Q2 2025 ServiceNow Inc Earnings Call
Thank you for spending by. My name is Kathleen and I will be your conference operator today.
Speaker Change: At this time I would like to welcome everyone to the service. Now, second quarter 2025 earnings conference call.
Speaker Change: All lines have been placed on you to prevent any background noise.
Speaker Change: After the speaker's remarks, there will be a question and answer session.
Speaker Change: If you would like to ask a question during this time, simply press star followed by the number 1 on your telephone keypad,
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Speaker Change: I would now like to turn the call over to Tyron. Yep. Senior vice president head of investor relations and Market insights. Please go ahead.
Speaker Change: Good afternoon and thank you for joining service. Now, second quarter 2025 earnings conference. Call joining me, our bill McDermott, our chairman and chief executive officer
TMS and tuno our president and Chief Financial Officer and AIDS to vary President Chief product officer and Chief Operating Officer.
Speaker Change: during today's call, we will review our second quarter 2025 results and discuss our guidance for the third quarter and full year 2025
Before we get started, we want to emphasize that the information discussed on this call. Including our guidance is based on information as of today and contains 4 looking statements that involve risks uncertainties and assumptions
Speaker Change: We undertake no Duty or obligation to update such statements as a result of new information or future events.
Speaker Change: Please refer to today's earnings, press release and our SEC filings, including our most recent 10q and 10K for factors. That may cause actual results to differ materially from our forward-looking statements,
Speaker Change: We'd also like to point out that we present non-gaap measures in addition to and not as a substitute for financial measures calculated in accordance with gaap.
Speaker Change: unless otherwise noted all Financial measures and related growth rates we discussed today, are non-gaap except for revenues
Speaker Change: Remaining performance obligations are RPO.
Speaker Change: Current RPO and cash and Investments.
To see the reconciliation between these non-gaap and gaap measures. Please refer to today's earnings press release and investor presentation which are both posted on our website at investors. Service now.com.
Speaker Change: A replay of today's call will also be posted on our website.
Speaker Change: Execution. And we are at the Forefront of Enterprise AI.
Speaker Change: Subscription Revenue.
Speaker Change: Growth was 21 and a half percent in constant currency.
Speaker Change: 2 points above our guidance.
Speaker Change: Crpo growth was also, 21.5% in constant currency 2 points above our guidance. Operating margin was 29 and a half percent.
Speaker Change: That's over 2 and a half points of our Guidance. Free cash. Flow margin was 16.5% up. 3% year on year.
Speaker Change: We're at 89 deals greater than a million in net. New ACV, 11 of those deals were greater than 5 million in net new ACV.
All our workflow businesses perform very well in the quarter.
Technology. Workflows had 40 deals over a million including 4 over 5 million.
Its SMI Tom, my Tam security and risk were all in at least 15 of the top 20 deals.
Speaker Change: Our key AI Pro Plus deal count including itsm CSM and HR was up over 50% quarter on quarter.
We also closed our largest now assist deal to date at over 20 million.
Speaker Change: We had 21 deals with 5 or more now, assist products and plus products were included in 18 of our top 20 deals.
Speaker Change: The AI hype cycle has not slowed for good reason.
Speaker Change: Enterprises in every industry and every region of the world have ai transformation as priority. Number 1, it budgets are highly resilient.
And increasingly focused on Strategic Mission, critical AI platforms.
Speaker Change: Our position is highly differentiated, because AI work is cross-functional work.
Speaker Change: Service. Now, integrates the entire text act on Prem or in the cloud any system, any llm, any data source and we bring all of that data into a single model.
Speaker Change: From there, we elevated to the workflow layer where you take action on that data, wherever it lives. Then we move into the AI layer, not just automation, but true, AI agents, executing real tasks to drive outcomes across business processes. Higher to retire, procure to pay designed to product, quote, to cash, and sell to service.
The long history of Enterprise Tech can be described in a single word pain.
That's because people and devices and apps and data and clouds they don't work well together.
Speaker Change: Without service. Now we run the real risk of a new generation of pain. This time with AI agents scattered around like spare parts.
Speaker Change: We have no intention, ladies and gentlemen of allowing that to happen.
Speaker Change: Control tower isn't just a name for our solution. It's the ultimate metaphor for how service now helps customers govern the agentic Enterprise
We help customers take advantage of everyone's Innovation hours and others. We put Investments together, we make it all work with demand as high as it is. Our next
Speaker Change: AI program is called now, next Ai. And this is getting our engineering teams deployed to get customers live fast.
Speaker Change: These are only a few of the many reasons you're seeing real momentum in these results. And we're only just getting started. Q2 has also showed service now's growing differentiation and Enterprise data.
Speaker Change: Our top 20 largest deals, customers recognize the value of combining data analytics and AI. They embrace our vision of workflow data Fabric and agents working together to drive faster. Smarter outcomes,
Speaker Change: On the underlying technology level Raptor DB Pro continued to gain traction. And every major region beat expectations in Q2.
Speaker Change: As I summarized earlier, all our workflows are growing.
Speaker Change: Especially CRM front office, workflows the CRM opportunity, for service now is massive.
Speaker Change: According to Industry, experts agentic, AI represents a seismic shift that could render traditional CRM obsolete.
Speaker Change: By the end of this decade Enterprises will adopt systems of action driven by autonomous front-end agents.
The future isn't a CRM screen. It's omnipresent AI agents embedded in everyday tools with our sales and Order management solution and our acquisition of logic AI. We're not just entering CRM, we're reimagining it now.
Speaker Change: We're delivering a fully integrated. AI powered front office, Sales and Service, streamlined operations, and dramatically improved time to revenue.
Speaker Change: And customers are responding to our innovation.
Speaker Change: We secured several notable wins with strong momentum, and CRM and widespread adoption of our end-to-end capabilities.
