TTAN - NASDAQ

Good day, everyone, and welcome to ServiceTitan, Inc.'s Third Quarter 2026 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question and answer session. You will then hear a message advising your hand is raised. To withdraw your question, simply press star 11 again. 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, Inc.'s fiscal third quarter 2026 earnings conference call. With me are ServiceTitan, Inc.'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 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 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 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 will mark the one-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 Titan's 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 strengthen usage revenue. The breadth of performance against each of our main priorities this year exciting momentum coming out of our annual user conference, and then expanding scope for ServiceTitan, Inc. to bring automation to trades. All continue to underscore our opportunity to transform the lives of every hardworking contractor. I wanna talk this quarter about the Wrench Group. One of the largest operators in the trades with more than 7,000 employees serving over two and a half million end customers annually across multiple trades, in 14 states. The Wrench Group backed by high-profile leaders in private equity, is one of our longest-tenured customers and has embedded in 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 Finger, responsible for technology across the org, now says they are thinking about the ServiceTitan, Inc. platform differently than in the past. As Wrench looks at acquisitions, for example, companies already on the ServiceTitan, Inc. platform ease the inherent complexity of integrating targets? And that's in concert with changing principles as the business seeks to unlock silos and incorporate enterprise thinking. David Finger 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 location. And ServiceTitan, Inc. is at the core of what we want to do and provides us with a platform to execute. This size and enterprise scale are believed to be accelerating differentiators in the world of AI. David Finger told me that it believes leveraging an integrated ecosystem of technology allows organizations to thrive by creating comparative advantages and differentiated customer outcomes. And he believes that ServiceTitan, Inc. 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. Quotes, the usability, scalability, simplicity, and consistency across locations are exactly what a trades business like ours requires. End quote. Said David Finger. Quote, and we also now have 99% of our locations using SchedulingPro, which feels like table space, as we make it easy for customers to do business with us. And both. And as you'd 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 experience, and most importantly, by leveraging predictive analytics. Wrapped up by telling me that, quote, 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 cannot do. 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, end quote. 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, Inc. with the compelling benefits of AI we are now giving our customers the opportunity to rethink how they operate. ServiceTitan, Inc. has an entrenched and expanding ecosystem compounding proprietary data set, and industry-specific bench 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. Titan has 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're 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, Inc. 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 FieldPro. The next evolution of SalesPro that extends AI to technicians in the field. And we release virtual agents across the entirety of our Pro portfolio. Our pro product strategy has evolved from delivering functional business automations to delivering a comprehensive platform for agents to automate work across the trades. At the center of these agentic workflows is Atlas, which forges the raw power of modern large models directly into the foundational intelligence of ServiceTitan, Inc. Atlas is a giant tech command center capable of delivering something to trades businesses that only ServiceTitan, Inc. can deliver. Deep comprehension of data and workflow coupled with the system to automatically action out 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, Inc. that will make 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 form ServiceTitan, Inc.'s end-to-end commercial platform. 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, electrical contractors for over fifty years. James River is a hybrid residential and commercial business. I've been personally working to meet their business needs for nearly a decade. 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 the partnership with Verisk to allow contractors to load their ServiceTitan, Inc. data into Verisk Xactimate claims management system to review, validate, and complete the claims estimating process. We were excited to go live this quarter with Time Proof and Master Roofing. A residential and commercial roofing consolidator. Execute on plans to scale to 50 branches across 30 states within the next year. Time Proof and Master Roofing selected ServiceTitan, Inc. 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 upfront, intend to deliver on our mission with focused execution. With that said, I'll turn it over to Dave to run through the financials.

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 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, Inc. delivers. Our GTV continues to be distributed across a diverse set of trades and end markets. Within residential, it is primarily driven by break-fix 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 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, '25 was an unusually strong quarter. Driven by faster than normal customer expansion, and some one-time subscription items. Additionally, Q4 of this year will have one fewer business day as compared to the year-ago period. Which is expected to compress Q4 FY twenty-six GTV and usage revenue growth by approximately 150 basis points. We will then see the benefit of one additional business day in '27. Now shifting to formal guidance. For the fourth quarter, 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 fiscal 2026, we expect total revenue in the range of $951 to $953 million. We expect to generate operating income in the range of $83 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 trades is working. With that, 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, Inc. conference call. Prior to his 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, Inc. wishing you all the best Kash.

Thank you so much. One moment for Pat. Chick. Jason. Your line is open right now. Go ahead.

