Q1 2023 DarioHealth Corp Earnings Call

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Speaker 2: morning and welcome to the daughter's house assistants sisters

Speaker 2: All participants may listen on their third. Should you need assistance please sign up and conference specialist by pressing the star key followed by zero. After today's presentation that will be an opportunity to ask questions, ask a question and repress star than one on your telephone keypad.

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Speaker 2: Please note this event is being recorded.

Speaker 2: I would now like to turn the conference over to Chuck Padala. Please go ahead.

Speaker 3: Thank you operator and good morning everyone. Thank you for joining us today for discussion of Diario Health's first quarter 2023 foot edge results.

Speaker 3: Leading the call today will be Arez Rafael, CEO of Dario Health. He'll be joined by Rick Anderson, President.

Speaker 3: After the repaired remarks, we will open the call to Q&A.

Speaker 3: Audio recording and webcast replay for today's call will also be available online as detailed in the press release invite for this call.

Speaker 3: The benefit of those may be listed to the replay or achieve archived webcast. This call is being held on May 11, 2023.

Speaker 3: This morning we issued a press release announcing our financial results in the first quarter of 2023.

Speaker 3: A copy of the release can be found on the investor relations page of ZarioHealth's website.

Speaker 3: Actual events or results may differ materially from those projected as a result of changing market trends, reduced demand, or the competitive nature of the dariohealth industry.

Speaker 3: Such forward looking statements and the implications may involve known and unknown risks, uncertainties, and other factors that may cause actual results or performance to differ materially from those projected.

Speaker 3: The forward-looking statements discussed in this call are subject to other risks and uncertainties, including those discussed in the risk factors section and elsewhere in the company's first quarter 2023 Quarterly Report Form 10Q filed this morning. Additional information concerning factors that could cause results to differ materially from our forward-looking statements.

Speaker 3: are described in greater detail in the company's press release issued this morning and the company's other filings with DSEC.

Speaker 3: 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.

Speaker 3: Management believes 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.

Speaker 3: A reconciliation of these non-GAAP measures to the most comparable GAAP measures is included in this morning's press release. With that, I'd like to introduce Arez Rafael, CEO of Dario Health. Arez?

Speaker 4: Thank you, Chuck, and thanks to all of you for joining this morning call.

Speaker 4: Q1 financial results continue to demonstrate the success of the multi-year strategy we implemented in the last few years.

Speaker 4: We continue to see the trend of financial profile improvement that we saw in Q3 and Q4 of 2022.

Speaker 4: We moved our business from direct to consumer to build a VM from single point solution to an integrated, more in the chronic condition platform.

Speaker 4: Let's reexamine the strategy, the market trend against the strategy, and the indications of success in the financial results we are reporting today.

Speaker 4: First, our transformation from direct to consumer to B to B. We have succeeded and continue to succeed in making significant advances in the financial profile of the company. This is because of the significant reduction in the cost per member acquisition, the ability to scale and more efficient economic model, remember on the platform.

Speaker 4: Key indicators for current financial results for the success of this strategy is evident in that 70% of revenues came from B2B. Also the continuation of the sequential improvement in our gross margins and a significant reduction in the company burn rate.

Speaker 4: Second, is the multi-condition strategy in our B2B business where we manage five different conditions on one integrated platform.

Speaker 4: This strategy is not only aligned with the market but also ahead of the macro digital health market trends.

Speaker 4: of consolidation and consumer simplicity. In fact, our current model is better suited to the global financial macro environment. We are all facing today. The market trends of customers looking for an innovative digital solution with more conditions.

Speaker 4: and from smaller number of vendors and adopting solutions through partners continues. The majority of our new contracts continue to be in multi-conditions.

Speaker 4: We generate more revenue per customer than a single chronic condition point solution.

Speaker 4: We believe our platform has strategic advantage because it not only covers large number of conditions, but it has been fisheries long andCard Anatomy for regard tothrow'the arog

Speaker 4: but does so for an integrated user experience with high member engagement.

Speaker 4: We are also seeing a real world evidence in our voice of customer data, which focuses on our UI, a trend to which will certainly position us as a value differentiator to benefit from.

Speaker 4: As recently demonstrated in the clinical data published by Sanofi earlier this week. Another strategy is accelerating penetration through partnership, which is an approach we have been executing on for the last few quarters to accelerate both the sales cycle and the

Speaker 4: implementation. We have collected meaningful list of partners including Solera, Virgin Pulse, Alliant, Sanofi and Aetna that are looking to accelerate our footprint further. This quarter we added significant new partners and secured new customers through these partners.

