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Computer Modelling Group Ltd. Management Reports 2025
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Management Reports
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Management's Discussion and Analysis
Q3 2025
For the three and nine months ended December 31, 2024
CMG
CEO Letter to Shareholders
February 11, 2025
Dear Fellow Shareholders,
A colleague recently challenged me with the question “what is that one word that you stand for?” It was an easy answer or me because it is a deeply held and long-standing belief. That one word is “compounding.” Compounding is said to be the 8th wonder of the world and in both my personal and professional life, I believe “bring a 1% improved version of yourself every day and you’ll be 37 times better in a year.” Our employees know this well as I’ve repeated it often since joining CMG. It is something I strive to do every day.
In business, if you compound free cash flow per share over a long period, well, you can do the math. As I take a step back and look at what we are trying to achieve at CMG, it’s all about compounding. This means small but consistent improvements in our business with a long-term focus on sustainable growth that generates increasing free cash flow per share, which then allows for disciplined capital deployment at attractive rates of return.
This is a lofty goal but by making manageable changes that build on each other, both within our businesses and in our strategy as whole, we set ourselves up for the compounding effect of 1% improvement every day.
Reservoir and Production Simulation
We had many successes in the past two years including establishing a performance-based culture and compensation, investing in key sales and marketing teams, introducing product management as a practice, improving price discipline, and implementing systems to enable scaling. These improvements, alongside constructive industry trends, led to early wins with our transformation efforts.
In the current quarter, the core CMG annuity and maintenance (A/M) revenue, as reported in the Reservoir and Production segment, recovered after a dip in the second quarter. While profitability remains solid, year-to-date revenue is below my expectation of what would be needed to meet the objective of low double-digit annual growth. Customers are increasingly price sensitive and global energy transition policy direction has become more uncertain in recent months. Decision making at many organizations has slowed.
In response, we are making small adjustments to ensure our “1% improvement every day.” Early in my tenure, I committed to expanding our consulting practice, which was met with strong demand. Our consulting and customer support are performed by the same dedicated and highly technical team, which does not easily scale with strong demand for both. As our primary objective is to grow our higher margin software revenue, we are evolving our approach to focus our resources on customer support which we expect to support higher software licensing and usage through deeper customer engagement. We will not be focused on growing our current levels of consulting activity. The team will remain true to its key objectives of building relationships with our customers, driving software use and adoption, and identifying customer challenges, roadmap opportunities and market trends that allow us to deliver the kind of exceptional customer experience expected of us.
Second, there are many product and solution opportunities that CMG could pursue at this time, so ruthless prioritization is key. In my first letter to our shareholders, I shared my passion for building relentlessly customer-focused product organizations.
CEO Letter to Shareholders
Computer Modelling Group Ltd. Q3 25
Building on customer feedback, we identified key opportunities in our product development roadmap and prioritized initiatives we believe are critical to enhancing user experience and strengthening our market position. These include targeted improvements to the simulation pre-processing workflow, run-time speed, and other specific functionality. While these initiatives were previously underway, they have now been given higher priority and resourcing.
Finally, growth in the sales pipeline for CoFlow put us in a position to engage deeply with a diverse potential customer base who offered valuable product feedback. We are committed to delivering on refinements and functionalities to the product as a top priority. This strengthens CoFlow to a point where we expect funding commitments from the development sponsor to ramp down over the coming year as they transition to solely software licensing. This allows CMG to manage CoFlow more directly, with a focus on recurring revenue growth and profitability, which is consistent with how we view all internal initiatives and acquisitions.
Success Criteria
When I joined CMG, success was measured by revenue growth while maintaining strong profitability. Our company looks very different today than it did then and while growth and profitability are still the goal, the nature of that growth is now more critical.
Today, approximately 65% of our total revenue is recurring software revenue, compared to CMG's 78% in the simulation business alone. Reorienting the revenue mix, especially from acquired companies, towards software is essential for driving profitability. Recurring software revenue is scalable in a way that services are not, offering higher incremental margins. This enhances profitability which in turn can boost free cash flow, enabling us to further our acquisition strategy.
Our shift towards a higher percentage of recurring software revenue will primarily result from our focus on stronger software sales. A lesser impact will come from declines in professional services revenue including the ramp-down of CoFlow funding. We also expect a gradual reduction in tailored software development professional services within Seismic Solutions. This shift can contribute to strengthening our margin profile and cash-generating potential. As a result, total revenue growth will be less important than software revenue growth, margin expansion and free cash flow per share.
Acquisitions
Acquisitions are where compounding will have the greatest impact on CMG. To date, we have bought two high-quality businesses with a slightly heavier focus on services revenue and that are in the early stages of software growth. As we adjust the focus to recurring software revenue and expanding the margins, we expect to start growing our free cash flow which can be redeployed into further acquisitions.
This is a long-term, multi-year strategy. It will take time to demonstrate the evolution of the businesses and the growth in free cash flow per share and to successfully identify the right opportunities to reinvest our capital.
We have built a strong team around M&A and have expanded roles covering business development, strategy, research, and integration. Our first two significant acquisitions were complex, allowing us to start to develop an integration and M&A playbook that will set us up for further acquisitions. The size and pace of our acquisitions will continue to be dictated by the opportunities available and we are leveraging the learnings and successes of the last two years to guide further refinements to our strategy.
CEO Letter to Shareholders
Computer Modelling Group Ltd. Q3 25
In closing
My team knows that I am passionate about whiteboarding ideas. It helps me think through ideas, new approaches and clarify my thinking. The idea of compounding is not unique to me or to business, but it is a new approach for CMG. I recently drew out the straightforward idea that focusing on growing recurring software revenue can lead to expanded margins, which in turn improves free cash flow, which can be continually reinvested in initiatives or acquisitions at attractive rates of return. Apply this strategy to how we think about CoFlow, how we think about Bluware, how we think about Sharp, and you quickly come to realize the value of 1% improvement every day. The benefit of compounding comes with time. Investing in our businesses to create profitability alongside sustainable, long-term growth is key.
Thank you for your ongoing support and enthusiasm for our vision.
Sincerely,
Pramod Jain
Chief Executive Officer
This letter to shareholders forms an integral part of our Management's Discussion and Analysis ("MD&A") and includes forward-looking information and forward-looking statements (together, "Forward Looking Statements") within the meaning of applicable securities laws, and measures that do not have a standard meaning prescribed by the IFRS Accounting Standards ("IFRS"), including the financial measure "Free Cash Flow" to indicate financial performance. For detailed information on these Forward-Looking Statements, non-IFRS measures, and associated risks, please see the relevant sections in our MD&A dated February 11, 2025, accessible on SEDAR+ (www.sedarplus.ca) and our website (www.cmgl.ca/investors/financial-reports).
CEO Letter to Shareholders
Computer Modelling Group Ltd. Q3 25
CMG
Computer Modelling Group Ltd. announces its third quarter results for the three and nine months ended December 31, 2024.
THIRD QUARTER 2025 CONSOLIDATED HIGHLIGHTS
Select financial highlights
- Closed the Company's second major acquisition, Sharp Reflections GmbH ("SR" or "Sharp"), on November 12, 2024;
- Generated total revenue of $35.8 million in the third quarter of fiscal 2025, compared to $33.0 million in the prior year's quarter, reflecting a 1% decrease in R&P segment revenue and a 9% contribution from the Seismic segment, of which 6% was growth from acquisitions;
- Operating profit increased to $11.2 million, an increase of 37% from the same period of the previous fiscal year, primarily due to increased software and professional service revenues and a decrease in operating expenses primarily driven by a decrease in stock-based compensation in the quarter as a result of the decrease in share price. Adjusted operating profit increased by 9% from the same period of the previous fiscal year, with the R&P segment decreasing by 5% and the Seismic segment increasing by 14%, of which 1% was contributed from the acquisition;
- Adjusted EBITDA Margin was 39%, compared to 37% in the same period of the previous fiscal year with the R&P segment generating 42% and the Seismic segment generating 34% in Adjusted EBITDA Margin;
- Net income during the period was $9.6 million, a 71% increase compared to the prior year's quarter, primarily due to a increased operating profit and significant FX gains, partially offset by a change in the fair value of contingent consideration;
- Earnings per share was $0.12, a 71% increase compared to the prior year's quarter;
- Funds flow from operations per share was $0.12, a 20% increase from the prior year comparative period. Reported Free Cash Flow of $0.11 per share, an increase of 22%, primarily due to increased funds flow from operations and a decrease in both capital expenditures and repayment of lease liabilities.
THIRD QUARTER YEAR TO DATE 2025 CONSOLIDATED HIGHLIGHTS
Select financial highlights
- Closed the Company's second major acquisition, Sharp Reflections GmbH ("SR" or "Sharp"), on November 12, 2024;
- Generated total revenue of $95.8 million for the third quarter fiscal 2025 year-to-date period, compared to $76.4 million in the prior year-to-date period, reflecting a 3% increase in the R&P segment revenue and a 22% contribution from the Seismic segment of which 21% was growth from acquisitions;
- Operating profit decreased to $25.3 million, a decrease of 2% from the same year-to-date period of the previous fiscal year, primarily due to increased headcount and headcount related costs, increased acquisition costs, increased amortization of acquired intangible assets, and increased agent commissions as a result of increased revenues, partially offset by a decrease in stock-based compensation expense. Adjusted operating profit remained consistent with the prior year comparative period, with the R&P segment decreasing by 4% and the Seismic segment contributing an increase of 4%;
- Adjusted EBITDA Margin was 35%, compared to 43% in the same period of the previous fiscal year with the R&P Segment generating 43% and the Seismic segment generating 15% in Adjusted EBITDA Margin;
- Net income during the period was $17.3 million, a 9% decrease compared to the prior year-to-date period, primarily due to a decrease in operating profit, change in fair value of contingent consideration and increased income tax;
- Earnings per share was $0.21, a 13% decrease compared to the prior year-to-date period;
- Funds flow from operations per share was $0.29, a 15% decrease from the prior year-to-date period. Reported Free Cash Flow of $0.25 per share, a decrease of 22%, primarily due to decreased funds flow from operations and increases in both capital expenditures and repayment of lease liabilities.
Third Quarter Overview
In the third quarter, total revenue grew by 8% from the prior fiscal year to $35.8 million, of which 2% was Organic growth and 6% was growth from acquisitions.
Adjusted EBITDA Margin of 39% compared to 37% in the prior year period, with reductions in the Reservoir and Productions Solutions segment offset by increases in the Seismic Solutions segment.
Management Discussion & Analysis
Computer Modelling Group Ltd. Q3 25
CMG
Net income for the quarter increased to $9.6 million, up from $5.6 million in the prior year period, supported by an increase in operating profit and significant foreign exchange rate gains. Free Cash Flow increased from $0.09 per share in the prior period to $0.11 per share, impacted by the increase in funds flow from operations. At December 31, 2024, the cash balance was $39.7 million, a decrease from $61.4 million at September 30, 2024 due primarily to the acquisition of Sharp Reflections.
