ServiceNow, Inc.
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Forward-Looking Statements
This Annual Report on Form 10-K contains forward-looking statements regarding future events and our future results that are based on our current expectations, estimates, forecasts and projections about our business, our results of operations, the industry in which we operate and the beliefs and assumptions of our management. Words such as “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “would,” “could,” “should,” “intend” and “expect,” as well as variations of these words and similar expressions, are intended to identify those forward-looking statements. Forward-looking statements are only predictions and are subject to risks, uncertainties, assumptions and other factors that are difficult to predict. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. Factors that might cause or contribute to such differences include, but are not limited to, those discussed in this Annual Report under “Risk Factors” in Item 1A of Part I and elsewhere herein and in other reports we file with the Securities and Exchange Commission (“SEC”). While forward-looking statements are based on our management’s reasonable expectations at the time that they are made, you should not rely on those statements. We undertake no obligation to revise or update publicly any forward-looking statements for any reason, whether as a result of new information, future events or otherwise, except as may be required by law.
Overview
ServiceNow delivers solutions that help public and private organizations govern, secure and manage artificial intelligence and digitalize and streamline workflows to drive collaboration, productivity and better experiences across the enterprise. We offer an innovative suite of products, including AI-powered applications, and services designed to automate workflows, integrate systems and empower employees, regardless of existing systems, cloud environments or collaboration tools. At the core of these solutions is the ServiceNow AI Platform, a robust, cloud-based platform that facilitates comprehensive delivery of seamless workflows and drives digital transformation across all departments and personas within an organization.
With the emergence of artificial intelligence, organizations are under pressure from their stakeholders to accelerate growth and achieve unprecedented productivity improvements. To meet these demands, they are prioritizing the digitalization and modernization of their workflows through AI-powered automation. At the same time, they are seeking secure and reliable tools to manage the heightened risks associated with AI innovation and ensure measurable returns on investment. ServiceNow addresses these evolving organizational needs by providing solutions that help organizations govern, secure, and manage artificial intelligence, while optimizing their workflows.
We operate in a dynamic and rapidly evolving technology landscape characterized by the accelerating adoption of artificial intelligence and machine learning capabilities across enterprise software. While this period of technological transformation presents both opportunities and uncertainties reminiscent of prior inflection points—such as the shift from on-premises to cloud computing in the early 2010s and the advent of mobile computing before that—we believe our established market position, deep customer relationships, and platform capabilities position us favorably to capitalize on these emerging needs. We have invested in understanding evolving customer requirements through ongoing dialogue with our customer base, which spans diverse industries and use cases, and we have developed our platform to address the practical challenges enterprises encounter when
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Part I
implementing AI-enabled automation within mission-critical business processes while maintaining security, governance and operational continuity.
A critical insight emerging from this technological shift is that AI excels at analyzing data and generating information, but transforming that information into business outcomes requires infrastructure that can orchestrate action across systems, enforce governance policies, and manage complex workflows. AI models can identify patterns, make recommendations, and surface insights, but they cannot independently execute transactions, route approvals, update systems of record, or support compliance with business rules and regulatory requirements. Our platform addresses this fundamental gap by providing the underlying infrastructure that connects AI-generated insights to the operational systems and processes where work actually gets done. This capability—to direct, control, and manage what happens after information is generated—represents a substantial portion of the value enterprises seek when adopting AI technologies.
Several factors contribute to our competitive positioning in this environment. Our two decades partnering with enterprise customers provide us with a deep understanding of how work actually flows across organizations—across departments, systems and organizational silos. We have developed expertise in the operational processes specific to different industries, functional areas and user roles, knowledge that cannot be readily replicated and that proves essential when designing solutions that must integrate with existing workflows rather than replace them. This institutional knowledge enables us to build cross-functional workflows that reflect the practical realities of how enterprises operate, rather than idealized process models. Building on this foundation, our platform’s architecture, developed over years of iteration with customer feedback, allows organizations to deploy AI-enhanced workflows without replacing their existing technology infrastructure or disrupting established processes. We bridge the gap between AI's analytical capabilities and the execution layer where business processes operate, providing the connective tissue that turns insights into outcomes. Equally important, our experience operating a software-as-a-service platform at scale gives us operational expertise in maintaining reliability, security, and performance standards that enterprise customers require, particularly as they entrust increasingly critical functions to AI-enabled systems.
While competitors are actively developing AI capabilities and several entrants have emerged with point solutions focused on data analysis and information generation, we believe many face challenges in delivering the comprehensive integration, workflow orchestration, governance frameworks, and enterprise-grade reliability that our customers require to operationalize AI insights. The AI era has not eliminated—and has arguably intensified—the fundamental need for platforms that can unify disparate systems, maintain data integrity, ensure regulatory compliance, enforce business logic, and provide consistent execution across complex organizational processes.
We recognize that technological transitions create both opportunity and risk. Competitive dynamics may shift as new approaches emerge and customer preferences evolve. However, we believe our established customer relationships, platform investments, and operational experience in workflow orchestration and systems integration provide meaningful advantages as enterprises navigate this transformation. Our strategy focuses on continuing to understand and meet customer needs as they adopt AI technologies, applying our ability to deliver integrated solutions that address the practical complexities of converting AI-generated insights into controlled, governed business outcomes.
