Serenic Reports Pending Sale of Serenic Subsidiaries and Its
Financial Results for the Year Ended February 28, 2014
EDMONTON, ALBERTA--(Marketwired - Jun 26, 2014) - Serenic
Corporation (the "Company" or "Serenic") (TSX-VENTURE:SER), an
international software developer specializing in integrated
financial management and human capital management ("HCM") solutions
for Non-Profit ("NFP") organizations, government agencies and
Microsoft Dynamics NAV users, reports the pending sale of Serenic
subsidiaries and announces its financial results for the three
months and year ended February 28, 2014.
PENDING SALE OF SERENIC SUBSIDIARIES
On June 26, 2014, the Company entered into a definitive
agreement to sell the shares of Serenic Canada Inc., Serenic
Software Inc. and Serenic Software (EMEA) Limited (collectively,
the "SOC's") to Sylogist Ltd. The aggregate purchase price to be
paid by Sylogist for the purchased shares is $11,880,431 less net
liabilities of these subsidiaries to be assumed by Sylogist which
are estimated to be approximately $3,880,431 to yield estimated
cash of $8,000,000 to Serenic. The estimated net liabilities will
be adjusted to actual on the closing date, which is forecasted to
be July 25, 2014. Serenic will retain all cash and cash equivalents
on the closing date which is estimated to be $11,000,000 including
the proceeds from the sale. The use of this cash has not yet been
made final; however, it is contemplated that an estimated aggregate
amount of $7,500,000 (or approximately $0.45 per share on a fully
diluted basis) would be distributed to shareholders. This would
consist of an amount estimated to be $4,000,000 or approximately
$0.24 per common share to be paid through a reduction of the
paid-up capital of the Corporation, subject to TSX Venture Exchange
approval; and an amount estimated to be $3,500,000 or approximately
$0.21 per common share held, to be paid as a special dividend,
subject to TSX Venture Exchange approval. The balance of the funds,
net of costs associated with closing of the transaction and
estimated income tax expense, would be retained in Serenic to fund
further development of Serenic's Cloud business, which is not part
of the assets being sold to Sylogist. A further press release will
be issued with respect to the timing and procedure of the cash
distribution. Serenic intends to maintain its listing on the TSX
Venture Exchange, subject to maintaining the Continuing Listing
Requirements.
Closing of the transaction is subject to the approval of the
Serenic shareholders to be voted upon at the Annual General and
Special. Shareholders' meeting to be held on July 22, 2014, the
receipt of all necessary regulatory and stock exchange approvals
and satisfaction of certain other closing conditions which are
customary in transactions of this nature. Please see the Press
Release "Sylogist to Acquire Serenic Operating Companies" dated
June 26, 2014 as filed on SEDAR for further details of this
transaction.
Serenic intends to rebrand and form a new operating division
referred to as "Cloudco", which will retain the SOC's existing
intellectual property associated with Serenic's cloud technology.
Sylogist will grant a royalty bearing OEM license involving certain
of the SOC's products to Cloudco. Cloudco will re-brand and market
these solutions to new customers segments that the SOCs have not
historically pursued. The parties intend to work non-competitively
to pursue new volume markets for mutual benefit.
Financial results are summarized as follows:
|
Three months ended February 28 |
Year ended February 28 |
|
2014 |
2013 |
Increase / (Decrease) |
2014 |
2013 |
Increase / (Decrease) |
|
$ |
$ |
% |
$ |
$ |
% |
Revenue |
2,858,758 |
3,905,255 |
(26.8) |
11,333,123 |
12,071,865 |
(6.1) |
Net (loss) income |
(1,158,329) |
575,636 |
(301.2) |
(2,048,306) |
39,110 |
(5,337.3) |
Basic and diluted (loss) income per share |
(0.08) |
0.04 |
(300.0) |
(0.14) |
0.00 |
(14,100.0) |
Adjusted EBITDA (1) |
(600,144) |
778,151 |
177.1 |
(1,230,928) |
547,153 |
325.0 |
Adjusted EBITDA as % of sales |
(21.0) |
19.9 |
205.4 |
(10.9) |
4.5 |
339.6 |
Weighted average common shares outstanding - basic |
14,448,208 |
14,511,647 |
|
14,448,208 |
14,732,450 |
|
Weighted average common shares outstanding - diluted |
14,448,208 |
14,518,081 |
|
14,448,208 |
14,815,670 |
|
(1) Adjusted EBITDA represents earnings before interest, taxes,
depreciation, amortization, stock option expense and impairment
provisions. Please review the Serenic Management Discussion and
Analysis ("MD&A") for the Three months and Year ended February
28, 2014 for more information.
