5 Quarters of Positive EBITDA
Conference Call Scheduled Thursday, August 5 at 11:00 A.M.
MISSISSAUGA, Ontario, July 30, 2021 (GLOBE NEWSWIRE) — 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 Increased
During 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 % Increased
The 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 2021
Relationships 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 ET
Canada & USA Toll Free Dial In: 1-800-319-4610
Toronto Toll Dial In: 1-416-915-3239
Callers 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 statements
This 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 Contact
John McKimm
President/CEO/CIO
Office (888) 939-8885 x 2354
Cell (416) 460-2817
john.mckimm@seb-inc.com
