Newtopia Inc.

Greetings and welcome to Nootopia Incorporated third quarter 2021 conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host today, Kimberly Estikin with Investor Relations. Thank you. You may begin.

Good evening and welcome to Newtopia's third quarter 2021 earnings conference call. Joining me today are Jeff Ruby, founder and chief executive officer, Edmund Lem, interim chief financial officer, and Laura Dodo, chief growth and operating officer. Please note that today's call is being broadcast live over the internet and will also be archived for both telephone and online listening upon completion of the call. Details on how to access the replays are available in the company's Third quarter earnings press release issued this afternoon and can be found on the investor section of Newtopia's website at www.newtopia.com. Before we begin, let me remind you that certain matters discussed during today's call or answers that may be provided to questions asked during the Q&A portion of the call could constitute forward-looking statements, which are subject to certain risks and uncertainties related to Newtopia's future financial and business performance. Actual results could therefore differ materially from those anticipated in such forward-looking statements. Newtopia is under no obligation to update any forward-looking statements discussed today, and investors are cautioned not to place undue reliance upon these statements. The risk factors that may affect results are detailed in Newtopia's periodical results and registration statements, which you can access on the CDAR database at cdar.com. Also, please note that all figures stated on today's call are in Canadian dollars, unless otherwise noted. I would now like to turn the call over to Jeff Ruby, founder and CEO of Newtopia. Please go ahead, Jeff.

