Computer Modelling Group Announces Year End Results
CALGARY, ALBERTA--(Marketwired - May 22, 2014) - Computer
Modelling Group Ltd. (TSX:CMG) ("CMG" or the "Company") is very
pleased to report our financial results for the fiscal year ended
March 31, 2014.
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 May 21, 2014, should be read in conjunction with
the audited consolidated financial statements and related notes of
the Company for the years ended March 31, 2014 and 2013. 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.
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 more than
50 countries. The Company also provides professional services
consisting of highly specialized support, consulting, training, and
contract research activities. CMG has sales and technical support
services based in Calgary, Houston, London, Caracas, Dubai, Bogota
and Kuala Lumpur. CMG's Common Shares are listed on the Toronto
Stock Exchange ("TSX") and trade under the symbol "CMG".
ANNUAL PERFORMANCE |
|
|
|
|
|
|
|
($ thousands, unless otherwise stated) |
March 31, 2014 |
March 31, 2013 |
March 31, 2012 |
|
|
|
|
Annuity/maintenance licenses |
57,139 |
54,555 |
42,858 |
Perpetual licenses |
9,074 |
8,406 |
12,724 |
Software licenses |
66,213 |
62,961 |
55,582 |
Professional services |
8,290 |
5,659 |
5,452 |
Total
revenue |
74,503 |
68,620 |
61,034 |
Operating profit |
36,782 |
34,290 |
31,604 |
Operating profit (%) |
49% |
50% |
52% |
EBITDA(1) |
38,373 |
35,829 |
32,831 |
Net
income for the year |
27,630 |
24,822 |
23,391 |
Cash
dividends declared and paid |
30,304 |
27,905 |
20,499 |
Total
assets |
100,268 |
83,421 |
74,892 |
Total
shares outstanding |
39,210 |
38,129 |
37,307 |
Trading price per share at March 31 |
29.16 |
21.09 |
15.90 |
Market capitalization at March 31 |
1,143,351 |
804,130 |
593,170 |
Per
share amounts - ($/share) |
|
|
|
Earnings per share - basic |
0.71 |
0.66 |
0.63 |
Earnings per share - diluted |
0.70 |
0.64 |
0.62 |
Cash dividends declared and paid |
0.78 |
0.74 |
0.555 |
(1) EBITDA is defined as net income before
adjusting for depreciation expense, finance income, finance costs,
and income and other taxes. See "Non-IFRS Financial
Measures". |
|
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|
|
QUARTERLY PERFORMANCE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2013(1) |
Fiscal 2014(2) |
($ thousands, unless otherwise stated) |
Q1 |
Q2 |
Q3 |
Q4 |
Q1 |
Q2 |
Q3 |
Q4 |
|
|
|
|
|
|
|
|
|
Annuity/maintenance licenses |
13,179 |
12,012 |
14,004 |
15,359 |
13,958 |
13,153 |
14,278 |
15,750 |
Perpetual licenses |
2,070 |
2,671 |
1,365 |
2,300 |
2,331 |
1,829 |
2,942 |
1,972 |
Software licenses |
15,249 |
14,683 |
15,369 |
17,659 |
16,289 |
14,982 |
17,220 |
17,722 |
Professional services |
1,216 |
1,390 |
1,433 |
1,620 |
1,827 |
2,202 |
2,007 |
2,254 |
Total
revenue |
16,465 |
16,073 |
16,802 |
19,279 |
18,116 |
17,184 |
19,227 |
19,976 |
Operating profit |
8,105 |
8,032 |
8,276 |
9,877 |
9,350 |
8,296 |
9,575 |
9,561 |
Operating profit (%) |
49 |
50 |
49 |
51 |
52 |
48 |
50 |
48 |
EBITDA |
8,423 |
8,425 |
8,687 |
10,294 |
9,725 |
8,675 |
9,972 |
10,001 |
Profit before income and other taxes |
8,577 |
7,703 |
8,556 |
10,314 |
9,999 |
8,133 |
10,249 |
10,761 |
Income and other taxes |
2,487 |
2,342 |
2,437 |
3,061 |
2,918 |
2,525 |
3,044 |
3,025 |
Net
income for the period |
6,090 |
5,361 |
6,119 |
7,253 |
7,081 |
5,608 |
7,205 |
7,736 |
Cash dividends declared and paid |
9,736 |
6,020 |
6,050 |
6,099 |
8,841 |
6,994 |
7,020 |
7,449 |
Per
share amounts - ($/share) |
|
|
|
|
|
|
|
|
Earnings per share - basic |
0.16 |
0.14 |
0.16 |
0.19 |
0.19 |
0.15 |
0.19 |
0.20 |
Earnings per share - diluted |
0.16 |
0.14 |
0.16 |
0.19 |
0.18 |
0.14 |
0.18 |
0.19 |
Cash dividends declared and paid |
0.26 |
0.16 |
0.16 |
0.16 |
0.23 |
0.18 |
0.18 |
0.19 |
(1) Q1, Q2, Q3 and Q4 of fiscal 2013
include $2.1 million, $0.2 million, $1.8 million and $2.6 million,
respectively, in revenue that pertains to usage of CMG's products
in prior quarters. |
(2) Q1, Q2, Q3 and Q4 of fiscal 2014
include $1.2 million, $0.2 million, $0.9 million and $1.8 million,
respectively, in revenue that pertains to usage of CMG's products
in prior quarters. |
HIGHLIGHTS
During the year
ended March 31, 2014, as compared to the prior fiscal year,
CMG:
- Increased annuity/maintenance revenue by 5%
- Increased total revenue by 9%
- Increased operating profit by 7%
- Increased spending on research and development by 17%
- Increased EBITDA by 7%
- Increased total dividends declared and paid by 5%
- Realized earnings per share of $0.71, representing an 8%
increase
REVENUE |
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|
For the three months ended March 31, |
2014 |
|
2013 |
|
$
change |
%
change |
|
($ thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software licenses |
17,722 |
|
17,659 |
|
63 |
0 |
% |
Professional services |
2,254 |
|
1,620 |
|
634 |
39 |
% |
Total revenue |
19,976 |
|
19,279 |
|
697 |
4 |
% |
|
|
|
|
|
|
|
|
Software license revenue - % of total revenue |
89 |
% |
92 |
% |
|
|
|
Professional services - % of total revenue |
11 |
% |
8 |
% |
|
|
|
For the year ended March 31, |
2014 |
2013 |
$
change |
%
change |
($ thousands) |
|
|
|
|
|
|
|
|
|
Software licenses |
66,213 |
62,961 |
3,252 |
5% |
Professional services |
8,290 |
5,659 |
2,631 |
46% |
Total revenue |
74,503 |
68,620 |
5,883 |
9% |
|
|
|
|
|
Software license revenue - % of total revenue |
89% |
92% |
|
|
Professional services - % of total revenue |
11% |
8% |
|
|
CMG's revenue is
comprised of software license sales, which provide the majority of
professional services.
Total revenue
increased by 4% for the three months ended March 31, 2014, compared
to the same period of the previous fiscal year, mainly due to an
increase in professional services.
Total revenue
increased by 9% in the year ended March 31, 2014, compared to the
previous fiscal year, due to increases in both software license
revenue and professional services.
SOFTWARE LICENSE
REVENUE
Software license revenue is made up of annuity/maintenance
license fees charged for the use of the Company's software products
which is generally for a term of one year or less and perpetual
software license sales, whereby the customer purchases
the-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 March 31, |
2014 |
|
2013 |
|
$
change |
|
%
change |
|
($ thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annuity/maintenance licenses |
15,750 |
|
15,359 |
|
391 |
|
3 |
% |
Perpetual licenses |
1,972 |
|
2,300 |
|
(328 |
) |
-14 |
% |
Total software license revenue |
17,722 |
|
17,659 |
|
63 |
|
0 |
% |
|
|
|
|
|
|
|
|
|
Annuity/maintenance as a % of total software license revenue |
89 |
% |
87 |
% |
|
|
|
|
Perpetual as a % of total software license revenue |
11 |
% |
13 |
% |
|
|
|
|
|
|
|
|
|
For the year ended March 31, |
2014 |
2013 |
$
change |
%
change |
($ thousands) |
|
|
|
|
|
|
|
|
|
Annuity/maintenance licenses |
57,139 |
54,555 |
2,584 |
5% |
Perpetual licenses |
9,074 |
8,406 |
668 |
8% |
Total software license revenue |
66,213 |
62,961 |
3,252 |
5% |
|
|
|
|
|
Annuity/maintenance as a % of total software license revenue |
86% |
87% |
|
|
Perpetual as a % of total software license revenue |
14% |
13% |
|
|
Total software
license revenue remained flat in the three months ended March 31,
2014, compared to the same period of the previous fiscal year.
However, total software license revenue grew by 5% for the year
ended March 31, 2014, compared to the previous fiscal year, as a
result of increases in both the annuity/maintenance and perpetual
revenue streams.
CMG's annuity/maintenance license revenue increased by 3% and 5%
during the three months and year ended March 31, 2014,
respectively, compared to the same periods of the previous fiscal
year. These increases were driven by sales to new and existing
clients as well as an increase in maintenance revenue tied to
perpetual sales. In addition, annuity/maintenance license revenue
for the three months and year ended March 31, 2014, compared to the
same periods of the previous year, was positively affected by the
weakening of the Canadian dollar.
All of our regions,
except South America, experienced solid growth in
annuity/maintenance revenue during both the three months and year
ended March 31, 2014, for the reasons described above, but the most
significant growth came from our US market.
Our annuity/maintenance revenue is impacted by the revenue
recognition on a multi-year contract for which revenue recognition
criteria are fulfilled only at the time of the receipt of funds
(see the discussion about revenue earned in the current period that
pertains to usage of products in prior quarters above the
"Quarterly Software License Revenue" graph.) The variability of the
amounts and timing of the payments received may skew the comparison
of the recorded annuity/maintenance revenue amounts between
periods. To provide a normalized comparison, if we were to remove
revenue from this particular customer from the fourth quarter of
the current and previous fiscal years, we will notice that the
annuity/maintenance revenue increased by 11%, instead of 3%, as
compared to the same period of the previous year. Similarly, if we
were to remove revenue from this particular customer from the years
ended March 31, 2014 and 2013, we will notice that the
annuity/maintenance revenue increased by 12%, instead of 5%, as
compared to the previous year. We are pleased to report that
subsequent to the year ended March 31, 2014 we received an
additional quarterly payment from this particular customer which
will be reflected in Q1 of fiscal 2015 results. Given our long-term
relationship with this customer, and their on-going use of our
licenses, we expect to continue to receive payments from them;
however, the amount and timing are uncertain and will continue to
be recorded on a cash basis, which may introduce some variability
in our reported quarterly annuity/maintenance revenue results.
Perpetual license
sales decreased by 14% for the three months ended March 31, 2014,
compared to the same period of the previous fiscal year, due to a
decrease in Canada and South America partially offset by growth in
perpetual sales generated by the US and Eastern Hemisphere.
Perpetual license
sales for the year ended March 31, 2014 increased by 8%, compared
to the previous fiscal year, due to growth in perpetual sales
generated by the US, South America and Eastern Hemisphere partially
offset by a decrease in Canada.
Software licensing
under perpetual sales is a significant part of CMG's business, but
may fluctuate significantly between periods due to the uncertainty
associated with the timing and the location where sales are
generated. For this reason, even though we expect to achieve a
certain level of aggregate perpetual sales on an annual basis, we
expect to observe fluctuations in the quarterly perpetual revenue
amounts throughout the fiscal year.
We can observe from
the table below that the exchange rates between the US and Canadian
dollars during the three months and year ended March 31, 2014,
compared to the same periods of the previous fiscal year, had a
positive impact on our reported license revenue.
