Published
# ServiceNow, Inc. (NOW) — Business, Risks and Management's Discussion --- ## Business *From the fiscal 2025 Annual Report on Form 10-K (year ended December 31, 2025), accession 0001373715-26-000007.* ServiceNow sells enterprise software subscriptions. Its product is the ServiceNow AI Platform, a cloud-based, multi-instance platform on which the company builds workflow applications that organizations use to govern, secure and manage artificial intelligence and to digitalize and automate work across departments. Customers are large enterprises and government bodies; as of December 31, 2025 the company had approximately 8,700 customers. Essentially all of the money comes from subscription fees: of $13,278 million of total revenues in fiscal 2025, $12,883 million (97%) was subscription revenue and $395 million (3%) was professional services and other. Subscriptions are generally invoiced annually in advance, are typically non-cancellable, and typically run three years; revenue is recognized ratably over the term, except for self-hosted offerings, where a substantial portion of the price is recognized upfront on delivery of the software ($492 million of fiscal 2025 subscription revenue was recognized this way, up from $409 million in fiscal 2024). ServiceNow manages the business as a single operating and reportable segment. Sales outside North America were 37% of total revenues in both fiscal 2025 and fiscal 2024, and revenues denominated in U.S. dollars were 71% of the total in each of fiscal 2025, 2024 and 2023. The workflow applications are grouped into four product areas: - **Technology** — unites IT, risk management and security operations on one platform. Includes IT Service Management, IT Operations Management (which discovers and manages physical and cloud infrastructure and maintains the configuration record of all IT items), IT and Enterprise Asset Management, Security Operations, Risk Management and Strategic Portfolio Management. - **Core Business** — HR, legal, finance, supply chain and facilities processes. Includes Legal and Contract Operations (Contract Management Pro and Legal Service Delivery). - **CRM and Industry** — connects front-end customer service to operations, field service, sales and order management, plus offerings tailored to financial services, healthcare and life sciences, manufacturing, public sector, retail, technology and telecommunications. Includes Field Service Management and Sales and Order Management. - **Creator and Other** — App Engine low-code/no-code development, Workflow Data Fabric (integration of internal and external data into a single governed model), RaptorDB (a high-performance database for workflow transactions at scale), and Platform Privacy and Security. Across all four areas the company sells Now Assist and AI agents as layered capability — summarization, natural-language interaction, recommendation and automated action — rather than as a separate product line. Management's stated positioning is that AI models generate information but cannot execute transactions, route approvals, update systems of record or enforce business rules, and that ServiceNow supplies the orchestration and governance layer that turns AI output into completed work without customers replacing existing systems. Alongside subscriptions, ServiceNow sells Customer Support (standard and enhanced, on subscription), Professional Services (design, implementation, architecture and optimization, delivered directly and through partners) and ServiceNow Impact (a subscription offering of tools, guided plans and AI-driven adoption recommendations). **Go to market.** The direct sales organization produced 78% of total revenues in each of fiscal 2025 and fiscal 2024 (for this calculation revenue through systems integrators and managed service providers is counted as direct). The balance runs through resellers, distributors and managed service providers. A substantial majority of U.S. government sales are made indirectly through distributors, resellers or service-provider partners. The partner ecosystem includes global system integrators such as Accenture, Cognizant, Deloitte, EY, Infosys and KPMG, and technology relationships with AWS, Google, Microsoft and NVIDIA. **Technology and operations.** ServiceNow runs a multi-instance architecture giving each customer a dedicated application layer and database, delivered from its own private cloud and from public cloud providers. Data centers are configured in pairs for replication and high availability, and are operated in North America, South America, Europe, Asia and Australia. Customers may also deploy on dedicated hardware inside ServiceNow data centers, or self-host in their own or a third party's data center where regulation or security requires it — a minority of customers do so. Management is migrating an increasing share of company-hosted instances to public cloud providers. **Competition.** The market is described as highly competitive, fragmented, with low barriers to entry and frequent new entrants. Named competition comes from enterprise application software vendors including Microsoft, Oracle, SAP, Salesforce and Workday; from new AI-related point and platform solutions; from custom and in-house builds; and from technology consulting firms. **Acquisitions.