Newtopia Inc.

Greetings and welcome to the Newtopia Inc. First Quarter 2022 Earnings 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. Please note, this conference is being recorded. I will now turn the conference over to your host, Kimberly Estrican from Investor Relations. You may begin.

Good evening and welcome to Newtopia's first quarter 2022 earnings conference call. Joining me today are Jeff Ruby, founder and chief executive officer, Colin Swenson, 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 first 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 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 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 thanks to everyone for joining us today on our first quarter 2022 earnings conference call. I am delighted to welcome and be joined by our new CFO, Colin Swenson, for his first Newtopia earnings call. Newtopia achieved both sequential and year-over-year revenue growth in the first quarter with revenues totaling $2.9 million and increased from $2.6 million in the year-ago period. In addition to revenue growth, we saw momentum in our participants' engagements for the quarter with the total number of engagements reaching 38,000, a new company record. Importantly, with churn rates low and client stickiness high, we are delivering some of the best engagement levels in our history to date. I am very proud of our team's accomplishments this past quarter and remain confident that our business is well positioned to achieve full-year revenue growth in 2022. With regards to our team, at the beginning of May, we strengthened our executive leadership and officially welcomed Colin Swenson as our new Chief Financial Officer. Colin has assumed the CFO role from Edmund Lem, who served as our Interim Chief Financial Officer and remains a key part of our team as our Senior Vice President of Finance. Colin brings to Nutopia over 15 years of experience managing financial operations for innovative public and private U.S. healthcare and technology companies. We are excited to leverage Colin's expertise in U.S. healthcare markets, in particular, as we continue to expand our presence across multiple client verticals. Importantly, Colin's background includes every element of Nutopia's client base. He's worked in financial planning and operations, for a large, fully insured employer, General Electric, led financial planning and data analytics for an integrated health plan, Select Health, and spearheaded the finance operations for a leading tech-enabled health service innovator, a private equity-backed home health company named Valeo. Colin's transition into his new role has been seamless, and I look forward to continuing to partner with him on Newtopia's strategic growth plans. As part of our growth strategy, at the end of April, we announced the successful completion of a $3.5 million private placement. This equity offering strengthens our balance sheet and provides us with the necessary capital to continue to invest in our long-term growth. We believe that the success of this offering is a testament to the confidence of our leadership team, Board of Directors, and the investment community in our ability to continue to deliver solid financial returns for our shareholders. while also providing sustainable clinical and economic outcomes for our health insurer clients. We plan to use the proceeds of this offering to continue making investments in sales and marketing to grow our clients and participants base, as well as for the implementation of our new engagement technology platform so that we can continue our focus on improved efficiency and operating margins. As we've strengthened our balance sheet, we've also continued to build our pipeline of new business which has grown largely as a result of the increasing prevalence of chronic disease risk factors. One of the most remarkable statistics published of late comes from a study in the New York Times, which found that up to 40% of the American population that tragically passed