ServiceTitan Aktie

Thank you for standing by, and welcome to ServiceTitan's Fiscal First Quarter 2027 Earnings Conference Call. [Operator Instructions].

I would now like to hand the call over to Jason Rechel. Please go ahead.

Thank you, operator, and welcome, everyone, to ServiceTitan's Fiscal First Quarter 2027 Earnings Conference Call. With me are ServiceTitan's Co-Founder and CEO, Ara Mahdessian; Co-Founder and President, Vahe Kuzoyan; and CFO, Dave Sherry.

During today's call, we will review our fiscal first quarter 2027 results. We will also discuss our guidance for the second fiscal quarter and full fiscal year 2027.

Before we get started, we want to draw your attention to the safe harbor statement included in today's press release and emphasize that information discussed on this call, including our guidance, is based on information as of today and contains forward-looking statements that involve risks, uncertainties and assumptions. Other than statements of historical fact could be deemed to be forward-looking.

Forward-looking statements reflect our views as of today only, and except as required by law, we undertake no obligation to update or revise these forward-looking statements. Please take a look at our filings with the SEC for a discussion of the factors that could cause our results to differ.

We also want to point out that we present non-GAAP measures in addition to and not as a substitute for financial measures prepared in accordance with generally accepted accounting principles. Definitions of these non-GAAP financial measures, along with reconciliations to our GAAP financial measures are included in our earnings release which we've furnished with the SEC and is available on our website at investors.servicetitan.com. Unless otherwise stated, all references on this call to platform gross margin, total gross margin, operating income, operating margin, free cash flow and related growth rates are on a non-GAAP basis.

Finally, we've posted an updated investor presentation that can be found on the Investor Relations website at investors.servicetitan.com, along with a replay of this call.

And with that, let me turn the call over to Ara. Ara?

Thank you, Jason, and thank you for joining us. Our customers are off to a strong start in fiscal year 2027. We continue to execute on our core multiyear growth vectors. We're delivering the agentic operating system to the trades, and we're improving our organizational velocity.

During Q1, our focus on delivering customer ROI resulted in 25% year-over-year revenue growth, healthy efficiency and record operating margins. As I spoke about last quarter, our vision since founding service Titan has been to transform the lives of hard-working contractors by helping them grow revenue and increase margins.

From day 1, we imagine the world where technicians focused on serving customers in the field, owners focused on business outcomes and ServiceTitan increasingly handled the operational complexity in between. I outlined the evolution of our platform and opportunity to build Max and the agentic operating system for the trade.

Today, I'd like to share the story of EDS air conditioning and plumbing, one of South Florida's premier HVAC and plumbing contractors serving the residential and commercial service and construction markets for decades. They were among the first to adopt Max and EDS' business performance speaks for itself across virtually every aspect of the funnel.

While the first quarter has previously been a slower quarter for EDS they delivered striking improvements during Q1 2026 compared with Q1 2025. Year-over-year, call booking rates increased roughly 16 points. Close rate in the field increased more than 9 points, average ticket size increased more than 30%. And as the compounding result of these improvements, average revenue per technician increased more than 50%. These significant revenue outcomes with minimal incremental overhead are powered by agent workflows across the platform that complement the work that is required to be touched by humans.

ServiceTitan's agents are generating leads booking them into appointments and helping technicians convert them into revenue at higher average tickets. Of all EDS jobs during Q1 of this year, nearly half were touched by the optimization engine. EDS Founder, [ Ed Caso ], shared with me, we can now manage our jobs, our accounting and our overall cost without adding layers of people. and our tradesmen and women are put in the best position to perform their best work every day without worrying about unnecessary clerical work. This improves job performance, job satisfaction, and career development in a way we never thought possible. They have automated workflows that can create dramatic efficiency improvements, and we're now able to significantly scale our business without adding additional overhead.

All told, both productivity improved and technician count grew. EDS is using ServiceTitan Max to accelerate the capabilities of their best people and create even greater future growth opportunities with enhanced efficiencies across the business. Proof that Max doesn't just allow for improved operations, it compounds them.

The best part [ Ed Caso ] told me is that the technology gets better every single day. The power of MAX is amplified beyond nearly a collection of underlying pro products because there are 25 agentic capabilities optimizing the platform to generate more leads and a higher conversion rate at higher average tickets, all while orchestrating the back office.

During Q1, we introduced [ speak lead ] inbound call booking automation, auto inventory replenishment and invoice protection, among others, that compound capabilities across the management, the back office and the field. The power that is unlocked with this platform means that what used to require a group of people manually coordinating an operation is now being orchestrated by the system itself with humans and AI agents working together seamlessly where each player does what they do best.

This end-to-end orchestration gets worked on in the trades faster, more reliably and more efficiently. We're leveraging this N10 platform and massive proprietary data set alongside our expanding ecosystem, brand leadership and distribution across more than 10,000 high-performing contractors to bring the metric of end-to-end automation to life for operators. And our internal leverage of AI tooling is allowing us to accelerate development velocity to create more value for customers faster than ever. We are well on our way to delivering the genic operating system to the trades.

I continue to be inspired watching Titan to execute for our customers every day. And now let's hear more about our execution from my co-founder, Vahe.

Thanks, Ara. I'm excited about our progress so far this year as we build the agentic operating system for the trades. Last quarter, we talked about our 3 major priorities this year: one, to execute against our multiyear growth factors in enterprise, commercial and roofing; two, to build out Max and the agentic operating system on top of which it sits. Three, to accelerate our organizational velocity.

I'd like to highlight important progress that we made during Q1. I'll begin with a brief update of our primary existing growth vectors. Within commercial, we made significant product enhancements this quarter with the launch of our invoicing agents, equipment systems and enhanced CRM capabilities.

In roofing, we continue working to harden roofing-specific and insurance workflows to unlock the next leg of our growth in this trade. Finally, in enterprise, during Q1, we surpassed 2,000 total customers with annualized billings greater than $100,000. Customers in this greater than [ 100,000 ] cohort now represent greater than 60% of our annualized billings and remain our fastest-growing segment. The health of this enterprise ecosystem was made clear during our annual private equity symposium. We brought together dozens of the largest operators in the trades and leading sponsors representing more than $3 trillion in AUM to speak about our collective vision for the future evolution of our industry.

Shifting to Max and the agentic operating system for the trades, which we continue to intentionally roll out across our customer base to lead this industry evolution. Last quarter, we talked about doubling our mass capacity. During Q1, we more than doubled the number of locations on Max. Behind ongoing strong demand for Max, we're optimizing our internal processes, accelerating our capabilities, automating customer onboarding and expect to again double the number of locations on Max during Q2.

Most importantly, every fully ramped Max customer is running at least 1 fully automated job. We're the only human intervention is the technician in the field. Across fully ramped Max customers, on average, more than 10% of jobs are now fully automated. And as a result of this end-to-end orchestration, Max customers are overperforming their peers across relevant funnel metrics. An additional pillar of our AI monetization strategy, our virtual agents, are experiencing strong early customer adoption to clear customer ROI and the advantages of a singularly integrated platform. We recently introduced outbound calling and receptionist capabilities which we believe will further expand the addressable opportunity for virtual agents while making it even easier for customers to fully automate a greater proportion of jobs.

Closing with our organizational velocity. Our goal at ServiceTitan is to build a software factory where AI agents play a central role in all code developments to accelerate velocity. Over the past quarter, I work closely with our new CTPO to hire an industry-leading R&D leadership team that we expect will raise the industry standard of innovation and efficiency. One example of software factory in action we are using AI through the full life cycle of product development. From collecting user feedback across forums, the design ideation to co-creation and bug detection and prevention across both sandbox environment and live and production. We are accelerating our pace of product development.

Stepping back, the continued success that we are seeing on our primary growth vectors, the clear opportunity to deliver the agentic operating system for the trade and the notable improvements I have already seen in our internal velocity are each clear signals. It is inspiring to see our vision come to life, and I want to thank Titan's everywhere for delivering value to our customers every day and our customers for your partnership and trust.

With that, I'll turn it over to Dave to run through the financials. Dave?

Thanks, Vahe. Our start to the year underscores the durability of our opportunity. Today, I'll run you through Q1 financial results and provide an update to our guidance for fiscal year 2027. For more detailed financial results, please refer to our press release issued earlier today.

Q1 gross transaction volume or GTV was $21.7 billion, representing 23% year-over-year growth. Q1 benefited from 1 additional business day as compared to the year ago period, resulting in a roughly 150 basis points tailwind to GTV. Weather contributed roughly another 150 basis points tailwind due to both January eye storms pushing GTV into our fiscal Q1, an unusually early start to the cooling season. Underlying growth across residential and commercial trades remains healthy.

Q1 total revenue of $268.8 million grew 25% year-over-year. Subscription revenue of $202 million grew 24% year-over-year, led by strong growth in Pro commercial and initial upside for Max. Usage revenue grew 29% year-over-year to $58.5 million. Fintech revenue was driven by a combination of higher on-platform monetization and strength in commercial GTV, which, as a reminder, has lower monetization given the mix of payment volume.

Beyond Fintech, both ecosystem and virtual agent revenue are growing well, and we continue to believe that growth from these factors will likely lead usage revenue to grow more quickly than GTV and FY '27.

Total platform revenue for Q1, the sum of subscription and usage revenue grew 25% year-over-year to $260.6 million. Q1 professional services revenue was $8.3 million. Net dollar retention was greater than 110% for the quarter. Q1 platform gross margin was 81.3%, an improvement of 160 basis points year-over-year. Total gross margin for Q1 was 75.3%, up 170 basis points year-over-year.

Q1 operating income of $40.8 million resulted in operating margin of 15.2%. The an improvement of 770 basis points year-over-year. We overperformed our expectations during the quarter, primarily due to stronger-than-expected GTV combined with lower costs, which is partially driven by the timing of certain expenses. As always, we're managing against a full year incremental margin plan by reinvesting behind strength we saw in the quarter.

Looking ahead, we expect the timing of expense growth to normalize as well as incremental investments in Max and inference. We expect investments in these areas to precede the benefits and reduce our future hiring needs over time. In total, we now expect our incremental operating margins for the full fiscal year 2027 to be higher than our initial target of 25%.

Q1 free cash flow was negative $9.6 million, an improvement compared to negative $22.3 million for the prior year first quarter. We pay our annual cash bonuses during Q1 and continue to expect the annual free cash flow will roughly approximate annual non-GAAP operating income over the course of the full fiscal year.

Two quick model notes before shifting to formal guidance. First, we have conducted an analysis of our appropriate non-GAAP tax rate moving forward. Beginning this fiscal year, we will adopt a long-term non-GAAP tax rate of 18% to be applied for fiscal 2027 through fiscal 2030.

Second, I'd like to remind you of business day seasonalities -- here. Compared to the prior year, GTV and usage revenue will benefit from 1 additional business day in Q2. Q3 will have 1 fewer business day and Q4 will have a comparable number of business days.

Now shifting to formal guidance. For the second quarter, we expect total revenue in the range of $284 million to $286 million. We expect to generate operating income in the range of $38 million to $39 million. For the full fiscal 2027, we expect total revenue in the range of $1.13 billion to $1.14 billion, and we expect to generate operating income in the range of $142 million to $147 million. Underpinning our outlook is a sustainably high ROI that we deliver our customers who operate in the -- interest rates that keep our economy running. We're excited by the progress we're seeing as we build the agentic operating system for the trades with greater operational velocity than ever before.

With that, I'll turn the call back to the operator for Q&A. Operator?

[Operator Instructions]. Our first question comes from the line of Josh Baer of Morgan Stanley.

I was hoping that you could provide some insights and key takeaways from your private equity symposium to start.

Great question. As you know, our job as the operating system for the trades is to help our operators thrive and, of course, to help sponsors earn even higher returns. And that is our mandate, and our mandate is to deliver AI for the trade, particularly for the largest operators. And those operators and sponsors are standardizing their operations on ServiceTitan. We believe the reason for this is where the vast majority of the work happens in the trades, and it's done by technicians and others that are already working inside of our -- inside ServiceTitan across all the end-to-end workflows. And that is where we get to leverage data and ecosystem advantages.

I think, in particular, being the end-to-end platform makes us the natural destination for like the execution layer, the orchestration layer and the interaction layer. Because ultimately, ServiceTitan is not some small piece of our customers tech-stack. It's the primary platform. It's where the work has been done historically for a decade. And so it's natural for us to automate this work now as the execution layer. It's where all the workloads have been coordinated for a decade. And so it's natural for us. It's according now it's the orchestration layer. And of course, for the parts that continue to be manual is very natural for us to remain as the direction there.

And our key companies continue to do well. They continue to be a very fast-growing part of our business, and the -- symposium just reiterated the excitement for how far we've all come together. But more importantly, how much further we have yet to go with AI on front here.

That's great. And just to follow up on that point, is there any way to provide context for the contribution to growth from private equity or how to think about the durability of that tailwind and this great trend for you?

Josh, I'll take this one. I think in the quarter, we announced a big milestone of crossing 2,000 customers, north of [ $100,000 ] ARR each. I think that you can assume is pretty heavily concentrated with private equity partners, and that represents north of 60% of our ARR today, and it's probably the fastest-growing component of the business.

Our next question comes from the line of DJ Hynes of Canaccord.

And I'll echo Josh's congrats. Great quarter. For customers that have moved to Max, what kind of usage are you seeing of Pro products that they didn't previously have access to I guess I'm curious how much of that is natural experimentation versus led by a ServiceTitan customer success team? I'm sort of getting at like scalability of the rollout and utilization is a leading indicator of retention.

Greg, maybe I'll provide some context or -- can comment on the scalability thesis. We have customers that start from different places, some with little to no Pro products, others with more meaningful access the Pro products before switching to Max. I want to remind ourselves that Max is far more than simply the aggregation of Pro products. Max represents were 25 different genic capabilities. Of those 25 before Max, about 7 of them were available in the form of Pro products. The rest have been net new since Max. And they spend the, call it, the 3 most important areas of our customers' businesses that are correlated to revenue. These are the direct drivers of revenue, how they generate demand or leads how they convert that demand into both appointments and then ultimately, what is the close rate and average ticket on those booked appointments.

And so for example, on the demand side, whether it's optimizing ads on Google and Meta, it's e-mail marketing to the customer base, it's things like -- on the conversion into book deployment, it's the voice agents that field voice calls, it's the SMS agents the field text messages and automatically -- or is for the calls that are handled by CSRs, it's the AI that scores how well they perform and coaches them to improve performance.

And then, of course, on the average ticket side, things like assigning the right technician to the right job to maximize close rates in average tickets or follow up on unsold estimate. For folks who've spent time building agents in real life like production businesses, there's a lot of work that's necessary to be done to truly automate everything and drive the types of results that we're seeing with Max. And it's been incredibly exciting to see the outcomes. I shared EDSs in the prepared remarks. But to see the level of performance from the Max customers, mix is very excited for the future.

And I'll just add on in terms of the scalability portion of that answer. For us, the focus has been maniacally emphasizing the ROI that our customers get. And we're doing that primarily through making sure that we've got all hands on deck. And to the extent that we've got an executive sponsor, including myself and Ara, on every single Max customer right now. And so this first cohort, we're not focusing on the automation and the scalability of the setup.

Secondly, we started with a lot of customers that had some of the pro products already. And so there was less set up to do than a greenfield customer. All that being said, the focus right now is exactly on the scalability aspect and being able to deliver the type of ROI we're seeing, but without having to have all the various manual work that's involved today. And so as we think about how we scale MAX, the ability to automatically get everything dialed in without needing work either from the customer or from us or I should say, minimize that work as much as possible is where the focus is now. And we expect to see the benefits of that scalability to show up throughout the rest of the year.

Yes. Yes. Okay. Very helpful. And Dave, maybe a follow-up for you on a separate topic. TV as a percent of the full year, would you expect that ratio to be similar to what we've seen over the past couple of years? Or could Q1 skew a little heavier given some of the dynamics you talked about demand push out from Q4, the extra day? Like how should we think about that as we set our models?

Thanks for getting me involved, DJ. I'll say -- it's going to really depend on what happens during the peak season this summer. If the summer is hot, I'd expect it to be sort of a normal pattern of a summer more mild than I expect it to be maybe a little bit higher in Q1. It's hard for us to know to develop a real conviction on what it's going to be because it's impacted by factors outside of our control, principally weather. But I don't think we see very much that's driving an unusual trend in terms of seasonality this year.

Our next question comes from the line of Scott Berg of Needham & Company.

Really nice quarter here. I guess 2 questions. Let's start off with on the MAG deployments that you've done so far. I guess, have most of the deployments gone pretty much as expected and very consistently. Are you seeing any sort of variations from deployment to deployment that would be maybe interesting to call out?

So overall, we're incredibly proud of like the results that we've been able to drive for customers. And I would say are generally on the optimistic end of the spectrum. We are, of course, learning some of the -- around how previous configurations affect future configurations, how the different products work together and generally, the ability of customers to change and go through that process, which is exactly what this first cohort was intended to produce.

That being said, we are focusing on those customers that have the best fit for Max today. And as we start to scale it out across our entire customer base, I'm sure there's a lot more learnings to be had. if we go to your question, we've been very happy with the ability for our customers to both use Max and get the value out of it. I think the set of needs are largely homogenous. At the same time, building agents for production use cases, there are a lot of such use cases to manage. I think, for example, thinking about something like voice agent might seem as simple as handling the call and booking the appointment. But there are dozens of additional related use cases. You need to handle from things like prioritizing capacity for high-value jobs or having receptionist capabilities to connect the color to, for example -- if it's a billing question, to being able to support rescheduling deployments to, I don't know, notifying on-call text when calls are booked after hours. So there are these dozens of additional use cases that you must support in order to turn it into a real production grade system that a customer running mission-critical operations can rely on for effectively 100% of their cost, but those needs are homogenous across our customer base.

Understood. And then for me, follow-up perspective, Dave, there's a lot of concern around some of the initial AI usage on voice application software vendors and how it has a chance maybe in early stages to gross margins as customers maybe use more functionality that has token use than maybe what some of us are expected or what vendors are expected. As these customers have ramped their usage of tokens, et cetera, has it been within your alma expectation? Has it been maybe more or less? And should we expect any real impact to gross margins as we think about more and more customers ramping over the next year?

I think a couple of things to say. First, our usage of AI for the customer and is not co-creation, video creation. And so it's not as token-intensive. With regards to the markets from Max, I think both Max and virtual agents are additive to gross profit dollars. And while this may change over time so far, what we've seen is the combination of the 2 to be roughly consistent with our total gross margins at scale

Our next question comes from the line of Jason Celino of KeyBanc Capital Markets.

Just a couple for Dave. The incremental margin improvement is very, very good in Q1. I heard you on the incremental margins for the full year upticking to 29%. And I understand like the timing differences, but where are you -- do you think you're getting like more efficiency? Because the alternative would be it'll be reinvesting that back. So help me kind of understand where you saw some upside in kind of your process there?

Absolutely. With regard to incremental this year, 3 key things. First and foremost, as I mentioned in the script, in the prepared remarks, it's important to remember, we manage the bid on a full year basis. not quarterly, and I encourage investors to not look at incremental margins on any given quarter.

Second, in Q1 we saw strong performance. That was driven both by the outperformance from high GTV, which drove usage revenue, which is high margin and lower expenses. Part of that was in regards to timing -- looking forward, I expect that timing to normalize.

Third, behind the strength of Q1, we are increasing our investments in both Max and AIN print inside the business. This will roll out throughout the year. Now that said, despite these increased investments, factoring both the Q1 strength and those investments, we do expect to overperform our full year incremental targets this year.

Wonderful. And then if we look at the usage take rates, they improved quite a bit on a year-over-year basis for Q1. I think in the past, you've talked about driving better payments utilization. Was that the same driver here? Or was there something more at play?

Yes, absolutely, Jason. Usage take rate performed really well this quarter. We were able to maintain our take rate relative to Q4, even with the GTV overperformance. A couple of things, first, as I mentioned in my prepared remarks, Fintech is driven by 2 really opposing forces. The first is on top on payment monetization. It inched up this quarter. And on the other hand, is a mix shift towards commercial, which has lower monetization due to different mix of pay methods. So that's the first and the second, beyond fintech, our AI monetization, both ecosystem and virtual agents are growing quite well. ecosystem is larger, VA is growing faster.

As I look forward, I'd expect usage take rates to remain roughly at these levels. We don't foresee further improvements in the on-paper -- and we do expect GTV mix to continue to shift towards commercial. I'd expect this shift to commercial to be offset by the growth in our AI usage products from an earn rate perspective. Now given the way that usage earn rate has ramped over the last year, this means that we expect usage revenue to continue to outpace GTV throughout the balance of the year.

Our next question comes from Dylan Becker of William Blair.

This is Jackson [ Buly ] on for Dylan Becker. Vahe, you noted that more than -- you guys more than doubled Max locations in the first quarter and you expect to double them again in the second quarter I'm just curious if your thoughts on how sustainable that doubling cadence is beyond the first half? And maybe -- is that a function of being capacity constrained by demand or by onboarding throughput? Just curious to get your thoughts on that cadence going forward?

Jack, this is Dave. Before he jumps in, I just wanted to send a big congratulations to Dylan and the Becker family for the addition to their family. With that, go ahead and answer Jackson's question.

Yes. Ultimately, what we really care about is having every customer on Max. And so the sustainability of the growth rate is really around the fastest path for that full coverage. And as we think about how we maintain that growth as much as possible. One of the other exciting things that we've started this quarter is being able to get brand new customers directly on to Max versus just going after the existing customer base. And we're seeing some promising early signals there.

And so -- in terms of how long we could keep the doubling over quarter, as you mentioned, that's a pretty aggressive growth rate. But that's what we're trying to orient is, ultimately, we want to be intentional about what expectations we're setting, how we're laying the foundations for our growth story and ultimately optimizing for getting all of ServiceTitan onto Max, not necessarily any particular growth rate in the journey.

Got it. That's super helpful. And then maybe, Ara, we're talking about the agentic operating system for the trades. And you guys have been improving organizational velocity as well. I know we've talked about what agenda capabilities are live and resonating most with customers today. But really, I'm curious how you're thinking about the improved internal velocity translating into the faster product delivery and ROI? And kind of how this just reinforces your core multiyear growth vectors?

Yes. Ultimately, we are a tech company, and our business is predicated on delivering solutions for our customers. And there is no greater driver of that, both in terms of value to customers and revenue to us. than the quality of the product and the velocity with which it progresses. And so any time we get even a little bit of an acceleration on the R&D side, there are massive long-term consequences here. And what we're seeing now with the more and more effective utilization of AI is that the signals across the board, whether it's the overarching amount of code and the quality work which is produced, or the entire life cycle of understanding what to build, how to build it and so on.

What we're trying to focus on most is making sure that we're holding a high-quality bar as we see this acceleration materialize. And that we're able to do it in a way that allows sustainable velocity improvements over time. And if we're able to maintain this pace, I think our ability to deliver outcomes for our existing markets becomes accelerated our ability to grow into adjacent markets will become accelerated. And ultimately, the value we drive and the revenue we generate is going to be accelerated.

So as far as I'm concerned, there is nothing more important than the long-term success of our company than our ability to get the benefits of AI, particularly within our R&D org.

We are excited about what the software factory will do for our future. From scouring all the tens of thousands of live conversations we have with customers for the support tickets to the underlying product utilization data to help figure out and prioritize what to build. And then, of course, for the genetic coding to build what we need to build, test it deploy it, monitor it in production and self evolve over time. This is the frontier that we are very excited about and what it'll mean for our future.

Our next question comes from the line of Billy Fitzsimmons of Piper Sandler.

