CALGARY, AB / ACCESSWIRE / August 11, 2022 / Computer Modelling Group Ltd. ("CMG" or the "Company") announces its financial results for the three months ended June 30, 2022.
Quarterly Performance
| Fiscal 2021 | Fiscal 2022 | Fiscal 2023 | ||||||
($ thousands, unless otherwise stated) | Q2 | Q3 | Q4 | Q1 | Q2 | Q3 | Q4 | Q1 |
Annuity/maintenance license revenue | 14,144 | 13,477 | 13,790 | 12,286 | 13,239 | 13,575 | 14,306 | 13,529 |
Perpetual license revenue | 1,775 | 660 | 1,184 | 125 | 846 | 1,497 | 2,351 | 386 |
Software license revenue | 15,919 | 14,137 | 14,974 | 12,411 | 14,085 | 15,072 | 16,657 | 13,915 |
Professional services revenue | 1,933 | 1,901 | 1,827 | 2,003 | 1,864 | 1,973 | 2,137 | 2,192 |
Total revenue | 17,852 | 16,038 | 16,801 | 14,414 | 15,949 | 17,045 | 18,794 | 16,107 |
Operating profit | 9,861 | 8,437 | 6,556 | 5,573 | 5,440 | 7,755 | 7,312 | 4,961 |
Operating profit (%) | 55 | 53 | 39 | 39 | 34 | 45 | 39 | 31 |
Profit before income and other taxes | 9,360 | 7,410 | 5,747 | 4,827 | 5,321 | 7,310 | 6,563 | 5,182 |
Income and other taxes | 2,600 | 1,535 | 1,454 | 1,094 | 1,175 | 1,736 | 1,611 | 1,369 |
Net income for the period | 6,760 | 5,875 | 4,293 | 3,733 | 4,146 | 5,574 | 4,952 | 3,813 |
EBITDA(1) | 10,933 | 9,509 | 7,627 | 6,596 | 6,473 | 8,843 | 8,366 | 5,892 |
Cash dividends declared and paid | 4,013 | 4,015 | 4,014 | 4,015 | 4,016 | 4,017 | 4,016 | 4,017 |
Funds flow from operations | 7,991 | 7,322 | 6,267 | 4,811 | 4,904 | 7,022 | 7,105 | 4,558 |
Free cash flow(1) | 7,474 | 7,005 | 5,755 | 4,478 | 4,494 | 6,227 | 6,584 | 4,255 |
Per share amounts - ($/share) | ||||||||
Earnings per share (EPS) - basic and diluted | 0.08 | 0.07 | 0.05 | 0.05 | 0.05 | 0.07 | 0.06 | 0.05 |
Cash dividends declared and paid | 0.05 | 0.05 | 0.05 | 0.05 | 0.05 | 0.05 | 0.05 | 0.05 |
Funds flow from operations per share - basic | 0.10 | 0.09 | 0.08 | 0.06 | 0.06 | 0.09 | 0.09 | 0.06 |
Free cash flow per share - basic(1) | 0.09 | 0.09 | 0.07 | 0.06 | 0.06 | 0.08 | 0.08 | 0.05 |
(1) This is a non-IFRS financial measure. See the "Non-IFRS Financial Measures" section.
Commentary on Quarterly Performance
For the Three Months Ended |
June 30, 2022 and compared to the same period of the previous fiscal year: |
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Revenue
Three months ended June 30, | 2022 | 2021 | $ change | % change | ||||||
($ thousands) | ||||||||||
Software license revenue | 13,915 | 12,411 | 1,504 | 12% | ||||||
Professional services revenue | 2,192 | 2,003 | 189 | 9% | ||||||
Total revenue | 16,107 | 14,414 | 1,693 | 12% | ||||||
Software license revenue as a % of total revenue | 86% | 86% | ||||||||
Professional services revenue as a % of total revenue | 14% | 14% | ||||||||
CMG's revenue is comprised of software license sales, which provides the majority of the Company's revenue, and fees for professional services.
Total revenue for the three months ended June 30, 2022 increased by 12%, due to increases in both software license revenue and professional services revenue.
