Computer Modelling Group Ltd. - Annual Report 2020

To Our Shareholders:

It is my pleasure to report our fiscal 2020 results, albeit with mixed feelings. While the majority of the fiscal year was on track for growth, we started experiencing some headwinds in software license revenue in the fourth quarter. Nonetheless, we exited fiscal 2020 with a 7% increase in operating profit, a 4% increase in basic earnings per share and a 6% increase in free cash flow per share. We generated EBITDA of $36.1 million during the year. These are impressive results and a testament to the strength of our business model.

While we celebrate our fiscal 2020 achievements, I would be remiss not to acknowledge the change in circumstances occurring toward the end of the fourth quarter, which continue to prevail into fiscal 2021. In March, the World Health Organization declared COVID-19 a pandemic, which led to a partial shutdown of the majority of the world’s economies. The pandemic also led to declines in demand for oil and gas, which, combined with producer market share competition and concerns about a supply/demand imbalance, led to volatility in commodity prices and further production and/or spending curtailments by our customers. Most of all, the pandemic has brought challenges to our operating environment and reduced visibility into the future.

CMG’s Response to Market Uncertainty

The health and safety of our employees, customers and communities is always a priority. In dealing with the COVID-19 pandemic, we have been following the advice of governments and local public health authorities in jurisdictions in which we operate. In mid-March 2020, amidst pandemic restrictions, CMG implemented procedures to enable us to continue to fully operate and minimize the impact to our business and customers. Fortunately, as a technology-based company, we were well positioned to maintain our productivity during and after a transition to working from home. We also adapted our customer training to online platforms and have since received a strong positive response from our current and prospective customers.

The ongoing disruption to the oil and gas industry, including volatility in commodity prices and reduction in energy consumption, precipitated by the COVID-19 crisis, could potentially have a significant adverse effect on our operations and future financial performance. In response to these unprecedented times of economic disruption and uncertainty, effective July 1, 2020, CMG is pre-emptively taking the following actions to preserve liquidity, manage costs and protect shareholder value:

reducing the CEO’s annual salary by 25%;
reducing directors’ cash compensation by 20%;
reducing executive officers’ salaries by 20%;
implementing graduated salary reductions to staff.

These reductions are expected to continue throughout the fiscal year and will be reassessed following review of the fiscal 2021 results. The staff executive and CEO’s base salary concessions were reallocated to variable cash compensation associated with fiscal 2021 corporate performance. These compensation reductions were taken in part to retain employees because we are prioritizing product development and support, both of which are important to our customers and to the longterm success of our business.

In addition, the Board of Directors has approved a dividend of $0.05 per Common Share, payable on June 15, 2020 to shareholders of record at the close of business on June 5, 2020. This represents a decrease from the Company’s previous quarterly dividend of $0.10 per share.

We are implementing these measures to protect CMG’s profitability and optimize free cash flow generation to maintain the strength of our balance sheet. The measures will also allow for maximum flexibility in our capital allocation decisions, including focusing on delivering a sustainable dividend. At the same time, it is our intention to continue to invest in research and development, and sales and marketing efforts, at approximately similar levels as historically proportionate to revenue. CMG will continue to monitor the impact of the current environment on its customers, operations and financial performance and may adjust its compensation structure and capital allocation as appropriate.

In light of the uncertainty caused by COVID-19 and ongoing challenges that we foresee in the oil and gas sector, it is prudent to take timely actions aimed at optimizing our business operations and protecting our financial position.

Management’s Discussion & Analysis

Computer Modelling Group Ltd. 2020 Financial Report

We will continue to monitor the impact of the current environment on our operations and financial performance and consider the qualifying criteria and merits of applying for any government programs aimed at assisting companies to compensate for losses experienced as a result of the COVID-19 pandemic.

Fiscal 2020 Financial Achievement

Our fiscal 2020 total revenue increased by 1% compared to the previous fiscal year, supported by an increase in professional services revenue. Software license revenue remained consistent with the previous year as the headwinds experienced in the fourth quarter offset the growth experienced during the first three quarters.

We achieved $4.7 million in perpetual license sales. While it represents a decrease of 7% from the previous year, it is a notable achievement in light of the economic challenges affecting the oil and gas sector and forcing many of our customers to restrain their capital spending.

Annuity and maintenance revenue remained flat compared to the previous fiscal year with the increases in the United States and the Eastern Hemisphere offset by the decreases in Canada and South America. Two items that impacted the fiscal 2020 annuity and maintenance revenue comparison include a payment that was received in the previous fiscal year from a longstanding customer from South America that is recognized on a cash basis, and a one-time reactivation fee on a maintenance contract recorded in the Eastern Hemisphere in the fourth quarter of the previous year. Without these one-time items occurring in the previous fiscal year, annuity and maintenance revenue would have increased in mid-single digits. We are pleased with this performance because a greater portion of the fiscal 2020 annuity and maintenance revenue was of recurring nature and not as affected by the non-recurring amounts as in the prior year.

Canada was showing improvement in annuity and maintenance revenue into the third quarter of the fiscal year, but decreased licensing in the fourth quarter, partially due to the negative impact of the consolidation activity in the oil and gas industry, offset the growth experienced earlier in the year. The United States region continued to benefit from strong activity by unconventional customers for most of the year, to experience only a slight decrease in fourth quarter revenue. South America, on a normalized basis (see the previous note about the payment from the South American customer), experienced a doubledigit increase in annuity and maintenance revenue due to increased licensing by existing customers. While annuity and maintenance revenue in the Eastern Hemisphere showed increases during the first three quarters of the fiscal year, revenue decreased in the fourth quarter due to the one-time maintenance reactivation fee recorded in the comparative quarter.

During fiscal 2020 we controlled our operating costs which were comparable to fiscal 2019 (prior to the impact of IFRS 16 conversion). We were again pleased with our profitability margins. Operating profit was 40% of total revenue, representing a 3% increase from the previous fiscal year (prior to the impact of IFRS 16 conversion). Similarly, our EBITDA was 42% of total revenue, which is comparable to the previous year (prior to the impact of IFRS 16 conversion).

Basic earnings per share were at $0.29 per share, a 4% increase from the previous fiscal year.

We closed the year with $40.5 million of cash and no debt. We further demonstrated solid liquidity by generating $0.33 per share in free cash flow, representing an increase of 6% from the previous fiscal year.

Research and Development Update

During fiscal 2020, we continued with various research and development initiatives aimed at product feature development and performance enhancements to support our superior technological offerings. During the fiscal year, we invested $19.2 million in research and development. Some of the year’s research and development achievements include:

High Performance Computing. Distributed parallel computing is carried out both on local computer networks and on the cloud, offering users an unprecedented ability to run large problems with excellent run time.

Flux Boundary. Flux boundaries allow users to take advantage of smaller sector models created from a full-field run, without compromising on boundary conditions, to achieve faster time-to-decision.

Discrete Fracture Network. Technology has been developed to simulate reservoirs with fractured networks. These fractures are high permeability planes that could go in any direction and are the main flow paths for fluids in the reservoir. This will

Computer Modelling Group Ltd. 2020 Financial Report

Management’s Discussion & Analysis

extend CMG’s capabilities in modelling both naturally-fractured as well as hydraulically-fractured (“unconventional”) reservoirs.

CMGFRAC. Geomechanics-based hydraulic fracture is extensively used to model production from unconventional shale oil and gas wells. In collaboration with third-party hydraulic fracture design tools, CMG developed a data format, “CMGFRAC”, that can be used to import hydraulic fracture design and fracture parameters for hundreds of stages per well, for several wells, all at once. CMGFRAC will help customers easily model complex geomechanics-based hydraulic fractures in CMG simulators and create reliable forecasts for their reservoirs.

TRACERS. IMEX’s new Passive Tracer option is used to track fluid movement from desired reservoir regions, injection wells, and aquifers. Tracer functionality could be used to track injector to produced fluid movement when optimizing sweep efficiency in flood-type recovery processes, tracing hydraulic fracture fluid in frac hits from one well to another, and in estimating recovery of hydraulic fracture fluid from unconventional wells.

We continued to invest in our cloud solutions and made more of our products available on the cloud platform.

CoFlow commercialization efforts continued throughout the fiscal 2020. As previously announced, we added one new customer in April 2019, and had two customers renew their contracts during the year. We actively continue to work on CMG opportunities as well as additional deployments with our partner, Shell. The combined impact of COVID-19, commodity price volatility and an uncertain economic outlook are expected to slow down our CoFlow commercialization efforts. We are focused on gaining additional traction for the product but expect that commercial conversations with customers could be delayed.

Executive Appointments in Fiscal 2020

During the third quarter, we implemented organizational changes in order to focus on the usability of our software, improved workflows and positive customer experience. Anjani Kumar, formerly Vice President, Engineering Solutions and Marketing, retains the role of Vice President, Engineering Solutions and, in addition to leading our consulting, support and training group, will now oversee the ongoing development of Builder and Results, our data import, model build and visualization applications, with the objective of improving customer workflows and bringing more user perspective to our software development. The marketing team, with renewed emphasis on customer experience, will report directly to myself.

During the fourth quarter, Jason Close, General Manager, CoFlow was promoted to Vice President, CoFlow Commercialization. With Jason’s extensive experience building relationships with CMG’s customers in his previous role as the Manager of Canadian Sales, in combination with his technical acumen and leadership skills, Jason is well-suited to lead the CoFlow team and foster business growth opportunities.

Long Nghiem, in his role of Vice President, Research and Development and Chief Technology Officer, retains oversight of the entire research and development team.

These organizational changes position us to continue to operate effectively and efficiently, and to deliver cutting-edge technology to our customers.

Sustainability Reporting

We are committed to managing and reporting on certain environmental and social issues and would refer you to the section in our Information Circular headed Commitment to Environmental and Social Responsibility for details.

Closing Remarks

I am confident that with our strong team and fiscal prudence we are well positioned to deal with these uncertain times and maintain financial and operational discipline to take advantage of future opportunities. We are not in a position to predict the future and we are focusing on matters within our control including ensuring the resilience of our business by adjusting our cost structure and protecting liquidity. Through the COVID-19 and economic crises, we continue our research and development activities and we continue providing technical support to our customers globally. In addition, due to our customers working

Management’s Discussion & Analysis

Computer Modelling Group Ltd. 2020 Financial Report

from home, we are seeing an unprecedented attendance at our webinars and training sessions. All of these initiatives will help position us to emerge from this period of uncertainty with strength and superior technological offerings for our customers while delivering value to our shareholders.

The value of reservoir simulation is arguably even greater during these challenging times of economic and regulatory uncertainty. We will continue to work with our customers to help them to deal with such challenges and improve the value of their assets by optimizing production and increasing productivity. We will further employ new and innovative technologies to continue reinforcing our position as a leading developer and supplier of reservoir simulation software in the world.

