Q3 2020 DarioHealth Corp Earnings Call
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First quarter conference call.
As a reminder, this call is being recorded at this time. It is my pleasure to turn the floor over to Glen.
<unk> Investor relations, Sir the floor is yours.
Thank you Doug.
And good morning, everyone. Thank you for joining us today for a discussion of Dariohealth third quarter 2020 financial results, leading the call today will be less Raphael President and Chief Executive Officer, He will be joined by Steve and David <unk> Chief financial.
We'll officer and Rick Anderson, President and General manager of North America after.
After the prepared remarks, we'll take your questions in audio recording and webcast replay of 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 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, the copy of the release can be found on the Investor Relations page of Dariohealth 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 Dariohealth 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.
Cast, including those discussed in the risk risk factor section and elsewhere in the Companys annual report on form 10-Q for the quarter ended.
September Thirtyth 2020 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.
The issue today and in the Companys 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 Companys current performance management believes the presentation of these non-GAAP financial measures is useful.
Just for investors understanding and assessment of the Companys ongoing core operations and prospects for the future. A reconciliation of these non-GAAP measures to the most comparable GAAP measures is included in todays press release regarding our quarterly results and with that I'd like to introduce arrest Raphael Chief Executive Officer arrays.
Thank you Glen and thanks, everyone for joining our call. This morning also joining me today, they've been Davies, who is the chief financial Officer and Rick on the Sun. The President then dependent on men in jail, well North America.
During the third quarter, we continue to make our progress and remain you know that we have discussed you know.
Previous both the field that we believe that.
Yes.
Our leadership position in the digital therapeutic space.
The first one is that transformation into a SaaS software as a service, where we're generating recurring high margin revenue.
The second pillar is.
Is the extension.
Into multi chronic conditions. We started we have the ability that we entered into hypertension, and we keep extending into behavioral health with a comprehensive solution state of the user experience and very engaging experience. The first is that information from the direct to consumer into business to business to consumer.
Let me take the first peering equal out if we feel that we made the significant progress this quarter, Rick will elaborate the multi Charlie and they've been David will cover the financial aspect, but before handing over to TV and Rick.
I want to provide a few highlights.
Number one on the revenue during the third quarter of two.
2020, we exceeded $2 million seen revenue compared to 1.78 million that we generated in the second quarter, which is overall a 14.2% sequential increase.
And while we are pleased with our progress on the revenue well.
Fully he's here Liza is.
He's not said the revenue impact and it's more about the opportunity that is in front of us in particularly in light of the transformation that we are doing on the direct to consumer into business to business.
And we feel that we have a lot of traction that we got with employers to ensure some providers and we believe that this is something that will drive.
And meaningful and significant improvement in our revenue in 2021, and if we're 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 and that represents a sequential increase from 4.1 million that we had in the second quarter.
While increasing the in the operating loss is something that we expected and it.
Because of the additional expansion that we are doing in establishing our overall operation in the U.S., specifically building overall sales team and we expect that as we move forward and start to generate the most significant.
Second revenue on the B to B to C. We're going to see that this.
Expenses. So these losses are going to be deducted.
With regard to the margins the margin declined to 26.9% in Q3 in comparison to 35.6 that we had in Q2.
The decline is the result, so one time and sales that we are doing on the direct to consumer where we're providing specific promos.
Promotions when we are selling devices as stated in previous calls we believe that once we are successfully making the transformation into b to b to C. We're going to see the demands.
In south going to get back to 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 b to B to C.
Overall on the transformation into into the business to be.
Yes, we have seen growth activities in all three main charlottes under which we are operating the insurers employers and the providers.
Either in negotiation following 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 point 5002 views with 4.9 styles the net.
Promoter score of 77. This is something that resonated very well not just among our 63000 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 agencies.
The expansion of the relationship with palatable 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 cancellation of the market in into digital and digital therapeutic.
Mix is something that the big companies that traditionally operating as a medical device companies.
Nickel companies specialty care providers are realizing that.
Ladies and the and the clients are looking to solutions that are much more digital and it's not just about creating America.
In the light that is connected it's much more than that it's about managing the whole lifecycle of the user managing the daily routine of the user which is something that requires a strong technology software centric technology. The integrating device applications and also coaching and we've seen that these giants that.
That used to dominate the space of diabetes hypertension are looking to make this transformation into digital and for them. It's a straight forward 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 value health.