Speaker Change: 1 of the largest building supply companies in the US, selected service now, cpq to support configuration and quoting at scale for their largest distribution Network Exxon Mobil.
Speaker Change: Plans to implement service now ai and agents to deliver enhanced employee experience. Improved operational processes and fast response. Time across its Enterprise services
Speaker Change: Standard Chartered will use service. Now ai control tower with rapid DB to help govern secure and realize value from a genetic AI.
Speaker Change: Merck and Company.
Speaker Change: Is adopting the service. Now, ai platform to transform security operations and enhancing control over. It assets, reducing risk and strengthening data compliance across the Enterprise, the state of California is using service now CRM across multiple departments, to better serve, its constituents employees, and the business community.
Speaker Change: Banco do nordeste do Brasil. It's transforming customer service with service now ai delivering tailored Solutions at anticipate customer needs and deepen engagement across the broad network of customers and partners.
Speaker Change: In to it is expanding. Its longtime relationship with service now to remove friction with done for you, agentic AI experiences for their employees.
Speaker Change: Starbucks a multi-year service. Now, customer is using our AI capabilities to enhance its technology. Ecosystem, rolling out service now and select support centers to drive greater satisfaction at every touch point. The North Carolina Department of Transportation will use service. Now ai control tower to govern all of their AI Solutions across the agency ensuring industry compliance and control as they scale their modernization efforts.
In a very exciting, new partnership cap Zone impact, Investments, and service now are developing a national network of next-gen solutions to modernize Mission critical facilities.
Speaker Change: Service now is a risk management, Enterprise asset management. And AI powered automation capabilities will create a fully digital Maritime manufacturing capability in the United States.
Speaker Change: There's no greater satisfaction than seeing world-class Brands working with service now,
Speaker Change: There's no better example than our great partner and friend and video.
They are redefining employees support with service. Now ai with intelligent AI agents that proactively resolve issues deliver personalized help and provide answers in milliseconds.
Speaker Change: So, there is leadership our product engineering and design teams are the best in the Enterprise. They're building too much, net new innovation to cover in these remarks. That's a good thing service now has delivered, a complete integrated Enterprise ready. Agentic platform for every agentic requirement
This includes AI control tower AI agent Fabric and a no code AI agent Studio.
Speaker Change: In just 60 days. We've already surpassed our initial net new ACV, expectations for AI control tower for the full year.
Speaker Change: Today we're announcing a gentic workforce management a new standard for hybrid team leadership.
This allows employees and agents to work seamlessly and securely with each other to deliver real business outcomes.
Speaker Change: We also acquired data world to deliver Innovative data data governance and these Solutions are built for this agentic AI era which is why it's so precious to us.
Speaker Change: This is the only data catalog platform built on a knowledge graph with the highest user adoption in the data catalog and governance category period.
We just have so much to talk about in this company right now, the partnership expansions with Nvidia, ukg zoom and countless others are Illuminating, the centricity of service. Now, in Enterprise AI
Speaker Change: That's why we see new recognition, and Foresta waves, IDC Market, escapes, and Gartner research. It's why millions are applying to work for the company, so they can be part of this movement.
Speaker Change: We made an intentional choice at service now to put AI to work for people. Yes. Service. Now, ai is driving substantial productivity increases for our customers.
Speaker Change: And while efficiency and productivity are major benefits, it doesn't stop there. This is a breakthrough Innovation Elixir. Unlike anything we've ever seen in human history, people in AI together will create new businesses, new discoveries, and catalyze economic growth in every corner of the world. The world works with service now because we are delivering AI to empower people everywhere. So they can be the ones who lead their organizations forward to New Horizons. I'll leave you with this.
At this point.
Speaker Change: Analysts predict, agentic AI will be ubiquitous embedded in software platforms and applications transforming user experiences and workflows AI is the new UI and that's why the software industrial complex of the 21st century is converging into service. Now, as the extensible AI operating system for the agentic Enterprise, this gives us a Monumental future value creation for our customers and shareholders.
Speaker Change: Thank you for your time. Now, I'll hand things over to our president, and Chief Financial Officer Gina masuno Gina over to you.
Gina: Thank you, Bill.
Gina Masuno: You too, was a spectacular, quarter across the board. We significantly beat the high-end of our guidance, across all Topline, and profitability metrics.
Among many highlights. Strong adoption of our analysis products continued outperforming expectations in the quarter once again.
Gina Masuno: AI, efficiencies internally were also a meaningful Tailwind to margin expansion.
Let's get into the details.
Gina Masuno: Q2 subscription revenues are 3.113 billion going. 21.5% year-over-year in constant currency. 200 basis points above the high end of our guidance range driven by strong execution and some early on-prem renewals
Gina Masuno: RPO ended the quarter at approximately 23.9 billion dollars. Representing 25.5% year-over-year, constant currency growth.
Gina Masuno: Current RPO was 10.92 billion, representing 21.5% year-over-year constant currency growth, a 200 basis point beat versus our guidance.
Gina Masuno: From an industry perspective, transportation and Logistics. Delivered. A standout performance for net. New ACV. Over 100% year-over-year.
and Telecom had a fantastic quarter, growing over 70% year-over-year,
Gina Masuno: Here.
Gina Masuno: Once again, we achieved a robust 98% renewal rate, showcasing service now, strategic importance as the AI platform for business transformation.
We ended Q2 with 528 customers generating over 5 million in ACV.
What's more the number of customers contributing 20 million or more increased by over 30% year-over-year.
Gina Masuno: We closed 89 deals greater than a million in net. New ACV in the quarter, including a 11 deals over 5 million in Q2. All top 20 deals included 5 or more products, illustrating, the power of our platform.