Ultimately, the success of this company is built on the efforts and talents of our employees. I would like to express my deep appreciation to all CMG staff and the executive team for their outstanding efforts and dedication throughout the fiscal year especially during these difficult times. Together we will prevail through these challenges and continue to make CMG a great success story. I would also like to express my gratitude to our Board of Directors for their continued support and trusted counsel throughout the year.

==> picture [117 x 39] intentionally omitted <==

Ryan N. Schneider President and Chief Executive Officer May 27, 2020

Computer Modelling Group Ltd. 2020 Financial Report

Management’s Discussion & Analysis

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 27, 2020, should be read in conjunction with the audited consolidated financial statements and related notes of the Company for the years ended March 31, 2020 and 2019. 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.

Corporate Profile

CMG is a computer software technology company serving the oil and gas industry. The Company is a leading supplier of advanced process reservoir modelling software with a blue chip customer base of international oil companies and technology centers in approximately 60 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, Dubai, Bogota and Kuala Lumpur. CMG’s Common Shares are listed on the Toronto Stock Exchange (“TSX”) and trade under the symbol “CMG”.

Vision, Business and Strategy

CMG’s vision is to be the leading developer and supplier of dynamic reservoir modelling systems in the world. Early in its life CMG made the strategic decision to focus its research and development efforts on providing solutions for the simulation of difficult hydrocarbon recovery techniques, a decision that created the foundation for CMG’s dominant market presence today in the simulation of advanced hydrocarbon recovery processes. CMG has demonstrated this commitment by continuously investing in research and development and working closely with its customers to develop simulation tools relevant to the challenges and opportunities they face today. This includes CoFlow, the newest generation of reservoir and production system simulation software. Our target is to develop a dynamic system that does more than optimize reservoir recovery; it models the entire hydrocarbon reservoir system, including production systems.

Since its inception more than 40 years ago, CMG has remained focused on assisting its customers in unlocking the value of their hydrocarbon reservoirs. With petroleum production using conventional methods on the decline, the petroleum industry must use more difficult and costly advanced process extraction methods, while being faced with more governmental and regulatory requirements over environmental concerns. CMG’s success can, in turn, be correlated with the oil industry becoming more reliant on the use of simulation technology due to the maturity of conventional petroleum reservoirs and the complexities of both current and emerging production processes. In addition, as producers continue to look for ways to operate efficiently by deploying technologies in their operations, we believe they will continue to seek reservoir simulation solutions to enhance production from their existing and new assets. CMG will continue to provide the most advanced reservoir simulation tools to assist companies with their reservoir planning, management and optimization.

CMG’s success can specifically be attributed to a number of factors: advanced physics, ongoing enhancements to the Company’s already robust product line, improved computational speed, parallel computing ability, ease of use features of the pre- and post-processor applications, cost effectiveness of the CMG solution for customers, and the knowledge base of CMG’s personnel to support and advance its software.

CMG currently licenses reservoir simulation software to more than 600 oil and gas companies, consulting firms and research institutions in approximately 60 countries. In combination with its principal business of licensing its software, CMG also provides professional services consisting of highly specialized consulting, support, training, and funded research activities for its customers. While the generation of professional services revenue specifically tied to the provision of consulting services is not regarded as a core part of CMG’s business, offering this type of service is important to CMG operationally. CMG performs a limited amount of specialized consulting services, which are typically of a highly complex and/or experimental nature. These studies provide hands-on practical knowledge, allowing CMG staff to test the boundaries of our software, and provide us the opportunity to increase software license sales to both new and existing customers. In addition, providing consulting services is important from the customer service perspective as it enables our customers to become more proficient users of CMG’s

Management’s Discussion & Analysis

Computer Modelling Group Ltd. 2020 Financial Report

software. The funded research revenue is derived from the customers who partner with CMG to assist in the development, testing and refinement of new simulation technologies.

In addition to consulting, we allocate significant resources to training, which is an instrumental part of our Company’s success, as it enables our customers to become more efficient and effective users of our software. Our training is continuous in nature and it helps us in developing and maintaining long-term relationships with our customers.

CMG remains committed to advancing its technological superiority over its competition. CMG firmly believes that, to be the dominant supplier of dynamic reservoir modelling systems in the world, it must be responsive to customers’ needs today and accurately predict their needs in the future.

CMG invests a significant amount of resources each year toward maintaining its technological superiority. During fiscal 2020, CMG maintained a consistent level of spending on research and development compared to the previous fiscal year (representing 25% of total revenue). The continued investment by CMG in its current product suite offering helps to ensure that its existing proven technology continues to be industry-leading. These significant levels of investment is a strategy to achieving our vision to be the leading developer and supplier of dynamic reservoir modelling systems in the world.

Overall Performance

Key Performance Drivers and Capability to Deliver Results

One of the challenges the petroleum industry faces in trying to overcome barriers to production growth is the continuing need for breakthrough technologies. The facts facing the petroleum industry today are that brand new fields are increasingly difficult to find, especially on a large scale, and that there is a large number of mature fields and unconventional prospects where known petroleum reserves exist; the question is how to economically extract the petroleum reserves in place while utilizing environmentally conscious processes. These challenges have been made even more formidable by the current economic environment and the global political climate, which led to increased uncertainty regarding capital markets and commodity prices.

The emergence and efficiency of hydraulic fracturing technologies have opened the door to unconventional shale and tight hydrocarbon resources in North America at economically competitive input costs. CMG’s reservoir simulation technology has a very extensive and efficient unconventional modelling workflow, which has been successful in simulation and modelling of reservoirs using hydraulic fracturing processes.

The petroleum industry utilizes reservoir simulation to provide both vital information and a visual interpretation on how reservoirs will behave under various recovery techniques. With this visualization and reservoir simulation modelling, reservoir professionals receive assistance in predicting the physics and chemistry of fluid flows, drilling locations, well operating conditions, risks, and best case economics of oil and gas property investment. Understanding the science of how a petroleum reservoir will react to difficult hydrocarbon recovery processes through simulation prior to spending the capital on drilling wells and injecting expensive chemicals and steam, for instance, is far less costly and risky than trying the various techniques on real wells.

In an uncertain oil price environment, producers have shifted their focus to increasing productivity while reducing operating costs. Reservoir simulation is a cost-effective and high-value tool to reduce risks, improve recovery processes, increase margins and incremental recovery.

CMG’s existing product suite of software is the market leader in the simulation of difficult hydrocarbon recovery techniques. To maintain this dominant market position, CMG actively participates in research consortia that experiment with new petroleum extraction processes and technologies. CMG then incorporates the simulation of new recovery methods into its product suite and focuses on overcoming existing technological barriers to advance speed and ease of use, amongst other benefits, in its software.

A recent shift toward public and government support of climate change initiative provides us with an opportunity to use technological innovation to help energy and resource companies minimize their impact on the environment. CMG has an established technology that has been effectively leveraged and utilized in the development of projects around the world for

Computer Modelling Group Ltd. 2020 Financial Report

Management’s Discussion & Analysis

safe sequestering and long-term storage of greenhouse gases (“GHGs”), including carbon dioxide. CMG’s GEM simulator is industry-recognized as the only commercial simulator capable of modelling all of the applicable physics associated with GHG sequestering processes. These projects have been of increasing interest to governments and the oil and gas industry for the beneficial application in the reduction of GHGs and efforts to limit climate change impacts.

Among CMG’s latest technological advancements is a public cloud solution, which enables customers to securely access our simulators and run simulations on some of the latest and fastest hardware available in the industry, optimized for maximum efficiency and faster simulation results. Advancements in cloud technology are generating a paradigm shift in modern computing and removing technological limitations faced by our customers.

CMG is in a solid financial position with $27.0 million in working capital, no bank debt and a long history of generating earnings and cash from operating activities. In addition to its financial resources, CMG’s real strength lies in the outstanding quality and dedication of its employees, which allows us to deliver unparalleled support and value to our customers.

Our focus will remain on licensing software to both existing and new customers and, with diversification of our geographic profile, our goal is to continue to strengthen our position in the global marketplace. Approximately 93% of our software license revenue is derived from annuity and maintenance contracts, which generally represent a recurring source of revenue. We continue to be profitable and have solid cash generation despite the ongoing economic challenges in the oil and gas industry. During fiscal 2020, we generated $0.33 per share in free cash flow, compared to $0.31 per share in the previous fiscal year.

For the fiscal year ended March 31, 2020, operating profit represented 42% of total revenue and EBITDA represented 48% of total revenue, which demonstrates our continuous ability to effectively manage corporate costs.

COVID-19 Impact

Please refer to the President’s Message included in front of the MD&A, as well as in the 2020 Financial Report for discussion on the impact of COVID-19 on CMG’s operations and financial performance and the actions that management and the Board of Directors are undertaking in response to the COVID-19 pandemic and the resulting economic uncertainty.

The health and safety of our employees, customers and communities is always a priority. In mid-March 2020, amidst pandemic restrictions, CMG implemented procedures to enable us to continue to fully operate and minimize the impact to our business and customers. Through the COVID-19 and economic crisis, we continue our research and development activities and we continue providing technical support to our customers globally.

While the COVID-19 pandemic and the related economic uncertainty has not had a material effect on our fiscal 2020 results, the ongoing disruption to the oil and gas industry, including volatility in commodity prices and reduction in energy consumption, precipitated by the COVID-19 crisis, could potentially have a significant adverse effect on our operations and future financial performance. Please refer to the “Business Risks” section for the discussion of Coronavirus Risk.

In order to minimize the potential negative impact of COVID-19, effective July 1, 2020, CMG is pre-emptively taking the following actions to preserve liquidity, manage costs and protect shareholder value:

reducing the CEO’s annual salary by 25%;
reducing directors’ cash compensation by 20%;
reducing executive officers’ annual salaries by 20%;
implementing graduated salary reductions to staff.

These reductions are expected to continue throughout the fiscal year and will be reassessed following review of the fiscal 2021 results. The staff, executive and CEO’s base salary concessions were reallocated to variable cash compensation associated with fiscal 2021 corporate performance. These compensation reductions were taken in part to retain employees because we are prioritizing product development and support, both of which are important to our customers and to long-term success of our business.

Management’s Discussion & Analysis

Computer Modelling Group Ltd. 2020 Financial Report

We are implementing these measures to protect CMG’s profitability and optimize free cash flow generation to maintain the strength of our balance sheet, in all potential scenarios. This will also allow for maximum flexibility in our capital allocation decisions, including focusing on delivering a sustainable dividend. At the same time, it is our intention to continue to invest in research and development, and sales and marketing efforts, at approximately similar levels as historically proportionate to revenue. CMG will continue to monitor the impact of the current environment on its customers, operations and financial performance and may adjust its compensation structure and capital allocation as appropriate.