The following table
summarizes the US dollar denominated revenue and the weighted
average exchange rate at which it was converted to Canadian
dollars:
For the three months ended March 31, |
|
2014 |
2013 |
$
change |
|
%
change |
|
($ thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US
dollar annuity/maintenance license sales |
US$ |
10,462 |
10,777 |
(315 |
) |
-3 |
% |
Weighted average conversion rate |
|
1.072 |
1.006 |
|
|
|
|
Canadian dollar equivalent |
CDN$ |
11,212 |
10,838 |
374 |
|
3 |
% |
|
|
|
|
|
|
|
|
US
dollar perpetual license sales |
US$ |
1,808 |
1,475 |
333 |
|
23 |
% |
Weighted average conversion rate |
|
1.091 |
1.015 |
|
|
|
|
Canadian dollar equivalent |
CDN$ |
1,972 |
1,497 |
475 |
|
32 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended March 31, |
|
2014 |
2013 |
$
change |
%
change |
|
($ thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
US
dollar annuity/maintenance license sales |
US$ |
38,030 |
35,138 |
2,892 |
8 |
% |
Weighted average conversion rate |
|
1.030 |
1.003 |
|
|
|
Canadian dollar equivalent |
CDN$ |
39,178 |
35,231 |
3,947 |
11 |
% |
|
|
|
|
|
|
|
US
dollar perpetual license sales |
US$ |
8,234 |
5,634 |
2,600 |
46 |
% |
Weighted average conversion rate |
|
1.048 |
1.004 |
|
|
|
Canadian dollar equivalent |
CDN$ |
8,627 |
5,657 |
2,970 |
53 |
% |
The following table quantifies the foreign exchange impact on
our software license revenue:
|
|
|
|
|
|
For the three months ended March 31, 2014 |
Q4 2013 |
Incremental License |
|
Foreign Exchange |
Q4 2014 |
($ thousands) |
Balance |
Growth |
|
Impact |
Balance |
|
|
|
|
|
|
Annuity/maintenance license sales |
15,359 |
(300 |
) |
691 |
15,750 |
Perpetual license sales |
2,300 |
(466 |
) |
138 |
1,972 |
Total software license revenue |
17,659 |
(766 |
) |
829 |
17,722 |
|
|
|
|
|
|
For the year ended March 31, 2014 |
2013 |
Incremental License |
|
Foreign Exchange |
2014 |
($ thousands) |
Balance |
Growth |
|
Impact |
Balance |
|
|
|
|
|
|
Annuity/maintenance license sales |
54,555 |
1,537 |
|
1,047 |
57,139 |
Perpetual license sales |
8,406 |
308 |
|
360 |
9,074 |
Total software license revenue |
62,961 |
1,845 |
|
1,407 |
66,213 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REVENUE BY GEOGRAPHIC SEGMENT |
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended March 31, |
2014 |
2013 |
$
change |
|
%
change |
|
($ thousands) |
|
|
|
|
|
|
Annuity/maintenance revenue |
|
|
|
|
|
|
|
Canada |
6,225 |
5,805 |
420 |
|
7 |
% |
|
United States |
3,236 |
2,799 |
437 |
|
16 |
% |
|
South
America |
2,616 |
3,399 |
(783 |
) |
-23 |
% |
|
Eastern Hemisphere(1) |
3,673 |
3,356 |
317 |
|
9 |
% |
|
15,750 |
15,359 |
391 |
|
3 |
% |
Perpetual revenue |
|
|
|
|
|
|
|
Canada |
67 |
803 |
(736 |
) |
-92 |
% |
|
United States |
787 |
331 |
456 |
|
138 |
% |
|
South
America |
33 |
232 |
(199 |
) |
-86 |
% |
|
Eastern Hemisphere |
1,085 |
934 |
151 |
|
16 |
% |
|
1,972 |
2,300 |
(328 |
) |
-14 |
% |
Total software license revenue |
|
|
|
|
|
|
|
Canada |
6,292 |
6,608 |
(316 |
) |
-5 |
% |
|
United States |
4,023 |
3,130 |
893 |
|
29 |
% |
|
South
America |
2,649 |
3,631 |
(982 |
) |
-27 |
% |
|
Eastern Hemisphere |
4,758 |
4,290 |
468 |
|
11 |
% |
|
17,722 |
17,659 |
63 |
|
0 |
% |
For the year ended March 31, |
2014 |
2013 |
$
change |
|
%
change |
|
($ thousands) |
|
|
|
|
|
|
Annuity/maintenance revenue |
|
|
|
|
|
|
|
Canada |
23,120 |
21,708 |
1,412 |
|
7 |
% |
|
United States |
12,778 |
10,558 |
2,220 |
|
21 |
% |
|
South
America |
8,027 |
10,169 |
(2,142 |
) |
-21 |
% |
|
Eastern Hemisphere(1) |
13,214 |
12,120 |
1,094 |
|
9 |
% |
|
57,139 |
54,555 |
2,584 |
|
5 |
% |
Perpetual revenue |
|
|
|
|
|
|
|
Canada |
514 |
2,344 |
(1,830 |
) |
-78 |
% |
|
United States |
1,641 |
993 |
648 |
|
65 |
% |
|
South
America |
1,385 |
741 |
644 |
|
87 |
% |
|
Eastern Hemisphere |
5,534 |
4,328 |
1,206 |
|
28 |
% |
|
9,074 |
8,406 |
668 |
|
8 |
% |
Total software license revenue |
|
|
|
|
|
|
|
Canada |
23,634 |
24,052 |
(418 |
) |
-2 |
% |
|
United States |
14,419 |
11,551 |
2,868 |
|
25 |
% |
|
South
America |
9,412 |
10,910 |
(1,498 |
) |
-14 |
% |
|
Eastern Hemisphere |
18,748 |
16,448 |
2,300 |
|
14 |
% |
|
66,213 |
62,961 |
3,252 |
|
5 |
% |
(1) Includes Europe, Africa, Asia and Australia. |
On a geographic
basis, total software license sales increased in the US and Eastern
Hemisphere markets and decreased in the Canadian and South American
markets during the three months and year ended March 31, 2014, as
compared to the same periods of the previous fiscal year. The most
significant growth came from our annuity/maintenance license sales,
with increases experienced across all regions, with the exception
of South America, for the three months and year ended March 31,
2014, compared to the same periods of the previous fiscal year.
The Canadian market
(representing 36% of year-to-date total software revenue)
experienced increases in annuity/maintenance license sales during
the three months and year ended March 31, 2014, compared to the
same periods of the previous fiscal year. These increases were
supported by the sales to both new and existing clients. Perpetual
sales experienced decreases during the three months and year ended
March 31, 2014, compared to the same periods of the previous fiscal
year, due to the fluctuations inherent in the perpetual revenue
stream. The Canadian market continues to be the leader in
generating total software license revenue and, particularly, in
generating recurring annuity/maintenance revenue as evidenced by
the quarterly year-over-year increases of 38%, 10% and 10% recorded
during Q4 2013, Q1 2014 and Q3 2014, respectively
(annuity/maintenance was relatively flat in Q2 2014, compared to
the same period in the previous fiscal year). The growth trend has
continued into the fourth quarter of the current fiscal year with
the recorded increase of 7%.
The US market
(representing 22% of year-to-date total software revenue) had the
most significant growth in annuity/maintenance license sales during
the three months and year ended March 31, 2014, compared to the
same periods of the previous fiscal year, driven by sales to new
and existing clients. Perpetual license sales also grew during the
three months and year ended March 31, 2014, compared to the same
periods of the previous fiscal year. We have continued to see
successive increases in the annuity/maintenance license sales in
the US as evidenced by the quarterly year-over-year increases of
20%, 32%, 16% and 21% recorded during Q4 2013, Q1 2014, Q2 2014,
and Q3 2014, respectively. This double digit growth trend has
continued into the fourth quarter of the current fiscal year with
the recorded increase of 16%.
South America (representing 14% of year-to-date total software
revenue) experienced decreases of 23% and 21% in
annuity/maintenance revenue during the three months and year ended
March 31, 2014, respectively, compared to the same periods of the
previous fiscal year. The revenue recognition in our South American
region is affected by the revenue recorded on the long-term
contract for which revenue is recognized on a cash basis (see the
discussion about revenue earned in the current period that pertains
to usage of products in prior quarters above the "Quarterly
Software License Revenue" graph). To provide a normalized
comparison, if we were to remove revenue from this particular
customer from the fourth quarter of the current and previous fiscal
years, we will notice that the South America annuity/maintenance
revenue increased by 29%, instead of decreasing by 23%, as compared
to the same period of the previous year. Similarly, if we were to
remove revenue from this particular customer from the years ended
March 31, 2014 and 2013, we will notice that the
annuity/maintenance revenue increased by 20%, instead of decreasing
by 21%, as compared to the previous year which demonstrates the
continued growth in the South American market. The South American
region experienced a decrease in perpetual license sales during the
three months ended March 31, 2014, compared to the same period of
the previous fiscal year, while there was an increase in perpetual
license sales during the year ended March 31, 2014, compared to the
previous fiscal year.
Eastern Hemisphere (representing 28% of the year-to-date total
software revenue) grew annuity/maintenance license sales during
both the three months and year ended March 31, 2014, compared to
the same periods of the previous fiscal year, due to sales to both
new and existing customers. Perpetual license sales also increased
in both the three months and year ended March 31, 2014, compared to
the same periods of the previous fiscal year.
Movements in
perpetual sales across regions are indicative of the unpredictable
nature of the timing and location of perpetual license sales.
Overall, our recurring annuity/maintenance revenue base continues
to 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 the 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 figure
associated with this release, please visit the following link:
http://media3.marketwire.com/docs/CMGL_QSLR.pdf.
- Q1, Q2, Q3 and Q4 of fiscal 2010 include $0.4 million, $0.4
million, $0.3 million and $0.4 million, respectively, in revenue
that pertains to usage of CMG's products in prior
quarters.
- Q1, Q2, Q3 and Q4 of fiscal 2011 include $1.1 million, $0.2
million, $0.3 million and $0.1 million, respectively, in revenue
that pertains to usage of CMG's products in prior
quarters.
- 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.
- Q1, Q2, Q3 and Q4 of fiscal 2013 include $2.1 million, $0.2
million, $1.8 million, and $2.6 million, respectively, in revenue
that pertains to usage of CMG's products in prior
quarters.
- Q1, Q2, Q3 and Q4 of fiscal 2014 include $1.2 million, $0.2
million, $0.9 million, and $1.8 million, respectively, in revenue
that pertains to usage of CMG's products in prior
quarters.
DEFERRED REVENUE |
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal |
Fiscal |
|
|
|
|
2014 |
2013 |
$
change |
%
change |
|
($ thousands) |
|
|
|
|
|
Deferred revenue at: |
|
|
|
|
|
Q1 |
22,014 |
18,779 |
3,235 |
17 |
% |
Q2 |
19,346 |
18,241 |
1,105 |
6 |
% |
Q3 |
18,069 |
15,510 |
2,559 |
16 |
% |
Q4 |
29,531 |
25,289 |
4,242 |
17 |
% |
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 the end of
Q1, Q2, Q3 and Q4 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 increase in deferred revenue balance at Q4 compared to
the balances at Q1, Q2 and Q3. Our fourth quarter corresponds to
the beginning of the fiscal year for most oil and gas companies,
representing a time when they enter a new budget year and
sign/renew their contracts.
Deferred revenue at
March 31, 2014 increased by 17% compared to the prior fiscal year
due to both the renewal of existing and signing of new software
licenses and maintenance contracts in the quarter.
PROFESSIONAL
SERVICES REVENUE
CMG recorded
professional services revenue of $2.3 million for the three months
ended March 31, 2014, representing an increase of $0.6 million
compared to the same period of the previous fiscal year, due to
both an increase in project activities by our clients and due to
entering into a large consulting agreement with one of our clients.
Professional services for the year ended March 31, 2014 amounted to
$8.3 million, representing a $2.6 million increase compared to the
previous fiscal year, which again resulted from both an increase in
project activities by our clients and entering into a large
consulting agreement with one of our clients in the current fiscal
year.
Professional services revenue consists of specialized
consulting, training, and contract research activities. CMG
performs consulting and contract research activities on an ongoing
basis, but such activities are not considered to be a core part of
our business and are primarily undertaken to increase our knowledge
base and hence expand the technological abilities of our simulators
in a funded manner, combined with servicing our customers' needs.
In addition, these activities are undertaken to market the
capabilities of our suite of software products with the ultimate
objective to increase software license sales. Our experience is
that consulting activities are variable in nature as both the
timing and dollar magnitude of work are dependent on activities and
budgets within client companies.
EXPENSES |
|
|
|
|
|
|
|
|
|
|
|
For the three months ended March 31, |
2014 |
2013 |
$
change |
%
change |
|
($ thousands) |
|
|
|
|
|
|
|
|
|
|
|
Sales, marketing and professional services |
4,539 |
4,140 |
399 |
10 |
% |
Research and development |
3,917 |
3,456 |
461 |
13 |
% |
General and administrative |
1,959 |
1,806 |
153 |
8 |
% |
Total operating expenses |
10,415 |
9,402 |
1,013 |
11 |
% |
|
|
|
|
|
|
Direct employee costs* |
8,385 |
7,507 |
878 |
12 |
% |
Other corporate costs |
2,030 |
1,895 |
135 |
7 |
% |
|
10,415 |
9,402 |
1,013 |
11 |
% |
|
|
|
|
|
|
For the year ended March 31, |
2014 |
2013 |
$
change |
%
change |
|
($ thousands) |
|
|
|
|
|
|
|
|
|
|
|
Sales, marketing and professional services |
16,144 |
15,473 |
671 |
4 |
% |
Research and development |
14,623 |
12,517 |
2,106 |
17 |
% |
General and administrative |
6,954 |
6,340 |
614 |
10 |
% |
Total operating expenses |
37,721 |
34,330 |
3,391 |
10 |
% |
|
|
|
|
|
|
Direct employee costs* |
30,292 |
27,309 |
2,983 |
11 |
% |
Other corporate costs |
7,429 |
7,021 |
408 |
6 |
% |
|
37,721 |
34,330 |
3,391 |
10 |
% |
*Includes salaries, bonuses, stock-based compensation,
benefits, commissions, and professional development. |
CMG's total operating expenses increased by 11% and 10% for the
three months and year ended March 31, 2014, 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 year ended March 31, 2014 related to staff costs, which is
consistent with 80% recorded in the comparative period of the
previous fiscal year. Staffing levels for the current fiscal year
grew in comparison to the previous fiscal year to support our
continued growth. At March 31, 2014, CMG's staff complement was 195
employees and consultants, up from 173 employees as at March 31,
2013. Direct employee costs increased during the three months and
year ended March 31, 2014, 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 7% for the three months ended
March 31, 2014, compared to the same period of the previous fiscal
year, mainly due to computer-related purchases and the increase in
other office costs.
Other corporate costs increased by 6% for the year ended March
31, 2014, compared to the previous fiscal year, mainly due to
computer-related purchases and the increase in other office costs
partially offset by the inclusion of the costs associated with
CMG's biennial technical symposium which took place during the
first quarter of the previous fiscal year.
RESEARCH AND
DEVELOPMENT
For the three months ended March 31, |
2014 |
|
2013 |
|
$ change |
%
change |
|
($ thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development (gross) |
4,359 |
|
3,906 |
|
|
453 |
12 |
% |
SR&ED credits |
(442 |
) |
(450 |
) |
|
8 |
-2 |
% |
Research and development |
3,917 |
|
3,456 |
|
|
461 |
13 |
% |
|
|
|
|
|
|
|
|
|
Research and development as a % of total revenue |
20 |
% |
18 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the year ended March 31, |
2014 |
|
2013 |
|
|
$
change |
%
change |
|
($ thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development (gross) |
16,439 |
|
14,364 |
|
|
2,075 |
14 |
% |
SR&ED credits |
(1,816 |
) |
(1,847 |
) |
|
31 |
-2 |
% |
Research and development |
14,623 |
|
12,517 |
|
|
2,106 |
17 |
% |
|
|
|
|
|
|
|
|
|
Research and development as a % of total revenue |
20 |
% |
18 |
% |
|
|
|
|
CMG maintains its
belief that its strategy of growing long-term value for
shareholders can only be achieved through continued investment in
research and development. CMG works closely with its customers to
provide solutions to complex problems related to proven and new
advanced recovery processes.
The above research and development includes CMG's share of joint
research and development costs associated with the DRMS project of
$1.0 million and $4.0 million for the three months and year ended
March 31, 2014, respectively (2013 - $0.9 million and $3.1
million). See discussion under "Commitments, Off Balance Sheet
Items and Transactions with Related Parties."
The increases of 12%
and 14% in our gross spending on research and development for the
three months and year ended March 31, 2014, respectively, compared
to the same periods of the previous fiscal year, demonstrate our
continued commitment to advancement of our technology which is the
focal part of our business strategy.
Research and development costs, net of research and experimental
development ("SR&ED") credits, increased by 13% and 17% during
the three months and year ended March 31, 2014, respectively,
compared to the same periods of the previous fiscal year, due to
increased employee compensation costs and costs associated with
computing resources.
