Smart Employee Benefits Inc. Corporate Update

December 31, 2020 – Mississauga, ON: Smart Employee Benefits Inc. (“SEB” or the “Company”) (TSXV: SEB) is pleased to announce the following updates:

Board of Director and Chairman Changes – Our Chairman, Ronald Barbaro has resigned as Chairman and Director of the Company. Mr. Barbaro has been Chairman and Director from the early stages when SEB was founded. Mr. Barbaro remains one of the largest shareholders of SEB and committed to the success of the Company. Mr. Barbaro is scaling back his business activities to focus more on family. We thank Mr. Barbaro for his leadership and commitment to the Company over the years.

States John McKimm, President/CEO of Smart Employee Benefits Inc., “Ron has been an incredible resource and mentor in building SEB over the years. Ron’s lifetime of global experience in the insurance industry has been invaluable in developing and executing SEB’s business model and strategy. Over the years, Ron has been a pillar of strength and commitment at pivotal points in the development of SEB.”

Philp Armstrong has assumed the role of Chairman of the Board – Mr. Armstrong has been a Director of the Company since May 2017. He has been a member and Chair of the Governance and Compensation Committee. Mr. Armstrong has also been a member of the Company’s Special Committee established to provide guidance to management during the process of finalizing the Company’s strategic investment from The Co-operators Group. Mr. Armstrong brings a wealth of financial services, capital market and public market expertise to SEB. Mr. Armstrong is also a substantial shareholder of SEB from the days SEB was founded.

States John McKimm, President/CEO of Smart Employee Benefits Inc., “We are pleased to welcome Philip as our new Chairman of the Board. I have worked with Philip for a number of years, both as a Board member of SEB and previously on other entities where Philip was President/CEO. I am pleased that Philip has accepted this new responsibility and look forward to his support and guidance as our new Chairman of the Board.”

Stephen Peacock Appointment as Vice Chairman of the Board – Mr. Peacock has been appointed as Vice Chairman of the Board. Mr. Peacock has been a founding Director of SEB since the Company became public. He has been Chair of the Audit Committee and a member of other Board Committees including the Governance and Compensation Committee and the Special Committee in providing guidance to the strategic investment from The Co-operators Group.  Mr. Peacock has a wealth of public market and merger and acquisition expertise. Mr. Peacock will remain Chair of the Audit Committee and a member of the Governance and Compensation Committee. Mr. Peacock is also a significant shareholder of SEB from the days SEB was founded.

Mohamad El Chayah Appointment as Chief Operating Officer (“COO”) – The Company is also pleased to announce the appointment of Mr. El Chayah as COO of SEB. Mr. El Chayah will retain his position and responsibilities as President/CEO of the Benefits Division of the Company. His additional responsibilities as COO of SEB will include strategic and operational oversight of both the Technology Division and the Benefits Division. Mr. El Chayah joined SEB in May 2016 from Aon Hewitt. He has provided critical leadership in advancing the business opportunities and technology roadmap for the Benefits Division. He was instrumental in the acquisition of Aon’s benefit administration business in April, 2017. During his tenure, he has also worked closely with the leadership of the Technology Division. These COO new responsibilities are intended to operationally consolidate the business strategy, sales strategy, and technology roadmap of both the Technology and Benefits Divisions. The consolidated efforts of both divisions have been critical in winning over $100M of new contracts in the past 18 months, in particular recent wins which add over 50,000 new plan members on multi-year contracts to the Benefits Division. Mr. El Chayah has more than 15 years global experience in managing sales and delivery operations and technology solutions for global clients, in Canada, Europe and the Middle East, including multiple benefits related solutions and clients.

Stock Options and Restricted Share Units

The Company has granted share-based compensation to its independent directors.

Pursuant to the Company’s Omnibus Long-Term Incentive Plan (the “Plan”), it has granted stock options to its directors exercisable into an aggregate 3,500,000 common shares.  The stock options are exercisable at $0.15 per share with a 30-month term, with 20% of the options vesting immediately and 20% vesting every 6 months thereafter.

The Company has also granted an aggregate of 1,690,833 restricted share units (“RSUs”) to its directors in accordance with the Plan.  The RSUs will vest in stages over the next three years.  Each vested RSU entitles the holder to acquire one common share of the Company.

Debt Conversion

The Company has agreed with its directors to issue an aggregate of 2,858,175 common shares (“Debt Shares”) to its directors in exchange for the cancellation of an aggregate of $428,726 in net after tax directors’ fees owing. The Debt Shares are being issued at a deemed price of $0.15.

The issuance of the Debt Shares is subject to the approval of the TSX Venture Exchange. All shares issued pursuant to the debt conversion will be subject to a statutory four (4) month hold period.

The above noted transactions extinguish all debt obligations to the directors.

ABOUT SEB

SEB is a Business Process Automation and Outsourcing Technology Company providing software, solutions and services to a national and global client base. SEB has a specialty growth focus in cloud enabled SaaS processing solutions for managing employer and government sponsored benefit plans on a BPO (Business Processing Outsourcing) business model, globally. This is a major growth focus, SEB currently serves corporate and government clients across Canada and internationally. Over 80% of SEB’s revenues derive from government, insurance and healthcare organizations. SEB’s technology infrastructure of over 650 multi-certified technical professionals, across Canada and globally, is a critical competitive advantage in supporting the implementation and management of SEB’s Benefits Processing Solutions into client environments. SEB’s Benefits Processing Solutions can be game changing for SEB clients.

The core expertise of SEB is automating business processes utilizing SEB proprietary software solutions combined with solutions of third parties through joint ventures and partnerships. SEB’s client acquisition model in benefits processing is “Channel Partnerships” where SEB processing solutions both improve cost structures and enable new revenue models for Channel Partners and clients. All SEB solutions are cloud enabled and can be delivered on a SaaS platform. SEB solutions turn cost centers to profit centers for our Benefits Processing Channel Partners.

For further information about SEB, please visit www.seb-inc.com.

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 CONTACTS:

John McKimm

President/CEO/CIO

Office (888) 939-8885 x 2354

Cell (416) 460-2817

john [dot] mckimm [at] seb-inc [dot] com

SEB ANNOUNCES THE COMPLETION OF $20 MILLION STRATEGIC FINANCING AND $10 MILLION NEW CREDIT FACILITY

December 1, 2020 – Mississauga, ON: Smart Employee Benefits Inc. (“SEB” or the “Company”) (TSXV: SEB) a leader in benefits processing solutions and services, today announced the issuance by SEB of a $20,000,000 convertible debenture (the “Debenture”) by way of a non-brokered private placement (the “Financing”). The Financing solidifies SEB’s balance sheet and provides the capital to focus on numerous growth opportunities.

The Financing is being provided by Co-operators Financial Services Limited (“The Co-operators”). The proceeds of the Financing were used to repay term indebtedness of the Company and will also be used for general working capital purposes.

States John McKimm, President, CEO, CIO of Smart Employee Benefits Inc.: “To take advantage of its many business opportunities, SEB initiated the process to find a strategic investment partner in mid-2019. Scotia Capital was engaged to review strategic alternatives. The process has culminated with a financing from The Co-operators who brings both capital and strategic partnership value. The Co-operators appreciates the strategic fit between SEB’s Technology Division and Benefits Division and the competitive advantage this gives SEB in creating value for its clients and winning new business. The management and Board of SEB believe The Co-operators represents the optimal value for SEB shareholders near term and long term; as SEB continues its product innovation, adding powerful new features that enhance our value proposition to customers and partners.

The Co-operators Group Ltd., through its subsidiaries, is one of the leading Canadian owned multi-line insurers, offering auto, home, life, health, group benefits, farm, travel, and business insurance as well as investments. It is owned by 45 member organizations including co-ops, credit unions and representatives from farm organizations. Its asset base is over $51.0 billion with operations across Canada. Its 45 member organizations serve over 5.8 million individual members. SEB group benefit clients already include one of The Co-operators Group Ltd.’s member organizations.” 

TERMS OF THE CO-OPERATORS FINANCING

The Debenture has an interest rate of 10% per annum, paid semi-annually with the first interest payment due on February 28, 2021, and the principal payment due at the maturity date (the “Maturity Date”), being 60 months after the closing (the “Closing Date”). The interest rate may be reduced to a floor of 7% depending on the success of select business initiatives.

The principal amount of the Debenture is convertible into common shares of the Company (“Shares”) at a conversion price of $0.25 per Share, subject to adjustment (the “Conversion Price”). The Debenture is convertible at the option of the holder, at any time prior to the close of business on the last business day immediately preceding the Maturity Date. If the volume weighted average trading price of the Shares on the TSX Venture Exchange (the “Exchange”) is equal to at least 175% of the Conversion Price for a period of 30 trading consecutive days, then the Debenture will be convertible at the option of the Company.

The Debenture and any Shares issued upon its conversion are subject to a hold period expiring four months and one day after the Closing Date.

The Debenture is guaranteed by the material subsidiaries of the Company (the “Guarantors”) and secured by a first ranking pledge of the shares of SEB Administrative Services Inc. (“SEB Admin”), a wholly-owned subsidiary of the Company, and first ranking security over the software owned by SEB Admin, and second ranking security over all other undertaking, property and assets of the Company and of each Guarantor which such security is subject only to a first ranking security over such security in favour of SEB’s new operating credit facility lender. The Company, The Co-operators and such new operating credit facility lender entered into an intercreditor agreement governing, among other things, the priority of the first and second ranking security and the relationship of The Co-operators and the new operating credit facility lender with the Company and vis a vis each other.

The Debenture is not redeemable at the option of the Company on or before June 1, 2023 (the “Call Date”). After the Call Date and prior to June 1, 2024, the Debenture may be redeemed in whole or in part from time to time at the option of the Company, at a price equal to the then outstanding principal amount plus accrued and unpaid interest thereon up to but excluding the date of redemption, provided that the volume weighted average trading price of the Shares on the Exchange during the 30 consecutive trading days preceding the date on which notice of redemption is given is not less than 125% of the Conversion Price. Provided, however, that if the Company delivers such written notice of redemption, The Co-operators shall have 10 days to convert the principal amount of the Debenture, or any part thereof, into that number of Shares as are equal to the principal amount of such Debenture, or any part thereof, divided by the Conversion Price. After June 1, 2024, the Debenture will be redeemable at the Company’s option at any time at an amount equal to the then outstanding principal amount of the Debenture plus accrued and unpaid interest (provided, however, that the same 10-day notice shall apply to allow for the conversion at the option of The Co-operators).

On a change of control of the Company (a “Change of Control”), the Company shall notify The Co-operators of the Change of Control in writing, and The Co-operators shall, in its sole discretion, have the right to require the Company to, either: (i) purchase the Debenture, in whole or in part, at a price equal to (a) 125% of the principal amount thereof plus unpaid interest, if the notice of change of control is delivered on or prior to the second anniversary of the issue date or (b) 101% of the principal amount thereof plus unpaid interest, if the notice of change of control is delivered following the second anniversary of the issue date; or (ii) convert the Debenture, in whole or in part, at the Conversion Price.

The Debenture contains affirmative covenants, negative covenants and financial covenants that are customary for transactions of this nature.

Pursuant to an investor rights agreement between SEB and The Co-operators, The Co-operators has the right to have up to two nominees appointed to the board of directors of the Company, including one member on each of the audit committee and the governance and compensation committee of the Company. The Co-operators is entitled to nominate a third director of the Company upon conversion of the Debenture to equity. The Co-operators also has the right to license the Company’s technology and intellectual property on commercial terms.

APPROVALS AND CLOSING

The policies of the Exchange require that any new Control Person (as defined under Exchange policies e.g. a holder of more than 20% of the outstanding voting shares of an issuer) requires Exchange approval and shareholder approval. Exchange policies also provide that shareholder approval may be obtained by written shareholder consent.

There are currently 165,760,699 Shares issued and outstanding. The Co-operators currently does not own or control any Shares; however, if The Co-operators were to convert the principal amount of the Debenture, then The Co-operators would beneficially own or control, directly or indirectly, 80,000,000 Shares, representing approximately 32.6% of the then 245,760,699 issued and outstanding Shares.

The Company has obtained final approval from the Exchange as well as the written consent of holders of a majority of the Shares for the Financing and creation of The Co-operators as a new Control Person.

NEW CREDIT FACILITY

Coincident with the closing of the Financing from The Co-operators, SEB also closed a new senior secured operating credit facility (the “Credit Facility”) with an international asset-focused lender.

The Credit Facility is a $10,000,000 revolving credit facility with an interest rate based on the London Interbank Offered Rate plus 6.9%; and advances thereunder determined by a formula based on the Company’s accounts receivable borrowing base. The Credit Facility is secured by first ranking security over all undertaking, property and assets of the Company and the Guarantors, subject only to a first ranking security held by The Co-operators over the shares of SEB Admin and the software owned by SEB Admin.

