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01/10 00:49
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
The earnings call presents a positive outlook with strong subscription revenue growth, optimistic guidance, and robust AI adoption. The Q&A section confirms high demand and strategic positioning in AI workflows, despite prudence in guidance due to external factors like government shutdowns. The proactive approach to Q4 renewals and strong renewal rates further support confidence in guidance. Overall, the sentiment leans positive, with no significant negative trends or uncertainties highlighted.
Subscription revenue growth 20.5% year-over-year in constant currency, 1 full point above the high end of guidance. This growth was driven by strong execution and broad-based demand throughout the platform.
cRPO growth 20.5% year-over-year in constant currency, 2.5 points above guidance. This was due to strong demand and execution.
Operating margin 33.5%, 3 full points above guidance. This was driven by top-line outperformance, AI operational efficiencies, disciplined spend management, and timing of some program spend.
Free cash flow margin 17.5%, up 50 basis points year-over-year. This was attributed to AI-driven efficiencies and enhanced scalability.
Deals greater than $1 million in net new ACV 103 deals, including 6 deals greater than $10 million. This reflects strong demand for ServiceNow's platform.
Risk and security business ACV $1 billion, becoming the fifth business to cross the $1 billion threshold. This growth was driven by strong demand for security and risk solutions.
Now Assist deals 12 deals over $1 million, including 1 over $10 million. This reflects strong adoption of AI products.
AI products ACV On pace to exceed $0.5 billion this year, showing excellent progress toward a $1 billion target next year. This growth is driven by strong demand for AI solutions.
RPO Approximately $24.3 billion, representing 23% year-over-year constant currency growth. This was driven by strong demand and execution.
Current RPO $11.35 billion, representing 20.5% year-over-year constant currency growth, a 250 basis point beat versus guidance. This was due to strong demand and execution.
Transportation and logistics net new ACV growth Over 90% year-over-year. This was driven by strong demand in the sector.
Retail and hospitality and education net new ACV growth Both growing over 50%. This was driven by strong demand in these sectors.
Energy and utilities net new ACV growth Continued healthy demand. This reflects ongoing interest in the sector.
Government net new ACV growth U.S. federal business growing net new ACV over 30% year-over-year. This was driven by strong demand and modernization efforts.
Renewal rate 97%, and 98% when excluding the closure of a large federal agency. This reflects strong customer retention.
Customers generating over $5 million in ACV 553 customers, showing strong growth in high-value customers.
Customers contributing $50 million or more Increased by over 20% year-over-year. This reflects strong growth in high-value customers.
ITSM and HR+ net new ACV Both doubling quarter-over-quarter. This reflects strong demand for these solutions.
ITOM+ net new ACV Surging more than 5x quarter-over-quarter. This reflects strong demand for these solutions.
CSM+ deal volume Tripling year-over-year. This reflects strong demand for these solutions.
AI products: On pace to exceed $0.5 billion in ACV this year, with a target of $1 billion next year. 12 Now Assist deals over $1 million, including 1 over $10 million. AI Control Tower deal volume quadrupled quarter-over-quarter.
CRM and CPQ solutions: AI-powered CPQ solution accelerates quote generation and is gaining traction globally. Multiple million-dollar deals were closed, including a European auto manufacturer adopting CPQ globally.
Figma integration: Partnership with Figma allows seamless transition from visual design to enterprise-grade applications on the ServiceNow platform.
Federal market: U.S. federal business surpassed net new ACV expectations, growing over 30% year-over-year. GSA OneGov agreement simplifies adoption and is estimated to boost efficiency by 30%, saving billions over 5 years.
Industry-specific growth: Transportation and logistics grew net new ACV over 90% year-over-year. Retail, hospitality, and education grew over 50%. Energy, utilities, and government sectors also showed strong demand.
Operational efficiencies: Non-GAAP operating margin was 33.5%, 300 basis points above guidance. AI operational efficiencies and disciplined spend management contributed to this performance.
Free cash flow margin: Achieved 17.5%, up 50 basis points year-over-year.
