ServiceNow Inc. (NYSE: NOW) Q1 2022 earnings call dated Apr. 27, 2022
Corporate Participants:
Darren Yip — Vice President of Investor Relations
Bill McDermott — President and Chief Executive Officer
Gina Mastantuono — Chief Financial Officer
Analysts:
Keith Weiss — Morgan Stanley — Analyst
Brad Sills — Bank of America — Analyst
Arjun Bhatia — William Blair — Analyst
Karl Keirstead — UBS — Analyst
Phil Winslow — Credit Suisse — Analyst
Samad Samana — Jefferies — Analyst
Kash Rangan — Goldman Sachs — Analyst
Matt Hedberg — RBC Capital Markets — Analyst
Alex Zukin — Wolfe Research — Analyst
Gregg Moskowitz — Mizuho — Analyst
Kirk Materne — Evercore ISI — Analyst
Tyler Radke — Citi — Analyst
Brad Zelnick — Deutsche Bank — Analyst
Presentation:
Operator
Ladies and gentlemen, thank you for standing by. And welcome to the ServiceNow First Quarter 2022 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions]
Darren Yip, Vice President of Investor Relations, you may begin your conference.
Darren Yip — Vice President of Investor Relations
Good afternoon and thank you for joining ServiceNow’s first quarter 2022 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 2022 results and discuss our guidance for the second quarter and full-year 2022. Before we get started, we want to emphasize that some of the information discussed on this call, such as our guidance is based on information as of today and contains forward-looking statements that involve risks, uncertainties and assumptions. We undertake no duty or obligation to update such statements as a result of new information or future events.
Please refer to today’s earnings press release and our SEC filings. Including our most recent 10-Q and 2021 10-K for factors that may cause actual results to differ materially from forward-looking statements. We’d also like to point out that we present non-GAAP measures in addition to and not as a substitute for financial measures calculated in accordance with GAAP. Unless otherwise noted, all financial measures and related growth rates we discuss today are non-GAAP except for revenue, remaining performance obligations or RPO, current RPO and cash and investments. To see the reconciliation between these non-GAAP and GAAP measure, please refer to today’s earnings press release and investor presentation, both posted on our website at investors.servicenow.com. A replay of today’s call will also be posted on our website.
With that, I’ll turn the call over to Bill.
Bill McDermott — President and Chief Executive Officer
Thank you very much, Darren and good afternoon, everyone. We really appreciate you joining our call today. We’re pleased to once again report results that firmly beat expectations. In January, we reported a stellar 2021. Today, we are following that up with a very strong Q1. The constant currency numbers speak for themselves. Subscription revenue growth was 29%, CRPO growth was 30.5%, operating margin surpassed 25%, and all we’re above the high-end of our guidance range. In fact, our raised guidance today, which Gina will cover shortly, also speaks for itself. As does the 52 deals over $1 million in Q1 that were up 41% year-over-year. It’s clear that the world is beginning to understand the power of this platform. We said in January that our fast growth would accelerate in Q1, it did. Now, 3 months later, we expect subscription revenue growth to accelerate for the full year, it will.
We said that ServiceNow’s fast growth will continue to be paired with the leverage of a global market leader. Now, with our accelerating revenue growth and free cash flow, we’re already approaching the Rule of 60 for the full-year. We had strong adoption from existing and net new customers. Our rolling fourth quarter pipeline remains very strong. We’re delivering predictable fast growth with exceptional free cash flow. Overall, we’re super-excited about the state of this business. We believe it sets us up really well for the remainder of 2022 and beyond.
I do want to offer a few comments on what we’re seeing in the broader marketplace. We talked about a sustained demand environment for the enterprise. While there are significant challenges in the world, particularly in the Eastern European situation, we have not seen a material impact on our market. To the contrary, the challenges of underscore the urgency of investment in digital business, IDC continues to see a 23% year-over-year increase in the global public cloud market for 2022.
We see similar indications of demand or ability, which are consistent with or above the 10-year pre-COVID average. Leaders do plan to adjust their technology budget, plan to increase investments in 2022. One leader put it well. He said, “Bill, if we slow investment in the short-term, we’ll lose ground in the mid-term, and we won’t be in business for the long-term” and the data tells the same story. The average tenure of the company in the S&P 500 has declined from 30 years in 1996 and 19 years in 2021.
So it’s very clear that business can no longer revert to status quo posture, no matter of the environment. We’re now in a tech to compete world. If you look to our new customer acquisition, here’s what resonates. This is a shifting investments in technology that get them to the right outcomes faster. Cloud native platforms like ServiceNow are seeing hesitant mixture to speed up new revenue streams and better experiences for people. When we see increased focus on topics like supply chain, risk, security, EFG, all of these convert to perceive what was perceived headwinds into much stronger secular tailwinds for ServiceNow.
So, the world biggest problems are really ServiceNow, its biggest opportunity, and it all adds up to what we said consistently. The technology architecture is now the business architecture, the digital era, or digital business. Our businesses are firing on all cylinders in this environment. Behind great experiences are great workflows, which underscores the unique extensibility of the ServiceNow platform. So here it is. Our core technology workflows business performed well in Q1.
ITSM within 11 of our top 20 deals, which continued strong adoption of ITSM Pro. We continue to see strong attach rates from my time and in 13 of our top 20 deals. Security and risk had a great quarter with a combined 13 deals in the top 20. Global Biotech innovative Regeneron works with ServiceNow to increase productivity while decreasing costs. Global financial leader, RBC works with ServiceNow for cloud and asset tracking. I’d also like to thank RBC for administering the ServiceNow ratios, equality fund.
