Octave Intelligence plc (OCTV) Q3 2026 Earnings Call Transcript

Operator: Good day, everyone. Welcome to the Octave Q3 2026 Earnings Call. All participants will be in a listen-only mode until the question-and-answer session begins. Following the presentation, we will conduct a question-and-answer session. This call is being recorded. If you have any objections, please disconnect at this time. I would now like to turn the call over to Elizabeth Chwalk, Vice President of Investor Relations. Go ahead.

Elizabeth Chwalk: Thank you, operator, and welcome to everyone joining us for Octave's third quarter 2026 earnings call. With me on the call today are Mattias Stenberg, our Chief Executive Officer, and Ben Maslen, our Chief Financial Officer. We've distributed our earnings press release over the wire, and it is now posted on our website at investors.octave.com, along with an updated company presentation and our 10-Q filing. This call is being broadcast live via webcast, and following the call, an audio replay will be available at investors.octave.com. Before we get started, I would like to note that certain statements we make on this call may constitute forward-looking statements, which are subject to risks, uncertainties, and other factors as discussed further under forward-looking statements in today's earnings press release, available at investors.octave.com, and in Octave's filings with the SEC, including on Form 10-Q, and 8-K. Actual results could differ materially from those expressed or implied by these forward-looking statements. We assume no responsibility to update these forward-looking statements other than as required by law. During this call, we will present both GAAP and non-GAAP financial measures. A reconciliation of non-GAAP to GAAP measures can be found in today's earnings press release. Our SEC filings, earnings materials, press release, and a replay of today's call can be found on our website, investors.octave.com. I'll now hand the call over to Mattias.

