DarioHealth Corp.

Greetings and welcome to the Dario Health fourth quarter 2022 results call. At this time, all participants are in a listen-only mode. A brief 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. It is now my pleasure to introduce your host, Glenn Gourmand. Please go ahead, sir.

Thank you, Operator, and good morning, everybody. Thank you for joining us today for a discussion of Dario Health's fourth quarter and full year 2022 financial results. Leading the call today will be Erez Rafael, Chief Executive Officer of Dario Health. He'll be joined by Rick Anderson, President. 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 on March 9th, 2023. This morning, we issued a press release announcing our financial results for the fourth quarter and full year 2022. 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 2022 annual report on Form 10-K filed 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 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 this morning's press release. And with that, I'd like to introduce Arez Rafael, Chief Executive Officer of Dario Health. Arez?

Thank you, Glenn, and thanks. to all of you for joining this morning call. For the last three years, we have implemented a multi-year strategy, and when exploring our 2022 financial results, and specifically the last two quarters of the year, it is hard not to see the success of our strategy as it's being reflected in our numbers. Before we deep dive into our actual results, I would like to reemphasize our strategy. First, our multi-chronic condition strategy where we manage five different conditions on one integrated platform this strategy is not only aligned but the head of the macro digital health market trend of consolidation and consumer centricity in fact our current model is better suited to the financial macro environment where we are facing today the consolidation of conditions into one integrated platform enables less vendors and more conditions especially in a market that looks to save money and be more efficient while better caring for its patients. Employers and buyers are looking for best-of-suit solutions backed by clinical evidence. Also, our clinical outcomes data suggests that an integrated model is better than a separated single-point solution. Second is our transformation from direct-to-consumer to B2B. This change has resulted in a significant improvement in the financial profile of the company, Because of the significant reduction in the cost per acquisition, the ability to scale and more efficient economic model to remember that is getting on the platform. Overall, our multi-dimensional strategy of multiple conditions and moving to B2B model increases revenue stability while establishing a dependency that is difficult to break. In other words, it will take several vendors to replace our integrated solution. And overall impact is more one way to execute on our strategic plan with a significant reduction in the financial risk profile of the company. Let's take a deep dive into the financial results. Q4 shows continuation in the improvement of the financial profile of the company and continues the trend we demonstrated in Q3. We are presenting a real evidence that shows that our model is working and creating a long-term shareholder value. Let's start by looking into the revenues and its components. Full year of 2022 revenues is $27.6 million, increased 34.8% over $20.5 million in 2021. As the pivot to B2B model, more than offset managed wind down of B2C. More interestingly, full year 2022 B2B revenues is greater than 59% of the total revenue versus just 4% for the full year of 2021. Overall B2B growth year-over-year is 1,800%. Another important metric is gross margin. This is where results are even more exciting as we are showing a true software-driven business with a SaaS, software-as-a-service-oriented characteristics. For former gross profit was 58.1% of revenues for the fourth quarter of 2022, up significantly from 22% of revenues for the fourth quarter of 2021. As mentioned in the last few calls, we are targeting an average of 60% gross margins for 2023 to reach our goal of 70% gross margins by 2024. Looking at the operating loss, we are seeing true operating leverage of the infrastructure that we have built and real economic advantage for multi-product line approach. We demonstrated 58.4% reduction in operating loss in the fourth quarter of 2022 compared to the fourth quarter of 2021. It is also 38.2% reduction in operating loss compared to the third quarter of 2022. Notably, operating loss in the fourth quarter on a non-GAAP basis declined by more than 60% to only $6 million compared to $15 million in the fourth quarter of 2021. The underlying reasons for this economic advantage of multi-condition is the improvement of the following key parameters. We have more eligible population for every account that we are signing on. We have higher ARCU, average revenue per user. And overall, we can generate between 4 to 8x more dollars for every account compared to a single condition platform. Looking into our balance sheet, we ended the fourth quarter in a strong financial position with cash and equivalents of $49.3 million. We also continue to improve our financial profile of the company. Losses are declining, and we believe that this momentum will continue into 2023 which is something that will extend our overall run rate before handing over the call to rick few highlights on the commercial side we achieve our goal of 100 accounts by the end of 2022 we believe that we are positioned to accelerate growth in 2023 and 2024 as the overall foundation for client wins is improving with larger sales team and meaningful partnerships that should give us a significant larger access to clients. In fact, we effectively multiplied our commercial capacity by multiple points. We have made and continue to make substantial progress in building our relationship with Sanofi, which we believe can take us to the next level in terms of this relationship. Our relationship with Aetna is progressing and we recognize revenue this quarter and anticipate accelerating revenues throughout 2023 and beyond. Additionally, we are working on another, at least one, strategic partnership that will help us expand our commercial outreach. With that, I want to hand over the call to Rick to elaborate on the commercial side.

