Newtopia Inc.

Greetings and welcome to the Newtopia Inc. Third Quarter 2023 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 Rob Halperin, Senior Vice President of Marketing. Thank you. You may begin.

Good evening and welcome to Nutopia's third quarter 2023 earnings conference call. I'm Rob Halpern, Senior Vice President of Marketing with Nutopia. 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 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 replays are available in the company's third quarter press release issued this afternoon and can be found on the investor section of Neutopia's website at www.neutopia.com. Before we begin, let me remind you that certain matters discussed during today's call could constitute forward-looking statements which are subject to certain risks and uncertainties related to Neutopia's future financial and business performance. Actual results could therefore differ materially from those anticipated in such forward-looking statements. Utopia is under no obligation to update any forward-looking statements discussed today, and investors are cautioned not to place undue reliance on these statements. The risk factors that may affect results are detailed in Utopia's periodical results and registration statements, which you can access via the CEDAR database at www.cedar.com. Also, please note that all figures stated on today's call are in Canadian dollars and less otherwise noted. I would now like to turn the call over to Jeff Ruby, founder and CEO of Nutopia. Please go ahead, Jeff.

Thank you, Rob, and thank you to everyone for joining us today on our third quarter 2023 earnings conference call. I am very pleased to announce that the third quarter of 2023 represented Nutopia's first profitable quarter in the company's history. Not only are we on track in our strategic direction of profitable growth and becoming EBITDA positive in 2023, but we are ahead of schedule. Throughout 2023, we've made great strides in reducing our cost to serve and increasing our efficiencies, all while impressively maintaining and improving our industry-leading engagements and whole health outcomes. The third quarter proved no exception, and our operational gains led to Newtopia achieving EBITDA positive a full quarter ahead of our internal plan. This positions Newtopia as one of the few profitable companies in the health technology space. The digital health industry, like that of all industries, continues to navigate a difficult macro environment. Despite these challenging conditions, Newtopia has re-secured multi-year contract renewals with each of our key innovator clients, while also pursuing new initiatives with employers, providers, and health plans in both the United States and in Canada. As recently announced, Nootopia was chosen to launch an innovative health coaching project in partnership with a prominent philanthropic foundation. The project will focus on a specific region in the southeastern United States and offer Nootopia's habit change platform as a no-cost health benefit to eligible participants identified through biometric and diagnostic data as suffering from type 2 diabetes or hypertension. In 2024, the project will expand within the regional population of more than 500,000 people. The project will run for one year with a preliminary read at six months and a final assessment after 12 months. We are confident that Nootopia's industry-leading participation metrics will once again shine and that this project will ultimately serve as a blueprint for the deployment of scalable, value-based primary prevention efforts with other large national employers, payers, and providers across the United States. This commercial win proves yet again that health industry innovators recognize the importance of primary lifestyle prevention and habit change to improve the lives and health of members, employees, and communities. Combined with the growth of a new class of GLP-1 drugs to combat metabolic diseases, including type 2 diabetes and obesity, that require effective habit change to deliver sustained clinical and economic outcomes to both individuals and health insurers, Newtopia could not be better positioned to participate in the important market inflection taking place. So let's dig a bit deeper on our financial results for the third quarter. Revenue for Q3 2023 totaled $2.43 million as compared to $2.65 million in the prior year period. This slight year-over-year differential is due to value-added changes to the definition of an engaged participant in new contract renewals and seasonal timing of contract implementation efforts. We anticipate that we will remain profitable through the remainder of 2023. With that, I'll turn the call over to Colin Swenson to discuss our third quarter financials in further detail.

