Newtopia Inc

XTSX:NEWU

Earnings Call Analysis

Earnings Call Transcript 2024-Q2

[Operator]

Good afternoon, ladies and gentlemen and welcome to the Newtopia Inc. Second Quarter 2024 Earnings Call. [Operator Instructions] I would now like to turn the conference over to Ms. Rikki Bennie, SVP of Experience and Operations. Please go ahead.

[Rikki Bennie, executive]

Good evening and welcome to Newtopia's Second Quarter 2024 Earnings Conference Call. I'm Rikki Bennie, Senior Vice President with Newtopia. Joining me today are Jeff Ruby, Founder and Chief Executive Officer; Collin 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 the replays are available in the company's press release issued this afternoon and can be found on the Investors section of Newtopia's website at www.newtopia.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 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.

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 SEDAR+ database at www.sedarplus.ca. 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.

[Jeffrey Ruby, executive]

Thank you, Rikki and thank you to everyone for joining us today. I would like to speak about the progress we are making in some key growth areas for Newtopia, which Lara will also discuss and we will then turn over the call to Collin to discuss the financial results.

Over the last 11 years, Newtopia's habit change solution has repeatedly proven our unique ability to produce industry-leading patient engagements in healthy habits that prevent, slow and even reverse chronic metabolic disease. Beginning with our industry-first randomized controlled clinical trial between 2013 through 2016 and extending to the Fortune 500 employers that have adopted our solution, Newtopia has consistently delivered patient weight loss and reductions in A1C that are not only clinically significant, but also sustainable over time.

This has translated into meaningful cost savings for our employer partners and program sponsors and has improved the health and well-being for the more than 100,000 individuals whom we have served, irrespective of their geography, health equity or socioeconomic status. Most recently, Newtopia embarked on a partnership with American Philanthropist, Alice Walton in our Heartland Whole Health Institute, where we are delivering our best ever engagement rates as well as compelling weight loss outcomes in both provider and employer environments across the state of Arkansas.

On the strength of this foundation, today, we see 3 distinct and significant opportunities to accelerate Newtopia's growth, including; one, expanding our key employer, provider and provincial innovation partnerships; two, combining Newtopia's proven habit change platform with GLP-1 drugs for obesity and type 2 diabetes; and three, partnering with Health AI and clinical discovery innovators to improve our collective ability to deliver best-in-breed outcomes that prevent reverse and slow chronic disease.

During the first half of 2024, we've continued making great strides in reducing our cost to serve and increasing our operational efficiencies, all while impressively maintaining and improving our industry-leading engagement and whole health outcomes. Importantly, in the second quarter of 2024, our industry-leading engagement in clinical outcomes continued to improve. Revenues were $1.6 million for the second quarter of 2024.

Our top line continues to be impacted by a change made by a client with a long-standing incentive program. From 2020 through 2023, we participated in a behavioral economic trial to evaluate the impact of novel monthly incentives with regards to enrollment in monthly engagements. This client decided to ultimately shift the program's incentives, which unfortunately resulted in a larger-than-expected participation decrease. This behavioral economic trial provided a valuable lesson on the power of extrinsic financial incentives.

Fortunately, our relationship with the client remains strong and commencing in Q2, we began working with them on strengthening new registrations through market expansion and the reintroduction of Newtopia to existing markets where we hope to overcome the declines experienced as a result of the change to the incentive program. Revenue in the quarter was also impacted by a decision by clients in March of 2024 to stop providing our program to employees at the beginning of its new benefit year on June 1, 2024. This decision came as a result of broad internal strategic change and cost-cutting measures across all employee benefits.

To address the financial impact of the departure of this client, we are actively reducing variable costs associated with this lost revenue, accelerating new market opportunities and exploring a variety of strategic alternatives. Given macro conditions, material client changes described earlier and the need to ensure all stakeholder interests are accounted for, management and the Board of Directors decided that a strategic review process was the best next step for the company. As such, during the quarter, we announced the strategic alternative review process to maximize shareholder value and repay indebtedness.

A special committee of the Board of Directors of the company is working with financial advisers to explore and evaluate all value-maximizing alternatives for the company, which may include, among other things, a corporate sale, a merger or other business combination or strategic investments. Turning to our strategic growth drivers, beginning with the continued development and growth of our novel innovation partnerships with key employer, provider and provincial innovation partners, as discussed earlier, following the delivery of exceptional 6-month trial outcomes, our collaboration with Heartland Whole Health Institute, offers an exciting opportunity to expand not only within Northwest Arkansas where the program first launched, but also statewide and nationally.

