Newtopia Reports Third Quarter 2022 Financial Results

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Nov 08, 2022, 16:30 ET

Record year-to-date participant engagements of 113,100, up 13% year-over-year
Received highest CDC Full-Plus Recognition for delivering a proven and effective alternative diabetes prevention program
Initiates cost-cutting program to improve efficiency and margins, while positioning the Company for long-term profitability
Q3 2022 conference call scheduled for November 8, 2022 at 5 PM ET

TORONTO, Nov. 8, 2022 /PRNewswire/ - Newtopia Inc. ("Newtopia" or the "Company") (TSXV: NEWU) (OTCQB: NEWUF), a tech-enabled whole health platform creating sustainable habits that prevent, slow, and reverse chronic disease, today announced its third quarter 2022 financial results for the three and nine months ended September 30, 2022. All amounts are expressed in Canadian dollars, unless otherwise noted.

Third Quarter 2022 Financial Highlights (vs. Q3 2021):

Revenue of $2.7 million, up 5% sequentially, and down 9% from the prior-year-period
Gross profit margin¹of 55% compared to 47% sequentially and to 50% from the prior-year period

"Newtopia continued to make progress during the third quarter," said Jeff Ruby, Founder and CEO of Newtopia. "Revenues of $2.7 million improved 5% sequentially, while our gross profit margin expanded 500 basis points from the prior-year period. We continue to demonstrate industry-leading participant retention and low churn rates with 70% of our participants remaining engaged after 12 months and 58% remaining engaged after 24 months. During the quarter, we were also honored to receive the highest CDC Full-Plus recognition for our alternative diabetes prevention program. This five-year recognition is further proof that our differentiated approach to diabetes prevention and reversal, which combines one-on-one coaching and behavior genetics amplified by technology to create sustainable habit change and industry-leading engagement, is not only meeting CDC standards but exceeding them."

Mr. Ruby continued, "In the third quarter, we moved closer to the finish line in negotiations with a new set of health plans and employers. While we expect our new engagement platform, when rolled out across our entire client base, will enable us to fully capitalize on these opportunities, we want to get a jump start on bringing these efficiencies to our operations sooner. To proactively drive toward profitability quicker and, in light of the currently challenging macro-economic conditions, commencing in the third quarter and throughout the fourth quarter, we are eliminating costs that do not drive successful business development as well as those that will not enhance our margins or operational efficiencies. Once complete, we anticipate that these expense cuts will result in $3 to $4 million in annualized cost savings. These savings will help us bridge the gap to profitability. We also expect that with a more efficient participant platform, not only will we experience an improvement in our gross margin, but we will also be able to maintain a leaner, yet highly productive operating structure going forward."

_______________________________

Gross profit is defined as revenue which is comprised of onboarding welcome revenue, ongoing engagement fees and success fees, less cost of sales which is comprised of Welcome Kit costs, compensation expense for Inspirators and care specialists and genetic testing costs. Gross margin percentage is calculated by dividing gross profit by total revenue for the defined period. Gross profit is considered by management to be an integral measure of financial performance and represents the amount of revenues retained by the Company after incurring direct costs. However, gross profit is not a recognized measure of profitability under IFRS.

Third Quarter 2022 Financial Results

Revenue for the three months ended September 30, 2022 was $2.7 million, up 5% sequentially, but down 9% from the third quarter of 2021. On a year-to-date basis, for the nine-month period ending September 30, 2022, revenue totaled $8.1 million, flat with the first nine months of 2021. In the third quarter of 2021, revenue benefited from an expanded marketing opportunity with an existing Fortune 50 health services client.

Gross profit for the third quarter 2022 totaled $1.5 million, up 22% sequentially and up slightly from the prior-year period. Gross profit is comprised of Newtopia's revenue less direct expenses, which include the cost of Welcome Kits to new participants as well as labour costs associated with hiring and training of the Company's coaching team of Inspirators (health coaches). As a percentage of revenue, gross profit totaled 55%, compared to 47% in the second quarter of 2022 and 50% in the prior-year period.

