01—Abstract
Summary
Summary of the 10-Q filed October 28, 2026. Cited figures are marked; the original filing is the authoritative source.
ServiceNow, Inc. (NOW) reported its third-quarter 2026 financial results, demonstrating continued revenue growth driven by its subscription services, which now represent 97%a of total revenues.
The company significantly expanded its balance sheet through strategic acquisitions, most notably Armis Security Ltd. for $7.6 billionb and Veza Technologies, Inc. for $1.2 billion, leading to a substantial increase in goodwill and intangible assets. While revenue growth remains robust, gross margins for subscription services saw a decline compared to the prior year, attributed to increased cloud infrastructure costs and amortization of acquired intangibles. The company also incurred significant severance costs as part of a workforce optimization strategy leveraging AI efficiencies.
Despite increased operating expenses and investments in growth, ServiceNow reported positive operating cash flow. The company has strengthened its financial position with new debt issuances, including senior notes totaling $4.0 billionc and a $3.0 billion commercial paper program, alongside a $3.0 billion revolving credit facility.
Management expects continued revenue growth, though it anticipates ongoing pressure on subscription gross margins. The company remains committed to strategic investments and shareholder returns, with a substantial remaining authorization for share repurchases.
02—Key points
Key Highlights
- Total revenues increased by 21% year-over-year to $4.1 billion for the third quarter of 2026, with subscription revenues making up 97% of the total.
- The company completed significant strategic acquisitions in 2026, including Armis Security Ltd. for approximately $7.6 billion and Veza Technologies, Inc. for approximately $1.2 billion, substantially increasing goodwill and intangible assets on the balance sheet.
- Subscription gross profit margin decreased to 74% in Q3 2026 from 80% in Q3 2025, attributed to higher cloud service costs and amortization of acquired intangibles.
- Operating expenses increased, driven by higher R&D and Sales & Marketing costs, including significant employee severance charges of $87 million in Q3 2026 related to workforce optimization and AI-driven efficiencies.
- Net cash provided by operating activities was $3.1 billion for the nine months ended September 30, 2026, a slight decrease from the prior year, largely due to higher business combination costs.
- The company raised significant debt financing, issuing $4.0 billion in senior notes and establishing a $3.0 billion commercial paper program, while maintaining a $3.0 billion revolving credit facility, significantly bolstering its liquidity.
- Remaining Performance Obligations (RPO) reached $29.7 billion as of September 30, 2026, indicating strong future revenue visibility, with 46% expected to be recognized in the next 12 months.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q3 FY2026, ServiceNow kept $0.07.
- Revenue$4.11B100.0%
- Cost of revenue−$1.21B29.5%
- Gross profit$2.90B70.5%
- Operating costs−$2.51B61.1%
- Operating income$385.0M9.4%
- Interest, other & tax−$108.0M2.6%
- Net income$277.0M6.7%
04—Financials
Financial Highlights
Figures from 10-QQ3 FY2026filed October 28, 2026Financial Statements
Q3 FY2026 against Q3 FY2025
| Line item | Q3 FY2026Q3 FY2025 | Change |
|---|---|---|
| Revenue | $4.11B$3.41B | +20.5% |
| Cost of Revenue | $1.21B$774.00M | +56.5% |
| Gross Profit | $2.90B$2.63B | +10.0% |
| R&D Expenses | $956.00M$750.00M | +27.5% |
| Operating Expenses | $2.51B$2.06B | +21.8% |
| Operating Income | $385.00M$572.00M | −32.7% |
| Net Income | $277.00M$502.00M | −44.8% |
| EPS (Basic) | $0.27$0.48 | −43.7% |
| EPS (Diluted) | $0.27$0.48 | −43.7% |
| Shares Outstanding (Basic) | 1.03B1.04B | −0.3% |
| Shares Outstanding (Diluted) | 1.04B1.05B | −0.4% |
05—Questions
Frequently Asked Questions
How did the significant acquisitions of Armis and Veza impact ServiceNow's financial statements?
The acquisitions of Armis Security Ltd. ($7.6 billion) and Veza Technologies, Inc. ($1.2 billion) in 2026 significantly increased ServiceNow's assets, particularly goodwill and intangible assets. Goodwill surged from $3.6 billion at the end of 2025 to $10.0 billion by September 30, 2026. Intangible assets, net, also grew substantially from $1.1 billion to $3.6 billion. These acquisitions were financed through a combination of cash and debt, contributing to a larger balance sheet and increased amortization expenses.
What is the reason for the decline in subscription gross profit margin?
The subscription gross profit margin declined from 80% in the third quarter of 2025 to 74% in the third quarter of 2026. This decrease is primarily attributed to the increasing costs associated with hosting services, including expenses related to cloud service providers and data center capacity. Additionally, the amortization of intangible assets acquired through recent business combinations has also contributed to the higher cost of revenues, thereby impacting the gross profit margin.
How is ServiceNow addressing workforce optimization and its financial impact?
ServiceNow initiated a workforce optimization strategy during the first nine months of 2026, leveraging AI-driven efficiencies and reinvesting in strategic areas. This resulted in employee severance and related costs totaling $167 million for the nine months ended September 30, 2026, with $87 million recorded in the third quarter. These costs were recognized across various operating expenses, primarily in sales and marketing, research and development, and general and administrative functions.
What is the outlook for ServiceNow's liquidity and debt position?
ServiceNow maintains a strong liquidity position with $7.0 billion in cash, cash equivalents, and marketable securities as of September 30, 2026. The company recently secured significant financing, including $4.0 billion in senior notes and a $3.0 billion revolving credit facility, and established a $3.0 billion commercial paper program. Management expects operating cash flows to be sufficient to meet liquidity needs for at least the next 12 months, with plans to continue growing cash flows to fund operations and business expansion.
06—Continue