$NOW ServiceNow Q2 2026 Earnings Conference Call

Thank you very much, Darren, and thanks everybody for joining today's call. I looked at the transcript from an earnings call 7 years ago, and back then, we said Service Now would be the defining enterprise software company of the 21st century. Thought I'd give you a report out. Since then, we beat expectations in every quarterly report, expanded the profitability and free cash flow of the company, quintupled our total addressable market, accelerated six of our own unicorns to billion or multi-billion dollar businesses, processed billions of workflows and trillions of transactions, grew the partner ecosystem globally, architected the most complete AI control tower for the enterprise, maintained our best-in-class renewal rate, increased our brand value, offered our customers deep enterprise context, unlimited choice and differentiated capabilities, and of course, we set a course to 32 billion in revenue in 2030, operating at the rule of 60 and beyond. So today, we're adding a stunning Q2 print to this track record. Subscription revenue growth was 23% in constant currency, one and a half points above the high end of our guidance. CRPO growth was 21.5% in constant currency, more than two points above our guidance. Operating margin was 29.12%, three points above our guidance. We had 123 deals greater than a million in net new ACV up 40% year-over-year. Service Now AI ACV exceeded expectations again, surpassing a billion, keeping us on track to beat our target of 1.5 billion ACV by the end of 2026. We're feeling real good about it. What does it all mean? We are who we said we were. The path to value isn't just making AI, it's deploying AI securely across the enterprise. IDC forecast spending on AI software is going to grow 53% this year, 17% faster than AI hardware. Whichever chip wins, whichever lab wins, whichever price per token regime prevails, the enterprise needs one governed layer of record for work. And Service Now offers needed certainty and an uncertain stack. Our platform is optionality on all AI outcomes, not a bet on any one. We're in the bullseye of AI, cyber security, workflow orchestration, integration, and automation. That's why we're growing fast. It's why we're only just getting started. We are who we said we were.

Over the past several months, we've addressed a number of really good questions during meetings with investors. Today, I'd like to give every investor the professional courtesy of those exchanges. One question we regularly get is, 'Is Service Now becoming a cyber security company?' Here's the answer. Service Now already was a billion-dollar plus cyber security business. Today, our risk and security business is the fastest growing of the top 10 cyber companies in the enterprise. I'll make it very clear. We now have a 10-figure cyber security business that's growing faster than all the other top cyber security companies. We're building the world's most integrated end-to-end security platform across cyber risk and compliance, agentic incident response, exposure management, identity and access security, cyber physical security, and continuous vulnerability detection. The security stack sits on top of our ITSM and ITM core infrastructure. So, think about it. AI control tower plus Armis plus Vasa. Our customers want every AI in the enterprise to be visible, governed and secured in one command center, native or third party. They don't want any blind spots. There's 2.2 billion agents entering the enterprise globally. That's 2.2 billion new identities, a quarter of today's human population. Vasa maps access across human, machine, and AI identities. We'll have 40 billion connected devices in the world in the next four years. Armis already tracks 7 billion of those devices in real time. Many customers, especially in the public sector, seek out Armis because government policies require state-of-the-art visibility. The attack surface is exploding. Every ungoverned asset and identity multiplies the blast radius. When you integrate awareness and identity with the actionability of the Service Now platform, you have a complete 360-degree capability to secure the enterprise. It's highly telling that the AI control tower is already gaining traction with our partner ecosystem. In fact, one global services firm is leveraging this portfolio to help their clients rapidly triage their cyber security activity. They're hunting down problems with Service Now and the others are rapidly following suit. So once again, this is the eighth largest cyber security business in the enterprise and the fastest growing and we are just getting started.

