Mr. Pramod Jain reports

COMPUTER MODELLING GROUP ANNOUNCES THIRD QUARTER RESULTS

Computer Modelling Group Ltd. has released its financial results for the three and nine months ended Dec. 31, 2023.

CMG Group and its subsidiaries include: Computer Modelling Group Inc., CMG Middle East FZ LLC, CMGL Services Corp. Inc., CMG Europe Ltd. and CMG Collaboration Centre India Private Ltd. (together referred to as CMG), and CMG Holdings (USA) Inc., Bluware-Headwave Ventures Inc., Bluware Inc., Hue AS and Kalkulo AS (together referred to as BHV or Bluware).

As a result of CMG Group's acquisition of BHV on Sept. 25, 2023, the company's operations are now organized into two reportable operating segments represented by CMG: the development and licensing of reservoir simulation software; and BHV: the development and licensing of seismic interpretation software.

Third quarter fiscal 2024 (Q3 2024) overview

Third quarter business highlights

• The company's third quarter results represent the first full quarter of operations following the acquisition of BHV, which contributed $11.2-million to total revenue and $1.7-million to net income.
• Generated total revenue of $33.0-million in the third quarter of fiscal 2024 compared with $19.4-million in the prior year's quarter, an increase of 70 per cent with 58 per cent contributed by BHV and 12 per cent by CMG. Geographically, all regions saw increases in annuity/maintenance revenue due to new customers and increased licensing by existing customers. The company's existing customers continue to grow their product offerings on contract renewals. Annuity licence fee revenue increased due to the acquisition of BHV and was impacted by contract renewals.
• Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) was 38 per cent, compared with 49 per cent in the same period of last fiscal year with BHV achieving 27-per-cent and CMG achieving 44-per-cent adjusted EBITDA.
• Recognition of annuity licence fee from BHV had a positive impact on total revenue and adjusted EBITDA.
• Reported free cash flow of $7.7-million, representing nine cents per share.
• Subsequent to quarter-end, declared a quarterly cash dividend of five cents per share to be paid on March 15, 2024, to all shareholders on record at the close of business on March 7, 2024.

This press release should be read in conjunction with the company's unaudited condensed consolidated interim financial statements for the three and nine months ended Dec. 31, 2023, and the accompanying notes, its management's discussion and analysis (MD&A) for the three and nine months ended Dec. 31, 2023, and with its annual consolidated financial statements, prepared in accordance with international financial reporting standards (IFRS) and with its MD&A for the year ended March 31, 2023, which can be found on SEDAR+ and on the company's website. Additional information about the company is also available on SEDAR+.

Total software licence revenue for the three months ended Dec. 31, 2023, increased by 45 per cent, compared with the same period of the previous fiscal year, of which 31 per cent is due to BHV acquisition and 14 per cent due to increases in annuity/maintenance and perpetual licence revenue of CMG. Total software licence revenue for the nine months ended Dec. 31, 2023, increased by 31 per cent, compared with the same period of the previous fiscal year, of which 11 per cent is due to BHV acquisition and 19 per cent due to increases in annuity/maintenance and perpetual licence revenue of CMG.

Annuity/maintenance licence revenue increased by 21 per cent during the three months ended Dec. 31, 2023, compared with the same period of the previous fiscal year, of which 8 per cent is due to BHV acquisition and 13 per cent due to annuity/maintenance licence revenue increase of CMG. Annuity/maintenance licence revenue increased by 18 per cent during the nine months ended Dec. 31, 2023, compared with the same period in the previous fiscal year, of which 3 per cent is due to BHV acquisition and 15 per cent due to increases in annuity/maintenance licence revenue of CMG. CMG's annuity/maintenance licence revenue increases during both three and nine months ended Dec. 31, 2023, were a result of increases in all regions, supported by licence fee increases, increased the licence usage by existing customers and addition of new customers. The company continues to see a strong contribution to revenue from CMG energy transition customers and estimate during the three and nine months ended Dec. 31, 2023, 22 per cent of total software licence revenue is related to energy transition.

Annuity licence fee revenue relates to BHV and this revenue stream is expected to fluctuate quarterly depending on the timing of contract renewals as the annuity licence fees are recognized in revenue when the software licence is delivered. Historically, a majority of contracts renew during the third and fourth quarters.

Perpetual licence revenue increased by 13 per cent during the three months ended Dec. 31, 2023, compared with the same period of the previous fiscal year, due to perpetual licence sales generated in Canada during the quarter. During the nine months ended Dec. 31, 2023, compared with the same period of the previous fiscal year, perpetual licence revenue increased by 114 per cent due to increases in all regions.

