Computer Modelling Group Ltd. ("CMG" or the "Company") (TSX:CMG) is very pleased
to report our second quarter results for the three and six months ended
September 30, 2013.
SECOND QUARTER HIGHLIGHTS
For the three months ended
September 30,
($ thousands, except per share
data) 2013 2012 $ change % change
----------------------------------------------------------------------------
Annuity/maintenance software
licenses 13,153 12,012 1,141 9%
Perpetual software licenses 1,829 2,671 (842) -32%
Total revenue 17,184 16,073 1,111 7%
Operating profit 8,296 8,032 264 3%
Net income 5,608 5,361 247 5%
Earnings per share - basic 0.15 0.14 0.01 7%
----------------------------------------------------------------------------
For the six months ended September
30,
($ thousands, except per share
data) 2013 2012 $ change % change
----------------------------------------------------------------------------
Annuity/maintenance software
licenses 27,111 25,192 1,919 8%
Perpetual software licenses 4,160 4,741 (581) -12%
Total revenue 35,300 32,539 2,761 8%
Operating profit 17,646 16,137 1,509 9%
Net income 12,689 11,451 1,238 11%
Earnings per share - basic 0.33 0.31 0.02 6%
----------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS
This Management's Discussion and Analysis ("MD&A") for Computer Modelling Group
Ltd. ("CMG," the "Company," "we" or "our"), presented as at November 12, 2013,
should be read in conjunction with the unaudited condensed consolidated
financial statements and related notes of the Company for the three and six
months ended September 30, 2013 and the audited consolidated financial
statements and MD&A for the years ended March 31, 2013 and 2012 contained in the
2013 Annual Report for CMG. Additional information relating to CMG, including
our Annual Information Form, can be found at www.sedar.com. The financial data
contained herein have been prepared in accordance with International Financial
Reporting Standards ("IFRS") and, unless otherwise indicated, all amounts in
this report are expressed in Canadian dollars and rounded to the nearest
thousand.
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.
With respect to forward-looking information contained in this MD&A, we have made
assumptions regarding, among other things:
-- Future software license sales
-- The continued financing by and participation of the Company's partners
in the DRMS project and it being completed in a timely manner
-- Ability to enter into additional software license agreements
-- Ability to continue current research and new product development
-- Ability to recruit and retain qualified staff
Forward-looking information is not a guarantee of future performance and
involves a number of risks and uncertainties, only some of which are described
herein. Many factors could cause the Company's actual results, performance or
achievements, or future events or developments, to differ materially from those
expressed or implied by the forward-looking information including, without
limitation, the following factors which are described in the MD&A of CMG's 2013
Annual Report under the heading "Business Risks":
-- Economic conditions in the oil and gas industry
-- Reliance on key clients
-- Foreign exchange
-- Economic and political risks in countries where the Company currently
does or proposes to do business
-- Increased competition
-- Reliance on employees with specialized skills or knowledge
-- Protection of proprietary rights
Should one or more of these risks or uncertainties materialize, or should
assumptions underlying the forward-looking statements prove incorrect, actual
results, performance or achievement may vary materially from those expressed or
implied by the forward-looking information contained in this MD&A. These factors
should be carefully considered and readers are cautioned not to place undue
reliance on forward-looking information, which speaks only as of the date of
this MD&A. All subsequent forward-looking information attributable to the
Company herein is expressly qualified in its entirety by the cautionary
statements contained in or referred to herein. The Company does not undertake
any obligation to release publicly any revisions to forward-looking information
contained in this MD&A to reflect events or circumstances that occur after the
date of this MD&A or to reflect the occurrence of unanticipated events, except
as may be required under applicable securities laws.
NON-IFRS FINANCIAL MEASURES
This MD&A includes certain measures which have not been prepared in accordance
with IFRS such as "EBITDA", "direct employee costs" and "other corporate costs."
Since these measures do not have a standard meaning prescribed by IFRS, they are
unlikely to be comparable to similar measures presented by other issuers.
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.
See "EBITDA" heading for a reconciliation of EBITDA to net income.
CORPORATE PROFILE
CMG is a computer software technology company serving the oil and gas industry.
The Company is a leading supplier of advanced processes reservoir modelling
software with a blue chip client base of international oil companies and
technology centers in over 50 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, Caracas, Dubai, Bogota and Kuala Lumpur. CMG's
Common Shares are listed on the Toronto Stock Exchange ("TSX") and trade under
the symbol "CMG".
QUARTERLY PERFORMANCE
Fiscal 2012(1) Fiscal 2013(2) Fiscal 2014(3)
($ thousands, unless
otherwise stated) Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
----------------------------------------------------------------------------
Annuity/maintenance
licenses 12,056 12,497 13,179 12,012 14,004 15,359 13,958 13,153
Perpetual licenses 2,321 3,416 2,070 2,671 1,365 2,300 2,331 1,829
----------------------------------------------------------------------------
Software licenses 14,377 15,913 15,249 14,683 15,369 17,659 16,289 14,982
Professional
services 1,521 1,302 1,216 1,390 1,433 1,620 1,827 2,202
----------------------------------------------------------------------------
Total revenue 15,898 17,215 16,465 16,073 16,802 19,279 18,116 17,184
Operating profit 8,093 9,193 8,105 8,032 8,276 9,877 9,350 8,296
Operating profit (%) 51 53 49 50 49 51 52 48
EBITDA(4) 8,414 9,543 8,423 8,425 8,687 10,294 9,725 8,675
Profit before income
and other taxes 8,184 9,104 8,577 7,703 8,556 10,314 9,999 8,133
Income and other
taxes 2,394 2,484 2,487 2,342 2,437 3,061 2,918 2,525
Net income for the
period 5,790 6,620 6,090 5,361 6,119 7,253 7,081 5,608
Cash dividends
declared and paid 4,079 4,848 9,736 6,020 6,050 6,099 8,841 6,994
----------------------------------------------------------------------------
Per share amounts -
($/share)
Earnings per share -
basic 0.16 0.18 0.16 0.14 0.16 0.19 0.19 0.15
Earnings per share -
diluted 0.15 0.17 0.16 0.14 0.16 0.19 0.18 0.14
Cash dividends
declared and paid 0.11 0.13 0.26 0.16 0.16 0.16 0.23 0.18
----------------------------------------------------------------------------
(1) Q3 and Q4 of fiscal 2012 include $2.6 million and $2.7 million,
respectively, in revenue that pertains to usage of CMG's products in
prior quarters.
(2) Q1, Q2, Q3 and Q4 of fiscal 2013 include $2.1 million, $0.2 million,
$1.8 million and $2.6 million, respectively, in revenue that pertains to
usage of CMG's products in prior quarters.
(3) Q1 and Q2 of fiscal 2014 include $1.2 million and $0.2 million,
respectively, in revenue that pertains to usage of CMG's products in
prior quarters.
(4) EBITDA is defined as net income before adjusting for depreciation
expense, finance income, finance costs, and income and other taxes. See
"Non-IFRS Financial Measures".
Highlights
During the six months ended September 30, 2013, as compared to the same period
of the prior fiscal year, CMG:
-- Increased annuity/maintenance revenue by 8%
-- Increased operating profit by 9%
-- Increased spending on research and development by 16%
-- Increased EBITDA by 9%
-- Realized basic earnings per share of $0.33, representing a 6% increase
Revenue
For the three months ended September 30, $ %
($ thousands) 2013 2012 change change
----------------------------------------------------------------------------
Software licenses 14,982 14,683 299 2%
Professional services 2,202 1,390 812 58%
----------------------------------------------------------------------------
Total revenue 17,184 16,073 1,111 7%
----------------------------------------------------------------------------
Software license revenue - % of total revenue 87% 91%
Professional services - % of total revenue 13% 9%
----------------------------------------------------------------------------
For the six months ended September 30, $ %
($ thousands) 2013 2012 change change
----------------------------------------------------------------------------
Software licenses 31,271 29,933 1,338 4%
Professional services 4,029 2,606 1,423 55%
----------------------------------------------------------------------------
Total revenue 35,300 32,539 2,761 8%
----------------------------------------------------------------------------
Software license revenue - % of total revenue 89% 92%
Professional services - % of total revenue 11% 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 increased by 7% for the three months ended September 30, 2013,
compared to the same period of the previous fiscal year, primarily due to an
increase in professional services.
Total revenue increased by 8% for the six months ended September 30, 2013,
compared to the same period of the previous fiscal years, as a result of
increases in both software license revenue and professional services.
SOFTWARE LICENSE REVENUE
Software license revenue is made up of annuity/maintenance license fees charged
for the use of the Company's software products which is generally for a term of
one year or less and perpetual software license sales, whereby the customer
purchases the current version of the software and has the right to use that
version in perpetuity. Annuity/maintenance license fees have historically had a
high renewal rate and, accordingly, provide a reliable revenue stream while
perpetual license sales are more variable and unpredictable in nature as the
purchase decision and its timing fluctuate with the customers' needs and
budgets. The majority of CMG's customers who have acquired perpetual software
licenses subsequently purchase our maintenance package to ensure ongoing product
support and access to current versions of CMG's software.
For the three months ended September 30, $ %
($ thousands) 2013 2012 change change
----------------------------------------------------------------------------
Annuity/maintenance licenses 13,153 12,012 1,141 9%
Perpetual licenses 1,829 2,671 (842) -32%
----------------------------------------------------------------------------
Total software license revenue 14,982 14,683 299 2%
----------------------------------------------------------------------------
Annuity/maintenance as a % of total software
license revenue 88% 82%
Perpetual as a % of total software license
revenue 12% 18%
----------------------------------------------------------------------------
For the six months ended September 30, $ %
($ thousands) 2013 2012 change change
----------------------------------------------------------------------------
Annuity/maintenance licenses 27,111 25,192 1,919 8%
Perpetual licenses 4,160 4,741 (581) -12%
----------------------------------------------------------------------------
Total software license revenue 31,271 29,933 1,338 4%
----------------------------------------------------------------------------
Annuity/maintenance as a % of total software
license revenue 87% 84%
Perpetual as a % of total software license
revenue 13% 16%
----------------------------------------------------------------------------
Total software license revenue grew by 2% and 4% in the three and six months
ended September 30, 2013, respectively, compared to the same periods of the
previous fiscal year due to increases in the annuity/maintenance revenue offset
by decreases in perpetual license sales.
