Computer Modelling Group Ltd. - Management Reports 2022

Management’s Discussion and Analysis

This Management’s Discussion and Analysis (“MD&A”) of financial condition and results of operations for Computer Modelling Group Ltd. (“CMG”, the "Company", "we" or "our"), dated May 18, 2022, should be read in conjunction with CMG's audited consolidated financial statements (the “Financial Statements”) and accompanying notes for the year ended March 31, 2022 and CMG’s Annual Information Form dated May 18, 2022 (“AIF”), which are available online under CMG’s issuer profile at www.sedar.com.

The Financial Statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”). The Financial Statements are presented in Canadian dollars, which is the functional and presentation currency of CMG.

Figures within this MD&A are presented in Canadian dollars, unless otherwise indicated. Financial data, other than non-IFRS financial measures, have been prepared in accordance with IFRS.

This MD&A was reviewed and approved by the Audit Committee and Board of Directors and is effective as of May 18, 2022.

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”, “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 in a volatile oil price environment;
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;
the impact of the ongoing COVID-19 pandemic on the global economy and the Company; and
the Company’s eligibility for the federal government’s Canada Emergency Wage Subsidy (“CEWS”) and Canada Emergency Rent Subsidy (“CERS”) programs.

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 this MD&A:

Computer Modelling Group Ltd. 2022 Financial Report

Management’s Discussion & Analysis

Economic conditions in the energy 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.

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.

Non-IFRS Financial Measures

Certain financial measures in this MD&A – namely, adjusted total operating expenses, direct employee costs, adjusted direct employee costs, other corporate costs, adjusted other corporate costs, adjusted operating profit, adjusted net income, EBITDA, adjusted 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 (net of CEWS), 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 direct employee 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. Adjusted EBITDA also excludes CEWS and CERS subsidies and restructuring charges. EBITDA/adjusted EBITDA should not be construed as an alternative to net income as determined by IFRS. The Company believes that EBITDA/adjusted EBITDA are useful supplemental measures as they provide 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 “Adjusted EBITDA” heading for a reconciliation of EBITDA and adjusted 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. Free cash flow per share is calculated by dividing free cash flow by the number of weighted average outstanding shares during the period. Management uses free cash flow and free cash flow per share to help measure the capacity of the Company to pay dividends and invest in business growth opportunities.

Computer Modelling Group Ltd. 2022 Financial Report

Management’s Discussion & Analysis

Free Cash Flow Reconciliation to Funds Flow from Operations

			Fiscal 2021			Fiscal	2022
($ thousands, unless otherwise stated)	Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4
Funds flow from operations	4,703	7,991	7,322	6,267	4,811	4,904	7,022	7,105
Capital expenditures	(149)	(200)	(7)	(41)	(27)	(133)	(481)	(62)
Repayment of lease liabilities	(315)	(317)	(310)	(471)	(306)	(277)	(314)	(459)
Free cash flow	4,239	7,474	7,005	5,755	4,478	4,494	6,227	6,584
Weighted average shares – basic
(thousands)	80,249	80,265	80,286	80,286	80,286	80,307	80,335	80,335
Free cash flowper share - basic	0.05	0.09	0.09	0.07	0.06	0.06	0.08	0.08

Years ended March 31,
($thousands)	2022	2021	2020
Funds flow from operations	23,842	26,283	28,765
Capital expenditures	(703)	(397)	(990)
Repayment of lease liabilities	(1,356)	(1,413)	(1,228)
Free cash flow	21,783	24,473	26,547
Weighted average shares–basic (thousands)	80,316	80,272	80,240
Free cash flowper share - basic	0.27	0.30	0.33

Corporate Profile

CMG is a computer software technology company serving the energy industry. The Company is a leading supplier of advanced process reservoir modelling software, with a diverse customer base of international oil companies and technology centers in approximately 60 countries. CMG’s existing technology has differentiating capabilities built into its software products that can also be directly applied to the energy transition needs of its customers. 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 goal 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

Computer Modelling Group Ltd. 2022 Financial Report

Management’s Discussion & Analysis

solutions to enhance production from their existing and new assets. CMG’s goal is to provide the most advanced reservoir simulation tools to assist companies with their reservoir planning, management and optimization.

CMG’s success can 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.

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 sell additional software licenses 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 software. Professional research revenue is also 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, is offered worldwide, and it helps us in developing and maintaining long-term relationships with our customers.

CMG realizes the importance of continuously advancing its technology to maintain its competitive edge. 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.

Investment in research and development is important to CMG as it helps maintain our competitive advantage for our existing software product suite, advances new product development and aligns with our vision of striving to be the world’s leading developer and supplier of dynamic reservoir modeling systems. CMG's approach to investment in research and development is to invest in initiatives that are driven by customers’ immediate needs by refining software already in use, to amend software in anticipation of customers’ needs, or to advance the technology to better serve the customers.

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 more of 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, commodity prices and global energy demand.

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

Computer Modelling Group Ltd. 2022 Financial Report

Management’s Discussion & Analysis

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 initiatives 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 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, as well as new “green energy” entrants, for the beneficial application in the reduction of GHGs and efforts to limit climate change impacts.

More recently, CMG has seen increased support requests, training activity and commercial customers running models related to CO2 enhanced recovery, carbon sequestration, hydrogen generation/storage, and geothermal projects. While companies continue to look at alternative energy sources, storage technologies, CO2 mitigation projects and hydrogen and geothermal initiatives, CMG is pleased to apply its innovative approach to drive the energy transition while serving its existing customers. CMG’s existing technology has differentiating capabilities, built in GEM and STARS over the preceding decades, that directly apply to the needs of our “energy transition” end-user customers.

Among CMG’s more recent 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 $39.3 million in positive working capital, no bank debt and a long history of generating earnings and cash from operating activities. Combined with its strong balance sheet is the strength of its employees in all areas of the Company.

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 92% 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 uncertainty in the oil and gas industry. During fiscal 2022, operating profit represented 39% of total revenue and we generated $0.27 per share in free cash flow.

CMG’s Response to the COVID-19 Pandemic

CMG’s operations have been affected by the COVID-19 pandemic. Some of our customers, when facing economic uncertainty and volatile commodity prices, curtailed spending and chose not to renew their licensing agreements or to renew them at reduced levels. The extent to which the COVID-19 pandemic continues to impact our operating results, financial condition, and cash flows will depend on future global developments, which are highly uncertain and outside our control.

