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    NOW
    Earnings call· Jun 2025(Q2 FY25)

    ServiceNow Q2 FY25 earnings call NOW

    Jul 23, 2025 Source

    Executive summary

    ServiceNow Q2 FY25 — Elite Execution Driven by AI and CRM Expansion

    ServiceNow delivered an outstanding Q2 FY25, significantly beating top-line and profitability guidance, primarily driven by strong adoption of its AI offerings, particularly Now Assist. The company is also seeing substantial momentum in its expansion into CRM and front-office workflows, fueled by strategic acquisitions and a differentiated platform approach. Internal AI efficiencies contributed to margin expansion, while the company continues to invest strategically in growth opportunities.

    Highlights

    5

    • Subscription revenue growth was 21.5% in constant currency, 2 points above guidance.

    • Current RPO growth was 21.5% in constant currency, 2 points above guidance.

    • Non-GAAP operating margin reached 29.5%, over 2.5 points above guidance.

    • Free cash flow margin was 16.5%, up 300 basis points year-over-year.

    • Now Assist net new ACV continued to beat expectations, including a largest-ever deal over $20 million.

    Concerns

    1

    • U.S. federal agencies are navigating changes from tightening budgets and evolving mission demands, requiring prudence in guidance assumptions.

    Guidance & targets

    11
    CategoryTargetConfidence
    Full Year 2025 Subscription Revenues
    $12.775 billion to $12.795 billion
    high materiality
    High
    Full Year 2025 Subscription Gross Margin
    83.5%
    high 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
    210 million
    medium materiality
    High
    Q3 FY25 Subscription Revenues
    $3.260 billion and $3.265 billion
    high materiality
    High
    Q3 FY25 cRPO Year-over-Year Growth
    18.5% or 18% on a constant currency basis
    high materiality
    High
    Q3 FY25 Operating Margin
    30.5%
    high materiality
    High
    Q3 FY25 GAAP Diluted Weighted Average Outstanding Shares
    210 million
    medium materiality
    High
    FY26 Subscription Revenue Target
    $15 billion-plus
    high materiality
    High
    FY26 Now Assist ACV Target
    $1 billion
    high materiality
    High

    Segment performance

    7
    SegmentRevenueYoYQoQMargin
    Technology workflows
    ITSM, ITOM, ITAM, security and risk were all included in at least 15 of the top 20 deals. ITAM saw over 70% YoY growth in net new ACV, and Security and Risk grew over 60%.
    Deals >$1M net new ACV: 40Deals >$5M net new ACV: 4Inclusion in top 20 deals: 15+
    		————
    CRM and industry workflows
    Continued strong momentum, with significant wins in CRM and widespread adoption of end-to-end capabilities.
    Inclusion in top 20 deals: 17Deals >$1M net new ACV: 17
    		————
    Core business workflows
    Had a great quarter.
    Inclusion in top 20 deals: 16Deals >$1M net new ACV: 7
    		————
    Transportation and logistics
    Delivered a standout performance in net new ACV.
    		—>100%——
    Technology, media and telecom
    Had a fantastic quarter.
    		—>70%——
    Retail and hospitality
    Saw strength.
    		—>50%——
    Energy & utilities
    Saw strength.
    		—>50%——

    Operational metrics

    8
    Cash and investments balance
    $10.8 billion
    Q2 FY25 end

    Robust balance sheet.

    Shares repurchased
    381,000
    Q2 FY25

    As part of share repurchase program, primarily to manage dilution.

    Share repurchase authorization remaining
    $2.6 billion
    Q2 FY25 end

    Remaining authorization for share repurchase program.

    AI efficiencies internal savings
    $100 million
    FY25

    Savings from utilizing own AI innovations (Now-on-Now) internally.

    Workflow Data Fabric inclusion
    17
    Q2 FY25

    Customers recognize the value of combining data, analytics and AI.

    RaptorDB Pro traction
    beat expectations
    Q2 FY25

    Gained traction in every major region.

    Knowledge 2025 newly created pipeline
    $1.2 billionup over
    Q2 FY25

    Pipeline created from Knowledge 2025 event.

