Smart Employee Benefits Inc. (“SEB” or the “Company”) (TSXV: SEB)
today reports its financial results for the second quarter ending
May 31, 2021.
States John McKimm, President/CEO/CIO of
Smart Employee Benefits Inc.:“The second quarter, 2021 is
the fifth consecutive quarter of positive EBITDA and Adjusted
EBITDA. The trailing twelve months EBITDA was a positive $1.662M
and adjusted EBITDA was $3.047M 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
second quarter 2021 over the comparable period the previous year.
Adjusted EBITDA for Q2/21 was $1.015M vs. $0.520M in Q2/20. EBITDA
was $0.708M vs. $0.511M for the same periods. Consolidated gross
margin percentage improved by 4.2% compared to the second quarter
2020 and 5.2% over the same 6-month period in fiscal 2020.
Operating costs were up marginally for the quarter, but down
$0.504M for the first half, year over year.
EBITDA improved by $196,676 in the second
quarter, 2021 to a positive $707,848 from $511,172 the previous
year. Adjusted EBITDA improved by $495,456 to a positive $1,015,350
from a positive $519,894 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 $2,041,636 of Adjusted EBITDA and positive $1,920,418
EBITDA in the first half of fiscal 2021 versus $1,730,401 the same
period the previous year. The Benefits revenue stream experienced a
positive $971,562 Adjusted EBITDA and $762,881 EBITDA versus a
positive $29,179 during the same time frame of the previous year.
This trend is expected to continue in the second half of fiscal
2021, as growth is experienced in both revenue streams. Over 60% of
first half 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 $68.0M of net new contracts, including option years,
over 25% 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 by end of 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. The company has received
approximately $0.570M of COVID relief in the first half of 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 five quarters ended May 31, 2021
|
|
Mar 1, 2021 to May 31, 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 |
$ |
16,059,834 |
|
$ |
14,328,230 |
|
$ |
13,997,729 |
|
$ |
14,664,966 |
|
$ |
15,436,686 |
|
|
|
|
|
|
|
Cost of
revenues |
|
10,130,214 |
|
|
8,839,979 |
|
|
9,394,223 |
|
|
9,351,211 |
|
|
10,389,383 |
|
Gross
Margin |
|
5,929,620 |
|
|
5,488,251 |
|
|
4,603,506 |
|
|
5,313,755 |
|
|
5,047,303 |
|
Gross Margin as a % of
Revenue |
|
36.9 |
% |
|
38.3 |
% |
|
32.9 |
% |
|
36.2 |
% |
|
32.7 |
% |
|
|
|
|
|
|
Salaries and other
compensation costs |
|
3,720,755 |
|
|
3,654,527 |
|
|
3,130,176 |
|
|
2,694,858 |
|
|
3,074,118 |
|
Office and general |
|
848,522 |
|
|
882,781 |
|
|
785,138 |
|
|
1,362,538 |
|
|
1,327,462 |
|
Professional fees |
|
344,994 |
|
|
280,821 |
|
|
420,482 |
|
|
162,581 |
|
|
125,830 |
|
Adjusted
EBITDA |
|
1,015,349 |
|
|
670,121 |
|
|
267,710 |
|
|
1,093,778 |
|
|
519,894 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment loss (income) |
|
104,164 |
|
|
- |
|
|
(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 |
|
121,339 |
|
|
496,947 |
|
|
270,618 |
|
|
1,261 |
|
|
2,851 |
|
Transaction costs (recovery) |
|
81,999 |
|
|
- |
|
|
(70,137 |
) |
|
601,386 |
|
|
64 |
|
EBITDA |
|
707,847 |
|
|
173,175 |
|
|
289,581 |
|
|
491,133 |
|
|
511,172 |
|
|
|
|
|
|
|
Interest and financing
costs |
|
1,084,914 |
|
|
1,231,568 |
|
|
1,026,259 |
|
|
662,004 |
|
|
768,934 |
|
Income tax expense
(recovery) |
|
943 |
|
|
- |
|
|
(1,182,834 |
) |
|
(18,178 |
) |
|
(48,374 |
) |
Depreciation and
amortization |
|
175,496 |
|
|
173,132 |
|
|
665,802 |
|
