Image source: The Motley Fool.
CALL PARTICIPANTS
- Chairman and Chief Executive Officer — Bill McDermott
- President and Chief Financial Officer — Gina Mastantuono
- President, Chief Product Officer, and Chief Operating Officer — Amit Zavery
- Senior Vice President, Investor Relations — Darren Yip
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TAKEAWAYS
- Subscription Revenue: $3.113 billion in subscription revenue for Q2 2025, up 21.5% year over year in constant currency, exceeding guidance by 200 basis points (non-GAAP), driven by strong execution and early on-prem renewal.
- RPO (Remaining Performance Obligations): Approximately $23.9 billion in RPO for Q2 2025, growing 25.5% year over year in constant currency.
- Current RPO: $10.92 billion in current RPO for Q2 2025 (GAAP), up 21.5% year over year in constant currency, beating guidance by 200 basis points (non-GAAP).
- Operating Margin: 29.5% non-GAAP operating margin for Q2 2025, more than 2.5 percentage points above guidance, benefiting from AI-driven operational efficiencies and marketing spend timing.
- Free Cash Flow Margin: 16.5% non-GAAP free cash flow margin for Q2 2025, up 3% year over year.
- Renewal Rate: 98%, indicating high platform stickiness and continued customer commitment.
- High-Value Deals: 89 deals closed with net new ACV exceeding $1 million in Q2 2025, including 11 deals over $5 million.
- Large Customer Base: 528 customers generated over $5 million in ACV as of Q2 2025; those contributing above $20 million increased by more than 30% year over year.
- Industry Performance: Transportation and logistics net new ACV grew over 100% year over year; technology, media, and telecom grew over 70% year over year; retail and hospitality, as well as energy and utilities, each grew over 50% year over year.
- AI Product Momentum: NOW Assist net new ACV to date and Plus product attach rates both beat expectations in Q2 2025, with 21 deals involving five or more NOW Assist products.
- Technology Workflow Strength: IT Asset Management (ITAM) net new ACV expanded over 70% year over year in Q2 2025, leading the segment; Security and Risk workflows both topped 60% net new ACV growth year over year (non-GAAP).
- CRM Front Office Expansion: Nine CPQ deals closed in June 2025 following Logic.AI integration, with CRM products present in 17 of the top 20 deals.
- Plus SKU Adoption: ITAM NOW Assist net new ACV (non-GAAP) rose nearly 6x quarter over quarter in Q2 2025, with average deal size more than tripling quarter over quarter; NOW Assist for SecOps and Risk more than doubled net new ACV quarter over quarter.
- Flagship Product Growth: ITSM Plus and CSM Plus deal volume quadrupled year over year in Q2 2025; ITOM Plus deal volume tripled year over year (non-GAAP); HRSD Plus deal volume doubled year over year (non-GAAP); Creator NOW Assist average deal size (non-GAAP) quadrupled year over year.
- Deal Breadth: All top 20 deals included five or more products, evidencing cross-platform penetration.
- Balance Sheet: $10.8 billion in cash and investments at Q2 2025 quarter end (GAAP); 381,000 shares repurchased in Q2 2025, leaving $2.6 billion of buyback authorization at quarter end.
- 2025 Guidance Update: Raised subscription revenue midpoint by $125 million to a $12.775-$12.795 billion range for FY2025, reflecting 20% year-over-year growth; guidance for 2025 includes non-GAAP operating margin of 30.5% and non-GAAP free cash flow margin of 32%.
- Q3 2025 Outlook: Projecting subscription revenues between $3.260-$3.265 billion for Q3 2025 (up 20%-20.5%); expecting CRPO growth of 18.5% (a 200 basis-point renewal cohort headwind); operating margin (non-GAAP) expected at 30.5% for FY2025.
- AI Control Tower and Agentic Product Uptake: Management stated, “In just 60 days, we’ve already surpassed our initial net new ACV expectations for AI Control Tower for the full year 2025.”
- NOW Assist Consumption: Amit Zavery said, “Our usage has gone up — is it 9x over the last six months.”
- Knowledge 2025 Event Pipeline: The newly created sales pipeline from the Knowledge 2025 event exceeds $1.2 billion.
SUMMARY
ServiceNow (NOW -0.50%) reported high double-digit growth across subscription revenue, RPO, and net new ACV in Q2 2025, with significant outperformance in both core and emerging solution sets. The company’s AI-powered products, particularly NOW Assist and Plus SKUs, achieved above-plan expansion, with a marked acceleration in new logo ACV and broad customer adoption spanning multiple industry verticals. Updated guidance reflects increased expectations for 2025 subscription revenues, with management emphasizing continued balance between aggressive investments in AI talent, disciplined expense management, and robust profitability targets. Operational margin improvements (non-GAAP) in Q2 2025 were attributed to the company’s internal deployment of its own AI-based products to enhance workforce productivity. The Knowledge 2025 event catalyzed a substantial addition to the qualified sales pipeline, supporting ongoing confidence in multi-year growth objectives.
- Bill McDermott stated, “We have 450,000 agents in the workflow right now. … Most of this is now over 80% being done by agents.”
- Gina Mastantuono confirmed, “average new logo ACV grew over 100% year over year.”
