Newtopia Inc.

Greetings, and welcome to Newtopia Inc. Fourth Quarter 2022 Earnings Call. At this time, all participants are in a listen-only mode. 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. It is now my pleasure to introduce your host, Kimberly Esherkin, Investor Relations. Thank you. You may begin.

Good evening, and welcome to Newtopia's Fourth Quarter and Full Year 2022 Earnings Conference Call. Joining me today are Jeff Ruby, Founder and Chief Executive Officer, Colin Swenson, Chief Financial Officer, and Lara Dodo, Chief Growth and Operating Officer. Please note that today's call is being webcast 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 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 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 these statements. The risk factors that may affect results are detailed in Newtopia's periodic results and registration statements, which you can access via the CDAR website 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 2022 learnings conference call. When I started Newtopia, my mission was to approach our traditional sick care system from a new perspective, one that focuses on keeping people healthy as a first priority. I envisioned that a focus on primary prevention delivered by humans helping humans, amplified by cutting-edge technology, could prevent, slow, and reverse chronic disease and improve the unsustainable economics for public and private health insurers. For many years, we served that mission strongly, delivering some of the industry's best outcomes to a select group of leading U.S. innovator employers and health plans, but in doing so, sacrificed our profitability along the way. When we spoke last November, I announced that Utopia could no longer be a health tech company innovating to the expense of our profitability and that the time for profitable growth was now. With that said, in the fourth quarter of 2022, we initiated a strategic repositioning plan. We evaluated our cost to serve and operations, determined what expenses were not generating a return on their investment, and then went back to the basics of reducing our costs while simultaneously optimizing our inspirator or health coach service ratios, all while maintaining and improving our industry-leading engagements and whole health outcomes. Increasing inspirator utilization to improve our overall platform efficiencies while conducting ourselves in a strict operating environment is key to Utopia's continued success. With our expenses and costs to serve increasingly in order, as Colin Swenson, our CFO, will address shortly, Our main focus in 2023 will be to achieve profitability alongside the closing of some exciting new employer and health plan contracts. The sizable efficiencies gained in the fourth quarter have proven helpful in moving the business in the right direction, and we have driven even further operating improvements in Q1 of 2023. With improved financial stewardship actively under Colin's watch, we expect another year of revenue growth in 2023. While our efforts to revamp the business will continue, the work to strategically manage costs has been successfully initiated, and as we make our way through each quarter, the efforts we've undertaken to improve margins and reduce operating expenses will be increasingly apparent. With that as a background, let's turn to our financial results for the year. If there's one thing I can say about last year with certainty, it is that 2022 was a crucial year to the lifecycle and development of Newtopia. Not only did we grow our revenue year-over-year to reach $11.2 million, but we also actively expanded our gross margins by 500 basis points, secured key contract renewals across our installed client base, and achieved a record number of participant engagements on our platform, 149,000 to be exact. These accomplishments are a testament to our remarkable team and the successful results delivered by our outcomes-based platform. These results are even more important in tough market cycles as the economy is currently experiencing as our proven clinical outcomes demonstrate real cost savings for our health insurer clients. We are now seeing more than ever before a prevailing belief that unchecked chronic disease is one of the greatest cost generators across the entire North American healthcare landscape. It is this realization that effective habit change can translate into meaningful cost savings that has resulted in all of Newtopia's pilot and proof of concept programs evolving into larger client engagements. Newtopia's tailored, one-on-one coaching and integrated digital solution can benefit the health system overall. And the more engaged our participants, the more effective our platform is in reducing costs and generating value-added revenues for our clients. Newtopia is one of the most comprehensive approaches to prevent, reverse, and slow chronic disease on the market today, and one of the very few offerings in our space to receive the highest full-plus recognition from the Centers of Disease Control and Prevention. In 2023, we will continue to prove our platform's efficacy by strengthening our relationships with our current client base of leading innovators while adding new fully-insured employers and health plans. With large operational changes and cost-cutting measures, we remain an innovative health tech company with proven clinical and financial outcomes and a value-based business model affirmatively answering the two fundamental questions for risk-bearing insurers. Do my people like it? And does it work? Against this backdrop, there are two developing macro trends that we feel incredibly well-positioned to add value and drive future growth. The first is the introduction of the new blockbuster class of effective diabetes and obesity drugs with names like Ozempic, Wegovy, and Mungaro. These injectable drugs are being dubbed as the new statins that mimic hormones in the body to reduce appetite, boost production of insulin, and lower blood sugar. They are generating promising clinical outcomes at a very high price and have the potential to become the largest class of drugs ever globally. What is getting less attention is that they are most effective clinically and economically when paired with an effective behavior change program. The second macro trend is the emergence of advanced primary care for employers and commercially insured populations. Advanced primary care represents an effort by providers to offer comprehensive value-based, not fee-for-service primary care, either in person or virtually, with a goal of delivering the triple aim of improving the patient's experience, improving the health of populations, and reducing costs. Zootopia's industry-leading enrollment, engagement, and ability to deliver lifestyle habit change and help make medical treatment plans into habits represents an ideal complementary capability. As part of our business development efforts, we are in active stages to partner with health plans and provider groups in enhancing member adherence to medical treatment plans, specifically for those individuals being prescribed these new classes of diabetic and obesity drugs. Laura Dodo, our Chief Growth and Operating Officer, will speak to this shortly. As is apparent from our discussion today, Utopia is sitting at a very positive inflection point. We've returned to top-line growth, and continue to deepen our relationships with our current client base, finalize key contracts to open up our distribution with health plans serving Medicare Advantage and broad commercial populations, while at the same time expanding our new business pipeline based on exciting macro developments. Importantly, our client contract renewals, along with a recent equity raise in March, will drive Utopia toward both EBITDA and cash flow positive this year. Profitable growth in 2023 is our number one goal. With that, I'll turn the call over to Colin Swenson to discuss our fourth quarter financials and pathway to profitability in further detail.

