ServiceNow, Inc. 10-Q Summary: Q2 2026
Business Context and Reporting Period
This report covers the quarterly period ended June 30, 2026. ServiceNow, Inc. operates as a single reporting segment, delivering cloud-based workflow automation and AI solutions. The company completed a 5-for-1 stock split effective December 17, 2025, and all share data in this filing has been retroactively adjusted. The period was characterized by significant M&A activity, including the acquisitions of Armis Security Ltd. and Veza Technologies, Inc.
Key Financial Metrics
| Metric | Q2 2026 (3 Months) | Q2 2025 (3 Months) | YTD 2026 (6 Months) | YTD 2025 (6 Months) |
|---|---|---|---|---|
| Total Revenues | $3,987 million | $3,215 million | $7,757 million | $6,303 million |
| Net Income | $298 million | $385 million | $767 million | $845 million |
| Diluted EPS | $0.29 | $0.37 | $0.74 | $0.81 |
| Operating Cash Flow (YTD) | $2,257 million (YTD 2026) vs $2,393 million (YTD 2025) | |||
| Free Cash Flow (Non-GAAP, YTD) | $2,299 million (YTD 2026) vs $2,012 million (YTD 2025) | |||
| Subscription Gross Margin | 73% | 80% | 75% | 81% |
| Remaining Performance Obligations (RPO) | $29.0 billion (as of June 30, 2026) | |||
| Total Debt (Carrying Value) | $7,517 million ($2,082m Short-term + $5,435m Long-term) | |||
| Cash & Marketable Securities | $6.7 billion (as of June 30, 2026) |
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 24% year-over-year (Q2) and 23% year-over-year (YTD), driven by increased purchases from new and existing customers.
- Profitability Compression: GAAP Net Income decreased 23% in Q2 and 9% YTD. This was primarily due to increased stock-based compensation ($655M in Q2 vs $499M prior year), amortization of acquired intangibles ($219M in Q2 vs $25M prior year), and higher operating costs.
- M&A Impact: The company acquired Armis ($7.6B) and Veza ($1.2B) in 2026, significantly increasing goodwill (from $3.6B to $9.8B) and intangible assets. These acquisitions drove a substantial increase in amortization expenses.
- Debt Structure: The company issued $4.0 billion in senior notes in May 2026 and established a commercial paper program with $2.1 billion outstanding as of June 30, 2026, to fund acquisitions and general corporate purposes.
- Share Repurchases: The company repurchased $2.2 billion of common stock YTD 2026, including a $2.0 billion Accelerated Share Repurchase (ASR) transaction completed in Q1.
Guidance, Outlook, and Risks
- Outlook: Management expects subscription revenues to increase in absolute dollars for the full year 2026 but anticipates subscription gross profit percentages to decrease due to third-party cloud service usage and amortization of acquired intangibles. Professional services gross margins are expected to remain negative as the company accelerates customer value realization.
- Stock-Based Compensation: Expected to increase in absolute dollars but remain relatively flat as a percentage of revenue for the full year 2026.
- Risks & Contingencies:
- Legal Proceedings: The company is cooperating with a Department of Justice investigation regarding a compliance issue related to the hiring of a former government official (Head of Global Public Sector) in 2023. The company does not believe the outcome will result in a material loss.
- Macroeconomic Factors: Ongoing global conflicts, inflation, and interest rate fluctuations pose risks, though management currently sees no material impact on liquidity.
- Integration Risk: Fluctuations in effective tax rates may occur as the company integrates Armis and Veza.
Investor Verification Checklist
- Verify the impact of the $8.8 billion in 2026 acquisitions (Armis, Veza) on future amortization schedules and margin compression.
- Monitor the status of the DOJ investigation regarding the former Head of Global Public Sector and any potential fines or settlements.
- Assess the sustainability of the 98% renewal rate given the increased mix of 12-month government contracts.
- Review the $29.0 billion Remaining Performance Obligation (RPO) and the 46% current RPO ratio for revenue visibility.
- Track the utilization of the $4.2 billion remaining share repurchase authorization and its impact on diluted EPS.