Constellation Software (TSE:CSU) reported third-quarter revenue of $3.5 billion, up 19%, as growth in recurring revenue was partly offset by declines in licenses and professional services.
Overall organic growth was 2%, while maintenance and other recurring revenue grew organically by 4%, President and Chief Operating Officer Mark Miller said on the company’s 2026 third-quarter earnings call. License revenue fell 17% and professional services revenue declined 5%, with both figures subject to quarter-to-quarter fluctuations, he said.
Miller described recurring revenue as an important indicator of how customers continue to use Constellation’s systems. Excluding U.S. healthcare businesses, particularly Altera, maintenance and recurring revenue would have grown by about 5%, he said.
Healthcare Declines Weigh on Growth
Constellation’s U.S. healthcare businesses were down about 10% in the quarter, compared with a 1% decline in the previous quarter, Miller said. Much of the deterioration came from recently acquired businesses that Constellation expected to shrink when it bought them, he added.
Excluding two recently acquired businesses, the healthcare group would have been down about 3%, according to Miller. He said the anticipated declines were included in the company’s investment assessments and that the healthcare investments discussed on the call were expected to meet their underwritten internal rate of return targets.
Chief Financial Officer Jamal Baksh said the U.S. healthcare group comprises roughly 50 small businesses and that the circumstances at Altera should not be generalized across the entire group. He characterized healthcare as a difficult market because of consolidation.
Miller said leaders assess opportunities to invest in individual healthcare businesses rather than applying a single approach across the group. He added that Altera is disproportionately large and influences the group’s overall performance.
Revaluation Affects Shareholder Cash Flow
Cash from operations rose 5% to $717 million, while free cash flow available to shareholders fell 16% to $443 million, Miller said. He attributed much of the difference to a quarterly revaluation of an obligation to minority partners in Topicus.
The revaluation charge was $117 million, up from $16 million a year earlier. Roughly $77 million of the latest charge reflected increases in the share prices of Sygnity and Asseco, which are held by Topicus; the remainder reflected growth in Topicus’s recurring revenue, Miller said.
Holding the revaluation charge flat, free cash flow would have increased about 3%, he said. The charge was noncash during the period, though Miller stressed that a real obligation sits behind it.
Asked about the shares, Baksh said that under the agreement, Joday would receive its proportion of the Sygnity and Asseco shares rather than a cash payment. The shares are valued at market rates for accounting purposes, he said.
Acquisition Activity Remains Strong
Chief Investment Officer Bernard Anzarouth said Constellation had been busy with acquisitions through the first three quarters of the year and that activity was continuing. He described transactions as opportunistic and said competition for software businesses remained robust, including from private equity-backed platforms seeking smaller acquisitions.
Private-company prices had not fallen substantially, Anzarouth said, noting that buyers still have capital to deploy. Miller added that Constellation had developed greater capacity to pursue large, complex transactions than it had a decade ago.
When assessing targets outside its traditional vertical-market software focus, Constellation models a wider range of potential outcomes, Anzarouth said. The company uses probability-weighted scenarios to help determine a purchase price and seeks businesses with competitive protections, including in more horizontal markets.
Miller also pointed to margin improvements among recent acquisitions. The first-quarter acquisition cohort had moved from a negative 16% margin to 27%, while the second-quarter cohort had improved from 12% to 21%, he said. Acquisitions continued to weigh on overall margins because of the volume of deals, he added.
AI Work and Organizational Changes
Miller said Constellation’s more than 1,600 businesses are experimenting with artificial intelligence in products, customer support and software development. Some experiments are already paying for themselves, while others are not, he said. AI spending is not currently material to results, and he declined to provide a forecast.
The company’s chief AI officer, identified on the call as Daan, will focus largely on sharing best practices across the decentralized organization, Miller said. Asked about customer behavior, he said some individual clients were looking to do more with AI, but he had not observed a broad trend.
Miller said the company was mostly through its verticalization strategy, with some loose ends remaining. More than half of revenue would fall into areas that have been verticalized, he estimated, while noting that the boundaries are not always precise.
About Constellation Software (TSE:CSU)
Constellation Software is an international provider of market-leading software and services to a number of industries. Our mission is to acquire, manage and build market-leading software businesses that develop specialized, mission-critical software solutions to address the specific needs of our particular industries. Our company was founded in 1995 to assemble a portfolio of vertical market software companies that have the potential to be leaders in their particular market. Since then, we have grown rapidly through a combination of acquisitions and organic growth, and established a strong constellation of companies with a large, diverse customer base.
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