable year, and we look forward to an even more exciting 2024. With that, I'll open it up for Q&A.

Your first question comes from the line of Brad Zelnick with Deutsche Bank. Brad, your line is open.

Great. Thanks very much and congrats on an amazing finish to 2023. Bill, it's clear that the Now platform is a destination of choice for enterprise AI and modern digital workflows. But I'd love to hear your view of the environment versus what you see as Now specific. It would be great if maybe you can share a bit about close rates, sales rep participation rates, or even the net new ACV performance as you did last year, just to help us contextualize how it's going out there. Thanks.

Yes, Brad, thank you very much for the question. Things are going very well out there, and the momentum is terrific. What's really happening and I can say this after 186 CEO meetings in the last six months, the CEOs are now getting very involved with the Gen AI revolution. They realize there has to be architectural adjustments to their environment and the manner in which they manage their data and the platforms they're beholden to actually take advantage of Gen AI. And if you think about the half-a-century mess that exists out there with legacy systems, in many cases, multiples of the same system, we have one unifying force in these conversations, which is the Now platform because we cooperate with the complexity of this landscape without putting people in a position to rip and replace. So, they're looking for platforms that matter. We're one of those. As I think Gina said, we are the intelligent platform for end-to-end digital transformation. When you have that C-level executive meeting, they really get it now, and with regard to Gen AI, the momentum is outstanding. As I said, that SKU has outsold any other new introduction we put into the marketplace. So, there's a real appetite to invest in Gen AI, and there's no price sensitivity around it because the business cases are so unbelievable. I mean if you're improving productivity by 40% to 50%, it just sells itself. So, I think we're in a really, really good place. The Gen AI investments are coming. We're actually getting orders because we have great product, thanks to CJ and his unbelievable engineering team. So, I would tell you at this time last year, compared to this time this year, you should be more bullish now.

Yes, and it's great to see it reflected in the guidance. Thanks so much for taking the question.

Thank you, Brad.

Your next question comes from the line of Mark Murphy with JPMorgan. Mark, the floor is yours.

Thank you very much. So, Bill, I don't think I've heard any other software companies say that its Gen AI products produced the strongest net new ACV of any product family. We had a contact saying it's really the only platform with real-life uses of AI right now. So, I'm wondering if you think that is accurate, and that's what's driving it or should we relate it more to the work you've done getting ahead on pricing and packaging? Should we think back to the efforts of that Element AI team, which is so fantastic, or maybe it's some other factor in your mind that's really allowing you to see faster adoption of AI?

Yes, I will let CJ share his thoughts on this as well. The Visa strategic partnership is utilizing Gen AI solutions to handle end-to-end dispute resolutions with customers. Visa is one of the most recognized and significant brands globally. Consider how Gen AI greatly simplifies their interactions with customers and reduces the need for human resources to resolve these issues through technology. Similarly, EY is implementing Gen AI governance to manage risk and compliance for leading corporations. Every industry has substantial opportunities. For instance, during a recent trip to Germany, I spoke with someone in the home appliance sector. They saw their online sales jump from 25% to over 50% post-COVID, and it's still rising. When CJ and his team introduced Field Service Management with Gen AI, imagine an agent using a mobile device instead of a clipboard; they can quickly identify the necessary part and resolve issues on-site. Additionally, consumers are willing to pay more for same-day repair agreements along with their appliances, leading to higher margins than the appliance itself, while creating a consistent revenue stream. Ultimately, we are discussing a fundamental shift in how business is transformed through our platform and Gen AI. CJ, I want to congratulate you and thank you for your continued efforts in bringing this innovation to the market. Please share your insights.

Thank you, Bill. And Mark, here is how I would say some of the questions that you asked are absolutely spot on. The Element AI team was absolutely a game changer from a talent perspective. Our investments in AI, that you're very familiar with since 2017, continue for us, not only on the speed of innovation, but also in what we learned from our customers. Let me give you a couple of quick insights. We were one of the first to release the product with use case-specific generative AI starting in September. So we definitely had a first mover's advantage from that perspective. However, from a customer sentiment perspective, I will tell you there were two Wall Street banks telling me specifically that they wanted to be the first ones on Wall Street in New York to go with our Gen AI solution, and one of them signed with us. And you work for one, but in the sense that this is a highly regulated environment, and regulators want to know how AI is done, we were able to sign with the first Wall Street Bank in New York in Q4. In addition, we also signed with a large manufacturing company that wants to fundamentally transform their employee productivity. And then we also signed with a very large restaurant food retailer who wanted to transform employee experience and overall shared services productivity so that their margins can go up. This is definitely a game changer. We are learning a lot from our customers, and we are seeing very significant momentum. I was here when we launched ITSM Pro in September 2018 and as Bill and Gina shared, this has exceeded all of our expectations on how well we did on the monetization of our Pro Plus SKUs. Thank you, Mark.

