DarioHealth Corp (DRIO) 2016 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to DarioHealth fourth-quarter and full-year 2016 earnings call. (Operator Instructions). At this time it is my pleasure to turn the floor over to Rob Fink of Hayden IR. Sir, the floor is yours.

Thank you, operator. I would like to welcome everyone to DarioHealth's fourth-quarter and full-year 2016 earnings call. Hosting the call today are Erez Raphael, Chief Executive Officer, and Zvi Ben-David, Chief Financial Officer.

Before I turn the call over to management I'd like to remind everyone that this conference call may contain projections or other forward-looking statements regarding future events or the future performance of the Company. DarioHealth does not assume any obligation to update that information.

Actual events or results may differ materially from those projected as a result of changing market trends, reduced demand and the competitive nature of DarioHealth's industry, as well as other risk factors identified in the documents filed by the Company with the Securities and Exchange Commission.

In addition, certain non-GAAP financial measures will 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 to investors understanding an assessment of the Company's ongoing core operations and prospects for the future.

Unless it is otherwise stated, it should be assumed that any financials discussed in the conference call will be on a non-GAAP basis. Full reconciliations of non-GAAP to GAAP financial measures are included in the earnings press release that was issued earlier today. With all that said, I would like to now introduce Erez Raphael, Chief Executive Officer. Erez, the call is yours.

Thanks, Rob. So, good morning and welcome to DarioHealth's fourth-quarter earnings call. Thank you all for joining us today. During our fourth quarter we materially advanced our launch of the Dario product in the United States, which in turn meaningfully drove financial results. We delivered record quarterly revenues.

We increased significantly our sales device, we meaningfully grew our user base, and we were very successful on converting users into subscribers. We also, along the whole way quarter and the year, increased drastically our brand awareness to the product and also to the Company in general.

We are encouraged by the attraction that we have made in the United States following the soft launch that we had in March/April last year. The device sales continue to ramp nicely and our active community of users and subscribers is growing every day.

This brings a very positive change to people with diabetes and we managed to show our product very clearly disrupting the market with a very different approach. A product that is very user centric, very digital and in general we showed that we are conforming the market from a position of medical device to a real digital health solution with clearer capabilities and advantages from the clinical side to our users.

67% of our quarterly revenues derived from high-margin economy [revenue] test strips and other consumables. Nearly 95% of the year's users have ordered test strips. As we previously shared, our objective in the Company and the software that we are building is about disrupting the current medical device industry with a highly digital and mobile health solution. We truly believe that [native] mobile solution is the future, and this is why we are creating a highly engaging software that eventually will help users improve their clinical outcome.

We are very focused on user centric solution, and we are very focused on personalization and big data management. In the last quarter, along the last whole year, we managed to increase our user base in a way that we believe that our data and our big data strategy will eventually also contribute in a way that we will monetize on that, and we are very happy with the results so far.

On the other aspect, our digital marketing approach, which is our approach for direct-to-consumer, is something that was proved very successful along 2016. We managed, by this strategy, to grow our user base. And early this year we also managed to raise some money from a more strategic investor. It is OurCrowd Qure, an Israeli digital health specialized fund.

So the fund nominated two board members, Yossi Bahagon and Allen Kamer. Allen Kamer is coming from a big [line] of big data and the combination of a very effective digital health -- digital marketing and direct-to-consumer approach in a combination of big data capabilities and highly engaging software is something that makes it very appealing to Qure, but eventually invested $2.5 million [in around of] $5.1 million.

Looking forward into 2017, there are several real-time catalysts that position us well to build on the initial success. First of all, it is our ability to utilize our digital marketing capabilities also under the investment and under insurance. This is something that we expect to happen and once it will happen we believe that it will help us accelerate itself. There is another catalyst, which is the Android clearance. At the moment we are cleared for Androids all over the world, not yet by the FDA.

So, at the moment we are selling in the states only the iOS solution, only the Apple solution. And we are looking forward to get also the Android clearance. The file is already submitted and it is in the process with the FDA. Increasing the percentage of higher margin recurring consumable revenue is something that we expect to happen in this quarter and also moving forward along the year which is something that will reduce drastically our (inaudible).