Mattias Stenberg: Thank you, Elizabeth, and hello to everyone joining us today. The third quarter results were broadly as we expected, and in some areas, a bit better. ARR grew 7% on an organic basis to $1.171 billion, in line with our expectations and at the midpoint of our full year 6%-8% growth range. Recurring revenue grew 5% organically, at the top of our guidance range, with SaaS revenue up 17%. Total revenue was $415 million, up 6% organically and above our guidance range. Our adjusted operating margin was 28%, ahead of guidance and up roughly 100 basis points over the prior year. Ben will take you through additional details in a few minutes, but I want to note a few key points. We came in at the high end of our expectations for recurring revenue growth, which is the better indicator of the health of our business. SaaS continues to be our growth engine and now makes up roughly a third of total ARR. All four workflow environments grew ARR in the quarter, with the strongest contributions coming from Build and Design. Over 1/3 of our new ARR in the quarter was from new customers, and roughly 2/3 came from expansion within our customer base, in line with our medium-term growth framework. All in all, we are happy with our continued progress as we shift towards subscription-based revenue models. The customer environment was broadly consistent with the past several quarters. Budget conversations and deal cycles have not changed in any meaningful way. EMEA grew double digit in the third quarter, despite continued uncertainty in the Middle East. The Americas grew steadily. APAC was more mixed, with fewer new project starts in some markets, and China was softer on the timing of a few perpetual deals. Owner-operator CapEx budgets and EPC backlogs, from what we can see, remain stable to slightly improved. Across our global EPC base, subscription licenses, which EPCs flex up and down, along with their project load, this grew 6% organically and improved again sequentially, and September was our strongest month for the year. We said in March we expected this stream to recover in the second half, and that is what we are seeing. We are not assuming a sharp acceleration from here, but the direction is positive. Before I turn to execution on this year's growth initiatives, I want to spend a few minutes on AI. It is a topic that comes up often in investor meetings, and I want to reiterate our position. Let me start with Octave's strategy, because the AI opportunity has been built into it from the start. In the industries we serve, information does not always carry across the life of an asset. Disconnected information in the life cycle of mission-critical assets becomes more costly the further downstream it appears. Our answer to this persistent industry challenge is a single platform across all four workflows, with a common context layer underneath. So, the record created in one workflow is available in the next. By doing this, we aim to close the gaps our customers face between digital intelligence and physical outcomes. We see AI as an opportunity that accelerates our strategy and makes our context more valuable. General-purpose LLMs and models are widely available, though they are limited by the context they are grounded in. What is scarce is decades of a customer's engineering standards, asset history, and operating record, and that record lives in our systems. When the asset is something highly complex and mission-critical, like a refinery, a food processing plant, or a 911 center, customers need answers they can audit and defend. So far, AI has improved our products in two ways. The first is embedded AI inside the products customers use every day. In the third quarter, we moved an additional 10 AI capabilities from prototype into product. That includes an InConcert assistant, a data sheet converter that turns PDFs and scans into structured engineering data, predictive pipe routing in Forte 3D, and the latest version of our public safety SaaS offering, OnCall, which ships this quarter with three assistants for dispatchers. The second is agentic AI, and our CoLabs program is at the forefront of this effort. CoLabs puts our product leaders alongside a customer's team to build agentic workflows on the customer's own data, each tied to a measurable economic benefit. An example of one of the delivered applications is an agent that checks isometric drawings at more than 95% validation accuracy. Another agent validated more than 300 general arrangement drawings, both saving hundreds of engineering hours and catching discrepancies before anything is built. Engineers can spend 10%-15% of their modeling time checking design rules, and our agent lets them write those rules in plain language, reducing configuration time from weeks to hours. Many of the customer use cases are around rework, one of the most expensive problems in a capital project. Every one of them depends on context from more than one workflow, which is what our platform provides. Customers are now asking how to take these into production and what the pricing looks like. To me, that is the clearest signal of traction. The earlier results of CoLabs are promising, and there is strong interest in the program from additional customers. The technology stack that supports these agentic AI use cases is coming together rapidly. We have been beta testing the platform this year with an aim to have it generally available early next year. At the base is connectivity and governance, so we connect to any cloud, any system, and any model. Above that is the context layer, a living knowledge graph of the asset that every application and agent shares. Our domain engines and agentic workflows sit across design, build, operate, and protect. I want to pause on the context layer for a moment, because yesterday, we announced an acquisition that strengthens it, Cerebre. Cerebre takes legacy plant drawings, like piping and instrumentation designs, and turns them into a connected knowledge graph of every piece of equipment, pipe, valve, and instrument, and how material flows between them. The technology is already running in production at more than 25 sites for some of the world's largest energy