Thank you, Kimberly, and thank you to everyone for joining us today on our first earnings conference call. We look forward to sharing with you more about our success as a publicly traded company over the past year and a half, as well as providing further details on our go-forward business strategies. I am particularly pleased to note that Newtopia recorded strong sequential and year-over-year revenue improvements in the third quarter, a true indication that our business is returning to growth as anticipated. I'll begin today's call with a quick overview of our business, as well as some highlights of the third quarter. I'll then turn the call over to Edmund Lem, our Interim Chief Financial Officer, for a more detailed discussion of the quarterly results. Lara Dodo, our Chief Growth and Operating Officer, will conclude today's discussion with commentary on our growth drivers and updated business development strategy. Newtopia saw strong growth in the third quarter as a result of the successful rollout of a Fortune 50 health services client and the evolution towards more standard operating procedures for our U.S. clients. Q3 revenues totaled $2.9 million, up 22% year-over-year, and up 15% sequentially. Gross profit also improved to total $1.4 million or 50% of revenue for the quarter compared with the $1.2 million or 49% of revenue in the third quarter of 2020 and $1.1 million or 42% revenue in the second quarter of 2021. As stated in today's earnings press release, while we are now anticipating flat year-over-year revenue due to the pandemic, I am very confident that our newly expanded sales strategy to larger health insurers which we officially launched this year, will set us up for growth in 2022 and even further top-line improvements in 2023. We'll speak further to this growth strategy later in today's call, but first, some more background on our company. For those new to our story, we are a tech-enabled habit change provider, helping health insurers prevent, slow, and reverse chronic disease. We leverage the best of humans, our health coaches, whom we call inspirators, with the best of digital, our proprietary habit change platform and data analytics to incrementally change habits around nutrition, exercise, and mental well-being. Importantly, we are the only tech-enabled habit change provider with CDC accreditation incorporating genetic data and leveraging HIPAA-compliant technology. While there are other virtual healthcare providers and chronic disease prevention programs on the market today, None have the extensive research, data, or proven results of Neutopia to prevent, reverse, and slow physical and mental risk factors underlying chronic disease. Before we set our sights on commercialization in 2017, we spent three years in a gold standard randomized control trial funded by Aetna. This disciplined, evidence-based approach has served our clients well. Results from this study showed significant annual cost savings of just under US $1,500 for Aetna employee participant. In a more recent study conducted with Medicare Advantage customers, our results demonstrated even stronger savings of US $1,700 per member per year. There's no doubt there's a need for Newtopia. Today, 90% of America's $4 trillion annual health care costs paid for by health insurers are attributed to individuals with chronic health conditions, including obesity, diabetes, cardiovascular disease, many forms of musculoskeletal disorders, and cancer. A healthy individual typically incurs roughly US$3,400 in annual medical expenses, but if that individual unfortunately reaches chronic status, annual medical costs can reach in excess of US$20,000. That's a massive, unmanaged liability for which health insurers must cope. Drilling this down further, nearly 80% of the North American population has at least one of five factors that put them at risk for chronic disease. That's equivalent to 320 million people. If each of those individuals were part of the Nootopia platform and generated on average $1,600 in revenue over the course of three years, our total revenue opportunity could reach more than $500 billion. That's a tremendous opportunity, but also easier said than done. The traditional health insurance model monetizes sickness rather than attempts to prevent disease. That's where Nootopia comes in. We are flipping the health insurance industry on its side, saving health insurers from significant liability and instead helping them generate additional revenue by working to keep their employees or members healthy, and therefore preventing them from ever reaching chronic status. To achieve this goal of whole person health care and chronic disease prevention, Newtopia follows a one-size-fits-one approach. We get to know each of our participants socially, behaviorally, and genetically, and then tailor our recommendations to that individual's needs, whether that be providing exercise routines, advice on dietary changes, or methods to improve mental and emotional health. By placing the individual at risk at the center of everything, we build confidence in durable new habits that stack on top of one another over time. As we emerge from the pandemic, we are already seeing a surge in the number of chronic disease cases, both physical and mental, due to isolation, poor eating, inactivity, and overall mental stress. Health insurers need to find ways to address the increase in chronic and pre-chronic conditions while still keeping their costs in check. Even the CDC has noted that we need to find innovative, technology-driven solutions to our healthcare needs. That's where Nootopia's unique offering comes into play and how we've succeeded in partnering with a growing list of Fortune 500 companies. With a further rollout of the COVID-19 vaccine and a return to in-person working conditions, we are seeing our client base increase their usage of risk identifiers in their populations, including in-person biometric testing and online health risk assessments, as a means by which to identify chronic disease risk factors. This acceptance of a combined approach to risk assessment that uses both in-person and online testing is helping us onboard additional participants onto our platform compared to earlier in the pandemic when there were limitations in conducting in-person biometric testing. Our performance for Q3 was in line with our expectations. Following the 300% increase in enrollment fee revenues in the second quarter, we expected an increase in our top-line growth in the third quarter and an overall returns growth in the second half of the year. We also continued to see record levels of engagement on our platform. Quarterly engagements increased to total 37,000 participants. Though the impact of COVID-19 is certainly decreasing, as a result of the pandemic, our internal expectations for year-over-year revenue growth have been pushed out approximately one year. As you can imagine, we're certainly not pleased with flat year-over-year revenue performance. We are making headway, however, and the momentum we are seeing thus far in the second half of the year, along with an expanded business development effort, position us strongly for revenue growth in 2022 as we prove out new health insurer channels and even better top-line growth in 2023 as we move into broader commercialization of those opportunities. We have a strong pipeline of new revenue generating opportunities and look forward to sharing our progress over time. The ability to identify risk factors, to expand our physical and mental health product offerings, and to diversify our client base are all supported by our ongoing investments in research and development. At the end of the third quarter, we amended our revolving credit facility with a leading Canadian Schedule 1 bank, as well as closed a private placement offering which doubled the amount of growth capital available to our company to hire additional inspirators, expand our sales and marketing teams, and continue to advance our technology efficiencies, key to our R&D efforts. Laura will discuss our R&D and business development efforts. But first, I'll turn the call over to Edmund Lem to speak to the third quarter financial results and outlook in greater detail.

