SEB Smart Employee Benefits Inc

Smart Employee Benefits Inc. (“SEB” or the “Company”) (TSXV: SEB) today reports its financial results for the first quarter ending February 28, 2021.

States John McKimm, President/CEO/CIO of Smart Employee Benefits Inc.:“The first quarter, 2021 is the fourth straight quarter of positive EBITDA and Adjusted EBITDA. The trailing twelve months EBITDA was a positive $1,465,061 and adjusted EBITDA was $2,551,503 for the same period. Continued positive growth is targeted for the remainder of fiscal 2021 and beyond. Adjusted EBITDA and EBITDA improved significantly for the first quarter 2021 over the comparable period the previous year. Consolidated gross margin percentage improved by 6.1% compared to the first quarter 2020 and 6.2% over fiscal year 2020. Operating costs including professional fees reduction initiatives led to the year over year improvement in cost structure and resulted in reductions of approximately $560,543 quarter over quarter, 2021 compared to 2020.

EBITDA improved by $245,075 in the first quarter, 2021 to a positive $173,175 from a negative $71,900. Adjusted EBITDA improved by $726,446 to a positive $670,121 from a negative $56,324 in the same period the previous year. The improvement is attributed to a combination of company wide cost reduction initiatives, and revenue growth in the Benefits Operations.

SEB has made significant investments in both the Technology and Benefits Solutions revenue streams since the Company’s inception. Building the business and technology infrastructure, while a time consuming and costly process, has created significant values with blue chip and government clientele and strong strategic partnerships in both revenue streams. As a result, the Technology revenue stream currently experienced a positive $859,524 of EBITDA in the first quarter 2021 versus $524,270 the same period the previous year. The Benefits revenue stream experienced a positive $108,402 EBITDA versus a positive $30,019 during the same time frame. This trend is expected to continue in 2021, as growth is experienced in both revenue streams. Over 65% of first quarter revenues come from clients with more than 5-year histories with the Company.

Technology Operations have been historically cash flow positive and net new business wins remain strong. The Benefits Operations are just now becoming cash flow positive after considerable investments in technology and business infrastructure. Both operations are expected to have continued strong sustainable growth going forward. Signed contracts (backlog, evergreen, option years), based on a 5-year time frame are valued at over $400M, of which over $100M is Benefits Operations. Over 80% of 2021 consolidated revenue targets are expected to be recurring over the next 4 years, with additional recurring revenue going out as long as 9 years. Since November 30, 2020, the Company has won approximately $42.8M of net new contracts, including option years, over 20% of which are Benefits Operations.

COVID-19 has led to increasing demand for our Benefits Operations solutions, including our “online medical care partnerships”. In our Technology Operations, a portion of our revenues in the first quarter were lower than forecast due to the expiry of the budget for one contract which affected the renewal of approximately $1.1M of Technology Operations revenues which are now back on track and will be fully recovered in 2021. Total Contract Values continue to grow and utilization of the contracts have gained strong traction as government and other businesses put in place more streamlined COVID-19 operating business processes. The majority of the Company’s business is largely multi-year managed services driven recurring revenue contracts for managing and operating mission critical infrastructure and systems for our clients. On a consolidated level, the company applied for COVID-19 government relief which offset the profitability shortfall from the delayed Technology Operation’s contracts during 2020. This allowed the Company to keep valuable full-time staff employed. The Benefits Operations business streams have experienced stable and growing revenue and were not eligible. It is not expected there will be material COVID-19 government relief in fiscal 2021.

The consolidated sales pipeline is the strongest it has ever been. The cost savings initiatives taken over the past several years were largely experienced in 2020 with minimal improvements continuing in 2021. We are anticipating improved consolidated financial performance in the 2021 fiscal year vs. 2020, particularly in the Benefits Operations.”

Quarterly Statements of Comprehensive Income (Loss) for the four quarters ended February 28, 2021

