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spk03: Greetings and welcome to the Dario Health Corporation fourth quarter 2021 results conference 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. As a reminder, this conference is being recorded. I would now like to turn the call over to Glenn Garmont of Investor Relations. Thank you. You may begin.
spk05: Thank you, Daryl, and good morning, everyone. Thank you for joining us today for a discussion of Dario Health's fourth quarter and full year 2021 financial results. Leading the call today will be Erez Rafael, Chief Executive Officer of Dario Health. He'll be joined by Zvi Vendavid, Chief Financial Officer, and Rick Anderson, President and General Manager of North America at Dario Health. After the prepared remarks, we'll open the call for Q&A. An audio recording and webcast replay for today's 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 March 22, 2022. This morning, we issued a press release announcing financial results for the fourth quarter and full year 2021. 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, or the competitive nature of Dario Health's industry. Such forward-looking statements and their implications may 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 2021 annual report on Form 10-K filed this morning. Additional information concerning factors that could cause results to differ materially from the company's forward-looking statements are described in greater detail in the company's press release issued this morning and in the company's other 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 quarterly and full-year results. And with that, I'd like to introduce Arez Rafael, Chief Executive Officer. Arez?
spk02: Thank you, Ghislaine, and thanks, everyone, for joining our call this morning. We're very excited with the results of 2021. In fact, this is a fundamental year on executing on our long-term strategy. And as we are doing at every earning call, I like to report on the progress by referring to the main three pillars that we discussed in the last few years because we like to be very, very consistent and show on all the execution that we did in the last few years. So the three pillars, as most of you are aware to, is one, the transformation from direct-to-consumer into the B2B, mainly health plans and employers' channels. Number two is the transformation from single condition into multi-condition. And number three is continuous improvement in the financial profile of the company and building what we are calling digital therapeutics as a service company in the healthcare environment, which is pure company high margin recurring revenue profile. So I'll start with the expansion into the multi-condition. We started with diabetes and in between 2018 to 2020, we expanded into other metabolic areas from diabetes to hypertension and weight loss. In 2021, we completed like in 12 months between January 2021 to January 2022 on three acquisitions. Two of them are in the musculoskeletal space and another one on the behavioral health space. And it's not just about the execution of the It's also about the integration of these acquisitions into a full suite. In fact, we anticipated the consolidation of the digital health and digital therapeutics market, and we anticipate the demand that is going to come mainly from self-insured employers. that want to adopt integrated solution. And this is something that is reflected also in the demand that we see in our pipeline, where 80% of the pipeline is for those that are asking for more than one condition. So the expansion into multi-condition is executed. And today, we are one of the most comprehensive platform in the space. Pillar number two, which is super important, is moving the business from direct to consumer that have a very tough financial profile with relatively low growth margins and high cost per acquisition into high growth margins, lower cost per acquisition, and a channel that is scaling up between employers, health plans, and providers. On that end, we executed in 2021, and we were growing from five accounts to 54 accounts, The total ARR value behind this account is $35 million in the full implementation. This is something that we already reported on the webinar that we did on January 19th. And this is not including additional revenue that should come from the strategic deal that we announced on two weeks ago with Sanofi that should contribute additional $8 million this year. We also showed a very strong execution capabilities in terms of the enrollment rate. of the accounts that we are implementing, and Rick is going to elaborate about it. And we are seeing wins over the competition based on the portfolio of solutions that we have built into one integrated suite. Today we have at least one account that has the full suite implemented and installed in production, which is something that speaks to the strong execution capabilities in terms of integrating all the acquisitions together into one suite. This is something that is not straightforward post-acquisition in a very, very quick time. If I'm taking the two first pillars, the expansion into multi-conditions, the transformation from B2C into B2B and looking into the financial profile, this is something that should create a compounding impact on our financial profile. Number one, the average revenue that we can extract per every user is higher. Number two, The amount of dollars that we can extract for every account that we are signing on, if they are signing on more than one condition, can go as high as 4.5x more dollars for every account, which is something