Conference Transcript - NOW 2026-09-09

Tyler Radke, Other

Thanks for joining day two of Citi's TMT conference. I'm Tyler Radke, Citi's co-head of U.S. Software. We've got a packed room, probably standing room only at this point, so really excited to kick off the discussion with ServiceNow. We have Gina Mastantuono, the CFO and COO of ServiceNow. Gina, thank you for coming to the City Tech Conference once again. I know we were just catching up. You've been busy on the road meeting with customers, partners, obviously investors as well today. Maybe just give us a sense, what are your conversations like with customers as you're meeting with them? How would you kind of compare the level of enthusiasm, the, you know, all the dynamics that go into their conversations with ServiceNow versus, you know, three months, six months ago?

Gina Mastantuono, CFO

Thanks for the question. Thanks for having me. Love being here back in New York in September. So, number one, conversations with customers are just fantastic. It's one of my favorite parts of the job, as you can imagine. We're so focused on helping customers really drive value in this agentic AI world that we find ourselves in. And so what I'd say is that AI is just top of mind for everyone, right? And what it means for these companies, not only from a productivity perspective, but from a business model innovation perspective. And I think that a lot of people focus right now, and it's not surprising immediately on the productivity and efficiency gains that can come from AI. But even more importantly, sometimes, or certainly as important, is the business model innovation that they can really drive. And how can AI really help them drive not only incredible productivity and inefficiency, but top line growth? But one of the things that has been a huge focus over the last several years, and we got this comment so much from customers when we would ask, like, what's the biggest obstacle to large scale deployment of AI? and uniformly across the board over the last several years, it's all been about security and risk. How do we really make sure that if we scale deploy these assets that we're able to manage them, govern them, and secure them? And so we've been super focused on how do we help customers think about that and how do we help customers solve that problem? One of the reasons why we have had incredible success now with our AI control tower and the ability for our customers to really manage end-to-end across their tech estate, any assets, whether it's an AI asset, whether it's an OT, IT asset, and really manage it, secure it in one spot, in one place. And by the way, this is for any agentic capability, whether it's ServiceNow's agentic platform, or it's a third-party agentic platform, or it's agents that are homegrown. The ability to manage it in one place, end to end, the ability to really govern it, to make sure it's secure, to kill it if it's doing things it's not supposed to be doing. Kill switch is a big top of mind subject today. And then manage it from a cost perspective, right? You hear all of the articles about costs going through the roof been managing that? Well, you can manage it literally in the AI control tower by department, by manager. You can shut it off if they're exceeding. You can override the shutoff if it's valid. You can optimize. Lots of people are looking at how to optimize spend. Do you really need the Rolls-Royce of models to do a task like driving to the 7-Eleven? No. But you might need the Rolls Royce if those agents are building your products, right, that are going to touch your customers every day. And the ability to manage that and optimize that. And then in the same place, AI control tower, the ability to really see the ROI on each and every investment so that you can redeploy and make sure that you're focused on allocating capital that's driving the best return. So all in AI first, how to manage it, how to control it, how to secure it, And really leaning into this conversation on AI Control Tower has just been the number one conversation across the board.

Tyler Radke, Other

Okay. And for investors that may not be as familiar with AI Control Tower, can you just give an overview? How does a customer buy it from ServiceNow? How does that translate into ACV growth for you?

Gina Mastantuono, CFO

Yeah, I mean, it's the same way they buy any other products from us, right? It's an area of focus. it's part of the product portfolio. They usually don't buy it in isolation. It's part of kind of their strategy with AI and how to deploy it. And we talk about really the value capture. And it's an ability for customers to be able to really think about scaled deployment in a secure, governed way that's managed from a cost perspective, that's really enabling insights to ROI. and at the same time delivering incredible value to the organization.

Tyler Radke, Other

Right, right. Got it. And one of the dynamics we've seen kind of on and off within software is just kind of this issue of deal elongation, extended sales cycles. You were one of the first software companies to report and had very strong results. I think we're a bit measured in your outlook. It sort of seems like we've seen a little bit of an attenuation in this SaaSpocalypse concern, you know, at least up until Labor Day. But as you're speaking to customers, like, is there still this sense of hesitation or AI distraction that we had at the beginning of the year? Or is that kind of moved away, especially now that you're obviously leading with a lot of really interesting AI products?

