Constellation Software Aktie

Good morning. So last one. Mark Miller, our President, and

John Billowits, our Board Chair, have asked me to act as

Chairman of today's meeting. Our CFO, Jamal Baksh, will act

as Secretary of the meeting. Shirley Tom and Melissa

Phillips of Computershare will act as the scrutineers and

compute the votes of any polls that are taken at the

meeting. We are conducting today's meeting as a hybrid

meeting held virtually via live webcast and in person.

Before we get started, I wanted to outline a few logistical

items regarding the conduct of the meeting. We're starting

with the formal AGM business for Constellation. Once the

formal AGM business is completed, we'll move on to our

management presentations and our Q&A. Any questions

regarding procedural matters are directly related to the

motions before the meeting may be addressed during the

formal part of this meeting. Otherwise, I ask that you

please save your questions for the Q&A session to follow

after the formal business to be conducted at this -- at this

meeting has been fully completed.

As in past years, the vast majority of shareholders

submitted their proxies or voting instructions, in advance

of the meeting. But registered shareholders and duly

appointed proxy holders, they're attending virtually or in

person, we'll also have the opportunity to vote during the

meeting. If you have voted in advance of the meeting and do

not wish to change your vote, then you do not need to do

anything, you should not vote again. If you do vote

again, doing so will automatically revoke your prior vote.

For the purposes of those joining the meeting today

virtually, voting on all matters will be conducted by

electronic ballot. Registered shareholders and duly

appointed proxy holders will be asked to vote on each

business item after it is introduced. When you're asked to

vote, you will receive a message on the virtual interface

requesting you to register your votes. When voting

commences, the polls will be open for the duration of the

formal portion of this meeting. For those registered

shareholders and duly appointed proxy holders joining the

meeting today in person voting on all matters will be

conducted by ballot. The

[indiscernible] ballot includes

each item of business being voted on. You will be provided

with a few moments to complete your ballot with respect to

each business item after it is introduced. We will now

proceed to the formal portion of today's meeting.

The secretary of company has filed with me the approved

mailing of the meeting materials. The consolidated financial

statements of the company for the year ended December 31

2025, and the auditor's report thereon have also been mailed

to all shareholders of the company who have requested

them. Copies of the materials are also available on our

SEDAR+ profile and on our website. We would be pleased to

deal with any questions concerning the financial statements

subsequent to the completion of the formal business of this

meeting.

The scrutineers have reported to me that we have at least 2

shareholders present in holding or representing by proxy at

least 15% of the votes entitled to be cast at the meeting.

As such, I declare that a quorum is present for the conduct

of business, and this meeting is properly constituted for

the transaction of business.

As noted voting today will be conducted by electronic ballot

for those attending virtually or physical ballot for those

attending in person. The electronic balloting will be open

to registered holders and duly appointed proxy holders who

have properly logged in with their control numbers or invite

code after the presentation of each business item. The

physical ballot has been provided to registered holders and

duly appointed proxy holders at registration.

The first item of business is the election of directors.

There are 9 directors to be elected at this meeting. The

management information circular made available to

shareholders contains information about the 9 nominees.

Those nominees are Jamal Baksh, John Billowits, Lawrence

Cunningham;

[ Claire Kennedy ], Robert Kittel, Mark Miller

Donna Parr, Andrew Paster and Laurie Schultz. The meeting is

open for nominations for the election of directors for the

ensuing year or until their successors are elected or

appointed. I now call on Caroline

[indiscernible], the

General Counsel for Lumine Group, and Bernie Anzarouth, our

CIO, to nominate and second the nominations, the directors

for the coming year.

I nominate each of the persons just named to be director

until the close of the next Annual Meeting of Shareholders

or until their successors are appointed.

I second the nominations.

Thank you

[ Carolyn ] and Bernie. If there are no further

nominations, I declare the nominations closed. I note that

as described more fully in our management information

circular, we have a majority director election policy in

place. This policy enables shareholders to vote separately

for each director nominee at meetings of shareholders where

directors are to be elected. If a director nominee does not

receive the support of a majority of the votes cast at the

meeting of shareholder that director will be expected to

tender his or her resignation from the Board following such

meeting. The resignation will be effective upon acceptance

by the Board and will be disclosed via press release. For

more information about our majority director election

policy, please see our management information

circular. Voting is now open. I invite registered

shareholders and duly appointed proxy holders to submit

their vote.

As I mentioned earlier, if you have already voted before the

meeting, there's no need to do so -- to do anything unless

you would like to change your vote. Registered shareholders

and duly appointed proxy holders who have properly logged

into the virtual meeting with their control numbers or

invite code and wish to vote online will be able to see the

screen see on the screen, the election of directors

Registered shareholders and duly appointed proxy holders

attending the meeting in person have been given a ballot at

registration. With any shareholder or proxy holder attending

the meeting in person who may require a ballot and was not

provided one please identify yourselves to the scrutineers.

Please register your votes by selecting or marking with an X

B, For or withhold fields, next to the name of each proposed

factor on the voting page for those voting virtually or on

your ballot for those voting in person. Only persons

nominated are eligible for election. Each shareholder or

proxy holder voting ballot voting by ballot in person should

then sign and print his her name on the ballot. We will now proceed with the next item on the agenda, which

is the appointment of auditor of the company and the

establishment of the remuneration for the current year. I

now call on Caroline

[indiscernible] and Berni Anzarouth to

move and second a resolution appointing the auditors for the

current year and authorizing the directors to fix their

remuneration.

I move that KPMG LLP chartered accountants are appointed

auditors to hold office until the close of the next Annual

Meeting of Shareholders or until their successors are

appointed at such remuneration as may be fixed by the

directors and that the directors are authorized to fix such

remuneration.

I second the motion.

And I'll put the motion to the meeting. Is there any

discussion on the motion? Voting is now open, I invite

registered shareholders and duly appointed proxy holders to

submit their vote. As I mentioned earlier, if you have

already voted, there is no need to do anything unless you

would like to change your vote. Please register your votes

by electing or marking with an X, the for, or withhold

fields next to the resolution with respect to the

appointment of KPMG as the company's auditors on the voting

page for those who are virtually are on your ballot for

those attending in person. Each shareholder or a proxy

holder voting by ballot in person should then sign and print

his or her name on the ballot, if you have not already done

so.

We will now proceed with the next item of the agenda. The

next item of business is an advisory resolution to endorse

our approach to executive compensation as further set out in

our management information circular. As the vote is advisory

only, it will not be binding. However, the compensation

nominating and Human Resources Committee of the Board will

take into account the results when considering future

executive compensation arrangements. I would now call on

Caroline

[indiscernible] Bernie Anzarouth to move and second

the approval of the advisory resolution.

I moved that resolved on an advisory basis and not to

diminish the role and responsibilities of the Board of

Directors but the approach to executive compensation

disclosed in our Management Information Circular is

accepted.

I second the motion.

I now put the motion to the meeting. Is there any discussion

on the motion? Voting is now open. I invite registered

shareholders and duly appointed proxy holders to submit

their vote. As I mentioned earlier, if you have already

voted, there is no need to do anything unless you would like

to change your vote. Please register your votes by selecting

our marking with the X, the for or against fields to the

advisory resolution on executive compensation on the voting

page for those voting virtually or on your ballot for those

voting in person. Each shareholder or proxy holder voting by

ballot or in person should then sign and print his or her

name on the ballot. If you have not already done so. For

those voting in person once you have completed registering

your votes on your ballot, please raise your hand with your

ballot for the scrutineers to collect. The scrutineers will

collect the ballots for those attending in person and will

tabulate the voting results.

The full voting results will be published on SEDAR+

following the meeting, but I can report that based on the

proxies which were received in advance of the meeting, all

matters that were put to a vote today have passed. Is there

any further business to bring before the meeting? Can I have

a motion to conclude the meeting?

I move that the meeting be terminated.

I second the motion.

All those in favor, please signify by raising your right

hand. Any contrary? I declare the resolution carried, and

the meeting is terminated. The formal agenda for this

meeting is now completed. I would now like to call on Larry

Cunningham to come up on stage to commence our management

presentations. Thank you.

Well, those formalities now having concluded, we can build

some energy and talk about Constellation, Topicus and Lumine

and all the exciting businesses underway. So I want to

enthusiastically recognize and welcome this distinguished

audience of shareholders of one or more of those companies.

The capacity of this room is more than 400 and I see

that it's pretty much full. I can also report that we've got

twice that number also participating online. So it's

wonderful to have everyone together. Among that

shareholder group are nearly all the directors and many of

the officers of all 3 of these companies. Do we have a

screen showing the members of the Boards of Directors of the

various companies. I won't read all of them out nor will I

ask the directors to stand but I would like to ask you to

join me in recognizing and thanking them for their service.

The meeting today is going to be energized and exciting and

informative. Thanks to the wonderful questions that you have

already submitted and that you undoubtedly pose this

morning. Management has prepared some very interesting and

informative presentations with which we'll begin followed by

the Q&A, which will run from 10:30 a.m to 1 p.m. But to set

the stage for all of that, we want to recognize that

Constellation is now 30 years old. It's been an amazing run

amazing journey. And we'd like to just take a few minutes to

provide a presentation capturing some of that history.

Enjoy.

[Presentation]

What a run. What a -- 3 bloody good decades as Mark Leonard

might say, I don't know what your favorite figures are most

important takeaways. I think that final screen on the left

showing capital resources and very limited leverage.

But your takeaways may vary. And incidentally, the number of

countries in that panel is just a number of countries where

acquisitions were made. Constellation operates in pretty

nearly every country in the world, and we'll continue the

impressive trajectory. So that's the history.

Now to talk about the next steps, the coming decades. I'd

like to ask you to join me in welcoming the President of

Constellation Software. Mark Miller.

Larry, thank you so much

[indiscernible] seeing the event

and welcome to our shareholder meeting for all of our

companies. So really looking forward to telling you a few

stories before we get started with the question and answer.

And I have to tell you, I'm very privileged to have this

role because I get to work with a lot of tremendous people

a lot we are here in the room and around the world as we

continue to build this business out, right? So -- and we

really are the sum of our parts, and I want to sort of show

you that and demonstrate to you how much we care.

I also want to thank Mark Leonard for his guidance and

bringing us through these last 3 decades. I've lived through

them myself. I've been here for over 30 years, and we've

always been on a perpetual journey of learning. And every

day, you learn something new. And I've learned things just

by listening to our business leaders, talking to my peers

across Constellation and I continue to do so today. And I

think all of our leaders do here, which makes us very unique

companies. So I want to thank everybody for that. I want

to explained everybody, which is one of talking to people

over time who don't know a lot about Constellation is we're

not this. We're not a company that is a strong central

control over what's done. We really believe in empowering

our business leaders who are close to our customers. There's

no CIO who decides what AI platform we use or what we should

do or whether we should turn right or left or do this or

that. that's done by our business leaders across the world.

And that helps us a lot because it lets us bring new

companies on board that want to be part of this ecosystem

and learn from this environment.

But I want to make sure you understand this, when you're

comparing us to other companies, we are very decentralized.

We believe in this. We believe that our businesses all

across the world. And as you can see, there's hundreds and

hundreds of them are the ones that should be making those

decisions. They're the ones that are running each of those

businesses. They're the ones that are listening to their

customers and building their products. And in the advent of

AI, you'll see that, that's very important to understand.

We're not dictating what to do. We're allowing our leaders

to listen and learn from each other. And so there's tons of

CIOs across the -- and tons of heads of professional

services and heads of marketing and heads of sales. We're

there to coach and help, but you tend to learn best from

your peers than you do from your boss. And we've tried to

create an organization that does that at scale, and it's

helped us grow this company over time.

But I just want to go back to some of the basics for some of

the new -- our new shareholders, our new people who haven't

really heard us before, is we don't believe in fix or flip.

When we talk to a business when it joins us, we believe in

buying and holding forever. And it changes the things you

do. One of my favorite interview questions is for some new

person who's looking for a job is what you do differently if

you owned the business for 5 years versus forever. And you

do a lot of things differently, and we do a lot of things

differently. And developing people and peer learning is

very, very, very important to us. People tell you scale

matters. Scale can get you up and to the right really fast.

Well, we believe in decentralization. We believe in customer

intimacy. We believe in listening to our customers and

building products for them. In the geography they're in, in

the vertical market they're in, and we really believe that.

And we're willing to give up scale for customer intimacy.

And we do that across the world.

We've broken up many businesses, into smaller businesses. So

we don't think scale matters, we believe decentralization

and powering people matter. It allows you to develop a lot

more leaders, a lot more successors. It allows -- it just

creates an environment that a lot more people can be

included in it's a very inclusive environment. So very

important to me that. Some people will tell you culture

matters, Mark, what's the culture at Constellation? How is

it well? I don't believe in one corporate culture. We

believe in a culture of cultures. Even the same -- even the

two companies in the same city in the same country can have

two very different cultures. And that's okay. And that's

important because one of the advantages of joining

Constellation is, we're not here to change your culture.

We'll measure you, some of the events we ran at Volaris used

to have people wear their numbers on their name tags. You

need to be measured. If we're going to trust you with -- to

run that -- your business all over the world, we need to be

measured but you should determine what your culture is and

how that works because that helps you address your customers

better and solve problems that they really need to help them

run their businesses.

And I'm not a big fan of parachuting in top talent. We've

definitely

[indiscernible] some, we've hired some amazing

people who have helped us. We really believe in peer

learning. We really want people to learn from each other

and create an environment where to do that themselves, but

we do help them get together. We'll talk a little bit more

about that, and you're going to get a chance to -- some of

our leaders on stage. We'll talk about that as well. So this

is what we've built -- and I think we've done it very

differently than most people would tell you to have done it.

I don't think, if you look back at Constellation, I was part

of the first acquisition in 1995. I could never have

foreseen this is what we're going to do. We learned along

the way. There's no way you could say, we probably thought

we'd have fewer larger businesses maybe back then, but we've

learned that having small businesses -- and our businesses

are small. A lot of them have dozens of people with a few

hundred customers sometimes less, is the way to go.

And it turns out -- and I'm going to talk a little bit more

AI in a bit, it's actually positioned us very well to think

about that because we are there, the customers helping them

as they deal with changes in their businesses through time.

So I wanted to introduce Damian okay, because that is a real

opportunity for you to meet some of our vertical leaders

across Constellation. We care a lot about verticals.

Verticals really help us be closer to customers and

understand what their needs are. And sometimes, even though

they're decentralized, shares practices across the world.

But I thought it would be kind of fun for you to meet some

of our vertical leaders. And I was going to ask Damian

McKay, to come on up and Damien runs Fila and introduce his

panel. Thank you so much, Damian. I appreciate it. So there

you go.

What we're going to do is have a quick chat about

verticalization, going to bring up a couple of people. It's

a pleasure to be with you here today. It was great to see

that video and just see what is all those names popping up.

I was -- I'm familiar with some, but -- and I know that

[indiscernible] others and just the great people we've

brought into the business when we've added those companies

and how those things have compounded. And as we've got all

those stars it gives us the opportunity, not the math, not

the thing that we have to do, but where it makes sense is to

align these end verticals. So we're going to talk a little

bit about verticalization. And we've got some of the -- some

-- probably the people who have demonstrated the best way to

do that and grow that within Constellation. So with that

I'll ask Santina to introduce herself.

Hi, everyone. I'm Santina Allen. I lead the health care

group for Harris. I've been with Constellation 13 years.

Thank you. David?

Yes, my name is David

[ Nolan ], CEO of Lumine, started in

2013 building up on communications and media business.

Bill?

Hi, everyone. I'm Bill Delaney. I'm the Chief Executive

Officer of Modaxo. I've been with Constellation for

approaching 15 years.

Fantastic. Great. Well, we might get started with a couple

of questions each, and we'll sort of bounce those off. Tell

me, David, in terms of the -- your customer intimacy, you

know your customers really well. You're well known in the

industry. How does that help you -- help your customers and

then help acquisitions as they come in?

Yes, in communications and media, we have Tier 1 customers

and the big operators as you would all know, The British

Telecom, The Rogers, and on the media side, the Disney, the

Discovery. So I think we just need -- sorry about that. I

sabotaged my mic here.

Yes. So we've got some big customers worldwide, big brand

names and -- they have a lot of intelligence. And so we

learn a lot by speaking to them by finding out what the

problems are and obviously now supporting a portfolio of

companies that sell into those customers. But also as they

navigate their assets, they're important assets, they start

to share with us ideas about what else we could acquire to

help them provide security with some of those assets that

are in transient ownership at this point. So you have to

kind of earn the position to have that conversation. It

takes some time, but the power of that relationship is

unbelievable.

And Santina, could you share a little bit about your

vertical and how it shapes up?

Sure, happy to. In the health care space in North America

we span the ecosystem of patient's journey, but also the

information that surrounds that journey from acute hospital

systems to physician practice systems to specialty solutions

within the hospital, outside of the hospital, think

pharmacies retail pharmacies, local pharmacies

independents, radiology imaging, long-term care, all the way

through to payer solutions in the health insure tech space.

These businesses we own sometimes multiples in those areas.

For instance, in the physician ambulatory space, we own a

dozen different ambulatory systems that serve the private

physician practices, that's out of hundreds that are in our

market. So these systems of record provide us with that

different views on that particular market. So those systems

that we have, some serve large physician practices up to 50

physicians per practice, sometimes very small 1 to 2

physicians in different geographies as well as specialties

around the world. Collaboration of those businesses gives us

opportunities to learn about the unique space, the demands

the regulatory environment. So physician office practices

being one area.

The payer space is another area that's interesting for us.

We own the leading platform in Medicare shopping

enrollment, quoting and retention for the over -- over

60 million members in Medicare in the U.S. That solution

paired with a solution that helps those health plans develop

the product management, the products that they develop and

bring to market for members. Again, we can collaborate.

Collaboration leads to advancements in AI within our -- in

our group cross-selling. So lots of different benefits from

that ecosystem that we serve.

Done a great job, fantastic -- and Bill, you've got a global

vertical with assets and how -- maybe share a little bit

about how you built that and what advantages that global

nature can bring to your customers?

So I've had a different path. I was fortunate enough to

inherit the assets that Constellation had been investing in

right from the very start, including

[indiscernible], so no

pressure. And in late 2019, the decision was taken to bring

all those assets together under nominee parent overlay

which we ultimately branded Modaxo. So Modaxo today is the

operating group within Constellation that focuses on people

mobility. And we cover every element of your journey, right?

So you've all come here. You may have flown here, you may

have come from the city by a train you have traveled in a

private vehicle train a bus, your kids are going to school

on school buses at times, we have to carry you in

ambulances. Whatever that mode of transport is to get you

around your city and between cities. We provide the

technologies that allow that to happen, and we sell those

technologies to large government customers and operators who

work for them across the whole gamut of everything you can

think of asset management, people management, scheduling

planning, faring you name it. We do it in that ecosystem.

How do you bring that value sort of on a global scale. So

you've got those tools and the different markets.

Yes. It's interesting. We learn a lot, right? So we've gone

very deep, for example, in transit. We've got over 3,000

government customers in 37 different countries. So our

people who are at the call face with those customers are

part of the fabric of the industry, and they're recognized

for that. And so they know really deeply what's going on

and they're consulted on that. And -- and we feel part of

the community as well, and we contribute to it, we sponsor

large events. And if I take something like a big global

expo, we won last year for UITP in Hamburg, massive event.

The whole Hamburg Expo site was taken up for the first time.

It's massive. We were a platinum sponsor 1 of 3 platinum

sponsors of the entire event.

Modaxo could do that, and that provided a halo effect for

all the businesses that were there under their own brand in

our ModaxoMidaxo neighborhood. So that was a great value we gave

them in terms of giving them a a stage on which to show

their credibility to their customers. But at the same time

we conducted 100 M&A meetings at that event, right? Because

we were there to meet our competitors, and we'd arranged to

meet them ahead of time. So we use the Modaxo family and the

Modaxo brand for both of those purposes.

Yes. It's very well well known in the global market.

It is now, right? It took a little bit of time to get there

and I know you've had the same journey with Lumine, David.

But I think we're getting bankers and and brokers bringing

deals to us now, particularly as we've shown that we can do

quite large deals.

Yes. And David, I'd be interested in your sort of the origin

story of Lumine and how you built that up?

Yes. Well, we worked our way up to diamond status. So it's

just one above platinum. Yes, so it was humble beginnings

because we didn't have anything I came as a consultant.

And industry domain consultant with a lot of software

experience. And it was about finding our first business

making that first business a success. Building a bit of

brand, a bit of credibility and then starting to leverage

that into subsequent deals. So at the beginning, it was

fairly modest. It's just building up relatively small

businesses at that time and just learning about the trade of

value acquiring this asset class and how to get to great

returns and to build a compounding rhythm inside the

portfolio. So that really builds momentum. It's a rolling

thunder and we're still really at the beginning of our

journey.

So and you get the chance to brand, you get the chance to

sponsor, you get a chance to have really top-level

relationships with customers. It just feels great to be in

an opportunity to leverage that moving forward, especially

with anything else that's going on world and the

opportunities that are going to present themselves.

The other thing that happens is it's a great thing for our

people to come -- we brought all 330 of our people together

a couple of weeks ago under the Modaxo brand. Now they're

all they're rooting for their own business. But when they

come into a room and see that they're part of something

bigger, it lifts the energy, right? And apart from all the

peer sharing that goes on, it's -- and you guys do the same

thing, right?