Software License Revenue
Three months ended June 30, | 2022 | 2021 | $ change | % change | ||||||||
($ thousands) | ||||||||||||
Annuity/maintenance license revenue | 13,529 | 12,286 | 1,243 | 10% | ||||||||
Perpetual license revenue | 386 | 125 | 261 | 209% | ||||||||
Total software license revenue | 13,915 | 12,411 | 1,504 | 12% | ||||||||
Annuity/maintenance as a % of total software license revenue | 97% | 99% | ||||||||||
Perpetual as a % of total software license revenue | 3% | 1% | ||||||||||
Total software license revenue for the three months ended June 30, 2022 increased by 12%, compared to the same period of the previous fiscal year, due to increases in both annuity/maintenance license revenue and perpetual license revenue. Annuity/maintenance license revenue increased by 10%, due to increases in all regions except Canada.
Software Revenue by Geographic Region
Three months ended June 30, | 2022 | 2021 | $ change | % change | ||||
($ thousands) | ||||||||
Annuity/maintenance license revenue | ||||||||
Canada | 2,950 | 3,034 | (84) | -3% | ||||
United States | 3,350 | 2,984 | 366 | 12% | ||||
South America | 1,699 | 1,494 | 205 | 14% | ||||
Eastern Hemisphere(1) | 5,530 | 4,774 | 756 | 16% | ||||
| 13,529 | 12,286 | 1,243 | 10% | |||||
Perpetual license revenue | ||||||||
Canada | - | - | - | - | ||||
United States | - | 125 | (125) | -100% | ||||
South America | - | - | - | - | ||||
Eastern Hemisphere | 386 | - | 386 | 100% | ||||
| 386 | 125 | 261 | 209% | |||||
Total software license revenue | ||||||||
Canada | 2,950 | 3,034 | (84) | -3% | ||||
United States | 3,350 | 3,109 | 241 | 8% | ||||
South America | 1,699 | 1,494 | 205 | 14% | ||||
Eastern Hemisphere | 5,916 | 4,774 | 1,142 | 24% | ||||
| 13,915 | 12,411 | 1,504 | 12% | |||||
(1) Includes Europe, Africa, Asia and Australia.
During the three months ended June 30, 2022, compared to the same period of the previous fiscal year, total software license revenue increased in all regions except Canada.
The Canadian region (representing 21% of year-to-date total software license revenue) experienced a 3% decrease in annuity/maintenance license revenue, due to consolidation activity in the industry, partially offset by a returning customer and increased licensing by some existing customers.
The United States (representing 24% of year-to-date total software license revenue) experienced a 12% increase in annuity/maintenance license revenue, due to increased licensing by existing customers. There were no perpetual sales in the United States during the current quarter.
South America (representing 12% of year-to-date total software license revenue) experienced a 14% increase in annuity/maintenance license revenue, largely due to a multi-year lease that commenced in the second quarter of the previous fiscal year.
The Eastern Hemisphere (representing 43% of year-to-date total software license revenue) experienced a 16% increase in annuity/maintenance license revenue, due to increased licensing by some customers. Several perpetual sales were realized, which resulted in a 100% increase over the same period of the previous fiscal year.
Deferred Revenue
(SS thousands) | Fiscal 2023 | Fiscal 2022 | Fiscal 2021 | SS change | PP change | |||||
Deferred revenue at: | ||||||||||
Q1 (June 30) | 24,409 | 23,451 | 958 | 4% | ||||||
Q2 (September 30) | 21,242 | 19,549 | 1,693 | 9% | ||||||
Q3 (December 31) | 23,056 | 15,347 | 7,709 | 50% | ||||||
Q4 (March 31) | 30,454 | 30,461 | (7) | 0% | ||||||
CMG's deferred revenue consists primarily of amounts for prepaid licenses. Our annuity/maintenance revenue is deferred and recognized ratably over the 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 above table illustrates the normal trend in the deferred revenue balance from the beginning of the calendar year (which corresponds with Q4 of our fiscal year), when most renewals occur, to the end of the calendar year (which corresponds with Q3 of our fiscal year). Our fourth quarter corresponds with the beginning of the fiscal year for most oil and gas companies, representing a time when they enter a new budget year and sign/renew their contracts.