Reservoir and Production Solutions
Total revenue declined by 1% with declines in Professional Services revenue partially offset by gains in Perpetual license revenue. Annuity/maintenance ("A/M") revenue was flat compared to the third quarter of 2024 with decreases in the US, Canada and South America, offset by growth in the Eastern Hemisphere. Software revenue attributable to energy transition was 23% in the quarter, compared to 22% in the comparable prior year period. From a trend perspective, on a year-to-date basis, software revenue attributable to energy transition was 23% compared to 22% in the same period of the previous year.
Operating profit in the segment for the third quarter increased to $7.0 million, from $5.9 million in the prior year period, driven by a reduction in stock-based compensation expense due to lower share price, partially offset by increased expenses, including acquisition related expenses, agent commission and other related fees, and other corporate costs. Adjusted EBITDA Margin in the quarter decreased to 42% from 44% in the prior fiscal year, due primarily to the slight decline in revenue and an increase in expenses.
Maintaining our customary high renewal rates in the fourth quarter will be important for sustaining our current growth trajectory which, on a year-to-date basis, is below our expectation of low double-digits.
Seismic Solutions
Total revenue increased 26% of which 9% was Organic growth and 17% growth from acquisitions.
A/M revenue increased 131% compared to the prior year period, of which 49% was Organic growth, due to an increase in licensing and the positive impact of foreign exchange rates. Growth from acquisitions was 82%. Annuity license fee increase of 12% Organic growth was also positively impacted by an increase in licensing and the positive impact of USD/CAD foreign exchange rates.
Operating profit in the segment for the third quarter increased to $4.2 million from $2.3 million as a result of higher revenue and lower G&A expenses. Adjusted EBITDA increased to $4.8 million from $2.7 million, of which 6% is from acquisitions. Adjusted EBITDA Margin grew to 34% from 24% in the prior year. Contract renewals in the Seismic segment typically occur in the third and fourth quarters, resulting in Adjusted EBITDA fluctuation on a quarterly basis. As a result of annuity license fee revenue recognition being skewed towards the last two quarters of the fiscal year, Adjusted EBITDA is expected to be lower in the first and second quarters of the fiscal year. We would encourage shareholders to evaluate the Seismic Solutions segment revenue and profitability on a full-year basis.
Management Discussion & Analysis
Computer Modelling Group Ltd. Q3 25
CMG
SUMMARY OF FINANCIAL PERFORMANCE
| Reservoir & Production Solutions | Seismic Solutions | Consolidated | ||||
|---|---|---|---|---|---|---|
| Three months ended December 31, ($ thousands, except per share data) | 2024 | 2023 | 2024 | 2023 | 2024 | 2023 |
| Annuity/maintenance licenses | 17,706 | 17,625 | 2,746 | 1,189 | 20,452 | 18,814 |
| Annuity license fee | - | - | 4,303 | 3,846 | 4,303 | 3,846 |
| Perpetual licenses | 804 | 584 | - | - | 804 | 584 |
| Total software license revenue | 18,510 | 18,209 | 7,049 | 5,035 | 25,559 | 23,244 |
| Professional services | 3,181 | 3,594 | 7,033 | 6,169 | 10,214 | 9,763 |
| Total revenue | 21,691 | 21,803 | 14,082 | 11,204 | 35,773 | 33,007 |
| Total revenue growth | (1%) | 12% | 26% | 8% | 70% | |
| Annuity/maintenance licenses growth | (0%) | 13% | 131% | 9% | 21% | |
| Cost of revenue | 2,389 | 2,288 | 3,918 | 4,068 | 6,307 | 6,356 |
| Operating expenses | ||||||
| Sales & marketing | 2,914 | 4,379 | 1,449 | 478 | 4,363 | 4,857 |
| Research and development | 4,656 | 5,337 | 2,684 | 1,916 | 7,340 | 7,253 |
| General & administrative | 4,743 | 3,890 | 1,803 | 2,434 | 6,546 | 6,324 |
| Operating expenses | 12,313 | 13,606 | 5,936 | 4,828 | 18,249 | 18,434 |
| Operating profit | 6,989 | 5,909 | 4,228 | 2,308 | 11,217 | 8,217 |
| Operating Margin | 32% | 27% | 30% | 21% | 31% | 25% |
| Acquisition related expenses | 1,533 | 146 | 54 | 551 | 1,587 | 697 |
| Amortization of acquired intangible assets | 575 | 565 | 430 | 87 | 1,005 | 652 |
| Stock-based compensation | (82) | 2,974 | 3 | - | (79) | 2,974 |
| Adjusted operating profit (1) | 9,015 | 9,594 | 4,715 | 2,946 | 13,730 | 12,540 |
| Adjusted Operating Margin (1) | 42% | 44% | 33% | 26% | 38% | 38% |
| Net income (loss) | 5,496 | 3,918 | 4,110 | 1,692 | 9,606 | 5,610 |
| Adjusted EBITDA (1) | 9,003 | 9,583 | 4,821 | 2,689 | 13,824 | 12,272 |
| Adjusted EBITDA Margin (1) | 42% | 44% | 34% | 24% | 39% | 37% |
| Earnings per share – basic & diluted | 0.12 | 0.07 | ||||
| Funds flow from operations per share - basic | 0.12 | 0.10 | ||||
| Free Cash Flow per share – basic (1) | 0.11 | 0.09 |
(1) Non-IFRS financial measures are defined in the "Non-IFRS Financial Measures" section.
Management Discussion & Analysis
6
Computer Modelling Group Ltd. Q3 25
CMG
| Reservoir & Production Solutions | Seismic Solutions | Consolidated | ||||
|---|---|---|---|---|---|---|
| Nine months ended December 31, ($ thousands, except per share data) | 2024 | 2023 | 2024 | 2023 | 2024 | 2023 |
| Annuity/maintenance licenses | 52,257 | 50,673 | 5,832 | 1,196 | 58,089 | 51,869 |
| Annuity license fee | - | - | 4,552 | 4,004 | 4,552 | 4,004 |
| Perpetual licenses | 5,063 | 3,609 | - | - | 5,063 | 3,609 |
| Total software license revenue | 57,320 | 54,282 | 10,384 | 5,200 | 67,704 | 59,482 |
| Professional services | 9,843 | 10,338 | 18,216 | 6,568 | 28,059 | 16,906 |
| Total revenue | 67,163 | 64,620 | 28,600 | 11,768 | 95,763 | 76,388 |
| Total revenue growth | 4% | 21% | 143% | 25% | 43% | |
| Annuity/maintenance licenses growth | 3% | 15% | 388% | 12% | 18% | |
| Cost of revenue | 7,341 | 6,464 | 10,850 | 4,290 | 18,191 | 10,754 |
| Operating expenses | ||||||
| Sales & marketing | 10,418 | 10,096 | 3,105 | 500 | 13,523 | 10,596 |
| Research and development | 15,170 | 14,040 | 6,843 | 2,032 | 22,013 | 16,072 |
| General & administrative | 12,276 | 10,776 | 4,447 | 2,483 | 16,723 | 13,259 |
| Operating expenses | 37,864 | 34,912 | 14,395 | 5,015 | 52,259 | 39,927 |
| Operating profit | 21,958 | 23,244 | 3,355 | 2,463 | 25,313 | 25,707 |
| Operating Margin | 33% | 36% | 12% | 21% | 26% | 34% |
| Acquisition related expenses | 1,928 | 719 | 423 | 551 | 2,351 | 1,270 |
| Amortization of acquired intangible assets | 1,726 | 746 | 608 | 92 | 2,334 | 838 |
| Stock-based compensation | 3,057 | 5,370 | 3 | - | 3,060 | 5,370 |
| Adjusted operating profit (1) | 28,669 | 30,079 | 4,389 | 3,106 | 33,058 | 33,185 |
| Adjusted Operating Margin (1) | 43% | 47% | 15% | 26% | 35% | 43% |
| Net income (loss) | 15,491 | 17,245 | 1,842 | 1,785 | 17,333 | 19,030 |
| Adjusted EBITDA (1) | 28,774 | 30,116 | 4,425 | 2,822 | 33,199 | 32,938 |
| Adjusted EBITDA Margin (1) | 43% | 47% | 15% | 24% | 35% | 43% |
| Earnings per share – basic & diluted | 0.21 | 0.24 | ||||
| Funds flow from operations per share – basic | 0.29 | 0.34 | ||||
| Free Cash Flow per share – basic (1) | 0.25 | 0.32 |
(1) Non-IFRS financial measures are defined in the "Non-IFRS Financial Measures" section.
Management Discussion & Analysis
Computer Modelling Group Ltd. Q3 25
CMG
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 Group", the "Company", "we" or "our"), dated February 11, 2025, should be read in conjunction with CMG Group's unaudited condensed consolidated interim financial statements (the "Financial Statements") and accompanying notes for the three and nine months ended December 31, 2024 and 2023 and CMG Group's Annual Information Form dated May 22, 2024 ("AIF"), which are available under CMG Group's SEDAR+ profile at www.sedarplus.ca.
The Financial Statements have been prepared in accordance with IFRS Accounting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB"). The Financial Statements are presented in Canadian dollars, which is the functional and presentation currency of CMG Group.
Figures within this MD&A are presented in Canadian dollars, unless otherwise indicated. Financial data, other than the non-IFRS financial measures, have been prepared in accordance with IFRS Accounting Standards.
This MD&A was reviewed and approved by the Audit Committee and Board of Directors and is effective February 11, 2025.
FORWARD-LOOKING INFORMATION
Certain information included in this MD&A and the CEO Letter to Shareholders (attached hereto and incorporated by reference) 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", "endeavors", "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.
Forward-looking information contained in this MD&A is based on management's expectations and assumptions regarding, among other things:
- future software license, maintenance and professional services sales;
- mix of revenues and potential variances from period to period;
- ability of the Reservoir & Production Solutions operating segment to maintain annual Adjusted EBITDA Margin in excess of 40%;
- ability of the Reservoir & Production Solutions operating segment to achieve total revenue growth on an annual basis;
- allocation of purchase price for completed acquisitions;
- acquisition-related expenses, including the potential for further performance-based earnout;
- goodwill impairment tests and the possibility of future impairment adjustments;
- amortization of intangible assets and stock-based compensation;
- the continued financing by and participation of CMG's CoFlow partner, including the transition to software licensing arrangement, and the associated costs and future revenue related to CoFlow;
- market demand for advanced simulation processes and complex recovery methods to address production declines in aging assets;
- the Company's ability to increase or sustain its revenue in a volatile oil price environment;
- the Company's ability to pay dividends;
- the Company's ability to continue current research activities and new product development;
- the Company's ability to capture market share in energy transition;
Management Discussion & Analysis
Computer Modelling Group Ltd. Q3 25
CMG
- the Company's ability to recruit and retain qualified staff in a particular territory or in general;
- the Company's ability to recognize financial results of acquired businesses and assets; and
- the Company's ability to successfully execute on commercial partnerships and acquisitions.
