ServiceTitan, Inc. Q3 FY2025 Earnings Call

Thank you for joining us for ServiceTitan's Third Quarter 2025 Earnings Conference Call. All participants are currently in a listen-only mode. After the presentation, we will have a question-and-answer session. I will now turn the call over to Jason Rechel, Vice President of Investor Relations. Please proceed.

Thank you, operator. Welcome everyone to ServiceTitan's first-ever public company earnings call. We're here to discuss our Q3 FY25 results announced in our press release issued after the market closed today. We've also released an investor presentation, which can be found on our website. With me are ServiceTitan's Co-Founder and CEO, Ara Mahdessian; Co-Founder and President, Vahe Kuzoyan; and CFO, Dave Sherry. Today's call will contain forward-looking statements, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact could be deemed to be forward-looking. These include, among others, statements concerning our expected future financial performance, including our outlook and business plans and objectives, as well as our product roadmap, long-term targets and goals. These statements reflect our views as of today only and should not be relied upon as representing our views at any subsequent date, and we do not undertake any duty to update these statements. Forward-looking statements address matters that are subject to risks and uncertainties that could cause actual results to differ materially. Actual results could differ materially from those contemplated by our forward-looking statements. Reported results should not be considered an indication of future performance. Please take a look at our filings with the SEC for a discussion of the factors that could cause our actual results to differ, including our final prospectus filed on December 12, 2024. As a reminder, we previously disclosed certain preliminary fiscal third quarter operating results under the recent development section of our final prospectus dated December 12, 2024. Today, we are providing the final fiscal third quarter financial results and our guidance for the fourth quarter and full fiscal year. During the call, we'll discuss non-GAAP financial measures, which are not 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 third quarter earnings release, which we have filed with the SEC and is available on our website at investors.servicetitan.com. These non-GAAP financial measures are not intended to serve as a substitute for our GAAP results. And with that, let me turn the call over to Ara. Ara?

Thank you, Jason. I'd like to begin today by extending our sympathy to the Titans, the customers, and the communities that have been impacted by the devastating wildfires in the LA area. Our hearts are with you all during this saddening crisis, and we are here to support you as we forge ahead together. And thank you all for joining us for our first earnings call. Since we just met with you a month ago on our roadshow, our goal today is to reinforce the key points we shared with you and to begin to establish a public company operating rhythm. We are grateful for the time you've all invested in getting to know our business. Our goal is to be good stewards of the capital as we build what hopefully becomes a generational company and the operating system for the trades. Our December IPO was an important milestone for both our business as well as for the trades and marked just how far we've come together. Our IPO, however, was never the destination, and in fact, it's just the beginning of a new era for ServiceTitan, for our customers, and for the trades because the only thing more exciting to me than how far we've come is just how much further we have yet to go. We are obsessed with this industry because we grew up in it. It's in our DNA. We grew up watching our dads put hours and hours into building their trades businesses and struggled to see the financial success we thought they deserved. They sacrificed so much to give us a brighter future. And so, we built ServiceTitan to solve the problems that they faced. Thankfully, today, our dads are no longer our only customers. On our IPO roadshow, we shared our aspirations to build a generational company and why we believe we have the five underlying drivers required to enable this journey. I'd like to remind you of these drivers today. First, our market opportunity is large and durable. Second, we're the leader in the market. Third, our competitive moat gets deeper every day. Fourth, we have many vectors to grow our business with a plan in place for each. And fifth, we target a long-term business model to grow efficiently and become highly profitable over time. So let's first talk about our market opportunity. We estimate that end customers spend roughly $1.5 trillion annually on services in the trades in the US and Canada alone. On your way home today, I'd like to encourage you to pay attention to just how many trade vehicles you see on the road. This industry is ubiquitous, it's essential and the jobs these men and women in the trades complete every day are immediate, preventative or non-discretionary in nature. People simply do not go without air conditioning in scorching heat or heat in freezing cold or without plumbing. Even in difficult times, the trades keep our society running. We executed consistently well against the backdrop of this healthy market during Q3 and we're working hard to execute against the estimated $13 billion of addressable revenue opportunity in front of us today. The second and third underlying drivers are our market leadership position and the widening moat around ServiceTitan, each based on the fact that we power our customers' entire business end-to-end across nearly every key workflow. We are essential to the success of our customers' businesses and our business is built around maximizing their success. Our software optimizes our customers' business across their entire funnel to help them increase revenue and profits. This makes us mission-critical and the transformational customer outcomes we help deliver attract new customers, so that they can better compete in the market. This expands the customer footprint upon which we can offer our integrated portfolio of Pro products to further expand effective earn rate and net dollar retention. This is a powerful flywheel that extends our leadership position, deepens our moat, and strengthens our ability to deliver future customer value. Our obsession with making customers successful, our position as part of the trades, and our visibility into the full workflow of our customers have positioned us to continue to grow. Now before I turn it over to my better half of work to talk about our fourth driver, our growth vectors, I want to step back to thank our customers and our team. We are in the position that we are in today because of our customers' trust and partnership, because of the transformational ROI we are able to deliver for them, and because of the team that works tirelessly every day to make sure that this happens. We won't stop until we've helped every contractor transform their business with ServiceTitan. Vahe?

