Phase Space AI

Financial Model Notes

ServiceNow [NOW]

ServiceNow [NOW] — Financial Model Notes & Defect Log

As of 2026-07-29. Sources: Alpha Vantage normalized statements (64 quarterly periods), the Q2 2026 10-Q (0001373715-26-000076, filed 2026-07-23), the Q2 2026 earnings release 8-K (0001373715-26-000072, erq2fy26.htm, filed 2026-07-22), nine EARNINGS_CALL_TRANSCRIPT pulls, and Alpaca for prices and options.

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1. The quarterly series actually used

All figures $m. S&M and G&A are from the filed income statement, not from Alpha Vantage — see defect 2.

* Not used; S&M for the prior-year TTM was not reconstructed inside the time box.

Verified against the filing line by line for Q2 2026: subscription revenue $3,877m, professional services $110m, total cost of revenues $1,169m (subscription $1,030m, services $139m), gross profit $2,818m, S&M $1,372m, R&D $915m, G&A $369m, total operating expenses $2,656m, income from operations $162m, interest income $70m, other income (expense) net +$206m, income before taxes $438m, tax $140m, net income $298m, basic EPS $0.29. Every figure ties.

TTM is used, not last fiscal year. FY2025 revenue was $13,278m; using it would understate the base by 11.0%.

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2. Defects found — Alpha Vantage

DEFECT AV-1 (HIGH, new) — sellingGeneralAndAdministrative carries G&A only

AV's field is the G&A line alone; the entire sales-and-marketing expense is absent from it. AV's operatingExpenses total is correct ($2,656m, ties to the filing), so grossProfit − operatingExpenses = operatingIncome reconciles and every internal consistency check passes.

Why this is severe. The framework's mandated terminal-margin bridge is m_EBIT,T = m_gross,T − R&D − S&M − G&A − other. Built from AV fields alone it becomes 74.77% − 22.14% − 8.69% = 43.9% — because S&M reads as zero — against the true 74.77% − 32.54% − 22.14% − 8.69% = 11.40%. A 32.5pp error on the exact parameter this project has already broken five times. This is the brief's defect #2 in its purest form: a vendor that is wrong consistently defeats every consistency test. Not in known-silent-failures.md. Reproduced on INTU (4.77x). Recommend adding.

DEFECT AV-2 (HIGH, new) — ebit is not operating income

AV computes ebit = incomeBeforeTax + interestExpense (438 + 66 = 504). On NOW that silently absorbs the +$206m of non-operating "other income (expense), net" — a strategic-investment gain — plus $70m of interest income. Using AV's ebit as the operating-margin numerator gives a Q2 2026 operating margin of 12.6% against the filed 4.1% — an 8.5pp error, and it would have concealed the entire purchase-accounting story.

Same family as the brief's warning about ebitda, but on a different field and larger in relative terms. The brief names ebitda; ebit is equally unsafe and is not currently flagged. Recommend adding.

DEFECT AV-3 (confirmed, as warned) — ebitda unusable

NOW 2026-06-30: AV ebitda $911m. Computed from the cash-flow statement as operating income plus |D&A|: $162m + $407m = $569m. AV's figure is its own (wrong) ebit plus D&A. Never used. The brief's warning holds on two more names.

DEFECT AV-4 (LOW) — share count

AV commonStockSharesOutstanding 1,037m vs the 10-Q's 1,033.862m — 0.3% high. Immaterial, but reported rather than silently adopted. The company's own diluted figure (1.04bn, from the guidance table) is used.

DEFECT AV-5 (HIGH, tooling) — EARNINGS_ESTIMATES returns an empty array

EARNINGS_ESTIMATES for NOW returns {"symbol":"NOW","estimates":[]}. Same for INTU. The premium entitlement's headline feature — built-in 7/30/60/90-day revision history — is unavailable on two names above $90bn of market capitalisation. Consensus Criteria is therefore INDETERMINATE, which per criteria.md blocks nothing. No consensus figure was substituted from another source and none was invented.

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3. Defects found — tooling

DEFECT TOOL-1 (MEDIUM) — av_vs_edgar.py reports a rate limit as missing data

sym      cmp  dis   worst   inv  trust
INTU      --   --      --     --   AV_NO_QUARTERLY: Minute-level rate
NOW       --   --      --     --   AV_NO_QUARTERLY: Minute-level rate
  clean: 0/2   failed audit: 0   no EDGAR overlap: 0

The script hit Alpha Vantage's per-minute burst limiter and reported AV_NO_QUARTERLY — "no quarterly data" — rather than "rate limited." AV had 64 quarterly periods for NOW and 81 for INTU; the data was there. It also reported clean: 0/2 · failed audit: 0, which reads as "nothing wrong found" when in fact nothing was checked.

This is calibration item D1 — "existence is not validity" — occurring inside the audit tool built to catch D1. The mandated cross-check was performed by hand instead: every Q2 2026 income-statement line, the balance sheet, the share count and the EPS were verified against the filed 10-Q, and defects AV-1 through AV-4 were found that way. Recommend the script distinguish a rate-limit response from an empty response and retry with backoff.

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4. Screen-input validation

Reproducing the screen's −0.4pp. From the sensitivity grid in NOW_Valuation.md, required CAGR 22.6% occurs at a 20.8x exit multiple with a 23.0% terminal margin. The screen's near-miss was produced by an exit multiple 8.4x above what the reinvestment identity EV_T/EBIT_T = (1−t)(1−g/ROIC)/(WACC−g) warrants — not by the terminal margin. That is a different failure mode from the five recorded terminal-margin defects and worth logging as such: the exit multiple, not the terminal margin, was the unexamined parameter on this name.

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5. Terminal-margin provenance (required by valuation.md rule 1: assert, never clamp)

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6. Items not completed inside the time box, stated rather than estimated

• Piotroski F-score — not computed. INDETERMINATE, not FAIL.
• External professional price target — none obtained, so the mandated sanity-band comparison is not performed.
• The prior-year TTM S&M/G&A split — not reconstructed, so the four-line bridge is shown for the current TTM only.
• The cause of the +21.4% five-session price move to 2026-07-29 — not established from any source I read. Recorded as a fact, not explained.
• NOW's inorganic revenue contribution — the company does not disclose it. My ~2–3pp is an estimate from acquired current deferred revenue ($155m) and order-backlog intangibles ($70m), labelled as such throughout.