	Dec 1, 2020 to Feb 28, 2021			Sep 1, 2020 to Nov 30, 2020			June 1, 2020 to Aug 31, 2020			Mar 1, 2020 to May 31, 2020
Revenue	$	14,328,230		$	13,997,729		$	14,664,966		$	15,436,686
Cost of revenues		8,839,979			9,394,223			9,351,211			10,389,383
Gross Margin		5,488,251			4,603,506			5,313,755			5,047,303
Gross Margin as a % of Revenue		38.3%			32.9%			36.2%			32.7%
Salaries and other compensation costs		3,654,527			3,130,176			2,694,858			3,074,118
Office and general		882,781			785,138			1,362,538			1,327,462
Professional fees		280,821			420,482			162,581			125,830
Adjusted EBITDA		670,121			267,710			1,093,778			519,894
Investment loss (income)		-			(331,551)			-			5,807
Gain on sale of assets		-			-			-			-
Write down of assets		-			500,000			-			-
Change in fair value of contingent consideration		-			(390,800)			-			-
Share- based compensation		496,947			270,618			1,261			2,851
Transaction costs		-			(70,137)			601,386			64
EBITDA		173,175			289,581			491,133			511,172
Interest and financing costs		1,231,568			1,026,259			662,004			768,934
Income tax expense( recovery)		-			(1,182,834)			(18,178)			(48,374)
Depreciation and amortization		173,132			665,802			642,043			629,951
Depreciation of right-of-use assets		244,333			244,334			244,333			239,021
Net income (loss) from operations		(1,475,858)			(463,980)			(1,039,069)			(1,078,360)
Income (Loss) from assets held for sale, net of tax		-			-			-			-
Net comprehensive income (loss)	$	(1,475,858)		$	(463,980)		$	(1,039,069)		$	(1,078,360)
Attributed to non-controlling interest		(118,112)			(70,804)			(53,508)			(119,033)
Attributed to common shareholders		(1,357,746)			(393,176)			(985,561)			(959,327)
Total	$	(1,475,858)		$	(463,980)		$	(1,039,069)		$	(1,078,360)

Quarterly Statements of Comprehensive Income (Loss) for the four quarters ended February 29, 2020

	Dec 1, 2019 to Feb 29, 2020			Sep 1, 2019 to Nov 30, 2019			June 1, 2019 to Aug 31, 2019			Mar 1, 2019 to May 31, 2019
Revenue	$	16,520,977		$	17,326,306		$	16,974,918		$	17,675,479
Cost of revenues		11,198,629			11,689,312			11,403,091			12,224,037
Gross Margin		5,322,348			5,636,994			5,571,827			5,451,442
Gross Margin as a % of Revenue		32.2%			32.5%			32.8%			30.8%
Salaries and other compensation costs		3,805,798			3,520,013			4,008,953			4,427,102
Office and general		1,403,431			1,946,928			1,275,940			1,235,608
Professional fees		169,443			303,312			111,674			315,073
Adjusted EBITDA		(56,324)			(133,259)			175,260			(526,341)
Investment loss (income)		-			(181,424)			(34,077)			-
Gain on sale of assets		-			(153,461)			(1,894,514)			-
Write down of assets		-			-			-			-
Change in fair value of contingent consideration		-			(36,094)			-			-
Share- based compensation		15,576			11,903			35,675			63,151
Transaction costs		-			(117,856)			136,021			50,000
EBITDA		(71,900)			343,673			1,932,156			(639,492)
Interest and financing costs		725,580			783,599			994,527			608,487
Income tax expense( recovery)		(3,928)			(141,521)			(451,128)			(556)
Depreciation and amortization		633,171			744,460			623,319			1,120,003
Depreciation of right-of-use assets		161,077			-			-			-
Net income (loss) from operations		(1,587,800)			(1,042,865)			765,438			(2,367,426)
Income (Loss) from assets held for sale, net of tax		-			-			(93,799)			35,890
Net comprehensive income (loss)	$	(1,587,800)		$	(1,042,865)		$	671,639		$	(2,331,536)
Attributed to non-controlling interest		(241,535)			(50,105)			(50,776)			(184,035)
Attributed to common shareholders		(1,346,265)			(992,760)			722,415			(2,147,501)
Total	$	(1,587,800)		$	(1,042,865)		$	671,639		$	(2,331,536)

Comparative Consolidated Results for the first quarter of 2021 and 2020

	For the quarters ended
	Feb-21			Feb-20
Revenue	$	14,328,230		$	16,520,978
Cost of revenues		8,839,979			11,198,628
Gross Margin		5,488,251			5,322,350
Gross Margin as a % of Revenue		38.3%			32.2%
Operating costs		4,537,308			5,209,229
Professional fees		280,821			169,443
Adjusted EBITDA		670,121			(56,322)
Share based compensation		496,947			15,576
EBITDA	$	173,174		$	(71,898)
Net loss from operations	$	(1,475,858)		$	(1,587,800)

Reconciliation of Consolidated Net income (loss) to EBITDA for the first quarter of 2021 and 2020