Thank you. Congrats on being so far ahead.

Thanks a lot, Mark.

Our next question comes from the line of Arjun Bhatia with William Blair. Your line is open.

Perfect. Thank you guys so much and I'll add my congrats. I wanted to maybe touch on the strength that you're seeing in customer and employee workflows because if I look at the net new ACV that you're driving there, the mix is relatively stronger than IT workflows this quarter. Is that attributed to some of this AI adoption and the Plus SKU? Or are there other drivers that you're seeing driving momentum in those solutions?

Thank you very much, Arjun, and I really appreciate it. Just a couple of statistics on the customer workflows: 18 of our top 20 deals, what we're seeing is there's a tremendous opportunity to really take ServiceNow and squarely place it in the Customer Relationship Management category. When you think about front, mid, and back office and the fact that we can align all three of those things, nobody has to lose for us to win. We could fill in all the blanks for what the current participants don't do, especially with their integration problems. It's just a fantastic opportunity for our customers. And I think it's important to note, when I gave the Field Service Management example, our net new ACV in Field Service Management, specifically was up over 50% year-over-year. So, I think it's important to recognize that we have a whole list of new logos in this space. And employee workflows, nine of our top 20 deals, and it was kind of interesting. Every single CEO now is looking to make the people pact far more productive than it is and with natural language to have your employees seek the data and the information they want and have it reported back to them in just a very nice paragraph of content and data so they can do their jobs better, is kind of like in the no-brainer category. We have some really great logos that I'm sure CJ would like to share with you as well. But both of those areas are really good. And incidentally, that employee spot that I mentioned was up 80% year-over-year.

Thank you, Bill. And Arjun, some of the questions that you asked, you're spot on. So, AI and specifically Pro Plus SKU was a catalyst, both for our employee and customer workflow. So, that's number one. Number two, within customer workflow, which had an amazing quarter, and I'm so proud of that team and ServiceNow to cross $1 billion, which just a few years ago was $10 million. That's a multiple orders of magnitude growth on the difference we are making in customer service because we are ServiceNow, and we know how to do customer service. So, ServiceNow growth was unbelievable from customer service and customer workflow perspective. Two sectors, I'll call out besides Bill's point on Field Service Management. Number one, our telco products, specifically designed for the telco industry, saw triple-digit growth with some of the largest telcos in the world related to customer service. And also, we saw in public sector, from a direct-to-citizen perspective, Customer Service Management did really well in Q4. And on employee workflow, as Gina outlined, we had many million-dollar deals across the industries, including public sector, and that business, in addition to HR service delivery with workplace service delivery and legal service delivery, continues to do very well, growing very strongly.

Great to hear. Thank you, CJ, thank you, Bill. Congrats again.

Thank you so much, Arjun.

Thank you.

Your next question comes from the line of Kash Rangan with Goldman Sachs. Your line is open, Kash.

Congratulations, Bill, Gina, CJ. Great to hear that you're among the first sort of software companies to give us splendid results, and we feel better about 2024 already just based on your numbers. Bill, a question for you. It looks like generative AI is making sales cycles easier, if I could say that, and has the potential to bring in repeat business with existing customers at a faster pace and magnitude. Can you talk a little bit about how much easier it has gotten despite the environment staying tough, but for generative AI, how much easier has it gotten for the company to generate that initial lead and close that deal and do more repeat business? That's it for me. Thank you.

