Q4 2021 DarioHealth Corp Earnings Call
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.
<unk> 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 Karma of Investor Relations. Thank you you may begin.
Thank you Daryl and good morning, everyone. Thank you for joining us today for a discussion of Dario helps fourth quarter and full year 2021 financial results.
Leading the call today will be a resurrection L Chief Executive officer of Dario Health there'll be joined by Zvi, Ben David 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.
Audio on the 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 22022. This morning, we issued a press release announcing financial.
<unk> for the fourth quarter and full year 2021, a copy of the release can be found on the Investor Relations and relations page of Dario helps 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 helps 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 factors section and elsewhere in the company's 2021 annual report report on Form 10-K filed this morning, and additional information concerning factors that could cause results to differ.
Seriously 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.
These 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 Erez Raphael Chief Executive Officer arrays.
Thank you Glenn and thanks, everyone for joining our call. This morning, we're very excited with the results of a 2021. In fact this is a fundamental year on executing on our long term strategy.
We are doing in every earnings call I'd like to report on the progress by referring to the main has three pillars that we discussed in the last few years because.
Because we like to be a very very consistent.
Show on all the execution that we did in the last few years. So the three pillars as most of you are aware too is one the transformation.
Direct to consumer into the beta Bee and mainly health plans and employers China's 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 health care environment, which is fuel.
Fuel Ed.
That's a company high margin recurring revenue profile.
So I'll start with the expansion into the multi condition.
We started with diabetes and are in between 2018 to 2020, we expanded.
Into either the.
Metabolic areas from diabetes hypertension and weight loss in 2021, we completed lagging 12 months between January 2021 to January 2022 on three acquisitions two of them all in the musculoskeletal.
And another one on the behavioral health space and it's not just about the execution of the.
Acquisitions. It's also about the integration of this acquisition into a full suite in fact, we anticipated the consolidation of the digital health and digital therapeutics market and we anticipate the demand is going to come mainly from our self insured employers that want to adopt integral.
That solution and this is something that is reflected also in the demand that we see in our pipeline with 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.
Both tool, which is super important is moving the business from direct to consumer that have a very a financial profile with relatively low gross margins and high cost per acquisition into high gross margins.
Lower cost of acquisition.
And then Donald scaling up between employers and health plans.
And they provide us on that and we executed in 2021 and we were growing from five accounts to 50 full accounts. The total value behind this accounts is $35 million in the full implementation. This is something that we already reported on the web we know that we did on January 19th and this is nothing.
Clothing additional revenue that should come from the strategic deal that we announced two weeks ago, we San Jose that should contribute an additional 8 million Boe at all.
<unk> right.
We also showed a very strong execution capabilities in terms of the enrollment rate.
The accounts that we are implementing and Rick is going to elaborate about it and we're seeing wins, although the competition based on the portfolio.
Oh first solutions that we have built into one integrated suite today, we have at least one account that have 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.
This is something that is not straight forward.
Post acquisition in a very very quick time.
If I'm, taking the two our first pillar is the expansion into multi conditions and their transformation from BTC into beauty 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 expect that every user is higher number too.
The amount of dollars that we can extract every account is that we are signing on if those signing on more than one condition can go as high as $4 five X more dollars. So that'd be a con which is something that will improve and is improving our financial profile.
And with this.
Things that are happening plus the accounts that we have signed on we're super confident with the significant growth that we're going to show in 2022 and also in terms of gross margins. We believe that in 2022, we're going to show.
non-GAAP .
Measure gross margins that are going to grow to somewhere between 50% to 60% and the overall goals just as a reminder is going to be between 70% to 75% gross margins to the business. This is what we are targeting and we are going to show.
Improvement between 2020 , one to 2022 .
Overall, if we are looking on the financial profile from a burn rate and form loss, we believe that the transformation from 2021 2022 will reduce 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 beta B's higher we're going to see more revenue getting from the beta bee.
And also because of the BTC 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 low burn rate.
One of the things that we announced two weeks ago that is speaking also to the intensity.
That we are there and the <unk>.
We are operating we signed.
A significant deal with one of the biggest companies in the World Santa Fe.
And.
One of the things that is going to alongside with our with the deal is a revenue that oh.
Revenue that should contribute $30 million in the next few years, when we used $8 million will be recognized in year. One I think is going to elaborate about it in the eye.
I felt that after talking with investors.
Deal with people.
He told me about the 30 million I.
I think that this is a small part of the potential deal of Santa Fe, We believe that the coal commercial activities that we're going to have and in fact, the Sanofi flipping their name and there there are a couple.
In terms of sales activities behind downhill, that's something that is going to help us grow our revenue and.
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 there.
A deal for our company and we are looking also into our other strategic initiatives that are under discussion.
Specifically into Q4, we already talked about the top line and we disclosed that during the webinar, we pre announced that he is going to be between five $8 million to $6 million quota.
One of the things that are that we are showing in this report is that the gross margin and non-GAAP is reduced and we have seen three quarters in a row that its going to that it's going from around 37% in the 2022 two.
