CALGARY, ALBERTA -- (Marketwire) -- 02/12/13 -- Computer Modelling Group Ltd. (TSX: CMG) ("CMG" or the "Company") is very pleased to report our third quarter results for the three and nine months ended December 31, 2012.
THIRD QUARTER HIGHLIGHTS For the three months ended December 31, 2012 2011 $ change % change ($ thousands, except per share data) ---------------------------------------------------------------------------- Annuity/maintenance software licenses 14,004 12,056 1,948 16% Perpetual software licenses 1,365 2,321 (956) -41% Total revenue 16,802 15,898 904 6% Operating profit 8,276 8,093 183 2% Net income 6,119 5,790 329 6% Earnings per share - basic 0.16 0.16 - 0% ---------------------------------------------------------------------------- For the nine months ended December 31, 2012 2011 $ change % change ($ thousands, except per share data) ---------------------------------------------------------------------------- Annuity/maintenance software licenses 39,196 30,361 8,835 29% Perpetual software licenses 6,106 9,308 (3,202) -34% Total revenue 49,341 43,819 5,522 13% Operating profit 24,413 22,411 2,002 9% Net income 17,569 16,771 798 5% Earnings per share - basic 0.47 0.46 0.01 2% ----------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS
This Management's Discussion and Analysis ("MD&A") for Computer Modelling Group Ltd. ("CMG," the "Company," "we" or "our"), presented as at February 11, 2013, should be read in conjunction with the unaudited condensed consolidated financial statements and related notes of the Company for the three and nine months ended December 31, 2012 and the audited consolidated financial statements and MD&A for the years ended March 31, 2012 and 2011 contained in the 2012 Annual Report for CMG. Additional information relating to CMG, including our Annual Information Form, can be found at www.sedar.com. The financial data contained herein have been prepared in accordance with International Financial Reporting Standards ("IFRS") and, unless otherwise indicated, all amounts in this report are expressed in Canadian dollars and rounded to the nearest thousand.
FORWARD-LOOKING INFORMATION
Certain information included in this MD&A is forward-looking. Forward-looking information includes statements that are not statements of historical fact and which address activities, events or developments that the Company expects or anticipates will or may occur in the future, including such things as investment objectives and strategy, the development plans and status of the Company's software development projects, the Company's intentions, results of operations, levels of activity, future capital and other expenditures (including the amount, nature and sources of funding thereof), business prospects and opportunities, research and development timetable, and future growth and performance. When used in this MD&A, statements to the effect that the Company or its management "believes", "expects", "expected", "plans", "may", "will", "projects", "anticipates", "estimates", "would", "could", "should", "endeavours", "seeks", "predicts" or "intends" or similar statements, including "potential", "opportunity", "target" or other variations thereof that are not statements of historical fact should be construed as forward-looking information. These statements reflect management's current beliefs with respect to future events and are based on information currently available to management of the Company. The Company believes that the expectations reflected in such forward-looking information are reasonable, but no assurance can be given that these expectations will prove to be correct and such forward-looking information should not be unduly relied upon.
With respect to forward-looking information contained in this MD&A, we have made assumptions regarding, among other things:
-- Future software license sales
-- The continued financing by and participation of the Company's partners
in the DRMS project and it being completed in a timely manner
-- Ability to enter into additional software license agreements
-- Ability to continue current research and new product development
-- Ability to recruit and retain qualified staff
Forward-looking information is not a guarantee of future performance and involves a number of risks and uncertainties, only some of which are described herein. Many factors could cause the Company's actual results, performance or achievements, or future events or developments, to differ materially from those expressed or implied by the forward-looking information including, without limitation, the following factors which are described in the MD&A of CMG's 2012 Annual Report under the heading "Business Risks":
-- Economic conditions in the oil and gas industry
-- Reliance on key clients
-- Foreign exchange
-- Economic and political risks in countries where the Company currently
does or proposes to do business
-- Increased competition
-- Reliance on employees with specialized skills or knowledge
-- Protection of proprietary rights
Should one or more of these risks or uncertainties materialize, or should assumptions underlying the forward-looking statements prove incorrect, actual results, performance or achievement may vary materially from those expressed or implied by the forward-looking information contained in this MD&A. These factors should be carefully considered and readers are cautioned not to place undue reliance on forward-looking information, which speaks only as of the date of this MD&A. All subsequent forward-looking information attributable to the Company herein is expressly qualified in its entirety by the cautionary statements contained in or referred to herein. The Company does not undertake any obligation to release publicly any revisions to forward-looking information contained in this MD&A to reflect events or circumstances that occur after the date of this MD&A or to reflect the occurrence of unanticipated events, except as may be required under applicable securities laws.
NON-IFRS FINANCIAL MEASURES
This MD&A includes certain measures which have not been prepared in accordance with IFRS such as "EBITDA", "direct employee costs" and "other corporate costs." Since these measures do not have a standard meaning prescribed by IFRS, they are unlikely to be comparable to similar measures presented by other issuers. Management believes that these indicators nevertheless provide useful measures in evaluating the Company's performance.
"Direct employee costs" include salaries, bonuses, stock-based compensation, benefits, commission expenses, and professional development. "Other corporate costs" include facility-related expenses, corporate reporting, professional services, marketing and promotion, computer expenses, travel, and other office-related expenses. Direct employee costs and other corporate costs should not be considered an alternative to total operating expenses as determined in accordance with IFRS. People-related costs represent the Company's largest area of expenditure; hence, management considers highlighting separately corporate and people-related costs to be important in evaluating the quantitative impact of cost management of these two major expenditure pools. See "Expenses" heading for a reconciliation of direct employee costs and other corporate costs to total operating expenses.
"EBITDA" refers to net income before adjusting for depreciation expense, finance income, finance costs, and income and other taxes. EBITDA should not be construed as an alternative to net income as determined by IFRS. The Company believes that EBITDA is useful supplemental information as it provides an indication of the results generated by the Company's main business activities prior to consideration of how those activities are amortized, financed or taxed. See "EBITDA" heading for a reconciliation of EBITDA to net income.
CORPORATE PROFILE
CMG is a computer software technology company serving the oil and gas industry. The Company is a leading supplier of advanced processes reservoir modelling software with a blue chip client base of international oil companies and technology centers in over 50 countries. The Company also provides professional services consisting of highly specialized support, consulting, training, and contract research activities. CMG has sales and technical support services based in Calgary, Houston, London, Caracas and Dubai. CMG's Common Shares are listed on the Toronto Stock Exchange ("TSX") and trade under the symbol "CMG".
QUARTERLY PERFORMANCE
Fiscal
2011(1) Fiscal 2012(2) Fiscal 2013(3)
($ thousands,
unless otherwise
stated) Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
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Annuity/
maintenance
licenses 8,531 8,997 9,308 12,056 12,497 13,179 12,012 14,004
Perpetual licenses 3,911 5,391 1,596 2,321 3,416 2,070 2,671 1,365
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Software licenses 12,442 14,388 10,904 14,377 15,913 15,249 14,683 15,369
Professional
services 1,936 1,551 1,078 1,521 1,302 1,216 1,390 1,433
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Total revenue 14,378 15,939 11,982 15,898 17,215 16,465 16,073 16,802
Operating profit 7,532 9,092 5,226 8,093 9,193 8,105 8,032 8,276
Operating profit % 52 57 44 51 53 49 50 49
EBITDA(4) 7,818 9,366 5,508 8,414 9,543 8,423 8,425 8,687
Profit before
income and other
taxes 7,413 9,240 6,096 8,184 9,104 8,577 7,703 8,556
Income and other
taxes 2,605 2,577 1,778 2,394 2,484 2,487 2,342 2,437
Net income for the
period 4,808 6,663 4,318 5,790 6,620 6,090 5,361 6,119
Cash dividends
declared and paid 3,643 7,519 4,053 4,079 4,848 9,736 6,020 6,050
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Per share amounts
- ($/share)
Earnings per share
- basic 0.13 0.18 0.12 0.16 0.18 0.16 0.14 0.16
Earnings per share
- diluted 0.13 0.18 0.11 0.15 0.17 0.16 0.14 0.16
Cash dividends
declared and paid 0.10 0.205 0.11 0.11 0.13 0.26 0.16 0.16
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(1) Q4 of fiscal 2011 includes $0.1 million in revenue that pertains to
usage of CMG's products in prior quarters.
(2) Q1, Q2, Q3 and Q4 of fiscal 2012 include $0.3 million, $0.04 million,
$2.6 million and $2.7 million, respectively, in revenue that pertains to
usage of CMG's products in prior quarters.
(3) Q1, Q2 and Q3 of fiscal 2013 include $2.1 million, $0.2 million and $1.8
million, respectively, in revenue that pertains to usage of CMG's
products in prior quarters.
(4) EBITDA is defined as net income before adjusting for depreciation
expense, finance income, finance costs, and income and other taxes. See
"Non-IFRS Financial Measures".
Highlights
During the nine months ended December 31, 2012, as compared to the same period of prior fiscal year, CMG:
-- Increased annuity/maintenance revenue by 29% -- Increased operating profit by 9% -- Increased net income by 5% -- Increased spending on research and development by 19% -- Increased EBITDA by 10% -- Realized earnings per share of $0.47, representing a 2% increase Revenue For the three months ended December 31, 2012 2011 $ change % change ($ thousands) ---------------------------------------------------------------------------- Software licenses 15,369 14,377 992 7% Professional services 1,433 1,521 (88) -6% ---------------------------------------------------------------------------- Total revenue 16,802 15,898 904 6% ---------------------------------------------------------------------------- Software license revenue - % of total revenue 91% 90% Professional services - % of total revenue 9% 10% ---------------------------------------------------------------------------- For the nine months ended December 31, 2012 2011 $ change % change ($ thousands) ---------------------------------------------------------------------------- Software licenses 45,302 39,669 5,633 14% Professional services 4,039 4,150 (111) -3% ---------------------------------------------------------------------------- Total revenue 49,341 43,819 5,522 13% ---------------------------------------------------------------------------- Software license revenue - % of total revenue 92% 91% Professional services - % of total revenue 8% 9% ----------------------------------------------------------------------------
CMG's revenue is comprised of software license sales, which provide the majority of the Company's revenue, and fees for professional services.
