Q1 2026 Constellation Software Inc Earnings Call

May 13, 2026

Operator 2: Good day, and welcome to the Constellation Software Inc. Conference Call and Webcast Conference Call. I would now like to turn the conference over to Mark Miller, President. Please go ahead.

Operator: Good day, and welcome to the Constellation Software Inc. Conference Call and Webcast Conference Call. I would now like to turn the conference over to Mark Miller, President. Please go ahead.

Speaker #1: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press * then 1 on a touchstone phone.

Speaker #1: To withdraw your question, please press * then 2. Please note this event is being recorded. I would now like to turn the conference over to Mark Miller, President.

Speaker #1: Please go ahead.

Jamal Baksh: Good morning, everyone. Just wanted to start off by reminding everyone, we have the annual general meeting coming up this Friday, and we're hoping today to sort of take some quarterly questions on the financial results for Q1. Thank you all for attending, and I have both Bernie and Jamal with me to help answer any of those questions. Over to you.

Speaker #2: Good morning, everyone. I just wanted to start off by reminding everyone we have the annual general meeting coming up this Friday. And we're hoping today to take some quarterly questions on the financial results for Q1.

Mark Miller: Good morning, everyone. Just wanted to start off by reminding everyone, we have the annual general meeting coming up this Friday, and we're hoping today to sort of take some quarterly questions on the financial results for Q1. Thank you all for attending, and I have both Bernie and Jamal with me to help answer any of those questions. Over to you.

Speaker #2: And so thank you all for attending. And I have both Bernie and Jamal with me to help answer any of those questions. So over to you.

Speaker #3: Thank you. We will now begin the question and answer session. To ask a question, you may press * then 1 on your touch-tone phone.

Operator 2: Thank you. We will now begin the question and answer session. The first question comes from Thanos Moschopoulos with BMO Capital Markets.

Operator: Thank you. We will now begin the question and answer session. The first question comes from Thanos Moschopoulos with BMO Capital Markets.

Speaker #3: If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press * then 2.

Speaker #3: At this time, we will pause momentarily to assemble our roster. The first question comes from Thomas, with BMO Capital.

Speaker #4: Hi. Good morning. Maybe one for Jamal to start. So just on the margins for the quarter, I know you have the Q1 payroll taxes, and that there were some synchronous-related costs at Lumen.

Thanos Moschopoulos: Hi, good morning. Maybe one for Jamal to start. Just on the margins for the quarter, I know you have the Q1 payroll taxes and that there were some synchronous related costs at Lumine Group. Is there anything else that you might call out in terms of margin dynamic this quarter or nothing unusual of note?

Speaker #4: Is there anything else that you might call out in terms of the margin dynamic this quarter or nothing unusual of note?

Speaker #2: Yeah. I mean, there were some a couple other acquisitions that were a bit of a drag on margins, like the Q1 cohort of acquisitions themselves.

Jamal Baksh: Yeah, I mean, there were some a couple other acquisitions that were a bit of a drag on margins, like the Q1 cohort of acquisitions themselves were actually a negative margin for the quarter, which, you know, we totally plan to improve them, and it is a typical thing where we improve margins over time, but it was a bit of a bigger drag this quarter than previous quarters. If you look down the, like, the line items of what is impacting margins, you can also see hardware margins are slightly down. Again, that is not one of our core products, but again, it was 43% margins versus 46, and that had about a 20 basis point impact on margins. Professional services, again, you know, if we are making acquisitions and using third party services.

Speaker #2: We were actually a negative margin for the quarter, which we totally planned to improve them. And it's a typical thing where we improve margins over time.

Speaker #2: But it was a bit of a bigger drag this quarter than previous quarters. But if you look down the line items of what's impacting margins, you can also see hardware, margins were slightly down.

Speaker #2: Again, that's not one of our core products, but again, it was 43% margins versus 46%. And that at about a 20 basis point impact on margins.

Speaker #2: Professional services, again, for making acquisitions and using third-party services. And then also on the sorry, sorry, professional services. And then also on third-party maintenance, you can see that's up a bit as well.

Jamal Baksh: Also, on the Sorry, professional services. Also on third party.

Jamal Baksh: Also, on the Sorry, professional services. Also on third party maintenance, you can see that's up a bit as well, which again, nothing material to call out, but as we use a lot more of these third-party providers and, you know, for coding, et cetera, like you'd expect that to pop up a little bit as well.

Jamal Baksh: Maintenance, you can see that's up a bit as well, which again, nothing material to call out, but as we use a lot more of these third-party providers and, you know, for coding, et cetera, like you'd expect that to pop up a little bit as well.

Speaker #2: Which, again, nothing material to call out. But as we use a lot more of these third-party providers and for coding, etc., like you'd expect that to pop up a little bit as well.

Speaker #4: Great. And then one for Mark. Now that's been a few more weeks into the SaaS apocalypse. Have you been starting to see private market valuations for larger assets come down?

Thanos Moschopoulos: Great. One for Mark. Now that it's been a few more weeks into the SaaSpocalypse, have you been starting to see private market valuations for larger assets come down or is that not a dynamic that's transpired just as of yet?

Speaker #4: Or is that not a dynamic that's transpired just as of yet?

