Good morning, everyone. Welcome to the Q3 trading update call for The Sage Group. Your speakers today will be Steve Hare, Chief Executive Officer, and Jacqui Cartin, Chief Financial Officer. After a short presentation, there will be a question and answer session. To ask a question, you will need to press star one and one. I would now like to hand the conference over to Ms. Cartin. Please go ahead.
Good morning, everyone. Thanks for joining us. I'll start by taking you through our performance in the first nine months of the year. After that, Steve and I will be happy to take your questions. Sage has delivered an excellent performance. Through focused execution, we've achieved broad-based acceleration across our key products and regions. This is underpinned by the investments that we're making in our platform and AI capabilities, which we continue to enhance the value we deliver to our customers. Revenue increased by 11% to GBP 2.1 billion in the first nine months, reflecting strong demand for our solutions from both new and existing customers. This is supported by the expansion of AI-powered features across the portfolio, including growth in Sage Copilot and agentic capabilities. Today, Sage's AI tools are available to over 600,000 customers. That's up more than 20% since we reported our half-year results in May.
Adoption continues to grow. As customers increasingly rely on Sage for critical finance, HR, and Payroll workflows, where getting it right is essential. I'm moving to the regional view. In North America, revenue increased by 14% to GBP 932 million, with continued momentum in Sage Intacct, supported by our vertical go-to-market approach. We also saw good growth in Sage 50, as well as in Sage 200, Payroll, and HR. In the UKIA, revenue grew by 10% to GBP 602 million. Sage Intacct continues to scale rapidly alongside further strong growth in Sage 50. Our cloud-native small business suite, including Sage Accounting, also performed well, where momentum and embedded services continues to build. In Europe, revenue increased by 7% to GBP 528 million. This reflects strength in Sage X3 and Sage 200, broader portfolio growth, and increasing traction in Sage Intacct.
Underpinning all of this is the expansion of Sage Business Cloud revenue, which grew at 15% to GBP 1.8 billion, driven by strength across both native and connected. Cloud native was particularly strong, growing at 25% to GBP 794 million. I'm moving to recurring revenue. This grew by 11% to GBP 2 billion, reflecting continued momentum in ARR. Subscription revenue increased by 13% to over GBP 1.7 billion, with subscription penetration reaching 84% and continuing to rise. For Q3 on a standalone basis, revenue was almost GBP 700 million, with growth accelerating to 12%. On an organic basis, revenue for the first nine months was over GBP 2 billion, an increase of 10%. Turning to the outlook. Reflecting our performance in the year to date, we reiterate our full-year guidance as set out at the half year.
We expect organic revenue growth to be above 9% and operating margins to trend upwards in FY 2026 and beyond as we continue to focus on efficiently scaling the group. To conclude, Sage has delivered an excellent performance in the first nine months of the year, with momentum building across the group. We're strengthening our products, broadening our ecosystem, and deepening the value that we create across our platform. By combining trusted technology, intelligent innovation, and human expertise, we're helping customers run their businesses with greater productivity, insight, and confidence, while further strengthening the quality, resilience, and growth potential of Sage. Underpinned by disciplined execution, this gives us confidence in our ability to continue delivering sustainable, efficient growth over the long term. Thank you very much. Steve and I would now be delighted to take your questions.
As a reminder, to ask a question, you will need to press star one and one on your telephone and wait for your name to be announced. To withdraw your question, please press star one and one again. Please stand by while we compile a Q&A roster. Our first question comes from the line of George Webb of Morgan Stanley. Please go ahead. Your line is open.
Morning, Steve and Jacqui, and congrats on the continued good results. A couple of questions if I can. Firstly, just on the headline number, it looks like there was a sequential acceleration in the business in Q3 versus the first half stage. I think the organic revenues were closer to 11% in Q3 than 10% at the first half. Was that acceleration broad-based, or could you add a bit more color around what drove that acceleration in Q3? Then secondly, turning to AI, could you add some color on what you're seeing in terms of customer engagement with Sage Copilot and whether particular workflows are seeing especially strong usage? Thank you.
Thanks, George. Let me give you a little bit of color in terms of the acceleration drivers, and I'll give you a bit of a flavor also for the sequential piece that we're seeing from an ARR perspective. Steve can touch upon sort of what we're seeing from an AI adoption and engagement perspective. Yes, overall, as I said in my opening remarks, we're very pleased with the performance. It's been a strong first nine months. Underlying total revenue growth of 11%, which is very much in line with our expectations. This reflects much of the same trends that I touched upon in the first half. We entered FY 2026 with strong momentum, and we have sustained that through the first three quarters, and we're now in the fourth consecutive quarter of acceleration.
