ServiceNow, Inc. (NOW) Q4 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call summary highlights strong financial performance, with subscription revenue and operating margin exceeding guidance, and impressive free cash flow growth. The Q&A section reveals positive sentiment towards AI monetization and strategic partnerships, with concerns about AI adoption being addressed effectively. Despite some vagueness in management responses, the overall outlook is optimistic, with strong customer growth and government sector performance. The raised operating margin and free cash flow targets further bolster positive sentiment, suggesting a likely stock price increase in the coming weeks.
Key Financial Performance
Q4 subscription revenue growth 21%, 19.5% in constant currency, 1.5 points above the high end of guidance. Growth attributed to strong performance across product areas and customer adoption.
cRPO growth 25%, 21% in constant currency, 2 points above guidance including a 1% contribution from Moveworks. Growth driven by strong customer renewals and adoption of new products.
Operating margin 31%, 1 point above guidance. Improvement due to operational efficiencies and disciplined spending.
Full year 2025 free cash flow margin 35%, 1 point above raised guidance. Increase driven by cost efficiencies and strong collections.
Deals greater than $1 million in NNACV 244 deals. Growth reflects strong customer demand and adoption of ServiceNow's solutions.
Deals greater than $10 million in NNACV 7 deals. Indicates increasing trust and investment from large customers.
RaptorDB Pro NNACV growth More than tripled year-on-year in Q4. Growth driven by increased adoption and integration in top deals.
Workflow Data Fabric adoption In 16 of top 20 Q4 deals. Attach rates increased every quarter in 2025, showing growing customer reliance.
Monthly active users Grew 25%. Reflects increased engagement and usage of ServiceNow's platform.
Now Assist NNACV Surpassed $600 million in ACV, more than doubled year-over-year in Q4. Growth driven by strong customer adoption and expansion.
Number of workflows and transactions Workflows grew over 33% from $60 billion to $80 billion; transactions grew from $4.8 trillion to $6.4 trillion. Indicates increased platform usage and customer activity.
Q4 subscription revenues $3.466 billion, growing 19.5% year-over-year in constant currency, exceeding guidance by 150 basis points. Growth driven by strong product performance and customer adoption.
RPO $28.2 billion, representing 22.5% year-over-year constant currency growth. Growth driven by strong customer renewals and new contracts.
Current RPO $12.85 billion, representing 21% year-over-year constant currency growth, 200 basis points above guidance. Growth driven by strong customer renewals and adoption of new products.
Renewal rate 98% in Q4. Reflects high customer satisfaction and value placed on ServiceNow's platform.
Free cash flow margin for Q4 57%, up 950 basis points year-over-year. Driven by strong collections, lower CapEx, and operational leverage.
Full year 2025 operating margin 31%, up 150 basis points year-over-year. Improvement due to operational efficiencies and disciplined spending.
Total free cash flow for 2025 $4.6 billion, up 34% year-over-year. Growth driven by strong collections and operational leverage.
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Operating Highlights
RaptorDB Pro: More than tripled NNACV year-on-year in Q4, including 13 deals over $1 million.
Workflow Data Fabric: Featured in 16 of the top 20 Q4 deals, with increasing attach rates every quarter in 2025.
Now Assist: Surpassed $600 million in ACV, with NNACV more than doubling year-over-year in Q4. 35 deals over $1 million in Q4 alone.
Geographic Expansion: New logo net new ACV in EMEA and Japan grew nearly 30% year-over-year.
Industry Growth: Transportation and logistics led with over 80% NNACV growth year-over-year, followed by business and consumer services (70%) and financial services (40%).
Operating Margin: Achieved 31%, 1 point above guidance for Q4.
Free Cash Flow Margin: Full year 2025 free cash flow margin was 35%, 1 point above raised guidance.
Renewal Rate: Achieved a robust 98% renewal rate in Q4.
AI Integration: Expanded partnerships with Microsoft, Anthropic, and OpenAI to integrate AI capabilities into ServiceNow's platform.
Acquisitions: Announced plans to acquire Veza and Armis to enhance visibility, identity governance, and orchestration in AI-driven security.
Share Repurchase: Authorized an additional $5 billion share repurchase program, with an immediate $2 billion accelerated share repurchase.
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Risk or Challenges
Regulatory Clearance Process: The company is undergoing a regulatory clearance process for its acquisitions of Veza and Armis, which could pose delays or challenges in integrating these acquisitions into its platform.
AI Adoption and Security Risks: The rapid adoption of AI is expanding the attack surface for enterprises, creating vulnerabilities in unmanaged IoT devices, operational technology, and medical equipment. Traditional security tools are insufficient to address these risks.
Market Valuation Perception: ServiceNow is perceived as a feature-oriented SaaS company rather than a platform company, which has impacted its market valuation despite strong financial performance.
Economic Uncertainty: The company faces potential economic uncertainties that could impact its growth projections and customer spending.
Integration of Acquisitions: The integration of recent acquisitions like Veza and Armis into the ServiceNow platform could face operational and strategic challenges.
Competitive Pressures: The enterprise software market is highly competitive, with significant pressure from other AI and platform companies.
Supply Chain and Operational Risks: The company is expanding its data center investments for public cloud geo-expansion and AI, which could face supply chain or operational disruptions.
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Guidance & Outlook
Subscription Revenue Growth: Guiding to 20% subscription revenue growth for 2026, with a target of $15.53 billion to $15.57 billion in subscription revenues, representing 19.5% to 20% year-over-year growth on a constant currency basis.
Operating Margin: Expecting an operating margin of 32% for 2026, up 100 basis points year-over-year, driven by operational efficiencies enabled by AI.
Free Cash Flow Margin: Forecasting a free cash flow margin of 36% for 2026, up 100 basis points year-over-year, driven by operational leverage and reduced CapEx.