Can you hear me okay? Thank you. So it's very lovely of you, Ara, Vahe, Dave, Jason, team. You guys will always be special. I really don't have a question, but I have an observation. Maybe I can parlay that into a question. You've come a long way. You've been the, titans of the trade or, call it the mavericks that, that defied conventional wisdom that you could actually create a billion-dollar run rate business, although not hinder Q3. But I'm sure if you look at the month of November, you probably hit a billion-dollar revenue run rate. So coming us 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, our own team, what are you gonna be doing differently as you as you iterate and try to get to that scale of being truly a multibillion-dollar revenue company in the years ahead. What what are the latest observations going into calendar '26 to how you gear maybe the go-to-market, maybe a little bit differently to achieve the the ambitious goals that 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 one that impacts as many contractors as possible. And for each one, to the greatest extent as possible. And we believe that the combination of those two things translates into the direct revenue opportunity for us. And the the biggest opportunity that we see relates to AI in the trades. It's a very exciting and critical opportunity for us It is why it is our number one priority. And why Vahe and I are directly leading the effort to make sure that we and our customers win Ultimately, customers want one platform that's 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 wanna deal with different point solutions interfering with one another. They they they don't wanna optimize locally for things like leads or call booking rates. These are all imperfect proxies. For what they really care about, which is revenue and profit. And in a world where trades businesses have finite capacity, They wanna optimize for generating the leads that are most likely to result in the highest revenue or optimize for, like, booking the calls that represent the highest revenue potential? And so the the future of work in the trades it's us, it's not a set of 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 the foundation of the MAX program and the next evolution of ServiceTitan, Inc. And we have distinct both product and go-to-market advantages to be the winning solution. We we have the largest proprietary dataset. 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 we're maniacally focused on this to guarantee success. For our customers and ultimately for us.

Absolutely fantastic. And I'm gonna be watching from the sidelines. This evolution of this vision ahead. Congratulations. Thank you so much. Thank you so much.

Our next question comes from Josh Baer with Morgan Stanley. Please proceed.

Great. Thank you for the question. 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 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 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 kinda as a channel, what 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 back customers. So they remain an important growth factor for us, and we don't have any reason to believe that that's slowing down.

Okay. Awesome. Thanks.

Thank you. Our next question comes from DJ Hynes with Canaccord. Please proceed.

Hey, guys. I'm gonna I need a a a few more decades make as much money as Kash or to have the impact that he did, so I'm gonna keep working. Alright. When you look across the customer base, where would you say the average ratio of technicians to back office staff is today? And and and where do you think it could go over time? And maybe as part of that, it it'd be great to get your thoughts on what that efficiency unlock might mean for ServiceTitan, Inc.

Great question. It will vary across trades. It will also vary across size. So you will have contractors that'll have two technicians the one back office, You'll have really efficient ones that get above two technicians per back office. But then you also have trades businesses that have something closer to one to one. But I think they it's incredible to see the alignment in vision with our customer base where they they believe in this vision that you have you know, the 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've increase revenue. Because a lot of these AI automations help 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 and grow the business.

Yeah. Yeah. Makes sense. And then, Dave, one 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. Talked about some of the dynamics with the one 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?

Hey, DJ. First, our strong Q3 put us in the in the fortunate position here to raise our forecast rest of year. As you noted, typically, GTV and usage will sequentially moderate from Q3 heading into into Q4, 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.

Yeah. Okay. That's what I wanted to hear. Thank you.

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

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

Yeah. 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 get customers live. And so we remain as bullish as ever on the roofing side.

Great. Thank you. And then maybe one, 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 the break versus fix or break fix versus replace exposure or anything, for us to be aware of on that front? Thank you.

Sure, Dylan. We look at a lot of internal data points. There are two 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. And 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 to next quarter.

Perfect. Thank you.

Our next question comes from the line of Scott Berg with Needham and Company. Please proceed.

I have one really nice quarter here, and thanks for taking my questions. I want to stick on the commercial side for both of them. First question probably Ara is on how you plan to maybe invest in commercial opportunity as you start thinking about fiscal twenty-seven. You you seem pretty confident that you have all the functionality you need to really press into that area today. But do you do anything differently as 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 with 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 side of the subcontractors. Is proving out like how we hope to would.

Excellent. Helpful. And then, as a follow-up, Dave, your comments on GTV started by saying, I'll outperformance in the commercial side, which I find maybe not unusual, but a little bit surprising because the know, 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 on the commercial side in the quarter? Or was 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. Next quarter.

