ServiceNow, Inc. 10-Q Summary: Q1 2026
Business Context and Reporting Period
This report covers the quarterly period ended March 31, 2026. ServiceNow, Inc. operates a cloud-based AI Platform designed to govern, secure, and manage workflows for public and private organizations. The company reported as a single operating segment. A 5-for-1 stock split was effective in December 2025, and all share data has been retroactively adjusted.
Key Financial Metrics
| Metric | Q1 2026 | Q1 2025 |
|---|---|---|
| Total Revenues | $3,770 million | $3,088 million |
| Subscription Revenues | $3,671 million | $3,005 million |
| Gross Profit | $2,830 million | $2,437 million |
| Gross Margin | 75% | 79% |
| Income from Operations | $503 million | $451 million |
| Net Income | $469 million | $460 million |
| Diluted EPS | $0.45 | $0.44 |
| Operating Cash Flow | $1,670 million | $1,677 million |
| Free Cash Flow (Non-GAAP) | $1,665 million | $1,477 million |
| Cash & Marketable Securities | $7,906 million | $N/A |
| Long-Term Debt | $1,491 million | $N/A |
Material Changes vs. Prior Period
- Revenue Growth: Total revenue increased 22% year-over-year, driven by a 22% increase in subscription revenue and a 19% increase in professional services.
- Margin Compression: Gross margin decreased to 75% from 79%. Subscription gross margin declined to 78% from 81% due to increased third-party cloud service usage, data center expansion costs, and amortization of acquired intangible assets.
- Acquisitions: The company acquired Veza Technologies for approximately $1.2 billion in cash during Q1 2026. This contributed to a significant increase in goodwill (up $977 million) and intangible assets.
- Share Repurchases: The company repurchased $2.236 billion of common stock in Q1 2026, including a $2.0 billion Accelerated Share Repurchase (ASR) transaction, compared to $298 million in Q1 2025.
- Stock-Based Compensation: Increased 19% to $558 million, primarily due to additional grants and awards related to acquisitions.
Guidance, Outlook, and Risks
- Outlook: Management expects subscription revenue to increase in absolute dollars but remain relatively flat as a percentage of total revenue for the full year 2026. Gross profit percentage is expected to decrease due to cloud service growth and amortization.
- Remaining Performance Obligations (RPO): Total RPO stands at $27.7 billion, with 46% expected to be recognized in the next 12 months.
- Subsequent Events: On April 20, 2026, ServiceNow acquired Armis Security Ltd. for approximately $7.8 billion in cash. A $4.0 billion term loan was secured to fund a portion of this acquisition.
- Risks & Contingencies: The company is cooperating with a Department of Justice investigation regarding a compliance issue related to a former government contract and the hiring of a former government official. Management does not believe this will result in a material loss but cannot predict the outcome.
Investor Verification Checklist
- Acquisition Integration: Verify the financial impact and integration progress of the Veza ($1.2B) and Armis ($7.8B) acquisitions on future revenue and amortization expenses.
- Margin Trends: Monitor the trajectory of subscription gross margins, specifically the impact of third-party cloud costs and data center expansion.
- Regulatory Investigation: Track updates on the DOJ investigation regarding the former government contract compliance issue.
- Debt Capacity: Assess the impact of the new $4.0 billion term loan and $7.8 billion cash outlay for Armis on the company's liquidity and leverage ratios.
- Stock Repurchase Runway: Confirm the remaining $4.2 billion authorization under the share repurchase program and its impact on future capital allocation.