that will improve and is improving our financial profile. And with these two things that are happening, plus the accounts that we have signed on, we are super confident with the significant growth that we're going to show in 2022, and also in terms of growth margins, we believe that in 2022, we're going to show in a non-GAAP measure growth margins that are going to grow to somewhere between 50% to 60%. The overall goal, just as a reminder, is going to be between 70% to 75% growth margins to the business. This is what we are targeting, and we're going to show an improvement between 2021 to 2022. Overall, if we are looking on the financial profile from a burn rate and from loss, we believe that the transformation from 2021 to 2022 will reduce the losses of the company and will reduce the burn rate of the company, mainly because of the fact that the gross margins of the B2B is higher. We're going to see more revenue getting from the B2B, and also because the B2C is going to slow down, and that's something that is going to help us provide a financial profile that is much more efficient with lower loss and lower burn rate. One of the things that we announced two weeks ago that is speaking also to the intensity under which we are operating, we signed a significant deal with one of the biggest pharma companies in the world, Sanofi. And One of the things that is going alongside with the deal is a revenue that should contribute $30 million in the next few years, from which $8 million will be recognized in year one. Rick is going to elaborate about it. And I felt that after talking with investors post this deal, that people felt that it's only about the $30 million. I think that this is a small part of the potential deal of Sanofi. We believe that the core commercial activities that we're going to have, and in fact, Sanofi putting their name and their capacity in terms of sales activities behind Dario, that's something that is going to help us grow our revenue. So that's something that is going to be on top of the $30 million multi-year revenue that is going to generate from this deal. So this one is significant deal for our company, and we are looking also into other strategic initiatives that are under discussion. If we are looking specifically into Q4, we already talked about the top line, and we disclosed that during the webinar, we pre-announced that it's going to be between $5.8 to $6 million for the quarter. One of the things that we are showing in this report is that the growth margin, the non-gap, is reduced. We have seen in three quarters in a row that it's going from around 37% in 2020 to 37% in 2021. In Q4 specifically, it reduced to 2020.1. The reason for that is very expensive shipment that we had to do – through the air, and this is a one-time, I repeat, it's a one-time event that we had, the combination of shipment and some discounts that we did on the B2C. We are looking now into the Q1 that is evolving, and I'm going to talk about it in the summary. And we believe that the growth margins in Q1 are going to look much better. And for the full year of 2022, it's going to recover and go somewhere between 50% to 60%. That's the expectation. With that, I want to hand over the call to Rick. Please, Rick.
spk07: Thanks, Laris. In 2021, we added more than 50 customer contracts across all three channels, including a national health plan. Of the accounts announced prior to 1231, all but one provider account are implemented and are contributing to 2022 revenue starting in the first quarter. The last provider agreement will launch shortly. Most of the employer contracts we announced prior to year end are on a January to December benefit cycle, so they started in the first quarter. And we will see a repeat of that pattern, by the way, in 2022 as well. And we have continued that momentum into the first quarter, announcing nine additional agreements to date, including one regional health plan on our path to a goal of 100 total accounts by the end of the year. The majority of the agreements we are announcing now are off-cycle employer health plan and provider agreements, and as such, are expected to also generate revenue in 2022. Generally, it takes us about 60 to 90 days to implement these types of customers. With the addition of these new agreements, our contract value is now in excess of $36 million, up from what we announced on the investor call just this last January. This excludes Santa Fe, which represents an additional $30 million in contract value. As Erez mentioned, we continue to see good operational metrics in the launched accounts with enrollment of approximately 40% and retention on the platform at approximately 80%. Our integrated multi chronic condition platform strategy continues to generate interest in the employer and health plan markets with customers recognizing the value of both having less vendors and more conditions per vendor and one member journey for their employees or members. One coach, one journey, one integrated experience versus our competitors that our customers are describing as having modules even when they cover as many or nearly as many conditions as we do. Approximately three quarters of the pipeline is multi-condition at this point. And as we have discussed in the past, the multi-condition offering provides more value to both customers and approximately four to five times more revenue to Dario than single condition solutions. We were very pleased to enter into the strategic relationship with Santa Fe in the first quarter. This agreement, as far as we are aware, is the first where a major pharmaceutical company is