Part I
Our Platform
The ServiceNow AI Platform (our “Platform”) connects people, processes and data to break down silos and simplify complex business processes, increasing flexibility, scalability and extensibility. Our one platform architecture provides the foundation for organizations to seamlessly integrate AI, data, and workflows and create intelligent processes across their enterprise.
AI. Our Platform’s integrated AI offering, Now Assist, empowers organizations to boost productivity by providing a range of AI tools. These tools operate autonomously with human oversight and adhere to predefined guardrails. Organizations can select the tools that best align with their unique AI transformation needs. To illustrate, organizations can choose to leverage ServiceNow’s language models or integrate third-party or proprietary models. Depending on the selected model, they can process different types of data, such as text, images, audio and video. They can also trust that the selected models are tested to confirm they will perform as intended on our Platform, as all integrated models are regularly evaluated on Platform-representative data. Additionally, organizations can choose to rapidly deploy thousands of out-of-the-box ServiceNow AI agents, integrate AI agents built into third-party applications, or create custom AI agents on our Platform using natural language. These options allow for flexible AI agent workflow orchestration in a wide range of use cases, making AI agents accessible to users with varying technical expertise. AI agents developed using our solutions follow a human-in-the-loop governance model. This allows developers to retain control of application changes while benefiting from AI assistance. We also offer governance tools designed to help manage these AI agents and other AI-powered products. Our AI governance tools include integrated monitoring and guardrails, as well as dataset creation management, benchmarking and performance analytics capabilities. They offer organizations greater visibility into their AI adoption, usage and performance. These tools provide organizations confidence that they are building, testing and deploying AI use cases and applications responsibly as they operationalize their AI strategy.
Data. Our Platform’s single data fabric and integrated data layer, enabled by our Workflow Data Fabric and RaptorDB products, supports organizations’ operationalization of their AI strategy with speed, scale and security. Our data fabric’s architecture also provides our Platform flexibility to create intuitive, efficient and seamless workflows aligned with business needs. For example, our Platform’s data fabric can connect to external data sources in real-time without moving or copying data from its source and map those connections to its single data model, which creates a seamless user experience. AI-enabled tools for the data layer can also help deliver precise, context-aware insights by linking people, processes and systems. By connecting a wide variety of data and systems, our Platform enables a single process flow across people and functions. These capabilities allow the front, middle and back offices to coordinate and address end user requests quickly and effectively.
Workflows. Through its orchestration capabilities, our Platform manages complex, cross-functional workflows end-to-end. For example, an organization’s entire employee onboarding workflow, which spans across both internal and external functions, can be managed by our Platform. AI agents can autonomously trigger information technology (“IT”) provisioning, payroll setup, compliance checks and facilities access – coordinating tasks, monitoring progress and resolving exceptions without human intervention, if desired. Because our AI agents can access required information and understand the context of requests in a single environment, employees can complete their onboarding without contacting multiple departments. Additionally, with our acquisition of Moveworks, Inc. we have strengthened our enterprise workflow automation on our Platform by integrating advanced enterprise search and front-end virtual agent technology. The advanced machine learning, conversational interface, natural language comprehension and broad integration capabilities of this technology help organizations and their employees handle service requests automatically, retrieve information quickly using AI, and complete tasks across diverse business applications, enhancing overall workflow experience.
Together, these AI, data and workflow capabilities support our broad portfolio of products on our Platform.
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Part I
Our Products
Our products are grouped into four areas: Technology, Customer Relationship Management (“CRM”) and Industry, Core Business, and Creator and Other. We release two major Platform upgrades each year, adding new products and functionality that simplify work and enhance productivity.
Technology | Core Business | ||||||||||||
Our Technology products help companies unite technology, risk management and security operations on a single platform to deliver modern and resilient digital services aligned to an organization’s priorities. | Our Core Business products support processes across HR, legal, finance, supply chain and facilities, helping organizations improve productivity, increase employee satisfaction and fuel business growth. | ||||||||||||
CRM and Industry | Creator and Other | ||||||||||||
Our CRM and Industry products help organizations integrate front-end customer service functions with operations, field service resources, sales processes and order management, and provide workflows tailored for specific industries. | Our Creator and Other products help organizations rapidly develop and manage cross-enterprise workflows using AI-powered, low-code development tools, as well as manage data privacy and security. | ||||||||||||
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Financial statements
data from SEC XBRL filings. Values are as-reported; restatements supersede originals. Values reported in .
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The following discussion and analysis of our financial condition, results of operations and cash flows should be read in conjunction with the (1) unaudited condensed consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q, and (2) the audited consolidated financial statements and notes thereto and management’s discussion and analysis of financial condition and results of operations for the year ended December 31, 2025 included in the Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”), on January 29, 2026. This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements are often identified by the use of words such as “may,” “will,” “expect,” “believe,” “anticipate,” “intend,” “could,” “estimate,” or “continue,” and similar expressions or variations. Forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to those identified herein, and those discussed in the section titled “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K filed with the SEC on January 29, 2026 and in Part II, Item 1A of this Quarterly Report on Form 10-Q and in our other SEC filings. We disclaim any obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements.