Total revenue increased by 6% for the three months ended December 31, 2012, compared to the same period of the previous fiscal year, due to an increase in software license sales driven by the growth in annuity/maintenance license sales.
Similarly, total revenue increased by 13% in the nine months ended December 31, 2012, compared to the same period of the previous fiscal year, as a result of the increase in software license sales led by the increase in annuity/maintenance revenue.
SOFTWARE LICENSE REVENUE
Software license revenue is made up of annuity/maintenance license fees charged for the use of the Company's software products which is generally for a term of one year or less and perpetual software license sales, whereby the customer purchases the-then-current version of the software and has the right to use that version in perpetuity. Annuity/maintenance license fees have historically had a high renewal rate and, accordingly, provide a reliable revenue stream while perpetual license sales are more variable and unpredictable in nature as the purchase decision and its timing fluctuate with the customers' needs and budgets. The majority of CMG's customers who have acquired perpetual software licenses subsequently purchase our maintenance package to ensure ongoing product support and access to current versions of CMG's software.
For the three months ended December 31, 2012 2011 $ change % change ($ thousands) ---------------------------------------------------------------------------- Annuity/maintenance licenses 14,004 12,056 1,948 16% Perpetual licenses 1,365 2,321 (956) -41% ---------------------------------------------------------------------------- Total software license revenue 15,369 14,377 992 7% ---------------------------------------------------------------------------- Annuity/maintenance as a % of total software license revenue 91% 84% Perpetual as a % of total software license revenue 9% 16% ---------------------------------------------------------------------------- For the nine months ended December 31, 2012 2011 $ change % change ($ thousands) ---------------------------------------------------------------------------- Annuity/maintenance licenses 39,196 30,361 8,835 29% Perpetual licenses 6,106 9,308 (3,202) -34% ---------------------------------------------------------------------------- Total software license revenue 45,302 39,669 5,633 14% ---------------------------------------------------------------------------- Annuity/maintenance as a % of total software license revenue 87% 77% Perpetual as a % of total software license revenue 13% 23% ----------------------------------------------------------------------------
Total software license revenue grew by 7% in the three months ended December 31, 2012, compared to the same period of the previous fiscal year, due to the increase in annuity/maintenance license revenue offset by a decrease in perpetual sales. Similarly, total software license revenue grew by 14% for the nine months ended December 31, 2012, compared to the same period of the previous fiscal year, as a result of the increase in annuity/maintenance revenue stream offset by the decrease in perpetual license sales.
CMG's annuity/maintenance license revenue increased by 16% and 29% during the three and nine months ended December 31, 2012, respectively, compared to the same periods of last year. These increases were driven by sales to new and existing clients as well as an increase in maintenance revenue tied to perpetual sales generated in the current and previous fiscal years. The majority of this increase was attributed to sales to our Canadian and the United States' markets. The increase in our annuity/maintenance revenue for the three months ended December 31, 2012 has been obscured by the variability of a payment received from one of our large customers for whom revenue recognition criteria are fulfilled only at the time of the receipt of funds. During the current quarter, we received approximately half of the amount received during the same period of the previous year. The amount received during the third quarter of the previous year represented an initial payment on a multi-year arrangement. If we were to exclude revenue received from this particular customer from the third quarter's recorded revenue in both the current and previous years, to provide a normalized comparison, we would note that the annuity/maintenance revenue actually grew by 34% for the three months ended December 31, 2012, compared to the same period of the previous fiscal year.
This arrangement did not have a significant impact on our year-to-date comparative information since similar payments have been received during the nine months ended December 31, 2012 and 2011.
Given our long-standing relationship with this client, and the multi-year nature of the contract, we expect to continue to receive payments under this arrangement; however, the amount and timing are uncertain and will continue to be recorded on a cash basis which may introduce some variability in our reported quarterly annuity/maintenance revenue results.
Our annuity/maintenance license sales, representing our recurring revenue stream, have continued to experience consecutive quarterly increases over the past several fiscal years, and this trend continued in the third quarter of fiscal 2013.
We can observe from the table below that the exchange rates between the US and Canadian dollars during the three and nine months ended December 31, 2012, compared to the same periods of the previous fiscal year, had only a slight positive impact on our reported annuity/maintenance revenue.
Software license revenue under perpetual sales decreased by 41% for the three months ended December 31, 2012, compared to the same period of the previous fiscal year, due to fewer perpetual sales being realized in the United States and Eastern Hemisphere markets in the current quarter.
Perpetual license sales for the nine months ended December 31, 2012, decreased by 34% compared to the same period of the previous fiscal year. In the first quarter of the previous fiscal year, we reported an amount associated with a multi-million dollar perpetual contract in the Eastern Hemisphere which contributed significantly to the revenue growth in the first nine months of the previous fiscal year.
Software licensing under perpetual sales is a significant part of CMG's business, but may fluctuate significantly between periods due to the uncertainty associated with the timing and the location where sales are generated. For this reason, even though we expect to achieve a certain level of aggregate perpetual sales on an annual basis, we expect to observe fluctuations in the quarterly perpetual revenue amounts throughout the fiscal year. It should be further pointed out that strong perpetual sales in previous quarters contributed to the increase in our recurring maintenance revenue in the current quarter.
We can observe from the table below that the exchange rates between the US and Canadian dollars during the three months ended December 31, 2012, had a slight negative effect on our reported perpetual license revenue whereas the inverse is true for the nine months ended December 31, 2012.
The following table summarizes the US dollar denominated revenue and the weighted average exchange rate at which it was converted to Canadian dollars:
For the three months ended
December 31, 2012 2011 $ change % change
($ thousands)
----------------------------------------------------------------------------
US dollar
annuity/maintenance
license sales US$ 8,785 8,711 74 1%
Weighted average
conversion rate 1.001 0.992
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Canadian dollar equivalent CDN$ 8,795 8,643 152 2%
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US dollar perpetual
license sales US$ 908 1,866 (958) -51%
Weighted average
conversion rate 0.994 1.019
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Canadian dollar equivalent CDN$ 903 1,902 (999) -53%
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For the nine months ended
December 31, 2012 2011 $ change % change
($ thousands)
----------------------------------------------------------------------------
US dollar
annuity/maintenance
license sales US$ 24,361 20,160 4,201 21%
Weighted average
conversion rate 1.001 0.993
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Canadian dollar equivalent CDN$ 24,393 20,020 4,373 22%
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US dollar perpetual
license sales US$ 4,159 9,144 (4,985) -55%
Weighted average
conversion rate 1.000 0.969
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Canadian dollar equivalent CDN$ 4,160 8,857 (4,697) -53%
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REVENUE BY GEOGRAPHIC SEGMENT
For the three months ended
December 31, 2012 2011 $ change % change
($ thousands)
----------------------------------------------------------------------------
Annuity/maintenance
revenue
Canada 5,490 4,007 1,483 37%
United States 2,818 2,139 679 32%
South America 2,435 3,481 (1,046) -30%
Eastern Hemisphere(1) 3,261 2,429 832 34%
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14,004 12,056 1,948 16%
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Perpetual revenue
Canada 227 420 (193) -46%
United States - 390 (390) -100%
South America 26 - 26 -
Eastern Hemisphere 1,112 1,511 (399) -26%
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1,365 2,321 (956) -41%
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Total software license
revenue
Canada 5,717 4,427 1,290 29%
United States 2,818 2,529 289 11%
South America 2,461 3,481 (1,020) -29%
Eastern Hemisphere 4,373 3,940 433 11%
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15,369 14,377 992 7%
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For the nine months ended
December 31, 2012 2011 $ change % change
($ thousands)
----------------------------------------------------------------------------
Annuity/maintenance
revenue
Canada 15,902 11,648 4,254 37%
United States 7,759 6,191 1,568 25%
South America 6,770 5,229 1,541 29%
Eastern Hemisphere(1) 8,765 7,293 1,472 20%
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39,196 30,361 8,835 29%
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Perpetual revenue
Canada 1,541 452 1,089 241%
United States 662 992 (330) -33%
South America 509 1,291 (782) -61%
Eastern Hemisphere 3,394 6,573 (3,179) -48%
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6,106 9,308 (3,202) -34%
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Total software license
revenue
Canada 17,443 12,100 5,343 44%
United States 8,421 7,183 1,238 17%
South America 7,279 6,520 759 12%
Eastern Hemisphere 12,159 13,866 (1,707) -12%
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45,302 39,669 5,633 14%
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(1) Includes Europe, Africa, Asia and Australia.
On a geographic basis, total software license sales increased across all regions with the exception of the South American market which experienced an overall decrease during the three months ended December 31, 2012, compared to the same period of the previous fiscal year, due to lower annuity/maintenance revenue, and the Eastern Hemisphere, which experienced a 12% decrease in the nine months ended December 31, 2012, compared to the same period of the previous fiscal year, due to lower perpetual sales. The most significant growth came from our annuity/maintenance license sales, with increases experienced across all regions for the nine months ended December 31, 2012.
The Canadian market (representing 39% of year-to-date total software revenue) experienced strong increases in annuity/maintenance license sales during the three and nine months ended December 31, 2012, compared to the same periods of the previous fiscal year. These increases were supported by the sales to both new and existing clients. While perpetual sales decreased slightly in the current quarter, compared to the same period of the previous fiscal year, they experienced a healthy increase on a year-to-date basis. The Canadian market continues to be the leader in generating total software license revenue and, particularly, in generating the recurring annuity/maintenance revenue as evidenced by the quarterly year-over-year increases of 40%, 17%, 32% and 37% recorded during Q3 2012, Q4 2012, Q1 2013, and Q2 2013, respectively. This growth trend has continued into the third quarter of the current fiscal year with the recorded increase of 37%.
