Conferencia de resultados del T2 de 2026 de Octave (OCTV): el SaaS sube un 21%, recorta previsiones

La primera teleconferencia de resultados de Octave (OCTV) como empresa pública independiente destacó los sólidos ingresos recurrentes y el flujo de caja, pero las menores ventas previstas de licencias perpetuas llevaron a la dirección a reducir sus perspectivas de crecimiento de los ingresos totales para 2026.

Puntos clave

• El ARR alcanzó los 1.143 millones de dólares, un aumento del 7% interanual en términos orgánicos a tipo de cambio constante, mientras que los ingresos recurrentes por suscripción aumentaron un 6% hasta los 283 millones de dólares.
• Los ingresos por SaaS aumentaron un 21% en términos orgánicos a tipo de cambio constante hasta los 87 millones de dólares, con una aceleración del crecimiento de las reservas de SaaS respecto al T1.
• Los ingresos totales cayeron un 1% en términos orgánicos a tipo de cambio constante hasta los 398 millones de dólares, en parte debido a que no se cerraron durante el trimestre acuerdos de licencias perpetuas de seguridad pública por un valor aproximado de 5 millones de dólares.
• El margen operativo ajustado fue del 29%, mientras que el flujo de caja libre ascendió a 93 millones de dólares, lo que representa un margen del 23%.
• La dirección rebajó sus perspectivas de crecimiento orgánico de los ingresos totales a tipo de cambio constante para todo el año al 0%–2% desde el 3%–4%, citando la incertidumbre sobre los plazos de los grandes acuerdos perpetuos en el negocio Protect.
• Se mantuvieron los objetivos para todo el año de un crecimiento del ARR del 6%–8%, un margen operativo ajustado de aproximadamente el 30% y un margen de flujo de caja libre de aproximadamente el 20%.

Resultados financieros principales

Octave también registró dos cargos GAAP no monetarios relacionados con su separación y salida a bolsa: un deterioro del valor de 464 millones de dólares vinculado al lanzamiento de la marca Octave y un deterioro del fondo de comercio de 1.700 millones de dólares. La dirección afirmó que ninguno de los dos cargos afectó a la liquidez, a las expectativas de flujo de caja operativo ni a las perspectivas operativas.

Rendimiento comercial y operativo

Los ingresos recurrentes representaron el 69% de los ingresos de los últimos 12 meses, por encima del 65% del año anterior y avanzando hacia el objetivo a medio plazo de la dirección del 75%.

Aproximadamente dos tercios del crecimiento del ARR provinieron de clientes existentes, y el tercio restante de nuevos clientes. Más de 100 clientes añadieron otra solución durante el trimestre, y la dirección afirmó que estos acuerdos de expansión fueron sustancialmente mayores que una transacción típica con un nuevo cliente.

Octave cerró el trimestre con 3.267 clientes que generaban más de 25.000 dólares en ARR, frente a los 3.223 a final de año. El número de clientes que generaban más de 500.000 dólares en ARR aumentó a 438 desde 421. Estos grandes clientes representaron aproximadamente la mitad del ARR total.

Los cuatro entornos de flujo de trabajo —Design, Build, Operate y Protect— generaron crecimiento recurrente orgánico. Build fue el más sólido, registrando un crecimiento de doble dígito impulsado por la demanda de software para la cadena de suministro, gestión de materiales y rendimiento de proyectos. El crecimiento de Design se aceleró a medida que se recuperaron las licencias de suscripción, mientras que Operate y Protect registraron un crecimiento constante.

Octave Assist está procesando más de 2 millones de asistencias al día dentro de los flujos de trabajo de los clientes. La empresa también firmó cinco cuentas de referencia para Octave CoLabs, incluidas Bechtel y Fluor, tres de las cuales ya están operativas. La dirección afirmó que la monetización de la IA se mantiene en una etapa inicial y que la empresa aún no ha determinado si cobrará por la IA como una función del producto o en función de los resultados del cliente.

Previsiones de la dirección

Las perspectivas revisadas de ingresos totales excluyen varios acuerdos importantes de licencias perpetuas de seguridad pública que podrían trasladarse a 2027. La dirección señaló que los acuerdos aún podrían cerrarse en 2026, pero adoptó un enfoque más prudente debido a sus ciclos de contratación largos e impredecibles.

Las ambiciones a medio plazo de Octave se mantienen sin cambios: un crecimiento del ARR por encima del 10%, un crecimiento de los ingresos totales del 6%–8%, un margen operativo ajustado de aproximadamente el 30% y 300–400 puntos básicos de expansión del margen de flujo de caja libre.

Riesgos y aspectos a vigilar

La principal incertidumbre a corto plazo es el calendario de una serie de grandes acuerdos de licencias perpetuas en el mercado de seguridad pública de América. Estos procesos de contratación pública y estatal pueden demorarse entre uno y dos años. La dirección enfatizó que los acuerdos no se han perdido, pero la ventana de cierre restante para 2026 se está estrechando.

La transición de licencias perpetuas a suscripciones podría seguir pesando sobre los ingresos totales a corto plazo, aun cuando incremente la proporción de ingresos recurrentes. Una menor capitalización de los costes de I+D también presionará los márgenes operativos ajustados reportados, ya que una mayor parte del gasto en desarrollo se contabilizará directamente como gasto en la cuenta de resultados.

El crecimiento de los ingresos recurrentes del tercer trimestre se enfrenta a una comparativa difícil debido al ajuste extraordinario de ingresos por mantenimiento registrado en el mismo trimestre del año anterior. La dirección estimó que esta comparativa reduce la tasa de crecimiento reportada del tercer trimestre en algo más de un punto porcentual.

