DarioHealth Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 10, 2023

There are 8 speakers on the call.

Operator

Greetings, and welcome to the Verio Health Second Quarter 2023 Results Conference Call. At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Chuck Falada.

Operator

Please go ahead.

Speaker 1

Thank you, operator, and good morning, everybody. Thank you for joining us today for a discussion of DarioHealth's Q2 2023 financial results. Leading the call today will be Erez Raphael, CEO of DarioHealth. He'll be joined by Rick Anderson, President. After the prepared remarks, we will open the call for Q and A.

Speaker 1

An audio recording and webcast replay Today's call will 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 August 10, 2023. This morning we issued a press release announcing our financial results for the Q2 of 2023. A copy of the release can be found on the Investor Relations page of DarioHealth's website. The 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.

Speaker 1

Such forward looking statements and their implications may involve known and unknown risks, uncertainties and other factors that may cause actual results 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 Q2 2023 Quarterly Report on Form 10 Q filed this morning. 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 then in the company's other filings with the SEC. In addition, certain non GAAP financial measures may be discussed during this call. These non GAAP measures are used by management to make strategic decisions, forecast future results and evaluate the company's current performance. Anderson believes the presentation of these non GAAP financial measures is useful for investors' understanding and assessment of the company's ongoing and prospects for the future.

Speaker 1

A reconciliation of these non GAAP measures to the most Comparable GAAP measures is included in the morning's press release. With that, I'd like to introduce Erez Raphael, Chief Executive Officer of DarioHealth. Erez?

Speaker 2

Thank you, Chuck, and thanks to all of you for joining our call this morning. Q2 financial results continue to demonstrate the advancement of our multi year strategy. Our financial profile continues to evolve toward a multi tenant software as a service technology solution for healthcare industry. I'm not aware of any other digital health platform that has gained our level of consumer traction proven and backed by real world data evidence, Especially studies that are done by third parties such as the studies Sanofi has conducted on Dario's outcome. We continue to see the alignment of the strategy with our financial results and the market trend.

Speaker 2

While we are a bit lagging on the top line scale, we are still confident That the model and the market fit is totally there. Let's examine. 1st, on our transformation from direct to consumer to B2B. We generated sequential B2B2C ARR growth for the 10th consecutive quarter. We are showing that the fundamentals of the B2B business, hence selling into the self insured employer And health plan market had a positive impact on demonstrating Dario as a true software as a service type digital health business with high gross margins and stable year over year recurring revenues.

Speaker 2

The combination of significant reduction in the cost of member acquisition, The ability to scale in more revenue per member per month on the platform is already shown in the results. In terms of penetration strategy, We believe we are on the right path to accelerate our velocity as we put a lot of focus on the partnerships that we have executed in the last few quarters, Including significant and meaningful relationships with partners such as Solera, who we just announced allowed regional Blues plan, Virgin Pulse, Alliance, American Well, Sanofi and Aetna. While it is still early, we have already seen new customer pull through from our strategic partnerships, including most recently MedOne Fusanofi and Laud Regional Blues plan Fusolera. We also see top relationships getting stronger. On Sanofi, I would like to disclose here 2 weeks ago, we signed an enhancement to the original agreement that we signed 14 months ago with main objective of strengthening The strategic alignment between the companies and accelerating funds to speed up features of our joint development program and revenue share.

Speaker 2

We also see significant financial and people resources dedicated to Dario by Sanofi in marketing the solution And conducting and disseminating the recent clinical study. On Aetna, Despite a delay in the launch of the platform, we believe that the partnership is only getting stronger and the size The opportunity is getting larger than what we originally anticipated. MWell that was announced Q2 represents a huge opportunity With 90,000,000 people having access to the platform into which our solution is integrated. Both companies' teams So already engaged in selling the value solution through to the customers with concrete health plans opportunities. Pivoting now to the product market fit with unique integrated consumer first Multi chronic condition platform that is clinically validated with the real world data evidence.

Speaker 2

The strategy is not only aligned with At the head of the macro digital health market trends of consolidation of conditions under one platform with consumer first approach and 3rd party real world studies validating clinical and cost reduction outcomes. In fact, our current model for transforming healthcare into more consumer centric whole person care approach It's better suited to the current macro financial environment that is looking for real proven cost saving solutions to costly chronic conditions. We have seen and will continue to see attempt in the market to build and launch digital therapeutic solutions That has run into market penetration and macroeconomic challenges. We believe that the true consumer first approach With real world evidence is the only way to successfully penetrate the market. Given the capital, The time, the sustained efforts it took to build our consumer first proven solution, we believe we have created a real differentiator and a real boat that has a unique market fit.

Speaker 2

We have proven again and again that the platform is performing in the real world with real users and real world evidence As opposed to a pre designed controlled clinical study environment that traditional healthcare companies, including digital therapeutics companies have used, The 2 real world highly rigorous studies that Sanofi recently presented demonstrated that Dario's solution Has the statistically significant and highly relevant improvement in clinical outcomes and reduction in cost. We are very excited about the studies and what they represent not only for Dario, but to the whole digital health industry. Let's take a deep dive into the financial results. CUDA shows continued improvement of the company financial profile. Our results continue to demonstrate that our model is working even though we need to continue to scale up our revenues.

