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Computer Modelling Group Announces First Quarter Results

CALGARY, Alberta, Aug. 09, 2019 (GLOBE NEWSWIRE) -- Computer Modelling Group Ltd. (“CMG” or the “Company”) announces its financial results for the three months ended June 30, 2019.

Quarterly Performance

  Fiscal 2018(1) Fiscal 2019(1) Fiscal  2020
($ thousands, unless otherwise stated) Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
                 
Annuity/maintenance licenses   16,341   16,158   15,664   14,715   15,111   17,240   16,734   15,756
Perpetual licenses   290   743   2,053   326   1,172   611   2,891   1,159
Software licenses   16,631   16,901   17,717   15,041   16,283   17,851   19,625   16,915
Professional services   1,350   1,418   1,677   1,664   1,658   1,222   1,513   1,208
Total revenue   17,981   18,319   19,394   16,705   17,941   19,073   21,138   18,123
Operating profit   6,615   6,908   7,529   5,374   7,024   8,406   8,750   7,068
Operating profit (%)   37   38   39   32   39   44   41   39
Profit before income and other taxes   6,253   7,151   8,547   5,980   7,104   9,406   8,400   6,439
Income and other taxes   1,647   2,054   2,401   1,722   2,048   2,559   2,426   1,997
Net income for the period   4,606   5,097   6,146   4,258   5,056   6,847   5,974   4,442
EBITDA(2)   7,090   7,400   8,090   5,837   7,505   8,915   9,250   8,118
Cash dividends declared and paid   8,021   8,022   8,021   8,021   8,024   8,022   8,023   8,022
Funds flow from operations   5,788   6,225   7,285   5,242   5,777   7,550   7,024   6,097
Free cash flow(2)   5,372   5,595   6,904   4,909   5,697   7,297   6,948   5,707
Per share amounts - ($/share)                
Earnings per share - basic   0.06   0.06   0.08   0.05   0.06   0.09   0.07   0.06
Earnings per share - diluted   0.06   0.06   0.08   0.05   0.06   0.09   0.07   0.06
Cash dividends declared and paid   0.10   0.10   0.10   0.10   0.10   0.10   0.10   0.10
Funds flow from operations per share - basic   0.07   0.08   0.09   0.07   0.07   0.09   0.09   0.08
Free cash flow per share - basic(2)   0.07   0.07   0.09   0.06   0.07   0.09   0.09   0.07


(1) On April 1, 2019, the Company adopted IFRS 16 Leases using the modified retrospective approach, by adjusting opening retained earnings with no restatement of comparative figures. As such, comparative information continues to be reported under the previous lease standard.
(2) Non-IFRS financial measures are defined in the “Non-IFRS Financial Measures” section.

Highlights

During the three months ended June 30, 2019, as compared to the same period of the previous fiscal year, we:

  • Increased annuity/maintenance license revenue by 7%;
  • Increased software license revenue by 12%;
  • Increased net income by 4% (without the negative impact of IFRS 16 adoption, net income increased by 9%);
  • Increased EBITDA by 39% (without the positive impact of IFRS 16 adoption, EBITDA increased by 23%).

During the three months ended June 30, 2019, we:

  • Realized basic earnings per share of $0.06;
  • Declared and paid a regular dividend of $0.10 per share.

Revenue

Three months ended June 30, 2019   2018   $ change   % change  
($ thousands)        
         
Software license revenue   16,915   15,041   1,874   12 %
Professional services   1,208   1,664   (456 ) -27 %
Total revenue   18,123   16,705   1,418   8 %
         
Software license revenue as a % of total revenue 93 % 90 %    
Professional services as a % of total revenue 7 % 10 %    
         

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 for the three months ended June 30, 2019 increased by 8% compared to the same period of the previous fiscal year, due to an increase in software license revenue partially offset by a decrease in professional services revenue.

Software License Revenue

Three months ended June 30, 2019   2018   $ change % change  
($ thousands)  
 
Annuity/maintenance license revenue 15,756   14,715   1,041 7 %
Perpetual license revenue 1,159   326   833 256 %
Total software license revenue 16,915   15,041   1,874 12 %
 
Annuity/maintenance as a % of total software license revenue 93 % 98 %  
Perpetual as a % of total software license revenue 7 % 2 %  
           

Total software license revenue for the three months ended June 30, 2019 increased by 12% compared to the same period of the previous fiscal year, due to increases both in annuity/maintenance license revenue and perpetual license revenue.

