ServiceNow (NOW) Q2 2026 earnings call transcript

Ladies and gentlemen, thank you for standing by. My name is Krista and I'll be your conference operator today. At this time, I would like to welcome everyone to the service now, second quarter, 2026 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there'll be a question and answer session.

If you would like to ask a question, please press star one on your telephone keypad. And if you'd like to withdraw your question, again, press star one.

We will now turn the conference over to Darren Yip, Senior Vice President, Investor Relations, and Market Insight. Darren, please go ahead. Good afternoon and thank you for joining service now at second quarter, 2026 earnings conference call. Joining me are Bill McDermott, our Chairman and Chief Executive Officer, Gina Mastentuno, our President and Chief Financial Officer, and Amit Savari, President, Chief Product Officer, and Chief Operating Officer.

During today's call, we will review our second quarter results and discuss our guidance for the third quarter and full year, 2026. Before we get started, we want to emphasize that the information discussed on this call, including our guidance, is based on information as of today and contains forward-looking statements that involve risks, uncertainties, and assumptions.

We undertake no duty or obligations to update such statements as a result of new information or future events. Please refer to today's earnings press release and our FDC filings, including our most recent 10Q and 10K, for factors that may cause actual results to differ materially from our forward-looking statements.

We'd also like to point out that we present non-GAP measures in addition to, and not as a substitute for financial measures calculated in accordance with GAP. Unless otherwise noted, all financial measures and related growth rates we discussed today are non-GAP except for revenues, remaining performance obligations, or RPO, current RPO, and cash and investments.

To see the reconciliation between these non-GAP and GAP measures, please refer to today's earnings press release and investor presentation, which are both posted on our website at investors. servicenow. com. A replay of today's call will also be posted on our website.

With that, I'll turn the call over to Bill.

Thank you very much, Darren, and thanks everybody for joining today's call. I looked at the transcript from an earnings call seven years ago, and back then we said service now would be the defining enterprise software company in the 21st century. So I want to give you a report out since then, we beat expectations in every quarterly report, expanded the profitability and free cash flow of the company, quintupold, our total addressable market, accelerated six of our own unicorns, two billion or multi-billion dollar businesses, processed billions of workflows and trillions of transactions, grew the partner ecosystem globally, architected the most complete AI control tower for the enterprise, maintained our best-in-class renewal rate, increased our brand value, offered our customers deep enterprise context, unlimited choice, and differentiated capabilities.

And of course, we set a course to 32 billion in revenue in 2030, operating at the rule of 60 and beyond. So today, we're adding a stunning Q2 print to this track record. Subscription revenue growth was 23% in constant currency, one and a half points above the high end of our guidance. CRPO growth was 21 and a half percent in constant currency, more than two points above our guidance.

Operating margin was 29 and a half percent, three points above our guidance. We had 123 deals greater than a million in net new ACV, up 40% year over year. Service now AI ACV exceeded expectations again, surpassing a billion, keeping us on track to beat our target of one and a half billion ACV by the end of 2026. We're feeling real good about it. What does it all mean?

We are who we said we were. The path to value isn't just making AI, it's deploying AI securely across the enterprise. IDC forecast spending on AI software is going to grow 53% this year, 17% faster than AI hardware, whichever chip wins, whichever lab wins, whichever price per token regime prevails, the enterprise needs one governed layer of record for work and service now offers needed certainty and an uncertain stack. Our platform is optionality on all AI outcomes, not a bet on anyone.

We're in the bullseye of AI, cybersecurity, workflow orchestration, integration and automation. That's why we're growing fast. It's why we're only just getting started. We are who we said we were. Over the past several months, we've addressed a number of really good questions during meetings with investors. Today, I'd like to give every investor the professional courtesy of those exchanges.

One question we regularly get is service now becoming a cybersecurity company? Here's the answer. Service now already was a billion dollar plus cybersecurity business. Today, our risk and security business is the fastest growing of the top 10 cyber companies in the enterprise. I'll make it very clear. We now have a 10 figure, cybersecurity business that's growing faster than all the other top cybersecurity companies.

We're building the world's most integrated end-to-end security platform across cyber, risk and compliance, agentic incident response, exposure management, identity and access security, cyber physical security and continuous vulnerability detection. The security stack sits on top of our ITSM and ITOM core infrastructure. So think about it. AI control tower plus ARMUS plus VASA. Our customers want every AI in the enterprise to be visible, governed and secured in one command center.

Native or third party, they don't want any blind spots. There's 2.2 billion agents entering the enterprise globally. That's 2.2 billion new identities, a quarter of today's human population.

VASA maps access across human, machine and AI identities. We'll have 40 billion connected devices in the world in the next four years. ARMUS already tracks 7 billion of those devices in real time. Many customers, especially in the public sector, seek out ARMUS because government policies require state of the art visibility. The attack surface is exploding. Every ungoverned asset and identity multiplies the blast radius.

When you integrate awareness and identity with the actionability of the service now platform, you have a complete 360 degree capability to secure the enterprise. It's highly telling that the AI control tower is already gaining traction with our partner ecosystem. In fact, one global services firm is leveraging this portfolio to help their clients rapidly triage their cybersecurity activity.