The only way for companies to transform the customer experience is to fully integrate their employee experience. Customer workflows continue to see strong demand, particularly with our vertical SKUs. Barclays works with ServiceNow to automate cross agency case management and compliance with EU data privacy requirements and is post pandemic economy, many businesses are creating direct-to-consumer business models. Companies like Telefonica, Brazil, where it would ServiceNow to better serve their next generation customers.
Employee workflows were also strong in the quarter. HR within 14 of the top 20 deals. Global healthcare solutions company, AmerisourceBergen works with ServiceNow transform their employee experience in the digital business era. Differentiation can’t be bought, it must be built. IDC now forecasts of 750 million net new applications will be created between 2023 and ’25, with the unprecedented demand for net new innovation together with a global shortage of professional developers. Low code application development is a massive market opportunity. While tech leaders see the value of sales and developers, they don’t want to sacrifice the enterprise, great governance and security.
This will give ServiceNow a unique differentiation in the local market. Look at Dai-ichi Life Insurance, one of the world’s largest insurance company, which is standardized on App Engine for all low-code application development. Creator workflows in 16 of the top 20 Q1 deals, we see this trend accelerate a leading manufacturer of printing, DIC works with ServiceNow as their new citizen developer platform, one of the many such examples.
The key takeaway, businesses are no longer in the mood to experiment. They go with what they know works, which is why the world works with ServiceNow. We are the only one with a fully integrated platform architecture that I can address every C-suite business challenge because enterprises are so focused now on fast time to value our new customer success subscription offering ServiceNow impact also saw a strong demand in Q1. And as ever, the ServiceNow platform is the foundation for our ongoing success.
We’re encouraged by the extremely favorable reception from our San Diego platform release. In particular, users love the next experience with streamlines navigation make search intelligent and simplified personalization all on our platform. We also unveiled a new automation engine, which makes it simple for users to do robotic process automation on the ServiceNow platform. Only service now can help businesses unify their approach the hyper automation, we now orchestrate AI, RPA and other key technologies on a single local platform.
Fred Luddy founded our company in San Diego. So this will be with especially proud moment all of us. I’d like to personally salute our product and engineering teams for the transformational work and deliver in our San Diego release. Congratulations team, outstanding job. Looking forward, we see many positive developments at our firm, our confidence in this business. Investment from our partner ecosystem continues to accelerate nicely. TRA, Belfort, CEO of the following. Here we could be more excited about the potential ServiceNow. You bring a whole new dimensions of customer success and technology innovation. We are all in.
This outstanding partnership with referral is only just getting started. We also have our signature event series knowledge taking place in May. Each of four locations will demonstrate behind enthusiasm of the growing ServiceNow community. We will have showcase it in the Hague, New York City, Sydney, and Los Vegas, in addition to a fully digital experience. So please join us. We had a great Q1, everything is lined up for us to follow through in Q2 and for the full-year. We’re taking steps forward every day to our stated milestones 10 billion plus by 2024,15 billion plus by 2026 and beyond. It’s worth reiterating at this time that we remain on track to be the fastest ever to hit those thresholds.
Finally, beyond the business results, I’d like to offer heartfelt support of our more than 18,000 ServiceNow colleagues worldwide, so those confronting humanitarian crisis, especially in Ukraine. Like so many of our customers and peers, ServiceNow is pursuing numerous opportunities to support relief efforts. By continuing to do well, we can further commit our company to doing good. This is firmly aligned to our purpose of making the world work better for everyone.
Here in Lightstep to be the defining enterprise software company of the 21st century. Ladies and gentlemen, we are company on the move. I’d like to thank you again for your time and your trust on ServiceNow. We’re looking forward to addressing any questions you may have, and I’ll now hand it over to our group CFO, Gina Mastantuono. Gina?
Gina Mastantuono — Chief Financial Officer
Thank you, Bill. Q1 was yet another fantastic quarter of execution. Enterprises are navigating a macro environment filled with the 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 in 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 revenues guidance to more than offset with 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 points 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. and one point beat versus our guidance.
From an industry perspective, we saw broad-based strength with energy and utilities, financial services, government, healthcare, life sciences, CMC 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 effort. 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 1400 customers paying us of$1 million in ACV. We closed 52 deals greater than $1 million and 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 and quality customers. Our portfolio outside of ITSM is also leading more of our largest customer land, 9 out of our top 10 new customer deals were led by non-ICSM products.
Turning to profitability. Operating margins surpassed 25%, driven by our revenue beat and certain spend that shifted in 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, it also showcases the resiliency and predictability of our business model. Our diversity of markets and customers provide 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 solution to manage, cover and report our progress. While we are early in our ESG journey, we’re extremely proud of our accomplishments in such a short time. We made significant improvements and representation in hiring, we’ve tied executive compensation both environmental and diversity goals, we fully distributed ServiceNow at $100 million Racial Equity Fund and we’ve continued to achieve systemic pay equity. I’m happy with the progress we made in 2021. But we’re just getting started.
Moving on to guidance. As accomplished you’d pretty intensified throughout Q1, we’ve continued 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 revenues 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, representing 26% year-over-year growth, that’s 28.5% growth on a constant currency basis, a 50 basis point range 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 at 86% of 100 basis points year-over-year, operating margin of 25% and free cash flow margin of 31%.
