SEB Smart Employee Benefits Inc

Smart Employee Benefits Inc. (“SEB” or the “Company”) (TSXV: SEB) today reports its financial results for the third quarter ending August 31, 2021.

States John McKimm, President/CEO/CIO of Smart Employee Benefits Inc.:“The third quarter, 2021 is the Sixth consecutive quarter of positive EBITDA and Adjusted EBITDA. The trailing twelve months EBITDA was a positive $1.639M and adjusted EBITDA was $2.545M for the same period. Continued positive results are targeted for the remainder of fiscal 2021 and beyond. Adjusted EBITDA for Q3/21 was $0.592M vs. $1.094M in Q3/20, largely due to reduction in the COVID wage subsidies. EBITDA was $0.469M vs. $0.491M for the same periods. Consolidated gross margin percentage varied by 0.5% compared to the third quarter 2020 and improved by 3.3% over the same 9-month period in fiscal 2020. Operating costs were up marginally for the quarter by $0.719M and 9-month period by $0.215M year over year.

SEB Solutions and Services revenue streams both recorded positive in the 9 months ending August 31, 2021. The technology Services revenue stream currently experienced a positive $2,935,959 of Adjusted EBITDA and positive $2,814,742 EBITDA in the 9-month of fiscal 2021 versus $2,839,852 and $2,824,687 in the same period the previous year. The Benefits Solutions revenue stream experienced a positive $1,358,353 Adjusted EBITDA and $1,149,672 EBITDA versus a positive $854,008 and $854,008 during the same time frame of the previous year. This trend is expected to continue in the fourth quarter of fiscal 2021, as growth is experienced in both revenue streams. Over 60% of year to date revenues come from clients with more than 5-year histories with the Company.

The Technology Services revenue streams have historically been cash flow positive and net new business wins remain strong. The Benefits Solutions revenue stream is becoming cash flow positive after considerable investments in technology and business infrastructure and client acquisition. Both revenue streams 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 Solutions revenue streams. Approximately, 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 $76.0M of net new contracts, including option years, over 25% of which are Benefits Solutions.

COVID-19 has led to increasing demand for our Benefits Solutions, including our “online medical care partnerships”. In our Technology Services, 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 Services revenues. Total Contract Values continue to grow, and utilization of the contracts is gaining stronger 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 utilization of Technology Services contracts during 2020. This allowed the Company to keep valuable full-time staff employed. Benefits Solutions revenue continued to be stable and growing and were not eligible. The company received approximately $0.817M of COVID relief in the 9-months 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 continued improvement in consolidated financial performance in the 2021 fiscal year vs. 2020, particularly in the Benefits Solutions.”

Quarterly Statements of Comprehensive Loss for the five quarters ended August 31, 2021

	June 1, 2021 to Aug 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
Revenue	$	15,470,625		$	16,059,834		$	14,328,230		$	13,997,729		$	14,664,966
Cost of revenues		9,947,474			10,130,214			8,839,979			9,394,223			9,351,211
Gross Margin		5,523,151			5,929,620			5,488,251			4,603,506			5,313,755
Gross Margin as a % of Revenue		35.7	%		36.9	%		38.3	%		32.9	%		36.2	%
Salaries and other compensation costs		3,735,248			3,720,755			3,654,527			3,130,176			2,694,858
Office and general		1,041,361			848,522			882,781			785,138			1,362,538
Professional fees		154,389			344,994			280,821			420,482			162,581
Adjusted EBITDA		592,153			1,015,349			670,121			267,710			1,093,778
Investment loss (income)		-			104,164			-			(331,551	)		-
Gain on sale of assets		-			-			-			-			-
Write down of assets		-			-			-			500,000			-
Change in fair value of contingent consideration		-			-			-			(390,800	)		-
Share- based compensation		80,618			121,339			496,947			270,618			1,261
Transaction costs (recovery)		42,962			81,999			-			(70,137	)		601,386
EBITDA		468,574			707,848			173,175			289,581			491,130
Interest and financing costs		1,113,151			1,084,914			1,231,568			1,026,259			662,004
Income tax expense (recovery)		-			943			-			(1,182,834	)		(18,178	)
Depreciation and amortization		174,918			175,496			173,132			665,802			642,043
Depreciation of right-of-use assets		244,333			236,365			244,333			244,334			244,333
Net comprehensive loss	$	(1,063,828	)	$	(789,870	)	$	(1,475,858	)	$	(463,980	)	$	(1,039,069	)
Attributed to non-controlling interest		16,111			47,461			(118,112	)		(70,804	)		(53,508	)
Attributed to common shareholders		(1,079,939	)		(837,331	)		(1,357,746	)		(393,176	)		(985,561	)
Total	$	(1,063,828	)	$	(789,870	)	$	(1,475,858	)	$	(463,980	)	$	(1,039,069	)