Thanks, Ara. I am deeply saddened by the devastating fires throughout many of our communities in Southern California over the past week. My thoughts are with everyone affected in ways big and small. We're part of the fabric of Glendale, and we will support our Titans, our customers, and our surrounding communities to pull through together. We're only now building relationships with our new public stakeholders, but you need to understand that our commitment to our people and our customers is ingrained in who we are. We are focused on delivering ROI to our customers because it's the right thing to do and the core of our growth engine. As we deliver value to customers, we help them grow, driving more subscription and fintech revenue. We earn the right to sell more products and attract new customers eager to benefit from the ROI that our platform delivers. We have a proven track record of doing exactly this. We've gone from serving small residential plumbing businesses with just our core platform to now supporting more than 10 trades, both residential and commercial, and empowering many of the largest private equity-backed customers in the market. We offer 10 pro and fintech add-on products that our customers value, which increases our effective earn rate. This is why as we look ahead, we have conviction in our ability to execute our growth strategy to become the standard in all the trades we serve. It's simple. We want to bring as much GTV onto our platform as possible by bringing more value to our customers and helping them grow and succeed through higher utilization of our platform and more pro and fintech products, we realize a larger effective earn rate of that GTV. The breadth of our platform gives us a significant advantage for two reasons. First, we have visibility into our customers' entire workflow. We know their largest challenges and can then work to deliver solutions with high ROI over time. And because our pro products are a more sophisticated version of what is already offered in our core, the cross-sell motion is far more natural for us and for our customers because we help them get stronger in an area we're already solving for today. The benefits of these advantages extend into new trades, where we can have success both more efficiently and more quickly over time, as evidenced by the traction we are seeing in commercial and roofing today. Speaking of pro products, we launched our two latest at Pantheon during Q3, Sales Pro and Contact Center Pro. Sales Pro was born from customer demand to proactively improve the technician selling experience. Contact Center Pro was born from demand to consolidate, automate, and improve efficiency of the entire customer service experience. The foundation for both of these new pro products enhances the capabilities we already deliver to customers today and leads to substantial improvements in customer ROI. For these reasons, we have seen very strong early traction. Rather than draw a line around a particular type of software application, we've drawn a line around our customers. We've always built solutions to real problems for our customers and for the trades. I'm excited to share our progress with you moving forward. And with that, let me turn it to Dave to talk about our financials. Dave?