Finally, we expect diluted weighted average outstanding shares $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 the RPO growth in 25% year-over-year or 28% on a constant currency basis.
I’d note that for full-year 2022, we have a larger-than-average customer cohort that renews in Q4. We will see between 1 and 2 points of increasing headwinds to Q2 and Q3 CRPO growth as those contractual obligations wind down and the cohort renews through in Q4. Those headwinds look at side 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 average shares for the quarter.
In conclusion, Q1 was another outstanding quarter. The 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, the building our competitive moat as the platform, the 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 moment we are seeing and learn more about our new products and long-term opportunities at our upcoming Investor Day on May 24th 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.
Questions and Answers:
Operator
[Operator Instructions] Your first question comes from the line of Keith Weiss with Morgan Stanley. Your line is open.
Keith Weiss — Morgan Stanley — Analyst
Thank you guys for taking the question and really nice quarter. Actually it took two questions, one just on kind of the overall macro backdrop and how you guys are kind of performing so well against that, one, is there any geographic differences like, are you seeing any difference in sort of behavior in Europe versus behavior in the U.S. or Asia-Pac or is it pretty much consistent across the board?. And two, is there any, like if you think about this period of time versus what we saw in 2021 and we were dealing with the COVID pandemic? Are there any similarities or differences that you could point to in terms of what you’re seeing now versus what you saw then?
Bill McDermott — President and Chief Executive Officer
Well, thank you very much. Keith. First of all, in terms of then and now in both cases, the world’s biggest challenges are ServiceNow’s biggest opportunities. If you remember we step right up to the emergency response, return to work safely and that risk for it on a home in the business for ServiceNow, but more importantly to establish the brand is the leader. The case is also true now, the war in Ukraine, the rising inflationary environment, interest rates and dislocated supply chains, these are all opportunities for the Now Platform, because this is the unique attribute of ServiceNow.
We are an enterprise software market leader. Most of the companies where they have felt the negative impacts of the environment, have a consumer business that will be probably impacted from these forces, but the enterprises are basically saying it’s contact to compete world and I have opted to invest now, because I’m not ready in many cases falling behind. For example, just 2 years ago, one-third of the business was getting done in digital formats. Today, it’s two-third and 2 years, it will be 90 plus percent. So if you don’t get digital fast, you lose.
The other thing we’re in a war for talent in the global economy, like that’s never been seen before this well, and this unique attributes of how the software has to take care of the people you have to recruit them, hire them, they are on-board now, that’s one of the moments of truth that nobody does the way we do it. So they feel part of the culture where they’re working from and then of course you have to give them consumable experience that differentiate you.
That is also true for the customer on a direct-to-consumer level and obviously, creating doubts on a local platform. So what I’m saying is the world needs these problems solved, so we can help manage those macro effects that you’re talking about. So the environment feels somewhat like it did then in that context, we’re redoubling our focus and our optimism across all employees anywhere in the world, because all of our customers needed. So again, I think the unique differentiation is our clear focus on the enterprise and our consistent innovation. And on the geography scenario, it obviously will vary by quarter here and there. They’re all strong. Americas was particularly strong, but all of our regions has strong pipelines and every reason to believe that it will be a consistent across the board effort everyone was.
Keith Weiss — Morgan Stanley — Analyst
Congratulations again on a really nice quarter.
Bill McDermott — President and Chief Executive Officer
Thank you very much, Keith.
Operator
Your next question comes from the line of Brad Sills with Bank of America. Your line is open.
Brad Sills — Bank of America — Analyst
Okay, great. Thanks for taking my question and congratulations on a real nice quarter here. The thing that really stands out to me is just the broad strength that you’re seeing across different departments. ITSM, Employee Workflows ITOM, security risk, these are multiple lines of business. My question is what has changed about the go-to-market such that you’re able to bridge the gap across so many different departments and find relevance for your solutions there, is the global SI channel, a key to that, is there — are there things that have changed and just your internal go-to-market as well? Thank you.
Bill McDermott — President and Chief Executive Officer
Brad, thank you for your kind words and also you are onto something here. We became a platform company growth. We started out in IT and we have a very out technical excellence for the IT leaders around the world and they really get behind ServiceNow in a big way because they know it works. And what happened along the way with this digital transformation world that we’re living in right now, IT really became the business strategy. Because it’s the only way to keep your business secure. It’s the only way to make sure your employees can get what they need to do their work on that of where they’re working from. It’s the only way to reach out and innovate with those new next-generation customers, who will only do business with you digitally, and ultimately this create a workflow massive because the number of applications that will be developed in the next 3 years supersede the number that have been built in the last half century.
And there’s not enough engineers in the world to do that and they’re doing that in record numbers on ServiceNow. But here’s a big difference when we became the platform company, the leaders that belief in us that were generationally from the IT environment so low with ServiceNow. I could do all this on one architecture, one platform, one data model and I can give all the constituents in our enterprise with the need to win whether they’re in the HR department, sales and marketing, they could be in the field service or they could just simply be citizen developers trying to do something to help the company, now I can do all that. But government make sure it’s compliant and make sure the innovation is always tethered to the investments we’ve made in the past. So we can have a brighter future. And that’s the big difference. And internally, we move to a solution by industry and persona and business impact company along the lines that platform, and everybody super excited about where we’re going.