Speaker #2: Not really. Bernie and I were just chatting about it before the call. And he was saying maybe slightly, but Bernie, do you want to elaborate on that at all?

Mark Miller: Not really. Bernie and I were just chatting about it before the call, and he was saying maybe slightly. Bernie, do you wanna elaborate on that at all? Not really.

Speaker #2: But not really.

Speaker #4: Not really. It's really at the high end. We could see it maybe plateau a little bit, if not decline slightly in terms of valuations.

Bernie: Not really. It's really at the high end, we could see it maybe plateau a little bit, if not declining slightly in terms of valuations. At the low end where we play with most of our acquisitions, not at all.

Mark Miller: Not really. It's really at the high end, we could see it maybe plateau a little bit, if not declining slightly in terms of valuations. At the low end where we play with most of our acquisitions, not at all.

Speaker #4: But at the low end, where we play with most of our acquisitions, and not at all.

Speaker #3: Great. I'll pass the line. Thank you. The next question comes from Stephanie Price with CIBC.

Thanos Moschopoulos: Great. I'll pass along. Thank you.

Operator 2: The next question comes from Stephanie Price with CIBC.

Operator: The next question comes from Stephanie Price with CIBC.

Speaker #5: Good morning. Thank you. Just to that morning just to that comment about the payroll taxes, on the last question, just curious if you've been discussing any changes to CONSTELLATION's bonus plan, just given the public market reset.

Stephanie Price: Good morning. Thank you.

Mark Miller: Morning, Steph.

Stephanie Price: Morning. Just to that comment about the payroll taxes on the last question, just curious if you've been discussing any changes to Constellation's bonus plan, just given the public market reset, and maybe related how you think about employee retention in the current environment.

Speaker #5: And maybe related, how you think about employee retention in the current environment?

Speaker #2: Yeah. So we have made any changes to the plan. And I mean, I think me personally, I'd say this is a great buying opportunity, right?

Mark Miller: Yeah. We haven't made any changes to the plan. And I mean, I think I, me personally, I say this is a great buying opportunity, right? I don't think we need to change the plan as a result of that. The formulas for the core management team stays the same. We still buy shares in the market, same way we always have. And again, we believe in the company. Yeah, no, there haven't been any changes to the plan.

Jamal Baksh: Yeah. We haven't made any changes to the plan. And I mean, I think I, me personally, I say this is a great buying opportunity, right? I don't think we need to change the plan as a result of that. The formulas for the core management team stays the same. We still buy shares in the market, same way we always have. And again, we believe in the company. Yeah, no, there haven't been any changes to the plan.

Speaker #2: I don't think we need to change the plan as a result of that. So the formulas for the core management team stays the same.

Speaker #2: We still buy shares in the market, same way we always have. And again, we believe in the company. And so yeah, no, there haven't been any changes to the plan.

Speaker #5: Okay. Great. And then CONSTELLATION typically sees kind of larger deals in more difficult environments. I know this is a very interesting time right now.

Stephanie Price: Okay. Great. Constellation typically sees kinda larger deals in more difficult environments. I know this is a very interesting time right now, but can you talk a little bit about the large deal pipeline and the appetite for bigger deals at this point?

Speaker #5: But can you talk a little bit about the large deal pipeline and the appetite for bigger deals at this point?

Speaker #4: Well, we're invited to a lot of auctions that are out there by the investment bankers. And sometimes we're able to play, sometimes we're not.

Bernie: Well, we're invited to a lot of auctions that are out there by the investment bankers, and sometimes we're able to play, sometimes we're not. Valuations are still high. We try to get what we can, but competition is still fierce.

Mark Miller: Well, we're invited to a lot of auctions that are out there by the investment bankers, and sometimes we're able to play, sometimes we're not. Valuations are still high. We try to get what we can, but competition is still fierce.

Speaker #4: Valuations are still high. So we try to get what we can. But competition is still fierce. So yeah, the only thing I'd add to Stephanie to that is that I think we also have better talent to work on those larger transactions than we would have had, let's say, 5 to 10 years ago.

Mark Miller: Yeah, the only thing I'd add to Stephanie to that is that I think we also have better talent to work on those larger transactions than we would have had, let's say, 5 to 10 years ago. You need it because they're complicated. There's some hair on them, and they're usually spread out over multiple geographies and sometimes are carve-outs from large companies. Having experienced people who are capable of doing that is probably something we didn't have. That helps us a bit. Again, it does come down to valuation for us. I do think we're on the field, at least more, let's say, playing than trying to win those than we maybe we were 5 to 10 years ago.

Speaker #4: And you need it because they're complicated. There's some hair on them. And they're usually spread out over multiple geographies. And sometimes our carve-outs from large companies and having experienced people that are capable of doing that is probably something we didn't have.

Speaker #4: So that helps us a bit. But again, it does come down to valuation for us. And I do think we're on the field at least more, let's say, playing than trying to win those.

Speaker #4: And we maybe we were 5 to 10 years ago.

Stephanie Price: That's great color. Thank you.

Speaker #5: That's great color. Thank you.

Speaker #3: Thank you. The next question comes from Jaron Dubroil with Desh Chardons.