They're hunting down problems with service now. And the others are rapidly following suit. So once again, this is the eighth largest cybersecurity business in the enterprise and the fastest growing. And we are just getting started. Another question we get is, when will customer deployment of AI mark an inflection point for service now's growth? Here's the answer. It already has.

The percentage of renewal customers purchasing agentic AI for the first time doubled quarter over quarter and year over year. So customers that weren't already on the AI journey are signing up fast. Most customers are now completely allergic to anything that looks like a project. They only want deterministic. Service now only does deterministic. That's a big reason why customers with agentic AI in production have grown nine X over the last nine months.

So here's a few of many examples. The Department of Air Force is expanding its use of the service now AI platform. The deployment will unify IT operations and enterprise visibility. Experian is using service now to automate intelligent at scale. We will also integrate our platforms embedding experience data and decisioning into existing service now workflows. In a five year deal and many deals are going longer. You should see that in the CRPO and the RPO by the way. Maybank, Malaysia's largest bank will leverage service now to establish a resilient operation center to fortify security and resilience.

The US federal government's largest IT contractors and agencies are now consolidating asset discovery and security response on service now. One agency is using ORMIS to move from asset blind incident response to comprehensive threat hunting. Hitachi will standardize enterprise asset management across its global businesses on service now. Additionally, we're partnering with them to advance the Hitachi intelligent infrastructure monitoring solution.

The city of Raleigh became the first local government to deploy service now's L1 AI specialist in production with no in-house AI engineering bench behind it. That's right, it's on its own. The city is moving to become fully autonomous, one ticket category at a time. Many enterprise customers are at various stages of the same journey. They have progressing from supervised to autonomous operations.

A large global consumer good company partnered with service now to launch its first agentic AI use case in ITSM to triage workflows. The customer rapidly deployed a repeatable governance first, blueprint for future agentic use cases. A leading global food and beverage company found itself with AI agents proliferating across five platforms simultaneously with no unified way to govern them.

Their CTO has a mandate. No agent, no agent goes live without clearing governance, risk, value validation and observability. AI control tower went live this spring. They can now see in real time who was building AI and whether it had been approved, the value for them was immediate. It's worth highlighting IT operations management continues to be a source of strength to service now, extending its outperformance and Q2 with a catch rates to ITSM continuing to rise year over year.

Our CMDB gives customers a trusted system of record for their infrastructure, applications, services and dependencies. Service now delivers the intelligence layer and the infrastructure it runs on. We also get asked is service now gaining traction in the CRM marketplace? Here's the answer. The market participants in the enterprise are very good. They're really good companies. And let me be clear, they're not going away.

Having said that, we're doing very well. Already we're a 2 billion ACB business CRM and ACB growth accelerated again on a year over year and quarter of a quarter basis. Sales CRM average deal size doubled year over year. We're on track to execute over 2 billion service CRM cases this year. In addition, partners are increasingly positioning service now as an operational CRM platform, opening executive conversations across the C suite. For example, in Q2, a partner closed a full front office replacement of a major CRM deployment in just two months.

A leading North American automotive marketplace outgrew its legacy CPQ provider. It couldn't handle the volume or complexity of the business. After five vendors failed to deliver. Service now will help their sales teams achieve the speed and accuracy to operate at scale. An American software leader selected service now to modernize a highly customized quoting environment. Our ability to connect CPQ with broader workflows, customer data and service operations was a key differentiator in the win. A leading North American telecom infrastructure provider selected us to unify commercial and field operations on a single platform.

Service now will scale quote volume three X with no added head count and cut re-pricing from weeks to hours. A regional financial institution consolidated its loan origination workflow onto service now as unified CRM platform replacing legacy point solutions.

Hey, hey, here's the big one. Voice is the next frontier and we're winning it. We just proved something extraordinary. A large airline has gone all in running their customer service voice calls on Service now's voice AI CRM agents. This is live in production and handling five million annual voice calls in year one alone. The results speak for themselves.

Customer satisfaction is off the charts. We also get asked about Service now's role in the HR stack. Here's the answer. Employee works is the strategic entry point for enterprise wide employee experiences. This combines move works conversational AI with Service now workflows to create a single place to search, self serve, and take action across HR, IT, and all workplace services.

As Fortune 500 customers adopt employee works, we're seeing it pull through broader HR and employee experience opportunities. A similar pattern to what's happening in the CRM business. We get asked about the industry dynamics and enterprise AI. Here's the answer. Innovating for the enterprises like politics, as you may have noticed, it's pretty easy to make noise, hard to make progress.

One of the reasons Knowledge 2026 was the biggest we ever hosted is because customers are desperate to make real progress with a proven innovator they can trust. Sessions on ITSM, ITOM, and AI control tower were all over subscribed because the influx of AI creates more activity for IT, not less. Customers demoed our latest product releases, including new AI specialists.

Specialists for IT, CRM, employee service, and security. They learned about Service now action fabric. This enables any agent, cloud, co-pilot, or homegrown to tap directly into secure, govern enterprise actions headlessly. With so much of a data mess, they wanted to understand Service now's context engine and autonomous data analytics, which resolved data fragmentation across systems. With interest in Service now rising, our innovation velocity is accelerating to meet the opportunity.