Brad Sills — Bank of America — Analyst
That’s great to hear. Thanks so much.
Bill McDermott — President and Chief Executive Officer
Thank you very much, Brad.
Operator
Your next question comes from the line of Arjun Bhatia with William Blair. Your line is open.
Arjun Bhatia — William Blair — Analyst
Perfect, thank you very much and I’ll will add my congrats on a great quarter. Bill, maybe want to follow up on your conversation about inflation earlier. I’m sure you’re seeing hosting costs go up, labor costs are increasing at the same time, right? With your product, you’re adding more value to customers. You’ve talked about ServiceNow being a deflationary platform and you’re innovating. But how do you think about pricing in this environment for your solution? Is there an opportunity to be more aggressive as you add more value and to try to maybe offset some of the costs that are increasing on the opex side?
Bill McDermott — President and Chief Executive Officer
It’s really, it’s a really good question, Arjun. I think the main and we take away from this is when you are in a privileged position because the technology had such a strong advantage in software, if you do it right, you shouldn’t have discount thresholds that behave like doing wrong. So, in software, if you can control your pricing algorithm and make sure that you’re getting the price you deserve for your product because it has a well-constructed business impact, has been clearly defined with the customer. You find that you can actually improve price performance without exacting large enterprise change to the customer. And that’s what we’re really seeing. We’re really seeing of professionalism around how we can support our story tower and impact of the platform and how we can make that fully transparent to our customers. And we have even invented an application that they’re using on their business iPhones right now, where they can see the impact of the projects they do with ServiceNow, and the return on those investments as there are tethered to the original business case that we’ve done at the point of sale. That’s a level of precision that I’m not aware of another enterprise company operating on. So it’s really about value. It’s really about business impact and our customers are buying in.
Arjun Bhatia — William Blair — Analyst
Perfect, thank you very much. Congrats again.
Bill McDermott — President and Chief Executive Officer
Thank you very much. Arjun.
Operator
Your next question comes from the line of Karl Keirstead with UBS. Your line is open.
Karl Keirstead — UBS — Analyst
Hi, thanks. So I just wanted to give you a chance to elaborate on the U-shape CRPO trajectory in 2022, and in particular, I just wanted to clarify the 1 to 2 point sequential headwind to that metric. So does that mean that the 28% guide in 2Q would be maybe 29%, 30% normalized? And then, in 3Q, do you get another 1 to 2 point headwind before you get that acceleration in 4Q? Love any color you can provide as I think others on the call would. Thank you.
Gina Mastantuono — Chief Financial Officer
Thank you, Karl. That’s exactly right. And so, basically, what we’re saying is that there is a 1 to 2 point impact in Q2, ’18 because of this new — this large renewal cohort. And so, if you think about a renewal and a customer that at the end of Q4 2021 had $1 million, right, and that’s up for renewal in Q4 in 2022, once in Q4 of last year, CRPO would have had $1 million, then in Q1, it would have had 750, that in Q2, it would have had 500, in Q3, 650. So that’s the impact that we’re talking about and we’ve quantified it or you have between 1% to 2% and you’ve got it exactly right, are you talking about it within that.
Karl Keirstead — UBS — Analyst
Okay, super helpful. Thanks, Gina.
Gina Mastantuono — Chief Financial Officer
Of course.
Operator
Your next question comes from the line of Phil Winslow with Credit Suisse. Your line is open.
Phil Winslow — Credit Suisse — Analyst
Hi guys, thanks for taking my question and congrats on another outstanding quarter. Bill, yeah, thanks for all the color you gave on just the feedback you’re getting from customers in terms of just the prioritization of IT spending and ServiceNow. And it really does feel like you’re leaning into that opportunity. When I look at sales and marketing head count, that’s a 25% year-over-year. My question is, I guess twofold, one, what are your goals is for hiring and this line for the year and are there any areas where you think your ServiceNow is going to be leaning into what would be geographic or vertical functionality? And then, Gina, what if you just comment on the sales productivity ramp time that you’re seeing?
Bill McDermott — President and Chief Executive Officer
Hey Phil. Thank you very much, Phil. It’s really wonderful about ServiceNow is we just crossed our 18,000 employee that will be onboarding in the next week or so. And so, we continue to be the place people want to work and that’s super exciting. Because in this environment, I get phone calls from other Boards of Directors number telling me that no boomerang going back to the company from ServiceNow, because people are choosing so many options within the ServiceNow family. As you know, we hire very heavily in R&D. This is an innovation machine. It’s a growth machine. And we also are cognizant in the sales and marketing and make sure that the things we do tend to have a quota carrying equation associated with them. So, the leverage is near for shareholders. So Gina will give you some of the facts and figures on it, but I’ve just been super important to have a brand that’s the place people want to be, especially in this very, very tight labor market for digital skills.
Gina Mastantuono — Chief Financial Officer
Yeah, and I would just add that, you’re seeing the numbers, right? Q1 headcount up 28% year-over-year in this environment is pretty phenomenal and hats off to our HR function and recruiting function and all of the team for being able to do that, but you’re seeing it right. We continue to invest in sales and marketing, in R&D, it’s really about driving innovation and sales and marketing, and really getting that strong go-to-market that we’ve been talking about. We talked about for the full-year expecting hiring in the high ’20s and we’re absolutely on that trajectory to continue that. With respect to productivity with the sales, we’re definitely seeing good productivity increases year-over-year in Q1 and expect to see that continue throughout the year. So, go-to-market teams are executing very well. We feel really good about the results.