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:
- 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;
- Information security breaches or other cyber-security threats; and
- Ability to successfully execute on acquisitions and to integrate acquired businesses and assets.
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.
CORPORATE PROFILE
CMG Group is a global software and consulting company providing advanced reservoir modelling capabilities to the energy industry. Through acquisitions, the Company has expanded to include software and services specializing in cloud and interactive deep learning solutions for subsurface decision-making including seismic interpretation. CMG Group provides cutting-edge technologies that support critical field development decisions for upstream planning and energy transition strategies. The Company has a diverse customer base of international oil and gas production and exploration companies in approximately 60 countries. The Company also provides professional services consisting of highly specialized support, consulting, training, and contract research activities. CMG Group has sales and technical support services based in Calgary, Houston, Oxford, Dubai, Bogota, Rio de Janeiro, Bengaluru, Kuala Lumpur, Oslo, Stavanger, and Kaiserslautern. The Company's Common Shares are listed on the Toronto Stock Exchange ("TSX") and trade under the symbol "CMG". CMG Group and its subsidiaries include the following: Computer Modelling Group Inc., CMG Middle East FZ LLC, CMG Europe Ltd., CMG Collaboration Centre India Private Ltd., and Computer Modelling Group Brazil Soluções Tecnológicas Ltda., (together referred to as "CMG"), and CMG Holdings (USA) Inc., Bluware-Headwave Ventures Inc., Bluware Inc., and Bluware AS, (together referred to as "BHV") and CMGL Services Corporation Inc., CMG Germany GmbH, Sharp Reflections GmbH, Sharp Reflections Inc., Sharp Reflections AS, Sharp Reflections Ltd., (together referred to as "SR" or "Sharp").
BUSINESS OVERVIEW
The Company is a global software and consulting company providing advanced reservoir modelling capabilities, and cloud and interactive deep learning solutions for seismic interpretation to the energy industry. We provide cutting-edge technologies that support critical field development decisions for upstream planning and energy transition strategies.
Since its inception more than 40 years ago, CMG Group 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 our dominant market presence today in the simulation of advanced hydrocarbon recovery processes. The Company 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. We are experts in modelling and de-risking subsurface exploration with the use of advanced physics-based simulation software and expert consulting.
Management Discussion & Analysis
Computer Modelling Group Ltd. Q3 25
CMG
The Company provides market-leading reservoir simulation software, recognized as the industry standard in traditional oil and gas including Enhanced Oil Recovery ("EOR"), Heavy Oil and unconventionals, and in Energy Transition including Carbon Capture and Storage ("CCS"), geothermal and hydrogen. In addition to offering reservoir simulation solutions, we have invested into the development of CoFlow, the industry's first fully implicit, multi-user and multi-disciplinary Integrated Reservoir and Production System Modelling ("IPSM") software application. It provides a unified solution for integrated asset modelling by combining reservoir, production networks and geomechanics in one environment and allows reservoir and production engineers to make informed decisions on large, integrated oil and gas projects.
In combination with its principal business of licensing its software, the Company also provides professional services consisting of multi-disciplinary upstream consultants that provide software proficiency and technical competency to build and optimize reservoir development plans.
CMG Group continues to pursue its CMG 4.0 strategy which is aimed at transforming us into a market-led company, driven by sustained Organic growth and the prudent deployment of capital to pursue acquisitions that are accretive to software revenue. The Organic growth strategy leverages the momentum towards digitization in the energy industry and the growing need for complex energy transition solutions to drive growth by winning new customers and selling additional products and services to existing customers. The Company sees mergers and acquisitions ("M&A") as a growth accelerator and maintains a robust and dynamic pipeline of opportunities, investing in both engagement and outreach while continuously evaluating value creation opportunities through acquisitions.
Organic Growth
The Company measures Organic growth on a quarterly and year-to-date basis at the revenue and Adjusted EBITDA levels and includes revenue and Adjusted EBITDA under CMG Group's ownership for a year or longer, beginning from the first full quarter of CMG Group's ownership in the current and comparative period(s). For example, BHV was acquired on September 25, 2023 (Q2 2024). On September 25, 2024, it marked one full year of ownership under CMG Group and on October 1, 2024 (Q3 2025), which is the first full quarter under CMG Group's ownership in the current and comparative period, started being tracked under Organic growth. Any revenue generated by BHV prior to October 1, 2024, would not be included in Organic growth. Sharp was acquired on November 12, 2024 (Q3 2025) and will start contributing to Organic growth on January 1, 2026 (Q4 2026).
For further clarity, current statements include Organic growth from the following:
- CMG revenue and Adjusted EBITDA
- BHV revenue and Adjusted EBITDA generated beginning on October 1, 2024
Significant Events
Acquisition of Sharp Reflections GmbH
On November 12, 2024, CMG Group announced the acquisition of Sharp Reflections GmbH a software company, specializing in seismic processing and interpretation. Sharp leverages high-performance computing to process and analyze pre-stack seismic datasets in real time thereby enhancing the efficiency and quality of decision making in subsurface interpretation. The acquisition of Sharp is a natural extension of CMG Group and will enable us to further expand CMG Group's solutions in the seismic processing and interpretation in the upstream energy workflow.
Sharp is headquartered in Kaiserslautern, Germany with operations in UK, USA, Norway and Germany. Sharp's customer base includes integrated oil companies (IOCs), national oil companies (NOCs) and super majors with further opportunities to expand to energy transition through CCS, offshore wind-farm development and hydrogen storage where subsurface integrity is critical.
Sharp's flagship solution, Pre-Stack Pro (now known as Sharp Reflections software), is a leading high performance computing platform for seismic data processing and interpretation, with a specific expertise in large pre-stack seismic data sets. Sharp has recently expanded its offering to include 4D seismic analysis. Sharp works with some of the world's largest oil and gas operators for sponsor driven development through foundation projects which aids in the continuous improvement and features offered within the Sharp Reflections software. Sharp also offers tech-enabled consulting services, leveraging its software to deliver studies and solutions to their customers.
Management Discussion & Analysis
Computer Modelling Group Ltd. Q3 25
CMG
This acquisition is intended to grow CMG Group's existing software revenues and continues to demonstrate our ability to add strategic IP to our portfolio.
Refer to note 3 in the condensed consolidated interim financial statements for additional information.
Business Model
As a result of CMG Group's acquisition of Sharp on November 12, 2024, the Company's operations are organized into two reportable operating segments represented by "Reservoir & Production Solutions" segment ("R&P") which reflects the operations of CMG and includes the development and licensing of reservoir simulation software and "Seismic Solutions" segment ("Seismic") represented by BHV and SR and includes the development and licensing of seismic interpretation software. As such, we have prepared the below analysis to follow both segments and consolidated amounts to allow users to understand and sufficiently compare results from each segment separately.
Our customers have two alternatives for licensing our software:
Annuity License Agreements
Annuity license agreements, which include a term-based software license bundled with maintenance. These agreements provide customers with rights to use the software for a fixed term, typically one year, but could be shorter or longer, and include maintenance consisting of customer support and unspecified upgrades. Annuity license agreements are issued by both the R&P and Seismic segments. Each entity allocates 50% of annuity license agreement to software license and 50% to maintenance. The maintenance component of annuity license agreements on a straight-line basis over the license period. This revenue component is recorded under "Annuity/maintenance license revenue". We generally invoice our customers for the full amount of their contractual payment obligations at the time that they contract with us.
The software license component of the agreement has different revenue recognition for each segment, as follows:
- R&P – Software annuity license revenue is recognized ratably over the term of the agreement, given management's practice to honour customers' mid-contract requests to reduce product quantities or license duration without a penalty and a refund or credit a pro-rata share of the agreement fee. These software annuity license revenues are included in "Annuity/maintenance license" revenue.
- Seismic – Software annuity license revenue is recognized upfront when the software license is delivered to the customer at the start of the license term. This revenue component is recorded under "Annuity license fee".
While both annuity/maintenance license revenue and annual license fee represent recurring revenue base, the annual license fee revenue will fluctuate quarterly due to the timing of agreement renewals which tend to be skewed towards the last two quarters of our fiscal year. Our annuity and maintenance license agreements must be renewed upon their agreement expiry. Based on our experience, a majority of customers renew their agreements upon expiry.
Perpetual License Agreements
Perpetual license agreements grant the customer the right to use the then-current version of software license in perpetuity. This revenue stream is recorded under "Perpetual license" revenue and is recognized at a point in time, upon delivery of the licensed product. Customers purchasing perpetual licenses may also enter into a separate maintenance and support agreement giving them access to customer support and software upgrades. The majority of customers who have acquired perpetual software licenses subsequently purchase a maintenance package.
Perpetual license agreements are entered into by R&P. The Seismic entities historically offered perpetual licenses and recognize maintenance revenue from legacy perpetual licenses. Maintenance license revenue to support perpetual license sales is recorded under "Annuity/maintenance license" revenue and recognized on a straight-line basis over the term of the agreement. These agreements are typically renewed annually. Perpetual licenses are no longer commonly sold by Seismic. Perpetual license sales are variable and unpredictable in nature as the purchase decision and its timing fluctuate with the customers' needs and budgets.
We generally invoice our customers for the full amount of their agreement at the time that they contract with us, with payment generally due within a period of 30 days.
Management Discussion & Analysis
Computer Modelling Group Ltd. Q3 25
CMG
In addition to the above, CMG Group also offers the following:
Cloud Solutions
We also offer a public cloud solution which enables customers to securely access Company's simulators and submit simulation jobs to some of the latest and fastest hardware available in the industry optimized for maximum efficiency and faster simulation results. The cloud solution gives customers the ability to take advantage of the flexibility and economies of scale with the "pay as you go" model for hardware and software. This currently represents a small part of the Company's business and is reported under annuity/maintenance license revenue.
Professional Services
In combination with its principal business of licensing its software, the Company also provides professional services consisting of multi-disciplinary upstream consultants that provide software proficiency and technical competency to build and optimize reservoir development plans. 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.
NON-IFRS FINANCIAL AND SUPPLEMENTARY FINANCIAL MEASURES
Certain financial measures in this MD&A – namely, Adjusted EBITDA and Adjusted EBITDA Margin, Free Cash Flow, Organic growth, adjusted operating expenses, direct employee costs, adjusted direct employee costs, other corporate costs, adjusted other corporate costs, adjusted operating profit, and Adjusted Operating Profit Margin – 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.