Investors and others should note that we announce material financial information to our investors using our investor relations website (https://www.servicenow.com/company/investor-relations.html), SEC filings, press releases, public conference calls and webcasts. We use these channels, as well as social media, to communicate with our investors and the public about our Company, our services and other issues. It is possible that the information we post on social media could be deemed to be material information. Therefore, we encourage investors, the media and others interested in our Company to review the information we post on the social media channels listed on our investor relations website.
Our free cash flow and non-GAAP consolidated income from operations measures included in the section entitled “Key Business Metrics—Free Cash Flow,” and “Key Business Metrics—Non-GAAP Consolidated Income from Operations” are not in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”). These non-GAAP financial measures are not intended to be considered in isolation or as a substitute for, or superior to, financial information prepared and presented in accordance with GAAP. These measures may be different from non-GAAP financial measures used by other companies, limiting their usefulness for comparison purposes. We encourage investors to carefully consider our results under GAAP, as well as our supplemental non-GAAP results, to more fully understand our business.
Overview
ServiceNow delivers solutions that help public and private organizations govern, secure and manage artificial intelligence and digitalize and streamline workflows to drive collaboration, productivity and better experiences across the enterprise. At the core of these solutions is the ServiceNow AI Platform (“Platform”), a robust, cloud-based Platform that facilitates comprehensive delivery of seamless workflows and drives digital transformation across all departments and personas within an organization. Our Platform’s single data fabric and integrated data layer supports organizations’ operationalization of their AI strategy with speed, scale and security. Our workflow applications built on the Platform are grouped into four areas: Technology, CRM and Industry, Core Business, and Creator and Other. We offer an innovative suite of products, including AI-powered applications, and services designed to automate workflows, integrate systems and empower employees, regardless of existing systems, cloud environments or collaboration tools. The combination of ServiceNow's Security Operations with Armis' cyber asset intelligence and Veza's identity governance capabilities delivers end-to-end visibility, risk controls, and
automated responses across the enterprise. Our one platform architecture provides the foundation for organizations to seamlessly integrate AI, data, and workflows and create intelligent processes across their enterprise.
We are closely monitoring ongoing global conflicts. While those events are continuing to evolve and the outcomes remain highly uncertain, we do not believe they will have a material impact on our business and results of operations. However, if the conflicts persist or worsen, leading to greater global economic disruptions and uncertainty, our business and results of operations could be materially impacted.
Additionally, other macroeconomic events, including interest rates, global inflation and tariffs, have led to economic uncertainty in the global economy. To mitigate risk, our cash and cash equivalents are distributed across several large financial institutions and are not concentrated in one financial institution. We have not experienced any impact to our liquidity or to our current and projected business operations and financial condition due to recent macroeconomic events. Further, we have policy restrictions on the types of securities that can be purchased as part of our available-for-sale debt securities portfolio. These restrictions take industry and company concentration limits into consideration among other things. We will continue to monitor the direct and indirect impact of macroeconomic events on our business and financial results.
See the “Risk Factors” section in Part I, Item 1A of our Annual Report on Form 10-K filed with the SEC on January 29, 2026 for further discussion of the possible impact of conflicts and macroeconomic events on our business and financial results.
On December 5, 2025, our board of directors approved and declared a 5-for-1 split of our common stock (“Stock Split”), with a proportionate increase in the number of shares of authorized common stock. The Stock Split had a record date of December 16, 2025 and an effective date of December 17, 2025. The par value per share of our common stock remains unchanged at $0.001 per share after the Stock Split. Accordingly, an amount equal to the par value of the additional issued shares resulting from the Stock Split was reclassified from additional paid-in capital to common stock. All references made to common share, equity award and per share amounts throughout this Management's Discussion and Analysis of Financial Condition and Results of Operations have been retroactively adjusted to reflect the effects of the Stock Split.
Key Business Metrics
Remaining performance obligations. Transaction price allocated to remaining performance obligations (“RPO”) represents contracted revenue that has not yet been recognized, which includes deferred revenue and non-cancellable amounts that will be invoiced and recognized as revenue in future periods. RPO excludes contracts that are billed in arrears, such as certain time and materials contracts, as we apply the “right to invoice” practical expedient under relevant accounting guidance. Current remaining performance obligations (“cRPO”) represents RPO that will be recognized as revenue in the next 12 months.
As of June 30, 2026, our RPO was $29.0 billion, of which 46% represented cRPO. RPO and cRPO both increased by 21% compared to June 30, 2025. Factors that may cause our RPO to vary from period to period include the following:
•Foreign currency exchange rates. While a majority of our contracts have historically been in U.S. Dollars, an increasing percentage of our contracts in recent periods has been in foreign currencies, particularly the Euro and British Pound Sterling. Fluctuations in foreign currency exchange rates as of the balance sheet date will cause variability in our RPO.
•Mix of offerings. In a minority of cases, we allow our customers to host our software by themselves or through a third-party service provider. In self-hosted offerings, we recognize a portion of the revenue upfront upon the delivery of the software and as a result, such revenue is excluded from RPO.
