Good day, and thank you for standing by, and welcome to the Q1 2021 ServiceNow Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator instructions] Please be advised that today's conference is being recorded. [Operator Instructions] Please be advised that today’s conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker for today, Ms. Lisa Banks, Senior Vice President of Finance. Thank you, ma'am. Please go ahead.

Good afternoon, and thank you for joining us for ServiceNow's first quarter 2021 earnings conference call. Joining me are Bill McDermott, our President and Chief Executive Officer; and Gina Mastantuono, our Chief Financial Officer. During today's call, we will review our first quarter 2021 financial results and discuss our financial guidance for the second quarter of 2021 and full year 2021. Before we get started, we want to emphasize that some of the information discussed on this call, particularly our guidance is based on information as of April 28, 2021, and contains forward-looking statements that involve risk, uncertainties and assumptions, including those related to the continued impact of COVID-19 on our business and global economic conditions. The guidance we will provide today is based on our assumptions as to the macroeconomic environment in which we will be operating. Those assumptions are based on the facts we know today. Many of these assumptions relate to matters that are beyond our control and changing rapidly, including, but not limited to, the time frames for and severity of social distances and other mitigation requirements. The continued impact of COVID-19 on customers' purchasing decisions and the length of our sales cycle, particularly for customers in certain industries. Please refer to the press release and the Risk factors and MD&A sections of our SEC filings, including our most recent 10-Q and our 10-K filed for fiscal year 2020 for information regarding such risks, uncertainties and assumptions that may cause actual results to differ materially from those set forth in such forward-looking statements. We'd also like to point out that the company presents non-GAAP measures in addition to and not as a substitute for financial measures calculated in accordance with GAAP. All financial figures we will discuss today are non-GAAP except for revenues, net income, remaining performance obligations or RPO and current RPO or cRPO. To see the reconciliation between these non-GAAP and GAAP measures, please refer to our press release filed earlier today and our investor presentation and for prior quarters previously filed press releases, all of which are posted at investors.servicenow.com. A replay of today's call will also be posted on the website. With that, I would now like to turn the call over to Bill.

