Constellation Software Stock

Good day, and welcome to the Constellation Software 2026 Third Quarter Results Conference Call. [Operator Instructions] Please note this event is being recorded.

I would now like to turn the conference over to Mr. Mark Miller, President and COO. Please go ahead, sir.

Well, good morning, everyone. Looking forward to chatting through our Q3 results with you and taking some questions. So I'll keep some opening remarks short, and then we'll move into questions.

Just as you could see from our release, revenue for the quarter was $3.5 billion, which was up 19%. Our organic growth was 2% and I want to spend a little bit of time just sort of speaking to how we think about organic growth and what's underneath that 2%. In itself, it doesn't tell you the whole story.

The measure we actually care a lot about is watching maintenance and other recurring revenue. And that's important because that's where the customer base shows up and how our customers are continuing to use our systems over time. So it's something in my decades at Constellation, I spent a lot of time thinking about and watching. And our maintenance and recurring revenue organic growth was 4% in the quarter. And the gap between the 2%, which was the overall organic growth and our recurring revenue organic growth was pretty much because licenses were down 17%, which is -- licenses are pretty immaterial to us these days, and professional services were down 5% and both of those numbers are fairly lumpy. So the actual 4% recurring revenue growth in the quarter was a reasonable outcome for us.

Underneath the number, it's important you understand a little bit about some of the businesses we have in there. So -- and if you look to the MD&A, you can sort of see that if you took out our U.S. health care businesses and in particular, Altera, maintenance and recurring revenue growth would have been about 5% which is pretty much a similar outcome to what we've had since 2016, which is a series that we published for you in the MD&A. And it generally vary between 5% and 7%. So it's a pretty normal quarter for us in pretty much every year, but I think one in 2020 where it was 1%. So we thought it would be useful to put that table in for you, so you could actually see and understand that.

Health care is an area where we have seen more shrinkage than we normally would. And there's been a lot of consolidation in that space. In fact, our whole U.S. health care businesses were down by about 10% in the quarter against the 1% last quarter. And in actuality, most of that step down was 2 new businesses we acquired that we knew when we acquired them were going to shrink. And actually, the way we measure shrinkage in our business, organic growth is we take into account the businesses prior to our ownership of them. So we really weren't even responsible for the shrinkage of those particular businesses.

And we're working really hard with all of our health care team to make sure that our businesses do provide great service to their customers and hopefully will organically grow at some point. But it's pretty important to understand that we did model that into the investment thesis. And all of our actually health care investments that I've mentioned today are expected to perform to our IRR expectations that we underwrote, including the 2 where we've seen that shrinkage in the quarter. Excluding the 2 businesses that we recently acquired, the healthcare group would have been down about 3% overall. So not as bad.

So now I thought it would be useful to talk a little bit about cash. Cash from operations was $717 million, which was really up 5%. Now we use a calculation called free cash flow available to shareholders, and that was at $443 million, which was down 16%. But I think it's important that I explain to you how that actually works. For those of you who do not follow the mechanics, we have an obligation to the minority partners in Topicus, and we have to revalue it every quarter. Its value moves with 2 things: Topicus' recurring revenue and the Polish shares Topicus holds in a company called companies Sygnity and Asseco. When either goes up, the obligation goes up, and we deduct that reevaluation arriving at free cash flow available to shareholders.

The quarter's charge was $117 million. A year ago, it was $16 million. Hold that one line flat and free cash flow was up about 3%. And of this quarter's $117 million, roughly $77 million is simply the Sygnity and Asseco share prices rising. The rest is Topicus' recurring revenue growing. So the charge went up because Topicus grew and because something we own became more valuable. It is noncash in the period, and I'm not going to tell you it is meaningless because there's a real obligation sitting behind it, but it is not a deterioration in the business. And I didn't want anyone reading down who read the 16% down and concluding that's what it was.

One last thing is I would expect that we might get asked about AI today. On AI, there is an enormous amount of work going on across our businesses and nearly all the learning is happening inside of them rather than at head office. We have more than 1,600 businesses across the world in dozens and dozens of vertical markets, and many of them are running experiments right now in their products, and how they support their customers and how they write software. Some of those experiments are already paying for themselves and plenty of them are not.

The part I would actually like to point out to you is the best practice sharing, and I've mentioned this before. That has been the engine of this company for 3 decades, managers teaching each other what worked and more usually what didn't. And I've never seen it run as hard as it is running on this. A company with one product or a handful of products runs some experiments at one time. We have many, many, many running at once and the results travel. That is a real advantage, I would want you to understand, and it's not one that you can buy. So I'm very, very proud of the team and how hard they're working on AI.

I would describe us as experimenting hard, running quickly and still early. The spend is not currently material to our results, and I'm not going to give you a forecast. What I can tell you is that nobody here is waiting to be told what to do about it.

With that, we'll take your questions.

[Operator Instructions] And our first question for today will come from Doug Taylor with National Bank.

Question for Mark. I think you articulated the Altera situation well last quarter, and I appreciate the added disclosure about the broader U.S. health care unit, even excluding Altera. I know you said Altera was expected to be a managed sort of runoff for the next couple of years. Does that same time line and discussion apply to the broader challenges with the U.S. health care unit?

I mean the U.S. health care unit is made up of probably like 50 different small businesses, and each of them have their own pros and cons, et cetera. Like, I broke out the group combined, which is sizable. But yes, I wouldn't be able to generalize the same way like the dynamics that were happening in Altera across the entire U.S. health care group. I think what we said in there, though, is we continue to invest and support our customers. And we just -- it's just a very difficult market because of the consolidation that happens because of Epic, et cetera.

Yes, I personally wouldn't extrapolate that at all. Like I really would look to our business leaders to continue to think about how they could grow those businesses. Generally, when we're acquiring shrinking businesses, they shrink for a period of time because you want to stop doing some things. And hope that you -- at the point you stop doing the things that aren't working out as well for you that you can then use that as a basis to grow it.

So we're very careful to make sure we're getting good returns on those investments. And I'm perpetually preached we want to grow those businesses when the time is right, but not at -- not irrationally generating low returns on the incremental capital we're investing in those businesses. So we'll make that rational decision, if that makes any sense.

I'll ask one more. I mean, clearly, a very strong year for capital deployment, which looks set to continue here in the near term. I mean given the sentiment towards software has had such a roller coaster ride this year, climbing out of it. I guess I'm curious if some of the behavior of some of the owners of software assets that you speak to regularly has continued to evolve. I know you don't think of these things in terms of quarters, but it's been quite a year. So any comment there would be helpful.

Yes, Bernie, I'll let you speak.

We've been very busy, as you could see for the first 3 quarters of the year, and that activity is still ongoing. I don't know that there's a massive trend for everyone throwing in the towel in a software business. I think they're just selling as they feel like selling. In the public markets, you see the big fear that happened at the beginning of the year. Prices have bounced back since then. So I just feel that there's more activity for us in general.

I think our people in the M&A world and the BD world are stepping up, and they're doing an excellent job against competition. We still have a very healthy amount of competition. I understand from just what I read in the press that large platforms are selling less, harder to unload these days, but private equity and those platforms that exist today are still adding tuck-ins and still competing with us. So still a healthy amount of competition in the software world.

And there's many businesses that don't transact either, right? Like during 2008, it was a tough time out there for people to be very nervous about what the future held, right, as through COVID and good businesses don't want to sell unless there's another reason because they feel -- they know their customers just as our businesses do, they listen to them, and they continue to see their business in doing okay. So it's -- I don't think any of that's changed. It really hasn't changed.

And M&A generally is lumpy for us, and it always will be. And so we've got a great year so far, and hopefully, it will continue.

The next question will come from Thanos Moschopoulos with BMO Capital Markets.

Daan was appointed Chief AI Officer, and that's interesting as a central head office role. And as you alluded to, you have a decentralized organization. Can you provide more color on how he'll be approaching that role? Will his focus primarily be about propagating those best practices?

It will be mostly about best practice sharing for sure. Daan is a really smart guy, and he's respected by all of our leaders across Constellation. And any way he can help transmit best practices from an AI perspective is well worth his time doing that. And I'm super happy he's taken on that role. It's a classic head office role where you're really not in control of anything, but you share information as much as you can to help people do what they do better. So I'm really happy he took that on.

Great. And can you update us on your verticalization strategy and where things stand as far as the implementation of that?

Yes. It's -- we're mostly through it. So there's a few loose ends we're kind of working through, but we're mostly through it. And yes, it's been a big effort for the team here on top of also spending a lot of energy on AI this year as well. So I'm very happy with that. They've done a great job. Our operating leaders getting that.

For context, would that -- would the majority of your revenue fall into buckets that are now verticalized or -- just to get a sense in terms of the order of magnitude of this initiative.

It'd be substantially more than -- let's just say more than half would, right? So just to give you a rough idea. So yes. And of course, there's -- when you're doing verticalization, there's a bit of beauty is in the eye of the beholder situation as to how crisp that is. So there's still some flexibility around that. But there's just a better focus. It was kind of putting businesses sort of in the same format as my expression to use being Constellation so that they still can do what they need to do. And yes, so that's sort of the situation there.

The next question will come from Jerome Dubreuil with Desjardins.

Maybe first question, goes in line in the MD&A talking about an increase in expenses on professional services fees paid to advisers in relation to certain larger, more complex transactions. Are these deals done now? And is this something new that is being explored by the team or just larger deals kind of in the line of the things that were done in the past?

Yes. I mean the expenses I'm talking about like for tax analysis or legal analysis, different countries, et cetera, it wasn't -- yes, it's not that we're paying advisers to bring us deals, et cetera, it's just more third-party advice as we're doing diligence.

And the second one is on free cash, I guess, lumpiness. Mark, you talked about the IRGA valuation that is well noted. The other one that we noticed is on working cap. Just something that is typically lumpy. Is there something new there? Or we should be expecting some sort of reversals in the coming quarters?

Yes. I mean that number, like you said, it is a lot to do with timing. I mean we do a ton of analysis around AR, WIP, aging, et cetera, and there's no concerns there. I always point out one thing with that line item, like if we buy a business with a ton of positive working capital, we might pay more for that business, and you'd have the price an increased price go through cash flow from investing. And then we could collect that cash the next day and you get cash flow from ops.

You could buy that same business had negative working capital. Let's just say we bought it 2 days after the collections. You pay less for it, but then you wouldn't get that pop in working capital, right? So it's not purely like an organic number, like it is influenced by the timing of what the type of businesses we're buying and when we buy them in their cycle of cash flow.

Yes. We're carefully including in the ROIC calculations, too for that business, right? So you're right on, Jamal.

The next question will come from Stephanie Price with CIBC.

Just want to circle back on a few topics we've covered already. Just on U.S. health care, hoping you walk through your thoughts a little bit more on the opportunities in that vertical and how you think about the investment opportunity in U.S. health care despite organic declines here?

Well, the way our leaders look at investments is on an opportunistic basis. So they're designing products that they believe might attract more growth inside of their business units. So I think Jamal put it correctly, like it's a number of businesses in health care. And you have to look at each one of them individually as to what the opportunity is and if it makes sense to invest our shareholders' capital in building something new for those particular businesses.

So it's a difficult question to ask generally. It's nice to kind of group U.S. health care together and say, but it really is a bunch of businesses. Altera is a large disproportionate business. So it kind of sways the whole group a little bit more.

Yes. Okay. And then just on M&A, obviously, nice to see the deployment year-to-date. Just curious, amid efficiency gains, how should we think about the time line to bring these businesses onto the CSU model? Has there been any change there? Or how are you thinking about improving margins once you acquire these businesses?

I would maintain the same time line. Of course, once we bring these businesses in, we're infusing them with all of our AI best practices as well. And really, time will tell if that will accelerate in terms of changing the time line towards higher margins in the shorter term. And so we're not ready to say that yet.

I mean I think I pointed out in Q1 that we had what was a negative 16% margins with that cohort of the Q1 acquisitions, like that cohort is now at 27%. And the same thing like the Q2 cohort went from 12% to 21%. So they are improving. It's just that we're making so many acquisitions that it's still a drag on our overall. But no, they are being improved. It's not a different pattern.

The next question will come from Kevin McVeigh with UBS.

Congratulations on the results. Just to follow up on that, it's great to see the accelerated pace of M&A. Is that just valuation opportunistic? Just any thoughts because it's great to see the incremental capital deployed, but what's giving you that confidence, I guess? Or is it just opportunistic transactions?

Still opportunistic transactions where we've got a lot of M&A people out there globally. And so we hope to be the first ones there when a business is for sale and hopefully beat the competition. And so there still is very robust competition out there, and we'll see what the next few quarters look like. But right now, I'm very pleased with the way things are going.

Yes. I always add to that is I really think we've built better muscle to do larger transactions as well. We wouldn't have had that capacity in like a decade ago, Kevin. So it's kind of nice, we have a good team who are able to make these fairly large complicated transactions happen when still at least we can be in the game and on the field, and we might win one of those that we maybe wouldn't have had the capacity to do previously.

And all the knowledge we built up over the history of our M&A, we use all of that knowledge to help us make new acquisitions, and it seems to be working out really well for us.

So true. Yes, the best practice sharing in acquisitions is crazy.

That's great. And then just real quick, are you seeing any client behavioral patterns? I mean the AI debate has been out there for a while. It seems like the business is steady as it's ever been. But are you seeing anything underneath in terms of clients looking to leverage maybe certain best practices from you folks or certain capabilities more than others as they not only respond to, obviously, AI efficiencies, but as they work through that in their own business models?

Kevin, I wish I could say there's some big trend to see, but it's -- there'll be individual clients who are trying to maybe do a little bit more with AI that you hear about. But across the board, we're not seeing that, right? So I think our stronger businesses can get stronger. Our weaker businesses that have high churn rates, and that's a small percentage of recurring revenues. I think they'll always -- they've always had such a lower long-term -- like a lower LTV like to keep the customers around. So I wonder about some of those businesses. But overall, I wish I could say there's any like general trends we're seeing. So nothing really.

Your next question will come from David Kwan with TD Cowen.

So for acquisition targets that are kind of more outside of the traditional VMS businesses that you've targeted, especially maybe areas where you don't have much current exposure, can you maybe talk about how your approach is in terms of building out the investment cases for these types of opportunities? Like do you take a different and maybe more conservative approach to the forecast or maybe you're using a higher hurdle rate to account for that greater risk with these types of businesses because your playbook probably doesn't line up great versus more traditional targets?

Well, as you know, we do build 4 scenario models. And any time we go outside of our little patch of VMS, we build more dispersion in the models. So your wipe out is going to be a lot worse. Your winner is going to be a bit better. And we use that with the probably-weighted model to figure out what price to pay. And we believe that the models or the scenarios capture the upside and the downside. And where we're less comfortable, we make the lower cases just a bit worse. Hope that helps.

Yes. I think one of the things we're looking at more horizontal businesses, you got to really think about the size of the addressable market. The addressable market is outrageously large. You got to really think about that, right? Like how are you going to be able to cover it properly, what have you. So we go through all that in kind of our modeling exercise and debate that stuff as far as what it could be, right?

But it's not like we're buying businesses that compete with Microsoft and Oracle maybe. But we try to find niche businesses even in horizontals, even in geographies, anything that has a moat and a few moats is what we're looking for. So in that sense, we believe that those businesses are relatively well protected. So we're not going into the wilderness buying anything that moves. So...

The behavior looking at that stuff hasn't really changed over the past few quarters, right, Bernie?

No.

We always do, the one we always have.

No, that's helpful. There was actually kind of -- I assume it was a tuck-in, but a smaller maybe managed services businesses that I think you guys acquired in Brazil. So like I said a little bit more outside of your traditional hunting ground. So I was kind of curious how you would approach a business like that.

Same approach, higher dispersion. That's really how it works.

Yes. Calculated. Yes, but just think it through.

Okay. And then just one other question on M&A. Are you seeing the valuations start to come down for the private companies? Or are they kind of staying fairly resilient? Is there any impact from -- I know the 10-year yields come down recently, but still quite above where it was at the start of the year. So are you seeing any impact from higher rates?

Not really. I mean there's some movement, but really generally, there's so much competition that's out there, whether it's a transaction that's leveraged or not, maybe that will be spelling out a slightly lower price, but not really that much because people still do have capital out there and they have to put it out. So prices really haven't been dropping that much.

And some people don't want to sell the businesses...

Some people don't want to sell...

At this valuation.

The next question will come from Paul Treiber with RBC Capital Markets.

Just a question on the IRGA, particularly in regards to the fair value of Asseco and Sygnity. I think that agreement expires in 2031. At that point, yes, there's the liability. The fair value, is that set purely by the market price? Like if you disagree with the market value at that time, do you have an exit? Or is that entirely your liability?

Yes. The agreement there and actually spending hours like finalizing a revised agreement on this is that Joday will get their proportion of the Sygnity and Asseco shares. So it's actually not a cash obligation. They will just get them. And they're valued for accounting purposes at the market rates, right? So it is what it is, and it's not that we will pay them that dollar amount. They will just get the shares.

Okay. That's helpful. Just secondly, just on Robin's retirement and then the appointment of Ramon. The -- you've gone through retirements of general managers of operating groups in the past. Can you walk through typically what you've seen with the change in management? Is it typically like a smooth handoff? Is there some adjustment or changes that typically occurs?

Yes. I mean it's usually pretty smooth because most people have been around for a while, and we run CSI in such a decentralized way, you end up inheriting more portfolios to oversee. So I think that's generally how it works because we're sort of a large tree of capital allocators around the world, if you want. And you hope you have a lot of successors sitting there that will bump up into that role, and they do a very similar job to what they've historically done, just have an over -- a larger, we would say, capital base to oversee and to make sure they're sharing best practice, what have you.

In the case -- in Ramon's case, pick up a little bit of more shareholder and investor relations that he wouldn't really have been involved in at all as in his role at Topicus. So it works really well at CSI because of the way we're structured. There's no like single points of failure.

Our next question will come from Teddy Farley with Jefferies.

This is Teddy on for Samad Samana. Congrats on another strong quarter. Just a few quick ones from me. So with some of our industry channel checks, particularly among vertical software companies on the smaller end, we've started to hear more cases of AI disintermediation. So within your portfolio of companies, are you seeing any evidence of this yet?

Really not to any large degree. I mean there's some things happening, but it's not nonmaterial. I think I said before, I think really, continue your next question, Teddy.

So this is smaller, but on license revenue, I know you noted it's lumpy quarter-to-quarter, but was there anything in the 3Q '25 comp period that's worth calling out?

Yes. Because it's so immaterial, I did not do a deep dive on that, so I couldn't even tell you.

Trying to get most people moved over to subscription, if you can, in some form or another recurring. So...

Awesome. And then last one for me. Is there anything you would highlight on specific sectors you're seeing either more or less transaction volume on and it could be over the full year just because I know there's some amount of noise quarter-to-quarter.

It's all over the place, right, Bernie.

It's very generalized. I mean we go into all areas, all verticals, and it's opportunistic. So no trend in any one sector that I could see.

And this will conclude our question-and-answer session. I would like to turn the conference back over to Mr. Mark Miller for any closing remarks. Please go ahead.

Well, thank you, everyone, for attending. And of course, I have to thank our whole team at Constellation for working so hard and continue to push ahead. So thank you very much over and out from Toronto.

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

Good day, and welcome to the Constellation Software Conference Call and Webcast. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Mark Miller, President of Constellation Software. Please go ahead.

Thank you. Good morning, and thank you all for joining our Q2 call. Before we get to questions, 2 things I wanted to put on the table upfront. The first is AI. It is changing 2 things for us. Our customers are asking our software to do more for them while our businesses are finding new ways to build better products faster. We are seeing both. What we are not doing is running an AI program out of head office. Our business unit managers understand their verticals far better than we do, and they are making those calls themselves at their own pace, funded out of their own P&Ls. Some of that work will pay for itself and some of it will not. And we will find out the same way we find out about everything else we fund, which is slowly.

As many of our businesses have been adopting AI, we are seeing them use the tools to rapidly move through our customer-driven product road maps and augment our products with AI functionality. Let me be direct about what that means to you. We are not going to give you an AI target, an AI revenue line or an AI time line. If we start reporting a number like that, we will start managing to it. Our software is primarily mission-critical. It is embedded in how a customer runs their businesses every day. AI is something we add to make that software more valuable.

The second thing we've been working on is verticalization. We have been grouping our businesses and our prospects into coherent verticals where possible. The purpose is simple. We want to be the obvious permanent owner of a niche so that when a founder starts thinking about the next 20 years and selling their business, we are the first call. That kind of reputation takes years to build. It will not show up in this quarter's results or next year's, but I would ask you not to look for it there. The constraint is not structue, it is having the right leader for each vertical, and leaders of that caliber take a long time to develop. We are setting the pace accordingly.

The 2 are connected. Depth in a vertical is what lets you tell the difference between an AI product that matters to a customer and one that merely demonstrates well. We would rather have that judgment sitting close to the customer and understanding their needs.

So thank you very much, and I'll turn it over for questions.

[Operator Instructions] Our first question comes from Thanos Moschopoulos with BMO Capital Markets.

I want to ask for an AI metric, but just qualitatively, as you look across the portfolio, are you seeing a growing number of examples of businesses that are starting to see an uptick in organic growth driven by AI product enhancements, the way we heard some of the case studies at the AGM? Is there more and more of that happening in the portfolio that you can speak to?