|
642,043 |
|
|
629,951 |
|
Depreciation of right-of-use assets |
|
236,365 |
|
|
244,333 |
|
|
244,334 |
|
|
244,333 |
|
|
239,021 |
|
Net income (loss) from
continuing operations |
|
(789,871 |
) |
|
(1,475,858 |
) |
|
(463,980 |
) |
|
(1,039,069 |
) |
|
(1,078,360 |
) |
|
|
|
|
|
|
Loss
from assets held for sale, net of tax |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
Net comprehensive income (loss) |
$ |
(789,871 |
) |
$ |
(1,475,858 |
) |
$ |
(463,980 |
) |
$ |
(1,039,069 |
) |
$ |
(1,078,360 |
) |
|
|
|
|
|
|
Attributed to non-controlling
interest |
|
47,461 |
|
|
(118,112 |
) |
|
(70,804 |
) |
|
(53,508 |
) |
|
(119,033 |
) |
Attributed to common shareholders |
|
(837,332 |
) |
|
(1,357,746 |
) |
|
(393,176 |
) |
|
(985,561 |
) |
|
(959,327 |
) |
Total |
$ |
(789,871 |
) |
$ |
(1,475,858 |
) |
$ |
(463,980 |
) |
$ |
(1,039,069 |
) |
$ |
(1,078,360 |
) |
Comparative Consolidated Results for the
first half of 2021 and 2020
|
|
|
|
|
|
|
|
|
3 months ended May 31 |
|
6 months ended May 31 |
|
|
May-21 |
May-20 |
|
May-21 |
May-20 |
Revenue |
|
$ |
16,059,834 |
|
$ |
15,436,686 |
|
|
$ |
30,388,064 |
|
$ |
31,957,663 |
|
Cost of
revenues |
|
|
10,130,214 |
|
|
10,389,383 |
|
|
|
18,970,194 |
|
|
21,588,012 |
|
Gross Margin |
|
|
5,929,620 |
|
|
5,047,303 |
|
|
|
11,417,870 |
|
|
10,369,651 |
|
Gross Margin as a % of
Revenue |
|
|
36.9 |
% |
|
32.7 |
% |
|
|
37.6 |
% |
|
32.4 |
% |
|
|
|
|
|
|
|
Operating costs |
|
|
4,569,277 |
|
|
4,401,580 |
|
|
|
9,106,584 |
|
|
9,610,810 |
|
Professional fees |
|
|
344,994 |
|
|
125,829 |
|
|
|
625,815 |
|
|
295,272 |
|
Adjusted
EBITDA |
|
|
1,015,349 |
|
|
519,894 |
|
|
|
1,685,471 |
|
|
463,569 |
|
|
|
|
|
|
|
|
Investment income |
|
|
104,164 |
|
|
5,807 |
|
|
|
104,164 |
|
|
5,807 |
|
Share-based compensation |
|
|
121,339 |
|
|
2,851 |
|
|
|
618,286 |
|
|
18,427 |
|
Transaction costs |
|
|
81,999 |
|
|
64 |
|
|
|
81,999 |
|
|
64 |
|
EBITDA |
|
$ |
707,847 |
|
$ |
511,172 |
|
|
$ |
881,022 |
|
$ |
439,271 |
|
|
|
|
|
|
|
|
Net loss from operations |
|
$ |
(789,871 |
) |
$ |
(1,078,360 |
) |
|
$ |
(2,265,729 |
) |
$ |
(2,666,160 |
) |
Reconciliation of Consolidated Net
Income (loss) to EBITDA for the first half of 2021 and
2020
|
|
3 months ended May 31 |
|
6 months ended May 31 |
|
|
May-21 |
May-20 |
|
May-21 |
May-20 |
Net loss from
operations |
|
$ |
(789,871 |
) |
$ |
(1,078,360 |
) |
|
$ |
(2,265,729 |
) |
$ |
(2,666,160 |
) |
Interest and financing
costs |
|
|
1,084,914 |
|
|
768,934 |
|
|
|
2,316,482 |
|
|
1,494,512 |
|
Income tax expense
(recovery) |
|
|
943 |
|
|
(48,374 |
) |
|
|
943 |
|
|
(52,302 |
) |
Depreciation and
amortization |
|
|
175,497 |
|
|
629,951 |
|
|
|
348,628 |
|
|
1,263,122 |
|
Depreciation of right-of-use assets |
|
|
236,365 |
|
|
239,021 |
|
|
|
480,698 |
|
|
400,098 |
|
EBITDA |
|
|
707,847 |
|
|
511,172 |
|
|
|
881,022 |
|
|
439,271 |
|
Investment income |
|
|
104,164 |
|
|
5,807 |
|
|
|
104,164 |
|
|
5,807 |
|
Share- based compensation |
|
|
121,339 |
|
|
2,851 |
|
|
|
618,286 |
|
|
18,427 |
|
Transaction costs |
|
|
81,999 |
|
|
64 |
|
|
|
81,999 |
|
|
64 |
|
Adjusted EBITDA |
|
$ |
1,015,349 |
|
$ |
519,894 |
|
|
$ |
1,685,471 |
|
$ |
463,569 |
|
Revenue IncreasedDuring the
second quarter, 2021 consolidated revenues from continuing
operations was $16.060M compared to $15.437M in the prior year and
$14.328M in the first quarter 2021. In Technology Operations,
revenues decreased by $0.271M, while the BO’s revenues increased by
$1.034M. Most of the revenue reduction in the Technology Operations
is due to a combination of delays in renewing old contracts and