Adjusted EBITDA and Adjusted EBITDA Margin
Adjusted EBITDA and Adjusted EBITDA Margin refers to net income before adjusting for depreciation and amortization expense, interest income, income and other taxes, stock-based compensation, restructuring charges, foreign exchange gains and losses, repayment of lease obligations, asset impairments, acquisition related costs and other expenses directly related to business combinations, including compensation expenses and gains or losses on contingent consideration. Adjusted EBITDA should not be construed as an alternative to operating income, net income or liquidity as determined by IFRS. The Company believes that Adjusted EBITDA and Adjusted EBITDA Margin 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. In addition, management has determined that Adjusted EBITDA and Adjusted EBITDA Margin is a more accurate measurement of the Company's operating performance and our ability to generate earnings as compared to EBITDA and EBITDA Margin.
| Reservoir & Production Solutions | Seismic Solutions | Consolidated | ||||
|---|---|---|---|---|---|---|
| Three months ended December 31, ($ thousands) | 2024 | 2023 | 2024 | 2023 | 2024 | 2023 |
| Net income (loss) | 5,496 | 3,918 | 4,110 | 1,692 | 9,606 | 5,610 |
| Add (deduct): | ||||||
| Depreciation and amortization | 1,460 | 1,449 | 807 | 106 | 2,267 | 1,555 |
| Stock-based compensation | (82) | 2,974 | 3 | - | (79) | 2,974 |
| Acquisition related expenses | 1,533 | 146 | 54 | 551 | 1,587 | 697 |
| Loss on contingent consideration | 150 | - | - | - | 150 | - |
| Income and other tax expense | 2,497 | 1,805 | 1,065 | 702 | 3,562 | 2,507 |
| Interest income | (474) | (982) | (179) | (2) | (653) | (984) |
| Foreign exchange loss (gain) | (1,146) | 701 | (781) | (59) | (1,927) | 642 |
| Repayment of lease liabilities | (431) | (428) | (258) | (300) | (689) | (728) |
| Adjusted EBITDA (1) | 9,003 | 9,583 | 4,821 | 2,689 | 13,824 | 12,272 |
| Adjusted EBITDA Margin (1) | 42% | 44% | 34% | 24% | 39% | 37% |
(1) This is a non-IFRS financial measure. Refer to definition of the measures above.
Management Discussion & Analysis
Computer Modelling Group Ltd. Q3 25
CMG
| Reservoir & Production Solutions | Seismic Solutions | Consolidated | ||||
|---|---|---|---|---|---|---|
| Nine months ended December 31, ($ thousands) | 2024 | 2023 | 2024 | 2023 | 2024 | 2023 |
| Net income (loss) | 15,491 | 17,245 | 1,842 | 1,785 | 17,333 | 19,030 |
| Add (deduct): | ||||||
| Depreciation and amortization | 4,496 | 3,424 | 1,601 | 113 | 6,097 | 3,537 |
| Stock-based compensation | 3,057 | 5,370 | 3 | - | 3,060 | 5,370 |
| Acquisition related expenses | 1,928 | 719 | 423 | 551 | 2,351 | 1,270 |
| Loss on contingent consideration | 2,063 | - | - | - | 2,063 | - |
| Income and other tax expense | 5,913 | 6,288 | 2,381 | 740 | 8,294 | 7,028 |
| Interest income | (1,934) | (2,434) | (358) | (4) | (2,292) | (2,438) |
| Foreign exchange loss (gain) | (948) | 752 | (558) | (59) | (1,506) | 693 |
| Repayment of lease liabilities | (1,292) | (1,248) | (909) | (304) | (2,201) | (1,552) |
| Adjusted EBITDA (1) | 28,774 | 30,116 | 4,425 | 2,822 | 33,199 | 32,938 |
| Adjusted EBITDA Margin (1) | 43% | 47% | 15% | 24% | 35% | 43% |
(1) This is a non-IFRS financial measure. Refer to definition of the measures above.
Adjusted EBITDA Margin for the three and nine months ended December 31, 2024, was 39% and 35%, respectively, down from 37% and 43% during the period year comparative periods.
The R&P segment's Adjusted EBITDA Margin is 42% and 43% for the three and nine months ended December 31, 2024, respectively, compared to 44% and 47%, respectively for the three and nine months ended December 31, 2023. The decline in Adjusted EBITDA Margin for the three months ended December 31, 2024, is primarily due to a slight decline in revenue and increase in other corporate costs. The decline in Adjusted EBITDA Margin for the nine months ended December 31, 2024, is primarily due to an increase in headcount and headcount related costs and other corporate costs, partially offset by an increase in total revenues. Refer to the "Operating Expenses" section of this MD&A for further detail on the increase in operating expenses by category.
The Seismic segment's Adjusted EBITDA Margin for the three and nine months ended December 31, 2024, is 34% and 15%, respectively, compared to 24% for the three and nine months ended December 31, 2023. Seismic Adjusted EBITDA for the three months ended December 31, 2024, increased by 79%, of which 6% is due to growth from acquisitions. The increase in Seismic Adjusted EBITDA not related to growth from acquisitions for the three months ended December 31, 2024, is primarily due to higher revenues and lower G&A expenses. Seismic Adjusted EBITDA for the nine months ended December 31, 2024, increased by 57%, of which there was an 8% decline due to acquisitions. The increase in Seismic Adjusted EBITDA not related to growth from acquisitions for the nine months ended December 31, 2024, is impacted by the same reasons as the three months ended December 31, 2024. The decrease in Seismic Adjusted EBITDA due to decline from acquisitions for the nine months ended December 31, 2024, is primarily due to negative Adjusted EBITDA in the first six months of fiscal 2025, influenced by revenue recognition being skewed to the last two quarters of the fiscal year. Contract renewals in the Seismic segment typically occur in the third and fourth quarters, resulting in Adjusted EBITDA fluctuation on a quarterly basis. As a result of annuity license fee revenue recognition being skewed towards the last two quarters of the fiscal year, Adjusted EBITDA is expected to be lower in the first and second quarters of the fiscal year.
Free Cash Flow Reconciliation to Funds Flow from Operations
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 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. 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.
Management Discussion & Analysis
Computer Modelling Group Ltd. Q3 25
CMG
| Fiscal 2023 | Fiscal 2024 | Fiscal 2025 | ||||||
|---|---|---|---|---|---|---|---|---|
| ($ thousands, unless otherwise stated) | Q4 | Q1 | Q2 | Q3 | Q4 | Q1 | Q2 | Q3 |
| Funds flow from operations | 7,656 | 7,920 | 11,491 | 8,477 | 10,367 | 6,515 | 7,101 | 9,937 |
| Capital expenditures(1) | (1,707) | (45) | (51) | (459) | (95) | (93) | (236) | (432) |
| Repayment of lease liabilities | (553) | (412) | (412) | (728) | (803) | (743) | (769) | (689) |
| Free Cash Flow | 5,396 | 7,463 | 11,028 | 7,290 | 9,469 | 5,679 | 6,096 | 8,816 |
| Weighted average shares – basic (thousands) | 80,603 | 80,685 | 80,834 | 81,067 | 81,314 | 81,476 | 81,887 | 82,753 |
| Free Cash Flow per share - basic | 0.07 | 0.09 | 0.14 | 0.09 | 0.12 | 0.07 | 0.07 | 0.11 |
| Funds flow from operations per share- basic | 0.09 | 0.10 | 0.14 | 0.10 | 0.13 | 0.08 | 0.09 | 0.12 |
(1) Capital expenditures include cash consideration for USI acquisition in Q4 2023.
Free Cash Flow per share increased by 22% for the three months ended December 31, 2024, and decreased by 22% for the nine months ended December 31, 2024, as compared to the three and nine months ended December 31, 2023, respectively. The increase in Free Cash Flow for the three months ended December 31, 2024, primarily relates to an increase in net income and decrease in the repayment of lease liabilities relating to timing of payments as the BHV office lease in Houston concluded during the period. The decrease in Free Cash Flow for the nine months ended December 31, 2024, primarily relates to a decrease in net income and increase in repayment of lease liabilities compared to the prior year comparative period as a result of the acquisition of BHV.
Adjusted operating expenses, direct employee and other corporate costs
Adjusted operating expenses include adjusted direct employee costs and adjusted other corporate costs in which adjustments are made with respect to restructuring costs, stock-based compensation, acquisition of acquired intangible assets, and acquisition related expenses. Adjusted direct employee costs include salaries, bonuses, benefits, commission expenses, and professional development. Adjusted other corporate costs include facility-related expenses, corporate reporting, professional services, marketing and promotion, computer expenses, travel, other office-related expenses, depreciation and amortization on property and equipment and right-of-use assets. Adjusted direct employee costs and adjusted 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 "Operating Expenses" heading for a reconciliation of direct employee costs and other corporate costs to total operating expenses.
Adjusted Operating Profit and Adjusted Operating Profit Margin
Adjusted Operating Profit and Adjusted Operating Profit Margin 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 restructuring charges, stock-based compensation, amortization of acquired intangible assets, and acquisition-related expenses. Management believes that analyzing the Company's performance exclusive of these items illustrates underlying trends in our business and provides better comparability between periods. See "Operating Expenses" heading for analysis on items that impact Adjusted Operating Profit.
Management Discussion & Analysis
Computer Modelling Group Ltd. Q3 25
CMG
| Reservoir & Production Solutions | Seismic Solutions | Consolidated | ||||
|---|---|---|---|---|---|---|
| Three months ended December 31, ($ thousands) | 2024 | 2023 | 2024 | 2023 | 2024 | 2023 |
| Operating profit | 6,989 | 5,909 | 4,228 | 2,308 | 11,217 | 8,217 |
| Add: | ||||||
| Acquisition related expenses | 1,533 | 146 | 54 | 551 | 1,587 | 697 |
| Amortization of acquired intangible assets | 575 | 565 | 430 | 87 | 1,005 | 652 |
| Stock-based compensation | (82) | 2,974 | 3 | - | (79) | 2,974 |
| Adjusted operating profit (1) | 9,015 | 9,594 | 4,715 | 2,946 | 13,730 | 12,540 |
| Adjusted Operating Margin (1) | 42% | 44% | 33% | 26% | 38% | 38% |
(2) This is a non-IFRS financial measure. Refer to definition of the measures above.
| Reservoir & Production Solutions | Seismic Solutions | Consolidated | ||||
|---|---|---|---|---|---|---|
| Nine months ended December 31, ($ thousands) | 2024 | 2023 | 2024 | 2023 | 2024 | 2023 |
| Operating profit | 21,958 | 23,244 | 3,355 | 2,463 | 25,313 | 25,707 |
| Add: | ||||||
| Acquisition related expenses | 1,928 | 719 | 423 | 551 | 2,351 | 1,270 |
| Amortization of acquired intangible assets | 1,726 | 746 | 608 | 92 | 2,334 | 838 |
| Stock-based compensation | 3,057 | 5,370 | 3 | - | 3,060 | 5,370 |
| Adjusted operating profit (1) | 28,669 | 30,079 | 4,389 | 3,106 | 33,058 | 33,185 |
| Adjusted Operating Margin (1) | 43% | 47% | 15% | 26% | 35% | 43% |
(1) This is a non-IFRS financial measure. Refer to definition of the measures above.
