Octave Intelligence plc

Good day everyone. Welcome to the Octave Q2 26 earnings call. All participants will be in listen-only mode until the question and answer session begins. Following the presentation, we will conduct a question and answer session. This call is being recorded. If you have any objections, please disconnect at this time. I would now like to turn the call over to Elizabeth Chalk, Vice President of Investor Relations. 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 10-Q filing. This call is being broadcast live via webcast and following the call and 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 8K. Actual results could differ materially from our historical results or our forecast. 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 dollars 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 SAS 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. Then we'll walk you through the additional details in a few minutes. But 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. And 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. And 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. And 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. So 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 to 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. So 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. And from what we can see here, the trends seem stable. So overall, our priorities and strategic focus are unchanged and it's worth restating what they are and how we're 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. And 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're 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 wasn't 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're also moving more of the portfolio to multi-tenant SaaS, which helps us shift 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 place, 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. So 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're deepening each of the four environments. In design, we bring 3D plant design, schematics, and engineering analysis onto a common foundation which change governance across them. In operate, we're putting asset management, asset performance, and quality on the same platform. And 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're building a common context and data layer with shared integration and governance and an agentic layer above it. And that's what makes a customer's asset history in one workflow usable in another and it's the same foundation the AI work depend on. So the proof points here are getting concrete. We have deepened our AI capabilities and reach in production across the portfolio. This includes deep document and data search in concert, natural language query in Attune EAM product, dispatch summarization in on-call, and we also have a new cohort of AI innovation launching in the second half of the year. Octave Assist is now running more than 2 million assists a day inside customer workflows. That's the embedded layer and it's live. Above it, we have Octave ARIA or multi-agent framework which remains in private preview and is tracking to its planned release. Another signal is what customers are asking us to do. In July, we launched Octave Collapse, where we put our own product and technical leaders directly alongside a customer's team to build agentic workflows on that customer's real data, each one ending in a validated economic benefit. We have five more key accounts signed, including Bechtel and Floor, who are two of the world's largest EPCs, and three of these five accounts are already live. The use cases came from them, not from us. Validating drawings before anything gets built, planning materials across a fabrication yard, checking design rules against a 3D model in plain language, and managing project change, which is the single largest cause of write-offs on capital projects. And on the question of who owns the context layer, we are building a framework that understands the lifecycle and is open to working with our customers' environments. Our customers are not asking hyperscalers, generic LLMs or point solution vendors to organize 30 years of their engineering and operating record. They're asking us. Because that record already lives in our system. and because they trust us with it. And that is the position that we intend to capitalize on. Our product leadership was illustrated in the quarter by multiple compelling customer. A leading European renewable energy operator selected in concert as the engineering environment for six of their bioenergy plants. Delivered as a cloud native SaaS on a five year term. Separately, two of the world's largest owner operators signed important deals in a quarter, one of them for in concert and the other one for sequence. Both wins represent the consolidation of fragmented systems into one environment, validating the breadth and the depth of our offerings. If we then Look at the execution on our go-to-market efforts. The changes we described in March saw traction in the quarter, and I would describe the progress as real but early. On cross-sell, we now run a score target account list with a value-based sales process against it, meaning we lead customer conversations with how Octave drives better business outcomes and higher margins. instead of discussions around product features. We also introduced updated compensation designs and sales enablement playbooks including having expansion opportunities under our customer success managers. Early signs of these changes are as I said positive and more than a hundred customers added another solution during the quarter. and the average size of those deals is well above a typical new customer land. On renewals and pricing we consolidated the renewals team into the sales organization this year with best practice enablement and incentives behind it. This effort is still underway with plenty of unrealized benefit from pricing discipline and annual uplift opportunities. For new customers, our marketing organization is now integrated and running a number of targeted campaigns. We landed large new customers across a wide set of end markets in the second quarter, including a data center operator, a brewery, an offshore wind developer, a global manufacturer, and a transit authority. That range is evidence that our platform continues to drive value across a broad range of industries. Finally, before I hand the call over to Ben, who will take you through our numbers in greater detail, I want to spend a few minutes on our outlook. Our updated total revenue growth ranges are the result of lower expected contribution this year from perpetual licenses. This is based on timing of large deals in our public safety business. These large perpetual deals are the lumpiest line in our P&L. and less relevant to the underlying health of the business and we are not going to chase or discount those the quarter we are focused on driving stronger recurring revenue accelerating ARR growth to over 10 percent while expanding our free cash flow margin over the medium term our strategy is unchanged and we're operating at a faster pace the second half of this year Thank you very much. and to whether the platform work shows up in customer expansion. That is how we are running the company, and that is what we will report against every quarter. So with that, thank you very much, and I'll hand over to you, Ben.