Adjusted operating expenses² for the three months ended September 30, 2022 totaled $3.3 million, compared to $2.4 million in the prior-year period. On a non-adjusted basis, operating expenses increased year-over-year, primarily because of higher costs incurred in the third quarter of 2022 in connection with the launch of the Company's new engagement platform.

For the third quarter, the Company had an adjusted operating loss³of $1.8 million, compared with a loss of $1.0 million in the prior-year period.

The Company ended the third quarter 2022 with approximately $0.4 million in cash and continued access to $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 the Company has $2.6 million undrawn.

2022 Outlook

Given the year-to-date performance, the Company continues to anticipate achieving full year revenue growth for 2022 over full year 2021. With an expanded business development effort and the geographic expansion with a current Fortune 50 client, revenue is expected to benefit in the final quarter of the year. In the fourth quarter, the Company will continue to work towards onboarding a new set of health plan clients in addition to driving organic growth with its current set of self-insured employer clients to position Newtopia for further revenue improvements in 2023.

Conference Call

The Company will host a conference call today at 5:00 p.m. Eastern Time to discuss the third quarter 2022 results in further detail. To access the conference call, please dial (877) 300-8521 (U.S.) or (412) 317-6026 (International) 10 minutes prior to the start time and reference Conference ID number 10172219. The call will also be available via live webcast on the investor relations portion of the Company's website located at investor.newtopia.com.

A replay of the conference call will be available through Tuesday, November 22, 2022 which can be accessed by dialing (844) 512-2921 (U.S.) or (412) 317-6671 (International) and entering the passcode 10172219. The webcast will also be archived on the Company's website.

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² Adjusted operating expenses consist of all cash-based technology, sales and marketing and administrative expenses including employment expenses for these functions excluding equity-settled share-based compensation. Adjusted operating expense is not a measure of financial performance under IFRS and should not be considered a substitute for total operating expenses, which we believe to be the most directly comparable IFRS measure.

³ Adjusted operating loss consists of gross profit less adjusted operating income. Adjusted operating loss is not a measure of financial performance under IFRS and should not be considered a substitute for loss from operations which we believe to be the most directly comparable IFRS measure.

About Newtopia

Newtopia is a personalized whole health platform helping people create positive lifelong habits that prevent, slow, or reverse chronic disease while reducing healthcare costs. The platform leverages genetic, social and behavioral insights to create individualized prevention programs with a focus on metabolic disease, diabetes, mental health challenges, hypertension, weight management and musculoskeletal disorders. With a person-centered approach that combines virtual care, digital tools, connected devices and actionable data science, Newtopia delivers sustainable clinical and financial outcomes. Newtopia serves some of the largest nationwide employers and health plans and is currently listed in Canada on the Toronto Stock Exchange (TSXV: NEWU) and is quoted in the US on the OTCQB^® Venture Market (OTCQB: NEWUF). To learn more, visit newtopia.com , LinkedIn or Twitter.

