SEB Smart Employee Benefits Inc

Smart Employee Benefits Inc. (“SEB” or the “Company”) (TSXV: SEB) (OTCQB: SEBFF) reports its financial results for the third quarter ending August 31, 2022 (“Q3/2022”). SEB is an Insurtech company focused on technologies that provide leading-edge, cloud based end-to-end IT and benefit processing software, solutions and services for the life and group benefits marketplace and government.

Please refer to the interim unaudited consolidated financial statements and Management's Discussion and Analysis ("MD&A") for the nine months ended August 31, 2022, filed on SEDAR at www.sedar.com for more information. Unless otherwise specified, all dollar amounts are denominated in Canadian dollars.

Q3/2022 Financial Highlights:

• Consolidated:
  • Revenue: Grew 3.3% to $16.0 million versus $15.5 million in Q3/2021
  • Ten consecutive quarters of positive Adjusted EBITDA 
• Benefits Solutions:
  • Revenue: $4.7 million versus $4.5 million in Q3/2021
  • Nine consecutive quarters of positive EBITDA 
• Technology Services:
  • Revenue (adjusted for intercompany sales adjustment in Q3/22 of $311K vs Q3/21- $929K): $11.3 million versus $10.9 million in Q3/2021
  •  The Technology Services has a long history of positive EBITDA
  • Adjusted EBITDA: $0.6 million versus $0.9 million in Q3/2021
  • EBITDA: $0.5 million versus $0.9 million in Q3/2021 
• Over 70% of year-to-date revenues come from clients who have been with SEB over 5-years 
• With over $70 million of contract wins in the last 9 months and over $470 million of total contract value, management expects year-over-year increases in fiscal 2022 Revenue.      

States John McKimm, President/CEO/CIO of Smart Employee Benefits Inc.:“On the back of our recent three wins announced in September and new Vendor Management Agreements, SEB extended its record of delivering positive adjusted EBITDA to 10 consecutive quarters.  Since our inception, SEB has invested in both Technology Services operations and more significantly in Benefits Solutions. Historically, Technology Services has strong profitability. Benefits Solutions has required significant investment, the majority of which has been expensed. The cost structure from acquisitions and integrations has been largely realigned and we anticipate both Technology Services and Benefits Solutions to show growth and positive cash flow in Fiscal 2022 and beyond. 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. 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 the first half of 2022 increased the cost structure and reduced margins; however, this contract is considered an investment in the future as it contributes to both Intellectual Property assets opening opportunities with new clients and longer-term managed services revenue.”

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, signing 3 new Vendor Management Agreements that authorize SEB to supply ITS software, solutions and services. These contracts give the Company the approval to participate in the IT budgets that exceed an estimated $40.0 million annually. The arrangements have terms up to 5 years, which typically are renewed once achieving approved vendor status.

SEB is also engaged in over a dozen active negotiations with brokerage organizations, Master General Agents, Third Party Administrators (“TPA”), insurers, unions, and corporate entities. Several agreements have been executed with Channel Partners; with revenue growth expected in 2022 and beyond.

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. Since November 30, 2020, the Company has won over $240 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”. We saw an increase in year-to-date revenues in the Technology Services in the first nine months of the year which was a direct result of the contract wins in the past 21 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 adjust 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 Q3/2021 the Company applied for and received approximately $247,000 of COVID-19 government relief to support the Technology Services operations as opposed to no support in Q3/2022. This resulted in lower profitability when comparing the two quarters. However, this has allowed the Company to keep valuable full-time staff employed throughout the pandemic, who are now deployed to support the current and anticipated growth.

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 Third Quarter and Nine Months 2022 and 2021: 

	3 months ended						YTD ended
	Aug-22			Aug-21			Aug-22			Aug-21
Revenue	$	15,990,075		$	15,470,625		$	48,653,945		$	45,858,689
Cost of revenues		10,493,398			9,947,474			32,280,614			28,917,668
Gross Margin		5,496,677			5,523,151			16,373,331			16,941,021
Gross Margin as a % of Revenue		34.4	%		35.7	%		33.3	%		36.9	%
Operating costs		5,150,373			4,776,608			15,411,614			13,883,192
Professional fees		117,244			154,389			531,213			780,204
Adjusted EBITDA		229,060			592,154			430,504			2,277,625
Change in Investment		-			-			-			104,164
Gain on sale of investment		-			-			(89,618	)		-
Decommissioning costs		-			-			104,037			-
Share-based compensation		175,871			80,618			578,451			698,904
Transaction costs		309,671			42,962			883,960			124,961
EBITDA	$	(256,482	)	$	468,574		$	(1,046,326	)	$	1,349,596
Net loss from operations	$	(2,323,446	)	$	(1,063,828	)	$	(6,744,814	)	$	(3,329,557	)

Consolidated Segmented results for the Nine Months ended August 31, 2022 and 2021:

