ServiceNow Inc ($NOW) Q2 2025 Earnings Call

Thank you, Darren, and welcome everyone to today's call. Service Now'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 over year. We had 89 deals greater than a million in net new ACV. 11 of those deals were greater than 5 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 5 million. ITSM, ITM, 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 Service Now 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 ITSM, 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. Service Now 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, they don't work well together. Without Service Now, 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 Service Now 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 and this is getting our engineering teams deployed to get customers live fast. These are only a few of the many reasons you're seeing real momentum in these results and we're only just getting started.

Q2 has also showed Service Now's growing differentiation in enterprise data. Workflow data fabric was included in 17 of our top 20 largest deals. Customers recognize the value of combining data analytics and AI. They embrace our vision of workflow data fabric and agents working together to drive faster, smarter outcomes. On the underlying technology level, Raptor DB Pro continued to gain traction and every major region beat expectations in Q2. As I summarized earlier, all our workflows are growing, especially CRM front office workflows. The CRM opportunity for Service Now is massive. According to industry experts, Agentic AI represents a seismic shift that could render traditional CRM obsolete. By the end of this decade, enterprises will adopt systems of action driven by autonomous front-end agents. The future isn't a CRM screen. It's omnipresent AI agents embedded in everyday tools. With our sales and order management solution and our acquisition of Logic AI, we're not just entering CRM. We're reimagining it now. We're delivering a fully integrated AI powered front office, sales and service, streamlined operations, and dramatically improved time to revenue. And customers are responding to our innovation. We secured several notable wins with strong momentum in CRM and widespread adoption of our end-to-end capabilities.

One of the largest building supply companies in the US selected Service Now CPQ to support configuration and quoting at scale for their largest distribution network. Exxon Mobile plans to implement Service Now AI and agents to deliver enhanced employee experiences, improved operational processes, and fast response time across its enterprise services. Standard Chartered will use Service Now AI control tower with Raptor DB to help govern, secure, and realize value from Agentic AI. Merck and company is adopting the Service Now AI platform to transform security operations, enhancing control over IT assets, reducing risk and strengthening data compliance across the enterprise. The state of California is using Service Now CRM across multiple departments to better serve its constituents, employees, and the business community. Banco do Nordeste do Brasil is transforming customer service with Service Now AI delivering tailored solutions that anticipate customer needs and deepen engagement across the broad network of customers and partners. Intuit is expanding its longtime relationship with Service Now to remove friction with done-for-you agentic AI experiences for their employees. Starbucks, a multi-year Service Now customer, is using our AI capabilities to enhance its technology ecosystem, rolling out Service Now in select support centers to drive greater satisfaction at every touch point. The North Carolina Department of Transportation will use Service Now AI control tower to govern all of their AI solutions across the agency, ensuring industry compliance and control as they scale their modernization efforts. In a very exciting new partnership, Capzone Impact Investments and Service Now are developing a national network of next-gen solutions to modernize mission-critical facilities. Service Now's risk management, enterprise asset management, and AI powered automation capabilities will create a fully digital maritime manufacturing capability in the United States.

There's no greater satisfaction than seeing world-class brands working with Service Now. There's no better example than our great partner and friend Nvidia. They are redefining employee support with Service Now AI with intelligent AI agents that proactively resolve issues, deliver personalized help, and provide answers in milliseconds. Customers are not only choosing our tech. They're investing in our team. Under Amit Severi's leadership, our product engineering and design teams are the best in the enterprise. They're building too much net new innovation to cover in these remarks. That's a good thing. Service Now has delivered a complete integrated enterprise ready agentic platform for every agentic requirement. This includes AI control tower, AI agent fabric, and a no-code AI agent studio. In just 60 days, we've already surpassed our initial net new ACV expectations for AI control tower for the full year. Today, we're announcing agentic workforce management, a new standard for hybrid team leadership. This allows employees and agents to work seamlessly and securely with each other to deliver real business outcomes. We also acquired data.world to deliver innovative data governance and these solutions are built for this agentic AI era which is why it's so precious to us. This is the only data catalog platform built on a knowledge graph with the highest user adoption in the data catalog and governance category. Period. We just have so much to talk about in this company right now. The partnership expansions with Nvidia, UKG, Zoom, and countless others are illuminating the centricity of Service Now in Enterprise AI. That's why we see new recognition in Forrester Waves, IDC Marketscapes, and Gartner Research. It's why millions are applying to work for the company so they can be part of this movement.