Phil Winslow — Credit Suisse — Analyst
Awesome. Keep up the great work.
Gina Mastantuono — Chief Financial Officer
Thank you.
Bill McDermott — President and Chief Executive Officer
Thank you, Phil.
Operator
Your next question comes from the line of Samad Samana with Jefferies. Your line is open.
Samad Samana — Jefferies — Analyst
Hi, good afternoon. Congrats on just another very great quarter from you guys in a tough environment. Maybe, yeah, during the quarter we went to the Federal Forum and it was great to see a tendency there would be very robust. It felt like we were back to pre-COVID times and I’m just curious, have you seen the demand to match that in particularly with the higher DoD IL 5 level certification? How should we think about that in terms about opening up new opportunities and an expanding the TAM within the federal sector that you’re targeting?
Bill McDermott — President and Chief Executive Officer
Well, thank you very much, Samad, first of all for attending. We really appreciate that. You know that forum was really successful. It was done in person and it was the most successful federal forum we’ve ever had, and they have been post-COVID in the sense that people started to travel a little bit again. I think you called it really well. I think the big sensational outcome from that was not only that U.S. Federal showed 100% growth on a year-over-year basis and what we refer to it, net new average contract value, but you also see the certification IL 5 really taking all and I believe that our partnership with Microsoft will show up very big, especially congratulate Microsoft and have a very strong quarter, obviously well it’s fantastic and we have a very good partnership with them. So I think we can solve a lot of problems for U.S. Federal a big market opportunity and the President’s management agenda and the administration guide to their constituents is really for the government to deliver results fast drive digital transformation and they’re adopting the Now Platform as a standard and we’re only one of a couple. There is a three total including Microsoft IL 5 certified. So I think you caught on to something here. There could be a wellspring of opportunity. I’ll finally close off this workplace service delivery capability ServiceNow and our Safe Workplace applications have seen the strongest interest from federal customers. And again that’s fueled by the Biden’s administration agenda and the quote that I would give you as I remember it, they said that federal will be the way to return to work now. So this is a very strong business for us. Incidentally, that TAM for the government marketplace globally is an enormous TAM as you know. So being a leader in U.S. Federal also, we’re doing a lot in state and local is the quite a statement and I think that that will drive growth around the world.
Samad Samana — Jefferies — Analyst
Very helpful. Thanks again for taking my question.
Bill McDermott — President and Chief Executive Officer
Thank you very much. Appreciate, Samad.
Operator
Your next question comes from the line of Kash Rangan with Goldman Sachs. Your line is open.
Kash Rangan — Goldman Sachs — Analyst
Thank you very much. And let me echo my congratulations on a spectacular quarter. But I think you’ve got the macro argument pretty well nailed. I’m not going to ask that question, but I’m curious to get your thoughts as you scale the company to 15 plus. I noticed a plus after 15. How do you think about distribution given that you from big distribution of big companies so far, the customer count of 7000, 8000, 70 is very impressive big deal sizes. As we envision the life beyond 15 plus, what is the go-to-market structure the company look like with two-tier 3Q type distribution predominantly go-to-market high-end channel. So it’s sort of help us envision the future to get to your target? Thank you so much and congrats.
Bill McDermott — President and Chief Executive Officer
Thank you very much Kash for the question. So the distribution I again reiterate our focus right now is on the enterprise. We are enterprise software market leader. We have lots of work still left to do and geographic expansion for the company. There is a huge opportunity in markets like Japan, obviously, all across Europe, LatAm. I really like to focus on markets like Canada, of course, three markets the way they want to be treated in that localized style. We obviously have lots of expansion right in the Middle East and other places. And I look at bellwether markets like Germany, France and the UK, which are already now starting to take off beautiful, so that the geographic component. We also have stagnant and is the way we develop software and take that software market by industry. As you know, we’re very focused on your industry, of course, financial service is one, but there is telecom, there is manufacturing, there is every industry under the sun in motion. But we’ve gone strong with including life sciences and so forth, and then persona a bit. If you think about taking this platform across the enterprise, you have to speak intelligently to all the C level executives that run the enterprise. And we have a Rubic Cube walking around the geography, the industry and the persona, that’s now being executed at a normal level by our great — our marketing communications leader and his team. So I am super impressed with that. We also did something I think very interesting with Lightstep and a lot of people haven’t picked up on, but Lightstep with the next generation customer platform, and when you think about having one user experience across the whole enterprise, where people are on different in and a different screen styles to figure out what they are observing, you also have an observability platform that is direct-to-consumer platform by design that I think is a precursor to many of the things we can do with the core. And also we can take the core and put it in pre-packaged ready to run solutions and build an ecosystem around that and turn on a whole new channel, a small and mid-market channel partners, as we take the company everywhere. And for now, on the big partner channel. there is a single one out there in the top 10, it doesn’t at least start would be, meaning we don’t have million dollar conversations, we are billion dollar conversation. We have even at the top one now in 10. So I mean, Kash, in short, we’re going to chase every market opportunity all over the world and we’re going to win. And we have a team that’s ready to conquer on this market like never before. It’s so exciting here right now, Kash. I just wish you could be in the building, couldn’t be you?
Gina Mastantuono — Chief Financial Officer
Online.
