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    NOW
    Earnings call· Mar 2025(Q1 FY25)

    ServiceNow, Inc. NOW

    Apr 23, 2025 Source

    Executive summary

    ServiceNow Q1 FY25 — Strong AI Adoption and Raised Full-Year Guidance

    ServiceNow delivered a strong Q1 FY25, exceeding top-line and profitability guidance, driven by robust AI adoption and strategic relevance. The company raised its full-year outlook, reflecting continued demand for its platform as enterprises prioritize business transformation and cost efficiencies amidst a dynamic macro environment, while maintaining a prudent stance on potential geopolitical risks.

    Highlights

    5

    • Subscription revenue grew 20% YoY in constant currency, slightly above the high end of guidance.

    • Current RPO grew 22% YoY in constant currency, 150 basis points above guidance.

    • Operating margin was 31%, approximately 100 basis points above guidance.

    • Free cash flow margin was 48%, significantly above the Rule of 50.

    • Number of Pro Plus deals more than quadrupled year-over-year, with average ACV deal sizes growing by 1/3 QoQ.

    Concerns

    2

    • Geopolitical environment and tightening U.S. federal budgets led to a prudent approach to full-year guidance, flowing through only part of Q1 benefits.

    • Unexpected shift of some on-prem U.S. federal deals to hosted impacted revenue recognition timing in Q1.

    Guidance & targets

    11
    CategoryTargetConfidence
    Full-year 2025 Subscription Revenues
    $12.64 billion to $12.68 billion
    high materiality
    High
    Full-year 2025 Subscription Revenues (Constant Currency Growth)
    19.5%
    high materiality
    High
    Full-year 2025 Subscription Gross Margin
    83.5%
    medium materiality
    High
    Full-year 2025 Operating Margin
    30.5%
    high materiality
    High
    Full-year 2025 Free Cash Flow Margin
    32%
    high materiality
    High
    Full-year 2025 GAAP Diluted Weighted Average Outstanding Shares
    209 million
    low materiality
    High
    Q2 FY25 Subscription Revenues
    $3.030 billion and $3.035 billion
    high materiality
    High
    Q2 FY25 Subscription Revenues (Constant Currency Growth)
    19.5%
    high materiality
    High
    Q2 FY25 cRPO Growth (Constant Currency)
    19.5%
    high materiality
    High
    Q2 FY25 Operating Margin
    27%
    medium materiality
    High
    Q2 FY25 GAAP Diluted Weighted Average Outstanding Shares
    209 million
    low materiality
    High

    Segment performance

    7
    SegmentRevenueYoYQoQMargin
    Technology Workflows
    Includes ITSM, ITOM, ITAM, security and risk. Mix of net new ACV fluctuates quarterly.
    Deals > $1M net new ACV: 36Deals > $5M net new ACV: 2In top 20 deals: >50%
    		————
    CRM and Industry Workflows
    Fastest-growing business, showing strong relative performance in Q1, particularly in EMEA and Japan. Expected to continue growing as a percentage of total.
    In top 20 deals: 16Deals > $1M net new ACV: 9Net new ACV growth (EMEA & Japan): >50% YoY
    		————
    Core Business Workflows
    Includes employee, finance, and supply chain solutions, showing strong demand for modernization.
    In top 20 deals: 50%Deals > $1M net new ACV: 8HR service delivery net new ACV growth: 40% YoYFinance and supply chain net new ACV growth: 60% YoY
    		————
    Creator Workflows
    Included in all top 20 deals, with Creator Plus showing significant average deal size growth.
    In top 20 deals: AllAverage deal sizes: Tripled QoQ (Creator Plus)
    		————
    U.S. Public Sector
    Exceeded expectations in Q1, driven by government automation and modernization. Strong performance despite a challenging environment.
    New logos: 6U.S. Federal deals > $1M: 11U.S. Federal deals > $5M: 2
    		—>30% (net new ACV)——
    Manufacturing Industry
    Delivered a standout performance in Q1 for net new ACV.
    		—>100% (net new ACV)——
    Healthcare and Life Sciences Industry
    Had a great quarter for net new ACV.
    		—>70% (net new ACV)——

    Operational metrics

    18
    Subscription Revenue
    $3.005 billion20% YoY (constant currency)
    Q1 FY25

    Reported as non-GAAP.