CMG realized that retaining its employees, continuing to prioritize product development, maintaining global customer technical support and delivering a dividend to its shareholders were important factors to the long-term success of the business.

Computer Modelling Group Ltd. 2022 Financial Report

Management’s Discussion & Analysis

Accordingly, early in the fiscal year 2021, CMG took the following steps in response to the COVID-19 pandemic in order to preserve liquidity, financial flexibility, balance sheet strength and profitability:

reduced the quarterly dividend by 50% (from $0.10 per share to $0.05 per share) effective June 15, 2020;
reduced the CEO’s annual salary by 25% effective July 1, 2020;
reduced the directors’ cash compensation by 20% effective July 1, 2020;
reduced the executive officers’ annual salaries by 20% effective July 1, 2020; and
• implemented graduated salary reductions across all staff.

The CEO and executive officers’ salary reductions were reallocated to the bonus portion of the executive annual incentive plan.

Effective July 1, 2021, CMG revised staff compensation, resulting in partial reinstatements of staff salaries that had been reduced since July 1, 2020. In September 2021, CMG restructured its Calgary office, incurring a one-time restructuring cost of $0.9 million before tax. The restructuring, net of salary reinstatements, is expected to result in annual savings of approximately $0.2 million before tax. Directors’ cash compensation reductions and officers’ salary reductions implemented on July 1, 2020 remained unchanged during fiscal 2022. Our goal is to continue to defend our margins, while making sure we deliver reliable and accurate reservoir simulation solutions to our customers.

Annual Performance

($thousands,unless otherwise stated)	March 31, 2022	March 31,2021	March 31,2020
Annuity/maintenance license revenue	53,406	55,934	63,974
Perpetual license revenue	4,819	3,619	4,672
Software license revenue	58,225	59,553	68,646
Professional service revenue	7,977	7,810	7,140
Total revenue	66,202	67,363	75,786
Operating profit	26,080	30,565	31,751
Operating profit (%)	39%	45%	42%
Net income for the year	18,405	20,190	23,485
EBITDA(1)	30,278	34,836	36,111
Cash dividends declared and paid	16,064	16,055	32,097
Funds flow from operations	23,842	26,283	28,765
Free cash flow(1)	21,783	24,473	26,547
Total assets	125,148	122,491	120,866
Total shares outstanding	80,335	80,286	80,249
Trading price per share at March 31	5.36	5.75	3.83
Market capitalization at March 31	430,596	461,645	307,353
Per share amounts – ($/share)
Earnings per share – basic and diluted	0.23	0.25	0.29
Cash dividends declared and paid	0.20	0.20	0.40
Funds flow from operations per share – basic	0.30	0.33	0.36
Free cash flowper share – basic(1)	0.27	0.30	0.33

(1) This is a non-IFRS financial measure. See the “Non-IFRS Financial Measures” section.

Computer Modelling Group Ltd. 2022 Financial Report

Management’s Discussion & Analysis

Quarterly Performance

		Fiscal	2021(2)			Fiscal 2022(3)	Fiscal 2022(3)	Fiscal 2022(3)
($thousands,unless otherwise stated)	Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4
Annuity/maintenance license revenue	14,523	14,144	13,477	13,790	12,286	13,239	13,575	14,306
Perpetual license revenue	-	1,775	660	1,184	125	846	1,497	2,351
Software license revenue	14,523	15,919	14,137	14,974	12,411	14,085	15,072	16,657
Professional services revenue	2,149	1,933	1,901	1,827	2,003	1,864	1,973	2,137
Total revenue	16,672	17,852	16,038	16,801	14,414	15,949	17,045	18,794
Operating profit	5,711	9,861	8,437	6,556	5,573	5,440	7,755	7,312
Operating profit (%)	34	55	53	39	39	34	45	39
Profit before income and other taxes	4,405	9,360	7,410	5,747	4,827	5,321	7,310	6,563
Income and other taxes	1,143	2,600	1,535	1,454	1,094	1,175	1,736	1,611
Net income for the period	3,262	6,760	5,875	4,293	3,733	4,146	5,574	4,952
EBITDA(1)	6,767	10,933	9,509	7,627	6,596	6,473	8,843	8,366
Cash dividends declared and paid	4,013	4,013	4,015	4,014	4,015	4,016	4,017	4,016
Funds flow from operations	4,703	7,991	7,322	6,267	4,811	4,904	7,022	7,105
Free cash flow(1)	4,239	7,474	7,005	5,755	4,478	4,494	6,227	6,584
Per share amounts – ($/share)
Earnings per share (EPS) – basic and diluted	0.04	0.08	0.07	0.05	0.05	0.05	0.07	0.06
Cash dividends declared and paid	0.05	0.05	0.05	0.05	0.05	0.05	0.05	0.05
Funds flow from operations per share – basic	0.06	0.10	0.09	0.08	0.06	0.06	0.09	0.09
Free cash flowper share – basic(1)	0.05	0.09	0.09	0.07	0.06	0.06	0.08	0.08

(2) This is a non-IFRS financial measure. See the “Non-IFRS Financial Measures” section.

(3) Q1, Q2, Q3 and Q4 of fiscal 2021 include $0.2 million, $0.2 million, $nil and $1.1 million, respectively, in revenue that pertains to usage of CMG’s products in prior quarters.

(4) Q1, Q2 Q3 and Q4 of fiscal 2022 include $nil, $0.5 million, $nil and $0.8 million, respectively, in revenue that pertains to usage of CMG’s products in prior quarters.

Commentary on Quarterly Performance

For the Three Months Ended

For the Year Ended

March 31, 2022 and compared to the same period of the previous fiscal year, when appropriate:

Annuity/maintenance license revenue increased by 4%;
Perpetual license revenue increased by $1.2 million, or 99%;
Total revenue increased by 12%;
Total operating expenses increased by 12%. Adjusted for CEWS and CERS benefits, operating expenses increased by 8%;
Quarterly operating profit margin was 39%, consistent with the comparative quarter. Adjusted for CEWS and CERS benefits, operating profit margin was 34% and 32%, respectively;
Basic EPS of $0.06 was $0.01 higher than the comparative quarter;
Achieved free cash flow per share of $0.08;
Declared and paid a dividend of $0.05 per share.
Annuity/maintenance license revenue decreased by 5%;
Perpetual license revenue increased by $1.2 million, or 33%;
Total revenue decreased by 2%;
Total operating expenses increased by 9%. Adjusted for CEWS and CERS benefits and a one-time restructuring charge, operating expenses decreased by 3%;
Year-to-date operating profit margin was 39%, down from the comparative period’s figure of 45%. Adjusted for CEWS and CERS benefits and the one-time restructuring charge, operating profit was 38% and 37%, respectively;
Basic EPS of $0.23 was lower than the comparative year’s EPS of $0.25;
Achieved free cash flow per share of $0.27;
Declared and paid dividends of $0.20 per share.

