Earnings Call Transcript - NOW Q2 2025

Operator, Operator

Thank you for joining us. My name is Kathleen, and I will be your conference operator today. I would like to welcome everyone to the ServiceNow Second Quarter 2025 Earnings Conference Call. I will now turn the call over to Darren Yip, Senior Vice President, Head of Investor Relations and Market Insights. Please proceed.

Darren Yip, Senior Vice President, Head of Investor Relations and Market Insights

Good afternoon, and thank you for joining ServiceNow's Second Quarter 2025 Earnings Conference Call. Joining me are Bill McDermott, our Chairman and Chief Executive Officer; Gina Mastantuono, our President and Chief Financial Officer; and Amit Zavery, President, Chief Product Officer and Chief Operating Officer. 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 forward-looking statements that involve risks, uncertainties and assumptions. We undertake no duty or obligation to update such statements as a result of new information or future events. Please refer to today's earnings press release and our SEC filings, including our most recent 10-Q and 10-K for factors that may cause actual results to differ materially from our forward-looking statements. 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. Unless otherwise noted, all financial measures and related growth rates we discuss today are non-GAAP except for revenues, remaining performance obligations, or RPO, 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.servicenow.com. A replay of today's call will also be posted on our website. With that, I'll turn the call over to Bill.

William McDermott, CEO

Thank you, Darren, and welcome, everyone, to today's call. ServiceNow's Q2 results were outstanding. They continue our long track record of elite level execution, and we are at the forefront of enterprise AI. Subscription revenue growth was 21.5% in constant currency, 2 points above our guidance. CRPO growth was also 21.5% in constant currency, 2 points above our guidance. Operating margin was 29.5%. That's over 2.5 points above our guidance. Free cash flow margin was 16.5%, up 3% year-on-year. We had 89 deals greater than $1 million in net new ACV, 11 of those deals were greater than $5 million in net new ACV. All our workflow businesses performed very well in the quarter. Technology workflows had 40 deals over $1 million, including 4 over $5 million. ITSM, ITOM, ITAM, security and risk were all in at least 15 of the top 20 deals. CRM and industry workflows continued their strong momentum with 17 of our top 20 deals over $1 million. Core business workflows had a great quarter with 16 of the top 20 deals, including 7 deals over $1 million. The global environment is the fastest changing in history. Outcomes like beat-and-raise are a testament to the ServiceNow AI platform, our world-class team, and partner ecosystem. The factors driving this growth include AI, data, and workflows. On AI, Now Assist net new ACV to date beat expectations once again in Q2. 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. We had 21 deals with 5 or more Now Assist products, and plus products were included in 18 of our top 20 deals. The AI hype cycle has not slowed for good reason. Enterprises in every industry and every region of the world have AI transformation as their number one priority. IT budgets are highly resilient and increasingly focused on strategic mission-critical AI platforms. Our position is highly differentiated because AI work is cross-functional work. ServiceNow integrates the entire tech stack, whether on-prem or in the cloud, any system, any large language model, any data source, and we bring all of that data into a single model. From there, we elevate to the workflow layer, where you take action on that data wherever it lives. Then we move into the AI layer, where we employ not just automation but true AI agents executing real tasks to drive outcomes across business processes such as hire-to-retire, procure-to-pay, design-to-product, quote-to-cash, and sales-to-service. The long history of enterprise tech can be described in a single word: pain. That's because people, devices, apps, and data don't work well together. Without ServiceNow, we face the risk of a new generation of pain, this time with AI agents scattered around like spare parts. We have no intention, ladies and gentlemen, of allowing that to happen. Control Tower isn't just a name for our solution; it's the ultimate metaphor for how ServiceNow helps customers govern the agentic enterprise. We help customers take advantage of everyone's innovation, ours and others, and we make it all work with high demand. Our next AI program is called NowNext AI, which is deploying our engineering teams to expedite customer implementations. These are only a few of the many reasons you're seeing real momentum in these results, and we're just getting started. Q2 also showcased ServiceNow's growing differentiation in enterprise data. Workflow Data Fabric was included in 17 of our top 20 largest deals. Customers recognize the value of combining data, analytics, and AI, and they embrace our vision of Workflow Data Fabric and agents working together to drive faster, smarter outcomes. On the underlying technology level, RaptorDB Pro continued to gain traction in every major region and beat expectations in Q2. As I summarized earlier, all our workflows are growing, especially CRM and front office workflows. The CRM opportunity for ServiceNow is massive. According to industry experts, agentic AI represents a seismic shift that could render traditional CRM obsolete. 