    Non-GAAP Operating Margin
    31%100 bps above guidance
    Q1 FY25

    Driven by OpEx efficiencies and timing of marketing spend.

    Free Cash Flow Margin
    48%up approximately 100 bps YoY
    Q1 FY25
    Cash and investments balance
    $10.9 billion
    Q1 FY25

    As of quarter end.

    Share Repurchase Program
    316,000 shares
    Q1 FY25
    Share Repurchase Authorization Remaining
    $3 billion
    Q1 FY25

    As of the end of the quarter.

    Renewal Rate
    98%
    Q1 FY25
    Customers with >$5M ACV
    508up from 425 a year ago
    Q1 FY25

    Crossed the 500-plus milestone.

    Deals >$1M Net New ACV
    72up from 63 a year ago
    Q1 FY25

    Biggest Q1 ever for net new ACV.

    Deals >$5M Net New ACV
    9
    Q1 FY25

    Included in the 72 deals >$1M.

    Top 20 Deals including 5+ products
    19
    Q1 FY25

    Highlights the better together value of the portfolio.

    Deals with 3+ Now Assist Products
    39
    Q1 FY25

    Illustrates customers deploying AI across multiple workflows.

    ITSM Plus in Top 20 Deals
    15
    Q1 FY25
    Work Deflection
    over 86%
    Q1 FY25

    Deflection of manual tasks using ServiceNow Now on Now AI.

    System Admin Use Case Resolution Time
    secondstypically took almost 20 minutes
    Q1 FY25

    Utilizing Now Assist.

    IT Support Deflection
    94%increased from 18%
    Q1 FY25
    Average Incident Resolution Time Reduction
    1.5-day reduction
    Q1 FY25
    US Dollar Weakening
    currency tailwind
    Q1 FY25

    Seen over the course of Q1.

    Industry KPIs

    8
    MetricValueDetails
    Revenue growth$3.005 billionUSD
    Rpo current rpo$22.1 billion (RPO); $10.31 billion (cRPO)USD
    Customer account count508customers
    Large deal new logo metrics72 (deals >$1M net new ACV); 9 (deals >$5M net new ACV)deals
    Gross retention renewal rate98%%
    Multi product platform attach19deals
    Operating FCF margin rule of 4031% (operating margin); 48% (FCF margin)%
    Ai product adoption monetization39deals

    Orderbook & backlog

    2
    Remaining Performance Obligation (RPO)$22.1 billionQ1 FY25 end

    25.5% YoY

    Current Remaining Performance Obligation (cRPO)$10.31 billionQ1 FY25 end

    22% YoY (constant currency)

    150 basis points above guidance

    Product announcements

    2
    ProductTypeDetails
    Yokohama Releaseupdate
    Government Transformation Suitelaunch

    Deals & partnerships

    6
    MoveworksAcquisition of an AI-driven employee self-service and enterprise search company.

    Combines Moveworks' user-centric product with ServiceNow's AI-driven workflow automation, bringing together requesters and fulfillers. Accelerates ServiceNow's roadmap and brings 500 AI experts.

    Logik.aiAcquisition of a modern AI configure, price, and quote (CPQ) solution company.

    Builds on ServiceNow's core strengths of connecting functional teams and powering simple, efficient workflows for CPQ, sell, fulfill, service on one integrated architecture with native-built AI agents.

    Aptiv and Wind RiverStrategic partnership to build joint AI solutions for specific industries.

    Aptiv expanded use of ServiceNow to drive cost takeout and improve productivity. Partnership with Wind River to build joint AI solutions.

    VodafoneLandmark 5-year collaboration to usher in the next era of AI-powered service.5-year
    DevoteamPartnering to transform CRM for businesses in Europe and the Middle East.
    Wells FargoLaunched ServiceNow AI with RaptorDB to automate complex workflows and process data sets in real time.