Hey Kash. I want to address a few points. As Gina mentioned, the demand environment remains challenging, and we can't say things have improved significantly. However, the strategic importance of our platform is high, which has enabled us to secure million-dollar and large deals globally across various industries, showing strong performance. Regarding generative AI, the demand differs by industry. For instance, a large manufacturing company's CIO contacted me in October to arrange a quick four-week proof-of-concept with plans to purchase in December, indicating a fast-tracked sales cycle. Additionally, a large retailer is conducting a proof of concept with our Pro Plus SKU as part of a CEO initiative mentioned by Bill. It's evident that certain industries are driving demand for generative AI, and those sales cycles are quite rapid. For example, a manufacturing company CEO I met with in Germany followed up in December expressing interest in starting our Pro Plus SKU for specific ITSM use cases, and he wants to review results by the end of February, which is faster than our typical ITSM Pro sales cycle. Overall, the environment has remained consistent from Q3 to Q4, but the pace for generative AI is quicker.

Yes. May I also just add one thing, Kash. If you think about every single industry, they all have their own personality. So, for example, I had the opportunity to meet a pharma company. And as you know, the average life cycle, for example, for clinical trials is over six and a half years. And this is an industry that drops $200 billion a year on this clinical trial process, and 90% of them fail. So, if you just think about that for a minute, you say, well, what can generative AI do to automate document generation, for example, that would be in line with regulatory protocols and you come up with site contracting agreements, for example, that also include the patient because the patient has to be engaged in the process, otherwise, they won't stay in the trial. And every time a patient opts out, they lose money, $20,000 per patient. So, generative AI on the ServiceNow platform obviously can go in there and radically cut down the cycle time of these clinical trials. So, CEOs right out of the gates are ready to go. Your team, my team, let's figure this out. So, there's a real appetite, and I think why I'm so bullish is we have a platform that already has it.

Amazing. Thank you so much.

Thank you, Kash.

Your next question comes from the line of Keith Weiss with Morgan Stanley. Keith, the floor is yours.

Excellent. Thank you, guys, and again, congratulations on a really strong end to 2023. I wanted to talk a little bit on the expense side of the equation. You guys really outperformed nicely on the operating margin side of the equation this quarter, looking for further expansion next year. And looking at sort of where you guys are hiring, I was a little bit surprised to see more strength on the R&D side of the equation than sales and marketing. Sales and marketing headcount is only up 6%. So, you talk to us about sort of that relationship changing a little bit. R&D headcount is almost matching sales and marketing head count right now. If we went back five years ago, sales and marketing were 50% ahead of R&D. So how are the investment priorities changing now, especially as we go to 2024? And how are you guys feeling about sales capacity and sort of the necessity to expand sales capacity heading into 2024?

Hi Keith, this is Gina. Thanks so much for the question. So, yes, we're really proud of the beat on the topline as well as the bottom line in Q4 and obviously continuing to expand those margins in 2024. Specifically, when you think about investments in R&D headcount, it's all around continued innovation and our investments in Gen AI and AI. And so not surprising, given the commentary that you've already heard, we're continuing to double down on investments on fingers on keyboards, engineers really driving the Gen AI revolution. So, you'll continue to see more of that. On the sales side, it's really about scale and leverage, right? And so sales and marketing headcount, there's a lot in there. It's not just quota-bearing feet on the street sales, right? So, you've got marketing, you've got marketing operations, you have sales operations in there. If you actually were able to break it down to feet-on-the-street quota-bearing sales, you would see that growth rate much higher. And in fact, as I think about sales capacity going into 2024, we have a larger increase in ramped reps going into 2024 than we've had in years. So, from a capacity perspective, we feel great about how we're entering 2024.

Excellent.

Awesome. Thanks for the question, Keith.

It seems like it really speaks to an increasing sales efficiency then. You just need less people to support any given quota-bearing sales reps.

Absolutely. Productivity and efficiency is going up, as well as the fact that from a scale perspective, you're not growing some of the operational heads as much.

Got it. Super helpful. Thank you guys.

And we'll be definitely increasing hiring as we go into 2024 as you would expect.

And Keith, Gina doesn't brag about this, neither does Russ Elmer, who is our Office of General Counsel lead. We're using the Now platform. So, in all the back-office functions of the company, we're so automated, so productive. And they're getting things done on the Now platform that it would take other companies five and six times the headcount to do the same job. And that is really something. We actually even had with legal service delivery, AI tell us that we're spending too much time on contracts less than $250,000. Our office of General Counsel, Russ made the decision based on AI that we could fundamentally change that and reorient the workflow around those kinds of agreements, which gave us a huge rush, and he didn't have to hire anybody. And then he actually took that product, and our great engineering team built it. We call it LSD, Legal Service Delivery and now lawyers all over the world want to jump on. So, everything we do internally with Now on Now as an external marketing force associated with it.