Thanks, Vahe. I'll echo each of your sympathies for those impacted by the fires here in Southern California. Our thoughts are with you. Today, I'm planning to reinforce our guiding financial principles, run through Q3 financial results in detail, and provide guidance for Q4 and the full fiscal year ending January 31, 2025. We're running this business for a marathon, not a sprint. Our goal is to durably compound revenue growth over many years and expand margins at the same time, growing earnings faster than revenue. Our long-term non-GAAP operating margin target is 25%, and our path to that target will be driven by a focus on incremental operating margins, meaning how much of every incremental dollar of revenue turns into incremental non-GAAP operating profit. We believe the best proxy for long-term profitability is incremental margins, and as such, we will manage the business to deliver 25% non-GAAP incremental margins. Let's use this year's guidance as an example of how we operate the business. Based on the midpoint of full-year fiscal 2025 guidance, we expect fiscal 2025 revenue of $762.6 million and non-GAAP operating profit of $21.9 million. That's an increase of $148 million of revenue and $39 million of non-GAAP operating income. Thus, we expect incremental operating margins of just over 26%. As we've discussed, the shape of our incremental operating margins will be different next year as we absorb the cost of becoming a public company. Beyond FY26, our goal will be to deliver incremental margins consistent with our long-term operating margin target of 25%. We believe the output of this philosophy will result in sustainable long-term growth and margin expansion. Our Q3 results were above the midpoint of our preliminary financial range previously provided, powered by the success and expansion of our customers. Subscription revenue modestly accelerated, led by steady execution and early strength of our new pro products. Usage revenue also performed well. We've delivered consistent execution on our incremental margin framework through fiscal '25 to date. Q3 total revenue was $199.3 million, up over 24% year-over-year. Q3 subscription revenue was $145.3 million, up 27% year-over-year. Usage revenue was $45.9 million, up 23% year-over-year, and total platform revenue, the sum of subscription and usage revenue, grew 26% year-over-year. As a reminder, our core and pro product revenue is principally monetized via subscription, while usage revenue is principally fintech revenue recognized on a net basis. Professional services revenue was $8.1 million during the quarter, a decline of 4% year-over-year. Q3 gross transaction volume or GTV was $17.8 billion, up 20% year-over-year. Net dollar retention was greater than 110% during the quarter. As a reminder, we expect to report GTV every quarter, net dollar retention in a range every quarter, and both gross dollar retention and total active customer count annually. Q3 non-GAAP platform gross margin was 77.1%, an improvement of 30 basis points year-over-year, and total non-GAAP gross margin was 70.4%, up 90 basis points year-over-year. As a reminder, we invest in professional services to make customers successful on our platform. We think about professional services losses as customer acquisition costs in the service of maximizing long-term customer value. Q3 non-GAAP operating income was $1.6 billion, leading to a non-GAAP operating margin of almost 1%, an improvement of 350 basis points year-over-year. Free cash flow was $10.6 million, up from negative $6.2 million for the prior year third quarter. As we look forward, you should expect modest leverage from gross margin and sales and marketing as a percentage of sales. You should expect minimal R&D leverage over the next several years as we prioritize a series of product S-curves to support durable growth. In the near-term, you should expect high incremental G&A costs as we absorb the cost of becoming a public company, but expect G&A leverage thereafter. We ended Q3 with $134 million in cash and cash equivalents compared with $173 million in debt. After the end of Q3, we successfully completed our initial public offering, including the full execution of the underwriter's option to purchase additional shares, which generated $672 million in cash, net of fees. This allowed us to retire our class of non-convertible preferred stock for $311 million and add $361 million in cash to our balance sheet. Optimizing our capital structure and transitioning into a net cash position puts our business in a financial position of strength moving forward. Shifting to guidance. As Ara mentioned earlier, our goal today is to reinforce the key investment points that we share with you on our roadshow and establish an operating cadence with you as a public company. For the fourth quarter, we expect total revenue in the range of $199 million to $201 million, representing growth of approximately 24% year-over-year. We expect to generate non-GAAP operating income in the range of $3 million to $4 million. For the full-year fiscal 2025, we expect total revenue in the range of $761.6 million to $763.6 million, representing growth of approximately 24% year-over-year. We expect to generate non-GAAP operating income in the range of $21.4 million to $22.4 million. The business performed well during Q3. We see this performance as evidence that our strategy to become the operating system for the trades is working, which has positioned us for long-term durable growth.

Thank you. Our first question comes from Kash Rangan of Goldman Sachs. Please proceed with your question, Kash.

Thank you very much. Such a pleasure to connect with you guys. Congratulations on your first quarter as a public company. Congrats on the results, and I do share your sympathies with all those affected in Southern California. So join you with that. One for you, Ara, when you look at the commercial opportunity versus residential, can you give us some milestone markers from a product perspective, maybe Vahe can jump in here as well as to what are the things you're looking for in the commercial version of the product to unlock that massive TAM that's even larger than residential and the go-to-market, if you will, the strategy that you'll be employing in the upcoming fiscal year to help unlock commercial? That's it for me. Thank you so much.

Thank you, Kash. We appreciate the kind words and always appreciate the partnership. So when it comes to commercial, there are basically four key things. There is the customer acquisition portion, the pre-sales piece. There's the cash collection cycle. There's construction and then there's the pro product and broader attach story. We feel really good about where we're at today on the first two. We've made a ton of progress there, and we're really happy with the traction we're getting on that front. This year, the primary focus is on construction. That's where we feel it's most important for us to close the gap this year in order to really put us in a position to becoming the market standard. After that is the pro product story where, as you would imagine, on the residential side is much more mature than it is on the commercial side. That's what our priorities are there.

