Computer Modelling Group Announces Third Quarter Results
CALGARY, ALBERTA--(Marketwired - Feb 12, 2014) - Computer
Modelling Group Ltd. (TSX:CMG) ("CMG" or the "Company") is very
pleased to report our third quarter results for the three and nine
months ended December 31, 2013.
| THIRD QUARTER HIGHLIGHTS |
|
| For
the three months ended December 31, |
|
|
|
|
|
|
($ thousands, except per share data) |
2013 |
2012 |
$ change |
% change |
|
|
|
|
|
|
|
|
Annuity/maintenance software licenses |
14,278 |
14,004 |
274 |
2 |
% |
|
Perpetual software licenses |
2,942 |
1,365 |
1,577 |
116 |
% |
| Total
revenue |
19,227 |
16,802 |
2,425 |
14 |
% |
|
Operating profit |
9,575 |
8,276 |
1,299 |
16 |
% |
| Net
income |
7,205 |
6,119 |
1,086 |
18 |
% |
|
Earnings per share - basic |
0.19 |
0.16 |
0.03 |
19 |
% |
|
|
|
|
|
|
| For
the nine months ended December 31, |
|
|
|
|
|
|
($ thousands, except per share data) |
2013 |
2012 |
$ change |
% change |
|
|
|
|
|
|
|
|
Annuity/maintenance software licenses |
41,389 |
39,196 |
2,193 |
6 |
% |
|
Perpetual software licenses |
7,102 |
6,106 |
996 |
16 |
% |
| Total
revenue |
54,527 |
49,341 |
5,186 |
11 |
% |
|
Operating profit |
27,221 |
24,413 |
2,808 |
12 |
% |
| Net
income |
19,894 |
17,569 |
2,325 |
13 |
% |
|
Earnings per share - basic |
0.52 |
0.47 |
0.05 |
11 |
% |
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 February 11, 2014, should be read in
conjunction with the unaudited condensed consolidated financial
statements and related notes of the Company for the three and nine
months ended December 31, 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 ($ thousands, unless otherwise
stated) |
|
|
|
|
|
Fiscal 2012(1) |
Fiscal 2013(2) |
Fiscal 2014(3) |
|
|
Q4 |
Q1 |
Q2 |
Q3 |
Q4 |
Q1 |
Q2 |
Q3 |
|
|
|
|
|
|
|
|
|
|
Annuity/maintenance licenses |
12,497 |
13,179 |
12,012 |
14,004 |
15,359 |
13,958 |
13,153 |
14,278 |
|
Perpetual licenses |
3,416 |
2,070 |
2,671 |
1,365 |
2,300 |
2,331 |
1,829 |
2,942 |
|
Software licenses |
15,913 |
15,249 |
14,683 |
15,369 |
17,659 |
16,289 |
14,982 |
17,220 |
|
Professional services |
1,302 |
1,216 |
1,390 |
1,433 |
1,620 |
1,827 |
2,202 |
2,007 |
| Total
revenue |
17,215 |
16,465 |
16,073 |
16,802 |
19,279 |
18,116 |
17,184 |
19,227 |
|
Operating profit |
9,193 |
8,105 |
8,032 |
8,276 |
9,877 |
9,350 |
8,296 |
9,575 |
|
Operating profit (%) |
53 |
49 |
50 |
49 |
51 |
52 |
48 |
50 |
|
EBITDA(4) |
9,543 |
8,423 |
8,425 |
8,687 |
10,294 |
9,725 |
8,675 |
9,972 |
|
Profit before income and other taxes |
9,104 |
8,577 |
7,703 |
8,556 |
10,314 |
9,999 |
8,133 |
10,249 |
|
Income and other taxes |
2,484 |
2,487 |
2,342 |
2,437 |
3,061 |
2,918 |
2,525 |
3,044 |
| Net
income for the period |
6,620 |
6,090 |
5,361 |
6,119 |
7,253 |
7,081 |
5,608 |
7,205 |
|
Cash dividends declared and paid |
4,848 |
9,736 |
6,020 |
6,050 |
6,099 |
8,841 |
6,994 |
7,020 |
| Per
share amounts - ($/share) |
|
|
|
|
|
|
|
|
|
Earnings per share - basic |
0.18 |
0.16 |
0.14 |
0.16 |
0.19 |
0.19 |
0.15 |
0.19 |
|
Earnings per share - diluted |
0.17 |
0.16 |
0.14 |
0.16 |
0.19 |
0.18 |
0.14 |
0.18 |
|
Cash dividends declared and paid |
0.13 |
0.26 |
0.16 |
0.16 |
0.16 |
0.23 |
0.18 |
0.18 |
|
(1) |
Q4
of fiscal 2012 includes $2.7 million 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, Q2 and Q3 of fiscal 2014 include $1.2 million, $0.2 million and
$0.9 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 nine months ended December 31, 2013, as compared to
the same period of the prior fiscal year, CMG:
- Increased annuity/maintenance revenue by 6%
- Increased operating profit by 12%
- Increased spending on research and development by 18%
- Increased EBITDA by 11%
- Realized basic earnings per share of $0.52, representing a 11%
increase
| Revenue |
|
|
|
| For
the three months ended December 31, |
|
|
|
|
|
|
|
|
($ thousands) |
2013 |
|
2012 |
|
$ change |
% change |
|
|
|
|
|
|
|
|
|
|
Software licenses |
17,220 |
|
15,369 |
|
1,851 |
12 |
% |
|
Professional services |
2,007 |
|
1,433 |
|
574 |
40 |
% |
|
Total revenue |
19,227 |
|
16,802 |
|
2,425 |
14 |
% |
|
|
|
|
|
|
|
|
|
Software license revenue - % of total revenue |
90 |
% |
91 |
% |
|
|
|
|
Professional services - % of total revenue |
10 |
% |
9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
For the nine months ended December 31, |
|
|
|
|
|
|
|
|
($ thousands) |
2013 |
|
2012 |
|
$ change |
% change |
|
|
|
|
|
|
|
|
|
|
|
Software licenses |
48,491 |
|
45,302 |
|
3,189 |
7 |
% |
|
Professional services |
6,036 |
|
4,039 |
|
1,997 |
49 |
% |
|
Total revenue |
54,527 |
|
49,341 |
|
5,186 |
11 |
% |
|
|
|
|
|
|
|
|
|
|
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 14% for the three months ended
December 31, 2013, compared to the same period of the previous
fiscal year, due to increases in both software license revenue and
professional services.
Similarly, total revenue increased by 11% for the nine months
ended December 31, 2013, compared to the same period of the
previous fiscal year, 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 December 31, |
|
|
|
|
|
|
|
|
($ thousands) |
2013 |
|
2012 |
|
$ change |
% change |
|
|
|
|
|
|
|
|
|
|
Annuity/maintenance licenses |
14,278 |
|
14,004 |
|
274 |
2 |
% |
|
Perpetual licenses |
2,942 |
|
1,365 |
|
1,577 |
116 |
% |
|
Total software license revenue |
17,220 |
|
15,369 |
|
1,851 |
12 |
% |
|
|
|
|
|
|
|
|
|
Annuity/maintenance as a % of total software license revenue |
83 |
% |
91 |
% |
|
|
|
|
Perpetual as a % of total software license revenue |
17 |
% |
9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
For the nine months ended December 31, |
|
|
|
|
|
|
|
|
($ thousands) |
2013 |
|
2012 |
|
$ change |
% change |
|
|
|
|
|
|
|
|
|
|
Annuity/maintenance licenses |
41,389 |
|
39,196 |
|
2,193 |
6 |
% |
|
Perpetual licenses |
7,102 |
|
6,106 |
|
996 |
16 |
% |
|
Total software license revenue |
48,491 |
|
45,302 |
|
3,189 |
7 |
% |
|
|
|
|
|
|
|
|
|
Annuity/maintenance as a % of total software license revenue |
85 |
% |
87 |
% |
|
|
|
|
Perpetual as a % of total software license revenue |
15 |
% |
13 |
% |
|
|
|
Total software license revenue grew by 12% in the three months
ended December 31, 2013, compared to the same period of the
previous fiscal year, mainly due to an increase in perpetual
license sales. Total software license revenue grew by 7% in the
nine months ended December 31, 2013, compared to the same period of
the previous fiscal year, due to increases in both the
annuity/maintenance and perpetual license sales.