Thanks, Erez. In the fourth quarter, we continued our revenue growth trend with increasing year-over-year and sequential quarterly growth. During the fourth quarter, we continued to manage down our B2C revenue to reduce our cost of customer acquisition, improve our gross margin, and reduce our overall burn while maintaining the strategic advantages of our B2C business. We expect to maintain the B2C businesses at the current level throughout 2023. On the other hand, we saw strong growth in our B2B revenue in 2022 with 1,800% year-over-year growth which more than offset the 42% decrease in B2C revenue, and the fourth quarter B2B revenue accounted for 70% of total revenue. This validates our strategic move to focus on the B2B market based on the explosive growth we have already seen in B2B revenues. We increased our B2B contracts in the fourth quarter to achieve our target of 100 B2B contracts in 2022, which represents 100% year-over-year growth. In addition, we have additional contracts that were not signed until after year end that are expected to launch in the first quarter. Including these additional contracts, our signed contract value is approximately $65 million at year end. As Erez noted earlier, the majority of these new contracts are multi-condition, which generate more revenue per customer than single condition contracts. As we are seeing strong demand in the market for vendors that can provide several conditions, which reduces the cost in work of integrating and operating several vendors in this environment, Daria's platform is unique. Our platform covers more chronic conditions than almost all our competitors, and it covers those conditions in one integrated platform. It provides one journey, one experience, and one coach for a multitude of conditions. Alongside of our B2C roots of our solution, we believe this yields better member engagement, which drives better clinical and financial outcomes. In fact, one of our recent studies demonstrated that people who managed both diabetes and hypertension on the Dario platform had better clinical outcomes than those that managed diabetes alone. This adds to the growing body of clinical studies that supports the outcomes of the Dario platform overall and in multiple demographics, including members over 65. This is a demographic that has a higher prevalence of chronic conditions and we believe is attractive to Medicare Advantage health plans. In addition to customers seeking more conditions from less vendors, they also are looking to add new vendors and benefits through their existing partners. As such, distribution and strategic partners will be a pillar of our commercial strategy in 2023. We will continue to invest resources in the partnerships through which we have already acquired customers like Virgin Pulse, the largest wellness vendor in the country, Solero, which has multiple health plan customers, Vitality, and Alliant. Given the dozens of companies that these partnerships give us access to, we believe we'll be able to accelerate revenue in a cost-efficient manner. In 2023, we will seek to expand our partnerships to a small number of important partners that we believe will expand our reach and accelerate our revenues. We added three health plans in 2022, one being Aetna. As we have previously discussed, we have been anticipating two additional risk-bearing slash health plans through two of our strategic partners. While these have been delayed past year end, we continue to expect them in the relatively near term with both expected to generate significant revenue in 2023. One is already integrated and ready for launch and the other is in final contracting. As we previously discussed, Aetna is integrating our technology into their new behavioral health platforms. We recognize revenue in the second half of 2022 related to delivering the new platform to Aetna and anticipate accelerating revenue throughout 2023 as Aetna brings on more members to the platform. As we are paid for members that have access to the platform, we expect that this will contribute to growing revenue in 2023 and beyond. Just over a year ago, we entered into a five-year, $30 million strategic agreement with Sanofi, which we expect to make significant contribution to revenue again in 2023. The agreement has three main parts. co-promotion of the Dario solution through their market access team, development of Santa Fe-directed ideas on the Dario platform, and data and studies. The co-promotion immediately added five times the sales resources selling to health plans and at-risk entities and substantial additional marketing dollars being deployed to promote our solution. Our co-marketing efforts have played out in other partnerships as well, including our recent agreement with Dexcom. We completed the first year of development milestones, and we are well into year two milestones, and we are progressing on what are expected to be some of the most robust studies in the industry. Studies of this quality should add considerable additional support for customers adopting the Dario solutions. We recently announced new relationship with Dexcom, a leader in the continuous glucose monitoring or CGM industry. which will enable us to fully integrate their CGM device into the Dario platform. We expect that this will expand the services we can provide CGM users, increase the data available on our platform to inform our member personalization, and ultimately to make our offering more valuable to payers and employers. In addition, this will enable our user-centric platform to enable value-based care for CGM as the patient level clinical and cost improvement data will be obtainable. We also believe that this can enable new opportunities to provide better care and innovative offerings with our partners, Sanofi. Overall, we believe we are well positioned as we move into 2023 for our significant growth trajectory, as we have demonstrated that we can convert contracts into revenue by expanding the number of contracts that are multi-condition, achieving average enrollment rates of 30% or better, and average engagement between 70 and 80%. Over the last year, we have more than doubled the number of reference accounts, which based on experience is the basis to accelerate growth of customers on the platform. Another immediate result of customer satisfaction is we are already seeing multiple customers who have seen initial results evaluate expanding conditions or populations on our platform. To leverage the proven business model and sales momentum we have seen, we have recently more than doubled our direct sales team. and believe that we can expand our contract value in 2023 by tens of millions of dollars across self-insured employers and health plans with a focus on increasing the average deal side through larger customers and continuing to increase the portion of our contracts that are multi-condition past the 50% currently in our pipeline. In addition, we believe that we can double the number of strategic partners and more than double large customers. I would also like to take a moment to address a question we frequently are asked lately. To date, we have not seen any significant decrease in demand due to macroeconomic factors. In fact, surveys that have been recently conducted show that many companies continue to express a desire to expand and change their digital health benefits. And as we focus on costly chronic conditions with a definitive ROI, companies can reduce their expenditures by implementing our solutions. In summary, we believe we will continue to see strong growth in both the number of customers and contract value in 2023 through our direct sales efforts and through our partners. With that, I would like to turn it back over to Arez.