Thank you very much, and congrats.

Thank you. Our next question comes from the line of Josh Baer of Morgan Stanley. Your line is open, Josh.

Great. Thanks for the question, and congrats on the IPO. One sort of strategic question and one on the numbers. Just hoping you could comment on what you're seeing around consolidation trends, private equity roll-up and standardizing on ServiceTitan, what you're seeing today and how you're thinking about those trends continuing in the future?

Thank you, Josh. Great question. Again, thank you for the partnership. We've seen a lot of consolidation in the past several years. We continue to see consolidation. For us, they happen to be some of our best customers, best partners. There is the strongest product fit and customer need in this segment because they have both the enterprise needs of things like multi-location management, rollover reporting, centralized security, et cetera, as well as the trade-specific workflow needs. They help us by accelerating our own customer acquisition as they buy other companies and onboard them onto ServiceTitan. They tend to be great operators, so they grow quickly, and that means more licensing and GTV on our platform. They have a high appetite for our pro products, low churn, and they become lighthouse customers for us. In many cases, they actually help us move into new markets through their partnership. That is actually how we entered roofing through a partnership with one of our largest consolidators in plumbing and HVAC. So all in all, they tend to be great customers and partners, and we continue to see the consolidation trend.

Great. Thank you. And follow-up for Dave. Assuming that there is some conservatism in Q4 revenue guidance, it doesn't take much to see how that will show an acceleration in 90 days after your report. What would be causing that acceleration at this point, both on a year-over-year basis, quarter-over-quarter basis?

Thanks, Josh. Great question. I mean a couple of things. Regarding guidance, our overall approach is to establish a consistent track record with you all as a public company. With respect to growth rates, as a reminder, in early Q4 of last fiscal year, we disposed of an asset that was generating single-digit millions of dollars in revenue. That's been a headwind over the last four quarters and year-over-year growth. That headwind will no longer be there in Q4 and beyond. Finally, with regard to what's driving the guidance in Q4, there are two offsetting factors. First is the seasonal sequential decline we generally see in GTV and usage revenue in Q4, consistent with prior years. Second, is given the momentum we’ve seen in subscription revenue over the last couple of quarters, we do expect sequential increases there. In total, our guidance calls for a small sequential increase in Q3 as we expect the subscription increase to be larger than the decline in usage revenue. Important to note, we are not trying to be in a place where we massively overperform. What we're trying to do is create a consistent operating cadence with you all.

Got it. Thank you.

Thank you. Our next question comes from the line of Michael Turrin of Wells Fargo Securities. Please go ahead, Michael.

Hey, good afternoon. Thanks for taking the question and hope you're all staying safe down in SoCal. You mentioned the focus on durable growth. We see growth rates holding in quite consistent over the past several quarters. Maybe help frame the drivers of that more consistent growth profile, the control you have there, and when we think about the mix between new logos and expansion where the priorities lie for the company currently. Thanks.

This is Dave. Thank you for the question. Over the past four quarters, we've observed a steady year-over-year growth rate in subscription revenue, ranging from 26% to 27%. This growth comes from both new and existing customers. If we experience strong performance in a particular quarter, it will probably stem from faster expansion with our current customers, especially considering our pipeline of new clients. Ara, do you have any insights on the mix of new and existing customers we've encountered?

Yes, the growth we see from the installed base and from new business, it's historically been relatively balanced and that held true in Q3. We had healthy new business activity, as well as healthy existing customer upsell. It is not overly weighted to one or the other. The mix can often vary depending on the size of new customer lens. We just talked about the consolidation and how that benefits us too, but there is a healthy mix of both.

Thanks. Maybe just as a follow-up on the net retention rate, you provided greater than 110%. I think Dave mentioned you'll give us a range on a quarterly basis going forward. Is that 110% a target level you'd expect to execute above for the foreseeable future? Or maybe just help level-set what we should expect from that metric in a normalized environment on a go-forward basis? Thanks.

Absolutely. Thanks, Michael. I think our net dollar retention story certainly begins with gross dollar retention. As we talked about quite a bit, we benefit from having high gross dollar retention north of 95% for the 10 quarters preceding our IPO. When we look at net dollar retention, the biggest expansion despite the hardest part of our story being onboarding happens in the first two years of a customer being on the platform. When we look beyond the first two-year cohorts, what we see is net dollar retention roughly in the range of 110%. For that reason, we picked this range of 110% and beyond.

