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 EndedJune
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. SchneiderPresident & CEO(403)
531-1300ryan.schneider@cmgl.cawww.cmgl.ca |
|
or |
|
Kelly A. TomynInterim Vice President, Finance & CFO(403)
531-1300kelly.tomyn@cmgl.ca |
|
|
|
|
|
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