CMG's annuity/maintenance license revenue increased by 9% and 8% during the
three and six months ended September 30, 2013, respectively, compared to the
same periods of the previous year. This increase was driven by annuity sales to
new and existing customers as well as an increase in maintenance revenue tied to
perpetual sales generated in the previous fiscal year.
During the three months ended September 30, 2013, all of our regions experienced
growth in annuity/maintenance revenue with the exception of Canada which
remained flat. All of our regions, except South America, experienced growth in
annuity/maintenance revenue during the six months ended September 30, 2013, but
the most significant growth during this period came from the US region.
Our annuity/maintenance revenue is impacted by the revenue recognition from a
long-standing customer for which revenue recognition criteria are fulfilled only
at the time of the receipt of funds (see the discussion about revenue earned in
the current period that pertains to usage of products in prior quarters above
the "Quarterly Software License Revenue" graph). The variability of the amounts
of the payments received and the timing of such payments may skew the comparison
of the recorded annuity/maintenance revenue amounts between periods. During the
current quarter no payments have been received or recorded for this arrangement
which is consistent with the same quarter of the previous year. To provide a
normalized comparison, if we were to remove revenue from this one customer from
the year-to-date recorded revenue, we will notice that the annuity/maintenance
revenue increased by 12%, instead of 8% as compared to the same period of the
previous year. Given our long-term relationship with this customer, and their
on-going use of our licenses, we expect to continue to receive payments from
them; however, the amount and timing are uncertain and will continue to be
recorded on a cash basis, which may introduce some variability in our reported
quarterly annuity/maintenance revenue results.
We can observe from the table below that the exchange rates between the US and
Canadian dollars during the three and six months ended September 30, 2013,
compared to the same periods of the previous fiscal year, had only a slight
positive impact on our reported annuity/maintenance revenue.
Perpetual license sales decreased by 32% for the three months ended September
30, 2013, compared to the same period of the previous fiscal year, due to
decreases in Canada, the US and the Eastern Hemisphere offset by growth in
perpetual sales generated by South America.
Perpetual license sales decreased by 12% for the six months ended September 30,
2013, compared to the same period of the previous fiscal year, due to decreases
in Canada and the US offset by growth in perpetual sales generated by the
Eastern Hemisphere.
Software licensing under perpetual sales is a significant part of CMG's
business, but 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 aggregate perpetual
sales on an annual basis, we expect to observe fluctuations in the quarterly
perpetual revenue amounts throughout the fiscal year.
We can observe from the table below that the exchange rates between the US and
Canadian dollars during the three and six months ended September 30, 2013,
compared to the same periods of the previous fiscal year, had only a slight
positive impact on our reported perpetual license revenue.
The following table summarizes the US dollar denominated revenue and the
weighted average exchange rate at which it was converted to Canadian dollars:
For the three months ended September 30, $ %
($ thousands) 2013 2012 change change
----------------------------------------------------------------------------
US dollar annuity/maintenance license
sales US$ 8,767 6,938 1,829 26%
Weighted average conversion rate 1.012 1.005
----------------------------------------------------------------------------
Canadian dollar equivalent CDN$ 8,874 6,972 1,902 27%
----------------------------------------------------------------------------
US dollar perpetual license sales US$ 1,750 1,905 (155) -8%
Weighted average conversion rate 1.045 1.007
----------------------------------------------------------------------------
Canadian dollar equivalent CDN$ 1,829 1,918 (89) -5%
----------------------------------------------------------------------------
For the six months ended September 30, $ %
($ thousands) 2013 2012 change change
----------------------------------------------------------------------------
US dollar annuity/maintenance license
sales US$ 18,108 15,576 2,532 16%
Weighted average conversion rate 1.010 1.001
----------------------------------------------------------------------------
Canadian dollar equivalent CDN$ 18,295 15,598 2,697 17%
----------------------------------------------------------------------------
US dollar perpetual license sales US$ 3,761 3,251 510 16%
Weighted average conversion rate 1.029 1.002
----------------------------------------------------------------------------
Canadian dollar equivalent CDN$ 3,869 3,257 612 19%
----------------------------------------------------------------------------
The following table quantifies the foreign exchange impact on our software
license revenue:
For the three months ended September Incremental Foreign
30, 2013 Q2 2013 License Exchange Q2 2014
($ thousands) Balance Growth Impact Balance
----------------------------------------------------------------------------
Annuity/maintenance license sales 12,012 1,077 64 13,153
Perpetual license sales 2,671 (910) 68 1,829
----------------------------------------------------------------------------
Total software license revenue 14,683 167 132 14,982
----------------------------------------------------------------------------
For the six months ended September 30, Incremental Foreign
2013 Q2 2013 License Exchange Q2 2014
($ thousands) Balance Growth Impact Balance
----------------------------------------------------------------------------
Annuity/maintenance license sales 25,192 1,758 161 27,111
Perpetual license sales 4,741 (682) 101 4,160
----------------------------------------------------------------------------
Total software license revenue 29,933 1,076 262 31,271
----------------------------------------------------------------------------
REVENUE BY GEOGRAPHIC SEGMENT
For the three months ended September 30, $ %
($ thousands) 2013 2012 change change
----------------------------------------------------------------------------
Annuity/maintenance revenue
Canada 5,452 5,473 (21) 0%
United States 2,957 2,549 408 16%
South America 1,566 1,172 394 34%
Eastern Hemisphere(1) 3,178 2,818 360 13%
----------------------------------------------------------------------------
13,153 12,012 1,141 9%
----------------------------------------------------------------------------
Perpetual revenue
Canada - 753 (753) -100%
United States - 258 (258) -100%
South America 414 - 414 100%
Eastern Hemisphere 1,415 1,660 (245) -15%
----------------------------------------------------------------------------
1,829 2,671 (842) -32%
----------------------------------------------------------------------------
Total software license revenue
Canada 5,452 6,226 (774) -12%
United States 2,957 2,807 150 5%
South America 1,980 1,172 808 69%
Eastern Hemisphere 4,593 4,478 115 3%
----------------------------------------------------------------------------
14,982 14,683 299 2%
----------------------------------------------------------------------------
For the six months ended September 30, $ %
($ thousands) 2013 2012 change change
----------------------------------------------------------------------------
Annuity/maintenance revenue
Canada 10,882 10,413 469 5%
United States 6,121 4,942 1,179 24%
South America 3,898 4,334 (436) -10%
Eastern Hemisphere(1) 6,210 5,503 707 13%
----------------------------------------------------------------------------
27,111 25,192 1,919 8%
----------------------------------------------------------------------------
Perpetual revenue
Canada 291 1,314 (1,023) -78%
United States 427 662 (235) -35%
South America 490 483 7 1%
Eastern Hemisphere 2,952 2,282 670 29%
----------------------------------------------------------------------------
4,160 4,741 (581) -12%
----------------------------------------------------------------------------
Total software license revenue
Canada 11,173 11,727 (554) -5%
United States 6,548 5,604 944 17%
South America 4,388 4,817 (429) -9%
Eastern Hemisphere 9,162 7,785 1,377 18%
----------------------------------------------------------------------------
31,271 29,933 1,338 4%
----------------------------------------------------------------------------
(1) Includes Europe, Africa, Asia and Australia.
During the three months ended September 30, 2013, on a geographic basis, total
software license sales increased across all regions with the exception of the
Canadian market which experienced an overall decrease of 12%, compared to the
same period of the previous fiscal year.
During the six months ended September 30, 2013, on a geographic basis, total
software license sales increased by 17% and 18% in the US and South America,
respectively, while Canada and South America experienced decreases of 5% and 9%,
respectively.
The Canadian market (representing 36% of year-to-date total software revenue)
remained flat in annuity/maintenance revenue during the three months ended
September 30, 2013. Even though we have experienced revenue growth during the
quarter due to increased license usage by our existing large clients, and due to
the addition of several new accounts, these increases have been offset due to a
few clients cancelling their projects or experiencing financial difficulties
which has reduced or eliminated their need for licenses. However, our
diversified geographic profile enables us to take advantage of opportunities
internationally which offsets the impact of market softening in any particular
region. On a year-to-date basis, annuity/maintenance revenue in Canada
experienced a 5% growth, compared to the same period of the previous year, and
our expectation is that our existing and, in particular, our large clients will
continue renewing and increasing their usage of our products. Perpetual sales
were lower during the three and six months ended September 30, 2013, compared to
the same period of the previous year, due to the fluctuations inherent in the
perpetual revenue stream. Historically, the Canadian market has been strong in
generating recurring annuity/maintenance revenue as evidenced by the quarterly
year-over-year increases of 37%, 37%, 38% and 10% recorded during Q2 2013, Q3
2013, Q4 2013, and Q1 2014, respectively. During the second quarter of the
current fiscal year, we recorded comparable revenue to the second quarter of the
previous fiscal year due to the reasons described above.
The US market (representing 21% of year-to-date total software revenue)
experienced significant growth in annuity/maintenance license sales, in
comparison to other regions, during the three and six months ended September 30,
2013, compared to the same periods of the previous fiscal year, driven by sales
to new and existing customers. Perpetual license sales were lower during the
three and six months ended September 30, 2013, compared to the same period of
the previous year. We continue to experience successive increases in the
annuity/maintenance license sales in the US as evidenced by the quarterly
year-over-year increases of 24%, 32%, 20% and 32% recorded during Q2 2013, Q3
2013, Q4 2013, and Q1 2014 respectively. This double-digit growth trend has
continued into the second quarter of the current fiscal year with the recorded
increase of 16%.
South America (representing 14% of year-to-date total software revenue)
experienced an increase of 34% in annuity/maintenance license sales during the
three months ended September 30, 2013, compared to the same period of the
previous fiscal year, mainly due to increased sales to existing clients. South
America experienced a decrease of 10% in annuity/maintenance license sales
during the six months ended September 30, 2013, compared to the same period of
the previous fiscal year; however, the decrease was caused by the variability of
the amounts recorded from a customer for which revenue is recognized only when
cash is received (see the discussion about revenue earned in the current period
that pertains to usage of products in prior quarters above the "Quarterly
Software License Revenue" graph). To provide a normalized comparison, if we were
to exclude the amounts received from this customer from the year-to-date
annuity/maintenance revenue of the current and the previous fiscal years, we
would notice that the annuity/maintenance revenue grew by 17% in the six months
ended September 30, 2013. The South American region also experienced an increase
in perpetual sales during the second quarter of the current year compared to the
second quarter of the previous year while perpetual license sales remained
relatively flat for the six months ended September 30, 2013, as compared to the
same period of the previous fiscal year.
