$CSU Q2 2026: No AI Target, No AI Timeline

In this quarter, let’s give a round of applause to Mark miller, the CEO for refusing to join everyone else. He said and i quote:

“We are not going to give you an AI target, an AI revenue line, or an AI timeline. If we start reporting a number like that, we will start managing to it,” Mark miller.

I don’t have much to add other than to compliment him for saying the quiet part out loud.

Most software companies are doing the opposite. They are busy proving to Wall Street that they are pivoting into an AI company. But we all know incumbents rarely out-adapt AI-native businesses. That race is not the one they can win. (at least for some of them)

In his opening remarks, Mark made his points clearly and he only emphasize on 2 things that differentiate them and others:

1. take care of your customers (stay close to them)

2. take care of your own people (finding the best talents and retain them)

It is that simple. I like to stick with companies that focus on things that don’t change. Regardless of whether AI ultimately affects them, as long as they continue to do the right things and execute well, I believe they will remain relevant. These are some rare qualities i see from the constellation software management teams.

After doing so many earnings analysis, i realised that my analysis lack of structure. So, going forward, i will try to standardised how i do it. Here is how i will sequence it and what you can expect.

1. The number first

2. Dissecting the earnings call

3. Valuation

4. Conclusion and my thoughts

To me, i will only track these few numbers and i think these are the key drivers for them.

1. The headline

Fundamentals keep growing.

Revenue up 17% to $3.34 billion. Free cash flow available to shareholders up 57% to $345 million. Over six months, revenue up 19% and FCFA2S up 48% to $1.08 billion.

Roughly 14 of those 17 points came from acquisitions. Organic growth contributed 3%, and only 1% after stripping out the weak dollar.

The market seems worried about that 1%.

I think that is the wrong thing to worry about.

CSI is a serial acquirer. That is the model. Organic growth was never the engine. The engine is return on invested capital, how much cash comes back for every dollar they put out.

2. Capital allocation

Sources: I borrowed this chart from the The Fat Pitch (Do consider to subsribe to them if you are interested in constellation software and their analysis.)

They put out a lot this quarter. $747 million on acquisitions. $1.59 billion in the first half against $604 million a year ago. Another $818 million committed after quarter end. It is much higher than their average as shown by the chart from the fat pitch. (Hi, the fat pitch, if you see this, please accept my apology for not asking in advance!)

3. Organic revenue growth

If you are worried about the organic growth, listen to what management said.

Altera is the main culprit. Maintenance organic growth was 2% at group level. Excluding Altera it was 4%. Altera alone printed negative 19%.

But look at why. Altera signed two contracts in Q2 last year that required $9 million recognised upfront, plus another $8 million on a contract amendment. Neither repeated this quarter.

That is $17 million of last year’s base that was never coming back. On a business doing $153 million a quarter, it is the whole gap.

So the negative 19% is an accounting comparison, not a business falling apart. The CFO said as much and expects it to revert next quarter.

Now step back and look at Altera as an investment.

Bought from Allscripts in May 2022 (paid roughly $725mil with only $360mil in cash). Four years on, it has thrown off roughly $400 million in cumulative free cash flow while revenue declined from just over $800 million to about $646 million.

That is the model working exactly as advertised. Buy a shrinking business cheap, run it for cash, get your money back before the decline matters.

Management said it is tracking the original investment thesis and actually running ahead of the expected IRR.