Newtopia Reports Second Quarter 2021 Financial Results

• Strong ongoing participant enrollment with Fortune 50 health services client
• Expanded mental health solutions for health insurers
• Achieved industry leading results in a weight loss study conducted during the COVID-19 pandemic

TORONTO, Aug. 12, 2021 /CNW/ - Newtopia Inc. ("Newtopia" or the "Company") (TSXV: NEWU), a tech-enabled habit change provider focused on disease prevention, today reported financial results for the second quarter 2021. All amounts are expressed in Canadian dollars, unless otherwise noted.

Second Quarter 2021 Financial Highlights (vs. Q2 2020):

• Revenue of $2.5 million, as compared to $2.7 million.
• Gross profit margin¹ of 42%, as compared to 52%, reflecting an increased mix of Welcome Kits sold during the quarter due to growing participant enrollments that is anticipated to lead to subsequent recurring engagement revenues in Q3 and Q4.

"Newtopia's unique approach to habit change by providing the best in whole person care is clearly taking hold, and as anticipated, we exited Q2 2021 strongly positioned to return to growth in the third and fourth quarters," said Jeff Ruby, Founder & CEO of Newtopia. "Following a highly successful participant outreach campaign to an innovative Fortune 50 health services client during the second quarter, we saw participant enrollments strongly increase as we exited the month of June. This upward trajectory has continued into the third quarter. We expect enrollment levels to remain strong and anticipate a corresponding positive impact on recurring engagement revenues in Q3 and Q4."

"In addition to the boost in participant enrollment, our sales season has been active across all three health insurer segments, including self-insured employers, fully insured health plans and government funded health insurance providers. We are looking to expand our reach amongst new clients within the self-insured employer market as well as amongst larger fully insured health plan aggregators that will be able to help broaden our addressable market. During the quarter, we began sales outreach to Medicare and Medicare Advantage programs and also identified new outreach opportunities amongst innovative fully insured health plans. Additionally, as we have only deployed our habit change offering to approximately 20% of the potential population amongst our current client base, there remains a significant opportunity ahead of us to improve our top line by increasing penetration within our existing client base."

"While the challenges of COVID-19 are certainly not behind us, the need for improved physical and mental health prevention offerings has only increased over the past quarter. Our recently reported industry-leading study results, which surpass those achieved in our original randomized control trial, continue to validate the importance of our habit change platform to deliver meaningful costs savings and ROI to health insurers and improved wellbeing to their insured populations. We look forward to continuing to build upon our past successes to increase cost savings for our customers as we work toward preventing, reversing and slowing the progression of chronic disease," Mr. Ruby concluded.

Recent Operational Highlights

• In April, the Company debuted its habit change platform in Canada through a partnership with Eastern Health, the largest, integrated health authority in Newfoundland and Labrador, and Medtronic, a formal partner under Eastern Health's Innovation Strategy. Together, Newtopia and its two partners are implementing an integrated type 2 diabetes prevention pilot program. With a population of more than 500,000 people and a rate of type 2 diabetes exceeding 30% (over double the national average) there is a strong opportunity to grow this offering from a pilot study into the broader Eastern Health population. The Eastern Health partnership represents one of the first provincial condition management and prevention programs funded by a provincial health insurer and could act as an impetus for other provinces and territories to follow in the future.
• In June, the Company announced the results of a weight loss study conducted on client outcomes during the COVID-19 pandemic. A total of 1,436 U.S. participants met the criteria for this study. Each participant was provided access to a tech-enabled virtual habit change experience designed around that individual's health risks, genetics, medical history, motivation, social determinants of health and personal preferences. While over 40% of U.S. adults reported gaining weight during the pandemic, after 12 months in the Newtopia program:
• 77% of participants lost weight;
• 44% of participants lost more than 4.3% of their total body weight; and
• 22% of participants dropped a BMI risk category.
• Also in June, the Company provided the results of a behavioral economics trial conducted with a Fortune 50 financial services company on client outcomes during COVID-19. Results exceeded those achieved in the prior randomized control trial, with 71% of eligible population enrolled and 84% of the participants remaining engaged at 12 months.

Operational Highlights Subsequent to Quarter End

• The Company announced expanded mental health solutions to health insurers. Testing for the BDNF gene, which gauges resilience to stress, and usage of the PROMIS^® questionnaire, which measures for mental and emotional health, are now part of Newtopia's unique habit change experience and will provide additional opportunities for cost savings and improved ROI for health insurers.
• The Company appointed Roger Poirier, CFA, to Newtopia's Board of Directors. Mr. Poirier has more than three decades of capital markets, finance and M&A experience and will serve on Newtopia's Audit Committee. Newtopia's expanded Board of Directors now includes five directors.

Second Quarter 2021 Financial Results

Revenue for the three months ended June 30, 2021 was $2.5 million, as compared to $2.7 million in the prior-year period. Enrollment numbers improved significantly over the course of the second quarter as the Company saw strong ongoing participant enrollment with a Fortune 50 health services client. As such, enrollment fee revenues totaled $0.5 million for the second quarter, an increase of 300% year-over-year, which will lead to subsequent recurring engagement fees in Q3 and Q4.