starting new contracts. The first and second quarter contracts did
not renew as quickly as forecast. Contract values remain high with
over $51.0M of new wins in the Technology Operations in the first
half of fiscal 2021. Benefits Operations wins also increased by
over $17.0M during the same period. 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 % IncreasedThe
Company generated $5.930M in Gross Margin during the second
quarter, 2021 vs. $5.047M the previous year. Gross Margin % (“GM
%”) was 36.9% in the second quarter 2021 compared to 32.7% in 2020.
The Technology Operations GM were 19.8% vs. 17.2% the previous year
due to new higher margin contracts. The Benefits Operations GM were
77.8% vs. 83.0%, 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 4.2% when compared to the same quarter in the
previous year.
Operational Costs:
- Salaries and Other
Compensation - salaries increased by $0.647M during the
second quarter compared to the same period the prior year. First
half fiscal 2021 costs were up $0.495M largely due to a reduction
in COVID relief funding when compared to the same period last
year. Marginal savings are targeted for the remainder
of 2021, largely through attrition, but not expected to be
substantial.
- Office and General
Costs – Office and general costs decreased by $0.479M
during the second quarter, year over year. This cost reduction was
partially due to reduced rent costs and lower costs as a result of
COVID.
- Professional Fees
- Professional fees increased by $0.219M, in second
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 and tax
compliance related fees.
Non-Cash Expenses:Non-Cash
expenses include amortization, depreciation, share-based (options,
RSUs) compensation and write down of assets. They decreased by
$0.338M during the second quarter when compared to the previous
year. The largest decrease is in the amortization of intangible
assets which decreased by $0.452M. These costs are expected to be
lower in fiscal 2021 as the significant amortization related to
acquisition costs were fully amortized by the end of fiscal
2020.
Interest and Financing Costs, Interest
Accretion and Transaction Costs: Interest and financing
costs, interest accretion and transaction costs from continuing
operations increased by approximately $0.316M in the second quarter
2021 compared to the same period in the prior year. The increase is
primarily due to the increase in the interest accretion expense of
$0.208M, 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. The interest and bank fees costs also
contributed to an increase of $0.125M in Q2 2021, compared to Q2
2020 as a result of the refinancing. Q2 2021 interest on lease
liabilities were $17K less than Q2 2020.
KEY DEVELOPMENTS DURING AND SUBSEQUENT TO THE
QUARTER
Business Development First Half of
Fiscal 2021Relationships 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
180,000 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.
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 $68.0M of net new business since November 30,
2020.”
CONFERENCE CALL DETAILS
Date/Time: Thursday, August 5
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/seb20210805.html
Conference Call Replay Numbers: |
Canada & USA Toll Free: |
1-855-669-9658 |
Code: |
7328 followed by the # sign |
Replay Duration: Available for one week until
end of day Thursday, August 12, 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 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
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