NOW ServiceNow 10-Q 2026-09-30 section summaries

ServiceNow (NOW) — Q3 and nine months ended September 30, 2026

Revenue and operating performance

Q3 2026 revenue increased 20.5% to $4.106B from $3.407B. Subscription revenue was $3.988B from $3.299B; professional services and other revenue was $118M from $108M. Cost of subscription revenue rose to $1.054B from $666M, and services cost rose to $157M from $108M. Gross profit increased to $2.895B from $2.633B, but higher operating expenses—sales and marketing $1.271B from $1.056B, R&D $956M from $750M, and G&A $283M from $255M—contributed to operating income falling to $385M from $572M. Net income declined to $277M from $502M; interest expense increased to $81M from $6M.

For 9M 2026, revenue rose to $11.863B from $9.710B: subscription revenue was $11.536B from $9.417B, and professional services and other revenue was $327M from $293M. Subscription cost of revenue was $2.904B from $1.852B and services cost was $416M from $297M; gross profit reached $8.543B from $7.561B. Sales and marketing was $3.859B from $3.238B, R&D $2.694B from $2.187B, and G&A $940M from $755M. Operating income fell to $1.050B from $1.381B, and net income to $1.044B from $1.347B. Interest expense rose to $153M from $18M. Other income was $357M from $11M, mainly due to $367M of net upward strategic-investment valuation adjustments, making reported pretax results more dependent on noncash valuation gains.

Q3 revenue by user location was North America $2.574B from $2.133B, EMEA $1.027B from $873M, and Asia Pacific and other $505M from $401M. The U.S. accounted for 95% of North American revenue. The company reports one consolidated operating and reportable segment; the CEO uses consolidated net income to assess performance and allocate resources.

Acquisitions, balance sheet and financing

Total assets were $31.830B at September 30, 2026, versus $26.038B at December 31, 2025; stockholders’ equity was $13.096B versus $12.964B. Goodwill rose to $10.012B from $3.578B, and net intangible assets to $3.594B from $1.121B. The latter comprised gross developed technology $3.461B, customer relationships $858M, patents $83M, and other intangibles $191M, less $999M accumulated amortization. Equity less goodwill and other intangible assets implies negative tangible common equity of $510M.

Acquisitions drove much of the balance-sheet expansion: 2026 purchases included Armis for preliminary consideration of $7.637B cash and Veza for approximately $1.237B, primarily cash; five other acquisitions totaled $612M. These acquisitions added $6.623B of goodwill, which is not tax-deductible; purchase-price allocations remain provisional. Cash outflow for business combinations, net of cash acquired, was $9.167B in 9M 2026 versus $215M. Acquisition-related expense was $118M, and deferred compensation for certain acquired employees was $211M. Intangible amortization rose to $198M in Q3 from $33M, and $494M in 9M from $79M.

Cash and cash equivalents were $2.393B at September 30, versus $3.726B at year-end; current and long-term marketable securities were $2.214B and $2.354B, respectively. Strategic investments were $2.050B from $1.542B. Debt, net, included $2.086B short-term and $5.438B long-term, versus no short-term debt and $1.491B long-term at year-end.

The company borrowed a $4.0B term loan in April to fund part of the Armis purchase and repaid it in May, primarily with proceeds from a $4.0B senior-notes issuance that generated $3.9B net proceeds. Senior notes had $5.5B aggregate principal and maturities from 2028 to 2056; stated rates on the new notes range from 4.25% to 6.30%. Commercial paper had $2.1B principal outstanding, at a 4.05% weighted-average rate and 62-day weighted-average remaining term. A new $3.0B revolver was undrawn; the company was covenant-compliant. Estimated fair value of senior notes was $5.100B, versus $1.324B at year-end.