Computer Modelling Group Ltd. 2022 Financial Report

Management’s Discussion & Analysis

Revenue

Three months ended March 31,	2022	2021	$ change	% change
($thousands)
Software license revenue	16,657	14,974	1,683	11%
Professional services revenue	2,137	1,827	310	17%
Total revenue	18,794	16,801	1,993	12%
Software license revenue as a % of total revenue	89%	89%
Professional services revenue as a % of total revenue	11%	11%
Years ended March 31,	2022	2021	$ change	% change
($thousands)
Software license revenue	58,225	59,553	(1,328)	-2%
Professional services revenue	7,977	7,810	167	2%
Total revenue	66,202	67,363	(1,161)	-2%
Software license revenue as a % of total revenue	88%	88%
Professional services revenue as a % of total revenue	12%	12%

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

Total revenue for the three months ended March 31, 2022 increased by 12%, due to increases in both software license revenue and professional services revenue.

Total revenue for the year ended March 31, 2022 decreased by 2%, due to a decrease in software license revenue, slightly offset by an increase in professional services revenue.

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 recurring 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.

Three months ended March 31,	2022	2021	$ change	% change
($thousands)
Annuity/maintenance license revenue	14,306	13,790	516	4%
Perpetual license revenue	2,351	1,184	1,167	99%
Totalsoftwarelicenserevenue	16,657	14,974	1,683	11%
Annuity/maintenance as a % of total software license revenue	86%	92%
Perpetual as a % of total software license revenue	14%	8%

Computer Modelling Group Ltd. 2022 Financial Report

Management’s Discussion & Analysis

Years ended March 31,	2022	2021	$ change	% change
($thousands)
Annuity/maintenance license revenue	53,406	55,934	(2,528)	-5%
Perpetual license revenue	4,819	3,619	1,200	33%
Totalsoftwarelicenserevenue	58,225	59,553	(1,328)	-2%
Annuity/maintenance as a % of total software license revenue	92%	94%
Perpetual as a % of total software license revenue	8%	6%

Total software license revenue for the three months ended March 31, 2022 increased by 11%, compared to the same period of the previous fiscal year, due to increases in both perpetual license revenue and annuity/maintenance license revenue. Annuity/maintenance license revenue increased by 4%, due to increases in Canada and the Eastern Hemisphere, partially offset by decreases in the United States and South America.

During the year ended March 31, 2022, CMG’s total software license revenue decreased by 2%, compared to the previous fiscal year, due to a decrease in annuity/maintenance license revenue, partially offset by an increase in perpetual license revenue. Annuity/maintenance license revenue decreased by 5%, due to decreases in the United States and the Eastern Hemisphere, partially offset by increases in South America and Canada.

Perpetual license revenue increased by 99% and 33% during the three months and year ended March 31, 2022, respectively, compared to the same periods of the previous fiscal year. Sales of perpetual licenses 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 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 usually prefer annuity licenses to 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 and year ended March 31, 2022, 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:

Three months ended March 31,		2022	2021	$ change	% change
($thousands)
US dollar annuity/maintenance license revenue	US$	8,709	8,276	433	5%
Weighted average conversion rate		1.269	1.302
Canadiandollarequivalent	CDN$	11,050	10,778	272	3%
US dollar perpetual license revenue	US$	1,855	929	926	100%
Weighted average conversion rate		1.268	1.274
Canadian dollar equivalent	CDN$	2,352	1,184	1,168	99%

Computer Modelling Group Ltd. 2022 Financial Report

Management’s Discussion & Analysis

Years ended March 31,		2022	2021	$ change	% change
($thousands)
US dollar annuity/maintenance license revenue	US$	32,022	32,926	(904)	-3%
Weighted average conversion rate		1.275	1.325
Canadiandollarequivalent	CDN$	40,826	43,625	(2,799)	-6%
US dollar perpetual license revenue	US$	3,812	2,779	1,033	37%
Weighted average conversion rate		1.264	1.302
Canadian dollar equivalent	CDN$	4,819	3,620	1,199	33%

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

Three months ended March 31,	2021	Incremental License	Foreign Exchange	2022
($thousands)		Growth/(Decrease)	Impact
Annuity/maintenance license revenue	13,790	807	(291)	14,306
Perpetual license revenue	1,184	1,179	(12)	2,351
Total software license revenue	14,974	1,986	(303)	16,657
Years ended March 31,	2021	Incremental License	Foreign Exchange	2022
($thousands)		Growth/(Decrease)	Impact
Annuity/maintenance license revenue	55,934	(927)	(1,601)	53,406
Perpetual license revenue	3,619	1,344	(144)	4,819
Total software license revenue	59,553	417	(1,745)	58,225

Software Revenue by Geographic Region

Three months ended March 31,	2022	2021	$ change	% change
($thousands)
*Annuity/maintenance license revenue*
Canada	3,274	3,012	262	9%
United States	3,408	3,580	(172)	-5%
South America	1,663	1,752	(89)	-5%
Eastern Hemisphere(1)	5,961	5,446	515	9%
	14,306	13,790	516	4%
*Perpetual license revenue*
Canada	-	-	-	-
United States	-	32	(32)	-100%
South America	-	-	-	-
Eastern Hemisphere	2,351	1,152	1,199	104%
	2,351	1,184	1,167	99%
*Total software license revenue*
Canada	3,274	3,012	262	9%
United States	3,408	3,612	(204)	-6%
South America	1,663	1,752	(89)	-5%
Eastern Hemisphere	8,312	6,598	1,714	26%
	16,657	14,974	1,683	11%