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 an omnipresent AI agent embedded in everyday tools. With our sales and order management solution and our acquisition of Logik.ai, we're not just entering CRM; we're reimagining it now. We're delivering a fully integrated AI-powered front office for sales and service, streamlined operations, and dramatically improved time to revenue. Customers are responding positively to our innovation. We secured several notable wins with strong momentum in CRM and widespread adoption of our end-to-end capabilities. One of the largest building supply companies in the U.S. selected ServiceNow CPQ to support configuration and quoting at scale for their largest distribution network. ExxonMobil plans to implement ServiceNow AI and agents to enhance employee experiences, improve operational processes, and ensure fast response times across enterprise services. Standard Chartered will use ServiceNow AI Control Tower with RaptorDB to govern, secure, and realize value from agentic AI. Merck & Co. is adopting the ServiceNow AI platform to transform security operations, enhancing control of IT assets, reducing risk, and strengthening data compliance across the enterprise. The state of California uses ServiceNow CRM across multiple departments to better serve its constituents, employees, and the business community. Banco do Nordeste Brasil is transforming customer service with ServiceNow AI, delivering tailored solutions that anticipate customer needs and deepen engagement across a broad network of customers and partners. Intuit is expanding its long-time relationship with ServiceNow to remove friction with agentic AI experiences for their employees. Starbucks, a multiyear ServiceNow customer, is using our AI capabilities to enhance its technology ecosystem, rolling out ServiceNow in select support centers to drive greater satisfaction at every touch point. The North Carolina Department of Transportation will use ServiceNow 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 an exciting new partnership, CapZone Impact Investments and ServiceNow are developing a national network of next-gen solutions to modernize mission-critical facilities. ServiceNow's risk management, enterprise asset management, and AI-powered automation capabilities will create a fully digital maritime manufacturing capability in the United States. There's no greater satisfaction than seeing world-class brands working with ServiceNow. A prime example is NVIDIA, who is redefining employee support with ServiceNow AI, employing intelligent AI agents that proactively resolve issues, deliver personalized help, and provide answers in milliseconds. Customers are not only choosing our tech; they're investing in our team. Under Amit Zavery's leadership, our product, engineering, and design teams are the best in the enterprise. They're generating too much net new innovation to cover in these remarks. That's a good thing. ServiceNow has delivered a completely integrated enterprise-ready agentic platform for every agentic requirement, which includes AI Control Tower, AI agent fabric, and a no-code AI Agent Studio in just 60 days. We've already surpassed our initial net new ACV expectations per AI Control Tower for the full year. Today, we're announcing Agentic 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. We also acquired data.world to deliver innovative data governance, and these solutions are built for this agentic AI era, which is why it's so precious to us. 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 have so much to discuss about our company right now through partnership expansions with NVIDIA, UKG, Zoom, and countless others that illuminate the centricity of ServiceNow in enterprise AI. That's why we are receiving new recognition in Forrester Wave, IDC MarketScape, and Gartner Research. Millions are applying to work for the company so they can be part of this movement. We made an intentional choice at ServiceNow to put AI to work for people. Yes, ServiceNow AI is driving substantial productivity increases for our customers. 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 and AI together will create new businesses, new discoveries, and catalyze economic growth in every corner of the world. The world works with ServiceNow because we are delivering AI to empower people everywhere, allowing them to lead their organizations forward to new horizons. I'll leave you with this point: analysts predict that 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 ServiceNow as the extensible AI operating system for the agentic enterprise. This provides monumental future value creation for our customers and shareholders. Thank you for your time. Now I'll hand it over to our President and Chief Financial Officer, Gina Mastantuono. Gina, over to you.