Q1 2026 Subscription Revenue: Expecting subscription revenues between $3.650 billion and $3.655 billion, representing 18.5% to 19% year-over-year growth on a constant currency basis.
Q1 2026 cRPO Growth: Guiding to 20% cRPO growth on a constant currency basis for Q1 2026.
AI and Emerging Products: Tracking well towards a $1 billion-plus target for Now Assist ACV by 2026, with significant growth in AI-related products and adoption.
Capital Allocation: Announced an incremental $5 billion share repurchase authorization with an immediate $2 billion accelerated share repurchase program.
Strategic Acquisitions: Post-Armis acquisition, no other large white spaces are seen as necessary to complete the platform vision for security. Focus remains on organic growth with opportunistic tuck-ins for technology and talent.
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Shareholder Return Plan
Share Repurchase Authorization: ServiceNow announced an incremental USD 5 billion share repurchase authorization with an immediate accelerated share repurchase (ASR) of $2 billion.
Q4 Share Repurchase Activity: In Q4, ServiceNow repurchased approximately 3.6 million shares as part of its share repurchase program, with approximately $1.4 billion of authorization remaining at the end of the quarter.
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Key Q&A
Q:What are the tailwinds and headwinds in the demand environment, and how is AI monetization expected to play out?
A:The demand environment is influenced by companies seeking platforms that span functions and deliver ROI, with AI being a key driver for growth and simplification. ServiceNow's user count, revenue, and margins are growing, and the company is positioned as a consolidator. The buying cycle is favorable due to fast ROI and executive-level investments. Security grew 100% year-over-year, and AI monetization is progressing with hybrid pricing models and assist packs driving subscription revenue.
Q:How did the federal business perform relative to expectations, and what are the prospects for 2026?
A:Despite the government shutdown and fewer business days, the federal business performed well with significant deals and a strong pipeline. The OneGOV offering is well-received, and state, local, and global government sectors are also growing. The global government business grew 80% year-over-year, indicating strong traction.
Q:What are the factors affecting gross margin and how are they being managed?
A:Gross margin is impacted by a strategic focus on hyperscalers, which currently have slightly lower margins. However, efficiencies and scaling hyperscaler deals are expected to improve margins. ServiceNow is committed to delivering top-line growth and margin expansion, with operating margin guidance increased by 100 basis points.
Q:What is the outlook for M&A in 2026, and how will recent acquisitions impact financials?
A:ServiceNow is focused on organic growth and does not plan large-scale M&A. Recent acquisitions like Armis and Veza are integrated and expected to contribute 1 point to subscription revenue in 2026, with up to a 50 bps headwind to operating margin. The company aims to absorb any dilution and continue margin expansion.
Q:How are partnerships with OpenAI and Anthropic contributing to ServiceNow's growth?
A:Partnerships with OpenAI and Anthropic enhance ServiceNow's offerings with unique use cases like voice AI and coding agents. These partnerships provide customer choice and integrate seamlessly with ServiceNow's platform, driving strategic relevance and growth.
Q:What concerns do customers have about adopting AI, and how does ServiceNow address them?
A:Customers are concerned about monitoring agents, kill switches, grading agents, and red teaming. ServiceNow addresses these with its AI Control Tower, providing real-time monitoring, observability, cost management, and security. This has enabled customers to adopt AI use cases confidently.
Q:Will ServiceNow pivot completely to consumption or value-based pricing in the future?
A:ServiceNow currently uses a hybrid pricing model, balancing flexibility and predictability for customers. While some products are consumption-based, the company focuses on customer needs and ROI, with no immediate plans to fully pivot to consumption or value-based pricing.
Q:What is the mix of AI inferencing and training workloads expected to be on ServiceNow's platform versus third-party models in 2026?
A:ServiceNow provides customer choice between its Now LLM and third-party models. Frontier models are expected to handle most inferencing workloads, while ServiceNow's platform focuses on context, data management, and workflow integration. The mix will depend on customer requirements.
Q:Review of Unclear Management Responses
A:Management avoided directly addressing the specific financial details of Armis's growth rate and scale, as well as the exact breakdown of AI inferencing workloads between ServiceNow's LLM and third-party models. Additionally, there was some vagueness in explaining the long-term shift to consumption or value-based pricing.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AI Control
AI agent
AI platform
AI workflow
Armis
CRM
Control Tower
FedEx
Moveworks
NNACV deal
NTT
OT
ServiceNow AI
ServiceNow agent
Tower reinvention
access
accuracy
asset
collaboration
company
core enterprise
development
device
estate
fact ServiceNow
governance
human
identity
machine
map
orchestration
permission
platform AI
problem
resolution
seat
speculation
support
system
technology
today
tool
triage
visibility
NOW Transcript
ServiceNow, Inc. (NOW) Q4 2025 Earnings Call Transcript
Positive1-28
The earnings call summary highlights strong financial performance, with subscription revenue and operating margin exceeding guidance, and impressive free cash flow growth. The Q&A section reveals positive sentiment towards AI monetization and strategic partnerships, with concerns about AI adoption being addressed effectively. Despite some vagueness in management responses, the overall outlook is optimistic, with strong customer growth and government sector performance. The raised operating margin and free cash flow targets further bolster positive sentiment, suggesting a likely stock price increase in the coming weeks.
ServiceNow, Inc. (NOW) Q3 2025 Earnings Call Transcript
Positive10-29
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.
ServiceNow, Inc. (NOW) Q2 2025 Earnings Call Transcript
Positive7-23
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, Inc. (NOW) Morgan Stanley Technology, Media & Telecom Conference (Transcript)
Neutral3-3
NOW Slides
NOW Report
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