SEB Reports Results for Second Quarter, 2016 and Schedules Conference Call

July 29, 2016 – Mississauga, ON: Smart Employee Benefits Inc. (“SEB” or the “Company”) (TSXV: SEB) today reported its financial results for the second quarter ended May 31, 2016.

FINANCIAL OVERVIEW 

(All comparative figures are the second quarter prior year, unless stated otherwise.)

The results for the second quarter ending May 31, 2016 are the best financial results of any quarter since SEB’s inception. Both Revenue and Adjusted EBITDA have reached new highs. Additionally, subsequent to the quarter end, SEB successfully refinanced its operating credit facilities and extended, repaid or refinanced all of its short-term debt facilities. SEB’s refinancing of select short-term debt facilities with more permanent solutions is also well advanced.

Revenue: Revenue for the three-month period ended May 31, 2016 increased by 88.5%, or $11.8 million, to $25.1 million from $13.3 million for the same period in the prior year. Revenue for the six-month period ended May 31, 2016 increased by 97.0%, or $23.9 million, to $48.5 million from $24.6 million for the same period in the prior year. The acquisitions of Maplesoft Group Inc. (“Maplesoft”) and Paradigm Consulting Group Inc. (“Paradigm”) contributed significantly to this growth, accounting for $13.7 million revenue for the quarter and $28.2 million for the half year.  This was partially offset by a change in accounting for SEB’s 50% ownership of Banyan Work Health Solutions Inc. (“Banyan”). The comparative prior year figures included Banyan which represented $2.2 million of revenue for the quarter and $4.2 million for the half year.

Gross Margin: Gross margin for the three months ended May 31, 2016 increased by $1.6 million over the prior year reaching $4.7 million.  For the six-month period, gross margin increased by $3.1 million to $9.0 million, year over year. The prior year included Banyan which represented $0.4 million for the quarter and $0.9 million for the six months.  Gross Margin as a percentage of sales declined to 18.8% and 18.5% for the quarter and half year, respectively, versus 23.6% and 23.8% the previous year. The growing professional services business from the Maplesoft acquisition was largely responsible for the gross margin percentage decline.  Professional services typically have a lower percentage gross margin.

Operating Expenses Metric (salaries and other compensation, professional fees and office and general):

  1. Salaries and other compensation- were 9.6% and 10.0% of sales for the first quarter and the half year, up from 8.0% and 9.5% for the same period the previous year. This is largely due to the addition of staff in the Benefits Division as the Company positions for growth in this segment. Longer term, management believes that this ratio will shrink to the 7% range.
  2. Professional fees- were $201 thousand in the quarter versus $417 thousand for the same period the previous year. Costs for the half year were $651 thousand, up $116 thousand from the previous year.
  3.  Office and general- were 4.5% and 4.7% of sales for the first quarter and the half year, an improvement from 7.9% and 7.6% for the same periods the previous year.
  4. Total Operating Expenses- were 14.9% and 16.1% of sales for the quarter and the half year, respectively. This is an improvement from 19.0% and 19.2% the previous year. Management expects operating expenses as a percent of sales to continue to improve significantly as sales grows. This element of the SEB cost structure is very scalable.

Operating Income before non-cash costs, interest and one time professional fees- was $1.0 million for the quarter versus $0.6 million in the previous year. The half year was $1.2 million  versus $1.1 million in the previous year.  The comparative figures includes Banyan’s results. The quarter ended May 31, 2016 has been the strongest positive quarter since the inception of the Company.

Adjusted EBITDA from Continuing Operations- was $1.1 million for the quarter, up from $0.2 million in the previous year. The half year comparison is $1.1 million, up from $0.6 million.

Loss from Continuing Operations- was $1.1 million for the quarter and $3.5 million for the half year. This compares to $1.8 million and $2.6 million for the same previous year. Significant contributors to the loss are non-cash items (e.g. share based compensation, amortization, depreciation and interest accretion).

Technology Division- the Technology Division recorded strong performance for the first half of fiscal, 2016.  Revenue was $47.8 million with an EBITDA of $3.2 million. Backlog and renewals remain strong.