We are confident that our sustainable business model driven by superior technology, commitment to research and development initiatives, and customer-oriented approach will continue contributing to CMG’s future success and will help us to deal with uncertain times.

Computer Modelling Group Ltd. 2020 Financial Report

Management’s Discussion & Analysis

Annual Performance

==> picture [519 x 265] intentionally omitted <==

----- Start of picture text -----

($ thousands, unless otherwise stated) March 31, 2020 March 31, 2019 [(1)] March 31, 2018 [(1)]
Annuity/maintenance licenses 63,974 63,800 64,679
Perpetual licenses 4,672 5,000 4,164
Software licenses 68,646 68,800 68,843
Professional services 7,140 6,057 5,837
Total revenue 75,786 74,857 74,680
Operating profit 31,751 29,554 28,030
Operating profit (%) 42% 39% 38%
Net income for the year 23,485 22,135 20,806
EBITDA [(2)] 36,111 31,507 30,027
Cash dividends declared and paid 32,097 32,090 32,041
Funds flow from operations 28,765 25,593 25,503
Free cash flow [(2)] 26,547 24,851 20,830
Total assets 120,866 90,305 97,990
Total shares outstanding 80,249 80,227 80,215
Trading price per share at March 31 3.83 6.15 9.29
Market capitalization at March 31 307,353 493,396 745,194
Per share amounts - ($/share)
Earnings per share - basic and diluted 0.29 0.28 0.26
Cash dividends declared and paid 0.40 0.40 0.40
Funds flow from operations per share - basic 0.36 0.32 0.32
Free cash flow per share - basic [(2)] 0.33 0.31 0.26
----- End of picture text -----

(1) The Company adopted IFRS 16 Leases effective April 1, 2019 using the modified retrospective approach. Under this method, comparative information is not restated. See discussion in “New Accounting Measures Adopted”.

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

Quarterly Performance			Fiscal 2019(1)	Fiscal 2019(1)			Fiscal 2020(2)	Fiscal 2020(2)
($ thousands, unless otherwise stated)	Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4
Annuity/maintenance licenses	14,715	15,111	17,240	16,734	15,756	16,373	16,612	15,233
Perpetual licenses	326	1,172	611	2,891	1,159	1,146	964	1,403
Software licenses	15,041	16,283	17,851	19,625	16,915	17,519	17,576	16,636
Professional services	1,664	1,658	1,222	1,513	1,208	2,354	1,699	1,879
Total revenue	16,705	17,941	19,073	21,138	18,123	19,873	19,275	18,515
Operating profit	5,374	7,024	8,406	8,750	7,068	9,343	7,538	7,802
Operating profit (%)	32	39	44	41	39	47	39	42
Profit before income and other taxes	5,980	7,104	9,406	8,400	6,439	9,350	7,054	9,613
Income and other taxes	1,722	2,048	2,559	2,426	1,997	2,482	1,942	2,550
Net income for the period	4,258	5,056	6,847	5,974	4,442	6,868	5,112	7,063
EBITDA(5)	5,837	7,505	8,915	9,250	8,118	10,426	8,644	8,923
Cash dividends declared and paid	8,021	8,024	8,022	8,023	8,022	8,026	8,025	8,024
Funds flow from operations	5,242	5,777	7,550	7,024	6,097	7,787	7,366	7,515
Free cash flow(5)	4,909	5,697	7,297	6,948	5,707	7,274	6,726	6,840
Per share amounts - ($/share)
Earnings per share - basic and diluted	0.05	0.06	0.09	0.07	0.06	0.09	0.06	0.09
Cash dividends declared and paid	0.10	0.10	0.10	0.10	0.10	0.10	0.10	0.10
Funds flow from operations per share - basic	0.07	0.07	0.09	0.09	0.08	0.10	0.09	0.09
Free cash flowper share - basic(5)	0.06	0.07	0.09	0.09	0.07	0.09	0.08	0.09

(1) Q1, Q2, Q3 and Q4 of fiscal 2019 include $0.1 million, $0.3 million, $2.3 million and $1.8 million, respectively, in revenue that pertains to usage of CMG’s products in prior quarters.

(2) Q1, Q2, Q3 and Q4 of fiscal 2020 include $0.2 million, $0.3 million, $0.2 million and $0.5 million, respectively, in revenue that pertains to usage of CMG’s products in prior quarters.

Management’s Discussion & Analysis

Computer Modelling Group Ltd. 2020 Financial Report

Impact of IFRS 16

Effective April 1, 2019, the Company adopted IFRS 16 Leases . This new standard replaces IAS 17 Leases and requires the recognition of most leases on the balance sheet. IFRS 16 effectively removes the classification of leases as either finance or operating leases and treats all leases as finance leases for lessees. The Company adopted IFRS 16 using the modified retrospective approach, by adjusting opening retained earnings with no restatement of comparative figures. As such, comparative information continues to be reported under the previous lease standard. Upon IFRS 16 adoption, the Company:

Recognized lease liability of $43.1 million;
Recognized right-of-use assets of $39.8 million;
Recognized the difference between the lease liability and the right-of-use assets in opening retained earnings. Deferred rent liability, which is not required under IFRS 16, and prepaid rent were also reversed against opening retained earnings, for a total impact of $1.1 million.

The adoption of IFRS 16 resulted in a net decrease to operating expenses due to lower rent expense, partially offset by higher depreciation expense on the recognition of right-of-use assets, and an increase to finance costs due to interest expense on the lease liability. Overall, this standard had a negative impact of $0.7 million on the Company’s profit before income and other taxes for the year ended March 31, 2020. Further disclosure is provided in note 4 to the consolidated financial statements.

Computer Modelling Group Ltd. 2020 Financial Report

Management’s Discussion & Analysis

The impact of adopting IFRS 16 on the Company’s condensed consolidated interim financial statements is set out below:

Condensed Consolidated Statement of Financial Position

==> picture [505 x 397] intentionally omitted <==

----- Start of picture text -----

March 31, 2020
March 31, 2020 Balance without
(thousands of $) As reported Adjustments IFRS 16 adoption
Assets
Current assets:
Cash 40,505 - 40,505
Trade and other receivables 26,277 - 26,277
Prepaid expenses 913 113 1,026
Prepaid income taxes 771 - 771
68,466 113 68,579
-
Property and equipment 13,507 13,507
-
Right-of-use assets 37,901 (37,901)
Deferred tax asset 992 (484) 508
Total assets 120,866 (38,272) 82,594
Liabilities and shareholders’ equity
Current liabilities:
Trade payables and accrued liabilities 6,224 96 6,320
Income taxes payable 60 - 60
Deferred revenue 33,838 - 33,838
Lease liability 1,313 (1,313) -
41,435 (1,217) 40,218
-
Lease liability 41,062 (41,062)
Deferred rent liability - 2,237 2,237
Total liabilities 82,497 (40,042) 42,455
Shareholders’ equity:
-
Share capital 79,851 79,851
-
Contributed surplus 13,533 13,533
Deficit (55,015) 1,770 (53,245)
Total shareholders' equity 38,369 1,770 40,139
Total liabilities and shareholders' equity 120,866 (38,272) 82,594
----- End of picture text -----

Management’s Discussion & Analysis

Computer Modelling Group Ltd. 2020 Financial Report

Condensed Consolidated Statements of Operations and Comprehensive Income

			Year ended
	Year ended		March 31, 2020
	March 31, 2020		without
(thousands of $ except per share amounts)	As reported	Adjustments	IFRS 16 adoption
Revenue	75,786	-	75,786
Operating expenses
Sales, marketing and professional services	18,126	268	18,394
Research and development	19,244	916	20,160
General and administrative	6,665	220	6,885
	44,035	1,404	45,439
Operating profit	31,751	(1,404)	30,347
Finance income	2,833	9	2,842
Finance costs	(2,128)	2,128	-
Profit before income and other taxes	32,456	733	33,189
Income and other taxes	8,971	101	9,072
Net and total comprehensive income	23,485	632	24,117
Earningsper share, basic and diluted	0.29	0.01	0.30

The Company’s actual cash flows are unaffected by IFRS 16. However, the principal reduction portion of lease payments is now classified as financing activities instead of operating activities:

Condensed Consolidated Statement of Cash Flows

	Year ended
Year ended	March 31, 2020
March 31, 2020	without
(thousands of $) As reported	Adjustments IFRS 16 adoption
Net cash provided by operating activities 20,530 Net cash used in financing activities (33,325)	(1,228) 19,302 1,228 (32,097)

Computer Modelling Group Ltd. 2020 Financial Report

Management’s Discussion & Analysis

Highlights

During the three months

During the year

ended March 31, 2020, compared to the same period of the previous fiscal year:

Annuity/maintenance license revenue decreased by 9%, mainly due to one-time maintenance reactivation recorded in the comparative period;
Total revenue decreased by 12%;
Net income increased by 18%;
EBITDA decreased by 4% (without the positive impact of IFRS 16 adoption, EBITDA decreased by 14%).
Annuity/maintenance license revenue remained flat, with more revenue being of a recurring nature, compared to the prior year;
Total revenue increased by 1%;
Net income increased by 6%;
EBITDA increased by 15% (without the positive impact of IFRS 16 adoption, EBITDA increased by 3%).

During the three months

ended March 31, 2020, CMG:

During the year

ended March 31, 2020, CMG:

Realized basic EPS of $0.09;
Achieved free cash flow per share of $0.08;
Declared and paid a dividend of $0.10 per share.
Realized basic EPS of $0.29;
Achieved free cash flow per share of $0.33;
Declared and paid dividends of $0.40 per share.

Revenue

==> picture [505 x 236] intentionally omitted <==

----- Start of picture text -----

Three months ended March 31, 2020 2019 $ change % change
($ thousands)
Software license revenue 16,636 19,625 (2,989) -15%
Professional services 1,879 1,513 366 24%
Total revenue 18,515 21,138 (2,623) -12%
Software license revenue as a % of total revenue 90% 93%
Professional services as a % of total revenue 10% 7%
Years ended March 31, 2020 2019 $ change % change
($ thousands)
Software license revenue 68,646 68,800 (154) 0%
Professional services 7,140 6,057 1,083 18%
Total revenue 75,786 74,857 929 1%
Software license revenue as a % of total revenue 91% 92%
Professional services as a % of total revenue 9% 8%
----- End of picture text -----

CMG’s revenue is comprised of software license sales, which provide the majority of the Company’s revenue, and fees for professional services.

Total revenue for the three months ended March 31, 2020 decreased by 12%, compared to the same period of the previous fiscal year, due to a decrease in software license revenue, which was partially offset by an increase in professional services revenue.

