Computer Modelling Group Ltd. (TSX:CMG) ("CMG" or the "Company") is
very pleased to report our second quarter results for the three and
six months ended September 30, 2012.
SECOND QUARTER HIGHLIGHTS
For the three months ended
September 30, 2012 2011 $ change % change
($ thousands, except per share data)
----------------------------------------------------------------------------
Annuity/maintenance software
licenses 12,012 9,308 2,704 29%
Perpetual software licenses 2,671 1,596 1,075 67%
Total revenue 16,073 11,982 4,091 34%
Operating profit 8,032 5,226 2,806 54%
Net income 5,361 4,318 1,043 24%
Earnings per share - basic 0.14 0.12 0.02 17%
----------------------------------------------------------------------------
For the six months ended
September 30, 2012 2011 $ change % change
($ thousands, except per share data)
----------------------------------------------------------------------------
Annuity/maintenance software
licenses 25,192 18,305 6,887 38%
Perpetual software licenses 4,741 6,987 (2,246) -32%
Total revenue 32,539 27,921 4,618 17%
Operating profit 16,137 14,318 1,819 13%
Net income 11,451 10,981 470 4%
Earnings per share - basic 0.31 0.30 0.01 3%
----------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS
This Management's Discussion and Analysis ("MD&A") for
Computer Modelling Group Ltd. ("CMG," the "Company," "we" or
"our"), presented as at November 7, 2012, should be read in
conjunction with the unaudited condensed consolidated financial
statements and related notes of the Company for the three and six
months ended September 30, 2012 and the audited consolidated
financial statements and MD&A for the years ended March 31,
2012 and 2011 contained in the 2012 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 2012 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 and Dubai.
CMG's Common Shares are listed on the Toronto Stock Exchange
("TSX") and trade under the symbol "CMG".
QUARTERLY
PERFORMANCE
Fiscal Fiscal Fiscal
2011(1) 2012(2) 2013(3)
($ thousands, unless
otherwise stated) Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
----------------------------------------------------------------------------
Annuity/maintenance
licenses 7,999 8,531 8,997 9,308 12,056 12,497 13,179 12,012
Perpetual licenses 2,335 3,911 5,391 1,596 2,321 3,416 2,070 2,671
----------------------------------------------------------------------------
Software licenses 10,333 12,442 14,388 10,904 14,377 15,913 15,249 14,683
Professional
services 1,730 1,936 1,551 1,078 1,521 1,302 1,216 1,390
----------------------------------------------------------------------------
Total revenue 12,063 14,378 15,939 11,982 15,898 17,215 16,465 16,073
Operating profit 5,516 7,532 9,092 5,226 8,093 9,193 8,105 8,032
Operating profit % 46 52 57 44 51 53 49 50
EBITDA(4) 5,789 7,818 9,366 5,508 8,414 9,543 8,423 8,425
Profit before income
and other taxes 5,278 7,413 9,240 6,096 8,184 9,104 8,577 7,703
Income and other
taxes 1,715 2,605 2,577 1,778 2,394 2,484 2,487 2,342
Net income for the
period 3,563 4,808 6,663 4,318 5,790 6,620 6,090 5,361
Cash dividends
declared and paid 3,623 3,643 7,519 4,053 4,079 4,848 9,736 6,020
----------------------------------------------------------------------------
Per share amounts -
($/share)
Earnings per share -
basic 0.10 0.13 0.18 0.12 0.16 0.18 0.16 0.14
Earnings per share -
diluted 0.10 0.13 0.18 0.11 0.15 0.17 0.16 0.14
Cash dividends
declared and paid 0.10 0.10 0.205 0.11 0.11 0.13 0.26 0.16
----------------------------------------------------------------------------
(1) Q3 and Q4 of fiscal 2011 include $0.3 million and $0.1 million,
respectively, in revenue that pertains to usage of CMG's products in
prior quarters.
(2) Q1, Q2, Q3 and Q4 of fiscal 2012 include $0.3 million, $0.04 million,
$2.6 million and $2.7 million, respectively, in revenue that pertains to
usage of CMG's products in prior quarters.
(3) Q1 and Q2 of fiscal 2013 include $2.1 million and $0.2 million,
respectively, in revenue that pertains to usage of CMG's products in
prior quarters.
(4) EBITDA is defined as net income before adjusting for depreciation
expense, finance income, finance costs, and income and other taxes. See
"Non-IFRS Financial Measures".
Highlights
During the six months ended September 30, 2012, as compared to
the same period of prior fiscal year, CMG:
-- Increased annuity/maintenance revenue by 38%
-- Increased operating profit by 13%
-- Increased spending on research and development by 21%
-- Increased EBITDA by 13%
-- Realized earnings per share of $0.31, representing a 3% increase
Revenue
For the three months ended
September 30, 2012 2011 $ change % change
($ thousands)
----------------------------------------------------------------------------
Software licenses 14,683 10,904 3,779 35%
Professional services 1,390 1,078 312 29%
----------------------------------------------------------------------------
Total revenue 16,073 11,982 4,091 34%
----------------------------------------------------------------------------
Software license revenue - % of
total revenue 91% 91%
Professional services - % of total
revenue 9% 9%
----------------------------------------------------------------------------
For the six months ended
September 30, 2012 2011 $ change % change
($ thousands)
----------------------------------------------------------------------------
Software licenses 29,933 25,292 4,641 18%
Professional services 2,606 2,629 (23) -1%
----------------------------------------------------------------------------
Total revenue 32,539 27,921 4,618 17%
----------------------------------------------------------------------------
Software license revenue - % of
total revenue 92% 91%
Professional services - % of total
revenue 8% 9%
----------------------------------------------------------------------------
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 34% for the three months ended
September 30, 2012, compared to the same period of the previous
fiscal year, due to an increase in software license sales driven by
the growth in both annuity/maintenance and perpetual license sales,
and a slight increase in fees for professional services earned
during the quarter.
Total revenue increased by 17% in the six months ended September
30, 2012, compared to the same period of the previous fiscal year,
as a result of the increase in software license sales driven by the
increase in annuity/maintenance revenue.
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-then-current version of the software and has the right to use
that version in perpetuity. Annuity/maintenance license fees have
historically had a high renewal rate and, accordingly, provide a
reliable revenue stream while perpetual license sales are more
variable and unpredictable in nature as the purchase decision and
its timing fluctuate with the customers' needs and budgets. The
majority of CMG's customers who have acquired perpetual software
licenses subsequently purchase our maintenance package to ensure
ongoing product support and access to current versions of CMG's
software.
For the three months ended
September 30, 2012 2011 $ change % change
($ thousands)
----------------------------------------------------------------------------
Annuity/maintenance licenses 12,012 9,308 2,704 29%
Perpetual licenses 2,671 1,596 1,075 67%
----------------------------------------------------------------------------
Total software license revenue 14,683 10,904 3,779 35%
----------------------------------------------------------------------------
Annuity/maintenance as a % of total
software license revenue 82% 85%
Perpetual as a % of total software
license revenue 18% 15%
----------------------------------------------------------------------------
For the six months ended
September 30, 2012 2011 $ change % change
($ thousands)
----------------------------------------------------------------------------
Annuity/maintenance licenses 25,192 18,305 6,887 38%
Perpetual licenses 4,741 6,987 (2,246) -32%
----------------------------------------------------------------------------
Total software license revenue 29,933 25,292 4,641 18%
----------------------------------------------------------------------------
Annuity/maintenance as a % of total
software license revenue 84% 72%
Perpetual as a % of total software
license revenue 16% 28%
----------------------------------------------------------------------------
Total software license revenue grew by 35% in the three months
ended September 30, 2012, compared to the same period of the
previous fiscal year, due to the increases in both
annuity/maintenance and perpetual license revenue related to
increased sales to new and existing customers. Total software
license revenue grew by 18% for the six months ended September 30,
2012, compared to the same period of the previous fiscal year, as a
result of an increase in the annuity/maintenance revenue stream
offset by a decrease in perpetual license sales.
CMG's annuity/maintenance license revenue increased by 29% and
38% during the three and six months ended September 30, 2012,
respectively, compared to the same periods of last year. These
increases were driven by sales to new and existing clients as well
as an increase in maintenance revenue tied to our strong perpetual
sales generated in the current and previous fiscal year. Part of
the increase in the six months ended September 30, 2012, compared
to the same period of the previous fiscal year, is due to the
inclusion of a payment received in the first quarter of the current
fiscal year from one of our large customers for whom revenue
recognition criteria are fulfilled only at the time of the receipt
of funds. The payment was received for the licenses and services
provided for two quarters of the previous fiscal year (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). Given our long-standing
relationship with this client, and the multi-year nature of the
contract, we expect to continue to receive payments under this
arrangement; 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. During the current quarter, no payments have been received
or recorded for this arrangement. If we were to exclude revenue
received from this particular customer from the year-to-date
recorded revenue to provide a normalized comparison, we would note
that the annuity/maintenance revenue grew by 26% for the six months
ended September 30, 2012, compared to the same period of the
previous fiscal year.