Thank you, Lisa, and good afternoon to all of you. Welcome to our Q1 earnings call. I hope everyone remains healthy and safe, and you and your loved ones are benefiting from broader vaccine availability. ServiceNow remains grateful to be in such a strong position to help support our families, communities and customers. We started 2021 with another outstanding quarter, delivering a perfect balance of growth and profitability. Our team is executing, maintaining a swift pace towards our path to $10 billion in revenue and beyond. In Q1, we grew subscription revenue 30% year-over-year, exceeding the high end of our guidance. We delivered strong profitability with operating margin over 27%, and we increased free cash flow margin 7 points year-over-year to 46%. Our significant Q1 beat across the Board represents the passion our culture has for innovating and our relentless focus on the customer. We are ideally positioned to deliver what our customers need. In the past year, the transformation of work has accelerated the adoption of digital products, services and experiences. As a result, digital investments are an all-time high and will total more than $7.8 trillion by 2024 according to IDC. ServiceNow is the strategic authority for digital transformation across the enterprise. We have expanded the boundaries from IT to employee, customer and now creator workflows for citizen developers. The digital economy is firing on all cylinders, and so are we. Our culture was born for this moment. Our team of 14,000 colleagues are exponential thinkers. This is how we continuously bring innovation to everything we do. In just the past 18 months, we have more than doubled the features and functionality of our platform for our customers. We're at the epicenter of the workflow revolution. Our purpose has never been more relevant. We are making the world of work, work better for people. We are helping our customers drink bit and to build their digital bridge to the future. Xerox, for example, is working with ServiceNow to transform the services industry, leveraging our field service management, their technicians will use machine learning to proactively solve customer problems. They're using virtual and augmented reality tools to resolve their customers' issues via desktop, mobile and smart glass devices. In this bold mill world is as if their agents are there in person. Digital transformation is about creating great employee and customer experiences. In an increasingly distributed hybrid workforce, companies need to create frictionless experiences that make it easy for employees to get work done. This requires seamless cross enterprise workflows, linking systems, silos, departments and processes, only the Now platform can do this with native integrations. The platform of platforms, the power of one, one data model, one architecture, one enterprise solution to workflow every business challenge. This is what ServiceNow delivers. We are the only ones doing what we do, the way we do it. Strong demand for ServiceNow is evident in our results, high growth, organically driven at mass scale, while aggressively investing in future growth and delivering significant profitability. An amazing business model and a true testament to the power of the Now platform. Our teams keep innovating. We're proud that Québec, our latest platform release delivered 1,700 new customer capabilities, breakthrough innovations like predictive AI operations, AI search and virtual agents that enhance every experience, to name a few. ServiceNow is helping customers move to the cloud and invent new business models. The past year has demonstrated that giving people the right productivity tools is critical to success, especially in distributed work environments. It's why organizations like Adobe, Deutsche Telekom, Logitech, city of Los Angeles and Discover are using the Now platform. Discover, in fact, is fully utilizing the Now platform's ease of upgrade, participating in the early adopter program for our Québec release. Now Discover is able to focus on timely availability, and adoption of new functionality, the Now platform is the gold standard for time to value. By the end of 2021, Forrester Research predicts that 75% of development shops will use low-code platforms. With Québec, we are delivering new low-code tools that move app development beyond the borders of the engineering organization and into the hands of citizen developers. Employees without software expertise who need to quickly create workflow applications. We're seeing strong response. The National Cancer Institute at the U.S. Department of Health and Human Services is a great example. NCI has established a digital service center around ServiceNow's low-code app engine platform. In just 10 days, NCI leverage ServiceNow to build a new application for an online portal to collect and track specimens from COVID-19 patients. ServiceNow's low-code app is helping NCI staff support the global research community in understanding how genetic factors contribute to the severity of COVID-19 cases. We also introduced process and workforce optimization capabilities in our new enterprise SKUs. This brings even more intelligence to our customers, allowing them to be more agile. We're putting new AI capabilities in the hands of our customers, so they can enhance productivity while spending more time on human creativity. With our recent acquisition of Intellibot, ServiceNow will have an unmatched intelligent workflow automation solution with RPA, AI, machine learning and process mining native to the Now platform. You'll hear more about this from our Chief Product and Engineering Officer, CJ Desai, at our upcoming Investor Day. Please be there. Now let's look more closely at Q1 performance highlights across our portfolio. Our better together solutions continue to drive more multi-product deals. Our core IT workflows remain strong. ITSM was in 12 of our top 20 deals. Our AI and ML capabilities embedded with our pro SKU, continue to resonate with customers. ITOM had a strong quarter and was in 13 of the top 20 deals. EMEA was especially strong. We're hitting a new Gear with CEO engagement. We're seeing more demand across industries, including financial services as EU banking regulations require companies to have full visibility into their assets while also managing risk. HSBC, for example, chose ServiceNow in a multiyear partnership as their workflow partner of choice to help them digitize at scale. Supporting HSBC's employees, ServiceNow will deliver the technologies needed to simplify their architectural landscape. This creates efficiencies, better controls and compliance. Australia and New Zealand Banking group also chose the ServiceNow platform to consolidate, simplify its IT systems and streamline operations to improve the employee experience. The Now platform gives them the advantage of a fully integrated view of technology and risk. We continue to see strength in our customer workflows. Our investment in the telco vertical are gaining traction daily and it's materializing in wins across the globe. Lumen Technologies, a leading telecommunications company is transforming its customer care, and assurance function with ServiceNow customer workflows. They will use the Now platform to deliver best-in-class customer experiences across their networking, cloud and security solutions. Telia, a leading multinational telecommunications company, selected ServiceNow to transform service operations, connecting network operations, employees and customers around the world. Creating workflows, our platform business was in 19 of our top 20 deals. Three of our top 10 app engine wins came from APJ where we are seeing increased awareness of ServiceNow and is continuing to drive demand. A large global manufacturing company in Japan is planning to use our app engine to automate manual processes take out cost and risk associated with migrating on-premise applications to the cloud. This will be a movement in Japan. In the US, the Now platform is at the heart of the city of Los Angeles' digital transformation, helping to provide reliable access to essential services for its four million citizens. The city is expanding its use of digital technology to provide immediate access services, which enables citizens to get the assistance they deserve. Employee workflows were included in eight of our top 20 deals. Zalando is a leading online platform for fashion and lifestyle, connecting customers, brands and partners. As part of their HR transformation, they will implement a central employee services portal using ServiceNow's employee workflows. Zalando sees this as a critical component in supporting their growth, and improving their employee experiences. Employee and workplace safety are top of mind for our customers. We are the only company with a complete suite of applications to meet these critical needs. Since the start of the pandemic, ServiceNow has been at the forefront of solving unprecedented challenges. We saw the meet early and acted quickly. First, our emergency response apps, then our safe workplace apps and now with vaccine administration management, we leverage the speed and agility of the Now platform and the incredible talent of our product team to innovate fast, deliver market-leading solutions to support our customers and help keep them safe. You see, organization trap in the last mile of vaccine management as they lack the processes and infrastructure needed to vaccinate people quickly. This is the workflow challenge of our time. To address these challenges, organizations are using the Now platform as their vaccine management manage center. Our workflows are connected organization's existing technology infrastructure to help orchestrate the critical elements of the vaccine management process, including distributing administering and monitoring vaccines. The Minnesota children's hospital implemented our vaccine administration management in five days, so they can stay focused on their number one priority, caring for children. The hospital is using ServiceNow virtual assistant to answer questions and scheduled patient vaccinations. They are leveraging inventory tracking and scheduling to ensure appointments, staffing levels and vaccines are all in sync. Germany's largest state, North Ryan Westfalia, is using ServiceNow to support vaccinations for millions of people. Within two hours of the portal going live, 120,000 people have registered and received an appointment. ServiceNow ended Q1 working with over 100 organizations and governments globally to help vaccinate people at scale. We are supporting the delivery and management of millions of vaccines globally. We will continue to do more. The workflow revolution is all about helping people. We are humbled to be helping so many people around the world manage this workflow challenge. In summary, we had a great start to the year with strong momentum. I'm so proud of what our team has accomplished over the past year and what they continue to achieve. From the beginning of this pandemic, we have focused on taking care of our people and taking care of our customers. That's why we're so grateful to be named to the Fortune 100 Best places to work list for the first time. And we're proud to have increased our position on the Fortune Best Workplaces in Technology list by more than 10 points. Our culture demonstrates time and again how we powered through all-weather conditions. Our engineering pride is unmatched. Our innovation relentless and our customer focus tireless. We have a very, very robust pipeline. Substantially greater than anything we've seen before. We have all the learnings of digital customer relationship management. Our strong go-to-market organization is operating in high gear. Our customer services and partner ecosystem is accelerating time to value. Our business is ever resilient. Our opportunities never greater. We continue to work with some of the world's greatest brands, including BMW, Bristol-Myers Squibb, FIS, Subway, Standard & Poor's, we're honored to be their digital transformation partner. And we're also excited to highlight even more customers at our upcoming knowledge 21 experience in May, which will be our biggest customer event ever. And we look forward to seeing all of you at our upcoming Investor Day. This ServiceNow machine is firing on all cylinders. We're not slowing down. We are well on our way to $10 billion and beyond, and we are striving with all we have to be the defining enterprise software company of the 21st century. Gina, over to you.