Gina Mastantuono, CFO

Thank you, Bill. Q2 was a spectacular quarter across the board. We significantly beat the high end of our guidance across all top line and profitability metrics. Among many highlights, strong adoption of our Now Assist products continued to outperform expectations in the quarter once again. AI efficiencies internally were also a meaningful tailwind to margin expansion. Let's get into the details. Q2 subscription revenues of $3.113 billion grew 21.5% year-over-year in constant currency, which is 200 basis points above the high end of our guidance range driven by strong execution and some early on-prem renewals. RPO ended the quarter at approximately $23.9 billion, representing 25.5% year-over-year constant currency growth. Current RPO was $10.92 billion, representing 21.5% year-over-year constant currency growth, a 200 basis point beat versus our guidance. From an industry perspective, transportation and logistics delivered a standout performance, with net new ACV over 100% year-over-year. The technology, media, and telecom sectors had a fantastic quarter, growing over 70% year-over-year. Retail and hospitality, as well as energy and utilities, also saw strength, each growing over 50% year-over-year. Once again, we achieved a robust 98% renewal rate showcasing ServiceNow's 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. We closed 89 deals greater than $1 million in net new ACV in the quarter, including 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 $1 million in net new ACV, including 2 over $5 million, growing average new logo ACV over 100% year-over-year. Within CRM, our push into the front office gained further momentum in the quarter. The addition of Logik.ai is already driving explosive growth in CPQ with 9 deals closed in June alone. Our Now Assist net new ACV to date continues to trend very well, beating expectations once again, fueled by an increase in both deal volume and size quarter-over-quarter. Our unique platform approach to AI clearly resonates with customers. Our newest plus SKUs have products that are off to a stellar start. ITAM Now Assist's net new ACV serves nearly 6x quarter-over-quarter, with average deal sizes more than tripling. Now Assist for SecOps and risk combined for net new ACV more than double quarter-over-quarter. Our flagship products are also delivering exceptional results. ITSM Plus and CSM Plus deal values quadrupled year-over-year, while ITOM Plus tripled and HRSD Plus doubled. In Creator Now Assist, average deal sizes also quadrupled year-over-year. Turning to profitability, non-GAAP operating margin was 29.5%, over 250 basis points above our guidance, driven by our top line outperformance, AI OpEx efficiencies, and the timing of marketing spending. By utilizing our own AI innovations in-house through Now-on-Now, we leverage tools like CodeAssist and CodeGeneration to unlock significant capacity for our engineers. Our free cash margin was 16.5%, up 300 basis points year-over-year. We ended the quarter with a robust balance sheet, including $10.8 billion in cash and investments. In Q2, we bought back approximately 381,000 shares as part of our share repurchase program, aiming to manage the impact of dilution. 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, profitability, and shareholder value. Moving to our outlook: as I mentioned last quarter, U.S. federal agencies are navigating changes from tightening budgets to evolving mission demand. The team executed very well against that backdrop, as market conditions played out as we anticipated in Q2. We remain confident that our guidance appropriately reflects these trends heading into Q3 and continues to position us for success for the remainder of the year. I'd also note that my commentary for both 2025 and Q3 does not include any contribution from Moveworks, which we expect to close in the second half of 2025 or early 2026. 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 19.5% to 20% on a constant currency basis. We continue to expect subscription gross margin of 83.5%, operating margin of 30.5%, and free cash flow margin of 32%. Finally, we expect GAAP diluted weighted average outstanding shares of 210 million. 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. We expect CRPO year-over-year growth of 18.5% or 18% on a constant currency basis. As a reminder, this includes a 200 basis points headwind due to our larger-than-average customer cohort that renewed in Q4. We expect an operating margin of 30.5%. Finally, we expect 210 million GAAP diluted weighted average outstanding shares for the quarter. 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. For countless ServiceNow customers and partners, Knowledge 2025 cemented ServiceNow's leadership in enterprise AI. The newly created pipeline is up over $1.2 billion already. 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, along with $1 billion in Now Assist ACV. This quarter's performance is a testament to the talent and dedication of our team. 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. With that, I'll open it up for Q&A.

Operator, Operator

And your first question comes from Alex Zukin from Wolfe Research.

Aleksandr Zukin, Analyst

Congratulations on another clearly elite quarter. Bill, some of your peers, I think it's unclear if the demand environment has improved much 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 seemingly better-than-expected execution. Is it something that's changed in the traction of the AI product? Is it something that's changed in the competitive field? Maybe just what's different this year, first half in spite of a difficult backdrop that's allowing you to maintain this level of execution.

