ServiceNow (NOW.US) Q3 Earnings Call: Q4 Subscription Guidance of RMB4.245 Billion, Up 21.5% YoY; AI Target Raised to US$1.7 Billion; True Impact of AI Momentum to Be Seen in 2027

Title context: ServiceNow (NOW.US) Q3 Earnings Call: Q4 Subscription Guidance of US$4.245 Billion, Up 21.5% YoY; AI Target Raised to US$1.7 Billion; True Impact of AI Momentum to Be Seen in 2027 Text: After the U.S. market close on Wednesday, enterprise software company ServiceNow (NOW.US) reported its fiscal 2026 third-quarter results. Data showed that the company's quarterly revenue reached US$4.106 billion, up 20.5% year over year, or 20% at constant currency; GAAP net income was US$277 million, down about 45% from US$502 million in the prior-year period; GAAP diluted earnings per share were US$0.27, below US$0.48 in the prior-year period. Non-GAAP adjusted net income was US$1.039 billion, up about 5% from US$992 million in the prior-year period; adjusted diluted earnings per share were US$1.00, above US$0.95 in the prior-year period. ServiceNow said third-quarter revenue growth and profitability metrics both exceeded the upper end of its prior guidance, and announced an upward revision to its full-year 2026 subscription revenue and free cash flow margin expectations. Subscription Revenue Grows 21%; AI Business Drives Expansion of Contract Scale As ServiceNow's primary source of revenue, subscription revenue reached US$3.988 billion in the third quarter, up 21% year over year, or 20.5% at constant currency. Professional services and other revenue was US$118 million, up 10% year over year. As of the end of September, the company's current remaining performance obligations (cRPO) reached US$13.65 billion, up 20.5% year over year, or 21% at constant currency. This metric mainly reflects contracted revenue expected to be recognized over the next 12 months. Meanwhile, total remaining performance obligations (RPO) reached US$29.7 billion, up 22% year over year, or 22.5% at constant currency, reflecting continued expansion of the company's future contracted revenue. On large-customer demand, ServiceNow closed 19 new deals with annual contract value exceeding US$5 million in the third quarter, with the number of such deals up more than 135% year over year. As of the end of the third quarter, the number of customers with annual contract value exceeding US$5 million reached 680, up about 23% year over year. The following is the full transcript of ServiceNow's earnings call (translated with the assistance of AI tools): I. Executive Remarks Bill McDermott, Chairman and CEO The third-quarter results amount to a "triple crown" moment for ServiceNow: the quarter again beat expectations across the board, AI performance accelerated by the largest margin to date, and the hybrid business model shifted further toward consumption. First, the standard results. Subscription revenue grew 20.5% at constant currency, 50 basis points above the high end of guidance; cRPO (current remaining performance obligations) grew 21% at constant currency, 100 basis points above guidance; operating margin was 32.5%, 150 basis points above guidance; free cash flow margin was 20%. In the third quarter there were 19 deals with net new annual contract value (ACV) exceeding US$5 million, up 135% year over year. Remaining performance obligations (RPO) reached US$30 billion, up 23% year over yearthat is growth at scale. As for the "triple crown," what was even more striking about the third quarter was this: for several quarters, the company has been actively building a consumption engine into its business model, with the goal of becoming the governed execution layer for enterprise AI, offering multiple commercialization paths, all driven by customer choice. The third quarter was the most striking result to date; the strategy is working, and AI monetization has delivered substantive results: AI net new ACV grew 65% year over year in the third quarter; Control Tower net new ACV grew more than 6x year over year; EmployeeWorks, the agentic front office, reached US$100 million in ACV in less than three quarters; the number of AI deals over US$1 million grew 4.5x year over year; year to date, agentic AI consumption in production environments grew more than 13x year over year; and consumption from Action Fabric assists alone grew 500% quarter over quarter. This is not only where customers are heading, but also where customers want the company to goand the right direction for long-term shareholder value creation. Looking back, the company set a US$1 billion AI target for year-end at the start of the year, raised it to US$1.5 billion at the May Financial Analyst Day, and today raised it again to more than US$1.7 billion by year-end. Management has already asked the team to exceed that number. Overall, the company is going all out for the fourth quarter; Gina will present guidance shortly, and it will be raised. As is well known, ServiceNow consistently finishes strong, and this year's target is the best year in the company's history. Let me spend a few more minutes on the still-complex