Q1 2022 DarioHealth Corp Earnings Call

[music].

Good morning, and welcome to the diary.

The first quarter of 2022 results call.

All participants will be in listen only mode.

You need assistance, please signal conference specialist by pressing Mr. Archie.

People.

After todays presentation, there will be an opportunity to ask Washington.

Please note this event is being recorded.

Now I'd like to turn the call over to Mr. Guangdong.

That's the relations. Please go ahead.

Thank you Nick good morning, everybody and thank you for joining us today for a discussion of Dario Health's first quarter 2022 financial results.

Leading the call today will be a restaurant fee L. CEO Dario health he'll be joined by Rick Anderson, President and General manager of North America at Dario Health <unk>.

After prepared remarks, we'll open the call for Q&A and.

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.

For the benefit of those who may be listening to the replay or archived webcast. This call is being held and recorded on May 12 2022.

This morning, we issued a press release announcing our financial results for the first quarter 2022, a copy of the press release can be found on the Investor Relations page of Dario helps website.

Actual events or results may differ materially from those projected as a result of changing market trends reduced demands 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.

Lee from those projected.

Forward looking statements discussed on this call are subject to other risks and uncertainties.

Clothing, including those discussed in the risk factors section and elsewhere in the company's 2021 annual report on Form 10-K, as well as the first quarter 2022 Form 10-Q filed this morning.

Additional information concerning factors that could cause results to differ materially from the company's forward looking statements are described in greater detail in the company's press release issued this morning and in the company's other filings with the SEC.

In addition, certain non-GAAP financial measures may be discussed during this call. These non-GAAP measures are used by management to make strategic decisions forecast future results and evaluate the company's current performance.

Management believes the presentation of these non-GAAP financial measures is useful for investors understanding and assessment of the company's ongoing core operations and prospects for the future. A reconciliation of these non-GAAP measures to the most comparable GAAP measures is included in today's press release regarding our quarterly results with that.

To introduce arrays Raphael Chief Executive Officer arrest.

Thank you Glenn and thanks, everyone for joining us this morning.

So a full all of you that know the story you know that we are very very consistent with the story for the last few use we always talked about few pillars the multi condition.

The election with the acquisitions that we did in order to.

Develop the best digital Therapeutics company in the World that supports multiple conditions, we talked about moving from direct to consumer to be to be and we talked also about a super user centric business model with SaaS.

Kind of revenue recurring revenue and that ended up with high gross margins, which is something that.

Super relevant for software company and I get value I think that in Q1, we are starting to show at all.

All of these strategic decisions.

Reflecting in the way that we are open to it and also in all the financial profile I think that as management, we knew how the market is going to evolve, but we knew that health care will be super consumer centric and we knew that it would have to be more digital.

We made all the decisions and we start to see in this quarter.

Well, it's going to take us say too and I think that if you're going to look on all the financial profile of this quarter you can see that we improved almost all the parameters that we're starting from the top line the marriage between direct to consumer to be to be the profitability and the gross margins. We have seen a significant improvement we've seen.

Reduction in operating expenses and mainly because we are shifting the business from direct to consumer to be to be so we spend less money on their on digital ads and a and the most important thing is also the loss in this environment. We showed a significant reduction in the loss there.

For the quarter and I'm going to get into the numbers shortly but before that I wanted to talk about few fundamentals development that we had this quarter. So we signed over 40, new accounts, including through health plans health plans. So super important for our business usually they are providing much higher revenue per account.

We have 61 account so far.

80% of them are they started the launch.

Okay.

We have a total of almost $40 million.

<unk>.

Implementation of these accounts if we are looking on.

And then there's a very very strategic.

Activity that we had in this quarter was the Sanofi agreement.

We started the relationship a couple of months ago, and we are making good progress.

<unk> very well and we have two elements that we need to consider one is the offering we think that with the capabilities of our Sanofi and the digital therapeutics platform that we have and we.

We can create the whole thing that theres going to be physically attracting the market also moving forward. So.

Yeah.

The teams are already working together and we're going to get the best platform in the World and also on the commercial side. In addition to a $30 million of debt will be.

Paid by Sanofi to downhill from which we're going to be paid this year. We also working together with the commercial team in order to push the solution into the market that we started in the U S. With health plans like is going to elaborate about it.