Despite some variability introduced by the arrangement described
above, it should be noted that our annuity/maintenance license
sales, representing our recurring revenue stream, have continued to
experience consecutive quarterly increases over the past several
fiscal years, and this trend continued in the second quarter of
fiscal 2013.
We can observe from the table below that the exchange rates
between the US and Canadian dollars during the three and six months
ended September 30, 2012, compared to the same periods of the
previous fiscal year, had only a slight positive impact on our
reported annuity/maintenance revenue.
Software license revenue under perpetual sales increased by 67%
for the three months ended September 30, 2012, compared to the same
period of the previous fiscal year, driven by increased sales of
perpetual licenses in the North America and Eastern Hemisphere.
Perpetual license sales for the six months ended September 30,
2012, decreased by 32% compared to the same period of the previous
fiscal year. In the first quarter of the previous fiscal year, we
reported an amount associated with a multi-million dollar perpetual
contract in the Eastern Hemisphere which contributed significantly
to the revenue growth in the first six months of the previous
fiscal year.
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. It should be
further pointed out that strong perpetual sales in previous
quarters contributed to the increase in our recurring maintenance
revenue in the current quarter.
Similar to the annuity/maintenance revenue stream, we can
observe from the table below that the exchange rates between the US
and Canadian dollars during the three and six months ended
September 30, 2012, compared to the same periods of the previous
fiscal year, had only a slight positive impact on our reported
perpetual license revenue.
The following table summarizes the US dollar denominated revenue
and the weighted average exchange rate at which it was converted to
Canadian dollars:
For the three months ended
September 30, 2012 2011 $ change % change
($ thousands)
----------------------------------------------------------------------------
US dollar annuity/maintenance
license sales US$ 6,938 5,902 1,036 18%
Weighted average conversion
rate 1.005 0.990
----------------------------------------------------------------------------
Canadian dollar equivalent CDN$ 6,972 5,841 1,131 19%
----------------------------------------------------------------------------
US dollar perpetual license
sales US$ 1,905 1,656 249 15%
Weighted average conversion
rate 1.007 0.964
----------------------------------------------------------------------------
Canadian dollar equivalent CDN$ 1,918 1,596 322 20%
----------------------------------------------------------------------------
For the six months ended
September 30, 2012 2011 $ change % change
($ thousands)
----------------------------------------------------------------------------
US dollar annuity/maintenance
license sales US$ 15,576 11,448 4,128 36%
Weighted average conversion
rate 1.001 0.994
----------------------------------------------------------------------------
Canadian dollar equivalent CDN$ 15,598 11,377 4,221 37%
----------------------------------------------------------------------------
US dollar perpetual license
sales US$ 3,251 7,277 (4,026) -55%
Weighted average conversion
rate 1.002 0.956
----------------------------------------------------------------------------
Canadian dollar equivalent CDN$ 3,257 6,955 (3,698) -53%
----------------------------------------------------------------------------
REVENUE BY GEOGRAPHIC SEGMENT
For the three months ended
September 30, 2012 2011 $ change % change
($ thousands)
----------------------------------------------------------------------------
Annuity/maintenance revenue
Canada 5,473 3,998 1,475 37%
United States 2,549 2,061 488 24%
South America 1,172 926 246 27%
Eastern Hemisphere(1) 2,818 2,323 495 21%
----------------------------------------------------------------------------
12,012 9,308 2,704 29%
----------------------------------------------------------------------------
Perpetual revenue
Canada 753 - 753 -
United States 258 141 117 83%
South America - 615 (615) -100%
Eastern Hemisphere 1,660 840 820 98%
----------------------------------------------------------------------------
2,671 1,596 1,075 67%
----------------------------------------------------------------------------
Total software license revenue
Canada 6,226 3,998 2,228 56%
United States 2,807 2,202 605 27%
South America 1,172 1,541 (369) -24%
Eastern Hemisphere 4,478 3,163 1,315 42%
----------------------------------------------------------------------------
14,683 10,904 3,779 35%
----------------------------------------------------------------------------
For the six months ended
September 30, 2012 2011 $ change % change
($ thousands)
----------------------------------------------------------------------------
Annuity/maintenance revenue
Canada 10,413 7,732 2,681 35%
United States 4,942 4,052 890 22%
South America 4,334 1,748 2,586 148%
Eastern Hemisphere(1) 5,503 4,773 730 15%
----------------------------------------------------------------------------
25,192 18,305 6,887 38%
----------------------------------------------------------------------------
Perpetual revenue
Canada 1,314 32 1,282 4006%
United States 662 603 59 10%
South America 483 1,291 (808) -63%
Eastern Hemisphere 2,282 5,061 (2,779) -55%
----------------------------------------------------------------------------
4,741 6,987 (2,246) -32%
----------------------------------------------------------------------------
Total software license revenue
Canada 11,727 7,764 3,963 51%
United States 5,604 4,655 949 20%
South America 4,817 3,039 1,778 59%
Eastern Hemisphere 7,785 9,834 (2,049) -21%
----------------------------------------------------------------------------
29,933 25,292 4,641 18%
----------------------------------------------------------------------------
(1) Includes Europe, Africa, Asia and Australia.
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 during the three months ended
September 30, 2012, compared to the same period of the previous
fiscal year, and Eastern Hemisphere, which experienced a $2.0
million decrease in the six months ended September 30, 2012,
compared to the same period of the previous fiscal year. Total
revenues in both of these regions, were impacted by lower perpetual
sales. The most significant growth came from our
annuity/maintenance license sales, with increases experienced
across all regions.
The Canadian market (representing 39% of year-to-date total
software revenue) experienced healthy increases in both
annuity/maintenance and perpetual license sales during the three
and six months ended September 30, 2012, compared to the same
periods of the previous fiscal year. These increases were supported
by the sales to both new and existing clients. The Canadian market
continues to be the leader in generating total software license
revenue and, particularly, in generating the recurring
annuity/maintenance revenue as evidenced by the quarterly increases
of 51%, 40%, 17% and 32% recorded during Q2 2012, Q3 2012, Q4 2012,
and Q1 2013, respectively. This growth trend has continued into the
second quarter of the current fiscal year with the recorded
increase of 37%.
The US market (representing 19% of year-to-date total software
revenue) also grew annuity/maintenance and perpetual license sales
during the three and six months ended September 30, 2012, compared
to the same periods of the previous fiscal year. Similar to the
Canadian market, we have continued to see successive increases in
the annuity/maintenance license sales in the US as evidenced by the
increases of 19%, 20%, 26% and 20% recorded during Q2 2012, Q3
2012, Q4 2012, and Q1 2013, respectively. This growth trend has
continued into the second quarter of the current fiscal year with
the recorded increase of 24%.
South America (representing 16% of year-to-date total software
revenue) experienced growth in annuity/maintenance revenue during
the three and six months ended September 30, 2012, compared to the
same periods of the previous fiscal year. Annuity/maintenance
revenue grew in the first six months of the current fiscal year
mainly due to the inclusion of the significant amount on the
long-term contract for which revenue is recognized on a cash basis.
If we were to adjust year-to-date annuity/maintenance revenue in
the current fiscal year for the described amount, we would notice
that South America grew annuity/maintenance revenue by just over
30% as a result of the sales to both new and existing clients. The
increase in annuity/maintenance license sales was offset by the
decreases in perpetual license sales during both the three and six
months ended September 30, 2012.
Eastern Hemisphere (representing 26% of the year-to-date total
software revenue) grew annuity/maintenance license sales during
both three and six months ended September 30, 2012, compared to the
same periods of the previous fiscal year. While perpetual license
sales increased in the current quarter, they decreased on a
year-to-date basis, as a result of the large perpetual sale made
during the first quarter of the previous fiscal year which
contributed significantly to revenue growth during the six months
ended September 30, 2011.
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 be strong and growing across all regions. We will
continue to focus our efforts on increasing our license sales to
both existing and new clients and, supported by our product suite
offering and our customer-oriented approach, we will endeavor to
continue expanding our market share globally.
As footnoted in the Quarterly Performance table, in the normal
course of business, CMG may complete the negotiation of certain
annuity/maintenance contracts and/or fulfill revenue recognition
requirements within a current quarter that includes usage of CMG's
products in prior quarters. This situation particularly affects
contracts negotiated with countries that face increased economic
and political risks leading to revenue recognition criteria being
satisfied only at the time of the receipt of cash. The dollar
magnitude of such contracts may be significant to the quarterly
comparatives of our annuity/maintenance revenue stream and, to
provide a normalized comparison, we specifically identify the
revenue component where revenue recognition is satisfied in the
current period for products provided in previous quarters.