Yes. And I think what you've been able to do in your

verticals and particularly using Lumine as an example

something that you might not think would be as big as it

got. Now we're looking at other start-up verticals in sort

of your image as well. So I think a lot of -- it would be

interesting to see this presentation in 10 years and see

what are the strong verticals we have. Santina

when a new company joins your team, what sort of value do we

bring to the employees and their customers by being part of

something bigger?

Yes. So I think when a seller considers the health care

group as a place for forever home for their business. They

do look at the ecosystem that we have, our understanding and

appreciation of the challenges that business is small and

large, faced within health care, the highly regulated

industry. So I think they appreciate that we understand

them, we understand their their customers, whether it's

large health systems, physicians, whether it's payers

again, the complexities, each one of those buyers has a

different persona, different risk profile, if you will, for

which vendors they invest in. And so again, we bring that

understanding. And so when someone joins us from the

outside, they are surrounded by peers who understand the

challenges they face.

Before we created Modaxo, I was seeking to buy businesses

under the Valaris brand, right? And I would go and speak to

a transit and they would sort of scratch their heads and

wonder what was the strategic value, and within 12 months of

creating Modaxo, we had at least 2 cases where they saw the

value then and transacted with us. So I think that speaks to

the value of that approach?

I think each of your verticals has got a reputation for

people coming to you as well. If they're in the market, they

know that you've got a significant presence. And if they

want to sell, it will be coming and talking you. Bill, we're

going to hear a little bit about AI later. But it would be

interesting to look at AI just from a vertical perspective

what additional optionality does a vertical or a group of

businesses in the same segment give you when it comes to

looking at leveraging AI in your business businesses?

Yes. Look, we're getting really excited about this now.

We've got 41 businesses today in Modaxo. Across all

different functions in every department of, say, transit

operations around the world. So what this lets us do is

build a layer above that, that Modaxo can invest in, we

still give the federated control to the underlying

businesses, but we're able to build a platform that allows

the

[indiscernible] authority to start asking questions and

building actions and agents that ignore all the industry

boundaries, ignore all the underlying business and product

boundaries and look at it from an ecosystem. And I think

we're in a position that none of our competitors are in, in

that regard. So from a Modaxo perspective, that's an

investment that we're making that each of our businesses

will be able to leverage.

And the feedback we're getting from the industry is they're

sort of blown away by this approach, and -- we're looking

forward to seeing that really build out in the coming

months.

And Santina, any thoughts on the same topic around how AI

brings optionality to your customers within your vertical?

Yes. So within -- we are the system of record for so many

pieces of clinical data that -- and data is the key to -- if

we understand the data, we understand the workflows, AI can

only we can bring extra value through that. I think ambient

listening may be an example in the health care space. If

you've not been in a physician's office and had them ask you

to turn on the ambient listening to listen passively to the

conversations that they're having with you, between the

patient and the clinician. But that data is data we're

capturing, right. And that data is valuable to improving the

outcomes within the health care ecosystem.

Great. And David, when I've spoken to you in the past

you've got a great long-term vision for what you want to do

with Lumine. Any -- could you share what you can around what

you're building to your built been purposely building to

where you are. It's just in a little read of that, but also

where you think it can go as much as you can share?

Yes, yes. Well, you got to dream big, right? So when we were

small, we said we're going to make -- going to be a $1

billion company. Everyone thought I've been at the bar for

too long, but -- and we're in that within range of that

objective. So within range of that, we set more long-term

objectives, that are equally in mind blowing -- projecting

things out. So we really see there's really three strategic

acquirers in our space ultimately, and every other business

in this industry is in a transient ownership position

whether it's a strategic private equity or even a

founder-run businesses.

But the final destination needs to be one of the three of

us. And we're just the exciting, interesting alternative to

a functional integration, synergy-based model. And customers

really like our model. So they're going to steer these

companies towards us, over the next 5, 10, 15 years. And

that really excites me about what size business we will

ultimately build. And the adjacencies around our markets are

very significant as well. So we're very, very excited about

the future.

Yes. And Santina for yourself, you've built something that's

really large, but the market is so much larger. How do you

see that vision panning out over the next 5-plus years?

I think we'll continue to be a great home for businesses

that are critical to health outcomes in North

America. They'll continue to find a home that provides an

understanding of what they need to do and what they need to

accomplish. But that peer-to-peer learning that we've talked

-- so many of us have talked about is the key to unlocking

that additional value.

Yes. Great. And maybe, Bill, I know you're known to be a

great developer of people and talent. How maybe you could

touch on some of the talent opportunities within the group

that as you're in a vertical and multiple businesses

independent businesses. But the ability to move around.

Anything you'd want to share on how you develop talent, but

also think of examples where people have been able to

leverage something bigger within a vertical?

Maybe just to follow on from that theme for a minute. We set

an equally ambitious goal when we set up Modaxo in 2020, and

we -- we decided that we wanted to touch 1 billion journeys

every day by the end of the decade. So as we sit here today

yesterday, tomorrow, we touched 640 million. So that's

getting too close to a

[indiscernible]. So we just reset for

2035 and our new goal is to get to 2 billion journeys every

day, right? And that's an amazing thing for our people.

I say to our people, you can go home and tell your kids and

your grandchildren that we touch hundreds of millions of

journeys every day, and I think that's amazing. And that

sort of speaks a little bit to the scale of what we do. And

to do that, the biggest thing that's holding us back is the

development of leaders -- so we created a -- and there's not

so much -- I think we've got good programs to build business

unit leaders within a business where we were struggling was

that step-up into group leader roles and portfolio leaders

people becoming leaders of leaders -- so we brought in some

help and we curated a leadership program around that. It's

much more around the soft skills that people need to learn

because you have to learn, how to lead through influence and

you need to take a really different strategic mindset. So we

invest heavily in that.

I just have to challenge you there, Bill. I think you've

known

[indiscernible] 2 billion journeys. I think we could

lift the bar there, but that's maybe on their internal data.

I'm also a fisherman, right? So the fish gets bigger every

time I tell the story.

Any other comments people like to make on just how you've

been able to leverage talent or grow talent within a

vertical?

Yes. I mean, so it's #1 most important thing, right?

Customers may be #1, but it's joint #1 is developing talent

so we can scale. You just don't scale unless you've got an

ongoing active talent management process and your harvesting

talent. So you think about putting crops in a field, it

takes a certain amount of time. So we got to throw a lot of

world-class fertilizer on that field. So we can get that

talent that harvested quicker and quicker and quicker as we

scale. And that's really a core competency of compounding

this asset class is just getting the talent where you need

it to be, 1 year ahead of when you need it. And that's just

a constant focus.

The one thing I tell my people is the only thing that's

going to hold you back because we've got such strong

growth is if you don't have somebody ready to take over your

role, and that's a really big mindset change for people that

when they're recruiting people, they really need to bring in

really strong contenders who are capable of stepping up into

their role. And I think that's been a really

critical approach.

So it goes back to the enduring business right? Again, we

have to have the leaders who are at the table when we're not

there.

Yes, fantastic. I mean we've got the capital, we've got the

-- there's so many opportunities out there we can go after.

We do need to make sure we've got the talent. And then I

think -- we don't have to always organize in a vertical, but

when we do, it also adds some extra compounding power in

there as well.

With that, I'd like to thank you for your contributions, not

only obviously today, but what you -- each of you have built

in your verticals and the foundation you set up, again

really looking forward to seeing how that's going to look

over the next decade. And with that, I'll hand back to

Mark.

So I don't want to get in the way of AI. So -- so yes, and

we're not changing the name of Constellation, by the way

because it's who you are, not who you say you are, what you

do, not what you say you're going to do. So I just wanted to

get this next slide up, remind you of -- before I discuss AI

of how we work. It isn't myself picking up the phone and

telling someone that this is how we're going to do it. It's

letting each of these leaders in each of these businesses

think about it. And also, when you're thinking about in a

forever time frame, you're thinking about buying and holding

forever.

I remember, I said that was always a fun question

interview. You want to think about these things because your

customers and your employees are thinking like that. They

want to know what you're going to do to help them. So we

really structured our organization to manage change, whether

it's been through. Well, we've gone through Y2K. We've gone

through mobile computing. We've gone through SaaS. We've

lived through multiple technology changes. And it isn't

because we've had a directive from Constellation

headquarters as to what to do. Our business leaders decided

how to deal with that situation.

So when SaaS came up wasn't like, "Oh, everybody should be

doing SaaS because SaaS is what's -- what's the most

important trend and everybody needs to be on it, and you

better do that or else, we're not doing it that way. We're

allowing our leaders to learn, but we're creating an

environment, see that flip -- there we go. So where our

leaders are learning. I mean, Bill talked about an inventing

opening there. There are learning events going on

continuously across constellation, not just about AI. These

are AI ones in particular. And -- but we do that across

operating groups. We do it locally in certain countries.

We'll do something in Brazil that we'll do something in

Germany or in the U.K. We'll do it in -- there's one in

Toronto going on right now near the airport, it's called an

AI Accelerator that a few of our operating groups are at

and I think it's a 5-day event where they have a room for

the developers, a room for the product managers and the room

for the business unit leader heads. And then they kind of

all they kind of like last night was -- they called it Red

Bull and Pizza night because the idea was to present your

product idea today. And so a few of our people are heading

out to see how those product ideas looked, but -- that's

just a culture, and it's a culture of learning and sharing

information.

It means you don't have any single one bet at Constellation.

You've got everybody doing it and thinking about how we

deploy our shareholders' capital at high returns. Very

important to us. And I'm so fortunate to be part of an

environment that does this. And I think the leaders that

across Constellation have brought that intuition. I think

I've sort of said this in other words, but we believe

decentralization, our structure is our biggest advantage

because we're close to those customers. Some of our

customers we've had for decades, decades and our people have

worked for us for decades. It is a great thing about being

part of a buy and hold for ever organization. You're not

going to get flipped again, you're not going to have 3

business cards in the next 10 years. You're going to be at

that same company, and we preserve the brand of that

organization. So we really believe in long-term

relationships set are trusted with our customers.

And do we know the customer space. It isn't a ChatGPT go ask

a question type of a situation. Again, great product. It's

-- you've got to know a lot in order to build products for

customers. You're dealing with trusted information. You

heard about Santina, you're talking about patient data in

cases like that. That's valuable data, and it's got to be

managed very carefully in this environment. But our biggest

advantage. If you're going to be decentralized, you've got

to believe in peer learning. Our best leaders are the best

at learning from each other. And it doesn't matter how many

decades they've worked for us. They're always open to a new

idea and a new way to do something, and listen to their

customers.

So I really wanted to make sure you all understood this.

It's a question we're asked about a lot, and it's our

structure is our biggest advantage. But in order to give you

a little bit more color, we decided to invite a few of our

leaders who are running our businesses, who are the ones

that are back in that -- all those yellow squares across the

organization, and what they're doing. So a little bit of

color or some real examples here a little bit from the

vertical leaders and. I have to thank Jeff Bender for taking

on this panel for us. And I hope you enjoy meeting some of

our leaders before we get into the general Q&A. So

and Barry.

As I always like to do these annual meetings. I have for the

past 8 years anyway. I have a running tally of how many are

in attendance. The room is filled up to capacity here in

town, so about 450 sitting here live and now nearly 800

joining us online as well. So thanks, everybody. And I'll

give it over to Jeff.

Thank you, Larry, for that update and Mark. So as Mark

mentioned, I'm Jeff Bender. I'm responsible for the Harris

Operating Group. We've gone from software eating the world

to a fear that AI is going to eat software. At CSI, we have

a deep belief in our value creation and value capture

framework. We live this framework every day by getting as

close to our customers as possible. When we do this, we

develop a depth of knowledge, understanding and

expertise that we then use to solve their most important

problems.

At CSI, we see AI as an opportunity, an opportunity to

rethink and reimagine how we do what we do for our employees

and for our customers. So as Mark mentioned, we're going to

have a chance now to hear from a number of our business

leaders about their AI transformation journey. So let's meet

the panel. Greg?

I'm Greg Richards, I lead AssetWorks. As Mark mentioned

we're one of the older companies. We've actually had

customers that signed up in the '90s. We manage about

14 million assets globally, particularly fleet or state

federal and local government, but increasingly now more

large private fleets as well.

Andrew?

Great. Thank you. I'm Andrew Jones. I'm the GM of Click

Dimensions. We provide marketing automation. So we help our

customers do outcome-based marketing through our Dynamics

native platform as well as providing marketing automation.

We provide marketing expertise as well as services to help

our customers do great things.

David?

Yes. Thanks, Jeff. I started my business to Constellation

back in 2018. So I've been on the whole journey. I don't

work within that business anymore. I have the great fortune

to look after a couple of businesses that we bought in the

past sort of 3 or 4 years. The first of those is CelCat

that's spelt with a C. CelCat are based in the U.K.

timetable, academic life for universities, and we do that in

the U.K. We do it in France, South Africa, Australia, and

we've been doing it for 40 years.

And then the second business is Bullet Solutions who we

acquired in 2024. And they do very similar things. They also

timetable, academic life. They serve Spanish and Portuguese

speaking territories.

Let's stay with you, David. So my understanding is you did

something that most leaders would say is impossible. Tell us

more about?

Yes. Well, I experienced one of the Valaris AI workshops

back in March last year. And I went away from that with one

question, which was simply how fast can we go. And what I

did on day 1 was I stopped all development across by

businesses. So CelCat and Bullet. We stopped for the whole

month of April last year, and they went on an intensive

learning program, to learn what we could do with the

technology. And I think if I look back and then we look now

at the outcome of that, it's actually pretty

straightforward.

At the outset, we came back in May, and we were going

faster. If you think of a cycle time from concept through to

production software, typically for us, that was measured in

months. When we came back in May, we already started

measuring that in weeks. And as we went through last year

we turned that from weeks into days. And today, our cycle

time is measured in hours. We can cycle from concept through

to production in hours. And that means a road map that might

have taken, say, a whole year, we plan out a whole year road

map. That can be literally a week now. So this pace at which

we produce software is no longer a problem that we have

different challenges instead. But it's fundamentally

transformational in terms of what it means for our

business.

And how are your customers reacting to this? Can you talk to

that?

Yes, yes. Well, let me put that first in the context of

growth. So if I back to the end of last year, our growth was

running at about 12% per annum. To date, it's running at 23%

per annum. Our vision is that we'll double our revenues by

2029. I think I've also been told I'm sandbagging on that.

The interesting thing there is that growth. It's not driven

by going faster. It's driven by us asking a totally

different question, and that is, if we can go 50x faster

than what does that look like for our customers. So what

does 50x faster look like for our customers?

And for us, that meant we've literally rebuilt our product

from scratch. -- we've, in effect, reimagined what a new

category of product might be. If you think about our old

product, it was a system of record. You created

[indiscernible] updated, deleted data. Our new product is a

system of action. It thinks it predicts, it gives you

insights. It does a really clever stuff for you. So that

creates a huge value for our customers and with value comes

new price points doesn't it? And with that, we are driving

growth, and we're seeing the results of that already.

Andrew. So most people start with product when they think of

what's possible with AI. That's not where you chose. Why?

Well, we did. So we went to one of the Constellation peer

sessions back in May last year, so exactly a year ago. And

we were really educated about what the possibilities were

with -- so Click Dimensions, we're in marketing, which has

the opportunity as well as the negative side of being one of

the first areas that is affected by AI. It's really being

aggressively attacked. But I think if you can get through

it, then it creates fantastic company. So we wanted to look

at our product in a very different way.

Click Dimensions is a horizontal marketing automation

platform, and we wanted to create something which was

vertical. I'm very much the marketing rather than the

technology of marketing and technology, but I passionately

believe that AI is a fantastic thing, and I wanted to be

heavily involved in it. My background is very much in

business transformation. And I wanted to see if there was a

way that we could incorporate AI to transform businesses.

You have a lot of chat agents out there. And a lot of those

chat agents, they are designed to identify problems, but not

resolve problems. We had an incumbent ticketing system that

effectively did that. And I challenged myself and a handful

of people to go away and see if we could find a way of

improving that actually change this chat mechanism to being

a problem resolution system. So that was our challenge. The

great thing about Constellation as well, as you see there's

1,500 companies, you have lots of people that you can have

discussions with to actually find solutions.

We spoke to a lot of very large technology companies. We

spoke to a number of contractors that we used. And we also

spoke to a number of companies within Constellation, and we

found a company in Constellation that actually had some

experience of this who could actually help us drive this

forward. So we had conversations. We decided we wanted to

create a support agent that could resolve problems, but that

was not where we started.

Our first start point was creating a very simplistic

knowledge agent to be used by our support engineers to deal

with tickets. So when they're on the phone with a customer

they may have a question rather than having to go away to a

library to get information, they can put in a chat and get

the information, first of all, and that's what we start

with. What was key with that, though, is when you start

to digest knowledge or your databases, so it could be read

by AI. It is read in a very, very, very different way than

how a human is. It is binary. It's ones and zeros. So

therefore, you need to make sure that the agent can actually

pick up those key words so we can actually answer the

question properly.

So we started off with the knowledge, first of all. And then

secondly, we wanted to see if we could have a very fluid

interaction. So we created up a web agent as well. So it's

on our website. So you can go in there, you can ask

questions. And those are the first two things that we did.

And then we effectively consolidate together to create the

support agent. It took us about 4-weeks to do it after going

through those various steps. We launched it in January of

2026. And what we found was that with our customers'

interactions with this chat agent, conversational agent

rather than being a lookup agent, it was a problem

resolution agent. It effectively resolved 82% of all our

Tier 1 tickets that went through the chat agent, which is

fantastic.

But what's the most important thing is it allows us to

generate greater customer intimacy because, first, of all

means that our humans rather than having to waste time

dealing with Tier 1 tickets, they spend time focused on

doing Tier 2, Tier 3 tickets, which are the most important

thing, but also secondly, the time that it took for a

customer to actually get a problem resolved. When it's very

simplistic as well, rather than it taking potentially 4

hours because they go into this room, they ask a question

they get probably 4 or 5 different things that they could

potentially look at, which could potentially resolve the

problem rather than that happening, they could speak to the

chat agent straightaway in any language 24/7. So that is a

massive massive game changer. So that's -- that's our step

that we did. And then since then, we've gone on and created

a lot more agents throughout the organization, looking at

specific business problems or workflow problems that we've

had. So it's been a really incredible journey.

Now somebody told me that you name all of these agents. Can

you give us some of the names and explain to us like why did

you go through?

Yes, we do. We do. And it's not kind of arrogance on my

behalf. When you think about an agent and what an agent can

do, it's very important you get a yardstick of that

possibility. A human, a work person they have a role. They

have responsibilities. They have areas of responsibilities

and they have tasks that they need to do. So a human may be

doing 12, 14, 16 different tasks. You cannot have an agent

to replicate a human. An agent can take away one of those

tasks. So if you want to have an agent to be able to take

all these -- to these roles, you would need a lot of them.

And rather than having support agent #1 and support agent #2

and support agent #3, we decided to name them. So that was

the first thing was just kind of the number of agents that

you would need to have set up.

But also, we wanted to get adoption of the agent. In my

background, I've done offshoring set up technology

organizations in India, finance organizations in India, a

video conferencing business in Malaysia. And when that

happens, there's always an element of question from the

employees about stuff that has been offshore. So I wanted to

make sure that there was that accountability set up there

with people to be able to see it and adopt the agent. So

yes, we've all the agents names. They all have a team's

account. So rather than you having to go to some web page or

try to find it, you team them. You communicate with them

exactly as you would with any one else within Click

Dimensions. And I think that's the most important thing.

The other thing is as well is by giving the agent's names

you also have a human as a manager of them because, again

this is really vital when you set up agents it. If you set

up an agent and you leave it to its own devices, it will go

off. And over a period of time, it will go on a tangent. You

need to have a human manager who manages those agents all

the time. So by giving them a name and managing it, that's

the way we move forward with it. And again, also, they're in

our organizational chart as well as we've got absolute

transparency about where we have the agents. And that's

really driven things forward. Where we've now evolved is

we've set up agents. It was -- we just wanted to experiment

set of agents, where we're now going is we're taking the

next step, which is creating an AI aligned department, which

means that rather than having humans with a sprinkling of

agents to try to improve certain tasks and responsibilities

with it.

We've actually taken a very different way. We've taken a

step back and we said, if we did this from agentic point of

view, how would we set up with an agent and where will we

sprinkle in the humans. And the whole objective is to get

the efficiencies to give the greatest experience to our

customers and allowing our humans to spend the most time of

our customers as well to understand the problems to move

things forward. So that was the reason why -- but it's

working.

It's is a great example of, I think, just content of

rethinking and reimagining what you do, not just

incrementally improving. Greg, not to leave until the end.

Again, somebody told me that you like to break things.

So you spoke to my wife. Well, we don't break things

indiscriminately, right? But so as been mentioned before

Constellation gives us this enormous opportunity to network

with our peers. They are new things. I was at a center about

18 months ago, and we could see what was going on with AI.

And obviously, the concern is that there are three kids in

the garage, who are going to come disrupt our whole

business. And my thought was, well, why don't we go disrupt

their whole business? So we got some people together and I

say, hey, we're going to buy all the tools. We're going to

do AI, go forth and innovate.