The US market (representing 19% of year-to-date total software revenue) also grew annuity/maintenance license sales during the three and nine months ended December 31, 2012, compared to the same periods of the previous fiscal year. Fewer perpetual license sales were made during the three and nine months ended December 31, 2012, compared to the same periods of the previous fiscal year. Similar to the Canadian market, we have continued to see successive increases in the annuity/maintenance license sales in the US as evidenced by the quarterly year-over-year increases of 20%, 26%, 20% and 24% recorded during Q3 2012, Q4 2012, Q1 2013, and Q2 2013, respectively. This growth trend has continued into the third quarter of the current fiscal year with the recorded increase of 32%.
South America (representing 16% of year-to-date total software revenue) experienced a decrease in annuity/maintenance revenue during the three months ended December 31, 2012, compared to the same period of the previous fiscal year. This decrease occurred due to the variability of the payment recorded on the long-term contract for which revenue is recognized on a cash basis. The third quarter of the previous year included the initial payment for a multi-year arrangement which was higher than the payment received in the current quarter for the provision of services in prior quarters (see the discussion about revenue earned in the current period that pertains to usage of products in prior quarters above the "Quarterly Software License Revenue" graph). If we were to adjust annuity/maintenance revenue recorded for the three months ended December 31, 2012 and 2011 for the described amounts, we would notice that the current quarter's revenue actually increased by 36%. Annuity/maintenance revenue for the nine months ended December 31, 2012 increased compared to the same period of the previous fiscal year due to sales to both new and existing clients. The increase in annuity/maintenance license sales was offset by a decrease in perpetual license sales during the nine months ended December 31, 2012.
Eastern Hemisphere (representing 27% of the year-to-date total software revenue) grew annuity/maintenance license sales during both the three and nine months ended December 31, 2012, compared to the same periods of the previous fiscal year. Perpetual license sales decreased in both the three and nine months ended December 31, 2012, compared to the same periods of the previous fiscal year. Year-to-date perpetual sales decreased as a result of the large perpetual sale made during the first quarter of the previous fiscal year which contributed significantly to revenue growth during the nine months ended December 31, 2011.
Movements in perpetual sales across regions are indicative of the unpredictable nature of the timing and location of perpetual license sales. Overall, our recurring annuity/maintenance revenue base continues to be strong and growing across all regions. We will continue to focus our efforts on increasing our license sales to both existing and new clients and, supported by our product suite offering and our customer-oriented approach, we will endeavor to continue expanding our market share globally.
As footnoted in the Quarterly Performance table, in the normal course of business, CMG may complete the negotiation of certain annuity/maintenance contracts and/or fulfill revenue recognition requirements within a current quarter that includes usage of CMG's products in prior quarters. This situation particularly affects contracts negotiated with countries that face increased economic and political risks leading to revenue recognition criteria being satisfied only at the time of the receipt of cash. The dollar magnitude of such contracts may be significant to the quarterly comparatives of our annuity/maintenance revenue stream and, to provide a normalized comparison, we specifically identify the revenue component where revenue recognition is satisfied in the current period for products provided in previous quarters.
QUARTERLY SOFTWARE LICENSE REVENUE ($THOUSANDS)
To view the, 'Quarterly Software License Revenue" chart, please visit the following link: http://media3.marketwire.com/docs/211cmg_image1.jpg
DEFERRED REVENUE
2012 2011 $ change % change
($ thousands)
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Deferred revenue at:
March 31 21,693 16,755 4,938 29%
June 30 18,779 15,326 3,453 23%
September 30 18,241 14,600 3,641 25%
December 31 15,510 14,746 764 5%
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CMG's deferred revenue consists primarily of amounts for pre-sold licenses. Our annuity/maintenance revenue is deferred and recognized on a straight-line basis over the life of the related license period, which is generally one year or less. Amounts are deferred for licenses that have been provided and revenue recognition reflects the passage of time.
The increase in deferred revenue year-over-year as at December 31, September 30, June 30 and March 31 is reflective of the growth in annuity/maintenance license sales. The variation within the year is due to the timing of renewals of annuity and maintenance contracts that are skewed to the beginning of the calendar year which explains the decreases in the deferred revenue balance at the end of the first quarter (June 30), second quarter (September 30), and third quarter (December 31) compared to fiscal year-end (March 31).
Deferred revenue at December 31, 2012 increased by 5% compared to the same period of the prior fiscal year. This increase appears lower than the increases recorded in a 20% range in the previous three quarters. The increase in the current quarter is lower due to the timing of the renewal and invoicing of two significant contracts. Whereas in the previous fiscal year, these contracts were renewed and included in our third quarter's deferred revenue balance, in the current fiscal year, the renewal has been deferred to and is expected to be captured in our fourth quarter's deferred revenue balance.
If we were to include these renewals in the current quarter's deferred revenue balance, to provide a normalized comparison, we would notice that the increase at December 31, 2012 compared to the same period of the previous fiscal year, would follow a similar trend as in the previous three quarters of increasing by approximately 23%.
PROFESSIONAL SERVICES REVENUE
CMG recorded professional services revenue of $1.4 million for the three months ended December 31, 2012, representing a decrease of $0.09 million compared to the same period of the previous fiscal year, resulting from a slight decrease in project activities by our clients and the associated consulting activities in the current quarter. Professional services for the nine months ended December 31, 2012 amounted to $4.0 million compared to $4.2 million recorded in the same period of the previous fiscal year. The year-to-date revenue related to consulting activities actually increased slightly; however, this increase was not evident due to the inclusion of a $0.3 million grant in the professional services revenue during the first quarter of the previous fiscal year, which was received from the CMG Reservoir Simulation Foundation ("Foundation CMG") for the DRMS project. The grant was fulfilled during that same quarter; hence, no additional amounts related to the grant have been subsequently recorded as professional services.
Professional services revenue consists of specialized consulting, training, and contract research activities. CMG performs consulting and contract research activities on an ongoing basis, but such activities are not considered to be a core part of our business and are primarily undertaken to increase our knowledge base and hence expand the technological abilities of our simulators in a funded manner, combined with servicing our customers' needs. In addition, these activities are undertaken to market the capabilities of our suite of software products with the ultimate objective to increase software license sales. Our experience is that consulting activities are variable in nature as both the timing and dollar magnitude of work are dependent on activities and budgets within client companies.
Expenses
For the three months ended
December 31, 2012 2011 $ change % change
($ thousands)
----------------------------------------------------------------------------
Sales, marketing and professional
services 3,778 3,536 242 7%
Research and development 3,136 2,747 389 14%
General and administrative 1,612 1,522 90 6%
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Total operating expenses 8,526 7,805 721 9%
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Direct employee costs(i) 6,716 6,063 653 11%
Other corporate costs 1,810 1,742 68 4%
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8,526 7,805 721 9%
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For the nine months ended
December 31, 2012 2011 $ change % change
($ thousands)
----------------------------------------------------------------------------
Sales, marketing and professional
services 11,333 9,703 1,630 17%
Research and development 9,061 7,635 1,426 19%
General and administrative 4,534 4,070 464 11%
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Total operating expenses 24,928 21,408 3,520 16%
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Direct employee costs(i) 19,802 17,028 2,774 16%
Other corporate costs 5,126 4,380 746 17%
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24,928 21,408 3,520 16%
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(i) Includes salaries, bonuses, stock-based compensation, benefits,
commissions, and professional development.
CMG's total operating expenses increased by 9% and 16% for the three and nine months ended December 31, 2012, respectively, compared to the same periods of the previous fiscal year, due to increases in both direct employee and other corporate costs.
DIRECT EMPLOYEE COSTS
As a technology company, CMG's largest area of expenditure is for its people. Approximately 79% of the total operating expenses in the nine months ended December 31, 2012 related to staff costs, compared to 80% recorded in the comparative period of last year. Staffing levels for the first nine months of the current fiscal year grew in comparison to the same period of the previous fiscal year to support our continued growth. At December 31, 2012, CMG's staff complement was 166 employees, up from 148 employees as at December 31, 2011. Direct employee costs increased during the three and nine months ended December 31, 2012, compared to the same periods of the previous fiscal year due to staff additions, increased levels of compensation, commissions and related benefits.
OTHER CORPORATE COSTS
Other corporate costs were comparable between the three months ended December 31, 2012 and 2011 with only a slight increase of 4%.
Other corporate costs increased by 17% for the nine months ended December 31, 2012, compared to the same period of the previous fiscal year, mainly due to inclusion of the costs associated with CMG's biennial technical symposium which took place during the first quarter of the current fiscal year. The remaining increase is attributable to the costs associated with the expansion of our office space, which are comprised of additional office rent, increased computing resources and increased depreciation associated with capital spending on the new space.
RESEARCH AND DEVELOPMENT For the three months ended December 31, 2012 2011 $ change % change ($ thousands) ---------------------------------------------------------------------------- Research and development (gross) 3,586 3,104 482 16% SR&ED credits (450) (357) (93) 26% ---------------------------------------------------------------------------- Research and development 3,136 2,747 389 14% ---------------------------------------------------------------------------- Research and development as a % of total revenue 19% 17% ---------------------------------------------------------------------------- For the nine months ended December 31, 2012 2011 $ change % change ($ thousands) ---------------------------------------------------------------------------- Research and development (gross) 10,458 8,656 1,802 21% SR&ED credits (1,397) (1,021) (376) 37% ---------------------------------------------------------------------------- Research and development 9,061 7,635 1,426 19% ---------------------------------------------------------------------------- Research and development as a % of total revenue 18% 17% ----------------------------------------------------------------------------
CMG maintains its belief that its strategy of growing long-term value for shareholders can only be achieved through continued investment in research and development. CMG works closely with its customers to provide solutions to complex problems related to proven and new advanced recovery processes.
