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00:00So the debate is still going on whether or not AI will decimate software companies.
00:05It won't, will it?
00:06Definitely not.
00:07I think there's a lot of opportunity to use AI in software, no doubt.
00:09We've been building a platform with AI for a few years.
00:12And if you look at our revenue, growth in that area has been very significant.
00:16We are going to be crossing a billion dollars on AI-related revenue this year.
00:19We've been sharing that, and it's ahead of our plans.
00:22Last year, we crossed $600 million on AI-based revenue for our platform.
00:26So AI, I think, is a lot of synergy between what software needs.
00:28So there's a new transformation happening with AI today.
00:31And what we're seeing with enterprises, the key thing for them is to get a full solution,
00:36not just part of technology.
00:37And when you build a platform which includes AI and allow customers to move to the next generation technology
00:42without disruption, that's where the value gets unlocked.
00:46That's what we've been doing.
00:47And if you look at all our metrics, business metrics, 2025 was an amazing year for us.
00:51We beat every metric out there and the consensus every time.
00:54This year, we raised our guidance ahead of the consensus as well.
01:00Free cash flow margin is the highest number ever for us.
01:02We have a rule of 50 plus, 55 really.
01:05So 35% free cash flow margin and 20% plus revenue growth.
01:09So we continue to see acceleration because we've been adopting AI in our platform for a few years already.
01:14So I think there will be differences between different software companies.
01:17I think right now the investors look at it as one big amalgam of companies and they can't seem to
01:22be able to distinguish.
01:23But over time, we realize the differences between platform companies who are in corporate AI
01:27and really transforming their customers versus companies who are catching up.
01:32And that will be the difference.
01:33And you'll just start looking into the next level detail to understand the differences.
01:36As you said, it is a broad brush.
01:38Investors are pretty concerned right now.
01:39And that is showing in your stock.
01:41We're talking about how it's lost about 50% in the last 12 months.
01:44I'm just wondering, what's messaging to your investors?
01:47How do you reassure them that you're okay?
01:49Yeah, I think multiple things.
01:50One, it's about innovation.
01:52We continue to innovate.
01:53We see the differences in customer adoption for our side.
01:56So our products have been well adopted.
01:57Our customers are thousands of customers using our product.
02:00And the growth has been amazing.
02:01Second, if you look at a lot of the work we're doing from incorporating AI into a platform,
02:07the way we help customers transform their ability to run their business,
02:11the whole agentic processes we create.
02:13So it's easy for customers to go from the traditional way of running the business
02:16and provide them some support for moving into the AI transformation,
02:20but be very deterministic, making sure that you get the right outcome.
02:23So that has been a great value add for our customers as well.
02:27Second, if you look at the growth in terms of our usage,
02:29the usage for our AI-based product in terms of,
02:32we've said 55x went up in terms of the consumption last time in Q3,
02:36because people are starting to unlock the AI value into the products we deliver to them.
02:40So broadly, if you look at all the different metrics from the way we include,
02:44look at in terms of RPO, CRPO, revenue growth, the fee crash flow,
02:49all of the things investors should be looking at the numbers and they'll see.
02:51So ServiceNow is in a good spot, has been embracing AI.
02:54And you have said earlier that AI will not decimate the software industry,
03:00but it will change, it will reform, it will.
03:02For sure.
03:03I mean, how might that look like?
03:07Will offerings be different?
03:08Could that be consolidation?
03:10For sure.
03:10I think a few things will happen, right?
03:11So with any transformation with technology,
03:13see if you look at what happened in cloud,
03:15there were changes which companies had to adapt to
03:17when they were operating and providing software.
03:19So there were changes in terms of how you build the product,
03:21how you deliver it, and how you support your customer.
03:23Same thing is happening with AI.
03:24AI is a very synergetic thing, right?
03:26So if you're using workflows,
03:28you want to use AI to be able to automate a lot of the processes,
03:31but then you need to put a lot of scaffolding around it,
03:33around security, compliance, auditing, trust, safety.
03:37So enterprises can't just go all in
03:39without understanding what it means to the data,
03:41what it means for the processes,
03:43and how do you run this thing in a much more controlled fashion.
03:46So we have a product called AI Control Tower,
03:47which gives you visibility into what's happening with AI inside your company
03:51across the whole estate.
03:52And that is a difference maker,
03:54because then the customers start feeling comfortable,
03:55especially in the enterprise side,
03:57because there's so much risk associated with it.
03:58So that has been the big change already happening,
04:01and that's what we're seeing now from the adoption perspective,
04:04because the security pieces have been taken care of
04:07from the products like ours.
04:08We provide them the full ability to have visibility
04:10and auditing and compliance.
04:12So you can't just take AI and say,
04:13you know, I'll run this thing,
04:14and I have no idea what it did for you.
04:16You have to be able to provide them full support around it.
04:19So solutioning is a big difference
04:21versus providing a spare parts.
04:23So a lot of the technology out there,
04:24people are saying, you know,
04:25I can take some of these large language models
04:26and run it myself,
04:27but it doesn't give you the full package
04:29around what you want to do as a business.
04:31So then you'll end up running into a lot of security concerns,
04:34compliance concerns,
04:35and then there's no upgradability.