SUMMARY OF CONSOLIDATED FINANCIAL RESULTS
| Three months ended December 31, | Nine months ended December 31, | |||||
|---|---|---|---|---|---|---|
| ($ thousands) | 2024 | 2023 | % change | 2024 | 2023 | % change |
| Total revenue | 35,773 | 33,007 | 8% | 95,763 | 76,388 | 25% |
| Cost of revenue | (6,307) | (6,356) | (1%) | (18,191) | (10,754) | 69% |
| Operating expenses | (18,249) | (18,434) | (1%) | (52,259) | (39,927) | 31% |
| Operating profit | 11,217 | 8,217 | 37% | 25,313 | 25,707 | (2%) |
| Finance income (cost) | 2,101 | (100) | 2201% | 2,377 | 351 | 577% |
| Change in fair value of contingent consideration | (150) | - | 100% | (2,063) | - | 100% |
| Income taxes | (3,562) | (2,507) | 42% | (8,294) | (7,028) | 18% |
| Net income | 9,606 | 5,610 | 71% | 17,333 | 19,030 | (9%) |
REVENUE
Software License Revenue
Software license revenue is made up of annuity/maintenance license fees and annuity license fees charged for the use of the R&P's software products and Seismic's software products respectively and are both generally for a term of one year or less. Software license revenue also includes 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.
Management Discussion & Analysis
Computer Modelling Group Ltd. Q3 25
CMG
Annuity/maintenance license fees have historically had a high renewal rate and, accordingly, provide a recurring revenue stream. The total annual contract value of the annuity license fee is allocated 50% to the standalone software license fee and 50% to maintenance (included in "Annuity/maintenance license revenue" and recognized over the license term).
The software license fee for R&P is recognized evenly over the term of the contract within "Annuity/maintenance license revenue", and for Seismic is recognized upfront under "Annuity license fee." The annuity license fee is recognized in revenue when the software license is delivered to the customer at the start of the license term. As such, annuity license fee, while recurring in nature, will fluctuate due to the timing of contract renewals, and may not be indicative of the performance in a particular reporting period.
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 the Company's customers, who have acquired perpetual software licenses, subsequently purchase our maintenance package to ensure ongoing product support and access to current versions of the Company's software.
Software License Revenue
| Three months ended December 31, | Nine months ended December 31, | |||||
|---|---|---|---|---|---|---|
| ($ thousands) | 2024 | 2023 | % change | 2024 | 2023 | % change |
| Annuity/maintenance licenses | 20,452 | 18,814 | 9% | 58,089 | 51,869 | 12% |
| Annuity license fee | 4,303 | 3,846 | 12% | 4,552 | 4,004 | 14% |
| Perpetual licenses | 804 | 584 | 38% | 5,063 | 3,609 | 40% |
| Total software license revenue | 25,559 | 23,244 | 10% | 67,704 | 59,482 | 14% |
| Professional services | 10,214 | 9,763 | 5% | 28,059 | 16,906 | 66% |
| Total revenue | 35,773 | 33,007 | 8% | 95,763 | 76,388 | 25% |
Total software license revenue for the three months ended December 31, 2024, increased by 10%, compared to the same period of the previous fiscal year, of which 6% was from Organic growth. The R&P segment contributed to 1% of the increase due to slight increases in both annuity/maintenance and perpetual license sales. The Seismic segment contributed to 9% of the increase, of which 4% was contributed by acquisitions. The R&P segment benefitted from the strengthening of the USD relative to CAD during the quarter.
Total software license revenue for the nine months ended December 31, 2024, increased by 14%, compared to the same period of the previous fiscal year, of which 7% was Organic growth. The R&P segment contributed 5% of the increase due to increases in both annuity/maintenance and perpetual license sales. The Seismic segment contributed 9% of the increase, of which 7% was contributed by acquisitions. Similar to the quarter, the R&P segment benefitted from the strengthening USD relative to CAD during the nine months ended December 31, 2024.
Total R&P segment software license revenue from energy transition customers for both the three and nine months ended December 31, 2024, is estimated to be 23%, mainly related to Carbon Capture and Storage projects.
Annuity/Maintenance license revenue
Annuity/maintenance license revenue increased by 9% during the three months ended December 31, 2024, compared to the same period of the previous fiscal year, of which 4% was Organic growth. While the R&P segment remained flat, the Seismic segment contributed 9% of the increase, of which 5% was contributed by acquisitions.
Annuity/maintenance license revenue increased by 12% during the nine months ended December 31, 2024, compared to the same period of the previous fiscal year, of which 4% was Organic growth. The R&P segment contributed 3% of the increase, mainly supported by growth in the Eastern Hemisphere. The Seismic segment contributed 9% of the increase, of which 8% was contributed by acquisitions.
Management Discussion & Analysis
Computer Modelling Group Ltd. Q3 25
CMG
Annuity license fee revenue
Annuity license fee revenue relates to the Seismic segment. This revenue stream is expected to fluctuate quarterly depending on the timing of contract renewals as the annuity license fees are recognized in revenue when the software license is delivered. Historically, a majority of contracts renew during the third and fourth quarters.
Annuity license fee revenue increased by 12% during the three months ended December 31, 2024, compared to the same period of the previous fiscal year, all related to Organic growth in the Seismic segment and positively affected by the strengthening USD relative to CAD.
Annuity license fee revenue increased by 14% during the nine months ended December 31, 2024, compared to the same period of the previous fiscal year, of which 8% was Organic growth generated during the current quarter, and 6% was contribution from acquisitions.
Perpetual license revenue
Perpetual license revenue in the R&P segment increased by 38% and 40% respectively during the three and nine months ended December 31, 2024, respectively, compared to the same periods of the previous fiscal year, primarily due to perpetual license sales generated in Europe and Asia during the three months, and in United States, Europe and Asia for the nine months ended December 31, 2024.
Foreign Exchange Impact
As many of CMG Group's revenue contracts are denominated in USD, the fluctuation in the USD/CAD exchange rate has a direct impact on the change in total software revenue for the reporting period. For the three months ended December 31, 2024, it was determined that the increase in USD/CAD exchange rate positively impacted total software revenue by approximately 2% for USD-denominated contracts. For the nine months ended, December 31, 2024, the impact was negligible.
Management Discussion & Analysis
Computer Modelling Group Ltd. Q3 25
CMG
Software Revenue by Geographic Region
| Three months ended December 31, | Nine months ended December 31, | |||||
|---|---|---|---|---|---|---|
| ($ thousands) | 2024 | 2023 | % change | 2024 | 2023 | % change |
| Annuity/maintenance license | ||||||
| Canada | 3,261 | 3,339 | (2%) | 9,739 | 9,898 | (2%) |
| United States | 4,494 | 4,698 | (4%) | 13,242 | 13,499 | (2%) |
| South America | 2,555 | 2,504 | 2% | 7,308 | 6,784 | 8% |
| Eastern Hemisphere (1) | 10,142 | 8,273 | 23% | 27,800 | 21,688 | 28% |
| 20,452 | 18,814 | 9% | 58,089 | 51,869 | 12% | |
| Annuity license fee | ||||||
| Canada | - | - | 0% | - | - | 0% |
| United States | 708 | 547 | 29% | 785 | 579 | 36% |
| South America | 176 | - | 100% | 243 | 19 | 1179% |
| Eastern Hemisphere (1) | 3,419 | 3,299 | 4% | 3,524 | 3,406 | 3% |
| 4,303 | 3,846 | 12% | 4,552 | 4,004 | 14% | |
| Perpetual license | ||||||
| Canada | 170 | 155 | 10% | 170 | 270 | (37%) |
| United States | - | - | 0% | 1,337 | 233 | 474% |
| South America | - | - | 0% | - | 324 | (100%) |
| Eastern Hemisphere (1) | 634 | 429 | 48% | 3,556 | 2,782 | 28% |
| 804 | 584 | 38% | 5,063 | 3,609 | 40% | |
| Total software license revenue | ||||||
| Canada | 3,431 | 3,494 | (2%) | 9,909 | 10,168 | (3%) |
| United States | 5,202 | 5,245 | (1%) | 15,364 | 14,311 | 7% |
| South America | 2,731 | 2,504 | 9% | 7,551 | 7,127 | 6% |
| Eastern Hemisphere (1) | 14,195 | 12,001 | 18% | 34,880 | 27,876 | 25% |
| 25,559 | 23,244 | 10% | 67,704 | 59,482 | 14% |
(1) Includes Europe, Africa, Asia and Australia.
Total software license revenue increased during both the three and nine months ended December 31, 2024, compared to the same periods of the previous fiscal year, with the Eastern Hemisphere driving the majority of the increase.
The Canadian region (representing 15% of year-to-date total software license revenue) experienced a marginal decrease in annuity/maintenance revenue during the three and nine months ended December 31, 2024, compared to the same periods in the previous fiscal year. The Seismic segment has a negligible portion of annuity/maintenance revenue. Perpetual license revenue increased by 10% during the three months ended December 31, 2024, compared to the same period of the previous fiscal year due to new perpetual sales in the quarter. Perpetual license revenue decreased by 37% for the nine months ended December 31, 2024, compared to the same period of the previous year, due to fewer perpetual sales being generated in the first two quarters of fiscal 2025. Perpetual license revenue is attributable to the R&P segment only.
The United States (representing 23% of year-to-date total software license revenue) experienced decreases of 4% and 2% in annuity/maintenance license revenue during the three and nine months ended December 31, 2024, respectively, compared to the same periods in the previous fiscal year. The R&P segment contributed a decline in annuity/maintenance license revenue of 14% and 9%, for the three and nine months ended December 31, 2024, respectively, primarily due to customer attrition and a reduction in licensing amongst existing customers. This was partially offset by contributions from the Seismic segment of 10% and 7% for the three and nine months ended December 31, 2024, respectively, of which growth from acquisitions represented 6% for both the three and nine months ended December 31, 2024. Annuity license fee revenue increased by 29% and 36%, respectively for the three and nine months ended December 31, 2024, primarily due to the significant increase in the USD/CAD foreign exchange rate positively impacting USD-denominated contracts. The majority of Seismic segment software renewals occur primarily in the third and fourth quarters of the fiscal year when the majority of annuity license fee revenue is generated. No perpetual license sales were generated during the three months ended December 31, 2024.
Management Discussion & Analysis
Computer Modelling Group Ltd. Q3 25
Perpetual license revenue increased by 474% during the nine months ended December 31, 2024, compared to the same period in the previous fiscal year due to new customer license sales recorded in the first quarter of fiscal 2025. Perpetual license revenue is all attributable to the R&P segment.