Our continued focus on winning the right. New logos also bore fruit in Q2. We landed 11 deals over a million in net. New ecv, including 2 over 5 million growing average, new logo ACV, over 100% year-over-year.
Gina Masuno: With CRM, our push, into the front office gained further momentum in the quarter.
Gina Masuno: The addition of logic AI is already driving explosive growth. In cpq with 9 deals closed in June alone.
Gina Masuno: Are now assist net new ACB to date. Also continues to Trend very well beating. Expectations. Once again, fueled by an increase in both deal, volume and size, quarter over quarter.
Gina Masuno: As Bill noted, this included, 21 deals with 5 or more now assist products.
Gina Masuno: Are unique platform approach to AI is clearly resonating with customers.
Gina Masuno: Our newest plus skus products are off to a stellar start.
Gina Masuno: Item. Now, assist net new ACV. Surged nearly 6X quarter of a quarter with average deal sizes. More than tripling.
Gina Masuno: Now, assist for SEC Ops and risk combined. So net new ACV, more than double quarter of a quarter.
Gina Masuno: Our Flagship products are also delivering exceptional results.
itsm plus and CSM plus deal, volume quadrupled year-over-year, while item plus tripled and hrsd plus doubled and in Creator now, assists average deal sizes also quadrupled year-over-year,
Gina Masuno: Returns to profitability. Non-gaap operating margin was 29.5% over 250 basis points above our guidance.
Gina Masuno: Driven by our Topline outperformance AI Opex efficiencies and the timing of marketing spend.
By utilizing our own AI Innovations. In-house is now on now, we leverage tools. Like, code assist and co-generation to unlock significant capacity for our engineers.
Gina Masuno: Our free Castro margin was 16.5% up, 300 basis, points year-over-year.
Gina Masuno: We ended the quarter with a robust, balance sheet, including 10.8 billion in cash and Investments.
Gina Masuno: In Q2, we bought back approximately 381,000 shares, as part of our share repurchase program with a primary objective of managing the impact of dilution.
Gina Masuno: As of the end of the quarter, we had approximately 2.6 billion of authorization, remaining.
Together these results, continue to demonstrate our ability to drive a strong balance of world-class growth.
Gina Masuno: Profitability and shareholder value.
Moving to our Outlook.
As I called out, last quarter US federal agencies are navigating changes from tightening, budgets to evolving Mission demands.
Gina Masuno: The team executed very well against that backdrop as market conditions played out as we anticipated in Q2.
Gina Masuno: We remain confident that our guidance appropriately reflects these Trends heading into Q3 and continues to set us up for success for the remainder of the year.
Gina Masuno: I would also note that my commentary for both 2025 and Q3 does not include any contribution from move Works, which we expect to close late in the second half of 2025 or early 2026.
Gina Masuno: With that, in mind for 2025, we are raising our subscription revenues by 125 million. At the midpoint to 12.775 billion to 12.795 billion, representing 20% year-over-year, growth, or 19 and a half to 20% on a constant currency basis.
Gina Masuno: We continue to expect subscription growth margin of 83.5%. Operating margin of 30.5% and free cash flow margin of 32%.
Gina Masuno: Finally, we expect gaps diluted weighted. Average outstanding shares of 210 million.
Gina Masuno: For Q3 we expect subscription revenues 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 year-over-year growth of 18.5% or 18% on a constant currency basis.
Gina Masuno: As a reminder, this includes 200 basis points headwind due to our larger than average customer cohort that renews in Q4.
Gina Masuno: We expect an operating margin of 30.5%.
Gina Masuno: Finally, we expect 210 million gap, diluted weighted, average outstanding shares for the quarter.
Gina Masuno: In conclusion, Q2 was another fantastic quarter fueled by solid execution and resilient demand.
With a robust Pipeline and expanding Market opportunities. We are well positioned as we enter the second half of the year,
Gina Masuno: For countless service. Now, customers and partners knowledge 2025 cemented service, now's leadership in Enterprise AI,
Gina Masuno: the newly created pipeline is up over. 1.2 billion dollars already.
Gina Masuno: This solid Pipeline and the momentum we have exiting the first half of the year put us. Well, on our way to reaching our 15 billion plus subscription Revenue Target for 2026 and with it 1 billion and now assist ACV.
This quarter is performance is a testament to the talent and dedication of our team.
Speaker Change: Bill and I are truly thankful for the Relentless effort. Our employees put in every day, we couldn't be more honored to lead such an exceptional group.
Gina Masuno: With that, I'll open it up for Q&A.
Speaker Change: Thank you. We will now begin the question and answer session if you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. And if you would like to read your question, simply press the star 1 again.
Speaker Change: If you are called upon to ask your question and listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question.
Speaker Change: Also, please note to limit yourself with 1 question to allow us to accommodate others.
Speaker Change: Again, please press star 1 to join the queue.
Speaker Change: And your first question comes from the line of Alex zykken from Wolfe research. Please go ahead.
Alex zykken: Hey guys, uh, congratulations on, uh, another clearly Elite quarter Bill, some of your peers, I think it it it's unclear. If the demand environment um has has improved much maybe or changed much since the start of the year, but something seems different in the way that you guys are executing. Maybe you can just talk about what's driving. This it seemingly better than expected execution. Uh, is it something that's changed in the traction of the AI product? Is it something that's changed in?
Alex zykken: Then uh the the competitive field, maybe just what's different this year. First half in in spite of a difficult you know a backdrop uh that's allowing you to maintain this level of execution.
Speaker Change: Well thank you very much Alex, uh for your comment and I see you already got a research, note out to your clients. You're you're moving at the pace of service. Now it's called instantaneous execution.
Speaker Change: Um, you know, the 1 thing that can easily get measured in an earnings script or in the number's is the heart and the courage of a culture.
Speaker Change: And the Heart of this.
