Computer Modelling Group Ltd. (“CMG” or the “Company”) is pleased
to announce its financial results for the year ended March 31,
2020.
Annual
Performance |
|
|
|
($ thousands, unless
otherwise stated) |
March 31, 2020 |
|
March 31, 2019(1) |
|
March 31, 2018(1) |
|
Annuity/maintenance licenses |
63,974 |
|
63,800 |
|
64,679 |
|
Perpetual
licenses |
4,672 |
|
5,000 |
|
4,164 |
|
Software licenses |
68,646 |
|
68,800 |
|
68,843 |
|
Professional
services |
7,140 |
|
6,057 |
|
5,837 |
|
Total revenue |
75,786 |
|
74,857 |
|
74,680 |
|
Operating profit |
31,751 |
|
29,554 |
|
28,030 |
|
Operating profit (%) |
42 |
% |
39 |
% |
38 |
% |
Net income for the year |
23,485 |
|
22,135 |
|
20,806 |
|
EBITDA(2) |
36,111 |
|
31,507 |
|
30,027 |
|
Cash dividends declared and paid |
32,097 |
|
32,090 |
|
32,041 |
|
Funds flow from operations |
28,765 |
|
25,593 |
|
25,503 |
|
Free cash flow (2) |
26,547 |
|
24,851 |
|
20,830 |
|
Total assets |
120,866 |
|
90,305 |
|
97,990 |
|
Total shares outstanding |
80,249 |
|
80,227 |
|
80,215 |
|
Trading price per share at March 31 |
3.83 |
|
6.15 |
|
9.29 |
|
Market capitalization
at March 31 |
307,353 |
|
493,396 |
|
745,194 |
|
Per share amounts - ($/share) |
|
|
|
Earnings per share - basic and diluted |
0.29 |
|
0.28 |
|
0.26 |
|
Cash dividends declared and paid |
0.40 |
|
0.40 |
|
0.40 |
|
Funds flow from operations per share - basic |
0.36 |
|
0.32 |
|
0.32 |
|
Free cash flow per
share - basic (2) |
0.33 |
|
0.31 |
|
0.26 |
|
(1) The Company adopted IFRS 16 Leases effective April 1, 2019
using the modified retrospective approach. Under this method,
comparative information is not restated.(2) Non-IFRS financial
measures are defined in the “Non-IFRS Financial Measures”
section.
Quarterly
Performance |
Fiscal 2019 |
|
|
Fiscal 2020 |
($ thousands, unless otherwise stated) |
Q1 |
Q2 |
Q3 |
Q4 |
Q1 |
Q2 |
Q3 |
Q4 |
Annuity/maintenance licenses |
14,715 |
15,111 |
17,240 |
16,734 |
15,756 |
16,373 |
16,612 |
15,233 |
Perpetual
licenses |
326 |
1,172 |
611 |
2,891 |
1,159 |
1,146 |
964 |
1,403 |
Software licenses |
15,041 |
16,283 |
17,851 |
19,625 |
16,915 |
17,519 |
17,576 |
16,636 |
Professional services |
1,664 |
1,658 |
1,222 |
1,513 |
1,208 |
2,354 |
1,699 |
1,879 |
Total
revenue |
16,705 |
17,941 |
19,073 |
21,138 |
18,123 |
19,873 |
19,275 |
18,515 |
Operating
profit |
5,374 |
7,024 |
8,406 |
8,750 |
7,068 |
9,343 |
7,538 |
7,802 |
Operating profit (%) |
32 |
39 |
44 |
41 |
39 |
47 |
39 |
42 |
Profit before income and other taxes |
5,980 |
7,104 |
9,406 |
8,400 |
6,439 |
9,350 |
7,054 |
9,613 |
Income and other taxes |
1,722 |
2,048 |
2,559 |
2,426 |
1,997 |
2,482 |
1,942 |
2,550 |
Net income for the period |
4,258 |
5,056 |
6,847 |
5,974 |
4,442 |
6,868 |
5,112 |
7,063 |
EBITDA |
5,837 |
7,505 |
8,915 |
9,250 |
8,118 |
10,426 |
8,644 |
8,923 |
Cash dividends declared and paid |
8,021 |
8,024 |
8,022 |
8,023 |
8,022 |
8,026 |
8,025 |
8,024 |
Funds flow from operations |
5,242 |
5,777 |
7,550 |
7,024 |
6,097 |
7,787 |
7,366 |
7,515 |
Free cash flow |
4,909 |
5,697 |
7,297 |
6,948 |
5,707 |
7,274 |
6,726 |
6,840 |
Per share amounts - ($/share) |
|
|
|
|
|
|
|
|
Earnings per share - basic and diluted |
0.05 |
0.06 |
0.09 |
0.07 |
0.06 |
0.09 |
0.06 |
0.09 |
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 |
0.07 |
0.09 |
0.09 |
0.08 |
0.10 |
0.09 |
0.09 |
Free cash flow per share - basic |
0.06 |
0.07 |
0.09 |
0.09 |
0.07 |
0.09 |
0.08 |
0.09 |
Highlights
During the three months |
During the year |
ended March 31, 2020, compared to the same period of the previous
fiscal year: |
• Annuity/maintenance license
revenue decreased by 9%, mainly due to one-time maintenance
reactivation recorded in the comparative period; |
• Annuity/maintenance license
revenue remained flat, with more revenue being of a recurring
nature, compared to the prior year; |
• Total revenue decreased by
12%; |
• Total revenue increased by
1%; |
• Net income increased by
18%; |
• Net income increased by
6%; |
• EBITDA decreased by 4% (without