Gina Mastantuono, CFO

Yeah, I think, listen, I think there's been a ton of noise in the market, right? And so what customers six months ago were dealing with was everyone saying the same thing, you know. And it's interesting to be first in the market when we announce, when we do a lot of things, because I was like, oh, that's interesting. And then literally a minute later, you hear the same thing coming out of 20 other folks' mouths, literally word for word. And so there's a lot of noise in the market, or there was a lot of noise. And so how customers can kind of break through that, there was lots of conversation on build versus buy. I think fast forward today, a lot of those conversations are much cleaner, right? I think the build versus buy and the understanding that the large language models aren't going to do it all and can't do it all. We see announcement after announcement of partnership agreements, right, with software providers and the models. ServiceNow has always been very focused on openness. How do we integrate with any launch language model, any hyperscale, any application provider, any data warehouse? So our customers have the choice on how they want to evolve their tech stack. That has always been innate to ServiceNow was and is, I think, helping us in this environment because customers really want to have choice and want to have the ability to, you know, to change their mind sometimes, right? For a long time, folks were like, oh, we're going to go with this model provider because they're the best. Well, very, very quickly, open source is coming up to speed. Very quickly, the models are competing with each other and getting better and better. And so the ability to morph the strategy somewhat, optimize, and then you have ServiceNow that allows you to do that pretty easily and more broadly, I think has been a real differentiator in the space. And at the end of the day, I think there is still noise in the market. You continue to see ServiceNow execute and perform extremely well. We've been very focused in our entire existence on value selling. And I think value today is as important as ever. And so the ability to POC really quickly and show customers how they can get to value very quickly enables you to cut through the noise pretty dramatically. Yeah. Is what we're seeing today.

Tyler Radke, Other

Yeah. And back a few months ago at Knowledge doesn't feel like that long ago, but you announced some new product changes, different SKUs and pricing packages. Can you just talk about that? It's come up a lot in our investor conversations and customer conversations just for folks in the room. What did you announce and kind of what's been the feedback that you're hearing from customers?

Gina Mastantuono, CFO

So we announced some new native AI packaging and pricing. And the real reason for that was, again, very focused on what customers were asking us and what customers wanted from us. And so prior to the native, the AI native pricing and packaging SKUs, in order for you to really get our our incredible AI portfolio, you had to really go to the highest tier, which was our ProPlus SKU, which now we're calling our Prime SKU. So that has the most advanced AI capabilities. And that has not changed. We will continue to put the most advanced capabilities in that family of packaging and pricing. And that pricing didn't change. What did change is that we launched these other tiers. So we have foundation and we have advanced, which allows customers, if you're not ready to really go all in in AI, but you want to get some AI capabilities, and it's about how do we get our customers to value with AI a lot quicker. If they're not ready for full-scale deployment, maybe they want to test the waters with some basic AI functionality. Well, that's our foundation model. And that sees, and then we have an advanced, which is somewhere in the middle. And between foundation and advanced, The pricing uplift expectations were 20% to 30%, with the most advanced prime SKU. Again, that pricing didn't change, and we continue to see about 30% pricing uplifts. So what this enables customers to do is to really pick and choose the bundling of what's most important to them and what capabilities are most important, dependent on where they are in their trajectory. And so what we didn't do that I think was a little confusing to folks, and listen, there's always a little bit of noise when you have some pricing and packaging changes, but what we didn't do is we didn't raise like-for-like pricings on the base standard SKUs. If you don't want any AI, the price did not go up. But we certainly were encouraging customers to expand into our AI functionality, really because we see the value. And the value capture is great, even at a 20% price uplift. And so that's really what we announced. The takeaway has been really great. We have more than 50 customers paying a million plus for these new AI packages. We see continued growth, 45% increase in folks that never bought AI buying AI for us in Q2. And so far, so good. And the pricing uplifts that we expected, we are seeing in actual realized pricing. And so that's basically what we did.

Tyler Radke, Other

Yeah. And I wanted to spend some time on the product side, which is also very, well, is probably the most exciting thing that's going on. I know we don't have Amit here, but take us through some of the, you know, key announcements from knowledge. To me, some of the ones that stood out was this vision for the L1, L2, the port agents, kind of this theme we've been hearing throughout this conference of agentic labor, right? I mean, these are, you talked about 30% uplift. This could be much larger than that. So walk us through the vision on agentifying the ServiceNow workforce and what are customers doing with those agents?