CMG’s annuity/maintenance license revenue increased by 7% during the three months ended June 30, 2019, compared to the same period of the previous fiscal year, due to increases in all geographic regions, except Canada, due to increased licensing to both existing and new customers. In addition, the movement in the CAD/USD exchange rate had a positive impact on the quarterly annuity/maintenance license revenue.

Perpetual license revenue increased from $0.3 million to $1.2 million, due to an increase in perpetual sales in the United States and South America, partially offset by a decrease in the Eastern Hemisphere. Software licensing under perpetual sales 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.

Software Revenue by Geographic Segment

Three months ended June 30, 2019 2018 $ change   % change  
($ thousands)        
Annuity/maintenance license revenue        
Canada   3,776 3,867 (91 ) -2 %
United States   4,934 4,553 381   8 %
South America   1,945 1,681 264   16 %
Eastern Hemisphere(1)   5,101 4,614 487   11 %
    15,756 14,715 1,041   7 %
Perpetual license revenue        
Canada   -  - -   0 %
United States   298 - 298   100 %
South America   769 - 769   100 %
Eastern Hemisphere   92 326 (234 ) -72 %
    1,159 326 833   256 %
Total software license revenue        
Canada   3,776 3,867 (91 ) -2 %
United States   5,232 4,553 679   15 %
South America   2,714 1,681 1,033   61 %
Eastern Hemisphere   5,193 4,940 253   5 %
    16,915 15,041 1,874   12 %
         


(1) Includes Europe, Africa, Asia and Australia.

During the three months ended June 30, 2019, all regions, with the exception of Canada, experienced an increase in total software license revenue, as compared to the same period of the previous fiscal year.

The Canadian market (representing 22% of year-to-date software license revenue) experienced a slight 2% decrease in annuity/maintenance license revenue during the three months ended June 30, 2019, compared to the same period of the previous fiscal year, due to a reduction in licensing by some customers, most of which relates to short-term licenses.

The United States market (representing 31% of year-to-date software license revenue) experienced an 8% increase in annuity/maintenance license revenue during the three months ended June 30, 2019, compared to the same period of the previous fiscal year, due to increased licensing by both existing and new customers. Almost half of the increase is a result of increased usage of our cloud-based offerings, as the number of customers who access our software on a cloud has been growing over the last year. Perpetual revenue increased in the current period, as there were no perpetual sales recognized in the comparative period.

South America (representing 16% of year-to-date software license revenue) experienced a 16% increase in annuity/maintenance license revenue during the three months ended June 30, 2019, compared to the same period of the previous fiscal year, mainly due to increased licensing by existing customers. Perpetual revenue increased in the current period, as there were no perpetual sales recognized in the comparative period.

The Eastern Hemisphere (representing 31% of year-to-date software license revenue) experienced an 11% increase in annuity/maintenance license revenue during the three months ended June 30, 2019, due to a combination of increased licensing from existing customers and addition of new customers. Modest perpetual sales were realized in the Eastern Hemisphere during the three months ended June 30, 2019, resulting in a 72% decrease compared to the same period of the previous fiscal year.

Deferred Revenue

  Fiscal   Fiscal   Fiscal      
($ thousands) 2020   2019   2018   $ change   % change  
Deferred revenue at:                
Q1 (June 30)   29,266   29,350 (3)     (84 ) 0 %
Q2 (September 30)     23,222 (4) 23,686 (1) (464 ) -2 %
Q3 (December 31)     13,782   17,785   (4,003 ) -23 %
Q4 (March 31)     35,015 (5) 34,362 (2) 653   2 %
                 

 

(1) Includes current deferred revenue of $23.0 million and long-term deferred revenue of $0.6 million.
(2) Includes current deferred revenue of $33.4 million and long-term deferred revenue of $1.0 million.
(3) Includes current deferred revenue of $28.8 million and long-term deferred revenue of $0.6 million.
(4) Includes current deferred revenue of $22.9 million and long-term deferred revenue of $0.3 million.
(5) Includes current deferred revenue of $34.7 million and long-term deferred revenue of $0.3 million.


CMG’s deferred revenue consists primarily of amounts for pre-sold licenses. With the exception of certain term-based software licenses that are recognized at the start of the license period, 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.

Deferred revenue as at Q1 of fiscal 2020 remained consistent compared to Q1 of fiscal 2019.

