ServiceNow's Q2 Success Overshadowed by Sudden Departure of COO CJ Desai

ServiceNow president leaves after hiring policy breach

ServiceNow has parted ways with president and chief operating officer Chirantan "CJ" Desai after an internal investigation found he had violated company policy when hiring the former CIO of the US Army as the workflow vendor's public sector boss. News of Desai's departure emerged in a regulatory filing whose primary purpose was to announce the company's Q2 2024 results. Those results were strong: revenue of $2.6 billion represented 22 percent year-over-year growth. Some $2.55 billion of that revenue came from subscriptions, and ServiceNow can see $18.6 billion in future subscription revenue. Net income of $262 million, measured using GAAP principles, was down from the $1.04 billion recorded for the same quarter in 2023 - but that result was inflated by $910 million tax benefit. The business has therefore improved its profit performance. On the earnings call, chair and CEO Bill McDermott didn't dive into the numbers, instead discussing Desai's departure. The CEO explained that the process began with an internal complaint, detailed in a March filing, regarding potential compliance issues during the procurement process for a government contract. ServiceNow's board considered the matter with the help of outside counsel. That investigation "determined that our company policy was violated." The individual who was hired - identified in an old press release as Dr Raj Iyer - has left the company. Desai and ServiceNow "came to a mutual agreement that Desai would resign from all positions with the company effective immediately." ServiceNow believes this was as "an isolated incident" and that its executive team can cover for the loss of both men. As the dust settles, former chief digital information officer and chief customer officer Chris Bedi will step in as chief product officer. With that unpleasantness behind him, McDermott reeled off plenty of better news - including six new million-dollar clients, a US federal government customer spending $100 million over its entire engagement, and Boomi booting a competitor to go all-in on ServiceNow. The London Stock Exchange moved 15 siloed platforms and 14 lines of business to ServiceNow. The SaaS vendor's NowAssist generative AI chatbot is apparently finding favor with customers, and ServiceNow's dogfooding efforts have saved "45 minutes per avoided case." Dell will use it for customer and employee service, and eleven customers signed million-dollar deals for the tool across the quarter. McDermott pitched ServiceNow as a rare example of generative AI delivering a tangible benefit, and suggested its platform will become a model for the way businesses implement AI across their operations. Financial analysts on the earnings call seemed to think that's a reasonable prediction, and focused their questions on the process of selling AI to buyers amid the endless hype on the subject. "I think what's happened is they've heard so many whitewashed AI stories from pretenders that they are a little jaded," McDermott admitted, adding that once ServiceNow shows them demos, and customer references, prospects perceive the product as something real. And then they sign up to buy it. McDermott was also able to tell investors that ServiceNow was untouched by the CrowdStrike mess, and that its configuration management database tools helped its users to identify their own issues and bounce back faster. Investors were offered guidance for Q3 of $2.66 billion to $2.665 billion revenue - representing more than 20 percent year on year growth. Markets liked what they heard: ServiceNow's share price opened at $755, drifted down to $730.45 late in the day, then bounded to over $780 in after-hours trading. ®

ServiceNow: President, Senior VP Out Months After Probe Found Company Hiring Policy Violated

