Computer Modelling Group TSE: CMG reaffirmed its fiscal 2027 outlook after reporting flat organic recurring revenue in its second quarter, but executives said meeting the full-year targets will depend heavily on renewals and new business in the fourth quarter.
Chief Executive Officer Pramod Jain said the result marked an improvement from a 12% organic recurring revenue decline in the first quarter. The company has now moved past the year-over-year comparison period affected by a contract lost in fiscal 2026, he said.
“I am not going to call flat a victory. Our goal is growth, but we now have a clear baseline to move forward,” Jain said. He added that organic recurring revenue will need to rise in the second half for the company to achieve a stable result for the full year.
Recurring revenue rises as earnings decline
Second-quarter recurring revenue rose 7% from a year earlier to CAD 22.1 million, with acquisitions accounting for all of the increase, Chief Financial Officer Vipin Khullar said. The figure also increased from CAD 20.3 million in the first quarter.
Professional services revenue fell 31% to CAD 5.9 million, mainly because CoFlow-related development funding ended and Computer Modelling completed the wind-down of non-core services at Bluware. Khullar said customer demand for consulting was stronger than expected, making the decline smaller than forecast.
Adjusted EBITDA fell 16% year over year to CAD 6.4 million, while the adjusted EBITDA margin declined to 22% from 25%. Khullar attributed the decline to lower professional services revenue, partially offset by growth in software license revenue. Sequentially, adjusted EBITDA exceeded management’s expectations because of higher perpetual license sales and professional services revenue.
Free cash flow increased 33% to CAD 2.6 million, driven by lower capital expenditures. Free cash flow per share rose to CAD 0.03 from CAD 0.02. For the first half, free cash flow declined 5% to CAD 6.1 million.
Fourth quarter central to outlook
Excluding future acquisitions, Computer Modelling continues to expect stable organic recurring revenue, no decline in adjusted EBITDA and improved free cash flow for fiscal 2027 compared with the prior year. It also maintained its forecast for professional services revenue to decline by CAD 6 million to CAD 7 million.
For the third quarter, Khullar expects recurring revenue to increase sequentially and professional services revenue to be similar to the second quarter. Adjusted EBITDA and its margin are expected to rise from the second quarter but fall year over year, primarily because of lower professional services revenue.
Khullar said adjusted EBITDA is expected to trail the prior year through the first three quarters. He nevertheless expects the fourth quarter to be the company’s highest-revenue quarter and to deliver the growth and adjusted EBITDA needed to meet the annual outlook.
Jain said the concentration reflects the timing of contracts for which much of the software revenue is recognized when they are signed or renewed. Many renewals fall in the fourth quarter, including at seismic businesses Sharp and SeisWare. About 55% of recurring revenue came in the second half last year, he said.
Asked about potential deal slippage, Khullar said the company had good visibility into renewals and expected them to close in the fourth quarter. Any slippage would be a matter of timing and recoverable in the following quarter, he said.
Renewals and new markets
Jain highlighted a five-year renewal and expansion with Petrobras signed in September. The agreement included a price increase, he said, while potential new products would be outside the contract.
The company also signed its first software contract in Venezuela in many years during the quarter and two more afterward. Jain said activity is picking up in the heavy-oil market, an area where Computer Modelling has expertise, but declined to quantify the contracts or the broader opportunity. The company also has evaluations underway with new customers in Africa, he said.
Jain said Computer Modelling expects to begin introducing AI agents across its simulation portfolio to clients later this fiscal year. The agents are intended to handle repetitive model-building and running tasks while leaving the underlying physics engine unchanged.
Buybacks and acquisitions
Computer Modelling completed a substantial issuer bid in September, repurchasing about 4.4 million shares, and renewed its normal course issuer bid. Khullar said the renewed program permits repurchases of just over 3.8 million shares, or 10% of the public float.
The company funded the substantial issuer bid through its credit facility. At September 30, it had CAD 9.3 million in cash and CAD 29.9 million drawn. On October 9, it increased its committed credit facility to CAD 150 million from CAD 100 million and added a second lender.
Jain said acquisitions remain the company’s first priority for capital, although it recently walked away from a transaction because it could not reach conviction on the returns. The expanded facility is intended to preserve flexibility for acquisitions while the company continues to buy back shares, he said.
About Computer Modelling Group (TSE:CMG)
Computer Modelling Group Ltd is a Canada-based provider of reservoir simulation software for the oil and gas industry. Its capabilities include integrated analysis and optimization, black oil and unconventional simulation, reservoir and production system modelling, post-processor visualization, compositional simulation, thermal processes simulation, and fluid property characterization. The firm has operations in over 60 countries in the Americas, Europe, Middle East, Africa, and Asia-Pacific regions.
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