And I think this is the part where I'm supposed to tell you

that I'm brilliant, and we delivered a ton of

innovation. I'm not and we didn't. But the great thing about

being part of Constellation is this enormous resource body

of peers and mentors that you can talk to. And one of the AI

mentors in the organization said, Greg, you got to break

something, right? Because it turns out for some subset of

employees, AI is kind of an existential crisis. If you built

your life around writing really elegant code the transition

to managing agents to write the code is a hard process. So

as a leader, I said, okay, look, I'm going to go find three

people in the organization who are early adopters, I'm going

to pull them out of their jobs, and I'm going to give them a

really hard business problem.

And in this case, we really needed to modernize our UI. And

I said, look, the current estimate using a digital processes

is this will take about 18 months and probably require 10

people. I'm giving you 3 people, and by the way, our user

conference is in 3 months. And they did it. It worked really

well. So as this was going on, we started to think, if we

can make our processes this much more efficient, what can we

do with our customers? So we started having -- and again

it's been mentioned before, this is deep domain expertise

right, really understanding what our customers do and how

they use our products, right? So we spend a lot of time with

customers saying, what are the things that you do that are

really difficult to take a lot -- a long amount of time, and

I was meeting with one customer and they actually set a stop

watch. And they said, let us take you through the process

for how we acquire, manage and retire assets, right?

And they went through all the screens, and it took about 8

minutes. And they said, no, Greg, understand. We do this

hundreds and hundreds of times a day. So what we kept

hearing from our customers was take these really complex

processes where I print a report and I go to a whiteboard

and I bring a bunch of people into meetings and then I go

back to the system and then I get another report, which may

take hours, weeks, months, right. Just automate that

process. let me validate at the end what that looks like.

And another great thing about what CSI has done is we had an

opportunity to send one of our employees to an AI

sabbatical, which is essentially where they got to go visit

with other companies that, frankly, we're doing a better job

than we were, right?

So one of my employees went out, did this sabbatical, came

back just really energized. I was able to build a core team

around. I mean as Mark mentioned, we've been doing these AI

accelerators, actually one going out at the airport right

now. There was one in Denver back in February, and we were

able to send a team to say, okay, look, here's what our

customers have asked for in terms of radical improvement of

processes and really substantial improvement in how we do

our jobs and how we'd be more efficient. By the way, it's

now February, user conference is still at the end of March.

I need a working prototype by that event. So we had the team

go to the end, start off cold. We brought in developers

product managers and even somebody from sales, 4 days at

this event, and they emerged with a working prototype. And

we took it to our customers.

And what was amazing is, again, because we really understood

how our customers use our products and what their pain

points were. When we took it to the user conference, the

reaction is overwhelming. In fact, the product lead sort of

had groups at the user conference that kind of followed him

around, right, asking more questions. And probably the

biggest proof point is when we presented this as a product

to one of customers, it effectively doubled their investment

with us.

I think we were talking about this last night, one of the

things that we've done very well is that we've carved out

focused time for our teams. And this isn't stuff that you

can do at the same time is the date -- you really and we've

already experienced that. And actually stacking the guys on

the

[indiscernible] cover for a few weeks and saying

"Here's a project get on and do it and don't worry about

everything else. That's been key to making this happen at

pace.

And what was your customer reaction to finish up -- the

customer reaction when you doubled the amount that they

spend with us per year.

I'm not sure I'm supposed to admit this in this meeting, but

they agreed a little too fast. I think we underpriced it.

I think you did for sure. Yes, I think you did. Sorry, I

just wanted for those in the audience, this -- Mark's talked

about it. I think actually the verticalization panel talked

about it. We're talking about it. Mark says that we're

different and we do things differently when this peer

learning and peer sharing and this customer intimacy sitting

with the customer and being understand what this process is

and how they do it. They only invite us in because of the

value that we bring and the relationship that spans decades

that we've built with them, right, the trust that we have

with them. And these are -- can call them intangible, but

they're very strong determinants, I think, of where we're

going to be able to continue to move with our solutions in

this case, leveraging AI, but just generally in terms of how

we interact with our customers.

So I wanted to -- the last thing I wanted to sort of talk

about was let's call it, the human change element. Impact

element. AI is more about people change. It is just about

technology. And you talk about taking -- stopping people

doing their day jobs, picking people out, locking them in a

closet. Sending them to always work -- this training, as

business unit leaders, like how are you dealing with this

reality of this probably one of the biggest changes that

we've actually seen one might say ever.

Yes. Well, I think it's architectural from the business

perspective. The problem of pace of software development

isn't the challenge anymore. For us, if we look at

go-to-market, then think about this week, we have 300

customers across the globe that use our software. We have a

deep level of trust, a warm relationship with these

customers we can -- we don't have to go and find them. We

don't have to persuade that we can go and have a meeting

with them any time we want. And from a go-to-market

perspective, that's the ultimate leverage that we have that

our competitors don't -- we can walk in the room and have

the conversation.

So our challenge today and what I'm currently working on the

team with is that if we can transform our customers at

this to this degree and at this pace. How do we do that at

scale? We're not used to doing that. We've had to rebuild

our sales team. So our sales team is, over the past 12

months, been rebuilt -- we're doing the same with our

services team, we're rebuilding that. But I've also given

them the challenge they currently take about 6 months to

take a customer from order to go live. The challenge they

have today that they're working on, we have a plan is to

reduce that not from 6 months to 6 weeks, but to reduce it

to 6 days. If I can get them from 6 months down to 6 days

then we can go at scale out to market with those

relationships that we have today. And that's huge leverage

isn't it, those warm relationships that decades of

conversations in many cases.

Andrew, would you...

I think that from a slightly different angle, I mean, AI

technology, yes, it's -- it has a massive accelerator on

that. I think when you're talking about the workplace, the

culture, the design, the evolution of how it's going to be I

very simplistically think that AI will take away into all

the boring stuff. It's going to be all the mundane business

processes that are absolutely necessary but are probably

parts of the jobs that most people don't really want to do.

So what you will do is you will enable your staff to be able

to evolve and develop and become rather than a Tier 1

support person they become a Tier 2 or Tier 3. So I think

that's definitely an evolution that will take place. But I

think also, the way I see AI as well is it's a great

magnifier if you know stuff, you will become better.

If you don't know stuff, you will be found out very quickly.

And I think that's the whole Constellation advantage as well

as we do have that customer intimacy. We do understand our

customers -- and therefore, we can give them advice about

how they could potentially improve as customers because we

have deep knowledge about the vertical industries that we're

in. And therefore, I feel that our ability to double down on

that generate more salespeople, be more focused on the

relationship side as well is going to allow us to evolve. So

AI will take away a lot of the mundane stuff, there'll be

more interesting roles and more opportunities for us to

create more salespeople to be able to have greater

conversations of our customers go, go grow. So I think

that's -- that will be -- how we evolve to be -- it will be

a, a much more interesting environment to be. And maybe we

go to a 4-day week, I don't know.

Actually

I had an employee. He said, "Look, if I use AI and

I'm twice as effective. Can I work half days? I said, no. My

answer is you can work any half day on, whatever, 12

hours you suite. So yes, first and foremost, this is a

change management problem, right? And I think we as leaders

need to understand that this generates some fear

interpretation in employees. And candidly, probably not

everybody is going to make the journey. I've had employees

say, "Hey, this isn't for me, this isn't what I want to do.

And we can be empathetic and we can respect that. But I

think we also have to be relentless because it's coming. I

think one of the real advantages of Constellation is just

all of these training opportunities and peer networking

opportunities we've talked about.

So my goal is to send as many people as I can to those so

they can build the enthusiasm and learn new ways of doing

business. And I think we're there with R&D. The question is

how does that affect sales? What do you do in finance? How

is marketing different, right? Same kind of things happening

in all these different events. And what I keep telling my

employees, and I think this is key to the management piece

because in the back of a lot of people's minds, there's a

belief, I'm going to train the AI to replace it, right? And

I'm very clear with my staff, look, this is not an economic

problem, at least not yet. This is about delivering

innovation to our customers faster. We don't have a

profitability problem. We're a profitable, successful

company. This is not about cost cutting, but we've got to be

able to innovate faster.

And it's been -- this is sort of a mantra with AI right now.

Your job is not getting replaced by AI. But you may be

replaced by somebody that uses AI better than you do. That's

the same thing for sure.

Well, thank you very much. I think Mark and I were talking a

little while ago. And I think we've always had a tremendous

sharing culture across Constellation. We all run events. We

all invite each other to our various events. But when it

comes to AI, the quantum leap that we've now taken in terms

of the quantum of sharing, not just inviting each other to

each other's events, but actually sharing learnings and

discoveries from business to business to business is at a

level that I've not seen before, which I think is absolutely

fantastic. It really is.

So what you've heard from our panel reinforces our belief in

customer intimacy. And this is really -- as I talked about

our belief in this value creation and value capture concept

this is what it looks like in the hands of great leaders. So

please join me in thanking Greg, Andrew and David. Thank

you, sir.

Okay. Thanks. Well, I was just great. I love that. That was

super fun to watch. A lot of people would ask you, Mark

like your job would be a lot easier if AI never came along.

And you can't remember -- like I'm a product developer by

background, I'm a programmer. And one of the things that I

always want to at Constellation was are leaders who have

been sort of running nice businesses, and they have very low

customer attrition, which continues, I was trying to shake

them up to go do more for their customers.

And you know what, it's a great tool for us because we're a

decentralized organization. it's another tool we can say to

sort of shift the organization up a bit, and you can sort of

see a few of our leaders are just doing a tremendous job.

And so appreciate Jeff doing that panel. It was great.

Great. So now I wanted to talk about

[indiscernible] a bit

because it's I'm getting a lot of questions about

[indiscernible], and here I just get on the forefront. I'm

sure I'm sure there'll be some questions on it till Larry

coming up in the panel and are in the Q&A section, I should

say.

But I just wanted to say, like 25 years ago, we -- we used

to buy minority stakes in public companies and put those

companies ended up being put into play. It generated

external high return. So I was there, I saw that on our

invested capital, -- but the average tenure of our

investments were very short. And nearly always 90% of the

time got outbid by a third party when the businesses were

sold, which is sort of sad but understandable. That

short-term activism was profitable, but it was a poor

strategic fit with our objective of being good permanent

holders of vertical market software businesses. So we

stopped doing it.

And I think you can hear from the conversation today, buy

and hold forever, we're in it for the long run, and

[indiscernible] is another tool. The other part of the

[indiscernible] thesis is that the companies we want to

invest in have the potential to benefit from an engaged

minority shareholder. We want our

[indiscernible] or public

portfolio companies to be run by people. We respect -- we

want their incentives aligned with those of long-term

shareholders. We like the businesses to generate high

returns on incremental invested capital, and to return any

excess capital to their shareholders. So I just wanted to

make sure everybody understood what our intention is around

PMS.

And I just also wanted to turn it out and say. We want you

to be our patents. We want you to be our permanent engaged

minority shareholders as well. Those of you who are

shareholders, and I want to thank everybody very much

for sitting through this morning session so far. And I was

going to turn it over to Larry to tell us what's ahead. So

thank you very much, Larry.

Yes. Thank you. Well, I just want to echo the remarks that

Jeff Bender expressed around the culture or a culture of

cultures across Constellation. I've been studying the

company and its culture of cultures for a decade, and I

shared Jeff sense that it's more valuable than ever, and

there's more cross collaboration and cross learnings. So I

want to echo the appreciation for Santina, David, Bill

Damian, Jeff, Greg, Andrew and David, those are 10 of the

1,500 leaders around here who are all energetic visionaries.

So I want to applaud that leadership.

We will take a break now. The next major event will be the

shareholder Q&A. We'll start that exactly at 10:30. We'll be

joined by most of the leading managers will have a panel

of 11, fielding questions that you all have submitted that

our panel of questioners myself and Will Pan from

[indiscernible] and Howard

[indiscernible] from

[ Fiera ]

received some 125 questions from you, all outstanding

questions. We synthesize them, coated them, organize them by

topic and we'll pose them serially here on the panel. Since

we're live this year, obviously, we'll also have Mike

stationed in the room and invite shareholders attending in

person to pose questions as well at various intervals that

will signal.

As I've bragged about, we have nearly 1,000 people online as

well today. So they're invited to type in questions. We've

already gotten a few. And Will, Howard and I will try to

weave those in as best we can, too. So looking forward to

that Q&A, we'll take a break now. It's about 10 a.m, so

we'll have an opportunity to network and have informal

conversations, but please come back a little ahead of 10:30

p.m so we can start promptly, and we'll run that session

straight up until 1:00 p.m lunch time. Thanks very much.

[Break]

Shareholder Q&A. We want to thank you very much again for

submitting such thoughtful and provocative in some cases

questions. Will, Howard and I have been playing this role

for 7 years now, I thought the questions were particularly

good. I don't know if you guys had a -- high quality. So

thank you very much for that, and it's neat to return in

person after 7 years of online only. And so it'd be

wonderful to have an opportunity to take questions from the

audience live.

We've got two mics there. We'll have a few different

opportunities. We're not just saving the audience questions

for the end. At various moments, we'll invite folks to come

and ask questions. Like you keeping brief on topic, really

get focus. You got 11 supremely talented leaders from across

Constellation here who are prepared to discuss our

questions. Again, you submitted them I don't think any of us

made up any questions. We'll might have -- or Howard might

have made up one or two. So to get started, may I, please

invite the panelists to just introduce themselves. Half of

them we're already on the stage this morning, but

nevertheless, it would be nice to just -- by name and role

at Constellation. Mark. We could start with you, not that

it's necessary at this point. But Mark Miller. President of

Constellation Software.

Yes. Thank you, Larry. And I just wanted to just quickly

point out that we haven't received any of the questions to

the management team here that a few Jamal got that were

required calculations, because we didn't want to bring his

calculator on stage. So he got a few of them, but we're

really going to make this a dynamic and what gets asked. So

was the tradition of Constellation.

Yes. Jamal Baksh, CFO of Constellation.

Bernie Anzarouth, CIO Constellation.

John Billowits, Board Chair of Constellation and

Board Members of Topicus.

Jeff Bender, responsible for the Harris Operating Group.

Mike

[indiscernible] responsible for the Valaris Group.

Damian McKay, responsible for the Vale Group.

Robin Van Poelje, Chairman and CEO topicus.com.

David Nyland, Lumine Group.

Bill Delaney, Modexa.

And Barry Simmons, Jonas Operating Group.

That's the all-star lineup, and I really believe that apply

describes these folks. The plan discussion is divided into 3

or 4 segments. The first segment will be questions arising

from the presentations you heard this morning from Mark

Miller on strategic vision, the panel on verticalization and

the panel on AI. And then we'll have our familiar 3

segments. First on operations; second, on M&A, third on

governance. And again, we'll break at moments to invite live

questions from the audience, and we'll monitor the chat to

consider questions sent to us. So with that, let's begin

with questions arising from the presentation this morning.

And we start with you, Will?

Sure. Yes. Thanks for the presentations. They were great One

of the big questions that we got asked was about AI

opportunities and threats and examples. And I think we've

got a lot of examples of companies inside the Constellation

Group, taking advantage of AI to accelerate things and

deliver value to customers. There are a lot of questions

about the Converse. So Andrew from Click Dimensions. He

mentioned that marketing software, for instance, is under

attack early by AI-enabled competition. So we have a number

of questions that ask, can you give other examples of CSI

businesses that have experienced more attrition due to

competition using AI?

We have -- we really -- like I can toss over to Jamal, but

we really haven't seen any AI specific attrition at any

point. I mean I think our businesses that experienced high

attrition already will probably be most under threat. But

luckily, that isn't a high percentage of our revenues. I

mean, Jamal, what's your thinking on that?

Yes, I look at about 900 of the businesses and look at

trending of organic growth, and I follow up with the

operating group CFOs, et cetera, if there's anything that

looks like an anomaly. And there are a couple of things that

might have been popped out and both of them had nothing to

do with AI. So that's my take.

Does anybody also want to add It's a big topic, Jeff

maybe you want to talk a bit about it the AI panel.

Like you said and Jamal said, there's no specific evidence

to date of any significant or material attrition as it

relates to AI. But I do believe it's coming, like I think --

like we see competitors that are out there. We hear of

people doing things. So I believe it's coming. We just

haven't had it yet. A lot of our verticals are fairly

protected and highly regulated or high compliance

requirements. I would just say they're not always the

fastest moving verticals when it comes to making new

decisions. And I think any AI-related solution causes them

concern. Like it causes them to pause and understand exactly

what is it that they're accepting right into their ecosystem

of systems. But I do think, right, like it will start

showing up -- it just hasn't it hasn't yet. Stay paranoid

right? Like always.

Maybe one also on that panel. I know Greg touched upon how

some customers are very excited to get their workflows

automated and helped with AI. But in any kind of vertical or

BAU, there's going to be customers that are at the far end

went end of the curve and the customers at the other end of

the curve, maybe those that are resistant to change. And if

you are kind of transforming your BUAs to maybe optimize for

those customers with AI. How do you also manage to service

the ones that are laggard? And how do you deal with that

that kind of dynamic of customers in different stages?

Well, like from an AI perspective, again, I was a developer.

I really -- because as we talk about having

[indiscernible]

relationships across the world, across all of our

customers, I look particularly for those laggard customers

which are generally the attrition rates are very low with

the laggard customers. So even they're very hard to capture

as new customers if a competitor has one of those customers.

So my hope would be we would use AI to expand our presence

inside that customer by adding more functionality, which I

would think as far as the customers that are adopting it

very quickly, I don't think we've seen a lot of that yet

other than hoping to add functionality, I think, for

example.

Andrew was up talking about Dimensions, that's in a

marketing space, which is a bit more horizontal than our

average businesses. And when you're in a -- it's a very high

attrition business by nature. So when you're in a business

like that moving fast and your customers being fast, you got

to move fast, too. It's still going to be -- it's just a

tougher business to run, and I appreciate that Andrew is all

over it. But most of our businesses really aren't like that

right?

So Bernie, I mean, like thoughts on...

Yes, that's correct. We have some businesses that are in

have high attrition. And so we deal with it as appropriate

but the bulk of our businesses are quite low. And the

spectrum of customers that want to adopt AI versus those

that don't. I mean, we'll take care of them equally. It's

just a matter of serving them with what they feel they need

to run their businesses more efficiently.

Changing user interface is a big deal for a lot of our

customers, like they don't want you to change their

workflows, their user interface, in many cases, right, which

means you could come along with a neat snazzy new solution.

But if it's working, it's a small percentage of their

operating costs or for what we do for them, we just want to

make sure it works, it's secure, their data is protected and

it gets done what it needs to do, which is what most of our

businesses deal with, right? I mean, does anybody want

anything to that, Mike?

Yes. I would say, I think it's really important to

understand that when we're out talking to customers, we're

not out talking to customers about AI per day? Like most of

the engagement with a client is you're talking to the

business users, and you're still focused on what is that

business problem we're trying to solve. So if AI ultimately

is embedded in the solution, that's not the opening

conversation, because the pace of technology, particularly

as it relates to AI, is moving very quickly, and we're often

engaging with clients that are not necessarily even familiar

with AI. So I think when we're out dialoguing we begin the

dialogue with what is the business challenge, how do we

think we can make you more efficient. So it's not led with

hey, we want to talk to you about AI. It's like we want to

talk to you about a business challenge you're facing does

that seem of interest to you. And as the conversation

progresses, we would certainly share with the customer where

we think could benefit them in that overall solution, but it

isn't we have this cool new AI thing we have. Do you want to

buy it. It's much more of a longer-term conversation based

on how we've been working with that client for years or

decades.

Yes. So if I think about businesses across the board, you

lose customers for sort of for for ways, you lose them

because they go to business, which happens in some

industries. They get acquired by a larger customer. And so

hopefully, it's our customer kind of the big fish eat the

small fish sometimes, right? You could lose them for price

where someone comes and says, "Hey, we'll do the same thing

you do for what a Constellation company does for half the

price. We don't tend to lose them for that. I mean Andrew

might see that in a high attrition, high-churn business.

Where you really lose customers as when there's some

functionality that your competitor has that you don't have.

And I think -- and as Mike said, it's not AI per se. It's

that ability to do something that really matters to that

customer where they're actually going to go through the the

pain of switching. And it's a shame when our businesses

haven't foreseen that happening, and they haven't gone and

put ourselves in a position where it's an obvious decision

to stay with us as their vendor. And that's how I sort of

see it.

Well, another question that arises from this morning's

presentation, but was anticipated by someone who submitted

this question earlier, concerns efforts to disrupt one's own

business. David reported on doing this this morning. And so

I'd love to hear from volunteers on the panel an answer to

whether any CSI business units have tried to disrupt

themselves or disrupt another business by using AI to start

from scratch, all new code but using their industry and

business workflow knowledge. Anyone want to comment.

I don't do know, maybe, Rob, do you want to take that one? I

think.

Yes. So I think it's easily said, I'm going to disrupt my

own business and what you have with people working in the

business in the existing business, I think that requires

some change as well. So you might organize it outside of it.

But there are, of course, businesses where you already had

for a longer period of time, the idea that we should step up

our game and we should do more. and those kind of businesses

might be an ideal situation to really try to disrupt

yourself. And so we try to analyze in our portfolio our

strong businesses and also our weaker businesses. We try to

win with our excellent businesses, but there are also

business where we think, hey, we could disrupt ourselves and

really try to make a quantum leap into the future. That's

what we try to do. But again, that's not all over the place.