Our second growth driver will be in the combination of Newtopia's proven value-based habit change platform alongside GLP-1 drugs for obesity and type 2 diabetes. The GLP-1 market is experiencing massive growth, largely due to the increased prevalence of type 2 diabetes and obesity worldwide along substantial marketing spend from pharmaceutical companies, celebrity endorsements and a groundswell of influencer activity on social platforms. While medications like GLP-1 can be effective alone in the short term, they were clinically tried and are most beneficial when used in conjunction with lifestyle modifications such as improved diet, increased physical activity and management of mental and emotional health.

Lifestyle changes can help improve insulin sensitivity, reduce blood sugar levels and promote weight loss, all of which are crucial in achieving sustainable clinical and economic outcomes for patients and payers. Many payers are placing restrictions on use of GLP-1s, including outright bands, annual spending caps or requirements to pair the drug of lifestyle change, cost-effective and value-based lifestyle change programming, such as Newtopia, could be a potential solution to these challenges.

We are in active discussions with a number of U.S. and Canadian payers about the requirements to co-prescribe Newtopia alongside a GLP-1 medication in order to unlock and ensure ongoing reimbursement of drugs like Wegovy and Zepbound for prediabetes or obesity. The third and final growth driver is partnership opportunities with health AI and clinical discovery innovators that leverage Newtopia's unique genetic and phetotypic data set to target at risk cohorts and identify new drug candidates as the pipeline for additional and improved GLP-1 weight loss medication increases amongst big pharma players, so will the demand for proven behavior change that plays a significant role in clinical trials for new drugs.

Newtopia has the opportunity to leverage its industry-leading habit change approach alongside its rich data set as a partner to Health AI, clinical discovery and clinical trial war. The most relevant example would be in the identification, clinical discovery and clinical trials for next-generation GLP-1s or other similar medications for metabolic disease. As evidenced, for each of the 3 growth areas described, Newtopia could not be better positioned to strategically participate in these important market inflections taking place.

With that, I'll turn the call over to Collin Swenson to discuss our financial results in further detail.

[Collin Swenson, executive]

Thanks, Jeff. It's great to speak with everyone again today. As Jeff laid out, we remain bullish on our fit within the macro healthcare space of 2024. Despite some recent headwinds, we're excited by the volume of strategic discussions we're having and are confident in the opportunities that await Newtopia in the near term. These opportunities will benefit Newtopia as a company while improving the health and lives of each of the individuals we serve.

From a financial perspective, Q2 2024 revenue totaled $1.6 million compared to $2.4 million in the prior year period. This decline was driven by the structural incentive change, which we're actively working to offset. Gross profit was $0.8 million or 48% of revenue for Q2 2024. 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. Although strong gross margins are important from a financial perspective, we will never lose sight of continuing to deliver exceptional health outcomes for our clients.

From an expense standpoint, [indiscernible] general and administrative expenses totaled $1.1 million for Q2 2024, an improvement of 15% year-over-year. This improvement is the result of reduced marketing activities, tightening our belt on noncritical vendor spend and headcount reductions. Technology and development expenses totaled $0.4 million compared to $0.5 million in the prior year period. Adjusted operating expenses, which exclude share-based compensation, improved by 18% to $1.5 million versus $1.8 million in Q2 2023. EBITDA totaled a loss of $727,000, driven by the previously discussed structural incentive change impacting our revenue compared to a loss of $436,000 in the prior year.

Turning to our balance sheet. Cash as of June 30, 2024, was $0.52 million. In addition, we continue to have access to our revolving line of credit with the Canadian Schedule I Bank. Thank you all for your time today. I'll now turn the call over to Lara.

[Lara Dodo, executive]

Thanks, Collin and good evening, everyone. Jeff spoke about 3 distinct growth drivers: one, expanding our key employer, provider and innovation partnerships; two, combining Newtopia's proven habit change platform with GLP-1 drugs for obesity and type 2 diabetes; and three, partnering with health AI and clinical discovery innovators to improve our collective ability to deliver best-in-breed outcomes that prevent, reverse and slow chronic disease.