That's been underpinned by strong growth across the group, but in particular, I would call out both North America and the UKIA, which has sustained the double-digit growth that we reported at the first half. Importantly, that has been underpinned by a couple of factors. First and foremost, we're seeing strong underlying demand coming across the group, and that's been supported by high-quality disciplined execution from a go-to-market perspective. That is now increasingly being coupled with the growing impact of the monetization of AI features and functionality, which we are increasingly rolling out across the group.
Critically, though, we are seeing a good balance of growth coming through from both new and existing customers, which is very much indicative of what we're seeing in terms of trends of both new customers and our existing base coming to us and looking to us to help them digitize workflows and make the most of AI in doing so. In terms of how that shows up from an ARR perspective, as you know, we don't report that in detail at this stage. But what I will say is, as you know, we reported 2.5% sequential growth in the first two quarters of the year, which is ahead of where we were last year. In Q3, we are slightly ahead of 2%, which again, is an acceleration versus this time last year, and that's been underpinned by the factors that I set out.
That gives us good momentum as we enter the final quarter of the year and really underpins our confidence both in the durability of the growth moving forward but also in the guidance that we've reiterated today. Steve, if you want to pick up on the AI.
Yeah. I think a few things on AI. I think, first of all, I think the engagement from all customers, both existing customers but also prospects, people are very focused on high curiosity, what can it do for me, making sure that they're making decisions which are sustainable over the long term. Obviously things are changing very quickly. So particularly with future prospects, people are very focused on if I purchase something, is this going to still be relevant in two or three years' time? So AI you can trust. Trust within your workflows remains a very important point. In terms of the types of workflows, particularly mid-market accounts payable, over half of new Sage Intacct customers are taking the AI-powered accounts payable module.
We've said this in the past, I think both small and midsize customers, very interested in anything which allows them to detect anomalies. Using AI to detect unusual transactions and surface things that therefore a human needs to look at. I think the final thing I would say is, particularly as you look forward to the future, particularly in the U.K. and Europe, there are some regulatory tailwinds in the U.K. Making Tax Digital is really picking up for those smaller customers. Across Europe, we're seeing increasing traction around e-invoicing, and all of these features are AI-powered.
Appreciate that. Thank you.
Thank you. We'll now take our next question. Please stand by. Our next question comes from the line of Balajee Tirupati from Citi. Please go ahead. Your line is open.
Thank you. Hi, good morning, congratulations from my side as well on another solid quarter. Thanks for taking my questions too, if I may. Firstly, could you share how you see dynamics into fourth quarter and fiscal 2027? I do appreciate base comps are tougher. If I look at your 2026 outlook, would you say that with more than 9% revenue growth guidance, you're not ruling out 10% or higher growth this year? Then for second question, if you could update on how the price contribution in your growth is shaping in 2026. As your Sage Accounting and Sage 50 customers for whom Copilot was rolled out earlier, as they come for renewal, are you seeing the desired uptake of Copilot and uptick in pricing? Thank you.
Thanks, Balajee. If I just touch first on your question around the guidance piece, and I can give you a little bit of update on how we're seeing pricing and Steve can chip in in terms of the customer behavior piece as well. From a guidance perspective, as I set out, we've seen a strong performance in the first nine months, and that's in line with expectations. We are entering the fourth quarter with a good level of momentum that's supported by a number of quarters of acceleration, and that's consistent with what we're seeing from a sequential growth perspective that I just set out. As you referenced, as we head into the final quarter of the year, we do lap that tougher comparator, which is reflective of that particularly strong Q4 2025 that we delivered at the back end of last year.
What that really does is it gives us a more balanced profile of growth for the full year, which is entirely consistent with what we said earlier on in the year, so consistent with what we were expecting. That's what's reflected in the guidance that we're setting out today. Really importantly, we are investing behind the opportunities that we see in the market, both in terms of growth for Q4 but also FY 2027 and beyond. We've got good levels of confidence there. In terms of the pricing trends, as you know, we don't give sort of the individual components of renewal rate by value at this stage of the year. The trends that I set out at the first half have really very much continued.
We're seeing good balanced growth across new and existing, and the renewal rates specifically continue to benefit from a combination of pricing and uptick in cross-sell and upsell, and really importantly, that continuation of the low and stable churn. At H1, we set our pricing contribution at around 5.5%, which was consistent with where we were in FY 2025, and that really reflects the roll-outs of additional features and functionality and product innovation that we're delivering, including things like Sage Copilot, and other AI capabilities. As I said in the opening remarks, we now have over 600,000 customers who have AI-enabled features included. What I will say in terms of the customer behaviors linked to that, we're not seeing any increases in churn. We're very focused on the adoption piece, particularly with Copilot.