The important point is the strategy of multi condition that we have.

And this is something that proved to be a very smart decision not only preliminary financial profile, but those people when they go to market perspective, we are getting more and more demand to the multi condition and we think that the significant portion.

<unk> of the accounts that we're going to sign this year next year I was going to move before the full suite.

Also on the implementation side, we're making a nice a section and keeping above 35% in women's grateful dead counts that we have.

Launching.

Few highlights on our financial so we ended the quarter with.

Above $8 million in revenue, which is 124% higher than what we showed.

In Q1 two.

2021, and it's also a boxing at the 34%.

And higher than what we showed in Q4 2021. So it was a nice jump quarter over quarter sequentially I think that the merger between <unk> is also interesting for the first time <unk> exceeding b to B to C and revenue.

And Sanofi is going to contribute $8 million.

For the year that had also contribution for this quarter and just as a reminder, this is a multiyear contract that will contribute revenue also in the next quarters and also next.

Next year and do you after.

This is also something that is going to I think so.

Financial profile in terms of expenses.

If we are looking on the.

Overall expenses, excluding the stock based compensation acquisition expenses and depreciation.

The first quarter of 2022, we managed to reduce.

Overall, our expenses the 214 point that if we compare it to Q4 of 2021. It was $16. Four. So this is a this is a.

A good debt reduction and I think that we're going to see this thing moving on to the next quarter because that one of the things that we are starting to stop doing is investing a significant budget into the direct to consumer we are moving budget to the beat of beef.

Which is something that is more cost effective in terms of the cost of acquisition and that's something that will also help improve the financial profile on the gross margins on the non-GAAP , we showed 61%.

We talked about it in the last quarter, but eventually the goal of the business is going to be above 70, 75%.

The goal of the business.

We talked about it a couple of months ago when.

We guided somewhere between 50% to 60% and now we see that it's around 61 on a non-GAAP basis.

And we're going to continue this trend overall.

It's not going to be Super stable in the next few quarters, but overall, it's going to be in these ranges and we're going to keep improving it and we are confident with the goal of 70% to 75% moving forward. So we are very very positive about the gross margins as well on the operating loss. This one we showed a significant reduction.

We had the $14 9 million.

Million dollar.

If youre looking in Q4.

When we exclude the stock based compensation and acquisition expenses and depreciation and we went down from $14 90 2972. This is the significant reduction and we are always looking on all of them.

Losses, and how we can.

Operating in this environment and be Super effective. So this is something that.

We're very proud in this 35% reduction overall.

We are looking on the boom that we had to bend that showed up the beat Hi. This is something that is not a run rate. It's temporarily we build a significant size.

Size of.

Inventories, we are operating in a very challenging environment from a supply chain standpoint.

So many accounts that we have signed and we need to launch we felt that in order to put the business in the right.

Situation, we need to have a higher than usual inventory. So we built more inventory in Q4 and in Q1, So we paid for that.

This is one thing another thing is the payments that we should get the <unk>.

Or where do you go out for Sanofi and others showed up only in Q2.

So this is something that was showing a bit higher than that and then then the usual on late so I wouldn't be too worried about the burn is simply that for Q1.

Looking on the overall balance sheet, we raised the additional $40 million in Q1, which is something that was in addition to 30.

$36 million that we ended the year so from a cash position, we feel super confident that we have the cash to execute on our plans and we have cash to get into 2024.

So with that I want to hand over the call to week to give you additional.

Insights on what's going on on the commercial side.

Thanks Erez.

Q1 represented a milestone quarter for <unk>, we saw substantial increases in revenue both sequentially from last quarter.

And up over 100% from last year as <unk> mentioned this is being driven by the launch of accounts signed in 2021 in early 2022.

And we're seeing the expected increase in <unk> revenues at higher gross margins for.

For the first time <unk> revenues in the quarter exceeded <unk> revenues, which is a watershed event for US we signed two health plan accounts in the quarter, one of which recently launched and the other is expected to launch in the second quarter, both are expected to contribute to revenue.

The second quarter and beyond this year.

