0001373715-25-000276
SEC filingLeverage from high renewal rates and subscription growth drove 22% revenue growth while expanding operating margins.
For the three months ended June 30, 2025, ServiceNow reported total revenues of $3.215 billion, a 22% increase compared to $2.627 billion in the same period last year. Subscription revenues drove this growth, rising 22% to $3.113 billion, fueled by increased purchases from new and existing customers. Within subscription revenue, upfront recognition from self-hosted offerings contributed $109 million, up from $68 million in Q2 2024. Professional services and other revenues grew 20% to $102 million.
Gross profit for Q2 2025 was $2.491 billion, yielding a gross margin of 77%, down from 79% a year earlier. The decline was driven by a lower subscription gross margin (80% vs. 82%) due to higher data center costs and increased headcount, partially offset by improved professional services margins (3% vs. 2%). Operating income on a GAAP basis surged 49% to $358 million, reflecting strong top-line growth and disciplined expense management. Non-GAAP income from operations rose 33% to $955 million, with stock-based compensation, amortization, and impairment/severance costs excluded. Net income before taxes increased 41% to $471 million, and the effective tax rate fell to 18% from 22% due to excess tax benefits from stock-based compensation.
ServiceNow’s revenue is overwhelmingly subscription-based, representing 97% of total revenue in Q2 2025, consistent with the prior year. The subscription segment saw revenue rise $571 million YoY, driven by both new customer acquisitions and expansions within existing accounts. The company reported 528 customers with ACV greater than $5 million as of June 30, 2025, up from 442 a year ago, highlighting continued enterprise adoption.
Cost of subscription revenues grew 33% to $625 million, outpacing revenue growth, as the company invested in headcount and data center capacity to support regulated markets and public cloud offerings. Professional services costs rose 19%, driven by partner ecosystem spend to accelerate customer value realization. Sales and marketing expenses increased 18% to $1.128 billion but declined as a percentage of revenue to 35% from 37%, reflecting improved sales productivity. Research and development expenses grew 14% to $734 million (23% of revenue), while G&A expenses rose 17% to $271 million (8% of revenue).
Management expects full-year 2025 subscription revenues to increase in absolute dollars and remain relatively flat as a percentage of total revenue. Subscription gross profit percentage is anticipated to decrease slightly versus 2024 due to continued investment in regulated markets and data residency. Professional services gross loss is expected to widen as partner spend grows faster than revenue. Sales and marketing as a percentage of revenue should decrease slightly, while R&D and G&A expenses are expected to remain relatively flat as a percentage of revenue. The company maintains a 98% renewal rate, supporting stable recurring revenue, and expects positive operating cash flows for 2025. Key metrics to watch include RPO growth (29% YoY to $23.9B) and free cash flow generation ($2.012B in H1 2025, up 27%).
As of June 30, 2025, ServiceNow holds $3.1B in cash and cash equivalents and $7.7B in short- and long-term marketable securities (total $10.8B). Total debt is $1.5B (net of $10M unamortized costs), consisting solely of the 1.40% 2030 Notes. Stockholders' equity stands at $10.9B. The company has no inventory, consistent with its SaaS business model. Notably, deferred revenue (current and non-current) totals $6.9B, while total remaining performance obligations (RPO) are $23.9B, indicating strong contracted future revenue.
ServiceNow has significant non-cancellable commitments:
The company operates as a single reportable segment. Geographic revenue for H1 2025: North America $3.969B (63%), EMEA $1.616B (26%), Asia Pacific and other $718M (11%). Property and equipment net: North America $1.237B (62%), EMEA $505M (25%), Asia Pacific $243M (12%). No further segment-level disaggregation is provided in the notes.
Operating cash flow (CFO) of $2,393M exceeded net income of $845M by a factor of 2.8x, reflecting strong cash generation and non-cash charges (stock-based compensation $969M, D&A $332M). Working capital changes provided a net positive contribution, with accounts receivable decreasing $599M (cash inflow) partially offset by decreases in deferred revenue ($264M) and accrued expenses ($111M). Capex of $395M represented 16.5% of CFO, a moderate intensity. Free cash flow is not explicitly stated but implied as CFO less capex would be approximately $2.0B. Share repurchases of $659M more than tripled from $175M, and combined with $438M tax payments on equity awards, consumed significant cash. No dividends were paid. Overall, cash generation remains robust, with capital allocation shifting toward larger shareholder returns.