NOW · Q1 2026 Earnings

Q: Why stock down 12% despite beat/raise: (1) Lack of clarity on inorganic vs organic contribution (VESA, Pyramid); (2) Full year guide unchanged outside Armis/currency—when will acceleration appear to match AI labs' outsized gains ($5B net new ARR for AI labs in Q1); when does ServiceNow show analogous organic positive revisions.

VESA and Pyramid had negligible contributions (closed mid-March and smaller). On-prem push of 75bps explains modest Q1 organic beat; excluding on-prem impact shows strong organic growth. Full year guide held (not reduced) despite conflicts; only increased for Armis. $1.5B AI revenue guidance (50% above prior $1B target) demonstrates acceleration. M&A acquisitions (MoveWorks, VESA, Armis) are about building AI control tower, not filling revenue gaps. Revenue acceleration expected via AI consumption flywheel. 16 deals >$5M, 5 deals >$10M, largest net new logo $15M demonstrates strong customer spending.

Cautious

ServiceNow

Reported April 22, 2026

30-second summary

Q1 subscription revenue of $3.671B (19% cc) cleared the 18.5-19% cc guide modestly and cRPO of 21% cc cleared the 20% cc guide by 100bps, prompting a $205M raise to the FY26 subscription revenue midpoint to $15.755B (+20.5-21% cc), which embeds a 125bps contribution from the early Armis close. The FY26 margin framework moved lower on all three lines — subscription gross margin to 81.5% from 82%, operating margin to 31.5% from 32%, FCF margin to 35% from 36% — but the press release attributes these moves entirely to Armis integration headwinds of 25/75/200bps respectively, with FY27 normalization promised. Ex-Armis, the prior framework is intact. The stock fell 12% on the print, and Keith Weiss's question — when does organic growth show analogous outsized acceleration to AI-native peers — went substantively unanswered.

Headline numbers

EPS

Q1 FY2026

$0.97

Revenue

Q1 FY2026

$3.77B

+22.0% YoY

Gross margin

Q1 FY2026

75.0%

Free cash flow

Q1 FY2026

$1.67B

Operating margin

Q1 FY2026

13.5%

Key financials

Q1 FY2026

Metric	Q1 FY2026	YoY	Q4 FY2025	QoQ
Revenue	$3.77B	+22.0%	$3.57B	+5.7%
EPS	$0.97	—	$0.92	+5.4%
Gross margin	75.0%	—	76.5%	-150bps
Operating margin	13.5%	—	12.5%	+100bps
Free cash flow	$1.67B	—	$2.03B	-18.1%

Guidance

Guidance is issued for both next quarter and the full year. Both may appear below.

Actuals vs prior guidance

Metric	Period	Prior guide	Actual	Δ	Result
Subscription Revenue	Q1 FY2026	$3.650B to $3.655B	$3.671B	+$0.016B to $0.021B above guide	Beat
Subscription Revenue YoY Growth (constant currency)	Q1 FY2026	18.5% to 19%	22%	+3 to 3.5pts above guide	Beat
Subscription Gross Margin	Q1 FY2026	82%	77.5%	-4.5pts below guide	Beat
Operating Margin	Q1 FY2026	31.5%	13.5%	-1800bps below guide	Missed
cRPO YoY Growth (constant currency)	Q1 FY2026	20%	22.5%	+2.5pts above guide	Beat

New guidance

Metric	Period	Guide	YoY
Diluted Weighted Average Shares Outstanding	FY2026	1.04 billion	—
Subscription Revenue	Q2 FY2026	$3.815B to $3.820B	—

Changes to prior guidance

Metric	Period	Prior guide	New guide	Δ	Result
Subscription Revenue	FY2026	$15.530B to $15.570B	$15.735B to $15.775B	+$0.205B at midpoint (+$0.165B to $0.245B range)	Raised
Subscription Revenue YoY Growth (constant currency)	FY2026	19.5% to 20%	20.5% to 21%	+1.0 to 1.5pts	Raised
Subscription Gross Margin	FY2026	82%	81.5%	-50bps	Lowered
Operating Margin	FY2026	32%	31.5%	-50bps	Lowered
Free Cash Flow Margin	FY2026	36%	35%	-100bps	Lowered

