Mr. John Constantine reports

ARCPOINT TO HOST CONFERENCE CALL TO PROVIDE BUSINESS UPDATE AND DISCUSS 2023 Q2 FINANCIAL RESULTS

Arcpoint Inc. will host a conference call on Tuesday, Aug. 15, 2023, at 9:30 p.m. Eastern Time, to review the company's financial results for the second quarter ended June 30, 2023, and provide an operational update.

The dial-in number for the conference call is as follows.

Canada/United States toll-free:  1-800-319-4610

International toll:  1-604-638-5340

Callers should dial in five to 10 minutes prior to the scheduled start time and ask to join the Arcpoint call.

Arcpoint's president and chief executive officer, John Constantine, commented: "The second quarter was a period of great change for our company as we transitioned from developing our technology platforms and processes to focus on deploying these new tools to drive more business through our franchisee locations. This included significant cost and head count reductions, especially in the senior management and executive levels, and realignment of team member responsibilities."

As announced March 8, 2023, effective April 1, 2023, the company enacted a head count reduction representing approximately 30 per cent of the company's salary costs. The majority of these cuts took place at the upper management and executive levels and involved $485,000 in one-time severance costs that were accrued in first quarter 2023, but paid in Q2 2023. As part of the cost-cutting process, the company also undertook significant operational cost-saving measures, representing approximately 20 per cent of the then current operating costs. Concurrently, the company also incurred additional software expenditures to refine the new technology platforms in preparation for full rollout.

Mr. Constantine concluded: "As difficult as the cuts and changes were, in the second quarter, we added new leadership for our franchise group in Bob Mann and launched our MyArcpointLabs technology platform. With these new tools, combined with Bob's expertise in implementing growth strategies, we believe that we have taken huge steps forward to help increase our revenue per store, as well as dramatically expand our distribution network."

On May 15, 2023, the company announced that it had appointed Mr. Mann as president of Arcpoint Franchise Group LLC (AFG), a wholly owned U.S. subsidiary of the company that operates Arcpoint's franchise business. The company commented that it believed Mr. Mann's 15 years in the U.S. diagnostic service space and record of developing and implementing programs and processes to drive revenue in the health care diagnostic industry would be critical given his responsibility for driving both top-line growth at all franchisee locations and expanding the company's distribution network from the then current 134 locations.

On July 10, 2023, the company announced that it had fully launched its new consumer e-commerce platform MyArcpointLabs, which was developed to make it easier for the company's franchisees to attract and better serve individual health care consumers and to make it easier for consumers to purchase the company's products and services.

On Aug. 10, 2023, the company further updated that 90 of the company's 135 locations had completed MyArcpointLabs on-boarding and training processes, and that 36 of those locations had begun using and integrating the platform into their daily business. The company also noted that in addition, 105 affiliate businesses had signed up through 21 different franchise locations to use the MyArcpointLabs platform on a software-as-a-service basis, giving the company 240 physical locations where consumers could potentially purchase its tests and services.

Business updates

Average unit volume (AUV)

As at June 30, 2023, AUV stood at $265,000 on a trailing three-month and annualized basis. The company defines AUV as the average revenue of reporting physical franchise locations open more than 24 months, which is the length of time the company believes it takes for a new franchisee location to reach normalized operations after start-up. For the purposes of calculating AUV, as at June 30, 2023, the company had 134 total physical locations, with 89 locations open greater than 24 months. Four locations open greater than 24 months were excluded from the calculation because of delays in their data reporting. Accordingly, for the second quarter, the company based its AUV calculation on 85 locations. The company has another 45 locations that have been open fewer than 24 months, which are excluded from the AUV calculation. As of June 30, 2023, when considering the total 134 locations, the average revenue per location was $185,000. The company earns a 7-per-cent royalty and 2-per-cent brand fund contribution on its franchisee revenues. AUV is a non-international financial reporting standard measure that is used to evaluate the performance of its business.

