servicenow inc (now) earnings report: q3 2015 conference ... · welcome to the servicenow q4 2015...

CompanyName:ServiceNowIncCompanyTicker:NOWSector:T echnologyIndustry:ComputerSof tware&Services

EventDescription:Q32015EarningsCallMarketCapasofEventDate:12.40BPriceasofEventDate:62.415

©2014TheStreet,Inc.Al l R ightsReserved Page1of22

ServicenowInc(NOW)EarningsReport:Q32015ConferenceCallTranscriptThefollowingServicenowIncconferencecalltookplaceonJanuary27,2016,05:00PMET.Thisisatranscriptofthatearningscall:

CompanyPart icipants

MichaelScarpelli;ServiceNowInc.;CFOFrankSlootman;ServiceNowInc.;President&CEO

OtherPart icipants

MichaelTurits;RaymondJames&AssociatesInc.;AnalystBrentThill;UBS;AnalystKeithWeiss;MorganStanley;AnalystMattHedberg;RBCCapitalMarkets;AnalystWalterPritchard;Citigroup;AnalystTedLin;EvercoreISI;AnalystAlexZukin;Stephens;AnalystUnidentifiedParticipant;MizuhoSecurities;AnalystRaimoLenschow;BarclaysCapital;AnalystKarlKierstead;DeutscheBank;AnalystRobOwens;PacificCrestSecurities;AnalystGregMcDowell;JMPSecurities;AnalystJustinFurby;WilliamBlair&Company;AnalystJesseHulsing;GoldmanSachs;AnalystSteveAshley;RobertW.Baird&Co.;AnalystKashRangan;BankofAmericaMerrillLynch;AnalystDerrickWood;SusquehannaFinancialGroup/SIG;AnalystPhilWinslow;CreditSuisse;Analyst

MANAGEMENTDISCUSSIONSECTION

Operator :

WelcometotheServiceNowQ42015earningsconferencecall.

(OperatorInstructions)

Asareminder,thisconferenceisbeingrecordedforreplaypurposes.

Iwouldnowliketoturntheconferenceovertoyourhostfortoday,Mr.MichaelScarpelli,ChiefFinancialOfficer.Pleaseproceed.

MichaelScarpelli(CFO):

Goodafternoon.Thankyouforjoiningus.

OnthecallwithmetodayisFrankSlootman,ourChiefExecutiveOfficer.Ourpressrelease,ourquarterlyIRdeckandthesimultaneousbroadcastofthiscallcanbeaccessedatinvestors.servicenow.com.




Wemaymakeforward-lookingstatementsonthisconferencecallsuchasthoseusingthewordsmay,will,expects,believes,pipeline,prospects,forecast,vision,addressablemarketorsimilarphrasestoconveythatinformationisnothistoricalfact.Thesestatementsaresubjecttorisks,uncertaintiesandassumptions.

PleaserefertothepressreleaseandriskfactorsindocumentsfiledwiththeSecuritiesandExchangeCommission,includingourmostrecentquarterlyreportonForm10-QandourannualreportonForm10-Kforinformationonrisksanduncertaintiesthatmaycauseactualresultstodiffermateriallyfromthosesetforthinsuchstatements.

IwouldnowliketoturnthecallovertoFrank.

FrankSlootman (President&CEO):

Thanks,Mike.Goodafternoon,andthankyouforjoiningusontoday'scall.WiththecloseofFY15,ServiceNowbecamethesecondenterpriseSaaScompanyinhistorytoreportmorethan$1billioninannualrevenue.

Thismilestonewasdrivenbysolidexecutionacrosstheboard.Totalrevenuesforthefourthquartergrew44%year-on-yearto$286million,andwecontinuetoseestrongdemandfromourcustomerbasewitha99%renewalrateanda39%up-sellrate.ThefourthquartersetarecordfornetnewACV.Wenowhave230customerswithACVinexcessof$1million,anetincreaseof24.Additionally,wehave638Global2000customers,anetincreaseof26.

NewGlobal2000logosincludeMichelinandtheHersheyCompany.OuraverageACVperGlobal2000customerwas$868,000,a6%sequentialincrease.Atthebeginningof2015,werestructuredoursalesefforttoincreasefocusonthecommercialmarket.

Asaresult,wegrewourcommercialbusiness48%inthequarter.Inadditiontorobustgrowth,thecommercialsalesteamalsobookedmultipletransactionsinexcessof$1millionthroughouttheyear.Ourtotaladdressablemarketcontinuestoexpandandisnowestimatedat$60billion.

WithourlatestsoftwarereleaseinDecember,knownasGeneva,welaunchedtwomajornewservicesthatexpandourscopeintheservicemanagementmarket,customerserviceandsecurityoperations,addingmorethananestimated$13billiontoouraddressablemarket.Ourcustomerserviceofferingprovidesaholisticapproachthatintegratescustomerengagementwiththeunderlyingengineeringandoperationalprocesses.

WealreadysignedfivedealsforcustomerserviceincludingFiserv,aleadingglobalprovideroffinancialservicestechnology.Inaddition,wesignedfourcustomersforsecurityoperations,includingRaymondJamesFinancial,aleadingdiversifiedfinancialservicescompany.Thisnewofferingconnectssecurityeventsformarket-leadingtechnologieswithouradvancedworkflowcapabilities.

AkeyvaluepropositionistheinstitutionofasharedworkflowbetweenITandsecurityteams.Ourfocusisnotonthetechteam,butonprocessingsecurityincidentsinahighlystructured,expedientandtransparentfashion.Thishasbeensorelymissinginthebattleforcybersecurity.

In2016ourfocusonhelpingcustomerstransformtheirbusinessesusingaservice-centricapproachisintensifying.Inthisvision,everythingbecomesdefinedandoperatedasaserviceandeveryenterprisewillincreasinglymanifestitselfasasoftwarecloud.Tohelpcustomersachievethisoutcome,westoodupontheleadconsultingteamtomapouttheirjourney.

Thisnewteam,whichwecallInspire,iscurrentlyworkingwithalargecustomertodevelopalong-termstrategyaroundtheIndustrialInternetofThings.Thiscustomerplanstorolloutarangeofinternaland




externalphasingcloudservicesthatwillmorethantripletheirsegmentrevenueby2020.Thisisanexistingcustomer,butthisnewengagementchangedthescopeofanoperationaldiscussiontoastrategicone.

Anothercustomerwasinthemidstofacorporatetransformationalongwiththeintegrationofamajoracquisition.InsteadoffocusingonjustonanITSMripandreplace,theInspireteamshowedthemhowITcouldsupportthecompany'slong-termtransformation.Asaresult,weworkedalongsidethecustomerstakeholderstobuildthestrategy,roadmap,andarchitectureforITandanewbusinessprocessservicecenter.Thatroadmapwillhaveusreplacesevensystemsintotal,startingwithITandmovingthroughoutthebusiness.Finally,IlookforwardtoseeingyouallattheKnowledge16theweekofMay16,inLasVegasatMandalayBay.

Withthat,IwillnowturnthecallbackovertoMike.


Thankyou,Frank.Duringtoday'scallwewillreviewourfourthquarterfinancialresultsanddiscussourfinancialguidanceforQ1andfullyear2016.

Wewouldliketopointoutthatthecompanyreportsnon-GAAPresultsinadditionto,andnotasasubstitutefororsuperiorto,financialmeasurescalculatedinaccordancewithGAAP.Allfinancialfigureswewilldiscusstodayarenon-GAAPunlessstatedotherwise.Toseethereconciliationbetweenthesenon-GAAPandGAAPresults,pleaserefertoourpressreleasefiledearliertodayandforpriorquarterspreviouslyfiledpressreleases,allofwhicharepostedatinvestors.servicenow.com.

