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…

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.…

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…

[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.