OCTLF Q3 2026 earnings call transcript, November 12, 2026

I'll now hand the call over to Mateo.

EMEA grew double digit in the third quarter despite continued uncertainty in the Middle East. The Americas grew steadily. APAC was more mixed with fewer new project starts in some markets. And China was softer on the timing of a few perpetual deals. Owner operator capex budgets and EPC backlogs from what we can see remain stable to slightly improved. Across our global EPC base, subscription licenses, which EPCs flex up and down, along with their project load. This grew 6% organically and approved again sequentially. And September was our strongest month for the year. We said in March we expected this stream to recover in the second half, and that is what we are seeing. We are not assuming a sharp acceleration from here, but the direction is positive. Before I turn to execution on this year's growth initiatives, I want to spend a few minutes on AI. It's a topic that comes up often in investor meetings, and I want to reiterate our position. So, let me start with OCTLF's strategy, because the AI opportunity has been built into it from the start. In the industries we serve, information does not always carry across the life of an asset. Disconnected information in the life of an asset is a business. of mission-critical assets becomes more costly the further downstream it appears. Our answer to this persistent industry challenge is a single platform across all four workflows, with a common context layer underneath.

So, the record created in one workflow is available in the next. By doing this, we aim to close the gaps our customers face between digital intelligence and physical outcomes. We see AI as an opportunity that accelerates our strategy and makes our context more valuable. General purpose LLMs and models are widely available, though they are limited by the context they are grounded in. What is scarce is decades of a customer's engineering standards, asset history, and operating record. And that record lives in our systems. When the asset is something highly complex and mission critical, like a refinery, a food processing plant or a 911 center, customers need answers they can audit and defend. So far, AI has improved our products in two ways. The first is embedded AI inside the products customers use every day. In the third quarter, we moved an additional 10 AI capabilities from prototype into product. That includes an in- CONCERT assistant, a datasheet converter that turns PDFs and scans into structured engineering data, predictive pipe routing in Forte 3D, and the latest version of our public safety SaaS offering on-call, which ships this quarter with three assistants for dispatchers. The second is agentic AI, and our COLABS program is at the forefront of this effort. COLABS puts our product leaders alongside a customer's team to build agentic workflows on the customer's own data, each tied to a measurable economic benefit.

An example of one of the delivered applications is an agent that checks isometric drawings at more than 95% validation accuracy. Another agent validated more than 300 general arrangement drawings. Saving hundreds of engineering hours and catching discrepancies before anything is built. Engineers can spend 10 to 15% of their modeling time checking design rules, and our agent lets them write those rules in plain language, reducing configuration time from weeks to hours. Many of the customer use cases are around rework, one of the most expensive problems in a capital project. Every one of them depends on context from more than one workflow, which is what our platform provides. And customers are now asking how to take these into production and what the pricing looks like. To me, that is the clearest signal of traction. So the earlier results of co-labs are promising, and there is strong interest in the program from additional customers. The technology stack that supports these agentic AI use cases is coming together. rapidly. We've been beta testing the platform this year, with an aim to have it generally available early next year. At the base is connectivity and governance, so we connect to any cloud, any system, and any model. Above that is the context layer, a living knowledge graph of the asset that every application and agent shares. Then our domain engines and agentic workflows sit across, design,

design, design, design, design. Build, operate, and protect. I want to pause on the context layer for a moment because yesterday we announced an acquisition that strengthens it. Cerebri. Cerebri takes legacy plant drawings like piping and instrumentation designs and turns them into a connected knowledge graph of every piece of equipment, pipe, valve, and instrument. And how material flows between them. The technology is all already running in production at more than 25 sites for some of the world's largest entity companies. Many owner-operators have decades of drawings that were never digitized and that keeps their plant data out of reach for AI. Cerebri gives us a fast way to bring that data into the OCTLF platform and from there into in-concert our design tools and our other build and operate solutions. Why does the content X layer matter so much? Our own research gives a good answer. In September we published a survey of more than 750 industrial leaders. Seven in ten said they are not retaining the knowledge that will matter most for future operations and nearly half said their core processes are documented but the real expertise is not. With a wave of retirements coming the business constraint from many customers is experienced people and the critical context they bring to their organizations. If we capture that know-how and put it in the flow of work we expand what customers can do with the people they have. That is new capacity and over time capacity is something customers pay for. We think that supports our pricing power.

So this brings us the monetization. Where we are in the early innings. Today the AI value. We are bringing to our customers. Is embedded in our subscriptions. And is supporting retention expansion and pricing. Alongside that we are testing consumption based pricing. And building the technology consumption models depend on. We expect to make more progress on this next year. As we bring customers our octave platform. And a governed gateway for AI agents. Let me. We now turn to execution on our two growth drivers. Starting with product. This year we brought somewhat independent product groups. Into one organization with one roadmap. And we continue to see progress here. Our internal use of AI continues to bring down our R&D cycle time. By over 25% or so over the last six months. And we continue to direct that incremental capacity into innovation. Not. Headcount reduction. Examples of progress in the third quarter include a new release for build sequence enterprise. That gives owners and contractors one system of record. With a handover ready audit trail. A new version of our SAS public safety solution on call. Brings sub second performance. And is now ready for agentic workflows. And our effort to bring multi-tenant SAS ready. The products across our entire portfolio is well underway with multiple solutions scheduled for 2027 deliveries. Our product leadership continues to see validation from leading third party industry research. In October, ARC advisory group named Octave the only leader in both its enterprise asset management and its digital worker technologies market.