What we're seeing, Thanos, is we're seeing our development process is getting much better. They're moving faster through backlog. So we're seeing a productivity increase, I think, across the group, not everywhere, but it's starting to adopt because we spend a lot of time working on training up the -- all of our resources on how to use AI tools better for development. And right now, they're working to talk to customers about potential add-ons or additions to their products that are using some of this functionality to develop the software, but we still haven't seen a real pickup in organic growth from it. I think that's a ways out.

what I always say, you can build products fast, but selling them is a whole other thing. A customer has a budget for them and see -- and you have to be solving a need that they're willing to put some money on the table for before it's going to impact our organic growth.

So I think that's consistent with what we've seen in previous quarters. I'm just really happy to see our teams adopting the tools to develop software faster and more efficiently than ever before.

Great. And then we've seen some PE acquisitions you've done recently with DerbySoft, TouchBistro and Imagine. Is that indicative of a broader trend with respect to valuations coming down on larger assets, or kind of more of a case-by-case thing?

I think it's the latter. It's Bernie here. It's more on a case-by-case thing. And we're finding acquisition opportunities across the spectrum from owner managers to PE to carve-outs. So those are still coming through. It just so happens that we had significant volume this past quarter and the beginning of the third quarter. So we're still seeing all of these opportunities proliferate, but it takes a lot of time, and we've developed these relationships over the long term. It just so happens that some of them happened and just took place this quarter. So we were very fortunate that we're the first ones that they called, and we managed to close a whole slew of them.

Our next question comes from Stephanie Price with CIBC.

I just wanted to circle back on your comments around grouping businesses into verticals. It's a little bit different than CSU's historical focus on kind of not integrating these acquisitions. Just curious if you could talk a little bit about what's changed in the market that's led you to evolve into a potentially more vertical market focus and whether the verticals will be between different operating groups or how you think about those verticals?

It's a good question, Stephanie. It's really -- we're not integrating businesses. There's no business integration going on in it. We're just trying to make sure where there's a chance to, let's say, I like to use a Constellation expression, put them in the same orbit together, where they're not, if they're across operating groups, we'll move a few businesses in order to try to make sure that there's someone who oversees a particular vertical. And it allows us to use some of these tools that we're seeing with AI that we might be able to use across some of those verticals. But that's the hypothesis. Time will tell. We've had good success when we've had vertical-focused leaders inside of Constellation that have created, for example, a Lumine and things like that.

So I really do -- I'm just trying to refine that a little bit and get the businesses that should be closer together, closer together, but I do not plan on -- or we don't have any plans to integrate them in any way functionally or in any other way. But if they're a little closer together, they might be able to learn a little bit more from each other and it positions them better for the next 5 to 10 years.

Okay. That's good color. And then maybe on Altera. So Altera's organic maintenance and recurring growth decelerated in the quarter. Just curious if a large client decided not to renew like, how should we think about the Altera organic maintenance growth and Altera going forward?

Yes. I tried to put it in the MD&A. They're a SaaS, but it was a very -- like in Q2 '25, they had a very strong quarter. So they actually had a couple of new name sales. And the way IFRS makes us account for things now, if you have a large contract, you have to recognize a certain amount upfront. So they actually showed, I think, this positive 1% organic growth in Q2 of '25, yet the trend line for this business is going to be a slow shrinker for the next year or so or a couple of years, I would say. And so that is the driver of it. So if you normalize for that strong Q2 '25, things are -- there's nothing terrible going on.

So I'd expect that organic growth to revert back on a full year basis to sort of what it has been trending at recently.

Our next question comes from David Kwan with TD Cowen.

Just echoing on that last comment on the organic growth, Jamal. So even if you exclude Altera from the maintenance and other recurring revenue growth in constant currency, you came in at 4%, which is below the historical range of 5% to 6%. So was there other stuff that you would call out, I guess, as it relates to the organic growth?

Yes. I mean there's a couple of other items like it's tough because you don't talk to specific BUs in the MD&A. But we had a couple of larger acquisitions like Dark Matter where a similar thing, where in Q2 '25, they actually recorded organic growth of -- it was 10%, right? And again, this is a business that we're still fixing has negative organic growth right now, but you had this huge Q2 '25, and so therefore, you've got like a negative 18% in Q2 '26 because of that comp. But the other thing, if you look at some recent acquisitions, so Lumine is broken out. You can see that they've made some large acquisitions recently that they're pulling out. Their organic growth in the quarter was 1%, right? So again, a drag on CSI, but things that they're expecting to turn around.

And then there was another large -- or a business that we had in South America, where they lost a large customer. But this was an example of a business that we knew at the time we acquired it, that, that customer is leaving, has nothing to do with AI. The customer has now left, but it was sizable. And I mean that customer alone was like a 30-basis-point drag on CSI's numbers, right? So there's a few of these like one-offs that are causing it. Many -- or the 2 that I talked about, like the Altera and the Dark Matter are purely accounting related and should revert back next quarter.

The Lumine thing is like they're fixing these businesses. I don't know the exact time line of when they expect to turn around, but yes, I could -- if you back out those 3, 4 things, you could normalize back down to that sort of 5% number that we've always trended at.

No, I appreciate the color. And are there any of these kind of whether it's tougher year-over-year comps or maybe some customer -- larger customer attrition that we should be looking out for in the coming quarters? Or does it look a little bit more normalized?

Like my expectation based on what we own today is it's normalized. Like we were also making a lot of large adaptations, and I have not analyzed those to see what their impact will be in the next quarter or so. And -- but yes, based on what we own today, I would say, yes, I would expect these anomalies to sort of revert back. I'm not expecting another large customer leaving or anything based on what we have today.

Yes. That's helpful. And maybe one question on Bernie. I think you kind of talked about some of the deal flows and more increased deal flows of, say, larger deals, $100 million, a few hundred million dollars. So it sounds like you're seeing more of that. Are you also seeing better win rates for those deals? Like how is the competition for them?

Yes, I think the competition is still very robust. No one is giving up on vertical software, whether it's large or small. We're seeing some weaknesses at the high end, but -- in pricing, but it's still very, very competitive. So it's not like we're increasing our win rates or anything like that. It's same old try to get as much as we can. I don't see any improvement, but we had so many people out there looking for acquisitions across the board or across the globe. And it's a matter of developing those relationships over the long term.

Can you comment -- have you seen any changes within the kind of the competitors for the businesses, whether they're copycats, strategics, potential buyers?

The copycats are still out there. I don't see any new ones that are popping up really. It's more of the ones that have popped up in the last 5 to 10 years, and those still exist, and they're still competing for businesses. And I expect that to continue for still quite some time until maybe some of those portfolios decide that it's time to move on and they don't want to go public and they just want to sell because it's PE backed and there's a limit to their funds. So I don't see any changes there. I don't hear of new ones popping up or if there are, they're very small, and we hope to pick those up at some point in the future, if at all possible. And hopefully, at some point in the future, the number of copycats starts to reduce, but we just don't -- we can't predict that. We don't know.

And one last question maybe for Mark. When you were talking about the verticalization, are you changing in terms of the M&A and the BD teams for that? And how do you see an impact on potential movements in the portfolio for these -- or the companies within the pipeline for the personnel there?

Well, we've seen a lot of -- when we have vertical groups that are larger inside of Constellation, we've seen a lot of success deploying capital in those vertical groups. So definitely, some of the M&A resources will be better aligned to verticals than stepping outside of them in some cases. So there definitely will be some changes related to that.

Our next question comes from Paul Treiber with RBC Capital Markets.

I was hoping, could you speak to the profitability of the 2026 cohort of acquisitions? Is it fairly typical and comparable to other cohorts? Or do you see a change there?

Yes. I mean, I think I called it out last quarter that it was like negative margins, but there were a couple large -- it's more the purchase accounting, like there were some bonuses that we couldn't put as part of the purchase equation that we had expense, et cetera. But that cohort in Q2 meant from being -- I think it was negative 16% in Q1 and it's now positive 16% in Q2. So it's -- and it's going to trend up. The 2025 cohort, similar thing, like I think it started off around 16%, 17%, it's up to 20%. So it's moving up. So -- but all the -- it's not that these businesses will continue that way, like it's just taking time to improve them to the levels, but if you look at all the cohorts prior to that, like they're probably in the 30s or high 20s, right? And so it's just taking longer for them to go there, but no, it's not -- they're not going to be inherently lower forever.

Okay. That's helpful. Second question is just specifically on DerbySoft, I mean there's some disclosures in the MD&A. Is it fair to annualize the revenue -- the disclosed revenue in the MD&A and you get to roughly the $100 million and the purchase price is $400 million. The multiple seems high. Is there anything wrong with my math, one? And then secondly, is there any reason for the multiple being higher than typical?

You want to talk to the multiples?

Yes, it is a high multiple, but it's a very successful organization. It's growing nicely, good profitability. It could always be a bit better, but that's what our expectations are of the business. It's a very solid business.

But you did use leverage as well, right? And so remember that helps us pay a little bit more, but...

We also have a great team at Constellation working on that one, Paul, as well.

And the punchline on the multiple is that you still expect the IRR to be in line with acquisitions of the similar size?

Absolutely.

Yes. Hurdles rates aren't changing.

Yes.

Our next question comes from Douglas Ott with Andvari Associates.

All I've got 2 topics, I'd like to ask a few questions on each. First is Altera. And I just want to thank you for the ongoing disclosure for that asset. It's been very helpful, and I'm very appreciative of that to be able to track the progress on Altera. So we've crossed the 4-year anniversary. We acquired it in May 2022 and since then, according to my math, that's generated a cumulative $400 million in free cash flow, all while revenues have declined from a little over $800 million to now about $646 million in trailing 12 months. First question is, do you think these results have tracked with your initial expectations?

Yes. I mean I'm not closely involved with the business, but I have the CEO of Harris has talked to it at the Board meetings, and he has said, yes, it is aligned with sort of what they expected from the investment thesis, and it's aligned. It's actually just operating ahead of what the expected IRR was in the original investment so...

Got it. And also on Altera, I was curious if anyone could share any general learnings that you've had since acquiring it? What has surprised you good or bad since acquiring Altera from Allscripts? And have you been able to apply any of those learnings to acquisitions since then?

I would think generally just -- it's a very large acquisition and it's something we've been learning how to do better over the last 5, 6 years. We've done a bunch of larger acquisitions. And one of the key learnings is driving best practices is harder to larger acquisitions. You can't drive them as fast. So the ability to maybe break the business up into, let's say, what you would call smaller business units is something that we're trying to do faster when we can, when we acquire an above average sized acquisition for us. And so that's how quickly can you do that is really defines how quickly you can improve the business. So -- but that's just ongoing. And that will probably be the biggest focus. May be, Bernie, you want to add something to that. It's just driving best practices is harder in larger acquisitions.

The complexity of larger businesses is really the challenge. And the various groupings, different product lines, you have to manage them as a portfolio. And because we do that on a portfolio basis in CSI, we have that experience already, but there's -- there are cultures that are just different from what we're used to at CSI and some things have to change, and it's just a little more difficult to change them.

Back when we were doing smaller acquisitions where they were sort of $5 million in size, $4 million or $5 million in size, it was really easy for one person to wrap the head around what had to be done to do that acquisition, how it should be improved, what best practices you could apply to it. When you're working with a much larger acquisition like an Altera or even a DerbySoft or any of these, you have to really be thinking about a team of people helping you think through what to do there and implement it, which you didn't have to do in the earlier days when you're doing smaller acquisitions.

One of the nice things about us is we've learned how to do that a lot better and more people are able to think that way than we would have, let's say, 10 and 15 years ago.

Yes. All right. So second topic for me is continuing on the corporate carve-outs. So I guess, in general, I mean, like the difference between a small acquisition and a big acquisition, you have to change how you approach things and drive best practices. But on carve-outs, is there any reason that they're a bit [indiscernible] deal with? Can you talk about those reasons? Are there -- when it comes to analyzing it as an investment opportunity, what sorts of financial adjustments you have to make? With sort of qualitative adjustments you have to make? Are there different risks? Are they greater or lesser and other types of risks? I just appreciate some more thoughts there.

Yes. I mean we get better than every time we do them. I mean, Bernie might want to just add -- Bernie, might want to expand on this, but they're interesting because it isn't -- they're not clearly -- all of their financial statements aren't fully separate out in a lot of cases. They're interwoven together. You have to separate them from internal systems that they're on. There's -- yes, there's a whole bunch of carve-out things that really you have to manage carefully. And plus whoever you're buying the carve-out from, they really care where their customers end up in a lot of cases, right? So you've also got to balance that as well.

So there's a lot of things you do differently with a carve-out that you wouldn't with a stand-alone acquisition. Bernie, what would you add to that?

The same goes for the way we look at businesses in terms of return on investment. And every decision that we make within our business is based on return on investment. And if we can't see that return, we just won't do it unless it's really, really strategic as it were. And a lot of the businesses that we do get from carve-outs don't look at their businesses that way. And so that's a bit of an infusion that we give them. And we try to set their minds towards measuring that investment. And so -- and there are lots of decisions that these businesses make on a regular basis. And when it's a larger business with various product lines, you have to take that decision, make them more granular and infuse that kind of thinking into the people that make those decisions.

They're generally not very balance sheet driven, right? They're not thinking about their balance sheet and that's -- the balance sheet is obviously something pretty important to understand and just figuring out what that is and getting them to think about managing their working capital is harder than it would be for a standalone business because it's -- there's not -- usually not a separate balance sheet for that particular carve-out.

Awesome. Awesome. Great. And just one final one on carve-outs. Would you agree that in your universe of potential acquisition targets, are carve-outs typically an area where Constellation can deploy larger amounts of capital?

Yes. We've been doing it for years. And I think that the fact that we've done it with Fortune 500 companies just underlines our ability to do carve-outs appropriately and maintain that customer base as expected. And I think these larger businesses are more than happy to deal with us when it comes to taking care of the customer base and the employee base. So I think we'll see, hopefully, more of those.

And we have done multiple carve-outs from individual businesses, too, which is kind of nice. Your reputation is important, very important that you take care of their customers and their employees when you're taking over a business like that. And that matters to them.

And can you put any kind of general number on potential carve-outs that might be out there? Are they in the hundreds? Or is it greater than that?

No. I wish we could see the future, and no. So yes.

Our next question comes from Kevin McVeigh with UBS.

Great. Nice results here. It seems like the M&A, particularly for 6 months of the year have been elevated. Should we expect a similar pace in the back half of the year? Or just any thoughts on the cadence just given there's been some pretty good success in the first half of the year?

I hate to predict things. We have a very robust funnel. We're working with a lot of businesses, whether they happen in the second half of the year, whether they happen in the future is impossible to tell. You've seen our results last year were lower. So it's just so hard to predict when these businesses will actually close with us and whether they will close. So I will not offer a prediction.

We just want to make sure on the playing fields when they're available, right? We want to be out there trying to win.

Super helpful. And then the pacing of the organic growth. Obviously, last year, the first quarter, there was only about $94 million of acquisitions as opposed to $380 million in the second quarter. Does that $380 million start to come into the base in the third quarter? Said another way, right, is it the third quarter where it starts to get into the organic base?

Yes. The way I calculate organic growth is I add my pro forma, our history as if we own that business for the full year or for the prior comparable period. So if we're buying businesses that are turnarounds and we need to fix or whatever, it impacts organic growth right away. And that's why I do it that way as opposed to waiting a year or whatever before it starts showing in our numbers so...

And that's kind of where it was a little bit slower because some of those ones...

Yes.

Got it. No, that makes a lot of sense. And then 2 others, and I'll get back in the queue. It seems like the taxes in the second quarter were a lot higher than what we modeled. Was there anything there just relative to the income taxes paid in the second quarter relative to -- it was almost double what we thought...

So if you're looking at cash tax, like I mean, that's just timing and -- but I always look at the current tax expense as a percentage of like sort of this adjusted net income before tax, and that number is sort of in line in that sort of mid-20s, which it always is. And yes, so current tax approximates cash tax. If you look at the current tax line, it's pretty stable. The cash tax will fluctuate based on payments.

Helpful. Last one for me. The commentary on AI was super helpful. As you're thinking about implementation internally from an expense perspective, any way to think about where you are in that process? And then any way to dimensionalize the tokenization side of it in terms of increasing token costs relative to productivity? And how are you just managing that? And is there any way to -- again, is the token cost where you thought it was going to be? Or just any thoughts around that as well?

Yes, we started tracking this. So we've created now GL accounts that will track sort of the token expense and any cost related to AI. I mean, still early days. I mean, if you look at our P&L right now, you'll see third-party maintenance like slightly up, but nothing material. I'd be honest with you, I don't have a great, a clear number of what these total expenses are relating to AI. So this is something we'll start tracking now going forward. But I do not believe it's materially impacting us today. And it is something that -- as we talk about this internally, that we will -- it's something we take into consideration even like the tools that we use, making sure we're not beholden to any one provider, and yes.

I agree with Jamal. That seems correct. I think in some cases, we -- you're going to -- where we push people really hard to start using AI tools to start increasing their productivity and ability to get customers what they need faster. And I think it's really interesting to see where the tools evolve. In some cases, we're using -- one of the expressions internally is we're using a blowtorch to light a cigarette. So we're using very powerful tools for problems that probably don't need those today. But it's just -- you sort of want to, I would say, role with it right now in order to make sure you're adopting technology fast, people understand what's possible.

So it's going to be an interesting journey for us. The great news is we haven't banked on any one particular platform to use. So we'll learn from each other and adapt as necessary. Our businesses will have the opportunity to very quickly change courses if -- course and what tools to use if they need if we're thinking things getting to expensive. So...

Our next question comes from Teddy Farley with Jefferies.

This is Teddy on for Samad Samana. Congrats on another solid quarter. A handful of software companies have called out headcount this earnings season even with plans to reduce or aim for flat headcount, including a shift away from G&A towards sales and marketing. How does that compare with the thinking across your portfolio companies for the balance of 2026?

No, we're not taking really a lot about headcount reductions. I mean, we have a lot of -- remember, we're a very decentralized organization. We don't have this big 20,000-person R&D group that works across the world. We have individual businesses all over the world that have development groups that, in some cases, have single-digit number of people, and in some cases, have double-digit numbers of people, very rarely have hundreds of developers in any one business. And so we're really trying to get them to be able to offer their customers more faster and get through product road maps and fix bugs and things like that using these tools. And the headcount reduction is not a focus of the company at this point.

Our next question comes from Ryan Floyd with Barca Capital.

Thanks so much for doing these quarterly calls and the transparency. It's really wonderful. That's Barca Capital. Sorry, I don't know... My question is not about AI. Based on public information, it seems like a lot of your IRR when you buy something comes from changes in working capital. I am just curious, is this generally the case? And if so, could you give a very rough sense maybe of what portion of the IRR comes from changes in working capital when you buy something? The reason that it's important is, if people are thinking about cash flows from your deals very long term, if a lot of the cash flows are showing up earlier, it doesn't matter that much than if they're showing up, I don't know, in 15 years or something like that.

The other question I have is not about AI, but it's just general. It is, have you seen a change in the number and profitability of your [ capital AI ] initiatives in the last, say, 6 months or 12 months compared to 2 or 3 years? Or is it about the same? Have you seen profitability much, much higher, much, much lower? I don't know you're doing 5x of these or 10% more, or it's just about the same? Again, thanks for doing the call. We all appreciate it. We appreciate the tone, the transparency and the disclosure.

Okay. So just to hit the working capital question. Every acquisition is different. I know back in the early days, like the very early days of Constellation, it was a big factor in our acquisitions, but it didn't mean that it detracted from the IRR of the businesses themselves, or the cash flow that we could generate from those businesses. Today, again, working capital changes make a little bit of an impact, but not a lot. The biggest impact is from running the businesses appropriately and getting the cash flows out of those businesses. It's really operating changes that we make to the businesses as opposed to working capital. And if there is an added bonus that we can find within working capital then all the better. But I wouldn't say that it's a significant portion of our returns. I hope that helps...

Is it fair to say, or have you had an eyeball on trying to get those cash flows? I know you're very time, value, money oriented, but getting those cash flows earlier rather than later or saying [indiscernible] 4 or 5 years, we don't think too much about it?

Sure. We always try, but sometimes these things do take time. In Europe, I think it takes maybe a bit more timing than it does in North America to make changes to our businesses. But we try to get them done as quickly as possible. That is our objective to make sure these businesses are operating appropriately like our 1,500 other -- plus other businesses so that they're in line with our operating guidelines. And so we do try to get them done as early as possible, yes.

Sometimes you have to look at customer contracts, and it just takes time, right, a long time, especially with large customer contracts. Those relationships are very important as well. So you have to think through how to make those, but we model that all up as we think doing adjustment carefully. So...

But operating cash flows is first and foremost and way more than working capital. And if we find those opportunities with working capital, we definitely do take advantage of those, yes.

We measure it very closely, very closely. You were asking about initiatives, I think, as well. So yes, I mean there's a lot of initiatives going on throughout the organization. There's sort of 2 types of approaches to initiatives. We really love customer-driven initiatives where the customers actually say they need something, and we help them figure out what that is and some businesses that are incredibly driven by just what the customers want now, especially our larger customers we do things for. And then others are creating -- like there's a number of AI initiatives going on, for example, right now, where they're creating potential products by listening to what we call revenue signals from customers.

So I think there's probably more initiatives now than there was a year ago. And we'll just have to see what those amount to in the end, what the actual returns on the capital that we're investing in doing those. So we have a very open mind to people experimenting right now with the technology evolving and AI.

Do you have anything you could give us a sense of how well those early ones have been doing?