Thank you, Rick. So to summarize the call, first, despite the macroeconomic factor and the possibility of recession, we don't see a slowdown in the digital health market. In fact, we continue to see a tailwinds. as payers and employers seek to better manage their patients and reduce healthcare costs. We believe that in this environment, employers are trying to find ways to save money and create efficiencies. And we look into leverage multi-condition platform that offers a better health profile and we'll see Dario as the most comprehensive solution. This will help us continue to win more clients and achieve significant market share.

Further,

Our commercial capabilities grew considerably in the past year with a larger sales team and more strategic partnerships, which we expect to accelerate not just more contract wins, but more meaningful contract wins such as the Aetna and other large accounts. We are seeing a trend of big traditional healthcare players in large pharma such as Sanofi and and big medical devices companies looking to tap into the digital health space by partnering with companies like Dario so they too can play a role in healthcare transformation. We expect to make more large and strategic partnerships in 2023. We believe that by having each of these building blocks in place, we are in the position to build a truly differentiated digital health company with the potential to reach profitability with $60 to $80 million in revenue. We anticipate accelerating growth in 2023-2024 that should increase shareholder value. Thank you all.

And now I want to hand over the call to a Q&A session. 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. Please hold while we collect your questions.

Our first question comes from Charles Ray with TD Cohen.

Yeah, thanks, guys, and congrats on the quarter. Hey, Erez, I want to talk about, you know, ending the year strong. And on top of that, we're now expecting onboarding Aetna at some point this year. But we also doubled the number of counts, you know, from 50 to 100. I assume a lot of those have January starts. So maybe you can talk about sort of how the 1-1 starts have progressed so far. And would that suggest that we should still see sequential improvement in revenue in the first quarter over the fourth quarter? And then as we move and then potentially another step up as the EDMA contract starts to ramp up as well?

Yes, thanks for the question, Charles. So I think that we need to look into the revenues in three portions. One is the BTC that was kind of slowing down and is getting stabilized in Q4 and into next year. We think we're going to see more or less the same rates. The other part is Revenue that we are getting from strategic partners like Sanofi and also Aetna, because Aetna have a few portions. We have the development services and we have also per user per month at some point this year. That's another portion. And the third portion is the accounts and the pure revenue that is coming from users that are on the platform. When it comes to the second one, as we stated in previous course, There are some revenues that are being delivered according to milestones. So for some of these, for example, we have a data milestone, we have development milestones. So it's hard to look into this revenue, something that is going sequential quarter over quarter. However, on a yearly base, this is something that is repeating every year. We do have multiple launches in Q1. And this is why we should expect growth that will go from Q4 of 2022 into Q1 of 2023. And moving forward, we're going to see more and more significant growth as we are getting to high volumes from big accounts, for example, Aetna and other accounts that we expect to launch later this year.

