ServiceTitan, Inc. Q2 FY2027 earnings call

• Strategic Pivot to MAX: ServiceTitan is prioritizing its 'MAX' agentic operating system over expansion into new trades. The company has doubled the number of locations enrolled in MAX to over 100, with a target of 700 by fiscal year-end.
• Customer Outcomes: Early adopters like Del Ponte Plumbing reported >35% revenue growth in Q1 and >45% in Q2. MAX customers generate more leads, convert at higher rates, and improve technician-to-admin ratios (e.g., from 2:1 to 3:1).
• AI Monetization & Virtual Agents: Virtual agent revenue more than doubled sequentially in Q2. New voice and SMS capabilities are driving adoption, particularly for overflow and after-hours call handling.
• Software Factory: Investments in the internal 'software factory' aim to accelerate feature delivery and reduce defects, creating a self-reinforcing loop of product improvement.
• Leadership Transition: Ross Biesman is stepping down as CRO after leading ARR from <$30M to >$1B. Rikus Pretorius will assume the CRO role starting in Q4.
• Trade Focus: The company narrowed its focus to existing commercial trades (mechanical, electrical, plumbing, landscaping) and residential roofing to fund MAX development, delaying expansion into broader exteriors categories.

Total revenue grew 21% year-over-year to $292.8 million. Subscription revenue was $212.4 million (up 22% YoY), representing approximately 72.5% of total revenue. Usage revenue grew 24% YoY to $72.1 million, contributing roughly 24.6% of total revenue. Professional services and other revenue totaled $8.3 million. Net dollar retention exceeded 110%. Gross transaction volume (GTV) reached $26.8 billion, up 17% YoY.

• Q3 FY2027 Total Revenue: Expected between $285 million and $287 million.
• Q3 FY2027 Operating Income: Expected between $29 million and $30 million.
• Full Year FY2027 Total Revenue: Revised/Expected between $1.139 billion and $1.144 billion.
• Full Year FY2027 Operating Income: Expected between $152 million and $154 million.
• Incremental Margins: Management raised expectations, stating that 25% incremental margins will now serve as a floor rather than a target, with full-year FY27 incremental margins expected at 33%.
• Headwinds: Guidance reflects a modest GTV forecast and near-term headwinds of $4-$5 million due to revenue recognition timing shifts associated with MAX adoption.

• Lead Volume Moderation: Customer lead volumes grew at a moderate pace in May and June before stabilizing in July, impacting GTV growth which trailed recent quarters.
• Revenue Recognition Timing: The shift toward MAX creates a temporary headwind as subscription revenue is recognized ratably while upsell/MAX revenue is recognized as billed, potentially lowering near-term top-line figures.
• Professional Services Impact: Waiving onboarding fees for MAX transitions and shifting deal composition is expected to lower professional services revenue by ~$2 million for the remainder of the fiscal year.
• Implementation Scalability: Scaling MAX requires significant change management; however, management believes AI-driven efficiencies will allow scaling without proportional increases in staffing, though this remains an execution risk.

Q: DJ Hines asked about lead volume trends post-Q2 and confidence in Q3 GTV run rates.

A: CFO Dave Sherry noted that while weather and business days offset, lead volumes stabilized in July after softer spring months. He explained that unlike past cycles, customers couldn't fully offset lower volume with higher ticket sizes. Consequently, management rolled forward the moderate Q2 GTV trends into their H2 forecast rather than assuming a strong bounce-back, citing uncertainty around consumer behavior drivers.

Q: Michele Tarrin asked why ServiceTitan is prioritizing MAX over planned trade expansions and what signals would reverse this decision.

A: Co-founder Vahe Kuzoyan stated that MAX's compelling customer outcomes (higher revenue/profitability) and the 'software factory's' ability to accelerate development make it the highest-return investment. CFO Dave Sherry clarified this is a prioritization, not a permanent shift, noting they expect to resume trade expansion once MAX and software velocity gains are fully realized.

Q: Dylan Becker asked if MAX's value prop allows capturing market share earlier and how virtual agents are scaling.

A: Ara Mahdessian indicated strong demand for MAX even among new logos, validating the strategy to lead with it. Regarding virtual agents, Kuzoyan explained that while initial adoption focused on overflow/after-hours calls, high performance and human-like interactions are driving customers to let agents handle increasing volumes, especially as CSR attrition rises.

Q: Billy Fitzsimmons asked about the ceiling on MAX implementations per quarter and if implementation times will decrease.

A: Kuzoyan described a two-step process: first achieving product-market fit, then scaling efficiently. He compared MAX's trajectory to ServiceTitan's core platform, which saw implementation times drop from months to fractions thereof. He expects similar efficiency gains for MAX, gated only by achieving fit in new segments.

Q: Chris Quintero asked why some customers aren't ready for full transformation and details on new 'on-ramp' packages.

A: Mahdessian attributed delays to natural technology diffusion, where early adopters drive success that convinces laggards ('seeing is believing'). Kuzoyan confirmed that 'bite-sized' on-ramps (e.g., demand orchestration only) will launch for hesitant customers, allowing them to see quick results before adopting field or back-office transformations, though these remain substantial upgrades.