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Welcome to the Smart Employee Benefits Inc second quarter 2022 Conference Call and Webcast. The conference is being recorded. [Operator Instructions]
At this time, I'd like to turn the conference over to Tim Beaulieu, Chief Financial Officer. Please go ahead.
Thank you, Gaile. Good afternoon, everyone, and welcome to the call to discuss SEB's second quarter results of fiscal 2022.
On behalf of SEB's Board of Directors, management and employees, thank you for taking the time to participate in today's call. With me on the call, I have John McKimm, SEB's President, CEO and CIO as well as Mohamad El Chayah, SEB's COO.
Before I turn over the call to John McKimm, I'd like to remind you that during this call, we will be discussing SEB's business outlook and making other forward-looking statements that reflect management's expectations regarding SEB's future growth, financial performance and business prospects and opportunities.
All such statements are made pursuant to the safe harbor provisions of applicable Canadian securities legislation. These statements reflect current expectations of management regarding future events and operating performance as of this conference call and as of the date of the respective statements.
Listeners to the call are cautioned that reliance on such information may not be appropriate for other purposes as by their very nature, forward-looking statements require management to make assumptions that are subject to inherent risks and uncertainties. A number of factors could cause actual future results, conditions, actions or events to differ materially from the targets of those expectations, goals, estimates or intentions expressed in the forward-looking statements.
Thank you for your attention, and I will now ask John McKimm to lead the call.
Thank you, Tim, and thank you, everyone, for joining the call. We look at our second quarter as improvement over the first quarter.
We're looking for the second half to be substantially stronger. In Q2, revenue was $16.7 million, which increased 3.8% over Q2 '21 a year ago and 4.2% over Q1 '22 this year.
The trailing 12 months revenue increased by $5 million or 8.5%. The trailing 12 months gross margin was up about 150,000 -- $0.148 million, $150,000.
Over 90% of our budgeted revenues for 2022 are still under contract. We posted 9 consecutive quarters of positive adjusted EBITDA with the second quarter. In the Benefits Solutions business, our revenue was roughly flat and we've had 8 quarters now of positive EBITDA. We won a lot of new contracts in the first half of the year, but it takes time to implement those new contracts and before the numbers start to flow through.
In the Technology Services, we were $12.6 million of revenue versus $12.1 million the previous year. The adjusted EBITDA was down a bit due to a onetime project in the first half of the year. That was an investment in technology, which is we can resell. And -- so that was the reason.
EBITDA was a little bit weaker as well for the same reasons. Over 65% of our year-to-date revenues come from clients with more than 5-year histories with the company. We won over $240 million of contract wins in the last 18 months, taking our contract values to over $470 million. We expect continued increases in the second half of fiscal 2022 revenue and improved adjusted EBITDA and EBITDA.
As noted, over 90% of our 2022 targeted revenues are under contract, with over 80% under contract for the next 4 years. And some of our contracts go out as long as 11 years. The company has established strong traction in multiple new business initiatives, and is well positioned to win new business going forward. As noted, a onetime contract in the first half of 2022, increased the cost structure and reduced our margins slightly. However, this is an investment in intellectual property assets and has longer-term managed services revenue opportunities.
Business development, we have multiple new business partners in the first half of fiscal 2022. Our channel partner has -- strategy has gained very strong traction. We have more than a dozen active negotiations with brokerage organizations and third-party administrators, representing close to $8 billion of premium. With revenue -- Channel Partner, White Label TPA agreements have been signed with organizations, representing over 180,000 plan members.
RFP wins have added over 60,000 plan members in the first half of fiscal 2021. Approximately 160,000 of those plan members are still under transition, and expected it to be live later in 2022 when they start to generate revenue.
The company's RFP and Channel Partner sales pipeline is the largest it's ever been, in both government and corporate, for both the Technology Services and the Benefits software solutions and services revenue streams.
Technology Services revenues have always been cash flow positive. Our net new business wins and renewals remain strong. Our Benefit Solutions revenue is becoming cash flow positive after all considerable investments in technology, business infrastructure and client acquisition. We expect strong revenue streams and continued sustainable growth going forward. As noted, we have over $470 million of signed contracts, over $130 million in Benefits Solutions and over $340 million in services.
The majority of the company's business is recurring, large multiyear, managed services revenue contracts. We manage mission-critical systems and people infrastructure for our clients. And that's the growth focus going forward. Questions?
[Operator Instructions] The first question is from Edward Gilmore of private investor.
John or maybe [indiscernible] question. I feel like we could probably go back 6 to 8 quarters. And honestly, the comments and remarks that are made on today's call sound very similar to what we heard as many as 2 years ago. Same backlog numbers. Management has talked about wanting to do a share consolidation that hasn't happened. And instead, what has changed is we've seen things like bonuses, salary increases and more dilution. And I just -- I wondered if maybe you could comment on is this the case of kind of overpromise and underdeliver? Or what would you say to shareholders that are giving up on the company?
