Newtopia Inc.

Greetings and welcome to the Newtopia Inc. Q4 and full year 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, Kimberly Esterkin, Investor Relations. Please go ahead.

Good evening and welcome to Newtopia's fourth quarter and full year 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 fourth quarter 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 relating 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 those statements. These factors that may affect results are detailed in Newtopia's periodical results and registration statements, which you can access via the CDAR database at www.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 fourth quarter and full year 2021 earnings conference call. I'll begin today's call with an overview of our financial performance and strategic and operational highlights for the year. I'll then turn the call over to Edmund Lem, our Interim Chief Financial Officer, for a more detailed discussion of the fourth quarter results. Lara Dodo, our Chief Growth and Operating Officer, will conclude today's discussion with commentary on progress against each of our core growth drivers. With the holiday season, and the distraction of open enrollment for new benefits in the following year taking place for U.S. employers, the fourth quarter is traditionally a seasonally challenging period for new enrollments and engagements. That headwind, combined with the surge in the Omicron variant late last year, impacted our business and drove a decline in both quarterly and full-year revenues as compared to 2020. For the quarter, revenues totaled $2.4 million, a decline of 3% year-over-year. For the full year, revenues totaled $10.5 million, down 8% compared to 2020. While these results do not live up to our historical performance or our long-term goals, they do reflect the overall negative impact of the COVID-19 pandemic as employers were justifiably preoccupied by the ever-changing pandemic realities. This, in turn, pushed out our sales cycle and our revenue growth plan by roughly a year. Fortunately, As the contours of the pandemic have changed for employers and health plans in 2022, we are experiencing strong momentum thus far and believe that our business has officially turned a corner. As a result of the current trends and pipeline of planned launches, we are now anticipating sequential and year-over-year revenue growth in the first quarter of 2022, as well as full-year revenue growth over 2021. I'm confident that our organic growth into existing employer clients plus a return to our robust employer sales season, alongside an expanded sales strategy to larger health insurers, will set us up for growth this year and even further top-line improvements in 2023. While 2021 represented challenges to onboarding new participants, we delivered the best engagement and retention rates for existing participants in our company's history. This increase in engagement and retention was attributed to improved stickiness in our participant base through reductions in churn, along with ongoing innovation in our program content that resulted in higher usage rates, such as the introduction of the BDNF gene into our genetic screening panel. Annual participant engagements on the Nootopia platform totaled 135,500 in 2021, a strong improvement of approximately 14% over 2020. A large part of this growth in engagements took place in the second half of last year with a partner that has had a long-standing relationship with Newtopia. Given the timing of this partner launch in the back half of the year, combined with the fact that this particular partner has been granted legacy pricing having participated in our original randomized control trial, the increased engagements did not unfortunately directly translate to revenue growth for the year. Nevertheless, these strong engagement numbers and rates of growth will certainly drive revenue for this year and for years to come. Speaking of driving revenue, with the return to more normal operating procedures and working conditions, clients are increasing their usage of in-person biometric testing and online health risk assessments to identify chronic disease risk factors and, in turn, eligible participants for Nootopia. This acceptance of a combined approach to risk assessment, along with the resumption of new phase rollouts in 2022, is helping us onboard additional participants onto our platform. Once enrolled, we know