It's easier said than done, but we try selectively to do

that.

Yes. Anybody got an example where they've tried to displace

themselves entirely and been a material business inside of

your operating groups?

We're working on one. So we're definitely doing it. We

haven't done it yet. We've got the product out there. It's

probably got maybe 15 to 20 clients so far. Still a long way

to go, but we're active doing it. So we've used AI a lot to

rebuild the product and are going after ourselves. And so

it's in process, but it's early days.

I think Jeff really pointed out well in the -- in his panel

about what people don't understand is the customer

relationship is very, very important. Having a product and

selling that product are two different things. like having

to get -- you could have the best product, and I talked

about like it would be great if it is something that the

competitors didn't do. But selling hasn't changed. You've

still got to get out there. You've got to convince whoever

you're selling to, especially a new logo, a new customer

that you are a good opportunity. It's a good opportunity for

them to buy a product. And -- that hasn't changed.

In fact, in some industries, I mean, Bill, I remember who

was talking about an event you did Hamburg. So one of the

you got to do a keynote at that, and you said, one of your

messages was what, Bill?

So they're asking us about the pace of change from an

innovation perspective. And we looked at the research, and

it was clear that innovation cycles were compressing

right? From months to weeks and soon to be days. And I

looked around the room and I said, but what's happening with

procurement cycles. Now we deal with large government

procurements that have -- it takes multiple years for a

procurement even to come to tender, then they run the tender

process, you do a multiyear project and then you have 10

years of maintenance. Those procurement cycles and

government are getting even longer.

So we've got this dichotomy of extended procurement cycles

compressing innovation cycles. The elements of those tenders

that really people should have a look at there's elements

around product capability and functionality and -- but then

most of the scoring goes to your experience, your ability to

contract on the heavy-duty terms that they're putting

forward -- and they need somebody to take liability, right?

Governments like to shift risk -- so you have to have

capacity to take liability that might be through accepting

LDs if we don't perform, posting bonds or guarantees. You've

got to have a scale on our capacity to do that. And these

are so many elements of what our customers at least look

for, Mark, when buying them?

I think so. And what we're very fortunate at Constellation

because we've learned to deploy our shareholders' capital

high returns. And we've acquired a lot of logos over the 3

decades of Constellation. And those aren't easily done

because I've done that when we were in the early days of our

company as a startup, we started in the late '80s. Getting

customers is so hard. You got to work really hard on it. I

think a really interesting industry is telecom, though with

David because there's such a rapidly, you'd say, telecom

changes rapidly, right? David, and you've got -- what are

those customers like with this particular question.

Microphone is working, right? So well, they're inherently

conservative. They've been through a lot of technology life

cycles. They're bruised and they're fatigued. And their pace

of change is subject to regulation and subject to lots of

big complex platforms that are highly integrated. So when we

talk to those customers about AI, it's enabling math

functions like we do a lot with fraud and revenue insurance

and how can we apply new math functions to determine

faster we have a lot of agents already. We use a lot of

machine learning in a number of our products. We have

agents, how can those agents become smarter. So if you look

at the telecom stack from the top, we integrate with

customers, their customers in the bottom of its networks is

like delivering TV, delivering signaling security in the

network.

So the closer you go to the network, the more conservative

things are in terms of making change. But if we talk to

them, they want the total cost of ownership to come down. So

they want the operations administration, the configuration

management, maintenance of integration and new feature

developments, particularly with math functions or

agents. That's what they want. And we're laser-focused on

solving those problems because their platforms just don't go

through -- it takes -- we heard from months to days. So

we're trying to get them from 3-year cycles down to 1-year

cycles, down to maybe 6-month cycles because of the

regression testing because of the regulatory testing

security testing, so if we can get them down to 6 -- months

that will be a great achievement using AI, and we kind of

look forward to that.

Getting new logos in your space is really hard. right

Dave you mean like big clients?

We mainly get new logos through acquisitions right? It's

very hard to go into a large media or telco business and

become a new vendor. They want less hurdle. They want

consolidation. And if there's something risky in the

environment that they're going to want us to do it. They're

not going to want some new name company that they don't

know. So they will always give us the first chance, so we

can move quick, we should be able to capture that business.

I just want to make the point that even though we have long

procurement like, that does not give us the license to sit

on our hands. So we are moving quickly to use that time to

build out the value -- increase the value that we provide.

I want to alert the audience that after we'll ask the next

question about this morning's panel, we'd invite audience

questions from this morning's presentations, too. So if you

want to think about your question and begin to line up.

We'll take those questions after Will's next question.

I have a quick one about the verticalization. How is CSI

approaching subgroup verticalization when BUs in the same

vertical are in different operating groups?

We had -- yes, I mean, we're discussing that on an ongoing

basis. And one of the reasons we want to highlight verticals

is in some cases, we think our verticals should work closer

together and but we're doing -- evaluating that on a

case-by-case basis. And the whole team here is involved in

that. So yes, we're going to continue to evolve our

verticals and get deeper where it make sense. But

ultimately, our business units are the -- are what really

drives our success. So we'll cautiously think through that.

So anyone else want to comment on that concept?

It's quiet. I think we said enough on that for today.

We'd love to have a question from the shareholders present

here today. And so why don't you take it, the first one?

Joseph Spastik for Rainwater Equity. A question on the cost

of investing in AI and how you guys are thinking about that.

Obviously, tokens are not cheap, and investment in your

time, your team's time and all these efforts is as well. I

just think about getting returns on that over time? And then

if appropriate, I'd love to ask a question on M&A.

It's a great question. Jeff, do you want to take that?

Yes, sure. I mean obviously, we're measuring all of the

investments that we're making in AI. Obviously, the token

costs from Frontier models is a large part of that cost. But

we're using all kinds of other AI tools and changing them

out on a regular basis as better ones come along. So I would

say there's a lot more going on there than I would say we

would typically see. So I think -- we're monitoring it.

We're watching it. Right

now, it's not having any super negative margin impact on the

overall business in terms of the way that -- or what we're

seeing. So I mean I'm still concerned about what we the

token costs. I do think it's -- if you see even what the

vendors are currently doing, they're constantly changing the

plans or constantly offering you max plans that aren't

really max, because right once you hit a certain limit, you

had to either wait or pay more. So there's going to be a lot

of evolution there. So I think we just have to understand

what -- but at the end of the day, we can't provide a

solution to a customer that doesn't have an ROI. So I think

that will be the baseline of what we'll determine what we

can or can't do.

Damian, do you want to comment on it too you had a meeting

with a hyperscaler yesterday.

So we're measuring it, so you can't improve it, if you can't

measure it. I don't know if you can measure all of AI's

benefits at the moment. So we understand there is a sort of

an up-skilling. But we're keeping a close eye on making sure

that we're looking at what impact it can bring for customers

and how quickly that can happen. Looking at the actual cost

per business, how much we're spending, who's spending what?

And then I want to look at the return from, is it helping us

grow? How does it feed into organic growth and deliver those

outcomes that customers need, or if there's productivity

improvements, how do we measure that as well.

So I think if we think about the -- at the raw element to

look at it, it could be net revenue per head if AI

is producing, then we should be able to do more with the

people we've got more value to customers and getting or

winning more customers using AI. So that's a base model, but

we're also evaluating a few more metrics that we're going to

use and try to understand. It's not all going to be captured

at this point.

It's all -- remember, we measure -- these are decentralized

we measure everything at the business unit level. And we

want to -- we'll understand who is overspending on that

which we've seen that happen with initiatives in organic

growth before. We've invested a whole bunch of money

building something new and returns on that were terrible

and -- and so we need to -- we'll keep an eye on it. And

we'll see who's doing it well and who isn't. And we'll try

to do our best to manage the costs using a little bit of

central pressure on some of the large companies who are

providing these to when we can. But ultimately, the business

units will own the investment

[indiscernible].

Thank you, Mark, and Damian, for the question. Let's turn to

the middle aisle for question number two.

Thank you Alex

[indiscernible] shareholder.

Shareholder I met

yesterday in the elevator.

Wearing my collard shirt for you. No tie. Great presentation

today. Actually perfect follow-on, to the previous question

which is about AI costs and your response right now with

respect to the metrics. Latest quarter after you guys, I

think, have had a lot of progress in some of the business

units, as you talked about this morning and driving some

initiatives that are AI-based that generate some

revenue. But the latest quarter is sort of consistent with

the previous trend. What do you think is the time line for

actually starting to see at the aggregate CSI-level metrics

on the top line that are going to reflect the success that

you...

Love to see more organic growth. I'd love it to be yesterday

in a pen of AI, but it's really hard for me to predict that

Alex, like it's really hard for us to suggest when that's

going to happen. And -- we're just -- we haven't seen a lot

of loss of revenues from AI or any, but I haven't also seen

a lot of new revenues from AI as well. So we're just

being we're just being -- we're just trying to drive

adoption of the usage of it, and we'll monitor it

internally. But I'm I'm not signing up to a time when we can

suggest there will be an impact on our revenues from a

growth perspective.

But believe me, the pressure will be on our business leaders

to do better and to continue to grow as much as they can --

and obviously, incrementally, can take good returns on the

dollars we're spending or euros or Swiss francs on doing

those investments.

Maybe if I could ask just a quick follow-on on that. Given

that there were, for example, some costs related to tokens

this quarter, that was reflected in the maintenance cost

line. Presumably, there's some costs related to development.

Are we covering our costs or more than covering our costs

with respect to the AI investments right now in the P&L

putting aside what you'd expect going forward?

Look, yes, it wasn't a material increase in that COGS line

that. yes, I would believe that, yes, we're probably

outpacing revenue with cost today because we're investing a

lot. But it's not a material impact on margins. I think you

said a minor impact, but yes, I would leave that.

Thank you Alex. Let's take one more audience question in

this segment before returning to Will. Sir?

Thanks so much. My name is Ryan Floyd from Barca Capital.

Thanks, everybody, for putting on this nice event. It's

wonderful. We appreciate the candid transparency. My

question is for Robin. Nice to see you. Topicus made an

acquisition or TSS did in Indonesia, which is really

interesting. And they have operations elsewhere in East

Asia? It would be great to hear about what that experience

has been like, lessons learned from it. It looks like public

information. You've been looking at other opportunities in

East Asia. It would be great to hear what -- to the extent

you can speak about it, the pipeline would look like, but

also just in general about what the lessons from that have

been?

Yes. So historically, we were predominantly focused on

Europe. -- but we slowly but surely move out of Europe as

well. This is Indonesia is an example of it. And we might

disclose some more in the near future. But we do it

selectively. We do it step by step. No other approach than

in, let's say, European or North American countries. So

that's, in general, the philosophy.

And what we learned, and that's what we already knew within

Constellation is if I have to fly from Amsterdam to

Helsinki, it's probably 3 hours or to Portugal it's 3 hours

and to Jakarta, it's 14 hours. So it consumes time. Of

course, in the plane, you can work and think. But that's one

thing. So you have to go over there. And what we found out

is that with certain things, difference in culture which we

already knew because that's in Europe the case as well. But

there is even -- we are a

[indiscernible]. This is

implemented, it differs and also differs the local

management you have. I don't think that's always related to

culture or the country. Sometimes you get lucky with an

acquisition with great people. And sometimes, you don't have

that, and you have to implement changes. So in a sense, it's

not different than what we've been doing.

It's only some cultural aspects, and traveling and all that

kind of stuff, but we're committed to continue on that

Path. So it's not just for thing. But of course, we take the

Learnings into account. But I'll expect us to do more there. Thank you, Robin, and...

Thank you very much.

Ryan, I appreciate that. Let's return to the panel. pivot into operations. AI will obviously percolate some more, but Will has received some very interesting questions about operations.

Yes. So this section is really specifically about the risks and opportunities of AI in current operations. We already talked about this a little bit, but one of the follow-ons to the question about AI-enabled competitors is AI-enabled customers. Have you seen any instances where your customers may have an appetite to write their own core system using AI tools or failing that modules, right? Are they perhaps -- do they perhaps have less appetite to buy modules from your companies because they can write some of these extensions or small things themselves?

Have we seen any of that?

We've not seen any yet.

We used to have -- and we still do have software that's installed on like mainframes, AS400s, and we always have to place the code out there and some customers would have their own professional services people developing on that code because they thought it was cheaper than buying it from us. But what happens is a few developers leave and they call you up and say, hey, we've modified the software and we probably need some help making it work again. So I think we will see customers develop things, and they will. Some will have IT departments that do, and that's okay. And we hope we'll still be the trusted partner to make sure that it works and isn't messing up someone's health care data that Santina has to worry about one of our businesses.

But we haven't heard anything.

We've also gotten a lot of questions, and we've heard a little bit from panelists here and there about maybe tiering the businesses, right, thinking about strong businesses, weak businesses, especially as it -- perhaps as it pertains to AI. And so are these sorts of portfolio classification exercises and ratings typically at the BU level? Is it at the Constellation level? And can you talk a little bit more about specifically what you're thinking about and looking at?

No, at the Constellation level, I'm just -- we're sort of looking at how the tools are being adopted across the world. But like I honestly don't really like to tier businesses. Some of our operating group leaders here might do that in some ways. I think our weak businesses will continue to be weak, and we hope we get better leaders in them and make them stronger, and our strong businesses will continue to be to be strong.

So I think -- and that's -- we measure that on a financial performance basis at the business unit level. And in the end, that's what matters. It's -- you can get good returns on the incremental capital you deploy on either organic growth or incremental acquisitions that you do in that particular area. So I'm not a big fan of ranking businesses from an AI threat perspective personally. I think the same applies independent of AI, whether the business was strong or weak, I don't know. But this crew might disagree with me.

This is the wonderful thing about Constellation. We're allowed to differ and do our own thing. So at the [ Baxter, ] we have built a vulnerability assessment tool, not so much to tier them in terms of bad or good, but to really understand where they sit from a vulnerability perspective. And we're using that to determine how we approach the investment going forward. So we have a lot of businesses that are fortresses. That doesn't mean we won't be spending money on AI, but it changes the way we think about exploiting that strength and doubling down on it as opposed to some other businesses that may be more vulnerable, which may need a different type of investment. So usually have to think about -- it's not a cookie-cutter approach to how we approach the investment. So it's a guide, and that's the way we've adopted it.

It's a qualitative assessment. Like it's qualitative, which I don't love qualitative measurements. They're like figure skating judgment. So I prefer organic growth and return on invested capital and numbers that you can really wrap your heads around because those you can trust.

Swimming or track.

Yes. I'm just saying. But I'm not saying anybody shouldn't do that if they feel they do that. I think your weak businesses will continue to be weak if they're not led by the right leaders.

Great. How are you adapting to AI agents becoming or potentially becoming a part of your user base? Do you have requests, for instance, for MCP access to your software? And how do you potentially counter revenue loss from the advent of agentic software use if it threaten sales of seats?

Who wants to take that one? It's a fun one.

I can start with the pricing side of things. So we've been talking a lot about how you deal with pricing because, again, ideally, you don't want to price on seats in a lot of verticals, but you acquire a lot of businesses as we do and you inherit the pricing models that you get and you have to be thinking through that. So we've been doing a lot of thinking about in this new world, if we start displacing seats using AI in our customers, then we have to have a pricing model to make sure that it's more of an enterprise or value-sold type of situation. So we've been spending a lot of time thinking about that and where it's relevant in our business is implementing that. So -- but it's something we're very, very cautious of because, again, like you said, you could end up eating yourself from a cannibalization of seats perspective. So...

You have your user-based pricing.

Yes. And we -- unfortunately, I know we don't love it in Constellation, but we inherit it all of a sudden.

Yes. And it's hard to change those contracts.

Absolutely you can't sometimes because they're 3-year, 4-year contracts and you can't change them, right? But you got to think about it and be proactive and work on how you can change them.

Damian, thoughts on that at all? I nod any thoughts or...

No. No need. They've got lots of questions.

No need. So we just implemented a dashboard at Harris, and that is one of the metrics that we're trying to track. I would say when I look at it, I would say that was maybe one of the areas that the businesses are just struggling to figure out. So we've asked them to basically let us know if other people are accessing our system of record, how many API calls they're making, who -- what organizations or what vendors are making these calls and whether they're just reading or whether they're writing back information.

But I would say I don't know that our businesses have always thought about it that way. And depending on what vertical you're in, like you need to make that data available for other vendors, like health care specifically, right? In a lot of cases, we have to make that data available. So I think we're trying to understand what to do with that. So I think we're just in the early stages, but we're trying to track it and to measure it.

Similar question. Other prominent software vendors have talked about monetizing API access to data or semantics house in their systems. Is that something that you would consider?

We do that sometimes, some of our businesses do that, have done that for decades, but I do love that. So where it's possible, but it isn't always possible. So I don't know I would. Any comments on that? I love the concept of it. So...

We work in complex ecosystems, right? We've been interacting with third-party systems for a long time. And wherever possible, we monetize it.

Great. One last question, specifically to David Nyland. Are most of Lumine's customers on-prem? And what does this mean for AI adoption rates?

Yes. I mean most of the customers are either on-prem or they have our own personal cloud. And a lot of our customers think or believe and they actually are technology companies themselves, right? So it doesn't mean our systems are not cloud native. So they need to be cloud native for DevOps and for any innovation rhythm. So it's generally cloud-native architecture, but often deployed on bare metal because they own a lot of bare metal or in their own private cloud. They're very reluctant to do processing, core processing in the public domain.

Now if the World Cup's on and we're streaming video for Sky TV in the U.K., for example, and let's just say England make it through to the semifinals, which, then we have to burst traffic above capacity, and that will be in the cloud. So using compute power wisely when it makes sense is definitely what our customers do. But generally speaking, it's on-prem.

I'd hold off making that order just yet.

Do you think it affects your customers' willingness to adopt AI?

Well, it's been -- the ability to adopt cloud native. So 94% of our revenue comes from Tier 1 customers, right? So think about that profile. So it's hard to get them from on-prem to cloud native, even on-prem cloud native or on-prem private cloud. That's a big architecture shift, and we're still in the 10-year-old journey of getting them up to cloud native.

So agentic AI native will take time in the Tier 1s. That 8 -- 6% of our customers that are not Tier 1s, they'll get them much, much quicker to agentic AI architecture. But getting major platforms upgraded in Tier 1s to -- it will be a 4 or 5. They want to see other people do it first. They want to see stuff that's secure, passes regulatory control. And where they understand this total cost of ownership, the tokens discussion, they want to understand total cost of ownership really well before they make any platform moves. But it will happen, but it's going to be over the next 5 to 10 years.

It's tera, tera, tera, terabytes of data, right?

Dave, like...

Yes. Uncomprehensible, the amount of data.

Millions, if not billions of real-time transactions. crazy.

Yes.

Great. That's my section.

All right. So I've got the next fun section of how CSU's culture and operations and incentives interact with AI. So the first one I have is a prominent U.S. business person recently said in a podcast that the majority of SMBs don't understand AI.

So in light of that, shouldn't Constellation revise its performance incentive model to prioritize organic growth over acquired growth in order to spur subsidiaries to develop new AI offerings? And we've seen some examples of that, of course. But I guess this questioner is asking, should there be a little more priority focus on organic versus acquired growth depending on the vertical.

This is a great question for John Billowits. You got to get them to say something.

I was half asleep was...

I heard operations.

If you don't mind, John. That one...

I'll talk about -- a bit about the compensation plan, which I think everyone is familiar with. I mean the core of the plan, which everyone up here would be on, would be return on invested capital, and then there's a growth element to that plan.

When you get down beneath these individuals, and they can elaborate on this, there are various plans within Constellation. And almost everyone running an actual business is only rewarded on organic growth. So if you're running a business unit with 50 people, you have always been and you probably always will be compensated based on organic growth. It doesn't really come into your thinking that much the acquired growth for the most part.

However, that being said, there have been some changes made over the last year to encourage more organic growth. It was implemented last year at a few of our businesses as a trial. And then another large business group this year also put it in place. And effectively, it's a kicker for just organic growth, not only at the business unit level, but also at the portfolio leader level. So to answer the question, yes, there are changes being made on an experimental basis, and people will wait and see if that has any impact.

How have the experiments gone so far?

Damian and then Robin.

Organic growth, there's a lot of opportunities, and it's really -- I think particularly within the context of dynamic competition and potentially AI, it's how do we add more value and being able to win more names. So getting the attention on that to be in a position, putting the incentives that will actually drive the focus on organic growth and then having a strong focus within organic growth on new names or increased value, increased usage within existing customers.

So focusing that, I think we've had some great traction. Some businesses and portfolios are just more better positioned to grow organically. Sometimes we make investments that we know -- deliberately know that won't grow, but we've got some really strong portfolios and businesses that are very tuned into organic growth.

Yes. I always think organic growth acquisitive growth. I like them both. So that's important. It's always what this or that. And it depends, but we like them both. And I think solid businesses also show organic growth. So when we did the spinout together with Topicus, and they all historically had very strong organic growth. They had development capabilities and abilities. They developed lots of new products, new clients. So we didn't want to saturate and kill that with a typical TSS approach.

So they are a stand-alone operating group company. They remain focused on organic growth, and we bake that into the incentive system. So we still have the CSI incentive system, but solidly focused on organic growth. They do, by the way, acquisitions as well. But just to give an example, and that's where Jim was referring to, it's something we implemented and we are evaluating and see what does it mean. So I think that's great about Constellation as well to do those experiments also in incentive structures.