Thank you, Bill. Q1 was a great start to the year. On the heels of a tremendous Q4, the team continued to execute well and delivered another strong quarter of outperformance. We exceeded the high end of our subscription revenue, subscription billings and cRPO guidance and those top line beats carried through to a very robust operating margin and strong free cash flow. Q1 subscription revenues were $1.293 billion, representing 30% year-over-year growth, inclusive of a 4-point tailwind from FX. Remaining performance obligations, or RPO, ended the quarter at approximately $8.8 billion, representing 34% year-over-year growth, putting us well on our way towards our $10 billion revenue target. Current RPO was approximately $4.4 billion representing 33% year-over-year growth and 100 basis points beat versus our guidance. Notably, we delivered that beat with 100 basis points less of an FX tailwind. Due to the weaker euro, currency contributed four points instead of our original outlook for a 5-point tailwind. Q1 subscription billings were $1.365 billion, representing 29% year-over-year growth and a $3 million beat versus the high end of our guidance. FX and duration were a 4-point tailwind year-over-year. As Bill mentioned, we saw particular strength in EMEA as investments made in 2020 are gaining traction. In Q1, the region closed one of its largest deals ever, helping to drive very strong year-over-year net new ACV growth. We're also seeing improving trends in APJ, where we were in two of the top three platform deals in the quarter. We continue to see the secular tailwinds driven by the intersection of digital transformation, cloud computing and business model innovation. Every C-suite leader wants to create great experiences for their employees and their customers, and ServiceNow is delivering. The Now platform offers the speed flexibility and innovation companies needs. The sustained strength of our top line growth is the result of consistent execution from across the organization as we address these opportunities. From our engineers who continue to drive leading edge innovation to the sales and customer success teams who partner with our customers to ensure we're delivering value and everyone else in between that helped to deliver great experiences. It's been a tremendous team effort. Our renewal rate remains strong at 97% as the Now platform remains a mission-critical part of our customers' operations. We closed 37 deals greater than one million ACV in the quarter, including seven net new customers. Our focus on selling comprehensive solutions instead of point products continue to drive more multi-product fields as 17 of our top 20 deals included three or more products. We now have 1,146 customers paying us over $1 million in ACV, up 23% year-over-year, and the number of customers paying us $5 million or more in ACV grew over 50% year-over-year. Turning to profitability. Operating margin was 27%, up 300 basis points year-over-year, driven by our strong top line outperformance and the timing of some spend that will shift into Q2. Our free cash flow margin was 46%, up 700 basis points year-over-year, driven by strong collections and lower T&E. Together, these results show the power of our business model and our ability to drive a balance of growth and profitability. Before I move to guidance, I want to give a brief update on the macro trends we're seeing in our business. The industry is highly affected by COVID that we outlined earlier last year, which represent about 20% of our business, remains resilient in Q1. We closed several 7-figure deals in these verticals, and renewal rates were ahead of the company average. However, we did continue to see some headwinds in severely impacted industries such as airlines. Regardless of the industry, in an increasingly distributed and hybrid workforce, companies need to create consistent and frictionless experiences that make it easy for employees to get work done. Digital investments are at an all-time high and are expected to continue growing as companies must reinvest themselves for the new economy. ServiceNow is the strategic authority in digital transformation, and we're committed to helping our customers succeed in that journey. These strong secular tailwinds paired with the strength and agility of the Now platform positions us well for 2021 and beyond. Pipeline generation has remained robust globally, even ahead of our Knowledge 2021 event, which is a big driver, particularly for the Americas. It is helping to drive the net new ACV acceleration in our business this year. Enterprises around the world are recognizing the strength of our one architecture model and its ability to deliver great scalable experiences with speed and efficiency. Now let's turn to guidance. For Q2, we expect subscription revenues between $1.29 billion and $1.295 billion, representing 27% to 28% year-over-year growth, including a 300 basis point FX tailwind. We expect cRPO growth of 30% year-over-year, including a 250 basis point FX tailwind. We expect subscription billings between $1.25 billion and $1.255 billion, representing 23% year-over-year growth. Growth includes a net tailwind from FX and duration of 300 basis points. We expect an operating margin of 21.5%, which includes $15 million of sales and marketing spend that shifted out of Q1 and into Q2, and 202 million diluted weighted outstanding shares for the quarter. For the full year 2021, we're raising our top line growth guidance on a constant currency basis. We are increasing the midpoint of our previous subscription revenue expectations by $32 million based on the strong trends we saw in Q1. However, a weaker euro resulted in a $59 million headwind to our growth. Taken together, we expect subscription revenues between $5.455 billion and $5.47 billion, representing 27% to 28% year-over-year growth. This includes a 200 basis point FX tailwind. Similarly, we're increasing the midpoint of our previous subscription billings expectation by $50 million on a constant currency basis. However, the weaker euro resulted in a $68 million headwind to our growth. Taken together, we expect subscription billings between $6.19 billion and $6.205 billion, representing 24% to 25% year-over-year growth. This includes a net tailwind from FX and duration of 150 basis points. In terms of quarterly seasonality, we're continuing to see a shift of Q2 and Q3 subscription billings into Q4. We now expect about 21% of our total subscription billings to be in Q3 and 37% to be in Q4. We continue to expect subscription gross margins of 85% and operating margin of 23.5%. Finally, we expect recapture margin of 30% and 202 million diluted weighted outstanding shares for the year. You'll hear more about our strategy and long-term opportunity at our upcoming Investor Day on May 10, which will be webcast on our Investor Relations website. In addition to making work, work better for people, we're also committed to making the world work better as well. This week, we unveiled our first ever global impact report. At our Investor Day, I'm excited to be able to share ServiceNow's global impact strategy with you. In conclusion, ServiceNow is leading this once in a generation opportunity to make work, work better for people. We are focused, disciplined and committed to helping our customers succeed. We have the platform businesses need and where the workflow standard for enterprise transformation. Customers are using the Now platform to create new workflows for new value chains, to improve experiences across silo systems and functions to reduce friction in people's daily lives, and it's showing in our financial results. I'm very excited about the future in front of us. Finally, before moving on to Q&A, I just want to thank all of our employees around the world for helping to make ServiceNow one of the Fortune 100 Best places to work. ServiceNow's greatest strength is its people, and you all continue to make us ServiceNow strong. Bill and I couldn't be prouder of this team. And with that, I'll open it up to Q&A.

