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 Incremental Foreign
December 31, 2013 Q3 2013 License 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 Incremental Foreign
December 31, 2013 Q3 2013 License 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.
At At At Nine month
CDN$ to US$ June 30 September 30 December 31 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:
Nature of impending
change in accounting Impact on CMG's
Standard/Interpretation policy financial statements
----------------------------------------------------------------------------
IFRS 9 Financial IFRS 9 (2009) replaces The mandatory effective
Instruments the guidance in IAS 39 date of IFRS 9 (2010),
Financial Instruments: which supersedes IFRS 9
In November 2009 the IASB Recognition and (2009), has been left
issued IFRS 9 Financial Measurement, on the open by the IASB. Early
Instruments (IFRS 9 classification and adoption is permitted.
(2009)), and in October measurement of financial The Company will
2010 the IASB published assets. The Standard determine when to adopt
amendments to IFRS 9 eliminates the existing IFRS 9 (2010) when the
(IFRS 9 (2010)). On July IAS 39 categories of held IASB has determined the
24, 2013 the IASB to maturity, available- mandatory effective date
tentatively decided to for-sale and loans and and finalised the
defer the mandatory receivable. impairment and
effective date of IFRS 9. classification and
The mandatory effective Financial assets will be measurement
date will be left open classified into one of requirements.
pending the finalisation two categories on initial
of the impairment and recognition: The Company does not
classification and expect IFRS 9 (2010) to
measurement requirements. - financial assets have a material impact
measured at amortized on the financial
cost; or statements. The
- financial assets classification and
measured at fair value. measurement of the
Company's financial
Gains and losses on assets and liabilities
remeasurement of is not expected to
financial assets measured change under IFRS 9
at fair value will be (2010) because of the
recognized in profit or nature of the Company's
loss, except that for an operations and the types
investment in an equity of financial assets that
instrument which is not it holds.
held-for-trading, IFRS 9
provides, on initial
recognition, an
irrevocable election to
present all fair value
changes from the
investment in other
comprehensive income
(OCI). The election is
available on an
individual share-by-share
basis. Amounts presented
in OCI will not be
reclassified to profit or
loss at a later date.
IFRS 9 (2010) added
guidance to IFRS 9 (2009)
on the classification and
measurement of financial
liabilities, and this
guidance is consistent
with the guidance in IAS
39 expect as described
below.
Under IFRS 9 (2010), for
financial liabilities
measured at fair value
under the fair value
option, changes in fair
value attributable to
changes in credit risk
will be recognized in
OCI, with the remainder
of the change recognized
in profit or loss.
However, if this
requirement creates or
enlarges an accounting
mismatch in profit or
loss, the entire change
in fair value will be
recognized in profit or
loss. Amounts presented
in OCI will not be
reclassified to profit or
loss at a later date.
IFRS 9 (2010) also
requires derivative
liabilities that are
linked to and must be
settled by delivery of an
unquoted equity
instrument to be measured
at fair value, whereas
such derivative
liabilities are measured
at cost under IAS 39.
IFRS 9 (2010) also added
the requirements of IAS
39 for the derecognition
of financial assets and
liabilities to IFRS 9
without change.
----------------------------------------------------------------------------
Amendments to IAS 32, The amendments to IAS 32 The Company intends to
Offsetting Financial clarify that an entity adopt the amendments to
Assets and Liabilities currently has a legally IAS 32 in its financial
enforceable right to set- statements for the
In December 2011, the off if that right is: annual period beginning
IASB published Offsetting April 1, 2014. The
Financial Assets and - not contingent on a Company does not expect
Financial Liabilities and future event; and the amendments to have a
issued new presentation - enforceable both in the material impact on the
requirements in IAS 32 normal course of business financial statements.
Financial Instruments: and in the event of
Presentation. default, insolvency or
bankruptcy of the entity
The effective date for and all counterparties.
the amendments to IAS 32
is annual periods The amendments to IAS 32
beginning on or after also clarify when a
January 1, 2014. These settlement mechanism
amendments are to be provides for net
applied retrospectively. settlement or gross
settlement that is
equivalent to net
settlement.