We also entered into the $30 million strategic agreement with Santa fee in the quarter. We believe these milestones are substantial validation of our strategy to focus on the <unk> market with the additional contracts. We've signed in 2022, we now have 61 contracts on our path to our goal of 100 total contracts for 2022 the.

Any of the agreements announced in this first quarter are what we call off cycle employer health plan and provider agreements and as such are expected to generate revenue in 2022.

Generally it takes about 60 to 90 days to implement these types of customers.

The exception to that is that I've discussed in the past is when a customer has a different targeted launch date in.

In some cases that will be but we will see more of those types of agreements as we get towards the end of the year with.

With the addition of these new agreements are contract value is now approximately $42 million and as <unk> mentioned, we continue to see good operational metrics and the launched accounts with enrollment of approximately 40% which is translating.

Launched accounts into increasing revenue and we expect that to continue throughout the year.

Our integrated multi condition platform strategy continues to generate interest in the employer and health plan markets with customers recognizing the value of both less vendors and one member journey for their employees and members versus our competitors. They generally have module rather than one integrated platform.

Insistent with task orders approximately three quarters of our pipeline is now multi condition.

So either full suite or more than one condition that we have.

Where the multi condition offering provides more value to both our customers and approximately four to five times more revenue to <unk> than a single.

Condition solution.

We continue to make progress in all three of our <unk> sales channels and with strategic partners for employers we remain in the early part of the sales cycle for self insured employers that are on a January one to December 31 cycle, which represents approximately 70% of all employers consistent with this cycle, we will see rfps.

A request for proposal, peaking during the second and third quarters and contracting in late third and fourth quarter and for those accounts that will launch in the first quarter of 2023. This is the normal employer cycle and we would expect that we will see those employer contracts as I said in the third and fourth quarter, what we're seeing in the first and second quarter.

Primarily off cycle health plans and provider again.

Outside of the main employer cycle, we continue to see strong demand for our Standalone BH offering and other off cycle customers, which we expect will generate additional contracts and revenue throughout 2022.

All of our recent contract announcements have been these types of off cycle customers with regards to health plan during our year end call. A short time ago. We said, we expect an additional one to two plans in the coming quarters. Since then we've announced an additional plan and we still expect additional plans in the coming quarters of 2022.

In addition, we anticipate completing an expanded agreement with our existing national plan in the second quarter, which represents an acceleration of our originally anticipated timing.

This expanded agreement has the potential to bring more than 10 million members onto the platform over the next couple of years and in 2022, we anticipate multiple millions in revenues from this agreement.

The implementation of the <unk> agreement is well underway Santa fee began promoting the entire <unk> suite to health plans in the second quarter immediately increasing our health plan sales resources by more than 10 times, and bringing additional data and targeting resources to the direct sales team.

Revenue earned under this co promotion is in addition to the $30 million overall, Santa Fe contract value we have discussed.

Over the last couple of months, we have been collaborating with Santa Fe to define new and enhanced solutions that will be built on the Dario platform beginning in the second quarter.

2022, and we're very pleased with the speed, which we've gotten after the launch on the <unk> agreement.

<unk> is leveraging its internal data and real world evidence teams to create studies around the <unk> solutions and we believe that these will have increasing value as the market moves to demanding increasing levels of evidence for digital health providers in the coming years with <unk> well underway, we are continuing additional strategic relationship discussions.

That we believe could add substantially to revenue at the end of 2022 and into 2023.

With regard to our remote patient monitoring our provider offering we've continued to see contracts with providers in the first quarter and I expect that we will continue to see additional contracts and expanding revenue in the second quarter given the traction that we've achieved in the health plan employer and strategic market. We have made a strategic decision to rotate sales resources away from the.

Provider market and into markets with higher near term revenue opportunities, which we believe will increase the efficiency and improve our operating margins.

Back to Europe .

Thank you.

So in light of the recent microenvironment I must say that we are super excited about our positioning as a chronic management company that is changing one of the big industries in the world.

And we see that other healthcare players are trying to work toward though the business model that is.

Super user centric recurring revenue driven from tech.

And we do see on the well through the challenges of.

Companies on the telemedicine pilot just wanted to.

Remind again and emphasize that.

And value is is a user centric company that try to drive a change from the consumer as opposed to just working with the physicians.