the positive impact of IFRS 16 adoption, EBITDA decreased by
14%). |
• EBITDA increased by 15%
(without the positive impact of IFRS 16 adoption, EBITDA increased
by 3%). |
During the three months |
During the year |
ended March 31, 2020, CMG: |
ended March 31, 2020, CMG: |
|
|
• Realized basic EPS of
$0.09; |
• Realized basic EPS of
$0.29; |
• Achieved free cash flow per
share of $0.08; |
• Achieved free cash flow per
share of $0.33; |
• Declared and paid a dividend of
$0.10 per share. |
• Declared and paid dividends of
$0.40 per share. |
President’s Message:
It is my pleasure to report our fiscal 2020 results, albeit with
mixed feelings. While the majority of the fiscal year was on track
for growth, we started experiencing some headwinds in software
license revenue in the fourth quarter. Nonetheless, we exited
fiscal 2020 with a 7% increase in operating profit, a 4% increase
in basic earnings per share and a 6% increase in free cash flow per
share. We generated EBITDA of $36.1 million during the year. These
are impressive results and a testament to the strength of our
business model.
While we celebrate our fiscal 2020 achievements, I would be
remiss not to acknowledge the change in circumstances occurring
toward the end of the fourth quarter, which continue to prevail
into fiscal 2021. In March, the World Health Organization declared
COVID-19 a pandemic, which led to a partial shutdown of the
majority of the world’s economies. The pandemic also led to
declines in demand for oil and gas, which, combined with producer
market share competition and concerns about a supply/demand
imbalance, led to volatility in commodity prices and further
production and/or spending curtailments by our customers. Most of
all, the pandemic has brought challenges to our operating
environment and reduced visibility into the future.
CMG’s Response to Market Uncertainty
The health and safety of our employees, customers and
communities is always a priority. In dealing with the COVID-19
pandemic, we have been following the advice of governments and
local public health authorities in jurisdictions in which we
operate. In mid-March 2020, amidst pandemic restrictions, CMG
implemented procedures to enable us to continue to fully operate
and minimize the impact to our business and customers. Fortunately,
as a technology-based company, we were well positioned to maintain
our productivity during and after a transition to working from
home. We also adapted our customer training to online platforms and
have since received a strong positive response from our current and
prospective customers.
The ongoing disruption to the oil and gas industry, including
volatility in commodity prices and reduction in energy consumption,
precipitated by the COVID-19 crisis, could potentially have a
significant adverse effect on our operations and future financial
performance. In response to these unprecedented times of economic
disruption and uncertainty, effective July 1, 2020, CMG is
pre-emptively taking the following actions to preserve liquidity,
manage costs and protect shareholder value:
- reducing the CEO’s annual salary by 25%;
- reducing directors’ cash compensation by 20%;
- reducing executive officers’ annual salaries by 20%;
- implementing graduated salary reductions to staff.
These reductions are expected to continue throughout the fiscal
year and will be reassessed following review of the fiscal 2021
results. The staff, executive and CEO's base salary concessions
were reallocated to variable cash compensation associated with
fiscal 2021 corporate performance. These compensation reductions
were taken in part to retain employees because we are prioritizing
product development and support, both of which are important to our
customers and to the long-term success of our business.
In addition, the Board of Directors has approved a dividend of
$0.05 per Common Share, payable on June 15, 2020 to shareholders of
record at the close of business on June 5, 2020. This represents a
decrease from the Company’s previous quarterly dividend of $0.10
per share.