Eastern Hemisphere (representing 29% of the year-to-date total software revenue)
grew annuity/maintenance license sales by 13% during both the three and six
months ended September 30, 2013, compared to the same periods of the previous
fiscal year, due to increased license usage by our significant customers in the
region. Compared to other regions, Eastern Hemisphere achieved the highest
growth in perpetual license revenue during the six months ended September 30,
2013, compared to the same period of the previous year.
Movements in perpetual sales across regions are indicative of the unpredictable
nature of the timing and location of perpetual license sales. Overall, our
recurring annuity/maintenance revenue base continues to experience growth. We
will continue to focus our efforts on increasing our license sales to both
existing and new customers, and we will endeavor to continue expanding our
market share globally.
As footnoted in the Quarterly Performance table, in the normal course of
business, CMG may complete the negotiation of certain annuity/maintenance
contracts and/or fulfill revenue recognition requirements within a current
quarter that includes usage of CMG's products in prior quarters. This situation
particularly affects contracts negotiated with countries that face increased
economic and political risks leading to revenue recognition criteria being
satisfied only at the time of the receipt of cash. The dollar magnitude of such
contracts may be significant to the quarterly comparatives of our
annuity/maintenance revenue stream and, to provide a normalized comparison, we
specifically identify the revenue component where revenue recognition is
satisfied in the current period for products provided in previous quarters.
QUARTERLY SOFTWARE LICENSE REVENUE ($THOUSANDS)
To view accompanying graph, visit the following link:
http://media3.marketwire.com/docs/CMG-Q2-2013-License-Revenue.pdf.
DEFERRED REVENUE
$ %
($ thousands) 2013 2012 change change
----------------------------------------------------------------------------
Deferred revenue at:
March 31 25,289 21,693 3,596 17%
June 30 22,014 18,779 3,235 17%
September 30 19,346 18,241 1,105 6%
----------------------------------------------------------------------------
CMG's deferred revenue consists primarily of amounts for pre-sold licenses. Our
annuity/maintenance revenue is deferred and recognized on a straight-line basis
over the life of the related 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 increase in deferred revenue year-over-year as at September 30, June 30 and
March 31 is reflective of the growth in annuity/maintenance license sales. The
variation within the year is due to the timing of renewals of annuity and
maintenance contracts that are skewed to the beginning of the calendar year
which explains the decrease in deferred revenue balance at the end of the first
quarter and second quarter (June 30 and September 30, respectively) compared to
the fiscal year-end (March 31).
Deferred revenue at September 30, 2013 increased by 6% compared to the same
period of the prior fiscal year. This increase is lower than the increases of
17% recorded in the previous two quarters due to the timing of the renewal of
one significant contract. In the previous fiscal year, this contract was renewed
and included in our second quarter's deferred revenue balance, whereas in the
current fiscal year, the renewal is expected to be completed during the third
quarter. To provide a normalized comparison, if we were to include this renewal
in the current quarter's deferred revenue balance, we would notice that the
deferred revenue would have increased by 12% at September 30, 2013 compared to
the same period of the previous fiscal year.
PROFESSIONAL SERVICES REVENUE
CMG recorded professional services revenue of $2.2 million for the three months
ended September 30, 2013, representing an increase of $0.8 million, compared to
the same period of the previous fiscal year, due to both an increase in project
activities by our clients and due to entering into a large consulting agreement
with one of our clients which, we expect, will contribute to the professional
services revenue during the current fiscal year. Professional services for the
six months ended September 30, 2013 amounted to $4.0 million, representing an
increase of $1.4 million, compared to the same period of the previous fiscal
year, which again resulted from entering into a large consulting agreement with
one of our clients in the current fiscal year.
Professional services revenue consists of specialized consulting, training, and
contract research activities. CMG performs consulting and contract research
activities on an ongoing basis, but such activities are not considered to be a
core part of our business and are primarily undertaken to increase our knowledge
base and hence expand the technological abilities of our simulators in a funded
manner, combined with servicing our customers' needs. In addition, these
activities are undertaken to market the capabilities of our suite of software
products with the ultimate objective to increase software license sales. Our
experience is that consulting activities are variable in nature as both the
timing and dollar magnitude of work are dependent on activities and budgets
within client companies.
Expenses
For the three months ended September 30, $ %
($ thousands) 2013 2012 change change
----------------------------------------------------------------------------
Sales, marketing and professional services 3,837 3,592 245 7%
Research and development 3,418 3,028 390 13%
General and administrative 1,633 1,421 212 15%
----------------------------------------------------------------------------
Total operating expenses 8,888 8,041 847 11%
----------------------------------------------------------------------------
Direct employee costs(1) 7,188 6,491 697 11%
Other corporate costs 1,700 1,550 150 10%
----------------------------------------------------------------------------
8,888 8,041 847 11%
----------------------------------------------------------------------------
For the six months ended September 30, $ %
($ thousands) 2013 2012 change change
----------------------------------------------------------------------------
Sales, marketing and professional services 7,486 7,555 (69) -1%
Research and development 6,890 5,925 965 16%
General and administrative 3,278 2,922 356 12%
----------------------------------------------------------------------------
Total operating expenses 17,654 16,402 1,252 8%
----------------------------------------------------------------------------
Direct employee costs(1) 14,308 13,086 1,222 9%
Other corporate costs 3,346 3,316 30 1%
----------------------------------------------------------------------------
17,654 16,402 1,252 8%
----------------------------------------------------------------------------
(1) Includes salaries, bonuses, stock-based compensation, benefits and
commissions.
CMG's total operating expenses increased by 11% and 8% for the three and six
months ended September 30, 2013, respectively, compared to the same periods of
the previous fiscal year, due to increases in both direct employee costs and
other corporate costs.
DIRECT EMPLOYEE COSTS
As a technology company, CMG's largest area of expenditure is for its people.
Approximately 81% of the total operating expenses in the six months ended
September 30, 2013 related to staff costs, compared to 80% recorded in the
comparative period of last year. Staffing levels for the current fiscal year
grew in comparison to the previous fiscal year to support our continued growth.
At September 30, 2013, CMG's staff complement was 185 employees and consultants,
up from 167 employees as at September 30, 2012. Direct employee costs increased
during the three and six months ended September 30, 2013, compared to the same
periods of the previous fiscal year, due to staff additions, increased levels of
compensation, and related benefits.
OTHER CORPORATE COSTS
Other corporate costs increased by 10% for the three months ended September 30,
2013, compared to the same period of the previous fiscal year, mainly due to
increased computing costs.
Other corporate costs increased by 1% for the six months ended September 30,
2013, compared with the same period of the previous fiscal year, mainly due to
increased computing costs in the six months ended September 30, 2013 offset by
the inclusion of the costs associated with CMG's biennial technical symposium in
the six months ended September 30, 2012.
RESEARCH AND DEVELOPMENT
For the three months ended September 30, $ %
($ thousands) 2013 2012 change change
----------------------------------------------------------------------------
Research and development (gross) 3,935 3,487 448 13%
SR&ED credits (517) (459) (58) 13%
----------------------------------------------------------------------------
Research and development 3,418 3,028 390 13%
----------------------------------------------------------------------------
Research and development as a % of total
revenue 20% 19%
----------------------------------------------------------------------------
For the six months ended September 30, $ %
($ thousands) 2013 2012 change change
----------------------------------------------------------------------------
Research and development (gross) 7,955 6,872 1,083 16%
SR&ED credits (1,065) (947) (118) 12%
----------------------------------------------------------------------------
Research and development 6,890 5,925 965 16%
----------------------------------------------------------------------------
Research and development as a % of total
revenue 20% 18%
----------------------------------------------------------------------------
CMG maintains its belief that its strategy of growing long-term value for
shareholders can only be achieved through continued investment in research and
development. CMG works closely with its customers to provide solutions to
complex problems related to proven and new advanced recovery processes.
The above research and development costs include CMG's share of joint research
and development costs associated with the DRMS project of $1.0 million and $2.1
million for the three and six months ended September 30, 2013, respectively
(2012 - $0.7 million and $1.5 million). See discussion under "Commitments, Off
Balance Sheet Items and Transactions with Related Parties."
The increases of 13% and 16% in our gross spending on research and development
for the three and six months ended September 30, 2013, respectively, demonstrate
our continued commitment to advancement of our technology which is the focal
part of our business strategy.
Research and development costs, net of research and experimental development
("SR&ED") credits, increased by 13% and 16% during the three and six months
ended September 30, 2013, respectively, compared to the same periods of the
previous fiscal year, due to increased employee compensation costs and costs
associated with computing resources.
We also had an increase in SR&ED credits driven mainly by the increases in our
direct employee costs as well as the increase in hours spent on projects
eligible for SR&ED credits.
DEPRECIATION
For the three months ended September 30, $ %
($ thousands) 2013 2012 change change
----------------------------------------------------------------------------
Depreciation of property and equipment,
allocated to:
Sales, marketing and professional services 103 119 (16) -13%
Research and development 226 226 - 0%
General and administrative 50 48 2 4%
----------------------------------------------------------------------------
Total depreciation 379 393 (14) -4%
----------------------------------------------------------------------------
For the six months ended September 30, $ %
($ thousands) 2013 2012 change change
----------------------------------------------------------------------------
Depreciation of property and equipment,
allocated to:
Sales, marketing and professional services 203 217 (14) -6%
Research and development 452 406 46 11%
General and administrative 99 88 11 13%
----------------------------------------------------------------------------
Total depreciation 754 711 43 6%
----------------------------------------------------------------------------
Depreciation in the three and six months ended September 30, 2013 was relatively
flat as compared to the same periods in the previous fiscal year.
Finance Income and Costs
For the three months ended September 30, $ %
($ thousands) 2013 2012 change change
----------------------------------------------------------------------------
Interest income 162 131 31 24%
----------------------------------------------------------------------------
Finance income 162 131 31 24%
----------------------------------------------------------------------------
Net foreign exchange loss (325) (460) 135 -29%
----------------------------------------------------------------------------
Finance costs (325) (460) 135 -29%
----------------------------------------------------------------------------
For the six months ended September 30, $ %
($ thousands) 2013 2012 change change
----------------------------------------------------------------------------
Interest income 319 276 43 16%
Net foreign exchange gain 167 - 167 100%
----------------------------------------------------------------------------
Total finance income 486 276 210 76%
----------------------------------------------------------------------------
Net foreign exchange loss - (133) 133 -100%
----------------------------------------------------------------------------
Finance costs - (133) 133 -100%
----------------------------------------------------------------------------
Interest income increased in the three and six months ended September 30, 2013,
compared to the same periods of the prior fiscal year, mainly due to investing
larger cash balances.