We were also named a transformation pioneer in EAM and our products continue to win against competitors. A large U.S. county replaced a competing system with Attune EAM and is expanding into more public works divisions and in South Korea an EPC selected on-site completions over the incumbent and this was our first completion of the U.S. community.

So turning to go to market in August I described our progress as real but early that is still true and we are making incremental progress our consolidated renewals team now runs as one global discipline we've standardized how we forecast and manage renewals with a focus on on-time execution smarter pricing and uplift and closer coordination with customer success. and sales over time this revamped function will give us better visibility into recurring revenue and more consistent execution as well as serving as a contributor to growth we have already seen improved on-time renewal rates and higher average annual uplift on indirect sales and expanding our channel relationships we are laying a solid foundation sequence and on-site on-site on-site on-site. now transactable on the microsoft assure marketplace and we're working toward a broader co-sell agreement with microsoft on cross-sell we see strong pipeline growth and sas bookings for sales of new products to existing customers over 10 percent of new ARR in the third quarter came from cross-sell and we are seeing that the easiest motions are the ones closest to where a customer already works for example we see good traction selling BricsCAD into design customers particularly EPCs we also see strong expansion around reliance QMS and attune EAM in operate and around on-site completions in build as in these examples many of the early cross-sell motions are happening within one of the four main workflow environments

two recent customer examples show cross-sell traction happening more broadly across the workflow environments one of our long-standing design customers a large EPC added attune EAM in the quarter to manage its equipment across projects worldwide this started from a sales sales led renewal conversation that expanded into a cross-sell win in a new workflow and a renewable fuels producer became our first cloud-native SaaS customer for both attune EAM and in concert a design and operate deal from day one both of these deals bring more than one of our workflows to the same customers which is what our go-to-market changes are designed to do so this brings us to our outlook for the remainder of the year. We are well on track to achieve our full-year guidance including ARR growth of 6 to 8 percent. Earring revenue growth of 5.5 to 6 percent and free cash flow margin of approximately 20 percent. We will share details on our 2027 outlook alongside our fourth quarter and full-year results in February. Before I hand the call over to Ben I am pleased to report that our board recently authorized a share repurchase program of up to 200 million dollars which gives us flexibility

Thank you, Matthias, and hello to everyone on the call today. Many of the metrics I'll discuss today are non-GAAP measures, which are reconciled in our press release, and on our Octave Investor website. As Matthias said earlier, our third quarter results were broadly in line with expectations and a bit better in certain areas. We ended the third quarter with ARR of $1.17 billion, up 7% year-on-year on an organic, constant currency basis, and in line with our expectations. We ended the quarter with 3,293 customers with ARR above $25,000, up from $3,000. and 267 at the end of the second quarter. Our largest customers continue to grow nicely as we address the white space within our customer base. We now have 450 customers above $500,000 in ARR, up from $438 last quarter, and 200 customers above $1 million in ARR, up from $186 at the end of last year. Recurring revenue, which is comprised of subscription licenses, SaaS revenue and maintenance revenue, was $291 million in the third quarter, and grew 5% year-on-year on an organic constant currency basis. This landed at the high end of our 3-5% guidance range for the quarter. Within recurring revenue, SaaS revenue grew to $91 million in the third quarter, increasing 17% in organic constant currency terms compared to the prior year. This was slightly better than we expected, given continued strength in SaaS bookings, which were to reflect solid customer demand and the shift in our sales focus. Monthly subscription license revenue grew 6% compared to the prior year and continues to see a gradual sequential improvement on a monthly basis.

And as expected, maintenance subscription revenue of $125 million was down slightly from the prior year and higher sequentially from Q2. Altogether, total revenue for the third quarter was $415 million, which was up 6% compared to the prior year. Non-recurring revenue came in slightly higher than we expected in the third quarter, both in terms of perpetual license revenue and also services and other. This was largely a function of timing. And none of the large public safety deals we referenced last quarter closed during Q3. Turning to profitability. The gross margin was 76% up from 75% in the prior year, reflecting underlying improvements. In pricing and good cost management. Research and development expense was 13% of revenue in the third quarter, up from 12% in the prior year, whilst R&D capitalization was 7% of revenues, down from 9% a year ago. As we expense more R&D as opposed to capitalizing it, there will be a drag on the adjusted operating margin, a dynamic that we guided to at the March Investor Day. And as a reminder, this stems from capitalizing less R&D costs. As we transition our product portfolio towards SaaS and continuous development cycles, and not from changes in the underlying level of cash spend. Sales and marketing expense was 24% of revenue in the third quarter, down from 25% in the prior year. G&A expense was 10% of revenue compared to 11% a year ago. Adjusted operating income was $116 million for the quarter, representing an adjusted operating margin.