South America (representing 11% of year-to-date total software license revenue) experienced increases of 2% and 8% in annuity/maintenance license revenue during the three and nine months ended December 31, 2024, respectively compared to the same periods in the previous fiscal year. The R&P segment experienced declines in annuity/maintenance license revenue of 9% and 5%, for the three and nine months ended December 31, 2024, respectively, primarily due to delays in negotiating renewals with some existing customers. The Seismic segment contributed increases in annuity/maintenance license revenue of 11% and 13% for the three and nine months ended December 31, 2024, respectively, of which the contribution from acquisitions represented 4% and 11% of the increase with the remaining increase primarily driven by the increase in the USD/CAD foreign exchange rate in the current year which benefitted USD-denominated contracts. Annuity license fee revenue increased by 100% and 1179% for the three and nine months ended December 31, 2024, respectively, primarily due to timing of renewals and a positive effect from the increase in the USD/CAD foreign exchange rate in the current year which has positively impacted USD-denominated contracts. There have been no perpetual license sales in the three and nine months ended December 31, 2024.
The Eastern Hemisphere (representing 51% of year-to-date total software license revenue) experienced increases of 23% and 28% in annuity/maintenance license revenue during the three and nine months ended December 31, 2024, respectively, compared to the same periods in the previous fiscal year. The R&P segment contributed an increase of annuity/maintenance revenue of 13% and 15% for the three and nine months ended December 31, 2024, respectively, primarily due to new customers, increased licensing amongst existing customers and increased pricing. The Seismic segment contributed increases in annuity/maintenance license revenue of 10% and 13%, of which the contribution from acquisitions represented 7% and 12% of the increase with the remaining increase primarily driven by the increase in the USD/CAD foreign exchange rate in the current year which benefitted USD-denominated contracts. Perpetual license sales increased by 48% and 28% for the three and nine months ended December 31, 2024, respectively, compared to the same periods in the previous fiscal year, primarily due to the increase of perpetual sales in Asia. For the nine months ended December 31, 2024, the increases in both annuity/maintenance and perpetual license revenue in Asia for the periods within the R&P segment were largely due to licenses delivered to customers in a prior period, for which the collection of consideration was determined to be probable in the current period due to a negotiated payment schedule which commenced in the second quarter of fiscal 2025.
Consolidated Quarterly Software License Revenues
As footnoted in the Consolidated 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 when a contract has been fully executed and collection of consideration is probable. When collection of consideration is not probable, the Company recognizes revenue for consideration received only once substantially all consideration due under the contract is collected and the relevant performance obligations are fulfilled. 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:
CMG
($ thousands)
(1) Q4 of fiscal 2020 include $0.5 million, respectively, in revenue that pertains to usage of CMG's annuity/maintenance products in prior quarters.
(2) 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 annuity/maintenance products in prior quarters.
(3) 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 annuity/maintenance products in prior quarters.
(4) Q1, Q2, Q3 and Q4 of fiscal 2023 includes $0.2 million, $0.3 million, $0.3 million, and $0.4 million, respectively, in revenue that pertains to usage of CMG's annuity/maintenance products in prior quarters.
(5) Q1, Q2, Q3, and Q4 of fiscal 2024 include $0.1 million, $0.4 million, $0.2 million, and $0.7 million, respectively, in revenue that pertains to usage of CMG's annuity/maintenance products in prior quarters.
(6) Q1, Q2, and Q3 of fiscal 2025 include $1.2 million, $0.5 million, and $0.3 million, respectively, in revenue that pertains to usage of CMG's annuity/maintenance products in prior quarters.
Deferred Revenue
| ($ thousands) | Fiscal 2025 | Fiscal 2024 | Fiscal 2023 | $ change | % change |
|---|---|---|---|---|---|
| Deferred revenue at: | |||||
| Q1 (June 30) | 30,890 | 26,616 | 4,724 | 16% | |
| Q2 (September 30) | 32,274 | 32,339 | (65) | 0% | |
| Q3 (December 31) | 34,822 | 27,089 | 7,733 | 29% | |
| Q4 (March 31) | 41,120 | 34,797 | 6,323 | 18% |
(1) Q1, Q2, Q3 and Q4 of fiscal 2024 include $nil, $1.4 million, $3.5 million, and $4.4 million, respectively, in deferred revenue that pertains to Seismic.
(2) Q1, Q2, and Q3 of fiscal 2025 include $3.3 million, $1.9 million, and $11.1 million, respectively, in deferred revenue that pertains to Seismic.
The Company's deferred revenue consists primarily of amounts for prepaid licenses. Annuity/maintenance revenue for R&P is deferred and recognized rateably 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.
Management Discussion & Analysis
Computer Modelling Group Ltd. Q3 25
CMG
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 Q3 of fiscal 2025 was 29% higher than in Q3 of fiscal 2024. Approximately 22% of this increase was from the acquisition during the three months ended December 31, 2024, with the remaining increase positively impacted by the strengthening of the USD-CAD exchange rate, partially offset by timing due to delays in negotiating certain contracts.
Professional Services Revenue
Professional services revenue consists of specialized consulting, training, and contract research activities. The R&P segment 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. The Seismic segment also performs consulting services related to subsurface interpretations, seismic data analysis services, Prestack QA and data conditioning, training, and product development related activities including building custom software for their customers and developing desired client features on existing software. The majority of Seismic professional services revenue relates to one customer contract.
Professional services revenue for the three and nine months ended December 31, 2024, was $10.2 million and $28.1 million which represents increases of 5% and 66%, respectively, compared to the same periods of the previous fiscal year. The R&P segment professional service revenue declined by 4% and 3% for the three and nine months ended December 31, 2024, respectively, primarily due to lower customer project activity. The Seismic segment contributed professional service revenue increases of 9% and 69% for the three and nine months ended December 31, 2024, respectively, of which 9% and 72% represented contribution from acquisitions and 0% and (3%) related to organic operations.
COST OF REVENUE
Cost of revenue primarily consists of direct employee costs, external consultants, overhead costs associated with customer support, training, and consulting, and public cloud hosting applications. These costs are generally related to headcount and are driven by management's decision to add customer success and consulting capacity. In general, these costs fluctuate as a percentage of revenue as the Company adds headcount to support increased demand for our software and consulting services.
| Three months ended December 31, | Nine months ended December 31, | |||||
|---|---|---|---|---|---|---|
| ($ thousands) | 2024 | 2023 | % change | 2024 | 2023 | % change |
| Cost of revenue (1) (2) | 6,307 | 6,356 | (1%) | 18,191 | 10,754 | 69% |
(1) Depreciation and amortization related to property and equipment and right of use assets is $0.1 and $0.4 million for the three and nine months ended December 31, 2024, respectively, and $0.1 million and $0.3 million for the three and nine months ended December 31, 2023, respectively.
(2) Stock based compensation is $0.03 million for the three and nine months ended December 31, 2024, and $0.2 million and $0.5 million for the three and nine months ended December 31, 2023, respectively.
Cost of revenue decreased by 1% and increased by 69% for the three and nine months ended December 31, 2024, respectively, compared to the same periods of the previous fiscal year. The R&P segment's cost of revenue increased by 2% and 8% for the three and nine months ended December 31, 2024, respectively, primarily due to an increase in headcount and headcount related costs and travel expenses. The Seismic segment contributed a decrease of 3% and increase of 61% for the three and nine months ended December 31, 2024, respectively, of which acquisitions contributed 5% and 66%.
Management Discussion & Analysis
Computer Modelling Group Ltd. Q3 25
OPERATING EXPENSES
CMG
Sales and marketing
Sales and marketing expenses are comprised primarily of employee salaries, commissions, benefits and stock-based compensation, as well direct costs related to the delivery of marketing programs and events. Sales and marketing expenses also include travel-related expenses and corporate overhead allocations. We plan to continue to expand sales and marketing efforts to attract new customers, retain existing customers and increase revenues from both new and existing customers.
Research and development
Research and development expenses are comprised primarily of personnel expenses including employee salaries, benefits and stock-based compensation, product-related expenses including product management, product research and development, and other corporate overhead allocations off-set by certain tax benefits realized through the Canadian Scientific Research and Experimental Development Tax Credit program ("SR&ED"), SkatteFUNN (a Norwegian government program), and NRC (Norwegian Research Council), collectively referred to as ("Government grants for research and development"). We continue to invest in our research and development program by adding new features and functionality to our products, maintaining our expansive artifact infrastructure, and delivering new products to market.
General and administrative
General and administrative expenses are comprised primarily of personnel expenses including employee salaries, benefits, and stock-based compensation expense for our administrative, finance, legal, information technology, and people and culture teams, allocated rent expenses, travel and travel related expenses, and general office and administrative expenses, and professional service expenses.
The below table provides a reconciliation of operating expenses to adjusted operating expenses:
| Three months ended December 31, | Nine months ended December 31, | |||||
|---|---|---|---|---|---|---|
| ($ thousands) | 2024 | 2023 | % change | 2024 | 2023 | % change |
| Sales and marketing (1)(2) | 4,363 | 4,857 | (10%) | 13,523 | 10,596 | 28% |
| Research and development (1)(2) | 7,340 | 7,253 | 1% | 22,013 | 16,072 | 37% |
| General and administrative (1)(2) | 6,546 | 6,324 | 4% | 16,723 | 13,259 | 26% |
| Operating expenses | 18,249 | 18,434 | (1%) | 52,259 | 39,927 | 31% |
| % of total revenue | 51% | 56% | 55% | 52% | ||
| Acquisition related expenses | (1,587) | (697) | 128% | (2,351) | (1,270) | 85% |
| Amortization of acquired intangibles | (1,005) | (652) | 54% | (2,334) | (838) | 179% |
| Stock-based compensation | 119 | (2,818) | (104%) | (2,710) | (4,921) | (45%) |
| Adjusted operating expenses (3) | 15,776 | 14,267 | 11% | 44,864 | 32,898 | 36% |
| % of total revenue | 44% | 43% | 47% | 43% | ||
| Direct employee costs (3) | 9,892 | 12,074 | (18%) | 32,886 | 26,770 | 23% |
| Other corporate cost (3) | 8,357 | 6,360 | 31% | 19,373 | 13,157 | 47% |
| 18,249 | 18,434 | (1%) | 52,259 | 39,927 | 31% |
(1) Included in sales and marketing, research and development, and general and administrative expenses is depreciation related to property and equipment, right of use assets, and amortization of acquired intangible assets of $0.1 million, $1.4 million, $0.7 million, respectively, for the three months ended December 31, 2024 (three months ended December 31, 2023, $0.1 million, $1.0 million, $0.3 million, respectively) and $0.3 million, $3.5 million, $1.9 million, respectively, for the nine months ended December 31, 2024 (nine months ended December 31, 2023 $0.3 million, $2.2 million, $0.7 million, respectively).
(2) Included in sales and marketing, research and development, and general and administrative expenses is stock based compensation expense of ($0.3) million, $0.1 million, $0.1 million, respectively, for the three months ended December 31, 2024 (three months ended December 31, 2023, $1.5 million, $0.6 million, $0.8 million respectively) and $0.7 million, $0.7 million, $1.3 million, respectively, for the nine months ended December 31, 2024 (nine months ended December 31, 2023, $1.7 million, $1.4 million, $1.9 million respectively).
