Computer Modelling Group Announces Second Quarter Results

About this update from Computer Modelling Group Ltd.

CALGARY, AB / ACCESSWIRE / November 10, 2022 / Computer Modelling Group Ltd. ("CMG" or the "Company") announces its financial results for the three and six months ended September 30, 2022. Quarterly Performance Fiscal 2021 (2) Fiscal 2022 (3) Fiscal 2023 (4) ($ thousands, unless otherwise stated) Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Annuity/maintenance license revenue 13,477 13,790 12,286 13,239 13,575 14,306 13,529 14,825 Perpetual license revenue 660 1,184 125 846 1,497 2,351 386 780 Software license revenue 14,137 14,974 12,411 14,085 15,072 16,657 13,915 15,605 Professional services revenue 1,901 1,827 2,003 1,864 1,973 2,137 2,192 2,477 Total revenue 16,038 16,801 14,414 15,949 17,045 18,794 16,107 18,082 Operating profit 8,437 6,556 5,573 5,440 7,755 7,312 4,961 5,555 Operating profit (%) 53 39 39 34 45 39 31 31 Profit before income and other taxes 7,410 5,747 4,827 5,321 7,310 6,563 5,182 5,989 Income and other taxes 1,535 1,454 1,094 1,175 1,736 1,611 1,369 1,579 Net income for the period 5,875 4,293 3,733 4,146 5,574 4,952 3,813 4,410 EBITDA (1) 9,509 7,627 6,596 6,473 8,843 8,366 5,892 6,492 Cash dividends declared and paid 4,015 4,014 4,015 4,016 4,017 4,016 4,017 4,025 Funds flow from operations 7,322 6,267 4,811 4,904 7,022 7,105 4,558 4,974 Free cash flow (1) 7,005 5,755 4,478 4,494 6,227 6,584 4,255 4,505 Per share amounts - ($/share) Earnings per share (EPS) - basic and diluted 0.07 0.05 0.05 0.05 0.07 0.06 0.05 0.05 Cash dividends declared and paid 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 Funds flow from operations per share - basic 0.09 0.08 0.06 0.06 0.09 0.09 0.06 0.06 Free cash flow per share - basic (1) 0.09 0.07 0.06 0.06 0.08 0.08 0.05 0.06 This is a non-IFRS financial measure. See the "Non-IFRS Financial Measures" section. Q3 and Q4 of fiscal 2021 include $nil and $1.1 million, respectively, in revenue that pertains to usage of CMG's products in prior quarters. Q1, Q2 Q3 and Q4 of fiscal 2022 include $nil, $0.5 million, $nil and $0.8 million, respectively, in revenue that pertains to usage of CMG's products in prior quarters. Q1 and Q2 of fiscal 2023 include $0.2 million and $0.3 million, respectively, in revenue that pertains to usage of CMG's products in prior quarters. Commentary on Quarterly Performance For the Three Months Ended For the Six Months Ended September 30, 2022 and compared to the same period of the previous fiscal year, when appropriate: Annuity/maintenance license revenue increased by 12%; Annuity/maintenance license revenue increased by 11%; Total revenue increased by 13%; Total revenue increased by 13%; Total operating expenses increased by 19%. Adjusted for the restructuring charges, operating expenses increased by 5%, primarily due to higher professional services and travel-related costs, partially offset by lower full-time equivalent staff costs; Total operating expenses increased by 22%. Adjusted for the restructuring charges and CEWS/CERS benefits, operating expenses increased by 5%, primarily due to higher professional services and travel-related costs, partially offset by lower full-time equivalent staff costs; Quarterly operating profit margin was 31%, decreasing from 34% in the comparative quarter. Adjusted for the restructuring charges, operating profit margin was 44%, increasing from 39% in the comparative quarter; Year-to-date operating profit margin was 31%, decreasing from 36% in the comparative period. Adjusted for the restructuring charges and the CEWS/CERS benefits, operating profit margin was 42%, increasing from 38%, in the comparative quarter; Basic EPS of $0.05 was the same as the comparative quarter in the prior fiscal year; Basic EPS of $0.10 was the same as the comparative period in the prior fiscal year; Achieved free cash flow per share of $0.06; Achieved free cash flow per share of $0.11; Declared and paid a dividend of $0.05 per share. Declared and paid dividends of $0.10 per share. Revenue Three months ended September 30, 2022 2021 $ change % change ($ thousands) Software license revenue 15,605 14,085 1,520 11% Professional services revenue 2,477 1,864 613 33% Total revenue 18,082 15,949 2,133 13% Software license revenue as a % of total revenue 86% 88% Professional services revenue as a % of total revenue 14% 12% Six months ended September 30, 2022 2021 $ change % change ($ thousands) Software license revenue 29,520 26,496 3,024 11% Professional services revenue 4,669 3,867 802 21% Total revenue 34,189 30,363 3,826 13% Software license revenue as a % of total revenue 86% 87% Professional services revenue as a % of total revenue 14% 13% CMG's revenue is comprised of software license sales, which provides the majority of the Company's revenue, and fees for professional services. Total revenue for the three and six months ended September 30, 2022 both increased by 13%, due to increases in both software license revenue and professional services revenue. Software License Revenue Three months ended September 30, 2022 2021 $ change % change ($ thousands) Annuity/maintenance license revenue 14,825 13,239 1,586 12% Perpetual license revenue 780 846 (66) -8% Total software license revenue 15,605 14,085 1,520 11% Annuity/maintenance as a % of total software license revenue 95% 94 Perpetual as a % of total software license revenue 5% 6% Six months ended September 30, 2022 2021 $ change % change ($ thousands) Annuity/maintenance license revenue 28,354 25,525 2,829 11% Perpetual license revenue 1,166 971 195 20% Total software license revenue 29,520 26,496 3,024 11% Annuity/maintenance as a % of total software license revenue 96% 96 Perpetual as a % of total software license revenue 4% 4% Total software license revenue for the three months ended September 30, 2022 increased by 11%, compared to the same period of the previous fiscal year, due to an increase in annuity/maintenance license revenue, partially offset by a decrease in perpetual license revenue. Total software license revenue for the six months ended September 30, 2022 increased by 11%, compared to the same period of the previous fiscal year, due to increases in both annuity/maintenance license revenue and perpetual license revenue. Annuity/maintenance license revenue increased by 12% and 11% during the three and six months ended September 30, 2022, respectively, due to increases in all regions, supported by license fee increases, increased license usage by existing customers and the addition of new customers. Perpetual license revenue decreased by 8% during the three months ended September 30, 2022, compared to the same period of the previous fiscal year. During the six months ended September 30, 2022, compared to the same period of the previous fiscal year, perpetual license revenue increased by 20% due to an increase in sales in the Eastern Hemisphere. Software Revenue by Geographic Region Three months ended September 30, 2022 2021 $ change % change ($ thousands) Annuity/maintenance license revenue Canada 3,181 3,088 93 3% United States 3,704 3,089 615 20% South America 1,894 1,817 77 4% Eastern Hemisphere (1) 6,046 5,245 801 15% 14,825 13,239 1,586 12% Perpetual license revenue Canada - - - 0% United States 157 96 61 64% South America - - - 0% Eastern Hemisphere 623 750 (127 -17% 780 846 (66 -8% Total software license revenue Canada 3,181 3,088 93 3% United States 3,861 3,185 676 21% South America 1,894 1,817 77 4% Eastern Hemisphere 6,669 5,995 674 11% 15,605 14,085 1,520 11% Six months ended September 30, 2022 2021 $ change % change ($ thousands) Annuity/maintenance license revenue Canada 6,131 6,122 9 0% United States 7,054 6,073 981 16% South America 3,593 3,311 282 9% Eastern Hemisphere (1) 11,576 10,019 1,557 16% 28,354 25,525 2,829 11% Perpetual license revenue Canada - - - 0% United States 157 221 (64 -29% South America - - - 0% Eastern Hemisphere 1,009 750 259 35% 1,166 971 195 20% Total software license revenue Canada 6,131 6,122 9 0% United States 7,211 6,294 917 15% South America 3,593 3,311 282 9% Eastern Hemisphere 12,585 10,769 1,816 17% 29,520 26,496 3,024 11% Includes Europe, Africa, Asia and Australia. During the