MISSISSAUGA, Ontario, April 01, 2021 (GLOBE NEWSWIRE) — Smart Employee Benefits Inc. (“SEB” or the “Company”) (TSXV: SEB) today reports its financial results for the fourth quarter and fiscal year ending November 30, 2020.
States John McKimm, President/CEO/CIO of Smart Employee Benefits Inc.:
“Adjusted EBITDA and EBITDA improved significantly for the fourth quarter and fiscal, 2020 over the comparable period the previous year. Consolidated gross margin percentage improved by 1.1% from fiscal, 2019. Operating costs including professional fees reduction initiatives led to the year over year improvement in cost structure of approximately $5.125M year over year, 2020 compared to 2019.These savings are expected to be permanent. The fourth quarter was the third straight quarter of positive EBITDA and Adjusted EBITDA. This continued positive performance is expected to continue into 2021 and beyond.
EBITDA improved by $0.592M ($1.092M excluding a $0.500M write down of assets) in the fiscal year, 2020 to a positive $1.220M ($1.720M excluding a $0.500M write down of assets) from a positive $0.628M (which includes the one-time gain on sale of assets of $2,048M recorded in the third quarter of 2019). Adjusted EBITDA improved by $3.235M to a positive $1.825M from a negative $1.410M in the same period the previous year. The improvement is attributed to a combination of company wide cost reduction initiatives, COVID-19 related government wage subsidies received in the Technology Operations (“TO”) and revenue growth in the Benefits Operations (“BO”).
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 contract backlog 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 $3.458M of EBITDA in 2020 versus $2.702M the previous year. The Benefits revenue stream experienced a positive $1.409M EBITDA versus a negative $1.803M the same period the previous year. This trend is expected to continue in 2021, as growth is experienced in both revenue streams. Over half of 2020 revenues come from clients with more than 10-year histories with the Company.
The TO has historically been cash flow positive and net new business wins remain strong. The BO is 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 BO. 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.
COVID-19 has led to increasing demand for our BO solutions, including our “online medical care partnerships”. In our TO, a portion of our revenues were lower than forecast near term, primarily those related to the project driven portion of the business, the delay of government renewals of existing contracts and the onboarding of new contracts. TO revenues 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 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 TO’s contracts during 2020. This allowed the Company to keep valuable full-time staff employed. The BO business streams have experienced stable and growing revenue and were not eligible.
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. We are anticipating improved consolidated financial performance in the 2021 fiscal year vs. 2020, particularly in the BO.”
Quarterly Statements of Comprehensive Loss 2020
| Sep 1, 2020 to Nov 30, 2020 |
June 1, 2020 to Aug 31, 2020 |
Mar 1, 2020 to May 31, 2020 |
Dec 1, 2019 to Feb 29, 2020 |
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| Revenue | $ | 13,997,729 | $ | 14,664,966 | $ | 15,436,686 | $ | 16,520,977 | ||||
| Cost of revenues | 9,394,223 | 9,351,211 | 10,389,383 | 11,198,629 | ||||||||
| Gross Margin | 4,603,506 | 5,313,755 | 5,047,303 | 5,322,348 | ||||||||
| Gross Margin as a % of Revenue | 32.9 | % | 36.2 | % | 32.7 | % | 32.2 | % | ||||
| Salaries and other compensation costs | 3,130,176 | 2,694,858 | 3,074,118 | 3,805,798 | ||||||||
| Office and general | 785,138 | 1,362,538 | 1,327,462 | 1,403,431 | ||||||||
