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CriticalControl Announces 2011 Third Quarter Financial Results- CriticalControl delivers 15th consecutive quarter with positive net earnings - (November 14, 2011)
CALGARY, ALBERTA -- (Marketwire) -- 11/15/11 -- CriticalControl Solutions Corp., (TSX:CCZ) today reported its financial results for the three month and nine month periods ended September 30, 2011.
"During the first nine months of 2011, CriticalControl paid down a net $1.5 million of long-term debt, while at the same time increased working capital by 18%", said Alykhan Mamdani, President and CEO of CriticalControl. "The third quarter results reflect success of our strategic efforts across our organization. The US Energy Services business is benefiting from our repositioning efforts, and the Service Bureau Operations continue their rebound from 2010. We are well positioned to achieve management's growth objectives into 2012 and beyond, without the necessity of issuing equity for capital."
Quarter ended September 30, 2011 - Q3 Highlights
-- Revenue increased 6% to $12.4 million in Q3 2011 from $11.7 million in Q3 2010. Year-to-date revenue decreased 1% from $37.5 million in 2010 to $37.2 million in 2011. -- Revenue from the Service Bureau Operations increased by 13%, from $4.3 million in Q3 2010 to $4.9 million in Q3 2011. Year-to-date revenue increased by 11% from $14.2 million in 2010 to $15.9 million in 2011. The revenue increase is reflective of a gradual recovery from recessionary pressures in 2010 and strategic penetration of certain key government and national clients. -- Revenue from the Canadian Energy Services business stayed relatively flat at $2.7 million in Q3 2010 and 2011. Year-to-date revenue increased by 1% from $8.3 million in 2010 to $8.4 million in 2011. -- Revenue from the US Energy Services business increased by 4% to $4.8 million in Q3 2011 from $4.7 million in Q3 2010. Year-to-date revenue decreased by 14% from $14.9 million in 2010 to $12.9 million in 2011. The year-to-date revenue decrease relates primarily to a decline in non- recurring fabrication and assembly of gas measurement and related equipment.
Gross margin percentage
-- Gross margin percentage decreased to 35.0% in Q3 2011 from 36.4% in Q3 2010. Year-to-date margin percentage decreased to 35.9% in 2011 from 37.9% in 2010. -- Service Bureau Operations gross margin percentage increased to 28.8% in Q3 2011 from 27.0% in Q3 2010 (30.8% year-to-date in 2011 from 27.9% in 2010). -- Energy Services gross margin percentage decreased to 39.1% in Q3 2011 from 41.8% in Q3 2010 (39.7% year-to-date in 2011 from 44.0% in 2010).
Selling and administrative expenses
-- Selling and administrative expenses increased 18% from $3.1 million in Q3 2010 to $3.6 million in Q3 2011. Year-to-date selling and administrative expenses increased 7% from $10.0 million in 2010 to $10.8 million in 2011. -- Year-to-date selling and administrative expenses for the Service Bureau Operations decreased by 10% from 2010 to 2011 primarily due to reduced costs related to streamlining operations of companies acquired in 2009. -- Year-to-date selling and administrative expenses for the Energy Services business increased by 21% primarily related to the acquisition of TSM, and new sales, marketing, operations and finance positions in the US and Canada. -- Year-to-date selling and administrative expenses for Corporate increased by 16%, which was primarily attributable to the changeover to IFRS, actual audit fees in excess of the estimate accrued in 2010 and new corporate management positions.
-- Net earnings in Q3 2011 decreased 53% when compared to 2010 to $277 and decreased 52% year-to-date to $1,018. -- Earnings before income tax in Q3 2011 decreased 53% when compared to 2010 to $0.3 million, and decreased 49% year-to-date to $1.4 million. Interest and unwinding of discounts of $0.1 million (year-to-date, $0.4 million) and depreciation and amortization of $0.6 million (year-to- date, $1.8 million) were charged to earnings during the quarter.
Cash flow and balance sheet
-- Net cash from operations increased by 49% from $0.7 million in Q3 2010 to $1.0 million in Q3 2011. Year-to-date net cash from operations increased by 22% from $1.0 million in 2010 to $1.3 million in 2011. -- Total long-term debt (inclusive of current portion) decreased by $0.5 million or 6% from September 30, 2010 to September 30, 2011, despite an additional $1.3 million of debt incurred related to 2010 and 2011 acquisitions.