Well, I hope shareholders don't give up on the company. We've had a lot of new contract wins, and the term of the contracts have gone out. As I say, we have some of our contracts out as long as 11 years.
So there is a large recurring base. We made -- up until 2021, we were making very large investments in our technology infrastructure and our people infrastructure. 2022, had additional investments in people. There was a big resource problem in 2022, and high with the stay at home work policies.
We found recruiting was more difficult in 2021 and 2022. Some of the business -- a lot of the business we won in '18, '19 and '20, just took longer to execute. Things slowed down, but the contract values remain there. And now we're starting to see that growth.
Our growth in 2021 was $63 million in revenue, that was up about 3 million -- $2 million to $3 million over 2020. We're looking now for growth over $70 million in 2023 -- or 2022. So that's a pretty substantial number. A lot of that will come in the third and fourth quarter. It has just taken longer for -- because of the changing work policies in the environment, it's just taken longer for some of the contracts to start contributing to revenue and to be implemented.
So the 180,000 plan members, I believe that's the number that's been used quite often. To get that additional $7 million of revenue growth there from $63 million to $70 million, how many new plan members is that going to add to that?
We should by the end of this year have about between 440,000 and 450,000 plan members on our platform. And keep in mind, we just won another 60,000-plus plan members in the first half of this year. So those -- the target dates for those to go live is early 2023. And on top of that, in our pipeline, as I say, we have over 2 million plan members in our channel partner pipeline that we're getting close to in negotiations.
Large companies, they just take a long, long time to reach contracts.
Just one more question for me and then I'll jump back in the queue. But John, with the stock price is down around USD 0.065 today, any plans for any management to do open market purchases to show a sign of confidence to shareholders?
We're in a blackout at the moment, so insiders cannot buy shares at the moment or we would. So we -- given transactions that we have on the table, the insiders will be in our blackout for the next few months.
The next question is from Bruce McConnell of private investor.
John, a couple of questions here. I hear you talk about revenue and EBITDA growing. And I mean, those are good metrics. But when I look at your financials, I see a pretty low cash position. And I mean that's a bit concerning to me given the current share price too and questionable ability to raise more cash.
So I'm curious if you could elaborate a bit on your cash position and how the company thinks about and one other one afterwards.
Okay. Well, we raised some additional capital, and we extended our bank lines in the last -- in the second quarter. There's -- our cost did increase as a result of that in terms of onetime legal costs and so forth. So working capital is growing internally from operations.
And our balance sheet needs a little bit of help here and there, but our working capital is positive and is funding our day-to-day growth as is saturated at the moment. And we have no intention of raising capital at these prices.
The other question I had is in past, you've spoken a couple of times about some transformational deals in the pipeline.
And I don't notice anything in the more recent releases about the transformational deals. Can you provide any color on that?
That's why we're in blackout. .
As there are no further questions, I'd like to turn the conference back over to John McKimm for closing remarks.
Well, thank you for joining. The stock price has been weak. That is of great concern to the management and the Board and the company as a whole. I think the small cap or technology market in Canada is pretty much a wasteland at the moment.
I think if you look at a lot of the technology IPOs that have -- in the last 3 years, they're all down 80% to 90%. It doesn't make a lot of sense to me if you look at some of the underlying fundamentals of the companies. The values of these companies at the moment is, I say, relative to their businesses, just don't make any sense. I think many technology companies should -- or Canadian technology companies at least in this marketplace that are in this wasteland and where nobody cares much about the stocks, either should be looking to go private or looking for a merger or things like that. Because with strategic partners, it just doesn't make any sense these valuations.
You could not create or buy. For us, for example, we got close to $0.5 billion of contracts and we've got another $300 million of contracts in our sales pipeline, which we expect to close a substantial portion of those in the next year. So it just doesn't make any sense that we have a market cap of $20 million, but we're not alone. There's another 20 or 30 tech companies and a lot of them in health care, that have the same experience and suffering the same malaise. So we are all unhappy about the stock price, but we continue to focus on our business.
It is strong. Our pipeline is strong. Our numbers are improving regularly, and we expect a stronger second half. So I think investors that look at this marketplace today in the small-cap marketplace, they need to have a 12-month time frame, markets go down and they go up. But the markets we see now for all the reasons that I think you hear about in the news and the word turmoil. I think our buying opportunities, if you believe that the company has a good business plan and a good business strategy, has a solid client base and so forth.
So I think there are buying opportunities in this marketplace today. And I know I've looked at buying other technology companies that -- because I can't buy my own for the same reason. But you need to have a little bit of a longer time frame, probably another 12, 15 months to see what unfolds here in the world markets, and we'll go from there. But that's just 1 person's view. But thank you for joining the call. And if you have any questions, you know how to reach us. Thank you.
This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.