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CALGARY, ALBERTA -- (Marketwired) -- 05/08/13 -- CriticalControl Solutions Corp. (TSX: CCZ) today reported its financial results for the three months ended March 31, 2013.

"Our recurring revenue remains strong and we continue to invest in and deliver on our product innovations. The results of our continued market penetration are expected to improve bottom line performance later in 2013 and into 2014," said Alykhan Mamdani, President and CEO of CriticalControl. "Our Q1 2013 results are not indicative of the operational and strategic progress made by the company in the past number of months."

Quarter ended March 31, 2013 highlights

Revenue

--  Total revenue of $10.7 million in Q1 2013 represents a 17% decrease from
    $12.9 million in Q1 2012. An increase of $0.1 million in recurring
    revenue from Canadian and US Energy Services, and the impact of foreign
    exchange were more than offset by a $0.9 million drop in revenue from
    the Corporation's Service Bureau Operations and a decline of $1.4
    million in non-recurring revenue from US and Canadian Energy Services.

--  Revenue from the Canadian Energy Services business decreased by 10%, to
    $3.1 million in Q1 2013 from $3.4 million in Q1 2012. Recurring revenue
    remained flat in relation to Q1 2012, so the decrease related to non-
    recurring revenue. In Q1 2012, the Corporation recognized one-time
    implementation revenue from an implementation of its ProTrend solution,
    an implementation of its ProStream PA solution, and a large order for
    hardware devices that were added to NetFlow. The recurring revenue from
    these large implementations offset a decline in revenue due to shut-ins
    in Q2 and Q3 2012.

--  Revenue from the US Energy Services business decreased by 20% from $4.7
    million in Q1 2012 to $3.8 million in Q1 2013. An increase in recurring
    revenue and the impact of foreign exchange were offset by decreases in
    non-recurring revenue of $1.0 million. Sales of fabricated assemblies of
    gas measurement related equipment were impacted by the lower levels of
    drilling activity in the last half of 2012.

--  Revenue from the Corporation's Service Bureau Operations decreased by
    20%, from $4.8 million in Q1 2012 to $3.8 million in Q1 2013 due to
    reduced government spending on conversion projects and increased
    competition. A significant project expected to commence in early Q1 2013
    did not commence until near the end of the quarter.

Gross margin percentage

--  Gross margin percentage for the Corporation increased from 36.1% in Q1
    2012 to 36.5% in Q1 2013.

--  Canadian Energy Services gross margin percentage increased from 55.1% in
    Q1 2012 to 56.2% in Q1 2013.

--  US Energy Services gross margin percentage increased from 27.4% in Q1
    2012 to 28.7% in Q1 2013.

--  Service Bureau Operations gross margin percentage decreased from 31.2%
    in Q1 2012 to 28.5% in Q1 2013 due to a change in the mix of projects.

Selling and administrative expenses

--  Selling and administrative expenses for the Corporation in Q1 2013
    decreased by $38 thousand compared to Q1 2012.

--  Selling and administrative expenses for the Service Bureau Operations
    decreased by $91 thousand compared to Q1 2012, which is attributable to
    savings in several areas.

--  Selling and administrative expenses for the Canadian Energy Services
    business increased by $125 thousand compared to Q1 2012, primarily
    related to increased salaries in relation to strategic hires, and also
    due to certain infrastructure costs charged directly to the segment that
    were previously absorbed by Corporate in Q1 2012.

--  Selling and administrative expenses for the US Energy Services business
    increased by $36 thousand compared to Q1 2012. Increased insurance costs
    (including some absorbed by Corporate in prior years) and increased
    sales and marketing costs were offset by savings in other areas.

--  Selling and administrative expenses for Corporate decreased by $108
    thousand compared to Q1 2012. The biggest drivers of the decrease were
    reduced administrative salaries, and infrastructure and insurance costs
    absorbed by Corporate in 2012 that were allocated directly to other
    segments in 2013.

Other expenses

--  Research and development costs increased by $0.1 million compared to Q1
    2012 due to increased costs associated with the field data capture
    system development project.

--  Finance costs decreased by $0.2 million primarily due to a favourable
    swing in foreign exchange rates.

