ServiceNow, Inc. Q1 FY2025 earnings call

Key Points

• Q1 was the biggest Q1 ever for net new ACV. Subscription revenue grew 20% year on year in constant currency, above guidance. CRPO grew 22% year on year in constant currency, 150 basis points above guidance. Operating margin was 31%, 100 basis points above guidance. Free cash flow margin was 48%.
• Had 72 deals greater than a million in net new ACV, 9 over five million. Crossed 500+ customers billing greater than five million in ACV milestone. Remaining performance obligation at $22 billion, growing 25.5% year over year.
• Strength across all ServiceNow solutions portfolio. AI acceleration with Pro Plus deals quadrupling, RaptorDB Pro net new ACV accelerating. Acquisitions of Moveworks and Logic.US Federal public sector grew over 30% year on year, with 11 federal deals over a million.
• Internal AI use driving OpEx efficiencies, leading to strong profitability and free cash flow.

Subscription revenue for Q1 was $3.005 billion, growing 20% year on year in constant currency, slightly above the high end of guidance. Remaining performance obligation (RPO) ended the quarter at approximately $22.1 billion, with 25.5% year-over-year constant currency growth. Current RPO was $10.31 billion, a 150 basis point beat versus guidance. Manufacturing delivered over 100% year-over-year growth in net new ACV, healthcare and life sciences over 70% year-over-year, and government saw strength led by US Federal exceeding expectations. Renewal rate remained best in class at 98%. There were 72 deals greater than a million in net new ACV, with nine over five million. 508 customers generated over five million in ACV, and customers contributing $20 million or more in ACV increased by nearly 40% year over year. Now Assist net new ACV beat expectations, with the number of Pro Plus deals more than quadrupling year over year, including 39 deals with three or more Now Assist products. RaptorDB Pro saw net new ACV accelerating quarter over quarter with five deals over a million.

2025 Guidance

• Raised subscription revenues midpoint to $12.64 billion to $12.68 billion, representing 18.5% to 19% year-over-year growth or 19.5% on a constant currency basis.
• Expect subscription gross margin of 83.5%, operating margin of 30.5%, free cash flow margin of 32%, and GAAP diluted weighted average outstanding shares of 209 million.

Q2 Guidance

• Expect subscription revenues between $3.030 billion and $3.035 billion, representing 19% to 19.5% year-over-year growth or 19.5% on a constant currency basis.
• Expect CRPO growth of 19.5% on both reported and constant currency basis, operating margin of 27%, and 209 million GAAP diluted weighted average outstanding shares.

• Geopolitical uncertainties, including US federal agency budget changes and evolving mission demands, which could impact growth.
• Potential impact of macroeconomic factors on customers' ability to invest in ServiceNow solutions.
• Risks related to integrating acquisitions like Moveworks and Logic, which could affect execution and financial results.

Q: Keith Weiss asked about federal and enterprise uncertainty and if any potential risk was put into guidance.

A: Gina Mastantuono responded that demand remains strong, customers are focused on growth and cost out, and the guidance reflects real-world complexity with healthy conservatism but strong demand.

Q: Kash Rangan asked about Moveworks and sales playbook changes.

A: Amit Zavery said Moveworks brings AI expertise, unified user experience, and allows acceleration of roadmap; Bill McDermott added pipeline remains strong and conversations with CEOs center on innovation speed and value creation.

Q: Mark Murphy asked about CRM plan.

A: Bill McDermott said ServiceNow is going after CRM in a differentiated way, making it faster and smarter; Amit Zavery added CRM and industry workflows resonate strongly with customers and will continue to progress.

Q: Alex Zukin asked about workflow mix and manufacturing/federal growth.

A: Gina Mastantuono said quarterly mix shift is due to lumpy timing, CRM workflows strong; no material pull forward in manufacturing/federal growth; Bill McDermott added strong growth in CRM and core business workflows.

Q: Tyler Radke asked about Pro Plus adoption glide path.

A: Amit Zavery said Pro Plus adoption continues to grow, with Now Assist driving efficiency; Gina Mastantuono added Now Assist is a key growth initiative among others.

Q: Karl Keirstead asked about bookings CRPO seasonality.

A: Gina Mastantuono said the shape remains the same despite macro changes.

Q: Michael Turrin asked about AI driving OPEX efficiencies.

A: Gina Mastantuono said AI is driving meaningful OpEx efficiencies, helping to accrete margins over mid and long term.

Q: Samad Samana asked about M&A approach.

A: Amit Zavery said integration is the play, with one platform, and no plan to rewrite acquired companies.

Q: Raimo Lenschow asked about mix effect with AI.

A: Gina Mastantuono said AI will help transform across enterprise, with CRM and HR likely growing as a percent; Amit Zavery added AI is part of the platform lifting all workflows.

Q: Patrick Walravens asked about AI disintermediating SaaS.

A: Bill McDermott said ServiceNow integrates with all, allowing consolidation, and AI is a major tailwind.

Q: Kirk Materne asked about AgenTek customer feedback.

A: Amit Zavery said AgenTek is being adopted with positive feedback, using hybrid pricing structure for consumption.

Q: Rob Owens asked about impact guided adoption.

A: Amit Zavery said impact tools help speed time to value, with attach rates improving.

Q: Brian Schwartz asked about focus and priorities in software markets.

A: Bill McDermott said CEOs now focus on platforms that matter, wanting speed and value realization, with AI being crucial.

Q: Brad Sills asked about deployment cycle for AI agents.

A: Amit Zavery said AI agents can be up and running in less than a few weeks, with internal use showing significant improvements in lead to sale conversion and deflection rates.