237% in 2021 in Q4, specifically it reduced to 2021. The reason for that is a very expensive shipment that we had to do a.
Food there and this is a one time I repeat it's a one time.
The event that we had the combination of shipment and some discounts that we did on the BTC. 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 gross margins in Q1 is 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 like.
Thanks Louis.
In 2021, we added more than 50 customer contracts across all three channels, including a national health plan.
Accounts announced prior to 12 31, all but one provider account are implemented and are contributing to 2022 revenues starting in the first quarter. The last provider agreement will launch shortly most of the employer contracts, we announced prior to year end or on a January to December benefits 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.
<unk> 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 are contract value is now in excess of $36 million up from what we announced on the Investor call. Just this last January this excludes cfe, which represents an additional $30 million in contract value.
As Erez mentioned, we continue to see good operational metrics and the launched accounts with enrollment of approximately 40% and retention on the platform at approximately 80% are 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 are members one coach one journey, one integrated experience versus our competitors that are customers are describing as having modules even when they cover as many are nearly as many conditions as we do.
<unk> 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 daurio than single condition solutions.
We were very pleased to enter into the strategic relationship with Santa fee in the first quarter disagreement.
As far as we're 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 <unk> will promote the entire Darius suite to health plans and some select employers. This immediately increases our health plan sales resources by more than 10 acts and brings additional data and targeting resources to the Dorian sales efforts.
Revenue earned under this co promotion is in addition to the $30 million contract value.
Development of a new or enhance our solutions on the Dario platform that will be distributed by <unk> and through the co promotion agreement is the second part of this agreement.
Lastly, Santa Fe is leveraging their internal data and real world evidence teams to create studies and additional data around <unk> 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 understand a fee 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 them.
We continue to make progress on the sales side with all three channels.
And employers we are in the early part of the sales cycle for self insured employers that are on a January one to December 31st cycle.
And about 70% as I've talked about in the past of employers are on the cycle.
You'll see Rfps for the next few months with contracting in late in the third quarter and early the fourth quarter and launched 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've made in increasing the name recognition with benefits consultants through continuing RFP volume.
Outside of this mean employer channel, we continue to see strong demand for our stand alone 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 and.
The coming quarters in.
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.
Spanned 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've continued to see contracts with providers and expect we will continue to see additional contract in the second quarter.
With that I'd like to turn it over to Pete.
Thank you Rick.
Revenues for the fourth quarter ended December 31st when people went to one 6 million so $3000.
One 1% sequential increase on the third quarter ended September 30 point people went to one and 190% increase.
The $2 million.
In the fourth quarter ended December 31st 2020.
The increase in revenues resulted from the new product line acquired Julien 2021 and the expansion into the B to B market.
Gross profit in the fourth quarter of 2021 was $548000 a decrease of $1000 compared to a gross profit of $549000 in the fourth quarter of 2020.
Gross profit as a percentage of revenues decreased from 26 point fall in the fourth quarter when he 'twenty one.
2020, 291% in the fourth quarter of FY 'twenty.
Sure.
The decrease in the gross profit and gross profit as a percentage of revenue resulted from amortization of expenses related to the acquisition of upright.
And the way forward.
And from higher shipping expenses.
And price reductions.
Out of the vertical consumer promotion campaigns into full slaughter.
A former gross profit excluding $792000 fulfill mobilization of expenses related to the acquisition.
And the way forward.
$1.330 million or 22, 1% of revenues for the three months ended December 31st when people if you want.
Total operating expenses for the fourth quarter of 2021 $22.2 million compared with $9 $6 million in the fourth quarter of 2020, an increase of $12 6 million or one huddled in so if he wants to start.
This increase resulted from an increase in our research and development activities.
Marketing.
Strength of expenses and stock based compensation.
Total operating expenses, excluding stock based compensation acquisition expenses and depreciation for the fourth quarter of 'twenty one.
We're a $16.4 million compared to $7 $5 million in the fourth 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 equivalents totaled $35 8 million on December 31st 2021, and our net proceeds from the offerings of closed at the beginning of this month.
Was $38 million.
Do you Erez.
Thank you Tiffany.
So to summarize our discussion one of the important things that I want to tell.
All the investors is that the fundamental oh the.
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 health care industry is not about <unk>.
Solutions would be adopted but more about what are the solutions that they should be adopted.
And I'm very proud that we are building one of the best.
Companies in the digital Therapeutics category.
Uh huh.
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.
In the market in the stock market.
But we see a very intensive adoption of solutions in 2022, he's going to provide the acceleration in growth we feel super confident with the analyst estimates we have the sign that we.
We have the strategic deals and we have all the components in place and in terms of the.
Suite of product.
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 are in a non-GAAP .
Somewhere between 50% to 60%, which is another improvement comparing for 2020 one.
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 2021.
Overall, we ended the year with $35 8 million dollar plus the additional $40 million that we raised.
We have a long way.
To go through.