(3) This is a non-IFRS financial measure. See the "Non-IFRS Financial Measures" section.
Management Discussion & Analysis
Computer Modelling Group Ltd. Q3 25
CMG
Operating expenses for the three and nine months ended December 31, 2024, decreased by 1% and increased by 31%, compared to the same periods of the previous fiscal year. The R&P segment contributed a decrease of 7% and increase of 7% for the three and nine months ended December 31, 2024, respectively. The Seismic segment contributed an increase of 6% and increase of 24% for the three and nine months ended December 31, 2024, respectively, of which acquisitions contributed 9% and 26%, respectively.
Adjusted total operating expenses increased by 11% and 36% for the three and nine months ended December 31, 2024, compared to the same periods of the previous fiscal year. The R&P segment contributed an increase of 2% and 9% for the three and nine months ended December 31, 2024, respectively. The Seismic segment contributed an increase of 9% and 27% for the three and nine months ended December 31, 2024, respectively, of which the acquisitions contributed 10% and 28%, respectively.
Sales and marketing
Sales and marketing expenses for the three and nine months ended December 31, 2024, decreased by 10% and increased by 28%, respectively, compared to the same periods of the previous fiscal year. The R&P segment contributed a decrease of 30% and increase of 3% for the three and nine months ended December 31, 2024, respectively. The decrease of 30% in sales and marketing expenses within the R&P segment for the three months ended December 31, 2024, is primarily driven by a decrease in stock-based compensation expense, partially offset by an increase in agent commissions and related fees. The increase of 3% in sales and marketing expenses within the R&P segment for the nine months ended December 31, 2024, is primarily due to an increase in headcount and headcount related costs, as well as agent commissions and related fees, partially offset by a decrease in stock-based compensation. The Seismic segment contributed an increase of 20% and 25% for the three and nine months ended December 31, 2024, respectively, of which the acquisitions contributed 8% and 20%. Within the Seismic segment, non-acquisition related impacts for the three and nine months ended December 31, 2024, were primarily driven by headcount and headcount related costs as a result of increasing the existing sales team to support revenue growth.
Research and development
Research and development expenses for the three and nine months ended December 31, 2024, increased by 1% and 37%, respectively, compared to the same periods of the previous fiscal year. For the three and nine months ended December 31, 2024, the R&P segment contributed a decrease of 9% and increase of 7%, respectively. The decrease of 9% in research and development expenses within the R&P segment for the three months ended December 31, 2024, is primarily related to a decrease in headcount and headcount related costs including stock-based compensation and a reduction in professional service fees. The increase of 7% in research and development expenses within the R&P segment for the nine months ended December 31, 2024, is primarily related to increased amortization related to acquired intangible assets, increased headcount related costs including increased salaries, severance and variable compensation, and increased enabling technology costs to support client service initiatives, partially offset by a decrease in stock-based compensation expense. The Seismic segment contributed increases of 10% and 30% for the three and nine months ended December 31, 2024, respectively, of which the acquisitions contributed 9% and 30%, respectively. Within the Seismic segment, non-acquisition related impacts for the three months and nine months ended December 31, 2024, were primarily due to a slight decrease in enabling technology costs to support client service initiatives.
General and administrative
General and administrative expenses for the three and nine months ended December 31, 2024, increased by 4% and 26%, respectively, compared to the same periods of the previous fiscal year. For the three and nine months ended December 31, 2024, the R&P segment contributed an increase in general and administrative expenses of 14% and 11%, respectively, primarily driven by increased headcount and headcount related costs and acquisition related costs, partially offset by a decrease in stock-based compensation expense. The Seismic segment contributed a decrease of general and administrative expenses of 10% and increase of 15% for the three and nine months ended December 31, 2024, respectively, of which acquisitions contributed increases of 11% and 25%, respectively. Within the Seismic segment, non-acquisition related impacts for the three months and nine months ended December 31, 2024, is primarily due to reduced professional service fees that did not recur in the current year and reduced corporate costs for fees incurred related to the acquisition in the prior year, partially offset by increased amortization of intangible costs related to customer relationships and trademarks/trade names.
Management Discussion & Analysis
Computer Modelling Group Ltd. Q3 25
CMG
Direct employee costs
As a technology company, the Company's largest investment is its people, and approximately 63% of total operating expenses relate to direct employee costs during the nine months ended December 31, 2024. At December 31, 2024, CMG Group's full-time equivalent staff complement was 320 employees and consultants (CMG – 187; BHV – 95, SR – 38); (September 30, 2023 – CMG – 186; BHV – 104).
The below table provides a reconciliation of direct employee costs to adjusted direct employee costs:
| Three months ended December 31, | Nine months ended December 31, | |||||
|---|---|---|---|---|---|---|
| ($ thousands) | 2024 | 2023 | % change | 2024 | 2023 | % change |
| Direct employee costs | 9,892 | 12,074 | (18%) | 32,886 | 26,770 | 23% |
| Stock-based compensation | 119 | (2,818) | (104%) | (2,710) | (4,921) | (45%) |
| Adjusted direct employee costs (1) | 10,011 | 9,256 | 8% | 30,176 | 21,489 | 38% |
(1) This is a non-IFRS financial measure. See the "Non-IFRS Financial Measures" section. Adjusted direct employee costs exclude stock-based compensation expenses.
For the three and nine months ended December 31, 2024, adjusted direct employee costs increased by 8% and 38%, respectively, compared to the same periods of the previous fiscal year. The R&P segment contributed a decrease of adjusted direct employee costs of 3% and increase of 9%, for the three and nine months ended December 31, 2024, respectively. The 3% decrease in adjusted direct employee costs within the R&P Segment for the three months ended December 31, 2024, was primarily driven by a reduction in headcount. The 9% increase in adjusted direct employee costs within the R&P segment for the nine months ended December 31, 2024, was primarily driven by salary inflation, severance, and variable compensation costs. The Seismic segment contributed an increase of adjusted direct employee costs of 11% and 29% for the three and nine months ended December 31, 2024, respectively, of which acquisitions contributed 10% and 29%, respectively. Adjusted direct employee costs within the Seismic segment not related to the acquisition for the three and nine months ended December 31, 2024, remained relatively consistent with the prior year comparative periods.
Other Corporate costs
The below table provides a reconciliation of other corporate costs to adjusted other corporate costs:
| Three months ended December 31, | Nine months ended December 31, | |||||
|---|---|---|---|---|---|---|
| ($ thousands) | 2024 | 2023 | % change | 2024 | 2023 | % change |
| Other corporate costs | 8,357 | 6,360 | 31% | 19,373 | 13,157 | 47% |
| Acquisition-related costs | (1,587) | (697) | 128% | (2,351) | (1,270) | 85% |
| Amortization of acquired intangible assets | (1,005) | (652) | 54% | (2,334) | (838) | 179% |
| Adjusted other corporate costs (1) | 5,765 | 5,011 | 15% | 14,688 | 11,049 | 33% |
(1) This is a non-IFRS financial measure. See the "Non-IFRS Financial Measures" section. Adjusted other corporate costs exclude acquisition-related costs and amortization of acquired intangible assets.
For the three and nine months ended December 31, 2024, adjusted other corporate costs increased by 15% and 33%, respectively, compared to the same periods of the previous fiscal year. The R&P segment's adjusted other corporate costs increased by 11% and 9% for the three and nine months ended December 31, 2024, respectively. The 11% increase in adjusted other corporate costs within the R&P segment for the three months ended December 31, 2024, is primarily due to increased agent commissions and other related fees, reduced SR&ED investment tax credits and increased travel.
Management Discussion & Analysis
Computer Modelling Group Ltd. Q3 25
CMG
The 9% increase in adjusted other corporate costs within the R&P segment for the nine months ended December 31, 2024, is primarily due to the same reasons impacting the three months, in addition to increased enabling technology costs to support client service initiatives. The Seismic segment's adjusted other corporate costs increased by 4% and 24% for the three and nine months ended December 31, 2024, respectively, of which acquisitions contributed an increase of 10% and 27%, respectively. The decrease of Adjusted other corporate costs within the Seismic segment not related to the acquisition in the current period for the three and nine months ended December 31, 2024, are primarily due to a decrease in professional services costs.
FOREIGN EXCHANGE
The Company is impacted by foreign exchange fluctuations, as 79% of our revenue for the nine months ended December 31, 2024 (2023 – 73%) is denominated in US dollars, whereas 54% (2023 – 34%) of our total costs are denominated in US dollars.
The following chart shows the exchange rates used to translate the Company's US dollar-denominated working capital at December 31, 2024, 2023 and 2022 and the average exchange rate used to translate income statement expense items during the three months ended December 31, 2024, 2023 and 2022:
| CDN$ to US$ | At June 30 | At September 30 | At December 31 | Nine-month trailing average |
|---|---|---|---|---|
| 2022 | 0.7744 | 0.7302 | 0.7370 | 0.7581 |
| 2023 | 0.7545 | 0.7364 | 0.7547 | 0.7411 |
| 2024 | 0.7310 | 0.7395 | 0.6956 | 0.7246 |
CMG Group recorded foreign exchange gains of $1.9 million and $1.5 million for the three and nine months ended December 31, 2024, respectively, due to the strengthening of the US dollar compared to Q2 of fiscal 2025 and Q4 of fiscal 2024, which positively affected the valuation of the US dollar - denominated portion of the Company's working capital.
INCOME AND OTHER TAXES
Our consolidated effective tax rate for the three months ended December 31, 2024, is 32% (2023 – 27.0%), whereas the Canadian statutory tax rate for each of 2025 and 2024 fiscal years is 23%. The difference between the effective rate and the statutory rate is primarily attributed to taxes incurred in foreign jurisdictions.
The benefit recorded in CMG's books on the scientific research and experimental development ("SR&ED") investment tax credit program impacts deferred income taxes. The investment tax credit earned in the current fiscal year reduces income taxes otherwise payable for the current fiscal year but bears an inherent tax liability as the amount of the credit is included in the subsequent year's taxable income for both federal and provincial purposes. The inherent tax liability on these investment tax credits is reflected in the year the credit is earned as a non-current deferred tax liability and then, in the following fiscal year, is transferred to income taxes payable.
