ServiceNow Inc ((NOW)) has held its Q3 earnings call. Read on for the main highlights of the call.
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ServiceNow Inc.’s recent earnings call painted a generally positive picture, highlighting strong subscription revenue growth, increased guidance, and notable achievements in AI products and federal business. Despite concerns about the government shutdown affecting Q4 and on-prem dynamics, the positive aspects overshadowed these issues, indicating robust business performance and confidence in future growth.
Strong Subscription Revenue Growth
ServiceNow reported a significant 20.5% year-over-year growth in subscription revenue, surpassing the high end of their guidance by one full point. This impressive performance underscores the company’s ability to expand its customer base and enhance its service offerings.
Operating Margin and Free Cash Flow Margin Exceed Expectations
The company achieved an operating margin of 33.5%, which was three full points above guidance, and a free cash flow margin of 17.5%, up 50 basis points from the previous year. These results reflect ServiceNow’s efficient operational management and strong cash generation capabilities.
AI Products Drive Growth
ServiceNow’s AI products are on track to exceed $0.5 billion in annual contract value (ACV) this year. The Now Assist deal volume has more than quadrupled quarter-over-quarter, showcasing the growing demand and successful adoption of AI-driven solutions.
Federal Business Success
The U.S. federal business segment surpassed net new ACV expectations for the quarter, achieving over 30% year-over-year growth. This success highlights ServiceNow’s strong foothold in the public sector and its ability to meet the unique needs of government clients.
Increased Guidance for 2025
ServiceNow raised its 2025 subscription revenue guidance by $55 million and increased its full-year operating margin target to 31%. These adjustments reflect the company’s confidence in its growth trajectory and ability to deliver value to shareholders.
Public Sector Uncertainty
Despite the positive outlook, there are concerns about the potential impact of the ongoing government shutdown on deal timing in Q4. ServiceNow has factored prudence into its guidance to account for possible delays in the procurement process.
On-Prem Dynamics
The on-prem business is expected to influence Q4 subscription revenue guidance. ServiceNow is monitoring these dynamics closely to mitigate any adverse effects on its financial performance.
Forward-Looking Guidance
During the Q3 2025 earnings call, ServiceNow provided updated guidance for the fourth quarter and full year 2025, highlighting significant outperformance across various metrics. The company reported a subscription revenue growth of 20.5% year-over-year in constant currency, surpassing guidance by one full point. The current remaining performance obligations (cRPO) also grew by 20.5% year-over-year, exceeding guidance by 2.5 points. The operating margin outperformed by 300 basis points, reaching 33.5%, while the free cash flow margin was reported at 17.5%. ServiceNow raised its full-year subscription revenue guidance to a range of $12.835 billion to $12.845 billion, reflecting a 20.5% year-over-year growth. The company also increased its full-year operating margin target to 31% and its free cash flow margin target to 34%. Despite the ongoing U.S. government shutdown, ServiceNow remains optimistic, factoring in potential timing impacts into its guidance due to procurement process delays. Overall, ServiceNow’s robust results and raised guidance underscore its strong market position and confidence in continued growth, driven by its focus on AI and workflow integration.
In conclusion, ServiceNow’s earnings call highlighted a strong performance with significant growth in subscription revenue and AI product adoption. The company’s increased guidance for 2025 and success in the federal business sector further emphasize its robust market position. While there are concerns about the government shutdown and on-prem dynamics, ServiceNow’s positive outlook and strategic focus on AI and workflow integration position it well for continued success.