Ourtotalrevenuesforthefourthquarterwere$286million,increasing44%year-over-yearand51%inconstantcurrency,anegativeimpactof$13million.Ouraveragecontracttermsfornewcustomers,upsellsandrenewalswere31.9,26.1and23.8monthsrespectively.

Totalrevenuesbasedongeographywere$199millioninNorthAmerica,$67millioninEMEAand$20millioninAsiaPacificandotherrepresenting70%,23%and7%oftotalrevenuesrespectively.Ourcalculatedbillingswere$366millioninthequarter,increasing33%year-over-yearand39%inconstantcurrency,anegativeimpactof$16million.Ourweighted-averagesubscriptionbillingstermwas11.9monthsforthequarter,comparedto11.8monthsintheprioryear.

Combinedbackloganddeferredrevenueattheendof2015wasapproximately$1.9billion,increasing35%year-over-yearand40%inconstantcurrency,anegativeimpactof$65million.Subscriptiongrossmargininthequarterwas83%comparedto80%intheprioryear.Professionalservicesandothergrossmarginwas15%comparedto16%intheprioryear.

Overallgrossmarginwas74%comparedto70%intheprioryear.Operatingmarginwas14%comparedto6%intheprioryear.Weendedthequarterwith3,686totalemployees,anetincreaseof284inthequarterand860intheyear.

Netincomeforthefourthquarterwas$33millionor$0.20perbasicand$0.19perdilutedsharecomparedtonetincomeof$5millionor$0.03perbasicanddilutedshareintheprioryear.Ourbasicweightedaveragesharesoutstandingwas160million,andourdilutedweightedaveragesharesoutstandingwas171million.

Duringthefourthquarterwegenerated$105millionincashflowfromoperations,andweused$25millionforcapitalexpenditures,resultingin$80millioninfreecashflow.Thiscomparesto$39millionoffreecashflowintheprioryear.Weendedthequarterwith$1.2billionincash,shorttermandlongterminvestments.




Let'sturntoguidanceforthefirstquarterandfullyear2016basedonFXratesasoftheendofQ4.Forthefirst-quarterof2016weexpecttotalrevenuesbetween$298millionand$303million,representingyear-over-yeargrowthbetween41%and43%andbetween42%and44%inconstantcurrency,anegativeimpactof$2million.

Weexpectsubscriptionrevenuesbetween$261millionand$265millionandprofessionalservicesandotherrevenuesbetween$37millionand$38million.Asareminder,weareincreasinglyfocusedondeployingourinternalprofessionalservicesorganizationasastrategicresourceandrelyingonourpartnerecosystemforservicedelivery.Weexpectbillingsbetween$360millionand$365million,representingyear-over-yeargrowthbetween34%and36%andbetween36%and38%inconstantcurrency,anegativeimpactof$3million.

Weexpectsubscriptiongrossmarginofapproximately83%,professionalservicesandothergrossmarginofapproximately9%,andoverallgrossmarginofapproximately73%.Weexpectanoperatingmarginandfreecashflowmarginofapproximately5%and21%respectively.Weexpectdilutedweightedaveragesharesoutstandingtobeapproximately173million.

Thefull-year2016,weexpecttotalrevenuesbetween$1.34billionand$1.37billion,representingyear-over-yeargrowthbetween33%and36%andbetween34%and37%inconstantcurrency,anegativeimpactof$6million.Weexpectsubscriptionrevenuesbetween$1.18billionand$1.2billionandprofessionalservicesandotherrevenuesbetween$160millionand$170million.Weexpectbillingsofapproximately$1.6billion,representingyear-over-yeargrowthofapproximately33%and34%inconstantcurrency,anegativeimpactof$7million.

Weexpectanoperatingmarginandfreecashflowmarginofapproximately12%and24%respectively.Weexpectdilutedweightedaveragesharesoutstandingtobe177millionfortheyear,andweexpecttoaddapproximately1,000netemployeesin2016.Asareminder,ourfinancialforecastsincludeanticipatedattorneysfeesandexpensesforoutstandinglitigationswithBMCandHPEnterprises,butnotanyforecastrelatedtotheiroutcomes.

ThetrialsarecurrentlyscheduledforMarch2016andMay2017respectively.Beforeclosing,pleasenoteourFinancialAnalystDaywillbeheldinconjunctionwithKnowledge16onMonday,May16,inLasVegasatMandalayBay.Aftertheevent,wewillopenupourPartnerExpoHallearlytoFinancialAnalystDayattendees,givingthemanopportunitytoseeandspeakwithmorethan100ServiceNowpartners.In-personattendancewillbelimited,soifinterested,[email protected].

Forthosewhocannotjoininperson,wewillholdawebcastoftheeventaccessibleonourIRwebsite.

Withthat,Operator,youcannowopenupthelineforquestions.

QUESTIONS&ANSWERS

Operator :

(OperatorInstructions)

MichaelTurits,RaymondJames.

MichaelT urits (Analyst-RaymondJames&AssociatesInc.):

Verystrongmargins,butalittlelightrelativetothebillingsguidegrantedwithalittlebitmoreFXheadwind.Anythingthathappenedsimilartolastyearintermsofrestructuringaroundthesalesforce?

AndthenIhaveafollow-upquestion,justahousekeepingquestion.





Michael,thisisFrank.Wedon'thaveanyrestructuringsplannedforthisyearsotherealignmentthatyousawlastyearonthecommercialorganization,whichbythewaywehighlightedinourpreparedremarks,hasreallyworkedoutexcellentforourbusiness.Wearenotplanningondoinganythinglikethatcominginto2016.


Andthen,Mike,anythingfurtheronthatrelativetothebillingsatthelowendoftheguide,grantedalittlebitmoreFXheadwind?


Well,there'sanumberofthingsgointobilling,thatarebothpositiveandnegative,whenyou'redoingtheforecasting.ButIwillsaythattherewasanerrorinourforecasting.Andifthaterrordidnotoccur,wewould'veended,wewouldhavelandedwithinthemidpointofourrange.


Okay.AndthenIjusthaveahousekeepingquestion.Canyouletusknowwhatyourexpectationsareforthenon-GAAPtaxratefor1Q2016and2016?ForQ1andallof2016weareanticipatingthatit'sgoingtobesomewherearound35%.Okay.Thanksverymuch.

Operator :

BrentThill,UBS.

BrentT hill(Analyst-UBS):

Thanks.Mike,justnottodwellonthebilling,butjustrelatedtotheerrorthatyoujustmentioned,whatwasthat?Andalsocanyoujusttalkalittlebitabouthowyou'refactoringinthemacroconditionforhowyoulookatthebillingsguide?

Ithinkeverythingisobviouslyobsessedwiththatmetric.Wasthereanymoreconservativeviewthatyouputintothatorareyounotseeingthemacroatallshowupinthepipelineintermsoftheforecastthatyougavetothestreet?


Theerrorhadtodowithlookingatthesystemforwhatwasourrenewalopportunitythatwehad,anditwasclearlyanerrorthatwecapturedandidentifiedonDecember15.Soonceagain,ifwehadknownthatwewould'veguidedlowerandwewould'veendedwithinthemidpointofthat,oftheguidancewewould'vegiven.AndIwilljustsay,ourguidanceisbaseduponwhereweseethebusinessfor2016rightnow,andwe'recomfortablewiththeguidancewearegiving.


Okay,sonoextramacrocushionthatyou'vefactoredin?