In a kind of episodic relationships between patient two physicians, who we are scaling up chronic condition management from the users and I think that it makes a very very big difference and we see the rest of the market is trying going though.

And we do believe that moving forward, we're going to see more strategic.

Agreements.

With companies that are coming from the health care.

More traditional players.

Debt.

I'll also.

Becoming.

More and more believers the digital health and digital therapeutics is something that.

Would create a lot of value and won't change healthcare and therefore, they're looking to have deals with companies like medallion. So I expect to see more of those.

Moving forward also this year.

Other than that we believe that we're going to show.

Continuous improvement in our financial profile, including growth.

Super believers in this SaaS model and hitting our objective of 70% to 75% gross margins.

With.

50% to 60% gross margins.

On a non-GAAP basis for this year.

We're going to be Super cautious on in terms of how we are spending all our capital and we're going to keep <unk> in.

And their investment into the form into the direct to consumer and we're going to grow the business from the b to b and not from the direct to consumer. So this is something that we will continuously improve our financial profile and reduce our overall expenses.

And other than that.

Again on the cash position, we feel comfortable with where we are and with the run rate into 2020 full we do believe that in case capital will be needed, we will be able to find Soc.

<unk> that are non dilutive for the company.

The environment is something that we are we understand and we look into what's happening in the environment, but.

Especially in this environment, we believe that a very successful business.

The future is something that will thrive and create value to investors.

And so we're going to keep their.

Execute on the fundamentals.

With that I want to open the session for Q&A.

Thank you well now begin the question answer session.

To ask a question you May Press Star then one on your Touchtone phone.

If you use has to equal one please pickup your handset before pressing the keys.

Your question. Please press Star then two.

I will pause momentarily to assemble the rafal.

First question comes from Alex.

Hello.

Ed.

Good morning, everyone. This is Jason on for Alex first of all congrats on the quarter. Thanks for the questions.

So first for me and our revenue in the quarter from B to B now exceeding consumers great to see.

Any additional granularity you can give as far as the breakdown you saw this quarter.

How it compares to sequentially or year over year, and then maybe what kind of growth rates, you're seeing from the two franchises that would be helpful for us. Thanks.

So I appreciate the I appreciate the question.

I would say that a lot of what we're seeing is the culmination of the efforts that have been taking place over the last year in two years.

Associated with that we had a significant number of launches.

In the first quarter as we expected.

We're not doing a breakdown in terms of on an individual customer basis, but I would say that we saw growth.

Across all of our.

Market channels in terms of revenue and we expect that we will see that continuing I would say that probably the smallest contribution relative to the other markets would've been health plans in the current quarter as that continues to ramp up but we expect that that will catch up rapidly in the second and third quarters with.

<unk>.

The new health plans coming online as I mentioned, one of which one of the new ones has already launched and the other one we expect to launch.

In the near term and with that we expect that that will add to the add to the first one that we have in the current year and we will see acceleration of that catching up to the other segments.

That's helpful. Thanks, and then.

You had previously mentioned that you mentioned on the call today are the additional phases, you expect with your large national plan customer.

Previous comments was expecting those additional phases to come maybe as early as Q2.

Clarity is that still the case and then what these add ons might add.

Uh huh.

Yes.

We expect that that will happen in Q2 from an agreement point of view.

And once that's concluded we'll add it to the AAR, but.

From a potential <unk> value once fully implemented will approach eight figures.

That's great to hear.

And then concerning gross margins you gave that 50% to 60% guide last quarter and certainly on track there.

Can you talk a little bit more about what your expectations are maybe the rest of the year.

It's up sequentially from here or do you expect some noise or should we think pretty constant through the year.

It's helpful. Thanks.

Yes, I think that.

We might see some noises because because it's ramping up and because the revenues that are coming from different channels.

It's something that we're going to see fluctuations, but overall, that's going to be and the kind of the baseline. So I wouldn't be worried if it is going to go with 2% down <unk>, 3% up.

When we are launching an account usually.

The first.

Three months were shipping a lot of.

Hardware and devices and this is something that show up as a very low gross margin.

First couple of months of the account.

After a full five months of the day count is in production, we are starting to generate revenue that is much more.

From software.

So overall, a singular account will get to 75%, 80% overall gross margin in the <unk> seven.

