DarioHealth Corp.

Welcome to the Dario Health Corp first quarter 2021 financial results call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, Glenn Garmont of Investor Relations. You may begin.

Thank you, Shamali, and good morning, everyone. Thank you for joining us today for a discussion of Dario Health's first quarter 2021 financial results. Leading the call today will be Arez Rafael, 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 open the call for Q&A. An audio recording and webcast replay for today's conference call 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 archived webcast, this call is being held and recorded on May 18th, 2021. This morning, we issued a press release announcing our financial results for the first quarter of 2021, a copy of which 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, 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 factor section and elsewhere in the company's 2020 annual report on Form 10-K, as well as the first quarter 2021 10-Q 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 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. And with that, I'd like to introduce Arez Rafael, Chief Executive Officer of Dario Health. Arez?

Thank you, Glenn. And good morning, everyone, and thanks for joining our call this morning. Joining me today, Rick Anderson, the President and General Manager for North America, and Svib and David, the CFO of the company. So we are very excited this morning to report our Q1 results and also to give some updates about our news that we just put earlier this morning about the acquisition of WayForward. I want to be very persistent, and therefore I want to reiterate the main three pillars that we keep mentioning every quarter for the last, I would say, year and a half or two years with regards to how we are planning our strategy, how you see the future of business, and how we are reporting our progress. So the main three pillars are the expansion into multi-conditions, which is something that we keep repeating. The second part, the second pillar is the expansion into a SaaS, high growth margins revenue. And that's the second one. The third one, and obviously the most important one, is the transformation into the B2B2C. As you all know, this company started as a direct-to-consumer. We are big believers in the consumerization of healthcare, and this is why we started B2C. We created one of the best products, and we are transforming the business into B2B. And we believe that the combination of these three pillars together is something that each of them will have a very important impact on our financial profile. But the combination of the three of them together is going to create exponential growth for our company. And that's how we are looking into the business. We also consider our digital therapeutics platform as the second generation of the digitalization of health. So we have heard a lot in the market about the telemedicine revolution. From our perspective, telemedicine is about scaling up the capabilities of healthcare professionals. But when we are looking on digital therapeutics platform like Dario Health, we are very, very focused on how we can empower patients and how we can scale the treatment even more by getting patients involved with their own health. And I think that this is the future of digital health and health in general. and this is what the market will see in the next few years in terms of the consumerization of health. So as I keep repeating, we think that B2BDC is the most important part that we're going to report on today in terms of progress, but at the same time, we need to make sure that our product will improve its value proposition. And when we are looking on the involvement of the market, we are looking two, three, and four years forward how we can win health plans and employers. And this is why it's important to improve our positioning in terms of the product. And at the same time, when we have more product lines, it's improving our financial profile in a way that we can, number one, win more clients. Number two, we can upsell more products for clients that we are winning. In other words, we also improve the total population that are eligible for our products. And number three, because in more than 50% of the cases, patients are suffering from... for more than one condition, eventually we can sell to one user more than one chronic condition and we can provide a solution that is much more personalized. In other words, hyper-personalized. So the combination of more clients for our portfolio of products, more eligible members and higher ARPU, average revenue per user, all these three parameters, all of them are going to improve our financial profile and ensure that we are not just scaling the business, we are also doing that in a very healthy way, hence high margins and very healthy growth. And at the same time, we are increasing our moat in terms of our ability to deal with the future market as well. So that's the way that we are looking on the business, and we're always looking into these three pillars. So with that, I want to touch the high-level results of our financials that we announced yesterday after the closing. So we ended the quarter with $3.6 million. in revenue, which is 73% growth over Q4 of 2020. If we are counting also the revenue of upright from the beginning of the quarter, hence also January, the overall revenue, also known as pro forma, is $4.7 million for the quarter. Usually because of the majority