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Smart Employee Benefits Reports Q3/2022 Results


10 Consecutive Quarters of Positive Adjusted EBITDA;

  • Q3/2022 revenue at $16.0 million increased by 3.3% versus Q3/2021 and 6.1% YTD
  • Posted 10th consecutive quarter of positive adjusted EBITDA
  • Trailing Twelve Months (“TTM”) revenue increased by $4.7 million (7.9%)
  • TTM gross profit remains flat

MISSISSAUGA, Ontario, Oct. 31, 2022 (GLOBE NEWSWIRE) — Smart Employee Benefits Inc. (“SEB” or the “Company”) (TSXV: SEB) (OTCQB: SEBFF) reports its financial results for the third quarter ending August 31, 2022 (“Q3/2022”). SEB is an Insurtech company focused on technologies that provide leading-edge, cloud based end-to-end IT and benefit processing software, solutions and services for the life and group benefits marketplace and government.

Please refer to the interim unaudited consolidated financial statements and Management’s Discussion and Analysis (“MD&A”) for the nine months ended August 31, 2022, filed on SEDAR at www.sedar.com for more information. Unless otherwise specified, all dollar amounts are denominated in Canadian dollars.

Q3/2022 Financial Highlights:

  • Consolidated:
    • Revenue: Grew 3.3% to $16.0 million versus $15.5 million in Q3/2021
    • Ten consecutive quarters of positive Adjusted EBITDA
       
  • Benefits Solutions:
    • Revenue: $4.7 million versus $4.5 million in Q3/2021
    • Nine consecutive quarters of positive EBITDA
       
  • Technology Services:
    • Revenue (adjusted for intercompany sales adjustment in Q3/22 of $311K vs Q3/21- $929K): $11.3 million versus $10.9 million in Q3/2021
    •  The Technology Services has a long history of positive EBITDA
    • Adjusted EBITDA: $0.6 million versus $0.9 million in Q3/2021
    • EBITDA: $0.5 million versus $0.9 million in Q3/2021
       
  • Over 70% of year-to-date revenues come from clients who have been with SEB over 5-years
     
  • With over $70 million of contract wins in the last 9 months and over $470 million of total contract value, management expects year-over-year increases in fiscal 2022 Revenue.      

States John McKimm, President/CEO/CIO of Smart Employee Benefits Inc.:
“On the back of our recent three wins announced in September and new Vendor Management Agreements, SEB extended its record of delivering positive adjusted EBITDA to 10 consecutive quarters.  Since our inception, SEB has invested in both Technology Services operations and more significantly in Benefits Solutions. Historically, Technology Services has strong profitability. Benefits Solutions has required significant investment, the majority of which has been expensed. The cost structure from acquisitions and integrations has been largely realigned and we anticipate both Technology Services and Benefits Solutions to show growth and positive cash flow in Fiscal 2022 and beyond. The contract values, including backlog, option years and evergreen, remain strong, with the Company continually renewing or winning sufficient new business to maintain and grow future annual revenues. The Company has established strong traction in multiple new business initiatives and is well positioned to win new business going forward. A one-time contract in the first half of 2022 increased the cost structure and reduced margins; however, this contract is considered an investment in the future as it contributes to both Intellectual Property assets opening opportunities with new clients and longer-term managed services revenue.”

Business Development Activities Fiscal 2022:
Relationships have been consolidated and grown with multiple new business partners. The Company’s Channel Partner strategy has gained strong traction, signing 3 new Vendor Management Agreements that authorize SEB to supply ITS software, solutions and services. These contracts give the Company the approval to participate in the IT budgets that exceed an estimated $40.0 million annually. The arrangements have terms up to 5 years, which typically are renewed once achieving approved vendor status.

SEB is also engaged in over a dozen active negotiations with brokerage organizations, Master General Agents, Third Party Administrators (“TPA”), insurers, unions, and corporate entities. Several agreements have been executed with Channel Partners; with revenue growth expected in 2022 and beyond.

The Company’s RFP and Channel Partner sales pipeline is the largest it has ever been (in both corporate and government opportunities) for both Technology Services and Benefits software and solutions driven revenue streams.

Business Outlook:
Technology Services revenues have historically been cash flow positive, and net new business wins and renewals remain strong. Benefits Solutions revenue is becoming cash flow positive after considerable investments in technology, business infrastructure, and client acquisition. We expect both revenue streams to have continued strong sustainable growth going forward. Since November 30, 2020, the Company has won over $240 million of net new contracts, including option years.