away from COVID-19 had type 2 diabetes. That's nearly 400,000 lives that were lost in part due to a lifestyle disease that is typically preventable with healthier habits. With higher rates of membership risk as a result of the pandemic, many employer and health plan prospects are exploring innovative options to lower their risk and cost. These options include partnering with Newtopia to prevent reverse and slow chronic disease in order to lower healthcare costs and optimize revenue from value-added services. Case in point, at the end of the first quarter, we expanded our relationship with a brand name apparel company and global leader in jeans wear to provide support to its employees who are self-identifying as struggling with mental health. Through this expanded partnership, we will now provide our whole person habit change experience to employees who are at risk of chronic disease and need physical health intervention, which we are currently providing, and also identify as needing mental health support. We are excited for the rollout of this expanded partnership this coming June and look forward to sharing our progress over time. We also just recently received the green light to expand our partnership with one of our long-standing Fortune 50 financial services clients into their employee base in the state of Florida. This expansion represents a big vote of confidence in Newtopia and follows the delivery of outstanding 24-month outcomes from a novel behavioral economic medical trial with this same client. Some outcome headlines from the trial include 71% conversion of at-risk employees into Newtopia participants, with 86% fully engaged through the end of 12 months and 83% fully engaged through the end of 24 months. These stats are well above our book of business average of 76% engagement at 12 months and 50% engagement at 24 months. Participants also lost an incredible 48,000 total pounds since the trial launch. What is most remarkable about these outcomes is that the 24 months of this trial took place over the two years of the COVID-19 pandemic, during which over 60% of Americans gained weight and developed unhealthy habits. Both of these recent client expansions are great examples of our strong partnerships with industry innovators, Utopia's ability to grow organically with our current base of business, and our success at increasing our product density. As the risks of populations have increased, so too has the cost of healthcare. Addressing risk factors early on before they develop into obesity, diabetes, heart disease, musculoskeletal disorders, cancer, depression, anxiety, or other chronic health issues is by far the best course of action. Proactively preventing, reversing, and slowing chronic disease risk factors will not only improve the health of the general population, but it will also reduce costs and optimize value-added revenues for fully insured employers and health plans. Speaking of health plans, when we spoke on last quarter's earnings call, we had expected at the time to be in the near final stages of signing a Medicare Advantage contract with a leading regional health plan. However, the contracting cycle is proving longer than anticipated. Our partners and prospective clients have faced multiple challenges as a result of the pandemic, including the Great Resignation, where they have experienced high personnel turnover at all levels. even amongst the decision makers of their organizations. These circumstances are not unique to Nutopia, and we have seen the lengthening of contracting cycles and increased cautiousness to make strategic decisions across risk-bearing employers and health plans. Nevertheless, we are in advanced conversations with six leading MA innovators and continue to build relationships and sales momentum in this vertical. With that, I'll turn the call over to our new CFO, Colin Swenson, to speak to our first quarter results, as well as to provide some context on our outlook for the remainder of the calendar year. Colin, over to you.