ServiceNow says that the company had informed the U.S. Department of Justice, the Department of Defense Office of Inspector General and the Army Suspension and Debarment Office of the investigation and 'is continuing to cooperate with the Department of Justice, which has commenced its own investigation into these matters.' ServiceNow said that its president and chief operating officer, Chirantan "CJ" Desai, is leaving the AI-focused digital workflow technology developer months after an internal investigation found he violated company policy in the hiring of its CIO. [Related: ServiceNow CEO Bill McDermott: 'We're Putting AI To Work For People'] Desai, who was promoted to president and COO in early 2023 but has been at the company since late 2016, had a relatively short time at the helm of ServiceNow. Desai played a big role in the rollout of ServiceNow's Now Platform Vancouver release and in the release of the company's GenAI products. ServiceNow said that Desai (pictured above), who was 53 years old as of a recent regulatory filing, resigned in relation to an investigation the company made based on an internal complaint it received earlier this year related to an employee. The company said that it disclosed that investigation in a U.S. Securities and Exchange filing for the quarter that ended March 31. That initial investigation was related to a complaint that "raised potential compliance issues related to one of its government contracts," according to a regulatory filing. ServiceNow worked with outside legal counsel and with government entities to investigate the complaint and determined that "company policy was violated regarding the hiring of the former chief information officer of the U.S. Army." That person, who was not named Wednesday, has also departed ServiceNow. However, the company is likely referring to Raj Iyer, who previously served as the U.S. Army's first-ever civilian chief information officer, who joined ServiceNow on March 13, 2023 as its CIO. In a regulatory filing Wednesday, ServiceNow said Desai "has fully cooperated with the investigation and maintains that he did not intentionally violate company policy." ServiceNow said that the company had informed the U.S. Department of Justice, the Department of Defense Office of Inspector General and the Army Suspension and Debarment Office of the investigation and "is continuing to cooperate with the Department of Justice, which has commenced its own investigation into these matters. The company cannot predict the timing, outcome or possible impact of the investigation." CRN has reached out to Desai and the DOJ for additional information. Replacing Desai is Chris Bedi, who was appointed interim chief product officer effective immediately. Bedi has spent nearly 10 years at ServiceNow, and has served as the company's chief digital information officer and chief customer officer. The news comes the same day as the company revealed its quarterly earnings. For its second fiscal quarter 2024, which ended June 30, ServiceNow reported total revenue of $2.63 billion, up 22 percent over the $2.15 billion the company reported during its second fiscal quarter 2023. That included subscription revenue of $2.54 billion, up 23 percent, and professional services and other revenue of $85 million, up 22 percent. ServiceNow also reported GAAP net income of $262 million or $1.26 per share, down significantly from the $1.04 billion or $5.08 per share the company reported last year. On a non-GAAP basis, ServiceNow reported net income of $651 million or $3.13 per share, up from last year's $486 million or $2.37 per share. Looking ahead, ServiceNow is expecting third fiscal quarter 2024 subscription revenue of $2.660 billion to $2.665 billion, which would be an increase of 20.0 percent to 20.5 percent over last year. ServiceNow also said it expects full year 2024 subscription revenue of $10.575 billion to $10.585 billion, which would be up 22.0 percent over last year.

High-profile ServiceNow executive CJ Desai quits over internal hiring policy violation - SiliconANGLE

