CriticalControl Announces 2011 Year End Financial Results

CALGARY, ALBERTA--(Marketwire - March 20, 2012) - CriticalControl Solutions Corp. CCZ today reported its financial results for the year ended December 31, 2011.

"The execution of our core strategy resulted in strong growth of recurring revenue, offsetting a $5.0 million decline in non-recurring fabrication revenue from one of our US subsidiaries", said Alykhan Mamdani, President & CEO of CriticalControl. "Execution of strategic and operational objectives remains management's focus to guide the Corporation to continued and stronger performance in 2012."

Annual 2011 Highlights

Revenue

--  Total revenue of $49.4 million in 2011 represents a 3% decrease from
    $50.7 million in 2010. A $5.0 million drop in non-recurring fabrication,
    assembly and equipment revenue in one of the Corporation's US
    subsidiaries was offset by $3.7 million of growth of primarily recurring
    revenue in all segments of the Corporation's business. 
--  Revenue from the Corporation's Service Bureau Operations increased by
    7%, from $19.0 million in 2010 to $20.4 million in 2011, driven by the
    strategic penetration of certain key government and national clients. 
--  Revenue from the Canadian Energy Services business increased by 1%, to
    $11.5 million in 2011 from $11.3 million in 2010. 
--  Revenue from the US Energy Services business decreased by 14% from $20.4
    million in 2010 to $17.6 million in 2011. The annual revenue decrease
    relates primarily to the $5.0 million decline in non-recurring
    fabrication, assembly and equipment revenue in one subsidiary. Although
    the drop from 2010 to 2011 is significant, the 2010 numbers represented
    a $4.0 million increase from 2009. Additionally, revenue from
    fabrication, assembly and equipment recovered in the second half of 2011
    to $5.3 million compared to $4.3 million in the first half of 2011. The
    overall decline was offset by a $1.9 million increase in recurring
    revenue related to acquisitions and organic growth, net of foreign
    exchange.

Gross margin percentage

--  Gross margin percentage for the Corporation remained consistent at 36%. 
--  Service Bureau Operations gross margin percentage increased from 26% to
    31% due to the streamlining of acquired operations and improved
    economies of scale. 
--  Canadian Energy Services gross margin percentage remained consistent at
    63% despite strong economic factors putting pressure on gas producers
    and increasing labour costs due to oil sands activity. 
--  US Energy Services gross margin percentage decreased from 29% to 25% as
    the Corporation retooled its business in light of the $5.0 million drop
    in non-recurring fabrication, assembly and equipment revenue in one
    subsidiary.

Selling and administrative expenses

--  Selling and administrative expenses for the Corporation increased by 6%
    from $13.5 million in 2010 to $14.3 million in 2011. 
--  Selling and administrative expenses for the Service Bureau Operations
    decreased by 10%, primarily due to reduced depreciation and
    amortization, and reduced costs related to streamlining operations of
    companies acquired in 2009. 
--  Selling and administrative expenses for the Canadian Energy Services
    business increased by $0.3 million, primarily related to increased sales
    and marketing activities. 
--  Selling and administrative expenses for the US Energy Services business
    increased by $0.6 million due to acquisitions and increased staffing to
    position the business for growth. 
--  Selling and administrative expenses for Corporate increased by 12%,
    which was primarily attributable to the changeover to IFRS, actual audit
    fees in excess of the estimate accrued in 2010, and two new corporate
    management positions.

Other operating expenses

--  Other operating expenses decreased by $1.2 million, principally due to
    provisions recognized for onerous leases in 2010 and the impact of more
    favorable provision estimates in 2011.

Earnings

--  Earnings before income tax decreased by 10% when compared to 2010 to
    $1.5 million. 
--  Net earnings decreased by $1.2 million from $2.5 million ($0.06 per
    share) in 2010 to $1.3 million ($0.03 per share) in 2011. The decline in
    net earnings is primarily attributable to a non-recurring tax recovery
    in 2010. Interest and unwinding of discounts of $0.5 million (2010: $0.6
    million) and depreciation and amortization of $2.5 million (2010: $2.8
    million) were charged to earnings during the year.

Cash flow and balance sheet

--  Working capital increased by $0.7 million (18%) from $3.7 million in
    2010 to $4.4 million in 2011. 
--  Net cash from operations decreased by 34% from $2.3 million in 2010 to
    $1.5 million in 2011. Net cash flows in 2011 were negatively impacted by
    the working capital increase. 
--  Total loans and borrowings, excluding the operating line of credit,
    decreased by $0.5 million or 6% from 2010 to 2011, despite an additional
    $0.8 million of debt incurred related to 2011 acquisitions. 
--  The Corporation refinanced its debt and added a US$3.0 million operating
    line of credit to finance the working capital of its US operations.

Implementation of ProChart in US

--  The Corporation successfully completed its implementation of ProChart
    software to its Ohio branch customers. The implementation provides the
    company with an opportunity to achieve synergies and cost savings in its
    chart reading operations.

US facility expansion complete

--  The Corporation completed its fabrication facility expansion in
    Pennsylvania. The facility caters to the assembly of larger fabrication
    units to service the increasing non-conventional drilling segment and
    will help to achieve higher margins than would otherwise be achieved by
    outsourcing the fabrication work.