REVIEW OF FISCAL 2014
Although Serenic's business continued to operate as a
consolidated entity during Fiscal 2014, management believes it is
useful to review Serenic's financial information from the
perspective of divisional profit centers. This is the measurement
being adopted in Fiscal 2015 and which was not previously used to
assess performance and allocate resources. Serenic has reorganized
its business into three operational, profit-center business-units
for Fiscal 2015:
- the NFP business unit that provides on-premise perpetual
license solutions for mid to large enterprise level not-for-profit
organizations and certain public sector organizations;
- the HCM business unit that provides on-premise human capital
management license products to small and medium business ("SMB")
customers that are not-for-profit, public sector and for-profit
organizations; and
- the "Cloud" business unit that is developing versions of the
Company's software solutions for deployment as Software as a
Service ('SaaS") solutions, in alignment with Microsoft's volume
and Cloud strategies.
Serenic's Cloud division has developed technology that enables
applications based on the Microsoft's Dynamics NAV ERP and CRM
platforms to operate on Microsoft's new Cloud technology platform
known as Azure. Cloud technology facilitates access and use of
computer applications by any computer device that is
browser-capable, without the requirement for such programs and data
to be installed on the device. Serenic's Cloud solutions can
include integration with Microsoft Office 365 and other cloud
products.
Whereas the NFP and HCM divisions are mature businesses that
management expects to continue to operate profitably, the Cloud
division is still in a pre-revenue stage, and will sustain
operating losses until software subscription fees paid by new
customers for the new products offset the expenses being funded
from the Company's cash. The two mature divisions both currently
realize greater than 50% of their revenues from recurring software
maintenance contracts, which are purchased by customers to obtain
software updates and associated services to keep their software
solutions current. Although total revenue growth declined in Fiscal
2014 from the prior year by about 6%, the compound annual revenue
growth rate as measured over the past eight years remains positive,
and is indicative of a growing business.
The following table represents the financial results of the
Company's three business units during Fiscal 2014, using the
perspective of divisional business units which is being adopted in
Fiscal 2015 and which was not previously used by management to
measure performance and to allocate resources.
Serenic Corporation Fiscal 2014 |
HCM |
NFP |
Cloud |
|
Consolidation
adjustments |
|
Fiscal
2014 |
|
Revenue |
$ |
1,694,448 |
$ |
9,811,046 |
$ |
73,130 |
|
$ |
(245,501 |
) |
$ |
11,333,123 |
|
Direct costs |
|
291,163 |
|
3,909,632 |
|
51,838 |
|
|
(245,501 |
) |
|
4,007,132 |
|
Gross Profit |
|
1,403,285 |
|
5,901,414 |
|
21,292 |
|
|
- |
|
|
7,325,991 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personnel |
|
1,041,633 |
|
4,021,029 |
|
1,411,702 |
|
|
- |
|
|
6,474,364 |
|
|
Marketing |
|
39,708 |
|
450,820 |
|
300,547 |
|
|
- |
|
|
791,075 |
|
|
General and administrative |
|
159,854 |
|
584,435 |
|
174,387 |
|
|
- |
|
|
918,676 |
|
Total expenses |
|
1,241,195 |
|
5,056,284 |
|
1,886,636 |
|
|
- |
|
|
8,184,115 |
|
Corporate expenses |
|
|
|
|
|
|
|
|
|
|
|
372,804 |
|
Adjusted EBITDA (1) |
$ |
162,090 |
$ |
845,130 |
$ |
(1,865,344 |
) |
$ |
- |
|
$ |
(1,230,928 |
) |
The legacy HCM and NFP divisions contributed positively to the
overall financial results. We continued to derive revenue from the
legacy divisions by increasing new customer adds, and by providing
updates, maintenance and support services to our customer base.
Recurring revenue from existing customers accounted for more than
half of the gross revenue recorded in Fiscal 2014; however, the
Company's significant investment into the Cloud project during
Fiscal 2014 greatly reduced EBITDA and earnings, and resulted in
the loss recorded for the year.