Another question we get is when will customer deployment of AI mark an inflection point for Service Now's growth? Here's the answer. It already has. The percentage of renewal customers purchasing Agentic AI for the first time doubled quarter over quarter and year-over-year. So, customers that weren't already on the AI journey are signing up fast. Most customers are now completely allergic to anything that looks like a project. They only want deterministic. Service Now only does deterministic. That's a big reason why customers with agentic AI in production have grown 9x over the last 9 months. So here's a few of many examples. The Department of Air Force is expanding its use of the Service Now AI platform. The deployment will unify IT operations and enterprise visibility. Experian is using Service Now to automate intelligent at scale. We will also integrate our platforms, embedding Experian's data and decisioning into existing Service Now workflows. In a 5-year deal, and many deals are going longer. You should see that in the CRPO and the RPO, by the way. May Bank, Malaysia's largest bank, will leverage Service Now to establish a resilient operation center to fortify security and resilience. The US federal government's largest IT contractors and agencies are now consolidating asset discovery and security response on Service Now. One agency is using Armis to move from asset blind incident response to comprehensive threat hunting. Hitachi will standardize enterprise asset management across its global businesses on Service Now. Additionally, we're partnering with them to advance the Hitachi intelligent infrastructure monitoring solution. The city of Raleigh became the first local government to deploy Service Now's L1 AI specialist in production with no in-house AI engineering bench behind it. That's right. It's on its own. The city is moving to become fully autonomous one ticket category at a time. Many enterprise customers are at various stages of the same journey. They're progressing from supervised to autonomous operations. A large global consumer good company partnered with Service Now to launch its first agentic AI use case in ITSM to triage workflows. The customer rapidly deployed a repeatable governance first blueprint for future agentic use cases. A leading global food and beverage company found itself with AI agents proliferating across five platforms simultaneously with no unified way to govern them. Their CTO has a mandate. No agent goes live without clearing governance, risk, value, and observability. AI control tower went live this spring. They can now see in real time who was building AI and whether it had been approved. The value for them was immediate. It's worth highlighting IT operations management continues to be a source of strength to Service Now extending its outperformance in Q2 with attach rates to ITSM continuing to rise year-over-year. Our CMDB gives customers a trusted system of record for their infrastructure, applications, services, and dependencies. Service Now delivers the intelligence layer and the infrastructure it runs on.

We also get asked, is Service Now gaining traction in the CRM marketplace? Here's the answer. The market participants in the enterprise are very good. They're really good companies. And let me be clear, they're not going away. Having said that, we're doing very well. Already, we're a two billion ACV business. CRM NNACV growth accelerated again on a year-over-year and quarter-over-quarter basis. Sales CRM average deal size doubled year-over-year. We're on track to execute over two billion service CRM cases this year. In addition, partners are increasingly positioning Service Now as an operational CRM platform, opening executive conversations across the suite. For example, in Q2, a partner closed a full front office replacement of a major CRM deployment in just two months. A leading North American automotive marketplace outgrew its legacy CPQ provider. It couldn't handle the volume or complexity of the business. After five vendors failed to deliver, Service Now will help their sales teams achieve the speed and accuracy to operate at scale. An American software leader selected Service Now to modernize a highly customized quoting environment. Our ability to connect CPQ with broader workflows, customer data and service operations was a key differentiator in the win. A leading North American telecom infrastructure provider selected us to unify commercial and field operations on a single platform. Service Now will scale quote volume 3x with no added headcount and cut repricing from weeks to hours. A regional financial institution consolidated its loan origination workflow onto Service Now's unified CRM platform, replacing legacy point solutions.

Hey. Hey, here's the big one. Voice is the next frontier and we're winning it. We just proved something extraordinary. A large airline has gone all in running their customer service voice calls on Service Now's voice AI CRM agents. This is live in production and handling 5 million annual voice calls in year 1 alone. The results speak for themselves. Customer satisfaction is off the charts. We also get asked about Service Now's role in the HR stack. Here's the answer. Employee works is the strategic entry point for enterprise-wide employee experiences. This combines move works conversational AI with Service Now workflows to create a single place to search, self-serve, and take action across HR, IT, and all workplace services. As Fortune 500 customers adopt employee works, we're seeing it pull through broader HR and employee experience opportunities. A similar pattern to what's happening in the CRM business.