For example, we have a big announcement coming, very shortly, a business model evolution that expands our TAM with AI native products. This new offering will be a conversational service desk experience, no tickets and AI-coded automation. In a new product-led motion, we're targeting the Fortune 500,000. Many of whom we expect to replace their legacy offerings and bypass the startups. Stop wasting time.

We already have several customers and beta, and soon will be GA. That's generally available. This is the first of many NetNew AI native products we'll be bringing to market in the weeks to come. Our dynamite engineering team is on fire. Another area of real progress for customers is the expansion of our strategic partnerships. Deeper integration of Service now AI control tower and Microsoft Agent 365, extended agent AI governance from desktops to data centers with Project ARK, a new agent secured by the NVIDIA Open Shell runtime and governed by Service now AI control tower.

Enhanced collaboration between Service now's AI native FDEs and industry led Accenture FDEs. There are too many to cover here. The momentum is everywhere. Here's a rapid fire round for you. Are we worried about seed compression? Not at all. Our addressable user base is growing and 50% of our NetNew business is already non-seed based. We keep seed based pricing because customers prefer it for predictability, particularly now where a lot of pricing out there has been less than predictable.

Our customers gonna build their own? I've yet to meet a customer who would even consider it. The best tech leaders know. It will cost five to 10X to build an agent versus run one on Service now. As the government business, it's never been stronger. National governments, regional governments, local governments, they're all expanding their Service now deployments.

There are just a few questions that I hope you found useful in answering for you over these few moments we get to spend together. For now, I'll answer the final question. Why will Service now get incremental share of wallet in the enterprise?

I'll explain it as plainly as I can. There are many good companies in the enterprise today and I do have respect for them all. Some that have built very strong businesses over the years. Others that are new participants, they're good companies. The established companies aren't going anywhere and I expect them to do very well based on the years of business logic and context in their platforms.

The new companies are growing fast and they'll be disruptive to some legacy point solutions and likely complimentary to the bigger platforms. There are two major factors that should cement conviction in Service now. One, if you were to assess all the players out there, which of them include a system of record, deep enterprise context, fully integrated governance and auditability, a proven global distribution channel, and a flexible pricing model that includes predictable consumption and outcome based options.

I'll save you the trouble. Only Service now is completeness of vision checks all of those boxes. The second factor is pure market fit. Which of the platforms in today's enterprise was designed from the ground up to integrate to all of these players? Again, the only answer is Service now. Risk at scale is why CEOs are losing sleep right now. They read all these thread headlines, they see all these platforms and token invoices and they don't know what to do.

This is the gap. Service now is the bridge. We're in the control business, one platform, one system of action, any cloud, any agent, any workflow, any model, govern, secured, and accountable. This is the AI control tower. Enterprise leaders now know it's mission critical.

Enterprise execution with cybersecurity at the core of the platform. And cybersecurity growing real fast. Service now is the rules and rails of the enterprise. We're in command of theogenic enterprise from workflow to cyber. Our position is real. It is durable. It is compounding. This is the foundation for a re-rating of Service now. Let's get it started today.

We said, defining enterprise software company of the 21st century. We are who we said we were. Thank you for your time today, for your interest in Service now, and for your enduring support. We'll never take it for granted.

With that, I'll hand things over to our president CFO, Gina Massentuno, Gina over to you.

Thank you, Bill. Q2 is an outstanding quarter that highlights Service now as broad-based demand, strong execution, and operating leverage. Once again, we beat the high end of our guidance range across every top line and profitability metric. AI net new ACV growth continues to outpace expectations. Our AI control tower is supercharging our security and risk business. And ITOM is seeing strong demand tailwinds for the CMDB to serve as an essential governance and data foundation.

Simply put, the momentum across the portfolio continues to build, and we remain on track to deliver another exceptional year.

Q2's description revenues with $3.87 billion growing 23% year over year in constant currency and 150 basis points above the high end of our guidance. RPO ended the quarter at approximately $29 billion, representing 22% year over year constant currency growth with an increase in average customer contract duration. Current RPO with $13.2 billion, representing 21.5% year over year constant currency growth. That's a 200 basis point beat versus our guidance.

Across our workflows, we saw widespread demand. Technology workflows had 50 deals over a million, including nine over 5 million. The combination of Armist and Beza has had a strong pull effect on our core. ITSM was in 15 of our top 20 deals.

ITOM had an outstanding quarter in 18 of our top 20 deals with 14 deals over a million. Our security and risk solutions were in 16 of our top 20 deals, also with 24 deals over a million.

CRM and industry workflows were in 16 of our top 20 deals with 15 over a million, driven by sustained momentum in CPQ and sales and order management. Core business workflows had 12 deals in the top 20, with a blockbuster 24 deals over a million, driven by strong demand for employee works. And creative workflows had 18 deals in the top 20 with 14 over a million.

From an industry perspective, business and consumer services led the way with net new ACB growing over 6x year over year. Education posted impressive growth, surpassing 125%, followed by telco and media growing nearly 40% year over year. Manufacturing also delivered strong growth in the quarter.