It's too early. It really is. It's really too early. There's some interesting -- what's interesting to me like if we're seeing someone -- what we've seen, I think, this quarter, if we see some other outside company coming into potentially to sort of more of a horizontal play in some of our verticals, we are able to be much faster followers, which I hadn't thought a lot about. We've always had the ability to be a fast follower, but you can be a faster follower with AI, especially when you have a lot of customers in that particular area. So as long as you've skilled up your team so that they're able to move fast, they can move much, much faster and provide customers something. So that's kind of a neat outcome, right?

Because if it took years to build some products like some initiatives, it takes 7, 8, 9 years to get them to the maximum revenues over time, believe it or not. So -- in the early days. So maybe some opportunity to do some things faster in certain areas now where other people have driven up the, what could you say, the desire for that type of a product line. So it's fun to watch that for me over the next few years.

That's great. I might sneak in one small question. You operate in many different countries and many regulated industries in particular. I think you said that regulated industries are often less likely to prefer cloud solutions or maybe AI solutions. Have you found that country-to-country regulated industries have different preferences with respect to on-premise or AI coded products?

It's more sector to sector within countries, I'd say. I mean, I don't -- I wouldn't have a broad conclusion on that. I'd say it depends on the sector. If you're government, you're clearly very concerned about those things, bank, banking, like health care. So it's sector-specific in every country, I would think.

Our next question is a follow-up from Douglas Ott with Andvari Associates.

I've got 2 more questions. I'm curious if you guys, the management team and Board, are still studying high-performing conglomerates and other successful businesses? And along with that question, I'm just curious, how did those learnings trickle down? Or how far did they trickle down? Is it just the top people that are studying these other businesses? Or are there hundreds of business unit managers that are also trying to glean lessons from these case studies?

I think -- it's a really good question. I mean, I've been fortunate enough be able to be involved in understanding that as well as the senior team at Constellation. I think it really varies by the operating group how far they drive those down with inside of Constellation. There's a lot of content that we shared for people who are -- as we're onboarding them, as we're onboarding new companies on how we see the world. And we did -- Larry Cunningham did a study for the group that I oversaw for many years, Volaris, and he went and he spoke to -- interviewed 70 of our leaders across the world and was -- really wanted to understand how invasive are, I guess, you want to call it, our beliefs are and how people think similarly?

And it was pretty interesting because we've created, I think, a common link and a common understanding across the world on how to approach things independent of language, business. So I do think even if it isn't explicitly going through a particular conglomerate and how they approach things, just the general lessons of what we've learned at Constellation over the last few decades tend to be everywhere, which is surprising to me. It was surprising to me how far it was. In a decentralized organization, it's always fascinating to see that, right? So I was pretty happy to realize that Larry came to those conclusions.

Interesting. Secondly, it's been a pretty long [indiscernible]. Mark Leonard initially floated the idea of perhaps one day Constellation having to look outside of the world of vertical market software to deploy capital. Given the level of capital you've deployed continuing in software, has that effort taken more of a backseat? Or is it still ongoing? Or how is the level or desire evolved over with that potential initiative?

I think we're -- obviously, we're mostly interested right now in -- with our ability to get more capital out, we're interested in focusing on software and making sure we're doing software as best we possibly can. So it isn't -- it's something we discuss occasionally, but it's not really the focus right now. And there's so much more for us to do in the software world. So I wish I could say we're all done, we're finished, but there's too much stuff to do. We're constantly learning. And our teams -- like I think our teams have been -- are able to do larger acquisitions now, which has opened up a whole new round for us. And we couldn't have done that 15, 20 years ago. So just keeps...

Yes. Good. With the large -- and that's an interesting point because I think a good part or one way people are attracted and passionate to continue working at Constellation is just, it seems like a robust amount of opportunities for career development and learning even different [ fields ]. You mean is that something that people are really happy about and [ talk to you about ]?

For sure. I did something Volaris [indiscernible] 3, 4 years ago at a big event where we had like 1,200 people in London. And I interviewed 5 people on stage and 3 of the 5 were interns overseeing portfolios. But that was 15 years later after working for us for 15 years. So there is lots of carrier opportunities at Constellation and it needs to be. And in a decentralized environment, you create a lot more career opportunities. When you're in a large functional organization, you hit career sort of growth opportunities, walls, if you want to call it, aren't as possible here. Many more people in our world can run a business inside of constellation. They can take another role. So I think it's kind of interesting place to work, and we're super keen on continuing to develop our people across the world. It's the single most important thing we do.

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

No, just thank everybody for dialing in and asking a bunch of good questions, and we're looking forward to getting through this quarter and chatting with you again in 3 months. So over and out from Toronto, and have a great rest of the day and rest of the summer. Bye.

Thank you.

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

Good morning. So last one. Mark Miller, our President, and

John Billowits, our Board Chair, have asked me to act as

Chairman of today's meeting. Our CFO, Jamal Baksh, will act

as Secretary of the meeting. Shirley Tom and Melissa

Phillips of Computershare will act as the scrutineers and

compute the votes of any polls that are taken at the

meeting. We are conducting today's meeting as a hybrid

meeting held virtually via live webcast and in person.

Before we get started, I wanted to outline a few logistical

items regarding the conduct of the meeting. We're starting

with the formal AGM business for Constellation. Once the

formal AGM business is completed, we'll move on to our

management presentations and our Q&A. Any questions

regarding procedural matters are directly related to the

motions before the meeting may be addressed during the

formal part of this meeting. Otherwise, I ask that you

please save your questions for the Q&A session to follow

after the formal business to be conducted at this -- at this

meeting has been fully completed.

As in past years, the vast majority of shareholders

submitted their proxies or voting instructions, in advance

of the meeting. But registered shareholders and duly

appointed proxy holders, they're attending virtually or in

person, we'll also have the opportunity to vote during the

meeting. If you have voted in advance of the meeting and do

not wish to change your vote, then you do not need to do

anything, you should not vote again. If you do vote

again, doing so will automatically revoke your prior vote.

For the purposes of those joining the meeting today

virtually, voting on all matters will be conducted by

electronic ballot. Registered shareholders and duly

appointed proxy holders will be asked to vote on each

business item after it is introduced. When you're asked to

vote, you will receive a message on the virtual interface

requesting you to register your votes. When voting

commences, the polls will be open for the duration of the

formal portion of this meeting. For those registered

shareholders and duly appointed proxy holders joining the

meeting today in person voting on all matters will be

conducted by ballot. The

[indiscernible] ballot includes

each item of business being voted on. You will be provided

with a few moments to complete your ballot with respect to

each business item after it is introduced. We will now

proceed to the formal portion of today's meeting.

The secretary of company has filed with me the approved

mailing of the meeting materials. The consolidated financial

statements of the company for the year ended December 31

2025, and the auditor's report thereon have also been mailed

to all shareholders of the company who have requested

them. Copies of the materials are also available on our

SEDAR+ profile and on our website. We would be pleased to

deal with any questions concerning the financial statements

subsequent to the completion of the formal business of this

meeting.

The scrutineers have reported to me that we have at least 2

shareholders present in holding or representing by proxy at

least 15% of the votes entitled to be cast at the meeting.

As such, I declare that a quorum is present for the conduct

of business, and this meeting is properly constituted for

the transaction of business.

As noted voting today will be conducted by electronic ballot

for those attending virtually or physical ballot for those

attending in person. The electronic balloting will be open

to registered holders and duly appointed proxy holders who

have properly logged in with their control numbers or invite

code after the presentation of each business item. The

physical ballot has been provided to registered holders and

duly appointed proxy holders at registration.

The first item of business is the election of directors.

There are 9 directors to be elected at this meeting. The

management information circular made available to

shareholders contains information about the 9 nominees.

Those nominees are Jamal Baksh, John Billowits, Lawrence

Cunningham;

[ Claire Kennedy ], Robert Kittel, Mark Miller

Donna Parr, Andrew Paster and Laurie Schultz. The meeting is

open for nominations for the election of directors for the

ensuing year or until their successors are elected or

appointed. I now call on Caroline

[indiscernible], the

General Counsel for Lumine Group, and Bernie Anzarouth, our

CIO, to nominate and second the nominations, the directors

for the coming year.

I nominate each of the persons just named to be director

until the close of the next Annual Meeting of Shareholders

or until their successors are appointed.

I second the nominations.

Thank you

[ Carolyn ] and Bernie. If there are no further

nominations, I declare the nominations closed. I note that

as described more fully in our management information

circular, we have a majority director election policy in

place. This policy enables shareholders to vote separately

for each director nominee at meetings of shareholders where

directors are to be elected. If a director nominee does not

receive the support of a majority of the votes cast at the

meeting of shareholder that director will be expected to

tender his or her resignation from the Board following such

meeting. The resignation will be effective upon acceptance

by the Board and will be disclosed via press release. For

more information about our majority director election

policy, please see our management information

circular. Voting is now open. I invite registered

shareholders and duly appointed proxy holders to submit

their vote.

As I mentioned earlier, if you have already voted before the

meeting, there's no need to do so -- to do anything unless

you would like to change your vote. Registered shareholders

and duly appointed proxy holders who have properly logged

into the virtual meeting with their control numbers or

invite code and wish to vote online will be able to see the

screen see on the screen, the election of directors

Registered shareholders and duly appointed proxy holders

attending the meeting in person have been given a ballot at

registration. With any shareholder or proxy holder attending

the meeting in person who may require a ballot and was not

provided one please identify yourselves to the scrutineers.

Please register your votes by selecting or marking with an X

B, For or withhold fields, next to the name of each proposed

factor on the voting page for those voting virtually or on

your ballot for those voting in person. Only persons

nominated are eligible for election. Each shareholder or

proxy holder voting ballot voting by ballot in person should

then sign and print his her name on the ballot. We will now proceed with the next item on the agenda, which

is the appointment of auditor of the company and the

establishment of the remuneration for the current year. I

now call on Caroline

[indiscernible] and Berni Anzarouth to

move and second a resolution appointing the auditors for the

current year and authorizing the directors to fix their

remuneration.

I move that KPMG LLP chartered accountants are appointed

auditors to hold office until the close of the next Annual

Meeting of Shareholders or until their successors are

appointed at such remuneration as may be fixed by the

directors and that the directors are authorized to fix such

remuneration.

I second the motion.

And I'll put the motion to the meeting. Is there any

discussion on the motion? Voting is now open, I invite

registered shareholders and duly appointed proxy holders to

submit their vote. As I mentioned earlier, if you have

already voted, there is no need to do anything unless you

would like to change your vote. Please register your votes

by electing or marking with an X, the for, or withhold

fields next to the resolution with respect to the

appointment of KPMG as the company's auditors on the voting

page for those who are virtually are on your ballot for

those attending in person. Each shareholder or a proxy

holder voting by ballot in person should then sign and print

his or her name on the ballot, if you have not already done

so.

We will now proceed with the next item of the agenda. The

next item of business is an advisory resolution to endorse

our approach to executive compensation as further set out in

our management information circular. As the vote is advisory

only, it will not be binding. However, the compensation

nominating and Human Resources Committee of the Board will

take into account the results when considering future

executive compensation arrangements. I would now call on

Caroline

[indiscernible] Bernie Anzarouth to move and second

the approval of the advisory resolution.

I moved that resolved on an advisory basis and not to

diminish the role and responsibilities of the Board of

Directors but the approach to executive compensation

disclosed in our Management Information Circular is

accepted.

I second the motion.

I now put the motion to the meeting. Is there any discussion

on the motion? Voting is now open. I invite registered

shareholders and duly appointed proxy holders to submit

their vote. As I mentioned earlier, if you have already

voted, there is no need to do anything unless you would like

to change your vote. Please register your votes by selecting

our marking with the X, the for or against fields to the

advisory resolution on executive compensation on the voting

page for those voting virtually or on your ballot for those

voting in person. Each shareholder or proxy holder voting by

ballot or in person should then sign and print his or her

name on the ballot. If you have not already done so. For

those voting in person once you have completed registering

your votes on your ballot, please raise your hand with your

ballot for the scrutineers to collect. The scrutineers will

collect the ballots for those attending in person and will

tabulate the voting results.

The full voting results will be published on SEDAR+

following the meeting, but I can report that based on the

proxies which were received in advance of the meeting, all

matters that were put to a vote today have passed. Is there

any further business to bring before the meeting? Can I have

a motion to conclude the meeting?

I move that the meeting be terminated.

I second the motion.

All those in favor, please signify by raising your right

hand. Any contrary? I declare the resolution carried, and

the meeting is terminated. The formal agenda for this

meeting is now completed. I would now like to call on Larry

Cunningham to come up on stage to commence our management

presentations. Thank you.

Well, those formalities now having concluded, we can build

some energy and talk about Constellation, Topicus and Lumine

and all the exciting businesses underway. So I want to

enthusiastically recognize and welcome this distinguished

audience of shareholders of one or more of those companies.

The capacity of this room is more than 400 and I see

that it's pretty much full. I can also report that we've got

twice that number also participating online. So it's

wonderful to have everyone together. Among that

shareholder group are nearly all the directors and many of

the officers of all 3 of these companies. Do we have a

screen showing the members of the Boards of Directors of the

various companies. I won't read all of them out nor will I

ask the directors to stand but I would like to ask you to

join me in recognizing and thanking them for their service.

The meeting today is going to be energized and exciting and

informative. Thanks to the wonderful questions that you have

already submitted and that you undoubtedly pose this

morning. Management has prepared some very interesting and

informative presentations with which we'll begin followed by

the Q&A, which will run from 10:30 a.m to 1 p.m. But to set

the stage for all of that, we want to recognize that

Constellation is now 30 years old. It's been an amazing run

amazing journey. And we'd like to just take a few minutes to

provide a presentation capturing some of that history.

Enjoy.

[Presentation]

What a run. What a -- 3 bloody good decades as Mark Leonard

might say, I don't know what your favorite figures are most

important takeaways. I think that final screen on the left

showing capital resources and very limited leverage.

But your takeaways may vary. And incidentally, the number of

countries in that panel is just a number of countries where

acquisitions were made. Constellation operates in pretty

nearly every country in the world, and we'll continue the

impressive trajectory. So that's the history.

Now to talk about the next steps, the coming decades. I'd

like to ask you to join me in welcoming the President of

Constellation Software. Mark Miller.

Larry, thank you so much

[indiscernible] seeing the event

and welcome to our shareholder meeting for all of our

companies. So really looking forward to telling you a few

stories before we get started with the question and answer.

And I have to tell you, I'm very privileged to have this

role because I get to work with a lot of tremendous people

a lot we are here in the room and around the world as we

continue to build this business out, right? So -- and we

really are the sum of our parts, and I want to sort of show

you that and demonstrate to you how much we care.

I also want to thank Mark Leonard for his guidance and

bringing us through these last 3 decades. I've lived through

them myself. I've been here for over 30 years, and we've

always been on a perpetual journey of learning. And every

day, you learn something new. And I've learned things just

by listening to our business leaders, talking to my peers

across Constellation and I continue to do so today. And I

think all of our leaders do here, which makes us very unique

companies. So I want to thank everybody for that. I want

to explained everybody, which is one of talking to people

over time who don't know a lot about Constellation is we're

not this. We're not a company that is a strong central

control over what's done. We really believe in empowering

our business leaders who are close to our customers. There's

no CIO who decides what AI platform we use or what we should

do or whether we should turn right or left or do this or

that. that's done by our business leaders across the world.

And that helps us a lot because it lets us bring new

companies on board that want to be part of this ecosystem

and learn from this environment.

But I want to make sure you understand this, when you're

comparing us to other companies, we are very decentralized.

We believe in this. We believe that our businesses all

across the world. And as you can see, there's hundreds and

hundreds of them are the ones that should be making those

decisions. They're the ones that are running each of those

businesses. They're the ones that are listening to their

customers and building their products. And in the advent of

AI, you'll see that, that's very important to understand.

We're not dictating what to do. We're allowing our leaders

to listen and learn from each other. And so there's tons of

CIOs across the -- and tons of heads of professional

services and heads of marketing and heads of sales. We're

there to coach and help, but you tend to learn best from

your peers than you do from your boss. And we've tried to

create an organization that does that at scale, and it's

helped us grow this company over time.

But I just want to go back to some of the basics for some of

the new -- our new shareholders, our new people who haven't

really heard us before, is we don't believe in fix or flip.

When we talk to a business when it joins us, we believe in

buying and holding forever. And it changes the things you

do. One of my favorite interview questions is for some new

person who's looking for a job is what you do differently if

you owned the business for 5 years versus forever. And you

do a lot of things differently, and we do a lot of things

differently. And developing people and peer learning is

very, very, very important to us. People tell you scale

matters. Scale can get you up and to the right really fast.

Well, we believe in decentralization. We believe in customer

intimacy. We believe in listening to our customers and

building products for them. In the geography they're in, in

the vertical market they're in, and we really believe that.

And we're willing to give up scale for customer intimacy.

And we do that across the world.

We've broken up many businesses, into smaller businesses. So

we don't think scale matters, we believe decentralization

and powering people matter. It allows you to develop a lot

more leaders, a lot more successors. It allows -- it just

creates an environment that a lot more people can be

included in it's a very inclusive environment. So very

important to me that. Some people will tell you culture

matters, Mark, what's the culture at Constellation? How is

it well? I don't believe in one corporate culture. We

believe in a culture of cultures. Even the same -- even the

two companies in the same city in the same country can have

two very different cultures. And that's okay. And that's

important because one of the advantages of joining

Constellation is, we're not here to change your culture.

We'll measure you, some of the events we ran at Volaris used

to have people wear their numbers on their name tags. You

need to be measured. If we're going to trust you with -- to

run that -- your business all over the world, we need to be

measured but you should determine what your culture is and

how that works because that helps you address your customers

better and solve problems that they really need to help them

run their businesses.

And I'm not a big fan of parachuting in top talent. We've

definitely

[indiscernible] some, we've hired some amazing

people who have helped us. We really believe in peer

learning. We really want people to learn from each other

and create an environment where to do that themselves, but

we do help them get together. We'll talk a little bit more

about that, and you're going to get a chance to -- some of

our leaders on stage. We'll talk about that as well. So this

is what we've built -- and I think we've done it very

differently than most people would tell you to have done it.

I don't think, if you look back at Constellation, I was part

of the first acquisition in 1995. I could never have

foreseen this is what we're going to do. We learned along

the way. There's no way you could say, we probably thought

we'd have fewer larger businesses maybe back then, but we've

learned that having small businesses -- and our businesses

are small. A lot of them have dozens of people with a few

hundred customers sometimes less, is the way to go.

And it turns out -- and I'm going to talk a little bit more

AI in a bit, it's actually positioned us very well to think

about that because we are there, the customers helping them

as they deal with changes in their businesses through time.

So I wanted to introduce Damian okay, because that is a real

opportunity for you to meet some of our vertical leaders

across Constellation. We care a lot about verticals.

Verticals really help us be closer to customers and

understand what their needs are. And sometimes, even though

they're decentralized, shares practices across the world.

But I thought it would be kind of fun for you to meet some

of our vertical leaders. And I was going to ask Damian

McKay, to come on up and Damien runs Fila and introduce his

panel. Thank you so much, Damian. I appreciate it. So there

you go.

What we're going to do is have a quick chat about

verticalization, going to bring up a couple of people. It's

a pleasure to be with you here today. It was great to see

that video and just see what is all those names popping up.

I was -- I'm familiar with some, but -- and I know that

[indiscernible] others and just the great people we've

brought into the business when we've added those companies

and how those things have compounded. And as we've got all

those stars it gives us the opportunity, not the math, not

the thing that we have to do, but where it makes sense is to

align these end verticals. So we're going to talk a little

bit about verticalization. And we've got some of the -- some

-- probably the people who have demonstrated the best way to

do that and grow that within Constellation. So with that

I'll ask Santina to introduce herself.

Hi, everyone. I'm Santina Allen. I lead the health care

group for Harris. I've been with Constellation 13 years.

Thank you. David?

Yes, my name is David

[ Nolan ], CEO of Lumine, started in

2013 building up on communications and media business.

Bill?

Hi, everyone. I'm Bill Delaney. I'm the Chief Executive

Officer of Modaxo. I've been with Constellation for

approaching 15 years.

Fantastic. Great. Well, we might get started with a couple

of questions each, and we'll sort of bounce those off. Tell

me, David, in terms of the -- your customer intimacy, you

know your customers really well. You're well known in the

industry. How does that help you -- help your customers and

then help acquisitions as they come in?

Yes, in communications and media, we have Tier 1 customers

and the big operators as you would all know, The British

Telecom, The Rogers, and on the media side, the Disney, the

Discovery. So I think we just need -- sorry about that. I

sabotaged my mic here.

Yes. So we've got some big customers worldwide, big brand

names and -- they have a lot of intelligence. And so we

learn a lot by speaking to them by finding out what the

problems are and obviously now supporting a portfolio of

companies that sell into those customers. But also as they

navigate their assets, they're important assets, they start

to share with us ideas about what else we could acquire to

help them provide security with some of those assets that

are in transient ownership at this point. So you have to

kind of earn the position to have that conversation. It

takes some time, but the power of that relationship is

unbelievable.

And Santina, could you share a little bit about your

vertical and how it shapes up?

Sure, happy to. In the health care space in North America

we span the ecosystem of patient's journey, but also the

information that surrounds that journey from acute hospital

systems to physician practice systems to specialty solutions

within the hospital, outside of the hospital, think

pharmacies retail pharmacies, local pharmacies

independents, radiology imaging, long-term care, all the way

through to payer solutions in the health insure tech space.

These businesses we own sometimes multiples in those areas.