Thanks, Jeff. It's great to be part of Team Nootopia and to take part in my first earnings call as CFO. Joining the Nootopia team was as important a decision for me personally as it was professionally. I've competed as an amateur triathlete for the past 20 years, and as part of my athletic endeavors, I've long been a believer in the power of healthy habits and the linkage between physical and emotional health. My time working in the U.S. healthcare system, coupled with the global pandemic, has only further solidified my belief that we need to change the focus of our healthcare system from sick care to disease prevention. Based on prior career experience, I can tell you without a doubt that a utopia strategy is well aligned with the significant challenges the U.S. healthcare system is facing. I'm proud to join Nootopia and tackle these challenges head on. So let's now turn to our results for the first quarter. As Jeff noted, revenue for Q1 2022 totaled $2.9 million, up 9.5% from the prior year. The year-over-year growth in revenue was driven by increased participant engagements during the quarter, including strong participant enrollment from a large financial services client. Enrollment fee revenue, or revenue related to welcome kits, was approximately 16% of total consolidated revenue for the first quarter, as compared to 12% in the prior year period. Retention and engagement were also strong, with participant engagements totaling $38,000 for the first quarter, setting a new quarterly record for Newtopia. This compares to roughly 30,000 engagements in the first quarter of 2021 and 35,500 engagements in the prior quarter. Gross profit totaled $1.3 million for the first quarter of 2022, relatively consistent with the first quarter of 2021. As a percentage of revenue, gross profit was 47% compared to 50% in Q1 2021. Keep in mind, that as we bring on additional participants and sell more welcome kits, which are lower margin, our gross profit percentage declines. Nevertheless, as these welcome kit sales translate into recurring engagement fee revenue, margins improve over time. From an expense standpoint, selling general and administrative expenses totaled $1.8 million for the first quarter, which included roughly $644,000 in sales and marketing expenses and another $1.1 million in G&A. a drop of 34% and 7% year-over-year, respectively, compared to roughly 976,000 in sales and marketing and approximately 1.2 million in G&A in the prior year period. A portion of the 34% year-over-year reduction in sales and marketing was the result of a streamlining of our internal success team. We did not make reductions in our business development team, and as such, while we did see a nice drop in our sales and marketing expenses year-over-year, as we continue to build upon our new business pipeline, these expenses will grow over time. We will use funds from our recent private placement to support the strategic build-out of our sales and marketing efforts, and we'll keep you updated on this progress. Technology and development expenses totaled roughly $806,000 for Q1 of 2022, as compared to $730,000 in the prior year period. This increase is the result of continued investments in our new technology platform aimed at improving usage and efficiency. Our new platform is scheduled to launch in the second half of this year. Adjusted operating expenses, which exclude share-based compensation, decreased by 11.7%, a total of $2.6 million for the quarter, compared to $2.9 million in the prior year period. As we noted on our fourth quarter call, we proactively made the decision to cut costs and right-sized our operating expenses in 2021, including the reduction in our internal success team, as just noted. Declines in SG&A were largely a result of these efforts to lower overhead expenses. We do, however, anticipate sales and marketing expenses, as I just noted, to increase to support the growth of our business. Capital expenditures totaled $450,000 for Q1 2022. Capital expenditures were primarily made on the aforementioned new engagement platform. As we move towards migration planning for the second half of this year, the use of cash and resources on the development of the platform will diminish to a monthly maintenance cost. In addition, annual licensing costs associated with our existing CRM of approximately $450,000 will be eliminated. We anticipate that this new platform will result in improvements in our gross profit margin over time. These expenditures are capitalized and will be amortized over their lifetime, so any increase in expenses in the future will be more modest than our growth in revenue. Net loss was $1.6 million for the quarter, or a loss of two cents per diluted share, compared to a net loss of $2.3 million, also a loss of two cents per diluted share in the prior year period. Turning to our balance sheet, cash as of March 31, 2022, totaled $1.05 million. As noted, we also now have access to an additional $3.5 million in equity raised via a private placement at the end of April, in addition to a $7.5 million revolving credit facility, of which we have $3.8 million undrawn. We're confident in our current cash resources to continue funding our ongoing expenses and growth initiatives and remain committed to our goal of exiting the year cashflow positive from operations. I'd now like to provide an update on our outlook for 2022. As noted in our earnings press release issued this afternoon, we continue to believe that 2022 full year revenue will improve over 2021. The momentum we're anticipating in our top line growth will be weighted towards the second half of the year as we roll out new client phases onto our platform in the third and fourth quarters. As Jeff mentioned, we're expanding with a key client into their employee population in Florida, which will lead to a much stronger back half to 2022 than initially anticipated and sets us up well for 2023. Thanks again for your time. I'll now turn the call over to Laura to speak further about growth opportunities.

