Good morning, everyone. Just wanted to start off by reminding everyone we have the Annual General Meeting coming up this Friday, and we're hoping today to take some quarterly questions on the financial results for Q1.

Thank you all for attending, and I have both Bernie and Jamal with me to help answer any of those questions. Over to you.

Hi, good morning. Maybe one for Jamal to start.

Just on the margins for the quarter, I know you have the Q1 payroll taxes and that there were some Synchronoss-related costs at Lumine. Is there anything else that you might call out in terms of the margin dynamic this quarter, or nothing unusual of note?

There were a couple other acquisitions that were a bit of a drag on margins, like the Q1 cohort of acquisitions themselves were actually a negative margin for the quarter, which we totally plan to improve them and it's a typical thing where we improve margins over time, but it was a bit of a bigger drag this quarter than previous quarters. If you look down the line items of what's impacting margin, you can also see hardware margins were slightly down.

Again, that's not one of our core products, but again it was 43% margins versus 46%, and that had about a 20 basis point impact on margins. Professional services, again, if we're making acquisitions and using third-party services, and then also on third-party maintenance, you can see that's up a bit as well, which, again, nothing material to call out, but as we use a lot more of these third-party providers for hosting, etc., you'd expect that to pop up a little bit as well.

Great. Then one for Mark.

Now that it's been a few more weeks into the SaaS-pocalypse, have you been starting to see private market valuations for larger assets come down, or is that not a dynamic that's transpired just as of yet?

Not really. Bernie and I were just chatting about it before the call, and he was saying maybe slightly.

Bernie, do you want to elaborate on that at all? Not really.

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

Great, I will pass the line. Thank you.

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

We haven't made any changes to the plan, and, I think me personally, I'd say this is a great buying opportunity, right? I don't think we need to change the plan as a result of that.

The formulas for the core management team stays the same. We still buy shares in the market same way we always have.

Again, we believe in the company, and so, yeah, no, there haven't been any changes to the plan.

Okay. Great.

Then Constellation typically sees kind of larger deals in more difficult environments. I know this is a very interesting time right now, but can you talk a little bit about the large-deal pipeline and the appetite for bigger deals at this point?

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

So

The only thing I'd add to Stephanie to that is that I think we also have better talent to work on those larger transactions than we would have had, let's say, 5 to 10 years ago. You need it, because they're complicated, there's some hair on them, and they're usually spread out over multiple geographies, and sometimes are carve-outs from large companies.

Having experienced people who are capable of doing that is probably something we didn't have. That helps us a bit, but again, it does come down to valuation for us.

I do think we're on the field at least more, let's say, playing and trying to win those than maybe we were 5 to 10 years ago.

It's great color. Thank you.

Hey, good morning. Thanks for taking my question.

Just want to ask about the broader software strategy there. We've seen Salesforce launch a headless solution.

They're focusing on offering API access that can be leveraged by agents. I understand horizontal and vertical solutions might be very different in terms of how they will approach their integration in an AI world, but do you expect this strategy, you get to take this one as well, or maybe VMS is so different that you don't need or you don't anticipate as much change to the UI paradigm over time?

I would say it always depends on which business you're in inside of Constellation. We have many, many businesses, and some will have to build agents and some will have to modify the user interfaces.

Many won't. Customers are obviously hesitant to change their user experience, because it's something that their team uses all day to run their business, right?

Changing user interface and a way the user interact with the software is a big decision for a client, and they take some consideration before they do that. One of the things that I always find talking about artificial intelligence and the changes in technology is essentially you have to convince customers to change their user experience as well, which in some cases it requires budgeting, approvals, multiple levels of discussion inside of that customer for our mid-to-large-size customers in particular.

It will evolve as the market evolves, and we just make sure our people are as educated as they can be on these new ways of building software and adjusting to those changes. We'll talk a little bit more about that at the AGM as well.

Get a chance to talk about some real examples on Friday.

That's great, thanks. Then second one, another one on the evolution of the software model going forward on forward deployed engineering.

Is this something you believe in? Could it be initially maybe bringing a bit more costs when you kind of adjust to the new model, and have some BUs started leveraging this strategy more?

Definitely. There'll be some more cost in doing that initially, because you're going to be kind of retooling where they need to do it.