The Credit Facility has a term of three years and replaces the Company’s previous bank operating and term facilities that were repaid on the closing of the Credit Facility. Under the terms of the Credit Facility, the Company will be subject to certain financial covenants and ratios and customary terms and conditions.

Advisors

Scotiabank acted as financial advisor to SEB on The Co-operators financing and Canaccord Genuity Corp. acted as financial advisor to SEB on the revolving Credit Facility. Harris + Harris LLP acted as legal counsel to SEB and Fasken Martineau DuMoulin LLP acted as legal counsel to The Co-operators.

ABOUT SEB

SEB is a technology company providing Business Process Automation and Outsourcing software, solutions and services to a national and global client base. SEB has a specialty growth focus in cloud enabled processing solutions for managing employer and government sponsored health benefit plans on a BPO (Business Processing Outsourcing) business model, globally (through wholly owned SEB Administrative Services Inc.). SEB currently serves corporate and government clients across Canada and internationally. Over 80% of SEB’s revenues derive from government, insurance and health care organizations. SEB’s technology infrastructure of over 650 multi-certified technical professionals, across Canada and globally, is a critical competitive advantage in supporting the implementation and management of SEB’s benefits processing solutions into client environments. SEB’s Benefits Processing Solutions can be game changing for SEB clients.

The core expertise of SEB is automating and managing business processes utilizing SEB proprietary software solutions combined with solutions of third parties through joint ventures and partnerships. SEB’s client acquisition model in benefits processing is “Channel Partnerships” where SEB processing solutions both improve cost structures and enable new revenue models for Channel Partners and clients. All SEB solutions are cloud enabled and can be delivered on a SaaS platform. SEB solutions turn cost centers to profit centers for our Channel Partners.

ABOUT SEB ADMIN

SEB Admin’s FlexPlus processing environment encompasses over 20 benefit processing modules driving more than 20 revenue models. The modules can operate standalone or as a single sign-on fully integrated environment. A number of the modules are unique in the marketplace. All FlexPlus modules are cloud enabled, can be provided in French and English, and can be cost effectively customized for multiple languages applicable to both Canadian and international markets. SEB’s “Channel Partner White-Label” business model is unique in the Canadian market. Channel Partners include insurance brokers, benefit consultants, MGAs, TPAs, Insurers, plan sponsors, corporate, government entities, unions, insurers and payroll companies. FlexPlus turns “cost centres” to “profit centres” for Channel Partners. All FlexPlus solutions can be deployed in multiple environments and delivered as a fully outsourced, co-sourced or SaaS model. FlexPlus solutions are applicable to all benefit plan types including Flex Cafeteria, traditional, multi-employer and hour bank/dollar bank plan designs.

For further information about SEB Administrative Services Inc., please visit www.seb-admin.com

ABOUT THE CO-OPERATORS GROUP LTD.

The Co-operators Group Limited is a Canadian co-operative with more than $51.4 billion in assets under administration. Through its group of companies, it offers home, auto, life, group, travel, commercial and farm insurance, as well as investment products. The Co-operators is well known for its community involvement and its commitment to sustainability. The Co-operators is ranked as a Corporate Knights’ Best 50 Corporate Citizen in Canada and listed among the Best Employers in Canada by Kincentric (formerly AON). For more information, visit www.cooperators.ca.

FORWARD LOOKING INFORMATION

The statements made in this release that are not historical facts contain forward-looking information that involves risks and uncertainties. All statements, including statements regarding the Company’s areas of focus, other than statements of historical facts, which address the Company’s expectations, should be considered as forward-looking statements and therefore subject to various risks and uncertainties. The words “may”, “will”, “could”, “should”, “would”, “suspect”, “outlook”, “believe”, “plan”, “anticipate”, “estimate”, “expect”, “intend”, “forecast”, “objective”, “hope”, “target” and “continue” (or the negative thereof), and words and expressions of similar import, are intended to identify forward-looking statements.

Such forward-looking statements are based on knowledge of the environment in which the Company currently operates, but because of the factors listed herein, as well as other factors beyond the Company’s control, actual results may differ materially from the expectations expressed in the forward-looking statements. Investors are cautioned not to put undue reliance on forward-looking statements. The Company undertakes no obligation, and does not intend, to update, revise or otherwise publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date hereof, or to reflect the occurrence of any unanticipated events, other than 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) accepts responsibility for the adequacy or accuracy of this release.

This news release does not constitute an offer to sell or a solicitation of an offer to sell any of the securities described herein in the United States. The securities described in this news release have not been and will not be registered under the United States Securities Act of 1933, as amended (the “U.S. Securities Act”) or any state securities laws and may not be offered or sold within the United States or to U.S. Persons unless registered under the U.S. Securities Act and applicable state securities laws or an exemption from such registration is available.

For further information about SEB, please visit www.seb-inc.com.

All figures are in Canadian dollars unless otherwise stated. 

MEDIA AND INVESTOR CONTACTS:

John McKimm, President/CEO/CIO

Office (888) 939-8885 x 2354

Cell (416) 460-2817

john [dot] mckimm [at] seb-inc [dot] com

SEB AND THE CO-OPERATORS ANNOUNCE $20 MILLION STRATEGIC FINANCING AGREEMENT

November 16, 2020 – Mississauga, ON: Smart Employee Benefits Inc. (“SEB” or the “Company”) (TSXV: SEB) a leader in benefits processing solutions and services, and The Co-operators Group Ltd., a Canadian insurance and financial services co-operative, today announced the signing of a definitive debenture purchase agreement for the issuance of a $20,000,000 convertible debenture (the “Debenture”) by way of a non-brokered private placement (the “Financing”).  The Financing solidifies SEB’s balance sheets and provides the capital to focus on numerous growth opportunities.

The Financing will be provided by Co-operators Financial Services Limited (“The Co-operators”).  The proceeds of the Financing will be used to repay term indebtedness of the Company as well as for general working capital purposes.

Closing of the Financing is subject to customary closing conditions, final approval from the TSX Venture Exchange (the “Exchange”) and approval from the Company’s shareholders.

States John McKimm, President, CEO, CIO of Smart Employee Benefits Inc.:  “To take advantage of its many business opportunities, SEB initiated the process to find a strategic investment partner in mid 2019. Scotia Capital was engaged to review strategic alternatives. The process has culminated with a financing agreement with The Co-operators who brings both capital and strategic partnership value. The Co-operators appreciates the strategic fit between SEB’s Technology Division and Benefit Division and the competitive advantage this gives SEB in creating value for its clients and winning new business. The management and Board of SEB believe The Co-operators represents the optimal value for SEB shareholders near term and long term; as SEB continues its product innovation, adding powerful new features that enhance our value proposition to customers and partners.

“The Co-operators Group Ltd., through its subsidiaries, is one of the leading Canadian owned multi-line insurers, offering auto, home, life, health, group benefits, farm, travel, and business insurance as well as investments. It is owned by 45 member organizations including co-ops, credit unions and representatives from farm organizations. Its asset base is over $51.0 billion with operations across Canada. Its 45 member organizations serve over 5.8 million individual members. SEB group benefit clients already include one of The Co-operators Group Ltd.’s  member organizations.” 

States Alec Blundell, Executive Vice-president of The Co-operators Group Ltd.: “The Co-operators has identified the group benefit and life insurance market as a strategic high growth opportunity, and believes SEB can play a material role in expediting our growth in this marketplace. This investment supports our ongoing strategic efforts to meet the diverse needs of Canadian employers and their workforces. SEB is a leading provider of technology solutions to the group benefit and life insurance industry in Canada, with a proven suite of solutions that manage benefit plans for over 300,000 employees for both corporate and government clients, including over 50 of Canada’s leading national organizations.”

TERMS OF THE FINANCING

The Debenture has an interest rate of 10% per annum, paid semi-annually with the first interest payment due on February 28, 2021, and the principal payment due at the maturity date (the “Maturity Date”), being 60 months after the closing (the “Closing Date”).  The interest rate may be reduced to a floor of 7% depending on the success of select business initiatives.

The principal amount of the Debenture is convertible into common shares of the Company (“Shares”) at a conversion price of $0.25 per Share, subject to adjustment (the “Conversion Price”). The Debenture is convertible at the option of the holder, at any time prior to the close of business on the last business day immediately preceding the Maturity Date. If the volume weighted average trading price of the Shares on the Exchange is equal to at least 175% of the Conversion Price for a period of 30 trading consecutive days, then the Debenture will be convertible at the option of the Company.

The Debenture and any Shares issued upon its conversion are subject to a hold period expiring four months and one day after the Closing Date.

The Debenture will be guaranteed by the material subsidiaries of the Company (the “Guarantors”) and secured by a first ranking pledge of the shares of SEB Administrative Services Inc. (“SEB Admin”), a wholly-owned subsidiary of the Company, and first ranking security over the software owned by SEB Admin, and second ranking security over all other undertaking, property and assets of the Company and of each Guarantor which such security is subject only to a first ranking security over such security in favour of an operating facility lender.  The Company, The Co-operators and such operating facility lender will enter into an intercreditor agreement governing, among other things, the priority of the first and second ranking security and the relationship of Cooperators and the operating facility lender with the Company and vis a vis each other.

The Debenture is not redeemable at the option of the Company on or before June 1, 2023 (the “Call Date”). After the Call Date and prior to June 1, 2024, the Debenture may be redeemed in whole or in part from time to time at the option of the Company, at a price equal to the then outstanding principal amount plus accrued and unpaid interest thereon up to but excluding the date of redemption, provided that the volume weighted average trading price of the Shares on the Exchange during the 30 consecutive trading days preceding the date on which notice of redemption is given is not less than 125% of the Conversion Price. Provided, however, that if the Company delivers such written notice of redemption, The Co-operators shall have 10 days to convert the principal amount of the Debenture, or any part thereof, into that number of Shares as are equal to the principal amount of such Debenture, or any part thereof, divided by the Conversion Price. After June 1, 2024, the Debenture will be redeemable at the Company’s option at any time at an amount equal to the then outstanding principal amount of the Debenture plus accrued and unpaid interest (provided, however, that the same 10-day notice shall apply to allow for the conversion at the option of The Co-operators).

On a change of control of the Company (a “Change of Control”), the Company shall notify The Co-operators of the Change of Control in writing, and The Co-operators shall, in its sole discretion, have the right to require the Company to, either: (i) purchase the Debenture, in whole or in part, at a price equal to (a) 125% of the principal amount thereof plus unpaid interest, if the notice of change of control is delivered on or prior to the second anniversary of the issue date or (b) 101% of the principal amount thereof plus unpaid interest, if the notice of change of control is delivered following the second anniversary of the issue date; or (ii) convert the Debenture, in whole or in part, at the Conversion Price.

The Debenture contains affirmative covenants, negative covenants and financial covenants that are customary for transactions of this nature.

Pursuant to an investor rights agreement between SEB and The Co-operators, The Co-operators has the right to have up to two nominees appointed to the board of directors of the Company, including one member on each of the audit committee and the governance and compensation committee of the Company. The Co-operators are entitled to nominate a third director of the Company upon conversion of the debenture to equity. The Co-operators also has the right to license the Company’s technology and intellectual property on commercial terms.

APPROVALS AND CLOSING

The policies of the Exchange require that any new Control Person (as defined under Exchange policies e.g. a holder of more than 20% of the outstanding voting shares of an issuer) requires Exchange approval and shareholder approval.  Exchange policies also provide that shareholder approval may be obtained by written shareholder consent.

There are currently 165,760,699 Shares issued and outstanding.  The Co-operators currently does not own or control any Shares; however, if The Co-operators were to convert the principal amount of the Debenture, then The Co-operators would beneficially own or control, directly or indirectly, 80,000,000 Shares, representing approximately 32.6% of the then 245,760,699 issued and outstanding Shares.

The Company has obtained conditional approval from the Exchange and will seek to obtain the written consent of holders of a majority of the Shares for the Financing and creation of The Co-operators as a new Control Person.  The Company is targeting to close the Financing on or before November 30, 2020, coincident with final Exchange approval of the Financing and the closing of the Company’s new operating credit facility.

Advisors

Scotiabank is acting as financial advisor to SEB and Harris + Harris LLP is acting as legal counsel to SEB.  Fasken Martineau DuMoulin LLP is acting as counsel to The Cooperators.

