ServiceTitan (NASDAQ: TTAN) beat expectations in its fiscal second quarter. Revenue reached $292.8M, about $6.8M above the $285.9M consensus, while non-GAAP diluted EPS of $0.40 cleared the $0.35 mark. The headline numbers are solid. The real story is operating leverage taking hold and an AI product cycle accelerating faster than planned.
Platform revenue, the core subscription and usage business, grew 22% year over year to $284.5M. Gross transaction volume (GTV), a proxy for the total dollars flowing through ServiceTitan's system, rose 17% to $26.8B. Net dollar retention stayed above 110%, showing existing customers are expanding usage. The professional services segment, a smaller and lower-margin line, contracted to $8.3M from $9.4M, a deliberate shift toward higher-quality recurring revenue.
This quarter's margin performance sets it apart. GAAP loss from operations narrowed to $(27.6)M from $(34.8)M, a 14.4% improvement to a -9.4% GAAP operating margin. The non-GAAP picture is more telling: non-GAAP income from operations jumped to $44.4M from $29.2M, pushing the non-GAAP operating margin to 15.2% from 12.1% a year ago. That 310 basis points of expansion arrived even as GAAP research and development costs climbed 38% year over year, driven by heavy investment in AI. The company is spending aggressively on product and still delivering margin leverage. Revenue is flowing through to profit faster than the cost base is inflating.
Free cash flow, which strips out stock-based compensation and capex, hit $50.5M, up from $34.3M a year ago. GAAP operating cash flow improved to $58.0M from $40.3M. Cash generation is real and getting stronger, even with ongoing investment in internal-use software and AI infrastructure.
The Max AI product is the most forward-looking data point. ServiceTitan said it doubled the number of Max locations during Q2, exceeding internal goals, and now expects to end FY2027 with over 700 enrolled Max locations. This is a meaningful acceleration in AI adoption among the trades customer base. It suggests the company's bet on embedding AI into its core workflow platform is gaining traction faster than initially anticipated. The co-founders called this a "once in a lifetime" opportunity. The numbers back up the trajectory.
Guidance for the fiscal third quarter projects total revenue of $285M to $287M and non-GAAP income from operations of $29M to $30M. For the full fiscal year 2027, the company expects revenue of $1,139M to $1,144M and non-GAAP income from operations of $152M to $154M. The Q3 guidance implies a sequential revenue decline from Q2's $292.8M, typical for the seasonal pattern in the trades software business. The full-year range suggests management sees sustained momentum. The full-year non-GAAP operating income guidance implies a margin roughly in line with Q2's 15.2%, a significant step up from the 9.9% non-GAAP operating margin reported for the first half of FY2026.
One note of caution: stock-based compensation remains a heavy drag on GAAP profitability. SBC totaled $60.6M in Q2 alone, up from $49.3M a year ago, with co-founders' performance-based RSUs adding another $13.5M. GAAP net loss narrowed to $(24.9)M from $(32.2)M, but the gap between GAAP and non-GAAP earnings is wide and widening. Investors focused on GAAP metrics see a company still losing money. The bull case rests entirely on the non-GAAP narrative of operating leverage and cash generation.
The key question for the rest of FY2027 is whether the Max AI adoption curve can sustain its acceleration without a step-up in sales and marketing spend that compresses margins. Non-GAAP sales and marketing expense rose to $64.3M from $56.3M, but as a percentage of revenue it actually declined slightly. This suggests the company is getting more efficient at landing new customers and upselling existing ones. If that efficiency holds, the margin expansion story has room to run.