Expenses

Three months ended June 30,
($ thousands, except per share data)
Previous
lease
standard
2019
IFRS 16
impact
  IFRS 16
2019
2018 $ change   % change  
             
Sales, marketing and professional services 4,696 (66 )   4,630 4,987 (357 ) -7 %
Research and development 4,980 (229 )   4,751 4,775 (24 ) -1 %
General and administrative 1,729 (55 )   1,674 1,569 105   7 %
Total operating expenses 11,405 (350 )   11,055 11,331 (276 ) -2 %
             
Direct employee costs(1) 8,664 -     8,664 8,715 (51 ) -1 %
Other corporate costs 2,741 (350 )   2,391 2,616 (225 ) -9 %
  11,405 (350 )   11,055 11,331 (276 ) -2 %
                   

 

(1) Includes salaries, bonuses, stock-based compensation, benefits, commissions, and professional development. See “Non-IFRS Financial Measures”.

Prior to applying IFRS 16, total operating expenses increased by 1% for the three months ended June 30, 2019 compared to the same period of the previous fiscal year, due to an increase in other corporate costs, partially offset by a decrease in direct employee costs.

IFRS 16 resulted in a net decrease of $0.4 million to total operating expenses. This net decrease of $0.4 million is a combination of $1.0 million lower rent expense (because under IFRS 16 rent payments are classified as finance costs and repayment of lease liability), partially offset by $0.6 million higher depreciation expense on the recognition of right-of-use assets.

Prior to IFRS 16 adoption, other corporate costs increased by 5% during the three months ended June 30, 2019 compared to the same period of the previous fiscal year, primarily due to an operating cost refund included in the comparative period.

Outlook

During the first quarter of fiscal 2020, annuity and maintenance license revenue increased by 7% compared to the first quarter of the previous fiscal year. The US region increased by 8%, supported by the growing use of our public cloud solution. South America and the Eastern Hemisphere showed double-digit increases – 16% and 11%, respectively – due to increased licensing by existing customers as well as the addition of new customers. The weakening of the Canadian dollar relative to the USD had a positive impact on revenue in these regions. Annuity and maintenance revenue from Canada remained relatively consistent for the second consecutive quarter, with a slight decrease of only 2% compared to the first quarter of the previous fiscal year. While we view this as an indication of an improved operating environment in Canada compared to previous years, we continue to monitor consolidation activity in the industry and any impact it might have on our contract renewals in the latter part of the year. We continue to demonstrate to our Canadian customers that our simulation tools are instrumental in achieving long-term sustainability though optimizing production and increasing operational efficiency.

Perpetual license revenue increased more than threefold compared to the first quarter of the previous fiscal year, due to several sales realized in South America and the US. Total revenue increased by 8%, supported by the increases in annuity and maintenance and perpetual revenue, partially offset by lower professional services revenue.

On April 1, 2019, CMG adopted IFRS 16 Leases. The new standard essentially moved most of the Company’s office leases to the balance sheet, eliminating rent expense and replacing it with interest expense and repayment of lease liability, as well as depreciation of the right-of-use assets. The adoption of IFRS 16 resulted in a decrease to total operating expenses and an increase to finance costs, for a total negative impact of $0.2 million on the Company’s net income.

Despite the negative impact of the IFRS 16 adoption, the Company’s net income increased by 4% because of the solid revenue achievement (without the negative impact of IFRS 16 adoption, net income increased by 9%). EBITDA increased by 39% to reach 45% of revenue, which is an impressive measure of the Company’s performance (without the positive impact of IFRS 16 adoption, EBITDA increased by 23% or to 40% of revenue).

As messaged in our fiscal 2019 Financial Report, in the current quarter we signed two agreements with two new customers for short-term use of CoFlow, our newest integrated asset modelling product, on specific projects. Subsequent to quarter-end, CMG and Shell signed an amendment to our CoFlow development agreement. In order to achieve specific development targets and deployments across a broader range of Shell’s assets, CMG will allocate more resources to CoFlow over the next two years, while Shell will increase its financial contribution accordingly. The costs of additional resources allocated to CoFlow are expected to be in the range of $4.5 – $6.5 million on an annualized basis by the end of fiscal 2020.

We continue pursuing our goal of increasing software license sales, particularly internationally, with the support of various R&D initiatives (such as our public cloud offering, CoFlow development, product feature and functionality enhancements, etc.), while exercising fiscal prudence.