Edmund. Thanks, Jeff. It's great to speak with everyone today. As Jeff mentioned, our performance for the third quarter of 2021 was in line with our expectations and shows a return to revenue growth for our business in the second half of the year. Utopia's revenue is comprised of three parts, including participant welcome kits for a one-time fee as part of the initial onboarding process, a recurring subscription fee paid monthly, and an outcome milestone success fee for achieving certain performance thresholds, such as the percentage weight loss. As Jeff noted earlier, we generally record an average recurring revenue per participant over a three-year period of $1,600, with the potential for additional fee growth over time. On a consolidated basis, revenue was $2.9 million for the third quarter, up 22% from the prior year period, and up 15% sequentially. This growth was largely driven by the rollout of a Fortune 50 health services client during the quarter. Enrollment fee or welcome kit sales was approximately 16% of total consolidated revenue for the third quarter as compared to 4% in the prior year period. Gross profit totaled $1.4 million as compared to $1.2 million in the third quarter of 2020. As a percentage of revenue, gross profit was 50% for the third quarter compared to 49% in Q3 2020 and 42% in the second quarter of 2021. The sequential increase in gross profit margin reflects the growth in engagement revenue from the recent influx of enrollment. From an expense standpoint, selling general and administrative expenses totaled $1.7 million for the third quarter, which included roughly $644,000 in sales and marketing expenses, and another $1.1 million in G&A. This compares to roughly $781,000 in sales and marketing, and approximately $946,000 in G&A in the prior year period. Technology and development expenses totaled roughly $716,000 for Q3 2021, as compared to $812,000 in the prior year period. We continue to make investments in our platform to improve usage and efficiency, as Jeff noted earlier. Adjusted operating expenses, which excludes share-based compensation, decreased by 6% to total $2.4 million for the quarter, compared to $2.5 million in the prior year period. Capital expenditures totaled $700,000 for Q3 2021. We now expect we will incur $2.2 million in capital expenditures for the full year 2021, up from the $1.8 million initially projected. While capital expenditures estimates have increased We anticipate offsetting some of the increase with decreased technology hiring expenses as we leverage a greater degree of expert consultants to build out key elements and our upgraded technology platform. In light of the push in revenue growth towards the second half of the year and our investment in an important technology upgrade, we no longer anticipate exiting the year cash flow neutral from operations. However, with a strong business development pipeline, we are striving to hit cash flow positive from operations in 2020-22. Net loss was $1.1 million for the quarter, or a loss of one cent per diluted share, compared to a loss of $1.8 million, or a loss of two cents per diluted share in the prior year quarter. Turning to our balance sheet, cash of September 30th, 2021, totaled approximately $500,000. We also now have access to an extended credit facility, At the end of the third quarter, we increased our revolving credit facility from $5 million to $7.5 million. Additionally, in mid-September, we closed on a private placement of the venture units, totaling $2.5 million. Together, these offerings have doubled the amount of growth capital we have for working capital and general corporate purposes. I'd now like to provide a brief update on our outlook for the remainder of 2021. As noted in our earnings press release issued this afternoon, we continue to expect that the second half of the year on a revenue basis will be stronger than that of the first six months. Q3 was particularly strong due to the saving increase in welcome kits sold mid-year, which was unlike prior years when our platform onboarding typically commenced earlier in the year. As a result, we anticipate both moderate revenue performances in fourth quarter than in Q3. We are working diligently, however, to position the company strongly heading into 2022. I'll now turn the call over to Lara Dodo, our Chief Growth and Operations Officer, to speak further about growth opportunities in 2022 and beyond. Lara?

