Computer Modelling Group Ltd. (CMG) Earnings Call Transcript & Summary

Mr. Chair, no, we have not received any questions on this item.

Thank you. We now invite shareholders to submit their votes -- sorry, shareholders and proxy holders to submit their vote if they have not already done so. We will now have a short pause to allow shareholders and proxy holders to complete their voting on this matter. [Voting]

Thank you. Next item of business is the approval of all unallocated awards issuable pursuant to the amended and restated performance share unit and restricted share unit plan 2020 of the corporation until July 6, 2026. I now ask for a motion on this matter.

I move that the ordinary resolution set out on Page 20 -- 22 of the management information circular with respect to the approval of the unallocated awards under the performance share unit and restricted share unit plan 2020 of the corporation as amended to be approved.

I second that motion.

We will now address any questions or comments from shareholders or proxy holders that are directly related to the approval of the unallocated awards. Have any questions come in?

Mr. Chair, no, we have not received any questions on this item.

Thank you. We now invite shareholders and proxy holders to submit their vote if they have not already done so. We will now have a short pause to allow shareholders and proxy holders to complete. [Voting]

Thank you. The last item of business is the approval of grant options to the Chief Executive Officer of the corporation in connections with his appointment last year. I now ask for a motion on this matter. This motion must be approved by a majority of the votes cast at the meeting other than votes attached to common shares owned by the Chief Executive Officer and his associates.

I move that the ordinary resolution set out on Page 23 of the management information circular with respect to the approval of the ground of 193,303 options to the Chief Executive Officer of the corporation to be approved.

I second that motion.

We will now address any questions or comments from shareholders or proxy holders that are directly related to the grant of options to the Chief Executive Officer of the corporation. Have any questions come in?

Mr. Chair, no, we have not received any questions on this item.

Thank you. We now invite shareholders and proxy holders to submit their vote if they have not already done so. We will now have a short pause with our shareholders and proxy holders to complete their voting on this matter. [Voting]

Okay, thank you. As we have now dealt with all business items on the agenda, I declare voting on all matters closed. I understand that the scrutineer has a preliminary tabulation of the votes cast in respect to each of the items of business before the meeting. The preliminary result with respect to fixing the number of directors at 9 is 93.2% voted in favor. As a result, I declare a number of directors to be elected at this meeting fixed at 9. The preliminary results with respect to the election of directors are -- a substantial majority of votes cast in the meeting were voted in favor of the 9 nominees named in the management information circular, with each nominee receiving an excess of 85% in favor. As a result, I declare that the 9 director nominees named in the Management Information Circular have been duly elected. The preliminary result with respect to the appointment of the auditor is on 91.9% voted in favor of the appointment of the KPMG LLP. As a result, I declare that KPMG LLP has been duly appointed as the auditor of the corporation. The preliminary results with respect to the unallocated stock options issuable pursuant to the amended and restated stock option plan 2020 of the corporation is 97.6% voted in favor. As a result, I declare the resolution approving the unallocated stock options has been passed. The preliminary results with respect to the unallocated awards issuable pursuant to the amended and restated performance share and restricted their unit plan 2020 of the corporation is 72.8% in favor. As a result, I declare that the resolution approving the unallocated awards has been passed. The preliminary results with respect to the grant of options to the Chief Executive Officer of the corporation was 97.3% in favor of the approval and an authorization thereof, excluding votes attached to the shares held by the Chief Executive Officer and his associates. As a result, I declare that the resolution approving the grant option to the Chief Executive Officer has been passed. The final results of today's vote will be posted tomorrow on the system for electronic document analysis and retrieval at sedar.com. This concludes the formal business of the meeting of this meeting of the shareholders, and I declare the meeting terminated. I will now invite the Chief Executive Officer, Pramod Jain, to make his remarks. We will invite additional shareholders' questions as time permits. I remind you again that the question should be of general interest and not of a personal nature. Over to you, Pramod.