we can engage participants in our differentiated habit change approach, as is evident in our engagement numbers for 2021. In addition, many employer and health plan prospects, which now have higher rates of membership risk as a result of the pandemic, are exploring strategic options to lower risk and costs earlier in the year with the resumption of a more traditional sales cycle. This provides us with a robust pipeline of activity across self-insured employers, along with a growing pipeline of private health plans focused on fully insured, Medicare Advantage, and accountable care organizations. In 2021, we benefited from a strong mid-year launch with a Fortune 50 health services client whose participants' onboarding will positively impact financials this year. Based on the first six months of positive onboarding, engagements, and clinical outcomes, we were able to secure a larger phased expansion in 2022 that is proceeding well. The ability to identify eligible members based on physical or mental health risk factors, to expand our whole 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 of 2021, we amended our revolving credit facility and doubled the amount of growth capital available to our company to hire additional health coaches, which we call inspirators, to expand our marketing team and to continue to advance our technology efficiencies. I'm pleased to report that we've made progress against all three of these goals, and specifically, we've continued to advance our engagement technology in anticipation of the launch of our new technology platform in 2022. This platform is built on our own infrastructure and is currently in beta and expected to launch in the second half of this year. Along with these many accomplishments, 2021 was also a key year for operational and product development. At the start of 2021, we officially launched our habit change provider category for delivering habit change at scale. We also brought our unique offering to Canada with our launch with Eastern Health in the province of Newfoundland in April. Three months later in July, we introduced our mental health offering and added a new behavioral gene, the BDNF gene I noted earlier, which gauges resilience to stress. Just last week, we announced an expanded partnership with one of the world's largest brand name apparel companies, a leader in jeans wear, who beginning this June will be extending to their employees Newtopia's mental health services. With social isolation, mental stress, and generally poor habits fostered by the pandemic, there is no better time to engage with our whole person offering, which treats both physical and mental health needs as a means to prevent, reverse, and slow chronic disease. All of these accomplishments would be less meaningful if we were not to simultaneously deliver solid results for our customers. Midway through the year, in June 2021, we announced strong outcomes from the results of a weight loss study conducted during the pandemic in which 77% of participants lost weight and nearly one-quarter of those taking part in the study dropped a BMI risk category. These are meaningful clinical results that demonstrate the effectiveness of our habit change platform and continue to validate our strategic importance to health insurers to prevent, reverse, and slow chronic disease. By employees achieving such results, employers are able to lower their healthcare costs and optimize their existing benefits, both value-added services that drive increased revenues. Overall, while our revenue growth was not acceptable, we are making the necessary shifts in our business development strategy to favorably position Utopia for the future. We are excited to see continued organic growth from our employer-client segment, as well as the results of several proofs of concept anticipated to launch this year with new health plan clients that will set us up for even further top-line expansion in 2023. One of these proofs of concept is focused on the Medicare Advantage space. which will open up access to a new addressable market of more than 27 million Americans enrolled in Medicare Advantage plans today. We are in advanced negotiations with five of the leading national and regional Medicare Advantage innovators and expect to announce our first finalized contract in the coming weeks. And with that, I'll turn the call over to Edmund Lem to speak to our fourth quarter results in greater detail.