Okay, so then if we think about the strategic partnership bucket sort of that is tied to milestone payments, can you remind us in the fourth quarter in the B2B revenue, how much was related to those kind of deliverables?

Yes, so overall, out of 6.8 million, we had like 59% that is the combination of strategic and the pure ARR. Around 60% of that is 60 or 65% of that is coming from the strategic accounts.

Okay. So, so if we think of it that way, um, is it, do you have any visibility here now we're already in March, whether we've kind of, we have hit some milestones to recognize some additional of those payments or is this, or those, do those tend to come sort of at the end of the quarter?

Yes, we will recognize more milestones that are coming from strategic accounts, such as Sanofi and Aetna in Q1. Definitely, yes, we know that it's happening. And we're going to see also increase on the pure B2B ARR that is coming from accounts that we are enrolling to the platform. So the answer is yes, we're going to see both revenues in Q1.

And in terms of the AR portion of it, the 40%, is this one of those things where you have a one-one start, but you still have to wait for members to opt in and get started? So it takes a little bit of while to start to recognize the revenue? So I guess in other words, While it's going to be sequentially up, is that the piece that's probably going to take a little bit longer to start ramping up? And we'll see more of it maybe in the second quarter?

Yes, you're correct. Usually, as we stated before, the time that it takes for an account to reach to its goal is somewhere between 10 weeks to 15 weeks from the start time. So a lot of the accounts are not starting exactly one-on-one. Sometimes it's waiting for the second month of the first quarter. So overall, you're going to see the ARR definitely going between Q4 to Q1. And in the last five quarters, we have seen the ARR growing quarter over quarter sequentially in a very consistent way. But if you're looking on this chart, uh uh spike in terms of the growth it's gonna it's gonna continue into q2 and then q3 based on the accounts that we are signing up but we we it's not like everything is up on one one and then you see a big spike at the beginning of the year as i said it's like 10 to 15 weeks to get to the run rate of an account not on the air which is yes and not including the huge one, which is Aetna, which is a different story. And this is something that we expect to grow as we move forward along the year.

And for Aetna, I think the start date, you've kind of talked about a sort of mid-year. Should we would then expect, because it's being paid on a PM-PM basis for members that it's made available to Should we assume kind of then a meaningful step up in the third quarter? Or is this also one where, yeah, it would seem like that's the way the contract works. Just wanted to clarify that.

Yes. Yes. I think that we should expect a significant step up. And not only due to that account, we have another few accounts of health plans that we believe that are going to launch also this quarter. and gradually are going to grow. But to your point, Aetna specifically, we're going to see a significant step up in Q3. But it doesn't mean that we're not generating revenue from Aetna. As we stated before, because we are part of the platform of Aetna and because there are elements that related to customization and integration, Aetna already vested into this relationship and Aetna spend a lot of money, a lot of dollars into the integration and the localization of the platform. And this is something that we recognized in Q4 and we believe that we are recognizing also in Q1 and Q2 of 2023. So overall, this is something that gives us the confidence that the company is going to grow in these quarters as well.

Great.

Really appreciate the comments. Thanks, guys. Thank you, Charles.

Our next question comes from Alex Norwalk with Craig Hallam Capital Group.

Okay, great. Good morning, everyone. First, just on the DTC side, you know, there's $2 million of DTC revenue in this quarter. Does that take another step down in Q1, or is that going to basically normalize at this level?

We believe that we're going to normalize it in this level. For us, and I think that this is very important to note, B2C is part of our R&D. We need data. Data is what is educating our software, and we want to keep it in a most efficient way. In these levels, we're not losing money on the P&L of the B2C, and more or less we're going to stay in these levels into next year, into this year.

Okay, that makes sense. So, I mean, continuing with the last set of questions with regards to how to think about 2023, you've got the DTC piece that's normalizing here. although it has taken a step down throughout 2022, but it's going to be normalized for 2023. You've got a number of existing deals that are ramping, whether it be Aetna, Sanofi, you're having milestone payments come in, potentially some new health plans, plus the rest of the calls, the 100 contracts that you have under already signed. So, I mean, when you end 2023, when we're doing this call a year from now and talking about 2023, Where do we want the growth rate to be? You know, if we come up with 30% growth, are we happy? Are we disappointed? Help us out here.