Las condiciones de gasto de los clientes se describieron como amplias y coherentes con los 12 a 18 meses anteriores. La dirección afirmó que los presupuestos de capital de los propietarios-operadores, las decisiones finales de inversión y las carteras de pedidos de EPC parecían estables, aunque una incertidumbre más generalizada aún podría retrasar las decisiones de inversión.

Puntos destacados del turno de preguntas y respuestas con analistas

La dirección atribuyó la rebaja de las previsiones de ingresos para todo el año en su totalidad a la programación de los acuerdos perpetuos de seguridad pública, y no a una debilidad macroeconómica más amplia. La empresa afirmó que su probabilidad de adjudicarse estos proyectos no ha cambiado.

En cuanto a las licencias por suscripción, la dirección prevé una tendencia secuencialmente estable en el segundo semestre en lugar de una aceleración sustancial. El impulso del SaaS sigue siendo el principal motor del crecimiento de los ingresos recurrentes, mientras que se espera que los ingresos por mantenimiento se mantengan relativamente estables de forma subyacente.

La dirección señaló que el porcentaje de clientes que utilizan un único flujo de trabajo ha caído desde el 86% citado anteriormente, aunque no facilitó una cifra actualizada. La venta cruzada dentro de la base de clientes instalada sigue siendo la mayor oportunidad de crecimiento identificada.

En cuanto a I+D, Octave prevé que la capitalización se sitúe entre el 7% y el 8% de los ingresos de 2026, orientándose hacia el extremo inferior de ese rango en el segundo semestre. Se prevé que el gasto bruto en I+D se mantenga en general estable como porcentaje de los ingresos, reinvirtiéndose las ganancias de productividad en nuevos productos e iniciativas de crecimiento.

Transcripción completa de la teleconferencia de resultados

Transcripción completa de la conferencia de resultados

Comentarios de la dirección

Operator

Good day, everyone. Welcome to the Octave Q2 '26 Earnings Call. [Operator Instructions] This call is being recorded. If you have any objections, please disconnect at this time. I would now like to turn the call over to Elizabeth Chwalk, Vice President of Investor Relations. Go ahead.

Elizabeth Colley Chwalk

Thank you, operator, and welcome to everyone joining us for Octave's Second Quarter 2026 Earnings Call. With me on the call today are Mattias Stenberg, our Chief Executive Officer; and Ben Maslen, our Chief Financial Officer. We have distributed our earnings press release over the wire, and it is now posted on our website at investors.octave.com, along with an updated company presentation and our 10-Q filing.

This call is being broadcast live via webcast. And following the call, an audio replay will be available at investors.octave.com. Before we get started, I would like to note that certain statements we make on this call may constitute forward-looking statements, which are subject to risks, uncertainties and other factors as discussed further in Octave's filings with the SEC, including on Forms 10, 10-Q and 8-K. Actual results could differ materially from our historical results or forecasts.

We assume no responsibility to update forward-looking statements other than as required by law. During this call, we will present both GAAP and non-GAAP financial measures. A reconciliation of non-GAAP to GAAP measures can be found in today's earnings press release, our SEC filings, earnings materials. Press release and a replay of today's call can be found on our website, investors.octave.com.

I'll now hand the call over to Mattias.

Mattias Stenberg

Thank you very much, Elizabeth, and hello to everyone joining us on the call today. This is our first earnings call as an independent public company. So I want to start by saying a thank you to our shareholders, many who joined us during our Investor Day in March and have been strong supporters throughout the spin-off process. Also to the 7,000-plus Octave employees who delivered a solid set of results while simultaneously standing up a public company. And of course, to our customers who trust us every day to keep their mission-critical businesses running without ever missing a beat.

We are proud of this first step in our journey to drive value for all of our stakeholders. So again, thank you. If we turn to our results in the second quarter, our ARR grew 7% on an organic basis over the prior year to $1.143 billion, in line with our expectations for the quarter and at the midpoint of our guidance range for the full year. Recurring revenue grew 6% organically with the SaaS revenue growing at 21%.

Our adjusted operating margin came in at 29%, which was also in line with expectations and only modestly lower than the prior year. This, to me, is evidence of our strong cost discipline in a quarter where we have incremental public company launch costs and lower perpetual sales versus the prior year. Ben will walk you through the additional details in a few minutes. But if I step back, here's how I would characterize the quarter. The recurring business performed well with year-over-year growth in SaaS bookings that accelerated from Q1.

Approximately 1/3 of our total ARR growth came from new customers and roughly 2/3 came from expansion within our existing customer base. And this is very much in line with the growth framework that we laid out earlier in March. Each of the workflow environments grew over the prior year on an organic recurring basis. We saw continued strength in our Build solutions, and this continues to be an underpenetrated market with strong demand for supply chain, materials management and project performance software. And that's what generated the double-digit growth in the quarter.

In Design, growth accelerated on a recovery in subscription licenses. And for the Operate and Protect areas, we saw continued steady growth. If we look at our total revenue, it was down 1% year-over-year on an organic basis due to the decline in perpetual license deals. This is primarily driven by the strategic shift we described at our Investor Day to drive more customers to recurring revenue model, which, of course, are worth more over the life of a customer.

To a lesser extent, the decline was because of timing delays related to our public safety business that did not close in the quarter. Those deals amounted to approximately $5 million. We believe that those deals will close this year or early in 2027, but they do have long sales cycles and are less predictable in terms of time lines.