[Operator Instructions] Your first question comes from the line of Keith Weiss with Morgan Stanley.

Thank you, guys, for taking the question and nice to see the really strong start to the year. I think there's a question for Bill. I think one of the most notable kind of KPIs that we saw is that pickup in the platform business going to 20% of the new ACV, up from 15% just last quarter. That seems to be a pretty big pickup. Can you talk to us - give us a little bit of color in terms of what's enabling those bigger, more strategic platform sales? Was there any processes you put into place with the sales force? Or is it the new partnerships? Or give us some kind of idea of kind of how that picked up so -- is so much in the results this quarter?

Yes, absolutely. I'd be happy to, Keith. Thank you for the question. I think the answer is we've done all of those things. With Québec, we're delivering new low-code tools that move app development beyond the borders of just the engineering organization and really into the hands of the citizen developers. So as you know, with digital transformation is a whole move to modernized apps, and this is really tying engineering and business together, and we're seeing a greater market awareness for ServiceNow's digital transformation enablement to automate manual processes within organizations. And we have a focus in this company on being the platform of all platforms, which means, we don't need anyone to lose for us to win. So lots of folks integrate into the Now platform. And our low-code, no-code app development to create new workflows that deliver great experiences is really taking off. And I gave a couple of examples in our prepared remarks, one such example is a National Cancer Institute. So if you think about what they're doing at NCI, they established a digital service center of excellence, and they've done that around ServiceNow's low-code app engine platform. And when you think about time to value, it's just 10 days, they were up and running with an online portal to collect and track specimens of COVID-19 patients. So we think that this is going to be a runaway success story for the company. And when you look at the year-on-year growth here and you look at the pipeline, we are extremely bullish on this business.

Excellent. That’s helpful.

Thank you, Keith.

Our next question comes from the line of Karl Keirstead with UBS.

If I could just ask you about the seasonality in subscription billings this year, maybe sort of a two parter. In terms of 2Q, it looks like your constant currency billings guide of 20%, that's about a 5-point step down from what you did in Q1, yet the 2Q compare, I think, is reasonably easy, given that was a tough quarter for everybody in software in the year ago period. And then in terms of the full-year billings guide, it looks like the constant currency guide is about 23% at the midpoint. Just to clarify, was it about 22% before? So you've, in fact, upped it by a percentage point or so, just to clarify? Thank you so much.