And we are having a several discussions and it might create the additional ability to accelerate the brand a duration 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're already doing in the three channels.
That we are penetrating on the balance sheet, we ended the quarter with $37 million in cash as follows two a fundraising that we live by the end of July where we when we raised in an oversubscribed deal $28.6 million.
The use of proceeds as discussed in previous calls.
His 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 EMS and this is something that we are ready and we are already implemented number two is going to sell statement and operating in this.
All right China is in a.
A very focused way, we put resources in each of these channels Rick will elaborate about it later bye.
The penetration into employers.
Lance and providers is something that requires strong teams that will focus on each of the standard separately and number three and very important.
He is expanding the offering and making sure that the offering will be a state of the world in terms of.
Experience and in terms of personalization investment into data and AI and we feel that this is something that we know how to do very well so additional.
Deployment of capital is going into this direction, one more initiative that.
I want to mention here is the boosted that something that will boost our the overall positioning as a BDC digital therapeutics company that is the leader in this space is the establishment of the scientific Advisory Board under the leadership of Henry coming edge that agreed to join our scientific advisory board into CER.
And to serve as the chairman of the scientific Board, Eric quoting the healthcare industry. All his career used to all pharmaceutical companies medical devices company and bill vast experience.
And a lot of relationship because the health Lance.
Landscape Harry.
Eric will walk together with the scientific.
Click Advisory board closely with our research and development team in order to strength, our roadmap and in order to implement it specifically, helping us expand our portfolio into integration with CGM switch is something that we believe for the medium and the long term is important for our platform and illiquid.
Also work with the team, we know that to generate data in Phoenix or lesser than that will help us as flanks and achieve their potential clients on the b to b to C. China. So overall the primary objective behind the scientific advisory board and behind that actually can nomination is.
Is that to create awareness in the market and specifically help us accelerate adoption of our digital therapeutic solution into the b to b to C market with that I would like to handover the rate the call two weeks to elaborate on the b to B to C.
Rick.
Thanks Erez.
In addition to our legacy direct to consumer model, we are pursuing three channels as part of our ongoing transition to a b to B to C Company health plans self insured employers and remote patient monitoring with providers and health systems and to bolster these efforts in the past quarter, we've expanded our commercial team by more than it.
Doesn't individuals. This means we now have a dario sales team covering each channel. We believe this enhances our ability to address the strong interest that we've seen across the channels and best position us for long term success. For example in the third quarter, we had to re allocate sales resources from the RPM channel to cover.
At a high level of interest we received from health plans I'm pleased to say however that we have now added two senior sales executives with substantial experience in the provider space to lead our sales effort in the RPM channel. We're also adding operational resources to ensure smooth and seamless onboarding processes for the new clients and members including in.
And patients already underway let.
Let me begin the channels with self insured employers during the first quarter. This year, we announced that we had entered into a strategic collaboration with vitality group, a leading health and wellness company focused primarily on the self insured employer market through.
Through its many employer customers vitality.
Elutions touch more than 20 million people across 24 markets globally as collaboration representing a significant step forward in our transition into a b to b to C company.
Vitality is customers have access to a curated ecosystem of wellness and health solutions for their employees and.
And their platform provides integrated incentives and rewards for healthy behavior.
As a data driven platform, we regard vitality as a perfect complement to what we're doing.
As an extension of this collaboration we recently announced that our digital Therapeutics platform was selected after a rigorous evaluation by vitality to.
To be integrated into their new gateway flex offering.
We flex is a new package that is designed to address the needs of a largely remote workforce. It provides simplicity to employers by bundling many benefits into a single contract and is cost effective since employers pay only for those programs in which their employees engaged.
We believe our industry, leading consumer engagement metrics combined with our open architecture that allows for seamless integration within an increasingly complex health benefits ecosystem were key factors in our selection.
In light of the challenges brought on by COVID-19, and the massive impact it has had on the growth and acceptance of remote.
Workforces, we believe the gateway flex will be well received and we look forward to providing future updates.
During the third quarter, we also announced apart from ownership with agency Healthworks Premier National provider of population health care management programs with a significant presence in the labor market and more than 1 million members under management.
Agency is offering our digital therapeutics on both a standalone basis as well as incorporated into agency solution and we are already seeing customer interest through this partner.
Currently completing contracts with employers that we anticipate being.
