ServiceNow CEO on earnings: 'Performing beyond expectations’

ServiceNow CEO Bill McDermott joins Yahoo Finance Live to discuss quarterly earnings, supply and demand, generative AI, mixed economic signals, and more.

Q1 earnings

Regarding ServiceNow's Q1 earnings, McDermott said, "CEOs really want a single platform to orchestrate their end-to-end tech value chain. So ServiceNow does just that ... the company's performing beyond expectations by giving the customer the innovation they need to win."

Generative AI

When asked about ServiceNow's integration of AI, McDermott added, "We're actually delivering on the promise of generative AI already, and we just did that with our March release, which is a sensation intelligent platform for workflow automation across the enterprise."

Video highlights:

00:00:50 - ServiceNow Q1 earnings

00:02:09 - Government contracts

00:04:57 - Macro fears

00:07:27 - Generative AI

Video transcript

- A strong showing at ServiceNow, demand in energy, and government contracts boosting the cloud software maker's earnings, despite what they acknowledge as a tough macro environment. With clients in everything from CPG to airlines, the company has insight into what's growing and on the other side, what's not in corporate America. Here with more, we've got Bill McDermott, ServiceNow chairman and CEO, alongside Yahoo Finance's own Brian Sozzi.

Bill, great to speak with you once again here. When you think about the quarter and the environment for deal scrutiny right now, where is ServiceNow continuing to move through some of those conversations, even as we've continued to see, in the broader cloud space, growth at some of the other industry titans, even in that environment that I mentioned of deal scrutiny and just the cost restructuring that's been taking place?

BILL MCDERMOTT: Well, thank you very much, Brad and also Brian, for having me. Good to be with you guys again. If you look at, you know, the big picture out there, you know, there seems to be an app for everything, but nobody wants every app. And what's happening is CEOs really want a single platform to orchestrate their end-to-end tech value chain.

So ServiceNow does just that. And we have really become the intelligent platform for end-to-end digital transformation. So you're going to see investments in platforms that matter, that align IT and business around solid business cases. And that's what we deliver. And that's why this quarter we had a strong beat on revenue, margin expansion, profitability, CRPO, et cetera, because the company's performing beyond expectations by giving the customer the innovation they need to win.

BRIAN SOZZI: Bill, Brian here. Good to see you, as always. Every analyst note that I've read this morning on ServiceNow calls out a strong quarter for the company in government contracts, in fact, very strong. What happens if this debt ceiling debate goes awry in the coming months? What happens to your pipeline of government business? And as a leader that I think knows everybody, how concerned are you about this debt ceiling debate?

BILL MCDERMOTT: Yeah, I think it's a good question, Brian. It's important that government performs like a best-run business. And the good part about ServiceNow is when you're trying to run more efficiently, increase productivity, and take cost way down, ServiceNow is there for you. If you're trying to see around a corner where you want to evolve and create new business model innovation and grow, ServiceNow is there for you. So the government, and the reason federal, state, and local are so focused on working with ServiceNow is the business cases and the cost takeout is so significant, while also improving visibility, productivity, especially across various departments to get things done. So I'm very confident that there's plenty of business cases where we can really help the government run a lot better.

BRIAN SOZZI: And supporting that government business, Bill, is you continue to be one of the more aggressive hires inside of a tech industry that continues to be bleeding talent. And I find it very interesting what you said on the conference call. You said you want employees rated 9 over 10. It is no longer acceptable for employees rated under 9, in your view, to be necessarily welcomed in the door. What has that level of scrutiny in terms of every hire done to your business?

BILL MCDERMOTT: We have an incredible company, a great culture. And a lot of people want to work here. We actually hire on a per capita basis, less people through our pipeline of candidates than the top academic institutions in the world. So we only really do select the very best to get into ServiceNow because we're very intentional when we make a hiring decision.

We're not hiring to fill a job. We're hiring to provide an individual the opportunity for a great career. And we want to keep people loyal to ServiceNow and obviously have the best retention rates in the business. Because when you have loyal, happy people, you have loyal, happy customers. So it really is a social contract that works like that.

The other thing, you know, in this environment, where you do see people getting laid off and these cultures really, in some cases, perhaps not putting people first, that's given us a real opportunity because we're not laying anybody off, and we're still hiring. And the people in our company, as rated by Glassdoor, are the ninth happiest in the world. And we're still working on the other eight. But what I'm so proud of is our folks just love it here, and we love them.

- Bill, you know, you always seem extremely confident when you come on after the quarters. I want to know, though, what keeps you up at night right now in this macro environment?

BILL MCDERMOTT: You know, what keeps me up is the problems that our customers are having. You know, if you look at the macro and the complexity of it, there's a lot of mixed signals out there. And, you know, 40% of the CEOs in this world today are saying they will not have a viable company if they continue on the path they're on now.

So our customers need to transform their businesses and digitize their companies to literally build a future that was better than their past. And if they don't change, they may not be around in the long term. And it's our job to get to our customers at the C level to bring together management teams in all functions, all personas around the power of the Now Platform. I feel like we're finally hitting that moment where the world recognizes the brand enough-- the success stories are bold and well-known enough-- that the market's starting to seek ServiceNow.