For instance, in the physician ambulatory space, we own a

dozen different ambulatory systems that serve the private

physician practices, that's out of hundreds that are in our

market. So these systems of record provide us with that

different views on that particular market. So those systems

that we have, some serve large physician practices up to 50

physicians per practice, sometimes very small 1 to 2

physicians in different geographies as well as specialties

around the world. Collaboration of those businesses gives us

opportunities to learn about the unique space, the demands

the regulatory environment. So physician office practices

being one area.

The payer space is another area that's interesting for us.

We own the leading platform in Medicare shopping

enrollment, quoting and retention for the over -- over

60 million members in Medicare in the U.S. That solution

paired with a solution that helps those health plans develop

the product management, the products that they develop and

bring to market for members. Again, we can collaborate.

Collaboration leads to advancements in AI within our -- in

our group cross-selling. So lots of different benefits from

that ecosystem that we serve.

Done a great job, fantastic -- and Bill, you've got a global

vertical with assets and how -- maybe share a little bit

about how you built that and what advantages that global

nature can bring to your customers?

So I've had a different path. I was fortunate enough to

inherit the assets that Constellation had been investing in

right from the very start, including

[indiscernible], so no

pressure. And in late 2019, the decision was taken to bring

all those assets together under nominee parent overlay

which we ultimately branded Modaxo. So Modaxo today is the

operating group within Constellation that focuses on people

mobility. And we cover every element of your journey, right?

So you've all come here. You may have flown here, you may

have come from the city by a train you have traveled in a

private vehicle train a bus, your kids are going to school

on school buses at times, we have to carry you in

ambulances. Whatever that mode of transport is to get you

around your city and between cities. We provide the

technologies that allow that to happen, and we sell those

technologies to large government customers and operators who

work for them across the whole gamut of everything you can

think of asset management, people management, scheduling

planning, faring you name it. We do it in that ecosystem.

How do you bring that value sort of on a global scale. So

you've got those tools and the different markets.

Yes. It's interesting. We learn a lot, right? So we've gone

very deep, for example, in transit. We've got over 3,000

government customers in 37 different countries. So our

people who are at the call face with those customers are

part of the fabric of the industry, and they're recognized

for that. And so they know really deeply what's going on

and they're consulted on that. And -- and we feel part of

the community as well, and we contribute to it, we sponsor

large events. And if I take something like a big global

expo, we won last year for UITP in Hamburg, massive event.

The whole Hamburg Expo site was taken up for the first time.

It's massive. We were a platinum sponsor 1 of 3 platinum

sponsors of the entire event.

Modaxo could do that, and that provided a halo effect for

all the businesses that were there under their own brand in

our ModaxoMidaxo neighborhood. So that was a great value we gave

them in terms of giving them a a stage on which to show

their credibility to their customers. But at the same time

we conducted 100 M&A meetings at that event, right? Because

we were there to meet our competitors, and we'd arranged to

meet them ahead of time. So we use the Modaxo family and the

Modaxo brand for both of those purposes.

Yes. It's very well well known in the global market.

It is now, right? It took a little bit of time to get there

and I know you've had the same journey with Lumine, David.

But I think we're getting bankers and and brokers bringing

deals to us now, particularly as we've shown that we can do

quite large deals.

Yes. And David, I'd be interested in your sort of the origin

story of Lumine and how you built that up?

Yes. Well, we worked our way up to diamond status. So it's

just one above platinum. Yes, so it was humble beginnings

because we didn't have anything I came as a consultant.

And industry domain consultant with a lot of software

experience. And it was about finding our first business

making that first business a success. Building a bit of

brand, a bit of credibility and then starting to leverage

that into subsequent deals. So at the beginning, it was

fairly modest. It's just building up relatively small

businesses at that time and just learning about the trade of

value acquiring this asset class and how to get to great

returns and to build a compounding rhythm inside the

portfolio. So that really builds momentum. It's a rolling

thunder and we're still really at the beginning of our

journey.

So and you get the chance to brand, you get the chance to

sponsor, you get a chance to have really top-level

relationships with customers. It just feels great to be in

an opportunity to leverage that moving forward, especially

with anything else that's going on world and the

opportunities that are going to present themselves.

The other thing that happens is it's a great thing for our

people to come -- we brought all 330 of our people together

a couple of weeks ago under the Modaxo brand. Now they're

all they're rooting for their own business. But when they

come into a room and see that they're part of something

bigger, it lifts the energy, right? And apart from all the

peer sharing that goes on, it's -- and you guys do the same

thing, right?

Yes. And I think what you've been able to do in your

verticals and particularly using Lumine as an example

something that you might not think would be as big as it

got. Now we're looking at other start-up verticals in sort

of your image as well. So I think a lot of -- it would be

interesting to see this presentation in 10 years and see

what are the strong verticals we have. Santina

when a new company joins your team, what sort of value do we

bring to the employees and their customers by being part of

something bigger?

Yes. So I think when a seller considers the health care

group as a place for forever home for their business. They

do look at the ecosystem that we have, our understanding and

appreciation of the challenges that business is small and

large, faced within health care, the highly regulated

industry. So I think they appreciate that we understand

them, we understand their their customers, whether it's

large health systems, physicians, whether it's payers

again, the complexities, each one of those buyers has a

different persona, different risk profile, if you will, for

which vendors they invest in. And so again, we bring that

understanding. And so when someone joins us from the

outside, they are surrounded by peers who understand the

challenges they face.

Before we created Modaxo, I was seeking to buy businesses

under the Valaris brand, right? And I would go and speak to

a transit and they would sort of scratch their heads and

wonder what was the strategic value, and within 12 months of

creating Modaxo, we had at least 2 cases where they saw the

value then and transacted with us. So I think that speaks to

the value of that approach?

I think each of your verticals has got a reputation for

people coming to you as well. If they're in the market, they

know that you've got a significant presence. And if they

want to sell, it will be coming and talking you. Bill, we're

going to hear a little bit about AI later. But it would be

interesting to look at AI just from a vertical perspective

what additional optionality does a vertical or a group of

businesses in the same segment give you when it comes to

looking at leveraging AI in your business businesses?

Yes. Look, we're getting really excited about this now.

We've got 41 businesses today in Modaxo. Across all

different functions in every department of, say, transit

operations around the world. So what this lets us do is

build a layer above that, that Modaxo can invest in, we

still give the federated control to the underlying

businesses, but we're able to build a platform that allows

the

[indiscernible] authority to start asking questions and

building actions and agents that ignore all the industry

boundaries, ignore all the underlying business and product

boundaries and look at it from an ecosystem. And I think

we're in a position that none of our competitors are in, in

that regard. So from a Modaxo perspective, that's an

investment that we're making that each of our businesses

will be able to leverage.

And the feedback we're getting from the industry is they're

sort of blown away by this approach, and -- we're looking

forward to seeing that really build out in the coming

months.

And Santina, any thoughts on the same topic around how AI

brings optionality to your customers within your vertical?

Yes. So within -- we are the system of record for so many

pieces of clinical data that -- and data is the key to -- if

we understand the data, we understand the workflows, AI can

only we can bring extra value through that. I think ambient

listening may be an example in the health care space. If

you've not been in a physician's office and had them ask you

to turn on the ambient listening to listen passively to the

conversations that they're having with you, between the

patient and the clinician. But that data is data we're

capturing, right. And that data is valuable to improving the

outcomes within the health care ecosystem.

Great. And David, when I've spoken to you in the past

you've got a great long-term vision for what you want to do

with Lumine. Any -- could you share what you can around what

you're building to your built been purposely building to

where you are. It's just in a little read of that, but also

where you think it can go as much as you can share?

Yes, yes. Well, you got to dream big, right? So when we were

small, we said we're going to make -- going to be a $1

billion company. Everyone thought I've been at the bar for

too long, but -- and we're in that within range of that

objective. So within range of that, we set more long-term

objectives, that are equally in mind blowing -- projecting

things out. So we really see there's really three strategic

acquirers in our space ultimately, and every other business

in this industry is in a transient ownership position

whether it's a strategic private equity or even a

founder-run businesses.

But the final destination needs to be one of the three of

us. And we're just the exciting, interesting alternative to

a functional integration, synergy-based model. And customers

really like our model. So they're going to steer these

companies towards us, over the next 5, 10, 15 years. And

that really excites me about what size business we will

ultimately build. And the adjacencies around our markets are

very significant as well. So we're very, very excited about

the future.

Yes. And Santina for yourself, you've built something that's

really large, but the market is so much larger. How do you

see that vision panning out over the next 5-plus years?

I think we'll continue to be a great home for businesses

that are critical to health outcomes in North

America. They'll continue to find a home that provides an

understanding of what they need to do and what they need to

accomplish. But that peer-to-peer learning that we've talked

-- so many of us have talked about is the key to unlocking

that additional value.

Yes. Great. And maybe, Bill, I know you're known to be a

great developer of people and talent. How maybe you could

touch on some of the talent opportunities within the group

that as you're in a vertical and multiple businesses

independent businesses. But the ability to move around.

Anything you'd want to share on how you develop talent, but

also think of examples where people have been able to

leverage something bigger within a vertical?

Maybe just to follow on from that theme for a minute. We set

an equally ambitious goal when we set up Modaxo in 2020, and

we -- we decided that we wanted to touch 1 billion journeys

every day by the end of the decade. So as we sit here today

yesterday, tomorrow, we touched 640 million. So that's

getting too close to a

[indiscernible]. So we just reset for

2035 and our new goal is to get to 2 billion journeys every

day, right? And that's an amazing thing for our people.

I say to our people, you can go home and tell your kids and

your grandchildren that we touch hundreds of millions of

journeys every day, and I think that's amazing. And that

sort of speaks a little bit to the scale of what we do. And

to do that, the biggest thing that's holding us back is the

development of leaders -- so we created a -- and there's not

so much -- I think we've got good programs to build business

unit leaders within a business where we were struggling was

that step-up into group leader roles and portfolio leaders

people becoming leaders of leaders -- so we brought in some

help and we curated a leadership program around that. It's

much more around the soft skills that people need to learn

because you have to learn, how to lead through influence and

you need to take a really different strategic mindset. So we

invest heavily in that.

I just have to challenge you there, Bill. I think you've

known

[indiscernible] 2 billion journeys. I think we could

lift the bar there, but that's maybe on their internal data.

I'm also a fisherman, right? So the fish gets bigger every

time I tell the story.

Any other comments people like to make on just how you've

been able to leverage talent or grow talent within a

vertical?

Yes. I mean, so it's #1 most important thing, right?

Customers may be #1, but it's joint #1 is developing talent

so we can scale. You just don't scale unless you've got an

ongoing active talent management process and your harvesting

talent. So you think about putting crops in a field, it

takes a certain amount of time. So we got to throw a lot of

world-class fertilizer on that field. So we can get that

talent that harvested quicker and quicker and quicker as we

scale. And that's really a core competency of compounding

this asset class is just getting the talent where you need

it to be, 1 year ahead of when you need it. And that's just

a constant focus.

The one thing I tell my people is the only thing that's

going to hold you back because we've got such strong

growth is if you don't have somebody ready to take over your

role, and that's a really big mindset change for people that

when they're recruiting people, they really need to bring in

really strong contenders who are capable of stepping up into

their role. And I think that's been a really

critical approach.

So it goes back to the enduring business right? Again, we

have to have the leaders who are at the table when we're not

there.

Yes, fantastic. I mean we've got the capital, we've got the

-- there's so many opportunities out there we can go after.

We do need to make sure we've got the talent. And then I

think -- we don't have to always organize in a vertical, but

when we do, it also adds some extra compounding power in

there as well.

With that, I'd like to thank you for your contributions, not

only obviously today, but what you -- each of you have built

in your verticals and the foundation you set up, again

really looking forward to seeing how that's going to look

over the next decade. And with that, I'll hand back to

Mark.

So I don't want to get in the way of AI. So -- so yes, and

we're not changing the name of Constellation, by the way

because it's who you are, not who you say you are, what you

do, not what you say you're going to do. So I just wanted to

get this next slide up, remind you of -- before I discuss AI

of how we work. It isn't myself picking up the phone and

telling someone that this is how we're going to do it. It's

letting each of these leaders in each of these businesses

think about it. And also, when you're thinking about in a

forever time frame, you're thinking about buying and holding

forever.

I remember, I said that was always a fun question

interview. You want to think about these things because your

customers and your employees are thinking like that. They

want to know what you're going to do to help them. So we

really structured our organization to manage change, whether

it's been through. Well, we've gone through Y2K. We've gone

through mobile computing. We've gone through SaaS. We've

lived through multiple technology changes. And it isn't

because we've had a directive from Constellation

headquarters as to what to do. Our business leaders decided

how to deal with that situation.

So when SaaS came up wasn't like, "Oh, everybody should be

doing SaaS because SaaS is what's -- what's the most

important trend and everybody needs to be on it, and you

better do that or else, we're not doing it that way. We're

allowing our leaders to learn, but we're creating an

environment, see that flip -- there we go. So where our

leaders are learning. I mean, Bill talked about an inventing

opening there. There are learning events going on

continuously across constellation, not just about AI. These

are AI ones in particular. And -- but we do that across

operating groups. We do it locally in certain countries.

We'll do something in Brazil that we'll do something in

Germany or in the U.K. We'll do it in -- there's one in

Toronto going on right now near the airport, it's called an

AI Accelerator that a few of our operating groups are at

and I think it's a 5-day event where they have a room for

the developers, a room for the product managers and the room

for the business unit leader heads. And then they kind of

all they kind of like last night was -- they called it Red

Bull and Pizza night because the idea was to present your

product idea today. And so a few of our people are heading

out to see how those product ideas looked, but -- that's

just a culture, and it's a culture of learning and sharing

information.

It means you don't have any single one bet at Constellation.

You've got everybody doing it and thinking about how we

deploy our shareholders' capital at high returns. Very

important to us. And I'm so fortunate to be part of an

environment that does this. And I think the leaders that

across Constellation have brought that intuition. I think

I've sort of said this in other words, but we believe

decentralization, our structure is our biggest advantage

because we're close to those customers. Some of our

customers we've had for decades, decades and our people have

worked for us for decades. It is a great thing about being

part of a buy and hold for ever organization. You're not

going to get flipped again, you're not going to have 3

business cards in the next 10 years. You're going to be at

that same company, and we preserve the brand of that

organization. So we really believe in long-term

relationships set are trusted with our customers.

And do we know the customer space. It isn't a ChatGPT go ask

a question type of a situation. Again, great product. It's

-- you've got to know a lot in order to build products for

customers. You're dealing with trusted information. You

heard about Santina, you're talking about patient data in

cases like that. That's valuable data, and it's got to be

managed very carefully in this environment. But our biggest

advantage. If you're going to be decentralized, you've got

to believe in peer learning. Our best leaders are the best

at learning from each other. And it doesn't matter how many

decades they've worked for us. They're always open to a new

idea and a new way to do something, and listen to their

customers.

So I really wanted to make sure you all understood this.

It's a question we're asked about a lot, and it's our

structure is our biggest advantage. But in order to give you

a little bit more color, we decided to invite a few of our

leaders who are running our businesses, who are the ones

that are back in that -- all those yellow squares across the

organization, and what they're doing. So a little bit of

color or some real examples here a little bit from the

vertical leaders and. I have to thank Jeff Bender for taking

on this panel for us. And I hope you enjoy meeting some of

our leaders before we get into the general Q&A. So

and Barry.

As I always like to do these annual meetings. I have for the

past 8 years anyway. I have a running tally of how many are

in attendance. The room is filled up to capacity here in

town, so about 450 sitting here live and now nearly 800

joining us online as well. So thanks, everybody. And I'll

give it over to Jeff.

Thank you, Larry, for that update and Mark. So as Mark

mentioned, I'm Jeff Bender. I'm responsible for the Harris

Operating Group. We've gone from software eating the world

to a fear that AI is going to eat software. At CSI, we have

a deep belief in our value creation and value capture

framework. We live this framework every day by getting as

close to our customers as possible. When we do this, we

develop a depth of knowledge, understanding and

expertise that we then use to solve their most important

problems.

At CSI, we see AI as an opportunity, an opportunity to

rethink and reimagine how we do what we do for our employees

and for our customers. So as Mark mentioned, we're going to

have a chance now to hear from a number of our business

leaders about their AI transformation journey. So let's meet

the panel. Greg?

I'm Greg Richards, I lead AssetWorks. As Mark mentioned

we're one of the older companies. We've actually had

customers that signed up in the '90s. We manage about

14 million assets globally, particularly fleet or state

federal and local government, but increasingly now more

large private fleets as well.

Andrew?

Great. Thank you. I'm Andrew Jones. I'm the GM of Click

Dimensions. We provide marketing automation. So we help our

customers do outcome-based marketing through our Dynamics

native platform as well as providing marketing automation.

We provide marketing expertise as well as services to help

our customers do great things.

David?

Yes. Thanks, Jeff. I started my business to Constellation

back in 2018. So I've been on the whole journey. I don't

work within that business anymore. I have the great fortune

to look after a couple of businesses that we bought in the

past sort of 3 or 4 years. The first of those is CelCat

that's spelt with a C. CelCat are based in the U.K.

timetable, academic life for universities, and we do that in

the U.K. We do it in France, South Africa, Australia, and

we've been doing it for 40 years.

And then the second business is Bullet Solutions who we

acquired in 2024. And they do very similar things. They also

timetable, academic life. They serve Spanish and Portuguese

speaking territories.

Let's stay with you, David. So my understanding is you did

something that most leaders would say is impossible. Tell us

more about?

Yes. Well, I experienced one of the Valaris AI workshops

back in March last year. And I went away from that with one

question, which was simply how fast can we go. And what I

did on day 1 was I stopped all development across by

businesses. So CelCat and Bullet. We stopped for the whole

month of April last year, and they went on an intensive

learning program, to learn what we could do with the

technology. And I think if I look back and then we look now

at the outcome of that, it's actually pretty

straightforward.

At the outset, we came back in May, and we were going

faster. If you think of a cycle time from concept through to

production software, typically for us, that was measured in

months. When we came back in May, we already started

measuring that in weeks. And as we went through last year

we turned that from weeks into days. And today, our cycle

time is measured in hours. We can cycle from concept through

to production in hours. And that means a road map that might

have taken, say, a whole year, we plan out a whole year road

map. That can be literally a week now. So this pace at which

we produce software is no longer a problem that we have

different challenges instead. But it's fundamentally

transformational in terms of what it means for our

business.

And how are your customers reacting to this? Can you talk to

that?

Yes, yes. Well, let me put that first in the context of

growth. So if I back to the end of last year, our growth was

running at about 12% per annum. To date, it's running at 23%

per annum. Our vision is that we'll double our revenues by

2029. I think I've also been told I'm sandbagging on that.

The interesting thing there is that growth. It's not driven

by going faster. It's driven by us asking a totally

different question, and that is, if we can go 50x faster

than what does that look like for our customers. So what

does 50x faster look like for our customers?

And for us, that meant we've literally rebuilt our product

from scratch. -- we've, in effect, reimagined what a new

category of product might be. If you think about our old

product, it was a system of record. You created

[indiscernible] updated, deleted data. Our new product is a

system of action. It thinks it predicts, it gives you

insights. It does a really clever stuff for you. So that

creates a huge value for our customers and with value comes

new price points doesn't it? And with that, we are driving

growth, and we're seeing the results of that already.

Andrew. So most people start with product when they think of

what's possible with AI. That's not where you chose. Why?

Well, we did. So we went to one of the Constellation peer

sessions back in May last year, so exactly a year ago. And

we were really educated about what the possibilities were

with -- so Click Dimensions, we're in marketing, which has

the opportunity as well as the negative side of being one of

the first areas that is affected by AI. It's really being

aggressively attacked. But I think if you can get through

it, then it creates fantastic company. So we wanted to look

at our product in a very different way.

Click Dimensions is a horizontal marketing automation

platform, and we wanted to create something which was

vertical. I'm very much the marketing rather than the

technology of marketing and technology, but I passionately

believe that AI is a fantastic thing, and I wanted to be

heavily involved in it. My background is very much in

business transformation. And I wanted to see if there was a

way that we could incorporate AI to transform businesses.

You have a lot of chat agents out there. And a lot of those

chat agents, they are designed to identify problems, but not

resolve problems. We had an incumbent ticketing system that

effectively did that. And I challenged myself and a handful

of people to go away and see if we could find a way of

improving that actually change this chat mechanism to being

a problem resolution system. So that was our challenge. The

great thing about Constellation as well, as you see there's

1,500 companies, you have lots of people that you can have

discussions with to actually find solutions.

We spoke to a lot of very large technology companies. We

spoke to a number of contractors that we used. And we also

spoke to a number of companies within Constellation, and we

found a company in Constellation that actually had some

experience of this who could actually help us drive this

forward. So we had conversations. We decided we wanted to

create a support agent that could resolve problems, but that

was not where we started.

Our first start point was creating a very simplistic

knowledge agent to be used by our support engineers to deal

with tickets. So when they're on the phone with a customer

they may have a question rather than having to go away to a

library to get information, they can put in a chat and get

the information, first of all, and that's what we start

with. What was key with that, though, is when you start

to digest knowledge or your databases, so it could be read

by AI. It is read in a very, very, very different way than

how a human is. It is binary. It's ones and zeros. So

therefore, you need to make sure that the agent can actually

pick up those key words so we can actually answer the

question properly.

So we started off with the knowledge, first of all. And then

secondly, we wanted to see if we could have a very fluid

interaction. So we created up a web agent as well. So it's

on our website. So you can go in there, you can ask

questions. And those are the first two things that we did.

And then we effectively consolidate together to create the

support agent. It took us about 4-weeks to do it after going

through those various steps. We launched it in January of

2026. And what we found was that with our customers'

interactions with this chat agent, conversational agent

rather than being a lookup agent, it was a problem

resolution agent. It effectively resolved 82% of all our

Tier 1 tickets that went through the chat agent, which is

fantastic.

