Sign in
SI

ServiceNow, Inc. (NOW)·Q2 2025 Earnings Summary

Executive Summary

  • Beat-and-raise quarter: total revenue $3.215B (+22.5% YoY), non-GAAP diluted EPS $4.09, cRPO $10.92B; exceeded high end of guidance across topline and profitability, driven by strong AI adoption and net new ACV strength .
  • Raised FY25 subscription revenue guidance to $12.775–$12.795B (vs. $12.640–$12.680B prior); reiterated non-GAAP margins (subscription GM 83.5%, op margin 30.5%, FCF margin 32%) .
  • Q3 guide embeds ~200 bps cRPO headwind from a large Q4 renewal cohort; U.S. Federal caution remains, but pipeline momentum is strong (Now Assist and CRM) .
  • Potential stock catalysts: sustained AI monetization (Pro Plus/agentic), CRM expansion, raised FY guide, and clarity around Q3 headwinds/federal linearity discussed on the call .

What Went Well and What Went Wrong

What Went Well

  • “Beat-and-raise” execution: non-GAAP operating margin 29.5% (250+ bps above guide); free cash flow margin 16.5% (+300 bps YoY) .
  • AI traction: Now Assist beat net new ACV expectations; largest Now Assist deal >$20M; Plus SKUs included in 18 of top 20 deals; Pro Plus deal count up >50% QoQ .
  • CRM momentum: nine CPQ deals in June post-Logik.ai; strong adoption across sales/order management with notable wins (ExxonMobil, Standard Chartered, Merck, State of California) .

What Went Wrong

  • Q3 cRPO growth headwind (~2 pts) from renewal cohort timing; federal budgets and mission dynamics add near-term caution to outlook .
  • Professional services margin remains low (GAAP 3% in Q2), highlighting mix profitability dependence on subscription .
  • Non-GAAP adjustments remain significant (stock-based comp, intangibles amortization, severance, impairments), underscoring gap between GAAP and non-GAAP profitability .

Financial Results

Key P&L and Margin Trends (GAAP and Non-GAAP)

MetricQ4 2024Q1 2025Q2 2025
Total Revenue ($USD Billions)$2.957 $3.088 $3.215
GAAP Diluted EPS ($)$1.83 $2.20 $1.84
Non-GAAP Diluted EPS ($)$3.67 $4.04 $4.09
GAAP Gross Margin (%)79.0% 79.0% 77.5%
Non-GAAP Operating Margin (%)29.5% 31.0% 29.5%
cRPO ($USD Billions)$10.27 $10.31 $10.92

Consensus vs Actual (Wall Street, S&P Global)

Values with asterisks are from S&P Global.

MetricQ4 2024Q1 2025Q2 2025
Revenue Consensus Mean ($USD Billions)$2.962*$3.086*$3.124*
Revenue Actual ($USD Billions)$2.957 $3.088 $3.215
EPS Consensus Mean ($)$3.66*$3.835*$3.568*
Non-GAAP Diluted EPS Actual ($)$3.67 $4.04 $4.09

Values retrieved from S&P Global.

Revenue and Gross Profit by Stream

MetricQ4 2024Q1 2025Q2 2025
Subscription Revenue ($USD Millions)$2,866 $3,005 $3,113
Professional Services & Other Revenue ($USD Millions)$91 $83 $102
Subscription Gross Profit (GAAP, $USD Millions)$2,330 $2,444 $2,488
Subscription Gross Margin (GAAP, %)81% 81.5% 80%
Professional Services Gross Profit (GAAP, $USD Millions)($4) ($7) $3
Professional Services Gross Margin (GAAP, %)(4%) (8.5%) 3%
Total Gross Profit (GAAP, $USD Millions)$2,326 $2,437 $2,491

KPIs and Cash

KPIQ4 2024Q1 2025Q2 2025
RPO ($USD Billions)$22.3 $22.1 $23.9
cRPO ($USD Billions)$10.27 $10.31 $10.92
Deals >$1M in net new ACV (#)170 72 89
Customers >$5M ACV (#)~500 508 528
Renewal Rate (%)98% 98% 98%
Operating Cash Flow ($USD Millions)$1,635 $1,677 $716
Free Cash Flow (Non-GAAP, $USD Millions)$1,400 $1,477 $535
Share Repurchase ($USD Millions)$296 $298 $361

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Subscription Revenues ($USD Billions)FY 2025$12.640–$12.680 $12.775–$12.795 Raised
Subscription Revenues ($USD Billions)Q3 2025N/A$3.260–$3.265 New
cRPO YoY Growth (%)Q3 2025N/A18.5% (reported), 18% constant currency New
Income from Operations (Non-GAAP Op Margin, %)Q3 2025N/A30.5% New
Subscription Gross Margin (Non-GAAP, %)FY 202583.5% 83.5% (reiterated) Maintained
Operating Margin (Non-GAAP, %)FY 202530.5% 30.5% (reiterated) Maintained
Free Cash Flow Margin (Non-GAAP, %)FY 202532% 32% (reiterated) Maintained
GAAP Diluted Shares (millions)Q3/FY 2025209 210 Slight ↑
Non-GAAP Effective Tax Rate AssumptionFY 202520% 20% Maintained