Total revenue for the year ended March 31, 2020 increased by 1% compared to the previous fiscal year, as professional services revenue increased and software licenses revenue remained flat.

Management’s Discussion & Analysis

Computer Modelling Group Ltd. 2020 Financial Report

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.

==> picture [505 x 236] intentionally omitted <==

----- Start of picture text -----

Three months ended March 31, 2020 2019 $ change % change
($ thousands)
Annuity/maintenance license revenue 15,233 16,734 (1,501) -9%
Perpetual license revenue 1,403 2,891 (1,488) -51%
Total software license revenue 16,636 19,625 (2,989) -15%
Annuity/maintenance as a % of total software license revenue 92% 85%
Perpetual as a % of total software license revenue 8% 15%
Years ended March 31, 2020 2019 $ change % change
($ thousands)
Annuity/maintenance license revenue 63,974 63,800 174 0%
Perpetual license revenue 4,672 5,000 (328) -7%
Total software license revenue 68,646 68,800 (154) 0%
Annuity/maintenance as a % of total software license revenue 93% 93%
Perpetual as a % of total software license revenue 7% 7%
----- End of picture text -----

Total software license revenue for the three months ended March 31, 2020 decreased by 15% compared to the same period of the previous fiscal year, due to decreases in both annuity/maintenance license revenue and perpetual license revenue.

Total software license revenue for the year ended March 31, 2020 remained flat compared to the previous fiscal year.

CMG’s annuity/maintenance license revenue for the three months ended March 31, 2020 decreased by 9%, compared to the same period of the previous fiscal year. All geographic regions experienced decreases, but the largest decrease was in the Eastern Hemisphere, because the comparative quarter included revenue related to one-time maintenance contract reactivation.

Annuity/maintenance license revenue for the year ended March 31, 2020 remained flat, as increases in the United States and the Eastern Hemisphere were offset by decreases in Canada and South America.

Our annuity/maintenance license revenue can be significantly impacted by the variability of the amounts recorded from a longstanding South American customer and its affiliates for whom revenue recognition criteria are fulfilled only at the time of the receipt of funds (see the discussion about revenue earned in the current quarter that pertains to usage of products in prior quarters before the “Quarterly Software License Revenue” graph). Due to the economic conditions in the country where this customer and its affiliates are located, revenue from them will continue to be recognized on a cash basis. The timing of such payments may skew the comparison of annuity/maintenance license revenue between periods. We recorded revenue from this customer in the third quarter of the previous fiscal year, but none during the current fiscal year. Normalized for this prior year revenue, annuity/maintenance license revenue for the year ended Mach 31, 2020, compared to the previous fiscal year, increased by 3% instead of remaining flat.

Computer Modelling Group Ltd. 2020 Financial Report

Management’s Discussion & Analysis

Perpetual license revenue for the three months ended March 31, 2020 decreased by 51% as there were fewer perpetual sales in the United States and the Eastern Hemisphere and none in Canada and South America. Perpetual license revenue for the year ended March 31, 2020 decreased by 7% compared to the previous fiscal year, as lower perpetual sales in Canada, the United States and the Eastern Hemisphere were partially offset by higher perpetual sales in South America. Software licensing under perpetual sales 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. In our experience, the majority of perpetual sales are generated in South America and the Eastern Hemisphere, as North American customers prefer annuity leases over perpetual purchases.

We can observe from the tables below that the exchange rate between the US and Canadian dollar had a negative impact on reported software license revenue during the three months ended March 31, 2020 and a positive impact during the year ended March 31, 2020, compared to the same periods of the previous fiscal year.

The following table summarizes the US dollar-denominated revenue and the weighted average exchange rate at which it was converted to Canadian dollars:

==> picture [510 x 262] intentionally omitted <==

----- Start of picture text -----

Three months ended March 31, 2020 2019 $ change % change
($ thousands)
US dollar annuity/maintenance license revenue US$ 9,095 10,050 (955) -10%
Weighted average conversion rate 1.325 1.332
Canadian dollar equivalent CDN$ 12,048 13,386 (1,338) -10%
US dollar perpetual license revenue US$ 1,050 663 387 58%
Weighted average conversion rate 1.336 1.364
Canadian dollar equivalent CDN$ 1,403 904 499 55%
Years ended March 31, 2020 2019 $ change % change
($ thousands)
US dollar annuity/maintenance license revenue US$ 37,819 39,329 (1,510) -4%
Weighted average conversion rate 1.333 1.294
Canadian dollar equivalent CDN$ 50,423 50,882 (459) -1%
US dollar perpetual license revenue US$ 3,511 2,276 1,235 54%
Weighted average conversion rate 1.331 1.324
Canadian dollar equivalent CDN$ 4,672 3,014 1,658 55%
----- End of picture text -----

Management’s Discussion & Analysis

Computer Modelling Group Ltd. 2020 Financial Report

The following table quantifies the foreign exchange impact on our software license revenue:

Three months ended March 31,	2019	Incremental License	Foreign Exchange	2020
($ thousands)		Growth	Impact
Annuity/maintenance license revenue	16,734	(1,436)	(65)	15,233
Perpetual license revenue	2,891	(1,459)	(29)	1,403
Total software license revenue	19,625	(2,895)	(94)	16,636
Years ended March 31,	2019	Incremental License	Foreign Exchange	2020
($ thousands)		Growth	Impact
Annuity/maintenance license revenue	63,800	(1,322)	1,496	63,974
Perpetual license revenue	5,000	(351)	23	4,672
Total software license revenue	68,800	(1,673)	1,519	68,646

As discussed previously, our annuity/maintenance license revenue can be significantly impacted by the variability of the amounts recorded from a long-standing customer and its affiliates for whom revenue recognition criteria are fulfilled only at the time of the receipt of funds. If we were to normalize for such revenue, incremental license growth for the year ended March 31, 2020 in the table above would be $0.2 million.

Software Revenue by Geographic Region

==> picture [504 x 246] intentionally omitted <==

----- Start of picture text -----

Three months ended March 31, 2020 2019 $ change % change
($ thousands)
Annuity/maintenance license revenue
Canada 3,324 3,725 (401) -11%
United States 4,524 4,664 (140) -3%
South America 1,694 1,924 (230) -12%
Eastern Hemisphere [(1)] 5,691 6,421 (730) -11%
15,233 16,734 (1,501) -9%
Perpetual license revenue
Canada - - - 0%
United States 163 582 (419) -72%
South America - - - 0%
Eastern Hemisphere 1,240 2,309 (1,069) -46%
1,403 2,891 (1,488) -51%
Total software license revenue
Canada 3,324 3,725 (401) -11%
United States 4,687 5,246 (559) -11%
South America 1,694 1,924 (230) -12%
Eastern Hemisphere 6,931 8,730 (1,799) -21%
16,636 19,625 (2,989) -15%
----- End of picture text -----

Computer Modelling Group Ltd. 2020 Financial Report

Management’s Discussion & Analysis

==> picture [506 x 245] intentionally omitted <==

----- Start of picture text -----

Years ended March 31, 2020 2019 $ change % change
($ thousands)
Annuity/maintenance license revenue
Canada 14,977 15,151 (174) -1%
United States 19,655 18,620 1,035 6%
South America 7,625 8,734 (1,109) -13%
Eastern Hemisphere [(1)] 21,717 21,295 422 2%
63,974 63,800 174 0%
Perpetual license revenue
Canada - 156 (156) -100%
United States 461 1,096 (635) -58%
South America 1,280 6 1,274 21233%
Eastern Hemisphere 2,931 3,742 (811) -22%
4,672 5,000 (328) -7%
Total software license revenue
Canada 14,977 15,307 (330) -2%
United States 20,116 19,716 400 2%
South America 8,905 8,740 165 2%
Eastern Hemisphere 24,648 25,037 (389) -2%
68,646 68,800 (154) 0%
----- End of picture text -----

(1) Includes Europe, Africa, Asia and Australia.

During the three months ended March 31, 2020, total software license revenue decreased in all geographic regions. During the year ended March 31, 2020, the United States and South America increased, while Canada and the Eastern Hemisphere decreased, resulting in consistent total software license revenue year over year.

The Canadian region (representing 22% of annual total software license revenue) experienced decreases of 11% and 1% in annuity/maintenance license revenue during the three months and year ended March 31, 2020, respectively, compared to the same periods of the previous fiscal year. The region showed growth during the first three quarters of the current fiscal year, but decreased in the fourth quarter, due to decreases in licensing by existing customers, partially caused by the negative impact of the consolidation activity in the industry. No perpetual sales were realized in Canada during the three months and year ended March 31, 2020.

The United States (representing 29% of annual total software license revenue) experienced a 3% decrease in annuity/maintenance license revenue during the three months and a 6% increase during the year ended March 31, 2020, compared to the same periods of the previous fiscal year. The region performed strongly during the first three quarters of the year, but dropped in the fourth quarter due to decreased licensing by some customers. Perpetual sales in the United States were lower during the three months and year ended March 31, 2020, compared to the same periods of the previous fiscal year.

South America (representing 13% of annual total software license revenue) experienced decreases of 12% and 13% in annuity/maintenance license revenue during the three months and year ended March 31, 2020, respectively. Our revenue in South America can be significantly impacted by the variability of the amounts recorded from a customer and its affiliates for whom revenue is recognized only when cash is received (see the discussion about revenue earned in the current quarter that pertains to usage of products in prior quarters on the next page, above the “Quarterly Software License Revenue” graph). We received payment from this customer in the third quarter of the previous fiscal year, but none during the current fiscal year. To provide a normalized comparison, if we exclude revenue from this customer from the previous year, we note that South American annuity/maintenance license revenue increased by 11% (instead of decreasing by 13%) during the year ended March 31, 2020, compared to the previous fiscal year. This normalized increase during the current fiscal year was mainly due to increased licensing by existing customers. There were more perpetual sales realized in South America during the current fiscal year than in the previous fiscal year.

Management’s Discussion & Analysis

Computer Modelling Group Ltd. 2020 Financial Report

The Eastern Hemisphere (representing 36% of annual total software license revenue) experienced a decrease of 11% in annuity/maintenance license revenue during the three months ended March 31, 2020, compared to the same period of the previous fiscal year, due to maintenance contract reactivation recorded in the comparative period. Despite this decrease during the fourth quarter, annuity/maintenance license revenue in this region grew by 2% on a full year basis, due to a combination of increased licensing by existing customers and the addition of new customers. Perpetual license revenue decreased by 46% and 22% during the three months and year ended March 31, 2020, compared to the same periods of the previous fiscal year.

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 license revenue stream. 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. Please refer to the yellow bars and the footnotes in the graph below:

Quarterly Software License Revenue

($ thousands)

(1) Q1, Q2, Q3 and Q4 of fiscal 2016 include $1.0 million, $0.3 million, $0.7 million, and $0.9 million, respectively, in revenue that pertains to usage of CMG's products in prior quarters.