companies. Many owner-operators have decades of drawings that were never digitized, and that keeps their plant data out of reach for AI. Cerebre gives us a fast way to bring that data into the Octave platform, and from there, into InConcert, our design tools and our other build and operate solutions. Why does the context layer matter so much? Our own research gives a good answer. In September, we published a survey of more than 750 industrial leaders. A 7 in 10 said they are not retaining the knowledge that will matter most for future operations, and nearly half said their core processes are documented, but the real expertise is not. With a wave of retirements coming, the business constraint for many customers is experienced people and the critical context they bring to their organizations. If we capture that know-how and put it in the flow of work, we expand what customers can do with the people they have. That is new capacity, and over time, capacity is something customers pay for. We think that supports our pricing power. This brings us to monetization, where we are in the early innings. Today, the AI value we are bringing to our customers is embedded in our subscriptions and is supporting retention, expansion, and pricing. Alongside that, we are testing consumption-based pricing and building the technology consumption models depend on. We expect to make more progress on this next year as we bring customers our Octave platform and a governed gateway for AI agents. Let me now turn to execution on our two growth drivers, starting with product. This year, we brought somewhat independent product groups into one organization with one roadmap, and we continue to see progress here. Our internal use of AI continues to bring down our R&D cycle time by over 25% or so over the last six months. We continue to direct that incremental capacity into innovation, not headcount reduction. Examples of progress in the third quarter include a new release for Build Sequence Enterprise that gives owners and contractors one system of record with a handover-ready audit trail. A new version of our SaaS public safety solution, OnCall, brings sub-second performance and is now ready for agentic workflows. Our effort to bring multi-tenant SaaS-ready products across our entire portfolio is well underway, with multiple solutions scheduled for 2027 deliveries. Our product leadership continues to see validation from leading third-party industry research. In October, ARC Advisory Group named Octave the only leader in both its enterprise asset management and its digital worker technologies market maps. We were also named a transformation pioneer in EAM. Our products continue to win against competitors. A large U.S. county replaced a competing system with Attune EAM and is expanding into more public works divisions. In South Korea, an EPC selected OnSite Completions over the incumbent, and this was our first completions win in that market. Turning to go-to-market. In August, I described our progress as real but early. That is still true, and we are making incremental progress. Our consolidated renewals team now runs as one global discipline. We've standardized how we forecast and manage renewals, with a focus on on-time execution, smarter pricing and uplift, and closer coordination with customer success and sales. Over time, this revamped function will give us better visibility into recurring revenue and more consistent execution, as well as serving as a contributor to growth. We are already seeing improved on-time renewal rates and higher average annual uplift. On indirect sales and expanding our channel relationships, we are laying a solid foundation. Sequence and OnSite are now transactable on the Microsoft Azure Marketplace, and we're working toward a broader co-sell agreement with Microsoft. On cross-sell, we see strong pipeline growth and SaaS bookings for sales of new products to existing customers. Over 10% of new ARR in the third quarter came from cross-sell, and we are seeing that the easiest motions are the ones closest to where a customer already works. For example, we see good traction selling BricsCAD into design customers, particularly EPCs. We also see strong expansion around Reliance QMS and Attune EAM in Operate, and around OnSite Completions in Build. As in these examples, many of the early cross-sell motions are happening within one of the four main workflow environments. Two recent customer examples show cross-sell traction happening more broadly across the workflow environments. One of our longstanding design customers, a large EPC, added Attune EAM in the quarter to manage its equipment across projects worldwide. This started from a sales-led renewal conversation that expanded into a cross-sell win in a new workflow. A renewable fuels producer became our first cloud-native SaaS customer for both Attune EAM and InConcert, a design and operate deal from day one. Both of these deals bring more than one of our workflows to the same customers, which is what our go-to-market changes are designed to do. This brings us to our outlook for the remainder of the year. We are well on track to achieve our full-year guidance, including ARR growth of 6%-8%, recurring revenue growth of 5.5%-6%, and free cash flow margin of approximately 20%. We will share details on our 2027 outlook alongside our fourth quarter and full-year results in February. Before I hand the call over to Ben, I am pleased to report that our board recently authorized a share repurchase program of up to $200 million, which gives us flexibility to buy back shares over time. This new program reflects confidence in our strategy, in the strength of our free cash flow, and conviction in our medium-term plan. This was our first full quarter as a standalone company, and the building blocks are now in place. We are investing in the product, the go-to-market opportunity in front of us is large, and everything I see gives me confidence in our medium-term plan. Our balance sheet is strong, our cash generation is good, and our priority is unchanged, driving higher ARR growth while expanding our free cash flow margin. With that, thank you very much for joining, and over to you, Ben.

