Okay, everyone, thank you for joining us again. Doug Taylor with Equity Research, Canaccord Genuity. Very happy to welcome back to the conference this year, Computer Modelling Group , and on behalf of the company, Pramod Jain, who is here to tell us a little bit more about the story and a bunch of change that's gone on at the company recently as they roll out their own platform consolidator strategy. I won't steal any more of your thunder. Over to you. Again, 15-minute presentation. We should have lots of time for Q&A at the end.
Thank you. Thank you, Doug. Great to be here. I do apologize for the voice. I think this investor's conference has been great. I get to meet a lot of people, but you end up talking a lot as well. I'll do my best to make sure you guys hear me all right. I always start with this slide, and this slide speaks to the complexity of the industry that we operate in. Think about having someone come to a job every day wearing a blindfold. It's a radical thought because it's impossible to do your job with a blindfold on.
The engineers, the scientists, the geoscientists, the geophysicists, they do this job every day on a regular basis, and their job is to extract a maximum amount of oil and gas from the subsurface with a minimal level of cost, or to put carbon dioxide deep inside the ground and again make sure that it doesn't leak in the atmosphere. It's very complex. It's mission-critical, and you're doing it with a blindfold on. What comes to your rescue? The technology, and in particular, a technology called simulation, which is going to give you a viewpoint of a clone of what's happening inside the Earth. We know that we need all kinds of energy. To talk about oil and gas, is it going to be here to stay or not? I think that we are way past that. We need all kinds of energy.
Oil and gas is one aspect of that. Clean energy is very important. Efficient energy is super important. What is happening in the world right now is that easy oil is gone. When you think about the easy oil, easy oil is about you put a straw and you have oil out. Those days are over. Even the likes of the Southeast are not able to extract oil and gas that way. The world is moving towards unconventional ways of extracting oil and gas. The world is moving towards enhanced oil recovery, adding chemicals, adding solvents, adding water, and all of that, yes, helps the recovery factor to improve from 10% to 12% to further. It takes a lot of effort. It takes a lot of complexity. It increases the cost.
The more complex the asset gets, the more simulation you have to do, the more seismic data that you have to interpret. We are talking about a huge amount of data. We're talking about petabytes of data that you have to pass through and interpret around it. Hence, CMG shines. Who is CMG? 47 years. Started as a nonprofit research foundation, University of Calgary in 1978. The company went public in 1997 on TSX as CMG and raised $11 million at the time. Fast forward now where we are today. The company has done three acquisitions in the seismic space, which I want to talk about.
I joined the company in 2022, started the CMG 4.0 Strategy , and the strategy really was to ensure that our core business, which is our reservoir simulation business, standing tall for the last 47 years, continues to grow, demonstrates a significant amount of cash flow coming out of the business, and competing in this space to drive measurable impact for the oil and gas companies. This slide speaks a lot about our distribution, our reach. Roughly the size of the company now, after the three acquisitions, is around 350 people. We are in 10 global locations. From a customer-based perspective, we are operating in 60 countries serving the oil and gas industry. If you notice in this particular slide, the distribution of our revenue is evenly split between the Eastern Hemisphere and the Western Hemisphere.
A company starting from Calgary in Canada, demonstrating the global reach, is a proof point that nine out of 10 super majors are today part of CMG. CMG at a glance, this kind of gives you a viewpoint in terms of the numbers. What the slide tells you is that the company, when I joined, it was three years ago. The company at the time was a total revenue of $66 million. We have doubled the revenue over the last three years. The recurring revenue is our focus. It's 67% today. The company, the core business, has been running at an adjusted EBITDA of 45%, north of 40% in a lot of cases. The conversion of that EBITDA to free cash flow has been ranging in the 80s percent as well.
Since then, we have acquired the businesses and we are taking low margin businesses and using that as an opportunity to expand the margins and increase the moat of our core business, which I'm going to talk about. As you can see, the cash flow numbers in terms of EBITDA, we did $44 million of EBITDA last year and 34% margin as a group of companies. What is 4.0 Strategy? This strategy came out in 2022 with my arrival, and it focuses on three different things. One is the growth. Second is profitability. Third is acquisition. As I mentioned, the growth relies a lot on our core business, which is our reservoir simulation business. Again, standing tall for the last 47 years, this business has been growing at north of 40% from an EBITDA perspective, as well as from a software revenue perspective.
The last three years, it has done close to 11%. That business provides cash for us to start deploying that in terms of acquisitions. Acquisitions are important to us because we are trying to solve a holistic problem. We are also trying to deploy our capital as well. Since the last three years, over the especially last 24 months, we have deployed $73 million of capital and have acquired $50 million of revenue. We have invested in those companies which are low on margins. It creates an opportunity for us to expand those margins and drive the overall cash flow per share forward. Acquisition framework. Why do we do acquisition? I think the first thing that we have to understand is that our goal, our North Star, when it comes down to acquisition, is we want to deploy 100% of available capital at a very high rate of returns.
