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CALGARY, ALBERTA -- (Marketwired) -- 11/06/14 -- CriticalControl Solutions Corp. (TSX: CCZ) today reported its financial results for the three months ended September 30, 2014.

"Management's focus is the execution of catalyst plans over the next four quarters to penetrate the US oil and gas market with our core applications, which have been redesigned for the US market, and to penetrate the Canadian oil and gas market with our new software solutions," said Alykhan Mamdani, President and CEO of CriticalControl.

Quarter ended September 30, 2014 highlights

Revenue

--  Total revenue was $13.9 million in Q3 2014 compared to $11.9 million in
    Q3 2013, representing an increase of $2.0 million or 16.9%. Year-to-date
    revenue increased by $3.8 million or 10.9%.
--  Revenue from Canadian Energy Services was $3.4 million in Q3 2014
    compared to $3.2 million in Q3 2013, representing an increase of $0.2
    million or 5.5%. Year-to-date revenue increased by $0.4 million or 3.9%.
--  Revenue from the US Energy Services business increased by $2.1 million
    or 42.1%, from $4.9 million in Q3 2013 to $7.0 million in Q3 2014. Year-
    to-date revenue increased by $3.4 million or 26.3%.
--  Revenue from the Corporation's Service Bureau Operations decreased by
    $0.2 million or 6.1%, from $3.7 million in Q3 2013 to $3.5 million in Q3
    2014. Year-to-date revenue stayed flat at $11.9 million.

Gross margin (1) percentage

--  Gross margin percentage for the Corporation was 32.8% in Q3 2014
    compared to 36.9% in Q3 2013. Year-to-date gross margin decreased from
    37.5% to 33.2%.
--  Canadian Energy Services gross margin percentage decreased from 53.6% in
    Q3 2013 to 52.6% in Q3 2014. Year-to-date gross margin decreased from
    55.9% to 48.1%. The decrease is primarily attributable to negative
    margins associated with the rapid expansion and training related to
    ProMonitor in order to implement a large strategic ProMonitor project.
    The impact was significantly less in Q3 2014 than it was in previous
    quarters.
--  US Energy Services gross margin percentage decreased from 32.1% in Q3
    2013 to 27.8% in Q3 2014. Year-to-date gross margin decreased from 30.1%
    to 27.7%.
--  Service Bureau Operations gross margin percentage decreased from 29.0%
    in Q3 2013 to 23.7% in Q3 2014. Year-to-date gross margin decreased from
    30.8% to 28.5%.

Selling and administrative expenses

--  Quarterly selling and administrative expenses for the Corporation
    increased by $0.2 million at $3.8 million in Q3 2014 compared to $3.6
    million in Q3 2013. Year-to-date selling and administrative expenses
    increased by $0.3 million. More than half of the year-to-date increase
    can be attributed to the impact of the weaker Canadian dollar in
    relation to the US dollar. Increased administrative salary costs on a
    year-to-date basis in relation to January 1, 2014 raises and new
    corporate positions were partially offset by net savings in other areas.
    These increased salary costs also accounted for most of the remaining
    increase beyond foreign exchange impacts in Q3 2014.

Other expenses

--  Research and development expenses increased by $221 thousand in Q3 2014
    compared to Q3 2013, and $119 thousand year-to-date, but when the impact
    of amounts capitalized and SR&ED tax credits is considered, expenditures
    increased by $11 thousand for the quarter and $95 thousand year-to-date.
--  Finance costs in Q3 2014 decreased by $371 thousand compared to Q3 2013
    and $224 thousand year-to-date. The decreases were attributable to a
    favorable swing in unrealized foreign exchange, and to a lesser degree
    lower interest associated with decreased debt levels and lower bad debt
    expense in relation to 2013.
--  Other operating expenses in Q3 2014 increased by $102 thousand compared
    to Q3 2013 and $64 thousand year-to-date. A favourable adjustment to the
    Edmonton onerous lease provision in Q1 2014 was offset by an
    unfavourable adjustment in Q3 2014, a non-recurring expense in Q1 2014
    and increased termination costs in Q2 and Q3 2014.

Earnings and net earnings

--  The results for Q3 2014 and year-to-date were impacted by certain non-
    recurring or non-cash items, including swings in unrealized foreign
    exchange, a loss on a large strategic ProMonitor project, adjustments to
    the onerous lease provision, SR&ED credits recognized in different
    quarters, termination benefits and another smaller amount. When the
    impact of these items is excluded from the results, the 2014 adjusted
    earnings before income tax (1) has improved in comparison to 2013.
--  Earnings before income tax for Q3 2014 was $365 thousand compared to
    $323 thousand for Q3 2013. The year-to-date earnings before income tax
    in 2014 was $13 thousand compared to $474 thousand in 2013.
--  Net earnings for Q3 2014 was $220 thousand compared to $209 thousand for
    Q3 2013. The year-to-date net loss in 2014 was $61 thousand compared to
    net earnings of $300 thousand in 2013.

