Serenic Aligns with Microsoft's Volume and Cloud Based Business Models; Reports Results for Three and Nine Months Ended November 30, 2012
Edmonton, Alberta, Canada (January 29, 2013) – 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 for the three months and nine months ended November 30, 2012.
Volume and Cloud-based Business Model
In July 2012, Microsoft announced significant changes to their strategies to market and sell their financial, accounting and enterprise resource planning software (together, “ERP”) products, which will impact Serenic and its future strategies. Microsoft’s expectation is to significantly increase its penetration within ERP markets, similar to their past experience in having dominated office automation applications (word processing, spreadsheet, Power Point, e-mail), data base applications (Microsoft Access, Microsoft SQL), and segments of the customer relationship management (“CRM”) markets. Microsoft’s objective is to deploy its ERP applications to a wider range of customers, from small to medium size businesses (“SMB”) to major enterprise organizations (Fortune 500 and equivalent), and allow customers to utilize on-premise licensed installations, software-as-a-service (“SaaS” or “Cloud”) applications, or any combination thereof. Microsoft’s underlying technologies are designed to use any browser-enabled device to access these ERP solutions which feature seamless integration to operating and office systems (e.g., full integration with Windows 8, Office, SharePoint, CRM etc.) and thereby result in simplified access and a superior user experience. We expect these technologies and strategies will provide Serenic with a competitive advantage.
In order to accomplish their objectives, Microsoft has initiated significant changes to its business and sales models. To address the SMB market, Microsoft is adopting new strategies to achieve much higher volume sales than has been attained historically. Microsoft has rolled out a Global Road to Repeatability (“GR2R”) program, through which Microsoft is assisting Serenic and other selected resellers to prepare to exploit the volume market by revamping products, pricing, lead generation, marketing, sales, deployment and implementation strategies. The GR2R model is inclusive of both on-premise and cloud based deployment. To simplify the purchase experience for new customers, Microsoft has introduced “Perpetual Product Licensing” with its latest release of Dynamics NAV. Historically, a customer was provided with numerous choices regarding inclusion or exclusion of functionality choices, which resulted in complexities to the purchase process. Now a prospective client will simply choose between a basic or comprehensive functionality solution, select the number of users required by their organization and select whether they wish to use an on-premise or cloud-based computing environment. Serenic has paralleled this strategy for its own products, which will be offered commencing with the next release of Serenic Navigator anticipated in the first half of calendar 2013.
Serenic’s business model has historically been closely aligned with and an integral part of Microsoft’s global eco-system of ERP reseller partners and service providers. Management believes that Serenic’s go-forward strategies should continue to align with Microsoft’s in order to maximize our opportunities by leveraging Microsoft’s global credibility and market presence within businesses.
Serenic began to enhance its historical business model in Q2 of Fiscal 2013 by supplementing the traditional on-premise deployment of Serenic Navigator to larger non-profits and NGOs with a version that management anticipates will have strong appeal in the SMB market. While management believes this evolution represents an exciting opportunity for Serenic in the longer term, it presents some challenges in the shorter term.
With respect to the SMB market for Serenic products, certain aspects of our historical operational model will need to be revamped to transition from the highly consultative and resource intensive approach to a more prescriptive and automated process that will enable Serenic to engage more efficiently with a higher volume of new customers while expending fewer resources. The volume regime mandates lower product and services pricing, higher automation with respect to marketing and sales processes, shorter sales cycles, and streamlined deployment, implementation and training cycles. It also mandates offering cloud-based solutions that are attuned to this fast growing segment of our markets.
Serenic’s Navigator and HCM products for SMB have been undergoing re-development during the past few years in anticipation of the imminent paradigm shift to Microsoft’s cloud-based technology and are essentially ready for deployment under Microsoft’s Azure platform. Azure is Microsoft’s new global software hosting program, which is expected to be released to market by mid calendar 2013. As we progress through adoption of GR2R, Serenic’s products will continue to be modified to simplify customer decision making and the deployment of our solutions for the cloud and volume models. As part of this initiative, Serenic has re-developed DonorVision as a new stand-alone, cloud based product based on Microsoft CRM, which is anticipated to be released to market within the next three months. To better address the larger Enterprise customers on a go-forward basis, Serenic Navigator will be enhanced with appropriate changes to incorporate new functionality requirements that have been identified for this market.