CMG is impacted by the movement of the US dollar against the Canadian dollar as
approximately 71% (2012 - 65%) of CMG's revenue for the six months ended
September 30, 2013 is denominated in US dollars, whereas only approximately 25%
(2012 - 23%) of CMG's total costs are denominated in US dollars.
CDN$ to US$ At June 30 At September 30 Six month trailing average
----------------------------------------------------------------------------
2011 1.0370 0.9626 1.0252
2012 0.9813 1.0166 0.9977
2013 0.9513 0.9723 0.9670
----------------------------------------------------------------------------
CMG recorded a net foreign exchange loss of $0.3 million for the three months
ended September 30, 2013, compared to a $0.5 million foreign exchange loss
recorded in the same period of the previous fiscal year, due to a strengthening
of the Canadian dollar during the quarter which contributed negatively to the
valuation of our US-denominated working capital.
CMG recorded a net foreign exchange gain of $0.2 million for the six months
ended September 30, 2013, compared to a $0.1 million foreign exchange loss
recorded in the same period of the previous fiscal year, as the net foreign
exchange loss recorded in the three months ended September 30, 2013 was offset
by the $0.5 million foreign exchange gain recorded in the three months ended
June 30, 2013.
Income and Other Taxes
CMG's effective tax rate for the six months ended September 30, 2013 is
reflected as 30.0% (2012 - 29.7%), whereas the prevailing Canadian statutory tax
rate is now 25.0%. This difference is primarily due to a combination of the
non-tax deductibility of stock-based compensation expense and the benefit of
foreign withholding taxes being realized only as a tax deduction as opposed to a
tax credit.
The benefit recorded in CMG's books on the SR&ED investment tax credit program
impacts deferred income taxes. The investment tax credit earned in the current
fiscal year is utilized by CMG to reduce income taxes otherwise payable for the
current fiscal year and the federal portion of this benefit bears an inherent
tax liability as the amount of the credit is included in the subsequent year's
taxable income for both federal and provincial purposes. The inherent tax
liability on these investment tax credits is reflected in the year the credit is
earned as a non-current deferred tax liability and then, in the following fiscal
year, is transferred to income taxes payable.
Operating Profit and Net Income
For the three months ended September 30, $ %
($ thousands, except per share amounts) 2013 2012 change change
----------------------------------------------------------------------------
Total revenue 17,184 16,073 1,111 7%
Operating expenses (8,888) (8,041) (847) 11%
----------------------------------------------------------------------------
Operating profit 8,296 8,032 264 3%
Operating profit as a % of total revenue 48% 50%
----------------------------------------------------------------------------
Net income for the period 5,608 5,361 247 5%
Net income for the period as a % of total
revenue 33% 33%
----------------------------------------------------------------------------
Basic earnings per share ($/share) 0.15 0.14 0.01 7%
----------------------------------------------------------------------------
For the six months ended September 30, $ %
($ thousands, except per share amounts) 2013 2012 change change
----------------------------------------------------------------------------
Total revenue 35,300 32,539 2,761 8%
Operating expenses (17,654) (16,402) (1,252) 8%
----------------------------------------------------------------------------
Operating profit 17,646 16,137 1,509 9%
Operating profit as a % of total revenue 50% 50%
----------------------------------------------------------------------------
Net income for the period 12,689 11,451 1,238 11%
Net income for the period as a % of total
revenue 36% 35%
----------------------------------------------------------------------------
Earnings per share ($/share) 0.33 0.31 0.02 6%
----------------------------------------------------------------------------
Operating profit as a percentage of total revenue for the three months ended
September 30, 2013 was at 48% compared to 50% recorded in the same period of the
previous fiscal year. While our total revenue grew by 7% during this period of
time, our operating expenses grew by 11%, having a negative impact on our
operating profit. The slight decrease in operating profit as a percentage of
total revenue is due to the fluctuations inherent in our perpetual revenue
stream given that more perpetual license revenue was recorded during the second
quarter of the previous year, compared to the same quarter of the current year.
Operating profit as a percentage of revenue for the six months ended September
30, 2013 remained flat at 50% as compared to the same period of the previous
fiscal year.
Net income for the period as a percentage of revenue was consistent at 33% for
the three months ended September 30, 2013, compared to the same period of the
previous fiscal year.
Net income for the period as a percentage of revenue increased to 36% for the
six months ended September 30, 2013, compared to 35% for the same period of the
previous fiscal year.
We have continued to maintain our profitability by focusing our efforts on
increasing effectively controlling our operating costs. Managing these variables
will continue to license sales while, at the same time, be imperative to our
future success.
EBITDA
For the three months ended September 30, $ %
($ thousands) 2013 2012 change change
----------------------------------------------------------------------------
Net income for the period 5,608 5,361 247 5%
Add (deduct):
Depreciation 379 393 (14) -4%
Finance income (162) (131) (31) 24%
Finance costs 325 460 (135) -29%
Income and other taxes 2,525 2,342 183 8%
----------------------------------------------------------------------------
EBITDA 8,675 8,425 250 3%
----------------------------------------------------------------------------
EBITDA as a % of total revenue 50% 52%
----------------------------------------------------------------------------
For the six months ended September 30, $ %
($ thousands) 2013 2012 change change
----------------------------------------------------------------------------
Net income for the period 12,689 11,451 1,238 11%
Add (deduct):
Depreciation 754 711 43 6%
Finance income (486) (276) (210) 76%
Finance costs - 133 (133) -100%
Income and other taxes 5,443 4,829 614 13%
----------------------------------------------------------------------------
EBITDA 18,400 16,848 1,552 9%
----------------------------------------------------------------------------
EBITDA as a % of total revenue 52% 52%
----------------------------------------------------------------------------
EBITDA increased by 3% and 9% for the three and six months ended September 30,
2013, compared to the same periods of the previous fiscal year. This increase
provides further indication of our ability to keep growing our license sales
while effectively managing costs in relation to this base.
EBITDA as a percent of total revenue for the three months ended September 30,
2013 decreased to 50% as compared to 52% recorded in the same period of the
previous fiscal year. This slight decrease is due to the fluctuations inherent
in our perpetual revenue stream.
EBITDA as a percent of total revenue for the six months ended September 30, 2013
remained consistent with the same period of the previous fiscal year at 52%.
Liquidity and Capital Resources
For the three months ended September 30, $ %
($ thousands) 2013 2012 change change
----------------------------------------------------------------------------
Cash, beginning of period 63,112 51,535 11,577 22%
Cash flow from (used in):
Operating activities 2,903 3,537 (634) -18%
Financing activities (2,242) (3,456) 1,214 -35%
Investing activities (28) (922) 894 -97%
----------------------------------------------------------------------------
Cash, end of period 63,745 50,694 13,051 26%
----------------------------------------------------------------------------
For the six months ended September 30, $ %
($ thousands) 2013 2012 change change
----------------------------------------------------------------------------
Cash, beginning of period 59,419 55,374 4,045 7%
Cash flow from (used in):
Operating activities 12,740 10,198 2,542 25%
Financing activities (8,161) (13,519) 5,358 -40%
Investing activities (253) (1,359) 1,106 -81%
----------------------------------------------------------------------------
Cash, end of period 63,745 50,694 13,051 26%
----------------------------------------------------------------------------
OPERATING ACTIVITIES
Cash flow generated from operating activities decreased by $0.6 million in the
three months ended September 30, 2013, compared to the same period of last year,
mainly as a result of an increase in the deferred revenue balance offset by the
positive effect on the timing difference of when trade payables and accrued
liabilities are recorded and paid.
Cash flow generated from operating activities increased by $2.5 million in the
six months ended September 30, 2013, compared to the same period of last year,
mainly due to the increase in net income for the period, the timing difference
of when the sales are made and when the resulting receivables are collected, the
positive effect on the timing difference of when income taxes are recorded and
paid offset by the change in trade payables and accrued liabilities and deferred
revenue balances.
FINANCING ACTIVITIES
Cash used in financing activities during the three and six months ended
September 30, 2013 decreased by $1.2 million and $5.4 million, respectively,
compared to the same period of last year, due to receiving higher proceeds from
the issuance of Common Shares. In addition, in the first quarter of the previous
fiscal year, CMG spent $1.6 million on buying back Common Shares.
During the six months ended September 30, 2013, CMG employees and directors
exercised options to purchase 755,000 Common Shares, which resulted in cash
proceeds of $7.7 million (2012 - 459,000 options exercised to purchase Common
Shares which resulted in cash proceeds of $3.8 million).
In the six months ended September 30, 2013, CMG paid $15.8 million in dividends,
representing the following quarterly dividends:
($ per share) Q1 Q2
----------------------------------------------------------------------------
Dividends declared and paid 0.18 0.18
Special dividend declared and paid 0.05 -
----------------------------------------------------------------------------
Total dividends declared and paid 0.23 0.18
----------------------------------------------------------------------------
In the six months September 30, 2012, CMG paid $15.8 million in dividends,
representing the following quarterly dividends:
($ per share) Q1 Q2
----------------------------------------------------------------------------
Dividends declared and paid 0.16 0.16
Special dividend declared and paid 0.10 -
----------------------------------------------------------------------------
Total dividends declared and paid 0.26 0.16
----------------------------------------------------------------------------
On November 12, 2013, CMG announced the payment of a quarterly dividend of $0.18
per share on CMG's Common Shares. The dividend will be paid on December 13, 2013
to shareholders of record at the close of business on December 6, 2013.
Over the past 10 years, we have consistently raised our total annual dividend
and paid out a special dividend at the end of each fiscal year as determined by
our corporate performance. In recognition of the importance of a more regular
income stream to our shareholders, as reported in fiscal 2012 Management's
Discussion and Analysis, we decided to increase the relative proportion of
dividends paid quarterly and lower the amount paid as a special annual dividend
beginning in fiscal 2013. The above table demonstrates this increase in the
regular quarterly dividend which amounted to $0.18 per share in Q1 and Q2 of
fiscal 2014 compared to $0.16 per share in Q1 and Q2 of fiscal 2013.
Based on our expectation of solid profitability and cash-generating ability
driven by the predictability of our software revenue base and effective
management of costs, we are cautiously optimistic that the company is well
positioned for future growth which will enable us to continue to pay quarterly
dividends.