Gina Mastantuono, CFO

Yeah, so it's extremely exciting. And if you think about automating, you know, we have billions of workflows running through the ServiceNow platform every single year. And if you agentify just a small fraction of that, the ability to drive real, real value for customers and obviously a consumption flywheel is fantastic. And so we announced them early, early, early innings, but we're seeing incredible uptake. we have the city of Raleigh was the first municipal government to go live with our L1 IT specialist and immediately and by the way they put it in place with no engineering backbone at all very limited so it went live pretty quickly first touch seeing 98 percent accuracy and driving 65 percent reduction in IT service desk costs and that's one use case with one L1 specialist So real, real value add for the customers. And now what they're doing is they're going one, one ticket desk at a time and they're identifying the whole thing. And so that's one great example of where we really see incredible uptake value for customer. And then the flywheel of that consumption is going to really buy more credits. Exactly. And it kicks in. We have another incredible energy company in Europe working with our FTEs. They looked to automate 500,000 IT service requests a year. That one use case is generating over $5 million in savings. And that was just a proof of concept that we did in 8 to 12 weeks. And so now they're leaning in on us and saying, what more can we do? What other use cases can we tackle with these specialists? And so very early days, but this is the dream of Agentic, right? How do you really automate less touch, more accuracy, driving real value for customers? And the more you automate, the more consumption is required, which means that the flywheel really starts to move. So extremely exciting product offerings. And while very early, very strong uptake so far.

Tyler Radke, Other

Yeah. And just as you look at the customer base, as well as the products that are coming out, how do you think about the timing of when that flywheel really starts to kick in, meaning customers are starting to buy these top-up credits in mass? Is that something that could happen this year? Is it more 27, 28? How do you just think about the timing of that?

Gina Mastantuono, CFO

I think it's important to understand, and I've been trying to educate investors that even the initial subscription is consumption, right? Because you get so much. And by the way, initial subscription in that highest tier was a 30% price uplift. So we gave them a very good amount to be able to really drive innovation and use, but it's all consumption. And what happens is if they don't necessarily top up on the assist packs on top, they renew early, right? And so there's lots of actual consumption happening. What we saw in Q2 that I talked about is the actual usage right so how do you manage the usage was up 9x q2 to q1 so and the last thing i'll just say is that that consumption increase is actually trending um better than initial expectations okay and so you know it's in the number we it's the reason why we were able to increase our billion dollar target to 26 to a billion and a half yeah um we crossed a billion in q2 well on our way to a billion five. And so the flywheel is already taking in.

Tyler Radke, Other

Right. And would you say that increase from a billion to billion five, a lot of that was kind of consumption driven, even either, you know, new customers buying consumption packets included with a subscription or top ups? Absolutely. Yeah. Okay. Sure. Got it. And then I guess as you think about just your long-term targets, right? You basically said you're going to double the company by 2030. And I think the AI ACV will be about 30% of the business by then. How do we get there? What are kind of the things that need to go right? And how do you get maybe above 30%? Like, what are the things that could take that even higher?

