Computer Modelling Group Q1 2027 Earnings Call Transcript

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August 12, 2026

Key Takeaways

  • Negative Sentiment: Q1 results weakened: total revenue fell to CAD 27.8 million, with organic revenue down 16% and organic recurring revenue down 12%; adjusted EBITDA and free cash flow also declined, with free cash flow at CAD 3.5 million.
  • Positive Sentiment: Management expects the organic recurring revenue headwind from a lost contract to end after Q1, forecasting stable organic recurring revenue growth for fiscal 2027, improved full-year free cash flow, and no adjusted EBITDA decline versus fiscal 2026.
  • Negative Sentiment: Professional services revenue is expected to decline by CAD 6 million–CAD 7 million for the year, toward the high end of the range, as Bluware’s non-core services wind down faster than anticipated; Q2 is expected to be the weakest services quarter.
  • Positive Sentiment: CMG announced a substantial issuer bid funded by up to CAD 20 million from its credit facility, citing a share price below its assessment of intrinsic value, while maintaining its commitment to acquisitions and stating that fiscal 2027 free cash flow should be sufficient to reduce the related leverage.
  • Positive Sentiment: Management cited stronger customer interest in enhanced oil recovery, energy security, high-fidelity seismic interpretation, and international markets, while recent acquisitions contributed positively to EBITDA and are creating opportunities for cross-selling and joint proposals.
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Earnings Conference Call
Computer Modelling Group Q1 2027
00:00 / 00:00

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Operator

Thank you for standing by. Welcome to the Computer Modelling Group first quarter 2027 earnings call. At this time, all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Kim MacEachern, Director of Investor Relations. Please go ahead.

Kim MacEachern
Director of Investor Relations at CMG

Thank you, operator. Good morning and welcome to Computer Modelling Group's conference call to discuss financial results for the first quarter of fiscal 2027. My name is Kim MacEachern, Director of Investor Relations, and with me today are Pramod Jain, Chief Executive Officer, and Vipin Khullar, Chief Financial Officer. I will remind everyone that today's discussion contains forward-looking statements within the meaning of applicable securities laws. These statements reflect our current expectations and are subject to risks and uncertainties that could cause actual results to differ materially. Please review the forward-looking information section of our MD&A and news release, both filed yesterday on SEDAR+ and available on our website. We will also reference non-IFRS measures, including adjusted EBITDA, organic recurring revenue, and free cash flow.

Kim MacEachern
Director of Investor Relations at CMG

Reconciliations to the most directly comparable IFRS measures are provided in our financial reports and news release, both of which are available on our website and on SEDAR+. We will begin this morning with roughly 15 minutes of prepared remarks from Pramod and Vipin, after which the operator will open the line for questions. A replay of this call will be available on our website later today. With that, I will turn it over to Pramod.

Pramod Jain
CEO at CMG

Thank you, Kim, and good morning, everyone. Until now, my letter to shareholders has been the main way of communicating with you. As I said in my letter yesterday, it is not going away. The reason we decided to begin quarterly conference calls is because our business has grown. CMG today is a different company than it was even three years ago. We have moved from a single product reservoir simulation business to a group of businesses at different stages of maturity. That complexity deserves a forum where questions can be asked and answered in real time, and that is what this call is for. My key messages for today are, number one, our strategy hasn't changed. We remain committed to growth both organically and through acquisitions. Number two, our outlook is for stabilization to return to the business.

Pramod Jain
CEO at CMG

Number three, we are going to deploy our capital towards the highest risk-adjusted return opportunities, and that includes the substantial issuer bid we announced yesterday. After that, I will turn it over to Vipin to discuss the financials for the quarter. Let's talk strategy first. Fundamentally, our strategy hasn't changed since I joined. What's our strategy? It is to preserve what CMG has built over almost five decades and put the free cash flow it generates to work buying businesses that build our next stage of growth. Our core business is physics-based reservoir simulation software that energy companies rely on to make decisions that are expensive to get wrong. For example, how a reservoir will behave, how a recovery process will perform, and how a CO2 storage project will hold up over decades.

Pramod Jain
CEO at CMG

That software sits deep in our customers' workflows, and it is critical to their capital decisions. That's a market position we have held for close to five decades, and it is the foundation everything else sits on. On top of that foundation, we've been building a second growth engine through acquisitions, bringing in complementary technologies across the upstream energy workflow. These acquisitions are building a portfolio of best-in-class technologies that expand the number of ways we support our customers, and they build resilience beyond reservoir simulation. In just over two and a half years, we have deployed over CAD 90 million in capital, completing four major acquisitions. To date, the return on our portfolio of these investments is on track. We are developing a reputation as a good home for specialized energy tech businesses.

