DarioHealth Corp.

Hello, everyone, and thank you for joining today's Dario Health Second Quarter 2020 Earnings Call. As a reminder, all phone lines are in a listen-only mode, but after your prepared remarks, you will be given the opportunity to ask questions, and instructions will be shared at that time. To get us started with opening remarks and introductions, I am pleased to turn the floor over to Mr. Glenn Garmont, Investor Relations. Good morning and welcome, Glenn.

Thank you, Jim, and good morning, everyone. Thank you for joining us today for a discussion of Dario Health's second quarter 2020 financial results. Leading the call today will be Erez Raphael, President and Chief Executive Officer. He'll be joined by Zvi Ben-David, Chief Financial Officer, and Rick Anderson, General Manager of North America. And, of course, after the prepared remarks, we'll open the call for your questions. An audio recording and webcast replay for today's conference call will also be available online in the investor section of the company's website. For the benefit of those who may be listening to the replay or archived webcast, this call is being held and recorded on August 12, 2020. This morning, we issued a press release announcing our financial results for the second quarter of 2020. A copy of the release can be found on the investor relations page of the company's website. Actual events or results may differ materially from those projected as a result of changing market trends, reduced demand, or the competitive nature of DarioHealth's industry. Such forward-looking statements and their implications involve known and unknown risks, uncertainties, and other factors that may cause actual results or performance to differ materially from those projected. The forward-looking statements discussed on this call are subject to other risks and uncertainties, including those discussed in the risk factor section and elsewhere in the company's annual report on Form 10-Q for the quarter ended June 30, 2020. Additional information concerning factors that could cause results to differ materially from our forward-looking statements are described in greater detail in the company's press release issued today and in the company's filings with the SEC. In addition, certain non-GAAP financial measures may be discussed during this call. These non-GAAP measures are used by management to make strategic decisions, forecast future results, and evaluate the company's current performance. Management believes the presentation of these non-GAAP financial measures is useful for investors' understanding and assessment of the company's ongoing core operations and prospects for the future. A reconciliation of these non-GAAP measures to the most comparable GAAP measures is included in today's press release regarding the company's quarterly and year-to-date results. And with that, I'd like to turn the call over to Erez Raphael, Chief Executive Officer. Erez?

Thank you, Glenn, and thanks, everyone, for joining us this morning for our call. We're going to keep our comments brief this morning to allow enough time for a longer session of the Q&A. Joining me this morning, Svib and David, our Chief Financial Officer, and Rick Anderson, the President and the General Manager for North America. As in every quarter, I want to reiterate the three main pillars that are guiding our ongoing transformation into a leader position in the digital therapeutic space. The first pillar is the transformation into a SaaS software-as-a-service business model. The second one is the expansion of our platform into multiple chronic conditions beyond diabetes. And the third one is our ongoing transformation from a direct-to-consumer model into business-to-business-to-consumer enterprise. Today, I'm pleased to report that we made a significant progress in all three pillars. but we are mainly excited from the third pillar under which we made a significant progress and we are getting to a late stage of discussions with several large entities that will give us access to a big pile of type 2 diabetes population. We hope to announce more specifics of this contract in the very near future. Steve and David will cover the financials shortly, but I want to give you a few highlights on a few of the financial KPIs that we had. On the revenue side, we generated $1.78 million in revenue, which is exceeding the consensus analyst expectation. It's also 7.2% sequential increase from the first quarter of 2020. While we were pleased with the sequential quarter as well as the year-over-year growth that we had on the revenue, in terms of absolute dollars increase, it's not reflecting yet our potential, and we anticipate that moving forward we're going to see much more significant growth. When we are looking into Q3 and Q4 and the several contracts that we have in the pipeline, we feel comfortable that we can get them signed and having a specific agreement with payers and providers that will make much more meaningful growth for the company. On the losses side, we strongly manage our expenses that result in a lower reported net loss of $4 million only. This is below the analyst consensus and also approximately 25% lower than the second quarter of 2019. On the margins front, The growth margins declined from 46% in Q1 to 36% in Q2. This is a temporary reduction due to devices that we sold on the B2C side, and this is something that we expect to be temporary. And as we move forward into the B2B2C, given the fact that we have a unit economic of 70% to 80% growth margins, we believe that we're going to be back to track and keep our growth margins going moving forward. Looking back at the last eight months, we feel that the last eight months were very, very transformational for our company, and we are well positioned to scale ourselves and to create a significant growth in our revenue. As you know, we are coming to the B2B2C market with a very compelling product. We have 55 active paying users on the platform. Most of them were generated from the B2C market. We know that we have a very good product that is very engaging and we are top rated in terms of user experience. We are 4.9 stars on the App Store and 77 in terms of Net Promoter Score. We also managed to prove that a very good user experience that leads to a very good engagement results in a very good clinical outcome. And we managed to show it in 13 different clinical papers that we submitted in the last few years for a significant amount of users. And this is something that we are providing as evidence to potential payers and benefit managers where we show that we can save a lot of money for them. In terms of building the organization, we made a significant progress where we built a world-class team operating in the US that have the experience penetrating into the fair market and implementing big projects with big health plans. This is something that our team already done. In terms of the transformation into B2B2C, we feel that this transformation and had a potential of significant growth in our sales and revenue as we are generating for every user on average between 60 to 80 bucks per member per month as opposed to 25 bucks that we did on the BDC side. So practically, once we are getting this agreement signed, we believe that we can scale up ourselves relatively quickly. So overall we are very satisfied from the good feedback that we are getting from the potential clients that we have and we feel that our competitive advantage resonates very well with health plans and self-insured employers. Rick is going to elaborate about it a bit more as we are getting to his part. One more significant milestone that we had recently is a very good fundraising that we did a few weeks ago. In fact, we had a very successful private placement that was oversubscribed. We raised $28.6 million. We did it in a straight common deal, no warrants and no discounts. and we feel that while the overall terms of the deal were very good for the company, we're even more excited from the profile of the investors that participated in the deal. We had a respected healthcare and centric and institutional investors participating in the deal. So together with the $30 million that we have in hand by the end of Q2 on June 30, we have a pro forma cash of approximately 38 million dollars in the bank with no debt. We feel that this amount of cash should take us forward for the next few years and should be helpful in terms of implementing and executing on all our commercial plans. In terms of the use of proceeds, we already start to build the very strong teams that will enable us to implement the potential project that we're going to sign. and we're gonna also triple the size of the sales and commercial team in the US in order to leverage on the opportunity. And obviously one of the important things for us is to keep ourselves very competitive and in leadership position in terms of our offering. So we are planning to invest more into our personalization of the platform, artificial intelligence, and also into our ability to support multi chronic condition. One more milestone that we had is the nomination of Denis Messias to the board of directors. Denis is the president of Optima Health, a multi-line health plan with more than 850,000 covered members. His background including leadership position in some of the largest nations' health plans in the country, including Anthem, Cigna, Humana, and others. and Dennis Insights and Guidance are going to be crucial for the business that is going to be around as we move forward. With that, I want to hand over the call to Rick Anderson, the President and the General Manager for North America.