William McDermott, CEO

Well, thank you very much, Alex, for your comment. And I see you already got a research note out to your clients. You're moving at the pace of ServiceNow. It's called instantaneous execution. The one thing that can't easily be measured in an earnings script or in the numbers is the heart and courage of a culture, and the heart of ServiceNow is gigantic. This hungry and humble culture, which started with Fred Luddy, has never given up on anything. But to answer your question specifically, AI is what changed. Agentic AI is transforming the business model for every company in the world. They see the difference between ServiceNow and others, and I would sum it this way: we have the best product. Amit, I'm sure, will have time to give you an update on the many innovations that are being integrated into our product; it's stunning. The experience is remarkable, and the results that customers can derive are amazing. I have said for some time, nobody has to lose for us to win. As the agentic AI story has become stronger and the platform has improved, customers are looking to consolidate the past and lean into ServiceNow. The business cases resulting from this change in customer mindset are getting bigger across all industries. Importantly, I want to make it clear: AI work is cross-functional work. It is not one-dimensional into a silo. Teams are working on processes across functions. Organization charts are going to change, and work is going to be AI work. We have 450,000 agents in workflow right now. Most of the supporting functions, from customer support to IT support, to risk, compliance, and security, are now over 80% being done by agents. So agentic AI is real, and the business cases are extraordinary. Gina has stated that it will be $350 million value to us this year, and we think it might be even more in terms of what we can achieve, not to mention happiness and productivity. If you think about the sales curve, for example, there's been a 50% improvement in sales productivity just by not needing to do the setup work. That's also true for engineers. This is a fundamental step function change; you can only achieve exponential growth through an enterprise-wide thinking approach. You can start with us in any given silo, but we are expanding outwards to all functions. When you look at our big deals, all of them have multiple 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 agentic AI story for CEOs in enterprise software. And note that I didn't say SaaS; we don't live in a SaaS neighborhood. We're in enterprise AI territory as a one-on-one platform, and that differentiation is being communicated effectively to our customers and partners. That's why we're different.

Aleksandr Zukin, Analyst

Super clear. Maybe, Gina, just quickly one for you. There's a lot of anxiety in the investor community about DOGE and federal activity in general in the public sector. It seems like it delivered to your expectations. But can you give us a flavor for the pipeline, the conservatism in the numbers for Q3, and how we should think about that in the back half?

Gina Mastantuono, CFO

Yes. Great question, Alex. The market conditions played out as we anticipated, and the team executed extremely well against that backdrop. Our federal team is the best in the business, and I couldn't be prouder of them. Despite the noise in the quarter, our U.S. public sector closed 6 new logos in Q2 alone, continuing to execute despite the uncertainty. That being said, for the remainder of 2025, we are building prudence into our assumptions for U.S. Federal, right? They are continuing to navigate tightening budgets and shifting mission demands with increasing urgency. So we feel confident that our guidance adequately reflects these trends heading into Q3, and I'm optimistic about where we stand.

Operator, Operator

Your next question comes from the line of Mark Murphy of JPMorgan.

Mark Murphy, Analyst

Bill, with the AI Control Tower, I think you said it was beating targets for the full year already and it's only July. Are you seeing signs that customers might use that as the central control plane for all their agents, including third-party agents from OpenAI and Microsoft and others? If the Nemotron LLM, the one you’re building in conjunction with NVIDIA, succeeds, do you think ServiceNow agents can offer better reasoning and maybe start to replace the third-party agents to avoid them scattering around like spare parts, as you put it?

William McDermott, CEO

Yes, it was my term. Mark, thank you very much for the question. Let’s clarify the big point about the AI platform for this transformation. We are the only ones that collaborate with all three of the hyperscalers. Think about any data source, any large language model model, any agent. These agents must be managed the same way people are managed. Our AI Control Tower will manage our agents and all others. Yes, Mark, the big picture is that a CEO should want ServiceNow's AI platform for business transformation and should want our AI Controller to manage not just our agents but all the other agents as well. These agents will collaborate across business processes, and early results show that agents are becoming more collaborative, results-oriented, and team-oriented than people. So this will be an interesting journey to watch, and I'll let Amit give you product details.

Amit Zavery, President, Chief Product Officer and Chief Operating Officer

All right. Thank you, Bill. So Mark, as Bill mentioned, the AI Control Tower definitely provides a central nervous system and ability to really manage all the complexity companies face with AI deployments. Beyond that, as we adopt various large language models for our reasoning engine, we've made significant progress with NVIDIA in the Nemotron model. That's one of the options we provide customers, which speeds up reasoning, planning, and execution of any request we receive in our AI system. We are continuing to provide choices like OpenAI, Gemini, and Claude for customers to select models that align with their use cases. We are offering prescriptive ways through our AI Control Tower to select the right methods for executing our planning engine for those specific use cases, which has been beneficial to our expanding customer base.

