Serenic Reports Financial Results for Quarter and Year Ended February 29, 2012
Edmonton, Alberta, Canada (June 22, 2012) – Serenic Corporation (the “Company” or “Serenic”) (TSX-V:SER), an international software developer specializing in integrated financial management and human capital management (“HCM”) solutions for Non-Profit organizations, government agencies, and Microsoft Dynamics NAV users, announces its financial results for the three months and year ended February 29, 2012 .
Financial results are summarized as follows:
(1) EBITDA represents earnings before interest, taxes, depreciation, amortization, and stock based compensation. Please review the Serenic Management Discussion and Analysis for the three months and year ended February 29, 2012 for more information
Summary of Operations in Fiscal 2012
- Our efforts in Fiscal 2012 were primarily in support of two objectives – to increase the value of the Company by advancing our position as a global leader in our niche markets while managing our business within acceptable risk parameters, and to investigate strategic alternatives for that value to be realized by all stakeholders of the Company.
- From an operational perspective, the primary challenges were the continuing sluggish global economies which manifested in fewer new projects and hesitation by organizations looking to conserve precious resources. Customer confidence in funding has not fully returned, which significantly impacts willingness to deploy new technology. Market expectations are continually shifting, and Serenic adjusts to those shifts by consistently investing resources to ensure that our applications remain at the leading edge within our industry, both functionally and technically.
- With respect to the investigation of strategic alternatives during Fiscal 2012, eight business development scenarios were identified and reviewed. Although some of these have been rejected because they do not represent a viable fit that would provide adequate fair value for Serenic shareholders, others may continue to be further investigated.
- We instituted a normal course issuer bid in Fiscal 2012, which has resulted in the buyback by the Company to June 19, 2012 of 313,500 shares (approximately 2.1% of the stock issued) since commencing this program in June, 2011.
- Serenic continued to make progress as a preferred supplier in its niche markets, and has continued to gain more prominence within certain international markets. For example, after nearly 3 years of marketing and sales efforts, our applications were purchased by a local Ugandan government in Fiscal 2012, which is now the third African local government to have selected and adopted Serenic solutions over competing products.
- Our reseller partner channel continued to grow in Fiscal 2012, with the addition of partners in the Netherlands, South Africa, and Canada, and many new customers selected our products to advance their financial, fund and donor management opportunities
- Serenic was again recognized by Microsoft in Fiscal 2012, whereby Serenic was appointed to Microsoft’s Inner Circle and President’s Clubs for its business excellence. This is the 6th time in the past 9 years that Serenic has been named to the Inner Circle, which recognizes the top 1% of Microsoft’s nearly 10,000 Dynamics partners world-wide.
Fiscal 2012 Financial Highlights
- Revenue in Fiscal 2012 declined year over year primarily because we sold fewer large deals than the previous year, both in North America and internationally. Additionally, we experienced challenges in closing one of the larger sales we expected in Africa, wherein the country’s currency controls prevented the sale from being closed prior to the fiscal year end. Overall, pipeline activity continues to grow, as does the number of current active engagements.
- Serenic Navigator license sales made through our North American reseller partners, who generally cater to smaller organizations, remained consistent with the prior year. HCM license and recurring revenue from maintenance and training increased over the prior year.
- The Company released to market its first Software as a Service (SaaS) model of its products in Fiscal 2011, which generated a nominal amount of revenue during the year. We continue to fine-tune this product through client and prospect feedback to determine the ideal balance between the ease of use vs. depth of functionality mix and management believes that this on-line offering will ultimately enjoy good market success.
- Serenic’s year over year revenue growth was also impacted negatively due to foreign exchange in Fiscal 2012. We invoice primarily in U.S. dollars, and because the average effective foreign exchange conversion rate of U.S. to Canadian dollars decreased from $1.0178 to $0.9926 year over year, this reduced reported revenue which is stated in Canadian dollars by $277,361.
- While revenue decreased by 9.2%, gross profit declined by only 4.1% from $7,820,614 to $7,500,856. Net expenses after software development cost capitalization increased nominally by 2.2% from $7,629,351 to $7,794,411 year over year, despite the Company having to incur $103,000 in legal expenses to successfully defend a trademark.
- Overall, the Company posted a loss of $176,375 in the current fiscal year versus net income of $78,353 last year, due to the reduced gross profit and increase in expenses. EBITDA remained positive at $175,654 or 1.6% of revenue. Maintaining positive EBITDA will continue to be a critical factor considered by management to determine allocation of resources to grow market share and business value, while also mitigating risk factors.
- We finished the year with cash of $3,935,658, which is a small decrease from last year’s $4,111,140, and the Company remains free of any long term debt.
- While HCM license sales in Q4 this year were similar to Q4 last year, Serenic Navigator license sales declined due to the fact that a single large sale which occurred in Q4 last year did not repeat in Q4 this year. Revenue from client services and software maintenance both increased in Q4 this year, as compared to the prior year. Total revenue and gross profit declined in the current quarter by 20.4% and 10.7%, respectively, as compared to Q4 in the prior year. Although the gross profit earned on software maintenance and client services revenue was higher in Q4 this year than last, and software license sales margins improved, their combined effect was insufficient to overcome the gross profit loss caused by the reduced software license revenue.
- Expenses before software development cost capitalization rose by $154,052 or 7.9%. Legal fees arising from the trademark action referred to earlier were all incurred in Q4 of this year and this, combined with higher office lease costs, caused general and administrative costs in Q4 to increase year over year by $94,452 or 49.1%. Other factors contributing to the expense increase were higher marketing expenses and higher salary and employee benefits costs, as a result of having more employees in the current quarter. Software development cost capitalization reduced by $126,382 from last year, which contributed to total expenses rising by $280,434 or 17.1%.
- The decrease in revenue and gross profit and increase in expenses caused net income to reduce from $403,293 to $47,580. EBITDA remained positive for the quarter at $62,046, although it reduced from last year due to the reduction in net income.
Management believes the outlook for Serenic stakeholders remains positive. Our strategy for Fiscal 2013 is to continue organic growth of core operations through prudent re-investment of our resources, to maintain EBITDA positive results as we grow our business, and to continue to pursue scenarios to maximize value for our shareholders beyond what organic growth would produce.
From an operational perspective, this will involve continuation of development projects that commenced in Fiscal 2012 to ensure that our solutions and products remain at the forefront of technology and functionality as demanded by our marketplace. We will build on our well received “The Year of the Customer” theme that was initiated in Fiscal 2012, in order to further enhance and solidify our clients’ experience and loyalties, and will continue to focus on the addition of new customers and partners world-wide.
From a corporate development perspective, we will continue to pursue various strategic opportunities that have potential to enhance shareholder value. These alternatives could involve a capital structure review, strategic partnerships, and/or merger and acquisition scenarios. Management strongly believes that the current market capitalization of the Company as reflected in its share price does not adequately reflect Serenic’s fair value and is determined to take appropriate action that would best serve the interests of shareholders to rectify this situation, as soon as possible.
With $3.94 million of cash on hand ($0.26 per basic common share outstanding) at Fiscal 2012 year end and no long term debt, we believe the Company is adequately financed to operate as anticipated. We are excited about our future opportunities and remain confident in our belief that our intended course of action for Fiscal 2013 will result in the achievement of greater value for all of our stakeholders.