Sure. So I'll take the first question on the Q2 billings and the deceleration from Q1. So first off, you can see in our IR deck that in Q1, we had $11 million in multi-year billings that we don't expect to occur in Q2. So that's part of the deceleration. As well, we talked about timing, and we've talked about this in the past and why billings is not the best metric, right, because if customers are co terming during the contract period, they often renew early, which changes the timing of renewals and really impact billings. And so one of the reasons why billings is not the greatest of metrics and why we are pointing to and giving guidance now for cRPO of 30% in Q2. What I would say is that we are, in fact, seeing a reacceleration of net new ACV in Q2, given the Q2 comp from last year. It's just that there is a lot of noise in billings. And so I just continue to really stress that we should be looking more at cRPO. And then for the full-year, it's about 28% normalized because remember, last year, we had the pull forward of $80 million of billings out of Q1 of 2021 and into Q4. And so the full-year guide, we have increased it by almost the full Q1 be that you're seeing.

Got it, okay. Very helpful. Thank you, Gina.

A very welcome.

Your next question comes from the line of Alex Zukin with Wolfe Research.

Hey, guys. Thanks for taking the question. So maybe first on just the pipeline and the visibility to Bill. I'd love to just get a sense for how you're thinking about kind of the large strategic deals? I think there's a fear that last year, it was a time to really go and sell into the base and that there's not a lot of incremental monetization opportunity available in some of the large customers, but it does seem we're at least picking up in our checks, that couldn't be further from the truth and that there's a lot more strategic opportunity available. So maybe just first, I'd love to hear kind of your take on that, Bill. And then I've got a quick follow-up for Gina.

Sure. Absolutely, Alex. First of all, when you look at the pipeline in my prepared remarks, I was very careful to point out that it's never been better than it is right now. And in fact, it's outstanding. And has a couple of driving forces here. One, if you look at EMEA as a theater, the EMEA business is smoking hot. And you saw 80% year-on-year growth in the first quarter out of EMEA. So let that be the first indicator that the brand is now alive and - we are operating extremely well through the Rolodex of EMEA and the CEOs across various industries and various mission-critical geographies are adopting us as the workflow standard. Continue to believe in EMEA as a great wellspring of growth to ServiceNow, and that was a big one for us to get really rolling. The other piece is APJ. We're seeing now outstanding growth out of APJ, and I would say the same is true for the brand. Now we're well known. We're on fire in Japan. As you know, Japan is an on-premise market and needs to move to the cloud. The workflow revolution is one great way to get them going in the cloud. I gave an example of that in my prepared remarks. We're also expecting better things that was with the leadership adjustment that we've made. We see South Korea doing extremely well. So I want you to believe in APJ is yet another well spring of growth that can go higher and higher with ServiceNow. We've always been strong in the Americas. The Americas had an extraordinary Q4, as you know, and they'll kick back into their normal growth rates at higher and be on course with where we wanted them to be at the end of Q2. So you add all that up in the geographic theaters and the business is in great shape. The other thing we've done is really focused on some breakthrough industries, financial services and telecommunications quickly come to mind, where once we get rolling, the Bowling alley effect takes effect very, very quickly here. And keep in mind, we're now in a global economy. That is shifting quickly to lights back on. Last year, GDP was down substantially in the global economy, yet digital transformation spend was up. This year as the economy comes back, they're not slowing down digital transformation spend, actually, it's also going up, but the economy is waking up. So what's gorgeous about this for us is we now have the CRM techniques of digital selling, combine it with the direct selling that always worked well. And some of the techniques that we've enabled also on inside selling and how we've taken the whole marketing value chain from the brand and communications to field marketing, industry specialization product marketing and then all the resources in the field to basically take that industry specific, value-driven story to the customer, and we've aligned that with our services organization, and an expansive ecosystem with all the big partners betting long on ServiceNow, setting up global practices with ServiceNow. So Alex, I've been in this business for 20 years. I've never seen an opportunity like this in my career, and I actually think we're just getting started.

That's awesome. Thank you, Bill for that. And then maybe just a follow-up for Gina. So as we think about moving our forward-looking indicators to current RPO and RPO. I guess is it - can you maybe remind us of - are there any kind of quirks or seasonality or things we should keep in mind? Because I think some people are going to do change in RPO, which is a little bit harder when there's decimal places, quite frankly, to do it from. But anything we should keep in mind, you're guiding to that 30%. There's a little bit of FX tailwind there. Anything we should think about there?

Yes. I mean the RPO is definitely a better guide, and there's less noise in it than billings, but there is noise. There's no perfect forward indicator for you. And so if you think about contracted upsells, for example, on the timing of renewals, that could impact cRPO. Additionally, self-hosted deals could potentially impact the RPO vis-à-vis revenue growth. So there's no one perfect indicator, but cRPO is definitely a stronger indicator with less noise. So we will continue to guide one quarter out, and we'll continue to stress that. It has less noise and less confusion in it than the billings metric.

Got it. Thanks, guys. Congrats.

Thank you.

Thank you very much.

Your next question comes from the line of Samad Samana.

Hi, good evening. Thanks for taking my questions. Good to see the strong start of the year as well. Maybe on the federal side, just with the change in administration, I'm curious if there's been any change in either the demand environment there? Or if there's been a change in maybe the linearity of how we should think about federal and for that matter, state and local government deals this year as well? And then I have one follow-up.