** ServiceNow treats acquisitions and minority investments as an ongoing part of strategy, aimed at expanding service offerings, go-to-market reach, operations and international delivery. The recent transaction record is set out in the current-quarter section below. --- ## Risk factors *From the fiscal 2025 Annual Report on Form 10-K, accession 0001373715-26-000007. Condensed; the filing's five risk categories are combined into the four used here, with its general economic and political risks and its common-stock ownership risks presented together.* ### Risks to growing the business - **Data laws and localization.** Rules governing the use, storage and movement of data can restrict how ServiceNow processes customer data and where it can offer services. The filing names the EU Data Act (data portability, interoperability and unclear transfer restrictions) and the Trans-Atlantic Data Privacy Framework, which may face legal challenge. Region-specific hosted services require significant investment, and non-compliance — actual or perceived — can bring investigations, fines and reputational harm. Customers increasingly request certifications; failing to obtain or maintain them damages the business. - **Innovation and competition.** The pace of innovation is expected to keep accelerating as customers adopt AI-native solutions. ServiceNow expects to compete in new and adjacent markets, and lists a long set of conditions it must meet to compete — picking the right technologies, keeping pace with AI, predicting customer buying and budget behaviour, scaling its own platform, integrating into customer environments, and adapting pricing. It may make significant investments in bundling, changed delivery methods or new pricing models (including more consumption-based pricing) that customers do not accept. Its public-cloud migration strategy depends on customers being willing to have instances hosted there and on demand not falling materially short of its commitments to those providers. - **International expansion.** Growth depends on raising non-U.S. sales as a share of revenue, which requires sustained investment in data centers, infrastructure, partnerships and people with an unclear payback period. New-large-customer acquisition has been generally slower in less-established territories. Risks listed include conflicting and changing laws, local-partner and data-residency requirements, longer and more complex payment cycles, trade-policy and tariff changes, preference for local companies, and heightened cybersecurity, IP and AI risk. - **Incorporating AI.** ServiceNow calls AI an important driver of future growth but flags that its ability to embed AI depends on the availability, performance and pricing of third-party hardware, software and infrastructure, and that competitors may move faster or obtain blocking IP. The EU AI Act and similar laws may force changes to data-handling and compliance practice. Use of AI could produce copyright or other IP claims, and AI systems may produce unreliable or biased outcomes that damage trust, limit adoption and create liability. - **Partner dependence.** An increasing share of revenue comes through partners, and customers rely on partners for implementation; there may be too few qualified implementation partners for demand. Partners may misrepresent the platform, underperform, violate laws or policy, or build competing products on the platform. Changes to direct go-to-market models may create friction with them. - **Public sector and regulated customers.** Authorizations and certifications are lengthy and may not be obtained or maintained. Government procurement is competitive, politically influenced, and requires significant up-front expense with no assurance of award; awards can be challenged by bid protest; demand is exposed to budget cycles, an extended federal government shutdown or partisan gridlock. Contracts can be terminated for convenience (recovering only fees earned plus settlement costs) or for default (exposing the company to the customer's excess reprocurement costs and possible exclusion from further government business). **Specifically disclosed:** the company informed certain U.S. government agencies of an internal investigation and preliminary findings and is cooperating with, among others, the Department of Justice, which opened its own investigation. U.S. federal business is concentrated with a small number of third-party distributors and resellers. Regulated-industry customers and their regulators may audit or directly examine ServiceNow. - **Anti-corruption, export control and sanctions.** Expanding into countries with heightened trade controls and corruption exposes the company and its officers to scrutiny; it has experienced policy and legal violations by employees, partners, vendors, customers or agents in the past and may again. It is subject to customs laws and to tariffs it must pay in certain circumstances, which raise operating costs, and to sanctions and export restrictions — the filing cites Russia and Belarus measures arising from the Russia-Ukraine conflict. - **Deal complexity.** Deals with larger enterprises spanning multiple workflow products carry higher cost, longer cycles, more competition and less predictable close timing, and divert sales and professional-services capacity to fewer transactions. - **Acquisitions and investments.