Speaker 4: We announced a very significant new partnership with Mwell, one of the larger telehealth companies in the country with 19 million people having access to their platform.

Speaker 4: Rick will elaborate about this significant deal for us.

Speaker 4: In addition to that, we announced our first customer through the co-promotion efforts under our strategic partnership with Sanofi. This is a multi-condition agreement with the pharmacy benefit manager.

Speaker 4: Third, we demonstrated tight collaboration on real-world data and clinical evidence with Sanofi through the presentation of the first Sanofi-conducted study earlier this week. We are very excited about this study and what it represents not only for Dario, but also for Sanofi.

Speaker 4: but to the digital health industry as a whole. We believe our partnership strategy, including the traction we saw in the first quarter, will drive accelerating revenue in the second half of 2023 and even more in 2024.

Speaker 4: Let's take a deep dive into the financial results. Q1 shows continued improvement of the company financial profile, a trend we demonstrated in Q3 and Q4 of 2022. We are presenting real evidence that shows that the model is working and creating a long-term shareholder value. Q2 shows continued improvement of the company financial profile, a trend we demonstrated in Q4 of 2022. We are presenting real evidence that shows continued improvement of the company

Speaker 4: Let's start by looking into the revenues and its components. First quarter of 2023 revenue was $7.07 million, a sequential increase of 3.8% compared to the Q4 of 2022. This is 12.3% decrease compared to the revenues of $8.06 million in the first quarter of 2022.

Speaker 4: This decreased resulted mainly from lower BDC revenues in Q1, 2020, which is part of our previously discussed strategy to manage the BDC business to a break even for a decrease investment in BDC customer acquisition costs.

Speaker 4: We believe we will see revenues acceleration as we continue to get signed accounts launched.

Speaker 4: Another important metric is the gross margins. This is where results are even more exciting as we are showing a true software driven business with a SaaS, software as a service oriented characteristics. The former gross margins was above 60%.

Speaker 4: Looking at operating loss, we are seeing a two-operating leverage on the infrastructure that we have built and real economic advantage for a multi-condition approach. We continue to reduce the cash used in operating activities in the first quarter with only $4.76 million used and further reduce net loss excluding stock-based compensation, acquisition related expenses and depreciation for the first quarter of 2023 to $6.8 million compared to $10 million for the first quarter of 2022 and $9.6 million in the fourth quarter of 2022.

Speaker 4: Looking into the balance sheet, we also have a strong cash position. A former cash balance as of the end of Q1, inclusive of the private placement funds and the loan refinancing was $61 million.

Speaker 4: which leaves us with a significant runway to execute on our strategies.

Speaker 4: With that, I want to hand over the call to Rick to elaborate on the commercial aspect.

Speaker 2: Thanks, Aras. In the first quarter, we continued our revenue growth trend with increasing year-over-year and sequential quarterly growth. As expected, we are maintaining our B2C revenues as levels consistent with the fourth quarter of last year, and it remains a self-funding strategic innovation platform.

Speaker 2: We expect to maintain the B2C business at these levels throughout 2023. On the other hand, we continue to see growth in our B2B revenue in the first quarter with the B2B revenue now accounting for approximately 70% of total revenue.

Speaker 2: While we continued to increase the number of B2B contracts in the first quarter consistent with the normal self-insured employer benefit cycle, the number of contracts signed was less than the fourth quarter of 2022. More than 70% of self-insured employers are on a January to December benefit cycle.

Speaker 2: with the majority of employer contracts signed in the late third and fourth quarters. So we are currently in the early stages of the annual employer buying cycle. Our overall contract value is approximately $67 million, a modest increase over the end of last year. However, this does not include any value for distribution partnerships unless we have visibility to the distributors in customer contract value.

Speaker 2: For example, we have not reflected any value related to the AMLO contract despite the fact that AMLO is already in discussions with some of their downstream customers about adding Dario to their offering.

Speaker 2: The market trends of customers looking for more conditions from a smaller number of vendors and accessing care management solutions through partners continues. The majority of our new contracts continue to be multi-conditioned, which generates more revenue per customer than single-condition contracts.

Speaker 2: We believe our platform has a strategic advantage because it not only covers a large number of conditions that are high priorities for customers, but does so through an integrated user experience with high-membranagement.

Speaker 2: We are also seeing increasing focus from customers on ROI, a trend that we believe we are well positioned to benefit from.