And this is, of course, why we are actively shifting the business towards subscription. Our recurring revenue now stands at 69% of total revenue on an LTM basis, and that is up from 65% in the prior year. So we are making good progress towards our targeted medium-term mix of 75% recurring revenue. If we look at the customer spending environment in the second quarter, it was broadly similar to Q1.

Customer budget conversations and deal cycles were largely consistent with what we have seen over the past 12 to 18 months. While we are diversified across 4 workflow environments, dozens of industries and present in 140 countries, many of our customers are exposed to the same underlying variables, supply chain conditions, commodity prices and industrial capital cycles. When those move, they tend to move for a number of our end markets at once. For some of our customers, higher oil prices are beneficial and supportive of investment.

On the other hand, broader market uncertainty can make final investment decisions harder to make. So there is clearly an offset there. We, of course, pay close attention to the owner-operator CapEx budgets and the timing of their final investment decision as well as EPC backlogs. And from what we can see here, the trends seem stable. So overall, our priorities and strategic focus are unchanged, and it's worth restating what they are and how we're progressing.

Our strategy really begins from a structural problem in the industry we serve. Information does not carry across the life cycle of mission-critical assets and infrastructure. A decision taken in Design becomes separated from the people who build, operate and protect that asset. And the cost of this problem compounds the further downstream it appears.

Our response to this problem is to operate as a single platform across all 4 of these work environments with a common context layer beneath the portfolio so that the record created in one workflow is available to the next. That is why we sell our workflow as an entry point rather than as a stand-alone product. Using Octave software across more workflows drives more value for our customers and expands the associated revenue opportunity for our business.

Regarding AI, our view is the same as the one we described in March. Customers in the industries we serve need answers and decisions that they can audit and defend. Value sits in models grounded in specific customer asset history, engineering standards and operating record and our software has this context. We think AI expands what we can sell rather than commoditizing it. We're being deliberate about the pace. Our agentic work is being used by early customers and the conversations have changed.

Customers are asking us to help them build on top of our system of record, and that wasn't happening 18 months ago. As part of this overall strategy, a key priority for us is to drive ARR growth sustainably above 10%. We expect 2 main drivers to close that gap. The first is product innovation, where we are building a single platform beneath what has historically been a collection of strong but largely independent product, a common data and context layer, shared integration and governance and an agentic layer above it.

Alongside that, we are both consolidating and deepening each of the 4 environments so that each operates from a single control surface instead of a set of adjacent tools. We're also moving more of the portfolio to multi-tenant SaaS, which helps us shift faster and supports our margin ambition over time. The second driver of growth is improving how we go to market.

We are building a commercial engine capable of sustaining double-digit growth over time. That means better customer coverage and segmentation, repeatable sales plays, pricing and packaging run as a discipline in its own right and broader reach through our channel, our marketing and the geographies and verticals we serve. The largest single pool inside that engine is the white space in our own installed base.

The majority of our customers operate on a single workflow, and we expect roughly 2/3 of our growth to come from customers we already serve with the balance remaining coming from new customers. So let me update you on how we are progressing in both of these areas. On the product side, we moved several largely independent product groups into one organization with a unified road map and rebuilt the teams around smaller cross-functional groups with single ownership.

This means fewer steps between customer feedback and ship code, and we are seeing better velocity with releases. Across the portfolio, we're deepening each of the 4 environments. In Design, we bring 3D plant design schematics and engineering analysis onto a common foundation with change governance across them.

In Operate, we're putting asset management, asset performance and quality on the same platform. And in Build, connecting completions and construction back to the design model. In Protect, we continue the rollout of our next-generation SaaS dispatch solution that we call OnCall. Underneath the portfolio, we're building a common context and data layer with shared integration and governance and an agentic layer above it.

And that's what makes a customer's asset history in one workflow usable in another, and it's the same foundation the AI work depends on. So the proof points here are getting concrete. We have deepened our AI capabilities and reach in production across the portfolio. This includes deep document and data search in InConcert, natural language query in Attune, EAM product, dispatch summarization in OnCall, and we also have a new cohort of AI innovation launching in the second half of the year.

Octave Assist is now running more than 2 million assists a day inside customer workflows. That's the embedded layer and it's live. Above it, we have Octave Aria, our multi-agent framework, which remains in private preview and is tracking to its planned release. Another signal is what customers are asking us to do. In July, we launched Octave CoLabs, where we put our own product and technical leaders directly alongside a customer's team to build agentic workflows on that customer's real data, each one ending in a validated economic benefit.

We have 5 marquee accounts signed, including Bechtel and Fluor, who are 2 of the world's largest EPCs and 3 of these 5 accounts are already live. The use cases came from them, not from us, validating drawings before anything gets built, planning materials across a fabrication yard, checking design rules against the 3D model in plain language and managing project change, which is the single largest cause of write-offs of capital project.

And on the question of who owns the context layer, we are building a framework that understands the life cycle and is open to working with our customers' environments. Our customers are not asking hyperscalers, generic LLMs or point solution vendors to organize 30 years of their engineering and operating record. They're asking us because that record already lives in our system and because they trust us with it. And that is the position that we intend to capitalize on.

Our product leadership was illustrated in the quarter by multiple compelling customers. A leading European renewable energy operator selected InConcert as the engineering environment for 6 of their bioenergy plants delivered as a cloud-native SaaS on a 5-year term. Separately, 2 of the world's largest owner operators signed important deals in the quarter, one of them for InConcert and the other one for Sequence. Both wins represent the consolidation of fragmented systems into one environment, validating the breadth and the depth of our offerings.