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

Yes. Hi. Good afternoon. Thanks for taking the question. As you guys make a bigger push into the commercial space with the construction workflows, CRM. Just wondering if you could comment on some of the learnings you're you're finding in that area. What level of satisfaction or people having with the workflows or solutions they have in place there today? Is there more of a desire to consolidate on one platform that's that's driving that opportunity for you? And lastly, when you look at the opportunity is it fair to say that that your existing, residential customers are the ripest opportunity, or do you think there's a 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 playing out in a very similar way. What we're seeing as 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 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 this the 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 gonna be a tailwind for us as we progress into this market. When we look at on the, residential side, you know, if you look at our recent partnership with Roto Rooter, 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 gonna be other large players similar to this where having both sides of the house be something that we can handle. Is is something that's gonna be compelling. The James River example that we mentioned earlier today is another great example of that.

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

Yeah. 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 that not all trades are the same seasonal trends. Than the ones we are large in today.

Thank you. Thank you.

Our next question is from Terry Tillman with Truist Securities. Please proceed.

Yeah. Hi, Ara, Vahe, and Jason. Congrats on the 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, you know, I I always like the testimonials from new customers or expanding customers, and I heard e ecosystem multiple times and, like, unrivaled ecosystem. So whether it's the PE consolidators or your fintech partners or the OEMs, are you seeing some sort of kinda multiplier effect or benefits from the ecosystem helping influence new business for you all or just expand faster in trades? Then I had a follow-up for Dave.

Yes. Indeed. And welcome aboard. Looking forward to the 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 one 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? Thank you.

Hey, Terry. Nothing big here. I'd say that typically, over the year, our free cash flow and operating income are 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 in and you think about your models, full year free cash flow and full year operating income tend to converge pretty closely.

Alright. Thanks.

Thank you. Our next question is from the line of Andrew Sherman with TD Please proceed.

Oh, great. Thanks. Congrats, guys. Dave, on the Resi HVAC, great to hear. It was consistent year over year. Could you talk about why your GTV there is generally insulated the volume declines that the OEMs have seen worsen? 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 it's important to remember, as I mentioned in my prepared remarks, that RGTV and residential is driven by break-fix in existing homes. And RGTV includes components beyond system sales like labor, parts, and membership. There there are other data points out there, like you said, the OEMs and, other indices that may be by certain variables that don't generally drive RGTV? Like new home construction and 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 it's this diversity combined with the world-class operators that are that are our customers. Combined with our software, which adds a lot of value to them, plus new customer additions that it's the foundation of the steady GTV growth you've seen in time. This quarter really wasn't any different there, and, sort of the foundation from which we grow over time.

That's great. Thanks. And then on the pro products across your whole customer base, maybe if you could just rank order the the ones seeing the highest demand. So I would say, our most mature products are generally the ones that are, the most penetrated. So MarketingPro, for example, has been the one 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 focal 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 it's 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.

Perfect. Thanks, guys.

Thank you. Our next question comes from Joseph Vruwink with Baird. Please proceed.

Great. Thanks for taking my questions. If I look at the subscription growth rate and how that's been running fast than GTV growth, I know it's not gonna 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 twenty-seven just given some of the things that came up at Pantheon. You know, there's a lot of new sales approaches that Pro, not just Mathemax 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.

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

Okay. That's great. And then I I know this ResiHTech topic has, you know, been asked quite a bit, but it's just a a different, I guess, question from me. Dave, you mentioned that you looked internally at a lot of indicators, and you highlighted the ones that matter most. I mean, in your collective experience, which dates back a a while now, it's and 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 it sounds like those aren't even popping up, but I wonder if maybe you've had a a track record historically to to call that out proactively.

I I think during the COVID times, we saw average ticket grow quite quickly. And we realized that that that was, an influence of the consumer. And so I think that's the time we saw those two 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.

Okay. Thank you.

Thank you. Our next question comes from the line of Daniel with BMO Capital Markets. Please proceed.

Yes. Good afternoon, everybody. Thank you for taking my question. Maybe just one for me. I wanted to go back to the prepared remarks and the the comment about the the marketing takeaway from a a horizontal application. And maybe just kinda 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 if you think about prioritization of your R&D workflow, like, how interesting is an opportunity is that versus some of the other things that you're working on? Thank you so much.

Great question. 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 one platform. And then export it into another platform and set up automated marketing campaigns 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, make sure the right audience is targeted. If 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 you 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.

