19:49:33 EDT Thu 28 Mar 2024
Enter Symbol
or Name
USA
CA



Smart Employee Benefits Inc
Symbol SEB
Shares Issued 132,060,689
Close 2017-04-28 C$ 0.19
Market Cap C$ 25,091,531
Recent Sedar Documents

Smart Employee loses $2.2-million in Q1

2017-04-28 18:31 ET - News Release

Mr. John McKimm reports

SEB REPORTS RESULTS FOR FIRST QUARTER, 2017

Smart Employee Benefits Inc. has made significant progress during the first five months of fiscal 2017. Smart Employee Benefits has closed approximately $5.9-million of new equity, the majority subscribed for by insiders and existing shareholders. The president/chief executive officer/CIO acquired over 30 per cent of the equity offering. In addition, the company has closed $22.5-million of debt facilities with a major Canadian bank. This debt consolidation saves over $1.5-million annually of interest charges and terms out short-term debt incurred in the course of acquisitions for up to five years. Debt service is estimated at approximately 35 per cent of the technology division (TD) cash flows. The company also closed the acquisition of Aon Hewitt Inc.'s mid-market health and welfare benefits administration business in Canada and structured a strategic sales and marketing alliance with Aon. Aon is one of the largest benefit consulting companies in the world operating in over 100 countries. This book of business consists of 48 corporate clients representing over 250,000 plan members across Canada. Smart Employee Benefits also acquired several highly complementary technology platforms and added approximately 150 employees across Canada and India.

The above transactions position Smart Employee Benefits for strong growth in fiscal 2017. The Smart Employee Benefits group currently has over $100.0-million of sales and in excess of $500.0-million of backlogs, renewal and option year contracts with over 200 clients.

The consolidated financial results for the first quarter ended Feb. 28, 2017, were relatively flat compared with the same quarter the prior year. The technology division continued to generate strong performance during the quarter with backlog increasing significantly, although revenue declined slightly and operating earnings declined, largely due to weakness in Western Canada. This weakness is expected to be fully recovered in the second quarter. The benefits division (BD) gained solid traction after the quarter with the Aon transaction. Corporate costs declined significantly. The details are as follows.

Consolidated results:

  • Revenue from continuing operations was $23.15-million versus $23.67-million the previous year. The $520,000 decline in revenue is largely due to weakness in the Alberta and Western Canada region. Budget cutting due to the decline in the oil industry is the primary factor. Other areas of the country continued to have strong performance.
  • Gross margin was $3.72-million for the quarter, down from $4.22-million the previous year. This decline is largely due to weaker performance in Western Canada and a temporary underdeployment of employees.
  • Operating income was $59,543 for the quarter, versus $177,273 the previous quarter. The benefits division operating loss was $507,498 versus $411,635 the previous year. The technology division operating income was $942,649 versus $1,506,242 the previous year. The corporate division operating loss was $375,699 versus $917,334 the previous year. The benefits division investment in technology was greater due to the costs of migrating the new products platform to the cloud. Corporate costs were reduced significantly during the year. The technology division decline is expected to be fully recovered in the second quarter 2017.
  • Costs continued to show improvement. Salaries and compensation costs were 8.9 per cent of sales versus 10.3 per cent the previous year. Office and general expenses were relatively flat as were professional fees. Non-cash costs (amortization, depreciation and share-based compensations) were relatively flat, year over year. Significant improvement in the cost structure was realized in fiscal 2016.

Divisional performance:

  • The technology division revenue was $22.69-million for the quarter versus $23.0-million the previous year. The decline is largely due to weakness in the Western Canada market. Operating income was $942,649 versus $1,506,242 the previous year. This weakness is partially due to investment in new sales and marketing initiatives, higher-than-anticipated employees on the bench and the reduction in billable contractors in Western Canada. This weakness is expected to be fully recovered in the second quarter.
  • The benefits division revenue was $453,644 for the quarter versus $358,317 the previous year. The Aon acquisition, together with the new products platform launch, is expected to significantly increase these revenues in the coming months. Operating income for the quarter was a loss of $507,498 versus $411,635 the previous year.
  • Corporate operating income was a loss of $375,699 down from a loss of $917,344 the previous year. The corporate cost structure is being reduced significantly.

Consolidated earnings (loss):

  • The company recorded a net loss of $2,202,918 for the period versus $2,379,862 the previous year. Non-cash expenses totalled $1,243,095 versus $1,324,021 the previous year. Interest costs were $502,087, a significant improvement from $761,590 the previous year. The interest costs are expected to be reduced by over $130,000 per month going forward as a result of the consolidation financing of $22.5-million. Transaction costs increased to $502,087 from $317,727 in the previous year. These costs fluctuate per acquisition and financing initiatives. Operating income prior to interest charges and non-cash expenses was $59,453 for the quarter versus $177,273 the previous year. Significant improvement is expected in the second quarter. It is expected that by 2019 non-cash amortization expenses will no longer have a material negative impact on earnings.