'twenty 'twenty three in addition, we have a few strategic.
Communities 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 this.
Market environment.
So with that I want to I want to stop here and turn the call.
For the 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 one on your telephone keypad, a confirmation tone will indicate your line is in the question queue.
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Please while we poll for your questions.
Our first question is coming from the line of Alex Nowak with Craig Hallum. Please proceed with your questions.
Great. 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 that now currently online and generating revenue is it fair to assume that by the time, we get to the end of this year and into 2022, you'll essentially have 35 billion of new run rate revenue that you.
Then 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 youre thinking about it for this year.
So I don't think on a run rate basis. Yes, you can 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 'twenty, one and say that's 2022 revenue, but on a run rate basis. It should.
Approximate that exiting the year, yes.
Okay. That's really good to hear maybe expand a bit more on the Santa Fe deal just what does San Jose booking 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 this why they picked the Oreo.
Okay.
Well starting in reverse I, obviously I can't speak for them exactly in terms of what their final decision was composed up although what they have told US is that 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 it so.
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 taking the member experience they were already seeing and thinking about where they wanted to go in the future.
To go in the future with Oreo that was an important factor as well.
We're in the process right now of defining what the 2022.
And that piece will look like in terms of specific.
But there's areas around expanding four specific.
Patient populations as well as our opportunities that we've discussed in terms of expanding the number of conditions that are on the platform.
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.
So the agreement as it relates to the economics is primarily made up of the co promotion pieces related 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.
Sometime in the next few months and then.
New development on the platform.
Okay got it and then just lastly, we've talked about these new digital therapeutics reimbursement cuts 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 much today, but just are you seeing more end dose looking at providing remote patient monitoring now now that there are reimbursement.
Codes that are actively being discussed.
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 M. S. K.
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 Xiaomi, because youre dealing with the government, but because of the fact that we're seeing people get reimbursed for the RP and codes that people are starting to sort out the operational aspects of it.
There is more excitement around the RPM codes from the provider side.
It'll be interesting.
Keeping a close eye on how reimbursement in this marketplace perceives because in addition to that obviously most of the reimbursement when you look at employers and health plans was coming through self.
Self insured employers paying them for the solution and yet we've seen recently that the government came out and said that they felt like they would reimburse for digital prescription digital therapeutics, which we're not doing but it is 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 been some but we expect that trend to accelerate.
Okay, that's great to hear I appreciate the update thank you.
Yes.
Thank you. Our next question is coming from the line of Craig Jones with Stifel. Please proceed with your questions.
Hey, Thanks, guys.
So going back to that $8 million on staying with you I guess when does the year one kind of starting in 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.
It is not.
It's a calendar year, so when we're talking about year, one we mean 2022.
Okay got it.
Could be.
Got it.
Yeah, No no no.
We are currently expecting that we will recognize the $8 million of that revenue in 2022.
And.
It's a little bit frontloaded.
In terms of our cash flow and because you've got the preferred partnership payments upfront as well as the launch of the <unk>.
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.
Not exactly even but it should work out to be relatively spread.
Okay does that include Q1, so like 222, and two or should it be.
Starting to queue.
It should be no it'll start in Q1, we anticipate it will start in Q1.
Okay got it.
And then on.
Looking at that.
The breakout you gave in the K or the hardware consumables versus services. It looks like that was about <unk> 87 in 13 as a percentage of.
<unk>.
And it was kind of flat is kind of flat throughout the year, how should we expect that to sort of trend and then exit.
In 2022 like how big are the services fee as a percentage of revenue and exit the year.
So moving forward into 2022, we're going to see more software and less what is called the holywell product because.
Oh services.
And.
This is due to the the transformation from the BTC into debate a bee.
And in fact Q4 was.
Phil was the last quarter well the portion of the hardware or what we're calling the product.
<unk> was a bit high so that's something that you should expect that we'll be changing the beginning.
2020 through already from Q1.
Overall.
And that's something that will help them.
Meet the targets.
Gross margins for the business for 2022.
Between 50% to 60% on a non-GAAP .
Michelle.
Got it and so central.
Really low starting point for the gross margins and you want it you're saying the whole year should be 2022, besides the whole all the 2022 should be 50% to 60%.
So on average for the full year between.
2%, that's how target and we're going to see a significant improvement from Q4 2021 to Q1 2022, it's going to it's going to improve over the over the over the year from quarter to quarter. The higher the <unk>. The revenue was going to be the higher theres going to be the gross margins so 50% to.
<unk> is an average for the full year was improvement from quarter to quarter.
Okay and do you 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.
Improve that throughout the year.
That's correct.
Okay, all right got it that's all I had thank you.
Thank you.
Thank you as a reminder, if you would like to ask a question. Please press star one on your telephone keypad.
Okay.
There are no further questions at this time I would like to turn the call back over to arrays Raphael for any closing comments.
Thank you operator, so thanks, everyone for joining our call and we're looking forward to meet on the on the next call. Thanks.
Thanks, everyone. Good day Bye bye.
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