Smart Employee Benefits Inc.
Segmented Income Statement Detail for the Nine Months August 31, 2022 (in C$)	Technology		Benefits		Corporate			IntercompanySales/COS			Total Company
Revenue	$	35,938,117	$	13,768,173	$	-		$	(1,052,345	)	$	48,653,945
Cost of revenues
Cost of revenues		29,819,825		3,513,133		-			(1,052,345	)		32,280,614
Gross margin		6,118,292		10,255,040		-			-			16,373,331
Expenses
Salaries and other compensation costs		3,677,768		7,162,491		743,851			-			11,584,110
Office and general		519,035		2,205,926		1,102,541			-			3,827,502
Professional fees		88,293		29,013		413,907			-			531,213
		4,285,096		9,397,431		2,260,298			-			15,942,825
Adjusted EBITDA		1,833,196		857,610		(2,260,298	)		-			430,505
Decommissioning cost		104,037		-		-			-			104,037
Gain on sale of investment		-		-		(89,618	)		-			(89,618	)
Transaction costs		87,031		-		796,929			-			883,960
Share-based compensation		6,517		12,617		559,317			-			578,451
EBITDA		1,635,611		844,993		(3,526,926	)		-			(1,046,326	)
Amortization of intangible assets		8,922		346,646		59,865			-			415,434
Depreciation of equipment		60,615		33,312		-			-			93,927
Depreciation of right-of-use assets		81,582		163,372		451,617			-			696,570
Interest and financing costs		125,020		139,353		4,227,913			-			4,492,287
Income tax recovery		268		-		-			-			268
Net income (loss)	$	1,359,205	$	162,309	$	(8,266,322	)	$	-		$	(6,744,814	)

Smart Employee Benefits Inc.
Segmented Income Statement Detail for the Nine Months ended August 31, 2021 (in C$)	Technology		Benefits		Corporate			Intercompany Sales/COS			Total Company
Revenue	$	34,509,633	$	13,291,886	$	-		$	(1,942,831	)	$	45,858,689
Cost of revenues		27,746,198		3,114,302		-			(1,942,831	)		28,917,668
Gross margin		6,763,435		10,177,585		-			-			16,941,021
Expenses
Salaries and other compensation costs		3,203,338		7,006,011		901,180			-			11,110,530
Office and general		518,931		1,726,249		527,483			-			2,772,662
Professional fees		105,207		86,972		588,025			-			780,204
		3,827,476		8,819,232		2,016,689			-			14,663,396
Adjusted EBITDA		2,935,959		1,358,353		(2,016,689	)		-			2,277,624
Investment loss		-		-		104,164			-			104,164
Transaction costs		-		-		124,961			-			124,961
Share-based compensation		121,217		208,681		369,006			-			698,904
EBITDA		2,814,742		1,149,672		(2,614,821	)		-			1,349,594
Amortization of intangible assets		7,688		312,416		59,866			-			379,970
Depreciation of equipment		81,668		61,908		-			-			143,576
Depreciation of right-of-use assets		81,582		191,832		451,618			-			725,031
Interest and financing costs		124,951		92,505		3,212,175			-			3,429,632
Income tax recovery		943		-		-			-			943
Net income (loss)	$	2,517,911	$	491,011	$	(6,338,480	)	$	-		$	(3,329,557	)

Consolidated Segmented results for the Third Quarters ended August 31, 2022 and 2021:

Smart Employee Benefits Inc.
Segmented Income Statement Detail for the  quarter ended August 31, 2022 (in C$)	Technology			Benefits			Corporate			IntercompanySales/COS			Total Company
Revenue	$	11,651,134		$	4,650,057		$	-		$	(311,116	)	$	15,990,075
Cost of revenues
Cost of revenues		9,657,553			1,146,960			-			(311,116	)		10,493,398
Gross margin		1,993,581			3,503,097			-			-			5,496,677
		17.11	%		75.33	%
Expenses
Salaries and other compensation costs		1,156,982			2,423,869			248,511			-			3,829,362
Office and general		175,524			728,152			417,334			-			1,321,010
Professional fees		30,451			6,716			80,078			-			117,245
		1,362,957			3,158,737			745,923			-			5,267,616
Adjusted EBITDA		630,624			344,360			(745,923	)		-			229,060
Decommissioning cost		-			-			-			-			-
Gain on sale of investment		-			-			-			-			-
Transaction costs		87,031			-			222,640			-			309,671
Share-based compensation		1,631			-			174,239			-			175,870
EBITDA		541,962			344,360			(1,142,802	)		-			(256,482	)
Amortization of intangible assets		2,974			121,608			19,953			-			144,537
Depreciation of equipment		19,975			10,762			-			-			30,737
Depreciation of right-of-use assets		27,493			36,186			152,195			-			215,872
Interest and financing costs		33,500			32,902			1,609,148			-			1,675,549
Net income (loss)	$	457,752		$	142,901		$	(2,924,096	)	$	-		$	(2,323,446	)