ThisisFrank,Brent.We'renotreallyseeinganymacroeffectyet.We'resuchasecularbusiness.Wehavenotreallyfeltanyeffectsuptothispoint,norcanweseeitsortofdowntheroadthatisaffectingourbusinesssothat'snotinourguidance.





Okay,justoneclarification.Salesheadcountaccrued,totalheadcountinthislastyear,doyouanticipateyour1,000netaddsandwillthegrowthrateinsaleshiringout,continuedtooutpacetherestoftheheadcount?


Yes.Soweaddedroughly405peopleintothesalesandmarketingorganizationinallof2015.Andweexpectin2016we'regoingtoaddaboutthatsameabsolutenumbergiveortake,dependingonthequalityofpeoplewefind.


Greatthanksfortheclarification.

Operator :

KeithWeiss,MorganStanley.

KeithWeiss (Analyst-MorganStanley):

Thankyoufortakingthequestion.Twoquestions,oneonthetoplineandoneonthebottomline.Onthetopline,ifwelookatyourguidanceforthefullyear,particularlythebillingguidance,youguyshaveaverygoodsustainabilityofgrowththroughoutthefullyear,statingmid-tolow-30sthroughoutthefullyear.Whichisn'ttoomuchdifferentwhatyouhavedoneinthemostrecentquarteronaconstantcurrencybasis.

Whatgivesyouconfidenceinthesustainabilityofthatgrowth?Whatyouseeinginyourpipelineintermsoftheopportunitythatcouldhelpsustainthathighlevelgrowthdespitethefactyouguysarecomingtoaprettybigscaledyearatoverat$1billion.Andthenonthebottomline,reallynicefreecashflowsthisquarter.

Anythingonetimeinnatureoranythingweshouldkeepinmindintermsofforecastingcashflowsonagoingforwardbasisthatmightneedtobecaughtupatsomepoint?Ordoyouthinkthesesortofcashflowmarginimprovementsaredurableonagoforwardbasis?


So,Iwillanswerthecashflowfirst,Keith.Youaregoingtogetsomevariabilityincashflowonaquarter-to-quarterbasisandthetwoquarterswherewearegoingtogenerallyhaveourlowercashflowisgoingtobeQ1andQ2andalotofthathastodo--orQ1andQ3,andthathastodowithourESPPplanandthewaythat,thatgetsfunded.

Youcanseethatonthecashflowstatement.But,wefeelprettygoodaboutshowingsomemoreleverageinourcashflowthisyearandhencewhywe'reguidingto24%forthefullyear.

There'snothingbigthat'sgoingtohappenthere.CapEx,asapercentofrevenue,isgoingtobesomewhereinthe,slightlydownfromlastyear,Ithinkweareabout9.5%,9.4%in2015.I'mexpectingit'sgoingtobesomewherearound8%,8.5%in2016.

Andthenintermsofyourotherquestion,intermsofwhatwe'reseeinginourpipeline,IwillletFranktalkaboutwhatgivesustheconfidencethere.





Theconfidence,thisisFrank,theconfidencecomesfromthefactthatwenowhavequiteafewyearsofoperatinghistoryunderourbelts,sowehaveseen,thosepatternsareverypersistentintermsofthewayourrenewalsareworking,thewayourupsellsareworking,thewaywelandnewlogos,ouraveragedealsizes,thewholecohortanalysis.Whenyoutakeallofthatintoaccount,wereallyhavequitestrongvisibilityandhowthebusinessplaysoutfromonequartertothenext,andit'sanicethingaboutaSaaSbusinesswehavealsobigbacklogsinthefirst.It'sreallyrocksolidthatway.

Wereallydon'tdependononequarteroranotherbeinganoutliereithertothepositiveorthenegative.Soit'sreallyafunctionofourhistoryinthebusinessandthepersistenceofthepatternsthatwe'vebeenabletoobserve.

KeithWeiss (Analyst-MorganStanley):

Excellent.Thankyouguys.

Operator :

MattHedberg,RBCCapitalMarkets.

MattHedberg (Analyst-RBCCapitalMarkets):

Thanks,guys.IguessIamwonderingintoyear-end,Iknowthere'salwayssomedealsthatmoveinandoutofthequarter,butwasthereanythingabnormal,guys,thisquarterintermsoflargedealsthatmayhaveslippedinto2016?


There'salwaysdealsthatslipfromonequartertotheother.Likewise,youarealwayspullingdealsin.Iwillsay,likemostQ4s,itwasaverybackendloadedquarter.ButasFrankmentioned,wehadrecordnetnewACVinQ4andwe'reverypleasedwithwhatwesaw.


Okay.Andthenintermsofthefull-yearguide.Servicesrevenue,Ithink,wasabout$30millionlightofconsensusinournumberandobviouslyyou'rehavingsomesuccessthisquarter.IsthatacceleratingtotheSIchannelsandisthatsomethingweshouldsortofcontinuetobakeintoourmodellongerterm?


Yes,it'sdefinitelysomethingyoushouldbakeintoyourmodel.Aswe'vebeensayingforawhile,theSIsarebecomingmoreimportanttousfordoingservicedelivery,andwedon'twanttobeseenascompetingwiththeSIs.AsImentioned,we'retryingtomakeourowninternalPSresourceskindofmorestrategicandwewouldlikethe,kindofthebasicimplementationworktobedonemoreandmorebyourpartners.

And,hey,that'swhytheguyslikeCSCboughtFruitionandAccentureboughtCloudSherpas.Andwe'regoingtoletthoseguyscontinuetogrowtheirbusinesses.We'remoreinterestedinthelongtermsubscriptionrevenuefromourcustomers.

Wejustneedtomakesurethatourpartnersaredoingagoodjobofstandingupourcustomersandwe'regoingtoreallyfocusonthat.


Maybejustaquickfollowuptothatthen.WiththisoffloadingtoSIs,isthereanecdotalevidencethat




yourseeinganaccelerationtheninthatSIbusinessduetoCloudSherpaorFruitionorthingsofthatnature?


Yes,thisisFrank.Thereisanacceleration.OurSIbusinessusedtobeopportunisticinthattherewere,whentheopportunitiespresenteditself,theywouldbidontheseopportunities,butit'sdifferentnow.Becausetheseorganizations,theyhaveboughtcompanies,theyhavemadeinvestmentsandtheynowhaverealplansaroundtheServiceNowbusinessandthey'redrivingittotarget.Sotheyaremuchmoredisciplined,muchmoremethodical,muchmoregoaldriveninthewaytheygoaboutpursuingtheServiceNowbusiness.Andthat'svery,verydifferentfromthewayitwasinyearspast.

AsMikesaid,wereallywanttomakeroomforthem,makesurethatweenablethem,theyalsoplayastrategicrolewithourcustomers.Andthat'sreallyimportant.WewantourcustomerstohavereallyabroadvarietyofchoicesandoftentimeswepartnerwiththeseSIsaswell.Inotherwords,wewillsubthemorsometimestheysubus.Soit'saverycollaborativerelationshipthatwehavewiththem,withourcustomers.


Thanks,guys.

Operator :

WalterPritchard,Citi.

WalterPritchard (Analyst-Citigroup):

Mike,Ijustwantedtodiveintothequestion,orthestatementyoumadeinthereleaseandyoujustmentionedonnewACVbeingatrecordlevels,whichIguesswe'dexpectgivenit'saQ4andyou'reagrowingcompany.Iamwondering,ifIlookatdeferredcommissionsonthatcashflowstatement,itlookslikethecashimpactofthatwasroughlyflattishyear-over-yearandyourbillings,Ithinkwetalkedabout,forecasting,butyourbillingsdefinitelybenefitedfromthe99%renewalrate,whichIthinkisanall-timehighforyourcompany.SojustwonderinghowwekindofquantifythenewACV,anditgrew,butdiditgrowattheratesithadgrownearlierintheyearbecauseitseemslikemaybeitsloweddownabitrightthere?


