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spk01: Greetings and welcome to the Nutopia Inc. first quarter 2023 earnings conference 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. And as a reminder, this conference is being recorded. It is now my pleasure to introduce to you Tyler Drew, Investor Relations. Thank you. You may begin. Good evening.
spk02: Good evening. And welcome to Newtopia's first quarter 2023 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 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 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.
spk03: Thank you, Tyler. And thank you to everyone for joining us today on our first quarter 2023 earnings conference call. It has only been a few short weeks since we spoke, so many of the topics we discussed on our fourth quarter 2022 earnings call continue to reign true. As you recall, in the fourth quarter of 2022, we initiated a strategic repositioning plan. We evaluated our cost to serve as well as our operations, determined what expenses were not generating 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. We completed all of these efforts while impressively maintaining and improving our industry-leading engagement and whole health outcomes. With our expenses and cost to serve increasingly in order, our main focus in 2023 remains achieving profitable growth 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 expense improvements in Q1 of 2023. As we make our way through each quarter, the efforts we've undertaken to improve margins and reduce operating expenses will be increasingly apparent. So let's turn to our financial results for the first quarter. Revenue for Q1 2023 totaled $2.65 million as compared to $2.87 million in the prior year period. Participant engagements were $33,000 during the quarter. It's worthwhile to note that with the implementation of a multi-year contract renewal for a large client, we made some important value-based changes to our definition of engaged participants. that had a declining impact on first quarter engagements. We anticipate that we will be able to make up for these participants' engagements in successive quarters as we transition new participant engagement behaviours into habits. These engagement results are even more important in tough market cycles, as our proven clinical outcomes demonstrate real cost savings for our health insurer clients, many of whom are actively cutting costs. We see now, 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. Against this backdrop, there remain two developing macro trends, which we continue to believe Newtopia is incredibly well positioned to drive growth going forward. The first is the introduction of a new blockbuster class of effective diabetes and obesity drugs, or GLP-1s, with trade names like Ozempic, Wigovi, and Munjaro. These injectable drugs reduce appetite, boost production of insulin, and lower blood sugar. According to data from Komodo Health, in 2022, more than 5 million prescriptions were written for GLP-1s. This compares to just over 230,000 prescriptions for these medications in 2019, or more than 2,000% increase in just three years. Analysts project that the global obesity therapeutic market alone could be worth $100 billion by 2030, with the weight loss drug industry reaching as high as $200 billion in the next decade. Clearly, there is an increasing acceptance of GLP-1s and a huge addressable market to go with it. While these medications are generating promising clinical outcomes, many physicians believe that diabetes and obesity have no quick fix. as that injections alone are not the answer. Instead, GLP-1s are most effective, both clinically and economically, when paired with a proven habit change platform like Nootopia. As a result, we are seeing an increasing commercial evolution by large public players, from Weight Watchers to Teladoc, who are combining behavior change platforms, prescriptions, and more to go alongside these blockbuster drugs. We feel that we are exceptionally well-positioned to do the same, and Lara Dodo, our Chief Growth and Operating Officer, will speak further to that topic later on in this call. 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 care blending in-person and virtual service delivery rather than a fee-for-service program. The goal of advanced primary care is to improve the patient experience and health of various populations, while simultaneously reducing costs for the insurer. Large public companies like CVS, Walmart, and Amazon have all announced that they are actively investing in primary care services. Value-based healthcare is not the norm just yet. However, one example of a program Neutopia is seeking to tap into that serves as a model for this type of care is Medicare Advantage. Newtopia represents an ideal complementary capability to advanced primary care options and has always been at the forefront of chronic disease management compared to our traditional system of sick care. We look forward to discussing opportunities in the advanced primary care space on future earnings calls. Newtopia is well positioned for an exciting 2023 as we cross over to profitable growth. With that, I'll turn the call over to Colin Swenson to discuss our first quarter financials in further detail.