Operator, Operator

Your next question comes from the line of Brad Zelnick of Deutsche Bank.

Brad Zelnick, Analyst

Bill, ServiceNow, you guys have outlined very bold ambitions within front office workflows. With Logik.ai closed, can you talk more about the most immediate opportunities, whether it's service, sales, or marketing? Where do you see the lowest-hanging fruit right ahead of you?

William McDermott, CEO

Thank you very much, Brad, for the question. First, the CRM opportunity for ServiceNow is immense. We've moved away from a traditional CRM screen, and AI agents will be embedded in a more omnipresent way in everyday tools, eliminating the need for swivel sharing; workflows will be organized, they'll be agentic, and legacy systems will be based on customer choice. They will recognize the difference between end-to-end order fulfillment and service on one platform. Expect to see considerable movement in order management and the configuration price and quote capabilities we recently integrated. To get nine deals closed in just a month emphasizes the pain points existing in the market that we aim to address. Service management will also excel, and I would say that sales and order management are in full view. We're seeing opportunities in various industries, particularly in the public sector, as every public sector entity worldwide aims to replace fragmented legacy CRM stacks with a unified platform that is faster, smarter and purpose-built with AI for modern business.

Amit Zavery, President, Chief Product Officer and Chief Operating Officer

Thank you, Bill. In CRM, we're doing well in CSM and FSM while also adding sales order management and CPQ functionalities. Our strategy focuses on complicated workflows that are outcome-driven. In customer service, resolving an issue is paramount, and our platform excels in that. We handle the necessary support for any actions required, whether it's processing an order or generating a quote that involves multiple people. Our workflow engine can address virtually every CRM workflow, and we are offering clearly defined paths to achieve these goals across various domains—which is where we continue to win daily.

William McDermott, CEO

We approach this by industry. For example, in insurance, agentic AI transforming an accident into a settled claim in real-time is quite possible. Our agentic AI will address cases right from the point of the accident using mobile technology. Our workflow automation, agentic AI, and ability to manage incidents to back-office processing in real-time will distinctly set ServiceNow apart. It's these tailored cases that we're focusing on.

Operator, Operator

Your next question comes from the line of Kash Rangan of Goldman Sachs.

Kasthuri Rangan, Analyst

Great honor to follow the great Brad Zelnick. Bill and the management team, it's impressive that you have achieved a $12-plus million revenue run rate while posting 22% growth. I wanted to ask you, and anyone else who would like to chime in is welcome, too. There is a notion that the infrastructure build-out undertaken by the hyperscalers, to support the open AI and Anthropic models, has consumed a lot of capital and arguably a lot of IT budgets as well. As this longer cycle continues, it raises questions about enterprise software. Given your aspirations, I'm curious about your thoughts on what will ultimately allow ServiceNow to prosper in this world of AI, where the landscape remains uncertain, yet it promises to automate everything independently – potentially rendering some critical technologies obsolete.

William McDermott, CEO

Thank you very much, Kash, those are excellent questions. The companies you mentioned are doing creatively exciting things, and they want to partner with us because of our leadership in the enterprise space. What distinguishes us is that we have processed 1 trillion transactions and manage $65 billion workflows across the global economy. Consider the constraints of compliance, regulation, risk posture, data complexity, and the overall positivity of the ServiceNow Platform; it is secure, fast, and cost-effective while integrating with these innovative companies. As time passes, we're strengthening and improving these areas daily, and we believe companies will lean on us for our enterprise-ready solutions while forming successful partnerships. It's interesting that you're asking such insightful questions; this is why I believe we're the best-positioned enterprise software company in the world. We're inventing our own paradigm around the agentic AI enterprise, and we are not replicating anyone’s past. It’s both good luck and contextual growth as the platform initiated with Fred Luddy in IT. IT professionals best understood this but soon enough, it spread to employees, customers, engineers, and now across all business operations. With decades of complexity and encountering pain points in understanding those challenges, it takes time. The referred companies are busy handling separate priorities, and I think they will rely more on us, not less. As customers ask, ‘Why do I have 10 of these and 8 of those?’ they want consolidation for cost-saving reasons. Customers drive this demand, and when they hear about ‘any cloud, any data source, any LLM model, any agent,’ they realize they're dealing with a different company.