75% to 80% might happen after six or seven eight months once we.

Finishing on the enrollment and were playing only the software kind of game.

So.

Depends a lot on how many accounts we are launching in every quarter and what is the intensity of the accounts, but demo accounts. We are in production the high youre going to be the growth model and so.

One of the things that it's very hard to anticipate is the intensity of the launch literally months and every quarter and then this is something that creates the fluctuation, but overall the business should be in this 60% figures.

For the next few quarters until it is going to go to the next level.

<unk> achieved a 70% plus.

That's how you should look at it.

Got it.

Is there directionally.

And then if I could sneak one more in.

As far as how the ramp is looking compared to your guys internal model would be helpful.

It seems like these.

These.

They are ramping.

Nicely in Q1 is it kind of progressing what you guys were expecting or maybe a little bit ahead of expectations and maybe how you're how you're thinking about it the rest of the year.

I would say generally speaking they're ramping as we would have anticipated maybe a little bit better.

As you know I'm reluctant to move numbers upward until we have more.

Proof points around that so I mean, I would say, it's been a little faster than what we anticipated, but internally we're keeping our.

Ramps, where we've had them historically.

Got it that's helpful. Congrats again, guys I'll hop back in queue.

One more thing.

I want to emphasize on the gross margins is that you need to remember that we are also the strategic agreement with Sanofi, which is also something that these.

Adding a component to the gross margins that are generally improving the gross margins. This is why I think that in the next few quarters, we're going to see fluctuations between the traditional b to b.

Sanofi and a potential strategic deals plus the BDC that is.

That is getting a smaller portion in the overall revenue so.

All of these components have different contribution and thats something that.

Will impact on the fluctuation, but overall, it's going to be higher than what we have seen in the last two years.

Thank you.

Next question. Thank you. Our next question comes from Charles Yokohama. Please.

Please go ahead Sir.

Yeah, Hey, thanks for taking the questions guys congrats on the quarter.

Just a follow up.

For <unk> it sounds like Youre, saying that that first 8 million payment comes in the second quarter. What is the accounting for that does that show up.

As revenue.

And drops to the bottom line just can you just give us a sense for.

How we should.

Our confidence in our <unk>.

Models first.

Okay.

Hi, Charles it's Rick the.

So we wouldn't in the second quarter, we would not expect $8 million, we would expect a portion of the 8 million that.

In the current year and the revenue recognition for Cfe is dependent on when the elements are delivered so some of that in the second quarter and then as the development.

Ongoing in the second third and fourth quarters, we would expect that the remainder of that revenue would be recognized so we're going to see revenue recognition across.

Across the year as it relates to that.

Okay. So we will see an increase in receivables and then or is there a separate asset traded for that.

But then we will see revenue recognition across the rest of the year, that's the right way.

We will see deferred rent depending on the timing youll, either receivables or deferred revenue, yes, okay. There's something to emphasize we did recognize.

Fee revenue also in Q1.

We had a nice portion of that in Q1 as well so it's going to go along with the whole year, we're going to see it every quarter and we are going to see it also in the next few years and there are multiple.

Portions of this revenue some of it is going to development services some of it is.

Is that kind of license related and market access related and data related. So there are few portions though each of them has a different gross margins, but overall this is something that I wouldn't call. It recurring but this is something that is happening every quarter end.

And also every year for the next few years. So I think this is something that should be modest.

Okay, and so when you when you talked earlier about the.

The fact that <unk> revenues were greater than B to C. Revenues. This quarter <unk> revenue you counted as part of <unk>. So.

That would then correspond to the other comment that health plan contribution still was relatively small.

Or is that is that right.

Just in terms of the ramp on health plans. It was less of a ramp than say the employers because employers where we launched basically all of the January to December cycle customers. We launch that we announced in 2021 and some of the stuff that was announced.

Really in early in 2022 launched in the first quarter. So that's got your most significant ramp to it but yes, we did recognize revenue related to Santa Fe.

As well in the first quarter and some health plan too.

My comment was with more health plans coming on you're going to see that ramp happen continue to happen in the second third and fourth quarter.

<unk> right.

Correct Okay.

You talked about $42 million in contract value.

