ServiceNow, Inc.

Ladies and gentlemen, thank you for standing by. My name is Krista, and I will be your conference operator today. At this time, I would like to welcome everyone to the ServiceNow Second Quarter 2026 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. And if you'd like to withdraw your question, again, press star 1. We will now turn the conference over to Darren Yip, Senior Vice President, Investor Relations and Market Insights. Darren, please go ahead.

Good afternoon and thank you for joining ServiceNow's second quarter 2026 earnings conference call. Joining me are Bill McDermott, our Chairman and Chief Executive Officer, Gina Mastantuono, our President and Chief Financial Officer, and Amit Zavery, 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 obligation to update such statements as a result of new information or future events. Please refer to today's earnings press release and our SEC 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-GAAP measures in addition to, and not as a substitute for, financial measures calculated in accordance with GAAP. Unless otherwise noted, all financial measures and related growth rates we discuss today are non-GAAP except for revenues, remaining performance obligations, or RPO, current RPO, and cash and investments. To see the reconciliation between these non-GAAP and GAAP 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 ServiceNow would be the defining enterprise software company of the 21st century. Thought I'd give you a report out. Since then, we beat expectations in every quarterly report, expanded the profitability and free cash flow of the company, quintupled our total addressable market, accelerated six of our own unicorns to 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, 1.5 points above the high end of our guidance. CRPO growth was 21.5% in constant currency, more than 2 points above our guidance. Operating margin was 29.5%, 3 points above our guidance. We had 123 deals greater than a million in net new ACV, up 40% year over year. ServiceNow 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 forecasts 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 ServiceNow offers needed certainty in an uncertain stack. Our platform is optionality on all AI outcomes, not a bet on any one. 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 ServiceNow becoming a cybersecurity company? Here's the answer. ServiceNow 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 Armis, plus Vesa. 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 ServiceNow 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 ServiceNow, 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 and Inflection Point for ServiceNow'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, ServiceNow only does deterministic. That's a big reason why customers with agentic AI in production have grown 9x over the last nine months. So here's a few of many examples. The Department of Air Force is expanding its use of the ServiceNow AI platform. The deployment will unify IT operations and enterprise visibility. Experian is using ServiceNow to automate intelligence at scale. We will also integrate our platforms, embedding experienced data and decisioning into existing ServiceNow 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 ServiceNow to establish a resilient operations 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 ServiceNow. 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 ServiceNow. were partnering with them to advance the Hitachi Intelligent Infrastructure Monitoring Solution. The City of Raleigh became the first local government to deploy ServiceNow'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 are progressing from supervised to autonomous operations. A large global consumer goods company partnered with ServiceNow 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 ServiceNow, extending its outperformance in Q2, with attach 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. ServiceNow delivers the intelligence layer and the infrastructure it runs on. We also get asked, is ServiceNow 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 were a 2 billion ACV business. CRM and NACV growth accelerated again on a year-over-year and quarter-over-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 ServiceNow 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. ServiceNow will help their sales teams achieve the speed and accuracy to operate at scale. An American software leader selected ServiceNow 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. ServiceNow will scale, quote, volume 3X with no added headcount and cut repricing from weeks to hours. A regional financial institution consolidated its loan origination workflow onto ServiceNow's 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 ServiceNow's Voice AI CRM agents. This is live, in production, and handling 5 million annual voice calls in year one alone. The results speak for themselves. Customer satisfaction is off the charts.