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States John McKimm, President/CEO/CIO of Smart Employee Benefits Inc.:
“Since its inception, SEB has been investing in both the Technology Services operations and more significantly in the Benefits Solutions operations. The Technology Services operations, historically, has strong profitability. Benefits Solutions has required significant investment, the majority of which has been expensed. This has penalized historical cash flow, net earnings and EBITDA. Going forward, there are minimal capital expenditures. The cost structure from acquisitions and integrations has been largely realigned and anticipate both the Technology Services and Benefits Solutions to show strong growth and positive cash flow in 2022 and beyond. Today, approximately 80% of every new gross margin dollar goes to cash flow and EBITDA in both revenue streams. The contract values, including backlog, option years and evergreen, remain strong, with the Company continually renewing or winning sufficient new business to maintain and grow future annual revenues. Over 90% of 2022 targeted revenues are under contract, with over 80% under contract for the subsequent 4 years; and some under contract for 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. A one-time contract in Q1, 2022 increased the cost structure and reduced margins, however, this contract is considered an investment in the future as it contributes to both IP (Intellectual Property) assets opening opportunities with new clients and longer-term managed services revenue.”

KEY DEVELOPMENTS DURING AND SUBSEQUENT TO THE QUARTER

Business Development Activities Fiscal 2022:
Relationships have been consolidated and grown with multiple new business partners. The Company’s Channel Partner strategy has gained strong traction with more than a dozen active negotiations with brokerage organizations, MGAs, TPAs, insurers, unions, and corporate entities. Several agreements have been executed with Channel Partners; with revenue growth expected in 2022 and beyond. Channel Partner “White Label TPA” agreements have been signed with organizations representing over 180,000 plan members. Additionally, RFP wins added over 60,000 plan members in Fiscal 2021. Approximately 160,000 of those plan members are in transition, expected to be live later in 2022.

The Company’s RFP and Channel Partner sales pipeline is the largest it has ever been, in both corporate and government opportunities; for both technology services and benefits software and solutions driven revenue streams.

Business Outlook:
Technology Services revenues have historically been cash flow positive, and net new business wins and renewals remain strong. Benefits Solutions revenue is becoming cash flow positive after considerable investments in technology, business infrastructure, and client acquisition. We expect both revenue streams to have continued strong sustainable growth going forward. Signed contracts (backlog, evergreen, option years), based on a 5-year time frame are valued at over $470 million, of which over $130 million is Benefits Solutions revenue. Approximately, 80% of 2022 forecast revenue targets are expected to be recurring over the next 4 years, with additional recurring revenue going out as long as 11 years. Since November 30, 2020, the Company has won over $205 million of net new contracts, including option years.

COVID-19 has led to increasing demand for the Company’s Benefits Solutions, including “online medical care partnerships”. In the Company’s Technology Services, we saw an increase in revenues in the first quarter which is a direct result of the contract wins in the past 16 months. Total Contract Values for the Company continue to grow, and utilization of the contracts is gaining stronger traction as government and businesses streamline and are adjusting to COVID-19 operating business processes.

The majority of the Company’s business is largely multi-year, managed services-driven recurring revenue contracts for managing and operating mission critical technology and people infrastructure for our clients. On a consolidated level, in Q1/2021 the Company applied for COVID-19 government relief to support the Technology Services operations as opposed to Q1/2022. This resulted in lower profitability when comparing the two quarters. However, this has allowed the Company to keep valuable full-time staff employed, which are now deployed to support the current and anticipated growth. The Company received approximately $0.231 million of COVID relief in Q1/2021 vs $nil in Q1/2022.

The consolidated sales pipeline is the strongest it has ever been. The cost savings initiatives taken over the past several years largely benefited the Company in 2020 and 2021 with some continued benefits into fiscal 2022.

Comparative Consolidated Results for the First quarter 2022 and 2021:

Consolidated Segmented results for the First quarter of 2022 and 2021:

Reconciliation of Consolidated Net loss to EBITDA for the First quarter of 2022 and 2021:

Revenue Increased 11.7% Quarter Over Quarter:

During Q1/2022, consolidated revenues from continuing operations was $16.0 million versus $14.3 million in the prior year. Technology Services revenue increased by $1.2 million, while the Benefits Solutions revenues increased by $0.4 million. Contract values remain high with over $205 million of new wins in the last 16 months. Approximately 80% of 2022 forecast consolidated revenue streams are under contract for the next 4 years representing >90% for Benefits Solutions revenues and >70% for Technology Services revenue. The Company’s growth focus is on the higher margin Benefit Solutions revenue, although Technology Services revenue is also experiencing solid growth. The operations, including sales and marketing initiatives, finance and accounting and technology support and delivery, were largely integrated in fiscal 2020.

Gross Margin and Gross Profit:
The Company generated $5.3 million in Gross Profit in Q1/2022 versus $5.5 million in Q1/2021. Gross Margin was 32.9% in Q1/2022 compared to 38.3% in Q1/2021. The reduction in Gross Margin and Gross Profit in the Q1/2022 was due to a one-time project which increased the cost structure but has resulted in new IP (Intellectual Property) assets and longer-term higher margin recurring managed services revenues.