Computer Modelling Group Ltd. 2022 Financial Report

Management’s Discussion & Analysis

Years ended March 31,	2022	2021	$ change	% change
($thousands)
*Annuity/maintenance license revenue*
Canada	12,699	12,464	235	2%
United States	12,910	15,113	(2,203)	-15%
South America	6,858	6,164	694	11%
Eastern Hemisphere(1)	20,939	22,193	(1,254)	-6%
	53,406	55,934	(2,528)	-5%
*Perpetual license revenue*
Canada	-	-	-	-
United States	401	32	369	1153%
South America	-	1,020	(1,020)	-100%
Eastern Hemisphere	4,418	2,567	1,851	72%
	4,819	3,619	1,200	33%
*Total software license revenue*
Canada	12,699	12,464	235	2%
United States	13,311	15,145	(1,834)	-12%
South America	6,858	7,184	(326)	-5%
Eastern Hemisphere	25,357	24,760	597	2%
	58,225	59,553	(1,328)	-2%

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

During the three months and year ended March 31, 2022, compared to the same periods of the previous fiscal year, total software license revenue increased in the Eastern Hemisphere and Canada and decreased in the United States and South America.

The Canadian region (representing 22% of annual total software license revenue) experienced 9% and 2% increases in annuity/maintenance license revenue during the three months and year ended March 31, 2022, respectively, due to a returning customer and increased licensing by some existing customers.

The United States (representing 23% of annual total software license revenue), experienced decreases of 5% and 15% in annuity/maintenance license revenue during the three months and year ended March 31, 2022, compared to the same periods of the previous fiscal year. The decreases were largely due to the same factors that affected the region’s revenue in the previous fiscal year: consolidation in the industry and reduced licensing due to ongoing challenges experienced by US unconventional shale plays. Perpetual license revenue decreased slightly during the quarter and increased during the year, compared to the same periods of the previous fiscal year.

South America (representing 12% of annual total software license revenue) showed a decrease of 5% in annuity/maintenance license revenue during the three months ended March 31, 2022, mainly due to reactivation of maintenance on perpetual licenses in the comparative quarter. During the year ended March 31, 2022, annuity/maintenance license revenue from South America increased by 11%, compared to the previous fiscal year, primarily due to a new multi-year lease that included CoFlow. There were no perpetual sales in South America during the current quarter or year.

The Eastern Hemisphere (representing 43% of annual total software license revenue) experienced a 9% increase in annuity/maintenance license revenue during the three months ended March 31, 2022, primarily due to a three-year agreement with a customer in Asia. During the year ended March 31, 2022, annuity/maintenance license revenue from the Eastern Hemisphere decreased by 6%, due to reduced licensing by some customers. Perpetual revenue during the three months and year ended March 31, 2022 increased by 104% and 72%, respectively, as a result of perpetual sales realized in Asia and Europe.

As footnoted in the Quarterly Software License Revenue graph, during 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

Computer Modelling Group Ltd. 2022 Financial Report

Management’s Discussion & Analysis

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 following graph:

Quarterly Software License Revenue

($ thousands)

(1) 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.
(2) 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.
(3) 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.
(4) Q1, Q2, Q3 and Q4 of fiscal 2021 include $0.2 million, $0.2 million, $nil and $1.1 million, respectively, in revenue that pertains to usage of CMG’s products in prior quarters.
(5) Q1, Q2, Q3 and Q4 of fiscal 2022 include $nil, $0.5 million, $nil and $0.8 million, respectively, in revenue that pertains to usage of CMG’s products in prior quarters.

Deferred Revenue

($thousands)	Fiscal 2022	Fiscal 2021	$change	% change
Deferred revenue at:
Q1 (June 30)	23,451	25,492	(2,041)	-8%
Q2 (September 30)	21,242	19,549	1,693	9%
Q3 (December 31)	23,056	15,347	7,709	50%
Q4(March 31)	30,454	30,461	(7)	0%

CMG’s deferred revenue consists primarily of amounts for prepaid licenses. 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.

Computer Modelling Group Ltd. 2022 Financial Report

Management’s Discussion & Analysis

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.

The deferred revenue balance at the end of Q4 of fiscal 2022 was comparable to Q4 of fiscal 2021.

Professional Services Revenue

Professional services revenue for the three months and year ended March 31, 2022 increased by 17% and 2%, respectively, compared to the same periods of the previous fiscal year. This was due to increased development funding from Shell Global Solutions International B.V. (“Shell”) for CoFlow development and support (see “Commitments, Off Balance Sheet Items and Transactions with Related Parties”).

Professional services revenue consists of specialized consulting, training, and contract research activities. CMG performs consulting and contract research activities on an ongoing basis. 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.

Expenses

Three months ended March 31,	2022	2021	$ change	% change
($thousands)
Sales, marketing and professional services	4,933	4,481	452	10%
Research and development	4,106	4,036	70	2%
General and administrative	2,443	1,728	715	41%
Total operatingexpenses	11,482	10,245	1,237	12%
Direct employee costs(1)	7,889	7,970	(81)	-1%
Other corporate costs(1)	3,593	2,275	1,318	58%
	11,482	10,245	1,237	12%
Years ended March 31,	2022	2021	$ change	% change
($thousands)
Sales, marketing and professional services	15,995	15,690	305	2%
Research and development	16,705	15,194	1,511	10%
General and administrative	7,422	5,914	1,508	25%
Total operatingexpenses	40,122	36,798	3,324	9%
Direct employee costs(1)	30,592	28,227	2,365	8%
Other corporate costs(1)	9,530	8,571	959	11%
	40,122	36,798	3,324	9%

(1) This is a non-IFRS financial measure. See the “Non-IFRS Financial Measures” section.

Adjusted total operating expenses, adjusted direct employee costs and adjusted other corporate costs are non-IFRS financial measures. They do not have a standard meaning prescribed by IFRS and, accordingly, may not be comparable to measures used by other companies. They are calculated by excluding CEWS subsidies, CERS subsidies and restructuring charges, as applicable, from the related non-adjusted measures. Management believes that analyzing the Company’s expenses exclusive of these items illustrates underlying trends in our costs and provides better comparability between periods.