While much work to prepare for the volume model has already been completed, certain challenges still remain to be resolved. This transition is expected to be underway for a period of time that is currently unknown, although Management anticipates some momentum from cloud-based products within one or two quarters after Microsoft makes Azure generally available in the market. Until then, we anticipate that confusion amongst new customers about differences between historical and GR2R product strategies, pricing and services may delay some new customers who may elect to wait until all components of the GR2R model are fully operational before finalizing their buying decisions. Thus, a segment of Serenic’s new customer pipeline may temporarily continue to be “on hold” pending further progress in this regard. Management anticipates that future individual sales will be lower in price relative to historical averages, but also anticipates that revenue and profits overall will increase once the efficiencies of the GR2R strategy take hold and the volume of transaction increases.
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 nine months ended November 30, 2012 for more information
(2)The mathematical expression of the percentage change is not meaningful
The Company has continued to focus on two primary objectives during the quarter: to maximize organic revenue while implementing the above–noted significant transition, and to investigate opportunities to enhance shareholder value. During the quarter, international Serenic Navigator software license sales improved, while in North America, Serenic Navigator licenses slowed. HCM license sales remained essentially on par with the corresponding period last year. The Company announced to its prospective customers that its new version of Serenic Navigator will be made available early in calendar 2013, that it has revised pricing and a greatly simplified ordering process, and has features that are necessary for the Company’s transition to cloud and volume based business models as discussed in the previous section. Certain prospective clients appear to be waiting for the new version to be released before making their final buying decisions, and this was a contributing factor affecting new license sales and revenue during the quarter. Additionally, the Company faced increased competition in its market and is therefore taking steps to refine its sales methodology to improve initial customer engagement. Client services revenue was also lower in the quarter, as a result of lower demand for services being heavily dependent upon direct license sales. Maintenance revenues continued to grow during the quarter, due to the ongoing addition of new customers and the high renewal rate of existing maintenance contracts. Additionally, two of the Company’s larger customers elected to retroactively renew maintenance contracts and the recognition of the lapsed period revenue positively impacted revenue in the quarter. Recurring maintenance revenue has grown significantly during the past few years and now comprises approximately 53% of our annual revenues.
Expenses remained in line with expectations and budgets. The reduced revenue resulted in lower than planned gross profit which caused the Company to record a net loss and negative EBITDA in the quarter. Due to the operating loss in the quarter, the Company’s cash balances reduced to $3.4 million at quarter-end from $3.8 million at the beginning of the quarter.
The Company’s marketing group remained very active in generating new leads. Members of the marketing team, along with members of our senior management team participated in several seminars hosted by Microsoft, for the purpose of transitioning to the GR2R business model. Development of Serenic’s new cloud based donor management product based on Microsoft CRM continued during the quarter, and is anticipated to be released to market in the first half of calendar 2013. This new offering will be deployed as a cloud-based solution, and will be marketed both as an integrated module of Serenic Navigator and as a stand-alone application for organizations who may not yet be ready to upgrade their existing financial systems. Management believes that this product will compete strongly with prevalent high-volume products offered by certain competitors, and that sales may contribute significantly to our organic growth revenues.
The Company continued to investigate certain corporate development initiatives during the quarter, in accordance with the Company’s objective to enhance and realize value for shareholders. The Company also continued to purchase shares pursuant to its Normal Course Issuer Bid (“NCIB”) program, wherein 551,000 shares have been acquired for cancellation during the current fiscal year through January 3, 2013.
Management believes that Serenic’s pursuit of cloud and volume strategies, combined with its traditional sale of on-premise software licenses, represents the best opportunity to deliver maximum value for Serenic stakeholders over the longer term. Despite the short term challenges that we expect will continue during the next several quarters, Management believes that the longer term outlook for Serenic stakeholders remains very positive. Our strategy for the balance of Fiscal 2013 is to remain focused on maximizing revenues by operating our historical business model, while concurrently supplementing it with the GR2R strategy and continuing to manage resources and risks in a prudent manner.
From a corporate development perspective, we intend to continue to pursue potential scenarios to maximize value for our shareholders beyond what organic growth would produce. 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 current share price does not adequately reflect Serenic’s fair value, and we intend to 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.
Please refer to the full financial Q3, 2013 report filed on sedar.com for more information.