** Due diligence may not reveal every material issue. Listed risks include integration difficulty, failure to achieve expected benefits, loss of acquired-company employees, inherited security vulnerabilities, added platform complexity, adverse tax consequences, delayed or denied regulatory clearance, dependence on acquired technology or licenses, cross-border integration challenges, impairment of investments, and unknown liabilities. The form of consideration matters too: financing an acquisition with equity, convertible debt or loans can dilute shareholders or impose constraints. ### Risks in operating the business - **Cybersecurity.** ServiceNow stores, transmits and processes confidential and sensitive customer data. It flags that advancing AI lets threat actors build more automated and targeted attacks and lowers the skill barrier to attacking. It has identified vulnerabilities in its products in the past and expects to continue to; researchers have not always honoured its responsible-disclosure program, which has resulted in compromise. Because customers configure their own access levels, both customers and ServiceNow have configured settings in ways that made information more widely accessible than intended, and such misconfigurations have been publicly identified. The company has experienced security incidents that resulted in unauthorized access to or disclosure of confidential information, and employees have fallen victim to phishing; individuals, some supported by nation states, have gained access to its systems. It notes that liability-limitation provisions in its agreements may not be enforceable or adequate, and that insurance may not remain available or sufficient. - **Talent.** Success depends substantially on the management team, particularly the CEO. Competition for product development and engineering talent (especially AI and machine learning), sales, operations and cybersecurity people is intense, and those people command very significant compensation. Sustained stock-price declines reduce the retention value of equity awards. Substantially all employees, including all executive officers, are at-will. - **Product releases and service reliability.** Delayed releases or perceived defects slow adoption. The platform has experienced and expects to continue to experience defects, disruptions, data loss and outages, with new defects possibly arising from increasing use of public cloud providers; as reliance on those providers grows, so does exposure to outages beyond the company's direct control and to cyberattack. Disruptions can force credits, penalties, litigation, delayed payment, non-renewal, higher bad debt and service-level accruals. - **Information systems.** Scaling its own internal systems is complex and costly and may cause impairments or write-downs of existing technology; delays or migration problems can disrupt operations. - **Intellectual property.** IP protection may prove insufficient and may be contested, circumvented or invalidated. Competitors and non-practicing entities hold large patent portfolios, in some cases larger than ServiceNow's, and the company has recorded material charges for legal settlements of such claims in the past. Subscription agreements generally require it to defend customers against infringement claims. IP ownership and rights in AI outputs have not been fully addressed by U.S. or foreign courts. - **Open-source software.** Products incorporate open-source code and some may be developed with data sets under open-source licenses. Depending on the license, obligations can extend to offering products at no cost, releasing source code for modifications, or licensing derivative works on the same terms. - **Implementations.** Customer implementations may be delayed, inefficient or unsuccessful because of customer integration, migration, compliance or security requirements or errors by any party, leading to cancellations, non-renewals, claims and reputational damage. - **Sustainability commitments and natural disasters.** Failure to meet published sustainability goals may harm reputation and demand. Operations are subject to interruption from natural disasters, flooding, fire, extreme heat, power shortages, pandemics, terrorism, political unrest, war and climate effects; the California headquarters has experienced drought, water scarcity, heat waves, wildfires, air-quality impacts and wildfire-related power shutoffs. ### Risks to financial performance and position - **Ratable revenue recognition masks change.** Because subscription revenue is recognized over the term, a fall in new or renewed subscriptions has limited effect on the period in which it happens and hits later periods instead. The same model makes it hard to grow revenue quickly through additional sales, and the ability to cut costs in response to weaker bookings is limited. - **Growth rate decline.** Management states plainly that prior revenue growth should not be relied on as an indication of future growth, and that it expects the growth rate to decline over the long term while costs continue to rise with strategic investment. - **Tax rate.