Great. And then maybe at the portfolio level, have any managers seen any portfolio shift under KYC, shift capital to organic incentives versus acquisitions due to AI opportunities. So have you seen kind of slight redeployment out of acquisitions and into reinvesting back in the business?

I think I imagine we all have, and it's something that we want to be doing initiatives and tracking those to make sure that they've got clear business cases. But when you change the incentives and you give a bigger carrot for organic growth, that's going to drive -- that drives the focus on that. And then we have to -- as leaders and the leaders within the autonomous business units, they need to be encouraging that sort of behavior and the incentives help them as well.

There's nothing like personal wealth destruction to drive focus. I'm a member of the HR Committee.

That was why KYC was put in the first, right? It was an amazing tool to change your behavior, right? So yes, that's very helpful.

Another question on incentives. So conversely, this shareholder is asking, could your incentives discourage long-term shifts towards AI. So for example, has the Board or management looked at how a bonus formula based on ROIC plus organic growth performs under structural organic pressure? So by that, they mean could be you just look for onetime cost takeouts from AI as in replacing employees, but trying to [ obtuse ] ROIC but not really grow for the long term?

We will obviously be monitoring that. If we see that happening, we'll adjust accordingly. So yes, either way, if they can increase their net revenues per person, that's always a wonderful metric to use, whether that's for growing the top line or figuring smarter ways to use the team. But yes, so I think we'll just monitor and see if we see any extraordinary things happening, but we haven't seen that as of yet.

We measured close in quarters, but we don't think on quarters. So the long-term thinking. And if you look at the people that you've seen on state, people have been around the company for a long time, the people that come in with acquisitions stay for a long time. And that buy-and-hold mentality sort of -- I think it's an advantage for us where we don't have the short-termism that we're going to just strip it out and try to make a quick bonus and move on. We do think long term, and we take the ownership of the businesses very serious. There's a lot of pride in the returns of the business and the long-term returns as well.

And the average tenure of the team up here is like in the high teens, right? Like it's a pretty amazing group of people. And they've been on this incentive program for a long time and have seen a lot of different things happen in our businesses. It had some really tremendous successes, and we've also had some failures, and we're just trying to learn from those.

I think maybe one thing on organic growth that's important to understand across all of our business unit leaders, they want to be growing their business. So they're not thinking, oh, I just want to maximize my return. They want to grow their business. And I would say in the last year, as we've really leaned much more into AI, when you're in these events, when you're watching the leaders of these businesses see the way that they can pivot and respond to challenges they face with their customers for a long period of time, they get very enthusiastic and excited and they want to double down and try and find new ways to solve those problems.

So we don't have the proof points to say that this is converted into meaningful revenue. But I would say you can see the strong desire to -- I know I have a problem I've been wanting to fix for a long time. I now see a path to being able to do that. So I do think that it's important to recognize these leaders are trying to be more meaningful. They're trying to do what they can to solve the business problems. And I think, yes, compensation is one element of it for sure. But I think there's a lot of opportunity that they're seeing to address customer challenges in a new way and to increase the level of satisfaction.

And on that, we've heard some metrics maybe thrown out revenue per head. And are there any kind of other metrics regarding AI disruption that you might feel comfortable sharing, churn rates, win-loss metrics pipeline? And are there any KPIs you've added or changed to the operating ratios in light of AI?

I don't think so. No. I think it's business as usual from a metric perspective and be paranoid. Go ahead, Damian.

Agree. And just on net revenue per head, it's really -- it should be -- it's looked at the business unit level because we're -- as you saw in the video, there's a constant.

It's very hard to track essentially.

New people coming in. But when we consider that, we're really looking at the micro level and into each business unit.

So before you ask your last question, I'd like to queue the audience that after Howard's next question, we return to the microphone. So if you can think about a question and go to the mics in a minute, we'll welcome your contributions. Howard.

Thanks, Larry. So last one here, really a lot of benefits of decentralization, and I subscribe to that, too. But one -- this shareholder asks, at what point does the lack of a centralized AI capability become a disadvantage, for instance, negotiating enterprise-wide partnerships with hyperscalers or large language model providers so you have that scale? And have you considered a hybrid approach because of the [indiscernible]?

Yes, we will -- we are -- like ourselves, the couple of dozen people at Constellation will definitely speak to them about -- I would -- I guess you'd say sort of structures that we could use that to our advantage. We don't like to do that. But when it makes sense, we'll do that. We've all -- so for sure. I mean, anything you want to add to that Jamal or Bernie or...

So we take advantage of our scale. So we do have relationship -- I've been talking to Microsoft, Amazon or AWS for years, right? And now they are entered their contracts with them, so we can get better pricing, but we do not then force our business units to utilize it. They can access it if they need to. So we have -- I think we do have the best of both worlds. We can still take advantage of our purchasing power.

So one of the real advantages is we can get the really good engineers out to hang out with our business units. And that's hard to do if you're a business outside of Constellation. It's a stand-alone business that's -- and you think of our businesses, like -- I mean, maybe that didn't come across in the presentation today. But if you look at the -- I won't quote any numbers, the average business unit size, the median business units, these are small businesses, right? There's dozens of employees in those businesses.

And the ability for us to get a terrific engineer from one of these hyperscalers to sit down with the head of that business, the head of development for that business. And I saw it yesterday, I was sitting at the table with a group of people who are developing some product that was an agent actually, and I won't tell you say what business. And I thought one of the actual people from the hyperscalers is one of our employees and said, hi, who are you? And it was kind of like it was fun to see that because that's where, I think, our scale helps us the most is and we appreciate all of their help.

And we're happy to pick up the phone and say, hey, we need someone to help us with this. where it's harder to do if you're a $5 million business in Cincinnati, Ohio, and you've got some customers who want to move. So that's where our scale helps us a little bit. But you go to make those calls as infrequent as possible. These are pretty -- we don't have a big head office sitting around waiting for -- to -- yes [indiscernible].

It's happening at the portfolio level, right, and at the operating group level. So they're certainly trying to take the load for our businesses and give them some help and -- so they all have to learn how to ride the bike by themselves. Interestingly, we're starting to see it in M&A conversations where targets have realized that they can't do this by themselves, and they're looking for the help from somebody like us to join the family and get that type of help.

Thank you, Bill. Let's turn now to question #4 on that side of the room from another shareholder.

My name is Ashwin Anamalai. I'm from Waterloo. I'm a relatively new shareholder to Constellation. I usually only stick with index funds. I'm like a huge index person. But thanks to the great discount that Constellation is offering right now, folks like me, we are able to be a shareholder. So it's not just me, I ask all my friends to buy their shares. Everyone is here. So thank you so much.

Are you our first one?

So this is my first shareholder meeting here. And well, Mr. Miller, please don't do any buybacks yet, no more trying to get to the S&P 500. Just give it a few more years and then we will get there.

Stick with us, please.

So what made me change my mind is that in Waterloo, there was a hackathon called Anhackathon that was organized for university students where they were like businesses come with their problems, use AI and solve our problems. Like this is amazing. So with the help of AI with Claude and all these tools, they should be able to solve all these problems. So you know what, they did manage to solve the problems. But at the end of it all, 0, 0 solutions were deployed for the business.

Is it hard to sell?

And that's when -- it was the lightbulb moment for me. And I was like, yes, building code is one part of the solution, but having the ownership and the trust is really important. The very next day, like started buying Constellation.

Let's still startups, right? It's [indiscernible]

So like you can build something great. I'm a developer, and you could build something that -- and it's really actually very useful, but success is not judged on your ability to develop products. Success is judged on your ability to go out and convince the customers that they want to use your product.

And honestly, like over the years, I'm sure all the team up here felt it, there's products that we've built that made a ton of sense, but it took so long to penetrate that, yes, the returns on it are -- it's a difficult thing to do. So thank you for that.

Like we didn't actually ask for you to say that.

And they're doing a hackathon.

Like that's essentially what they're doing up near the airport now. We've got our own hackathon. There's 160 people there, and they were up doing pizza and Red Bull last night or what have you. And they're trying to do that, too. But they've got to go convince their customers that they need this. And we've got, as Jeff said, a great relationship. And it's still hard, right, Jeff?

For sure.

Like it's still hard. So I don't know if we answered your question.

What is your question? So...

AI has improved productivity a lot, and we are seeing large-scale tech layoffs. Are we going to see the same in Constellation?

Who wants to take...

No one's jumping in.

I don't see us doing large-scale layoffs. No, not at the moment. We're so focused on how to leverage this capacity because what you want to understand is we just have an enormous backlog of our customers wanting us to do things for them. Some of those things that just didn't make business sense now do make business sense. So I think as I said earlier, maybe not everybody is going to come for the ride with us, but thinking about large-scale layoffs is not on certainly our mind.

I never discussed it with anybody here, by the way.

Comment. I don't know if you.

Yes, I was going to just add to what Bill was saying. One of the things I say a lot within the Jones organization, it's a phrase that my team knows very well. And I do the hypothetical, if the business gods came down from above and said, "Barry, here's the deal for you. You will never ever, ever win another customer again in Jonas' history. But at the same time, you will never ever, ever lose a customer that you currently have in the Jones organization. Would you take that deal?" And I say 150%, I would take that deal because there's so much more we can do for our customers.

And AI just makes it so much easier. And Mark talked a lot about it today with customer intimacy. If we get this right, the Utopia grid is massive. And so we don't need it. I mean, don't be I want both. I want new name customers, too, but the opportunity is huge. So that's how I think about it. If you think about that, you need more employees, you don't need less employees.

Such a great answer. Like I tried to convince one of our business leaders of that once like we bought this company in Switzerland. And I was like, you never need to get a customer because they always blew their brains out implementing large new systems. And believe me, it depends on our business. So don't take this across concept.

But it was like, honestly, like you should just build more things for your existing customers, and that would be a great business. And your customers would actually care more about you because you're actually listening to them and solving them rather than running to the next building to like try to pitch something to someone new. And you put all your smart people sometimes on those new things. So that's a really great point, Barry.

Very inspiring. Let's flip back to the question #5 from the audience.

Welcome.

I'm Felipe from Sao Paulo, Minor Capital. My question is regarding tech debt, the legacy of your decade-old solutions, whether that makes it potentially much slower to build AI relative to AI native is building from the ground up from 0, whether you're seeing that in some of the organizations or maybe if AI is actually offsetting the tech debt because you're able to modernize?

[indiscernible] on it, like obviously, you can snap stuff onto our existing systems where it makes sense, right? So it gives you an opportunity to do that. And also -- I mean, anybody want to comment on that. I mean I see our ability to understand exactly how the data is existing and snap things on top of it is advantageous. And we used to do that in the early days using Visual Basic or something, but now you can do that a little faster. So I think it's not something I'm super worried about. So for us, I mean, are you guys worried about that?

I wouldn't say worried about it. I think one of the interesting things is tech modernization is significantly easier using AI, right? So I think there are many people that could be looking at their existing tech stack and saying, I can replace wherever I feel I have weaknesses around the technology choices I've made in the past. I think what we've certainly been talking to our businesses about is not to focus just on the tech stack modernization, but it's very difficult to convince a client to move to a new version of a system. It's the only thing you've done is replace the underlying technology. So it really comes down to how are you going to respond differently to meeting the needs of the customer as a result of your tech stack modernization.

So I think, there's no question, you can enhance your technology stack faster, thanks to AI. But really, again, it's going to come down to do you understand what the customer is trying to solve? What's the pain point they're trying to solve? And how are you embedding that into whatever enhancements you do to the tech stack modernization? So I think you'll find that if we had weaknesses in our tech stacks, we can address them faster, but we need to have a meaningful reason for the customers still want to upgrade, which is going to come down to delivering more value.

Thanks, Felipe. We do have a bit of time for one final audience question in this segment as long as it's on a brief side.

Yes, it should be quick. My question is more around morale, employee morale. Given the dynamic of the [indiscernible] as well as like the technological shift to AI and people worried about their jobs, have you noticed a change in morale? And how do you keep morale of employees high?

Someone should take this.

Look, we've seen in a recent major event was a recognition that people have gone through all the emotions with this, and so have we, right? It's -- but I've certainly picked up as the technology has matured so much in recent times and people can see real value and it's starting to shake out how we can really leverage it. I'm seeing a shift to excitement. And the level of energy that people are coming away from our events and taking back to their business is literally electric, and that's not just me saying that.

That's the independent feedback we're getting from our people. So I think there's been like a huge shift in the last 6 months or so. And that's -- and I think that's happening at all our levels. I think some of us are lamenting that we can't go back in time and do some things over because we would love to have the access to the tools that we're seeing today.

I think we haven't seen leaders leave or people -- morale start to impact people and concerned and people -- very little sort of talk about the share price. I think most of our leaders understand the power of compounding, and they're in for the long-term journey. They've got autonomy in the business that they're working on, and they can see a pathway there.

So although the external noise or changes, it's -- they're not oblivious to it. But when you're in control of what you're doing and you know you can compound your space and you've got capital to grow and you believe in the model, I would say morale is very high, and we don't have -- as demonstrated by probably engagement harder to measure, but also losing leaders, we're not seeing that.

Yes, you've got like dozens of customers, hundreds of customers and dozens of fellow employees. It's a little bubble you're inside one of those businesses. And we hope to allow them to continue to be inside that bubble and just learn from each other. So I think yes, it's not like it's a part of this big massive organization. It's -- you're inside your business unit and you got your customers and you got your teammates and you're trying to figure out how to -- what to do for those customers.

It's a great question. Helpful answers. Thank you very much. I'll just pivot a little bit to the segment I'm going to tee up, which is some technical matters, including coding, and we'll start with rewrites.

Greg touched on the topic of rewrites, AI and rewrites in the panel this morning. We had quite a few questions around that topic, including one that came into the chat this morning. And so here's one version of it. How is AI changing your approach to rewrites? Does the framework for thinking about the cost of rewrites change with AI in what ways?

Rewrites still scare me to death, generative AI, but I don't know how about all of the other.

I think if you're thinking about it that way, you're sort of thinking about the world in an old way of thinking about the world. So we would rather -- our businesses, I think one of the panelists this morning said, step back, engage with your customer about what they're looking for because this technology allows us to envisage a completely different way for our customers to engage with the data and the services that we would traditionally provide them. So I would be putting rewrites at the bottom of the list of priorities personally.

Yes. Like you'd rather do more for your customer than rewrite your existing system. So as a developer, I used to love to rewrite stuff. BG like that always thought you could do it better. But honestly, I'd rather add more value to your customer then rewrite your code, but I think some people will. I mean, as there many rewrites going on? I wouldn't.

There's probably more than there was before. Like the rewrite has always been an ROI issue. The fact was before there was just no ROI in rewriting the vast majority of our solutions. I think the ROI equation is now different with AI. So I think we're willing -- we're probably more willing to look at different opportunities because of the return, which I would say maybe rarely ever existed before, now in some cases does. But we still need to prove it to ourselves, right?

That's...

We have a small one going on, and we're watching it and it's progressing well. But getting to 85% is -- doesn't seem to be that hard, getting to 100% and then getting customers to actually adopt it is a whole different.

Yes, it will be done this quarter, right? And then next quarter...

Next quarter, multiple quarters later.

Second question in this segment from the shareholders that submitted questions refers to a recent discussion among leading programmers about a sudden shift from auto complete to agentic coding that they hadn't expected it, but now think it's confirmed. And they want to know, is that feeling common across Constellation businesses?

Who wants to take that one? I could.

Look, we're seeing it. We're experimenting with it. The jury is still out a little bit because we're conservative and we want to see, but we're definitely, I would say, recalibrating our expectations about how this is going to develop. So...

My sense, like, generally at the Constellation, again, I talk about we're very we're intimate with our customers. We're close to our customers is there's an opportunity to do more specific things for fewer customers than you used to build once and sell many. It's more of an opportunity to build individual things because of it.

So I hope it becomes true because having someone sitting across from the customer and sort of saying, hey, what do you need and doing it might only be true for that one customer. We probably would have steered away from that before. But again, that is yet to be proven. It's all theory right now.

And then I guess this is an inversion of that, but it's that, okay, suppose AI enables writing a lot of code much more quickly, what about the quality of that code? Is there some danger?

Well, it's unpredictable with AI, like I use it too, like it will suddenly do something unexpected in the middle when it does the next right of some update you're doing, which I'm sure you've seen that if you're using it from a -- just from using it for text or writing and stuff like that. So -- but I assume that will get resolved, but you don't know, like it suddenly will do something entirely surprising. I know you've seen that, but I've seen that some stuff like unintended consequences to that one little change that you just made, which actually fundamentally might change how you do things. But I'm sure that's something they'll work on.

I think a lot of the conversation around the migration of, let's say, writing code and how it evolves. At the end of the day, there's always a human that is integrating and making the final decision as to whether we're going to promote that code or not promote that code. I think it's going to change the nature of our senior developers being able to oversee a lot more capability than they would have been able to in the past, but I don't think it's our view that we're going to create systems where we just start randomly writing code and it just goes into production. So I think it will enable our developers to be more efficient in terms of the number of lines of code they can oversee, but there is a human at the end of the chain.

Thank you. The next question that you submitted in advance runs like this. I understand that Volaris recently launched a developer program to upskill software engineers with AI tools and learning. You touched on this before, Mark, but I'd love to just hear an elaboration, if you don't mind. Even though Constellation is decentralized, in what ways, if any, is the company mandating or evaluating AI usage, product and feature development and AI?

I'm just looking at usage of tools, and it's a Mike's event, but we also have multiple other operating groups at it. I mean we're just sort of looking at how the tools are adopted, and we'll learn from the businesses. If there's good examples of things that happen, we'll just learn from them and share them with everybody around the table here and see if they can use them. So I don't know if that answered your question, Larry, but...

Satisfies me. I'll turn it now over to Will to enlarge the discussion about general operations.

Sure. Yes. So these are a little bit less specific to AI and about operations. One of them I wanted to do is just a follow-up to an earlier segment that was posed in the live stream chat, which was we talked about the breakdown of seat-based versus other types of licensing. Do you have a general -- can you give us a general idea for the breakdown of pricing models in the portfolio across the company?

No. Jamal, that's your...

The answer is no. I mean we do not break it down that way. Like I know there are -- like we've just said, there are some seat-based pricing out there. There is other pricing. But I also believe that we can adapt, right? I think it was Barry that said it that if that becomes an issue and we start providing more agentic employees and seat-based goes away, then we'll find a way to get value to that, right? I mean that's something we've always done. But no, I do -- we don't track anything in that way. So I don't have the breakdown.

Okay. What it comes down to like generally in business, you've got to be doing something that your customer values. You've got to be doing it better than your competitors in order to deserve that value. And you've got to do that continuously think about that as you go through. And how you price, I think Jamal said, will be your -- based on your ability to add value to your customers, right? And you can't take that ever for granted. Any of our business leaders take that for granted, well, they're not going to succeed. I hope they all remember that. So their customers are what keeps their businesses humming.

Great. We've gotten a number of questions from shareholders who are curious about Constellation Payments. It's a long-running initiative internally, but there's a sense that it's getting more traction or becoming perhaps more mandatory in some ways. The question is, what are the incentives for Constellation subsidiaries to use Constellation Payments as opposed to other payment processors. Also curious about the IRR on the investment needed to create Constellation Payments. You probably should take that one?

I can let someone else. Yes. So we've had a couple of false starts with Constellation Payments. And so we realized many years ago, there was a huge opportunity in a lot of the verticals within Jonas to capitalize on payments. We are always in the payments game as an ISO and reselling someone else's stuff and saw that there was opportunity to get greater margin if you move up the food chain. And so we did that. We partnered with one firm originally, and that partnership didn't end up working out well. It wasn't the right gateway for us. And then unfortunately, we did a second partnership, and that was working great, but then that firm was actually sold to one of the big payments companies and they discontinued their end of life of that product.

So don't want to get burned 3 times. It's kind of like the 3 little pigs. Eventually, you build the thing out of brick. And so we got our own gateway, and we've launched that gateway. We have a number of clients on that gateway, and it's picking up some pretty good steam right now. So we feel pretty good about where we are. As far as going across Constellation, we picked the name Constellation Payments with the dream that we'd be able to sell to all our friends up here on stage. But we realize within Constellation that sometimes doesn't always work out that well. And so we're really focused within the Jonas organization. So the vast majority of the Constellation Payments stuff is within Jonas, but we do have a couple of clients from Harris and a couple of clients from Vela, and we just did a joint venture with Volaris over in the U.K. So it's gaining some traction within the group, which is good to see. And it's upon us to prove that this is a great solution and better than the others versus Mark Miller dictating to the other people on stage to make it happen.

So we feel pretty good about the trajectory we're on. There's still a lot to do. But yes, we feel pretty good about the trajectory we're on. We're growing significantly in the payment side of things in terms of organic growth, and we have been for a number of years and forecast doing that for a number of more years. So I think that covered all the questions, but...

IR something.

IRR.

You have to answer.

Yes. Historical IRR perspective.

Prospective is always good.

Prospective is off the charts. Historical probably wouldn't be that good. I don't think we should be disclosing those numbers, but it's definitely, I would say, below threshold. So I'll say that on it. But it is the right decision. I think about where we're going now from an AI perspective and going back to what I talked about earlier about utopia grids and doing everything for your customer.