On April 16, 2012, the Company announced a Normal Course Issuer Bid ("NCIB")
commencing on April 18, 2012 to purchase for cancellation up to 3,416,000 of its
Common Shares. During the year ended March 31, 2013, a total of 91,000 Common
Shares were purchased at market price for a total cost of $1,551,000.
On April 29, 2013, the Company announced a NCIB commencing on May 1, 2013 to
purchase for cancellation up to 3,538,000 of its Common Shares. During the six
months ended September 30, 2013, no Common Shares were purchased.
INVESTING ACTIVITIES
CMG's current needs for capital asset investment relate to computer equipment
and office infrastructure costs, all of which will be funded internally. During
the six months ended September 30, 2013, CMG expended $0.3 million on property
and equipment additions, primarily composed of computing equipment, and has a
capital budget of $1.8 million for fiscal 2014.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2013, CMG has $63.7 million in cash, no debt, and has access to
just over $0.8 million under a line of credit with its principal banker.
During the six months ended September 30, 2013, 4,838,000 shares of CMG's public
float were traded on the TSX. As at September 30, 2013, CMG's market
capitalization based upon its September 30, 2013 closing price of $24.10 was
$937.1 million.
Commitments, Off Balance Sheet Items and Transactions with Related Parties
The Company is the operator of the DRMS research and development project (the
"DRMS Project"), a collaborative effort with its partners Shell International
Exploration and Production BV ("Shell") and Petroleo Brasileiro S.A.
("Petrobras"), to jointly develop the newest generation of reservoir and
production system simulation software. The project has been underway since 2006
and, with the ongoing support of the participants, it is expected to continue
until ultimate delivery of the software. The Company's share of costs associated
with the project is estimated to be $5.5 million ($2.6 million net of overhead
recoveries) for fiscal 2014. CMG plans to continue funding its share of the
project costs associated with the development of the newest generation reservoir
simulation software system from internally generated cash flows.
CMG has very little in the way of other ongoing material contractual obligations
other than for pre-sold licenses which are reflected as deferred revenue on its
statement of financial position, and contractual obligations for office leases
which are estimated as follows: 2014 - $1.0 million; 2015 to 2016 - $2.0 million
per year; and 2017 - $1.0 million.
Business Risks and Critical Accounting Estimates
These remain unchanged from the factors detailed in CMG's 2013 Annual Report.
Changes in Accounting Policies
Except as disclosed below, the accounting policies, presentation and methods of
computation remain unchanged from those detailed in CMG's 2013 Annual Report.
The following new standards and interpretations have been adopted as detailed
below:
-- IFRS 10 Consolidated Financial Statements
Replaces the guidance in IAS 27 Consolidated and Separate Financial
Statements and SIC-12 Consolidation - Special Purpose Entities, and
provides a single model to be applied in the control analysis for all
investees, including entities that currently are special purpose
entities in the scope of SIC-12. The Company adopted IFRS 10 for the
annual period beginning on April 1, 2013. The adoption of IFRS 10 did
not have a material impact on the condensed consolidated interim
financial statements.
-- IFRS 11 Joint Arrangements
Under IFRS 11, joint arrangements are classified as either joint
operations or joint ventures. IFRS 11 replaces the guidance in IAS 31
Interest in Joint Ventures, and essentially carves out of previous
jointly controlled entities, those arrangements which although
structured through a separate vehicle, such separation is ineffective
and the parties to the arrangement have rights to the assets and
obligations for the liabilities and are accounted for as joint
operations in a fashion consistent with jointly controlled
assets/operations under IAS 31. In addition, under IFRS 11, joint
ventures must now use the equity method of accounting. The Company
adopted IFRS 11 for the annual period beginning on April 1, 2013. The
adoption of IFRS 11 did not have a material impact on the condensed
consolidated interim financial statements.
-- IFRS 12 Disclosure of Interests in Other Entities
Contains the disclosure requirements for entities that have interests in
subsidiaries, joint arrangements, associates and/or unconsolidated
structured entities. The Company adopted IFRS 12 for the annual period
beginning on April 1, 2013. The adoption of IFRS 12 did not have a
material impact on the condensed consolidated interim financial
statements.
-- IFRS 13 Fair Value Measurement
Replaces the fair value measurement guidance contained in individual
IFRSs with a single source of fair value measurement guidance. It
defines fair value as the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between market
participants at the measurement date, i.e. an exit price. The standard
also establishes a framework for measuring fair value and sets out
disclosure requirements for fair value measurement to provide
information that enables financial statement users to assess the methods
and inputs used to develop fair value measurements and, for recurring
fair value measurements that use significant unobservable inputs (Level
3), the effect of the measurements on profit or loss or other. The
Company adopted IFRS 13 prospectively for the interim and annual periods
beginning on April 1, 2013. The adoption of IFRS 13 did not have a
material impact on the condensed consolidated interim financial
statements other than the inclusion of certain fair value disclosures
which were previously applicable to annual financial statements only.
-- Amendments to IAS 1 Presentation of Financial Statements
Require an entity present separately the items of other comprehensive
income that may be reclassified to profit or loss in the future from
those that would never be reclassified to profit or loss. The Company
adopted the amendments for the annual period beginning on April 1, 2013.
As the amendments only required changes in the presentation of items in
other comprehensive income, the new standard did not have a material
impact on the condensed consolidated interim financial statements.
-- Amendments to IFRS 7 Offsetting Financial Assets and Liabilities
Contains new disclosure requirements for offset financial assets and
liabilities and netting arrangements. The Company adopted the amendments
for the interim and annual periods beginning on April 1, 2013. The
amendments to IFRS 7 did not have a material impact on the condensed
consolidated interim financial statements.
Accounting Standards and Interpretations Issued But Not Yet Effective
The following standards and interpretations have not been adopted by the Company
as they apply to future periods:
Nature of impending
change in accounting Impact on CMG's
Standard/Interpretation policy financial statements
----------------------------------------------------------------------------
IFRS 9 Financial IFRS 9 (2009) replaces The mandatory effective
Instruments the guidance in IAS 39 date of IFRS 9 (2010),
Financial Instruments: which supersedes IFRS 9
In November 2009 the Recognition and (2009), has been left
IASB issued IFRS 9 Measurement, on the open by the IASB. Early
Financial Instruments classification and adoption is permitted.
(IFRS 9 (2009)), and in measurement of financial The Company will
October 2010 the IASB assets. The Standard determine when to adopt
published amendments to eliminates the existing IFRS 9 (2010) when the
IFRS 9 (IFRS 9 (2010)). IAS 39 categories of IASB has determined the
On July 24, 2013 the held to maturity, mandatory effective date
IASB tentatively decided available-for-sale and and finalised the
to defer the mandatory loans and receivable. impairment and
effective date of IFRS classification and
9. The mandatory Financial assets will be measurement
effective date will be classified into one of requirements.
left open pending the two categories on
finalisation of the initial recognition: The Company does not
impairment and expect IFRS 9 (2010) to
classification and - financial assets have a material impact
measurement measured at amortized on the financial
requirements. cost; or statements. The
- financial assets classification and
measured at fair value. measurement of the
Company's financial
Gains and losses on assets and liabilities
remeasurement of is not expected to
financial assets change under IFRS 9
measured at fair value (2010) because of the
will be recognized in nature of the Company's
profit or loss, except operations and the types
that for an investment of financial assets that
in an equity instrument it holds.
which is not held-for-
trading, IFRS 9
provides, on initial
recognition, an
irrevocable election to
present all fair value
changes from the
investment in other
comprehensive income
(OCI). The election is
available on an
individual share-by-
share basis. Amounts
presented in OCI will
not be reclassified to
profit or loss at a
later date.
IFRS 9 (2010) added
guidance to IFRS 9
(2009) on the
classification and
measurement of financial
liabilities, and this
guidance is consistent
with the guidance in IAS
39 expect as described
below.
Under IFRS 9 (2010), for
financial liabilities
measured at fair value
under the fair value
option, changes in fair
value attributable to
changes in credit risk
will be recognized in
OCI, with the remainder
of the change recognized
in profit or loss.
However, if this
requirement creates or
enlarges an accounting
mismatch in profit or
loss, the entire change
in fair value will be
recognized in profit or
loss. Amounts presented
in OCI will not be
reclassified to profit
or loss at a later date.
IFRS 9 (2010) also
requires derivative
liabilities that are
linked to and must be
settled by delivery of
an unquoted equity
instrument to be
measured at fair value,
whereas such derivative
liabilities are measured
at cost under IAS 39.
IFRS 9 (2010) also added
the requirements of IAS
39 for the derecognition
of financial assets and
liabilities to IFRS 9
without change.
----------------------------------------------------------------------------
Amendments to IAS 32, The amendments to IAS 32 The Company intends to
Offsetting Financial clarify that an entity adopt the amendments to
Assets and Liabilities currently has a legally IAS 32 in its financial
enforceable right to statements for the
In December 2011, the set-off if that right annual period beginning
IASB published is: April 1, 2014. The
Offsetting Financial Company does not expect
Assets and Financial - not contingent on a the amendments to have a
Liabilities and issued future event; and material impact on the
new presentation - enforceable both in financial statements.
requirements in IAS 32 the normal course of
Financial Instruments: business and in the
Presentation. event of default,
insolvency or bankruptcy
The effective date for of the entity and all
the amendments to IAS 32 counterparties.
is annual periods
beginning on or after The amendments to IAS 32
January 1, 2014. These also clarify when a
amendments are to be settlement mechanism
applied retrospectively. provides for net
settlement or gross
settlement that is
equivalent to net
settlement.
----------------------------------------------------------------------------
Amendments to IAS 36, The amendments to IAS 36 The Company intends to
Impairment of Assets clarify IASB's original adopt the amendments to
intention to require: IAS 36 in its financial
In May 2013, the IASB statements for the
published Recoverable - the disclosure of the annual period beginning
Amount Disclosures for recoverable amount of April 1, 2014. The
Non-Financial Assets impaired assets; and Company does not expect
detailing narrow scope - additional disclosures the amendments to have a
amendments to IAS 36 about the measurement of material impact on the
Impairment of Assets. the recoverable amount financial statements.
of impaired assets when
The effective date for the recoverable amount
the amendments to IAS 36 is based on fair value
is annual periods less costs of disposal,
beginning on or after including the discount
January 1, 2014. These rate when a present
amendments are to be value technique is used
applied retrospectively to measure the
and earlier adoption is recoverable amount.
permitted for periods
when IFRS 13 is applied.