Forward Looking Statements

This news release contains forward-looking information and forward-looking statements, within the meaning of applicable Canadian securities legislation, and forward looking statements, within the meaning of applicable United States securities legislation (collectively, "forward-looking statements"), which reflects management's expectations regarding Newtopia's future growth, results from operations (including, without limitation, future production and capital expenditures), performance (both operational and financial) and business prospects and opportunities. Wherever possible, words such as "predicts", "projects", "targets", "plans", "expects", "does not expect", "budget", "scheduled", "estimates", "forecasts", "anticipate" or "does not anticipate", "believe", "intend" and similar expressions or statements that certain actions, events or results "may", "could", "would", "might" or "will" be taken, occur or be achieved, or the negative or grammatical variation thereof or other variations thereof, or comparable terminology have been used to identify forward-looking statements. All statements other than statements of historical fact may be forward- looking information. Such statements reflect Newtopia's current views and intentions with respect to future events, based on information available to Newtopia, and are subject to certain risks, uncertainties, and assumptions. Material factors or assumptions were applied in providing forward-looking information. While forward-looking statements are based on data, assumptions and analyses that Newtopia believes are reasonable under the circumstances, whether actual results, performance or developments will meet Newtopia's expectations and predictions depends on a number of risks and uncertainties that could cause the actual results, performance and financial condition of Newtopia to differ materially from its expectations. Forward-looking statements are not a guarantee and are based on a number of estimates and assumptions management believes to be relevant and reasonable, whether actual results, performance or developments will meet Newtopia's expectations and predictions depends on a number of risks and uncertainties that could cause the actual results, performance and financial condition of Newtopia to differ materially from its expectations. Certain of the "risk factors" that could cause actual results to differ materially from Newtopia's forward-looking statements in this press release include, without limitation: the termination of contracts by clients, risks related to COVID-19 including various recommendations, orders and measures of governmental authorities to try to limit the pandemic, including travel restrictions, border closures, non-essential business closures, quarantines, self-isolations, shelters- in-place and social distancing, disruptions to markets, economic activity, financing, supply chains and sales channels, and a deterioration of general economic conditions including a possible national or global recession; and other general economic, market and business conditions and factors, including the risk factors discussed or referred to in Newtopia's disclosure documents, filed with the securities regulatory authorities in certain provinces of Canada and available at www.sedar.com including Newtopia's final long form prospectus dated March 30, 2020.

Should any factor affect Newtopia's in an unexpected manner, or should assumptions underlying the forward-looking information prove incorrect, the actual results or events may differ materially from the results or events predicted. Any such forward-looking information is expressly qualified in its entirety by this cautionary statement. Moreover, Newtopia does not assume responsibility for the accuracy or completeness of such forward-looking information. The forward-looking information included in this press release is made as of the date of this press release, and Newtopia undertakes no obligation to publicly update or revise any forward-looking information, other than as required by applicable law.

Non-GAAP Financial Measures

The Company's financial statements are prepared in accordance with International Financial Reporting Standards ("IFRS"). Management uses certain non-GAAP measures, which are defined in the appropriate sections of this press release, to better assess the Company's underlying performance. These measures are reviewed regularly by management and the Company's Board of Directors in assessing the Company's performance and in making decisions about ongoing operations. In addition, we use certain non-GAAP measures to determine the components of management compensation. We believe that these measures are also used by investors as an indicator of the Company's operating performance. Readers are cautioned that these terms are not recognized GAAP measures and do not have a standardized GAAP meaning under IFRS and should not be construed as alternatives to IFRS terms, such as net income.

Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

Newtopia Inc.

Key Financial Measures and Schedule of Non-GAAP Reconciliations

Gross Profit Information ^[1]

	Three Months Ended September 30,		Nine Months Ended September 30,
	2022	2021	2022	2021
	$	$	$	$
Revenue	2,653,411	2,904,863	8,052,111	8,053,055
Cost of sales	(1,201,016)	(1,460,870)	(4,060,793)	(4,219,501)
Gross profit	1,452,395	1,443,993	3,991,318	3,833,554
Gross margin	55 %	50 %	50 %	48 %

Reconciliation of Total Expenses to Adjusted Operating Expenses ^[2]