Bill McDermott — President and Chief Executive Officer
I could see. Yes,
Gina Mastantuono — Chief Financial Officer
I hope to see you on May 24 at Investor Day, because we’ll talk a lot about what we look like at $10 billion. $15 billion plus. So hope to see you there.
Kash Rangan — Goldman Sachs — Analyst
I’m already there.
Bill McDermott — President and Chief Executive Officer
Definitely we see it.
Kash Rangan — Goldman Sachs — Analyst
That’s great. But I think you feel task and you feel the building.
Bill McDermott — President and Chief Executive Officer
I absolutely congrats.
Kash Rangan — Goldman Sachs — Analyst
Thank you.
Bill McDermott — President and Chief Executive Officer
Thank you, Kash.
Operator
Your next question comes from the line of Matt Hedberg with RBC Capital Markets. Your line is open.
Matt Hedberg — RBC Capital Markets — Analyst
Great, thanks for taking my question. Bill, it really is a follow-up to that last question, you mentioned of observability. You guys recently launched is that management platform. I think it’s really infused with Lightstep and observability. I wonder if you can talk about the importance of that offering and maybe just double click again on sort of why you think you’re going to win and observability because it seems like a huge market opportunity for you guys?
Bill McDermott — President and Chief Executive Officer
The first thing to recognize there, Matt, is huge market opportunities, don’t require anyone for to lose for us to win. There is huge market opportunities. So, we will still integrate as we already do with the largest participants in that market. And we want them to be successful because customers have invested in them and our way of going about then and that’s great. Let’s make that customer successful together, that’s why they integrate seamlessly into the Now Platform. At the same time, we have many customers that realize that ServiceNow can out-innovate just about anybody in the marketplace, so they want us to do more for them. And clearly observability was one of those categories. And we just got there a lot faster with Lightstep because we believe Ben and his team are the most innovative in the industry, and we’re just so proud to have such trust and partnership with them and such big dreams together. So Lightstep launched incident response, as you said, it’s the first new product since joining ServiceNow and it’s a big. So incident response will add a lot of context in automation through the Internet response process and customers are looking for that. And by the way, they may even have more than one incident response vendor in there. So we don’t rail against others, but we tried to do is work for the customer. We’ve put our part hat on part on, roll up our sleeves and we go to work. Lightstep also launched an industry first unification of observability analytics and we also did collaborative notebooks. So these innovations are breaking down those silos reference between metrics and tracing and streamlining. It’s critical SRE work space. So, in Q1, for example, we signed some cool deals, one with plan, which we’re very I’m proud of and that’s a data network company as you know and then Power in Fintech in digital finance product space. And they’re using Lightstep for complete visibility into distributed architectures and they’re allowing Plaid to investigate outside issues and joining 20 times faster than they used to. And we also got aerospace again, cool brand, next generation brand, and they build in collaborative applications and they’re driving the reliability of complex distributed systems and proactively improving performance for users. And again, more effectively monitoring and resolving both system-wide and specific customer issues, but they’re doing it with one you high and then our balancing people in and out of different experiences and this is what I keep going back to when you talk about real platform innovation and the integrity of a consumer-grade experience and you can do that across an entire enterprise. That’s why I believe, our Board of Directors did a great job of defining enterprise software company in the 21st century is doing it with a Desktone 21.0 growth and now we have 18,000 people at all. They think about is that Desktone 21.0 thing, whether you’re innovating, covering customer, we’re just driving the conversation we know where we’re going.
Matt Hedberg — RBC Capital Markets — Analyst
Well, so congrats, Bill.
Bill McDermott — President and Chief Executive Officer
Thank you very much. Appreciate it.
Operator
Your next question comes from the line of Alex Zukin with Wolfe Research. Your line is open.
Alex Zukin — Wolfe Research — Analyst
Hey guys, thanks for taking the questions and congrats on a truly inspiring quarter and message in a tough tape. I guess maybe just two for me, Bill, you talked about the help of the federal vertical on the call. I was wondering if you could also maybe comment on some of the other verticals that you’re seeing succession and saw succession in the quarter, and how we should think about just greater verticalization in the product itself either for Telco or Finserv or others? And then, just a follow-up for Gina.
Bill McDermott — President and Chief Executive Officer
Sure, sure. Well, and thank you very much Alex for your very kind remarks. It means a lot to us. Our team is doing a really great job when they hear that. You just inspire us to go higher and we appreciate it. So, thank you. We’ve done a lot in terms of the vertical coverage and we have our great Chief Operating Officer, CJ Desai now, not only running all of engineering with what we believe to be the best engineering team in the business, but also he is overseeing our industry orientation and the whole go-to-market around that, and he teams up in a beautiful way with the go-to-market team, our Paul Smith and great regional presence, we have just super proud of our team. But banking, it’s really simplifying the whole middle to back office operation context and financial services is going really well. I referenced Barclays, but there’s just so many of that are all in on ServiceNow. Our telecommunication solution, it’s really aligning customer care and service, transforming just think about how communication service providers deliver great customer experiences and you can get away with fixing problems anymore and proactively anticipate these issues before they even come up and if they do come up, you’ve got to address them quickly to maximize availability and quality of service. So we’re seeing a lot of traction in telecommunications do really becoming the standard across the Board. With super happy with manufacturing and what we’re doing there, operations technology management, driving the whole notion of what these manufacturers are trying to do, have critical technology available and provide visibility and security of all of their active. Another one I would underscore is healthcare and life science is service management, how do you connect gross functional health systems and teams and simplify how people engage with the healthcare providers, payers, pharma companies and medical device organizations. It’s all about the patient experience. And high-tech manufacturing, another one that’s really come on strong for us. I mean I could give you more, but those are the ones that are just rock and right now. And one theme I’ll give you, you can’t give a customer 3- star Michelin experience unless you firstly with your employees and the Now Platform is really controlling the conversation now for enlightened decision makers because they like I’ve got to pay them IT excellence to the employee experience and I’ve got to take care of my customers a new and highly innovative way. In this platform does the magic they need done, but it does it in days or we not month to month, month and year. And finally, in all of these solutions, we’re cooperating with the systems of record. The customer knows there and they’ve got them and they are very important to our business. So we just come quickly and make everything better for everyone.