of 28%, which was up roughly 100 basis points from the prior year. Taking into account the lower level of R&D capitalisation in the third quarter, the underlying margin expansion was closer to 300 basis points compared to the prior year, reflecting both the stronger revenue growth seen in the quarter and continued cost discipline. On the cost side, we continue to balance synergies extracted from a tighter integration of the octave structure post the spin with the investments we're making in our products and our market presence. Third quarter adjusted net income was 0.32 cents per share on 268.5 million diluted weighted average shares outstanding, which was in line with our expectations. Turning to our cash flow statement and balance sheet. We generated $95 million in cash from operations in the third quarter. Together, our fixed asset capex and capitalization of software development costs, total. $30 million, which is below the $38 million we reported in the prior year, and reflects again the underlying improvement in profitability. We generated $65 million of free cash flow in the third quarter, which represents a 16% margin. This was in line with our expectations and the dynamics of the prior year, as Q3 tends to be seasonally softer than the other quarters. Looking at our balance sheet, we ended the third quarter with just under $300 million of cash. and cash equivalents, and $518 million of gross debt, bringing our net debt to $222 million. Pro forma for the Cerebre acquisition, our net debt would be just under $350 million at the end of Q3. Our blended cost of debt remains around 5%, and our balance sheet remains healthy, flexible, and supportive of our capital allocation plans.

Our broader capital allocation framework is focused on delivering the strongest value. to our shareholders. In terms of priorities, we invest organically in the business first, with continued product innovation, including the Octave platform and a leading AI-driven technology stack. M&A comes second, but is an important part of our growth ambition. Every acquisition has to support our technology and financial objectives, to more tightly integrate Octave solutions, to enable cross-selling, accelerate growth, increase recurring revenue, and contribute to improving profitability. We compare every acquisition we make to the alternatives of developing a product ourselves, or buying back shares, to make sure we maximise shareholder value over the longer term. The Cerebri acquisition we announced yesterday has a strong returns profile, based on both the expected contribution to our technology stack, as well as the opportunity to cross-sell into existing and new customer relationships. Today, the board approved a share repurchase program for up to $200 million. of Class B ordinary shares through the end of 2029. As we said in March, this is primarily intended to offset dilution from equity-based compensation, but also gives us flexibility for additional opportunistic repurchases as part of our broader capital allocation strategy. Repurchases will be made in cash, and we're not obligated to use the full authorisation.

This brings us to the outlook of the remainder of 2026. As a reminder, we provide organic constant currency growth ranges for recurring revenue on a quarterly and full year basis. Alongside ARR growth, we see this metric as the primary indicator of top line performance of our business. We'll also provide ranges for total revenue, but given the mixed shift away from perpetual licences, combined with variability in timing of closing perpetual deals, we believe this is a less meaningful indicator of the health of our business. For ARR, we are on track with our original plan. And we are reiterating our organic constant currency ARR growth outlook of 6% to 8%. For this reported range, a mid-single-digit ARR contribution from Cerebre will be largely offset by foreign exchange headwinds from a stronger dollar seen since the end of the third quarter. As such, we are maintaining our reported ARR range of 1.185 to 1.205 billion US dollars. And I'll reiterate that there is no change to our organic constant currency. ARR growth outlook for the year as a whole. Third quarter recurring revenue landed at the high end of our range, so we are slightly raising our full year outlook to 1.145 to 1.15 billion US dollars, representing organic constant currency growth of 5.5 to 6 percent. We are narrowing our full year total revenue outlook to a range of 1.64 to 1.66 billion US dollars, which maintains the midpoint.

at 1.65 billion dollars and represents organic constant currency growth of 0.5 to 2 percent, which is also a slight increase compared to our previous guidance. We did not close any large public safety transactions in the quarter, and as before, our fourth quarter outlook assumes none of one, although the public safety pipeline remains strong and we continue to make progress on key tenders. And for the year, we continue to expect an adjusted operating margin of a property. Some of the 30% and a free cash flow margin of approximately 20%. And the cerebral contribution to recognize revenue and profit for 2026 is de minimis. So based on these four year ranges for the fourth quarter of 2026, we expect total revenue of 440 to $460 million representing organic constant currency growth, which is roughly flat over the prior year period at the midpoint. Recurring revenue of 292 to 200.

$197 million representing organic constant currency growth of between five and 6%. An adjusted operating margin of 31 to 32%. This implies a level of R&D capitalization that is roughly 2% of revenue lower than the prior year. And as usual, these accounting effects have no impact on underlying cash profitability. So with that, thank you for joining us today. And we will now open the line for questions.

Your first question will come from the line of John DeFucci with Guggenheim Securities. Please unmute your line and ask your question.