Table of Contents
Other reviews from this week:
a. Demand
Slightly beat revenue estimates and met constant currency (CC) growth estimates.
Slightly beat subscription (sub) revenue estimates & guidance. 20.5% CC sub revenue growth met estimates and beat 20% CC growth guidance by 50 basis points (bps; 1 basis point = 0.01%).
Beat current remaining performance obligation (cRPO) estimates by 0.6%. 21% CC cRPO growth beat 20% growth estimates by a full point.
The renewal rate held at 98%. Loved to see that bounce back to 98% last quarter and stay there this quarter.
Asset Management became NOW’s 6th business to cross $1B in annual contract value (ACV). It was included in 13 of the top 20 deals this quarter (11 $1M+ deals).
When asked about IT budget discussions for next year, management said pipelines are growing extremely well. They also think the falling cost of intelligence strengthens the tailwind for software, as cheaper AI means more agents to deploy, govern and secure.
b. Profits
Beat EBIT estimates by 4.2%. The 32.5% EBIT margin beat guidance by 150 bps thanks to revenue outperformance, efficiency gains and the timing of some spend.
Internal AI usage is now generating more than $1B in annualized value for ServiceNow, more than double where that stood exiting 2025. They’re enjoying the same productivity gains they sell.
Missed FCF estimates by 11%.
Amortization costs from recent M&A are materially weighing on GAAP margins. That’s why GAAP margins fell far more Y/Y than non-GAAP margins in the tables below.
On GAAP GPM, amortization of acquired intangibles is hurting. Without this impact GAAP GPM would have been 74.2%. Beyond this, both GAAP GPM and subscription GPM are under pressure from the ongoing transition to more public cloud deployments of NOW’s software. This is lower margin than its on-premise business.
c. Balance Sheet
$4.6B in cash, equivalents & marketable securities.
$4.4B in long-term securities & investments.
$7.5B in debt.
-0.5% Y/Y dilution.
d. Guidance & Valuation
To read about guidance, valuation, the earnings call and my take on the quarter/company, upgrade below.
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