If we then look at the execution on our go-to-market efforts, the changes we described in March saw traction in the quarter. And I would describe the progress as real but early. On cross-sell, we now run a scored target account list with a value-based sales process against it, meaning we lead customer conversations with how Octave drives better business outcomes and higher margins instead of discussions around product features.

We also introduced updated compensation designs and sales enablement playbooks, including having expansion opportunities under our customer success managers. Early signs of these changes are, as I said, positive and more than 100 customers added another solution during the quarter, and the average size of those deals is well above a typical new customer land.

On renewals and pricing, we consolidated the renewals team into the sales organization this year with best practice enablement and incentives behind it. This effort is still underway with plenty of unrealized benefit from pricing discipline and annual uplift opportunities. For new customers, our marketing organization is now integrated and running a number of targeted campaigns.

We landed large new customers across a wide set of end markets in the second quarter, including a data center operator, a brewery, an offshore wind developer, a global manufacturer and a transit authority. That range is evidence that our platform continues to drive value across a broad range of industries. Finally, before I hand the call over to Ben, who will take you through our numbers in greater detail, I want to spend a few minutes on our outlook.

Our updated total revenue growth ranges are the result of lower expected contribution this year from perpetual licenses. This is based on timing of large deals in our public safety business. These large perpetual deals are the lumpiest line in our P&L and less relevant to the underlying health of the business. And we are not going to chase or discount those deals to steal a quarter. We are focused on driving stronger recurring revenue, accelerating ARR growth to over 10% while expanding our free cash flow margin over the medium term. Our strategy is unchanged, and we're operating at a faster pace.

The second half of this year depends on our execution, particularly on continued SaaS momentum, the go-to-market improvements, the platform and Agentic work reaching more customers. Those are the things inside our control. And 1 quarter in, they are working. So I would ask you to hold us to recurring revenue growth, our ability to address the white space in our own installed base and to whether the platform work shows up in customer expansion. That is how we are running the company, and that is what we will report against every quarter.

So with that, thank you very much, and I'll hand over to you, Ben.

Benjamin Maslen

Thank you, Mattias, and hello to everyone on the call today. Many of the metrics I'll discuss today are non-GAAP measures, which are reconciled in our press release and our OOI investor website. We ended the second quarter with ARR of $1.14 billion, up 7% year-on-year on an organic constant currency basis and in line with our expectations. We ended the quarter with 3,267 total customers, up from 3,223 at the end of last year.

We define total customers as those with more than $25,000 in ARR. This customer group represents approximately 97% of total ARR and provides better visibility into the underlying trends in our business. For your reference, we've disclosed these customer figures on a historical annual basis in the earnings presentation posted to our website today. We also ended the second quarter with 438 large customers, defined as those above $0.5 million of ARR, which was up from 421 at year-end.

They represent around half of our overall ARR. Recurring subscription revenue, which is comprised of subscription licenses, SaaS revenue and maintenance revenue was $283 million in the second quarter and grew 6% year-on-year on an organic constant currency basis. This was in line with our expectations and the commentary given at our March Investor Day. Within recurring revenue, SaaS revenue grew to $87 million in the second quarter, increasing 21% in organic constant currency terms over the prior year.

SaaS bookings growth accelerated from Q1, reflecting healthy demand trends, the shift in perpetual sales and positive early traction on cross-sell activity within our different workflows. Monthly subscription license revenue grew 5% on a constant currency basis and is now showing stabilization after the declines we saw last year. Maintenance subscription revenue of $123 million was roughly flat, which is in line with our expectations. Altogether, total revenue for the second quarter was $398 million.

This figure is down 4% on an as-reported basis, which reflects a 4% drag from businesses divested at the end of second quarter 2025 and a 1% benefit from currency. As such, total revenue was down 1% over prior year on an organic constant currency basis. In addition to the ongoing revenue model shift that Mattias spoke to, total revenue came in around $5 million lower than we expected on the slippage of some perpetual deals, mainly in our public safety business.

The pipeline here is strong, but the timing of new projects naturally has some uncertainty given the long sales cycles in that business. Lower perpetual revenue also had some impact on professional services, which declined compared to the prior year. Turning to profitability. The gross margin was 77%, up 260 basis points compared to the prior year. This improvement reflects the divestitures made in the middle of last year, which carried margin profiles below that of the core business as well as a lower level of professional services revenue.

Adjusted operating income was $116 million for the quarter, representing an adjusted operating margin of 29% compared to 31% in the prior year period. This was in line with our expectations and the commentary we gave with Q1 results that we would incur additional costs related to becoming an independent public company at the point of separation from Hexagon, including listing, audit fees and insurance costs. This step-up in costs was factored into the full year outlook we presented to the financial markets in March.

Adjusted operating income also reflects additional R&D expense. R&D capitalization in the second quarter was around 7% of revenues, down from 8% a year ago, which represents around 100 basis point drag on the adjusted operating margin compared to the prior year. As previously communicated, this stems from capitalizing less research and development expense than we did last year as we transition more of our product portfolio to SaaS and not from higher cash spending.

These higher expenses were partly offset by ongoing cost discipline and the savings from the restructuring actions we took in the second half of last year. Overall, the adjusted operating margin was around 30% for the first half of 2026, and we believe we are on track to achieve our 30% margin target for the full year despite having a lower level of perpetual software sales. Adjusted net income was $0.36 per share on 268.4 million diluted weighted average shares outstanding.

