ServiceNow, Inc. Q3 FY2026 earnings call

• AI Monetization & Consumption: ServiceNow is successfully shifting toward a hybrid consumption model. AI net new ACV grew 65% YoY, with agentic AI consumption in production up 13x YoY. Action Fabric assists saw 500% month-over-month growth. The company raised its full-year AI ACV target to $1.7 billion.
• Superintelligence Control Tower: Management emphasized the platform's role as the governance layer for enterprise AI, offering visibility, security, and control over agents. Features like 'AI Passport' allow for granular control and kill-switches for rogue agents. Partnerships with NVIDIA, Okta, Microsoft, and Google enhance this ecosystem.
• Operational Efficiency & Internal AI: Internal use of AI has generated over $1 billion in annualized value, doubling from the previous year. This efficiency allowed ServiceNow to maintain headcount stability while increasing quota-bearing sales roles and AI engineering talent.
• Strategic Partnerships: Expanded partnerships with OpenAI (ChatGPT plugin via Action Fabric), Google Gemini Enterprise, and Anthropic. These partnerships focus on integrating third-party models into ServiceNow’s governed execution layer.
• Customer Success Stories: Highlighted deployments with major enterprises like Nestlé (agentic marketing ops across 60 countries), Intercontinental Hotels Group (governance via Vesa), and Shipman Operations (AI-driven issue resolution saving ~100,000 hours annually).
• Product Innovation: Launched 'Flow', a conversational, self-service service desk; expanded CRM capabilities with Logic AI; and introduced AI specialists for AIOps, HRSD, and CRM, expected to go GA in Q4.

ServiceNow reported total subscription revenue of $3.988 billion, representing a 20.5% year-over-year growth in constant currency and beating the high end of guidance by 50 basis points. Current Remaining Performance Obligations (cRPO) stood at $13.65 billion, growing 21% year-over-year in constant currency, exceeding guidance by 100 basis points. Total RPO was $29.7 billion, up 22.5% year-over-year. While specific segment revenue breakdowns were not provided in absolute terms for all workflows, key deal metrics highlighted strong performance across Technology Workflows (54 deals over $1 million), Security and Risk Solutions (16 of top 20 deals, 13 over $1 million), and CRM/Industry Workflows (13 of top 20 deals). Asset Management crossed $1 billion in Annual Contract Value (ACV). AI-specific net new ACV grew 65% year-over-year.

• Full Year 2026 Subscription Revenue: Raised by $15 million at the midpoint, now expected to be $15.785 billion (21% YoY constant currency growth).
• Full Year 2026 Free Cash Flow Margin: Raised by 100 basis points to 36%, driven by lower CapEx spend and operating leverage.
• Full Year 2026 Operating Margin: Expected to be 31.5%, an increase of 50 basis points year-over-year.
• Q4 2026 Subscription Revenue: Expected between $4.245 billion and $4.255 billion, representing 21.5% YoY constant currency growth.
• Q4 2026 cRPO Growth: Expected to be 18.5% in constant currency, reflecting a higher mix of on-premises deals and T4C backlog exclusions.
• Q4 2026 Operating Margin: Expected to be 32%.
• Shares Outstanding: Expected to be 1.05 billion fully diluted weighted average shares for Q4.

• CRPO Decoupling from Revenue: CRPO growth is projected to decelerate relative to revenue growth due to structural factors including a higher mix of on-premises deals, T4C backlog provisions excluded from CRPO but included in revenue, and early renewals pulled into Q3 impacting Q4 comparisons.
• Implementation Complexity: Despite acceleration tools, complex AI deployments can still face delays if customers do not engage with ServiceNow’s deployment expertise, potentially slowing initial consumption ramp-up.
• Market Skepticism on AI ROI: Enterprises are moving past experimentation; failure to demonstrate immediate, measurable ROI could hinder adoption rates or lead to churn if value propositions are not clearly articulated.
• Competitive Landscape: Point solutions and unmanaged shadow IT remain risks, though ServiceNow positions its Control Tower as the necessary governance layer to mitigate these threats.

Q: Brad Zelnick asked about the impact of potential customer demand for outcome-based pricing versus the current subscription/consumption hybrid model. / A: Bill McDermott and Gina Mastantuono stated that customers prefer the predictability of subscription pricing for budgeting but appreciate the consumption upside for value realization. They noted that outcome-based pricing is not currently a customer request, and the hybrid model offers a 'best of both worlds' scenario, allowing for rapid live-onboarding and significant token economics upside without disrupting financial planning.