ABOUT SEB

SEB is a technology company providing Business Process Automation and Outsourcing software, solutions and services to a national and global client base. SEB has a specialty growth focus in cloud enabled processing solutions for managing employer and government sponsored health benefit plans on a BPO (Business Processing Outsourcing) business model, globally (through wholly owned SEB Administrative Services Inc.). SEB currently serves corporate and government clients across Canada and internationally. Over 80% of SEB’s revenues derive from government, insurance and health care organizations. SEB’s technology infrastructure of over 650 multi-certified technical professionals, across Canada and globally, is a critical competitive advantage in supporting the implementation and management of SEB’s benefits processing solutions into client environments. SEB’s Benefits Processing Solutions can be game changing for SEB clients.

The core expertise of SEB is automating and managing business processes utilizing SEB proprietary software solutions combined with solutions of third parties through joint ventures and partnerships. SEB’s client acquisition model in benefits processing is “Channel Partnerships” where SEB processing solutions both improve cost structures and enable new revenue models for Channel Partners and clients. All SEB solutions are cloud enabled and can be delivered on a SaaS platform. SEB solutions turn cost centers to profit centers for our Channel Partners.

ABOUT SEB ADMIN

SEB Admin’s FlexPlus processing environment encompasses over 20 benefit processing modules driving more than 20 revenue models. The modules can operate standalone or as a single sign-on fully integrated environment. A number of the modules are unique in the marketplace. All FlexPlus modules are cloud enabled, can be provided in French and English, and can be cost-effectively customized for multiple languages applicable to both Canadian and international markets. SEB’s “Channel Partner White-Label” business model is unique in the Canadian market. Channel Partners include insurance brokers, benefit consultants, MGAs, TPAs, Insurers, plan sponsors, corporate, government entities, unions, insurers and payroll companies. FlexPlus turns “cost centres” to “profit centres” for Channel Partners. All FlexPlus solutions can be deployed in multiple environments and delivered as a fully outsourced, co-sourced or SaaS model. FlexPlus solutions are applicable to all benefit plan types including Flex Cafeteria, traditional, multi-employer and hour bank/dollar bank plan designs.

For further information about SEB Administrative Services Inc., please visit www.seb-admin.com

ABOUT THE CO-OPERATORS GROUP LTD.

The Co-operators Group Limited is a Canadian co-operative with more than $51.4 billion in assets under administration. Through its group of companies, it offers home, auto, life, group, travel, commercial and farm insurance, as well as investment products. The Co-operators is well known for its community involvement and its commitment to sustainability. The Co-operators is ranked as a Corporate Knights’ Best 50 Corporate Citizen in Canada and listed among the Best Employers in Canada by Kincentric (formerly AON). For more information, visit www.cooperators.ca.

FORWARD LOOKING INFORMATION

The statements made in this release that are not historical facts contain forward-looking information that involves risks and uncertainties. All statements, including statements regarding the Company’s areas of focus, other than statements of historical facts, which address the Company’s expectations, should be considered as forward-looking statements and therefore subject to various risks and uncertainties. The words “may”, “will”, “could”, “should”, “would”, “suspect”, “outlook”, “believe”, “plan”, “anticipate”, “estimate”, “expect”, “intend”, “forecast”, “objective”, “hope”, “target” and “continue” (or the negative thereof), and words and expressions of similar import, are intended to identify forward-looking statements.

Such forward-looking statements are based on knowledge of the environment in which the Company currently operates, but because of the factors listed herein, as well as other factors beyond the Company’s control, actual results may differ materially from the expectations expressed in the forward-looking statements. Investors are cautioned not to put undue reliance on forward-looking statements. The Company undertakes no obligation, and does not intend, to update, revise or otherwise publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date hereof, or to reflect the occurrence of any unanticipated events, other than 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) accepts responsibility for the adequacy or accuracy of this release.

This news release does not constitute an offer to sell or a solicitation of an offer to sell any of the securities described herein in the United States.  The securities described in this news release have not been and will not be registered under the United States Securities Act of 1933, as amended (the “U.S. Securities Act”) or any state securities laws and may not be offered or sold within the United States or to U.S. Persons unless registered under the U.S. Securities Act and applicable state securities laws or an exemption from such registration is available.

For further information about SEB, please visit www.seb-inc.com.

All figures are in Canadian dollars unless otherwise stated. 

MEDIA AND INVESTOR CONTACTS:

John McKimm, President/CEO/CIO

Office (888) 939-8885 x 2354

Cell (416) 460-2817

john [dot] mckimm [at] seb-inc [dot] com

 

Media relations

The Co-operators

media [at] cooperators [dot] ca

SEB Reports Results for Third Quarter 2020

Conference Call Scheduled Thursday, November 5, at 11:30 A.M. 

October 30, 2020 – Mississauga, ON: Smart Employee Benefits Inc. (“SEB” or the “Company”) (TSXV: SEB) today reports its financial results for the third quarter of 2020.

States John McKimm, President/CEO/CIO of Smart Employee Benefits Inc.:

“Adjusted EBITDA and EBITDA improved significantly for the third quarter, 2020 over the comparable period the previous year, after adjustment of the one-time Gain on sale of assets recorded in the third quarter, 2019.  The gross margin percentage improved by 3.5% from the second quarter, 2020 and 3.4% from the same period the previous year. Operating costs reduction initiatives led to the year over year improvement in cost structure of approximately $1,227,496 quarter over quarter and $3,585,015, for the nine months year to date 2020 compared to 2019.These savings are expected to be permanent and reach over $4.0M annually.

EBITDA (adjusted for the one-time Gain on sale of assets recorded in the third quarter of 2019) improved by $453,491 in the third quarter to a positive $491,133 from a positive $37,642 and Adjusted EBITDA improved by $918,518 to a positive $1,093,778 from a positive $175,260 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 Division and revenue growth in the Benefits Division.

SEB has made significant investments in both the Technology and Benefits Divisions since the Company’s inception.  Building the 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 divisions.  As a result, the Technology Division (“TD”) currently experienced a positive $2,824,687 of EBITDA in the first 9 months versus $2,059,776 the previous year. The Benefits Division (“BD”) experienced a positive $854,008 versus a negative $2,202,100 the same period the previous year. This trend is expected to continue in last quarter of 2020.

The TD has historically been cash flow positive and net new business wins remain strong. The BD is just now becoming cash flow positive after huge investment in technology/infrastructure and is 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.

COVID-19 has led to demand for our BD solutions, including our “online medical care partnerships”.  In our TD, a portion of our revenues are at risk near term, primarily those related to the project driven portion of the business and the delay of government renewals of existing contracts and the onboarding of new contracts. Budget allocations have not changed, but the expenditures have been delayed.  The remaining business is largely multi-year managed services driven contracts for mission critical infrastructure and systems.  On a consolidated level the company applied for COVID-19 government relief which offset the profitability loss from the decline in revenue in the TD.  The remaining business has experienced stable and growing revenue and is not eligible.

The sales pipeline is the strongest it has ever been.  The cost savings initiatives taken over the past several years should be fully experienced in 2020.  We are anticipating improved consolidated financial performance in 2020 fiscal year vs. 2019, particularly in the BD.”

Quarterly Statements of Comprehensive Income (Loss) for the eight quarters ended August 31, 2020

 

June 1, 2020
to Aug 31, 2020

Mar 1, 2020
to May 31, 2020

Dec 1, 2019
to Feb 29, 2020

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

Sep 1, 2018
to Nov 30, 2018

(Note 1)

Revenue

$ 14,664,966

$ 15,436,686

$16,520,977

$ 17,326,306

$ 16,974,918

$ 17,675,479

$ 16,506,330

$18,559,118

 

 

 

 

Cost of revenues

9,351,211

10,389,383

11,198,629

11,689,312

11,403,091

12,224,037

10,989,649

12,803,253

Gross Margin

5,313,755

5,047,303

5,322,348

5,636,994

5,571,827

5,451,442

5,516,681

5,755,865

Gross Margin as a % of Revenue

36.2%

32.7%

32.2%

32.5%

32.8%

30.8%

33.4%

31.0%

 

 

 

 

Salaries and other compensation costs

2,694,858

3,074,118

3,805,798

3,520,013

4,008,953

4,427,102

4,486,090

4,886,028

Professional fees

162,581

125,830

169,443

303,312

111,674

315,073

137,112

580,742

Office and general

1,362,538

1,327,462

1,403,431

1,946,928

1,275,940

1,235,608

1,819,528

1,723,510

Adjusted EBITDA

1,093,778

519,894

(56,324)

(133,259)

175,260

(526,341)

(926,049)

(1,434,415)

       
Investment loss (income)

 -

5,807

 -

(181,424)

(34,077)

 -

 -

 -

Gain on sale of assets

 -

 -

 -

(153,461)

(1,894,514)

 -

 -

 -

Write down of assets

 -

 -

 -

 -

 -

 -

 -

6,671,890

Change in fair value of contingent consideration

 -

 -

 -

(36,094)

 -

 -

 -

(480,374)

Share-based compensation

1,261

2,851

15,576

11,903

35,675

63,151

76,158

(171,152)

Transaction costs

601,386

64

 -

(117,856)

136,021

50,000

6,437

 -

EBITDA

491,133

511,172

(71,900)

343,673

1,932,156

(639,492)

(1,008,644)

(7,454,779)

       
Interest and financing costs

662,004

768,934

725,580

783,599

994,527

608,487

531,528

(400,582)

Income tax expense (recovery)

(18,178)

(48,374)

(3,928)

(141,521)

(451,128)

(556)

556

(1,267,024)

Depreciation and amortization

642,043

629,951

633,171

744,460

623,319

1,120,003

655,231

768,493

Depreciation of right-of-use assets

244,333

239,021

161,077

 -

 -

 -

 -

 -

Net income (loss) from continuing operations

(1,039,069)

(1,078,360)

(1,587,800)

(1,042,865)

765,438

(2,367,426)

(2,195,959)

(6,555,666)

       
Income (Loss) from assets held for sale, net of tax

 -

 -

 -

 -

(93,799)

35,890

(312,776)

(1,432,309)

Net comprehensive income (loss)

$ (1,039,069)

$ (1,078,360)

$(1,587,800)

$ (1,042,865)

$  671,639

$ (2,331,536)

$ (2,508,735)

$(7,987,974)

 

 

 

 

Attributed to non-controlling interest

(53,508)

(119,033)

(241,535)

(50,105)

(50,776)

(184,035)

155,922

(136,312)

Attributed to common shareholders

(985,561)

(959,327)

(1,346,265)

(992,760)

722,415

(2,147,501)

(2,664,657)

(7,851,662)

Total

$ (1,039,069)

$ (1,078,360)

$(1,587,800)

$ (1,042,865)

$  671,639

$ (2,331,536)

$ (2,508,735)

$(7,987,974)

Note 1 – Historic quarters have been restated to reflect the operations of Paradigm Consulting Group as income from discontinued operations

Segmented Results for the year to date ended August 31, 2020 and 2019…

Smart Employee Benefits Inc.

 

 

 

Segmented Income Statement Detail for YTD ended August 31, 2020 (in C$)

Technology

Benefits

Corporate

Intercompany Sales/COS

Total Continuing Operations

Discontinued operations

Total Company

Revenue

       $36,835,170

     $11,057,019

 $               -    $ (1,269,561)  $         46,622,629  $                  -  

$46,622,629

               
Cost of revenues

30,519,160

1,689,623

 -

(1,269,561)

30,939,223

 -

30,939,223

Gross margin

6,316,011

9,367,396

 - 

 - 

15,683,406

 - 

15,683,406

               
Expenses              
Salaries and other compensation costs

2,335,215

6,478,199

761,359

 -

9,574,774

 -

9,574,774

Office and general

1,138,939

2,017,861

936,634

 -

4,093,434

 -

4,093,434

Professional fees

2,005

17,328

438,520

 -

457,853

 -

457,853

 

3,476,159

8,513,388

2,136,513

 -

14,126,060

 -

14,126,060

               
Adjusted EBITDA

2,839,852

854,008

(2,136,513)

 - 

1,557,346

 - 

1,557,346

             
Investment loss

 -

 -

5,807

 -

5,807

 -

5,807

Transaction costs

15,165

 -

586,285

 -

601,450

 -

601,450

Share-based compensation

 -

 -

19,688

 -

19,688

 -

19,688

               
EBITDA

2,824,687

854,008

(2,748,293)

 - 

930,401

 - 

930,401

               
Amortization of intangible assets

9,104

239,801

1,501,692

 -

1,750,597

 -

1,750,597

Depreciation of equipment

78,638

74,274

1,655

 -

154,567

 -

154,567

Depreciation of right-of-use assets

69,334

171,454

403,644

 -

644,431

 -

644,431

Interest and financing costs

889,634

455,414

811,468

 -

2,156,516

 -

2,156,516

Income tax recovery

(9,666)

 -

(60,814)

 -

(70,480)

 -

(70,480)

               
Net income (loss)         $ 1,787,643          $ (86,935)

$ (5,405,938)

 $                 –

 $(3,705,229)

 $                –

$(3,705,229)

               

…Segmented Results for the year to date ended August 31, 2020 and 2019 

Smart Employee Benefits Inc.