Comparative Consolidated Results for the third quarter of 2021 and 2020

		3 months ended Aug 31							YTD ended Aug 31
		Aug-21			Aug-20				Aug-21			Aug-20
Revenue		$	15,470,625		$	14,664,966			$	45,858,689		$	46,622,629
Cost of revenues			9,947,474			9,351,211				28,917,668			30,939,223
Gross Margin			5,523,151			5,313,755				16,941,021			15,683,406
Gross Margin as a % of Revenue			35.7	%		36.2	%			36.9	%		33.6	%
Operating costs			4,776,609			4,057,397				13,883,192			13,668,206
Professional fees			154,389			162,581				780,204			457,853
Adjusted EBITDA			592,153			1,093,778				2,277,625			1,557,347
Investment loss			-			-				104,164			5,807
Share-based compensation			80,618			1,262				698,904			19,688
Transaction costs			42,962			601,386				124,961			601,450
EBITDA		$	468,574		$	491,130			$	1,349,596		$	930,402
Net loss from operations		$	(1,063,828	)	$	(1,039,069	)		$	(3,329,557	)	$	(3,705,229	)

Reconciliation of Consolidated Net loss to EBITDA for the third quarter of 2021 and 2020

		3 months ended Aug 31							YTD ended Aug 31
		Aug-21			Aug-20				Aug-21			Aug-20
Net loss from operations		$	(1,063,828	)	$	(1,039,069	)		$	(3,329,557	)	$	(3,705,229	)
Interest and financing costs			1,113,151			662,001				3,429,633			2,156,517
Income tax recovery			-			(18,178	)			943			(70,480	)
Depreciation and amortization			174,918			642,043				523,546			1,905,165
Depreciation of right-of-use assets			244,333			244,333				725,031			644,429
EBITDA			468,574			491,130				1,349,597			930,403
Investment loss			-			-				104,164			5,807
Share- based compensation			80,618			1,261				698,904			19,688
Transaction costs			42,962			601,386				124,961			601,450
Adjusted EBITDA		$	592,153		$	1,093,778			$	2,277,626		$	1,557,347

Consolidated Revenue Increased 5.5% Quarter Over QuarterDuring the third quarter, 2021 consolidated revenues from continuing operations was $15.471M compared to $ $14.665M in the prior year. Technology Services revenue increased by $0.996M, while the Benefits Solutions revenues increased by $0.329M. Contract values remain high with over $76.0M of new wins for the first nine months of fiscal 2021. Approximately 80% of 2021 forecast consolidated revenue streams are under contract for the next 4 years representing >90% for Benefits Solutions revenues and >70% for Technology Services revenue. The Company’s growth focus is on the higher margin Benefit Solutions revenue, although Technology Services revenue is also experiencing solid growth. The operations including sales and marketing initiatives, finance and accounting and technology support and delivery were largely integrated in fiscal, 2020.