Thanks, Edmund. It's wonderful to have the opportunity to speak to everyone this evening. I'm proud of our progress to date. and in particular, our record engagement levels in the third quarter. Our business is trending positively, and as Jeff spoke to earlier, we continue to push toward even further success in our current book of business and new client revenue, including achieving top-line growth in 2022. So how will we reach new revenue levels? We are focused on a three-driver approach, new clients and new distributions, growing of existing clients and increasing product densities. For those who have followed Neutopia, you know that our business development efforts have historically focused on the self-insured employer market in the U.S., Fortune 500 companies who offer health insurance to their employees as part of their competitive hiring packages. Unfortunately, as a result of the pandemic, this potential client base has been consumed by the impact of COVID-19. They've been focused on ensuring the health and safety of their employees rather than signing new vendors like Newtopia. We are confident that their focus will ultimately return to innovation partners like Newtopia, who have been proven health outcome partners to help reduce the cost of employee care. Early in 2021, however, we made the strategic decision not to wait for self-insured employers to refocus on offerings like Newtopia. And instead, we actively began new business development efforts to find alternative and large risk-bearing entities to onboard onto our platform. These entities include new health insurer verticals, public and private health plans, and other risk-bearing providers who, if onboarded, would significantly broaden our total addressable market and diversify our revenue base. To fast track the business development lifecycle of opening new alternate distribution channels, we are leveraging our strategic business partners who are health and benefit industry gurus. The result of these efforts has been new access to senior decision makers and with a third party endorsement. That makes for a very different initial conversation. New channel partnerships will commence with revenue generating phase one proof of concept implementations during 2022 that, if successful, will drive meaningful commercial revenue growth in 2023. Neutopia has had a solid history of converting proof of concept into broader commercial opportunities, and so we are very confident that the same will happen as we prove out new distribution clients. We look forward to sharing our progress along the way. In addition, we continue with an omnichannel sales strategy for our existing client vertical of self-insured employers. Examples include the traditional target account strategy, business-to-business communications with lead generation funnels for our commercial sales team, marquee clients sharing Utopia case studies at key industry thought leadership conferences, and an effective influencer strategy. Our new sales pipeline is strong, and we continue to look across North America to expand not only our portfolio of clients, but also how we package our current offerings to open up expanded and new opportunities. In the US, self-insured employers insure approximately 140 million people, while private insurers cover another 100 million lives. On the public side, the US government insures approximately 100 million people, while in Canada, the government ensures another 38 million lives. As you can see from these figures, there's a long runway ahead of us. As we expand our client base, we will need to make investments into our business to help us further scale. Some of these investments may include bringing on new industry-specific talent, including additional inspirators, enhancing our claims processing and reimbursement toolset, and improving our enterprise risk management integration. We are already in the process of looking into each of these investments in anticipation for a growing participant base. On the R&D side, our innovation lab is actively looking at identifying other chronic disease risk identifiers, including additional genes that can differentiate Neutopia from other health tech providers. Just this past summer, for an example, we added the BDNF gene to our screening process. This gene gauges resilience to stress and fits in with our whole-person offering that considers both physical and mental health risk factors. In addition to broadening our target client base, we will focus on improving enrollment rates amongst our existing clients. In other words, we will look to grow into the capacity we already have in place. Even in the record engagement numbers of the third quarter, we have rolled out to roughly only 20% of the potential population amongst our current client base. Should we simply expand those relationships without signing any new self-insured partners or bringing on any health plan aggregators, we could easily grow our business five times. Finally, our third growth driver will come from expanding our product density to particularly in mental health and behavioral genetics. As a comprehensive provider, physical and mental health have a change in risk reduction. We will look to penetrate new markets as well as cross-sell new products into our current and existing client base. Newtopia is emerging from the lows of the pandemic and returning to growth and stability in the second half of 2021, putting us on track for year-over-year revenue growth in 2022 and even further advancements in 2023. Our experienced leadership team is hard at work implementing the systems needed to take our business to the next level. As shared earlier, we are leveraging our world-class advisors to assist us in our new business development and sales process. And I'm happy to report that we've already wired quickly into many new potential opportunities that we are looking to convert into proof of concepts in 2022. Our future is bright and healthy. And as I stated at the beginning of my remarks today, I am very proud of the progress we've made to date. Even more than that, I'm excited about the scope of opportunity Neutopia has to partner with various risk-bearing entities as we rethink healthcare and work to help keep healthy people healthy. With that, I'll turn back to Jeff to close out the call.

Thanks, Lara. It's been really exciting to share our progress with everyone today on our first quarterly earnings call. I am more confident in our business now than I've ever been, and I look forward to sharing our many successes along the way. On behalf of our entire management team and board of directors, we thank you for your continued support of MUTOPIA. We will now open up the call to your questions. Operator?

Thank you. At this time, we will conduct a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Once again, that's star 1 to ask a question at this time. One moment while we pose for our first question. Our first question comes from Christian Shergrove with 8 Capital. Please proceed.

Hi, good morning. Good afternoon, rather, and thanks for taking my questions. It sounds like there's a lot of exciting stuff in the work with the public side of the business, but maybe leading in here, I'll ask on the private base of customers that you have already. There's loose guidance in the press release on Q4, which looks like a healthy return to growth. I was just wondering what gives you guys some visibility there into that return, and if you know what the mix will look like, if that's a lot of subscription revenue from people jumping on the platform.

