18:46:58 EDT Thu 28 Mar 2024
Enter Symbol
or Name
USA
CA



Smart Employee Benefits Inc
Symbol SEB
Shares Issued 103,409,149
Close 2016-04-28 C$ 0.20
Market Cap C$ 20,681,830
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Smart Employee talks buys, omits Q1 P&L from NR

2016-04-29 21:14 ET - News Release

Mr. John McKimm reports

SEB REPORTS FIRST QUARTER, 2016

Smart Employee Benefits Inc. has released its financial results for the first quarter ended Feb. 29, 2016.

Financial overview for the first quarter (all comparative figures are the first quarter prior year, unless stated otherwise):

  • Revenue increased by 107.1 per cent to $23.4-million as a result of both the acquisition of the Maplesoft group of companies, which contributed $13.4-million, and organic growth initiatives. The increase was offset by the deconsolidation of Banyan Work Health Solutions Inc., which had contributed $2.0-million in first quarter 2015.
  • Gross margin increased by 55.2 per cent to $4.2-million from $2.7-million, even though the prior year's comparative figure included $465,000 from Banyan. Gross margin percentage declined from 24.1 per cent to 18.1 per cent due to the change in accounting for Banyan from consolidation to equity method. (Banyan's GM per cent for first quarter 2015 was 23.2 per cent).
  • Operating expenses changed as follows:
    • Salaries and other compensation costs fell to 10.4 per cent of sales from 11.3 per cent. Further improvements in cost structure are planned during the year.
    • Office and general costs fell to 5.0 per cent of sales from 7.2 per cent, and from 9.4 per cent in fiscal 2015.
  • Adjusted earnings before interest, taxes, depreciation and amortization were at break-even (negative $124), falling below expectations as a result of one entity in the technology division and one entity in the benefits division performing below budget, the change in accounting for Banyan, and higher-than-projected corporate costs. Management believes this shortfall will be recovered as the year evolves.
  • Overall performance in the technology division was strong. Sales growth was higher than expected while backlog and renewals remain over $300.0-million. Revenues increased by 159.2 per cent to $23.0-million from $8.9-million. Adjusted EBITDA increased to $1.5-million from $733,000. Adjusted EBITDA was impacted by a weakness in one entity where the bench utilization was lower than expected. These employees have now been deployed in revenue-generating capacities, and utilization is anticipated to return to normal in second quarter 2016. Growth in the technology division remains strong, and results are expected to show continued improvement throughout the year.
  • Benefits division revenues decreased by $2.0-million from prior year as a result of the deconsolidation of Banyan. EBITDA was a negative $562,000 compared with $66,000. Negative earnings were a result of $432,000 spent on the customization of technology solutions for specific market opportunity to be launched in third quarter 2016; equity accounting for Banyan, which added $181,000 of expenses that would have previously been excluded from EBITDA (depreciation, amortization and interest); and lower-than-anticipated earnings from disability management due to sales from a long-term client being delayed. Management anticipates that first quarter 2016 results will be offset by the growth from other clients during the year.
  • The benefits division is a major growth focus in fiscal 2016. The company has launched its broker affiliate program and joint venture white-label TPA program. Both will require investment in sales and marketing in second quarter 2016, which may weaken the benefits division results. Management estimates that the benefits division EBITDA will be positive by the fourth quarter, as investments in the first and second quarters start to realize results.
  • The corporate division's EBITDA was $507,000 lower than prior year largely due to increases in operating costs and professional fees. Legal, accounting, audit and valuation fees were heavily impacted by the acquisitions and growing complexity of the company. A reduction in these costs is projected in second quarter 2016.
  • The consolidated financial statements and related management's discussion and analysis for the quarter ended Feb. 29, 2016, can be found on SEDAR under the profile of Smart Employee Benefits.

Finance highlights during the quarter:

  • The acquisition of Maplesoft in December, 2015, included the assumption of $13.5-million debt, of which $5.1-million was a revolving credit facility.
  • The company received proceeds of $1.6-million of a private placement equity financing, closing a $4.0-million commitment from a strategic investor.
  • It extended the maturation date of short-term debt from February, 2016, to August, 2016, and from March, 2016, to May, 2016. Agreements have been reached for further extensions to June, 2016, and April, 2017.
  • Management has been engaged over the past several months in consolidating operating credit facilities and extending the term of the short-term debt. The company has signed back lender term sheets, which, on closing, would increase operating credit facilities (tied to current receivables) to over $15.0-million and consolidate the term debt into 24-to-60-months terms. Due diligence is in progress, and closings are targeted in May, 2016. These new financing solutions would significantly improve the current ratio and are expected to reduce interest costs by over $500,000 per annum.

Management comments

John McKimm, president and chief executive officer of Smart Employee, stated: "SEB's acquisition program continues to deliver positive results. The company now has a geographic footprint across Canada, the UAE, India and Australia. The business base has been established for strong organic growth. Contracted backlog and expected renewals exceed $360.0-million, up from approximately $25.0-million, at November, 2014. The SEB group employs approximately 850 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 business.

"The acquisition of Maplesoft is expected to increase the consolidated annual revenue of SEB by over $50.0-million, contribute substantially to the overall profitability, and increase sales backlog and renewals by over $280.0-million. This acquisition builds on our previous technology acquisitions (Somos Consulting Group Ltd., Logitek Technology Ltd., Inforica Inc., Stroma Service Consulting Inc., APS-Antian Professional Services Inc. and Paradigm Consulting Group Inc.), and will establish SEB as a leading Canadian company in the cyber/IT security, information management, IT infrastructure management, data centre management, project management and professional services sectors, capable of delivering a broad portfolio of services and solutions to government and corporate clients, with specialty practices in health care and benefits processing solutions.

"Transactions in the acquisition and joint venture pipeline for 2016 are well advanced. The cost structure of completed acquisitions continues to be optimized through cost reduction initiatives. The cost structure has been permanently reduced in the past 90 days by over $1.4-million annualized, largely due to restructuring of the senior management team in both the technology and benefits divisions. This has positioned the company to emphasize growth initiatives in the benefits division for 2016. SEB has now reached the point where management expects significant, ongoing, positive EBITDA from continuing operations.

"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. Our technology division is staged for both double-digit organic growth, and to support of the benefits division's growth initiatives. SEB's unique blend of benefit technology solutions are well positioned to experience significant growth in 2016."

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