Payments is becoming more important as is things like hardware embedded proprietary hardware, that type of stuff, which I know Bill knows a lot about in his business. And so I see it as also a strategic wedge attrition buster as well. And we've seen that over the years. The clients that use both our software and our payments are much stickier than the ones that just use our software. So I'm very excited about that as well.

Great. It's an interesting example of sort of a cross-group functionality or a layer. We heard from Santina talking about data sharing inside of that health care group. We heard from Bill about Modaxo building an AI layer over his various business units. Really curious about the extent to which data can be shared or not shared across internal business units, especially customer data. And then also would love to hear other examples of things that you can now do because you have bigger business units, many more businesses at the same time.

Bigger verticals units. Bigger verticals.

Yes, bigger verticals. Bigger business units, sir. I love big business units. I'd much prefer to have...

Groups of business...

Yes. Who wants to take that one?

I'll take it. Look, we're trusted custodians of our customers' data, and we treat that very seriously. But we do have access into and can see and with their permission, utilize that more broadly than we are today. So it really comes down to today where we have multiple products and even multiple Modexo businesses servicing the one customer, those systems are still talking to each other via various means. This is a much -- a different level of that type of engagement. And then we have to get them comfortable that if we're taking that data and gaining intelligence from it, then we have to be doing that on an anonymized basis. And we have to -- it has to be a quid pro quo that they get access to the knowledge gained from the broader customer set that we open this up to.

Our hope is that as we add more customers, we get even more intelligence and it becomes a compounder and a flywheel that creates value -- even greater value for our customers, and we believe we're strongly placed to leverage that. But we definitely -- frankly, unlike what's happening in some of the frontier models, we're not scraping people's data without their permission. So we will be very careful about treating our customers' data with the respect it deserves.

Any other groups have an interesting case of a cross BU kind of initiative?

We have some stuff in health care. So obviously, it depends on our customer contracts. But typically, we're able to aggregate a lot of data, anonymize it and then actually be able to monetize it by selling it to pharmaceutical organizations and research organizations that we're looking to do research into cardiovascular issues or other issues because again, we had all of the patient data that we were allowed to get access to. So we've definitely had some successes with that. But it's tricky, right, because you -- back to Bill's point, you do no harm with that data that we're entrusted with is the first consideration.

Before Will asks his last question in this segment, I want to alert the audience that we'll be turning to you again, and I see someone has already lined up. But Will, Will, please pose your final query on this segment, and we'll turn to the audience.

Right. So last one on operations is on cybersecurity. I didn't quite get away from the AI questions. AI appears to be expanding both the scale and sophistication of software security threats. How does CSI minimize cyber risk across its business units? How do you balance the protection that comes from decentralization against the possible benefits of centralized resources such as red teams or shared vulnerability tools?

I think we try and do both, right? So I think we benefit from decentralization because a lot of our systems are stand-alone or a part. So you can't get at all of our systems in one fell swoop. We do offer guidance, tool support. In some cases, we mandate certain tools, CrowdStrike across all of our businesses. And then we also encourage other businesses to do their own things.

So if you were to talk to Santina, she has a very specific health care focus because health care just gets attacked on just a continuous basis. So she would take the corporate support and then she's taken it down a whole another level, like she has a cybersecurity leader within our health care practice, not just at the Harris level. So I'd say we try and combine both to get the best we can in terms of being as safe as we can. And it never seems to be enough.

Yes. And I think we're obviously always looking at ways that we can use AI to monitor security threats across the volume of businesses we have. So it is very much a trust-but-verify mindset as it comes to things like security. We want each individual business unit to own the importance of maintaining the security of their environment and their data, but we do have the benefit of having the knowledge across a broad range of individuals and some very talented security experts that can go in and work to validate that the businesses are doing what they need to be doing.

It's probably a good example, actually, whether there's CSI involvement, operating group involvement, group portfolio involvement and business involvement. I would say that's not often the case. But in this case, actually, because it's so important, you actually see that going through the whole stack.

Excellent. Thank you. So let's turn to, I guess, it's question from the audience. We'll start on that side over there.

I just want to say it's wonderful to be here in my first in-person shareholder meeting. I'm an employee at Jonas Software, and I also own shares in Lumine. So my question is kind of geared toward David Nyland.

So with regards to the WideOrbit acquisition, my understanding is that, at the time, Lumine was valued around like 18x EBITDA and then WideOrbit was at a lower multiple of EBITDA, like 13x. So when they did the transaction, they -- essentially, you were using a higher multiple public platform to acquire a lower multiple asset.

I guess my question to you and the other spin-out companies is there are companies like Chapters Group where they raise capital at the topco level and that can be debt or equity. And essentially, that's at a cost below the acquisition yield and then they funnel that to holdcos that can buy assets at lower multiples.

I guess my question is, why hasn't Lumine and the other spin-outs leaned further into that model? Do you see that evolving that way? And just how you think about creating those value, meeting those hurdle rates through multiple arbitrage and those types of structures like similar to Chapters Group? I hope that's fair.

I feel like ChatGPT to help me answer that question.

Yes. No. So obviously, we were valued at the time as a compounding acquirer, taking a long-term view of what that value creation would be relative to a stand-alone asset and how you would value a stand-alone asset. And it was a premium asset, so we paid a premium price for it, but a significant piece was the rolling shareholder investment in Lumine. So it's a very unique deal.

Would we do unique deals like that again? I think we possibly would if we found something extremely interesting that created compounding value for our shareholders. At $54 a share, we probably should have done it. It wasn't the right time for us to do that. And I think -- but at some point in the future, there might be -- if we trade above intrinsic value, I think there might be an opportunity to use the [ scrip ] in deal. But that's not currently our investment thesis. We're compounding with cash and very traditional approach. But something surprising, interesting or large happens, yes, we would definitely consider it again in the future.

Thank you, David. Question.

Fernand Silber with Rosemart Capital. You guys recently changed something in your M&A approach, which is you included a section on AI and risks and potential benefits. And I'm sort of going to turn this question around to the operating group heads and say, if you had to re-underwrite sort of all of your BUs, what percent would you say the underwriting would change today with LLMs versus, say, 4 years ago?

Yes, I mean, like Bernie, it would be a good question for you. We were talking about a lot.

I think he addressed the operating group managers.

Essentially, I tried to ask the question.

You were asking for you because I think it's -- if you bought all the companies.

Mark, I'm happy to start. Do you want to start?

Because this was done -- I'm laughing because I'm looking at the individual who did it. I won't disclose his name. But he did it within his own portfolio. And he said, he developed a test on AI threats and opportunities on how he's going to approach it for new acquisitions. Then he went back and he said, okay, if I would apply this lens to my own portfolio, what are they? Where would they fall into? And obviously, he had a select few companies where he said he wouldn't have invested in under the new environment.

And when I dug in a few layers, it was really a case of these were already poor companies, like Mark alluded to earlier. They had high attrition. They weren't great businesses. They didn't have good moats. And at the end of the day, they've turned out to be bad investments, not bad. I mean they still have good returns, just not great returns. And so it was hard to figure out what was really AI that was impacting those businesses? Or were they really just poor businesses that we didn't fix and improve the moats?

So it's a difficult question to ask. And I think everyone up here will tell you that there's probably a few horizontal solutions that they wish they wouldn't have bought. But in reality, those weren't great companies anyways. And I think that's kind of the discussion that you end up going down.

I mean core businesses remain core businesses, and you'd like to sometimes have another shot at whether you bought them or not, right? So...

Sure. Any kind of point solution that has high attrition, AI or no AI, is going to have issues. So looking back, I don't know, the 30 years where we've acquired these businesses, some of these businesses, sure, maybe we shouldn't have or maybe there could have been ways to fix them. Maybe now with AI tools, we can protect them better, all sorts of possibilities. But it's certainly those troubled businesses that aren't great.

We still get decent returns because it's all a matter of the pricing and how much we can fix these businesses. But I think with AI tools now, we could probably do something better for those businesses. They're not gone. But then, again, we can always try to go back and revisit, should we have done that. Happy to say that it's probably a very small minority of the businesses across the board.

Excellent.

Anyone else?

Thank you, Dan. Question over on the right.

I'm a shareholder from Pittsburgh. I believe in the circular, it said that Mark Miller elected to forgo his salary and bonus this year. It seems like a great deal for the shareholders. Thanks for that.

Yes. I just carried on what Mark Leonard did. And I really care a lot about this company, and I took this job to help this company and the shareholders in it. So..

Mark wanted 0 comp, and we wanted to pay him something.

So it's really just for -- I really just want to try to help this company improve and continue to increase its intrinsic value over time.

My question was just what the motivation was.

Yes, it's really just in the best interest of the company, and I hope it can help in some way.

Thank you so much for that question. And switching over to -- actually.

Thank you, Mark. Thank you, Mark.

It's actually question 10 here in the middle of -- I think the last question.

I had a question for Mark Miller. How different Constellation 2.0 under Mark Miller would be as compared to Constellation 1.0 under Mark Leonard? And similar question on the same line, how do you think about retention of the people, key and risk? So none of your experienced guys go out there and create a [indiscernible].

I think it's really continue what we've done for the last 3 decades. And I don't think there's any fundamental changes to what we're doing. I think we're trying to learn some new skills, for example, which maybe were some old skills, but we're refining them as, for example, with PEM. And I think we've got to learn and continue to grow that part of our -- if you want to call it, muscle because we've got to -- we've got a lot of capital to deploy, and I hope we can continue to compound for our shareholders. And we'll have to become better at some of those things than we were before, I think. And I'm very looking forward to that.

So -- and I think AI is just a nice -- I think I said that earlier, it's just -- for me, it's helpful because it shakes up some of our businesses and gets them thinking about customer-driven mentality. And we just got to make sure that we get a good return on that investment in what we're doing right now.

So I don't think much has really changed. And you can see the team up here has expanded. And with a couple of dozen people at head office, there's -- really, we depend on each of our business unit leaders and all the operating group leaders to continue to -- the ones who generate all the cash, and we're just fortunate enough to be able to help deploy it. So honestly, I don't really think things are going to change much and focus on developing people.

That's actually a nice segue. We've completed the first round and a half. We'd now like to move to M&A. And I'll turn it to Howard for the first segment.

Yes. So the other key branch of Constellation, course. And of course, the first section, of course, relates to AI and M&A. And so the first question here is about terminal value. So there's lots of innovations. And so there's a worry maybe as you evaluate software businesses, maybe you should be concerned about terminal value. So how is your thinking on that evolved? And have you kind of integrated that into your process of evaluating companies?

Yes. There's been a fundamental shift in terms of how the investing public views publicly traded companies and everyone has subsequently taken a haircut, including us. I don't know. I see the businesses within Constellation and the folks at the AI accelerator that we saw near the airport yesterday. And I see a whole bunch of people really pumped about what they can produce for their customers. And if you go back to that earlier question, are we going to be laying off people? I see the tremendous amount of capacity that we have going forward available for our guys to develop more and more products for our customers. So they're going out and the general managers of the BUs are going out to speak to their customers and trying to figure out what their pain points are. And all of that backlog of stuff that they've always wanted to do but never had the chance to deliver because it was just so tough to do. They're jumping in right now, both feet, getting everybody involved in trying to figure out what to do for their customers. So I don't see that terminal value diminishing the way that people have seen that in the public markets. And I think there really is a disconnect. Now maybe there are some businesses that are on the fringe that maybe it could be copied really quickly, very easily replaceable. I just don't see that. And so to me, fundamentally, I believe in the businesses that we're running here. And just the shift in this tooling that we have in our shed that we could just take advantage of and deliver everything that we need for our customers.

Is it fair to say that then for the kind of broad M&A process across different operating groups, you haven't really put in any new kicker for terminal value assessment or anything like that?

I haven't. Have you?

No. I'd love to..

No, no.

Yes. And then on assessing AI businesses, the shareholder was kind of asking, have you built any framework for assessing acquisitions of AI-first businesses? And how is that maybe similar or different to previous iterations of technology, SaaS, mobile, all of that?

Yes. So AI-first businesses. So right now, what we're looking at in terms of acquisitions, whenever a prospect comes into our sites, and we're going through the motions. Part of our diligence now is assessing their vulnerability to AI. And it varies from one operating group to the next to see how they assess it, but that definitely goes very much into our thinking to figure out whether or not there is a vulnerability. But not only that, we also look at a lot of these businesses that are really in their infancy stage in terms of using the AI tools. And because we're gaining all of that experience of using this stuff internally within our businesses, we're also looking at how we can apply this stuff to the new businesses that we're acquiring to see if there's any upside. So we're taking both of those into account.

Yes. The due diligence is giving you internal lessons as well.

Absolutely -- and what we love to see, now we have 1,500-plus business units. We love to see the results internally so we can use those lessons and apply them to future acquisitions.

Which is how we've done everything from the start. Yes, we always learn and...

I think some of these businesses come in with their own lessons that we can take from them as well and fabulous people, of course.

Yes, we've learned everything from the businesses we've looked at Bernie since '95, right? AI is just another aspect of...

And kind of an offshoot of that is if any of these kind of AI businesses you're evaluating, they're using one particular frontier model, how do you kind of underwrite -- is that a risk? Is that an opportunity, something to keep in mind of?

The code is transferable usually between the model.

There's multiple platforms. It's just a matter of trying to...

Is code is code.

Exactly. So I don't know if anyone else has anything to add.

I think, Howard, like we're not really looking at that many AI-first companies. Let's just be clear, so I think we're looking at a lot of companies that are saying they're doing things with AI to Maurice's point, and we get in and we try and understand what they're doing and comparing it to what we're doing and making our assessments. But I can't remember the last time, one of the ones we looked at was what we would call an AI-first company. You may remember who we are and how we value and what we pay. So I think that's not where we are not yet.

Yes, absolutely. I mean just to underline that, the bulk of the businesses that we see are not AI-first businesses. These are small businesses. They're doing the right thing within their customer bases, and they're doing the meat and potato stuff. But generally, they're not on the AI bandwagon yet or very few are. And the ones that are, are just using the basics. So we're not looking for AI-first businesses.

We've seen a few, but they're usually they don't have customers and they're sort of out of money. I don't think there's a huge -- we're not seeing huge competitors in our segments. AI-first companies is killing it. We are seeing people who've put some money in something, trying to build something and can't get the distribution.

Right. You could probably point them to the SPAC market instead of. They could change their name and add AI to it.

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That's easy.

Yes. So maybe switching to hardware. So you mentioned last year that you studied Motorola Solutions and Hexagon. And do the development in AI make you more interested in hardware? I know Mark is a big brand of hardware.

We always -- I mean, like the Valaris has always had a lot of opportunity to deal with hardware because we deal with a lot of buses and trains and there's a lot of vehicle devices. And I've always liked hardware. I always think it's -- I think it's -- you want to do as much as you can inside that vertical. You obviously want proprietary hardware, hardware that is special and unique to that. So I really like hardware a lot.

Does AI help us with it? I mean when you're doing hardware, it's a harder business. You got to worry most -- a lot more about working capital. And generally, the hardware is embedded software on it, so it might help you write some of the embedded software inside the hardware. But I have never had a problem with it. Maybe we'll do more of it, maybe we won't. It will depend on our -- what becomes available to acquire. So -- but it's perfectly fine for us to do it.

More of an opportunity?

I think so. AI doesn't help or doesn't change that game.

Yes. And then maybe just the last one on the section for me is on horizontal businesses. So we've kind of talked a bit about that. And there's a belief that obviously, VMS is more insulated than horizontal businesses. And does that change your framework for acquiring horizontal businesses given AI? Or has it always been the same?

It depends on the situation. I mean if you're horizontal in a specific geography, like that's one thing. So it depends on the situation and the price and what we really think the long-term value of that business will be. So I don't think it's affecting us at all in our decision-making now. We're going to look at that business on an individual basis and think about what the next decade of that business might look like under multiple scenarios.

Speaker 31

Right?

Yes. I can add that many of the horizontal businesses that we do buy have their own moats despite them being horizontal, and that's what we do look for, something that's defensible.

If not, we'll model it up accordingly. Exactly, which affects what you can pay for that business, obviously, if the moat is not comfortable or

I'll turn it to Larry.

Okay. My segment is on PEM. We heard a presentation about the topic earlier, which provided, I think, extremely valuable information. Nevertheless, we got a very large number of questions about this topic, and so we'd like to pose a few of them. We'd like to front that by emphasizing that we are very grateful for Mark Leonard's continued involvement in this endeavor as an adviser.

We're also happy with your keen interest in this topic. But we also want to stress the need to be particularly careful in this area around proprietary information related with this strategy as well as the fact that it can involve 2 public companies and concerned about revealing nonpublic information. So with that front, a few questions, if I may, Mark. Here's a simple one, at least to read.

What edge does CSI bring to the PEMS strategy?

Well, I mean, we're clearly -- we have capital and a lot of people have capital, but we really understand vertical market software I think, reasonably well. We've had a fair amount of experience over the last 3 decades to understand the vertical market software companies. So I think those 2 combined are useful. And we also know sometimes a little bit about the verticals that these companies are in, which I think can help. And we're also comfortable buying being investing in businesses that require some help. Bernie, I mean, maybe you could elaborate on.

Yes, absolutely. I mean our deep expertise in software for -- we've been at it for over 30 years. I think that helps us a lot. I think we have a lot to share in terms of how we do things. And so our expertise in that, plus with serial acquirers. You don't see very many serial acquirers.

In our M&A conferences in the past, we've invited heads of serial acquirers that are non-software as well, and you've been through a couple of those -- and there are tremendous similarities that I think our experience could help. And I think we have a lot to offer.

We've talked a lot about compensation, about investing incremental capital intelligently in measuring those things. And we think those are useful for people who care about these businesses over the long run. So I think it's...

Second question. In a PEM structure, how does the underwriting process discount or account for the friction of having to persuade a legacy Board or management team to adopt Constellation's capital allocation discipline.

Sure. You want me to take that?

Yes, you take that one.

So if you think of the way that we've done acquisitions to date, we buy businesses lock, stock and barrel, and it takes 1, 2, sometimes 3 years to get them up to speed with the best practices that we use to run our businesses. And so if you think of a minority shareholder and how much influence you can have on a business that you do not own 100%, it will obviously take a little while longer in order to influence management to do the right thing. And so what we believe is that we have to get them at a lower price than the businesses that we are actually acquiring at 100%. And so you will see if we measure ourselves at the same IRR that we measure 100% ownership, we would have to get these businesses at a lower price.

Okay. Many -- a third question to this segment. Many conglomerates with meaningful public equity holdings trade at a persistent discount to net asset value. As Constellation builds out its PEM strategy, are you concerned the market may apply a similar discount to these holdings over time?

Yes, I don't think so. I mean you could see funds that are out there that are closed funds that invest in individual publicly traded businesses and you can go invest in them. But yes, the closed funds themselves have a discount to that. I think that over time, if you look at how our performance will just -- how we perform over time, I don't think there would be a discount. If there is, so be it. It will vary over time. Just the same way our intrinsic value is one thing and the price is a different thing. And there's nothing that we could do to predict that price and to change it.

And I think conglomerate, it's still vertical market software, what we're doing. So it's not totally different business.

Yes. What if the market fully reflects the value of the company and you no longer see the investment as attractive? Would you depart or protect your reputation as a permanent owner? I mean is a...

The first word is permanent, I think. So -- and being a permanent owner, you've emphasized it several times this morning, buy and hold forever. How do you think about that...

Yes. I mean selling the businesses, if the price runs away with us, that just doesn't make sense tax-wise. It just would be tax inefficient. And I think what we would do is have or just see like-minded investors piling to the business that we're in. and just keep holding on to it for the long haul. We're not in the business of selling high-priced shares to people that are unaware of what's going on within the business. We're literally in there permanently.

Better things to do with our time.

Yes. I've got 1 or 2 more questions on PEMS, and then we'll return to the audience. So if you want to think about questions and lining up now is a good time. So either the ultimate or penultimate question and this one is, how can you generate cash from public investments from PEMs? Are these -- are there strategies with special dividends? Are you -- as you technically do not generate free cash flow from the public investments, which won't help you grow free cash flow and reinvest the proceeds. How do you think about that aspect of it?

Sure. The way that we run our businesses is exactly that. We look at areas to invest in. So if it's R&D, if it's particular initiatives that we're doing within our businesses, that's where some capital goes. Then there's capital deployment in terms of acquisition. And so we'll take a look at that and see what's available for acquisitions. And so we would apply those lessons to PEMs as well. And when there's excess capital within the operating groups, what do they do? They send it up to headquarters. And I think what we'll try to do is influence businesses that have excess capital to return it to shareholders if they can't find anything else to -- that gets a good return on invested capital, the way that we measure it they should be measuring it themselves as well. So any excess, we would hope to get it to be returned. But we would want businesses to continue to invest in what they're doing as long as the returns are appropriate.

Excellent. I think I will ask one more, if you don't mind because I think it's got a subtle learning in it. The questioner is looking for clarity, I guess, in her understanding of the blueprint of the PEM strategy. Here's how they describe it, then they want to know if their assumption is right. So the plan is to buy shares, see if the company is okay with being taken over but if not, try to steer decisions in a certain way and reap the benefits of the improved operations. Is that a fair description? Or are they missing something there?

