Constellation Software

Constellation Software buys small software companies. Each company makes software for one specific industry, such as public transit, libraries, or local government. Customers depend on this software to run daily operations, so they rarely switch to a new system.

Constellation earns most of its money from maintenance fees and recurring subscriptions. It almost never sells a company after it buys it.

Investors worry that cheap AI tools will let rivals copy Constellation's niche, industry-specific software. This fear grew when organic growth slowed to 3% in the second quarter of 2026, or 1% after currency effects. Organic growth of maintenance and recurring revenue fell to 2% after currency effects, its lowest rate in at least two years. Founder Mark Leonard also resigned as President for health reasons in 2025 and left the board in May 2026.

Constellation's software runs core, regulated tasks such as utility billing or court case management. Customers rarely remove this kind of system, since a failure would disrupt daily operations. This makes a quick AI clone unlikely to displace it. But the new President, Mark Miller, has not yet run the company's acquisition process through a full economic cycle without Leonard.

S&P raised its outlook on Constellation in August 2026 because leverage fell, so the balance sheet is not the market's main worry. The first test is whether organic growth of recurring revenue returns to about 5%, the rate Miller calls normal. Management said that $17 million of one-time revenue at Altera in the second quarter of 2025 caused most of the slowdown. The second test is whether Miller keeps finding acquisitions at the same hurdle rates while competition for targets stays strong.

Q3 2026 results, expected in early November 2026, give the next organic-growth reading. But proving the capital-allocation approach works without Leonard takes several years of results. So this discount likely takes several years to close fully.

1. Nov 6, 2026 · est.Pending

   Q3 2026 results: organic growth and acquisition spendingOrganic growth of maintenance and recurring revenue back near 5% after currency effects (2% in Q2), as Mark Miller expects, passes; growth at or below 2% after currency effects or a lower pace of acquisitions fails.
2. Mar 2027 · est.Pending

   Full-year 2026 results and first annual letter under MillerOrganic growth in the second half of 2026 above the 3% of Q2 and a clear capital-allocation plan from Mark Miller pass; organic growth at or below 3% or weaker returns on acquisitions fail.

Every passed and failed checkpoint across all picks

Constellation reports in US dollars and splits its debt into two groups. The parent must repay the first group. Read more

• Founder Mark Leonard resigned as President for health reasons in September 2025 and left the board in May 2026. Constellation's decentralized model depended heavily on his capital-allocation judgment. It is not yet proven under the new President, Mark Miller, over a full cycle.
• Organic growth fell to 3% in Q2 2026, or 1% after currency effects. Management named a one-time item at Altera in Q2 2025 as the main cause, plus weak results at Dark Matter and Lumine and the loss of one large customer. If growth does not recover, the compounding math behind the stock weakens.
• Competition for acquisition targets stays strong. On the Q2 2026 call, management said that prices are a little weaker only for the largest targets. If Constellation cannot keep buying enough companies at attractive prices, it must deploy more cash into lower-return uses, which slows long-term compounding.

• August 28, 2026S&P affirmed its BBB rating on Constellation Software and changed the outlook to positive from stable. S&P said net leverage fell to 1.1 times EBITDA for the 12 months to June 2026.
• August 12, 2026Constellation held a quarterly conference call. Mark Miller said the company will not give an AI target, an AI revenue line or an AI timeline. He said AI has not yet given a real increase in organic growth, and that hurdle rates for acquisitions do not change.
• August 11, 2026Constellation reported Q2 2026 revenue of $3,335 million, up 17% from last year. Organic growth was 3%, or 1% after currency effects. Management said most of the slowdown came from Altera, which had $17 million of one-time revenue in Q2 2025. Free cash flow available to shareholders was $345 million.