As Steve touched upon, we are increasingly now seeing growing attach rates of standalone functionality like the AP automation tooling, in particular within Intacct, and then also our agents that are being rolled out gradually. The number 1 priority there is making sure that people adopt, see the value, and then that drives the increase over time. What I will say, just to repeat, is we are seeing good uptick. We're seeing an uptick within cross-sell and upsell, and the churn rates are quite stable. Steve, I don't know if you want to add.
I think the only thing I would add is, if you ignore the comparators for a minute, because obviously the Q4 comparators are a bit tougher, I think, and you sort of focus on the sequential growth, what I would say is that we have a lot of confidence both in Q4 and as we look forward into FY 2027, that we will continue to make good quarter-on-quarter progress. To answer the earlier question from George, I think in terms of the broad base of that growth, it is important that we are seeing good progress in the renewal rate by value. We are seeing good progress in terms of how our existing customers are adopting the features and functionality. We have always said that when we increase prices, we really want to make sure there is a fair value exchange.
We are delivering new functionality into that installed base. We also continue both in the mid-market with Sage Intacct and Sage X3, but also in small, particularly with embedded services. We continue to acquire material numbers of new customers. I think on Sage 50, obviously a very important franchise, and we have seen strong growth from Sage 50. It is a combination of making sure that we are able to deploy AI-enabled features into that installed base, but at the same time offer those customers that want to take the path a fully cloud-native destination, whether that be migrating to a product like Sage Intacct or increasingly, particularly in the U.K. and the U.S., we are offering a fully cloud-hosted experience for Sage 50 customers. We are trying to make sure that customers are able to embrace the latest technology in the way that works for them.
That is very clear and comprehensive. Thanks a lot, Jacqui and Steve.
Thank you. We will now take our next question. Please stand by. Our next question comes from the line of Mohammed Moawalla of Goldman Sachs. Please go ahead. Your line is open.
Great. Thank you. Morning, Steve. Morning, Jacqui, and congrats on the performance as well. Two from my end. Firstly, given the sort of revenue outperformance in Q3, how does that sort of change your thinking perhaps on the operating leverage and margin? How should we think of kind of the pace of investment? Do you look to sort of still aim for that kind of 60 basis points margin, or could we see some outperformance, particularly for this year? Secondly, just coming back to some of the product initiatives, I'm just curious, I know you've been pretty good at driving some pricing, but when you think about sort of the Intacct opportunity, where are you in continental Europe in particular? Is that sort of still to come? Any other sort of initiatives we should think of as we move into 2027? Thank you.
Thanks, Mo. I'll give you a bit of an update on margin, and Steve can give some color on the Intacct internationalization piece. From a margin perspective, we now have a very consistent track record, as you know, of margin expansion, and we are in the fourth consecutive year of that expansion, and it is increasingly underpinned by a mixture of factors. With the accelerating growth that we are now seeing, as you point out, that's driving a good level of operating leverage, and that is sitting alongside an established pattern of operating efficiencies that we have now been building towards over a number of years. Importantly, we now are also starting to see the increasing benefits of the adoption of AI internally, which is sort of enhancing that still.
All in all, that really gives us good capacity to invest for innovation and growth, as you see today, whilst continuing to expand margin. Now, in terms of the trajectory moving forward, as I set out in my opening remarks, we expect margins to continue to trend upwards in FY 2026 and beyond. We expect to be at the bottom end of that 50 - 100 basis point range as we look to continue to invest whilst we expand the margin. We're making good progress, but clearly we'll give you more of a fulsome update overall in November. Steve, do you want to touch on the Sage Intacct?
I think just to reinforce the point that Jacqui makes, our priority is to continue to invest for growth. We see significant opportunities, and I think particularly if you take Sage Intacct and Sage X3, both in the U.K. and Europe, we're very focused on making sure that we are the winners, we are the number one player in the mid-market in our core countries. I think we are now seeing very strong progress with Sage Intacct in France. Germany is following behind that. It is our intention that we think we will see very strong growth in the coming years from that franchise. We already have strong growth, again, particularly in France, but also across other parts of Europe with Sage X3, which continues to grow strongly double digits. I feel if I take a kind of midterm view across Europe with Sage Intacct and Sage X3, I feel pretty bullish.
Yeah, just to add on that in terms of, again, we don't give the individual growth rates at this stage, but at the first half we reported growth in Sage Intacct in the U.S. was above 20%, and outside the U.S. it was around 50%. The trends there are continuing.
That's great. Thank you.
Thanks, Mo.