enterprise environment. A few weeks ago, the company held its semiannual CEO event, attended by more than 125 CEOs. The consensus among attendees was this: everyone is investing in the intelligence revolution, has spent billions to date, and has gone through the token-maximization phase. The major lesson they learned is that in the AI world, the risks of "vibe slop," failed projects, sprawl, and lack of integration are greater. When it comes to ServiceNow's role as the Super Intelligence Control Tower (SICT) for enterprise reinvention, the recognition was universal. SICT applies the right models to the right workloads to solve the right problems and unlock the right opportunities for customers. Businesses across every industry need a governing framework for enterprise AInot merely a single layer of orchestration, governance, or security, but the core where all three intersect. Enterprise intelligence is now in the "rules and rails" phase. 94% of enterprises report AI visibility gaps, and 88% cannot even distinguish personal AI accounts from enterprise instances. ServiceNow's Control Tower can discover and inventory the entire AI estate. As "rogue agents" incidents continue to emerge, ServiceNow controls what agents can do. To this end, the company launched AI Passport, which issues an official certification record for each agent based on platform contextwho owns the agent, what it is allowed to do, which data it can access, and how much risk exposure it is allowed to carry. This constitutes the most powerful "kill switch" capability in the enterprise world today. When Control Tower revokes a passport, NVIDIA Century will stop trusting it, and the agent is terminated at the infrastructure layer. The company is rolling out this capability everywhere. Control Tower sends signals to Okta, Microsoft Corporation Azure AI Foundry, and Alphabet Inc. Class C Gemini Enterprise agent platforms so that agent access can be cut off wherever they run. ServiceNow is already at the operational core of the world's largest enterprises, with the CMDB, Workflow Data Fabric, and more than 20 years of embedded operational intelligence and context across IT, security, and risk. With Armis and Veza, the company can now precisely target specific known vulnerabilities against an irreversibly changed cybersecurity landscapewhat it calls "Shift Zero." It shifts security from after-the-fact remediation to prevention, from human speed to machine speed, from blind spots to governed. A typical enterprise runs more than 70 security tools; ServiceNow provides a single governance system with evidence of "what acted, why, and who is accountable." This is not an incremental improvement on a passive model, but a consolidated replacement for a fragmented market and a gateway to autonomous defense. That is why ServiceNow has become the fastest-growing cybersecurity company at scale, and its growth rate is accelerating rapidly. Operating in the superintelligence era, the pace of innovation must keep up with the growth in the scale of opportunity. The team at ServiceNow deserves pride for what it has delivered. The company's Level 1 service desk specialists resolve incidents 85% faster than human agents and are now fully in autonomous production across customers of different sizes and industries, from a global automotive leader to a leading enterprise technology company. AIOps specialists have already cut median resolution time by 40% within the first month. More than 100 customers are now using the company's AI specialists to innovate; AIOps, HRSD, and CRM specialists are expected to be generally available in the fourth quarter. As enterprises rethink the mission of CRM systems, ServiceNow is leading the way. The old CRM was built for sales teams; the new CRM must run through the entire businessa different product, a different architecture. That is why customers are "ripping and replacing" rather than merely layering on top of what they have. Conversational voice AI is the next big leap connecting the front office to the entire enterprise; the customer conversation is the starting point of work, and the platform must carry it through every system and workflow that follows. The company is redefining how enterprises interact with customers. The tuck-in acquisition of Sweep brings deep expertise in rapid agent deployment, adding further momentum to accelerate and improve customer outcomes. A year after Logik AI joined ServiceNow, the company was named a Leader and a customer favorite in Forrester Wave's "Configure, Price, Quote (CPQ) Solutions" report. A similar shift in gravity is occurring in the employee experience space. For the broader enterprise market, the company launched Flow. Many enterprises want leading domain expertise but are not yet ready to adopt formalized ITSM. Flow fills that gapa brand-new, self-service, consumption-billed conversational service desk. Customers can sign today and use it today, which is a key reason for its lightning-fast start among global enterprises and government agencies. ServiceNow EmployeeWorks remains