Does that suggest that as we exit the year, we should be looking at sort of a sort.

Sort of a run rate on a quarterly basis, including the incentive fee call. It $12 million is that sort of the right range.

The range that we used to be.

Should we ramp up to that kind of level is that does that sound about right.

Yes.

And when we started to show this model at the beginning of the year, we talked about.

The time for implementation, we call it like two to six quarters time full implementation. So the idea is yes, I mean, we need to get towards the end of the year beginning of next year. Once the accounts are fully implemented under the metrics of the objective will fan.

35% to 40% enrollment rate and we are on track with these numbers. So we think that the.

That's more or less.

Should be there.

Im getting done.

Just to clarify one thing in terms of that is that there is there's two pieces to that win win read says that number of course, its usually takes us.

30 to 60 days to launch an account in less.

The account that is the customer says we want to watch a specific date like January one for example.

And then that could take longer in those cases from contract signing to launch.

And then it takes us a couple of quarters to ramp up the revenue. So it doesn't take us that long to implemented its just to get to full run rate on those kinds of contracts. It can it takes a few quarters.

Okay. That's helpful. And then just to clarify that large national Health plan I think you said that it is.

The phase the second phase is not in var, but if it was.

That would be an eight figure.

Your type of deal is that just for sort of the second phase or is that in total.

The easiest way to think about it is.

In the second phase.

That's really what that numbers I was speaking to were coming from.

Okay.

Perfect Great I'll stop there thanks for the questions and congrats again.

Thank you thanks.

Thank you. Our next question comes from Rod Hall.

Yes.

<unk> capital. Please go ahead.

Hey, guys. Thanks for taking my questions.

Rick I know you commented on on the sales cycle for the employer market and provide some guidance on how we should think about the rate that you guys kind of had those employers throughout the year, but I was wondering if you could provide some color on the other two segments as well I guess broadly speaking how should we think about the number of customers that youll be adding in Qs two and three versus Q4.

Yeah.

Hum.

So thanks for the question.

We think about health plans to help land sales cycles are 12 months to 18 months, obviously now we've had the opportunity.

<unk> to get to that sales cycle and that's why we're starting to see accounts come in.

I would expect we'll probably see another one to two health plan.

In the in 2022 based on where we currently sit maybe we'll do a bit better.

It's a little hard sometimes to predict their exact timing on when they're going to do things providers I would expect that we will see.

A small handful of providers in the second and third quarter coming through as I said.

During the presentation is that were rotating sales resources out of that segment. So I think we'll see a little slower growth.

That goes forward and we're doing that because of the fact that we believe that will be more efficient on topline and bottom line by doing that.

And that that will give us the best growth rate around that but that's the kind of rate that I would expect all of those are.

I call it off cycle, just because the employer.

January one to December 31st cycle is such a defined cycle and none of the other market segments, Ron on any kind of cycle like that.

Got it okay, I really appreciate that I guess kind of based on our prior guidance.

So were expecting 35, or so more customers. There. So I guess just for clarification, you kind of still expect the majority of those to come in late Q3, Q4, but we can expect I guess, a handful or so in Q2 or early Q3.

Yes, I mean, I think we'll continue to see the types of numbers that we saw in the first quarter, we will see.

In the second and third quarter, probably a bit of acceleration and then I would say the third and fourth quarters, where youre going to see more accounts because of the fact that more contracts because thats when we will start to see.

The employers that are on a January to December cycle, which is 70% of employers that's when they will come in as the fourth quarter.

That's just by defined cycle.

Got it okay, no that makes sense.

And then yes, you kind of touched on the health plan market.

Recent earnings call Teladoc management team commented on.

<unk> sales cycle and greater competition in the health plan market.

I guess would love to hear whether you guys are kind of seeing the same thing.

If not I guess could.

Can you comment on what's kind of contributing to that that disconnect between what they're seeing and what you guys are seeing in this market.

Sure I mean, I don't think we are seeing.

Anything that is different than what we would have expected in that in the health plan market, obviously I don't have visibility to.

Their internal expectations versus what is what is happening.

I would guess that there is.

Their product mix in terms of what they are selling into health plans.

Has changed and historically they haven't really sold into fully insured health plan business, it's mostly been ASO.