QUARTERLY SOFTWARE LICENSE REVENUE ($THOUSANDS)
To view the Quarterly Software Licence Revenue chart, please
visit the following link:
http://media3.marketwire.com/docs/1108cmg_chart.jpg
DEFERRED REVENUE
2012 2011 $ change % change
($ thousands)
----------------------------------------------------------------------------
Deferred revenue at:
March 31 21,693 16,755 4,938 29%
June 30 18,779 15,326 3,453 23%
September 30 18,241 14,600 3,641 25%
----------------------------------------------------------------------------
CMG's deferred revenue consists primarily of amounts for
pre-sold licenses. Our annuity/maintenance revenue is deferred and
recognized on a straight-line basis over the life of the related
license period, which is generally one year or less. Amounts are
deferred for licenses that have been provided and revenue
recognition reflects the passage of time.
The increase in deferred revenue year-over-year as at September
30, June 30 and March 31 is reflective of the growth in
annuity/maintenance license sales. The variation within the year is
due to the timing of renewals of annuity and maintenance contracts
that are skewed to the beginning of the calendar year which
explains the decreases in the deferred revenue balance at the end
of the first quarter (June 30) and second quarter (September 30)
compared to fiscal year-end (March 31). Deferred revenue at
September 30, 2012 increased compared to the same period of prior
fiscal year due to both renewal of the existing and signing of the
new annuity and maintenance contracts in the quarter.
PROFESSIONAL SERVICES REVENUE
CMG recorded professional services revenue of $1.4 million for
the three months ended September 30, 2012, representing growth of
$0.3 million compared to the same period of the previous fiscal
year, resulting from the increase in project activities by our
clients and the associated consulting and training activities in
the current quarter. Professional services for the six months ended
September 30, 2012 amounted to $2.6 million, remaining consistent
with the same period of the previous fiscal year. The year-to-date
revenue related to consulting activities actually increased;
however, this increase was not evident due to the inclusion of a
$0.3 million grant in the professional services revenue during the
first quarter of the previous fiscal year, which was received from
the CMG Reservoir Simulation Foundation ("Foundation CMG") for the
DRMS project. The grant was fulfilled during that same quarter;
hence, no additional amounts related to the grant have been
subsequently recorded as professional services.
Professional services revenue consists of specialized
consulting, training, and contract research activities. CMG
performs consulting and contract research activities on an ongoing
basis, but such activities are not considered to be a core part of
our business and are primarily undertaken to increase our knowledge
base and hence expand the technological abilities of our simulators
in a funded manner, combined with servicing our customers' needs.
In addition, these activities are undertaken to market the
capabilities of our suite of software products with the ultimate
objective to increase software license sales. Our experience is
that consulting activities are variable in nature as both the
timing and dollar magnitude of work are dependent on activities and
budgets within client companies.
Expenses
For the three months ended
September 30, 2012 2011 $ change % change
($ thousands)
----------------------------------------------------------------------------
Sales, marketing and professional
services 3,592 3,042 550 18%
Research and development 3,028 2,393 635 27%
General and administrative 1,421 1,321 100 8%
----------------------------------------------------------------------------
Total operating expenses 8,041 6,756 1,285 19%
----------------------------------------------------------------------------
Direct employee costs(i) 6,491 5,402 1,089 20%
Other corporate costs 1,550 1,354 196 14%
----------------------------------------------------------------------------
8,041 6,756 1,285 19%
----------------------------------------------------------------------------
For the six months ended
September 30, 2012 2011 $ change % change
($ thousands)
----------------------------------------------------------------------------
Sales, marketing and professional
services 7,555 6,167 1,388 23%
Research and development 5,925 4,888 1,037 21%
General and administrative 2,922 2,548 374 15%
----------------------------------------------------------------------------
Total operating expenses 16,402 13,603 2,799 21%
----------------------------------------------------------------------------
Direct employee costs(i) 13,086 10,965 2,121 19%
Other corporate costs 3,316 2,638 678 26%
----------------------------------------------------------------------------
16,402 13,603 2,799 21%
----------------------------------------------------------------------------
(i)Includes salaries, bonuses, stock-based compensation,
benefits and commissions.
CMG's total operating expenses increased by 19% and 21% for the
three and six months ended September 30, 2012, respectively,
compared to the same periods of the previous fiscal year due to
increases in both direct employee 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 six months ended September 30, 2012 related to staff costs,
compared to 81% recorded in the comparative period of last year.
Staffing levels for the first six months of the current fiscal year
grew in comparison to the same period of the previous fiscal year
to support our continued growth. At September 30, 2012, CMG's staff
complement was 167 employees, up from 143 employees as at September
30, 2011. Direct employee costs increased during the three and six
months ended September 30, 2012, compared to the same periods of
the previous fiscal year due to staff additions, increased levels
of compensation, commissions and related benefits.
OTHER CORPORATE COSTS
Other corporate costs increased by 14% for the three months
ended September 30, 2012, compared to the same period of the
previous fiscal year, due to the costs associated with the
expansion of our office space, which occurred in the third quarter
of the previous fiscal year, and a minor office space addition in
the current quarter.
Other corporate costs increased by 26% for the six months ended
September 30, 2012, compared to the same period of the previous
fiscal year, mainly due to inclusion of the costs associated with
CMG's biennial technical symposium which took place during the
first quarter of the current fiscal year. The remaining increase is
attributable to the costs associated with the expansion of our
office space, which are comprised of additional office rent,
increased computing resources and increased depreciation associated
with capital spending on the new space.
RESEARCH AND DEVELOPMENT
For the three months ended
September 30, 2012 2011 $ change % change
($ thousands)
----------------------------------------------------------------------------
Research and development (gross) 3,487 2,753 734 27%
SR&ED credits (459) (360) (99) 28%
----------------------------------------------------------------------------
Research and development 3,028 2,393 635 27%
----------------------------------------------------------------------------
Research and development as a % of
total revenue 19% 20%
----------------------------------------------------------------------------
For the six months ended
September 30, 2012 2011 $ change % change
($ thousands)
----------------------------------------------------------------------------
Research and development (gross) 6,872 5,552 1,320 24%
SR&ED credits (947) (664) (283) 43%
----------------------------------------------------------------------------
Research and development 5,925 4,888 1,037 21%
----------------------------------------------------------------------------
Research and development as a % of
total revenue 18% 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 includes CMG's proportionate
share of joint research and development costs on the DRMS system
development of $0.7 million and $1.5 million for the three and six
months ended September 30, 2012, respectively, (2011 - $0.7 million
and $1.4 million). See discussion under "Commitments, Off Balance
Sheet Items and Transactions with Related Parties."
The increases of 27% and 24% in our gross spending on research
and development for the three and six months ended September 30,
2012, respectively, demonstrate our continued commitment to
advancement of our technology which is the focal part of our
business strategy. Research and development costs, net of research
and experimental development ("SR&ED") credits, increased by
27% and 21% during the three and six months ended September 30,
2012, respectively, compared to the same periods of the previous
fiscal year, due to increased employee compensation costs,
investment in computing resources and facilities costs associated
with the newly leased office space.
At the same time, we had an increase in SR&ED credits driven
mainly by the increases in our direct employee costs as well as the
increase in the eligibility of our expenses for SR&ED
credits.
DEPRECIATION
For the three months ended
September 30, 2012 2011 $ change % change
($ thousands)
----------------------------------------------------------------------------
Depreciation of property and
equipment, allocated to:
Sales, marketing and professional
services 119 96 23 24%
Research and development 226 120 106 88%
General and administrative 48 66 (18) -27%
----------------------------------------------------------------------------
Total depreciation 393 282 111 39%
----------------------------------------------------------------------------
For the six months ended
September 30, 2012 2011 $ change % change
($ thousands)
----------------------------------------------------------------------------
Depreciation of property and
equipment, allocated to:
Sales, marketing and professional
services 217 187 30 16%
Research and development 406 238 168 71%
General and administrative 88 131 (43) -33%
----------------------------------------------------------------------------
Total depreciation 711 556 155 28%
----------------------------------------------------------------------------
The quarterly and year-to-date increases in depreciation,
compared to the same periods of the previous fiscal year, reflect
the increase in our asset base, mainly as a result of increased
spending on computing resources and expansion of the office space
in the third quarter of the previous fiscal year, and a minor
office space addition in the current quarter.