Some are doing it in advance just to make sure that if there are some changes inside of their markets and new needs for new ways of interacting with our products, they're using it. They're also using it to also try to expand inside of the customers as well, which is what I'm hoping to see more of for our more, let's say, close to customer innovative businesses across the world, that they use it to step into other areas of the customer and interact with them more because we're so vertical, we have so many different teams in this decentralized environment of Constellation who are out really close to customers in many countries around the world and many different markets, trying to figure out how to make customers' businesses run better.

Great, thank you.

Thank you. Good morning.

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

I think generically we really don't want to comment on Sabre, David. It's just something that we have a representative on the board there, and the conversations between Sabre and our director are I think could be kept private and confidential.

Understand. From an M&A standpoint, you obviously had a pretty strong start to the year and also for Q2.

As it relates to the Q2 to date closed and pending deals, other than the DerbySoft deal, are there kind of any larger, chunkier deals that I guess weren't large enough for Constellation to press release, but maybe were much larger than your typical run-of-the-mill deal?

There were a couple of larger ones. I think, yeah, we're not going to disclose the amounts, but there was a couple larger ones and a whole bunch of small ones, yeah.

All

underneath that, too. Yeah.

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

It really is the latter. It just comes and goes, up and down, as the market evolves.

We don't see more transactions than usual, we don't see less transactions than usual. It's just the same amount across the market as we've always seen.

No, nothing's changed. There's a real disconnect between the SaaS-pocalypse publicly traded stuff and private markets.

It's just ebbs and flows of the market. It's like any, large Sorry sorry, David, go ahead.

No,

I was just wondering are you seeing maybe changes in the behavior of the targets, the sellers, particularly given what's going on with AI, that maybe being part of the Constellation family is a better place to be, or is there anything else that's maybe driving this elevated activity?

No, I think we remain patient. We deploy capital very, very carefully.

As I think I said to Stephanie earlier on, I think we do have a bit more talent who are able to think about those larger transactions than we previously did. That might give us a little bit of a better coverage and close rate on some of those.

It's still, yeah, the world has not changed from our viewpoint. It has not.

We'll just continue to plug away at this problem, and keep working on it.

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

Thank you. Looking forward to seeing you, too.

Good morning, everyone. Can you hear me?

I'm hearing you perfectly.

Excellent. I'm calling all the way from Hong Kong, I just wanted to make sure.

I'm calling to ask, first and foremost, as someone looking from the outside into your business, I'm trying to think about how to categorize the portfolio of companies that make up Constellation Software and the threat that AI might pose to them. I'm thinking there's maybe a low-risk category where we have businesses built around things like mission-critical systems, systems of action, and then maybe there's a higher-risk segment of the portfolio which is more like marketing or lead generation or website construction and that kind of thing.

I was wondering if you guys broadly agree with that classification or categorization, and then maybe as well if you could comment at all on whether the higher-risk category makes up a material part of your revenue and FCFA2S and that kind of thing?

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

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

Then on the other spectrum, you have ones that are generally have lots of departments involved, and they appear to be more sticky as well because of that. It's very difficult to do that in any sort of quantitative way.

It really depends on the leaders of that business. We're so decentralized, with hundreds and hundreds of businesses around the world.

Depends on the leaders of that business to just make sure that they care of the niche they're in, and we're generally not taking on very large horizontal companies in many of our nichey verticals, because that's sort of how we defend our market position by being small and intimate with dozens or hundreds of customers, not trying to have tens of thousands of customers. I don't know if that makes sense to you.

Where you're going to get attacked by AI is if it is a problem, is going to be maybe where you least expect it. You'd expect anytime there's a high-churn, high-attrition business, maybe more so.

That isn't a large percentage of our recurring revenues anyways. It's just a difficult question to answer and you can cut it in so many different ways.

We just will depend on our leaders to find the best solutions for companies in each of the situation they're in.

Thanks, that's really helpful. A follow-up would be just in the last couple of months, really since the start of the year, with the launch of Claude Code and OpenClaude and agentic AI, I was wondering if that's changed your perspective at all on the competitive risk?

If not, what would it take for you guys to see this less as something that can enhance productivity and more as something which can be a direct threat or even an indirect threat on pricing and your ability to sell other modules and that kind of thing?

Pricing, like I always say, the way we lose customers is, a, they essentially go out of business, which happens. You can't do much about that.

