“an operating margin of 25%”

In context

“Gina Mastantuono (CFO): Thank you, Bill. Q1 was yet another fantastic quarter of execution. Enterprises are navigating a macro environment filled with a myriad of challenges. Our ability to continue delivering strong results exemplifies the resiliency of our business and the mission-critical nature of the NOW platform. The breadth of our product offering and our geographic reach provide us a diverse array of opportunities for growth. Although FX headwinds grew throughout the quarter, ServiceNow outperformed across all of our Q1 guidance metrics. In fact, net new ACV growth accelerated year-over-year, driving the fastest Q1 growth we've seen since 2018. We expect that momentum will carry into Q2 with net new ACV growth consistent with our very strong second quarter last year. As a result, we're raising the midpoint of 2022 subscription revenue guidance to more than offset these incremental FX headwinds. Turning to Q1 results. Subscription revenues were $1.631 billion, growing 29% year-over-year in constant currency, exceeding the high end of our guidance range by $16 million. This reflects a 300 basis point acceleration in growth year-over-year. RPO ended the quarter at approximately $11.5 billion, representing 31.5% year-over-year constant currency growth. Current RPO was approximately $5.69 billion, representing 30.5% year-over-year constant currency growth, a 1-point beat versus our guidance. From an industry perspective, we saw broad-based strength with energy and utilities, financial services, government, healthcare, life sciences, TMT, and transportation and logistics all growing net new ACV 40% or more year-over-year. Our renewal rate was best-in-class at 98% in Q1 as the NOW platform remains a core component of our customers' digital transformation efforts. The stickiness of our customer base has served as a solid foundation for us to build upon as our largest customers continue to expand. We finished the quarter with more than 1,400 customers paying us over $1 million in ACV. We closed 52 deals greater than $1 million in net new ACV in Q1, up 41% year-over-year. This includes seven net new logo deals in the quarter, further demonstrating our success with initiatives to land quality customers. Our portfolio outside of ITSM is also leading more of our largest customer land. Nine out of our top 10 new customer deals were led by non-ITSM products. Turning to profitability. Operating margins surpassed 25%, driven by our revenue beat and certain spend that shifted into Q2. Our free cash flow margin was 45%. We ended the quarter with a healthy balance sheet, including $5.5 billion in cash and investments, putting us in excellent shape to continue investing in strategic initiatives that drive growth. Together, these results demonstrate our ability to drive a balance of growth and profitability. And perhaps even more relevant this year is resiliency and predictability of our business model. While a diversity of markets and customers provides stability in our results, the diversity of our employee base continues to make us even stronger. Last week, we released our second annual Global Impact Report. Just as the ServiceNow platform helps us fully integrate customer, employee, and technology experiences across our business, we'll continue to use the ServiceNow ESG management and reporting solutions to manage, govern, and report our progress. While we're early in our ESG journey, we're extremely proud of our accomplishments in such a short time. We've made significant improvements in representation and hiring. We've tied executive compensation to both environmental and diversity goals. We fully distributed ServiceNow's $100 million racial equity fund, and we've continued to achieve systemic pay equity. I'm happy with the progress we've made in 2021, but we're just getting started. Moving on to guidance. As the conflict in Ukraine intensified throughout Q1, we continue to see an incremental strengthening of the U.S. dollar, resulting in further FX headwinds in 2022. However, on a constant currency basis, the underlying health of our business has remained ever strong. With that in mind, let's turn to our 2022 outlook. We are raising the midpoint of our subscription revenue outlook by $23 million to more than offset the incremental $20 million headwind we're seeing from FX, resulting in a net increase of $3 million. Our new range of $7.025 billion to $7.04 billion represents 26% year-over-year growth. That's 28.5% growth on a constant currency basis, a 50 basis point raise versus our previous outlook. This reflects our updated expectation for constant currency growth to now accelerate year-over-year. We continue to expect subscription gross margins of 86%, up 100 basis points year-over-year, an operating margin of 25% and a free cash flow margin of 31%. Finally, we expect diluted weighted average outstanding shares of 204 million. For Q2, we expect subscription revenues between $1.67 billion and $1.675 billion representing 26% year-over-year growth, which is inclusive of a 3-point FX headwind. On a constant currency basis, we expect subscription revenue growth to be 29%, a 250 basis point acceleration from Q2 2021. We expect CRPO growth of 25% year-over-year or 28% on a constant currency basis. I'd note that for the full year 2022, we have a larger-than-average customer cohort that renews in Q4. We will see between one and two points of increasing headwinds to Q2 and Q3 CRPO growth as those contractual obligations wind down. When the cohort renews, though, in Q4, those headwinds will subside, and we expect CRPO growth to reaccelerate quarter-over-quarter. We expect an operating margin of 22%, which reflects the timing of marketing spend that shifted from Q1 into Q2 and some incremental FX. We expect 203 million diluted weighted outstanding shares for the quarter. In conclusion, Q1 was another outstanding quarter. Our momentum is setting us up for a great year. As Bill highlighted, we're excited about our San Diego release. Our future innovation pipeline is robust as we seek to extend our market leadership, deepening our competitive moat as the platform for digital business. ServiceNow is incredibly well positioned to become the defining enterprise software company of the 21st century. I'd like to invite you all to hear more about the momentum we're seeing and learn more about our new products and long-term opportunities at our upcoming Investor Day on May 24 in Las Vegas. Finally, I'm extremely proud of our team's performance this quarter. Bill and I can't thank our employees enough for their continued hard work and dedication. And with that, I'll open it up for Q&A.”