Great. you touched on this in your prepared remarks, but it's been a couple of months now since you've had your new Chief Technology and Product Officer. He's a track record at some of the largest software companies. Anything you can provide on either how we should think about some of the processes and procedures he has brought or is able to bring to the engineering organization? Or maybe more broadly, you touched on the use of AI tools internally? And went through some of the use cases. And I got to imagine it's evolving day-to-day. But to kind of double-click on that, are there any additional anecdotes you can talk about it to kind of help us think through things you could not do or can now do faster than you could previously with some of these tools.

Yes, absolutely. So I would say, by far, the most important aspect of being able to do what we're talking about is to build a strong team. But there will be no bigger driver of any of those things. And this is the first area that API has been focusing on in terms of increasing the talent density within the team and making sure that we've got the right leaders in the right seats in order to take a store need to go.

Secondly, in order to get the benefits of AI, particularly around the acceleration, what you need is a foundation that allows you to have resiliency and quality as you gain those benefits. And so his experience at companies at scale that have proven to scale their -- work and be able to grow their footprint. In terms of the products they create, the value that they deliver, it's what is allowing us to see the benefits in terms of having those foundational quality harnesses, processes and ultimately, the teams that are building the foundation on top of which what the software factory is ultimately going to be able to do.

All that being said, we are early days. And so we are very excited to see these early signals start to accelerate ultimately the velocity and quality with which we can serve our customers.

Awesome. And then if I could sneak a second one for Dave. When we think about the revenue upside in 1Q and the increase for the year, there's a few different growth drivers here. Max is ramping voice agents roofing and commercial are all ramping. And more broadly, it seems like end customer demand is strong. The GTV line accelerated. Can you just help us rank order or think through the different drivers is driving the upside first kind of initial expectations?

Yes. I mean I think -- a couple of things here. First, Max and VA are both really exciting for us long term. And although our expectations are higher today as compared to 9 days ago, these deals generally have meaningful ramps built in to enable customers to align their usage with their build. So though the contribution is higher today in Max than it was a quarter ago, it does remain small.

With regard to GTV, our approach, as always, is to not roll forward GTV overperformance in the future periods. And so despite the strength in we're expecting a normal summer consistent with the last few years. So the raise for the rest of the year is simply just execution of the business. And it's these factors that's the foundation for the improved FY '27 outlook. And I think we're fortunate to be able today to raise our total guidance by $20 million.

Our next question comes from the line of Nick Altmann of BTIG.

Awesome. I wanted to circle back on a prior comment around how some of the net new customers are actually starting on Max and -- can you just expand on that a bit because it's kind of interesting in the sense of whether Max is actually acting as sort of a front door to ServiceTitan or whether you're seeing more net new logo opportunities because of Max. So just any additional color on that comment would be interesting.

Great question. First and foremost, this is very new and very small. But the thesis is when switching software is a moment of great change management it may make sense that this be the time to switch software and deploy agents at the same time. The other part of the thesis is that in the traditional world where you had software that you manually use, it required a lot of training and coaching and monitoring in order to get utilization whereas in the genic world, when you deploy agents upfront, you naturally get effectively 100% utilization with less -- much less effort on training, monitoring, support and coaching.

And so we are excited to do this on a small scale and see the results for these contractors that adopt Max from the beginning. And then depending on the results that we see, to determine how to scale moving forward.

Our next question comes from the line of Parker Lane Stifel Parker.

This is Jack McShane on for Parker. I'd be curious with customers in the Max program seeing such strong productivity gains, you mentioned EDS, I believe it was 50% average revenue per technician improvement. Are you seeing customers in the MAX program start to talk about making plans of hiring more? And do you think that this can be a growth driver towards the back half of the year and into fiscal year '28?

In the EDS case, they not only saw an increase in revenue per technician, but they also added technicians. Generally, when customers increase the number of leads that they generate or their booking rates increase or both. They end up with more appointments that they need to run and one way of meeting the increased demand for appointments is greater technician efficiency that allows an individual tech to get to more appointments, although there's a pretty strict limit on how much efficiency you can gain there. And so therefore, in almost every case, it ends up in the hiring of additional text.

Yes, it's great to hear. And then second question, obviously, had list is a focal point with investors in the space now. I'd be curious to just get your guys' thoughts on its applications to service. Are you seeing technicians on-site or maybe it's back up to employees using general purpose models outside of the ServiceTitan platform. And is there an opportunity to build out head list functionalities so you start to capture some of that usage?

Yes. So what we're seeing is a pretty broad, let's say, desire to start using all of the AI tools available on the market. And especially with our larger customers, huge amounts of experimentation, whether it's clock cohort or tools like that, that are similar. What we're noticing is that part of the main challenge they experience is, in order to do anything useful, they ultimately even to be able to access data in order to get information. And then once something useful is discovered through an insight, they need to take some sort of action into the real world.

And this is the role that we think that we can play and we want -- this is why it's so important to become that orchestration layer that end-to-end intelligence both in terms of reads and rights. And so we're still early on in thinking about how we plug into the broader ecosystem of AI tools. Right now, there's so much low-hanging fruit in terms of delivering direct functionality to our customers that, that's what's taking up the majority of our time.

But I can very easily see a future where both individually and as businesses, there's all sorts of AI tooling and we want to be able to provide a platform through which customers can get the most out of Ideally, it's solutions that we offer directly, but we also want to become a platform and an orchestration layer that can be leveraged through external tools as well. And this is why we think the ecosystem and having a strong and driving ecosystem is such a strategic area for us to invest in.

Our next question comes from the line of Andrew Sherman of TD Cowen.

On VA wanted to drill in a little bit more on what you're seeing from early customers and trials. What percentage of your customer base is reached out and expressed a lot of interest. What's the sales motion to target these? And how quickly are the rollouts going wall-to-wall or kind of slower and then ramping and the competitive landscape, any differentiating factors you want to call out?

Very good question. So we gave select customers access to the early version of our voice agents in Q4. And then as I described earlier, for one of the questions. We then built out support for like dozens of additional of these real-life production use cases through Q1. And then we began more expanded go-to-market late Q1. Of course, like given the recency of the more expanded go-to-market, you can imagine the penetration is naturally low today, but ramping quite well.

And then to the latter half of your question, I think nearly all of our customers face situations where there's a sudden surge of calls and that surge overwhelms their staff or calls come in after hours and somebody needs to pick those up and especially when each one of these calls might represent thousands of dollars of revenue. Our thesis is that a lot of customers will move in this direction over time.

Now naturally, some will start with overflow naphtha hours, but then others may choose to let voice agents handle incremental volume as they see CSR attrition in their business especially because CSR attrition tends to be fairly high in contracting businesses. But we see this as a very meaningful opportunity for growth.

Our next question comes from the line of Richard Poland of Wells Fargo.

On for Michael Turrin here. I guess when we just think about like the broader let's call it, pro products suite. How is adoption going there? I know a lot of the focus right now is on Max, and it sounds like that's kind of ramping nicely. Just in this interim period, while that's not fully available to everyone else, how do we think about just kind of where you're seeing strength in certain Pro products and how that's kind of developed over the last 90 days?

What I'll say here is as Pro continues to sell well. We have not seen a headwind from Pro adoption while we're selling Max. I think that over time, our packaging will encourage customers to adopt Max more. And remember, it's really, really important that everyone understands it. Max is more than just a collection of pro products. It's not just a bundle. It's incremental capabilities. And so while Pro continues to sell, we think customers are going to increasingly have interest in MAX or versions of Max.

Great. And then I guess, Dave, just on GTV. When we think about just kind of average ticket size and any differences in just number of jobs in the quarter, some of the core on GTV. Any color there?

Yes. I mean nothing really stood out this quarter. It was -- we see pretty balanced growth from average ticket and number of jobs. The bigger variants, obviously, the big driver was weather and of course, business days in the period.

Our next question comes from the line Brian Peterson of Raymond James.

Just on Max, with obviously doubling this quarter and expecting doubling or more than doubling than they expected to be double next quarter, I'm actually just curious, what is the gating factor on growth at this point? And is there anything that customers are pushing back on? And why should we see not do that adoption accelerate from what you're seeing so far?

So the primary gating factor is us wanting to go through a very intentional sequential process of first and foremost, nailing the ROI story. We feel very confident that we've done this already. So that has been the first constraint. Now we're in the phase of making sure that we can continue to deliver those same types of results but with a more scalable and efficient implementation effectively. And so that's where the focus is right now, and that's the gating factor.

And then the last phase is really making sure that Max is a fantastic fit across all of our customers, not just the ones that are best fit today. And so going back to your question, it's really around optimizing for the long-term durable success of Max versus selling the most we possibly can today. We have way more demand than what we've been onboarding, and we expect to continue to be in that same state. But we want to be very, very intentional with the success that we deliver, the brand and reputation of Max and the durability of the customers on the program.

Our next question comes from the line of Tyler Radke of Citi.

There's been a lot of headlines out in terms of the big data center build-out projects of shortage of workers, electricians, plumbers, HVAC, et cetera. How are you thinking about the medium and long-term impact to ServiceTitan? And obviously, these are workers that are critical to the platform today?

Yes. This is where we see mostly affecting the commercial part of our business. As you'd imagine, the residential businesses are not really involved on the data center build-outs. And on the commercial side, we are certainly hearing and seeing from our customers the huge kind of highway of work coming in from data centers.

I think it's really hard to predict exactly what the impact is going to be because as you know, these data centers are built typically way off site. And so what I'm hearing from our customers is it's not so straightforward to get -- first of all, just the number of plumbers and electricians needed, much less to get them to move to those areas for the construction period and so on.

And so for the foreseeable future, we are not anticipating any meaningful impact to our business or to our customers' businesses in terms of the labor disruptions from the build-out but it's a fast-moving situation, and we continue to monitor it closely.

And just a quick follow-up on the weather dynamics that you called out. Given what sounded like kind of a benefit both from the early start to the cooling season, is there any sort of timing issues we should be aware of in terms of that follow-on impact in Q2? Any pull forward from that should take some momentum out of Q2 or would you not associate that directly with Q2?

Great question, Tyler. The warmer spring means our customers' busy season started earlier, how the peak performance will really be driven by the peak over months. If it's a hot summer, I could see GTV being higher. It's a milder summer, it's possible that it will appear to be a pull forward from Q2 to Q1. It's hard to know until we really see the quarter evolved. As always, we're not taking a differentiated view on the weather and just as I said before, assuming a consistent summer with the prior years.

Our next question comes from the line of Adam Hotchkiss of Goldman Sachs.

Dave, I know historically, you've talked a little bit about this dynamic of repair versus replace impacting ticket sizes for your customers. Would just be curious what you're observing on that front and what it tells you about consumers in the space?

Thanks for the question, Adam. I don't think we saw anything stand out in the quarter. ticket sizes were up a little bit, but not -- there was no fundamental shift from repair to replace.

Okay. Super clear. And then on the competitive environment, I appreciate the commentary around the architectural vision when it comes to third-party AI tools. But any changes you're just -- you're seeing more broadly given what AI is doing to product development velocity in the broader competitive environment in your space?

Not necessarily in our space. I think as just a technologist, it's a crazy time to be in the game. We're just seeing incredible things being possible, both internally as well as what other companies are doing. But there's nothing particularly special in our corner of the universe we're kind of seeing the magic of AI continue to play out, and we continue to be super excited about what it means for us.

Our next question comes from the line of Daniel Jester of BMO Capital Markets.

This is Roland on for Dan Jester. And congrats on the quarter. So you're putting a lot of resources into expanding the MAX program. Can you talk about how you weigh that opportunity versus investing in entering and scaling new trades? And as that prioritization shifted given the success that you've seen so far in Max?

So I would say there's definitely been a increase in the weight in terms of Max and resources we've been putting into it over the last few quarters. The early signals have been promising enough for us to be increasing that level of investment. We're trying very hard not to have a huge pullback in other areas. And so we're being thoughtful about how we're shifting resources in that direction. But generally speaking, I would describe it as increased priority and importance for Max. And then we're trying to be balanced in terms of where we take those resources from in order to increase that investment.

Fundamentally, we run the business like a marathon, not a sprint. We do continue to believe that we will be the operating system for all the trades. Right now, there is a near-term very exciting opportunity around building out and delivering Max. But over the long term, we continue to believe we will extend beyond the trades. I think today, the focus is, as you said, shifted more towards Max.

Our next question comes from the line of Terry Tillman of Truist Securities.

This is Conor Faster on for Terry. Just first on the broader landscape or the broader AI adoption. How does the level of customer interest and urgency around AI digital transformation and commercial compared to residential today? Maybe what's driving that difference as well?

Yes, I would say that -- there's a general similar level of excitement. And I would say both for us and the market in general, there is more maturity on the residential side. And I think a lot of it comes from the fact that residential transactions tend to be simpler. If you have even a booking situation, the systems involved and the dynamics involved are generally less complex to deal with than in a commercial use case.

As we think about the longer arc, we see a very similar opportunity in both, but we anticipate that both the market in general and our level of product maturity for residential to lead commercial.

Our next question comes from the line of Yun Kim of Loop Capital Markets.

Following up on a couple of questions on competitive landscape and also the last question. If you can give us just an update on the overall competitive landscape, especially at the low end of the market, just picking up a lot more players in that end of the market, maybe if they're using wide coating and such, I don't know. But given that you are seeing faster growth from the enterprise to the larger end of the market, the higher end of the market and more of your go-to-market focus?

Great question. We don't really sell to the lower end of the market. So we haven't seen any dynamics that necessarily materialize in the way that you're describing.

Thank you. I would now like to turn the conference back to Ara Mahdessian for closing remarks. Sir?

I just want to thank everyone for the call today. In particular, a special thank you to our customers who work tirelessly to serve their communities, particularly with the upcoming busy season coming up. A special thank you to our titans all around the world. who work tirelessly for our customers and especially to our investors who support our mission, we hope to be good stewards of your capital and aspire to build a generational company.

Thank you all and look forward to seeing you all soon.

This concludes today's conference call. Thank you for participating. You may now disconnect.

Thank you for standing by, and welcome to ServiceTitan's Fourth Quarter Fiscal Year 2026 Earnings Conference Call. [Operator Instructions]. I would now like to hand the call over to Jason Rechel, Investor Relations. Please go ahead.

Thank you, operator. Welcome, everyone, to ServiceTitan's Fiscal Fourth Quarter 2026 Earnings Conference Call. With me are ServiceTitan's Co-Founder and CEO, Ara Mahdessian; Co-Founder and President, Vahe Kuzoyan, and CFO, Dave Sherry.

During today's call, we'll review our fiscal fourth quarter and full year fiscal 2026 results. We'll also discuss our guidance for the first fiscal quarter and full fiscal year 2027.

Before we get started, we want to draw your attention to the safe harbor statement included in today's press release and emphasize that information discussed on this call, including our guidance is based on information as of today and contains forward-looking statements that involve risks, uncertainties and assumptions. All statements other than statements of historical fact could be deemed to be forward-looking. Forward-looking statements reflect our views as of today only, and except as required by law, we undertake no obligation to update or revise these forward-looking statements. Please take a look at our filings with the SEC for a discussion of the factors that could cause our actual results to differ.

We also want to point out that we present non-GAAP measures in addition to and not as a substitute for financial measures prepared in accordance with generally accepted accounting principles. Definitions of these non-GAAP financial measures, along with reconciliations to our GAAP financial measures are included in our earnings release, which we have furnished with the SEC and is available on our website at investors.servictitan.com. Unless otherwise stated, all references on this call to platform gross margin, total gross margin, operating income, operating margin, free cash flow and related growth rates are on a non-GAAP basis.

Finally, we've posted an updated investor presentation that can be found on the Investor Relations website at investors.servictitan.com, along with a replay of this call. And with that, let me turn the call over to Ara. Ara?

Thank you, Jason, and thank you for joining us. This quarter, we celebrated the 1-year anniversary of our IPO and surpassed $1 billion of annualized revenue run rate. In fiscal year 2026, we delivered $961 million in total revenue, growing 24% year-over-year, led by 26% year-over-year Subscription revenue growth. We achieved these results by delivering 36% incremental operating margins and a meaningful change in free cash flow.

When Vahe and I founded ServiceTitan, our vision was to transform the lives of hard-working contractors by helping them grow revenue and margins through automation. From day one, we imagine the world where technicians focused on serving customers in the field, owners focused on business outcomes and ServiceTitan increasingly handled the operational complexity in between. Running the trades business is like optimizing a multistage funnel. Contractors must generate demand, book appointments, dispatch the right tech, diagnose issues, present solutions, follow-up on unsold opportunities, manage inventory, process payroll and constantly analyze performance to improve probability.

So, we built a singular end-to-end operating system, spanning every major workflow in the trades, from demand generation to call booking, dispatch quoting payments, inventory, payroll and supplier integrations. And we embedded best practices that drive revenue and profitability directly into the software, including marketing ROI tools to double down on the highest-performing campaigns, call analytics to improve appointment booking rates, good, better, best proposal systems to increase average tickets, pipeline tracking and outbound dialing to recover unsold estimates and more. And contractors who leverage these capabilities consistently drove significant revenue and profit expansion, but two constraints limited how far we could take them.

First, utilization. Customers still have to manually execute many of these best practices. And second, deterministic offer should only automate what was rules based. Much of the work still happens in ServiceTitan, but it remains manual because they required judgment. AI removes both of these constraints. Because ServiceTitan is already where the work happens and where decisions are made, we are naturally the context layer and the orchestration layer, which allows us to automate work directly inside our platform with AI. And because for more than a decade, nearly every meaningful workflow in the trades has run inside ServiceTitan, we have amassed the deepest end-to-end proprietary data set in the industry, including marketing campaign performance tied directly to revenue and margin, call booking rates by call type and process, test productivity, close rates and average ticket by job type and folds generated, dispatch decisions linked to outcomes and more.

This is structured transactional outcome level data across millions of jobs and over 80 billion in transaction volume over the past 12 months alone. Our execution layer puts this uniquely proprietary data into action and every additional job improves that intelligence, creating a flywheel where the system continuously learns and gets smarter, allowing us to deliver differentiated customer outcomes. What used to require a group of people manually coordinating across an operation, can now be orchestrated by the system itself, with humans and AI agents working together seamlessly where each player does what they do best, an AI agent that detects available capacity and automatically modulates demand generation to fill the board, virtual agents that answer inbound calls and book appointments with a human call center manager ready to step in with full context exactly when a customer demands it. A human tech who walks into a home, looks to a homeowner in the eye and diagnoses the problem, armed with an AI agent that automatically generates the right quotes. The work gets done faster, smarter and more reliably, not just because you can get AI to do some of the work through point solutions, but because data from adjacent workflows makes each decision smarter.

And every handoff between players in the workflow is seamless on a singular platform. This is what an operating system for the trades looks like in this new world of AI. The agentic operating system. First announced as the pilot program at Pantheon last fall, MAX is the initial deployment of our agentic operating system, bringing together the power of our core product, our existing Pro products and new AI capabilities, all orchestrated together. And the results from our first set of customers speak to the potential of MAX.

A customer in Southern California, [indiscernible], told me that instead of pockets of automation with Pro products, MAX delivered an integrated end-to-end automation engine. In 3 months since migrating to MAX, team Router has experienced a 50% increase in average ticket size, leading to an acceleration in total revenue growth, record revenue in December and greater than 50% year-over-year revenue growth in January. Best of all, team Router told me that they expect further improvements as they reach full utilization of MAX.

A separate residential plumbing customer told me that only months after going live with MAX, EBITDA margins improved from 18% to 30%. The automated marketing, call booking, dispatching and capacity planning allowed them to reduce office staff from 7 to 2 for 19 techs in the field, all while increasing technician salaries, eliminating weekend work and even reducing end-customer pricing. These powerful results are possible because we are now automating and orchestrating the work already being done in ServiceTitan. On average, customers on MAX will about double their monthly subscription revenue when fully ramped, and it is behind the power of these collective outcomes that we plan to meaningfully expand MAX throughout the year, starting with the doubling of capacity in Q1.

In addition to MAX, we are seeing healthy ongoing growth of our existing AI native Pro products and early promising signs from our recently launched Virtual Agents. We're leveraging our massive proprietary data sets, entrenched an expanding ecosystem, [indiscernible] leadership and distribution across more than 10,000 high-performing contractors to capitalize on our largest opportunity yet and bring this reality to life for the best operators. And our internal leverage of AI [indiscernible] is allowing us to accelerate development velocity to create more value faster than ever before. This is a landmark value creation opportunity.

Bringing all of this for the year ahead, we have three core goals for FY '27, to continue executing on our multiyear growth factors, to bring our vision to life with the agentic operating system for the trades, and to make a step function change in the velocity at which we execute for our customers. Vahe and I have made ServiceTitan, our life's work. With the benefits of AI, our vision is now unfolding faster than we could have ever imagined. I am inspired by the performance of our customers and by watching Titan's execute on the agentic operating system for the trades.

Let's hear about this execution from my Co-Founder, Vahe.

Thanks, Ara. This really is an exciting time to be in the game. As we build the Agentic Operating System for the trades, there are some important stepping stones along the way. Today, I will highlight our performance in Q4 and talk about how we're accelerating our organizational velocity. We made substantial progress in FY '26 against each of our four major growth initiatives. Beyond the updates that are shared, I'd like to provide specific updates today on Commercial and Roofing.

The Commercial capabilities we introduced at Pantheon, specifically construction and commercial CRM have been well received and have laid the foundation for go-to-market execution in FY '27. We are now positioned to seamlessly optimize the way the platform works together and to enter complementary new trades that we believe will build on progress towards becoming the market standard in commercial in FY '27. In Roofing, we made considerable progress over the past 12 months, as summarized by our outstanding partner, Vertex in the press release this afternoon, we helped a lighthouse customer in this market skyrocket to over $600 million in revenue in less than 3 years since being founded. Said Vertex's CEO, Dennis Elliott, "ServiceTitan has been a great strategic technology partner that has moved as fast as we do to design, build and implement a scalable platform that delivers consistent and great customer experience across the country". Our Roofing implementation playbook, insurance and estimating workflows and brand within roofing are each maturing as we lay the foundation for durable growth in exteriors.

Shifting to our organizational velocity nothing Ara and I have said will be achievable without us being able to capture the magic of AI, both in how we build our products and generally run the business. This is an area I'm very passionate about and personally driving. Over the past few weeks, in particular, I've spent hundreds of hours deep in the matrix. I've touched it, smelled it, wrestled with it and know is here and that it's real. Every department and every role is expected to use AI to increase quality, efficiency and speed. I have personally witnessed mountains being moved when the right people are unleashed on the right problems. ICAI as an opportunity to improve and accelerate every process in the business, ultimately allowing us to accelerate the ROI we deliver to our customers.

In fact, the ability to capture the magic of AI, was the primary skill we were looking for when searching for our Chief Technology and Product Officer, and I'm thrilled to report that we brought in quite a wizard. Our new Chief Technology and Product Officer, [ Abhishek Mather ] joined us last month from Figma, where he oversaw AI research and the development of Figma Make and Figma AI. Abhi previously led product and engineering teams at Meta and Microsoft and will partner closely with me to make a step-function improvement in our velocity over the course of FY '27.

The continued success that we are seeing in our primary growth vectors, the clear opportunity for ServiceTitan to deliver the Agentic Operating System for the trade and the notable improvements I've already seen in our internal velocity each contributes to my excitement for the year ahead. It is inspiring to see the acceleration in our vision, and I want to thank Titans everywhere for delivering value to our customers every day and our customers for your partnership and trust.

With that, I'll turn it over to Dave to run through the financials. Dave?

Thanks, Vahe. I'm proud of our execution to close out our first full year as a public company. Today, I'll run you through Q4 financial results and provide guidance for Q1 and for the full fiscal year 2027. For more detailed financial results, including details for the full fiscal year 2026, please refer to our press release issued earlier today.