Our renewal rate was a best in class 98% in Q2, underscoring the durability of our customer relationships. We ended the quarter with 658 customers generating over 5 million in ACB with 32 more customers crossing the $20 million threshold since last year. As customers scale, they are consolidating more on the ServiceNow AI platform demonstrated by 18 of our top 20 deals, including eight or more products.

ServiceNow AI continued to outperform expectations in Q2 with ACB crossing over a billion and net new ACB growth accelerating sequentially growing over 40% quarter over quarter. Deals including five or more ServiceNow AI products could 5.5x year over year, which drove a tripling of million dollar plus deals.

In addition, the number of customers with a gentic AI in production has increased 9x over the last nine months, a leading indicator for the future consumption opportunity.

While still early, we're already tracking ahead of our target for AI to reach 30% of ACB by 2030. As Bill noted, our new AI needed SKUs are making our agentic solutions more accessible across the customer base, as evidenced by deal volume amongst first-time ServiceNow agentic AI buyers growing over 45% year over year. What's more, upgrades to our new AI needed SKUs are driving price uplifts in line with a 20 to 30% framework that we laid out at our financial analyst day.

Employee works or AI front door for the enterprise workforce continue to build strong momentum with deal volume growing over 150% quarter over quarter. Another good example of our acquisitions amplifying the core.

The robust attach rates of AI across the platform are also driving our data and analytics business. Raptor DB Pro deal volume grew 80% year over year again in Q2. A workflow data fabric was in 17 of our top 20 deals.

Turning to profitability, non-gap operating margin was 29.5%, 300 basis points above our guidance, driven by the revenue outperformance, and timing of spend primarily in marketing. Our free cashflow margin was 16%. Together, these results continue to demonstrate our ability to drive a strong balance of world-class growth, profitability, and shareholder value.

Moving to our outlook. For Q2, we saw a net new ACV outperform so we're raising our full year guidance. Part of that outperformance was due to strong U. S. federal demand was shifted some on-prem revenue from Q3 to Q2. This is simply about timing. I'm very confident in our Q3 and full year guide. For 2026, we're raising our subscription revenues by 15 million at the midpoint, from 15.75 billion to 15.77 billion, representing 21% year-to-year growth on a constant currency basis.

We expect subscription growth margin of 81%, reflecting more customers utilizing our hyperscale partnerships, as well as accelerating AI adoption. We expect operating margin of 31.5%, and free cashflow margin of 35%. And gap-deluded weighted average outstanding shares of 1.04 billion.

For Q3, we expect subscription revenues between 3.975 billion and 3.980 billion, representing 20% year-to-year growth on a constant currency basis. We expect CRPO growth of 20% on a constant currency basis. We expect operating margin of 31%, and we expect 1.05 billion gap-deluded weighted average outstanding shares for the quarter.

In closing, Q2 is another outstanding quarter. In an environment where most enterprises are still searching for AI's ROI, ServiceNow is the platform delivering it. In my conversations with CFOs, the question has become simple. Where is the return? They've watched budgets burn on pilots that demo beautifully and never touch the P&L. ServiceNow doesn't just deploy AI. Our AI control tower provides a single view to discover, govern, and secure every AI system. Entite every agent to a real ROI.

AI that only advises is a cost. AI that completes the work is a return. On our platform, agents don't just reason they take action. And because we have the contextual data, every action is anchored in the live-governed reality of the enterprise. Turning probabilistic AI into deterministic, reliable outcomes. That's how AI moves from an operating expense to operating leverage.

Customers aren't paying us for tokens, they're paying for resolutions. That's why enterprises are choosing ServiceNow to convert AI ambition into measurable ROI. Finally to our teams around the world, thank you. Your execution is why the world works with ServiceNow and why we are more confident than ever in the road ahead.

With that, I'll open it up for Q&A. Thank you.

If you would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. And if you'd like to withdraw your question, again press star 1. We do ask that you limit yourself to one question. For any additional questions, please recue.

Thank you for the question. See the level 1 IPSM product cycle has been very accelerated for us. The thing we're solving for, which we talked about knowledge, is to really have human equivalent AI specialists which can take on the full task end to end without any customer having to deal with individual pieces of technology, AI agents, the orchestration, the reasoning. We take out and abstract out all of that work for them, and customers really benefit from the outcome.

And that is what resonating with the customers today. So we have deployed level 1 support AI specialist as well as 20 other AI specialist inside service now, and we're trying to do that with our customers. Today, 40 plus customers are using it already and getting a lot of good benefits. We're talking about closing down close to 80 to 85% of the service request without having any human interaction, and an end to end service request completion, not just giving you the information, but actioning on those requests as well. And that reduces the time. So for example, some of the requests might take two days for humans to get to or resolve. We're doing that in 20 minutes.

So the productivity gains for employees is very, very high and very superior because now they're getting the issue resolved. While we're reducing the volume of requests required for humans to deal with, and they can now deal with something more complex instead of having to deal with all these requests, which are coming in as volume-wise. So this is a game changer. This is first in the industry, and we've seen huge success already, and you should expect a lot more continuous evolution in this space. Customer traction is excellent so far.