three and six months ended September 30, 2022, compared to the same periods of the previous fiscal year, total software license revenue increased in all regions. The Canadian region (representing 21% of year-to-date total software license revenue) experienced a 3% increase in annuity/maintenance license revenue during the three months ended September 30, 2022, due to license fee increases as well as increased licensing by existing customers. The quarterly results continue to be negatively impacted by consolidation activity that affected the Canadian region's annuity/maintenance revenue in the previous quarter. Annuity/maintenance license revenue was flat in the six months ended September 30, 2022, compared to the same period of the previous fiscal year, due to the aforementioned negative impact from the consolidation activity during the first quarter of the fiscal year. The United States (representing 24% of year-to-date total software license revenue) experienced increases of 20% and 16% in annuity/maintenance license revenue during the three and six months ended September 30, 2022, respectively, due to new customers, including those within the carbon capture and storage industry, and increased licensing by existing customers. South America (representing 12% of year-to-date total software license revenue) experienced increases of 4% and 9% in annuity/maintenance license revenue during the three and six months ended September 30, 2022, respectively, primarily due to a multi-year lease that commenced in the second quarter of the previous fiscal year. The Eastern Hemisphere (representing 43% of year-to-date total software license revenue) experienced increases of 15% and 16% in annuity/maintenance license revenue during the three and six months ended September 30, 2022, respectively, due to increased license fees as well as increased licensing by existing customers, and the addition of new customers, including new customers in the carbon capture and storage industry in Europe. Perpetual revenue decreased by 17% during the three months ended September 30, 2022, relative to the same period of the previous fiscal period, while it increased by 35% during the six months ended September 30, 2022, compared to the same period of the previous fiscal year, as a result of the increases experienced in the previous quarter. Deferred Revenue ($ thousands) Fiscal 2023 Fiscal 2022 Fiscal 2021 $ change % change Deferred revenue at: Q1 (June 30) 24,409 23,451 958 4% Q2 (September 30) 24,164 21,242 2,922 14% Q3 (December 31) 23,056 15,347 7,709 50% Q4 (March 31) 30,454 30,461 (7) 0% CMG's deferred revenue consists primarily of amounts for prepaid licenses. Our annuity/maintenance revenue is deferred and recognized ratably over the license period, which is generally one year or less. Amounts are deferred for licenses that have been provided and revenue recognition reflects the passage of time. The above table illustrates the normal trend in the deferred revenue balance from the beginning of the calendar year (which corresponds with Q4 of our fiscal year), when most renewals occur, to the end of the calendar year (which corresponds with Q3 of our fiscal year). Our fourth quarter corresponds with the beginning of the fiscal year for most oil and gas companies, representing a time when they enter a new budget year and sign/renew their contracts. The deferred revenue balance at the end of Q2 of fiscal 2023 was 14% higher than Q2 of fiscal 2022. There were no significant timing differences impacting the balance. Expenses Three months ended September 30, 2022 2021 $ change % change ($ thousands) Sales, marketing and professional services 3,872 3,840 32 1% Research and development 5,119 4,656 463 10% General and administrative 3,536 2,013 1,523 76% Total operating expenses 12,527 10,509 2,018 19% Direct employee costs (1) 9,497 8,579 918 11% Other corporate costs (1) 3,030 1,930 1,100 57% 12,527 10,509 2,018 19% Six months ended September 30, 2022 2021 $ change % change ($ thousands) Sales, marketing and professional services 7,463 7,252 211 3% Research and development 9,324 8,673 