partnering with a digital health company to enter the digital health space generally, rather than to provide a software companion to their drugs or devices. We know that Santa Fe did an extensive evaluation process, and we are pleased to be selected by them to go with them on this journey. This is a $30 million multi-year commercial deal of which we anticipate recognizing $8 million in revenue in the current year. This agreement has three main parts. Co-promotion, under which Sanofi will promote the entire Dario suite to health plans and some select employers. This immediately increases our health plan sales resources by more than 10x and brings additional data and targeting resources to the Dario sales efforts. Revenue earned under this co-promotion is in addition to the $30 million contract value. Development of a new or enhanced solutions on the Dario platform that will be distributed by Dario and through the co-promotion agreement is the second part of this agreement. And lastly, Santa Fe is leveraging their internal data and real-world evidence teams to create studies and additional data around Dario solutions. We believe this will have an increasing value as the market is expected to demand increasing levels of evidence from digital health providers over the next two to five years. All of these streams have been launched already under Santa Fe, and we expect the co-promotion efforts to the customers to actually begin later this month or early next month. So we expect to see activity across this year. We are still selling to health plans, so we expect that there will be a sales cycle associated with that, but we're very excited about the additional traction we anticipate this giving us. We continue to make progress on the sales side with all three channels. In employers, we are in the early part of the sales cycle for self-insured employers that are on a January 1 to December 31 cycle. And about 70%, as I've talked about in the past, of employers are on this cycle. We will see RFPs for the next few months with contracting in late the third quarter and early the fourth quarter and launch in the first quarter of 2023. And as I said, this excludes those that are off cycle, which we continue to see. And we are seeing the benefits of the progress that we have made in increasing the name recognition with benefits consultants through continuing RFP volumes. Outside of this main employer channel, we continue to see strong demand for our standalone behavioral health offering and expect to announce several additional contracts this year. On the health plan side, in addition to the two plans that we have announced, we have a handful of plans that are late stage contracting and vendor management, and we expect another one to two plans in the coming quarters. In the past, we mentioned that the national plan that we've already signed was anticipated to have some additional phases that we were expecting would be closed later this year or 2023. We are pleased to tell you that these phases have been pulled forward. We have agreed to the major terms for them and look forward to completing that expanded agreement in the second quarter. This has the potential to bring more than 10 million members onto the platform over the next couple of years. And in 2022 we anticipate recognizing multiple millions in revenue from this agreement. And on the provider side, we have continued to see contracts with providers and expect we will continue to see additional contracts in the second quarter. With that, I'd like to turn it over to Pete.
spk01: Thank you, Rick. Revenues for the fourth quarter and the December 31st, 2021 were $6,030,000. A 7.1% sequential increase from the third quarter ended September 30, 2021, and 190% increase from the $2,080,000 in the fourth quarter ended December 31, 2020. The increase in revenues resulted from the new product line acquired during 2021 and the expansion into the B2B market. Gross profit in the first quarter of 2021 was $548,000, a decrease of $1,000 compared to gross profit of $549,000 in the first quarter of 2020. Gross profit as a percentage of revenues decreased from 26.4% in the first quarter of 2021 to 9.1% in the first quarter of 2021. The decrease in the gross profit and gross profit as percentage of revenues resulted from amortization of expenses related to the acquisition of upright and way forward, and from higher shipping expenses and price reductions as part of the direct-to-consumer promotion campaigns in the fourth quarter. For former gross profit, excluding $782,000 of amortization of expenses related to the acquisition of upright and way forward was $1,330,000 or 22.1% of revenues for the three months ended December 31st, 2021. Total operating expenses for the fourth quarter of 2021 were $22.2 million compared to $9.6 million in the fourth quarter of 2020, an increase of $12.6 million or 131%. This increase resulted from an increase in our research and development activities, sales and marketing, administrative expenses, and stock-based compensation. Total operating expenses, excluding stock-based compensation, acquisition expenses, and depreciation for the first quarter of 2021 were $16.4 million, compared to $7.5 million in the first quarter of 2020. Net loss was $21.6 million in the fourth quarter of 2021, an increase of $12.6 million, or 140%, compared to the $9 million net loss in the fourth quarter of 2020. Cash and cash equivalent totaled $35.8 million on December 31, 2021, and our net proceeds from the offerings that closed at the beginning of this month was $38 million. Now back to you, Erez. Thank you, Tzvi.