Technology Services Gross Profit (Gross Margin) in Q1/2022 was $1.9 million (16.0%) versus $2.3 million (21.3%) in Q1/2021.

The Benefits Solutions Gross Profit (Gross Margin) was $3.4 million (73.3%) versus $3.3 million (76.9%) largely due to lower Gross Margins in the online medical module sales.

Operational Costs:

• Salaries and Other Compensation - salaries increased by $0.1 million during Q1/2022 compared to the same period the prior year. The increase is mainly due to a reduction in COVID relief funding when compared to the same period last year.
  
  

• Office and General Costs – Office and general costs increased by nearly $0.4 million during Q1/2022 versus Q1/2021. The increase is largely due to $nil covid subsidy and rent credits in Q1/2022 as opposed Q/2021.
  
  

• Professional Fees - Professional fees remained relatively flat in Q1/2022, compared to Q1/2021. Professional fees vary with the amount of financing or acquisition/disposition activity during the period.
  

Non-Cash Expenses:
Non-Cash expenses include amortization, depreciation and share-based (options, RSUs) compensation. They decreased by $0.3 million during Q1/2022 vs Q1/2021. The decrease is largely attributed to approximately $0.3 million share-based compensation expense related to RSUs issued and options vested in Q1/2022 vs Q1/2021.

Interest and Financing Costs, Interest Accretion and Transaction Costs:
Interest and financing costs, interest accretion and transaction costs from continuing operations remained relatively flat at approximately $1.2 million in Q1/2022 and Q1/2021. The transaction costs expense increased by $0.1 million in Q1/2022 compared to previous year. There were no significant transactions costs in fiscal 2021 as compared to the activities that occurred in the current quarter. The interest accretion expense was $0.3 million, which is associated with the costs incurred on the refinancing completed on November 30, 2020. The interest and bank fees were $0.8 million in Q1/2022 compared to $0.7 million in Q1/2021 as a result of the refinancing.

Decommissioning Costs:
Approximately $0.1 million of costs in Q1/2022 were one-time, related to the decommissioning of select operations in Western Canada. Total decommissioning costs are estimated at approximately $0.45 million to be recognized on a quarterly basis over the subsequent 12 months. The Company has reorganized select operations such that these activities will be managed from our Ottawa offices.

Grant of Options:
Pursuant to the Company’s Omnibus Long-Term Incentive Plan (the “Plan”), the Company has granted 1,000,000 stock options to a senior officer, exercisable at $0.235 with a term of 36 months, vesting 20% immediately and 20% every 6 months thereafter. The Company has also granted 250,000 stock options to a consultant, exercisable at $0.235 with a term of 24 months, 25% vesting immediately and 25% every 3 months thereafter. The Company also granted 1,700,000 stock options to its investor relations firm, exercisable at $0.21 per share with a term 60 months, 25% vesting 3 months after the date of grant and 25% every 3 months thereafter.

About Smart Employee Benefits Inc. (“SEB”):
SEB is an Insurtech company focused on Benefits Administration Technology driving two interrelated revenue streams – software/solutions and services. The Company is a proven provider of leading-edge IT and benefits processing software, solutions and services for the Life and Group benefits marketplace and government. We design, customize, build and manage mission critical, end-to-end technology, people and infrastructure solutions using SEB’s proprietary technologies and expertise and partner technologies. We manage mission critical business processes for over 150 blue chip and government accounts, nationally and globally. Over 90% of our revenue and contracts are multi-year recurring revenue streams contracts related to government, insurance, healthcare, benefits and e-commerce. Our solutions are supported nationally and globally by over 600 multi-certified technical professionals in a multi-lingual infrastructure, from multiple offices across Canada and globally.

Our solutions include both software and services driven ecosystems including multiple SaaS solutions, cloud solutions & services, managed services offering smart sourcing (near shore/offshore), managed security services, custom software development and support, professional services, deep systems integration expertise and multiple specialty practice areas including AI, CRM, BI, Portals, EDI, e-commerce, digital transformation, analytics, project management to mention a few. The Company has more than 20 strategic partnerships/relationships with leading global and regional technology and consulting organizations.

Forward-looking statements:
Certain information in this release, may constitute forward-looking information. In some cases, but not necessarily in all cases, forward-looking information can be identified by the use of forward-looking terminology such as “plans”, “targets”, “expects” or “does not expect”, “is expected”, “an opportunity exists”, “is positioned”, “estimates”, “intends”, “assumes”, “anticipates” or “does not anticipate” or “believes”, or variations of such words and phrases or state that certain actions, events or results “may”, “could”, “would”, “might”, “will” or “will be taken”, “occur” or “be achieved”. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances contain forward-looking information. Statements containing forward-looking information are not historical facts but instead represent management’s expectations, estimates and projections regarding future events.

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.

Neither TSX Venture Exchange Inc. nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange Inc.) accepts responsibility for the adequacy or accuracy of this release.

All figures are in Canadian dollars unless otherwise stated.

Media and Investor Contact
John McKimm
President/CEO/CIO
Office (888) 939-8885 x 2354
Cell (416) 460-2817
john.mckimm@seb-inc.com