CALGARY, Alberta, Aug. 11, 2021 (GLOBE NEWSWIRE) -- Computer Modelling Group Ltd. (“CMG” or the “Company”) announces its financial results for the three months ended June 30, 2021.
Quarterly Performance
| Fiscal 2020 | Fiscal 2021 | Fiscal 2022 | ||||||
| ($ thousands, unless otherwise stated) | Q2 | Q3 | Q4 | Q1 | Q2 | Q3 | Q4 | Q1 |
| Annuity/maintenance licenses | 16,373 | 16,612 | 15,233 | 14,523 | 14,144 | 13,477 | 13,790 | 12,286 |
| Perpetual licenses | 1,146 | 964 | 1,403 | - | 1,775 | 660 | 1,184 | 125 |
| Software licenses | 17,519 | 17,576 | 16,636 | 14,523 | 15,919 | 14,137 | 14,974 | 12,411 |
| Professional services | 2,354 | 1,699 | 1,879 | 2,149 | 1,933 | 1,901 | 1,827 | 2,003 |
| Total revenue | 19,873 | 19,275 | 18,515 | 16,672 | 17,852 | 16,038 | 16,801 | 14,414 |
| Operating profit | 9,343 | 7,538 | 7,802 | 5,711 | 9,861 | 8,437 | 6,556 | 5,573 |
| Operating profit (%) | 47 | 39 | 42 | 34 | 55 | 53 | 39 | 39 |
| Profit before income and other taxes | 9,350 | 7,054 | 9,613 | 4,405 | 9,360 | 7,410 | 5,747 | 4,827 |
| Income and other taxes | 2,482 | 1,942 | 2,550 | 1,143 | 2,600 | 1,535 | 1,454 | 1,094 |
| Net income for the period | 6,868 | 5,112 | 7,063 | 3,262 | 6,760 | 5,875 | 4,293 | 3,733 |
| EBITDA(1) | 10,426 | 8,644 | 8,923 | 6,767 | 10,933 | 9,509 | 7,627 | 6,596 |
| Cash dividends declared and paid | 8,026 | 8,025 | 8,024 | 4,013 | 4,013 | 4,015 | 4,014 | 4,015 |
| Funds flow from operations | 7,787 | 7,366 | 7,515 | 4,703 | 7,991 | 7,322 | 6,267 | 4,811 |
| Free cash flow(1) | 7,274 | 6,726 | 6,840 | 4,239 | 7,474 | 7,005 | 5,755 | 4,478 |
| Per share amounts – ($/share) | ||||||||
| Earnings per share (EPS) – basic and diluted | 0.09 | 0.06 | 0.09 | 0.04 | 0.08 | 0.07 | 0.05 | 0.05 |
| Cash dividends declared and paid | 0.10 | 0.10 | 0.10 | 0.05 | 0.05 | 0.05 | 0.05 | 0.05 |
| Funds flow from operations per share - basic | 0.10 | 0.09 | 0.09 | 0.06 | 0.10 | 0.09 | 0.08 | 0.06 |
| Free cash flow per share – basic(1) | 0.09 | 0.08 | 0.09 | 0.05 | 0.09 | 0.09 | 0.07 | 0.06 |
(1) Non-IFRS financial measures are defined in the “Non-IFRS Financial Measures” section.
Commentary on Quarterly Performance
For the Three Months Ended
June 30, 2021 and compared to the same period of the previous fiscal year:
- Annuity/maintenance license revenue decreased by 15%;
- Total revenue decreased by 14%, due to decreases in both software revenue and professional services revenue;
- Total operating expenses decreased by 19%, due to compensation reductions, receipt of the CEWS and CERS benefits and lower stock-based compensation expense as a result of the share price decrease during the current quarter;
- Operating profit margin of 39% was up from the comparative quarter's figure of 34%. Without the impact of the CEWS and CERS benefits, the operating profit margin was 36%, above the comparative quarter's figure (which did not include any CEWS or CERS benefits), but below the pre-COVID average for fiscal 2019 and fiscal 2020 of 40%;
- Basic EPS of $0.05 was slightly higher than the comparative quarter;
- Free cash of $0.06 per share was slightly higher than the comparative quarter;
- Declared and paid a dividend of $0.05 per share.
Revenue
| Three months ended June 30, | 2021 | 2020 | $ change | % change | ||||
| ($ thousands) | ||||||||
| Software license revenue | 12,411 | 14,523 | (2,112 | ) | -15 | % | ||
| Professional services | 2,003 | 2,149 | (146 | ) | -7 | % | ||
| Total revenue | 14,414 | 16,672 | (2,258 | ) | -14 | % | ||
| Software license revenue as a % of total revenue | 86 | % | 87 | % | ||||
| Professional services as a % of total revenue | 14 | % | 13 | % | ||||
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, 2021 decreased by 14%, due to decreases in both software license revenue and professional services revenue.
