DarioHealth Corp (DRIO) 2024 Q3 法說會逐字稿

Good morning, ladies and gentlemen and welcome to the Dario Health third quarter, 2024 results call. (Operators Instructions) I would now like to turn the conference over to Kat Parrella Investor relations manager at Dario. Please go ahead.

Thank you operator and good morning everyone. Thank you for joining us today for a discussion of DarioHealth's third quarter, 2024 Financial Results. Leading the call today will be Erez Raphael CEO of Dario Health. He'll be joined by Steven Nelson, Chief Commercial Officer, a audio recording and webcast replay for today's call will also be available online as detailed in the press release. Invite for this call for the benefit of those who may be listening to the replay or archived webcast. This call is being held on Thursday, November 7th 2024.

This morning we issued a press release announcing our financial results for the third quarter of 2024. A copy of the release can be found on the investor relations page of DarioHealth's website. Actual events or results may differ materially from those projected as a result of changing market trends, reduced demand or the competitive nature of DarioHealth's industry.

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

The forward-looking statements discussed on this call are subject to other risks and uncertainties including those discussed in the risk factors section and elsewhere in the company's third quarter, 2024 quarterly report on form 10-K.

Additional information concerning factors that could cause results to differ materially from our forward-looking statements are described in greater detail in the company's press release 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 were 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 this morning's press release. With that I'd like to introduce Erez Raphael CEO of DarioHealth.

Thank you Kat, Good Morning everyone and thank you for joining us today for DarioHealth first quarter earning quarter.

Over the past few quarters, we have made the bold strategic moves to establish that as one of the leading forces in the digital health space. Even in a challenging market environment.

Dario now offers one of the most comprehensive digital health platforms in the industry supporting six different chronic conditions including diabetes, hypertension, weight management, skeletal pain, health, and maternity support. Our offering expansion in metabolic health has been organic while we expanded into other areas for strategic acquisitions, the recent acquisition of Twill exemplifies this packaging, adding robust health capabilities and advanced navigation tools to guide clients in matching patients to a popular therapeutic area. If Twill are integrated does it provide unmatched consumer centric personalized health solutions making it the most comprehensive platform in the market?

This quarter represents crucial step towards positioning value as a top of the service like business with high gross margins targeting over 80% and a strong current revenue model.

Today, we're excited to share how the strategic initiatives are delivering tangible results with a significant improvement across all financial metrics including growth in our top line. A reduction in operating expenses and a substantial decrease in net loss.

Additionally, Q3 marks a period of robust business momentum with 10 new client wins. This quarter alone, we are also in the process of securing approximately five more clients before the end of the year, which would bring our total client win for the second half of the year to something between 17 to 20 new clients.

This strong business momentum highlights the increasing demand for our comprehensive platform and our ability to deliver value to growing roster plan. For Q3 we reported $7.42 million in revenue representing 18.7% increase over Q2 of 2024 and an impressive 111% year over year growth.

This growth is largely fueled by our CO B to B to C business which has become the engine of the revenue base through continued optimization of revenue challenges and shift towards the current revenue model. Gross margins for the B to B to C business rose to 83% with full business growth margins reaching 70% on a Non-Gaap base.

This improvement reflects our commitment to enhancing the quality and the predictability of our revenues.

Following the recent merger with Twill DarioHealth implemented focused cost management strategies reducing Non-Gaap operating expenses to 12.3 million. A 15.9% sequential decline from Q2 2024.

This disciplined approach to cost management has been essential in driving margin expansion and operational efficiency.

Looking ahead, we are confident that the improvement in our financial profile will continue into the next few quarters. The cost reduction initiatives we initiated earlier this year are not fully reflected in our current numbers yet.

As these efforts mature, we expect to see even a greater reduction in Q4 2024 and Q1 2025 with projected 69% reduction in Non-GAAP operating losses from Q1 2024 to Q1 2025.

This process keeps us, tell me on track to reach a cash flow breakeven run late by the end of 2025.

Now, I would like to turn it over to our Chief Commercial Officer Steven Nelson who joined us earlier this year, Steven has been instrumental in designing our commercial strategy and strengthening our client operation, which is key to sustaining the strong business momentum we are experiencing. We acknowledge this in the past where we were successfully one client.

It was challenging to fully realize revenue from this partnership who are improved client operations. We are now focused on converting new clients logos into meaningful revenues more efficiently even we share how the strategic enhancements are helping to drive growth both by deep relationships with existing clients and partners and by expanding our reach into new client segments.