•Subscription start date. From time to time, we enter into contracts with a subscription start date in the future and these amounts are included in RPO if such contracts are signed by the balance sheet date.
•Timing of contract renewals. While customers typically renew their contracts at the end of the contract term, from time to time, customers may do so either before or after the scheduled expiration date. For example, in cases where we are successful in selling additional products or services to an existing customer, a customer may decide to renew its existing contract early to ensure that all its contracts expire on the same date. In other cases, prolonged negotiations or other factors may result in a contract not being renewed until after it has expired.
•Contract duration. While we typically enter into multi-year subscription services, the duration of our contracts varies. Further, we continue to see an increase in the number of 12-month agreements entered into with the U.S. federal government throughout the year, with the highest number of agreements entered into in the quarter ended September 30, driven primarily by timing of their annual budget expenditures. We sometimes also enter into contracts with durations that have a 12-month or shorter term to enable the contracts to co-terminate with the existing contract. The contract duration will cause variability in our RPO.
Number of customers with ACV greater than $5 million. We count the total number of customers with annual contract value (“ACV”) greater than $5 million as of the end of the period. We had 658 and 533 customers with ACV greater than $5 million as of June 30, 2026 and 2025, respectively. For purposes of customer count, a customer is defined as an entity that has a unique Dunn & Bradstreet Global Ultimate (“GULT”) Data Universal Numbering System (“DUNS”) number and an active subscription contract as of the measurement date. The DUNS number is a global standard for business identification and tracking. We make exceptions for holding companies, government entities and other organizations for which the GULT, in our judgment, does not accurately represent the ServiceNow customer. For example, while all U.S. government agencies roll up to “Government of the United States” under the GULT, we count each government agency that we contract with as a separate customer. Our customer count is subject to adjustments for acquisitions, spin-offs and other market activity; accordingly, we restate previously disclosed number of customers with ACV greater than $5 million calculations to allow for comparability. ACV is calculated based on the foreign exchange rate in effect at the time the contract was signed. Foreign exchange rate fluctuations could cause some variability in the number of customers with ACV greater than $5 million. We believe information regarding the total number of customers with ACV greater than $5 million provides useful information to investors because it is an indicator of our growing customer base and demonstrates the value customers are receiving from the Platform.
Free cash flow. We define free cash flow, a non-GAAP financial measure, as GAAP net cash provided by operating activities plus cash outflows for legal settlements and business combination and other related costs including compensation expense, reduced by purchases of property and equipment. Purchases of property and equipment are otherwise included in cash used in investing activities under GAAP. We believe information regarding free cash flow provides useful information to investors because it is an indicator of the strength and performance of our business operations. However, our calculation of free cash flow may not be comparable to similar measures used by other companies. Our calculation of free cash flow is provided below:
| Six Months Ended June 30, | % Change | |||||||||||||||
| 2026 | 2025 | |||||||||||||||
| (dollars in millions) | ||||||||||||||||
| GAAP net cash provided by operating activities | $ | 2,257 | $ | 2,393 | (6 | %) | ||||||||||
| Purchases of property and equipment | (255) | (395) | (35 | %) | ||||||||||||
| Business combination and other related costs | 297 | 14 | NM | |||||||||||||
| Non-GAAP free cash flow | $ | 2,299 | $ | 2,012 | 14 | % | ||||||||||
NM - Not meaningful
We have historically seen higher collections in the quarter ended March 31 due to seasonality in timing of entering into customer contracts, which is significantly higher in the quarter ended December 31. Additionally, we have historically seen higher disbursements in the quarters ended March 31 and September 30 due to payouts under our annual commission plans, purchases under our employee stock purchase plan, payouts under our bonus plans and coupon payments related to our 2030 Notes.
Non-GAAP consolidated income from operations. Non-GAAP consolidated income from operations is identified as an additional measure of profit or loss. This non-GAAP measure is used by the chief operating decision maker to allocate resources and assess performance. We define non-GAAP consolidated income from operations as income from operations excluding certain non-cash or non-recurring items, including stock-based compensation expense, amortization of purchased intangibles, legal settlements, impairment of assets, severance costs, contract termination costs and business combination and other related costs including compensation expense. We believe these adjustments provide useful supplemental information to investors and facilitate the analysis of our operating results and comparison of those results across reporting periods. The following table shows the reconciliation of our reported consolidated income from operations to non-GAAP consolidated income from operations.