That's the North Star for us. We do that today in our energy sector. We have our core business, our reservoir simulation business, which has been the anchor for cash that comes out of that. That sits over here in the core core site. When we talk about reservoir and production simulation, which has a very high barrier to entry, mission-critical must-have for the oil and gas industry, is our core. Any acquisition that we do in that particular space is going to be rare, but it's important because it kind of complements the core. It helps strengthen the core. That is important. Platform. The three acquisitions that you saw before, Bluware , Sharp Reflections, and now SeisWare that we recently did two weeks ago, they form a part of the platform.
One thing I want to make sure that I clarify, when we talk about platform, oftentimes it becomes about you're building a technology platform out. There could be the technology integration that we might do. Ultimately, what we are trying to do is we're building a portfolio of solutions which stand on their own and they are unique and niche in their own solution space, driving on a standalone basis the value. There will be times when they will connect and there will be times where they'll be standalone. Ultimately, it's about building that holistic platform out. Bluware , Sharp Reflections, seismic , they are part of this overall seismic solutions. When you have reservoir and production solutions and seismic, they all kind of connect, interconnect to each other. There's a third category that we put in place called standalone acquisitions. Right now, we are in upstream.
Upstream is you start from seismic and you finish at economics. There is a midstream. For those who are new here on oil and gas, think about upstream as where you find the place where you want to explore. You have to produce the oil. The midstream becomes how do you transport the oil? The downstream is how do you make money? How do you distribute, the retail aspect of that comes in? We are very much in upstream today. As we think about the standalone, we want to start looking at how do we get into midstream? How do we start going into downstream? We also start to look at the outside of oil and gas. What is important there for us is that science is the core. Science is what connects us together.
Solving hard problems, solving complex problems, solving problems for engineers and scientists, which means that we are looking at other adjacent verticals. Mining is one of them. Very complicated area. We're doing thesis on that. Utilities is another one. Water. Water management is going to become very, very important in the years to come. Complex problem. It's a commodity, but something that will become prime and center. These are examples of some of the things that we are doing thesis on. Today, we are, of course, very strong on the core and platform side. As I mentioned before, for us, deploying that available capital at a very high rate of returns and compound that over a consistent period of time is why we're doing M&A.
To give an example further about platform, again, this picture, what takeaway I would like you guys to think about is that this is an upstream picture. It's a simplified version of upstream. What it says is that it starts from seismic and it has a logical workflow that goes all the way to economics. If I'm an oil and gas executive and I'm making a billion-dollar decision, I have a piece of land and I want to make sure that that piece of land is going to generate X amount of money for X amount of time. I want to understand how long that I can do that. That entire question I need answers for lies over here because you need to know the data. There's a lot of data that you do and shoot. It's called seismic data.
Once you have all the data, then you have to process this. You have to interpret that. Then you have to bring out from a geomodel perspective. You have to have fluids coming in, oil and gas. You start to simulate. You look at production. You have to do an NPV analysis of all the models that you have done. This is all logical workflow that goes in it. Today, where CMG is today, you see that the box and the dotted line, that's where we started as a simulation company. We have made now inroads in terms of seismic. That starts to show what we mean by platform. It's not about connecting everything together. It's about looking at build-buy-partner analysis and making decisions based on, let's say, what fits over here, what doesn't. The key thing is a lot of white space for us.
This is a niche industry, complex industry, and lots of players in this site. Even in the upstream, you'll find a lot of companies doing a lot of niche elements to that. The key for us is to make sure we buy quality assets and they fit into the overall workflow. Lots of opportunity in this space. Now, once you buy a business, how do you create value? One of the things we are working on and still work in progress for us is a CMG Operating System called CMG OS. Buying a company, and then now you start to think about integrating a company. The first thing that we find is product management. A lot of times, these companies, when they are Founder-led businesses, Founders pretty much are the product managers. They are the ones making decisions on your organic initiatives.
One thing that we do is that we put in product management in place. The culture change that happens, and we went through in the reservoir simulation business as well, where when you have a lot of smart people, when you have PhDs who are building the products out, oftentimes they also have a tendency to say, we know what's best for the customer, and they build the product. Oftentimes what happens is you have a lot of pet projects, a lot of hobby projects, and those R&D dollars are getting wasted. They don't have that commercial lens to it. Product management, when they come in, they start to look at a market-driven roadmap. Can I build once and then can I deploy many? That is the key mantra for that.