Pramod Jain
CEO at CMG

That's because when a well-run technical business is deciding who to sell to, price is one factor, but so is what happens to the team, the product, and the customers after closing. Our technical credibility and our commitment to growth means the founders and the engineers behind these businesses can expect their work to keep growing under CMG rather than being absorbed and stripped for cost synergies. Taken together, our strong foundation in simulation and our focus on growing capabilities through acquisitions gives us a clear path to becoming a more complete technology partner to our customers and to create value over the long term for our shareholders. Turning to the business. The KPIs that really matter to us when we evaluate the success of our strategy are growing recurring revenue and growing free cash flow.

Pramod Jain
CEO at CMG

While we have been successful in growing acquired recurring revenue, organic recurring revenue has been a challenge in the past several quarters, and that has flowed through our cash flow. This quarter, our organic recurring revenue was down 12%, and this is the final quarter of headwind from a lost contract from last year, and our priority is now moving on to organic recurring revenue to stabilize this year and ultimately back to growth. My outlook for the business is based on the insights I get during the considerable time I spend traveling and talking to the customers. I shared some of my observations in my letter yesterday, but to recap two things that stood out to me in customer conversations. First, operators are focused on maximizing recovery. Many are targeting recovery factors as high as 50%, which is very high for the industry.

Pramod Jain
CEO at CMG

To get there, they are turning to a range of enhanced oil recovery or EOR technologies, and this is where CMG shines and where we are focusing our sales efforts as EOR grows in importance globally. Second is a desire for the best specific technology to solve a specific problem. I have always believed that the biggest strength of our strategy is having a portfolio of the best tools and allowing customers to choose what works best. With four acquisitions complementing our core simulation offering, customers were eager to explore solutions across the group of companies. Adding to that, relationships our simulation business built over decades are now opening doors for our seismic solutions with customers who wouldn't have seen them otherwise.

Pramod Jain
CEO at CMG

We are more frequently pursuing joint proposals with two or three of our companies coming together to put forth a broader package of technology than any of them could have done alone. This is a compelling example of the upside of our portfolio strategy. I am also seeing renewed interest from international operators in countries like Venezuela and Mexico and African countries like Algeria, Angola, Nigeria, and Libya. These are shaping up to be important markets for CMG. They are the types of markets and assets where we do our best work, complex reservoirs, heavy oil, and mature fields that demand the science we have spent decades building. As international companies return their attention to these regions, they are surfacing new opportunities across the CMG group of companies.

Pramod Jain
CEO at CMG

It is early, and I will report on the progress as it becomes tangible, but I am optimistic at what we can do here. Before I turn to capital deployment, a brief word on AI. I think it's essential these days to talk about it. My view is unchanged. In the subsurface, AI does not replace physics. It needs physics. The data exists in silos, the cost of a wrong answer is enormous, and the companies that win with AI will be the ones who own the science underneath it. We are pursuing AI on two fronts. First, in our products. For example, InteractivAI, Bluware's AI-assisted seismic interpretation tool, is now in its sixth release and in use at some of the largest operators in the world. Across our simulation portfolio, we are building a common architecture for AI agents that work alongside the reservoir engineer.

Pramod Jain
CEO at CMG

Today, we have working prototypes that can launch a simulation run, monitor it, and flag it when something is wrong. These are still in the build phase, but they illustrate how we are using AI to secure the advantages where AI excels while not risking outcomes to apply AI where it isn't appropriate. The second part is how we build it. Much of the code shipped this year was AI-assisted, with every line still passing the same human review and testing gates as before. This is making a lean R&D organization meaningfully more productive. Now let's talk capital deployment. To date, under our CMG 4.0 strategy, acquisitions have been our primary capital deployment priority, and that remains unchanged.

Pramod Jain
CEO at CMG

The reality is that while the M&A pipeline is active, we are holding to our standards on price and the returns, which has meant closing fewer transactions than we might otherwise expect. This means that we have capital available through both our cash flows and our credit facility. Add to that, the market price of our shares is below what we believe the business is worth. This gives us an opportunity to capture value by repurchasing our shares. Our responsibility was to determine a size for the SIB that allows us to act without compromising our ability to pursue acquisitions. As you saw in the announcement yesterday, we will draw up to CAD 20 million on our credit facility to fund the SIB now. This is an opportunistic way to create value for our shareholders while we remain committed to pursuing the right acquisitions to diversify and strengthen our company.