Operator 2: Thank you. The next question comes from Jerome Dubreuil with Desjardins.

Operator: Thank you. The next question comes from Jerome Dubreuil with Desjardins.

Speaker #2: Hey. Good morning. Thanks for taking my question. So I just want to ask about the broader software strategy there. We've seen Salesforce launch a headless solution.

Jerome Dubreuil: Hey, good morning. Thanks for taking my question. Just wanna ask about the broader software strategy there. We've seen Salesforce launch a headless solution. They're focusing on offering API access that can be leveraged by agents. I understand the horizontal and vertical solutions might be very different-

Jérome Dubreuil: Hey, good morning. Thanks for taking my question. Just wanna ask about the broader software strategy there. We've seen Salesforce launch a headless solution. They're focusing on offering API access that can be leveraged by agents. I understand the horizontal and vertical solutions might be very different in terms of, how they will approach their integration in an AI world. Do you expect this, You could take this one as well, or maybe VMS is so different that you don't need or you don't anticipate as much change to the UI paradigm over time.

Speaker #2: They're focusing on offering API access that can be leveraged by agents. I understand horizontal and vertical solutions might be very different in terms of how they will approach their integration in an AI world.

Jerome Dubreuil: in terms of, how they will approach their integration in an AI world. Do you expect this, You could take this one as well, or maybe VMS is so different that you don't need or you don't anticipate as much change to the UI paradigm over time.

Speaker #2: But do you expect this strategy you could think this one as well or maybe VMS is still different that you don't need or you don't anticipate as much change to the UI paradigm over time?

Speaker #4: Well, it's like I would say it always depends on which business you're in inside of CONSTELLATION. We have many, many businesses. And some will have to build agents.

Mark Miller: Well, it's like I would say, it always depends on which business you're in inside of Constellation. You know, we have many businesses, and some will have to build agents and some will have to modify the user interfaces, but many won't. I mean, customers are obviously hesitant to change their user experience because it's something that their team uses all day to run their business, right? Changing user interface is a way the user interact with the software is a big decision for a client, and they, you know, take some consideration before they do that.

Speaker #4: And some will have to modify the user interfaces. But many, many won't. I mean, customers are obviously hesitant to change their user experience because it's something that their team uses all day to run their business, right?

Speaker #4: So changing user interface is a way the user interacts with the software. It's a big decision for a client. And they take it under take some consideration before they do that.

Mark Miller: One of the things that I always find, talking about artificial intelligence and the changes in technology is, you know, essentially, you have to convince customers to change their user experience as well, which in some cases it requires budgeting, approvals, multiple levels of discussion inside of that customer for our mid to large size customers in particular. It's, you know, it will evolve as the market evolves, and we just make sure our people are as educated as they can be on these new ways of building software, and adjusting to those changes. We'll talk a little bit more about that at the AGM as well. Get a chance to talk about some real examples on Friday.

Speaker #4: And one of the things that I always find talking about artificial intelligence and the changes in technology is essentially you have to convince customers to change their user experience as well, which in some cases, it requires budgeting, approvals, multiple levels of discussion inside of that customer.

Speaker #4: For our mid- to large-sized customers in particular. So, it will evolve as the market evolves. And we just make sure our people are as educated as they can be on these new ways of building software.

Speaker #4: And adjusting to those changes. And we'll talk a little bit more about that at the AGM as well. Get a chance to talk about some real examples on Friday.

Speaker #2: That's great, Seth. Thanks. And then the second one, another one on the evolution of the software model going forward on the forward deployed engineering.

Jerome Dubreuil: That's great. Thanks. Second one, another one on the evolution of the software model going forward on the forward deployed engineering. Is this something you believe in? Could it be initially maybe bringing a bit more cost when you kind of adjust to the new model, and have some BUs started leveraging the strategy more?

Jérome Dubreuil: That's great. Thanks. Second one, another one on the evolution of the software model going forward on the forward deployed engineering. Is this something you believe in? Could it be initially maybe bringing a bit more cost when you kind of adjust to the new model, and have some BUs started leveraging the strategy more?

Speaker #2: Is this something you believe in? Could it be initially maybe bringing a bit more cost when you kind of adjust to the new model?

Speaker #2: And have some be used started leveraging this strategy more?

Mark Miller: Definitely. There'll be some more cost in doing that initially because you're going to be kind of retooling where they need to do it. Some are doing it in advance just to make sure that if there are some changes inside of their markets and new needs for new ways of interacting with our products, they're using it.

Speaker #4: Definitely. Yeah. There'll be some more cost in doing that initially because you're going to be kind of retooling. Where they need to do it.

Speaker #4: And some are doing it in advance just to make sure that if there are some changes inside of their markets, and new needs for new ways of interacting with our products, they're using it.

Speaker #4: They're also using it to also try to expand inside of the customers as well, which is what I'm hoping to see more of for our more let's say close to customer innovative businesses across the world that they use it to step into other areas of the customer and interact with them.

Mark Miller: They're also using it to also try to expand inside of the customers as well, which is what I'm hoping to see more of for our more, let's say, close to customer innovative businesses across the world, that they use it to step into other areas of the customer and interact with them more. Because we're so vertical, we have so many different teams in this decentralized environment of Constellation who are out really close to customers in many countries around the world, in many different markets, trying to figure out how to make customers' businesses run better.

