Computer Modelling Group Announces Third Quarter Results

CALGARY, AB / ACCESSWIRE / February 9, 2023 / Computer Modelling Group Ltd. ("CMG" or the "Company") announces its financial results for the three and nine months ended December 31, 2022.

Quarterly Performance

(1) This is a non-IFRS financial measure. See the "Non-IFRS Financial Measures" section.
(2) Q4 of fiscal 2021 includes $1.1 million in revenue that pertains to usage of CMG's products in prior quarters.
(3) 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.
(4) Q1, Q2 and Q3 of fiscal 2023 include $0.2 million, $0.3 million, and $0.3 million, respectively, in revenue that pertains to usage of CMG's products in prior quarters.

Commentary on Quarterly Performance

Revenue

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 nine months ended December 31, 2022 increased by 14% and 13%, respectively, due to increases in both software license revenue and professional services revenue.

Software License Revenue

Total software license revenue for the three and nine months ended December 31, 2022 increased by 6% and 10%, respectively, compared to the same periods of the previous fiscal year, due to the increases in annuity/maintenance license revenue, partially offset by the decreases in perpetual license revenue.

Annuity/maintenance license revenue increased by 14% and 12% during the three and nine months ended December 31, 2022, respectively, due to increases in all regions except Canada, supported by license fee increases, increased license usage by existing customers and the addition of new customers. In particular, we are seeing an increase in revenue from the customers involved in carbon capture and storage projects, and estimate that about 15% and 13% of total software revenue for the three and nine months ended December 31, 2022, respectively, is attributable to the energy transition segment.

Perpetual license revenue during the three and nine months ended December 31, 2022 decreased by 65% and 32%, respectively, compared to the same periods of the previous fiscal year. Sales of perpetual licenses may fluctuate significantly between periods due to the uncertainty associated with the timing and the location where sales are generated. For this reason, even though we expect to achieve a certain level of perpetual sales on an annual basis, we expect to observe fluctuations in the quarterly perpetual revenue amounts throughout the fiscal year. In our experience, the majority of perpetual sales are generated in South America and the Eastern Hemisphere, as North American customers usually prefer annuity licenses to perpetual purchases.

Software Revenue by Geographic Region

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

During the three and nine months ended December 31, 2022, compared to the same periods of the previous fiscal year, total software license revenue increased in all regions except Canada.

The Canadian region's (representing 22% of year-to-date total software license revenue) annuity/maintenance revenue remained consistent during the three and nine months ended December 31, 2022, compared to the same periods of the previous fiscal year, due to the region continuing to be negatively affected by consolidation activity that started affecting its annuity/maintenance revenue in the first quarter of the current fiscal year.

The United States (representing 25% of year-to-date total software license revenue) experienced increases of 18% and 17% in annuity/maintenance license revenue during the three and nine months ended December 31, 2022, respectively, due to new customers, including those within the carbon capture and storage industry, and increased licensing by existing customers.

South America (representing 13% of year-to-date total software license revenue) experienced increases of 19% and 12% in annuity/maintenance license revenue during the three and nine months ended December 31, 2022, respectively, due to increased licensing by new and existing customers as well as due to a multi-year lease that commenced in the second quarter of the previous fiscal year.

The Eastern Hemisphere (representing 40% of year-to-date total software license revenue) experienced increases of 20% and 17% in annuity/maintenance license revenue during the three and nine months ended December 31, 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 61% and 26%, respectively during the three and nine months ended December 31, 2022, relative to the same period of the previous fiscal year.

Deferred Revenue

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 Q3 of fiscal 2023 was 16% higher than Q3 of fiscal 2022 with only minor impact of timing differences on the balance.

Expenses

(1) 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:

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 second quarter and bringing the total restructuring charges for the fiscal year to $3.9 million. The restructuring that occurred in the second quarter 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.

The restructuring decreased our headcount and at December 31, 2022, CMG's full-time equivalent staff complement was 164 employees and consultants (December 31, 2021 - 178 employees).

In the three months ended December 31, 2022, adjusted direct employee costs increased by 14% due to increased variable compensation expense as well as a result of increased stock-based compensation expense due to the increase in share price during the current quarter. In the nine months ended December 31, 2022, adjusted direct employee costs increased by 2% due to the increase in direct employee costs experienced during the current quarter.

Adjusted other corporate costs increased by 12% and 26% for the three and nine months ended December 31, 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 nine months ended December 31, 2022, CMG's annuity/maintenance revenue increased by 14% and 12%, 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, supported by improved industry conditions.

Geographically, all regions saw increases in annuity/maintenance revenue, except Canada which remained flat, due to the addition of new customers, including carbon capture and storage companies, increased license fees and increased licensing by some existing customers.

Perpetual license revenue decreased by 65% and 32% during the three and nine months ended December 31, 2022, compared to the same periods of the prior fiscal year, primarily due to lower perpetual license sales in the Eastern Hemisphere.

During nine months ended December 31, 2022, CMG's expenses were impacted by restructuring charges of $3.9 million, which resulted in reduced full-time equivalent staff compared to the same period of the previous fiscal year. 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 13% and 7% in the three and nine months ended December 31, 2022, respectively, due to increases in professional services and travel costs as COVID-19 related travel restrictions eased.

Adjusted operating profit margins were 43% and 43% during the three and nine months ended December 31, 2022, respectively, compared to 43% and 40% during the same periods in the previous fiscal year which is reflective of CMG's continuous cost management. Basic earnings per share were $0.08 and $0.18 for the three and nine months ended December 31, 2022, compared to $0.07 and $0.17 recorded in the same periods of the previous fiscal year.

CMG maintains a strong financial position and closed the period with $59.9 million of cash and no debt. Despite the restructuring charges and the increase in professional fees year-to-date, CMG generated $0.09 and $0.20 per share of free cash flow for the three and nine months ended December 31, 2022, respectively, representing a slight increase compared to 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 MD&A - namely, adjusted total operating expenses, direct employee costs, adjusted direct employee costs, other corporate costs, adjusted other corporate costs, adjusted operating profit, adjusted net income, EBITDA, adjusted 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.

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 nine months ended December 31, 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

Forward-Looking Information

Certain information included in this MD&A 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 MD&A, 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

Condensed Consolidated Statements of Operations and Comprehensive Income

Condensed Consolidated Statements of Cash Flows

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, please contact:

www.cmgl.ca

SOURCE: Computer Modelling Group Ltd.