    Now Assist usage
    9xover
    last 3 months

    Usage of Now Assist has gone up significantly.

    Industry KPIs

    10
    MetricValueDetails
    Revenue growth$3.113 billionUSD
    Arr net new arrbeat expectations
    Rpo current rpo$23.9 billionUSD
    Bookings billings89deals
    Customer account count528customers
    Large deal new logo metrics89deals
    Gross retention renewal rate98%%
    Multi product platform attach5 or more products
    Operating FCF margin rule of 4029.5%%
    Ai product adoption monetizationup over 50%%

    Orderbook & backlog

    2
    Remaining Performance Obligations (RPO)$23.9 billionQ2 FY25 end

    25.5% year-over-year constant currency growth

    Current RPO (cRPO)$10.92 billionQ2 FY25 end

    21.5% year-over-year constant currency growth

    200 basis point beat versus guidance

    Product announcements

    2
    ProductTypeDetails
    Agentic Workforce Managementlaunch
    AI Control Tower, AI agent fabric, no-code AI Agent Studiolaunch

    Deals & partnerships

    14
    Logik.aiAcquisition to enhance CPQ capabilities

    Acquisition of Logik.ai is already driving explosive growth in CPQ.

    data.worldAcquisition for innovative data governance and knowledge graph platform

    Acquired data.world to deliver innovative data governance solutions built for the agentic AI era, noting it's the only data catalog platform built on a knowledge graph with highest user adoption.

    CapZone Impact InvestmentsDeveloping national network of next-gen solutions to modernize mission-critical facilities

    Developing a national network of next-gen solutions to modernize mission-critical facilities, leveraging ServiceNow's risk management, enterprise asset management, and AI-powered automation to create digital maritime manufacturing capability in the US.

    NVIDIARedefining employee support with ServiceNow AI

    Partnering to redefine employee support with ServiceNow AI, using intelligent AI agents for proactive issue resolution, personalized help, and instant answers.

    UKGPartnership expansion

    Mentioned as a partnership expansion.

    ZoomPartnership expansion

    Mentioned as a partnership expansion.

    ExxonMobilImplementing ServiceNow AI and agents for enhanced employee experiences and operational processes

    Plans to implement ServiceNow AI and agents to deliver enhanced employee experiences, improved operational processes, and fast response times across enterprise services.

    Standard CharteredUsing ServiceNow AI Control Tower with RaptorDB to govern agentic AI

    Will use ServiceNow AI Control Tower with RaptorDB to help govern, secure, and realize value from agentic AI.

    Merck & Co.Adopting ServiceNow AI platform to transform security operations

    Adopting the ServiceNow AI platform to transform security operations, enhancing control of IT assets, reducing risk, and strengthening data compliance.

    State of CaliforniaUsing ServiceNow CRM across multiple departments

    Using ServiceNow CRM across multiple departments to better serve constituents, employees, and the business community.

    Banco do Nordeste BrasilTransforming customer service with ServiceNow AI

    Transforming customer service with ServiceNow AI, delivering tailored solutions that anticipate customer needs and deepen engagement.

    IntuitExpanding relationship to remove friction with agentic AI experiences for employees

    Expanding its long-time relationship with ServiceNow to remove friction with done-for-you agentic AI experiences for their employees.

    StarbucksUsing AI capabilities to enhance technology ecosystem and support centers

    Using ServiceNow AI capabilities to enhance its technology ecosystem, rolling out ServiceNow in select support centers to drive greater satisfaction.

    North Carolina Department of TransportationUsing ServiceNow AI Control Tower to govern AI solutions

    Will use ServiceNow AI Control Tower to govern all of their AI solutions across the agency, ensuring industry compliance and control.

    Risks & headwinds

    2
    U.S. federal agencies navigating tightening budgets and shifting mission demandsRemainder of 2025

    Prudence built into guidance assumptions

    Mitigation: Team executed well against backdrop; guidance appropriately reflects trends.

    Moveworks acquisition closing timingLate H2 2025 or early 2026

    No contribution included in 2025 or Q3 guidance

    Mitigation: Maintaining prudent expense management to absorb potential margin headwinds if it closes in the back half of the year.