They're acquired by other customers, particularly larger customers. That's another way of losing.

You can't do much about that other than you hope the other customer that buys them is your customer. Pricing is the third, and pricing, rarely we lose customers on pricing, because the switching is painful for customers, and it's working, and they're using it, and retraining all their users and adapting the interfaces to make it harder.

Where you lose customers is when the competitor can provide something much different than you can provide that the customer really needs. That's where I always worry the most just generically, forgetting about AI.

That's kind of how I sort of look at it. Now, as far as these tools, we're all using them internally, and I've been fortunate enough to travel around.

I think each week I've met with a different group across Constellation, different location, and just see what they're using and what they're doing. They're adapting to these tools, using them internally to help them run their portfolios, their businesses better.

They're also using them to try to develop more software to actually expand our presence inside of customers more so than defend our presence is kind of the thinking. It's going to depend on our business.

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

That's really helpful. Final question for me is just on PEMs, which you guys introduced last quarter.

I was wondering, when you're thinking about making an investment, a minority investment, do you have a different hurdle rate for that than you would for your standard wholly owned M&A? Then related to that, for a very long time, we've used free cash flow available to shareholders as, I guess, the yardstick of our company's progress.

I wonder if these minority investments grow over time, would you suggest that we start thinking about something else to anchor valuations on, or the company's progress? Thank you.

In terms of PEMs, the hurdle rate is the same. However, the modeling in terms of the weighting of worst case versus winner case are going to probably be much more dispersed, and so will probably result in a lower price.

The hurdle rate is the same. In terms of going forward and the free cash flow available to shareholder metric, that is something we've been discussing.

Internally, the way, and many investors know, the way we bonus ourselves internally is something called an economic net income. It was very close to what we used to have as adjusted net income.

For these types of PEMs investments, we would actually look at our pro rata share of their ultimate cash flows, which doesn't show up in our current statements. It's something we're thinking through right now to try to maybe give you investors the same metric that we're using internally.

Again, it's going to be a discussion on what we present. It is, yeah, I understand your point that the free cash flow available to shareholder metric doesn't pick up anything relating to these PEMs investments for the most part.

Thanks, guys. That's been very helpful.

Appreciate it all.

Thank you.

Thanks, and good morning. Just Mark, open-ended question, but just overall, how do you characterize the quarter, if you can call out what you think was better than expected or what maybe improved versus the last couple quarters, and then conversely, what you think made some improvement?

M&A obviously was positive, because I'd rather be getting capital out now rather than at the end of the year. Just sort of like any business, you'd rather get more capital out sooner.

From a performance issue, we were expecting the adjustments to EBITDA because of the acquisitions we made. I don't think that was unexpected, and I think that's why we actually explained exactly how that happened.

I continue to pressure our businesses on organic growth generally, Paul. I really would like to see them doing a better job on organic growth across the board, and I think this is an opportunity to push them harder on that with the advent of some tools to allow you to do things a little bit faster and a little bit better.

That's a generic concern that isn't just in the quarter, maybe I've not answered your question. Other than that, yeah, Bernie, Jamal, anything to add to Paul's question?

I'd say it's a pretty standard quarter, it was expected. Organic growth in line with historical norms.

All of these initiatives, we're saying that we're doing a lot, but yeah, it wasn't an expectation that we're going to translate that into revenue growth right away. It's going to take time, right?

Then you have to sell it into your customer, etc. That was always expected to take some time.

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

That's helpful. The second one is Mark, you've been in the president role for 6 months, probably just over 6 months.

Any leadership style changes that you're bringing to the role, and then in particular, how has been interacting and managing the broader operating group leaders versus your prior role at Volaris?

They've been great, Paul. Just terrific.

We had a board meeting yesterday out near the airport, and all the operating group leaders after the meeting are sitting together working on things and talking about how we can improve. I'm just super happy with the team across Constellation.

I think the collaboration is at an all-time high between the operating group leaders, and everybody is very engaged and working close together. I'd have to say, sharing best practices at a high velocity around anything we're learning about, for example, AI, and because there's just so many ways to come at that problem.

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

All right, thanks for taking the questions.

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

We'll see everybody on Friday that makes it to the AGM. Thank you, Bernie, Jamal, as well.

Over and out.

Thank you.

Thanks.