Usage goes up considerably because you do burn down a lot of now assists because you are doing full end-to-end task resolution here, and that's really where the opportunity for us exists. And it's also a labor arbitrage. So we also get to monetize the labor cost, which employees have to pay. Employees have to pay the employees. Now they can do this in much cheaper way so we can take away the labor cost as well. So a lot of great examples happening here, and great, great progress so far.

And I'll just add Gabriela to the monetization question, because it's so very important. I'll reiterate, we've crossed a billion in AI, ACV in the quarter, well on our way to the 1.5 billion. I also noted in my script that while early, we're already tracking ahead of our target for AI to reach 30% of ACV in 2030. And these L1 autonomous agents, if you think about the complex tasks that they're able to execute, really drives more and more assist. So as we think about compounding effect of consumption, this is a great example of how we will reach our 30%. But tracking very well, and we're really excited about what we're seeing.

Your next question comes from the line of Michael Turin with Wells Fargo Securities. Please go ahead.

So thanks, Michael, for the question. So, you know, clearly a strong Q2 and Fed is good news in general. And as we move into the big Q3 quarter for Fed, it's definitely a good indicator. We called it out specifically because we did have a little bit more on prem in Q2, which is purely timing. But I want to be clear that the beat was not all just on prem. We had really strong net new ACV in the quarter as well, which allowed us to raise the full year guide.

And so Fed business is strong. As we move into Q3, pipe looks good. And we're very excited about what we're seeing. And Michael, I would just build on what Janice and by simply reinforcing the message I gave you on cyber. Cyber security is going to be a massive tailwind for service now. The AI control tower for reinventing business is massive.

Think about all of the assets, the incidents, and the actions that have to take place to manage these large entities of government operations. Think about the Department of Defense, even as one example, and the importance of saving people's lives, like medical material agencies in flight, putting things together, the devices, the coordination. The beauty of service now is, Amit said a moment ago, it doesn't just think, but it acts and it closes the loop.

And that I think is the full cycle of AI innovation and cyber security that we're building here at ServiceNow. And as the attack surface becomes even more dangerous by the moment, we're up for the challenge. And I think you're going to see us move up the leaderboard from a number eight company to contending for the top spot.

That's very clear.

Your next question comes from the line of Alex Zuchen with Wolf Research. Please go ahead. Your next question comes from the line of Cal Lianni with Bank of America. Please go ahead.

Thanks. We've been very clear in terms of keeping accounts of pricing very customer-friendly and thinking about how they want to adopt the products and where they see value. So we're never trying to kind of do strange things, which is very hard to manage or hard to understand. So hybrid pricing structure, which we introduced, where it's combination of license and usage, directly applies to giving the customer predictability and flexibility. And when you use more, that means you're getting good outcomes, otherwise you will not use more. So outcomes already tied in the underlying assumption of usage.

So it's trying to kind of define another metric, which is very hard to understand or measure, and then have to go back and forth into the contracts and everything else. An enterprise software doesn't work, and we've seen that for years, and it's played out so well for us now, because the way we address our pricing requests from customers seems to resonate with everyone. So that's really how we're thinking about it. And the question you asked about tokens and things like that is really based on the outcome in terms of what you get the result, the full solution, versus just counting each of the individual pieces of LLMs or things like that. So customers are seeing the outcome from the usage, but they also now be very predictable in terms of what they will pay us.

And that has worked quite well. And the second thing you asked about how we allow access to our systems in the context. Our context is for us to really get a better result for our customers, and our competitors don't get access to it, neither do LLMs. So that's really where the secret sauce is, and that's something which we've been, we run seven trillion workflows on our platform. We are collecting so much intelligence, which can really change the game for our customers from the usage perspective and the results perspective. And that's where the differentiation comes in, and nobody else has that today.

And I would just add on your question on pricing. Our pricing uplift for our ProPlus use continues to be above 30%. And for our new AI native schools that would just launch, continue those uplifts are in line with what we talked about at FAD at being 20 to 30%. So customers are absolutely understanding the value that our AI is delivering to them.

Your next question comes from the line of Sonic Tatterjee with JP Morgan. Please go ahead.

So, thanks so much for the question. As we talked about, the AI native SKUs are really making our agentics solutions more accessible to that customer base, new customers. And then existing customers who haven't tried AI before, right? So we talked about deal volume among first time service now, agentic AI buyers. So customers that haven't bought AI before grew over 40, 5% year over year.

And again, uplifts in pricing of 20 to 30%. So the AI functionality is really resonating across the board with our customer base, existing customers, and then also for new logos. So the new customers are also leaning into AI first, as you would expect.

I'll just add also the use cases across the AI is just expanding quite a lot. If customers of course start with the gen AI kind of mindset, but now doing resolution planning, incident management, triaging, the whole case management around it. So once the agentic use cases get started, we're seeing a tremendous amount of interest in doing more and more. And that's why you're seeing the growth, you know, talking about with our AI adoption.

And that happens for existing customers because they want to identify the workflows. They're finding new use cases in other departments. So there's a lot of cross-sell opportunities because you do connect multiple departments and multiple systems together. You're just not doing it for one particular area. And that's where we become much more of a control tower as well as the full orchestration engine versus other vendors out there. So that's really where we're seeing the exciting uptake.

And we keep on learning from it. And if you look at the innovation cycle we brought in now, really amount of new capabilities we've introduced over the last six to 12 months is just huge.