** The effective rate is exposed to statutory changes, mix of earnings and losses across jurisdictions, non-deductible items, deferred tax valuation and the effects of acquisitions. The One Big Beautiful Bill Act was enacted July 4, 2025 and Treasury has broad authority to issue guidance that may change compliance. Multiple jurisdictions enacted OECD Pillar 2 global minimum tax rules during 2025 (generally a 15% minimum effective rate); in January 2026 the OECD issued a safe harbor framework for certain U.S.-parented groups, but local minimum tax regimes could still apply. No material Pillar 2 liability has been recorded. Many of the company's most important intangible assets are held outside the U.S. under inter-company agreements exposed to permanent-establishment and transfer-pricing challenge. - **Debt service.** The 10-K's discussion is framed around the 2030 Notes: refinancing may be unavailable or on worse terms, indebtedness dedicates cash flow to debt service, increases vulnerability to adverse conditions, limits flexibility and impairs future financing, and the indentures restrict liens, certain mergers, asset dispositions, material changes of business and subsidiary indebtedness. Covenant breach without waiver can accelerate the debt; a credit-rating downgrade could restrict or reprice future financing. (The company added substantially more debt after this 10-K — see the current-quarter section.) ### Economic, political and stock-ownership risks Global macroeconomic and political conditions — inflation, interest rates, foreign exchange, recession, political instability, warfare, trade barriers, supply-chain disruption and sanctions — affect demand, and because typical customer contracts lock price for several years, unfavourable conditions that raise operating costs compress profitability. Currency movements affect both revenue and the remeasurement of net assets held in non-dollar functional currencies; hedging has reduced but cannot eliminate the effect and may itself produce a worse result if exposures shift. The stock price is expected to remain volatile, with named drivers including analyst estimate changes, ability to meet guidance, changes in average contract term and renewal timing, management changes, index inclusion or removal, insider and large-shareholder trading, and the size of the float. Charter and bylaw provisions — board-set board size, blank-check preferred stock, prohibition of shareholder action by written consent, board power to amend bylaws, advance-notice requirements — together with Section 203 of the Delaware General Corporation Law could delay or prevent a change of control. --- ## Management's discussion — fiscal 2025 *From the fiscal 2025 Annual Report on Form 10-K, accession 0001373715-26-000007.* **Results.** Total revenues were $13,278 million, up 21% from $10,984 million. Subscription revenue rose 21% to $12,883 million, an increase of $2.2 billion driven by increased purchases from new and existing customers; professional services and other rose 17% to $395 million, up $57 million on higher services and training volume. Gross profit was $10,295 million, up 18%, and total gross margin slipped to 78% from 79%. The margin story is on the subscription cost line. Cost of subscription revenues rose 32% to $2,569 million, an increase of $627 million, of which $307 million was personnel-related (including stock-based compensation and overhead) and $277 million was depreciation on infrastructure hardware plus software, maintenance and third-party cloud costs supporting data-center expansion. Subscription gross margin fell to 80% from 82%. Professional services went further into deficit — a 5% gross loss versus 2% — as partner ecosystem spend grew faster than services revenue; cost of professional services rose $69 million to $414 million. Cost of revenues on engagements contracted to third-party partners reached 35% of professional services and other revenues, against 24% in 2024 and 10% in 2023. Operating expenses: sales and marketing $4,388 million, up 14% (a $534 million increase, of which $332 million personnel-related, $67 million higher deferred-commission amortization and $68 million higher program and Knowledge conference costs), falling to 33% of revenue from 35%. Research and development $2,960 million, up 16% ($417 million, of which $383 million personnel-related), at 22% of revenue from 23%. General and administrative $1,123 million, up 20% ($187 million: $39 million personnel-related including stock-based compensation, $78 million outside services, $37 million contract termination costs and $30 million impairment of assets), at 8% of revenue from 9%. Total stock-based compensation was $1,955 million, up $209 million, at 15% of revenue from 16%. Income from operations was $1,824 million, up from $1,364 million. Interest income rose on higher average portfolio balances. Other expense, net fell $31 million on unrealized gains on strategic investments; gains of $97 million on foreign currency forwards not designated as hedges largely offset $113 million of remeasurement losses. The income tax provision was $513 million against $313 million, attributable to the mix of earnings and losses across jurisdictions offset by excess tax benefits from stock-based compensation; the OBBBA had an immaterial effect on the fiscal 2025 effective rate. Net income was $1,748 million ($1.67 diluted per share) versus $1,425 million ($1.37) in fiscal 2024 and $1,731 million ($1.68) in fiscal 2023 — per-share amounts retroactively adjusted for the 5-for-1 stock split the board declared on December 5, 2025, effective December 17, 2025. **Key metrics.