04:37How do you maintain backward compatibility?
04:39How do you make it work across multiple different domains?
04:42Make it work in like sovereign cloud, for example,
04:44which might be localized.
04:46A lot of these models don't run in localized environments.
04:48So how do you provide that full support around it
04:50to make customers successful?
04:51How might the industry look like in three to five years?
04:54I asked earlier whether there could be consolidation
04:56as a result of it.
04:58I do think so.
04:58There will be some companies
04:59who will not be able to make the transformation to AI.
05:03So there will be some software companies
05:04who will have difficulty in terms of getting to the next,
05:06which just happened during cloud time
05:07and happened during web.
05:09It always happens.
05:09If you're not taking on the latest technology
05:11and driving that adoption to your customers,
05:14you will be left behind.
05:15So there will be differences between different providers.
05:18So there could be consolidation, as you point out.
05:20There could be some companies
05:21who will go out of business.
05:22But there will be companies
05:23who will take advantage of this transformation
05:25and really accelerate.
05:26The tailwind with AI can be a huge, huge benefit
05:29for all the software companies.
05:30And no enterprises are just going to go
05:32and do spare part kind of things.
05:33They want solutions.
05:34So if you complete the story
05:35and provide them value,
05:37customers don't care who the provider is
05:38as long as you're doing the right thing for them.
05:40And that's how we really drive our business.
05:43And we will always customer-first mindset
05:44with the whole security, compliance, visibility,
05:48and end-to-end,
05:49not just doing pieces of a technology there.
05:51Talk to us about your tech spending.
05:53I mean, given the trends
05:55and how AI is progressing so rapidly,
05:58where are you investing in?
05:59So we're investing for multiple things.
06:01One, we've always been a platform company.
06:02So the AI platform, AI is part of our platform.
06:05The other areas we have growth,
06:06we have been one of the biggest vendors
06:08for the IT-related services.
06:10Now you see what we're getting into
06:12is our HR, employee engagement,
06:14how you help employees solve
06:15any of the problems they have
06:16when you're working inside the company.
06:18How do you get them help
06:19around their HR-related issues,
06:21IT-related issues,
06:22finance, supply chain, procurement,
06:24and then expansion into CRM,
06:25especially customer service,
06:27because AI helps you understand
06:28the intent of the user
06:29and support their whole ability
06:31to resolve issues.
06:32And then we have recently expanded
06:34a lot in our security space.
06:35Security business is billion-dollar-plus,
06:37growing at a very, very high rate.
06:39And we recently also are acquiring
06:41a couple of companies in that space
06:42to really shore up the ability
06:44to really accelerate
06:45what you can do with AI,
06:46with security,
06:47because AI without security is chaos.
06:49And what we're trying to make sure
06:51that you can control AI
06:52versus AI controlling you.
06:53So security is becoming
06:54the big, big part of the unlock.
06:57And so we are adding a lot of capabilities
06:59around identity management and governance,
07:01around operational technology,
07:03cybersecurity, around that device management.
07:05There's a physical AI coming in, right?
07:07You look at humanoids and things like that
07:08in manufacturing plants.
07:10We're bringing AI to that
07:11to make sure there's no breaches.
07:13So if there are any security breaches,
07:14how do you manage the breach
07:16through the whole life cycle
07:17and support the CISOs?
07:18As you embrace AI,
07:19are you hiring fewer people?
07:21No, our growth has been pretty...
07:23I mean, we've been adding employees.
07:25Of course, they've improved.
07:26What's the plan for Headcount
07:28in the next 12 months?
07:29I think we are being on
07:30a consistent growth path.
07:33I don't think we have a number specifically.
07:35It's all about...
07:36Come on, have it.
07:37We are on 28,000 employees
07:39and we've grown over a couple of thousand
07:40over the last year.
07:41But the way to think about this
07:43is that we are seeing
07:44some efficiency gains
07:45in our engineering part of it
07:47or support part of it using AI.
07:49So we use a lot of AI tools.
07:51But what has happened
07:52is it allowed our employees
07:53to now go and do some other things.
07:55So for example,
07:56if you look at customer service,
07:57our attrition was higher
07:58because people don't enjoy
07:59talking on the phone
08:00and everything else.
08:01Now with AI,
08:02we've been able to reduce
08:03the amount of time they have
08:04to go and deal with
08:05every simple issue
08:06where AI can take care of
08:07a lot of that
08:08and deflect it for them.
08:09And now we're freeing up them
08:10to do a lot of knowledge articles,
08:12solve a lot of bigger problems.
08:13So the work has exchanged somewhat.
08:15So employees,
08:16we continue to hire
08:17in areas of R&D.
08:19We do a lot of
08:20go-to-market growth as well.
08:22What we're doing
08:22from the perspective
08:23of how we support our customers
08:24to adopt a product faster,
08:26how do you simplify
08:27the user experience.
08:28Those are things
08:29we continue to invest in.
08:30And our expansion in TAM, right?
08:31We are at 600 billion TAM now
08:33because we got into new segments
08:35which we couldn't do before
08:37with the ability
08:38to accelerate our software development.
08:39We're getting to a lot
08:40of new segments as well.
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