We are implementing these measures to protect CMG’s
profitability and optimize free cash flow generation to maintain
the strength of our balance sheet. The measures will also allow for
maximum flexibility in our capital allocation decisions, including
focusing on delivering a sustainable dividend. At the same time, it
is our intention to continue to invest in research and development,
and sales and marketing efforts, at approximately similar levels as
historically proportionate to revenue. CMG will continue to monitor
the impact of the current environment on its customers, operations
and financial performance and may adjust its compensation structure
and capital allocation as appropriate.
In light of the uncertainty caused by COVID-19 and ongoing
challenges that we foresee in the oil and gas sector, it is prudent
to take timely actions aimed at optimizing our business operations
and protecting our financial position.
We will continue to monitor the impact of the current
environment on our operations and financial performance and
consider the qualifying criteria and merits of applying for any
government programs aimed at assisting companies to compensate for
losses experienced as a result of the COVID-19 pandemic.
Fiscal 2020 Financial Achievement
Our fiscal 2020 total revenue increased by 1% compared to the
previous fiscal year, supported by an increase in professional
services revenue. Software license revenue remained consistent with
the previous year as the headwinds experienced in the fourth
quarter offset the growth experienced during the first three
quarters.
We achieved $4.7 million in perpetual license sales. While it
represents a decrease of 7% from the previous year, it is a notable
achievement in light of the economic challenges affecting the oil
and gas sector and forcing many of our customers to restrain their
capital spending.
Annuity and maintenance revenue remained flat compared to the
previous fiscal year with the increases in the United States and
the Eastern Hemisphere offset by the decreases in Canada and South
America. Two items that impacted the fiscal 2020 annuity and
maintenance revenue comparison include a payment that was received
in the previous fiscal year from a long-standing customer from
South America that is recognized on a cash basis, and a one-time
reactivation fee on a maintenance contract recorded in the Eastern
Hemisphere in the fourth quarter of the previous year. Without
these one-time items occurring in the previous fiscal year, annuity
and maintenance revenue would have increased in mid-single digits.
We are pleased with this performance because a greater portion of
the fiscal 2020 annuity and maintenance revenue was of recurring
nature and not as affected by the non-recurring amounts as in the
prior year.
Canada was showing improvement in annuity and maintenance
revenue into the third quarter of the fiscal year but decreased
licensing in the fourth quarter, partially due to the negative
impact of the consolidation activity in the oil and gas industry,
offset the growth experienced earlier in the year. The United
States region continued to benefit from strong activity by
unconventional customers for most of the year, to experience only a
slight decrease in fourth quarter revenue. South America, on a
normalized basis (see the previous note about the payment from the
South American customer), experienced a double-digit increase in
annuity and maintenance revenue due to increased licensing by
existing customers. While annuity and maintenance revenue in the
Eastern Hemisphere showed increases during the first three quarters
of the fiscal year, revenue decreased in the fourth quarter due to
the one-time maintenance reactivation fee recorded in the
comparative quarter.
During fiscal 2020 we controlled our operating costs which were
comparable to fiscal 2019 (prior to the impact of IFRS 16
conversion). We were again pleased with our profitability margins.
Operating profit was 40% of total revenue, representing a 3%
increase from the previous fiscal year (prior to the impact of IFRS
16 conversion). Similarly, our EBITDA was 42% of total revenue,
which is comparable to the previous year (prior to the impact of
IFRS 16 conversion).
Basic earnings per share were at $0.29 per share, a 4% increase
from the previous fiscal year.
We closed the year with $40.5 million of cash and no debt. We
further demonstrated solid liquidity by generating $0.33 per share
in free cash flow, representing an increase of 6% from the previous
fiscal year.
Research and Development Update
During fiscal 2020, we continued with various research and
development initiatives aimed at product feature development and
performance enhancements to support our superior technological
offerings. During the fiscal year, we invested $19.2 million in
research and development. Some of the year’s research and
development achievements include:
High Performance Computing. Distributed
parallel computing is carried out both on local computer networks
and on the cloud, offering users an unprecedented ability to run
large problems with excellent run time.
Flux Boundary. Flux boundaries allow users
to take advantage of smaller sector models created from a
full-field run, without compromising on boundary conditions, to
achieve faster time-to-decision.
Discrete Fracture Network. Technology has been
developed to simulate reservoirs with fractured networks. These
fractures are high permeability planes that could go in any
direction and are the main flow paths for fluids in the reservoir.
This will extend CMG’s capabilities in modelling both
naturally-fractured as well as hydraulically-fractured
(“unconventional”) reservoirs.
CMGFRAC. Geomechanics-based hydraulic fracture
is extensively used to model production from unconventional shale
oil and gas wells. In collaboration with third-party hydraulic
fracture design tools, CMG developed a data format, “CMGFRAC”, that
can be used to import hydraulic fracture design and fracture
parameters for hundreds of stages per well, for several wells, all
at once. CMGFRAC will help customers easily model complex
geomechanics-based hydraulic fractures in CMG simulators and create
reliable forecasts for their reservoirs.
