NZX-listed MYOB partner Enprise has slashed goodwill in its Kilimanjaro business by $2.4 million as a dispute over reseller margins rolls on.
Enprise's board also reviewed the goodwill of the iSell business, which supplies cloud business systems to IT resellers, writing-off $1M in the half to 31 December 2022 due to slower than expected customer acquisition, unexpected delays in the release of new features and changes in discount rates.
Kilimanjaro's revenue from software and licenses decreased by $0.31M in the half-year due to the reduction in MYOB Exo margins that Enprise is now challenging in court.
Enprise launched legal proceedings against MYOB on 16 December, alleging breach of contract in relation to what Enprise described as "the unilateral decision" to reduce the MYOB Exo margins Kilimanjaro previously received.
MYOB had changed its enterprise strategy from a purely channel partner model to a combination of direct and channel, Enprise CEO Elliot Cooper said. This caused some disruption, further exacerbated as MYOB announced the acquisition of some of its channel partners.
"Kilimanjaro faces significant challenges with MYOB's entry directly into our markets," Cooper told investors. "Kilimanjaro has responded by executing a comprehensive new management plan, aimed at restoring profitability to our desired levels, accounting for the reduced MYOB Exo margins.
"Kilimanjaro believes that MYOB cannot satisfy the demand for the Advanced/ Acumatica product without channel partners, and therefore remain optimistic that these differences can be settled."
Despite the dispute, Enprise told shareholders Kilimanjaro's revenue had held up well. The business was able to close the calendar year with new license sales for MYOB across A/NZ of just over $2M, including the largest MYOB Advanced/ Acumatica contract in the region..
"This year we have further invested in people, processes and systems to address efficiency, and to fortify the business in the longer term," the company said today.
Charge-out rates were increased across all service revenue streams and an increase in MYOB subscription rates would also flow through to Enprise's bottom line. A large proportion of that revenue was also recurring or contracted.
Recurring revenue grew three per cent, despite the reduction in margin during the period, as the mix of clients between MYOB Advanced and MYOB Exo changed. Contracted revenue grew 26 per cent during the period, mainly due to increases in support contracts and hosting fees.
Despite that, Enprise said Kilimanjaro's future with MYOB would be largely dictated by the final resolution of the dispute.
"Kilimanjaro considers it prudent to diversify and the management team is actively investigating options," Cooper said.
The direct entry of MYOB had "de-stabilised the partner channel", and further consolidation could be expected. If Kilimanjaro was not successful in challenging the legality of MYOB’s retrospective changes to the MYOB Exo margins, further reductions in MYOB Exo margins were likely to require more drastic changes to Kilimanjaro's business model.
In other parts of the business, 75 per cent-owned iSell, which provides cloud business systems to the IT reseller market, recorded annual recurring revenue increased 12 per cent to $0.54M and total revenue $0.56M, up 10 per cent.
The unit's focus was on simplifying the onboarding process to allow new customers to perform more self service. A new version of iSell's IT Quoter software, featuring enhanced integration capability, was expected to be available in the first quarter of 2023.
This included integration to Ingram Micro's CloudBlue PSA which in turn integrated sales, operations and finance in one system. Integration with Datagate had also been completed which would enable further synergies between the related companies.
ISell sold three new sites with this integration in January 2023.
Datagate Innovation, a telecom billing system provider for MSPs, grew its annual recurring revenue to over $2.7M, up 34 per cent. Growth in the USA was 40 per cent.
Enprise participated in a capital raising for the business in November 2022, taking up $0.23M of the total issue of $0.75M.
Cloud PBX unit Vadacom reported annual recurring and contracted revenue of $1.7M for the nine months ended 31 December 2022. It recently released a new cloud PBX phone system "Next Voice" to new and existing customers both directly and through resellers.
There were 1645 users of "Next Voice" at 31 December 2022, up 189 per cent from 2021.
Enprise told investors its banker, BNZ, had provided a waiver of the 30 June 2022 banking interest cover and leverage covenant, and a modification to the group’s banking covenants last September.