----------------------------------------------------------------------------
Outstanding Share Data
The following table represents the number of Common Shares and options outstanding:
As at November 12, 2013
(thousands)
----------------------------------------------------------------------------
Common Shares 38,901
Options 3,227
----------------------------------------------------------------------------
On July 13, 2005, CMG adopted a rolling stock option plan which allows the
Company to grant options to its employees and directors to acquire Common Shares
of up to 10% of the outstanding Common Shares at the date of grant. Based upon
this calculation, at November 12, 2013, CMG could grant up to 3,890,000 stock
options.
Disclosure Controls and Procedures and Internal Control over Financial Reporting
Management is responsible for establishing and maintaining disclosure controls
and procedures ("DC&P") and internal control over financial reporting ("ICFR")
as defined under National Instrument 52-109. These controls and procedures were
reviewed and the effectiveness of their design and operation was evaluated in
fiscal 2013 in accordance with the COSO control framework. The evaluation
confirmed the effectiveness of DC&P and ICFR at March 31, 2013. During our
fiscal year 2014, we continue to monitor and review our controls and procedures.
During the six months ended September 30, 2013, there have been no significant
changes to the Company's ICFR that have materially affected, or are reasonably
likely to materially affect, the company's ICFR.
Outlook
Our annuity/maintenance revenue stream continued to grow during the first six
months of fiscal 2014 with a recorded increase of 8%, compared to the same
period of the previous fiscal year. Over 80% of our software license revenue is
derived from our annuity and maintenance contracts, and with a strong renewal
rate, we expect to see continued growth in this revenue base. We have
experienced increased usage by our existing large clients as well as added new
accounts during the quarter. Year-to-date, the most notable growth was
experienced in the US and the Eastern Hemisphere.
Our geographical diversification allows us to take advantage of opportunities
internationally, and we will continue to extend our reach globally and focus our
efforts on sustaining high renewal rates as well as increasing the number of
licenses sold to both existing and new customers.
Although professional services are not the primary source of our revenue, we
were able to grow this business by $1.4 million in the first six months of
fiscal 2014 as compared to the same period of the prior fiscal year.
Our profit margin continued to hold strong, demonstrating our continuous
commitment to effectively manage our corporate costs. For the six months ended
September 30, 2013, our EBITDA represented 52% of our total revenue, remaining
consistent with the same period of the previous fiscal year.
CMG continues to focus its resources on the development, enhancement and
deployment of simulation software tools relevant to the challenges and
opportunities facing its diverse customer base. We strive to invest 20% of our
top line towards continuous improvement of our product features as well as
development of new capabilities in order to maintain our technological
distinction and take advantage of new opportunities. We will continue fostering
value-based, long-term relationships with our clients while helping them solve
problems associated with hydrocarbon recovery, with an emphasis on the advanced
recovery processes, which are increasing in complexity and where our products
continue to gain increasing importance. With the growth in unconventional
hydrocarbon and enhanced oil recovery ("EOR") projects around the globe, we are
seeing an increase in the use of reservoir simulation software by reservoir
engineers. This growth in simulation use has been reflected in the number and
types of projects being simulated and the amount of simulation done on each
project. More recently, the North American market is seeing an increased
opportunity in shale gas and liquids which use complex recovery processes that
necessitate the use of simulation.
One of the instrumental parts of our success includes training programs which we
offer to our customers to enable them to become more efficient and effective
users of our software. We continue to see strong class attendance across all the
regions.
CMG's joint project to develop the newest generation of dynamic reservoir
modelling systems ("DRMS Project") continued to make progress during the second
quarter of the current fiscal year. The most recent beta version of the software
was released at the beginning of calendar 2013, and our DRMS team continues to
make progress toward the anticipated limited commercial release of the software
scheduled for the end of calendar 2013. The new release will be distributed only
to our partner companies for the purpose of testing it on selected assets. CMG
and its partners remain committed to funding the ongoing development and to the
future success of the project.
The excellent reputation behind our Company and its product suite offering will
continue to enable us to grow and sustain a healthy market share while
generating solid software license revenue. With our strong working capital
position, we are well positioned to continue to invest in all aspects of our
business in order to continue to grow and diversify our revenue base and to
ultimately return value to our shareholders in the form of regular quarterly
dividend payments and growth in share value.
Kenneth M. Dedeluk
President and Chief Executive Officer
November 12, 2013
COMPUTER MODELLING GROUP LTD.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
September 30, March 31,
UNAUDITED (thousands of Canadian $) 2013 2013
----------------------------------------------------------------------------
Assets
Current assets:
Cash 63,745 59,419
Trade and other receivables 13,190 19,141
Prepaid expenses 1,158 1,216
Prepaid income taxes (note 7) 218 341
----------------------------------------------------------------------------
78,311 80,117
Property and equipment 2,803 3,304
----------------------------------------------------------------------------
Total assets 81,114 83,421
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Current liabilities:
Trade payables and accrued liabilities 3,883 6,047
Income taxes payable (note 7) 444 296
Deferred revenue 19,346 25,289
----------------------------------------------------------------------------
23,673 31,632
Deferred tax liability (note 7) 200 379
----------------------------------------------------------------------------
Total liabilities 23,873 32,011
----------------------------------------------------------------------------
Shareholders' equity:
Share capital 49,520 40,498
Contributed surplus 4,628 4,673
Retained earnings 3,093 6,239
----------------------------------------------------------------------------
Total shareholders' equity 57,241 51,410
----------------------------------------------------------------------------
Total liabilities and shareholders' equity 81,114 83,421
----------------------------------------------------------------------------
----------------------------------------------------------------------------
See accompanying notes to condensed consolidated financial statements.
COMPUTER MODELLING GROUP LTD.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
Three months ended Six months ended
September 30 September 30
UNAUDITED (thousands of Canadian
$ except per share amounts) 2013 2012 2013 2012
----------------------------------------------------------------------------
Revenue (note 4) 17,184 16,073 35,300 32,539
----------------------------------------------------------------------------
Operating expenses
Sales, marketing and
professional services 3,837 3,592 7,486 7,555
Research and development (note
5) 3,418 3,028 6,890 5,925
General and administrative 1,633 1,421 3,278 2,922
----------------------------------------------------------------------------
8,888 8,041 17,654 16,402
----------------------------------------------------------------------------
Operating profit 8,296 8,032 17,646 16,137
Finance income (note 6) 162 131 486 276
Finance costs (note 6) (325) (460) - (133)
----------------------------------------------------------------------------
Profit before income and other
taxes 8,133 7,703 18,132 16,280
Income and other taxes (note 7) 2,525 2,342 5,443 4,829
----------------------------------------------------------------------------
Net and total comprehensive
income 5,608 5,361 12,689 11,451
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Earnings Per Share
Basic (note 8(e)) 0.15 0.14 0.33 0.31
Diluted (note 8(e)) 0.14 0.14 0.32 0.30
----------------------------------------------------------------------------
----------------------------------------------------------------------------
See accompanying notes to condensed consolidated financial statements.
COMPUTER MODELLING GROUP LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Common
UNAUDITED Share Contributed Retained Total
(thousands of Canadian $) Capital Surplus Earnings Equity
----------------------------------------------------------------------------
Balance, April 1, 2012 31,751 3,535 10,793 46,079
Total comprehensive income for
the period - - 11,451 11,451
Dividends paid - - (15,756) (15,756)
Shares issued for cash on
exercise of stock options (note
8(b)) 3,788 - - 3,788
Common shares buy-back (notes
8(b) & (c)) (80) - (1,471) (1,551)
Stock-based compensation:
Current period expense - 1,232 - 1,232
Stock options exercised (note
8(b)) 723 (723) - -
----------------------------------------------------------------------------
Balance, September 30, 2012 36,182 4,044 5,017 45,243
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Balance, April 1, 2013 40,498 4,673 6,239 51,410
Total comprehensive income for
the period - - 12,689 12,689
Dividends paid - - (15,835) (15,835)
Shares issued for cash on
exercise of stock options (note
8(b)) 7,674 - - 7,674
Stock-based compensation:
Current period expense - 1,303 - 1,303
Stock options exercised (note
8(b)) 1,348 (1,348) - -
----------------------------------------------------------------------------
Balance, September 30, 2013 49,520 4,628 3,093 57,241
----------------------------------------------------------------------------
----------------------------------------------------------------------------
See accompanying notes to condensed consolidated financial statements.
COMPUTER MODELLING GROUP LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended Six months ended
September 30 September 30
UNAUDITED
(thousands of Canadian $) 2013 2012 2013 2012
----------------------------------------------------------------------------
Cash flows from operating activities
Net income 5,608 5,361 12,689 11,451
Adjustments for:
Depreciation 379 393 754 711
Income and other taxes (note 7) 2,525 2,342 5,443 4,829
Stock-based compensation (note
8(d)) 758 664 1,303 1,232
Interest income (note 6) (162) (131) (319) (276)
----------------------------------------------------------------------------
9,108 8,629 19,870 17,947
Changes in non-cash working capital:
Trade and other receivables (1,172) (1,483) 5,954 3,079
Trade payables and accrued
liabilities 251 (300) (2,164) (1,209)
Prepaid expenses (95) (56) 58 9
Deferred revenue (2,668) (538) (5,943) (3,452)
----------------------------------------------------------------------------
Cash generated from operating
activities 5,424 6,252 17,775 16,374
Interest received 161 136 316 280
Income taxes paid (2,682) (2,851) (5,351) (6,456)
----------------------------------------------------------------------------
Net cash from operating activities 2,903 3,537 12,740 10,198
----------------------------------------------------------------------------
Cash flows from financing activities
Proceeds from issue of common shares 4,752 2,564 7,674 3,788
Dividends paid (6,994) (6,020) (15,835) (15,756)
Common shares buy-back (note 8(c)) - - - (1,551)
----------------------------------------------------------------------------
Net cash used in financing
activities (2,242) (3,456) (8,161) (13,519)
----------------------------------------------------------------------------
Cash flows used in investing
activities
Property and equipment additions (28) (922) (253) (1,359)
----------------------------------------------------------------------------
Increase (decrease) in cash 633 (841) 4,326 (4,680)
Cash, beginning of period 63,112 51,535 59,419 55,374
----------------------------------------------------------------------------
Cash, end of period 63,745 50,694 63,745 50,694
----------------------------------------------------------------------------
----------------------------------------------------------------------------
See accompanying notes to condensed consolidated financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the three and six months ended September 30, 2013 and 2012 (unaudited).
