ServiceNow(NOW) - 2025 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Subscription revenue for Q1 2025 was $3.005 billion, growing 20% year over year in constant currency, slightly above the high end of guidance [48] - Remaining performance obligation (RPO) ended at approximately$ 22.1 billion, representing 25.5% year over year constant currency growth [48] - Non-GAAP operating margin was 31%, 100 basis points above guidance, and free cash flow margin was 48%, up approximately 100 basis points year over year [56] Business Line Data and Key Metrics Changes - The number of deals greater than $1 million in net new annual contract value (ACV) was 72, up from 63 a year ago, with nine deals over$ 5 million [10][51] - Technology workflows had 36 deals over $1 million, including two over$ 5 million [11] - Core business workflows, including employee, finance, and supply chain solutions, were in half of the top 20 deals, with eight deals over $1 million [12] Market Data and Key Metrics Changes - Manufacturing delivered over 100% year over year growth in net new ACV, while healthcare and life sciences grew over 70% year over year [49] - The US public sector grew by over 30% year over year, with significant contributions from federal deals [22][49] Company Strategy and Development Direction - The company is focused on AI-driven transformation, with strong demand for its AI platform and a healthy pipeline [17][19] - ServiceNow aims to expand its addressable market, entering new areas such as data management with RaptorDB and enhancing CRM capabilities through acquisitions [26][31] - The intent to acquire Moveworks and Logic AI is part of a strategy to enhance employee self-service and CRM capabilities, respectively [30][32] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to navigate macroeconomic uncertainties, emphasizing strong demand and a robust pipeline [72][74] - The guidance for 2025 was raised, reflecting optimism despite potential risks from geopolitical factors [61][64] - The company is committed to driving operational efficiencies and maintaining profitability through AI integration [146][148] Other Important Information - The company ended the quarter with$ 10.9 billion in cash and investments, and a share repurchase program was initiated [57] - The renewal rate remained at 98%, indicating strong customer retention [50] Q&A Session Summary Question: Insights on federal opportunities and enterprise customer decision-making - Management noted that demand remains strong, with customers focused on future growth and cost efficiency, despite geopolitical uncertainties [72][74] Question: Impact of Moveworks acquisition on technology execution - The acquisition is expected to enhance AI capabilities and provide a unified user experience, allowing for broader customer engagement [81][84] Question: CRM market ambitions and integration strategy - The company aims to redefine CRM with a fully integrated AI-powered approach, addressing complex customer needs efficiently [92][96] Question: Public sector growth and guidance context - The 30% growth in the public sector was in net new ACV, and management remains optimistic about long-term opportunities despite short-term conservatism in guidance [104][108] Question: Trends in Pro Plus adoption and growth initiatives - Pro Plus adoption is expected to continue growing, supported by strong customer interest in AI-driven efficiencies [132][135] Question: Short-term backlog growth and seasonality - Management confirmed that the expected seasonality of bookings and CRPO remains unchanged despite macroeconomic conditions [141]