2026 06 03 Servicenow NOW Q1 2026 Earnings Call

Summary

ServiceNow Q1 2026 strong beat: subscription revenue $3.671B (+19% CC), operating margin 32% (+50bps vs guide), FCF margin 44%. Raised FY2026 guide to $15.74-15.78B (+20.5-21% CC); AI revenue commitments raised 50% to $1.5B. Key thesis signal: "50% of net new business now non-seat-based pricing" — confirms seat-erosion thesis migration but shows it's moving to consumption/token model within ServiceNow (not customer loss). Agentic AI resolving 90% of IT requests autonomously; NOW itself deploying agents internally at "rule of 56."

Transcript

William McDermott: "19% in constant currency, above the high end of guidance."

"16 deals greater than $5 million in NNACV and 5 deals greater than $10 million."

"50% of net new business now comes from non-seat-based pricing model, including tokens and other assets."

"AI, data, security and governance are now built into every product and package, not a separate purchase — a deliberate shift away from sidecar AI models."

"90% of employee IT requests resolved autonomously."

"Autonomous specialists resolving cases 99% faster than human agents."

"Employee experience business grew 5x year-over-year."

Gina Mastantuono: "Subscription revenue: $3.671 billion, growing 19% year-over-year."

"RPO: $27.7 billion, representing 23.5% year-over-year growth."

"Current RPO: $12.64 billion, representing 21% growth, 100 basis point beat."

"Non-GAAP operating margin: 32%, 50 basis points above guidance."

"Free cash flow margin: 44%."

"630 customers generating over $5 million in ACV. 5 additional customers crossed the $50 million threshold."

"New logo ACV growth: accelerated to over 50% year-over-year, largest net new logo deal ever at over $15 million."

"Renewal rate: 97%, inclusive of Moveworks."

"Moveworks: Already closed 6 deals above $1 million in net new ACV."

"Transportation/logistics NNACV growing over 280%, financial services surpassing 65%, energy/utilities up 45%."

"2026 Full-Year Guidance (Raised): Subscription revenue $15.735–$15.775 billion (20.5%–21% constant currency growth). AI revenue commitments: $1.5 billion (50% increase from prior $1 billion guidance)."

"$2 billion accelerated share repurchase, buying approximately 20.2 million shares, double the repurchase volume of 2025."

Mark Murphy (JPMorgan): "Middle East deal deferrals."

McDermott: "We just beat and raised. So it was a beat and raise, not an excuse. Slight impact to the guide in going forward in Q2 as a result of the war because everything that happens in the Middle East is recognized as on-premise revenue."

Mastantuono: "We kept the full year guide. We didn't reduce it for any potential conflict."

Mark Murphy (continued): "Methodology for measuring AI revenue post-transition away from sidecar models."

Amit Zavery: "AI capabilities are in each of the SKUs now. Incremental assist part will be counted as our AI revenue — very straightforward, very easy to measure."

Brad Zelnick (Deutsche Bank): "Competitive differentiation in AI orchestration space."

McDermott: "We have data built over 22 years — 95 billion workflows and more than 7 trillion transactions. Context advantage that nobody can match."

Zavery: "Beyond just orchestration — autonomous workforce — full AI specialist — end-to-end capabilities — providing solution, outcome-driven mindset."

Gabriela Borges (Goldman Sachs): "Risk of customer budget pressure on core offerings to fund AI."

McDermott: "When you innovate on the platform, it reinvigorates the core. We're not getting negotiated down on the core."

Zavery: "Everything in our platform rewritten with AI-native mindset. Existing customers getting that capability as part of upgrades — no pressure in discussions."

Peter Weed (AllianceBernstein): "Autonomous workforce strategy."

Zavery: "Vision — end-to-end resolution for different functions — Level 1 support specialist AI specialists — less than 20 minutes versus human requiring around 2 days — changes the game."

McDermott: "ServiceNow benchmark — captured $0.5 billion in productivity — agents 99% faster than human — 90% of cases resolved by agents — exit the year with same headcount while growing at rule of 56."

Keith Weiss (Morgan Stanley): "Stock decline despite beats — acceleration timeline."

Mastantuono: "Guide for 2026 was $1 billion (AI)...now $1.5 billion...50% higher. We had a beat and raised without [inorganic revenue contribution] — organic growth."

McDermott: "Above 20% isn't too bad on $15 billion company. Rule of 56 company going up, taking SBC down."

Alex Zukin (Wolfe Research): "Enterprise spending environment and AI anxiety."

McDermott: "Environment very excited about AI. Language model companies great, problem is don't exactly know what to do, somewhat confused."

"Customer wants truth — respectful of great companies — well aware what they don't do — highly clarifying."

Mastantuono: "Proof points — 16 deals greater than $5 million, 5 deals over $10 million — customers spending, understanding value proposition."

Samad Samana (Jefferies): "Acceleration timeline."

McDermott: "Company very fired-up. Focused on acceleration revenue. All based on AI. Hockey stick forming. 2.2 billion more agents in workforce next couple years."

"Accelerate margins. Taking down SBC into single digits."