Thank you Erez and Good Morning everyone. I'm excited to share our commercial momentum continues to build. Over the past quarter we've signed 10 new contracts, positioning us well for sustained growth as we head into 2025. This momentum isn't just about adding clients. It's about deepening our engagement to align with clients evolving needs and creating a more sustainable diversified revenue mix that will facilitate more predictable and stable growth going forward.

By the end of this year, we expect to reach an estimated total of 25 new client signings in 2024 to be implemented and secured for revenue growth in 2025. This represents approximately 35% growth in our client base. A milestone that serves as a core indicator of our profitability time line.

Our B to B to C channel continues to show substantial progress and significant potential and we're determined to unlock its full value.

While we've established a strong foundation, there is much more we can achieve particularly with clients in the employer and health plan channels. For example, major employers like Amazon and Google are open to exploring additional ways our platform can address their health needs and we're confident that we can expand these relationships. We continue to expand on commercial opportunities with our GLP one product which continues to gain traction in our client base.

We will soon be partnering with a prescribing partner to further our GLP One offering, reinforcing our commitment to comprehensive client solutions and metabolic health.

We have now successfully implemented our operating model and accountability internally to expand on the following channels.

Health Plans will continue to strengthen our position in the health plan space. This quarter, we've signed our fourth contract with the national payer this time in the Medicare advantage market with Centene aimed at promoting healthy aging. This partnership introduces a digital mental health benefit for seniors and expands our footprint to over 1 million eligible members beginning 2025. Additionally, we launched a large scale cardio metabolic program in the Medicaid Space. So they're showcasing the value of our integrated multi condition platform. We're also seeing incremental growth in our relationship with Aetna and we anticipate this steady trajectory to continue in the 2025 supporting our ongoing expansion and the health plan channel.

In parallel, we are in the process of reestablishing our relationship with everyone transitioning from an initial Medicaid pilot in behavioral health to a potential commercial partnership focused on cardiometabolic solutions.

Employers in our employer channel, we have added seven new contracts particularly for cardiometabolic solutions and signed our first health system as an employer client.

This targeted segment of unique employers allows us to bring our solutions to individuals that deliver care by profession and to those who have a unique understanding of our clinical importance of our care modalities on the Dario platform.

Pharma and Medical Device. Our Pharma channel is a standout area of progress. Last quarter, we outlined an opportunity to enter the Pharma direct space with our pharma partnerships. Through this opportunity we recently closed two new deals including a top six global pharmaceutical company executing our strategy to build long term predictable revenue streams.

These deals are structured under our platform services, subscription fee model, transitioning our Pharma business from a milestone based to recurring revenue.

This shift aligns with industry trends making our Pharma channel, a more stable and predictable revenue contributor.

We have also made progress in reestablishing our collaboration with Sanofi working closely with their commercial business units and global Digital health care division to reframe our core engagement. With this expanded offering not only are we enabling pharma companies to better reach and or retain patients. We're also empowering them with a more effective means to monitor outcomes and personalized care.

These significant strides in the past three months of redefining our farmer partnerships pivoting to a subscription based model that is transforming our revenue profile from this segment into a stable reoccurring stream.

This transition aligns our pharma business with our broader strategy of building predictable long term revenue sources.

This shift in our model has already started to contribute to near term revenue and we expect it to become a core growth driver as we continue expanding in this space with this expanded offering, not only are we enabling pharma companies to better reach and retain patients, we're also empowering them with a more effective means to monitor outcomes and personalized care.

Strategic partners. We are also announced a significant partnership with a ARP giving us access to 38 million members, age 50 and older with program activation beginning in January 2025. We look forward to providing more color on the benefits of this partnership once it is formally live in the members in January.

In addition to these client wins, I remained focused on refining our commercial strategy and operational processes are unique value proposition rooted in direct to consumer engagement. And our multi condition platform gives us a strong foundation.

We recently completed a detailed product market fit analysis, enabling us to target the right segments more effectively. With this redefined strategy, we're not only winning new clients but also deepening relationships with existing ones, unlocking new revenue opportunities and strengthening our reoccurring revenue base.

We have an incredible amount of opportunity to grow across our existing and prospective Book of Business and I am confident that we have redirected ourselves to achieve that growth as a fully integrated comprehensive solution.

This integral step has been made official by the rebranding of our product suite to fit into one unified brand.

This unification strengthens our market reach and data driven approach to optimizing outcomes across all client segments with each client engagement. We're also gathering valuable insights that fuel our A I capabilities, enhancing both client experiences and clinical outcomes.

As we look ahead, I am excited to build on our momentum executing with precision and a relentless focus on sustainable long term growth.