a high-growth engine, providing enterprises with one-stop search, knowledge, task execution, and ticket routing across IT, HR, finance, and procurement, and also becoming a one-stop platform for employees to build AI assistants, agents, and automations, all protected by enterprise guardrails. And this is just the tip of the iceberg of breakthrough innovation on the ServiceNow platform. Even the best platform cannot deliver for the enterprise alone. The ServiceNow Control Tower Alliance is a new ecosystem bringing together leading companies in AI, cloud infrastructure, security, governance, and token management to help customers adopt trusted enterprise AI securely and at scale. Founding members include Anthropic, AWS, Cisco Systems, Inc., HiddenLayer, Kong, Okta, OpenAI, WitnessAI, and Zenity. Today, ServiceNow announced an expanded partnership with OpenAI to help enterprises move seamlessly from AI inference to governed action. The expanded partnership first lands as a new ServiceNow plug-in for ChatGPT, powered by Action Fabric. The company aims to develop security and risk solutions based on OpenAI's cybersecurity models, Codex integration, an AI workflow factory, and voice-driven governance for the ServiceNow Super Intelligence Control Tower. Both sides have high hopes for the partnership, especially in cybersecurity. In addition, the partnership between Alphabet Inc. Class C Gemini Enterprise and ServiceNow Action Fabric has also expanded: Gemini Enterprise provides the conversational front end, and ServiceNow provides governed industry workflow execution. The partnership with Cprime's INRY demonstrates what partners can achieve by "building first, then selling" on ServiceNowINRY went live with EmployeeWorks in six weeks, setting a new benchmark for time to value rather than an exception; they do not sell the solution externally until they have used it themselves. Median submission time has now been cut by 60%, with a 97% completion rate. ServiceNow reached an agreement with Aramco Digital to standardize and govern digital workflows across Aramco's affiliates, subsidiaries, and joint ventures in more than 50 countries. Such partnerships are too numerous to list. One could stop at the countless industry honors receivedthree new Gartner Magic Quadrants, two new Forrester Waves, IDC reports, and more. But it is better to close with the ultimate yardstick for measuring a decisive enterprise technology companycustomers. A leading Asian telecommunications company with more than 130,000 employees and contractors became the first enterprise in the region to deploy ServiceNow Autonomous Workforce, achieving a zero-touch service desk for IT and HR and handling 70,000 IT requests and 6,000 HR inquiries annually. The Salvation Army, Australia uses ServiceNow AI specialists and has so far returned more than 5,000 hours to frontline staff, time redirected to serving community members in need. The German professional football league expanded its partnership with ServiceNow as its official CRM partnerwithin just one month, it consolidated fan service from seven digital channels onto a single ServiceNow platform, with 89% of inquiries resolved at first contact and case volume halved. A global logistics leader previously had heavy and frustrating manual processes across siloed systems in its freight operations. ServiceNow built it an AI companion, the "shipment issue analyzer," with the result being nearly 100,000 hours saved annually and resolution time cut from three days to under 30 minutes. Leading U.S. fintech company Jack Henry & Associates chose ServiceNow CRM to automate routine tasks with AI, strengthen post-sale operations, and modernize its CRM capabilities. A consumer finance company had previously faced fragmented channels, unclear accountability, and legacy systems drowning out signals in risk identification. The company's forward-deployed AI engineer (FDE) team built it an "AI Risk front door"a two-tier agent architecture targeting 85% accuracy that compresses the time from signal to ticket dispatch by more than 85%. Nestl has begun using Control Tower to scale AI adoption and strengthen governance across its operations, progressively deploying agentic marketing operations in 60 countries, with the potential to reduce marketing campaign coordination costs by 25%. The two sides continue to drive innovation across key business functions. InterContinental Hotels Group PLC Sponsored ADR (IHG)one of the world's largest hotel and travel services companiesuses ServiceNow's Veza to govern "who and what" can access its systems, so it can expand safely across 7,000 hotels worldwide. These outstanding enterprises are making AI work for people, relying on the security of ServiceNow's AI platform and Super Intelligence Control Tower. The company sees clear momentum in AI monetization, driven by organic innovation, pricing, and intelligent packaging. The security business is uniquely differentiated, with the potential to be larger than all of ServiceNow today within a few years. The company performed strongly across