| Professional fees | 420,482 | 162,581 | 125,830 | 169,443 | ||||||||
| Adjusted EBITDA | 267,710 | 1,093,778 | 519,894 | (56,324 | ) | |||||||
| 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 | 270,618 | 1,261 | 2,851 | 15,576 | ||||||||
| Transaction costs | (70,137 | ) | 601,386 | 64 | – | |||||||
| EBITDA | 289,581 | 491,133 | 511,172 | (71,900 | ) | |||||||
| Interest and financing costs | 1,026,259 | 662,004 | 768,934 | 725,580 | ||||||||
| Income tax recovery | (1,182,834 | ) | (18,178 | ) | (48,374 | ) | (3,928 | ) | ||||
| Depreciation and amortization | 665,802 | 642,043 | 629,951 | 633,171 | ||||||||
| Depreciation of right-of-use assets | 244,334 | 244,333 | 239,021 | 161,077 | ||||||||
| Net loss from continuing operations | (463,980 | ) | (1,039,069 | ) | (1,078,360 | ) | (1,587,800 | ) | ||||
| Income (Loss) from assets held for sale, net of tax | – | – | – | – | ||||||||
| Net comprehensive loss | $ | (463,980 | ) | $ | (1,039,069 | ) | $ | (1,078,360 | ) | $ | (1,587,800 | ) |
| Attributed to non-controlling interest | (70,804 | ) | (53,508 | ) | (119,033 | ) | (241,535 | ) | ||||
| Attributed to common shareholders | (393,176 | ) | (985,561 | ) | (959,327 | ) | (1,346,265 | ) | ||||
| Total | $ | (463,980 | ) | $ | (1,039,069 | ) | $ | (1,078,360 | ) | $ | (1,587,800 | ) |
Quarterly Statements of Comprehensive Income (Loss) 2019
| Sep 1, 2019 to Nov 30, 2019 |
June 1, 2019 to Aug 31, 2019 |
Mar 1, 2019 to May 31, 2019 |
Dec 1, 2018 to Feb 28, 2019 |
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| Revenue | $ | 17,326,306 | $ | 16,974,918 | $ | 17,675,479 | $ | 16,506,330 | ||||
| Cost of revenues | 11,689,312 | 11,403,091 | 12,224,037 | 10,989,649 | ||||||||
| Gross Margin | 5,636,994 | 5,571,827 | 5,451,442 | 5,516,681 | ||||||||
| Gross Margin as a % of Revenue | 32.5 | % | 32.8 | % | 30.8 | % | 33.4 | % | ||||
| Salaries and other compensation costs | 3,520,013 | 4,008,953 | 4,427,102 | 4,486,090 | ||||||||
| Office and general | 1,946,928 | 1,275,940 | 1,235,608 | 1,819,528 | ||||||||
| Professional fees | 303,312 | 111,674 | 315,073 | 137,112 | ||||||||
| Adjusted EBITDA | (133,259 | ) | 175,260 | (526,341 | ) | (926,049 | ) | |||||
| Investment 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 | 11,903 | 35,675 | 63,151 | 76,158 | ||||||||
| Transaction costs | (117,856 | ) | 136,021 | 50,000 | 6,437 | |||||||
| EBITDA | 343,673 | 1,932,156 | (639,492 | ) | (1,008,644 | ) | ||||||
| Interest and financing costs | 783,599 | 994,527 | 608,487 | 531,528 | ||||||||
| Income tax expense (recovery) | (141,521 | ) | (451,128 | ) | (556 | ) | 556 | |||||
| Depreciation and amortization | 744,460 | 623,319 | 1,120,003 | 655,231 | ||||||||
| Depreciation of right-of-use assets | – | – | – | – | ||||||||
| Net income (loss) from continuing operations | (1,042,865 | ) | 765,438 | (2,367,426 | ) | (2,195,959 | ) | |||||
| Income (Loss) from assets held for sale, net of tax | – | (93,799 | ) | 35,890 | (312,776 | ) | ||||||
| Net comprehensive income (loss) | $ | (1,042,865 | ) | $ | 671,639 | $ | (2,331,536 | ) | $ | (2,508,735 | ) | |
| Attributed to non-controlling interest | (50,105 | ) | (50,776 | ) | (184,035 | ) | 155,922 | |||||
| Attributed to common shareholders | (992,760 | ) | 722,415 | (2,147,501 | ) | (2,664,657 | ) | |||||
| Total | $ | (1,042,865 | ) | $ | 671,639 | $ | (2,331,536 | ) | $ | (2,508,735 | ) | |
| Note 1 – Historic quarters have been restated to reflect the operations of Paradigm Consulting Group as income from discontinued operations | ||||||||||||
Comparative Results for fiscal year 2020 and 2019
| Year ended Nov 30 | |||||||
| 2020 | 2019 | ||||||
| Revenue | $ | 60,620,359 | $ | 68,483,032 | |||
| Cost of revenues | 40,333,446 | 46,306,089 | |||||