 

 

Segmented Income Statement Detail for YTD ended August 31, 2019 (in C$)

Technology

Benefits

Corporate

Intercompany Sales/COS

Total Continuing Operations

Discontinued operations

Total Company

Revenue

 $43,558,073

 $ 9,177,620

 $                –

 $ (1,578,966)

 $ 51,156,728     $ 13,817,603  $64,974,331
               
Cost of revenues

35,546,568

382,415

 -

(1,312,206)

34,616,776

10,978,245

45,595,021

Gross margin

8,011,505

8,795,205

 - 

(266,760)

16,539,952

2,839,358

19,379,310

               
Expenses              
Salaries and other compensation costs

3,953,234

8,290,319

945,352

(266,760)

12,922,145

1,014,471

13,936,616

Office and general

1,884,182

2,583,446

(136,551)

 -

4,331,077

1,504,985

5,836,062

Professional fees

114,313

123,540

326,006

 -

563,859

127,331

691,190

 

5,951,730

10,997,305

1,134,806

(266,760)

17,817,080

2,646,787

20,463,867

               
Adjusted EBITDA

2,059,776

(2,202,100)

(1,134,806)

 - 

(1,277,128)

192,571

(1,084,557)

             
Investment income

 -

 -

(34,077)

 -

(34,077)

 -

(34,077)

Gain on settlement of debt

 -

 -

 -

 -

 -

(472,364)

(472,364)

Gain on sale of assets

 -

 -

(1,894,514)

 -

(1,894,514)

 -

(1,894,514)

Transaction costs

 -

 -

192,458

 -

192,458

475,438

667,896

Share-based compensation

 -

 -

174,983

 -

174,984

 -

174,984

EBITDA

2,059,776

(2,202,100)

426,344

 - 

284,021

189,498

473,518

Amortization of intangible assets

165,576

603,158

1,441,829

 -

2,210,564

 -

2,210,564

Depreciation of equipment

105,650

79,859

2,480

 -

187,989

 -

187,989

Interest and financing costs

1,263,681

424,091

446,770

 -

2,134,542

968,869

3,103,411

Income tax recovery

(151,144)

(1,721)

(298,262)

 -

(451,128)

(408,687)

(859,815)

               
Net income (loss)

$ 676,014

 $ (3,307,487)

 $(1,166,474)  $                 -  $  (3,797,947)

 $   (370,685)

 $(4,168,632)
               

Comparative Consolidated Results for the third quarter of 2020 and 2019 

   

Three months ended Aug 31

 

Nine months ended Aug 31

   

2020

2019

 

2020

2019

Revenue

$14,664,966

$16,974,918

$  46,622,629

$51,156,727

Cost of revenues  

9,351,211

11,403,091

 

30,939,223

34,616,777

Gross Margin  

5,313,755

5,571,827

 

15,683,406

16,539,950

Gross Margin as a % of Revenue

36.2%

32.8%

33.6%

32.3%

Operating costs

4,057,397

5,284,893

13,668,206

17,253,222

Professional fees  

162,581

111,674

 

457,853

563,859

Adjusted EBITDA

1,093,777

175,260

1,557,347

(1,277,130)

Investment loss (income)

 -

(34,077)

5,807

(34,077)

Gain on sale of assets                           -

(1,894,514)

 -

(1,894,514)

Share based compensation

1,261

35,675

19,688

174,984

Transaction costs  

601,386

136,021

601,450

192,458

EBITDA  

$  491,130

$  1,932,156

 

$  930,402

$  284,019

Net Income (loss) from continuing operations (Note 1)  

$ (1,039,069)

$  765,438

 

$ (3,705,229)

$ (3,797,947)

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 Consolidated Net income (loss) to EBITDA for the third quarter of 2020 and 2019 

Three months ended

Nine months ended

 

31-Aug-20

31-Aug-19

31-Aug-20

31-Aug-19

Net gain (loss) from continuing operations

$ (1,039,069)

$  765,438

$ (3,705,229)

$ (3,797,947)

Interest and financing costs

662,001

994,527

2,156,517

2,134,541

Income tax recovery

(18,178)

(451,128)

(70,480)

(451,128)

Depreciation and amortization

642,043

623,319

1,905,165

2,398,553

Deprecation charge  

244,333

 -

644,429

 -

EBITDA

491,130

1,932,156

930,402

284,019

Investment loss (gain)

 -

(34,077)

5,807

(34,077)

Gain on sale of assets

 -

(1,894,514)

-

(1,894,514)

Share- based compensation

1,261

35,675

19,688

174,984

Transaction costs

601,386

136,021

601,450

192,458

Adjusted EBITDA

$  1,093,777

$  175,260

$  1,557,347

$ (1,277,130)

Revenue

During the third quarter, 2020 consolidated revenues from continuing operations was a $14.665M compared to $16.975M in the prior year. In the TD, revenues decreased by $6.723M, while the BD’s revenues increased by $1.879M.  Most of the revenue reduction in the TD 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 are expected to be renewed late in the fourth quarter and into the first quarter of 2021.   The Company is focused on the higher margin business within the Benefits Division.

Gross Margins and Gross Margin %

The Company generated $5.314M in gross margin during the third quarter August 31, 2020 vs. $5.572M the previous year. Gross Margin % (“GM %”) for continuing operations was 36.2% in 2020 compared to 32.8% in 2019. TD gross margins were 19.1% vs. 18.4% the previous year, due to one-time revenue yielding higher margin in 2020. BD gross margins were 77.0% vs 96.7%, largely due to smaller margins in the online medical module sales.

Operational Costs:

  • Salaries and Other Compensation - salaries decreased by $3.347M during the first nine months of the year when 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 2020, as the full impact of 2019 cost saving initiatives flow through for the complete 2020 year.
  • Office and General Costs­ – Normalized office and general costs decreased by $0.238M during the first three quarters. This cost reduction was across all divisions and expected to prevail throughout 2020.
  • Professional Fees – Professional fees decreased by $0.106M, in the nine months of 2020, compared to 2019.  Professional fees vary with the amount of financing or acquisition/disposition activity during the period. Given the major transactions in process, these fees will increase in 2020 as transactions close. 

Non-Cash Expenses:

Non-Cash expenses include amortization, depreciation and share-based (options) compensation and decreased by $0.004M nine months into the year compared to the previous year.  The largest component is amortization of intangible assets (mostly related to acquisition) and has decreased by $0.460M. These costs are expected to be largely amortized by the end of Fiscal 2020. This is offset by an increase of $0.644M in depreciation of right-of-use assets. 

Interest and Financing Costs and Interest Accretion:

Interest and financing costs increased by approximately $0.022M during the first three quarters compared to the same period in the prior year. The increase is primarily due to the one-time costs associated with the refinancing process. 

KEY DEVELOPMENTS DURING AND SUBSEQUENT TO THE YEAR

Update on Scotia Capital Strategic Review Process

Scotia Capital Inc. was engaged in March 2019 to assist the Company in identifying and negotiating a transaction with a strategic investment partner.  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 is currently in the final stages of the refinancing process with negotiations at advanced levels on 5-year convertible notes of $20M and operating credit facilities in the $10.0M range.

Business Development to Date

Relationships have been consolidated and grown with multiple new consulting 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 approximately 150,000 plan members. The Company has gained significant traction with its online medical care partnership with EQ Care, recently adding clients representing over 110,000 plan members. In addition, the company has launched “FlexPlus – Worksafe”, a fully integrated module for collecting, aggregating, and analyzing and utilizing workforce data to manage the complexities of the pandemic in returning the workforce to the workplace.

The Company’s RFP sales pipeline is the largest it has ever been, in both corporate and government opportunities.

Cost Reduction and Integration

Nine months into the fiscal year, the Company reduced its operating cost structure by over $3.585M, with the full annualized amount expected to be reflected in Fiscal 2020 and beyond.  Technology infrastructure represents more than half of the savings.  This amount brings total cost reductions to in excess of $4.0M per annum since Fiscal 2017, over 60% attributed to technology infrastructure.  The Company is targeting additional cost realignment and reduction in Fiscal 2020 as new technology systems improve efficiencies.

States John McKimm, President/CEO/CIO of Smart Employee Benefits Inc.:

“SEB has been in an investment mode since its inception in both the TD and more significantly in the BD. The TD, historically, has strong profitability.  The BD has required significant investment, the majority of which has been expensed.  This has penalized 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 TD and BD are anticipated to show strong growth and positive cash flow in 2020.  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.  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: Thursday, November 5, at 11:30 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/seb20201105.html

Conference Call Replay Numbers:

Canada & USA Toll Free: 1-855-669-9658
Code: 5573 followed by the # sign

Replay Duration: Available for one week until end of day Wednesday November 12, 2020.

ABOUT SEB

SEB is a technology company providing Business Process Automation and Outsourcing software, solutions and services to a national and global client base.  SEB has a specialty growth focus in cloud enabled SaaS processing solutions for managing employer and government sponsored health benefit plans on a BPO (Business Processing Outsourcing) business model, globally.  SEB currently serves corporate and government clients across Canada and internationally.  Over 80% of SEB’s revenues derive from government, insurance and health care organizations. SEB’s technology infrastructure of over 650 multi-certified technical professionals, across Canada and globally, is a critical competitive advantage in supporting the implementation and management of SEB’s benefits processing solutions into client environments.  SEB’s Benefits Processing Solutions can be game changing for SEB clients.

The core expertise of SEB is automating and managing business processes utilizing SEB proprietary software solutions combined with solutions of third parties through joint ventures and partnerships.  SEB’s client acquisition model in benefits processing is “Channel Partnerships” where SEB processing solutions both improve cost structures and enable new revenue models for Channel Partners and clients.  All SEB solutions are cloud enabled and can be delivered on a SaaS platform.  SEB solutions turn cost centers to profit centers for our Channel Partners.

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.

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 [dot] mckimm [at] seb-inc [dot] com

 

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.

SEB PROVIDES FURTHER UPDATE ON STRATEGIC FINANCING TRANSACTION

October 16, 2020 – Mississauga, ON: Smart Employee Benefits Inc. (“SEB” or the “Company”) (TSXV: SEB) announces that it is continuing to work on completing the Company’s $20,000,000 strategic financing transaction by way of a private placement of a convertible debenture, which financing is being provided by a large strategic investor. The principal amount of the convertible debenture is convertible into common shares of the Company at $0.25 per share. The proceeds of the financing will be used to repay term indebtedness of the Company. The financing was initially announced by press release dated November 5, 2019 and most recently by press release dated September 18, 2020.

The completion of the strategic financing transaction has been delayed due to challenges and delays related to the COVID-19 pandemic, but the Company still expects to close the financing transaction coincident with the completion of an operating credit facility, which negotiations are in advanced stages.

The TSX Venture Exchange (the “Exchange”) has conditionally approved this strategic financing transaction, but completion of the transaction remains subject to final Exchange approval and consent from the Company’s shareholders, as the strategic investor would be deemed by the Exchange to be a new control person of the Company holding more than 20% of its outstanding shares upon conversion of the debenture.

ABOUT SEB

SEB is a technology company providing Business Process Automation and Outsourcing software, solutions and services to a national and global client base. SEB has a specialty growth focus in cloud enabled SaaS processing solutions for managing employer and government sponsored health benefit plans on a BPO (Business Processing Outsourcing) business model, globally. SEB currently serves corporate and government clients across Canada and internationally. Over 80% of SEB’s revenues derive from government, insurance and health care organizations. SEB’s technology infrastructure of over 650 multi-certified technical professionals, across Canada and globally, is a critical competitive advantage in supporting the implementation and management of SEB’s benefits processing solutions into client environments. SEB’s Benefits Processing Solutions can be game changing for SEB clients.

The core expertise of SEB is automating and managing business processes utilizing SEB proprietary software solutions combined with solutions of third parties through joint ventures and partnerships. SEB’s client acquisition model in benefits processing is “Channel Partnerships” where SEB processing solutions both improve cost structures and enable new revenue models for Channel Partners and clients. All SEB solutions are cloud enabled and can be delivered on a SaaS platform. SEB solutions turn cost centers to profit centers for our Channel Partners.

For further information about SEB, please visit www.seb-inc.com.