		For the quarters ended
		28-Feb-21			29-Feb-20
Net loss from operations		$	(1,475,858)		$	(1,587,800)
Interest and financing costs			1,231,565			725,580
Income tax recovery			-			(3,928)
Depreciation and amortization			173,132			633,171
Depreciation of right-of-use assets			244,333			161,077
EBITDA			173,172			(71,900)
Share- based compensation			496,947			15,576
Adjusted EBITDA		$	670,119		$	(56,324)

RevenueDuring the first quarter, 2021 consolidated revenues from continuing operations was $14.328M compared to $16.521M in the prior year. In Technology Operations, revenues decreased by $3.050M, while the BO’s revenues increased by $0.872M. Most of the revenue reduction in the Technology Operations is due to a combination of non-recurring project revenue and delays in renewing contracts. These contracts affected by the pandemic are largely federal government delaying renewals. The contracts started to be renewed late in the fourth quarter and into the first quarter of 2021, as the government COVID-19 operating processes became more streamlined. The first quarter contracts did not renew as quickly as forecast. The majority of the revenue is occurring in the second quarter. Contract values remain high with over $34.583M of new wins in the Technology Operations in the first quarter. Benefits Operations wins increased by over $8.185M in the first quarter. Over 80% of 2021 forecast consolidated revenue streams are under contract for the next 4 years representing >90% for Benefits Operations and >70% for Technology Operations. The Company’s growth focus is on the higher margin revenue streams within the Benefits Solutions and Services, although Technology Solutions and Services is also experiencing solid growth. The operations have now been largely integrated, including sales and marketing initiatives. Finance and accounting and technology support and delivery were largely integrated in 2020 fiscal.

Gross Margins and Gross Margin %The Company generated $5.488M in Gross Margin during the first quarter, 2021 vs. $5.322M the previous year. Gross Margin % (“GM %”) was 38.5% in the first quarter 2021 compared to 32.2% in 2020. The Technology Operations GM were 21.3% vs. 15.5% the previous year due to new higher margin contracts. The Benefits Operations GM were 76.9% vs 96.3%, largely due to smaller GM in the online medical module sales. However, because the revenue mix included more higher margin Benefits Operations revenues in 2021, the consolidated GM % experienced growth of 6.1%.

Operational Costs:

• Salaries and Other Compensation - salaries decreased by $0.151M during the first quarter compared to the same period the prior year. The savings are a result of previous cost reduction initiatives and government subsidies. Additional savings are targeted for the remainder of 2021, largely through attrition, but not expected to be substantial.
• Office and General Costs – Normalized office and general costs from continued operations decreased by $0.521M during the first quarter, year over year. This cost reduction was across all divisions and expected to prevail throughout 2021.
• Professional Fees - Professional fees from continuing operations increased by $0.111M, in first quarter 2021, compared to 2020. Professional fees vary with the amount of financing or acquisition/disposition activity during the period. The majority of this increase is tied to audit fees.

Non-Cash Expenses:Non-Cash expenses include amortization, depreciation, share-based (options, RSUs) compensation and write down of assets. They increased by $0.105M compared to the previous year. The largest movement is in the amortization of intangible assets and has decreased by $0.457M. These costs are expected to be significantly lower in Fiscal 2021 as the significant amortization related to acquisition costs were fully amortized by the end of fiscal 2020. The amortization cost savings are offset by an increase of $0.083M in depreciation of right-of-use assets, and an increase of $0.481M in share-based compensation, which is largely due to a onetime expense in the quarter of 2021.

Interest and Financing Costs, Interest Accretion and Transaction Costs: Interest and financing costs, interest accretion and transaction costs from continuing operations increased by approximately $0.506M in 2021 compared to the same period in the prior year. The increase is primarily due to the increase in the interest accretion expense of $0.310M, which is associated with the refinancing completed on November 30th, 2020. Actual refinancing and transaction costs were $2.185M of which $0.531M were recognized in fiscal 2020 and the remainder $1.654M, capitalized and amortized over the term of the financing it relates to. Actual transaction costs were $nil in Q1 of 2021 and 2020. The interest and bank fees costs also contributed to an increase of $0.146M in Q1 2021, compared to Q1 2020 as a result of the refinancing. Q1 2021 interest on lease liabilities were $48K greater than Q1 2020.