SR&ED credits remained relatively flat for the three months
and year ended March 31, 2014, compared to the same periods of the
previous fiscal year, due to the increase in SR&ED eligible
expenditures offset by the decrease in the Federal SR&ED input
tax credit rate from 20% to 15% effective January 1, 2014 lowering
our average rate for fiscal 2014.
DEPRECIATION |
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended March 31, |
2014 |
2013 |
$
change |
|
%
change |
|
($ thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation of property and equipment, allocated
to: |
|
|
|
|
|
|
|
Sales, marketing and professional services |
118 |
126 |
(8 |
) |
-6 |
% |
|
Research and development |
247 |
239 |
8 |
|
3 |
% |
|
General and administrative |
75 |
52 |
23 |
|
44 |
% |
Total depreciation |
440 |
417 |
23 |
|
6 |
% |
|
|
|
|
|
|
|
For the year ended March 31, |
2014 |
2013 |
$
change |
|
%
change |
|
($ thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation of property and equipment, allocated
to: |
|
|
|
|
|
|
|
Sales, marketing and professional services |
423 |
467 |
(44 |
) |
-9 |
% |
|
Research and development |
939 |
880 |
59 |
|
7 |
% |
|
General and administrative |
229 |
192 |
37 |
|
19 |
% |
Total depreciation |
1,591 |
1,539 |
52 |
|
3 |
% |
Depreciation in the
three months and year ended March 31, 2014 was relatively flat as
compared to the same periods of the previous fiscal year.
FINANCE INCOME |
|
|
|
|
|
|
|
|
|
|
|
For the three months ended March 31, |
2014 |
2013 |
$
change |
%
change |
|
($ thousands) |
|
|
|
|
|
|
|
|
|
|
|
Interest income |
165 |
139 |
26 |
19 |
% |
Net foreign exchange gain |
1,035 |
298 |
737 |
247 |
% |
Total finance income |
1,200 |
437 |
763 |
175 |
% |
For the year ended March 31, |
2014 |
2013 |
$
change |
%
change |
|
($ thousands) |
|
|
|
|
|
|
|
|
|
|
|
Interest income |
644 |
548 |
96 |
18 |
% |
Net foreign exchange gain |
1,716 |
311 |
1,405 |
452 |
% |
Total finance income |
2,360 |
859 |
1,501 |
175 |
% |
Interest income
increased in the three months and year ended March 31, 2014,
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 72% (2013 – 67%) of CMG's revenue
for the year ended March 31, 2014 is denominated in US dollars,
whereas only approximately 24% (2013 – 23%) of CMG's total costs
are denominated in US dollars.
CDN$ to US$ |
At March 31 |
Yearly average |
|
|
|
2012 |
1.0009 |
1.0106 |
2013 |
0.9846 |
0.9963 |
2014 |
0.9047 |
0.9452 |
CMG recorded a net
foreign exchange gain of $1.0 million and $1.7 million for the
three months and year ended March 31, 2014, respectively, compared
to a net foreign exchange gain of $0.3 million for both the three
months and year ended March 31, 2013. These gains were a result of
a weakening in the Canadian dollar which contributed positively to
the valuation of our US-denominated working capital.
INCOME AND OTHER
TAXES
CMG's effective tax
rate for the year ended March 31, 2014 is reflected as 29.41% (2013
- 28.30%), whereas the prevailing Canadian statutory tax rate is
now 25.0%. This difference is primarily due to a combination of the
non-tax deductibility of stock-based compensation expense and the
benefit of foreign withholding taxes being realized only as a tax
deduction as opposed to a tax credit.
The benefit recorded in CMG's books on the SR&ED investment
tax credit program impacts deferred income taxes. The investment
tax credit earned in the current fiscal year is utilized by CMG to
reduce income taxes otherwise payable for the current fiscal year
and the federal portion of this benefit bears an inherent tax
liability as the amount of the credit is included in the subsequent
year's taxable income for both federal and provincial purposes. The
inherent tax liability on these investment tax credits is reflected
in the year the credit is earned as a non-current deferred tax
liability and then, in the following fiscal year, is transferred to
income taxes payable.
OPERATING PROFIT AND NET INCOME |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended March 31, |
2014 |
|
2013 |
|
$
change |
|
%
change |
|
($ thousands, except per share amounts) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
revenue |
19,976 |
|
19,279 |
|
697 |
|
4 |
% |
Operating expenses |
(10,415 |
) |
(9,402 |
) |
(1,013 |
) |
11 |
% |
|
|
|
|
|
|
|
|
|
Operating profit |
9,561 |
|
9,877 |
|
(316 |
) |
-3 |
% |
|
|
|
|
|
|
|
|
|
Operating profit as a % of total revenue |
48 |
% |
51 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income for the period |
7,736 |
|
7,253 |
|
483 |
|
7 |
% |
Net income for the period as a % of total revenue |
39 |
% |
38 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share ($/share) |
0.20 |
|
0.19 |
|
0.01 |
|
5 |
% |
For the year ended March 31, |
2014 |
|
2013 |
|
$
change |
|
%
change |
|
($ thousands, except per share amounts) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
revenue |
74,503 |
|
68,620 |
|
5,883 |
|
9 |
% |
Operating expenses |
(37,721 |
) |
(34,330 |
) |
(3,391 |
) |
10 |
% |
|
|
|
|
|
|
|
|
|
Operating profit |
36,782 |
|
34,290 |
|
2,492 |
|
7 |
% |
|
|
|
|
|
|
|
|
|
Operating profit as a % of total revenue |
49 |
% |
50 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income for the period |
27,630 |
|
24,822 |
|
2,808 |
|
11 |
% |
|
|
|
|
|
|
|
|
|
Net income for the period as a % of total revenue |
37 |
% |
36 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share ($/share) |
0.71 |
|
0.66 |
|
0.05 |
|
8 |
% |
Operating profit as
a percentage of total revenue for the three months and year ended
March 31, 2014 was at 48% and 49%, respectively, compared to 51%
and 50% recorded in the same periods of the previous fiscal year.
While our total revenue for the year ended March 31, 2014 grew by
9%, as compared to the same period of the previous fiscal year, our
operating expenses grew by 10%, having a slight negative impact on
our operating profit. Our high levels of operating profit as a
percentage of revenue demonstrate our ability to continue to
effectively manage our costs.
Net income for the
period as a percentage of revenue increased to 39% for the three
months ended March 31, 2014, compared to 38% for the same period of
the previous fiscal year.
Net income for the
period as a percentage of revenue increased to 37% for the year
ended March 31, 2014, compared to 36% for 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 March 31, |
2014 |
|
2013 |
|
$
change |
|
%
change |
|
($ thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income for the period |
7,736 |
|
7,253 |
|
483 |
|
7 |
% |
Add (deduct): |
|
|
|
|
|
|
|
|
|
Depreciation |
440 |
|
417 |
|
23 |
|
6 |
% |
|
Finance income |
(1,200 |
) |
(437 |
) |
(763 |
) |
175 |
% |
|
Income and other taxes |
3,025 |
|
3,061 |
|
(36 |
) |
-1 |
% |
EBITDA |
10,001 |
|
10,294 |
|
(293 |
) |
-3 |
% |
|
|
|
|
|
|
|
|
|
EBITDA as a % of total revenue |
50 |
% |
53 |
% |
|
|
|
|
For the year ended March 31, |
2014 |
|
2013 |
|
$
change |
|
%
change |
|
($ thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income for the period |
27,630 |
|
24,822 |
|
2,808 |
|
11 |
% |
Add (deduct): |
|
|
|
|
|
|
|
|
|
Depreciation |
1,591 |
|
1,539 |
|
52 |
|
3 |
% |
|
Finance income |
(2,360 |
) |
(859 |
) |
(1,501 |
) |
175 |
% |
|
Income and other taxes |
11,512 |
|
10,327 |
|
1,185 |
|
11 |
% |
EBITDA |
38,373 |
|
35,829 |
|
2,544 |
|
7 |
% |
|
|
|
|
|
|
|
|
|
EBITDA as a % of total revenue |
52 |
% |
52 |
% |
|
|
|
|
EBITDA decreased by
3% for the three months ended March 31, 2014 and increased by 7%
for the year ended March 31, 2014, compared to the same periods of
the previous fiscal year.
EBITDA as a percent
of total revenue for the three months ended March 31, 2014 was at
50%, compared to 53% recorded in the same period of the previous
fiscal year, while it remained consistent at 52% for the year ended
March 31, 2014, compared to the previous fiscal year.
Our high EBITDA as a
percent of total revenue provides indication of our ability to keep
growing our revenue while effectively managing costs.
LIQUIDITY AND CAPITAL RESOURCES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended March 31, |
2014 |
|
2013 |
|
$
change |
|
%
change |
|
($ thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, beginning of period |
64,708 |
|
52,236 |
|
12,472 |
|
24 |
% |
Cash flow from (used in): |
|
|
|
|
|
|
|
|
|
Operating activities |
13,396 |
|
11,155 |
|
2,241 |
|
20 |
% |
|
Financing activities |
(5,324 |
) |
(3,718 |
) |
(1,606 |
) |
43 |
% |
|
Investing activities |
(370 |
) |
(254 |
) |
(116 |
) |
46 |
% |
Cash, end of period |
72,410 |
|
59,419 |
|
12,991 |
|
22 |
% |
For the year ended March 31, |
2014 |
|
2013 |
|
$
change |
%
change |
|
($ thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, beginning of period |
59,419 |
|
55,374 |
|
4,045 |
7 |
% |
Cash flow from (used in): |
|
|
|
|
|
|
|
|
Operating activities |
32,860 |
|
28,073 |
|
4,787 |
17 |
% |
|
Financing activities |
(19,030 |
) |
(22,014 |
) |
2,984 |
-14 |
% |
|
Investing activities |
(839 |
) |
(2,014 |
) |
1,175 |
-58 |
% |
Cash, end of period |
72,410 |
|
59,419 |
|
12,991 |
22 |
% |
OPERATING
ACTIVITIES
Cash flow generated from operating activities increased by $2.2
million in the three months ended March 31, 2014, compared to the
same period of the previous fiscal year, mainly due to the increase
in net income, and the changes in the deferred revenue and prepaid
expense balances, partially offset by the change in the trade
accounts payable balance.
Cash flow generated from operating activities increased by $4.8
million in the year ended March 31, 2014, compared to the previous
fiscal year, mainly due to the increase in net income, the change
in deferred revenue balance and the net impact of changes in income
taxes payable partially offset by both the increase in trade
receivables, caused by the timing differences of when the sales are
made and when the resulting receivables are collected and the
change in the trade accounts payable balance.
FINANCING
ACTIVITIES
Cash used in
financing activities during the three months ended March 31, 2014
increased by $1.6 million, compared to the same period of the
previous fiscal year, as a result of paying larger dividends.
Cash used in financing activities during the year ended March
31, 2014 decreased by $3.0 million, compared to the previous fiscal
year, due to receiving higher proceeds from the issuance of Common
Shares partially offset by paying larger dividends. In addition, in
the first quarter of the previous fiscal year, CMG spent $1.6
million on buying back Common Shares.
During the year
ended March 31, 2014, CMG employees and directors exercised options
to purchase 1,081,000 Common Shares, which resulted in cash
proceeds of $11.3 million.
In the year ended March 31, 2014, CMG paid $30.3 million in
dividends, representing the following quarterly dividends:
|
|
|
|
|
2014 |
($ per share) |
Q1 |
Q2 |
Q3 |
Q4 |
Total |
|
|
|
|
|
|
Dividends declared and paid |
0.18 |
0.18 |
0.18 |
0.19 |
0.73 |
Special dividend declared and paid |
0.05 |
- |
- |
- |
0.05 |
Total dividends declared and paid |
0.23 |
0.18 |
0.18 |
0.19 |
0.78 |
In the year ended March 31, 2013, CMG paid $27.9 million in
dividends, representing the following quarterly dividends:
|
|
|
|
|
2013 |
($ per share) |
Q1 |
Q2 |
Q3 |
Q4 |
Total |
|
|
|
|
|
|
Dividends declared and paid |
0.16 |
0.16 |
0.16 |
0.16 |
0.64 |
Special dividend declared and paid |
0.10 |
- |
- |
- |
0.10 |
Total dividends declared and paid |
0.26 |
0.16 |
0.16 |
0.16 |
0.74 |
On May 21, 2014, CMG announced the payment of a quarterly
dividend of $0.20 per share on CMG's Common Shares. The dividend
will be paid on June 13, 2014 to shareholders of record at the
close of business on June 6, 2014.
In the fiscal 2012 Management's Discussion and Analysis, we
reported that, beginning in fiscal 2013, we would increase the
relative proportion of dividends paid quarterly and lower the
amount paid as a special dividend at the end of the fiscal year, in
order to provide a more regular income stream to our shareholders
throughout the year. The above tables demonstrate an increase in
the regular quarterly dividend from $0.64 per share in fiscal 2013
to $0.73 per share in fiscal 2014 and the lowering of the special
dividend paid between the two years. Our total dividend paid also
increased from $0.74 per share in fiscal 2013 to $0.78 per share
paid in fiscal 2014, representing a 5% increase. The special
dividend, if any, will continue to be determined annually based on
the Company's, performance, however, our focus will remain on a
sustainable dividend paid quarterly.
Based on our
expectation of solid profitability and cash-generating ability
driven by the predictability of our software revenue base and
effective management of costs, we are cautiously optimistic that
the company is well positioned for future growth which will enable
us to continue to pay quarterly dividends.
On April 16, 2012, the Company announced a Normal Course Issuer
Bid ("NCIB") commencing on April 18, 2012 to purchase for
cancellation up to 3,416,000 of its Common Shares. During the year
ended March 31, 2013, a total of 91,000 Common Shares were
purchased at market price for a total cost of $1,551,000.
On April 29, 2013,
the Company announced a NCIB commencing on May 1, 2013 to purchase
for cancellation up to 3,538,000 of its Common Shares. During the
year ended March 31, 2014, no common shares were purchased.
On May 5, 2014, the
Company announced a NCIB commencing on May 5, 2014 to purchase for
cancellation up to 3,720,000 of its Common Shares.
INVESTING
ACTIVITIES
CMG's current needs
for capital asset investment relate to computer equipment and will
be funded internally. During the year ended March 31, 2014, CMG
expended $0.8 million on property and equipment additions,
primarily composed of computing equipment, and has a capital budget
of $2.3 million for fiscal 2015.
LIQUIDITY AND
CAPITAL RESOURCES
At March 31, 2014,
CMG has $72.4 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 year ended March 31, 2014, 9,377,000 shares of CMG's
public float were traded on the TSX. As at March 31, 2014 CMG's
market capitalization based upon its March 31, 2014 closing price
of $29.16 was $1.1 billion.