- Recent customer wins included ExxonMobil, Merck and Company, Intuit, Starbucks, the state of California, and Brazil, each implementing ServiceNow AI or CRM solutions.
- Management said the ITAM workflow landed its largest deal to date in Q2 2025.
- “We are raising our subscription revenue by $125 million at the midpoint, to $12.775 billion to $12.795 billion, representing 20% year-over-year growth for 2025,” according to Mastantuono.
- Platform approach and deep workflow integration were cited as key differentiators supporting competitive displacement across legacy CRM and IT environments.
INDUSTRY GLOSSARY
- NOW Assist: ServiceNow, Inc.’s AI-powered assistant suite, providing automation and workflow intelligence across the Now Platform.
- CRPO: Current Remaining Performance Obligations — contracted revenue not yet recognized, expected to be collected within 12 months.
- ACV: Annual Contract Value — the annualized revenue value of a given customer contract.
- Plus SKU: Enhanced feature product tiers (e.g., ITSM Plus, CSM Plus) offering advanced AI and workflow capabilities on the ServiceNow, Inc. platform.
- AI Control Tower: ServiceNow, Inc.’s management solution for overseeing and coordinating both first-party and third-party AI agents and workflows.
- CPQ: Configure, Price, Quote — software addressing quoting, configuration, and pricing automation, notably used in sales processes.
- Raptor DB Pro: ServiceNow, Inc.’s proprietary data architecture technology for workflow data management and analytics.
- Agentic AI: AI paradigm focused on autonomous AI “agents” acting across enterprise workflows to execute business processes.
- ITAM: IT Asset Management — solutions for inventorying, tracking, and optimizing an organization’s technology assets.
Full Conference Call Transcript
Darren Yip: Good afternoon, and thank you for joining ServiceNow, Inc.’s second quarter 2025 earnings conference call. Joining me are Bill McDermott, Chairman and Chief Executive Officer, Gina Mastantuono, our President and Chief Financial Officer, and Amit Zavery, President, Chief Product Officer, and Chief Operating Officer. During today’s call, we will review our second quarter 2025 results and discuss our guidance for the third quarter and full year 2025. Before we get started, I want to emphasize that the information discussed on this call, including 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 10-K, for factors that may cause actual results to differ materially from our 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 revenues, remaining performance obligations or RPO, current RPO, and cash and investments.
To see the reconciliation between these non-GAAP and GAAP measures, please refer to today’s earnings press release and investor presentation, which are 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: Thank you, Darren, and welcome everyone to today’s call. ServiceNow, Inc.’s Q2 results were outstanding. They continue our long track record of elite-level execution, and we are at the forefront of enterprise AI. Subscription revenue growth was 21.5% in constant currency, two points above our guidance. CRPO growth was also 21.5% in constant currency, two points above our guidance. Operating margin was 29.5%, that’s over 2.5 points above our guidance. Free cash flow margin was 16.5%, up 3% year on year. We had 89 deals greater than a million in net new ACV. Eleven of those deals were greater than five million in net new ACV. All our workflow businesses performed very well in the quarter.
Technology workflows had 40 deals over a million, including four over five million. ITSM, ITAM, ITAM, security, and risk were all in at least 15 of the top 20 deals. CRM and industry workflows continued its strong momentum in 17 of our top 20 deals, with 17 of those deals over a million. And core business workflows also had a great quarter in 16 of the top 20 deals with seven deals over a million. The global environment is the fastest-changing in history. Outcomes like beat and raise are a testament to the ServiceNow, Inc. AI platform, our world-class team, and partner ecosystem. Let’s talk about what’s driving the growth: it’s AI, data, and workflows.
On AI, NOW Assist net new ACV to date beat expectations once again in Q2. Our key AI Pro Plus deal count, including IPSM, CSM, and HR, was up over 50% quarter on quarter. We also closed our largest NOW Assist deal to date at over 20 million. We had 21 deals with five or more NOW Assist products, and Plus products were included in 18 of our top 20 deals. The AI hype cycle has not slowed for good reason. Enterprises in every industry and every region of the world have AI transformation as priority number one. IT budgets are highly resilient and increasingly focused on strategic mission-critical AI platforms.
Our position is highly differentiated because AI work is cross-functional work. ServiceNow, Inc. integrates the entire tech stack, on-prem or in the cloud, any system, any LLM, any data source, and we bring all of that data into a single model. From there, we elevate into the workflow layer, where you take action on that data wherever it lives. Then we move into the AI layer, not just automation, but true AI agents executing real tasks to drive outcomes across business processes: hire to retire, procure to pay, design to product, quote to cash, and sale to service. The long history of enterprise tech can be described in a single word: pain.
That’s because people and devices and apps and data and clouds don’t work well together. Without ServiceNow, Inc., we run the real risk of a new generation of pain, this time with AI agents scattered around like spare parts. We have no intention, ladies and gentlemen, of allowing that to happen. Control Tower isn’t just a name for our solution. It’s the ultimate metaphor for how ServiceNow, Inc. helps customers govern the agentic enterprise. We help customers take advantage of everyone’s innovation, ours, and others. We put investments together. We make it all work. With demand as high as it is, our next AI program is called Now Next AI.
