ServiceNow Earnings Call: AI Tailwinds vs. Market Jitters

ServiceNow Inc ((NOW)) has held its Q1 earnings call. Read on for the main highlights of the call.

ServiceNow’s latest earnings call struck an optimistic tone, with management emphasizing broad beats across key metrics, accelerating AI traction, and strong large-deal momentum. Executives acknowledged some investor unease over inorganic contributions and Middle East deal timing, but insisted the long-term growth and margin story remains firmly intact.

Top-line beat and strong subscription growth

ServiceNow reported Q1 subscription revenue of $3.671 billion, growing 19% year over year in constant currency and topping the high end of guidance. Management labeled the quarter a classic “beat and raise,” underscoring confidence in sustained demand for the platform.

RPO strength underscores durable demand

Remaining performance obligations reached roughly $27.7–$28 billion, up about 23.5% in constant currency and highlighting multi‑year visibility. Current RPO climbed to $12.64 billion, rising 21% and landing roughly 100 basis points ahead of management’s own expectations.

Margins, cash flow and capital returns impress

Non‑GAAP operating margin hit 32% in Q1, beating guidance by 50 basis points and reinforcing the company’s profitable growth narrative. Free cash flow margin reached a robust 44%, and ServiceNow executed a $2.0 billion accelerated share repurchase, leaving about $4.2 billion in remaining authorization.

AI and Now Assist push growth higher

Now Assist and other AI offerings showed strong customer uptake, convincing management to lift its 2026 Assist‑related revenue target to roughly $1.5 billion from $1.0 billion. Importantly, the company plans to count only incremental AI‑driven uplift in this figure, signaling confidence in AI as a true additive growth vector.

Large deals and high-spend customers surge

The company closed 16 net‑new ACV deals larger than $5 million in Q1, including five that topped $10 million, signaling continued enterprise appetite. ServiceNow now has 630 customers generating more than $5 million in ACV, while the count of customers spending over $1 million grew more than 130% year over year.

Acquisitions and new products gain rapid traction

Moveworks, now integrated into Employee Works, grew nearly fivefold year over year and booked more seven‑figure deals in Q1 than in all of last year. AI Control Tower saw average deal sizes more than double quarter over quarter, while Raptor DB Pro posted an 80% increase in deal volume with five transactions above $1 million.

Vertical momentum and workflow breadth

Industry demand remained broad‑based, with Transportation and Logistics net new ACV soaring more than 280% year over year and Financial Services climbing over 65%. Energy and Utilities grew around 45%, and technology and CRM‑style workflows featured prominently in top deals, helping drive a 97% renewal rate including Moveworks.

Middle East on-prem softness seen as timing

Management flagged delays in several large on‑prem deals in the Middle East, which created an estimated 75‑basis‑point drag on Q1 subscription revenue. On‑prem revenue was roughly 1 percentage point lower year over year, and the team framed the impact as largely timing‑related rather than structural demand weakness.

Armis to weigh on near-term margins

The Armis acquisition brings added scale but also modest integration costs, and guidance now bakes in these near‑term pressures. Management expects about a 25‑basis‑point headwind to subscription gross margin, a 75‑basis‑point hit to operating margin, and roughly 200 basis points of drag on free cash flow margin in 2026, with normalization targeted by 2027.

Investor skepticism and stock reaction

Despite the fundamental beat, the stock traded lower after hours as investors questioned the balance between organic and inorganic growth. Analysts pressed management on how much of the upside came from recent tuck‑in deals and when AI‑driven consumption will translate into visibly higher organic revenue growth.

M&A contribution and revenue timing need clarity

Executives stressed that contributions from newer acquisitions such as Veza and Pyramid were very small in the quarter, but acknowledged that transparency must improve. They also highlighted that some AI and M&A benefits will ramp over time as customers scale usage, delaying the full revenue impact investors hope to see.

Contract terms delay full Armis recognition

ServiceNow noted that some Armis contracts include termination‑for‑convenience and similar clauses, limiting what can immediately be booked into current RPO. As a result, parts of Armis’ subscription and RPO contribution will phase in gradually, smoothing the revenue impact across future periods.

Conservative near-term guidance stance

Management kept full‑year revenue guidance broadly intact despite the strong Q1 and AI traction, leaning toward caution. Q2 expectations remain conservative as well, reflecting geopolitical uncertainty in the Middle East and integration dynamics, which left some investors wanting a clearer timetable for near‑term upside.

Guidance and outlook signal confidence beyond 2026

ServiceNow raised its 2026 subscription revenue outlook to $15.735–$15.775 billion, implying 20.5%–21.0% constant‑currency growth and embedding about 125 basis points of uplift from Armis. The company is guiding to an 81.5% subscription gross margin, 31.5% non‑GAAP operating margin, and 35% free cash flow margin, while expecting integration efficiencies to restore margin expansion from 2027.

ServiceNow’s earnings call painted a picture of a company executing well on growth, profitability and AI innovation, even as markets fret over deal timing and M&A optics. For investors, the core message was that strong RPO, large‑deal momentum and rising AI expectations outweigh short‑term noise, keeping the long‑term thesis firmly on track.