CMG Computer Modelling Group Ltd

Computer Modelling Group Ltd. (“CMG Group” or the “Company”) announces its financial results for the three months ended June 30, 2024, and the approval by its Board of Directors (the “Board”) of the payment of a cash dividend of $0.05 per Common Share for the first quarter ended June 30, 2024.

FIRST QUARTER 2025 CONSOLIDATED HIGHLIGHTS

Select financial highlights

• Generated total revenue of $30.5 million in the first quarter of fiscal 2025, compared to $20.7 million in the prior year’s quarter, reflecting a 12% increase in CMG’s revenue and a 35% contribution from BHV;
• Operating profit decreased to $5.7 million, a decrease of 42% from the same period of the previous fiscal year, primarily due to an increase in stock-based compensation in the quarter as a result of the increase in share price. Adjusted operating profit decreased by 5% from the same period of the previous fiscal year, with CMG contributing to 3% and BHV contributing to 2% of the decrease;
• Adjusted EBITDA Margin was 31%, compared to 48% in the same period of the previous fiscal year with CMG generating 42% and BHV generating (4%) in Adjusted EBITDA Margin;
• Net income during the period was $4.0 million, a 43% decrease compared to the prior year’s quarter;
• Earnings per share was $0.05, a 44% decrease compared to the prior year’s quarter;
• Reported Free Cash Flow of $0.07 per share, a decrease of 22%, primarily due to BHV generating negative cash flows.

MANAGEMENT COMMENTARY

First Quarter

In the first quarter, total revenue grew by 47% from the prior fiscal year to $30.5 million, reflecting the acquisition of Bluware (“BHV”) which contributed 35%, and growth within the CMG operating segment of 12%. Adjusted EBITDA Margin was 31% compared to 48% in the prior year period reflecting the acquisition of BHV which currently operates at a lower margin than CMG and a modest decline in Adjusted EBITDA in the CMG operating segment, discussed below. Net income for the quarter declined to $4.0 million from $6.9 million in the prior year period, significantly impacted by an increase in stock-based compensation expense driven by the share price increase. Free Cash Flow declined from $0.09 per share in the prior period to $0.07 per share, impacted by the lower Free Cash Flow generation at BHV resulting from seasonality associated with revenue recognition. At June 30, 2024, the cash balance was $69.1 million. In the first quarter, our effective tax rate increased due to a prior year tax adjustment relating to the acquisition of BHV.

The CMG operating segment delivered solid total revenue growth with a 12% increase in total revenue, comprised of a 14% increase in software revenue while professional services revenue remained constant. Growth was underpinned by the US and Eastern Hemisphere regions and included an increase in usage attributable to energy transition, which, as a percentage of CMG software revenue, was 28% for the first quarter. Operating profit in the first quarter declined by $3.6 million, or 37%, from the prior year period driven materially by an increase in stock-based compensation of $2.8 million as a result of the increase in share price and increased amortization on acquired IP of $0.5 million. The remaining decrease compared to the prior year period relates to direct employee expenses as we increased compensation, both salaries and bonuses, and headcount, across all departments to support our growth. Sequentially from Q4 2024, expenses, adjusted for stock-based compensation and amortization on acquired IP, declined slightly. CMG operating segment Adjusted EBITDA Margin in the quarter decreased to 42% from 48% in the prior fiscal year, due primarily to higher expenses described above, but represented a sequential increase from 40% in the fourth quarter of 2024. We anticipate that the CMG operating segment can achieve low double digit total revenue growth on an annual basis while maintaining Adjusted EBITDA margins in the mid-40% range.

Subsequent to the end of the quarter, Sheldon Harbinson, VP Americas, has transitioned out of the organization. The sales organization is now structured with regional sales directors reporting into Dave Montana, VP Global Sales, who joined the organization on May 28, 2024.

In the BHV operating segment, as expected, software license revenue of $1.8 million in the first quarter was down sequentially from the fourth quarter of this fiscal year. This is largely due to lower annuity license fee revenue, which depends on the timing of both contract renewals, which are currently weighted to the third and fourth quarters, and the addition of new contracts. Professional services revenue also experienced a modest sequential decline which is not unexpected as activity levels can fluctuate in the consulting practice. This combination of factors impacted Adjusted EBITDA and Adjusted EBITDA Margin for the quarter, which declined to ($0.3 million), or (4%), from $0.9 million, or 10%, in the fourth quarter of last year. We anticipate that given the fluctuations in revenue recognition, Adjusted EBITDA will be lowest in Q1 and Q2 of each year and would encourage shareholders to evaluate the BHV operating segment profitability on a full-year basis.