Thanks, Jesse. As noted, the fourth quarter and full year 2021 faced significant headwinds from the COVID-19 pandemic. We also had a tough comparison early on in the year to the first half of 2020 when revenue was bolstered by an incentivized program launched in January by one of our Fortune 500 services customers. Revenue was $2.4 million for the fourth quarter 2021, down 3% from the previous year. Combination of the surge in the Omicron variant later in the calendar year along with seasonality in Q4 that traditionally drives lower engagements and enrollments, led to a decline in revenue. On a positive note, retention engagements were strong despite the decrease in revenues. For the full year, we saw a 14% increase in the number of engagements on our platform. While this increase in engagement did not lead to improvements to revenue for the year, as Jeff explained, we do expect to realize the benefit of these engagements in the current year, which will drive top-line growth. Turning back to our fourth quarter results, enrollment fee revenue, or welcome kit sales, was approximately 8% of total consolidated revenue for the fourth quarter, as compared to 4% in the prior year period. Gross profit totaled $1.2 million, as compared to $1.3 million in the fourth quarter of 2020. As a percentage of revenue, gross profit was 52% for the fourth quarter, compared to 51% in Q4 2020. From an expense standpoint, selling general and administrative expenses totaled $1.9 million for the fourth quarter, which included roughly $613,000 in sales and marketing expenses and another $1.3 million in G&A, declines up 49% and 15% year-over-year, respectively, compared to roughly $1.2 million in sales and marketing and approximately $1.6 million in G&A in the prior year period. In response to our decline in revenue, we proactively made the decision to cut costs and right-size our operating expenses. Declines in SG&A were largely a result of these efforts to lower overhead expense, including a decrease in our compensation costs. SG&A was also declined in the fourth quarter due to the absence of charges associated with our becoming a public company in May 2020, which we incurred in the prior year period. Technology and and development expenses totaled roughly $699,000 for Q4 2021, as compared to $1.1 million in the prior year period. We continue to make investments in our new technology platform aimed at improving usage and efficiency. This new platform will be launched in the second half of the year. Adjusted operating expenses, which excludes share-based compensation, decreased by 31% to $2.6 million for the quarter, compared to $3.8 million in the prior year period. Once again, this decrease was largely driven by our efforts to proactively reduce overhead costs and continue to efficiently manage the business. Capital expenditures totaled $486,000 for Q4 2021, bringing total capex to $2.1 million for the year. Capital expenditures were primarily made on the aforementioned new engagement platform, Once the full migration of this new platform is complete in the second half of this year, an annual licensing cost associated with our existing CRM of approximately $450,000 will be eliminated. We also anticipate that this new platform will result in improvements in our gross profit margin over time. These expenditures will be capitalized over their lifetime, so any increase in expenses in the future will be more modest than our growth in revenues. Net loss was $1.8 million for the quarter, or a loss of $0.02 per diluted share, compared to a loss of $2.9 million, or a loss of $0.03 per diluted share in the prior year quarter. Turning to our balance sheet, cash as of December 31, 2021, totaled $812,000. We also now have access to an expanded credit facility. At the end of the third quarter, 2021, we increased our revolving credit facility from $5 million to $7.5 million. Additionally, in mid-September, we closed on a private placement totaling $2.5 million. Together, these offerings doubled the amount of growth capital we have for working capital and general corporate purposes. I'd now like to provide a brief outlook for 2022. As noted in our earnings press release issued this afternoon and in Jeff's earlier commentary, We believe that our business is on an upward trajectory. As such, we anticipate first quarter 2022 revenue will improve sequentially from the fourth quarter of 2021 and also be up compared to the first quarter of 2021. For the full year, we expect revenue to improve over 2021. We also continue to strive to hit cash flow positive from operations exiting 2022. Thanks again for your time. I'll now turn the call over to Laura Dotto to speak further about growth opportunities.

