NOW earnings analysis
What we found in NOW's 10-Q: the parts that mattered, the offsets in the same document, and what the company said about what comes next.
Our reading of the filing · Free to read, no account needed
ServiceNow delivered Q2 revenue of $3.987 billion, up 24% year over year and about 6% sequentially, while non-GAAP EPS of $0.90 exceeded the $0.76 consensus estimate. Demand indicators remained robust, with $29.0 billion of RPO and 21% year-over-year growth in both RPO and cRPO. The principal offset is substantial GAAP-margin pressure: gross margin declined to 71% from 77% and operating margin fell to 4.1% from 11.1%, driven by cloud capacity, acquisition-related amortization, services investment and higher operating costs. Liquidity remains ample at $6.7 billion of cash and marketable securities, but the Armis-related financing added $4.0 billion of notes and $2.1 billion of commercial paper.
The parts that mattered.
Pulled out of the filing itself, with the figures the company reported.
- Revenue grew 24% and adjusted EPS beat
- Q2 revenue was $3.987 billion, up $772 million (24%) from $3.215 billion a year earlier and up approximately $217 million (6%) from $3.770 billion in Q1 2026. Non-GAAP diluted EPS of $0.90 exceeded the $0.76 consensus estimate.
- Subscription growth remained the core driver
- Subscription revenue grew $764 million, or 25%, to $3.877 billion, while professional services and other revenue increased $8 million, or 8%, to $110 million. Subscription represented 97% of total revenue.
- Backlog and large-customer base expanded
- RPO reached $29.0 billion at June 30, 2026, with 46% current; both RPO and cRPO rose 21% year over year. Customers with more than $5 million of ACV increased to 658 from 533.
- GAAP profitability compressed sharply
- GAAP gross margin was 71%, down from 77% a year ago and approximately 75% in Q1. GAAP operating income was $162 million, down 55% from $358 million, producing a 4.1% operating margin versus 11.1% a year ago and about 13.3% in Q1.
- Cash generation remained strong despite costs
- For the first six months, operating cash flow was $2.257 billion, down 6% year over year, while non-GAAP free cash flow rose 14% to $2.299 billion. Capital expenditures were $255 million, equal to roughly 3.3% of six-month revenue of $7.757 billion.
- Management signals further gross-margin pressure
- Management expects 2026 subscription gross margin to decline as third-party cloud usage and acquired-intangible amortization grow. Q2 subscription gross margin fell to 73% from 80%, while professional-services gross margin moved to negative 26% from positive 3%.
And the other side of it.
The offsets in the same document — the things a summary that only listed the good news would have left out.
- Cloud and acquisition costs pressure margins
- Cost of revenue grew 61% to $1.169 billion, materially faster than 24% revenue growth, reducing total gross margin to 71% from 77%. Management expects subscription cost of revenue to rise as a percentage of revenue during 2026.
- Acquisition financing increases leverage exposure
- Debt and short-term funding increased following acquisition financing: the company issued $4.0 billion of senior notes and had $2.1 billion of commercial paper outstanding at June 30, 2026, at a 3.98% weighted-average rate and 81-day weighted-average remaining term.
- Acquisition spending reduced cash balance
- Six-month investing cash outflow increased to $7.105 billion from $640 million, primarily reflecting an $8.700 billion increase in cash used for business combinations. Operating cash flow declined $136 million to $2.257 billion over the same period.
- Higher and volatile tax rate weighs on earnings
- The effective tax rate increased to 32% from 18%, and Q2 income-tax expense rose 63% to $140 million. Management says tax obligations may fluctuate further as Armis is integrated into its corporate structure and intercompany arrangements.
- No formal risk-factor update; macro exposure remains
- The company states there were no material changes to risk factors from its January 29, 2026 Form 10-K; however, it continues to monitor macroeconomic uncertainty, including interest rates, inflation, tariffs and global conflicts. International revenue was 37% of Q2 revenue.
What they reported.
What the company itself reported, taken out of the document.
- Earnings per share
- $0.9
- Gross margin
- 71.0%
- Operating margin
- 4.1%
- Segment
- Subscription revenue: $3.877 billion, up 25% year over year
- Segment
- Professional services and other revenue: $110 million, up 8% year over year
What they said about what is next.
The 10-Q provides no quantitative revenue or EPS guidance. Management expects 2026 subscription and professional-services revenue to increase in absolute dollars and remain relatively flat as a percentage of revenue; it expects subscription gross margin to decrease, while sales and marketing expense should decline slightly as a percentage of revenue.
The filing reads better than the one before it.
What came before.
- 10-Q · April 22, 2026
- ServiceNow reported quarterly revenue of $3,770 million, up 22% year-over-year, driven by subscription growth; non-GAAP free cash flow was $1,665 million (up 13%). Gross margin and professional services gross loss…
- 10-Q · April 23, 2025
- ServiceNow reported solid Q1 results with revenues of $3,088 million, up 18.6% year-over-year (Q1 2024: $2,603 million). Gross margin was 78.9% while operating margin expanded to 14.6%; diluted EPS was $2.20 and…
- 10-K · January 30, 2025
- ServiceNow reported strong full-year 2024 results driven by subscription growth and expanding RPO, with total revenues of $10.984 billion, GAAP diluted EPS of $6.84 and free cash flow of $3.455 billion. RPO increased to…
- 10-Q · October 24, 2024
- ServiceNow reported strong Q3 results with revenues of $2,797 million (up $509 million YoY) and diluted EPS of $2.07 (vs $1.17 prior year). Operating profit and margins expanded materially (income from operations $418…
This is our reading of a public filing, not the filing. Read the original on SEC.gov · Educational only. Nothing here is investment advice.
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