Yes. So overall, I think that the way to look at it is in terms of the accounts that we have signed on. And in Rick's presentation, he disclosed that we have like total account signed of $65 million. We were happy with the number of accounts that we have signed on. The way that we are designing the business is that eventually we want to grow in a significant way in the ranges of like 70% over the next two years. This is more or less what we see. And this is with some kind of a margin of safety because if you're looking into the growth of the accounts, we were growing by 100%. We're going there from 35 million at the beginning of the year to 65 million as of today. So overall, if we are taking some kind of margin of safety, which we believe we should take in terms of implementation and delays, overall, over the next two years, we're looking into 70% plus growth for the full business. I'm looking into the end of 2024.

Okay, makes sense. That helps to give some guideposts here. Maybe just around the OpEx side. Obviously, OpEx came down pretty significantly this quarter in Q4. Maybe talk about kind of the puts and takes there. What drove the OpEx down? What's going to be maybe a one-time reduction in Q4 when we maybe see step-ups in 2023? And where is the OpEx coming out of? Any pieces of the business that would be hurt from this?

Yeah. So thanks for this question. I think that this is where the company made a significant progress in the last year. And this is something that needs to be taken in the context of the old digital health market. So what we see in the old digital health market, and we have the majority of the companies are still private and we see companies that are generating, I don't know, $30 million in revenue, 50 we've seen on the public market, the company that was acquired, that was generated. $400 million in revenue. What we have seen consistently is that companies were losing a lot of money. And when we were thinking about the Dario business, we are trying to put the foundation to get to cash flow positive somewhere between $60 to $80 million in revenue. In order to do so, we need not just to have all the building blocks of offering, which is the multi-condition that gives us 6X on every account in terms of revenue generation. It's also about how we build the infrastructure of the OPEX of the company. Today, Dario has 250 employees that are in between India, Israel, and the States. All the commercial team regulation and everything is running from the U.S., but the rest is running out of the U.S., So overall, if we're looking on the overall OPEX, we had three main elements that eventually helped us take the OPEX down. Element number one is the focus on the B2B and the slowdown of the B2C. Element number two is the fact that post the three acquisitions that we did in 2021, we consolidated all the activities together into one organization, one R&D team, one product team, which is something that is saving money. And usually companies that are making acquisitions, usually this is the trend that you see 12, 18 months later after the acquisition. So that's reason number two. And reason number three is is the overall structure and the offshore, which is something that Dario is doing, and it's not being done by other digital health companies. And this is why we think that we build here something different that gives us the opportunity to build a real SaaS profitable business. There is another element. Dario is a pure digital company. So if you compare us to other digital health companies, on the private side that are also growing, the ratio that we have coach per patient is very digital driven. And this is another reason why this whole financial structure that we have can drive this company to be profitable, which is something that we don't see in the digital health space. And this is where I think investors I need to understand the difference between what we are building in Dario to what exists in the market. Overall, the OPEX that you see in Q4 was down by around 40% comparing to the year before. I think that this is where we're going to see the baseline, and we're going to continue with this OPEX into 2023. And overall, we're going to see a reduction in the loss because the revenue is going to go up. to our, the growth margins are going to be this year in the ranges of 60% with the target of 70% next year. So what we're going to see for this OPEX that is going to stay stable, we're going to see a reduction in the loss because of the growth in the revenue and the improvement of the growth margins. So I would say that this OPEX is more or less the new baseline that we have, and from here We are growing revenue and making our bottom line much more efficient with additional reduction in loss into next year and reduction in the burn rate of the company and the extension of the runway that we have.

Okay. Extremely helpful. One last question. Just in the last couple weeks or so, seeing a big uptake. in the digital health side around weight loss, particularly those adding drug prescriptions like Ozempic, Wegovy onto it. I know you have a weight loss program. Is that a trend that you're seeing? Is that something you want to get more involved in?

So this is Rick. We are definitely seeing that this is having an impact on Excuse me, ladies and gentlemen.

It does sound like we're having some technical difficulties. We do ask you to please hold while we reconnect our speakers.

You hear me? Alex?

Yes, Arez. Yep, I can hear you. This is Alex here.

Yes, I think that we lost Rick. Sorry for that.

He just started to talk about the trend that he's seeing. So I don't know if you want to pick up where he left off.

Yes, I'm going to continue. I'll pick it from here. So we see this overall evolution with the drug and This is where we feel that and this is where we have discussions with pharma companies, the one that we are working with and others. We see that overall the digital part is going to be there as a foundation and as a connectivity to help manage the full chronic condition. When we think about weight loss as a standalone, this is where we are seeing some kind of support for the chronic condition management. One of the things that we are running now is a study that is showing the relationship between weight loss to the overall management of the chronic condition. And overall, we see the comorbidity part between these two elements. So this is a long way to say that we think that these kind of drugs are going to make a huge change in the market. And we see these kind of things as supportive to all the digital management that we are doing.