Operator, Operator

Your next question comes from the line of Karl Keirstead of UBS.

Karl Keirstead, Analyst

Bill, I'm wondering if you noticed any incremental change in the broader selling environment in Q2. There seems to have been a historically high level of customer uncertainty regarding macro economic conditions. Did that result in some hesitation? Has the environment improved at all in May and June? I'd like to hear your thoughts.

William McDermott, CEO

Thank you very much, Karl. I don't believe the demand environment changed radically. It remains wide open for AI innovation. Obviously, the Workflow Data Fabric and a shift in CRM are transformative aspects that have remained consistent, and customer spending is open for innovation at this level. I think it's less about changes in demand and more about adaptation to the new normal. Geopolitical shifts, economic tariffs, and other changes have necessitated companies pursue an agentic AI layer for operations worldwide. Just think about an auto manufacturer; if they have to adapt to tariff changes, they need dynamic variations to pricing and supply chain methodologies quickly. This holds across industries. If an industry isn't adapting to global shifts, it needs to acquire new skills for a new workforce and new paradigms while integrating modernized customer experiences. If service isn't seamless or attractive, coupled with AI agents that engage proactively, they aren't meeting customer expectations. This is a unique opportunity for true native AI companies like us because we think AI, and everything is driven by AI. This applies to every industry, every scenario, and every relationship plan. We're deploying proof of concepts demonstrating how we can transition companies into a new paradigm quickly. They're eager for this.

Operator, Operator

Your next question comes from the line of Matthew Hedberg of RBC Capital Markets.

Matthew Hedberg, Analyst

Congrats from me as well. The success with Pro Plus is staggering and the Now Assist ACV target has always been top of mind from Analyst Day. As you’ve begun witnessing early consumption adoption with Now Assist pack, could you speak about how this is resonating with customers, how they are utilizing it, and how you see that revenue source potentially growing?

Amit Zavery, President, Chief Product Officer and Chief Operating Officer

Yes. Pro Plus has been adopted very quickly by customers. Our structure allows customers to invoke various assists as part of the Pro Plus subscription, and our usage has surged to around 9x over the last three months. Customers have been deploying diverse use cases. Once they start with agentic use cases, they rapidly adopt more Pro Plus capabilities in their implementations. This is starting to show positive growth in revenue associated with Pro Plus, particularly with our delivery model.

Gina Mastantuono, CFO

I would just add, Matt, that adoption continues to outpace expectations, and we feel good about the guide we provided for hitting $1 billion in ACV by 2026.

Operator, Operator

Your next question comes from the line of Keith Weiss of Morgan Stanley.

Keith Weiss, Analyst

Congratulations on another solid quarter for ServiceNow overall. I’d like to direct a question to Gina regarding the margins; Q2 saw a significant beat on overall operating margins. Both you and Bill have discussed specific productivity enhancements and productivity gains in engineering and sales. Yet, your full-year operating margin guidance has remained stable at 30.5%. Are there incremental investments you're making in areas like sales engineers to get people up and running on Now Assist? Should we be aware of timing differences, or is the guidance just a conservative approach, suggesting that not all productivity gains will flow into the operating margin forecast?

Gina Mastantuono, CFO

Great question, Keith. I'm not surprised by it. We're thrilled with the efficiency gains via AI. You may remember from Knowledge that we estimated $100 million in savings in headcount alone for 2025, and we’re witnessing those come to life as planned. Part of Q2's upside, as indicated in my earlier remarks, was driven by the timing of marketing spend, some of which has shifted into Q3 and Q4. This doesn't impact the full-year outlook. Additionally, we are exercising prudent expense management to absorb any potential margin headwinds from Moveworks if it closes in the latter half of this year. Lastly, we are investing for growth to meet AI transformation demand, hiring quota-bearing sales and engineers while heavily leaning into R&D and specialized sales talent for AI. We've definitely seen these efficiencies; I'm not being overly conservative regarding the efficiencies. It's prudent to reserve resources for future investments due to the immense opportunity AI presents.

Keith Weiss, Analyst

Got it. The technical engineers you referenced: other vendors, like SAP, have discussed a higher level of engineering involvement necessary to assist customers in bringing AI online. Does this signify that AI has a higher sales cost for your teams, requiring more on-site engineers to help customers understand agentic AI, organize data, and navigate the many steps necessary to bring this to fruition?