Thank you.

Thank you. Our next question comes from the line of Tyler Radke of Citi. Please go ahead, Tyler.

Yes. Thanks for taking the question, and congrats on the IPO and first earnings call here. So you talked about some success with some of the new pro products that you launched at Pantheon marketing and call center. Just wondering if you could dimensionalize the success you're seeing in pro products, either what milestones are you tracking in terms of sign-ups or contributions to deals you're seeing? Just any more detail you could share on some of those new products?

Yes. As we noted, we're excited about the incremental ROI that our pro products create for our customers, including our latest pro products, Sales Pro, and Contact Center Pro. We are pleased with the customer enthusiasm and the early progress for both of these products. They're pacing well relative to other pro products at this stage, but it's still quite early. We see a big opportunity for both of these products. So, we are very much focused on a big opportunity in the long run, but pleased with what we're seeing so far.

Great. And then a follow-up, would love just to hear your updated conversations you're having with customers here over the last few weeks with the inauguration setup next week and obviously, there's some puts and takes with every new administration. But maybe if you could just kind of go through what you're hearing both on the optimist front in terms of pro-business policies, but then also potentially some concerns around immigration policies and how that could impact your customers?

Yes. Great question. I'm not hearing concerns from customers. This is a large market, very durable one, and it's done well across all kinds of economic situations and administrations. Let's remember, the market is largely non-discretionary. 75% of work performing in the trade is immediate; it's non-discretionary, it's got to get done when plumbing doesn't work or your air conditioning goes down in the middle of summer. We do not consider any administration or potential policy changes to be a risk factor for the business. Our customers and their employees, they're highly-skilled, they're highly trained technicians who are in customer zones.

Thank you.

Thank you. Our next question comes from the line of DJ Hynes of Canaccord Genuity. Your line is open, DJ.

Hey. Good evening, guys. I'll also pass along my congrats. It's been great to see the IPO success. Ara, just given it's topical, when we see natural disasters like this, whether it's fires in Southern California or hurricanes or whatever it may be. Can you just talk about the impact on your business and maybe parse that out kind of immediate term and intermediate term? I suspect maybe it's kind of different impacts as times pass, but I'd be curious to get any color there.

Hey, DJ, it's Dave here. I will say that it's still too early to tell what we think the impact here will be. I think that what we've seen historically is what we expect here, which is we don't think they'll have a material impact either in the short term or the long term. Our GTV is spread quite significantly geographically. We don't expect a big impact. Our focus today is on how we can help rebuild the community that we're part of. We don't expect to be a big impact short or long-term.

Okay. And then, Dave, while I have you, maybe a follow-up. Given we're still all getting acquainted with the business model, I was hoping maybe you could talk about any fiscal Q4 free cash flow expectations and anything we should be paying attention to there?

Yes, sure. I think that you obviously, Q3 free cash flow was a fair bit ahead of operating income. I think that's driven by a couple of factors. First, of course, we beat non-GAAP operating income. Second, CapEx is lower than it was in the prior year. Third is working capital, which was quite in our favor in Q3. Part of that has to do with bonuses, which we will expect to give back in Q1. To answer your question specifically on Q4, I do expect us to be free cash flow positive, roughly in line or a touch ahead of what we had in operating guidance in the quarter.

Perfect. Thank you guys for the color. Congrats.

Thanks for the question, DJ.

Thank you. Our next question comes from the line of Dylan Becker of William Blair. Please go ahead, Dylan.

Hey, gentlemen. I'll echo my congrats and thoughts for everyone in the SoCal area here. Maybe Ara, starting with you, you guys are sitting on a trove of data. I think it's something like 110 million projects that have run through the platform. I guess we're wondering how customers and services businesses are thinking about leaning into operational context. What opportunities maybe does that provide from a predictive or proactive perspective? And what are the implications of driving kind of resiliency in the business models and improving economic outcomes for businesses as a function of that?