SUMMARY OF FINANCIAL PERFORMANCE

	CMG		BHV		Consolidated
Three months ended June 30,($ thousands, except per share data)	2024	2023	2024	2023	2024	2023
Annuity/maintenance licenses	17,757	15,607	1,578	-	19,335	15,607
Annuity license fee	-	-	178	-	178	-
Perpetual licenses	2,110	1,849	-	-	2,110	1,849
Total software license revenue	19,867	17,456	1,756	-	21,623	17,456
Professional services	3,280	3,292	5,620	-	8,900	3,292
Total revenue	23,147	20,748	7,376	-	30,523	20,748
Total revenue growth	12%	29%			47%	29%
Annuity/maintenance licenses growth	14%	15%			24%	15%
Cost of revenue	2,620	1,905	3,572	-	6,192	1,905
Operating expenses
Sales & marketing	4,141	2,355	790	-	4,931	2,355
Research and development	6,051	4,052	2,194	-	8,245	4,052
General & administrative	4,144	2,672	1,345	-	5,489	2,672
Operating expenses	14,336	9,079	4,329	-	18,665	9,079
Operating profit	6,191	9,764	(525)	-	5,666	9,764
Operating Margin	27%	47%	(7%)	-%	19%	47%
Acquisition related expenses	-	-	188	-	188	-
Amortization of acquired intangible assets	575	57	90	-	665	57
Stock-based compensation	2,906	104	-	-	2,906	104
Adjusted operating profit (1)	9,672	9,925	(247)	-	9,425	9,925
Adjusted Operating Margin (1)	42%	48%	(3%)	-%	31%	48%
Net income (loss)	5,365	6,904	(1,401)	-	3,964	6,904
Adjusted EBITDA (1)	9,702	9,948	(265)	-	9,437	9,948
Adjusted EBITDA Margin(1)	42%	48%	(4%)	-%	31%	48%
Earnings per share – basic					0.05	0.09
Free Cash Flow per share – basic(1)					0.07	0.09

(1) Non-IFRS financial measures are defined in the “Non-IFRS Financial Measures” section.

Q1 2025 Dividend

Computer Modelling Group’s Board approved a cash dividend of $0.05 per Common Share. The dividend will be paid on September 13, 2024, to shareholders of record at the close of business on September 5, 2024.

All dividends paid by Computer Modelling Group Ltd. to holders of Common Shares in the capital of the Company will be treated as eligible dividends within the meaning of such term in section 89(1) of the Income Tax Act (Canada), unless otherwise indicated.

NON-IFRS FINANCIAL MEASURES AND RECONCILIATION OF NON-IFRS MEASURES

Free Cash Flow Reconciliation to Funds Flow from Operations

Free cash flow is a non-IFRS financial measure that is calculated as funds flow from operations less capital expenditures and repayment of lease liabilities. Free Cash Flow per share is calculated by dividing free cash flow by the number of weighted average outstanding shares during the period. Management believes that this measure provides useful supplemental information about operating performance and liquidity, as it represents cash generated during the period, regardless of the timing of collection of receivables and payment of payables, which may reduce comparability between periods. Management uses free cash flow and free cash flow per share to help measure the capacity of the Company to pay dividends and invest in business growth opportunities.

	Fiscal 2023			Fiscal 2024			Fiscal 2025
($ thousands, unless otherwise stated)	Q2	Q3	Q4	Q1	Q2	Q3	Q4	Q1
Funds flow from operations	4,974	8,169	7,656	7,920	11,491	8,477	10,367	6,515
Capital expenditures(1)	(130)	(211)	(1,707)	(45)	(51)	(459)	(95)	(93)
Repayment of lease liabilities	(339)	(413)	(553)	(412)	(412)	(728)	(803)	(743)
Free Cash Flow	4,505	7,545	5,396	7,463	11,028	7,290	9,469	5,679
Weighted average shares – basic (thousands)	80,412	80,511	80,603	80,685	80,834	81,067	81,314	81,476
Free Cash Flow per share – basic	0.06	0.09	0.07	0.09	0.14	0.09	0.12	0.07

(1) Capital expenditures include cash consideration for USI acquisition in Q4 2023.