Gina Mastantuono, CFO

Surprising. That's like the biggest question I got all day to get from all of the investors. I love it. You put a target out not two months ago and everyone's like, how can you get more than that? Which is fantastic. I love that question. Because by the way, we're asking ourselves that every single day. A couple of things. So two very big assumptions in the $30 to $32 billion model. Number one is on penetration, like customer-based penetration for AI. So the AI startup hacks, the AI native pricing, getting more people even in the base foundational, getting them used to working with AI, seeing the value that the base capabilities are giving you, it's going to drive even more penetration to the higher level skews. But that penetration rate and that number is a big part of the assumptions. What I'll tell you is the assumptions that we put in there but even the 32 billion dollar model um was is more conservative than the penetration that we saw from our base product to our pro product when we first launched our base ai capabilities back in 2018 and so penetration rates arguably should be faster in this world's in 2226. And so far, we're seeing that. But I wasn't getting a whole lot of credit back in May to be super overaggressive. So I wasn't. But that's a big area of focus, penetration. And by the way, that AI native packaging was a very big part of the strategy to really drive that penetration, even though to date, we are ahead of those models. The second big piece is usage, right? How do we get more people using more agentic capabilities driving more of that consumption flywheel? What does that look like in 2030 versus today? We had fairly conservative assumptions in there. Obviously, these L1 specialists are part of that. But if we're able to just identify a fraction more than what's in the conservative model, there's a very clear path to something potentially even higher than the $32 billion. So that's kind of the AI piece of it. And then we talked about security and risk, CRM, data and analytics, all growing in excess of 25% from a CAGR perspective over that time frame. And you'll continue to see us invest there. CRM, we just announced a small acquisition, very small tuck-in of agentic capabilities to easily deploy CRM in new customers. So if you're able to take down implementation time in CRM from, on average, 12 to 18 months to three to six months, well, that drives huge value for customers and is a competitive differentiation. So you'll see us continue to lean in on CRM, security and risk. I talked earlier about, again, customers' perspective on the most important thing to scale deployment of AI being all around security and risk. And so you saw us, you know, do the acquisition of Visa. You saw us do the acquisition of Armis, which closed three weeks before Mythos, right? That should tell you a little something and the ability now for customers to really end-to-end manage AI deployment in a mythos world. And our security and risk business prior to that crossed a billion dollars back in Q3 of last year. And so add on now Armis and VESA and continued organic investment in our security and risk business, that should show you how important not only is AI, but all of those other pieces to the puzzle. But it all comes back to the strategy of being the AI platform for business reinvention across the board.

Tyler Radke, Other

Right. Yeah. So we should probably be approaching two billion here soon with the additions of those.

Gina Mastantuono, CFO

We're a top 10 security vendor, fastest growing top 10 security vendor. And I think that's actually something that's under known. And so that's something that we've been talking about a lot now.

Tyler Radke, Other

Well, yeah, let's dive into that a little bit. I mean, as you think about that scale, the growth rate, but also the product portfolio, obviously, you're not approaching this from a traditional security standpoint, selling firewalls or things like that. But like what, A, what gives you the right to win? Should we expect to see more M&A in this category? And like, yeah, how big of an aspiration is this?

Gina Mastantuono, CFO

Yeah, I mean, I think at the end of the day, it goes back to what's really important and what's top of mind for CEOs, for boards, for CISOs, for CIOs. And it's AI first. And when you talk AI, you cannot talk AI without talking security and risk, right? And so the ability to really end-to-end have a security journey where most vendors are able to detect an alert, but we're able to detect, alert, reason what we should do about it next, and then act on the resolution all end-to-end, right? And so you have, with VESA and Armis, you have the visibility piece, you have the identity and access and privilege controls, and then you have the ServiceNow platform that enables resolution once something is highlighted. And so the ability to do that, the ability to build that security and risk into AI control tower enables AI control tower to be stronger than ever. It's just a continuation of what we believe is the most important thing right now on the minds of any CEO, any CIO, any CISO, any board. And so we're very excited about that, what we've been able to build. I'm super excited that the M&A has gone so well. well, Armis will tell you that CEO, they're closing deals so much faster being under the ServiceNow umbrella than a small private company. And most importantly, the conversation with the CISOs and the CIOs, not only are we selling Armis and Veza, it's pulling the core. And not just the core security and risk products, but ITOM. And our IT portfolio, the core is actually being pulled as a result, which I think is really, really, really strong M&A. Not only is able to drive the incremental revenue of the company you buy, but when it's able to pull the core along with it, it's pretty fantastic. And so that's what we're seeing. We've talked about the fact that we're not looking at large scale M&A. We feel really good about what we've had in this space. We never say never, but the hurdle rates are always high with us, right? You know, we are able to within a year offset any dilution from the acquisition. We are able to integrate the product portfolio within months and driving very strong top line because we're able to really push these incredible products that are very adjacent to what we're talking about with our customers into our strong go to market pretty quickly. Excited about what we've seen so far and as well as what's to come.

Tyler Radke, Other

I think Bill commented that the Armist acquisition was like buying an Instagram at the time.

Gina Mastantuono, CFO

Well, it's interesting, you know, and then mythos happen right after that. And so, again, it goes back to when you really think about any acquisition and you want to drive real shareholder value, it has to start with the customer. You're not going to drive shareholder value if you're not driving customer value. It goes back to what do customers need? What are customers asking us for? And when they literally tell you for two years, security and risk, security and risk in AI world, and we bought some incredible assets, and it's resonating extremely well.