Ben Maslen: Thank you, Mattias, and hello to everyone on the call today. Many of the metrics I will discuss today are non-GAAP measures, which are reconciled in our press release and on our Octave investor website. As Mattias said earlier, our third quarter results were broadly in line with expectations and a bit better in certain areas. We ended the third quarter with ARR of $1.17 billion, up 7% year-on-year on an organic constant currency basis, and in line with our expectations. We ended the quarter with 3,293 customers with ARR above $25,000, up from 3,267 at the end of the second quarter. Our largest customers continue to grow nicely as we address the white space within our customer base. We now have 450 customers above $500,000 in ARR, up from 438 last quarter, and 200 customers above $1 million in ARR, up from 186 at the end of last year. Recurring revenue, which is comprised of subscription licenses, SaaS revenue, and maintenance revenue, was $291 million in the third quarter and grew 5% year-on-year on an organic constant currency basis. This landed at the high end of our 3%-5% guidance range for the quarter. Within recurring revenue, SaaS revenue grew to $91 million in the third quarter, increasing 17% in organic constant currency terms compared to the prior year. This was slightly better than we expected, given continued strength in SaaS bookings, which reflects solid customer demand and the shift in our sales focus. Monthly subscription license revenue grew 6% compared to the prior year and continues to see a gradual sequential improvement on a monthly basis. As expected, maintenance subscription revenue of $125 million was down slightly from the prior year and higher sequentially from Q2. Altogether, total revenue for the third quarter was $415 million, which was up 6% compared to the prior year. Non-recurring revenue came in slightly higher than we expected in the third quarter, both in terms of perpetual license revenue and also services and other. This was largely a function of timing, and none of the large public safety deals we referenced last quarter closed during Q3. Turning to profitability. The gross margin was 76%, up from 75% in the prior year, reflecting underlying improvements in pricing and good cost management. Research and development expense was 13% of revenue in the third quarter, up from 12% in the prior year, whilst R&D capitalization was 7% of revenues, down from 9% a year ago. As we expense more R&D as opposed to capitalizing it, there will be a drag on the adjusted operating margin, a dynamic that we guided to at the March investor day. As a reminder, this stems from capitalizing less R&D costs as we transition our product portfolio towards SaaS and continuous development cycles, and not from changes in the underlying level of cash spend. Sales and marketing expense was 24% of revenue in the third quarter, down from 25% in the prior year. G&A expense was 10% of revenue compared to 11% a year ago. Adjusted operating income was $116 million for the quarter, representing an adjusted operating margin of 28%, which was up roughly 100 basis points from the prior year. Taking into account the lower level of R&D capitalization in the third quarter, the underlying margin expansion was closer to 300 basis points compared to the prior year, reflecting both the stronger revenue growth seen in the quarter and continued cost discipline. On the cost side, we continue to balance synergies extracted from a tighter integration of the Octave structure post the spin with the investments we are making in our products and our market presence. Third quarter adjusted net income was $0.32 per share on 268.5 million diluted weighted average shares outstanding, which was in line with our expectations. Turning to our cash flow statement and balance sheet. We generated $95 million in cash from operations in the third quarter. Together, our fixed asset CapEx and capitalization of software development costs totaled $30 million, which is below the $38 million we reported in the prior year, and reflects again the underlying improvement in profitability. We generated $65 million of free cash flow in the third quarter, which represents a 16% margin. This was in line with our expectations and the dynamics of the prior year, as Q3 tends to be seasonally softer than the other quarters. Looking at our balance sheet, we ended the third quarter with just under $300 million of cash and cash equivalents and $518 million of gross debt, bringing our net debt to $222 million. Pro forma for the Cerebre acquisition, our net debt would be just under $350 million at the end of Q3. Our blended cost of debt remains around 5%, and our balance sheet remains healthy, flexible, and supportive of our capital allocation plans. Our broader capital allocation framework is focused on delivering the strongest value to our shareholders. In terms of priorities, we invest organically in the business first, with continued product innovation, including the Octave platform and a leading AI-driven technology stack. M&A comes second, but is an important part of our growth ambition. Every acquisition has to support our technology and financial objectives to more tightly integrate Octave solutions to enable cross-selling, accelerate growth, increase recurring revenue, and contribute to improving profitability. We compare every acquisition we make to the alternatives of developing a product ourselves or buying back shares to make sure we maximize shareholder value over the longer term. The Cerebre acquisition we announced yesterday has a strong returns profile based on both the expected contribution to our technology stack, as well as the opportunity to cross-sell into existing and new customer relationships. Today, the board approved a share repurchase program for up to $200 million of Class B Ordinary Shares through the end of 2029. As we said in March, this is primarily intended to offset dilution from equity-based compensation, but also gives us flexibility for additional opportunistic repurchases as part of our broader capital allocation strategy. Repurchases will be made in cash, and we are not obligated to use the full authorization. This brings us to the outlook the remainder of 2026. As a reminder, we provide organic constant currency growth ranges for recurring revenue on a quarterly and full-year basis. Alongside ARR growth, we see this metric as the primary indicator of top-line performance of our business. We will also provide ranges for total revenue, but given the mix shift away from perpetual licenses, combined with variability in timing of closing perpetual deals, we believe this is a less meaningful indicator of the health of our business. For ARR, we are on track with our original plan, and we are reiterating our organic constant currency ARR growth outlook of 6%-8%. For this reported range, a mid-single-digit ARR contribution from Cerebre will be largely offset by foreign exchange headwinds from a stronger dollar seen since the end of the third quarter. As such, we are maintaining our reported ARR range of $1.185 billion-$1.205 billion. I will reiterate that there is no change to our organic constant currency ARR growth outlook for the year as a whole. Third quarter recurring revenue landed at the high end of our range, so we are slightly raising our full-year outlook to $1.145 billion-$1.15 billion, representing organic constant currency growth of 5.5%-6%. We are narrowing our full-year total revenue outlook to a range of $1.64 billion-$1.66 billion, which maintains the midpoint at $1.65 billion and represents organic constant currency growth of 0.5%-2%, which is also a slight increase compared to our previous guidance. We did not close any large public safety transactions in the quarter, and as before, our fourth quarter outlook assumes none are won, although the public safety pipeline remains strong, and we continue to make progress on key tenders. For the year, we continue to expect an adjusted operating margin of approximately 30% and a free cash flow margin of approximately 20%, and the Cerebre contribution to recognized revenue and profit for 2026 is de minimis. Based on these full-year ranges, for the fourth quarter of 2026, we expect total revenue of $440 million-$460 million, representing organic constant currency growth, which is roughly flat over the prior year period at the midpoint. Recurring revenue of $292 million-$297 million, representing organic constant currency growth of between 5% and 6%. An adjusted operating margin of 31%-32%. This implies a level of R&D capitalization that is roughly 2% of revenue lower than the prior year. As usual, these accounting effects have no impact on underlying cash profitability. With that, thank you for joining us today, and we will now open the line for questions.

