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 |
|
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 |
|
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 |
|
|
|
30-Nov-20 |
|
30-Nov-19 |
|
|
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 |
) |
|
RevenueDuring 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
ClosedScotia 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
DateRelationships 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 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/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 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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