Yes. Thanks, Samad. It's actually very obvious that with a change in administration, everybody has to get their offices and get settled in place and budgets have to be allocated and so on. So we see the light turning on the business model at the federal level very strongly in Q2. And we expected that all along. So it makes up about 10% of our business now. So it's a big part of our business, and the pipeline is absolutely swelling, and it's swelling because of the change in administration. But the administration, as you know, is very focused on digital transformation because it's really the only way to run a much more refined, low cost, high delivery process for the constituents to put in office. So everybody is highly aware of that. And we do fantastic, as you know, in federal. And in fact, Homeland security, many other departments have chosen us a vaccine management just as one thing to give you. And state and local, we're doing really good and again, a groundswell of opportunity there. And I do believe as we go through Q2 and into Q3 and Q4, the deals will just get larger and the business will come in stronger as we go. We're doing great in federal, state and local.

Very helpful. And then maybe, Gina, just as a follow-up for you. On the comment around the net new ACV accelerating, could you maybe help us understand -- bifurcate that from new ACV from new customers to ServiceNow versus new ACV from existing customers and how -- if either both of those are accelerating or just maybe how the timeline there looks?

Yes. I would say that we were really pleased with new logo growth in Q1. We saw strong growth in our new logos and seven new customers greater than $1 million across several verticals, right, pharmaceutical, insurance, e-commerce, just to name a few. And most of these deals actually had 4-plus products. And so we are continuing to see good traction in the new logos and obviously existing as well. And so we saw -- we're not going to give you numbers, but I wanted to make sure, again, with billings noise that people understood that we saw strong net new ACV acceleration in Q1 and expect that as well in Q2 and throughout the year.

Great. Thanks again for taking my questions. Good night.

Bye, Samad. Thank you.

Your next question comes from the line of Kash Rangan with Goldman Sachs.

Very much congratulations on the superb quarter, Bill and team. Bill, I have a question for you. It's been a year now since we've been working and running the business virtually. And so one end, you could argue that the deals that are getting close today hurdles that got into the system about a year back or so. Now as we remain virtual, how do you think about lead generation in driving the business for calendar '21 and beyond? And also given that you've had tremendous success selling virtually and rescaling the business virtually. This opening of the economy really have any benefits for ServiceNow incrementally speaking? For Gina, I'll save the follow-up.

Kash, thank you very much for the question because it's a very important one. Somehow, some way, I actually think some people have this illusion that ServiceNow was advantaged because of COVID. And the truth is that is not the case. The truth is that we lean vaccine management on an emergency response, return to work in vaccine management level it was great for our brand. It was the right thing for our purpose, and it was wonderful in terms of expanding the inspiration of ServiceNow in the global economy. On a financial level, we, like everyone else, had to figure out a new way of connecting with customers. And in that environment, you'll always do better with your existing customers that already really like you and a loyal to you in terms of expanding your portfolio across your base. What you're going to see now is net new logos, net new ACV really kick up into high Gear at ServiceNow, which makes this such an exciting story because our sales force is a largely go-to-market direct sales force. And now they will be able to utilize all of those skills that have been built into that culture and are wired for perfection, really wired for perfection geographically, by industry and by Persona, and that will now be a new tailwind for the investors to enjoy as we progress in 2021. The lead generation, I tried to cover that earlier to, Kash, because I want to really make this clear. We have really refined the company in the context of generating leads. And what I mean by that is we took the brand. We ran a campaign today if you care to see it. You can look at the Wall Street Journal, and you'll see the Wanka campaign because we're letting the world know that the workflow revolution is on. And even the Willy Wonka chocolate factory can run better on the backbone of the ServiceNow platform. And we're educating a whole new generation around what workflow is really all about. And we've taken the brand, the communications, the field, the product marketing and align that to the industry, the GEO, the persona, the inside sales, the direct sales, and we're managing that funnel with a meticulous level of detail around machine learning and AI that manifests itself ultimately in a CEO dashboard, but we manage the whole company on a CRM level that is a really, really world class. In fact, I've never seen it anywhere at the depth of analytics who're running the business on Now. So the leads are not all equal. You have to understand how to manage the pipeline. You have to manage the noise in the pipeline. And as the economy opens up, those processes have been built now for industrial mass scale. So I want to let you know, watch net new ACV, watch net new logos, and watch this machine tick into higher on the back of Knowledge '21 and an already robust and swelling pipeline. We're really in great shape.

It sounds like now we go. Gina, question for you. If Bill's take on how the economy opening up will have some implications, ramification. How much of that have you dive into guidance? Or are you keeping guidance relatively conservative, not taking into account all the upside that will -- as you talked about opening the economy that if it does materialize?

Yes. I think that we feel really good about our guidance from top line to bottom line. I think the growth is strong, pipeline is good. From an operating margin perspective, it's strong, free cash flow at 30%. I mean, where are you seeing growth that you're seeing, top line and free cash flow margins of 30% with the scale that we're at. So we feel really good about the guidance. We feel really good about the growth, and we'll just continue to keep executing according to plan.