Speaker #4: More because we do have because we're so vertical, we have so many different teams in this decentralized environment of CONSTELLATION who are out really close to customers in many countries around the world in many different markets trying to figure out how to make customers' businesses run better.

Speaker #2: Great. Thank you.

Jerome Dubreuil: Great. Thank you.

Jérome Dubreuil: Great. Thank you.

Speaker #3: The next question comes from David Kwon with TD Cowen.

Operator 2: The next question comes from David Kwan with TD Cowen.

Operator: The next question comes from David Kwan with TD Cowen.

Speaker #2: Thank you. Good morning. I was wondering if you could talk about how the first couple of months have gone with Sabre? How are you working with their leadership team in terms of strengthening their business?

David Kwan: Thank you. Good morning. I was wondering if you could talk about how the first couple of months have gone with Sabre. You know, how are you working with their leadership team in terms of strengthening their business? How receptive, I guess, and cooperative have they been?

Speaker #2: And how receptive, I guess, and cooperative have they been?

Speaker #4: Yeah. I think generically, we really don't want to comment on Sabre. David, it's just something that yeah, is left to our we have a representative on the board there.

Mark Miller: Yeah, I think, I think generically, we really don't wanna comment on Sabre, David. It's just something that, yeah, is left to our We have a representative on the board there, and the conversations between Sabre and our director are, I think, gonna be kept private and confidential.

Speaker #4: And the conversations between Sabre and our director, I think we kept private and confidential.

Speaker #2: Okay. I understand. From any standpoint, obviously, you had a pretty strong start to the year and also for Q2. As it relates to the Q2 to date, closing pending deals, other than the derby soft deal, are there kind of any larger chunkier deals that, I guess, weren't large enough for CONSTELLATION to press release but maybe were much larger than your typical round-the-meal deal?

David Kwan: Okay. Understand. From an M&A standpoint, obviously you had a pretty strong start to the year and also for Q2. As it relates to the Q2 to date, close and pending deals, other than the DerbySoft deal, are there kind of any larger, chunkier deals that I guess weren't large enough for Constellation to press release, but maybe were much larger than your typical run-of-the-mill deal?

Speaker #4: Yeah. There were a couple of larger ones. I think, yeah, we're not going to disclose the amounts. But there was a couple of larger ones and a whole bunch of small ones.

Mark Miller: Yeah, there were a couple of larger ones, I think. Yeah, we're not gonna disclose the amounts, but there was a couple larger ones and a whole bunch of small ones. Yeah.

Jamal Baksh: Yeah, there were a couple of larger ones, I think. Yeah, we're not gonna disclose the amounts, but there was a couple larger ones and a whole bunch of small ones. Yeah.

Speaker #2: Great.

David Kwan: Great.

Mark Miller: Underneath the two. Yeah.

Jamal Baksh: Underneath the two. Yeah.

Speaker #4: Yeah.

Speaker #2: Okay. Thanks, Jamal. And then are you guys just seeing anything different in the M&A environment that's allowed you to be this active on the M&A front over the last few quarters of the year?

David Kwan: Okay. Thanks, Joel. Are you guys just seeing anything different in the M&A environment that's allowed you to be this active on the M&A front over the last few quarters you're here, or is it really just kind of like the ebbs and flows of your M&A strategy in the overall market, and you're just kind going through a good patch here?

Speaker #2: Or is it really just kind of like the ebbs and flows of your M&A strategy and the overall market and you're just kind of going through a good patch here?

Speaker #4: Yeah, it really is the latter. It just comes and goes, up and down. As the market evolves, we don't see more transactions than usual.

Mark Miller: Yeah, it really is the latter. It just comes and goes, up and down, as the market evolves. We don't see more transactions than usual. We don't see less transactions than usual. It's just the same amount across the market as we've always seen. No, nothing's changed. There's a real disconnect between the SaaS apocalypse, publicly traded stuff and private markets. Yeah, it's just ebbs and flow of the market. It's like any, you know Sorry, David. Go ahead.

Speaker #4: We don't see less transactions than usual. It's just the same amount across the market as we've always seen. So nothing's changed. There's a real disconnect between the SES apocalypse publicly traded stuff and private markets.

Speaker #4: But yeah, it's just ebbs and flows of the market.

Speaker #2: And it's like—sorry, David. Go ahead.

Speaker #3: No, I was just wondering, are you seeing maybe changes in the behavior of the targets of sellers particularly given what's going on with AI that maybe being part of the CONSTELLATION family is a better place to be?

David Kwan: No, I was just wondering, like, are you seeing maybe changes in the behavior of the targets, the sellers, you know, particularly given what's going on with AI, that maybe being part of the Constellation family is a better place to be? Or is there anything else that's maybe driving this elevated activity?

Speaker #3: Or is there anything else that's maybe drawing this elevated activity?

Speaker #4: Yeah. No, I think we've remained patient. We deployed capital very, very carefully. And I think we, as I think I said to Stephanie earlier on, I think we do have a bit more talent who are able to think about those larger transactions.