The deferred revenue balance at the end of Q1 of fiscal 2023 was 4% higher than Q1 of fiscal 2022.
Expenses
Three months ended June 30, | 2022 | 2021 | $ change | % change | ||||
($ thousands) | ||||||||
Sales, marketing and professional services | 3,591 | 3,412 | 179 | 5% | ||||
Research and development | 4,205 | 4,017 | 188 | 5% | ||||
General and administrative | 3,350 | 1,412 | 1,938 | 137% | ||||
Total operating expenses | 11,146 | 8,841 | 2,305 | 26% | ||||
Direct employee costs(1) | 8,947 | 7,070 | 1,877 | 27% | ||||
Other corporate costs(1) | 2,199 | 1,771 | 428 | 24% | ||||
| 11,146 | 8,841 | 2,305 | 26% | |||||
(1) This is a non-IFRS financial measure. See the "Non-IFRS Financial Measures" section.
Adjusted total operating expenses, adjusted direct employee costs and adjusted other corporate costs are non-IFRS financial measures. They do not have a standard meaning prescribed by IFRS and, accordingly, may not be comparable to measures used by other companies. They are calculated by excluding CEWS subsidies, CERS subsidies and restructuring charges, as applicable, from the related non-adjusted measures. Management believes that analyzing the Company's expenses exclusive of these items illustrates underlying trends in our costs and provides better comparability between periods.
The following tables provide a reconciliation of total operating expenses to adjusted total operating expenses, direct employee costs to adjusted direct employee costs and other corporate costs to adjusted other corporate costs:
Three months ended June 30 | 2022 | 2021 | |||
(SS thousands) | |||||
Total operating expenses | 11,146 | 8,841 | |||
CEWS | - | 324 | |||
CERS | - | 43 | |||
Restructuring charge | (1,602) | - | |||
Adjusted total operating expenses | 9,544 | 9,208 | |||
Direct employee costs | 8,947 | 7,070 | |||
CEWS | - | 324 | |||
Restructuring charge | (1,478) | - | |||
Adjusted direct employee costs | 7,469 | 7,394 | |||
Other corporate costs | 2,199 | 1,771 | |||
CERS | - | 43 | |||
Restructuring charge | (124) | - | |||
Adjusted other corporate costs | 2,075 | 1,814 | |||
In May 2022, Ryan Schneider stepped down as the Company's President and CEO and Pramod Jain was appointed CEO. This change resulted in a one-time restructuring cost of $1.6 million. For the three months ended June 30, 2022, adjusted direct employee costs increased by 1%, compared to the same period of the previous fiscal year.
Adjusted other corporate costs increased by 14% for the three months ended June 30, 2022, compared to the same period of the previous fiscal year, primarily due to higher professional services and travel-related costs.
Quarterly Summary
CMG's annuity/maintenance revenue increased by 10% during Q1 of fiscal 2023 compared to Q1 of fiscal 2022, continuing the trend of comparative quarterly increases that started in Q3 of the previous fiscal year. Similar to the previous quarters, this increase was supported by improved industry conditions and a multi-year lease in South America that commenced in September of 2021.
Geographically, all regions saw increases in annuity/maintenance revenue, with the exception of Canada. South America, the US and the Eastern Hemisphere increased due to returning customers and increased licensing by some existing customers, including another CoFlow lease in the Middle East that started in April of 2022. Canada was negatively affected by last year's consolidation activity in the industry.
Perpetual license revenue increased by $0.3 million compared to last year, supported by sales in the Eastern Hemisphere.
During the quarter, our expenses were impacted by a one-time restructuring charge of $1.6 million. When adjusted for the restructuring charge, as well as CEWS and CERS subsidies in the comparative quarter, Q1 operating expenses increased by 4%, compared to Q1 of fiscal 2022, due to increases in professional services and travel.