CMG's annuity/maintenance license revenue increased by 2% and 6%
during the three and nine months ended December 31, 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. In addition, annuity/maintenance license revenue
for the three and nine months ended December 31, 2013, compared to
the same periods of the previous year, was positively affected by
the weakening of the Canadian dollar.
All of our regions, except South America, experienced growth in
annuity/maintenance revenue during the three and nine months ended
December 31, 2013, compared to the same periods of the previous
year, with the most significant growth being generated from the US
market.
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. To provide a normalized comparison, if we were to
remove revenue from this particular customer from the third quarter
of the previous year, we will notice that the annuity/maintenance
revenue increased by 11%, instead of 2%, as compared to the same
period of the previous year. Similarly, if we were to remove
revenue from this particular customer from the year-to-date
recorded revenue, we will notice that the annuity/maintenance
revenue increased by 12%, instead of 6%, 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.
Perpetual license sales increased by 116% for the three months
ended December 31, 2013, compared to the same period of the
previous fiscal year, due to increases in the US, South America and
Eastern Hemisphere.
Perpetual license sales increased by 16% for the nine months
ended December 31, 2013, compared to the same period of the
previous fiscal year, due to growth in perpetual sales generated by
the US, South America and Eastern Hemisphere offset by a decrease
in Canada.
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 nine
months ended December 31, 2013, compared to the same periods of the
previous fiscal year, had a positive impact on our reported 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 December 31, |
|
|
|
|
|
|
|
|
($ thousands) |
|
|
2013 |
2012 |
$ change |
% change |
|
|
|
|
|
|
|
|
|
| US
dollar annuity/maintenance license sales |
|
US$ |
9,460 |
8,785 |
675 |
8 |
% |
|
Weighted average conversion rate |
|
|
1.022 |
1.001 |
|
|
|
|
Canadian dollar equivalent |
|
CDN$ |
9,671 |
8,795 |
876 |
10 |
% |
|
|
|
|
|
|
|
|
| US
dollar perpetual license sales |
|
US$ |
2,665 |
908 |
1,757 |
194 |
% |
|
Weighted average conversion rate |
|
|
1.045 |
0.994 |
|
|
|
|
Canadian dollar equivalent |
|
CDN$ |
2,786 |
903 |
1,883 |
209 |
% |
|
|
|
|
|
|
|
|
|
For the nine months ended December 31, |
|
|
2013 |
2012 |
$
change |
%
change |
|
|
($ thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| US
dollar annuity/maintenance license sales |
|
US$ |
27,568 |
24,361 |
3,207 |
13 |
% |
|
Weighted average conversion rate |
|
|
1.014 |
1.001 |
|
|
|
|
Canadian dollar equivalent |
|
CDN$ |
27,966 |
24,393 |
3,573 |
15 |
% |
|
|
|
|
|
|
|
|
| US
dollar perpetual license sales |
|
US$ |
6,426 |
4,159 |
2,267 |
55 |
% |
|
Weighted average conversion rate |
|
|
1.036 |
1.000 |
|
|
|
|
Canadian dollar equivalent |
|
CDN$ |
6,655 |
4,160 |
2,495 |
60 |
% |
|
| The following table quantifies the foreign
exchange impact on our software license revenue: |
|
| For
the three months ended December 31, 2013 |
Q3 2013 |
Incremental License |
Foreign Exchange |
Q3 2014 |
|
($ thousands) |
Balance |
Growth |
Impact |
Balance |
|
|
|
|
|
|
Annuity/maintenance license sales |
14,004 |
74 |
200 |
14,278 |
|
Perpetual license sales |
1,365 |
1,442 |
135 |
2,942 |
|
Total software license revenue |
15,369 |
1,516 |
335 |
17,220 |
|
|
|
|
|
| For
the nine months ended December 31, 2013 |
Q3 2013 |
Incremental License |
Foreign Exchange |
Q3 2014 |
|
($ thousands) |
Balance |
Growth |
Impact |
Balance |
|
|
|
|
|
|
Annuity/maintenance license sales |
39,196 |
1,832 |
361 |
41,389 |
|
Perpetual license sales |
6,106 |
769 |
227 |
7,102 |
|
Total software license revenue |
45,302 |
2,601 |
588 |
48,491 |
|
|
| REVENUE BY GEOGRAPHIC SEGMENT |
|
|
|
| For the three months ended December 31, |
|
|
|
|
|
|
| ($ thousands) |
2013 |
2012 |
$ change |
|
% change |
|
| Annuity/maintenance revenue |
|
|
|
|
|
|
|
Canada |
6,013 |
5,490 |
523 |
|
10 |
% |
|
United States |
3,421 |
2,818 |
603 |
|
21 |
% |
|
South
America |
1,513 |
2,435 |
(922 |
) |
-38 |
% |
|
|
Eastern Hemisphere(1) |
3,331 |
3,261 |
70 |
|
2 |
% |
|
14,278 |
14,004 |
274 |
|
2 |
% |
| Perpetual revenue |
|
|
|
|
|
|
|
Canada |
156 |
227 |
(71 |
) |
-31 |
% |
|
United States |
427 |
- |
427 |
|
100 |
% |
|
South
America |
862 |
26 |
836 |
|
3215 |
% |
|
|
Eastern Hemisphere |
1,497 |
1,112 |
385 |
|
35 |
% |
|
2,942 |
1,365 |
1,577 |
|
116 |
% |
| Total software license revenue |
|
|
|
|
|
|
|
Canada |
6,169 |
5,717 |
452 |
|
8 |
% |
|
United States |
3,848 |
2,818 |
1,030 |
|
37 |
% |
|
South
America |
2,375 |
2,461 |
(86 |
) |
-3 |
% |
|
|
Eastern Hemisphere |
4,828 |
4,373 |
455 |
|
10 |
% |
|
17,220 |
15,369 |
1,851 |
|
12 |
% |
|
|
|
|
|
|
|
| For the nine months ended December 31, |
|
|
|
|
|
|
| ($ thousands) |
2013 |
2012 |
$ change |
|
% change |
|
| Annuity/maintenance revenue |
|
|
|
|
|
|
|
Canada |
16,895 |
15,902 |
993 |
|
6 |
% |
|
United States |
9,542 |
7,759 |
1,783 |
|
23 |
% |
|
South
America |
5,411 |
6,770 |
(1,359 |
) |
-20 |
% |
|
|
Eastern Hemisphere(1) |
9,541 |
8,765 |
776 |
|
9 |
% |
|
41,389 |
39,196 |
2,193 |
|
6 |
% |
| Perpetual revenue |
|
|
|
|
|
|
|
Canada |
447 |
1,541 |
(1,094 |
) |
-71 |
% |
|
United States |
854 |
662 |
192 |
|
29 |
% |
|
South
America |
1,352 |
509 |
843 |
|
166 |
% |
|
|
Eastern Hemisphere |
4,449 |
3,394 |
1,055 |
|
31 |
% |
|
7,102 |
6,106 |
996 |
|
16 |
% |
| Total software license revenue |
|
|
|
|
|
|
|
Canada |
17,342 |
17,443 |
(101 |
) |
-1 |
% |
|
United States |
10,396 |
8,421 |
1,975 |
|
23 |
% |
|
South
America |
6,763 |
7,279 |
(516 |
) |
-7 |
% |
|
|
Eastern Hemisphere |
13,990 |
12,159 |
1,831 |
|
15 |
% |
|
48,491 |
45,302 |
3,189 |
|
7 |
% |
|
(1) |
Includes Europe, Africa, Asia and Australia. |
During the three months ended December 31, 2013, on a geographic
basis, total software license sales increased across all regions
with the exception of the South American market which experienced
an overall decrease of 3%, compared to the same period of the
previous fiscal year.