Yes. And Keith, Gina handled this really well in terms of sales efficiency. But one of the things that Bill mentioned that I just wanted to call out that we are really proud of our sales teams besides the expansion of our platform in different buying centers, but also the new logo growth. The new logo growth for 2023 was way ahead of what our expectations were, specifically in Americas and Europe compared to 2022, including the large transaction that Bill referenced. But when your sales capacity and sales efficiency specifically is improving, while you're also gaining new logos, which is just a very super proud moment for us in 2023.

Your next question comes from the line of Samad Samana with Jefferies. Samad, your line is open.

Hi, thanks. Congrats on a great close to 2023. Gina, could you help us understand the current RPO upside? Specifically, regarding the 200 basis points, could you break down how much of that was due to the adoption of Gen AI and the net new ACV that exceeded expectations versus the strength of the renewal cohort? What were the key factors contributing to the upside in the quarter?

Yes, sure. So, we beat our Q4 current RPO growth guidance by 200 basis points as you know. And I would say it's driven probably half and half by net new ACV outperformance, and certainly, Gen AI is in there, but it's not all Gen AI. So, our core business is also doing well. And then we also did see higher early renewals than we had assumed in our guidance. And I would say it's about half and half of the total beat.

Great. And then, Bill, this is maybe for you or for CJ. But as you think about the product portfolio and some of the newer products you've talked about over the last year or so beyond Gen AI's observability or ERP workflows, where are you seeing the most demand or interest outside of Gen AI? And what are you most optimistic about in 2024 beyond Gen AI?

Absolutely. So, Samad, here is what I would say. In general, every single workflow grew for us on net new ACV, which is always a great thing that, that's a balanced performance across every single workflow. And so, I'm really proud of the team, both our go-to-market and engineering teams that we continue to deliver innovations, and our go-to-market teams they know how to sell that innovation across our product lines. So, that's number one. Number two, when I look at some of our industry products that I called out specifically for TMT as in telco, media, and tech, they are seeing very nice traction. We also released in our technology workflow under the leadership of Pablo Stern, operational technology product that also grew very nicely. Bill called out Field Service Management, and Customer Service Management had an amazing not only Q4 but 2023, and then employee workflow also grew. So, as I'm walking through this list besides Gen AI and then I can tell you the same thing about security, risk, and so our asset management had a phenomenal 2023. So, I expect all these product lines to continue to have momentum besides generative AI.

Great. Thank you so much for taking my questions.

Your next question comes from the line of Alex Zukin with Wolfe Research. Alex, the floor is yours.

Thank you, everyone. First of all, congratulations on a great quarter. The discussions around Gen AI and its tangible effects on the model and this quarter were impressive. I wanted to explore further the revenue contribution, current RPO, bookings for the quarter, or the attach rate you’re experiencing with Pro Plus as you market it. How should we view this for fiscal 2024? What are the goals for Q1? Please provide us a clearer indicator or metric that we can monitor to track Gen AI's penetration moving forward. I also have a quick follow-up.

Sure, Alex, it's Gina. What I'd like to mention is that Gen AI products contributed the largest net new annual contract value in their first full quarter compared to any of our other new product families, including the original Pro SKU. I often get asked whether the adoption curve for our Pro Plus will be steeper than that of the Pro, and so far in the first full quarter since launch, it has indeed shown to be steeper. However, it's still early days, so the revenue contribution isn't significant yet, but it has certainly factored into my guidance for 2024, which includes an increase of $165 million at the midpoint. Gen AI is in the early stages, but the adoption curve has been better than the original Pro. We will continue to monitor it and keep you and others updated on its penetration as the numbers grow. Currently, there is much more excitement and interest from our customers than what we experienced in the early days of our Pro SKU, and we are encouraged by this momentum, while still being cautious as I consider the guidance for 2024 since it is still very early.

Super helpful. And then I guess, if I think about just the opportunity around or actually just current RPO linearity throughout the year, you talked about the headwinds in the first half. How does that trend through the second half of the year? And then what other things should we be paying attention to there?