Thanks, Edmund. It's wonderful to have the opportunity to speak to everyone again. As Jeff explained, 2021 was a challenging year. Even with these difficulties, I'm very pleased with our progress, and I'm excited to see that our business is trending positively in 2022. As I spoke to on our last third quarter earnings call, Nutopia is focused on a three-driver approach to growth, which includes, one, adding new distribution with health plans, alternate risk-bearing STs, and employer clients, two, growing our existing employer clients, and three, increasing our product density. I will provide updates on each of these growth drivers today, as well as offer some details on a few of our new developments and progress that we are making. Let's begin with our first growth driver, new distribution into health plans, alternative risk-bearing entities, and employer clients. As I noted last quarter, Utopia has historically focused on the self-insured employer market in the U.S., innovative Fortune 500 companies who offer health insurance to their employees as part of their competitive hiring packages. Over the past two years, this potential client base has been naturally very preoccupied with the pandemic and focused on ensuring the health and safety of their employees. As a result, in 2021, we made the strategic decision to begin new business development efforts to find large risk-bearing distribution partners to onboard onto our platform while we waited for self-insured employers to refocus on offerings like Neutopia. These alternate risk-bearing entities include health plan insurer verticals focused on fully insured populations, Medicare Advantage and commercial, Accountable care organizations and health systems that, if onboarded, would significantly broaden our total addressable market and diversify our revenue base. To fast-track the business development lifecycle of opening these new and alternate distribution channels, we leveraged our health and benefit industry advisors who have access to senior decision makers. We've made great progress with this strategy and are expecting to make several announcements in the coming weeks. In particular, as Jeff spoke to, we are in advanced negotiations with several leading national and regional Medicare Advantage innovators and expect to announce our first finalized contract in the coming weeks. Medicare Advantage represents 40% of the Medicare market, or 27 million people, a huge new addressable market for Mutopia. We know from an independently commissioned actuarial study that Newtopia should be able to deliver cost savings of approximately $1,700 per Medicare Advantage plan member per year. Newtopia has had a strong history of converting commercial population proof of concepts into border distribution. So we are confident the same will transpire with this new health plan provider, and we will be sure to share our progress along the way. As Jeff indicated earlier, we are seeing employer prospects return to exploration of strategic benefits that are proven to engage at-risk employees and have demonstrated cost savings. Employees are currently faced with an employee base that has higher risks of physical and mental health deterioration as a result of the pandemic. They also need to manage the shift to hybrid work while also finding innovative ways to retain employees in this time of the great resignation. We know that Newspopia is well-positioned to address whole health improvements and help foster employee retention all through a virtual platform. We are looking forward to an active employer sales season, which in fact has begun now this April. On to our second growth driver, which is growth within existing clients. In June 2021, we successfully expanded within the employee population of an existing Fortune 50 health services client. This led to strong organic growth with this particular client. and resulted in a 300% increase in enrollment fee revenue in the third quarter of 2021 alone. Now, given that the mid-year expansion of this client was on our platform mid-year, we did not get to enjoy a full calendar year of monetization of these new participants. However, it is noteworthy that our client was pleased with the results of the initial outcomes and is actively expanding our offerings to a broader employee base. Our third growth driver will continue to come from expanding our product density, particularly in mental health and behavior genetics. As a comprehensive whole person health provider of physical and mental health habit change and risk reduction, we will look to penetrate new markets as well as cross-sell new products into our current client base. As we announced just last week, we hope you're recently signed with one of the world's largest brand name apparel companies, a global leader in jeanswear, to offering Utopia's mental health solution to their employee base. According to the Kaiser Family Foundation, in 2021, since the start of the pandemic, roughly 40% of employers updated their health plans to expand access to mental health services. This included everything from expanding the ways workers can receive mental health benefits, both in person and through telemedicine, expanding the number of actual mental health providers in their plan networks, waived or reduced cost sharing for mental health services, and increased coverage for out-of-network mental health offerings. With these compelling trends, we believe that many of our current clients will look to Neutopia for expanded mental health offerings and innovation, and we are ready. As we grow our client portfolio, we will make investments into our business to help us further scale. Jeff referenced our execution against many of these investments earlier, so I'll focus on some of the R&D we've been doing of late. Our innovation lab is actively looking at identifying additional chronic disease risk identifiers, including additional genes that can differentiate Neutopia from other health tech providers. This past summer, we added the BDNF gene to our screening process. which gauges resilience to stress and fits with our whole person offering that considers both physical and mental health risk factors. Just recently, we launched three additional genes on our panel, including those related to caffeine intake, sleep, and exercise. We continue to evolve and round out our whole person offering. Expansion to seven genes has deepened our nutrition, exercise, and well-being behavior genetic panel to better provide insights that lead to actionable recommendations. which can be easily incorporated into daily habits that improve whole health. We are also getting very close to launching our new and improved engagement platform. This platform is built on our own flexible architecture, leveraging smart rules and a goals engine that enables increased personalization and improved efficiency and communication between inspirators, the health coaches, and participants. Previously, for example, inspirator appointments were conducted using FaceTime or Zoom. Now, they will be conducted by our own in-app embedded communication tool. Also on the platform, we will be launching a new Habit Change Index, or HCI, that scores daily choices around nutrition, exercise, and well-being. It is super motivating to see that you made a better choice today than yesterday to keep you motivated on your health journey, rather than simply watching a scale of blood work that doesn't tend to change very quickly. The HCR also provides better tracking of progress for our participants and ultimately improved data collection for our self-insured employers, health plans, and partners over time. There's a lot of other exciting updates in beta at present, and we look forward to sharing more about these in the coming months. With that, thank you for your time, and I'll turn you back to Jeff to close out the call.

