AI Takeaway
ServiceNow's Q2 FY2026 revenue grew 24% year-over-year to $3.987B, but operating margin compressed sharply to 4.1% (from 11.1%) and net income fell 22.6% to $298M, driven primarily by higher amortization of acquired intangibles, elevated stock-based compensation, and a professional services gross loss.
Revenue
$3.99B
++24.01% YoY
EPS (Basic)
$0.29
-21.62% YoY
Gross Margin
70.7%
-6.80% YoY
Operating Income
$162M
-54.75% YoY
Filed · Source: SEC EDGAR 10-Q filing
ServiceNow (NOW) reported Q2 FY2026 revenue of $3.99B, up 24.0% year over year. The company posted net income of $298M, down 22.6% from a year earlier, with diluted EPS of $0.29. Gross margin was 70.7%.
Remaining performance obligations (RPO) reached $29.0 billion as of June 30, 2026, up 21% year-over-year, with current RPO (cRPO, revenue expected in next 12 months) representing 46% of the total. The number of customers with annual contract value (ACV) greater than $5 million grew to 658 from 533 a year earlier, and the renewal rate held steady at 98%.
Source: 10-Q Item 2 MD&A
Total gross profit percentage fell to 71% for the quarter (from 77% a year ago), with subscription gross margin declining to 73% from 80% and professional services swinging to a 26% gross loss from a 3% gross profit. Management attributes this to $153M higher amortization of acquired intangibles, increased data center/cloud costs, and rising personnel costs, and expects subscription gross margin to continue declining for full-year 2026.
Source: 10-Q Item 2 MD&A
Total stock-based compensation increased 31% YoY to $655M (16% of revenue), driven by new grants and acquisition-related awards. R&D expense rose 25% to $915M and G&A rose 36% to $369M, partly due to $61M higher outside services tied to recent acquisitions.
Source: 10-Q Item 2 MD&A
While GAAP income from operations fell 55% to $162M, non-GAAP income from operations (excluding SBC, intangible amortization, severance, and deal costs) rose 23% to $1,173M, highlighting that reported profitability was heavily impacted by non-cash and acquisition-related charges rather than core operating deterioration.
Source: 10-Q Item 2 MD&A
A weaker U.S. Dollar provided a favorable revenue impact; retranslating six-month 2026 results at 2025 exchange rates would have reduced subscription revenue by $138 million. Separately, the company executed a 5-for-1 stock split effective December 17, 2025, and cash used in investing activities surged to $7.1B YTD (vs. $640M prior year), reflecting significant acquisition or investment activity.
Source: 10-Q Item 2 MD&A
Amortization of purchased intangibles rose from $25M to $219M quarter-over-quarter, and business combination-related costs, outside services, and severance costs are elevated, compressing gross and operating margins. Management expects subscription gross margin to continue declining through 2026 due to ongoing intangible amortization and cloud service cost growth.
Source: 10-Q Item 2 MD&A
Professional services and other revenue generated a 26% gross loss in Q2 FY2026 versus a 3% gross profit a year earlier, driven by personnel costs and partner ecosystem spend growing faster than revenue. Management expects this gross loss percentage to increase further in 2026 as the company invests in customer value realization.
Source: 10-Q Item 2 MD&A
Cash and equivalents declined 19.9% YoY to $2.503B, current ratio stands at 0.70 (current liabilities exceed current assets), and cumulative investing cash outflow ballooned to $7.1B YTD from $640M, alongside $2.225B in share buybacks. Debt-to-equity ratio of 1.53 combined with total liabilities growing 72.2% YoY signals increased balance sheet leverage.
Source: 10-Q Balance Sheet and Cash Flow Statement (XBRL)
Total stock-based compensation grew 31% YoY to $655M, representing 16% of revenue, driven by new grants tied to recent acquisitions; management expects SBC to keep rising in absolute dollars through 2026. This could pressure GAAP profitability and shareholder dilution even as non-GAAP metrics improve.
Source: 10-Q Item 2 MD&A
37% of revenue comes from outside North America, and management notes that retranslating six-month 2026 results at prior-year exchange rates would have reduced subscription revenue by $138 million. The filing also flags ongoing monitoring of global conflicts, tariffs, and interest rate uncertainty as potential risks to future results.