Q4 gross transaction volume, or GTV, was $19.8 billion, representing 16% year-over-year growth. GTV contribution from new customers remain consistent with prior periods. The combination of 1 fewer business and unusual weather led to about 300 bps lower GTV growth contribution from existing customers against a notably more challenging year-ago comparable. Q4 total revenue of $254 million grew 21% year-over-year. Subscription revenue of $192 million [indiscernible] 23% year-over-year, led by strong growth in Pro, Commercial and New Trades. As a reminder, Q4 FY '25 Subscription revenue grew materially faster than prior periods, partially driven by the roughly $1.5 million benefit from atypical linearity and other onetime items.

Usage revenue grew 22% year-over-year to $53 million. FinTech utilization remained strong again this period. We also benefited from monetization of our partner ecosystem, which does not directly correlate with GTV and from early growth in Virtual Agents revenue. Looking forward, we believe that growth from these factors could lead Usage revenue to grow more quickly than GTV in FY '27. Total platform revenue for Q4, [indiscernible] of Subscription and Usage revenue grew 23% year-over-year to $245 million. Q4 Professional Services revenue was $8.9 million. Net dollar retention was greater than 110% for the quarter. Gross dollar retention was greater than 95% for the full fiscal year 2026, and we exited the year with approximately 10,800 total active customers, up 14% year-over-year.

Q4 Platform gross margin was 80%, an improvement of 330 basis points year-over-year. As a reminder, roughly 200 bps of this improvement resulted from the allocation of certain customer success expenses to sales and marketing. Total gross margin for Q4 was 73.8%, up 360 basis points year-over-year. Q4 operating income of $27.1 million resulted in operating margin of 10.7%, an improvement of 740 basis points year-over-year. Our FY '26 incremental margins of 36% outperformed our target due to the timing of hiring and Usage revenue overperformance. Q4 free cash flow was $35 million up from $11 million for the prior year fourth quarter. FY '26 free cash flow was $85 million, up from $15 million in the prior year. Due to our expectations for ongoing strength in free cash flow, we paid down the approximately $107 million term loan that was outstanding during Q4 and amended our revolving credit facility to retain and improve financial flexibility.

A quick reminder of the seasonality in our business. We pay our annual cash bonuses in Q1, which leads to a negative free cash flow in the period. As always, we expect Q2 to be our seasonally strongest period on GTV, and we will host our annual customer conferences during Q3, which will elevate sales and marketing expenses in that period. With regards to business days, GTV will benefit from one additional business day in Q1 and also from 1 additional business day in Q2. Q3, we'll have 1 fewer business day, and Q4 will have a comparable number of business days with the prior year.

Now shifting to formal guidance. Following stronger-than-expected incremental margins in FY '26, we expect to continue our 25% incremental operating margin framework over the full year FY '27. How we achieve these results this year may differ from prior periods on two dimensions. First, as we've said before, we don't manage our incrementals on a quarterly basis. And second, the mix of line item expenses may modestly shift relative to prior periods as we invest more aggressively in AI inference and internal tooling. For the first quarter, we expect total revenue in the range of $255 million to $257 million. We expect to generate operating income in the range of $27 million to $28 million. For the full fiscal year 2027, we expect total revenue in the range of $1.11 billion to $1.12 billion. We expect to generate operating income in the range of $128 million to $133 million. Underpinning our outlook is a sustainably high ROI that we deliver to our customers who operate in resilient trades that keep our economy running.

We continue to perform well across our growth priorities while building the Agentic Operating System for the trades with greater operational velocity than ever before.

With that, I'll turn the call back to the operator for Q&A. Operator?

[Operator Instructions] Our first question comes from the line of Josh Baer of Morgan Stanley.

Congrats on a strong finish to the year. I wanted to ask about weather which kind of anecdotally or just from personal experience, pretty extreme so far in 2026. So I was hoping you could unpack a little bit of what you saw in Q4 results as far as January as well as what's in Q1 guidance, how much impact there was from cold weather and extreme weather so far this year?

Thanks Josh and great question. There's really two parts to this. First, overall Q4 this year was quite warm. The NOAA state-level data recorded the third warmest period from November to January as compared to the 15th warmest last year. Second, there was a large ice storm in the last week of the quarter across much of the U.S. that kept technicians off the road. And while I don't want to get into the practice of discussing in-quarter GTV performance, but what I can say is that the way we size the impact of the storm was in part based on the results in early February as the latent demand from the storms was met.

Okay. Got it. And then just wanted to follow up on the incremental margin commentary this year, 36% that's way above the 25% target. I know you mentioned timing of expenses and top line out-performance. Any context for the mix of the two and really why shouldn't this level of type of incremental margin continue looking ahead?

I'll take this one also, Josh. I think the incrementals this year were really driven by, as I said, those two factors, the overperformance in Usage and being behind in hiring. I think that there was an interplay between the two of them. By being a bit behind the hiring, it was harder for us to reinvest the capital that came off from the over-performance. As we look forward into FY '27, I think it's going to be the large investment yet in R&D. And I think that we have a lot of opportunities to do so with the AI. Also with [indiscernible], I feel pretty excited about our ability to attract world-class talent to deliver against the massive number of opportunities in front of us.

Our next question comes from the line of DJ Hynes of Canaccord.

And I'll also offer my congrats on next quarter. Dave, I'm going to keep pulling on that last thread. Josh asked about incremental margins and [indiscernible] payback kind of running ahead of plan. You talked about investments in R&D. I'm going to take the other side and ask about sales capacity investments that are planned for '26. Do you feel like the business could grow faster with more sales heads? Or is there more of an industry [indiscernible] limit on growth? I guess what I'm asking is, are you getting in front of all the deals that you should with the capacity you have today? And kind of how does that inform your strategy for '26?

DJ, I think two things. First, we govern the way we invest in sales and marketing across all go-to-market in a 24-month cap payback. This last year, we over-performed simply because Usage over-performed in the year. I think that we have opportunities to continue to invest, particularly against the AI initiatives. With that said, I feel like there is also a natural rate limit in terms of number of jump balls in a given year. Switching solutions is a major decision. And what we discovered over time is we try to force customers through more go-to-market initiatives to get them to switch. It ends up leading to more turns on the line. And so what we do is we think about this as a marathon, not a sprint. And we're driving towards that as we think about our go-to-market investments.

Yes. Okay. Makes sense. And then maybe I'll give you a moment to breathe and bring in the rest of the team. Vahe, maybe you could just give us an update on what you're seeing in the commercial business. I'd love to get kind of current thoughts on competitive dynamics, bookings execution, pipeline opportunity, as we head in '26?

Overall, Commercial is on track for what we -- big picture, wanted to happen when we made the move into Commercial. I think we are cementing our position as leaders in the space. The products that we are rolling out are being met with really positive signals from the customer base. And we're continuing to see kind of all aspects of the engine humming in terms of whether it's pipeline generation at the top of the funnel or it's successfully being able to onboard customers and actually deliver value, it's executing on all cylinders.

Our next question comes from the line of Adam Hotchkiss with Goldman Sachs.

I guess to start, I appreciate the comments around the MAX program. How do you think about the decision in terms of scaling that program? I think it's pretty notable that you plan to ramp that throughout the year and the Q1 comments were helpful. What are the limiting factors, if any? I know you sort of said that you're pairing folks with an executive in the initial cohort. What should the MAX program look like going forward? And how should we start to see that impacting the model as we go into the year?

Yes. This is a very top of mind topic for us. We see this not as some new feature that we're rolling out, but as literally the future of ServiceTitan. And we're following a very rigid process that sequentially first establishes product market fit by delivering the ROI to our customers and then focuses on the scaling aspect. Where we're at right now is we're seeing really positive signals on that first part. We feel really confident that we're in a great place there. And so we are just now with this next cohort, focusing on the scale aspects, and that really comes down to two factors: efficiently and quickly and effectively being able to onboard, number one, and then number two, it's really around scaling the program to all customers within that we serve. And so we're focusing on that efficiency of on-boarding as this next phase, and we're going to scale it out as quickly as we can while ensuring the success of the customers. And so it's about getting it right and we're playing the long game. We're not trying to optimize through short-term results at this point.

Understood. Really helpful. And then you ended your prepared remarks with one of your core goals being a step function change in the velocity of what you do for your customers. Maybe talk about the factors on the velocity side that make you feel confident in the step function? Is that just AI internally and AI through MAX? Or are there other factors we should consider there?

Yes. There's a lot of factors at play. There's the obvious kind of code production revolution that we're all seeing happen in front of our eyes. There's also another aspect of even if you had 1 million programmers, there's just things you could do today that were never possible before that are accelerating our ability to deliver value. And what we're seeing is when you mix all of that with the data that we have and system of record launch pad to then deliver these capabilities. There is kind of a compounding acceleration that's happening. It's hard to say exactly how it manifests into the revenue forecast, et cetera.

But personally, I've spent hundreds of hours over the last few weeks directly writing code, talking to customers and really being on the front lines with our team to roll these things out. And I mean, I'll be honest with you, it's real. This is something that I've touched, felt. I mean it's absolutely real, and we're really excited about how it flows out over the next few quarters.

Our next question comes from the line of Michael Turrin of Wells Fargo Securities.

Congrats on the end of the year. I'll just ask a two-parter both upfront. For Dave, can you just speak to what sort of assumptions are embedded in the fiscal year revenue guide around just overall demand backdrop, any new trade contribution and any MAX contribution you're initially contemplating?

And then for the team, just help us think through the adoption curve you could see with MAX. I think you mentioned doubling capacity there. Was that sales-specific comment? And just help us think through the ramp you could see as that capacity ramps throughout the course of the year and into next?

Thanks Michael, congrats on expanded roll over at Wells. And with regards to our guidance, the philosophy remains the same this year as the prior years, and I think we're going to continue to drive the business along the same framework. In terms of the macro environment, we have rolled forward what we saw in the last couple of quarters and pulled that there. In terms of MAX, I think that we are really excited about the ROI MAX is delivering. And that's the foundation upon which we're doubling the capacity.

At the same time, its still early days here, and we're being quite intentional rolling it out. Vahe will talk a little more about that. But in terms of the guidance for now, what's baked in is essentially a roll forward what we've seen in our Pro products, as we see the efficiencies both for us and our customers in adopting MAX increase, we may increase the expectations that it will deliver over time, and I'll keep you guys updated on that.

And to give a little bit more color on the execution against that scaling plan. Phase 1 was really around establishing that the ROI was actually there and verifying it. Super high touch, we had executives involved and so on. The current phase is around delivering that same set of outcomes with this new batch of customers but doing so, in a much more scalable and automated way in terms of getting them activated on MAX. And so depending on how successful we are in actually doing that, we should see the program scale, we think, in a very exciting way, but we're waiting to see and get some validation before we provide any additional guidance on what that's going to look like.

Our next question comes from the line of Dylan Becker of William Blair.

I'll add congrats here as well. Maybe for Vahe or Ara. On Vertex, I wonder how you guys are thinking about examples of some of these consolidators and their ability to scale rapidly, maybe if that is attracting more capital? I know there's already a strong PE ecosystem here. But is that shifting any dynamics there? Is that pulling you maybe into new trades that they're trying to front run, maybe just any kind of shift in the success of some of these models and the pace of success helping kind of contribute to the durability of PE motion, if that makes sense.

Great question. Our goal is to be great partners to both the leading sponsors in the trades as well as the largest operators. And of course, our job is to make them more money, and we continue to see strong growth from these customers. We've mentioned in the past that they are the cohort of customers that, we're the fastest-growing, highest adopters of our product, greatest utilization. And they indeed have been great partners in helping us expand into new trades. That is how we entered the Roofing market.

And then lastly, next week, we will actually be hosting our largest partners and their sponsors in New York for our E-symposium, to share notes on what we're seeing in the industry to learn from them and then also to talk about the future of AI for the trade than this agentic operating system.

Perfect. That's helpful. And maybe, Ara, if I can stick with you. I know there's been some emphasis thus far on the capacity angle with MAX, but I think you did call out too. There are customers that are deploying it today, they're seeing value, but they're kind of just scratching the surface and there's an expectation for them to ramp to maybe more of an end-to-end deployment over time. I think you said maybe that doubles the revenue base, but how you're thinking about kind of balancing the ramping of those customers that are utilizing MAX today and going deeper alongside kind of the scaling and the breadth of scope of that project, if that makes sense?

Yes. Certainly, there's a lot of excitement around bringing the power and capabilities and the incredible outcomes that we've seen with what MAX is today to more customers. But as we've said in the past, one of the nicest things about this business is that under every rock is another opportunity. And as we think about this vision for the trades that Vahe and I've talked about automating dimension through call booking, dispatch quoting, follow-up, inventory, payroll and so on. There is still more opportunity for us to automate more workflows as well as increasingly automate a larger percentage of the workloads in those workflows. And so we're excited to do both.

Our next question comes from the line of Jason Celino of KeyBanc Capital Markets.

Great. Dylan kind of stole my question a little bit, but maybe I'll ask it a different way. I think -- you said that edge customers on MAX will double their monthly subscription revenue when fully ramped. Is that mainly from adopting the whole suite? Or are you finding that they're getting so efficient that they're able to expand technicians as well?

Jason, I'll take this one. It's the average customer, when they adapt MAX, their subscription doubles at full ramp. And that does not factor in the idea of expanded technicians.

Got it. Perfect. And then, Dave, I think you also in your prepared remarks, you mentioned that the guidance built in like early growth in Virtual Agents. Maybe can you talk about that a little bit? Is that like a new product? Or is that part of the MAX offering? I just don't know if I've heard you talk about Virtual Agents before.

Ara, why don't you talk about virtual agents for a second, I'll talk about what it means in our guidance.

Virtual Agents handle inbound calls for our customers. This is a need that nearly every customer has, particularly in moments where they get a sudden surge of calls that come in, their existing team is unable to handle all the calls or when calls come in after hours. And as we all know, these calls represent very significant revenue opportunities. Each call can be between $500 to $50,000 in a potential job and so very important to handle each of these calls. We very recently launched our Virtual Agents to handle these calls. And while the product is very early, the interesting situation for our customers is number one, increasing workloads of surge volume being handled by our agents, increasing workloads of after our calls being handled by our agents, and then because there is very high turnover in the customer support representative function as our customers are seeing turnover in their CSR base, many are choosing not to necessarily replace that head count and allow the virtual agents to handle the incremental call volumes.

And then I'll chime in a bit on what it means for our financials. Jason, while there -- an allocation to this -- Virtual Agent calls are included in some packages. In general, Virtual Agent sales are part of our usage consumption, they're an AI consumption product. that is on top of MAX. The trajectory of the AI consumption is encouraging. It's still very early, which makes it hard for us to forecast. So I'll be honest, it's very little bit is embedded in our guide today.

Our next question comes from the line of Parker Lane of Stifel.

Dave, in your prepared remarks, I think you talked about partner monetization benefiting 4Q and that, that wouldn't necessarily be correlated with GTV. Could you just go a little bit deeper on what you saw there in the quarter and what the assumptions are going into fiscal '27 here?

Absolutely. What I said there is that we have a part of our Usage revenue is from partners and in our revenue share from them. That doesn't correlate directly with GTV. And so when GTV grew less quickly this quarter, it was more pronounced on our Usage take rate. This is a growing part of our business, and so is the Virtual Agent. And so what I'm saying is that there's a chance that you'll see Usage revenue outpace GTV growth this year.

Got it. And Arun, Vahe you look at your customer base, obviously, you have these customers that are in the MAX program, they seem to be very proactive about AI adoption. Are there a pocket of customers who are maybe wait and see mode, trying to have ServiceTitan bring them along and maybe not as evangelized around the opportunity for AI? Just trying to understand what share of customers are actively looking for automation through the form of AI today?

That's a great question. And there's certainly a spectrum of willingness. As we launched MAX, we saw demand for the MAX pilot that exceeded the supply that we could offer. And so there's a very meaningful portion of our customer base that is very eager and very aggressive about adopting AI. And kind of with like every other innovation in the past, we believe that as the customer outcomes are demonstrated and some of them you heard in my prepared remarks, it will be increasingly exciting for the vast majority of the customer base to benefit from the same outcomes by adopting MAX.

Our next question comes from the line of Terry Tillman of Truist Securities.

Sorry for the background noise. Ara, Vahe, Dave and Jason. Yes, two questions for me. The first one is, I really liked that a couple of quarters ago when you talked about that autonomous job other than the tech actually doing the work at the site. I'd love an update on any more anecdotal kind of evidence of that playing out where it's autonomous jobs or we've even seen where it's autonomous sites where it's actually there's not even much human labor at the site. Just anything you could share on more kind of data points on how that's coming along and then I have a follow-up.

That is certainly the experience of the MAX program is helping generate demand autonomously, book the appointment autonomously, dispatch the right tech autonomously, help generate the right diagnosis and quotes then ultimately also handle inventory payroll and other back-office functions. So while what we shared many quarters ago may have been like the first experience of this. This is increasingly becoming the experience in MAX.

And then as for the actual work in the field, I'm not familiar with the specific example you're referring to. And while there may be slight exceptions where the amount of human effort is small at the customer site. The vast majority of what needs to be done at a customer's home or office still very much requires a very skilled technician who can build a relationship with the customer, diagnose the issue properly and then advise the customer through the options for solving that problem.

Yes. No, that's a good clarification. I actually meant on the contractor side when they add new sites, but that's a -- that's helpful. Just a follow-up question is Dave. It feels like there's a couple of things though that can help GTV in 1Q versus 4Q, if I was a good listener. There's 1 day more in 1Q versus 4Q. And it sounded like if the tech were off the road, like they were where I live, in that 1 week, we could see GTV growth a little bit higher in 1Q. And again, I also know Usage revenue could be a variance with the GTV growth. But could you double click a little bit on GTV in 1Q.

I think you nailed the components. We don't want to get into the -- in the process of giving in-quarter performance, but you nailed the two. One more business day and the latent demand from the ice storms that was met in early February. You got it right, Terry.

Our next question comes from the line of Billy Fitzsimmons of Piper Sandler.

Given some of the debates in software currently, I appreciated the focus in the prepared remarks around how AI enhances the platform. And one of the questions we get across our whole coverage list is kind of the extent to which the barriers to entry have potentially come down, whether that manifests in AI-native startups going after similar opportunities or whether customers will do it themselves. So on that note, first, it really doesn't seem like it based on the numbers, but have any of those things come up in customer conversations or had any impact on top of funnel demand in recent months?

And then maybe second, in the prepared remarks, Ara you talked about how the on the proprietary data you've amassed -- and just to help contextualize it for us, can you provide some examples of some some of those data sets or anecdotes around some of the things you're able to do with it that maybe a brand-new AI competitor would not be able to do?

Sure. So in terms of the barrier of entry declining and the impact it has, we're keeping, as you would imagine, an incredibly close eye on it. We are not seeing it impact whether it's pipeline conversion, et cetera. And the way we're thinking about it is -- we're not just going to stand still and unilaterally disarm. We're going to take advantage of those same capabilities, and we're also going to be producing a lot more code, a lot more capabilities. And so I think net-net, it's going to be a positive for us because of the structural advantages that we have and our ability to create value from AI, whether it's through the data that Ara will go into in a second or distribution. We think that the net impact is going to be positive. And Ara, maybe you can talk to some of the data aspects that I think are going to make the difference.

So you can certainly get some level of outcomes with point solutions. And maybe before MAX, that was pretty much all that was possible. But there is a very meaningfully higher level of outcomes that is attainable through an end-to-end agentic OS. So first, the automation in any particular workflow, benefits quite massively from the data in adjacent workflows, like you don't want to optimize demand generation based on leads. You want to do it based on expected gross profit, and you can only do that if you have also the sales and margin data and you are the software for those workflows. You can't optimize the quoting process to maximize gross profit, if you don't have the visibility into price book inventory and so on and so forth. And so the neat thing is the manual version of all these workflows have already been executed and orchestrated inside ServiceTitan for the past 10 years and so we have all the proprietary data across them from like which marketing campaigns have the highest ROI. So what kind of call booking process maximizes call booking rates, what kind of quotes in the field maximize close rates and average tickets and so on and so forth.

And so our thesis is we are the natural place, the natural orchestration execution and interface layers where this work gets automated, and we're seeing that in MAX and we're seeing the incredible differentiated outcomes through MAX. And at the end of the day, in markets where there's intense competition like in the trades, like there are all kinds of solutions available. Each solution has a corresponding level of outcomes, possible through them. We've seen time and again that our customers want the solutions that have the highest level of outcomes and hence our excitement around MAX.

Our next question comes from the line of Tyler Radke of Citi.

Just curious as you think about sort of the rank order of trades that represent sort of your largest industry exposure. Can you just comment on sort of the ones that moved up the most? Or if there's sort of any change in the top 5? And how you sort of rank ordering those as you think about what's embedded in 2026?

Sure. I think I'll take this one, [indiscernible]. On last quarter's call, we talked about plumbing, HVAC electric and garage on the residential side being the largest grouping of customers. They're not the majority, but they're sort of the largest grouping. That continues to be true today. Commercial continues to be a meaningful growth driver for us. And I think we should expect that to be the case in the year ahead, Roofing as well an important growth driver for us. We have a number of other trades, but I think those are the ones, I'd call out for now.

Got it. And congrats on the CTO announcement. Just curious as you think about sort of the investments that need to be made maybe on the platform level to enable things like MAX and some of the future agentic. Like how do you think about the time frame for those? Are there certain modifications or additions you want to do to be able to bring in more intelligence and other data sources maybe from other systems that your customers have. If you could just kind of talk about the top sort of product and R&D initiatives under the new CTO.

Yes, great question. So as Ara mentioned, we see the future as being an Agentic Operating System. And so there's some foundational elements that you need in order to do that well. There's an entire security and governance layer that you need to have in place to make sure that the AIs are doing what you want them to do and not doing what you don't want them to do. There's also an element of ServiceTitan already today has connective tissue to all these adjacent systems, whether it's accounting or payroll or budgeting data, et cetera. And so by creating that orchestration layer, that global context and being able to connect to all those sources, we think that's a foundational element of being able to build the agentic OS, and so a lot of the other infrastructure work is really around hardening the connective tissue and really expanding the data layer to be able to handle not just the structured data that we've historically captured but an increasingly amount of unstructured data. And so these things are all happening on a continuous flow type of a thing.

We're not waiting for any big bang to occur. And we think that the system is going to continue to evolve organically across all these various elements in a way that allows to continuously shift features to customers, iterate with customers and understand what really works and what doesn't. As Ara mentioned, we think our magic is the end-to-end and how some of these details interplay with each other. And so we're taking an iterative approach to the investments we're making to bring forward the agenetic OS and to make sure that we've got the right talent in place to execute on that vision.

Our next question comes from the line of Brian Peterson of Raymond James.

I'll keep it to one. Just related to MAX, I know it's very early in the implementation here, but I'd be curious how do you think about the evolution of that with smaller customers versus larger customers? And any particular verticals that you think would be first to adopt?

Great question. We see it as applicable to customers of all sizes, across all segments. And so we're very excited for all of them to see the same level of outcomes that our first pilot group is seeing.

And the sequencing will likely be the maturity of our existing markets. And so the ones that are the most mature, we'll get it first. The ones that we're earliest in will get it to last. Our goal is to make sure that the time it takes between those two is as short as possible. But that's how we're thinking about the overall expansion and scaling strategy, is to nail it with the most mature groups and then scale it out to everybody. But we think this is a generalized technology that is relevant for all customer segments.

Our next question comes from the line of Daniel Jester of BMO Capital Markets.

Great. Just wanted maybe just a follow-up to the last question. If I'm a customer and I want to do MAX, but I can't get into the program yet because of capacity. How does that change my calculus to attach Pro products today? Maybe said another way, is there any concern on your part that customers will delay buying decisions for Pro products because they see the MAX potentially available to them in the next quarter or 2 or 3?

