Cortex Aims to Bring Oil & Gas Industry Online
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By Justin Yan
When Art Smith and Ryan Lailey took over a small tech firm in 2006, they had a vision to solve a basic business problem: paper-based invoicing and procurement. By evolving an old idea with new technology, the duo has exploited what they refer to as one of the last greenfield opportunities in corporate North America.
By leveraging existing supply chains, Cortex Business Solutions Inc. (TSXV:CBX) has built a secure
The Calgary-based tech company has grown from five employees in 2006 to 85 employees with just over $4.3M in annual revenue in 2010. Cortex ranked third in the 2011 TSX Venture 50 list in the Technology/Life Sciences grouping. The company's share price rose 91 per cent last year from $0.23 to $0.43, while its market capitalization grew by 152 per cent from $26.4 million to $66.7 million as at the end of 2010.
There is immense market potential for our network, explains Smith, President of Cortex Business Solutions. A benchmark report published in 2007 by the Aberdeen Group on accounts payable automation states that around 80 per cent of all business to business invoices are still done on paper while 65 percent of those invoices are paid using cheques. In a corresponding report, Wells Fargo estimates that at being 13 billion paper-based invoices a year.
"It was a very definable niche that wasn't being served either in Western Canada or what we could find North America," Smith says. "It was a wide open opportunity."
The Concept
Cortex employs a utility-style business model that creates a win-win situation for all connected parties, says Smith. Similar to an electric power grid, the company has set up the infrastructure for an online network to which companies can connect and transfer paperwork digitally while getting near real-time feedback, no matter what software they use internally. Companies pay a variable one time set up fee, a monthly connection fee and up to $2.50 per transaction depending on the services they subscribe to.
Instead of competing with business management software providers such as SAP and Oracle, Cortex has focused on building a network that sits in between businesses that allows cross communication among various platforms. To this end, Cortex has partnered with the software companies that are providing services to its target market. "Businesses can produce the data any way they want. Once sent in to the Cortex network, we act as a translator and router of the information and deliver it to the right party in the right format for their systems," says Lailey, Cortex's Vice-President of Business Development and Corporate Strategy.
By digitizing the paper trail, its automation product virtually eliminates the need for data entry for buying organizations such as Husky and shortens the payment terms for supplier organizations. In addition to cost-reduction, Cortex provides immediate feedback into the system so that the company is in control of that invoice, Lailey explains. "Visibility in accounts payable and receivable is incredibly important for companies," he says.
Timing is Everything
Founded in 1999 at the height of the dot com era, the original company struggled to commercialize its utility-style model of invoice automation. "Frankly, it was just too early as was the case with thousands of companies during that era," says Lailey. "The customer base wasn't ready for procurement automation and the technology wasn't ready for deployment on a large scale," he explains.
Although the utility-based business model failed during the dot com boom, today's widespread use of personal computers in the business environment and access to broadband internet allowed Cortex to take hold.
"We're really at the point of our growth curve where we start to see a viral and recurring revenue network effect," says Lailey. The company has seen its growing revenue increasingly shift from one-time project management income to set-up, access and usage fees as it expands in Canada and the U.S. Cortex reported average revenue growth of 10 per cent quarter over quarter since Q1 2010, resulting in a 36 per cent annual growth rate. The company expects an additional 2,000 subscribers through its Apache USA project by December 2011.
As part of its expansion plans, Cortex is currently transforming its network into a Cloud-based system to handle increased transaction volumes. In addition, the company has recently signed a partnership agreement with American Express to offer payment services on its network.
Meanwhile, as Cortex invests heavily into infrastructure and expansion, it expects its growing recurring revenue base to bring it closer to break even. Cortex aims to capture a material portion of the North American e-procurement and e-invoicing marketplace in the next five years and to build out to other industries, says Smith.
"The vision of the company is to grow in Canada, solidify our position in the US in oil and gas and move into multiple sectors including construction, utilities, and the public sector."
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