COMMITMENTS, OFF
BALANCE SHEET ITEMS AND TRANSACTIONS WITH RELATED PARTIES
The Company is the operator of the DRMS research and development
project (the "DRMS Project"), a collaborative effort with its
partners Shell and Petrobras, to jointly develop the newest
generation of reservoir and production system simulation software.
The project has been underway since 2006 and, with the ongoing
support of the participants, it is expected to continue until
ultimate delivery of the software. The Company's share of costs
associated with the project is estimated to be $5.9 million ($3.1
million net of overhead recoveries) for fiscal 2015. 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: 2015 - $2.2
million per year; 2016 - $2.3 million; 2017 - $1.2 million; 2018
and 2019 - $0.2 million per year.
The leases for our
Calgary offices expire in fiscal 2017 and we are currently in the
process of negotiating the lease of new premises.
CRITICAL ACCOUNTING
ESTIMATES
The preparation of
financial statements requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities
at the dates of the financial statements and the reported amounts
of revenues and expenses during the reporting periods. By their
nature, these estimates are subject to estimation uncertainty. The
effect on the financial statements of changes in such estimates in
future periods could be material and would be accounted for in the
period in which the estimates are revised and in any future periods
affected.
Revenue
recognition
Revenue consists
primarily of software license fees with some fees for professional
services. We recognize revenue in accordance with the current rules
of IFRS. We follow specific and detailed guidelines in measuring
revenue; however, certain judgments affect the application of our
revenue recognition policies.
Software license revenue is comprised of annuity/maintenance
license fees charged for the use of our software products which is
generally for a term of one year or less, and perpetual software
licensing, whereby the customer purchases the-then-current version
of the software and has the right to use that version in
perpetuity. We recognize software license revenue when persuasive
evidence of an arrangement exists, the product has been delivered,
the fee is fixed or determinable, and collection of the resulting
receivable is probable. In cases where collectability is not deemed
probable, revenue is recognized upon receipt of cash, assuming all
other criteria have been met.
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. License fees for perpetual licenses are recognized fully
in revenue when all recognition conditions are satisfied.
Certain software
license agreements contain multiple-element arrangements as they
may also include maintenance fees. Judgment is used in determining
a fair value of each element of a contract.
Professional
services revenue earned from certain consulting contracts is
recognized by the stage of completion of the transaction determined
using the percentage-of-completion method. Judgment is used in
determining progress of each contract at period end. In assessing
revenue recognition, judgment is also used in determining the
ability to collect the corresponding account receivable.
Functional
currency
The determination of the functional currency is a matter of
determining the primary economic environment in which an entity
operates. IAS 21, The Effects of Changes in Foreign Exchange Rates,
sets out a number of factors to apply in making the determination
of the functional currency. However, applying the factors in IAS 21
does not always result in a clear indication of functional
currency. Where IAS 21 factors indicate differing functional
currencies within a subsidiary, the Company uses judgment in the
ultimate determination of that subsidiary's functional currency,
including an assessment of the nature of the relationship between
the Company and the subsidiary. Judgment was applied in the
determination of the functional currency of certain of the
Company's operating entities.
Research and
development
Assumptions are made
in respect to the eligibility of certain research and development
projects in the calculation of SR&ED investment tax credits
which are netted against the research and development costs in the
statement of operations. SR&ED claims are subject to audits by
relevant taxation authorities and the actual amount may change
depending on the outcome of such audits.
Stock-based
compensation
Assumptions and
estimates are used in determining the inputs used in the
Black-Scholes option pricing model, including assumptions regarding
volatility, dividend yield, risk-free interest rates, forfeiture
estimates and expected option lives.
Property and
equipment
Estimates are used
in determining useful economic lives of property and equipment for
the purposes of calculating depreciation.
Deferred income
taxes
Assumptions and estimates are made regarding the amount and
timing of realization and/or settlement of the temporary
differences between the accounting carrying value of the Company's
assets versus the tax basis of those assets, and the tax rates at
which the differences will be recovered or settled in the
future.
NEW ACCOUNTING
STANDARDS AND INTERPRETATIONS ADOPTED:
The Company adopted
the following new standards and interpretations effective as of
April 1, 2013:
IFRS 10 -
Consolidated Financial Statements
Replaces the
guidance in IAS 27 Consolidated and Separate Financial
Statements and SIC-12 Consolidation - Special Purpose
Entities, and provides a single model to be applied in the
control analysis for all investees, including entities that
currently are special purpose entities in the scope of SIC-12. The
Company adopted IFRS 10 in its consolidated financial statements
for the annual period beginning on April 1, 2013. IFRS 10 did not
have a material impact on the consolidated financial
statements.
IFRS 11 - Joint
Arrangements
Replaces the
guidance in IAS 31 Interest in Joint Ventures, and
essentially carves out of previous jointly controlled entities,
those arrangements which although structured through a separate
vehicle, such separation is ineffective and the parties to the
arrangement have rights to the assets and obligations for the
liabilities and are accounted for as joint operations in a fashion
consistent with jointly controlled assets/operations under IAS 31.
In addition, under IFRS 11 joint ventures must now use the equity
method of accounting. The Company adopted IFRS 11 in its
consolidated financial statements for the annual period beginning
on April 1, 2013. IFRS 11 did not have a material impact on the
consolidated financial statements.
IFRS 12 -
Disclosure of Interests in Other Entities
Contains the
disclosure requirements for entities that have interest in
subsidiaries, joint arrangements, associates and/or unconsolidated
structured entities. The Company adopted IFRS 12 in its
consolidated financial statements for the annual period beginning
April 1, 2013. The amendments did not have a material impact on the
consolidated financial statements, because of the nature of the
Company's interests in other entities.
IFRS 13 - Fair
Value Measurement
Replaces the fair
value measurement guidance contained in individual IFRSs with a
single source of fair value measurement guidance. The Company
adopted IFRS 13 prospectively in its consolidated financial
statements for the annual period beginning on April 1, 2013. IFRS
13 did not have a material impact on the consolidated financial
statements.
Amendments to IAS 1
- Presentation of Financial Statements
Require an entity
present separately the items of other comprehensive income that may
be reclassified to profit or loss in the future from those that
would never be reclassified to profit or loss. The Company adopted
the amendments in its consolidated financial statements for the
annual period beginning on April 1, 2013. As the amendments only
require changes in the presentation of items in other comprehensive
income, the amendments to IAS 1 did not have a material impact on
the consolidated financial statements.
Amendments IFRS 7 -
Offsetting Financial Assets and Liabilities
Contain new
disclosure requirements for offsetting financial assets and
liabilities and netting arrangements. The Company adopted the
amendments to IFRS 7 in its consolidated financial statements for
the annual period beginning on April 1, 2013. The amendments did
not have a material impact on the consolidated financial
statements.
ACCOUNTING STANDARDS
AND INTERPRETATIONS ISSUED BUT NOT YET EFFECTIVE
The following
standards and interpretations have not been adopted by the Company
as they apply to future periods:
Standard/Interpretation |
|
Nature of impending change in accounting policy |
|
Impact on CMG's financial statements |
|
|
|
|
|
IFRS 9, Financial Instruments In November 2009 the IASB
issued IFRS 9 Financial Instruments, in October 2010 the
IASB published amendments to IFRS 9 and in November 2013 the IASB
published further amendments to IFRS 9. The mandatory effective
date of IFRS 9 has been left open by the IASB. Earlier application
of IFRS 9 is permitted. |
|
IFRS 9 replaces the guidance in IAS 39 Financial Instruments:
Recognition and Measurement on the classification and
measurement of financial assets. The Standard eliminates the
existing IAS 39 categories of held to maturity, available-for-sale
and loans and receivable. Financial assets will be classified into
one of two categories on initial recognition: - financial assets
measured at amortized cost; or - financial assets measured at fair
value. Gains and losses on remeasurement of financial assets
measured at fair value will be recognized in profit or loss, except
that for an investment in an equity instrument which is not
held-for-trading, IFRS 9 provides, on initial recognition, an
irrevocable election to present all fair value changes from the
investment in other comprehensive income (OCI). The election is
available on an individual share-by-share basis. Amounts presented
in OCI will not be reclassified to profit or loss at a later date.
Under IFRS 9, 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. IFRS 9
incorporates a new hedge accounting standard, aligning hedge
accounting more closely with risk management. |
|
The mandatory effective date of IFRS 9 has been left open by the
IASB. Early application of IFRS is permitted. The Company does not
intend to adopt IFRS 9 in its consolidated financial statements for
the annual period beginning April 1, 2014. The Company does not
expect IFRS 9 to have a material impact on the consolidated
financial statements because of the nature of the Company's
operations an of financial assets that it holds. |
|
|
|
|
|
Amendments to IAS 32, Offsetting Financial Assets and
Liabilities In December 2011, the IASB published Offsetting
Financial Assets and Financial Liabilities and issued new
presentation requirements in IAS 32 Financial Instruments:
Presentation. The effective date for the amendments to IAS 32 is
annual periods beginning on or after January 1, 2014. The
amendments are to be applied retrospectively. |
|
The amendments to IAS 32 clarify that an entity currently has a
legally enforceable right to set-off if that right is: - not
contingent on a future event; and - enforceable both in the normal
course of business and in the event of default, insolvency or
bankruptcy of the entity and all counterparties. The amendments to
IAS 32 also clarify when a settlement mechanism provides for net
settlement or gross settlement that is equivalent to net
settlement. |
|
The Company intends to adopt the amendments to IAS 32 in its
consolidated financial statements for the annual period beginning
April 1, 2014. The Company does not expect the amendments to have a
material impact on the consolidated financial statements. |
|
|
|
|
|
Standard/Interpretation |
|
Nature of impending change in accounting policy |
|
Impact on CMG's financial statements |
|
|
|
|
|
Amendments to IAS 36,Impairment of Assets In May 2013, the
IASB published Recoverable Amount Disclosures for Non-Financial
Assets detailing narrow scope amendments to IAS 36 Impairment of
Assets. The effective date for the amendments to IAS 36 is annual
period beginning on or after January 1, 2014. These amendments are
to be applied retrospectively and earlier adoption is permitted for
periods when IFRS 13 is applied. |
|
These amendments to IAS 36 clarify IASB's original intention to
require: - the disclosure of the recoverable amount of impaired
assets; and - additional disclosures about the measurement of the
recoverable amount of impaired assets when the recoverable amount
is based on fair value less costs of disposal, including the
discount rate when a present value technique is used to measure the
recoverable amount. |
|
The Company intends to adopt the amendments to IAS 36 in its
consolidated financial statements for the annual period beginning
April 1, 2014. The Company does not expect the amendments to have a
material impact on the consolidated financial statements. |
OUTSTANDING SHARE DATA |
|
|
|
The following table represents the number of Common
Shares and options outstanding: |
|
|
As
at May 21, 2014 |
|
(thousands) |
|
Common Shares |
39,278 |
Options |
2,861 |
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 May
21, 2014, CMG could grant up to 3,927,000 stock options.
On May 21, 2014, the Company's Board of Directors approved a
two-for-one stock split of the Company's issued and outstanding
Common Shares. Shareholders of record at the close of business on
June 25, 2014, will receive one additional Common Share for every
Common Share owned. The Company's Common Shares are expected to
commence trading on the Toronto Stock Exchange on a post-split
basis on June 23, 2014. All share data contained in this MD&A
are presented on a pre-split basis.
BUSINESS RISKS
The Company has the
following business risks:
COMMODITY PRICE
RISK
CMG's customers are oil and gas companies and it might,
therefore, be assumed that its financial results are significantly
impacted by commodity prices. CMG's actual experience of growth in
software license revenues during depressed oil price markets makes
us believe that software license sales are influenced more by the
utility of the software as opposed to the prevailing commodity
price but different circumstances could prevail in the future. Low
commodity prices and resulting lower cash flow in the industry
could impact how customers license CMG software; one could expect
sales of perpetual licenses to decrease in favour of leasing
software on a term basis.
Volatility in commodity prices could have an impact on CMG's
consulting business; however, this business segment generates less
than 10% of total revenues and CMG has no current plans to
significantly expand this area of business.
CREDIT AND LIQUIDITY
RISKS
Our product demand is dependent on the customers' overall
spending plans, which are driven by commodity prices and the
availability of capital. This risk is mitigated by having a
diversified customer base with the majority of revenue being
derived from larger entities which are not as affected by the
market volatility or cyclical downturns in commodity prices. In
addition, our diversified geographic profile helps to mitigate the
effects of economic recessions and instability experienced in any
particular geographic region.
The Company
mitigates the collection risk by closely monitoring its accounts
receivable and assessing creditworthiness of its customers. The
Company has not had any significant losses to date.
In terms of liquidity, the Company held $72.4 million of cash at
March 31, 2014, which more than covers its obligations and it has
over $0.8 million of the credit facility available for its use. The
Company's cash is held with a reputable banking institution. For
the described reasons, we believe that our liquidity risk is
low.
SALES VARIABILITY
RISK
CMG's software license revenue consists of annuity/maintenance
software licensing, which is generally for a term of one year or
less, and perpetual software licensing, whereby the customer
purchases the-then-current version of the software and has the
right to use that version in perpetuity. Software licensing under
perpetual sales is a significant part of CMG's business but is more
variable in nature as the purchase decision, and its timing,
fluctuate with clients' needs and budgets. CMG has found that a
number of clients prefer to acquire perpetual software licenses
rather than leasing the software on an annual basis. The experience
over the last few years is that a number of these clients are
purchasing additional licenses to allow more users to access CMG
technology in their operations. CMG has found that a large
percentage of its customers who have acquired perpetual software
licenses are subsequently purchasing maintenance licenses to ensure
they have access to current CMG technology.
The variability in sales of perpetual licenses may cause
significant fluctuations in the Company's quarterly and annual
financial results, and these results may not meet the expectations
of analysts or investors. Accordingly, the Company's past results
may not be a good indication of its future performance.
CMG's customers are
both domestic and international oil and gas companies and for the
years ended March 31, 2014 and March 31, 2013, no customer
represented revenue in excess of 10% of total revenue.
FOREIGN EXCHANGE
RISK
CMG's reported results are affected by the exchange rate between
the Canadian dollar and the US dollar as approximately 72% (2013 –
67%) of product revenues in fiscal 2014 were denominated in US
dollars. Approximately 24% of CMG's total costs in fiscal 2014
(2013 – 23%) were denominated in US dollars and provided a partial
economic hedge against the fluctuation in currency exchange between
the US and the Canadian dollar on revenues. CMG's residual revenues
and costs are primarily denominated in Canadian dollars and its
policy is to convert excess US dollar cash into Canadian dollars
when received.