industries, including the public sectorwhich again delivered its largest quarter of the year. The company is not constrained by compute, nor by capital, and is activating its hybrid business model. As can be seen from the raised full-year guidance, the company is moving from the "Rule of 56" to the "Rule of 57" and then toward the "Rule of 60"that is, the sum of free cash flow and revenue growth. The company now has six businesses with run rates above US$1 billion, and its total addressable market (TAM) continues to double and expand. Few other companies can match such fundamentals. As the cost of intelligence declines, the tailwind for the software industry is strengthening. ServiceNow is a one-of-a-kind growth company with deep roots in the enterprise and a mature global distribution system, living by the principle and commitment that "the world runs on ServiceNow." Thank you all for your trust and support; I look forward to your questions. I will now hand the call over to President and Chief Financial Officer Gina Mastantuono. Gina Mastantuono, President and CFO Thank you, Bill. The third quarter was again strong, with revenue and profitability metrics all exceeding the high end of guidance. The results confirm that ServiceNow's strategic position is becoming more prominent as enterprises move from AI experimentation to scaled deployment. Customers need both the productivity and growth that superintelligence brings, and the visibility and security to proceed with confidence. The ServiceNow AI platform sits at the operational core of the world's largest enterprises, and the company is ideally positioned to help customers apply AI across the entire business, govern the agents in every action, and turn intelligence into secure, measurable outcomes. Third-quarter subscription revenue was US$3.988 billion, up 20.5% year over year at constant currency, 50 basis points above the high end of guidance. RPO at quarter-end reached US$29.7 billion, up 22.5% year over year at constant currency, with average contract duration continuing to lengthen. cRPO was US$13.65 billion, up 21% year over year at constant currency, 100 basis points above guidance. Demand was broad across workflows: the technology workflow had 54 deals over US$1 million, including 6 over US$5 million. Demand for core workflows remained strong, because every new AI asset and agent brings higher requirements for management, monitoring, security, and governance. Among the top 20 deals, ITSM appeared in 11 and ITOM in 9 (14 of which were over US$1 million); asset management surpassed US$1 billion in ACV this quarter, appearing in 13 deals (11 over US$1 million); security and risk solutions appeared in 16 (13 over US$1 million). CRM and industry workflows maintained rapid growth, appearing in 13 deals, with deals over US$1 million surging to 28. Core business workflows accounted for 15 of the top 20 deals (24 over US$1 million); Creator workflow accounted for 19 (13 over US$1 million). By industry, commercial and consumer services led, with net new ACV up more than 3x year over year; technology also grew strongly, by nearly 40%. U.S. federal business performed exceptionally well this quarter, with deals over US$1 million up more than 30% year over year. As agencies increasingly view ServiceNow as the enterprise AI operating system, federal net new ACV growth is expected to accelerate further in the fourth quarter. Third-quarter renewal rate remained industry-leading at 98%. At quarter-end, 680 customers had ACV over US$5 million, and another 31 customers crossed US$20 million in ACV over the past year. As the largest customers continue to grow with ServiceNow, platform adoption continues to expand, with 19 of the top 20 deals involving six or more products. Momentum in AI solutions continues to build: AI net new ACV grew 65% year over year in the third quarter, prompting the company to raise its AI ACV target for the second time this yearfrom US$1 billion at the start of the year to US$1.7 billion by the end of 2026. The number of AI deals over US$1 million grew 4.5x year over year in the third quarter; customers are adopting AI more broadly across the enterprise, with deals involving five or more AI products up more than 8.5x year over year. AI adoption runs across the platform and shows up in every workflow. AI deal volume in ITSM grew nearly 80% year over year, and HRSD nearly doubled; newer AI solutions grew even faster, with ITOM up more than 7x and portfolio management more than 6.5x. Security and risk AI net new ACV grew more than 4.5x year over year, App Engine AI more than 4x, and asset management AI nearly 3x. CRM AI also stood out this quarter, with net new ACV doubling both quarter over quarter and year over year. Equally important, customers are moving rapidly from adoption to production. As noted earlier, year to date, agentic AI consumption in production environments grew more than 13x year over year. The company is committed to helping customers realize value faster, and with the support of forward-deployed engineers, time to value has