Operator: We will now begin the question-and-answer session. If you would like to ask a question and have joined by the webinar, please use the raise hand icon, which can be found in the black bar at the bottom of the webinar application screen. When you hear your name called, you will be prompted to unmute your line and ask your question. We will now take a moment to allow the queue to form. Your first question will come from the line of John DiFucci with Guggenheim Securities. Please unmute your line and ask your question.

John DiFucci: Thank you. Thank you for all the detail here, Mattias, especially on AI in your prepared remarks. The acquisition of Cerebre really looks interesting. It seems like it heavily leverages AI to accomplish what it does. I guess, is that true? Can Jay's product team apply this technology more broadly across your product portfolio, or is it more a standalone product? Related to this, Mattias, with your prepared remarks, it already sounds like you are getting a lot of leverage around AI. When we look at other companies, it is unclear what they are doing. Can you just talk to us a little bit about how this positions you competitively, and perhaps give any anecdotes that demonstrate this?

Mattias Stenberg: Yeah. Thanks, John. Yes, I mean, we are very excited about this Cerebre acquisition. We certainly think it will have a bigger impact on the company, and our growth, and our outlook going forward than the metrics you see for this year, right? It is a relatively small company, but we think it has great growth potential. It is an AI-native company, not because seeing their own growth outlook, right? More the latter that you said. We think it is a key building block of the platform that we are to launch early next year. So very much the latter of what you said, right? We see this as the context engine, the ingestion engine for the plant, and then on top of that, we will connect it to our products, like InConcert and many, many more, right? I think I will stop there, but I mean, I think we feel really good about our position in the market. We really think we are doing something unique with this platform and together with Striim.

John DiFucci: That makes a lot of sense, and thank you. If I could just ask a quick follow-up for Ben, and maybe Mattias too. Nice job on this quarter. The numbers look really strong and a lot of progress from last quarter. But the guidance for the fourth quarter implies a noticeable fall-off in business momentum, especially if you take in some assumptions about the acquisition. Is there something there we should be thinking about regarding the macro backdrop or something specific to Octave's business, or is there some unique numerical effects this quarter? I know Ben talked a lot about foreign, mentioned foreign exchange effects. Anything we should be thinking about in regards to the fourth quarter guide?

Ben Maslen: John, no, there has not really been much change. I think if you look at it, we slightly nudged up the assumptions in terms of organic constant currency growth, both for revenues and for recurring revenue. That is on the back of the stronger third quarter and slightly better underlying momentum in some areas. So not big changes, but compared to the last quarter, we have upgraded slightly. The growth does step down in Q4 relative to Q3, as you said, and that was always the kind of shape of the year when we looked at it back in Q1. We had a very big perpetual quarter in Q4 last year. So when you look at Q4 2026, we have guided for organic growth with a midpoint that is effectively flat. We expect continued solid momentum in recurring revenue, but perpetual will be down significantly against last year's comp, largely as we transition the business towards SaaS and subscription. There's been no big change in the operating environment. As I say, it's a slight upward revision to the constant currency growth rates. It was just the shape of the year based upon last year's comparatives.

John DiFucci: Okay, thank you, Ben. I get that now, the perpetual drop-off. I remember that now. Thank you very much, guys.

Mattias Stenberg: Thanks, John.

Operator: Your next question. Next question will come from Kirk Materne with Evercore. Please unmute your line and go ahead with your question.

Kirk Materne: Yeah, thanks for taking the question, and congrats on a really solid quarter. You guys are right sort of smack dab in the middle of your ARR guide at 7%. Can you just remind us what needs to happen just in terms of upselling, cross-selling to kind of get you to the higher end of that. What should we be watching to maybe see that number move towards the higher end of that range over the next few quarters?

Mattias Stenberg: Thanks. Maybe I can start with the upselling and cross-selling, and Ben can take the guidance question. We are quite happy with the progress we are seeing in the cross-sell. As you probably heard in my prepared remarks, we said that cross-selling represented a little more than 10% of the new ARR in the quarter, and I think that's a number I'm quite happy with considering all of this came together less than a year ago, right? Our growth space and our cross-sell and so on. I do expect that number to be a lot higher going forward. I'm not going to give you a specific number, but we do expect the cross-sell to gradually increase from there.

Ben Maslen: Yeah, hi, Kirk. In terms of what would take us to the top end of that range, it would be two things. It would be the timing of SaaS bookings, and if more came into December versus Q1 next year. If you remember, we have a revenue line within ARR, which is our monthly subscription business. If you saw a kind of an acceleration in that month-on-month towards the end of the quarter, that would obviously move us above the midpoint.

Kirk Materne: Okay. That's super helpful. Just one follow-up question. I know you guys are expanding your channel partnerships. How long does it take for you all to bring on a new partner to start to see that show up in your numbers? I assume there's a lag there. I don't know if it's three, six, nine months. Is there any way we should sort of be thinking about announcements on that front, then converting into either bookings or revenue?

Mattias Stenberg: Yeah, that is a good question. Of course, it depends on what type of partner it is, right? Whether it is a really large one, like we talked about this quarter, or kind of the increased partnership with Microsoft, right? That is something that we have worked over a long time, or whether you bring on a small kind of channel partner. So it is a bit hard to give you a standard answer there, right? But I would say it is fair to say that we have done a lot of progress with partnerships this year, but we still have a long way to go, I would say would be a fair representation. I would expect it to have positive impact on numbers as of next year, I would say, as we grow.

Kirk Materne: Great. Thank you all.

Ben Maslen: Thanks, Kirk.