On a GAAP basis, you'll see 2 noncash charges this quarter. First, as previously communicated, an impairment charge of approximately $464 million related to the launch of our new Octave brand and the corresponding write-down of the legacy brands. The second is an impairment of goodwill. As our market valuation as a newly public company is below the balance sheet carrying value as of June 30, this creates a triggering event requiring an interim goodwill impairment assessment.

As Octave now has its own observable market valuation, we moved to utilize a combination of market and income approaches in our assessment of company fair value as opposed to using purely an income approach prior to listing. This change in methodology determined that the carrying value of our goodwill exceeded its market value, and therefore, a $1.7 billion goodwill impairment charge was recognized for the quarter.

Both of these impairment charges, which were triggered by the separation from the parent company, are onetime noncash items that we've excluded from adjusted operating income and did not affect our liquidity or outlook for cash flow from operating activities. They're also not indicative of any changes to our operating outlook for the business. Turning to our balance sheet and cash flow statement. We ended the second quarter with just over $304 million of cash and cash equivalents and $644 million of gross debt, bringing our net debt at the 30th of June to $340 million.

Our blended cost of debt is roughly 5%, and we have a healthy balance sheet heading into the second half. We generated $125 million in cash from operations in the second quarter. Together, our CapEx and capitalization of software development costs were $32 million, which is below the $36 million reported in the second quarter last year and in line with our expectations.

Net of this, we generated strong free cash flow of $93 million, which represents a 23% margin for the quarter and 22% for the first half of the year, which supports our confidence in achieving our 20% free cash flow margin target for full year 2026. This brings us to the outlook. Now we're a stand-alone company, we are introducing our guidance for the third quarter and full year 2026. There are a few things to note on this topic. On revenue, we're going to provide organic constant currency growth rates for subscription revenue on a quarterly and full year basis.

In addition to ARR growth, we expect this metric to be the primary indicator of underlying top line performance for our business. We also provide ranges for total revenue. But given the mix shift away from perpetual license revenue, combined with the variability in timing of closing perpetual deals, we believe this is a less meaningful indicator of the health of our business.

The business disposals made in mid-2025 will no longer create a headwind to reported figures in the second half of this year. And the range of total revenue growth for the year largely reflects the timing of larger perpetual deals in Protect, where customer groups continue to predominantly favor on-premise software. On profitability, we are guiding to a targeted adjusted operating margin on a quarterly and full year basis.

One thing to note here, as we flagged at the March Analyst Day, is that as we push more of our products to SaaS and continuous development cycles, we will capitalize less research and development costs. This will be a gradual process, but will be a drag on our reported adjusted operating margin going forward as more costs will be expensed directly to the P&L. There is no effect of this on our free cash flow margin, which we expect to improve over time and be a better indicator of the underlying improvement in profitability.

Turning to the numbers. For the third quarter of 2026, we expect total revenue of $400 million to $410 million, representing organic constant currency growth of 2% to 4% recurring revenue of $285 million to $290 million, representing organic constant currency growth of between 3% and 5% and adjusted operating margin of approximately 27%, reflecting normal seasonality.

For the full year 2026, we expect ARR of $1.185 billion to $1.205 billion, representing organic constant currency growth of 6% to 8%. Total revenue of $1.635 billion to $1.665 billion, representing organic constant currency growth of 0% to 2% recurring revenue of $1.14 billion to $1.15 billion, representing organic constant currency growth of 5% to 6% and adjusted operating margin of approximately 30%, which is down from the prior year by roughly 100 basis points on public company launch costs, revenue model shifts and lower levels of R&D capitalization, partly offset by integration cost savings.

And we expect a free cash flow margin of approximately 20%. Before we open the call for questions, one thing to note on the full year total revenue growth outlook. In March, we framed an organic constant currency revenue growth outlook of 3% to 4% for 2026. Based on where the first half landed and what we see in the second half, we now expect organic constant currency revenue growth of between 0% and 2% for the full year.

The reason for this change is that we have removed from the guidance a number of large public safety perpetual deals in Protect, which we still expect to win but may now slip into 2027, including the $5 million in slipped deals from the second quarter. They may still be recognized in 2026, but we have decided to adopt a prudent approach in our guidance to reflect these large potential order wins where sales cycles are naturally long and timing is less predictable.

And as a reminder, the Protect represents around 20% of overall Octave revenues. What is not changing is everything else. Our focus remains on driving the business towards subscription and we delivered 7% ARR growth in the first half of the year, and we are reiterating full year ARR growth of 6% to 8%. We are reiterating an adjusted operating margin of approximately 30%, which we expect to maintain while absorbing public company launch costs and a lower level of perpetual revenue volume, and we reiterate a free cash flow margin of approximately 20% for the year.

The core medium-term ambition we outlined in March is unchanged. ARR growth above 10%, total revenue growth of between 6% and 8% and an adjusted operating margin of approximately 30% and 300 to 400 basis points of free cash flow margin expansion. We have a large and growing market, an exceptionally sticky customer base, 30 years of industrial and customer context that AI makes more valuable rather than less. And for the first time, a single company focused entirely on customers with mission-critical infrastructure.

So with that, thank you for joining us today, and we'll now open the line for questions.

Operator

[Operator Instructions] Our first question comes from John DiFucci at Guggenheim.

Preguntas y respuestas

John DiFucci

Mattias and Ben, first of all, congrats on getting your first quarter out as an independent public company. That's quite a milestone. Your numbers look fine relative to expectations. In the case of what you have the most control over the bottom line, including cash flow is very strong. But as you said, your total organic constant currency revenue growth rate was a touch below what you anticipated, and you gave the reason you said move to recurring revenue, which we fully understand how that works and timing delays on public safety business.