accelerated by 80% year to date. For example, a European customer went live in just 12 weeks and expects nearly 1.5 million in assist consumption for the full year. With deployment expertise provided, AI adoption was twice as fast in the first five weeks after intervention. On profitability, non-GAAP operating margin was 32.5%, 150 basis points above guidance, driven by revenue outperformance, efficiency gains, and spending timing. On the productivity front, the company's internal use of AI now generates more than US$1 billion in annualized value, more than double the level at the end of 2025. Free cash flow margin was 20%. These results continue to demonstrate the company's ability to strike a strong balance among world-class growth, profitability, and shareholder value. On outlook, the midpoint of 2026 subscription revenue guidance was raised by US$15 million, from US$15.77 billion to US$15.785 billion, up 21% year over year at constant currency. The full-year free cash flow margin target was raised by 100 basis points, from 35% to 36%, driven by lower capital expenditure. Amid growing investor scrutiny of AI-related infrastructure spending and leverage, ServiceNow can capture the AI opportunity while reducing capital expenditure and expanding free cash flow margin. Subscription gross margin is expected to remain at 81%, and operating margin at 31.5%, up 50 basis points year over year. Execution has enabled the company to fully offset dilution from this year's acquisitions while still achieving significant expansion in operating margin and free cash flow margin, confirming the strength and scalability of its business model. Finally, GAAP diluted weighted-average shares outstanding are expected to be 1.04 billion. For the fourth quarter, subscription revenue is expected to be between US$4.245 billion and US$4.255 billion, up 21.5% year over year at constant currency; cRPO is expected to grow 18.5% at constant currency. This reflects a higher proportion of on-premise deals and excludes the rising T4C backlog balanceboth of which contribute revenue but are not included in cRPO. Operating margin is expected to be 32%, and quarterly GAAP diluted weighted-average shares outstanding are expected to be 1.05 billion. In summary, the third quarter was another quarter of strong execution and accelerating AI adoption. Even more exciting is the scale of the opportunity ahead. From SI Control Tower and Autonomous Security to EmployeeWorks and a growing portfolio of AI specialists, the company is helping customers put AI to work across the enterprise, turning innovation into measurable business outcomes and return on investment (ROI). Equally important, it is helping customers accelerate adoption without losing controlwhich is exactly where ServiceNow is differentiated. By integrating workflows, data, AI, and governance onto a single platform, the company helps customers navigate the complexity of the AI era while unlocking its full potential. This leaves the company confident in the enormous growth opportunity ahead and in its ability to create long-term value for customers and shareholders. Management thanks employees around the world for their continued focus, execution, and dedication. Their ability to innovate while operating with discipline is the foundation of the company's ability to deliver consistently quarter after quarter. With that, we will move to the Q&A session. II. Q&A Session Deutsche Bank Aktiengesellschaft analyst Brad Zelnick: Outcome-based pricing Q: I want to focus on the trend of AI-native application companies pushing outcome-based or value-based pricing, and the extent to which customers are asking the company to move in that direction; and, for the financial model, the potential impact of such pricing. A (Bill McDermott): The company has a model that offers the best of both worlds: customers value the budgetary predictability of seat-based pricingFortune 2000 enterprises operate on budgets, and the company provides that predictability; at the same time, it is also driving the consumption model. The philosophy is simpleget customers live quickly, and once live, the token economy takes off, and the company has the opportunity to increase revenue per user by 5x, and that is only because customers receive far more value than thata win-win. It is also worth noting that with the launch of Flow, standalone AI-native autonomous service desk-type providers are no longer necessary, because the company already delivers this capability globally, and customers can buy it online and go live the same day. This will become another net new ACV engine for the company and is clearly a problem for competitors. What is noteworthy about the Super Intelligence Control Tower is that the AI actions it activates grew 500% quarter over quarter, on top of the 13x increase in AI consumption. The company is benefiting from its existing modelup 21% year over yearand this "hockey stick" growth shape has not yet fully played out, which is another exciting point for investors to consider. A (Gina Mastantuono): As for the impact