Well,Iguessthefirstthing,Walter,iswedon'tdisclosetheactualnetnewACVbutyoucanseeinlookingatourdeferredrevenueandbacklogthatwejustsigned,youcanseethegrossincreaseinbacklogindeferredrevenue.Anddoingaapples-to-applescomparisonof2014,deferredcommissionsto2016isnotan--or2015,isnotanapples-to-applesbecausethe2015compplanwasnotnearlyasrichasthe2014compplan.

Iwillsayinourguidancegoingforwardfor2016,we'remakingourcompplanalittlebitrichernextyear.Andthatitalldepends,Iwouldsayin2014wehadalotmore,wehadalotofrepswhoreally,reallyblewtheirnumberawaywithacceleration.

Thisyearwehadguidancetoacceleration,buttheyweren'tblowingthenumbersawayasmuchinacceleration.Soyoudidn'thaveasmuch,asbigacommissionpaymentsbeingpaidout,butnetnetornetnewACVwasupquitenicelyyear-over-yearquarter.





Gotit.AndjustaquickclarificationonwhatMattaskedontheimpactofservices.Iguessifwelookatthedeltabetweenwhereyouguidedpro-servrevenueandwherewewereat,Iamwondering,isthedelta,theimpactonthelowerpro-servtopro-servbillingthesame?Inotherwords,theimpactthat,that$1.6billionnumber,justtryingtogetasenseastohowtheservicesmayhaveimpactedthatnumber.


Well,theservicesis,prettymuchanyservicesrevenuethatisrecognizedflowsthroughimmediatelyintobilling.Thereisnothingupfrontwiththat.


Okay,(inaudible).


Yes.


Thankyou.

Operator :

KirkMaterne,EvercoreISI.

T edLin (Analyst-EvercoreISI):

Hi,thisisactuallyTedLinonbehalfofKirk.Justwantedtoask,canyouguystalkaboutwhetheryousawanyextensionofdealcyclesorifyousawtheinitialsizeofdealschangeoverthecourseofthequarter?


No,reallydidn'tseeanythingdifferentintermsofdealcycleanddealsizeswasprettyconsistentfromwhatwe'veseeninthepast.Wehadabout10dealsthatwerenorthof$1millionandthat'sbeenprettyconsistentinthatrange.


Okaythanks.Justaquickfollowup.Canyoutalkaboutanysortofmomentumtrendsthatyouaresayingwithrespecttoyourappstore?


ThisisFrank.Thatcontinuestogrowquitenicelyquarter-to-quarter.Idon'thavethenumbersrightoffthetopofmyhead.Butthenumberofappsthathavebeencontributedtothestore,numberofdownloads,allthosemetrics,theymovesequentiallyquiteabit.SoIthinkthere'sabout140,150applicationsuponthestorenow.Andit'sgoingtobequiteactive.Sogoodprogresstheresinceweintroduceditinthesummer.


Great,thankyou.

Operator :

AlexZukin,Stephens.




AlexZukin (Analyst-Stephens):

Hey,guys,thanksfortakingmyquestion.Justtwoquickones.MaybeoneforMikefirst.

Wasthereanythingthatyouweredisappointedbyinthequarter?IfIlookatthenetnewcustomeraddsin4Qversus3Q,theyweredownalittlebit,176to174.IfIlookattheGlobal2000adds,theywerealsodownsequentiallyalittlebit.Andobviouslydeferredrevenuesequentially,thegrowthwasalittleweakerthanthelasttwoyears,isthereanythingatallthatyouweredisappointedbyoutsideofkindoftheerroraroundbillingsguidance?


ReallyjusttheerrorinthebillingsandItakefullresponsibilityforthat.


Okaygotit.Andthen,Frank,maybejustaquestionaboutproduct.One,we'veheardalotaboutverticalizationintheindustry,particularlyfromSalesforcemostly,butasyoulookattheglobalSIchannelandhowimportantcertainverticalsareforyouguys,canyoutalkatallaboutthestrategyaroundverticalization?Eitherfromaproductperspectivefromago-to-marketperspectivein2016?


Yes,soyouarecorrectthattheSIsofcoursehaveaverystrongverticalizedgo-to-marketmotion.Wehavenothadthat.Thechangesthatweintroducedduring2015isthatwewenttoabusinessunitstructure.ImeanServiceNowusedtobesingle-product,single-market,mostlysingle-channeltypecompany.Lastyearthatallchanged.

Wehavebrokenourwholeorganizationintobusinessunits.Theyarenotverticalized,weareorganizedbyproduct.Andwe'veseentheeffectsofthatquitedramaticallybecausetheemergentproductshavetakenoffvery,verystronglyovertheyear.

Thebusinessmixischangingvery,veryrapidlyforServiceNowbecausethesenewproductsaretakingoffwithalotofmomentumandthatisinpartbecauseoftheorganizationalstructureandtheresourcesthatarebehindthat.Sowe'reexecutinginthatmoderightnow.

I'mcertainlynotexcludingthepossibilitythatwewillhaveaverticalvectortoourgo-to-marketmotionaswell,butwe'restillinthemiddleofgoingthroughthetransitiontoproductwhichisworkingoutreally,reallywellforus,really,reallyhappywiththeprogresswemadein2015becausethatwasreallyabigtransitionforthecompanytoexecuteinthatmode.

Ididtalkaboutcustomerservice.That'scertainlysomethingthatinitiallyisgoingtogetreallyfocusedontechnology-typebusinessesbecausewehavevery,verystrongfitwiththeproductthere.Butintheforumsoftime,Ithinkthatwilltakeonaverticalfocusaswellbecausethatbusinessisverydifferentfromoneverticaltothenext.


Gotit.Andthenmaybeoncompetition,asyougo,asyoulookat,asyoulaunchcustomerserviceandtheadjacenciesbetweenyouandSalesforcegrow,howoftendoyouseeSalesforceindeals?What'sthatcompetitiveaframeworklooklike,goingforward?


Well,weseeSalesforceinanumberofplaces.Obviously,wefeelwe'vehadsortofabordersskirmish




aroundaproductthattheycallRemedyforce,whichisreallyaproductbyBMCthatSalesforcealsomarketsthat'sbasedontheForceplatform.ThatisnotbeenabigcompetitivefactorbetweenusandSalesforce.Wherewehaveseenthemmoreisinplatformopportunitieswherecustomersarestandingupcustomapplicationsandthey'retryingtofigureoutwhetherthey'regoingtodoitonForceoraretheyaregoingtodoitonServiceNow.

WhatIwilltellyouis,thatwithourentryintocustomerservicemanagement,that'saheadoncollisionwithServiceCloud.AndIsaidinthepreparedremarkswehavedonefiveorsixmajortransactionsalready,andmostofthemwerecontentiouswithSalesforceandthere'snohidingfromthatreality.Soit'sgoingtobecomemoreintensebetweenusandSalesforceaswegetfurtherinto2016.


Gotit.Thanks,guys.

Operator :

AbheyLamba,MizuhoSecurities.

Unidentif iedPart icipant (Analyst-MizuhoSecurities):

Thanks,thisisParthastandinginforAbhey.AreyouseeingcustomersimplementtheGenevareleaseforanynewusedcases?And,anycoloronthepossibleeffectsofthereleaseonACVswouldbeveryhelpfulthanks.