Being able to announce soon especially for those who are including barrio in their new Bennett.
Nope cycle starting in January we are very encouraged with our success in the employer channel in 2020, including RFP wins against some of our biggest competitors. This is especially true given that we missed much of the 2020 sales cycle due to the team joining daria only this year and the impact of the pandemic, we look forward to having increasing traction in towards.
For the 21 sales cycle begins in the first quarter, which.
With respect to health plans as indicated we continue to advance discussions and contract negotiations with several large insurers.
And even though the timing on some it slipped past what we had initially anticipated we have advanced additional deals through the pipeline for a net.
2000, and our opportunity.
While the sales cycles with health plans is typically quite long we are very encouraged by the significant traction that has gotten in this channel in just the last four months. We believe we are on track to announce multiple health plan contract wins between now and early 2021.
Turning now to our profit.
Creator centric initiatives I am pleased to report that with the initial success that we saw in our remote patient monitoring solution last quarter continued into the third quarter. This solution is a key differentiator for our company recall that effective January 2020 providers can bill Medicare under several new remote patient monitoring codes for.
For up to $1800 per monitor patient per year, we expect physicians to continue to adopt this new technology and this new revenue stream quickly and we anticipate RPM will be an important growth driver for our company for years to come.
As we indicated last quarter, we are seeing a strong interest in RPM as a result of the pending.
And with case counts once again, some rising in many parts of the country. We expect that interest in this solution will continue to grow.
Lastly, we continue to maintain our relationships with the retailers as part of our direct to consumer sales channel, we do not anticipate devoting significant resources to the retail channel in the coming quarters.
But we are continuing to have discussions with a few large industry players around some more strategic opportunities.
Overall, we have continued to expand our sales pipeline by more than $150 million in the third quarter alone and move deals into contracting across all of our channels as prospects respond favorably to our product offerings.
Welcome.
In 19 pandemic continues to divert time and attention with some customers. We are in late stage contracting discussions with multiple entities and we expect to have customer announcements this quarter and we believe that we have set the stage for a more significant growth trajectory in 2021.
Being able to demonstrate strong clinical.
Comes data Hi, member engagement and high member satisfaction is key to our supporting customer adoption in all of our channels and I am pleased to report that we continue to expand our data in each of these areas. We added to the already significant scientific evidence supporting our solution in August when we when our poster titled.
Impact of digital management on clinical outcome in patients with chronic conditions diabetes and hypertension was accepted for presentation at the association of diabetes care and education specialist 2020 annual comfort. The results from this study of people, who utilize Daria digital therapeutics platform for diabetes and.
And hypertension management demonstrated some compelling reductions in blood pressure and glucose levels, including a full stage reduction in some hypertensive patients.
That said he adds to our previous presentations at the American Diabetes Association AIDEA scientific sessions in June 2020 in all we now have 14 clinical studies that support the benefit.
Hits of our digital therapeutics platform.
These studies continue.
Outcomes over two years and up to 30000 users. These large studies with long term outcomes data provides strong support for payer adoption of the Daria solution. The clinical results speak for themselves and improved long term clinical outcomes dr.
It will cost savings across the health care system at.
At this point I'd like to turn the call over to be for a review of our financials fee.
Thank you Rick.
I will now provide a brief overview of our financials additional details on our results can be found in our form 10-Q filed earlier today.
Revenue for the third quarter exceeded $2 million, an increase from $1.78 million in the second quarter.
Revenues were again derived mainly from the sales of our products and form the offering of our membership plans to our customers in the U.S.
We did anticipate.
And are seeing modest sequential.
Rental revenue growth for the back half of this year. This.
Reflecting our continued transition to a SaaS revenue model. We expect this come to continue through Q4.
Gross profit for orders for the third quarter ended September 32020 was $549000 a decrease of 320.
$4000 or 37% on gross profit of $873000 for the third quarter ended September 32019 gross.
Gross profit margin was 26.9% as compared to 46.7% in the third quarter of 2019 and 35.6% in the second.
Quarter of Twentytwenty.
Our non-GAAP marketing expenses for the sales quarter ended September 32020 were $3.1 million as compared to $1.7 million for the third quarter ended September 32019.
We used $3.8 million to fund our operations during.
Give us third quarter ended September 30, 2020 as compared to $2.6 million, we used to fund our operates our operations during the second quarter ended June 32020.