(2) Q1, Q2, Q3 and Q4 of fiscal 2017 include $1.8 million, $0.3 million, $3.7 million, and $0.7 million, respectively, in revenue that pertains to usage of CMG's products in prior quarters.

(3) Q1, Q2, Q3 and Q4 of fiscal 2018 include $1.5 million, $1.0 million, $0.6 million, and $1.3 million, respectively, in revenue that pertains to usage of CMG’s products in prior quarters.

(4) Q1, Q2, Q3 and Q4 of fiscal 2019 include $0.1 million, $0.3 million, $2.3 million, and $1.8 million, respectively, in revenue that pertains to usage of CMG’s products in prior quarters.

(5) Q1, Q2, Q3 and Q4 of fiscal 2020 include $0.2 million, $0.3 million, $0.2 million and $0.5 million respectively, in revenue that pertains to usage of CMG’s products in prior quarters.

Computer Modelling Group Ltd. 2020 Financial Report

Management’s Discussion & Analysis

Deferred Revenue

==> picture [422 x 81] intentionally omitted <==

----- Start of picture text -----

($ thousands) Fiscal 2020 Fiscal 2019 $ change % change
Deferred revenue at:
Q1 (June 30) 29,266 29,350 (1) (84) 0%
Q2 (September 30) 23,849 23,222 (2) 627 3%
Q3 (December 31) 15,679 13,782 1,897 14%
Q4 (March 31) 33,838 35,015 (3) (1,177) -3%
----- End of picture text -----

(1) Includes current deferred revenue of $28.8 million and long-term deferred revenue of $0.6 million.

(2) Includes current deferred revenue of $22.9 million and long-term deferred revenue of $0.3 million.

(3) Includes current deferred revenue of $34.7 million and long-term deferred revenue of $0.3 million.

CMG’s deferred revenue consists primarily of amounts for pre-sold licenses. With the exception of certain term-based software licenses that are recognized at the start of the license period, our annuity/maintenance revenue is deferred and recognized ratably over the 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 above table illustrates the normal trend in the deferred revenue balance from the beginning of the calendar year (which corresponds with Q4 of our fiscal year), when most renewals occur, to the end of the calendar year (which corresponds with Q3 of our fiscal year). Our 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.

Deferred revenue as at the end of fiscal 2020 decreased by 3% compared to fiscal 2019 and included a positive impact of the timing of renewals.

Professional Services Revenue

Professional services revenue was $1.9 million and $7.1 million for the three months and year ended March 31, 2020, respectively, up by $0.4 million and $1.1 million from the same periods of the previous fiscal year. The increase was due to the amendment to the CoFlow agreement with Shell Global Solutions International B.V. (“Shell”), pursuant to which CMG received development funding for additional resources allocated to CoFlow development and support (see “Commitments, Off Balance Sheet Items and Transactions with Related Parties”). This increase was partially offset by lower consulting revenue due to lower customer project activity.

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 customer companies.

Management’s Discussion & Analysis

Computer Modelling Group Ltd. 2020 Financial Report

To facilitate analysis and year-over-year comparison, current fiscal year’s metrics and ratios affected by IFRS 16 have been presented under both IFRS 16 and the previous lease standard in the following sections.

Expenses

Expenses
	Previous
	lease
Three months ended March 31,	standard	IFRS 16	IFRS 16
($ thousands, except per share data)	2020	impact	2020	2019	$ change % change
Sales, marketing and professional services	4,467	(69)	4,398	5,216	(818)	-16%
Research and development	5,012	(229)	4,783	5,280	(497)	-9%
General and administrative	1,587	(55)	1,532	1,892	(360)	-19%
Total operating expenses	11,066	(353)	10,713	12,388	(1,675)	-14%
Direct employee costs(1)	8,153	-	8,153	9,237	(1,084)	-12%
Othercorporate costs	2,913	(353)	2,560	3,151	(591)	-19%
	11,066	(353)	10,713	12,388	(1,675)	-14%
	Previous
	lease
Years ended March 31,	standard	IFRS 16	IFRS 16
($ thousands, except per share data)	2020	impact	2020	2019	$ change % change
Sales, marketing and professional services	18,394	(268)	18,126	18,690	(564)	-3%
Research and development	20,160	(916)	19,244	19,893	(649)	-3%
General and administrative	6,885	(220)	6,665	6,720	(55)	-1%
Total operating expenses	45,439	(1,404)	44,035	45,303	(1,268)	-3%
Direct employee costs(1)	33,905	-	33,905	33,481	424	1%
Othercorporate costs	11,534	(1,404)	10,130	11,822	(1,692)	-14%
	45,439	(1,404)	44,035	45,303	(1,268)	-3%

(1) Includes salaries, bonuses, stock-based compensation, benefits, commissions, and professional development. See “Non-IFRS Financial Measures”.

Prior to applying IFRS 16, total operating expenses for the three months ended March 31, 2020 decreased by 11%, due to lower stock-based compensation on cash-settled awards as a result of a decreased share price. Prior to applying IFRS 16, total operating expenses for the year ended March 31, 2020 remained flat compared to the previous fiscal year.

The application of IFRS 16 decreased total operating expenses by $0.4 million in the three-month period and by $1.4 million in the year ended March 31, 2020. This net decrease is a combination of lower rent expense (because under IFRS 16 rent payments are classified as finance costs and repayment of lease liability), partially offset by higher depreciation expense on the recognition of right-of-use assets.

Direct Employee Costs

As a technology company, CMG’s largest area of expenditure is its people. Approximately 77% of the total operating expenses for the year ended March 31, 2020 related to direct employee costs. Staffing levels in the current fiscal year to date were comparable to the previous fiscal year. At March 31, 2020, CMG’s full-time equivalent staff complement was 192 employees and consultants, consistent with the previous year end. Direct employee costs for the three months ended March 31, 2020 decreased compared to the same period of the previous fiscal year due to lower stock-based compensation. Direct employee costs for the year ended March 31, 2020 were up by 1% compared to the previous fiscal year.

Computer Modelling Group Ltd. 2020 Financial Report

Management’s Discussion & Analysis

Other Corporate Costs

Prior to the application of IFRS 16, other corporate costs for the three months ended March 31, 2020 were down by 8% due to lower office-related costs. Prior to the application of IFRS 16, other corporate costs for the year ended March 31, 2020 decreased slightly by 2%.

Research and Development

==> picture [504 x 233] intentionally omitted <==

----- Start of picture text -----

Previous
lease
Three months ended March 31, standard IFRS 16 IFRS 16
($ thousands, except per share data) 2020 impact 2020 2019 $ change % change
Research and development (gross) 5,338 (229) 5,109 5,513 (404) -7%
SR&ED credits (326) - (326) (233) (93) 40%
Research and development 5,012 (229) 4,783 5,280 (497) -9%
Research and development as a % of total revenue 27% 26% 25%
Previous
lease
Years ended March 31, standard IFRS 16 IFRS 16
($ thousands, except per share data) 2020 impact 2020 2019 $ change % change
Research and development (gross) 21,667 (916) 20,751 21,206 (455) -2%
SR&ED credits (1,507) - (1,507) (1,313) (194) 15%
Research and development 20,160 (916) 19,244 19,893 (649) -3%
Research and development as a % of total revenue 27% 25% 27%
----- End of picture text -----

CMG maintains a 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 costs include $2.2 million and $8.7 million of costs for CoFlow for the three months and year ended March 31, 2020, respectively (2019 – $2.0 million and $7.6 million). See discussion under “Commitments, Off Balance Sheet Items and Transactions with Related Parties”.

Prior to applying IFRS 16, research and development costs for the three months ended March 31, 2020 decreased by 3%, compared to the same period of the previous fiscal year, primarily due to lower stock-based compensation. Prior to applying IFRS 16, research and development costs for the year ended March 31, 2020 increased slightly by 1%, due to an operating cost refund included in the previous year.

The application of IFRS 16 decreased research and development costs by $0.2 million in the three-month period and by $0.9 million for the year ended March 31, 2020. This net decrease is a combination of lower rent expense (because under IFRS 16 rent payments are classified as finance costs and repayment of lease liability), partially offset by higher depreciation expense on the recognition of right-of-use assets.

SR&ED credits increased by 40% and 15% for the three months and year ended March 31, 2020, compared to the same periods of the previous fiscal year, mainly due to an increase in hours spent on SR&ED-eligible projects.

Research and development costs as a percentage of total revenue for the three months and year ended March 31, 2020 were comparable to the same periods of the previous year.

Management’s Discussion & Analysis

Computer Modelling Group Ltd. 2020 Financial Report

Depreciation

	Previous
	lease
Three months ended March 31,	standard	IFRS 16	IFRS 16
($ thousands, except per share data)	2020	impact	2020	2019	$ change	% change
Depreciation of property and equipment, allocated to:
Sales, marketing and professional services	102	157	259	117	142	121%
Research and development	366	355	721	320	401	125%
General and administrative	56	85	141	63	78	124%
Total depreciation	524	597	1,121	500	621	124%

	Previous
	lease
Years ended March 31,	standard	IFRS 16	IFRS 16
($ thousands, except per share data)	2020	impact	2020	2019	$ change	% change
Depreciation of property and equipment, allocated to:
Sales, marketing and professional services	439	626	1,065	447	618	138%
Research and development	1,322	1,414	2,736	1,272	1,464	115%
General and administrative	222	337	559	234	325	139%
Total depreciation	1,983	2,377	4,360	1,953	2,407	123%

Depreciation increased by 124% and 123% in the three months and year ended March 31, 2020 due to the additional depreciation associated with the right-of-use assets recognized under IFRS 16.

Finance Income and Costs

Finance Income and Costs
	Previous
	lease
Three months ended March 31,	standard	IFRS 16	IFRS 16
($ thousands, except per share data)	2020	impact	2020	2019	$ change	% change
Interest income	205	-	205	293	(88)	-30%
Net foreign exchangegain	2,181	(47)	2,134	-	2,134	100%
Total finance income	2,386	(47)	2,339	293	2,046	698%
Interest expense on lease liability	-	(528)	(528)	-	(528)	-100%
Net foreign exchange loss	-	-	-	(643)	643	-100%
Total finance costs	-	(528)	(528)	(643)	115	-18%

Computer Modelling Group Ltd. 2020 Financial Report

Management’s Discussion & Analysis

	Previous
	lease
Years ended March 31,	standard	IFRS 16	IFRS 16
($ thousands, except per share data)	2020	impact	2020	2019	$ change	% change
Interest income	1,127	-	1,127	1,214	(87)	-7%
Net foreign exchangegain	1,715	(9)	1,706	122	1,584	1298%
Total finance income	2,842	(9)	2,833	1,336	1,497	112%
Interest expense on lease liability	-	(2,128)	(2,128)	-	(2,128)	-100%
Net foreign exchange loss	-	-	-	-	-	-100%
Total finance costs	-	(2,128)	(2,128)	-	(2,128)	-100%

Interest income for the three months and year ended March 31, 2020 was lower compared to the same periods of the previous fiscal year, due to lower cash balances. Interest expense on lease liability is the result of the adoption of IFRS 16, as explained earlier.