Cash flow, capital returns and dilution

Operating cash flow was $3.096B in 9M 2026 versus $3.206B; property-and-equipment purchases were $346M versus $630M, leaving operating cash flow less capex of $2.750B versus $2.576B. Cash, cash equivalents and restricted cash ended the period at $2.405B, versus $2.734B a year earlier. Financing included $3.991B net term-loan proceeds and $4.529B commercial-paper issuance, partly offset by $4.000B term-loan repayment and $2.484B commercial-paper repayments.

Cash share repurchases were $2.225B in 9M 2026 versus $1.243B: a $2.0B accelerated repurchase delivered 18.5M shares at a final average price of $107.97, and open-market purchases were $225M. Q3 had no repurchases, compared with $584M in Q3 2025. Approximately $4.2B remained authorized. Common shares outstanding declined from 1,047.278M at the start of 9M to 1,037.917M at period-end.

Stock-based compensation was $1.829B in 9M versus $1.461B. At September 30, 1,038M common shares were outstanding; awards included 6.900M options and 41.808M RSUs, with 139.197M shares reserved for future issuance. Outstanding RSUs had $5.6B aggregate intrinsic value ($4.9B for those expected to vest); unrecognized compensation cost was $4.2B for unvested RSUs and $168M for options. Diluted EPS was $0.27 versus $0.48 in Q3 and $1.01 versus $1.29 in 9M.

Outlook, risks and other considerations

Non-cancellable remaining performance obligations were $29.7B, with about 46% expected to be recognized in the next 12 months. Revenue recognized from beginning-period deferred revenue was $3.6B in Q3 versus $3.0B, and $7.3B in 9M versus $6.1B. A U.S. federal channel partner and systems integrator represented 12% of revenue in both Q3 and 9M, and 20% of accounts receivable at period-end, versus 11% at year-end; management reported no historical collection concerns.

AI-driven workforce streamlining resulted in $87M Q3 and $167M 9M severance and related costs; the program is expected to be substantially completed in 2026. The company is cooperating with a DOJ investigation into potential compliance issues involving a government contract and a former senior public-sector hire; outcomes and potential effects remain uncertain. ServiceNow does not expect pending litigation to result in a material loss.

Business and demand

ServiceNow positions its AI Platform as the foundation for connecting enterprise data, AI and workflows, with strategic emphasis on AI-driven automation and security. Its security strategy includes combining Security Operations with Armis cyber-asset intelligence and Veza identity-governance capabilities to broaden visibility, controls and automated responses.

At September 30, 2026, remaining performance obligations were $29.7B, up 22% year over year, with current RPO equal to 46% of the total and up 20%. RPO can fluctuate with foreign exchange, self-hosted offerings, contract duration, renewal timing and future subscription start dates. A greater use of 12-month U.S. federal agreements, often signed in Q3 around budget timing, may add quarterly variability. Customers with ACV above $5M increased to 680 from 553 a year earlier. Renewal rate was 98% in Q3 2026 versus 97% in Q3 2025, and 98% for both nine-month periods.

Revenue, margins and operating expenses

Q3 2026 revenue grew 21% to $4.106B from $3.407B; 9M revenue grew 22% to $11.863B from $9.710B. Subscription revenue was $3.988B from $3.299B in Q3 and $11.536B from $9.417B for 9M. Professional services and other revenue was $118M from $108M in Q3 and $327M from $293M for 9M. Subscription revenue was 97% of total in both periods; growth primarily reflected greater purchases by new and existing customers. Self-hosted software revenue recognized upfront was $96M versus $104M in Q3 and $383M versus $370M for 9M. Management expects FY2026 revenue to grow, with a relatively stable mix.

Gross profit increased to $2.895B from $2.633B in Q3 and $8.543B from $7.561B for 9M. Total gross margin declined to 71% from 77% in Q3 and 72% from 78% for 9M. Subscription cost of revenue rose to $1.054B from $666M in Q3 and $2.904B from $1.852B for 9M, reducing subscription gross margin to 74% from 80% in Q3 and 75% from 80% for 9M. Higher staffing, data-center and cloud-provider costs, regulated-market support and acquired-intangible amortization contributed; management expects subscription costs to grow faster than revenue in FY2026, further pressuring subscription margin.

