Octave Intelligence plc Class B Ordinary Shares 2026 Q2 Earnings Call

Go ahead. Thank you, operator, and welcome to everyone joining us for Octave's second quarter 2026 earnings call.

With me on the call today are Mattias Stenberg, our Chief Executive Officer, and Ben Maslen, our Chief Financial Officer. We have distributed our earnings press release over the wire, and it is now posted on our website at investors.octave.com, along with an updated company presentation and our 10Q filing. This call is being broadcast live via webcast, and following the call, an audio replay will be available at investors.octave.com. Before we get started, I would like to note that certain statements we make on this call may constitute forward-looking statements, which are subject to risks, uncertainties, and other factors as discussed further in Octave's filings with the SEC, including on Forms 10, 10Q, and 8-K. Actual results could differ materially from our historical results or our forecasts.

We assume no responsibility to update forward-looking statements other than as required by law. During this call, we will present both GAAP and non-GAAP financial measures. A reconciliation of non-GAAP to GAAP measures can be found in today's earnings press release. Our SEC filings, earnings materials, press release, and a replay of today's call can be found on our website, investors.octave.com. I'll now hand the call over to Mattias.

Thank you very much, Elizabeth, and hello to everyone joining us on the call today. This is our first earnings call as an independent public company. So I want to start by saying a thank you to our shareholders, many who joined us during our investor day in March and have been strong supporters throughout the spin-off process. Also, to the 7,000-plus Octave employees who delivered a solid set of results while simultaneously standing up a public company. And of course, to our customers who trust us every day to keep their mission-critical businesses running without ever missing a beat. We are proud of this first step in our journey to drive value for all of our stakeholders. So again, thank you. If we turn to our results in the second quarter, our ARR grew 7% on an organic basis the prior year to $1.143 billion, in line with our expectations for the quarter and at the midpoint of our guidance range for the full year.

Recurring revenue grew 6% organically, with the SaaS revenue growing at 21%. Our adjusted operating margin came in at 29%, which was also in line with expectations and only modestly lower than the prior year. This, to me, is evidence of our strong cost discipline in a quarter where we have incremental public company launch cost and lower perpetual sales versus the prior year. Ben will walk you through the additional details in a few minutes. If I step back, here's how I would characterize the quarter. The recurring business performed well, with year-over-year growth in SaaS bookings that accelerated from Q1.

Approximately one-third of our total ARR growth came from new customers, and roughly two-thirds came from expansion within our existing customer base. This is very much in line with the growth framework that we laid out earlier in March. Each of the workflow environments grew over the prior year on an organic recurring basis. We saw continued strength in our build solutions, and this continues to be an under-penetrated market with strong demand for supply chain, materials management, and project performance software. That's what generated the double-digit growth in the quarter. In design, growth accelerated on a recovery in subscription licenses, and for the operate and Protect areas, we saw continued steady growth. If we look at our total revenue, it was down 1% year-over-year on an organic basis due to the decline in perpetual license deals.

This is primarily driven by the strategic shift we described at our investor day to drive more customers to recurring revenue models, which of course, are worth more over the life of a customer. To a lesser extent, the decline was because of timing delays related to our public safety business that did not close in the quarter. Those deals amounted to approximately $5 million. We believe that those deals will close this year or early in 2027, but they do have long sales cycles and are less predictable in terms of timelines. This is, of course, why we are actively shifting the business towards subscription. Our recurring revenue now stands at 69% of total revenue on an LTM basis, and that is up from 65% in the prior year.

We are making good progress towards our targeted medium-term mix of 75% recurring revenue. If we look at the customer spending environment in the second quarter, it was broadly similar to Q1. Customer budget conversations and deal cycles were largely consistent with what we have seen over the past 12-18 months. While we are diversified across four workflow environments, dozens of industries, and present in 140 countries, many of our customers are exposed to the same underlying variables: supply chain conditions, commodity prices, and industrial capital cycles. When those move, they tend to move for a number of our end markets at once. For some of our customers, higher oil prices are beneficial and supportive of investment. On the other hand, broader market uncertainty can make final investment decisions harder to make. There is clearly an offset there.

We, of course, pay close attention to the owner/operator CapEx budgets and the timing of their final investment decision, as well as EPC backlogs. From what we can see here, the trends seem stable. Overall, our priorities and strategic focus are unchanged, and it is worth restating what they are and how we are progressing. Our strategy really begins from a structural problem in the industry we serve. Information does not carry across the life cycle of mission-critical assets and infrastructure. A decision taken in design becomes separated from the people who build, operate, and protect that asset. The cost of this problem compounds the further downstream it appears. Our response to this problem is to operate as a single platform across all four of these work environments, with a common context layer beneath the portfolio so that the record created in one workflow is available to the next.

That is why we sell a workflow as an entry point rather than as a standalone product. Using Octave software across more workflows drives more value for our customers and expands the associated revenue opportunity for our business. Regarding AI, our view is the same as the one we described in March. Customers in the industries we serve need answers and decisions that they can audit and defend. Value sits in models grounded in specific customer asset history, engineering standards, and operating record, and our software has this context. We think AI expands what we can sell rather than commoditizing it. We are being deliberate about the pace. Our agentic work is being used by early customers, and the conversations have changed. Customers are asking us to help them build on top of our system of record, and that was not happening 18 months ago.

As part of this overall strategy, a key priority for us is to drive ARR growth sustainably above 10%. We expect two main drivers to close that gap. The first is product innovation, where we are building a single platform beneath what has historically been a collection of strong but largely independent products. A common data and context layer, shared integration and governance, and an agentic layer above it. Alongside that, we are both consolidating and deepening each of the four environments so that each operates from a single control surface instead of a set of adjacent tools. We are also moving more of the portfolio to multi-tenant SaaS, which helps us ship faster and supports our margin ambition over time. The second driver of growth is improving how we go to market. We are building a commercial engine capable of sustaining double-digit growth over time.

That means better customer coverage and segmentation, repeatable sales plays, pricing and packaging run as a discipline in its own right, and broader reach through our channel, our marketing, and the geographies and verticals we serve. The largest single pool inside that engine is the wide space in our own installed base. The majority of our customers operate on a single workflow, and we expect roughly two-thirds of our growth to come from customers we already serve, with the balance remaining coming from new customers. Let me update you on how we are progressing in both of these areas. On the product side, we moved several largely independent product groups into one organization with a unified roadmap and rebuilt the teams around smaller cross-functional groups with single ownership. This means fewer steps between customer feedback and shipped code, and we are seeing better velocity with releases.

Across the portfolio, we are deepening each of the four environments. In design, we bring 3D plant design schematics and engineering analysis onto a common foundation with changed governance across them. In operate, we are putting asset management, asset performance, and quality on the same platform. In build, connecting completions and construction back to the design model. In Protect, we continue the rollout of our next-generation SaaS dispatch solution that we call OnCall. Underneath the portfolio, we are building a common context and data layer with shared integration and governance, and an agentic layer above it. That is what makes a customer's asset history in one workflow usable in another, and it is the same foundation the AI work depend on. The proof points here are getting concrete. We have deepened our AI capabilities and reach in production across the portfolio.