Yeah, thanks for the question, Christian. Great to have you today for our first call. You know, we're really fortunate to have had that strong rollout with the more Fortune 50 health services company. We sort of alluded to it at the end of Q2, and now in Q3, we're really seeing that strong rollout, which we anticipate will continue on the engagement side well through Q4 as well. And we've also, through the middle of the year, seen a nice return to healthy growth from all of our clients as the rate of vaccinations have picked up as a return to more standard operating procedures have picked up. We've seen, I'd say just a boost overall in our ability to bring new individuals from our existing clients, new participants onto the platform. And so that's really where our confidence is to continue on the growth side in Q4. That being said, we typically would see new rollouts and enrollments beginning earlier in the year, as Edmund pointed out earlier. And so while Q3 was strong, we do recognize that Q4 is not the typical timeframe to bring on a large new group of participants. and thus why we're sort of tempering the expectations around Q4 growth. We anticipate that Q4 will be stronger than the first half of the year, but we're really working to set ourselves up for that sequential growth in 2022 and 2023, as we mentioned.

That's helpful. And that leads into my next question. I always like to ask about the seasonality you see in your business. Maybe you could refresh us on the dynamics there. Does that relate to when benefits cycles reset? And would that mean that maybe Q1 could be a big welcome kit quarter in a regular year? Maybe let us know how that's all trending. And I'm sure the pandemic maybe has shaken things up, but maybe it's getting back to a normal cycle.

Thanks again for the question, Christian. I'll start, and then I'm sure Laura may have some additional comments on it. It's been an unusual couple of years for normal, as we've all experienced in all of our lives, and certainly while benefit cycles haven't necessarily changed, most of our existing clients tend to fall within a January through December timeframe. We do have some clients, particularly this Fortune 50 health services client that has a mid-year timeframe. So while those haven't changed, certainly just the focus of our clients on promoting programs like Newtopia and really just the oxygen in the room for them to do so as opposed to focusing on the health of their clients, as Laura pointed out, excuse me, their employees, as Laura pointed out to earlier, has been impacted. And so while we are seeing a return to more normal standard operating procedures, and we are seeing what looks to be a manageable or a betting wave in the United States around Delta, our anticipation is that there is potential for 2022 to become a little bit more normal looking certainly than what we've experienced in 2020 and 2021. That being said, without knowing exactly where the parameters and the shape of the pandemic is going to go. It's hard to know for certain, but we're hopeful that as we close out what has been a strong return to growth, that 2022 is going to look a little bit more normal, both for an onboarding cycle and from a normal sales cycle. Laura, do you have some more?

Yeah. Hi, Christian. It's great to hear your voice on the phone. A couple of things, just real time, that really support what Jeff has said is I'm One of the pieces is with everyone returning to the office, we're hearing from our clients that they are running on-site biometric screenings again, and those are going to be far more tender than what obviously we saw during 2021. So we know from our historic book of business performance, the greater the access to biometric screenings, the higher the rates of enrollment. So that's a really good factor. The other thing which was very interesting I heard from a few clients this week is organizations who are waiving their 90-day benefit hold period for new employees. That actually has a downstream impact for Neutopia, where there's a lot of hiring activity we know happening with a wave of resignations in North America, but it means new employees into our clients who will now be given access to benefits like Neutopia within their first 90 days. So that's something that we're looking forward to seeing that impact our business in the new year. And the other component to what Jeff said is everyone's picked up some pretty bad habits during COVID, that the simple message of habit change, choices we make on nutrition, exercise, and well-being is really being embraced, and our clients are rallying around it and are starting to plan their communication strategy around utopia for 2022. So lots of very concrete examples on how we're going to achieve what Jeff has spoken to.

Thank you, Laura. That's a lot of helpful color on what's coming through. I'll ask just one more question today and then pass the line. It sounds like there's a lot coming through with the technology upgrade that's in the works. Somebody just wanted you to comment on how that might change the platform or benefit the platform users and inspirators. Any color there would be helpful. Thank you.

Again, thank you for the question, Christian. We certainly made a robust investment in technology throughout 2021. And we think it's absolutely core to our ability not only to deliver a world-class experience for our participants and to best deliver the incremental and durable habit change between human and technology, but it's also really critical for us to optimize the business model itself. And while our early years of commercialization have been focused largely around So for our early clients, we've been obsessed on delivering the very best engagement outcomes, the very best risk reduction in both physical and mental health, so that we can have our clients speak to those results in the conferences that Lara was alluding to earlier, and that will continue. With this investment in technology, we're very much looking to move not exclusively just to quality, but also to more efficiency. And it's this technology that's going to really let us optimize that service ratio of the number of participants that any one inspirator can manage at a time. And so we're looking forward to, as we stand up that technology in 2022 and begin to focus on that efficiency, we're really looking to improve our core margins on our recurring revenues, on our sort of monthly recurring engagement revenues, and start to see some optimization there in what we believe is today a good tech-enabled service business, but we're really looking to take it to become a really hot tech-enabled service business and believe we can achieve it through that technology.