Amit Zavery, President, Chief Product Officer and Chief Operating Officer

Yes, Keith, AI is top of mind for every customer we engage. They're seeking guidance on using this technology, and our best people are those who have built these systems. We’re co-innovating with customers—not just executing but infusing that expertise into our products which leads to more IP and stronger collaborations. This doesn't necessarily elevate sales costs; we are just creating innovative use cases that expand customer engagement steadily over time.

Gina Mastantuono, CFO

Remember, we continue to achieve improvements in operating margins year on year. Thus, we are confidently investing in efficiencies early in this AI transition to enable our customers to realize value quickly. As you know, once the assist packs start ramping up, the revenue will experience significant increases. The sooner we get our customers to realize value, the better it is for all of us. Investing in these productivity gains is a strategic position for us.

Operator, Operator

Your next question comes from the line of Derrick Wood of Cowen.

James Wood, Analyst

Gina, a 2% upside to your revenue guidance is quite high relative to historical trends. Could you highlight what drove such robust upside? Did you have a higher self-hosted mix? Was there better linearity in some parts of the business performing much better than expected? Additionally, the jump in the mix from technology workflows was quite pronounced. Can you explain what drove that change? Do you believe this is a one-time event, or do you expect this to become a new trend?

Gina Mastantuono, CFO

On your first point, the 2% revenue upside resulted from, first, net new ACV outperformance, driven by exceptional execution from the ServiceNow team. Additionally, we observed stronger-than-expected on-prem performance, primarily due to some early renewals from the second half of 2025. I would characterize this as roughly half attributed to each factor. Regarding the mix shift and the net new ACV in technology workflows, let's not focus too much on quarter-over-quarter results, as large deals can significantly impact those numbers. However, every workflow continues to perform well. Technology workflows posted notable strength this quarter, headed by ITAM with over 70% year-over-year growth in net new ACV, while security and risk also saw strong growth exceeding 60%. ITAM secured its largest deal to date, contributing to continued momentum in our core areas; hence, I’d advise to take shifts in specific quarters with a grain of salt.

Operator, Operator

Your next question comes from the line of Mike Cikos of Needham.

Michael Cikos, Analyst

It's impressive to see the results here, and I know we're talking about a massive amount of innovation for the platform, like RaptorDB and activities surrounding Now Assist. Can you elaborate on how new logos have been gravitating towards the ServiceNow Platform? Are you noticing any increase in the volume of enterprises aligning with your direction due to this innovation and the AI initiatives you’re championing?

Gina Mastantuono, CFO

New logos are joining the Now Platform at an excellent rate. Over the last few years, we've focused on attracting the right new logos—those who can grow with us over time. We're thrilled not just with the growth in new logos, but also that their ACV continues to increase each quarter. These new logos are poised to be future growth vectors for ServiceNow. While a good percentage of our business grows from existing customers, nurturing new ones remains essential. We've been satisfied with new logo performance alongside more substantial landing sizes.

Amit Zavery, President, Chief Product Officer and Chief Operating Officer

As Gina mentioned, new logos in the commercial space are starting to leverage AI. This presents opportunities for conversations with customers who hadn’t originally considered deploying AI across their environments. We're seeing them adopt simple, user-friendly products to leverage AI for enhanced efficiencies.

Gina Mastantuono, CFO

To reiterate my earlier comments: we secured 11 deals with new logos, over $1 million in net new ACV, including 2 deals over $5 million, and our average new logo ACV has grown over 100% year-over-year. We feel confident about the growth of new logos.

Michael Cikos, Analyst

That's great to hear. For follow-up, I noticed Bill also mentioned the NowNext AI program in his remarks. Can you elaborate on that? Are there plans for additional hiring for that engineering team that we should expect? If so, would this pertain to enterprises, commercial, or other segments? Any insight would be beneficial.

Amit Zavery, President, Chief Product Officer and Chief Operating Officer

Mike, the NowNext AI program is focused on high-level strategic customer engagement at the C-suite level. We are collaborating with leaders to identify use cases that expedite customers' AI adoption. Many experts within ServiceNow, including our engineering, sales consulting, and solutions consulting teams, are part of these strategic discussions. We are engaging with customers in a much clearer fashion as opposed to starting from the ground up to drive this conversation. Hence, there's no immediate need for significant additional hiring; we are using existing expertise with a focus on strategically important use cases across large enterprises.