spk02: So to summarize this call, one of the important things that I want to tell all the investors is that the fundamental or the business was never in a better position than today. And also in terms of the whole space of digital therapeutics, we see how the healthcare industry is not about if, solutions should be adopted, but more about what are the solutions that should be adopted. And I'm very proud that we are building one of the best companies in the digital therapeutics category. And we see all the fundamentals improving every day, which is to some extent the opposite of how the whole sector is behaving in the market, in the stock market. But we see a very intensive adoption of solutions. And 2022 is going to provide acceleration in growth. We feel super confident with the analyst estimates. We have the signed accounts. We have the strategic deals. And we have all the components in place in terms of the suite of products. We also see the trend improving into Q1. And when we are looking for the full year of 2022, we are targeting a gross margins in a non-gap of somewhere between 50% to 60%, which is another improvement comparing to 2021. We also see a reduction in the loss and reduction in the burn rate. And we also see this trend happening already in Q1. that have a better financial profile, much better financial profile than Q4 of 2021. Overall, we ended the year with $35.8 million plus the additional $40 million that we raised. We have a runway to go through 2023. In addition, we have a few strategic opportunities to get additional capital in equity later this year. which is something that we might pursue, but the point is that this company is very well funded. So that's another very important point in this market environment. So with that, I want to stop here and turn the call for the Q&A session.
spk03: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for your questions. Our first questions come from the line of Alex Nowak with Craig Hallam. Please proceed with your questions.
spk06: Craig, good morning, everyone. Thinking about the growth you're expecting this year, Rick, if we take your comments about all the new contracts that were signed last year and now currently online and generating revenue, is it fair to assume that by the time we get to the end of this year, end of 2022, you'll essentially have $35 million of new run rate revenue that you then add on top of the $24 million? of revenue exiting 2021 and then even potentially add on Santa fee of $8 million on top of that. Maybe just help us take those comments and apply to the Revenue Ramp or how you're thinking about it for this year.
spk07: So I don't think you – on a run rate basis, yes, you can look at it that way as we exit the year. But just to be clear, I don't expect that you can take the 35 plus the 21 and say that's 2022 revenue. But on a run rate basis, it should approximate that exiting the year, yes.
spk06: Okay. That's really good to hear. Maybe expand a bit more on the Sanofi deal. Just what is Sanofi looking to build out internally here? on the digital therapeutic side, potentially speak to what other therapeutic options do they want to add to the channel and maybe speak to that competitive tender process and ultimately why they picked Dario?
spk07: Well, starting in reverse, I obviously, I can't speak for them exactly in terms of what their final decision was composed of. Although what they have told us is that, you know, when they looked at the solutions in the market, the results that we were getting in terms of the clinical results, the fact of the quantity of clinical results that we had, and really the integrated user experience they felt like was compelling in the marketplace and something that they could build off of. So, you know, speaking to the digital therapeutics and what they're looking to do going forward, it's building off of the Dario platform So I think that, you know, taking the member experience they were already seeing and thinking about where they wanted to go in the future and wanting to go in the future with Dario, that was an important factor as well. We're in the process right now of defining what the 2022 development piece will look like in terms of specifics, but there's areas around expanding for specific patient populations, as well as opportunities that we've discussed in terms of expanding the number of conditions that are on the platform.
spk06: Got it. And then the $8 million of sales from Santa Fe this year, what is the trigger for that? Is that basically viewed as a service contract? And then what is the triggers, I guess, to recognize the remaining $22 million?
spk07: So the agreement, as it relates to the economics, is primarily made up of the co-promotion, pieces related to co-promotion, preferred partnership, and development. So this year, the components would be the preferred partnership elements of it, which are really more time-based. And the development pieces revolve around delivering the first development plan, which we expect will be you know, sometime in the next few months, and then continued development on the platform.
spk06: Okay, got it. And then just lastly, we've talked about these new digital therapeutic reimbursement codes before. I feel like it's getting a lot more traction in the marketplace. Maybe expand on what this does for the provider channel. We didn't talk on it much today, but just are you seeing more endos looking at providing remote patient monitoring now that there are reimbursement codes that are actively being discussed?