651 8% General and administrative 6,886 3,425 3,461 101% Total operating expenses 23,673 19,350 4,323 22% Direct employee costs (1) 18,444 15,649 2,795 18% Other corporate costs (1) 5,229 3,701 1,528 41% 23,673 19,350 4,323 22% This is a non-IFRS financial measure. See the "Non-IFRS Financial Measures" section. Adjusted total operating expenses, adjusted direct employee costs and adjusted other corporate costs are non-IFRS financial measures. They do not have a standard meaning prescribed by IFRS and, accordingly, may not be comparable to measures used by other companies. They are calculated by excluding CEWS subsidies, CERS subsidies and restructuring charges, as applicable, from the related non-adjusted measures. Management believes that analyzing the Company's expenses exclusive of these items illustrates underlying trends in our costs and provides better comparability between periods. The following tables provide a reconciliation of total operating expenses to adjusted total operating expenses, direct employee costs to adjusted direct employee costs and other corporate costs to adjusted other corporate costs: Three months ended September 30 2022 2021 ($ thousands) Total operating expenses 12,527 10,509 Restructuring charge (2,341) (851) Adjusted total operating expenses 10,186 9,658 Direct employee costs 9,497 8,579 Restructuring charge (2,293) (851) Adjusted direct employee costs 7,204 7,728 Other corporate costs 3,030 1,930 Restructuring charge (48) - Adjusted other corporate costs 2,982 1,930 Six months ended September 30 2022 2021 ($ thousands) Total operating expenses 23,673 19,350 CEWS - 324 CERS - 43 Restructuring charge (3,943) (851) Adjusted total operating expenses 19,730 18,866 Direct employee costs 18,444 15,649 CEWS - 324 Restructuring charge (3,771) (851) Adjusted direct employee costs 14,673 15,122 Other corporate costs 5,229 3,701 CERS - 43 Restructuring charge (172) - Adjusted other corporate costs 5,057 3,744 In May 2022, Ryan Schneider stepped down as the Company's President and CEO and Pramod Jain was appointed CEO. This change resulted in restructuring costs of $1.6 million in the first quarter of the current fiscal year. During the second quarter of the current fiscal year, the Company restructured primarily its Calgary office, resulting in additional restructuring costs of $2.3 million in the current quarter and bringing the total restructuring charges for the fiscal year to $3.8 million. The restructuring was mainly aimed at streamlining operations to align resources with the Company's priorities. This prioritization will allow the Company to strengthen other business operations that are necessary for the Company to be responsive, resilient and able to adapt more quickly to changing business priorities. For the three and six months ended September 30, 2022, adjusted direct employee costs decreased by 7% and 3%, respectively, compared to the same periods of the previous fiscal year, primarily as a result of a reduction in full-time equivalent staff. Adjusted other corporate costs increased by $1.1 million and $1.3 million for the three and six months ended September 30, 2022, respectively, compared to the same periods of the previous fiscal year, primarily due to higher professional services costs and travel-related costs. Quarterly Summary Fiscal 2023 continues to be positive, with the strengthening fundamentals across the oil and gas sector, and new opportunities created by demand for energy transition projects. During the three and six months ended September 30, 2022, CMG's annuity/maintenance revenue increased by 12% and 11%, respectively, compared to the same periods of the previous fiscal year, continuing the trend of comparative quarterly increases that started in the third quarter of the previous fiscal year. Similar to the previous quarters, this increase was supported by improved industry conditions and a multi-year license lease in South America that commenced in September of 2021. Geographically, all regions saw increases in annuity/maintenance revenue due to the addition of new customers, including carbon