on the financial model, customers are very focused on and satisfied with the current hybrid model and are not asking for outcome-based pricing. Should the landscape change in the future, the company is ready and waiting; but for now, customers are very satisfied with the hybrid model. Wolfe Research analyst Alex Zukin: cRPO and confidence in growth Q: I want to focus on some of the nuances in the fourth-quarter cRPO and subscription revenue guidance. The after-hours stock price fell clearly on the fourth-quarter guidance; please elaborate on confidence in maintaining high growth or accelerating further, especially next year. A (Gina Mastantuono): The company's confidence in the growth opportunity is as strong as ever. All metrics beat expectations across the boardrevenue, cRPO, operating margin, free cash flowand the free cash flow margin was raised. On the revenue beat: the company passed through half of the third-quarter beat (along with all of the FX factor and half of the beat) to full-year guidance. There are two reasons for not raising the full amount. First, at the company's scale, growth remains very strong; but to help customers realize value faster, the company made a strategic decision to invest in customer success by including delivery expertise in platform solutions to accelerate AI deployment on some large deals. From an accounting perspective alone, the value of these deployments is stripped out of subscription revenue and recorded in professional services rather than subscription revenue. Notably, when contracts renew, the value of these services will return to subscription revenue, creating a structural acceleration to growth. The amount is not largeabout 25 basis points in the third quarter and about 50 basis points expected in the fourth quarterand this is the only reason the full third-quarter beat was not passed through to full-year guidance. So the confidence in subscription revenue is very high. On cRPO, the third quarter saw strong early renewals that contributed half of the quarter's beat, which is a headwind for the fourth quarter because those deals were pulled forward from the fourth quarter into the third quarter, and their growth was already included in the third quarter. There is another factor: strong public sector demand raised the proportion of on-premise deployments in the fourth quartera good outcome, but a 25-basis-point headwind to fourth-quarter cRPO, though it will convert fully into revenue. In addition, the incremental investment in deployment expertise is a slight headwind to RPO and does not affect revenue over the long term. More broadly, cRPO is a rather nuanced accounting metric and may not fully reflect all the momentum in the business. For example, about 50 basis points of year-over-year subscription backlog growth in the fourth quarter is excluded from cRPO due to T4C terms but will be fully included in revenue. So while cRPO is a good indicator of next year's revenue, it is by no means perfect. The momentum now emerging in the businessespecially around the various AI developmentswill absolutely strong revenue growth in 2027 and beyond. Ultimately, the company's confidence in the growth opportunity is greater than ever. Morgan Stanley analyst Sanjit Singh: AI momentum and revenue acceleration Q: The AI ACV target has been raised twice this year to US$1.7 billion, while cRPO overall is basically stable and slightly decelerating on an organic basis. I want to focus on when AI momentum begins to acceleration in overall revenue and cRPO; on go-to-market, pricing and packaging have been adjusted multiple times and the company has doubled down on delivery, so are the AI and sales go-to-market actions in place, or is there still room for improvement? A (Bill McDermott): The state of the business has never been better. One of the advantages of having the Super Intelligence Control Tower is that every partnerwhether a hyperscaler or a lab company, from NVIDIA Corporation to the major labsis aligning with ServiceNow and recognizing the importance of creating enterprise value for its customers through the Super Intelligence Control Tower. Network effects are moving into overdrive, and this is the significant momentum advantage the company is experiencing. The company well understands the importance of getting customers live quickly; customers need to get value from AI now. So, as Gina said, the company has made the necessary strategic decision to invest in getting customers live quickly, so that they can not only benefit from licenses but also activate tokens and create the token economy that shareholders expectand that their own shareholders expect. This virtuous cycle is moving into high gearSuper Intelligence Control Tower activity up 500% quarter over quarter and AI consumption up 13x. The strategy is working, and it is all still early. Some of the acceleration is visible now, and real acceleration will emerge in 2027 as Gina said, because the key is for customers to complete implementation and activate tokens in their workflows or business processes. The company