Speaker 2: Our solution delivers significant clinical and cost improvements for our customers on some of the most costly chronic conditions. This was validated in the first NOFee conducted study that was released earlier this week. We are very excited about the results of this study and what it represents not only in D'Ario, but the digital health industry as a whole.

Speaker 2: The study was conducted by Sanofi and their third-party data partner, which makes it one of the only independent digital health studies, and it was conducted with a much higher level of rigor than most of our competitor studies, including the use of a propensity match comparison group.

Speaker 2: And the results demonstrate that Dario does impact healthcare costs. The study showed with a high level of statistical significance that Dario members had a 9.3% reduction in healthcare utilization and a 23.5% decrease in hospital admissions. In this environment of increasing focus.

Speaker 2: on cost and ROI, and with increasing demand for evidence from customers and prospective customers, we believe this study will accelerate adoption of our solutions. Distribution and strategic partners are an important part of our strategy to accelerate sales and make implementation and management as easy as possible for our customers. We had two significant partnership developments in the first quarter.

Speaker 2: We announced our first customer through our Santa Fe co-promote fee records. This multi-conditioned agreement with the Pharmacy Benefit Manager or PBM is one of the two health plan type customers that we discussed last quarter.

Speaker 2: And we anticipate that it has the potential to generate multiple millions of revenue once fully implemented.

Speaker 2: and implementation is underway and we expect to launch this customer in the second quarter of this year. We are very excited to see our first customers through our collaboration with Santa Fe and look forward to more developments from the growing pipeline with them.

Speaker 2: Second, we announced a partnership with Amwell, one of the largest telehealth companies in the country, with an installed base of approximately 2,000 health plans and health systems that reach over 90 million people.

Speaker 2: M. Well is integrating our cardio metabolic solution into their platform and will distribute it to their current and perspective customers.

Speaker 2: Given Amwell's past success distributing another digital health solution through the platform, we have high expectations of this partnership and believe that it could represent high tens of millions or perhaps more in revenue as the relationship ramps up over the next several quarters. While we know that Amwell is actively selling the Dario solution, we are also looking at the new solution that is being developed

Speaker 2: We have not yet included any contract value in our 2020-24 cast or reported contract value. We will adjust the contract value as we gain more visibility to the initial customer size and timing.

Speaker 2: We have one additional health plan that we continue to anticipate launching through a partner in the near term. We have seen several delays with this customer that are occurring between our partner and the health plan, but we continue to anticipate the launch in the second or early third quarter. Encouragingly, this partner has asked us to expand the number of conditions that they can distribute to their customers, which are all helpful.

Speaker 2: platform, which we expect to grow over several quarters post-initial launch.

Speaker 2: Throughout 2023, we will continue to invest resources in our existing partnerships to assist with customer pull-through, and we will seek to expand our partner roster to a select number of additional partners that we believe can accelerate our revenue and service specific some sets of customers.

Speaker 2: We have demonstrated that we can convert contracts into revenue by expanding the number of contracts that are multi-conditioned, achieving an average enrollment rate of 30% or better, and significant levels of engagement.

Speaker 2: Over the last year, we have more than doubled the number of records again, which based on experience is the basis to accelerate growth of customers on the platform, especially as we continue the 2023 selling season for 2024 employer launches. And we believe our partnership strategy, including the traction we saw in the first quarter, will drive accelerating revenue in the second half of 2023.

Speaker 2: and 2024. With that, I would like to turn it back over to Aras. Thank you, Rick.

Speaker 4: So to summarize, we believe that further into 2023 and 2024, we'll continue to strengthen our financial profile. The losses will continue to decline. Growth margins will improve with the target of above 60% for 2023 and above 70% for 2024.

Speaker 4: And despite macroeconomic factors and a possibility for recession, we don't see a slowdown in the digital health market. In fact, we continue to see tailwinds, as well as employers seek to better manage their patients.

Speaker 4: And despite macroeconomic factors and a possibility for recession, we don't see a slowdown in the digital health market. In fact, we continue to see tailwinds, asperals and employers seek to better manage their patients and reduce health care costs.

Speaker 4: The market trends of customers looking for digital health solutions with more conditions from smaller number of vendors and adopting store partners continues.

Speaker 4: Further, our commercial capabilities mature considerably in the past few years.

Speaker 4: with a larger sales team and more strategic partnerships, which we expect to accelerate not just more contract wins, but more meaningful contract wins such as Aetna and other large accounts.