Well,GenevajustcameoutandDecember,soallnewprojectswillbe,thathavegonelivesincethattime,they'regoinglive,hopefullymostofthemwillbeonGeneva.Typicallyourcustomerbaseshiftsgearsquiterapidlyandfrom,intermsofnewapplicationsandGeneva,thetwothatImentioned,securitymanagementthereisahugeamountofinterestinthatnewproductbecauseit'ssuchano-brainertolayerthatontotheplatformstrategythatourcustomershavewithServiceNow.

Andthentheotheronethatisalittlebitfurtherafieldpositioning-wise,aroundcustomerservice.Andwewerequitesortofsurprisedhowrapidlythattookoffaswellbecausethat'sadifferentsalesmotionforustraditionallythensellingtoacoreIT.ButIThasalwaysbeenaconduitandsomethingthatwecanleverageverystronglytogetintothesenewusecases.Butwehaveveryhighexpectationstocontinueonsellingalotofoperationsmanagementsoftwareapplications.

Thiswasverystrongin2015andwillbeverystrongin2016,andwehavegreatexpectationsofthesenewserviceswithGenevain2016aswell.WejusthadourglobalsaleskickoffinOrlandolastweekandtheywereintroducedtooursalesorganizationforthefirsttime.Sothereisalotofenergybrewingbehindthoseinitiatives.

Unidentif iedPart icipant (Analyst-MizuhoSecurities):

Great.Thanks.

Operator :

RaimoLenschow,Barclays.

RaimoLenschow(Analyst-BarclaysCapital):

Thanksfortakingmyquestion.Twoquickquestions.Frank,youtalkedaboutITalsoinyourlastanswer,




canyoutalkalittlebitabouthowdoyouseethatevolvingin2016withGenevaintermsofhowmeaningfulwillthatbeforyouguys?Isitjustafirstforay,firststepforcustomerstogointhereordoyouthinkthat'sgoingtobealreadymeaningfulandthenIhaveonefollowupforMike.


Well,IToperationsmanagement,andIthinklastyearitwentfrom10%to12%ofourbusiness,andit'snoteasytodotogrowyourshareofthepie,consideringthatthewholepieisstillgrowingatablisteringrateaswell.IToperationsmanagementisanidealadd-onopportunityforoursalesorganization.It'sjustanaturalleverageofthecoreplatform.

Weareonly,forexamplewithServiceWatch,whichisaproductthatweacquiredaboutayearandahalfago,wejustgotdownintheGenevareleasewithcompletelyre-platformingthatacquisition.Thatmeansthatitrunsonourclouds,it'sre-implementedinourplatform,ourUIframework.Itisacompletelynativeservicenow,thatyoucan'treallytellthatitwasacquiredorthatithasoriginsfromanothercompany.

Weonlyhavepenetrated5%ofourcustomerswithourproductsofar.Andit'saredhotproduct,sothere'sanenormousupsideforustonottosellthatbutitleverageseverythingelse.It'susedbyoursecurityproduct.It'susedineventmanagementapplications.Sooperationsmanagementis--thereisanenormousamountofrunwayforusthere,andwe'regoingtobebuildingotherassetsandpotentialacquiringassetsinthatareaaswell.


Okay,perfect.Interesting.AndthenaquestionforMike.Mike,ifyoukeepthehiringonsalesandmarketingconstant,inawaythatkindofmeansis,unlesssalesproductivityfortheexistentguyskeepsgoinghigher,thatbasicallymeansyouhaveaglidepathgoingdown.

What'stheputsandtakesonyourplanfor2016tokindofsay,orkeepitconstant,becauseit'sdifficulttofindnewpeopleversusIneedtoincreasethisifIwanttokeepthegrowthratehigherforlonger.Thanks.


Thedrivingfactorbehindaddingroughly400pluspeopleintooursalesandmarketingorganizationin2016is,westilltrulydobelievewe'remoremarketconstrained,orImeandistributionconstrainedthanthemarkets.There'salotofmarkets,especiallyinAsiaPacific,wherewe'rejuststartingtogointoChinaandsomeoftheotheremergingmarketsintheworld.AndSouthAmerica,weactuallyhadaverygoodquarterinSouthAmericalastquarter,andwehavehighhopes.

Rememberthisisalongsalescycle.Soit'sgoingtotakeayearwhenwehirethesepeopletoreallyseewereweabletogetthesepeopleproductive.Andbasedupontheopportunitywesee,wethinkthat'stherightnumbertocontinuetoaddpeopleatthatpace.


Yes.Sotheaccelerationcanonlylikealotoftheseareingreenfieldmarketswehavetokindofseethemarketandgrowthemarketandthenyoucoulddosomethingmoreisthatthewayweshouldthinkaboutit?


Well,that'spartofit,butrememberweareaswellcontinuingtosplitterritoriesinNorthAmericaandEMEAbecausewe'renotsaturatedwithsalespeople.Listen,westilldon'tevenhave50%oftheGlobal2000inNorthAmerica.There'salotofthosethatstillaren'tuncoveredyet.Weneedtohavemore




people.


Okay.Perfect.Thankyou.

Operator :

KarlKierstead,DeutscheBank.

KarlKierstead (Analyst-DeutscheBank):

Thanks.OneforMike,oneforFrank.Mike,justtobeclear,andIthinkit'saquestionthatWalterwastryingtodriveatalittlebitearlier,ifyoulookatyourbillingsguidancefor2016of33%to34%inconstantcurrency,isthereanywayforyoutosortofquantifywhattheslowergrowthinservicesandnarrowingyourservicesfocusishavingonthatconstantcurrencygrowth?Andifyouwouldencouragethestreetasaresulttofocusalittlebitmoreonsubscriptionbillings?

AndthenforFrank,Iwilljustthrowitinnow.InvestorinterestinAWS,Azureandthepubliccloudshiftisveryhigh.It'sprobablyveryearlyforyouguys,butI'mcurious,amongServiceNow'scustomersthataremakingthatjourney,haveyouseenanyimpactandarethereanyITOMorothertoolsthatcouldactuallyseeademandliftascustomersmoveworkloads?Thankyou,both.


SoIguess,Karl,Iwillanswerfirst.Thebulkofourbillingscomesfromsubscription,notfromprofessionalservices.Ifyoulookatwhereourprofessionalserviceguideinrevenue,thatisprettymuchdollar-for-dollarwhatourtotalbillingsisgoingtobeforsubscription--orforprofessionalservices.

Now,whenyoulookatthebalancewhichisleftthere,whichisthebulkofthe$1.6billion,thesubscription,mostofthatisactuallycomingoutofbillingourcontractedbacklogthenrenewalsandthennewbusiness.Andourguidanceisthe$1.6billionandthat'swhatwe'recomfortablewithrightnow.


Karl,thisisFrank.Yourquestionaboutpublichybridcloud.Weactuallythinkthat,thattrendisverybeneficialtoServiceNow.Andthereasonis,wehaveneverreallyfocusedonmanagingdeepinfrastructure,that'smorebeenthelegacyfocusofcompanieslikeBMCandHPandIBMandCA.

Whatwe'vealwaysdone,we'vealwaysfocusedontheserviceorientation,understandingtheoperationalcharacteristicsandavailabilityperformanceoftheservices.Thatisjustasimportant,actuallyit'sevenmoreimportantinthepubliccloudtypeofenvironmentbecausecustomerswillbedeployingandredeployedconstantlybetweenthesedifferentplatformsandunderstandingwhatservicesareaffectedbywhatcloudiswhatwedo,andit'sgoingtobereallyimportant.

