 ServiceNow Knowledge 14 is sponsored by ServiceNow. Here are your hosts, Dave Vellante and Jeff Frick. Okay, we're back. This is Dave Vellante with Jeff Frick. We're here live at Moscone South and this is the Knowledge 14 conference. 6,600 people here growing. It was about 4,000 last year. You're seeing this conference grow at about the same pace as ServiceNow's top line. They're growing at 60% plus on pace to do over 600 million in revenue this year on pace to be a billion dollar company. And we have the CFO here, Mike Scarpelli, Q Belum, Mike, great to see you again. Thank you. So this is amazing. I mean, Moscone is a great venue. The Ari last year was kind of intimate, you know, and now you're really sort of blowing it out. I would expect next year you're going to be into the big time of conferences, so. Well, I got a budget for that. We definitely have a budget. I know it's going to cost more just like the attendance is going up 50, 60%. The costs are going up as well, too. But our partners are really important and our partners offset a lot of those costs. We'll get over 8 million in sponsorship revenue to offset that. So when we expect next year, we'll see a corresponding increase in the sponsorship revenue as well. Well, it's impressive. You have a lot of strong partners, particularly the system integrator consultancy types. You know, we saw, and I hope it'll miss some, but we definitely saw Accenture there last night. We saw Ernie Young giving a presentation. KPMG, obviously. Cloud Sherpas. Yeah, Cloud Sherpas. And so we had them on earlier. So you have a lot of these facilitators, which is a great sign for you. I mean, they're realizing, okay, there's money to be made around the service now ecosystem, helping customers implement. So that's going to make you really happy. No, you know, one of the things that's really important for us with the system integrators is today, they haven't really brought us many deals, but they've been very influential in accelerating deals. And we think that theme is going to continue. And based upon what they're seeing, what they're able to do in the service now ecosystem, in terms of professional service consulting engagements, we think that's going to start to motivate them to now bring us into deals that we were never in before. But what they have been able to do as well besides just accelerate is have the deals grow beyond IT. And we see that numerous global 2000 accounts for us. And you're not trying to land grab the professional services business. That's clear. In fact, when you talked to some of your customers, I remember last year, one of your customers was complaining that your price is real high on the services side, which probably makes you happy because it leaves more room for your partners. And that's really not a long-term piece of your revenue. You think you've said publicly you want it to be less than 15% of your business, right? Yes, yes. We have a little bit of an ongoing debate internally. My preference is not to see the professional service organization grow in terms of headcount with the pure implementation people. The area that I would like to see it grow is more on the training side. Unfortunately, some of our customers, they insist that we are part of the professional service engagement. So those are more the ones that we're gonna be involved in. If a customer is looking for a lower cost alternative, we wanna make it fair for our partners so that we're not competing with them so they can come in with a lower price to offer a good quality service. It's important though that it's not going for the lowest price. Our partners need to make investments so it can be a quality implementations because there's a number of early implementations that were done by partners some of our smaller partners where they really didn't meet the expectations of those customers and we've had to go in and fix some of those engagements. So the number one goal for our professional service is to ensure we have happy customers because happy customers renew and buy more which are two of the key drivers for our growth. So you keep growing like crazy. Blew it out last quarter. I think you had 181 million in billings. Revenue's up 60 plus percent. You're throwing off cash, hitting all your metrics. Of course the stock went down. So there you go. Not much more you could do but you've got to really be pleased with the consistent performance and really predictability it seems of the company. Yeah, no, since I've been the CFO of the company it's going to be coming on three years soon this summer. The one thing that I will say about this business model is it's extremely predictable in terms of the forecasting and what helps with that is the fact that we have such high renewal rates. That really helps because we really, since I've been here, we've never lost any major accounts. I think our renewal rate has been averaging north of 95% and in terms of our upsells, our upsells have been very consistent. On average, they run about a third of our business every quarter and that was Frank has made comments before too that if we don't sign on another customer we can still grow 25% per year plus just based upon the upsell business opportunity that we have within our existing installed base of customers. And that's penetrating accounts deeper, more seats, more licenses, more processes and applications. Yeah, the main grower of our upsells or the main contributor to our upsells within our customers really has been additional seat licenses because many of our customers we still haven't even fully penetrated IT and as we roll out more applications or make our applications more feature rich as we talked about as Frank his keynote we talked a little bit today about IT costing. We've always had that as an application but that's going to be coming out as a much more feature rich application that's going to be a lot more usable to some of our customers. Well, when that goes live that's going to drive more licenses because many times it's different people within IT that are the process users behind that and then it's going outside of IT as well with the adoption of the whole enterprise service management concept that Frank's been talking about that will drive incremental users as well too. We do have some additional products such as orchestration discovery with a vast majority of our growth and customers as additional licensing. So very consistent performance like I say the stock pulled back a little bit it's interesting you guys workday, Splunk, Tableau, smoking hot stocks of all pullback it's almost like you trade as a groupie even though completely different companies completely different business models you don't compete really at all but so you got to be flattering to be in that group obviously I looked at it as actually this is good in a way this is a healthy pullback it's maybe a buying opportunity for people that wanted to get in and there are a lot of folks that I'm sure that are looking at that. Do you, I mean how much of tension do we even pay for it? I know most CFOs like to say look we can't control it all we can control is what we can control and that's what we focus on but do you even look at things like that? Do you, what are your thoughts on that? You know and unfortunately there is a little bit of a psychology going on here with some of our employees and they're always asking my comment to them is the only price that matters is the day you sell and this pullback that we've seen recently this is not uncommon was I expecting it to happen right now? You know I don't, if I could predict those things and get a different line of business but what I will say history is the best indicator of the future and even a company like Salesforce.com one of our large investors last week sent me an email and said you do realize that in the first five years of Salesforce being a public company it had, I forget if it was four or five 50% pullbacks in the stock price. So this happens, it