I guess I'm wondering how confident you are on your assessment of both those variables today, especially the first one because you're guiding to an acceleration of organic constant currency total revenue growth next quarter and for the year. Listen, Octave is a really good story, and I think a lot of people believe that. And -- but the stock preopen is reflecting some concerns about that right now.

Mattias Stenberg

Yes. Thank you, John. Yes, how to answer that. I think how confident do we feel? I mean, obviously, this is the guidance we have given now. So it is our best judgment of all the scenarios, right? And like Ben said, we have taken a prudent and cautious approach with the timing of those perpetual deals, right? So yes, I would say we feel confident in that. Anything to add to that, Ben?

Benjamin Maslen

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

John DiFucci

But to be clear, Ben, those deals, they're not -- you haven't lost them to someone else right now. They're still out there.

Benjamin Maslen

No, absolutely not. No, we're still very confident. you're selling to governments and states that we have their own kind of procurement cycles that we're more a taker of, if you know what I mean. And sometimes these deals can take 1 to 2 years to actually put together. So given there's only 4 months left of the year, that window to close those deals is narrowing. So we thought it made sense to take them out and adopt a more prudent approach for the year as a whole. But our view on the likelihood of winning them hasn't changed at all.

John DiFucci

Congrats again. Welcome to the public markets.

Operator

Our next question comes from Matt Hedberg at RBC.

Matthew Hedberg

I'll offer my congrats again on the first quarter as a public company. Maybe just to follow up on John's question on the -- some of the Protect public sector deals, I just wanted to better understand what exactly is being excluded. It feels like just maybe the perpetual pieces, but maybe kind of a 2-parter, just a little bit more color on what's in and what's out on Protect. And then also just Ben, just kind of as this being your first quarter as a public company, just what's your overall guidance philosophy?

Mattias Stenberg

Yes. I think I'll let you take that one, Ben. But I mean, what we can't say more about public safety and those deals, I would say it's around a handful of deals, right? It's not hundreds of deals. So it's a handful of deals have taken out.

Benjamin Maslen

Yes. And that mostly impacts perpetual license software, but a little bit of services that adds to it. Matt, sorry, in terms of the philosophy, we obviously want to set guidance that explains the trajectory of the business well to you guys. There's only 4 months left of the year. So we've set guidance that is primarily focused on the full year with a little bit of extra color on Q3 to help you guys model it.

And yes, I think that the philosophy is we want to set guidance that we can achieve, and we'll develop this framework over time. We didn't have adjusted net income or EPS in the framework at this point. It's probably something that we add in the future. As I said at the Analyst Day, we'll evolve the guidance framework or philosophy into next year.

Operator

Our next question comes from Peter Burkly at Evercore ISI.

Peter Burkly

This is Peter Burkly on for Kirk Materne with Evercore. I just wanted to ask about the recurring revenue piece and sort of the seasonality that we're seeing in the implied guide for the back half of the year here. So I think the 3Q maybe came in just a touch below what we're expecting. And then that result only implies a little bit of an acceleration in the fourth quarter. So it sounds like bookings remain pretty strong. Curious if you could just sort of walk through the moving parts there, whether that's just a factor of the year-over-year compares or any other factors that might be coming into play there?

Benjamin Maslen

Yes. Hi. Peter, so yes, in Q3, the recurring revenue, as you say, we've guided to 3% to 5% organic constant currency. That's probably just over 1% lower than the underlying run rate, and that reflects last year in Q3, we had a one-off maintenance catch-up, which creates a slightly more difficult comparative. And I think if you look back to the prior year quarters, you'll see that in Q3 stepped up on maintenance and it went back down in Q4. If you ex that out, then the underlying kind of guidance implies similar constant currency growth for recurring revenue that we've seen in the first half of the year. So very good SaaS momentum, a gradual pickup in subscription licenses as we guided back in March and then a fairly stable development in the maintenance stream.

Mattias Stenberg

Yes. No, I agree. And then I would add also that maybe the most, say, the best number to look at to understand the guidance would be to look at the ARR, right, where we are guiding for 6% to 8%, right, for the full year.

Operator

Our next question comes from Gabriela Borges at Goldman Sachs.

Gabriela Borges

I also wanted to stay on this topic of organic guidance. For Ben and Mattias, I'm trying to figure out, so the dynamics that are happening in public safety, it sounds like there's a par for the course, meaning there are not new dynamics. So I'm trying to understand what was the thinking to originally include those deals on guidance? Or what changed? Why are those deals elongating now? Why are those deals pushing out now? And then if I put it all together, when do you think you'll be back consistently in the 3% to 4% organic range?

Mattias Stenberg

Yes. I mean if we start maybe with the second half of the question, I would say, I mean, long term, we are guiding for that our organic reported growth should close in on the ARR growth, right? So we are not guiding for 3% to 4% long term, right? That was the guidance for this year. So I think maybe that's a good distinction to make. But what has changed?

I agree with you, it's not a new dynamic. I guess what has changed it is that some deals slipped here in Q2, and then we took a more cautious approach on the rest of the year also. I mean, I guess that's a transparent answer on that, right? I mean, like we said, it is possible that some of these deals actually come in the second half. But yes, we have chosen to take a prudent approach on it.

Gabriela Borges

And that approach is what you will be sticking with over the next several quarters as a public company where you'll be taking a more prudent approach to these types of large deals. And does it reset you to a new more conservative baseline on a go-forward basis as well?