Pramod Jain
CEO at CMG

We remain committed to acquisitions because we believe the opportunities in our pipeline have the potential to meet or exceed the return threshold of buying back shares. The ones that cannot, we will pass on. I don't see acquisitions and buybacks as mutually exclusive. I believe this approach balances the upside of the M&A pipeline against the value returned by buying back shares. As I turn the call over to Vipin to walk through the numbers for the quarter, I will reiterate that, A, our strategy hasn't changed. We remain committed to growth both organically and through acquisition. B, our outlook is for stabilization to return to the business, which supports our view of the valuation of the business. C, we will continue to deploy capital towards the highest risk-adjusted return opportunities, and that includes the substantial issuer bid we announced yesterday.

Pramod Jain
CEO at CMG

Vipin, I'll turn the call over to you.

Vipin Khullar
CFO at CMG

Thanks, Pramod, and good morning, everyone. With our financial results having been released yesterday afternoon, I won't go through line by line, assuming you've all had a chance to review. I will highlight some of the key messages before turning the call over for your questions. Starting with total revenue. Total revenue was down year-over-year to CAD 27.8 million as 10% growth from acquisitions was offset by a 16% organic decline. Looking at recurring revenue, which was down 3% this quarter, there are two main components. Organic recurring revenue declined, which we had disclosed was as expected, as this quarter is the final quarter lacking the contract loss from last year. Starting next quarter, we expect the year-over-year comparisons to begin to normalize. Offsetting that decline, we delivered 9% recurring revenue growth from acquisitions, which included contributions from SeisWare and Rose, two acquisitions we closed in fiscal 2026.

Vipin Khullar
CFO at CMG

On the professional services side, we had a significant organic decline, which was also disclosed and expected. The two main components driving this quarter's decline in professional services are the absence of CoFlow related development funding, which concluded at the end of the 2025 calendar year, and the continued wind down of non-core professional services activity at Bluware. As a reminder, we underwrote the Bluware acquisition on its software revenue growth potential, and we assumed the non-core professional services would wind down. Our remaining services work is the portion that directly supports our software. Partially offsetting that decline in professional services was 13% growth from acquisitions, which for context, is largely the contribution from Rose, which had a strong Q1, our first full quarter of ownership of the Rose business.

Vipin Khullar
CFO at CMG

Adjusted EBITDA and adjusted EBITDA margin for the quarter declined, reflecting the impact of lower organic recurring revenue and lower professional services revenue, offset by ongoing cost management discipline. While the lower organic recurring revenue weighed on adjusted EBITDA, I am pleased to say that both acquisitions completed in fiscal 2026, SeisWare and Rose, contributed positively to adjusted EBITDA in the quarter, despite the seasonal weighting of their software revenue recognition towards the back half of the year. On free cash flow, we experienced a decline to CAD 3.5 million in the quarter due to the revenue dynamics I just discussed and due to higher income taxes in the quarter, both of which impacted net income. Free cash flow conversion from EBITDA decreased year-over-year primarily due to higher income taxes in the quarter.

Vipin Khullar
CFO at CMG

Current income tax expense for the quarter was CAD 1.5 million this quarter, compared to CAD 900,000 a year ago. That change included a CAD 400,000 prior period adjustment taken in the current quarter. Our current tax expense and tax rate will fluctuate by quarter based on the jurisdictional mix of our income, how cross-border transactions get taxed, and foreign change movements. Looking forward to the second quarter recurring revenue, we expect organic recurring revenue to increase sequentially versus Q1, driven by a higher renewal cycle in Q2 relative to Q1. As a reminder, recurring revenue is expected to build as we move throughout the year, as each quarter takes up more renewal revenue than the one before. So Q1 is typically our lightest quarter, and Q4 generally expected to be the heaviest.

Vipin Khullar
CFO at CMG

On professional services, we expect both a sequential and a year-over-year decline, and we expect that Q2 will be the lowest quarter of the fiscal year for professional services revenue. This comes as we finish the wind down of non-core Bluware services and from product timing and lower billable project activity during the summer months. On adjusted EBITDA, we expect both a sequential and a year-over-year decline driven by two things in Q2. First, the lower professional services revenue. Second, we expect higher sales and marketing expense in Q2, which is tied to agent commissions that regularly occur in Q2 on contract renewals that come up in the quarter. For the full year, we are reaffirming our expectation for stable organic recurring revenue growth, revenue, and no reduction in adjusted EBITDA relative to fiscal 2026.