	Three Months Ended September 30,		Nine Months Ended September 30,
	2022	2021	2022	2021
	$	$	$	$
Total expenses	3,703,525	2,564,597	10,101,882	9,687,931
Add (Subtract)
Share-based compensation	(140,314)	(45,122)	(404,112)	(932,065)
Depreciation of property and equipment	(11,891)	(16,163)	(39,674)	(50,938)
Depreciation of right-of-use asset	(46,192)	(46,192)	(138,579)	(138,579)
Interest and accretion expense	-	-	-	-
Interest on lease obligations	(17,485)	(27,875)	(60,747)	(88,189)
Interest and accretion expense	(79,163)	(15,652)	(276,884)	(15,652)
Finance charges	(70,269)	(23,802)	(147,816)	(44,750)
Amortization of deferred finance charges	(68,140)	(27,890)	(191,910)	(112,926)
Foreign exchange loss (gain)	5,534	34,524	28,998	(32,414)
Change in value of derivative liability	-	-	-	47,508
Capitalized borrowing costs	-	-	67,000	-
Adjusted operating expenses	3,275,605	2,396,425	8,938,158	8,319,926

Adjusted Operating Loss ^[3]

	Three Months Ended September 30,		Nine Months Ended September 30,
	2022	2021	2022	2021
	$	$	$	$
Gross profit	1,452,395	1,443,993	3,991,318	3,833,554
Adjusted operating expenses	(3,275,605)	(2,396,425)	(8,938,158)	(8,319,926)
	(1,823,210)	(952,432)	(4,946,840)	(4,486,372)

NEWTOPIA INC. Condensed Interim Statements of Financial Position (Unaudited) As at September 30, 2022 and December 31, 2021 (Expressed in Canadian Dollars)
	September 30, 2022	December 31, 2021
	$	$
Assets
Current Assets
Cash	388,492	811,584
Trade and other receivables	1,613,182	1,381,977
Prepaid expenses and deposits	275,112	330,992
Inventories	391,852	131,000
Deferred costs	52,793	162,872
	2,721,431	2,818,425

Property and equipment	30,302	66,147
Right‑of‑use asset	230,959	369,538
Intangible asset	3,304,201	2,251,852
	6,286,893	5,505,962
Liabilities
Current Liabilities
Trade and other payables	2,863,166	1,965,420
Credit facility	4,880,760	2,331,314
Lease obligations	349,449	300,555
Deferred revenue	49,301	59,549
Contract liability	9,000	144,034
Debentures	2,360,854	‑
	10,512,530	4,800,872
Non‑current lease obligations	96,941	367,001
Debentures	‑	2,182,403
	10,609,471	7,350,276
Equity/Deficit
Common shares	47,718,385	45,177,120
Contributed surplus	12,743,235	11,652,200
Deficit	(64,784,198)	(58,673,634)
	(4,322,578)	(1,844,314)
	6,286,893	5,505,962

NEWTOPIA INC. Condensed Interim Statements of Loss and Comprehensive Loss (Unaudited) Three and Nine Months Ended September 30, 2022 and 2021 (Expressed in Canadian Dollars)
	Three Months Ended September 30,		Nine Months Ended September 30,
	2022	2021	2022	2021
	$	$	$	$
Revenue	2,653,411	2,904,863	8,052,111	8,053,055
Cost of revenue	1,201,016	1,460,870	4,060,793	4,219,501
Gross profit	1,452,395	1,443,993	3,991,318	3,833,554

Operating expenses
Technology and development	1,259,596	715,966	2,909,996	2,428,187
Sales and marketing	645,452	644,184	2,158,597	2,543,717
General and administrative	1,370,557	1,036,275	3,869,565	3,348,022
Share‑based compensation	140,314	45,122	404,112	932,065
	3,415,919	2,441,547	9,342,270	9,251,991

Other expenses (income)
Depreciation of property and equipment	11,891	16,163	39,674	50,938
Depreciation of right‑of‑use asset	46,192	46,192	138,579	138,579
Interest and accretion expense	79,163	15,652	276,884	15,652
Interest on lease obligations	17,485	27,875	60,747	88,189
Finance charges	70,269	23,802	147,816	44,750
Amortization of deferred finance charges	68,140	27,890	191,910	112,926
Foreign exchange (gain)/loss	(5,534)	(34,524)	(28,998)	32,414
Capitalized borrowing costs	‑	‑	(67,000)	‑
Change in value of derivative liability	‑	‑	‑	(47,508)
	287,606	123,050	759,612	435,940
Net loss and comprehensive loss	(2,251,130)	(1,120,604)	(6,110,564)	(5,854,377)

