DarioHealth Corp. (NASDAQ:DRIO) is a global digital therapeutics (DTx) company delivering personalized evidence-based interventions that are driven by precision data analytics, software, and personalized coaching. The company has developed an innovative approach to digital therapeutics that disrupts the traditional provider-centered system of healthcare delivery by offering user-centric care that is continuous, customized, and supportive of better overall health.

DarioHealth's cross-functional team operates at the intersection of life sciences, behavioral science, and software technology to deliver seamlessly integrated and highly engaging digital therapeutics interventions. The company's platform and suite of solutions deliver personalized and dynamic interventions driven by data analytics and one-on-one coaching for diabetes, hypertension, weight management, musculoskeletal pain, and behavioral health.

Business Overview

DarioHealth began as a direct-to-consumer digital therapeutics company, solving first for the problem of how to engage users and support behavior change to improve clinical outcomes in diabetes. In 2020, the company enacted a strategic shift to transform the business model by deploying a business-to-business-to-consumer (B2B2C) approach, leveraging the strengths of its consumer solution platform to enable commercial growth opportunities in traditional health business channels by selling to health plans and employers.

At the same time, DarioHealth expanded from a single-condition platform to a multi-condition platform, creating a robust suite of solutions to address the five most commonly co-occurring, behaviorally driven, and expensive chronic conditions, which are also representative of some of the most sought-after digital health solutions: diabetes, hypertension, pre-diabetes/weight management, musculoskeletal and behavioral health. The company made several strategic acquisitions, including Upright, PsyInnovations, and Physimax Technology assets, to expand into the fields of MSK and BH.

DarioHealth's approach to integrating all solutions into one digital therapeutics platform follows the "best-of-suite" offering design principle, which provides the user one place to monitor all identified chronic conditions and delivers a seamless user experience for commonly co-occurring chronic conditions.

These two strategic shifts led to the rapid expansion of DarioHealth's B2B2C business over the last two years and positioned the company for success in commercial markets. DarioHealth continues to achieve key benchmarks as it rapidly scales its B2B2C model, including more than 100 total signed contracts to date and the shift in its commercial pipeline where more than 50% of the contracts signed in the second half of 2022 are for multi-chronic solutions.

Financials

For the fiscal year ended December 31, 2023, DarioHealth reported annual revenue of $20,352,000, a decrease from the previous year's revenue of $22,145,000. The company's annual net income was -$54,860,245, and its annual operating cash flow and free cash flow were -$30,379,000 and -$30,963,000, respectively.

In the first quarter of 2024, DarioHealth reported revenues of $5,758,000, a decrease of 18.5% compared to the first quarter of 2023, which saw revenues of $7,066,000. The decrease in revenues for the first quarter of 2024 was mainly due to a decrease in revenues from the company's partnerships channel.

However, the company's B2B2C revenue, which represents recurring revenues mainly from health plans and employers, continued to scale up and is now the largest of DarioHealth's three revenue channels, accounting for about 71% of the company's pro forma revenues for the first quarter of 2024. This is a significant milestone for the company, as the B2B2C revenue stream has high SaaS-like gross margins above 75% and is expected to exceed 80% in the future.

Erez Raphael, CEO of DarioHealth, stated, "Today, the Dario platform is the most consumer-centric, the most comprehensive in terms of conditions covered, and has the most proven track record in terms of clinical performance and improving cost savings in this space. Today, Dario has a massive client base and book of business, including 3 out of the top 8 national health plans such as Cigna, Elevance, and Aetna, as well as big-name national employers such as Amazon, Google, and Microsoft, all of which are contributing to the B2B2C revenue, which is growing extensively on a Dario-Twill integrated basis."

Guidance and Outlook

DarioHealth is confident in its ability to scale and reach profitability, driven by the growth in its core B2B2C business, the synergies from the Twill acquisition, and the company's focus on operational efficiencies.

The company expects to see significant revenue growth in its core B2B2C business on a combined basis for 2024 and even greater growth in 2025, including cross-sell opportunities that DarioHealth is currently executing on. This, combined with the faster-than-anticipated cost synergies and the high gross margins of 80%, is expected to enable the company to reach breakeven in the second half of 2025.

Richard Anderson, President at DarioHealth, stated, "The company is confident in its revenue growth in 2024, and is excited about the customer traction already seen in the 2024 sales cycle for 2025 revenue. DarioHealth believes it will dramatically accelerate its revenue in 2024 and 2025 across the B2B2C and strategic B2B channels."

Liquidity

As of March 31, 2024, DarioHealth had approximately $34,367,000 in cash and cash equivalents, compared to $36,797,000 on December 31, 2023. The company has experienced cumulative losses of $358,570,000 since its inception in August 2011 and has a stockholders' equity of $78,033,000 as of March 31, 2024.

DarioHealth has financed its operations primarily through private placements and public offerings of its common stock and warrants, receiving aggregate net proceeds totaling $264,601,000, as well as a credit facility of $25,564,000 as of March 31, 2024. The company believes that its sources of liquidity and capital resources will be sufficient to meet its business needs for at least the next twelve months.

Risks and Challenges

DarioHealth's business is subject to various risks and challenges, including:

1. Concentration of revenues: Due to the company's limited operating history, it has a limited customer base and has depended on a major customer, Sanofi, for a significant portion of its revenue. If Sanofi were to terminate the exclusive agreement or if DarioHealth fails to adequately perform under the agreement, and if the company is unable to diversify its customer base, its revenue could decline, and its results of operations could be adversely affected.

2. Geopolitical risks: DarioHealth's principal executive offices and other significant operations are located in Israel, and the company's results may be adversely affected by political, economic, and military instability in Israel, including the recent attack by Hamas and other terrorist organizations from the Gaza Strip and Israel's war against them.

3. Stock price volatility: The market price of DarioHealth's common stock has been extremely volatile and may continue to be volatile due to numerous circumstances beyond the company's control, such as "short squeezes," comments by securities analysts or other third parties, and changes in foreign currency exchange rates.

Conclusion

DarioHealth is revolutionizing the digital therapeutics industry with its comprehensive, consumer-centric solutions that address the most prevalent chronic conditions. The company's strategic shift to a B2B2C model and the expansion into a multi-condition platform have positioned it for significant growth in the coming years.

Despite the challenges faced in the first quarter of 2024, DarioHealth's core B2B2C business continues to scale, and the company is confident in its ability to reach profitability by the second half of 2025. The integration of Twill and the resulting synergies, coupled with the high gross margins of the B2B2C revenue stream, are expected to be the main drivers of the company's path to profitability.

As DarioHealth continues to execute on its strategic initiatives and capitalize on the growing demand for its comprehensive digital therapeutics solutions, the company is well-positioned to disrupt the traditional healthcare delivery model and become a leader in the digital therapeutics space.