Operator: Your next question will come from the line of Elizabeth Porter with Morgan Stanley. Please unmute and go ahead.

Elizabeth Porter: Great. Thank you so much for the question. I wanted to follow up on the cross-sell. Great to hear it was over 10% of new ARR. The question is, how much of the early success is coming from cross-selling within individual workflow environments versus the cross-workflow environments? What may be the biggest hurdle to making a bigger impact on the cross-workflow selling becoming more repeatable, and what are the milestones that you're looking for to accelerate that motion? Thank you.

Mattias Stenberg: Thanks, Elizabeth. No, great question. I mean, short answer, I would say it's roughly 50/50 in terms of split of within pillar and cross pillar. Frankly, I mean, it doesn't really matter to us which one it is. I mean, it's still great cross-sell and great progress, right? It's a bit arbitrary, right, to me whether it's a cross-sell between Design and Build or within Operate, right? It's still two different product lines that have come together in the last year, right? So, yeah, we're happy with the progress. What's the biggest hurdle? I wouldn't call it hurdle, but I think the platform that we will launch next year, right, to me, should have a really good impact to this, right, because it will automatically connect a lot of our solutions together in a native way, right? So, I think, to me, that will hopefully dramatically improve our cross-sell.

Elizabeth Porter: Great. Then just as a follow-up, you described some of the governed gateways for AI agents and starting to test some of the consumption pricing. So, when customers are using their own agents to access Octave's context and domain capabilities, how are you envisioning capturing that value, and what are some of your early learnings from that process?

Mattias Stenberg: Yeah. I mean, it's still early days, I would say, and we're not ready to disclose the full strategy here. But like we said in our prepared remarks, we are building models to monetize this, and it will be a consumption-based pricing is what we're thinking. Of course, we are going to charge if agents access our system of record, right? So, that's the model we are thinking.

Elizabeth Porter: Great. Thank you.

Mattias Stenberg: Thanks.

Operator: Next question will come from Daniel Djurberg with Handelsbanken. Please unmute your line and go ahead with your question.

Daniel Djurberg: Thank you, operator, and good morning, Mattias, Ben, and Elizabeth. Two questions from my side as well. First would be if you could go back a little bit, Mattias, on the topic you had on the, I think you said multi-tenant SaaS products that will be launched in 2027. To me, it sounded like it would be a first-half event, early 2027. Is that correct? Also possible if the board can give any views on how this can contribute to recurring revenue growth numbers, but also if it could be a hurdle towards perpetual licenses from a year-over-year perspective, based on that you will go over to SaaS instead, and also if it could hurt the maintenance revenues from existing clients going over to SaaS.

Mattias Stenberg: Hi, Daniel. Yes, we start with the multi-tenant SaaS. Yes, it is, I would say, first half next year we're going to launch, or launch, really, it's an upgrade of some of the products, right? I mean, we are on a journey to move, I would say, most of our products into multi-tenant, right? Of course, there are some smaller legacy products that are not part of that roadmap, but all of the major products are already on multi-tenant, or they will be very soon, right? So, that's kind of the journey that we're on. On your second question, I interpreted it like, will the platform hurt license sales? I guess so in the long term, it will switch, I think, from licenses to more consumption-based. But ultimately, I think it will drive use and adoption of our underlying technology, right? If you use the platform, you still need to access the system of record to get that information, right? The system of record or various products, whether that is InConcert or EAM or EcoSys, et cetera, right? We do not view it as a replacement. We view the platform as a way to easy access our system of record and connect it, right, natively and be able to much more efficiently analyze and take decisions in your business and so on as a customer.

Ben Maslen: Daniel, maybe if I could add, when we laid out the financial plan for the medium term back in March, we said that licenses would come down from around 12% of revenues last year to 5%-7% in the medium term. I think they are running at about 9% for the first nine months of the year. We do expect perpetual to keep being a smaller part of the mix. That is built into the financial outlook.

Daniel Djurberg: That is fair. Another question from my side, obviously a bit biased here, and perhaps not the right forum, but again, I want this to the record. In our view, your share price is still held back a bit on your board's decision to keep a temporary SDR listing. You still have 20 U.S. investors holding 22.5% of capital, while some 500 Swedes holding on to 53% and so on. My question is really, if it would be, in your view, possible to have an SDR listing going forward and then to have at the AGM instead come back to a time-constrained version. Just for the record.

Mattias Stenberg: Yeah. Thanks, Daniel. Yeah, I think, ultimately, it is a question for the board, right, and the major shareholders, right? I do not think it is for me to answer. But what they have said is that they will constantly evaluate this, right, based on the volume, the trading, the interest, and so on. We will see, I guess, is the best answer I can give at this point. We said that we will keep the SDR for up to two years, and that is the current communication. But we take note of your question, for sure.