Equity financing:

  • The company has closed several tranches of two equity financings since November, 2016, totalling $5,910,308. This includes $180,000 of equity financing closed today, April 28, 2017. The term of this financing is 20 cents per unit where each unit consists of one share and one warrant exercisable at 30 cents per Smart Employee Benefits share for a period of 18 months. In total, 29,551,540 shares and 29,551,540 warrants were issued.

Debt financing ($22.5-million):

  • The new financing arrangements with a major Canadian bank consist of an operating demand facility of up to $12-million (the senior operating facility), a demand $5.5-million term loan facility with repayment amortized over four years (the senior term facility) and a $5-million subordinated term loan facility (the junior term facility). The junior term facility is a $5-million, five-year, subordinated term facility with the mezzanine arm of the bank with monthly interest only and a balloon payment at the end of the term. The senior term facilities have interest terms consistent with fully secured senior debt. The junior term facility has interest terms consistent with secured subordinate debt facilities.
  • The new credit facilities consolidate and replace the aggregate $4,751,000 of credit facilities that the corporation's wholly owned technology division subsidiaries had with the same major Canadian bank, as well as the corporation's asset-based credit facilities of $12.5-million with a major international asset-based lender (ABL). The new credit facilities also repay the term debt of Maplesoft Group Inc. (a wholly owned subsidiary of the corporation) and repay select convertible notes at the public-company level.

Stated John McKimm, president/CEO/CIO: "The new credit facilities save $1.5-million per annum of interest charges. The financing significantly reduces SEB's balance sheet risk."

The AON transaction:

  • The acquisition of Aon's mid-market health and welfare benefits administration business in Canada represents 48 clients, many with globally recognized brands, with over 250,000 plan members. As a part of this transaction, Smart Employee Benefits added several complementary technology platforms and approximately 150 employees across Canada and India. It also included a strategic business relationship with Aon Hewitt, where Smart Employee Benefits technology solutions enable future business initiatives.

Stated John McKimm, president/CEO/CIO of Smart Employee Benefits: "The Aon transaction adds not only long-term clients to SEB's benefits administrations business, it also adds a strategic relationship with one of the largest benefits consulting organizations in the world. A further positive is the Flex Plus administration platform, which SEB believes to be one of the most comprehensive Flex systems in the marketplace. SEB has made substantial investment over the past five years in its health benefits processing solutions. The Flex Plus platform enhances SEB's processing solutions capabilities in administering Flex benefits plans. SEB's benefits exchange platform is believed to be the most comprehensive in the industry and the only one that manages all benefit types in one environment. The current Aon administration environment contributes revenue per plan member of between $50 to $70 per annum. The average benefit plan in Canada today pays processing fees between $250 and $600 per annum per plan member. These processing fees are scattered among multiple service providers. SEB's benefits exchange platform can consolidate these services and provide benefits clients with one processing environment for all benefits types. This includes administration (traditional or Flex), adjudication, claims payment, billing, health spending accounts, disability management, health and wellness, fraud prevention, detailed real-time reporting and analytics, audit, pharmacy benefits management (PBM) solutions, new voluntary products purchases, all on one benefits card and in one processing environment. This is unique in the industry, both in Canada and globally. SEB, with the Aon transaction, has the opportunity to capture up to 100 per cent of the processing fees, the majority of which are currently being outsourced to multiple parties."

Management comments

Stated Mr. McKimm: "SEB has made significant progress in the past five months. The technology division now has over $450-million of backlog, renewals and option year contracts. The division continues to be a strong performer. The benefits division has over $50-million of backlog contracts. The Aon transaction has given SEB the opportunity for significant organic growth if SEB can transition clients over time to SEB's benefits exchange platform. Virtually all the processing in a health benefits plan can be managed in one environment for all benefits types on the SEB platform. It allows SEB to capture in excess of $300 of processing fees per plan member and provide clients processing functionality they are not getting today without spending more money. This is unique in the benefits processing industry. The refinancing with a major Canadian bank has significantly improved the balance sheet and generated over $1.5-million of new free cash flow from interest savings. SEB is well positioned for growth in both revenue and cash flow in fiscal 2017."

Conference call details:

Date/time:  May 3 at 11:30 a.m. ET

Canada and the U.S. toll-free dial-in:  1-800-319-4610

Toronto toll dial-in:  1-416-915-3239

Callers should dial in five to 10 minutes prior to the scheduled start time and simply ask to join the call.

Conference call replay numbers:

Canada and the United States toll-free:  1-855-669-9658

Outside Canada and the U.S.:  1-604-674-8052

Code:  1427 followed by the number sign

Replay duration:  available for one week until end of day May 10, 2017

About Smart Employee Benefits Inc.

Smart Employee Benefits' global infrastructure is composed of two operating divisions: technology and benefits.

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

We seek Safe Harbor.

© 2024 Canjex Publishing Ltd. All rights reserved.