But what's the most important thing is it allows us to

generate greater customer intimacy because, first, of all

means that our humans rather than having to waste time

dealing with Tier 1 tickets, they spend time focused on

doing Tier 2, Tier 3 tickets, which are the most important

thing, but also secondly, the time that it took for a

customer to actually get a problem resolved. When it's very

simplistic as well, rather than it taking potentially 4

hours because they go into this room, they ask a question

they get probably 4 or 5 different things that they could

potentially look at, which could potentially resolve the

problem rather than that happening, they could speak to the

chat agent straightaway in any language 24/7. So that is a

massive massive game changer. So that's -- that's our step

that we did. And then since then, we've gone on and created

a lot more agents throughout the organization, looking at

specific business problems or workflow problems that we've

had. So it's been a really incredible journey.

Now somebody told me that you name all of these agents. Can

you give us some of the names and explain to us like why did

you go through?

Yes, we do. We do. And it's not kind of arrogance on my

behalf. When you think about an agent and what an agent can

do, it's very important you get a yardstick of that

possibility. A human, a work person they have a role. They

have responsibilities. They have areas of responsibilities

and they have tasks that they need to do. So a human may be

doing 12, 14, 16 different tasks. You cannot have an agent

to replicate a human. An agent can take away one of those

tasks. So if you want to have an agent to be able to take

all these -- to these roles, you would need a lot of them.

And rather than having support agent #1 and support agent #2

and support agent #3, we decided to name them. So that was

the first thing was just kind of the number of agents that

you would need to have set up.

But also, we wanted to get adoption of the agent. In my

background, I've done offshoring set up technology

organizations in India, finance organizations in India, a

video conferencing business in Malaysia. And when that

happens, there's always an element of question from the

employees about stuff that has been offshore. So I wanted to

make sure that there was that accountability set up there

with people to be able to see it and adopt the agent. So

yes, we've all the agents names. They all have a team's

account. So rather than you having to go to some web page or

try to find it, you team them. You communicate with them

exactly as you would with any one else within Click

Dimensions. And I think that's the most important thing.

The other thing is as well is by giving the agent's names

you also have a human as a manager of them because, again

this is really vital when you set up agents it. If you set

up an agent and you leave it to its own devices, it will go

off. And over a period of time, it will go on a tangent. You

need to have a human manager who manages those agents all

the time. So by giving them a name and managing it, that's

the way we move forward with it. And again, also, they're in

our organizational chart as well as we've got absolute

transparency about where we have the agents. And that's

really driven things forward. Where we've now evolved is

we've set up agents. It was -- we just wanted to experiment

set of agents, where we're now going is we're taking the

next step, which is creating an AI aligned department, which

means that rather than having humans with a sprinkling of

agents to try to improve certain tasks and responsibilities

with it.

We've actually taken a very different way. We've taken a

step back and we said, if we did this from agentic point of

view, how would we set up with an agent and where will we

sprinkle in the humans. And the whole objective is to get

the efficiencies to give the greatest experience to our

customers and allowing our humans to spend the most time of

our customers as well to understand the problems to move

things forward. So that was the reason why -- but it's

working.

It's is a great example of, I think, just content of

rethinking and reimagining what you do, not just

incrementally improving. Greg, not to leave until the end.

Again, somebody told me that you like to break things.

So you spoke to my wife. Well, we don't break things

indiscriminately, right? But so as been mentioned before

Constellation gives us this enormous opportunity to network

with our peers. They are new things. I was at a center about

18 months ago, and we could see what was going on with AI.

And obviously, the concern is that there are three kids in

the garage, who are going to come disrupt our whole

business. And my thought was, well, why don't we go disrupt

their whole business? So we got some people together and I

say, hey, we're going to buy all the tools. We're going to

do AI, go forth and innovate.

And I think this is the part where I'm supposed to tell you

that I'm brilliant, and we delivered a ton of

innovation. I'm not and we didn't. But the great thing about

being part of Constellation is this enormous resource body

of peers and mentors that you can talk to. And one of the AI

mentors in the organization said, Greg, you got to break

something, right? Because it turns out for some subset of

employees, AI is kind of an existential crisis. If you built

your life around writing really elegant code the transition

to managing agents to write the code is a hard process. So

as a leader, I said, okay, look, I'm going to go find three

people in the organization who are early adopters, I'm going

to pull them out of their jobs, and I'm going to give them a

really hard business problem.

And in this case, we really needed to modernize our UI. And

I said, look, the current estimate using a digital processes

is this will take about 18 months and probably require 10

people. I'm giving you 3 people, and by the way, our user

conference is in 3 months. And they did it. It worked really

well. So as this was going on, we started to think, if we

can make our processes this much more efficient, what can we

do with our customers? So we started having -- and again

it's been mentioned before, this is deep domain expertise

right, really understanding what our customers do and how

they use our products, right? So we spend a lot of time with

customers saying, what are the things that you do that are

really difficult to take a lot -- a long amount of time, and

I was meeting with one customer and they actually set a stop

watch. And they said, let us take you through the process

for how we acquire, manage and retire assets, right?

And they went through all the screens, and it took about 8

minutes. And they said, no, Greg, understand. We do this

hundreds and hundreds of times a day. So what we kept

hearing from our customers was take these really complex

processes where I print a report and I go to a whiteboard

and I bring a bunch of people into meetings and then I go

back to the system and then I get another report, which may

take hours, weeks, months, right. Just automate that

process. let me validate at the end what that looks like.

And another great thing about what CSI has done is we had an

opportunity to send one of our employees to an AI

sabbatical, which is essentially where they got to go visit

with other companies that, frankly, we're doing a better job

than we were, right?

So one of my employees went out, did this sabbatical, came

back just really energized. I was able to build a core team

around. I mean as Mark mentioned, we've been doing these AI

accelerators, actually one going out at the airport right

now. There was one in Denver back in February, and we were

able to send a team to say, okay, look, here's what our

customers have asked for in terms of radical improvement of

processes and really substantial improvement in how we do

our jobs and how we'd be more efficient. By the way, it's

now February, user conference is still at the end of March.

I need a working prototype by that event. So we had the team

go to the end, start off cold. We brought in developers

product managers and even somebody from sales, 4 days at

this event, and they emerged with a working prototype. And

we took it to our customers.

And what was amazing is, again, because we really understood

how our customers use our products and what their pain

points were. When we took it to the user conference, the

reaction is overwhelming. In fact, the product lead sort of

had groups at the user conference that kind of followed him

around, right, asking more questions. And probably the

biggest proof point is when we presented this as a product

to one of customers, it effectively doubled their investment

with us.

I think we were talking about this last night, one of the

things that we've done very well is that we've carved out

focused time for our teams. And this isn't stuff that you

can do at the same time is the date -- you really and we've

already experienced that. And actually stacking the guys on

the

[indiscernible] cover for a few weeks and saying

"Here's a project get on and do it and don't worry about

everything else. That's been key to making this happen at

pace.

And what was your customer reaction to finish up -- the

customer reaction when you doubled the amount that they

spend with us per year.

I'm not sure I'm supposed to admit this in this meeting, but

they agreed a little too fast. I think we underpriced it.

I think you did for sure. Yes, I think you did. Sorry, I

just wanted for those in the audience, this -- Mark's talked

about it. I think actually the verticalization panel talked

about it. We're talking about it. Mark says that we're

different and we do things differently when this peer

learning and peer sharing and this customer intimacy sitting

with the customer and being understand what this process is

and how they do it. They only invite us in because of the

value that we bring and the relationship that spans decades

that we've built with them, right, the trust that we have

with them. And these are -- can call them intangible, but

they're very strong determinants, I think, of where we're

going to be able to continue to move with our solutions in

this case, leveraging AI, but just generally in terms of how

we interact with our customers.

So I wanted to -- the last thing I wanted to sort of talk

about was let's call it, the human change element. Impact

element. AI is more about people change. It is just about

technology. And you talk about taking -- stopping people

doing their day jobs, picking people out, locking them in a

closet. Sending them to always work -- this training, as

business unit leaders, like how are you dealing with this

reality of this probably one of the biggest changes that

we've actually seen one might say ever.

Yes. Well, I think it's architectural from the business

perspective. The problem of pace of software development

isn't the challenge anymore. For us, if we look at

go-to-market, then think about this week, we have 300

customers across the globe that use our software. We have a

deep level of trust, a warm relationship with these

customers we can -- we don't have to go and find them. We

don't have to persuade that we can go and have a meeting

with them any time we want. And from a go-to-market

perspective, that's the ultimate leverage that we have that

our competitors don't -- we can walk in the room and have

the conversation.

So our challenge today and what I'm currently working on the

team with is that if we can transform our customers at

this to this degree and at this pace. How do we do that at

scale? We're not used to doing that. We've had to rebuild

our sales team. So our sales team is, over the past 12

months, been rebuilt -- we're doing the same with our

services team, we're rebuilding that. But I've also given

them the challenge they currently take about 6 months to

take a customer from order to go live. The challenge they

have today that they're working on, we have a plan is to

reduce that not from 6 months to 6 weeks, but to reduce it

to 6 days. If I can get them from 6 months down to 6 days

then we can go at scale out to market with those

relationships that we have today. And that's huge leverage

isn't it, those warm relationships that decades of

conversations in many cases.

Andrew, would you...

I think that from a slightly different angle, I mean, AI

technology, yes, it's -- it has a massive accelerator on

that. I think when you're talking about the workplace, the

culture, the design, the evolution of how it's going to be I

very simplistically think that AI will take away into all

the boring stuff. It's going to be all the mundane business

processes that are absolutely necessary but are probably

parts of the jobs that most people don't really want to do.

So what you will do is you will enable your staff to be able

to evolve and develop and become rather than a Tier 1

support person they become a Tier 2 or Tier 3. So I think

that's definitely an evolution that will take place. But I

think also, the way I see AI as well is it's a great

magnifier if you know stuff, you will become better.

If you don't know stuff, you will be found out very quickly.

And I think that's the whole Constellation advantage as well

as we do have that customer intimacy. We do understand our

customers -- and therefore, we can give them advice about

how they could potentially improve as customers because we

have deep knowledge about the vertical industries that we're

in. And therefore, I feel that our ability to double down on

that generate more salespeople, be more focused on the

relationship side as well is going to allow us to evolve. So

AI will take away a lot of the mundane stuff, there'll be

more interesting roles and more opportunities for us to

create more salespeople to be able to have greater

conversations of our customers go, go grow. So I think

that's -- that will be -- how we evolve to be -- it will be

a, a much more interesting environment to be. And maybe we

go to a 4-day week, I don't know.

Actually

I had an employee. He said, "Look, if I use AI and

I'm twice as effective. Can I work half days? I said, no. My

answer is you can work any half day on, whatever, 12

hours you suite. So yes, first and foremost, this is a

change management problem, right? And I think we as leaders

need to understand that this generates some fear

interpretation in employees. And candidly, probably not

everybody is going to make the journey. I've had employees

say, "Hey, this isn't for me, this isn't what I want to do.

And we can be empathetic and we can respect that. But I

think we also have to be relentless because it's coming. I

think one of the real advantages of Constellation is just

all of these training opportunities and peer networking

opportunities we've talked about.

So my goal is to send as many people as I can to those so

they can build the enthusiasm and learn new ways of doing

business. And I think we're there with R&D. The question is

how does that affect sales? What do you do in finance? How

is marketing different, right? Same kind of things happening

in all these different events. And what I keep telling my

employees, and I think this is key to the management piece

because in the back of a lot of people's minds, there's a

belief, I'm going to train the AI to replace it, right? And

I'm very clear with my staff, look, this is not an economic

problem, at least not yet. This is about delivering

innovation to our customers faster. We don't have a

profitability problem. We're a profitable, successful

company. This is not about cost cutting, but we've got to be

able to innovate faster.

And it's been -- this is sort of a mantra with AI right now.

Your job is not getting replaced by AI. But you may be

replaced by somebody that uses AI better than you do. That's

the same thing for sure.

Well, thank you very much. I think Mark and I were talking a

little while ago. And I think we've always had a tremendous

sharing culture across Constellation. We all run events. We

all invite each other to our various events. But when it

comes to AI, the quantum leap that we've now taken in terms

of the quantum of sharing, not just inviting each other to

each other's events, but actually sharing learnings and

discoveries from business to business to business is at a

level that I've not seen before, which I think is absolutely

fantastic. It really is.

So what you've heard from our panel reinforces our belief in

customer intimacy. And this is really -- as I talked about

our belief in this value creation and value capture concept

this is what it looks like in the hands of great leaders. So

please join me in thanking Greg, Andrew and David. Thank

you, sir.

Okay. Thanks. Well, I was just great. I love that. That was

super fun to watch. A lot of people would ask you, Mark

like your job would be a lot easier if AI never came along.

And you can't remember -- like I'm a product developer by

background, I'm a programmer. And one of the things that I

always want to at Constellation was are leaders who have

been sort of running nice businesses, and they have very low

customer attrition, which continues, I was trying to shake

them up to go do more for their customers.

And you know what, it's a great tool for us because we're a

decentralized organization. it's another tool we can say to

sort of shift the organization up a bit, and you can sort of

see a few of our leaders are just doing a tremendous job.

And so appreciate Jeff doing that panel. It was great.

Great. So now I wanted to talk about

[indiscernible] a bit

because it's I'm getting a lot of questions about

[indiscernible], and here I just get on the forefront. I'm

sure I'm sure there'll be some questions on it till Larry

coming up in the panel and are in the Q&A section, I should

say.

But I just wanted to say, like 25 years ago, we -- we used

to buy minority stakes in public companies and put those

companies ended up being put into play. It generated

external high return. So I was there, I saw that on our

invested capital, -- but the average tenure of our

investments were very short. And nearly always 90% of the

time got outbid by a third party when the businesses were

sold, which is sort of sad but understandable. That

short-term activism was profitable, but it was a poor

strategic fit with our objective of being good permanent

holders of vertical market software businesses. So we

stopped doing it.

And I think you can hear from the conversation today, buy

and hold forever, we're in it for the long run, and

[indiscernible] is another tool. The other part of the

[indiscernible] thesis is that the companies we want to

invest in have the potential to benefit from an engaged

minority shareholder. We want our

[indiscernible] or public

portfolio companies to be run by people. We respect -- we

want their incentives aligned with those of long-term

shareholders. We like the businesses to generate high

returns on incremental invested capital, and to return any

excess capital to their shareholders. So I just wanted to

make sure everybody understood what our intention is around

PMS.

And I just also wanted to turn it out and say. We want you

to be our patents. We want you to be our permanent engaged

minority shareholders as well. Those of you who are

shareholders, and I want to thank everybody very much

for sitting through this morning session so far. And I was

going to turn it over to Larry to tell us what's ahead. So

thank you very much, Larry.

Yes. Thank you. Well, I just want to echo the remarks that

Jeff Bender expressed around the culture or a culture of

cultures across Constellation. I've been studying the

company and its culture of cultures for a decade, and I

shared Jeff sense that it's more valuable than ever, and

there's more cross collaboration and cross learnings. So I

want to echo the appreciation for Santina, David, Bill

Damian, Jeff, Greg, Andrew and David, those are 10 of the

1,500 leaders around here who are all energetic visionaries.

So I want to applaud that leadership.

We will take a break now. The next major event will be the

shareholder Q&A. We'll start that exactly at 10:30. We'll be

joined by most of the leading managers will have a panel

of 11, fielding questions that you all have submitted that

our panel of questioners myself and Will Pan from

[indiscernible] and Howard

[indiscernible] from

[ Fiera ]

received some 125 questions from you, all outstanding

questions. We synthesize them, coated them, organize them by

topic and we'll pose them serially here on the panel. Since

we're live this year, obviously, we'll also have Mike

stationed in the room and invite shareholders attending in

person to pose questions as well at various intervals that

will signal.

As I've bragged about, we have nearly 1,000 people online as

well today. So they're invited to type in questions. We've

already gotten a few. And Will, Howard and I will try to

weave those in as best we can, too. So looking forward to

that Q&A, we'll take a break now. It's about 10 a.m, so

we'll have an opportunity to network and have informal

conversations, but please come back a little ahead of 10:30

p.m so we can start promptly, and we'll run that session

straight up until 1:00 p.m lunch time. Thanks very much.

[Break]

Shareholder Q&A. We want to thank you very much again for

submitting such thoughtful and provocative in some cases

questions. Will, Howard and I have been playing this role

for 7 years now, I thought the questions were particularly

good. I don't know if you guys had a -- high quality. So

thank you very much for that, and it's neat to return in

person after 7 years of online only. And so it'd be

wonderful to have an opportunity to take questions from the

audience live.

We've got two mics there. We'll have a few different

opportunities. We're not just saving the audience questions

for the end. At various moments, we'll invite folks to come

and ask questions. Like you keeping brief on topic, really

get focus. You got 11 supremely talented leaders from across

Constellation here who are prepared to discuss our

questions. Again, you submitted them I don't think any of us

made up any questions. We'll might have -- or Howard might

have made up one or two. So to get started, may I, please

invite the panelists to just introduce themselves. Half of

them we're already on the stage this morning, but

nevertheless, it would be nice to just -- by name and role

at Constellation. Mark. We could start with you, not that

it's necessary at this point. But Mark Miller. President of

Constellation Software.

Yes. Thank you, Larry. And I just wanted to just quickly

point out that we haven't received any of the questions to

the management team here that a few Jamal got that were

required calculations, because we didn't want to bring his

calculator on stage. So he got a few of them, but we're

really going to make this a dynamic and what gets asked. So

was the tradition of Constellation.

Yes. Jamal Baksh, CFO of Constellation.

Bernie Anzarouth, CIO Constellation.

John Billowits, Board Chair of Constellation and

Board Members of Topicus.

Jeff Bender, responsible for the Harris Operating Group.

Mike

[indiscernible] responsible for the Valaris Group.

Damian McKay, responsible for the Vale Group.

Robin Van Poelje, Chairman and CEO topicus.com.

David Nyland, Lumine Group.

Bill Delaney, Modexa.

And Barry Simmons, Jonas Operating Group.

That's the all-star lineup, and I really believe that apply

describes these folks. The plan discussion is divided into 3

or 4 segments. The first segment will be questions arising

from the presentations you heard this morning from Mark

Miller on strategic vision, the panel on verticalization and

the panel on AI. And then we'll have our familiar 3

segments. First on operations; second, on M&A, third on

governance. And again, we'll break at moments to invite live

questions from the audience, and we'll monitor the chat to

consider questions sent to us. So with that, let's begin

with questions arising from the presentation this morning.

And we start with you, Will?

Sure. Yes. Thanks for the presentations. They were great One

of the big questions that we got asked was about AI

opportunities and threats and examples. And I think we've

got a lot of examples of companies inside the Constellation

Group, taking advantage of AI to accelerate things and

deliver value to customers. There are a lot of questions

about the Converse. So Andrew from Click Dimensions. He

mentioned that marketing software, for instance, is under

attack early by AI-enabled competition. So we have a number

of questions that ask, can you give other examples of CSI

businesses that have experienced more attrition due to

competition using AI?

We have -- we really -- like I can toss over to Jamal, but

we really haven't seen any AI specific attrition at any

point. I mean I think our businesses that experienced high

attrition already will probably be most under threat. But

luckily, that isn't a high percentage of our revenues. I

mean, Jamal, what's your thinking on that?

Yes, I look at about 900 of the businesses and look at

trending of organic growth, and I follow up with the

operating group CFOs, et cetera, if there's anything that

looks like an anomaly. And there are a couple of things that

might have been popped out and both of them had nothing to

do with AI. So that's my take.

Does anybody also want to add It's a big topic, Jeff

maybe you want to talk a bit about it the AI panel.

Like you said and Jamal said, there's no specific evidence

to date of any significant or material attrition as it

relates to AI. But I do believe it's coming, like I think --

like we see competitors that are out there. We hear of

people doing things. So I believe it's coming. We just

haven't had it yet. A lot of our verticals are fairly

protected and highly regulated or high compliance

requirements. I would just say they're not always the

fastest moving verticals when it comes to making new

decisions. And I think any AI-related solution causes them

concern. Like it causes them to pause and understand exactly

what is it that they're accepting right into their ecosystem

of systems. But I do think, right, like it will start

showing up -- it just hasn't it hasn't yet. Stay paranoid

right? Like always.

Maybe one also on that panel. I know Greg touched upon how

some customers are very excited to get their workflows

automated and helped with AI. But in any kind of vertical or

BAU, there's going to be customers that are at the far end

went end of the curve and the customers at the other end of

the curve, maybe those that are resistant to change. And if

you are kind of transforming your BUAs to maybe optimize for

those customers with AI. How do you also manage to service

the ones that are laggard? And how do you deal with that

that kind of dynamic of customers in different stages?

Well, like from an AI perspective, again, I was a developer.

I really -- because as we talk about having

[indiscernible]

relationships across the world, across all of our

customers, I look particularly for those laggard customers

which are generally the attrition rates are very low with

the laggard customers. So even they're very hard to capture

as new customers if a competitor has one of those customers.

So my hope would be we would use AI to expand our presence

inside that customer by adding more functionality, which I

would think as far as the customers that are adopting it

very quickly, I don't think we've seen a lot of that yet

other than hoping to add functionality, I think, for

example.

