CriticalControl Solutions Corp.
TSX : CCZ

CriticalControl Solutions Corp.

May 31, 2011 09:40 ET

CriticalControl Announces 2011 First Quarter Financial Results

-CriticalControl delivers 13th consecutive profitable quarter-

CALGARY, ALBERTA--(Marketwire - May 31, 2011) - CriticalControl Solutions Corp., (TSX:CCZ) today reported its financial results for the three month period ended March 31, 2011.

Quarter ended March 31, 2011 – Q1 Highlights

Earnings remain consistent

  • Earnings before tax remained consistent at $0.7 million for Q1 2011 and Q1 2010. Interest and unwinding of discounts of $0.1 million (2010 - $0.1 million) and depreciation and amortization of $0.5 million (2010 - $0.7 million) were charged to earnings during the period.

  • Net earnings remained consistent at $0.5 million for Q1 2011 and 2010.

Improved liquidity

  • Total long-term debt (inclusive of current portion) decreased by $2.7 million or 28% from March 31, 2010 to March 31, 2011, despite an additional $1.0 million of debt incurred related to 2010 acquisitions.

  • Working capital increased from $1.7 million at March 31, 2010 to $4.4 million at March 31, 2011.

  • Total equity increased by 45% from $17.0 million at March 31, 2010 to $24.7 million at March 31, 2011, which is attributable primarily to proceeds on private placements of $4.6 million in the last three quarters of 2010 and accumulated comprehensive income of $3.0 million for the 12 months ended March 31, 2011.

Revenue decreased by 6%

  • Revenue decreased to $12.2 million in Q1 2011 from $13.0 million in Q1 2010.

  • Revenue from the Service Bureau Operations increased by 10%, from $5.1 million in Q1 2010 to $5.6 million in Q1 2011, which is linked to a recovery in Alberta from recessionary pressures in 2010.

  • Revenue from the Canadian Energy Services business remained consistent at $3.0 million for Q1 2011 and 2010.

  • Revenue from the US Energy Services business declined to $3.6 million in Q1 2011 from $5.0 million in Q1 2010 resulting primarily from a decline in non-recurring sales of fabricated and assembled gas measurement and related equipment.

Gross margin percentage decreased by 0.2%

  • Gross margin percentage decreased slightly to 37.4% in Q1 2011 from 37.6% in Q1 2010.

  • Service Bureau Operations gross margin percentage increased to 30.7% from 25.9% over the same period, resulting from streamlined operations and improved economies of scale.

  • Energy Services gross margin percentage decreased to 43.1% in Q1 2011 from 45.1% in Q1 2010 due to reduced economies of scale in the US related to revenue declines and the sale of fewer large fabrication assemblies that generate higher margins.

Selling and administrative expenses declined by 4.0%

  • Selling and administrative expenses declined from $3.6 million in Q1 2010 to $3.4 million in Q1 2011.

  • Selling and administrative expenses for the Service Bureau Operations declined by 29% from Q1 2010 to Q1 2011 as the Corporation achieved integration of its 2009 acquisitions.

  • Selling and administrative expenses for the Energy Services business increased by 16% as a result of the TSM acquisition in Ohio.

  • Selling and administrative expenses for Corporate increased by 15% in relation to IFRS conversion costs and audit fees recognized in excess of 2010 estimates.

Outlook

During 2010, several new producers entered into the Corporation's market in the North Eastern US and drilling shifted from conventional wells to the exploration and development of shale plays. The demand on existing infrastructure and available resources resulted in a marked decline in conventional wells in Q1 2011 over Q1 2010. As a consequence of this shift, the demand for traditional dry flow meters declined in favour of electronic flow measurement devices (EFMs), which is an alternative to dry flow meters for the measurement of gas. Whereas the Corporation has a strong market leadership position in the refurbishing and sale of dry flow meters, the market for EFMs is wider and more competitive. In addition, the demand for equipment generated with the exploration of shale plays has resulted in the entry of new competitors who have not traditionally serviced the Corporation's client base in the North Eastern US.

During Q1, the Corporation commenced an expansion of its facility in Indiana, PA in order to better position itself to provide fabrication capability for measurement equipment designed for unconventional gas wells currently being drilled for the development of shale plays. The expansion is expected to be complete by the end of Q3 2011. In an effort to respond to a more competitive marketplace marked by the entry of new competitors, the Corporation is increasing its sales force in this area (a departure from the Corporation's historic reliance on market dominance in the area to facilitate sales). The Corporation's acquisition of GMI was a key factor in this regard.

The delay in certain fabrication sales due to weather conditions in Q1 2011 is expected to generate improved Q2 performance; however, such performance is expected to be below Q2 2010. The Corporation's investment in the expansion of its Indiana, PA facility combined with its investment in sales is expected to bring the Corporation's North Eastern US business back in line with 2010 quarterly results by the end of the year.

Given that the Corporation has managed to maintain its profitability in Q1 2011 compared to Q1 2010 despite a 6% drop in revenue, management is optimistic that a rebound of its business in the North Eastern US will enable it to maintain or exceed its 2010 profitability in 2011. Management is of the opinion that discoveries of natural gas in shale formations in the US such as Eagleford and Woodford in addition to Marcellus will keep natural gas supplies elevated in North America. Accordingly, management anticipates gas producers will continue to invest in lower cost exploration and production regions as natural gas prices remain low. In anticipation of this continued trend, management will pursue its strategic expansion goals in the US in 2011 and 2012.

"Despite the culmination of a variety of negative factors during the quarter, our recurring revenue stream resulted in continued profitability," said Alykhan Mamdani, President and CEO of CriticalControl. "Our strategic objectives remain intact and our vision continues to be focused on growth."

Forward looking statements

Management's US expansion strategy is based upon the premise of continuing low gas prices and the investment of gas producers in lower cost, US based basins. There can be no definite assurance that management will be successful in identifying and expanding into these basins, or whether these basins will be economically viable.

Management's outlook in increasing its US based fabrication revenue is dependent upon the success of its plan to improve competitiveness through the expansion of its Indiana, PA facility and improve its sales capability, the success and sufficiency of which cannot be assured.

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.

Contact Information

  • CriticalControl Solutions Corp.
    Alykhan Mamdani
    President & CEO
    (403) 705-7500