Free Cash Flow per share has decreased by 22% for the three months ended June 30, 2024, from the same period of the previous fiscal year. The decrease in Free Cash Flow is primarily a result of negative cash flow generated in the BHV segment, which primarily relates to reduced net income in the period due to revenue recognition being skewed towards the third and fourth quarters of the fiscal year. Additionally, the repayment of lease liabilities has increased compared to the prior year comparative quarter as a result of the acquisition of BHV resulting in a further decrease in free cash flow for the three months ended June 30, 2024, compared to the same period of the previous fiscal year.

Adjusted EBITDA and Adjusted EBITDA Margin

	CMG		BHV		Consolidated
Three months ended June 30,($ thousands)	2024	2023	2024	2023	2024	2023
Net income (loss)	5,365	6,904	(1,401)	-	3,964	6,904
Add (deduct):
Depreciation and amortization	1,498	961	385	-	1,883	961
Stock-based compensation	2,906	104	-	-	2,906	104
Acquisition related expenses	-	-	188	-	188	-
Gain on contingent consideration	(199)	-	-	-	(199)	-
Income and other tax expense	1,614	2,244	874	-	2,488	2,244
Interest income	(780)	(760)	(98)	-	(878)	(760)
Foreign exchange loss (gain)	(255)	907	83	-	(172)	907
Repayment of lease liabilities	(447)	(412)	(296)	-	(743)	(412)
Adjusted EBITDA (1)	9,702	9,948	(265)	-	9,437	9,948
Adjusted EBITDA Margin (1)	42%	48%	(4%)	-%	31%	48%

(1) This is a non-IFRS financial measure. Refer to definition of the measures above.

Adjusted EBITDA Margin for the three months ended June 30, 2024, was 31%, representing Adjusted EBITDA decrease of 5% from the same period of the previous fiscal year.

CMG’s Adjusted EBITDA Margin is 42% for the three months ended June 30, 2024, compared to 48% in the prior year comparative quarter, primarily due to an increase in operating expenses as a result of an increase in headcount and headcount related costs and other corporate costs. Refer to the “Operating Expenses” section of the MD&A for further detail on the increase in operating expenses by category.

BHV’s Adjusted EBITDA Margin is (4%) for the three months ended June 30, 2024. Contract renewals at BHV typically occur in the third and fourth quarters, resulting in and as expected. Adjusted EBITDA fluctuation on a quarterly basis. As a result of annuity license fee revenue recognition being skewed towards the last two quarters of the fiscal year, Adjusted EBITDA is expected to be lower in the first and second quarters of the fiscal year.

Condensed Consolidated Statements of Financial Position

UNAUDITED (thousands of Canadian $)	June 30, 2024	March 31, 2024	April 1, 2023
Assets
Current assets:
Cash	69,092	63,083	66,850
Restricted cash	251	142	-
Trade and other receivables	22,739	36,550	23,910
Prepaid expenses	2,287	2,321	1,060
Prepaid income taxes	3,174	3,841	444
	97,543	105,937	92,264
Intangible assets	23,018	23,683	1,321
Right-of-use assets	29,615	29,072	30,733
Property and equipment	9,621	9,877	10,366
Goodwill	4,467	4,399	-
Deferred tax asset	-	-	2,444
Total assets	164,264	172,968	137,128
Liabilities and shareholders’ equity
Current liabilities:
Trade payables and accrued liabilities	15,471	18,551	11,126
Income taxes payable	2,740	2,136	33
Acquisition holdback payable	2,315	2,292	-
Deferred revenue	30,890	41,120	34,797
Lease liabilities	2,486	2,566	1,829
	53,902	66,665	47,785
Lease liabilities	35,178	34,395	36,151
Stock-based compensation liabilities	1,068	624	742
Acquisition earnout	1,320	1,503	-
Other long-term liabilities	359	305	-
Deferred tax liabilities	1,068	1,661	-
Total liabilities	92,895	105,153	84,678
Shareholders’ equity:
Share capital	90,193	87,304	81,820
Contributed surplus	15,545	15,667	15,471
Cumulative translation adjustment	532	(367)	-
Deficit	(34,901)	(34,789)	(44,841)
Total shareholders’ equity	71,369	67,815	52,450
Total liabilities and shareholders' equity	164,264	172,968	137,128