Speaker 4: We are seeing a trend of big traditional health care players in large farmers such as Sennofi and other big medical devices companies looking to tap into digital health space by partnering with companies like Dario.

Speaker 4: so they too can extend their footprint in healthcare transformation. We expect to make more large and strategic partnerships like those. We have made and continue to make substantial progress in building our relationships with Sanofi, which we believe is the best solution.

Speaker 4: can take us to the next level in terms of our relationship with the Sanofi as a big farmer. Our relationship with Aetna is forming and we recognize revenue this quarter in the last few quarters and we are anticipating that revenues will accelerate throughout 2023 and beyond.

Speaker 4: We believe that we are positioned to accelerate growth in 2023 and 2024 as the overall foundation for client wins is improving with larger sales team and meaningful partnerships that should give us significant larger access to clients. With that I want to thank you for your time.

Speaker 5: to ask a question, you may press 1,000,000,000, but I'm going to tell you something to keep that.

Speaker 1: Oh, that's OK.

Speaker 5: Alex Noack with Price Hallam Capital Group. Please go ahead.

Speaker 6: All right, Greg, good morning everyone. Maybe just talking on that last point, thinking about the enterprise revenue, just how much of the B2B enterprise revenue, how much of that B2B revenue in Q1 is now purely recurring versus what I would say would be more milestone like payments.

Speaker 4: Thanks Alex for the question.

Speaker 4: The way that we are looking into the revenues that is coming from Sanofi and Etna, some of it is also recurring revenue. So I would say that on high level, around half of the revenues that we have today are kind of recurring. Some of it is coming from employers and some of it is coming from data that we are getting paid for.

Speaker 4: I wouldn't say that everything that we are getting from Sanofi is services. So the way to think about it is that around 50% of the revenue is recurring.

Speaker 6: Okay, that is helpful. We talk a lot about these strategic deals, but also you signed 100 contracts now or over 100 contracts now and 67 million in contract value. Where are we in ramping through those contracts? Are we half the way through that contracted value?

Speaker 6: My math would probably say we're probably 25% of the way to that contracted value if half the revenue is recurring. Just help us think about that. When can we ultimately reach a full 67 million of revenue coming from those contracts, that's 100% penetration? Benz meeting on October 20, 2016

Speaker 4: Yes, so 67 million dollars in contract you need to take into account that we are counting in at now with some of between 30 to 35 million dollars out of the 67. At now we recognize revenue between Q3 and Q3 of last year and Q2 of this year.

Speaker 4: But the revenues that we recognize were only services, not recurring revenue. And this is why we considered Etna a zero ramp up. So if you remove Etna from the 67 million, you end up with around 30, call it 32 million.

Speaker 4: and for me this 32 million I would say that 70% is ramped up. We have like a couple of accounts that are not launched yet so I would say that overall it's only 35 to 40% of the house for Okwok Matt. So just so you know, ONP are already looking into thatrow as well,

Speaker 4: I think that a lot depends on the implementation of Aetna and the velocity that Aetna is going to get in and I think that it's going to take us three to four quarters to get to the levels of this full recognition.

Speaker 4: or deployment of these signed contracts into revenues. To Rick point, just to re-emphasize, M-Well is a huge deal and we have other huge deals that we are having with partners. None of it is counted into the 67 million. And through M-Well, as we said, we have like a...

Speaker 4: access potential access to 90 million users. So the more accounts we are getting from MWL solar and others the more we can add to the 67. So the way to look at it is that only 40% is kind of recognized and the rest will happen in the next four quarters. This is our best visibility that we have

Speaker 6: It seems like you're targeting these more...

Speaker 6: You know, larger names that where like AMO, for example, where they're going to bring a large group of customers to the Daria platform versus targeting more employer by employer basis. Is that the right way to think about the ramp of new deals going forward?

Speaker 4: Let's go and think about that. Go ahead, Ralph. Yeah, I think that the way that we are looking into the future ramp up is that number one, we're going to have bigger employers on the platform.

Speaker 4: When we started the B2B and we had to gain recognition and we had to gain reference customers, we started with relatively small employers accounts and we are going now into bigger employers account. Second trend that we're gonna see is that we're gonna probably get more...

Speaker 4: bulk of the accounts that are bigger for our partners.

Speaker 4: So eventually through MOL we're going to get plans that eventually are going to get us to employers. Through Aetna we are getting into employers that are getting us into users.