Mark Miller: No. No, I think we've remained patient. We deploy capital very, very carefully, and I think we, as I think I said to Stephanie earlier on, I think we do have a bit more talent who are able to think about those larger transactions than we previously did. That might give us a little bit of a better coverage and close rate on some of those, but it's still the world has not changed from our viewpoint. It has not. We'll just continue to plug away at this problem and keep working on it.

Speaker #4: And we previously did. That might give us a little bit of a better coverage and close rate on some of those. But it's still yeah, the world has not changed from our viewpoint.

Speaker #4: It has not. So we'll just continue to plug away at this problem and keep working on it.

Speaker #2: I appreciate the color and look forward to seeing you guys on Friday.

David Kwan: I appreciate the color and look forward to seeing you guys on Friday.

Speaker #4: Yeah. Thank you. Looking forward to seeing you too.

Mark Miller: Yeah. Thank you. Looking forward to seeing you too, David.

Speaker #3: The next question comes from Graham Rhodes with Long River Investment Partners.

Operator 2: The next question comes from Graham Rhodes with Longriver Investment Partners.

Operator: The next question comes from Graham Rhodes with Longriver Investment Partners.

Speaker #5: Good morning, everyone. Can you hear me?

Graham Rhodes: Good morning, everyone. Can you hear me?

Speaker #4: Yeah. I'm hearing you perfectly.

Mark Miller: Yeah, I can hear you perfectly.

Speaker #5: Excellent. I'm calling all the way from Hong Kong, so I just wanted to make sure. And I'm calling to ask, first and foremost, as someone looking from the outside into your business, I'm trying to think about how to categorize the portfolio of companies that make up Constellation Software.

Graham Rhodes: Excellent. I'm calling all the way from Hong Kong, I just wanted to make sure. I'm calling to ask, first and foremost, as someone looking from the outside into your business, I'm trying to think about how to categorize the portfolio of companies that make up Constellation Software and the threat that AI might pose to them. I'm thinking, you know, there's maybe like a low-risk category where we have businesses built around things like mission-critical systems of action. Then maybe there's a higher-risk segment of the portfolio, which is more like marketing or lead generation or website construction and that kind of thing. I was wondering if you guys broadly agree with that classification or categorization.

Speaker #5: And the threat that AI might pose to them. And I'm thinking there's maybe a low-risk category where we have businesses built around things like mission-critical systems, systems of action.

Speaker #5: And then maybe there's a higher-risk segment of the portfolio, which is more like marketing or lead generation or website construction and that kind of thing.

Speaker #5: And I was wondering if you guys broadly agree with that classification or categorization? And then maybe as well, if you could comment at all on whether the higher-risk category makes up a material part of your revenue and FCF, A2S, and that kind of thing.

Graham Rhodes: Maybe as well, if you could comment at all on whether the higher-risk category makes up a material part of your revenue and FCF, HOS and that kind of thing.

Mark Miller: No. I mean, it's pretty, it's pretty broad, the places we're in. You know, when you're looking at how defensible a particular business is in any environment, considering whether it was SaaS or, you know, threats to because of mobile computing came out or now because of AI. It's, I always say it's a beauty is in the eye of the beholder situation.

Speaker #4: No. I mean, it's pretty broad, the places we're in. And when you're looking at how defensible a particular business is in any environment, considering whether it was SaaS or threats to because of mobile computing came out and now because of AI, I always say it's a beauty is in the eye of the beholder situation.

Speaker #4: You can kind of try to say, "Well, this business is more at risk because of this." There's a couple of things that you need to really understand about our businesses is sometimes even though they might be in more let's say I consider sort of horizontal ask, if you want to call it, and you think more vulnerable places, it depends on the addressable market size of that particular niche and how defensible it is and how close they are to their customers.

Mark Miller: You can kind of try to say, "Well, this business is more at risk because of this." There's a couple of things that you need to really understand about our businesses is sometimes they're even though they might be in more, let's say, I consider sort of horizontal ask, if you wanna call it, or you'd think more vulnerable places, it depends on the addressable market size of that particular niche and how defensible it is and how close they are to their customers. And then on the other spectrum, you have ones that are, you know, are generally have lots of departments involved and they appear to be more sticky as well because of that. It's very difficult to do that in any sort of quantitative way, it really depends on the leaders of that business.

Speaker #4: So and then on the other spectrum, you have ones that are generally have lots of departments involved and they appear to be more sticky as well because of that.

Speaker #4: So it's very difficult to do that in any sort of quantitative way. It really depends on the leaders of that business. We're so decentralized with hundreds and hundreds of businesses around the world.

Mark Miller: We're so decentralized with hundreds and hundreds of businesses around the world. Depends on the leaders of that business to just make sure that they care of the niche they're in. we're generally not taking on very large, horizontal companies in many of our niche-y place, because that's sort of how we defend our market position by being small and intimate with, you know, dozens or hundreds of customers, not trying to have tens of thousands of customers. I don't know if that makes sense to you. where you're gonna get attacked by AI is, you know, if it is a problem, it's gonna be maybe where you least expect it.