As of September 32020, we had cash and cash equivalents totaling $37 million. This includes the gross proceeds of 20.
The only point $6 million from the successful private placement that we closed in July.
I will now return the call back to errors.
Thank you Tony Tony.
So in summary, we are very pleased with the progress that we made in Q3 of this year and also in the rest of the year well sex.
Yes fully executing on our growth strategy, we are executing on our plan and we are gaining a lot of momentum on all China some pruning.
Plans providers and employers and we also very well funded in order to execute on our plans and we have the right talent that are joining our team.
And we feel that we are very well positioned to be successful in the BDC space.
We also as follow up to the momentum winning clients and we believe that in the next few weeks in the next few months will be able to make more announcements on the wins that we are making.
So with that I'd like to handover.
And the call to the operator.
For the Q annexation.
[laughter].
Thank you the floor is now open for questions. If you do have a question. Please press star.
Our one on your telephone keypad at this time questions will be taken in the order they where we see.
Yeah.
Anytime your question has the answer you can remove yourself from the Q last second one again, ladies and gentlemen, if you do have a question. Please press star one on your telephone keypad. Our first question comes from Scott Shiao. Please state your question.
Hi, Resmed team congrats on the results and the new deal wins.
My first question is for Rick actually you mentioned in your prepared comments RFP wins against competitors.
A strong pipeline.
Are these all so these these strong pipeline are these also against competitors and what is helping you win. These RF piece is it price technology.
The combination of both just want to understand the competitive landscape. Thanks.
Sure. Thanks for that question.
In terms of the pipeline on an overall basis some of that is a RFP based.
Some of that is just a direct sales where folks are looking at our solution.
But you know the the competitors are always in the background, whether it's an RFP process or not we anticipate we will see more and more a piece as we move into the normal cycle for sales to employers starting in the first quarter people are really right now implementing.
Those solutions that they purchase but in the meantime, we've also.
And we'll move forward deals.
We're finding in the marketplace is is that the company is well positioned from a product perspective in terms of the broadening offering that we're providing we have died.
Diabetes with the traditional market we've added hypertension, we're in the process of AD.
Maybe.
Weight management, a pre diabetes and people are are liking that approach, but really a lot of the things that are resonating or the clinical data that I talked about.
The reduction in a one fees that were seeing in those studies are best in class.
People are impressed with how large those studies and the longer term nature of those.
At least could that demonstrates real world outcomes and the MPS score that we have the Apple App store.
4.9 out of five stars now will for more than 13000 ratings it keeps going up.
Really speaks to how much people like the solution.
But also the fact that we have a direct to consumer business, where we have tens of thousands of people that are paying out of their pocket for this solution just screams engagement to people and there's more and more recognition in the marketplace that engagement is important so when people really look at it we've got a product.
That by the numbers is exceeding our competitors in the marketplace on the flip side to that we are.
Positioning the product from a price perspective in an attractive way and the fact that we are looking to build for people that are engaged in the process rather than just everybody is being where well.
Well received in the marketplace, an overall basis.
Great. Thanks for that color Rick on the second question is for you arrest can we talk about the M&A environment for chronic digital health companies like Dario since the merger of the bango until it ops has now been closed do you expect large telehealth platforms.
To look at acquiring digital therapeutic flop platforms in order to compete more effectively a chemist teladoc.
Thank you God, Okay, yes.
Yes, Thanks, Scott Whos, joining in the call and thanks for the question.
Actually we see.
Things that are going on in the market. So.
And bill of ongoing Teladoc is one example, because.
When you are looking into chronic condition management, it's about solving the use of 24 seven was a technology that is very engaging in hot handing over.
And some in parliament them responsibly people to use I know this will scale up treatment. So it was very.
Are you a feeling too.
And to fellow Medicine company than we are and we feel that these companies are looking into and make more acquisitions on these.
Chronic condition management, but its own it's not only them in one of the things that I mentioned earlier in the call on the call is also the addition on medical devices company.
Used to dominate that needed space for example that the pension space and that looking into going digital as well. So we feel that we are going to see acquisitions that are coming from this kind of sales, including telemedicine all medical devices.
As well as pharmaceutical companies Thats, one direction or another the election day.
We see this consolidation of of.
Of companies that are integrating solutions, together and getting a more comprehensive their.