We made an intentional choice at Service Now to put AI to work for people. Yes, Service Now AI is driving substantial productivity increases for our customers. And while efficiency and productivity are major benefits, it doesn't stop there. This is a breakthrough innovation elixir unlike anything we've ever seen in human history. People and AI together will create new businesses, new discoveries, and catalyze economic growth in every corner of the world. The world works with Service Now because we are delivering AI to empower people everywhere so they can be the ones who lead their organizations forward to new horizons. I'll leave you with this point. Analysts predict Agentic AI will be ubiquitous, embedded in software platforms and applications, transforming user experiences and workflows. AI is the new UI and that's why the software industrial complex of the 21st century is converging into Service Now as the extensible AI operating system for the agentic enterprise. This gives us a monumental future of value creation for our customers and shareholders. Thank you for your time. Now I'll hand things over to our president and chief financial officer, Gina Mastenuno. Gina, over to you.

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 Service Now. It's called instantaneous execution. You know, the one thing that can't easily get measured in an earning script or in the numbers is the heart and the courage of a culture. And the 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 of every company in the world. They see the difference between Service Now and the other ones and I would just sum it this way. We got the best product. Amit, I'm sure we'll have time to give you an update on the many innovations that have gone into the product. It's stunning. The experience is stunning and the results that customers can derive from it is amazing. And you know I said for some time nobody has to lose for us to win. But as the agent AI story has gotten so strong and the platform's gotten so strong, the customers are looking to consolidate the past and really lean in to Service Now. And the business cases as a result of that customer headset change are actually getting even bigger. And that's across all industries by the way.

And you know finally and I really do want to make this point clear: AI work is cross-functional work. It is not one-dimensional into a silo. Teams work on processes across functions. Organization charts are going to change. Work is going to be AI work and it'll be cross-functional. In our own company, we have 450,000 agents in the workflow right now and all of the supporting functions from customer support to IT support to risk compliance, security, most of this is now over 80% being done by agents. So, Agentic is real. The business cases are extraordinary. You know, Gina has told the street it'll be $350 million value to us this year. We think it might even be more in terms of what we can take out in opex. Not to mention happiness and productivity. If you just think about the sales curve, for example, it's a 50% improvement in sales productivity, not to have to do the setup work. That's also true for the engineers. So this is a fundamental step function change and you can only get exponentiality out of thinking across company. Yes, you can start with us in any given silo, but we're moving out to all functions. And when you look at the deals, all the big deals, you look at all 20 of them, they have multiple instances in those functions of agentic AI, which means we're winning at the departmental level, but we're really winning with the CEO. We've become the CEO's agentic AI story in enterprise software. And notice I didn't say SaaS. We actually don't live in a SaaS neighborhood. We live in an enterprise AI neighborhood on a one-of-one platform. And that differentiation is now being communicated to our customers and to our partners in a clear and articulate manner. And that's why we're different.

Yes, it was my term. And Mark, thank you very much for the question. I'll make the big point on the AI platform for transformation and then Amit will give you some color on the product and I think you're going to be extremely excited. But here's the idea. Think about any cloud. Okay, any cloud. We're the only ones that cooperate with all three of the hyperscalers. Oracle too. Think any data source. When I say any data source, think about those systems of record. Think about those data warehouses and data lakes. Think about any model. So any LLM model, all of them, they're all good. They all do different things and they're all good. And think about any agent. So these agents need to be managed just like people need to be managed. So our AI control tower will manage our agents and all the other ones too. And yes, Mark, the big picture is a CEO should want Service Now's AI platform for business transformation. They should want our AI control tower to manage not just our agents but all the other agents too. These agents will team up. They will work together and they will collaborate together across business processes. And in many ways the early results of what we see is the agents are a lot more collaborative and more team oriented and more results oriented than people. So this is going to be a real fun one to watch and I'll let Amit give you some color on the products.