During the nine months ended December 31, 2013, on a geographic
basis, total software license sales increased by 23% and 15% in the
US and Eastern Hemisphere, respectively, while Canada and South
America experienced decreases of 1% and 7%, respectively.
The Canadian market (representing 36% of year-to-date total
software revenue) experienced growth in annuity/maintenance revenue
during the three and nine months ended December 31, 2013, compared
to the same periods of the previous fiscal year. These increases
were supported by sales to both new and existing customers.
Perpetual sales were lower during the three and nine months ended
December 31, 2013, compared to the same periods 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%, 38%, and 10%
recorded during Q3 2013, Q4 2013 and Q1 2014, respectively.
Annuity/maintenance was relatively flat in Q2 2014, compared to the
same period of the previous fiscal year; however, the double digit
growth trend returned in the third quarter of the current fiscal
year with the recorded increase of 10%.
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
nine months ended December 31, 2013, compared to the same periods
of the previous fiscal year, driven by sales to new and existing
customers. Perpetual license sales increased during the three and
nine months ended December 31, 2013, compared to the same periods
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 32%, 20%,
32% and 16% recorded during Q3 2013, Q4 2013, Q1 2014, and Q2 2014
respectively. This double-digit growth trend has continued into the
third quarter of the current fiscal year with the recorded increase
of 21%.
South America (representing 14% of year-to-date total software
revenue) experienced a decline of 38% and 20% in
annuity/maintenance license sales during the three and nine months
ended December 31, 2013, respectively, compared to the same periods
of the previous fiscal year. These decreases were 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 remove revenue from this particular
customer from the third quarter of the previous year, we will
notice that the South America annuity/maintenance revenue increased
by 20%, instead of a decrease of 38%, as compared to the same
period of the previous year. Similarly, if we were to remove
revenue from this particular customer from the year-to-date
recorded revenue, we will notice that the South America
annuity/maintenance revenue increased by 18%, instead of a decrease
of 20%, as compared to the same period of the previous year. The
South American region experienced increases in perpetual license
sales during the three and nine months ended December 31, 2013,
compared to the same period of the previous year.
Eastern Hemisphere (representing 29% of the year-to-date total
software revenue) grew annuity/maintenance license sales by 2% and
9% during the three and nine months ended December 31, 2013,
respectively, compared to the same periods of the previous fiscal
year, due to sales to both new and existing customers in the
region. Compared to other regions, the Eastern Hemisphere achieved
the highest dollar value of growth in perpetual license revenue
during the nine months ended December 31, 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.
To view a chart of the Quarterly Software License Revenue,
please visit the following link:
http://media3.marketwire.com/docs/926056g.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 |
% |
|
December 31 |
18,069 |
15,510 |
2,559 |
16 |
% |
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 December
31, 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, second quarter and third quarter (June 30,
September 30 and December 31, respectively) compared to the fiscal
year-end (March 31). Deferred revenue at December 31, 2013
increased compared to the same period of the prior fiscal year due
to both the renewal of existing and signing of new annuity and
maintenance contracts in the quarter.
PROFESSIONAL SERVICES REVENUE
CMG recorded professional services revenue of $2.0 million for
the three months ended December 31, 2013, representing an increase
of $0.6 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 continue to contribute to the
professional services revenue during the current fiscal year.
Professional services for the nine months ended December 31, 2013
amounted to $6.0 million, representing an increase of $2.0 million,
compared to the same period of the previous fiscal year, which
again resulted from entering into a large consulting agreement with
one of our clients in the current fiscal year.
Professional services revenue consists of specialized
consulting, training, and contract research activities. CMG
performs consulting and contract research activities on an ongoing
basis, but such activities are not considered to be a core part of
our business and are primarily undertaken to increase our knowledge
base and hence expand the technological abilities of our simulators
in a funded manner, combined with servicing our customers' needs.
In addition, these activities are undertaken to market the
capabilities of our suite of software products with the ultimate
objective to increase software license sales. Our experience is
that consulting activities are variable in nature as both the
timing and dollar magnitude of work are dependent on activities and
budgets within client companies.
| Expenses |
|
|
|
|
For the three months ended December 31, |
|
|
|
|
|
|
($ thousands) |
2013 |
2012 |
$ change |
% change |
|
|
|
|
|
|
|
|
Sales, marketing and professional services |
4,119 |
3,778 |
341 |
9 |
% |
|
Research and development |
3,816 |
3,136 |
680 |
22 |
% |
|
General and administrative |
1,717 |
1,612 |
105 |
7 |
% |
|
Total operating expenses |
9,652 |
8,526 |
1,126 |
13 |
% |
|
|
|
|
|
|
|
Direct employee costs(1) |
7,599 |
6,716 |
883 |
13 |
% |
|
Other corporate costs |
2,053 |
1,810 |
243 |
13 |
% |
|
|
9,652 |
8,526 |
1,126 |
13 |
% |
|
|
|
|
|
|
| For
the nine months ended December 31, |
|
|
|
|
|
|
($ thousands) |
2013 |
2012 |
$ change |
% change |
|
|
|
|
|
|
|
|
Sales, marketing and professional services |
11,605 |
11,333 |
272 |
2 |
% |
|
Research and development |
10,706 |
9,061 |
1,645 |
18 |
% |
|
General and administrative |
4,995 |
4,534 |
461 |
10 |
% |
|
Total operating expenses |
27,306 |
24,928 |
2,378 |
10 |
% |
|
|
|
|
|
|
|
Direct employee costs(1) |
21,907 |
19,802 |
2,105 |
11 |
% |
|
Other corporate costs |
5,399 |
5,126 |
273 |
5 |
% |
|
|
27,306 |
24,928 |
2,378 |
10 |
% |
|
(1) |
Includes salaries, bonuses, stock-based compensation, benefits and
commissions. |
CMG's total operating expenses increased by 13% and 10% for the
three and nine months ended December 31, 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 80% of the total operating expenses
in the nine months ended December 31, 2013 related to staff costs,
compared to 79% 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
December 31, 2013, CMG's staff complement was 189 employees and
consultants, up from 166 employees as at December 31, 2012. Direct
employee costs increased during the three and nine months ended
December 31, 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 13% for the three months
ended December 31, 2013, compared to the same period of the
previous fiscal year, mainly due to the decrease in the Federal
research and experimental development ("SR&ED") input tax
credit rate.
Other corporate costs were comparable between the nine months
ended December 31, 2013 and 2012 with only a slight increase of 5%,
mainly due to increased computing costs offset by the inclusion of
the costs associated with CMG's biennial technical symposium in the
nine months ended December 31, 2012.
| RESEARCH AND DEVELOPMENT |
|
|
|
| For
the three months ended December 31, |
|
|
|
|
|
|
|
|
($ thousands) |
2013 |
|
2012 |
|
$ change |
% change |
|
|
|
|
|
|
|
|
|
|
Research and development (gross) |
4,125 |
|
3,586 |
|
539 |
15 |
% |
|
SR&ED credits |
(309 |
) |
(450 |
) |
141 |
-31 |
% |
|
Research and development |
3,816 |
|
3,136 |
|
680 |
22 |
% |
|
|
|
|
|
|
|
|
|
Research and development as a % of total revenue |
20 |
% |
19 |
% |
|
|
|
|
|
|
|
|
|
|
|
| For
the nine months ended December 31, |
|
|
|
|
|
|
|
|
($ thousands) |
2013 |
|
2012 |
|
$ change |
% change |
|
|
|
|
|
|
|
|
|
|
Research and development (gross) |
12,080 |
|
10,458 |
|
1,622 |
16 |
% |
|
SR&ED credits |
(1,374 |
) |
(1,397 |
) |
23 |
-2 |
% |
|
Research and development |
10,706 |
|
9,061 |
|
1,645 |
18 |
% |
|
|
|
|
|
|
|
|
|
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 $0.9 million and $3.0 million for the three and nine
months ended December 31, 2013, respectively (2012 - $1.0 million
and $2.8 million). See discussion under "Commitments, Off Balance
Sheet Items and Transactions with Related Parties."