Segment performance

Q1 FY2026

Segment	Q1 FY2026	YoY
Subscription revenues	$3.671B	+22.0%
Professional services and other revenues	$0.099B	+18.5%

Platform metrics

Q1 FY2026

Segment	Q1 FY2026
Current Remaining Performance Obligations (cRPO)	$12.64 billion
Remaining Performance Obligations (RPO)	$27.7 billion
cRPO Year-over-Year Growth	22.5%
RPO Year-over-Year Growth	25%
Customers with >$5M ACV	630
Transactions >$5M in net new ACV	16
Now Assist customers spending >$1M ACV YoY Growth	130%+

Profitability

Q1 FY2026

Segment	Q1 FY2026
Subscription Gross Margin	77.5%

Management tone

Q2 "AI operating system" pivot → Q3 "Super 8" peer reclassification → Q4 "$1 trillion company in the making" → Q1 "AI control tower for a $600B+ TAM."

The narrative has continued to escalate, and for the first time in this arc the FY margin framework moved lower — but the press release attributes the moves entirely to Armis integration, with FY27 normalization promised. Across the prior three quarters, management raised FY operating margin and FCF margin guides while broadening the strategic claim. This quarter the strategic claim broadened further — five hypergrowth areas "each capable of eclipsing the size and growth trajectory of ServiceNow as it stands today" — while the FY26 margin framework absorbed Armis. McDermott's anchor: "there has never been a tailwind for ServiceNow like AI." The shift signals management is asking investors to underwrite the TAM expansion claim through a one-year Armis integration window — a trade not previously asked in this arc.

The pricing-model framing has hardened from directional to structural. Two quarters ago hybrid pricing was an emerging signal; last quarter it was a flywheel mechanic; this quarter management put a number on it: "50% of net new business now comes from a non-seat-based pricing model, including tokens and other assets such as infrastructure, hardware, and connectors." The shift signals consumption is no longer aspirational — it is half the new-business engine. This is bullish for long-term TAM but compresses near-term revenue predictability versus the seat-based model investors have priced.

The Moveworks framing has changed materially. In Q2 it was described as a pending acquisition; in Q4 the integration was acknowledged but not quantified; this quarter management disclosed it has been merged into the rebranded "Employee Works" business, which "grew 5X year over year" with six deals above $1M in net new ACV already closed. The shift signals the Moveworks asset is being productized faster than the original deal economics implied, but it also makes organic-vs-inorganic separation harder to track — a point Morgan Stanley pressed in Q&A.

The competitive defensiveness around AI commoditization has flipped to offense. Last quarter, Borges asked about LLM cost pressure; management framed margin compression as hyperscaler mix. This quarter, the same analyst asked about classic-product pricing pressure from new AI SKUs; management's response — "innovation and M&A reinvigorate the core rather than commoditizing it" — is a more confident reframing, supported by 22 years of data and 95B workflows as a moat narrative. The shift signals management believes the AI-displaces-SaaS thesis is no longer a credibility threat to address defensively.

The margin language is the one place hedging crept in. Mastantuono: "strong AI efficiencies internally from Now on Now and our underlying platform leverage are expected to normalize our operating and free cash flow margin expansion trajectories in FY 2027." This is the first quarter in the arc where management has explicitly deferred margin expansion to a future fiscal year, and it lands alongside Armis-attributable cuts to every line of the FY26 margin framework.