NEWTOPIA INC. Condensed Interim Statements of Changes in Equity (Deficit) (Unaudited) Nine Months Ended September 30, 2022 and 2021 (Expressed in Canadian Dollars)
	Common Shares		Shares To Be Issued	Contributed Surplus	Deficit	Total
		$	$	$	$	$
Balance, December 31, 2021		45,177,120	‑	11,652,200	(58,673,634)	(1,844,314)
Net loss and comprehensive loss		‑	‑	‑	(6,110,564)	(6,110,564)
Share‑based compensation		‑	‑	404,112	‑	404,112
Private Placement Offering of Units, net of issuance costs		2,624,495		511,839		3,136,334
Compensation options issued to brokers		(83,230)	‑	83,230	‑	‑
Adjustment of issuance costs on Debentures		‑	‑	4,733	‑	4,733
Settlement of related party payable		‑	‑	87,121	‑	87,121
Balance, September 30, 2022		47,718,385	‑	12,743,235	(64,784,198)	(4,322,578)
Balance, December 31, 2020		44,648,952	528,168	10,046,621	(51,023,880)	4,199,861
Net loss and comprehensive loss		‑	‑	‑	(5,854,377)	(5,854,377)
Share‑based compensation		‑	‑	932,065	‑	932,065
Warrants issued on issuance of Debentures		‑	‑	216,588	‑	216,588
Issuance of shares		528,168	(528,168)	‑	‑	‑
Settlement of related party payable		‑	‑	265,589	‑	265,589
Balance, September 30, 2021		45,177,120	‑	11,460,863	(56,878,257)	(240,274)

NEWTOPIA INC. Condensed Interim Statements of Cash Flows (Unaudited) Nine Months Ended September 30, 2022 and 2021 (Expressed in Canadian Dollars)
	Nine Months Ended September 30,
	2022	2021
	$	$
Cash flows used in operating activities:
Net loss and comprehensive loss	(6,110,564)	(5,854,377)
Items not involving cash:
Depreciation of property and equipment	39,674	50,938
Depreciation of right‑of‑use asset	138,579	138,579
Amortization of deferred finance charges	191,910	112,926
Capitalized borrowing costs	(67,000)	‑
Share‑based compensation	404,112	932,065
Accretion expense	124,184	15,652
Interest on lease obligations	60,747	88,189
Change in value of derivative liability	‑	(47,508)
	(5,218,358)	(4,563,536)
Net change in non‑cash working capital
Trade and other receivables	(231,205)	(725,713)
Inventories	(260,852)	123,103
Prepaid expenses and deposits	55,880	116,152
Trade and other payables	1,043,867	(713,275)
Deferred revenue	(10,248)	66,682
Contract asset/liability	(135,034)	452,000
	(4,755,950)	(5,244,587)
Cash flows used in investing activities
Purchase of property and equipment	(3,829)	(3,025)
Intangible asset development costs	(985,349)	(1,657,348)
	(989,178)	(1,660,373)
Cash flows from (used in) financing activities:
Credit facility withdrawals	8,028,277	3,829,254
Credit facility repayments	(5,478,831)	(3,162,454)
Credit facility financing costs	(81,831)	(65,040)
Repayment of lease obligations	(281,913)	(239,452)
Proceeds from private placement issuance of Units, net of issuance costs	3,136,334	-
Proceeds from issuance of Debenture Units, net of issuance costs	-	2,336,901
	5,322,036	2,699,209
Decrease in cash	(423,092)	(4,205,751)
Cash, beginning of period	811,584	4,673,683
Cash, end of period	388,492	467,932