Our road map is clear and we are fully committed to driving transformative impact across the health care landscape, delivering enduring value for our clients and realizing our vision of a healthier more connected world. Erez back to You.

Thank you, Steven. Steven's insights underscored the tremendous progress we are making across all channels.

Our strategic focus on expanding our client base and dipping client relationships in creating a robust foundation for golf is one of the most comprehensive platforms on the market covering conditions from diabetes to be able to help. We are leveraging billions of data points to drive best in class outcomes and reward evidence of reduced cost for our clients.

Looking ahead, we also keep investing in A I and data driven customization.

Provided data enable us to drive innovation in areas like drug discovery, consumer engagement and targeted intervention.

By integrating generative A I and micro services. We are creating a new revenue opportunity, further strengthening our ability to activate and engage members effectively and offering unparalleled value to our clients.

In conclusion, we're very pleased with our progress this quarter and the momentum we have built for the quarters ahead. The continuity of our strategy is evident in our financial achievement and operational milestone with the continuous execution of our commercial and cost management initiative. We are on track to achieve cash flow break even run rate by the end of 2025.

Thank you to our team clients and shareholders for our support. We're excited about the order.

Ladies and gentlemen, we will now begin the question and answer session. (Operator Instructions).

Your first question comes from the line of Charles Frey from TD Collin. Please go ahead.

Hi, this is Adam on for Charles. Thanks for taking our questions first, wondering as we approach 2025 and following the company adding many new clients in 2024. If you can provide some guardrails around how we should start to think about the 2025 growth range for B to B to C revenue.

Yes, thanks Adam for the question.

As we stated, the, the call, we have around 25 new clients this year, which is something that is more than 30% in the client base. Overall, we are looking into increasing the average revenue that we are getting from clients plus because we are lending and expanding. We think that eventually we should go more than what we are going in terms of the total number of clients. So while we are not providing a very precise guidance, we did also communicated as part of this question is that by the end of next year, we should get to a run of $50 million which will put the company in an operational cash flow positive point.

I think it's very helpful color and also looking at B to BB to C revenue, it stepped up sequentially in the quarter wondering if there was anything that stood out as a driver there or is it right to continue thinking about the annual range of 8 to 9 million roughly as being the continued range going forward.

So on the B to C side, we are looking into $8 million range, which is something that should stay stable there. Just to remind everyone, the B to C is A, is a P&L that doesn't stand alone, is not losing money. It's casual, positive. That's on the B team on the B to B. If we are looking into that as a stand alone, we are saying for this year, a growth of between 50 to 70% in the revenues of the B to B to C on the pro side. I mean, if we're looking on an integrated basis, the entire revenue was going 111% all the challenge together.

Understood. Thank you and congrats on the two wins in the Pharma channel, it looks like you started to gain attraction of the new platform services, subscription fee model in that channel. Wonder if you can start to share what you estimate each of these new customers can contribute there. Maybe in particular the large Pharma customer and maybe also what drove those wins and what the pipeline looks like here.

Yeah, so we, this is Steven speaking. Hi. We've had two clients that we brought in that channel specifically, and we're working with our existing book of business to kind of expand upon that. I think there's two things that we look at with those businesses. One is how we bring them on board to our platform that would be configuration fees. And we work with all of our clients in that, in terms of how do they on board into our environment, how do we work, setting them up etcetra. And then we're moving them to platform fees and the platform is really dependent on what is the goal, how big are they trying to drive their business etcetra. So it does vary based on what their goals etcetra. I'd say anywhere between you look at these accounts as we have them anywhere between 500,000, up to say 2 to 3, we have some clients that I'd say full scale could get up to 5 million. So technically speaking, you know, we have a range in there again, we gotta bring them on board, then we have to establish platform fees, the platform fees are mutual. So we don't really just, we don't jump in and be like, hey, this is what it costs to use this. We kind of work with them on what are your goals? What are your patient drivers? What are you trying to do in your direct channel? All pharmaceutical companies and products within those companies are different? They have different goals, different expectations, client targets, pre prescription, post prescription engagement. They're all a little bit different. But I think right now we're seeing them fall anywhere between, I'd say half million to million on the front end and then on the back end, as platform fees evolve, we see those contracts as we begin to rescale, which will take some time. But we're working on that, anywhere between I'd say a million, 2 million upwards of 4 to 5. Again, depending on the product set and per client, what their goals are either pre prescription or post prescription on the platform.

Understood, is it right to think that prior Pharma partners, the ones that were paying milestone payments under the legacy model here. Do those remain on track going Forward?