Secondly,Iwouldtellyouthatourfocusonserviceintegrationwhichreallymeans,isthatwecanreallycreateasingleserviceexperienceforallthesedifferentcloudresources,right?Alltherequestingoftheseresources,theprovisioningoftheseresources,that'sbecominganintensefocusofourbusinessaswell.Wearethecompanytoprovidethatserviceintegrationinfrastructureforthepubliccloud.

Sothesearethingsthataregoingtohelpandfuelourbusinessasopposedtobecomeanimpedimenttoourbusinessbecausewe'rereallynotfocusedondeepinfrastructure.That'sbeenwherethelegacycompanieshavebeen,that'snotwhereServiceNowhasbeenorwherewearegoing.

KarlKierstead (Analyst-DeutscheBank):




Okay.Greatcolor.Thankyou,both.

Operator :

RobOwens

RobOwens (Analyst-PacificCrestSecurities):

Yes.Hi,guys.RobOwensatPacCrest.CoupleofquestionsaroundtheITOMopportunity.Youmuchabouta5%penetrationrateatthispoint.Canyouhelpmeunderstandjustwiththosecustomerswhatit'sdonetoACVoverall?

AndIthinkthe2016waspointedtoaskindofacriticalyearandinflexionpointforServiceWatch.Whatmetricsshouldweexpecttoseeoutofthatportionofthebusiness?Thanks.


Sotheonlynewthingthatwe'regoingtostarttodisclosewithourK,whichisgoingtogetfiled,isaswe'vetoldpeople,isnowweare,westartedtrackingITOMrevenueseparatelybecauseitislicenseddifferentthantherestofourproducts,it'sdoneonaper-deviceorper-scriptbasis.Andsofor2015,ITOMrevenuewas8%ofourtotalsubscriptionrevenue.Ithinkforthequarteritwasactuallya8.2%.ForQ4.Andsothat'stheonenewmetricthatyou'regoingtostarttosee,andyouwillseethatinourquarterlynumbersaswegoforwardfor2016.


Soifwethinkaboutthatfromabiggerpicture,whatit'stypicallyaddtoacustomerthat'stakingit,intermsofACV?


Youknow,itdependsuponthecustomer'senvironment.WehavesomecustomersthathavealmostdoubledtheirACV.

Wehaveothersthatareintheseorwehaveanumberof$1millionplusdealsandit'sreally,ServiceWatchhasbeenakeypieceofthat,butit'snotjustServiceWatch,there'sotherthingsaswellto.Wehaveanothercustomerwhoispayingusoverabout$6millioninalmost2/3ofthatisITOM.Soitdependsuponthecustomer.


Thanksforthecolor,Mike.


ThisisFrank,Rob.WebelievethattheITOMbusinessis,fromarevenuestandpoint,abookingstandpoint,iseasilyequivalenttowhatwehavehadinservicemanagementandovertimewillbebiggerthanthat.


Thanks,Frank.


Youbet.




Operator :

GregMcDowell,JMPSecurities.

GregMcDowell(Analyst-JMPSecurities):

Thankyou.Justonequestionforyou,Mike.WeonlygetthatbacklognumberonceayearorsoIwantedtodrillalittlebitintothatforthefull-year,up40%constantcurrency.

Ijustwanttoask,Imeantherehasbeenaprettyclosehistoricalrelationshipbetweenthebackloganddeferredandnextyear'srevenue,anditdoessuggestagainthatitcouldbe,your2016revenuecouldbehigherthanyourguidanceyoujustprovided.Soit'sjustwonderingisthereanythingdifferentaboutthecomponentsofbacklogthisyearthanpreviousyears,andmaybehowFXisimpactingwhat'sinbacklog?Thanks.


Soaswedidmentionthatourbacklog,ourreportedbacklog,asofDecember31,is$65millionyear-over-yearjustbecauseofFXisdown.Andonceagain,ourguidance,we'recomfortablewiththeguidancewegaveforbothourbillingsandrevenuefor2016.

GregMcDowell(Analyst-JMPSecurities):

Okay,thanks.

Operator :

JustinFurby,WilliamBlair&Co.

Just inFurby(Analyst-WilliamBlair&Company):

QuestionsfirstonITOM,Frank.Imighthavemissedthis,butcouldyoucallout,intermsofnewACVinQ4,whatthatwasandwhatitgrewyear-on-year.AndjustcuriouswhenyouthinkaboutFY16andyourbillingsguidance,andthedifferentareasofpotentialupside,whatyouthinkmaybeisthebiggestopportunity,whetherit'splatform,ITOM,certaingeographies,differentpackagedApps,justanythingthatmaysurpriseyoutotheupsideandthenIgotafollowup.


Yes,IthinkITOMforthefullyearIthinkwe'rearound66%,somewherearoundthere.Sothat'sthatnumber.AsIsaidearlier,Ihavehugeexpectationsofourefforts.We'redoingverylargetransactionsinthisarea.

IthinkthemarketforITOM,youknow,isbigger,willbebigger,thanforITservicemanagementandthecombinationoftheseproducts,especiallywiththewaywe'reapproachingit,whichisverydifferentfromwhathistoricallyhasbeendone.

ItissupercompellingandServiceWatchisaverycatalytictechnologybecauseithelpscustomersunderstandwhatopportunitiestheyhavetoreallyadvancehowyoumanageservicesinanenterpriseversusjustmanaginginfrastructure.Sothat'sabigone.

Obviouslywehavealotmoreironsinthefirerightnowsoweknowourbusinessisjustbecomingveryexcitingbecausewe'rejustpushingonanumberofdifferentareasandtheyareallmoving.Andthisjust,weusedtobeabusinessthatwasdrivenprimarilyonthereplacementoflegacyhelpdeskbusinessesandwehavecomeanawfullongwaysincethattime.Wearejustbecomingaverystrategicplatformfor




ourcustomers.


Gotit.Andthen,Frank,justafollowup.Youtalkedalittlebitaboutit,IthinkmaybeMikedid,aboutthedifferentcompplans.I'mcuriousifyoucangivealittlemorecolorontermsofthethoughtprocessofFY14versusFY15andFY16andwhyitsortofchangesbackandforththere?


Youarealwaystrytotweakyourcompplan.Andthroughoursalesorganizationthereweredecisionstochangetheplanandcominginto2016now,wedecidedwewantedtomakeourplanalittlebitricherbecausethatwillhelpattractpeopleandretainpeopleinoursalesandmarketingorganization.


ThisisFrank.TheonethingIcanaddtothat,you'reprobablywondering,whydon'ttheseplansallgetcheaperconsistentlyovertime.Againit'snotaspreadsheet.Sometimeswhenwe'readdingterritorieswherepeoplearegoingtoneedmoretimetogetproductive,we'renotgoingtohaveanaggressive,wearegoingtohaveanaggressivecompplanthere,right?

Sothebiggeryouget,themoreyournascentterritories,youhavetotweakyourplanstomakesurethatpeoplehaveanopportunitytomakemoney.Sodependingonwhatphasewe'rein,whatterritorywe'rein,youaregoingtoseethatmovearound.SoIthinkwearebeingjustverythoughtfulthatwearedoingittherightwayratherthantakingpurelyaspreadsheet-mentalitytothat.


Gotit.Thanks.AndthenifIcouldaskonemorejustonQ4billings,andIhatetogobacktoitbut,servicesrevenue,Mike,I'mjustcuriousifthedifferencebetweenyoubeingthemidpointofguidanceversusbeatingit,doesithavetodowithservices?IguessdiditsurpriseyouintermsofthedeflectiontothepartnerecosystemorwasitinlinewithwhatyouthoughtforQ4?