The increases of 15% and 16% in our gross spending on research
and development for the three and nine months ended December 31,
2013, respectively, compared to the same periods of the previous
fiscal year, demonstrate our continued commitment to advancement of
our technology which is the focal part of our business
strategy.
Research and development costs, net of research and experimental
development ("SR&ED") credits, increased by 22% and 18% during
the three and nine months ended December 31, 2013, respectively,
compared to the same periods of the previous fiscal year, due to
increased employee compensation costs and costs associated with
computing resources.
We also had a decrease in SR&ED credits in the three and
nine months ended December 31, 2013, compared to the same period of
the previous fiscal year, driven by the decrease in the Federal
SR&ED input tax credit rate from 20% to 15% effective January
1, 2014 lowering our average rate for fiscal 2014.
| DEPRECIATION |
|
|
|
| For the three months ended December 31, |
|
|
|
|
|
|
| ($ thousands) |
2013 |
2012 |
$ change |
|
% change |
|
|
|
|
|
|
|
|
| Depreciation of property and equipment, allocated
to: |
|
|
|
|
|
|
|
Sales, marketing and professional services |
102 |
124 |
(22 |
) |
-18 |
% |
|
Research and development |
240 |
235 |
5 |
|
2 |
% |
|
|
General and administrative |
55 |
52 |
3 |
|
6 |
% |
| Total depreciation |
397 |
411 |
(14 |
) |
-3 |
% |
|
|
|
|
|
|
|
| For the nine months ended December 31, |
|
|
|
|
|
|
| ($ thousands) |
2013 |
2012 |
$ change |
|
% change |
|
|
|
|
|
|
|
|
| Depreciation of property and equipment, allocated
to: |
|
|
|
|
|
|
|
Sales, marketing and professional services |
305 |
341 |
(36 |
) |
-11 |
% |
|
Research and development |
692 |
641 |
51 |
|
8 |
% |
|
|
General and administrative |
154 |
140 |
14 |
|
10 |
% |
| Total depreciation |
1,151 |
1,122 |
29 |
|
3 |
% |
|
| Depreciation in the three and nine months
ended December 31, 2013 was relatively flat as compared to the same
periods in the previous fiscal year. |
|
| Finance Income |
|
|
|
| For
the three months ended December 31, |
|
|
|
|
|
|
($ thousands) |
2013 |
2012 |
$ change |
% change |
|
|
|
|
|
|
|
|
Interest income |
160 |
133 |
27 |
20 |
% |
|
Net foreign exchange gain |
514 |
147 |
367 |
250 |
% |
|
Total finance income |
674 |
280 |
394 |
141 |
% |
|
|
|
|
|
|
| For
the nine months ended December 31, |
|
|
|
|
|
|
($ thousands) |
2013 |
2012 |
$ change |
% change |
|
|
|
|
|
|
|
|
Interest income |
479 |
409 |
70 |
17 |
% |
|
Net foreign exchange gain |
681 |
13 |
668 |
5138 |
% |
|
Total finance income |
1,160 |
422 |
738 |
175 |
% |
Interest income increased in the three and nine months ended
December 31, 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 - 67%) of CMG's revenue
for the nine months ended December 31, 2013 is denominated in US
dollars, whereas only approximately 25% (2012 - 22%) of CMG's total
costs are denominated in US dollars.
|
CDN$ to US$ |
At June 30 |
|
At September 30 |
|
At December 31 |
|
Nine month trailing average |
|
|
|
|
|
|
|
|
|
2011 |
1.0370 |
|
0.9626 |
|
0.9833 |
|
1.0132 |
|
2012 |
0.9813 |
|
1.0166 |
|
1.0051 |
|
0.9998 |
|
2013 |
0.9513 |
|
0.9723 |
|
0.9402 |
|
0.9604 |
CMG recorded net foreign exchange gains of $0.5 million and $0.7
million for the three and nine months ended December 31, 2013,
respectively, compared to net foreign exchange gains of $0.1
million and $0.01 million recorded in the three and nine months
ended December 31, 2012, respectively. These gains were a result of
a weakening in the Canadian dollar which contributed positively to
the valuation of our US-denominated working capital.
Income and Other Taxes
CMG's effective tax rate for the nine months ended December 31,
2013 is reflected as 29.90% (2012 - 29.26%), whereas the prevailing
Canadian statutory tax rate is now 25.0%. This difference is
primarily due to a combination of the non-tax deductibility of
stock-based compensation expense and the benefit of foreign
withholding taxes being realized only as a tax deduction as opposed
to a tax credit.
The benefit recorded in CMG's books on the SR&ED investment
tax credit program impacts deferred income taxes. The investment
tax credit earned in the current fiscal year is utilized by CMG to
reduce income taxes otherwise payable for the current fiscal year
and the federal portion of this benefit bears an inherent tax
liability as the amount of the credit is included in the subsequent
year's taxable income for both federal and provincial purposes. The
inherent tax liability on these investment tax credits is reflected
in the year the credit is earned as a non-current deferred tax
liability and then, in the following fiscal year, is transferred to
income taxes payable.
| Operating Profit and Net Income |
|
|
|
|
|
|
|
|
|
|
| For
the three months ended December 31, |
|
|
|
|
|
|
|
|
|
($ thousands, except per share amounts) |
2013 |
|
2012 |
|
$ change |
|
% change |
|
|
|
|
|
|
|
|
|
|
| Total
revenue |
19,227 |
|
16,802 |
|
2,425 |
|
14 |
% |
|
Operating expenses |
(9,652 |
) |
(8,526 |
) |
(1,126 |
) |
13 |
% |
|
|
|
|
|
|
|
|
|
|
Operating profit |
9,575 |
|
8,276 |
|
1,299 |
|
16 |
% |
|
|
|
|
|
|
|
|
|
|
Operating profit as a % of total revenue |
50 |
% |
49 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net
income for the period |
7,205 |
|
6,119 |
|
1,086 |
|
18 |
% |
|
|
|
|
|
|
|
|
|
|
Net income for the period as a % of total revenue |
37 |
% |
36 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share ($/share) |
0.19 |
|
0.16 |
|
0.03 |
|
19 |
% |
|
|
|
|
|
|
|
|
|
| For
the nine months ended December 31, |
|
|
|
|
|
|
|
|
|
($ thousands, except per share amounts) |
2013 |
|
2012 |
|
$ change |
|
% change |
|
|
|
|
|
|
|
|
|
|
| Total
revenue |
54,527 |
|
49,341 |
|
5,186 |
|
11 |
% |
|
Operating expenses |
(27,306 |
) |
(24,928 |
) |
(2,378 |
) |
10 |
% |
|
|
|
|
|
|
|
|
|
|
Operating profit |
27,221 |
|
24,413 |
|
2,808 |
|
12 |
% |
|
|
|
|
|
|
|
|
|
|
Operating profit as a % of total revenue |
50 |
% |
49 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net
income for the period |
19,894 |
|
17,569 |
|
2,325 |
|
13 |
% |
|
|
|
|
|
|
|
|
|
|
Net income for the period as a % of total revenue |
36 |
% |
36 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share ($/share) |
0.52 |
|
0.47 |
|
0.05 |
|
11 |
% |
Operating profit as a percentage of total revenue for the three
and nine months ended December 31, 2013 was at 50% compared to 49%
recorded in the same periods of the previous fiscal year. While our
total revenue grew by 14% and 11% for the three and nine months
ended December 31, 2013, respectively, as compared to the same
periods of the previous fiscal year, our operating expenses grew by
only 13% and 10%, respectively, having a positive impact on our
operating profit. Our high levels of operating profit as a
percentage of revenue demonstrate our commitment to continue to
effectively manage our costs.