| Three Months Ended June 30, | % Change | Six Months Ended June 30, | % Change | |||||||||||||||||||||||||||||
| 2026 | 2025 | 2026 | 2025 | |||||||||||||||||||||||||||||
| (dollars in millions) | (dollars in millions) | |||||||||||||||||||||||||||||||
| GAAP income from operations | $ | 162 | $ | 358 | (55 | %) | $ | 665 | $ | 809 | (18 | %) | ||||||||||||||||||||
| Stock-based compensation | 655 | 499 | 31 | % | 1,213 | 969 | 25 | % | ||||||||||||||||||||||||
| Amortization of purchased intangibles | 219 | 25 | NM | 296 | 46 | NM | ||||||||||||||||||||||||||
| Business combination and other related costs | 75 | 14 | NM | 118 | 25 | 372 | % | |||||||||||||||||||||||||
| Impairment of assets | — | 30 | (100 | %) | — | 30 | (100 | %) | ||||||||||||||||||||||||
| Severance costs | 62 | 29 | 114 | % | 80 | 29 | 176 | % | ||||||||||||||||||||||||
| Non-GAAP income from operations | $ | 1,173 | $ | 955 | 23 | % | $ | 2,372 | $ | 1,908 | 24 | % | ||||||||||||||||||||
NM - Not meaningful
Renewal rate. We calculate our renewal rate by subtracting our attrition rate from 100%. Our attrition rate for a period is equal to the ACV from customers lost during the period, divided by the sum of (i) the total ACV from all customers that renewed during the period, excluding changes in price or users, and (ii) the total ACV from all customers lost during the period. Accordingly, our renewal rate is calculated based on ACV and is not based on the number of customers that have renewed. Further, our renewal rate does not reflect increased or decreased purchases from our customers to the extent such customers are not lost customers or lapsed renewals. A lost customer is a customer that did not renew an expiring contract and that, in our judgment, will not be renewed. Typically, a customer that reduces its subscription upon renewal is not considered a lost customer. However, in instances where the subscription decrease represents the majority of the customer’s ACV, we may deem the renewal as a lost customer. For our renewal rate calculation, we define a customer as an entity with a separate
production instance of our service and an active subscription contract as of the measurement date, instead of an entity with a unique GULT or DUNS number. We adjust our renewal rate for acquisitions, consolidations and other customer events that cause the merging of two or more accounts occurring at the time of renewal. Our renewal rate was 98% for each of the three and six months ended June 30, 2026 and 2025. As our renewal rate is impacted by the timing of renewals, which could occur in advance of, or subsequent to the original contract end date, period-to-period comparison of renewal rates may not be meaningful.
Components of Results of Operations
Revenues
Subscription revenues. Subscription revenues are primarily comprised of fees that give customers access to the ordered subscription service for both self-hosted offerings and cloud-based subscription offerings, and related standard and enhanced support and updates, if any, to the subscription service during the subscription term. For our cloud-based offerings, we recognize revenue ratably over the subscription term. For self-hosted offerings, a substantial portion of the sales price is recognized upon delivery of the software, which may cause greater variability in our subscription revenues and subscription gross margin. Pricing includes multiple instances, hosting and support services, data backup and disaster recovery services, as well as future updates, when and if available, offered during the subscription term. We typically invoice our customers for subscription fees in annual increments upon execution of the initial contract or subsequent renewal. Our contracts are generally non-cancellable during the subscription term, though a customer can terminate for breach if we materially fail to perform.
Professional services and other revenues. Our arrangements for professional services are primarily on a time-and-materials basis, and we generally invoice our customers monthly in arrears for the professional services based on actual hours and expenses incurred. Some of our professional services arrangements are on a fixed fee basis. Professional services revenues are recognized as services are delivered. Other revenues primarily consist of fees from customer training delivered on-site or through publicly available classes. Typical payment terms require our customers to pay us within 30 days of invoice.
We sell our subscription services primarily through our direct sales organization. We also sell services through managed service providers and resale partners. We also generate revenues from certain professional services and from training of customers and partner personnel, through both our direct team and indirect sales channel. Revenues from our direct sales organization represented 75% and 76% of our total revenues for the three and six months ended June 30, 2026, respectively, and 78% of our total revenues for each of the three and six months ended June 30, 2025. For purposes of calculating revenues from our direct sales organization, revenues from systems integrators and managed services providers are included as part of the direct sales organization.
Seasonality. We have historically experienced seasonality in terms of when we enter into customer agreements. We sign a significantly higher percentage of agreements with new customers, as well as expansion with existing customers, in the fourth quarter of each year. The increase in customer agreements for the fourth quarter is primarily a result of both large enterprise account buying patterns typical in the software industry, which are driven primarily by the expiration of annual authorized budgeted expenditures, and the terms of our commission plans, which incentivize our direct sales organization to meet their annual quotas by December 31. Furthermore, we usually sign a significant portion of these agreements during the last month, and often the last two weeks, of each quarter. This seasonality of entering into customer agreements is sometimes not immediately apparent in our revenues, due to the fact that we recognize subscription revenues from our cloud offering contracts over the term of the subscription agreement, which is generally 12 to 36 months. In addition, we continue to see an increase in the number of 12-month agreements entered into with the U.S. federal government throughout the year, with the highest number of agreements entered into in the third quarter, driven primarily by the timing of their annual budget expenditures. This larger mix of contracts with 12-month renewal terms in the third quarter will generally cause variability in our RPO and cRPO in subsequent quarters until they are renewed. Although these seasonal factors may be common in the technology industry, historical patterns should not be considered a reliable indicator of our future sales activity or performance.
Cost of Revenues
Cost of subscription revenues. Cost of subscription revenues consists primarily of expenses related to hosting our services and providing support to our customers. These expenses are comprised of data center capacity costs, which include colocation costs associated with our data centers as well as interconnectivity between data centers, depreciation related to our infrastructure hardware equipment dedicated for customer use, amortization of intangible assets, expenses associated with software, public cloud service costs, IT services and dedicated customer support, personnel-related costs directly associated with data center operations and customer support, including salaries, benefits, bonuses, stock-based compensation and allocated overhead.