Thank you so much.

And Kash, one thing that's really interesting is when Gina talks about those numbers, which I totally agree with, let's keep in mind, it's organic.

Absolutely.

Thanks, Kash.

Thank you, Kash.

Your next question comes from the line of Michael Turits with KeyBanc.

Hey. Good afternoon, everybody. Thank you so much. I have one for Bill and one for Gina. So Bill, a very big picture question, but a lot you've done to do more in automation with the Intellibot acquisition. There's a lot activity in that sector. I'd like to know where you think ServiceNow fits into that broader automation scheme with so many different types of players out there over the medium to long term? And Gina, I have one for you.

Yes. Excellent question, Michael. Many of our customers are trying to drive automation. And they're trying to drive it across a mix of legacy and, of course, modern applications. And when you think about RPA, it's not a particularly differentiating technology, but it's particularly important for integrating with legacy applications that don't support API-based integrations. So what Intellibot does has a very strong experience in developing RPA solution and has existing product capabilities and technical talent that will help us accelerate and enhance our automation efforts. So think about it this way. Our focus is on delivering world-class automation and a platform we call the Now platform. And what we want to do is accelerate digital transformation. And RPA is a piece of that strategy. So RPA will extend our core ServiceNow workflows and it will automate certain repetitive tasks and it'll integrate with these legacy systems for basically intelligent end-to-end automation. And this is strengthened with our existing technologies, such as AI and ML. And as it relates to our participation in the open market, I can tell you that customers tell me that they feel like RPA has left them with islands of automation. And it's getting harder for them to manage as they scale, they're kind of hitting a wall. So what they're looking for is what we are providing, which is a single platform where workflow is the core engine that drives the process. And then they have a choice of the right automation technology for the use case, based on integrations, RPA, decision management or artificial intelligence. So what we'll give them is we'll give them something that's natively integrated into the Now platform. But for example, if you IPF or any other well-known RPA technology out there such as automation anywhere automation anywhere, if they're looking to work with them, that simply integrates into the Now platform. And they support us, and we support them because we're all on the size of the customer, and that's what really matters. And I really think this is a breakthrough a moment in this Q&A because we have taken that position with all participants in the market. But we don't need anyone to lose for us to win. What we do is we workflow end-to-end business processes, and we're automating work to make it work better for people. And if the customer has a certain vendor that they're working with, it integrates seamlessly within Now platform, it's okay. But there's a lot more of them that is saying, give it to me on one platform, make my life simple. I don't want islands of automation. I want a platform that really manages my business in a smart way. Either way the customer wants to work with us, we're happy to work with them.

And Gina, my question for you, in some sense, it may be an extension of what Kash was asking. But as you pointed out, you raised the guidance for subscription billings for the year by just under the 1Q raise. And there is still some -- even x the $11 million. There is some slight decel in the next quarter. So is there anything that is, in fact, holding you back from guidance that would have been higher at this point?

No. The only reason why the full guide wasn't through to the full-year was we had some pull-through of billings from Q2 into Q1 of about $7 million. We feel really good about the guide and there's -- I mean, I think it's a strong guide throughout, and we're going to really see the seasonality, right? So Q2 and Q3, I tried to talk about that whereas we're seeing more and more billing being pushed into Q4, that's really what you're seeing here. We're seeing very strong acceleration of net new in Q2 as well as into Q3 and Q4.

I think this is worth noting that, like, it's the way the customer wants to do business, right? So when they have a multiproduct contract, then they want to consume and combine and do all these things, we're just seeing the trend line go more towards the Q4 from a seasonality standpoint, but the good news is, and that's why I think Gina did a great job with changing kind of the nomenclature around this to RPO because that's what the customer wants -- we give the customer what they want and the timing that they want. But what I think our investors want out there is they want to know, are you guys getting new logos? Do you guys get net new ACV? Is your pipeline doing great? Do we have room to believe that this is a story that can keep delivering? And the answer to all those questions is yes, yes, yes.

Thank you, Bill. Thank you, Gina.

My pleasure.

Thank you.

Our next question comes from the line of Brad Sills with BofA Securities.

Great. Hey, guys. Thanks for taking my question. One on the DevOps release, it's exciting because it really could further that evolution of ServiceNow as a custom apps platform. There's always been that potential for ServiceNow to play in that market. But primarily, the success has been in packaged applications, ITSM, ITOM, employee customer workflows. So my question is, is that the case? Does this DevOps solution accelerate the company's kind of move towards a custom apps platform. And given that, that's such a vast market, are there certain areas or cases that you might see success early? Thank you so much.