Very helpful. Thank you. Appreciate it. Thanks, Alex. Thank you. Your next question comes from Rahul Horkit with LifeSite Capital.

Hey, guys. Congrats on a solid quarter.

I apologize if this has been asked before. I'm kind of jumping between calls, but we're just kind of wondering, you know, given the level of off-cycle account growth we saw in the first half of 2022, you know, is it reasonable to expect a similar cadence this year, or do you anticipate heavier account growth coming in the back end of the year? Just trying to understand, as you add these 100 accounts, what the breakdown might look like.

Yeah, thanks for the question. So in Q1 of last year, we started the relationship with Sanofi, and because the revenue is divided into a few buckets, one of them is data, another one is service, and another one is market access, we've seen a big spike in terms of revenue in Q1 of last year. I don't expect the same... kind of milestone and the same spike in Q1 of this year. To my point to Charles from Cowen, I think that we're going to see some kind of continuation of the growth that we've seen in Q4, but not something that even reminds what we've seen in Q1 of last year. Overall, when the business is growing and we are getting more partners and more big accounts, the way that we want the business to grow is in a more kind of stable way. And we are trying to manage our overall accounts and activities in a way that we're going to see a more sustainable and less fluctuated kind of spikes in our revenues and more stable. So long story short, you're not going to see the same spike.

Got it. That's helpful. And then, you know, I think at the end of Q3, you said the contract value was around $60 million. you know, by year end, you have 100 accounts, jumps to 65 million. So I guess I was wondering if you can just kind of share any detail on the composition of accounts that are in the pipeline for 2023. You know, it's going to help get you to 200 accounts in terms of, you know, size or type of accounts, you know, and maybe help us understand what that total contract value might look like, you know, once you get to 200 accounts.

Yeah, thanks for the question, Owen. I think it's very important to explain to investors how we look into accounts. So when we started last year, we started to commercialize our multi-condition. And as I stated, the multi-condition is like 6x more revenue comparing to a single account because of the overall privilege in the population. The way that we are looking into the growth this year is less being focused on the number of accounts that we are signing. We want to see other parameters that are going to improve. Number one is the size of the account, whether we're going to sign on an employer with 10,000 employees or 20,000 employees. I think that the total amount of accounts that were big this year were less than 20, I would say, out of the 50 that we have signed on. Moving forward, We want to see a bigger portion of big accounts that are above 10, 15,000 users. The other element is signing on multi-condition and not single condition. And here we are very, very confident that with the market trends and what we have seen in the second half of the year, because in the second half of 2022, we have seen that 52% of the accounts that we have signed on are for more than one condition. And that's something that we expect to move forward. At the moment in the pipeline, more than 50% of what we have is for more than one condition, which is something that gives us the confidence that we can get more multi-condition accounts or full suite accounts. And that's the second parameter that we're going to measure. And one more important thing is the diversification, because at the moment, if you're looking into the $65 million value that we have, You have like one account that is more than 40%, which is Aetna. And this is something that we'll try to, when we move forward, to have more kind of Aetnas that are going to join. And while going to a much higher contract value, we want to diversify the way that we are looking into the contracts. And this is something that I think that the investors should like about Dario because the way that we are thinking about the business is very diversified in terms of the different clients that we have. We have both employers and health plans, and also the different conditions that we have, which is something that gives us the ability to operate on a much more stable kind of foundation for growth. So this is how we're going to look into the growth moving forward. We need also to remember that until two and a half years ago, Dario was a pure B2C company. So the brand, when it comes to benefit consultants, when it comes to health plans and employers, the brand was not there. And now when we are out there and we are showing accounts that are more than one year old on a full suite, and we have a very good result, we were doubling our reference clients. This is something that is helping us win bigger accounts And this is how we're going to focus our commercial team in terms of the quality of the accounts and not just the number of the accounts. And that's the next stage of the growth of the company.

Got it. That's really helpful, Carter. I really appreciate it, guys.

Thanks for taking the questions. Thank you. Thank you. Your next question comes from Ben Hainer with Alliance Global Partners.

Good morning, guys. Thanks for taking the questions. First off for me, maintaining the B2C business at the current level throughout 2023, can you maybe talk a little bit about how much sales and marketing spend is required to maintain the present level?