Speaker Change: Is gigantic and this, uh, hungry and humble culture that started with Fred Ling and has continued to this day, has never given up on anything. But, uh, to answer your question, specifically AI is, what changed?
Speaker Change: And agentic AI is transforming the business model every company in the world.
Speaker Change: Um, they see the difference?
Between service now and the other ones and I would just sum up this way.
Speaker Change: We got the best product.
Ahmed, I'm sure we'll have time to give you an update on the many innovations that are into the product. It's stunning.
Speaker Change: The uh experience is stunning and the results that the customers can derive from. It is amazing and you know, I said, for some time nobody has to lose for us to win but as the agentic AI story has gotten so strong on the platform's gotten so strong, the customers are looking to consolidate the past and really lean in to service now. And the business cases, as a result of that customer headset change are actually getting even bigger.
Speaker Change: Um, and that's across all industries, by the way. And um, you know, finally, and I really do want to make this point clear.
Speaker Change: AI work is cross-functional work.
It is not 1-dimensional into a silo.
Speaker Change: Teams work on processes across functions.
Speaker Change: Work and it'll be cross-functional and our own company. We have 450,000 agents in the workflow right now.
Speaker Change: And all of the supporting functions from customer support to it, support to risk compliance, um, security. Uh, most of this is now over 80% being done by agents, so agentic is real. The business cases are extraordinary, you know, Gina's told the street, it'll be a 350 million value to us this year. We think it might even be more in terms of what we can take out an Optics, not to mention happiness and productivity. If you just think about the sales curve. For example, it's a 50% Improvement in sales productivity, not to have to do the setup work. That's also true for the engineers. So this is a fundamental step function change, and you can only get exponential at a thinking across company. Yes, you can start with us in any given Silo, but we're moving out to all functions and then when you look at the deals, all the big deals. If you look at all 20 of them, they have multiple in
Instances in those functions of agentic AI, which means we're winning at the departmental level, but we're really winning with the CEO. We've become the CEOs, agentic AI story in Enterprise software. And notice I didn't say SAS, we actually don't live in a SAS neighborhood. We live in
Speaker Change: In an Enterprise AI neighborhood on a 1 of 1 platform and that differentiation is now being comported to our customers and to our partners in a clear and articulate Manner. And that's why we're different
Speaker Change: Super clear. Uh, maybe Gina just quickly 1 for you. There's a lot of anxiety. I know from the investor Community about Doge about uh, Federal activity in general in the public sector. It seems like it it delivered to your expectations, but maybe can you give us a flavor for the pipeline, the conservatism and the numbers for Q3 and how we should think about that in the back half?
Speaker Change: Thank you guys. Yeah. Great.
Question Alex so market conditions played out as we anticipated and the the team executed extremely well against that backdrop. Our federal team is just the best in the business and I couldn't be prouder of them. Um,
Speaker Change: And despite the noise actually in the court of US public sector closed 6, new logos in Q2 alone. And so again just continue to execute despite the uncertainty that being said, for the remainder of 2025, we're absolutely. Um, building Prudence in around our assumptions for us fed, right? And so they continue to navigate tightening budgets and shifting Mission demands with increasing urgency. So we feel good that our guidance contemplates appropriately. Those Trends into Q3 um, and
you know, I feel good about where about where, where that stands
Speaker Change: Your next question comes from the line of Mark Murphy of JP Morgan. Please go ahead.
Thank you so much bill with the AI Control, uh, Tower. I think you said it was beating targets for the full year already, and it's only July. Um, it's hard to comprehend. Are you seeing signs that customers might use that? As the, the central control plane for all of their agents, including
Speaker Change: Uh third-party Agents from open Ai and Microsoft and others. And then the if the uh neat um llm the the 1 that you you're building in conjunction with Nvidia, if that succeeds. Do you think the service now agents can?
Speaker Change: Offer better reasoning and maybe start to replace uh the third-party agents. So they don't spread around like uh spare parts. I think that was your time.
Speaker Change: Yes, it was my term and mark thank you very much for the question. I I would I'll make the big point on the AI platform for business transformation and then on it will give you some color on the product and I think you're going to be extremely excited. But here's the idea.
Speaker Change: Think about any cloud.
Okay, any cloud.
Speaker Change: We're the only ones that cooperate with all 3 of the hyperscalers.
Oracle 2.
Uh, I think any data source.
Speaker Change: Um, I think any, when I say, any data source, think about those systems of record, think about those, uh, data warehouses and data Lakes.
Speaker Change: Um, think about any model. So any llm model, all of them, they're all good. They all do different things and they're all good.
Speaker Change: Um, and think about any agent.
So, these agents
So Rye controller will manage our agents and all the other ones too. And yes, Mark. The big picture is a CEO. Should 1 service. Now is AI platform for business transformation. They should want our AI controller to manage, not just our agents, but all the other agents too. These agents will team up, they will work together and they will collaborate together, of course, business processes. And in many ways the early results of what we see is the agents are a lot more collaborative and more team oriented and more results oriented than people. So this is going to be a real fun 1 to watch. And I'll let give you some color on the products. All right? Thank you, Bill. So Mark, uh, as bill is mentioning the AI control tower, definitely provides the central nervous system and ability to really manage all the complexity uh companies have with AI deployments, but beyond that, as we talk about uh adopting V, various large language models for our reasoning engine.
Speaker Change: Of course, we made a lot of good progress with Nvidia in the neotron model and that's 1 of the options. We do provide customers and that has given ability to raise speed up. Uh the reasoning planning and execution of any requests we get uh to our uh AI system and then we we still continue to make sure that we provide this other choices. Be it. Open AI the Gemini as well as, uh, Cloud for customers to choose whether models, which makes sense for their use cases. But we provide prescriptive ways through II control
Speaker Change: Power to select the right ways for executing our planning engine. For those use cases as well. So that continues and our investment uh, in AI are paying off for customers in spaces, which are getting bigger and bigger every day.