Speaker 2

Let's start by looking into the revenues in this conference. As we preannounced, revenues for the Q2 were 6 $150,000 compared to $6,180,000 in the Q2 of 2022. This flat growth is resulted from timing of anticipated strategic revenue resulting from delay with one of the strategic partners. Our partnership strategy continued to mature and yield significant opportunities for long term growth. Our recurring B2B2C revenue has now increased for 10 consecutive quarters in a row, which we believe speaks to the value that members place on our highly engaging digital health offering.

Speaker 2

We believe we will see revenues acceleration as we continue to get the signed account loans. Another important metric is growth margin. Here we continue to show that we developed a true software driven business with SaaS oriented characteristics. Pro form a gross margin was 51.5% for the Q2 of 2023, Up from 36.1 percent of revenues in the Q2 of 2022, which primarily resulted from shift in revenues from B2C to B2B. As mentioned in the last few calls, we are targeting an average gross margin of 70% by 2024.

Speaker 2

Looking at the operating loss, we are seeing an operating leverage on the infrastructure that we have built and real economic advantage of multi condition approach further reduced non GAAP operating loss excluding stock based compensation, Amortization of acquisition related expenses and depreciation for the Q2 of 2023 to $7,500,000 compared to $11,100,000 for the Q2 of 2022 $6,300,000 in the Q3 of 2023. Looking into the balance sheet, we are also having a strong cash position of $52,600,000 provide runway through 2025. With that, I want to hand over the call to Rick to elaborate on the commercial status. Steve? Thanks, Erez.

Speaker 3

Our revenue comes from 2 segments, B2C and B2B. Within the B2B segment, we have 2 components. 1st, annual recurring revenue from self insured employers and health plans or ARR and second, revenue from our large strategic partners. In the second quarter, our B2B revenue represented 63% of our total revenue. This mix reflects our strategic move to the B2B market and as Erez pointed out, resulted in the higher gross margins in the quarter versus the same quarter last year.

Speaker 3

The decrease in revenue in the second quarter was due to a reduction in our We expected to recognize revenue from work with Sanofi that was delayed due to internal organizational shifts by Sanofi that were unrelated to Dario. I want to be clear that none of this has impacted our partnership or agreement with Sanofi. In fact, The amended agreement referenced by Erez further aligns the 2 companies' interests and provides mechanisms for accelerating some of the contemplated collaboration. Sanofi continues to invest in sales, marketing and studies in support of the Dario solution. We believe that the disruption from these internal changes is now largely behind us.

Speaker 3

On schedule, we delivered the private label behavioral health platform to Aetna And recognize strategic revenue based on this milestone in the Q2. This is new digital platform that they are selling through to their self insured customers. We had anticipated that they would begin enrolling members to the platform in the Q3. However, due to a change in strategy by Aetna, We now anticipate that they will not begin enrolling members on the platform until the Q1 of 2024. With the change in strategy, the platform is moving to the behavioral health which actually increases the total opportunity to approximately 30,000,000 lives from the current 10,000,000 lives.

Speaker 3

We continue to anticipate that the rollout will happen over several quarters once launched, and we have better visibility on platform additions in 2020 We maintain a strong relationship with Aetna and believe we may have additional strategic and other opportunities with them in the second half of 2023 and beyond. In the Q2, we continued to maintain B2C revenues at levels consistent with the last two quarters, which allows us to maintain a self funded innovation platform. For example, the last year Sanofi development work was launched into this market for users' response and testing prior to launching it into the B2B market. In the second quarter, we saw our 10th quarter of sequential B2B2C revenue growth. And we launched MedOne, our first customer obtained through our Sanofi collaboration.

Speaker 3

In July, we launched a large regional Blues plan with approximately 3,000,000 members, which is our first health plan through our partner Solera. As we discussed on our Q1 call, this health plan saw several delays as Celera and the health plan finalized their agreement and launch plan. These delays are especially frustrating because we have a limited ability to impact them. We are, however, pleased that plan is launched in the timeframe that we communicated on the Q1 call. Excitingly, almost concurrent with the launch of this health plan, We expanded our contract to include diabetes, further validating the value of our multi condition strategy.

Speaker 3

We expect that this regional Blues plan And MED-one will both ramp up over the next several quarters adding to our ARR growth in the back half of twenty twenty three and into 2024. As we have discussed, partners are a major part of our strategy in both the self insured employer and health plan markets. In addition to what we have announced, we continue to see traction in the pipelines of our partners, including Amwell, which we recently signed. Amwell, Solera, Sanofi, Vitality, Alliant and Virgin Pulse all have significant installed customer bases that are pre integrated and require little customer lift to access Dario. We believe that this is especially attractive to Customers in this macroeconomic environment where there is an increasing focus on the cost of evaluating and managing vendors such as Dario.