Revenues for the current year were $11,333,123 a decline of 6%
from revenue of $12,071,865 in Fiscal 2013. Gross profit was
$7,325,991 versus $8,209,696 in the prior fiscal year, primarily
due to decreased license sales revenue from Serenic's reseller
partner channel. In the current year, HCM license sales grew by
22.7%, as a result of the typically consistent pace of payroll and
other HCM product licenses and sales pertaining to the new advanced
human resource information system ("HRIS") solution. An initiative
was launched during the year to integrate an OEM-licensed HRIS
solution with Serenic's payroll products for both Serenic Navigator
and Dynamics NAV users, with the expectation that the fully
integrated solution will be released to market in June, 2014.
While revenue from Cloud products was nominal during the year,
we started to showcase our Cloud solutions during Fiscal 2014 in
various webinars which have, in management's opinion, yielded good
attendance and interest. Our sales team successfully completed the
first sale of a prescriptive version of Serenic Navigator, which
will be implemented using a fixed-price, streamlined methodology.
This lean Cloud deployment methodology is different from the highly
consultative sale and implementation methodology that typifies
Serenic's historical Enterprise level business and it is considered
essential to allow Serenic to be competitive in the SMB volume
markets. The first of the new Cloud ERP products targeted at the
SMB space, Navigator Express, was released in December,
2013. The objective is to allow new customers to self-initiate a
trial installation of the entry-level Navigator solution on an
Azure cloud server using a "Click-Try-Buy" process, import
their own financial records, work with the trial version for a
period of time, and subsequently purchase the product - all of
which can be accomplished with little or no interaction with
Serenic personnel.
In Fiscal 2014, the Company recorded a non-cash impairment
charge of $421,376 related to certain of its intellectual
properties, and capitalized $169,257 less costs than in Fiscal
2013. Expenses included certain costs associated with the
reorganization to operate as segmented business units in Fiscal
2015, including reduction in personnel, the engagement of
independent vendors contracted to work on Cloud initiatives, and
for legal and other matters. The combination of the reduced gross
profit and increased expenses resulted in the Company recording a
net loss of $2,048,306 in Fiscal 2014 compared to the net income of
$39,110 earned in the prior year
Management also continued to actively explore strategic
corporate alternatives, with the objective being to potentially
increase and unlock shareholder value. During the year, the Company
purchased 536,500 of its shares for cancellation under its Normal
Course Issuer Bid.
Cash resources as at February 28, 2014 were $3,318,602, a
reduction of $1,013,976 from cash resources of $4,332,578 as at
February 28, 2013. The net loss was primarily responsible for the
reduction of cash. Management believes the cash resources continue
to be adequate for the Company to operate in its anticipated
manner.
REVIEW OF 2014 FOURTH QUARTER
Total revenue for the quarter was $2.9 million, a decrease of
26.8% from revenue of $3.9 million in the same quarter last year.
Software license sales decreased by $1.3 million due to a large
sale having been recorded in Q4 of 2013 and no sales of similar
magnitude being recorded in this fiscal year. HCM license sales
were on par with last year. Services revenue increased $100,000 or
15.1% as the combination of the HRIS system implementations, Total
Care Plan amortization and an increase in SaaS or cloud monthly
fees boosted revenues. Software maintenance contract revenue
increased by 13.9% to $200,000 due to high contract renewal rates
with existing customers and new clients being added. In total,
revenues were assisted by a strengthening U.S. dollar which had the
effect of increasing revenues by approximately $206,000.
Gross profit decreased by $996,224 due to the decrease in
software license revenues and their related gross margin.
Expenses increased by $822,990 or 39.5%. A non-cash impairment
charge of $421,376 was recorded in the quarter due to the non-cash
impairment charge related to the write down in value of internally
generated software. The higher U.S. dollar increased this cost
category by approximately $114,000. At year-end, as the Company
reorganized to implement its Fiscal 2015 strategies, the Company
reduced its work force and a severance provision was accrued.
Incentive pay reduced sharply in the period and sales and marketing
costs were flat quarter over quarter.
Due to the reduced sales and gross profit, the increase in
expenses, and the non-cash impairment charge, the net income of
$575,636 recorded in the fourth quarter of 2013 reduced to a net
loss of $1,158,329 in the current quarter. Adjusted EBITDA
decreased by $1,378,295 due to the net loss experienced this
quarter.
OUTLOOK (PENDING THE CLOSING OF THE SALE OF SERENIC
SUBSIDIARIES)
For Fiscal 2015, Serenic's operational teams have been
reorganized into the legacy NFP and HCM business units in order to
optimize their financial performance and provide adequate funding
for development of the Cloud unit. Notwithstanding the continued
investment in Cloud, Management and the Board have budgeted for a
significant improvement in financial performance and EBITDA
contribution on a consolidated basis during Fiscal 2015. The legacy
business units have been streamlined to operate more efficiently
and profitably, and as much of the foundational work in the Cloud
division has been completed, greater revenue generation from Cloud
division is anticipated to occur during the latter portion of
Fiscal 2015, which we anticipate will reduce the losses incurred by
the Cloud project.