TRACERS. IMEX’s new Passive Tracer option is
used to track fluid movement from desired reservoir regions,
injection wells, and aquifers. Tracer functionality could be used
to track injector to produced fluid movement when optimizing sweep
efficiency in flood-type recovery processes, tracing hydraulic
fracture fluid in frac hits from one well to another, and in
estimating recovery of hydraulic fracture fluid from unconventional
wells.
We continued to invest in our cloud solutions and made more of
our products available on the cloud platform.
CoFlow commercialization efforts continued throughout the fiscal
2020. As previously announced, we added one new customer in April
2019, and had two customers renew their contracts during the year.
We actively continue to work on CMG opportunities as well as
additional deployments with our partner, Shell. The combined impact
of COVID-19, commodity price volatility and an uncertain economic
outlook are expected to slow down our CoFlow commercialization
efforts. We are focused on gaining additional traction for the
product but expect that commercial conversations with customers
could be delayed.
Executive Appointments in Fiscal 2020
During the third quarter, we implemented organizational changes
in order to focus on the usability of our software, improved
workflows and positive customer experience. Anjani Kumar, formerly
Vice President, Engineering Solutions and Marketing, retains the
role of Vice President, Engineering Solutions and, in addition to
leading our consulting, support and training group, will now
oversee the ongoing development of Builder and Results, our data
import, model build and visualization applications, with the
objective of improving customer workflows and bringing more user
perspective to our software development. The marketing team, with
renewed emphasis on customer experience, will report directly to
myself.
During the fourth quarter, Jason Close, General Manager, CoFlow
was promoted to Vice President, CoFlow Commercialization. With
Jason’s extensive experience building relationships with CMG’s
customers in his previous role as the Manager of Canadian Sales, in
combination with his technical acumen and leadership skills, Jason
is well-suited to lead the CoFlow team and foster business growth
opportunities.
Long Nghiem, in his role of Vice President, Research and
Development and Chief Technology Officer, retains oversight of the
entire research and development team.
These organizational changes position us to continue to operate
effectively and efficiently, and to deliver cutting-edge technology
to our customers.
Sustainability Reporting
We are committed to managing and reporting on certain
environmental and social issues and would refer you to the section
in our Information Circular headed Commitment to Environmental and
Social Responsibility for details.
Closing Remarks
I am confident that with our strong team and fiscal prudence we
are well positioned to deal with these uncertain times and maintain
financial and operational discipline to take advantage of future
opportunities. We are not in a position to predict the future and
we are focusing on matters within our control including ensuring
the resilience of our business by adjusting our cost structure and
protecting liquidity. Through the COVID-19 and economic crises, we
continue our research and development activities and we continue
providing technical support to our customers globally. In addition,
due to our customers working from home, we are seeing an
unprecedented attendance at our webinars and training sessions. All
of these initiatives will help position us to emerge from this
period of uncertainty with strength and superior technological
offerings for our customers while delivering value to our
shareholders.
The value of reservoir simulation is arguably even greater
during these challenging times of economic and regulatory
uncertainty. We will continue to work with our customers to help
them to deal with such challenges and improve the value of their
assets by optimizing production and increasing productivity. We
will further employ new and innovative technologies to continue
reinforcing our position as a leading developer and supplier of
reservoir simulation software in the world.
Ultimately, the success of this company is built on the efforts
and talents of our employees. I would like to express my deep
appreciation to all CMG staff and the executive team for their
outstanding efforts and dedication throughout the fiscal year
especially during these difficult times. Together we will prevail
through these challenges and continue to make CMG a great success
story. I would also like to express my gratitude to our Board of
Directors for their continued support and trusted counsel
throughout the year.
(signed)
Ryan N. SchneiderPresident and Chief Executive
OfficerMay 27, 2020
Revenue
Three months ended March 31, |
2020 |
|
2019 |
|
$ change |
|
% change |
|
($ thousands) |
|
|
|
|
|
|
|
|
|
Software license revenue |
16,636 |
|
19,625 |
|
(2,989 |
) |
-15 |
% |
Professional services |
1,879 |
|
1,513 |
|
366 |
|
24 |
% |
Total revenue |
18,515 |
|
21,138 |
|
(2,623 |
) |
-12 |
% |
|
|
|
|
|
Software license revenue as a %
of total revenue |
90 |
% |
93 |
% |
|
|
Professional services as a % of total revenue |
10 |
% |
7 |
% |
|
|
Years ended March 31, |
2020 |
|
2019 |
|
$ change |
|
% change |
|
($
thousands) |
|
|
|
|
|
|
|
|
|
Software license revenue |
68,646 |
|
68,800 |
|
(154 |
) |
0 |
% |
Professional services |
7,140 |
|
6,057 |
|
1,083 |
|
18 |
% |
Total revenue |
75,786 |
|
74,857 |
|
929 |
|
1 |
% |
|
|
|
|
|
Software license revenue as a
% of total revenue |
91 |
% |
92 |
% |
|
|
Professional services as a % of total revenue |
9 |
% |
8 |
% |
|
|
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 March 31, 2020
decreased by 12%, compared to the same period of the previous
fiscal year, due to a decrease in software license revenue, which
was partially offset by an increase in professional services
revenue.