And it's very exciting for our customers and very differentiated versus all the random individual pieces of technology which are out there in the industry today. And then on your question specifically on adoption, we talked about number of customers with a Gentic AI in production has grown 9x over the last nine months.

So adoption is going well on top of what we just talked about. Your next question comes from the line of Tyler Radke with City, please go ahead.

Yeah, so thanks so much for the question, Tyler. So we talked about the fact that about half of the beat is a full forward of on-prem for a quarter, right? So that won't impact Q3 versus Q2 from a full year rep from a full year revenue guide. We passed along all of the net new ACV overachievement. But yes, I'm always looking, especially in this market environment at a conservative prudent guide, right? There's certainly outside, but we feel really good about the guide right now.

And we raise for all of the net new ACV overachievement in the quarter and are being prudent for back half as most would expect.

Your next question comes from the line of Matt Hedberg with RBC capital markets. Please go ahead.

Thank you for the question Matt. So think of it this way. The frontier companies out there are incredible. And so whoever teams up with ServiceNow wins. And the reason for that is as Gina and Amit were discussing the 100 billion workflows and the nearly 8 trillion transactions that we have in flight right now, there's a lot of business processes that are running on the ServiceNow platform. And what we did with the company, with the CMDB, you have to go to the beginning of the company. We knew all the people. We knew all the places.

We knew all the things. And over time, we integrated with all the systems of record. So we're completely integrated with everything. Hyperscalers from tier models, data lakes, systems of record. So that workflow and how you automate that and the incredible power of AI going east to west and north to south without any klugey workarounds because these clunky systems that have been in the enterprise for six decades doesn't let AI do what AI was born to do.

We've integrated into the other participants and we have connectors into all of them. So those connections let AI and the magnificent power of AI really go to work. The other thing that is so interesting right now, as you know, the attack surface is exploding. Every ungoverned asset and identity multiplies the blast radius of AI in the enterprise.

So we had a leadership position in security and operations and we integrate with all these excellent security companies that are out there. These guys are my friends. But we did something a little different. We gave the customer that one command center where they had a full purview of their landscape and they had the threat areas very well known. Now with VASA and ARMUS we're managing all the identities of the humans, the agents and the thinking machines, the robots.

And now we're going after the critical infrastructure, the people, the networks and the devices with ARMUS. So the strategic relevance of service now is that the bull's eye or the epicenter of the AI revolution in the enterprise. And so what you're seeing here is a company before your very eyes turning into both an enterprise software market leader and a cyber security market leader and the fastest growing at both.

And that's pretty special. And so I think what you should take away from this is meet those with a gift to the service now company in the sense that everybody now is scrambling with all the exposure that they have to patch things up. But it's one thing to know where the threat area is. It's another thing to hunt it down, take action on it and close the loop, which is what the service now platform enables you to do end to end. Cyber security.

And so I think it's just gotten very interesting right now. It's chosen on numbers. You know, a lot of people like the seats going away. No, actually active seats going up. Wow. What about the term of the contract? They must be going down. No, they're actually elongating. And you see that in the CRPO and the RPO. And oh, by the way, the pricing. Oh, but you know, you must be doing something wrong. The pricing. No, actually, we're giving the customer exactly what they want, the hybrid with the seat and the consumption. So they get a great ROI on their investment.

So all these pieces are coming together. And then you say to yourself, you read the media headlines today and you're like, wow, it's pretty cool that we have a kill switch for rogue AIs. For any company that's running service now, and you get a rogue AIs, there's a kill switch. It doesn't get through. And then you think about, you know, how you use the right model and you hire it for the right job. Oh, we do that too.

And people realize and you don't need to take a Ferrari to mail a letter. So using the right technology for the right job and then managing the budgets, including all the tokens and the security of this has become pretty important. And so we're right now really seeing a new world order of things. And when one of the colleagues just asked the question, you know, kind of about the AI and all that, I think this maneuver on what we did with the AI control tower and setting that new vision for the company for the future.

I think cybersecurity will be bigger than service now is in the next few years. I think you'll be like, could you please talk to us about your workflow automation business and your core IT? Because all I hear you talking about cyber.

Your next question comes from the line of Samad Samana with Jeffries, please go ahead. Good evening.

So, so it's all three. So a little bit is from M&A as we as we inherited some incredible sales associates and as Bill just talked about security and risk really ramping. So we're certainly making sure that we're hiring ahead of that. We've always said and we've never stopped hiring quarter bearing speed on the street sales exact and we will continue to do that and you'll continue to see us do that. So yes, we we feel bullish about back half. As you would expect, you'll feel more more sales head sales heads as a result. But yes, some of it is from M&A.

And may I say, Samad Gina laid it out there beautifully. We're a growth company and we're going to grow. We're going to grow fast. And the one thing I also wanted to reinforce as a commitment that we made as a management team to the capital markets. We will complete this year after having acquired three gorgeous companies, Move Works, Visa and Armus.

We will complete this cycle of 2026 and start 2027 with the exact same headcount before we did the acquisitions. So you're going to see the operating margins and the free cash flow margins of this corporation scale. And you already saw the three point operating margin improvement in the quarter, which was way beyond expectations. We are serious about growth. Growth on the top line, expanding the margin profile of the company and winning share everywhere we go in this AI revolution, especially cyber.