Software License Revenue
| Three months ended June 30, | 2021 | 2020 | $ change | % change | ||||
| ($ thousands) | ||||||||
| Annuity/maintenance license revenue | 12,286 | 14,523 | (2,237 | ) | -15 | % | ||
| Perpetual license revenue | 125 | - | 125 | 100 | % | |||
| Total software license revenue | 12,411 | 14,523 | (2,112 | ) | -15 | % | ||
| Annuity/maintenance as a % of total software license revenue | 99 | % | 100 | % | ||||
| Perpetual as a % of total software license revenue | 1 | % | 0 | % | ||||
Total software license revenue for the three months ended June 30, 2021 decreased by 15%, compared to the same period of the previous fiscal year, due to decreases in annuity/maintenance license revenue, slightly offset by an increase in perpetual license revenue.
During the three months ended June 30, 2021, CMG’s annuity/maintenance license revenue decreased by 15%, compared to the same period of the previous fiscal year. Canada, the US and the Eastern Hemisphere saw decreases in licensing, while South America increased by 7% due to new and returning customers.
Perpetual license revenue increased 100% during the three months ended June 30, 2021, as there was no perpetual revenue in the comparative quarter. Volatility in commodity prices and the resulting unpredictability of cash flows reduced our customers’ budgets for perpetual licenses in the near term.
Software Revenue by Geographic Region
| Three months ended June 30, | 2021 | 2020 | $ change | % change | ||
| ($ thousands) | ||||||
| Annuity/maintenance license revenue | ||||||
| Canada | 3,034 | 3,212 | (178 | ) | -6 | % |
| United States | 2,984 | 4,235 | (1,251 | ) | -30 | % |
| South America | 1,494 | 1,390 | 104 | 7 | % | |
| Eastern Hemisphere(1) | 4,774 | 5,686 | (912 | ) | -16 | % |
| 12,286 | 14,523 | (2,237 | ) | -15 | % | |
| Perpetual license revenue | ||||||
| Canada | - | - | - | - | ||
| United States | 125 | - | 125 | 100 | % | |
| South America | - | - | - | - | ||
| Eastern Hemisphere | - | - | - | - | ||
| 125 | - | 125 | 100 | % | ||
| Total software license revenue | ||||||
| Canada | 3,034 | 3,212 | (178 | ) | -6 | % |
| United States | 3,109 | 4,235 | (1,126 | ) | -27 | % |
| South America | 1,494 | 1,390 | 104 | 7 | % | |
| Eastern Hemisphere | 4,774 | 5,686 | (912 | ) | -16 | % |
| 12,411 | 14,523 | (2,112 | ) | -15 | % | |
(1) Includes Europe, Africa, Asia and Australia.
During the three months ended June 30, 2021, compared to the same period of the previous fiscal year, total software license revenue decreased in all geographic regions except for South America, which experienced a 7% increase.
The Canadian region (representing 24% of year-to-date total software license revenue) experienced a decrease of 6% in annuity/maintenance license revenue during the three months ended June 30, 2021, due to the effect of two customers not renewing being only partially offset by increases in licensing by some customers.
The United States (representing 25% of year-to-date total software license revenue) experienced a decrease of 30% in annuity/maintenance license revenue during the three months ended June 30, 2021, compared to the same period of the previous fiscal year. The decrease was largely due to the same factors that affected the region’s revenue in the previous fiscal year: consolidation in the industry and ongoing challenges experienced by US unconventional shale plays. One perpetual sale to an existing customer was realized in the United States during the three months ended June 30, 2021.
South America (representing 12% of year-to-date total software license revenue) experienced an increase of 7% in annuity/maintenance license revenue during the three months ended June 30, 2021, as we grew our customer base in the region with new and returning customers.
The Eastern Hemisphere (representing 39% of year-to-date total software license revenue) experienced a decrease of 16% in annuity/maintenance license revenue during the three months ended June 30, 2021, compared to the same period of the previous fiscal year, due to reduced licensing by some customers.
Deferred Revenue
| ($ thousands) | Fiscal 2022 | Fiscal 2021 | Fiscal 2020 | $ change | % change | ||||
| Deferred revenue at: | |||||||||
| Q1 (June 30) | 23,451 | 25,492 | (2,041 | ) | -8 | % | |||
| Q2 (September 30) | 19,549 | 23,849 | (4,300 | ) | -18 | % | |||
| Q3 (December 31) | 15,347 | 15,679 | (332 | ) | -2 | % | |||
| Q4 (March 31) | 30,461 | 33,838 | (3,377 | ) | -10 | % | |||
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 2022 decreased by 8% compared to Q1 of fiscal 2021.