Total revenue for the year ended March 31, 2020 increased by 1%
compared to the previous fiscal year, as professional services
revenue increased and software licenses revenue remained flat.
Software License Revenue
Three months ended March 31, |
2020 |
|
2019 |
|
$ change |
|
% change |
|
($
thousands) |
|
|
|
|
|
|
|
|
|
Annuity/maintenance license
revenue |
15,233 |
|
16,734 |
|
(1,501 |
) |
-9 |
% |
Perpetual license revenue |
1,403 |
|
2,891 |
|
(1,488 |
) |
-51 |
% |
Total software license revenue |
16,636 |
|
19,625 |
|
(2,989 |
) |
-15 |
% |
|
|
|
|
|
Annuity/maintenance as a % of
total software license revenue |
92 |
% |
85 |
% |
|
|
Perpetual as a % of total software license revenue |
8 |
% |
15 |
% |
|
|
Years ended March 31, |
2020 |
|
2019 |
|
$ change |
|
% change |
|
($
thousands) |
|
|
|
|
|
|
|
|
|
Annuity/maintenance license
revenue |
63,974 |
|
63,800 |
|
174 |
|
0 |
% |
Perpetual license revenue |
4,672 |
|
5,000 |
|
(328 |
) |
-7 |
% |
Total software license revenue |
68,646 |
|
68,800 |
|
(154 |
) |
0 |
% |
|
|
|
|
|
Annuity/maintenance as a % of
total software license revenue |
93 |
% |
93 |
% |
|
|
Perpetual as a % of total software license revenue |
7 |
% |
7 |
% |
|
|
Total software license revenue for the three months ended March
31, 2020 decreased by 15% compared to the same period of the
previous fiscal year, due to decreases in both annuity/maintenance
license revenue and perpetual license revenue.
Total software license revenue for the year ended March 31, 2020
remained flat compared to the previous fiscal year.
CMG’s annuity/maintenance license revenue for the three months
ended March 31, 2020 decreased by 9%, compared to the same period
of the previous fiscal year. All geographic regions experienced
decreases, but the largest decrease was in the Eastern Hemisphere,
because the comparative quarter included revenue related to
one-time maintenance contract reactivation.
Annuity/maintenance license revenue for the year ended March 31,
2020 remained flat, as increases in the United States and the
Eastern Hemisphere were offset by decreases in Canada and South
America.
Our annuity/maintenance license revenue can be significantly
impacted by the variability of the amounts recorded from a
long-standing South American customer and its affiliates for whom
revenue recognition criteria are fulfilled only at the time of the
receipt of funds. Due to the economic conditions in the country
where this customer and its affiliates are located, revenue from
them will continue to be recognized on a cash basis. The timing of
such payments may skew the comparison of annuity/maintenance
license revenue between periods. We recorded revenue from this
customer in the third quarter of the previous fiscal year, but none
during the current fiscal year. Normalized for this prior year
revenue, annuity/maintenance license revenue for the year ended
Mach 31, 2020, compared to the previous fiscal year, increased by
3% instead of remaining flat.
Perpetual license revenue for the three months ended March 31,
2020 decreased by 51% as there were fewer perpetual sales in the
United States and the Eastern Hemisphere and none in Canada and
South America. Perpetual license revenue for the year ended March
31, 2020 decreased by 7% compared to the previous fiscal year, as
lower perpetual sales in Canada, the United States and the Eastern
Hemisphere were partially offset by higher perpetual sales in South
America.