Your next question. Your next question comes from the line of Brad Zelnick with Deutsche Bank. Please go ahead.

Thanks so much for the question, Brad. So, yes, both good reasons for a little bit of short term pressure on margins.

Notably, even though we had a little pressure on gross margin, we held the operating margin flat. But with respect to gross margin guidance, as we ramp and the increasing hyperscalar is that we're ramping quicker than plan, which is a very good thing. As we continue to ramp and more and more goes to hyperscalars, the cost per come down. So, we absolutely believe that mid-term, there will be less pressure and even better pricing on the hyperscalar side of things, which I also talked about at FAD. The same thing with respect to AI consumption. And so, if you remember at FAD, I talked about a little bit of short-term pressure, but that we absolutely think that mid and longer-term, we have some opportunity to continue to increase.

All of that being said, operating margins continue to increase, as Bill said. We will remain as disciplined as ever on driving not only best-in-class top-line growth, but best-in-class margins well on our way to the rule of 60 by 2030. If I can add, Brad, on the token, how we think about using the large-language models. I think clearly in the market, we've been talking about it for years, so that large-language models are getting commoditized.

There is no reason for using some of the most expensive ones. So, we're very smart about how we use and leverage some of these emerging technologies, where we use open-weight tour agents, where do we have our own, where we have domain-specific ones, and where we use some of these higher-end frontier models. A lot of these capabilities can keep on being swapped around, and we really optimize across the board to ensure we're getting the best outcome while keeping the cost low. So, engineering team is really on top of it, and our research team really does a lot of work in our labs to keep up with it, and we work with many of them as well to optimize how this thing gets adopted.

So, we are not really worried about the margin impact, whereas we keep on using more of these capabilities. Why? Because the way we price is really based on the solution versus individual tokens at the end of the day. So, I think that should be how you should think about long-term.

Your next question comes from Keith Buckman with BMO. Please go ahead.

Thank you very much, Keith. We're building the world's most integrated end-to-end security platform. I think that's the way you should think about it. And think about us in the context of AI control tower. Think about us as the agentic front door to security 360. And of course, Vezz and Armis give us an enormous start on some of the areas we didn't have, but we already had a lot of areas and a very large security business.

Now with the great engineering we have and the development commitment we have, I think we're just going to build so many great things. I talked about risk and compliance, which we already have. I talked about identity and access security, which we already have. I talked about cyber physical security, which we already have. I talked about continuous vulnerability detection, which Armis is the best at. We're literally hunting the vulnerabilities, not passively looking at them on a dashboard.

Exposure management, agentic incident response, these are things that our platform does. So what I laid out today was an organic story. Now to the extent there might be other things we wish to do. I'll let Ahmed comment on some of the road mapping that we're doing, but I just want to give you great confidence that what we have right now is awesome.

And it's going to really rock the world. In fact, I'm actually so pumped up because we just had a couple of days of board meetings. And I got to see the solution, the products that we have in flight, and our great go-to-market leader Paul and all the work he's doing with the teams and how beautifully integrated they are in the company. You know, we're the rare company that actually brings companies in from the outside and puts their CEOs in charge of the business. And we did that with employee works, with move works.

And now we did that with Armis and you kept me running our security business as a corporation within the corporation. And that's inclusive of Visa. And so the alignment of our naturally born assets and then having these businesses run by people that are born in the security space. I mean, you got to look at this hunger, this drive, this belief, this innovation roadmap, the way I saw it. And I think you would be as excited as I am.

So Ahmed, do you want to add some color? Yeah, no, Bill. I think you covered a lot of the ground in there. I can keep on general. If you look at the security and the cybersecurity space, we are basically covering the pre-breach with vulnerability management and exposure management. So we complete that story in terms of any device, any asset, any kind of agents and everything else across where the arm is from that perspective.

Then you have the post-breach, which we have been very strong at service now. We've been managing all of the things for CISOs across the light cycle or any breaches associated with cyber attacks. And now we have runtime security as well. So we're bringing all those pieces together into one platform. And really that's the area we are playing in. They're always going to be large other peripheral things in cybersecurity.

And the cybersecurity space is huge. I mean, not going to be in every area. But where we have strength, where we have opportunity, and it builds on top of what we did with CMDB, what we did with our post-breach stuff, and now adding the AppSec as well as the pre-breach things for any kind of exposure. And vulnerability for any devices and IT is just really changes the game and creates a big platform.

And secondly, quickly on the observability. As you probably saw, we launched our AI ops specialist as part of AI ops products in ITOM. So we are already doing a lot of work with observability, bringing a gente kind of use cases into a platform. So we're not trying to build this observability outside. It's really part of ITOM. And then we're integrating with all the other players, which gives us signals, and then you can make decisions and take actions. And that's really the foundation around ITOM and everything else we do in that ecosystem today.

And if I could, I just want to say, Keith, to my friends out there in the security business. Great friends like Nikesh and George and many others. They're still our great friends, and they're our great partners. And we run their solutions in our company, too. And we intend to continue to partner with them and make those partnerships even deeper.

