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Smart Employee Benefits Reports Q3/2022 Results

Smart Employee Benefits Inc.
Smart Employee Benefits Inc.

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