AI as a strategic focus: Positioned as the AI workflow company, integrating AI across enterprise systems. AI products are central to the company's growth strategy.
Stock split: Announced a 5-for-1 stock split to make shares more accessible and provide employees with greater equity flexibility.
Government Deal Timing: The ongoing government situation may impact deal timing in the U.S. federal business for Q4. This is due to the timeline requirements to complete standard procurement processes, which could delay revenue recognition.
Integration Challenges: The root cause of many failed enterprise technology deployments is a lack of integration. Without proper integration, AI and other technologies may fail to deliver the expected ROI, posing a risk to customer satisfaction and adoption.
AI Governance: AI governance is a critical challenge as machines cannot govern themselves. Enterprises need to catalog, track, supervise, and secure AI assets, and failure to do so could lead to operational risks and inefficiencies.
Legacy System Transition: Transitioning from legacy systems to AI-native workflows is complex and may pose challenges for customers, potentially delaying adoption and impacting ServiceNow's growth trajectory.
Federal Agency Closure: The closure of a large federal agency impacted the renewal rate, which was 97% overall but 98% excluding this closure. This indicates potential risks in the public sector customer base.
Subscription Revenue Growth: For 2025, subscription revenues are projected to be between $12.835 billion and $12.845 billion, representing 20.5% year-over-year growth or 20% on a constant currency basis. For Q4, subscription revenues are expected to be between $3.42 billion and $3.43 billion, representing 19.5% year-over-year growth or 17.5% to 18% on a constant currency basis.
Operating Margin: The full-year operating margin target for 2025 has been raised by 50 basis points to 31%. For Q4, the operating margin is expected to be 30%.
Free Cash Flow Margin: The full-year free cash flow margin target for 2025 has been raised by 200 basis points to 34%.
AI Product Revenue: AI products are on pace to exceed $0.5 billion in ACV for 2025, with a target of $1 billion in ACV for 2026.
Federal Government Efficiency: The ServiceNow AI platform is estimated to boost efficiency by 30%, saving the U.S. federal government billions over the next 5 years.
Customer Growth: The number of customers contributing $50 million or more increased by over 20% year-over-year. The company closed 103 deals greater than $1 million in net new ACV in Q3, including 3 deals over $20 million.
AI Operational Efficiencies: AI operational efficiencies are driving incremental leverage and enhancing scalability, contributing to the raised operating margin and free cash flow margin targets.
Share Repurchase Program: In Q3, ServiceNow repurchased approximately 644,000 shares as part of its share repurchase program, marking a nearly 70% increase compared to the previous quarter. The primary objective of this program is to manage the impact of dilution. As of the end of the quarter, the company had approximately $2 billion of authorization remaining for share repurchases.
The earnings call presents a positive outlook with strong subscription revenue growth, optimistic guidance, and robust AI adoption. The Q&A section confirms high demand and strategic positioning in AI workflows, despite prudence in guidance due to external factors like government shutdowns. The proactive approach to Q4 renewals and strong renewal rates further support confidence in guidance. Overall, the sentiment leans positive, with no significant negative trends or uncertainties highlighted.
The earnings call highlights strong financial performance with a 2% upside in revenue guidance, robust new logo acquisition, and a strategic focus on AI-driven solutions. The company's differentiation in the AI market and strategic initiatives like NowNext AI suggest positive market sentiment. However, there is some caution around stable operating margins due to strategic investments. Overall, the positive outlook and strategic focus on AI transformation indicate a likely positive stock price movement.
ServiceNow's earnings call highlights strong financial performance, with subscription revenue growth exceeding guidance and high operating margins. The company is optimistic about its AI initiatives and partnerships. While there are potential economic and supply chain challenges, the robust share repurchase program and raised revenue guidance indicate confidence. The Q&A section reveals management's positive outlook on AI commoditization and hybrid pricing models, despite some ambiguity in responses. Overall, these factors suggest a positive sentiment, likely leading to a 2% to 8% stock price increase over the next two weeks.
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