Computer Modelling Group Ltd. 2022 Financial Report

Management’s Discussion & Analysis

The following tables provide a reconciliation of total operating expenses to adjusted total operating expenses, direct employee costs to adjusted direct employee costs and other corporate costs to adjusted other corporate costs:

	Three months ended	Three months ended		Years ended
		March 31		March 31
($thousands)	2022	2021	2022	2021
Total operating expenses	11,482	10,245	40,122	36,798
CEWS	916	1,116	1,499	5,206
CERS	-	109	183	248
Restructuring charge	-	-	(851)	-
Adjusted total operatingexpenses	12,398	11,470	40,953	42,252
Direct employee costs	7,889	7,970	30,592	28,227
CEWS	916	1,116	1,499	5,206
Restructuring charge	-	-	(851)	-
Adjusted direct employee costs	8,805	9,086	31,240	33,433
Other corporate costs	3,593	2,275	9,530	8,571
CERS	-	109	183	248
Adjusted other corporate costs	3,593	2,384	9,713	8,819

Total operating expenses increased by 12% for the three months ended March 31, 2022, compared to the same period of the previous fiscal year. Adjusted total operating expenses increased by 8%.

Total operating expenses increased by 9% for the year ended March 31, 2022, compared to the previous fiscal year. Adjusted total operating expenses decreased by 3%.

Direct Employee Costs

As a technology company, CMG’s largest investment is its people, and approximately 77% of total operating expenses relate to direct employee costs. Effective July 1, 2021, CMG revised staff compensation, resulting in adjustments of certain staff salaries previously reduced since July 1, 2020. Directors’ cash compensation and executives’ salaries remain reduced during fiscal 2022. In September 2021, CMG restructured its Calgary office, incurring a one-time restructuring cost of $0.9 million before tax. The restructuring, net of salary reinstatements, is expected to result in annual savings of approximately $0.2 million before tax.

The restructuring decreased our headcount, and at March 31, 2022, CMG’s full-time equivalent staff complement was 175 employees and consultants (March 31, 2021: 198 employees).

For the three months ended March 31, 2022, adjusted direct employee costs decreased by $0.3 million, or 3%, compared to the same period of the previous fiscal year, primarily due to lower headcount. For the year ended March 31, 2022, adjusted direct employee costs decreased by $2.2 million, or 7%, compared to the previous fiscal year, due to lower headcount and lower stock-based compensation expense.

Other Corporate Costs

Adjusted other corporate costs increased by 51% and 10% for the three months and year ended March 31, 2022, compared to the same periods of the previous fiscal year, primarily due to the write-off of receivables from Russian customers as a result of the Company’s decision to suspend doing business in Russia.

Computer Modelling Group Ltd. 2022 Financial Report

Management’s Discussion & Analysis

Research and Development

Three months ended March 31,	2022	2021	$ change	% change
($thousands)
Research and development, net of government grants	4,318	4,155	163	4%
SR&ED credits	(212)	(119)	(93)	-78%
Research and development	4,106	4,036	70	2%
Research and development as a % of total revenue	22%	24%
Years ended March 31,	2022	2021	$ change	% change
($thousands)
Research and development, net of government grants	17,581	15,864	1,717	11%
SR&ED credits	(876)	(670)	(206)	-31%
Research and development	16,705	15,194	1,511	10%
Research and development as a % of total revenue	25%	23%

CMG works closely with its customers to provide solutions to complex problems related to proven and new advanced recovery processes through investment in research and development.

The above research and development costs include $1.8 million and $7.4 million of costs for CoFlow for the three months and year ended March 31, 2022, respectively, up from $1.7 million and $6.7 million in the same periods of the previous fiscal year, primarily due to lower CEWS benefits in the current year. See discussion under “Commitments, Off Balance Sheet Items and Transactions with Related Parties”.

Research and development costs for the three months and year ended March 31, 2022 increased by 2% and 10%, respectively, compared to the same periods of the previous fiscal year, primarily due to lower CEWS benefits. SR&ED credits increased by 78% and 31% for the three months and year ended March 31, 2022, compared to the same periods of the previous fiscal year, due to lower CEWS benefits (CEWS benefits decrease SRE&D-eligible wages).

Depreciation

Three months ended March 31,	2022	2021	$ change	% change
($thousands)
Depreciation of property and equipment, allocated to:
Sales, marketing and professional services	219	258	(39)	-15%
Research and development	698	674	24	4%
General and administrative	137	139	(2)	-1%
Total depreciation	1,054	1,071	(17)	-2%
Years ended March 31,	2022	2021	$ change	% change
($thousands)
Depreciation of property and equipment, allocated to:
Sales, marketing and professional services	888	1,019	(131)	-13%
Research and development	2,764	2,697	67	2%
General and administrative	546	555	(9)	-2%
Total depreciation	4,198	4,271	(73)	-2%

Computer Modelling Group Ltd. 2022 Financial Report

Management’s Discussion & Analysis

Depreciation for the three months and year ended March 31, 2022 remained consistent with the same periods of the previous fiscal year.

Finance Income and Costs

Three months ended March 31,	2022	2021	$ change	% change
($thousands)
Interest income	101	86	15	17%
Total finance income	101	86	15	17%
Interest expense on lease liabilities	(494)	(511)	(17)	-3%
Net foreign exchange loss	(356)	(384)	(28)	-7%
Total finance costs	(850)	(895)	(45)	-5%
Years ended March 31,	2022	2021	$ change	% change
($thousands)
Interest income	440	374	66	18%
Total finance income	440	374	66	18%
Interest expense on lease liabilities	(2,004)	(2,074)	(70)	-3%
Net foreign exchange loss	(495)	(1,943)	(1,448)	-75%
Total finance costs	(2,499)	(4,017)	(1,518)	-38%

Interest income for the three months and year ended March 31, 2022 was higher than in the same periods of the previous fiscal year, due to higher cash balances.

Interest expense on the lease liabilities for the three months and year ended March 31, 2022 was consistent with the comparative periods.