If you think of the process of the way companies are for sale, it doesn't work that way. You don't knock on the door for -- in a very large business, multi -- we're talking about multibillion-dollar businesses. You don't knock on the door and say, are you for sale? And yes, we are, okay, here's the check. But nearly always, and we've had the opportunity to bid on companies, publicly traded companies that are for sale. They are hand-in-hand with typically an investment banker that takes them out on a roadshow with a document and an investment -- confidential investment memo that talks about their business, and they do an appropriate job of scouring the world for appropriate buyers. Once that happens, you have to pay a premium over market to get that business.

We're not in the business of paying up for these businesses in an auction. It just doesn't make sense for us. We want to go to the places where they're undervalued. So it's not that. It's really not. So we're looking for undervalued businesses that are out there and we'd like to get in and try to influence management. And what we're looking for is that the appropriate managers are in place, the incentives are in line with shareholder expectations and that their capital allocation is sound. It's very simple. It's really want to align those businesses with shareholder requirements.

Thank you for that clarity, that clarification. So let's turn to the audience again. I think we're up to question 10. This one will come from the middle aisle.

Andrew Rosenblum from Bonsai Partners. My question is around the compounding engine that we have. I think it's one of the most important things that we do. We understand where capital comes from and how to redeploy it. PEM is different because it doesn't return the capital back to us, and it doesn't give us the capability to take it from potentially cash flowing but low incremental ROIC opportunities in that business to put it somewhere else.

So my question to you is, do you have to -- because the compounding engine sticks in the business for PEMs that we are buying in the public market. Is the bar just intrinsically much, much higher that we have to be completely confident that, that business itself will be a compounding engine like we are. And therefore, we need to hold it to a different standard of business, not just a VMS at a cheap price.

Bernie sort of answered that, right?

Yes, that's a very good question. So you have to remember how we got here, okay? So we had a slide up there earlier that said we had how much, $3 billion of dry powder. We're trying to invest that capital, and it's a very tough slog. It's tough despite the number of VMS businesses that are out there, it's tough to use to redeploy all of our capital. And that's why we came up with the idea of PEMS. So the idea of PEMs is to use some of the capital that we have to find undervalued opportunities out there.

Once we find those undervalued opportunities, the idea is actually trying to find those opportunities is to figure out the businesses that have the highest probability of being receptive to our influence. So that goes hand-in-hand with what we're looking for. Folks that have been shareholders of these businesses are probably looking for some kind of catalyst for these businesses to improve themselves. And like I said earlier, there are a number of ways that these businesses can invest their capital. And so it's R&D, it's various initiatives within the businesses, whether it's geographic, product, et cetera. There's buying back shares, there's dividends, all sorts of different avenues. So we believe that over time, using a number of different ways to improve businesses that we will reap the benefits of the improvements of those businesses. I hope that helps. Thank you, Andrew.

Thank you very much. Question. Is it 13? Lucky 13.

Joseph Sai from Ringler Equity. A question on the same topic. You may generate as much or even more than $20 billion in free cash flow over the next 5 years or so. That's a really, really tall task. I wonder because it seems as though buybacks are probably unlikely given that you haven't done one at this level. Dividends have culturally not been very high on the list. So just wonder, outside of PEMs, do you have any other ideas or evolutions that you might introduce over the next 5 years to help with the capital allocation?

Sure. Mark, do you want me to take that?

Yes, you can. Okay.

So what -- so PEMS is one of them, obviously. If you dial back the clock, I don't know, a couple of quarters, Mark Leonard also mentioned style drift. I think we're looking at other areas as well, services, tech-enabled services and other areas as well. So it's really in its infancy stage. And so we're experimenting with different places, areas where we've had a little bit of experience in through our software investment. And so we are looking at other avenues. It's not just going to be software. Of course, the bulk of it is going to be software because that's what we're really good at, and we've studied that over the last 30 years. So you can -- you're going to continue to see a lot of that going forward, but there's a possibility of new stuff that's coming up.

One follow-up on that. Follow-up. Go ahead. A followup on that. do you think you'll see more PEMS investments over the next 3 years or more Stylerift investments? -- answer?

I can...

We were talking about a lot actually, and you can't really predict that. So it's just nice to have different tools in the shed that you can use based on the current situation, right?

Yes. Now PEMS is still an experiment. We're just starting out and just like a couple of other areas we're poking at, still very early.

Excellent. Thank you, Joseph. Question 14 in the middle.

Daniel Lee from WCM Investment Management. Thanks for hosting the meeting. Good to see you back since 2019. Kind of a follow-up to the prior question on -- I think I might be wrong, but I noticed there's a business unit that's focused on industrials. And so it's kind of to that style drift point. I know there's a lot of experiments happening, but could you help us get a sense of how you think about approaching kind of new industries that are outside the direct kind of vertical market software realm? Do you approach it first with the same hurdles, IRR hurdles first? Or is it more of a business model thing first? And how do you track those experiments to see whether they should kind of dial it in more or kind of pull away?

Well, every investment we track and have tracked forever. So -- and I think in our decentralized structure, there's some experimentation just that naturally happens and ideas that come out. And we -- depending on the operating group leader and which portfolio you're in, we sort of -- we will allow those experiments to happen, and then we'll measure how that's working out and then consider whether that's maybe that's something we could do more of. But it kind of -- I would say it happens organically. Wouldn't you say?

Yes. And we'll measure them the same way, same IRRs. It just so happens that VMS is a really good industry to be in. So we'll just have to measure them accordingly with the same level as our own VMS acquisitions for sure.

Thank you, Dan. Thank you very much. We'll actually come back. So we're going to pivot back to the panel now, and we'll actually have some more questions about investments outside of VMS in a moment. But first, we'll turn the table to Will with some questions about general M&A activity.

Right. So VMS is a great industry. There does seem to be some sort of gradation inside of VMS. The question asks, the phrase mission-critical is used to describe just about every software business. When you are evaluating businesses to buy, how do you assess the criticality of the software to the end customer? And can you illustrate with some examples of businesses where you've walked away because the software didn't meet the mission-critical criteria?

I can hand it over to the other guys and does someone else want to take that? It's a great question.

For sure. Yes, happy.

Yes. So we always think about if the system goes down, does the customer go out of business? Can they not run their business, right? And so if you think of it that way, that's the ultimate mission criticality. And then you sort of take that part of the continuum and you go to the other side of the continuum, which is if the software stops working, the business should pull out a piece of paper and hand write things down and keep going. And so that's how we think about it. And then we have that judgment that goes into it. And most of what we look at is on this end of the continuum, which is the business really stops working and you've got to be able to fix it and all that kind of stuff.

But on this end of the spectrum, we do have some businesses, and we talked about marketing this morning. That's one of the businesses that probably pivots closer to this side of the spectrum than this side of the spectrum. And we have some of those in Jonas as well that are closer to this side. And when we go, I guess, closer to this side of the spectrum where it's less mission-critical, we often do it in a vertical we're already in. So it's like an add-on product on top of a mission-critical system. So that's how we think about it. And if we're going to this end of the spectrum, we hopefully price appropriately, and we think about that in the price we're paying and what we're willing to buy the business for. And if we get to this side of the spectrum, then we know it's probably inherently good business. And one of the key indicators is obviously attrition rates, right? So when you're in this end of the spectrum, you tend to have very low attrition rates. When you're on this end of the spectrum, tend to have higher -- much higher attrition rates. And yes, I met -- I was talking at dinner last night to one of the Harris folks, and they have a couple of businesses with 0% attrition. I've never seen that. I'm just jealous of Jeff over there. I'd like to know what that is.

So the middle of the spectrum, just to add to that, the middle of the spectrum is, say, a departmental solution where we have the main system of record, but there's a little department solution that could be mission-critical to a handful of people within that organization. So the business doesn't die if you pull the plug on that add-on, but that's mission-critical to that group. So then that's kind of somewhere in the middle.

I suppose unasked but implied in this question is, to what extent are you looking for mission criticality specifically as a qualitative measurement as a qualitative criterion versus as a -- it happens to be mission-critical because you've looked at the attrition rates and those tend to be low. You know what I mean?

Yes. We use a business quality checklist that we've used for, I don't know how long, Bernie, but -- and it's in there, but there's other aspects to it. And so it's not the only thing we look at, but it's one of the key things we look at is that mission criticality and the business quality checklist. And obviously, the higher you score on the business quality checklist, the higher we believe it's a great business, and we might want to stretch to make sure we acquire that business. And if it scores lower, then we hopefully price accordingly. But it's not the only criteria on the checklist, but it's definitely on the checklist and a big one.

Great. Robin, a couple of questions for you. Slightly over a year into investing in Asseco, what lessons have you learned about minority investing that might inform your approach next time around? Can you elaborate on how Ako has changed for the better following the advice of Topicus executives that have joined their Supervisory Board?

So it's less than a year because I believe we're a little bit over half a year in it. So that's one. And it's a great business. It's -- I mean the founder, Adam Gorell, built this business. It's a kind of to and he built it out with his team. So that's -- it's a great business, and we like it. And what we try to do now is, as Bernie and Mark Miller referred to, is to have discussions with the management team. So that's the part engaged. And we show them our tools and the way we think and all that things, and it goes step by step. And they're trying to get their head around things we do and things they do. You want to continue them doing what they do very well. And hopefully, we can add some things to it. That 1 plus 1 is more than 2. I think that's very important in this partnership. And there are also partnerships when it's less than 2, but you try to do that together with the company and the management. And yes, we're on that path, and we have 3 persons on the Board, and we have good dialogues. And I think slightly different than like I said before, buying a whole company. But like Bernie said, it's the feeling that people are open to what we do and how we think. And I think we have great discussions there with management. But like I said, it's half year that we're in it. So it's a bit early to tell where we're exactly standing.

The second question on this is, to the extent that they do M&A at Asseco, how do you address potential overlap in targets? Do you have some sort of deal registration database the same way that the whole company sort of registers its deals and which ones are carved out to the different groups?

Yes. So they're not part of the Constellation system. So they have their own they did M&A, and they can continue doing M&A. And then we have resolutions about if there are potential conflicts of interest, we have to solve that. But they do what they do. So they're not part of the Constellation, let's say, database or whatever you want to call it. They're not part of that.

Okay. This one is a question about private credit, particularly around software. So to what extent has the dislocation in private credit, particularly around software assets and portfolios created new potential investment opportunities and ways to deploy capital? I suppose the question is asking if Constellation is open to investing in credit as opposed to equity historically.

Well, we know that the opportunity is out there. We know that there's some distressed debt out there with respect to software investments, but it's a completely different world from equity investment. And so right now, we're looking at things, but we're not diving in. We know that it's a scary world just because of the way that businesses restructure debt. Sometimes it's just difficult to hold on to a piece of paper and make sure that, that piece of paper still exists at the end of the restructuring or whether it's worth that paper at the end of the restructuring.

The other aspect of it is it's a very short tenure tenure type of investment. So debt is typically what, 5 years out or 3 years out. And if it's distressed, there's going to be a restructuring that happens in short order. So we're in the business of long-term investing, so permanent investing. So it's very difficult to shift ourselves from going to -- from long-term investment into debt that has maybe 2, 3 years and then you get all of your money back, more of your money -- more money than you expect, some of it back. Anyway, it would go back to what we did 25 years ago, these short-term equity investments. And I don't think that really fits with our model, but never say never.

Great. We had a live question come in. What is your view on the market's consolidation rate and hurdle rate? In other words, will you run out of small profitable companies to buy? So a question about your runway.

You guys want to take this or...

Take it.

Yes. So our runway is still huge. I mean, going back to profitable, we don't -- I think we've said this various times. We don't look at profitability. We look at a business, mission criticality, attrition rates, loyal customer base, employee base, all sorts of aspects of these businesses. And our database of these software companies is still quite large, and it's still building. And if you think of what the software world is all about, especially now with AI tools that are out there that you can get more software businesses that are created on a regular basis, the number of acquisition targets that are here today will be multiplied several fold over the next 10 years or so. So I think that runway still exists. don't know how software or what software will look like 10 years from now. It could be a completely different story, but I firmly believe that those prospects are still there.

Startups...

Howard?

Can I just -- the panels had a bet about the likely population of the online group and Howard won the bet. There are 1,150 people online is the congratulations, Howard.

So this section, last one for the M&A is more about larger M&A and also outside BMS. So on the recent earnings call, you were asked about valuations and kind of said you haven't seen much movement. And if this kind of persists, do you see valuations start to decline more for smaller acquisitions or the larger acquisitions in private markets? And does that mean you should focus your efforts towards one or the other?

Yes. So going back to the debt discussion that we just had, the leverage discussion, a lot of the large acquisitions are levered, right? They're private equity acquisitions. And some of those -- some of that leverage is up for refinancing probably within the next 5 years or so. So it all depends on what those debt markets look like in terms of influencing whether these businesses are put up for sale. Otherwise, they will just continue to refinance if they're able to do so. But with the SaaSpocalypse that's going on, who knows how that's going to work out? I mean there's billions of dollars out there in leverage for some of these software businesses. So time will tell.

I think we might see something in the next 5 years or it will prove out in the next 5 years, whether that's up or down, impossible to tell. But we stick to our bread and butter, the smaller businesses. That's where we get most of our acquisitions from. And I think those will be coming up for sale on a regular basis, and then we hope to be front of the line ready to acquire more of these businesses.

Maybe an update on VMS Ventures. So the shareholders are wondering how many investments have they made? How they scaled successfully? And any kind of spillover benefits? And also some -- are there any kind of AI-focused ones that I know there's been a...

Let Don answer that question. Do we have...

Don is in the crowd here.

Microphone flew all the way over here. So Don is -- I get to participate in VMS venture calls easy once a week or once every couple of weeks, and I just love Don, and I appreciate it. on a plan...

Yes, we see...

Yourself first, Don. Well, I'm...

Nice to meet you.

What you do.

And a couple of years, we started the venture fund with Carl Shas. He's also here and Mark Leonard. And what we see, we started very slow, looking for the right angle to make this corporate venture running. And in the past year, we see additional traction in AI-specific companies. And as you might know, it's an internal corporate venture investment committee that we run. And in the past weeks, months, we closed around 2 of AI-like start-ups.

So one of those was already mentioned by ClickDimensions with the agents. It's a product of VMS Ventures that they actually use. It's called Rea. And it's a low-hanging fruit way of deploying AI agents, something like that.

That was good on the VMS Ventures.

Don, thank you so much.

It's great your son came over with you as well.

And then just the next one to David. So this shareholder is asking, in many carve-out situations, the seller's objective is to make sure there's a smooth transition with the buyer that has a credible operating model and execution, which you've shown. Are there carve-out situations where Lumen already has the support of the seller, but closing is deferred mainly because Lumen doesn't have the organizational capacity yet or timing alignment to absorb the asset?

Yes. No, definitely not. So we -- as I said earlier, we're always 1 year in advance on building placement infrastructure, so where to put companies and obviously, M&A capacity to deal with opportunities. So yes, we've got lots of places to put companies, and we've got capital and the will and the credibility and the barriers to entry are very high on carve-outs because they're extremely complex, especially the larger ones with dysfunctional sellers. So that's a big focus area for us, and we've got, I wouldn't say unlimited capacity to deal with it, but we're far away from being organizationally constrained.

You're scaling up the team thinking.

Yes.

And maybe a really broad one to kind of round this out. If Constellation's objective is trying to deploy 100% of free cash flow over the next decade without materially increasing dividends, what do you think the company needs to do differently from the last decade to make that possible? Is that acquisition criteria, which we've touched on a little bit, lowering hurdle rates, exploring additional changes?

It's really developing people like we got to continue to develop people like we have because we deploy the capital because we have a deep bench of people throughout this organization. And if we don't continue to develop that, if the leaders of our leaders of our leaders aren't developing their people, that's going to be our challenge. And it sounds like an apple pie motherhood thing, but it's very true, especially if you decentralized capital deployment, right? So you need to have people out there that you measure and you trust and you develop as they learn the ropes of capital deployment like all of us did that are up here.

The audience here. So Howard will ask one more question in this round, and then we'll turn to another segment of audience questions. So if you think of one and join the mic, you have the last question.

Yes. And the kind of flip side of that is if you cannot deploy all your capital, you do and if it's below your magic buyback or above your buyback number, what else will you do with capital? Answer we had for...

Yes. I mean we've done special dividends in the past. So there are many ways to allocate capital. And obviously, we wouldn't endeavor on a buyback if it didn't make sense for our shareholders with our high rates of returns, but we have used special dividends in the past.

We're not going to buy the jets though.

All right. That's...

Thank you so much, Howard. So it looks like there are no shareholders at the mics or traveling. So it will be question 15 from the audience. Next in the middle aisle.

Again Investment Management. I guess a quick one on just PES. Given how it's kind of above deploying Constellation's own operating best practices into these companies. Is it fair for us to kind of look at it like, let's say, 5, 6 years out, if we look at these companies then, given the kind of time delay it will take for these best practices to get absorbed? Would that be a good indication of how some business units actually are transformed inside Constellation? Like in a way, it's for us, we can monitor it in a public sphere, how these operating practices actually get digested and how the actual financials are evolving? Or would it be a little too different?

Personally, I hope that the performance of the business will show up in the financials. I don't know about the share price, but the performance is in the financials, and that's what we really care about, and that's what shareholders really care about, right?

Improving the intrinsic value. I think the difference though is when we have control, I'm not sure we would be 5 years patient.

I think we would be. But I don't think internally, we would typically be that patient.

Thanks, Dan. Question 16 to the right side.

I just have a question on talent development. You mentioned about leadership development is extremely critical. But everybody has their DNA. Some people are born to be better operators, some people are born to be capital allocator. Just wondering how much patience do you give to younger leaders in terms of how you measure them? And what happened after a while that they just -- they're not successful and howhivot their interest?

Yes, like we did, like I was running Valaris a couple of years ago, and we did an event called Quadrant in London. And I decided I'd invite like 4 or 5 people on stage and just to interview about their careers. I think 3 of the 5 started as interns and we're running portfolios.

So we have a list of who you are. We have a list as to what you've done, what returns you're getting, what performance you're getting from an organic growth perspective. And we just want to develop those people. And some are, you're right, some are better operators, and they're better at making businesses run better and some are better at allocating capital. And we'll just try to filter that out throughout the organization. I think all the people up here do that well. So that answered your question. we really want to do that. It's a very important part of our culture.

Is the question that do you think you have -- that people have to go into M&A to be successful or...

No, there are people interested in going M&A, right?

Everybody is interested until they get there.

Yes. I mean they get there, but sometimes they run into difficulties of not being able to find the right opportunities. So some people want to go places they probably shouldn't have went, and that's just how it is inside of a massive ecosystem of consolidation.

Certainly, we're trying to not create like we want -- if people are really great operators, we love them to continue to be really great operators. And M&A has a slightly different skill set. Some people adapt to that and some people don't. I don't want to do is lose a great operator by sourcing them to adapt to be an M&A if that's not in their DNA.

But a great operator also has very good judgment. So they're somehow helpful with M&A as well because the judgment on whether to make an investment, right, is -- it requires some thought and judgment despite having all of our metrics and experience. And you really -- it's a really difficult problem when -- whether you want to like promote a great operator into helping you allocate capital is one of our challenges.

Thank you very much for the great question. We're going to getting close to closing time day 1:00 p.m. We got about a quarter of an hour, and we'd like to pivot to the final segment, the final topic, governance sort of defined broadly. A couple -- I think this is a relatively quick question. and it's probably for Jamal, but what is the total percentage ownership of Constellation stock by employees? And in 2026, how much stock will employees purchase as bonus reinvestment?

Yes. So employee ownership today is around 6%, and that excludes Mark Leonard and his family office, which was another 7%.

In terms of the bonus, like -- again, there's a lot of the leaders that are on the CSI bonus plan, but the number of people actually bought bonuses for this year is only like 4,100, right, out of 69,000. So you got to remember, it's still only like 6% of the total, and that represented Constellation employees about CAD 80 million and for Topicus employees about $15 million. So it's a decent number, but yes, it's not pervasive across all of the 69,000.

Second question in this segment is asking for an update on your scheme to allow employees to invest into the underlying businesses directly. I think Jamie and Jeff question.

Yes. You guys both want to?

And Jeff...

Yes, it's going well. It's for employees in Canada and also the U.S. So it's geographically specific. We've got a group of engaged employees who are in this experiment. And early days, I think it is, again, it's that long-term compounding outcomes.

Jay, if you want to. Yes, I would say -- so year 2, year 1 was Canadians only, year 2 is Canadians and U.S.-based employees. The size of the pool quadrupled, I think, for us in terms of dollars available. But the first pool was post tax. The second pool is pretax, just the way the rules work out. So I think it's going well. The people who are in the pool seem to enjoy it. I think have a lot more conversations about investing and being an investor and a lot more engagement around the investment. So I think we're happy.

I'm going to ask 2 questions to John and then invite an audience question and then ask one final fireworks question.

The question is for John. There are 2, and I'll -- the first one concerns CEO succession planning. We've just been through one and are already planning for the next one. This one is going very well so far. But this is how it's written. In light of Constellation's increased scale, complexity and decentralization, could you comment on the approach to presidential succession planning? In particular, what leadership attributes do you believe will matter most for the next president? And what processes are in place to ensure that qualified internal successors are being developed over time?