Benjamin Maslen

No, I don't think so. I think we will adopt a consistent approach to these orders guidance going forward. So I think that makes sense. But the potential for those orders coming in hasn't changed. It's just a question of timing, right? So if they don't happen in the second half of this year, perpetual is weaker in 2026. If they flow into '27, it will be a bit stronger. You end up with the same growth overall.

Operator

Our next question comes from Lachlan Brown at Rothschild & Co Redburn.

Lachlan Brown

Congrats on the first quarter reporting as an independent company. On the reduced full year organic revenue guidance, could you just break down that reduction a little bit further? I appreciate most of it was driven by the perpetual license slowdown and the deal delays that you've called out. But should we consider much attribution to broader macroeconomic or general softness within that?

Mattias Stenberg

No, I wouldn't -- I would say it's purely related to those perpetual deals in the public safety sector, any other macro forces and so on, we had considered in our original guidance. I think that would be my comment to that.

Lachlan Brown

That's clear. And on the subscription license side, it does sound like the monthly usage trends were quite reasonable in this quarter. What are your underlying assumptions for that, I guess, more variable component as we move into the second half of the year?

Benjamin Maslen

Yes. Lachlan, yes, the expectation hasn't really changed since we described it in March. It was down in the first half of the year against tougher comps. It started now to mild growth in Q2. I think you can see that in the slide that we put in the investor deck, and we assume a similar trend through the second half. We're not baking in an acceleration here in the monthly subscriptions, more of a sequentially flattish trend against easier comps.

Operator

Our next question comes from Daniel Djurberg at Handelsbanken.

Daniel Djurberg

Yes, a few questions from my side. First, a little bit on you're working, I guess, to expand the workflow adoption cross and upselling. You mentioned here in the deck, 86% of customers still on a single workflow. So are there any targets we can follow? Or how are you working with this to really get this going?

Mattias Stenberg

Yes. I don't think we said anywhere that it's still 86%. It might be a slide from the Investor Day that we haven't updated, to be honest. I did say in the call that -- or in my intro that 100 customers added another solution in the quarter. We haven't updated the 86% number. So I'm not going to give you a number here. I think that's a number we'll probably give more like once a year. But I could say that it is lower than 86% today. So we are making progress.

Daniel Djurberg

Perfect. And if I may also on the guidance on the perpetual referrals in Protect. I guess this is only in Americas in public safety and nothing elsewhere.

Mattias Stenberg

Yes, that's correct.

Daniel Djurberg

Yes. And finally, also on the highlighted data center win you spoke about. Can you comment a little bit more on your direct or indirect revenue exposure to these growing areas like AI data centers and related energy solutions and so on?

Mattias Stenberg

Yes. So a couple of things to say about that. I think we have several customers that are in the data center business. I'm not going to name them, but we won another one, another hyperscaler in the quarter, like I mentioned. Also important to say is that for us, so far, it's been mainly on the Operate side with our Attune product where we've seen the most success. So it's been mainly when these centers are being built or have been built.

That's where we've seen the most business. We have not had so much wins. We have a few, but not so many wins on the Design side yet. And I guess that is because they tend to use simpler design solutions. Obviously, we are trying to educate them and obviously sell the whole concept of life cycle intelligence and digital twins, et cetera, to get them to adopt more advanced designs. But we'll see on that, right? But clear is that we're having very good success on the Operate part of the data centers.

Benjamin Maslen

If I can add, Daniel, on the indirect side, which I think was part of your question, the data center build-out happens, you're going to need a lot of power generation and distribution to support it. We obviously have geospatial tools that go into mapping those grid networks and for very large power plants, so turbines, nuclear plants and things like that, you would use the design tools to help build those plants.

Daniel Djurberg

Perfect. And when you're talking to you, Ben, the restructuring charges, USD 10 billion first 6 months, roughly 1.5% of total revenue. Is this the level we should expect going forward as well around 1% to 2% of revenue as restructuring?

Benjamin Maslen

Yes. I think a bit lower than that. I mean there wasn't a huge amount of restructuring spend in Q2. There was in Q1 that kind of follow through the cash spend from the restructuring program that we announced as part of Hexagon in the back end of last year. We still have some work to do to integrate the different businesses and extract synergies, but I don't think it will be as much as we saw last year or implied in your question.

Daniel Djurberg

Good luck getting those deals in this year, hopefully.

Operator

Our next question comes from Ari Freeman with BNP Paribas.

Unknown Analyst

I have a question about the medium-term guidance on ARR growth and organic revenue growth. Comparatively to when you guys first gave it out at the Investor Day, how much confidence do you have in that now? And I guess, like what has changed today versus the last time you gave it?

Mattias Stenberg

Yes. The only thing that has changed, like we said, was that we've taken down the organic reported, right, for this year because of the timing of this perpetual deals. I would say, medium to long term, nothing has changed, right? We are confident in our ARR guidance. And like I tried to say, eventually, over time, the organic reported will get closer and closer to that ARR, right, since the perpetual becomes a smaller and smaller part of total revenue.

Operator

Our next question comes from Alice Jennings with Barclays.

Alice Jennings

I also have a question on the 2/3 of growth that came from existing customers. And we would be interested in a bit more color around that. So in terms of how can we think about how that split up into pricing, churn and then cross and upselling in the quarter?