That helps you to ensure that your initial R&D dollars are allocated properly for maintenance, for roadmap build-out, for mandates, for technical debt, etc. The second thing I'll highlight is commercial execution. We have around 650 customers around the world, 450 customers are oil and gas companies, and 200 are universities. One of the strategies we have taken on for the last two decades is to supply software to universities. When the graduates come out of the school, they already know CMG software and they are a proponent of that. In this industry, users have a lot of buying power. That helps a lot. Having that kind of a reach, the global reach that CMG core business, the reservoir simulation business has, allows us to then look at the acquired businesses who probably have nine customers or 30 customers, but they don't have the same reach as we do.
They might be a different buyer. They might be a different procurement department. It allows us to then apply our commercial playbook in terms of looking at opening up the doors, looking at the sales comp plans, looking at prospecting, looking at CRM. That's another lever that we put in place the moment we buy the company. Marketing. A lot of times people think marketing as just you sign up on the booth and you demonstrate your product demos and then you're good to go. That is not the case. You want to make sure you have the right value proposition identified on that so that your messaging is intact with the value of the product. Customer success. That's the one thing I'll highlight is that all the companies that we have today in our group, four of them, all of them are high-touch customer success.
As we compete with the big giants in a lot of ways, the advantage that we get is that we have a very high-touch model, which means that when a user has an issue, they don't get a hotline. They get to know all the engineers on a name basis. That's very important in this industry because the complexity is there. You want to make sure your software is getting adopted all the time. A high-touch model where somebody is on site, working hand in hand with you is super, super critical to adopt the software, drive consulting revenue and professional services revenue as well, and keeps you in the game in terms of what's happening from a next market problem perspective. These are some of the examples in terms of how we are building out our operating system.
That also creates a vision for us to demonstrate to future sellers, the Founders, to say CMG is the right home for me because I will get to know how to do customer-based pricing, value-based pricing. I will know how to teach, how to learn sales, how to do proper marketing. That's how you grow the business from an organic perspective. How have we done so far? I mentioned that we have deployed around $73 million of cash. What this slide will tell you is that the core business, the reservoir simulation business, is strong. It generates a very healthy cash flow for us. Over the last two acquisitions that we have done, Bluware , which was $22 million U.S., and then we bought Sharp Reflections, which was EUR 25 million, around 2.5x ARR.
We have deployed that capital and we have replenished the capital and ensured that we keep a healthy cash flow coming in because that's our source of our deployment of the cash that we do. We have recently, two weeks ago, done another acquisition again on our retained cash. We haven't taken debt yet, but we are putting a credit facility out there to make sure our M&A team has a lot of firepower to go in the market. We recently did a dividend cut as well. We brought dividend down by 80%. Now it's $0.01 a share. That gives us another $13 million for us to deploy again for the acquisition. Our M&A pipeline is stronger than ever because we have built a team out over the last three years. The industry knows we are very serious about acquisitions. We're getting a lot of inbounds.
We want to make sure that not only do we start to deploy more capital in upstream, but we start to expand into midstream, downstream, and non-oil and gas assets as well. The last thing I'll say before I open up to the question is that the key takeaway from the CMG perspective is that this is a very complex business. As I mentioned in the previous slide, the first slide about having a blindfold on, very highly complex industry, lots of science, lots of physics, lots of high-performance computing. The barriers to entry and the fact that it's mission-critical is very rare to find in an industry like that and the technology which is always required. It's a very sticky product with a mission-critical aspect to it. Science-based, physics-based, financial model is very strong.
The core business has done pretty well over the last few years and continues to deploy the cash. It gives us the cash flow for deploy. Acquisition, we have now done three acquisitions, high-quality acquisitions without modeling synergies into it. We do believe that each acquisition will help the core business or help each other create more pricing power, more stickiness, better moat for the business. We are ready for the next chapter. It's been a long journey for sure since 47 years. Over the last three years, we have walked an extra mile or two, but I would say that we have come a long way. We're still a long way to go. We are just getting started. Thank you for your time.
Any questions from the audience?
Yes. Obviously, stock has fallen back recently. You know, what was the thinking around, you know, A, having a dividend? Obviously, it's great to fund M&A, but just a bit more about that. What is playing kind of the profitability?
Right. Two-part question. One is around dividend. For the last, I would say, 18 months or so, we've been very much taking feedback from the investors to understand what is the investment thesis for a lot of current investors and prospective investors. The consistent feedback was, we are not here for a dividend. We're not here for a 2% yield on the stock. We are here to make sure that you can get those returns that you have advertised to us. That's the feedback. There was never a good time for us to cut the dividend. We did that this quarter after doing the acquisition and also sending a message right there to say, now we have a pipeline. We need that firepower. We are standing up a credit facility and dividend cut is important.