Smart Employee Benefits Inc.
Segmented Income Statement Detail for the quarter ended August 31, 2021 (in C$)	Technology			Benefits			Corporate			IntercompanySales/COS			Total Company
Revenue	$	11,868,110		$	4,531,197		$	-		$	(928,682	)	$	15,470,625
Cost of revenues
Cost of revenues		9,747,283			1,128,873			-			(928,682	)		9,947,474
Gross margin		2,120,827			3,402,324			-			-			5,523,151
		17.87	%		75.09	%
Expenses
Salaries and other compensation costs		1,069,317			2,400,500			265,429			-			3,735,246
Office and general		156,213			577,344			307,806			-			1,041,363
Professional fees		973			37,687			115,729			-			154,389
		1,226,503			3,015,532			688,963			-			4,930,998
Adjusted EBITDA		894,324			386,792			(688,963	)		-			592,154
Transaction costs		-			-			42,962			-			42,962
Share-based compensation		-			-			80,618			-			80,618
EBITDA		894,324			386,792			(812,544	)		-			468,574
Amortization of intangible assets		2,582			104,748			19,957			-			127,286
Depreciation of equipment		25,816			21,816			-			-			47,632
Depreciation of right-of-use assets		27,493			64,647			152,195			-			244,333
Interest and financing costs		37,477			27,930			1,047,745			-			1,113,150
Net income (loss)	$	800,957		$	167,651		$	(2,032,438	)	$	-		$	(1,063,828	)

Reconciliation of Consolidated Net loss to EBITDA for the Nine Months ended August 31, 2022 and 2021:

		3 months ended						YTD ended
		Aug-22			Aug-21			Aug-22			Aug-21
Net loss from operations		$	(2,323,446	)	$	(1,063,828	)	$	(6,744,814	)	$	(3,329,557	)
Interest and financing costs			1,675,549			1,113,151			4,492,287			3,429,633
Income tax expense			268			-			268			943
Depreciation and amortization			175,275			174,918			509,363			523,546
Depreciation of right-of-use assets			215,872			244,333			696,571			725,031
EBITDA			(256,482	)		468,574			(1,046,325	)		1,349,596
Change in investment			-			-			-			104,164
Gain on sale of investment			-			-			(89,618	)		-
Decommissioning costs			-			-			104,037			-
Share- based compensation			175,871			80,618			578,451			698,904
Transaction costs			309,671			42,962			883,960			124,961
Adjusted EBITDA		$	229,060		$	592,154		$	430,505		$	2,277,625

Revenue Increased 3.3% Quarter Over Quarter:

During Q3/2022, consolidated revenues from continuing operations was $16.0 million versus $15.5 million in Q2/2021. Technology Services revenue adjusted for intercompany sales increased by $0.4 million while the Benefits Solutions revenues increased by $0.1 million. Contract values remain high with over $240 million of new wins in the last 21 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 revenues also expected to continue to experience growth.

Gross Margin and Gross Profit:

The Company generated $5.5 million in Gross Profit in Q3/2022 versus $5.5 million in Q3/2021. Gross Margin was 34.4% in Q3/2022 compared to 35.7% in Q3/2021. The reduction in Gross Margin and Gross Profit in the Q3/2022 was largely due to a notable one-time project in Q3/2021.

Technology Services Gross Profit (Gross Margin) in Q3/2022 was $2.0 million (17.1%) versus $2.1 million (17.9%) in Q3/2021.

The Benefits Solutions Gross Profit (Gross Margin) was $3.5 million (75.3%) versus $3.4 million (75.1%) in Q3/2021.

Operational Costs:

• Salaries and Other Compensation - Salaries and other compensation costs increased by $0.09 million during Q3/2022 compared to the same period the prior year. The increase is 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 $0.28 million during Q3/2022 versus Q3/2021. The increase is largely due to no COVID-19 subsidy and rent credits in Q3/2022 as opposed Q3/2021. 
• Professional Fees - Professional fees remained relatively flat in Q3/2022 compared to Q3/2021. 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 remain flat during Q3/2022 versus Q3/2021.

Interest and Financing Costs, Interest Accretion and Transaction Costs: Interest and financing costs, interest accretion from continuing operations increased from $1.1 million in Q3/2021 to $1.7 million in Q3/2022, which is due to increased credit facility and convertible debt. The transaction costs expense increased by $0.267 million in Q3/2022 compared to Q3/2021. There were no significant transactions costs in fiscal 2021 as compared to the actively involved equity and debt financing that occurred in the current quarter.

Decommissioning Costs: There are no decommissioning costs in Q3/2022.

Grant of Options and RSUs in Q3/2022:

A minimum of 25% of the directors’ fees for Fiscal 2021 and 2022 must be compensated in RSUs and the directors can choose to be either compensated in cash or RSUs for the remaining 75%. As a result, the Company has also committed to issue 212,714 RSUs at $0.20 per share, 296,807 RSUs at $0.16 per share and 937,500 RSUs at $0.12 per share to the directors for the service provided in Q1, Q2 and Q3 2022. The RSUs will vest 100% after 12 months.

About Smart Employee Benefits Inc. (“SEB”):SEB is an Insurtech company focused on Benefits Administration Technology driving two interrelated revenue streams – Benefits Solutions and Technology 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