GEOPOLITICAL
RISKS
CMG sells its
products and services in over 50 countries worldwide, and has
operations in a number of different countries. Some of these
countries have greater economic, political and social risks than
experienced in North America which may adversely affect the
Company's sales, costs and operations in those jurisdictions. Some
of those risks include:
- Currency restrictions and exchange rate fluctuations
- Civil unrest and political instability
- Changes in laws governing existing operations and
contracts
- Changes to taxation policies dramatically increasing tax costs
to the Company
- Economic and legal sanctions
- Non-compliance with applicable anti-corruption and bribery
laws
Any disruption in our ability to complete a sale cycle,
including disruption of travel to customers' locations to provide
training and support, and the cost of reorganizing daily activities
of foreign operations, could have an adverse effect on our
financial condition. CMG mitigates the potential adverse effect on
sales by invoicing for the full license term in advance for the
majority of software license sales and by invoicing as frequently
as the contract allows for consulting and contract research
services. CMG closely monitors the business and regulatory
environments of the countries in which it conducts operations to
minimize the potential impact on costs and operations.
Non-compliance with applicable anti-corruption and bribery laws
could subject the Company to onerous penalties and the costs of
prosecution. CMG has established business practices and internal
controls to minimize the potential occurrence of any irregular
payments. In addition, the Company has established well-defined
anti-corruption and bribery policies and procedures that each
employee and contractor is required to sign indicating their
compliance.
COMPETITION RISK
Competition is a risk for CMG as it is for almost every company
in every sector. The reservoir simulation software industry
currently consists of four major suppliers (including CMG) and a
number of small suppliers. Some of the other suppliers, including
two major suppliers, offer products or oil field services outside
the scope of reservoir simulation. Some potential customers may
prefer to deal with such multi-service suppliers, while others
prefer an independent supplier, such as CMG.
Although competition is very active, CMG believes that its
proven technology and the comprehensive scope of its products,
combined with its international presence and recognition as a major
independent supplier, provide distinct competitive advantages.
Sustaining competitive advantage is another issue, which CMG
addresses by making a significant ongoing commitment to research
and development spending. CMG expended $14.6 million (2013 – $12.5
million) in product research and development in its most recently
completed fiscal year.
The introduction by competitors of products embodying new
technology and the emergence of new industry standards and
practices could render CMG's products obsolete and unmarketable and
could exert price pressures on existing products, which could have
negative effects on the Company's business, operating results and
financial condition.
There is a significant barrier for new entrants into the
reservoir simulation software industry. The cost of entry is
substantial as a significant investment in research and development
is required. In addition, to become a major supplier, a significant
time investment is required to build up quality relationships with
potential clients.
LABOUR RISK
The Company's continued success is substantially dependent on
the performance of its key employees and officers. The loss of the
services of these personnel as well as failure to attract
additional key personnel could have a negative impact upon the
Company's business, operating results and financial condition. Due
to high levels of competition for qualified personnel, there can be
no assurance that the Company will be successful in retaining and
attracting such personnel. The Company attempts to overcome this by
offering an attractive compensation package and providing an
environment that provides the intellectual and professional
stimulation sought by our employee group.
INTELLECTUAL
PROPERTY RISK
CMG regards its software as proprietary and attempts to protect
it with copyrights, trademarks and trade secret measures, including
restrictions on disclosure and technical measures. Despite these
precautions, it may be possible for third parties to copy CMG's
programs or aspects of its trade secrets. CMG has no patents, and
existing legal and technical precautions afford only limited
practical protection. CMG could incur substantial costs in
protecting and enforcing its intellectual property rights.
Moreover, from time to time third parties may assert patent,
trademark, copyright and other intellectual property rights to
technologies that are important to CMG. In such an event, CMG may
be required to incur significant costs in litigating a resolution
to the asserted claim. There can be no assurance that such a
resolution would not require that CMG pay damages or obtain a
license of a third party's proprietary rights in order to continue
licensing its products as currently offered, or, if such a license
is required, that it will be available on terms acceptable to
CMG.
CMG does not know of any infringement of any third party's
patent rights, copyrights, trade secrecy rights or other
intellectual property disputes in the development or support of its
products.
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.
At March 31, 2014, the Chief Executive Officer ("CEO") and the
Chief Financial Officer ("CFO") concluded that the design and
operation of the Company's DC&P were effective and that
material information relating to the Company, including its
subsidiaries, was made known to them and was recorded, processed,
summarized and reported within the time periods specified under
applicable securities legislation. Further, the CEO and the CFO
concluded that the design and operation of the Company's ICFR were
effective at March 31, 2014 in order to provide reasonable
assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in
accordance with IFRS. It should be noted that while the Company's
CEO and CFO believe that the Company's disclosure controls and
procedures and internal controls over financial reporting provide a
reasonable level of assurance that they are effective, they do not
expect that such controls and procedures will prevent all errors
and fraud. A control system, no matter how well conceived or
operated, can provide only reasonable, not absolute, assurance that
the objectives of the control system are met.
During the year ended March 31, 2014, 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.
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.
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 discussed in greater
detail in the "Business Risks" section of this MD&A:
- 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.
This Management's Discussion and Analysis was reviewed and
approved by the Audit Committee and Board of Directors and is
effective as of May 21, 2014.
OUTLOOK
During fiscal 2014,
our annuity and maintenance revenue grew by 5%, compared to the
previous fiscal year, with the most significant growth coming from
the US at 21%. If we were to adjust revenue that we received for a
large contract, for which payments are recognized on a cash basis
and introduce skewing of the results, we would have noticed that
annuity and maintenance revenue actually grew by 12% during fiscal
2014, compared to the previous fiscal year. Despite this
variability of results, we have experienced growth in annuity and
maintenance revenue 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 recurring revenue base.
Although professional services are not the primary source of our
revenue, we were able to grow this business by $2.6 million in
fiscal 2014 as compared to fiscal 2013.
For the year ended
March 31, 2014, our EBITDA represented 52% of our total revenue
which demonstrates our continuous 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.
We strive to invest 20% of our top line towards continuous
improvement of our product features as well as development of new
capabilities in order to maintain our technological distinction and
take advantage of new opportunities. We will continue fostering
value-based, long-term relationships with our customers while
helping them solve problems associated with hydrocarbon recovery,
with an emphasis on the advanced recovery processes, which are
increasing in complexity and where our products continue to gain
increasing importance. With the growth in unconventional
hydrocarbon and enhanced oil recovery ("EOR") projects around the
globe, we are seeing an increase in the use of reservoir simulation
software by reservoir engineers. This growth in simulation use has
been reflected in the number and types of projects being simulated
and the amount of simulation done on each project. More recently,
the North American market is seeing an increased opportunity in
shale gas and liquids which use complex recovery processes that
necessitate the use of simulation. In the Middle East region we are
seeing a shift in focus towards development of unconventional oil
and gas resources, which presents new opportunities for the use of
our software.
One of the
instrumental parts of our success includes training programs which
we offer to our customers to enable them to become more efficient
and effective users of our software. We continue to see strong
class attendance across all the regions.
CMG's joint project to develop the newest generation of dynamic
reservoir modelling systems ("DRMS Project") continued to progress
during the current fiscal year. The most recent version of the
software was released to our partners during the fourth quarter of
fiscal 2014, for the purposes of testing it on selected assets.
This release achieved its target of successfully simulating a
complex integrated asset model. CMG and its partners remain
committed to funding the ongoing development and to the future
success of the project.
The excellent
reputation behind our Company and its product suite offering will
continue to enable us to grow and sustain a healthy market share
while generating solid software license revenue. With our strong
working capital position, we are well positioned to continue to
invest in all aspects of our business in order to continue to grow
and to ultimately return value to our shareholders in the form of
regular quarterly dividend payments and growth in share value.
During fiscal 2014, our total dividends declared and paid increased
by 5%.
|
Kenneth M. Dedeluk |
President and Chief Executive Officer |
May 21, 2014 |
|
COMPUTER MODELLING GROUP LTD. |
|
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION |
|
|
|
|
|
|
(thousands of Canadian $) |
March 31, 2014 |
March 31, 2013 |
|
|
|
Assets |
|
|
Current assets: |
|
|
|
Cash |
72,410 |
59,419 |
|
Trade and other receivables (note 13(a)) |
24,025 |
19,141 |
|
Prepaid expenses |
1,153 |
1,216 |
|
Prepaid income taxes (note 10) |
128 |
341 |
|
97,716 |
80,117 |
Property and equipment (note 4) |
2,552 |
3,304 |
Total assets |
100,268 |
83,421 |
|
|
|
Liabilities and Shareholders' Equity |
|
|
Current liabilities: |
|
|
|
Trade payables and accrued liabilities (note 5) |
5,947 |
6,047 |
|
Income taxes payable (note 10) |
1,287 |
296 |
|
Deferred revenue |
29,531 |
25,289 |
|
36,765 |
31,632 |
Deferred tax liability (note 10) |
335 |
379 |
Total liabilities |
37,100 |
32,011 |
|
|
|
Shareholders' equity: |
|
|
|
Share
capital |
53,750 |
40,498 |
|
Contributed surplus |
5,853 |
4,673 |
|
Retained earnings |
3,565 |
6,239 |
Total shareholders' equity |
63,168 |
51,410 |
Total liabilities and shareholders' equity |
100,268 |
83,421 |
|
|
|
Subsequent events (notes 11(b) and 20) |
|
See accompanying notes to consolidated financial
statements. |
|
|
|
|
Approved by the Board |
|
|
|
|
|
Frank L. Meyer |
Robert F. M. Smith |
Director |
Director |
|
|
COMPUTER MODELLING GROUP LTD. |
|
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
INCOME |
|
|
|
|
Years Ended March 31, |
2014 |
2013 |
(thousands of Canadian $ except per share amounts) |
|
|
|
|
|
Revenue (note 6) |
74,503 |
68,620 |
|
|
|
Operating expenses |
|
|
|
Sales, marketing and professional services |
16,144 |
15,473 |
|
Research and development (note 7) |
14,623 |
12,517 |
|
General and administrative |
6,954 |
6,340 |
|
37,721 |
34,330 |
Operating profit |
36,782 |
34,290 |
|
|
|
Finance income (note 9) |
2,360 |
859 |
Profit before income and other taxes |
39,142 |
35,149 |
Income and other taxes (note 10) |
11,512 |
10,327 |
|
|
|
Net and total comprehensive income |
27,630 |
24,822 |
|
|
|
Earnings Per Share |
|
|
Basic (note 11(e)) |
0.71 |
0.66 |
Diluted (note 11(e)) |
0.70 |
0.64 |
|
|
|
See accompanying notes to consolidated financial
statements. |
|
|
|
|
COMPUTER MODELLING GROUP LTD. |
|
|
|
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY |
|
|
|
|
|
|
Common |
|
Contributed |
|
Retained |
|
Total |
|
(thousands of Canadian $) |
Share Capital |
|
Surplus |
|
Earnings |
|
Equity |
|
|
|
|
|
|
|
|
|
|
Balance, April 1, 2012 |
31,751 |
|
3,535 |
|
10,793 |
|
46,079 |
|
Total comprehensive income for the year |
- |
|
- |
|
24,822 |
|
24,822 |
|
Dividends paid |
- |
|
- |
|
(27,905 |
) |
(27,905 |
) |
Shares issued for cash on exercise of stock options
(note 11(b)) |
7,442 |
|
- |
|
- |
|
7,442 |
|
Common shares buy-back (notes 11(b) & (c)) |
(80 |
) |
- |
|
(1,471 |
) |
(1,551 |
) |
Stock-based compensation: |
|
|
|
|
|
|
|
|
|
Current period expense |
- |
|
2,523 |
|
- |
|
2,523 |
|
|
Stock options exercised |
1,385 |
|
(1,385 |
) |
- |
|
- |
|
Balance, March 31, 2013 |
40,498 |
|
4,673 |
|
6,239 |
|
51,410 |
|
|
|
|
|
|
|
|
|
|
Balance, April 1, 2013 |
40,498 |
|
4,673 |
|
6,239 |
|
51,410 |
|
Total comprehensive income for the year |
- |
|
- |
|
27,630 |
|
27,630 |
|
Dividends paid |
- |
|
- |
|
(30,304 |
) |
(30,304 |
) |
Shares issued for cash on exercise of stock options
(note 11(b)) |
11,274 |
|
- |
|
- |
|
11,274 |
|
Stock-based compensation: |
|
|
|
|
|
|
|
|
|
Current period expense |
- |
|
3,158 |
|
- |
|
3,158 |
|
|
Stock options exercised |
1,978 |
|
(1,978 |
) |
- |
|
- |
|
Balance, March 31, 2014 |
53,750 |
|
5,853 |
|
3,565 |
|
63,168 |
|
See accompanying notes to consolidated financial
statements. |
|
|
|
|
COMPUTER MODELLING GROUP LTD. |
|
|
|
CONSOLIDATED STATEMENTS OF CASH FLOWS |
|
|
|
|
|
|
|
|
Years ended March 31, |
2014 |
|
2013 |
|
(thousands of Canadian $) |
|
|
|
|
|
|
|
|
|
Cash flows from operating activities |
|
|
|
|
|
Net
income |
27,630 |
|
24,822 |
|
Adjustments for: |
|
|
|
|
|
Depreciation (note 4) |
1,591 |
|
1,539 |
|
|
Income and other taxes (note 10) |
11,512 |
|
10,327 |
|
|
Stock-based compensation (note 11(d)) |
3,158 |
|
2,523 |
|
|
Interest income (note 9) |
(644 |
) |
(548 |
) |
|
43,247 |
|
38,663 |
|
Changes in non-cash working capital: |
|
|
|
|
|
Trade
and other receivables |
(4,876 |
) |
(3,643 |
) |
|
Trade
payables and accrued liabilities |
(100 |
) |
689 |
|
|
Prepaid expenses |
63 |
|
(21 |
) |
|
Deferred revenue |
4,242 |
|
3,596 |
|
Cash generated from operating activities |
42,576 |
|
39,284 |
|
|
Interest received |
635 |
|
544 |
|
|
Income taxes paid |
(10,351 |
) |
(11,755 |
) |
Net cash from operating activities |
32,860 |
|
28,073 |
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
Proceeds from issue of common shares |
11,274 |
|
7,442 |
|
Dividends paid |
(30,304 |
) |
(27,905 |
) |
Common shares buy-back (note 11(c)) |
- |
|
(1,551 |
) |
Net cash used in financing activities |
(19,030 |
) |
(22,014 |
) |
|
|
|
|
|
Cash flows used in investing activities |
|
|
|
|
Property and equipment additions (note 4) |
(839 |
) |
(2,014 |
) |
Increase in cash |
12,991 |
|
4,045 |
|
Cash, beginning of year |
59,419 |
|
55,374 |
|
Cash, end of year |
72,410 |
|
59,419 |
|
See accompanying notes to consolidated financial
statements. |
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Years ended March
31, 2014 and 2013.