I think that's certainly possible. And there's tough trade-offs we've got to make in general. And so it's hard to have only a small amount of capacity when we know the demand is much greater than that. And I'm sure there's all sorts of second and third-order consequences along the lines that you've mentioned.

We think net-net, that nailing the product market fit and the ROI story and nailing the ability to consistently execute and deliver that ROI to every new batch is going to be much more important than any potential temporary losses in sales that result from the under-capacity.

Our next question comes from the line of Andrew Sherman of TD Cowen.

Maybe for Ara or Dave, we've heard a lot about consumer financing lately, especially in this weaker consumer conference environment. are you seeing the mix of financed projects go up and can that help drive up your rate this year and broadly help your customers win more business?

I'll take this one. You nailed the second part of it when customers -- when our customers offer financing, it helps them increase average ticket and increase close rate, is an important level for them, and it's why we invest in driving consumer financing to be an integral part of our product. As regards to the macro environment, we've not seen a shift that we can identify to be the macro environment on the consumer [indiscernible] a percent of total. But we do think the overall trend is to have more because the impact it has on our customers' businesses.

Great. And just quickly on the marketing side. Have any of your customers seen an impact from Google Search. There have been some other software companies that have talked about this. But any indication from your customers that they want to change their marketing because of AI and maybe that could even drive more marketing Pro adoption?

So in terms of the way in which trade businesses generate demand, we think that consumer behavior is obviously going to have a massive impact on how contractors are found. And so we're not necessarily seeing that be material in today's world based on what we're seeing -- but as we think about how our product matures and how we enable our customers to be successful, we're very, very intentional about making sure that in this new world where search has fundamentally changed, people have personal agents that are going out and doing stuff for them. That service tightened contractors are the best place to take advantage of that new world.

Our next question comes from the line of Nick Altman of BTIG.

Awesome. Ara the comments on MAX are super encouraging and how it's enabling customers to grow faster and improve margins. And it seems like the real unlock with MAX is how it's utilized across the entire platform. So my question is kind of the inverse of Daniel's prior question. But when you look at your installed base today, are you seeing customers start to expand across the platform, add new products, consolidate their solutions on to ServiceTitan in anticipation of MAX? Just any commentary on those customers who are maybe a little bit earlier in their journey and how their behavior is changing in anticipation of MAX would be interesting.

Yes. You know what's interesting is historically, this industry wasn't necessarily known as being, let's say, on the bleeding edge of adopting tech. And it's been actually really refreshing to see how in the new AI wave, that dynamic has really changed. And so just overall, even before MAX, there was an incredible amount of interest from our customers to understand how to use AI within their business and so on. And that is only intensifying. So MAX, I think, has brought a lot of attention towards the magic of having an end-to-end agentic layer. And so we are certainly hearing anecdotes of people saying, okay, well, I can't get into MAX. But should I just buy all the products now and get ready for it and so on. And so I don't have much more than anecdotes like that to really share.

But what I look at is just the overall demand around MAX and the interest around it. And so that's, I think, the most important signal. It's our job to make sure that we have enough capacity to take on those that are interested. And so I think largely, it's a capacity issue right now that we're focused on. The demand side seems pretty strong and we anticipate to stay strong.

Our next question comes from the line of Yun Kim of Loop Capital Markets.

Given the early success that you're having with the MAX program, is there any thought on revisiting your overall pricing strategy and model. You mentioned first transaction pricing model for the virtual agents. Do you expect perhaps shift to a pricing model that's more driven by GTV and transaction based and less driven by the number of service techs?

I'll take this one. For now, MAX is a single package that's priced like our core solution based on the number of technicians generating revenue in the field. This may evolve over time, but I don't think what will change is how we tie how we get paid to how we deliver value, and that's best captured for now as the linked to techs in the field, but that could evolve over time.

Okay. Great. And then I just have a quick product question to Vahe. I think a couple of months ago, the company introduced an accounts payable automation product. if you can update us on what's the overall strategy around back office accounting and FinTech in general? And should we expect to see more products introduced in that area?

Yes. So the overall thesis is really around creating incremental value that's not possible outside of service Titan. And so that's the magic behind our Money In and Credit Card business. is we can do things, not just around processing the transactions, but all of the steps prior to accepting payment and then after accepting payment. We think the same exact situation plays out in Money Out. In fact, we think that there's actually more opportunities because, as you'd imagine, money leaving the bank account probably needs more controls, than money coming into it. And so we're focused on building an end-to-end suite that really does things in a way that are differentiated that are not possible unless you have that end-to-end visibility. And we are planning on making some very exciting announcements around that very quickly or very soon.

Our next question comes from the line of Scott Berg of Needham & Company.

Really nice quarter, one for me in the essence of time here. Most of the MAX conversation has seemingly focused on residential trades. How do we think about the opportunities there on the commercial side, if any? My guess is it's probably not the first phase or 2 of what you all are thinking given what the commentary has been. But what are the options or opportunities there on the commercial side maybe over time?

Sure. As we previously mentioned, we think this Agentic Operating System concept is a universal concept that applies to everybody. The way it would play out in commercial is likely going to be more reflective of the B2B nature of commercial contractors, the fact that their business model is relationship-oriented and it involves a different type of go-to-market motion, but all of those are still highly relevant to identification. And so whether it's our ability to identify great fit prospects or it's the ability to generate complex multistep communication, whether it's e-mail, text message, phone calls, et cetera.

And then similarly, in the back office, there tends to be more complexity. So if you're managing a large construction project, and you have a former on-site who's sending all sorts of detailed notes to a project manager internally. That is the kind of experience we think agents are going to play a bigger and bigger role. And so if you look at our product development in terms of commercially oriented agentic capabilities. It's still a very target-rich opportunity. It's just a matter of sequencing. Obviously, we're going to focus on where we're most mature to let's say, maximize the value that we could drive.

But on the commercial side, there are both things that are relevant to AI that are unique to commercial. And then there's also elements like the back office that are applicable to everybody. And so the ability to have a compelling AI-native genetic offering to commercial to construction, all our non-historically mature trades, we think is pretty universal.

I would now like to turn the conference back to Ara Mahdessian for closing remarks. Sir?

I just want to thank you all for joining us today. We appreciate that you have the opportunity to spend time with the best companies. And so we're honored that you've chosen to spend this evening learning more about our mission, and our journey ahead to transform the lives of all these hard-working contractors. I want to thank you, and we're excited to speak to you very soon.

This concludes today's conference call. Thank you for participating. You may now disconnect.

Good day, everyone, and welcome to ServiceTitan First -- Third Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded.

Now it's my pleasure to turn the call over to the Vice President of Investor Relations, Jason Rechel. Please go ahead.

Thank you, operator, and welcome, everyone, to ServiceTitan's Fiscal Third Quarter 2026 Earnings Conference Call. With me are ServiceTitan Co-Founder and CEO, Ara Mahdessian; Co-Founder and President, Vahe Kuzoyan; and CFO, Dave Sherry. During today's call, we will review our fiscal third quarter 2026 results. We'll also discuss our guidance for the fourth fiscal quarter and full fiscal year 2026.

Before we get started, we want to draw your attention to the safe harbor statement included in today's press release and emphasize the information discussed on this call, including our guidance is based on information as of today and contains forward-looking statements that involve risks, uncertainties and assumptions. All statements other than statements of historical fact could be deemed to be forward-looking. Forward-looking statements reflect our views only as of today, and except as required by law, we undertake no obligation to update or revise these forward-looking statements. Please take a look at our filings with the SEC for a discussion of the factors that could cause our results to differ.

We also want to point out that we present non-GAAP measures in addition to and not as a substitute for financial measures prepared in accordance with generally accepted accounting principles. Definitions of these non-GAAP financial measures, along with reconciliations to our GAAP financial measures are included in our earnings release, which we've furnished with the SEC and is available on our website at investors.servicetitan.com. Unless otherwise stated, all references on this call to platform gross margin, total gross margin, operating income, operating margin, free cash flow and related growth rates are on a non-GAAP basis.

Finally, we've posted an updated investor presentation that can be found on the Investor Relations website at investors.servicetitan.com, along with a replay of this call.

And with that, let me turn the call over to Ara. Ara?

Thank you, Jason, and thank you for joining us. Next week, we'll mark the 1-year anniversary of our IPO and the second annual day of the trades. As I reflect on this milestone and our progress over the past year, I am deeply humbled by how well Titans have shown up to deliver exceptional value to our customers. While we've come a long way together, I have also never been more confident that our opportunity to build the operating system for the trades is only just beginning.

Our growth formula today remains the same as ever. We deliver real ROI to our customers, helping them reach even greater financial outcomes, and this allows them to grow their businesses, which drives more technicians and GTV on our platform and leads to higher subscription and usage revenue for us. As they realize the value of our software, they buy more Pro products, which further drives our growth. This growth formula is now compounded by our opportunity to democratize AI for the trades.

During the third quarter, year-over-year, we delivered 26% subscription revenue growth and 25% total revenue growth with record free cash flow. Our overall financial performance was greater than we expected due to steady execution with both new and existing customers and strength in usage revenue.

The breadth of performance against each of our main priorities this year, exciting momentum coming out of our annual user conference and an expanding scope for ServiceTitan to bring to automation tool trades, all continue to underscore our opportunity to transform the lives of every hardworking contractor.

I want to talk this quarter about the [ Wrench Group ], one of the largest operators in the trades with more than 7,000 employees, serving over 2.5 million end customers annually across multiple trades in 14 states. The [ Wrench ] Group is backed by high-profile leaders in private equity is 1 of our longest tenured customers and has embedded our software as a standard operating system at the core of its operations.

But the world is evolving and [ Wrench ] Group's new Chief Information Officer, [ David Fritzinger, ] responsible for technology across the org now says they are thinking about the ServiceTitan platform differently than in the past. As [ Wrench ] looks at acquisitions, for example, companies already on the ServiceTitan platform ease the inherent complexity of integrating markets. And that's in concert with changing principles as the business seeks to unlock silos and incorporate enterprise thinking. [ Fritzinger ] told me, we want to unlock best practices at an enterprise level, allowing us to tap into the strength of reporting and consistency across the org without infringing on the economy and entrepreneurial spirit of our locations, and ServiceTitan is at the core of what we want to do and provides us with the platform to execute.

This size and enterprise scale are believed to be accelerating differentiators in the world of AI. [ Fritzinger ] told me that he believes leveraging an integrated ecosystem of technology allows organizations to thrive by creating comparative advantages and differentiated customer outcomes, and he believes that ServiceTitan has formed the industry's best ecosystem critical to lasting organizational growth.

As part of its enterprise level strategy, [ Wrench ] Group recently rolled off of a horizontal marketing platform to leverage the purpose-built capabilities of Marketing Pro, the usability, scalability, simplicity and consistency across locations are exactly what a trades business like ours requires said [indiscernible]. And we also now have 99% of our locations using Scheduling Pro, which feels like table stakes as we make it easy for customers to do business with us.

And as you expect to hear from a world-class executive, [ Wrench ] is playing offense with AI, putting the customer experience at the forefront by leveraging AI voice agents in the contact center a normal language interface to enhance the [ in-home ] experience and most importantly, by leveraging predictive analytics. [indiscernible] wrapped up by telling me that solutions like Dispatch Pro are able to run thousands of scenarios with complex variables and considerations to ensure the right person or the right action is taken at the right time, which humans simply counted. And this only enhances the customer experience because if you have great data, great processes, great tools and the right culture AI will be an accelerant for your business.

As I shared at Pantheon last month, we are operating at a turning point for the trades, leveraging the foundation of workflow that happens in ServiceTitan, with the compelling benefits of AI, we are now giving our customers the opportunity to rethink how they operate. ServiceTitan has an entrenched and expanding ecosystem, compounding proprietary data set and industry-specific benchmarking that allow us to deliver differentiated automated outcomes.

Our customers are phenomenal operators, with an opportunity to thrive in their industry compared to those that aren't leveraging automation to the fullest extent possible. We hold ourselves accountable to delivering focused execution measured over a series of quarters, years and decades. I am proud of where we are today, and as always, I believe we're only just beginning.

I'll now pass it to Vahe, who will share more details on our progress.

Thanks, Ara. Titans delivered for our customers this quarter, and the excitement coming out of Pantheon has been notable. It has never been a more exciting time for contractors in the trades. Let's start again with enterprise.

We had a strong quarter of new large customer wins, and we continue to see successful go-live activity across large commercial and residential customers. A busy quarter of product execution was headlined by a range of new functionality from centralized feature configurations to benchmark plus to adaptive capacity tailored to the needs of sophisticated operators.

We were excited to go live with Galaxy Service Partners, a newly formed alliance of commercial, door, gate and access control companies. Galaxy is led by the team behind [ Guild ] Garage, underscoring the standardization of ServiceTitan across the expanding private equity ecosystem and the trades.

Our Pro products continue to be our largest driver of subscription revenue growth. This quarter, we introduced Field Pro, the next evolution of Sales Pro that extends AI to technicians in the field, and we released virtual agents across the entirety of our Pro portfolio. Our Pro product strategy has evolved from delivering powerful functional business automations to delivering a comprehensive platform for agents to automate work across the trades.

At the center of these [indiscernible] is Atlas, which forges the raw power of modern large language models directly into the foundational intelligence of ServiceTitan. Atlas is agentive command center capable of delivering something to trace businesses that only ServiceTitan can deliver, deep comprehension of data and workflow coupled with the system to automatically action outcomes. This agentic workflow and interface is at the center of our new MAX program. We believe MAX is indicative of the potential evolution of ServiceTitan that will make it increasingly accessible, powerful and valuable for our customers to automate their businesses at scale.

In commercial, our multiyear investments are delivering increasingly strong results with our focus now on becoming market standard. This quarter, we introduced our commercial CRM and construction management capabilities. which are the final components to fully formed ServiceTitan's end-to-end commercial platform. We're focused on empowering commercial contractors to drive revenue growth, increase productivity, optimize cash flow and deliver improved margins across the entire scope of subcontractor workflow.

We had the opportunity to partner this quarter with James River Air Conditioning. One of Virginia's most trusted HVAC, plumbing and electrical contractors for over 50 years. James River is a hybrid residential and commercial business. I've been personally working to meet their business needs for nearly a decade, but our commercial service agreements, equipment management and project management capabilities could not meet the James River standards until now. I am personally committed to delivering clear ROI to James River over the next decade, including with Roofing, where we continue to make good progress defining our go-to-market motion, maturing our implementation playbook and building on our key insurance and estimating features.

We announced a partnership with [ Verisk ] to allow contractors to load their service site data into [ Verisk's ] [indiscernible] claims management system to review, validate and complete the claims estimating process. We were excited to go live this quarter with [indiscernible] and Master Roofing, a residential and commercial roofing consolidator to execute on plans to scale to 50 branches across 30 states within the next year, [ Time Proof and Master Roofing, ] selected ServiceTitan because they see us as the operating platform that allows for a centralized operating model to grow so quickly, and the only software platform capable of delivering the workflows, integrations, data visibility and reporting that are required for the roofing industry.

The resilient execution by our existing customers and the conversion of new customers in existing and new trades are a testament to both our current strengths and future opportunity. As Ara said up front, we intend to deliver on our mission with focused execution.

With that said, I'll turn it over to Dave to run in the financials. Dave?

Thanks, Vahe. I'm proud of our execution on each of our main priorities this quarter. Today, I'll run you through Q3 financial results in detail and provide guidance for Q4 and for the full fiscal year 2026. For more detailed financial results, please refer to our press release issued earlier today.

Q3 gross transaction volume, or GTV, was $21.7 billion, representing 22% year-over-year growth. Our customers are performing well again, demonstrating the durability and diversity of the markets we serve, coupled with the ROI that ServiceTitan delivers.

Our GTV continues to be distributed across a diverse set of traits and end markets. Within residential, it is primarily driven by [indiscernible] and essential services for existing homes rather than new home construction. Since our GTV is tied directly to end consumer sales, it is generally insulated from supplier inventory cycles. In the quarter, GTV growth was led by commercial and within residential, we saw relatively consistent growth in both HVAC and other trades as compared to Q3 of the prior year.

Now on to our financials. Q3 total revenue of $249.2 million grew 25% year-over-year. Subscription revenue of $182.8 million grew 26% year-over-year, led by strong growth in Pro, commercial and new trades. Usage revenue grew 24% year-over-year to $56.8 million, outpacing our expectations due to higher-than-expected fintech utilization. Total platform revenue for Q3, the sum of subscription and usage revenue, grew 25% year-over-year to $239.6 million. Q3 professional services revenue was $9.6 million. Net dollar retention was greater than 110% for the quarter.

Q3 platform gross margin was 80.2%, an improvement of 310 basis points year-over-year. As a reminder, roughly 200 bps of this improvement resulted from the allocation of certain customer success expenses to sales and marketing. Total gross margin for Q3 was 74.3%, up 390 basis points year-over-year. Q3 operating income of $21.5 million resulted in operating margin of 8.6%, an improvement of 780 basis points year-over-year.

While we continue to pace ahead of our incremental margin goals, we're making steady progress on our R&D priorities and hiring plans. Q3 free cash flow was a record $38 million, up from $11 million for the prior year third quarter. Year-to-date free cash flow was $50 million, up from $5 million in the prior-year period. As seen in our cash flow statement, we paid approximately $20 million in cash for the acquisition of Conduit, which closed in October. Conduit has a cross-sell opportunity within our residential HVAC customer base, and we see opportunity in other trades over time.

A few quick model notes before formal guidance. As we shared with you last year, Q4 of FY '25 was an unusually strong quarter driven by faster than normal customer expansion and some onetime subscription items. Additionally, Q4 of this year will have 1 fewer business day as compared to the year ago period, which is expected to compress Q4 FY '26 GTV and usage revenue growth by approximately 150 basis points. We will then see the benefit of 1 additional business day in Q1 of FY '27.

Now shifting to formal guidance. For the fourth quarter, we expect total revenue in the range of $244 million to $246 million. We expect to generate operating income in the range of $16 million to $17 million. For the full year of fiscal 2026, we expect total revenue in the range of $951 million to $953 million. We expect to generate operating income in the range of $83 million to $84 million.

We deliver sustainably high ROI to our customers who operate in resilient trades that keep our economy running. Our goal remains to durably compound growth over many years while increasing margins at the same time. We see healthy performance this quarter as further evidence that our strategy to become the operating system for the trade is working.

With that, I will turn the call back to the operator for Q&A. Operator?

Actually, I'd love to invite Kash Rangan from Goldman Sachs to ask our first question. Today is Kash's final ServiceTitan conference call prior to this January retirement after a very esteemed career. Kash, you've been an incredible partner over the years. We admire your brilliant mind, we admire the content of your character and we are deeply grateful for everything you've done in partnership with us. And all of us at ServiceTitan wishing you all the best, Kash.

Your line is open right now. Go ahead.

Excellent. Can you hear me okay? So it's was very lovely of you, Dave, Jason team, you guys will always be special.

I really don't have a question, but I have an observation. Maybe I can [ parley ] that into a question. You've come along or you've been the tightness of the trade or, let's call it, the mavericks that defied conventional wisdom that you could actually create a $1 billion run rate business, although not hinder Q3, but I'm sure if you look at the month of November, you probably hit $1 billion revenue run rate.

So coming as far as you have -- and when you look at the road ahead, as you start to imprint the go-to-market motion in years '26 and beyond, Ara and team, what are you going to be doing differently as you iterate and try to get to that scale of being truly a multibillion-dollar revenue company in the years ahead. What are the latest observations going into calendar '26 is there? How you gear maybe the go-to-market maybe a little bit differently to achieve the ambitious goals that are ahead of you? And my very, very best to you guys.

Thank you, Kash. Our goal has always been to build the operating system for the trades and 1 that impacts as many contractors as possible. and for each 1 to the greatest extent as possible. And we believe that the combination of those 2 things translates into the direct revenue opportunity for us.

And the biggest opportunity that we see relates to AI and the trades, it's a very exciting and credible opportunity for us. It is why it is our #1 priority and why Vahe and I are directly leading the effort to make sure that we and our customers win. Ultimately, customers want 1 platform that fully automates all of their key workflows and ultimately optimizes for revenue and profit for them. And this is the essence of the MAX program that we announced at Pantheon with a pilot with 50 customers with hundreds more in the backlog because for us, customers have told us that they don't want to set up and manage lots of different AI point solutions. They don't want to deal with different point solutions, interfering with 1 another. They don't want to optimize locally for things like leads [indiscernible] booking rates.

These are all imperfect proxies for what they really care about, which is revenue and profit. And in a world where trade businesses have finite capacity, they want to optimize for generating the leads that are most likely to result in the highest revenue or optimize for booking the calls that represent the highest revenue potential.

And so the future of work in the trades, it's -- for us, it's not a setup AI point solutions. It's about connecting calls to appointments to sales, to inventory, to payroll and in a way that maximize revenue and profit, and this is the foundation of the MAX program and the next evolution of ServiceTitan. And we have distinct both product and go-to-market advantages to be the winning solution. We have the largest proprietary data set. We're the system of action. We're the primary UI where customers manage their entire business. We have the distribution and so on, but it will require intense execution. And so that is why Vahe and I and our teams are working like dogs and [indiscernible] focused on this to guarantee success for our customers and ultimately for us.

Absolutely fantastic, and I'm going to be watching from the sidelines this evolution of this vision ahead. Congratulations.

Our next question comes from Josh Baer with Morgan Stanley.

Actually, I just wanted to follow up on the MAX program. Wondering how the pilot is progressing early on. And wondering what's the current time to deploy and implement MAX? And anything that you can do to either speed that up? And just wondering when we could expect the program to open up more broadly to that backlog of customers and your overall customer base?

Sure. So we're still early days on the MAX program, and we are intentionally slow rolling it to make sure we get it right. Our focus is primarily on making sure that every participant in the MAX program is wildly successful. And so the progress is strong. We're pretty happy with the results so far. But we are still in the phase of validating everything within the initial cohort, and we'll be opening it up, hopefully soon.

Okay. Got it. And if I could just follow up. Wondering if you could shed some light on what you're seeing from private equity, where we are as far as contribution to current customer wins, growth contribution from private equity kind of as a channel and if you'd expect that to change looking ahead?

Sure. Josh, I'll take this one. As we shared at Pantheon, our private equity customers are our best utilizers of the product. They adopt Pro products to a greater degree, and they grow on average 500 bps faster than non-sponsored backed customers. So they remain an important growth vector for us, and we don't have any reason to believe that, that's slowing down.

Our next question comes from DJ Hynes with Canaccord.

I need a few more decades to make as much money as Kash or to have the impact that he did. So I'm going to keep working.

Ara, when you look across the customer base, where would you say the average ratio of technicians to back office staff is today? And where do you think it could go over time? And maybe as part of that, it would be great to get your thoughts on what that efficiency unlock might mean for ServiceTitan.

Great question. It will vary across trades, it will also vary cross size. So you will have contractors that will have 2 technicians to 1 back office. You'll have really efficient ones that get above 2 technicians for back office, but then you also have trade businesses that have something closer to 1:1.

But I think they -- it's incredible to see the alignment in vision with our customer base where they believe in this vision that you have the ownership and then you have the technicians in the field doing the work, and you try and bring as much efficiency and automation to everything in between because they see that as you automate you not only increase profitability, but you actually increase revenue because a lot of these AI automations helped increase close rates, average figures, lead generation and the like. And having higher profit margins helps you be able to spend more on customer acquisition and grow the business.

Yes. Yes, makes sense. And then, Dave, 1 for you on the guidance. So at this time last year, you guided Q4 to be sequentially flat to modestly up. This year, you're actually guiding Q4 to be down a bit sequentially. You talked about some of the dynamics with the 1 fewer day. And obviously, the Q4 guidance was above consensus. I know you're trying to keep targets conservative. But is there anything you're seeing in the business that would lead you to be a bit more cautious this year versus last year?