In the medium term we have other great opportunity, some of them will already happen this year as well. The first one is our ability to provide digital and also human coaching support on top of the platform. We have a great advantage because we have full connectivity to all our users, so we can coach them on the platform, which is something that in turn will improve clinical outcome for (technical difficulty). You need to remember that the industry today is about reducing the cost, it is about providing solutions that are very user centric and at the same time also improving clinical outcome.

I think that the whole -- those three things that are the fundamentals of the health market today, all of them exist in Doria product, and all of them are part of the strategy of this Company. So coaching is another very important part of our solution. At the end of the day, we are a digital health Company that is selling our consumables, but we are also selling a whole management and a whole subscription and support for our users.

On top of that, we were very encouraged by first results from an application that we were selling to people that are pre-diabetic. We have users in our database that claim to be pre-diabetic and we think that our application can be expanded and to provide specific solutions for gestational diabetes and for pre-diabetes. And we are looking forward to expand our application in a way that will be able to serve a much wider population.

Given the success that we have on the consumer side, and given the very good feedback that we are getting from users, and this is something that can be -- that is available online. I mean if you Google about our product on social media, whatever, you can see tons of very good feedback about the product. And the feedback is created in a way that we see a lot of opportunity to sign post [information] and deals for the Company.

So, we also believe that during the year we are going to get more strategic B2B agreements that will enable us to scale up the sales in a much more aggressive way than what we did so far. With that I would like to turn the call to Zvi Ben-David for a more detailed view of the financial results. Zvi, go ahead.

Thank you, Erez. as we already disclosed and as Erez alluded to revenue, during 2016 we sold more than 18,500 Dario Blood Glucose Monitoring System's in the United States. And the pace we sold them accelerated in the second half of the year, which is about 14,000 having been sold in the second half of the year.

At the end of the year we had more than 18,700 users registered on our servers, comparing to 10,900 at the end of the third quarter. This reflects an increase of more than 17% during the first quarter. Of these users more than 95% have [bought the bridge].

During the fourth quarter, the strip quantities we have sold to consumers were 67% higher than the quantity sold in the third quarter. About 61% of the total strips sold since launch were purchased by users under our subscription plan.

Turning to the fourth-quarter results, revenues in the fourth quarter ended December 31, 2016 were $838,000, a 172% increase from the [stripped out 100,000], $308,000 in the fourth quarter of 2015, and a 15% increase when compared to the $728,000 of revenue in the third quarter of 2016.

Out of the $838,000 about $662,000 were generated from direct sales in the US and $108,000 were generated in Australia from direct sales to consumers and wholesalers. Revenues for the fourth quarter of 2016 include also product sales to distributors in the United States, Canada and New Zealand; 67% of the quarterly revenues derived from sales of test strips and other consumables.

Gross loss of $647,000 was recorded in the fourth quarter of 2016, an increase of $388,000 compared to a gross loss of [$259,000] in the first quarter of 2016. This gross loss includes one-time items amounting to $496,000, of which $376,000 derived mainly from the impairment of a production line and related inventory in the United States due to its high manufacturing costs.

Additional $120,000 resulted from loss of inventory due to weather conditions in one of our US [warehouses]. We expect to be compensated for this loss during 2017. Operating loss for the fourth quarter ended December 31, 2016 increased by $2 million to $3.8 million as compared to $1.8 million operating loss in the fourth quarter ended December 31, 2015. This increase is mainly due to our additional direct sales and marketing efforts in the United States.

We recorded in our financial expenses warrant [evaluation] expenses of $1.4 million in the fourth quarter of 2016 as a result of reclassifying warrants issued to investors in March and August 2016 as a liability related to warrants due to its exercised price [protection] feature. This exercise price protection feature already expired on March 8, 2017 and, as a result, the liability related to these warrants will be reclassified back to shareholders' equity in the first quarter of 2017 while recording related financing income of $7.4 million in the first quarter of 2017.

Net loss attributable to stockholders or holders of common stock, increased by $3.5 million to $5.2 million in the fourth quarter of 2016, as compared to $1.7 million in the fourth quarter of 2015.

Turning now to the full-year results. For the 12 months ended December 31, 2016 revenues were $2.8 million, an increase of 241% from $823,000 for the 12 months ended December 31, 2015. Revenues generated during 2016 were derived mainly from the sale of Dario components, including the Smart Meter itself through direct sales to consumers located mainly in the US, through Company online store and through distributors.