Thank you so much and congratulations.
Speaker Change: Thanks, thank you very much. Thanks Mark.
Speaker Change: Your next question comes from the line of Brad zelnik of Deutsche Bank. Please go ahead.
Great, thank you so much Bill service. Now you, you guys have outlines very bold Ambitions within front office workflows. Now with logic AI closed, can you talk more about the most immediate opportunities, whether it's service sales or marketing? And where do you see the lowest hanging fruit? Right ahead of you. Thank you.
Speaker Change: No, thank. Thank you very much. Brad for the question. Um, you know, first of all the CRM opportunity for service now really is huge. And, um, you know, we've moved away from a CRM screen and, uh, AI agents are going to be embedded in an omnipresent way and everyday tools, and no more swivel chairing. The workflows will be organized, they'll be agentic. And Legacy systems, um, will, you know, be a customer's choice, but they'll see the difference between end to end order, fulfill and service on 1 common platform and I think that's a big thing. You're going to see a lot on the order management.
Speaker Change: Side, the configuration price and quote, maneuver we made is uh, really big, you know, to get 9 deals closed in the company. We just got. Um, just tells you the pain that's out in the market right now that we attend intend to address. Uh, service management is clearly something that's going to continue to excel very, very quickly. Um, so I would say sales and Order management are now coming into a full View. And, um, we're also seeing in different Industries, uh, different opportunities and, uh, 1 that's, um, kind of on our on our vision right now is, uh, public sector because every public sector entity across the world is following what Telco manufacturing. Um, and and many other Industries have already done. They want um, to replace fragmented Legacy CRM stacks and they want to unify platform. That's fast. And smarter and purpose built with AI for modern business.
Speaker Change: So I think, um, you know, you probably have some more color on that on it, but um, if you would like to add something, please don't. So Brad, I think in the CRM, says Bill mentioned, we are looking at doing very well in the whole CSM and have some space. But we added on top of that, the sales order management and cpq. But the way to think about a CRM strategy is really around any kind of complicated workflows, which is outcome driven. So if you look at customer service, you want to get an issue resolved, we are very good at that.
Speaker Change: Ways for making it happen, the various different domains, and that's where we are winning every day.
Speaker Change: And I would just, I would just also, we we do this by industry. So for example, if you think about agentic AI for insurance, um, you can see an accident turn into a settled claim.
Speaker Change: On the Fly and you can see our agentic AI solved, the case at the point of the accident on a uh mobile phone.
And so that workflow that emit is talking about is tailored to tuned and trained specifically for the insurance industry. And those agentic AI agents are agents of insurance and they know the industry. And by the way, not everybody that gets in an accident speaks the same language. So it also can uh speak to the human beings that are involved in the incident in any language on the fly. So just think about solving claims management for insurance as 1, example only service. Now with our workflow automation, agentic Ai and the ability to really put that from the incident all the way through to the back office in real time. Only service now can do that. So it's those cases that we're focusing on.
Speaker Change: Awesome stuff. Congrats to you. Both on the whole team. Thank you.
Thank you. Thanks. Brad.
Your next question comes from the line of cash. Run Gun of Goldman.
Speaker Change: Please go ahead, great honor to follow the great Brad zelnik, uh the bill and and management team. It's impressive that at a 12 plus billion dollar Revenue run rate, scale UTI can put up 22% growth rate. So uh, that that's, that's a great accomplishment bill, I wanted to ask you. Anybody else want to chime in that? That's great too. There is a an ocean that this infrastructure build out, uh,
Taken upon by the hyperscalers to to help Propel, the open Ai and Tropic models. This consume the lot of capital and arguably a lot of it budgets as well. And that the longer that cycle goes, the more the question becomes what to make of enterprise software since you are 1 of the, you want to be the diesco, the 21st century, I'm curious to get your thoughts on what is at the end of the day. The core asset of service, now that will allow the company to prosper in the world of AI when there is great unknowns about what this magical? We don't know anything about the AI, but it's going to magically do CRM. It's going to automate everything by itself. I'll be adding the need for uh some some critical technologies that will come to expect to be the foundational aspect of the software. I'm sure you have a very different Viewpoint being out there in the industry, but I'm curious to get your
Updated take on this bear thesis, thank you so much.
Speaker Change: Thank you very much cash. Those are excellent companies, they're doing very creative and exciting things and they all want to partner with us because of our leadership in the Enterprise. And so what is differentiated about us? Um a trillion transactions. 65 billion workflows in flight across a global economy. Think about compliance. Think about the regulatory environment, think about the risk posture. Think about data complexity, think about the enjoyment that they get from the service now platform, where it is a domain specific platform where it's secure. It's lightning fast and it's inexpensive to run.
Speaker Change: And it integrates with all these exciting new companies, they are exciting. Um, but there's also a complexity around Enterprise ready solutions that takes time. And so, I think as that time is passing, we're not sleeping. We're getting stronger and better by the day, and I think they will lean on us for our Enterprise ready, Solutions, and end up being really good partners because that'll help them Prosper even more also. So it's, um, interesting to me that you as such an intelligent question and that's why I believe we're the best positioned Enterprise software company in the world, which is why I repeatedly say we don't live in a neighborhood. We're actually inventing our own path.
Speaker Change: Takes a lot. And also, those excellent companies that you mentioned. They're busy with other things. And so, I think they're going to lean more into service now, not less into service now. But there will be others, that will become absolutely and, um, you know, the market will determine the rules of the game, but I'm into questions now, where customers are saying to me, um, why do I have 10 of these and 8 of those and 11 of the other things? Can you just get them out of here? Because I want the savings. So, it's the customer that's driving this. And when they hear, oh, any Cloud any data source, any llm model, any agent, we cooperate with the whole ecosystem. So, all of your Investments are secure on our clean pane of glass. The Enterprise, that's when they realize, it's a different company. I'm dealing with here and I like everybody else.
