“While we expect some near-term headwinds to margins as we integrate the business this year, strong AI efficiencies internally from Now On and our underlying platform leverage will normalize our operating and free cash flow margin expansion trajectory in 2027 and beyond.”

In context

“Gina Mastantuono (President and Chief Financial Officer): Thank you, Bill. Q1 was another quarter of outstanding execution. The team delivered strong results beating the high end of our guidance across all top line and profitability metrics. Now Assist continues to see incredible demand, which has had a nice pull effect and driven outperformance across emerging products like AI control tower and Raptor DB Pro. Q1 subscription revenues were $3.671 billion, growing 19% year-over-year in constant currency and above the high end of our guidance. This includes about a 75 basis point headwind from delayed closings of several large on-premise deals in the Middle East due to the ongoing conflict in the region. RPO ended the quarter at approximately $27.7 billion, representing 23.5% year-over-year constant currency growth. Current RPO was $12.64 billion, representing 21% year-over-year constant currency growth, a 100 basis point beat versus our guidance. Across our workflows, we saw broad-based demand. Technology workflows had 33 deals over $1 million, including 5 over $5 million. Service Ops and ITAM were each in 17 of our top 20 deals and security and risk was in 15. CRM and industry workflows were in 16 of our top 20 deals with 16 over $1 million, driven by strength in CPQ and sales and order management. Core business workflows had 13 deals in the top 20 with 12 over $1 million. And creative workflows had 16 deals in the Top 20 with 11 over $1 million. From an industry perspective, transportation and logistics continued to lead the way with net new ACV growing over 280% year-over-year. Financial Services posted impressive growth surpassing 65%, followed by energy and utilities growing up 45% year-over-year. Telecom & Media also delivered robust growth in the quarter and U.S. public sector outperformed in Q1, including 10 deals over $1 million. Our renewal rate, inclusive of Moveworks, was a strong 97% in the quarter. We ended Q1 with 630 customers generating over $5 million in ACV. Furthermore, we had 5 more customers cross the $50 million threshold versus last year. We closed 16 deals greater than $5 million in net new ACV in the quarter, including 5 deals over $10 million. The power of our Better Together platform model was evident as 17 of our Top 20 deals included 7 or more products. Our strategic focus on landing the right new customers also continues to see success. New logo ACV growth accelerated to over 50% year-over-year in Q1, which included our largest net new logo deal ever at over $15 million. Now Assist continues to outperform expectations, putting it on a trajectory to exceed our $1 billion target for 2026. In Q1, deals including 3 or more Now Assist products grew nearly 70% year-over-year, including 36 deals with 5 or more products. The signal is clear. Customers are moving past experimentation into full-scale enterprise-wide AI investment. We'll provide further details about these trends next month in Las Vegas. I would note that with our new AI native packages, this ACV target will continue to capture only the incremental contribution from our AI capabilities. Turning to Moveworks. We took their great conversational AI and enterprise search capabilities, integrated them with Employee Pro in under three weeks and drove it through our incredible go-to-market distribution network, launching employee works as a unified AI front door in February. The results speak for themselves. As Bill mentioned, we've already closed 6 deals above $1 million in net new ACV. We're just getting started. AI control tower also continues to build momentum, with average deal sizes more than doubling quarter-over-quarter in Q1. Customers recognize that as AI agents grow capability, a governed platform to run them isn't optional. It's essential. With the proliferation of AI across the enterprise, we're also seeing increasing adoption of Raptor DB Pro. Deal volume grew 80% year-over-year in Q1 and included 5 deals over $1 million. Turning to profitability. Non-GAAP operating margin was 32%, 50 basis points above our guidance, driven by AI OpEx efficiencies. Our free cash flow margin was 44%. In Q1, we executed a $2 billion accelerated share repurchase and bought back approximately 20.2 million shares, double the amount we repurchased in all of 2025. As of the end of the quarter, we had approximately $4.2 billion of authorization remaining. Together, these results continue to demonstrate our ability to drive a strong balance of world-class growth, profitability and shareholder value. Moving to our outlook. I'm thrilled to announce the early close of our acquisition of Armis, which will significantly expand our TAM and accelerate our subscription revenue growth. While we expect some near-term headwinds to margins as we integrate the business this year, strong AI efficiencies internally from Now On and our underlying platform leverage will normalize our operating and free cash flow margin expansion trajectory in 2027 and beyond. Our guidance captures that momentum while taking a prudent view of the geopolitical environment, particularly the conflict in the Middle East and its potential impact to deal timing. With that in mind, for 2026, we are raising our subscription revenues by $205 million at the midpoint to $15.735 billion to $15.775 billion, representing 20.5% to 21% year-over-year growth on a constant currency basis. This includes a 125 basis point contribution from Armis. We now expect subscription gross margin of 81.5% and operating margin of 31.5%, which included 25 basis points and 75 basis point headwind from Armis, respectively. We expect free cash flow margin of 35%. This includes a 200 basis point headwind from Armis and GAAP diluted weighted average outstanding shares of $1.04 billion. For Q2, we expect subscription revenues between $3.815 billion and $3.820 billion, representing 21% to 21.5% year-over-year growth on a constant currency basis. We expect the RPO growth of 19.5% on a constant currency basis. Both subscription revenue and CRPO include 125 basis point contribution from Armis. We expect an operating margin of 26.5%, which includes a 125 basis point headwind from Armis, and we expect 1.04 billion GAAP diluted weighted average outstanding shares for the quarter. In conclusion, Q1 was another proof point of what this business is built to do. We exceeded the high end of our top line and profitability guidance metrics, continue to grow free cash flow and return substantial capital to shareholders, all while accelerating platform innovation that will define the next decade of enterprise reinvention for an AI enterprise. I've had a front row seat to one of the most remarkable growth trajectories in enterprise software, and I'll tell you what we are building right now: the combination of agentic AI, workflow orchestration, security and data fabric, all on one platform. This is the chapter that makes everything else look like the preamble. You're all invited to hear more about it at our upcoming Financial Analyst Day on May 4, which will be webcast on our Investor Relations website. Finally, Bill and I would like to thank all of our employees for their continued hard work and dedication. I also want to extend a big welcome to the Armis and Veza teams to the ServiceNow family. With that, I'll open it up for Q&A.”