Mattias Stenberg

Yes. I mean we don't -- we haven't broken out that on a quarterly basis, Alice, to be honest, right? So it's a bit hard to give you live. But Obviously, it's a combination of price increases, upsell and a little bit of churn. But like we said at our Investor Day, we have a 97% gross retention. So we don't have a lot of churn, but of course, a little bit. But yes, I won't break it down in exact percentages. But yes, roughly 2/3 came from the installed base and 1/3 from new customers.

Alice Jennings

Okay. Cool. That's helpful. And then if I could just ask a bit of like a bigger picture question on AI. So the AI products that you have at the moment, how does the monetization of that work in terms of its adoption monetary -- or is it included in the subscriptions that you're offering? Yes, just some details there would be really good.

Mattias Stenberg

Yes. No, good question. It is early days, I would say, for the monetization part. We are expanding our AI, let's say, offering and agents and the embedded AI we have in our products every day. We launched -- I think it was 9 different agents in the quarter, and we have another cohort of agents being released in the second half. And then we also have our Octave Aria platform, right, that we are -- we haven't given a date yet to our customers, so I won't tell you, but that we're going to release relatively soon.

So there's lots of stuff happening on the AI front. So far, we focus on getting usage up and getting really outcomes, I would say, get our customers more effective solving problems for them. For example, like we're doing in the CoLabs, right? We're focusing on a set of use cases and see what that -- how much that can generate for our customers. And we have not 100% decided how to monetize AI as a feature of the product or more as of an outcome of what we have together.

Operator

Our next question comes from Mikael Laseen at DNB Carnegie. I think we are having some audio issues. So I will move on to the next question from Johan Eliason at SB1 Markets.

Johan Eliason

This is Johan Eliason at SB1. I was just curious about the capitalization of R&D. You mentioned it's a 1% -- 100 basis point headwind on the margin in this quarter as you have moved from 8% of sales to 7% of sales and your target longer term is 4%. Do you have any pace for this? And in terms of gross R&D spend, how should we think about this number? Is it sort of estimated to be stable going forward or up or down?

Benjamin Maslen

Yes, for this year, we guided that R&D capitalization as a percentage of sales will be between 7% to 8% for the year. So that's still what we feel. It was towards the low end of that range in Q2, and I would expect that for Q3 and Q4 as well, but we still expect to be in the range. We'll have to -- when we set guidance for '27, I think we can give you a more specific range. But for now, I would assume in your models a fairly linear direction between what we've guided for this year and then the medium-term outlook that we gave, which is 2030. In terms of gross spend, sorry, the second...

Johan Eliason

In terms of...

Benjamin Maslen

Yes. We're aiming to keep gross spend at a pretty flat level going forward as a percentage of revenues. Jay, Vivek and their teams are using a lot of AI tools at the moment to accelerate product development and get efficiencies. But as I said back in March, we're reinvesting those savings in new products and accelerating growth. So all in, we expect cash spend or gross spend, if you like, sorry, to stay at a stable level going forward.

Johan Eliason

Excellent. And then just on these restructuring charges, how much of that is likely to be a cash impact in this year?

Mattias Stenberg

Restructuring charges, question.

Benjamin Maslen

Okay. Yes. I mean I think for the second half of the year, probably restructuring will be somewhere between $5 million and $10 million. So as I said earlier, down from the run rate we saw in Q1.

Johan Eliason

And it's sort of cash -- the cash impact is similar.

Mattias Stenberg

Yes, I would assume that.

Operator

Our next question comes from Mikael Laseen at DNB Carnegie.

Mikael Laséen

I hope you can hear me now.

Mattias Stenberg

Yes, we can.

Mikael Laséen

I just had a couple of questions on the end markets. I think you mentioned in Q1 that you had some issues in the Middle East due to the situation there. I don't know if you have had any delays or things like that in Q2 and going into Q3 still affecting you?

Mattias Stenberg

Yes. I mean on the Middle East, I would say, the last couple of years and also going forward, we think this is one of our fastest-growing regions. It was not in Q1, and it was not in Q2. It was not declining either, right? It was kind of flat. So yes, it has an impact, right, but I wouldn't say dramatic.

Mikael Laséen

Okay. Got it. And when it comes to these workflow or applications, you mentioned or indicated the growth rate. Can you be a bit more specific and talk to us about Design, Build, Operate and Protect, how much they are growing roughly?

Mattias Stenberg

Yes. We have a slide on it also in the earnings presentation that you'll find on our website. And I think what we're doing there is the classic arrows, right, where we're trying to indicate that Build was growing the strongest and the other 3 also growing, but not as fast. But they were all growing at a healthy pace where Build was the strongest. That's what I'll say.

Mikael Laséen

Okay. And final one. When it comes to maintenance subscriptions, it looks like it's flattish year-on-year in terms of revenue here. And in the second half, you have a bit more difficult comps. Is that a seasonality phenomenon or anything that you can help us out with here to model it for the second half? It's a relatively big part of the subscriptions, of course.

Benjamin Maslen

Yes. Mikael, as I said in an earlier question, in Q3, we do have a more difficult comparison in maintenance because we had a kind of one-off catch-up in Q3 last year that obviously won't repeat this year. So that takes just over 1% of the year-on-year growth, and that's reflected in the 3% to 5% organic constant currency growth we have in Q3. But on an underlying basis, the growth will be pretty similar to what we've seen in the first half ex that.

Operator

This concludes our Q&A session. I will now turn the call back to Mattias Stenberg for closing remarks.

Mattias Stenberg

Thank you very much, operator, and thank you to everyone on the call. Thank you for joining us on our first public call as a public company. We are excited about the future and looking forward to talk to you again soon. So thank you very much.