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    OCTV
    Earnings call· Jun 2026(Q2 FY26)

    Octave Intelligence Q2 FY26 earnings call OCTV

    Aug 12, 2026 Source

    Executive summary

    Octave Intelligence Q2 FY26 — Solid Performance Amidst Strategic Shift and Prudent Guidance

    Octave Intelligence, in its inaugural quarter as an independent public company, delivered solid Q2 FY26 results with organic ARR growth of 7% to $1.43 billion and SaaS revenue up 21%. The company is executing on its strategic shift towards a recurring revenue model, with recurring revenue now comprising 69% of LTM total. While total revenue saw a slight organic decline due to perpetual license timing and a prudent guidance adjustment, profitability remained strong with a 29% adjusted operating margin and 23% free cash flow margin, absorbing public company launch costs. The company is focused on product innovation, go-to-market improvements, and AI monetization to drive sustainable double-digit ARR growth.

    Highlights

    5

    • ARR grew 7% year-on-year on an organic constant currency basis to $1.43 billion, in line with expectations.

    • SaaS revenue grew 21% in organic constant currency terms over the prior year to $87 million.

    • Adjusted operating margin was 29%, in line with expectations, demonstrating strong cost discipline.

    • Free cash flow was $93 million, representing a 23% margin for the quarter.

    • Recurring revenue now stands at 69% of total LTM revenue, up from 65% in the prior year.

    Concerns

    4

    • Total revenue was down 1% year-over-year on an organic constant currency basis, primarily due to a decline in perpetual licenses.

    • Total revenue came in $5 million lower than expected due to the slippage of some perpetual deals in the public safety business.

    • Full-year 2026 organic constant currency total revenue growth outlook was lowered from 3-4% to 0-2% due to perpetual license timing.

    • Adjusted operating margin of 29% was modestly lower than the prior year (31%) due to incremental public company launch costs and lower R&D capitalization.

    Guidance & targets

    19
    CategoryTargetConfidence
    Total revenue organic constant currency growth
    2% to 4%
    high materiality
    High
    Total revenue
    $400 million to $410 million
    high materiality
    High
    Recurring revenue organic constant currency growth
    3% to 5%
    medium materiality
    High
    Recurring revenue
    $285 million to $290 million
    medium materiality
    High
    Adjusted operating margin
    approximately 27%
    medium materiality
    High
    ARR organic constant currency growth
    6% to 8%
    high materiality
    High
    ARR
    $1.185 billion to $1.205 billion
    high materiality
    High
    Total revenue organic constant currency growth
    0% to 2%
    high materiality
    High
    Total revenue
    $1.635 billion to $1.665 billion
    high materiality
    High
    Recurring revenue organic constant currency growth
    5% to 6%
    medium materiality
    High
    Recurring revenue
    $1.14 billion to $1.15 billion
    medium materiality
    High
    Adjusted operating margin
    approximately 30%
    high materiality
    High
    Free cash flow margin
    approximately 20%
    high materiality
    High
    ARR growth
    above 10%
    high materiality
    High
    Total revenue growth
    between 6% and 8%
    high materiality
    High
    Adjusted operating margin
    approximately 30%
    high materiality
    High
    Free cash flow margin expansion
    300 to 400 basis points
    high materiality
    High
    R&D capitalization as % of sales
    7% to 8%
    medium materiality
    High
    Restructuring spend
    $5 million to $10 million
    low materiality
    High

    Segment performance

    4
    SegmentRevenueYoYQoQMargin
    Build
    Saw continued strength, operating in an underpenetrated market with strong demand for supply chain, materials management, and project performance software.
    		—double-digit growth——
    Design
    Growth accelerated on a recovery in subscription licenses.
    		—accelerated——
    Operate
    		—continued steady growth——
    Protect
    		—continued steady growth——

    Operational metrics

    31
    ARR
    $1.43 billionup 7% year-on-year on an organic constant currency basis
    Q2 FY26

    in line with our expectations for the quarter and at the midpoint of our guidance range for the full year.

    Recurring revenue as % of total revenue
    69%up from 65% in the prior year
    LTM Q2 FY26

    making good progress towards our targeted medium-term mix of 75% recurring revenue.

    SaaS revenue
    $87 millionincreasing 21% in organic constant currency terms over the prior year
    Q2 FY26
    Total revenue
    $398 milliondown 1% over prior year on an organic constant currency basis
    Q2 FY26
    Gross margin
    77%up 260 basis points compared to the prior year
    Q2 FY26

    improvement reflects the divestitures made in the middle of last year, which carried margin profiles below that of the core business as well as a lower level of professional services revenue.