Great. Thank you. Thank you so much.

Our next question comes from the line of Yun Kim with Lumpur Capital. Please go ahead.

Vahe, more of a strategic question, but obviously we're hearing a lot more about AgenTek 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 commerce, does that represent an opportunity to increase your GTV take rate? Thanks.

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 OpenAI marketplace and 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 gonna shake out. Just gonna 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 also larger customer mix increases?

You know, we bill generally monthly. 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.

Okay. Great. Thank you so much.

Thank you. Our next question comes from Tyler Radke with Citi. Please proceed.

Yes. Thanks for taking the question. I wanted to follow-up on the construction opportunity. Obviously, know, big market. You have a a pretty good vision on you know, full platform, doing everything from the workflows, payroll, etcetera. Like, where do you start? What where are you finding kinda the you know, the biggest low hanging fruit and just give us a just a a sense on you know, how often you're sort of replacing third party solutions versus, you know, greenfield? Thank you.

So we rarely see greenfield. The 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 we are starting to take on more and more supply subcontractors that focus more and more on the construction side. And today, I'll 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 to $15 million on a per project basis. The work we're doing over the course of the next two quarters should push that up meaningfully into the $20 to $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, fit 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 improve 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.

Thank you. That that's helpful. And Dave, on the profitability side, certainly been tracking well ahead of plan. This year. You've seen nice expansion on both operating and and cash flow margins. I 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. Thank you.

Sure. I think, continue to be really intentional with you guys about guidance. We know we wanna establish a tracker with you all, and our plan is to provide a view of annual, numbers in March. 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. Maximize target growth constrained by two variables. Twenty-four month tax payback, 25% incremental margins. Now this year, were a bit behind on hiring, and that has led us to being a little over our internal margin targets when 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.

Very clear. Thank you.

Thank you. Our next question is from the line of Jason Celino with KeyBanc Capital Markets. Please proceed.

Hey. Great. Thanks for fitting me in. I wanted to ask about usage. You know, we've seen two quarters in a row. Of acceleration, and I think, Dave, you mentioned it it been partly driven by better fintech utilization. Can you just explain that a little bit? Sure.

You know, we have financing and payment products for our customers. They're not adopted by a 100% of our customers. And what we've seen in 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 with, has, 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 taker I overall.

Okay. Excellent. And then on the subscription side, any any updates on kind of the momentum you're seeing with pro product attached you know, especially after know, launching FieldPro at Pantheon? Thanks.

No. We we continue to see strength in our pro product attach. I think that is one of the main and most important growth drivers for us. I think that what you're seeing, if you look at our overall platform run rate, is a tale of of of sort of three things. The first is when GTV grows the way it 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 not the market standard. Those two headwinds are being more than compensated by the growth we're seeing in pro products. And that 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.

Thank you so much. One moment for our next that comes from the line of Hannah Rudolph with Piper Sandler. Please proceed.

Hi, guys. Thanks for taking my question. 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 product is in a good place, or do you feel like you still have a lot of room to optimize the pricing and packaging of pro?

You know? I we've talked pretty openly that we've not optimized our our our our pricing. I think max is the beginning of the future. We think we have a 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 making sure that our customers as buyers that are wildly successful. And as part of that, we will evolve and ensure packaging pricing works perfectly for now. 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 timeline to get to market standard and what it's going to take to do that?

Yeah. 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's 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 maybe 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 you know, it'll be at least another year before we've got the market side of the thing, market side of the equation kicking in the same way that we do on the residential side.

Great. Thank you so much.

Thank you so much. And our last question comes from the line of Michael Turrin with Wells Fargo Securities. Please proceed.

Hey. Great. Thanks. 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 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 or some of the financial metrics that could maybe provide better signal, just give you a chance to you know, focus some of the the the conversation around where should be looking as they learn more of the ServiceTitan, Inc. story from here. Thanks very much.

Hey, Michael. I'll I'll take this one. I'm excited to to see you next week. I I think for us, a couple things worth noting here. First, as you know, we're trying to run this as a marathon, not a sprint. We're really excited for 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. Way we look at that is two things. One is 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 is our ability to earn a portion of that GTV. As revenue for us. And that is is principally right now, driven by the pro products you've heard us talk a lot about. And so I think watching our evolution in GTV and earn rate against it probably the best way to watch our performance here. Thanks very much.

Thank you. 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 wanna 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 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.