    What to watch in Q3 FY25

    5

    Q3 FY25 cRPO Growth

    Q3 FY25
    Current21.5% CC (Q2 FY25)
    Target18.5% (18% CC)

    Why it matters

    cRPO is a key indicator of near-term revenue visibility and durable demand, especially with a noted 200 bps headwind.

    We expect cRPO year-over-year growth of 18.5% or 18% on a constant currency basis. As a reminder, this includes 200 basis points headwind due to our larger-than-average customer cohort that renewed in Q4.

    Q&A highlights

    7

    What is driving ServiceNow's consistently strong execution, especially given the current demand environment? Is it AI traction or competitive shifts?

    Bill McDermott attributed the strong execution to the transformative power of AI, particularly agentic AI, which is changing business models globally. He highlighted ServiceNow's differentiated platform for cross-functional AI work, enabling customers to consolidate legacy systems and achieve significant business cases. He emphasized that ServiceNow is inventing its own paradigm in the 'agentic AI enterprise'.

    “AI is what changed. And agentic AI is transforming the business model every company in the world. They see the difference between ServiceNow and the other ones.”

    asked by Aleksandr Zukin · answered by William McDermott

    2 min read7 chapters

    Detailed Narrative

    01

    AI-Driven Growth and Differentiation

    ServiceNow's Q2 performance was significantly bolstered by its leadership in enterprise AI, with AI transformation being a top priority for customers. The company's platform differentiates by integrating the entire tech stack, including on-premise and cloud systems, any LLM, and any data source, into a single model. This enables cross-functional AI work and positions ServiceNow as the 'AI operating system for the agentic enterprise,' driving substantial value creation.

    02

    Now Assist Outperformance and AI Product Adoption

    Now Assist net new ACV continued to exceed expectations in Q2, including a record-breaking deal over $20 million. The AI Pro Plus deal count increased by over 50% quarter-on-quarter, with 21 deals incorporating five or more Now Assist products. New 'Plus' SKUs like ITAM Now Assist saw nearly 6x QoQ net new ACV growth, and ITSM Plus and CSM Plus deal values quadrupled year-over-year, demonstrating strong customer adoption and monetization of AI features.

    03

    Expansion into CRM and Front Office

    ServiceNow is aggressively expanding into the CRM market, reimagining it with an AI-powered front office that streamlines sales, service, and order management. The recent acquisition of Logik.ai has already driven 'explosive growth' in CPQ, with 9 deals closed in June alone. The company aims to replace fragmented legacy CRM stacks with a unified, AI-driven platform, focusing on outcome-driven, complicated workflows across various industries.

    04

    Workflow Data Fabric and RaptorDB Pro Traction

    The Workflow Data Fabric was a key component in 17 of ServiceNow's top 20 largest deals, indicating strong customer recognition of its value in combining data, analytics, and AI. RaptorDB Pro also continued to gain traction across major regions and exceeded expectations in Q2. These data-centric innovations are crucial for enabling agentic AI and driving faster, smarter outcomes for customers.

    05

    Internal AI Efficiencies and Margin Expansion

    ServiceNow leveraged its own AI innovations internally ('Now-on-Now') through tools like CodeAssist and CodeGeneration, which unlocked significant capacity for engineers. These AI efficiencies contributed to the non-GAAP operating margin of 29.5%, which was 250 basis points above guidance. The company anticipates $100 million in headcount savings from AI in FY25, demonstrating the tangible benefits of its technology.

    06

    Strategic Partnerships and Brand Strength

    New and expanded partnerships, including with CapZone Impact Investments for modernizing mission-critical facilities and NVIDIA for redefining employee support, highlight ServiceNow's central role in the enterprise AI ecosystem. The company's brand has achieved significant recognition, becoming the 42nd most valuable brand globally, reflecting its successful positioning of 'AI to work for people' and its strong market resonance.

    07

    Go-to-Market Confidence and Talent

    Management expressed high confidence in its global go-to-market leadership, citing proven executives in APJ, Americas, and Europe. The company emphasizes its deep talent bench and a culture of elite execution, continuously hiring in critical areas like quota-bearing sales and technical sellers, particularly for AI, while also realizing efficiencies in sales and marketing operations.

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