DJ, first, our strong Q3 put us in the fortunate position here to raise our forecast for the rest of the year. As you noted, typically, GTV and usage will sequentially moderate from Q3 heading into Q4. And I don't think we expect this year to be any different. And as always, our assumptions continue to be driven by a prudent GTV forecast. So nothing out of the ordinary here, DJ.

One moment for our next question. That comes from the line of Dylan Becker with William Blair.

I really appreciate it. Maybe for Vahe, I know Ara talked about kind of the value of the ecosystem. But you also called out with the initiative around roofing the partnership with [ Verisk ]. Wondering how you're kind of thinking about diversifying and broadening out the broader partner ecosystem, but maybe what that in particular unlocks around the insurance side, working with kind of the exterior trades as you're thinking about continued expansion into that domain or that realm.

Yes. So as part of our efforts around roofing, the current areas where we're focusing our efforts are primarily around insurance-based roofing workflows and the partnership with [ Verisk ] is obviously an important part of that. As we look ahead, we think that the insurance integrations will likely have applicability to other trades like water damage restoration and so on. But that's more of an upside for the future. It's not currently something that we're working on today. And the progress that we're seeing across roofing in general has been really strong. We're seeing a ton of traction, both in terms of the sales side of things, but also our ability to get customers live. And so we remain as bullish as ever on the roofing side.

Great. And then maybe 1 for Dave, if I can as well, too. Really appreciate kind of the color or commentary around the diversification of GTV, but maybe if you could kind of double-click on that as we think about kind of the health of the consumer, where you're seeing momentum kind of on that side and maybe a way to think about the dynamics you called out around kind of the break versus fix -- or [indiscernible] fix versus replace exposure or anything for us to be aware of on that front?

Sure, Dylan. We look at a lot of internal data points, there are 2 main ones that we look at. The first is job growth and the second is average ticket. And what we've seen in the last quarter has been pretty consistent on both. So that, for us, gives us an indication that the economic market is fine, and that's what we're assuming in our guide going in the next quarter.

Our next question comes from the line of Scott Berg with Needham & Company.

I have 1 -- really nice quarter here. I guess I want to stick on the commercial side for both of them. First question probably for Ara is on how you plan to maybe invest in the commercial opportunity as you start thinking about fiscal '27? You seem pretty confident that you have all the functionality you need to really progress into that area today. But -- do you do anything differently as you start thinking about how you tackle that opportunity next year?

It's not so much different. I think the thesis still remains the same that we need to nail construction, which is our current focus on the commercial side for the subcontractors, and that will not change as we go into next year.

Where I suspect a lot of the value creation will shift to is less of these table stakes features and more AI-driven value creation, particularly on the CRM side, and so that's where I suspect a lot of the R&D efforts will be going into as we think about going into becoming the market standard within the commercial space. But the traction that we're seeing overall within the commercial market has been very strong. And the thesis around having a holistic solution that can cater to both the service side and the construction side of the subcontractors is proving out like how we hoped it would.

Excellent. Helpful. And then as a follow-up, Dave, -- your comments on GTV started by seeing outperformance in the commercial side, which I find maybe not unusual, but a little bit surprising because the usage of those solutions on the commercial side is certainly less than on the residential side. But was there anything you need to call out for the strength there in the commercial side in the quarter? Or is it just kind of just general usage, I guess?

So I'd say that what we saw in GTV was continued progression in commercial as a growth driver for us. But you hit on, I think, an important point there on what's driving our usage take rate. And that, again, happens to be the higher adoption of our fintech products. We've seen more volume come on platform, which, of course, we monetize more. That's more than offsetting the growth in commercial, which does, to your point, have a lower GTV usage take rate.

Excellent, nice quarter.

Our next question comes from the line of [ Parker Lane ] with Stifel.

As you guys make a bigger push into the commercial space, construction workflows in CRM. Just wondering if you could comment on some of the learnings you're finding in that area. What level of satisfaction are people having with the workflows or solutions they have in place there today? Is there more of a desire to consolidate on 1 platform that's driving that opportunity for you? And lastly, when you look at the opportunity, is it fair to say that your existing residential customers are the ripest opportunity? Or do you think there's a handful of organizations you don't have relationships with today already on residential that could be attractive to targets for commercial.

Sure. So on the commercial side, some of the early observations that we're seeing is that there is a similar force around consolidation within the space and the degree to which private equity is increasing its presence there. is planning to have in a very similar way.

What we're seeing as being a primary difference is that the consolidators on the commercial and construction side are generally less we will call it mature in terms of the centralization of certain functions and standardization across their acquisitions. And so they tend to be operated more as independent shops versus operating as a single company, which has been kind of more of the style of consolidation that we've seen on the residential side.

Our assumption is that that's not because there's a lack of desire to do those things. It's just that the lack of capabilities from a systems perspective has been the primary driver there, not necessarily desire. And so we're really leaning in on capabilities that allow commercial and construction contractors to have the benefit of synergies in a way that's more similar to the residential side. And we think that's going to be a tailwind for us as we progress into this market.

When we look at -- on the residential side, if you look at our recent partnership with [indiscernible] which was something we announced recently. A big part of what allowed us to win in that scenario was the fact that we had both the residential and commercial sides of the story that we can solve for them. And so we expect that there's going to be other large players similar to this. We're having both sides of the house be something that we can handle, is something that's going to be compelling. The James River example that we mentioned earlier today is another great example of that.

Appreciate the feedback. And Dave, 1 quick 1 for you. You talked about the diversification of different trades as you get into some of these newer traits that are maybe less weather dependent, is there any potential to see more of a smoothing of usage-based revenue quarter-over-quarter in the future?

Yes. Great question. I think for now, we haven't seen a real shift in seasonality. But to your point, not all trades have the same profile seasonality. And as those expand, we may see a shift. I wouldn't say we've seen it yet, but it is a good observation and not all trade to the same seasonal trends than the ones we are large in today.

Our next question is from Terry Tillman with Truist Securities.

Congrats on the quarter. And I don't know if it's fortunate or unfortunately, but I'll be doing lots of these earnings calls over the years still.

The first question is, I always like the testimonials from new customers or expanding customers. And I heard ecosystem multiple times in like unrivaled ecosystem. So whether it's the PE consolidators or your fintech partners or the OEMs, are you seeing some sort of kind of multiplier effect or benefits from just the ecosystem helping influence new business for you all or just expand faster in trades? And then I had a follow-up for Dave.

Yes, indeed, and welcome aboard, looking forward to the partnership in the road ahead. We certainly do see the evangelism not just from the customer base, but also through the ecosystem and the partners. As you know, we are now very meaningful partners to manufacturers, distributors, other key vendors that serve contracting businesses. And in many cases, their solution also works better if a contractor has our solution. And so the value props benefit us, the contractor and the third party. And so we do get a lot of referrals and references as a result of that, which helps with our go-to-market motion.

That's great to hear. And I guess just a follow-up for Dave. It sounds like 1 less day in the quarter for 4Q. It's not typically your strongest free cash flow quarter by any means, but it's also not your lowest. Anything to think about seasonality-wise for free cash flow in 4Q?

Terry, nothing big here. I'd say that typically, over the year, our free cash flow and operating income about the same. The big seasonal quarter on free cash flow ends up being Q1 where we pay out bonuses. There's nothing in particular around Q4 that's unique. I would just assume as you think about your models, full year free cash flow and full year operating income tend to converge pretty closely.

Our next question is from the line of Andrew Sherman with TD Cowen.

Congrats guys. Dave, on the resi HVAC great to hear, it was consistent year-over-year. Can you talk about why your GTV there is generally insulated from the volume declines that the OEMs have seen worsened the past couple of quarters. And as their cycles start to improve, maybe next year, could that turn into a tailwind for you?

Sure. I think it's important to remember, as I mentioned in my prepared remarks that our GTV in residential is driven by break fix in existing homes, and our GTV includes components beyond system sales like labor, parts and membership. There are other data points out there, like you said, the OEMs and other indices that may be impacted by certain variables that don't generally drive our GTV like new home construction and supplier inventory cycles. So as those go up and down, you may not see us fluctuate exactly with them.

And lastly, I think it's really important to remember that we have a diverse customer base across many trades and end markets. It's this diversity combined with the world-class operators that are our customers. Combined with our software, which adds a lot of value to them, plus new customer additions, it's the foundation of the steady GTV growth you've seen over time. This quarter really wasn't any different there. And that's sort of the foundation from which we grow over time.

That's great. And then on the Pro products across your whole customer base, maybe if you could just rank order the ones seeing the highest demand.

So I would say our most mature products are generally the ones that are the most penetrated. So Marketing Pro, for example, has been the 1 that has been in the market the longest and is the most mature. In terms of demand, what we're seeing is, as Ara mentioned, AI is a huge focus area for our customers. It's pretty strange actually to see how aggressive our customers are demanding solutions within the AI world. And so everything that touches, whether it's virtual agents that are answering the calls or its AI on the demand generation side or on the automations around dispatch and back office that's probably the area that's got the hottest demand right now.

Our next question comes from Joseph Vruwink with Baird.

If I look at the subscription growth rate and how that's been running faster than GTV growth, I know it's not going to be perfect, but I do think about it as maybe highlighting the contribution of the Pro products to subscription. Do you think that spread could maybe start to pick up in FY '27 just given some of the things that came up at Pantheon, there's a lot of new sales approaches that Pro, not just the MAX program, but also the new product bundles or as you just mentioned, the willingness of customers to bring multiple products together if that can actually be automated and enhanced with an agent framework.

Yes, I think Look, our platform earn rate is driven by a couple of factors. And what you're thinking on is usage and subscription, I think Pro continues to be a major growth driver for us. We've also seen substantial growth in our customers' businesses, which is driving usage and the usage recently has been augmented by the adoption of our FinTech products. So I'm not sure I'm ready to call for a change in the gap between the 2 growth rates. When we talk about next year, we'll be really providing our perspective on FY '27 in March. So I guess it's probably too early for me to call [indiscernible] on the change in the growth rates relative to 1 another.

Okay. That's great. And then I know this resi HVAC topic has been asked quite a bit, but just a different, I guess, question for me. Dave, you mentioned that you look internally at a lot of indicators and you highlighted the ones that matter most. I mean in your collective experience, which dates back a while now that covers several of these kind of HVAC destocking cycles. Has there been times when you could have proactively flagged that maybe there was an issue with the consumer and you were braced for maybe compression in average ticket sizes. It sounds like those aren't even popping up, but I'm wondering if maybe you've had a track record historically to call that out proactively.

I think during the COVID times, we saw average ticket grow quite quickly, and we realize that was an influence of the consumer. And so I think that's the time we saw those 2 data points really diverge. The average ticket grew a lot shortly after COVID as the replacement cycle went kind of on steroids for a period of time.

Our next question comes from the line of Daniel Jester with BMO Capital Markets.

Maybe just 1 for me. I wanted to go back to the prepared remarks and the comments about the marketing takeaway from a horizontal application. And maybe just kind of expand about sort of how and why you are such a better solution than a horizontal application in that use case? And do you think more generally, as your customers automate the back office. There's lots of other sort of potential horizontal applications to go after. So as you think about prioritization of your R&D workflow like how interesting of an opportunity is that versus some of the other things that you're working on?

Great question. A lot of great solutions out there, but where I think Marketing Pro delivers very unique value props above anything else is it is very hard to manage all of your leads and CRM data in 1 platform and then export it into another platform and set up automated marketing campaigns and audiences and segments and then try and synchronize when leads fall in and out of those audience and constantly have to do that almost daily to make sure the right audience is targeted. That's why Marketing Pro is designed to be specifically like for the trades. And we have built automated campaigns into Marketing Pro so that it can detect when is the best time to launch certain types of campaigns and automatically do that on behalf of the contractor so that it doesn't necessarily have to be done manually.

Our next question comes from the line of Yun Kim with Loop Capital.

Vahe, it's more of a strategic question, but obviously, we're hearing a lot more about agentic commerce and general adoption of AI chatbots like ChatGPT in the consumer market. How does that change your current product strategy, especially around marketing and sales products? And does this potential rise of agentic e-commerce, does that represent an opportunity to increase your GTV take rate?

So it's still early days on that transition, and we're obviously keeping a very close eye on how the consumer behavior is changing and how that would flow into us. We obviously have several products that would be affected by that in terms of things like reputation and our online booking integration with Google and so on.

But we also think that it would present a meaningful opportunity for new products and new services to emerge. We've all kind of seen the open AI marketplace and how exciting that is for players to engage. And so we expect that consumer behavior will change that the way in which they find contractors will evolve from what it is today. And we're certainly very keen to capitalize on opportunities that will emerge as a function of that, but it's still hard to say exactly how it's going to shake out. We're just going to make sure that wherever it shakes out, we have the best product in the market for our customers.

Okay. Great. And then Dave, real quick. Anything to note around contract length and billing cycle as you continue to increase your commercial mix and also larger customer mix increases?

We bill generally monthly in nearly all cases, even for large customers in commercial and residential. I don't see that changing. So no, I don't think that, that changes as we shift our focus towards more commercial or even larger customers.

Our next question comes from Tyler Radke with Citi.

I wanted to follow up on the construction opportunity. Obviously, big market, you have a pretty good vision on full platform, doing everything from the workflows, payroll, et cetera. Like where do you start? Where are you finding kind of the biggest low-hanging fruit. And just give us just a sense on how often you're sort of replacing third-party solutions versus greenfield?

So we rarely see greenfield. A vast majority of customers that we take on across the board, but especially in construction, are generally coming from something. The areas where we found the most success is contractors that are primarily focused on the service side of their business and looking to expand that part, that's generally where we're able to provide the most value to the subcontractors that approach their business from that perspective.

As the construction module becomes more mature, we are starting to take on more and more subcontractors that focus more and more on the construction side. And today, I would say, we're at a point where we could take on pretty much any subcontractor in the mechanicals that's got up to a per project size of about $10 million to $15 million on a per project basis. The work we're doing over the course of the next 2 quarters should push that up meaningfully into the $20 million, $30 million per project range.

But as you imagine, for most subcontractors in the trades, that's well north of the largest projects that they take on. And we've seen that the vast majority of prospects that we talk to a bit within kind of that size range. And so for us, the work on the construction side now is going more towards the true value creation aspect of helping them grow, helping them increase their margins, helping them improve their on-time performance versus handling kind of the table stakes features, which is what most of the market does today.

That's helpful. And Dave, on the profitability side, certainly, you've been tracking well ahead of plan this year. You've seen nice expansion on both operating and cash flow margins. I think you had some comments just around some of the hiring trends and everything, but any early look on how to think about margin expansion next year, anything else on FY '27 would be great.

Sure. I think we continue to be really intentional with you guys about guidance. We know we want to establish a tracker with you all. And our plan is to provide a view of annual numbers in March of next year. What I'll say is that you should expect from us to have the same framework we have this year, which is constraining our growth -- excuse me, back [indiscernible] growth constrained by 2 variables, 24-month [ CAC ] payback, 25% of growth margins.

Now this year, we are a bit behind on hiring, and that has led us to being a little over our increment margin targets when you combine that with the strength we've seen in usage. I would expect next year for us to again target the 25% incrementals, but expect less upside than we've seen this year as we catch up on hiring towards the end of this fiscal.

Our next question is from the line of Jason Celino with KeyBanc Capital Markets.

Great. I wanted to ask about usage. We've seen 2 quarters in a row of acceleration. And I think, Dave, you mentioned it's been partly driven by better fintech utilization. Can you just explain that a little bit?

Sure. We have financing and payment products for our customers. They're not adopted by 100% of our customers. And what we've seen in the last couple of quarters is that we have an increasing adoption of those solutions as our customers realize the benefits of the fully integrated solution.

Our team internally has gone and spoken to customers that are not integrated and gotten them to see -- use the solution, and that's driven up the usage take rate overall.

Okay. Excellent. And then on the subscription side, any updates on kind of the momentum you're seeing with Pro product attach, especially after launching Field Pro at Pantheon?

We continue to see strength in our Pro product attach. I think that is 1 of the main and most important growth drivers for us. I think that what you're seeing, if you look at our overall platform earn rate is a tale of sort of 3 things. The first is when GTV grows the way we did in the quarter, platform -- excuse me, subscription revenue doesn't grow directly with it, which is a headwind to earn rate. The second is we're seeing a lot of growth in markets where we're not the market standard. As you can imagine, our earn rate is lower in markets where we're now at the market standard.

Those 2 headwinds are being more than compensated by the growth we're seeing in Pro products. And that's sort of because Pro products remain a growth driver for us, which is why you see our overall earn rate expand year-over-year on the same comparable period.

One moment for our next question that comes from the line of Hannah Rudoff with Piper Sandler.

Great to hear about the early progress on the MAX program you've seen and the strong Pro product adoption this quarter. Given where you sit now, do you feel like pricing and packaging of Pro products is in a good place? Or do you feel like you still have a lot of room to optimize the pricing and packaging a Pro?

We've talked pretty openly that we've not optimized our pricing. I think MAX is the beginning of the future. We think we have a better solution there. It's still in the pilot phase, and we're still trying to figure it out. We're focused primarily today on making sure that our customers as Vahe said are wildly successful. And as part of that, we will evolve and ensure the packaging pricing works perfectly for now. It's in a pilot and we're excited about what it means for us going forward.

Makes sense. And then with the end-to-end platform for commercial now fully available with commercial CRM and construction management -- how are you thinking about time line to get to market standard and what it's going to take to do that?

Yes, great question. It's hard to say exactly. I would say that from -- for becoming market standard, there's both a product component and having the ability to perform certain capabilities. And then there is a market aspect in terms of branding recognition and just the overall, let's say, credibility that we have. And I would say we're pretty close from a product perspective. There's a few more things that may be over the next couple of quarters will need to come online to really firmly make that case. But I would say we have work to do on the branding side and making sure that from a reputational standpoint, it's as strong in commercial as it is on residential.

And so I would expect that it will be at least another year before we've got the market side of the thing -- market side of the equation, ticking in the same way that we do on the residential side.

And our last question comes from the line of Michael Turrin with Wells Fargo Securities.

Appreciate you fitting me on, and I'll ask a question that maybe helps summarize just some of the questions throughout. So you can probably tell we've all been fielding macro questions around just some of the end market commentary. It doesn't seem like there's a great signal there given the results you just put up. So maybe just across the team from your perspective, what are the signals investors should be watching, whether it's customer segments, you're expanding into some of the product add-ons or some of the financial metrics that could maybe provide better signals. Just give you a chance to focus some of the conversation around where investors should be looking as they learn more of the ServiceTitan story from here.

Michael, I'll take this 1 and excited to see you next week. I think for us, A couple of things we're noting here. First, as you know, we're trying to run this as a marathon, not a sprint. We're really excited with the opportunity to durably compound here. And the way we do that is a pretty simple growth formula. We ensure we deliver enormous value to our customers and as they grow, we grow.

The way we look at that is 2 things. One is the expansion in GTV, which I've talked a fair bit about today is a result of a diverse set of trades, particularly led right now by commercial. And the second is our ability to earn a portion of that GTV as revenue for us. And that is principally right now driven by the Pro products, which you've heard us talk a lot about. And so I think watching our evolution in GTV and earn rate against it is probably the best way to watch our performance here.

And this will conclude the Q&A session for today. I will pass the call back to Ara Mahdessian for his final remarks.

I just want to thank everyone for joining us today. We know you have the opportunity to spend time with great companies. And so we greatly appreciate you choosing to spend your time with us. And we cannot wait to celebrate the second annual day of the trades on December 12, with many of you in New York. Thank you, and wishing you all the best.

And with that, we conclude our conference. Thank you for participating. You may now disconnect.

All right. Thank you all for being here. Before we get going, I just want to call your attention to the slide that my colleagues in the legal department spent an inordinate amount of time on, we will be using forward-looking statements today. For those of you who I haven't had the opportunity to meet yet, my name is Jason, I lead the Investor Relations function here at ServiceTitan. I want to personally thank you all for coming to our first-ever Pantheon as a public company. And I know that there are many competing priorities this week, many other Investor Days, investor sessions and that your time is incredibly valuable. So whether you're joining us on the webcast or whether you've made the journey here to [ literal ] Disneyland in Anaheim, thank you for spending time with us.

You've heard us say before that we are building a generational company that we hope will become the operating system for the trades. Our time today is appropriately named an investor session rather than an Investor Day because our theme, as you can see, is ServiceTitan 101. We are early in our life as a public company. And rather than focusing on financial metrics or model disclosure, we are focused on education and digging deep into the various drivers of our business. Our goal is to educate you so that you walk away today with greater clarity on the fundamentals of the business and a deeper appreciation for the people who are leading our mission.

It's also important to note, as many of you just saw coming from the keynote that you're not the reason we're here in Anaheim. This is not only our flagship customer event, but it's the flagship learning and networking event for the trades. We would ask that you please respect the integrity of this event and let our customers work.

To kick us off today, I want to step back and examine the core drivers of the ServiceTitan investment thesis. When we became publicly late last [Technical Difficulty] we introduced these five pillars of our business that we ask you to understand and to underwrite. We're the leader in a large and durable vertical end market. Our moat grows deeper every day. We have multiple opportunities to grow, and we've built our operating model to be able to deliver this growth efficiently. I hope that you learn more about each of these factors as you spend time in the keynotes and sessions throughout the day.

Each of these four main investment priorities have laid out for FY '26. You've heard us talk about these four [Technical Difficulty] over the course of the year. You've heard us update you on our progress each quarter. And today, we'll dive deeper into each, which brings me to our agenda for the day.

For those of you on the webcast that didn't tune in for Ara's opening keynote that preceded our session here, I highly recommend that you watch the recorded session [Technical Difficulty] for Pantheon by introducing Atlas, we believe will be the AI champion of the trades. We'll learn more about Atlas and other key product introductions during our keynotes over the course of the day as well as here during our time together.

For our sidebar conversation outside of regularly scheduled Pantheon content, these will be our four main areas of focus, and we hear from four incredible leaders of ServiceTitan. It's first my honor to introduce you to our long-time CRO, Ross Biestman, although the last time I turned the microphone here over to Ross at our pre-IPO Investor Day, he had 15 minutes of prepared content, which he turned into an hour-long master class on go-to-market execution. So I'm not totally sure what we're going to get from you, Ross, but welcome up to stage.

All right. Everybody got me on the mic? I'm a fourth grade flag football coach, so I'm known to be able to carry a room. So welcome, everybody, to Pantheon. Any hands for returners to Pantheon, who was here last year? I know I saw some of you at the 80s party dress up like Marty McFly. I'm excited to see those of you that are able to attend our event tonight where I believe It's a greatest showman or a circus theme, and that will be a lot of fun.

So guys, I'm going to be concise in my comments today. I know that Jason and Dave have asked that we reserve questions for another time. I will tell you that I have a very [Technical Difficulty] this event, which is to pay for the event. We have over 100 prospective customers and obviously, thousands of customers, and this is a great opportunity for us to not only win new business but also to continue to expand with our customers.

So the focus of the conversation today is going to be really about why we are winning in the enterprise. When I joined this company years ago when we were doing roughly around, I think, it was $30 million in ARR, but that was really CARR at that time. I don't know what we're actually doing in GAAP revenue. The Board at the time asked me where I was going to be able to spend my investment dollars. And because I was familiar with enterprise B2B, I said that I spend it in enterprise B2B and so we established an enterprise go-to-market motion at that time. Really proud that we've been able to accomplish that, and we're going to talk about some of the trends that we're seeing not only in the enterprise space that is stand-alone but also private equity backed and why we are uniquely positioned to win.