Professional services cost of revenue was $157M from $108M in Q3 and $416M from $297M for 9M. Its gross margin deteriorated to negative 33% from breakeven in Q3 and negative 27% from negative 1% for 9M, as personnel and partner spending outpaced revenue. Third-party partners handled 53% of professional-services engagements in Q3 and 44% for 9M, versus 33% in both 2025 periods; management expects continued investment and margin pressure.

Q3 sales and marketing expense was $1.271B from $1.056B, R&D $956M from $750M, and G&A $283M from $255M. For 9M, the respective amounts were $3.859B from $3.238B, $2.694B from $2.187B, and $940M from $755M. Growth mainly reflected personnel costs, stock compensation and severance, alongside strategic hiring and AI investment. Nine-month G&A also included $100M more outside-services costs, largely acquisition-related, partly offset by no repeat of a $30M asset impairment recorded in 2025.

Stock-based compensation increased to $633M from $492M in Q3 and $1.846B from $1.461B for 9M, equal to 15% and 16% of revenue, respectively. Management expects FY2026 compensation to increase in dollars but remain relatively flat as a share of revenue. Direct-sales-channel revenue was 76% of total in both Q3 and 9M, down from 78% in each 2025 period. Sales activity is seasonally concentrated in Q4, while subscription revenue is generally recognized over 12–36-month terms.

Profitability, cash flow and liquidity

GAAP operating income declined to $385M from $572M in Q3 and $1.050B from $1.381B for 9M; non-GAAP operating income rose to $1.338B from $1.140B and $3.710B from $3.048B, respectively. The adjustment gap was material: stock compensation was $633M from $492M in Q3 and $1.846B from $1.461B for 9M; purchased-intangible amortization was $198M from $33M and $494M from $79M. Business-combination costs were $35M from $19M in Q3 and $153M from $44M for 9M; severance was $87M from $24M and $167M from $53M. These items, particularly acquisition-related amortization, are important to evaluating reported profitability.

Q3 interest income fell to $69M from $115M, while interest expense rose to $81M from $6M, primarily following debt issuance. For 9M, interest income was $227M from $346M and interest expense $153M from $18M. Other expense was $3M in Q3 versus $13M of income; 9M other income was $357M versus $11M, mainly from unrealized gains on strategic investments. Income before taxes declined to $370M from $694M in Q3 and $1.481B from $1.720B for 9M. Tax provision was $93M from $192M in Q3 and $437M from $373M for 9M; effective rates were 25% from 28% and 30% from 22%. The 9M provision benefited from a release of a valuation allowance on certain California deferred tax assets.

Operating cash flow for 9M was $3.096B, down from $3.206B; property-and-equipment purchases were $346M versus $630M. Business-combination and related cash costs were $371M versus $28M. Company-defined non-GAAP free cash flow, which adjusts for specified legal-settlement and acquisition-related outflows and deducts property-and-equipment purchases, was $3.121B, up from $2.604B. Investing cash outflow was $7.943B versus $1.191B, principally reflecting an $8.952B increase in cash used for business combinations. Financing provided $3.524B versus $1.601B used in 9M 2025, aided by commercial-paper and note proceeds; cash, cash equivalents and restricted cash declined $1.327B versus a $424M increase.

Cash, cash equivalents and marketable securities totaled $7.0B at September 30, 2026. Subscription customers generally pay in advance on contracts typically lasting three years; management cites more than ten consecutive years of positive operating cash flow and expects liquidity and operating cash flows to cover needs for at least 12 months.