COVID-19 has led to increasing demand for the Company’s Benefits Solutions, including “online medical care partnerships”. We saw an increase in year-to-date revenues in the Technology Services in the first nine months of the year which was a direct result of the contract wins in the past 21 months. Total Contract Values for the Company continue to grow, and utilization of the contracts is gaining stronger traction as government and businesses streamline and adjust to 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 technology and people infrastructure for our clients. On a consolidated level, in Q3/2021 the Company applied for and received approximately $247,000 of COVID-19 government relief to support the Technology Services operations as opposed to no support in Q3/2022. This resulted in lower profitability when comparing the two quarters. However, this has allowed the Company to keep valuable full-time staff employed throughout the pandemic, who are now deployed to support the current and anticipated growth.

The consolidated sales pipeline is the strongest it has ever been. The cost savings initiatives taken over the past several years largely benefited the Company in 2020 and 2021 with some continued benefits into fiscal 2022.


Comparative Consolidated Results for the Third Quarter and Nine Months 2022 and 2021:
 

  3 months ended YTD ended
  Aug-22 Aug-21 Aug-22 Aug-21
Revenue $ 15,990,075   $ 15,470,625   $ 48,653,945   $ 45,858,689  
Cost of revenues   10,493,398     9,947,474     32,280,614     28,917,668  
Gross Margin   5,496,677     5,523,151     16,373,331     16,941,021  
Gross Margin as a % of Revenue   34.4 %   35.7 %   33.3 %   36.9 %
         
Operating costs   5,150,373     4,776,608     15,411,614     13,883,192  
Professional fees   117,244     154,389     531,213     780,204  
Adjusted EBITDA   229,060     592,154     430,504     2,277,625  
         
Change in Investment               104,164  
Gain on sale of investment           (89,618 )    
Decommissioning costs           104,037      
Share-based compensation   175,871     80,618     578,451     698,904  
Transaction costs   309,671     42,962     883,960     124,961  
EBITDA $ (256,482 ) $ 468,574   $ (1,046,326 ) $ 1,349,596  
         
Net loss from operations $ (2,323,446 ) $ (1,063,828 ) $ (6,744,814 ) $ (3,329,557 )


Consolidated Segmented results for the Nine Months ended August 31, 2022 and 2021:

Smart Employee Benefits Inc.    
Segmented Income Statement Detail for the Nine Months August 31, 2022 (in C$) Technology Benefits Corporate Intercompany
Sales/COS
Total Company
Revenue $ 35,938,117 $ 13,768,173 $   $ (1,052,345 ) $ 48,653,945  
Cost of revenues          
Cost of revenues   29,819,825   3,513,133       (1,052,345 )   32,280,614  
Gross margin   6,118,292   10,255,040           16,373,331  
           
Expenses          
Salaries and other compensation costs   3,677,768   7,162,491   743,851         11,584,110  
Office and general   519,035   2,205,926   1,102,541         3,827,502  
Professional fees   88,293   29,013   413,907         531,213  
    4,285,096   9,397,431   2,260,298         15,942,825  
           
Adjusted EBITDA   1,833,196   857,610   (2,260,298 )       430,505  
           
Decommissioning cost   104,037             104,037  
Gain on sale of investment       (89,618 )       (89,618 )
Transaction costs   87,031     796,929         883,960  
Share-based compensation   6,517   12,617   559,317         578,451  
           
EBITDA   1,635,611   844,993   (3,526,926 )       (1,046,326 )
           
Amortization of intangible assets   8,922   346,646   59,865         415,434  
Depreciation of equipment   60,615   33,312           93,927  
Depreciation of right-of-use assets   81,582   163,372   451,617         696,570  
Interest and financing costs   125,020   139,353   4,227,913         4,492,287  
Income tax recovery   268             268  
           
Net income (loss) $ 1,359,205 $ 162,309 $ (8,266,322 ) $   $ (6,744,814 )
Smart Employee Benefits Inc.    
Segmented Income Statement Detail for the Nine Months ended August 31, 2021 (in C$) Technology Benefits Corporate Intercompany
Sales/COS
Total Company
Revenue $    34,509,633 $    13,291,886 $                  –     $     (1,942,831 ) $    45,858,689  
           