Serenic will continue to nurture and grow its traditional niche
market customers by selling and deploying enhanced versions of
historical products to those organizations that wish to continue to
embrace on-premise perpetual license solutions. Concurrently, we
will provide a bridge to the SaaS world for those NFP and HCM
customers who choose to transition to Cloud-deployed solutions. As
well, we intend to investigate new volume niche markets that are
now addressable with our new Cloud products, essentially using
Click-Try-Buy and other volume-enabling features.
Other potential opportunities with Cloud may be investigated,
including the provision of Serenic's underlying Cloud technology to
other Dynamics NAV vendors who require technology to migrate their
ERP solutions to the Microsoft Cloud. Serenic has enjoyed a close
and beneficial working relationship with Microsoft for more than
ten years, and expenditures to adopt Microsoft's Cloud strategies
have given Serenic a competitive advantage and are estimated to
have exceeded $3 million to date. Management believes that
developing this bridge to Microsoft Cloud is not easily repeatable
by or feasible for most small software companies to pursue,
particularly by those who had not yet committed to this development
strategy and are now lagging from a technology perspective.
The Company is also expanding its product offerings through
collaboration with other software vendors, including an alliance
with a U.S. based organization that focuses on donor management for
faith based organizations. This donor management application and
the HRIS offering have both yielded initial success in Fiscal 2014
and management believes they bode well for future opportunity to
increase revenues and contribution.
Regarding corporate development matters, management continues to
believe that the market capitalization and share price of the
Company does not adequately reflect Serenic's fair value,
particularly considering the results of our mature software
divisions, the solid value of our loyal customer base, the high
ratio of recurring revenue we experience, and our technological
leadership with respect to Cloud for Dynamics NAV products. If the
pending sale of Serenic subsidiaries noted above does not close, we
intend to continue to investigate and pursue potential alternatives
to optimize and unlock shareholder value, and remain confident that
our strategies will ultimately generate greater value for our
shareholders.
Interested parties are urged to read Serenic's audited
consolidated Financial Statements and Management's Discussion and
Analysis for the year ended February 28, 2014 which can be located
on Sedar.com.
About Serenic Corporation
Serenic Corporation publishes mission-critical software products
for not-for-profits, educational institutions and governments. The
Company's products are based on leading application and technology
platforms from Microsoft, including Dynamics NAV, SQL Server, and
.NET, and are distributed in North America and internationally
through value-added resellers and a direct sales organization.
Serenic Corporation is the exclusive developer of human resource
management and payroll products for Microsoft Dynamics NAV ERP
users in North America. Serenic has offices in Edmonton, Alberta
and Denver, Colorado and staff located in Canada, England, Africa
and throughout the USA.
ON BEHALF OF THE BOARD OF DIRECTORS
SERENIC CORPORATION
Dwayne Kushniruk, Chairman
Forward Looking Statements
This release contains forward-looking information within the
meaning of applicable securities laws ("forward-looking
statements") that relate to Serenic's products and potential
benefits derived therefrom; and other matters such as those related
to the pending sale of Serenic subsidiaries. Such forward-looking
statements involve known and unknown risks, uncertainties,
assumptions and other factors that may cause the actual results,
performance or achievements to differ materially from the
anticipated results, performance or achievements or developments
expressed or implied by such forward-looking statements. Such
factors include, but are not limited to, the factors and
assumptions discussed in the section entitled, "Risks and
Uncertainties" in Managements' Discussion and Analysis filed with
the Alberta and British Columbia Securities Commissions. Readers
are cautioned not to place undue reliance upon any such
forward-looking statements, which speak only as of the date made.
We do not undertake or accept any obligation or undertaking to
release publicly any updates or revisions to any forward-looking
statements to reflect any change in our expectations or any change
in events, conditions or circumstances on which any such statement
is based.
The TSX Venture Exchange has not reviewed and does not accept
responsibility for the adequacy or accuracy of this release.
Serenic CorporationDwayne Kushnirukdkushniruk@serenic.comSerenic
CorporationPaul JohnstonCFO1-877-426-5385 x
509pjohnston@serenic.comInvestor RelationsCantech
CommunicationsNick WaddellToll free: (877) 737-3642
x144ir@serenic.com
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