SEB Smart Employee Benefits Inc

Smart Employee Benefits Inc. (“SEB” or the “Company”) (TSXV: SEB) (OTCQB: SEBFF) a benefits administration technology company providing leading-edge, cloud based end-to-end IT and benefit processing software solutions and services, reports its financial results for the fourth quarter and fiscal year ending November 30, 2021.

Fiscal 2021 Highlights:

• Total Revenue: grew 1.9% to $61.7M versus $60.6M in Fiscal 2020.

• Benefits Solutions: revenue of $17.9M, positive $1.7M Adjusted EBITDA and $1.5M EBITDA in the 12 months ending of fiscal 2021 versus $15.1M in revenue and $1.4M in adjusted EBITDA and EBITDA in fiscal 2020.

• Technology Services: revenue of $46.5M, positive $3.4M Adjusted EBITDA and $2.8M EBITDA versus revenue of $47.4M, positive $3.5M Adjusted EBITDA and $2.9M EBITDA in Fiscal 2020.

• Gross Margin: 35.6% in Fiscal 2021 versus 33.5% in Fiscal 2020

• Adjusted EBITDA: improved by $0.5M to $2.3M in Fiscal 2021 versus $1.8M in Fiscal 2020. Continued positive results are targeted for fiscal 2022 and beyond.

• With the contract wins in the last 15 months, management expects increased Revenue in fiscal 2022 and increased Adjusted EBITDA and EBITDA.

Over 60% of year-to-date revenues come from clients with more than 5-year histories with the Company.

Q4/21 Financial Highlights:

• Revenue: increased 13.7% to $15.9M versus $14.0M in Q4/20.

• Benefits Solutions: revenue increased $0.5M year-over-year.

• Technology Services: revenue increased $1.4M year-over-year.

• Gross Margin: 31.9% versus 32.9% in Q4/20.

• Seventh consecutive quarter of positive Adjusted EBITDA.

Adjusted EBITDA: $46,742 versus $267,708 in the year-ago quarter. The decrease was due to a significant reduction in COVID relief being recognized in Q4/21 versus Q4/2020.

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. But going forward, we plan for 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 replace annual revenues. Over 90% of 2022 targeted revenues are under contract, over 80% of 2022 revenues under contract for the next 4 years, and some revenues 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. The Company has won over $205 million of net new business YTD since November 30, 2020.”

Business Outlook:

Technology Services revenues have historically been cash flow positive, and net new business wins 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 2021 consolidated 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, a portion of revenues in the first quarter were lower than forecast due to the expiry of the budget for one contract which affected the renewal of approximately $1.1 million of Technology Services revenues. Total Contract Values continue to grow, and utilization of the contracts is gaining stronger traction as government and businesses streamline their 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, the Company applied for COVID-19 government relief which offset the profitability shortfall from the delayed utilization of Technology Services contracts during 2020. This allowed the Company to keep valuable full-time staff employed. Benefits Solutions revenue remained stable and growing and was not eligible. The Company received approximately $0.9 million of COVID relief in fiscal 2021 vs $1.7 million in fiscal 2020.

The consolidated sales pipeline is the strongest it has ever been. The cost savings initiatives taken over the past several years largely benefitted the Company in 2020 with minimal improvements continuing in 2021. We anticipate continued improvement in consolidated financial performance in fiscal year 2022 versus fiscal year 2021, particularly in the Benefits Solutions.

Comparative Consolidated Results for the Fourth quarter and YTD of 2021 and 2020:

		3 months ended November 30							Year ended November 30
		3 months 2021			3 months 2020					2021			2020
Revenue		$	15,914,090		$	13,997,729			$	61,780,719		$	60,620,358
Cost of revenues			10,830,932			9,394,223				39,756,539			40,333,446
Gross Margin			5,083,158			4,603,506				22,024,180			20,286,912
Gross Margin as a % of Revenue			31.9	%		32.9	%			35.6	%		33.5	%
Operating costs			4,950,908			3,915,314				18,834,101			17,583,518
Professional fees			85,508			420,482				865,712			878,336
Adjusted EBITDA			46,742			267,710				2,324,367			1,825,058
Investment income			(493,318	)		(331,551	)			(389,154	)		(325,744	)
Share-based compensation			570,546			270,618				1,269,450			290,305
Transaction costs			33,816			(70,137	)			158,777			531,313
Change in fair value of contingent liability			(32,255	)		(390,800	)			(32,255	)		(390,800	)
Write down of assets			529,315			500,000				529,315			500,000
EBITDA		$	(561,362	)	$	289,580			$	788,234		$	1,219,983
Net loss from operations		$	(2,374,938	)	$	(463,980	)		$	(5,704,494	)	$	(4,169,209	)

Reconciliation of Consolidated Net loss to EBITDA for the Fourth quarter and YTD of 2021 and 2020:

		3 months ended November 30							Year ended November 30
		Nov-21			Nov-20				Nov-21			Nov-20
Net loss from operations		$	(2,374,938	)	$	(463,980	)		$	(5,704,494	)	$	(4,169,209	)
Interest and financing costs			1,372,966			1,026,259				4,802,599			3,182,777
Income tax recovery			-			(1,182,834	)			943			(1,253,314	)
Depreciation and amortization			196,277			665,802				719,822			2,570,967
Depreciation of right-of-use assets			244,333			244,334				969,364			888,765
EBITDA			(561,362	)		289,581				788,234			1,219,986
Investment income			(493,318	)		(331,551	)			(389,154	)		(325,744	)
Write- down of assets			529,315			500,000				529,315			500,000
Change in fair value of contingent consideration			(32,255	)		(390,800	)			(32,255	)		(390,800	)
Share- based compensation			570,546			270,618				1,269,450			290,305
Transaction costs			33,816			(70,137	)			158,777			531,313
Adjusted EBITDA		$	46,742		$	267,711			$	2,324,367		$	1,825,061