Thank you so much, Dylan. Fantastic question. I think it might almost seem ironic that such big opportunities for data and AI, some of the biggest happen to be in the trades, and we happen to be big beneficiaries of this. As you mentioned, we have the largest data asset, so we are able to glean a lot of insights. But more importantly than just the data is the fact that we are the end-to-end workflow for our customers, the system of record. We're able to turn those insights into outcomes for them automatically, which means they automatically get ROI from that data and that's what drives the appetite for them to buy products from us. The AI story is not hype; it's a reality. We already have three AI products. Dispatch Pro matches the right technicians for the right job to increase our customers' revenue and decrease drivetime and costs, ad optimizer optimizes ad spend towards the most profitable campaigns to increase our customers' revenue and lower their cost per lead. Sales Pro records the conversation between the technician and the end customer to help coach technicians to provide a better customer experience to increase close rates and average tickets, which makes contractors more money. When these products help our customers make more money, they're more than happy to pay us for those products, and we think this is just the beginning. Our customers have a big appetite for us to continue automating their business and making it more efficient. That's been the direct ask from them to me and Vahe. These three products are the first innings of what we hope to do.

Okay, great. That's helpful. It's a good segue maybe to a second question for Vahe here. As you align that value proposition with the platform build-out around customer success, how are you thinking about the extent of being able to leverage that partnership or that customer value towards that incremental adoption that you're seeing with some of those newer SKUs, maybe stacking those S-curves at a faster cadence as a function of the compounded value you've been able to build out over time?

Sorry, can you just restate the question? I'm not sure I follow.

Sure. Yes. So being able to leverage that value case, how that fuels your product innovation roadmap and how that drives that incremental early-stage adoption, you called out kind of Sales Pro and Contact Center Pro. So that historical kind of ROI cadence enabling the faster stacking of some of those earlier S-curves across new markets in Pro SKUs, if that makes sense?

Got it. Okay. Thank you. One of the key benefits that we have with this regard is we're kind of the scorekeeper for our customers, and that becomes very important because we have a closed group visibility from beginning to end and that includes the impact that our products make on our customers' businesses. We're able to optimize how we build the product and how we evolve it based on the results that our customers see, which has a huge impact on the quality of the products we have. Secondly, we're able to make sure that our customers perceive the value that we're able to generate, which obviously becomes very important from a decision-making perspective and so forth. This virtuous cycle we think is a big part of what gives us the right to win within this domain and why we think that there's still a pretty deep well of additional SKUs that we're going to continue to be able to build in addition to being able to use AI in the data to evolve the existing SKUs we already have, including the core.

Okay, great. Thanks guys. Appreciate it, and congrats again.

Thank you.

Thank you. Our next question comes from the line of Jason Celino of KeyBanc Capital Markets. Please go ahead, Jason.

Great. Thanks for taking my question. Nice to hear from everyone. And yes, want to echo my sympathies for everyone in the LA area. I did want to ask about take rate or earn rate. This is a big focus and growth driver. Obviously, there are puts and takes dependent on which trades you enter and how quickly. But when we think about commercial, do those take rates differ materially from the residential side? I'm really just trying to understand if you see the same type of payments adoption with commercial customers? Thanks.

Yes, great question. The drivers on take rates are the pro attach, the fintech attach, and pricing. Certainly, all three increase with product maturity in a given market segment. So in segments where we are new entrants, these three are naturally lower. In segments where we are the market standard, these three are higher and hence, our focus on improving product maturity in each segment and becoming a market standard in each segment where we currently aren't the standard. We've seen very good traction on the commercial side by the objective measures that are known to us with a number of customers or GTV on the platform. We are the leader in commercial. Our goal ultimately is to be more than just the leader; we want to be the market standard. We've seen when we become the market standard, all the drivers improve. Vahe laid out the priorities on the commercial side from the very beginning when we won Tensor Commercial. It was the four priorities we laid out, pre-sales, cash collections, project workflows for commercial companies that have meaningful construction portions of their business, and then the pro test. We prioritized one and two and got those done and we're in the middle of number three. Once we're done with number three, the next area of focus will be augmenting the pro products to solve the needs of the commercial-specific workflows within those core products.

Okay. Excellent. And then maybe just a quick follow-up on competition. What does the competitive set look like on the commercial side? Is it even more DIY, or just help us understand since we're all relatively new to the trades here?

It's very similar to the competitive landscape on the residential side, which typically has four categories. The first category includes the legacy players, where trades business owners or their relatives previously developed software for these businesses when no options were available. While we respect these products for their shared mission of serving hardworking contractors, we have invested significantly in advanced technologies that provide exceptional capabilities. The second category consists of point solutions. We typically outperform in this area because, although these trades businesses are sophisticated, they prefer not to spend time and money on integrating and customizing these solutions to fit their workflows; they would rather buy from us. The third category is made up of horizontal players. While they excel in enterprise capabilities needed by large customers, our trade-specific workflows give us a competitive edge against them. The last category includes down-market players. We acknowledge that while we do not serve the down-market, there are software options available that cater to this segment and help contractors grow, leading eventually to an upgrade in service.

