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ServiceNow a 'beyond-expectations company,' CEO says

ServiceNow CEO Bill McDermott joins Yahoo Finance Live to discuss fourth-quarter earnings, digital transformations, investor sentiment, driving productivity and growth, and the outlook for ServiceNow.

Video transcript

BRIAN SOZZI: ServiceNow appears to be defying the broader tech slowdown that has unleashed a wave of layoffs across the sector. At least that's one takeaway from the company's latest earnings. Let's bring in ServiceNow chairman and CEO Bill McDermott. Bill, always great to get some time with you. Love this line in the earnings call last night. You said ServiceNow is the safe harbor in the proverbial storm. Break that down for us. Why do you think that's the case?

BILL MCDERMOTT: Well, ServiceNow is a beyond expectations company, Brian. The main reason is we have the platform for end-to-end digital transformation. So as customers navigate the difficult macro, on one hand, they need to be highly efficient. They need to automate their business and do things at a super efficient level in terms of taking costs down. At the same time, they know they have to run a digital business. 98% of the CEOs out there have a digital-first strategy.

And we're the company that can enable them to reorient business models and grow. And all of that is done on one common platform for end-to-end digital transformation, from IT being the business strategy to taking care of your employees and customers, and even having real people like us build applications on a low code platform. So we are that company that does it all. And we have the platform that matters right now.

BRAD SMITH: For companies that are kind of coming to grips with that reality that they do have to continue to spend, and ServiceNow being a beneficiary in some of those categories, I suppose, where and kind of to what extent do you see them scaling up in order to safeguard and actually protect the investment that they've already made?

BILL MCDERMOTT: It's a great question, Brad. Lots of customers right now are realizing that at the peak of the hype cycle in the pandemic, they simply invested in a lot of point solutions. And one CEO recently told me they can't afford 1,000 points of dim light. They really need a cohesive plan on a trusted platform. And in that case, they actually weren't increasing their spend. They were simply doing away with or lessening things that didn't matter. So they'd have free capital for things that do.

And that's what's really important about ServiceNow. You can take money and use it for better purposes by eliminating lots of the points solutions that are now consolidating on our platform, or simply put our platform in to reside above these outdated systems of record to get a huge productivity bump, a great consumer grade user experience, and obviously drive productivity and growth. And that's really what is happening. There's about four or five platforms in the whole world of enterprise that matter, and we're one of those standard bearers.

JULIE HYMAN: Hey, Bill. It's Julie here. You have said that you're not going to be laying off people. What's the difference between you and some of your competitors on that front? Is it that you're just-- maybe you didn't beef up as much when your competitors were, or you just think it's important to keep those people on and not let them go? What's the differentiator?

BILL MCDERMOTT: Great question, Julie. We're growing faster than all of them. I mean, this is a company that's the fastest growing enterprise software company in the world. They say you're world class when you grow at the rule of 40, meaning more than 20% revenue and free cash flow margin, another 20%. If it adds up to 40, you're world class. We're growing at 58.5, nearly the rule of 60.

So this growth is all organic. We're fueling the fire with great engineering. We continue to hire the best engineers in the world. And we continue to hire the best go-to-market professionals in the world that can take care of our customers, continue to keep them loyal. We have the highest loyalty scores in the world. And obviously grow within our same account or net new logos as we expand the franchise across the world in every industry and across every persona in every business. So there's a lot of growth on here at ServiceNow, and we need the people.

And furthermore, I think you bring up a great point. We were highly intentional, even with the peak of the hype cycle and the pandemic. If you got into ServiceNow, it's because you were a 9 or 10. We hired the very best people because we don't hire people to fill jobs. We hire people to build careers and build a culture and build a great company for the ages. So we need the people. We believe in the people. And the people love being here. That's why we were Glassdoor's top pick in our industry.

BRIAN SOZZI: Bill, key to that building ServiceNow and building the culture has been you over the past few years since you joined the company. You recently added the title as chairman. You recently also made a key promotion inside the company, which you talked about in the earnings call last night. I mean, how much longer do you see yourself as CEO of ServiceNow? You've been doing this for a while.

BILL MCDERMOTT: I'm just getting warmed up. I mean, I'm just getting warmed up. So I'll be here for the duration. I came in with a vision to make ServiceNow the defining enterprise software company of the 21st century. And I intend to see that through to its entirety. Now, at the same time, I think very good leaders build great teams. And I've got a great president and chief operating officer in CJ Desai. He's richly deserving of that promotion. And the reason for that is he uniquely understands how we build a great platform, but also how you take that platform to market and make customers super successful, super happy, and super interested in expanding their business on ServiceNow.

So what we want to do is build a culture where everyone really understands that great products and an unbelievable, unmatched customer centricity not only gets you promoted, but it creates an enduring company. And that's what we want to be, the defining enterprise software company of the 21st century.

BRAD SMITH: For as great a company as you are running, as that you're telling us the environment is for the company right now, too, Bill, I got to wonder, when you see shares down off of the 2021 highs by about 33%, still even with the move higher here, early year to date, you've seen some activist campaigns within the ERP landscape or even the B2B landscape right now, and thinking of Salesforce particularly, do you get concerned when you see some other companies that perhaps have a solid portfolio of clients, a solid offering that they take to market, getting nibbled at by some of the activists out there?

BILL MCDERMOTT: Well, I don't get concerned about that for ServiceNow because what they do is they go into these other companies you're referring to, and they say, hey, this is the benchmark. It's ServiceNow. ServiceNow is growing three, four, or five times faster than you. ServiceNow has a margin profile that is substantially higher than yours. ServiceNow is expanding their customer base, their employee base, and their free cash flow margins. That's the benchmark. Now how do you get to be ServiceNow? They're not saying to ServiceNow, how do you get better, because they already know we continue to get better. So for those companies that are looking at ServiceNow as the benchmark, I think it's a privilege and an honor. And that's why we intend to be the best run business in the world.

BRAD SMITH: ServiceNow CEO Bill McDermott. Bill, always appreciate the time and the insights and especially looking around the industry, getting your take on it as well.