Software Revenue by Geographic Region
|
|
|
|
|
Three months ended March 31, |
2020 |
2019 |
$ change |
|
% change |
|
($
thousands) |
|
|
|
|
Annuity/maintenance
license revenue |
|
|
|
|
Canada |
3,324 |
3,725 |
(401 |
) |
-11 |
% |
United States |
4,524 |
4,664 |
(140 |
) |
-3 |
% |
South America |
1,694 |
1,924 |
(230 |
) |
-12 |
% |
Eastern
Hemisphere(1) |
5,691 |
6,421 |
(730 |
) |
-11 |
% |
|
15,233 |
16,734 |
(1,501 |
) |
-9 |
% |
Perpetual license
revenue |
|
|
|
|
Canada |
- |
- |
- |
|
0 |
% |
United States |
163 |
582 |
(419 |
) |
-72 |
% |
South America |
- |
- |
- |
|
0 |
% |
Eastern Hemisphere |
1,240 |
2,309 |
(1,069 |
) |
-46 |
% |
|
1,403 |
2,891 |
(1,488 |
) |
-51 |
% |
Total software license
revenue |
|
|
|
|
Canada |
3,324 |
3,725 |
(401 |
) |
-11 |
% |
United States |
4,687 |
5,246 |
(559 |
) |
-11 |
% |
South America |
1,694 |
1,924 |
(230 |
) |
-12 |
% |
Eastern Hemisphere |
6,931 |
8,730 |
(1,799 |
) |
-21 |
% |
|
16,636 |
19,625 |
(2,989 |
) |
-15 |
% |
Years ended March 31, |
2020 |
2019 |
$ change |
|
% change |
|
($
thousands) |
|
|
|
|
Annuity/maintenance
license revenue |
|
|
|
|
Canada |
14,977 |
15,151 |
(174 |
) |
-1 |
% |
United States |
19,655 |
18,620 |
1,035 |
|
6 |
% |
South America |
7,625 |
8,734 |
(1,109 |
) |
-13 |
% |
Eastern
Hemisphere(1) |
21,717 |
21,295 |
422 |
|
2 |
% |
|
63,974 |
63,800 |
174 |
|
0 |
% |
Perpetual license
revenue |
|
|
|
|
Canada |
- |
156 |
(156 |
) |
-100 |
% |
United States |
461 |
1,096 |
(635 |
) |
-58 |
% |
South America |
1,280 |
6 |
1,274 |
|
21233 |
% |
Eastern Hemisphere |
2,931 |
3,742 |
(811 |
) |
-22 |
% |
|
4,672 |
5,000 |
(328 |
) |
-7 |
% |
Total software license
revenue |
|
|
|
|
Canada |
14,977 |
15,307 |
(330 |
) |
-2 |
% |
United States |
20,116 |
19,716 |
400 |
|
2 |
% |
South America |
8,905 |
8,740 |
165 |
|
2 |
% |
Eastern Hemisphere |
24,648 |
25,037 |
(389 |
) |
-2 |
% |
|
68,646 |
68,800 |
(154 |
) |
0 |
% |
(1) Includes Europe, Africa, Asia and Australia.
During the three months ended March 31, 2020, total software
license revenue decreased in all geographic regions. During the
year ended March 31, 2020, the United States and South America
increased, while Canada and the Eastern Hemisphere decreased,
resulting in consistent total software license revenue year over
year.
The Canadian region (representing 22% of annual total software
license revenue) experienced decreases of 11% and 1% in
annuity/maintenance license revenue during the three months and
year ended March 31, 2020, respectively, compared to the same
periods of the previous fiscal year. The region showed growth
during the first three quarters of the current fiscal year, but
decreased in the fourth quarter, due to decreases in licensing by
existing customers, partially caused by the negative impact of the
consolidation activity in the industry. No perpetual sales were
realized in Canada during the three months and year ended March 31,
2020.
The United States (representing 29% of annual total software
license revenue) experienced a 3% decrease in annuity/maintenance
license revenue during the three months and a 6% increase during
the year ended March 31, 2020, compared to the same periods of the
previous fiscal year. The region performed strongly during the
first three quarters of the year, but dropped in the fourth quarter
due to decreased licensing by some customers. Perpetual sales in
the United States were lower during the three months and year ended
March 31, 2020, compared to the same periods of the previous fiscal
year.
South America (representing 13% of annual total software license
revenue) experienced decreases of 12% and 13% in
annuity/maintenance license revenue during the three months and
year ended March 31, 2020, respectively. Our revenue in South
America can be significantly impacted by the variability of the
amounts recorded from a customer and its affiliates for whom
revenue is recognized only when cash is received. We received
payment from this customer in the third quarter of the previous
fiscal year, but none during the current fiscal year. To provide a
normalized comparison, if we exclude revenue from this customer
from the previous year, we note that South American
annuity/maintenance license revenue increased by 11% (instead of
decreasing by 13%) during the year ended March 31, 2020, compared
to the previous fiscal year. This normalized increase during the
current fiscal year was mainly due to increased licensing by
existing customers. There were more perpetual sales realized in
South America during the current fiscal year than in the previous
fiscal year.
