ServiceTitan (NASDAQ:TTAN) had a pretty good Tuesday evening. The software company reported fiscal second-quarter results that beat Wall Street's expectations, raised its full-year revenue outlook, and talked up the growing adoption of its AI-powered platform. Investors, however, were not in a celebratory mood. By Wednesday premarket, shares were down about 18%.
What gives? Well, it's a classic case of the market focusing on what's ahead rather than what just happened. While the quarter itself was solid, the company's guidance for the current period came in a bit light, and there's a notable change happening in the C-suite. Let's break it down.
The Quarter That Was
For its fiscal 2027 second quarter, ServiceTitan reported revenue of $292.76 million, up 21% year over year and ahead of the $285.96 million analysts had penciled in. Adjusted earnings came in at 40 cents per share, beating the 35-cent estimate.
Gross transaction volume, a key metric for the company, rose 17% to $26.8 billion. Even when you adjust for business days and weather, growth stayed at 17%. But here's the thing: that's about 200 basis points below what the company has been posting in recent quarters. The main culprit? Fewer jobs coming from existing customers.
Net dollar retention remained above 110%, which is still strong, but the moderation in transaction growth is something to watch.
On the profitability front, things looked good. Total gross margin expanded 20 basis points to 74.6%, while platform gross margin rose 40 basis points to 81.1%. Operating income climbed to $44.4 million, and operating margin expanded 310 basis points to 15.2%. Free cash flow jumped 47% to $50.5 million, and year-to-date free cash flow reached $40.9 million, up from just $12 million a year earlier.
AI Is the Story
ServiceTitan is clearly betting big on its MAX platform, which uses AI to help contractors generate more leads, improve booking rates, and increase average ticket sizes. Subscription revenue rose 22% to $212.4 million, while usage revenue increased 24% to $72.1 million.
MAX now offers more than 30 agentic capabilities, including AI coaching, scorecards, and live escalations. The company expects more than 700 locations to enroll in MAX by the end of fiscal 2027. It's also increasing investments in MAX and its software factory.
Interestingly, ServiceTitan is choosing to focus on its existing commercial trades and residential roofing markets rather than expanding into new ones. That's a disciplined approach, but it also means growth will have to come from deeper penetration rather than new markets.
The Guidance That Spooked Investors
For the third quarter, ServiceTitan expects revenue of $285 million to $287 million. The midpoint of $286 million is below the $287.87 million analysts were looking for. That's not a huge miss, but in the current environment, any shortfall can trigger a sell-off.
The company did raise its full-year fiscal 2027 revenue outlook to $1.139 billion to $1.144 billion, up from its previous range of $1.130 billion to $1.140 billion. The consensus estimate is $1.138 billion, so the new guidance is roughly in line.
ServiceTitan also said it now expects fiscal 2027 incremental margins of 33%, and it views 25% incremental margins as an annual floor rather than a target. That's a positive signal for profitability.
A Changing of the Guard
Adding to the mix, ServiceTitan announced a leadership transition on Tuesday. Rikus Pretorius, who has been the company's senior vice president of worldwide sales for more than seven years, will become the next chief revenue officer at the start of the fiscal fourth quarter.
He'll be taking over from Ross Biestman, who has held the CRO role for nearly a decade. Biestman plans to step back from an active operating role after the fiscal third quarter but will stay on as an adviser through the end of fiscal 2027 to help with the transition.
During Biestman's tenure, ServiceTitan grew from less than $30 million in annual recurring revenue to more than $1 billion in annualized revenue run rate. That's a tough act to follow.
CEO Ara Mahdessian said on the earnings call that Pretorius had been Biestman's "right hand" for more than seven years and expressed confidence in the sales leadership team. Still, any time a key executive steps back, it can give investors pause.
So, put it all together: moderating transaction growth, Q3 guidance that missed at the midpoint, and a CRO transition. It's not hard to see why the stock is under pressure. As of Wednesday premarket, ServiceTitan shares were down 17.71% at $67.13.
It's worth noting that the company's fundamentals remain solid, and the AI push could pay off in the long run. But for now, the market is focused on the near-term headwinds.