Note: Q3 cRPO headwind of ~200 bps due to Q4 renewal cohort timing .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4’24 and Q1’25)Current Period (Q2’25)Trend
Agentic AI & Now AssistPro Plus deals +150% QoQ in Q4; plan for hybrid subscription/consumption; 1,000+ customers seeded Largest Now Assist deal >$20M; Plus SKUs in 18 of top 20; 21 deals with ≥5 Now Assist products Accelerating
CRM expansion (sales/order mgmt, CPQ)Intent to acquire Logik.ai; CRM fastest growing business; one-platform sell-fulfill-service Nine CPQ deals in June; strong front-office traction and industry wins Accelerating
Data fabric & RaptorDB Pro5 customers >$1M ACV; 3–5x speed gains; connectors to hyperscalers/data platforms Workflow Data Fabric in 17 of top 20 deals; continued RaptorDB traction Strengthening
Federal/public sectorQ1 federal grew >30% NNACV; prudent guide due to election-related seasonality Executed well; maintained prudence into Q3; six new public sector logos; continued caution Cautious near-term
Operating efficiency via AIMargin accretion trajectory; internal “Now on Now” efficiencies $100M headcount savings targeted; engineering/sales productivity enhancements Improving
Consumption pricing modelHybrid model tied to agentic assist packs; turbocharges usage economics Customer feedback positive; meter runs as agents scale Building adoption

Management Commentary

  • CEO on differentiation and AI demand: “Our beat-and-raise quarter showcases the mission-critical nature of the ServiceNow AI Platform... agentic operating system for the enterprise.”
  • CFO on margin outperformance and AI tailwinds: “Non-GAAP operating margin was 29.5%, over 250 bps above guidance... AI opex efficiencies were a meaningful tailwind.”
  • CEO on control tower approach: “Our AI controller will manage our agents and all the other ones too... a CEO should want ServiceNow’s AI platform for business transformation.”
  • CFO on FY raise and Q3 shape: “We are raising our subscription revenues by $125M at the midpoint… Q3 CRPO includes 200 bps headwind from a larger-than-average cohort that renews in Q4.”
  • Product leadership on agentic deployment: “You can get an AI agent up and running in less than a few weeks… orchestrations with third-party agents in months.”

Q&A Highlights

  • Demand and execution drivers: AI is the core change; cross-functional “agentic” work and platform consolidation are differentiators; customers want one control plane to avoid agent sprawl .
  • Margin and investment stance: AI-driven efficiencies enable prudence while investing in technical sellers/engineers; maintaining op margin guide despite potential M&A closing .
  • CRM focus: Near-term opportunities in sales order mgmt and CPQ; strong pull into industry-specific front-office workflows .
  • Federal outlook: Execution strong despite uncertainty; guide embeds prudence; longer-term opportunity intact .
  • Consumption pricing: Hybrid subscription with agentic assist packs; value-driven meter as usage scales, with positive early feedback .

Estimates Context

  • Q2 2025 beat: Revenue $3.215B vs consensus $3.124B*; Non-GAAP diluted EPS $4.09 vs $3.57*; both above expectations, supporting FY guide raise . Values retrieved from S&P Global.
  • Trajectory: Q1 2025 and Q4 2024 also modest beats on revenue and EPS vs consensus*, reinforcing estimate momentum. Values retrieved from S&P Global.
  • Potential estimate revisions: Upward bias to FY25 subscription revenue/margins given beat-and-raise; near-term Q3 cRPO growth tempered by renewal timing and federal prudence .

Key Takeaways for Investors

  • Durable AI-led growth: Broad-based agentic adoption (Now Assist/Plus) is scaling across functions and industries, underpinning beat-and-raise performance .
  • CRM expansion is real: Rapid CPQ traction and one-platform sell-fulfill-service story create a meaningful TAM unlock beyond IT workflows .
  • Near-term caution: Expect Q3 cRPO growth to reflect ~200 bps headwind before rebounding in Q4; monitor federal linearity and macro/tariff dynamics .
  • Margin quality: Operating margin outperformance driven by AI efficiencies; non-GAAP margins reiterated for FY25, but mind significant GAAP-to-non-GAAP adjustments .
  • Cash and buybacks: Strong cash generation with ongoing repurchases ($361M in Q2); authorization remains sizable to manage dilution .
  • Watch consumption economics: Hybrid pricing tied to agentic usage may accelerate monetization over time; look for disclosures on assist pack burn and attach rates .
  • 2H catalysts: Knowledge/AI Summit pipeline, CRM/customer wins, and renewed Q4 cohort should support cRPO and bookings recovery; Moveworks/Logik integration updates could add upside .