A gross loss decreased by $25,000 to a loss of $830,000 in the 12 months ended December 31, 2016 as compared to $855,000 gross loss in the 12 months ended December 31, 2015. Again, as mentioned before, gross loss includes one-time items amounting to $496,000, as I outlined earlier in the quarterly review.

Operating loss for the 12 months ended December 31, 2016 increased by $3.4 million to $11.1 million as compared to $7.7 million operating loss in the 12 months ended December 31, 2015. Net loss attributable to holders of common stock increased by $3.7 million to $10.9 million in the 12 months ended December 31, 2016 as compared to $7.1 million in the 12 months ended December 31, 2015.

The increases in the operating loss and net loss were mainly due to the increase in expenses on digital marketing campaigns primarily in the US after the Company commenced sales in the US in March 2016.

Turning to the balance sheet. As of December 31, 2016 cash and cash equivalents totaled $1.3 million. As Erez indicated earlier, on January 17, the Company raised $5.1 million in a private placement offering.

Now back to you, Erez.

Thanks, Zvi. As you can see, we have made meaningful progress against our long-term growth strategy during 2016 and have set the foundation for continued success. We are encouraged by the reactions we have gained particularly from our users and significant [new] growth of our users and subscribers. The goal is to further drive the predictable stream of high margin recurring revenues from new customers that will enhance our visibility and future profitability.

Looking into 2017, I am very excited about this deal because we think that we can continue the growth, we can even accelerate the growth, and we are looking to specific catalysts that will make it happen in a more intensive way. As I mentioned before, one of them is our ability to sell to users in a direct-to-consumer way under insurance. The expansion of our platform into the Android, this is a big deal. And this is something that we expect to happen later this year and it will open a whole market for us.

We are also continuing our strategy to be a very global Company, indeed we are focusing on the states, but we want to launch into more countries. The next country we are going to launch into is Germany. And this is something that should happen by the middle of this year.

All these kind of events, including the medium-term events like getting -- creating new application and getting into the pre-diabetic market, as well as introducing the coaching on top of our platform, all these events should help the Company grow the sales in a more intensive way and also improve our margins and eventually to take the Company to profitability.

As we are now very deep into Q1, I can also state that the growth in our sales is also continuing in Q1, and I am very positive with regards to the whole year. With that said, I would like to open the call for questions. Operator?

(Operator Instructions). Brian Kintslinger, Maxim Group.

So you made some comments in the press release about US insurance. Can you go over where you are in that process and when you might expect insurance reimbursement might begin in the US?

Yes, so we are working with few companies that have relationship with the insurance companies. In general our plan is to enable doing the direct sales in a way that users will not only be able to pay for our product out of pocket, they will also be able to ask our service to claim for their reimbursement by us or by our partners. So I expect that we're going to do it in a gradual way.

Eventually we think that, as of today, we have access to 15% to 20% of the market because we are only iOS and only out of pocket. So we believe that gradually we can get to 60% to 70% of the market and it is going to happen over the next six to nine months. But we're going to build it gradually.

So, we might be able to sign with specific insurance companies and increase our coverage by another 20%. And we are going to do it in a few stages. In order to get wide coverage we will have to sign a three part agreement. And we are working on all of them now. So I see that happening in the very near future, at least the first one and the second one.

So the first or second is about six months away, is that what I am reading through all your comments?

No, no. Getting everything done is between six to nine months. But the first one might happen any a matter of weeks or days.

Oh, great. And then when users are purchasing strips what is the average order size right now?

Yes, so the average is somewhere between 70 to 100 strips a month, this is what users are using. As we are moving forward with the introduction of our product, so we are getting more Type II's, so this is something that we believe over time will get to an average of like around 60 to 80 strips a month.

Great. And then if we want to look at retention, you mentioned a year ago you had about 10,000 or so users and you are close to 19,000 now. But if you look at those roughly 10,000 that have been with you for a year, how many of those are still ordering?

I am just curious outside of the initial month or two people using them, getting comfortable with the product how many still are using? Are you able to give a rough percentage of how you are able to retain those customers, how many?