So when we look at ServiceTitan and we look at the core strength of the business, both on the residential side as well as the commercial side is where we really have our strength. And when you think about what the requirements are for contractors in the upmarket and that upmarket is at least defined by us, businesses that have, at minimum, 40 technicians under management or have up to thousands of technicians under management, and it really spans [Technical Difficulty] that motion is most mirrored there.

The extensibility of the platform acknowledging that they have unique and special needs as it relates to the reliability and uptime of the software as well as the extensibility into the partner ecosystem is really where they see tremendous value in ServiceTitan.

The second, I think, comes from where the specificity in our vertical-specific native workflows are really where ServiceTitan shined. And in my experience, maybe 6 or 7 years ago when we were competing in the upmarkets and our customers were looking at the horizontal mega players and companies that you know well in Microsoft and Salesforce and SAP and others. And in many cases, those big businesses decided at that time that ServiceTitan wasn't ready for them, but didn't recognize the value that ServiceTitan could bring specifically to the operations level, but maybe less so from an enterprise scalability perspective.

They made decisions to go with those horizontal players. They made decisions to go to those horizontal players because they had the reputation. They are publicly traded companies, and no one got fired for making those decisions in the past.

Interestingly, almost 100% of those early [Technical Difficulty] that made decisions to standardize on those horizontal players ended up coming back to us within one [Technical Difficulty] and we have won all of those customers back because what they recognized is that ultimately, while those are really extensible, powerful enterprise platforms, they did not have the unique workflows that were configurable to actual trades businesses across a variety of the end market segments, whether you're residential, whether you're commercial, whether you're plumbing, HVAC, roofing, et cetera. So that's really one of the trends that I've seen be very pervasive over the course of the past several years.

The other trend that we talked about last year that I continue to see even today is the professionalization of the industry. I'll give you an example of this. So number one, the CIOs of yesteryear that grew up in these businesses that happen to be technology experts, they are being replaced by traditional large enterprise-grade B2B CIOs.

So we've got folks that are -- or CIOs of our platform companies that have come from the travel and hospitality industry with great businesses like Marriott and Hilton. We've got folks that are coming from other franchise businesses. Recently, one of our large customers just brought on the CIO of Dunkin' Donuts. And so with that comes the experience of real IT infrastructure and identifying opportunities to platform standardize with a company like ServiceTitan as they continue to invest heavily in their infrastructure and scalability.

When we also see these trends in professionalization as it relates to their Boards and their investors, these private equity backers that are obviously all throughout the conference today. They have a different set of requirements now than they did 5 years ago, and they want to look at the extensibility of their asset and their ability to grow those businesses, both organically and they've got specific underwriting that they take in starting these funds and then the flywheel associated, able to add on additional businesses across different geographies and then potentially across different trades. And one of the things that we've been the beneficiary of is that we have been winners in legacy and historical industries in residential.

So in residential HVAC and plumbing, there are businesses that are backed by Alpine called Apex, and they've created an incredible outcome in that particular vertical and segment niche. They are then recognizing that there are opportunities to go into essential services and start funds around roofing, around exteriors and even taking them into new markets that we're already in across different borders. And so not only is the playbook recognizable, but there is a successful track record of [Technical Difficulty] the scalability and both the organic and inorganic growth of these industries, and that creates an incredible opportunity for us.

There's also a, let's call it, a transfer of players that I'm seeing in the space. This set of operators, maybe they weren't the #1 or #2 in these respective businesses that were [Technical Difficulty] they had enough pattern recognition, seeing the playbook created in HVAC and plumbing, and they are then being tapped to go do this in commercial refrigeration. And their first call is we need to be able to standardize on ServiceTitan to provide the level of enterprise scalability, marking the reporting that the investors care about but [Technical Difficulty] in the frontline employees truly love.

So this really does accelerate our entire model. One of the things that perhaps some of you attended last year, I'm not sure, is that for the second year in a row, we hosted our annual Private Equity Symposium in New York City. And that's where we invited hundreds of the PE players that were in the space as well as some of the operators. And the philosophy really does resonate with them, not only on the product level, but what I want to express to you, one of the big benefits that our customers, especially those that are trying to grow their businesses inorganically, really see in ServiceTitan is the proven track record, not only of the technology, but also the services delivery and services specialty as it relates to M&A. There are businesses that are initially two, potentially five new add-ons or tuck-ins per month as part of their strategy.

Businesses themselves, some of them have created centers of excellence as it relates to not only integrated M&A but also integration. And those centers of excellence actually are deeply embedded with ServiceTitan. These are topical experts on how to deploy ServiceTitan across potentially hundreds of different locations. With our M&A team, which sits in our customer success organization and the relationship goes a little bit like this. I am HVAC PE-backed large business. I call my M&A expert from ServiceTitan. I have an LOI out, I haven't even closed on this transaction yet. But I'm telling that organization [Technical Difficulty] they are this big, this is how much they do in top line. This is how much they do in EBITDA. This mix of residential versus commercial. This is the data source that we're going to be bringing them off of from a legacy software platform and we want you to create a project plan to help with our center of excellence to get them live once we sign this contract in a matter of just weeks, and integrate it into the general ledger software, which most often is Sage Intacct or NetSuite.

So this also creates an incredible opportunity to be a flywheel to my team's job is if we can keep our customers very happy, very successful, see them growing in their core businesses. We are the first call typically to be able to standardize on that net new acquisition. It creates this opportunity for us to acquire the market.

But it also works both ways. One of the things that I want to talk to you about today while we're focused on the enterprise is that our SMB or what we call our corporate sales organization, our go-to-market motion, is the wheelhouse of ServiceTitan. I know everyone wants to dig deep into these large, really incredible brands like Roto-Rooter that we announced on our earnings call a couple of weeks ago. But the reality is that while we're very successful in the enterprise space, one of the reasons that we are successful in the enterprise space that is also consolidating is that we are very successful in the high-velocity go-to-market motion that we call corporate sales.

We will do hundreds of net new logo transactions every single month across all of the different end customer segments as well as vertical segments that we focus on. These businesses [Technical Difficulty] the hunting ground for those that are out there looking to grow their businesses inorganically. And so when the idea that ServiceTitan is bringing on hundreds of new logos and contractors. And if you look at the total addressable market for these acquirers that are out there that are underwriting their entire story on the ability to go grab tuck-in, in almost not every case, but it's very likely that the businesses that they're trying to acquire happen to be on ServiceTitan, which also plays into their ability to get more value faster because the integration process is that seamless.

The other thing that I want to impress upon this team today is that we've made intentional decisions over the course of the past 24 months to be very specific on our go-to-market orientation and dedication. So the three big buckets that you see on the left-hand side in residential, commercial and green. My go-to-market resources are focused exclusively on one of those. We don't transcend across the organization. We have found that dedication wins in this space. Dedication wins in this space, not only in terms of end customer segmentation that you see on the left-hand side, but it also works the same way as it relates to specialization in our go-to-market motion for corporate or small and medium-sized businesses that are velocity and those that are enterprise.

We separate our enterprise teams in a way in which we are focused on new logo acquisition as well as helping to grow and ultimately increase earn rate with our largest 100 customers, and that's the orientation that is ServiceTitan. It is mirrored also in our post sales specialization. Post sales specialization as it relates to the onboarding team that is activating $800 million commercial overhead door and dock businesses is different and specialized in comparison to those that are doing it for a very large $1 billion franchise organization that specializes in residential in-home services trades.

Another important component to the flywheel is the way in which we think about the partner ecosystem. If you walk through the expo hall, you will see, I'm guessing, hundreds of different vendors out there that are part of this cottage industry that is surrounded with ServiceTitan. And we're very grateful for the partnerships that we've been able to land not only on the technology side, which I'm sure you'll hear more about today from some of our leaders.

But where I want to impress upon you is the importance of this as it relates to our go-to-market motion for both winning new logos in the market as well as earning more share of wallet with our existing [Technical Difficulty] and so when I think about my direct resources, I have staff that are responsible for hitting phones every single day out in the field, doing events and going and visiting with prospects attending trade shows, but the partnerships with the associations, the best practices organizations as well as value-added resellers and other technology providers also creates this incredible compounding impact on our ability to get more pipeline of a different flavor.

And so we have this term that we use within the organization called warm outbound. People have heard of cold calling, we have warm calling. And warm calling, as you can imagine, is a little bit nicer than cold calling in terms of the way it works. But because of this relationship that we have with the extensibility in the industry from manufacturers and suppliers, to best practices, organizations, co-branded packages as it relates to some of the products that we white label. We have access to not only their field forces, but also to their end customers, and this creates an incredible opportunity with much better unit economics because the conversion rate associated with all of those leads is that much higher.

So I want to talk a little bit more about private equity and some of the trends that we're seeing in private equity. The consolidation, I see net-net is a very positive thing for ServiceTitan. We are typically on a first name basis, a text away from any of the private equity mega players that are in this space. And then when there are new funds that are getting created, literally every single month, we're hearing about a new one that's doing a roll-up in X or Y, we [Technical Difficulty] relationships very quickly with these people.

And [Technical Difficulty] they're helping us to move into new trades. As I look at businesses that are in the residential roofing side, even on the commercial roofing side, on the exterior side, it is the relationships like I mentioned to you previously as an example with that company that is owned by Alpine called Apex that brought us into these industries. They're also providing us some very valuable feedback on what it is that we must do with our products to be able to meet the brand promise of native workflows that are uniquely positioned to help these businesses not only win but [Technical Difficulty] efficiently.

Some of the trends that we're seeing within the private equity landscape are just some of the business impacts that we're seeing with this cohort of customers. When I meet with a private equity business or an operating company, the value proposition that my team and I are able to commit to them is that their investment in this space is going to be uniquely better overall when they partner with ServiceTitan. We actually have turned the conversation from what it was historically, this is what's going to happen to you, contractor and your individual business in terms of ability to increase average price per ticket, increase conversion rates, increase call booking appointments that translate in revenue increase and [ Y ] in profit increase.

And it becomes a conversation around enterprise value. And so when we talk about enterprise value, it's not only applicable to obviously the private equity business, but in most [Technical Difficulty] the leaders of these private equity-backed businesses at the operating level, have sold their businesses to that sponsor and have bought back in and they want an opportunity to increase their enterprise value and ultimately, what they stand to earn in the second bite of the apple. And the results are very real.

So they grow much faster. They utilize way more of the product and their NPS is primarily different. I think about the private equity space within ServiceTitan has its own unique customer segment across the aforementioned segments. We have specialized in this, not only at the go-to-market level but we specialize at the product level. And so when you look at some of the products that we not only have in market today as well as what we're going to be announcing and talking about today, these are the components that become really attractive to our private equity customers and because they adopt and that they do have these centers of excellence and they do have increased level of professionalization that is in the operating company level.

They tend to identify this product creates this value. It is easy to use at the actual functional level and it is going to increase my potential EBITDA multiple when I get through my hold period, it becomes a very easy conversation.

Jason, how did I do on time? I know I didn't have any commas, periods or any punctuation in that? Excellent. Well, team, I appreciate you all being here today. And I will tell you that after all this keynote this morning, some of the things that Vincent is going to talk to you about already have a long pipeline of trying to sign up right away. I'm going to get back to the [Technical Difficulty] which is not our main stage, but in a bunch of different breakout rooms trying to increase our earn rate and win the rest of the market. So thank you so much for being at Pantheon. Up next, please welcome Vincent Payen.

Thank you, buddy. All right. Thank you. Thank you for having me, I'm Vincent, SVP of Product and GM for add-on products. Quick background, I don't think I've talked to any of you before. I spent a decade at eBay, ran eBay's Consumer business, left to co-found a company called HomeX, which is half a rollup and half a technology company. Fast forward until today, HomeX, one of the largest roll-ups in the country, ServiceTitan bought the technology business around 3 years ago.

And I thought that's great, like I'm going to retire, take care of the kids and Ara invited, "Hey, like what about you run a Pro product". And I fell in love with their problem. I fell in love with the time that we're in, in this industry and the reinvention opportunity and the difference, I believe our product is going to make. And here I am.

So I think Jason wanted to spare you the French accent for a little bit. So instead of me talking the entire way, I'm going to play a quick video that shows you really where Pro products are and then we'll talk about where they're going.

[Presentation]

Sweet. This is pretty awesome. That's why I'm here. When I started 3 years ago, that was my dream. I know when Ara and Vahe turned ServiceTitan like a decade ago, like that was their dream. And seeing it happen is magical. When you talk to customers and you see how it's changing their business, it gives us like an immense inspiration because we're actually just getting started.

So what you saw is interesting, what happened? Marketing Pro used dispatch information to realize that the Board was not full enough and to create a marketing campaign automatically. That marketing campaign got a customer to call, a virtual agent answered the call, and taking into account who the customer was, real time job value prediction, what the dispatch board looked like and all of the information by the customer decided that -- like they were going to book them today. Technician was dispatched automatically, choosing the best technicians for the job given what we knew from the call.

The technician got there. As they were driving, they got coached by AI to tell them you're about to get to Jason's home, we've been there five times. Be careful, he has dogs. He [ hates ] financing, but we should still try to convince him to change his system versus repair. When the technician got there, the recording started, AI coached on after they finished the job. As they were leaving in their trucks, the time sheets were automated. So we effectively ran a job with zero-human intervention. This is pretty cool.

So here's the opportunity like even the best of our customers right now have virtually 0% full automation. What I'm starting to track is effectively the share of automated GTV. How much of their GTV happens with like zero-human intervention besides the technician. I think that's going to be the metric for the industry, like Ara earlier today talked about Blockbuster versus Netflix. That's where we're going to see it happen. Like the customers who start automating their business are going to have a meaningfully different trajectory than the ones who don't.

Today, the gold standard is on a 20% margin, we look at like the best companies at scale. It's our belief that the answer is going to be like 30%, 40%. And it's not going to be discretionary. The ones who do not do it will struggle, right? They will -- they would get acquired, they will lose their technicians, et cetera, et cetera because the economics were they won't be able to acquire customers the same way. They won't be able to pay the technician the same way. So that transformation is absolutely critical. And like -- when before like, should I do AI agents, should I not do AI agents? Like maybe it's like cool but like you need -- like all of them will have to do this.

So how are we powering this? Historically, our Pro products were powerful but like disconnected point solutions like marketing, we're executing marketing campaigns, like phones, booking, dispatch, it's where you go through it. We added AI in the past few years, and it was just like adding AI to legacy products. What we're doing now is turning it around and effectively forgetting the boundaries of our products and how they were historically and creating this connected ecosystem based on the capabilities that we had, but effectively, like links all of these components of the platform with AI to not only like automate warrant functionality of the software, but automate full functions like a human would, right?

Because like a human with dispatch contact center actually doesn't just answer a call like they look at the dispatch board, then they know the marketing campaign, et cetera, et cetera. That's what's very unique about us. Like -- sorry, I'm going to go back one sec. When you think about -- take virtual agents or voice agents, virtual CSR or however people call them, like tons of companies are doing that right now. And all these questions like you look at people are talking about is like, oh, like how do they sound? They sound so good, et cetera, et cetera.

What matters is [Technical Difficulty] they all sounds great, they're all going to sound great, et cetera. The difference is going to be like what can they do? How much can they automate? What's their coverage? What's their conversion rate? This is where our platform makes a fundamental difference because we're going to make them sound good but more importantly, they have access to customer history. Do they have a membership? Job value prediction? Like real-time dispatch, et cetera, et cetera. So when you look at all virtual agents, versus the rest. The difference will be like functional and like directly attributable to business results like they will book [indiscernible] because they have more information.

They will deliver better experience. They will be able to answer more questions that AI outside the system can do. And that's what's really exciting for us and how we're really thinking about the future of our product and how they [Technical Difficulty] and we can do that for like three big reasons.

So data, we're the system of record. On closed loop, we know everything that happens from the moment booking is created to the moment like an invoice is paid like a technician is paid, et cetera, et cetera. So we can tie all of that, so we can learn much faster and we can personalize much better and continuing same of action. So we actually created campaigns [indiscernible] and dispatch happens at ServiceTitan like you name it through the funnel. So these three things are the key to creating this next-generation product AI automation that's going to be very different than what we see today as like point AI solution, automating one part of the business.

And that's like the exciting part for us. That allows us to create true digital workers. So it's funny like when I see our customers trying to adopt the virtual CSRs, the first thing they do is they give them a name, which is pretty adorable. But like fundamentally, it's because they see AI as an extension of their team. They think of it as another worker that's going to be in their business.

And what gives us the ability to create these workers that we interact with that they would like someone in their team because like they can ask them to create the marketing campaign based on what they're seeing on the dispatch board, they can take marketing actions based on fleet information, they can reason like they understand the full context of the business, and that's very different than some of the things that you see outside like look at what we're going to announce a bit later today during the keynote and what -- how you're going to see the product evolves, that's where you're really going to see like the evolution from like really powerful product to AI power product to feeding around to an ecosystem of like AI first workers that leverage all the capability that existed, but in a way that transcends effectively previous product boundaries.

Here's another example, which is one of my favorite to see how it connects and why it's different than just like some of the classic point solutions. [indiscernible] marketing. So imagine a job ends early. And the technician is like in a given location. We know the fleet data, we know exactly where the truck is.

We know the dispatch board, and we know that 2 years from now, there's another customer who lives two doors down, who has a maintenance appointment. What we can do is real-time tie the fact that, all right, we have a technician there. They have a 2-hour window that we didn't expect. Let's actually text the customer who had an appointment in 2 days, tell them, "Hey, now that we're here, do you want us to come." Like have them interact with an agentic booking experience, confirm it, have the technician actually go there, take care of the job.

And what we did here by tying all these pieces is we created capacity like supply for a contractor because now they don't have to roll a truck, but like the way they were going to do. We created a better experience. We made their business more profitable. And we did all that without any human actually having to be involved. The -- like the number varies. But like when we look at the ratio of like technicians to office staff, it's like -- some are like get close to 1:1, like some are 2:1, like 3:1 but this is still like an immense overhead to do these things that today humans are doing.

And our platform is going to enable that. And I think like hundreds, thousands of these automated flow with Atlas, which I'm going to talk about in the coming quarters and years, and this is incredibly exciting for us. This is the Netflix moment of the trace like contractors who do not do that and not embrace that will struggle and ServiceTitan is, I believe, the platform that's going to enable that in a very powerful way.

So to close. What we're going to announce today that keeping to remember, we're making our existing products stronger with AI automation, agentic marketing, scheduling, lots in Contact Center Pro with manager and CSR, AI Contact Center Pro is an AI first product. So we're going pretty fast there. Hardware-less fleet, so we can get the fleet automation in the hands of all of our customers with like a much simpler process than before.

Sales Pro, Agentic [ Mining, ] operating rehash to tie to the ecosystem. That's -- we have good products, we make [Technical Difficulty] new products. We're launching AI diagnosis in troubleshooting as part of our fuel products. So imagine [Technical Difficulty] you know J.A.R.V.I.S., when Tony Stark just asked him to like build things, et cetera, imagine the technician having that in the app, being like, "Hey, I'm troubleshooting the system. Here is what it looks like. Here is the symptoms, what should I do." And then like we're launching our virtual CSR Contact Center Pro and now outside. They were available in Contact Center Pro as in like early access and they're not going to be available to every customer regardless of the platform they're using.

New app workflows. I just talked about it, but multichannel marketing campaign, interactive SMS, automated agentic SMS, ultimate opportunity to recontact to Sales Pro. All of these things that effectively get us to move from disconnected Pro products to an ecosystem of products that work together to deliver better outcomes.

And finally, making it easier for our customers to adopt our product. We've heard from them, "Hey, like Chinese menu, we're buying a bunch of products, it's complicated". So we're starting like two things: Field Pro, at the bottom we're combining like our sales coaching tool with the diagnosis and other capabilities to come into just one simple field product for technicians.

And the maximize program that Ara talked about this morning is effectively our answer to giving our customers the automation package. You will have access to all of our Pro products, we will not only give you the products, but we will assist you in using them in making sure you have like an automation journey that works for your business and we will support you along the way to make sure you get the most out of it.

So that's it, hopefully, you can watch a keynote, the Pro keynote a bit later. There's going to be more about that. It's pleasure to be here. Thank you so much. And I think it's my buddy, Alex's turn for commercial.

Hi, everybody. Thanks for being with us today. I'm Alex Kablanian, I'm the General Manager of the Commercial and Construction business here at ServiceTitan. I've been with the business almost 6 years now. I think I see many familiar faces here but I've been in the role for 2 years, and it's really a privilege of mine to be here. So before we get started today, I want to start by describing what commercial and construction is in the ServiceTitan lens.

So let's start with commercial. The best way to think about commercial in the ServiceTitan lens is it's effectively anything that's not a single-family home. This includes retail spaces, office buildings, large apartment buildings, schools, hospitals, data centers, government buildings, you name it. We specifically focus on buildings and properties, which is an important distinction because there are folks out there who think about utilities, bridges, highways and things of that nature. I did put a few Easter eggs in this sign. They got my Trojans, bottom right, we've got ServiceTitan's HQ in Armenia, just 2 minutes away from the summer's I used to spend there. And Carousel, which anyone who comes to the office, that is our favorite post on-site ServiceTitan Armenian Barbecue of choice.

What's important about commercial service, in particular, is these buildings are just like homes. They need to be serviced. They need to be maintained. And ultimately, it ends up being the bread and butter for a lot of our commercial services contractors to have a contractual relationship with many of these properties or building owners and also do their break/fix work.

Let's shift gears into construction. Construction means a lot of different things to a lot of different people. When we think about construction, we think about it in two categories. First, residential construction. This typically means work done in installing brand-new equipment and products into a house that's being built for the first time, whether it's a production home or a custom home. You can think about it as basically installing brand-new HVAC system, duct work and piping for a custom home that's being built for the first time.

The second category, which is far larger is commercial construction. This can be broken down into two further categories. The first one is similar to the residential analogy, a bottoms-up property build that happens from scratch, installing the rooftop units, the duct work, the piping, you name it. The second flavor is throughout the property life cycle, there is often large retrofit work or tenant improvement work that does take place. That looks like multi-week, multi-month, multiyear projects many times. Both of those for us we consider commercial construction because they have that same level of complexity.

The best way to think about both cases of construction is they're typically longer multi-week, multi-month, multiyear projects. They are often very [Technical Difficulty] who is going out all the time.

Now regardless of it's residential construction or either flavor of commercial construction, it's important to know that our focus at ServiceTitan is on powering the profitable growth for specialty or subcontractors. We're not in the business of selling to GCs, but instead, we're selling software to the folks that come and do a portion of the build-out as part of a larger project. For us, this is key because we started our roots as being business management software for contractors. This is the exact same thesis that we have for the construction and commercial industry.

Now I want to spend a minute talking about the very important difference between our bread-and-butter residential service contractors that we've served for 15-plus years now. And the work that commercial contractors and construction contractors do. The best way to think about it is that simply everything is more complex. The agreements are more complex. The equipment is more complex. The projects themselves are more complex. I actually took this photo this morning. I gave it a late-breaking change for Jason in hotel room, this is the view of the roof of this specific hotel, and you can just see a couple of things. One, the pure number of units that are actually on the rooftop for just a portion of the building. And also two, you can see it's a little bit dark, but the largeness of, in particular, a couple of those equipments in the back.

There's two complexities there. There's 20, 30 units that need to be serviced, plus the actual units themselves are far more complex than a specific residential small 5-ton unit. Now I said complex 15 times, but I really want that point to hit home. It is more complex. And the reason that's important is that's the mission that has been in front of us and behind us over the last couple of years as we've really prioritized this space, which is how do you make complexity as seamless as possible for our customers in this space because they're dealing with these constraints. Their customers aren't changing, but we can make their lives a little bit easier. I'm going to talk more about how later today and then also in my keynote.

We've shared in the past our formula for what it means to become market standard ServiceTitan for any segment or trade that we enter. We start as a nonparticipant player, we eventually become a leader and ultimately one day, a market standard. We said it before, and I'll say it again here. Over the years, we've invested dramatically to become a leader in the commercial and construction space today, but our work is not done.