I am going to discuss the themes that fuel these strategic drivers: operational rigor, meaningful engagement and sustainable clinical outcomes as well as market readiness to innovate for the future. With the launch of Alice Walton, Heartland Whole Health Institute, Newtopia has been exposed to new physician referred population types and more complex care requirements that even extend to home business as well as higher ratios of comorbidities. Our historical experience has been deeply rooted in commercial self-insured employers where we have consistently demonstrated engagement rate over 70% across 12-month period with more than 25% of the enrolled participants meeting or exceeding clinically-significant weight loss by the end of the first 12 months.

Our internal service delivery team has been hyper-focused on leveraging the right mix of data and technology with Newtopia's well-established secret source of personally matched Inspirators, our health coaches, for one-on-one participant health coaching. In Q2, our team delivered engagement and outcome results that continue to meet and exceed our book of business expectations with some client outcomes at approximately 105% of expected weight loss and engagement rates that exceeded 91% on a target of 70%. Our participants are also benefiting from maturing workflows that are generating precise next best actions for care escalations and referral parts.

In one provider setting, Newtopia has even delivered, on average, at least 1 escalation for every 2 participants that align to referral for more specific and significant mental health intervention, lab work or access to resources for participants who are struggling with food insecurity. The seamless patient experience has netted Newtopia inspirator's satisfaction scores of 9 out of 10, proving yet again that humans matter, relationships and accountability carry a [indiscernible]. We remain operationally and strategically committed to humans helping humans amplified by technology. [indiscernible] has strongly signaled that GLP-1s alone cannot end obesity and diabetes type 2 crisis.

The excitement around GLP-1s remains high and the receptiveness from most employers to reimburse for medically necessitated usage or with a pre-authorization is also evident. Most employers and providers accept that there are the following general tenants that surround GLP-1 efficacy. One, that GLP-1s only last for as long as the patient remains on them; two, that the drugs with clinical trial to include lifestyle change in nutrition and exercise; three, that weight gain relapse is likely once the medication has stopped, lacking any behavior modification; four, that patients will typically experience some type of weight loss plateau around that [indiscernible]; and #5, GLP-1 patients who do not develop healthy food as fuel, principles, lose-lean muscle mass and experience challenging emotional side effects.

Understanding these factors, we know that GLP-1s present a vexing question of affordability for payers, employers, patients and the health system. In a Q2 survey of Newtopia's GLP-1 habit change participants, we found that 57% of participants [indiscernible] GLP-1 experienced a side effect and 76% of respondents stated that Newtopia inspirators directly help them to manage those side effects effectively.

In a separate study, conducted by Prime Therapeutics and Magellan Rx Management, who is a pharmacy benefit manager, they looked at medical claims of approximately 3,300 people with commercial health plans that cover GLP-1 drugs and they analyze that data. The results showed that only 25% of Ozempic or Wegovy users continue to take the GLP-1 drug after 2 years. Now remember that this drug is supposed to be taken for life, which really brings into account the importance of how do we connect behavior change to the scripting of these strikes.

Newtopia is extremely well positioned to be inserted into the equation to connect the dot of what we know is the gold standard of how the GLP-1 should be prescribed. It should be prescribed to be alongside a rigorous behavior program and emerging feedback of sustainability and inevitable weight gain when the drug is stopped, goes to further strengthen this positioning. Newtopia is currently in several discussions to partner on preauthorization studies where our behavior coaching would be scripted as a requirement for the reimbursement of the GLP-1.

Towards the end of Q2, we also noticed a return of more traditional commercial activity with increased activity in RFIs and RFPs from self-insured employers and from Benefit Consulting groups. We still remain one of the few groups within behavioral health to have a full value-based economic model with a proven return on investment as opposed to a traditional per [indiscernible] per month structure.

Future forward, we remain positive about the positioning Newtopia has to actively participate in filling the classic health issues of metabolic syndrome as well as the new momentum that is and will be driven by the demand of GLP-1 and health AI. Both GLP-1s and health AI have the potential to transform every aspect of health care from diagnosis and treatment to administration and patient engagement. I will now hand over to Jeff Ruby.

[Jeffrey Ruby, executive]

Thanks, Lara. Newtopia continues to pursue 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. I also want to again thank all of our shareholders for your continued support of Newtopia. We look forward to speaking on future earnings calls. Have a great evening.

[Operator]

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect. Thank you.