Perfect. Thanks, Ara.

Thank you. Our next question comes from the line of Scott Berg of Needham & Company. Please go ahead, Scott.

Hi, everyone. Really nice quarter here, first quarter out of the gates. Two for me. First one is to start with Ara, you talked about the five growth drivers of the business. Number four was the many vectors to grow. I guess out of those vectors, which one are you most excited for maybe near term for the business?

I'll take that one. This is Vahe. As I think about going into Q4, we had our annual user conference, Pantheon during Q3 and our team executed well with new customers and new pro products. This led into our initial industry offering to celebrate the trades in our business, and we're in a good position of strength looking into Q4.

I think on the growth vector side, we continue to focus on improving product maturity in the segments that we have recently entered. Our goal in all the segments we choose to compete in is to become the market standard, hence why we maintain a continued focus despite the great traction that we've seen on commercial, and the continued focus on the pro products. Our growth algorithm is, number one, to get as much GTV onto the platform as possible, and then number two, continue to deliver so much value and ROI to our customers that we continue to earn a deeper partnership with them. We are excited on both fronts, both in market segments and pro products.

Got it. Very helpful. And then it's your fiscal fourth quarter, there's roughly three weeks less. You're pretty much through. My guess is you're planning for how you think about fiscal '26. I know you're not guiding for fiscal '26 at all, but as you think about the growth investments in the business next year, whether it's on the R&D side or go-to-market, should we expect '26 to look a lot like '25, or is there a new initiative or two that would be vastly different that we should consider as we start looking at our models? Thank you.

Yes. I think what we've articulated will remain true. We see the incremental investment goal right now feels that the most opportune place to put it is in part R&D. Therefore, I would not expect much operating leverage there. The operating leverage probably comes from sales and marketing or cost of revenue. In the next year, I would likely expect some negative operating leverage in G&A. As you think about what our P&L looks like because of the cost of becoming a public company, I expect a little bit of negative operating leverage there. In terms of priorities, they remain the same that Ara just articulated, big push on commercial, and a big push on pro products. I don't think that you should expect significant change to our strategy or P&L. The key thing that we talked about a bunch of times is a focus on incremental margins in the year to come. Again, we don't think we'll hit the 25% target next year as we absorb the cost of becoming a public company, but we do focus a lot there, and the incremental dollar above our target will probably go to operations.

Excellent. Nice quarter again. Congrats everyone.

Thank you.

Thank you.

Thank you. Our next question comes from the line of Terry Tillman of Truist Securities. Your question please, Terry.

Yes, thanks. Hi, Ara, Vahe, Dave, and Jason. Congrats from me as well on the IPO. I'm sorry for the background noise. I'm at the airport. My thoughts are also with all those affected by the fires in California. So I have a question and then a follow-up. In terms of Marketing Pro, as we've done our due diligence talking to customers, it seems like that has a really high attach rate or a very good attach rate. Do you have any sense on your next potential product breakout, whether there is something that's next in line that could have more size and scale, or are they all pretty balanced? I know you love all your products just like you love all your children, but I'm just curious if there's something that's next to maybe get to that inflection point like Marketing Pro. And then I had a follow-up.

Thank you, Terry. I appreciate your insights. One of the most exciting aspects of our business is the abundance of opportunities available to us. We are very satisfied with the performance of Marketing Pro, which encompasses various capabilities like email marketing automation, reputation management, ads optimization, and direct mail. At this moment, similar to my previous response, we see substantial growth potential in our current market segments and in our existing pro products, particularly with the introduction of Sales Pro and Contact Center Pro. We prefer to maintain our focus, as we believe it enhances execution and leads to improved results. When we have successfully addressed our current initiatives, we will look forward to evaluating the remaining opportunities and prioritizing them. The customer connections in our business are invaluable; Vahe, I, and our team regularly communicate with customers, giving us great insight into their future needs.

The one thing I'll add on top of that is what we announced at Pantheon with our commercial CRM product that will be here, which will effectively be the commercial analog for Marketing Pro. That's going to be a big part of that fourth part of the commercial story of maturing our pro product that we're very excited about.