Speaker Change: Exemplary, thank you so much.
Thank you, cash.
Speaker Change: Your next question comes from the line of Carl Chris, that of UBS. He relates now open. Oh, thank you. Uh, Bill, I'm just wondering if you saw any even incremental change in broadly, the the selling environment into Q. What I'm getting at is, you know, perhaps 3 months ago in the midst of, um, fairly historically high level of customer uncertainty about macro tariffs, Maybe,
Speaker Change: That resulted in some hesitation, and perhaps with the storm, passing the environment. Got a little bit better in May June, I don't want to put words in your mouth, but I'd love to hear you describe how that demand environment changed, if at all, thanks so much.
Speaker Change: Oh, thank. Thank you very much and Carl, I don't think the demand environment changed dramatically. I think the demand environment is wide open for AI Innovation. Obviously the workflow data Fabric and a change in CRM. Those are those are transformative things that have remained very consistent here and the customers, while it is wide open for that level of innovation, I don't think it's as much the demand environment changing as it is the same in the sense that um, change, uh, geopolitical scenarios economic, tariff scenarios, all these things have become the new Norm.
Speaker Change: And so companies in preparation for that need an agentic AI layer of technology to operate their companies. I mean, just think of an auto manufacturer. If they have to respond to a tariff scenario, they don't have time to change the rules in a very large system. They want to, in real time change the pricing or the supply chain methodology, or the partners that are going to sign up in different countries to advance the lower cost nature of what they have to give to their consumer to actually sell a car but this is true in all Industries. Everything is changing. And if the industry isn't changing
Or responding to a global, uh, scenario like that, they have to change to new skills, for new Workforce, and a new paradigm. New ways that customers will experience a relationship with their product and if it's not seamless, if it's not gorgeous, and if you don't meet them with, an agentic AI agent when everyone else is sleeping, they know you don't get it. So this is a a once-in-a-lifetime chance for a true native AI thinking uh company like us. We think AI everything is AI and so every industry, every scenario, every relationship plan revolves around these proof of Concepts where we can go in to see decision makers and show them how they can go from this position to a new paradigm and they all want it. And in some cases you're right you know budgets have been moved around to do different and exciting things and they should. Um but at the same time when you can lay a business case on them for the Enterprise,
Speaker Change: The compliments, everything else beautifully? They're, they're all in. So our biggest challenge is just making sure we stay in front of the sea Suite. Um, it's not just um 1 seat, sweet member. That's making these decisions decisions are being made in teams and that's why I say cross functional work is AI work and uh that's where we have thrived. And that's what we need to continue to win.
Got it. Helpful. Bill. Thanks.
Speaker Change: Thank you, call.
Speaker Change: Your next question comes from the line of Matt, Hedrick of RBC Capital markets.
Your line is now open.
Speaker Change: Are resonating with customers, how they're using them. And you know, how you might think that that Revenue Source could grow
Yeah, so this process has been adopted very quickly by customers. I mean the way we allow customers to do is they have a bunch of assists available as part of the progress subscription and our usage has gone up, or is this 9x over the last last 6, 3 months. So it says it has been. Now, customers are using different different use cases. As soon as they start getting agentic, use cases deployed. They start consuming this uh this assists and they keep on adding more and more Pro Plus capabilities in the deployments as well.
Speaker Change: So it is, it is starting to grow and our Revenue associated with Pro. Plus, you just saw the numbers that that continues to grow because of the, the way we have delivered this and I would just add Matt continues to grow above expectations. And we feel really good about the the guide that we put out there for 1 billion in ACV by 2026.
Congrats.
Speaker Change: Thank you. Thanks Matt.
Your next question comes from the line of Keith Weiss of Morgan Stanley. Please go ahead.
Speaker Change: Great 1. Thank you guys for taking the question and congratulations on, uh, you know, the really solid quarter, uh, from service. Now overall, uh, press a question for Gina more, on the margin side of the equation. Um, outperformed really nicely in Q2 on, on overall operating margins. Both you and Bill are talking about, um, uh, what seemed like pretty significant productivity, enhancements, and productivity again.
and and engineering and sales productivity, Yet the full year, operating margin guide remains stable um at at at 32%,
Speaker Change: 30.5. Um,
is there incremental Investments that you guys are making perhaps in? Um the like sales Engineers to get people up and running on now assist or are there timing differences that we should be aware of? Or is it just conservatives and then the guidance that more of that productivity gain doesn't flow through into into the full year offering that
Yeah, great question. Keith uh, not surprised by it. So really thrilled with the productivity efficiency gains that we're seeing from AI, we talked about at knowledge, 100 million in savings and headcount alone in 2025. And we're seeing that uh, come to fruition as planned, um, part of the Q2 upside. As I noted in my prepared, remarks was driven by the timing of marketing. Spend some of which is shifted into Q3 and Q4 so that doesn't that doesn't impact the full year outlook. In addition. We're maintaining some Prudence expense management to ensure we can absorb any potential margin headwinds from move works. If it closes in the back half of the year and lastly, I would say, we're definitely still investing for growth to meet demand for AI transformation. So think about hiring quarter bearing sales and Engineers, while leaning in very heavily, uh, from an R&D,
And Technical selling perspective specifically on AI talent. And so we're 100% seeing the efficiencies. I'm not being prudent because I don't think the efficiencies are coming through. I'm just reserving the opportunity to lean into investment because the opportunity we're seeing with AI is so massive.