The Eastern Hemisphere (representing 36% of annual total
software license revenue) experienced a decrease of 11% in
annuity/maintenance license revenue during the three months ended
March 31, 2020, compared to the same period of the previous fiscal
year, due to maintenance contract reactivation recorded in the
comparative period. Despite this decrease during the fourth
quarter, annuity/maintenance license revenue in this region grew by
2% on a full year basis, due to a combination of increased
licensing by existing customers and the addition of new customers.
Perpetual license revenue decreased by 46% and 22% during the three
months and year ended March 31, 2020, compared to the same periods
of the previous fiscal year.
Deferred Revenue
($
thousands) |
Fiscal 2020 |
|
Fiscal 2019 |
|
$ change |
|
% change |
|
Deferred revenue at: |
|
|
|
|
|
|
Q1 (June 30) |
29,266 |
|
29,350 |
|
(84 |
) |
0 |
% |
Q2 (September 30) |
23,849 |
|
23,222 |
|
627 |
|
3 |
% |
Q3 (December 31) |
15,679 |
|
13,782 |
|
1,897 |
|
14 |
% |
Q4
(March 31) |
33,838 |
|
35,015 |
|
(1,177 |
) |
-3 |
% |
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 the end of fiscal 2020 decreased by 3%
compared to fiscal 2019 and included a positive impact of the
timing of renewals.
Expenses
Three
months ended March 31, ($ thousands, except per share data) |
Previous leasestandard 2020 |
IFRS 16 impact |
IFRS 16 2020 |
2019 |
$ change |
|
% change |
|
|
|
|
|
|
|
|
Sales, marketing and professional services |
4,467 |
(69 |
) |
4,398 |
5,216 |
(818 |
) |
-16 |
% |
Research and development |
5,012 |
(229 |
) |
4,783 |
5,280 |
(497 |
) |
-9 |
% |
General and administrative |
1,587 |
(55 |
) |
1,532 |
1,892 |
(360 |
) |
-19 |
% |
Total operating expenses |
11,066 |
(353 |
) |
10,713 |
12,388 |
(1,675 |
) |
-14 |
% |
|
|
|
|
|
|
|
Direct employee costs(1) |
8,153 |
- |
|
8,153 |
9,237 |
(1,084 |
) |
-12 |
% |
Other
corporate costs |
2,913 |
(353 |
) |
2,560 |
3,151 |
(591 |
) |
-19 |
% |
|
11,066 |
(353 |
) |
10,713 |
12,388 |
(1,675 |
) |
-14 |
% |
Years
ended March 31, ($ thousands, except per share data) |
Previous leasestandard 2020 |
IFRS 16 impact |
IFRS 16 2020 |
2019 |
$ change |
|
% change |
|
|
|
|
|
|
|
|
Sales, marketing and professional services |
18,394 |
(268 |
) |
18,126 |
18,690 |
(564 |
) |
-3 |
% |
Research and development |
20,160 |
(916 |
) |
19,244 |
19,893 |
(649 |
) |
-3 |
% |
General and administrative |
6,885 |
(220 |
) |
6,665 |
6,720 |
(55 |
) |
-1 |
% |
Total operating expenses |
45,439 |
(1,404 |
) |
44,035 |
45,303 |
(1,268 |
) |
-3 |
% |
|
|
|
|
|
|
|
Direct employee costs(1) |
33,905 |
- |
|
33,905 |
33,481 |
424 |
|
1 |
% |
Other
corporate costs |
11,534 |
(1,404 |
) |
10,130 |
11,822 |
(1,692 |
) |
-14 |
% |
|
45,439 |
(1,404 |
) |
44,035 |
45,303 |
(1,268 |
) |
-3 |
% |
(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 for the
three months ended March 31, 2020 decreased by 11%, due to lower
stock-based compensation on cash-settled awards as a result of a
decreased share price. Prior to applying IFRS 16, total operating
expenses for the year ended March 31, 2020 remained flat compared
to the previous fiscal year.
The application of IFRS 16 decreased total operating expenses by
$0.4 million in the three-month period and by $1.4 million in the
year ended March 31, 2020. This net decrease is a combination of
lower rent expense (because under IFRS 16 rent payments are
classified as finance costs and repayment of lease liability),
partially offset by higher depreciation expense on the recognition
of right-of-use assets.
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 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”.