** RPO was $28.2 billion at December 31, 2025, of which 46% was current; RPO grew 27% and cRPO 25%. Customers with annual contract value above $5 million numbered 603, against 502 a year earlier and 420 in 2023. The renewal rate was 98%, as it was in each of 2024 and 2023. Non-GAAP free cash flow (operating cash flow, adding back legal settlements and business-combination and related costs, less capital expenditure) was $4,636 million against $3,455 million. Non-GAAP income from operations was $4,149 million against $3,254 million; the reconciling items in fiscal 2025 were $1,955 million of stock-based compensation, $120 million of purchased-intangible amortization, $109 million of business-combination and related costs, $74 million of severance, $37 million of contract termination costs and $30 million of asset impairment. **Currency.** The general weakening of the dollar helped fiscal 2025 revenue: at fiscal 2024 exchange rates, subscription revenues would have been $128 million lower, excluding the hedging program. A hypothetical 10% strengthening of the dollar would have cut operating income by $177 million, versus $150 million in 2024 and $107 million in 2023. **Cash flow and liquidity.** Operating cash flow was $5,444 million against $4,267 million, on higher collections from revenue growth. Investing used $1,689 million against $2,501 million — a $2,603 million decrease in net marketable-securities purchases, partly offset by $875 million more in strategic investments and $971 million more cash used in business combinations. Financing used $2,340 million against $1,343 million, mostly a $1,144 million increase in buybacks. Cash, cash equivalents and marketable securities (including long-term) totalled $10.1 billion at year end; strategic investments in privately held companies were $1,542 million, up from $472 million. Non-cancellable purchase commitments for business operations were $7.9 billion, due primarily over five years; operating lease obligations were $1.1 billion, with $687 million due within five years. During fiscal 2025 the company repurchased 10.3 million shares for $1.8 billion, leaving about $1.4 billion authorized; in January 2026 the board added $5.0 billion to the program. At the time of the 10-K the only debt outstanding was the $1.5 billion 1.40% notes due September 1, 2030, and management stated it expected to seek additional debt financing to fund the pending Armis acquisition. **Fiscal 2026 expectations as given in the 10-K.** Subscription revenue to rise in absolute dollars and stay roughly flat as a share of revenue; cost of subscription revenues to rise and increase slightly as a share of revenue, with subscription gross margin down slightly on third-party cloud usage and acquired-intangible amortization; the professional services gross loss to widen; sales and marketing to rise in dollars but decline slightly as a share of revenue; R&D to rise in dollars and stay roughly flat as a share; G&A to decline in absolute dollars. (These were superseded in part by the second-quarter outlook below.) --- ## The current quarter — three and six months ended June 30, 2026 *From the Form 10-Q for the quarter ended June 30, 2026, accession 0001373715-26-000076, and from the second-quarter results release furnished on Form 8-K July 22, 2026, accession 0001373715-26-000072 (Exhibit 99.1).* **Revenue accelerated; reported operating income fell, because of what was bought.** Second-quarter total revenues were $3,987 million, up 24% year over year (22.5% in constant currency), with subscription revenues of $3,877 million, up 24.5% (23% in constant currency). For the six months, total revenues were $7,757 million against $6,303 million. Subscription revenue rose $764 million in the quarter and $1,430 million in the half. Revenue recognized upfront from self-hosted software delivery was $149 million in the quarter, against $109 million a year earlier, and $287 million in the half against $266 million. Against that, GAAP income from operations fell to $162 million from $358 million in the quarter, and to $665 million from $809 million in the half. Net income was $298 million ($0.29 diluted) against $385 million ($0.37), and $767 million ($0.74) for the half against $845 million ($0.81). The gap between rising revenue and the fall in reported operating income is accounted for almost entirely by acquisition accounting and compensation. Cost of subscription revenues rose $405 million in the quarter, of which $153 million was increased amortization of acquired intangible assets; sales and marketing rose $244 million, including $41 million more intangible amortization; G&A rose $98 million, including $61 million more outside services largely tied to recent acquisitions. Stock-based compensation rose $156 million in the quarter and $244 million in the half, on additional grants and awards issued in connection with acquisitions. Subscription gross margin fell to 73% in the quarter (75% for the half) from 80% (81%). The professional services gross loss widened to 26% in the quarter from a 3% gross profit a year earlier, with third-party partner costs at 42% of professional services revenue against 33%. On the non-GAAP basis management uses, income from operations was $1,173 million in the