CMG is impacted by foreign exchange fluctuations, as approximately 74% of CMG’s revenue for the year ended March 31, 2020 (2019 – 74%) is denominated in US dollars, whereas only approximately 25% (2019 – 26%) of CMG’s total costs are denominated in US dollars.

The following chart shows the exchange rates used to translate CMG’s USD-denominated working capital at March 31, 2020, 2019 and 2018 and the average exchange rates used to translate income statement items during the years ended March 31, 2020, 2019 and 2018:

==> picture [500 x 52] intentionally omitted <==

----- Start of picture text -----

CDN$ to US$ At March 31 Yearly average
2018 0.7756 0.7781
2019 0.7483 0.7633
2020 0.7049 0.7539
----- End of picture text -----

CMG recorded a net foreign exchange gain of $2.2 million and $1.7 million for the three months and year ended March 31, 2020, respectively, due to a strengthening of the US dollar at period end, which positively affected the valuation of the USDdenominated portion of the Company’s working capital.

Income and Other Taxes

CMG’s effective tax rate for the year ended March 31, 2020 is 27.6% (2019 – 28.3%), whereas the blended Canadian statutory tax rate for the Company’s 2020 fiscal year is 26.0% (decreased from 27.0% in fiscal 2019, with further rate reductions legislated over the next two years). This difference between the effective rate and the statutory rate is primarily due to revaluing CMG’s deferred tax assets at the lower tax rate and the non-tax deductibility of stock-based compensation expense.

The benefit recorded in CMG’s books on the scientific research and experimental development (“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.

Management’s Discussion & Analysis

Computer Modelling Group Ltd. 2020 Financial Report

Operating Profit and Net Income

Operating Profit and Net Income
	Previous
	lease
Three months ended March 31,	standard	IFRS 16	IFRS 16
($ thousands, except per share data)	2020	impact	2020	2019	$ change	% change
Total revenue	18,515	-	18,515	21,138	(2,623)	-12%
Operatingexpenses	(11,066)	353	(10,713)	(12,388)	1,675	-14%
Operating profit	7,449	353	7,802	8,750	(948)	-11%
Operating profit as a % of revenue	40%		42%	41%
Net income for the period	7,247	(184)	7,063	5,974	1,089	18%
Net income as a%of total revenue	39%		38%	28%
Basic earningsper share($/share)	0.09	-	0.09	0.07	0.02	29%

	Previous
	lease
Years ended March 31,	standard	IFRS 16	IFRS 16
($ thousands, except per share data)	2020	impact	2020	2019	$ change	% change
Total revenue	75,786	-	75,786	74,857	929	1%
Operating expenses	(45,439)	1,404	(44,035)	(45,303)	1,268	-3%
Operating profit	30,347	1,404	31,751	29,554	2,197	7%
Operating profit as a % of revenue	40%		42%	39%
Net income for the period	24,117	(632)	23,485	22,135	1,350	6%
Net income as a%of total revenue	32%		31%	30%
Basic earningsper share($/share)	0.30	0.01	0.29	0.28	0.01	4%

Prior to applying IFRS 16, operating profit as a percentage of total revenue for the three months and year ended March 31, 2020 was 40%, consistent with 41% and 39% in the comparative periods. Under IFRS 16, operating profit as a percentage of total revenue was slightly higher at 42%, because the adoption of IFRS 16 decreased operating expenses.

Net income as a percentage of total revenue was 38% for the three months ended March 31, 2020, up from 28% in the comparative period, due to lower stock-based compensation and a foreign exchange gain recorded in the current quarter (versus a foreign exchange loss in the comparative quarter), partially offset by lower revenue.

Net income as a percentage of total revenue for the year ended March 31, 2020 was 31%, a slight increase from 30% in the previous fiscal year.

The adoption of IFRS 16 had a nominal impact on net income as a percentage of revenue.

EBITDA[(1)]

==> picture [504 x 146] intentionally omitted <==

----- Start of picture text -----

Previous
lease
Three months ended March 31, standard IFRS 16 IFRS 16
($ thousands, except per share data) 2020 impact 2020 2019 $ change % change
Net income for the period 7,247 (184) 7,063 5,974 1,089 18%
Add (deduct):
Depreciation 524 597 1,121 500 621 124%
Finance (income) costs (2,386) 575 (1,811) 350 (2,161) -617%
Income and other taxes 2,588 (38) 2,550 2,426 124 5%
EBITDA 7,973 950 8,923 9,250 (327) -4%
EBITDA as a % of total revenue 43% 48% 44%
----- End of picture text -----

Computer Modelling Group Ltd. 2020 Financial Report

Management’s Discussion & Analysis

==> picture [504 x 146] intentionally omitted <==

----- Start of picture text -----

Previous
lease
Years ended March 31, standard IFRS 16 IFRS 16
($ thousands, except per share data) 2020 impact 2020 2019 $ change % change
Net income for the period 24,117 (632) 23,485 22,135 1,350 6%
Add (deduct):
Depreciation 1,983 2,377 4,360 1,953 2,407 123%
Finance (income) costs (2,842) 2,137 (705) (1,336) 631 -47%
Income and other taxes 9,072 (101) 8,971 8,755 216 2%
EBITDA 32,330 3,781 36,111 31,507 4,604 15%
EBITDA as a % of total revenue 42% 48% 42%
----- End of picture text -----

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

Prior to applying IFRS 16, EBITDA as a percentage of total revenue for the three months and year ended March 31, 2020 was 43% and 42%, consistent with 44% and 42% in the same periods of the previous fiscal year.

EBITDA is higher under IFRS 16 than prior to applying IFRS 16 – 48% for the three months and year ended March 31, 2020 – because rent payments (which used to be included in EBITDA as rent expense) are now recorded as finance costs and repayment of lease liability (both of which are excluded from the calculation of EBITDA).

Liquidity and Capital Resources

Liquidity and Capital Resources
	Previous
	lease
Three months ended March 31,	standard	IFRS 16	IFRS 16
($ thousands, except per share data)	2020	impact	2020	2019	$ change	% change
Cash, beginning of period	36,773	-	36,773	45,603	(8,830)	-19%
Cash flow provided by (used in):
Operating activities	12,052	379	12,431	16,786	(4,355)	-26%
Financing activities	(8,024)	(379)	(8,403)	(8,023)	(380)	-5%
Investingactivities	(296)	-	(296)	(76)	(220)	-289%
Cash, end ofperiod	40,505	-	40,505	54,290	(13,785)	-25%
	Previous
	lease
Years ended March 31,	standard	IFRS 16	IFRS 16
($ thousands, except per share data)	2020	impact	2020	2019	$ change	% change
Cash, beginning of period	54,290	-	54,290	63,719	(9,429)	-15%
Cash flow provided by (used in):
Operating activities	19,302	1,228	20,530	23,386	(2,856)	-12%
Financing activities	(32,097)	(1,228)	(33,325)	(32,073)	(1,252)	-4%
Investingactivities	(990)	-	(990)	(742)	(248)	-33%
Cash, end ofperiod	40,505	-	40,505	54,290	(13,785)	-25%

At March 31, 2020, CMG had $40.5 million in cash, no borrowings and access to approximately $1.0 million under a line of credit with its principal banker. The Company’s primary non-operating use of cash is for paying dividends. Management believes that the Company has sufficient capital resources to meet its operating and planned capital expenditure needs. During the year ended March 31, 2020, 25.9 million shares of CMG’s public float were traded on the TSX. As at March 31, 2020, CMG’s market capitalization based upon its March 31, 2020 closing price of $3.83 was $307.4 million.

Management’s Discussion & Analysis

Computer Modelling Group Ltd. 2020 Financial Report

Operating Activities

Prior to applying IFRS 16, cash flow from operating activities decreased by $4.7 million in the three months and by $4.1 million in the year ended March 31, 2020, compared to the same periods of the previous fiscal year. This was mainly due the change in the deferred revenue balance and the negative impact of the timing difference of when sales are made and when the resulting receivables are collected, partially offset by higher net income.

The application of IFRS 16 increased cash flow from operating activities for the three months and year ended March 31, 2020 by $0.4 million and $1.2 million, respectively, because the principal reduction portion of lease payments is classified as financing activities under IFRS 16 versus operating activities under the old standard.

Financing Activities

Prior to applying IFRS 16, cash used in financing activities has not changed in the three months and year ended March 31, 2020, compared to the same periods of the previous fiscal year. The application of IFRS 16 increased cash used in financing activities for the three months and year ended March 31, 2020 by $0.4 million and $1.2 million, respectively, because the principal reduction portion of lease payments is classified as financing activities under IFRS 16 versus operating activities under the old standard.

In the year ended March 31, 2020, CMG paid $32.1 million in dividends, representing the following quarterly dividends:

==> picture [379 x 27] intentionally omitted <==

----- Start of picture text -----

||||||
|---|---|---|---|---|
|($ per share)|Q1|Q2|Q3|Q4|
|Total dividends declared and paid|0.10|0.10|0.10|0.10|

----- End of picture text -----

In the year ended March 31, 2019 CMG paid $32.1 million in dividends, representing the following quarterly dividends:

==> picture [379 x 27] intentionally omitted <==

----- Start of picture text -----

||||||
|---|---|---|---|---|
|($ per share)|Q1|Q2|Q3|Q4|
|Total dividends declared and paid|0.10|0.10|0.10|0.10|

----- End of picture text -----

On May 27, 2020, CMG announced the payment of a quarterly dividend of $0.05 per share on CMG’s Common Shares. The dividend will be paid on June 15, 2020 to shareholders of record at the close of business on June 5, 2020. Decisions with respect to dividend payments are made by the Board of Directors on a quarterly basis and will take into account market conditions and the financial performance of the Company.

Investing Activities

CMG’s current needs for capital asset investment relate to office infrastructure costs and computer equipment, all of which are being funded internally. During the year ended March 31, 2020, CMG’s cash expenditures on property and equipment were $1.0 million, primarily composed of computer equipment. CMG’s capital budget for fiscal 2021 is $1.5 million. We will continue to monitor our business operations, and will adjust our capital budget if necessary.