So this really depends on the region and type of customers that we are getting on board and the way that we are running the digital engagement and so on. But I can say that the overall number that is achievable and is something that Dario should be able to do, which is much better than the rest of the market, we should be in the ranges of like 60% to 70% if we [still own] the platform after a year.

Right. But I guess taking a look at your 18,700 or so users, how many have ordered strips in the last three months?

I don't have the accurate number. I think that we are talking about 60% to 65%.

Great. And then the last question, you mentioned development for the Android phones. Is that in testing? Is it still being developed? Just take us through the process of where that is right now.

Yes, so the Android is something that is (inaudible) development for a year and a half. We are already selling -- the devices we are selling today is also supporting Android. So if you are Australian or you are living in UK or in Canada, you can use it on Android. The only thing -- so all over the world we are selling Android. So we are selling the device for Android so there is no development that needs to be done. We sold thousands of Android devices.

The only thing that we are missing is that the FDA will also clear our existing device to be used with an Android phone. So practically this is something that all the other regulation bodies, including the CE, Health Canada and PGA, already cleared us a year ago. But the FDA requires a specific clinical study and separate studies and tests for the two platforms separately. And this is what we are doing.

So, I am confident that it is a matter of time, around the short- to medium-term, that we are going to get this clearance from the FDA. And then we can sell it immediately like we are doing in other regions.

Great, thanks so much.

Mindy Han, Francis Capital.

Given that digital marketing is such a key component to creating awareness for Dario, can you give us an update on your plans to increase the efficiency and perhaps improve the ROI over the course of the coming year? Thank you.

Yes, so sure. So this is, as you are saying, a key point. But it is a key point that (inaudible) was to create let's say the first 100,000 users that can take the Company to be breakeven and also to generate a significant revenue. Down the road we do see a specific strategic deal, a big deal that will be able to take the sales up.

And when it comes to the efficiency of the overall platform, when I am talking about the availability of the market in terms of Android in terms of the reimbursement and selling under insurance, this is something that might make the market bigger for us. So once we have more access it helps us to reduce the cost of acquisition, the CPA.

In parallel we also investing time, money and capacity into a specific telemarketing unit that can work closely with users in order to increase the customer value while reducing the CPA. So these kinds of activities are going to reduce the CPA and in parallel also increase the sales. And I believe that we are going to see it along Q1, Q2 and moving forward into Q3 and Q4 of 2017. And investors I believe will be able to see that the burn rate is shrinking in a way that the CPA reduction will reflect in a very high shrink in the burn rate of the Company.

Thank you.

Jeff, [Pearson & Corrado].

Congratulations on great progress. And I have used the product and the service and it has been great. So, the question I have for you is, can you articulate or sort of expand upon the competitive landscape a little bit? Namely from a hardware, a software and an ecosystem point of view, how you think you size up compared to other companies out there who are in the same market and then sort of racing ahead in this fashion?

Yes, absolutely. So if you are looking on the overall glucose monitoring market, then the four big players like Roche, Johnson & Johnson, Bayer and [Endos]. But they are in the monitoring market. I think that the market is going to go into a full business management where insurance companies will no longer pay for just device or supplies they want to get a one stop shop. They want to get someone that will manage the users in a way that the users will eventually improve clinical outcome.

So, I see a new world that is digital. And in this new world you are going to see companies that are providing a software and a service on top of the software. Where those companies that the software will be able to coach in a very automatic way. So, for example, the ratio between a human coach to a user, this is something that we believe that our software can be built in a way that our digital coaching is going to be very, very efficient.

And once you are having coaching and have the supplies and also the monitoring. Another thing is done on one platform, then you can scale up the treatment. And once you scale up the treatment you can improve the hemoglobin A1C and clinical outcome of not just hundreds of users but millions of users. And once you are doing it on a mobile platform, which is a platform that were developed by giants like Apple or Google or others that are developing very powerful software, then you manage to scale up the whole industry.

So, when I am looking at our competitors, we are trying to look on those that are doing[a full] business management and this is what we want to sell. So, if we are looking on the monitoring side there are a lot of competitors. But if we are looking on the full business management and how you can scale up treatment, reduce costs while improving clinical outcomes, then you don't have too many competitors that have all the solutions.

And specifically you don't have too many competitors that are doing it in a way that it is on a native mobile solution, which means that we are literally taking a smart phone, turning it into a medical device and then allowing users to use it and then we are approaching them on top of the platform.