Thanks, Colin. It's great to have you as part of our team. As you heard from both Jeff and Colin, we are very pleased with the momentum in the core business, and we are cognizant of the macro factors that have led several of our businesses' prospects to push out the sales, contracting, and implementation cycle longer than anticipated when we spoke last quarter. Today, I'll speak further about the sales cycle shifts and review some of the key growth drivers of our business. Let's begin with a quick refresher. Utopia's growth plan is focused on the three main drivers, which include, one, adding a new distribution with employers, health plans, and alternate risk-bearing entities, two, growing our existing employer clients, and three, increasing our product density. Employer sales season began in April, and Utopia has been actively involved, participating in several industry-leading events and conferences as a route to boost our pipeline of prospective employer clients. A specific shout-out needs to go to our marketing team who led a genetic testing booth at a recent Chicago event with over 100 curious benefit leaders who came to be tested. Events such as Chicago have yielded several notable brand names who are now moving very nicely along the sales funnel with healthy momentum. Employer prospects are openly sharing that their top three decision-making criteria in selecting solutions in order of priority are, one, they're looking for cost savings. Two, simplification of how they're going to integrate the benefit solution and then how they contract. And three, they're looking for positive employee experiences, which demonstrate engagement and health improvements. Employers are now far more aware of the urgency of tackling whole health and are exploring new product options for their benefit packages, which specifically address musculoskeletal issues, mental health, and diabetes. Utopia is strongly positioned to address these three categories of decision-making criteria and the top three product focus areas with our proven whole health approach to health change. Our team is working diligently on fine-tuning branding, messaging, packaging, and data testimonials to support sales efforts that target these employer areas of focus. It is important to also note that that employee experience in a program like Neutopia can and does help foster employee retention. Just a few weeks ago, one of our longest existing retail clients shared that their well-being committee had communicated feedback that any attempt to unplug Neutopia as a benefit would result in staff uproar. Our business development efforts across health plans and other risk-bearing entities continue to see sizable interest. And as Jeff noted, we are in advanced discussions with six key players in the Medicare Advantage space. What we are learning is that the business sales cycle is actually very similar to the employer channel. However, the contracting, IT privacy, security, and compliance pieces are far more complicated. Working with a health plan or system, we would be embedded into their ecosystem, which means topics like cybersecurity, personal health data breaches, and liability to regulatory government agencies are at a level that requires much more rigor. In fact, according to the American Hospital Association Center for Health Innovation, stolen health records may sell up to 10 times or more than stolen credit card numbers on the dark web. And the cost to remediate a health care breach is almost three times that of any other industry. So protecting the security of the information Nutopia and health plans have access to is crucial. Based on this inherent rigor, we now also understand just how sticky these deals will be once they are landed. And so internally, we are ramping up our team's knowledge and readiness for the anticipated contracting expectations. Beyond building our new business pipeline, the benefits of Nutopia's platform continue to resonate with our existing clients. We recently received approval to expand our efforts with a Fortune 50 financial services client to support their employees in the state of Florida. This expansion signals the ongoing consensus that Neutopia addresses the two most important questions employer benefit leaders ask when renewing solutions like Neutopia. One, do their employees or members like it? And two, does the program or experience actually work? Along with working diligently to grow within our existing client base, we are also focused on increasing our product density. This June, we will be expanding our efforts with one of our long-term retail clients to offer Utopia's mental health solution to their employee base. We look forward to establishing success metrics and additional proof points that will be leveraged to bolster Utopia's expansion of accessing broader populations, not just through physical health risk factors, but also through the increasingly important self-identification of emotional and mental health challenges. As we grow our client portfolio, we will continue to make strategic innovation investments into our business to help us further scale. We remain focused on evolving and rounding out a whole person offering. In a recent 2022 example, we successfully launched three additional behavior genes to form a novel seven gene panel. Our innovation lab led the charge on researching which evidence-based genes could strengthen our personalization capabilities while also supporting our three core testing anchors of nutrition, exercise, and mental well-being. They found that the genes relating to caffeine intake, sleep, and exercise were the best ones to add to our panel. Our unique gene panel provides insights that lead to actionable recommendations, which can be easily incorporated into participant daily choices and help our participants establish healthy, sustainable habits. We also continue to progress on our readiness for the launch of our new and improved engagement platform. During Q1, we had the opportunity to test an aspect of the new platform's communication tool, which has already added tremendous value by simplifying outbound participant marketing and analytic intelligence capabilities. While the platform has not been launched to the public as of yet, our internal teams have been enjoying access to the beta app, which is not only visually appealing, but includes new features such as the habit change index and, my personal favorite, a daily mood measure. As you can see, we are keeping quite busy. While sales cycles may have shifted somewhat, our business development is definitely on full speed. With that, I'll turn it back to Jeff to close out the call.