That's great, Josh. Thanks for taking my questions today.

Our next question comes from Yu Ma with Research Capital. Please proceed.

Hey, good afternoon. Thanks for taking my questions. So first of all, I was wondering if management can talk about or provide any color on the employee onboarding process and what are those major hurdles Newtopia has been facing during the process?

Hi, Toby. Great to hear from you. Thank you for asking the question. I just want to clarify, when you talk about employee onboarding, are you referring to Newtopia's employees? So onboarding of our own inspirators, or are you talking about employees of our clients who would be participants?

Yeah, employees of Netopia's clients.

Ah, I see. Well, maybe, again, I can start, and I think Laura can offer some color here. Certainly, one of the big challenges that we experienced early on during the pandemic was in and around accessing at-risk clients. And so what we experienced earlier on in the pandemic was a lot of our clients were using biometric testing, which is voluntary blood testing, as part of the benefit package, which can often be incentivized or offered as normal. And then on the basis of that testing data, we would then identify if the individual was amongst the 80% of the population at risk and then be able to market to that individual through the contact information provided. One of the challenges that we experienced early on was that that in-person interaction was just eliminated as career sort of biometric testing fairs or going out to a pharmacy or to a Quest Labs to conduct one of those tests just didn't happen. And that definitely impeded some of the employee onboarding to become a participant in Utopia. fortunately seen, as Laura just mentioned in the previous answer, a really more of a return to normal. And so, again, as the vaccination rate has come up, as people are returning to work, and as employers are now deploying more biometric testing, we're seeing that identification come back to normal, but we've also seen, as a result of, I guess, everyone learning from the limitations around in-person, more online risk assessments being used as well. And so between a combination of biometric testing and online risk assessments, we've really returned to a much more normal timeframe and an easier way of onboarding employees onto the platform itself.

Sure. So I'll give you a bit more color around that and lovely to meet you. So I'm going to... address your question in two buckets. The first part of onboarding would be around the topic of risk identification, which is really what problem is our client's employer looking to solve? So are they looking to reduce their claims around issues around obesity or where they're focused? So to Jeff's point, once we know what problem, if you will, our clients are looking to solve, we'll then either access biometric screening results to have a precision outreach approach to those folks, or we would use an online screener tool to find those folks who we're looking to attract for our employer clients. So that's bucket one. And as Jeff said, COVID-19 definitely interfered with the volume of biometric screenings, but that's coming back online. But it's important to note that even though that happened with biometrics, we have alternate methods that we can still find those folks at risk. So there is continuity there. The second piece of onboarding is once folks have been identified, how they onboard into Neutopia. Right now it's a very seamless experience all through online registration. It's chunked into learning about them socially, behaviorally, family history, personal goals, and custom matching them up with a one-on-one health coach whom you know we call an inspirator with our proprietary algorithms. Jeff spoke to the new technology. That new technology is going to add additional enhancement in both UI, UX to the prospective participant, but also in helping us have access to even more substantive data for the different gates, if you will, that someone goes through on onboarding so that we can increase If you imagine this, the conversion rate of someone who hits our landing page to onboard with Newtopia to actually convert and actually continue engagement with us. So there's a very strong onboarding process is the real message with enhancements underway with new technology and with increased biometrics post-COVID lockdowns. Again, really exciting things ahead in 2022.

Yeah, thanks. That's quite helpful. So my second question is maybe for Edmund. I was wondering if you can talk about the company's revenue distribution in Q3 by client.

Yeah, so with the onboarding for Fortune 50 client, the rollout in Q2 and carrying to Q3, So we're getting more diversification in our client groups. So there was some customer concentration with one or two clients. Now we're branching out. As we onboard new clients and seek out new revenue streams, that customer concentration will start to dilute a bit. So Q3, Q4, we saw with the new rollout that we do have a bit more diversification.