Professional services revenue for the three and nine months ended Dec. 31, 2023, was $9.8-million and $16.9-million which represents increases of 192 per cent and 111 per cent, respectively, compared with the same periods of the previous fiscal year. The acquisition of BHV contributed 185 per cent and 82 per cent of the increase, respectively, for the three and nine months ended Dec. 31, 2023. The remaining increases are due to increased CMG professional services revenue from consulting projects as a result of expanded services to address customer demand.

Total operating expenses for the three and nine months ended Dec. 31, 2023, increased by 99 per cent and 35 per cent, respectively, compared with the same periods of the previous fiscal year. Adjusted total operating expenses increased by 92 per cent and 51 per cent for the three and nine months ended Dec. 31, 2023, respectively, compared with the same periods of the previous fiscal year. The acquisition of BHV contributed to 46 per cent and 17 per cent of the increase in total adjusted operating costs for the three and nine months ended Dec. 31, 2023, respectively, compared with the same periods of the previous fiscal year. CMG's total adjusted operating expenses increased by 46 per cent and 34 per cent for the three and nine months ended Dec. 31, 2023, respectively, compared with the same periods of the previous fiscal year, due to an increase in both direct employee costs and other corporate costs.

Operating profit as a percentage of total revenue for the three months ended Dec. 31, 2023, was 25 per cent, down from 43 per cent in the comparative quarter. Adjusted operating profit was 27 per cent, down from 43 per cent in the comparative quarter. Current quarter includes BHV's adjusted operating profit as a percentage of revenue at 26 per cent and CMG's adjusted operating profit as a percentage of revenue at 28 per cent. CMG's adjusted operating profit as a percentage of revenue decreased from 43 per cent recorded in the same quarter of the previous fiscal year, due to an increase in direct employee costs driven by the increase in stock-based compensation, other corporate costs inclusive of the increase in amortization expense as a result of BHV acquisition, partially offset by an increase in revenue. Operating profit as a percentage of total revenue for the nine months ended Dec. 31, 2023, was 34 per cent, slightly down from 35 per cent in the comparative quarter. Adjusted operating profit was 35 per cent, down from 43 per cent in the comparative quarter. Current year-to-date quarter includes BHV's adjusted operating profit as a percentage of revenue at 26 per cent and CMG's adjusted operating profit as a percentage of revenue at 37 per cent. CMG's adjusted operating profit as a percentage of revenue decreased from 43 per cent recorded in the same period of the previous fiscal year, due to the same reasons that affected the quarterly comparison as explained herein.

CMG experienced increases in revenue for the three and nine months ended Dec. 31, 2023, with increases of $2.4-million or 12 per cent and $11.0-million or 21 per cent, respectively. This consistent growth demonstrates CMG's ability to capture new customers and grow existing customers' revenue through increased licence contracts and pricing.

Cost of revenues has increased for the three and nine months ended Dec. 31, 2023, by 35 per cent and 26 per cent, respectively, primarily as a result of increased headcount and headcount-related costs to support increased professional services revenue growth.

Operating expenses have increased for the three and nine months ended Dec. 31, 2023, by 47 per cent and 18 per cent, respectively, primarily as a result of acquisition-related expenses, and increases in stock-based compensation, headcount and headcount related costs, agent commissions, depreciation and amortization expenses, and other corporate costs.

CMG adjusted EBITDA as a percentage of CMG total revenue is 44 per cent for the three months ended Dec. 31, 2023, compared with 49 per cent 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. Adjusted EBITDA as a percentage of total revenue for the nine months ended Dec. 31, 2023, for CMG was 47 per cent which is relatively consistent with the prior year.

BHVs revenue for the three and nine months ended Dec. 31, 2023, comprises 55-per-cent professional services revenue, which is primarily driven by a contract with one customer. BHVs software licence revenue for the three and nine months ended Dec. 31, 2023, was supported by contract renewals.

BHVs cost of revenues consist mainly of headcount and headcount related costs incurred to support professional services revenue.

Operating expenses for BHV primarily comprise headcount and headcount-related costs, office related costs, and professional services costs.

BHV adjusted EBITDA as a percentage of BHV revenue is 27 per cent for both the three and nine months ended Dec. 31, 2023, respectively. The recognition of the annual licence fee revenue in connection to third quarter contract renewals had a positive effect on adjusted EBITDA. The company expects that adjusted EBITDA will fluctuate on a quarterly basis as a result of annual licence fee revenue recognition which is skewed toward the last two quarters of the fiscal year.

About Computer Modelling Group Ltd.

CMG Group 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, Alta., with offices in Houston, Oxford, Dubai, Bogota, Rio de Janeiro, Bengaluru, Oslo and Kuala Lumpur.

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 and nine months ended Dec. 31, 2023, can be obtained from the company's website. The documents will also be available under CMG Group's SEDAR+ profile.

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