Speaker 4: are gonna come from these partners like Aetna, Sanofi, American Well, Solera. So we do have our own direct sales team, like 12 or more sales representatives that are working directly and are also working inside this partnership, so we dedicated.

Speaker 4: and well and others to leverage on these connections. And we think that eventually this is something that is...

Speaker 4: eventually reducing the cost for acquisition per single account. That's the way to view it.

Speaker 6: Okay, that is helpful. And then your last question, we talked about this in the past, but we've been seeing this big uptake and called Digital Health Around Weight Loss. And just what are the company's thoughts about adding on drug prescriptions on this platform? It could be weight loss. Like it was that they would go over the drug prescriptions.

Speaker 2: What are you thinking about that? And it has that play into the Santa Fe relationship. So, you know, obviously those medications are having a significant impact in the market and we anticipate that they will actually have a significant impact on wellness vendors that are only managing weight management solutions.

Speaker 2: The market perspective on those medications, in other words, our customer perspective on that, depends a little bit on who the customer is. Our approach to that at the moment is we're really targeting a digital approach and experience for our members that's then tied into

Speaker 2: what their doctors are doing and providing information and tools into that process rather than in some cases where folks are integrating that. Now, that said that we are having discussions with one of our partners about how we would potentially integrate more closely on looking at that for members. So unlike, for example, some diabetes medications where...

Speaker 2: being in the business of having providers and prescribing that, but we are looking to partner closely with some of our existing partners around those drugs. Okay, understood. Appreciate the update. Thank you.

Speaker 5: Thanks, Alex. Our next question comes from Charles Ray with Cohen. Please go ahead.

Hey guys, thanks for taking the questions. I wanted to just jump back. I missed it a little bit at the beginning. Can you just maybe just quickly go over again through Sanopy? What is the customer that you're getting through Sanopy? Can you just fill me in again real quick, apologies?

Sure, it was the one we previously announced, Charles, which is the PBM, or Pharmacy Business Manager. It's a national PBM. It's actually a several million dollar revenue opportunity to have a current diabetes solution, which we're replacing and then bringing the rest of our suite into that. And actually, they've recently seen some very high-level,

a little bit faster than we see in the past. Part of that is we're just further in the sales cycle. I think that's also about the fact that we're further into the relationship. And I think that we figured out how to make things work a little bit better than we did, probably last February when we started.

And is that in the 67 million contract value? Is there some estimate for that in that number? There is. Okay. And just to be clear, that's like, like what is your part in selling in this case? Are you brought in sort of as a technical consultant towards the end of a sale or? Okay.

or are they handling all the selling on your behalf? And can you just tell a little bit more how that works and is there any population where it's automatically rolled out to? Yeah, so the existing, I'll just start at the end and go backwards, but the existing population.

rest of the customer base and as they go forward, yes, we are investing resources in that partnership as well as others to help them sell it through. In that particular case, it is more of like what you just called a technical consultant, where we are assisting with the switch over of the existing members and then

you know, we're providing marketing materials as well as consultation on the sales and working as they ask it. In other cases, in our partnerships, we're more involved in the sales, so, you know, attending the sales meetings, etc. So, it sort of depends partner to partner. That one is a little bit more on the lighter list.

Okay. So then when we think about the revenue ramp for the rest of the year, it sounds like what you're saying is expect the B2C revenue kind of in this low $2 million a quarter range. This is sort of a break even part for your business. Obviously, a good quarter in B2B.

And then we should have that 35 million ramping up over the course of a year. Is that the right way to think of it? On top of the existing BDB base? That's what we think we're going to see. I mean, as we said, etna planning to launch the platform July 1.

And we think that it's going to take a few quarters to ramp up for this full revenue. This is from the visibility that we have at the moment for the ethna relationship. And on this baseline, we're going to see, we're supposed to see a more significant ramp up into the second half of this year.

is coming from Aetna, so we have visibility to that as well.

You guys did a good job bringing, you know.

I just need to get that last down. Should we expect continued sequential improvements in that line as well, even with having a

and just to remind investors we slow down B2C, we did a lot of activities of off-shoring and we have seen a lot of digital health companies out there in the US that have a very very high apex we are very off-shored driven and we also consolidated all the acquisitions that we did in a very efficient way.

So I think that we're going to see stabilization of our OPEX on this kind of run rate. It might be a few hundreds of thousands of dollars every quarter moving to here or there, but that's going to be the baseline. And on this baseline we're going to grow gross margins. And on this baseline we're going to grow the revenues up.