We get asked about the industry dynamics and enterprise AI. Here's the answer. Innovating for the enterprise is like politics. As you may have noticed, it's pretty easy to make noise, hard to make progress. One of the reasons Knowledge 2026 was the biggest we ever hosted is because customers are desperate to make real progress with a proven innovator they can trust. Sessions on ITSM, ITM and AI control tower were all oversubscribed because the influx of AI creates more activity for IT, not less. Customers demoed our latest product releases, including new AI specialists. Specialists for IT, CRM, employee service, and security. They learned about Service Now action Fabric. This enables any agent, clawed, co-pilot, or homegrown, to tap directly into secure, governed actions headlessly. With so much of a data mess, they wanted to understand Service Now's context engine and autonomous data analytics, which resolve data fragmentation across systems. With interest in Service Now rising, our innovation velocity is accelerating to meet the opportunity. For example, we have a big announcement coming very shortly, a business model evolution that expands our TAM with AI native products. This new offering will be a conversational service desk experience, no tickets, and AI coded automation. In a new product-led motion, we're targeting the Fortune 500,000, many of whom we expect to replace their legacy offerings and bypass the startups. Stop wasting time. We already have several customers in beta and soon will be GA that's generally available. This is the first of many net new AI native products we'll be bringing to market in the weeks to come. Our dynamite engineering team is on fire. Another area of real progress for customers is the expansion of our strategic partnerships. Deeper integration of Service Now AI control tower and Microsoft agent 365. Extended agentic AI governance from desktops to data centers with project arc. A new agent secured by the NVIDIA open shell runtime and governed by Service Now AI control tower. Enhanced collaboration between Service Now's AI native FTEES and industry-led Accenture FTEES. There are too many to cover here. The momentum is everywhere.

Here's a rapid fire round for you. Are we worried about seat compression? Not at all. Our addressable user base is growing and 50% of our net new business is already non-seat-based. We keep seat-based pricing because customers prefer it for predictability, particularly now where a lot of pricing out there has been less than predictable. Are customers going to build their own? I've yet to meet a customer who would even consider it. The best tech leaders know it will cost 5 to 10x to build an agent versus run one on Service Now. How's the government business? It's never been stronger. National governments, regional governments, local governments, they're all expanding their Service Now deployments. There are just a few questions that I hope you found useful in answering for you over these few moments we get to spend together. For now, I'll answer the final question. Why will Service Now get incremental share of wallet in the enterprise? I'll explain it as plainly as I can. There are many good companies in the enterprise today and I do have respect for them all. Some that have built very strong businesses over the years, others that are new participants. They're good companies. The established companies aren't going anywhere and I expect them to do very well based on the years of business logic and context in their platforms. The new companies are growing fast and they'll be disruptive to some legacy point solutions and likely complimentary to the bigger platforms. There are two major factors that should cement conviction in Service Now. One. If you were to assess all the players out there, which of them include a system of record, deep enterprise context, fully integrated governance and auditability, a proven global distribution channel, and a flexible pricing model that includes predictable consumption and outcome-based options. I'll save you the trouble. Only Service Now's completeness of vision checks all of those boxes. The second factor is pure market fit. Which of the platforms in today's enterprise was designed from the ground up to integrate to all of these players? Again, the only answer is Service Now. Risk at scale is why CEOs are losing sleep right now. They read all these thread headlines. They see all these platforms and token invoices and they don't know what to do. This is the gap. Service Now is the bridge. We're in the control business. One platform, one system of action, any cloud, any agent, any workflow, any model governed, secured, and accountable. This is the AI control tower enterprise leaders now know is mission critical. Enterprise execution with cyber security at the core of the platform and cyber security growing real fast. Service Now is the rules and rails of the enterprise. We're in command of the agentic enterprise from workflow to cyber. Our position is real. It is durable. It is compounding. This is the foundation for a rerating of Service Now. Let's get it started today. We said defining enterprise software company of the 21st century. We are who we said we were.

Thank you for your time today, for your interest in Service Now, and for your enduring support. We'll never take it for granted. With that, I'll hand things over to our president and CFO, Gina Mastenuno. Gina, over to you.

and Michael I would just build on what Gina is saying by simply reinforcing the message I gave you on cyber. Cyber security is going to be a massive tailwind for Service Now. The AI control tower for reinventing business is massive. Think about all of the assets, the incidents and the actions that have to take place to manage these large entities of government operations. Think about the department of defense even as one example and the importance of saving people's lives like medical material agencies in flight putting things together the devices the coordination the beauty of Service Now as Amit said a moment ago it doesn't just think but it acts and it closes the loop and that I think is the full cycle of AI innovation and cyber security that we're building here at Service Now. And as the attack surface becomes even more dangerous by the moment, we're up for the challenge. And I think you're going

to see us move up the leaderboard from a number eight company to contending for the top spot.

Thank you, Michael.

