ServiceNow, Inc. Q2 FY2025 earnings call

• Q2 results were outstanding with subscription revenue growth, CRPO growth, and operating margin above guidance.
• AI is driving growth, with Now Assist net new ACV beating expectations, key AI Pro Plus deal count up over 50% q-o-q, and large deals closed.
• Workflow Data Fabric included in 17 of top 20 largest deals. RaptorDB Pro gained traction.
• CRM opportunity is massive with acquisition of Logik.ai driving growth in CPQ.
• Notable customer wins in various industries like building supply, ExxonMobil, Standard Chartered, etc.
• Launched Agentic Workforce Management and acquired data.world for data governance.

Subscription revenue for Q2 was $3.113 billion, growing 21.5% year-over-year in constant currency. RPO ended the quarter at approximately $23.9 billion, with 25.5% year-over-year constant currency growth. Current RPO was $10.92 billion, 21.5% year-over-year constant currency growth. Industry performance: Transportation and logistics had over 100% year-over-year net new ACV growth, technology, media and telecom over 70%, retail and hospitality and energy & utilities over 50% each. Now Assist net new ACV continues to trend well, with 21 deals having 5 or more Now Assist products. Flagship products like ITSM Plus, CSM Plus, ITOM Plus, HRSD Plus, and Creator Now Assist also delivered strong results.

• For 2025, subscription revenues raised to $12.775 billion to $12.795 billion, 20% year-over-year growth.
• Q3 subscription revenues expected between $3.260 billion and $3.265 billion, 20% to 20.5% year-over-year growth.
• cRPO year-over-year growth expected 18.5% or 18% in constant currency.
• Operating margin expected 30.5% for Q3.

No detailed risks discussed, but it's noted that forward-looking statements involve risks, uncertainties, and assumptions, and to refer to SEC filings for factors causing actual results to differ.

Q: Congratulations on another clearly elite quarter. Bill, some of your peers, I think it's unclear if the demand environment has improved much maybe or changed much since the start of the year. But something seems different in the way that you guys are executing. Maybe you can you just talk about what's driving this seemingly better-than-expected execution. Is it something that's changed in the traction of the AI product? Is it something that's changed in the competitive field? Maybe just what's different this year, first half in spite of a difficult backdrop that's allowing you to maintain this level of execution.

A: Well, thank you very much, Alex, for your comment. And I see you already got a research note out to your clients, you're moving at the pace of ServiceNow. It's called instantaneous execution. The one thing that can't easily get measured in an earnings script or in the numbers is the heart and the courage of a culture and heart of [ this ] is gigantic. And this hungry and humble culture that started with Fred Luddy and has continued to this day has never given up on anything. But to answer your question specifically, 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...

Q: Aleksandr Zukin: Super clear. Maybe, Gina, just quickly one for you. There's a lot of anxiety. I know from the investor community about DOGE, about federal activity in general in the public sector. It seems like it delivered to your expectations. But maybe can you give us a flavor for the pipeline, the conservatism in the numbers for Q3 and how we should think about that in the back half?

A: Yes. Great question, Alex. So market conditions played out as we anticipated, and the team executed extremely well against that backdrop. Our federal team is just the best in the business, and I couldn't be prouder of them. And despite the noise actually in the quarter of U.S. public sector closed 6 new logos in Q2 alone. And so again, just continuing to execute despite the uncertainty. That being said, for the remainder of 2025, we're absolutely building prudence in around our assumptions for U.S. Fed, right? And so they continue to navigate tightening budgets and shifting mission demands with increasing urgency. So we feel good that our guidance contemplates appropriately those trends into Q3, and I feel good about where that stands.