This is something that is going to take us to the cash flow profitability and that's the opex that is kind of baseline to how we want to move forward.

Great. Last question from me. As we think about then gross margins expanding, can you remind us where you think sort of your target gross margins are, you know, at a – like where do you think that it can get to? Yes. So we were clear that this year we should stabilize on 60 percent.

to 75%. We think that moving forward and we want to see it already next year, 2024, that we're going to exceed the 70%. So that's how we look into the business. I think we can do higher, but conservatively I think that investors should think about it as a 70%.

Looking purely on the B2B, if you take out the B2C, we are already in this number for the last

three quarters including this quarter. So it's not something that we are dreaming about, it's something that we are already doing. The B2C is in the ranges of 45, 49% and this is why the full business is still not on the 70%. But this is something that will arrive once the merge is gonna be in the higher favor of B2B. Great, thanks a lot guys, congrats.

So it's not something that we are dreaming about, it's something that we are already doing. The B2C is in the ranges of 45, 49%, and this is why the full business is still not on the 70%. But this is something that will arrive once the merge is gonna be in the higher favor of B2B. Great, thanks a lot guys, congrats. Thank you, good job.

Our next question comes from Raul Raheep with Lifesign's Capitol. Please go ahead. There you guys. Thanks for saying the questions.

Rick, on the last call, I think you mentioned that the platform's high customer satisfaction rates have led to some customers discussing the potential of expanding conditions to the broader platform beyond the current scope of their contracts. I apologize if I missed this earlier, but I was just wondering if you could provide any update on, one, how those conversations are progressing.

and two, if you give us a sense of how many of those existing customers are exploring this option. Thanks for the question. So, we have two types of customers, probably more than that, but two big portions of customers on the platform. One are the behavioral health customers that came in as behavioral only.

We have several of those that are, you know, I would say on the larger side of our behavioral health customers that are now looking at expanding into the overall solution. And we have a number of our early customers, you know, say they came on in 2021 and 2022 with single conditions that are now looking at expanding to additional conditions or

in some cases the whole suite of those. Those conversations are continuing as part of this 23 fail cycle for launch in 2024. We're pleased with where we are in terms of those expansions. I guess the positive and the negative to some extent is the customers that we signed in 2022, especially in the back half of 2022. A lot of those were already

in the conversation. Got it. That's helpful. And then just one more for me. Of the contracts that were added in Q1, can you just help us understand what percentage were full platform or just multi-conditioned or single condition? And maybe if you can, just provide those percentages for the broader customer base as well. Next, you take the questions. In terms of added in the first quarter, I don't have...

Our next question comes from Benjamin Hanel with Alliance Global Partners. Please go ahead. I'm Marguerite.

Good day guys, just have a couple quick questions. Looks like some nice data on the healthcare utilization rate study. I was curious on the reaction that you've gotten from folks out there, you know, with current customers, potential customers.

Anyone, what response has been there? So we just released the data obviously on yesterday. So it's a little early for me to give you a full response on that. I think that people, the feedback.

the way that the footprint match comparison group was done. To know if we really brought their entire evidence team to it, they controlled the study, they did it. There's not many, if any, independent studies that are out there. I think all of those things are very positive. I would say that it gets more reception in the health plan market than the employer market, mostly because the health plans are looking for that. But if you think about the fact that health plans are also providers of ASO services to the downstream customers, and the fact that customers are really on the employer side are looking for partner-based solutions, I think that this also supports that on that.

plus percent reduction in hospitalizations, which is obviously one of the largest cost drivers that's out there is very significant. So it's both the actual results that we saw in the study, which are quite good, alongside of the study design itself. Okay, and then if you have the, excuse me, if you have

differential between the two.

So we have a relative, yeah, no, I mean, directionally, that's, that's right. I mean, if you, you know, obviously, hospitalization costs depend on, you know, geography as much as anything else in terms of how much hospitalization is. But if you think about a hospitalization is probably going to be somewhere in the range of $15,000. On average.

and maybe in some cases you could argue a bit more associated with that. I think that gives you a generalized idea. I mean, we also saw almost a 10% reduction in overall utilization. That one's a little harder to translate into cost exactly in terms of the way that you are doing it, but that's overall healthcare utilization.

Okay, got it. That's helpful. And then lastly for me, maybe this is a silly question, but on the index date for the two groups of users versus non-users, for the various users it was the registration date, but then for the other users, I think it was their first medical encounter in the, I presume in the same month or quarter time period based on the matching, let's just say that first medical encounter was a...