Andrew was up talking about Dimensions, that's in a

marketing space, which is a bit more horizontal than our

average businesses. And when you're in a -- it's a very high

attrition business by nature. So when you're in a business

like that moving fast and your customers being fast, you got

to move fast, too. It's still going to be -- it's just a

tougher business to run, and I appreciate that Andrew is all

over it. But most of our businesses really aren't like that

right?

So Bernie, I mean, like thoughts on...

Yes, that's correct. We have some businesses that are in

have high attrition. And so we deal with it as appropriate

but the bulk of our businesses are quite low. And the

spectrum of customers that want to adopt AI versus those

that don't. I mean, we'll take care of them equally. It's

just a matter of serving them with what they feel they need

to run their businesses more efficiently.

Changing user interface is a big deal for a lot of our

customers, like they don't want you to change their

workflows, their user interface, in many cases, right, which

means you could come along with a neat snazzy new solution.

But if it's working, it's a small percentage of their

operating costs or for what we do for them, we just want to

make sure it works, it's secure, their data is protected and

it gets done what it needs to do, which is what most of our

businesses deal with, right? I mean, does anybody want

anything to that, Mike?

Yes. I would say, I think it's really important to

understand that when we're out talking to customers, we're

not out talking to customers about AI per day? Like most of

the engagement with a client is you're talking to the

business users, and you're still focused on what is that

business problem we're trying to solve. So if AI ultimately

is embedded in the solution, that's not the opening

conversation, because the pace of technology, particularly

as it relates to AI, is moving very quickly, and we're often

engaging with clients that are not necessarily even familiar

with AI. So I think when we're out dialoguing we begin the

dialogue with what is the business challenge, how do we

think we can make you more efficient. So it's not led with

hey, we want to talk to you about AI. It's like we want to

talk to you about a business challenge you're facing does

that seem of interest to you. And as the conversation

progresses, we would certainly share with the customer where

we think could benefit them in that overall solution, but it

isn't we have this cool new AI thing we have. Do you want to

buy it. It's much more of a longer-term conversation based

on how we've been working with that client for years or

decades.

Yes. So if I think about businesses across the board, you

lose customers for sort of for for ways, you lose them

because they go to business, which happens in some

industries. They get acquired by a larger customer. And so

hopefully, it's our customer kind of the big fish eat the

small fish sometimes, right? You could lose them for price

where someone comes and says, "Hey, we'll do the same thing

you do for what a Constellation company does for half the

price. We don't tend to lose them for that. I mean Andrew

might see that in a high attrition, high-churn business.

Where you really lose customers as when there's some

functionality that your competitor has that you don't have.

And I think -- and as Mike said, it's not AI per se. It's

that ability to do something that really matters to that

customer where they're actually going to go through the the

pain of switching. And it's a shame when our businesses

haven't foreseen that happening, and they haven't gone and

put ourselves in a position where it's an obvious decision

to stay with us as their vendor. And that's how I sort of

see it.

Well, another question that arises from this morning's

presentation, but was anticipated by someone who submitted

this question earlier, concerns efforts to disrupt one's own

business. David reported on doing this this morning. And so

I'd love to hear from volunteers on the panel an answer to

whether any CSI business units have tried to disrupt

themselves or disrupt another business by using AI to start

from scratch, all new code but using their industry and

business workflow knowledge. Anyone want to comment.

I don't do know, maybe, Rob, do you want to take that one? I

think.

Yes. So I think it's easily said, I'm going to disrupt my

own business and what you have with people working in the

business in the existing business, I think that requires

some change as well. So you might organize it outside of it.

But there are, of course, businesses where you already had

for a longer period of time, the idea that we should step up

our game and we should do more. and those kind of businesses

might be an ideal situation to really try to disrupt

yourself. And so we try to analyze in our portfolio our

strong businesses and also our weaker businesses. We try to

win with our excellent businesses, but there are also

business where we think, hey, we could disrupt ourselves and

really try to make a quantum leap into the future. That's

what we try to do. But again, that's not all over the place.

It's easier said than done, but we try selectively to do

that.

Yes. Anybody got an example where they've tried to displace

themselves entirely and been a material business inside of

your operating groups?

We're working on one. So we're definitely doing it. We

haven't done it yet. We've got the product out there. It's

probably got maybe 15 to 20 clients so far. Still a long way

to go, but we're active doing it. So we've used AI a lot to

rebuild the product and are going after ourselves. And so

it's in process, but it's early days.

I think Jeff really pointed out well in the -- in his panel

about what people don't understand is the customer

relationship is very, very important. Having a product and

selling that product are two different things. like having

to get -- you could have the best product, and I talked

about like it would be great if it is something that the

competitors didn't do. But selling hasn't changed. You've

still got to get out there. You've got to convince whoever

you're selling to, especially a new logo, a new customer

that you are a good opportunity. It's a good opportunity for

them to buy a product. And -- that hasn't changed.

In fact, in some industries, I mean, Bill, I remember who

was talking about an event you did Hamburg. So one of the

you got to do a keynote at that, and you said, one of your

messages was what, Bill?

So they're asking us about the pace of change from an

innovation perspective. And we looked at the research, and

it was clear that innovation cycles were compressing

right? From months to weeks and soon to be days. And I

looked around the room and I said, but what's happening with

procurement cycles. Now we deal with large government

procurements that have -- it takes multiple years for a

procurement even to come to tender, then they run the tender

process, you do a multiyear project and then you have 10

years of maintenance. Those procurement cycles and

government are getting even longer.

So we've got this dichotomy of extended procurement cycles

compressing innovation cycles. The elements of those tenders

that really people should have a look at there's elements

around product capability and functionality and -- but then

most of the scoring goes to your experience, your ability to

contract on the heavy-duty terms that they're putting

forward -- and they need somebody to take liability, right?

Governments like to shift risk -- so you have to have

capacity to take liability that might be through accepting

LDs if we don't perform, posting bonds or guarantees. You've

got to have a scale on our capacity to do that. And these

are so many elements of what our customers at least look

for, Mark, when buying them?

I think so. And what we're very fortunate at Constellation

because we've learned to deploy our shareholders' capital

high returns. And we've acquired a lot of logos over the 3

decades of Constellation. And those aren't easily done

because I've done that when we were in the early days of our

company as a startup, we started in the late '80s. Getting

customers is so hard. You got to work really hard on it. I

think a really interesting industry is telecom, though with

David because there's such a rapidly, you'd say, telecom

changes rapidly, right? David, and you've got -- what are

those customers like with this particular question.

Microphone is working, right? So well, they're inherently

conservative. They've been through a lot of technology life

cycles. They're bruised and they're fatigued. And their pace

of change is subject to regulation and subject to lots of

big complex platforms that are highly integrated. So when we

talk to those customers about AI, it's enabling math

functions like we do a lot with fraud and revenue insurance

and how can we apply new math functions to determine

faster we have a lot of agents already. We use a lot of

machine learning in a number of our products. We have

agents, how can those agents become smarter. So if you look

at the telecom stack from the top, we integrate with

customers, their customers in the bottom of its networks is

like delivering TV, delivering signaling security in the

network.

So the closer you go to the network, the more conservative

things are in terms of making change. But if we talk to

them, they want the total cost of ownership to come down. So

they want the operations administration, the configuration

management, maintenance of integration and new feature

developments, particularly with math functions or

agents. That's what they want. And we're laser-focused on

solving those problems because their platforms just don't go

through -- it takes -- we heard from months to days. So

we're trying to get them from 3-year cycles down to 1-year

cycles, down to maybe 6-month cycles because of the

regression testing because of the regulatory testing

security testing, so if we can get them down to 6 -- months

that will be a great achievement using AI, and we kind of

look forward to that.

Getting new logos in your space is really hard. right

Dave you mean like big clients?

We mainly get new logos through acquisitions right? It's

very hard to go into a large media or telco business and

become a new vendor. They want less hurdle. They want

consolidation. And if there's something risky in the

environment that they're going to want us to do it. They're

not going to want some new name company that they don't

know. So they will always give us the first chance, so we

can move quick, we should be able to capture that business.

I just want to make the point that even though we have long

procurement like, that does not give us the license to sit

on our hands. So we are moving quickly to use that time to

build out the value -- increase the value that we provide.

I want to alert the audience that after we'll ask the next

question about this morning's panel, we'd invite audience

questions from this morning's presentations, too. So if you

want to think about your question and begin to line up.

We'll take those questions after Will's next question.

I have a quick one about the verticalization. How is CSI

approaching subgroup verticalization when BUs in the same

vertical are in different operating groups?

We had -- yes, I mean, we're discussing that on an ongoing

basis. And one of the reasons we want to highlight verticals

is in some cases, we think our verticals should work closer

together and but we're doing -- evaluating that on a

case-by-case basis. And the whole team here is involved in

that. So yes, we're going to continue to evolve our

verticals and get deeper where it make sense. But

ultimately, our business units are the -- are what really

drives our success. So we'll cautiously think through that.

So anyone else want to comment on that concept?

It's quiet. I think we said enough on that for today.

We'd love to have a question from the shareholders present

here today. And so why don't you take it, the first one?

Joseph Spastik for Rainwater Equity. A question on the cost

of investing in AI and how you guys are thinking about that.

Obviously, tokens are not cheap, and investment in your

time, your team's time and all these efforts is as well. I

just think about getting returns on that over time? And then

if appropriate, I'd love to ask a question on M&A.

It's a great question. Jeff, do you want to take that?

Yes, sure. I mean obviously, we're measuring all of the

investments that we're making in AI. Obviously, the token

costs from Frontier models is a large part of that cost. But

we're using all kinds of other AI tools and changing them

out on a regular basis as better ones come along. So I would

say there's a lot more going on there than I would say we

would typically see. So I think -- we're monitoring it.

We're watching it. Right

now, it's not having any super negative margin impact on the

overall business in terms of the way that -- or what we're

seeing. So I mean I'm still concerned about what we the

token costs. I do think it's -- if you see even what the

vendors are currently doing, they're constantly changing the

plans or constantly offering you max plans that aren't

really max, because right once you hit a certain limit, you

had to either wait or pay more. So there's going to be a lot

of evolution there. So I think we just have to understand

what -- but at the end of the day, we can't provide a

solution to a customer that doesn't have an ROI. So I think

that will be the baseline of what we'll determine what we

can or can't do.

Damian, do you want to comment on it too you had a meeting

with a hyperscaler yesterday.

So we're measuring it, so you can't improve it, if you can't

measure it. I don't know if you can measure all of AI's

benefits at the moment. So we understand there is a sort of

an up-skilling. But we're keeping a close eye on making sure

that we're looking at what impact it can bring for customers

and how quickly that can happen. Looking at the actual cost

per business, how much we're spending, who's spending what?

And then I want to look at the return from, is it helping us

grow? How does it feed into organic growth and deliver those

outcomes that customers need, or if there's productivity

improvements, how do we measure that as well.

So I think if we think about the -- at the raw element to

look at it, it could be net revenue per head if AI

is producing, then we should be able to do more with the

people we've got more value to customers and getting or

winning more customers using AI. So that's a base model, but

we're also evaluating a few more metrics that we're going to

use and try to understand. It's not all going to be captured

at this point.

It's all -- remember, we measure -- these are decentralized

we measure everything at the business unit level. And we

want to -- we'll understand who is overspending on that

which we've seen that happen with initiatives in organic

growth before. We've invested a whole bunch of money

building something new and returns on that were terrible

and -- and so we need to -- we'll keep an eye on it. And

we'll see who's doing it well and who isn't. And we'll try

to do our best to manage the costs using a little bit of

central pressure on some of the large companies who are

providing these to when we can. But ultimately, the business

units will own the investment

[indiscernible].

Thank you, Mark, and Damian, for the question. Let's turn to

the middle aisle for question number two.

Thank you Alex

[indiscernible] shareholder.

Shareholder I met

yesterday in the elevator.

Wearing my collard shirt for you. No tie. Great presentation

today. Actually perfect follow-on, to the previous question

which is about AI costs and your response right now with

respect to the metrics. Latest quarter after you guys, I

think, have had a lot of progress in some of the business

units, as you talked about this morning and driving some

initiatives that are AI-based that generate some

revenue. But the latest quarter is sort of consistent with

the previous trend. What do you think is the time line for

actually starting to see at the aggregate CSI-level metrics

on the top line that are going to reflect the success that

you...

Love to see more organic growth. I'd love it to be yesterday

in a pen of AI, but it's really hard for me to predict that

Alex, like it's really hard for us to suggest when that's

going to happen. And -- we're just -- we haven't seen a lot

of loss of revenues from AI or any, but I haven't also seen

a lot of new revenues from AI as well. So we're just

being we're just being -- we're just trying to drive

adoption of the usage of it, and we'll monitor it

internally. But I'm I'm not signing up to a time when we can

suggest there will be an impact on our revenues from a

growth perspective.

But believe me, the pressure will be on our business leaders

to do better and to continue to grow as much as they can --

and obviously, incrementally, can take good returns on the

dollars we're spending or euros or Swiss francs on doing

those investments.

Maybe if I could ask just a quick follow-on on that. Given

that there were, for example, some costs related to tokens

this quarter, that was reflected in the maintenance cost

line. Presumably, there's some costs related to development.

Are we covering our costs or more than covering our costs

with respect to the AI investments right now in the P&L

putting aside what you'd expect going forward?

Look, yes, it wasn't a material increase in that COGS line

that. yes, I would believe that, yes, we're probably

outpacing revenue with cost today because we're investing a

lot. But it's not a material impact on margins. I think you

said a minor impact, but yes, I would leave that.

Thank you Alex. Let's take one more audience question in

this segment before returning to Will. Sir?

Thanks so much. My name is Ryan Floyd from Barca Capital.

Thanks, everybody, for putting on this nice event. It's

wonderful. We appreciate the candid transparency. My

question is for Robin. Nice to see you. Topicus made an

acquisition or TSS did in Indonesia, which is really

interesting. And they have operations elsewhere in East

Asia? It would be great to hear about what that experience

has been like, lessons learned from it. It looks like public

information. You've been looking at other opportunities in

East Asia. It would be great to hear what -- to the extent

you can speak about it, the pipeline would look like, but

also just in general about what the lessons from that have

been?

Yes. So historically, we were predominantly focused on

Europe. -- but we slowly but surely move out of Europe as

well. This is Indonesia is an example of it. And we might

disclose some more in the near future. But we do it

selectively. We do it step by step. No other approach than

in, let's say, European or North American countries. So

that's, in general, the philosophy.

And what we learned, and that's what we already knew within

Constellation is if I have to fly from Amsterdam to

Helsinki, it's probably 3 hours or to Portugal it's 3 hours

and to Jakarta, it's 14 hours. So it consumes time. Of

course, in the plane, you can work and think. But that's one

thing. So you have to go over there. And what we found out

is that with certain things, difference in culture which we

already knew because that's in Europe the case as well. But

there is even -- we are a

[indiscernible]. This is

implemented, it differs and also differs the local

management you have. I don't think that's always related to

culture or the country. Sometimes you get lucky with an

acquisition with great people. And sometimes, you don't have

that, and you have to implement changes. So in a sense, it's

not different than what we've been doing.

It's only some cultural aspects, and traveling and all that

kind of stuff, but we're committed to continue on that

Path. So it's not just for thing. But of course, we take the

Learnings into account. But I'll expect us to do more there. Thank you, Robin, and...

Thank you very much.

Ryan, I appreciate that. Let's return to the panel. pivot into operations. AI will obviously percolate some more, but Will has received some very interesting questions about operations.

Yes. So this section is really specifically about the risks and opportunities of AI in current operations. We already talked about this a little bit, but one of the follow-ons to the question about AI-enabled competitors is AI-enabled customers. Have you seen any instances where your customers may have an appetite to write their own core system using AI tools or failing that modules, right? Are they perhaps -- do they perhaps have less appetite to buy modules from your companies because they can write some of these extensions or small things themselves?

Have we seen any of that?

We've not seen any yet.

We used to have -- and we still do have software that's installed on like mainframes, AS400s, and we always have to place the code out there and some customers would have their own professional services people developing on that code because they thought it was cheaper than buying it from us. But what happens is a few developers leave and they call you up and say, hey, we've modified the software and we probably need some help making it work again. So I think we will see customers develop things, and they will. Some will have IT departments that do, and that's okay. And we hope we'll still be the trusted partner to make sure that it works and isn't messing up someone's health care data that Santina has to worry about one of our businesses.

But we haven't heard anything.

We've also gotten a lot of questions, and we've heard a little bit from panelists here and there about maybe tiering the businesses, right, thinking about strong businesses, weak businesses, especially as it -- perhaps as it pertains to AI. And so are these sorts of portfolio classification exercises and ratings typically at the BU level? Is it at the Constellation level? And can you talk a little bit more about specifically what you're thinking about and looking at?

No, at the Constellation level, I'm just -- we're sort of looking at how the tools are being adopted across the world. But like I honestly don't really like to tier businesses. Some of our operating group leaders here might do that in some ways. I think our weak businesses will continue to be weak, and we hope we get better leaders in them and make them stronger, and our strong businesses will continue to be to be strong.

So I think -- and that's -- we measure that on a financial performance basis at the business unit level. And in the end, that's what matters. It's -- you can get good returns on the incremental capital you deploy on either organic growth or incremental acquisitions that you do in that particular area. So I'm not a big fan of ranking businesses from an AI threat perspective personally. I think the same applies independent of AI, whether the business was strong or weak, I don't know. But this crew might disagree with me.

This is the wonderful thing about Constellation. We're allowed to differ and do our own thing. So at the [ Baxter, ] we have built a vulnerability assessment tool, not so much to tier them in terms of bad or good, but to really understand where they sit from a vulnerability perspective. And we're using that to determine how we approach the investment going forward. So we have a lot of businesses that are fortresses. That doesn't mean we won't be spending money on AI, but it changes the way we think about exploiting that strength and doubling down on it as opposed to some other businesses that may be more vulnerable, which may need a different type of investment. So usually have to think about -- it's not a cookie-cutter approach to how we approach the investment. So it's a guide, and that's the way we've adopted it.

It's a qualitative assessment. Like it's qualitative, which I don't love qualitative measurements. They're like figure skating judgment. So I prefer organic growth and return on invested capital and numbers that you can really wrap your heads around because those you can trust.

Swimming or track.

Yes. I'm just saying. But I'm not saying anybody shouldn't do that if they feel they do that. I think your weak businesses will continue to be weak if they're not led by the right leaders.

Great. How are you adapting to AI agents becoming or potentially becoming a part of your user base? Do you have requests, for instance, for MCP access to your software? And how do you potentially counter revenue loss from the advent of agentic software use if it threaten sales of seats?

Who wants to take that one? It's a fun one.

I can start with the pricing side of things. So we've been talking a lot about how you deal with pricing because, again, ideally, you don't want to price on seats in a lot of verticals, but you acquire a lot of businesses as we do and you inherit the pricing models that you get and you have to be thinking through that. So we've been doing a lot of thinking about in this new world, if we start displacing seats using AI in our customers, then we have to have a pricing model to make sure that it's more of an enterprise or value-sold type of situation. So we've been spending a lot of time thinking about that and where it's relevant in our business is implementing that. So -- but it's something we're very, very cautious of because, again, like you said, you could end up eating yourself from a cannibalization of seats perspective. So...

You have your user-based pricing.

Yes. And we -- unfortunately, I know we don't love it in Constellation, but we inherit it all of a sudden.

Yes. And it's hard to change those contracts.

Absolutely you can't sometimes because they're 3-year, 4-year contracts and you can't change them, right? But you got to think about it and be proactive and work on how you can change them.

Damian, thoughts on that at all? I nod any thoughts or...

No. No need. They've got lots of questions.

No need. So we just implemented a dashboard at Harris, and that is one of the metrics that we're trying to track. I would say when I look at it, I would say that was maybe one of the areas that the businesses are just struggling to figure out. So we've asked them to basically let us know if other people are accessing our system of record, how many API calls they're making, who -- what organizations or what vendors are making these calls and whether they're just reading or whether they're writing back information.

But I would say I don't know that our businesses have always thought about it that way. And depending on what vertical you're in, like you need to make that data available for other vendors, like health care specifically, right? In a lot of cases, we have to make that data available. So I think we're trying to understand what to do with that. So I think we're just in the early stages, but we're trying to track it and to measure it.

Similar question. Other prominent software vendors have talked about monetizing API access to data or semantics house in their systems. Is that something that you would consider?

We do that sometimes, some of our businesses do that, have done that for decades, but I do love that. So where it's possible, but it isn't always possible. So I don't know I would. Any comments on that? I love the concept of it. So...

We work in complex ecosystems, right? We've been interacting with third-party systems for a long time. And wherever possible, we monetize it.

Great. One last question, specifically to David Nyland. Are most of Lumine's customers on-prem? And what does this mean for AI adoption rates?

Yes. I mean most of the customers are either on-prem or they have our own personal cloud. And a lot of our customers think or believe and they actually are technology companies themselves, right? So it doesn't mean our systems are not cloud native. So they need to be cloud native for DevOps and for any innovation rhythm. So it's generally cloud-native architecture, but often deployed on bare metal because they own a lot of bare metal or in their own private cloud. They're very reluctant to do processing, core processing in the public domain.

Now if the World Cup's on and we're streaming video for Sky TV in the U.K., for example, and let's just say England make it through to the semifinals, which, then we have to burst traffic above capacity, and that will be in the cloud. So using compute power wisely when it makes sense is definitely what our customers do. But generally speaking, it's on-prem.

I'd hold off making that order just yet.

Do you think it affects your customers' willingness to adopt AI?

Well, it's been -- the ability to adopt cloud native. So 94% of our revenue comes from Tier 1 customers, right? So think about that profile. So it's hard to get them from on-prem to cloud native, even on-prem cloud native or on-prem private cloud. That's a big architecture shift, and we're still in the 10-year-old journey of getting them up to cloud native.