We ended the first quarter of 2020 with a strong balance sheet, no borrowings and $50.8 million in cash. Subsequent to quarter end, CMG’s Board of Directors declared a quarterly dividend of $0.10 per share.

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, direct employee costs, other corporate costs, EBITDA and free cash flow – do not have a standard meaning prescribed by IFRS and, accordingly, may not be comparable to measures used by other companies. 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.

Free cash flow is a non-IFRS financial measure that is calculated as funds flow from operations less capital expenditures and repayment of lease liabilities. Management uses free cash flow to help measure the capacity of the Company to pay dividends and invest in business growth opportunities.

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 oil and gas industry. The Company is a leading supplier of advanced process reservoir modelling software with a blue chip customer base of international oil companies and technology centers in approximately 60 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, 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, 2019   March 31, 2019*  
     
Assets    
Current assets:    
Cash   50,753   54,290  
Trade and other receivables   12,650   19,220  
Prepaid expenses   1,180   1,332  
Prepaid income taxes   666   367  
    65,249   75,209  
Property and equipment   14,142   14,501  
Right-of-use assets   39,172   -  
Deferred tax asset   1,139   595  
Total assets   119,702   90,305  
     
Liabilities and shareholders’ equity    
Current liabilities:    
Trade payables and accrued liabilities   4,884   6,162  
Income taxes payable   -   60  
Deferred revenue   29,266   34,653  
Lease liability   1,209   -  
    35,359   40,875  
Deferred revenue   -   362  
Lease liability   41,591   -  
Deferred rent liability   -   1,813  
Total liabilities   76,950   43,050  
     
Shareholders’ equity:    
Share capital   79,711   79,711  
Contributed surplus   13,024   12,808  
Deficit   (49,983 ) (45,264 )
Total shareholders' equity   42,752   47,255  
Total liabilities and shareholders' equity   119,702   90,305  
     

Condensed Consolidated Statements of Operations and Comprehensive Income

     
Three months ended June 30, 2019   2018*
UNAUDITED (thousands of Canadian $ except per share amounts)    
     
Revenue   18,123   16,705
     
Operating expenses    
Sales, marketing and professional services   4,630   4,987
Research and development   4,751   4,775
General and administrative   1,674   1,569
    11,055   11,331
Operating profit   7,068   5,374
     
Finance income   323   606
Finance costs   (952 ) -
Profit before income and other taxes   6,439   5,980
Income and other taxes   1,997   1,722
     
Net and total comprehensive income   4,442   4,258
     
Earnings Per Share    
Basic   0.06   0.05
Diluted   0.06   0.05
       


Condensed Consolidated Statements of Cash Flows

Three months ended June 30, 2019   2018*  

UNAUDITED (thousands of Canadian $)
   
     
Operating activities    
Net income   4,442   4,258  
Adjustments for:    
Depreciation   1,050   463  
Deferred income tax recovery   (160 ) (346 )
Stock-based compensation   765   761  
Deferred rent   -    106  
Funds flow from operations   6,097   5,242  
Movement in non-cash working capital:    
Trade and other receivables   6,570   5,766  
Trade payables and accrued liabilities   (1,734 ) (1,770 )
Prepaid expenses   50   128  
Income taxes payable   (359 ) (323 )
Deferred revenue   (5,749 ) (4,327 )
Decrease in non-cash working capital   (1,222 ) (526 )
Net cash provided by operating activities   4,875   4,716  
     
Financing activities    
Repayment of lease liability   (282 ) -  
Dividends paid   (8,022 ) (8,021 )
Net cash used in financing activities   (8,304 ) (8,021 )
     
Investing activities    
Property and equipment additions   (108 ) (333 )
Decrease in cash   (3,537 ) (3,638 )
Cash, beginning of period   54,290   63,719  
Cash, end of period   50,753   60,081  
     
Supplementary cash flow information    
Interest received   333   302  
Interest paid   534   -  
Income taxes paid   (2,074 ) (1,981 )
         

* The Company adopted IFRS 16 Leases effective April 1, 2019 using the modified retrospective approach. Under this method, comparative information is not restated.

See accompanying notes to condensed consolidated interim financial statements.

For further information, contact:

Ryan N. Schneider
President & CEO
(403) 531-1300
ryan.schneider@cmgl.ca
www.cmgl.ca
or Sandra Balic
Vice President, Finance & CFO
(403) 531-1300
sandra.balic@cmgl.ca