Thanks, Lara, and thank you all for joining us today on our fourth quarter call. While 2021 was challenging and our results did not meet our expectations, we are now very well positioned to see sequential and year-over-year revenue growth for the first quarter and full year 2022. I want to thank our entire team of employees and Board of Directors for your dedication to Nootopia's mission to prevent, reverse, and slow chronic disease and lower the cost of healthcare. I'd also like to thank all of our shareholders for your continued support of Nootopia. With that, We will now open up the call to your questions. Operator?

Thank you. At this time, we'll be conducting 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. One moment, please, while we poll for questions. Our first question comes from line of Christian Scro with 8 Capital. Please proceed with your question. Hi, good afternoon.

I wanted to ask the first question on the Fortune 50 health services clients. I think there was a release recently talking about how Q3 was strong, but Q1 could see a bit of a propelled trajectory as they come online and bring some participants on the platform. So I was wondering if Maybe in Q1 here, we're going to see sequential growth, but if there might be a good contribution from welcome kit revenue there, and if maybe there's a potential for that to go into Q2 for it to run through the year.

Hi, Christian. Thank you for the question. You are indeed right. The Fortune 50 health services company that had a real successful launch in late Q2 through Q3 is of last year, we were able to perform really well with. And as a result of high rates of engagement, excuse me, high rates of onboarding, engagement in great clinical outcomes through the back six months of the year, we did see an opportunity and they provided us with an opportunity to even expand to a larger phase in early this year, which is what you also commented on. And that's been going extremely well. And we see that opportunity to continue the communications, not just in Q1, but throughout the year as we look to phase, to build that phase into the expanded population. So I think... you're absolutely correct, telltale signs of increased welcome kits, which is the precursor to the recurring monthly engagement revenues, will continue not just in Q1, but through the year through that Fortune 50 health services client. And, yeah, we're excited about the opportunity to return to growth, not just with them, but with all of our employer clients who we've seen an increased desire to continue you know, restart the phases and restart the growth, which we just hadn't seen over the past couple of years of the pandemic.

That's perfect, Jeff. And that leads into the second question I want to ask, you know, not just the Fortune 50 health services client, but other enterprise clients that you've built your business with over the past couple of years. Do you see the pandemic shook up Q4 for sure, but did you see a return to a little bit closer to normal this past Q1? I guess what I'm getting at is could the welcome kit, sort of lifting Q1B, would you say that's well diversified or other of your core customers also coming online then? Or could it be more staggered through the year sort of across the board? Or I guess the question in short is, is Q1B really, really strong in new enrollments?

Yeah, again, thank you for the second question. And, you know, we've really, we've seen a turnaround altogether across our entire existing client base, which is providing us with the confidence in the organic growth I think as the contours of the pandemic have changed for employers, there's been a real return to strategic thinking. And I think, Christian, a recognition that all have now inherited an even riskier employee or member base than the one they had before the pandemic began. And I think there's a lot of moves to try and combat that. And so, yes, across the board, we saw a lift in Q1, and we're anticipating that lift to continue through the year organically amongst our entire client base. Laura, I'm not sure if you wanted to add any other color to that.

Yeah. Hi, Christian. Lovely to hear your voice. We're coming into the sales season now for April, and we're coming into it with actually a pretty strong pipeline, both for commercial employers who, as Jeff indicated, are recognizing they've got a population who has even more deteriorated mental health and increased physical risk factors. In fact, I'm just back from a conference last night where the discussion was front and center, actually, about whole health, which Neutopia is leading edge on. So we're looking forward to seeing that commercial pipeline land and contracted deals. The other component, as we said, is looking at new distribution with health plans and alternative accountable care organizations as well as health systems. There's a large appetite there as well, the whole person care approach. So we've indicated we are working with several health plans and look forward to making announcements in that space. So yes, 2022 sales season is setting up to look quite healthy this year.

Fantastic. Thank you, Lara. And I'll ask one more question before passing the line. It's just about opportunities in the mental health space and in the broader whole health habit change space. I'm just wondering on the business dynamics, are there any changes? Like, I don't know if pricing or contracts change, but the goal ultimately is to improve the livelihood of participants. And this will drive stickiness across the platform, correct? Is the best way to think of this as a great engagement tool, sort of from a customer retention and growth standpoint?

Yeah, I think, again, thank you for the third question. I think, you know, really a great starting and launch-off point for us here is the recent announcements with the large apparel company and leader in jeanswear. That's an existing client of ours who had started focusing on the physical risk reduction and with a recognition of the need on the mental health side and a really positive experience with Newtopia. We were able to convince them to expand the opportunity in their population to looking not only at physical risk factors, but also mental health risk factors. So, in essence, Christian, I think the way to look at this is, in the past, we've always said that we conservatively go after 50% of the at-risk population with elevated physical risk factors. we know that there's 80% of all of our populations that have either elevated physical or mental risk factors. And so where we see ourselves going and where the opportunity is quite bright for Newtopia is as the mental health risks have become so profound, as Laura had just mentioned, and as we're able to translate positive results in great relationships, we're able to open up our existing clients and, of course, all of our employer prospects to the opportunity for us to really serve that whole health side, but to expand from the 50 to the 80. And that expansion from the 50 to the 80 provides us a much larger addressable market within our existing client base. And so that's something that we're excited to commence with in June, and certainly the results of this phase one with them is something that we are going to take into and already have begun with our other existing clients and, of course, into our sales year that Laura just referenced.