Cash flow and working capital

--  Working capital increased by $4.0 million from $2.3 million at December
    31, 2013 to $6.3 million at September 30, 2014. The key drivers of the
    increase were private placement net proceeds of $2.7 million in June
    2014 and the refinancing of a secured bank loan and unsecured promissory
    note, resulting in a lower current portion in relation thereto.
--  Year-to-date net cash from operating activities decreased by $3.7
    million from $2.2 million in 2013 to negative $1.5 million in 2014. The
    impact of income tax refunds in 2013 and income tax payments in 2014
    accounted for $1.0 million of the year-to-date decrease, investment in
    working capital for growth accounted for $2.1 million, and the remaining
    decrease is primarily attributable to expenses incurred in relation to
    the loss on a significant ProMonitor project.

Outlook and forward-looking statements

CriticalControl has invested significant resources in the past two years on initiatives within its Canadian and US Energy business. Management believes that the Corporation is on track with these initiatives, and they are anticipated to bear fruit in the next four calendar quarters. Quarterly revenue growth in the Corporation's energy services business from Q1 2014 to Q3 2014, with increasing quarterly profitability over the same period, prior to the benefits of these initiatives being realized provides management optimism for 2015.

The Corporation continues to invest significantly in new products and development of existing products in its oil and gas business which it expects to bring to market over the coming quarters, inclusive of the following initiatives:

1.  The Corporation has invested in the development of a field data capture
    system to form an oil and gas producer's primary production data
    repository. The project commenced in 2012 and the Corporation is
    expected to launch its first version of the software in Q4 2014.
    Additional development is planned into 2015 to increase functionality.
2.  The Corporation launched ProMonitor Schematics in Q4 2013 and ProMonitor
    Risk in Q3 2014. The ProMonitor suite of products provides connectivity
    visualization and risk analysis capability in a geographic information
    system (GIS) cloud based product. The adoption of ProMonitor Schematics
    by one of Canada's largest gas producers necessitated increased
    investment into the product during 2014 and resulted in losses
    associated with the implementation of the project in Q4 2013 and the
    first three quarters of 2014 prior to the tools in newer versions of the
    product being completed. The Corporation has recorded a loss on the
    project of $0.7 million in the first three quarters of 2014. Investment
    in this new product is expected to continue along with investment in
    software development planned into 2015. In addition to software
    development anticipated to be capitalized during 2014 and 2015, the
    Corporation has anticipated and accrued $0.2 million of additional
    project losses. The Corporation is expected to release a new version of
    the software in Q4 2014, which the Corporation anticipates will increase
    productivity and eliminate additional project losses by mid-2015.
3.  The Corporation has invested in the development of a version of its
    ProTrend software for the US market in 2013 and 2014. Investment in this
    product has been expensed to date. The Corporation expects to complete
    the initial phase of this project in Q4 2014.
4.  The Corporation is investing in a new module of ProTrend for Canada and
    the United States to validate and edit oil and gas volumes reported from
    the field. The Corporation has capitalized $61 thousand in Q3 2014 and
    expects to complete development of this product in the first half of
    2015.

Expectations related to software development are subject to change due to changes in scope, unanticipated complexity in programming algorithms, availability of staff and errors discovered in testing. Product development may take materially longer than expected due to these risks, some of which are outside the Corporation's direct control. Even where software development is successful, market acceptance of the product cannot be guaranteed; notwithstanding efforts taken to invest in products expected to be in demand. Demand for software may change during the development process due to regulatory changes, the price of commodities and the general economic environment.

The Corporation has launched its combined electronic fluid measurement meter and NetFlow software solution on a single price rental or leasing model in Canada in Q3 2014 and is expecting to launch a similar service in the US later in Q4 2014. Management is optimistic that this combined software and hardware solution will resonate with the needs of oil and gas producers in this uncertain market. Although early response to the solution has been positive, it is too early in the sales process to predict the impact of this solution to the Corporation's future growth.

During 2013 and 2014, the Corporation has strategically positioned its Service Bureau Operations to day-forward imaging solutions and business process outsourcing rather than the Corporation's historic business of one-time imaging projects, microfilming and microfilm conversion projects. During 2014 the Corporation has experienced the conclusion of certain customer contracts, or portions thereof, related to outsourced business processes due to technological change. Some of these processes have terminated in 2014 and others are expected to terminate in 2015. As a result, these eliminations have impacted the Corporation's 2014 revenue and are expected to further impact revenue in 2015. The Corporation was expecting increased revenue in 2014 from its Service Bureau Operations related to a contract from a large Canadian bank and the penetration of its services into the Federal Government of Canada, thus providing new day-forward business process services to offset the concluded contracts. Although total revenue remained flat for the nine months ended September 30, 2014 with some new processing jobs secured and started, they have come in at lower margins in comparison to concluded contracts with higher margins. The Corporation expects margins from the newer work to increase in 2015, as the business processes are optimized.

The Corporation expects technological change in business processes to affect the Corporation's historic revenue base, but also to provide opportunity for the Corporation's day-forward business process solutions. The timing of replacing end-of-life contracts with new strategic contracts may result in lower margins into 2015.

About CriticalControl

In a world of escalating globalization, with an increasingly transient workforce, enterprises have difficulty maintaining their knowledge and are forced to focus on their key market advantages to remain competitive. CriticalControl provides these enterprises with secure and cost-effective solutions for the completion of document and information intensive business processes through an integrated offering of software, outsourced services and optimized business processes.