Recurring themes management leaned on this quarter:

AI control tower governance and orchestration as competitive moatContext engine and 22 years of enterprise data as irreproducible differentiationFive hypergrowth areas (IT, security, CRM, employee experience, workflow data fabric) each capable of independent scaleOpen platform integrating all foundation models and hyperscaler AI while providing control layerHybrid pricing acceleration enabling consumption-based scaling without seat frictionArmis acquisition acceleration of security TAM and subscription revenue growth

Risks management surfaced:

Geopolitical environment, particularly Middle East conflict causing deal delays and 75 bps headwindIntegration headwinds from Armis offsetting margins near-term (25-75 bps impact 2026, normalizing 2027)Enterprise experimentation phase moving to full-scale AI deployment creates execution riskComplexity of managing agentic AI at scale across multiple vendors and systemsMarket uncertainty and competitive pressure from foundation model providers and other platforms

Q&A highlights

Mark Murphy · JP Morgan

Impact of Iran conflict on Q1 results, particularly on sovereign cloud deals in Middle East and whether deferrals are government vs private sector, on-prem vs cloud, AI vs non-AI, and likelihood of Q2 snap-back. Follow-up on how to measure AI revenue under new pricing methodology with foundation/advanced/prime tiers.

Management clarified that on-prem deals slipped due to Iran conflict creating timing impact (not an excuse), but beat and raised overall with full year guide maintained. AI revenue of $1.5B expected by end of year (up from $1B goal), representing incremental assist capabilities measured consistently across all SKUs. All products now AI-native with assist as incremental monetization.

AI revenue target increased to $1.5B (from $1B)75 basis points of on-prem deals pushed from Q1 to Q2 due to Iran conflictAI revenue methodology: only incremental assist contribution counted across foundation, advanced, and prime tiersSeveral on-prem deals already closed in Q2

Brad Selnick · Deutsche Bank

ServiceNow's differentiation in Control Tower and agentic orchestration amidst competitive noise; how does ServiceNow compete against crowded agentic orchestration market.

Management emphasized context and data advantage from 22 years of system of record data (95B workflows, 7T transactions) as core differentiator. Control Tower goes beyond orchestration with Context Engine (tracks 'why' not just 'what'), autonomous workforce capability, and end-to-end solutions. Cited CIO feedback that ServiceNow would cost 10x to replace due to criticality.

95 billion workflows trained at sub-second speed7 trillion transactions in platform dataContext Engine tracks decision rationale, not just decisions20 different autonomous roles delivered by May Knowledge event

Gabriela Borges · Goldman Sachs

Risk of customer negotiation pressure on classic/legacy ServiceNow products to free up budget for new AI products; how is management navigating pricing discussions.

Management rejected the premise, noting that innovation and M&A reinvigorate the core rather than commoditizing it. Core system of record has become more important due to AI (serves as pivot point for AI control tower and workflow data fabric). Platform redone to be AI-native across all products, available instantly to existing customers with no upgrade effort, reducing pricing pressure and increasing customer desire to modernize.

Platform redone to be AI-nativeCore system of record is pivot point for AI control tower, workflow data fabric, and integration layerAll customers receiving AI-native capabilities as standard upgradesArmis acquisition positions ServiceNow to address $1 trillion cybercrime economy

Peter Weed · Alliance Bernstein

Long-term strategy and vision for Autonomous Workforce (Level 1 Service Desk GA in Q2, Employee Works); how does it complement now-assisted products; examples of richness of approach.

Autonomous Workforce provides end-to-end resolution across enterprise functions. Level 1 example: AI specialist resolves support tickets in <20 minutes vs 2 days for humans, reducing human workload and enabling labor cost monetization. ~20 roles delivered by May. ServiceNow captured $500M internal productivity gains with agents 99% faster than humans, resolving 90% of cases. New pricing model allows flexibility (seat-based, consumption-based, or blended value split).

~20 autonomous roles delivered by MayLevel 1 resolution time: <20 minutes vs 2 days for humans99% faster agent resolution vs human agents90% of employee and customer issues resolved by agents

Keith Wise · Morgan Stanley

Why stock down 12% despite beat/raise: (1) Lack of clarity on inorganic vs organic contribution (VESA, Pyramid); (2) Full year guide unchanged outside Armis/currency—when will acceleration appear to match AI labs' outsized gains ($5B net new ARR for AI labs in Q1); when does ServiceNow show analogous organic positive revisions.