quarter, up 23%, and $2,372 million for the half, up 24% — the reconciling items in the quarter being $655 million of stock-based compensation, $219 million of purchased-intangible amortization, $75 million of business-combination and related costs and $62 million of severance. Below the operating line, interest income fell $46 million in the quarter and $73 million in the half on lower average balances and lower rates. Other income (expense), net improved by $209 million in the quarter and $302 million in the half, driven by unrealized gains on strategic investments and partly offset by higher interest expense from the new notes, commercial paper and term loan. The tax provision was $140 million in the quarter and $344 million in the half (against $86 million and $181 million), reflecting jurisdictional earnings mix and stock-based compensation shortfalls, offset by release of a valuation allowance on certain California deferred tax assets. Management noted it may continue to see fluctuations in the effective rate and tax obligations as Armis is integrated into the corporate structure. **Demand metrics.** RPO was $29.0 billion at June 30, 2026, of which 46% is current; both RPO and cRPO grew 21% year over year (cRPO $13.20 billion, 21.5% in constant currency; RPO 22% in constant currency). Customers with more than $5 million in annual contract value numbered 658, against 533 a year earlier. The renewal rate remained 98%. The company reported 123 transactions above $1 million in net new annual contract value in the quarter, and stated that ServiceNow AI crossed $1 billion in annual contract value. Revenues outside North America were 37% of the total for both the quarter and the half. One customer — a U.S. federal channel partner and systems integrator — is a concentration for both receivables and revenue. **Three acquisitions reshaped the balance sheet.** On March 2, 2026 ServiceNow acquired all outstanding shares of **Veza Technologies, Inc.**, an AI identity security company providing a unified access platform, for approximately **$1.2 billion**, substantially in cash. On April 20, 2026 it acquired all outstanding shares of **Armis Security Ltd.**, a cyber-exposure management and cyber-physical security provider, for preliminary purchase price consideration of approximately **$7.6 billion**, settled in cash. (The 10-K had disclosed the Armis agreement, signed in December 2025, at approximately $7.75 billion cash consideration subject to customary adjustments, with closing expected in the second half of 2026; it closed in April.) These follow the December 15, 2025 acquisition of **Moveworks, Inc.**, an enterprise search and front-end virtual agent company, for aggregate consideration of **$2.4 billion** in stock, cash, settlement of a pre-existing loan and pre-combination stock-based compensation, and the May 30, 2025 acquisition of **Logik.io Inc.**, a configure-price-quote provider, for total purchase consideration of **$506 million** — consisting primarily of approximately 2.1 million shares of ServiceNow common stock valued at approximately $434 million plus $62 million in cash. Other acquisitions completed in the first half of 2026 were not material individually or in aggregate. Goodwill rose to $9,837 million at June 30, 2026 from $3,578 million at December 31, 2025, and net intangible assets to $3,781 million from $1,121 million. Aggregate acquisition-related costs charged to G&A were $101 million for the half and immaterial for the quarter, and deferred compensation for certain key employees tied to the 2026 acquisitions was $91 million for the quarter and $162 million for the half, capitalized and amortized into R&D over the service periods. Management describes the result as combining Security Operations with Armis' cyber asset intelligence and Veza's identity governance. **And a new capital structure to pay for them.** In April 2026 the company borrowed $4.0 billion under a senior unsecured term loan to fund part of the Armis cash consideration. In May 2026 it issued five series of fixed-rate senior unsecured notes totalling $4.0 billion in principal, with maturities from May 2028 through May 2056, raising $3.9 billion net of $57 million of discount and issuance costs, and used the proceeds to repay the term loan. Also in April 2026 it entered a $3.0 billion unsecured revolving credit facility maturing April 1, 2031 (expandable by up to $2.0 billion subject to conditions including board approval), undrawn at June 30 and in compliance with all covenants, and established a commercial paper program permitting up to $3.0 billion outstanding with maturities up to 397 days; $2.1 billion was outstanding at June 30, 2026 at a 3.98% weighted-average interest rate and an 81-day weighted-average remaining term. Together with the pre-existing $1.5 billion 2030 Notes, aggregate senior notes principal is $5.5 billion. On the balance sheet, short-term debt went from nil to $2,082 million and long-term debt from $1,491 million to $5,435 million; total assets rose to $31,666 million from $26,038 million and total liabilities to $19,150 million from $13,074 million. **Cash.