Vipin Khullar
CFO at CMG

We also continue to expect free cash flow to improve year-over-year in fiscal 2027. We are adjusting our expectation on professional services decline for the year, which is now anticipated to be in the range of CAD 6 million-CAD 7 million, trending to the higher end of the range versus the CAD 6 million that we previously disclosed. The revision of the professional services guidance is due to the Bluware non-core services winding down faster than originally forecasted. Finally, as Pramod mentioned, we announced an SIB. From a leverage perspective, we expect to draw up to CAD 20 million for the bid from our existing credit facility. The SIB size took into consideration many factors, including making sure that we can keep sufficient capital for our acquisition pipeline and taking into account our expected free cash flow for this year.

Vipin Khullar
CFO at CMG

We expect our free cash flow for the year to be more than sufficient to de-leverage the portion of the credit facility we need to fund the SIB.

Vipin Khullar
CFO at CMG

With that, I'll turn it over to the operator for your questions.

Operator

As a reminder, if you'd like to ask a question at this time, please press star one one on your touchtone phone and wait for your name to be announced. To withdraw your question, please press star one one again. Our first question comes from Erin Kyle with CIBC.

Erin Kyle
Erin Kyle
Director of Equity Research Analyst at CIBC

Hi, good morning. Thanks for taking the questions. Happy to chat on a live conference call here. So maybe first question just on the outlook here. So you are calling for stable organic recurring revenue growth for the full year, compared to the decline this quarter. So understanding that Q1 was that final quarter of lapping the loss of the customer contract last year, can you maybe walk us through some of the drivers of the growth outlook for the remainder of the year on the organic side?

Pramod Jain
CEO at CMG

Yeah, thank you. Thank you, Erin, for the question. So a couple of factors, and I am going to have Vipin also add more to it. So the first one is looking at our renewal cycle, right? We have a very good understanding of our overall renewals for especially our simulation business, and that is the key for us to secure that, for the remaining of the year and beyond. The number two, looking at the market and the macro, which is changing positive to positively in industry favor, in our favor, which will require more technologies overall. The third part is the investments that we have made in our products. I talked about ShaleSim last quarter, and more investments that are happening in the product will result in giving me confidence that we will hit the stable outlook. Vipin, anything you want to add?

Vipin Khullar
CFO at CMG

Yeah. I will also add just, we talked about new markets as sort of being an area of strategic focus, so that will kind of come into our revenue in the quarters ahead. And just as our acquisitions start to further integrate, starting to see more growth, some of the revenue is sort of, it is weighted towards the back half of the year, given the revenue recognition towards Q3, Q4.

Erin Kyle
Erin Kyle
Director of Equity Research Analyst at CIBC

Okay, thank you. And maybe just to follow up that, as a related question. Pramod, you mentioned the macro there, so maybe just if you can comment a bit more broadly on customer spending trends in the current environment. We have been in an elevated oil price environment for some time now, so it sounds like maybe you are seeing some customer behavior change, or are customers still exercising any caution given the volatility? Then I will pass the line.

Pramod Jain
CEO at CMG

Yeah, sure. I think it's broadly, I would say the investments that companies are now looking at to say, "We need to invest now in energy security," I am seeing that more and more. Two weeks ago, I was in Asia, spoke to a bunch of customers, especially large NOCs and IOCs. The trend is that, we cannot wait. We need to invest in the energy upstream. We need to invest in technologies, because overall, countries have to be energy secure. On the other side, I also see companies in Canada, companies in U.S., they are still cost conscious as well, because nobody kind of knows where the oil price will turn out to be. Broadly, I see a positive trend in terms of looking for the next oil that they can recover from the subsurface, and for that, they need to go to EOR.

Pramod Jain
CEO at CMG

They need to go to higher seismic interpretation fidelity. All of those signs are very positive for us. So I have a huge conviction in terms of what the future would look like for us.

Erin Kyle
Erin Kyle
Director of Equity Research Analyst at CIBC

Thank you. That is helpful.

Operator

As a reminder, if you would like to ask a question at this time, please press star one one on your touchtone phone. Our next question comes from Doug Taylor with National Bank.