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 consolidated financial statements as
at and for the year ended March 31, 2014 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 consolidated financial statements have been prepared in
accordance with International Financial Reporting Standards
("IFRS") as issued by the International Accounting Standards Board
("IASB").
These consolidated financial statements as at and for the year
ended March 31, 2014 were authorized for issuance by the Board of
Directors on May 21, 2014.
(b) BASIS OF MEASUREMENT:
The 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 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.
(i) Key judgments in applying accounting policies
The key judgments made in applying accounting policies, apart
from those involving estimations (note 2(d)(ii) below), that have
the most significant effect on the amounts recognized in these
consolidated financial statements are as follows:
Functional currency – the determination of the
functional currency is a matter of determining the primary economic
environment in which an entity operates. IAS 21 – The Effects of
Changes in Foreign Exchange Rates, sets out a number of factors to
apply in making the determination of the functional currency.
However, applying the factors in IAS 21 does not always result in a
clear indication of functional currency. Where IAS 21 factors
indicate differing functional currencies within a subsidiary, the
Company uses judgment in the ultimate determination of that
subsidiary's functional currency, including an assessment of the
nature of the relationship between the Company and the subsidiary.
Judgment was applied in the determination of the functional
currency of certain of the Company's operating entities.
Research and development – assumptions are made in
respect to the eligibility of certain research and development
projects in the calculation of scientific research and experimental
development ("SR&ED") investment tax credits which are netted
against the research and development costs in the statement of
comprehensive income. SR&ED claims are subject to audits by
relevant taxation authorities and the actual amount may change
depending on the outcome of such audits (note 7).
Revenue recognition – certain software license
agreements contain multiple-element arrangements as they may also
include maintenance fees. Judgment is used in determining a fair
value of each element of a contract. Professional services revenue
earned from certain consulting contracts is recognized by the stage
of completion of the transaction determined using the
percentage-of-completion method. Judgment is used in determining
the progress of each contract at period end. In assessing revenue
recognition, judgment is also used in determining the ability to
collect the corresponding account receivable (note 6).
(ii) Estimation uncertainty
The following are the key sources of estimation uncertainty and
key assumptions concerning the future, that have a significant risk
of causing material adjustments to the carrying amount of assets
and liabilities within the next financial year:
Stock-based compensation – assumptions and estimates
are used in determining the inputs used in the Black-Scholes option
pricing model, including assumptions regarding volatility, dividend
yield, risk-free interest rates, forfeiture estimates and expected
option lives (note 11(d)).
Property and equipment – estimates are used in
determining useful economic lives of property and equipment for the
purposes of calculating depreciation (note 4).
Deferred income taxes – assumptions and estimates are
made regarding the amount and timing of realization and/or
settlement of the temporary differences between the accounting
carrying value of the Company's assets versus the tax basis of
those assets, and the tax rates at which the differences will be
recovered or settled in the future (note 10).
3. SIGNIFICANT ACCOUNTING POLICIES:
(a) BASIS OF CONSOLIDATION:
The consolidated financial statements include the accounts of
CMG and its subsidiaries, all 100% owned. All inter-company
transactions and balances have been eliminated on consolidation.
The financial statements of the subsidiaries are prepared for the
same reporting period as the parent company, using consistent
accounting policies.
(b) REVENUE RECOGNITION:
Revenue consists of software license fees and professional
service fees.
Software License Revenue
Software license revenue is comprised 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 licensing fees, whereby the customer purchases
the-then-current version of the software and has the right to use
that version in perpetuity.
Software license revenue is recognized when persuasive evidence
of an arrangement exists, the product has been delivered, the fee
is fixed or determinable, and collection of the resulting
receivable is probable. In cases where collectability is not deemed
probable, revenue is recognized upon receipt of cash, assuming all
other criteria have been met.
Annuity/maintenance revenue is recognized on a straight-line
basis over the life of the related license period, which is
generally one year or less. Revenue for licenses billed in advance
is deferred and recognized in revenue over the relevant license
period.
License fees for perpetual licenses are recognized fully in
revenue when all recognition conditions are satisfied. Software
license agreements with multiple-element arrangements, such as
those including license fees and maintenance fees, are recognized
as separate units of accounting and are recognized as each element
is earned based on the relative fair value of each element. A
delivered element is considered a separate unit of accounting if it
has value to the customer on a standalone basis, and delivery or
performance of the undelivered elements is considered probable and
substantially under the Company's control. If these criteria are
not met, revenue for the arrangement as a whole is accounted for as
a single unit of accounting.
Professional Services Revenue
Revenue from professional services, consisting of consulting,
training and contract research activities, is recorded on a
percentage-of-completion basis or as such services are performed as
appropriate in the circumstances. Percentage-of-completion is used
when the outcome of the contract can be estimated reliably and is
assessed based on work completed as determined by the hours
incurred. When the outcome of the contract cannot be estimated
reliably, the amount of revenue recognized is limited to the cost
incurred in the period.
(c) CASH:
Cash is comprised of interest-earning bank accounts.
(d) PROPERTY AND EQUIPMENT:
Property and equipment are recorded at cost less accumulated
depreciation. Cost includes expenditures that are directly
attributable to the acquisition of the asset.
Depreciation is based on the cost of an asset and is recognized
from the date the item is ready for use in the statement of
comprehensive income using the following annual rates and methods
that are expected to amortize the cost of the property and
equipment over their estimated useful lives:
Computer equipment |
33
1/3% straight-line |
Furniture and equipment |
20%
straight-line |
Leasehold improvements |
Straight-line over the lease term |
Any gain or loss on disposal of an item of property and
equipment (calculated as the difference between the net proceeds
from disposal and the carrying amount of the item) is recognized in
the statement of comprehensive income.
The estimated useful lives and depreciation methods are reviewed
at each fiscal year-end and adjusted if appropriate.
(e) RESEARCH AND DEVELOPMENT COSTS:
All costs of product research and development are expensed to
operations as incurred as the impact of both technological changes
and competition require the Company to continually enhance its
products on an annual basis. Research and development costs are
recorded net of related SR&ED investment tax credits.
(f) JOINT RESEARCH AND DEVELOPMENT COSTS:
The Company participates in a joint project engaged in product
research and development and accordingly records its proportionate
share of costs incurred as research and development costs within
the statement of comprehensive income.
(g) FINANCE INCOME AND FINANCE COSTS:
Finance income comprises interest income earned on the bank
balances and is recognized as it accrues through the statement of
comprehensive income, using the effective interest method.
Foreign currency gains and losses are reported on a net basis as
either finance income or finance cost depending on whether foreign
currency movements are in a net gain or net loss position. Foreign
currency gains and losses are recognized in the period in which
they occur.
(h) FOREIGN CURRENCY TRANSLATION:
Transactions in foreign currencies are translated to Canadian
dollars, the functional currency of the Company, at exchange rates
at the dates of the transactions. Monetary assets and liabilities
denominated in foreign currencies are translated into Canadian
dollars at the rate of exchange prevailing at the reporting date
while non-monetary assets and liabilities that are measured in
terms of historical cost are translated using the exchange rates at
the dates of the transactions.
Revenues and expenses are translated at the rate of exchange in
effect on the transaction dates. Realized and unrealized foreign
exchange gains and losses are included in the statement of
comprehensive income in the period in which they occur.
(i) INCOME TAXES:
Income taxes comprise current and deferred tax.
Current tax is the expected tax payable or receivable based on
taxable profit for the period calculated using tax rates that have
been enacted or substantively enacted at the reporting date, and
includes any adjustments to tax payable in respect of previous
years. Taxable profit differs from profit as reported in the
Consolidated Statement of Operations and Comprehensive Income
because of items that are taxable or deductible in other years and
items that are never taxable and deductible. Prepaid income taxes
and current income taxes payable are offset only when a legally
enforceable right of offset exists and the prepaid income tax and
tax payable arise in the same tax jurisdiction and relate to the
same taxable entity.
Deferred taxes are recognized for temporary differences between
the tax and accounting bases of assets and liabilities and for the
benefit of losses available to be carried forward for tax purposes
to the extent that it is probable that future taxable profits will
be available against which the losses can be utilized. Deferred tax
assets and liabilities are measured using the enacted or
substantively enacted tax rates expected to apply in the years in
which temporary differences are expected to be recovered or
settled. Any change to the net deferred tax assets and liabilities
is included in operations in the period it occurs. Deferred tax
assets and liabilities are offset only when a legally enforceable
right of offset exists and the deferred tax assets and liabilities
arise in the same tax jurisdiction and relate to the same taxable
entity.
In determining the amount of current and deferred tax, the
Company takes into account the impact of uncertain tax positions
and whether additional taxes and interest may be due. The Company
believes that its accruals for tax liabilities are adequate for all
open tax years based on its assessment of many factors, including
interpretations of tax law and prior experience. This assessment
relies on estimates and assumptions and may involve a series of
judgements about future events. New information may become
available that causes the Company to change its judgement regarding
the adequacy of existing tax liabilities; such changes to tax
liabilities will impact tax expense in the period that such a
determination is made.
(j) INVESTMENT TAX CREDITS:
The Company receives federal and provincial investment tax
credits in Canada on qualified scientific research and experimental
development expenditures incurred in each taxation year. Investment
tax credits are recorded as a deduction against related expenses or
capital items provided that reasonable assurance over collection of
the tax credits exists.
(k) EARNINGS PER SHARE:
Basic earnings per share is computed by dividing the net income
by the weighted average number of Common Shares outstanding for the
period. Diluted per share amounts reflect the potential dilution
that could occur if securities or other contracts to issue Common
Shares were exercised or converted to Common Shares. In calculating
the dilutive effect of stock options, it is assumed that proceeds
received from the exercise of in-the- money stock options are used
to repurchase Common Shares at the average market price during the
period.
(l) STOCK-BASED COMPENSATION PLAN:
The Company has a stock-based compensation plan that is
described in note 11(d). The fair value of stock options is
determined using the Black-Scholes valuation model as of the grant
date and is expensed over the vesting period, with a corresponding
increase in equity, based on the Company's estimate of the number
of options that will actually vest. Measurement inputs include the
share price on the measurement date, the exercise price of the
instrument, expected volatility (based on an evaluation of the
Company's historic volatility, particularly over the historic
period commensurate with the expected term), expected term of the
instruments (based on historical experience and general option
holder behaviour), expected dividends, and the risk-free interest
rate (based on government bonds). Service and non-market
performance conditions attached to the transactions are not taken
into account in determining fair value. At the end of each
reporting period, the Company revises its estimates of the number
of options that are expected to vest and recognizes the impact of
any revision in the statement of comprehensive income. When stock
options are exercised, the Company records consideration received,
together with amounts previously recognized in contributed surplus,
as an increase in share capital.
(m) SHORT-TERM EMPLOYEE BENEFITS:
Short-term employee benefit obligations are measured on an
undiscounted basis and are expensed as the related service is
provided. A liability is recognized for the amount expected to be
paid under short-term cash bonus or profit-sharing plans if the
Company has a present legal or constructive obligation to pay this
amount as a result of past service provided by the employee, and
the obligation can be estimated reliably.
(n) FINANCIAL INSTRUMENTS:
(i) Non-derivative financial assets
The Company initially recognizes loans and receivables on the
date that they are originated. All other financial assets are
recognized initially on the trade date at which the Company becomes
a party to the contractual provisions of the instruments. The
Company derecognizes a financial asset when the contractual rights
to the cash flows from the asset expire or it transfers the rights
to receive the contractual cash flows on the financial asset in a
transaction in which substantially all the risks and rewards of
ownership of the financial asset are transferred. The Company
classifies non-derivative financial assets into the following
categories:
Financial assets at fair value through profit or loss
("FVTPL"):
A financial asset is classified in this category if it is either
held for trading or designated as such upon initial
recognition.
It is held for trading if:
- It has been acquired principally for the purpose of selling it
in the near term;
- It is part of the Company's portfolio of financial instruments
that are managed together and have a pattern of short-term profit
taking;
- It is a derivative not designated and effective as a hedging
instrument.
It is classified as FVTPL if:
- It forms part of a contract containing one or more embedded
derivatives;
- It forms part of a group of financial instruments which is
managed and its performance is evaluated on a fair value
basis.
FVTPL are measured initially and subsequently at fair value, and
changes therein are recognized in the statement of comprehensive
income. Transaction costs are recognized in the statement of
comprehensive income as incurred. The Company's only financial
asset belonging to this category is cash.
Loans and receivables:
Loans and receivables are non-derivative financial assets with
fixed or determinable payments that are not quoted in an active
market. The Company's trade and other receivables are classified as
loans and receivables. Trade receivables are recognized initially
at fair value plus any directly attributable transaction costs, and
subsequently measured at amortized cost using the effective
interest rate method less any provision for impairment. The
Company's trade and other receivables are classified as current
assets. The fair value of trade and other receivables is estimated
at the present value of future cash flows, discounted at the market
rate of interest at the reporting date.
(ii) Non-derivative financial liabilities
Financial liabilities at amortized cost include trade payables
and accrued liabilities. Such liabilities are initially recognized
at fair value on the trade date at which the Company becomes a
party to the contractual provisions of the instrument, represented
by the amount required to be paid plus any directly attributable
transaction costs, and subsequently measured at amortized cost
using the effective interest method. Financial liabilities are
classified as current liabilities if payment is due within a year;
otherwise, they are classified as non-current liabilities. The
Company derecognizes a financial liability when its contractual
obligations are discharged, cancelled or expire. The fair value of
non-derivative financial liabilities, which is determined for
disclosure purposes, is calculated based on the present value of
future principal and interest cash flows, discounted at the market
rate of interest at the reporting date.
(iii) Share Capital
Common Shares are classified as equity. Incremental costs
directly attributable to the issue of Common Shares are recognized
as a deduction from equity, net of any tax effects.