Gina Mastantuono, CFO

Any investment in hiring is already encompassed within our guidance.

Operator, Operator

Your next question comes from the line of Gregg Moskowitz of Mizuho.

Gregg Moskowitz, Analyst

Truly remarkable with the momentum you guys are exhibiting. Switching gears a bit: there have been several leadership changes in sales at ServiceNow across the U.S., Europe, and APJ in recent months. Bill, how do you feel about the current go-to-market execution across your three regions?

William McDermott, CEO

Gregg, thank you very much. I feel fantastic about the go-to-market strategy. The executives we've brought on board are proven industry leaders. Adrian in APJ is a seasoned veteran from Oracle with stellar experience in the enterprise. We are now entering a scale phase. The motivations for our recent changes stem from the desire to draw on seasoned veterans who understand our unique culture while also fostering growth within our internal team. In the U.S., Tom Hannigan has received a global role because he performed exceptionally well, and Steve Walters, who expertly ran our public sector business, truly deserved a promotion. They are both outstanding talents. We have cultivated deep talent over the years, with 1.5 million applicants ready to keep us accountable. In Europe, our leadership is stable, with seasoned talents leading our operations in multiple regions, including South America. I couldn't be happier about our leadership, and I know they hold each other accountable because we are a growth company that expects elite execution across the board.

Operator, Operator

Your next question comes from the line of Brad Sills with Bank of America.

Bradley Sills, Analyst

I wanted to ask about the business mix across the three major line items here. It has consistently remained in the low 50s for technology, around 30% for CRM and industry, as well as core business workflows, and the mid-high teens for Creator. Could the Now Assist cycle with agents change the business significantly in any direction? In other words, will that facilitate workflows beyond IT? Or is the balance expected to remain consistent over time as the agent cycle unfolds?

Amit Zavery, President, Chief Product Officer and Chief Operating Officer

Brad, we've observed the current mix. However, with AI, we can now provide customers the capacity to utilize multiple workflows concurrently. You’ll see AI significantly driving Pro Plus capabilities while allowing customers to benefit from increased functionality across various areas. We also have developed promising workflows within Creator that are emerging in numerous industries. Our efforts in security and risk are paving the way for new opportunities to manage identity and governance for agents across the enterprise.

Operator, Operator

And we have one more question from Peter Weed.

Peter Weed, Analyst

Obviously, a fantastic performance. That leads to one of my primary questions: Gina, you mentioned remaining judicious with budgets and maintaining capacity to invest where needed. It seems like over the last few quarters, the investments in sales and marketing headcount have been more modest. I believe some of that left room for the Moveworks acquisition when it closes. At what point would you trigger more aggressive hiring if you become concerned about Moveworks not closing or if that deal gets delayed further? There seems to be so much opportunity ahead, and you want to ensure competent reps are in the field. What’s your strategy for that operational decision? When do you plan to hire more headcount?

Gina Mastantuono, CFO

First and foremost, we aren't worried about Moveworks closing; it is a timing issue as far as we are concerned. Additionally, there has been consistent headcount in the sales and marketing areas. We are actively investing in quota-bearing reps who engage directly with customers daily. The figures you’re observing also reflect marketing and operational roles within those areas. Our AI efficiencies impact sales efforts as well; we are effectively managing the operational aspects of these teams. We are committed to hiring, especially in crucial arenas, to support technical sales as we delve into this AI-agentic world. We are not slowing down in that regard; hiring is in full swing, and many of the efficiencies are manifesting across our operational dynamics.

William McDermott, CEO

If I may, Peter, I want to commend our brilliant marketing and communications department. Our brand now ranks as the 42nd most valuable globally. Our campaign and brand ambassador work led by Colin Fleming and our remarkable brand ambassador, Idris Elba, resonates well as we bring AI to bear for people. Our communications team works strongly alongside analysts, media, and investor relations led by Darren, and we’re exceptionally proud of the unwavering support infrastructure that sustains ServiceNow. So I wanted to emphasize that this synergy is what leads to the masterpiece that is ServiceNow. We are just getting started, with one of the biggest leaps in brand equity in tech history anticipated to continue.

Operator, Operator

And that concludes our Q&A session and today's call. Thank you, everyone, for joining. You may now disconnect.