Finance Income and Costs
For the three months ended
September 30, 2012 2011 $ change % change
($ thousands)
----------------------------------------------------------------------------
Interest income 131 111 20 18%
Net foreign exchange gain - 759 (759) -100%
----------------------------------------------------------------------------
Total finance income 131 870 (739) -85%
----------------------------------------------------------------------------
Total finance costs (represented by
net foreign exchange loss) (460) - (460) -
----------------------------------------------------------------------------
For the six months ended
September 30, 2012 2011 $ change % change
($ thousands)
----------------------------------------------------------------------------
Interest income 276 218 58 27%
Net foreign exchange gain - 800 (800) -100%
----------------------------------------------------------------------------
Total finance income 276 1,018 (742) -73%
----------------------------------------------------------------------------
Total finance costs (represented by
net foreign exchange loss) (133) - (133) -
----------------------------------------------------------------------------
Interest income increased in the three and six months ended
September 30, 2012, 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 65% (2011 - 72%) of CMG's revenue
for the six months ended September 30, 2012 is denominated in US
dollars, whereas only approximately 23% (2011 - 23%) of CMG's total
costs are denominated in US dollars.
Six month trailing
CDN$ to US$ At June 30 At September 30 average
----------------------------------------------------------------------------
2010 0.9429 0.9711 0.9614
2011 1.0370 0.9626 1.0252
2012 0.9813 1.0166 0.9977
----------------------------------------------------------------------------
CMG recorded a foreign exchange loss of $0.5 million and $0.1
million for the three and six months ended September 30, 2012,
respectively, compared to a $0.8 million foreign exchange gain
recorded in both the three and six months ended September 30,
2011.
The strengthening of the Canadian dollar during the second
quarter of the current fiscal year, along with the fluctuation in
the exchange rates between the Canadian and the US dollars during
the current fiscal year, have contributed negatively to the
valuation of our US-denominated working capital, hence,
contributing to the foreign exchange losses recorded in the three
and six months ended September 30, 2012.
Income and Other Taxes
CMG's effective tax rate for the six months ended September 30,
2012 is reflected as 29.7% (2011 - 28.4%), whereas the prevailing
Canadian statutory tax rate is now 25.0%. This is primarily due to
a combination of the non-tax deductibility of stock- based
compensation expense and the benefit of foreign withholding taxes
being realized only as a tax deduction as opposed to a tax
credit.
The benefit recorded in CMG's books on the SR&ED investment
tax credit program impacts deferred income taxes. The investment
tax credit earned in the current fiscal year is utilized by CMG to
reduce income taxes otherwise payable for the current fiscal year
and the federal portion of this benefit bears an inherent tax
liability as the amount of the credit is included in the subsequent
year's taxable income for both federal and provincial purposes. The
inherent tax liability on these investment tax credits is reflected
in the year the credit is earned as a non-current deferred tax
liability and then, in the following fiscal year, is transferred to
income taxes payable.
Operating Profit and Net Income
For the three months ended
September 30, 2012 2011 $ change % change
($ thousands, except per share
amounts)
----------------------------------------------------------------------------
Total revenue 16,073 11,982 4,091 34%
Operating expenses (8,041) (6,756) (1,285) 19%
----------------------------------------------------------------------------
Operating profit 8,032 5,226 2,806 54%
Operating profit as a % of total
revenue 50% 44%
----------------------------------------------------------------------------
Net income for the period 5,361 4,318 1,043 24%
Net income for the period as a % of
total revenue 33% 36%
----------------------------------------------------------------------------
Earnings per share ($/share) 0.14 0.12 0.02 17%
----------------------------------------------------------------------------
For the six months ended
September 30, 2012 2011 $ change % change
($ thousands, except per share
amounts)
----------------------------------------------------------------------------
Total revenue 32,539 27,921 4,618 17%
Operating expenses (16,402) (13,603) (2,799) 21%
----------------------------------------------------------------------------
Operating profit 16,137 14,318 1,819 13%
Operating profit as a % of total
revenue 50% 51%
----------------------------------------------------------------------------
Net income for the period 11,451 10,981 470 4%
Net income for the period as a % of
total revenue 35% 39%
----------------------------------------------------------------------------
Earnings per share ($/share) 0.31 0.30 0.01 3%
----------------------------------------------------------------------------
Operating profit as a percentage of total revenue for the three
months ended September 30, 2012 was at 50%, compared to 44%
recorded in the same period of the previous fiscal year. While our
total revenue grew by 34% during this period of time, our operating
expenses grew by only 19%. This demonstrates our ability to
effectively manage our costs.
Operating profit as a percentage of revenue for the six months
ended September 30, 2012 was 50%, which is comparable to 51%
recorded in the same period of the previous fiscal year.
Net income as a percentage of revenue decreased to 33% for the
three months ended September 30, 2012, compared to 36% recorded in
the same period of the previous fiscal year, as a result of
recording a net foreign exchange loss of $0.5 million during the
three months ended September 30, 2012, compared to recording a net
foreign exchange gain of $0.8 million for the same period of the
previous fiscal year.
Net income for the period as a percentage of revenue decreased
to 35% for the six months ended September 30, 2012, compared to 39%
for the same period of the previous fiscal year, mainly as a result
of recording a net foreign exchange loss of $0.1 million during the
six months ended September 30, 2012, compared to recording a net
foreign exchange gain of $0.8 million for 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
September 30, 2012 2011 $ change % change
($ thousands)
----------------------------------------------------------------------------
Net income for the period 5,361 4,318 1,043 24%
Add (deduct):
Depreciation 393 282 111 39%
Finance income (131) (870) 739 -85%
Finance costs 460 - 460 -
Income and other taxes 2,342 1,778 564 32%
----------------------------------------------------------------------------
EBITDA 8,425 5,508 2,917 53%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
EBITDA as a % of total revenue 52% 46%
----------------------------------------------------------------------------
For the six months ended
September 30, 2012 2011 $ change % change
($ thousands)
----------------------------------------------------------------------------
Net income for the period 11,451 10,981 470 4%
Add (deduct):
Depreciation 711 556 155 28%
Finance income (276) (1,018) 742 -73%
Finance costs 133 - 133 -
Income and other taxes 4,829 4,355 474 11%
----------------------------------------------------------------------------
EBITDA 16,848 14,874 1,974 13%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
EBITDA as a % of total revenue 52% 53%
----------------------------------------------------------------------------
EBITDA increased by 53% and 13% for the three and six months
ended September 30, 2012, compared to the same periods of the
previous fiscal year. These increases provide further indication of
our ability to keep growing our recurring annuity/maintenance
license sales while effectively managing costs in relation to this
base.
Liquidity and Capital Resources
For the three months ended
September 30, 2012 2011 $ change % change
($ thousands)
----------------------------------------------------------------------------
Cash, beginning of period 51,535 38,347 13,188 34%
Cash flow from (used in):
Operating activities 3,537 8,322 (4,785) -57%
Financing activities (3,456) (3,259) (197) 6%
Investing activities (922) (100) (822) 822%
----------------------------------------------------------------------------
Cash, end of period 50,694 43,310 7,384 17%
----------------------------------------------------------------------------
For the six months ended
September 30, 2012 2011 $ change % change
($ thousands)
----------------------------------------------------------------------------
Cash, beginning of period 55,374 41,753 13,621 33%
Cash flow from (used in):
Operating activities 10,198 11,162 (964) -9%
Financing activities (13,519) (9,341) (4,178) 45%
Investing activities (1,359) (264) (1,095) 415%
----------------------------------------------------------------------------
Cash, end of period 50,694 43,310 7,384 17%
----------------------------------------------------------------------------
OPERATING ACTIVITIES
Cash flow generated from operating activities decreased by $4.8
million in the three months ended September 30, 2012, compared to
the same period of last year, mainly due to the timing differences
of when the sales are made and when the resulting receivables are
collected, and the variation in the amount of tax payments made
during the quarter.
Cash flow generated from operating activities decreased by $1.0
million in the six months ended September 30, 2012, compared to the
same period of last year, mainly as a result of an increase in the
deferred revenue balance, and higher tax payments.
FINANCING ACTIVITIES
Cash used in financing activities during the three and six
months ended September 30, 2012 increased by $0.2 million and $4.2
million, respectively, compared to the same periods of last year,
as a result of paying larger dividends and buying back common
shares.
During the six months ended September 30, 2012, CMG employees
and directors exercised options to purchase 459,000 Common Shares,
which resulted in cash proceeds of $3.8 million.
In the six months ended September 30, 2012, CMG paid $15.8
million in dividends, representing the following quarterly
dividends:
($ per share) Q1 Q2
----------------------------------------------------------------------------
Dividends declared and paid 0.16 0.16
Special dividend declared and paid 0.10 -
----------------------------------------------------------------------------
Total dividends declared and paid 0.26 0.16
----------------------------------------------------------------------------
On November 7, 2012, CMG announced the payment of a quarterly
dividend of $0.16 per share on CMG's Common Shares. The dividend
will be paid on December 14, 2012 to shareholders of record at the
close of business on December 7, 2012.
On April 6, 2011, the Company announced a Normal Course Issuer
Bid ("NCIB") commencing on April 7, 2011 to purchase for
cancellation up to 1,636,000 of its Common Shares. During the year
ended March 31, 2012, 33,000 Common Shares were purchased at market
price for a total cost of $438,000.