Daniel Djurberg: That's great, Mattias. We want to hear you now.

Mattias Stenberg: Thank you.

Daniel Djurberg: Thanks.

Operator: As a reminder, if you would like to ask a question and have joined via the webinar, please use the raise hand icon, which can be found in the black bar at the bottom of the webinar application screen. When you hear your name called, you will be prompted to unmute your line and ask your question. Next up will be Andrew DeGasperi with BNP Paribas. Please unmute your line and go ahead.

Andrew DeGasperi: Hi. Hi, can you hear me?

Speaker 9: Hi. Yes.

Andrew DeGasperi: Hello? Hi. Thanks for this. I just wanted to maybe ask a question on the public safety deals. You said that they didn't close in the quarter. Just wondering if you have an idea in terms of timing of when you think those will close. Did they already happen in Q4? I think you also mentioned China as well, as being pressured. Just wondering if you saw a change since Q3, I guess, or is this something that is more related to the transition from perpetual to subscription? Thanks.

Mattias Stenberg: Yeah. Sorry, Andrew. On the public safety deals, yeah, none of the big ones that we mentioned in the last quarter closed in this quarter. We are still confident that we are going to win most of them, or hopefully all of them. It's a handful of large ones, right? I could say we will know in the fourth quarter if we win them or not, most of them, I would say. They won't have material impact on Q4 revenue, right? If we win them in Q4, we will know, and that will set us up, I would say, nicely in terms of backlog for next year.

Ben Maslen: Yeah. On China, Andrew, there's not really been a big change in the underlying demand environment. The comment in the Q was just saying that we had a difficult comparative in China. In Q3 last year, we won a couple of large orders and just didn't repeat. So that explains the weaker trend in China, not the underlying environment.

Andrew DeGasperi: That's helpful. Thank you. I guess, given the Q4 numbers or guidance includes that perpetual license sort of moving more to SaaS and helping ARR, I was just wondering, do you still feel confident about that midterm guide of 6%-8%, or do you think it could get at the high end of the range if that perpetual license is falling off faster than you expected?

Ben Maslen: Yeah. I would say the decline in perpetual this year, Andrew, has been in line with our planning at the start of the year. It was down around 20% year-on-year in Q1 and Q2. Q3 had easier comparatives, so it was flatter, then Q4, it'd probably be down high teens to 20% again. That really is what we baked in back in March. I think that pace of decline is what we expected. It's not feeding additional ARR growth at the moment. The transition's going on, but it's in line with our expectations.

Andrew DeGasperi: Got it. Thank you.

Ben Maslen: Thanks.

Operator: Your next question will come from Sanika Merchant with RBC Capital Markets. Please unmute your line and go ahead with your question.

Sanika Merchant: Hey, guys. This is Sanika on for Matt Hedberg. Thanks for taking the question. You've talked about several go-to-market changes across the business. Could you tell us more about early success and learnings from that, and maybe what else is on the horizon for potential go-to-market changes? Also, when do you expect to see the impact of these changes materially play out across the business? Thanks.

Mattias Stenberg: Okay. Thanks. I had a bit hard hearing the second part of the question, but the first one, I think, was around go-to-market changes. There, I would say, we've done a lot this year, right, when it comes to cross-sell, when it comes to incentives, when it comes to partnerships, alliances. We've done a lot, and I'm happy with the progress, like I said, exemplified by the cross-sell number we had in the quarter. Does that mean that we are done? Obviously not, right? I mean, you constantly got to improve this every year, right? We raised the bar this year, and we're going to raise the bar again next year when it comes to go-to-market. The second part of the question, I didn't really catch.

Sanika Merchant: I guess it was just more about when you expect to see the impact of the changes sort of materially play out across the business over time.

Speaker 9: Timing.

Mattias Stenberg: Right. Yeah, I mean, I think we're already seeing some impact, right? Then it will improve from here. I mean, I don't want to give a different guidance than what we have. We will obviously come back in February when we report, and then we will lay out our guidance for next year, right? Maybe we can say something more about it then. But yeah, that's what I would say at this point.

Sanika Merchant: Great. Thank you.

Operator: Next question will come from Viktor Trollsten with Danske. Please unmute your line and go ahead with your question.

Viktor Trollsten: Yes. Yes, thank you. I hope you can hear me.

Operator: Yes. [inaudible]

Viktor Trollsten: Yeah, no problem.

Operator: [inaudible]

Viktor Trollsten: Yeah. Super. Hi, Mattias. Hi, Ben. Thanks for taking my questions. It's just a bit curious on capital allocation. I thought I caught you there, Ben, talking about the net debt position pro forma with acquisition around $350 million versus reported $220 million. From that context, I guess that means that you paid $130 million for that acquisition. If you could just discuss a little bit, given that you have a very strong balance sheet and it will appear very much stronger ahead if you generate the good cash flows that we anticipate, how should we or you think around acquisitions versus buying back your own shares, given the valuation you're trading at? If you could just elaborate a bit on that, please.

