ServiceNow Books $167 Million In AI-Linked Severance As Operating Income Falls To $385 Million
Third-quarter operating income fell from $572 million as acquisition costs and severance outpaced 21% revenue growth.
ServiceNow's standard-accounting operating income fell to $385 million in the third quarter from $572 million a year earlier, even though revenue grew about 21%, according to its quarterly report filed Wednesday. The company, which makes cloud software that automates workflows and helps govern and secure AI, tied part of the squeeze to $87 million of severance in the quarter from an AI-driven workforce overhaul.
Costs outran 21% revenue growth
Total revenue rose to $4,106 million from $3,407 million. Cost of subscription revenue climbed to $1,054 million from $666 million, which pushed subscription gross margin to 74% for the quarter and 75% for nine months, against 80% in both periods of 2025.
Amortization of acquired intangibles added $119 million to the quarter's subscription cost versus a year earlier. Net income fell to $277 million from $502 million, or $0.27 a share from $0.48.
The company's adjusted operating income, which strips out stock pay, amortization, severance and deal costs, rose to $1,338 million from $1,140 million.
A new severance footnote
Severance and related costs reached $87 million for the quarter and $167 million for the first nine months. The 10-Q adds a new accounting policy and an employee severance note that the prior quarter's filing lacked. The note frames the cuts as a restructuring that leans on AI efficiencies and redirects spending toward strategic talent.
The company said it eliminated roles in some areas but plans to keep hiring in strategic ones. The severance liability stood at $34 million at September 30, up from $20 million at year-end, after $153 million of cash payments. The program should largely finish in 2026.
Security buys, debt and no buybacks
ServiceNow spent $9,167 million on acquisitions in the first nine months, versus $215 million a year earlier. The biggest were Armis, bought for a preliminary $7.6 billion in cash, and Veza, for about $1.2 billion. Both purchase-price allocations are provisional and are to be finalized within a year of each closing.
Interest expense was $81 million in the quarter against $6 million, after senior notes and commercial paper. Commercial paper outstanding was $2.1 billion at a 4.05% weighted-average rate with a 62-day average remaining term. The company bought back no shares in the quarter, versus $584 million a year earlier.
Remaining performance obligations, contracted revenue not yet recognized, reached $29.7 billion, up 22% from a year earlier.
Guidance in the company's earnings release calls for a fourth-quarter operating margin of 12% on standard accounting, with severance at 1% of revenue.
Sources
- 10-Q Filing — ServiceNow (NOW) — SEC EDGAR
- 10-Q Filing — ServiceNow (NOW), Q2 FY2026 filed 2026-07-23 (comparison basis) — SEC EDGAR
- Earnings release (8-K Item 2.02, erq3fy26.htm) — ServiceNow, filed 2026-10-28 — SEC EDGAR
- ServiceNow Stock: ServiceNow Earnings Miss Amid Acquisitions, Revenue Beats | Investor's Business Daily — investors.com
- ServiceNow’s stock slides as earnings miss clouds a raised AI outlook — MarketWatch
- Earnings live updates: ServiceNow stock plunges on Q3 earnings miss — Yahoo Finance
- ServiceNow Reports Third Quarter 2026 Financial Results – Company Announcement - FT.com — Financial Times
- ServiceNow Likely To Report Higher Q3 Earnings; These Most Accurate Analysts Revise Forecasts Ahead Of Earnings Call — benzinga.com