1. Reporting Entity:
Computer Modelling Group Ltd. ("CMG") is a company domiciled in Alberta, Canada
and is incorporated pursuant to the Alberta Business Corporations Act, with its
Common Shares listed on the Toronto Stock Exchange under the symbol "CMG". The
address of CMG's registered office is Suite 200, 1824 Crowchild Trail N.W.,
Calgary, Alberta, Canada, T2M 3Y7. The condensed consolidated financial
statements as at and for the three and six months ended September 30, 2013
comprise CMG and its subsidiaries (together referred to as the "Company"). The
Company is a computer software technology company engaged in the development and
licensing of reservoir simulation software. The Company also provides
professional services consisting of highly specialized support, consulting,
training, and contract research activities.
2. Basis of Preparation:
(a) STATEMENT OF COMPLIANCE:
These condensed consolidated financial statements have been prepared in
accordance with International Accounting Standard ("IAS") 34, Interim Financial
Reporting. Accordingly, the condensed consolidated financial statements do not
include all of the information required for full annual financial statements,
and should be read in conjunction with the Company's most recent annual
consolidated financial statements as at and for the year ended March 31, 2013
which have been prepared in accordance with International Financial Reporting
Standards ("IFRS") as issued by the International Accounting Standards Board
("IASB"), and using the accounting policies disclosed in note 3 of the Company's
annual consolidated financial statements as at and for the year ended March 31,
2013.
These unaudited condensed consolidated financial statements as at and for the
three and six months ended September 30, 2013 were authorized for issuance by
the Board of Directors on November 12, 2013.
(b) BASIS OF MEASUREMENT:
The condensed consolidated financial statements have been prepared on the
historical cost basis, which is based on the fair value of the consideration at
the time of the transaction.
(c) FUNCTIONAL AND PRESENTATION CURRENCY:
The condensed consolidated financial statements are presented in Canadian
dollars, which is the functional currency of CMG and its subsidiaries. All
financial information presented in Canadian dollars has been rounded to the
nearest thousand.
(d) USE OF ESTIMATES, JUDGMENTS AND ASSUMPTIONS:
The preparation of financial statements in conformity with IFRS requires
management to make judgments, estimates and assumptions that affect the
application of accounting policies, the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenue, costs and
expenses for the period. Estimates and underlying assumptions are based on
historical experience and other assumptions that are considered reasonable in
the circumstances and are reviewed on an on-going basis. Actual results may
differ from such estimates and it is possible that the differences could be
material. Revisions to accounting estimates are recognized in the period in
which the estimates are revised and in any future periods affected. In preparing
these condensed consolidated financial statements, the significant judgments
made by management in applying the Company's accounting policies and the key
sources of estimation uncertainty are the same as those applied in the annual
IFRS consolidated financial statements for the year ended March 31, 2013.
3. Significant Accounting Policies:
The condensed consolidated financial statements should be read in conjunction
with the Company's annual financial statements for the year ended March 31, 2013
prepared in accordance with IFRS applicable to those annual consolidated
financial statements. Except as disclosed below, the same accounting policies,
presentation and methods of computation have been followed in these condensed
consolidated financial statements as were applied in the Company's consolidated
financial statements for the year ended March 31, 2013.
NEW STANDARDS AND INTERPRETATIONS ADOPTED:
The Company has adopted the following new standards and amendments to standards,
with a date of initial application of April 1, 2013:
-- IFRS 10 Consolidated Financial Statements
Replaces the guidance in IAS 27 Consolidated and Separate Financial
Statements and SIC-12 Consolidation - Special Purpose Entities, and
provides a single model to be applied in the control analysis for all
investees, including entities that currently are special purpose
entities in the scope of SIC-12. The adoption of IFRS 10 did not have a
material impact on the condensed consolidated interim financial
statements.
-- IFRS 11 Joint Arrangements
Under IFRS 11, joint arrangements are classified as either joint
operations or joint ventures. IFRS 11 replaces the guidance in IAS 31
Interest in Joint Ventures, and essentially carves out of previous
jointly controlled entities, those arrangements which although
structured through a separate vehicle, such separation is ineffective
and the parties to the arrangement have rights to the assets and
obligations for the liabilities and are accounted for as joint
operations in a fashion consistent with jointly controlled
assets/operations under IAS 31. In addition, under IFRS 11, joint
ventures must now use the equity method of accounting. The adoption of
IFRS 11 did not have a material impact on the condensed consolidated
interim financial statements.
-- IFRS 12 Disclosure of Interests in Other Entities
Contains the disclosure requirements for entities that have interests in
subsidiaries, joint arrangements, associates and/or unconsolidated
structured entities. The adoption of IFRS 12 did not have a material
impact on the condensed consolidated interim financial statements.
-- IFRS 13 Fair Value Measurement
Replaces the fair value measurement guidance contained in individual
IFRSs with a single source of fair value measurement guidance. It
defines fair value as the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between market
participants at the measurement date, i.e. an exit price. The standard
also establishes a framework for measuring fair value and sets out
disclosure requirements for fair value measurement to provide
information that enables financial statement users to assess the methods
and inputs used to develop fair value measurements and, for recurring
fair value measurements that use significant unobservable inputs (Level
3), the effect of the measurements on profit or loss or other. Due to
the nature of the Company's financial assets and liabilities, the
adoption of IFRS 13 did not have a material impact on the condensed
consolidated interim financial statements. It only resulted in the
inclusion of certain fair value disclosures which were previously
applicable to annual financial statements only (refer to note 9).
-- Amendments to IAS 1 Presentation of Financial Statements
Requires an entity to present separately the items of other
comprehensive income that may be reclassified to profit or loss in the
future from those that would never be reclassified to profit or loss. As
the amendments only required changes in the presentation of items in
other comprehensive income, the new standard did not have a material
impact on the condensed consolidated interim financial statements.
-- Amendments to IFRS 7 Offsetting Financial Assets and Liabilities
Contains new disclosure requirements for offset financial assets and
liabilities and netting arrangements. The amendments to IFRS 7 did not
have a material impact on the condensed consolidated interim financial
statements.
4. Revenue:
For the three months ended September 30,
(thousands of $) 2013 2012
----------------------------------------------------------------------------
Software licenses 14,982 14,683
Professional services 2,202 1,390
----------------------------------------------------------------------------
17,184 16,073
----------------------------------------------------------------------------
For the six months ended September 30,
(thousands of $) 2013 2012
----------------------------------------------------------------------------
Software licenses 31,271 29,933
Professional services 4,029 2,606
----------------------------------------------------------------------------
35,300 32,539
----------------------------------------------------------------------------
5. Research and Development Costs:
For the three months ended September 30,
(thousands of $) 2013 2012
----------------------------------------------------------------------------
Research and development 3,935 3,487
Scientific research and experimental development
("SR&ED") investment tax credits (517) (459)
----------------------------------------------------------------------------
3,418 3,028
----------------------------------------------------------------------------
For the six months ended September 30,
(thousands of $) 2013 2012
----------------------------------------------------------------------------
Research and development 7,955 6,872
Scientific research and experimental development
("SR&ED") investment tax credits (1,065) (947)
----------------------------------------------------------------------------
6,890 5,925
----------------------------------------------------------------------------
6. Finance Income and Finance Costs:
For the three months ended September 30,
(thousands of $) 2013 2012
----------------------------------------------------------------------------
Interest income 162 131
----------------------------------------------------------------------------
Finance income 162 131
----------------------------------------------------------------------------
Net foreign exchange loss (325) (460)
----------------------------------------------------------------------------
Finance costs (325) (460)
----------------------------------------------------------------------------
For the six months ended September 30,
(thousands of $) 2013 2012
----------------------------------------------------------------------------
Interest income 319 276
Net foreign exchange gain 167 -
----------------------------------------------------------------------------
Finance income 486 276
----------------------------------------------------------------------------
Net foreign exchange loss - (133)
----------------------------------------------------------------------------
Finance costs - (133)
----------------------------------------------------------------------------
7. Income and Other Taxes:
The major components of income tax expense are as follows:
For the six months ended September 30,
(thousands of $) 2013 2012
----------------------------------------------------------------------------
Current year income taxes 4,966 4,416
Adjustment for prior year 8 68
----------------------------------------------------------------------------
Current income taxes 4,974 4,484
Deferred tax expense (recovery) (179) (157)
Foreign withholding and other taxes 648 502
----------------------------------------------------------------------------
5,443 4,829
----------------------------------------------------------------------------
The provision for income and other taxes reported differs from the amount
computed by applying the combined Canadian Federal and Provincial statutory rate
to the profit before income and other taxes.
The reasons for this difference and the related tax effects are as follows:
For the six months ended September 30,
(thousands of $, unless otherwise stated) 2013 2012
----------------------------------------------------------------------------
Combined statutory tax rate 25.00% 25.00%
----------------------------------------------------------------------------
Expected income tax 4,533 4,070
Non-deductible costs 337 320
Effect of tax rates in foreign jurisdictions 73 24
Withholding taxes 486 377
Adjustment for prior year 8 68
Other 6 (30)
----------------------------------------------------------------------------
5,443 4,829
----------------------------------------------------------------------------
The components of the Company's deferred tax liability are as follows:
September 30, March 31,
(thousands of $) 2013 2013
----------------------------------------------------------------------------
Tax liability on SR&ED investment tax credits (203) (362)
Tax asset (liability) on property and equipment 3 (17)
----------------------------------------------------------------------------
Deferred tax liability (200) (379)
----------------------------------------------------------------------------
All movement in deferred tax assets and liabilities is recognized through net
income of the respective period.
Prepaid income taxes and current income taxes payable have not been offset as
the amounts relate to income taxes levied by different tax authorities to
different taxable entities.
8. Share Capital:
(A) AUTHORIZED:
An unlimited number of Common Shares, an unlimited number of Non-Voting Shares,
and an unlimited number of Preferred Shares, issuable in series.
(B) ISSUED:
(thousands of shares) Common Shares
----------------------------------------------------------------------------
Balance, April 1, 2012 37,307
Issued for cash on exercise of stock options 459
Common shares buy-back (91)
----------------------------------------------------------------------------
Balance, September 30, 2012 37,675
----------------------------------------------------------------------------
Balance, April 1, 2013 38,129
Issued for cash on exercise of stock options 755
Common shares buy-back -
----------------------------------------------------------------------------
Balance, September 30, 2013 38,884
----------------------------------------------------------------------------
Subsequent to September 30, 2013, 17,000 stock options were exercised for cash
proceeds of $252,000.
