Serenic Reports Results for the Three and Six Months Ended August 31, 2012
Edmonton, Alberta, Canada (October 25, 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 six months ended August 31, 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 and six months ended August 31, 2012 for more information
Microsoft made several announcements during the quarter, which we believe may be opportunistic for Serenic over the longer term. These are discussed in more detail in the Outlook section of this document.
The Company has continued to focus on its primary objectives during the quarter: to maximize revenue through organic growth and to investigate opportunities to enhance shareholder value. While Serenic Navigator software license sales through our partner channel were robust, software licenses sold directly within domestic and international markets lagged behind last year’s pace and expectations, thus causing revenue for the second quarter to decrease from the comparable quarter last year. Sales of our HCM products were also slower than anticipated during the quarter; however, we did strengthen future prospects by signing four new HCM partners and completing new sales in Ethiopia, which represents a new international market for this product. The Company continues to work and grow its sales pipeline, and we are altering historical strategies and sales models due to changing customer demands regarding product features. Client services revenue was below expectations as demand for services is heavily dependent upon direct license sales. As expected, however, maintenance revenues continued to grow during the quarter, due to the ongoing addition of new customers, their high propensity to renew maintenance contracts, and also because of renewals by several clients whose maintenance contracts had previously lapsed. Recurring maintenance revenue has grown during the past few years to now comprise nearly half of our annual revenues.
While expenses remained in line with expectations, the lower than expected gross profit resulted in the Company recording a net loss and negative EBITDA in the quarter. The Company paid a significant amount of vendor payables related to sales in a prior period, which was a factor causing cash to reduce by $0.6 million from the previous quarter to $3.8 million at period end.
The Company’s marketing group remained very active in generating new leads and initiated several new co-marketing programs with its reseller partners in North America, Europe and Africa. Development of Serenic’s new donor management product based on Microsoft CRM continued, and is currently on schedule for release to market in the first half of calendar 2013. This new offering will be deployed as a cloud-based solution, and will also be able to be sold as a stand-alone application for organizations who are not yet ready to upgrade their existing financial systems and as an integrated module of Serenic Navigator.
The Company is dependent on Microsoft Corporation to supply Microsoft Dynamics NAV software to integrate into its software applications. Two agreements define the relationship. The Company and Microsoft extended the first Agreement in June, 2012 for an additional two years, subject to the annual attainment of certain financial parameters. The second Agreement expired on August 10, 2012, was renewed in October, 2012 and will expire co-terminus with the first Agreement. The Company continued its Normal Course Issuer Bid (“NCIB”) program, and in the current fiscal year to August 31, 2012 has purchased 335,000 shares for cancellation.
In July 2012, Microsoft announced significant changes to their strategies to market and sell their financial, accounting and enterprise resource planning software (“ERP”), which in turn will impact Serenic and its future strategies. As Serenic’s business has historically been closely aligned with and been an integral part of Microsoft’s global eco-system of ERP reseller partners and service providers, management continues to believe that Serenic’s go-forward strategies will have to remain substantially in alignment with Microsoft’s in order to maximize our opportunities by leveraging off of Microsoft’s global reach and market position.
Microsoft is soon to release to market its next generation technology and products for ERP business customers, components of which have been under development for a number of years. These new products may be very positive for Microsoft’s future business customers and prospects, and they may allow Microsoft to dominate segments of ERP markets, similar to their past ability to dominate Office automation applications (word processing, spreadsheet, Power Point, email), data base applications (Microsoft SQL), and segments of the CRM markets.
Microsoft’s ERP applications will be able to be deployed to a wide range of customers, from small businesses to major enterprise (Fortune 500 and equivalent) organizations, utilizing historical on-premise licensed installations, software-as-a-service (“SaaS” or “Cloud”) applications, or some combination thereof. The underlying technology is designed to allow users to access these ERP solutions with any device that is browser enabled. Whereas competitors may offer one or more of these deployment platforms, few, if any, will have the capability to offer the seamless integration to operating and office systems that Microsoft ERP products will inherently provide (e.g., full integration with Windows 8, Azure, Office, SharePoint, CRM etc.). This capability is expected to result in simplified access and a superior user experience and give Serenic a competitive advantage.
In order to better exploit their technology, Microsoft will expand its marketing and sales strategies pertaining to ERP by reinforcing that its various Dynamics ERP products are attractive to a wide range of clients in its specific target markets. This will affect the way Serenic conducts its business in the future, as the Dynamics NAV technology upon which Serenic’s flagship product is built will be positioned as one of Microsoft’s “Volume” platforms. Essentially, Microsoft will be seeking to gain significant market share by dominating the SMB (Small to Medium Business) market through simplified licensing and implementation processes.
Serenic will embrace this new strategy while continuing to offer its world class financial management solutions to its traditional customer base, which also includes large non-profits and international NGOs. The addition of the “Volume” strategy will allow Serenic to expand its coverage and offer its solutions to a broader base of organizations who are looking for sophisticated solutions that are easy to license and install.
This additional dimension will not come without challenges and risks. Whereas Serenic has been engaged in developing its products to operate with Microsoft’s new technology and deployment platforms for the past few years, we will now also need to consider how and when to deploy new pricing, marketing, sales and implementation methodologies that successfully align with the “Volume” approach.
Although details of Serenic’s impending strategy additions are still subject to further investigation and consideration, management believes that the alignment of Serenic’s strategy with Microsoft’s will continue to represent the most opportunistic strategy for Serenic stakeholders over the longer term. We anticipate that changes to our product pricing and deployment models could temporarily cause some interruption to our current business model and expectations. As a result of Microsoft’s recent announcements, we have altered our operational business plan for Q3 and Q4 of the current fiscal year, in order to prepare for and introduce necessary changes in the organization and our business processes. We will report our progress in this regard in future MD&A’s.
The imminent changes and challenges are significant; however, management continues to believe that the outlook for Serenic stakeholders remains positive. Our strategy for the balance of Fiscal 2013 continues to focus on organic growth of core operations through prudent re-investment of our resources, and to continue to pursue scenarios to maximize value for our shareholders beyond what organic growth would produce.
We also anticipate that we will supplement our Software as a Service “SaaS” capabilities through deployment of Serenic Navigator and HCM products on Microsoft’s cloud platform, Azure, early in calendar 2013. As well, we will be amongst the first companies world-wide to utilize Microsoft’s Windows 8 platform.
Other software development projects that are currently underway are complementary to new strategies and will therefore be sustained, in order to ensure that our products will remain technologically and functionally competitive.
From a corporate development perspective, the primary objective remains to be that of optimizing shareholder value, which might entail a capital structure change, new strategic ventures, 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. Management will take appropriate action that would best serve the interests of shareholders as soon as a suitable arrangement can be identified and acted upon.
We believe the Company remains adequately financed to operate as anticipated. We continue to be excited about our future opportunities and remain confident in our belief that our intended course of action will ultimately result in the achievement of greater value for all of our stakeholders.