Cost of professional services and other revenues. Cost of professional services and other revenues consists primarily of personnel-related costs directly associated with our professional services and training departments, including salaries, benefits, bonuses and stock-based compensation, the costs of contracted third-party partners, travel expenses and allocated overhead.
Professional services are performed directly by our services team, as well as by contracted third-party partners. Fees paid by us to third-party partners are primarily recognized as cost of revenues as the professional services are delivered. Cost of revenues associated with our professional services engagements contracted with third-party partners as a percentage of professional services and other revenues was 42% and 40% for the three and six months ended June 30, 2026, respectively, and 33% and 34% for the three and six months ended June 30, 2025, respectively.
Sales and Marketing
Sales and marketing expenses consist primarily of personnel-related expenses directly associated with our sales and marketing staff, including salaries, benefits, bonuses, stock-based compensation and allocated overhead. Sales and marketing expenses also include the amortization of commissions paid to our sales employees, including related payroll taxes and fringe benefits, and amortization of intangible assets. In addition, sales and marketing expenses include branding expenses, marketing program expenses, which include events such as Knowledge, and costs associated with purchasing advertising and marketing data, software and subscription services dedicated for sales and marketing use and allocated overhead.
Research and Development
Research and development expenses consist primarily of personnel-related expenses directly associated with our research and development staff, including salaries, benefits, bonuses, stock-based compensation and allocated overhead. Research and development expenses also include data center capacity costs, costs associated with outside services contracted for research and development purposes and depreciation of infrastructure hardware equipment that is used solely for research and development purposes.
General and Administrative
General and administrative expenses consist primarily of personnel-related expenses for our executive, finance, legal, human resources, facilities and administrative personnel, including salaries, benefits, bonuses, stock-based compensation, external legal, accounting and other professional services fees, other corporate expenses, amortization of intangible assets and allocated overhead.
Provision for Income Taxes
Provision for income taxes consists of federal, state and foreign income taxes. Our income tax provision for the three and six months ended June 30, 2026 is primarily attributable to the mix of earnings and losses in countries with differing statutory tax rates and stock-based compensation shortfalls, offset by the release of a valuation
allowance on certain California deferred tax assets. We continue to maintain a valuation allowance against a portion of our California deferred tax assets due to the uncertainty regarding realizability of these deferred tax assets as they have not met the “more likely than not” realization criteria, particularly as we expect research and development tax credit generation to exceed our ability to use the credits in future years.
Comparison of the Three and Six Months Ended June 30, 2026 and 2025
Revenues
| Three Months Ended June 30, | % Change | Six Months Ended June 30, | % Change | |||||||||||||||||||||||||||||
| 2026 | 2025 | 2026 | 2025 | |||||||||||||||||||||||||||||
| (dollars in millions) | (dollars in millions) | |||||||||||||||||||||||||||||||
| Revenues: | ||||||||||||||||||||||||||||||||
| Subscription | $ | 3,877 | $ | 3,113 | 25 | % | $ | 7,548 | $ | 6,118 | 23 | % | ||||||||||||||||||||
| Professional services and other | 110 | 102 | 8 | % | 209 | 185 | 13 | % | ||||||||||||||||||||||||
| Total revenues | $ | 3,987 | $ | 3,215 | 24 | % | $ | 7,757 | $ | 6,303 | 23 | % | ||||||||||||||||||||
| Percentage of revenues: | ||||||||||||||||||||||||||||||||
| Subscription | 97% | 97% | 97 | % | 97 | % | ||||||||||||||||||||||||||
| Professional services and other | 3% | 3% | 3 | % | 3 | % | ||||||||||||||||||||||||||
| Total | 100% | 100% | 100 | % | 100 | % | ||||||||||||||||||||||||||
Subscription revenues increased by $764 million and $1,430 million for the three and six months ended June 30, 2026, respectively, compared to the three and six months ended June 30, 2025, primarily driven by increased purchases by new and existing customers. Included in subscription revenues is $149 million and $109 million of revenues recognized upfront from the delivery of software associated with self-hosted offerings during the three months ended June 30, 2026 and 2025, respectively, and $287 million and $266 million during the six months ended June 30, 2026 and 2025, respectively.
We expect subscription revenues for the year ending December 31, 2026 to increase in absolute dollars and remain relatively flat as a percentage of revenue as we continue to add new customers and existing customers increase their usage of our products compared to the year ended December 31, 2025.
Our expectations for revenues, cost of revenues and operating expenses for the remainder of 2026 are based on the 30-day average of foreign exchange rates for June 30, 2026.
Professional services and other revenues increased by $8 million and $24 million during the three and six months ended June 30, 2026, respectively, compared to the three and six months ended June 30, 2025, primarily due to an increase in services and trainings provided to new and existing customers.
We expect professional services and other revenues for the year ending December 31, 2026 to increase in absolute dollars and remain relatively flat as a percentage of revenue compared to the year ended December 31, 2025.