Perfect. Let's hope we're clear, Jeff.

Thanks for taking my questions. I'll pass the line.

Your next question comes from Yui Ma with Research Capital Corporation. Please proceed with your question.

So thanks for taking my question. The first one is for Edmund. Can you please repeat the enrollment revenue as a percentage of the total revenues in Q4?

Certainly. Just give me a second. Is that 8%?

I just want to confirm that.

Sorry, I'm just looking back on the numbers. Sorry, was it stated in the press release as well?

Yeah, because I heard you said 8%, but the press release stated the enrollment fee revenues totaled $2.3 million, and your total revenues were $2.4 million. So I just wanted to see if I missed anything here.

Yeah, so revenue was $2.4 million for the fourth quarter. That's correct.

Yeah, so the enrollment fee revenues, I heard you say that that was 8% of the total revenues in Q4, but the press release stated enrollment revenues totaled $2.3 million. I just wanted to see if I missed anything there.

That's a big difference. I'm sorry, I'm just pulling up the press release.

But yeah, I did state that the welcome care revenue was probably 8% of the total revenue for the fourth quarter.

Yeah, and then the press release stated the enrollment revenues were 2.3 out of 2.4 total, which is the majority of the... Oh, okay.

Oh, I understand. Yes, let me just do that, Matt, please. Yeah, the numbers might be just a little bit off.

It might be due to rounding, but, you know, the... It shouldn't be due to rounding because 2.3 out of 2.4, that's probably over 90%, and then you said the enrollment Revenues, there's only 8% of total revenues. I just want to see why there's a huge difference. I'm not sure if you understand my question there.

Just so I understand, the welcome kit represents the 8%. The enrollment fee is the engagement fee portion. That is the other 90 plus percent that we're referring to in the press release. Am I understanding it correctly, your question?

Toby, to interrupt, I think we may have inelegantly worded enrollment fee in the press release referring to the engagement fees. Again, you rightly pointed it out, but ultimately, the quarterly revenue of 2.4, of that, the welcome kits represented 8%, and the remainder are the engagement, the monthly recurring engagement fees. Sorry, that may not have been distinguished clearly as it should have, so sorry about that.

Yeah, yeah, okay, that's fine. Okay, the second question is on the number of the quarterly number of engaged participants because I remember the company previously reported that number in each earnings call so I was wondering if you can talk about that number in Q4 how that was compared to Q3 and also can you talk about the number in Q1 this year how was that compared to Q4 sequentially?

So we reported in Q3 that we had 37,000 engagements. So Q4, you know, we're slightly down. You know, we talked about the impact of STEM. It was about 35,000, but the total over the year was 135,500. Okay.

And how was the number in Q1 this year, the past first quarter? Did you see the number get back to the Q4 level? Sorry, get back to the Q3 level or still below or above?

Q4 is traditionally a slower season for us. largely because of the holidays. I think it will be higher than Q4 without getting into the specifics.

Can you remind us how you define the criteria for a person to be qualified as an engaged participant? I'm trying to understand the connection between the number of engaged participants and the engagement revenues.

Yeah, so I can take that, Toby. One of the features of our performance-based model and to keep us aligned with our employer clients and also aligned with the participants is the engagement-based pricing model. To be deemed engaged in any month, there are specific, you know, these are written into all of our contracts, but almost to sum it up, a participant will have to complete one inspirator session or actively track on our platform roughly 15 of 30 days to be deemed engaged. If one of those two events take place, then that person is deemed engaged and therefore billable. But if one of those events does not take place, then they will not be deemed engaged and therefore unbillable for that month.

Okay, got it. Just one last question. You mentioned that you still expect to exit the year with part of cash flow. I was wondering if you can talk about what assumptions... did you have to make that financial conclusion?

Well, you know, to start, we've streamlined our operations in 2021, so we made a concerted effort to manage our costs. Secondly, you know, we had our capex quite elevated last year in 2021 with the new platform developments. So, you know, we're expecting to launch the new platform in 2022, the second half. So, you know, we'll see a decline in that capital expenditure going into 2022. You know, as well, you know, with the new platform, we're going to see our license fees cost for the old platform go away, and that's about a $450,000 savings. You know, so in addition to that, you know, we're, you know, our... you know, our successful rollout just, you know, just increases our participant base level. So, you know, that brings in the recurring revenue, which also helps with our cash flow. So, you know, a whole bunch of things have to happen to, you know, to exit the year cash flow pause, but we're very confident, you know, and we're striving towards that target.

