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 strong 2012 growth in recurring field services, and management expects to retain this level of activity into 2013.
The Corporation is building a sales team in the Appalachian basin to maximize penetration in the region with its technology products, which have been revamped for the US market. The Corporation intends to roll out its technologies to existing customers in the first half of 2013 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.
In a world of escalating globalization, with an increasingly transient workforce, enterprises are constrained from 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.
CriticalControl Solutions Corp.
President & CEO
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