The above research and development includes CMG's share of joint research and development costs associated with the DRMS project of $1.0 million and $2.8 million for the three and nine months ended December 31, 2012, respectively, (2011 - $0.9 million and $2.3 million). See discussion under "Commitments, Off Balance Sheet Items and Transactions with Related Parties."
The increases of 16% and 21% in our gross spending on research and development for the three and nine months ended December 31, 2012, respectively, demonstrate our continued commitment to advancement of our technology which is the focal part of our business strategy. Research and development costs, net of research and experimental development ("SR&ED") credits, increased by 14% and 19% during the three and nine months ended December 31, 2012, respectively, compared to the same periods of the previous fiscal year, due to increased employee compensation costs, investment in computing resources and facilities costs associated with the newly leased office space.
At the same time, we had an increase in SR&ED credits driven mainly by the increases in our direct employee costs as well as the increase in the eligibility of our expenses for SR&ED credits.
DEPRECIATION For the three months ended December 31, 2012 2011 $ change % change ($ thousands) ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Depreciation of property and equipment, allocated to: Sales, marketing and professional services 124 118 6 5% Research and development 235 145 90 62% General and administrative 52 58 (6) -10% ---------------------------------------------------------------------------- Total depreciation 411 321 90 28% ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- For the nine months ended December 31, 2012 2011 $ change % change ($ thousands) ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Depreciation of property and equipment, allocated to: Sales, marketing and professional services 341 305 36 12% Research and development 641 383 258 67% General and administrative 140 189 (49) -26% ---------------------------------------------------------------------------- Total depreciation 1,122 877 245 28% ---------------------------------------------------------------------------- ----------------------------------------------------------------------------
The quarterly and year-to-date increases in depreciation, compared to the same periods of the previous fiscal year, reflect the increase in our asset base, mainly as a result of increased spending on computing resources and expansion of the office space in the third quarter of the previous fiscal year, and a minor office space addition in the second quarter of the current fiscal year.
Finance Income and Costs For the three months ended December 31, 2012 2011 $ change % change ($ thousands) ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Interest income 133 123 10 8% Net foreign exchange gain 147 - 147 - ---------------------------------------------------------------------------- Total finance income 280 123 157 128% ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Total finance costs (represented by net foreign exchange loss) - (32) 32 -100% ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- For the nine months ended December 31, 2012 2011 $ change % change ($ thousands) ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Interest income 409 341 68 20% Net foreign exchange gain 13 768 (755) -98% ---------------------------------------------------------------------------- Total finance income 422 1,109 (687) -62% ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Total finance costs (represented by net foreign exchange loss) - - - - ---------------------------------------------------------------------------- ----------------------------------------------------------------------------
Interest income increased in the three and nine months ended December 31, 2012, compared to the same periods of the prior fiscal year, mainly due to investing larger cash balances.
CMG is impacted by the movement of the US dollar against the Canadian dollar as approximately 67% (2011 - 72%) of CMG's revenue for the nine months ended December 31, 2012 is denominated in US dollars, whereas only approximately 22% (2011 - 23%) of CMG's total costs are denominated in US dollars.
Nine month
trailing
CDN$ to US$ At June 30 At September 30 At December 31 average
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2010 0.9429 0.9711 1.0054 0.9697
2011 1.0370 0.9626 0.9833 1.0132
2012 0.9813 1.0166 1.0051 0.9998
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CMG recorded a foreign exchange gain of $0.1 million and $0.01 million for the three and nine months ended December 31, 2012, respectively, compared to a $0.03 million foreign exchange loss and a $0.8 million foreign exchange gain recorded in the three and nine months ended December 31, 2011, respectively.
The weakening of the Canadian dollar during the third quarter of the current fiscal year, contributed positively to the valuation of our US-denominated working capital for the three months ended December 31, 2012 compared to the same period of the previous fiscal year. On the other hand, the fluctuation in the exchange rates between the Canadian and the US dollars during the current fiscal year, has contributed negatively to the valuation of our US-denominated working capital for the nine months ended December 31, 2012 compared to the same period of the previous fiscal year.
Income and Other Taxes
CMG's effective tax rate for the nine months ended December 31, 2012 is reflected as 29.26% (2011 - 28.69%), whereas the prevailing Canadian statutory tax rate is now 25.0%. This is primarily due to a combination of the non-tax deductibility of stock-based compensation expense and the benefit of foreign withholding taxes being realized only as a tax deduction as opposed to a tax credit.
The benefit recorded in CMG's books on the SR&ED investment tax credit program impacts deferred income taxes. The investment tax credit earned in the current fiscal year is utilized by CMG to reduce income taxes otherwise payable for the current fiscal year and the federal portion of this benefit bears an inherent tax liability as the amount of the credit is included in the subsequent year's taxable income for both federal and provincial purposes. The inherent tax liability on these investment tax credits is reflected in the year the credit is earned as a non-current deferred tax liability and then, in the following fiscal year, is transferred to income taxes payable.
Operating Profit and Net Income For the three months ended December 31, 2012 2011 $ change % change ($ thousands, except per share amounts) ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Total revenue 16,802 15,898 904 6% Operating expenses (8,526) (7,805) (721) 9% ---------------------------------------------------------------------------- Operating profit 8,276 8,093 183 2% Operating profit as a % of total revenue 49% 51% ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Net income for the period 6,119 5,790 329 6% Net income for the period as a % of total revenue 36% 36% ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Earnings per share ($/share) 0.16 0.16 - 0% ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- For the nine months ended December 31, 2012 2011 $ change % change ($ thousands, except per share amounts) ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Total revenue 49,341 43,819 5,522 13% Operating expenses (24,928) (21,408) (3,520) 16% ---------------------------------------------------------------------------- Operating profit 24,413 22,411 2,002 9% Operating profit as a % of total revenue 49% 51% ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Net income for the period 17,569 16,771 798 5% Net income for the period as a % of total revenue 36% 38% ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Earnings per share ($/share) 0.47 0.46 0.01 2% ---------------------------------------------------------------------------- ----------------------------------------------------------------------------
Operating profit as a percentage of total revenue for the three and nine months ended December 31, 2012 was at 49%, compared to 51% recorded in the same periods of the previous fiscal year. While our total revenue grew by 6%, our operating expenses grew by 9%, having a slight negative impact on our operating profit. Our high levels of operating profit as a percentage of revenue demonstrate our ability to effectively manage our costs.
Net income as a percentage of revenue remained consistent at 36% for the three months ended December 31, 2012, compared to the same period of the previous fiscal year.
Net income for the period as a percentage of revenue decreased to 36% for the nine months ended December 31, 2012, compared to 38% for the same period of the previous fiscal year, mainly as a result of recording a lower net foreign exchange gain.
We have continued to maintain our profitability by focusing our efforts on increasing license sales while, at the same time, effectively controlling our operating costs. Managing these variables will continue to be imperative to our future success.
EBITDA For the three months ended December 31, 2012 2011 $ change % change ($ thousands) ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Net income for the period 6,119 5,790 329 6% Add (deduct): Depreciation 411 321 90 28% Finance income (280) (123) (157) 128% Finance costs - 32 (32) -100% Income and other taxes 2,437 2,394 43 2% ---------------------------------------------------------------------------- EBITDA 8,687 8,414 273 3% ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- EBITDA as a % of total revenue 52% 53% ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- For the nine months ended December 31, 2012 2011 $ change % change ($ thousands) ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Net income for the period 17,569 16,771 798 5% Add (deduct): Depreciation 1,122 877 245 28% Finance income (422) (1,109) 687 -62% Finance costs - - - - Income and other taxes 7,266 6,749 517 8% ---------------------------------------------------------------------------- EBITDA 25,535 23,288 2,247 10% ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- EBITDA as a % of total revenue 52% 53% ---------------------------------------------------------------------------- ----------------------------------------------------------------------------
EBITDA increased by 3% and 10% for the three and nine months ended December 31, 2012, compared to the same periods of the previous fiscal year. These increases provide further indication of our ability to keep growing our recurring annuity/maintenance license sales while effectively managing costs in relation to this base.
EBITDA as a percent of total revenue held steady at 52% for the three and nine months ended December 31, 2012, which is comparable to 53% recorded in the same periods of the previous fiscal year.
Liquidity and Capital Resources For the three months ended December 31, 2012 2011 $ change % change ($ thousands) ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Cash, beginning of period 50,694 43,310 7,384 17% Cash flow from (used in): Operating activities 6,720 7,511 (791) -11% Financing activities (4,777) (2,404) (2,373) 99% Investing activities (401) (802) 401 -50% ---------------------------------------------------------------------------- Cash, end of period 52,236 47,615 4,621 10% ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- For the nine months ended December 31, 2012 2011 $ change % change ($ thousands) ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Cash, beginning of period 55,374 41,753 13,621 33% Cash flow from (used in): Operating activities 16,918 18,673 (1,755) -9% Financing activities (18,296) (11,745) (6,551) 56% Investing activities (1,760) (1,066) (694) 65% ---------------------------------------------------------------------------- Cash, end of period 52,236 47,615 4,621 10% ---------------------------------------------------------------------------- ----------------------------------------------------------------------------
OPERATING ACTIVITIES
Cash flow generated from operating activities decreased by $0.8 million and $1.8 million in the three and nine months ended December 31, 2012, respectively, compared to the same periods of last year, mainly due to the timing differences of when the sales are made and when the resulting receivables are collected, the change in the deferred revenue balance and higher tax payments.
FINANCING ACTIVITIES
Cash used in financing activities during the three and nine months ended December 31, 2012 increased by $2.4 million and $6.6 million, respectively, compared to the same periods of last year, as a result of paying larger dividends. The year-to-date increase was also affected by the amount spent on buying back common shares.
During the nine months ended December 31, 2012, CMG employees and directors exercised options to purchase 601,000 Common Shares, which resulted in cash proceeds of $5.1 million.