Neither TSX Venture Exchange Inc. nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

This news release does not constitute an offer to sell or a solicitation of an offer to sell any of the securities described herein in the United States. The securities described in this news release have not been and will not be registered under the United States Securities Act of 1933, as amended (the “U.S. Securities Act”) or any state securities laws and may not be offered or sold within the United States or to U.S. Persons unless registered under the U.S. Securities Act and applicable state securities laws or an exemption from such registration is available.

Forward Looking Information

The statements made in this release that are not historical facts contain forward-looking information that involves risks and uncertainties. All statements, including statements regarding the Company’s areas of focus, other than statements of historical facts, which address the Company’s expectations, should be considered as forward-looking statements and therefore subject to various risks and uncertainties. The words “may”, “will”, “could”, “should”, “would”, “suspect”, “outlook”, “believe”, “plan”, “anticipate”, “estimate”, “expect”, “intend”, “forecast”, “objective”, “hope”, “target” and “continue” (or the negative thereof), and words and expressions of similar import, are intended to identify forward-looking statements.

Such forward-looking statements are based on knowledge of the environment in which the Company currently operates, but because of the factors listed herein, as well as other factors beyond the Company’s control, actual results may differ materially from the expectations expressed in the forward-looking statements. Investors are cautioned not to put undue reliance on forward-looking statements. The Company undertakes no obligation, and does not intend, to update, revise or otherwise publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date hereof, or to reflect the occurrence of any unanticipated events, other than as required by applicable law.

All figures are in Canadian dollars unless otherwise stated.0.

MEDIA AND INVESTOR CONTACTS:

John McKimm

President/CEO/CIO

Office (888) 939-8885 x 2354

Cell (416) 460-2817

john [dot] mckimm [at] seb-inc [dot] com

SMART EMPLOYEE BENEFITS INC. CORPORATE UPDATE

September 18, 2020 – Mississauga, ON: Smart Employee Benefits Inc. (“SEB” or the “Company”) (TSXV: SEB) is providing a corporate update.

Strategic Financing

The Company is continuing to work on completing its $20,000,000 strategic financing transaction by way of a private placement of a convertible debenture, which financing is being provided by a large strategic investor. The principal amount of the convertible debenture is convertible into common shares of the Company at $0.25 per share. The proceeds of the financing will be used to repay term indebtedness of the Company. The financing was initially announced by press release dated November 5, 2019 and most recently by press release dated August 20, 2020.

The completion of the strategic financing transaction has been delayed due to challenges and delays related to the COVID-19 pandemic, but the Company still expects to close the financing transaction in the coming weeks coincident with the completion of an operating credit facility, which negotiations are in advanced stages.

The TSX Venture Exchange (the “Exchange”) has conditionally approved this strategic financing transaction, but completion of the transaction remains subject to final Exchange approval and consent from the Company’s shareholders as the strategic investor would be deemed by the Exchange to be a new control person of the Company holding more than 20% of its outstanding shares upon conversion of the debenture.

Annual Meeting

The Company’s 2020 annual meeting of shareholders that was previously postponed due to the pandemic is now scheduled to be held on October 22, 2020 at 3:00 pm (Toronto time) as a virtual meeting. Meeting materials will be mailed to shareholders shortly and also available at www.sedar.com and the Company’s website at www.seb-inc.com. 

ABOUT SEB

SEB is a technology company providing Business Process Automation and Outsourcing software, solutions and services to a national and global client base. SEB has a specialty growth focus in cloud enabled SaaS processing solutions for managing employer and government sponsored health benefit plans on a BPO (Business Processing Outsourcing) business model, globally. SEB currently serves corporate and government clients across Canada and internationally. Over 80% of SEB’s revenues derive from government, insurance and health care organizations. SEB’s technology infrastructure of over 650 multi-certified technical professionals, across Canada and globally, is a critical competitive advantage in supporting the implementation and management of SEB’s benefits processing solutions into client environments. SEB’s Benefits Processing Solutions can be game changing for SEB clients.

The core expertise of SEB is automating and managing business processes utilizing SEB proprietary software solutions combined with solutions of third parties through joint ventures and partnerships. SEB’s client acquisition model in benefits processing is “Channel Partnerships” where SEB processing solutions both improve cost structures and enable new revenue models for Channel Partners and clients. All SEB solutions are cloud enabled and can be delivered on a SaaS platform. SEB solutions turn cost centers to profit centers for our Channel Partners.

For further information about SEB, please visit www.seb-inc.com.

Neither TSX Venture Exchange Inc. nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

This news release does not constitute an offer to sell or a solicitation of an offer to sell any of the securities described herein in the United States. The securities described in this news release have not been and will not be registered under the United States Securities Act of 1933, as amended (the “U.S. Securities Act”) or any state securities laws and may not be offered or sold within the United States or to U.S. Persons unless registered under the U.S. Securities Act and applicable state securities laws or an exemption from such registration is available.

Forward Looking Information

The statements made in this release that are not historical facts contain forward-looking information that involves risks and uncertainties. All statements, including statements regarding the Company’s areas of focus, other than statements of historical facts, which address the Company’s expectations, should be considered as forward-looking statements and therefore subject to various risks and uncertainties. The words “may”, “will”, “could”, “should”, “would”, “suspect”, “outlook”, “believe”, “plan”, “anticipate”, “estimate”, “expect”, “intend”, “forecast”, “objective”, “hope”, “target” and “continue” (or the negative thereof), and words and expressions of similar import, are intended to identify forward-looking statements.

Such forward-looking statements are based on knowledge of the environment in which the Company currently operates, but because of the factors listed herein, as well as other factors beyond the Company’s control, actual results may differ materially from the expectations expressed in the forward-looking statements. Investors are cautioned not to put undue reliance on forward-looking statements. The Company undertakes no obligation, and does not intend, to update, revise or otherwise publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date hereof, or to reflect the occurrence of any unanticipated events, other than as required by applicable law.

For further information about SEB, please visit www.seb-inc.com.

All figures are in Canadian dollars unless otherwise stated.

MEDIA AND INVESTOR CONTACTS:

John McKimm

President/CEO/CIO

Office (888) 939-8885 x 2354

Cell (416) 460-2817

john [dot] mckimm [at] seb-inc [dot] com

SEB PROVIDES FURTHER UPDATE ON STRATEGIC FINANCING TRANSACTION

August 20, 2020 – Mississauga, ON: Smart Employee Benefits Inc. (“SEB” or the “Company”) (TSXV: SEB) announces that it is continuing to work on completing the Company’s $20,000,000 strategic financing transaction by way of a private placement of a convertible debenture, which financing is being provided by a large strategic investor.  The principal amount of the convertible debenture is convertible into common shares of the Company at $0.25 per share.  The proceeds of the financing will be used to repay term indebtedness of the Company.  The financing was initially announced by press release dated November 5, 2019 and most recently by press release dated July 22, 2020.

The completion of the strategic financing transaction has been delayed due to challenges and delays related to the COVID-19 pandemic, but the Company still expects to close the financing transaction coincident with the completion of an operating credit facility, which negotiations are in advanced stages.

The TSX Venture Exchange (the “Exchange”) has conditionally approved this strategic financing transaction, but completion of the transaction remains subject to final Exchange approval and consent from the Company’s shareholders.

ABOUT SEB

SEB is a technology company providing Business Process Automation and Outsourcing software, solutions and services to a national and global client base. SEB has a specialty growth focus in cloud enabled SaaS processing solutions for managing employer and government sponsored health benefit plans on a BPO (Business Processing Outsourcing) business model, globally. SEB currently serves corporate and government clients across Canada and internationally. Over 80% of SEB’s revenues derive from government, insurance and health care organizations. SEB’s technology infrastructure of over 650 multi-certified technical professionals, across Canada and globally, is a critical competitive advantage in supporting the implementation and management of SEB’s benefits processing solutions into client environments. SEB’s Benefits Processing Solutions can be game changing for SEB clients.

The core expertise of SEB is automating and managing business processes utilizing SEB proprietary software solutions combined with solutions of third parties through joint ventures and partnerships. SEB’s client acquisition model in benefits processing is “Channel Partnerships” where SEB processing solutions both improve cost structures and enable new revenue models for Channel Partners and clients. All SEB solutions are cloud enabled and can be delivered on a SaaS platform. SEB solutions turn cost centers to profit centers for our Channel Partners.

For further information about SEB, please visit www.seb-inc.com.

Neither TSX Venture Exchange Inc. nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

This news release does not constitute an offer to sell or a solicitation of an offer to sell any of the securities described herein in the United States.  The securities described in this news release have not been and will not be registered under the United States Securities Act of 1933, as amended (the “U.S. Securities Act”) or any state securities laws and may not be offered or sold within the United States or to U.S. Persons unless registered under the U.S. Securities Act and applicable state securities laws or an exemption from such registration is available.

Forward Looking Information

The statements made in this release that are not historical facts contain forward-looking information that involves risks and uncertainties. All statements, including statements regarding the Company’s areas of focus, other than statements of historical facts, which address the Company’s expectations, should be considered as forward-looking statements and therefore subject to various risks and uncertainties. The words “may”, “will”, “could”, “should”, “would”, “suspect”, “outlook”, “believe”, “plan”, “anticipate”, “estimate”, “expect”, “intend”, “forecast”, “objective”, “hope”, “target” and “continue” (or the negative thereof), and words and expressions of similar import, are intended to identify forward-looking statements.

Such forward-looking statements are based on knowledge of the environment in which the Company currently operates, but because of the factors listed herein, as well as other factors beyond the Company’s control, actual results may differ materially from the expectations expressed in the forward-looking statements. Investors are cautioned not to put undue reliance on forward-looking statements. The Company undertakes no obligation, and does not intend, to update, revise or otherwise publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date hereof, or to reflect the occurrence of any unanticipated events, other than as required by applicable law.

For further information about SEB, please visit www.seb-inc.com.

All figures are in Canadian dollars unless otherwise stated. 

MEDIA AND INVESTOR CONTACTS:

John McKimm

President/CEO/CIO

Office (888) 939-8885 x 2354

Cell (416) 460-2817

john [dot] mckimm [at] seb-inc [dot] com

SEB Reports Results for Second Quarter 2020 Conference Call Scheduled Wednesday, August 5, at 11:00 A.M.

July 30, 2020 – Mississauga, ON: Smart Employee Benefits Inc. (“SEB” or the “Company”) (TSXV: SEB) today reports its financial results for the second quarter of 2020.

States John McKimm, President/CEO/CIO of Smart Employee Benefits Inc.:

“Adjusted EBITDA and EBITDA improved significantly for the second quarter, 2020 over the comparable period the previous year and from the first quarter, 2020.  The gross margin percentage improved by 0.5% from the first quarter, 2020 and 1.9% from the same period the previous year. Operating costs reduction initiatives led to the year over year improvement in cost structure of approximately $1,261,130 quarter over quarter and $2,357,519, first half over first half, which is expected to be permanent cost savings of over $4.0M annually.

EBITDA improved by $1,150,664 in the second quarter to a positive $511,172 from a negative $639,492 and Adjusted EBITDA improved by $1,046,235 to a positive $519,894 from a negative $526,341 in the same period the previous year. The improvement is the result of cost reduction initiatives across the company and growth in the Benefits Division.

SEB has made significant investments in both the Technology and Benefits Divisions since the Company’s inception.  Building the 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 divisions.  As a result, the Technology Division (“TD”) currently experienced a positive $1,730,401 of EBITDA in the first 6 months versus $1,561,881 the previous year. The Benefits Division (“BD”) experienced a positive $29,178 versus a negative $1,827,547 the same period the previous year. This trend is expected to continue in the second half of 2020 with significant improvement in the BD in the second half.

From January 2020 to April 2020, the company has won over $20.0M of net new contracts.  This represents a win rate of approximately 50% of opportunities bid, well above industry averages and the company’s previous track record.  Submitted proposals and bids outstanding for net new business total over $100.0M with decisions pending in the near future.  Additionally, the Company has signed agreements per its “Channel Partner White Label TPA” initiatives, to add approximately 150,000 new plan members to its benefits processing business.  The BD has under contract over 96% of its 2020 budget and is expected to be cash flow positive in 2020.  The signed new business to date, in 2020, is materially ahead of our business development budget. Additionally, the BD just renewed existing clients contracts representing almost 40,000 plan members for another 5 years.  The TD has historically been cash flow positive and net new business wins remain strong. The BD is just now becoming cash flow positive after huge investment in technology/infrastructure and is 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.

COVID-19 has led to demand for our BD solutions, including our “online medical care partnerships”.  In our TD, a portion of our revenues are at risk near term, primarily those related to the project driven portion of the business and the delay of government renewals of existing contracts and the onboarding of new contracts. Budget allocations have not changed, but the expenditures have been delayed.  The remaining business is largely multi-year managed services driven contracts for mission critical infrastructure and systems.  On a consolidated level the company applied for COVID-19 government relief which offset the profitability loss from the decline in revenue in the TD.  The remaining business has experienced stable and growing revenue and is not eligible.