Benefits Division- the deconsolidation of Banyan significantly reduced the revenue from this Division. This Division remains a major growth focus for the Company in 2016 and beyond. The Company has significant growth opportunities in the second half of 2016.

Corporate Division- the Corporate Division’s Adjusted EBITDA for the second quarter was negative $0.6 million versus the previous year’s loss of $0.8 million. Legal, accounting, and valuation fees are significant costs of this Division.

YEAR TO DATE FINANCIAL HIGHLIGHTS 

  • The Company acquired Maplesoft, including the amount of approximately $13.5 million of debt, of which $5.1 million was an Operating Credit Facility.
  • The Company received proceeds of a $1.6 million equity private placement financing, closing a $4.0 million commitment from a strategic investor.
  • Post the second quarter, the Company finalized a total of up to $15.5 million operating credit facilities increasing availability from up to $12.0 million to up to $15.5 million.
  • On July 26, 2016, SEB extended and amended two convertible note issues:
  1. $1,690,000 of $2,000,000 of convertible notes maturing May 13, 2016 with a conversion price of $0.60 were extended to December 31, 2016 at a revised conversion price of $0.30. The interest rate increased from 9.75% to 12.0%. Management and Directors own $1,605,000 of the $1,690,000 extended. The remaining $310,000 was repaid.
  2. $1,331,669 of $1,940,000 of convertible notes maturing on August 12, 2016 were extended to December 31, 2016 on the same terms as the above notes. $608,333 of these notes were repaid.
  • Approximately $3.9 million of term debt was extended to October 31, 2016 and $2.9 million extended to Feb 7, 2017.
  • The Company is in active negotiations to replace its short-term debt with more permanent solutions. This debt was the result of acquisitions. The more permanent solutions being considered include a new convertible note issue from insiders, an equity issue from insiders and strategic partners and U.S. private equity funds. It is the Company’s objective to have all the short-term debt replaced with more permanent solutions prior to the end of October, 2016.

CONFERENCE CALL

The Company will hold a conference call to discuss these results on Wednesday, August 3nd at 11am Toronto Time. Call details are outlined below:

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:  http://services.choruscall.ca/links/seb20160803.html

 

Conference Call Replay Numbers:

Canada & USA Toll Free: 1-855-669-9658

Outside Canada & USA Call: 1-604-674-8052

Code: 00701 followed by the # sign

Replay Duration: Available for one week until end of day August 10, 2016.

 

MANAGEMENT COMMENTS

John McKimm, President/CEO of SEB, states:

“SEB’s acquisition program continues to deliver positive results. The Company now has a geographic footprint across Canada, the UAE and India. The business base has been established for strong organic growth. The SEB Group employs approximately 726 people globally, one third employees and the rest, contractors. Over $30.0 million has been spent over the past four years on the acquisition and development of software solutions and hosting infrastructures, and acquiring companies that are core to the Technology and Benefits Divisions.

The growth emphasis in 2016 and beyond will be on the Benefits Division. This will require additional investment in sales and marketing initiatives, acquisitions and joint ventures. Management believes the Technology Division is well-positioned for organic growth and to support the Benefits Division’s growth initiatives.”

ABOUT SEB

Smart Employee Benefits Inc.’s global infrastructure is comprised of two operating divisions: Technology and Benefits. The Technology Division currently serves corporate and government clients across Canada and internationally. The Benefits Division focuses on offering SAAS and BPO solutions in the Health Benefits Sector to corporate and government clientele. The Benefits Division operates as a client of the Technology Division. The Technology Division is a critical competitive advantage in supporting the implementation of SEB’s benefits processing solutions into client environments. Benefits processing is a high-growth specialty practice area.

The core expertise of both divisions is data processing. Emphasis is on automating business processes utilizing SEB proprietary software solutions combined with solutions of third parties through joint ventures and partnerships.

Acquisitions, joint ventures, and RFP wins will continue to be dominant influences in driving growth in both divisions.

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

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 CONTACTS:

John McKimm

President/CEO

Office (888) 939-8885 x 354

Cell (416) 460-2817

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

 

Glenn Akselrod

Bristol Capital Ltd.

(905) 326-1888 x 10

glen [at] bristolir [dot] com

 

Neither the TSX Venture Exchange 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.