“This reflects an incremental 50 basis points of margin expansion on top of our 2024 outperformance and in spite of an incremental cash tax headwind of 100 basis points year-over-year.”

In context

“Gina Mastantuono (CFO): Thank you, Bill. Q4 was a great quarter, capping a year of incredible innovation and execution. Once again, we exceeded all of our constant currency growth and profitability guidance metrics, demonstrating the strength of our platform and the extraordinary efforts of our team. 2024 was a pivotal year in driving customer adoption of our generative AI solutions. By embedding powerful AI capabilities into our offerings, we've enabled organizations to reimagine how work is done, unlocking new levels of efficiency, creativity, and value. Customers across industries are embracing these solutions at a rapid pace, proving the immense opportunity AI and data bring to our business. Turning to our results. Q4 subscription revenues were $2.866 billion, growing 21% year-over-year in constant currency, exceeding the high end of our guidance range by 50 basis points. RPO ended the quarter at approximately $22.3 billion, representing 26% year-over-year constant currency growth. Current RPO was $10.27 billion, representing 22% year-over-year constant currency growth, a 50 basis point beat versus our guidance. From an industry perspective, manufacturing posted impressive growth, surpassing 50% year-over-year. Public sector grew nearly 40% year-over-year, driven by the strength in U.S. federal and state and local government. Transportation and logistics also reported significant growth during the quarter. We delivered a very strong 98% renewal rate in Q4, highlighting the trust and value customers consistently place in the Now platform. The number of customers generating over $1 million in ACV rose to 2,109; even more remarkable, the number of customers contributing $20 million or more in ACV was up 35% year-over-year, fueled by continued success in securing large deals. We ended the year with approximately 8,400 customers as our strategic focus on landing the right new customers continues to deliver results. The average deal size of our new logos has consistently grown, marking the sixth consecutive year of expansion. In Q4, we landed our largest new logo deal in company history. We closed 170 deals greater than $1 million in net new ACV in the quarter, including 15 with new logos. What's more impressive is that 19 of these deals exceeded $5 million, and three deals were over $20 million. Our Gen AI net new ACV to date continues to trend ahead of any new product family launch for the comparable period in our history. In fact, Gen AI net new ACV stepped up meaningfully in Q4 from Q3 as we saw momentum accelerate for our Plus SKUs. As Bill noted, the number of Now Assist service desk deals, including ITSM, CSM, and HRSD grew over 150% quarter-over-quarter. Furthermore, the number of customers who bought two or more of our Gen AI capabilities doubled quarter-over-quarter. Our Plus SKUs also maintained a greater than 30% price uplift over Pro in Q4, a strong indication of the tremendous value they deliver. For example, a multinational conglomerate customer saw a 45% reduction in live chat from July to December with Now Assist, and the company is now targeting to save millions by the end of 2025. With the addition of our AI agents to many of these SKUs, we think the value proposition becomes even more compelling in 2025. We're also seeing great early traction with our RaptorDB Pro offering. Since the announcement in September, we already have five customers over $1 million in ACV, and a leading multinational technology company that adopted RaptorDB Pro in Q4 is already achieving performance improvements that exceed expectations, with database response times up to 3.5 times faster than previous benchmarks and a database size reduction of over 30%, driving significant cost savings. Turning to profitability, the non-GAAP operating margin was 29.5%, driven by OpEx efficiencies and our top-line outperformance. Our free cash flow margin was 47.5%. For the full year 2024, the operating margin was 29.5%, up 200 basis points year-over-year, and the free cash flow margin was 31.5%, 50 basis points above our guidance and up 100 basis points year-over-year. Total free cash flow for 2024 was a robust $3.5 billion. We ended the year with a healthy balance sheet of $10 billion in cash and investments. In Q4, we bought back approximately 293,000 shares as part of our share repurchase program. As of the end of the quarter, we had approximately $266 million remaining of the original $1.5 billion authorization. Given our strong cash position and our strategy of managing the impact of dilution, we announced today that the Board of Directors authorized the purchase of up to an additional $3 billion of common stock under this program. Together, these results continue to demonstrate our ability to drive a strong balance of world-class growth, profitability, and shareholder value. Moving to our outlook. As we enter 2025, we're not just planning to win today; we're making bold strategic decisions to position ourselves for sustainable strong growth in the years ahead. This year, we will incorporate more elements of consumption-based monetization across our AI and data solutions. For instance, we will include AI agents and our Plus SKUs forgoing upfront incremental new subscriptions to instead drive even faster adoption and monetize the hockey stick of usage over time. We're optimizing our go-to-market approach and evolving our business model to create even more integrated solutions and seize the massive agentic AI and data opportunity in front of us. Our guidance prudently reflects the flexibility to make these moves while delivering higher incremental free cash flow building on the accelerated margin trajectory created by our outstanding 2024 outperformance. With that in mind, for 2025, we expect subscription revenues between $12.635 billion and $12.675 billion, representing 20% year-over-year growth at the midpoint on a constant currency basis. This reflects an incremental $175 million FX headwind since the end of September and assumes a more pronounced back half weighted seasonal linearity in our U.S. federal business due to the change in the presidential administration. We expect subscription gross margin of 83.5%, reflecting the diminishing impact of the change in useful life of our data center equipment as well as incremental data center investments related to public cloud partners, geographic expansion, and AI. We expect an operating margin of 30.5%, up 100 basis points year-over-year driven by OpEx leverage across the board, including sales and marketing. We expect free cash flow margin of 32%. This reflects an incremental 50 basis points of margin expansion on top of our 2024 outperformance and in spite of an incremental cash tax headwind of 100 basis points year-over-year. And we expect GAAP diluted weighted average outstanding shares of 210 million. For Q1, we expect subscription revenues between $2.995 billion and $3 billion, representing 20% year-over-year growth at the midpoint on a constant currency basis. This reflects an incremental $40 million FX headwind since the end of September and the previously noted federal seasonality assumptions. We expect CRPO growth of 20.5% on a constant currency basis. I would note that CRPO saw an incremental $205 million FX headwind since the end of September. We expect an operating margin of 30%, and we expect $210 million GAAP diluted weighted average outstanding shares for the quarter. In summary, 2024 was an amazing year, but we're just scratching the surface of what's possible. Our ability to seamlessly orchestrate and govern AI agents, coupled with our unified data architecture, positions us uniquely to bring all your data, people, and processes onto a single platform so you can take action on it. The moves we're making in 2025 aren't just about maintaining our lead; they're about expanding it. We're setting ourselves up to redefine the future of agent-powered automation, solidify ServiceNow as the AI platform for business transformation, and deliver strong growth year after year. Finally, Bill and I want to express our deepest gratitude to our employees around the world for their unwavering hard work and dedication. You are the heart of our success. With that, I'll open it up for Q&A.”