Source: 10-Q Item 2 MD&A
Reported EPS of $0.90 versus the $0.86 analyst consensus — a +4.3% beat for Q2 FY2026.
| Metric | Current | Previous | YoY Change |
|---|---|---|---|
Revenue | $3.99B | $3.21B | +24.01% |
Cost of Revenue | $1.17B | $724M | +61.46% |
Gross Profit | $2.82B | $2.49B | +13.13% |
Operating Income | $162M | $358M | -54.75% |
Net Income | $298M | $385M | -22.60% |
EPS (Basic) | $0.29 | $0.37 | -21.62% |
EPS (Diluted) | $0.29 | $0.37 | -21.62% |
R&D Expense | $915M | $734M | +24.66% |
| Metric | Current | Previous | YoY Change |
|---|---|---|---|
Total Assets | $31.67B | $22.05B | +43.60% |
Current Assets | $8.51B | $9.28B | -8.20% |
Total Liabilities | $19.15B | $11.12B | +72.23% |
Current Liabilities | $12.15B | $8.49B | +43.06% |
Stockholders' Equity | $12.52B | $10.93B | +14.49% |
Cash & Equivalents | $2.5B | $3.12B | -19.88% |
Long-Term Debt | $5.43B | — | — |
| Metric | Current | Previous | YoY Change |
|---|---|---|---|
Operating Cash FlowYTD | $2.26B | $2.39B | -5.68% |
Investing Cash FlowYTD | $-7.11B | $-640M | -1010.16% |
Financing Cash FlowYTD | $3.64B | $-944M | +485.38% |
Share BuybacksYTD | $2.23B | $659M | +237.63% |
D&AYTD | $665M | $332M | +100.30% |
| Metric | Current | Previous | YoY Change |
|---|---|---|---|
Gross Margin | 70.7% | 77.5% | -6.80% |
Operating Margin | 4.1% | 11.1% | -7.07% |
Net Margin | 7.5% | — | — |
ROE | 2.4% | — | — |
ROA | 0.9% | — | — |
Current Ratio | $0.701 | — | — |
Debt to Equity | $1.53 | — | — |
Expected release date, analyst estimates & what to watch
ServiceNow delivered strong Q1 2026 revenue growth of 22.1% YoY to $3.77B, but margin compression and a massive $2.23B share buyback drove cash lower and kept net income growth to just 2.0%.
ServiceNow (NOW) delivered strong FY2025 results with revenue growing 20.9% to $13.28B and operating cash flow surging 27.6% to $5.44B, while operating margin expanded 130 bps to 13.7% despite a slight gross margin compression.
Other companies in Systems Software
The filing does not provide analyst consensus estimates, so a direct beat/miss cannot be confirmed from this 10-Q. However, revenue grew 24.0% YoY to $3.987B while net income fell 22.6% YoY to $298M and diluted EPS declined to $0.29 from $0.37, reflecting margin pressure from acquisition-related costs.
Operating income fell 54.7% YoY to $162M and operating margin dropped to 4.1% from 11.1%, primarily due to a $153M increase in amortization of purchased intangibles, a 31% rise in stock-based compensation to $655M, and a swing to a 26% gross loss in professional services. Management notes non-GAAP operating income, which excludes these items, actually grew 23% to $1.173B.
For the six months ended June 30, 2026, GAAP operating cash flow was $2.257B (down 5.7% YoY), while non-GAAP free cash flow grew 14% YoY to $2.299B. Investing cash outflows surged to $7.1B YTD from $640M, largely reflecting increased investment or acquisition activity.
As of June 30, 2026, ServiceNow's total RPO was $29.0 billion, up 21% YoY, with current RPO (cRPO) representing 46% of the total. The company also reported 658 customers with annual contract value (ACV) over $5 million, up from 533 a year earlier, and a steady 98% renewal rate.
Key risks include continued gross margin compression from acquisition-related intangible amortization (which rose to $219M from $25M YoY), a widening professional services gross loss (26% in Q2 FY2026), and a current ratio of 0.70 indicating current liabilities exceed current assets. The company also flags foreign currency exposure, with 37% of revenue from outside North America.