Net income for the period as a percentage of revenue increased
to 37% for the three months ended December 31, 2013, compared to
36% for the same period of the previous fiscal year.
Net income for the period as a percentage of revenue was
consistent at 36% for the nine months ended December 31, 2013,
compared to the same period of the previous fiscal year.
We have continued to maintain our profitability by focusing our
efforts on increasing license sales while, at the same time,
effectively controlling our operating costs. Managing these
variables will continue to be imperative to our future success.
| EBITDA |
|
|
|
| For the three months ended December 31, |
|
|
|
|
|
|
|
|
| ($ thousands) |
2013 |
|
2012 |
|
$ change |
|
% change |
|
|
|
|
|
|
|
|
|
|
| Net income for the period |
7,205 |
|
6,119 |
|
1,086 |
|
18 |
% |
| Add (deduct): |
|
|
|
|
|
|
|
|
|
Depreciation |
397 |
|
411 |
|
(14 |
) |
-3 |
% |
|
Finance income |
(674 |
) |
(280 |
) |
(394 |
) |
141 |
% |
|
|
Income and other taxes |
3,044 |
|
2,437 |
|
607 |
|
25 |
% |
| EBITDA |
9,972 |
|
8,687 |
|
1,285 |
|
15 |
% |
|
|
|
|
|
|
|
|
|
| EBITDA as a % of total revenue |
52 |
% |
52 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the nine months ended December 31, |
|
|
|
|
|
|
|
|
| ($ thousands) |
2013 |
|
2012 |
|
$ change |
|
% change |
|
|
|
|
|
|
|
|
|
|
| Net income for the period |
19,894 |
|
17,569 |
|
2,325 |
|
13 |
% |
| Add (deduct): |
|
|
|
|
|
|
|
|
|
Depreciation |
1,151 |
|
1,122 |
|
29 |
|
3 |
% |
|
Finance income |
(1,160 |
) |
(422 |
) |
(738 |
) |
175 |
% |
|
|
Income and other taxes |
8,487 |
|
7,266 |
|
1,221 |
|
17 |
% |
| EBITDA |
28,372 |
|
25,535 |
|
2,837 |
|
11 |
% |
|
|
|
|
|
|
|
|
|
| EBITDA as a % of total revenue |
52 |
% |
52 |
% |
|
|
|
|
EBITDA increased by 15% and 11% for the three and nine months
ended December 31, 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.
EBITDA as a percent of total revenue for the three and nine
months ended December 31, 2013 remained consistent at 52% as
compared to the same periods of the previous fiscal year.
| Liquidity and Capital Resources |
|
|
|
| For the three months ended December 31, |
|
|
|
|
|
|
|
|
| ($ thousands) |
2013 |
|
2012 |
|
$ change |
|
% change |
|
|
|
|
|
|
|
|
|
|
| Cash, beginning of period |
63,745 |
|
50,694 |
|
13,051 |
|
26 |
% |
| Cash flow from (used in): |
|
|
|
|
|
|
|
|
|
Operating activities |
6,724 |
|
6,720 |
|
4 |
|
0 |
% |
|
Financing activities |
(5,545 |
) |
(4,777 |
) |
(768 |
) |
16 |
% |
|
|
Investing activities |
(216 |
) |
(401 |
) |
185 |
|
-46 |
% |
| Cash, end of period |
64,708 |
|
52,236 |
|
12,472 |
|
24 |
% |
|
|
|
|
|
|
|
|
|
| For the nine months ended December 31, |
|
|
|
|
|
|
|
|
| ($ thousands) |
2013 |
|
2012 |
|
$ change |
|
% change |
|
|
|
|
|
|
|
|
|
|
| Cash, beginning of period |
59,419 |
|
55,374 |
|
4,045 |
|
7 |
% |
| Cash flow from (used in): |
|
|
|
|
|
|
|
|
|
Operating activities |
19,464 |
|
16,918 |
|
2,546 |
|
15 |
% |
|
Financing activities |
(13,706 |
) |
(18,296 |
) |
4,590 |
|
-25 |
% |
|
|
Investing activities |
(469 |
) |
(1,760 |
) |
1,291 |
|
-73 |
% |
| Cash, end of period |
64,708 |
|
52,236 |
|
12,472 |
|
24 |
% |
OPERATING ACTIVITIES
Cash flow generated from operating activities remained
consistent in the three months ended December 31, 2013, compared to
the same period of last year.
Cash flow generated from operating activities increased by $2.5
million in the nine months ended December 31, 2013, compared to the
same period of last year, mainly due to the increase in net income
for the period and the positive effect on the timing difference of
when income taxes are recorded and paid offset by the timing
difference of when sales are made and when the resulting
receivables are collected and the change in the deferred revenue
balance.
FINANCING ACTIVITIES
Cash used in financing activities during the three months ended
December 31, 2013 increased by $0.8 million, compared to the same
period of the previous fiscal year, as a result of paying larger
dividends.
During the nine months ended December 31, 2013, cash used in
financing activities decreased by $4.6 million, compared to the
same period of the previous fiscal year, due to receiving higher
proceeds from the issuance of Common Shares offset by paying larger
dividends. In addition, in the first quarter of the previous fiscal
year, CMG spent $1.6 million on buying back Common Shares.
During the nine months ended December 31, 2013, CMG employees
and directors exercised options to purchase 884,000 Common Shares,
which resulted in cash proceeds of $9.1 million (2012 - 601,000
options exercised to purchase Common Shares which resulted in cash
proceeds of $5.1 million).
In the nine months ended December 31, 2013, CMG paid $22.9
million in dividends, representing the following quarterly
dividends:
|
($ per share) |
Q1 |
Q2 |
Q3 |
|
|
|
|
|
Dividends declared and paid |
0.18 |
0.18 |
0.18 |
|
Special dividend declared and paid |
0.05 |
- |
- |
|
Total dividends declared and paid |
0.23 |
0.18 |
0.18 |
In the nine months December 31, 2012, CMG paid $21.8 million in
dividends, representing the following quarterly dividends:
|
($ per share) |
Q1 |
Q2 |
Q3 |
|
|
|
|
|
Dividends declared and paid |
0.16 |
0.16 |
0.16 |
|
Special dividend declared and paid |
0.10 |
- |
- |
|
Total dividends declared and paid |
0.26 |
0.16 |
0.16 |
On February 11, 2014 CMG announced the payment of a quarterly
dividend of $0.19 per share on CMG's Common Shares. The dividend
will be paid on March 14, 2014 to shareholders of record at the
close of business on March 7, 2014.
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, Q2 and Q3 of fiscal 2014
compared to $0.16 per share in Q1, Q2 and Q3 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 nine months ended December 31, 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 nine months ended December
31, 2013, CMG expended $0.5 million on property and equipment
additions, primarily composed of computing equipment. CMG has a
capital budget of $1.8 million for fiscal 2014.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2013, CMG has $64.7 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 nine months ended December 31, 2013, 7,399,000 shares
of CMG's public float were traded on the TSX. As at December 31,
2013, CMG's market capitalization based upon its December 31, 2013
closing price of $26.61 was $1.0 billion.