Meaning that its really for their downstream employer customers not for their fully insured book of business, where they hold the risk.

And so maybe there is some adjustment there because there is certainly a difference in timeframe, but we're still seeing things happen in that 12 months to 18 months sales cycles that we've talked about for many quarters.

<unk> not seen a slowdown in terms of health plans interest if anything I would say, we're seeing more interest in digital health solutions and health plans and we did a.

A year ago, let's say just to pick a timeframe.

Got it Okay. That's good and then last one from me.

Which is kind of hoping you could touch on the broader M&A strategy for trying trying to I know we already have.

<unk> locked in but I guess, what kind of company that you guys looking for if you are looking for any at this point.

Cash strengthen that platform.

Yes, so the blueprint that we see forward is.

Is to have.

The most comprehensive user centric platform in the market, we are super interested in other areas.

In light of what's happening in the market.

And the current valuation, it's a bit challenging.

But we think strategically also with our partners with Centurion.

Now we can get things moving forward in a way that we can dominate the market.

The next few years. So this is something that we are still very active about I don't know that we can pull the trigger in this environment, but we'll.

We see what's happening we have a very well defined strategy on how we want to go with them.

Understood.

Appreciate it guys. Thanks for taking my questions.

Thank you.

Thank you next question comes from Nathan Weinstein at Aegis capital. Please go ahead.

Hey, good morning areas, Rick and dial House team. Thanks for taking my question and congrats on another strong quarter with revenue exceeding my expectations are so actually just one follow up for me on that would be on the behavioral health platform. What are you seeing what's the way forward in terms of customer engagement use patterns interest.

Any insights there would be appreciated.

Do you mean on the customer side or on the member side.

Alright, I'm sorry are you referring.

Yes, I am curious about the interest you're seeing from on the <unk> side in terms of.

Customers being interested in using it and then also are there also.

So they are individual users what kind of use patterns are you seeing in terms of engagement and just any insights on how that's going would be appreciated.

Sure. So I mean, the behavioral health offering comes in two flavors. If you will one is is that part of our integrated solution as I mentioned most of our.

Current accounts that are in the pipeline are multi condition and behavioral health is.

A popular one amongst our customers to include in the bundle and definitely it's in the full suite.

And then on the Standalone basis.

The majority of the what I would say are off cycle sales include behavioral health, either as a standalone or as part of a broader offering so I think that behavioral health.

Is it continues to be in strong demand in the current marketplace.

I think if you think about the marketplace in general there's starting to be some considerations for.

Some of the other solutions for digital behavior behavioral health that are out there in the marketplace in terms of cost effectiveness.

And how that really works.

The <unk> solution that is built out of the way forward acquisition. As you mentioned is really focused on navigation and management of the what I would call.

Low to moderately severe patients with referral out for the higher severity patients and that model is definitely remains getting traction from that perspective.

Engagement on the platform as you would anticipate for the types of acuity that I'm talking about is episodic. So we're still seeing good engagement of members on the platform good screening of members on the platform.

And I would say in 95% of the cases the.

Utilization as we measure it is and do it in our contracts.

And the way we measure for our customers is consistent with expectations and historical results.

Okay fair enough. Thanks for the color there right.

Sure.

Yes.

Thank you next question comes that John and almost in a box. Please go ahead.

Okay.

Okay.

Great.

Yes.

John will gain access to other other state Medicaid plans.

I'm, sorry, I think we missed the beginning of that could you repeat it.

No problem Rick so.

So regarding the Colorado Medicaid plan are there any specific considerations for this type of business and then.

Broaching into this as an enabler.

Gain access to other Medicaid plans.

We've actually seen fairly strong interest for Medicaid plans in general I mean, let me just start there and I think if you think about where is the biggest demand for a chronic condition management.

From a health plan sector commercial Medicare Medicaid there is obviously a significant number of people with chronic conditions in Medicare and Medicaid. So we would always expect that there would be a level of interest in that area, Yes Medicaid has.

Different considerations.

Think that the.

Fact that.

We have.

Medicaid plans does open the market to additional Medicaid plans Medicaid in general is driven on a state by state rather than a federal or overall level. So there are variations in terms of what's covered how its covered how that works.