Thanks, Jeff. It's great to speak with everyone today. As Jeff discussed, the focus of 2022, especially the second half of the year, was cost containment and cost-to-serve innovations. We managed to take significant costs out of our operating model, all while maintaining the stellar health outcomes and participant engagement Newtopia is famous for. In addition, we terminated our office lease, reduced headcount, and made other cuts, including vendors that were not fundamental to the growth of our business. From a headcount perspective, we're currently much leaner than we were in prior years, having conducted additional layoffs in the first quarter of this year. Going forward, it will be about creating continued efficiencies with our current resource base. So let's speak about our financial results. Utopia had a successful 2022, which culminated in an even stronger fourth quarter. Revenue for Q4 totaled $3.1 million, increasing 17% sequentially and up 30% year over year. Enrollment fee revenue or revenue related to welcome kits, was approximately 8% of total consolidated revenue for the fourth quarter, consistent with the third quarter and the prior year. Revenue growth was primarily a result of the anticipated market expansion with the current client and from successfully meeting certain client performance thresholds for the year. For the full year, revenue totaled $11.2 million, of which enrollment fee revenue totaled 11%. Retention and engagement also remained strong. At year end, participant engagements were up 10% year over year to total 149,000, a new company record. Gross profit for the fourth quarter was a true highlight, totaling 2.0 million, up 64% year over year. As a percentage of revenue, gross profit was 65% compared with 55% in the third quarter of 2022 and 52% in Q4 of 2021. This increase is a reflection of improved efficiencies in the business, resulting from a reduction in headcount and higher inspirator to participant ratios. It's worth emphasizing again, in Q4 alone, we grew our top line 30% while simultaneously reducing cost of goods sold by 7%, a result we're very proud of. It's worth noting that our margins do typically experience some level of seasonality, Depending on the timing of participant onboarding, some quarters will see a decline in gross margin as new participants onboard and an increased number of lower margin welcome kits are sent out. On the flip side, other quarters will experience higher margins with fewer welcome kits and more engagement revenue. I would note, however, that in the fourth quarter, we deployed certain price increases for our welcome kits to reflect the impact of growing inflation and higher input fees. While there is a lag between when we actually increase welcome kit costs and when we will realize increased fees from our client base, these adjustments will help to improve margins on what is typically a pass-through product for Newtopia. From an expense standpoint, selling, general, and administrative expenses total approximately $1.8 million for the fourth quarter, a decline of 7% year-over-year. This decline is the result of our actions to pull back our marketing spend exit our lease, and to restructure through headcount reductions. Technology and development expenses totaled $1.0 million for the fourth quarter as compared to $700,000 in the prior year period. This increase is primarily the result of higher research expenditures related to our new engagement platform. This investment is quickly approaching the finish line. and we will continue to see technology and development expenses decline throughout 2023, as we experienced with SG&A in 2022. Adjusted operating expenses, which exclude share-based compensation, increased by 6.6% to total $2.8 million for the quarter, compared to $2.6 million in the prior year period. compared to a net loss of 1.80 million or a loss of two cents per diluted share in the prior year period. Turning to our balance sheet. Cash as of December 31st, 2022 was approximately 0.35 million. Cash used in operations for the year was approximately 6.3 million with our Q4 cash burn improving 45% versus Q3. Importantly, we're seeing this trend continue favorably in 2023. Just over a month ago on March 7th, we successfully completed a non-brokered $1.5 million equity round, and combined with the expense reductions and efficiency efforts in motion, we will see additional improvements in our cash flow cycle throughout the year. Let's now discuss our expectations for 2023. From both a top line and bottom line perspective, we anticipate year-over-year growth. From a profitability standpoint, Given the aforementioned expense reductions and our continued focus on operating model efficiencies, Utopia has a clear path to achieve adjusted EBITDA and cash flow positivity within 2023. Our forecast shows our profitability building throughout the year, with our bottom line improving incrementally each quarter. Thank you all for your time today. I'll now turn the call over to Laura Dotto.