spk07: You know, we're two years into the original RPM codes that were announced. There were some additional RPM codes that were announced at the beginning of this year, primarily actually related to MSK. Over, you know, I'll just say the last two years, we're seeing more acceptance of the RPM codes. There still remains in the marketplace some level of, you know, show me because you're dealing with the government. But because of the fact that we're seeing people get reimbursed for the RPM codes, that people are starting to sort out the operational aspects of it, I think there is more excitement around the RPM codes from the provider side. It'll be interesting, and we're keeping a close eye on how reimbursement in this marketplace proceeds, because in addition to that, obviously, most of the reimbursement, when you look at employers and health plans, is coming through self-insured employers paying for the solution themselves. And yet, you know, we've seen recently that the government came out and said that, you know, they felt like that they would reimburse for prescription digital therapeutics, which we're not doing, but as an indicator around the market. And that was preceded by, I think, about a week of the major health plans coming out and saying they didn't think there was enough data to reimburse for those digital therapeutics. So I think it's going to be on an overall basis a little bit of a volatile market as it relates to reimbursement over the next few years. But we definitely expect that there will be more forms of reimbursement. We expect that RPM in general will become more accepted and more integrated over, you know, I mean, it's already been some, but we expect that trend to accelerate.
spk06: Okay. That's great to hear. Appreciate the update. Thank you. Yep.
spk03: Thank you. Our next question has come from the line of Craig Jones with Stiefel. Please proceed with your questions.
spk04: Hey, thanks, guys. Um, so going back to the 8 million on sanity, I guess, when does the year one kind of start and end? And then how does that, like get recognized? Is it pretty even throughout each quarter? Or is there kind of lumpy and then I guess on revenue and cash flow for how the lumpiness works would be great.
spk07: It is not. It's a calendar year. So when we're talking about year one, we mean 2022.
spk04: Okay, the whole $8 million should be – sorry, go ahead.
spk07: Yeah. No, no, no. Yes, we are currently expecting that we will recognize $8 million of that revenue in 2022. And, you know, it's a little bit front-loaded in terms of the cash flow because you've got the preferred partnership payments up front as well as the launch of the development piece And then we expect that the last of that will come in towards the end of the year from a cash flow perspective. From a revenue perspective, if you look at the rest of the year, it's not exactly even, but it should work out to be relatively spread.
spk04: Okay. Does that include Q1? So like 2, 2, 2, and 2? Or should it be starting 2Q?
spk07: It should be, no, it'll start in Q1. We anticipate it'll start in Q1. Okay, got it.
spk04: And then on looking at the breakout, you're giving the K of the hardware consumables versus services. Looks like that was about 87 and 13 as a percentage of revenue. And it's kind of flat throughout the year. How should we expect that to sort of trend and then exit on 2022, like how big should the services be as a percentage of revenue when we exit the year?
spk02: So moving forward into 2022, we're going to see more software and less what is called hardware or product or services. And this is due to the transformation from the BTC into the B2B. And in fact, Q4, we feel, was the last quarter where the portion of the hardware, or what we are calling the product, was that high. So that's something that you should expect will be changed at the beginning of 2022, already from Q1. And overall, that's something that will help meet our targets of growth margins for the business for 2022 between 50% to 60% on a non-GAAP measure.
spk04: Got it. And so since we're at a fairly low starting point for the gross margins, and you're saying the whole year should be 2022? Sorry, all of 2022 should be 50% to 60%?
spk02: Yes, on average for the full year, between 50% to 60%, that's our target. And we're going to see a significant improvement from Q4 of 2021 to Q1 of 2022. It's going to improve over the year from quarter to quarter. the higher the B2B portion in the revenue is going to be, the higher is going to be the growth margin. So 50 to 60 as an average for the full year with improvement from quarter to quarter.
spk04: Okay. Do we have an idea for what the exit rate should be? Because that would seem like it could be fairly significantly above 60% if we're going to improve that high or improve that throughout the year.
spk02: That's correct.
spk04: Okay. All right. Got it. That's all I got. Thank you. Thank you.
spk03: Thank you. As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. There are no further questions at this time. I would like to turn the call back over to Erez Rafael for any closing comments.
spk02: Thank you, Operator. So thanks, everyone, for joining our call, and we are looking forward to meet on the next call. Thanks, everyone, and have a good day. Bye-bye.
spk03: This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.
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