July 30, 2014 – TORONTO, ON – Smart Employee Benefits Inc. (“SEB” or “Company”) (TSX VENTURE:SEB), today reported its financial results for the quarter ending May 31, 2014.
SEB is a technology company with two divisions, the Benefits Division and the Technology Division, providing business processes software, solutions and services to corporate and government clients with specialty practices focused on managing group benefit solutions and health claims processing environments. The core expertise of the SEB Group of Companies is managing and reporting on Big Data, including transaction processing in complex global Supply Chain environments. This expertise is uniquely adaptable to the “Benefits” and “Health-Care” industries.
SEB’s Benefits Practice is focused on two primary target markets in Canada – employee group health benefits which exceed $37.0 billion annually and government funded health benefits (federal and provincial) which are in excess of $25.0 billion. SEB’s technology platform is easily adaptable to managing the end-to-end business processes in both environments. Of the $60.0 plus billion market in Canada, the employee group benefit portion has grown over 80% in the past decade.
SEB’s business growth strategy for developing the benefits business has the following components:
- Maintaining the leading technology platform for managing group benefit solutions and health claims processing environments. This includes developing unique benefit solutions made possible by the technology platform.
- Acquiring and making investments in existing benefit administration businesses and technology companies serving the corporate and government markets with the objective of expanding SEB’s health benefit footprint across Canada.
- Transitioning to the SEB technology environment the benefits-processing (administration, claims-adjudication and reporting) currently outsourced by the acquired businesses to third parties.
- Creating new unique benefits solutions made possible by the SEB technology platform.
The progress SEB has made in 2011 through the early part of fiscal 2014 has positioned the company to achieve strong growth and sustainable profitability.
SEB’s Technology Platform Provides Competitive Advantage in Benefits Management
SEB has spent over $6 million since 2011 automating the administration, payment processing/billing and reporting modules of its platform and integrating these modules into an already proven leading edge adjudication platform.
SEB’s technology platform manages the total business processing services for group benefit solutions and health claims processing on one fully-integrated technology environment. The SEB technology platform is open architecture, rules based and modular, and allows clients to utilize either a fully integrated solution or modules. SEB’s real time “rules-based adjudication” environment is very unique, and when combined with the fully-integrated Administration, Payment Processing, Billing and Reporting modules, will provide very sophisticated and highly competitive solutions to the marketplace, both in Canada and globally. SEB can administer, adjudicate and report for all benefit types in one fully integrated environment. Rules creation is an administrative, not a programming exercise. Highly customized and flexible processing solutions can be created easily and cost effectively. Reporting is the most detailed in the industry with self-serve functionality including real time access to standard reports and data mining capabilities for customized reports.
The health benefits division of SEB operates as a Third Party Administrator (“TPA”) and technology provider supporting unique benefit solutions. The immediate opportunity for SEB is to increase the capture and retention of revenue by providing fully integrated services and solutions, currently being outsourced by most TPAs and Insurers to third parties.
SEB’s Growth Strategy based on acquisitions and organic initiatives
Through acquisitions, SEB is acquiring the client relationships and vendor status to support a complementary organic growth model with both employers and government business opportunities. On the employee group benefit side, acquisitions and investments target TPAs, as well as broker and consultant organizations that provide solutions and services to employers. The objective is to secure the client relationships and transition many of the front and back-office business processes to the SEB technology environment over time; in effect, capturing revenue that was previously being outsourced. On the government side, SEB is targeting technology companies (primarily IT) that have established vendor relationships, security clearances and project references that are required to bid on government outsourcing contracts.
The growth plan for 2014 is acquisition-based, complemented by organic growth initiatives, with the objective of reaching consolidated profitability within the fiscal year 2014 and establishing a solid base of business and clients from which to launch stronger organic growth initiatives. From the beginning of Fiscal 2013 until now, SEB has closed 5 acquisitions and has announced a sixth that is expected to give the company a solid base of sustainable profitable revenue in excess of $25 million and established offices in Toronto, Ottawa, North Bay, UAE and India. Historically, the consolidated annual revenues for these six acquisitions exceed $25 million. These transactions bring a solid profitable base of business and clients, both corporate and government.
Company developments during the quarter ending May 31, 2014
- March 14, 2014-SEB acquired Adeeva Nutritionals Canada Inc. and the wellness assets and business of Dr. James Meschino Health and Wellness.
- March 18, 2014-SEB’s wholly owned subsidiary, Somos Consulting Group Ltd., acquired APS – Antian Professional Services Inc.
- May, 2014-4,216,000 shares were issued upon exercise of share purchase warrants resulting in a cash inflow of $1,366,850. The exercise price of the warrants ranged from $0.30 to $0.50. Insiders represented $1,000,000 of the proceeds of the warrants exercised of which $560,500 were proceeds from warrants executed at $0.50.
Company developments subsequent to May 31, 2014
June 11, 2014-SEB acquired 100% of Stroma Service Consulting Inc.
Financial Results for the quarter ended May 31, 2014
For the quarter ending May 31, 2014, SEB recorded a loss of $1,183,017 compared to a loss of $1,281,475 for the comparable period in Fiscal 2013. The results included non-cash costs of $620,649, made up of accretion of non-cash interest of $122,960 related to SEB’s Convertible Financings, share-based compensation of $275,080 relating to options issued to employees and consultants, amortization of $194,378 and depreciation of $28,231. Results also included non-operating acquisition-related professional fees of $84,482. The adding back of the non-cash and acquisition-related items results in an adjusted loss of $477,886.
Revenue for the quarter was $5,754,539 compared to $3,299,472 in the comparable period ending May 31, 2013. The increase in revenue was due to the inclusion of the revenues of the Inforica group and revenues of Antian Professional Services and Adeeva Nutritionals (Canada).
Cost of revenues
The Compensation portion of Cost of revenues primarily reflects the cost of contractors of Somos, Inforica and Antian.
Of the other operations costs, the largest was salaries and other compensation costs of $1,108,346 (a portion of which was related to software development and maintenance); the next single type of expense was professional fees of $128,192, some of which was related to the one-time costs of closing of the Antian and Adeeva acquisitions as well as some audit and valuation costs.
The major source of cash during the quarter was proceeds from the exercise of 4,216,000 warrants in the amount of $1,366,850, being an average exercise price of $0.32 per share.
The unaudited condensed interim consolidated financial statements and related MD&A for the period ended May 31, 2014, can be found on SEDAR at www.sedar.com under the profile of Smart Employee Benefits.
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