Okay, so for Q3, do you have any numbers about the revenue concentration, especially for the largest client of the company?

No, sorry, Toby. We're not presenting that number.

Okay.

One thing I would say, Toby, just to add to what Edmund shared, is really, again, we've been incredibly blessed to be working with some large innovators, and we've done incredibly well onboarding their clients. and as ongoing, excuse me, their employees who become our participants. And as a result, you know, as a result of our success, we found ourselves, you know, with, I guess, sort of, we think, a blessing of this customer concentration. We know what their risk profile looks like there, and with each new successful clients including now the fortune 50 health services clients at q3 we've been able to diversify some more what we're really looking forward to is as we continue to diversify as laura pointed out out to additional health insurers outside of just the self-insured employers those successful proof of concepts in 2022 when commercialized fully in 2023 offer us not only the opportunity again to diversify and decrease the the customer concentration risk but These are clients moving away from tens of thousands or hundreds of thousands of employees towards hundreds of thousands, if not millions of members. And so we believe the opportunity to achieve greater diversification will come fairly quickly as we're successful with this diversified strategy.

Okay. Just one last question. Just a housekeeping question. In terms of the company's reporting currency, Given the majority of the business has been down in the States, does the company intend to change its reporting currency from the Canadian dollars to the U.S.

dollars? Toby, we're looking at that with our auditors. That's something that's under consideration with the factors that you're mentioning here. We are looking into it. We'll update you if we have any changes like that going forward.

Okay, thank you. I'll stop here.

Our next question comes from Justin Keywood with Steeple. Please proceed.

Hi, thanks for taking my call. Just on the target to become cash flow positive next year, if I heard correctly, I guess my first question, is that a second half item or when exactly would that timing be?

Hey, Justin. Great to hear from you. Thank you for joining the call today. I would characterize our first goal as growth. And we're early innings here with regard to our penetration amongst the self-insured employers and very early innings with regard to our penetration amongst the private and public health insurers. And so we really are focused on doing as much growth achievement as we can through 2022 and the proof of concepts commercializing in 2023. That being said, we do see the ingredients of the right number of participants against our spend to achieve that cash flow positive. We certainly want to demonstrate to the market that this is a business with fundamentals and that we are able to achieve profitable growth. But I would say from a timing perspective, we're really going to keep our eyes open to the kind of proof of concepts that we have and ensure that we're supporting them and the results that we need to achieve as well as possible. So I don't think we can key into an exact timeframe, but we do have a confidence interval that all that right mix, given organic growth amongst our existing clients and these proof of concepts, will lead us to the ability to flip over to cash flow positive sometime in 2022.

Okay, that's helpful. And then just on the target of cash flow positive, would that assume a new customer is one, or can you achieve that goal with increased penetration with your existing customer base?

Yeah, good question as well. As Laura mentions, there's still a fair amount of run room within our existing clients. We've got about 20% penetration into our existing client base with an opportunity to grow 5X, and we're certainly seeing signs and discussions that are abound in terms of growth amongst our clients in 2022. And so there is a strong opportunity for us to – you know, to continue growing there. We also have, you know, lines of sight and a good feeling about being able to develop some of these alternative health insurers into proof of concept for 2022 revenue generation on a proof of concept basis, and then having that become commercial opportunities and much broader in 2023. So I'd say it's really the combination of both of those things coming into play that's really shaping our views on getting to cash flow positive through next year.

And I assume a Fortune 50 company could be quite sizable just on revenue, just in its own. Are you able to characterize what the opportunity would be just with the Fortune 50 customer?

I mean, much like all of the existing innovation partners, we tend to phase in And whether that phasing is geographic or divisional, it really varies. But we really just, again, when I say early innings, we've really just begun with that Fortune 50 health services client with the success that we're now reporting on in Q3. There's lots of opportunity for us to continue to grow into their employee base. We've just gotten started. And I would, again, that 20% penetration, When you look at our clients, many are within the Fortune 500, a number are in the Fortune 100, Fortune 50. And so there's an awful lot of room for us to continue our growth, especially as they're returning a little bit more to normal standard operating procedures. And we also anticipate that as the effects of COVID-19 become clearer and the risk factors that we are anticipating are going to grow amongst those populations become clearer, to the HR and benefit leaders, there'll be more and more opportunity for us to help out and reduce those risks.