In the nine months ended December 31, 2012, CMG paid $21.8 million in dividends, representing the following quarterly dividends:
($ per share) Q1 Q2 Q3 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Dividends declared and paid 0.16 0.16 0.16 Special dividend declared and paid 0.10 - - ---------------------------------------------------------------------------- Total dividends declared and paid 0.26 0.16 0.16 ---------------------------------------------------------------------------- ----------------------------------------------------------------------------
On February 11, 2013, CMG announced the payment of a quarterly dividend of $0.16 per share on CMG's Common Shares. The dividend will be paid on March 15, 2013 to shareholders of record at the close of business on March 8, 2013.
On April 6, 2011, the Company announced a Normal Course Issuer Bid ("NCIB") commencing on April 7, 2011 to purchase for cancellation up to 1,636,000 of its Common Shares. During the year ended March 31, 2012, 33,000 Common Shares were purchased at market price for a total cost of $438,000.
On April 16, 2012, the Company announced a NCIB commencing on April 18, 2012 to purchase for cancellation up to 3,416,000 of its Common Shares. During the nine months ended December 31, 2012, a total of 91,000 Common Shares were purchased at market price for a total cost of $1,551,000.
INVESTING ACTIVITIES
CMG's current needs for capital asset investment relate to computer equipment and office infrastructure costs, all of which will be funded internally. During the nine months ended December 31, 2012, CMG expended $1.8 million on property and equipment additions, primarily composed of computing equipment and leasehold improvements, and currently has a capital budget of $2.1 million for fiscal 2013.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2012, CMG has $52.2 million in cash, no debt, and has access to just over $0.8 million under a line of credit with its principal banker.
During the nine months ended December 31, 2012, 6,735,000 shares of CMG's public float were traded on the TSX. As at December 31, 2012, CMG's market capitalization based upon its December 31, 2012 closing price of $21.32 was $806.2 million.
Commitments, Off Balance Sheet Items and Transactions with Related Parties
The Company is the operator of the DRMS research and development project (the "DRMS Project"), a collaborative effort with its partners Shell International Exploration and Production BV ("Shell") and Petroleo Brasileiro S.A. ("Petrobras"), to jointly develop the newest generation of reservoir and production system simulation software. The project has been underway since 2006 and, with the ongoing support of the participants, it is expected to continue until ultimate delivery of the software. The Company's share of costs associated with the project is estimated to be $4.0 million ($2.2 million net of overhead recoveries) for the current fiscal year. CMG plans to continue funding its share of the project costs associated with the development of the newest generation reservoir simulation software system from internally generated cash flows.
CMG has very little in the way of other ongoing material contractual obligations other than for pre-sold licenses which are reflected as deferred revenue on its statement of financial position, and contractual obligations for office leases which are estimated as follows: 2013 - $0.5 million; 2014 to 2016 - $2.0 million per year; and 2017 - $1.0 million.
Business Risks and Critical Accounting Estimates
These remain unchanged from the factors detailed in CMG's 2012 Annual Report.
Accounting Standards and Interpretations Issued But Not Yet Effective
The following standards and interpretations have not been adopted by the Company as they apply to future periods:
Standard/Interpret Nature of impending change in Impact on CMG's
ation accounting policy financial
statements
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IFRS 9 Financial IFRS 9 (2009) replaces the IFRS 9 (2010)
Instruments guidance in IAS 39 Financial supersedes IFRS 9
Instruments: Recognition and (2009) and is
In November 2009 Measurement, on the effective for
the IASB issued classification and measurement annual periods
IFRS 9 Financial of financial assets. The beginning on or
Instruments (IFRS Standard eliminates the existing after January 1,
9 (2009)), and in IAS 39 categories of held to 2015, with early
October 2010 the maturity, available-for-sale and adoption
IASB published loans and receivable. permitted. For
amendments to IFRS annual periods
9 (IFRS 9 (2010)). Financial assets will be beginning before
In December 2011, classified into one of two January 1, 2015,
the IASB issued an categories on initial either IFRS 9
amendment to IFRS recognition: (2009) or IFRS 9
9 to defer the (2010) may be
mandatory - financial assets measured at applied.
effective date to amortized cost; or
annual periods - financial assets measured at The Company
beginning on or fair value. intends to adopt
after January 1, IFRS 9 (2010) in
2015. Gains and losses on its financial
remeasurement of financial statements for the
assets measured at fair value annual period
will be recognized in profit or beginning on April
loss, except that for an 1, 2015. The
investment in an equity Company does not
instrument which is not held- expect IFRS 9
for-trading, IFRS 9 provides, on (2010) to have a
initial recognition, an material impact on
irrevocable election to present the financial
all fair value changes from the statements. The
investment in other classification and
comprehensive income (OCI). The measurement of the
election is available on an Company's
individual share-by-share basis. financial assets
Amounts presented in OCI will and liabilities is
not be reclassified to profit or not expected to
loss at a later date. change under IFRS
9 (2010) because
IFRS 9 (2010) added guidance to of the nature of
IFRS 9 (2009) on the the Company's
classification and measurement operations and the
of financial liabilities, and types of financial
this guidance is consistent with assets that it
the guidance in IAS 39 expect as holds.
described below.
Under IFRS 9 (2010), for
financial liabilities measured
at fair value under the fair
value option, changes in fair
value attributable to changes in
credit risk will be recognized
in OCI, with the remainder of
the change recognized in profit
or loss. However, if this
requirement creates or enlarges
an accounting mismatch in profit
or loss, the entire change in
fair value will be recognized in
profit or loss. Amounts
presented in OCI will not be
reclassified to profit or loss
at a later date.
IFRS 9 (2010) also requires
derivative liabilities that are
linked to and must be settled by
delivery of an unquoted equity
instrument to be measured at
fair value, whereas such
derivative liabilities are
measured at cost under IAS 39.
IFRS 9 (2010) also added the
requirements of IAS 39 for the
derecognition of financial
assets and liabilities to IFRS 9
without change.
The IASB has deferred the
mandatory effective date of the
existing chapters of IFRS 9
Financial Instruments (2009) and
IFRS 9 (2010) to annual periods
beginning on or after January 1,
2015. The early adoption of
either standard continues to be
permitted.
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IFRS 10 IFRS 10 replaces the guidance in The Company
Consolidated IAS 27 Consolidated and Separate intends to adopt
Financial Financial Statements and SIC-12 IFRS 10 in its
Statements Consolidation - Special Purpose financial
Entities. IAS 27 (2008) statements for the
In May 2011, the survives as IAS 27 (2011) annual period
IASB issued IFRS Separate Financial Statements, beginning on April
10 Consolidated only to carry forward the 1, 2013. The
Financial existing accounting requirements Company does not
Statements, which for separate financial expect IFRS 10 to
is effective for statements. have a material
annual periods impact on the
beginning on or IFRS 10 provides a single model financial
after January 1, to be applied in the control statements.
2013, with early analysis for all investees,
adoption including entities that
permitted. If an currently are SPEs in the scope
entity applies of SIC-12. In addition, the
this Standard consolidation procedures are
earlier, it shall carried forward substantially
also apply IFRS unmodified from IAS 27 (2008).
11, IFRS 12, IAS
27 (2011) and IAS
28 (2011) at the
same time.
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IFRS 11 Joint IFRS 11 replaces the guidance in The Company
Arrangements IAS 31 Interests in Joint intends to adopt
Ventures. IFRS 11 in its
In May 2011, the financial
IASB issued IFRS Under IFRS 11, joint statements for the
11 Joint arrangements are classified as annual period
Arrangements, either joint operations or joint beginning on April
which is effective ventures. IFRS 11 essentially 1, 2013. The
for annual periods carves out of previous jointly Company does not
beginning on or controlled entities, those expect IFRS 11 to
after January 1, arrangements which although have a material
2013, with early structured through a separate impact on the
adoption vehicle, such separation is financial
permitted. If an ineffective and the parties to statements.
entity applies the arrangement have rights to
this Standard the assets and obligations for
earlier, it shall the liabilities and are
also apply IFRS accounted for as joint
10, IFRS 12, IAS operations in a fashion
27 (2011) and IAS consistent with jointly
28 (2011) at the controlled assets/operations
same time. under IAS 31. In addition, under
IFRS 11 joint ventures are
stripped of the free choice of
equity accounting or
proportionate consolidation;
these entities must now use the
equity method.
Upon application of IFRS 11,
entities which had previously
accounted for joint ventures
using proportionate
consolidation shall collapse the
proportionately consolidated net
asset value (including any
allocation of goodwill) into a
single investment balance at the
beginning of the earliest period
presented. The investment's
opening balance is tested for
impairment in accordance with
IAS 28 (2011) and IAS 36
Impairment of Assets. Any
impairment losses are recognized
as an adjustment to opening
retained earnings at the
beginning of the earliest period
presented.
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IFRS 12 Disclosure IFRS 12 contains the disclosure The Company
of Interests in requirements for entities that intends to adopt
Other Entities have interests in subsidiaries, IFRS 12 in its
joint arrangements (i.e. joint financial
In May 2011, the operations or joint ventures), statements for the
IASB issued IFRS associates and/or unconsolidated annual period
12 Disclosure of structured entities. Interests beginning on April
Interests in Other are widely defined as 1, 2013. The
Entities, which is contractual and non-contractual Company does not
effective for involvement that exposes an expect the
annual periods entity to variability of returns amendments to have
beginning on or from the performance of the a material impact
after January 1, other entity. The required on the financial
2013, with early disclosures aim to provide statements,
adoption information in order to enable because of the
permitted. If an users to evaluate the nature of, nature of the
entity applies and the risks associated with, Company's
this Standard an entity's interest in other interests in other
earlier, it needs entities, and the effects of entities.
not to apply IFRS those interests on the entity's
10, IFRS 11, IAS financial position, financial
27 (2011) and IAS performance and cash flows.
28 (2011) at the
same time.