So agentic AI native will take time in the Tier 1s. That 8 -- 6% of our customers that are not Tier 1s, they'll get them much, much quicker to agentic AI architecture. But getting major platforms upgraded in Tier 1s to -- it will be a 4 or 5. They want to see other people do it first. They want to see stuff that's secure, passes regulatory control. And where they understand this total cost of ownership, the tokens discussion, they want to understand total cost of ownership really well before they make any platform moves. But it will happen, but it's going to be over the next 5 to 10 years.

It's tera, tera, tera, terabytes of data, right?

Dave, like...

Yes. Uncomprehensible, the amount of data.

Millions, if not billions of real-time transactions. crazy.

Yes.

Great. That's my section.

All right. So I've got the next fun section of how CSU's culture and operations and incentives interact with AI. So the first one I have is a prominent U.S. business person recently said in a podcast that the majority of SMBs don't understand AI.

So in light of that, shouldn't Constellation revise its performance incentive model to prioritize organic growth over acquired growth in order to spur subsidiaries to develop new AI offerings? And we've seen some examples of that, of course. But I guess this questioner is asking, should there be a little more priority focus on organic versus acquired growth depending on the vertical.

This is a great question for John Billowits. You got to get them to say something.

I was half asleep was...

I heard operations.

If you don't mind, John. That one...

I'll talk about -- a bit about the compensation plan, which I think everyone is familiar with. I mean the core of the plan, which everyone up here would be on, would be return on invested capital, and then there's a growth element to that plan.

When you get down beneath these individuals, and they can elaborate on this, there are various plans within Constellation. And almost everyone running an actual business is only rewarded on organic growth. So if you're running a business unit with 50 people, you have always been and you probably always will be compensated based on organic growth. It doesn't really come into your thinking that much the acquired growth for the most part.

However, that being said, there have been some changes made over the last year to encourage more organic growth. It was implemented last year at a few of our businesses as a trial. And then another large business group this year also put it in place. And effectively, it's a kicker for just organic growth, not only at the business unit level, but also at the portfolio leader level. So to answer the question, yes, there are changes being made on an experimental basis, and people will wait and see if that has any impact.

How have the experiments gone so far?

Damian and then Robin.

Organic growth, there's a lot of opportunities, and it's really -- I think particularly within the context of dynamic competition and potentially AI, it's how do we add more value and being able to win more names. So getting the attention on that to be in a position, putting the incentives that will actually drive the focus on organic growth and then having a strong focus within organic growth on new names or increased value, increased usage within existing customers.

So focusing that, I think we've had some great traction. Some businesses and portfolios are just more better positioned to grow organically. Sometimes we make investments that we know -- deliberately know that won't grow, but we've got some really strong portfolios and businesses that are very tuned into organic growth.

Yes. I always think organic growth acquisitive growth. I like them both. So that's important. It's always what this or that. And it depends, but we like them both. And I think solid businesses also show organic growth. So when we did the spinout together with Topicus, and they all historically had very strong organic growth. They had development capabilities and abilities. They developed lots of new products, new clients. So we didn't want to saturate and kill that with a typical TSS approach.

So they are a stand-alone operating group company. They remain focused on organic growth, and we bake that into the incentive system. So we still have the CSI incentive system, but solidly focused on organic growth. They do, by the way, acquisitions as well. But just to give an example, and that's where Jim was referring to, it's something we implemented and we are evaluating and see what does it mean. So I think that's great about Constellation as well to do those experiments also in incentive structures.

Great. And then maybe at the portfolio level, have any managers seen any portfolio shift under KYC, shift capital to organic incentives versus acquisitions due to AI opportunities. So have you seen kind of slight redeployment out of acquisitions and into reinvesting back in the business?

I think I imagine we all have, and it's something that we want to be doing initiatives and tracking those to make sure that they've got clear business cases. But when you change the incentives and you give a bigger carrot for organic growth, that's going to drive -- that drives the focus on that. And then we have to -- as leaders and the leaders within the autonomous business units, they need to be encouraging that sort of behavior and the incentives help them as well.

There's nothing like personal wealth destruction to drive focus. I'm a member of the HR Committee.

That was why KYC was put in the first, right? It was an amazing tool to change your behavior, right? So yes, that's very helpful.

Another question on incentives. So conversely, this shareholder is asking, could your incentives discourage long-term shifts towards AI. So for example, has the Board or management looked at how a bonus formula based on ROIC plus organic growth performs under structural organic pressure? So by that, they mean could be you just look for onetime cost takeouts from AI as in replacing employees, but trying to [ obtuse ] ROIC but not really grow for the long term?

We will obviously be monitoring that. If we see that happening, we'll adjust accordingly. So yes, either way, if they can increase their net revenues per person, that's always a wonderful metric to use, whether that's for growing the top line or figuring smarter ways to use the team. But yes, so I think we'll just monitor and see if we see any extraordinary things happening, but we haven't seen that as of yet.

We measured close in quarters, but we don't think on quarters. So the long-term thinking. And if you look at the people that you've seen on state, people have been around the company for a long time, the people that come in with acquisitions stay for a long time. And that buy-and-hold mentality sort of -- I think it's an advantage for us where we don't have the short-termism that we're going to just strip it out and try to make a quick bonus and move on. We do think long term, and we take the ownership of the businesses very serious. There's a lot of pride in the returns of the business and the long-term returns as well.

And the average tenure of the team up here is like in the high teens, right? Like it's a pretty amazing group of people. And they've been on this incentive program for a long time and have seen a lot of different things happen in our businesses. It had some really tremendous successes, and we've also had some failures, and we're just trying to learn from those.

I think maybe one thing on organic growth that's important to understand across all of our business unit leaders, they want to be growing their business. So they're not thinking, oh, I just want to maximize my return. They want to grow their business. And I would say in the last year, as we've really leaned much more into AI, when you're in these events, when you're watching the leaders of these businesses see the way that they can pivot and respond to challenges they face with their customers for a long period of time, they get very enthusiastic and excited and they want to double down and try and find new ways to solve those problems.

So we don't have the proof points to say that this is converted into meaningful revenue. But I would say you can see the strong desire to -- I know I have a problem I've been wanting to fix for a long time. I now see a path to being able to do that. So I do think that it's important to recognize these leaders are trying to be more meaningful. They're trying to do what they can to solve the business problems. And I think, yes, compensation is one element of it for sure. But I think there's a lot of opportunity that they're seeing to address customer challenges in a new way and to increase the level of satisfaction.

And on that, we've heard some metrics maybe thrown out revenue per head. And are there any kind of other metrics regarding AI disruption that you might feel comfortable sharing, churn rates, win-loss metrics pipeline? And are there any KPIs you've added or changed to the operating ratios in light of AI?

I don't think so. No. I think it's business as usual from a metric perspective and be paranoid. Go ahead, Damian.

Agree. And just on net revenue per head, it's really -- it should be -- it's looked at the business unit level because we're -- as you saw in the video, there's a constant.

It's very hard to track essentially.

New people coming in. But when we consider that, we're really looking at the micro level and into each business unit.

So before you ask your last question, I'd like to queue the audience that after Howard's next question, we return to the microphone. So if you can think about a question and go to the mics in a minute, we'll welcome your contributions. Howard.

Thanks, Larry. So last one here, really a lot of benefits of decentralization, and I subscribe to that, too. But one -- this shareholder asks, at what point does the lack of a centralized AI capability become a disadvantage, for instance, negotiating enterprise-wide partnerships with hyperscalers or large language model providers so you have that scale? And have you considered a hybrid approach because of the [indiscernible]?

Yes, we will -- we are -- like ourselves, the couple of dozen people at Constellation will definitely speak to them about -- I would -- I guess you'd say sort of structures that we could use that to our advantage. We don't like to do that. But when it makes sense, we'll do that. We've all -- so for sure. I mean, anything you want to add to that Jamal or Bernie or...

So we take advantage of our scale. So we do have relationship -- I've been talking to Microsoft, Amazon or AWS for years, right? And now they are entered their contracts with them, so we can get better pricing, but we do not then force our business units to utilize it. They can access it if they need to. So we have -- I think we do have the best of both worlds. We can still take advantage of our purchasing power.

So one of the real advantages is we can get the really good engineers out to hang out with our business units. And that's hard to do if you're a business outside of Constellation. It's a stand-alone business that's -- and you think of our businesses, like -- I mean, maybe that didn't come across in the presentation today. But if you look at the -- I won't quote any numbers, the average business unit size, the median business units, these are small businesses, right? There's dozens of employees in those businesses.

And the ability for us to get a terrific engineer from one of these hyperscalers to sit down with the head of that business, the head of development for that business. And I saw it yesterday, I was sitting at the table with a group of people who are developing some product that was an agent actually, and I won't tell you say what business. And I thought one of the actual people from the hyperscalers is one of our employees and said, hi, who are you? And it was kind of like it was fun to see that because that's where, I think, our scale helps us the most is and we appreciate all of their help.

And we're happy to pick up the phone and say, hey, we need someone to help us with this. where it's harder to do if you're a $5 million business in Cincinnati, Ohio, and you've got some customers who want to move. So that's where our scale helps us a little bit. But you go to make those calls as infrequent as possible. These are pretty -- we don't have a big head office sitting around waiting for -- to -- yes [indiscernible].

It's happening at the portfolio level, right, and at the operating group level. So they're certainly trying to take the load for our businesses and give them some help and -- so they all have to learn how to ride the bike by themselves. Interestingly, we're starting to see it in M&A conversations where targets have realized that they can't do this by themselves, and they're looking for the help from somebody like us to join the family and get that type of help.

Thank you, Bill. Let's turn now to question #4 on that side of the room from another shareholder.

My name is Ashwin Anamalai. I'm from Waterloo. I'm a relatively new shareholder to Constellation. I usually only stick with index funds. I'm like a huge index person. But thanks to the great discount that Constellation is offering right now, folks like me, we are able to be a shareholder. So it's not just me, I ask all my friends to buy their shares. Everyone is here. So thank you so much.

Are you our first one?

So this is my first shareholder meeting here. And well, Mr. Miller, please don't do any buybacks yet, no more trying to get to the S&P 500. Just give it a few more years and then we will get there.

Stick with us, please.

So what made me change my mind is that in Waterloo, there was a hackathon called Anhackathon that was organized for university students where they were like businesses come with their problems, use AI and solve our problems. Like this is amazing. So with the help of AI with Claude and all these tools, they should be able to solve all these problems. So you know what, they did manage to solve the problems. But at the end of it all, 0, 0 solutions were deployed for the business.

Is it hard to sell?

And that's when -- it was the lightbulb moment for me. And I was like, yes, building code is one part of the solution, but having the ownership and the trust is really important. The very next day, like started buying Constellation.

Let's still startups, right? It's [indiscernible]

So like you can build something great. I'm a developer, and you could build something that -- and it's really actually very useful, but success is not judged on your ability to develop products. Success is judged on your ability to go out and convince the customers that they want to use your product.

And honestly, like over the years, I'm sure all the team up here felt it, there's products that we've built that made a ton of sense, but it took so long to penetrate that, yes, the returns on it are -- it's a difficult thing to do. So thank you for that.

Like we didn't actually ask for you to say that.

And they're doing a hackathon.

Like that's essentially what they're doing up near the airport now. We've got our own hackathon. There's 160 people there, and they were up doing pizza and Red Bull last night or what have you. And they're trying to do that, too. But they've got to go convince their customers that they need this. And we've got, as Jeff said, a great relationship. And it's still hard, right, Jeff?

For sure.

Like it's still hard. So I don't know if we answered your question.

What is your question? So...

AI has improved productivity a lot, and we are seeing large-scale tech layoffs. Are we going to see the same in Constellation?

Who wants to take...

No one's jumping in.

I don't see us doing large-scale layoffs. No, not at the moment. We're so focused on how to leverage this capacity because what you want to understand is we just have an enormous backlog of our customers wanting us to do things for them. Some of those things that just didn't make business sense now do make business sense. So I think as I said earlier, maybe not everybody is going to come for the ride with us, but thinking about large-scale layoffs is not on certainly our mind.

I never discussed it with anybody here, by the way.

Comment. I don't know if you.

Yes, I was going to just add to what Bill was saying. One of the things I say a lot within the Jones organization, it's a phrase that my team knows very well. And I do the hypothetical, if the business gods came down from above and said, "Barry, here's the deal for you. You will never ever, ever win another customer again in Jonas' history. But at the same time, you will never ever, ever lose a customer that you currently have in the Jones organization. Would you take that deal?" And I say 150%, I would take that deal because there's so much more we can do for our customers.

And AI just makes it so much easier. And Mark talked a lot about it today with customer intimacy. If we get this right, the Utopia grid is massive. And so we don't need it. I mean, don't be I want both. I want new name customers, too, but the opportunity is huge. So that's how I think about it. If you think about that, you need more employees, you don't need less employees.

Such a great answer. Like I tried to convince one of our business leaders of that once like we bought this company in Switzerland. And I was like, you never need to get a customer because they always blew their brains out implementing large new systems. And believe me, it depends on our business. So don't take this across concept.

But it was like, honestly, like you should just build more things for your existing customers, and that would be a great business. And your customers would actually care more about you because you're actually listening to them and solving them rather than running to the next building to like try to pitch something to someone new. And you put all your smart people sometimes on those new things. So that's a really great point, Barry.

Very inspiring. Let's flip back to the question #5 from the audience.

Welcome.

I'm Felipe from Sao Paulo, Minor Capital. My question is regarding tech debt, the legacy of your decade-old solutions, whether that makes it potentially much slower to build AI relative to AI native is building from the ground up from 0, whether you're seeing that in some of the organizations or maybe if AI is actually offsetting the tech debt because you're able to modernize?

[indiscernible] on it, like obviously, you can snap stuff onto our existing systems where it makes sense, right? So it gives you an opportunity to do that. And also -- I mean, anybody want to comment on that. I mean I see our ability to understand exactly how the data is existing and snap things on top of it is advantageous. And we used to do that in the early days using Visual Basic or something, but now you can do that a little faster. So I think it's not something I'm super worried about. So for us, I mean, are you guys worried about that?

I wouldn't say worried about it. I think one of the interesting things is tech modernization is significantly easier using AI, right? So I think there are many people that could be looking at their existing tech stack and saying, I can replace wherever I feel I have weaknesses around the technology choices I've made in the past. I think what we've certainly been talking to our businesses about is not to focus just on the tech stack modernization, but it's very difficult to convince a client to move to a new version of a system. It's the only thing you've done is replace the underlying technology. So it really comes down to how are you going to respond differently to meeting the needs of the customer as a result of your tech stack modernization.

So I think, there's no question, you can enhance your technology stack faster, thanks to AI. But really, again, it's going to come down to do you understand what the customer is trying to solve? What's the pain point they're trying to solve? And how are you embedding that into whatever enhancements you do to the tech stack modernization? So I think you'll find that if we had weaknesses in our tech stacks, we can address them faster, but we need to have a meaningful reason for the customers still want to upgrade, which is going to come down to delivering more value.

Thanks, Felipe. We do have a bit of time for one final audience question in this segment as long as it's on a brief side.

Yes, it should be quick. My question is more around morale, employee morale. Given the dynamic of the [indiscernible] as well as like the technological shift to AI and people worried about their jobs, have you noticed a change in morale? And how do you keep morale of employees high?

Someone should take this.

Look, we've seen in a recent major event was a recognition that people have gone through all the emotions with this, and so have we, right? It's -- but I've certainly picked up as the technology has matured so much in recent times and people can see real value and it's starting to shake out how we can really leverage it. I'm seeing a shift to excitement. And the level of energy that people are coming away from our events and taking back to their business is literally electric, and that's not just me saying that.

That's the independent feedback we're getting from our people. So I think there's been like a huge shift in the last 6 months or so. And that's -- and I think that's happening at all our levels. I think some of us are lamenting that we can't go back in time and do some things over because we would love to have the access to the tools that we're seeing today.

I think we haven't seen leaders leave or people -- morale start to impact people and concerned and people -- very little sort of talk about the share price. I think most of our leaders understand the power of compounding, and they're in for the long-term journey. They've got autonomy in the business that they're working on, and they can see a pathway there.

So although the external noise or changes, it's -- they're not oblivious to it. But when you're in control of what you're doing and you know you can compound your space and you've got capital to grow and you believe in the model, I would say morale is very high, and we don't have -- as demonstrated by probably engagement harder to measure, but also losing leaders, we're not seeing that.

Yes, you've got like dozens of customers, hundreds of customers and dozens of fellow employees. It's a little bubble you're inside one of those businesses. And we hope to allow them to continue to be inside that bubble and just learn from each other. So I think yes, it's not like it's a part of this big massive organization. It's -- you're inside your business unit and you got your customers and you got your teammates and you're trying to figure out how to -- what to do for those customers.

It's a great question. Helpful answers. Thank you very much. I'll just pivot a little bit to the segment I'm going to tee up, which is some technical matters, including coding, and we'll start with rewrites.

Greg touched on the topic of rewrites, AI and rewrites in the panel this morning. We had quite a few questions around that topic, including one that came into the chat this morning. And so here's one version of it. How is AI changing your approach to rewrites? Does the framework for thinking about the cost of rewrites change with AI in what ways?

Rewrites still scare me to death, generative AI, but I don't know how about all of the other.

I think if you're thinking about it that way, you're sort of thinking about the world in an old way of thinking about the world. So we would rather -- our businesses, I think one of the panelists this morning said, step back, engage with your customer about what they're looking for because this technology allows us to envisage a completely different way for our customers to engage with the data and the services that we would traditionally provide them. So I would be putting rewrites at the bottom of the list of priorities personally.

Yes. Like you'd rather do more for your customer than rewrite your existing system. So as a developer, I used to love to rewrite stuff. BG like that always thought you could do it better. But honestly, I'd rather add more value to your customer then rewrite your code, but I think some people will. I mean, as there many rewrites going on? I wouldn't.

There's probably more than there was before. Like the rewrite has always been an ROI issue. The fact was before there was just no ROI in rewriting the vast majority of our solutions. I think the ROI equation is now different with AI. So I think we're willing -- we're probably more willing to look at different opportunities because of the return, which I would say maybe rarely ever existed before, now in some cases does. But we still need to prove it to ourselves, right?

That's...

We have a small one going on, and we're watching it and it's progressing well. But getting to 85% is -- doesn't seem to be that hard, getting to 100% and then getting customers to actually adopt it is a whole different.

Yes, it will be done this quarter, right? And then next quarter...

Next quarter, multiple quarters later.

Second question in this segment from the shareholders that submitted questions refers to a recent discussion among leading programmers about a sudden shift from auto complete to agentic coding that they hadn't expected it, but now think it's confirmed. And they want to know, is that feeling common across Constellation businesses?

Who wants to take that one? I could.

Look, we're seeing it. We're experimenting with it. The jury is still out a little bit because we're conservative and we want to see, but we're definitely, I would say, recalibrating our expectations about how this is going to develop. So...

My sense, like, generally at the Constellation, again, I talk about we're very we're intimate with our customers. We're close to our customers is there's an opportunity to do more specific things for fewer customers than you used to build once and sell many. It's more of an opportunity to build individual things because of it.

So I hope it becomes true because having someone sitting across from the customer and sort of saying, hey, what do you need and doing it might only be true for that one customer. We probably would have steered away from that before. But again, that is yet to be proven. It's all theory right now.

And then I guess this is an inversion of that, but it's that, okay, suppose AI enables writing a lot of code much more quickly, what about the quality of that code? Is there some danger?

Well, it's unpredictable with AI, like I use it too, like it will suddenly do something unexpected in the middle when it does the next right of some update you're doing, which I'm sure you've seen that if you're using it from a -- just from using it for text or writing and stuff like that. So -- but I assume that will get resolved, but you don't know, like it suddenly will do something entirely surprising. I know you've seen that, but I've seen that some stuff like unintended consequences to that one little change that you just made, which actually fundamentally might change how you do things. But I'm sure that's something they'll work on.

I think a lot of the conversation around the migration of, let's say, writing code and how it evolves. At the end of the day, there's always a human that is integrating and making the final decision as to whether we're going to promote that code or not promote that code. I think it's going to change the nature of our senior developers being able to oversee a lot more capability than they would have been able to in the past, but I don't think it's our view that we're going to create systems where we just start randomly writing code and it just goes into production. So I think it will enable our developers to be more efficient in terms of the number of lines of code they can oversee, but there is a human at the end of the chain.

Thank you. The next question that you submitted in advance runs like this. I understand that Volaris recently launched a developer program to upskill software engineers with AI tools and learning. You touched on this before, Mark, but I'd love to just hear an elaboration, if you don't mind. Even though Constellation is decentralized, in what ways, if any, is the company mandating or evaluating AI usage, product and feature development and AI?

I'm just looking at usage of tools, and it's a Mike's event, but we also have multiple other operating groups at it. I mean we're just sort of looking at how the tools are adopted, and we'll learn from the businesses. If there's good examples of things that happen, we'll just learn from them and share them with everybody around the table here and see if they can use them. So I don't know if that answered your question, Larry, but...

Satisfies me. I'll turn it now over to Will to enlarge the discussion about general operations.

Sure. Yes. So these are a little bit less specific to AI and about operations. One of them I wanted to do is just a follow-up to an earlier segment that was posed in the live stream chat, which was we talked about the breakdown of seat-based versus other types of licensing. Do you have a general -- can you give us a general idea for the breakdown of pricing models in the portfolio across the company?