Cost of revenues   27,746,198   3,114,302    –      (1,942,831 )   28,917,668  
Gross margin   6,763,435   10,177,585    –       –      16,941,021  
           
Expenses          
Salaries and other compensation costs   3,203,338   7,006,011   901,180      –      11,110,530  
Office and general   518,931   1,726,249   527,483      –      2,772,662  
Professional fees   105,207   86,972   588,025      –      780,204  
    3,827,476   8,819,232   2,016,689      –      14,663,396  
           
Adjusted EBITDA   2,935,959   1,358,353   (2,016,689 )    –      2,277,624  
           
Investment loss    –     –    104,164      –      104,164  
Transaction costs    –     –    124,961      –      124,961  
Share-based compensation   121,217   208,681   369,006      –      698,904  
           
EBITDA   2,814,742   1,149,672   (2,614,821 )    –      1,349,594  
           
Amortization of intangible assets   7,688   312,416   59,866      –      379,970  
Depreciation of equipment   81,668   61,908    –       –      143,576  
Depreciation of right-of-use assets   81,582   191,832   451,618      –      725,031  
Interest and financing costs   124,951   92,505   3,212,175      –      3,429,632  
Income tax recovery   943    –     –       –      943  
           
Net income (loss) $      2,517,911 $         491,011 $     (6,338,480 ) $                    –   $     (3,329,557 )


Consolidated Segmented results for the Third Quarters ended August 31, 2022 and 2021:

Smart Employee Benefits Inc.    
Segmented Income Statement Detail for the  quarter ended August 31, 2022 (in C$) Technology Benefits Corporate Intercompany
Sales/COS
Total Company
Revenue $ 11,651,134   $ 4,650,057   $   $ (311,116 ) $ 15,990,075  
Cost of revenues          
Cost of revenues   9,657,553     1,146,960         (311,116 )   10,493,398  
Gross margin   1,993,581     3,503,097             5,496,677  
    17.11 %   75.33 %      
Expenses          
Salaries and other compensation costs   1,156,982     2,423,869     248,511         3,829,362  
Office and general   175,524     728,152     417,334         1,321,010  
Professional fees   30,451     6,716     80,078         117,245  
    1,362,957     3,158,737     745,923         5,267,616  
           
Adjusted EBITDA   630,624     344,360     (745,923 )       229,060  
           
Decommissioning cost                    
Gain on sale of investment                    
Transaction costs   87,031         222,640         309,671  
Share-based compensation   1,631         174,239         175,870  
           
EBITDA   541,962     344,360     (1,142,802 )       (256,482 )
           
Amortization of intangible assets   2,974     121,608     19,953         144,537  
Depreciation of equipment   19,975     10,762             30,737  
Depreciation of right-of-use assets   27,493     36,186     152,195         215,872  
Interest and financing costs   33,500     32,902     1,609,148         1,675,549  
           
Net income (loss) $ 457,752   $ 142,901   $ (2,924,096 ) $   $ (2,323,446 )
Smart Employee Benefits Inc.    
Segmented Income Statement Detail for the quarter ended August 31, 2021 (in C$) Technology Benefits Corporate Intercompany
Sales/COS
Total Company
Revenue $ 11,868,110   $ 4,531,197   $   $ (928,682 ) $ 15,470,625  
Cost of revenues          
Cost of revenues   9,747,283     1,128,873         (928,682 )   9,947,474  
Gross margin   2,120,827     3,402,324             5,523,151  
    17.87 %   75.09 %      
Expenses          
Salaries and other compensation costs   1,069,317     2,400,500     265,429         3,735,246  
Office and general   156,213     577,344     307,806         1,041,363  
Professional fees   973     37,687     115,729         154,389  
    1,226,503     3,015,532     688,963         4,930,998  
           
Adjusted EBITDA   894,324     386,792     (688,963 )       592,154  
           
Transaction costs           42,962         42,962  
Share-based compensation           80,618         80,618  
           
EBITDA   894,324     386,792     (812,544 )       468,574  
           
Amortization of intangible assets   2,582     104,748     19,957         127,286  
Depreciation of equipment   25,816     21,816             47,632  
Depreciation of right-of-use assets   27,493     64,647     152,195         244,333  
Interest and financing costs   37,477     27,930     1,047,745         1,113,150  
           
