Mr. John McKimm reports

SEB REPORTS RESULTS FOR SECOND QUARTER, 2017

Smart Employee Benefits Inc. has made significant progress during the first six months of fiscal 2017. States John McKimm, president, chief executive officer and chief investment officer of SEB: "The company is currently tracking sales in the $110-million range, and has in excess of $500-million of backlog, renewal and option year contracts with over 200 active clients. The benefits processing book of business has grown significantly. Benefits processing sales are now tracking in excess of $12-million, up from $1.8-million in fiscal 2016. The below transactions, which closed during the second quarter, have strengthened the company's balance sheet, and positioned SEB for strong growth in the remainder of fiscal 2017 and into fiscal 2018."

Key transactions closed include the following:

• Aon transaction: The company closed the acquisition of the Aon Hewitt Inc. mid-market health benefits administration business in Canada, and structured a strategic sales and marketing alliance with Aon. Aon is one of the largest benefit consulting companies in the world operating in over 100 countries. This transaction added 48 corporate clients and over 250,000 plan members plus technology which broadened SEB's benefits processing capabilities.
• Debt financing: SEB closed $22.5-million of debt facilities with a major Canadian bank. These financings convert short-term debt issued or assumed in the course of acquisitions to longer terms of four to five years. This improves the company's working capital ratio and is expected to save over $1.5-million annually in interest and financing charges.
• Equity financing: The company closed approximately $7.2-million of new equity since November, 2016, of which the president/CEO/CIO and companies related subscribed for over 40 per cent. This equity was used to reduce debt and increase working capital.

Consolidated results of the quarter ending May 31, 2017 (Q2 2017)

The company's detailed financial results can be found on SEDAR. An analysis of these results includes:

• Consolidated revenue from continuing operations was $26.9-million versus $25.1-million the previous year and $23.1-million in the first quarter of 2017. Consolidated revenue grew 16.1 per cent in Q2 2017 over Q1 2017. Technology non-benefits revenue grew 8.5 per cent in Q2 2017 over Q1 2017. Benefits processing revenue grew to $2,252,000 from $454,000 in Q1 2017. Benefits processing revenue, on a monthly run rate, is now in excess of $12-million annualized. Consolidated annual sales are tracking in excess of $110-million.
• Consolidated gross margin was $7.3-million for the quarter, up from $4.7-million the previous year and $3.7-million in Q1 2017. As a per cent of revenue, consolidated gross margin was 27 per cent in Q2 2017 versus 16.1 per cent in Q1 2017 and 18.8 per cent in Q2 2016. This is due to growth in both benefits processing and technology non-benefits margins. Gross margin percentages in technology non-benefits were 21 per cent in Q2 2017 versus 15.3 per cent in Q1 2017. Continued sustainable gross margin growth is expected in subsequent quarters. Today, over 46 per cent of every gross margin dollar goes to earnings before interest, taxes, depreciation and amortization, up from 29 per cent in fiscal 2015.
• Salaries and other compensation costs were 15.1 per cent of sales in Q2 2017, versus 8.9 per cent in Q1 2017 and 9.6 per cent in Q2 2016. This cost structure increased largely due to additional staff in the benefits processing business, and additional sales and marketing efforts in technology non-benefits. This cost structure is highly scalable. It will not increase materially in either business unit as sales grow. The technology non-benefits costs have fewer employees and more contractors. Contractor costs are recorded in cost of sales. Benefits processing is primarily employees with very few contractors. Employee costs are recorded below gross margin.
• Office and general expenses were 6.2 per cent of sales in Q2 2017, up from 4.9 per cent in Q1 2017 and 4.5 per cent in Q2 2016. The increase is due to additional real estate costs tied to the Aon transaction. The company now has additional office space in Montreal, Toronto and India. This expense is highly scalable. It will not increase materially as sales grow.
• Professional fees were 1.8 per cent of sales in Q2 2017, up from 0.8 per cent of sales in Q2 2016 and 2 per cent in Q1 2017. The increase in costs is one time, and largely tied to costs associated with the new bank financing, the equity issues and the Aon transaction. The company is expecting a reduction of over $600,000 in these costs the second half.
• Operating income prior to non-cash expenses was $749,029 in Q2 2017 versus $994,427 in Q2 2016 and $59,453 for Q1 2017. Operating income was impacted primarily due to the one-time professional costs (noted above), the increase in compensation, and office and general costs tied to Aon transaction.
• Interest and financing fees were $648,839 for Q2 2017 versus $693,417 for Q2 2016 and $502,087 in Q1 2017. The bank financing which closed April 30, 2017, will reduce these charges by over $350,000 per quarter going forward.
• Non-cash expense consisting of amortization, depreciation and share-based compensation was relatively flat in both dollar amounts and as a percentage of sales. Amortization attributable to acquisitions is the largest component, representing over 85 per cent of non-cash expenses. The majority of these costs will be fully amortized by fiscal 2019 and no longer have an impact on net income. Currently, they affect net income by over $5-million per annum.
• Transition costs for the Aon transaction were $980,000 in Q2 2017. These costs are related to the Aon transaction and are one time. Transition costs will continue to be recorded in the third quarter ending Aug. 31, 2017. These costs are non-recurring and will be totally expensed by the end of the third quarter of 2017 (Aug. 31). The transition cost budget for the Aon transaction is $1.84-million. The company expects actuals to be within 5 per cent of budget.
• Transaction costs in Q2 2017 were $925,646, up from $295,967 in Q2 2016. Over 85 per cent of these costs are tied to the equity financing, the bank financing and closing the Aon transaction, and are one time.
• The company reported net loss of $3.2-million for Q2 2017 versus $2.2-million for Q1 2017 and $1.25-million in Q2 2016. Approximately $1.34-million of these losses are related to non-cash expenses, primarily amortization and deprecation. The Aon one-time transition costs for Q2 2017 were $980,000. One-time transaction costs (legal and accounting) associated with equity financings, the major bank debt financing and the Aon transaction were $925,646.