Expenses
| Three months ended June 30, | 2021 | 2020 | $ change | % change | ||
| ($ thousands) | ||||||
| Sales, marketing and professional services | 3,412 | 4,284 | (872 | ) | -20 | % |
| Research and development | 4,017 | 4,959 | (942 | ) | -19 | % |
| General and administrative | 1,412 | 1,718 | (306 | ) | -18 | % |
| Total operating expenses | 8,841 | 10,961 | (2,120 | ) | -19 | % |
| Direct employee costs(1) | 7,070 | 8,953 | (1,883 | ) | -21 | % |
| Other corporate costs | 1,771 | 2,008 | (237 | ) | -12 | % |
| 8,841 | 10,961 | (2,120 | ) | -19 | % | |
(1) Includes salaries, bonuses, stock-based compensation, benefits, commissions, and professional development. See “Non-IFRS Financial Measures”.
Total operating expenses for the three months ended June 30, 2021 decreased by 19%, compared to the same period of the previous fiscal year, due to decreases in both direct employee costs and other corporate costs.
Direct employee costs for the three months ended June 30, 2021 decreased by 21%, compared to the same period of the previous fiscal year. The decrease was due to salary reductions implemented on July 1, 2020, a $0.3 million CEWS benefit recorded during the current quarter and lower stock-based compensation expense as a result of the share price decrease during the current quarter.
Other corporate costs for the three months ended June 30, 2021 decreased by 12%, compared to the same period of the previous fiscal year, due to a refund of office operating costs and the CERS benefit received during the current quarter. These decreases were partially offset by lower SR&ED credits, as explained in the next section.
Outlook
During the quarter ended June 30, 2021, CMG’s annuity/maintenance license revenue decreased by 15%, compared to the same quarter of the previous fiscal year, as our customer spend continues to be affected by the ongoing COVID-19 pandemic and the production policy decisions of the OPEC+ nations, lower unconventional shale activity and, to a lesser extent, corporate consolidations in North America. While commodity prices have improved so far into calendar 2021, annual spending budgets were set by our customers at the end of calendar 2020, in the midst of COVID-related cautions and uncertainties, so any positive effects on CMG’s revenue may be lagged because of the annual nature of our customers’ budgets.
Geographically, Canada, the US and the Eastern Hemisphere contributed to the decrease in revenue, while South America increased by 7%, as we were able to expand our customer base with new and returning customers.
Total operating expenses decreased by 19%, due to salary reductions implemented on July 1, 2020, the CEWS/CERS benefits and lower stock-based compensation expense as a result of the share price decrease during the current quarter.
As a result of the decease in expenses, CMG was able to achieve an operating profit margin of 39%, up from 34% in the prior year quarter. Without the impact of the CEWS and CERS benefits, the operating profit margin was 36%, below our pre-COVID fiscal 2019 and fiscal 2020 historic average of 40%.
We continue to maintain a strong financial position. We closed the quarter with $54.4 million of cash, no debt and no significant accounts receivable collectability concerns. Basic earnings per share were $0.05 per share, slightly up from $0.04 in the comparative quarter. We generated $0.06 per share of free cash flow, compared to $0.05 per share in the comparative quarter. During the three months ended June 30, 2021, we declared and paid dividends totaling $0.05 per share.
Staff compensation, which has been reduced since July 1, 2020, will be reviewed in the upcoming quarter ending September 30, 2021, based on corporate and individual performance and with the view of optimizing our cost structure. Directors’ cash compensation reductions and officers’ salary reductions implemented on July 1, 2020 will remain unchanged for the current fiscal year. As with our actions since the start of the COVID-19 pandemic, the goal is to continue to defend our margins, while making sure we deliver reliable and accurate reservoir simulation solutions to our customers.
Energy transition-related modelling (carbon capture/sequestration and EOR, hydrogen, geothermal and other processes/mechanisms) has been a bright spot for CMG in the past twelve months. The current macro focus on energy transition has generated increased interest in our related courses and has also created a number of opportunities that CMG has been able to capture or pursue. CMG’s existing software has had the technical capabilities to support energy transition-related modelling for, in some instances, decades, and we believe that CMG is the experienced, go-to partner for all of our existing customers, as well as new entrants that are focused on this area.
As market sentiment fluctuates from optimism to distress over the continued impact of COVID-19, we are being reminded that the situation is still far from normal. However, economic uncertainty and price volatility are becoming the new normal. We are not in a position to predict the future, so we choose to focus on matters within our control: maintaining liquidity and protecting our bottom line by adjusting our cost structure. We are working closely with our customers to address their needs while acknowledging their ongoing challenges. As the market focuses on energy transition, capital discipline, operational efficiencies and debt reduction, CMG will be responsive and proactive to our customers’ needs and will support them in improving the value of their assets by optimizing production and realizing operational cost efficiencies.