CMG is impacted by foreign exchange fluctuations, as 70% of CMG’s revenue for the year ended March 31, 2022 (2021 – 71%) is denominated in US dollars, whereas only 24% (2021 – 28%) 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, 2022, 2021 and 2020 and the average exchange rates used to translate income statement items during the years ended March 31, 2022, 2021 and 2020:

CDN$to US$	At March 31	Yearlyaverage
2020	0.7049	0.7539
2021	0.7952	0.7520
2022	0.8003	0.7980

CMG recorded net foreign exchange losses of $0.4 million and $0.5 million for the three months and year ended March 31, 2022, respectively, due to a weakening of the US dollar during the period, which negatively 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, 2022 is 23.4% (2021 – 25.0%), whereas the blended Canadian statutory tax rate for the Company’s 2022 fiscal year is 23% (down from 23.5% in fiscal 2021, due to a reduction in the Alberta

Computer Modelling Group Ltd. 2022 Financial Report

Management’s Discussion & Analysis

provincial tax rate). The difference between the effective rate and the statutory rate is primarily due to 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 reduces income taxes otherwise payable for the current fiscal year, but 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.

Operating Profit and Net Income

Three months ended March 31,	2022	2021	$ change	% change
($thousands,exceptper share data)
Total revenue	18,794	16,801	1,993	12%
Operating expenses	(11,482)	(10,245)	(1,237)	-12%
Operating profit	7,312	6,556	756	12%
Operating profit as a % of revenue	39%	39%
Net income	4,952	4,293	659	15%
Net income as a % of total revenue	26%	26%
Basic earningsper share($/share)	0.06	0.05	0.01	20%
Years ended March 31,	2022	2021	$ change	% change
($thousands,exceptper share data)
Total revenue	66,202	67,363	(1,161)	-2%
Operating expenses	(40,122)	(36,798)	(3,324)	-9%
Operating profit	26,080	30,565	(4,485)	-15%
Operating profit as a % of revenue	39%	45%
Net income	18,405	20,190	(1,785)	-9%
Net income as a % of total revenue	28%	30%
Basic earningsper share($/share)	0.23	0.25	(0.02)	-8%

Adjusted operating profit and adjusted net income are non-IFRS financial measures. They do not have a standard meaning prescribed by IFRS and, accordingly, may not be comparable to measures used by other companies. Adjusted operating profit is calculated as operating profit excluding CEWS and CERS subsidies and restructuring charges. Adjusted net income is calculated as net income excluding tax-affected CEWS and CERS subsidies and restructuring charges. Management believes that analyzing the Company’s performance exclusive of these items illustrates underlying trends in our business and provides better comparability between periods.

Computer Modelling Group Ltd. 2022 Financial Report

Management’s Discussion & Analysis

The following table provides a reconciliation of operating profit to adjusted operating profit and net income to adjusted net income:

	Three months ended	Three months ended		Years ended
		March 31		March 31
($thousands)	2022	2021	2022	2021
Operating profit	7,312	6,556	26,080	30,565
CEWS	(916)	(1,116)	(1,499)	(5,206)
CERS	-	(109)	(183)	(248)
Restructuring charge	-	-	851	-
Adjusted operating profit	6,396	5,331	25,249	25,111
Adjusted operating profit as a % of revenue	34%	32%	38%	37%
Net income	4,952	4,293	18,405	20,190
CEWS	(916)	(1,116)	(1,499)	(5,206)
CERS	-	(109)	(183)	(248)
Restructuring charge	-	-	851	-
Tax impact of adjusting items	211	288	191	1,282
Adjusted net income	4,247	3,356	17,765	16,018
Adjusted net income as a % of total revenue	23%	20%	27%	24%

Operating profit as a percentage of total revenue for the three months ended March 31, 2022 was 39%, consistent with the comparative quarter. Adjusted operating profit was 34%, slighter higher than 32% in the comparative quarter.

Operating profit as a percentage of total revenue for the year ended March 31, 2022 was 39%, down from 45% in the comparative year. Adjusted operating profit was 38%, consistent with 37% in the comparative period.

Net income as a percentage of total revenue for the three months ended March 31, 2022 was 26%, consistent with the comparative quarter. Adjusted net income as a percentage of total revenue was 23% in the current quarter, up from 20% in the comparative quarter.

Net income as a percentage of total revenue for the year ended March 31, 2022 was 28%, down from 30% in the comparative year. Adjusted net income as a percentage of total revenue was 27%, up from 24% in the prior year.

Adjusted EBITDA[(1) ]

Three months ended March 31,	2022	2021	$ change	% change
($thousands)
Net income	4,952	4,293	659	15%
Add (deduct):
Depreciation	1,054	1,071	(17)	-2%
Finance (income) costs	749	809	(60)	-7%
Income and other taxes	1,611	1,454	157	11%
EBITDA(1)	8,366	7,627	739	10%
Add (deduct):
CEWS	(916)	(1,116)	200	18%
CERS	-	(109)	109	100%
Adjusted EBITDA(1)	7,450	6,402	1,048	16%
Adjusted EBITDA(1)as a % of total revenue	40%	38%

Computer Modelling Group Ltd. 2022 Financial Report

Management’s Discussion & Analysis

Year ended March 31,	2022	2021	$ change	% change
($thousands)
Net income	18,405	20,190	(1,785)	-9%
Add (deduct):
Depreciation	4,198	4,271	(73)	-2%
Finance (income) costs	2,059	3,643	(1,584)	-43%
Income and other taxes	5,616	6,732	(1,116)	-17%
EBITDA(1)	30,278	34,836	(4,558)	-13%
Add (deduct):
CEWS	(1,499)	(5,206)	3,707	71%
CERS	(183)	(248)	65	26%
Restructuring charge	851	-	851	100%
Adjusted EBITDA(1)	29,447	29,382	65	0%
Adjusted EBITDA as a % of total revenue	44%	44%

(1) This is a non-IFRS financial measure. See the “Non-IFRS Financial Measures” section.

Adjusted EBITDA as a percentage of total revenue was 40% in the current quarter, slightly up from 38% in the prior year quarter.

Adjusted EBITDA as a percentage of total revenue was 44% in the current year, consistent with 44% in the prior year.

Liquidity and Capital Resources

Three months ended March 31,	2022	2021	$ change	% change
($thousands)
Cash, beginning of period	47,727	39,176	8,551	22%
Cash provided by (used in):
Operating activities	16,470	14,418	2,052	14%
Financing activities	(4,475)	(4,485)	10	0%
Investing activities	(62)	(41)	(21)	-51%
Cash,end ofperiod	59,660	49,068	10,592	22%

Years ended March 31,	2022	2021	$ change	% change
($thousands)
Cash, beginning of period	49,068	40,505	8,563	21%
Cash provided by (used in):
Operating activities	28,715	26,428	2,287	9%
Financing activities	(17,420)	(17,468)	48	0%
Investing activities	(703)	(397)	(306)	-77%
Cash,end ofperiod	59,660	49,068	10,592	22%

At March 31, 2022, CMG had $59.7 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 dividend payments. Management believes that the Company has sufficient capital resources to meet its operating and capital expenditure needs.