Oh, thank you for the question, Matt. So, think of it this way. The frontier companies out there are incredible. It's so exciting. The hyperscalers are incredible. They're so exciting. And what's really unique is we're in the midst of the AI revolution. So one has to then say, where is ServiceNow's place in this AI revolution? We're in the bullseye of it because the frontier models need to get activated in the enterprise. That's the battleground. And so whoever teams up with ServiceNow wins. And the reason for that is as Gina and Ahmed were discussing the 100 billion workflows and the nearly 8 trillion transactions that we have in flight right now. There's a lot of business processes that are running on the ServiceNow platform and what we did with the company with the CMDB you have to go to the beginning of the company we knew all the people we knew all the places we knew all the things and over time we integrated with all the systems of record so we're completely integrated with everything hyperscalers frontier models data lakes systems of record. So that workflow and how you automate that and the incredible power of AI going east to west and north to south without any clunky workarounds because these clunky systems that have been in the enterprise for six decades doesn't let AI do what AI was born to do. We let AI do what AI is born to do because of the data in that workflow automation platform. And if it's not in our platform, we've integrated into the other participants and we have connectors into all of them. So those connections let AI and the magnificent power of AI really go to work. The other thing that is so interesting right now, as you know, the attack surface is exploding. Every ungoverned asset and identity multiplies the blast radius of AI in the enterprise. So we had a leadership position in security and operations and we integrate with all these excellent security companies that are out there. These guys are my friends. But we did something a little different. We gave the customer that one command center where they had a full purview of their landscape and they had the threat areas very well known. Now with Vasa and Armis we are managing all the identities of the humans, the agents and the thinking machines and robots and now we're going after the critical infrastructure, the people, the networks and the devices with Armis. So the strategic relevance of ServiceNow is at the bullseye or the epicenter of the AI revolution in the enterprise. And so what you're seeing here is a company before your very eyes turning into both an enterprise software market leader and a cyber security market leader and the fastest growing at both. And that's pretty special. And so I think what you should take away from this is Methos was a gift to the ServiceNow company in the sense that everybody now is scrambling with all the exposure that they have to patch things up. But it's one thing to know where the threat area is. It's another thing to hunt it down, take action on it, and close the loop, which is what the ServiceNow platform enables you to do. End to end cyber security. And so I think it's just gotten very interesting right now. It shows in our numbers. You know, a lot of people are like, are seats going away? No, actually active seats are going up. Wow, what about the term of the contracts? They must be going down. No, they're actually elongating. And you see that in the CRPO and the RPO and oh by the way, the pricing. Oh, you must be doing something wrong on the pricing. No, actually we're giving the customer exactly what they want, the hybrid with the seat and the consumption, so they get a great ROI on their investment. So all these pieces are coming together. And then you say to yourself, you read the media headlines today and you're like, 'Wow, it's pretty cool that we have a kill switch for rogue AIs. For any company that's running ServiceNow and you get a rogue AI, there's a kill switch. It doesn't get through.' And then you think about how you use the right model and you hire it for the right job. And we do that, too. And people are realizing you don't need to take a Ferrari to mail a letter. So using the right technology for the right job and then managing the budgets, including all the tokens and the security of this has become pretty important. And so we're right now really seeing a new world order of things. And when one of the colleagues just asked a question about the AI and all that, I think this maneuver on what we did with the AI control tower and setting that new vision for the company for the future, I think cyber security will be bigger than ServiceNow is in the next few years. I think you'll be like, could you please talk to us about your workflow automation business and your core IT because all I hear you talking about is cyber.

And may I say Samad, Gina laid it out there beautifully. We're a growth company and we're going to grow. We're going to grow fast. And the one thing I also wanted to reinforce as a commitment that we made as a management team to the capital markets, we will complete this year after having acquired three gorgeous companies, Move Works, Vasa, and Armis. We will complete this cycle of 2026 and start 2027 with the exact same headcount before we did the acquisitions. So you are going to see the operating margins and the free cash flow margins of this corporation scale and you already saw the three-point operating margin improvement in the quarter which was way beyond expectations. We are serious about growth. Growth on the top line, expanding the margin profile of the company and winning share everywhere we go in this AI revolution, especially cyber.