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 - $0.5 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:
|
Standard/Interpretation |
|
Nature of impending change in accounting policy |
|
Impact on CMG's financial statements |
|
|
|
|
|
|
IFRS 9 Financial Instruments In November 2009 the IASB
issued IFRS 9 Financial Instruments (IFRS 9 (2009)), and in October
2010 the IASB published amendments to IFRS 9 (IFRS 9 (2010)). On
July 24, 2013 the IASB tentatively decided to defer the mandatory
effective date of IFRS 9. The mandatory effective date will be left
open pending the finalisation of the impairment and classification
and measurement requirements. |
|
IFRS 9 (2009) replaces the guidance in IAS 39 Financial
Instruments: Recognition and Measurement, on the classification and
measurement of financial assets. The Standard eliminates the
existing IAS 39 categories of held to maturity, available-for-sale
and loans and receivable. Financial assets will be classified into
one of two categories on initial recognition: • financial assets
measured at amortized cost; or • financial assets measured at fair
value. Gains and losses on remeasurement of financial assets
measured at fair value will be recognized in profit or loss, except
that for an investment in an equity instrument 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. |
|
The mandatory effective date of IFRS 9 (2010), which supersedes
IFRS 9 (2009), has been left open by the IASB. Early adoption is
permitted. The Company will determine when to adopt IFRS 9 (2010)
when the IASB has determined the mandatory effective date and
finalised the impairment and classification and measurement
requirements. The Company does not expect IFRS 9 (2010) to have a
material impact on the financial statements. The classification and
measurement of the Company's financial assets and liabilities is
not expected to change under IFRS 9 (2010) because of the nature of
the Company's operations and the types of financial assets that it
holds. |
|
|
|
|
|
|
Amendments to IAS 32, Offsetting Financial Assets and
Liabilities In December 2011, the IASB published
Offsetting Financial Assets and Financial Liabilities and
issued new presentation requirements in IAS 32 Financial
Instruments: Presentation. The effective date for the
amendments to IAS 32 is annual periods beginning on or after
January 1, 2014. These amendments are to be applied
retrospectively. |
|
The amendments to IAS 32 clarify that an entity currently has a
legally enforceable right to set-off if that right is: • not
contingent on a future event; and • enforceable both in the normal
course of business and in the event of default, insolvency or
bankruptcy of the entity and all counterparties. The amendments to
IAS 32 also clarify when a settlement mechanism provides for net
settlement or gross settlement that is equivalent to net
settlement. |
|
The Company intends to adopt the amendments to IAS 32 in its
financial statements for the annual period beginning April 1, 2014.
The Company does not expect the amendments to have a material
impact on the financial statements. |
|
|
|
|
|
|
Amendments to IAS 36, Impairment of Assets In May 2013,
the IASB published Recoverable Amount Disclosures for
Non-Financial Assets detailing narrow scope amendments to IAS
36 Impairment of Assets. The effective date for the
amendments to IAS 36 is annual periods beginning on or after
January 1, 2014. These amendments are to be applied retrospectively
and earlier adoption is permitted for periods when IFRS 13 is
applied. |
|
The amendments to IAS 36 clarify IASB's original intention to
require: • the disclosure of the recoverable amount of impaired
assets; and • additional disclosures about the measurement of the
recoverable amount of impaired assets when the recoverable amount
is based on fair value less costs of disposal, including the
discount rate when a present value technique is used to measure the
recoverable amount. |
|
The Company intends to adopt the amendments to IAS 36 in its
financial statements for the annual period beginning April 1, 2014.
The Company does not expect the amendments to have a material
impact on the financial statements. |
Outstanding Share Data
The following table represents the number of Common Shares and
options outstanding:
| As
at February 11, 2014 |
|
|
(thousands) |
|
|
Common Shares |
39,030 |
|
Options |
3,093 |
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
February 11, 2014, CMG could grant up to 3,903,000 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 nine months ended December 31, 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 nine months of fiscal 2014 with a recorded increase of
6%, compared to the same period of the previous fiscal year, with
the most significant growth coming from the US at 23%. 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 continue to
experience increased license usage by our existing large clients as
well as adding new accounts.
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 $2.0 million in the
first nine 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 nine months ended December 31, 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 progress
during the third quarter of the current fiscal year. The most
recent beta version of the software was released at the beginning
of calendar 2013, and the limited commercial release of the
software was expected to be delivered to our partner companies, for
the purposes of testing it on selected assets, by the end of
calendar 2013. The upcoming release achieved its target of
successfully simulating a complex integrated asset model; however,
an unanticipated additional complexity in the model has delayed the
software release to our partners to the fourth quarter of fiscal
2014. 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
February 11, 2014
| COMPUTER MODELLING GROUP LTD. |
| CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL
POSITION |
|
|
|
| UNAUDITED (thousands of Canadian $) |
December 31, 2013 |
March 31, 2013 |
|
|
|
| Assets |
|
|
| Current assets: |
|
|
|
Cash |
64,708 |
59,419 |
|
Trade
and other receivables |
15,446 |
19,141 |
|
Prepaid expenses |
1,417 |
1,216 |
|
|
Prepaid income taxes (note 7) |
122 |
341 |
|
81,693 |
80,117 |
| Property and equipment |
2,622 |
3,304 |
| Total assets |
84,315 |
83,421 |
|
|
|
| Liabilities and Shareholders' Equity |
|
|
| Current liabilities: |
|
|
|
Trade
payables and accrued liabilities |
5,311 |
6,047 |
|
Income taxes payable (note 7) |
866 |
296 |
|
|
Deferred revenue |
18,069 |
25,289 |
|
24,246 |
31,632 |
| Deferred tax liability (note 7) |
228 |
379 |
| Total liabilities |
24,474 |
32,011 |
|
|
|
| Shareholders' equity: |
|
|
|
Share
capital |
51,251 |
40,498 |
|
Contributed surplus |
5,312 |
4,673 |
|
|
Retained earnings |
3,278 |
6,239 |
| Total shareholders' equity |
59,841 |
51,410 |
| Total liabilities and shareholders' equity |
84,315 |
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 December 31 |
Nine months ended December 31 |
| UNAUDITED (thousands of Canadian $ except per share
amounts) |
2013 |
2012 |
2013 |
2012 |
|
|
|
|
|
| Revenue (note 4) |
19,227 |
16,802 |
54,527 |
49,341 |
|
|
|
|
|
| Operating expenses |
|
|
|
|
|
Sales, marketing and professional services |
4,119 |
3,778 |
11,605 |
11,333 |
|
Research and development (note 5) |
3,816 |
3,136 |
10,706 |
9,061 |
|
|
General and administrative |
1,717 |
1,612 |
4,995 |
4,534 |
|
9,652 |
8,526 |
27,306 |
24,928 |
| Operating profit |
9,575 |
8,276 |
27,221 |
24,413 |
|
|
|
|
|
| Finance income (note 6) |
674 |
280 |
1,160 |
422 |
| Profit before income and other taxes |
10,249 |
8,556 |
28,381 |
24,835 |