Thanks, Colin, and good evening, everyone. As may be apparent from both Jeff and Colin's prepared remarks, 2022 was a lot like a tale of two cities. One side of the story was all about phenomenal engagement and record participant counts. The other side was a tale of a difficult macro environment, which made executing new client contracts unprecedentedly difficult. I'd like to speak about both these cities today and discuss why, after overcoming challenges in the past year, Utopia is well positioned to pick up growth momentum. Let's begin with the positive. One, record engagements with 10% increase year over year. Two, expansion of existing key clients and into new states. Three, contract renewals across our entire installed client base. Four, pending expansion of innovation pilots, including a diabetes type 2 specific program in a Canadian province. And five, Medicare Advantage opportunities that are in legal contract review. As our organic success continues to be driven by industry-leading engagement metrics, I'd like to take a moment to put those into perspective. Utopia engagement is defined by meaningful monthly inspirator, health coach interactions. This is a very high threshold to meet and does not simply mean registering a pulse on an app. Contrast that to our many competitors, who view engagement as an app activity only. Now consider, in a recent study conducted on healthcare app engagement and retention by Sandbird, who is a provider of conversation platforms for mobile apps, they found that after 90 days, only 31% of people who downloaded a healthcare app in 2022 were still even using that app. The figures were even bleaker after one year, when only 18% of those who downloaded the app were still actually leveraging its services. Now, by stark contrast, Newtopia continues to see close to 90% of enrolled participants engaged after 90 days, 76% after one year, and 56% after 24 months. In other words, Newtopia's highly personalized habit change offering of humans helping humans Amplified by technology has answered a very important client question repeatedly. Will my members or employees like the experience? Overwhelmingly, yes. Utopia's unique approach to behavior change that uses personality algorithms to match each participant with the ideal health coach or inspirator and leverages behavior-based genetics to help unlock the why behind a participant's daily nutrition, exercise, and well-being choices, combined together with the one-on-one coaching, state-of-the-art technology platform to achieve long-term habit change that prevents, reverses, and slows chronic disease. Historically, we've been able to pair each inspirator with 200 participants. By reducing headcount and developing further, broader cost efficiencies, In 2022, we improved that inspirator to participant ratio to one inspirator for every 260 participants. As Jeff noted, we are focused on improving our inspirator utilization and our goal in 2023 is to drive the inspirator to participant ratio closer to one to 350. Now let's discuss the other less positive side of the 2022 story. Many times throughout 2022, we were on the cusp of announcing a new client, only to reach further challenges in finalizing contracts. Examples include health system resource strains, being rerouted to subcontract under third party, and significantly more rigorous data, privacy, and security requirements within health plans. Returning to the positive, we remain in active contracting for two Medicare Advantage proof of concepts. and continue to advance executive-level discussions with other Jumbo employers and health plans. As Jeff mentioned earlier, one business development opportunity at the forefront of our efforts is leveraging our best-in-class engagement and habit-change platform to support medical treatment plans involving the popular new class of diabetic and weight loss strikes, Ozempic, Wegovi, and Manjaro. As Jeff spoke to, while some experts are labeling these medications a critical part of the waste loss industry's future, what is definitely getting less attention is that they are most effective, both from a clinical and economic perspective, when paired with an effective behavior change program. For the 2023 sales season, Neutopia is well positioned as a strategic solution to partner with health plans and advanced primary care providers to help enhance the adherence of medical treatment plans that include nutritional, exercise, and well-being guidance, and medication adherence. If health plans can limit their costs by ensuring those taking these medications see elevated results by having Utopia as a partner, it's a win-win fall. These efforts are in the early stages, and we look forward to sharing more about our progress on future calls. Overall, this past year was an exciting yet challenging one for Newtopia, truly a tale of two cities. We made some difficult financial and operational decisions, but these decisions will facilitate a new wave of growth. Thank you again for your time today. I'll now turn the call back to Jeff.

Thanks, Lara. You're absolutely right. We did make some difficult choices this past year. some which are already reaping benefits across our operations, while others will prove themselves out over time. Our expense management, for example, is already driving improved margins, while our inspirator utilization ratios have improved even fully before leveraging our new back-end technology platform. I want to thank our entire team at Newtopia for all your hard work this past year. Our platform is a one-of-a-kind solution to preventing, slowing, and reversing chronic diseases. And your passion to support our clients and participants will help thousands live healthier, longer lives. I also want to thank our shareholders for your continued support of Newtopia. It's been a challenging few years, and with the strategic reset towards profitable growth in place, I'm excited for what our future holds. Thank you again for joining us for our fourth quarter earnings conference call. We look forward to speaking to you on our Q1 2023 call soon. Also, for those attending the Bloomberg Health Innovation Conference next week, we hope to have an opportunity to meet in person. Have a great evening.

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time, and have a wonderful day.