Thank you, Mark. Daniel, if you would be kind to please put the presentation. I want to begin by expressing my sincere gratitude to all the shareholders for your belief, support and commitment to Computer Modeling Group, CMG. We don't take your support for granted. Our management team and I are committed to ensure we work very hard every day to drive maximum returns on your hard-earned investment. It's been 1 year for me now in this role as the CEO of the company, to be precise 1 year, 2 months, and it has been a phenomenal from multiple aspects. But before I talk about FY '23 highlights, we go to next slide, please, Daniel. Let's talk about who is CMG? CMG is now 45 years old with a rich history of innovation in solving some of the most complex problems in the energy industry. Our reputation on our cutting-edge simulation technology as well as our people, supporting our customers as world-class. When I look at CMG from outside and I look at the pillars of the business, which makes it an amazing business, there are 4 key things I would like to highlight. Number one, CMG is a global energy technology company with an extremely profitable recurring revenue model, generating compelling operating margins. Number two, 45 years of history of innovation, products that add immense value to our customers and are sticky, mission-critical. We have 650-plus clients all around the globe with 19 out of top 20 energy companies as our customers. This list also includes 200-plus universities where we provide deeply discounted software to train young students on CMG. Number three, we are not just a tech company. We are a science and tech company. I emphasize science as there has been 4 decades of physics, chemistry, petroleum engineering, computer science and research that has gone in to build our world-class simulators. There is a huge barrier of entry underpinning the technology. And the last but not least, number four, we have identified multiple growth levers, which will help company to drive maximum shareholder value. And the growth will be powered by both, organic and inorganic, with a strong focus on margin expansion, growth on free cash flow for optimal cap-to-capital allocation. So if you go to the next slide, please. Why simulate? We power our energy companies by leading simulation tools for 3 key things: increase in revenue, maximum recovery, optimal recovery of oil and gas; decreased cost; and mitigate our risk. Our customer spends hundreds of millions and billions of dollars, whether that's onshore or offshore assets. And CMG simulation technology helps them simulate all known scenarios, constraints before drilling begins or production against, and you optimize your existing wells and reservoirs. So whether you're doing greenfield optimization or whether you are doing brownfield optimization, CMG is the simulation that provides that value. And speaking about risk, CCS is a great example, carbon capture and storage, where this technology can materially make a difference in achieving net 0 goals but risk of leakage, brand reputation are immense if the right simulation technology is not used. Next slide, please. Let's talk about market demand. And as my team and I went on putting together a multiyear growth strategy, one of the first things the team and I did when I took over the role was to really understand the total addressable market, the TAM of all the areas in the upstream E&P that we play in. This was a bottom [indiscernible] exercise. We use multiple sources, multiple sources of information, and it was built to understand the growth of this market. And where CMG sits today, it's in the right spot of a growing market, especially with unconventionals, heavy oil, enhanced oil recovery, EOR. There's a lot of activity and growth with an offshore market as well. All to say, we are looking at $1 billion tag by 2030. And needless to say, CMG has a long runway. Easy oil is gone. Companies are more and more looking for unconventional ways of production, which is CMG's bread and butter as we are the simulation of choice in this area. The right-hand side, the other picture I want to highlight is around energy transition. As the energy mix switches and there's more and more realization that fossil fuels are here to stay, and energy trilemma is real. Energy trilemma meaning energy security, equity and sustainability, all needs to be solved together. The picture here shows the carbon capture storage or capture markets. Right now, there are hundreds of projects in the design analysis and study phase, but with the government support on subsidies, et cetera, this area is prime for growth. And CMG sits at a perfect intersection of energy companies, whether they're optimizing their current assets or they are starting to use carbon dioxide, hydrogen geothermal projects for energy transition, similar to unconventional heavy oil EOR, we are the simulation of choice and gold standard for energy transition, especially CCS. Next slide, please. As I mentioned before, FY '23 was a great year for the company. In a lot of ways, the company went through massive change in all aspects. We have taken on a growth mandate while preserving and growing our margins. We want to build a growth business which is durable, sustainable and agnostic to macro market dynamics. Some of the key highlights that I want to call out. Our thought leadership on energy transition. We understand this space. We want to own this space. To that effect, we have done multiple strategic partnerships, whether the likes of [indiscernible] Hatch-McDaniels as we are working to enhance our simulators through joint industry projects with our partners in Kongsberg Digital, where top 10 energy companies around the world came together, and we are working to raise the bar. We believe in continuous improvement. We want our simulators to be world-class and cutting edge. We also wanted to evaluate -- or we want to evaluate all the new opportunities -- product opportunities, via the lens of build, buy and partner. We did our first acquisition with USI, first in the history of CMG, a small tuck-in, but a key tech to enter into data and analytics, especially within U.S. shale market. Lastly, we continue to diversify our talent pool, and we have opened up a new collaboration center called C3 in India to be close to our Southeast and Middle East customers as well as diversify our R&D talent. Next slide, please. Our CEO has many responsibilities, but one of the main things that any CEO should do is to define North Star, where are we going, to what and the values, which is the how, how do you get there. Values for me are not something that you put on the wall to look good externally. These values are your culture fabric. These values are used to evaluate a new talent, existing talent. You make decisions of hiring, promoting they're all part of it. And we celebrate our key business outcomes, but also, how did we get to that destination? All values are equally important, but one of the values that I take a lot of pride in is extreme ownership. I want to highlight that value because I've taken a lot of inspiration from my favorite book, Extreme Ownership. And the idea really of this value is that all the employees need to have an owner mindset and take full responsibility of their actions. We are not a family, because we don't put up with things, but we are a high-performing sports team where we are even better than family as we don't [indiscernible]. We challenge each other and bring our best version to work every day. Next slide, please. So I mentioned before that we are on a growth mandate, and we are on a growth journey. Our multiyear strategic plan has 6 pillars that I called out in this particular slide. Our growth is predicated on organic and inorganic growth. We have demonstrated double-digit growth organically last year, and we aim to continue on this journey. With the growth of core business, taking advantage of the market momentum, appreciation and embracement and endorsement of digitization and technology within energy industry, we have also shifted our business model to reflect us more like a software company, whether that's new ways of selling, bundling, unbundling our products, farming, hunting approach to get new customers as well as increase of share of wallet, we believe core business will continue to provide us growth with attractive returns. Second is demand on energy transition. We are pleasantly surprised as energy transition projects continue to be on the rise, and they get a lot of support from the government through subsidies and has contributed towards 14% of our software revenue in FY '23. We continue to get global consulting projects as well, which are leading towards the software sales. And speaking about consulting, due to growing demand and lack of talent in the E&P side of the things, we are getting tapped on consulting projects for our great subject matter expertise. We are not a consulting company, nor do we aim to be a consulting company, but we will use consulting to drive software growth but for our customers to provide solutions -- holistic solutions, which is a combination of software products and services. The fourth pillar I want to highlight is CoFlow, which is our expansion of our total addressable market from reservoir and [indiscernible] production, and that is also quite operational. With CoFlow, we want to solve a problem that no one else has, breaking the silos, connecting subsurface to facilities and having one modern or optimal decision-making. On the inorganic side, we will look for strategic partnerships for win-win for every party and our customers to provide holistic complete solution. And M&A is a big part of our growth story where we'll be looking to deploy our capital and put cash to use at high rates of return and leverage CMG playbook to grow these businesses. The focus will be for us to increase our moat, our diversified portfolio and also changed the game with solutions on deep learning, machine learning and AI. Next slide, please. We are in people business, and we can't do this without a stellar team. It always starts from the quality of leadership team, and I'm extremely, extremely proud to say that and introduced to all my management team today on the call, my sincere appreciation to Sandra Balic, who's the CFO of the company, who has been instrumental in getting me up to speed and always being on top of financial side of the things. My new CTO, John Mortimer, who is on the journey of tech transformation for CMG. David Hicks, who's right now in London attending a big industry-leading project for a strong technical expertise for his 25 years of loyalty to the company and a strong growth of Eastern Hemisphere. Sheldon Harbinson for joining the team, taking responsibilities of a growing Western Hemisphere and bringing a new sales approach to the company. Anjani Kumar for leading a world-class customer service, who's our big forte, our biggest superpower and growth of our consulting team. Muhammad Khalaf, Head of Corporate Development, winning an M&A muscle to the company and doing a stellar job. Kristin Mason and my partner in cultural transformation of CMG. Daniel Edelshaim for being the voice of reason, my Head of Legal; Rahul Jain as my Head of Operations, execution machine as well as Head of CMG India. Kim taking our Investor Relations to next level. And last but not least, a big, big thank you to our #1 employee of CMG, Long Nghiem, who's the VP, Innovation and Chief Scientist. This leadership team is a team of rockstars and its diverse experience, and I'm super confident of executing to our ambitious plans with their support and expertise. I also want to call out my Board of Directors, who have been amazingly patient in this year of change. I sincerely appreciate their counsel and expertise. A big thank you to all of them. In conclusion, I want to thank all of the investors for the support, and I would say this is the perfect time to be part of CMG. I say this to all the young graduates to experience professionals and investors looking for maximum return. CMG is a place to be. CMG makes a difference, whether that's energy, security or reliability or you are embarking on an energy transition. Thank you once again. Over to you, Mark.