Yeah. No, no, appreciate it. Thank you very much, Keith. We're building the world's most integrated end-to-end security platform. I think that's the way you should think about it and think about us in the context of AI control tower. Think about us as the agentic front door to security 360. And of course, Vasa and Armis give us an enormous start on some of the areas we didn't have, but we already had a lot of areas and a very large security business. Now with the great engineering we have and the development commitment we have, I think we're just going to build so many great things. I talked about risk and compliance, which we already have. I talked about identity and access security, which we already have. I talked about cyber physical security which we already have. I talked about continuous vulnerability detection which Armis is the best at it. We're literally hunting the vulnerabilities not passively looking at them on a dashboard. Exposure management, agentic incident response, these are things that our platform does. So what I laid out today was an organic story. Now to the extent there might be other things we wish to do. I'll let Ahmed comment on some of the road mapping that we're doing. But I just want to give you great confidence that what we have right now is awesome and it's going to really rock the world. In fact, I'm actually so pumped up because we just had a couple of days of board meetings and I got to see the solution, the products that we have in flight and our great go to market leader Paul and all the work he's doing with the teams and how beautifully integrated they are in the company. You know, we're the rare company that actually brings companies in from the outside and puts their CEOs in charge of the business. And we did that with MoveWorks and now we did that with Armis and Yugnney running our security business as a corporation within the corporation and that's inclusive of Vasa. And so the alignment of our naturally born assets and then having these businesses run by people that are born in the security space. I mean you got to look at this hunger, this drive, this belief, this innovation roadmap the way I saw it and I think you would be as excited as I am. So Ahmed, do you want to add some color?

And if I could, I just want to say, Keith, to my friends out there in the security business, great friends like Nicash and George and many others, they're still our great friends and they're our great partners and we run their solutions in our company, too. And we intend to continue to partner with them and make those partnerships even deeper because there's such a surface area and so much opportunity and Methos has opened up the floodgates. So, I think the new information from a shareholder value standpoint is we're in the party now and we're not out to replace all of those excellent companies. We're building our own story on our own great foundation and it's important that the customer gets the benefit of all of us because they're going to need it.

I have not. In fact, the key here, Greg, is this has really become a suite story. You have to recognize the breadth and depth of our portfolio. Having six unicorn businesses, a seventh on the way, by the way. So, when we go into 2027, I'll have seven unicorn businesses that are either a billion or multiple billions. Keep that in mind. So the breadth and the depth covers the surface area of many aspects of a corporation but it also covers the most important part of the corporation which is how do you run the business and the fact is with AI these customers don't have enough time to do it the old way. So many of them have such a fragmented enterprise that they need to take advantage of our workflow automation above the mess and click in that AI engine into this unbelievable platform and really begin running. So the higher you go in the suite, the more relevant we are and the more the suite realizes that we're in the bullseye of what has to happen to fundamentally be the control tower for reinventing these businesses. So I have not seen any change. If I've seen any change it's on the positive. And I will tell you, we're ready. And our business is rocking. And when I think about what we're going to do with the new businesses that we took advantage of at the end of last year and took some criticism for, it was because we believed in our strategy. We believe in our team. We believe in our customers and what they need. And now it's all about execution. And we're good at that. So what I see is a customer base waiting for us, plays that we're running to gain even more traction and a fantastic future for people that believe in ServiceNow.

And I would say running the business is what suite executives care about. How am I going to be a best-run business? And when you think about it that way, and you ask for some examples also, order to cash, procure to pay, design to build, hire to retire. We can go through all the business processes and CEOs know exactly what they are for their company. And they know they have to optimize them to ring margin points out of waste and gain future market opportunities like lead to cash as an example. So they're thinking big picture, they're thinking business processes. So in that context, we are enterprise participants in the transformation of these companies. And some examples would include a Fortune 50 healthcare and retail distributor. You know this company well, believe me, they're capturing millions in annualized savings by consolidating vendor risk governance and fraud detection across a thousand suppliers. They're using ServiceNow's AI control tower. Tech Mahindra, you'd recognize that pretty quickly, strengthening through a 5-year deal, by the way, to fundamentally transform the workflow processes across HR, IT, security, and they're going to govern their assets at mass scale with Agentic AI. Another one I love is Maybank, by the way, another five-year deal. So much for deal shortening, right? A leading financial institution. And what they're doing, I mean, this is Malaysia's largest bank. They're using the AI platform and control tower to establish a resilient operation center to fortify security and resilience as well as autonomous regional operations. NTDT data is one of my favorites, too. Since Paul and I were very involved in that, I'll tell you. They have a governance process with us to drive AI scale for all internal use globally and they're doing it on a single platform and they're looking at responsible innovation done with great visibility and the control tower accelerating AI adoption but also monitoring it, measuring it, making sure everything's done in real time the right way and you know Ahmed talked about kill switch. We're doing many other things. So, I hope that gives you a little feel for it. Adam.