Commitments, Off Balance Sheet Items and Transactions with Related Parties

CMG, in partnership with Shell currently and historically also with Petroleo Brasileiro S.A., is the developer of CoFlow, the newest generation of reservoir and production system simulation software. Under a five-year agreement entered into by Shell and CMG on January 1, 2017 (the “CoFlow Agreement”) and an amendment signed in July of 2019, CMG is responsible for the research and development costs of CoFlow (estimated to be $9.0 million in fiscal 2021), while Shell provides a contribution for the continuing development of the software (estimated to be $6.7 million in fiscal 2021).

Computer Modelling Group Ltd. 2020 Financial Report

Management’s Discussion & Analysis

CMG has very little in the way of other ongoing material contractual obligations other than pre-sold licenses, which are reflected as deferred revenue on the statement of financial position, and contractual obligations for office leases, which are estimated to be as follows as at March 31, 2020:

estimated to be as follows as at March 31, 2020:
Undiscounted lease	Operating costs
(thousands of $) liability payments	and short-term leases Total commitments
Less than one year 3,394 Between one and five years 14,209 More than fiveyears 46,483	1,135 4,529 4,363 18,572 13,680 60,163
64,086	19,178 83,264

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 IFRS 15. We follow specific and detailed guidelines in measuring revenue; however, certain judgments affect the application of our revenue recognition policies.

We recognize revenue upon transfer of control of products or services to customers at an amount that reflects the consideration the Company expects to receive in exchange for the products or services. In cases where collectability is not deemed probable, revenue is recognized upon receipt of cash, providing all other criteria have been met.

Contracts with customers often include promises to deliver multiple products, such as licenses and maintenance. Determining whether such bundled products and services are considered i) distinct performance obligations that should be separately recognized or ii) non-distinct and therefore should be combined with another good or service and recognized as a combined unit of accounting may require significant judgment. The determination of the standalone selling prices for distinct performance obligations can also require judgment and estimates.

The Company also applies estimates when calculating professional services revenue from certain consulting contracts as it relates to remaining labour hours required to complete the contract. Estimates are continually and routinely revised as new information becomes available. In assessing revenue recognition, judgment is also used in assessing 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.

Management’s Discussion & Analysis

Computer Modelling Group Ltd. 2020 Financial Report

Property and equipment

Estimates are used in determining useful economic lives of property and equipment for the purposes of calculating depreciation.

Incremental borrowing rate

Under IFRS 16 Leases , a lease liability is initially measured at the present value of the lease payments, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Company’s incremental borrowing rate. Since CMG does not have any debt, its incremental borrowing rate must be estimated using such factors as the amount of the funds that would be borrowed if the Company bought the underlying right-of-use asset, the length of the borrowing term, the nature and quality of the underlying right-of-use asset and the economic environment of the jurisdiction in which the asset is located.

Impact of the COVID-19 pandemic

In March 2020, the World Health Organization declared coronavirus outbreak ("COVID-19") a pandemic. Responses to the spread of COVID-19 resulted in a partial shutdown of the global economy leading to significant disruption to business operations and a significant increase in economic uncertainty with volatile commodity prices and currency exchange rates. In addition, the decrease in demand for crude oil has resulted in a significant decline in global energy prices. These events are resulting in a challenging economic climate in which it is difficult to reliably estimate the length or severity of these developments and their financial impact. A potential adverse impact to the Company includes reductions in revenues and cash flows and increased risk of non-payment from customers. Estimates made during this period of extreme volatility are subject to a higher level of uncertainty and as a result, there may be a further prospective impact in future periods.

New Accounting Standards Adopted

IFRS 16 Leases

Effective April 1, 2019, the Company adopted IFRS 16 Leases , which replaces IAS 17 Leases and requires the recognition of most leases on the balance sheet. IFRS 16 effectively removes the classification of leases as either finance or operating leases and treats all leases as finance leases for lessees, with optional exemptions for short-term leases where the term is twelve months or less and for leases of low value items. The accounting treatment for lessors remains essentially unchanged, with the requirement to classify leases as either finance or operating.

The Company’s only leases are office space leases, the most significant of which is the twenty-year head office lease that commenced in 2017. The Company’s accounting policy for leases under IFRS 16 is as follows:

At inception of a contract, the Company assesses whether a contract is, or contains, a lease based on whether the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. The Company recognizes a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, less any lease incentives received. The assets are depreciated to the earlier of the end of the useful life of the right-of-use asset or the lease term using the straight-line method as this most closely reflects the expected patterns of consumption of the future economic benefits. In addition, the right-of-use assets may be periodically reduced by impairment losses, if any, and adjusted for certain re-measurements of the lease liability.

The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Company’s incremental borrowing rate. Since the Company does not have any debt, its incremental borrowing rate must be estimated using such factors as the amount of the funds that would be borrowed if the Company bought the underlying right-of-use asset, the length of the borrowing term, the nature and quality of the underlying right-of-use asset and the economic environment of the jurisdiction in which the asset is located. Subsequently, the lease liability is measured at amortized cost using the effective interest method. It is remeasured whenever there is a change in future lease payments arising from a change in an index or rate, if there is a change in the Company’s estimate of the amount expected to be payable under a residual value guarantee, or if the Company changes its assessment of whether it will exercise a purchase, extension or termination option. When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use asset, or is recorded in profit or loss if the carrying amount of the right-of-use asset has been reduced to zero.

Cash payments for the principal portion of the lease liability are presented within the financing activities and the interest portion of the lease liability is presented within the operating activities of the statement of cash flows. Short-term lease payments not included in the measurement of the lease liability are presented within the operating activities of the statement of cash flows.

Computer Modelling Group Ltd. 2020 Financial Report

Management’s Discussion & Analysis

The Company applies the practical expedient not to recognize right-of-use assets and lease liabilities for short-term leases that have a lease term of 12 months or less and leases of low-value assets. The lease payments associated with these leases are recognized as an expense on a straight-line basis over the lease term.

Under IAS 17

In the comparative period, all of the Company’s leases were classified as operating leases and were not recognized in the Company’s statement of financial position. Payments made under operating leases were recognized in profit or loss on a straight-line basis over the term of the lease. Since the lease agreement for the Company's head office contains a rent escalation clause, the difference between rent expense and rent payable for the period was recorded as deferred rent within long-term liabilities in the consolidated statement of financial position.

Outstanding Share Data

The following table represents the number of Common Shares, stock options, restricted share units and performance share units outstanding

==> picture [396 x 89] intentionally omitted <==

----- Start of picture text -----

|||
|---|---|
|As at May 27, 2020|
|(thousands)|
|Common Shares|80,249|
|Stock options|3,817|
|Restricted share units(1)|369|
|Performance share units(1)|21|

----- End of picture text -----

(1) Upon vesting, restricted share units and performance share units can be exchanged for Common Shares of the Company or surrendered for cash.

The maximum number of Common Shares that may be reserved for issuance under the Company’s security-based compensation plans is limited to 10% of the issued and outstanding Common Shares. Based on this calculation, at May 27, 2020, CMG could reserve up to 8,024,000 Common Shares for issuance under its security-based compensation plans.

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. 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 revenue stream 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.

Management’s Discussion & Analysis

Computer Modelling Group Ltd. 2020 Financial Report

In terms of liquidity, the Company held $40.5 million of cash at March 31, 2020, which more than covers its obligations, and it has approximately $1.0 million of the credit facility available for its use. The Company’s cash is held with reputable banking institutions. 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 customers’ needs and budgets. CMG has found that a number of customers 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 customers 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 year ended March 31, 2020, one customer comprised more than 10% of the Company’s total revenue (year ended March 31, 2019 – nil customers).

Foreign Exchange Risk

CMG’s reported results are affected by the exchange rate between the Canadian dollar and the US dollar as approximately 74% (2019 – 74%) of product revenues in fiscal 2020 were denominated in US dollars. Approximately 25% of CMG’s total costs in fiscal 2020 (2019 – 26%) were denominated in US dollars, which provides 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 Risk

CMG sells its products and services in approximately 60 countries and maintains offices in Canada, the United States, the United Kingdom, the United Arab Emirates, Colombia and Malaysia. Some of these countries have greater economic, political and social risks than North America. Some of those risks include:

Costs associated with the use of foreign agents and contractors;
Difficulties in collecting accounts receivable;
Currency restrictions and exchange rate fluctuations;
The burdens of complying with a wide variety of foreign laws;
Changes in laws governing existing operations and contracts;
Changes to taxation policies dramatically increasing tax costs to the Company;
Possible social, labor, political, and economic instability;
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 CMG’s business, financial condition and operational results. 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 consults with tax advisors on complex tax issues and engages professional tax firms to review its tax filings in foreign jurisdictions. 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.

Computer Modelling Group Ltd. 2020 Financial Report

Management’s Discussion & Analysis

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 two major suppliers (including CMG) and a number of small suppliers. Some of the other 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 spent $19.2 million on product research and development in its most recently completed fiscal year (2019 – $19.9 million).

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 customers.

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.

Management’s Discussion & Analysis

Computer Modelling Group Ltd. 2020 Financial Report

Cyber Risk

CMG is dependent on information technology (“IT”) infrastructure to process, transmit and store electronic information, to advertise, inform and train around CMG’s products and services, to manage business operations and for the functioning and/or delivery of the Company’s products and services. CMG’s IT infrastructure is composed of hardware, software, networks, data center facilities, web servers, and all related equipment required to operate. Natural disasters, energy blackouts, operating malfunction, software virus or malware, cyber security attacks, theft, computer or telecommunication errors, human error, internal or external misconduct or other unknown disruptive events could result in the temporary or permanent loss of any or all parts of CMG’s IT infrastructure. Any such incident or breach could create system disruptions and slowdowns or could result in the loss of potential sales and existing customers. In such an event, the information stored in CMG’s IT infrastructure could be accessed, publicly disclosed, lost, or stolen, which could subject CMG to liability and cause the Company to incur significant costs to eliminate or alleviate the problem. Additionally, such occurrences could cause negative publicity, loss of sales, litigation, affect our business and financial results and harm CMG’s reputation. CMG mitigates such risks by:

ensuring the core network is not connected to the Internet;
firewalling the servers that are connected to the Internet;
restricting access to information through user authentication;
completing frequent back-ups of data in accordance with the Company’s Backup and Data Classification Policy;
having a disaster recovery plan in place;
having an Information and Cyber Security Policy in place, which informs employees, contractors and other authorized users of the Company’s IT infrastructure of their obligatory requirements for protecting the technology and information assets of the Company; and
conducting mandatory annual cyber security training for all employees.

CMG’s cyber risk oversight is conducted by the Audit Committee of the Board of Directors.

Although CMG has implemented disaster recovery plans and extensive technology security initiatives to prevent, detect and address these threats, it is virtually impossible to entirely mitigate these risks. To date, CMG has not experienced any material losses relating to cyber attacks or other information security breaches.