Thank you very much.

Oh, thank you very much Brad for the question. You know, first of all, the CRM opportunity for Service Now really is huge and, you know, we've moved away from a CRM screen and AI agents are going to be embedded in an omnipresent way in everyday tools and no more swivel chairing. The workflows will be organized. They'll be agentic and legacy systems will be a customer's choice but they'll see the difference between end-to-end order fulfillment and service on one common platform and I think that's a big thing. You're going to see a lot on the order management side. The configuration, price, and quote maneuver we made is really big. You know, to get nine deals closed in the company we just got just tells you the pain that's out in the market right now that we intend to address. Service management is clearly something that's going to continue to excel very, very quickly. So I would say sales and order management are now coming into full view and we're also seeing in different industries different opportunities and one that's kind of on our vision right now is public sector because every public sector entity across the world is following what telco, manufacturing, and many other industries have already done. They want to replace fragmented legacy CRM stacks and they want a unified platform that's faster,

Thanks, Brad.

Thank you very much, Cash. Those are excellent companies. They're doing very creative and exciting things, and they all want to partner with us because of our leadership in the enterprise. And so, what is differentiated about us? A trillion transactions, 65 billion workflows in flight across a global economy. Think about compliance. Think about the regulatory environment. Think about the risk posture. Think about data complexity. Think about the enjoyment that they get from the ServiceNow platform where it is a domain-specific platform where it's secure, it's lightning fast, and it's inexpensive to run and it integrates with all these exciting new companies. They are exciting. But there's also a complexity around enterprise ready solutions that takes time. And so I think as that time is passing, we're not sleeping. We're getting stronger and better by the day and I think they will lean on us for our enterprise ready solutions and end up being really good partners because that'll help them prosper even more also. So, it's interesting to me that you ask such an intelligent question and that's why I believe we're the best positioned enterprise software company in the world, which is why I repeatedly say we don't live in a neighborhood. We're actually inventing our own paradigm of the agentic AI enterprise and what it's going to look like. We're not following anyone else's path. And some of that was good luck because the platform started by Fred Luddy started in IT because IT people knew it best. But it quickly migrated to the employee and the customer and the engineer and now it's across the board including business operations. We understand the complexity of the enterprise and if you think about six decades of complexity and pain to understand that takes a lot and also those excellent companies that you mentioned they're busy with other things and so I think they're going to lean more into ServiceNow not less into ServiceNow but there will be others that will become obsolete and the market will determine the rules of the game. But I'm into questions now where customers are saying to me, why do I have 10 of these and eight of those and 11 of the other things? Can you just get them out of here? Because I want the savings. So, it's the customer that's driving this. And when they hear, oh, any cloud, any data source, any LLM model, any agent, we cooperate with the whole ecosystem. So all of your investments are secure on our clean pane of glass across the enterprise. That's when they realize this is a different company I'm dealing with here. They're not like everybody else.

Thank you, Cash.