will happen I guarantee it will happen again sometime in the future but not just with us, with all the other companies I'd be more concerned if it was we were the only company that traded down and everyone stayed up but we're all trading down we all came back today. That's interesting and you kind of burned the shorts last year and they've made some money now but you know Peter Lynch used to say don't ever short great companies and it's very hard to short great companies your timing has to be perfect and your core business like for instance a work day is fundamentally very profitable or it should be, right? And of course you're spending like crazy on sales and marketing you're expanding into AP you're expanding your total available market and you're still throwing off cash I wonder if you can talk about that a little bit you had set off camera your goal is to really be sort of throw off a little cash and basically be cash flow break even Yes, so you can only grow at a certain pace last quarter we added 150 new people into our sales and marketing organization that was the largest number that we've ever added in one quarter we actually added 273 net new employees in Q1 that was the most we've ever added in a quarter and even with all of those ads we still had very good positive cash flow so it's pretty hard to add at any faster pace than what we're doing right now and so you know I just I don't see us being cash flow negative at any time in the future right now unless something happens, right it would have to be a pretty major catastrophe I think it's not going to be specific to service now it would be kind of across the board where all CIOs stop spending and the other thing I learned here maybe I just wasn't paying attention to earlier conference calls but the AP focus a large percentage of the global 2000 is in Asia Pacific so you're out nation building right now I wonder if you could talk about that a little bit Sure, so in 2000 and from March 31st, 2013 till March 31st, 2014 we opened up in 10 new countries most of those were in Asia Pacific there's still more countries we're going to be going into an Asia Pacific and why are we going into these countries we're going into these countries because that's where the global 2000 accounts are that is our strategy because we focus on quality of customers not quantity of customers what I mean by quality a quality customer is one that can grow over time to be a very large customer and even in 2013 we went into Italy and people said at the time well why are you going into Italy we went into Italy because they have global 2000 they have 30 something global 2000 accounts even though the Italian economy wasn't doing well global 2000 customers still spend it's not specific to that country they're global we signed to global 2000 accounts in Italy last quarter so we have a history of showing that if we go into those countries we will be successful in winning those global 2000 and we'll continue there are some global 2000s though in geographies where it's going to take some time before we actually have a physical presence such as mainland China we do not have any sales people in mainland China today Russia we do not have any people in Russia today how about the Ukraine no we have no one in Ukraine today good thing about Italy you get to go visit there that's true I wanted to talk about the TAM yesterday last last year we had I kind of botched it but I was asking Colombo questions about the TAM because it was very interesting I saw a lot of potential wanted to try to understand how big it could be you and I talked about you had said it's north of eight billion of course the stock took off I think it probably hit 10 billion from a value standpoint I didn't my own TAM mid-year I did a blog post I had it up to 30 billion so I started to understand it was a top down though it wasn't a bottom up but you guys are starting to sort of communicate to ham a little bit differently you had the help desk and then beyond that the IT service management and then you've essentially got the operations at the operations management and even now sort of enterprise and business management so I wonder if you could talk about how you look at the TAM and any attempts that you've made to quantify it sure so there's really four markets we play in that really intersect with one another and the core of our market is the IT service management that's kind of our beach head and how we go into accounts and that market right now when historically when we went public partner groups of the world they looked at it as a help desk replacement market and they were saying it's a 1.4 to 1.6 billion dollar market what they were missing is that there's many other things in that space IT service management such as PPM such as our CMDB such as asset management a lot of these things aren't in your traditional help desk we think based upon the rate at which we've been extracting from the market it's somewhere between a four to six billion dollar market opportunity just IT service management and then IT service management is a subset of the overall enterprise service management market that Frank has been talking about we talked about in our analyst day we think that is potentially as high as 10x the size of our IT service management so that can get you up to say that 40 billion dollar plus and then you as well have the IT operations management space IT service management you just have the legacy vendors down there nothing innovative happening down there service relationship, a lot of white space a lot of stuff that's being done in email Lotus nodes, Microsoft access, SharePoint those are the markets we're going after there really are no true systems in that space it's those one off custom apps IT operations management there is a lot of innovation happening down in that space it is very crowded with some new vendors as well as the legacy vendors the area that we'll plan won't be the whole 18 billion dollar market that IDC talks about you know it's still early innings but it's at least two billion of that market to four billion we'll be going after and then Frank brought up this concept of the whole business analytics as well too we talked about we did our acquisition of mirror 42 in 2013 and the business analytics kind of sits at the top of enterprise service relationship management the market we can go after in there that's a whole market into itself at least as big as the enterprise service management but we're not going after that whole market it's just the business analytics the extent it relates to enterprise service management so that's at least a couple billion more unfortunately this is what we believe there is no published reports out there and time is going to tell it's similar to when Salesforce went public no one believed the opportunity in front of it and now look how big that company is 30 billion dollar plus company valuations are you know depends on what time of year it is and what the market's doing but over the long term you know you can sort of do valuation analysis in the CFO world is there some kind of thought in terms of the ratio between an organization's TAM and it's valuation you know I mean there's other things growth rate obviously leadership etc but for the top companies is there a relationship I personally don't get wrapped up in valuation you know I can't control that I can't control public company multiples the only thing we have control over is running our own business and we're going to stay very focused on running our business and let other people take care of the valuation you're a good business you picked a good one yes no I'm very pleased with this one excellent all right Michael this is thanks very much for coming on theCUBE we're up against the clock and I always appreciate you thank you take your time up all right keep it right there everybody we'll be back with our next guest we're live from Moscow New South this is Dave Vellante with Jeff Frick we'll be right back