| Income and other taxes (note 7) |
3,044 |
2,437 |
8,487 |
7,266 |
|
|
|
|
|
| Net and total comprehensive income |
7,205 |
6,119 |
19,894 |
17,569 |
|
|
|
|
|
| Earnings Per Share |
|
|
|
|
| Basic (note 8(e)) |
0.19 |
0.16 |
0.52 |
0.47 |
| Diluted (note 8(e)) |
0.18 |
0.16 |
0.50 |
0.45 |
|
| See accompanying notes to condensed
consolidated financial statements. |
|
|
|
| COMPUTER MODELLING GROUP LTD. |
|
| CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN
EQUITY |
|
|
|
|
|
|
|
|
|
|
| UNAUDITED (thousands of Canadian $) |
Common Share Capital |
|
Contributed Surplus |
|
Retained Earnings |
|
Total Equity |
|
|
|
|
|
|
|
|
|
|
| Balance, April 1, 2012 |
31,751 |
|
3,535 |
|
10,793 |
|
46,079 |
|
| Total comprehensive income for the period |
- |
|
- |
|
17,569 |
|
17,569 |
|
| Dividends paid |
- |
|
- |
|
(21,806 |
) |
(21,806 |
) |
| Shares issued for cash on exercise of stock options
(note 8(b)) |
5,061 |
|
- |
|
- |
|
5,061 |
|
| Common shares buy-back (notes 8(b) & (c)) |
(80 |
) |
- |
|
(1,471 |
) |
(1,551 |
) |
| Stock-based compensation: |
|
|
|
|
|
|
|
|
|
Current period expense |
- |
|
1,888 |
|
- |
|
1,888 |
|
|
|
Stock options exercised (note 8(b)) |
973 |
|
(973 |
) |
- |
|
- |
|
| Balance, December 31, 2012 |
37,705 |
|
4,450 |
|
5,085 |
|
47,240 |
|
|
|
|
|
|
|
|
|
|
| Balance, April 1, 2013 |
40,498 |
|
4,673 |
|
6,239 |
|
51,410 |
|
| Total comprehensive income for the period |
- |
|
- |
|
19,894 |
|
19,894 |
|
| Dividends paid |
- |
|
- |
|
(22,855 |
) |
(22,855 |
) |
| Shares issued for cash on exercise of stock options
(note 8(b)) |
9,149 |
|
- |
|
- |
|
9,149 |
|
| Stock-based compensation: |
|
|
|
|
|
|
|
|
|
Current period expense |
- |
|
2,243 |
|
- |
|
2,243 |
|
|
|
Stock options exercised (note 8(b)) |
1,604 |
|
(1,604 |
) |
- |
|
- |
|
| Balance, December 31, 2013 |
51,251 |
|
5,312 |
|
3,278 |
|
59,841 |
|
|
| See accompanying notes to condensed
consolidated financial statements. |
|
|
|
| COMPUTER MODELLING GROUP LTD. |
|
| CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS |
|
|
|
|
Three months ended December 31 |
|
Nine months ended December 31 |
|
| UNAUDITED (thousands of Canadian $) |
2013 |
|
2012 |
|
2013 |
|
2012 |
|
|
|
|
|
|
|
|
|
|
| Cash flows from operating activities |
|
|
|
|
|
|
|
|
|
Net
income |
7,205 |
|
6,119 |
|
19,894 |
|
17,569 |
|
| Adjustments for: |
|
|
|
|
|
|
|
|
|
Depreciation |
397 |
|
411 |
|
1,151 |
|
1,122 |
|
|
Income and other taxes (note 7) |
3,044 |
|
2,437 |
|
8,487 |
|
7,266 |
|
|
Stock-based compensation (note 8(d)) |
940 |
|
656 |
|
2,243 |
|
1,888 |
|
|
|
Interest income (note 6) |
(160 |
) |
(133 |
) |
(479 |
) |
(409 |
) |
|
11,426 |
|
9,490 |
|
31,296 |
|
27,436 |
|
| Changes in non-cash working capital: |
|
|
|
|
|
|
|
|
|
Trade
and other receivables |
(2,256 |
) |
1,775 |
|
3,698 |
|
4,855 |
|
|
Trade
payables and accrued liabilities |
1,428 |
|
660 |
|
(736 |
) |
(549 |
) |
|
Prepaid expenses |
(259 |
) |
179 |
|
(201 |
) |
188 |
|
|
|
Deferred revenue |
(1,277 |
) |
(2,731 |
) |
(7,220 |
) |
(6,183 |
) |
| Cash generated from operating activities |
9,062 |
|
9,373 |
|
26,837 |
|
25,747 |
|
|
Interest received |
160 |
|
132 |
|
476 |
|
412 |
|
|
|
Income taxes paid |
(2,498 |
) |
(2,785 |
) |
(7,849 |
) |
(9,241 |
) |
| Net cash from operating activities |
6,724 |
|
6,720 |
|
19,464 |
|
16,918 |
|
|
|
|
|
|
|
|
|
|
| Cash flows from financing activities |
|
|
|
|
|
|
|
|
| Proceeds from issue of common shares |
1,475 |
|
1,273 |
|
9,149 |
|
5,061 |
|
| Dividends paid |
(7,020 |
) |
(6,050 |
) |
(22,855 |
) |
(21,806 |
) |
| Common shares buy-back (note 8(c)) |
- |
|
- |
|
- |
|
(1,551 |
) |
| Net cash used in financing activities |
(5,545 |
) |
(4,777 |
) |
(13,706 |
) |
(18,296 |
) |
|
|
|
|
|
|
|
|
|
| Cash flows used in investing activities |
|
|
|
|
|
|
|
|
| Property and equipment additions |
(216 |
) |
(401 |
) |
(469 |
) |
(1,760 |
) |
| Increase (decrease) in cash |
963 |
|
1,542 |
|
5,289 |
|
(3,138 |
) |
| Cash, beginning of period |
63,745 |
|
50,694 |
|
59,419 |
|
55,374 |
|
| Cash, end of period |
64,708 |
|
52,236 |
|
64,708 |
|
52,236 |
|
|
| See accompanying notes to condensed
consolidated financial statements. |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the three and nine months ended December 31, 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 nine months ended December
31, 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 nine months ended December 31, 2013 were
authorized for issuance by the Board of Directors on February 11,
2014.
(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 December 31, |
|
|
|
|
|
(thousands of $) |
2013 |
|
2012 |
|
|
Software licenses |
17,220 |
|
15,369 |
|
|
Professional services |
2,007 |
|
1,433 |
|
|
|
19,227 |
|
16,802 |
|
|
|
|
|
|
|
|
For the nine months ended December 31, |
|
|
|
|
|
(thousands of $) |
2013 |
|
2012 |
|
|
Software licenses |
48,491 |
|
45,302 |
|
|
Professional services |
6,036 |
|
4,039 |
|
|
|
54,527 |
|
49,341 |
|
|
|
| 5. Research and Development Costs: |
|
|
|
|
For the three months ended December 31, |
|
|
|
|
|
(thousands of $) |
2013 |
|
2012 |
|
|
Research and development |
4,125 |
|
3,586 |
|
|
Scientific research and experimental development ("SR&ED")
investment tax credits |
(309 |
) |
(450 |
) |
|
|
3,816 |
|
3,136 |
|
|
|
|
|
|
|
|
For the nine months ended December 31, |
|
|
|
|
|
(thousands of $) |
2013 |
|
2012 |
|
|
Research and development |
12,080 |
|
10,458 |
|
|
Scientific research and experimental development ("SR&ED")
investment tax credits |
(1,374 |
) |
(1,397 |
) |
|
|
10,706 |
|
9,061 |
|
|
|
| 6. Finance Income and Finance Costs: |
|
|
|
|
For the three months ended December 31, |
|
|
|
|
|
(thousands of $) |
2013 |
|
2012 |
|
|
Interest income |
160 |
|
133 |
|
|
Net foreign exchange gain |
514 |
|
147 |
|
|
Finance income |
674 |
|
280 |
|
|
|
|
|
|
|
For the nine months ended December 31, |
|
|
|
|
|
(thousands of $) |
2013 |
|
2012 |
|
|
Interest income |
479 |
|
409 |
|
|
Net foreign exchange gain |
681 |
|
13 |
|
|
Finance income |
1,160 |
|
422 |
|
7. Income and Other Taxes:
The major components of income tax expense are as follows:
|
For the nine months ended December 31, |
|
|
|
|
|
(thousands of $) |
2013 |
|
2012 |
|
|
Current year income taxes |
7,727 |
|
6,655 |
|
|
Adjustment for prior year |
6 |
|
67 |
|
|
Current income taxes |
7,733 |
|
6,722 |
|
|
Deferred tax expense (recovery) |
(151 |
) |
(61 |
) |
|
Foreign withholding and other taxes |
905 |
|
605 |
|
|
|
8,487 |
|
7,266 |
|
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 nine months ended December 31, |
|
|
|
|
|
(thousands of $, unless otherwise stated) |
2013 |
|
2012 |
|
|
Combined statutory tax rate |
25.00 |
% |
25.00 |
% |
|
Expected income tax |
7,095 |
|
6,209 |
|
|
Non-deductible costs |
582 |
|
494 |
|
|
Effect of tax rates in foreign jurisdictions |
129 |
|
17 |
|
|
Withholding taxes |
678 |
|
454 |
|
|
Adjustment for prior year |
6 |
|
67 |
|
|
Other |
(3 |
) |
25 |
|
|
|
8,487 |
|
7,266 |
|
The components of the Company's deferred tax liability are as
follows:
|
(thousands of $) |
December 31, 2013 |
|
March 31, 2013 |
|
| Tax
liability on SR&ED investment tax credits |
(244 |
) |
(362 |
) |
|
Tax asset (liability) on property and equipment |
16 |
|
(17 |
) |
|
Deferred tax liability |
(228 |
) |
(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 |
601 |
|
|
Common shares buy-back |
(91 |
) |
|
Balance, December 31, 2012 |
37,817 |
|
|
|
|
|
Balance, April 1, 2013 |
38,129 |
|
|
Issued for cash on exercise of stock options |
884 |
|
|
Balance, December 31, 2013 |
39,013 |
|
Subsequent to December 31, 2013, 17,000 stock options were
exercised for cash proceeds of $206,000.
