DarioHealth Corp.

Good day, ladies and gentlemen, and welcome to Dario Health's third quarter conference call. As a reminder, this call is being recorded. At this time, it is my pleasure to turn the floor over to Glenn Garmont, Investor Relations. Sir, the floor is yours.

Thank you, Dagmar, and good morning, everyone. Thank you for joining us today for a discussion of Dario Health's third quarter 2020 financial results. Leading the call today will be Erez Raphael, President and Chief Executive Officer. He'll be joined by Zee Ben-David, Chief Financial Officer and Rick Anderson, President and General Manager of North America. After the prepared remarks, we'll take your questions. An audio recording and webcast replay of today's conference will also be available online as detailed in the press release invite for this call. For the benefit of those who may be listening to the replay or the archived webcast, the call is being held and recorded on November 12, 2020. This morning, we issued a press release announcing our financial results for the third quarter 2020. A copy of the release can be found on the Investor Relations page of Dario Health's website. Actual events or results may differ materially from those projected as a result of changing market trends, reduced demand, and the competitive nature of Dario Health'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 factors section and elsewhere in the company's annual report on 410Q for the quarter-ended September 30, 2020 file this morning. 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 operation 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 our quarterly results. And with that, I'd like to introduce Erez Raphael, Chief Executive Officer.

Erez? Thank you, Glenn, and thanks, everyone, for joining our call this morning. Also joining me today is Vivian David, who is the Chief Financial Officer, and Rick Anderson, the President and the General Manager for North America. During the third quarter, we continue to make our progress on the three main pillars that we have discussed in our previous calls, the pillars that we believe that are going to pass into our leadership position in the digital therapeutic space. The first one is the transformation into a SaaS software-as-a-service where we are generating recurring high-margin revenues. The second pillar is the expansion into multi-chronic conditions. We started with diabetes, we expanded into hypertension, and we keep expanding into behavioral health with a comprehensive solution, state-of-the-art user experience, and very engaging experience. The third pillar is the transformation from direct-to-consumer into business-to-business-to-consumer. And it's the third pillar in particular that we feel that we made the significant progress this quarter. Rick will elaborate about it shortly, and Zeb and David will cover the financial aspects. But before I'm handing over to Zvi and Rick, I want to provide a few highlights. Number one on the revenue. During the third quarter of 2020, we exceeded $2 million in revenue compared to $1.78 million that we generated in the second quarter, which is overall 14.2% sequential increase. And while we are pleased with our progress on the revenue, the story here is not the revenue, in fact, and it's more about the opportunity that is in front of us. In particular, in light of the transformation that we are doing from direct-to-consumer into business-to-business, and we feel that we have a lot of traction that we got with employers, insurers, and providers, and we believe that this is something that will drive a meaningful and significant improvement in our revenue in 2021, and it's going to create a value to our shareholders. On the operating loss, during the third quarter, We generated an operating loss of $6.6 million that represents a sequential increase from $4.1 million that we had in the second quarter. So while the increase in the operating loss is something that we expected, and it's because of the additional expansion that we are doing in establishing our overall operation in the U.S., specifically building our overall sales team, and we expect that as we move forward and start to generate the most significant revenue on the B2B2C, we're going to see that these expenses or these losses are going to be deducted. With regards to the margins, the margin declined to 26.9% in Q3 in comparison to 35.6% that we had in Q2. The decline is a result of one-time sales that we are doing on the direct-to-consumer where we are providing specific promotions when we are selling devices. As stated in previous course, we believe that once we are successfully making the transformation into B2B2C, we're going to see that the margins are going to get back to a positive trend of improvement, and we believe that overall we're going to get to margins that are north to 70% for our SaaS model selling our premium membership into the B2B2C. Overall on the transformation into the business-to-business, We have seen growth activities in all three main challenges under which we are operating, the insurers, the employers, and the providers. Overall, the pipeline was increasing from $200 million that we reported in the second quarter to $350 million that we are reporting now, and overall we see that in each of the three channels that I just mentioned, employers, providers, and insurers, in each of them we have deals that are either in negotiation or in a final stage of contracting. So we are very confident in our path forward. And it's clearly that our best-in-class user experience that is reflected in multiple ways, from the App Store with 13,500 reviews with 4.9 stars, the Net Promoter Score of 77. This is something that resonated very well, not just among our 63,000 active paying users that we have on the platform, but also among clients that we are currently negotiating with or contracting with. and our recently announced deals that we had with HMC and the expansion of the relationship with Vitality Group is just two examples of the momentum that we are creating. Another thing that is happening in the market and we want to give some light about that is the overall transformation of the market into digital and digital therapeutics is something that big companies that traditionally operating as a medical devices companies pharmaceutical companies, and specialty care providers are realizing that companies and the clients are looking to solutions that are much more digital. And it's not just about creating a medical device that is connected. It's much more than that. It's about managing the whole life cycle of the user, managing the daily routine of the user, which is something that requires a strong technology, a software-centric technology that's integrating device, applications, and also coaching. and we have seen that these giants that used to dominate the space of diabetes or hypertension are looking to make this transformation into digital and for them it's a straightforward process to work with companies that are already established with a very strong technology in the digital therapeutic space and this is something that we consider as an opportunity for DarioHealth and we are having several discussions and it might create additional ability to accelerate the penetration into the three channels that we have by partnering with bigger companies that already have a presence to the market. So this is something that should go in parallel to what we are already doing in the three channels that we are penetrating. On the balance sheet, we ended the quarter with $37 million in cash. as followed to a fundraising that we did by the end of July when we raised, in an oversubscribed deal, $28.6 million. The use of proceeds, as discussed in previous course, is number one, to make sure that we will be able to implement the accounts that we are signing on, establishing a very strong client success team in the United States, and coaching teams, and this is something that we are ready and we are already implemented. Number two is growing the sales team and operating in these three channels in parallel in a very focused way. We put resources in each of these channels. Rick will elaborate about it later, but our penetration into employers, plans, and providers is something that requires strong teams that will focus on each of these channels separately. And number three and very important is expanding the offering and making sure that the offering will be a state of the art in terms of experience. and in terms of personalization, investment into data and AI. And we feel that this is something that we know to do very well. So additional deployment of capital is going into this direction. One more initiative that I want to mention here is something that will boost our overall positioning as a B2B2C digital therapeutics company that is a leader in the space, is the establishment of the scientific advisory board under the leadership of Eric Minage that agreed to join our scientific advisory board and to serve as the chairman of the scientific board. Eric has worked in the healthcare industry all his career. He used to work for pharmaceutical companies, medical devices companies, and built vast experience and a lot of relationship across the healthcare landscape. Eric will work together with the scientific advisory board closely with our research and development team in order to strengthen our roadmap and in order to implement it. specifically helping us expand our portfolio into integration with CGMs, which is something that we believe for the medium and the long term is important for our platform. And Eric will also work with the team in order to generate data and clinical reference that will help us strengthen and achieve potential clients on the B2B2C channel. So overall, the primary objective behind the Scientific Advisory Board and behind the ERIC nomination is to create awareness in the market and specifically help us accelerate adoption of our digital therapeutic solution into the B2B2C market. With that, I would like to hand over the call to Rick to elaborate on the B2B2C.