--  Other operating expenses decreased by $0.3 million compared to Q1 2012
    due to non-recurring costs in 2012.

Earnings

--  Earnings before tax decreased by $0.4 million from earnings of $0.1
    million in Q1 2012 to a loss of $0.3 million in Q1 2013.

Cash flow, working capital and debt

--  Working capital increased by $0.1 million from $2.3 million at December
    31, 2012 to $2.4 million at March 31, 2013.

--  Net cash from operating activities decreased by $1.6 million from $2.1
    million in Q1 2012 to $447 thousand in Q1 2013, primarily due to
    favourable changes in non-cash operating working capital in Q1 2012.

--  Total loans and borrowings, net of cash, decreased by $0.3 million from
    December 31, 2012 to March 31, 2013.

Outlook and forward looking statements

Investment in gas exploration and production in the Canadian Western Sedimentary basin remains unstable, and management expects volatility in exploration during 2013. During 2012, the Corporation replaced a significant amount of recurring revenue from shut-in wells with revenue from product innovation and new products coming to market. Growth in 2013 will be dependent upon the Corporation successfully exploiting products it has recently brought to market, innovation of existing solutions, and the introduction of new products in order to replace revenue from depleted or shut-in wells. Current interest in the Corporation's new products and innovations on existing products provides management optimism for modest growth in its Canadian Energy Services business segment.

Continued growth in the Corporation's Canadian Energy Services business segment is dependent upon the success of the Corporation's sales effort, market acceptance of the Company's innovations and new products, and the successful and timely development of other products in 2013, all of which constitute risk factors that may negatively impact growth and create risk of the Corporation being unable to replace recurring revenue from depleted or shut-in wells.

During 2011, exploration activity in the Appalachian basin related primarily to shale gas and the deployment of multi-frac wells. This spur in activity invited greater competition into the region, primarily related to fabrication. The volatility in the price of gas during 2012 reduced exploration, and competition has subsequently declined. The uncertainty caused by the influx and departure of competition has created an opportunity for the Corporation's US Energy Services business, which has operated in the region for the past 35 years. The size of the Corporation's field staff, historic operations and track record have resulted in the division becoming the preferred vendor for measurement related services to a number of customers. This has resulted in preliminary interest in the Corporation's software based solutions.

The Corporation is building a sales team in the Appalachian basin to maximize penetration in the region with its products and services. The Corporation is in the process of rolling out its existing technologies in the US and, given the investment in sales, expects growth in the second half of 2013.

Growth from the Corporation's US Energy business is dependent upon acceptance of the Corporation's technology solutions, the success of its sales capability and the successful hiring and training of staff to manage growth, none of which can be guaranteed. These risk factors, should they arise, will negatively affect management's outlook and reduce the Corporation's profitability.

The current economic environment in Canada and the changing nature of print and document management service businesses has resulted in companies with related ability or capacity entering into the imaging market, resulting in increased competition for the Corporation's Service Bureau Operations. In addition, offshore players are increasing their reach into Canada and are offering discounted data entry services, which erode overall margins. Management expects this trend to continue into 2013 and beyond. During 2012, management attempted to drive efficiencies from its existing operations to become more competitive and to target its solutions away from commoditized imaging and data entry services in order to improve margins. Management was not able to make the transition in 2012 and therefore the weak 2012 results are expected to continue into 2013.

The Corporation has signed a contract with a large financial institution to provide day-forward imaging services and is negotiating the scope of work and the completion of a pilot. This contract should result in growth commencing in Q4 of 2013.

Based on change in operational management for the Service Bureau Operations late in 2012, combined with changes in sales personnel and approach, management is optimistic that it can generate revenue and profit growth in 2014.

Management's longer term outlook for the Service Bureau Operations is subject to the successful change in its sales strategy and the success of its sales capability, which cannot be assured. The failure to mitigate these risks would result in reduced performance from expectations. In addition, the contract signed with a large financial institution for day-forward imaging is dependent upon the completion of the pilot and the financial institution's ability to change its business processes, the timing of which carries uncertainty, which may in turn push revenue expectations to a later date.

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.