So that's some of the complicating factor in that marketplace, and then Theres also considerations around.

As we do outreach.

The communication pathways and implementation timelines to get the state involvement in Medicaid tends to be a little bit longer than that commercial plan.

Okay.

This one under your belt does that help.

The health and future negotiations I mean I.

I guess Im wondering if other states like to see you have experience with it because it is a little bit different type of business.

Yes, absolutely I mean.

Taking into account. The fact that every state has a little different implementation of it yes, I mean, when you can say hey look we sold for X. When they ask a question in here is that we sell for it in a real client that has.

That is really.

Okay, Great. That's all for me Thank you Rick.

Mhm.

Thank you again, if you have a question. Please press Star then one.

Next question comes from David Grossman of Stifel. Please go ahead.

Good morning, guys. Thank you so I'm, sorry, I joined a few minutes late but I am wondering if you could go back to the.

Our common.

I just want to make sure that I fully understand.

What's embedded in that $42 million, how much of a sanity is and their relative to full run rates and similarly for the National Health plan.

So cfe is currently outside of that the numbers that we're talking about there.

<unk>.

Obviously, the all of the other agreements that we have are.

In that and health plans are significant so it makes up a good portion of that number.

Okay. So the.

First phase of the National Health plan would be in that number in the second phase yes.

Okay.

Thank you Rick I think you actually dimensions.

The total would be.

Or maybe it was arrays.

Figure.

Kind of number at full run rates, but can you give us any better sense of the cadence.

How sanofi and the National Health plan will impact that number as the year progresses.

I think as we've talked about we're at.

Anticipating approximately $8 million in revenue in total throughout 2022 from Santa Fe.

That's the current expected amount.

In terms of what the final IRR is on the.

Agreement and the contract value on an overall basis with the agreement with alpine that were negotiating.

That will be dependent on what the final final final contract is in I mean, I think we're close but until that's done that's a lot harder to comment on other than the comments that I made.

Got it okay. Thanks for that.

And just.

You guys have talked about gross margin going up.

Redeploying kind of the key.

The opex et cetera, so any any comments at all about how we should think of cadence of cash burn again as the year progresses.

Should we expect so decline as the year progresses.

Yes, I think that we're going to definitely see a.

Decline in I am not sure if you joined.

<unk>.

<unk>.

We talked at the beginning and I talked to him.

Talked about all the improvement of the parameters and the financial profile topline reduction in expenses, mainly because of less investing into the BDC improvement on gross margins and the bottom line the loss in our non-GAAP before if we exclude the stock based compensations and.

The noncash elements was down from around 14, five nine to $9 seven in Q1, we haven't seen this reduction in the burn rate and something that they stated.

Very clearly is that what we have seen on the billing, but only if these one time for this quarter because of inventory buildup.

We're launching a lot of accounts plus we are.

In a world kind of challenging environment from a supply chain standpoint. So we spent more money on the building. The inventory. This is one reason why we had these relatively high boomlet.

And reason number two is that the payment that we're getting from some of the policies, including Sanofi.

Showed up in Q2. So this is something I know Q1, and that's something that the added to and <unk> been moving forward the loss in the boom.

Should show up.

Same numbers tutorial question, yes, the boneless is going to go down definitely go down from Q1 to Q2 and moving forward. We are going to also keep optimize our spend on the direct to consumer and we're going to spend less money too. So thats. Another reason why the boomlet should it should go down.

When it comes to investing into what becomes the core business, which is implementing <unk> account accounts were not going to spend less we're going to spend a bit more but.

Overall, the expenses are going to be down because the portion of the BTC is significant and this one is open so overall.

The way that we kind of call it.

We are building the business for BDC to BBB.

Got it great.

Great. Thanks for that why don't we just take the restaurant applied thanks again.

Thank you so much David.

Okay.

This concludes our question and answer session now like the call back over.

Mr. Raphael.

Probably all for closing remarks. Please go ahead Sir.

Yes. Thank you so much so thanks, everyone for joining us today.

We are looking forward to keeping the company and execute them.

As always feel free to approach us Rick myself thrilled that email.

Thank you and have a good day bye bye.

The conference has now concluded.

You for attending today's presentation.

You may now disconnect.

Okay.

Okay.