Gross profit for the second quarter 2021 totaled $1.1 million, as compared to $1.4 million in the prior-year period. Gross profit is comprised of Newtopia's revenue less direct expenses, which include the cost of Welcome Kits sold to new participants as well as labour costs associated with hiring and training of the Company's coaching team of Inspirators. As a percentage of revenue, gross profit totaled 42%, down from 52% in the second quarter of 2020. The year-over-year decline in gross profit percentage reflects the higher mix of Welcome Kit revenues during the quarter which carry a lower gross margin due to the corresponding Welcome Kit costs but are indicative of the increased enrollment figures in the quarter. The Company expects these strong participant starts will lead to higher gross profits in Q3 and Q4 as the mix of recurring engagement revenue increases as compared to Welcome Kit/enrollment fee revenues.

Adjusted operating expenses² for the three months ended June 30, 2021 totaled $3.0 million, compared to $2.5 million in the prior-year period, as the Company continued to add technology, sales and marketing and administrative resources to support long-term growth and margin improvement.

For the quarter, the Company had an adjusted operating loss³ of $1.9 million, compared to an adjusted operating loss of $1.1 million in the prior-year period. This increase in adjusted operating loss is due to the lower level of revenue in this year's second quarter along with the corresponding lower margin and higher adjusted operating expenses to support long-term growth.

The Company ended the second quarter 2021 with $0.64 million in cash and an outstanding loan balance of $1.1 million against its $5.0 million credit facility.

As of June 30, 2021, the Company was in breach of certain bank facility covenants with a Schedule I Canadian Bank. Newtopia is actively working on finalizing an enhanced facility with this bank and potential additional lenders which will offer a non-dilutive solution to augment growth capital for the Company. Newtopia will update if and when this updated facility has been finalized.

2021 Outlook

During the first half of 2021, the Company underwent a delayed rollout of products to some of its clients due to the impact of COVID-19. Nevertheless, this pattern reversed itself and rollouts began to increase toward the end of June 2021 due to an increased and expanded marketing effort along with a return to normal operating procedures and the easing of pandemic-related restrictions in the United States. This positive client onboarding trajectory is anticipated to continue in the third and fourth quarters, resulting in a return to growth for Newtopia in the second half of the year. The Company's multi-year contracts with Fortune 500 self-insured employers represent significant expansion opportunities, while Newtopia's overall underlying business is healthy with record levels of engagement.

The Company continues to expect approximately $1.8 million of capital expenditures in 2021, with roughly $1.0 million incurred to date. This spend will be directed towards enhancing the efficiency of Newtopia's operations by leveraging new and improved engagement technologies to elevate the overall user experience, improve service ratio efficiency and improve gross margins over time. Newtopia continues to take a measured approach to adding expenses in support of growth and increases in expenses have been more modest than the Company's growth in revenue and gross profit. As such, even with this increase in capital expenditures in 2021, Newtopia continues to target exiting the year cash flow neutral from operations.

Grants of Stock Options

Newtopia further announced today that its Board of Directors has approved the grant of 240,000 stock options to certain tenured employees and newly hired employees. The options issued to newly hired employees will expire five years from the date such employees complete their probationary period, and the exercise price will be based on the closing price of Newtopia's common shares on the trading day prior to the day these employees complete their probationary period. The options granted to tenured employees will be at an exercise price of CAD$0.33 per common share and will expire five years from the grant date.

About Newtopia

Newtopia is a tech-enabled habit change provider focused on disease prevention and reducing the cost of care for health insurers. As a provider of whole person care, we prevent, reverse and slow the progression of chronic disease while enriching mental health, resilience and overall human performance. Newtopia's programs leverage genetic, social and behavioral insights to create individualized prevention programs with a focus on type 2 diabetes, heart disease, stroke and weight. 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 on the Toronto Stock Exchange (TSXV: NEWU). To learn more, visit newtopia.com, Facebook, LinkedIn or Twitter.

Forward Looking Information

This press 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 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, including without limitation, the Company's successful completion of its strategic technology projects (including on budget), continued and sustained high levels of client engagement and low client churn, the expansion of client relationships, the rollout of new clients, the conversion of pilot projects into full blown rollouts, the Company's ability to continue to grow its sales pipeline, the Company's ability to negotiate an enhanced credit facility with its Schedule I bank lender or any other lender(s) on favorable terms or at all, and current financial trends remaining at or above the current levels in respect of revenue, gross profit, gross margin percentage and adjusted operating expenses. 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. 

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 business 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 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

NEWTOPIA INC.
Condensed Interim Statements of Financial Position (Unaudited)
As at June 30, 2021 and December 31, 2020
(Expressed in Canadian Dollars)

NEWTOPIA INC.
Condensed Interim Statements of Loss and Comprehensive Loss (Unaudited)
Three and Six Months Ended June 30, 2021 and 2020
(Expressed in Canadian Dollars)

NEWTOPIA INC.
Condensed Interim Statements of Changes in Equity (Deficit) (Unaudited)
Six Months Ended June 30, 2021 and 2020
(Expressed in Canadian Dollars)

NEWTOPIA INC.
Condensed Interim Statements of Cash Flows (Unaudited)
Six Months Ended June 30, 2021 and 2020
(Expressed in Canadian Dollars)

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SOURCE Newtopia Inc.