Yeah, we need to eliminate those. We need to be really intentional on trying to convert the contracts that we have and convert them as partners and work with them to kind of move it to a new area. You know it's lumpy, it creates lumps in our revenue. It's hard to project. I kind of noted that in what I said earlier, it's hard to project where our revenue will fall. We're trying to get to stable confident, credible revenue, that's predictable and we're trying to get out of the lumpiness of our business. So it's a crosswalk of kind of bringing in new revenue. That is exactly the revenue we're looking for versus, you know letting revenue go and trying to bring them on to the platform in a unique way and hopefully, we can cross that bridge with them. So we're trying to be really intentional about the longevity of the company and our goals of profitability and that includes our revenue mix by segment by product by client. And so we're trying to be thoughtful in that obviously not, you know, degrade our revenue. But the same token, we needed to be healthier, more confident, more predictable.

That's very helpful. Thank you. And last for me is around OpEx improvement. I know that you guys are targeting still improvement in OpEx over the next few quarters and into the end of 2025. But wondering if you can share what between R&D marketing, etcetera would be the key levers there to continue reducing OpEx or maybe maybe all those. And then from there also, once you reach a stable, more stable OpEx base, kind of growing on that more stable OpEx base, if that's the base case going forward. Thanks.

Yes, thanks, Adam. So, on the OpEx, we keep the transformation as we communicated in the previous quarter, we did two weeks and we are reducing the the integrated OpEx. If you look into Q3 2023 where value was a stand alone versus Q3 2024 where value is also embedding 12, we're almost in the same office, which means that we manage in like literally six months to absorb an entire organization that used to have a $28 million OpEx and embedded into D almost with the same OpEx. Like D is a stand alone, which is a very good achievement that we are very proud in the actions that we took is going to keep taking the OpEx down And we expect that we're going to get to a run rate of $41 million by Q1 of 2025 on a non base for four years. So it should be somewhere in the ranges of 10.5 a quarter. We believe that that's going to be the new baseline that will be the run for the entire next year. And we believe that the case of positive point will be also in these ranges in terms of the opexs very important. And I mean, Steven mentioned the transformation of the revenues from milestone to the platform to recall revenue on the B to B to C is a stand alone, we generated 83% both mountain. So we have the confidence that the $50 million on with the new baseline of OpEx post, all the integration, We will get to cash flow positive. We achieve this this OpEx reduction by a combination of reduction in the overall expenses merging the organization and also a very strategic offshore activities where the organization is mainly in the US, but also have a large team in India for R&D support. And a smaller team in Israel is part of the overall change in the reduction. We also rotated budget from R&D tto sales and marketing. So the company not just reduce the budget, we also changed the merge. And in terms of percentage of the revenues, we rotated budget from R&D to the commercial side because we do believe that the company did a lot building this product. We know that we have a very, very mature product and we are all about growing the revenue with the existing assets that we have.

Still, we have some R&D projects that required budget, but the budget is like more than 35% lower than what we used to have when we acquired the Twill. So overall, we're going to see the platforms integrated. We already communicated that everything is going to operate under one integrated brand, one user journey and everything is being done by the end of this year. So I think that investors should expect like a huge expenses of R&D that are going to go up and that we have everything that we need. And now we only need to score in terms of the revenue, which is something that we have a very high confidence that we're going to achieve in the next few quarters based on the accounts that we have signed on and also those that we are getting expanded.

Understood. Thanks for the color and right on the quarter guys.

Steven, you want to say something?

I was just going to add that. We really refocused on with our product leader. We really refocused on what was going to be good to go to market. I think there's a feedback there. Is that better? I do not.

We really refocused our approach on what we're going to do from a go to market perspective. I mentioned that product market fit both in the last queue and in this queue and that's in collaboration with our product leader. She's wonderful, really kind of leading us to a very specific approach on what we're trying to execute. And again, mentioned how we're doing our R&D. That's in India. It's also worth noting those are our people, our offices that's not an offshore activity, that's our people, it's our company. So I think we have a lot of leverage on how we approach our R&D and what we bring to the market, getting the market feedback, the way that we have in commercial. Also the way that we've consistently got voice of customer loop, coming back to our product teams allows us to refocus in a way to get really what we need to bring the market to market. So I think there's been a conscious effort to not just reduce cost. But as I've said a couple of times now in the queue, it's literally getting refocused on the product market fit and what we need to bring to market in a very, very operational executional way. So worth noting that I think there's an intentional effort there for sure as we build, that's all.

Very helpful Steven.

Ladies and gentlemen, there is no further questions. This concludes today's conference call. Thank you very much for your participation. You may now disconnect.