On April 16, 2012, the Company announced a NCIB commencing on
April 18, 2012 to purchase for cancellation up to 3,416,000 of its
Common Shares. During the six months ended September 30, 2012, a
total of 91,000 Common Shares were purchased at market price for a
total cost of $1,551,000.
INVESTING ACTIVITIES
CMG's current needs for capital asset investment relate to
computer equipment and office infrastructure costs, all of which
will be funded internally. During the six months ended September
30, 2012, CMG expended $1.4 million on property and equipment
additions, primarily composed of computing equipment and leasehold
improvements, and currently has a capital budget of $2.1 million
for fiscal 2013.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2012, CMG has $50.7 million in cash, no debt,
and has access to just over $0.8 million under a line of credit
with its principal banker.
During the six months ended September 30, 2012, 3,482,000 shares
of CMG's public float were traded on the TSX. As at September 30,
2012, CMG's market capitalization based upon its September 30, 2012
closing price of $19.31 was $727.5 million.
Commitments, Off Balance Sheet Items and Transactions with
Related Parties
The Company is the operator of the DRMS research and development
project (the "DRMS Project"), a collaborative effort with its
partners Shell International Exploration and Production BV
("Shell") and Petroleo Brasileiro S.A. ("Petrobras"), to jointly
develop the newest generation of reservoir and production system
simulation software. The project has been underway since 2006 and,
with the ongoing support of the participants, it is expected to
continue until ultimate delivery of the software. The Company's
share of costs associated with the project is estimated to be $4.0
million ($1.9 million net of overhead recoveries) for the current
fiscal year. 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: 2013 - $1.0 million; 2014 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 2012
Annual Report.
Accounting Standards and Interpretations Issued But Not Yet
Effective
The following standards and interpretations have not been
adopted by the Company as they apply to future periods:
Standard/Interpretation Nature of impending Impact on CMG's
change in accounting financial statements
policy
----------------------------------------------------------------------------
----------------------------------------------------------------------------
IFRS 9 Financial IFRS 9 (2009) replaces IFRS 9 (2010) supersedes
Instruments the guidance in IAS 39 IFRS 9 (2009) and is
Financial Instruments: effective for annual
In November 2009 the Recognition and periods beginning on or
IASB issued IFRS 9 Measurement, on the after January 1, 2015,
Financial Instruments classification and with early adoption
(IFRS 9 (2009)), and in measurement of financial permitted. For annual
October 2010 the IASB assets. The Standard periods beginning before
published amendments to eliminates the existing January 1, 2015, either
IFRS 9 (IFRS 9 (2010)). IAS 39 categories of IFRS 9 (2009) or IFRS 9
In December 2011, the held to maturity, (2010) may be applied.
IASB issued an amendment available-for-sale and
to IFRS 9 to defer the loans and receivable. The Company intends to
mandatory effective date adopt IFRS 9 (2010) in
to annual periods Financial assets will be its financial statements
beginning on or after classified into one of for the annual period
January 1, 2015. two categories on beginning on April 1,
initial recognition: 2015. The Company does
not expect IFRS 9 (2010)
- financial assets to have a material
measured at amortized impact on the financial
cost; or statements. The
classification and
-financial assets measurement of the
measured at fair value. Company's financial
assets and liabilities
Gains and losses on is not expected to
remeasurement of change under IFRS 9
financial assets (2010) because of the
measured at fair value nature of the Company's
will be recognized in operations and the types
profit or loss, except of financial assets that
that for an investment it holds.
in an equity instrument
which is not held-for-
trading, IFRS 9
provides, on initial
recognition, an
irrevocable election to
present all fair value
changes from the
investment in other
comprehensive income
(OCI). The election is
available on an
individual share-by-
share basis. Amounts
presented in OCI will
not be reclassified to
profit or loss at a
later date.
IFRS 9 (2010) added
guidance to IFRS 9
(2009) on the
classification and
measurement of financial
liabilities, and this
guidance is consistent
with the guidance in IAS
39 expect as described
below.
Under IFRS 9 (2010), for
financial liabilities
measured at fair value
under the fair value
option, changes in fair
value attributable to
changes in credit risk
will be recognized in
OCI, with the remainder
of the change recognized
in profit or loss.
However, if this
requirement creates or
enlarges an accounting
mismatch in profit or
loss, the entire change
in fair value will be
recognized in profit or
loss. Amounts presented
in OCI will not be
reclassified to profit
or loss at a later date.
IFRS 9 (2010) also
requires derivative
liabilities that are
linked to and must be
settled by delivery of
an unquoted equity
instrument to be
measured at fair value,
whereas such derivative
liabilities are measured
at cost under IAS 39.
IFRS 9 (2010) also added
the requirements of IAS
39 for the derecognition
of financial assets and
liabilities to IFRS 9
without change.
The IASB has deferred
the mandatory effective
date of the existing
chapters of IFRS 9
Financial Instruments
(2009) and IFRS 9 (2010)
to annual periods
beginning on or after
January 1, 2015. The
early adoption of either
standard continues to be
permitted.
----------------------------------------------------------------------------
----------------------------------------------------------------------------
IFRS 10 Consolidated IFRS 10 replaces the The Company intends to
Financial Statements guidance in IAS 27 adopt IFRS 10 in its
Consolidated and financial statements for
In May 2011, the IASB Separate Financial the annual period
issued IFRS 10 Statements and SIC-12 beginning on April 1,
Consolidated Financial Consolidation - Special 2013. The Company does
Statements, which is Purpose Entities. IAS not expect IFRS 10 to
effective for annual 27 (2008) survives as have a material impact
periods beginning on or IAS 27 (2011) Separate on the financial
after January 1, 2013, Financial Statements, statements.
with early adoption only to carry forward
permitted. If an entity the existing accounting
applies this Standard requirements for
earlier, it shall also separate financial
apply IFRS 11, IFRS 12, statements.
IAS 27 (2011) and IAS 28
(2011) at the same time. IFRS 10 provides a
single model to be
applied in the control
analysis for all
investees, including
entities that currently
are SPEs in the scope of
SIC-12. In addition,
the consolidation
procedures are carried
forward substantially
unmodified from IAS 27
(2008).
----------------------------------------------------------------------------
----------------------------------------------------------------------------
IFRS 11 Joint IFRS 11 replaces the The Company intends to
Arrangements guidance in IAS 31 adopt IFRS 11 in its
Interests in Joint financial statements for
In May 2011, the IASB Ventures. the annual period
issued IFRS 11 Joint beginning on April 1,
Arrangements, which is Under IFRS 11, joint 2013. The Company does
effective for annual arrangements are not expect IFRS 11 to
periods beginning on or classified as either have a material impact
after January 1, 2013, joint operations or on the financial
with early adoption joint ventures. IFRS 11 statements.
permitted. If an entity essentially carves out
applies this Standard of previous jointly
earlier, it shall also controlled entities,
apply IFRS 10, IFRS 12, those arrangements which
IAS 27 (2011) and IAS 28 although structured
(2011) at the same time. 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 are stripped of
the free choice of
equity accounting or
proportionate
consolidation; these
entities must now use
the equity method.
Upon application of IFRS
11, entities which had
previously accounted for
joint ventures using
proportionate
consolidation shall
collapse the
proportionately
consolidated net asset
value (including any
allocation of goodwill)
into a single investment
balance at the beginning
of the earliest period
presented. The
investment's opening
balance is tested for
impairment in accordance
with IAS 28 (2011) and
IAS 36 Impairment of
Assets. Any impairment
losses are recognized as
an adjustment to opening
retained earnings at the
beginning of the
earliest period
presented.
----------------------------------------------------------------------------
----------------------------------------------------------------------------
IFRS 12 Disclosure of IFRS 12 contains the The Company intends to
Interests in Other disclosure requirements adopt IFRS 12 in its
Entities for entities that have financial statements for
interests in the annual period
In May 2011, the IASB subsidiaries, joint beginning on April 1,
issued IFRS 12 arrangements (i.e. joint 2013. The Company does
Disclosure of Interests operations or joint not expect the
in Other Entities, which ventures), associates amendments to have a
is effective for annual and/or unconsolidated material impact on the
periods beginning on or structured entities. financial statements,
after January 1, 2013, Interests are widely because of the nature of
with early adoption defined as contractual the Company's interests
permitted. If an entity and non-contractual in other entities.
applies this Standard involvement that exposes
earlier, it needs not to an entity to variability
apply IFRS 10, IFRS 11, of returns from the
IAS 27 (2011) and IAS 28 performance of the other
(2011) at the same time. entity. The required
disclosures aim to
provide information in
order to enable users to
evaluate the nature of,
and the risks associated
with, an entity's
interest in other
entities, and the
effects of those
interests on the
entity's financial
position, financial
performance and cash
flows.