Condensed Consolidated Statements of Operations and Comprehensive Income

Three months ended June 30,UNAUDITED (thousands of Canadian $ except per share amounts)	2024	2023
Revenue	30,523	20,748
Cost of revenue	6,192	1,905
Gross profit	24,331	18,843
Operating expenses
Sales and marketing	4,931	2,355
Research and development	8,245	4,052
General and administrative	5,489	2,672
	18,665	9,079
Operating profit	5,666	9,764
Finance income	1,050	760
Finance costs	(463)	(1,376)
Change in fair value of contingent consideration	199	-
Profit before income and other taxes	6,452	9,148
Income and other taxes	2,488	2,244
Net income	3,964	6,904
Other comprehensive income:
Foreign currency translation adjustment	899	-
Other comprehensive income	899	-
Total comprehensive income	4,863	6,904
Net income per share – basic	0.05	0.09
Net income per share – diluted	0.05	0.08
Dividend per share	0.05	0.05

Condensed Consolidated Statements of Cash Flows

Three months ended June 30,UNAUDITED (thousands of Canadian $)	2024	2023
Operating activities
Net income	3,964	6,904
Adjustments for:
Depreciation and amortization of property, equipment, right-of use assets	1,218	904
Amortization of intangible assets	665	57
Deferred income tax expense (recovery)	(653)	(49)
Stock-based compensation	1,892	104
Foreign exchange and other non-cash items	(571)	-
Funds flow from operations	6,515	7,920
Movement in non-cash working capital:
Trade and other receivables	13,811	3,882
Trade payables and accrued liabilities	(3,331)	(2,794)
Prepaid expenses and other assets	34	(1)
Income taxes receivable (payable)	1,424	361
Deferred revenue	(10,230)	(8,181)
Change in non-cash working capital	1,708	(6,733)
Net cash provided by operating activities	8,223	1,187
Financing activities
Proceeds from issuance of common shares	2,249	701
Repayment of lease liabilities	(743)	(412)
Dividends paid	(4,076)	(4,039)
Net cash used in financing activities	(2,570)	(3,750)
Investing activities
Property and equipment additions, net of disposals	(93)	(45)
Net cash used in investing activities	(93)	(45)
Increase (decrease) in cash	5,560	(2,608)
Effect of foreign exchange on cash	449	-
Cash, beginning of period	63,083	66,850
Cash, end of period	69,092	64,242
Supplementary cash flow information
Interest received	878	760
Interest paid	463	469
Income taxes paid	1,496	1,778

CORPORATE PROFILE

CMG Group (TSX:CMG) is a global software and consulting company that combines science and technology with deep industry expertise to solve complex subsurface and surface challenges for the new energy industry around the world. The Company is headquartered in Calgary, AB, with offices in Houston, Oslo, Oxford, Dubai, Bogota, Rio de Janeiro, Bengaluru, and Kuala Lumpur. For more information, please visit www.cmgl.ca.

QUARTERLY FILINGS AND RELATED QUARTERLY FINANCIAL INFORMATION

Management’s Discussion and Analysis (“MD&A”) and condensed consolidated interim financial statements and the notes thereto for the three months ended June 30, 2024, can be obtained from our website www.cmgl.ca. The documents will also be available under CMG Group’s SEDAR profile www.sedarplus.ca.

For further information, please contact:
Pramod Jain	or	Sandra Balic
Chief Executive Officer		Vice President, Finance & CFO
(403) 531-1300		(403) 531-1300
pramod.jain@cmgl.ca		sandra.balic@cmgl.ca
For investor inquiries, please contact:
Kim MacEachern
Director, Investor Relations
cmg-investors@cmgl.ca
For media inquiries, please contact:
marketing@cmgl.ca

Cautionary Note Regarding Forward-Looking Statements

This press release contains "forward-looking statements". Forward-looking statements can be identified by words such as: "anticipate", "intend", "plan", "goal", "seek", "believe", "project", "estimate", "expect", "strategy", "future", "likely", "may", "should", "will", and similar references to future periods. Examples of forward-looking statements include, among others, statements we make regarding the benefits of the acquired technology, the ongoing development thereof; and the ability of data analytics to improve efficiency, cut costs and reduce risks.

Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on our current beliefs, expectations, and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. Our actual results and financial condition may differ materially from those indicated in the forward-looking statements. Therefore, you should not rely on any of these forward-looking statements. Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements are detailed in the companies’ public filings.

Any forward-looking statement made by us in this press release is based only on information currently available to us and speaks only as of the date on which it is made. Except as required by applicable securities laws, we undertake no obligation to publicly update any forward-looking statement, whether written or oral, that may be made from time to time, whether as a result of new information, future developments or otherwise.