Alex Zukin — Wolfe Research — Analyst
That’s awesome very inspiring, Bill. Gina, I guess the follow-up for you. You talked about accelerating growth in new ACV in the quarter would again, which is quite rare for a company of your size to do quarter in and quarter out, not to mention in this type of the macro environments. I guess the question is as the comps get tougher through the year, but you do start returning to more in-person events, presumably more productivity from the sales force, is it possible to see that type of new ACV momentum continue?
Gina Mastantuono — Chief Financial Officer
I talked about in my prepared remarks that we expect Q2 to show accelerating net new ACV growth as well, right? You can just, whether that last for the full-year, they’re are pretty, pretty incredible comp. And so, we obviously don’t guide the full-year Net New ACV, Alex. So, the reason I spoke about it specifically was really because I wanted everyone to feel confident that the CRPO guide although slightly less than Q1 really had its impact, right? And that it was a driving. It wasn’t a result of the underlying that, in fact, we are seeing accelerating Net New ACV in Q1 and expect similar and you do. So that was the reason for my comment. I am so proud of our entire organization, the VAT for being able to drive in acceleration the scale, at our scale and just really excited about the momentum we’re seeing into Q2. We feel really strong and good about the guide for the full-year and the momentum that we’re seeing in Q1, we expect to be consistent throughout the year.
Alex Zukin — Wolfe Research — Analyst
Crystal clear, guys. Thanks so much. Congratulations.
Bill McDermott — President and Chief Executive Officer
Thank you very much.
Gina Mastantuono — Chief Financial Officer
Thank you.
Operator
Your next question comes from the line of Gregg Moskowitz with Mizuho. Your line is open.
Gregg Moskowitz — Mizuho — Analyst
All right, thanks very much and I’ll add my congrats on a really good quarter. Bill, we all tend to think about ITSM as the workhorse for our service now, but it’s interesting that it was only included in 11 of your top 20 deals, which is quite a bit less than what we usually see. And I think you mentioned also that 9 of your top 10 were led by 9 ITSM products. So do you look at this Q1 results with respect to this metric as more of an anomalous outcome or do you think it’s reflective of ServiceNow increasingly landing and expanding with other workflow automation solutions?
Bill McDermott — President and Chief Executive Officer
Greg, it’s a great question. Actually, we’re still encouraged with our core. Our core is growing beautifully. And if you look at the revenue outcome from our core, it’s right there at the corporate rate. So what you’re seeing has nothing to do with any dilution and that core business. On the contrary, we’ve got an enormous uplift with our Pro SKU, as you know, that’s 25% uplift. So it’s 30% penetrated now, so there’s lots of people that like it and there’s many more to go. So we have lots of room left on the pro SKU. If you think about the kind of customers where we’re winning, I mean a great brands, AmerisourceBergen, Baptist Health, Regeneron, GIC Farmers, I mean, it goes on Royal Bank of Canada telephonic global, every workflow, for example, just like sort of complete generational change with it. So let me make sure I make it clear. The core business has never been stronger. Has no revenue dilution whatsoever. What is happening, we are landing and expanding and you’re right, we keep the IT concept really did form the basis for us to move into the employee experience, the customer experience. The whole creator workflow where citizen developers and now really creating the future they want to see. And without that, ever solid magnificent core none of that would have been possible. So I want to really set the record straight. Our team is doing great across all these segments. The newer or the younger ones are obviously going to get some more on land and expand opportunity, but we love on our core and we love our leaders.
Gregg Moskowitz — Mizuho — Analyst
That’s fantastic, super helpful. Thanks, Bill.
Bill McDermott — President and Chief Executive Officer
Thank you very much. I really appreciate it.
Operator
Your next question comes from the line of Kirk Materne with Evercore ISI. Your line is open.
Kirk Materne — Evercore ISI — Analyst
All right, thanks very much and I’ll echo the congrats on a really nice quarter. Bill, when the pandemic hit you, all were able to operate at a really high level virtually, but as a platform company, I was curious as to how beneficial it is to be able to actually see your customers in person and talk about the entirety of the solution as well as the ability to sort of move up the organization, meaning moving from the CIOs up to the CEO level? I was just wondering if you could just expand on that a little bit because I think you’re in a little bit different position than some other software companies that maybe only sell into one buying center? Thanks.