----------------------------------------------------------------------------
----------------------------------------------------------------------------
IFRS 13 Fair Value IFRS 13 replaces the The Company intends to
Measurement fair value measurement adopt IFRS 13
guidance contained in prospectively in its
In May 2011, the IASB individual IFRSs with a financial statements for
published IFRS 13 Fair single source of fair the annual period
Value Measurement, which value measurement beginning on April 1,
is effective guidance. It defines 2013. The extent of the
prospectively for annual fair value as the price impact of adoption of
periods beginning on or that would be received IFRS 13 has not yet been
after January 1, 2013. to sell an asset or paid determined.
The disclosure to transfer a liability
requirements of IFRS 13 in an orderly
need not be applied in transaction between
comparative information market participants at
for periods before the measurement date,
initial application. i.e. an exit price. The
standard also
establishes a framework
for measuring fair value
and sets out disclosure
requirements for fair
value measurements 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
comprehensive income.
IFRS 13 explains 'how'
to measure fair value
when it is required or
permitted by other
IFRSs. IFRS 13 does not
introduce new
requirements to measure
assets or liabilities at
fair value, nor does it
eliminate the
practicability
exceptions to fair value
measurements that
currently exist in
certain standards.
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Amendments to IAS 1 The amendments require The Company intends to
Presentation of that an entity present adopt the amendments in
Financial Statements separately the items of its financial statements
OCI that may be for the annual period
In June 2011, the IASB reclassified to profit beginning on April 1,
published amendments to or loss in the future 2013. As the amendments
IAS 1 Presentation of from those that would only require changes in
Financial Statements: never be reclassified to the presentation of
Presentation of Items of profit or loss. items in other
Other Comprehensive Consequently an entity comprehensive income,
Income, which are that presents items of the Company does not
effective for annual OCI before related tax expect the amendments to
periods beginning on or effects will also have IAS 1 to have a material
after July 1, 2012 and to allocate the impact on the financial
are to be applied aggregated tax amount statements.
retrospectively. Early between these
adoption is permitted. categories.
The existing option to
present the profit or
loss and other
comprehensive income in
two statements has
remained unchanged.
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Amendments to IAS 32 and The amendments to IAS 32 The Company intends to
IFRS 7, Offsetting clarify that an entity adopt the amendments to
Financial Assets and currently has a legally IFRS 7 in its financial
Liabilities enforceable right to statements for the
set-off if that right annual period beginning
In December 2011, the is: on April 1, 2013, and
IASB published the amendments to IAS 32
Offsetting Financial - not contingent on a in its financial
Assets and Financial future event; and statements for the
Liabilities and issued annual period beginning
new disclosure - enforceable both in April 1, 2014. The
requirements in IFRS 7 the normal course of Company does not expect
Financial Instruments: business and in the the amendments to have a
Disclosures. event of default, material impact on the
insolvency or bankruptcy financial statements.
The effective date for of the entity and all
the amendments to IAS 32 counterparties.
is annual periods
beginning on or after The amendments to IAS 32
January 1, 2014. The also clarify when a
effective date for the settlement mechanism
amendments to IFRS 7 is provides for net
annual periods beginning settlement or gross
on or after January 1, settlement that is
2013. These amendments equivalent to net
are to be applied settlement.
retrospectively.
The amendments to IFRS 7
contain new disclosure
requirements for
financial assets and
liabilities that are:
- offset in the
statement of financial
position; or
- subject to master
netting arrangements or
similar arrangements.
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Annual Improvements to The new cycle of The Company intends to
IFRSs 2009-2011 Cycle - improvements contains adopt the amendments to
various standards amendments to the the standards in its
following four standards financial statements for
In May 2012, the IASB (excluding IFRS 1) with the annual period
published Annual consequential amendments beginning on April 1,
Improvements to IFRSs - to other standards and 2013. The extent of the
2009-2011 Cycle as part interpretations. impact of adoption of
of its annual the amendments has not
improvements process to - IAS 1 Presentation of yet been determined.
make non-urgent but Financial Statements
necessary amendments to
IFRS. -- Comparative
information beyond
These amendments are minimum requirements
effective for annual
periods beginning on or --Presentation of the
after Jan 1, 2013 with opening statement of
retrospective financial position
application.
- IAS 16 Property, Plant
and Equipment
-- Classification of
servicing equipment
- IAS 32 Financial
Instruments:
Presentation
-- Income tax
consequences of
distributions
- IAS 34 Interim
Financial Reporting
-- Segment assets and
liabilities
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Outstanding Share Data
The following table represents the number of Common Shares and
options outstanding:
As at November 7, 2012
(thousands)
----------------------------------------------------------------------------
Common Shares 37,731
Options 3,348
----------------------------------------------------------------------------
On July 13, 2005, CMG adopted a rolling stock option plan which
allows the Company to grant options to its employees and directors
to acquire Common Shares of up to 10% of the outstanding Common
Shares at the date of grant. Based upon this calculation, at
November 7, 2012, CMG could grant up to 3,773,000 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 2012 in accordance with the COSO control framework. The
evaluation confirmed the effectiveness of DC&P and ICFR at
March 31, 2012. During our fiscal year 2013, we continue to monitor
and review our controls and procedures.
During the six months ended September 30, 2012, 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 second quarter of fiscal 2013 has continued to show growth
in our annuity/maintenance revenue stream with increases
experienced across all geographic regions. 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. During the second quarter,
our EBITDA increased by 53% which demonstrates our ability to
effectively manage our corporate costs.
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.
While oil prices continue to fluctuate, they remain at levels that
should allow our customers to move forward on projects involving
various types of unconventional reserves and advanced recovery
processes. The greater challenges have been with natural gas
prices, which have not fared as well, and petroleum producers are
faced with uncertainty related to the fears of another worldwide
economic recession, political unrest in several petroleum producing
countries and environmental issues that have threatened to increase
the costs of development and production.
CMG's joint project to develop the newest generation of dynamic
reservoir modelling systems ("DRMS Project") continued to make
progress in the second quarter of fiscal 2013. The problems
encountered during the stabilization period, prior to the initial
beta release, were identified and resolved during the second
quarter. It is our expectation that another beta release will be
completed later this year. During the first quarter we reported
that Rob Eastick had been promoted to the position of Vice
President, DRMS and Visualization, taking on the role of Project
Manager for the DRMS Project. Since then, Rob has quickly come up
to speed on the project, and, with the full support of the entire
DRMS team, has begun driving the project toward the anticipated
limited commercial release of the software by the end of calendar
2013. CMG and its partners remain committed to funding the ongoing
development and to the future success of the project.
We will continue to extend our reach globally and focus our
efforts on increasing our license sales to both existing and new
clients. The excellent reputation behind our Company and its
product suite offering will continue to enable us to grow and
sustain a healthy market share while generating solid software
license revenue. With our strong working capital position, we are
well positioned to continue to invest in all aspects of our
business in order to continue to grow and diversify our revenue
base and to ultimately return value to our shareholders in the form
of regular quarterly dividend payments and growth in share
value.
Kenneth M. Dedeluk
President and Chief Executive Officer
November 7, 2012
COMPUTER MODELLING GROUP LTD.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
UNAUDITED (thousands of Canadian $) September 30, 2012 March 31, 2012
----------------------------------------------------------------------------
Assets
Current assets:
Cash 50,694 55,374
Trade and other receivables 12,412 15,494
Prepaid expenses 1,186 1,195
Prepaid income taxes 65 -
----------------------------------------------------------------------------
64,357 72,063
Property and equipment 3,477 2,829
----------------------------------------------------------------------------
Total assets 67,834 74,892
----------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Current liabilities:
Trade payables and accrued liabilities 4,149 5,358
Income taxes payable - 1,404
Deferred revenue 18,241 21,693
----------------------------------------------------------------------------
22,390 28,455
Deferred tax liability (note 7) 201 358
----------------------------------------------------------------------------
Total liabilities 22,591 28,813
----------------------------------------------------------------------------
Shareholders' equity:
Share capital 36,182 31,751
Contributed surplus 4,044 3,535
Retained earnings 5,017 10,793
----------------------------------------------------------------------------
Total shareholders' equity 45,243 46,079
----------------------------------------------------------------------------
Total liabilities and shareholders' equity 67,834 74,892
----------------------------------------------------------------------------
See accompanying notes to condensed consolidated financial statements.
