Computer Modelling Group

Company Overview

Computer Modelling Group (TSX: CMG) is a Canadian software serial acquirer that provides subsurface modelling solutions to the global energy industry. For most of its 47-year history, CMG was best known for reservoir simulation software, helping oil and gas producers model complex hydrocarbon recovery, enhanced oil recovery, heavy oil, geothermal, and hydrogen applications.

CMG is now in the middle of a transformation. Under the CMG 4.0 strategy, launched after the current CEO, Pramod Jain, joined the company in 2022, the company has expanded from a focused reservoir simulation business into a broader subsurface software serial acquirer. The strategy is built around three core priorities: maintaining and growing its core reservoir simulation business, continuously deploying capital into acquisitions, and accelerating market penetration of newly acquired businesses.

The company currently serves over 500 customers in roughly 60 countries, with products embedded in highly technical upstream workflows. Including its acquired companies, CMG offers more than a dozen software solutions across reservoir simulation, production modelling, carbon capture and storage, seismic interpretation, geoscience interpretation, field development, and subsurface risk assessment.

Recent financial performance has been pressured by weaker spending in the energy sector, longer sales cycles, lower professional services activity, and reduced licensing in its higher-margin reservoir business. In Q3 FY26, revenue declined 9% year-over-year to $32.7 million, recurring revenue declined 4% to $23.7 million, adjusted EBITDA decreased by 30% to $9.7 million, and free cash flow declined by 34% to $5.8 million.

Key Facts

• Founded: 1978
• Headquarters: Calgary, Canada
• CEO: Pramod Jain
• Employees: 315
• Sector and Industry: Software and consulting for global upstream oil and gas
• Fiscal Year End: March 31
• Market Capitalization (May 11, 2026): C$319.19 million
• FY 2025 Revenue: C$129.45 million
• FY 2025 Net Income: C$22.44 million

Lessons for Success

• Deep technical specialization: CMG operates in highly specialized software markets. Its solutions require deep reservoir, geoscience, and engineering knowledge, creating barriers to entry and higher switching costs for customers.
• Focus on disciplined capital allocation: Management appears to have a strong understanding of what makes a successful serial acquirer, supported by individuals with experience working at proven compounders such as Constellation Software. CMG continuously emphasizes the importance of factors such as return thresholds, selectivity, and prudent capital allocation, suggesting the company has the right foundation for a repeatable model that can compound value for investors over time.
• Early evidence of post-acquisition improvement: Although it’s still early days, CMG has shown progress in improving the operations of its acquired businesses. Its first acquisition, Bluware, increased annualized revenue by 50% and adjusted EBITDA margin from roughly 5% to 15% versus pre-acquisition levels in less than two years. After one year of ownership, Sharp Reflection’s software revenue also increased by 20%, while adjusted EBITDA margins expanded from low double digits to 17%.
• Management transparency: Although CMG does not conduct quarterly earnings calls, Pramod Jain is candid in his investor communications, openly addressing recent challenges, market conditions, plan of action, and outlook. This level of clarity suggests a leadership style grounded in accountability and integrity and gives investors a better window into how management thinks when market conditions are difficult.
• Recurring revenue: Despite the recent decline in organic growth, most of the company’s revenue is recurring. This provides better visibility than perpetual license sales or project-based professional services, which can be more variable.

Leadership Capabilities

Pramod Jain, who joined as CEO in 2022, has been central to the CMG 4.0 strategy, which is transitioning the company from a single workflow reservoir simulation business into a broader subsurface software portfolio. While results over the past year have been muted due to challenging market conditions, Jain has remained committed to the strategy, continuing to find accretive acquisitions that have gradually broadened CMG’s portfolio. The early stages of building a serial acquirer are never easy, but Jain has demonstrated the persistence and focus on important capital allocator principles through these difficult times.

His shareholder letters give investors a sense that he understands what it takes to build a serial acquirer. Investors familiar with companies such as Constellation Software should recognize the language Jain uses when discussing CMG’s approach to capital allocation and long-term value creation.

“Taken together, portfolio durability, margin expansion over time, and disciplined acquisitions, these are the drivers of long-term value at CMG. We measure progress through recurring revenue growth, free cash flow generation, and the full deployment of that cash flow.”

Given the background of the leadership team, it’s no surprise that CMG echoes some of the same principles we see at proven Canadian software compounders. CFO Vipin Khullar previously served as CFO of Perseus Software Group, a subsidiary of Constellation Software. The company’s board also includes Andrew Pastor, who serves on the board of Constellation Software, and Birgit Troy, who previously led M&A at Lumine Group.

How CMG is Facing its Current Challenges

CMG’s current challenge is that it is trying to build a broader serial acquirer platform at the same time its legacy growth engine has come under pressure. In Q3 FY26, total revenue declined 9% year-over-year to $32.7 million, while organic growth declined 17%. Adjusted EBITDA also fell 30% to $9.7 million, reflecting the fact that the revenue pressure came from the higher-margin reservoir and production solutions business.