Okay, got it. That's all point. So, I don't want to ask you for me. Maybe this is a silly question. But on the index date for the two groups of users versus non-users for the burial users it was the registration date. But then for the other users, I think it was their first medical encounter. I presume in the same month or quarter time period based on the matching. But let's just say that first medical encounter was a hospitalization.

and that got included in the look-back period rather than the go-forward period, wouldn't that tend to make the comparison of the non-users versus Dario look better than otherwise? Yeah, I understand your question and...

somebody more knowledgeable in the exact details.

Okay, I would be curious on that, but I don't know if it's meaningful and I presume that given the folks that did it that it was, you know, well considered. I was just curious on that. Okay, great. Well, thanks for the call guys. I will see you later with the Wanton so you can come back out and meet any of our guest herbivstyle customers that we've Labor aqu menus online here.

Thank you, Becky. Our next question comes from David Grisman with Cycle Financial. Please go ahead. Thank you, good morning. I'm wondering if we could just go back to Ann Sinoffi for a minute. I think you laid out.

a couple of important milestones for this year, including getting Edna up and running, you know, in the second quarter, or the third quarter, and Sanofi about transferring some of the activity from the PBM customer onto your platform. Are there any other milestones that we should be aware of or focused on for those two partners this year?

Let's start by Sanofi, just in terms of clients. I mean, iPlan is growing and the teams are out there selling, so this PBM that we have signed on is not the last one. So we see a trend and we see a very

healthy pipeline, so I think that we should expect additional deals that will come from this partner that this month, I think it's the 13 or the 14 months since we started this strategic partnership. So this is number one. Number two that I mentioned on my summary.

is that overall if you look into the Sanofi and Barrio relationship, both sides consider the relationships as successful for multiple aspects.

From a development service aspect, we continue to gather, share the vision for where digital health is going, and the teams are collaborating on expanding the platform. From a data perspective, I think that the value of platform that collected users for many years, and we have a lot of data, this is something that is.

very meaningful and valuable for Sanofi and the results that we published earlier this week is something that was super important for them and we think that we're going to see more of those coming and in terms of commercialization we had the first PBM and we think that we're going to have a few more clients this year.

So we see a success in all three categories and we see a very good relationship and collaboration and the two parties are exploring together how this relationship potentially can be expanded in some ways. So it might be another milestone where we don't have a complete decision yet but we knew really quickly that we can make the company more compatible with our make-al ethics community.

do look into more ways to collaborate and expand relationships because we are sharing the same vision and we believe that both of us have the right assets in hand in order to dominate digital health in the future. With regards to Aetna...

At the moment we have the planned launch date. This is something that was postponed. If you would ask me a year ago, I would think that it would be already launched at the beginning of this year. It didn't happen. Now there is a commitment to launch it by the beginning of July , and that's something that will drive higher revenue. We need to remember that...

behind Aetna there are also employers that they are selling into, and that's something that dictate the velocity of the ramp up, and at the moment we have a certain expectation that we need to see that it's working in the velocity that we think it's gonna work, but we're also confident there that we're gonna see the revenues.

Got it. And then the, as we think about that, just to start, is a July 1st, you know, kind of go live date or early July go live date. Is that early enough in their selling cycle for next year, given the most?

you know, employers are on a calendar year benefit cycle? Yes, it is early enough and from what they've communicated, I believe they are also out there in the market currently, even though, you know, in advance of the launch date. So, yes, I would say that for 2024.

They are actually sorted in the sake of it at the moment. Okay. And then for the Sonofi TBM that you're transferring, do you have any disability right now since that revenue is just being transferred over to your, it sounded at least to me that it was just being transferred over to your platform? Do you have any disability on how large that is? Yes.

opportunity is kind of in the lower end of the single digit millions of dollars on an overall basis and you know there is significant revenue that would be attached. Now the absolute dollar value that will represent is also dependent on what portion of the current membership.

you know, transfers over. So, you know, internally we've taken a bit of a haircut to that. I don't necessarily expect it. You know, 100% of those currently using one solution will transfer to another. I do believe that we will get based on past experience where we've transferred over other populations, we will get the vast majority of those folks.

what we see actually in the market, especially because this is the diabetes solution, is people really like the Dario solution. I think that comes from the direct consumer background, the device which people like a lot relative to the other devices that are in the marketplace and add that to the application. We've seen good results with that. But that's my overall expectation as they go forward in terms of initial launch.