KEY DEVELOPMENTS DURING AND SUBSEQUENT TO THE YEAR

Business Development to DateRelationships have been consolidated and grown with multiple new business partners. The Company’s Channel Partner strategy has gained strong traction with more than a dozen active negotiations with Channel Partner opportunities including brokerage organizations, MGAs, TPAs, insurers, unions, and corporate entities. Several LOIs and LOAs have been executed with revenue growth expected in 2021 and beyond from the Channel Partner business initiatives. Channel Partner “White Label TPA” agreements have been recently signed with organizations representing over 120,000 plan members. The Company has gained significant traction with its online medical care partnership with EQ Care, adding clients representing over 150,000 plan members. Additionally, RFP wins added over 50,000 plan members in the last four months of 2020.

The Company’s RFP sales pipeline is the largest it has ever been, in both corporate and government opportunities, for both technology and benefits driven revenue streams.

States John McKimm, President/CEO/CIO of Smart Employee Benefits Inc.:“SEB has been in an investment mode since its inception in both the Technology Operations and more significantly in the Benefits Operations. The Technology Operations, historically, has strong profitability. The Benefits Operations has required significant investment, the majority of which has been expensed. This has penalized historical cash flow, net earnings and EBITDA. Going forward, the capital expenditures are minimal, the cost structure from acquisitions and integrations has been largely realigned and both the Technology Operations and Benefits Operations are anticipated to show strong growth and positive cash flow in 2021 and beyond. Today over 80% of every new GM dollar will go to cash flow and EBITDA in both revenue streams. The contract values including backlog, option years and evergreen remain strong, with the Company continually renewing or winning sufficient new business to replace annual revenues. Over 95% of 2021 targeted revenues are under contract with over 80% of 2021 revenues under contract for the next 4 years. Revenues under contract go out as long as 9 years. The Company has established strong traction in multiple new business initiatives and is well positioned to win new business going forward. The Company has won over $42.7M of net new business since November 30, 2020.”  

Annual Meeting The Company’s annual meeting of shareholders (the “Meeting”) is scheduled to be held virtually on May 27, 2021 at 4:00 pm (Toronto time). The record date has been set as April 22, 2021 to determine the shareholders entitled to receive notice and vote at the Meeting. Further details concerning the virtual Meeting are included in the management information circular dated April 26, 2021 that will be filed under the Company’s profile at www.sedar.com and mailed to shareholders.

CONFERENCE CALL DETAILS

Date/Time: Tuesday, May 4 at 11:00 AM ETCanada & USA Toll Free Dial In: 1-800-319-4610Toronto Toll Dial In: 1-416-915-3239Callers should dial in 5-10 minutes prior to the scheduled start time and simply ask to join the call. 

Webcast Link access at http://services.choruscall.ca/links/seb20210504.html

Conference Call Replay Numbers:
Canada & USA Toll Free:	1-855-669-9658
Code:	6834 followed by the # sign
Replay Duration: Available for one week until end of day Tuesday, May 11, 2021.

About Smart Employee Benefits Inc. (“SEB”):SEB is a proven provider of leading-edge IT and benefits processing software, solutions and services for the Life and Group benefits marketplace and government. We design, customize, build and manage mission critical, end-to-end technology, people and infrastructure solutions using SEB’s proprietary technologies and expertise and partner technologies. We manage mission critical business processes for over 150 blue chip and government accounts, nationally and globally. Over 90% of our revenue and contracts are multi-year recurring revenue streams contracts related to government, insurance, healthcare, benefits and e-commerce. Our solutions are supported nationally and globally by over 600 multi-certified technical professionals in a multi-lingual infrastructure, from 8 offices and 2 affiliated offices across Canada and globally.

Our solutions include both software and services driven ecosystems including multiple SaaS solutions, cloud solutions & services, managed services offering smart sourcing (near shore/offshore), managed security services, custom software development and support, professional services, deep systems integration expertise and multiple specialty practice areas including AI, CRM, BI, Portals, EDI, e-commerce, digital transformation, analytics, project management to mention a few. The Company has more than 20 strategic partnerships/relationships with leading global and regional technology and consulting organizations.

Forward-looking statementsThis news release is intended for information purposes only. Statements made in this news release may contain "forward-looking" information about the company's future business prospects. These statements while expressed in good faith and believed to have a reasonable basis are subject to risk and uncertainties that could cause actual results to differ materially from those set forth or implied by such forward looking statements. Investors should consult a professional advisor before making any investment decision.

Neither TSX Venture Exchange Inc. nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange Inc.) accepts responsibility for the adequacy or accuracy of this release.

All figures are in Canadian dollars unless otherwise stated.

Media and Investor ContactJohn McKimmPresident/CEO/CIOOffice (888) 939-8885 x 2354Cell (416) 460-2817john.mckimm@seb-inc.com