(o) IMPAIRMENT:
(i) Receivables
Trade and other receivables are assessed for impairment at each
reporting date at both a specific and collective level. All
individually significant receivables are assessed for specific
impairment. All individually significant receivables found not to
be specifically impaired, together with receivables that are not
individually significant, are collectively assessed for impairment
by grouping together receivables with similar risk characteristics.
In assessing collective impairment, the Company uses historical
trends of the probability of default, the timing of recoveries and
the amount of loss incurred, adjusted for management's judgment as
to whether current economic and credit conditions are such that the
actual losses are likely to be greater or less than suggested by
historical trends. An impairment loss in respect of a financial
asset measured at amortized cost is calculated as the difference
between its carrying amount and the present value of the estimated
future cash flows discounted at the asset's original effective
interest rate. Losses are recognized in the statement of
comprehensive income and reflected in an allowance account against
trade and other receivables. When a subsequent event (such as the
repayment by a debtor) causes the amount of impairment loss to
decrease, the decrease is reversed through the statement of
comprehensive income.
(ii) Non-financial assets
The carrying amounts of the Company's non-financial assets,
other than deferred tax assets, are reviewed at each reporting date
to determine whether there is any indication of impairment. If any
such indication exists, then the asset's recoverable amount is
estimated, and any impairment loss required is recognized in the
statement of comprehensive income. An impairment loss is reversed
only to the extent that the asset's carrying amount does not exceed
the carrying amount that would have been determined, net of
depreciation, if no impairment loss had been recognized.
(p) LEASES:
The Company's only lease commitments relate to its office
premises which are classified as operating leases since they do not
transfer the risks and rewards of ownership to the Company.
Payments made under operating leases are recognized in the
statement of comprehensive income on a straight-line basis over the
term of the lease.
(q) NEW ACCOUNTING STANDARDS AND INTERPRETATIONS ADOPTED:
(i) IFRS 10 - Consolidated Financial
Statements
Replaces the guidance in IAS 27 Consolidated and Separate
Financial Statements and SIC-12 Consolidation – Special
Purpose Entities, and provides a single model to be applied in
the control analysis for all investees, including entities that
currently are special purpose entities in the scope of SIC-12. The
Company adopted IFRS 10 in its consolidated financial statements
for the annual period beginning on April 1, 2013. IFRS 10 did not
have a material impact on the consolidated financial
statements.
(ii) IFRS 11 - Joint Arrangements
Replaces the guidance in IAS 31 Interest in Joint
Ventures, and essentially carves out of previous jointly
controlled entities, those arrangements which although structured
through a separate vehicle, such separation is ineffective and the
parties to the arrangement have rights to the assets and
obligations for the liabilities and are accounted for as joint
operations in a fashion consistent with jointly controlled
assets/operations under IAS 31. In addition, under IFRS 11 joint
ventures must now use the equity method of accounting. The Company
adopted IFRS 11 in its consolidated financial statements for the
annual period beginning on April 1, 2013. IFRS 11 did not have a
material impact on the consolidated financial statements.
(iii) IFRS 12 - Disclosure of Interests in Other
Entities
Contains the disclosure requirements for entities that have
interest in subsidiaries, joint arrangements, associates and/or
unconsolidated structured entities. The Company adopted IFRS 12 in
its consolidated financial statements for the annual period
beginning April 1, 2013. The amendments did not have a material
impact on the consolidated financial statements, because of the
nature of the Company's interests in other entities.
(iv) IFRS 13 - Fair Value Measurement
Replaces the fair value measurement guidance contained in
individual IFRSs with a single source of fair value measurement
guidance. The Company adopted IFRS 13 prospectively in its
consolidated financial statements for the annual period beginning
on April 1, 2013. IFRS 13 did not have a material impact on the
consolidated financial statements.
(v) Amendments to IAS 1 - Presentation of Financial
Statements
Require an entity present separately the items of other
comprehensive income that may be reclassified to profit or loss in
the future from those that would never be reclassified to profit or
loss. The Company adopted the amendments in its consolidated
financial statements for the annual period beginning on April 1,
2013. As the amendments only require changes in the presentation of
items in other comprehensive income, the amendments to IAS 1 did
not have a material impact on the consolidated financial
statements.
(vi) Amendments IFRS 7 - Offsetting Financial
Assets and Liabilities
Contain new disclosure requirements for offsetting financial
assets and liabilities and netting arrangements. The Company
adopted the amendments to IFRS 7 in its consolidated financial
statements for the annual period beginning on April 1, 2013. The
amendments did not have a material impact on the consolidated
financial statements.
(r) ACCOUNTING STANDARDS AND INTERPRETATIONS NOT YET
ADOPTED:
The following is a summary of new standards, amendments to
standards and interpretations not yet effective for the year ended
March 31, 2014, and have not been applied in preparing these
consolidated financial statements:
(i) IFRS 9 - Financial Instruments
Replaces the guidance in IAS 39 Financial Instruments:
Recognition and Measurement, on the classification and
measurement of financial assets and liabilities. The mandatory
effective date of IFRS 9, which supersedes previous versions, has
been left open by the IASB. Early application of IFRS 9 is
permitted. The Company does not intend to adopt IFRS 9 in its
consolidated financial statements for the annual period beginning
April 1, 2014. The Company does not expect IFRS 9 to have a
material impact on the consolidated financial statements because of
the nature of the Company's operations and the types of financial
assets that it holds.
(ii) Amendments to IAS 32 - Offsetting Financial Assets and
Liabilities
Clarify when an entity has a legally enforceable right to
set-off and net versus gross settlement mechanisms. The Company
intends to adopt the amendments to IAS 32 in its consolidated
financial statements for the annual period beginning April 1, 2014.
The Company does not expect the amendments to have a material
impact on the consolidated financial statements.
(iii) Amendments to IAS 36 - Impairment of Assets
Clarify IASB's original intention to require the disclosure of
the recoverable amount of impaired assets as well as additional
disclosures about the measurement of the recoverable amount of
impaired assets. The Company intends to adopt the amendments to IAS
36 in its consolidated financial statements for the annual period
beginning April 1, 2014. The Company does not expect the amendments
to have a material impact on the consolidated financial
statements.
4. PROPERTY AND EQUIPMENT:
Cost |
Computer |
|
Furniture and |
|
Leasehold |
|
|
|
(thousands of $) |
Equipment |
|
Equipment |
|
Improvements |
|
Total |
|
Balance at April 1, 2012 |
4,249 |
|
1,561 |
|
2,246 |
|
8,056 |
|
Additions |
1,419 |
|
126 |
|
469 |
|
2,014 |
|
Disposals |
(269 |
) |
- |
|
- |
|
(269 |
) |
Balance at March 31, 2013 |
5,399 |
|
1,687 |
|
2,715 |
|
9,801 |
|
|
|
|
|
|
|
|
|
|
Balance at April 1, 2013 |
5,399 |
|
1,687 |
|
2,715 |
|
9,801 |
|
Additions |
810 |
|
29 |
|
- |
|
839 |
|
Disposals |
(505 |
) |
(4 |
) |
- |
|
(509 |
) |
Balance at March 31, 2014 |
5,704 |
|
1,712 |
|
2,715 |
|
10,131 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Depreciation |
|
|
|
|
|
|
|
|
(thousands of $) |
|
|
|
|
|
|
|
|
Balance at April 1, 2012 |
(3,252 |
) |
(770 |
) |
(1,205 |
) |
(5,227 |
) |
Depreciation charge for the year |
(851 |
) |
(262 |
) |
(426 |
) |
(1,539 |
) |
Disposals |
269 |
|
- |
|
- |
|
269 |
|
Balance at March 31, 2013 |
(3,834 |
) |
(1,032 |
) |
(1,631 |
) |
(6,497 |
) |
|
|
|
|
|
|
|
|
|
Balance at April 1, 2013 |
(3,834 |
) |
(1,032 |
) |
(1,631 |
) |
(6,497 |
) |
Depreciation charge for the year |
(908 |
) |
(268 |
) |
(415 |
) |
(1,591 |
) |
Disposals |
505 |
|
4 |
|
- |
|
509 |
|
Balance at March 31, 2014 |
(4,237 |
) |
(1,296 |
) |
(2,046 |
) |
(7,579 |
) |
|
|
|
|
|
|
|
|
|
Carrying Amounts |
|
|
|
|
|
|
|
|
At March 31, 2013 |
1,565 |
|
655 |
|
1,084 |
|
3,304 |
|
At March 31, 2014 |
1,467 |
|
416 |
|
669 |
|
2,552 |
|
5. TRADE PAYABLES AND ACCRUED LIABILITIES:
(thousands of $) |
March 31, 2014 |
March 31, 2013 |
Trade
payables |
344 |
518 |
Employee salaries, commissions and benefits payable |
3,503 |
3,574 |
Accrued liabilities and other payables |
2,100 |
1,955 |
|
5,947 |
6,047 |
6. REVENUE:
Years ended March 31, |
2014 |
2013 |
(thousands of $) |
|
|
Software licenses |
66,213 |
62,961 |
Professional services |
8,290 |
5,659 |
|
74,503 |
68,620 |
7. RESEARCH AND DEVELOPMENT COSTS:
Years ended March 31, |
2014 |
|
2013 |
|
(thousands of $) |
|
|
|
|
Research and development |
16,439 |
|
14,364 |
|
SR&ED investment tax credits |
(1,816 |
) |
(1,847 |
) |
|
14,623 |
|
12,517 |
|
8. PERSONNEL EXPENSES:
Years ended March 31, |
2014 |
2013 |
(thousands of $) |
|
|
Salaries, commissions and short-term employee benefits |
26,994 |
24,570 |
Stock-based compensation (note 11(d)) |
3,158 |
2,523 |
|
30,152 |
27,093 |
9. FINANCE INCOME:
Years
ended March 31, |
2014 |
2013 |
(thousands of $) |
|
|
Interest income |
644 |
548 |
Net foreign exchange gain |
1,716 |
311 |
Finance income |
2,360 |
859 |
10. INCOME AND OTHER TAXES:
The major components of income tax expense are as follows:
Years ended March 31, |
2014 |
|
2013 |
(thousands of $) |
|
|
|
Current year income taxes |
10,537 |
|
9,436 |
Adjustment for prior year |
7 |
|
144 |
Current income taxes |
10,544 |
|
9,580 |
|
|
|
|
Deferred tax expense (recovery) |
(44 |
) |
21 |
Foreign withholding and other taxes |
1,012 |
|
726 |
|
11,512 |
|
10,327 |
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:
Years ended March 31, |
2014 |
|
2013 |
|
(thousands of $, unless otherwise stated) |
|
|
|
|
Combined statutory tax rate |
25.00 |
% |
25.00 |
% |
Expected income tax |
9,786 |
|
8,788 |
|
Non-deductible costs |
814 |
|
658 |
|
Effect of tax rates in foreign jurisdictions |
101 |
|
168 |
|
Withholding taxes |
757 |
|
544 |
|
Adjustment for prior year |
7 |
|
144 |
|
Other |
47 |
|
25 |
|
|
11,512 |
|
10,327 |
|
The components of the Company's deferred tax liability are as
follows:
(thousands of $) |
March 31, 2014 |
|
March 31, 2013 |
|
Tax
liability on SR&ED investment tax credits |
(354 |
) |
(362 |
) |
Tax asset (liability) on property and equipment |
19 |
|
(17 |
) |
Net deferred tax liability |
(335 |
) |
(379 |
) |
All movement in
deferred tax assets and liabilities is recognized through net
income of the respective period.
Prepaid income taxes
and current income taxes payable have not been offset as the
amounts relate to income taxes levied by different tax authorities
to different taxable entities.
11. SHARE CAPITAL:
(a) AUTHORIZED:
An unlimited number of Common Shares, an unlimited number of
Non-Voting Shares, and an unlimited number of Preferred Shares,
issuable in series.
(b) ISSUED:
(thousands of shares) |
Common Shares |
|
Balance, April 1, 2012 |
37,307 |
|
Issued for cash on exercise of stock options |
913 |
|
Common shares buy-back |
(91 |
) |
Balance, March 31, 2013 |
38,129 |
|
|
|
|
Balance, April 1, 2013 |
38,129 |
|
Issued for cash on exercise of stock options |
1,081 |
|
Balance, March 31, 2014 |
39,210 |
|
Subsequent to March
31, 2014, 69,000 stock options were exercised for cash proceeds of
$652,000.
On May 23, 2012, the Board of Directors considered the merits of
renewing the Company's shareholder rights plan on or before the
third-year anniversary of shareholder approval of the plan and
determined that it was in the best interest of the Company to
continue to have a shareholder rights plan in place. Upon careful
review, the Board of Directors agreed to approve an amended and
restated rights plan (the "Amended and Restated Rights Plan")
between the Company and Valiant Trust Company, which is similar in
all respects to the existing shareholder rights plan, with the
exception of certain minor amendments. The Amended and Restated
Rights Plan was approved by the Company's shareholders on July 12,
2012.
(c) COMMON SHARES BUY-BACK:
On April 16, 2012, the Company announced a Normal Course Issuer
Bid ("NCIB") commencing on April 18, 2012 to purchase for
cancellation up to 3,416,000 of its Common Shares. During the year
ended March 31, 2013, a total of 91,000 Common Shares were
purchased at market price for a total cost of $1,551,000.
On April 29, 2013, the Company announced a NCIB commencing on
May 1, 2013 to purchase for cancellation up to 3,538,000 of its
Common Shares. During the year ended March 31, 2014, no Common
Shares were purchased.
On May 5, 2014, the Company announced a NCIB commencing on May
5, 2014 to purchase for cancellation up to 3,720,000 of its Common
Shares.
(d) STOCK-BASED COMPENSATION PLAN:
The Company adopted a rolling stock option plan as of July 13,
2005, which was reaffirmed by the Company's shareholders on July 7,
2011, which allows it to grant options to acquire Common Shares of
up to 10% of the outstanding Common Shares at the date of grant.
Based upon this calculation, at March 31, 2014, the Company could
grant up to 3,921,000 stock options. Pursuant to the stock option
plan, the maximum term of an option granted cannot exceed five
years from the date of grant. The outstanding stock options vest as
to 50% after the first year anniversary, from date of grant, and
then vest as to 25% of the total options granted after each of the
second and third year anniversary dates.
