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01/10 00:13
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
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.
Subscription revenue growth 21.5% in constant currency, 2 points above guidance. This growth was driven by strong execution and some early on-prem renewals.
CRPO growth 21.5% in constant currency, 2 points above guidance. This growth reflects strong execution and demand.
Operating margin 29.5%, over 2.5 points above guidance. This was driven by top-line outperformance, AI operational efficiencies, and timing of marketing spend.
Free cash flow margin 16.5%, up 3% year-over-year. This increase was supported by AI efficiencies and strong financial performance.
RPO (Remaining Performance Obligations) $23.9 billion, representing 25.5% year-over-year constant currency growth. This growth was driven by strong execution and demand.
Current RPO $10.92 billion, representing 21.5% year-over-year constant currency growth, a 200 basis point beat versus guidance.
Renewal rate 98%, showcasing ServiceNow's strategic importance as the AI platform for business transformation.
Net new ACV in transportation and logistics Over 100% year-over-year growth. This was a standout performance in the industry.
Net new ACV in technology, media, and telecom Over 70% year-over-year growth. This reflects strong demand in these sectors.
Net new ACV in retail and hospitality and energy & utilities Each growing over 50% year-over-year, showcasing strong performance in these industries.
Number of customers generating over $5 million in ACV 528 customers, with the number of customers contributing $20 million or more increasing by over 30% year-over-year.
Deals greater than $1 million in net new ACV 89 deals, including 11 deals over $5 million. This reflects strong deal momentum.
New logo ACV Average new logo ACV grew over 100% year-over-year, with 11 deals over $1 million in net new ACV, including 2 over $5 million.
ITAM Now Assist net new ACV Nearly 6x quarter-over-quarter growth, with average deal sizes more than tripling. This reflects strong adoption of the product.
ITSM Plus and CSM Plus deal value Quadrupled year-over-year, showcasing strong demand for these flagship products.
ITOM Plus deal value Tripled year-over-year, reflecting strong adoption.
HRSD Plus deal value Doubled year-over-year, indicating strong growth.
Creator Now Assist average deal sizes Quadrupled year-over-year, showcasing strong demand for this product.
Now Assist net new ACV: Beat expectations in Q2, with a key AI Pro Plus deal count up over 50% quarter-on-quarter. Largest Now Assist deal to date closed at over $20 million.
AI Control Tower: Surpassed initial net new ACV expectations for the full year within 60 days of launch.
Agentic Workforce Management: Newly announced standard for hybrid team leadership, enabling seamless and secure collaboration between employees and agents.
Logik.ai acquisition: Driving explosive growth in CPQ with 9 deals closed in June alone.
data.world acquisition: Delivers innovative data governance solutions built for the agentic AI era.
CRM and front office workflows: Strong momentum with notable wins, including a U.S. building supply company selecting ServiceNow CPQ and the state of California using ServiceNow CRM across multiple departments.
Global adoption of AI solutions: ExxonMobil, Standard Chartered, Merck & Co., and others adopting ServiceNow AI for enhanced operations and compliance.
Partnerships: Expanded partnerships with NVIDIA, UKG, and Zoom, highlighting ServiceNow's centrality in enterprise AI.
Subscription revenue growth: 21.5% year-over-year in constant currency, exceeding guidance by 2 points.
Operating margin: 29.5%, over 2.5 points above guidance.
Free cash flow margin: 16.5%, up 3% year-on-year.
Renewal rate: Achieved a robust 98% renewal rate, showcasing strategic importance.
AI-driven transformation: ServiceNow positioned as a leader in enterprise AI, integrating tech stacks and enabling cross-functional workflows.
Future CRM strategy: Reimagining CRM with AI-powered front office solutions, moving beyond traditional CRM screens to omnipresent AI agents.
AI as a strategic priority: AI transformation identified as the top priority for enterprises globally, with ServiceNow positioned as a differentiated leader.
U.S. Federal Agencies Budget Constraints: U.S. federal agencies are facing tightening budgets and evolving mission demands, which could impact ServiceNow's ability to secure contracts or maintain growth in this sector.
Market Conditions for U.S. Federal Agencies: The market conditions for U.S. federal agencies remain challenging, with potential headwinds affecting ServiceNow's performance in this segment.
AI Hype Cycle and Competition: The ongoing AI hype cycle could lead to increased competition as other companies also focus on AI transformation, potentially impacting ServiceNow's market share and growth.
Economic Uncertainty: Economic uncertainties, including potential changes in customer budgets or spending priorities, could affect ServiceNow's ability to maintain its growth trajectory.
Integration and Execution Risks: The integration of new acquisitions like Logik.ai and data.world, as well as the execution of new AI initiatives, could pose operational challenges and risks.
Dependence on Large Deals: ServiceNow's reliance on large deals (e.g., deals over $1 million or $5 million) could make the company vulnerable to delays or cancellations of such deals, impacting revenue.
Regulatory Compliance: The need to ensure compliance with industry regulations, especially in sectors like government and healthcare, could pose challenges and increase operational costs.
Supply Chain and Operational Risks: Although not explicitly mentioned, the global environment's rapid changes could imply potential supply chain or operational risks that may affect ServiceNow's ability to deliver solutions effectively.
Subscription Revenue Guidance for 2025: Raised to $12.775 billion to $12.795 billion, representing 20% year-over-year growth or 19.5% to 20% on a constant currency basis.
Subscription Revenue Guidance for Q3 2025: Expected to be between $3.260 billion and $3.265 billion, representing 20% to 20.5% year-over-year growth or 19.5% on a constant currency basis.
CRPO Growth Guidance for Q3 2025: Expected year-over-year growth of 18.5% or 18% on a constant currency basis, including a 200 basis points headwind due to a larger-than-average customer cohort renewing in Q4.
Operating Margin Guidance for 2025: Expected to be 30.5%.
Free Cash Flow Margin Guidance for 2025: Expected to be 32%.
GAAP Diluted Weighted Average Outstanding Shares for 2025: Expected to be 210 million.
GAAP Diluted Weighted Average Outstanding Shares for Q3 2025: Expected to be 210 million.
Moveworks Contribution: No contribution expected from Moveworks in 2025 as the acquisition is expected to close late in the second half of 2025 or early 2026.
Pipeline for Knowledge 2025: Newly created pipeline is up over $1.2 billion, contributing to the $15 billion-plus subscription revenue target for 2026.
Share Repurchase Program: In Q2, ServiceNow repurchased approximately 381,000 shares as part of its share repurchase program. The primary objective of this program is to manage the impact of dilution. As of the end of the quarter, the company had approximately $2.6 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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