Evolving Laws and Regulation

CMG’s website and operations collect some user information, including personal information. The website is not used for e- commerce transactions, and CMG neither receives nor retains financial information from its website users. CMG’s products are not known to have any security vulnerabilities. CMG’s products are engineering decision-making tools and are not employed in a cyber security (mitigation or defensive) role, as part of our customers’ IT infrastructure. CMG’s software releases are scanned for software viruses and malware, confirming a lack thereof, prior to delivery to customers.

Companies that use, transmit or store data are increasingly becoming subject to legislation and regulations in numerous jurisdictions. Privacy and data protection laws are constantly evolving and there is a risk that these laws may be interpreted and applied in conflicting ways from country to country. Because CMG’s products and services are sold worldwide, certain jurisdictions may claim that we are required to comply with such laws and may cause CMG to incur additional costs. CMG could also be affected if legislation or regulations are expanded to require changes in our products, services or business practices.

Tax Liability Risk

With operations and sales in various countries, CMG is subject to taxes in several jurisdictions around the world. Significant judgment is required in determining the Company’s worldwide liability for income, indirect and other taxes, as well as potential penalties and interest. Although management believes that all expenses and tax credits claimed by the Company, including research and development expenses and foreign tax credits, are reasonable, deductible and have been correctly determined, tax authorities may disagree with the treatment of items reported by the Company, the result of which could have a material adverse effect on our financial condition and results of operations. CMG mitigates these risks by staying informed of changes

Computer Modelling Group Ltd. 2020 Financial Report

Management’s Discussion & Analysis

in tax legislation, consulting with tax advisors on complex tax issues and having professional tax firms review the Company’s tax filings.

CMG conducts operations worldwide through subsidiaries in various tax jurisdictions pursuant to transfer pricing arrangements with its subsidiaries. If two or more affiliated companies are located in different countries, the tax laws or regulations of each country generally will require that transfer prices be the same as those between unrelated companies dealing at arm’s length. While we believe that we operate in compliance with applicable transfer pricing laws and intend to continue to do so, a tax authority in one or more jurisdictions could challenge the validity of our related-party transfer pricing methodologies, which could result in adjustments in favor of the taxing authority. To address this risk, CMG engages local professional tax firms to review the Company’s transfer pricing agreements and dealings with foreign tax authorities.

Climate Change Risk

The recent shift toward public and government support of climate change initiatives, such as emission reduction targets, clean energy standards, and alternative energy incentives and mandates, could impact the demand for hydrocarbons in Canada and around the world. CMG’s customers are oil and gas companies; therefore, increasing environmental regulations, taxes, laws or penalties could reduce oil and gas producers’ cash flow by way of reduced demand, increased capital expenditures and increased operating expenses, as well as increase delays, costs or legal hurdles, which may not be recoverable in the marketplace. Such regulation changes include, but are not limited to, curtailment rules, new climate change regulations and the implementation of the Canadian Energy Regulator Act . The complexity and breadth of changes in environmental regulation make it extremely difficult to predict the potential impact to CMG; however, it is possible to conclude that these developments and future global developments in the energy sector could adversely impact the demand for CMG’s products.

Climatic Conditions

Extreme climatic conditions may also have material adverse effects on the Company’s financial condition and results of operations. Weather and climate can affect the Company directly to the extent it creates natural disasters like flooding or is connected to health concerns such as a pandemic like the current COVID-19 pandemic the Company is facing. It also affects the Company’s operations to the extent that weather and climate affect the predictability of the demand for energy and in turn the demand for the Company’s products.

In addition, the Company’s major customers are oil and gas exploration and production companies and the operations of these customers can be affected by extreme weather. This may result in cessation or diminishment of production or the implementation of new projects which can also affect the Company’s revenues. Many of the Company’s customers operate in some of the harshest environments in the world. Climate change may increase the frequency of severe weather conditions in these locations including winds, flooding and variable temperatures, which are contributing to the melting of northern ice and increased creation of icebergs. These threats to the assets and available cash of the Company’s customers, have the potential to impact their reason to or their ability to use the Company’s products.

Transition

In addition to emissions regulations and the physical risks of climate change, climate-related transition risks could have a material adverse effect on the Company’s business, financial condition and results of operations, and could adversely impact the Company’s reputation. For example, increased public opposition to companies in the oil and gas sector could lead to constrained access to insurance, liquidity and capital and changes in demand for the Company’s products, which may impact its revenue. Increasing pressure by the Company’s customers to develop new technologies to help them reduce the intensity of their operations and their emissions could require significant capital investment in research and development.

The Company’s management and Board monitors these risks on a quarterly basis and discusses strategies to deal with these risks (along with all other identified risks of the Company) at its annual strategic planning session. Overall, the Company is not able to estimate, at this time, the degree to which climate change related regulatory, climatic conditions, and transition risks could impact the Company’s financial and operating results.

Management’s Discussion & Analysis

Computer Modelling Group Ltd. 2020 Financial Report

Coronavirus Risk

The Company’s operations may be affected by the ongoing outbreak of COVID-19, which was declared a pandemic by the World Health Organization in March 2020. While this situation is expected to be temporary, the prolonged continuance of the COVID-19 crisis could adversely impact CMG’s operations, including sales activities and financial performance. In addition, the sharp decrease in global energy demand and the uncertainty surrounding the impacts of COVID-19 have led to significant declines in commodity prices and decreased oil and gas production. Low commodity prices and resulting lower cash flow and capital spending in the industry could adversely impact the demand for CMG’s products. The extent to which the COVID-19 pandemic may impact our operating results, financial condition, and cash flows will depend on future global developments, which are highly uncertain, outside of the Company’s control and cannot be accurately predicted at this time.

Amidst pandemic restrictions, CMG implemented procedures to enable us to continue to operate and minimize the impact to our business and customers. CMG remains fully operational during the pandemic with all of its employees working remotely from their homes. The Company continues its research and development activities and it continues to provide technical support and training to its customers through email, phone and video conferencing.

In addition, CMG has pre-emptively taken various cost saving and cash preservation actions to preserve liquidity, manage costs and protect shareholder value. These measures were implemented to protect CMG’s profitability and optimize free cash flow generation to maintain the strength of our balance sheet and allow for maximum flexibility in our capital allocation decisions.

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, 2020, 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 (in accordance with the COSO control framework (2013)) 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, 2020 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, 2020, 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.

Additional IFRS Measure

Funds flow from operations is an additional IFRS measure that the Company presents in its consolidated statements of cash flows. Funds flow from operations is calculated as cash flows provided by operating activities adjusted for changes in non-cash working capital. 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.

Computer Modelling Group Ltd. 2020 Financial Report

Management’s Discussion & Analysis

Non-IFRS Financial Measures

Certain financial measures in this MD&A – namely, direct employee costs, other corporate costs, EBITDA and free cash flow – do not have a standard meaning prescribed by IFRS and, accordingly, may not be comparable to measures used by other companies. 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.

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. Management uses free cash flow to help measure the capacity of the Company to pay dividends and invest in business growth opportunities.

Free Cash Flow Reconciliation to Funds Flow from Operations

			Fiscal 2019	Fiscal 2019				Fiscal 2020
($ thousands)	Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4
Funds flow from operations	5,242	5,777	7,550	7,024	6,097	7,787	7,366	7,515
Capital expenditures	(333)	(80)	(253)	(76)	(108)	(235)	(351)	(296)
Repayment of lease liabilities	-	-	-	-	(282)	(278)	(289)	(379)
Free cash flow	4,909	5,697	7,297	6,948	5,707	7,274	6,726	6,840
Years ended March 31, ($ thousands)					2020		2019	2018
Funds flow from operations Capital expenditures Repayment of lease liabilities					28,765 (990) (1,228)	25,593 (742) -		25,503 (4,673) -
Free cash flow					26,547	24,851		20,830

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”,

Management’s Discussion & Analysis

Computer Modelling Group Ltd. 2020 Financial Report

“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 CoFlow partner and it being completed in a timely manner, associated costs and future revenue;
the Company’s ability to increase or sustain its revenue if oil prices remain low;
the Company’s ability to pay dividends;
Ability to enter into additional software license agreements;
Ability to continue current research and new product development;
Ability to recruit and retain qualified staff; and
The impact of the ongoing COVID-19 pandemic on the global economy and the Company.

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 CMG’s MD&A for the year ended March 31, 2020:

Economic conditions in the oil and gas industry;
Reliance on key customers;
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 27, 2020.

Computer Modelling Group Ltd. 2020 Financial Report

Management’s Discussion & Analysis

AI assistant

Computer Modelling Group Ltd. — Annual Report 2020

43491_rns_2020-05-27_e43cd834-5eeb-4610-a60a-672d4df23a5c.pdf

To Our Shareholders:

CMG’s Response to Market Uncertainty

Fiscal 2020 Financial Achievement

Research and Development Update

Executive Appointments in Fiscal 2020

Sustainability Reporting

Closing Remarks

Management’s Discussion and Analysis

Corporate Profile

Vision, Business and Strategy

Overall Performance

Key Performance Drivers and Capability to Deliver Results

COVID-19 Impact

Annual Performance

Impact of IFRS 16

Condensed Consolidated Statement of Financial Position

Condensed Consolidated Statements of Operations and Comprehensive Income

Condensed Consolidated Statement of Cash Flows

Highlights

During the three months

During the year

During the three months

During the year

Revenue

Software License Revenue

Software Revenue by Geographic Region

Quarterly Software License Revenue

Deferred Revenue

Professional Services Revenue

Expenses

Direct Employee Costs

Other Corporate Costs

Research and Development

Depreciation

Finance Income and Costs

Income and Other Taxes

Operating Profit and Net Income

EBITDA[(1)]

Liquidity and Capital Resources

Operating Activities

Financing Activities

Investing Activities

Commitments, Off Balance Sheet Items and Transactions with Related Parties

Critical Accounting Estimates

Revenue recognition

Functional currency

Research and development

Stock-based compensation

Property and equipment

Incremental borrowing rate

Impact of the COVID-19 pandemic

New Accounting Standards Adopted

IFRS 16 Leases

Under IAS 17

Outstanding Share Data

Business Risks

Commodity Price Risk

Credit and Liquidity Risks

Sales Variability Risk

Foreign Exchange Risk

Geopolitical Risk

Competition Risk

Labour Risk

Intellectual Property Risk

Cyber Risk

Evolving Laws and Regulation

Tax Liability Risk

Climate Change Risk

Climatic Conditions

Transition

Coronavirus Risk

Disclosure Controls and Procedures and Internal Control over Financial Reporting

Additional IFRS Measure

Non-IFRS Financial Measures

Free Cash Flow Reconciliation to Funds Flow from Operations

Forward-looking Information

More from Computer Modelling Group Ltd.

Computer Modelling Group Ltd. Annual Report 2020