Speaker #4: It depends on the leaders of that business to just make sure that they care if the niche they're in, and we're generally not taking on very large horizontal companies in many of our niche verticals because niche plays—because that's sort of how we defend our market position by being small and intimate with dozens or hundreds of customers, not trying to have tens of thousands of customers.

Speaker #4: So I don't know if that makes sense to you. And where you're going to get attacked, why AI is—if it is a problem—it's going to be maybe where you least expect. You'd expect anytime there's a high churn, low attrition business, maybe more so, but that isn't a large percentage of our recurring revenues anyways.

Mark Miller: You'd expect any time there's a high churn, high attrition business, maybe more so, but that isn't a large percentage of our, of our recurring revenues, anyways. Yeah. It's just a difficult question to answer. You can cut it in so many different ways. We just, we'll depend on our leaders to find the best solutions for our companies in each of the situation they're in.

Speaker #4: Yeah. So it's just a difficult question to answer. You can cut it in so many different ways. We just will depend on our leaders to find the best solutions for our companies in each of the situation they're in.

Speaker #2: Thanks. That's really helpful. A follow-up would be just in the last couple of months, really since the start of the year with the launch of COLA Code and Open COLA and Agentic AI.

Graham Rhodes: Thanks. That's really helpful. A follow-up would be just in the last couple of months, really since the start of the year with the launch of ColorCode, OpenClaw, and Agentic AI.

Mark Miller: Yeah.

Graham Rhodes: I was wondering if that's changed your perspective at all on the competitive risk. If not, like, what would it take for you guys to see this less as something that can enhance productivity and more as something which can be a direct threat or even an indirect threat on, like, pricing and your ability to sell, like, other modules and that kind of thing?

Speaker #2: I was wondering if that's changed your perspective at all on the competitive risk. And if not, what would it take for you guys to see this less as something that can enhance productivity and more as something that can be a direct threat, or even an indirect threat, on pricing and your ability to sell other modules and that kind of thing?

Speaker #4: Yeah. Pricing, I would say the way we lose customers is A, they get essentially they go out of business, which happens. You can't do much about that.

Mark Miller: Yeah, you know, pricing, like how we say, you know, the way we lose customers is, A, they get essentially go out of business, which happens. You can't do much about that. They, they're acquired by other customers, particularly larger customers. That's another way of losing. You can't do much about that other than you hope you the other customer that buys them is your customer. Pricing is the third, and pricing, rarely we lose customers on pricing because the switching is painful for customers, and it's working, and they're using it and, you know, retraining all their users and, you know, adapting the interfaces to make it harder. Where you lose customers is when you can provide, when the competitor can provide something in much different than you can provide that the customer really needs.

Speaker #4: They're acquired by other customers, particularly larger customers. That's another way of losing. You can't do much about that, other than you hope the other customer that buys them is your customer.

Speaker #4: Pricing is the third. And pricing rarely we lose customers on pricing because the switching is painful for customers and it's working and they're using it.

Speaker #4: And retraining all their users and adapting the interface is to make work and make it harder. Where you lose customers is when you can provide when the competitor can provide something in much different than you can provide that the customer really needs.

Speaker #4: And that's where I always worry the most, just generically, forgetting about AI. So that's kind of how I sort of look at it. Now, as far as these tools, we're all using them internally.

Mark Miller: That's, you know, that's where I always worry the most, just generically, forgetting about AI. That's kind of how I sort of look at it. Now, as far as these tools, you know, we're all using them internally, and I've been fortunate enough to travel around. I think each week I've met with a different Coupa Cost Constellation, different location, and just see what they're using and what they're doing. They're, you know, they're adapting to these tools. They're using them internally to help them run their portfolios, their businesses better. They're also using them to try to develop more software to actually expand our presence inside of customers, more so than defend our presence is kind of the thinking, but it's gonna depend on our business.

Speaker #4: And I've been fortunate enough to travel around. I think each week I've met with a different group across CONSTELLATION, different location. And just see what they're using and what they're doing.

Speaker #4: And they're adapting to these tools, using them internally to help them run their portfolios, their businesses better. But they're also using them to try to develop more software to actually expand our presence inside of customers more so than defend our presence is kind of the thinking.

Speaker #4: But it's going to depend on our business. So I look at these tools as an opportunity to do more for customers. Not do what we currently do more efficiently, although that will happen in some cases.

Mark Miller: I look at these tools as an opportunity to do more for customers, not do what we currently do more efficiently, although that will happen in some cases.

Speaker #2: Okay. That's really helpful. And final question for me is just on PEMS, which you guys introduced last quarter. And I was wondering when you're thinking about making an investment, a minority investment, do you have a different hurdle rate for that than you would for your standard wholly owned M&A?

Graham Rhodes: Okay, that's really helpful. Final question for me is just on PEMS, which you guys introduced last quarter. I was wondering, when you're thinking about making an investment, a minority investment, do you have a different hurdle rate for that than you would for your standard, wholly owned M&A? Related to that, you know, for a very long time, we've used free cash flow available to shareholders as I guess the yardstick of our company's progress. I wonder if these minority investments grow over time, would you suggest that we start thinking about something else to anchor valuations on or the company's progress? Thank you.

Speaker #2: And then related to that, for a very long time, we've used free cash flow available to shareholders as, I guess, the yardstick of our company's progress.