COMPUTER MODELLING GROUP LTD.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
Three months ended Six months ended
September 30 September 30
2012 2011 2012 2011
UNAUDITED (thousands of Canadian $
except per share amounts)
----------------------------------------------------------------------------
Revenue (note 4) 16,073 11,982 32,539 27,921
----------------------------------------------------------------------------
Operating expenses
Sales, marketing and professional
services 3,592 3,042 7,555 6,167
Research and development (note 5) 3,028 2,393 5,925 4,888
General and administrative 1,421 1,321 2,922 2,548
----------------------------------------------------------------------------
8,041 6,756 16,402 13,603
----------------------------------------------------------------------------
Operating profit 8,032 5,226 16,137 14,318
Finance income (note 6) 131 870 276 1,018
Finance costs (note 6) (460) - (133) -
----------------------------------------------------------------------------
Profit before income and other taxes 7,703 6,096 16,280 15,336
Income and other taxes (note 7) 2,342 1,778 4,829 4,355
----------------------------------------------------------------------------
Net and total comprehensive income 5,361 4,318 11,451 10,981
----------------------------------------------------------------------------
Earnings Per Share
Basic (note 8(e)) 0.14 0.12 0.31 0.30
Diluted (note 8(e)) 0.14 0.11 0.30 0.29
----------------------------------------------------------------------------
See accompanying notes to condensed consolidated financial statements.
COMPUTER MODELLING GROUP LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
UNAUDITED (thousands of Common Share Contributed Retained Total
Canadian $) Capital Surplus Earnings Equity
----------------------------------------------------------------------------
Balance, April 1, 2011 24,801 2,655 8,314 35,770
Total comprehensive income
for the period - - 10,981 10,981
Dividends paid - - (11,572) (11,572)
Shares issued for cash on
exercise of stock options
(note 8(b)) 2,669 - - 2,669
Common shares buy-back (notes
8(b) & (c)) (25) - (413) (438)
Stock-based compensation:
Current period expense - 867 - 867
Stock options exercised 501 (501) - -
----------------------------------------------------------------------------
Balance, September 30, 2011 27,946 3,021 7,310 38,277
----------------------------------------------------------------------------
Balance, April 1, 2012 31,751 3,535 10,793 46,079
Total comprehensive income
for the period - - 11,451 11,451
Dividends paid - - (15,756) (15,756)
Shares issued for cash on
exercise of stock options
(note 8(b)) 3,788 - - 3,788
Common shares buy-back (notes
8(b) & (c)) (80) (1,471) (1,551)
Stock-based compensation:
Current period expense - 1,232 - 1,232
Stock options exercised 723 (723) - -
----------------------------------------------------------------------------
Balance, September 30, 2012 36,182 4,044 5,017 45,243
----------------------------------------------------------------------------
See accompanying notes to condensed consolidated financial statements.
COMPUTER MODELLING GROUP LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended Six months ended
September 30 September 30
UNAUDITED (thousands of Canadian $) 2012 2011 2012 2011
----------------------------------------------------------------------------
Cash flows from operating activities
Net income 5,361 4,318 11,451 10,981
Adjustments for:
Depreciation 393 282 711 556
Income and other taxes (note 7) 2,342 1,778 4,829 4,355
Stock-based compensation (note
8(d)) 664 457 1,232 867
Interest income (note 6) (131) (111) (276) (218)
----------------------------------------------------------------------------
8,629 6,724 17,947 16,541
Changes in non-cash working capital:
Trade and other receivables (1,483) 4,889 3,079 2,745
Trade payables and accrued
liabilities (300) 118 (1,209) (1,323)
Prepaid expenses (56) (217) 9 (276)
Deferred revenue (538) (726) (3,452) (2,155)
----------------------------------------------------------------------------
Cash generated from operating
activities 6,252 10,788 16,374 15,532
Interest received 136 106 280 212
Income taxes paid (2,851) (2,572) (6,456) (4,582)
----------------------------------------------------------------------------
Net cash from operating activities 3,537 8,322 10,198 11,162
----------------------------------------------------------------------------
Cash flows from financing activities
Proceeds from issue of common shares 2,564 1,232 3,788 2,669
Dividends paid (6,020) (4,053) (15,756) (11,572)
Common shares buy-back (note 8(c)) - (438) (1,551) (438)
----------------------------------------------------------------------------
Net cash used in financing
activities (3,456) (3,259) (13,519) (9,341)
----------------------------------------------------------------------------
Cash flows used in investing
activities
Property and equipment additions (922) (100) (1,359) (264)
----------------------------------------------------------------------------
Increase (decrease) in cash (841) 4,963 (4,680) 1,557
Cash, beginning of period 51,535 38,347 55,374 41,753
----------------------------------------------------------------------------
Cash, end of period 50,694 43,310 50,694 43,310
----------------------------------------------------------------------------
See accompanying notes to condensed consolidated financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the three and six months ended September 30, 2012 and 2011
(unaudited).
1. Reporting Entity:
Computer Modelling Group Ltd. ("CMG") is a company domiciled in
Alberta, Canada and is incorporated pursuant to the Alberta
Business Corporations Act, with its Common Shares listed on the
Toronto Stock Exchange under the symbol "CMG". The address of CMG's
registered office is Suite 200, 1824 Crowchild Trail N.W., Calgary,
Alberta, Canada, T2M 3Y7. The condensed consolidated financial
statements as at and for the three and six months ended September
30, 2012 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 on a going concern basis in accordance with International
Accounting Standard ("IAS") 34, Interim Financial Reporting, 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, 2012. 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, 2012, prepared in accordance with International Financial
Reporting Standards ("IFRS").
The unaudited condensed consolidated financial statements as at
and for the three and six months ended September 30, 2012 were
authorized for issuance by the Board of Directors on November 7,
2012.
(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, 2012.
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, 2012 prepared in accordance with IFRS
applicable to those annual consolidated financial statements. 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 first annual IFRS
consolidated financial statements for the year ended March 31,
2012.
4. Revenue:
For the three months ended September 30, 2012 2011
(thousands of $)
-------------------------------------------------------------------------
Software licenses 14,683 10,904
Professional services 1,390 1,078
-------------------------------------------------------------------------
16,073 11,982
-------------------------------------------------------------------------
For the six months ended September 30, 2012 2011
(thousands of $)
-------------------------------------------------------------------------
Software licenses 29,933 25,292
Professional services 2,606 2,629
-------------------------------------------------------------------------
32,539 27,921
-------------------------------------------------------------------------
5. Research and Development Costs:
For the three months ended September 30, 2012 2011
(thousands of $)
-------------------------------------------------------------------------
Research and development 3,487 2,753
Scientific research and experimental development
("SR&ED") investment tax credits (459) (360)
-------------------------------------------------------------------------
3,028 2,393
-------------------------------------------------------------------------
For the six months ended September 30, 2012 2011
(thousands of $)
-------------------------------------------------------------------------
Research and development 6,872 5,552
Scientific research and experimental development
("SR&ED") investment tax credits (947) (664)
-------------------------------------------------------------------------
5,925 4,888
-------------------------------------------------------------------------
6. Finance Income and Finance Costs:
For the three months ended September 30, 2012 2011
(thousands of $)
-------------------------------------------------------------------------
Interest income 131 111
Net foreign exchange gain - 759
-------------------------------------------------------------------------
Finance income 131 870
-------------------------------------------------------------------------
Net foreign exchange loss (460) -
-------------------------------------------------------------------------
Finance costs (460) -
-------------------------------------------------------------------------
For the six months ended September 30, 2012 2011
(thousands of $)
-------------------------------------------------------------------------
Interest income 276 218
Net foreign exchange gain - 800
-------------------------------------------------------------------------
Finance income 276 1,018
-------------------------------------------------------------------------
Net foreign exchange loss (133) -
-------------------------------------------------------------------------
Finance costs (133) -
-------------------------------------------------------------------------
7. Income and Other Taxes:
The major components of income tax expense are as follows:
For the six months ended September 30, 2012 2011
(thousands of $)
-------------------------------------------------------------------------
Current year income taxes 4,416 4,285
Adjustment for prior year 68 -
-------------------------------------------------------------------------
Current income taxes 4,484 4,285
Deferred tax recovery (157) (134)
Foreign withholding and other taxes 502 204
-------------------------------------------------------------------------
4,829 4,355
-------------------------------------------------------------------------
The provision for income and other taxes reported differs from
the amount computed by applying the combined Canadian Federal and
Provincial statutory rate to the profit before income and other
taxes.
The reasons for this difference and the related tax effects are
as follows:
For the six months ended September 30, 2012 2011
(thousands of $, unless otherwise stated)
----------------------------------------------------------------------------
Combined statutory tax rate 25.00% 26.13%
----------------------------------------------------------------------------
Expected income tax 4,070 4,007
Non-deductible costs 320 237
Withholding taxes 377 143
Adjustment for prior year 68 -
Other (6) (32)
----------------------------------------------------------------------------
4,829 4,355
----------------------------------------------------------------------------
The components of the Company's deferred tax liability are as follows:
September 30, March 31,
(thousands of $) 2012 2012
----------------------------------------------------------------------------
Tax liability on SR&ED investment tax credits (152) (267)
Tax liability on property and equipment (49) (91)
----------------------------------------------------------------------------
Deferred tax liability (201) (358)
----------------------------------------------------------------------------
All movement in deferred tax assets and liabilities is
recognized through comprehensive income of the respective
period.