In this space we don't see too many competitors. One of them is Livongo, a Company that was just raised last week $52.5 million. And this Company -- and I think that by seeing this investment this is the exact signal that investors should that the market is going there. I mean investors understand very well that the future is not about paying for the medical device or to the supplies; the future is about taking over the overall management of the patient, helping insurers and helping the healthcare client to scale up the treatment. This is the name of the game.

And although Livongo is a competitor, I was very glad to see that they [grow] such an investment, which means that the market started to understand what we are trying to do here. I believe that our solution is a very scalable one because we are running on -- unlike Livongo, we chose a different approach. We think that we cannot have a dedicated device.

Users don't want to have two devices, one is the smartphone and the other one is the glucose monitor. They want to have everything on the smartphone. And this is some of the differences between these two initiatives. So, on the disease management side I believe that we are positioned very well. Having said that, obviously our Company will have to raise more money in order to be a big player, which is something that we are planning to be anyway.

Just switching gears a little bit. Do you think that -- or is there an opportunity as it relates to marketing to find thought leaders and have them promote or endorse the ecosystem that you are developing?

Absolutely. This is something that we are working very intensively on. We have (inaudible) already supporting us. We think that once the Android will be there and it will be easier to provide the whole platform to everyone almost, so it is going to make our life easier. So we have specific plans and specific individuals in our pipeline that we going to have an agreement with that will enable us to go there. And I am talking about people that are very known in the [space] which will help us push it forward in a very intensive way.

Terrific, thank you. Thank you very much.

[Gary Andersen], [Michal Cab Research].

Congratulations on strong growth in the last quarter and last year. Can you give an update on the launch in Germany? Are you expecting it in Q2 or in the second half of the year?

Yes, so in Germany we are also planning to do direct-to-consumer. We are working on getting the fulfillment established and so on. We also trying to -- talking with specific partners that might help us scale it up. We think that we can launch the product in second half of the year, but at the early second half of the year, somewhere around June, July.

Okay, thank you.

[Greg Silva], [Silva Capital].

Nice progress on the revenue front. Could you give us a rough monthly revenue run rate that gets you guys to breakeven? And also how many devices would you need to get there?

Yes, so we believe that in order to be breakeven we need -- it is a bit early to say, but the number that we think that would take us there is around $1.2 million a month. This is where we can be breakeven. I am not sure that the strategy of the Company is to be breakeven tomorrow morning.

In some ways we -- given the fact that we have a digital marketing machine, it is a matter of how much you invest and how fast you are growing your user base. So timing wise we control it. From a revenue standpoint it should be a around $1.2 million a month. This is the number that we think should take us to breakeven we believe.

In terms of devices, it is something that it is a bit hard to say at this stage because there are a lot of countries in a lot of cases. Our strategy is not just about increasing the user base but also increasing our coverage around the world. Because we want our money tied on the data, it is very important for us to have a very global coverage, a very global launch pin.

Which means that at some stages we will prefer to have another 10,000 users in Germany versus another 15,000 users in the US, because we believe that the monetization strategy is something that will require a very wide coverage. So we are probably talking about more than 200,000 such devices that will have to go out to the market in order to reach the $1.2 million a month.

Great, thank you.

Robert Ainbinder, WestPark Capital.

Good morning, gentlemen. Very exciting time here for Dario and I want to follow up on the statement you just made about big data and selling -- looking for the Company -- looking to sell some of its data. There was a recent press release regarding a new Board member, and forgive me if I miss pronounce his name, Allen Kamer, who came from [Humedica]. That Company was a Company that has actually specialized in monetization of big data.

And I am just wondering if -- what he might be doing to assist in that regard. And seeing a man of this caliber join the Board is always exciting because it is always about the people in a company that either makes a company really work or not. And in this area it can get very, very exciting for Dario as the user base continues to expand. So, I am just wondering with all the assets that Dario continues to amass, can you give us a little more color as to what he might be doing to help the Company in this regard?

Yes, for sure. So Allen Kamer joined -- he's one of the two partners that OurCrowd Qure that invested into the Company. And Allen joined as a Board member. But I must say that Allen is not just a Board member, he is an active Board member, which is literally working closely with me in order to promote the big data initiative and the personalization initiative. And Allen came from Humedica before they acquired by Optum and UnitedHealth.