Chronic condition management platform and one of the things that we've been in a very smart way is a platform that is open.
Opened which means that if we want to integrate additional chronic conditions.
It's something that we can do it in a more easy way and we feel that the future market a year two years from now it's going to be multi condition and thats, where the second pillar that we talked about so we're going to see one consolidation and number two acquisitions. So big players that are acquiring in most of the cases.
Those that are doing what we are doing most of the cases, we are relatively small player. If we put the site longer. So we definitely think that thats the direction of the market.
Great. Thank you guys congrats on the results again.
Thanks Scott.
Okay. Our next.
Thanks.
John Vandermosten. Please state your question.
Good day to everyone and thank you for taking my question first.
First is on just the number of active users as I think I heard you say there were 63000.
Can you.
Elaborate on that a bit and break that down at all and are there any other stats on subscribers that you can provide.
Yes, so actually.
We had to go through the users and as you know on the direct to consumer we are there.
In order to sell our membership will fill selling the device and then.
And then we are selling users to buy the membership so the overall proportion that we have from between membership to device users that are generating less revenue is the proportion that is more or less the same as what we have seen in the in the previous quarter 60, 40, and as we move forward there and that's something.
As we stated also in previous calls we going to look to impella to deploy insulation that we are doing into b to b to C. We are looking into and slows the platform for membership only so on average moving polio awards, you're going to see that the revenue that is generated the ALP, whether that's revenue that you generated you.
Use of a month is going to get higher and higher and as we will see more percentage.
And members.
Turning to the overall users.
So this is the goals that we had that in.
In line with more or less with the overall goals that we had with the revenue letting them. So.
The fair getting a bigger portion of the membership out of the overall population. This is something that we will again once we are getting more traction there and on actual higher revenues on the b to B side.
Okay.
And.
Hypertension has been available for a while.
So I was wondering if you could give some.
Early observations on how Thats, that's trending how that's picking up.
Yeah, absolutely. So also here I mean, that's something that we are there that we are commercializing now and the b to B to C.
We created this something that we own stay I think second half of <unk>.
Okay last year, and we started to create direction, we started by selling only that device and application in the last.
As for months, we started to turn it into a membership which is.
No our pillar number one make everything hsas and insisting on the membership. So this is something that is moving forward that would.
I would estimate.
He made that.
5% to 7% of the revenues coming from from hypertension, and we feel that thats something that there is.
It's something that we get.
Bigger percentage as we move forward into the B to B to C and in most of the cases, where we're having when we are having discussions with clients.
Employers and plans.
The hypotension portion new sales so.
We believe that this is something that as we move forward is going to.
Get like 20% of the business.
And when we are looking on diabetes and hypertension thats below expectation in the.
On the next two years.
Okay and is there any hypertension that standalone or is it usually paired with diabetes.
Yes, so on the direct to consumer we'll see any we are selling it as a standalone it shouldn't it if it's.
It's not necessarily paired with the diabetes also on the B to B to C side, we are sending it as a stand alone but one.
One of the big advantages and this is Nick.
The belief and philosophy, that's when it comes to chronic condition management, you should provide a personalized solution. So the big advantage is that we are creating is maintaining it as the comorbidities so around integration.
Bds and potential uses that are suffering from more than one chronic conditions. This.
So where we see more advantages and this is something that resonates among clients.
Well selling full and in some of the other fees that we participated in some of the says that we are doing.
We are having discussions on there starting with diabetes and then moving into high potential but this is something that is.
Very important part of the overall value.
Hello position the intersection between the chronic conditions, but each of them can be sold as a standalone.
Great and last question is on.
Gross profit margin and Thats been volatile is the I think this is probably for you.
That's been pretty volatile over the over quarters is that is that related to a timing issue and will that settle out.
And in future periods.
Well as there is that it presented earlier. They currently do because we are mostly on the b to C side and we are doing those promotions. So its a temporary effect that we of course.
To change at the B to B opportunities, we start to translate into dollars.
Great. Thank you that's all for me.
Again, ladies and gentlemen, if youd like to ask the question one on the telephone keypad.
Sure.
Yes.
Okay.
Industry.
Okay doesn't have any further.
Further clip.
Okay. Okay. Thanks, everyone for joining the call okay.
Okay.
Thank you.
This concludes today's conference call. We thank you for your participation you may disconnect. Your lines at this time and have a great day.
Oh.
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