Physical locations

In the second quarter of 2023, the company sold six new franchisee agreements, awarded two transfers of ownership and opened two new locations. As of the current date, the company has a total of 135 locations open and operating and 19 more locations in various stages of preparing to open. During the second quarter, two locations closed. The company has the ability to use its technology platforms to continue operating virtually in the geographies related to the closed locations.

Vertical treatment centres (VTC)

The company's opiate addiction therapy business, VTC, which currently operates only in the state of South Carolina, has recently transitioned its business model given industry changes. The most significant changes for VTC are the closing of stand-alone VTC locations, with clients being served at specific Arcpoint franchisee locations. By moving from VTC-only locations to utilizing existing Arcpoint franchisee locations to treat clients, the VTC business unit is able to reduce costs. Of note, Blue Cross Blue Shield, which provides insurance reimbursement for opiate addiction therapy in South Carolina, has recently increased reimbursement rates that the insurer pays opiate addiction therapy practices like VTC. Currently, VTC does not comprise a materially financial portion of Arcpoint's overall business, but the company is investigating ways it could expand the business in South Carolina and other U.S. states.

As at June 30, 2023, the company had total cash on hand of approximately $3.3-million (U.S.), composed of $2.6-million (U.S.) in unrestricted cash and cash equivalents and $733,000 (U.S.) in brand fund restricted cash. Use of brand fund restricted cash is at the company's discretion, and is used to increase sales and the brand presence of the company's entities and franchisees.

Summary of Q2 2023 financial results

All results are reported under international financial reporting standards and in U.S. dollars:

• Total revenue for the three months ended June 30, 2023, was $1.5-million compared with $2.3-million for the three months ended June 30, 2022, and $1.7-million for the three months ended March 31, 2023. During Q2 2022, high complexity PCR testing and low complexity rapid test volumes were significantly higher due to the COVID pandemic.
• Net loss for the three months ended June 30, 2023, was $2.4-million compared with a net loss of $1.1-million for the three months ended June 30, 2022, and negative $2.1-million for the three months ended Dec. 31, 2022. The increase in loss for Q2 2023 versus Q2 2022 was due to lower revenues and higher operating costs, including software development and sales and marketing costs for the period.
• Operating cash flow for the three months ended June 30, 2023, was negative $1.9-million compared with negative $400,000 for the three months ended June 30, 2022, and negative $1.2-million for the three months ended March 31, 2023. During the quarter, the company paid $485,000 in one-time severance costs due to head count reductions enacted on April 1, 2023.
• EBITDA (earnings before interest, taxes, depreciation and amortization) for the three months ended June 30, 2023, was negative $2.0-million compared with negative $1.1-million for the three months ended June 30, 2022, and negative $1.8-million for the three months ended March 31, 2023.
• Adjusted EBITDA for the three months ended June 30, 2023, was negative $1.8-million compared with negative $300,000 for the three months ended June 30, 2022, and negative $1.1-million for the three months ended March 31, 2023. For the current period ended, the difference between EBITDA and adjusted EBITDA is primarily due to an adjustment related to the timing difference between brand fund revenues and expenditures.

About Arcpoint Inc.

Arcpoint is a leading United States-based franchise system that leverages technology along with bricks and mortar locations to give businesses and individual consumers access to convenient, cost-effective health care information and solutions with transparent, upfront pricing, so that they can be pro-active and preventive with their health and well-being. Arcpoint is based in Greenville, S.C., United States. Arcpoint Franchise Group LLC, formed under the laws of the State of South Carolina in February, 2005, is the franchisor of Arcpoint labs and supports over 130 independently owned locations. Arcpoint sells franchises to individuals throughout the United States, and provides support in the form of marketing, technology and training to new franchisees. Arcpoint Corporate Labs LLC develops corporate-owned labs committed to providing accurate, cost-effective solutions for customers, businesses and physicians. AFG Services LLC serves as the innovation centre of the Arcpoint group of companies as it builds a proprietary technology platform and a physician network to equip all Arcpoint labs with best-in-class tools and solutions to better serve their customers. The platform also digitalizes and streamlines administrative functions such as material purchasing, compliance, billing and physician services for Arcpoint franchise labs and other clients.

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