Speaker #2: And I wonder if these minority investments grow over time. Would you suggest that we start thinking about something else to anchor valuations on or the company's progress?

Speaker #2: Thank you.

Speaker #4: Yeah. So, in terms of PEMS, the hurdle rate is the same. However, the modeling, in terms of the weighting of worst-case versus winner-case, is going to be much more dispersed.

Mark Miller: Yeah. In terms of PEMS, the hurdle rate is the same. However, the modeling in terms of, you know, the weighting of worst case versus winner case are gonna be, probably be much more dispersed, will probably result in a lower price, but the hurdle rate is the same. In terms of going forward and the free cash flow available to shareholders metric, that is something we've been discussing. Internally, the way, and many investors know this, the way we bonus ourselves internally is something called, like, it's an economic net income. It was very close to what we used to have as adjusted net income.

Jamal Baksh: Yeah. In terms of PEMS, the hurdle rate is the same. However, the modeling in terms of, you know, the weighting of worst case versus winner case are gonna be, probably be much more dispersed, will probably result in a lower price, but the hurdle rate is the same. In terms of going forward and the free cash flow available to shareholders metric, that is something we've been discussing. Internally, the way, and many investors know this, the way we bonus ourselves internally is something called, like, it's an economic net income. It was very close to what we used to have as adjusted net income.

Speaker #4: And so we'll probably result in a lower price, but the hurdle rate is the same. In terms of going forward and the free cash flow available to shareholder metric, that is something we've been discussing.

Speaker #4: And internally, the way and many investors know this, the way we bonus ourselves internally is something called it's an economic net income. It was very close to what we used to have as adjusted net income.

Speaker #4: And for these types of PEMS investments, we would actually look at our pro rata share of their ultimate cash flows, which doesn't show up in our current statements.

Mark Miller: For these types of PEMS investments, we would actually look at our pro rata share of their ultimate cash flows, which, you know, doesn't show up in our current statements. It's something we're thinking through right now to try to maybe give you investors the same metric that we're using internally. Again, I haven't finalized. I mean, it is going to be a discussion on what we present, but it is Yeah, I understand your point, that the free cash flow available to shareholders metric is sort of.

Jamal Baksh: For these types of PEMS investments, we would actually look at our pro rata share of their ultimate cash flows, which, you know, doesn't show up in our current statements. It's something we're thinking through right now to try to maybe give you investors the same metric that we're using internally. Again, I haven't finalized. I mean, it is going to be a discussion on what we present, but it is Yeah, I understand your point, that the free cash flow available to shareholders metric is sort of.

Speaker #4: So it's something we're thinking through right now to try to maybe give you investors the same metric that we're using internally and again, I haven't finalized them.

Speaker #4: It's going to be a discussion on how we what we present, but it is yeah, I understand your point. That a free cash flow available to shareholder metric is sort of it doesn't pick up anything relating to these PEMS investments for the most part.

Graham Rhodes: Yeah.

Mark Miller: It doesn't pick up anything.

Jamal Baksh: It doesn't pick up anything.

Graham Rhodes: Great question.

Mark Miller: Great question.

Mark Miller: relating to these PEMS investments for the most part.

Jamal Baksh: relating to these PEMS investments for the most part.

Speaker #2: Thanks, guys. That's been very helpful. I appreciate it a lot.

Graham Rhodes: Thanks, guys. That's been very helpful. I appreciate it a lot.

Speaker #3: Thank you.

Mark Miller: Thank you.

Speaker #1: Thank you. Once again, if you have a question, please press star, then one. The next question comes from Paul Treiber with RPC Capital Markets.

Operator 2: Thank you. The next question comes from Paul Treiber with RBC Capital Markets.

Operator: Thank you. The next question comes from Paul Treiber with RBC Capital Markets.

Speaker #2: Yeah. Thanks and good morning. Just Mark, open-ended question, but just overall, how do you characterize the quarter? If you could call out what you think was better than expected or what maybe improved versus the last couple of quarters and then conversely, what you think needs some improvement?

Paul Treiber: Yeah, thanks, good morning. Just Mark, a open-ended question, but just overall, you know, how do you characterize the quarter? You know, if you could call out what you think was better than expected or what maybe improved versus the last couple quarters, then conversely, you know, what you think you know, needs some improvement.

Speaker #4: At M&A, obviously, was positive because I'd rather be getting capital out now rather than at the end of the year. That's sort of like any business.

Mark Miller: M&A obviously was positive because, you know, I'd rather be getting capital out now rather than at the end of the year. It's sort of like any business. You'd rather get more capital out sooner. The, you know, from a performance issue, you know, we were expecting the, you know, the adjustments to EBITDA because of the, you know, the acquisitions we made. I don't think that was unexpected. I think that's why we actually explained exactly how that happened. Yeah, I continue to pressure our businesses on organic growth generally, Paul.

Speaker #4: You'd rather get more capital out sooner. From a performance issue, we weren't—we were expecting the adjustments to EBITDA because of the acquisitions we made.

Speaker #4: So I don't think that was unexpected. And I think that's why we actually explained exactly how that happened. I continue to pressure our businesses on organic growth generally, Paul.