You're talking about the B2C or you're talking about the full... Just the B2C business.

I mean, it sounds like that's going to kind of offset whatever gross margin you're making from those customers. But, yeah, can you kind of give us a sense of what's required there on the operating expense side?

Yeah, so overall, if you're looking on the overall operating expenses side, cash-wise, Ben, we were down from approximately 16.5 in Q4 of 2021. to somewhere around a bit less than $10 million in Q4 of 2022. And I'm talking about the cash side. I'm not looking into stock-based compensation and other elements. So this is like a 39% reduction. As I stated before, I think that getting into into 2023, this is gonna be the new baseline. It might go a bit up as we are growing the revenues, but this is the baseline of the company. Specifically to your point, the sales and marketing is in the ranges of $3 million a quarter out of the 10 that we have. And this is something that we expect to grow as we are moving forward. In terms of the overall portion of sales and marketing from the overall OPEX, it's going to grow not because of the B2C. It's going to grow because we are spending more money into sales and marketing. We are expanding our teams. Our team today is bigger. We were growing it in Q4. And overall, we're going to see that the OPEX is going to grow a little bit, and sales and marketing is going to keep growing. In terms of R&D, we're going to see a slight reduction. In terms of G&A, we're going to see also a slight reduction in terms of the OPEX.

Okay.

Got it.

That's helpful. Go ahead, sir.

I was just going to say, one of the things is on the B2C side is that we're relying more on the – recurring business from our existing customers and the subscriptions that we have there and less on a new acquisition. And that's why we're able to lower the digital advertising spend in that area, in the D2C area.

Okay. So I guess if I'm understanding right, the attrition rate on the existing customers is probably lower than it was, you know, call it a year ago. Yes. Okay, got it. And then can you talk about, you know, I know you have the milestone payments mixed in, and that obviously, you know, I would think improves gross margin quite a bit. But, you know, perhaps I'm wrong on that. But can you talk a little bit about kind of the B2B patient level or, you know, per patient per month gross margin and how that's tracking and maybe how you see it tracking going forward?

Yes, generally you are right, Ben. We have a portion in the strategic that is data, and data is very high in those mountains. That's true. At the same time, looking into the pure B2B2C business, the ARR, if we are looking into the numbers of Q3 and Q4, this has already hit the target of 70%. So this is where we feel confident that the core business, the pure ARR on a PMPM base or per engaged member per month base, this is something that is already on the target that we have. On the development side, when we are running development for parties, we are usually not running in a 70% growth margins. So long story short, looking at the full business as a pure ARR, SaaS model kind of characteristics and ARR, we already had a 70%. This is why we feel confident that in the overall merge between B2C to the B2B2C, in 2023, we can be at the 60% target. And looking into 2024, we can hit the target of 70%. We are already there for the core businesses.

Okay, got it. That's a helpful color. And then lastly for me, on the Dexcom agreement, how does that work? I mean, is there any money that changes hands or is it mostly a technology integration? And then does the, you know, kind of higher resolution glucose rating capture, does that help you at all? And then also is that something that's available to B2C customers or is that more B2B focused?

So the real drivers of that from our perspective are a few fold. One is that we do have members on our platform today that are using Dexcom devices. We know that. But we are not able to capture as much of the information that we would want. And that's important for a few reasons. One is because we look to personalize the solution, more data is better. And in those cases, we're getting less data than we are from folks that are using our BGMs. And we're driving that towards having better capture of that, better personalization. But that also drives, because we're on a per-engage member per month, better engagement and therefore drives revenue from that perspective for us. The other component to this, in part, is just making that available. It will be available for B2C customers to use as well as B2B, but we anticipate the primary impact of it will be in the B2B side. Also, you know, there's a big push from, you know, not just Dexcom, but others in that CGM market to try and get into the type 2 diabetic population, right, which is a lot bigger than the type 1 population, which is separately penetrated by CGM. And You know, one of the ways that you can try and, you know, argue for the coverage of a CGM, which is much larger, is to be able to demonstrate overall cost reduction, which also implies things like hypertension, which is heavily comorbid with type 2 diabetes. And so, the ability to have that data at that level is important to our partners. And also, you know, this is part of our overall strategic approaches with Sanofi as well. you know, it's a direct deal between Dexcom and Dario, but there are also considerations for our Sanofi relationship.

Okay. Got it. And just one last thing that I forgot to ask. When is that integration ready?

Well, it's ongoing at the moment.