----------------------------------------------------------------------------
Amendments to IAS 36, The amendments to IAS 36 The Company intends to
Impairment of Assets clarify IASB's original adopt the amendments to
intention to require: IAS 36 in its financial
In May 2013, the IASB statements for the
published Recoverable - the disclosure of the annual period beginning
Amount Disclosures for recoverable amount of April 1, 2014. The
Non-Financial Assets impaired assets; and Company does not expect
detailing narrow scope - additional disclosures the amendments to have a
amendments to IAS 36 about the measurement of material impact on the
Impairment of Assets. the recoverable amount of financial statements.
impaired assets when the
The effective date for recoverable amount is
the amendments to IAS 36 based on fair value less
is annual periods costs of disposal,
beginning on or after including the discount
January 1, 2014. These rate when a present value
amendments are to be technique is used to
applied retrospectively measure the recoverable
and earlier adoption is amount.
permitted for periods
when IFRS 13 is applied.
----------------------------------------------------------------------------
Outstanding Share Data
The following table represents the number of Common Shares and options outstanding:
As at 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 Nine months ended
December 31 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 Common Contributed Retained Total
Canadian $) Share Capital Surplus Earnings 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 Nine months ended
December 31 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 $1,551,000.
On April 29, 2013, the Company announced a NCIB commencing on May 1, 2013 to
purchase for cancellation up to 3,538,000 of its Common Shares. During the nine
months ended December 31, 2013, no Common Shares were purchased.
(d) STOCK-BASED COMPENSATION PLAN:
The Company adopted a rolling stock option plan as of July 13, 2005, which was
reaffirmed by the Company's shareholders on July 7, 2011, which allows it to
grant options to acquire Common Shares of up to 10% of the outstanding Common
Shares at the date of grant. Based upon this calculation, at December 31, 2013,
the Company could grant up to 3,901,000 stock options. Pursuant to the stock
option plan, the maximum term of an option granted cannot exceed five years from
the date of grant. The outstanding stock options vest as to 50% after the first
year anniversary, from date of grant, and then vest as to 25% of the total
options granted after each of the second and third year anniversary dates.
The following table outlines changes in stock options:
(thousands except per For the nine months ended For the year ended
share amounts) December 31, 2013 March 31, 2013
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Weighted
Weighted Average
Average Exercise
Options Exercise Price Options Price
Granted ($/share) Granted ($/share)
----------------------------------------------------------------------------
Outstanding at beginning
of period 2,938 13.13 2,903 9.85
Granted 1,154 24.41 1,006 18.19
Exercised (885) 10.34 (913) 8.15
Forfeited/cancelled (87) 16.34 (58) 15.09
----------------------------------------------------------------------------
Outstanding at end of
period 3,120 18.00 2,938 13.13
----------------------------------------------------------------------------
Options exercisable at
end of period 1,271 13.01 1,207 9.75
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The range of exercise prices of stock options outstanding and exercisable at
December 31, 2013 is as follows:
Outstanding Exercisable
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Number of Remaining Exercise Number of Exercise
Exercise Price Options Contractual Price Options Price
($/option) (thousands) Life (years) ($/option) (thousands) ($/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 For the year ended
December 31, 2013 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 $1,888,000
respectively).
(e) EARNINGS PER SHARE:
The following table summarizes the earnings and weighted average number of
Common Shares used in calculating basic and diluted earnings per share:
For the three months
ended December 31,
(thousands except per
share amounts) 2013 2012
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Weighted Weighted
Average Earnings Average Earnings
Earnings Shares Per Share Earnings Shares Per Share
($) Outstanding ($/share) ($) Outstanding ($/share)
----------------------------------------------------------------------------
Basic 7,205 38,939 0.19 6,119 37,754 0.16
Dilutive
effect of
stock options 921 1,103
----------------------------------------------------------------------------
Diluted 7,205 39,860 0.18 6,119 38,857 0.16
----------------------------------------------------------------------------
----------------------------------------------------------------------------
For the nine months
ended December 31,
(thousands except per
share amounts) 2013 2012
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Weighted Weighted
Average Earnings Average Earnings
Earnings Shares Per Share Earnings Shares Per Share
($) Outstanding ($/share) ($) Outstanding ($/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 Other financial Amortized cost
liabilities liabilities
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(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.
FOR FURTHER INFORMATION PLEASE CONTACT:
Computer Modelling Group Ltd.
Kenneth M. Dedeluk
President & CEO
(403) 531-1300
ken.dedeluk@cmgl.ca
Computer Modelling Group Ltd.
Sandra Balic
Vice President, Finance & CFO
(403) 531-1300
(403) 289-8502 (FAX)
sandra.balic@cmgl.ca
www.cmgl.ca
Imasight (Tier2) (TSXV:IAS)
Historical Stock Chart
Von Jun 2024 bis Jul 2024
Imasight (Tier2) (TSXV:IAS)
Historical Stock Chart
Von Jul 2023 bis Jul 2024