The sales pipeline is the strongest it has ever been.  At a 50% win rate in the past four months this win rate is well above our historical 30% to 35%.  The cost savings initiatives taken over the past several years should be fully experienced in 2020.  We are anticipating improved consolidated financial performance in 2020 fiscal year vs. 2019, particularly in the BD.”

Quarterly Statements of Comprehensive Income (Loss) for the eight quarters ended May 31, 2020

 

Mar 1, 2020
to May 31, 2020

Dec 1, 2019
to Feb 29, 2020

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

Sep 1, 2018
to Nov 30, 2018

June 1, 2018
to Aug 31, 2018

 

Revenue

$ 15,436,686

$ 16,520,977

$ 17,326,306

$ 16,974,918

$ 17,675,479

$ 16,506,330

$ 18,559,118

$ 17,990,986

 

 

 

 

Cost of revenues

10,389,383

11,198,629

11,689,312

11,403,091

12,224,037

10,989,649

12,803,253

12,272,162

Gross Margin

5,047,303

5,322,348

5,636,994

5,571,827

5,451,442

5,516,681

5,755,865

5,718,823

Gross Margin as a % of Revenue

32.7%

32.2%

32.5%

32.8%

30.8%

33.4%

31.0%

31.8%

 

 

 

 

Salaries and other compensation costs

3,074,118

3,805,798

3,520,013

4,008,953

4,427,102

4,486,090

4,886,028

4,363,734

Professional fees

125,830

169,443

303,312

111,674

315,073

137,112

580,742

60,214

Office and general

1,327,462

1,403,431

1,946,928

1,275,940

1,235,608

1,819,528

1,723,510

1,159,385

Adjusted EBITDA

519,894

(56,324)

(133,259)

175,261

(526,341)

(926,049)

(1,434,415)

135,490

       
Investment loss (income)

5,807

 -

(181,424)

(34,077)

 -

 -

 -

 -

Gain on sale of assets

 -

 -

(153,461)

(1,894,514)

 -

 -

 -

 -

Write down of assets

 -

 -

 -

 -

 -

 -

6,671,890

 -

Change in fair value of contingent consideration

 -

 -

(36,094)

 -

 -

 -

(480,374)

 -

Share- based compensation

2,851

15,576

11,903

35,675

63,151

76,158

(171,152)

216,998

Transaction costs

64

 -

(117,856)

136,021

50,000

6,437

 -

 -

EBITDA

511,172

(71,900)

343,673

1,932,158

(639,492)

(1,008,644)

(7,454,779)

(81,508)

       
Interest and financing costs

768,934

725,580

783,599

994,527

608,487

531,528

(400,582)

618,939

Income tax expense( recovery)

(48,374)

(3,928)

(141,521)

(451,128)

(556)

556

(1,267,024)

(42,983)

Depreciation and amortization

629,951

633,171

744,460

623,321

1,120,003

655,231

768,493

777,520

Deprecation charge

239,021

161,077

 -

 -

 -

 -

 -

 -

Net income (loss) from continuing operations

(1,078,360)

(1,587,800)

(1,042,865)

765,438

(2,367,426)

(2,195,959)

(6,555,666)

(1,434,984)

       
Income (Loss) from assets held for sale, net of tax

 -

 -

 -

(93,799)

35,890

(312,776)

(1,432,309)

128,204

Net comprehensive income (loss)

$ (1,078,360)

$ (1,587,800)

$ (1,042,865)

$  671,639

$ (2,331,536)

$ (2,508,735)

$ (7,987,974)

$ (1,306,780)

 

 

 

 

Attributed to non-controlling interest

(119,033)

(241,535)

(50,105)

(50,776)

(184,035)

155,922

(136,312)

167,478

Attributed to common shareholders

(959,327)

(1,346,265)

(992,760)

722,415

(2,147,501)

(2,664,657)

(7,851,662)

(1,474,258)

Total

$ (1,078,360)

$ (1,587,800)

$ (1,042,865)

$  671,639

$ (2,331,536)

$ (2,508,735)

$ (7,987,974)

$ (1,306,780)

Segmented Results for the year to date ended May 31, 2020 and 2019… 

Smart Employee Benefits Inc.

 

 

 

Segmented Income Statement Detail for YTD ended May 31, 2020 (in C$)

Technology

Benefits

Corporate

Intercompany Sales/COS

Total Continuing Operations

Discontinued operations

Total Company

Revenue

$25,962,965

$6,854,953

 $               -    $ (860,256)  $ 31,957,663  $                  -  

$31,957,663

             
Cost of revenues

21,726,514

721,754

 -

(860,256)

21,588,013

 -

21,588,013

Gross margin

4,236,451

6,133,199

 - 

 - 

10,369,650

 - 

10,369,650

               
Expenses              
Salaries and other compensation costs

1,666,363

4,704,331

509,222

 -

6,879,916

 -

6,879,916

Office and general

832,139

1,390,202

508,552

 -

2,730,893

 -

2,730,893

Professional fees

7,547

9,488

278,237

 -

295,272

 -

295,272

 

2,506,050

6,104,021

1,296,010

 -

9,906,081

 -

9,906,081

               
Adjusted EBITDA

1,730,401

29,178

(1,296,010)

 - 

463,568

 - 

463,568

             
Investment loss

 -

 -

5,807

 -

5,807

 -

5,807

Transaction costs

 -

 -

64

 -

64

 -

64

Share-based compensation

 -

 -

18,427

 -

18,427

 -

18,427

               
EBITDA

1,730,401

29,178

(1,320,308)

 - 

439,271

 - 

439,271

               
Amortization of intangible assets

6,070

153,211

1,001,128

 -

1,160,409

 -

1,160,409

Depreciation

51,642

49,417

1,654

 -

102,714

 -

102,714

Depreciation of right-of-use assets

41,841

106,807

251,450

 -

400,098

 -

400,098

Interest and financing costs

670,032

221,672

602,808

 -

1,494,512

 -

1,494,512

Income tax expense (recovery)

8,512

 -

(60,814)

 -

(52,302)

 -

(52,302)

               
Net income (loss)  $     952,303  $ (501,929)

$ (3,116,534)

 $               -  $ (2,666,160)  $              –

$(2,666,160)

…Segmented Results for the year to date ended May 31, 2020 and 2019 

Smart Employee Benefits Inc.

 

 

 

Segmented Income Statement Detail for YTD ended May 31, 2019 (in C$)

Technology

Benefits

Corporate

Intercompany Sales/COS

Total Continuing Operations

Discontinued operations

Total Company

Revenue

 $29,310,893

 $6,037,054

 $                  -  

 $ (1,166,138)

 $  34,181,809

 $ 11,897,333

 $ 46,079,142

 

 

 

 

 

 

 

Cost of revenues

23,921,765

277,234

 -

(985,314)

23,213,686

9,305,596

32,519,282

Gross margin

5,389,127

5,759,819

 - 

(180,824)

10,968,123

2,591,737

13,559,860

 

Expenses

Salaries and other compensation costs

2,583,061

5,650,777

860,178

(180,824)

8,913,192

936,596

9,849,787

Office and general

1,137,784

1,817,323

100,029

 -

3,055,136

758,753

3,813,889

Professional fees

106,401

119,266

226,518

 -

452,185

205,939

658,124

 

3,827,246

7,587,366

1,186,724

(180,824)

12,420,513

1,901,288

14,321,801

 

Adjusted EBITDA

1,561,881

(1,827,547)

(1,186,724)

 - 

(1,452,390)

690,449

(761,941)

Transaction costs

 -

 -

56,437

 -

56,437

377,180

433,617

Share-based compensation

 -

 -

139,309

 -

139,309

 -

139,309

EBITDA

1,561,881

(1,827,547)

(1,382,470)

 - 

(1,648,136)

313,269

(1,334,867)

Amortization of intangible assets

142,308

547,438

961,220

 -

1,650,967

 -

1,650,967

Depreciation

69,397

53,217

1,653

 -

124,267

 -

124,267

Interest and financing costs

493,564

144,114

502,337

1,140,015

470,155

1,610,170

Income tax expense

 -

 -

 -

 -

 -

120,000

120,000

 

Net income (loss)

 $    856,612

 $(2,572,317)

 $ (2,847,681)

 $                  -

 $(4,563,385)

 $ (276,886)

 $  (4,840,270)

Comparative Consolidated Results for First Half of 2020 and 2019 

 

Three months ended May 31

 

Six months ended May 31

 

2020

2019

 

2020

2019

Revenue

$15,436,686

$17,675,479

$  31,957,663

$34,181,809

Cost of revenues

10,389,383

12,224,037

21,588,012

23,213,686

Gross Margin

5,047,303

5,451,442

 

10,369,651

10,968,123

Gross Margin as a % of Revenue

32.7%

30.8%

32.4%

32.1%

Operating costs

4,401,580

5,662,710

9,610,809

11,968,328

Professional fees

125,829

315,073

295,272

452,185

Adjusted EBITDA

519,894

(526,341)

463,570

(1,452,390)

Investment loss

5,807

 -

5,807

 -

Share based compensation

2,851

63,150

18,427

139,309

Transaction costs

64

50,000

64

56,437

EBITDA

$  511,172

$ (639,492)

 

$  439,272

$ (1,648,136)

Net loss from continuing operations (Note 1)

$ (1,078,360)

$ (2,367,426)

 

$ (2,666,160)

$ (4,563,385)

Reconciliation of Consolidated Net income (loss) to EBITDA for First Half of 2020 and 2019 

Three months ended

Six months ended

 

31-May-20

31-May-19

31-May-20

31-May-19

Net loss from continuing operations

$ (1,078,360)

$ (2,367,426)

$ (2,666,160)

$ (4,563,385)

Interest and financing costs

768,934

608,487

1,494,513

1,140,015

Income tax expense(recovery)

(48,374)

(556)

(52,302)

 -

Depreciation and amortization

629,951

1,120,003

1,263,121

1,775,234

Deprecation charge  

239,021

 -

400,098

 -

EBITDA

511,172

(639,492)

439,269

(1,648,136)

Investment loss

5,807

 -

5,807

 -

Share- based compensation

2,851

63,151

18,427

139,309

Transaction costs

64

50,000

64

56,437

Adjusted EBITDA

$  519,894

$ (526,341)

$  463,567

$ (1,452,390)

Revenue

During the second quarter, 2020 consolidated revenues from continuing operations was a $15,437M compared to $17.675M in the prior year. In the TD, revenues decreased by $2.884M, while the BD’s revenues increased by $0.485M.  Most of the revenue reduction in the TD 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 are expected to be renewed in the fourth quarter.   The Company is focused on the higher margin business within the Benefits Division.

Gross Margins and Gross Margin %

The Company generated $5.047M in gross margin during the second quarter May 31, 2020 vs. $5.451M the previous year. Gross Margin % (“GM %”) for continuing operations was 32.7% in 2020 compared to 30.8% in 2019. TD gross margins were 17.2% vs. 17.3% the previous year. BD gross margins were 83.0% vs 95.9%, largely due to smaller margins in the online medical module sales.

Operational Costs:

  • Salaries and Other Compensation - salaries decreased by $2.033M during the first half over the comparable period the prior year.  The reduction is a result of the cost reduction initiatives.  The cost reduction was across the company.  Additional savings are targeted for 2020, as the full impact of 2019 cost saving initiatives flow through for the complete 2020 year.
  • Office and General Costs­ – Normalized office and general costs decreased by $0.324M during the first half. This cost reduction was across all divisions and expected to prevail throughout 2020.
  • Professional Fees – Professional fees decreased by $0.157M, in the first half, year over year.  Professional fees vary with the amount of financing or acquisition/disposition activity during the period. Given the major transactions in process, these fees will increase in 2020 as transactions close. 

Non-Cash Expenses:

Non-Cash expenses include amortization, depreciation and share-based (options) compensation decreased $0.233M in the first half ended May 31, 2020 compared to the previous year.  The largest component is amortization of intangible assets (mostly related to acquisition). These costs are expected to be largely amortized by the end of Fiscal 2020. 

Interest and Financing Costs and Interest Accretion:

Interest and financing costs increased by approximately $0.354M during the first half compared to prior year. The increase is primarily due to the one-time costs associated with the refinancing process. 

KEY DEVELOPMENTS DURING AND SUBSEQUENT TO THE YEAR

Update on Scotia Capital Strategic Review Process

Scotia Capital Inc. was engaged in March 2019 to assist the Company in identifying and negotiating a transaction with a strategic investment partner.  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 is currently in the final stages of the refinancing process with negotiations at advanced levels on 5-year convertible notes of $20M and operating credit facilities in the $10.0M range.