Okay, okay. Thanks for that. I'll hop up to the queue.

Our next question comes from Justin Keywood with Stifel. Please proceed with your question.

Hi, thanks for taking my call. Just on the balance sheet, is there any restrictions in accessing the additional credit facility that's available, either in terms of revenue or EBITDA?

Well, the access is, you know, it's sort of correlated with our engagement revenue, what we call recurring revenue. So, you know, there is not a restriction, but it provides us a limit to what we can access.

Okay.

Sorry, just to add, you know, that being said, you know, we're fairly confident in our, you know, conservative projections, which we've shared with our banking partner that, provided we continue to perform the way we anticipate, performing, again, on a conservative basis, that we shouldn't see the restrictions coming in place or hampering our ability to access the capital from the growth fund facility that we have or rate limiting the spend that we anticipate until we reach that cash flow neutral exiting the year.

Got it. And on that cash flow neutral exiting, is that like a run rate or would that be in the full Q4 reported results?

That would be in the run rate.

Okay. All right. And then just my other question was on the mental health offering. And if you could just expand on this a bit more, is it the existing inspirators? that have been trained to offer mental health services, or is it some other product or platform? Thanks.

Hi, Justin. It's Lara. It's a bit of a combination approach. So within our existing team, we do have a really strong set of integrators, many of whom do really come from a mental health background and are super excited to be able to step into more of a peer-play mental health approach through the Whole Health Neutopia platform. In parallel to that, we are looking at then how we would strengthen that team should we need to do additional hiring as it grew out these proof of concepts within mental health. So we have enough on board to start, and as we continue to expand, we would just slightly adjust the hiring profile to focus more on that mental health background.

And do you anticipate any hiring challenges in the mental health space? Because how we understand it, there's quite a shortage of mental health resources right now as we're seeing with other companies. How would you overcome that possible challenge?

I think, you know, Justin, thank you for the question. You know, one of the strategic advantages of Newtopia is, one, because we're looking at, you know, pre-acute mental health issues, right? We're looking at individuals with what we call sub-depression or sub-anxiety or, you know, sub-clinical issues. It allows us to tap into our core inspirator profile, which would be individuals with backgrounds as large as rightly mentioned for mental health, leaning into bachelors of psychology for our broader whole health. That could also include bachelors of kinesiology or bachelors of nutrition, whereby these individuals also have really high emotional intelligence, empathy, and emotional interviewing skills, so real behavior change agents. we still find that we have a lot of untapped access to those individuals either graduating across North America or with those backgrounds who may be looking for a more flexible work or even more gig work opportunity. And so we have found no limitation to accessing that talent. Understanding, though, we are not you know, we're not accessing the clinical talents, you know, that would be the masters of psychology or social work or, you know, those who are psychotherapists or registered psychologists who some of the other competitors would be trying to tap for more clinical mental health issues. And so I would say it's a different talent pool that we're looking toward.

Understood. Thank you for the clarification.

Your next question comes from line of Prath Pandurangan with Bloom Burton. Please proceed with your question.

Hi, good evening. Thanks for taking my question. The first one is, could you compare and contrast the alternate distribution channels with the employers in terms of the selling process, pricing, margins, and the value proposition?

Hi Prasath, just want to make sure I understood that question. Are you asking within the employers, how does it differ? Or are you asking between employers and health plans, how is it different?

Yeah, that's the second one. Yeah.

