In December I have add Computer Modelling Group ($CMG) to my portfolio and in the mean time the company became even more attractive. In this article I will share why I decided to buy CMG.
Great write up! In the recent report was mentioned that the largest customer comprised 25% of total revenue. And that R&P revenue declined due to customer attrition. Any thoughts on these findings?
The customer concentration is a bit overstated. The largest customer you refer to here is Shell, but it’s important to understand that from a seat license perspective Shell Australia is a different decision maker than Shell South America for example. So although it’s all Shell, the renewal process isn’t simply “is Shell going to renew their licenses with CMG?” It’s a ton of different decisions by region
Thanks for your nice comment! The 1% revenue decline in Computer Modelling Group's R&P segment during Q3 2025 was primarily driven by a reduction in Professional Services revenue, which outweighed gains in Perpetual license revenue. Additionally, Annuity/Maintenance revenue remained flat, with regional declines in the U.S., Canada, and South America offset by growth in the Eastern Hemisphere.
While the decline is modest, it highlights dependency on specific revenue streams like Professional Services and the need for stronger regional diversification to mitigate such impacts. However, the slight increase in software revenue tied to energy transition (23% vs. 22%) suggests potential for long-term growth if CMG continues expanding its energy transition offerings. So short-term their CEO wants to transition more and more from Professional Services towards Software revenue which will impact CMG short-term revenue figures but long-term if they manage to grow software revenue it means their revenue will be more recurring and revenue and earnings more predictable.
I didnt read anywhere one customer is making up 25% of the revenue. Can you share where you have read this exactly? With the majority of the O&G companies part of their client base I would be surprised if this is the case.
Thanks for sharing. I missed that foot note: "During the nine months ended December 31, 2024, one customer comprised 25% of the Company’s total revenue (nine months ended December 31, 2023 – one customer, 18.3%)."
This is a risk, I would prefer to see the revenue more diversified. The fact that it increased could mean two things: they werent able to reduce the risk by adding new customers or the customer is happy and even bought more. Anyway, it is a risk and means this customer has negotiation power as they dont want to see them leaving.
Nice analysis. Don’t you think CMG will eventually be replaced by AI? If not, there could still be similar tools being built that could pressure the pricing of CMG. Any thoughts?
I understand but as AI gets more developed, it will eventually be able to completely remake the software very fast with just a few programmers. I think only software that is very advanced (simulations like EDA software) or the use of data from current customers give them an enormous advantage over new entrants.
In case this is helpful. I work in AI and you need data, lots of data, and good data. CMG and Schlumberger have the most and the best. It's all of their own stored data, not public. AI could, and already can, remake the software but it doesn't have the data (CMG has 40+ years worth of data). There's no getting around the quantiy and quality of data for inputs. At least not yet, although DeepSeek is trying. Hope that helps!
The organic decline was a bit disappointing, but this is only one quarter and strategy of management makes completely sense to me. I am invested for the long-term in this company.
Not sure if this question was for me or C&F or both. There are only two big metrics that matter, organic revenue growth and ROIC of Aquisitions. Software revenue growth grew for all software (services is what brought them down and they're actively decreasing this line of revenue as they likely should). ROIC is TBD, however the trends seem to point in the right direction - increased organic and revenue growth of the bolt ons. Cheers.
Great write up! In the recent report was mentioned that the largest customer comprised 25% of total revenue. And that R&P revenue declined due to customer attrition. Any thoughts on these findings?
The customer concentration is a bit overstated. The largest customer you refer to here is Shell, but it’s important to understand that from a seat license perspective Shell Australia is a different decision maker than Shell South America for example. So although it’s all Shell, the renewal process isn’t simply “is Shell going to renew their licenses with CMG?” It’s a ton of different decisions by region
Valuable input, thanks!
Thanks for your nice comment! The 1% revenue decline in Computer Modelling Group's R&P segment during Q3 2025 was primarily driven by a reduction in Professional Services revenue, which outweighed gains in Perpetual license revenue. Additionally, Annuity/Maintenance revenue remained flat, with regional declines in the U.S., Canada, and South America offset by growth in the Eastern Hemisphere.
While the decline is modest, it highlights dependency on specific revenue streams like Professional Services and the need for stronger regional diversification to mitigate such impacts. However, the slight increase in software revenue tied to energy transition (23% vs. 22%) suggests potential for long-term growth if CMG continues expanding its energy transition offerings. So short-term their CEO wants to transition more and more from Professional Services towards Software revenue which will impact CMG short-term revenue figures but long-term if they manage to grow software revenue it means their revenue will be more recurring and revenue and earnings more predictable.
I didnt read anywhere one customer is making up 25% of the revenue. Can you share where you have read this exactly? With the majority of the O&G companies part of their client base I would be surprised if this is the case.
Thanks for the reply!
Customer attrition is mentioned here on page 18 and customer concentration on page 43
https://www.cmgl.ca/wp-content/uploads/2025/02/Q3-25-Financial-Report-for-filing.pdf
Thanks for sharing. I missed that foot note: "During the nine months ended December 31, 2024, one customer comprised 25% of the Company’s total revenue (nine months ended December 31, 2023 – one customer, 18.3%)."
This is a risk, I would prefer to see the revenue more diversified. The fact that it increased could mean two things: they werent able to reduce the risk by adding new customers or the customer is happy and even bought more. Anyway, it is a risk and means this customer has negotiation power as they dont want to see them leaving.
Wonderful job Arnold!
Nice analysis. Don’t you think CMG will eventually be replaced by AI? If not, there could still be similar tools being built that could pressure the pricing of CMG. Any thoughts?
Thank you! CMG is making use of AI in their software. So its a functionality within their software to improve the outcomes.
I understand but as AI gets more developed, it will eventually be able to completely remake the software very fast with just a few programmers. I think only software that is very advanced (simulations like EDA software) or the use of data from current customers give them an enormous advantage over new entrants.
In case this is helpful. I work in AI and you need data, lots of data, and good data. CMG and Schlumberger have the most and the best. It's all of their own stored data, not public. AI could, and already can, remake the software but it doesn't have the data (CMG has 40+ years worth of data). There's no getting around the quantiy and quality of data for inputs. At least not yet, although DeepSeek is trying. Hope that helps!
Very helpful, thanks!
but the last ER was not really satisfying. could you share some thoughts on the last report? thanks
The organic decline was a bit disappointing, but this is only one quarter and strategy of management makes completely sense to me. I am invested for the long-term in this company.
Not sure if this question was for me or C&F or both. There are only two big metrics that matter, organic revenue growth and ROIC of Aquisitions. Software revenue growth grew for all software (services is what brought them down and they're actively decreasing this line of revenue as they likely should). ROIC is TBD, however the trends seem to point in the right direction - increased organic and revenue growth of the bolt ons. Cheers.
Great Deep dive. Don't you use a DCF to calculate a precise Intrinsic Value of a company?
Hi Steven, thanks for you kind comment! Often I do calculate the regular DCF. Didnt do it here but can add it.
what is your take now? do you have concerns after the decline in growth?