Understood. Thank you for taking my questions.

Our next question comes from Prasad Pandurumian with Bloomberg, and please proceed.

Hi, thanks for taking my questions. Firstly, could you talk about in further detail about the sales pipeline as we head into 2022?

Sorry, Prasad. First of all, nice to hear from you. Could you just repeat that question again? I just want to make sure we're answering the sales pipeline. Are you referring to the sales pipeline just generally amongst employers or other health insurers, or were you pointing particularly to the proof of concept work you were referring to earlier?

No, I'm talking in general, so in terms of what we're looking at in terms of new onboards starting next year. So what's going to drive that? So I wanted to get an idea of your sales and BD pipeline.

Yeah, sure, absolutely. Maybe I'll start and then again, I know Laura, who's intimately familiar with this, could pick up part of the answer. I'd say, as I just mentioned in the response to Justin, there's ample opportunity for organic growth within our existing clients and with 20% penetration, a 5X growth opportunity, and what we believe is great macro conditions for those clients to begin to need us more and more on both the physical risk reduction and mental and emotional risk reduction. There's an opportunity for us to line up some ample growth starting in 2022. But alongside that, what we're increasingly excited about is a really rich pipeline of additional health insurers, whether that's private payers, whether that's private payers that are covering the public space, specifically Medicare and Medicare Advantage, and then there are accountable providers. These would be at-risk provider groups. They could be health systems or physician groups that are at risk. We've probably never had as robust an opportunity and a robust as pipeline to speak to those folks who are actively looking at Newtopia for proof-of-concept work. And it's those opportunities that we see in addition to the employers to really add to our mix beginning in 2022 where we anticipate revenue generation from those proof-of-concepts alongside the organic growth. And so that's really what's been lining up. Navar, I'm not sure if you had any other color to add.

No, I think you spoke well, Serge, and nice to meet you, Prasad. I think, you know, in summary, I would say you go back to what our three growth driver approaches for 2022, and our pipeline reflects quite an even distribution of opportunities where they really are coming from brand new self-insured employer clients, new distribution channels, that first growth driver. There's expansion opportunities we have in our pipeline for new phases from existing clients. And then there's also opportunity with new product density. So the pipeline reflects verbatim almost that strategy. And I would just put a comment on for product density that it's an exciting place to be at where with not too much effort we are able to re-bundle our existing service asset, if you will, into new flavors with things focused on, like we said, BDNF gene from this year, into bundling with more mental health and behavioral health focus. So the pipeline reflects all of those, and the size of the entities that we're looking at, Prasad, again, reflect Fortune 500-style organizations through to some of the leaders within the health plan space. So a nice mix there of addressable market.

Sounds good. And secondly, are you seeing any differences in the number or quality of competing offerings in the market?

Yeah, great question as well. I would certainly say there's been a massive focus on mental health, as one could imagine, with more and more programs more and more mental health companies and or others that are moving into the mental health space, and rightly so. I think COVID has uncovered something that's been there all along and has been fairly underserved, and it's one of the reasons why we've also really expanded our product offering into the behavioral genetics space and also into the mental health space as well to address it. What I would say, though, is what we're seeing is a lack of whole person care offerings. And so while there are a number of an increase in the mental health space and certainly an increase in the telehealth and telemedicine space, what there aren't very much, there is not very much of, are habit change providers like us who are addressing through whole person care the reduction in both physical and mental health at the same time, recognizing that they're just one health and trying to reduce mental health in a silo or physical health in a silo really is not going to lead to the kind of sustainable outcomes that's going to drive long-term outcomes, long-term cost savings, and ultimately help the United States recover from COVID-19.

That's useful. Thank you. Good luck.

Thank you. At this time, ladies and gentlemen, we have reached the end of the question and answer session, and I would like to turn the call back to Mr. Jeff Ruby for closing remarks.

Well, again, thank you all very much for joining us for our third quarter earnings conference call. We wish everyone a safe and very healthy holiday season, and we look forward to speaking to you again on future quarterly calls. Have a great evening. Thank you.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time, and thank you for your participation, and have a great evening.