Mr. Pramod Jain reports

COMPUTER MODELLING GROUP ANNOUNCES YEAR-END RESULTS

Computer Modelling Group Ltd. has released its financial results for the year ended March 31, 2023.

Computer Modelling's revenue comprises software licence sales, which provides the majority of the company's revenue and fees for professional services.

Total revenue for the three months and year ended March 31, 2023, increased by 8 per cent and 12 per cent, respectively, compared with the same periods of the previous fiscal year, due to increases in both software licence revenue and professional services revenue.

Software licence revenue

Software license revenue is made up of annuity/maintenance licence 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 licence sales, whereby the customer purchases the then-current version of the software and has the right to use that version in perpetuity. Annuity/maintenance licence fees have historically had a high renewal rate and, accordingly, provide a recurring revenue stream, while perpetual licence 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 Computer Modelling's customers, who have acquired perpetual software licences, subsequently purchase the company's maintenance package to ensure continuing product support and access to current versions of Computer Modelling's software.

Total software licence revenue for the three months and year ended March 31, 2023, increased by 4 per cent and 8 per cent, respectively, compared with the same periods of the previous fiscal year, due to the increases in annuity/maintenance licence revenue, partially offset by the decreases in perpetual licence revenue.

Annuity/maintenance licence revenue increased by 10 per cent and 12 per cent during the three months and year ended March 31, 2023, respectively, due to increases in all regions except Canada, supported by licence fee increases, increased licence usage by existing customers and the addition of new customers. The company continues to see an increase in revenue from the customers involved in carbon capture and storage projects and estimates that about 18 per cent and 14 per cent of total software revenue for the three months and year ended March 31, 2023, respectively, is attributable to the energy transition solutions.

Perpetual licence revenue decreased by 34 per cent and 33 per cent during the three months and year ended March 31, 2023, respectively, compared with the same periods of the previous fiscal year. Sales of perpetual licences 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 the company expects to achieve a certain level of perpetual sales on an annual basis, it expects to observe fluctuations in the quarterly perpetual revenue amounts throughout the fiscal year. In its experience, the majority of perpetual sales are generated in South America and the Eastern Hemisphere, as North American customers usually prefer annuity licences to perpetual purchases.

During the three months ended March 31, 2023, compared with the same period of the previous fiscal year, total software licence revenue increased in the United States and South America and decreased in the Eastern Hemisphere and Canada. During the year ended March 31, 2023, compared with the previous fiscal year, total software licence revenue increased across all of the regions with the exception of Canada which experienced only a slight decrease.

The Canadian region (representing 20 per cent of annual total software licence revenue) experienced slight decreases of 2 per cent and 1 per cent in annuity/maintenance licence revenue during the three months and year ended March 31, 2023, respectively, compared with the same periods of the previous fiscal year, due to the region continuing to be negatively affected during fiscal 2023 by consolidation activity that started affecting its annuity/maintenance revenue in the first quarter of the current fiscal year.

The United States (representing 24 per cent of annual total software licence revenue), experienced increases of 12 per cent and 16 per cent in annuity/maintenance license revenue during the three months and year ended March 31, 2023, respectively, compared with the same periods of the previous fiscal year, due to new customers, including those within the carbon capture and storage industry, and increased licensing by existing customers. Perpetual licence revenue increased by 100 per cent during the quarter and decreased by 25 per cent during the year, compared with the same periods of the previous fiscal year.

South America (representing 13 per cent of annual total software licence revenue) experienced increases of 35 per cent and 18 per cent in annuity/maintenance licence revenue during the three months and year ended March 31, 2023, respectively, due to increased licensing by new and existing customers, which included reactivation of maintenance on perpetual licences. In addition, year-over-year increase was positively affected by a multiyear lease that commenced in the second quarter of the previous fiscal year. There were no perpetual sales in South America during the current quarter or year.

The Eastern Hemisphere (representing 43 per cent of annual total software licence revenue) experienced increases of 10 per cent and 15 per cent in annuity/maintenance licence revenue during the three months and year ended March 31, 2023, respectively, due to increased licence fees, as well as increased licensing by existing customers, and the addition of new customers, including new customers in the carbon capture and storage industry in Europe. Perpetual revenue during the three months and year ended March 31, 2023, decreased by 40 per cent and 33 per cent, respectively, due to not realizing the same level of perpetual sales in the current fiscal year.

Computer Modelling's deferred revenue consists primarily of amounts for prepaid licences. Its annuity/maintenance revenue is deferred and recognized ratably over the licence period, which is generally one year or less. Amounts are deferred for licences that have been provided and revenue recognition reflects the passage of time.

An attached table illustrates the normal trend in the deferred revenue balance from the beginning of the calendar year (which corresponds with Q4 of the company's fiscal year), when most renewals occur, to the end of the calendar year (which corresponds with Q3 of its fiscal year). Its fourth quarter corresponds with 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.

The deferred revenue balance at the end of Q4 of fiscal 2023 was 14 per cent higher than Q4 of fiscal 2022.

Adjusted total operating expenses, adjusted direct employee costs and adjusted other corporate costs are non-IFRS financial measures. They do not have a standard meaning prescribed by IFRS (international financial reporting standards) and, accordingly, may not be comparable with measures used by other companies. They are calculated by excluding CEWS ( Canada Emergency Wage Subsidy) subsidies, CERS (Canadian Export Reporting System) subsidies and restructuring charges, as applicable, from the related non-adjusted measures. Management believes that analyzing the company's expenses exclusive of these items illustrates underlying trends in its costs and provides better comparability between periods.

Attached tables provide a reconciliation of total operating expenses to adjusted total operating expenses, direct employee costs to adjusted direct employee costs and other corporate costs to adjusted other corporate costs.

In May, 2022, Ryan Schneider stepped down as the company's president and chief executive officer and Pramod Jain was appointed CEO. This change resulted in restructuring costs of $1.6-million in the first quarter of the current fiscal year. During the second quarter of the current fiscal year, the company restructured primarily its Calgary office, resulting in additional restructuring costs of $2.3-million in the second quarter and bringing the total restructuring charges for the fiscal year to $3.9-million. The restructuring that occurred in the second quarter was mainly aimed at streamlining operations to align resources with the company's priorities. This prioritization will allow the company to strengthen other business operations that are necessary for the company to be responsive, resilient and able to adapt more quickly to changing business priorities.

The restructuring decreased its headcount and, at March 31, 2023, Computer Modelling's full-time equivalent staff complement was 165 employees and consultants (March 31, 2022: 175 employees).

Adjusted direct employee costs increased for the three months and year ended March 31, 2023, by $1.4-million (16 per cent) and $2-million (6 per cent), compared with the same periods of the previous fiscal year primarily due to increased variable compensation such as stock-based compensation and bonuses.

Adjusted other corporate costs decreased by 13 per cent for the three months ended March 31, 2023, compared with the same period of the previous fiscal year, due to the write-off of receivables from Russian customers included in the comparative period of the previous fiscal year.

About Computer Modelling Group Ltd.

Computer Modelling is a global software and consulting company providing advanced reservoir modelling capabilities to the energy industry. Computer Modelling provides cutting-edge technologies that support critical field development decisions for upstream planning and energy transition strategies.

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