    Risks & headwinds

    3
    Geopolitical environment and macro disruptionRemainder of 2025

    Uncertainty

    Mitigation: Prudent approach to full-year guidance, flowing through only part of Q1 benefits; ServiceNow platform acts as a deflationary tool, helping customers with cost takeout and efficiency.

    U.S. federal agencies navigating changes from tightening budgets and evolving mission demandsShort-term potential headwinds

    Impacts timing of revenue recognition (Q1 shift of on-prem deals to hosted)

    Mitigation: Deepening focus on federal customers with purpose-built solutions like the Government Transformation Suite; long-term opportunity remains strong.

    Impact of tariffs on global supplier networks and increased costs for manufacturers

    Up to $10,000 per vehicle for a U.S. auto manufacturer

    Mitigation: ServiceNow AI agents reconfigure business rules in real time, reducing dependency on high-tariff regions by reprioritizing suppliers and activating new vendors.

    What to watch in Q2 FY25

    5

    cRPO Growth Trajectory

    Q2 FY25
    Current22% YoY constant currency (Q1 FY25)
    Target19.5% YoY constant currency (Q2 FY25 guidance)

    Why it matters

    cRPO is a key indicator of future revenue and durable demand, and its trajectory will confirm the company's guidance and macro resilience.

    CRPO grew 22% year-on-year in constant currency, a stunning 150 basis points above our guidance.

    Q&A highlights

    6

    Is the guidance conservative due to federal budget changes, and are enterprise customers showing delays or elongation in sales cycles?

    Gina stated that the guidance reflects a rigorous, data-driven analysis incorporating all facets of the market, including potential geopolitical risks, but demand remains strong with healthy pipelines. The platform is seen as a deflationary tool.

    “The result is a guidance range that reflects real-world complexity and bakes in a healthy degree of conservatism, but at the same time, demand that we're seeing remains strong.”

    asked by Keith Weiss · answered by Gina Mastantuono

    2 min read6 chapters

    Detailed Narrative

    01

    AI-Driven Business Transformation

    ServiceNow is positioning itself as the "AI operating system for the enterprise," transcending digital transformation to drive business transformation. The company emphasizes its platform's ability to integrate across the entire tech stack (ERP, CRM, HCM), bringing data into a single model, elevating it to a workflow layer, and then applying AI agents to execute tasks and drive outcomes. This approach is resonating with customers seeking to modernize tech stacks, root out inefficiencies, and achieve rapid value realization.

    02

    Strong Q1 Performance & Strategic Relevance

    The company reported its biggest Q1 ever for net new ACV, with subscription revenue and cRPO exceeding guidance. This performance is attributed to growing strategic relevance, bedrock customer relationships, and the platform's ability to address current CEO priorities like cost takeout and increased competitiveness. The company highlighted strong demand for its AI platform and a healthy pipeline, despite macro uncertainties.

    03

    Public Sector Momentum

    ServiceNow experienced significant growth in the public sector, with U.S. public sector growing over 30% YoY in net new ACV. This is driven by government automation and modernization initiatives, with 11 federal deals over $1 million in Q1. The company's Government Transformation Suite is designed to meet agencies' specific needs, accelerating digital transformation and improving public service delivery.

    04

    Expanding Addressable Market & Innovation

    ServiceNow continues to expand its addressable market beyond IT to employee experience, CRM, procurement, supply chain, and data space with RaptorDB and Workflow Data Fabric. The intent to acquire Moveworks and Logik.ai further enhances its capabilities in employee self-service, enterprise search, and CRM, particularly in sales and order management, aiming to deliver a fully integrated, AI-powered front office.

    05

    Internal AI Adoption ("Now on Now")

    ServiceNow practices "drinking its own champagne" by deploying AI agents across its internal operations. This has resulted in a 16x improvement in lead-to-sale conversion and an over 86% deflection of manual tasks. These internal efficiencies are also contributing to OpEx savings and strong profitability.

    06

    Leadership Transition

    Paul Fipps was promoted to President of Global Customer Operations, overseeing global sales, following a successful tenure. Paul Smith, after a 5-year run, will transition to a special adviser role, ensuring a seamless leadership transition and continued focus on elite-level execution.

    AI-generated summary of the company’s earnings call. Not investment advice.