ServiceNow(US:NOW)2025-07-23 22:02Financial Data and Key Metrics Changes - Subscription revenue for Q2 was $3,113 million, growing 21.5% year-over-year in constant currency, exceeding guidance by 200 basis points [26] - Remaining Performance Obligations (RPO) ended at approximately $23,900 million, representing 25.5% year-over-year constant currency growth [26] - Current RPO was $10,920 million, reflecting 21.5% year-over-year constant currency growth, also a 200 basis point beat versus guidance [26] - Operating margin was 29.5%, over 250 basis points above guidance, while free cash flow margin was 16.5%, up 300 basis points year-over-year [31] Business Line Data and Key Metrics Changes - Technology workflows had 40 deals over $1 million, including four over $5 million [7] - CRM and industry workflows showed strong momentum with 17 of the top 20 deals over $1 million [7] - ITAM Now Assist net new ACV surged nearly six times quarter-over-quarter, with average deal sizes more than tripling [29] - ITSM Plus and CSM Plus deal volume quadrupled year-over-year, while ITOM Plus tripled and HRSD Plus doubled [30] Market Data and Key Metrics Changes - Transportation and logistics delivered over 100% year-over-year net new ACV growth [26] - Technology, media, and telecom sectors grew over 70% year-over-year, while retail and hospitality, and energy and utilities each grew over 50% year-over-year [27] - The company achieved a robust 98% renewal rate, showcasing its strategic importance as an AI platform for business transformation [27] Company Strategy and Development Direction - The company is focused on AI, data, and workflows as key growth drivers, with a strong emphasis on integrating AI across all business functions [8][10] - The CRM opportunity is viewed as massive, with a shift towards autonomous front-end agents expected to render traditional CRM obsolete [14] - The acquisition of Logic AI is aimed at reimagining CRM and delivering a fully integrated AI-powered front office [15] Management's Comments on Operating Environment and Future Outlook - Management noted that the global environment is rapidly changing, with AI transformation being a top priority for enterprises [9] - The company remains confident in its guidance for Q3 and the remainder of 2025, despite challenges in the U.S. federal sector [33][49] - The outlook for 2025 has been raised, with subscription revenue expected to be between $12,775 million and $12,795 million, representing 20% year-over-year growth [34] Other Important Information - The company closed 89 deals greater than $1 million in net new ACV during the quarter, with 11 deals over $5 million [28] - The company ended Q2 with approximately $10,800 million in cash and investments, and bought back approximately 381,000 shares as part of its share repurchase program [31] Q&A Session Summary Question: What is driving the better-than-expected execution? - Management attributed the success to a strong culture and the transformative impact of AI on business models, leading to larger business cases across industries [40][42] Question: How is the federal sector performing? - Despite challenges, the federal team executed well, closing six new logos in Q2, and management is building prudence into their assumptions for the U.S. federal sector [48][49] Question: What are the immediate opportunities in front office workflows? - The CRM opportunity is significant, with a focus on sales and order management, and the company is addressing pain points in the market with its integrated solutions [62][64] Question: How is the demand environment changing? - Management indicated that the demand environment remains open for AI innovation, with companies needing an agentic AI layer to adapt to changing market conditions [85][88] Question: What is the outlook for operating margins? - Management is maintaining a conservative outlook for operating margins while investing in growth to meet demand for AI transformation [102][103]