and its ecosystem have made decisions on this because that is where long-term value creation liesfor the company, for shareholders, and most importantly, for customers. A (Gina Mastantuono): Recall what was said at the Financial Analyst Day: by 2030, the AI business will account for 30% of the company's ACV. The company is firmlyeven ahead of scheduleon track to achieve that goal, as evidenced by the repeated upward revisions to the AI target. JPMorgan analyst Samik Chatterjee: Investing with customers to accelerate AI adoption Q: Regarding the strategic decision to invest with customers to accelerate AI adoption, was some of that investment already undertaken in the third quarter; are there early data points from these engagements that support confidence in scaling AI adoption, and what are the ideal metrics the company focuses on to measure outcomes? A (Gina Mastantuono): The AI market is changing extremely fast, and so is the company. Data shows that supported customers made AI adoption progress twice as fast within the first five weeks, with assist consumption and product usage multiples of those of unsupported customers. Assist consumption and product usage are exactly the metrics being watched. When customer AI consumption accelerates, it unlocks a significantly larger monetization opportunity as expected, making ROI highly attractive. So the company is building more of these deployment teams into its forecast because the results are encouraging. A (Bill McDermott): Another point worth noting is the acquisition of Sweep. Customers often find switching from one CRM to another difficult because of long implementation cycles, and no one wants a long implementation cycle, especially when it involves serving customers. Now CRM deployment time can be greatly shortenedno longer measured in years but in months and days, 30 or 60 days for truly large-scale enterprises. The same logic applies to the enterprise Super Intelligence Control Tower and workflows such as ITSM, which can be activated within 24 hours. What is being built now is a fully open ecosystem that injects the "rules and rails" of enterprise operations, a fabric connecting data and processes, and it is advancing at record speed. This will push implementation cycles to record speed, which is necessary for tokens to be fully consumed, activated, and generate revenue. In the enterprise software industry, no other company is growing at the "Rule of 57"21% revenue growth and 36% free cash flow growthwhile building what is by far the world's best Super Intelligence Control Tower. If there were such a company, it would be worth talking to them about best practices. Bernstein analyst Peter Weed: Internal productivity and headcount Q: I want to focus on the company's investment in internal productivity optimization and how that shows up in headcounta considerable portion seems focused on front-office products and sales and marketing; how do you achieve the targeted productivity in these areas, while these are also what will drive future revenue? A (Gina Mastantuono): The company has achieved more than US$1 billion in efficiency gains through internal use of AI, the vast majority of which comes from using its own product, "Now on Now." Efficiency gains mean not needing to hire as many people, but the company is still hiring in key roles. Although total sales and marketing headcount is down, quota-carrying sales headcount has grown double digits, while roles such as sales operations have decreased significantly. The same is true in the R&D organization: top talent such as AI engineers has actually increased, while AI drives substantial efficiency gains, meaning fewer support staff or R&D management overhead are needed. The company is still hiring across both go-to-market and R&D, just hiring in the right places, while operational and back-office roles have fallen significantly due to remarkable efficiency. A (Bill McDermott): The company uses its own EmployeeWorks solution internally. Every employee in the go-to-market systemthe best in the industryhas a "coach," namely EmployeeWorks, which autonomously activates all the controls needed to build customer relationships and bring innovation to customers without the employee having to ask; insights are also pushed to the front line to boost productivity. Three years ago, about 100 people in sales operations routed information by email; today it is fully autonomous, becoming a "sales coach in your pocket" that drives enormous productivity. At the same time, feet on the street have increased significantly, while total headcount has actually declined slightlyan ideal situation. 