Adjusted operating profit margin was 41%, compared to 36% in Q1 of fiscal 2022, which is in line with the pre-COVID fiscal 2019 and fiscal 2020 historic average of 40% and reflective of our continuous cost management. Basic earnings per share was $0.05, consistent with the comparative quarter.
As always, CMG maintains a strong financial position and closed the year with $55.1 million of cash and no debt. Despite the restructuring charge in the current quarter and the positive cash impact of CEWS and CERS subsidies in the comparative quarter, we generated $0.05 per share of free cash flow, just $0.01 less than Q1 of fiscal 2022.
So far fiscal 2023 has been positive, as oil prices continue to remain strong and new opportunities are created by demand for energy transition projects. At the same time, we continue to navigate complex market conditions with geopolitical challenges, ESG policy tightening, supply and demand imbalances, and increasing inflation. Despite these challenges, we are encouraged by the strength of our technology and our team.
Additional IFRS Measure
Funds flow from operations is an additional IFRS measure that the Company presents in its consolidated statements of cash flows. Funds flow from operations is calculated as cash flows provided by operating activities adjusted for changes in non-cash working capital. Management believes that this measure provides useful supplemental information about operating performance and liquidity, as it represents cash generated during the period, regardless of the timing of collection of receivables and payment of payables, which may reduce comparability between periods.
Non-IFRS Financial Measures
Certain financial measures in this press release - namely, EBITDA, free cash flow, free cash flow per share, direct employee costs, other corporate costs, adjusted total operating expenses, adjusted direct employee costs and adjusted other corporate costs - do not have a standard meaning prescribed by IFRS and, accordingly, may not be comparable to measures used by other companies.
Certain additional disclosures for these non-IFRS financial measures have been incorporated by reference and can be found on page 2 in the Company's MD&A for the three months ended June 30, 2022, available on SEDAR at www.sedar.com and on the Company's website under the Investors section at www.cmgl.ca/ investors.
Reconciliations of the non-IFRS financial measures to the most directly comparable IFRS financial measure are presented below:
Free Cash Flow Reconciliation to Funds Flow from Operations
| Fiscal 2021 | Fiscal 2022 | Fiscal 2023 | ||||||
($ thousands, unless otherwise stated) | Q2 | Q3 | Q4 | Q1 | Q2 | Q3 | Q4 | Q1 |
Funds flow from operations | 7,991 | 7,322 | 6,267 | 4,811 | 4,904 | 7,022 | 7,105 | 4,558 |
Capital expenditures | (200) | (7) | (41) | (27) | (133) | (481) | (62) | - |
Repayment of lease liabilities | (317) | (310) | (471) | (306) | (277) | (314) | (459) | (303) |
Free cash flow | 7,474 | 7,005 | 5,755 | 4,478 | 4,494 | 6,227 | 6,584 | 4,255 |
Weighted average shares - basic | 80,265 | 80,286 | 80,286 | 80,286 | 80,307 | 80,335 | 80,335 | 80,335 |
(thousands) | ||||||||
Free cash flow per share - basic | 0.09 | 0.09 | 0.07 | 0.06 | 0.06 | 0.08 | 0.08 | 0.05 |
Forward-Looking Information
Certain information included in this press release 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 press release, 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.
Corporate Profile
CMG is a computer software technology company serving the energy industry. The Company is a leading supplier of advanced process reservoir modelling software, with a diverse customer base of international oil companies and technology centers in approximately 60 countries. CMG's existing technology has differentiating capabilities built into its software products that can also be directly applied to the energy transition needs of its customers. 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, Dubai, Bogota and Kuala Lumpur. CMG's Common Shares are listed on the Toronto Stock Exchange ("TSX") and trade under the symbol "CMG".