For further details on the results, please refer to CMG's Management Discussion and Analysis and Consolidated Financial Statements, which are available on SEDAR at www.sedar.com or on CMG's website at www.cmgl.ca.
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 direct employee 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 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, 2021 | March 31, 2021 | ||
| Assets | ||||
| Current assets: | ||||
| Cash | 54,445 | 49,068 | ||
| Trade and other receivables | 8,817 | 23,239 | ||
| Prepaid expenses | 867 | 820 | ||
| Prepaid income taxes | 682 | 8 | ||
| 64,811 | 73,135 | |||
| Property and equipment | 11,624 | 12,025 | ||
| Right-of-use assets | 34,886 | 35,509 | ||
| Deferred tax asset | 2,034 | 1,822 | ||
| Total assets | 113,355 | 122,491 | ||
| Liabilities and shareholders’ equity | ||||
| Current liabilities: | ||||
| Trade payables and accrued liabilities | 4,570 | 6,316 | ||
| Income taxes payable | 63 | 49 | ||
| Deferred revenue | 23,451 | 30,461 | ||
| Lease liability | 1,362 | 1,356 | ||
| 29,446 | 38,182 | |||
| Long-term stock-based compensation liability | 1,310 | 1,281 | ||
| Long-term lease liability | 39,265 | 39,606 | ||
| Total liabilities | 70,021 | 79,069 | ||
| Shareholders’ equity: | ||||
| Share capital | 80,051 | 80,051 | ||
| Contributed surplus | 14,445 | 14,251 | ||
| Deficit | (51,162 | ) | (50,880 | ) |
| Total shareholders' equity | 43,334 | 43,422 | ||
| Total liabilities and shareholders' equity | 113,355 | 122,491 | ||
Condensed Consolidated Statements of Operations and Comprehensive Income
| Three months ended June 30, | 2021 | 2020 | ||
| UNAUDITED (thousands of Canadian $ except per share amounts) | ||||
| Revenue | 14,414 | 16,672 | ||
| Operating expenses | ||||
| Sales, marketing and professional services | 3,412 | 4,284 | ||
| Research and development | 4,017 | 4,959 | ||
| General and administrative | 1,412 | 1,718 | ||
| 8,841 | 10,961 | |||
| Operating profit | 5,573 | 5,711 | ||
| Finance income | 98 | 99 | ||
| Finance costs | (844 | ) | (1,405 | ) |
| Profit before income and other taxes | 4,827 | 4,405 | ||
| Income and other taxes | 1,094 | 1,143 | ||
| Net and total comprehensive income | 3,733 | 3,262 | ||
| Earnings per share | ||||
| Basic and diluted | 0.05 | 0.04 | ||
Condensed Consolidated Statements of Cash Flows
| Three months ended June 30, | 2021 | 2020 | ||
| UNAUDITED (thousands of Canadian $) | ||||
| Operating activities | ||||
| Net income | 3,733 | 3,262 | ||
| Adjustments for: | ||||
| Depreciation | 1,023 | 1,056 | ||
| Deferred income tax recovery | (212 | ) | (427 | ) |
| Stock-based compensation | 267 | 812 | ||
| Funds flow from operations | 4,811 | 4,703 | ||
| Movement in non-cash working capital: | ||||
| Trade and other receivables | 14,422 | 18,585 | ||
| Trade payables and accrued liabilities | (1,791 | ) | (765 | ) |
| Prepaid expenses | (47 | ) | (40 | ) |
| Income taxes payable | (660 | ) | 1,030 | |
| Deferred revenue | (7,010 | ) | (8,346 | ) |
| Decrease in non-cash working capital | 4,914 | 10,464 | ||
| Net cash provided by operating activities | 9,725 | 15,167 | ||
| Financing activities | ||||
| Repayment of lease liability | (306 | ) | (315 | ) |
| Dividends paid | (4,015 | ) | (4,013 | ) |
| Net cash used in financing activities | (4,321 | ) | (4,328 | ) |
| Investing activities | ||||
| Property and equipment additions | (27 | ) | (149 | ) |
| Increase in cash | 5,377 | 10,690 | ||
| Cash, beginning of period | 49,068 | 40,505 | ||
| Cash, end of period | 54,445 | 51,195 | ||
| Supplementary cash flow information | ||||
| Interest received | 98 | 99 | ||
| Interest paid | 507 | 525 | ||
| Income taxes paid | 1,728 | 184 | ||
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:
| Ryan N. Schneider President & CEO (403) 531-1300 ryan.schneider@cmgl.ca www.cmgl.ca | or | Kelly A. Tomyn Interim Vice President, Finance & CFO (403) 531-1300 kelly.tomyn@cmgl.ca | ||