Speaker Change: Got it, there's technical Engineers that you're talking about. We we start from other vendors like sap. Last night I was talking about a higher level of like Engineering in the customer necessary to get people up on. AI Salesforce talked about similar Dynamics, is the cost of sale for AI. Just buyers. Does it require you guys to be have more Engineers like on-site to help people understand, agentic understand, um, how to get their data together, understand all the steps necessary to actually make this work.
Speaker Change: Yeah. Keith I think comes with engineering site Custom 1, I think AI is top of mind. For every customer we speak to Second, they want help understanding how to use this technology and the best people who can help them are people who have built some of these things. So, we are really working and Co innovating in most of the cases, with, with the customers. It's not like going and just going and working with customer, but we're bringing a lot of the capabilities back into a product since building out more and more IP. So, that would be traditional engineering work. Now, we're doing it with customers. So the cost doesn't go up for sale perspective, we are just be able to now create a new use cases, which we can deploy to many more customers going forward, which we would have done over time. Anyway, so it's really not a cost equation here. It's
Speaker Change: More to do with what kind of learnings we can provide to a customer to make them successful and how we can deploy better and bigger use cases. So we can grow our business as well, right? And remember we continue to create our operating margin
As we talked about at knowledge, once those assist packs, start ramp ramping up that ramp for revenue is going to be is going to be large and so the quicker we can get our customers to Value the better off. They are the better off we are and so it's a great place for us to be investing some of these productivity gains
Speaker Change: Your next question comes from the line of Derek, who would of Colin, please go ahead.
Derek: Great thanks. Uh, Gina 2% upside to your Revenue guide, uh, as pretty high, relative to Historic Trends, um, anything to call out on what drove such robust upside. Did you have a higher, uh, self-hosted mix? Was there better linearity. Um, that, that some part of the business come in much better, um, than expected. And and, and then the the jump up and mix from technology workflows was pretty notable. Can you unpack what drove that? And if you think that was more, 1 time or a start to to a new trend, thank you.
Yeah, so on on your first question with the 2% upside of Revenue. So number 1, net new ACV, outperformance with the strong execution from the service. Now team was just fantastic. So that's a big part of it. But yes, we did also see stronger than expected on Prem performance, which is largely driven by some early on-prem renewals from the second half of 25. And so, I would say about half and half, right? So feel really good about that.
Speaker Change: Upside. And then on the jump in net, new ACV, mix from technology, workflows. We, we talked about not looking at it from a, from a quarter over quarter because some big deals can can can shift that mix pretty dramatically. Um, and so I wouldn't be too much into the quarterly. Mix shift that being said and and and because as Bill alluded to in his prepared, remarks all of our workflows continue to perform extremely well.
Speaker Change: Tech. Workflows in particular, this quarter saw some notable strengths led by item with over 70% growth year-over-year and net new ACV, followed by security and risk that grew both over 60% and so item, large landed, its largest deal to date. So continue Traction in our core of our core, as well as great um performance across the board CRM. Um,
Speaker Change: Core Business Solutions as well as Creator. So I wouldn't look at the mix in 1 quarter in particular but yes we had a phenomenal uh quarter with our Core Business.
Speaker Change: Thank you.
Speaker Change: Thanks. Derek, your next question comes from the line of Mike SAS of medium. Please go ahead.
Mike SAS: Great. Thanks for taking the questions here, guys. I I just
Mike SAS: It's impressive to see the results here and I know we're talking about uh, massive amount of innovation for the platform. We're talking about Raptor, DB. What's happening with now is cyst, I just be curious to get a sense.
Mike SAS: Can you help unpack? Um, I guess new logos coming to the service now platform. Are you in any way seeing an increase volume of Enterprises? Voting your way, just given this Innovation and what you guys are tackling on the AI front.
Mike SAS: So I'll start there. So new logos coming to the now platform are are going extremely well. We've been very focused of the, over the last several years, on the right? New logos. The logos. Who can expand with us and grow with us over time. And so not only are we really happy with our new logo growth, but the, the ACV of the new logo lands continues to get larger and larger each quarter. And so, really feel good because these new logos are going to be the growth vectors of the future. And so while certainly a good percent of our business comes from existing customers growing that those new lands, remain important and making sure that they have the ability to grow and expand with us is a big piece of of that of that value prop. And we've been very happy with uh,
Mike SAS: Logo, ACV, grew over 100% year-over-year. So, really feel good about uh about our new logos.
Speaker Change: That's great to hear and maybe just for a quick follow-up. I know in the prepared remarks bill, it also cited this this. Now, next day I program, um, can you just elaborate on that is? Is there any additional hiring for that engineering team that we should anticipate? I'm assuming if there is, it's in the guide. But does that touch on Enterprises versus commercial versus what we were just talking about any color on that program would be helpful.
Speaker Change: Hey, Mike, this is for now next. AI program is really a very senior level. Very strategic customer related program, which we started our seu, and started working with the with the leaders over there and the customer side to figure out what are the use cases, how we can help them really accelerate their ability to adopt AI.
Speaker Change: So, from that perspective, we have a lot of people already inside service now who have lower expertise in AI. We bringing our engine 19 Tallant, our sales Consulting Talent solution, consultant Talent into those conversations is a much more deliberate. Clear fashion versus starting at the bottom, and then taking our time to really grow that conversation. So that's really what's happening now, and a lot of the Strategic discussions are leading into much broader. Uh, use cases and opportunities for us, which we can go and get that delivered because the products does work today instantly as soon as we start talking to our customers about those use cases. So there's really not much additional hiring. It's really kind of taking the right kind of expertise to The Right Use cases and deploying it with
Customers. And that's working with all the large Enterprises, we have had discussions with
Mike SAS: And I would just add Mike, that any any investment in hiring is 100% already in that guide.
Speaker Change: Your next question comes from the line of Greg. Musz of mizuho, please go ahead.
