Federal and public sector demand dynamics

“This led to a significant customer expansion with a Canadian-based defense company turning to our Resilience and Control suites to secure their environment with FedRAMP authorized solutions.”

“Having said that though, while there are staff reduction actions happening, the fundamental requirement of digital transformation, elevating, advancing technology deployments and also AI deployments still allow us to have very active conversations with the agencies around their data, [state postures] and their AI readiness capabilities.”

“So all of that effectively narrowed down to just basically 2% of our total ARR. So the exposure is around that.”

“Yes. Thanks for the question, Joe. If you think back to how we thought about guidance really at the beginning of the year, we knew at that point that there was a ton of uncertainty with the new administration coming in, the discussions around DOGE, clearly, the focus on reducing spend and really going into that.”

“All of the discussion from [ DOGE ] in terms of that impact or potential impact. And we actually did see some of that in Q3. Some of it was reflected in some of our churn.”

“As we anticipated, revenue growth in North America was impacted by relative softness in the public sector, as U.S. federal agencies navigate a number of changes.”

“In Q3, the expected softness we saw in the public sector was the primary driver in the sequential step down in our retention rates.”

“I do think there were lots of layoffs, lots of uncertainties. I do think it's still a lot of that. We did hear -- somebody had mentioned to me the other day, did you see any pull-through acceleration into Q3 before the shutdown? We didn't see that, at least for us.”

“And so accounting for this uncertainty, which we believe is prudent, is why we have elected to maintain and not raise our full year guidance for ARR.”

“I would just highlight that at the end of the day, government continue to modernize, data continue to grow. I think no one should be throwing in towel here on the federal government. Government is not going to go away.”

“the other parts of the business are very strong. Obviously, globally, it is still a very key component to our growth strategy in the future. So we are not backing down on public sector.”

“What we saw in Q4 was, I would say, similar to what we had seen in Q3 in that the public sector and particularly Fed space growth rate was lower than North America in general.”

“What we're seeing this year, and we're already seeing in Q2 is some traction, some pickup. Our pipeline is growing. We see some nice growth rate that's going to propel really the second half of the year, particularly in public sector.”

“From an industry perspective, U.S. Federal had a great quarter, accelerating both quarter-over-quarter and year-over-year with net new ACV up well over 50% from last Q2. Manufacturing and Energy and utilities were also areas of strength, growing net new ACV over 50% year-over-year.”

“We just went general availability with our Gen AI SKUs for our government Community Cloud. This is June 28, by the way.”

“We didn't see any impact in Q3, and we're currently not involved in any issues regarding Carahsoft with the U.S. federal business.”

“ServiceNow has become the standard platform for federal agencies as they're looking to consolidate contracts and standardize on a single vendor to drive digital transformation.”

“After agencies realigned to this baseline, we expect significant growth opportunities driven by operational needs expressed by these customers and addressed by solutions across our portfolio.”

“We all know that US federal agencies are navigating changes from tightening budgets and evolving mission demands and are being asked to move quickly.”

“Moving forward, we will continue our productive discussions with senior administration and DOJ officials. The engagement has been very positive as we have a shared ambition to transform government and the way it interacts with citizens.”

“One agency is using ServiceNow AI agents to automate contract reviews, streamline approvals, and lower operational costs.”

“With regard to the public sector, let me be clear. We had a great Q1 because ServiceNow's strategy is rooted in government automation and modernization. This is being championed by the Trump administration with local leaders and national governments around the world following suit.”

“With the launch of our government transformation suite, we're meeting agencies where they are with purpose-built solutions that accelerate digital transformation, increase transparency, and improve public service delivery.”

“we still have 1959 COBOL systems in government. And we still have very bespoke functional systems legacy systems, that are in the hundreds of instances per agency. So there is an opportunity for the government in the United States as well as around the world to literally take the software industrial complex and consolidate it onto ServiceNow.”

“With this, Commvault Cloud for government can now securely handle controlled, unclassified information in cloud computing environments for government agencies and contractors. Additionally, Commvault Cloud is now on the AWS marketplace for the US Federal Government.”

“So, government, federal government, governments around the world are a definite area of focus. We went through the long journey of getting our technology FedRAMP High certified, and we're in a very rarefied space with that certification. Most of our competitors don't even come close on the level of certification that we have.”

“In addition, we're making our technology far easier to obtain and access by being on marketplaces like the AWS Federal marketplace and Government marketplace that we just announced.”

“Agencies are looking for security and compliance, and we have it. We're investing in specialized field resources, as you've observed with our field CTO community, that are deeply rooted in security issues and can take some of our capabilities from a compliance and standards point of view to governments globally.”

“During the quarter, we also extended our cyber resiliency leadership for government organizations. Among our top competitors, we are the only company to achieve FedRAMP High authorization.”

“From a federal perspective, we feel incredibly good about our Fed business. It performed in line with our expectations in Q1.”

“Ultimately, what we're seeing is that our FedRAMP High certification continues to be a competitive advantage for us.”

“So that's a great question. I'll take that. The federal business did underperform by several million dollars. But let's keep things in perspective, that vertical accounts for mid-single digit percentages out of total ARR.”

“We have decided to make changes to the management team of our federal business and believe those changes, coupled with our expectations for FedRAMP authorization next year, will better position us to capture that market opportunity going forward.”

“While our federal business underperformed our expectations, our strong performance this quarter was led by our enterprise business, with healthy contribution from new logo growth and conversion activity from both on-prem subscription and perpetual maintenance customers.”

“Additionally, I'm also proud to announce that we achieved the FedRAMP Authorization, enabling us to offer our entire SaaS platforms to the federal sector.”

“We have the FedRAMP moderate, but we just don't have just the empirical evidence that in terms of when we're looking at all of the investment, this is the place that we need to invest in.”

“We expect this to result in increased uncertainty with our remaining OPS business going forward.”

“As a result of continued underperformance in the federal vertical, we will be reducing the size of the team until we see improvement.”

“We are also pleased to announce that we have attained the “In Process” designation for FedRAMP Moderate, further aiding public sector agencies and clients in highly regulated fields to meet stringent security and compliance standards imposed by the U.S. government.”

“We expect this designation to enhance the significant momentum we’ve already gained in the public sector.”

“We expect this will create a nice tailwind in our public sector business with Dedicated for Government.”

“Turning to Dedicated, our single-tenant SaaS solution. We continue to see broad adoption across industries, and I'm pleased to announce that we achieved FedRAMP Moderate authorization.”

“The rapid adoption we're seeing validates our strategic investment in providing enterprise-grade isolation with cloud-native convenience, particularly among security-conscious sectors where compliance requirements traditionally slowed digital transformation efforts.”

“In the U.S., the fastest growing area which also needs more direct marketing, direct sales. That's also need more investment. So that's where we do plan to invest more into sales and marketing to keep gaining market share in the U.S.”

“We are more likely to hold the number one market share outside the U.S., in areas like Europe, the Middle East, Latin America, and parts of Asia Pacific.”

“Yes. I believe our diversification contributes to our success, with 70% of the business being international and just under 30% in the U.S. This year has seen numerous elections globally, and it seems that the U.S. election might be causing some hesitation among people.”

“Federal is a key focus for us. Our FedRAMP Medium certification has helped us gain traction, and we've seen interest in consolidating multiple tools into one Qualys platform. We're optimistic about this segment as we continue to build out our federal practice.”

“So far, it has been business as usual for us. We haven't observed any significant results or material impacts from the macro environment. We remain vigilant and attentive, but our business continues to be strong.”