Consolidated Revenue Increased 13.7% Quarter Over Quarter:During the Q4 2021, consolidated revenues from continuing operations was $15.9 million versus $14.0 million in the prior year. Technology Services revenue increased by $1.4 million, while the Benefits Solutions revenues increased by $0.5 million. Contract values remain high with over $205 million of new wins in the last 15 months. Approximately 80% of 2021 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 % Increased:The Company generated $5.1 million in Gross Profit in Q4/21 versus $4.6 million in Q4/20. Gross Margin was 31.9% in Q4/21 compared to 32.9% in Q4/20. The reduction in Gross Margin in the Q4/21 was due to a one-time project.

The Gross Margin from our recurring business, excluding this project, was 33.1%. Technology Services Gross Profit (Gross Margin) in Q4/21 was $1.8 million (14.6%) versus $1.5 million (14.0%) in Q4/20.

The Benefits Solutions Gross Profit (Gross Margin) was $3.3 million (72.6%) versus $3.1 million (77.2%) largely due to lower Gross Margin in the online medical module sales. However, on a year-to-date basis, because the revenue mix included more higher margin Benefits Solutions revenues in 2021, the consolidated Gross Margin increased 2.2 percentage points from 33.5% in fiscal 2020 to 35.6% in fiscal 2021.

Operational Costs:

• Salaries and Other Compensation - salaries increased by $0.5 million during Q4/21 compared to the same period the prior year. On a year-to-date basis, the costs were up $2.0 million, largely due to a reduction in COVID relief funding, as well as reduction of the amount recorded as contract assets due to the difference in mix of projects when compared to the same period last year. Marginal savings are targeted for fiscal 2022, largely through attrition, but not expected to be substantial.

• Office and General Costs - Office and general costs increased by $0.5 million during Q4/21 versus Q4/20 and decreased by $0.8 million year-over-year. The annual cost reduction was partially due to office expense and travel expense reduction resulting from work from home policy during Covid period.

• Professional Fees - Professional fees remained relatively flat in fiscal 2021, compared to 2020. 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 $0.2 million during Q4/21 and $0.8 million during fiscal 2021 when compared to the previous year. Amortization of intangible assets decreased by $0.5 million in Q4/21 and $1.9 million in fiscal 2021 which was partially offset by the increase of $0.3 million and $1.0 million share-based compensation expense related to RSUs issued and options vested in Q4/21 and during fiscal 2021. Amortization of intangible costs are expected to be consistent in fiscal 2022 as significant portion of intangible related to earlier year acquisition transactions were fully amortized by the end of fiscal 2020.

Interest and Financing Costs, Interest Accretion and Transaction Costs: Interest and financing costs, interest accretion and transaction costs from continuing operations increased by approximately $0.3 million in Q4/21 and $1.6 million in fiscal 2021 compared to the same period in the prior year. The transaction costs expense increased by $0.1 million in Q4/21 and decreased by $0.4 million in fiscal 2021 compared to previous year. There were no significant transactions in fiscal 2021 as compared to the major financing transaction that occurred in the last half of fiscal 2020. The increase is primarily due to the increase in the interest accretion expense of $1.0 million, which is associated with the refinancing completed on November 30, 2020. $0.9 million interest accretion related to new convertible notes, and $0.1 million interest accretion related to capitalized transaction fees for new financing was expensed in fiscal 2021 vs $nil in fiscal 2020. The interest and bank fees also contributed to an increase of $0.6 million in fiscal 2021 compared to fiscal 2020 as a result of the refinancing.

KEY DEVELOPMENTS DURING AND SUBSEQUENT TO THE QUARTER

Business Development Activities Fiscal 2021: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 recently signed with organizations representing over 180,000 plan members. Additionally, RFP wins added over 60,000 plan members in Fiscal 2021.

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

Grant of RSUs:The Company has granted share-based compensation to its independent directors.

Pursuant to the Company’s Omnibus Long-Term Incentive Plan (the “Plan”), it has granted an aggregate of 615,536 restricted share units (“RSUs”) to its directors for compensation related to Q4/21 and Q1/22. The RSUs vest immediately. Each vested RSU entitles the holder to acquire one common share of the Company. Each Director is mandated to take a minimum 25% of their quarterly Director’s fees in RSUs. Directors have the option to take up to 100% of their fees in RSUs pursuant to the Omnibus Plan parameters.

Conference Call Details:Date/Time: Monday, April 4 at 3:30 PM ETCanada & USA Toll Free Dial In: 1-800-319-4610Toronto Toll Dial In: 1-416-915-3239Callers should dial in 5-10 minutes prior to the scheduled start time and simply ask to join the call. Webcast Link access at http://services.choruscall.ca/links/seb20220407.html

Conference Call Replay Numbers:
Canada & USA Toll Free:	1-855-669-9658
Code:	8758 followed by the # sign

Replay Duration: Available for one week until end of day Monday April 11, 2022.

About Smart Employee Benefits Inc. (“SEB”):SEB is a Benefits Administration Technology Company 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 ContactJohn McKimmPresident/CEO/CIOOffice (888) 939-8885 x 2354Cell (416) 460-2817john.mckimm@seb-inc.com