90% of response times for customer service or employee service inquiries are now handled autonomously, greatly improving the employee experience. Even with headcount flat, the company is strengthening its talent pool: it continues to bring in net new top talent on both the AI innovation side and the quota-carrying side, and sets higher standards for the talent it needs. With headcount flat, innovation and the quality of human capital have improved substantiallysomething that is sometimes not reflected in the numbers. William Blair analyst Arjun Bhatia: Is AI cannibalization or incremental Q: One of investors' core debates is whether AI is cannibalization or incremental for software companies. In the current results, AI adoption is accelerating and guidance is being raised, while some other metrics have not yet inflected, or there may be a lag. I want to focus on how overall spending on ServiceNow changes for early adopters and the most advanced AI customers after adopting Now Assist and AI capabilities. A (Bill McDermott): Global GDP is being built on superintelligence, and this intelligence generation will be seen in hindsight a decade from now as a "renaissance moment." Every business case related to return on invested capital (ROIC) in AI is 10x that of any previous AI solution. Take the company itself: US$1 billion a year is a lot of money, and the company's operating performance is remarkablemaintaining growth rates comparable to before saving that US$1 billion on a larger base, doing extraordinary work with fewer people, and, thanks to the autonomy of the AI platform, shedding pressure and focusing more on what really matters. The company is a living example of this. The business cases the company reviews daily with Amit and Paul all show 10x improvement over what was seen before. A (Amit Zavery, President, Chief Product Officer and COO): On use cases and adoption growth: many customers typically start with one or two use cases, such as incident management, triage, or resolution planning. Once live, usage can increase 3x or 4x, and new use cases keep emerging as customers see results in production. Many of the customers mentioned last quarter and this quarter are renewing licenses and signing new renewals at higher token levels because adoption is rising. Take Nestl: its marketing optimization agent workflow went live in six weeks, is now rolled out in 90 countries, and is significantly amplifying the value of a single use case globally. This is a common pattern. The company is also seeing extension into autonomous IT, AIOps, CRM optimization, and other industry/industrial use cases. The growth path is clearly visible. Jefferies Financial Group Inc. analyst Samad Samana: Resource allocation for large-customer AI deployments Q: Regarding the decision to allocate resources to accelerate AI deployments for large customerswhen was the decision made, how should it be modeled, is it broadly available or determined customer by customer, and what factors should be considered on revenue recognition and margins, and please explain the related assumptions in forward guidance. A (Gina Mastantuono): The AI market is changing extremely fast, and so is the company. When the company saw a real inflection point among supported customers, it decided to double down, because the consumption flywheel will drive significant incremental growth. Deployment time is improving rapidly, and these services, as noted earlier, apply only to some large deals25 basis points in the third quarter and 50 basis points in the fourth quarter. The company does not expect to include this delivery expertise over the long term. As with other new technology adoption cycles, the key is to optimize the first adopters and leverage the know-how in a front-loaded, reusable way. As AI advances, autonomous deployment becomes easier, so this is not expected to be a long-term arrangement, but it is absolutely the right move and will continue to drive the consumption flywheel. A (Amit Zavery): The company is also using AI implementation agents to build deployment capabilities. When helping customers go live, much of the heavy lifting is done by AI; the core is identifying early use cases and simplifying go-live. Once customers get one or two use cases live, usage climbs quickly. So this is not a long-term engagement but a very short-term process of creating value for customers quickly. Evercore ISI analyst Kirk Materne: Pace of Control Tower orchestration layer deployment Q: I want to focus on how enterprises are preparing to build orchestration layers to manage agents at scalewhether they are building now or waiting until more production deployments are in place; and the evolutionary path in which customers first build a baseline and then drive consumption once the agent population grows. A (Bill McDermott): At a macro level, the Super Intelligence Control Tower is redesigning the visibility, governance, and security posture of these large enterprises. From the partnerships announced today (especially OpenAI), it is clear that the world's best and brightest companies recognize that activating the control tower on top of the deterministic "rules and rails" on which enterprises depend to operate is critical to business growth. A (Amit Zavery): Last year, the common concern among customers was: knowing nothing about AI progress, how many shadow projects existed, and what agents were doing. So Control Tower was extremely well received when launched last year because it is placed ahead of AI