Consolidated Statements of Financial
Position
(thousands of Canadian $) |
March 31, 2020 |
|
March 31, 2019* |
|
|
|
|
Assets |
|
|
Current assets: |
|
|
Cash |
40,505 |
|
54,290 |
|
Trade and other receivables |
26,277 |
|
19,220 |
|
Prepaid expenses |
913 |
|
1,332 |
|
Prepaid income taxes |
771 |
|
367 |
|
|
68,466 |
|
75,209 |
|
Property and equipment |
13,507 |
|
14,501 |
|
Right-of-use assets |
37,901 |
|
- |
|
Deferred tax asset |
992 |
|
595 |
|
Total assets |
120,866 |
|
90,305 |
|
|
|
|
Liabilities and
shareholders’ equity |
|
|
Current liabilities: |
|
|
Trade payables and accrued liabilities |
6,224 |
|
6,162 |
|
Income taxes payable |
60 |
|
60 |
|
Deferred revenue |
33,838 |
|
34,653 |
|
Lease liability |
1,313 |
|
- |
|
|
41,435 |
|
40,875 |
|
Deferred revenue |
- |
|
362 |
|
Lease liability |
41,062 |
|
- |
|
Deferred rent liability |
- |
|
1,813 |
|
Total
liabilities |
82,497 |
|
43,050 |
|
|
|
|
Shareholders’ equity: |
|
|
Share capital |
79,851 |
|
79,711 |
|
Contributed surplus |
13,533 |
|
12,808 |
|
Deficit |
(55,015 |
) |
(45,264 |
) |
Total shareholders' equity |
38,369 |
|
47,255 |
|
Total liabilities and
shareholders' equity |
120,866 |
|
90,305 |
|
Consolidated Statements of Operations
and Comprehensive Income
Years ended March 31, |
2020 |
|
2019* |
(thousands of Canadian $ except per share amounts) |
|
|
|
|
|
Revenue |
75,786 |
|
74,857 |
|
|
|
Operating
expenses |
|
|
Sales, marketing and
professional services |
18,126 |
|
18,690 |
Research and
development |
19,244 |
|
19,893 |
General and
administrative |
6,665 |
|
6,720 |
|
44,035 |
|
45,303 |
Operating
profit |
31,751 |
|
29,554 |
|
|
|
Finance income |
2,833 |
|
1,336 |
Finance costs |
(2,128 |
) |
- |
Profit before income and other taxes |
32,456 |
|
30,890 |
Income
and other taxes |
8,971 |
|
8,755 |
|
|
|
Net and total comprehensive income |
23,485 |
|
22,135 |
|
|
|
Earnings per
share |
|
|
Basic
and diluted |
0.29 |
|
0.28 |
Consolidated Statements of Cash Flows
|
|
|
Years ended March 31, |
2020 |
|
2019* |
|
(thousands of Canadian $) |
|
|
|
|
|
Operating
activities |
|
|
Net income |
23,485 |
|
22,135 |
|
Adjustments for: |
|
|
Depreciation |
4,360 |
|
1,953 |
|
Deferred income tax recovery |
(13 |
) |
(74 |
) |
Stock-based compensation |
933 |
|
1,154 |
|
Deferred rent |
- |
|
425 |
|
Funds flow from operations |
28,765 |
|
25,593 |
|
Movement in non-cash working
capital: |
|
|
Trade and other receivables |
(7,057 |
) |
(2,947 |
) |
Trade payables and accrued liabilities |
86 |
|
(63 |
) |
Prepaid expenses |
317 |
|
83 |
|
Income taxes payable |
(404 |
) |
(618 |
) |
Deferred revenue |
(1,177 |
) |
1,338 |
|
Increase in non-cash working
capital |
(8,235 |
) |
(2,207 |
) |
Net cash provided by operating activities |
20,530 |
|
23,386 |
|
|
|
|
Financing
activities |
|
|
Proceeds from the issue of
common shares |
- |
|
17 |
|
Repayment of lease
liability |
(1,228 |
) |
- |
|
Dividends paid |
(32,097 |
) |
(32,090 |
) |
Net cash used in financing activities |
(33,325 |
) |
(32,073 |
) |
|
|
|
Investing
activities |
|
|
Property and equipment
additions |
(990 |
) |
(742 |
) |
Decrease in cash |
(13,785 |
) |
(9,429 |
) |
Cash,
beginning of period |
54,290 |
|
63,719 |
|
Cash, end of period |
40,505 |
|
54,290 |
|
|
|
|
Supplementary cash
flow information |
|
|
Interest received |
1,135 |
|
1,221 |
|
Interest paid |
(2,128 |
) |
- |
|
Income
taxes paid |
(7,893 |
) |
(8,135 |
) |
* 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 consolidated financial statements.
For further information, contact:
Ryan N. SchneiderPresident &
CEO(403) 531-1300ryan.schneider@cmgl.cawww.cmgl.ca |
or |
Sandra BalicVice President,
Finance & CFO(403) 531-1300sandra.balic@cmgl.ca |
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