We're anticipating that we'll, so usually what we do in terms of the steps of those is we, complete what the development piece of that, then we'll put it into the B2C market for a little bit, and then, you know, we'll take that data and then we'll push it into B2B, but it'll be in the first half of this year. Okay.

Got it. That's all I have, gentlemen. Thanks for taking the questions. Thank you, Ben. Thanks. Thank you. Your next question comes from David Grossman with Stiefel.

Great. Thanks. Good morning. You know, I think most of my questions really have been addressed already, but I just had a couple of quick follow-ups. And one was just going back to the contributions from Aetna and Sanofi and how when you focus on the more development milestone type payments, are those, when you aggregate the Aetna and Sanofi payments in 2022, and you compare them to what you would expect in 23, are you thinking that it's going to be, you know, flattish? Do you think it'll be a revenue headwind, tailwind? Just give us some sense of, you know, how to characterize the more milestone non-ARR payments and those revenue streams and how they may impact growth in 23.

Yeah, thanks for the question. Generally speaking, we are not a development services company. So this is something that is very important to mention. That's number one. So it's not just development. It's market access. It's data. And the way that we were designing the business a while ago is that eventually we're going to generate revenue from users that are operating on the platform and membership. And on top of that, we knew that the data at some point will be monetized. And this is what we see now. So some of it is the monetization of the data to some extent because there are a lot of things that can be learned from this data in terms of how to design a future business, specifically for pharma companies. So the way that we are looking into this stream, and I will call it the strategic stream and not the development stream, the strategic stream where we see revenue from a combination of development and data, this is something that at least should be flat or grow, because if we're going to win more strategic accounts, and I think that we will win more strategic accounts, we're going to see additional need or additional opportunity to to sell this kind of capabilities that the company created over the years. I don't know how many companies have this kind of data that is coming from the consumer and is also now even more valuable as we are running multi-conditions under one integrated platform. To my note, the summary, and this is something that I was mentioning, we do see that digital health is starting to be more and more mainstream. In other words, the Sanofi interest in digital health is not just coming from Sanofi, it's coming from other big pharma companies that understand that eventually you need to touch the users in a digital way. That's number one. And number two, health plans are going to play a pure value-based kind of healthcare. And this is where models need to be adjusted. And getting there, you need to have a digital platform. So we expect that we're going to see more strategic partners like Sanofi and Aetna. And this is why we think that at the minimum, the revenues should be flat or even grow moving forward.

And so thank you for that, Orez. And just a quick follow-up to that. You know, I think you mentioned $65 million today. of bookings, and that included, I think, did you say 40% of that was Aetna? Is that right? I just want to make sure I got that right.

I said that 40% out of the 60% of the total revenue is the ARR, and the rest is Sanofi and Aetna.

Oh, okay. I thought it was about that. But when you think about that $65 million, How much of that is ARR?

Almost all of it is ARR.

Okay. So you didn't include development milestones and things like that in that amount then?

I didn't.

Okay. Gotcha. And then just the last thing is going back to some of your commentary about expenses. I think you said you were at it. $10 million in cash op-ex, right, in the fourth quarter. If I heard that right, how do you – it sounds like you want us to think about that as being a baseline and just based on your current plan that that would be somewhat flattish, you know, into 2023. Is that the way you want us to think about cash expenses going forward?

Yes. The way – The way that I want you to think about it is that eventually we did three major changes. One is the consolidation of the M&A. Two is some kind of offshoring. And number three is the reduction of the B2C into a steady state. After doing all these kind of activities, we created a new baseline, which is $10 million. From here, we're going to grow the revenue. We're going to grow more expenses into sales and marketing moving forward under this new baseline. And this is why I think that moving forward, we're going to see a very small growth in the OPEX, and we're not going to see significant changes in terms of spending more. We're going to keep the spend very close to the baseline. We're going to grow by another 4%, 5%, 6% along the year on the OPEX. And I think that in terms of the loss, we're going to see another significant reduction between 2022 to 2023 because of the gross margins that are going to be 60 for the full year on average and because the revenues are going to go up. And this is where I feel very confident that we're going to see a continuation of the reduction in the operating loss in another big step into 2023. Right. Got it. Okay, good.

Thanks very much, Erez. Thank you so much, David.

Thank you. Ladies and gentlemen, there are no further questions at this time. I would like to turn the floor back over to Erez Rafael for closing comments.

Thanks, everyone, for joining our call this morning and for following our story. Have a good day.

Goodbye. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.