    Adjusted operating income
    $116 million
    Q2 FY26
    Adjusted operating margin
    29%compared to 31% in the prior year period
    Q2 FY26

    in line with our expectations... reflects additional costs related to becoming an independent public company... and additional R&D expense R&D capitalization.

    Adjusted operating margin
    30%
    H1 FY26
    R&D capitalization as % of revenues
    7%down from 8% a year ago
    Q2 FY26

    represents around a 100 basis point drag on the adjusted operating margin compared to the prior year... stems from capitalizing less research and development expense than we last year as we transition more of our product portfolio to SaaS and not from higher cash spending.

    Adjusted net income per share
    $0.36
    Q2 FY26
    Cash and investments balance
    $304 million
    Q2 FY26
    Gross debt
    $644 million
    Q2 FY26
    Net debt
    $340 million
    Q2 FY26
    Blended cost of debt
    5%
    Q2 FY26
    Capex and capitalized software development costs
    $32 millionbelow the $36 million reported in the second quarter last year
    Q2 FY26
    Free cash flow margin
    23%
    Q2 FY26
    Free cash flow margin
    22%
    H1 FY26
    Total customers
    3,267up from 3,223 at the end of last year
    Q2 FY26
    Large customers
    438up from 421 at year-end
    Q2 FY26
    Recurring subscription revenue
    $283 milliongrew 6% year-on-year on an organic constant currency basis
    Q2 FY26
    Monthly subscription license revenue growth
    5%on a constant currency basis
    Q2 FY26

    now showing stabilization after the declines we saw last year.

    Maintenance subscription revenue
    $123 millionroughly flat
    Q2 FY26
    Total revenue impact from perpetual deals slippage
    $5 million
    Q2 FY26

    total revenue came in around $5 million lower than we expected on the slippage of some perpetual deals mainly in our public safety business.

    Brand impairment charge
    $464 million
    Q2 FY26

    related to the launch of our new [indiscernible] brand and the corresponding write-down of the legacy brands.

    Goodwill impairment charge
    $1.7 billion
    Q2 FY26

    triggered by the separation from the parent company, our onetime noncash items that we've excluded from adjusted operating income and did not affect our liquidity or outlook for cash flow from operating activities.

    Restructuring charge
    $10 million
    H1 FY26

    roughly 1.5% of total revenue. ASR error, corrected from '$10 billion' to '$10 million' based on context (1.5% of total revenue for H1).

    Restructuring spend
    $5 million to $10 million
    H2 FY26

    down from the run rate we saw in Q1.

    Gross retention
    97%
    Q2 FY26
    Customers adding another solution
    100
    Q2 FY26

    average size of those trees is well above a typical new customer land.

    AI assists running daily
    2 million
    Q2 FY26

    Optimist is now running more than 2 million assist a day inside customer workflows.

    Protect segment revenue share
    20%
    Q2 FY26

    the PROTECT represents around 20% of overall Octave revenues.

    Industry KPIs

    10
    MetricValueDetails
    Capacity CAPEX$32 millionUSD
    Revenue growth$398 millionUSD
    Arr net new arr$1.43 billionUSD
    Bookings billingsaccelerated
    Customer account count3,267customers
    Large deal new logo metrics438customers
    Gross retention renewal rate97%%
    Multi product platform attach100customers
    Operating FCF margin rule of 4029%%
    Ai product adoption monetization2 millionassists

    Deals & partnerships

    4
    European renewable energy operatorContract for Concert at the engineering environment for their bioenergy plants, delivered as cloud-native SaaS.5-year term

    A leading European renewable energy operator signed a 5-year term contract for Concert.

    Two largest owner operatorsSigned important deals, one for Concert and one for Sequent.

    Both wins represent the consolidation of fragmented systems into one environment, validating the breadth and depth of Octave's offerings.

    Data center operator (hyperscaler)Landed a large new customer, a hyperscaler, for the operate part of data centers.

    This win is mainly on the operating side with the Attune product, where Octave has seen the most success.

    Bestel and FlorParticipation in 'coal labs' program to build generative workflows on customer's real data.5 marquee accounts signed

    Bestel and Flor are two of the world's largest PCs, participating in the program to validate drawings, plan materials, check design rules, and manage project change using AI.

    Risks & headwinds

    4
    Decline in perpetual license revenueQ2 FY26

    Total revenue down 1% year-over-year on an organic basis

    Mitigation: Strategic shift to drive more customers to recurring revenue model, which are worth more over the life of a customer.

    Timing delays in public safety business dealsQ2 FY26, expected to close this year or early 2027

    Approximately $5 million in deals did not close in Q2, contributing to total revenue being $5 million lower than expected. Full-year total revenue guidance lowered from 3-4% to 0-2%.