Yes. I think that's a really insightful question for sure. When you think about what's going on, like I talked about discover in the prepared remarks, right, they were an early adopter of the Québec release. And what they're doing is trying to give value back to the business. So this -- they shared that it's a better time to be a developer on the ServiceNow platform than ever before. Because they use the new user interface builder. And this capability has allowed them to basically create modern and data-rich applications at an incredible pace. And then at the same time, what you see happening is innovation at the edge of the enterprise. Like I'm the executive sponsor for one of the biggest banking customers in the world. They've got to modernize 5,000 applications. So as I saying to me is how can I, for my business people. Modernize an application really quick or build a net new application. So what you're seeing is this convergence now between the developers and the business people demanding innovation and change swiftly coming together on the Now platform. This business, I would not be surprised if it ends up being the biggest business we have. I see the money going to the cloud, whether it's multi-cloud platforms, it's SaaS platforms or its app innovation at the edge of the enterprise, and we are right there. And the fact that we can connect it across all the experience zones, all the way back to IT, security, DevOps, et cetera, gives us a unique competitive differentiation and competitive advantage.

That’s great, Bill. Thank you so much.

My pleasure. Thank you.

Your next question comes from the line of Sterling Auty with [JPMorgan]

With JPMorgan. Thanks, guys. Just one question from my side. So on those hard-hit industries, you called out airlines. So I'm just kind of curious, what percentage of those -- that roughly 20% of revenue in the hard-hit industries are in the airline use case where there's still a headwind versus the rest that maybe are starting to bounce back and maybe look at incremental investment for digital transformation?

It's - yes. So thanks, Sterling. It's much, much smaller. It's less than 5%. And so we are really seeing a bounce back in the bulk of those industries that we've called out last year as being part of the 20%. And we talked about some really large deals in some of those verticals, including retail, entertainment, transportation and manufacturing in this quarter, as well as the renewal rates in those industries are actually higher. So what's really happening, as you can imagine, is these customers who have been harder hit, they're more focused than ever on reducing risk, taking out costs, driving productivity. And so they are leaning in even more heavily with ServiceNow before. And so I just wanted to make sure that people understood that not every customer is in that lucky position right now. And there are still some that are hard hit, and we continue to work with them and help them through it. But yes, the bulk of this industry are really bouncing back fairly well and really helping lean into this digital transformation that we're seeing.

Got it. Thank you.

You’re welcome.

And we do have time for one more question from Derek Wood.

Question back on the low-code side of the market. There certainly seems to be just a lot more market dialogue around low-code tools to accelerate transformation. And Bill, I'd love to hear who's championing these initiatives? And will you be looking to add new kinds of sales motions to target the citizen developer outside of IT? And then maybe if you could just touch on, I think, Québec had a focus on advancing some low-code, anything to highlight there? Thanks.

Yes. Sure. First of all, I would just remind you that like ServiceNow is positioning, enabling line of business users to develop workflow automation is really perfect. And we are at the kind of epicenter, I would say, of secular tailwinds, wins, which are forming around the convergence of IT and business, which I said earlier. So App modernization, operational transformation, IT in the business, they're all moving as quickly as possible to drive greater efficiency and more agility. This is a product already today where we have a very capable leader in engineering, Josh Conn, who's been with us now for some time. And when I first came in here, the first thing he said to me is, hey, I'm raising my hand. This could be big. And I said, we're going to get all behind you. So we already have specialists sales force that complement general line to make sure that we capitalize on this opportunity. And I think the reason that this opportunity is so smoke and hot right now is there just aren't enough developers to build the applications that the enterprise need to transform their business. So this huge unmet need in application delivery is really falling right on to the Now platform and these creative workflows are really driving the foundation of the partnership with our customers, tying together engineering and the business executives. So I would just say to you that we have -- we don't need to like hire new sales force to do this. We already got the specialist, we already got the great engineering, and our team really understands app engine. It really understands the platform, even the general line AE in the field sees this as a golden opportunity. And we've aligned all the empowerment levels and the compensation schemes and all the focus to be there because we know that's where the money is.

I'll just add one thing, Derek, to say that the IT organizations are becoming more and more important here because the businesses, while -- yes, they bought these applications. The IT organization is responsible for ensuring they're safe, secure, right? And so the partnership between the business and IT is becoming stronger and stronger. And ServiceNow is the platform that's strategic to IT, trusted, scalable and secure. And it's a platform that IT is going to continue to use to build these mission-critical applications for the lines of business. And so really, we are very well positioned given our strategic relevancy in the suite with the CIO.

And Derek, keep in mind, right, Gina is absolutely right. The company started at IT. So this is actually a core strength of ours. And then we move to the employee and the customer and now it's all about the app engine in sort of this low-code world that we see conversion between business and IT. Our company grew up there. It's now prime time because business is pulling at engineering and IT to say, I want my new modern application, and I want to now. So we're kind of right there. The other thing we probably could have covered in greater detail, but I think you already all know this, is this one architecture, one data model and one platform is really coming through strong now. Because most companies out there are either best-of-breed where they do one thing particularly well, but not many things, or they have many different platforms that aren't so well integrated. In our case, even as we put new innovation on the Now platform, it's all integrated, and it all works. So folks are really excited about that within these enterprises because they got a lot riding on whatever they invest in working, pleasing people, delivering a positive ROI, and really making the decision-makers that invest in the platform look good because there's no tech debt with ServiceNow.

Great. We can't wait to see the Waka campaign, too. But thanks for all.

Thank you very much.

Thank you.

Ladies and gentlemen, this does conclude today's conference call. We thank you for your participation. You may now disconnect.