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IFRS 13 Fair Value IFRS 13 replaces the fair value The Company
Measurement measurement guidance contained intends to adopt
in individual IFRSs with a IFRS 13
In May 2011, the single source of fair value prospectively in
IASB published measurement guidance. It defines its financial
IFRS 13 Fair Value fair value as the price that statements for the
Measurement, which would be received to sell an annual period
is effective asset or paid to transfer a beginning on April
prospectively for liability in an orderly 1, 2013. The
annual periods transaction between market extent of the
beginning on or participants at the measurement impact of adoption
after January 1, date, i.e. an exit price. The of IFRS 13 has not
2013. The standard also establishes a yet been
disclosure framework for measuring fair determined.
requirements of value and sets out disclosure
IFRS 13 need not requirements for fair value
be applied in measurements to provide
comparative information that enables
information for financial statement users to
periods before assess the methods and inputs
initial used to develop fair value
application. measurements and, for recurring
fair value measurements that use
significant unobservable inputs
(Level 3), the effect of the
measurements on profit or loss
or other comprehensive income.
IFRS 13 explains 'how' to
measure fair value when it is
required or permitted by other
IFRSs. IFRS 13 does not
introduce new requirements to
measure assets or liabilities at
fair value, nor does it
eliminate the practicability
exceptions to fair value
measurements that currently
exist in certain standards.
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Amendments to IAS The amendments require that an The Company
1 Presentation of entity present separately the intends to adopt
Financial items of OCI that may be the amendments in
Statements reclassified to profit or loss its financial
in the future from those that statements for the
In June 2011, the would never be reclassified to annual period
IASB published profit or loss. Consequently an beginning on April
amendments to IAS entity that presents items of 1, 2013. As the
1 Presentation of OCI before related tax effects amendments only
Financial will also have to allocate the require changes in
Statements: aggregated tax amount between the presentation
Presentation of these categories. of items in other
Items of Other comprehensive
Comprehensive The existing option to present income, the
Income, which are the profit or loss and other Company does not
effective for comprehensive income in two expect the
annual periods statements has remained amendments to IAS
beginning on or unchanged. 1 to have a
after July 1, 2012 material impact on
and are to be the financial
applied statements.
retrospectively.
Early adoption is
permitted.
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Amendments to IAS The amendments to IAS 32 clarify The Company
32 and IFRS 7, that an entity currently has a intends to adopt
Offsetting legally enforceable right to the amendments to
Financial Assets set-off if that right is: IFRS 7 in its
and Liabilities financial
- not contingent on a future statements for the
In December 2011, event; and annual period
the IASB published - enforceable both in the normal beginning on April
Offsetting course of business and in the 1, 2013, and the
Financial Assets event of default, insolvency or amendments to IAS
and Financial bankruptcy of the entity and all 32 in its
Liabilities and counterparties. financial
issued new statements for the
disclosure The amendments to IAS 32 also annual period
requirements in clarify when a settlement beginning April 1,
IFRS 7 Financial mechanism provides for net 2014. The Company
Instruments: settlement or gross settlement does not expect
Disclosures. that is equivalent to net the amendments to
settlement. have a material
The effective date impact on the
for the amendments The amendments to IFRS 7 contain financial
to IAS 32 is new disclosure requirements for statements.
annual periods financial assets and liabilities
beginning on or that are:
after January 1,
2014. The - offset in the statement of
effective date for financial position; or
the amendments to - subject to master netting
IFRS 7 is annual arrangements or similar
periods beginning arrangements.
on or after
January 1, 2013.
These amendments
are to be applied
retrospectively.
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Annual The new cycle of improvements The Company
Improvements to contains amendments to the intends to adopt
IFRSs 2009-2011 following four standards the amendments to
Cycle - various (excluding IFRS 1) with the standards in
standards consequential amendments to its financial
other standards and statements for the
In May 2012, the interpretations. annual period
IASB published beginning on April
Annual - IAS 1 Presentation of 1, 2013. The
Improvements to Financial Statements extent of the
IFRSs - 2009-2011 -- Comparative information impact of adoption
Cycle as part of beyond minimum requirements of the amendments
its annual -- Presentation of the opening has not yet been
improvements statement of financial position determined.
process to make
non-urgent but - IAS 16 Property, Plant and
necessary Equipment
amendments to -- Classification of servicing
IFRS. equipment
These amendments - IAS 32 Financial Instruments:
are effective for Presentation
annual periods -- Income tax consequences of
beginning on or distributions
after Jan 1, 2013
with retrospective - IAS 34 Interim Financial
application. Reporting
--Segment assets and liabilities
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Outstanding Share Data
The following table represents the number of Common Shares and options outstanding:
As at February 11, 2013 (thousands) ---------------------------------------------------------------------------- Common Shares 37,873 Options 3,201 ----------------------------------------------------------------------------
On July 13, 2005, CMG adopted a rolling stock option plan which allows the Company to grant options to its employees and directors to acquire Common Shares of up to 10% of the outstanding Common Shares at the date of grant. Based upon this calculation, at February 11, 2013, CMG could grant up to 3,787,000 stock options.
Disclosure Controls and Procedures and Internal Control over Financial Reporting
Management is responsible for establishing and maintaining disclosure controls and procedures ("DC&P") and internal control over financial reporting ("ICFR") as defined under National Instrument 52-109. These controls and procedures were reviewed and the effectiveness of their design and operation was evaluated in fiscal 2012 in accordance with the COSO control framework. The evaluation confirmed the effectiveness of DC&P and ICFR at March 31, 2012. During our fiscal year 2013, we continue to monitor and review our controls and procedures.
During the nine months ended December 31, 2012, there have been no significant changes to the Company's ICFR that have materially affected, or are reasonably likely to materially affect, the company's ICFR.
Outlook
Our third quarter of fiscal 2013 has continued to show growth in our annuity/maintenance revenue stream with increases experienced across all geographic regions. Over 80% of our software license revenue is derived from our annuity and maintenance contracts, and with a strong renewal rate, we expect to see continued growth in this revenue base. During the third quarter, our EBITDA represented 52% of our total revenue which demonstrates our ability to effectively manage our corporate costs.
CMG continues to focus its resources on the development, enhancement and deployment of simulation software tools relevant to the challenges and opportunities facing its diverse customer base. While oil prices continue to fluctuate, they remain at levels that should allow our customers to move forward on projects involving various types of unconventional reserves and advanced recovery processes. The greater challenges have been with natural gas prices, which have not fared as well, and petroleum producers are faced with uncertainty related to the fears of another worldwide economic recession, political unrest in several petroleum producing countries and environmental issues that have threatened to increase the costs of development and production.
CMG's joint project to develop the newest generation of dynamic reservoir modelling systems ("DRMS Project") continued to make progress in the third quarter of fiscal 2013. The most recent beta version of the software was recently released. During the first quarter we reported that Rob Eastick had been promoted to the position of Vice President, DRMS and Visualization, taking on the role of Project Manager for the DRMS Project. Rob and the entire DRMS team continue to make progress toward the anticipated limited commercial release of the software by the end of calendar 2013. CMG and its partners remain committed to funding the ongoing development and to the future success of the project.
We will continue to extend our reach globally and focus our efforts on increasing our license sales to both existing and new clients. Our newest effort towards this expansion includes opening a branch office in Colombia which will help us to grow our presence in the South American market.
The excellent reputation behind our Company and its product suite offering will continue to enable us to grow and sustain a healthy market share while generating solid software license revenue. With our strong working capital position, we are well positioned to continue to invest in all aspects of our business in order to continue to grow and diversify our revenue base and to ultimately return value to our shareholders in the form of regular quarterly dividend payments and growth in share value.
Finally, I regret to report that John Kalman, our Vice President, Finance and CFO, has informed the Company of his intention to retire effective August 31, 2013. The Company is currently reviewing its options regarding John's replacement and it is expected that his responsibilities will be gradually transitioned once a successor is in place.
Kenneth M. Dedeluk, President and Chief Executive Officer
February 11, 2013
COMPUTER MODELLING GROUP LTD.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
UNAUDITED (thousands of Canadian $) December 31, 2012 March 31, 2012
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Assets
Current assets:
Cash 52,236 55,374
Trade and other receivables 10,636 15,494
Prepaid expenses 1,007 1,195
Prepaid income taxes 510 -
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64,389 72,063
Property and equipment 3,467 2,829
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Total assets 67,856 74,892
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Liabilities and Shareholders' Equity
Current liabilities:
Trade payables and accrued liabilities 4,809 5,358
Income taxes payable - 1,404
Deferred revenue 15,510 21,693
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20,319 28,455
Deferred tax liability (note 7) 297 358
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Total liabilities 20,616 28,813
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Shareholders' equity:
Share capital 37,705 31,751
Contributed surplus 4,450 3,535
Retained earnings 5,085 10,793
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Total shareholders' equity 47,240 46,079
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Total liabilities and shareholders' equity 67,856 74,892
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See accompanying notes to condensed consolidated financial statements.
COMPUTER MODELLING GROUP LTD.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
Three months ended Nine months ended
December 31 December 31
UNAUDITED (thousands of Canadian $
except per share amounts) 2012 2011 2012 2011
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Revenue (note 4) 16,802 15,898 49,341 43,819
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Operating expenses
Sales, marketing and professional
services 3,778 3,536 11,333 9,703
Research and development (note 5) 3,136 2,747 9,061 7,635
General and administrative 1,612 1,522 4,534 4,070
----------------------------------------------------------------------------
8,526 7,805 24,928 21,408
----------------------------------------------------------------------------
Operating profit 8,276 8,093 24,413 22,411
Finance income (note 6) 280 123 422 1,109
Finance costs (note 6) - (32) - -
----------------------------------------------------------------------------
Profit before income and other taxes 8,556 8,184 24,835 23,520
Income and other taxes (note 7) 2,437 2,394 7,266 6,749
----------------------------------------------------------------------------
Net and total comprehensive income 6,119 5,790 17,569 16,771
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Earnings Per Share
Basic (note 8(e)) 0.16 0.16 0.47 0.46
Diluted (note 8(e)) 0.16 0.15 0.45 0.44
----------------------------------------------------------------------------
----------------------------------------------------------------------------
See accompanying notes to condensed consolidated financial statements.