Implementation of ProChart in US
-- The Corporation successfully completed its implementation of ProChart software to its Ohio branch customers. The implementation will provide the company with an opportunity to achieve synergies and cost savings in its chart reading operations.
US facility expansion complete
-- The Corporation recently completed its fabrication facility expansion in Pennsylvania. The facility will cater 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.
The Corporation's Service Bureau Operations expanded in 2011 through strategic penetration of certain key government and national clients. Further expansion is dependent upon the continued success of the Corporation's strategy and continued strengthening of the general economy. Although management is optimistic in this regard, it will continue to be vigilant in its integration efforts to consolidate acquired operations in order to remain competitive and profitable.
During 2010, several new producers entered into the North Eastern US market 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 2011 over 2010.
Management is transitioning its business in response to the shift away from conventional drilling to drilling associated with the development of the Marcellus shale formation. This transition consists of ramping up field service capability and the Corporation's fabrication facility in Pennsylvania.
In the first half of 2011, revenue from the Corporation's fabrication business fell sharply due to the shift in demand from conventional gas measurement infrastructure to more complex gas measurement infrastructure used to measure shale gas. The Corporation has been meeting the demand for complex gas measurement infrastructure by outsourcing the fabrication of larger pieces of equipment. As the Corporation ramps up its capability to fabricate gas measurement infrastructure for non conventional wells, management expects a steady increase in gross margins throughout 2012. The increase in gross margins is dependent upon the ability to successfully generate economies of scale for the type of gas measurement infrastructure required for the measurement of shale gas, the success of which cannot be assured.
Although the Corporation acquired GMI in April 2011, the office of GMI was not consolidated until Q3 2011. A larger portion of the associated cost synergies are expected to be realized Q4 of 2011.
Management is confident that its US Energy Services business will increase profitability in 2012 for the following reasons:
-- increasing fabrication revenue from quarter to quarter in 2011, including a 17% incremental increase from Q2 to Q3; -- increased margins resulting from the ability to fabricate more assemblies internally due to the expansion of the Corporation's facilities in Pennsylvania; -- expansion of the Corporation's core business into other parts of Pennsylvania; -- benefits of consolidation of the GMI acquisition; and -- benefits of converting the Corporation's US gas chart integration clients onto ProChart and ProStream in Q4 2011 and Q1 2012.
Achievement of the Corporation's objectives are based on a number of assumptions including the general economic environment, management's ability to continue to streamline general and administrative expenses from acquired companies, and continued gas exploration and development activity in the North Eastern US. It is expected that 33% to 38% of the Corporation's 2011 revenue will be generated from the US.
While management expects its profitability from US operations to increase, margins will continue to be impacted due to the increasingly competitive nature of the business.
The Corporation's gas measurement business in the Western Canadian Sedimentary Basin is subject to strong competitive forces in a mature basin, where new exploration has been limited over the past number of quarters. Management believes that its ongoing research and development will keep it competitive in the gas measurement business, but given current market conditions, continued revenue growth will be limited. Accordingly, management has diversified its business to take advantage of its market position and provide value added analytic tools for new areas of revenue growth. Success of management's plan will be dependent upon acceptance of the Corporation's revenue model for these new analytic tools, which is an added cost to gas producers.
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 Pennsylvania facility and improve its sales capability, the success and sufficiency of which cannot be assured.
Management expects to be able to increase margins over the longer term through the launch of its ProStream database and the expansion of its field services capability in the US. Both of these premises are based upon the acceptance of the Corporation's offering in the US, the success of which is dependent upon success of the Corporation's sales team and customer acceptance, which cannot be assured.
A deterioration of the economic climate or the prevalence of uncertainty for a lengthy period of time may materially affect management's outlook, in which case management's profitability targets will become dependent upon the Corporation's ability to further expand its core offering and market reach-both organically and through acquisition, which may require a longer timeframe to achieve.
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.
CriticalControl Solutions Corp.
President & CEO
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