ServiceNow Earnings Rise on AI, Outlook Raised

ServiceNow reported stronger-than-expected subscription growth in its first quarter ended March 31, 2026, prompting the company to raise its full-year subscription revenue outlook. The increase in demand was driven by AI product adoption, despite near-term margin pressures from the Armis acquisition and regional disruptions, the company said in a press release on April 22.

Subscription Growth and Raised Guidance

Subscription revenues reached $3,671 million, up 22% year over year and 19% on a constant-currency basis. Total revenues were $3,770 million, reflecting the same growth rates. Current remaining performance obligations (cRPO), a measure of contracted future revenue, rose 22.5% year over year to $12.64 billion. The quarter included 16 net-new annual contract value (ACV) deals exceeding $5 million, an 80% increase from the prior year, and 630 customers with more than $5 million in ACV, up about 22%.

Net income for the quarter was $469 million, or $0.45 per share, while free cash flow increased 44% to $1,665 million. For the second quarter, ServiceNow forecast subscription revenues between $3,815 million and $3,820 million, implying about 22.5% growth and cRPO growth of 19% to 19.5%. The company expects an operating margin of 26.5% for the quarter.

ServiceNow raised its full-year subscription revenue guidance to a range of $15.735 billion to $15.775 billion, representing 22% to 22.5% growth. The updated outlook includes targets for subscription gross margin of 81.5%, an operating margin of 31.5%, and a free-cash-flow margin of 35%. Management said AI-related efficiencies should help normalize margins in fiscal 2027.

Armis Acquisition and Margin Pressures

ServiceNow announced the early close of its $7.75 billion acquisition of cybersecurity startup Armis. The integration is expected to create near-term margin headwinds, including a roughly 25 basis-point reduction in fiscal-year subscription gross margin, about 75 basis points in operating margin, approximately 200 basis points in free-cash-flow margin, and a 125 basis-point impact on second-quarter operating margin.

The company also cited a 75-basis-point headwind to first-quarter subscription growth from delayed on-premise deals linked to the Middle East conflict. Management said it will maintain a cautious approach to the region for the remainder of the fiscal year.

Chief Executive Bill McDermott said, "ServiceNow’s first quarter performance beat the high end of our guidance once again… our AI growth is far exceeding even our own expectations." The company expects about $1.5 billion in AI-related revenue for fiscal 2026.