Bill McDermott — President and Chief Executive Officer
Thank you very much. Kirk. I have to tell you one thing that is surprising me a little bit during the whole virtual environment is CEOs, we’re looking for a good conversation. So you were able to participate in those conversations then, which is obviously helping us now and we were also able to bring large scale management team gatherings with our team and their team, so we did good. But now that we’re opening up. We should do even better. So I look at my calendar for the year. I’ll catch my family here on the weekends because on leave on Sunday for Europe and after that of Europe, will be hit major very soon after that. And so, we are going full speed open up the Company. We’re doing these knowledge events in four distinct locations, as I mentioned, our sellers are going out on the street and our management is going out on the street, because that’s where the customers are. And never forget that United Airlines commercial when guy walks in who has got a bunch of envelopes and look to this management team sitting around the table gauging it themselves and it goes, let’s go visit some customers so on. I expect we’re going to get a lot of tailwinds out of that because you’re right. To build trust with net new logos, it happens in person. It’s hard to do that in a digital format to really expand relationship to an enterprise scale, it really does require a good meeting of the minds and an emotional trust and we’ll do that. So I really think this is going to be another step function improvement and ServiceNow future because as a platform provider, getting our customers healthy through some of the challenges that are fighting through is a seminal moment in our history and I’m excited. Sounds good. Thanks very much, Bill.
Kirk Materne — Evercore ISI — Analyst
Thank you very, very much. Appreciate it.
Operator
Your next question comes from the line of Tyler Radke with Citi. Your line is open.
Tyler Radke — Citi — Analyst
Hey, thanks for taking my question. I wanted to ask you about how you’re seeing the new impact program rollouts your customers. And clearly, Bill, you talked a lot about some of the new products you’re innovating on and delivering a lot of value to customers, but how are you just kind of starting that line between the price increases on existing products versus the new products that you’re delivering and making sure that customers are able to take on the scope of new products, where you guys are really innovating on? Thank you.
Bill McDermott — President and Chief Executive Officer
Absolutely. I really appreciate the question. So here’s the situation. Our customers need help the impact part of this equation. Think of it much more and the value delivery context, then any kind of our price increase. It’s really accelerating the value realization for the customer against the software that they’ve already invested in and they want to extract is much business impact as they possibly can. And for too long, these customer relationships put every company you can think of, it’s managed by a deck at a point of sale and then ultimately the sale is made and then into the consultants come in, but it’s kind of like job changes, people do different things in a year later on saying, hey, how do we do? With that implementation again, then we get what we bargain for and what we are basically doing is making sure that they do and that there is a professional format and doing now, and not just with ServiceNow, but also for our great partners. So just think it is concept. The Now Platform from ServiceNow is the place where every conversation takes place between the partner, the customer and ServiceNow. There is no emails. There is no tax. There is no chat on the side. It’s all on one platform with everything detailed and spelled out and we measure everything in real time with all the analytics and all the business outcome spelled out in a way that could be presented to any Board of Directors. So, also on the pricing, again I want to be clear, like, we’re not looking to make up for inflationary pressures by putting it on the customer. There are many new customers. There are many more logos. There are many more expansions to our platform. What we want to make sure is that we do think highly professional and we know the ranges where our professional expertise should be valued at and in that valuing and in that business impact to the customer a fair agreement is reached. We even developed a pricing structure that enable
Customers to partner with us and look at the enterprise value of doing things with ServiceNow, not just one departmental value, and I think that whole idea of being a solutions and business impact, platform company is resonating big time internally and externally.
Tyler Radke — Citi — Analyst
Thank you very much.
Bill McDermott — President and Chief Executive Officer
And incidentally, if you’re interested, we’ve done more than a 100 deals right now on ServiceNow impact and what we’re seeing is user adoption is speeding up, value is being accelerated and customer net promoter and satisfaction is going through the moon and as Gina said, the retention rates approval at best in the business.
Operator
You have time for one last question. Your last question comes from the line of Brad Zelnick with Deutsche Bank. Your line is open.
Brad Zelnick — Deutsche Bank — Analyst
Fantastic. Thanks so much for fitting me in and what a fabulous start to the year, guys, congrats to you. Bill, I really wanted to ask about the new automation engine as part of the San Diego release. Can you remind us of your vision for RPA? What the interest level is and maybe the extent to which these are competitive standalone opportunities, or more filling in the gaps of workflows that naturally are found on the Now Platform?
Bill McDermott — President and Chief Executive Officer
It’s a really great question, Brad. Thank you very much. As you know, this idea of high from automation workflows on the Now Platform. It means a lot to our existing customers. So what they expect from ServiceNow is to remain at highly innovative Unicorn that we have been one that organically build better more substantial product experiences with every passing day. And in some cases, they want us to integrate with other tools in the marketplace. But in other cases, if we can build it and it’s all integrated into the Now Platform, they would like ServiceNow to own all of that and we give them choice and what you see here in this latest release, we brought together process mining automation machine learning RPA and low-code app development into a seamless combined product experience. And now, customers are going to be quickly innovating and improving the way workflows across the enterprise. So our job is to be helpful and integrate with all the market participants, especially when customers find that pleasing, but we also need to innovate ourselves and continue to build out this platform story in a way that’s super compelling and it’s generational. And that’s why I said when I first came to ServiceNow, organic solutions.
Brad Zelnick — Deutsche Bank — Analyst
Awesome. Bill. Thank you. Look forward to seeing you out in Vegas next month.
Bill McDermott — President and Chief Executive Officer
Thank you. Thank you very much. I look forward to spend some time together.
Operator
[Operator Closing Remarks]