| Gross Margin | 20,286,913 | 22,176,944 | |||||
| Gross Margin as a % of Revenue | 33.5 | % | 32.4 | % | |||
| Operating costs | 17,583,521 | 22,720,163 | |||||
| Professional fees | 878,335 | 867,170 | |||||
| Adjusted EBITDA | 1,825,057 | (1,410,389 | ) | ||||
| Investment income | (325,744 | ) | (215,501 | ) | |||
| Gain on sale of portion of business | – | (2,047,975 | ) | ||||
| Share based compensation | 290,306 | 186,887 | |||||
| Transaction costs | 531,313 | 74,602 | |||||
| Change in fair value of contingent liability | (390,800 | ) | (36,094 | ) | |||
| Write down of assets | 500,000 | – | |||||
| EBITDA | $ | 1,219,983 | $ | 627,692 | |||
| Net loss from continuing operations (Note 1) | $ | (4,169,209 | ) | $ | (4,840,811 | ) | |
| Note 1 – During Fiscal 2018, an LOI was signed with Golden Opportunities Fund to sell Paradigm, leading to a change in financial presentation. In compliance with IFRS, the results of Paradigm and its associated assets/liabilities have been disclosed as assets held for sale in the financial statements. During Fiscal 2019, the transaction was completed. | |||||||
Reconciliation of Net loss to EBITDA
| Twelve Months Ended |
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| 30-Nov-20 |
30-Nov-19 |
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| Net loss from continuing operations | $ | (4,169,209 | ) | $ | (4,840,811 | ) | |
| Interest and financing costs | 3,182,775 | 2,918,139 | |||||
| Income tax recovery | (1,253,314 | ) | (592,649 | ) | |||
| Depreciation and amortization | 2,570,967 | 3,143,013 | |||||
| Depreciation of right-of-use assets | 888,764 | – | |||||
| EBITDA | 1,219,983 | 627,692 | |||||
| Investment income | (325,744 | ) | (215,501 | ) | |||
| Gain on sale of assets | – | (2,047,975 | ) | ||||
| Write- down of assets | 500,000 | – | |||||
| Change in fair value of contingent consideration | (390,800 | ) | (36,094 | ) | |||
| Share- based compensation | 290,306 | 186,887 | |||||
| Transaction costs | 531,313 | 74,602 | |||||
| Adjusted EBITDA | $ | 1,825,058 | $ | (1,410,389 | ) | ||
Revenue
During the fiscal year, 2020 consolidated revenues from continuing operations was $60.620M compared to $68.483M in the prior year. In TO, revenues decreased by $10.281M, while the BO’s revenues increased by $2.467M. Most of the revenue reduction in the TO is due to a combination of non-recurring project revenue and temporary office closures as a result of the pandemic. 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 operating processes became more streamlined. Over 80% of 2021 forecast revenue streams are under contract for the next 4 years representing >90% for Benefits and >70% for Technology. 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.
Gross Margins and Gross Margin %
The Company generated $20.287M in Gross Margin during the fiscal year, 2020 vs. $22.177M the previous year. Gross Margin % (“GM %”) for continuing operations was 33.5% in 2020 compared to 32.4% in 2019. TO GM were 16.5% vs. 17.9% the previous year, due to one-time revenue yielding higher margins in 2019. BO GM were 82.7% vs 95.9%, largely due to smaller GM in the online medical module sales. However, because of the revenue mix including more higher margin BO revenues in 2020, the consolidated GM % experienced growth of 1.1%.
Operational Costs:
- Salaries and Other Compensation – salaries from continuing operations decreased by $3.737M during the fiscal 2020 compared to the same period the prior year. The reduction is a result of the cost reduction initiatives and the government subsidies related to COVID-19. The cost reductions are across the company. Additional savings are targeted for 2021, as business processes continue to be streamlined. The savings are largely through attrition.