Ben Maslen: Yeah. Hi, Viktor. I think obviously we spun Octave out, partly with a view to grow this faster. That's where the investments that we do are going to prioritize. Firstly, organically, the investments we're making in the platform, J and the X team, but also doing bolt-on acquisitions onto the platform, like Cerebre that you saw yesterday. I think driving growth is the priority. But as you say, we still have a good balance sheet after the acquisition. We generate a lot of cash, I think $240 million free cash after nine months. We're going to be very disciplined on M&A. If we don't find the right targets or the right targets or valuations that we're happy with, it doesn't make sense to have an inefficient balance sheet. We will use the buyback mandate to buy back shares, initially to neutralize the stock-based compensation. But we have capacity to go beyond that, if it makes sense.

Viktor Trollsten: Sorry, I hope my microphone works here. Just to get the feeling, when you look at the M&A pipeline, is the sort of 16x ARR, the valuation multiple should typically pay for this sort of asset, or how should we think around that? I guess my point here is that you have a lot of opportunities in the balance sheet. I just want to think around the sort of return profile in that opportunity if you go for, or should we call it more expensive acquisitions versus buying back your own shares. Just to get a sense of the valuation multiples you typically pay in the pipeline, that would be helpful.

Mattias Stenberg: Yes. Hi, Viktor. I would not say this is a typical multiple, obviously, right? I mean, the acquisition is expensive if you look at it from that perspective, but it's obviously a very small company, right? The multiple reflects that, and it's very, very high growth, right? And super attractive synergies. We would not expect to pay those kind of multiples for a bigger, more mature company, right? That is not what you should take away from it. But we are happy with the acquisition, and we think it's a price that reflects that type of asset.

Viktor Trollsten: That's brilliant, Mattias. That's a reassuring message, and it does seem to be a very good fit. Just finally on my side, you discussed a bit of the subscription licenses, which from my point of view was very strong. I guess EPCs are flexing up their activity. You did mention there, Mattias, that you perhaps not do extrapolate that trend. Just curious to hear, are there any reasons more than conservatism not to extrapolate that trend, given what we're seeing across the EPC landscape? Or just any sense of that, because it does seem to be on a very good trend for the moment.

Mattias Stenberg: Yeah. It is. I mean, like I said in my prepared remarks, it has gradually increased over the year, and September was our strongest month of the year, right? So it is moving in the right direction. What I said was I don't expect a sharp acceleration from here, but yeah, I do expect it to improve.

Viktor Trollsten: Okay. That's good. That's good. Thank you very much, guys. Thank you.

Mattias Stenberg: Thanks.

Operator: Your final question will come from the line of Lachlan Brown with Rothschild & Co Redburn. Please unmute your line and go ahead.

Lachlan Brown: Hi, Mattias, Ben. Thanks for the questions. Just regarding the launch of Attune Facilities and the new Alto release, how are these being monetized? I guess, are they being sold as a standalone, separately priced add-on, or are they being bundled into existing subscription packages that can perhaps drive more value and then will be monetized at renewal? Thanks.

Mattias Stenberg: Hi, Lachlan. I think, correct me if I'm wrong, but I think you asked how we monetize EAM. Was that the question?

Lachlan Brown: The new products that you announced, the Attune Facilities and the new Alto release.

Mattias Stenberg: Ah, okay. Gotcha. Yes, I mean, they are, you could say, add-ons to the Attune product, the Facilities one. So it is a different, yeah, different SKU, different add-on to the Attune product. And the other one you mentioned was the Alto one?

Lachlan Brown: Correct. Yeah.

Mattias Stenberg: Right. That one is more of a new version of the product, so it is more of an upgrade.

Lachlan Brown: Okay, thanks. That is very helpful. Then on the Cerebre deal, given it was founded in 2019, would it be fair to assume that this is a cloud-native SaaS business? Can you just share any color on the organic growth rate alongside that $8 million in revenue? Thanks.

Mattias Stenberg: On the first part, yes, that would be fair. It is a very modern technology, and cloud-based, et cetera. On the growth rate, I do not think I will give you that, but, I mean, it is a small company, and like I said, it is growing very, very fast. So very high growth rates.

Lachlan Brown: Thanks for the color. Cheers.

Mattias Stenberg: Thanks.

Operator: This concludes our Q&A session. I will now turn the call back to Mattias Stenberg for closing remarks.

Mattias Stenberg: Well, thank you very much for dialing in and paying attention, and talk to you again next quarter.