Thanks, Laura, and thank you all for joining us today on our first quarter call. We are pleased with our Q1 results and the momentum that is building in our business. We are making great progress in not only broadening our potential network of clients, but also in expanding participant engagement to reach new company records. Our future is bright, and we look forward to continuing to share our developments with the investment community. Thank you for your continued support of Nutopia. We will now open up the call to your questions. Operator?

Thank you, and at this time, we will 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 two 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 the line of Yu Ma with Research Capital Corporation.

Please proceed with your question.

Good afternoon. Thanks for taking my question. I have one here. So I try to understand the association between quarterly participant engagements and the quarterly revenues. So can you please discuss within a quarter for how many months a participant usually uses Neutopia as a platform on average? Thank you.

Hi, Toby. Thank you for your question. When we are evaluating quarterly engagements, it's each and every month we're auditing our eligible participant base for whether or not they've met a certain engagement criteria. And that criteria is generally whether they've completed either an inspirator session or they've actively tracked on the platform roughly 15 of 30 days. If participant has engaged in one of those two criteria they're deemed to be engaged and therefore we would consider that an engaged participant for the month and if not then they they don't meet one of those two criteria then they don't meet the threshold and we would not bill for them as an engaged participant and so the the quarterly engaged participant statistics or numbers that we've provided really reflect a the number of participants that are eligible who've met one of those criteria inside the month. And as we stated, for Q1 of 2022, we reached a new company record of 38,000 participant engagements built for that quarter.

Okay. I'm going to just have a follow-up. So talking about each individual, did you see How many of, you know, each quarter has three months. How many of the three months does an individual usually use the platform? Is that usually one month or two months or three months for each individual? Do you see that?

Yeah, it's a great question. It's a little challenging to answer that on a quarterly basis because, Toby, the answer really depends on Where in the overall journey are they? So for a particular quarter, there may be participants who are just beginning. And as Colin noted, we had a large onboard within our financial services clients this quarter. So for some individuals, participants, this will represent the first three months of Newtopia. For others, it could represent a post 6, 7, and 8. For others, it could be a 12, 13, 14. For others, it could be month 21, 22, 23. So in each quarter, it will vary. What I can share is that we've seen some of the highest engagement and stickiness rates in the company's history. Traditionally, and this was somewhat reported in the statistics I provided for that 24-month outcome, typically in the first year of Newtopia, we expect engagement to you know, roughly nine of 12 months, which would mean, you know, nine of 12 months we would have, you know, engagement by participants. And in fact, we saw even higher rates of stickiness and engagement in the behavioral economics trial at, you know, roughly 86% fully engaged through the end of 12 months, dropping to 83%. And so I would say from a performance basis, Hard to answer specifically in any quarter because of the range of journey experiences there, but in this quarter, we've never seen a more engaged and sticky participant base in any of year one, two, three, four, five plus that participants are actively engaged in.

Okay, thank you. I'll stop here. Our next question comes from the line of Prasath Pandurangan with Bloomberg.

Please proceed with your question.

Hi, good evening. Thanks for taking my question. I just have a two-part question, which is, could you confirm that between the revolving credit facility and the equity offering, the company is fully funded and has no further funding requirement until you expect to turn cash flow positive? And as a follow-up, how much of the credit facility do you expect to draw in the meantime?

Yeah. Hi, Prasad. Thank you for the question. I can start and certainly hand over to Colin to offer a little bit of perspective as this is his first earnings call as well. I'd love for him to contribute. The answer to the first part of the question is a yes. based on the bridge equity facility of $3.5 million that we raised in addition to the $7.5 million revolver, of which we noted $3.8 million available that provides us with the necessary cash for us to execute through the remainder of the year, where, again, we're striving to exit the year cash flow positive. As to the second part of the question, if I recall how much of the line itself we plan to draw That one, I'll turn over to Colin, as it's really just a little bit of a question on mix of which funding source. So, Colin, maybe if you could pick that up.

Hi, Prasad. It was great meeting you a couple weeks ago. Yeah, I would largely echo what Jeff stated there. We're very confident with the liquidity that we have on hand for our current needs, our opportunistic, of course, as any company would be. With regards to our revolver, also, we're very comfortable with where we are. We have ongoing conversations with our primary bank and have a great relationship there. So there may be some short-term draws on the revolver, but nothing significant.

Great. Thank you, Jeff and Colin. Thank you.

And we have reached the end of the question and answer session, and I'll now turn the call back over to CEO Jeff Ruby for closing remarks.

Thank you again for joining us for our first quarter earnings conference call. We look forward to speaking to you again on our Q2 call in August and wish you a pleasant day. Thank you.

And this concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.