The difficulties started in Q4 FY25 when reduced licensing and longer deal cycles driven by cautious energy-sector spending and lower oil prices led to a 13% decline in organic growth for the quarter. The situation became even more challenging in Q1 FY26 when CMG disclosed that it had been unsuccessful in renewing a long-standing reservoir simulation customer because of “unusually aggressive discounting and competitive bundling by a global peer.” At the same time, the company had been intentionally shifting its revenue mix toward a higher percentage of software revenue and away from professional services, which exacerbated the decline.

But there are some early signs of a turnaround. Management has reiterated that organic revenue growth is expected to turn positive in Q4 FY26, likely driven by easier comparables and growth from acquisitions. In Q2 FY26, CMG also signed a multi-year software licensing agreement with Shell, which will start adding to the topline in Q4 FY26.

Oil prices have also risen substantially since the start of the conflict in Iran and disruptions at the Strait of Hormuz, lifting the share price of global energy companies. If energy prices remain elevated, oil and gas companies will likely increase spending, creating a favourable macroeconomic backdrop for CMG in the quarters ahead.

Computer Modelling Group Risks and Controversies

• Declining organic growth: Organic growth has declined for four consecutive quarters due to market uncertainty, longer sales cycles, and the loss of a renewal with a long-standing customer in the reservoir simulation business. Until organic growth turns positive, which management expects to occur in Q4 FY26, financial performance will likely remain muted.
• Energy-sector cyclicality: CMG’s customers are oil and gas producers, making the company exposed to energy sector cyclicality. Budgets are influenced by commodity prices, geopolitical events, and changing views on energy transition projects, all of which make revenue growth less predictable.
• Lumpy acquisitions: Unlike Constellation Software, which follows a highly programmatic acquisition model, CMG pursues fewer, relatively larger acquisitions. This can lead to lumpier results, less predictability, and greater execution and integration risk.
• Acquisition track record still being proven: CMG only started its acquisition strategy in 2022 and completed only five acquisitions to date. While management has disclosed strong operational improvements in its Bluware and Sharp Reflections acquisitions, it has yet to prove its consistency over the long term.
• AI disruption: Although CMG’s specialized software is less prone to disruption from AI compared to more generic software applications, it is not invulnerable to disruption from new entrants. Depending on how AI continues to evolve, customers may re-evaluate their workflows and how CMG is pricing their solutions.

Computer Modelling Group Recent Acquisitions

Source: FactSet

Computer Modelling Group Financial Performance

Fiscal year-end date: March 31

Source: FactSet

Computer Modelling Group Valuation

 Source: FactSet.

 Comparable Valuations

Source: FactSet.

Computer Modelling Group Outlook

Investors have had a rough ride with CMG since Pramod Jain became CEO in 2022. Starting from C$4.91 per share, the stock hit a high of C$14.73 per share in July 2024 before falling more than 74% to C$3.81 as of May 11, 2026.

Operationally, the company has diversified its portfolio through its CMG 4.0 strategy and gradually built a track record of making accretive acquisitions. Since fiscal 2023, revenue increased almost 71% from $73.8 million to $126.2 million as of Q3 FY26. If organic growth turns positive, acquired businesses continue to scale, and margins recover closer to prior levels, EBITDA, net income, and free cash flow can likely grow at double digits from here.

Investors must also pay attention to CMG’s current valuations. While it is trading far below its historical valuations at 8.29x EV/EBITDA, 19.57x P/E, and 18.99x P/FCF, and is relatively discounted compared to peers in most metrics, the company actually trades at a higher P/FCF compared to more established serial acquirers like Constellation Software, primarily because its free cash flow has declined over the past two years. Although this will change quickly if margins normalize, investors must consider whether it is worth the opportunity cost to invest in CMG instead of other proven compounders that have a longer-term track record and more stable growth profile.

As some analysts have said, CMG is still very much a “show me” story. With easier comparables, the new Shell contract, and favourable oil and gas prices, if CMG does not improve organic growth in the quarters ahead, investors should seriously question whether the recent weakness is cyclical or structural.

It’s also important to keep in mind that the energy sector is notoriously cyclical. Should the conflict in Iran cease and energy prices fall, there could be more catalysts for delayed spending and renewed pressure on topline growth, especially as AI continues to disrupt the software sector.

These are also early days for CMG as a serial acquirer. While the company has successfully improved the operating performance of its Sharp and Bluware acquisitions, CMG has only made five acquisitions so far. Whether it can replicate those improvements on its future acquisitions remains to be seen. Investors should not expect meaningful multiple expansion until CMG has proved consistent growth across key financial metrics for several quarters in a row.

The greatest test for every business is how it performs when the market environment is unfavourable. The best Canadian serial acquirers are those that can grow despite headwinds, and so far, CMG has yet to pass that test. What’s clear is that the company is at an inflection point. Investors should keep a close eye on whether organic growth turns positive and margins improve in Q4 FY26 to see if this is a turnaround story in the making.

Disclosure: I own shares of Computer Modelling Group

Source and References

• Website sources
  • Investor relations: https://www.cmgl.ca/investors/
  • Press releases: https://www.cmgl.ca/press-releases/
  • Financial reports: https://www.cmgl.ca/investors/financial-reports/
  • Events and presentations: https://www.cmgl.ca/investors/events-and-presentations/
• Source of financial and valuation data: FactSet and company financial filings