Yes. So Daniel, I was going to sit with any questions. Thank you very much, Pramod, for presentation.

Yes, we do have a question. And the question is: Could you discuss the progress towards CMG 2.0, specifically internal product development and execution against an expanded M&A strategy?

Right. As I mentioned, as a part of CMG 4.0 strategy. We're trying to hit on both organic side, durable, sustainable growth and also on the inorganic side. We are quite early on the inorganic side. We have done our first acquisition. But speaking about inorganic, our goal on the M&A is to make sure we provide moat to our existing products and solutions. We look within the upstream E&P side of the things, but we also tend to diversify to make sure that we provide justice to the true DNA of the company, which is science and technology. And then on the organic side, given the energy momentum, the fact that we are able to solve the blocking and tackling side of software things, we are able to drive more business growth, whether that's through more disciplined pricing, customer segmentation, a different way of selling through farming and hunting and all the levers that I have mentioned before. Any other questions?

Any further questions, Daniel?

[indiscernible] stop recession concerns in the fluctuation in commodity prices and rig counts, can you comment on how strongly the CNG performance is to oil and gas fundamentals?

My fundamental belief is technology should be agnostic to what's happening in the macroeconomic world. And why I say that is, especially when digitization is picking up, digitization and technology is giving the scale to the existing ways of doing things. But if you want to do more with less, technology is the answer. So the way I look at it is making sure that you have the right value and ROI defined for our customers. And you should be staying agnostic to what's happening, where the energy industry is today, there is enough from an operating cost perspective that they can invest and see technology as an investment versus a cost center. And if you do that, then there should be no concern whatsoever.

Thank you. I don't see any other questions. Connor, do you see anything else?

We have no further questions at this time.

Thank you very much again. Thank you very much, Pramod, for answering those questions. I also wanted to thank the Board of Directors, CMG have pleasure to work with as well as the entire management team of CMG. And this concludes the meeting. And on behalf of the corporation, I would like to thank you for participating in the meeting and for all your ongoing commitment to Computer Modeling Group Limited. I wish all the best for you and your families. Thank you very much. Over and out.