These costs accounted for the majority of the loss. Financial performance in the second half of fiscal 2017 is expected to significantly improve due to the permanent reductions of $2-million of cost structure on technology non-benefits, the completion of $1.84-million of one-time Aon transition costs, the reduction of $1.5-million, annually, in interest charges, the reduction in professional fees of at least $600,000 in the second half of fiscal 2017, and the continued growth of gross margin and revenue.

Divisional performance -- steady improvement

The technology division revenue was $24.6-million for the quarter versus $22.7-million the previous quarter. The change is largely due to seasonal improvements offset by weakness in the Western Canadian market. Operating income was $1.7-million versus $900,000 the previous quarter.

The benefits division revenue was $2.3-million for the quarter versus $500,000 the previous quarter, largely due to the Aon acquisition. Operating results for the quarter were a loss of $50,000 versus a loss of $500,000 the previous quarter. The Aon transition is forecast to be significantly profitable by September, 2017, once the transition is complete.

As part of the acquisition of the Aon benefits business, SEB agreed to pay one-time transition fees while it built the infrastructure necessary to manage the business. The total fees for the months of April and May were recorded as transition costs at $980,000. The Canadian transition was completed as planned on June 30. The transition for the India operations is expected to be completed on Aug. 31, at which point no further fees are expected. The costs savings, posttransition, is expected to exceed $1.5-million per annum.

The corporate division reported an operating loss of $980,000, up from a loss of $400,000 the previous quarter, the largest items being increased one-time professional costs related to the equity and debt financing, and closing the Aon transaction.

Permanent cost savings in the technology non-benefits is in the $2-million-per-annum range over the past 15 months. Interest cost savings are in excess of $1.5-million per annum due to the bank financing and the equity raises. The majority of these savings will be evident in financial results going forward. Additionally, the full transition of Aon business to the SEB infrastructure will generate in excess of another $1.5-million of permanent cost savings. Over half of these cost savings resulted as of July 1, 2017. The remainder will be completed by Aug. 31, 2017.

The Aon transaction postions SEB as a material provider of benefits processing solutions

The acquisition of Aon's mid-market health benefits administration business in Canada represents 48 clients, many with globally recognized brands, with over 250,000 plan members. As a part of this transaction, SEB added several complementary technology platforms, and approximately 160 employees across Canada and India. The agreement also included a strategic business relationship with Aon Hewitt, where SEB's technology solutions enable future business development initiatives.

States Mr. McKimm, president, CEO and CIO of SEB: "The Aon transaction adds not only long-term client relationships to SEB's benefits processing business, it also adds a strategic relationship with one of the largest benefits consulting organizations in the world. A further positive is the Flex-Plus administration platform and other technology applications; SEB believes Flex-Plus to be the most comprehensive, user-friendly and easily customizable flex systems in the market place today.

"SEB has made over $20-million of investment during the past five years in its health benefits processing solutions. The Flex-Plus platform and other solutions acquired from Aon materially enhance SEB's processing solutions capabilities. SEB has added to the functionality of Flex-Plus with additional capability from its own administration solutions."