** Operating cash flow for the half was $2,257 million against $2,393 million, down on higher business-combination and related costs. Non-GAAP free cash flow for the half was $2,299 million, up 14% from $2,012 million, helped by capital expenditure falling to $255 million from $395 million. Investing used $7,105 million against $640 million, driven by an $8,700 million increase in cash used in business combinations. Financing provided $3,638 million against $944 million used, on $3,944 million of net note proceeds and $3,534 million of net commercial paper proceeds, offset by $1,566 million more in buybacks and $1,472 million of commercial paper repayments. Cash, equivalents and restricted cash ended the half at $2,517 million against $3,732 million at the start; liquidity sources — cash, equivalents and marketable securities including long-term — stood at $6.7 billion at June 30, 2026, down from $10.1 billion at year end, now supplemented by the revolver and the commercial paper program. **Buybacks.** On January 30, 2026 the company entered a $2.0 billion accelerated share repurchase, completed in the first quarter with 18.5 million shares repurchased at an average $107.97. It repurchased a further 1.6 million shares for $225 million in open-market transactions during the half, and made no repurchases at all in the second quarter. Approximately $4.2 billion of authorization remained at June 30, 2026. **Outlook given with the second-quarter results.** Management raised full-year 2026 subscription revenue guidance to $15,760–$15,780 million, 22.5% growth as reported and 21% in constant currency, with non-GAAP full-year subscription gross margin of 81%, non-GAAP operating margin of 31.5% and free cash flow margin of 35%, on 1.04 billion diluted weighted-average shares. For the third quarter of 2026: subscription revenues of $3,975–$3,980 million, 20.5% growth as reported and 20% in constant currency; cRPO growth of 19.5% as reported and 20% in constant currency; non-GAAP operating margin of 31%; 1.05 billion diluted shares. Management attributed the second-quarter beat to net new annual contract value outperformance plus a higher-than-expected on-premises revenue mix, primarily from strong U.S. federal demand that pulled some on-premises subscription revenue from the third quarter into the second, and said the full-year raise reflects the net new ACV strength. It also flagged an incremental strengthening of the dollar since March 31, 2026, estimated at an approximately $35 million year-over-year headwind to third-quarter cRPO, and attributed the gross margin guidance to more customers using hyperscaler partnerships and to accelerating customer AI adoption. In the 10-Q, management additionally expects cost of subscription revenues to rise as a share of revenue for the full year (a change from the 10-K's "increase slightly"), the professional services gross loss to widen, sales and marketing to decline slightly as a share of revenue, R&D and G&A to stay roughly flat as a share, and stock-based compensation to remain roughly flat as a share of revenue while rising in dollars. At its May 4, 2026 analyst day the company set out long-term targets of more than $30 billion in subscription revenues, 30% of annual contract value from AI, and a Rule of 60+ by 2030, together with a commitment to reduce stock-based compensation below 10% of revenue by 2029. **Government contract investigation.** The 10-Q repeats the disclosure that a complaint raised potential compliance issues on a government contract concerning the March 2023 hiring of the U.S. Army's Chief Information Officer as ServiceNow's Head of Global Public Sector. An internal investigation led the board to determine that the then President and Chief Operating Officer and the hired individual violated company policy on a possible conflict; the officer resigned effective July 24, 2024 and the other individual has also departed. ServiceNow informed the Department of Justice, the Department of Defense Office of Inspector General and the Army Suspension and Debarment Office, and continues to cooperate with the DOJ, which has commenced its own investigation and required document production. The company cannot predict the timing, outcome or possible impact. Otherwise it states it does not believe the resolution of its litigation is likely to result in a material loss. --- ## Subsequent events *From the Form 10-Q for the quarter ended June 30, 2026, accession 0001373715-26-000076.* The 10-Q's notes to the condensed consolidated financial statements run from Note 1 (Description of the Business) to Note 18 (Segment and Geographic Information) and contain no subsequent-events note; the company disclosed no material transaction, financing, acquisition, divestiture or litigation outcome occurring after June 30, 2026 in that filing. The material corporate actions of the period — the Armis and Veza acquisitions, the $4.0 billion term loan and its repayment, the $4.0 billion senior notes issuance, the $3.0 billion revolving credit facility and the commercial paper program — all closed within the quarter or earlier and are described in the current-quarter section above. The only forward-looking items furnished after the quarter end are in the results release of July 22, 2026 (accession 0001373715-26-000072): the raised full-year and new third-quarter 2026 guidance, and the estimated approximately $35 million year-over-year foreign-exchange headwind to third-quarter cRPO arising from dollar strengthening since March 31, 2026. Both are set out above.