Cost of Revenues and Gross Profit Percentage
| Three Months Ended June 30, | % Change | Six Months Ended June 30, | % Change | |||||||||||||||||||||||||||||
| 2026 | 2025 | 2026 | 2025 | |||||||||||||||||||||||||||||
| (dollars in millions) | (dollars in millions) | |||||||||||||||||||||||||||||||
| Cost of revenues: | ||||||||||||||||||||||||||||||||
| Subscription | $ | 1,030 | $ | 625 | 65 | % | $ | 1,850 | $ | 1,186 | 56 | % | ||||||||||||||||||||
| Professional services and other | 139 | 99 | 40 | % | 259 | 189 | 37 | % | ||||||||||||||||||||||||
| Total cost of revenues | $ | 1,169 | $ | 724 | 61 | % | $ | 2,109 | $ | 1,375 | 53 | % | ||||||||||||||||||||
| Gross profit (loss) percentage: | ||||||||||||||||||||||||||||||||
| Subscription | 73% | 80% | 75% | 81 | % | |||||||||||||||||||||||||||
| Professional services and other | (26%) | 3% | (24%) | (2 | %) | |||||||||||||||||||||||||||
| Total gross profit percentage | 71% | 77% | 73% | 78 | % | |||||||||||||||||||||||||||
| Gross profit | $ | 2,818 | $ | 2,491 | $ | 5,648 | $ | 4,928 | ||||||||||||||||||||||||
Cost of subscription revenues increased by $405 million and $664 million for the three and six months ended June 30, 2026, respectively, compared to the three and six months ended June 30, 2025, primarily due to increased headcount and increased costs to support the growth of our subscription offerings including costs to support customers in regulated markets. Personnel-related costs, including stock-based compensation and overhead expenses, increased by $115 million and $229 million for the three and six months ended June 30, 2026, respectively, compared to the three and six months ended June 30, 2025. Depreciation expense related to infrastructure hardware equipment and expenses associated with software, maintenance and other costs, which together support the expansion of data center capacity, increased by $63 million and $123 million for the three and six months ended June 30, 2026, respectively, compared to the three and six months ended June 30, 2025. Expenses associated with our contractual commitments with third-party cloud service providers increased by $63 million and $104 million for the three and six months ended June 30, 2026, respectively, compared to the three and six months ended June 30, 2025. In addition, amortization of intangible assets increased by $153 million and $194 million for the three and six months ended June 30, 2026, respectively, compared to the three and six months ended June 30, 2025 as a result of acquisitions.
We expect our cost of subscription revenues for the year ending December 31, 2026 to increase in absolute dollars and increase as a percentage of revenue compared to the year ended December 31, 2025 as we provide subscription services to more customers, increase usage within our customer instances and continue to recognize amortization of acquired intangible assets. We will continue to incur incremental costs to attract customers in regulated markets by adopting public cloud offerings as well as increased support for customers impacted by new and evolving data residency requirements. To the extent future acquisitions are consummated, our cost of subscription revenues may increase due to additional non-cash charges associated with the amortization of intangible assets acquired.
Our subscription gross profit percentage was 73% and 75% for the three and six months ended June 30, 2026, respectively, and 80% and 81% for the three and six months ended June 30, 2025, respectively. We expect our subscription gross profit percentage to decrease for the year ending December 31, 2026 compared to the year ended December 31, 2025, primarily due to the ongoing growth of our third-party cloud services usage and incremental amortization of intangible assets acquired.
Cost of professional services and other revenues increased by $40 million and $70 million for the three and six months ended June 30, 2026, respectively, compared to the three and six months ended June 30, 2025, primarily driven by increased personnel-related costs and an increase in partner ecosystem spend to further help accelerate customer value realization.
Our professional services and other gross loss percentage was 26% for the three months ended June 30, 2026 compared to a gross profit percentage of 3% for the three months ended June 30, 2025. Our professional services and other gross loss percentage was 24% for the six months ended June 30, 2026 compared to 2% for the six months ended June 30, 2025. Our professional services and other gross loss percentage was primarily driven by personnel-related costs and partner ecosystem spend to further help accelerate customer value realization increasing at a faster rate than revenue. We expect our professional services and other gross loss percentage to increase for the year ending December 31, 2026 compared to the year ended December 31, 2025 as we continue to accelerate customer value realization and support our customers in gaining the maximum value of our latest offerings.
Sales and Marketing
| Three Months Ended June 30, | % Change | Six Months Ended June 30, | % Change | |||||||||||||||||||||||||||||
| 2026 | 2025 | 2026 | 2025 | |||||||||||||||||||||||||||||
| (dollars in millions) | (dollars in millions) | |||||||||||||||||||||||||||||||
| Sales and marketing | $ | 1,372 | $ | 1,128 | 22 | % | $ | 2,588 | $ | 2,182 | 19 | % | ||||||||||||||||||||
| Percentage of revenues | 34% | 35% | 33% | 35% | ||||||||||||||||||||||||||||
Sales and marketing expenses increased by $244 million and $406 million for the three and six months ended June 30, 2026, respectively, compared to the three and six months ended June 30, 2025, primarily due to increased headcount resulting in an increase in personnel-related costs including stock-based compensation and overhead expenses of $138 million and $211 million for the three and six months ended June 30, 2026, respectively, compared to the three and six months ended June 30, 2025. Amortization expenses associated with deferred commissions increased by $21 million and $44 million for the three and six months ended June 30, 2026, respectively, compared to the three and six months ended June 30, 2025, primarily due to an increase in contracts with new customers, expansion and renewal contracts. Other sales and marketing program expenses, which include branding, costs associated with purchasing advertising, marketing events and market data, increased by $29 million and $62 million for the three and six months ended June 30, 2026, respectively, compared to the three and six months ended June 30, 2025, primarily due to increased program costs and travel costs for our annual Knowledge user conference. In addition, amortization of intangible assets increased by $41 million and $56 million for the three and six months ended June 30, 2026, respectively, compared to the three and six months ended June 30, 2025 as a result of acquisitions.