During the year ended March 31, 2022, 26.3 million shares of CMG’s public float were traded on the TSX. As at March 31, 2022, CMG’s market capitalization based upon its March 31, 2022 closing price of $5.36 was $430.6 million.

Computer Modelling Group Ltd. 2022 Financial Report

Management’s Discussion & Analysis

Operating Activities

Cash provided by operating activities increased by $2.1 million during the three months ended March 31, 2022, compared to the same period of the previous fiscal year. Funds flow from operations was $0.8 million higher than the comparative quarter, primarily due to higher revenue, and there was an increase in cash due to the movement in non-cash working capital, with the main factor being the timing of when sales are made and when the resulting receivables are collected.

Cash provided by operating activities increased by $2.3 million during the year ended March 31, 2022, compared to the previous fiscal year. This was as a result of a $4.7 million cash increase due to the movement in non-cash working capital, mainly in the deferred revenue balance and the receivables balance. This was partially offset by a $2.4 million decrease in funds flow from operations, primarily due to lower CEWS benefits and lower revenue.

Financing Activities

Cash used in financing activities in the three months and year ended March 31, 2022 was consistent with the same periods of the previous fiscal year.

In the year ended March 31, 2022, CMG paid $16.1 million in dividends, representing the following quarterly dividends:

($per share)	Q1	Q2	Q3	Q4
Totaldividends declared and paid	0.05	0.05	0.05	0.05

In the year ended March 31, 2021, CMG paid $16.1 million in dividends, representing the following quarterly dividends:

($per share)	Q1	Q2	Q3	Q4
Totaldividends declared and paid	0.05	0.05	0.05	0.05

On May 18, 2022, 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, 2022 to shareholders of record at the close of business on June 7, 2022. Decisions with respect to dividend payments are made by the Board of Directors on a quarterly basis and take into account market conditions and the financial performance of the Company.

Investing Activities

CMG’s investing activities consist of capital asset additions, all which are funded internally. During the year ended March 31, 2022, CMG’s capital asset additions were composed of computer equipment and totalled $0.7 million, an increase of $0.3 million compared to the previous fiscal year. CMG’s capital budget for fiscal 2023 is $2.0 million.

Commitments, Off Balance Sheet Items and Transactions with Related Parties

CMG, in partnership with Shell Global Solutions International B.V. (“Shell”) at present, and also in partnership with Petroleo Brasileiro S.A. historically, is the developer of CoFlow, the newest generation of reservoir and production system simulation software.

On January 1, 2017, Shell and CMG entered into an agreement (the “CoFlow Agreement”) for an initial five-year term, whereby CMG would be responsible for the research and development costs of CoFlow and Shell would be responsible for providing a contribution for the continuing development of the software.

On December 21, 2020, the CoFlow Agreement was amended when Shell exercised its right to request a five-year term extension, commencing January 1, 2022. All other terms and conditions in the CoFlow Agreement, including any related amendments, remain unchanged and in full force and effect during the extended term. In September 2021, CMG and Shell agreed that CMG will add and/or allocate up to six additional full-time employees in order to accelerate CoFlow development and support targeted CoFlow deployments, and Shell’s contribution will increase accordingly. CoFlow costs are estimated to be $8.7 million and Shell’s contribution is estimated to be $8.2 million in fiscal 2023.

Computer Modelling Group Ltd. 2022 Financial Report

Management’s Discussion & Analysis

CMG has only minor ongoing material contractual obligations other than prepaid 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, 2022:

	Undiscounted lease	Operating costs
(thousands of$)	liability payments	and short-term leases	Total commitments
Less than one year	3,558	1,100	4,658
Between one and five years	13,891	4,332	18,223
More than five years	39,757	11,192	50,949
	57,206	16,624	73,830

Critical Accounting Estimates and Judgments

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.

Functional currency – the determination of the functional currency is a matter of determining the primary economic environment in which an entity operates. IAS 21 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.

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

Contracts with multiple products or services – 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 (“SSP”) for distinct performance obligations can also require judgment and estimates. SSP for a performance obligation in a contract with customers is an estimate of the price that would be charged for the specific product or service if it was sold separately in similar circumstances and to similar customers.

Professional services revenue – the Company 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.

Research and development – assumptions are made in respect to the eligibility of certain research and development projects in the calculation of scientific research and experimental development (“SR&ED”) investment tax credits which are netted against the research and development costs in the statement of operations and comprehensive income. 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.

Impact of the COVID-19 pandemic – In fiscal 2022, COVID-19 continued to have an impact on the global economy. Fluctuating demand for crude oil resulting from world economies emerging from and then entering into subsequent COVID-19 waves has resulted in significant volatility in global energy prices. These events are resulting in a challenging economic

Computer Modelling Group Ltd. 2022 Financial Report

Management’s Discussion & Analysis

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.

Outstanding Share Data

The following table represents the number of common shares, stock options, restricted share units and performance share units outstanding:

As at May 18, 2022
(thousands)
Common shares	80,335
Stock options	3,400
Restricted share units(1)	539
Performance share units(1)	65

(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 18, 2022, CMG could reserve up to 8,033,000 common shares for issuance under its security-based compensation plans.

Business Risks

CMG’s activities expose it to a variety of business risks, such as:

Commodity Price Risk

CMG’s customers are primarily oil and gas companies, and we depend on our customers’ capital and operating spending budgets. Commodity price volatility and changing economic conditions could adversely affect our customers’ budgets, which could negatively affect demand for CMG’s products and CMG’s financial results. Additionally, sales of perpetual licenses, which require a relatively higher initial outlay, may 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.

Credit and Liquidity Risks

Our product demand is dependent on our 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 material losses to date.

In terms of liquidity, the Company held $59.7 million of cash at March 31, 2022, 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.