Funding, capital returns and other risks

In May 2026 ServiceNow issued five series of fixed-rate senior unsecured notes with $4.0B aggregate principal, maturing from 2028 through 2056. A $4.0B term loan used partly for the Armis acquisition was repaid in May, primarily with note proceeds. Commercial paper outstanding was $2.1B at a 4.05% weighted-average interest rate and 62-day weighted-average remaining term; the program permits up to $3.0B. A new $3.0B revolving facility, maturing in 2031, was undrawn and may be increased by $2.0B subject to conditions. The company also has $1.5B of 1.40% fixed-rate notes due in 2030.

The repurchase authorization was expanded by $3.0B in January 2025 and $5.0B in January 2026, in addition to $1.5B authorized in 2023. A $2.0B accelerated repurchase completed in Q1 2026 delivered 18.5M shares at a $107.97 average price; 9M open-market repurchases totaled $225M for 1.6M shares, with none in Q3. Approximately $4.2B remained authorized at September 30, 2026. Operating lease obligations were $1.0B, including $704M due over five years.

Management said global conflicts and macroeconomic conditions had not materially affected current operations, but worsening conditions could have adverse effects. Cash is held across several large financial institutions and securities are subject to concentration and investment-policy limits. A 5-for-1 stock split effective December 17, 2025 is reflected retroactively in share and per-share references.

Market Risk and Financing

In May 2026, ServiceNow issued five series of fixed-rate senior unsecured notes with $4.0 billion aggregate principal. Net proceeds were $3.9 billion, after $57 million of debt discount and issuance costs. Including the existing $1.5 billion of 1.40% fixed-rate notes due September 2030, disclosed senior-note principal totaled $5.5 billion. The 2030 notes were issued at 99.63% of principal and incurred approximately $13 million in issuance costs.

The fixed-rate notes do not expose the company to changes in market interest rates through interest expense, although their fair value fluctuates as rates change.

In April 2026, ServiceNow established a $3.0 billion unsecured revolving credit facility. Any borrowings may bear interest at a base rate or an adjusted benchmark rate, plus a spread of 0.60%–1.00% determined by the company’s credit rating. This creates exposure to benchmark-rate changes and borrowing costs; no amounts were outstanding at September 30, 2026.

The company reported no other changes in market risk from the disclosures in its December 31, 2025 Form 10-K.

As of September 30, 2026, the CEO and CFO concluded that the company’s disclosure controls and procedures were effective at the reasonable-assurance level. No changes to internal control over financial reporting during the quarter materially affected, or were reasonably likely to materially affect, those controls. This section reports no financial results or business-strategy updates.

No material changes were reported to ServiceNow’s risk factors since its FY2025 Form 10-K, filed January 29, 2026. The company reiterated that risks, whether known or unknown, could materially adversely affect its business, financial condition, results of operations, and stock price. This section provides no new risk details or financial metrics.

Insider trading plans and executive awards

During the quarter ended September 30, 2026, director Paul Chamberlain adopted a Rule 10b5-1 plan to sell up to 2,700 shares, expiring November 15, 2027. President and CFO Gina Mastantuono adopted a plan to sell up to 30,000 shares, plus up to 100% of the net shares (after tax withholding) from the vesting of 67,028 RSUs and performance-based RSUs during the plan period. Her plan expires May 18, 2027.

On October 26, 2026, the Compensation Committee approved long-term RSU Leadership Awards for five continuing named executive officers, with a combined target value of $126.55 million:

The awards are back-loaded and contingent on continued employment: 25% vests on December 31, 2027, 35% on December 31, 2028, and 40% on December 31, 2029. Unvested awards are generally forfeited upon termination, subject to specified provisions for death, disability, or qualifying termination following a change in control.

The company said the awards are intended to retain and incentivize senior leaders amid intense competition for enterprise-technology talent, support leadership continuity and succession, and sustain attention to long-term shareholder value as AI innovation and competitive pressures reshape the industry. The awards represent potential future equity dilution; the filing provides target values, not share counts or recognized compensation expense.