High-profile ServiceNow executive CJ Desai quits over internal hiring policy violation ServiceNow Inc. said today that one of its most prominent executives, CJ Desai, is leaving the company with immediate effect after an investigation into a complaint over the sales process for a government contract revealed serious policy violations. Desai (pictured) who was both President and Chief Operating Officer at ServiceNow, was found to have violated the company's internal policies over the hiring of the former U.S. Army Chief Information officer Raj Iyer, who has also left his position with immediate effect. The shock departures overshadowed strong financial results, with ServiceNow reporting better-than-expected sales and bookings in the second quarter, boosted by strong customer demand for its broad suite of enterprise software tools and services. In addition to crushing Wall Street's expectations, ServiceNow raised its full-year revenue outlook, sending its stock higher in late trading. The company said in a statement that Desai had chosen to resign following an internal investigation that was launched in March after it received an "internal complaint" regarding a government contract and one of its employees. "The Company initiated an internal investigation, with assistance of outside legal counsel, into the validity of these claims," ServiceNow said in a statement. "The Company also promptly informed and is continuing to cooperate with government entities." As a result of the investigation, which is still ongoing, the company concluded that its policies had been violated regarding the hiring of the former Army CIO. Desai enjoyed a big profile at ServiceNow, and was perhaps just as well known as the company's chief executive officer Bill McDermott. He joined the company back in December 2016 as its Chief Product & Engineering Officer after quitting an executive role at EMC Corp., and had held the COO role since January 2022. He was consistently one of the company's most-often quoted executives, communicating its regular product releases and updates and holding regular interviews with the press. Rebecca Wetteman of the industry analyst firm Valoir said Desai's departure comes at a critical time for ServiceNow, which is enjoying huge growth in the public sector and has an opportunity to continue doing that. "While the circumstances of the hiring and the violation aren't all clear, it was big enough to demand Desai's departure," Wettenman noted. "This is particularly important given ServiceNow's focus on the public sector." The analyst explained that it is critical for ServiceNow to maintain its credibility as a government contractor, given that it serves military branches, federal agencies, state and local governments. "With Desai's departure, ServiceNow is taking a high-profile step to show it's taking corrective action," she added. The company is also moving quickly to put the incident behind it. Chris Bedi, who has served at ServiceNow for over a decade, will assume the role of Interim Chief Product Officer immediately, while the company searches for a permanent successor. Bedi should be a solid appointment as he knows the company inside out, having previously served as its chief digital information officer and chief customer officer. The company declined to elaborate on how an investigation into a complaint about procurement led to the discovery of a violation over the hiring of Iyer. In an interview with Barron's, McDermott said the company is sharpening its hiring policies to make sure it always complies in future. "That's the whole story. It's a hiring procedure, an isolated incident," McDermott said. "We got out in front of it and we decisively channeled it." The news of Desai's departure took the sheen off of ServiceNow's impressive second quarter financial results, which were disclosed today. The company reported earnings before certain costs such as stock compensation of $3.13 per share, well ahead of the $2.83 consensus estimate, with revenue growing by 22% to $2.63 billion versus the Street's $2.61 billion target. ServiceNow's subscription revenue rose 23% to $2.54 billion, just beating the analyst forecast of $2.53 billion. Meanwhile its current remaining performance obligations, which represents a backlog of orders expected to translate to revenue in the next 12 months, stood at $8.78 billion, up 31% from a year ago. However, investors may have been disappointed to see that the company's bottom line declined. It reported a net profit of just $262 million, down from $1.04 billion a year earlier. In an interview with MarketWatch, ServiceNow's finance chief Gina Mastantuono said the company's strong results were due to momentum in generative artificial intelligence. She explained that the company's Now Assist generative AI agent family has achieved the "fastest start of any ServiceNow product", and is proving to be useful for a broad range of customers. For instance, BT Ltd., formerly British Telecom, is leveraging Now Assist to reduce the time its customer service agents spend on calls. McDermott said on the call that ServiceNow has been able to capitalize on AI because it has been investing in the technology for years, rather than just following recent trends and bolting it on. "Our relevance as the AI platform for business transformation remains stronger than ever as CEOs are looking for new vectors of growth, simplification and digitization," McDermott said. Wetteman said ServiceNow's success with AI is all about how it positions its Now Assist tools as putting AI to work for people and infusing intelligence into workflows. "The theme of putting AI to work for people is really important as our research has found 1 in 4 workers worry their job will be replaced in the next year - and employees are much more comfortable with embedded capabilities that require minimal training than more complicated models," Wetteman said. The company's forecast was somewhat mixed, however. Officials said they're looking at full-year subscription revenue of between $10.575 billion and $10.585 billion, above their prior range of $10.560 billion to $10575 billion. While that's promising the third quarter forecast is less so. ServiceNow said it sees subscription revenue of between $2.660 billion and $2.665 billion, below the Street's $2.672 billion target. Despite the blip in its current quarter forecast and the dip in profitability, investors appeared pleased enough with the company's results, as its stock was up more than 6% in late trading, erasing a loss of 4% that occurred during the regular trading session.

ServiceNow surpasses Q2 estimates; COO, President Desai leaves company

ServiceNow (NYSE:NOW) surpassed revenue and earnings per share estimates in its Q2 2024 financial results released after markets closed on Wednesday. The software management company reported Q2 revenue of $2.627B, which represented 22% growth year over year, and beat the analysts' consensus of $2.61B. Earnings per share of $3.13 also beat the estimate of $2.84. ServiceNow ended the trading day down 4.5%, but it rebounded 5.5% during early post-market action. "Our relevance as the AI platform for business transformation remains stronger than ever as CEOs are looking for new vectors of growth, simplification, and digitization," said ServiceNow CEO Bill McDermott. "ServiceNow intends to reinvent every workflow, in every company, in every industry with GenAI at the core." ServiceNow also announced the departure of president and chief operating officer CJ Desai after the company completed an internal investigation into the hiring of former chief information officer of the U.S. Army, Raj Iyer, as its global head of public sector. "As a result of the investigation, the Company's Board of Directors determined Company policy was violated regarding the hiring of the former Chief Information Officer of the U.S. Army," ServiceNow stated. "As such, the hired individual, who led the company's public sector thought leadership and business development efforts since March 2023, departed the company." Long-term ServiceNow executive Chris Bedi is currently serving as the interim chief product officer. Looking ahead, ServiceNow expects Q3 subscription revenue to total $2.66B to $2.67B, which is just below the estimate of $2.68B. For the full year, ServiceNow raised its outlook by $33M, and now expects revenue ranging from $10.575B to $10.585B, a year-over-year increase of 22%. Earlier in the day, ServiceNow announced the acquisition of Germany-based Raytion to enhance generative AI-powered search and knowledge management capabilities on the Now Platform.

Earnings Summary: NOW beats expectations; COO departs (NYSE:NOW)

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