Great. So I'll start and then I'm certain Lara can add some color because she lives and breathes this every single day. Within the employers, Again, the traditional sales cycle there, which I must repeat, has been fairly disrupted over the past two years. Usually the timing of their sales cycle commences right now in early April. You'll have employers, and the ones we focus on are really the innovator, early adopter employers, who will begin looking at new strategic solutions benefits that they can offer to help attract, retain employees, which again, in this era of the great resign is a massive issue today, but also to lower and mitigate their costs, which are rising and are expected to really go super high as a result of pandemic forces coming to bear this year. And they'll generally look through April, May, June, July, and take advice from benefit consultants, who oftentimes really play a key role in either introducing them or guiding them toward that strategy. Those decisions usually are made and concluded by late summer, and so usually by August, September, they'll have decisions made, and they need to be because then they move into something called open enrollment in the October, November timeframe, which is selling of those new benefits to their employees Then the year concludes with getting ready for the start of that new benefit year, which usually kicks on a January 1st timeframe. And then they'll spend the first two months getting those ready to go, take a breather in March, and then start the whole cycle again in April. And so that's how the employer timeframe works. The health plans work on quite a different timeframe. not necessarily tied to the same cycle that I just mentioned. They can be much more flexible in terms of their timing, and oftentimes because with the health plans we're searching out to start proof of concepts to prove out the relationship, and not just, not really to prove out the merits of Newtopia, but to prove out how we can impact their key dynamics, those can be much more flexible, and we find those conversations are taking place throughout the year, and so on a very different time scale. So it provides us the opportunity to be selling all year round, depending on whether we're talking to employers or health plans. Pause there. I think you would also Sorry, Prasad, continue.

No, I wanted to check about the pricing and margins. Are there any difference between the two?

Sure. Hi, it's Lara. Nice to hear your voice again. The simple answer is there could be a difference, but not necessarily. Again, some of the self-insured employers are pretty substantially sized distributions of their own. And once we get into the health plan side, we're in discussion with health plans that can have a Medicare Advantage grouping that range from 30,000 plan members to millions. So like anything, as you construct these deals, no two deals are alike. We have to look at the access to the addressable market, the ability to, what's going to be involved in terms of data integration, other components. The simple answer is both are, from a pricing standpoint, very similarly priced. If we're going to be resold through one of those distribution channels, you may see some slightly different constructs of the pricing agreement. However, the volume and the scale of that contract would be where we would get our jump start in revenues from.

Yeah. Prasath, just one other piece. To fill in that picture, I think it's important to remember that our employer pricing was largely taken from our randomized control trial experience in the data that was published there around cost savings of $1,464 in paid medical cost savings that an employer could expect to experience for any of their employees joining Newtopia. As Laura referenced earlier, in our actuarial study in Medicare Advantage, that number moved up to $1,700 per member per year as a concept, and what we're looking to do is, in fact, through the proof of concept, ensure that, in fact, that that is true. If so, there may be opportunities for us to participate in a little bit more of the gain share right on the $1,700 as opposed to the roughly $1,500, and so we could see the economics move in our favor more so if, in fact, we're able to deliver even greater cost savings for the health plan different than the employer side, as an example. So a number of different levers, and we're very excited to pursue them all.

Sounds great. On the adjusted operating expenses, do you expect them to stay at this level for the next year?

Hi Prasad.

We, you know, we expect to be sort of level, but we are planning to invest some expense into marketing, expenses into marketing and sales. You know, but generally with the, you know, with the concerted effort this year that like I mentioned in 2021, some of that savings will carry over to 2022. So, you know, we expect to be generally flat with next year. So, you know, of course, we'll be opportunistic if, you know, if we do have some growth, we'll need to spend some, you know, some additional inspirator costs. So that's not operating, but, you know, we have expenditures in those areas there, the marketing and particularly the inspirators that we have some successful customer rollouts.

Yeah, Prasad, just to add there, again, to what Edmund said, I think We're working with some giants right now who are returning to more risky populations than when we started working with them. And there is an awful lot of room for us to grow inside of their existing populations, as we've always suggested. And so as those giants begin to go back to strategic decision-making and decide just how much they want to mitigate this liability of risk, physical and mental in their populations, there may be opportunities for us to grow even faster. And if so, we reserve the right to extend the appropriate marketing dollars against taking advantage of that growth. And now that we also returned to a full employer sales channel and now a full health plan channel, there are opportunities for us to return to meaningful growth, and so we don't want to rate limit our operating expense against those growth opportunities.

Got it.

Thank you. 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, CEO, for closing remarks.

Thank you very much again for joining us for our fourth quarter earnings conference call. We look forward to speaking to you on our Q1 call next month. and wish you a pleasant day. Thank you.

This concludes today's conference. You may disconnect your lines at this time. Thank you all for your participation.