Business Development to Date

Relationships have been consolidated and grown with multiple new consulting 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 approximately 150,000 plan members. The Company has gained significant traction with its online medical care partnership with EQ Care, recently adding clients representing over 110,000 plan members. In addition, the company has launched “FlexPlus – Worksafe”, a fully integrated module for collecting, aggregating, and analyzing and utilizing workforce data to manage the complexities of the pandemic in returning the workforce to the workplace.

The Company’s RFP sales pipeline is the largest it has ever been, in both corporate and government opportunities.

In the TD the Company won or renewed in 2019 over $100.0M of new multi-year contracts and added over $20.0M of contracts value in the first quarter 2020.  The second quarter has been static because of the pandemic. Total contract value for both TD and BD including backlog, option years and evergreen remains strong.

Cost Reduction and Integration

In the first half, the Company reduced its operating cost structure by over $2.357M, with the full annualized amount expected to be reflected in Fiscal 2020 and beyond.  Technology infrastructure represents more than half of the savings.  This amount brings total cost reductions to in excess of $4.0M per annum since Fiscal 2017, over 60% attributed to technology infrastructure.  The Company is targeting additional cost realignment and reduction in Fiscal 2020 as new technology systems improve efficiencies.

States John McKimm, President/CEO/CIO of Smart Employee Benefits Inc.:

“SEB has been in an investment mode since its inception in both the TD and more significantly in the BD. The TD, historically, has strong profitability.  The BD has required significant investment, the majority of which has been expensed.  This has penalized 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 TD and BD are anticipated to show strong growth and positive cash flow in 2020.  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.  The Company has established strong traction in multiple new business initiatives and is well positioned to win new business going forward.  The RFP win rates in the first quarter have been over 50% of submitted bids and proposals, well above the industry average and the company’s past experience in the 30%-35% range. This trend is expected to continue in the second half, 2020.”

CONFERENCE CALL DETAILS

Date/Time: Wednesday, 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/sebIR20200805.html

Conference Call Replay Numbers:

Canada & USA Toll Free: 1-855-669-9658
Code: 5068 followed by the # sign

Replay Duration: Available for one week until end of day Wednesday August 12, 2020.

ABOUT SEB

SEB is a technology company providing Business Process Automation and Outsourcing software, solutions and services to a national and global client base.  SEB has a specialty growth focus in cloud enabled SaaS processing solutions for managing employer and government sponsored health benefit plans on a BPO (Business Processing Outsourcing) business model, globally.  SEB currently serves corporate and government clients across Canada and internationally.  Over 80% of SEB’s revenues derive from government, insurance and health care organizations. SEB’s technology infrastructure of over 650 multi-certified technical professionals, across Canada and globally, is a critical competitive advantage in supporting the implementation and management of SEB’s benefits processing solutions into client environments.  SEB’s Benefits Processing Solutions can be game changing for SEB clients.

The core expertise of SEB is automating and managing business processes utilizing SEB proprietary software solutions combined with solutions of third parties through joint ventures and partnerships.  SEB’s client acquisition model in benefits processing is “Channel Partnerships” where SEB processing solutions both improve cost structures and enable new revenue models for Channel Partners and clients.  All SEB solutions are cloud enabled and can be delivered on a SaaS platform.  SEB solutions turn cost centers to profit centers for our Channel Partners.

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.

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 [dot] mckimm [at] seb-inc [dot] com

 

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.

SEB PROVIDES FURTHER UPDATE ON STRATEGIC FINANCING TRANSACTION

July 22, 2020 – Mississauga, ON: Smart Employee Benefits Inc. (“SEB” or the “Company”) (TSXV: SEB) announces that it is continuing to work on completing the Company’s $20,000,000 strategic financing transaction by way of a private placement of a convertible debenture, which financing is being provided by a large strategic investor.  The principal amount of the convertible debenture is convertible into common shares of the Company at $0.25 per share.  The proceeds of the financing will be used to repay term indebtedness of the Company.  The financing was initially announced by press release dated November 5, 2019 and most recently by press release dated June 22, 2020.

The completion of the strategic financing transaction has been delayed due to challenges and delays related to the COVID-19 pandemic, but the Company still expects to close the financing transaction coincident with the completion of an operating credit facility, which negotiations are in advanced stages.

The TSX Venture Exchange (the “Exchange”) has conditionally approved this strategic financing transaction, but completion of the transaction remains subject to final Exchange approval and consent from the Company’s shareholders.

ABOUT SEB

SEB is a technology company providing Business Process Automation and Outsourcing software, solutions and services to a national and global client base. SEB has a specialty growth focus in cloud enabled SaaS processing solutions for managing employer and government sponsored health benefit plans on a BPO (Business Processing Outsourcing) business model, globally. SEB currently serves corporate and government clients across Canada and internationally. Over 80% of SEB’s revenues derive from government, insurance and health care organizations. SEB’s technology infrastructure of over 650 multi-certified technical professionals, across Canada and globally, is a critical competitive advantage in supporting the implementation and management of SEB’s benefits processing solutions into client environments. SEB’s Benefits Processing Solutions can be game changing for SEB clients.

The core expertise of SEB is automating and managing business processes utilizing SEB proprietary software solutions combined with solutions of third parties through joint ventures and partnerships. SEB’s client acquisition model in benefits processing is “Channel Partnerships” where SEB processing solutions both improve cost structures and enable new revenue models for Channel Partners and clients. All SEB solutions are cloud enabled and can be delivered on a SaaS platform. SEB solutions turn cost centers to profit centers for our Channel Partners.

For further information about SEB, please visit www.seb-inc.com.

Neither TSX Venture Exchange Inc. nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

This news release does not constitute an offer to sell or a solicitation of an offer to sell any of the securities described herein in the United States.  The securities described in this news release have not been and will not be registered under the United States Securities Act of 1933, as amended (the “U.S. Securities Act”) or any state securities laws and may not be offered or sold within the United States or to U.S. Persons unless registered under the U.S. Securities Act and applicable state securities laws or an exemption from such registration is available.

Forward Looking Information

The statements made in this release that are not historical facts contain forward-looking information that involves risks and uncertainties. All statements, including statements regarding the Company’s areas of focus, other than statements of historical facts, which address the Company’s expectations, should be considered as forward-looking statements and therefore subject to various risks and uncertainties. The words “may”, “will”, “could”, “should”, “would”, “suspect”, “outlook”, “believe”, “plan”, “anticipate”, “estimate”, “expect”, “intend”, “forecast”, “objective”, “hope”, “target” and “continue” (or the negative thereof), and words and expressions of similar import, are intended to identify forward-looking statements.

Such forward-looking statements are based on knowledge of the environment in which the Company currently operates, but because of the factors listed herein, as well as other factors beyond the Company’s control, actual results may differ materially from the expectations expressed in the forward-looking statements. Investors are cautioned not to put undue reliance on forward-looking statements. The Company undertakes no obligation, and does not intend, to update, revise or otherwise publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date hereof, or to reflect the occurrence of any unanticipated events, other than as required by applicable law.

For further information about SEB, please visit www.seb-inc.com.

All figures are in Canadian dollars unless otherwise stated.

 

MEDIA AND INVESTOR CONTACTS:

John McKimm

President/CEO/CIO

Office (888) 939-8885 x 2354

Cell (416) 460-2817

john [dot] mckimm [at] seb-inc [dot] com

 

G:\WP51\H 15001-16000\15995\Documents\Press Release\News Release. SEB Debenture Financing. Extension. HH Draft. July 22, 2020.docx

SEB Reports Results for First Quarter 2020 Conference Call Scheduled Wednesday June 17, at 11:00 A.M.

June 15, 2020 – Mississauga, ON: Smart Employee Benefits Inc. (“SEB” or the “Company”) (TSXV: SEB) today reports its financial results for the first quarter of 2020.

States John McKimm, President/CEO/CIO of Smart Employee Benefits Inc.:

“Adjusted EBITDA and EBITDA improved significantly for the first quarter, 2020 over the comparable period the previous year.  The gross margin percentage quarter over quarter declined 1.2%. Operating costs reduction initiatives led to the year over year improvement of over $1.089M in cost structure, which is expected to be over $4.0M annually.

EBITDA improved by $0.937M in the first quarter to a negative $0.072M from a negative $1.009M.  Adjusted EBITDA for the year improved by $0.870M to a negative $0.056M from a negative $0.926M. The improvement is the result of cost reduction initiatives across the company.

SEB has made significant investments in both the Technology and Benefits Divisions since the Company’s inception.  Building the 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 divisions.  As a result, the Technology Division (“TD”) currently experienced a positive $0.524M of EBITDA in the quarter versus $0.492M the previous year. The Benefits Division (“BD”) experienced a positive $0.03M versus a negative $1.032M the previous year.

From January 2020 to April 2020, the company has won over $20.0M of net new contracts.  This represents a win rate of approximately 50% of opportunities bid, well above industry averages and the company’s previous track record.  Submitted proposals and bids outstanding for net new business total approximately $74.0M with decisions pending in the near future.  Additionally, the Company has signed agreements per its “Channel Partner White Label TPA” initiatives, to add approximately 150,000 new plan members to its benefits processing business.  The Benefits Division has under contract over 96% of its 2020 budget and is expected to be cash flow positive in 2020.  The signed new business to date, in 2020, is materially ahead of our business development budget.  The Technology Division has historically been cash flow positive and net new business wins remain strong. Signed contracts (backlog, evergreen, option years), based on a 5-year time frame are valued at over $400M.

COVID-19 has led to demand for our BD solutions, including our “online medical care partnerships”.  In our TD, a portion of our revenues are at risk near term, primarily those related to the project driven portion of the business and the delay of government renewals of existing contracts and the onboarding of new contracts. Budget allocations have not changed, but the expenditures have been delayed.  The remaining business is largely multi-year managed services driven contracts for mission critical infrastructure and systems.  On a consolidated level the company applied for COVID-19 government relief which offset the profitability loss from the decline in revenue in the TD.  The remaining business has experienced stable and growing revenue and is not eligible.

The sales pipeline is the strongest it has ever been.  At a 50% win rate in the past four months this win rate is well above our historical 30% to 35%.  The cost savings initiatives taken over the past several years should be fully experienced in 2020.  We are anticipating improved consolidated financial performance in 2020 fiscal year vs. 2019, particularly in the BD.”

Quarterly Statements of Comprehensive Income (Loss)

 

Dec 1, 2019
to Feb 29, 2020

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

Sep 1, 2018
to Nov 30, 2018 (Note 1)

June 1, 2018
to Aug 31, 2018 (Note 1)

Mar 1, 2018       to May 31, 2018 (Note 1)

Revenue

$16,520,977

$17,326,306

$16,974,918

$17,675,478

$16,506,330

$18,559,118

$17,990,986

$20,019,485

 

 

 

 

Cost of revenues

11,198,629

11,689,312

11,403,091

12,224,037

10,989,649

12,803,253

12,272,162

14,061,863

Gross Margin

5,322,348

5,636,994

5,571,827

5,451,441

5,516,681

5,755,865

5,718,823

5,957,622

Gross Margin as a % of Revenue

32.2%

32.5%

32.8%

30.8%

33.4%

31.0%

31.8%

29.8%

 

 

 

 

Salaries and other compensation costs

3,805,798

3,520,013

4,008,953

4,427,102

4,486,090

4,886,028

4,363,734

3,868,546

Professional fees

169,443

303,312

111,674

315,072

137,112

580,742

60,214

553,123

Office and general

1,403,431

1,946,928

1,275,940

1,235,608

1,819,528

1,723,510

1,159,385

1,269,466

Adjusted EBITDA

(56,324)

(133,259)

175,261

(526,341)

(926,049)

(1,434,415)

135,490

266,487

       
Investment income

 -

(181,424)

(34,077)

 -

 -

 -

 -

 -

Gain on sale of assets

 -

(153,461)

(1,894,514)

 -

 -

 -

 -

 -

Write down of assets

 -

 -

 -

 -

 -

6,671,890

 -

 -

Transition and decommissioning costs

 -

 -

 -

 -

 -

 -

 -

161,750

Change in fair value of contingent consideration

 -

(36,094)

 -

 -

 -

(480,374)

 -

 -

Share- based compensation

15,576

11,903

35,675

63,151

76,158

(171,152)

216,998

425,270

Transaction costs

 -

(117,856)

136,021

50,000

6,437

 -

 -

 -

EBITDA

(71,900)

343,673

1,932,158

(639,493)

(1,008,644)

(7,454,779)

(81,508)

(320,533)

       
Interest and financing costs

725,580

783,599

994,527

608,487

531,528

(400,582)

618,939

878,706

Income tax expense (recovery)

(3,928)

(141,521)

(451,128)

(556)

556

(1,267,024)

(42,983)

22,706

Depreciation and amortization

633,171

744,460

623,321

1,120,003

655,231

768,493

777,520

757,185

Deprecation charge

161,077

 -

 -

 -

 -

 -

 -

 -

Net income (loss) from continuing operations

(1,587,800)

(1,042,865)

765,438

(2,367,426)

(2,195,959)

(6,555,666)

(1,434,984)

(1,979,130)

       
Income (Loss) from assets held for sale, net of tax

 -

 -

(93,799)

35,890

(312,776)

(1,432,309)

128,204

(312,934)

Net comprehensive income (loss)

$(1,587,800)

$(1,042,865)

$671,639

$(2,331,536)

$(2,508,735)

$(7,987,974)

$(1,306,780)

$(2,292,064)

 

 

 

 

Attributed to non-controlling interest

(241,535)

(50,105)

(50,776)

(184,035)

155,922

(136,312)

167,478

(8,158)

Attributed to common shareholders

(1,346,265)

(992,760)

722,415

(2,147,501)

(2,664,657)

(7,851,662)

(1,474,258)

(2,283,910)

Total

$(1,587,800)

$(1,042,865)

$671,639

$(2,331,536)

$(2,508,735)

$(7,987,974)

$(1,306,780)

$(2,292,068)

Note 1 – Historic quarters have been restated to reflect the operations of Paradigm Consulting Group as income from discontinued operations

Segmented Results for the fiscal years ended February 29, 2020 and 2019… 

Smart Employee Benefits Inc.