    Mitigation: Actively shifting the business towards subscription; adopting a prudent and cautious approach in guidance due to long sales cycles and less predictable timelines.

    Incremental public company launch costsQ2 FY26

    Adjusted operating margin of 29% (modestly lower than prior year's 31%)

    Mitigation: Costs were factored into the full-year outlook and partly offset by ongoing cost discipline and savings from restructuring actions.

    Lower level of R&D capitalizationQ2 FY26, ongoing

    R&D capitalization around 7% of revenues (down from 8% a year ago), representing a 100 basis point drag on the adjusted operating margin.

    Mitigation: Stems from transitioning more of the product portfolio to SaaS; has no effect on free cash flow margin, which is expected to improve over time.

    What to watch in Q3 FY26

    4

    Public safety perpetual deals closure

    H2 FY26 / early FY27
    Current~$5M in Q2 deals slipped, full-year guidance lowered to reflect prudence.
    TargetClosure of slipped deals, potentially recognized in FY26 or early FY27.

    Why it matters

    These deals significantly impact total revenue, especially given the shift to recurring revenue. Their closure would provide upside to current guidance.

    The reason for this change is that we have removed from the guidance on a number of large public faced perpetual deals in the Protect which you said that we still expect to win the main once it into 2027, including the GBP 5 million in IP deals from the second quarter. They may still be recognized in 2026.

    Q&A highlights

    5

    Given the lowered full-year revenue guidance and pre-market stock reaction, how confident is management in its assessment of perpetual deal timing and the implied acceleration in organic constant currency total revenue growth for the rest of the year?

    Management expressed confidence in the guidance, stating it reflects their best judgment and a prudent approach to perpetual deals. Most Q2 KPIs were in line with expectations, with only the unpredictable perpetual deals causing the adjustment. These deals are not lost, but their long sales cycles make timing uncertain.

    “No, I would agree with that Mattias, I think if you look at the quarter, most KPIs were bang in line with our expectations. So subscription growth free cash generation, the operating margin, and it was just the large perpetual deals where you have long sales cycles, and they are there more unpredictable. We've decided to take those out of the forecast. And if they come in, they become positive.”

    asked by John Difucci · answered by Benjamin Maslen

    2 min read6 chapters

    Detailed Narrative

    01

    Public Company Transition and Strategic Focus

    Octave Intelligence successfully completed its first earnings call as an independent public company, delivering solid Q2 FY26 results while simultaneously establishing its public operations. The company's strategic focus remains unchanged, centered on addressing the industry problem of information fragmentation across the lifecycle of mission-critical assets by operating as a single platform across design, build, operate, and protect workflows.

    02

    Shift to Recurring Revenue Model

    A key priority is the strategic shift towards a recurring revenue model, aiming for 75% recurring revenue in the medium term. Recurring revenue reached 69% of total LTM revenue, up from 65% in the prior year, indicating good progress. This shift, however, has led to a short-term impact on total revenue growth due to the decline in perpetual license sales.

    03

    AI Strategy and Early Monetization Efforts

    Octave's AI strategy focuses on expanding its sales opportunities by leveraging its deep context in customer asset history and engineering standards. Generative AI work is already being used by early customers, and the multi-agent framework 'Octavia' is in private preview. The company launched 'coal labs' to co-build generative workflows with customers, with 5 marquee accounts signed and 3 already live, demonstrating customer demand for AI solutions built on Octave's system of record.

    04

    Product Innovation and Platform Development

    Product innovation is driven by building a unified platform with a common data and context layer, shared integration, and governance across its four workflow environments. This includes consolidating and deepening each environment and moving more of the portfolio to multi-tenant SaaS. This approach aims to increase velocity in releases and enable AI capabilities across the portfolio, with Optimist running over 2 million AI assists daily.

    05

    Go-to-Market Enhancements

    The company is building a commercial engine to sustain double-digit growth, implementing target account lists, value-based sales processes, updated compensation designs, and sales enablement playbooks. The renewals team has been consolidated into the sales organization to improve pricing discipline and uplift opportunities. These efforts are showing early positive signs, with over 100 customers adding another solution in the quarter.

    06

    Customer Spending Environment and Market Trends

    The customer spending environment in Q2 was broadly consistent with Q1 and the past 12-18 months, with stable budget conversations and deal cycles. While diversified across industries and geographies, customer investment decisions are influenced by supply chain conditions, commodity prices, and industrial capital cycles. Trends in owner-operator CapEx budgets and EPC backlogs appear stable, with no significant macroeconomic headwinds🌐 beyond the perpetual license shift.

    AI-generated summary of the company’s earnings call. Not investment advice.