Computer Modelling Group Ltd. 2022 Financial Report

Management’s Discussion & Analysis

Sales Variability Risk

CMG’s software license revenue consists primarily of annuity/maintenance software licensing, which is generally for a term of one year or less, and, to a lesser extent, 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 has comprised 6-8% of total software licensing revenue over the last two fiscal years, 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 Company’s experience 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 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, 2022, one customer comprised more than 10% of the Company’s total revenue (year ended March 31, 2021 – one customer).

Foreign Exchange Risk

CMG’s reported results are affected by the exchange rate between the Canadian dollar and the US dollar as 70% of product revenues in fiscal 2022 were denominated in US dollars (2021 – 71%). 24% of CMG’s total costs in fiscal 2022 were denominated in US dollars (2021 – 28%), 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, including the war in Ukraine;
Economic and legal sanctions (including with respect to the economic sanctions on Russia as a result of the war in Ukraine); and
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.

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

Computer Modelling Group Ltd. 2022 Financial Report

Management’s Discussion & Analysis

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.

Coronavirus Risk

The Company’s operations and revenues have been affected by the COVID-19 pandemic, as some of its customers, faced with the economic uncertainly and decreasing commodity prices, curtailed spending and chose not to renew their licensing agreements or to renew them at reduced levels. The ongoing uncertainty as to the extent and duration of the pandemic, as well as uncertainty surrounding new mutations of the COVID-19 virus, could further adversely impact CMG’s operations, including sales activities and financial performance. Fluctuating demand for crude oil resulting from world economies emerging from and then entering into subsequent COVID-19 waves has resulted in significant volatility in global energy prices and, as a result, has impacted 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 developments, which are highly uncertain and cannot be accurately predicted at this time.

At the start of the pandemic, CMG took 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.

Operationally, CMG experienced minimal adverse impacts to its operations and workforce throughout the pandemic, and the Company’s research and development activities and technical support for customers continued uninterrupted, through email, phone and video conferencing. By April 2022, employees at most locations returned to the office, as local health authorities lifted their work-from-home guidance.

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 three 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.

Increased consolidation in oil and gas industry can result in a concentration of market share and reduced licensing of CMG’s products. If CMG’s customers acquire or merge with entities not using CMG’s products, such consolidation may have a positive impact on CMG. However, in most cases, consolidation leads to reduced engineering teams and spending to drive post-acquisition synergies, which leads to reduced licensing of CMG’s products.

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 $16.7 million on product research and development in its most recently completed fiscal year (2021 – $15.2 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.

Any new products CMG develops could require long development and testing and may not be introduced in a timely manner or may not achieve the broad market acceptance necessary to generate significant revenue. CMG also continues to face the challenge of the increasingly complex integration of its products to address customers’ requirements. If CMG is unable to successfully develop new products, or enhance and improve existing products or if we fail to position and/or price our products to respond on a timely basis to the changing needs of our customer base, then our business, operating and financial results will be adversely affected.

Computer Modelling Group Ltd. 2022 Financial Report

Management’s Discussion & Analysis

The competition in the reservoir simulation market has been increasing as existing and new competitors enhance and expand their products and service offerings. While switching costs for customers remain high, some competitors could facilitate switching or offer incentives for switching, which would have a negative impact on CMG’s revenue. Some competitors have greater name recognition and significantly greater financial, technical, sales, marketing and other resources. Competitors may offer lower prices, additional products or services, or other incentives that we cannot match or offer. Increased competition could result in pricing pressure, reduced sales, loss of market share, lower margins or other adverse effects on the business.

Our continuing ability to address these risks will depend, to a large extent, on our ability to retain a technically competent research and development staff and to adapt to technological advances in the industry.

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.

CMG’s financial position allows us to grow in other product categories to provide a deeper offering to our customer base.

We seek to develop and offer high-value solutions that can be implemented with relative ease. We believe our products have advantages over many of our competitors including, but not limited to, leadership in modelling of difficult processes; exceptional customer training and support, and quality and performance such as speed, flexibility, functionality and ease of use leadership in modelling of difficult processes, exceptional customer support and training, and functionality and ease of use.

Qualified Personnel 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. As a result of the shift to working from home since the start of the COVID-19 pandemic, employees have more options when looking for employment, because they can work remotely for employers located in other provinces or countries. Consequently, employers find themselves competing for talent not only locally, but with other employers from around the world. 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 is not aware 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.

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. Natural disasters, energy blackouts, operating

Computer Modelling Group Ltd. 2022 Financial Report

Management’s Discussion & Analysis

malfunction, software viruses 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 its 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. However, 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 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

Computer Modelling Group Ltd. 2022 Financial Report

Management’s Discussion & Analysis

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 increased 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.

Extreme Climatic Conditions

Climate change may increase the frequency of severe weather conditions and natural disasters, such as flooding and forest fires, shifts in temperature and precipitation, and changing sea levels. 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, which can threaten their assets and available cash. This may result in cessation or diminishment of production or implementation of new projects, which can affect the demand for CMG's products and adversely affect the Company's financial results.

Energy 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.

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, 2022, 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, 2022 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.

Computer Modelling Group Ltd. 2022 Financial Report

Management’s Discussion & Analysis

During the year ended March 31, 2022, 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.

Computer Modelling Group Ltd. 2022 Financial Report

Management’s Discussion & Analysis

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Computer Modelling Group Ltd. — Management Reports 2022

43491_rns_2022-05-18_b98efc50-2c78-4344-bb9e-6a2cbce76c82.pdf

Management’s Discussion and Analysis

Forward-Looking Information

Additional IFRS Measure

Non-IFRS Financial Measures

Free Cash Flow Reconciliation to Funds Flow from Operations

Corporate Profile

Vision, Business and Strategy

Overall Performance

Key Performance Drivers and Capability to Deliver Results

CMG’s Response to the COVID-19 Pandemic

Annual Performance

Quarterly Performance

Commentary on Quarterly Performance

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

Adjusted 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 and Judgments

Outstanding Share Data

Business Risks

Commodity Price Risk

Credit and Liquidity Risks

Sales Variability Risk

Foreign Exchange Risk

Geopolitical Risk

Coronavirus Risk

Competition Risk

Qualified Personnel Risk

Intellectual Property Risk

Cyber Risk

Evolving Laws and Regulation

Tax Liability Risk

Climate Change Risk

Extreme Climatic Conditions

Energy Transition

Disclosure Controls and Procedures and Internal Control over Financial Reporting

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Computer Modelling Group Ltd. Management Reports 2022