And what these guys did, they knew how to take data, which is clinical data, and structure it in a way that you can get business intelligence and monetize on that. And they did this in a very nice way, the clients were pharmaceutical companies. And some of the reason why Qure thought that Dario is a very good solution, given the fact that we are running everything on the smartphone and we have 100% data capturing, this is a gold mine that Allen thought that in the future the Company can leverage on.

So we are working closely now. At the moment, we didn't do any sales yet when it comes to big data. But we think that later this year, once we get a few more thousands of users in a combination of the work that we are doing now closely together on the R&D side and structuring the data in the right way and given Allen's connections and so on. We believe that later this year, toward the end of the year we will be able to do something here that will create a total separate revenue stream for the Company. And then we are in a total different place.

So this is something that I am very excited about. And we are working now closely together to increase the teams that are working on the big data. And to be able to provide Allen whatever he needs in order to help us monetize on the data.

Excellent, excellent. Well, this leads me I guess to my next question, which it is something that all of us as investors are most interested in, which is sales growth and revenue growth ultimately turning this Company profitable.

In your press release and some of the comments that you made, you are saying you expect to see transformational sales growth to show up in a multitude of ways, one of which is in lower customer acquisition costs. And as well as significant increases in top-line sales. Can you tell me what specifically you see driving the majority of that sales growth? And what will assist in lowering that customer acquisition cost?

Yes, for sure. So it is about market accessibility, and you get market accessibility when you have insurance that are covering the cost for the user and you have market accessibility when you have the Android cleared and you have market accessibility when you are launching in Germany.

And for sure you have more market accessibility when you are creating an adjusted offering that is not just for Type I and Type II, it is also payload for gestational and it is also payload for pre-diabetes, which is another thing that we are bridging together with Dr. Bahagon, who is one of the two partners at Qure that also invested.

So this was part of the vision of the Company to provide the device also to users that are full diabetic. And this access together with the other things that I just mentioned can drastically grow the sales of the Company and at the same time reduce the cost of acquisition. Now you need to remember that we are also investing not just for pure performance and cost of acquisition now, we're also investing into growing [awareness].

So for example, if the cost for acquisition today is X when we don't have the Android, a lot of users and a lot of customers that have seen us now so far are waiting, waiting for us to get the insurance or to get the Android. And once we get that, then we can re-approach them and do remarketing. And then we believe that down the road, once these clearances are out, the cost of acquisition will be much lower.

Excellent. That sounds exciting. So, we will obviously be looking forward to seeing some of these events take place. And if you don't mind, I've just got maybe one more question or two. And it specifically pertains to something that you mentioned that I found in doing my due diligence here at WestPark. We always look for companies that are similar companies in the space and compare those companies to the companies that we like and try to make an assessment as to what we believe a fair valuation is relative to the long-term potential of the Company.

And one of those companies you actually mentioned that we found was a Company called Livongo, which also seems to be transforming the diabetes management industry by doing something very, very similar to Dario. And investors, as you mentioned, I mean they paid a significantly higher valuation in the most recent raise of $52 million, which from what I read I believe it is somewhere around $250 million, maybe even north of that. We are currently sitting at roughly a $37 million market cap.

So I am wondering what they have, because I couldn't find it. And though the product seems to be very similar to Dario, I am trying to understand what it is that they have that really separates them, makes them different from Dario? In what ways they are different. So if you can help give me us all a little clarity as to what Livongo has versus Dario and why evaluation of that number makes sense for investors versus where we sit today?

Yes. So as I mentioned before, the Livongo -- first of all, I was very excited about this investment because I feel that investors that are investing into this specific space -- I'm not talking about monitoring, I am talking about digital management of chronic condition. And this is what Livongo are doing. And they are saying we are not just selling the device and test strips, we are selling the whole subscription. And we can commit for improvement of the specific clinical outcomes, which is what we are intending to do or already partially doing.

So the fact that they grow such big investments in this valuation, assuming that it is right, it is something that is very positive also for us. And it means that the market understands that this is where the overall industry is going. And I am glad that we are positive. I think that there is a fundamental similarity between us.

