ServiceNow Inc ((NOW)) has held its Q2 earnings call. Read on for the main highlights of the call.
ServiceNow’s latest earnings call struck an upbeat tone, as management highlighted robust demand, accelerating AI monetization and strong large-deal momentum, all while outperforming on profitability. Executives tempered the enthusiasm with reminders about timing-related upside and near-term margin pressure from hyperscaler and AI ramp, but stressed high renewal rates and durable platform differentiation as key supports for long-term growth.
Subscription Revenue Growth Outpaces Expectations
ServiceNow delivered $3.877 billion in subscription revenue for Q2, rising 23% year over year in constant currency and beating the high end of guidance by roughly 150 basis points. Management framed this performance as evidence of broad-based demand across the portfolio, underscoring the resilience of the company’s core workflow and platform businesses.
RPO And CRPO Trends Signal Sustained Demand
Remaining performance obligations reached about $29 billion, up roughly 22% in constant currency, with current RPO hitting $13.2 billion and growing 21.5%. CRPO growth of 21.5% in constant currency came in more than two points above guidance, reinforcing visibility into future revenue and suggesting durable customer commitments despite a choppy macro backdrop.
Profitability Beat Drives Higher Margin Targets
Non-GAAP operating margin came in at 29.5% for Q2, a hefty 300 basis points above the company’s own guidance, reflecting strong cost discipline even amid investment. On the back of this outperformance, ServiceNow raised its full-year operating margin outlook to 31.5% and reiterated ambitions for strong free cash flow conversion heading toward a 35% margin target for 2026.
Large Deals Highlight Enterprise Traction
The company closed 123 deals with more than $1 million in net new annual contract value, a 40% year-over-year increase that underscores deepening enterprise penetration. ServiceNow now counts 658 customers generating more than $5 million in ACV, with 32 more customers surpassing the $20 million threshold, and reported that IT service management and security offerings appeared in most top deals.
AI Adoption And Monetization Accelerate Sharply
AI annual contract value surpassed $1 billion in the quarter and is on track to exceed the company’s $1.5 billion target well before 2026, signaling rapid monetization of its AI portfolio. Net new AI ACV grew more than 40% sequentially, while deals including five or more AI products rose 5.5 times and customers running agentic AI in production surged ninefold over nine months, with pricing uplift aligning to a 20% to 30% framework.
Customer Wins Underscore Platform And Industry Strength
Management spotlighted deployments with organizations such as the Department of the Air Force, Experian and Maybank, along with a major airline running roughly five million voice calls annually on ServiceNow’s voice AI CRM agents, to showcase real-world impact. They also pointed to strong momentum in Employee Works, where deal volume jumped over 150% quarter over quarter, and in Raptor DB Pro, which recorded an 80% year-over-year increase in deal activity.
Guidance Raised But Remains Measured
ServiceNow modestly lifted its full-year subscription revenue midpoint by $15 million to $15.770 billion, implying around 21% constant-currency growth, and set Q3 subscription guidance at roughly $3.975 billion to $3.980 billion, or about 20% growth. The company is targeting a full-year non-GAAP operating margin of 31.5% and expects free cash flow margins to trend toward 35% by 2026, suggesting confidence in scaling profitability alongside growth.
Security And Platform Differentiation As Growth Engines
Executives emphasized security and risk management as a key growth pillar, describing the business as an eight-figure cybersecurity franchise and portraying it as one of the fastest-growing among large enterprise cyber vendors. Recent acquisitions and the introduction of ServiceNow AI Control Tower are positioned as differentiating elements, providing an integrated governance and action layer that ties security, AI and broader workflow automation into a single platform.
Near-Term Gross Margin Pressure From Cloud And AI Ramp
Management acknowledged that subscription gross margins are facing short-term pressure due to a faster-than-expected ramp in hyperscaler partnerships and rising AI consumption, which increase costs before efficiency gains fully materialize. While the company expects margins to improve over the medium term as scale and optimization kick in, investors were cautioned to expect some near-term variability as AI-driven workloads grow.
Timing Effects From On-Prem Revenue Pull-Forward
Roughly half of the Q2 revenue beat was attributed to a timing-related pull-forward of on-premise revenue, largely from U.S. federal customers, shifting dollars from Q3 into Q2. This dynamic helps explain why the full-year subscription guide was raised only modestly despite the strong quarter, and serves as a reminder that reported growth may include some temporary timing benefits rather than purely structural acceleration.
Cash Flow And Investment Dynamics Add Volatility
Q2 free cash flow margin landed at 16%, noticeably below the company’s long-term target, with management pointing to seasonality and timing as drivers of shorter-term cash conversion swings. In addition, sales and marketing headcount rose significantly, including personnel from recent acquisitions, which along with integration costs may weigh on operating leverage before efficiencies and cross-sell opportunities are fully realized.
Market And Competitive Risks Remain In Focus
Some investors questioned whether buying cycles are lengthening and whether competitive pricing strategies, such as outcome-based pricing, could pressure growth, though management said it has not yet seen material elongation. They nonetheless acknowledged ongoing market noise and competitive risk, but argued that high renewal rates, platform breadth and strong AI and security tailwinds should help maintain momentum even if macro conditions waver.
Guidance And Outlook Emphasize Growth With Discipline
Looking ahead, ServiceNow expects to sustain around 21% constant-currency subscription revenue growth for the year, with Q3 subscription sales guided to increase roughly 20% and CRPO growth pegged at about 20%. The company is targeting an 81% subscription gross margin and a 31% to 31.5% non-GAAP operating margin, while projecting free cash flow margins of 35% in 2026, signaling a strategy that balances elevated AI and cloud investments with a clear path to higher profitability.
ServiceNow’s earnings call painted the picture of a company executing solidly on growth and profitability while leaning hard into AI and security as long-term catalysts. Although short-term margin fluctuations, integration costs and competitive dynamics add some risk, management’s modest guidance raise, strong RPO base and accelerating AI adoption suggest that the company remains well-positioned for continued expansion in enterprise workflows and automation.