Because there's such a surface area and so much opportunity, and meet those as open up the floodgates. So I think the new information from a shareholder value standpoint is we're in the party now. And we're not out to replace all of those ex-only companies. We're building our own story on our own great foundation. And it's important that the customer gets the benefit of all of us because they're going to need it.

Your next question comes from the line of Greg Moskowitz with Ms. Zuho. Please go ahead.

If I may, all the commentary on this call sounds very favorable. But there have been a couple of recent indications from tech vendors that organizations have become more consumed with hardware and AI spending, and this is having a knock-on effect on other aspects of IT spend. So just to ask is directly, have you seen any impact to sales cycles with ServiceNow?

I have not. In fact, the key here, Greg, is this has really become a C-suite story. You have to recognize the breadth and depth of our portfolio. Having six unicorn businesses, a seventh on the way, by the way. So when we go into 2027, I'll have seven unicorn businesses that are either a billion or multiple billions. Keep that in mind. So the breadth and the depth covers the surface area of many aspects of a corporation, but it also covers the most important part of the corporation, which is how do you run the business?

And the fact is, with AI, these customers don't have enough time to do it the old way. So many of them have such a fragmented enterprise that they need to take advantage of our workflow automation above the mess, and click in that AI engine into this unbelievable platform and really begin running. So the higher you go in the C-suite, the more relevant we are, and the more the C-suite realizes that we're in the bullseye of what has to happen to fundamentally be the control tower for reinventing these businesses.

So I have not seen any change. If I've seen any changes on the positive, and I will tell you, we're ready. And our business is rocking. And when I think about what we're going to do with the new businesses that we took advantage of at the end of last year and took some criticism for, it was because we believed in our strategy, we believe in our team, we believe in our customers and what they need, and now it's all about execution, and we're good at that. So what I see is a customer base waiting for us, plays that we're running to gain even more traction, and a fantastic future for people who believe in service now.

And we have time for one more question, and that question comes from the line of Adam Wood with Morgan Stanley. Please go ahead.

Yeah, maybe Adam, I'll start to tell you about how we think about AI control tower. As Bill mentioned, our heritage has been the CMDB platform, which tracks every kind of asset out there, hardware, software, and other capabilities enterprises have. We build AI control tower with that kind of foundation where we would be able to discover anything an enterprise is running. Yeah, which includes now AI agents, any devices which are connected to it, and it's very heterogeneous. It's work across multiple domains. It's not really for service now assets, but everything else. So we've always been doing this open ecosystem, discovery, management, life cycle tracking, cost management, and observability around it. So it was very natural for us to get into this idea of AI agents being also monitor and manage across all the different landscape customers have.

And that has been very clearly resonating with our customers. We have more than 500 plus customers already live using AI control tower in the first six months when we launched this product and it continues to grow. And we keep on adding more and more capabilities in terms of finding, like Bill mentioned, kill switch, right? How do you find errors or issues with any of the raw agents running around and stop them from accessing any information or any data? With Versa, we added a lot more on identity governance.

And with Arm, we're able to now take all the devices as well in their physical AI as well. So the breadth and the depth we have here is the reason why we have the right to win. We have the foundation and we build a solid product, which is really working for our customers. And we have tremendous amount of proof points where we are able to now really help customers to manage their whole use AI landscape and really have control and a peace of mind.

And that's really where the foundation comes from. And I would say running the business is what C-suite executives care about. How am I going to be a best run business? And when you think about it that way, and you ask for some examples also, order to cash, procure to pay, design to build, hire to retire. We can go through all the business processes and CEOs know exactly what they are for their company. And they know they have to optimize them to ring margin points out of waste and gain future market opportunities, like lead to cash as an example. So they're thinking big picture, they're thinking business processes. So in that context, we are enterprise participants in the transformation of these companies.

And some examples would include Fortune 50 Healthcare and Retail Distributor. You know this company well, believe me. They're capturing millions in annualized savings by consolidating vendor risk governance and fraud detection across a thousand suppliers. They're using ServiceNow's AI control tower. Tech Mahindra, you'd recognize that pretty quickly, strengthening through a five-year deal, by the way, to fundamentally transform the workflow processes across HR, IT, security.

And they're going to govern their assets at mass scale with a Gentic AI. Another one I love is Maybank. By the way, another five-year deal. So much for deal shortening, right? A leading financial institution. And what they're doing, I mean, this is Malaysia's largest bank. They're using the AI platform and control tower to establish a resilient operation center to fortify security and resilience, as well as autonomous regional operations.

NTT data is one of my favorites, too, since Paul and I were very involved in that, I'll tell you. They have a governance process with us to drive AI scale for all internal use globally. And they're doing it on a single platform. And they're looking at responsible innovation done with great visibility and the control tower, accelerating AI adoption, but also monitoring it, measuring it, make sure everything's done in real time the right way. And, you know, Amit talked about kill switch. We're doing many other things. So I hope that gives you a little feel for it, Adam.

You know, now, turn it back over to Darren for closing comments. Thank you all for joining. We look forward to talking to you next quarter. Take care.

Ladies and gentlemen, this does conclude today's conference call. Thank you all for your participation. And you may now disconnect.