Outlook

Management expects the current economic uncertainty to continue through 2012. Accordingly, management expects to see continued modest growth from its Service Bureau Operations during 2012. In an effort to drive stronger margins through operational efficiencies, management is proceeding with a plan to move imaging and data entry operations in Winnipeg to its Edmonton and Toronto service bureaus. Accordingly, Winnipeg operations will be reduced to sales and technical staff during the second quarter of 2012, reducing full time staff by approximately 25. Management expects costs from the change in 2012 to offset any gain in margin and savings in operating costs, but the change is expected to have a positive impact on profitability in 2013 and onward.

During 2011, the Winnipeg operation contributed $2.7 million in revenue to the Corporation's Service Bureau Operations, and a loss before income tax of $0.3 million. Although the Corporation risks reducing the revenue from Winnipeg by diverting operations to Edmonton and Toronto, the economy of scale gained in completing the work is expected to result in positive contribution.

Revenue from the Corporation's US Energy Services business fell sharply in the first half of 2011 to $8.1 million due primarily to the change in the nature of drilling in the Marcellus region of the Appalachian basin. Revenue recovered in the last half of 2011 to $9.5 million. Management expects revenue for 2012 to be in line with the second half of 2011, resulting in a significantly higher contribution to income in 2012. Profitability will be impacted in the Corporation's US Energy Services business in 2012 due to increased overhead associated with staff additions in finance, sales and operations. Management expects this impact to be countered through increased efficiencies gained from the implementation of the Corporation's gas chart integration technologies from Canada across all US operations during the first half of 2012, and other efficiencies. In addition, the Corporation expects that the organic growth realized in the Corporation's recurring revenue from measurement solutions in the last half of 2011 will continue into 2012.

During the late part of 2011 and the early part of 2012, management has undertaken an ambitious expansion of its technologies in its Canadian Energy Services business. This effort was based on transforming the Corporation's historic volumetric business (consisting of managing gas measurement and composition production data) into a full scale system to manage oil and gas production data from the well head to the financial accounting system. This effort includes expansion into the management of oil, and oil related production data, and the expansion of managing production data deeper into the Corporation's client base to business processes that use the data currently provided by the Corporation's solutions. The expansion includes the acquisition of Vertex System Resources Ltd. whereby the Corporation derived the capability to manage volumetric data through midstream operations including the functions of daily allocations, production accounting and financial accounting. Additionally, the acquisition of assets from DGL Software Services Ltd. and Gas & Oil Accounting (1988) Ltd. early in 2012 resulted in the Corporation gaining the ability to manage the production accounting and financial accounting business processes of producers on an outsourced basis.

Management expects to focus the Corporation's existing research and development budget over the next 3 years to integrate its systems such that each product takes advantage of a single master file wherein the relationships between a well, a battery, the gathering system and the plant are kept. Management expects that the use of a single master file will reduce administrative time and simplify regulatory and operational reporting requirements, which in turn will reduce costs for the Corporation's clients. In addition to its existing research and development budget, the Corporation expects to spend up to $0.5 million in 2012 to rewrite certain applications acquired by the Corporation.

Notwithstanding these additional costs, the increased associated sales and marketing costs already being incurred, and the price of natural gas being significantly lower than previously predicted, management is optimistic that its efforts will bear fruit by increasing revenue in 2012 to offset any revenue loss from the shut-in of less productive wells and to pay for the Corporation's increased costs. Management's plan, if successful, will result in improved margins in 2012 and strong revenue and profit growth in 2013.

Forward looking statements

Management expects to be able to sustain sufficient revenue from clients currently served by its Winnipeg office to pay for continued costs in Winnipeg, and contribute sufficient margin to its Edmonton and Toronto operations to positively impact overall profitability. Retention of such revenue during the transition cannot be assured and the failure of retention will reduce revenue from the Service Bureau Operations business segment without increasing profitability.

Management's outlook in increasing its US based fabrication, assembly and equipment revenue in 2012 to the levels achieved in the second half of 2011 cannot be assured as such revenue is not recurring. Additionally, the Corporation's fabrication, assembly and equipment business is now geared towards larger equipment used in shale gas production, the continued development of which is dependent upon the financial viability of gas production in the Marcellus shale play. The financial viability of gas production in the Marcellus shale play is not yet predictable and can only be proven with the passage of time.

Expected profitability in the Corporation's US operations will be dependent upon the acceptance of the Corporation's clients in the US of the Corporation's technologies, and general economic conditions including the price of natural gas, neither of which can be assured or predicted.

The Corporation has undertaken a strategic direction to penetrate further into the Corporation's client base in Canada with integrated technologies. There can be no assurance of client acceptance of this strategy, nor can there be assurance that the Corporation will be successful in the integration of its current technologies with those that have been recently acquired.

About CriticalControl:

CriticalControl delivers outsourced solutions for information intensive and document intensive transactional processes. Through the implementation of technology, workflow and economies of scale we are able to provide highly secure control over sensitive information and processes in a cost effective manner.