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SEC filingRevenue grew 22% YoY driven by subscription strength; operating margins contracted 400 bps on higher costs, but non-GAAP operating income rose 26%.
For the three months ended March 31, 2026, ServiceNow reported total revenues of $3.77 billion, a 22% increase compared to $3.09 billion in the prior-year period. The growth was driven entirely by subscription revenues, which rose 22% to $3.67 billion, fueled by increased purchases from new and existing customers. Professional services and other revenues grew 19% to $99 million. Gross profit margin declined to 75% from 79% YoY, primarily due to a 460 bps drop in subscription gross margin to 78% as costs rose faster than revenue, including higher third-party cloud service costs, increased headcount, and a $41 million increase in amortization of intangible assets from acquisitions. GAAP operating income increased 12% to $503 million, with operating margin contracting 130 bps to 13.3%, as stock-based compensation (up 19% to $558 million) and acquisition-related costs weighed on profitability. On a non-GAAP basis, operating income rose 26% to $1.20 billion. The effective tax rate jumped to 30% from 17%, driven by a shift in earnings mix and stock-based compensation shortfalls, partially offset by the impact of the One Big Beautiful Bill Act.
Subscription segment revenue of $3.67 billion (+22% YoY) comprised 97% of total revenue. The gross margin for this segment contracted to 78% (from 81%), pressured by higher data center costs, cloud services usage, and intangible amortization. Professional services and other revenue reached $99 million (+19% YoY), but its gross loss widened to -21% from -8%, reflecting intentional investments in partner ecosystem spend and headcount to accelerate customer value realization. ServiceNow's remaining performance obligations (RPO) grew 25% to $27.7 billion, with current RPO (cRPO) up 23%, signaling strong forward revenue visibility. The number of customers with ACV greater than $5 million increased to 630 from 516 a year ago, highlighting enterprise adoption. Renewal rate held at 97% versus 98% in the prior-year period.
Management expects subscription revenues for FY 2026 to increase in absolute dollars and remain relatively flat as a percentage of revenue. Subscription gross margin is expected to decline further due to ongoing third-party cloud usage and intangible amortization. Professional services gross loss will likely widen as the company continues to invest in customer success. Sales and marketing expenses are expected to increase in absolute dollars but decrease slightly as a percentage of revenue. R&D and G&A expenses are expected to rise in absolute terms but remain relatively flat as a percentage of revenue. The company anticipates positive operating cash flows for 2026, supported by a renewal rate of 98% over the last three years. A $2.0 billion accelerated share repurchase was completed in Q1 2026, and $4.2 billion remains available under the Share Repurchase Program. The pending acquisition of Armis Security Ltd. is noted as a subsequent event, with debt financing expected.
Operating cash flow of $1,670M significantly exceeded net income of $469M, indicating strong cash generation supported by non-cash charges (stock-based compensation $547M, depreciation $258M, deferred income taxes $102M) and a large $912M decrease in accounts receivable. However, deferred revenue declined $278M and accrued expenses fell $439M, partially offsetting. Capex of $141M was modest relative to CFO, while share repurchases of $2,225M far exceeded operating cash flow, funded by cash reserves. The net cash outflow of $1,022M reduced cash and equivalents to $2,710M. Notable: the $1,325M business combination outlay drove investing cash flow negative despite reduced capex. Overall, cash flow quality remains high, but capital allocation shifted heavily toward shareholder returns.