Latest quarter
ServiceNow reported Q2 FY2026 revenue of $4.0 billion, above the $3.9 billion consensus, while adjusted earnings per share of $0.90 exceeded the $0.86 consensus. Revenue rose from $3.2 billion a year earlier, although diluted earnings per share fell to $0.29 from $0.37.
CFO Gina Mastantuono said subscription revenue grew in constant currency and exceeded the company’s guidance. She attributed part of the revenue outperformance to federal demand that moved some on-premises revenue from Q3 into Q2, while net new annual contract value also exceeded expectations.
ServiceNow reported gross margin of 70.7%, down from 77.5% a year earlier, and free cash flow of $473.0 million, compared with $526.0 million. Its GAAP operating margin of 4.06% was below the earlier 26.5% operating-margin guide. The measures are not directly comparable, however: Mastantuono said non-GAAP operating margin was 29.5%, above the company’s guidance.
| Q2 FY2026 | Q2 FY2025 | Change | |
|---|---|---|---|
| Revenue | $4.0 billion | $3.2 billion | 24.0% |
| Diluted EPS | $0.29 | $0.37 | −21.2% |
| Gross margin | 70.7% | 77.5% | −6.8 percentage points |
| Operating margin | 4.06% | 11.1% | −7.1 percentage points |
| Free cash flow | $473.0 million | $526.0 million | −10.1% |
| Against the consensus | Reported | Consensus | Result |
|---|---|---|---|
| Adjusted EPS | $0.90 | $0.86 | Beat by 4.65% |
| Revenue | $4.0 billion | $3.9 billion | Beat by 1.65% |
Adjusted EPS is the figure the consensus estimates, not the GAAP EPS above.
| Against its own guidance | For | Guided | Reported | Result |
|---|---|---|---|---|
| Operating margin | Q2 FY2026 | 26.5% | 4.06% | Below the guide |
What management said on the call
CEO Bill McDermott said customers using agentic AI in production had increased, and a greater share of renewal customers were purchasing it for the first time. He also described customer deployments spanning IT operations, security and customer service. McDermott said ServiceNow signed 123 deals above the threshold for net new annual contract value discussed on the call.
CFO Gina Mastantuono said demand extended across the company’s workflow businesses. She said security and risk products appeared in many of the quarter’s largest deals, while acquisitions helped draw customers to the core platform. She also said AI annual contract value had passed the company’s stated milestone and that first-time buyers of its agentic AI products had increased.
Asked about adoption, President and Chief Operating Officer Amit Zavery said customers were beginning to use AI specialists for support requests. He said the tools complete requests rather than merely provide information, allowing human staff to work on more complex issues. On pricing, Zavery said the company combines licenses with usage, giving customers predictability and flexibility; McDermott said much of the company’s net new business was not tied to seats.
Mastantuono attributed the non-GAAP operating-margin result partly to revenue outperformance and the timing of marketing spending. She said the company’s subscription gross-margin outlook reflected more customers using hyperscale partners and accelerating AI adoption. On competition, McDermott said established enterprise software companies would remain in the market and that newer participants could complement larger platforms.
Asked about federal demand and the quarter ahead, Mastantuono said some on-premises revenue had shifted into Q2 from Q3. She added that the Q2 outperformance also included net new annual contract value and that the company had raised its full-year subscription-revenue guidance.
Guidance
In its October results release, ServiceNow raised its FY2026 free-cash-flow margin target to 36.0% from the 35.0% outlook given on the Q2 call. The company also raised its FY2026 AI annual contract value target to $1.7 billion. On the Q2 call, Mastantuono had raised the full-year subscription-revenue guidance at its midpoint to $15.8 billion.
| Metric | For | Guide | Previous guide | Change |
|---|---|---|---|---|
| Free cash flow growth, non-GAAP | FY2026 | 36.0% | — | New |
| Bookings, AI | FY2026 | $1.7 billion | — | New |
| Revenue | FY2030 | $32.0 billion | — | New |
| Operating margin | Q3 FY2026 | 31.0% | Q2 FY2026: 26.5%; reported 4.06% | Raised |
| Revenue, Subscription | Q3 FY2026 | $4.0 billion–$4.0 billion | Q2 FY2026: $3.8 billion–$3.8 billion | Raised |
| Free cash flow growth | FY2026 | 35.0% | — | New |
| Operating margin | FY2026 | 31.5% | — | New |
| Gross margin, Subscription | FY2026 | 81.0% | — | New |
| Revenue, Subscription | FY2026 | $15.8 billion | — | New |
| Operating margin, Armis | FY2026 | 0.75% | — | New |
| Revenue growth, Armis | FY2026 | 1.25% | — | New |