COMPUTER MODELLING GROUP LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Common
UNAUDITED (thousands of Share Contributed Retained Total
Canadian $) Capital Surplus Earnings Equity
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Balance, April 1, 2011 24,801 2,655 8,314 35,770
Total comprehensive income for
the period - - 16,771 16,771
Dividends paid - - (15,651) (15,651)
Shares issued for cash on
exercise of stock options
(note 8(b)) 4,344 - - 4,344
Common shares buy-back (notes
8(b) & (c)) (25) - (413) (438)
Stock-based compensation:
Current period expense - 1,433 - 1,433
Stock options exercised 812 (812) - -
----------------------------------------------------------------------------
Balance, December 31, 2011 29,932 3,276 9,021 42,229
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Balance, April 1, 2012 31,751 3,535 10,793 46,079
Total comprehensive income for
the period - - 17,569 17,569
Dividends paid - - (21,806) (21,806)
Shares issued for cash on
exercise of stock options
(note 8(b)) 5,061 - - 5,061
Common shares buy-back (notes
8(b) & (c)) (80) (1,471) (1,551)
Stock-based compensation:
Current period expense - 1,888 - 1,888
Stock options exercised 973 (973) - -
----------------------------------------------------------------------------
Balance, December 31, 2012 37,705 4,450 5,085 47,240
----------------------------------------------------------------------------
----------------------------------------------------------------------------
See accompanying notes to condensed consolidated financial statements.
COMPUTER MODELLING GROUP LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended Nine months ended
December 31 December 31
UNAUDITED (thousands of Canadian $) 2012 2011 2012 2011
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Cash flows from operating activities
Net income 6,119 5,790 17,569 16,771
Adjustments for:
Depreciation 411 321 1,122 877
Income and other taxes (note 7) 2,437 2,394 7,266 6,749
Stock-based compensation (note
8(d)) 656 566 1,888 1,433
Interest income (note 6) (133) (123) (409) (341)
----------------------------------------------------------------------------
9,490 8,948 27,436 25,489
Changes in non-cash working capital:
Trade and other receivables 1,775 (1,151) 4,855 1,594
Trade payables and accrued
liabilities 660 1,306 (549) (17)
Prepaid expenses 179 102 188 (174)
Deferred revenue (2,731) 146 (6,183) (2,009)
----------------------------------------------------------------------------
Cash generated from operating
activities 9,373 9,351 25,747 24,883
Interest received 132 120 412 332
Income taxes paid (2,785) (1,960) (9,241) (6,542)
----------------------------------------------------------------------------
Net cash from operating activities 6,720 7,511 16,918 18,673
----------------------------------------------------------------------------
Cash flows from financing activities
Proceeds from issue of common shares 1,273 1,675 5,061 4,344
Dividends paid (6,050) (4,079) (21,806) (15,651)
Common shares buy-back (note 8(c)) - - (1,551) (438)
----------------------------------------------------------------------------
Net cash used in financing
activities (4,777) (2,404) (18,296) (11,745)
----------------------------------------------------------------------------
Cash flows used in investing
activities
Property and equipment additions (401) (802) (1,760) (1,066)
----------------------------------------------------------------------------
Increase (decrease) in cash 1,542 4,305 (3,138) 5,862
Cash, beginning of period 50,694 43,310 55,374 41,753
----------------------------------------------------------------------------
Cash, end of period 52,236 47,615 52,236 47,615
----------------------------------------------------------------------------
----------------------------------------------------------------------------
See accompanying notes to condensed consolidated financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the three and nine months ended December 31, 2012 and 2011 (unaudited).
1. Reporting Entity:
Computer Modelling Group Ltd. ("CMG") is a company domiciled in Alberta, Canada and is incorporated pursuant to the Alberta Business Corporations Act, with its Common Shares listed on the Toronto Stock Exchange under the symbol "CMG". The address of CMG's registered office is Suite 200, 1824 Crowchild Trail N.W., Calgary, Alberta, Canada, T2M 3Y7. The condensed consolidated financial statements as at and for the three and nine months ended December 31, 2012 comprise CMG and its subsidiaries (together referred to as the "Company"). The Company is a computer software technology company engaged in the development and licensing of reservoir simulation software. The Company also provides professional services consisting of highly specialized support, consulting, training, and contract research activities.
2. Basis of Preparation:
(a) STATEMENT OF COMPLIANCE:
These condensed consolidated financial statements have been prepared on a going concern basis in accordance with International Accounting Standard ("IAS") 34, Interim Financial Reporting, as issued by the International Accounting Standards Board ("IASB"), and using the accounting policies disclosed in note 3 of the Company's annual consolidated financial statements as at and for the year ended March 31, 2012. Accordingly, the condensed consolidated financial statements do not include all of the information required for full annual financial statements, and should be read in conjunction with the Company's most recent annual consolidated financial statements as at and for the year ended March 31, 2012, prepared in accordance with International Financial Reporting Standards ("IFRS").
The unaudited condensed consolidated financial statements as at and for the three and nine months ended December 31, 2012 were authorized for issuance by the Board of Directors on February 11, 2013.
(b) BASIS OF MEASUREMENT:
The condensed consolidated financial statements have been prepared on the historical cost basis, which is based on the fair value of the consideration at the time of the transaction.
(c) FUNCTIONAL AND PRESENTATION CURRENCY:
The condensed consolidated financial statements are presented in Canadian dollars, which is the functional currency of CMG and its subsidiaries. All financial information presented in Canadian dollars has been rounded to the nearest thousand.
(d) USE OF ESTIMATES, JUDGMENTS AND ASSUMPTIONS:
The preparation of financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies, the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue, costs and expenses for the period. Estimates and underlying assumptions are based on historical experience and other assumptions that are considered reasonable in the circumstances and are reviewed on an on-going basis. Actual results may differ from such estimates and it is possible that the differences could be material. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected. In preparing these condensed consolidated financial statements, the significant judgments made by management in applying the Company's accounting policies and the key sources of estimation uncertainty are the same as those applied in the annual IFRS consolidated financial statements for the year ended March 31, 2012.
3. Significant Accounting Policies:
The condensed consolidated financial statements should be read in conjunction with the Company's annual financial statements for the year ended March 31, 2012 prepared in accordance with IFRS applicable to those annual consolidated financial statements. The same accounting policies, presentation and methods of computation have been followed in these condensed consolidated financial statements as were applied in the Company's first annual IFRS consolidated financial statements for the year ended March 31, 2012.
4. Revenue:
For the three months ended December 31, 2012 2011
(thousands of $)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Software licenses 15,369 14,377
Professional services 1,433 1,521
----------------------------------------------------------------------------
16,802 15,898
----------------------------------------------------------------------------
----------------------------------------------------------------------------
For the nine months ended December 31, 2012 2011
(thousands of $)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Software licenses 45,302 39,669
Professional services 4,039 4,150
----------------------------------------------------------------------------
49,341 43,819
----------------------------------------------------------------------------
----------------------------------------------------------------------------
5. Research and Development Costs:
For the three months ended December 31, 2012 2011
(thousands of $)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Research and development 3,586 3,104
Scientific research and experimental
development ("SR&ED") investment tax credits (450) (357)
----------------------------------------------------------------------------
3,136 2,747
----------------------------------------------------------------------------
----------------------------------------------------------------------------
For the nine months ended December 31, 2012 2011
(thousands of $)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Research and development 10,458 8,656
Scientific research and experimental
development ("SR&ED") investment tax credits (1,397) (1,021)
----------------------------------------------------------------------------
9,061 7,635
----------------------------------------------------------------------------
----------------------------------------------------------------------------
6. Finance Income and Finance Costs:
For the three months ended December 31, 2012 2011 (thousands of $) ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Interest income 133 123 Net foreign exchange gain 147 - ---------------------------------------------------------------------------- Finance income 280 123 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Net foreign exchange loss - (32) ---------------------------------------------------------------------------- Finance costs - (32) ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- For the nine months ended December 31, 2012 2011 (thousands of $) ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Interest income 409 341 Net foreign exchange gain 13 768 ---------------------------------------------------------------------------- Finance income 422 1,109 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Net foreign exchange loss - - ---------------------------------------------------------------------------- Finance costs - - ---------------------------------------------------------------------------- ----------------------------------------------------------------------------
7. Income and Other Taxes:
The major components of income tax expense are as follows:
For the nine months ended December 31, 2012 2011
(thousands of $)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Current year income taxes 6,655 6,580
Adjustment for prior year 67 -
----------------------------------------------------------------------------
Current income taxes 6,722 6,580
Deferred tax recovery (61) (97)
Foreign withholding and other taxes 605 266
----------------------------------------------------------------------------
7,266 6,749
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The provision for income and other taxes reported differs from the amount computed by applying the combined Canadian Federal and Provincial statutory rate to the profit before income and other taxes.
The reasons for this difference and the related tax effects are as follows:
For the nine months ended December 31, 2012 2011
(thousands of $, unless otherwise stated)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Combined statutory tax rate 25.00% 26.13%
----------------------------------------------------------------------------
Expected income tax 6,209 6,147
Non-deductible costs 494 396
Withholding taxes 454 188
Adjustment for prior year 67 -
Other 42 18
----------------------------------------------------------------------------
7,266 6,749
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The components of the Company's deferred tax liability are as follows:
(thousands of $) December 31, 2012 March 31, 2012 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Tax liability on SR&ED investment tax credits (263) (267) Tax liability on property and equipment (34) (91) ---------------------------------------------------------------------------- Deferred tax liability (297) (358) ---------------------------------------------------------------------------- ----------------------------------------------------------------------------
All movement in deferred tax assets and liabilities is recognized through comprehensive income of the respective period.
8. Share Capital:
(a) AUTHORIZED:
An unlimited number of Common Shares, an unlimited number of Non-Voting Shares, and an unlimited number of Preferred Shares, issuable in series.