No. Jamal, that's your...

The answer is no. I mean we do not break it down that way. Like I know there are -- like we've just said, there are some seat-based pricing out there. There is other pricing. But I also believe that we can adapt, right? I think it was Barry that said it that if that becomes an issue and we start providing more agentic employees and seat-based goes away, then we'll find a way to get value to that, right? I mean that's something we've always done. But no, I do -- we don't track anything in that way. So I don't have the breakdown.

Okay. What it comes down to like generally in business, you've got to be doing something that your customer values. You've got to be doing it better than your competitors in order to deserve that value. And you've got to do that continuously think about that as you go through. And how you price, I think Jamal said, will be your -- based on your ability to add value to your customers, right? And you can't take that ever for granted. Any of our business leaders take that for granted, well, they're not going to succeed. I hope they all remember that. So their customers are what keeps their businesses humming.

Great. We've gotten a number of questions from shareholders who are curious about Constellation Payments. It's a long-running initiative internally, but there's a sense that it's getting more traction or becoming perhaps more mandatory in some ways. The question is, what are the incentives for Constellation subsidiaries to use Constellation Payments as opposed to other payment processors. Also curious about the IRR on the investment needed to create Constellation Payments. You probably should take that one?

I can let someone else. Yes. So we've had a couple of false starts with Constellation Payments. And so we realized many years ago, there was a huge opportunity in a lot of the verticals within Jonas to capitalize on payments. We are always in the payments game as an ISO and reselling someone else's stuff and saw that there was opportunity to get greater margin if you move up the food chain. And so we did that. We partnered with one firm originally, and that partnership didn't end up working out well. It wasn't the right gateway for us. And then unfortunately, we did a second partnership, and that was working great, but then that firm was actually sold to one of the big payments companies and they discontinued their end of life of that product.

So don't want to get burned 3 times. It's kind of like the 3 little pigs. Eventually, you build the thing out of brick. And so we got our own gateway, and we've launched that gateway. We have a number of clients on that gateway, and it's picking up some pretty good steam right now. So we feel pretty good about where we are. As far as going across Constellation, we picked the name Constellation Payments with the dream that we'd be able to sell to all our friends up here on stage. But we realize within Constellation that sometimes doesn't always work out that well. And so we're really focused within the Jonas organization. So the vast majority of the Constellation Payments stuff is within Jonas, but we do have a couple of clients from Harris and a couple of clients from Vela, and we just did a joint venture with Volaris over in the U.K. So it's gaining some traction within the group, which is good to see. And it's upon us to prove that this is a great solution and better than the others versus Mark Miller dictating to the other people on stage to make it happen.

So we feel pretty good about the trajectory we're on. There's still a lot to do. But yes, we feel pretty good about the trajectory we're on. We're growing significantly in the payment side of things in terms of organic growth, and we have been for a number of years and forecast doing that for a number of more years. So I think that covered all the questions, but...

IR something.

IRR.

You have to answer.

Yes. Historical IRR perspective.

Prospective is always good.

Prospective is off the charts. Historical probably wouldn't be that good. I don't think we should be disclosing those numbers, but it's definitely, I would say, below threshold. So I'll say that on it. But it is the right decision. I think about where we're going now from an AI perspective and going back to what I talked about earlier about utopia grids and doing everything for your customer.

Payments is becoming more important as is things like hardware embedded proprietary hardware, that type of stuff, which I know Bill knows a lot about in his business. And so I see it as also a strategic wedge attrition buster as well. And we've seen that over the years. The clients that use both our software and our payments are much stickier than the ones that just use our software. So I'm very excited about that as well.

Great. It's an interesting example of sort of a cross-group functionality or a layer. We heard from Santina talking about data sharing inside of that health care group. We heard from Bill about Modaxo building an AI layer over his various business units. Really curious about the extent to which data can be shared or not shared across internal business units, especially customer data. And then also would love to hear other examples of things that you can now do because you have bigger business units, many more businesses at the same time.

Bigger verticals units. Bigger verticals.

Yes, bigger verticals. Bigger business units, sir. I love big business units. I'd much prefer to have...

Groups of business...

Yes. Who wants to take that one?

I'll take it. Look, we're trusted custodians of our customers' data, and we treat that very seriously. But we do have access into and can see and with their permission, utilize that more broadly than we are today. So it really comes down to today where we have multiple products and even multiple Modexo businesses servicing the one customer, those systems are still talking to each other via various means. This is a much -- a different level of that type of engagement. And then we have to get them comfortable that if we're taking that data and gaining intelligence from it, then we have to be doing that on an anonymized basis. And we have to -- it has to be a quid pro quo that they get access to the knowledge gained from the broader customer set that we open this up to.

Our hope is that as we add more customers, we get even more intelligence and it becomes a compounder and a flywheel that creates value -- even greater value for our customers, and we believe we're strongly placed to leverage that. But we definitely -- frankly, unlike what's happening in some of the frontier models, we're not scraping people's data without their permission. So we will be very careful about treating our customers' data with the respect it deserves.

Any other groups have an interesting case of a cross BU kind of initiative?

We have some stuff in health care. So obviously, it depends on our customer contracts. But typically, we're able to aggregate a lot of data, anonymize it and then actually be able to monetize it by selling it to pharmaceutical organizations and research organizations that we're looking to do research into cardiovascular issues or other issues because again, we had all of the patient data that we were allowed to get access to. So we've definitely had some successes with that. But it's tricky, right, because you -- back to Bill's point, you do no harm with that data that we're entrusted with is the first consideration.

Before Will asks his last question in this segment, I want to alert the audience that we'll be turning to you again, and I see someone has already lined up. But Will, Will, please pose your final query on this segment, and we'll turn to the audience.

Right. So last one on operations is on cybersecurity. I didn't quite get away from the AI questions. AI appears to be expanding both the scale and sophistication of software security threats. How does CSI minimize cyber risk across its business units? How do you balance the protection that comes from decentralization against the possible benefits of centralized resources such as red teams or shared vulnerability tools?

I think we try and do both, right? So I think we benefit from decentralization because a lot of our systems are stand-alone or a part. So you can't get at all of our systems in one fell swoop. We do offer guidance, tool support. In some cases, we mandate certain tools, CrowdStrike across all of our businesses. And then we also encourage other businesses to do their own things.

So if you were to talk to Santina, she has a very specific health care focus because health care just gets attacked on just a continuous basis. So she would take the corporate support and then she's taken it down a whole another level, like she has a cybersecurity leader within our health care practice, not just at the Harris level. So I'd say we try and combine both to get the best we can in terms of being as safe as we can. And it never seems to be enough.

Yes. And I think we're obviously always looking at ways that we can use AI to monitor security threats across the volume of businesses we have. So it is very much a trust-but-verify mindset as it comes to things like security. We want each individual business unit to own the importance of maintaining the security of their environment and their data, but we do have the benefit of having the knowledge across a broad range of individuals and some very talented security experts that can go in and work to validate that the businesses are doing what they need to be doing.

It's probably a good example, actually, whether there's CSI involvement, operating group involvement, group portfolio involvement and business involvement. I would say that's not often the case. But in this case, actually, because it's so important, you actually see that going through the whole stack.

Excellent. Thank you. So let's turn to, I guess, it's question from the audience. We'll start on that side over there.

I just want to say it's wonderful to be here in my first in-person shareholder meeting. I'm an employee at Jonas Software, and I also own shares in Lumine. So my question is kind of geared toward David Nyland.

So with regards to the WideOrbit acquisition, my understanding is that, at the time, Lumine was valued around like 18x EBITDA and then WideOrbit was at a lower multiple of EBITDA, like 13x. So when they did the transaction, they -- essentially, you were using a higher multiple public platform to acquire a lower multiple asset.

I guess my question to you and the other spin-out companies is there are companies like Chapters Group where they raise capital at the topco level and that can be debt or equity. And essentially, that's at a cost below the acquisition yield and then they funnel that to holdcos that can buy assets at lower multiples.

I guess my question is, why hasn't Lumine and the other spin-outs leaned further into that model? Do you see that evolving that way? And just how you think about creating those value, meeting those hurdle rates through multiple arbitrage and those types of structures like similar to Chapters Group? I hope that's fair.

I feel like ChatGPT to help me answer that question.

Yes. No. So obviously, we were valued at the time as a compounding acquirer, taking a long-term view of what that value creation would be relative to a stand-alone asset and how you would value a stand-alone asset. And it was a premium asset, so we paid a premium price for it, but a significant piece was the rolling shareholder investment in Lumine. So it's a very unique deal.

Would we do unique deals like that again? I think we possibly would if we found something extremely interesting that created compounding value for our shareholders. At $54 a share, we probably should have done it. It wasn't the right time for us to do that. And I think -- but at some point in the future, there might be -- if we trade above intrinsic value, I think there might be an opportunity to use the [ scrip ] in deal. But that's not currently our investment thesis. We're compounding with cash and very traditional approach. But something surprising, interesting or large happens, yes, we would definitely consider it again in the future.

Thank you, David. Question.

Fernand Silber with Rosemart Capital. You guys recently changed something in your M&A approach, which is you included a section on AI and risks and potential benefits. And I'm sort of going to turn this question around to the operating group heads and say, if you had to re-underwrite sort of all of your BUs, what percent would you say the underwriting would change today with LLMs versus, say, 4 years ago?

Yes, I mean, like Bernie, it would be a good question for you. We were talking about a lot.

I think he addressed the operating group managers.

Essentially, I tried to ask the question.

You were asking for you because I think it's -- if you bought all the companies.

Mark, I'm happy to start. Do you want to start?

Because this was done -- I'm laughing because I'm looking at the individual who did it. I won't disclose his name. But he did it within his own portfolio. And he said, he developed a test on AI threats and opportunities on how he's going to approach it for new acquisitions. Then he went back and he said, okay, if I would apply this lens to my own portfolio, what are they? Where would they fall into? And obviously, he had a select few companies where he said he wouldn't have invested in under the new environment.

And when I dug in a few layers, it was really a case of these were already poor companies, like Mark alluded to earlier. They had high attrition. They weren't great businesses. They didn't have good moats. And at the end of the day, they've turned out to be bad investments, not bad. I mean they still have good returns, just not great returns. And so it was hard to figure out what was really AI that was impacting those businesses? Or were they really just poor businesses that we didn't fix and improve the moats?

So it's a difficult question to ask. And I think everyone up here will tell you that there's probably a few horizontal solutions that they wish they wouldn't have bought. But in reality, those weren't great companies anyways. And I think that's kind of the discussion that you end up going down.

I mean core businesses remain core businesses, and you'd like to sometimes have another shot at whether you bought them or not, right? So...

Sure. Any kind of point solution that has high attrition, AI or no AI, is going to have issues. So looking back, I don't know, the 30 years where we've acquired these businesses, some of these businesses, sure, maybe we shouldn't have or maybe there could have been ways to fix them. Maybe now with AI tools, we can protect them better, all sorts of possibilities. But it's certainly those troubled businesses that aren't great.

We still get decent returns because it's all a matter of the pricing and how much we can fix these businesses. But I think with AI tools now, we could probably do something better for those businesses. They're not gone. But then, again, we can always try to go back and revisit, should we have done that. Happy to say that it's probably a very small minority of the businesses across the board.

Excellent.

Anyone else?

Thank you, Dan. Question over on the right.

I'm a shareholder from Pittsburgh. I believe in the circular, it said that Mark Miller elected to forgo his salary and bonus this year. It seems like a great deal for the shareholders. Thanks for that.

Yes. I just carried on what Mark Leonard did. And I really care a lot about this company, and I took this job to help this company and the shareholders in it. So..

Mark wanted 0 comp, and we wanted to pay him something.

So it's really just for -- I really just want to try to help this company improve and continue to increase its intrinsic value over time.

My question was just what the motivation was.

Yes, it's really just in the best interest of the company, and I hope it can help in some way.

Thank you so much for that question. And switching over to -- actually.

Thank you, Mark. Thank you, Mark.

It's actually question 10 here in the middle of -- I think the last question.

I had a question for Mark Miller. How different Constellation 2.0 under Mark Miller would be as compared to Constellation 1.0 under Mark Leonard? And similar question on the same line, how do you think about retention of the people, key and risk? So none of your experienced guys go out there and create a [indiscernible].

I think it's really continue what we've done for the last 3 decades. And I don't think there's any fundamental changes to what we're doing. I think we're trying to learn some new skills, for example, which maybe were some old skills, but we're refining them as, for example, with PEM. And I think we've got to learn and continue to grow that part of our -- if you want to call it, muscle because we've got to -- we've got a lot of capital to deploy, and I hope we can continue to compound for our shareholders. And we'll have to become better at some of those things than we were before, I think. And I'm very looking forward to that.

So -- and I think AI is just a nice -- I think I said that earlier, it's just -- for me, it's helpful because it shakes up some of our businesses and gets them thinking about customer-driven mentality. And we just got to make sure that we get a good return on that investment in what we're doing right now.

So I don't think much has really changed. And you can see the team up here has expanded. And with a couple of dozen people at head office, there's -- really, we depend on each of our business unit leaders and all the operating group leaders to continue to -- the ones who generate all the cash, and we're just fortunate enough to be able to help deploy it. So honestly, I don't really think things are going to change much and focus on developing people.

That's actually a nice segue. We've completed the first round and a half. We'd now like to move to M&A. And I'll turn it to Howard for the first segment.

Yes. So the other key branch of Constellation, course. And of course, the first section, of course, relates to AI and M&A. And so the first question here is about terminal value. So there's lots of innovations. And so there's a worry maybe as you evaluate software businesses, maybe you should be concerned about terminal value. So how is your thinking on that evolved? And have you kind of integrated that into your process of evaluating companies?

Yes. There's been a fundamental shift in terms of how the investing public views publicly traded companies and everyone has subsequently taken a haircut, including us. I don't know. I see the businesses within Constellation and the folks at the AI accelerator that we saw near the airport yesterday. And I see a whole bunch of people really pumped about what they can produce for their customers. And if you go back to that earlier question, are we going to be laying off people? I see the tremendous amount of capacity that we have going forward available for our guys to develop more and more products for our customers. So they're going out and the general managers of the BUs are going out to speak to their customers and trying to figure out what their pain points are. And all of that backlog of stuff that they've always wanted to do but never had the chance to deliver because it was just so tough to do. They're jumping in right now, both feet, getting everybody involved in trying to figure out what to do for their customers. So I don't see that terminal value diminishing the way that people have seen that in the public markets. And I think there really is a disconnect. Now maybe there are some businesses that are on the fringe that maybe it could be copied really quickly, very easily replaceable. I just don't see that. And so to me, fundamentally, I believe in the businesses that we're running here. And just the shift in this tooling that we have in our shed that we could just take advantage of and deliver everything that we need for our customers.

Is it fair to say that then for the kind of broad M&A process across different operating groups, you haven't really put in any new kicker for terminal value assessment or anything like that?

I haven't. Have you?

No. I'd love to..

No, no.

Yes. And then on assessing AI businesses, the shareholder was kind of asking, have you built any framework for assessing acquisitions of AI-first businesses? And how is that maybe similar or different to previous iterations of technology, SaaS, mobile, all of that?

Yes. So AI-first businesses. So right now, what we're looking at in terms of acquisitions, whenever a prospect comes into our sites, and we're going through the motions. Part of our diligence now is assessing their vulnerability to AI. And it varies from one operating group to the next to see how they assess it, but that definitely goes very much into our thinking to figure out whether or not there is a vulnerability. But not only that, we also look at a lot of these businesses that are really in their infancy stage in terms of using the AI tools. And because we're gaining all of that experience of using this stuff internally within our businesses, we're also looking at how we can apply this stuff to the new businesses that we're acquiring to see if there's any upside. So we're taking both of those into account.

Yes. The due diligence is giving you internal lessons as well.

Absolutely -- and what we love to see, now we have 1,500-plus business units. We love to see the results internally so we can use those lessons and apply them to future acquisitions.

Which is how we've done everything from the start. Yes, we always learn and...

I think some of these businesses come in with their own lessons that we can take from them as well and fabulous people, of course.

Yes, we've learned everything from the businesses we've looked at Bernie since '95, right? AI is just another aspect of...

And kind of an offshoot of that is if any of these kind of AI businesses you're evaluating, they're using one particular frontier model, how do you kind of underwrite -- is that a risk? Is that an opportunity, something to keep in mind of?

The code is transferable usually between the model.

There's multiple platforms. It's just a matter of trying to...

Is code is code.

Exactly. So I don't know if anyone else has anything to add.

I think, Howard, like we're not really looking at that many AI-first companies. Let's just be clear, so I think we're looking at a lot of companies that are saying they're doing things with AI to Maurice's point, and we get in and we try and understand what they're doing and comparing it to what we're doing and making our assessments. But I can't remember the last time, one of the ones we looked at was what we would call an AI-first company. You may remember who we are and how we value and what we pay. So I think that's not where we are not yet.

Yes, absolutely. I mean just to underline that, the bulk of the businesses that we see are not AI-first businesses. These are small businesses. They're doing the right thing within their customer bases, and they're doing the meat and potato stuff. But generally, they're not on the AI bandwagon yet or very few are. And the ones that are, are just using the basics. So we're not looking for AI-first businesses.

We've seen a few, but they're usually they don't have customers and they're sort of out of money. I don't think there's a huge -- we're not seeing huge competitors in our segments. AI-first companies is killing it. We are seeing people who've put some money in something, trying to build something and can't get the distribution.

Right. You could probably point them to the SPAC market instead of. They could change their name and add AI to it.

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That's easy.

Yes. So maybe switching to hardware. So you mentioned last year that you studied Motorola Solutions and Hexagon. And do the development in AI make you more interested in hardware? I know Mark is a big brand of hardware.

We always -- I mean, like the Valaris has always had a lot of opportunity to deal with hardware because we deal with a lot of buses and trains and there's a lot of vehicle devices. And I've always liked hardware. I always think it's -- I think it's -- you want to do as much as you can inside that vertical. You obviously want proprietary hardware, hardware that is special and unique to that. So I really like hardware a lot.

Does AI help us with it? I mean when you're doing hardware, it's a harder business. You got to worry most -- a lot more about working capital. And generally, the hardware is embedded software on it, so it might help you write some of the embedded software inside the hardware. But I have never had a problem with it. Maybe we'll do more of it, maybe we won't. It will depend on our -- what becomes available to acquire. So -- but it's perfectly fine for us to do it.

More of an opportunity?

I think so. AI doesn't help or doesn't change that game.

Yes. And then maybe just the last one on the section for me is on horizontal businesses. So we've kind of talked a bit about that. And there's a belief that obviously, VMS is more insulated than horizontal businesses. And does that change your framework for acquiring horizontal businesses given AI? Or has it always been the same?

It depends on the situation. I mean if you're horizontal in a specific geography, like that's one thing. So it depends on the situation and the price and what we really think the long-term value of that business will be. So I don't think it's affecting us at all in our decision-making now. We're going to look at that business on an individual basis and think about what the next decade of that business might look like under multiple scenarios.

Speaker 31

Right?

Yes. I can add that many of the horizontal businesses that we do buy have their own moats despite them being horizontal, and that's what we do look for, something that's defensible.

If not, we'll model it up accordingly. Exactly, which affects what you can pay for that business, obviously, if the moat is not comfortable or

I'll turn it to Larry.

Okay. My segment is on PEM. We heard a presentation about the topic earlier, which provided, I think, extremely valuable information. Nevertheless, we got a very large number of questions about this topic, and so we'd like to pose a few of them. We'd like to front that by emphasizing that we are very grateful for Mark Leonard's continued involvement in this endeavor as an adviser.

We're also happy with your keen interest in this topic. But we also want to stress the need to be particularly careful in this area around proprietary information related with this strategy as well as the fact that it can involve 2 public companies and concerned about revealing nonpublic information. So with that front, a few questions, if I may, Mark. Here's a simple one, at least to read.

What edge does CSI bring to the PEMS strategy?

Well, I mean, we're clearly -- we have capital and a lot of people have capital, but we really understand vertical market software I think, reasonably well. We've had a fair amount of experience over the last 3 decades to understand the vertical market software companies. So I think those 2 combined are useful. And we also know sometimes a little bit about the verticals that these companies are in, which I think can help. And we're also comfortable buying being investing in businesses that require some help. Bernie, I mean, maybe you could elaborate on.

Yes, absolutely. I mean our deep expertise in software for -- we've been at it for over 30 years. I think that helps us a lot. I think we have a lot to share in terms of how we do things. And so our expertise in that, plus with serial acquirers. You don't see very many serial acquirers.

In our M&A conferences in the past, we've invited heads of serial acquirers that are non-software as well, and you've been through a couple of those -- and there are tremendous similarities that I think our experience could help. And I think we have a lot to offer.

We've talked a lot about compensation, about investing incremental capital intelligently in measuring those things. And we think those are useful for people who care about these businesses over the long run. So I think it's...

Second question. In a PEM structure, how does the underwriting process discount or account for the friction of having to persuade a legacy Board or management team to adopt Constellation's capital allocation discipline.

Sure. You want me to take that?

Yes, you take that one.

So if you think of the way that we've done acquisitions to date, we buy businesses lock, stock and barrel, and it takes 1, 2, sometimes 3 years to get them up to speed with the best practices that we use to run our businesses. And so if you think of a minority shareholder and how much influence you can have on a business that you do not own 100%, it will obviously take a little while longer in order to influence management to do the right thing. And so what we believe is that we have to get them at a lower price than the businesses that we are actually acquiring at 100%. And so you will see if we measure ourselves at the same IRR that we measure 100% ownership, we would have to get these businesses at a lower price.