Yes. We noted that the impact was 150 basis points in the first quarter, which is expected to rise to around 200 basis points in the second quarter, leading to similar levels from the first to the second quarter. At this moment, I won't provide any further guidance. However, I have raised our full-year 2024 guidance by $165 million. We remain very confident in our projection of over $15 billion by 2026. The advancements in Gen AI and our entire product portfolio will contribute to that growth.

Perfect. Thank you guys. Congrats again.

Thank you, Alex.

Thanks, Alex.

Your next question comes from the line of Mike Cikos with Needham & Co. Your line is open, Mike.

Hey guys, thanks for taking the question here, and I'll echo my sentiment along with my peers. I just wanted to come back, I think earlier during the Q&A, CJ had kind of teased and maybe the monetization here for the Plus SKUs relative to the Pro SKU exceeding your expectations. And just wanted to make sure I was interpreting that properly. Can you give us any indication for what that price capture is like relative to the Pro SKUs which we've had in the market for a couple of years?

Yes. So, Mike, first of all, the Pro SKUs, as you know, we launched it in Q3 2018, so we have five years of consistent trajectory and measures on how we did on Pro across ITSM, CSM, and so on. And that we shared at Financial Analyst Day in May. Gina shared that number that we got a 25% uplift. When I look at Pro Plus, first, just to underscore what Gina said, that it definitely exceeded our expectations, did really, really well and the fastest growth. We have launched so many products over so many years. This definitely exceeded our expectations. So, that's number one. Number two, just a simple thing. When I'm looking at what, based on the volume discounts, customers leaning in, asking us to try out from POC, POE perspective, it is in line with what my expectations were on how we would get the price uplift. So, right now, as Bill said, I did not get any, 'Oh my God, CJ, this is not going to work for us,' where is the value. We have to always earn our right and deliver the value for our customers. But right now, it is in line with my expectations.

Terrific. Thank you very much, guys.

Thank you, Mike.

Thanks, Mike.

Your next question comes from the line of Karl with UBS. Karl, the floor is yours.

Okay, great. Maybe I'll direct this to Bill and CJ. You both mentioned ServiceNow's largest ever new customer win with the bank. I guess I'm surprised that there's big bank out there that's not already on ServiceNow, but I'd love to hear a little bit more about that, and I'm not even sure how big a deal would have to be to be your largest new win? So, any size and color would be fabulous.

Yes, I think we previously discussed being involved with 23 of the world's largest and most significant banks, and now we've achieved engagement with all 24. I want to acknowledge the outstanding ServiceNow platform, the MRA process, and integrated risk management, as navigating such a complex environment is quite challenging. Having a high-profile brand place their trust in us and in ServiceNow is truly inspiring. I must also give credit to CJ for his hard work on this project. I witnessed this firsthand while we engaged with this exceptional customer. CJ, I believe you have some additional insights to share.

Yes. Karl, great to hear from you. I would say fundamentally, when I look at that particular financial services institution, 100% is true that it is on our core of the core. So, from an IT service management perspective, IT operations management perspective, this is not a generative AI-specific deal, but it was very much a very strategic transaction on the foundational platform for automation and digital services at this large financial services institution. It is the largest new logo win that we had there, and it is in eight-figures of net new ACV. So, that is material.

Okay. Congrats on that.

Thank you very much, Karl. Appreciate it.

Thanks, Karl.

Your next question comes from the line of Joel Fishbein with Truist Securities. Joel, the floor is yours.

Thank you for taking the question. I will also echo the outstanding execution you guys have done. Bill, I guess this is for you. Just around the public sector vertical, it's been very strong for you for several quarters. I guess two things. Number one is, how is the spending remain consistent? It used to be very cyclical there. And the second question around public sector is, what do you think their AI adoption cadence is going to look like from your perspective?

Yes. Well, thank you very much for the question. I really appreciate it. Our federal business is really outstanding. And for the benefit of our shareholders, I think that there's a tremendous opportunity to replicate what we're doing in the United States federal and many other governments around the world. That is clearly an ambition that we have, and we have many use cases and many references to back that up. So, CJ, I think you spent a lot of time with our team. And I know that I mentioned some of the names like United States Army and the United States Postal Service as an example, really marquee wins, really, really important stuff. Why don't you build on that?