of the revenue today is still coming from B2C, and specifically for products like Upright, January is very strong. So January generated more revenue than what we have seen from Upright in February, March. But in general, both businesses, Dario, legacy business, and Upright, both of them were growing between Q4 to Q1. So we feel that we also manage post-acquisition of Upright to turn around the business and bring the business back to growth. So we think that it's a good indication that we're going to continue growing the business into the second quarter as well and obviously to the rest of the year. In terms of growth margins, we ended the quarter with 30.1% growth margins for the first quarter. If we are excluding the acquisition-related amortizations, again, from the acquisition of upright, we would almost double the growth margins to 44.7% from 24.2% that we had in Q4. So I think that this one speaks to the second pillar that I'm mentioning. and the improvement of both margins, so I see a very good improvement on that parameter. And as mentioned in previous calls, we think that this parameter will keep improving the more we are expanding the penetration into the B2B market. So a few words about the B2B to C transformation, and I'm going to give some highlights, but Eric will elaborate even more on that one. um and this is obviously the most important pillar we are very focused on that one um so first of all just as a reminder we started the overall transformation uh when rick joined like the beginning of 2020 we consider this transformation as a multi-year transformation we started with a team of like four or five commercial team in the states and today we are around 35, from which we have like 14 salespeople, client success, marketing, and so on. So we really changed the whole foundation of the company from a product offering standpoint and also from a headcount standpoint. And we started to show the first few wins in Q4 of 2020. And in Q1 2021, we started implementation. And one of the themes or the thesis that we had is that we told the market we have one of the best products in the market in terms of user experience, in terms of user engagement, user enrollment, and also the ability to improve clinical outcome and save money to employers and plants. And I think that after a few months into the implementation, I'm very satisfied with the results, and I think that this thesis proved to be true, because in somewhere like 10 weeks into the implementation, we already exceeded 40% enrollment rate. So I think that in terms of Winning accounts and winning RFIs over the competition, we showed that we know how to do that. In terms of implementing accounts, we are showing so far a very good indication that we are hitting all the KPIs. So the product that proved to be very effective on B2C seems to be very effective also on the B2B, including the enrollment and our ability to engage with users. and follow the acquisition of Upright and in discussions, close discussions that we have with clients, I think that also the thesis that clients want to see a multi-chronic condition platform. They want to talk with one vendor. They want to know that their users are getting one voice for multi-conditions and they want to also buy solution from an integrated company. I think that the thesis of multi-condition that will accelerate our wins and will get us more sales and also more revenue This thesis also proved to be true because more than 30% of our potential clients are interested also on the MSK solution and potentially also in the behavioral health solution that we just announced acquisition this morning. With that, I want to provide a few words about the acquisition that we just announced. So the idea to expand into behavioral health is out there for a while, and those that are listening carefully to our earning calls know that this is the management strategy in terms of expansion. We think that behavioral health is the basis in order to treat any chronic condition, and we cannot see how we can keep improving our performance. in terms of helping more and more people and improve more outcomes without having a very good solution on that end that is integrated to the rest of the platform. And more important, we hear it from clients. So clients want to get this solution as well. The B2B transformation would be successful anyway, even if we wouldn't acquire WayForward. But with WayForward, we believe that that's going to strengthen our position. It's going to improve our mode moving forward in the next few years. And this is why we made a decision to acquire WaveForward. And Rick will elaborate shortly why WaveForward is one of the best solutions in the market and why we made this specific choice. I think that the knowledge that our company has on the metabolic side and also on the behavioral health side with the background that Rick and Omar Manajuela and others from the team are bringing, put us in a position that we will know how to integrate these solutions together into the best of suite, so to say. So we are not positioning ourselves as a holding company. We are positioning ourselves as a as a portfolio technology software company, and this is why it's so important to know how to connect the solutions together into one integrated, harmonized experience for our users. So with that, I want to hand over the call to Rick to provide additional information about the B2B transformation and potential wins, as well as the acquisition of WayForward, Rick.