Note: We just wanted to provide a short update on CSU, but big picture not much has changed! We provide some commentary on the quarter and their business developments below. We will provide a longer update once there is more to talk about, or at the end of the year (whichever happens first).

2Q25 Summary.

2Q25 revenues grew +15% y/y to $2.8bn for the quarter. This is an acceleration from last quarter (+13% y/y). In total, LTM revenue now stands at $10.7bn.

Organic growth accelerated to +4%, up from +2% last Q. This is the strongest growth since the end of 2023. Their Maintenance & Other Recurring Revenue was +6% y/y, a 200bps acceleration from last quarter and flat from a year ago. This segment represents about 75% of revenues. While it is encouraging seeing organic growth improve, there is no reason to believe this will be their new run-rate yet. The last time organic growth was elevated, Mark Leonard attributed it to short-term factors at the AGM and it fell off shortly thereafter. We will have to wait to see if anything changed, as they have been focused on stoking organic growth for years now. In our original report we assumed long-term organic growth rates between 0 and 2%.

License revenues fell -9% y/y, a 100bps acceleration from last quarter’s -8% y/y. License revenues as a percentage of total revenues continue to shrink as legacy VMS offerings are being moved to a SaaS model. In total, license revenue now represents ~3% of total revenues compared to 3.5% from the prior quarter.

In the quarter they acquired $380mn of businesses. They plan on deploying $210mn in 3Q which would put YTD capital deployment at ~$794mn. This figure doesn’t include the incremental $174mn purchase of Asseco, which is still waiting regulatory approval and would put total YTD capital deployment at ~$1bn.

FCFA2S was up +21% y/y to $220mn compared to $182mn last year. However, this is inclusive of the IRGA liability, which we like to back out because it represents a one-time payment Constellation is obligated to make at some point in the future. Since it isn’t recurring, we believe including it in FCFA2S is too punitive. Adjusting out the IRGA liability increase, we can see that FCFA2S increased to $346mn. YTD adjusted FCFA2S is +32% Over the last twelve months, Constellation has generated ~$1.9bn in FCFA2S, which is a 16% CAGR since 2023. While this is within line of our expectations, it is still impressive given their larger FCF base. In total, they have redeployed 61% of their FCF into acquisitions.

Overall, this was another quarter of strong execution from CSU. It is an open question whether organic growth will be able to continue to trend at a MSD, which would likely materially change the valuation an investor would assign to Constellation. They have done a decent job of deploying ever larger amounts of capital, but it is only going to get harder from here. At a current ADR stock price of $3,300 (CNSWF) they are valued at a ~$70bn market cap. This translates to a FCF multiple of 37x and a price to sales multiple of ~6.5x. An investor would likely need to have comfort that double to mid teens FCF growth can continue for sometime in order to find this an attractive opportunity. So far though, Constellation Software has been pretty consistent in outperforming base investor expectations.

For more on Constellation Softare, check out our CSU research report here and our last CSU update here.

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*At the time of this writing, one or more contributors to this report has a position in CSU. Furthermore, accounts one or more contributors advise on may also have a position in CSU. This may change without notice.