Speaker #4: I really would like to see them doing a better job on organic growth across the board. And I think this is an opportunity to push them harder on that with the advent of some tools to allow you to do things a little bit faster and a little bit better.

Mark Miller: I really would like to see them doing a better job on organic growth, across the board. I think this is an opportunity to push them harder on that, with the advent of some tools to allow you to do things a little bit faster and a little bit better. That's a generic concern that isn't just in the quarter, so maybe I've not missed, not answered your question. Other than that, yeah, Bernie, Jamal, anything to add to Paul's question?

Speaker #4: So but that's a generic concern that isn't just in the quarter. So maybe I've missed not answered your question. So other than that, yeah, Bernie Jamal, anything to add to Paul's question?

Speaker #2: No, I'd say it's a pretty big standard quarter, so it was expected. Organic growth is in line with historical norms. All of these initiatives—I mean, we're saying that we're doing a lot—but yeah, it wasn't an expectation that we were going to translate that into revenue growth right away.

Jamal Baksh: No, I'd say it's a pretty big, standard quarter. It was expected, like, you know, organic growth in line with, you know, historical norms. All of these initiatives, I mean, we're saying that we're doing a lot, but yeah, but it wasn't an expectation that we're gonna translate that into revenue growth right away. It's gonna take time, right? Then you have to sell it into your customer, et cetera. That was always expected to take some time.

Bernie Anzarouth: No, I'd say it's a pretty big, standard quarter. It was expected, like, you know, organic growth in line with, you know, historical norms. All of these initiatives, I mean, we're saying that we're doing a lot, but yeah, but it wasn't an expectation that we're gonna translate that into revenue growth right away. It's gonna take time, right? Then you have to sell it into your customer, et cetera. That was always expected to take some time.

Speaker #2: It's going to take time, right? And then you have to sell it into your customer, etc. So that was always expected to take some time.

Speaker #3: And just to reiterate what you said about M&A, happy that the first quarter and a bit seem to be going quite well. Hopefully, we can continue throughout the year.

Mark Miller: Just to reiterate what you said about M&A, happy that Q1 and the bit seem to be going quite well. Hopefully we can continue throughout the year.

Jamal Baksh: Yeah.

Bernie Anzarouth: Yeah.

Paul Treiber: That's helpful. The, you know, the second question, Mark, you've been in the president role for 6 months, probably just over 6 months. The, you know, any, you know, leadership style changes that you're bringing to the role, and then in particular, you know, how has been interacting and managing, you know, the broader operating group leaders versus your prior role at Volaris?

Speaker #1: That's helpful. The second question: Mark, you've been in the president role for just over six months. Are there any leadership style changes that you're bringing to the role, and in particular, how has interacting with and managing the broader operating group leaders differed from your prior role at Valeris?

Speaker #3: They've been great, Paul. Just terrific. We had a board meeting yesterday out near the airport, and it's just all the operating group all the operating group leaders are after the meeting are sitting together working on things and talking about how we can improve.

Mark Miller: They've been great, Paul. Like, just terrific. You know, we had a board meeting yesterday out near the airport and, you know, it just, you know, all the operating group leaders are, you know, after the meeting are sitting together working on things and talking about how we can improve. I'm just super happy with the team across Constellation. I think the collaboration is at an all-time high between the operating group leaders, and everybody's very engaged and working closely together. I'd have to say, sharing best practices at a high velocity around anything we're learning about, for example, AI, because there's just so many ways to come at that problem.

Speaker #3: So, I'm just super happy with the team across Constellation. I think the collaboration is at an all-time high between the operating group leaders, and everybody's very engaged and working closely together.

Speaker #3: And I'd have to say sharing best practices at a high velocity around anything we're learning about, for example, AI and because there's just so many ways to come at that problem.

Speaker #3: So I'm super happy, Paul, with where things are at.

Mark Miller: I'm super happy, Paul, with where things are at.

Speaker #1: All right. Thanks for taking the questions. Thank you. This concludes our question and answer session. I would like to turn the conference back over to Mark Miller for any closing remarks.

Paul Treiber: All right. Thanks for taking the questions.

Operator 2: Thank you. This concludes our question and answer session. I would like to turn the conference back over to Mark Miller for any closing remarks.

Operator: Thank you. This concludes our question and answer session. I would like to turn the conference back over to Mark Miller for any closing remarks.

Speaker #2: Yeah. Just wanted to thank everybody for dialing in, and we're really looking forward to seeing everybody at the AGM. And of course, thanking all of our team across the world for helping us deliver Q1.

Mark Miller: Yeah, just wanna thank everybody for dialing in, and we're really looking forward to seeing everybody at the AGM, and of course, thanking all of our team across the world for helping us deliver Q1. We'll see everybody on Friday that makes it to the AGM, and thank you Bernie and Jamal as well. Over and out.

Speaker #2: So over, we'll see everybody on Friday. That makes it to the AGM, and thank you, Bernie Jamal as well. Over and out.

Speaker #3: Thank you.

Jamal Baksh: Thank you.

Bernie Anzarouth: Thank you.

Speaker #2: Yes.

Mark Miller: Yes.

Operator 2: Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Operator: Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.