(b) ISSUED:
(thousands of shares) Common Shares ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Balance, April 1, 2011 36,427 Issued for cash on exercise of stock options 698 Common shares buy-back (33) ---------------------------------------------------------------------------- Balance, December 31, 2011 37,092 ---------------------------------------------------------------------------- Balance, April 1, 2012 37,307 Issued for cash on exercise of stock options 601 Common shares buy-back (91) ---------------------------------------------------------------------------- Balance, December 31, 2012 37,817 ---------------------------------------------------------------------------- ----------------------------------------------------------------------------
Subsequent to December 31, 2012, 56,000 stock options were exercised for cash proceeds of $487,000.
On May 23, 2012, the Board of Directors considered the merits of renewing the Company's shareholder rights plan on or before the third-year anniversary of shareholder approval of the plan and determined that it was in the best interest of the Company to continue to have a shareholder rights plan in place. Upon careful review, the Board of Directors agreed to approve an amended and restated rights plan (the "Amended and Restated Rights Plan") between the Company and Valiant Trust Company, which is similar in all respects to the existing shareholder rights plan, with the exception of certain minor amendments. The Amended and Restated Rights Plan was approved by the Company's shareholders on July 12, 2012.
(c) COMMON SHARES BUY-BACK:
On April 6, 2011, the Company announced a Normal Course Issuer Bid ("NCIB") commencing on April 7, 2011 to purchase for cancellation up to 1,636,000 of its Common Shares. This NCIB ended on April 6, 2012 and a total of 33,000 Common Shares were purchased at market price for a total cost of $438,000 during the year ended March 31, 2012.
On April 16, 2012, the Company announced a NCIB commencing on April 18, 2012 to purchase for cancellation up to 3,416,000 of its Common Shares. During the nine months ended December 31, 2012, a total of 91,000 Common Shares were purchased at market price for a total cost of $1,551,000.
(d) STOCK-BASED COMPENSATION PLAN:
The Company adopted a rolling stock option plan as of July 13, 2005, which was reaffirmed by the Company's shareholders on July 7, 2011, which allows it to grant options to acquire Common Shares of up to 10% of the outstanding Common Shares at the date of grant. Based upon this calculation, at December 31, 2012, the Company could grant up to 3,781,000 stock options. Pursuant to the stock option plan, the maximum term of an option granted cannot exceed five years from the date of grant. The outstanding stock options vest as to 50% after the first year anniversary, from date of grant, and then vest as to 25% of the total options granted after each of the second and third year anniversary dates.
The following table outlines changes in stock options:
For the nine months ended For the year ended
(thousands except per share
amounts) December 31, 2012 March 31, 2012
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Weighted Weighted
Average Average
Exercise Exercise
Options Price Options Price
Granted ($/share) Granted ($/share)
----------------------------------------------------------------------------
Outstanding at beginning of
period 2,903 9.85 2,825 7.41
Granted 1,004 18.18 1,071 13.43
Exercised (601) 8.42 (913) 6.43
Forfeited/cancelled (49) 15.00 (80) 10.57
----------------------------------------------------------------------------
Outstanding at end of period 3,257 12.60 2,903 9.85
----------------------------------------------------------------------------
Options exercisable at end of
period 1,516 9.30 1,120 7.31
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The range of exercise prices of stock options outstanding and exercisable at December 31, 2012 is as follows:
Outstanding Exercisable
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Number of Remaining Exercise Number of Exercise
Exercise Price Options Contractual Price Options Price
($/option) (thousands) Life (years) ($/option) (thousands) ($/option)
----------------------------------------------------------------------------
4.52 - 5.63 248 0.6 5.37 248 5.37
5.64 - 7.80 404 1.6 7.80 404 7.80
7.81 - 9.07 706 2.6 9.07 455 9.07
9.08 - 13.43 894 3.6 13.40 400 13.40
13.44 - 20.00 1,005 4.6 18.09 9 13.89
----------------------------------------------------------------------------
3,257 3.2 12.60 1,516 9.30
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The fair value of stock options granted was estimated using the Black-Scholes option pricing model under the following assumptions:
For the nine months
ended December 31, For the year ended
2012 March 31, 2012
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Fair value at grant date ($/option) 2.45 to 3.81 1.23 to 3.42
Share price at grant date ($/share) 17.90 to 20.00 13.00 to 16.35
Risk-free interest rate (%) 1.13 to 1.26 0.99 to 2.06
Estimated hold period prior to
exercise (years) 2 to 4 2 to 4
Volatility in the price of common
shares (%) 27 to 36 24 to 37
Dividend yield per common share (%) 3.57 to 4.12 3.20 to 4.94
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The Company recognized total stock-based compensation expense for the three and nine months ended December 31, 2012 of $656,000 and $1,888,000 respectively (three and nine months ended December 31, 2011 - $566,000 and $1,433,000 respectively).
(e) EARNINGS PER SHARE:
The following table summarizes the earnings and weighted average number of Common Shares used in calculating basic and diluted earnings per share:
For the three months
ended December 31,
(thousands except per
share amounts) 2012 2011
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Weighted Weighted
Average Earnings Average Earnings
Earnings Shares Per Share Earnings Shares Per Share
($) Outstanding ($/share) ($) Outstanding ($/share)
----------------------------------------------------------------------------
Basic 6,119 37,754 0.16 5,790 36,976 0.16
Dilutive
effect of
stock options 1,103 990
----------------------------------------------------------------------------
Diluted 6,119 38,857 0.16 5,790 37,966 0.15
----------------------------------------------------------------------------
----------------------------------------------------------------------------
For the nine months
ended December 31,
(thousands except per
share amounts) 2012 2011
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Weighted Weighted
Average Earnings Average Earnings
Earnings Shares Per Share Earnings Shares Per Share
($) Outstanding ($/share) ($) Outstanding ($/share)
----------------------------------------------------------------------------
Basic 17,569 37,538 0.47 16,771 36,757 0.46
Dilutive
effect of
stock options 1,127 1,056
----------------------------------------------------------------------------
Diluted 17,569 38,665 0.45 16,771 37,813 0.44
----------------------------------------------------------------------------
----------------------------------------------------------------------------
During the three and nine months ended December 31, 2012, 31,000 and 118,000 options respectively (three and nine months ended December 31, 2011 - 88,000, and 155,000 respectively) were excluded from the computation of the weighted-average number of diluted shares outstanding because their effect was not dilutive.
9. Commitments:
(a) RESEARCH COMMITMENTS:
The Company is the operator of the DRMS research and development project (the "DRMS project"), a collaborative effort with its partners Shell International Exploration and Production BV ("Shell") and Petroleo Brasileiro S.A. ("Petrobras"), to jointly develop the newest generation of reservoir and production system simulation software. The project has been underway since 2006 and, with the ongoing support of the participants, it is expected to continue until ultimate delivery of the software. The Company's share of costs associated with the project is estimated to be $4.0 million ($2.2 million net of overhead recoveries) for fiscal 2013.
(b) LEASE COMMITMENTS:
The Company has operating lease commitments relating to its office premises with the minimum annual lease payments as follows:
Nine months ended December 31, 2012 2011
(thousands of $)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Less than one year 499 475
Between one and five years 7,089 5,533
----------------------------------------------------------------------------
7,588 6,008
----------------------------------------------------------------------------
----------------------------------------------------------------------------
10. Line Of Credit:
The Company has arranged for a $1.0 million line of credit with its principal banker, which can be drawn down by way of a demand operating credit facility or may be used to support letters of credit. As at December 31, 2012, US $165,000 (2011 - US $165,000) had been reserved on this line of credit for the letter of credit supporting a performance bond.
11. Segmented Information:
The Company is organized into one operating segment represented by the development and licensing of reservoir simulation software. The Company provides professional services, consisting of support, training, consulting and contract research activities, to promote the use and development of its software; however, these activities are not evaluated as a separate business segment.
Revenues and property and equipment of the Company arise in the following geographic regions:
(thousands of $) Revenue Property and equipment
----------------------------------------------------------------------------
----------------------------------------------------------------------------
For the nine months
ended December 31, As at December 31,
2012 2011 2012 2011
----------------------------------------------------------------------------
Canada 19,243 14,059 3,323 2,548
United States 8,736 7,439 49 83
South America 8,345 7,906 51 83
Eastern Hemisphere(1) 13,017 14,415 44 29
----------------------------------------------------------------------------
49,341 43,819 3,467 2,743
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Includes Europe, Africa, Asia and Australia.
In the nine months ended December 31, 2012, the Company derived 7.3% (2011 - 9.5%) of its revenue from one customer.
12. Joint Venture:
The Company is the operator of a joint software development project, the DRMS project, which gives the Company exclusive rights to commercialize the jointly developed software while the other partners will have unlimited software access for their internal use. Accordingly, the Company records its proportionate share of costs incurred on the project (37.04%) as research and development costs within the condensed consolidated statements of operations and comprehensive income.
For the three and nine months ended December 31, 2012, CMG included $1.0 million and $2.8 million, respectively (2011 - $0.9 million and $2.3 million, respectively) of costs in its condensed consolidated statements of operations and comprehensive income related to this joint project.
Additionally, the Company is entitled to charge the project for various services provided as operator, which were recorded in revenue as professional services and amounted to $0.4 million and $1.3 million during the three and nine months ended December 31, 2012 (2011 - $0.4 million and $1.2 million, respectively).
13. Subsequent Events:
On February 11, 2013, the Board of Directors declared a cash dividend of $0.16 per share on its Common Shares, payable on March 15, 2013, to all shareholders of record at the close of business on March 8, 2013.
Contacts:
Computer Modelling Group Ltd.
Kenneth M. Dedeluk
President & CEO
(403) 531-1300
ken.dedeluk@cmgl.ca
Computer Modelling Group Ltd.
John Kalman
Vice President, Finance & CFO
(403) 531-1300
john.kalman@cmgl.ca
www.cmgl.ca