Gross Margins $ and YTD Gross Margin % Increased YTDThe Company generated $5.523M in Gross Margin during the third quarter, 2021 vs. $5.314M the previous year. Gross Margin % (“GM %”) was 35.7% in the third quarter 2021 compared to 36.2% in 2020. The Technology Services revenue GM were 17.9% vs. 19.1% the previous year. The Benefits Solutions GM were 75.1% vs. 77.0%, largely due to smaller GM in the online medical module sales. However, on a year-to-date basis, because the revenue mix included more higher margin Benefits Solutions revenues in 2021, the consolidated GM % experienced growth of 3.3% when compared to the same year to date quarterly results in the previous year.

Operational Costs:

• Salaries and Other Compensation - salaries increased by $1.040M during the third quarter compared to the same period the prior year. On a year-to-date basis, the costs were up $1.536M largely due to a reduction in COVID relief funding as well as reduction in the amount recorded as contract assets due to the difference in mix of projects 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 $0.321M during the third 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 remained relatively flat in the third quarter of 2021, compared to 2020. Professional fees vary with the amount of financing or acquisition/disposition activity during the period.

Non-Cash Expenses:Non-Cash expenses include amortization, depreciation and share-based (options, RSUs) compensation. They decreased by $0.388M during the third quarter when compared to the previous year. The largest decrease is in the amortization of intangible assets which decreased by $0.467M. 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 decreased by approximately $0.107M in the third quarter 2021 compared to the same period in the prior year. The transaction costs contributed $0.558M expense decrease in Q3 2021 which is offset by the increase in other categories. There was no significant transaction going on in Q3 2021 as compared to the major financing transaction that occurred in the last half of fiscal 2020. The increase is primarily due to the increase in the interest accretion expense of $0.209M, 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 $0.258M in Q3 2021, compared to Q3 2020 as a result of the refinancing. Q3 2021 interest on lease liabilities were $17K less than Q3 2020.

KEY DEVELOPMENTS DURING AND SUBSEQUENT TO THE QUARTER

Business Development First nine months 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 late 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 Services operations and more significantly in the Benefits Solutions operations. The Technology Services operations, historically, has strong profitability. Benefits Solutions 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 Services and Benefits Solutions are anticipated to show strong growth and positive cash flow in 2021 and beyond. Today approximately 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 98% 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 $76.0M of net new business YTD since November 30, 2020.”  

CONFERENCE CALL DETAILS

Date/Time: Wednesday, November 3 at 4:00 PM 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/seb20211103.html

Conference Call Replay Numbers:

Canada & USA Toll Free:	1-855-669-9658
Code:	8074 followed by the # sign

Replay Duration: Available for one week until end of day Wednesday November 10, 2021.

About Smart Employee Benefits Inc. (“SEB”):SEB is a Benefits Administration Technology Company driving two interrelated revenue streams – software/solutions and services. The Company 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 multiple 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 statementsCertain information in this release, may constitute forward-looking information. In some cases, but not necessarily in all cases, forward-looking information can be identified by the use of forward-looking terminology such as “plans”, “targets”, “expects” or “does not expect”, “is expected”, “an opportunity exists”, “is positioned”, “estimates”, “intends”, “assumes”, “anticipates” or “does not anticipate” or “believes”, or variations of such words and phrases or state that certain actions, events or results “may”, “could”, “would”, “might”, “will” or “will be taken”, “occur” or “be achieved”. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances contain forward-looking information. Statements containing forward-looking information are not historical facts but instead represent management’s expectations, estimates and projections regarding future events.

THE FORWARD-LOOKING INFORMATION CONTAINED IN THIS RELEASE REPRESENTS THE COMPANY’S CURRENT EXPECTATIONS AND, ACCORDINGLY, IS SUBJECT TO CHANGE. HOWEVER, THE COMPANY EXPRESSLY DISCLAIMS ANY INTENTION OR OBLIGATION TO UPDATE OR REVISE ANY FORWARD-LOOKING INFORMATION, WHETHER AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE, EXCEPT AS REQUIRED BY APPLICABLE LAW.

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