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, 2011 36,427
Issued for cash on exercise of stock options 467
Common shares buy-back (33)
----------------------------------------------------------------------------
Balance, September 30, 2011 36,861
----------------------------------------------------------------------------
Balance, April 1, 2012 37,307
Issued for cash on exercise of stock options 459
Common shares buy-back (91)
----------------------------------------------------------------------------
Balance, September 30, 2012 37,675
----------------------------------------------------------------------------
Subsequent to September 30, 2012, 56,000 stock options were
exercised for cash proceeds of $487,000.
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 6, 2011, the Company announced a Normal Course Issuer
Bid ("NCIB") commencing on April 7, 2011 to purchase for
cancellation up to 1,636,000 of its Common Shares. This NCIB ended
on April 6, 2012 and a total of 33,000 Common Shares were purchased
at market price for a total cost of $438,000 during the year ended
March 31, 2012.
On April 16, 2012, the Company announced a NCIB commencing on
April 18, 2012 to purchase for cancellation up to 3,416,000 of its
Common Shares. During the six months ended September 30, 2012, a
total of 91,000 Common Shares were purchased at market price for a
total cost of $1,551,000.
(d) STOCK-BASED COMPENSATION PLAN:
The Company adopted a rolling stock option plan as of July 13,
2005, which was reaffirmed by the Company's shareholders on July 7,
2011, which allows it to grant options to acquire Common Shares of
up to 10% of the combined outstanding Common and Non-Voting Shares
at the date of grant. Based upon this calculation, at September 30,
2012, the Company could grant up to 3,767,000 stock options.
Pursuant to the stock option plan, the maximum term of an option
granted cannot exceed five years from the date of grant. The
outstanding stock options vest as to 50% after the first year
anniversary, from date of grant, and then vest as to 25% of the
total options granted after each of the second and third year
anniversary dates.
The following table outlines changes in stock options:
For the six For the
months ended year ended
(thousands except per share
amounts) September 30, 2012 March 31, 2012
----------------------------------------------------------------------------
Weighted Weighted
Average Average
Exercise Exercise
Options Price Options Price
Granted ($/share) Granted ($/share)
----------------------------------------------------------------------------
Outstanding at beginning of
period 2,903 9.85 2,825 7.41
Granted 1,000 18.18 1,071 13.43
Exercised (459) 8.24 (913) 6.43
Forfeited/cancelled (38) 14.07 (80) 10.57
----------------------------------------------------------------------------
Outstanding at end of period 3,406 12.46 2,903 9.85
----------------------------------------------------------------------------
Options exercisable at end
of period 1,650 9.25 1,120 7.31
----------------------------------------------------------------------------
The range of exercise prices of stock options outstanding and
exercisable at September 30, 2012 is as follows:
Outstanding Exercisable
----------------------------------------------------------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Number of Contractual Exercise Number of Exercise
Options Life Price Options Price
Exercise Price
($/option) (thousands) (years) ($/option) (thousands) ($/option)
----------------------------------------------------------------------------
4.52 - 5.63 278 0.8 5.40 278 5.40
5.64 - 7.80 444 1.9 7.80 444 7.80
7.81 - 9.07 745 2.9 9.07 493 9.07
9.08 - 13.43 926 3.9 13.40 433 13.40
13.44 - 18.18 1,013 4.8 18.08 2 14.24
----------------------------------------------------------------------------
3,406 3.4 12.46 1,650 9.25
----------------------------------------------------------------------------
The fair value of stock options granted was estimated using the
Black-Scholes option pricing model under the following
assumptions:
For the six months ended For the year ended
September 30, 2012 March 31, 2012
----------------------------------------------------------------------------
Fair value at grant date
($/option) 2.45 to 3.81 1.23 to 3.42
Share price at grant date
($/share) 17.90 to 18.18 13.00 to 16.35
Risk-free interest rate (%) 1.13 to 1.26 0.99 to 2.06
Estimated hold period prior to
exercise (years) 2 to 4 2 to 4
Volatility in the price of
common shares (%) 28 to 36 24 to 37
Dividend yield per common
share (%) 3.57 to 4.12 3.20 to 4.94
----------------------------------------------------------------------------
The Company recognized total stock-based compensation expense
for the three and six months ended September 30, 2012 of $664,000
and $1,232,000 respectively (three and six months ended September
30, 2011 - $457,000 and $867,000 respectively).
(e) EARNINGS PER SHARE:
The following table summarizes the earnings and weighted average
number of Common Shares used in calculating basic and diluted
earnings per share:
For the three
months ended
September 30, 2012 2011
(thousands except
per share amounts)
----------------------------------------------------------------------------
Weighted Weighted
Average Earnings Average Earnings
Earnings Shares Per Share Earnings Shares Per Share
($) Outstanding ($/share) ($) Outstanding ($/share)
----------------------------------------------------------------------------
Basic 5,361 37,504 0.14 4,318 36,759 0.12
Dilutive
effect of
stock
options 1,099 999
----------------------------------------------------------------------------
Diluted 5,361 38,603 0.14 4,318 37,758 0.11
----------------------------------------------------------------------------
For the six months
ended September
30, 2012 2011
(thousands except
per share amounts)
----------------------------------------------------------------------------
Weighted Weighted
Average Earnings Average Earnings
Earnings Shares Per Share Earnings Shares Per Share
($) Outstanding ($/share) ($) Outstanding ($/share)
----------------------------------------------------------------------------
Basic 11,451 37,429 0.31 10,981 36,646 0.30
Dilutive
effect of
stock
options 1,086 1,074
----------------------------------------------------------------------------
Diluted 11,451 38,515 0.30 10,981 37,720 0.29
----------------------------------------------------------------------------
During the three and six months ended September 30, 2012,
147,000 and Nil options respectively (three and six months ended
September 30, 2011 - 199,000, and 193,000 respectively) were
excluded from the computation of the weighted-average number of
diluted shares outstanding because their effect was not
dilutive.
9. 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 $4.0
million ($1.9 million net of overhead recoveries) for fiscal
2013.
(b) LEASE COMMITMENTS:
The Company has operating lease commitments relating to its
office premises with the minimum annual lease payments as
follows:
Six months ended September 30, 2012 2011
(thousands of $)
----------------------------------------------------------------------------
Less than one year 995 960
Between one and five years 6,960 5,378
----------------------------------------------------------------------------
7,955 6,338
----------------------------------------------------------------------------
10. Line Of Credit:
The Company has arranged for a $1.0 million line of credit with
its principal banker, which can be drawn down by way of a demand
operating credit facility or may be used to support letters of
credit. As at September 30, 2012, US $165,000 (2011 - US $165,000)
had been reserved on this line of credit for the letter of credit
supporting a performance bond.
11. Segmented Information:
The Company is organized into one operating segment represented
by the development and licensing of reservoir simulation software.
The Company provides professional services, consisting of support,
training, consulting and contract research activities, to promote
the use and development of its software; however, these activities
are not evaluated as a separate business segment.
Revenues and property and equipment of the Company arise in the
following geographic regions:
(thousands of $) Revenue Property and equipment
----------------------------------------------------------------------------
For the six months ended
September 30, As at September 30,
2012 2011 2012 2011
----------------------------------------------------------------------------
Canada 12,958 9,034 3,332 2,034
United States 5,830 4,800 64 96
South America 5,501 3,878 54 97
Eastern Hemisphere(1) 8,250 10,209 27 35
----------------------------------------------------------------------------
32,539 27,921 3,477 2,262
(1) Includes Europe, Africa, Asia and Australia.
In the six months ended September 30, 2012, the Company derived
7.4% (2011 - 13.7%) of its revenue from one customer.
12. Joint Venture:
The Company is the operator of a joint software development
project, the DRMS project, which gives the Company exclusive rights
to commercialize the jointly developed software while the other
partners will have unlimited software access for their internal
use. Accordingly, the Company records its proportionate share of
costs incurred on the project (37.04%) as research and development
costs within the condensed consolidated statements of operations
and comprehensive income.
For the three and six months ended September 30, 2012, CMG
included $0.9 million and $1.8 million, respectively (2011 - $0.7
million and $1.4 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 $0.4 million and
$0.9 million during the three and six months ended September 30,
2012 (2011 - $0.4 million and $0.9 million, respectively).
13. Subsequent Events:
On November 7, 2012, the Board of Directors declared a cash
dividend of $0.16 per share on its Common Shares, payable on
December 14, 2012, to all shareholders of record at the close of
business on December 7, 2012.
Contacts: Computer Modelling Group Ltd. Kenneth M. Dedeluk
President & CEO (403) 531-1300ken.dedeluk@cmgl.ca Computer
Modelling Group Ltd. John Kalman Vice President, Finance & CFO
(403) 531-1300john.kalman@cmgl.ca www.cmgl.ca
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