On May 23, 2012, the Board of Directors considered the merits of renewing the
Company's shareholder rights plan on or before the third-year anniversary of
shareholder approval of the plan and determined that it was in the best interest
of the Company to continue to have a shareholder rights plan in place. Upon
careful review, the Board of Directors agreed to approve an amended and restated
rights plan (the "Amended and Restated Rights Plan") between the Company and
Valiant Trust Company, which is similar in all respects to the existing
shareholder rights plan, with the exception of certain minor amendments. The
Amended and Restated Rights Plan was approved by the Company's shareholders on
July 12, 2012.
(C) COMMON SHARES BUY-BACK:
On April 16, 2012, the Company announced a Normal Course Issuer Bid ("NCIB")
commencing on April 18, 2012 to purchase for cancellation up to 3,416,000 of its
Common Shares. During the year ended March 31, 2013, a total of 91,000 Common
Shares were purchased at market price for a total cost of $1,551,000.
On April 29, 2013, the Company announced a NCIB commencing on May 1, 2013 to
purchase for cancellation up to 3,538,000 of its Common Shares. During the six
months ended September 30, 2013, no Common Shares were purchased.
(D) STOCK-BASED COMPENSATION PLAN:
The Company adopted a rolling stock option plan as of July 13, 2005, which was
reaffirmed by the Company's shareholders on July 7, 2011, which allows it to
grant options to acquire Common Shares of up to 10% of the outstanding Common
Shares at the date of grant. Based upon this calculation, at September 30, 2013,
the Company could grant up to 3,888,000 stock options. Pursuant to the stock
option plan, the maximum term of an option granted cannot exceed five years from
the date of grant. The outstanding stock options vest as to 50% after the first
year anniversary, from date of grant, and then vest as to 25% of the total
options granted after each of the second and third year anniversary dates.
The following table outlines changes in stock options:
(thousands except per share For the six months ended For the year ended
amounts) September 30, 2013 March 31, 2013
----------------------------------------------------------------------------
Weighted Weighted
Average Average
Exercise Exercise
Options Price Options Price
Granted ($/share) Granted ($/share)
----------------------------------------------------------------------------
Outstanding at beginning of
period 2,938 13.13 2,903 9.85
Granted 1,149 24.40 1,006 18.19
Exercised (755) 10.16 (913) 8.15
Forfeited/cancelled (87) 16.34 (58) 15.09
----------------------------------------------------------------------------
Outstanding at end of period 3,245 17.73 2,938 13.13
----------------------------------------------------------------------------
Options exercisable at end of
period 1,397 12.85 1,207 9.75
----------------------------------------------------------------------------
The range of exercise prices of stock options outstanding and exercisable at
September 30, 2013 is as follows:
Outstanding Exercisable
----------------------------------------------------------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Number of Contractual Exercise Number of Exercise
Exercise Price Options Life Price Options Price
($/option) (thousands) (years) ($/option) (thousands) ($/option)
----------------------------------------------------------------------------
4.52 - 7.80 150 0.9 7.75 150 7.75
7.81 - 9.07 408 1.9 9.07 408 9.07
9.08 - 13.43 682 2.9 13.39 448 13.39
13.44 - 18.18 858 3.8 18.13 391 18.14
18.19 - 24.40 1,147 4.9 24.38 - -
----------------------------------------------------------------------------
3,245 3.6 17.73 1,397 12.85
----------------------------------------------------------------------------
The fair value of stock options granted was estimated using the Black-Scholes
option pricing model under the following assumptions:
For the six months ended For the year ended
September 30, 2013 March 31, 2013
----------------------------------------------------------------------------
Fair value at grant date
($/option) 3.06 to 3.93 2.45 to 3.83
Share price at grant date
($/share) 24.40 17.90 to 21.75
Risk-free interest rate (%) 1.21 to 1.64 1.13 to 1.33
Estimated hold period prior to
exercise (years) 2 to 4 2 to 4
Volatility in the price of
common shares (%) 26 to 28 27 to 36
Dividend yield per common share
(%) 3.21 3.39 to 4.12
----------------------------------------------------------------------------
The Company recognized total stock-based compensation expense for the three and
six months ended September 30, 2013 of $758,000 and $1,303,000 respectively
(three and six months ended September 30, 2012 - $664,000 and $1,232,000
respectively).
(E) EARNINGS PER SHARE:
The following table summarizes the earnings and weighted average number of
Common Shares used in calculating basic and diluted earnings per share:
For the three months ended September 30,
(thousands except per share amounts)
2013
Weighted
Average Earnings
Shares Per Share
Earnings ($) Outstanding ($/share)
----------------------------------------------------------------------------
Basic 5,608 38,650 0.15
Dilutive effect of stock
options 987
----------------------------------------------------------------------------
Diluted 5,608 39,637 0.14
----------------------------------------------------------------------------
For the six months ended September 30,
(thousands except per share amounts)
2013
Weighted
Average Earnings
Shares Per Share
Earnings ($) Outstanding ($/share)
----------------------------------------------------------------------------
Basic 12,689 38,454 0.33
Dilutive effect of stock
options 980
----------------------------------------------------------------------------
Diluted 12,689 39,434 0.32
----------------------------------------------------------------------------
For the three months ended September 30,
(thousands except per share amounts)
2012
Weighted
Average Earnings
Shares Per Share
Earnings ($) Outstanding ($/share)
----------------------------------------------------------------------------
Basic 5,361 37,504 0.14
Dilutive effect of stock
options - 1,099 -
----------------------------------------------------------------------------
Diluted 5,361 38,603 0.14
----------------------------------------------------------------------------
For the six months ended September 30,
(thousands except per share amounts)
2012
Weighted
Average Earnings
Shares Per Share
Earnings ($) Outstanding ($/share)
----------------------------------------------------------------------------
Basic 11,451 37,429 0.31
Dilutive effect of stock
options - 1,086 -
----------------------------------------------------------------------------
Diluted 11,451 38,515 0.30
----------------------------------------------------------------------------
During the three and six months ended September 30, 2013, 150,000 and Nil
options respectively (three and six months ended September 30, 2012 - 147,000,
and Nil respectively) were excluded from the computation of the weighted-average
number of diluted shares outstanding because their effect was not dilutive.
9. Financial Instruments:
(i) Classification of financial instruments
Classification Measurement
----------------------------------------------------------------------------
Cash Held for trading Fair value
Trade and other receivables Loans and receivables Amortized cost
Trade payables and accrued
liabilities Other financial liabilities Amortized cost
----------------------------------------------------------------------------
(ii) Fair values of financial instruments
The carrying values of cash, trade and other receivables, trade payables and
accrued liabilities approximate their fair values due to the short-term nature
of these instruments.
10. Commitments:
(a) RESEARCH COMMITMENTS:
The Company is the operator of the DRMS research and development project (the
"DRMS project"), a collaborative effort with its partners Shell International
Exploration and Production BV ("Shell") and Petroleo Brasileiro S.A.
("Petrobras"), to jointly develop the newest generation of reservoir and
production system simulation software. The project has been underway since 2006
and, with the ongoing support of the participants, it is expected to continue
until ultimate delivery of the software. The Company's share of costs associated
with the project is estimated to be $5.5 million ($2.6 million net of overhead
recoveries) for fiscal 2014.
(b) LEASE COMMITMENTS:
The Company has operating lease commitments relating to its office premises with
minimum annual lease payments as follows:
Six months ended September 30,
(thousands of $) 2013 2012
----------------------------------------------------------------------------
Less than one year 1,028 995
Between one and five years 5,084 6,960
----------------------------------------------------------------------------
6,112 7,955
----------------------------------------------------------------------------
11. Line Of Credit:
The Company has arranged for a $1.0 million line of credit with its principal
banker, which can be drawn down by way of a demand operating credit facility or
may be used to support letters of credit. As at September 30, 2013, US $165,000
(March 31, 2013 - US $165,000) had been reserved on this line of credit for the
letter of credit supporting a performance bond.
12. Segmented Information:
The Company is organized into one operating segment represented by the
development and licensing of reservoir simulation software. The Company provides
professional services, consisting of support, training, consulting and contract
research activities, to promote the use and development of its software;
however, these activities are not evaluated as a separate business segment.
Revenues and property and equipment of the Company arise in the following
geographic regions:
(thousands of $) Revenue Property and equipment
----------------------------------------------------------------------------
For the six months ended
September 30, As at September 30,
2013 2012 2013 2012
----------------------------------------------------------------------------
Canada 12,701 12,958 2,626 3,332
United States 7,085 5,830 52 64
South America 6,147 5,501 63 54
Eastern Hemisphere(1) 9,367 8,250 62 27
----------------------------------------------------------------------------
35,300 32,539 2,803 3,477
----------------------------------------------------------------------------
(1) Includes Europe, Africa, Asia and Australia.
In the six months ended September 30, 2013 and 2012, no customer represented 10%
of total revenue.
13. Joint Operation:
The Company is the operator of a joint software development project, the DRMS
project, which gives the Company exclusive rights to commercialize the jointly
developed software while the other partners will have unlimited software access
for their internal use. Accordingly, the Company records its proportionate share
of costs incurred on the project (37.04%) as research and development costs
within the condensed consolidated statements of operations and comprehensive
income.
For the three and six months ended September 30, 2013, CMG included $1.1 million
and $2.2 million, respectively (2012 - $0.9 million and $1.8 million,
respectively) of costs in its condensed consolidated statements of operations
and comprehensive income related to this joint project.
Additionally, the Company is entitled to charge the project for various services
provided as operator, which were recorded in revenue as professional services
and amounted to $0.6 million and $1.2 million during the three and six months
ended September 30, 2013 (2012 - $0.4 million and $0.9 million, respectively).
14. Subsequent Events:
On November 12, 2013, the Board of Directors declared a quarterly cash dividend
of $0.18 per share on its Common Shares, payable on December 13, 2013, to all
shareholders of record at the close of business on December 6, 2013.
FOR FURTHER INFORMATION PLEASE CONTACT:
Computer Modelling Group Ltd.
Kenneth M. Dedeluk
President & CEO
(403) 531-1300
ken.dedeluk@cmgl.ca
Computer Modelling Group Ltd.
Sandra Balic
Vice President, Finance & CFO
(403) 531-1300
(403) 289-8502 (FAX)
sandra.balic@cmgl.ca
www.cmgl.ca
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