Condensed Consolidated Statements of Financial Position
UNAUDITED (thousands of Canadian $) | June 30, 2022 | March 31, 2022 | |||
Assets | |||||
Current assets: | |||||
Cash | 55,082 | 59,660 | |||
Trade and other receivables | 15,111 | 17,507 | |||
Prepaid expenses | 854 | 792 | |||
Prepaid income taxes | 1,106 | 959 | |||
| 72,153 | 78,918 | ||||
Property and equipment | 10,572 | 10,908 | |||
Right-of-use assets | 32,518 | 33,113 | |||
Deferred tax asset | 2,363 | 2,209 | |||
Total assets | 117,606 | 125,148 | |||
Liabilities and shareholders' equity | |||||
Current liabilities: | |||||
Trade payables and accrued liabilities | 5,975 | 6,819 | |||
Income taxes payable | - | 13 | |||
Deferred revenue | 24,409 | 30,454 | |||
Lease liabilities | 1,726 | 1,626 | |||
| 32,110 | 38,912 | ||||
Long-term stock-based compensation liability | 1,213 | 1,556 | |||
Long-term lease liabilities | 37,559 | 37,962 | |||
Total liabilities | 70,882 | 78,430 | |||
Shareholders' equity: | |||||
Share capital | 80,248 | 80,248 | |||
Contributed surplus | 15,219 | 15,009 | |||
Deficit | (48,743) | (48,539) | |||
Total shareholders' equity | 46,724 | 46,718 | |||
Total liabilities and shareholders' equity | 117,606 | 125,148 | |||
Condensed Consolidated Statements of Operations and Comprehensive Income
Three months ended June 30, | 2022 | 2021 | ||
UNAUDITED (thousands of Canadian $ except per share amounts) | ||||
Revenue | 16,107 | 14,414 | ||
Operating expenses | ||||
Sales, marketing and professional services | 3,591 | 3,412 | ||
Research and development | 4,205 | 4,017 | ||
General and administrative | 3,350 | 1,412 | ||
| 11,146 | 8,841 | |||
Operating profit | 4,961 | 5,573 | ||
Finance income | 711 | 98 | ||
Finance costs | (490) | (844) | ||
Profit before income and other taxes | 5,182 | 4,827 | ||
Income and other taxes | 1,369 | 1,094 | ||
Net and total comprehensive income | 3,813 | 3,733 | ||
Earnings per share - basic and diluted | 0.05 | 0.05 | ||
Dividend per share | 0.05 | 0.05 | ||
Condensed Consolidated Statements of Cash Flows
Three months ended June 30, | 2022 | 2021 | ||
UNAUDITED (thousands of Canadian $) | ||||
Operating activities | ||||
Net income | 3,813 | 3,733 | ||
Adjustments for: | ||||
Depreciation | 931 | 1,023 | ||
Deferred income tax recovery | (154) | (212) | ||
Stock-based compensation | (32) | 267 | ||
Funds flow from operations | 4,558 | 4,811 | ||
Movement in non-cash working capital: | ||||
Trade and other receivables | 2,396 | 14,422 | ||
Trade payables and accrued liabilities | (945) | (1,791) | ||
Prepaid expenses | (62) | (47) | ||
Income taxes payable | (160) | (660) | ||
Deferred revenue | (6,045) | (7,010) | ||
(Increase) decrease in non-cash working capital | (4,816) | 4,914 | ||
Net cash (used in) provided by operating activities | (258) | 9,725 | ||
Financing activities | ||||
Repayment of lease liabilities | (303) | (306) | ||
Dividends paid | (4,017) | (4,015) | ||
Net cash used in financing activities | (4,320) | (4,321) | ||
Investing activities | ||||
Property and equipment additions | - | (27) | ||
(Decrease) Increase in cash | (4,578) | 5,377 | ||
Cash, beginning of period | 59,660 | 49,068 | ||
Cash, end of period | 55,082 | 54,445 | ||
Supplementary cash flow information | ||||
Interest received | 180 | 98 | ||
Interest paid | 490 | 507 | ||
Income taxes paid | 1,496 | 1,728 | ||
See accompanying notes to consolidated financial statements, which are available on SEDAR at www.sedar.com or on CMG's website at www.cmgl.ca.
For further information, contact:
Pramod Jain Chief Executive Officer (403) 531-1300 pramod.jain@cmgl.ca | or | Sandra Balic Vice President, Finance & CFO (403) 531-1300 sandra.balic@cmgl.ca |
www.cmgl.ca
SOURCE: Computer Modelling Group Ltd.
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