Doug Taylor
Doug Taylor
Managing Director of Equity Research Analyst at National Bank

Yeah, thank you. Good morning, and thanks for hosting this call. I'm going to double back on one of Erin's questions there. That obviously it's been a turbulent time for the energy industry. Some of those new EOR opportunities you reference with NOCs, the increased emphasis on energy security, can you speak a bit more about the timetable to revenue or the velocity of some of those processes and RFPs? Also, do you have a presence with most of those customers already with some of your solutions, and this is more upsell of additional licenses? Or would you characterize most of that as new logo opportunities?

Pramod Jain
CEO at CMG

Yeah. Thanks, Doug. Good to hear you. I think two questions that you have asked, and I'm going to take a chance to answer one by one. One is, these new EOR technologies. Look, in my trip I have done now, I've been in Asia, I've been in Latin America, and I'm constantly traveling now to customers. What's happening there is the EOR technologies are not new, but they're expensive. But these industries are now, or these companies are now looking at to say, rather than exploring new oils, new oil fields, what they can do to extract more from implementing EOR. And with the oil price as it is today, it allows them to invest in that. So that's happening, and we are seeing that happening everywhere, but mostly in the countries that we are now trying to get inside with the new logo opportunity.

Pramod Jain
CEO at CMG

In some countries, we are also looking at more upsell opportunities, increasing more licensing that we have seen in the past. And that is why I was trying to answer the question to Erin, is that the positive trend that I'm seeing now, it takes time, to get these RFPs and proposals in the pipeline to commercial wins. But I see more closer to commercial wins than I have seen that before, because before it was all about cost and questions about cost, and now it's more about what can you do and which technology I can use to extract more oil from the ground.

Doug Taylor
Doug Taylor
Managing Director of Equity Research Analyst at National Bank

Thanks for that. The flip side of some of this is obviously, in the Middle East, the entire quarter we're talking about here was sort of marred with the conflict there, closing the strait, things like that. You've got quite a few customers in the region. Has there been any disruption to your business there, or distraction from ongoing processes for purchasing more licenses, things like that?

Pramod Jain
CEO at CMG

Yeah. Thankfully, Middle East has been actually quite good for us. We have renewed all of our contracts, which has been great. There has been some disruption because some of the countries that we didn't have presence, we were very close to converting them, but that took a bit of a hit because those countries got impacted by the war. Nevertheless, I think these countries are also realizing that they need to keep investing and talk about technologies. Actually, I'm going to be on the road next week in Middle East itself, talking to these countries. I think from a long-term or even midterm perspective, the investment cycle isn't changing, and they are thinking about doing business as usual as much as possible. Broadly speaking, no impact to our renewals.

Doug Taylor
Doug Taylor
Managing Director of Equity Research Analyst at National Bank

Okay. Thank you. Safe travels then, Pramod.

Pramod Jain
CEO at CMG

Thank you.

Operator

As a reminder, that is star 11 if you'd like to ask a question at this time. That will conclude today's question and answer session. I'd like to turn the call back to Pramod Jain for closing remarks.

Pramod Jain
CEO at CMG

Well, thank you all for joining our first call today. We will do this every quarter, and I hope it's a useful forum for you. We are coming out of some challenging quarters, yet my commitment to our strategy is the same, and I have deep conviction that the market is working in our favor. Energy security is top of mind, and our customers are showing renewed commitment to maximizing their assets. That means they need new and more complex recovery methods, and that requires more simulation and high-fidelity seismic interpretation. Our portfolio of companies are showing every day the value of serving our customer in multiple ways, and our joint proposals are just the beginning.

Pramod Jain
CEO at CMG

My conviction in what we are building comes from being in direct conversation with customers and turning those insights into actionable plans for new products, new geographies, and new ways to strengthen our sales processes. Finally, to almost our 300 employees, the science, the customer relationships, and the work of bringing four companies into CMG is done by you through a period of time where the numbers haven't reflected the quality of that work. So thank you for all that you do, and we look forward to speaking with you next quarter. Thank you.

Operator

This concludes today's conference call. Thank you for participating. You may now disconnect.

Analysts
    • Kim MacEachern
      Director of Investor Relations at CMG
    • Pramod Jain
      CEO at CMG
    • Vipin Khullar
      CFO at CMG
    • Erin Kyle
      Director of Equity Research Analyst at CIBC
    • Doug Taylor
      Managing Director of Equity Research Analyst at National Bank
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