Net income (loss) $ 800,957   $ 167,651   $ (2,032,438 ) $   $ (1,063,828 )


Reconciliation of Consolidated Net loss to EBITDA for the Nine Months ended August 31, 2022 and 2021:

    3 months ended YTD ended
    Aug-22 Aug-21 Aug-22 Aug-21
Net loss from operations   $ (2,323,446 ) $ (1,063,828 ) $ (6,744,814 ) $ (3,329,557 )
Interest and financing costs     1,675,549     1,113,151     4,492,287     3,429,633  
Income tax expense     268         268     943  
Depreciation and amortization     175,275     174,918     509,363     523,546  
Depreciation of right-of-use assets     215,872     244,333     696,571     725,031  
EBITDA     (256,482 )   468,574     (1,046,325 )   1,349,596  
           
Change in investment                 104,164  
Gain on sale of investment             (89,618 )    
Decommissioning costs             104,037      
Share- based compensation     175,871     80,618     578,451     698,904  
Transaction costs     309,671     42,962     883,960     124,961  
Adjusted EBITDA   $ 229,060   $ 592,154   $ 430,505   $ 2,277,625  

Revenue Increased 3.3% Quarter Over Quarter:

During Q3/2022, consolidated revenues from continuing operations was $16.0 million versus $15.5 million in Q2/2021. Technology Services revenue adjusted for intercompany sales increased by $0.4 million while the Benefits Solutions revenues increased by $0.1 million. Contract values remain high with over $240 million of new wins in the last 21 months. Approximately 80% of 2022 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 revenues also expected to continue to experience growth.

Gross Margin and Gross Profit:

The Company generated $5.5 million in Gross Profit in Q3/2022 versus $5.5 million in Q3/2021. Gross Margin was 34.4% in Q3/2022 compared to 35.7% in Q3/2021. The reduction in Gross Margin and Gross Profit in the Q3/2022 was largely due to a notable one-time project in Q3/2021.

Technology Services Gross Profit (Gross Margin) in Q3/2022 was $2.0 million (17.1%) versus $2.1 million (17.9%) in Q3/2021.

The Benefits Solutions Gross Profit (Gross Margin) was $3.5 million (75.3%) versus $3.4 million (75.1%) in Q3/2021.

Operational Costs:

  • Salaries and Other Compensation – Salaries and other compensation costs increased by $0.09 million during Q3/2022 compared to the same period the prior year. The increase is due to a reduction in COVID relief funding when compared to the same period last year. 
  • Office and General Costs­ – Office and general costs increased by nearly $0.28 million during Q3/2022 versus Q3/2021. The increase is largely due to no COVID-19 subsidy and rent credits in Q3/2022 as opposed Q3/2021. 
  • Professional Fees – Professional fees remained relatively flat in Q3/2022 compared to Q3/2021. 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 remain flat during Q3/2022 versus Q3/2021.

Interest and Financing Costs, Interest Accretion and Transaction Costs:
Interest and financing costs, interest accretion from continuing operations increased from $1.1 million in Q3/2021 to $1.7 million in Q3/2022, which is due to increased credit facility and convertible debt. The transaction costs expense increased by $0.267 million in Q3/2022 compared to Q3/2021. There were no significant transactions costs in fiscal 2021 as compared to the actively involved equity and debt financing that occurred in the current quarter.

Decommissioning Costs:
There are no decommissioning costs in Q3/2022.

Grant of Options and RSUs in Q3/2022:

A minimum of 25% of the directors’ fees for Fiscal 2021 and 2022 must be compensated in RSUs and the directors can choose to be either compensated in cash or RSUs for the remaining 75%. As a result, the Company has also committed to issue 212,714 RSUs at $0.20 per share, 296,807 RSUs at $0.16 per share and 937,500 RSUs at $0.12 per share to the directors for the service provided in Q1, Q2 and Q3 2022. The RSUs will vest 100% after 12 months.

About Smart Employee Benefits Inc. (“SEB”):
SEB is an Insurtech company focused on Benefits Administration Technology driving two interrelated revenue streams – Benefits Solutions and Technology 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 statements:
Certain 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 Contact
John McKimm
President/CEO/CIO
Office (888) 939-8885 x 2354
Cell (416) 460-2817
john.mckimm@seb-inc.com 

Smart Employee Benefits Inc



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