The second point around profitability is that I do see this is a transition year for us. We are going through a change in terms of that service revenue, which is at a lower margin compared to, let's say, recurring revenue, which is at a 90% gross margin. You want to go through that transition in terms of service revenue to recurring revenue and through that expand the margin as we go into the next year. Through that, we'll improve the profitability as well of the business. The seismic business that we have does have cyclicality in terms of accounting treatment. It does look low when it comes down to the first two quarters because they don't contribute anything to the margin profile, but then it starts to pick up in the second half of the year.
That shift from services to software for one of your biggest relationships and partners is an important dynamic for people to understand. I just want to maybe pull that apart so that people understand, you know, have a better understanding of when that potentially kicks in.
Sure. Yeah. If you look at the core business that we started a long time ago and picked up a little bit of services in that, that had always a very high software mix into it. There was an element of CoFlow, which is a funded development done by a large customer, and that had a service component to that. That part will start to taper off, and we'll start to go into the software side, which will help the margin profile. When we bought Bluware , our first acquisition, that was very heavy on services. Think about that. It's almost like 20% was software and 80% was services. We are going through that transition right now where software has doubled and services are coming down. Through that, we see the margin expansion.
For example, obviously, one thing Constellation has done really well is having a well, well M&A team.
Yeah, absolutely. Over the last three years, we've been very blessed that we have had a couple of Constellation members on the board for us. What we are trying to achieve is a bit different in terms of, of course, we want to compound the capital, but we are achieving it by a combination of organic and inorganic. We've taken a lot of best practices when it comes down to CSI , but also other serial acquirers. We recently brought a new CFO, and he's sitting right behind, and he comes from Constellation as well. One of the things we are trying to ensure is that we are getting more consistent in terms of the discipline of these acquisitions, the modeling assumptions we make, learning from it.
If free cash flow per share is our key metric that we measure on, how are we good about taxes? How are we making sure that our tax returns or tax profile comes down as well? That will help us in free cash flow understanding. How are we learning from the past acquisitions in terms of modeling that we have done? A lot of that experience sharing is coming in. Now that we've been coming on board, that will help us quite a bit because the Board is there to advise you, but management is what has to drive the execution. The M&A team actually started from one when I started, and now the team is five people. There is also an M&A culture, which has been embedded inside the company, that everybody has to look out for the leads.
If they see a company, they are passing that on to the M&A team because this is a very consolidated industry. We do have to have a relationship with the Founders to ensure that we stay disciplined on the valuation. M&A was never part of the fabric of the company until 2022, and now it's picking up.
With the additional equipment, do you feel?
I feel like this is an act two. Act one was the first three years, which was building the blocks for us to execute on. Act two is now that we've got the M&A team, we've done a couple of large acquisitions, complex ones. The core business is going through a transition and making sure it's still growing and providing that cash flow, cut the dividend. I think all these things are coming together for us now to start executing for the next chapter.
There's one more question back there.
Yeah, I have a question on the competition for M&A. Of course, there's private equity app. Yeah, most of these guys are all in French.
Yeah. We definitely see a lot of private equity. We see a lot of strategics as we compete for these M&A targets. Private equity was interesting. It wasn't that active until one year ago. All of a sudden, we see them very active in the oil and gas space. That does inflate the valuation expectation for sure because the Founder is getting pinged by multiple sources on that. I do believe this is where the relationship with the Founders and demonstrating that CMG is a good home is super critical. Now that we have done these three acquisitions, two Founders are still with us. They are our ambassadors. They are our cheerleaders. They are out there to say, why is CMG a good home? We are there to ensure that the business continues to grow and it follows the vision that we put together.
At one point or the other, they all are competing with this large competitor and everybody wants to make sure that they are combining forces and coming together. I think that's going to be our secret sauce in terms of making sure that we build those relationships out and we show it's a good home to drive the right valuation.
I got to ask a question with the competition in the core business. I'd say a little bit of a surprise this last quarter with some strange pricing behavior of one of your key competitors. Do you want to just talk about that, maybe whether or not you see that as an isolated situation or a part of a changing dynamic overall in the market?
Yeah. I was very transparent in my letter last quarter in terms of saying that wins and losses happen. The reason I called that customer out is because it's been a long-term customer for us. It's a top 10 customer, and the users were themselves shocked when the decision was kind of made. This was an outlier decision that was made. As this presentation gets live streamed, I'm sure some of the competition is also listening about it. I think what I would say is that at the end of the day, you have to win not only based on technical superiority, you also have to have the right relationships at the right levels. This loss has also taught us a lot of few things that you can't operate at just a user manager level.
You need to also have the right relationships, which will keep us in the game in this regard. This was a very specific case where in a particular geography, the amount of discounting that was done was unheard of. It hurt us for sure, but I do believe in this industry that customers will come back.
We have 30 seconds left. Any last questions? I'm seeing none. I'll just say thank you for the presentation and for attending again.
Thanks so much, Doug.