Now thankfully, we have passed through multiple of these phases so far and it has not been on accident. It's been very intentional. This is the path we've taken over the last few years in building for commercial services and construction. At a very high level, the way we've thought about it is by starting in our historic base, which is in service.

We started building some of the basic commercial service foundations a few years ago to make sure that we were ultimately solving the use cases of the many residential and commercial service hybrid customers that we were starting to [Technical Difficulty] our next step was how do you actually build the foundations for a long-term project ecosystem within ServiceTitan to start winning the multi-week, multi-month, multiyear projects that take place in the industry, especially for the folks who are doing a hybrid of service and construction work.

From there, the fun starts, we got to start innovating and actually building best-in-class commercial service products on top of a stronger foundation and fast forwarding to this year, best-in-class on top of the foundation. We've been able to accelerate this journey because the formative years really investing in making sure the platform itself is built to handle commercial service and construction, we can really accelerate a lot of the features we deliver to really drive outstanding value for their business.

The best part is, and I love seeing this slide every time I see it. The formula is working so far. For our commercial and construction contractors, we are already driving significant value. We measure this in a handful of ways, revenue growth project and general productivity growth, the cash conversion cycle. And ultimately, for me, the best metric is have we actually helped our customers grow their bottom line. There's a lot we can do to improve. There is no doubt about that. I ask myself this every single time I meet with the customer, what can we do better? There's always more we can do better. But what's exciting for me is that the formula is working, and it gives us more opportunities to then forward invest in new exciting opportunity areas that many of our prospects and customers are telling us feel like the next big frontier for them.

Ultimately, the reason we've invested in all these areas is actually pretty simple. The thesis we have in commercial and construction in particular, is we want to help our customers, the contractors of the world own the full life cycle of whatever property it is that they ultimately serve. That means helping them run the project work when the structure is being built out for the first time, whether it's a home or a business, converting that relationship into an ongoing service agreement, many of which are highly, highly retentive and can last for decades.

From that service relationship, running the ongoing service that these folks expect, especially in commercial, there are crazy SLAs for making sure that when things break, they're taken care of. Every time something breaks or when there's preventative maintenance that does happen at one of these properties, usually, there's an opportunity for pull-through work, which is -- happens all the time in the industry, and it really becomes one of the value drivers for our customers as they consider adopting ServiceTitan And that pull-through work when it happens over and over and over again, ultimately may result in one day sitting down with a property owner and saying, "Look, I spent this amount of dollars servicing your property over the last 3 years, I'm recommending that you do a big retrofit, change out a bunch of units because they are costing you way more than it actually is going to cost you to do a replacement". And ultimately, that turns into big project work that you can now manage in service type. That's our thesis, and that's how we think about commercial construction.

In my opinion, over the last 12 to 18 months, there's two things that have held us back to really fully realizing this specific thesis. The first one is [Technical Difficulty] within the construction workflows, especially in the project management space to make sure that when those projects do come up, we are helping our customers tackle them very effectively. The second one is once we have a good solid project foundation, coupled with our very solid service foundation, how do we actually help our customers juice their revenue and drive more high-margin opportunity to their business the way that they know how to do that, which is a B2B relationship which to us means investing in a true B2B-style CRM.

I'm going to start talking on the construction management front. We think about construction management and projects, in particular, as something that needs to be solved end-to-end. It's no different than anything else that we've ever done in ServiceTitan. But the personas are different on the project front than they are the service front. You have project managers, you've got controllers, you've got foreman in the field. You've got installers, you've got estimators, you've got salespeople and the end customer, most of the time is a GC. All those things are different than our traditional service base.

So what we've done is we've looked at the entire pipeline from acquisition all the way through to month end close and project closeout and figured out what do we need to build along the way to make that journey as seamless as possible for every project for our customers. That includes a lot of the pipeline and opportunity tracking that we're going to be talking about in CRM land.

It includes how do you actually schedule crews and track the backlog of your labor and your projects? It includes some of the basic bread and butter for anything project management-related, Gantt charts, document management, change orders, RFIs. And when you're actually on the field, daily logs, understanding progress of a specific project in real time, which is incredibly important if you are to ultimately manage the margin and risk control of a specific project.

And lastly, how is the project actually doing financially? At the end of the day, for a lot of our customers, these projects are in the millions of dollars and a lot of time, the cash conversion cycle is a nightmare. They're putting out labor, parts, equipment early. Net payment terms are a nightmare with their GCs. And we try to do our best to help them give as much information about how it's progressing and the work completed such that when they actually submit a pay application to a GC, they're not worrying if they're going to get paid or not.

When all these things work in concert, a few things happen. One, margins become a lot more predictable on projects in particular. Two, you have way more control over your cash conversion cycle, in particular. And three, the entire team is working as one, which is very important because more often than not, there's a lot of arguments that come up when a project is not going well.

Now ultimately, the reason we wanted to invest in the project side of the business first and foremost and very deeply before we started talking about something like CRM is because we believe strongly, it does not make sense to juice revenue if you're not helping your customers first, execute the work that they've won incredibly well.

That's why projects and project investment have come first before CRM. Now that we've been able to unveil a lot of our features so far, and you'll hear more about them on my keynote later today, we in tandem, started spinning up a deep investment in the B2B CRM. Like I said earlier, it's very critical that this exists for this cohort of customers. First and foremost, because it's a different customer base that they're selling to. They're not selling to residential consumers. They're selling to sophisticated buyers. The sales cycle times are much longer. And ultimately, it's relationship-based. So you're seeing, I would say, years -- sometimes weeks, months, years of information about a customer before they finally let one of our contractors ultimately win one of their projects.

The beauty about ServiceTitan and the reason we see this as a really, really unique ecosystem is that when you have a service and construction in one platform with the CRM in the middle, there's a lot of overlap that should be happening in these businesses. Your service work should be generating opportunities for your construction division. Your construction division should be generating opportunities for your service division.

And today, it is very opaque in most of our customers in terms of what those opportunities are. So the CRM is not just for net new work that you're trying to win. It's also the cross-pollination thesis that many of our customers have, especially those who are hybrid, service and construction focused. We do have a video on the CRM front. I'm hoping the volume works, it's a [ YBB ], and I'd love to show it to you. We are going to be playing it on stage at my keynote shortly, but I hope you enjoy what we have here.

[Presentation]

It's a [ YBB ], right? Look, I said this before, but it's really important. When you think about a commercial business, most of them are doing both service and project work. The reason CRM was such an exciting investment for us. The reason we bought Convex to turn into a CRM-style embedded product is because when your break/fix construction and preventative maintenance portions of your business are all working in tandem, you are really unlocking opportunities that are right in front of you.

It's the same as our business. Vincent was talking about Pro products. It is very, very easy to sell work to customers who already have a relationship with you. But more often than not, a lot of these opportunities are left untouched by many of our customers. They see a unit on some rooftop and nobody says anything to the salesperson to do anything with it. And so our real focus is how do we change that to make sure that there are no missed opportunities left, especially for the customers that you already have a relationship with. That gets super-powered when you have an integrated Convex experience, which really helps you prospect net new leads to win new business with a customer you've never even met before. You put those two things together, and that's ultimately the revenue generation story with commercial and construction contractors that I feel very, very passionately about.

Look, ultimately, we did not build or choose to build a lot of this stuff in a silo. It's not how Ara and I have operated. It's not how we operate each of our markets. We built all these things [Technical Difficulty] more customers. We spend a lot of time in the field, a lot of time with commercial services folks, a lot of times at job sites in the construction industry to really understand what are the opportunities, what are the pain points, and then we orient our road map around solving those high-value opportunities.

It's the exact same thing we do in residential and Pro. The only difference is we're doing it with a different segment of the market. And it's been a fun segment to learn this for sure. It's our best recipe for success. And what's exciting and the reason it makes it worthwhile is that the market is quite large. And so the upfront investment to build the product, listen to our customers ends up paying off many, many fold many times over as we think about building a very recurring durable growth business because now it's much easier to speak to just about any contractor, and we don't have to ask questions to disqualify them about their percentage of construction, their percentage of commercial, industrial, you name it. We can very confidently say we want to understand your business so that we can tailor a pitch for you specifically, not to disqualify you from the funnel.

We'll say, it's been a really fun journey in the last 2 years, but in the words of Ara, the more exciting stuff is yet to come. There's a path to market standard that's very clear in my eyes, and it means continuing to invest in the areas that I highlighted. It is right in front of us for the taking. It's a very, very, very exciting market for us, and I spent a lot of time thinking about this myself. So last selfish plug, I'm going to be giving a keynote at 1:30 today. We're going to be talking about a lot of the newest releases on the construction side, commercial services side, especially on service agreements and equipment management and on CRM, highly recommend you all take the time to come because I think that's the best way to see the full product life cycle for your own experience. So thank you. Appreciate it.

Let me give it to my better half, Chris Petros, over here.

Thank you. Let me go forward. All right. How's everybody doing? My name is Chris Petros. I'm the COO here at ServiceTitan, although that has not always been my role here. I started out doing software partnerships, end up leading the sales organization for a period of time, served as our VP of Revenue Operations, and then ended up running our marketing organization as CMO for a few years before landing as COO. So enough about me, I know we're here to talk about exteriors, but I think it's important to set some really critical context before we jump into details.

So the first is residential contractors want to accomplish what every business does. I want to accelerate customer acquisition, I want to increase margins, and I want to create a great customer experience so that I can maximize lifetime value. At the same time, it drives evangelism, great reviews, raving reviews, and I get more folks coming through the door. I would say 80% of that is common across residential trades. So if you think [Technical Difficulty] what do I do? Spend a ton of money on digital advertising, okay? I want to maximize the revenue that I'm generating as a result of that. What I need? Visibility into channel performance so that I can reallocate capital to either reduce my cost per lead and save some cash or keep spending money to keep calls coming in.

The second is those marketing dollars are making a phone ring, okay? So I've got a call center. Again, a very important stage in the funnel. I want to monitor my performance. I want to make sure those leads are getting booked into appointments, the right person is showing up the job, so on and so forth. When we show up for the appointment, I want to win business, and I want to drive a high average ticket, okay? So I want to offer multiple options. I want to make sure it's professional. And at the same time, lastly, we want flexible payment options. So whether that's check capture, credit cards, financing, you name it. And you'll see this kind of flow into the back office as well, right? I've got payroll, I've got accounting, all these sorts of things.

And having said that, looking more broadly, and this isn't just specific to residential, we have larger customers that needed our enterprise capabilities, right? So that's a common feature set. You want roll-up reporting. You want to be able to standardize, you want API extensibility. You may want important security features, so on and so forth. And for us, our goal is to maximize ROI at each of these stages, okay?

So think about it like a compounding interest in some sense. You get slight optimization in H1. You get a great result at the end of the day. It's important that, again, 80% common, 20% is trade specific. That 20% is super important. It's very important. And it's a reason why we don't get super excited and try to ever enter every residential market very quickly and all at the same time. That 20% will affect every single rule that you'll see within some of these trades. And I'll get into that in a second. Sorry.

Okay. So as we look at the four clusters of residential trades, this is kind of how we think about the world, okay? So think about it as parts of the home. You got stuff in the walls and mechanical systems, you got the outside of the home and exteriors, you've got interiors and then you've got property care. And so the 20% we're talking about, as an example, is in property care you have a very high frequency of jobs for the same customer, there's usually a chemical aspect.

And so when you're advertising, and maybe your [Technical Difficulty] services you may provide to a customer. Phone rings, again, you're setting context, you understand, you got shrubs, what type of pool, what type of pest, all those sorts of things. And then when you're out in the field, again, it's very different.

What you'll usually [Technical Difficulty] single-skilled contractor has a very hard time because of that 20% in all of these trades. It's not too different than us, okay? Within the trades, you'll see that happen very frequently. There's a very specific reason. So let's take mechanical systems as an example. One, you have either physical dependency or attachment with these different systems. So the second is the systems are actually common in terms of how you service them. So if you look at plumbing and HVAC, you got water heaters or heat exchangers, right? You got pumps, both those need electricity. So if you're out there to fix some system in the house, typically, there's some opportunity across all three of those. And as a contractor, we got the opportunity to maximize my value with that customer very specifically, okay?

Now as a result of them getting that meaningful leverage, again, they can maximize lifetime value. Now we got our start in mechanical systems, and we actually started in residential plumbing and there was a customer pool as a result of that. And customers were asking us, well, we also serve HVAC, we also do electrical, add memberships, add some of these additional features. And so we work to accommodate that need. [Technical Difficulty] I would consider us the industry standard in residential mechanical systems. We're just getting started in exteriors. We'll get into that in a minute. Interiors, we don't play in meaningfully at any capacity. And on the Property Care side, we do serve some of those needs with our acquired entities, Aspire and FieldRoutes.

Now let's talk a little bit about this customer pool because I think it's a very important component to cover. So we have many customers that are successful in mechanical trades, right, in residential. Very specifically, our private equity customers see a ton of success. And so if you are an enterprise company that's seeing all this benefit, what do you want to do, you want to expand into these other clusters to get that benefit as well.

And so in this case specifically, we had a customer reach out and say, "Hey, we recognize this 80% overlap". We spend money on marketing, we want to convert our phones. We want to get out, we want to sell with multiple options and payment flexibility. And so we actually had a customer reach out and say, "Hey, we're going to move into exteriors". And so we did what anybody would expect with some diligence. Is the market size right? How far of a gap does a product market fit? Relatively, what's the competitive set, so on and so forth.

We also looked at existing demand. And so we were turning away quite a bit of business in exteriors because we don't want to set them up to fail, right? Again, it's very important that we focus on creating ROI for our customers, and that's what sets us apart as a market standard. And so we ended up executing a partnership here and what that led to is a ton of discovery in terms of that 20% exactly what it meant for us to be successful.

So the first thing I'll cover is estimating. So if you think about mechanical trades, the way estimating works is you're typically swapping components, right? So you've got a password that needs to be changed out and so on and so forth. In exteriors, when you're replacing the outside of a home it's very different. You've got a very large geometric surface that informs how you estimate. And so you've got different planes, hips, ridges, events, all these sorts of things. And so you really have to focus on taking some degree of user input in addition to that geometric surface to inform what that looks like. So we've built a bit of an engine, we call it spec-based estimating internally that basically takes geometric measurement, it takes inputs from a user and spits out three estimates that you can produce and show to the homeowner.

In terms of measurement providers, there's a few that are industry standard and we'll see a few of those later. But we are partnering with them to integrate and bring those measurements in an automated fashion, right? So you show up the house, you've got measurements, they hit the calculation. Boom, you've got three estimates you can show to the customer very quickly.

In that, you want real-time pricing. So there's a few key distributors in the space. And again, there's all these materials, think about all these volumes and quantities and different types of parts [indiscernible] outside the home. Those prices fluctuate very frequently. And so you want to be able to price accurately so that you don't lose money on the job. At the same time, you don't want to outbid yourself, right? For competition, you want to stay competitive.

When you get the proposals and contracts, again, very subtle nuance, all those materials may have different warranty requirements. If you're working on the roof, the gutter, the siding, the windows, you may specifically have contract requirements, maybe different safety requirements and so on and so forth, so that's another component.

And then lastly, this is for our insurance customers. Verisk is specifically focused on kind of being the administrator between homeowner, insurance company and contractor to make sure that we're lending at a fair price, right? So that's one side in terms of sales.

Let's talk about production. You want to order all those materials, you have several vendors you need to order them from. Doing that in a way that's automated and distributes those POs to the right vendors to make sure the materials get to the right place at the right time, super critical, okay?

Task management. So projects are multi-day, more complex, not too dissimilar from commercial actually. And so what you'll find here is you have multiple stakeholders doing more work over some longer period of time. And so having visibility in those tasks and creating work queues, so that your employees know where they need to be [Technical Difficulty] accomplished is critical. And lastly, because there's all these stakeholders, you're going to be able to communicate seamlessly in a threaded fashion in platform. So we have a single pane of glass when it comes to communications, okay?

So all that being said, I would argue that this 20% is the path to industry standard and really focusing on ROI for these customers. Most importantly, we want to make sure that we're embedding this ecosystem to create value for these customers but also to entrench ourselves and create a moat, right? That helps us expand over time. Some of these are going to look very familiar, Okay? They're common to all of our residential contractors, right? We'll see financing partners, accounting integrations, different product APIs. On the left-hand side, you'll see more specific components that are very relevant in the roofing space. And again, yesterday, we did announce the partnership that we struck with Verisk, which is going to be critical in the insurance space specifically. Sorry about that.

So you heard me talk a bit about the product side. I think implementation is important to mention as well. So we work well with these customers [Technical Difficulty] and we are able to take learnings from each of these trades and deploy them because of that 80%. Get import data, you got to set up telecom, you got to set up accounting, so on and so forth. And we get leverage out of that, that helps us accelerate our entry into new markets very effectively. It will help us get more efficient and effective over time.

Last, if I look at our path to market standard, wrapping up, over the course of the next 24 months, what I would say is, one, we want to make sure that we are successful both in retail and the insurance side of the exterior space. The other is we're tackling some of these tangential trades that also touch the outside of the home, okay? So specifically, that will be gutter, siding, windows, and so on and so forth. And ultimately, we want to focus again on driving ROI for those customers and winning the market over.

So with that, I'll turn it over to Jason. I'm wrapped for today. Thank you guys very much.

All right. Well, thank you to all of our speakers. I want to wrap with a couple of things here. Here is your conclusion slide. Really summarizing the largest and most impactful announcements that we're making on the product front this week at Pantheon, underlining all of the innovation across Enterprise Pro, commercial and [Technical Difficulty] us, you heard Ara introduced Atlas this morning in his keynote, Vahe this afternoon will go much, much deeper into the practical applications of how our customers will use Atlas. I still see a few folks taking photos, so I'll linger on this slide for one second.

As we progress throughout our day here, we're going to move from this room on to the Expo Hall floor so that we connect, in particular, Field Pro and many of our newer Pro product innovations. We'll talk to Pro account managers to run through the application of what customers are learning on the Expo Hall today. And then we've got reserved seating once again upfront for Vincent's keynote, which will run through Pro products and residential innovation. The -- I am going to come back to that one.

After Vincent's keynote, we will then have the opportunity to go and see Alex and everything that we have to introduce in commercial earlier this afternoon. And I'd really encourage everybody. I know some of you can't stick around all day. But today at Pantheon we will conclude with the keynote from Vahe. And I don't think you want to miss that one. I believe it's at -- in the Main Expo Hall.

Final note that we'll wrap on, again, please respect the fact that our customers are here to work and to learn and to understand how best to [Technical Difficulty] business, so on that note. Thank you all [Technical Difficulty] Thank you to those who joined us on the webcast. I hope you've [Technical Difficulty] to learn quite a bit about the business and look forward to talking over the course of the day. Thank you.

Good day, everyone, and welcome to the ServiceTitan Second Quarter Fiscal Year 2026 Earnings Results Conference Call. [Operator Instructions] Please note this conference is being recorded.

Now it's my pleasure to turn the call over to the Vice President of Investor Relations, Jason Rechel. Please go ahead, sir.

Thank you, operator, and welcome, everyone, to ServiceTitan's Fiscal Second Quarter 2026 Earnings Conference Call. With me are ServiceTitan's Co-Founder and CEO, Ara Mahdessian; Co-Founder and President, Vahe Kuzoyan; and CFO, Dave Sherry.

During today's call, we'll review our fiscal second quarter 2026 results. We'll also discuss our guidance for the fiscal third quarter and full fiscal year 2026.

Before we get started, we want to draw your attention to the safe harbor statement included in today's press release and emphasize that information discussed on this call, including our guidance, is based on information as of today and contains forward-looking statements that involve risks, uncertainties and assumptions. All statements other than statements of historical facts should be deemed to be forward-looking. Forward-looking statements reflect our views as of today only, and except as required by law, we undertake no obligation to update or revise these forward-looking statements. Please take a look at our filings with the SEC for a discussion of the factors that could cause our actual results to differ.

We also want to point out that we present non-GAAP measures in addition to and not as a substitute for financial measures prepared in accordance with generally accepted accounting principles. Definitions of these non-GAAP financial measures, along with reconciliations to our GAAP financial measures are included in our earnings release, which we furnished with the SEC and is available on our website at investors.servicetitan.com. Unless otherwise stated, all references on this call to platform gross margin, total gross margin, operating income, operating margin, free cash flow and related growth rates are on a non-GAAP basis.

Finally, we've posted an updated investor presentation that can be found on the Investor Relations website at investors.servicetitan.com, along with a replay of this call.

And with that, let me turn the call over to Ara. Ara?

Thank you, Jason, and thank you for joining us as we update you on our progress. Our growth formula remains the same and simple. We deliver real ROI to our customers, helping them further their success and reach even greater financial outcomes. And this allows them to grow their businesses, which drives more technicians and GTV on our platform and leads to higher subscription and usage revenue for us. As they realize the value of our software, they buy more pro products, which continues to drive our growth and allows us to reinvest in more high ROI solutions.

I am grateful for the way our team empowered our customers to perform well during the seasonally strongest quarter for the trade. Year-over-year, we delivered 27% subscription revenue growth, 25% total revenue growth and record operating margins, which improved 510 basis points. Our overall financial performance was greater than we expected due to strength in usage revenue and faster growth from new customers. The breadth of execution against each of our four main priorities this year continues to underscore our opportunity to transform the lives of every hard-working contractor in the trade.

Creating transformational value for our customers has always been our mission. And the introduction of AI has now made it possible for our customers to reimagine the way their businesses operate. This quarter, ServiceTitan's AI, Titan Intelligence, enabled the customer to organically book, schedule, dispatch and perform the first fully automated job in our history. I'd like to share this story and reflect on the possibilities that are increasingly clear to the future of the trades.

Gulfshore air conditioning and heating has over 30 employees who have been successfully serving customers in the Florida Panhandle for 30 years, but only recently did the company realize its goal of compounding growth through increasing levels of automation. Gulfshore has been a prolific user of our platform with each expansion leading to higher and compounding ROI. Gulfshore initially onboarded with ServiceTitan in early 2023 and expanded with Marketing Pro, Scheduling Pro and Dispatch Pro later that year. And in January of this year, Gulfshore expanded with Fleet Pro and Sales Pro.

With a new goal of fully automating the business adjacencies around core technician workflow, Gulfshore next turned to AI in the contact center and in June, purchased Contact Center Pro along with our virtual agent. The team named their virtual agent [ Phin ] after their namesake Dolphin logo. And as Phin learned, Gulfshore set the stage for something magical. On a busy morning in June, virtual agent FI was answering inbound customer calls and responded to an issue about a 10-year-old piece of equipment. Based on Phin's knowledge of the equipment and real-time capacity available that day, Phin booked a same-day on-demand service job.

ServiceTitan automatically attributed the inbound call to the correct Google ad campaign and e-mail and SMS confirmations were automatically sent to the customer, while Dispatch Pro dynamically assigned the optimal technician to the job. But later that morning, Dispatch Pro learned there was a better suited technician available based upon both a schedule change and the predicted value of the job. And so this new tech was routed to the job. In less than 90 minutes after the initial inbound customer call, the perfect tech was dispatched to the home and their bio message delivered to the homeowner. To this point, no human being had touched the job. Sales Pro automatically turned on when the tech arrived on site and when the $1,200 job was paid for with ServiceTitan payments, the job was completed and Sales Pro shared the recording, performance and analytic metrics back to the home office.

From ad optimization to marketing campaign execution to job completion in the home, the technician in the field was the only human who touched the job. This business automation Gulfshore achieved can only be delivered with a platform like ServiceTitan because the data, system and business processes required for end-to-end automation are reliant on one another. We believe this kind of automation is the future of the trades and the depth of our platform capabilities are accelerating our platform progress.