We will now take our next question. Please stand by. Our next question comes from the line of Frederic Boulan of Bank of America. Please go ahead. Your line is open.
Good morning Steve and Jacqui. Fred at Bank of America. Can you give us an update on the competitive landscape? Any developments to flag maybe in the U.S. with QuickBooks or from AI native players? Thank you.
Sure. I think probably not that different really from the comments we made at the first half. It remains a competitive space. I think it's a pretty obvious point, AI and the rollout of agents is moving very quickly. Whether you look at our established competitors or whether you look at our newer competitors, there's a lot going on. I think my response to that is we continue to offer our customers and also our prospects almost the best of all worlds in that you get access to the latest technology because we have obviously developed our own AI models, but we also access whatever intelligence is required from the various frontier models, and we build that into workflows and into products that you can trust. We're orchestrating that for you. I think my summary would be it remains very competitive.
It probably isn't any different to how it was a quarter ago. In the end, the proof points are that our churn remains very stable. We are keeping our customers, and we continue to acquire new customers both in the mid-market and also at the smaller end of the market. Actually, particularly at the smaller end of the market, using our embedded services with a number of the fintechs that we've signed partnerships with, we are seeing acceleration in the volume of our new customer acquisition. I think those proof points show that we are competing effectively. Yeah, it's a very competitive space.
Yeah. Fred, I would just add to that in terms of sort of from a North American perspective, that the biggest proof point there is the acceleration and the growth, which is 14% in the first nine months. That's up from 12% last year. That gives you a flavor for sort of the progress overall.
Thank you very much.
Thank you, Fred.
Due to time, we will now take our last question, which comes from the line of Toby Ogg of JP Morgan. Please go ahead. Your line is open.
Yeah. Hi, good morning. Thanks for the questions. Couple from me. Perhaps just firstly on the macro and the demand environment, have you seen any changes here? We obviously saw towards the end of June the ceasefire with the Middle East situation. Then in July, we've seen re-escalation. Have you seen any impact on customer behavior or demand through this? Then secondly, just on Europe, it looks like that accelerated in Q3 relative to Q2. Any specific drivers that are helping lift the growth rate in Europe, and how sustainable do you think those drivers are? Thank you.
Thanks, Toby. I'll give you a little bit of a flavor just to add to some of the points that Steve made earlier in terms of Europe. Steve can touch upon the macro. From a European perspective, this is an area that is obviously ripe for opportunity in terms of the compliance tailwinds that we're seeing in that market, but also as we're building our presence with Sage Intacct, Sage Active. We do see opportunities there to drive growth. We're well-positioned in the market. In particular, in the first nine months, we've seen strong performance from Sage X3 in our French business. We've seen a really strong performance in our Iberian business that I touched upon in the first half.
Overall, it's a mixture of strong compliance tailwinds that are coming through in continental Europe, a growing level of cloud adoption, which has otherwise lagged other parts of the group historically. Then also having good products in place that are ready to start building traction and scaling.
I would say on the macro, I think there's probably two parts to this. One is how people see it impacting how they behave with us, i.e., does it make them less or more likely to make purchases from Sage? Then it is the impact of how they see their own business. What I mean by that is, when I talk to customers are, depending on which industry they're in, they are very focused on the cost of materials, their input costs, essentially. Because that's where the impact of the Middle East has the most impact for them. Whether it be oil prices driving cost of distribution, et cetera. These are all inflationary pressures, which our customers have to pay real attention to.
I think in terms of how they interact with us, in the past, I have said that sometimes when you get these kind of macro uncertainties, it can lead to people just taking a little bit longer to make decisions. The way I would see it at the moment is because these, whether it be the Ukraine conflict or whether it be the war in the Middle East, I think people are kind of slightly looking through it now and saying, "It kind of is what it is. It'll come to an end in due course. In the meantime, I need to get on with things." If you link those two things together, obviously part of what we're selling is not just compliance, keeping you safe, et cetera, but it's also offering you productivity, it's offering you efficiency, it's offering you automation of your workflows.
In some ways, the more people see those cost pressures, the more it encourages them to invest, to find productivity, to be able to absorb cost increases elsewhere. I would say at the moment, the kind of pipeline of interest, the engagement is strong and is largely unaffected by the ups and downs of the wider macro environment.
That's great. Thank you.
Thanks, Toby.
Thank you. I will now pass back to the speakers for closing remarks.
Thanks everyone for joining the call today and for all of the questions. James and the IR team will be available for any follow-ups today, and Steve and I look forward to speaking with you all again in November. Thank you very much.
This concludes today's conference call. Thank you for participating. You may now disconnect.