ItwasinlinewithwhatwethoughtforQ4anditwaspurelyasubscriptionrenewalerror.


Gotit.Thankyou.

Operator :

JesseHulsing,GoldmanSachs.

JesseHulsing (Analyst-GoldmanSachs):

Thanksfortakingmyquestion.Frank,whenyoulookatthemixofopportunitiesontheservicemanagementsideofthehouse,howisthemixtrendingbetweenwhatyoumightcalltraditionalITSMandfinancefacilities,HR,kindofthenewerplatformopportunities?


Yes,Idon'thaveanysortofharddatatosortofcharacterizethatinaveryfundamentalway.Butmoreinaqualitativesense,thevastmajorityofourcustomersarenowlookingatservicemanagementreallyasanenterpriseinitiative,asanenterpriseplatform.Theyarelookingatserviceintegrationstrategies.




Theyreallydon'twanttheirorganizationtohavetoknowthatyouhavetogotoITforthisthing,you'vegottogotheHRforthatthing,peopleshouldn'thavetoknowwhattheboundariesbetweenorganizationsare,especiallywhenitcomestoprocurement.DoesthisgothroughIT,doesthisgothroughfacilities,doesisgothroughpurchasing?Sothat'swhereorganizationsarelookingtoputaservicecloudinfrastructureinplacewherenobodyneedstoknowwhathappensbehindthecurtain.

That'sthewholenatureofcloudisyouobfuscatethewholebackendinfrastructureandyoujustdon'tneedtoknow.Youjustsubmityourrequestanditgetsautomaticallyprovisioned.ItworksthesamewayasFederalExpressandAmazon,informationwillfindyou.Youdon'thavetokeepcheckingback.That'sreallywhatourcustomersareafter.

Yes,oftentimesITisthestartingpoint.IthinkthatwillbethecaseforalongtimetocomebecauseITtendstobetheleaderintheorganizationthat'sreallybringingtheservicemodeltotheotherservicedomainintheenterprise.Butweprobablyhave300,400customersnowthatareonHRservicemanagement.

That'sgrowinginleapsandbounds.Wehaveawholebusinessunitaroundthat.Customerservicealsotiesinfacilitiesmanagement.That'sabigareabecausethat'snowbeexternalfacingsideofservicemanagement.

Sowejustthinkthatwehavejusttonsandtonsofopportunity.ThedaysthatthiswasstrictlyanITfunction,theyarewellinthepastatthispoint.


Andaquickfollowup.Iamlookingatyourinvestordeckandyou'vebrokenoutyouraddressablemarketsandprovidedalotofgranularityabouthowyou'rearrivingatthosenumbers.ButalotofthemareoutsideoftraditionalITSM.

OutsideofITOM,whichyouhavebrokenoutmetricsfor,whichoneofthosebuckets,whetherit'scustomerserviceorPPMoranotherbucket,doyouexpecttohavethemostgrowthin2016into2017?


Well,Idon'thaveacrystalball.Allofthosethingsarehot.Theyreallyare.Theyareonthemove.Dependingonwhoyouask,youwillgetadifferentanswer.

Securityisred-hot.Customerservicesurprisedthehelloutofus.Thedealswereverylarge.Theywereveryrapid.Theycamefromplacesthatwedidnecessarilyexpect.Sowearelearningallkindsofthings.

ThecombinationofPPM,whichisprojectmanagement,andfinancialsisbecomingaveryhotcommodityaswell.Wehavesuchaniceopportunityupsellingfromourplatformwithallthesedifferentservices.Soit'sgreattobeinsalesatthiscompany.


Thanks.

Operator :

SteveAshley,RobertW.Baird.

SteveAshley(Analyst-RobertW.Baird&Co.):

Thankssomuch.Wonderifyoucouldjustcomment,firstofallonEOAactivityintheperiod,iftherewas




much.Andifyou'reseeinganincreaseinthat.


No,wereallydidn'tseeEOAsintheperiodatall.Itwasourtypicallicensing.


Great.Andthenlastly,ITOM,everyonehasbeendrillingonitandyouguyshavepointedoutthatreallythere'sagreatenterpriseopportunity.Istherealsoacommercial/mid-marketopportunitywiththeITOMproducts?


Absolutelythereis.Idon'tknowifwe'veeversaidsomethingtothecontrarybutthatreallydoesn'tstopatthelargeenterprisedoors.Ourproductsscaledownverynicely.EveninExpress,oneofthethingsthatwehadtoaddtoExpresswasourdiscoverycapability.Thatwasoneofthethingsthatwasglaringlymissinginthefirstincarnationofthatproduct.Peoplehadtohavethat.

Youaretalkingaboutreallysmallshopsnowthatwanttobeabletodiscoverallthelaptopsanddesktopsandserversthattheyhaveandbeabletomanagetheoperatinghistories.So,no,ITOMisintegraltoanyservicemanagementdeploymentwhetherit'shugeorwhetherit'ssmall.


Perfect.Thankssomuch.

Operator :

KashRangan,BankofAmericaMerrillLynch.

KashRangan (Analyst-BankofAmericaMerrillLynch):

Hey,guys.Thankyou.I'mjustlookingatthestockdownabout15%%,bigmove,andI'mwonderingtomyself,assolidasyourgrowthis,thereisabitofdecelerationinbillingsRelativetowhereyouwereatthestartoftheyearwhereyoulookatACVofyourG2Kthegrowthratethere,thesequentialdeferredrevenuegrowthrate.Nowontheflipside,youareturningwaythehellmoreprofitablethananybodyexpectedaboutayearbackorso.Soclearlyyourcashflow,notincomegeneration,aresignificantlyaheadofpeople'sexpectations.

Butthegrowth,itdiddeceleratealittlebitandIdocompletelyappreciatethepointthatyou,hadyouknownwhatyouknewonDecember15,thenumberswould'vebeenrightinline,mid-pointorevenhighendperhaps.Isthismerelyaconsciousdecisiononyourparttoslowdowntherateatwhichyou're,notslowdowntherateatwhichyourhiring,butthesecondderivativesalesheadcount,you'readding400,youaddedlastyear400.

Isthisaconsciousdecisionthatasyouprogressbeingalargercompany,goingtorevenuedeceleration,thatyougetthenationalmarginexpansionorisit,isitthatthemarketitselfissomewhatlimitedthatyouhavetoslowdownthegrowthrateandnotnecessarilykeepupthatbilliondollarbusiness,growing50%,asyouhavebeenatthestartofthisyear?


ThisisFrank.Maybeagain,Icanputalittlebitofanangletothis.Wewent,andwearestillgoingthroughabitofatransformationinthesensethatwearebecomingamulti-product,multi-marketand




evenamulti-channeltypecompany.Beforewewereliterallyscalingonthesingle-product,single-marketsingle-channel,andbythewaythatwentexceptionallywellforus,butthetransformationasIjustdescribeditisnotattributableon,overayearagowecompletelychangedourproductorganizationtobeabletodriveonmultiplefrontsatthesametime.

Andwehavegraduallyimplementedthatfocusthroughouttheorganizationinthesolutionconsultingteams,whichisapre-salesorganizationandthesalesorganizationitself,sothatwecanbringthatmulti-productorientationtotheentirecompany.That'snotaneasytransitiontogothrough.Youjustdon'tkeepsortofrandombodiesandmaintainthesamemomentumbecausethey'redifferentkindofhiringprofiles,skillprofiles,differentorganizationsthatabsorbedthesepeople.