Greg Musz: Great. Uh, thank you for taking the question. Truly, truly remarkable. Uh, now with this momentum that you guys are exhibiting, uh, maybe Switching gears a bit. Uh, there have been several sales leadership changes that service now over the past few months, or so, in the US, Europe and apj. Phil, how are you feeling about the go to market today across each of your 3? Theatres, thank you.
Greg Musz: Greg, thank you very much. I feel fantastic about the go to market. Um, these are really proven Executives Adrian in uh, apj, um, is 1 of the Premier, uh, athletes in the enterprise software industry and had a stellar career at Oracle. So he understands the Enterprise extremely well, and he understands scale. So we're at that scale stage now. So when you see us make a move, it's generally because uh sometimes the Insiders could be looking at the biggest job of their life and it's helpful to give them a little uh, hand with someone who's seen the movie before. But also has appreciation for our unique culture. Um, in America, um, we have uh Tom Hannigan who's now got a Glo
Greg Musz: Normal job because he did such a good job.
Greg Musz: And um, we have Steve Walters who ran our public sector business? Like a finely tuned Swiss watch. So he deserved a promotion too. And you know, these are 2, great guys. And we have a really deep bench. We've been working on Talent here for many years now and uh, with 1 and a half million people that applied. I think there's plenty of people that, you know, are ready to keep us all on our toes. And then in, uh, in uh Europe. We have a fantastic steady leadership, um, at the top and we have built out Country Management with the best talent in the industry, uh, also in South America. So actually, I've never felt better and Paul fipps who is now running. All Global customer operations is somebody that I've known many years. He's been a superstar outside of the company. When we brought him in the company, every Big Challenge he's taken on. He's knocked it out of the park and he is absolutely the right guy.
Greg Musz: To run the corporation as the field. General and in, teaming up with Ahmed and obviously the rest of our colleagues. Um, I just think he is just the best of the best. So I couldn't be happier with the field uh that we have at the top of the house. And I also know that they're keeping everybody else on their toes because we're a growth company and we expect everybody to have an elite level of execution underneath them. So uh the move
Greg Musz: Movement continues.
Terrific caller. Thanks Bill.
Greg Musz: Thank you.
Speaker Change: Your next, your next question comes from the line of Brad, SS Bank of America. Please go ahead.
You know, call it, you know, 30-ish for CRM industry and core business workflows. And, you know, in the mid High Teens for Creator. I I wonder if the analysis cycle with agents, could that shift the business material in 1 direction, or the other. Uh, in other words, you know, could that bring you into workflows outside of it and more meaningful way? Or do you see that balance is kind of consistent with where it is today, over time as the agent cycle unfolds, thank you.
Speaker Change: Hey, Brad. So I think, uh, definitely saw the mix today, but with AI, we also started to provide ability to customers. Use a lot of our workflows together, so you'll start seeing AI kind of drive a lot of our Pro Plus and the ability to use multiple different functional area, different workflows different, functional area requirements in terms of new areas, no doubt is it. So the CRM emerge, we see in the similar, kind of things happening with a lot of new use new workflows in build on top of a Creator emerging in, many different Industries, you'll start seeing industry. Use cases emerge, which will be provided as packaged workflows for us. Are we doing a lot of work in security and uh, risk which is completely new area. We had this Incident Management today for security and integrated risk management, but a lot of new areas around governance and how do you manage identity of agents and things like that across the Enterprises as well. So that will create a new opportunity for different workflows as part of our product portfolio.
Speaker Change: Great, thank you so much.
Speaker Change: and we have 1 more question from
Speaker Change: Thank you, uh, for fit me in, um, obviously, a fantastic performance. Um, and that I guess leads to kind of 1 of my top of Mind topics, um, you know, Gina you, uh, talked about, um, you know, remaining, um, judicious on, uh, you know, budget and having capacity to invest where needed. Um, you know, I think over the last few quarters, the, the 1, the area of headcount that has, um, you know, been you know, more modestly invested in is a sales and marketing and I believe some of that was, you know, leading capacity to bring in, um, the sales, uh, you know, and move Works, um, 1 that closes. Um, is there a point at which you would trigger, you know, bringing in and and hiring more aggressively? If you you were worried about move works, not closing or that deal getting pushed out further and further because there seems like there's so much opportunity ahead um, that, you know, you want to make sure you've got ramp
Speaker Change: Reps in the field. Like how are you thinking about that operational? Um decision and and you know, when you might need to be bringing in more headcount there,
Speaker Change: Yeah. So what what I'd say is that first and foremost, we're not worried about move Works, closing it is from our perspective, a timing issue number 1, number 2, there's lots of headcount in the sales and marketing headcount that you see, we 100% continue to evaluate reps, who are on the street feet on the street meeting with customers every single day. There's lots of sales operations, marketing, marketing operations, in those numbers. And when I talk about AI efficiencies, you would imagine that we are seeing that across the board in the go to market operations as well. And so, we remain very tight with Paul Fitts. And his needs on the, go to market perspective, and we will not be slowing down hiring, especially in those critical areas, especially on technical Sellers, as well as we move into this AI agentic, uh, world that that
Speaker Change: That that we're living in. So we're not slowing down there, we continue to hire. Um, and what you're seeing is a lot of the efficiencies, in the operation side of both the selling and marketing uh teams. And if I may just uh, Peter just give a call out to um our great marketing and Communications Department. Um, our brand is now the 42nd most valuable brand in the world.
Speaker Change: History of technology and we're not going to stop there. We're going to keep going.
A fantastic momentum and thank you for the clarification and it's exciting. The investment going on.
Speaker Change: Thank you very much Peter.
Speaker Change: And that concludes our Q&A session and today's call, thank you everyone for joining. You may now disconnect
Speaker Change: Please wait the conference will begin shortly.