capture and storage companies, increased license fees and increased licensing by some existing customers. While perpetual license revenue decreased by 8% in the three months ended September 30, 2022, it increased by 20% during the six months ended September 30, 2022, compared to the same period of the prior fiscal year, supported by sales in the Eastern Hemisphere predominantly during the first quarter of the current fiscal year. During the three and six months ended September 30, 2022, CMG's expenses were impacted by restructuring charges of $2.3 million and $3.9 million, respectively. The second quarter restructuring reduced our full-time equivalent staff from 173 at June 30, 2022 to 159 at September 30, 2022. The Company made these changes to concentrate the focus of our research and development activities into the areas with the potential to deliver the greatest value to our customers and have the greatest commercial impact on the business. This allows the Company to reinvest to strengthen other business operations that are necessary to support our growth strategy without materially altering the current cost structure. When adjusted for the restructuring charges, as well as CEWS and CERS subsidies in the comparative periods of the previous year, total operating expenses increased by 5% in the three and six months ended September 30, 2022, due to increases in professional services and travel costs as COVID-19 related travel restrictions eased. Adjusted operating profit margins were 44% and 42% during the three and six months ending September 30, 2022, respectively, compared to 39% and 38% during the same periods in the previous fiscal period, which is in line with the pre-COVID fiscal 2019 and fiscal 2020 historic average of 40% and reflective of CMG's continuous cost management. Basic earnings per share was $0.05 and $0.10, consistent with the comparative periods of the prior fiscal year. CMG maintains a strong financial position and closed the period with $56.9 million of cash and no debt. Despite the restructuring charges and the increase in professional fees in the current quarter, CMG generated $0.06 and $0.11 per share of free cash flow for the three and six months ended September 30, 2022, which was consistent with the same periods of fiscal 2022. Additional IFRS Measure Funds flow from operations is an additional IFRS measure that the Company presents in its consolidated statements of cash flows. Funds flow from operations is calculated as cash flows provided by operating activities adjusted for changes in non-cash working capital. Management believes that this measure provides useful supplemental information about operating performance and liquidity, as it represents cash generated during the period, regardless of the timing of collection of receivables and payment of payables, which may reduce comparability between periods. Non-IFRS Financial Measures Certain financial measures in this press release - namely, EBITDA, free cash flow, free cash flow per share, direct employee costs, other corporate costs, adjusted total operating expenses, adjusted direct employee costs and adjusted other corporate costs - do not have a standard meaning prescribed by IFRS and, accordingly, may not be comparable to measures used by other companies. Certain additional disclosures for these non-IFRS financial measures have been incorporated by reference and can be found on page 2 in the Company's MD&A for the three and six months ended September 30, 2022, available on SEDAR at www.sedar.com and on the Company's website under the Investors section at www.cmgl.ca /investors. Reconciliations of the non-IFRS financial measures to the most directly comparable IFRS financial measure are presented below: Free Cash Flow Reconciliation to Funds Flow from Operations Fiscal 2021 Fiscal 2022 Fiscal 2023 ($ thousands, unless otherwise stated) Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Funds flow from operations 7,322 6,267 4,811 4,904 7,022 7,105 4,558 4,974 Capital expenditures (7) (41) (27) (133) (481) (62) - (130) Repayment of lease liabilities (310) (471) (306) (277) (314) (459) (303) (339) Free cash flow 7,005 5,755 4,478 4,494 6,227 6,584 4,255 4,505 Weighted average shares - basic (thousands) 80,286 80,286 80,286 80,307 80,335 80,335 80,335 80,412 Free cash flow per share - basic 0.09 0.07 0.06 0.06 0.08 0.08 0.05 0.06 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 $) September 30, 2022 March 31, 2022 Assets Current assets: Cash 56,859 59,660 Trade and other receivables 13,683 17,507 Prepaid expenses 1,214 792 Prepaid income taxes 1,370 959 73,126 78,918 Property and equipment 10,360 10,908 Right-of-use assets 31,923 33,113 Deferred tax asset 2,128 2,209 Total assets 117,537 125,148 Liabilities and shareholders' equity Current liabilities: Trade payables and accrued liabilities 5,418 6,819 Income taxes payable - 13 Deferred revenue 24,164 30,454 Lease liabilities 1,787 1,626 31,369 38,912 Long-term stock-based compensation liability 1,089 1,556 Long-term lease liabilities 37,159 37,962 Total liabilities 69,617 78,430 Shareholders' equity: Share capital 81,055 80,248 Contributed surplus 15,223 15,009 Deficit (48,358) (48,539) Total shareholders' equity 47,920 46,718 Total liabilities and shareholders' equity 117,537 125,148 Condensed Consolidated Statements of Operations and Comprehensive Income Three months ended September 30 Six months ended September 30 UNAUDITED (thousands of Canadian $ except per share amounts) 2022 2021 2022 2021 Revenue 18,082 15,949 34,189 30,363 Operating expenses Sales, marketing and professional services 3,872 3,840 7,463 7,252 Research and development 5,119 4,656 9,324 8,673 General and administrative 3,536 2,013 6,886 3,425 12,527 10,509 23,673 19,350 Operating profit 5,555 5,440 10,516 11,013 Finance income 920 384 1,631 224 Finance costs (486) (503) (976) (1,089) Profit before income and other taxes 5,989 5,321 11,171 10,148 Income and other taxes 1,579 1,175 2,948 2,269 Net and total comprehensive income 4,410 4,146 8,223 7,879 Earnings per share - basic and diluted 0.05 0.05 0.10 0.10 Dividend per share 0.05 0.05 0.10 0.10 Condensed Consolidated Statements of Cash Flows Three months ended September 30 Six months ended September 30 UNAUDITED (thousands of Canadian $) 2022 2021 2022 2021 Operating activities Net income 4,410 4,146 8,223 7,879 Adjustments for: Depreciation 937 1,033 1,868 2,056 Deferred income tax expense (recovery) 235 157 81 (55) Stock-based compensation (608 ) (432) (640) (165) Funds flow from operations 4,974 4,904 9,532 9,715 Movement in non-cash working capital: Trade and other receivables 1,428 (5,264) 3,824 9,158 Trade payables and accrued liabilities 323 1,582 (622) (209) Prepaid expenses (360 ) (153) (422) (200) Income taxes receivable (payable) (264 ) (867) (424) (1,527) Deferred revenue (245 ) (2,209) (6,290) (9,219) Decrease (increase) in non-cash working capital 882 (6,911) (3,934) (1,997) Net cash provided by (used in) operating activities 5,856 (2,007) 5,598 7,718 Financing activities Proceeds from issuance of common shares 415 - 415 - Repayment of lease liabilities (339 ) (277) (642) (583) Dividends paid (4,025 ) (4,016) (8,042) (8,031) Net cash used in financing activities (3,949 ) (4,293) (8,269) (8,614) Investing activities Property and equipment additions (130 ) (133) (130) (160) Increase (decrease) in cash 1,777 (6,433) (2,801) (1,056) Cash, beginning of period 55,082 54,445 59,660 49,068 Cash, end of period 56,859 48,012 56,859 48,012 Supplementary cash flow information Interest received 377 126 557 224 Interest paid 486 503 976 1,010 Income taxes paid 1,387 1,782 2,883 3,510 See accompanying notes to consolidated financial statements, which are available on SEDAR at www.sedar.com or on CMG's website at www.cmgl.ca . For further information, contact: Pramod Jain Chief Executive Officer (403) 531-1300 [email protected] or Sandra Balic Vice President, Finance & CFO (403) 531-1300 [email protected] www.cmgl.ca SOURCE: Computer Modelling Group Ltd. View source version on accesswire.com: https://www.accesswire.com/724946/Computer-Modelling-Group-Announces-Second-Quarter-Results

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