That's great to hear. I guess, Dave, a follow-up question for you is, I'm just curious where you are in the maturation of these larger consolidator or PE-backed customer transactions. I mean, is there a normal cadence and predictability to those? I think you talked about Authority Brands recently, which seems like a pretty big opportunity. How does the timing work in terms of revenue recognition and rollout? Is it a couple of years, 1.5 years, etc.? Thank you.

Sure. I think there's two questions in there. The first is on the consolidation trends. We feel like we've seen a fair bit of consolidation that Ara mentioned. We still feel like there's room to grow. These are some of our best customers with the highest product market fit. We're excited about that trend continuing. With regard to large customers like Authority Brands and others, it depends on the contract by contract. What I'll say is they typically have a rollout side-by-side. It's rarely done more than a year. We try to get in within a year, but I think it depends on the contract in the case of Authority Brands. We're excited about the early progress in getting them live.

Thank you.

Thank you. Our next question comes from the line of Brent Bracelin of Piper Sandler. Your line is open, Brent.

Hi, guys. This is Hannah Rudolph on for Brent. Our thoughts and sympathies are with those in the SoCal area and we hope you and your loved ones are staying safe during this difficult time. Thanks for taking my question. Just one here. It's good to hear the momentum you're seeing with your two newest pro products you announced at Pantheon. I understand the ROI that you're driving there, but how do you think about consistently incentivizing pro product adoption when you're landing end-to-end?

Yes. Good. Great question. When we talk about landing end-to-end, we are referring to landing end-to-end with our core product because our core product is so wide and handles everything from call booking to scheduling to dispatching, to a little bit of marketing, to inventory, payroll, etc. Think of the core product as offering a very meaningful level of sophistication across all those different workflows. The pro products offer the highest level of capability and sophistication in any one of those workflows. We typically land customers through the core product, so we have a long runway for attaching pro products thereafter. The strategy fundamentally is about realizing the ROI that underwrote the original buying decision within the core product. That's typically the most important predictor of whether or not we'll have success with the Pro Product story. So our plan is always to make sure that the customer gets first and foremost what they bought with the core, deliver that success, and then earn the right to go talk about pro products and anything else.

Super helpful. Thank you.

Thank you. Our final question comes from the line of Yun Kim of Loop Capital Markets. Your question please, Yun.

Okay, great. First, congrats on a successful IPO and also very congrats on a very concise prepared remark, especially for your first earnings call. My question, just following up on consolidation trends, just at a high level, if you can share with us some thoughts on how that is changing your sales cycle and the efficiency of that sales cycle? And what are you seeing in terms of the overall monetization or take rate of those verticals that are going through the consolidation wave?

Yes. Great question, Yun. We believe that great businesses will continue to move on to ServiceTitan in order to better compete in their markets. We prefer to land customers on their own timeline as opposed to try and do unnatural things to accelerate this process, which typically involves just more sales and marketing spend or discounted ARPUs or a less than great commitment to the implementation process. The sales cycles with the largest consolidators can vary for some that know a lot about ServiceTitan already and have that exposure through their portfolio companies, or in another market, that sales cycle can be quite quick. For others where they may have invested many years and many millions into, for example, a homegrown system, that sales cycle can be quite longer. There is great variance in those sales cycles. What we have seen is that the consolidators typically have the highest appetite for the pro product attach story simply because they're very sophisticated operators, they want the highest level of capability across every workflow. Their focus is to streamline every part of their business as much as possible, seeing that high utilization and adoption of service tighten as vital. We work with them directly to identify all the things they might not be using and share why it's compelling to use.

Okay, great. I have a quick product question. One of the best-attended sessions at Pantheon, at least from my observation, was the session on Convex. If you can update us on how that business is trending and is that Convex business helping you with your push into commercial?

We're very happy with the progress we're seeing on the Convex side, both in terms of its performance with its current product. Personally, I'm even more excited about the opportunities that lie ahead with the merger of the dataset and the ServiceTitan dataset. It effectively allows us to build a pre-populated CRM. That's the vision of where we're driving it. What's also been super helpful is Convex's stellar reputation with some of the biggest players within the commercial industry and the ability to have access to those customers in terms of getting insights into where value-creation opportunities exist and just understanding how we can serve them better. We couldn't be more thrilled with this partnership and continue to see a lot of legroom within that part of the business.

Okay, great. Thanks for the update.

Thank you. Ladies and gentlemen, that does conclude ServiceTitan's third quarter 2025 earnings conference call. Thank you for participating. You may now disconnect.