Today SEB provides fully automated processing of health benefits plans, including administration solutions (traditional or flex), adjudication, claims payment, billing, real-time reporting, analytics, and fraud analytics. SEB offers total integrated processing functionality on a white-label joint-venture basis per a channel partner business model. SEB solutions, among other capabilities, include custom preferred provider networks; custom EDI capability; PBM (pharmacy benefit management) functionality; a new products on-line portal solution which automates the application and underwriting process for new insurance products, reducing approval terms to minutes from months; white-label benefit cards; an integrated disability management portal automating the case management process; health and wellness automated solutions; and health spending accounts. SEB also provides a nationally focused fully bilingual contact centre based in Montreal with the leading contact centre software in the industry today. This is very scalable infrastructure. SEB benefits processing solutions are unique in that they provide fully automated processing for all benefits types in one processing environment on one benefit card.

SEB solutions allow convergence of benefits processing, including single sign on, in a world where disaggregation is the norm. An average employee benefit plan costs approximately $3,000 per employee per annum. Processing fees account for approximately 10 per cent of these premiums. SEB's fully integrated processing solutions provide over 90 per cent of these processing services in one processing environment. Currently, SEB has over 300,000 plan members operating on one or more of its processing solutions. SEB's objective is convergence: to transition clients over time to one processing environment. This convergence strategy significantly improves services to clients, allows clients real-time information to make better cost decisions, and allows real-time fraud identification and analytics, essentially providing one processing environment for all benefit types. All SEB benefits processing solutions are fully supported and managed by over 900 full-time employees and contractors across Canada and globally. The utilization of SEB's fully integrated platform targets revenue in Canada in excess of $250 per plan member per annum. These are costs most clients are already spending among multiple processing environments. The convergence resulting from SEB's integrated processing environment is both highly cost-effective, and enhances functionality and value add for the client without increasing costs.

Debt financing of $22.5-million

The new financing arrangements with a major Canadian bank consist of an operating demand facility of up to $12-million, a $5.5-million (now $5.1-million outstanding) term loan facility with repayment amortized over four years and a $5-million subordinated term loan facility. The senior term facility has interest terms consistent with fully secured senior debt. The junior term facility is a five-year, subordinated term facility with the mezzanine arm of the bank. It has monthly interest only and a balloon payment at the end of the term. The junior term facility has interest terms consistent with secured subordinate debt facilities.

The new credit facilities consolidate and replace the aggregate $4.8-million of credit facilities that the company's wholly owned technology division subsidiaries had with the same major Canadian bank, as well as the company's asset-based credit facilities of $12.5-million with a major international asset based lender (ABL). The new credit facilities also repay short term acquisition debt at the subsidiary level and select short term notes at the public company level. States John McKimm President/CEO/CIO of SEB, "the new credit facilities reduce the Company's interest charges by over $1.5-million per annum and significantly improves debt service ratios which in the Technology Non-Benefits business is over 2.0 times with an adjusted EBITDA/Debt ratio of less than 3.0 times both ratios which contributed to the ability to secure senior bank financing."

EQUITY FINANCING

The Company has closed (in several tranches) equity financings since November, 2016 totaling $7.2-million. In total 37,528,165 shares and 26,691,540 warrants were issued. Most recently the Company announces, as part of the $7.2-million equity raise, that it has closed today, $240,100 of new equity comprising 1,500,625 shares issued at $0.16 per share. Agents were paid 91,000 Finders' Shares and 91,000 Brokers' Warrants. The brokers' warrants have a 24-month term and are exercisable at $0.20 per share during the term.

CONFERENCE CALL DETAILS

• Date/Time: Wednesday, August 2nd at 11:30AM ET.
• Canada & USA Toll Free Dial In: 1-800-319-4610
• Toronto Toll Dial In: 1-416-915-3239
• Callers should dial in 5-10 minutes prior to the scheduled start time and simply ask to join the call.
• Canada & USA Toll Free: 1-855-669-9658
• Outside Canada & USA Call:1-604-674-8052
• Code: 1613 followed by the # sign
• Replay Duration: Available for one week until end of day August 9, 2017 .

About SEB

Smart Employee Benefits Inc.'s global infrastructure is comprised of two operating business units: Technology Non-Benefits ("TNB") and Benefits Processing ("BP"). The TNB currently serves corporate and government clients across Canada and internationally. The BP focuses on offering SaaS and BPO solutions in the Benefits Processing Sector to corporate and government clients globally. The BP business operates as a client of the TNB. The TNB is a critical competitive advantage in supporting the implementation and management of SEB's benefits processing solutions into client environments. BP is a high-growth specialty practice area where SEB solutions can be game changing for the client.

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