What ServiceNow (NOW) Said on Its Q3 Earnings Call

Key Points

• ServiceNow exceeded Q3 guidance, with subscription revenue of $3.988 billion, 21% constant-currency growth in current RPO, a 32.5% non-GAAP operating margin and 20% free-cash-flow margin.
• The company raised its year-end AI ACV target to more than $1.7 billion, citing a 65% year-over-year increase in AI net new ACV and a 13-fold rise in year-to-date agentic AI consumption.
• ServiceNow increased its 2026 subscription-revenue outlook to $15.785 billion and lifted its free-cash-flow-margin target to 36%, while forecasting 21.5% constant-currency subscription growth for Q4.

ServiceNow NYSE: NOW reported third-quarter results that exceeded its guidance across subscription revenue, current remaining performance obligations and profitability metrics, while raising its full-year subscription revenue and free-cash-flow-margin outlook.

Chairman and Chief Executive Officer Bill McDermott said the company is increasingly combining its subscription model with consumption-based AI offerings. He said AI net new annual contract value, or ACV, rose 65% year over year in the quarter, while year-to-date agentic AI consumption in production increased 13-fold from a year earlier.

Quarterly Results Exceed Guidance

Third-quarter subscription revenue was $3.988 billion, up 20.5% year over year in constant currency and 50 basis points above the high end of the company’s guidance, President and Chief Financial Officer Gina Mastantuono said.

Remaining performance obligations totaled $29.7 billion at quarter-end, representing 22.5% constant-currency growth. Current RPO reached $13.65 billion, up 21% in constant currency and 100 basis points above guidance.

ServiceNow reported a non-GAAP operating margin of 32.5%, exceeding its guidance by 150 basis points, and a free cash flow margin of 20%. McDermott said the company closed 19 deals worth more than $5 million in net new ACV, up 135% year over year.

The company’s renewal rate remained 98%. It ended the quarter with 680 customers generating more than $5 million in ACV, while 31 additional customers surpassed $20 million in ACV during the past year, Mastantuono said.

• Technology workflows recorded 54 deals above $1 million, including six above $5 million.
• Asset management surpassed $1 billion in ACV during the quarter.
• Security and risk products appeared in 16 of the company’s 20 largest deals.
• CRM and industry workflows recorded 28 deals above $1 million.

AI Target Raised Again

ServiceNow raised its year-end AI ACV target to more than $1.7 billion, from a prior target of $1.5 billion established at its May financial analyst day. The company had begun 2026 with a $1 billion AI target.

The number of AI deals worth more than $1 million increased 4.5 times year over year in the third quarter. Deals spanning five or more AI products rose more than 8.5 times, according to Mastantuono.

McDermott said ServiceNow is investing in deployment expertise for select large customer deals to accelerate AI implementation and subsequent consumption. Mastantuono said customers receiving this support saw AI adoption advance twice as fast in the first five weeks, with higher usage of assists and products than customers without support.

From an accounting perspective, the value assigned to those deployment services is recognized in professional services rather than subscription revenue. Mastantuono said the effect reduced reported subscription revenue growth by about 25 basis points in the third quarter and was expected to reduce growth by approximately 50 basis points in the fourth quarter. She said the company does not expect to provide this deployment expertise as a long-term feature of its model.

Fourth-Quarter cRPO Outlook Reflects Mix and Timing

For the fourth quarter, ServiceNow forecast subscription revenue of $4.245 billion to $4.255 billion, representing 21.5% constant-currency growth. The company expects current RPO growth of 18.5% in constant currency and a non-GAAP operating margin of 32%.

Mastantuono said the fourth-quarter cRPO outlook reflects several factors that do not affect the company’s expected revenue in the same way. Strong early renewals in the third quarter accounted for about half of the cRPO beat and pulled some activity forward from the fourth quarter. A higher mix of on-premises public-sector deals is expected to create a 25-basis-point cRPO headwind, while contributing to revenue.

She also cited transaction-for-commerce provisions that exclude an estimated 50 basis points of year-over-year subscription backlog growth from cRPO, although that backlog will be included in revenue.

“While cRPO is a good indicator of next year’s revenue, it is certainly not perfect,” Mastantuono said, adding that the company expects AI momentum to support revenue growth in 2027 and beyond.

Full-Year Outlook Raised

ServiceNow raised its 2026 subscription revenue outlook by $15 million at the midpoint to $15.785 billion, representing 21% constant-currency growth. It also increased its full-year free cash flow margin target to 36% from 35%, citing lower capital expenditures.

The company maintained its expectations for an 81% subscription gross margin and a 31.5% operating margin for the full year. Mastantuono said the company expects acquisition-related dilution to be fully offset while still delivering operating and free-cash-flow-margin expansion.

Management also highlighted internal efficiency gains from using its own AI products. Mastantuono said ServiceNow’s internal AI use is generating more than $1 billion in annualized value, more than double the level at the end of 2025. While total sales and marketing headcount has declined, she said quota-bearing sales employees are up by double digits, with productivity improvements reducing the need for some operational roles.

McDermott said ServiceNow is expanding partnerships and products designed to govern enterprise AI deployments, including its Super Intelligence Control Tower, Action Fabric and EmployeeWorks offerings. The company also announced an expanded relationship with OpenAI that includes a ServiceNow plugin for ChatGPT enabled by Action Fabric.

About ServiceNow (NYSE:NOW)

ServiceNow, Inc provides cloud-based software designed to help organizations digitize, automate and manage enterprise workflows. Its Now Platform connects people, processes and systems across departments, enabling customers to manage work through a centralized technology environment.

The company's products and services address a range of business needs, including information technology service management, IT operations management, customer service management, human resources service delivery, security operations, risk and compliance, and application development.

This instant news alert was generated by narrative science technology and financial data from MarketBeat in order to provide readers with the fastest reporting and unbiased coverage. Please send any questions or comments about this story to contact@marketbeat.com.