Butwewentthroughatonofthattransitionand2015andwefeelweareinareally,reallygoodplacetobeabletogrowandexpandwiththestructureandthemodelthatwehave.Wewillbeabletobuyassets,we'reabletobuildassetsandreallyaddontoourmodel.Sothat'sprobablythebestexplanationthatIcangive.

Obviously,thereislargenumbersaswell.Wejustcruisedthroughthe$1billionfull-yearrevenue.Wehaven'tbeenthereyet,right?And,sowearealsogettingusedtothescaleandsizeofeverythingthat'sgoingoninthiscompany.Wehaveofficesin64differentplacesaroundtheworld.

It'sbecomingagoodsizebusinessandwearegrowingintoitandwearepushinghard.Sofeelinggood.Feelingverygoodaboutwhereweareinourevolution.


Gotit.AndoneforScarpelli.NochangetocloseratesinQ4relativetoQ4lastyearorwasthereanychangesequentiallyoryear-over-year?Andifyes,whatkindofcloserateassumptionareyouusingforyourbillingsforecast,Mike,for2016.That'sitforme.Thankyou.


Sofirstofall,weneverdisclosecloserates.TherewasnothingunusualaboutthisQ4incomparisontolastQ4.AndIamcomfortablewiththeguidancewegavefor2016.


Thanksguys.

Operator :

DerrickWood,SusquehannaInternationalGroup.

DerrickWood (Analyst-SusquehannaFinancialGroup/SIG):

Thanks.Frank,youmentionedinyourpreparedremarksthestrengthoutofthecommercialbusinessandtheproductivityyou'veseenthere,butdidn'thearanycommentaryontheenterpriseside.Couldyoujustcharacterizethe,kindofthelevelofproductivitytrackingoutofthatsegment?


Yes,therewasareasonImentionedthecommercialbusinessisbecauseyouguysgotsorattledayearagoandittookseveralquarterstoshakethatoffsoIthoughtI'djust,makeafew,putsomecoloronthatbusinessbecauseit'sbeenaverysuccessfultransformationforus.Therealityis,ourbusinessis50/50,largeenterpriseglobalsontheonehandandthenthecommercialbusinesstheotherhalf.Sowehavetoreallydrivebothsidesofthatbusinessequallyhard.




Ourgrowthassumptionsarebasedonboththosebusinessesbeingabletosortofmaintainthat50%shareoftheoverallpie.Butthereisnodoubtthatifyoulefteverybodyheretotheirowndeviceswewouldgravitatetowardstheverylargeenterprisebecausethosearethemostproductive,mostlucrativebusinessrelationshipsthatwehaveinthiscompanyandthat'sthereasonwhywecreatedthecommercialorganizationbecauseweknewwewerenotgoingtoletthathappen.

Weweregoingtomakesurethatwewouldhavededicatedfocusontheseothermarkets.It'smorefragmented,dealsaresmaller,butstilloutstandingbusinessforusandwelikeit.


And,Derrick,justtosupportthestrengthinenterprise,wedidadd26Global2000inthequarter.Itwasactually33withadjustmentswithacquisitionsandstuff.Sowenowhave638Global2000andyousawthatwenowhaveover,orwehave230customersthatpayusover$1millionayeareach.Ithinktheaverageisrightaround$2.1million.


Okay.That'shelpful.


Andthatcontinuestogrow.


Okay.Andthen,Frank,youmentionedtheCSCandAccenturehavingacquiredtwoofyourbiggestpartners.Justbecurioustohearhowthoserelationshipshaveevolved.Hastherebeenanydisruptionorviceversa,areyouseeingmoretailwindswithkindofresourcesandpullthrough?Justtohearabouthowthoseevolvedwouldbehelpfulthanks.


Yes,it'sactuallymadeourrelationshipswiththosefolks,youknow,moreintense,morestrategic.Wehavejustbecomemoreimportant,inrelativeterms,tothemasaplatformthanwewerebeforetheymaketheseacquisitions,right?Sothefunandgamesisoverwith.

Wenowhaverealliveinvestmentsinitandthey'rerealbusinesses,theyhavemanagers,theyhaveplans,theyhavetargets.Accenturewasapremiersponsoratourglobalsaleskickofflastweek.Thisisareallybiggrowthopportunityforthemandwearehappytobepartneringwiththem.

Wewere,thenicethingabouthavingfolkslikeCSCandAccentureistheyhavetransformationalcapabilitiesthattheycanbringtoourverylargecustomers.WearereallyraisingtheexpectationsonwhatoutcomespeoplereallyshouldexpectfromaServiceNowdeployment.Sowe'rethrilledtohavethesepeopleinourbusinessandourcustomersarehappyaswell.Theyhaverealgoodvarietyofchoices.Verybroadpooloftalenttoengage.

That'sbeenacomplaintthatwehistoricallyhavehad,isthatwegrewveryrapidlywewerealwaysexhaustingtheresourcesinthemarketplace.Sothisisoneofthereasonswhywehavecarefullycultivatedourecosystem.Wedidn'twanttocrowdoutourpartnersbecausewewouldreallyconstrainourowngrowthifwedidthat.SoIthinktheserelationshipsaregreatandtheyaregoingtobegrowingandmoreimportant,becomemoreimportantaswegoonhere.





Thankyou.

Operator :

PhilWinslow,CreditSuisse.

PhilWinslow(Analyst-CreditSuisse):

Thanks,guys,fortakingmyquestions.Youknow,Frank,youmentionedthisincontinuingsortofincreasingTAMorjustapplicabilityofyourguysservicesorsecurity,customerservice,etc.Whenyouthinkaboutjustthego-to-marketstrategyhere,isthereanythingchangingasyoujustcontinuetoexpandtheapplicabilityin2016versus2015?Iknowyoutalkedaboutacompplanbutanythingsortofstructuraltothesalesforceorthego-to-marketstrategy?Andthenaquickfollowup,too,justforhousekeepingitems.Wonderifyoucanjustquantifythebillingserrorthere,wasit$4million,$5millionjusthowmuchlowerwiththeguidancehavebeen?


Sobillingerrorwas$5million.


Onyourquestion,Phil,thisisFrank.Thestructuraldifferencethatwestarted,thatwehaveembarkedon,that'sstillgoingon,isthatwehaveahighdegreeofproductspecializationinthevariousorganizations,andwestartedthatonthepre-salesside.

Wehaveitonthesalesside.Wehaveitontheprofessionalservicesside.Obviouslythisallstartedinthe,withtheproductteam.Soourwholeorganizationhasafullybuilt-outproductdimensiontoit.

Butnotalldealshavethesameamountofproductspecializationsothatinvestmentwillbeongoingaswescale.Wewillbehavingmoreandmorededicatedresourcesthatrelatetothespecificareas.Youcanimaginesecuritymanagement,wearenotasecuritycompanybyourDNAsetifyouwill,butwestoodupaproductorganizationwithnothingbutsecuritypeopleinthere.Wehavealwayshadsecuritypeopleinthefieldbecause,beingacloudcompany,securityisareallybigtopicofconversationwithourcustomers.

Butwehavetohaveverydedicated,veryspecializedpeopletobeveryeffectiveandcrediblewithourcustomerstodrivethosekindofbusinesses.Buttheopportunityissogreatthatforustomakethoseinvestmentsisano-brainerandthat'swhatwearedoing.

PhilWinslow(Analyst-CreditSuisse):

Gotit.Thanks,guys.

Operator :

Therearenofurtherquestions,thankyou.IwillnowturnthecallbacktoMichaelScarpelliforclosingremarksthat


Thankyou.Asareminder,areplayofthiscallwillbeavailableintheinvestorssectionofourwebsite.Thanksforjoiningustoday.

Operator :




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