 

 

 

Segmented Income Statement Detail for the quarter ended February 29, 2020 (in C$)

Technology

Benefits

Corporate

Inter-company Sales/COS

Total Continuing Operations

Discontinued operations

Total Company

Revenue

 $13,603,083

 $3,338,835

 $                -  

 $(420,942)

 $16,520,977

 $                  -  

 $16,520,977

Cost of revenues

 

 

 

 

 

 

 

Cost of revenues

11,495,798

123,773

 -

(420,942)

11,198,629

 -

11,198,629

Gross margin

2,107,285

3,215,063

 - 

 - 

5,322,348

 - 

5,322,348

 

Expenses

Salaries and other compensation costs

1,138,985

2,410,565

256,248

 -

3,805,798

 -

3,805,798

Office and general

433,310

769,448

200,674

 -

1,403,431

 -

1,403,431

Professional fees

10,719

5,031

153,692

 -

169,443

 -

169,443

 

1,583,014

3,185,044

610,614

 -

5,378,672

5,378,672

 

Adjusted EBITDA

524,271

30,019

(610,614)

 - 

(56,324)

 - 

(56,324)

Share-based compensation

 -

 -

15,576

 -

15,576

 -

15,576

EBITDA

524,271

30,019

(626,190)

 - 

(71,900)

 - 

(71,900)

 

Amortization of intangible assets

3,035

76,520

500,564

 -

580,119

 -

580,119

Depreciation

27,546

24,679

827

 -

53,052

 -

53,052

Depreciation of right-of-use assets

58,512

 -

102,565

 -

161,077

161,077

Interest and financing costs

263,397

73,340

388,842

 -

725,580

 -

725,580

Income tax expense

8,512

 -

(12,440)

 -

(3,928)

 -

(3,928)

 

Net income (loss)

 $163,268

 $(144,520)

 $(1,606,548)

 $             –

 $(1,587,800)

 $                 –

 $(1,587,800)

…Segmented Results for the fiscal years ended February 29, 2020 and 2019 

Smart Employee Benefits Inc.

 

 

 

Segmented Income Statement Detail for the quarter ended February 28, 2019 (in C$)

Technology

Benefits

Corporate

Inter-company Sales/COS

Total Continuing Operations

Discontinued operations

Total Company

Revenue

 $14,067,434

 $3,005,821

 $                -  

 $(566,925)

 $16,506,330

 $5,604,238

 $22,110,568

Cost of revenues

 

 

 

 

 

 

 

Cost of revenues

11,309,164

152,522

 -

(472,038)

10,989,649

4,497,148

15,486,797

Gross margin

2,758,269

2,853,299

 - 

(94,887)

5,516,681

1,107,090

6,623,771

 

Expenses

Salaries and other compensation costs

1,384,146

2,882,842

313,989

(94,887)

4,486,090

512,459

4,998,549

Office and general

813,049

987,523

18,957

 -

1,819,528

450,833

2,270,361

Professional fees

69,402

15,933

51,777

 -

137,112

53,850

190,962

 

2,266,596

3,886,298

384,723

(94,887)

6,442,730

1,017,143

7,459,873

 

Adjusted EBITDA

491,673

(1,032,999)

(384,723)

 - 

(926,049)

89,947

(836,102)

Transaction costs

 -

 -

6,437

 -

6,437

91,641

98,078

Share-based compensation

 -

 -

76,158

 -

76,158

 -

76,158

EBITDA

491,673

(1,032,999)

(467,319)

 - 

(1,008,645)

(1,694)

(1,010,338)

Amortization of intangible assets

52,497

64,463

480,611

 -

597,572

 -

597,572

Depreciation

30,258

26,575

827

 -

57,659

 -

57,659

Interest and financing costs

328,365

9,625

193,539

 -

531,528

251,082

782,611

Income tax expense

556

 -

 -

 -

556

60,000

60,556

 

Net income (loss)  $79,997  $(1,133,662)  $(1,142,295)  $             –  $(2,195,959)  $(312,776)  $(2,508,735)

Comparative Consolidated Results for First Quarter 2020 and 2019 

 

For the Quarter Ended

 

Feb 29, 2020

Feb 28, 2019

Revenue

$  16,520,977

$  16,506,330

Cost of revenues

11,198,629

10,989,649

Gross Margin

5,322,348

5,516,681

Gross Margin as a % of Revenue

32.2%

33.4%

Operating costs

5,209,229

6,305,618

Professional fees

169,443

137,112

Adjusted EBITDA

(56,324)

(926,049)

Share based compensation

15,576

76,158

Transaction costs

 -

6,437

EBITDA

$ (71,900)

$ (1,008,644)

Net loss from continuing operations (Note 1)

$ (1,587,800)

$ (2,195,959)

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 Consolidated Net income (loss) to EBITDA 

For the Quarter Ended

 

Feb 29, 2020

Feb 28, 2019

Net loss from continuing operations

$ (1,587,800)

$ (2,195,959)

Interest and financing costs

725,580

531,528

Income tax expense(recovery)

(3,928)

556

Depreciation and amortization

633,171

655,231

Deprecation charge

161,077

 -

EBITDA

(71,900)

(1,008,644)

Share- based compensation

15,575

76,158

Transaction costs

 -

6,437

Adjusted EBITDA

$ (56,325)

$ (926,049)

Revenue

During the first quarter, 2020 consolidated revenues from continuing operations was a $16.521M compared to $16.506M in the prior year. In the TD, revenues decreased by $0.464M, while the BD’s revenues increased by $0.333M.  The differential is due to intercompany revenue elimination difference of $0.146M resulting from consolidation.  Most of the revenue reduction in the TD is due to non-recurring project revenue. This project revenue has transitioned to managed services revenue, smaller in amounts, but higher in profit margin.  The Company is focused on the higher margin business within the Benefits Division.

Gross Margins and Gross Margin %

The Company generated $5.322M in gross margin during the first quarter February 29, 2020 vs. $5.517M the previous year. Gross Margin % (“GM %”) for continuing operations was 32.2% in 2020 compared to 33.4% in 2019. TD gross margins were 15.5% vs. 19.6% the previous year, largely due to one-time revenue. BD gross margins improved by $0.362M and 1.4% of sales.

Operational Costs:

  • Salaries and Other Compensation - salaries decreased by $0.680M during the quarter over the comparable period the prior year.  The reduction is a result of the cost reduction initiatives.  The cost reduction was across the company.  Additional savings are targeted for 2020, as the full impact of 2019 cost saving initiatives flow through for the complete 2020 year.
  • Office and General Costs­ – Normalized office and general costs decreased by $0.416M quarter over quarter. This cost reduction was across all divisions and expected to prevail throughout 2020.
  • Professional Fees – Professional fees increased by $0.032M, quarter over quarter.  Professional fees vary with the amount of financing or acquisition/disposition activity during the period. Given the major transactions in process, these fees will increase in 2020 as transactions close. 

Non-Cash Expenses:

Non-Cash expenses include amortization, depreciation and share-based (options) compensation increased $0.078M over the quarter ended February 29, 2020 compared to the previous year.  The largest component is amortization of intangible assets (mostly related to acquisition). These costs are expected to be largely amortized by the end of Fiscal 2020. 

Interest and Financing Costs and Interest Accretion:

Interest and financing costs increased approximately $0.194M during the first quarter compared to prior year with approximately $0.726M being expensed in the first quarter.  The increase is due largely to refinancing costs during the year and is expected to decline as short-term financing is converted to longer term financing in the third quarter. 

KEY DEVELOPMENTS DURING AND SUBSEQUENT TO THE YEAR

Update on Scotia Capital Strategic Review Process

Scotia Capital Inc. was engaged in March 2019 to assist the Company in identifying and negotiating a transaction with a strategic investment partner.  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 is currently in the final stages of the refinancing process with negotiations at advanced levels on 5-year convertible notes of $20M and operating credit facilities in the $10.0M range.

Business Development to Date

Relationships have been consolidated and grown with multiple new consulting 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 approximately 150,000 plan members. The Company has gained significant traction with its online medical care partnership with EQ Care, recently adding clients representing over 100,000 plan members. In addition, the company is launching “FlexPlus – Worksafe”, a fully integrated module for collecting, aggregating, and analyzing and managing workforce data to manage the complexities of returning workforce to the workplace.

The Company’s RFP sales pipeline is the largest it has ever been, in both corporate and government opportunities.

In the TD the Company won or renewed in 2019 over $90.0M of new multi-year contracts and added over $20.0M of contracts value in the first quarter 2020.  Total contract value for both TD and BD including backlog, option years and evergreen remains strong.

Cost Reduction and Integration

In the first quarter, the Company reduced its cost structure by over $1.089M, with the full annualized amount expected to be reflected in Fiscal 2020 and beyond.  Technology infrastructure represents more than half of the savings.  This amount brings total cost reductions to in excess of $4.0M per annum since Fiscal 2017, over 60% attributed to technology infrastructure.  The Company is targeting additional cost realignment and reduction in Fiscal 2020 as new technology systems improve efficiencies.

States John McKimm, President/CEO/CIO of Smart Employee Benefits Inc.:

“SEB has been in an investment mode since its inception in both the TD and more significantly in the BD. The TD, historically, has strong profitability.  The BD has required significant investment, the majority of which has been expensed.  This has penalized 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 TD and BD are anticipated to show strong growth and positive cash flow in 2020.  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.  The Company has established strong traction in multiple new business initiatives and is well positioned to win new business going forward.  The RFP win rates in the first quarter have been over 50% of submitted bids and proposals, well above the industry average and the company’s past experience in the 30%-35% range.”

CONFERENCE CALL DETAILS

Date/Time: Wednesday June 17, 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/sebIR20200617.html

Conference Call Replay Numbers:

Canada & USA Toll Free: 1-855-669-9658
Code: 4749 followed by the # sign

Replay Duration: Available for one week until end of day Wednesday June 24, 2020.

ABOUT SEB

SEB is a technology company providing Business Process Automation and Outsourcing software, solutions and services to a national and global client base.  SEB has a specialty growth focus in cloud enabled SaaS processing solutions for managing employer and government sponsored health benefit plans on a BPO (Business Processing Outsourcing) business model, globally.  SEB currently serves corporate and government clients across Canada and internationally.  Over 80% of SEB’s revenues derive from government, insurance and health care organizations. SEB’s technology infrastructure of over 650 multi-certified technical professionals, across Canada and globally, is a critical competitive advantage in supporting the implementation and management of SEB’s benefits processing solutions into client environments.  SEB’s Benefits Processing Solutions can be game changing for SEB clients.

The core expertise of SEB is automating and managing business processes utilizing SEB proprietary software solutions combined with solutions of third parties through joint ventures and partnerships.  SEB’s client acquisition model in benefits processing is “Channel Partnerships” where SEB processing solutions both improve cost structures and enable new revenue models for Channel Partners and clients.  All SEB solutions are cloud enabled and can be delivered on a SaaS platform.  SEB solutions turn cost centers to profit centers for our Channel Partners.

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.

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 [dot] mckimm [at] seb-inc [dot] com

 

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.