What is going on in ServiceNow? They're doing something there. And what we're doing is we're innovating like no other company in the industry. Last year we built 2,000 net new applications on our platform. We have generative AI, RPA, process mining, and many other technologies and tools built into one platform that's been organically developed and that can radically simplify the complexity of a half-century mess that's been created in all these companies, where one system doesn't talk to another, the user experience is clunky, and people aren't happy in the enterprise.

They want enterprise tech to work like consumer tech when they're sitting on their couch on the weekend. And that's what we provide. We provide a consumer-grade experience that makes people happy, enables them to do their job. And now with the application of generative AI, we're going to completely transform business.

- Bill, since you said the two magic words-- well, depending upon whether or not it's an acronym, three-- generative AI is something that we've been trying to get more transparency from companies around over the course of this earnings season. It's also been just the kind of trigger phrase or Command-F phrase that a lot of us are doing on these earnings call transcripts. But it's unclear how much companies are spending and what that return on investment looks like. How much is ServiceNow spending on generative AI right now?

BILL MCDERMOTT: We've been investing in it for four years. And while others have focused on press releases, we've been delivering platform releases. So we're actually delivering on the promise of generative AI already. And we just did that with our March release, which is a sensation.

Intelligent platform for workflow automation across the enterprise is what we're all about. And think of generative AI as a great step forward in enabling a different level of automation of human work, which is going to increase higher productivity, efficiency gains, and faster time to value for our customers. So we firmly believe that generative AI should be seen as augmentation of ServiceNow workflow automation and what our platform does to enable new revenue streams not just for ServiceNow, but for our customers.

Think of it this way. If our customers could enable their employees to be extraordinarily more productive-- because instead of all the clunky experiences they have to go through today to get things done, they could simply text the Now Platform with a question, get an immediate answer, and start moving forward. Think about a call center agent today that's getting crushed within queries they have no answer for. And they're really spending a lot of time trying to emotionally solve customer problems, when technology could do it so easily for them. And their productivity could go up, so, so much.

And for the company, they need less people. But the people they have would be so much happier. So the retention rates would go through the moon. And then you think about the idea of the engineer building applications on the ServiceNow platform, text to code, text to workflow automation, text to new applications developed on that single-threaded ServiceNow platform. This is a sensation.

But I'm not talking about wet paint. We're already doing it. And if you come to Las Vegas for our financial analyst day and our knowledge event, we're going to unveil some of the greatest generative AI use cases in various industries that the world's ever seen. So we're on a roll. And again, we've been doing it for four years.

BRIAN SOZZI: Bill, in about an hour, we're going to speak with former Salesforce co-CEO Keith Block about his new company that he stood up. Now, ServiceNow is invested in there, I believe the lead investor. Why are you making that? Is that you and your team betting on AI acquisitions or a lot of beat-up tech companies potentially getting acquired? Why'd you do that?

BILL MCDERMOTT: Well, first and foremost, I'm betting on Keith Block. And I think that Keith is a guy who understands our industry. He performed at extraordinarily high levels. He's represented some excellent brands. And he knows what he's doing.

And he understands the power of the ServiceNow platform because he's worked for other companies in the industry. And if you ask him whose future is brightest, ServiceNow or any of the other large-scale participants, and I think you'll see that he's all in on ServiceNow. So it's a mutual belief. I believe in him. He believes in us. And together we're going to do very special things.

And yes, along the lines of disruptive technologies, disruptive companies, we're always interested in the build-by-partner concepts. And I believe Keith will bring a very nice pipeline of opportunities our way that we can make some shrewd decisions on to improve our customer relationships all over the world. You know, what's amazing about this platform is 18 of our top 20 deals this quarter had five or more products in the deals, which is essentially saying, all personas in the enterprise, whether you're in IT, you're trying to drive the employee experience, you're trying to better serve the customer in the front, mid, and back office, or you're an engineer just building applications or business analysts building applications on a low-code platform, you're doing it all in ServiceNow.

So the CEO now is bringing together the whole management team to coalesce a vision on the ServiceNow platform. That's really big. And now we're at the point where our customers are saying, hey, can we get the whole management team together with your whole management team and dream a little bit? And Keith understands that. And we'll continue to build that innovation machine so it is the best innovation machine in the world.

BRIAN SOZZI: Bill, do you ever get frustrated as a leader? You have to be the coolest-- one of the coolest, just calmest executives that we actually talk to here at "Yahoo Finance." I mean, Brad, I mean, this is Bill all the time.

- Yeah. Look, I used to work for SAP. Nothing stumps Bill, at the end of the day. Bill, we got to let you go. We know it's NBA playoff season. You're a big basketball fan. You got a pick for a winner?

BILL MCDERMOTT: Well, look, I have to-- and I recognize that I'm living in the Bay Area right now. So I should be all in on the Warriors. And I love the Warriors and Steph Curry. But I must say, you know, my sons are big Lakers fans. And therefore I'd love to see the Lakers do extremely well.

- Ooh!

BILL MCDERMOTT: But I'm really excited about the next matchup. And I'd love to see the Warriors and the Lakers go head to head and let the better team win. That's, to me, the best matchup out there.

- All right. Good to get a sports take from you, Bill, when we can. Great to speak with you, once again, here, after earnings. Bill McDermott, ServiceNow chairman and CEO, alongside Brian Sozzi here, "Yahoo Finance's" own. Thanks so much, Bill.