probably something on the area of a third of that revenue that we've got visibility to, and then the remaining two-thirds would kind of build in over the remainder of, on a run rate basis over the remainder of 2023 and early 2024. Okay, got it. And then a couple of quick financial questions. If I heard you right, Erez, that you talked about the DTC margin improving, if I heard that right.

what are the dynamics that you expect to drive that up other than just volume? Because it sounded like it could be flat. Yeah, so we... the DTC in terms of gross margins fundamentally is the same, okay? However, we have seen improvement mainly

because of inventory and supply chain issues when we had

when we had the COVID period, we created relatively high inventories. Some of it was at Amazon. And what we have seen last year, mainly in Q3 and Q4, is that if we knew Redux was actually the basis for COVID-19 studies,

Some of it was we had to eliminate and this is something that destroyed the gross margins of the B2C as down as like 19%. I think that at some point we had a negative. This is something that took down the whole B2C gross margins. In a steady state the B2C gross margins is in the ranges of like 45%.

That's in a steady state if we are not considering issues of supply chain and inventory. And this is why we have seen improvement, but it's not a fundamental improvement in the business itself. As I stated on the B2B, we're already above 70%. So the way to calculate the future gross margin for the full business will be I going to go one step further than what I consider somewhere around 70%. powered by our safety to equilibrium. With the 1.4 billion dollars thatOr independent agreement connections have novels and engages merchants and businesses. VERY many…. forced Pin therein. More time is to come.

the combination of the two and what is going to be the merge between B2C to B2B. We think that B2C is more or less in a kind of a steady state. We are not losing money on the P&L of the B2C and we're going to manage it from the bottom line. We don't want to burn money on the B2C. We want to look at it as a sandbox for data collection, steering our product team, steering our R&D team. That's the mindset behind the B2C.

Okay, so just to be clear though, the direct-to-consumer business, that business is not quite at that 45% range currently, is that right? It's getting there but it's not there yet? It's in the ranges of 40, yeah, it should be in the 40 to 45. At the moment it's in the ranges of 40, I think. Okay, got it. All right, and then just...

if you could, you know, provide us some pro forma data given that you did the financing post quarter in terms of

pro forma share count we should be using as well as you know pro forma interest expense and interest income if you could.

Yes, so the deal that we did is very also important to mention. Number one, performer cash position as of the end of Q1 is $61 million. That's number one. Number two, the cash position

We refinanced the debt in a way that we are not amortizing it. So the combination of $15.4 million that we raised plus the refinancing, this is something that is extending our run rate by at least four or five quarters or even more comparing to where we have been before. So that's number one. Number two, as you can see from the report itself.

the burn rate was significantly lower than the previous quarter and the year before. Only a $4.7 million burn, that's point number two. In terms of the share count, the way that we were running this deal, we created a deal that is in a preferred structure. This is something that was a,

successful for the company in the past. We did it in 2019 and as opposed to other deals that we see for micro-cap companies that companies are raising money in deals that provide immediate discount to the investors here, we did the deal at market. Hence, the deal was at $3.33 for which we have previously been Pfizer's CEO , Amazon.

Without discount, this was according to the NASDAQ rules, it was no discount, it was the average of the last five days. This is the definition of market by NASDAQ rules and we were providing dividends that is given in shares as investors are holding the shares and we are providing dividends for five quarters. This is the definition of market by NASDAQ rules and we were providing dividends that is given in shares as investors are holding the shares and we were providing dividends for five quarters. This is the definition of market by NASDAQ rules and we were providing dividends for

It's 5% every quarter and the fifth quarter is like 10%. So the amount of shares that we added immediately is the $15.4 million divided by $3.33 and this is something that you should add on top of the existing share count.

You're not going to see it on Yahoo Finance or other places because usually they don't show the preferred shares. Those that are going to convert the shares will be able to sell it but they're going to lose the dividend. That's the way that the mechanism is working. Okay, got it. And so what does that do to interest expense then compared to where you've been? Does it...

Yes, I wouldn't connect the preferred structure, the equity deal, in terms of interest. It's just being paid in shares, and we know in advance the amount of shares that are getting paid. Right, okay, got it. So we just need to dilute the share count as opposed to adding anything to the P&L. Got it, okay.

Very good, thank you. Thank you so much David. This concludes the question and answer session. I would like to turn the conference back over to Erez. Rafael, CEO , please go ahead.

Thank you. I would like to thank everyone for joining our call and for following the company. I wish you all a nice day. Thank you.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

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