Yes. So, Joel, everything that we have seen, as you saw in 2023, consistent performance in our what we call global public sector. So, let me start there. US Federal, we highlighted the strength in Q3, followed by some of the logos that Bill discussed. However, I do want to state that we are also doing really well. Our platform is for state and local governments in the United States, and that growth was also very inspiring in 2023. So not only US Federal but also US state and local. Now, let me take an example for Q4. Besides the United States, we also did really well in the public sector in the United Kingdom. On Bill's ask and our customers' ask, I spent some time in London with our public sector customers, and they continue to also leverage ServiceNow for similar use cases that we have seen in the US Federal. And then in Q4, our Australia public sector team also did really well, and we had significant platform expansion with some of the large central governments and their agencies, including generative AI. So, it is a pretty good picture. And we see in 2024, besides these nations. When I look at Canada, when I look at Germany and many others, the opportunity remains large, as Bill called it out.

Great. And just as the follow-up on the public sector adopting AI. Can you just give us a little color on what you think the trajectory is there?

The trajectory, so I just want to make sure that you understand, first, is that our Gen AI conversations have started with the government. One of our first logos in Q3 was with a large public sector agency, as I call it. We also had a few wins in Q4 in public sector. And as we go into 2024, across state, local, and federal, across countries, we will continue to see the demand. It's early days. I would say compared to financial services or manufacturing and others. But given our position of our platform and the strength we have with AI, we are definitely going to see in the second half adoption of generative AI.

Great. Thank you so much.

Thank you.

The next question comes from the line of Peter Weed from AllianceBernstein. Peter, the floor is yours.

Thank you and congratulations on the major continued momentum and wins that you are seeing with the latest releases. And I guess building on that, I'd say, prior to this year, for several years, I think there have been some really nice stability in kind of expansion in NRR or customers that I think Gina had and really comforted. But I think this year, there has been some deceleration in that driven by macro. As you look out to 2024, do you see signals that we may be able to see some acceleration where NRR in 2024 might exceed what they kind of dipped to this year or is this kind of like the new normal and kind of from here, things may continue to trend down?

Thank you, Peter, for your question. I believe we are feeling very positive about our expansion rates given our current scale, as well as our growth in new customer acquisitions. As CJ mentioned earlier, our new customer growth, particularly among our larger clients, has been accelerating consistently every year and every quarter over the last several years. At our current scale, both our expansion rates and our net new customer growth remain very strong. You can expect to see a good combination of existing customers increasing their business with us and new customers coming on board. We achieved $8.7 billion in revenue this year and are projected to reach $10.575 billion next year. Given our scale, these expansion rates are among the best in the industry, and we take great pride in that.

We have time for one more question. And that question will come from the line of Brad Sills with Bank of America. Brad, the floor is yours.

Great. Thank you so much. I wanted to ask about the large new logo strength. We just haven't heard from a lot of enterprise applications companies around that this year. It seems like a tough environment to close big transformational new application deals. So, I wanted to ask why now? I know this has been a focus, but any color on where you're at in kind of closing that gap on some of these large global organizations? And then also, what does that mean for your expansion opportunity? Does this give you more line of sight to that given that these are large organizations with big wallets just getting started with ServiceNow? Thank you.

Yes. So, Brad, I will touch on it. Besides the financial services institution, we also saw many large new customer wins in manufacturing, specifically automotive. We also saw in public sector. We got new logos with new agencies and commercial business which is a massive strength for ServiceNow continue to outperform large new logos. And in my initial commentary, I stated that Americas and Europe also had large logo, new growth. So, this is something that Paul Smith and the team focused on starting with the first quarter and continued to build throughout the year. And as I told, Keith Weiss, this is something we are really, really proud of in terms of just our ability to focus on high-quality logos that matter. And even these logos, whether it's in the public sector, manufacturing, financial services, or our commercial segment, it's not that we have maxed out. Even this large financial services, they just bought ITSM and ITOM. When I look at a large automotive, it was just ITSM and ITOM. So, yes, we are starting at a bigger scale, but this specific account will continue to expand for us. And one last thing I'll touch on that some of the big ones who became our customer for the first time, our teams did a beautiful job working with the customer that, hey, once you implement, say, ITSM in the next six to nine months, then they have set aside budget for IT asset management or for security or risk. So, that has been also built in as we go into 2024.

Thank you, CJ. Great to hear.

Thank you, Brad.

Thanks, Brad.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.