- Office and General Costs – Normalized office and general costs from continued operations decreased by $1.399M during fiscal 2020. This cost reduction was across all divisions and expected to prevail throughout 2021 and beyond.
- Professional Fees – Professional fees from continuing operations increased by $0.011M, in fiscal 2020, compared to 2019. Professional fees vary with the amount of financing or acquisition/disposition activity during the period. Actual professional fees costs were $2.139M of which $0.878M were recognized in fiscal 2020 and the remainder $1.260M, capitalized and amortized over the term of the financing it relates to.
Non-Cash Expenses:
Non-Cash expenses include amortization, depreciation, share-based (options, RSUs) compensation and write down of assets. They increased by $0.920M compared to the previous year. The largest component is amortization of intangible assets (mostly related to acquisition) and has decreased by $0.526M. These costs are expected to significantly lower in Fiscal 2021 as they have largely been amortized by the end of Fiscal 2020. This is offset by an increase of $0.889M in depreciation of right-of-use assets, an increase of $0.103M in share-based compensation and an increase of $0.500M due to a write down of assets.
Interest and Financing Costs, Interest Accretion and Transaction Costs:
Interest and financing costs, interest accretion and transaction costs from continuing operations increased by approximately $0.721M in 2020 compared to the same period in the prior year. The increase is primarily due to the one-time costs associated with the refinancing process. 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.
KEY DEVELOPMENTS DURING AND SUBSEQUENT TO THE YEAR
Scotia Capital Strategic Transaction Closed
Scotia Capital Inc. was engaged in March 2019 to assist the Company in identifying and negotiating a transaction with a strategic investment partner. A transaction was closed November 30, 2020 with The Co-operators Group. The SEB Board and Management believes this process will provide the optimal immediate value for shareholders, be operationally strategic to SEB and provide the working capital to expedite the many growth opportunities. The Company closed this strategic refinancing transaction on November 30, 2020 with a 5-year convertible notes of $20M and operating credit facilities of up to $10.0M with an international asset-based lender.
Business Development to Date
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 2020 and beyond from the Channel Partner business initiatives. Channel Partner “White Label TPA” agreements have been recently signed with organizations representing over 150,000 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. The company also launched “FlexPlus – Worksafe”, a fully integrated module for collecting, aggregating, analyzing and utilizing workforce data to manage the complexities of the pandemic in returning the workforce to the workplace. 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.
Cost Reduction and Integration
During the fiscal year, the Company reduced its operating cost structure by over $5.125M, with the full amount expected to continue to be reflected in Fiscal 2021 and beyond. Technology infrastructure and improved business processes accounted for more than half of the savings. The Company is targeting additional cost realignment and reduction in fiscal 2021 as new technology systems improve efficiencies.
Board Member Changes and Option Issuance
Subsequent to year end, a long-time director Latiq Qureshi retired from the Board. We thank Latiq for his contribution to the Company over the years. Additionally, Alec Blundell and David Forestell, executives from The Co-operators Group joined the Board. Per the Co-operators financing agreement, they are entitled to two director positions. Mr. Blundell has been with Co-operators over 27 years as EVP and COO. He has direct responsibility for Co-operators Life and Group Benefit business. Mr. Forestell is the VP of Finance for the Life and Group Benefit division of Co-operators and has been with them for over 12 years. We are pleased to welcome both individuals to our Board of Directors. Additionally, the Company issued 1.4M options to 7 independent directors and 1.0M to the CEO. The options replace options that expired March 3, 2021. They have a 30-month term, vest over 24 months and exercisable at $0.15 per share.
States John McKimm, President/CEO/CIO of Smart Employee Benefits Inc.:
“SEB has been in an investment mode since its inception in both the TO and more significantly in the BO. The TO, historically, has strong profitability. The BO 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 TO and BO 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 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.”
CONFERENCE CALL DETAILS
Date/Time: Tuesday, April 6 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/seb20210406.html
Conference Call Replay Numbers:
| Canada & USA Toll Free: | 1-855-669-9658 |
| Code: | 6540 followed by the # sign |
Replay Duration: Available for one week until end of day Tuesday, April 13, 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 process 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 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