Both of us believe that in order to do a pure management and in order to transform monitoring to a full management you need to have 100% data capturing in real-time. This is how you can create and automated way to perform coaching on top of the platform and scale up treatment.

There are millions over millions of people that have diabetes or pre-diabetes. If you want to scale it up you need to automate the coaching and you can do it on top of a platform that is real-time. The major difference is in the user experience and the belief of how you can get this real-time data and measuring. We believe that the future of the world is the smartphone. This is why our solution is coupled to the smartphone.

Livongo created a dedicated device, which means that users that want to get 100% connectivity need to carry the two devices, one is a smartphone and the other one is the Livongo device. So practically Livongo users were looking to two screens, one the iPhone and the other one the Livongo device. Our users were looking to one screen, which is the smartphone, the iPhone. Everything is there including Dario.

This is a fundamental change -- difference between the two technologies of these two companies. And this is our belief. By the way, in a lot of cases it is more expensive to do it over the smartphone. And as you can see, sometimes the road is a bit longer as we are not yet cleared by the FDA for the Android, although the solution -- the (inaudible) solution of Dario is exactly the same, it is going to take -- it is taking a bit longer, but eventually this is what users want.

And if you want to get the real engagement, you need to give users what they want. And I am very proud that we have a product that they really like. And I'm also very hopeful that the market will be able to see the differences between companies that are private or public and so on. And I think it was a very good question and a very valid question.

Okay, all right. So, I have been looking for other companies that are similar to Livongo and Dario. And I haven't found any other companies that I believe have 100% real-time data collection capabilities. Am I wrong about that or are Dario and Livongo the only two companies you know of?

At this moment active companies that are doing that, yes, this is the two. I believe that there needs to be some kind of a difference also on the cost of goods because we are creating a very small piece of electronic that is integrating into smartphone. And the competitors are creating a full solution with the full hardware that is operating partially like the phone. So (multiple speakers) it is us and them.

Forgive me if you kind of answered this already. I just want to really make sure I fully grasp and understand what the practical advantages of these type of capabilities are for us as investors. Can you just really give me what this ultimately means in terms of monetization for us as investors?

Monetization means that the potential of our technology in the way that we are capturing 100% of the data in real-time, and not just the data of the blood glucose, but also the data that is surrounding the blood glucose. I am sitting now in my office and I am testing my blood sugar, I was driving an hour ago and I was eating an apple and I am talking now on a conference call. Everything is captured to the smartphone and the context of the data is crucial.

Once you have all this data, such as consumer data, clinical data, nutrition data, everything into one database, you can get an insight that is -- that can provide a lot of advantages to (inaudible) companies, to pharmaceutical companies based on this data and analysis that they can drive much smarter business decisions. And they are willing to pay for that piece. It is very simple. I mean the algorithm is not simple, and the big data technology is not simple, but what they are looking for is very simple.

Great, thank you so much, guys. I look forward to continued progress and I look forward to the next conference call. Thank you.

Mitchell Kapoor, Rodman & Renshaw.

Thanks for taking my questions. What is the current breakdown of usage distribution for the DarioHealth system between Type I and Type II diabetics?

Yes, so at the moment I don't have the accurate number. I believe we are somewhere in the range of 65% to 70% Type II and 30% Type I. It depends on the region and it depends on other parameters. There is also pre-diabetes and gestational, but if I would have to give a rough number, we are talking about 30/70, 35/65.

Okay, great, thank you. And how are you combating the lack of a headphone jack on the iPhone 7? Do you guys need to manufacture a separate insert?

Yes, we have -- we already announced three months ago that we have a solution for iPhone 7 we are integrating through the charging jack. So we have a solution for this one already. It is under a special price and code, which is running now in front of the FDA. So this is something that our users -- again, we always believe in a very extreme user experience.

We don't want our users to use a connector. And this is why we are providing a special dongle that will come with an integration, that is not only a jack but the charging jack. So this is something that we've already solved, and we published videos, it is already out there, it is in Google and you can see how it works.

Perfect. Thank you so much.

And that appears to be our last question. Erez, would you like to give any closing remarks?

Okay, so I would like to thank everyone for joining us today and for the thoughtful questions. I am looking forward to share [announcements] with you in May when we report the first-quarter of 2017 financial results is out. Thank you, everyone, and have a good day.