We expect sales and marketing expenses for the year ending December 31, 2026 to increase in absolute dollars and to decrease slightly as a percentage of revenue compared to the year ended December 31, 2025, as we continue to see leverage from increased sales productivity and marketing efficiencies.
Research and Development
| Three Months Ended June 30, | % Change | Six Months Ended June 30, | % Change | |||||||||||||||||||||||||||||
| 2026 | 2025 | 2026 | 2025 | |||||||||||||||||||||||||||||
| (dollars in millions) | (dollars in millions) | |||||||||||||||||||||||||||||||
| Research and development | $ | 915 | $ | 734 | 25 | % | $ | 1,738 | $ | 1,437 | 21 | % | ||||||||||||||||||||
| Percentage of revenues | 23% | 23% | 22% | 23% | ||||||||||||||||||||||||||||
Research and development expenses (“R&D”) increased by $181 million and $301 million for the three and six months ended June 30, 2026, respectively, compared to the three and six months ended June 30, 2025, primarily due to increased headcount, resulting in an increase in personnel-related costs including stock-based
compensation and overhead expenses of $162 million and $278 million for the three and six months ended June 30, 2026, respectively, compared to the three and six months ended June 30, 2025.
We expect R&D expenses for the year ending December 31, 2026 to increase in absolute dollars but remain relatively flat as a percentage of revenue compared to the year ended December 31, 2025, as we continue to improve the existing functionality of our services, develop new applications to fill market needs and enhance our core platform.
General and Administrative
| Three Months Ended June 30, | % Change | Six Months Ended June 30, | % Change | |||||||||||||||||||||||||||||
| 2026 | 2025 | 2026 | 2025 | |||||||||||||||||||||||||||||
| (dollars in millions) | (dollars in millions) | |||||||||||||||||||||||||||||||
| General and administrative | $ | 369 | $ | 271 | 36 | % | $ | 657 | $ | 500 | 31 | % | ||||||||||||||||||||
| Percentage of revenues | 9% | 8% | ||||||||||||||||||||||||||||||
Recent insider activity
| Date | Insider | Role | Action | Shares | Price | Value |
|---|---|---|---|---|---|---|
| 2026-05-28 | Briggs Teresa | Director | Sell | -1,595 | $108.70 | -$173,376 |
| 2026-05-18 | Fipps Paul | President, Global Customer Ops | Sell | -1,048 | $98.51 | -$103,238 |
| 2026-05-14 | Chamberlain Paul Edward | Director | Sell | -1,500 | $87.23 | -$130,845 |
| 2026-05-14 | Sands Anita M | Director | Sell | -16,445 | $90.14 | -$1,482,402 |
| 2026-05-08 | Fipps Paul | President, Global Customer Ops | Sell | -151 | $90.47 | -$13,661 |
Source: SEC Form 4 filings.
Next expected filings
- ~2026-10-29 10-Q expected by 2026-11-13 (in 91 days)
- ~2027-01-27 10-K expected by 2027-03-01 (in 181 days)
- ~2027-04-22 10-Q expected by 2027-05-07 (in 266 days)
- ~2027-07-22 10-Q expected by 2027-08-06 (in 357 days)
Predicted from historical filing cadence; not an SEC commitment.
Recent SEC filings
- 2026-07-23 10-Q Quarterly Report
- 2026-07-22 8-K Earnings Release; Financial Statements and Exhibits
- 2026-07-22 S-8 Employee Benefit Plan Registration
- 2026-07-22 S-8 Employee Benefit Plan Registration
- 2026-05-22 8-K Officer/Director Change; Shareholder Vote Results; Financial Statements and Exhibits
- 2026-05-15 8-K Material Agreement Entered; Material Financial Obligation; Other Events; Financial Statements and Exhibits
- 2026-05-13 424B2 Prospectus Supplement
- 2026-04-23 10-Q Quarterly Report
- 2026-04-22 8-K Material Agreement Entered; Earnings Release; Material Financial Obligation; Financial Statements and Exhibits
- 2026-04-20 S-8 Employee Benefit Plan Registration
- 2026-04-06 DEF 14A Proxy Statement
- 2026-04-01 8-K Material Agreement Entered; Material Financial Obligation; Financial Statements and Exhibits
- 2026-02-11 8-K Officer/Director Change
- 2026-01-29 10-K Annual Report
- 2026-01-28 8-K Earnings Release; Other Events; Financial Statements and Exhibits