Thanks, Jeff. It's great to speak with everyone again today. Q3 2023 was the latest in a string of positive steps forward in Utopia's path to profitability and we're elated to post the first quarter of EBITDA positivity in the company's history. Although revenue of $2.43 million was down slightly versus $2.65 million in the prior year period. We've taken significant costs out of our operating model, all while maintaining participant engagement and outcomes Newtopia is famous for. On an apples-to-apples basis, gross profit was $1.6 million for the third quarter, up 10% year-over-year. As a percentage of revenue, gross profit was 65.7%, compared with 54.7% in Q3 of 2022, a full 1,100 basis point improvement. This increase is the result of continued efforts we've made to drive efficiencies and improve our inspirator to participant ratios, which now stand at 1 to 270 compared to 1 to 235 in the prior year. As I've stated in prior quarters, it's worth noting that our margins typically experience some level of seasonality, depending on the timing of participant onboarding. That said, as we've demonstrated across multiple quarters in a row now, the improvements we've made are largely here to stay compared to prior years. From an expense standpoint, selling general and administrative expenses totaled approximately $1.1 million for the third quarter. an improvement of 44% year over year. This improvement is a balanced mix of reduced marketing activities, exiting our Toronto office lease, tightening our belt on non-critical vendor spend, and restructuring through headcount reductions. Technology and development expenses totaled $447,000 for the third quarter, compared to $1.3 million in the prior year period, a 65% improvement year over year. It's notable that tech spend is also down significantly versus the first half of 2023, and we fully anticipate a continued downward trend in the fourth quarter. Adjusted operating expenses, which exclude share-based compensation, improved by 52%, a total of $1.6 million for the quarter, compared to $3.3 million in the prior year period. We've seen the cost savings impact of our strategic plan over the last three quarters now, and expect that minor incremental improvements will be manifested to close out 2023. As previously discussed, we're proud to have achieved the milestone of EBITDA positive for the first time in Nootopia's history. For the third quarter, EBITDA totaled a gain of $21,000 as compared to a loss of $1.8 million in the prior year period and a loss of $436,000 in Q2 2023. Turning to our balance sheet, cash as of September 30, 2023 was approximately $0.6 million. With additional access to our revolving line of credit with the Canadian Schedule I bank, a previously announced $1.5 million debenture issuance that closed in July 2023, and a $2.5 million debenture extension and issuance through September 2024, cash used across operating and investing activities for Q3 year-to-date was $1.9 million versus $5.7 million in the prior year period, an improvement of 66%. Importantly, we'll continue to see this positive cash burn trend as we move forward. Utopia has a clear path to continue to build upon our first EBITDA positive quarter as we move forward and set our sights on 2024. Thank you all for your time today. I'll now turn the call over to Laura.

Thanks, Colin, and good evening, everyone. In the third quarter, we continue to move forward with our high-priority pipeline. Notably, our biggest success, as Jeff referenced, was launching an innovative health coaching project in partnership with a prominent philanthropic leaders foundation. The project is strategically designed as a community approach to intervene in preventable chronic diseases in the southeastern United States. The project has commenced with a leading federally qualified health center, or FQHC. FQHCs are important safety net providers in rural areas of the U.S. These clinics qualify for specific reimbursement under Medicare and Medicaid and offer comprehensive, high-quality primary care and preventative services regardless of a patient's ability to pay. By using interdisciplinary teams and a patient-centric approach, FQHCs deliver care coordination. Neutopia fits very elegantly into the ecosystem. Neutopia will demonstrate how health coaching will improve primary health outcome metrics, such as A1C, blood pressure, cholesterol, and weight, and reduce costs for the type 2 diabetes and hypertensive populations. Simultaneously, we will directly improve selected gaps in care. Our inspirative patient relationships are extremely sticky, and have a strong degree of accountability. Inspirators will drive next best actions, such as preventative cancer screenings, routine blood work, annual wellness checks, and contribute to closing gaps in care. Natoka's commercial efforts have been focused on executing contracts with a high priority pipeline. During Q3, we were able to see the project we have referenced during this call, finalize contracting, and go live. We are also close to confirmation of a Canadian province-wide health system initiative that will change the cost and quality of life trajectory for their patients with obesity and type 2 diabetes. On the organic client front, we renewed contracts and continued to collaborate on how we can expand health and cost innovation by modifying the risk pool in these states of these clients' populations. Early in today's discussion, Jeff addressed the growing commercial acceptance of GLP-1 medications. Some of our largest clients are formalizing their approach of inserting GLP-1 medications into their broader health and benefit strategy. There's a wide and growing understanding that without behavior change, if GLP-1 medications like the newly FDA-approved Zepbound or Wegovi are removed, relapse is essentially guaranteed. along with poor physical and emotional health implications and increased medical costs. Utopia therefore remains well positioned for continued organic growth within our current and prospective client base to leverage new opportunities for integrated behavioral and obesity interventions. To summarize Q3, we remain staunch in our focus to close opportunities that are innovative and that represent longer-term growth. This is evident in our new partnership and will be evident in partnerships to come. Thanks for your time today. I'll now turn the call back to Jeff.

Thanks, Laura. With three quarters of 2023 complete, Newtopia continues to make meaningful progress in achieving profitable growth, pursuing deeper relationships with existing clients, while seeking new business partnerships and leveraging advancements in the healthcare space. I want to thank our entire team at Newtopia for your efforts this quarter as always. We've made tremendous progress as a business because of your support and are firmly engaged in profitable growth. I also want to thank all of our shareholders for your continued support of Newtopia. We look forward to speaking on future earnings calls. Have a great evening and a happy, healthy, and safe holiday season.

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.