spk04: Thanks, Jeff. It's great to speak with everyone again today. Q1 2023 was another positive step forward on Utopia's path to profitability. Although revenue of $2.65 million was down slightly versus $2.87 million in the prior year period, primarily due to the definitional change of an engaged participant in our large contract renewal, We're continuing to improve our margins as we leverage efficiencies in our operating model. On an apples-to-apples basis, gross profit was $1.6 million for the first quarter, up 17% year-over-year. As a percentage of revenue, gross profit was 60%, compared with 47% in Q1 of 2022, a full 1,300 basis point improvement. This increase results from the efforts we're enacting under our strategic plan to improve efficiencies in our business, including reducing our headcount and increasing our inspirator to participant ratios. As I've stated in prior quarters, 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. From an expense standpoint, selling general and administrative expenses totaled approximately $1.4 million for the first quarter, a reduction of 22% year over year. This improvement is primarily driven by our actions to pull back our marketing spend, exit our office lease, and restructure through headcount reductions. Technology and development expenses totaled $922,000 for the first quarter compared to $806,000 in the prior year period. This increase is largely the result of higher research expenditures related to our new engagement platform. Tech spend, however, is down sequentially versus Q4 2022, and we fully anticipate a continued downward trend throughout 2023. Adjusted operating expenses, which exclude share-based compensation, improved by 11% to total $2.3 million for the quarter, compared to $2.6 million in the prior year period. We expect to see further improvement in the second quarter and throughout 2023 as the actions of our strategic plan are more fully manifested in our financial results. On our path to profitability, we're proud to show a significant improvement in EBITDA. For the first quarter, our EBITDA loss of $727,000 improved by over 40% from a loss of $1.2 million in the prior year period, as a portion of our cost-cutting initiatives are beginning to show. Turning to our balance sheet, Cash as of March 31, 2023 was approximately $0.3 million, with additional access to our revolving line of credit with the Canadian Schedule I bank. Cash used in operations for the quarter was approximately $0.8 million, with our Q1 cash burn improving 29% versus Q4. Importantly, we'll continue to see this positive cash burn trend continue throughout 2023. Let's now discuss our expectations for 2023. From both the top line and bottom line perspective, we continue to anticipate year-over-year growth. From a profitability standpoint, given expense reductions and our continued focus on operating model efficiencies, Utopia has a clear path to achieve 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.
spk00: Thanks, Colin, and good evening, everyone. It is still early days, but it is officially sales season 2023. We are already noticing an increasing number of employers and advanced primary care providers looking to reduce their costs with proven habit change interventions. And Utopia is viewed as a way to lower their costs by improving health outcomes associated with diseases of obesity, such as diabetes type 2 and other cardiometabolic conditions. The healthier your employee, plan member, or patient population, the more cost savings are generated. Along those lines, I want to take some time today to discuss a topic Jeff began to speak to, and that is the growing commercial acceptance of GLP medication. Based on clinical trials of approximately 68 weeks, GLP-1 medications combined with lifestyle adjustments, such as Neutopia, can result in patients losing as much as 10% to 18% of their body weight. The need for multi-model treatment plan, treatment which is not just medication, but also healthy lifestyle habits and emotional and behavioral support, has been a key discussion amongst prescribers of these medications and the healthcare and technology companies who are promoting their usage. Without behavior change, If medication is removed, relapse is essentially guaranteed, along with poor physical and emotional health implications and corresponding increased medical costs. We are actively using the current sales season to promote the sport process and are having discussions with key healthcare providers about the ability for Neutopia to intervene with healthy habit change that pairs with their current offerings to enhance drug effectiveness and ultimately reduce the cost of care. We are also actively sharing our industry leading engagement metrics as a proof point of our success. Utopia continues to see close to 85% of enrolled participants engaged after 90 days, over 70% in year one, and 61% after 24 months. For comparison purposes, the average engagement across the industry is 60% after 90 days, 15% after one year, and less than 5% after 24 months. As a reminder, Utopia has 61% after 24 months. In other words, Utopia's highly personalized habit change offering of humans helping humans, amplified by technology, answers the critical question of, will my employees, member, or patients like the experience? They do. One in every three American adults is obese. In addition, more than 37 million Americans have diabetes. Much more can and must be done to manage this epidemic of obesity-triggered chronic diseases. We remain in active contracting with health plans, systems, and providers, albeit at a slower pace than anticipated. We shared in our last quarterly release that there's increased data privacy and legal contracting rigor across the industry. The good news is that as these deals are executed, they will remain very sticky and have tremendous growth and upside to them. Contracting includes Medicare Advantage Phase 1 pilots, expansion of existing health system pilots, and a new jumbo employer. In addition to new contracting, we have two large renewals with current clients that are anticipated to contribute to improve revenues in the second half of this year. For the 2023 sales season, Neutopia is well-positioned to partner with health plans and advanced primary care providers to help enhance medical treatment plan adherence. Primary care physicians don't have the time or training to follow through on these plans that often include an exercise, nutrition, and mental wellbeing regimen. In addition, the cost of having a PCP or an RN dig into the habit changes required by the patient to adhere to the overarching treatment plan is simply too expensive. When Utopia's inspirators, our health coaches, intervene and everyone practices at the top of their license, costs are saved and health improvements are delivered. Medical treatment plans across the industry typically include nutrition, exercise, and mental wellbeing guidance, as well as the importance of medication adherence. Utopia, in turn, makes these actions daily habits by embedding them into a sustainable lifestyle. I look forward to sharing our progress on future calls, and I'll now turn the call back to Jeff.
spk03: Thank you, Lara. With one quarter down and halfway through the second, we are making meaningful progress toward reducing our expenses, improving our bottom line, and leveraging meaningful advances in the healthcare space. I want to thank our entire team at Newtopia for your efforts this past quarter. It was a great start to the year, and we are well on our way towards profitable growth in 2023. I also want to thank all of our shareholders for your continued support. We look forward to speaking with you on future earnings calls. Have a great evening.
spk01: This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation and have a great day.
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