The following table outlines changes in stock options:
Years ended March 31, |
|
|
2014 |
|
|
2013 |
(thousands except per share amounts) |
|
|
|
|
|
Weighted |
|
|
Weighted |
|
|
|
Average |
|
|
Average |
|
Options |
|
Exercise Price |
Options |
|
Exercise Price |
|
Granted |
|
($/share) |
Granted |
|
($/share) |
Outstanding at beginning of year |
2,938 |
|
13.13 |
2,903 |
|
9.85 |
Granted |
1,164 |
|
24.45 |
1,006 |
|
18.19 |
Exercised |
(1,081 |
) |
10.41 |
(913 |
) |
8.15 |
Forfeited |
(92 |
) |
16.98 |
(58 |
) |
15.09 |
Outstanding at end of year |
2,929 |
|
18.50 |
2,938 |
|
13.13 |
Options exercisable at end of year |
1,083 |
|
13.44 |
1,207 |
|
9.75 |
The range of exercise prices of stock options outstanding and
exercisable at March 31, 2014 is as follows:
|
|
|
|
|
Outstanding |
|
|
|
Exercisable |
|
Exercise Price ($/option) |
Number of Options (thousands |
) |
Weighted Average Remaining
Contractual Life (years |
) |
Weighted Average Exercise Price
($/option |
) |
Number of Options (thousands |
) |
Weighted Average Exercise Price
($/option |
) |
7.80 - 9.07 |
355 |
|
1.1 |
|
8.79 |
|
355 |
|
8.79 |
|
9.08 - 13.43 |
606 |
|
2.4 |
|
13.34 |
|
372 |
|
13.38 |
|
13.44 - 18.18 |
814 |
|
3.4 |
|
18.13 |
|
355 |
|
18.12 |
|
18.19 - 29.15 |
1,154 |
|
4.4 |
|
24.44 |
|
1 |
|
21.75 |
|
|
2,929 |
|
3.3 |
|
18.50 |
|
1,083 |
|
13.44 |
|
The fair value of stock options granted was estimated using the
Black-Scholes option pricing model under the following
assumptions:
Years ended March 31, |
2014 |
2013 |
Fair
value at grant date ($/option) |
3.06 to 4.94 |
2.45 to 3.83 |
Share
price at grant date ($/share) |
24.40 to 29.15 |
17.90 to 21.75 |
Risk-free interest rate (%) |
1.21 to 1.64 |
1.13 to 1.33 |
Estimated hold period prior to exercise (years) |
2
to 4 |
2
to 4 |
Volatility in the price of common shares (%) |
26 to 28 |
27 to 36 |
Dividend yield per common share (%) |
2.78 to 3.21 |
3.39 to 4.12 |
The Company
recognized total stock-based compensation expense for the year
ended March 31, 2014 of $3,158,000 (2013 - $2,523,000).
(e) EARNINGS PER SHARE:
The following table summarizes the earnings and weighted average
number of Common Shares used in calculating basic and diluted
earnings per share:
Years ended March 31, |
|
|
2014 |
|
|
2013 |
(thousands except per share amounts) |
|
|
|
|
|
|
Earnings ($) |
Weighted Average Shares Outstanding |
Earnings Per Share ($/share) |
Earnings ($) |
Weighted Average Shares Outstanding |
Earnings Per Share ($/share) |
Basic |
27,630 |
38,733 |
0.71 |
24,822 |
37,643 |
0.66 |
Dilutive effect of stock options |
|
966 |
|
|
1,143 |
|
Diluted |
27,630 |
39,699 |
0.70 |
24,822 |
38,786 |
0.64 |
During the year
ended March 31, 2014, 108,000 options (2013 - 65,000) were excluded
from the computation of the weighted-average number of diluted
shares outstanding because their effect was not dilutive.
12. CAPITAL MANAGEMENT:
The Company's objectives in managing capital are to ensure
sufficient liquidity to pursue its strategy of organic growth
combined with strategic acquisitions and to maximize the return to
its shareholders. The capital structure of the Company consists of
cash, credit facilities and shareholders' equity. The Company does
not have any externally imposed capital requirements and does not
presently utilize any quantitative measures to monitor its
capital.
The Company's policy is to pay quarterly dividends based on the
Company's overall financial performance and cash flow generation.
Decisions on dividend payments are made on a quarterly basis by the
Board of Directors. There can be no assurance as to the amount or
payment of such dividends in the future.
Since November 2002, the Company embarked on a series of normal
course issuer bids to buy back its shares. Reference is made to
note 11(c).
The Company makes adjustments to its capital structure in light
of general economic conditions and the Company's working capital
requirements. In order to maintain or adjust its capital structure,
the Company, upon approval from its Board of Directors, may pay
dividends, buy back shares or undertake other activities as deemed
appropriate under the specific circumstances. The Board of
Directors reviews and approves any material transactions not in the
ordinary course of business.
13. FINANCIAL
INSTRUMENTS AND RISK MANAGEMENT:
(i) Classification of financial instruments
|
Classification |
Measurement |
Cash |
Held
for trading |
Fair
value |
Trade and other receivables |
Loans and receivables |
Amortized cost |
Trade payables and accrued liabilities |
Other financial liabilities |
Amortized cost |
(ii) Fair values of financial instruments
The carrying values of cash, trade and other receivables, trade
payables and accrued liabilities approximate their fair values due
to the short-term nature of these instruments.
OVERVIEW:
The Company is exposed to risks of varying degrees of
significance and likelihood which could affect its ability to
achieve its strategic objectives for growth. The main objectives of
the Company's risk management process are to ensure that risks are
properly identified and that the capital base is adequate in
relation to those risks. The principal financial risks to which the
Company is exposed are described below:
(a) CREDIT RISK:
Credit risk is the
risk of an unexpected loss if a customer or third party to a
financial instrument fails to meet its contractual obligation and
arises principally from the Company's trade and other receivables.
The amounts reported in the statements of financial position for
trade receivables are net of allowances for bad debts, estimated by
the Company's management based on prior experience and their
assessment of the current economic environment
The Company's trade receivables consist primarily of balances
from customers operating in the oil and gas industry, both
domestically and internationally, as the Company sells its products
and services in over 50 countries worldwide. Some of these
countries have greater economic and political risk than experienced
in North America and as a result there may be greater risk
associated with sales in those jurisdictions. The Company manages
this risk by invoicing for the full license term in advance for the
majority of software license sales and by invoicing as frequently
as the contract allows for consulting and contract research
services. In cases where collectability is not deemed probable,
revenue is recognized upon receipt of cash, assuming all other
criteria have been met. Historically, the Company has not
experienced any significant losses related to individual customers
or groups of customers in any particular geographic area;
therefore, no allowance for doubtful accounts has been established
at March 31, 2014 and 2013.
As at March 31,
2014, the Company has a concentration of credit risk with 13
domestic and international customers who represent 73% of trade
receivables (2013 - 12 customers; 72%).
The carrying amount
of trade and other receivables represents the maximum credit
exposure. The maximum exposure to credit risk at March 31, 2014 was
$24.0 million (2013 - $19.1 million). The aging of trade and other
receivables at the reporting date was:
(thousands of $) |
March 31, 2014 |
March 31, 2013 |
Current |
11,204 |
10,621 |
31-60
days |
8,445 |
4,798 |
61-90
days |
2,801 |
2,493 |
Over 90 days |
1,575 |
1,229 |
Balance, end of year |
24,025 |
19,141 |
The Company assesses
the creditworthiness of its customers on an ongoing basis and it
regularly monitors the amount and age of balances outstanding.
Payment terms with customers are 30 days from invoice date;
however, industry practice can extend these terms. Accordingly, the
Company views the credit risks on these amounts as normal for the
industry.
The Company
minimizes the credit risk of cash by depositing only with a
reputable financial institution in highly liquid interest-bearing
cash accounts.
(b) MARKET RISK:
Market risk is the risk that changes in market prices of the
foreign exchange rates and interest rates will affect the Company's
income or the value of its financial instruments.
(i) Foreign Exchange Risk
The Company operates internationally and primarily prices its
products in either the Canadian or US dollar. This gives rise to
exposure to market risks from changes in the foreign exchange rates
between the Canadian and US dollar. Approximately 72% (2013 – 67%)
of the Company's revenues for the year ended March 31, 2014 were
denominated in US dollars and at March 31, 2014, the Company had
approximately $16.7 million (2013 - $16.8 million) of its working
capital denominated in US dollars. The Company currently does not
use derivative instruments to hedge its exposure to those risks but
as approximately 24% (2013 – 23%) of the Company's total costs are
also denominated in US dollars they provide a partial economic
hedge against the fluctuation in this currency exchange. In
addition, the Company manages levels of foreign currency held by
converting excess US dollars into Canadian dollars at spot
rates.
The Company's operations are exposed to currency risk on US
denominated financial assets and liabilities with fluctuations in
the rate recognized as foreign exchange gains or losses in the
Consolidated Statements of Operations and Comprehensive Income. It
is estimated that a one cent change in the US dollar would result
in a net change of approximately $125,000 to equity and net income
for the year ended March 31, 2014. A weaker US dollar with respect
to the Canadian dollar will result in a negative impact while the
reverse would result from a stronger US dollar.
(ii) Interest Rate Risk
The Company has significant cash balances and no
interest-bearing debt. The Company's current policy is to invest
excess cash in interest-bearing deposits and/or guaranteed
investment certificates issued by its principal banker. The Company
is exposed to interest cash flow risk from changes in interest
rates on its cash balances. Based on the March 31, 2014 cash
balance, each 1% change in the interest rate on the Company's cash
balance would change equity and net income for the year ended March
31, 2014 by approximately $543,000.
(c) LIQUIDITY RISK:
Liquidity risk is the risk that the Company is not able to meet
its financial obligations as they fall due or can do so only at
excessive cost. The Company manages liquidity risk through the
management of its capital structure as outlined in note 12. The
Company's growth is financed through a combination of the cash
flows from operations and its cash balances on hand. Given the
Company's available liquid resources as compared to the timing of
the payments of its liabilities, management assesses the Company's
liquidity risk to be low. The Company monitors its expenditures by
preparing annual budgets which are updated periodically. At March
31, 2014, the Company has significant cash balances in excess of
its obligations and over $800,000 of the line of credit (note 15)
available for its use.
14. 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
simulations software. The project has been underway since 2006 and,
with the ongoing support of the participants, it is expected to
continue until ultimate delivery of the software. The Company's
share of costs associated with the project is estimated to be $5.9
million ($3.1 million net of overhead recoveries) for fiscal
2015.
(b) LEASE
COMMITMENTS:
The Company has
operating lease commitments relating to its office premises with
the minimum annual lease payments as follows:
Years ended March 31, |
2014 |
2013 |
(thousands of $) |
|
|
Less
than one year |
2,189 |
2,059 |
Between one and five years |
3,817 |
5,083 |
|
6,006 |
7,142 |
The Company leases a
number of properties under operating leases. During the year ended
March 31, 2014, $2.3 million (2013 - $2.1 million) was recognized
as an expense in the statement of comprehensive income in respect
of operating leases related to office premises.
15. 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 March 31, 2014, US $165,000 (2013 - US $165,000) had
been reserved on this line of credit for the letter of credit
supporting a performance bond.
16. 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 |
|
Years ended March 31, |
As at March 31, |
|
2014 |
2013 |
2014 |
2013 |
|
|
|
|
|
Canada |
26,690 |
26,573 |
2,364 |
3,132 |
United States |
15,276 |
12,105 |
53 |
53 |
South
America |
12,763 |
12,262 |
76 |
62 |
Eastern Hemisphere(1) |
19,774 |
17,680 |
59 |
57 |
|
74,503 |
68,620 |
2,552 |
3,304 |
(1) Includes Europe, Africa, Asia and Australia. |
No customer represented 10% or more of total revenue in the
years ended March 31, 2014 and 2013.
17.
SUBSIDIARIES:
CMG is the beneficial owner of the entire issued share capital
and controls all the votes of its subsidiaries. The principal
activities of all the subsidiaries are the sale and support for the
use of CMG's software licenses. Transactions between subsidiaries
are eliminated on consolidation. The following is the list of CMG's
subsidiaries:
Subsidiary |
Country of Incorporation |
Computer Modelling Group Inc. |
United States |
CMG
Venezuela |
Venezuela |
CMG
Middle East FZ LLC |
Dubai, United Arab Emirates |
CMG (Europe) Limited |
United Kingdom |
18. JOINT
OPERATION:
The Company is the
operator of a joint software development project, the DRMS project,
which gives the Company exclusive rights to commercialize the
jointly developed software while the other partners will have
unlimited software access for their internal use. Accordingly, the
Company records its proportionate share of costs incurred on the
project (37.04%) as research and development costs within the
consolidated statements of operations and comprehensive income.
For the year ended
March 31, 2014, CMG included $4.8 million (2013 - $3.9 million) of
costs in its 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 $2.4 million during the year
ended March 31, 2014 (2013 - $1.9 million).
19. RELATED
PARTIES:
(a) INTERCOMPANY
TRANSACTIONS:
The Company has four
wholly owned subsidiaries (note 17) which have intercompany
transactions under the normal course of operations and are
eliminated upon consolidation.
(b) KEY MANAGEMENT
PERSONNEL COMPENSATION:
The key management personnel of the Company are the members of
the Company's executive management team and Board of Directors, and
control approximately 5.3% of the outstanding shares of CMG at
March 31, 2014.
In addition to their salaries and director fees, as applicable,
directors and executive officers also participate in the Company's
stock option plan (note 11(d)), which is available to almost all
employees of the Company.
Key management personnel compensation comprised the
following:
Years ended March 31, |
2014 |
2013 |
(thousands of $) |
|
|
Salaries, bonus and employee benefits |
3,707 |
3,694 |
Stock-based compensation |
870 |
724 |
|
4,577 |
4,418 |
20. SUBSEQUENT
EVENTS:
On May 21, 2014, the
Board of Directors declared a quarterly cash dividend of $0.20 per
share on its Common Shares, payable on June 13, 2014, to all
shareholders of record at the close of business on June 6,
2014.
On May 21, 2014, the Company's Board of Directors approved a
two-for-one stock split of the Company's issued and outstanding
Common Shares. Shareholders of record at the close of business on
June 25, 2014 will receive one additional Common Share for every
Common Share owned. The Company's Common Shares are expected to
commence trading on the Toronto Stock Exchange on a post-split
basis on June 23, 2014. All share data contained in these
consolidated financial statements and notes are presented on a
pre-split basis.
Computer Modelling Group Ltd.Kenneth M. DedelukPresident &
CEO(403) 531-1300ken.dedeluk@cmgl.caComputer Modelling Group
Ltd.Sandra BalicVice President, Finance & CFO(403)
531-1300sandra.balic@cmgl.cawww.cmgl.ca
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