Subscription Revenue Jumps 19%: Management Boosts AI Target to $1.5B (NOW Q1 2026 Earnings Call)
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ServiceNow delivered a commanding first quarter for 2026, exceeding the high end of its guidance across all core metrics as enterprise AI adoption accelerates. The company's unique approach to embedding intelligence directly into its platform is yielding immediate dividends, prompting management to raise full-year subscription targets and significantly boost its AI revenue ambitions.
Subscription Growth Defies Market Anxiety
ServiceNow's subscription revenue hit $3.671 billion, reflecting a 19% year-over-year increase in constant currency that topped the high end of its guidance. Current Remaining Performance Obligations (CRPO) grew 21% to $12.64 billion, beating expectations by a full percentage point. This top-line momentum was matched by strong profitability, with operating margin landing at 32% and free cash flow margin reaching 44%. The company also repurchased $2 billion in shares, double its total for all of 2025.
Management Hikes Full-Year Guidance and AI Targets
Buoyed by strong demand, management raised its full-year 2026 subscription revenue guidance by $205 million at the midpoint to a range of $15.735 billion to $15.775 billion. This outlook implies 20.5% to 21% constant currency growth and includes a 125-basis point contribution from the recently closed Armis acquisition. CEO Bill McDermott notably shattered the previous $1 billion target for Now Assist AI revenue, stating, "We're already talking about $1.5 billion now, and it's on a run."
Moveworks Rebrand and AI Platform Traction
The quarter validated ServiceNow's strategy to move past sidecar AI by building native capabilities directly into its SKUs. Following the integration of conversational AI technology, the company launched "employee works," combining Moveworks with its unified portal. This segment has already closed six deals over $1 million in net new ACV. Across the broader portfolio, the company secured 16 deals greater than $5 million in the quarter, demonstrating robust large-enterprise appetite for governed AI workflows.
Q&A: Clarifying the M&A Margin Impact
Analysts questioned the margin implications of incorporating the newly acquired Armis business into the model. CFO Gina Mastantuono clarified that internal AI-driven efficiencies reduced the expected margin headwind from 100 basis points down to 50 basis points. McDermott emphasized that this impact will drop to zero by year-end, allowing ServiceNow to scale its security offerings without compromising its Rule of 55-plus profitability profile.