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 $1,551,000.
On April 29, 2013, the Company announced a NCIB commencing on
May 1, 2013 to purchase for cancellation up to 3,538,000 of its
Common Shares. During the nine months ended December 31, 2013, no
Common Shares were purchased.
(d) STOCK-BASED COMPENSATION PLAN:
The Company adopted a rolling stock option plan as of July 13,
2005, which was reaffirmed by the Company's shareholders on July 7,
2011, which allows it to grant options to acquire Common Shares of
up to 10% of the outstanding Common Shares at the date of grant.
Based upon this calculation, at December 31, 2013, the Company
could grant up to 3,901,000 stock options. Pursuant to the stock
option plan, the maximum term of an option granted cannot exceed
five years from the date of grant. The outstanding stock options
vest as to 50% after the first year anniversary, from date of
grant, and then vest as to 25% of the total options granted after
each of the second and third year anniversary dates.
The following table outlines changes in stock options:
|
(thousands except per share amounts) |
For the nine months ended December 31, 2013 |
For the year ended March 31, 2013 |
|
|
Options Granted |
|
Weighted Average Exercise Price ($/share) |
Options Granted |
|
Weighted Average Exercise Price ($/share) |
|
Outstanding at beginning of period |
2,938 |
|
13.13 |
2,903 |
|
9.85 |
|
Granted |
1,154 |
|
24.41 |
1,006 |
|
18.19 |
|
Exercised |
(885 |
) |
10.34 |
(913 |
) |
8.15 |
|
Forfeited/cancelled |
(87 |
) |
16.34 |
(58 |
) |
15.09 |
|
Outstanding at end of period |
3,120 |
|
18.00 |
2,938 |
|
13.13 |
|
Options exercisable at end of period |
1,271 |
|
13.01 |
1,207 |
|
9.75 |
The range of exercise prices of stock options outstanding and
exercisable at December 31, 2013 is as follows:
|
|
Outstanding |
Exercisable |
|
Exercise Price ($/option) |
Number of Options (thousands) |
Weighted Average Remaining Contractual Life (years) |
Weighted Average Exercise Price ($/option) |
Number of Options (thousands) |
Weighted Average Exercise Price ($/option) |
| 7.80
- 9.07 |
490 |
1.4 |
8.80 |
490 |
8.80 |
| 9.08
- 13.43 |
641 |
2.6 |
13.39 |
407 |
13.38 |
| 13.44
- 18.18 |
836 |
3.6 |
18.13 |
372 |
18.12 |
|
18.19 - 26.19 |
1,153 |
4.6 |
24.39 |
2 |
20.00 |
|
|
3,120 |
3.4 |
18.00 |
1,271 |
13.01 |
The fair value of stock options granted was estimated using the
Black-Scholes option pricing model under the following
assumptions:
|
|
For the nine months ended December 31, 2013 |
For the year ended March 31, 2013 |
| Fair
value at grant date ($/option) |
3.06 to 4.33 |
2.45 to 3.83 |
| Share
price at grant date ($/share) |
24.40 to 26.19 |
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 (%) |
2.96 to 3.21 |
3.39 to 4.12 |
The Company recognized total stock-based compensation expense
for the three and nine months ended December 31, 2013 of $940,000
and $2,243,000 respectively (three and nine months ended December
31, 2012 - $656,000 and $1,888,000 respectively).
(e) EARNINGS PER SHARE:
The following table summarizes the earnings and weighted average
number of Common Shares used in calculating basic and diluted
earnings per share:
| For the three months ended December 31, (thousands
except per share amounts) |
2013 |
2012 |
|
|
Earnings ($) |
Weighted Average Shares Outstanding |
Earnings Per Share ($/share) |
Earnings ($) |
Weighted Average Shares Outstanding |
Earnings Per Share ($/share) |
|
Basic |
7,205 |
38,939 |
0.19 |
6,119 |
37,754 |
0.16 |
|
Dilutive effect of stock options |
|
921 |
|
|
1,103 |
|
|
Diluted |
7,205 |
39,860 |
0.18 |
6,119 |
38,857 |
0.16 |
|
|
|
|
|
|
|
|
| For the nine months ended December 31, (thousands
except per share amounts) |
2013 |
2012 |
|
|
Earnings ($) |
Weighted Average Shares Outstanding |
Earnings Per Share ($/share) |
Earnings ($) |
Weighted Average Shares Outstanding |
Earnings Per Share ($/share) |
|
Basic |
19,894 |
38,616 |
0.52 |
17,569 |
37,538 |
0.47 |
|
Dilutive effect of stock options |
|
975 |
|
|
1,127 |
|
|
Diluted |
19,894 |
39,591 |
0.50 |
17,569 |
38,665 |
0.45 |
During the three and nine months ended December 31, 2013, 40,000
and Nil options, respectively (three and nine months ended December
31, 2012 - 31,000, and 118,000 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:
| Nine
months ended December 31, |
|
|
|
(thousands of $) |
2013 |
2012 |
| Less
than one year |
518 |
499 |
|
Between one and five years |
5,170 |
7,089 |
|
|
5,688 |
7,588 |
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 December 31, 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 nine months ended December 31, |
As at December 31, |
|
|
2013 |
2012 |
2013 |
2012 |
|
|
|
|
|
|
Canada |
19,610 |
19,243 |
2,423 |
3,323 |
|
United States |
11,155 |
8,736 |
54 |
49 |
| South
America |
9,411 |
8,345 |
83 |
51 |
|
Eastern Hemisphere(1) |
14,351 |
13,017 |
62 |
44 |
|
|
54,527 |
49,341 |
2,622 |
3,467 |
|
(1) |
Includes Europe, Africa, Asia and Australia. |
In the nine months ended December 31, 2013 and 2012, no customer
represented 10% or more 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 nine months ended December 31, 2013, CMG
included $1.3 million and $3.5 million, respectively (2012 - $1.0
million and $2.8 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
$1.8 million during the three and nine months ended December 31,
2013 (2012 - $0.4 million and $1.3 million, respectively).
14. Subsequent Events:
On February 11, 2014, the Board of Directors declared a
quarterly cash dividend of $0.19 per share on its Common Shares,
payable on March 14, 2014, to all shareholders of record at the
close of business on March 7, 2014.
Computer Modelling Group Ltd.Kenneth M. DedelukPresident &
CEO(403) 531-1300ken.dedeluk@cmgl.caComputer Modelling Group
Ltd.Sandra BalicVice President, Finance & CFO(403)
531-1300(403) 289-8502sandra.balic@cmgl.cawww.cmgl.ca
Computer Modelling (TSX:CMG)
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