Management Discussion & Analysis
Computer Modelling Group Ltd. Q3 25
CMG
QUARTERLY PERFORMANCE
The following table summarizes selected results for the eight most recently completed quarters:
| ($ thousands, unless otherwise stated) | Fiscal 2023(2) | Fiscal 2024(3) | Fiscal 2025(4) | |||||
|---|---|---|---|---|---|---|---|---|
| Q4 | Q1 | Q2 | Q3 | Q4 | Q1 | Q2 | Q3 | |
| Annuity/maintenance license | 15,803 | 15,607 | 17,610 | 18,814 | 19,661 | 19,335 | 18,302 | 20,452 |
| Annuity license fee | - | - | - | 3,846 | 1,142 | 178 | 71 | 4,303 |
| Perpetual license | 1,556 | 1,849 | 1,176 | 584 | 2,130 | 2,110 | 2,149 | 804 |
| Total software license revenue | 17,359 | 17,456 | 18,786 | 23,244 | 22,933 | 21,623 | 20,522 | 25,559 |
| Professional services revenue | 2,906 | 3,292 | 3,847 | 9,763 | 9,358 | 8,900 | 8,945 | 10,214 |
| Total revenue | 20,265 | 20,748 | 22,633 | 33,007 | 32,291 | 30,523 | 29,467 | 35,773 |
| Operating profit | 6,909 | 9,764 | 7,726 | 8,217 | 8,277 | 5,666 | 8,430 | 11,217 |
| Operating profit Margin (%) | 34% | 47% | 34% | 25% | 26% | 19% | 29% | 31% |
| Net income for the period | 5,226 | 6,904 | 6,516 | 5,610 | 7,229 | 3,964 | 3,763 | 9,606 |
| Adjusted EBITDA (1) | 8,520 | 9,948 | 10,718 | 12,272 | 10,219 | 9,437 | 9,937 | 13,824 |
| Adjusted EBITDA Margin (1)% | 42% | 48% | 47% | 37% | 32% | 31% | 34% | 39% |
| Free Cash Flow (1) | 5,396 | 7,463 | 11,028 | 7,290 | 9,469 | 5,679 | 6,096 | 8,816 |
| Per share amounts – ($/share) | ||||||||
| Earnings per share (EPS) – basic | 0.07 | 0.09 | 0.08 | 0.07 | 0.09 | 0.05 | 0.05 | 0.12 |
| Earnings per share (EPS) – diluted | 0.06 | 0.08 | 0.08 | 0.07 | 0.09 | 0.05 | 0.05 | 0.12 |
| Cash dividends declared and paid | 0.05 | 0.05 | 0.05 | 0.05 | 0.05 | 0.05 | 0.05 | 0.05 |
| Free Cash Flow per share – basic (1) | 0.07 | 0.09 | 0.14 | 0.09 | 0.12 | 0.07 | 0.07 | 0.11 |
| Funds flow from operations per share – basic | 0.09 | 0.10 | 0.14 | 0.10 | 0.13 | 0.08 | 0.09 | 0.12 |
(1) This is a non-IFRS financial measure. See the "Non-IFRS Financial Measures" section.
(2) Q4 of fiscal 2023 include $0.4 million of annuity/maintenance revenue that pertains to usage of CMG's products in prior quarters.
(3) Q1, Q2, Q3, and Q4 of fiscal 2024 include $0.1 million, $0.4 million, $0.2 million, $0.7 million, respectively, of annuity/maintenance revenue that pertains to usage of CMG's annuity/maintenance products in prior quarters.
(4) Q1, Q2 of fiscal 2025 includes $1.2 million, $0.5 million, and $0.3 million respectively, in annuity/maintenance license revenue that pertains to usage of CMG's annuity/maintenance products in prior quarters.
The above table illustrates the normal trend in annuity/maintenance license revenue from the beginning of the calendar year (which corresponds with Q4 of our fiscal year), when most renewals occur, to the end of the calendar year (which corresponds with Q3 of our fiscal year). Our fourth quarter corresponds with the beginning of the fiscal year for most oil and gas companies, representing a time when they enter a new budget year and sign/renew their contracts. A significant portion of the Seismic segment annuity license fee revenue will occur during the third and fourth quarters when the majority of renewals take place. This seasonality has a similar impact on both operating profit and net income as seen in the above table.
The growth and future success of our business depends on many factors and variables. While each of these items present significant opportunities for our business, they also present challenges which are discussed in the 2024 financial report and in the "Risk Factors" section of CMG's Annual Information Form dated May 22, 2024, which is available under the Company's profile on SEDAR+ at www.sedarplus.ca.
Management Discussion & Analysis
Computer Modelling Group Ltd. Q3 25
CMG
Management Discussion & Analysis
27
Computer Modelling Group Ltd. Q3 25
Revenue and Adjusted EBITDA
(1) This is a non-IFRS financial measure. See the "Non-IFRS Financial Measures" section.
LIQUIDITY AND CAPITAL RESOURCES
| Three months ended December 31, | Nine months ended December 31, | |||||
|---|---|---|---|---|---|---|
| ($ thousands) | 2024 | 2023 | % change | 2024 | 2023 | % change |
| Cash, beginning of period | 61,373 | 48,225 | 27% | 63,083 | 66,850 | (6%) |
| Cash provided by (used in): | ||||||
| Operating activities | 8,266 | 443 | 1766% | 14,034 | 14,668 | (4%) |
| Financing activities | (2,472) | (2,640) | (6%) | (9,432) | (12,344) | (24%) |
| Investing activities | (29,633) | (819) | 3518% | (29,962) | (23,965) | 25% |
| Effect of foreign exchange on cash | 2,197 | (26) | 8550% | 2,008 | (26) | 7823% |
| Cash, end of period | 39,731 | 45,183 | (12%) | 39,731 | 45,183 | (12%) |
At December 31, 2024, CMG Group had $39.7 million in cash, no borrowings, and access to a $2.0 million line of credit with its principal banker, of which $0.6 million is available for use. The Company's primary non-operating use of cash was for acquisitions, dividend payments and repayment of lease liabilities. Management believes that the Company has sufficient capital resources to meet its operating and capital expenditure needs.
During the nine months ended December 31, 2024, 30 million shares of the Company's public float were traded on the TSX. As at December 31, 2024 the Company's market capitalization based upon its December 31, 2024 closing price of $10.65 was $877.9 million.
CMG
OPERATING ACTIVITIES
Cash provided by operating activities increased by $7.8 million during the three months ended December 31, 2024, compared to the same period of the previous fiscal year. Funds flow from operations increased by $1.5 million from the comparative quarter, primarily due to an increase in net income. Cash provided by operating activities was further offset by $1.7 million in non-cash working capital, primarily driven by the timing of when sales are recorded and when the resulting receivables are collected, an increase in deferred revenue, and an increase income tax payable due to increased earnings and therefore taxable income in the quarter.
Cash provided by operating activities decreased by $0.6 million during the nine months ended December 31, 2024, compared to the same period of the previous fiscal year. Funds flow from operations decreased by $4.3 million from the comparative year-to-date period, primarily due to reduced net income. Cash provided by operating activities was further reduced by $9.5 million in non-cash working capital, primarily driven by the timing of when sales are recorded and when the resulting receivables are collected and a prior year adjustment relating to the acquisition of BHV.
FINANCING ACTIVITIES
Cash used in financing activities decreased by $0.2 million during the three months ended December 31, 2024, compared to the same period of the previous fiscal year. The decrease is primarily due to proceeds received from the issuance of shares related option exercises.
Cash used in financing activities decreased by $2.9 million during the nine months ended December 31, 2024, compared to the same period of the previous fiscal year. The decrease is primarily due to the repayment of the acquired line of credit from Bluware from the prior year that didn't recur in the current year, an increase in proceeds received from the issuance of shares related to option exercises, partially offset by an increase in repayment of lease liabilities as a result of the acquisition of BHV.
On February 11, 2025, CMG Group announced the payment of a quarterly dividend of $0.05 per share on the Company's common shares. The dividend will be paid on March 14, 2025, to shareholders of record at the close of business on March 6, 2025. Decisions with respect to dividend payments are made by the Board of Directors on a quarterly basis.
INVESTING ACTIVITIES
Cash used in investing activities for the three and nine months ended December 31, 2024 consist of the acquisition of Sharp, capital asset additions, and related holdback payments for the prior year acquisition of BHV, all of which are funded internally. Our capital budget for fiscal 2025 is $1.7 million, which is intended to expand our existing computer infrastructure and improve R&D infrastructure to support development initiatives.
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 would 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 would increase accordingly.
During the three months ended December 31, 2024, Shell exercised its right to terminate the CoFlow Agreement one year prior to the original five-year anniversary.
Management Discussion & Analysis
Computer Modelling Group Ltd. Q3 25
CMG
The Company enters into transactions with related parties in the normal course of business with its wholly owned subsidiaries which are eliminated upon consolidation. For a list of wholly owned subsidiaries, refer to Note 23 Subsidiaries in the audited consolidated 2024 financial statements. There were no other related party transactions to disclose for the three and nine months ended December 31, 2024.
CMG Group 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 December 31, 2024:
| (thousands of $) | Undiscounted lease liability payments | Operating costs | Total commitments |
|---|---|---|---|
| Less than one year | 4,030 | 1,492 | 5,522 |
| Between one and five years | 16,458 | 5,258 | 21,716 |
| More than five years | 29,821 | 8,256 | 38,077 |
| 50,309 | 15,006 | 65,315 |
OUTSTANDING SHARE DATA
The following table represents the number of common shares, stock options, restricted share units and performance share units outstanding:
As at February 11, 2025
(thousands)
| Common shares | 82,437 |
|---|---|
| Stock options | 3,689 |
| Restricted share units (1) | 151 |
| Performance share units (1) | 108 |
(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 February 11, 2025, CMG Group could reserve up to 8,243,658 common shares for issuance under its security-based compensation plans.
BUSINESS RISKS, CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS
These remain unchanged from the factors detailed in CMG's 2024 Financial Report.
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. This instrument requires us to disclose in our interim MD&A any weaknesses in or changes to our internal control over financial reporting during the period that may have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting. We confirm that no such weaknesses were identified in, or changes were made to, internal controls over financial reporting during the three months ended December 31, 2024, except for the matter described below. During the 2025 fiscal year, we continue to monitor and review our controls and procedures.
On November 12, 2024, we completed the acquisition of SR, a privately held software and services company headquartered in Kaiserslautern, Germany. SR's operations have been included in the consolidated financial statements of CMG Group since November 12, 2024. However, we have not had sufficient time to appropriately determine and assess the extent of DC&P and ICFR previously used by SR and integrate them with those of CMG Group. As a result, the certifying officers have limited the scope of their design of DC&P and ICFR to exclude any applicable controls, policies, and procedures of SR (as permitted by applicable securities laws in Canada).
Management Discussion & Analysis
29
Computer Modelling Group Ltd. Q3 25
CMG
Amounts in respect of SR included in CMG Group's condensed consolidated statement of financial position and statement of operations and comprehensive income as at December 31, 2024, are as follows:
| (thousands) | |
|---|---|
| Current Assets | 14,548 |
| Total Assets | 22,272 |
| Current Liabilities | 10,518 |
| Total Liabilities | 22,543 |
| Total Revenues | 1,888 |
| Net Income (Loss) | (74) |
Management Discussion & Analysis
Computer Modelling Group Ltd. Q3 25
CMG
CMCL.CA