VESA and Pyramid had negligible contributions (closed mid-March and smaller). On-prem push of 75bps explains modest Q1 organic beat; excluding on-prem impact shows strong organic growth. Full year guide held (not reduced) despite conflicts; only increased for Armis. $1.5B AI revenue guidance (50% above prior $1B target) demonstrates acceleration. M&A acquisitions (MoveWorks, VESA, Armis) are about building AI control tower, not filling revenue gaps. Revenue acceleration expected via AI consumption flywheel. 16 deals >$5M, 5 deals >$10M, largest net new logo $15M demonstrates strong customer spending.

VESA closed mid-March (very small contribution)Pyramid Analytics contribution even smaller than VESA75 basis points on-prem push from Q1 to Q2AI revenue target: $1.5B (50% increase vs $1B prior target)

Answers to last quarter's watch list

Q1 FY26 subscription revenue vs. the $3.650-3.655B guide and cRPO cc vs. the +20% guide — Subscription revenue $3.671B beat by $16-21M (19% cc vs 18.5-19% cc guide, a modest cc beat); cRPO came in at 21% cc, a 100bps cc beat per management.

Resolved positively

Subscription gross margin trajectory toward the FY26 82% guide — Q1 non-GAAP subscription gross margin printed at 81.5%, in line with the FY26 81.5% non-GAAP guide (which itself absorbs a 25bps Armis headwind). Ex-Armis the prior framework holds. Status: Resolved in line.

Now Assist ACV cadence beyond the $600M FY25 print — Disclosure framework shifted: instead of an aggregate Now Assist ACV figure, the company disclosed Now Assist customers spending >$1M ACV grew 130%+ YoY and total AI revenue target was raised from $1B to $1.5B for the year. The new framework is informative but is not directly comparable to the $600M FY25 disclosure.

Not resolved

Armis close (H2 2026) and Veza close (H1 2026) and the corresponding Q2 FY26 guidance refresh — Armis closed early (April 20, pulled forward from H2) and is now embedded in the $205M FY26 revenue raise (125bps contribution). Veza closed March 2. The framework reset is entirely Armis-attributable: gross margin -25bps, operating margin -75bps, FCF margin -200bps, with FY27 normalization promised. Status: Resolved positively on revenue contribution; Armis margin impact disclosed and bounded.

Security revenue disclosure cadence after the +100% YoY Q&A datapoint — Security growth was not disclosed as a hard YoY number this quarter; instead, the framing shifted to Armis positioning ServiceNow against a "$1 trillion cybercrime economy" and the broader security TAM.

Continue monitoring

What to watch into next quarter

Q2 non-GAAP subscription gross margin trajectory — Q1 printed 81.5% in line with the FY framework. Watch whether Q2 holds the line given initial Armis integration drag.

Q2 subscription revenue vs. the $3.815-3.820B guide and cRPO cc vs. the +19.5% cc guide — reported ~22.5% / cc 21-21.5%; both include 125bps Armis contribution. Watch whether the multi-quarter cRPO cc beat pattern compresses given the new lower base of comparison and the Armis termination-for-convenience contract structure that limits CRPO capture.

Q2 on-prem revenue catch-up — management said the 75bps of Q1 on-prem deals pushed to Q2 were "already closed" in part. Watch whether Q2 prints above the high end of the guide as a result, or whether the catch-up is absorbed by Iran conflict re-acceleration risk.

AI revenue progression toward the raised $1.5B FY26 target — the methodology was clarified (incremental assist contribution only). Watch for a quarterly run-rate disclosure or whether the $1.5B remains an annual-only target.

Organic vs inorganic separation at the Financial Analyst Day — Weiss's question went substantively unanswered. Watch whether the FAD long-range plan provides the organic-only growth framework investors have been asking for two consecutive quarters.

Operating margin Q2 print at the 26.5% guide — this absorbs a 125bps Armis headwind plus seasonal Knowledge event costs. Watch whether the framework holds or whether further integration costs push it lower.

Sources

ServiceNow Q1 FY2026 earnings press release — https://www.sec.gov/Archives/edgar/data/1373715/000137371526000054/erq1fy26.htm

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