Tyler Radke, Other

Yeah, yeah, great. And I guess you touched on kind of the high-level M&A philosophy, you know, no major transformational deals. tuck-ins, there's some stuff going on in CRM. Like what other focus areas would you say are topical in terms of M&A?

Gina Mastantuono, CFO

Yeah, well, M&A, I was talking specifically, you asked me, around security. More broadly from an M&A perspective, I say our philosophy is unchanged. So first and foremost, we are an organic innovation company, right? That is the DNA of whose service now has been and will be from the founding of Fred. Right. And you will continue to see that. So organic innovation, first and foremost, we're incredible at that. And that will always be primary. You've seen us do tons of small tuck in of talent and capabilities integrated into the platform. You'll continue to see us do that. A tuck in at our scale today probably looks a little bit different than a tuck in three and five years ago. Right. Arguably, VESA and MoveWorks, Tuckins, a little bit larger, but Tuckins. We continue to do share buybacks. Right. So return to capital. We started that a few years back. We did two billion in Q1 alone. We've got four point two billion remaining. So we're super focused on capital allocation across the board. I'd say the one thing that that might be different is that the technology landscape is shifting. so quickly. And the ability to think you can build everything organically and not maybe do a little bit of M&A probably is a little bit different today than in the past. But what isn't different is the high bar that we will always think about. Number one, first and foremost, can we build it ourselves better? Number two, is it accelerating our roadmap and does it really drive something of value to customers. The bar is super high from a financial perspective. Does it really drive customer value? But at the end of the day, the philosophy has not changed. And you'll continue to see us do more of these tuck-ins. You'll continue to see us do more focus on capabilities, but we wouldn't be doing our job if we're not looking at the market. But nothing has changed significantly from how we're thinking about it.

Tyler Radke, Other

Yeah. One of the questions we often get from investors just about software in general, but also ServiceNow specifically, is as we see the AI kind of drivers of these businesses hit mainstream, does that drive an overall revenue acceleration? And I think for you, I mean, clearly you're at a massive scale. Your growth rates pre-AI were best in class for the scale. But if I look at your long-term targets, we don't really see, we kind of see more of a sustained growth versus an acceleration. So is there something, you know, is there some offset to that AI or should we just think about that as being prudent? And obviously you gave those targets in May when we were in a different environment. Or can there be a reasonable scenario where AI does accelerate the top line?

Gina Mastantuono, CFO

I think there's a reasonable assumption that it could. I think that I'd argue you're seeing it already in that most companies at our scale would be would be decelerating at this scale and large. And you're not really seeing that. Right. And so part of that is because AI is offsetting that and accelerating. There is prudence. I talked about there's some real conservative assumptions in the model. And there's definitely the ability to really have AI supercharge the numbers. I think at the end of the day, time will tell what that looks like. But if we really think about the ability to agentify these billions of workflows and really drive that consumption flywheel, there's absolutely upside.

Tyler Radke, Other

Yeah, got it. And Gina, maybe in the last minute or two here, if you are sitting in the seat next year, which we hope you come back and we get nice weather in September too, what are the one or two areas that you want to be able to sit here and say these were the top two things we executed on and got right?

Gina Mastantuono, CFO

Yeah, I mean, listen, we have to get AI right, right? And so the continuous innovation, the ability for these L1 specialists to go more broad and really do more complex workflows, huge area of focus for us. And so we've got to get that right. What I'd say is I think you've seen us execute pretty darn well over the last few years, and we'll continue to do that. The other thing I'd say, really excited about the fact that AI gives us the ability now to really think about the mid-market and SMB in a different way. And so we're going to be announcing in the back half some AI native products to help serve those markets, mid-market and SMB, with a much lighter go-to-market touch required that we're very excited about. And so I think that's something that's super exciting. I can't just pick one or two, though. And then the other couple, I talked about it, continued execution on the M&A that we've done. We've seen such incredible traction with the customers. And how do we continue to execute there and continue to really drive security and risk, data analytics, CRM, the incredible growth trajectory product lines for us? And that's the ballgame. If we can execute all of those in a great way, I think you're absolutely correct that $32 billion is a scratch on the surface of what we can do.

Tyler Radke, Other

Awesome. Well, we'll look forward to asking you why $40 billion next year is doing that. Gina, thanks so much. Appreciate it. Thanks, everyone, for joining us at Packed House. Thanks.