Key Highlights

  • Total revenue of USD 4.11 billion rose 21% and topped the USD 4.09 billion consensus estimate.
  • Subscription revenue grew 21% to USD 3.99 billion, and current remaining performance obligations reached USD 13.65 billion.
  • GAAP net income fell to USD 277 million from USD 502 million as subscription gross margin narrowed to 74%.
  • Full-year free cash flow margin target rose to 36% from 35%, and subscription revenue guidance moved to USD 15.785 billion.

ServiceNow, Inc. (NYSE:NOW) reported third-quarter 2026 revenue of USD 4.11 billion, up 21% from USD 3.41 billion and above a consensus estimate of USD 4.09 billion. EPS of USD 1.00 came in below a consensus estimate of USD 1.02. On a GAAP basis, diluted EPS was USD 0.27, compared with USD 0.48 a year earlier, as net income dropped 45% to USD 277 million.

Subscription revenue rose to USD 3.99 billion, up 20.5% in constant currency, and professional services and other revenue added USD 118 million. Remaining performance obligations ended the quarter at USD 29.7 billion, up 22.5% in constant currency. Chief executive Bill McDermott pointed to 19 deals above USD 5 million in net new annual contract value, up 135%, and to AI net new annual contract value growth of 65%.

Margins, Acquisitions and Balance Sheet

GAAP income from operations fell to USD 385 million from USD 572 million. Subscription gross margin narrowed to 74% from 80%, which the filing tied to third-party cloud usage and amortization of acquired intangibles. Research and development expense rose 27% to USD 956 million, including USD 35 million more severance and related costs than a year earlier. Non-GAAP operating margin was 32.5%, which management said was 150 basis points above its guidance, and the free cash flow margin was 20%.

The Armis acquisition closed on April 20, 2026, for preliminary consideration of about USD 7.6 billion in cash, and the roughly USD 1.2 billion Veza acquisition closed on March 2, 2026. Senior notes outstanding rose to USD 5.5 billion from USD 1.5 billion after a USD 4.0 billion issuance in May, which repaid a USD 4.0 billion April term loan. Quarterly interest expense reached USD 81 million against USD 6 million a year earlier. The company also bought back 18.5 million shares in a USD 2.0 billion accelerated repurchase completed in the first quarter.

Guidance and Business Model Shift

For full-year 2026, management raised its subscription revenue guidance by USD 15 million at the midpoint to USD 15.785 billion, equal to 21% growth in constant currency. The free cash flow margin target moved up to 36% from 35%, while operating margin guidance stayed at 31.5% and subscription gross margin at 81%. For the fourth quarter, the company guided to subscription revenue of USD 4.245 billion to USD 4.255 billion and current remaining performance obligations growth of 18.5% in constant currency. Management attributed that figure to a higher mix of on-premise deals and a rising backlog of items that add revenue but not to that metric.

Management also raised its AI annual contract value target to more than USD 1.7 billion by year-end, from USD 1.5 billion set in May. The company said it carves some deployment services out of subscription revenue for select large deals, which took about 25 basis points off third-quarter growth and is projected at about 50 basis points in the fourth quarter.

Disclosures to Follow

Four readings frame the next report. Current remaining performance obligations growth is first: 21% in constant currency this quarter against 18.5% guided for the fourth. Subscription revenue is second, with USD 4.245 billion to USD 4.255 billion guided, or 21.5% growth in constant currency. The AI target is third, at more than USD 1.7 billion of annual contract value by year-end. Margins are fourth: a 32% operating margin guided for the quarter and a 36% full-year free cash flow margin, set against interest expense that now runs at USD 81 million a quarter.