Ms. Kim MacEachern reports

COMPUTER MODELLING GROUP ANNOUNCES SECOND QUARTER RESULTS

Computer Modelling Group Ltd. has released its financial results for the three and six months ended Sept. 30, 2023.

Second quarter fiscal 2024 (Q2 2024) overview

Second quarter business highlights

• Completed the company's first major acquisition, Bluware-Headwave Ventures Inc. (BHV or Bluware), on Sept. 25, 2023;
• Generated total revenue of $22.6-million in the second quarter of fiscal 2024 compared with $18.1-million in the prior year's quarter, an increase of 25 per cent;
• Operating profit margin increased to 34 per cent, compared with 31 per cent in the same period of last fiscal year;
• Reported free cash flow of $11.0-million, representing 14 cents per share;
• Subsequent to quarter-end, declared a quarterly cash dividend of five cents per share to be paid on Dec. 15, 2023, to all shareholders on record at the close of business on Dec. 7, 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 and six months ended Sept. 30, 2023, increased by 25 per cent and 27 per cent, respectively, over the comparable period of the previous fiscal year due to increases in both software licence revenue and professional services revenue.

Total software licence revenue for the three months and six months ended Sept. 30, 2023, increased by 20 per cent and 23 per cent, respectively, due to increases in both annuity/maintenance licence revenue and perpetual licence revenue.

During the three and six months ended Sept. 30, 2023, compared with the same periods of the previous fiscal year, total software licence revenue increased in all regions.

The Canadian region (representing 18 per cent of year-to-date total software licence revenue) experienced increases of 4 per cent and 7 per cent in annuity/maintenance licence revenue during the three and six months ended Sept. 30, 2023, respectively, mainly due to licence fee increases and increased licensing by existing customers. While no perpetual licence revenue was generated in the current quarter, it increased by 100 per cent during the six months ended Sept. 30, 2023, due to a licence sale in the first quarter of the current fiscal year.

The United States (representing 25 per cent of year-to-date total software licence revenue) experienced increases of 24 per cent and 25 per cent in annuity/maintenance licence revenue during the three and six months ended Sept. 30, 2023, respectively, due to new customers, increased licence fees and increased licensing by existing customers. There were no perpetual licence sales in the current quarter. Perpetual licence revenue increased by 48 per cent for the six months ended Sept. 30, 2023, due to a new customer licence purchase.

South America (representing 13 per cent of year-to-date total software licence revenue) experienced increases of 31 per cent and 20 per cent in annuity/maintenance licence revenue during the three and six months ended Sept. 30, 2023, due to increased licensing by existing customers. Perpetual licence revenue increased by 100 per cent for both the three and six months ended Sept. 30, 2023, due to a new customer licence purchase.

The Eastern Hemisphere (representing 44 per cent of year-to-date total software licence revenue) experienced increases of 20 per cent and 17 per cent in annuity/maintenance licence revenue during the three and six months ended Sept. 30, 2023, respectively, due to increased licence fees and licensing by existing customers. Perpetual licence revenue increased by 37 per cent and 133 per cent for the three and six months ended Sept. 30, 2023, respectively, primarily due to new perpetual licence sales in Asia relating to energy transition.

Computer Modelling's deferred revenue consists primarily of amounts for prepaid licences. The company's annuity/maintenance revenue is deferred and recognized rateably 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.

The previous 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 the company's fiscal year). The company's 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 Q2 of fiscal 2024 was 34 per cent higher than in Q2 of fiscal 2023. While 12 per cent of the increase is related to BHV acquisition, the company did not note significant timing differences in the remaining balance.

Cost of revenue increased by 50 per cent and 28 per cent for the three and six months ended Sept. 30, 2023, respectively compared with the same periods of the previous fiscal year related to increased headcount and headcount-related costs.

Adjusted total operating expenses, adjusted direct employee costs and adjusted other corporate costs are non-IFRS (international financial reporting standards) financial measures. They do not have a standard meaning prescribed by IFRS and, accordingly, may not be comparable with measures used by other companies. Restructuring charges are excluded from total operating expenses. Management believes that analyzing the company's expenses exclusive of these items illustrates underlying trends in the company's costs and provides better comparability between periods.

The 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.

As a technology company, CMG's largest investment is its people, and approximately 69 per cent of total operating expenses relate to direct employee costs At Sept. 30, 2023, Computer Modelling's full-time equivalent staff complement was 296 employees and consultants (CMGL Canada -- 185; BHV -- 111; (Sept. 30, 2022 -- CMGL Canada -- 159). For the three and six months ended Sept. 30, 2023, adjusted direct employee costs increased by 43 per cent and 23 per cent, respectively, compared with the same period of the previous fiscal year primarily due to an increase in headcount and share-based payment expense as a result of an increase in share price in the current quarter.

Adjusted other corporate costs increased by 29 per cent and 44 per cent, respectively, compared with the same period of the previous fiscal year, primarily due to increased agent commissions and other office-related costs.

About Computer Modelling Group Ltd.

Computer Modelling 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. Computer Modelling is headquartered in Calgary, Alta., with offices in Houston, Oxford, Dubai, Bogota, Rio de Janeiro, Bengaluru and Kuala Lumpur.

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