A lot of questions in there, Larry. Larry is actually on the HR committee. I'm not. So I feel like [indiscernible]. I'm happy to answer it. And I just wanted to echo Mark Miller's comments that all the employees and shareholders couldn't be more grateful to Mark Leonard for his 30 years of leadership. And we wish he was here today, but he couldn't make it. And if you have his e-mail, I'm sure he'd love to hear from you.

And the process, obviously, in the last CEO transition was, from our perspective, pretty clear, pretty quick. We had a process in place. It obviously happened under circumstances no one wished for, but it was pretty smooth from our perspective. And obviously, we're very grateful for Mark for stepping in.

Moving forward, I think one of the parts of the questions were the attributes, and this is something I think is pretty critical the way we think about it. And there's a few of them that are absolutely critical. One of them, which Mark has alluded to a number of times is the importance of autonomy in the way we operate in the decentralized model. And it's always been the case where it's very, very difficult, I think, for a normal CEO to lock in Constellation that would -- you would never see that because the first thing they would like to do would be to centralize a whole bunch of things. It may not mean building up centralized departments, but it's likely around decision-making. And I think that's the hardest thing for a CEO in our environment to deal with, not only Mark Miller, but everyone else here is you have to enable your people beneath you to make decisions, coach them, and that's the only way we're going to continue to grow, and everyone up here knows that.

The benefit of that is you're developing many tiers of very good decision that we can see their track record over time. And so I feel very comfortable that there is a large bench of people that we can put on the 5-year track, the 10-year track, the 20-year track, and that's largely attributable to the type of organization that we're in and that we're developing those leadership skills through a career, and we're able to track that progress over time. So that is a key part.

And then the fundamental decision that a CEO makes and that everyone up here makes is around capital allocation. I think that's the #1 job of a CEO of a company like CSI. That obviously is around investing in acquisitions, but also if you're running a business unit, it's investing in organic growth initiatives. And then it's also at the top level, it's thinking about share buybacks, dividends. It's really looking for the largest returns for our shareholders for every incremental dollar invested. And I think that's another key attribute that we look for in as thinking about successors for all the CEOs up here.

And then it's the intangible stuff. We're all cheap. None of us fly private jets. We're all shareholders. We're all big, big shareholders. We -- because of that, we act in the best interest of our shareholders -- and it's all the intangibles. Low ego, the things you -- you don't find the big American CEO with making the big salary, negotiating his option package every year. That's the #1 thing they're thinking about. They're using share buybacks as a way to avoid dilution on their option plans.

I mean there's a whole bunch of things that I think all the shareholders who have been in the stock for a long time know and understand, but I think are reiterating when as a Board, we're thinking about succession candidates and what we're looking for. And it's a long answer, Larry.

There were many questions, and you gave many answers. So thank you very much for that. The next question for you, John, concerns buybacks, a word that's been uttered many times, and this one gets a little analytical. Well, there are many came in. And so I actually pose 2 of them. One is a little broader, one is a little more analytical. The broader one is at what price? I don't know if you could say this, set of conditions.

I know you're not going to answer that. What set of conditions would the Board consider -- would you consider -- there are going to be several here, John, but would you consider temporarily buying back shares while simultaneously continuing your deployment efforts after all you have a lot of balance sheet flexibility?

Here's the more precise one. This came in this morning on the chat. So I'll read slowly. When you compare the after-tax compounded return on $100 million VMS acquisition closed at today's prevailing multiples versus repurchasing $100 million of Constellation shares at today's price, which 2 or 3 inputs do you weigh most heavily? And how do you think about the certainty differential between the 2 cash flow streams.

Okay. I'll give my answer and then maybe if anyone else wants to weigh. I mean the way we think about it is we're using the same hurdle rates for making both decisions. We're buying businesses at a value that is far beneath what we're trading at and what other companies are trading at even after we fix them. So we still believe we can generate much higher returns by buying companies than we can by buying our own shares at these prices. Around the question around confidence in cash flows, we have high confidence in both when you're talking about VMS. We obviously have a slightly higher confidence in our own cash flows. But when we're looking at the types of companies, which are 95% of our investments are industries we know, we know how to fix these companies. We're pretty confident in those cash flows, and our track record would suggest that we're reasonably good estimators of that.

Jamal, do you want to add to that at all? Or I think John covered it.

I can't add any...

Anyone else? All Charlie Munger, nothing to add. Is there an audience question? Or shall we go to the final question? There's an audience question. 's question 17. Lucky 17. Second, this is Alex.

Yes. This is not really governance, but it's related to the capital allocation. You made some interesting comments on the most recent call about having built your capacity to do larger M&A relative to the past. And obviously, public market valuations have come down, and those are many of the larger companies. What do you think is the outlook over the next few years for you to do more public to private, larger M&A?

I'd love to be able to predict that. We're just keep plugging away. The good news is we just have, I think, the best team we've ever had on it. So Alex, but I can't forecast the future. Bernie could, I'd love to can. He definitely predict the future.

Yes, he can.

No, sorry about that, but we can't really say we're going to -- we just -- you just -- one of the things you hate in business is when you're not on the field for the game. And you at least want to be involved, and that's one of the things that we're going to work hard on here. And if there's available possible transactions to do, we just want to be able to play in the game. And I think we're probably better than.

I might want to add around one of the reasons that Constellation has kept a pristine balance sheet. And this goes back to Larry's question about why not borrow to buy back shares. I mean we do believe that we want to have the opportunity to take advantage of which could be a dislocation in the market for a period of time. So keep selling vertical market software businesses. We want valuations depress as long as possible.

Yes, I don't want to buy back shares. Definitely.

Thank you, Alex. We've got time for at least one more, maybe 2 if they're short.

Gabriel Boni from YP Capital Partners from Brazil. My question is about AI opportunities for the whole M&A function. How Constellation can enhance the job of the M&A and the business development guys over time and accelerate the process on that?

Bernie is on that.

Yes. So we definitely have tools that are made available to our M&A associates. And so it's a matter of using those tools. And there's all sorts of parts in the workflow from finding the right leads all the way down to doing the diligence and closing the deal.

And so we've built internal tools, and we've used tools from the outside to make that workflow a lot faster, a lot smoother. Whether or not it proves out in increasing the volume that we actually get to close is up for debate. We don't know yet. But those tools are being made available, and we're rolling it out to all of our M&A piece.

It make us smarter.

Thank you. Question 19, probably the last audience question.

It's a quick one. Francisco from Rothschild. Just given everything that's going on, do you expect any changes when it comes to competitive landscape in M&A?

Changes. Are there going to be more copycats, you mean?

All the money that was flowing in.

Would you expect less money to flow into this place?

Yes, hard to tell. I mean, right now, in the last decade or so, there have been a lot of copycats that have been popping up. I've seen some exits of those copycats. I think Exeo is one of them actually -- sorry, yes, Exeo that we bought through Harris. It was a roll-up of software businesses in Quebec. So I'm personally hoping to see more of those copycats maybe throwing in this towel. That would be nice. I don't think that's going to happen right away.

But over time, I think some of these roll-ups might be looking for an exit. And if that is the way it's going to go, hopefully, we're first in line for the first call that goes out. But I think there will be some more copycats that will pop up. Maybe they'll do a different version of what we're doing, but it's -- we'll be out there looking out for them.

Thank you very much. It's exactly 1:00. And so I'd like to turn the meeting back over to Mark Miller.

Yes. Just want to thank the whole team here, all of our shareholders, Mark Leonard, obviously, our panel, which I think -- let's give our panel a hand. Hard to do. You guys awesome job. and Yes. And I hope you found this useful. We look forward to your feedback. And obviously, I have to thank the tens of thousands of Constellation employees across the world that are -- really make this all possible for us all.

So have a great trip back home wherever you're going. And thank you very much for all your time today. And there's a lunch outside, I should say. There is some lunch outside, and yes, it won't be roast beef on the platter with -- but it will be something to snack on. Thank you. Hey, guys, thank you so much.

Good day, and welcome to the Constellation Software Inc. Conference Call and Webcast Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Mark Miller, President, please go ahead.

Good morning, everyone. I just wanted to start off by reminding everyone we have the Annual General Meeting coming up this Friday, and we're hoping today to take some quarterly questions on the financial results for Q1. And so thank you all for attending, and I have both Bernie and Jamal with me to help answer any of those questions. So over to you.

[Operator Instructions] The first question comes from Thanos with BMO Capital.

Maybe one for Jamal to start. So just on the margins for the quarter, I know you have the Q1 payroll taxes and that there were some Synchronoss-related costs. And then is there anything else that you might call out in terms of the margin dynamic this quarter or nothing unusual of note?

Yes. I mean there were some -- a couple of other acquisitions that were a bit of a drag on margins, like the Q1 cohort of acquisitions themselves were actually a negative margin for the quarter, which we totally plan to improve them, and it's a typical thing where we improve margins over time, but it was a bit of a bigger drag this quarter than previous quarters. But if you look down the -- like the line items of what's impacting margins, you can also see hardware margins were slightly down. Again, that's not one of our core products. But again, it was 43% margins versus 46%, and that had about a 20 basis point impact on margins. Professional services, again, for making acquisitions and using third-party services. And then also on the -- sorry, professional services. And then also on third-party maintenance, you can see that's up a bit as well, which, again, nothing material to call out, but as we use a lot more of these third-party providers for coding, et cetera, like you'd expect that to pop up a little bit as well.

Great. And then one for Mark. Now that's been a few more weeks into the SaaSpocalypse, have you been starting to see private market valuations for larger assets come down? Or is that not a dynamic that's transpired just as of yet?

Not really. Bernie and I were just chatting about it before the call, and he was saying maybe slightly. But Bernie, do you want to elaborate on that at all, but not really.

Not really. It's really at the high end, we could see it maybe plateau a little bit, if not declining slightly in terms of valuations, but at the low end where we play with most of our acquisitions, not at all.

The next question comes from Stephanie Price with CIBC.

Just to that comment about the payroll taxes on the last question. Just curious if you've been discussing any changes to Constellation's bonus plan just given the public market reset. And maybe related, how do you think about employee retention in the current environment?

Yes. So we haven't made any changes to the plan. And I mean, I think me personally, I'd say this is a great buying opportunity, right? I don't think we need to change the plan as a result of that. So the formulas for the core management team stays the same. We still buy shares in the market, the same way we always have. And again, we believe in the company. And so yes, there -- no, there haven't been any changes to the plan.

Okay. Great. And then Constellation typically sees kind of larger deals in more difficult environments. I know this is a very interesting time right now. But can you talk a little bit about the large deal pipeline and the appetite for bigger deals at this point?

Well, we're invited to a lot of auctions that are out there by the investment bankers. And sometimes we're able to play, sometimes we're not. Valuations are still high. So we try to get what we can, but competition is still fierce. So...

Yes. The only thing I'd add to, Stephanie, to that is that I think we also have better talent to work on those larger transactions than we would have had, let's say, 5 to 10 years ago. And you need it because they're complicated. There's some hair on them and they're usually spread out over multiple geographies and sometimes are carve-outs from large companies and having experienced people who are capable of doing that is probably something we didn't have. So that helps us a bit. But again, it does come down to valuation for us. And I do think we're on the field at least more, let's say, playing and trying to win those than maybe we were 5 to 10 years ago.

The next question comes from Jerome Dubreuil with Desjardins.

So I just want to ask about the broader software strategy there. We've seen Salesforce launch a headless solution. They're focusing on offering API access that can be leveraged by agents. I understand horizontal and vertical solutions might be very different in terms of how they will approach their integration in an AI world. But do you expect the strategy -- you could take this one as well or maybe VMS is so different that you don't need or you don't anticipate as much change to the UI paradigm over time?

Well, it's -- like I would say it always depends on which business you're in, inside of Constellation. We have many, many businesses and some will have to build agents and some will have to modify the user interfaces, but many won't. I mean customers are obviously hesitant to change their user experience because it's something that their team uses all day to run their business, right? So changing user interface is and way the user interact with the software is a big decision for our client, and they take it under -- take some consideration before they do that.

And one of the things that I always find talking about artificial intelligence and the changes in technology is essentially, you have to convince customers to change their user experience as well, which, in some cases, it requires budgeting, approvals, multiple levels of discussion inside of that customer for our mid- to large-sized customers in particular. So it will evolve as the market evolves, and we just make sure our people are as educated as they can be on these new ways of building software and adjusting to those changes. And we'll talk a little bit more about that at the AGM as well. We get a chance to talk about some real examples on Friday.

That's great. And then second one, another one on the evolution of the software model going forward on for deployed engineering. Is this something you believe in? Could it be initially maybe bringing a bit more cost when you kind of adjust to the new model? And have some BU is started leveraging the strategy more?

Definitely. Yes, there will be some more cost in doing that initially because you're going to be kind of retooling where they need to do it. And some are doing it in advance just to make sure that if there are some changes inside of their markets and new needs for new ways of interacting with our products, they're using it. They're also using it to also try to expand inside of the customers as well, which is which is what I'm hoping to see more of for our more, let's say, close to customer innovative businesses across the world that they use it to step into other areas of the customer and interact with them more because we do have -- because we're so vertical, we have so many different teams in this decentralized environment of Constellation who are out really close to customers in many countries around the world in many different markets, trying to figure out how to make customers' businesses run better.

The next question comes from David Kwan with TD Cowen.

I was wondering if you could talk about the first -- how the first couple of months have gone with Sabre. How are you working with their leadership team in terms of strengthening their business? And how receptive, I guess, and cooperative have they been?

Yes. I think generically, we really don't want to comment on Sabre, David. It's just something that, yes, is left to our -- we have a representative on the Board there and the conversations between Sabre and our director are, I think, going to be kept private and confidential.

Okay. I understand. From an M&A standpoint, you obviously had a pretty strong start to the year and also for Q2. As it relates to the Q2 to date that are closed and pending deals. Other than the Derbysoft deal, are there kind of any larger chunkier deals that, I guess, weren't large enough for Constellation to press release, but maybe were much larger than your typical run-of-the-mill deal?

Yes. There were a couple of larger ones. I think, yes, we're not going to disclose the amounts, but there was a couple of larger ones and a whole bunch of small ones...

And then are you guys are seeing anything different in the M&A environment that's allowed you to be this active on the M&A front over the last few quarters or here? Or is it really just kind of like the ebbs and flows of your M&A strategy in the overall market and you're just kind of going through a good patch here?

Yes. It really is the latter. It just comes and goes up and down as the market evolves. We don't see more transactions than usual. We don't see less transactions than usual. It's just the same amount across the market as we've always seen. So nothing's changed. There's a real disconnect between the SaaSpocalypse publicly traded stuff and private markets. But yes, it's just ebbs and flow of the market.

And it's like any -- sorry, David, go ahead.

No, I was just wondering like are you seeing maybe changes in the behavior of the targets, the sellers, particularly given what's going on with AI that maybe being part of the Constellation family is a better place to be? Or is there anything else that's maybe trying this elevated activity?

No, I think we remain patient. We deploy capital very, very carefully. And I think we -- as I think I said to Stephanie earlier on, I think we do have a bit more talent who are able to think about those larger transactions than we previously did. That might give us a little bit of a better coverage and close rate on some of those, but it's still -- the world has not changed from our viewpoint. It has not. So we'll just continue to plug away at this problem and keep working on it.

The next question comes from Graham Rhodes with Longriver Investment Partners.

Can you hear me?

Yes, I hear you perfectly.

Excellent. I'm calling all the way from Hong Kong. So I just wanted to make sure. I'm going to ask, first and foremost, as someone looking from the outside into your business, I'm trying to think about how to categorize the portfolio of companies that make up Constellation Software and the threat that AI might pose to them. And I'm thinking there's maybe like a low-risk category where we have businesses built around things like mission-critical systems, systems of action. And then maybe there's a higher risk segment of the portfolio, which is more like marketing or lead generation or website construction and that kind of thing. And I was wondering if you guys broadly agree with that classification or categorization. And then maybe as well, if you could comment at all on whether the higher-risk category makes up a material part of your revenue and FCF, HUS and that kind of thing.

No. I mean it's pretty broad the places we're in. And when you're looking at how defensible a particular business is in any environment, considering whether it was SaaS or threats too -- because of mobile computing came out or -- and now because of AI, it's -- I always say it's a beauty is in the eye of the beholder situation. You can kind of try to say, well, this business is more at risk because of this. There's a couple of things that you need to really understand about our businesses is sometimes even though they might be in more, let's say, I consider sort of horizontal-esque, if you want to call it, and you think more vulnerable places, it depends on the addressable market size of that particular niche and how defensible it is and how close they are to their customers. So -- and then on the other spectrum, you have ones that are generally have lots of departments involved, and they appear to be more sticky as well because of that. So it's very difficult to do that in any sort of quantitative way.

It really depends on the leaders of that business. We're so decentralized with hundreds and hundreds of businesses around the world. It depends on the leaders of that business to just make sure that they care of the needs they're in. And we're generally not taking on very large horizontal companies in many of our niche verticals because niche plays because that's sort of how we defend our market position by being small and intimate with dozens or hundreds of customers, not trying to have tens of thousands of customers. So I don't know if that makes sense to you. And where you're going to get attacked by AI is if it is a problem, it's going to be maybe where you least expected, you'd expect any time there's a high churn, high attrition business, maybe more so, but that isn't a large percentage of our recurring revenues anyways. Yes, it's just a difficult question to answer. You can cut it in so many different ways. We just will depend on our leaders to find the best solutions for our companies in each of the situation they're in.

That's really helpful. A follow-up would be just in the last couple of months, really since the start of the year with the launch of Claude Code and OpenClaw and Agentic AI. I was wondering if that's changed your perspective at all on the competitive risk -- and if not, like what would it take for you guys to see this less something that can enhance productivity and more something which can be a direct threat or even an indirect threat on like pricing and your ability to sell like other modules and that kind of thing?

Pricing, like how we say, the way we lose customers is, a, they get essentially go out of business, which happens, you can't do much about that. They're acquired by other customers, particularly larger customers. That's another way of losing. You can't do much about that. Other than you hope you -- the other customer that buys them is your customer. Pricing is the third and pricing, rarely, we lose customers on pricing because the switching is painful for customers and it's working and they're using it and retraining all their users and adapting the interfaces to make it work and make it harder. Where you lose customers is when you can provide -- when the competitor can provide something much different than you can provide that the customer really needs. And that's where I always worry the most, just generically forgetting about AI. So that's kind of how I sort of look at it.

Now as far as these tools, we're all using them internally. And I've been fortunate enough to travel around. I think each week, I've met with a different group of Constellation in different location and just see what they're using and what they're doing, and they're adapting to these tools, using them internally to help them run their portfolios, their businesses better. But they're also using -- to try to develop more software to actually expand our presence inside of customers more so than defend our presence is kind of the thinking, but it's going to depend on our business. So I look at these tools as an opportunity to do more for customers, not do what we currently do more efficiently, although that will happen in some cases.

Okay. That's really helpful. And final question for me is just on PEM, which you guys introduced last quarter. And I was wondering, when you're thinking about making an investment, a minority investment, do you have a different hurdle rate for that than you would for your standard wholly owned M&A? And then related to that, for a very long time, we've used free cash flow available to shareholders as, I guess, the yardstick of our company's progress. And I wonder if these minority investments grow over time, would you suggest that we start thinking about something else to anchor valuations on or the company's progress?

Yes. So in terms of PEM, the hurdle rate is the same. However, the modeling in terms of the weighting of worst case versus winner case are going to be much more dispersed. And so will probably result in a lower price, but the hurdle rate is the same. In terms of going forward and the free cash flow available to shareholder metric, that is something we've been discussing. And internally, the way -- and many investors know this, the way we bonus ourselves internally is something called like it's an economic net income. It was very close to what we used to have as adjusted net income.

And for these types of PEM investments, we would actually look at our pro-rata share of their ultimate cash flows, which doesn't show up in our current statements. So it's something we're thinking through right now to try to maybe give you investors the same metric that we're using internally. And again, I haven't finalized and it's going to be a discussion on how we -- what we present. But it is -- yes, I understand your point that the free cash flow available to shareholder metric is sort of it doesn't pick up any relating to these PEM investments for the most part.

[Operator Instructions] The next question comes from Paul Treiber with RBC Capital Markets.

Just, Mark, open-ended question, but just overall, how would you characterize the quarter? If you could call out what you think was better than expected or what maybe improved versus the last couple of quarters? And then conversely, what you think needs some improvement?

M&A, obviously, was positive because I'd rather be getting capital out now rather than at the end of the year. It's sort of like any business, you'd rather get more capital out sooner. From a performance issue, we didn't -- weren't -- we were expecting the adjustments to EBITDA because of the acquisitions we made. So I don't think that was unexpected. And I think that's why we actually explained exactly how that happened. I continue to pressure our businesses on organic growth generally, Paul. I really would like to see them doing a better job on organic growth across the board. And I think this is an opportunity to push them harder on that with the advent of some tools to allow you to do things a little bit faster and a little bit better. So -- but that's a generic concern that isn't just in the quarter. So maybe I've missed -- not missed -- not answered your question. So other than that, Bernie, Jamal, anything to add to Paul's question?

I'd say it's a pretty big standard quarter. So it was expected, like organic growth in line with historical norms. All of these initiatives, I mean, we're saying that we're doing a lot, but yes, but it wasn't an expectation that we're going to translate that into revenue growth right away. It's going to take time, right? And then you have to sell it into your customer, et cetera. So that was always expected to take some time.