TLDR
- ServiceNow beat Q2 expectations with 22.5% revenue growth to $3.22 billion and adjusted EPS of $4.09 versus $3.57 expected
- AI products are driving momentum with Now Assist on track to reach $1 billion in annual contract value by 2026
- Company raised full-year subscription revenue guidance to $12.775-$12.795 billion on AI adoption strength
- Stock jumped 7% in after-hours trading following the earnings beat and raised guidance
- Management sees agentic AI as transforming every business process across all industries
ServiceNow delivered a convincing earnings beat in the second quarter, sending shares up 7% in after-hours trading. The enterprise software company crushed analyst expectations with revenue of $3.22 billion versus the $3.12 billion forecast.
Adjusted earnings per share came in at $4.09, well above the $3.57 estimate. Revenue grew 22.5% year-over-year, while subscription revenue hit $3.11 billion against a $3.03 billion forecast.
The strong results were powered by artificial intelligence adoption across ServiceNow’s customer base. CEO Bill McDermott made it clear that AI is reshaping the business landscape entirely.
“Every business process in every industry is being refactored for agentic AI,” McDermott said in the earnings release. The company views this transformation as a major long-term growth opportunity.
ServiceNow’s AI products are gaining serious traction with customers. The company signed 89 deals worth at least $1 million in net new annual contract value during the quarter.
The customer base continues to expand at the high end. ServiceNow ended Q2 with 528 customers spending at least $5 million annually.
AI Platform Drives Customer Growth
The Now Assist AI product remains on track to reach $1 billion in annual contract value by 2026. This represents a key milestone for the company’s AI strategy.
ServiceNow also announced agentic workforce management during the earnings call. This new feature extends the company’s AI agent orchestration capabilities.
The platform allows people to oversee and teach an agentic workforce directly from ServiceNow’s interface. It’s another step toward the company’s vision of AI-powered business processes.
Net income grew 47% to $385 million, or $1.84 per share, compared to $262 million a year ago. The bottom-line growth shows ServiceNow is converting its revenue gains into profits.
Remaining performance obligations jumped 29% to $23.9 billion. This metric measures future revenue from existing customer contracts.
Current remaining performance obligations rose nearly 25% to $10.92 billion. This represents contracted revenue set to be realized over the next year.
Guidance Reflects AI Momentum
Management boosted full-year subscription revenue guidance to between $12.775 billion and $12.795 billion. The raised outlook reflects confidence in AI-driven demand.
For the third quarter, ServiceNow expects subscription revenue between $3.26 billion and $3.265 billion. This represents year-over-year growth of 20% to 20.5%.
Current remaining performance obligations are expected to rise 18.5% in Q3. However, the company anticipates a 2 percentage-point hit due to seasonality.
More customers typically renew contracts in the final quarter of the year. This creates some lumpiness in the quarterly numbers.
ServiceNow flagged potential headwinds from U.S. federal government budget changes. One federal customer accounted for 11% of revenues in 2024.
Finance chief Gina Mastantuono said the company feels confident its guidance reflects any potential federal changes. The public sector business grew 30% in the first quarter.
ServiceNow stock was down 9% year-to-date going into the earnings report. The after-hours surge suggests investors are pleased with the AI-driven results and raised guidance.
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