But it doesn't just sound good. The results are clear. Gulfshore told us that they increased their close rate last month by 22% compared to the same period last year with a combination of Sales Pro and Pricebook Pro. Moreover, their average ticket has increased $150 with Dispatch Pro. They shared with us that in June, they saw a $370,000 increase in revenue just by running automated marketing campaigns with Marketing Pro and that Contact Center virtual agents booked five after-hours jobs within 24 hours of going live.

Gulfshore told us that these financial results of the automation that can only come from a single integrated platform were immediate. This is a turning point for the trades. Leveraging the foundation of workflow that already happens in ServiceTitan, we now have an opportunity to democratize automation across the industry. We have an entrenched and expanding ecosystem, compounding data-related network effects and industry-specific benchmarking that allows ServiceTitan to deliver differentiated outcomes. Our customers are phenomenal business operators, and I can't wait to watch what they'll continue to do.

We hold ourselves accountable to delivering focused execution measured over a series of quarters, years and decades. I am proud of where we are today. And as always, I believe our opportunity to build the operating system for the trades is only just beginning.

I'll now pass it to Vahe, who will share more details on our progress.

Thanks, Ara. I'm super excited about the way Titans continue to create value for our customers and proud of what we accomplished this quarter. Ara talked about our opportunity to deliver automation to the trades.

I'm going to update you today on our four key areas of focus. We improved on each goal over the past 90 days and that we're doing it more efficiently than we had planned. In enterprise, industry consolidation and professionalization continues to drive growth of our largest customer tier. Our largest customers drive our top-down product strategy, playbook for new markets and trades and are our most aggressive users of advanced AI. We expect this to become an accelerant to industry consolidation.

This quarter, we are proud to announce a partnership with an iconic enterprise brand that is synonymous with the trades, Roto-Rooter. Roto-Rooter has been the gold standard in plumbing for nearly a century and is today the largest provider of plumbing, drain cleaning and water cleanup services in North America. We'll work hard together on implementation and expect to go live in early calendar year 2026. Shifting to pro products, which continue to deliver fast growth at scale as the fastest-growing area of our business. Our customers are leaning into AI in a way that we did not originally experience with the early promise of the cloud. Customers are eager to automate operations to drive faster revenue growth and greater efficiency.

As you heard from Gulfshore, we now have the ability to fully automate our customers' processes with comprehensive AI capabilities that leverage our core workflow to go beyond what any point solution can deliver. The organic pull from customers to fully automate workflow is an encouraging indication of the flywheel that we expect will continue to drive pro product attach rates higher. We are our customer system of record, and we have a closed-loop system that allows customers to turn data and insights directly into automated action. Our pro story has become the tangible AI story for customers, and I'm excited to share more innovations at Pantheon this month.

In commercial, we delivered overperformance across all customer tiers, especially in the large enterprise market. The breadth of our enterprise capabilities and success getting customers live are both increasingly recognizable strengths and significant competitive advantages and our progress building the key project management capabilities to unlock construction is beginning to yield results.

Our emphasis over the last several years has been to build the product, brand and organizational foundation that would be required to win in commercial. And now as the leader, we are tasked with scaling on this foundation to become the market standard. This means perfecting the product for dedicated commercial contractors and delivering differentiated value that becomes increasingly challenging to replicate. We're at the precipice of this important S-curve in commercial with a slate of new products coming this year that will mature the product market fit of our core platform and unlock new opportunities. We now expect that the next several years will be about execution on our vision.

Concluding with roofing, where we continue to lay our foundation for the future. While still early in our S-curve, we're maturing our go-to-market motion, maturing our implementation playbook and making progress on our key product and ecosystem priorities. We're building support for insurance workflows to allow our customers to automate work and to manage claims and collaborate with insurance providers. We also continue to deliver distributor integrations that will streamline our customers' workflow and build the ecosystem around ServiceTitan.

Our recent partnership with ABC Supply Company, the largest wholesale distributor of roofing and other select building products in North America, builds on our ecosystem success so far this year. This is an exciting time in the trades. The resilient execution by our existing customers and the conversion of new customers like Roto-Rooter are a testament to both our current strengths and future opportunity. As Ara said upfront, we intend to deliver on our mission with focused execution.

And with that, I'll turn it over to Dave to run through the financials. Dave?

Thanks, Vahe. I am proud of how our teams performed this quarter. Today, I'll run you through Q2 financial results in detail and provide guidance for Q3 and update our full fiscal year 2026 guidance. For more detailed financial results, please refer to our press release issued earlier today.

Q2 gross transaction volume, or GTV, was $22.9 billion, representing 19% year-over-year growth. This was faster than we'd expected in light of the challenging comparable period from last year. Overperformance was led by our commercial customers as well as non-HVAC residential trades. Though residential HVAC grew slower than prior periods against the challenging comparable, these customers continue to grow well in Q2, demonstrating the durability of the trades and strong execution by our customers.

Q2 total revenue of $242.1 million grew 25% year-over-year. Subscription revenue of $174.8 million grew 27% year-over-year, led by faster-than-expected growth from new customers and healthy expansion trends. Usage revenue grew 23% year-over-year to $58 million, outpacing our prior guidance driven by two factors: first, as noted above, GTV grew more than expected. Second, this was compounded by a higher mix of on-platform payment solutions, leading to strong usage take rates.

Together, the high GTV and high usage take rate led to strong growth during our seasonally largest quarter. Total platform revenue for Q2, the sum of subscription and usage revenue grew 26% year-over-year to $232.7 million. Q2 professional services revenue was $9.4 million. Net dollar retention was greater than 110% for the quarter. Q2 platform gross margin was 80.7%, an improvement of 280 basis points year-over-year. As a reminder, roughly 200 bps of this improvement resulted from the allocation of certain customer success expenses to sales and marketing.

Total gross margin for Q2 was 74.4%, up 330 basis points year-over-year. Q2 operating income of $29.2 million resulted in a record operating margin of 12.1%, an improvement of 510 basis points year-over-year. As a result of the year-to-date strength in operating income, particularly driven by high-margin usage revenue overperformance and slower-than-budgeted pace of hiring, we are now well ahead of our expected incremental margins.

Q2 free cash flow was $34.3 million, up from $18.7 million from the prior year second quarter. FY '26 to date free cash flow of $12 million is up from negative $5.9 million through the first half of FY '25.

Shifting to formal guidance. For the third quarter, we expect total revenue in the range of $237 million to $239 million. We expect to generate operating income in the range of $14 million to $15 million. For the full year fiscal 2026, we expect total revenue in the range of $935 million to $940 million. We expect to generate operating income in the range of $74 million to $76 million.

We are pleased with our business performance year-to-date. This puts us in a favorable position to deploy more capital towards high ROI growth opportunities. Given our overperformance year-to-date, we expect to overachieve our incremental margin targets in the fiscal year. Over the long term, we remain committed to the 25% targets we've consistently articulated. Our goal remains to durably compound growth over many years and increase margins. We see healthy performance in this quarter as further evidence that our strategy to become the operating system for the trades is working.

With that, I'll turn the call back to the operator for Q&A. Operator?

[Operator Instructions] Our first question comes from the line of Kash Rangan with Goldman Sachs.

Every quarter, I seem to be using some service. This time, we had a water main break and one of the services happened to use your software. So it's good to see your footprint spread widen far, although I had to go through a pretty tough evening. But my experience proves that the software can be hugely valuable.

And Ara, you talked about the Roto-Rooter. They were one of the people that responded as well. It does look like it's a fairly large business. It's $1 billion revenue run rate, and they have not been doing particularly well. So what was the business objective that they had in mind when they picked service? Obviously, in an industry that's growing, they're not growing. So obviously, they want to reverse course. But how did you guys win this deal? Who was the incumbent? And what was the business justification ROI parameter that they were using to go with ServiceNow.

Thank you, Kash. Always a pleasure hearing from you. Sorry about the troubles with the systems in your home, but thank you for the contribution to GTV. We're very excited by the Roto-Rooter partnership. They're a household brand. We're, of course, deeply grateful for their trust and the partnership here.

I think what we're seeing is that ServiceTitan continues to be the platform of choice for the largest trade businesses because we uniquely have both the trade-specific workflows that they need as well as the enterprise capabilities that the largest customers need.

In Roto-Rooter's case, their business spans across both residential and commercial, and that really aligns well with our strengths. And the specific business outcomes that they look for are very consistent to the business outcomes that most other both large and smaller shops look for. A lot of it centers on revenue growth by way of generating more leads at a lower customer acquisition cost, converting more leads into booked appointments, increasing close rates, increasing average tickets. And then, of course, all the automation in the back office that allows one to grow revenue with a lower cost structure.

And so we very much look forward to this partnership. We will celebrate once we get them successfully live and realizing the value on service Titan and delivering the ROI that they're looking for on both the top line and the bottom line.

Our next question is from Josh Baer with Morgan Stanley.

Congrats on a great quarter. You mentioned Roto-Rooter's business expands across residential and commercial. I wanted to ask one around that. When you think about the market opportunity and one of your priorities is on the commercial side, do you think about your existing customer base, like what percentage of your customer base is hybrid spanning across residential and commercial? Are you prioritizing landing on the commercial side for your existing customers where they're not using you in that business?

More broadly, do you look at overall trades and what mix is -- also have hybrid businesses where potentially you are in a better position than just winning a stand-alone commercial trade, which might lean into point solutions? Like any context to the mix of your business or the market and hybrid and if that is a focus area for you?

Yes. Good question. So what we find is that the vast majority of our customers have some degree of one or the other. Very rarely is it purely exclusive. What we find is, generally speaking, as the size of the business tends to get bigger, there does tend to be more specialization. Roto-Rooter is unique in this sense. But what we do see is that we rarely land just one or the other. We almost always land with both sides of the house.

The only scenario where historically, at least we didn't get the whole business was if they had a large construction portion, which has been the focus that we've had this year so that we can serve the entire business. But we don't believe that there is a big opportunity within our existing customer base for, for example, a large commercial service part of their business not being on the platform.

And what we do think, though, is because there's such a common instance of the business needing to have both sides, our ability to be excellent in both residential and commercial, we see as an enduring competitive advantage because it's very difficult to do those two things well. And that's why we're so focused on becoming world-class for purely commercial contractors, just like we are for the residential side.

Sound great across your key initiatives, large customers, pro products, commercial roofing and the numbers back that. I am wondering, is there anything that is not going as well as you would hope or that you're working on fixing anything that's underperforming?

That's a great question. I can tell you, we are happy with the progress that we're seeing, but we always want to be better across the board. We want to be better in the markets where we are the market standard. We want to be even better in the markets where we're not yet. We want the product to deliver even more ROI. We want the implementation to be even more flawless, and we want the service level to be that which our hard-working contractors deserve.

Our next question is from Michael Turrin with Wells Fargo Securities.

Congrats on the results here. I was hoping we could just go back and double-click on the change you're calling out in large enterprise commercial. Maybe given still newer to the public markets for added perspective, you can just speak to how long you've been investing towards that opportunity, what you're seeing today to call that out now and maybe how it impacts your view on the overall TAM or longer-term opportunity for the business here?

Sure. It's been about three years that we've been investing on the commercial side. And what's happening now is basically what we said was going to happen when we laid out what we're going to focus on for the rest of the year. which is in order to crack the enterprise commercial space, we needed to have an answer for construction. And what we're seeing now and the results that you're seeing is the market's reaction to the beginning of us delivering on that construction vision.

We still have work to do, and we'll be delivering more throughout the rest of the year. But that's the fundamental driver of what we're seeing in terms of traction on the commercial side is the gaps that we're filling on construction. And we're really excited because it's still very early days in a gigantic TAM.

And our next question comes from the line of Dylan Becker with William Blair.

It's Faith on for Dylan. Maybe just diving deeper into what you guys were just talking about with commercial and construction. I guess where are you guys at being able to move earlier into the construction phase to help win that market? And what are you doing from a product perspective to increasingly unlock more strategic value on that side?

I'm sorry, was the question about why we didn't go earlier? It was hard to hear.

Just within the commercial phase, what are you doing maybe from an innovation road map, product perspective to kind of further unlock this opportunity and move earlier in the construction phase in the sense of like the actual build earlier in the phase in the decision-making?

Got it. So a couple of things. One is we had some more fundamental foundational things that we had to do for B2B businesses that took up a bulk of the early days of our efforts to go into commercial. And the features that we're talking about that drove the progress on the construction side are primarily around the project management and operational aspects. And those were the big deliveries that we've made so far that are driving kind of the traction that we're seeing.

In terms of where we're focused on for the rest of the year, it's primarily going to be around crews, daily logs, RFIs, submittals, change orders, financials, document management and a better mobile experience. That's going to be the focus for the rest of the year. And then throughout the end of the year and beyond, we'll start shifting focus more towards the up-funnel aspects of the construction business, the bid management, dealing with request for bids and so forth. And so that's the strategy, and that's where we're seeing traction on the construction side.

Our next question comes from DJ Hynes with Canaccord.

Congrats on the nice results. Maybe I'll ask one to Dave to get him involved. Dave, it looks like CAC payback period ticked down a bit again. By our math, it looks like it's below 20 months. You also talked about outperforming incremental margin targets this year. All of that's awesome. But how does that inform your views on sales and marketing investments? And kind of what is it telling you today?

DJ, great question, and thanks for getting me involved. I think you're right that we had a strong quarter where we overperformed, particularly on usage where GTV came in higher than we would have expected. What that informs is what we've talked about before, we'll continue to deploy capital where we can towards the 25% incremental margin target. We're doing that today. We're a bit behind in hiring, but I think that we expect to catch up sometime later in the year. And we'll continue to evaluate what is the best investment.

Currently, our primary source of investments continue to be in R&D because we think it's a large market. But where we see good investments in sales and marketing, we'll do so. We continue to hire, have exciting events. What you'll see in Q3 is a big step-up in sales and marketing because of our user conferences of Pantheon and Ignite. But we're excited about where we're...

One moment for our next question. That comes from Jason Celino with KeyBanc Capital Markets.

Kind of feeding off of DJ's question and keeping you tagged in, Dave. But from what I remember, ServiceTitan has fairly short sales cycles and you generate a good amount of your leads from SEO. With some of the changes we're seeing in search from AI, we're all trying to understand what this might mean for PLG type companies. Obviously, with your results, it doesn't look like you're seeing any disruption.

So curious what you can tell us from any changes in behavior on the lead gen side or sales effectiveness. Obviously, Pantheon is coming up and would love to hear from Ross on this topic, but curious what you can share us right now.

Sure. Our demand generation machine is delivering strong results across both corporate and enterprise pipeline has consistently performed all year. Our go-to-market efforts are balanced across different demand generation efforts. And fundamentally, we are not a PLG model. We do utilize organic search, which is performing well in leads, pipeline and bookings. It's worth remembering that organic search composes a small portion of our total demand gen.

Beyond search, we utilize paid marketing channels, e-mail, YouTube, TV, radio events, traditional outbound lead gen. And then obviously, our extensive partner ecosystem is critical to scaling these efforts. We think a balanced go-to-market machine helps us execute consistently through time. We do think that AI search will change the organic SEO game. We are the brand leader and the thought leader in the trade, so we feel well positioned to actually lead this change.

Our next question is from Brent Bracelin with Piper Sandler.

Ara, I wanted to go back to AI. I know contractors don't buy AI, they pay automations. But Gulfshore, super interesting. I'd be curious to understand what solutions from ServiceTitan are they using? Do you need pro to be able to light up a lot of these automations? And if so, are you seeing any sort of change in the pro interest attach rates from other customers? And then quickly for Dave, platform gross margins did cross over 80% for the first time ever this quarter. Is that sustainable? Or is there some seasonal tailwinds that help?

Fantastic question. As you can probably tell, our DNA is all about creating value for customers. And so we've been investing in automation and AI and particularly our AI Titan intelligence for years. We heard with Gulfshore being the system of action across nearly every workflow in a trades business and having the data-related network effects through such breadth and depth of data and being the default UI in a trades business and being that hub of that vast ecosystem of integrations, all these things allows us as ServiceTitan to create unmatched value through automation for our customers. In Gulfshore's case, they use our Pro products, Scheduling Pro, Dispatch Pro, Marketing Pro, Sales Pro, et cetera, et cetera.

And -- whereas the core product will deliver, call it, a medium level of sophistication and automation across most workflows. It's the pro products that deliver the most advanced and most complete level of automation. And therefore, the most sophisticated customers seek out the most advanced level of automation, both for revenue growth as well as for cost optimization and benefit from the much larger ROI.

And I'll chime in quickly, Brent, on your second question. As you noted, total platform gross margin increased nearly 300 bps in the quarter versus prior year. It's important for us to remember that about 200 bps of this improvement was led by the reclass of certain customer success expenses from gross margin into sales and marketing. Nevertheless, we saw healthy leverage on gross margin that's driven by a couple of things. One, leverage on infrastructure costs; second, some improvements in sales and marketing. And then third, to your question, is it sustainable? There is a seasonal peak in Q2 given usage is high incremental margins. We do see overall trend towards higher platform gross margin like we've talked about before [indiscernible]

Our next question is from Terry Tillman with Truist.

My question is related to Contact Center Pro. I remember when you all launched that, people were literally clapping during that presentation. It seems like automation is a real key there, and it's timely considering maybe some of your trades businesses are under some pressure cost-wise. First, I guess, is Roto-Rooter, you mentioned in the press release 3 customer service centers. So curious if they'll be using the product. And just generally, because of the play on automation, what are you seeing with the uptake on Contact Center Pro?

Terry, I'll answer the first part quickly and then Val will give more color on Contact Center. I think like most customers, we expect folks to start with just the core, realize the value and then adopt our Pro products. And so that's the first part of the answer. Second, it's important to note, on Roto, we've signed them. They're not yet live. So it's not impacting the results in the quarter. We expect them to go live sometime early next fiscal, and that's when you'll see the results flowing through our financials. Vahe, you want to talk a bit about Contact Center Pro?

Yes, not much to report here. We're making steady progress on our road map and the results that we're seeing are very promising, but we still have a long way to go to complete the vision. And so we'll be continuing to release features over the next several quarters within Contact Center Pro.

Our next question comes from the line of Parker Lane with Stifel.

Here, clearly, the Gulfshore example is displaying the art of the possible for some of your customers that really want to drive automation and efficiencies in their business. Do you think as we look at similar examples of customers that are trying to go down that path, the primary way you monetize this today is just through Pro product attach? Or is there going to be an evolution maybe in the near term or midterm of some of these pricing dynamics and models as you really drive that demonstrable value for customers, both on the top line and bottom line?

Parker, great question. I think we've been pretty transparent that we're probably not the most optimized in terms of packaging here. I think our customers often tell us that the buying experience can be difficult with so many a la carte products. And I think we're still early in the days of figuring that out.

So I would not assume that the past what we've done is what we expect in the future. But we've not yet nailed exactly that will look, but it's a great question that we think about a lot internally.

Our next question is from the line of Scott Berg with Needham & Company.

I have two. I wanted to touch on Roto-Rooter because I know we all have lots of questions on it. But I guess what does this partnership include in terms of functionality? Is this the base platform? Is there some Pro functionality that's kind of included with the agreement here? I mean they're a company-owned entity versus a lot of the franchise entities that you're used to working with. So just trying to understand maybe what's included with the initial transaction if it differs from most of your other constituents.

What I'll say here is that like most customers, we expect them to land wall to wall with our core solution. We don't sell our core in piecemeal. And so we expect them to land wall to wall of implementation should take now through the end of next fiscal year. But nothing super out of the ordinary with Roto other than the fact that it's a household brand that's quite large, but we expect it to land like most of our customers.

Okay. And Dave, from a follow-up perspective, one of the things you called out was HVAC didn't necessarily have as good of a quarter as other aspects of your business, if I heard that correctly. Is there something in particular within HVAC in the quarter that maybe drove a little less, I guess, positive performance there or maybe seasonality based? Just maybe try to help unpack that comment a little.

Sure. I think, first of all, it was a strong quarter where our customers exceeded expectations. As I mentioned on the prior call, last quarter, last summer was one of the hottest summer on record. In fact, by our measure, the second hottest summer on record. So it produced a difficult comp. This was a warm summer, but not as hot as last summer. And so that primarily impacted HVAC.

Our customers continue to grow but at a lower rate than we've seen in prior quarters just purely based on the comp. And so that's what drove nothing structural or different there other than a difficult comp and weather patterns.

And our next question is from Yun Kim with Loop.

All right. Great. On the GTV growth, how much of that growth was driven by volume or the number of jobs versus average ticket price for each of those jobs? And is there any underlying trends that you're seeing on the GTV growth?

Yes. What I'll say is that the quarter had pretty similar patterns to what we've seen in the prior periods where the job growth and ticket growth were contributing factors to it. What I'll say is that in the non-HVAC residential trades, we saw a pickup across the board, and that was driven mostly by jobs.

Okay. Great. And then in terms of the platform gross margin, good to see a strong performance there. But how much is the AI driving that efficiency there? And is there a further opportunity to leverage AI to really drive more cost-effective onboarding process and maybe even streamline that process quicker?

What I'll say is that we're excited about the progress we made and the solutions our team are driving to use AI to help improve the customer experience. I think we still feel like it's early days in the AI journey, both internally for our operations as well as for the operations of our customers.

If I could just squeeze in one more. Would the ramp of pro products drive gross margin tailwind?

I think it depends on the pro product. Some have high gross margins, some like our fleet growth solutions and telematics have some real cost in it. So it will depend on the mix, but we think that it should be a contributor to our top line, and it has efficiencies more than on cost of revenue has efficiencies in sales and marketing because it's much more efficient to go after and sell to an existing customer than new ones.

Our next question is from Peter Griffith with Citi.

It's Peter on the line for Tyler Radke. Great quarter for you guys. I was just wondering if you could touch a little bit more on any displacements you've seen on the commercial side, why you're winning against the competitors there and what products you're initially landing with on those commercial deals?

Sure. The primary difference between what's happening now and prior quarters has been really the quality of the product, first and foremost, especially on the construction side, but then also a successful track record of taking large enterprise customers live, which is very difficult to do in this particular space. And so those are the two primary things that have underwrote kind of our traction boost.

And we have time for one last question from Andrew Sherman with TD Cowen.

Nice quarter. For Ara or Vahe, I wanted to come back to the resi HVAC. Given how hot it was throughout the summer, I know it was a tough comp, but I would have thought that would have been a little bit stronger. The OEMs called out higher interest rates, weaker consumer, that kind of thing. Do you think that had any impact on replacements in the quarter? And maybe in some cases, if those were just pushed out, did you see any of that in Q3? And then did the refrigerant change for the HVAC this year, did that have any incremental benefit in the quarter?

I think I'll jump in quickly and then Ara can jump in if they'd like. But I think what you saw the OEMs and some of the industry data come out was more a reflection of inventory buildup and build down than you see in end consumer demand. That was much more stable both in the first half of this year as well as we saw the first quarter of this year is what we saw in Q2. So I don't think the refrigerant inventory buildup is what drove the results in Q2.

The other point that I'll add is that if you notice our customers are not the entirety of the market. And what we see is that they continue to take share within the HVAC space. And even though it was a warm summer, it was still dispersed geographically. And compared to last summer, it was cooler from what we can tell. And so those are the primary drivers of the HVAC.

And this concludes our Q&A session. I will turn the call back to Ara Mahdessian for his closing comments.

I just want to thank you. Thank you all for joining us today. I know you have the opportunity to spend time with great companies. And so I greatly appreciate the fact that you choose to spend your time with us. And for those that will be making it to Pantheon, I really look forward to seeing you. It's in a few weeks' time. It will be productive and hopefully, a good time as well. Thank you again.

Thank you all for participating in today's conference. You may now disconnect.