Oh, thank you very much, Carl. I don't think the demand environment changed dramatically. I think the demand environment is wide open for AI innovation, obviously the workflow data fabric and a change in CRM. Those are transformative things that have remained very consistent here and the customer's wallet is wide open for that level of innovation. I don't think it's as much the demand environment changing as it is the same in the sense that change, geopolitical scenarios, economic tariff scenarios, all these things have become the new norm. And so companies in preparation for that need an agentic AI layer of technology to operate their companies. I mean just think of an auto manufacturer if they have to respond to a tariff scenario. They don't have time to change the rules in a very large system. They want to in real time change the pricing or the supply chain methodology or the partners that are going to sign up in different countries to advance the lower cost nature of what they have to give to their consumer to actually sell a car. But this is true in all industries. Everything is changing and if the industry isn't changing or responding to a global scenario like that, they have to change to new skills for a new workforce and a new paradigm, new ways that customers will experience a relationship with their product. And if it's not seamless, if it's not gorgeous, and if you don't meet them with an agentic AI agent when everyone else is sleeping, they know you don't get it. So this is a once-in-a-lifetime chance for a true native AI thinking company like us. We think AI. Everything is AI. And so every industry, every scenario, every relationship plan revolves around these proof of concepts where we can go into C-suite decision makers and show them how they can go from this position to a new paradigm. And they all want it. And in some cases, you're right, budgets have been moved around to do different and exciting things and they should. But at the same time, when you can lay a business case on them for the enterprise that complements everything else beautifully, they're all in. So, our biggest challenge is just making sure we stay in front of the C-suite. It's not just one C-suite member that's making these decisions. Decisions are being made in teams. And that's why I say cross-functional work is AI work. And that's where we have thrived and that's where we need to continue to win.

Thank you, Paul.

And I would just add, Matt, continues to grow above expectations and we feel really good about the guide that we put out there for 1 billion in ACV by 2026.

Thanks Matt.

Right. And remember we continue to accrete our operating margins each and every year. And so we feel really strongly that it makes sense to deploy some of these efficiencies, especially early on in this AI transition to really help our customers get to value fast because as you know, as we talked about at Knowledge, once those assist packs start ramping up, that ramp for revenue is going to be large. And so the quicker we can get our customers to value, the better off they are, the better off we are. And so it's a great place for us to be investing some of these productivity gains.

And Mike, just to reiterate what I said in my prepared remarks, we landed 11 deals with new logos, over a million in net new ACV, two over five, and average new logo ACV grew over 100% year-over-year. So really feel good about our new logos.

And I would just add Mike that any investment in hiring is 100% already in that guide.

Greg. Thank you very much. I feel fantastic about the go to market. These are really proven executives. Adrian in APJ is one of the premier athletes in the enterprise software industry and had a stellar career at Oracle. So he understands the enterprise extremely well and he understands scale. So we're at that scale stage now. So when you see us make a move, it's generally because sometimes the insiders could be looking at the biggest job of their life and it's helpful to give them a little hand with someone who's seen the movie before but also has appreciation for our unique culture. In America, we have Tom Hanigan who's now got a global job because he did such a good job. And we have Steve Walters who ran our public sector business like a finely tuned Swiss watch. So he deserved a promotion too. And these are two great guys. And we have a really deep bench. We've been working on talent here for many years now. And with one and a half million people that applied, I think there's plenty of people that are ready to keep us all on our toes. And then in Europe, we have a fantastic steady leadership at the top and we have built out country management with the best talent in the industry. Also in South America. So actually I've never felt better. And Paul Fipps, who is now running all global customer operations, is somebody that I've known many years. He's been a superstar outside of the company. When we brought him in the company, every big challenge he's taken on, he's knocked it out of the park. And he is absolutely the right guy to run the corporation as the field general. And in teaming up with Ahmed and obviously the rest of our colleagues, I just think he is just the best of the best. So, I couldn't be happier with the field that we have at the top of the house. And I also know that they're keeping everybody else on their toes because we're a growth company and we expect everybody to have an elite level of execution underneath them. So, the movement continues.

Thank you.

And if I may just, Peter, just give a call out to our great marketing and communications department. Our brand is now the 42nd most valuable brand in the world. And our campaign and our brand ambassador led by Colin Fleming and our great brand ambassador and friend Idris Elba is really resonating as we put AI to work for people. And our communications team working with Colin has truly been outstanding and the relationship with the analyst community, the media community, the investor relations community led by Darren. We're just very proud of the infrastructure and the support that every department gives to one another to create this masterpiece called ServiceNow. So I just really wanted to register that. I'm so proud of the brand and how it's resonating in the global economy and we're just getting started. I mean we made one of the biggest jumps in brand equity in the history of technology and we're not going to stop there. We're going to keep going.

Thank you very much Peter.