Speaker 3

We remain especially excited about our Amwell relationship, where we are the only cardiometabolic solution integrated into their platform, With an installed base of approximately 2,000 customers, including 55 health plans, we believe this represents an extremely large opportunity. Their health plan customers include several Blues plans, including the largest Blues plan in the country. They are actively selling to their customer base, And we anticipate we may see customers through this partnership as early as Q4 of this year or early 2024. In addition, we believe there is a potential to see additional health plans through Solera and our other partners late this year. We added a handful of contracts in the Q2, most of which will contribute to revenue beginning in the Q4 of 2023.

Speaker 3

We remain in the normal annual sales cycle for self insured employers, the majority of which are on a January to December benefit cycle with most employer contracts signed in the late 3rd and 4th quarters. Based on our current pipeline, we anticipate announcing a larger number of contracts towards the end of this year And realizing significant growth in our B2B2C ARR revenue starting in 2024 from new customers. In the current macroeconomic environment and with the healthcare cost trends at levels not seen in many years, customers are showing increasing focus on cost and ROI. We believe we are well positioned to benefit from this trend given the depth of our data and pricing. Sanofi recently presented their second study that demonstrated a statistically significant clinical improvement in DARU users as compared to a match Control Group and released additional data from this healthcare utilization study that they presented in the Q1.

Speaker 3

This additional cost data showed that Dario's users' costs were reduced by approximately $5,000 more per year than a MAP group that did not use Dario. Given that the full suite solution costs less than $1100 a year, you can see the significant potential ROI. It is important to note that these studies were conducted independently of Dario, which is unusual for digital health companies and they are some of the most rigorous studies that have been conducted in the Thanks. This high level of rigor is another differentiating factor for the Dario platform that we believe will have the most value in the health plan market as the demand for high quality studies continues to increase. As we look towards the rest of 2023, we expect the B2C revenue to grow throughout the rest of the year, although at a slower rate than originally anticipated with the Aetna platform enrollment pushed back to the beginning of 2024.

Speaker 3

We expect that the B2C revenue will remain relatively constant with past levels. With the Aetna platform delivered And due to the delays with Sanofi, we expect to continue to see volatility in our strategic milestone driven revenue through the end of this year. We do believe that our multi condition strategy, partner focused and demonstrated ability to turn contracts into revenue have positioned us to experience significant growth throughout 2024. A few things to consider. We have created a growing base of B2B2C revenue that will carry into 2024 with strong retention.

Speaker 3

As noted above, we are seeing expansion opportunities in both the self insured employer and the health plan segments of our business. Expansions of additional population and customers expanding the number of conditions are both happening. We expect the Aetna platform to launch in the Q1 of 2024. We have a growing pipeline of additional B2B2C Self insured employers, we anticipate adding in Q1 of 2024 based on our current sales efforts. We also have a significant pipeline of health plans with the potential to contribute to revenue late this year and in 2024.

Speaker 3

And finally, we have established several quality partnerships And those partners are starting to generate Dario customers from their growing pipeline that we anticipate will contribute significantly to revenue in 2024. With that, I would like to turn it back over to Aaron.

Speaker 2

Thank you, Rick. Despite slower than anticipated launch by Aetna, In the big picture, we believe we have all components and we are showing all the evidence to be successful and show significant growth in 2024. We also believe that we have evidence that the core B2B2C model is working as we generated a sequential B2B2C annualized recurring revenue Hello for the 10th consecutive quarters. We have created a growing base of B2B2C revenue that will carry into 20 24 with strong retention. We see existing clients, mainly health plans, expanding platform to larger population and for adopting additional chronic conditions.

Speaker 2

We have growing pipeline for both health plans and employers through 2024. Our relationship with top players like Sanofi and Aetna are getting stronger. In the last 2 weeks, we enhanced the existing agreement with Sanofi to reflect tighter alignment of the strategy between the two companies. We also believe that relationship with Sanofi will expand in the future And should be beyond the $30,000,000 contract that we already signed. We believe we have unique opportunity As well as the product market fit with real competitive modes and real world third party validated scientific evidence, The Sanofi studies demonstrate real win win through improved member health and lower cost for payers in exceptionally rigorous Real world study, the Holy Grail of digital health and healthcare in general.

Speaker 2

We are seeing a trend of big traditional healthcare players, Including large pharma such as Sanofi and other big medical devices companies looking to tap into the digital health space by partnering with companies like Dario, so they can too be part of the footprint in health care transformation. We expect to make more large and strategic partnerships. Based on the foundation we have built, We believe we are positioned to accelerate our multiyear strategy to drive revenue and profitability Substantially higher with our partners, health plans and employers. With that, I want to hand the call over to the operator for

Speaker 4

a Q and A session.

Operator

Thank you. We will now be conducting a question and answer session. And our first question comes from Raul Ravi with LifeSci Capital. Please go ahead.

Speaker 5

Hey, guys. Thanks for taking the questions. I was just wondering if you could help kind of quantify The potential impact on top line from the expanded partnership with the large regional health plan. I mean, I guess, how should we think about where The potential revenue opportunity was and what it could be now?

Operator

Thank you. Please, Erezra Ferro, you may proceed.

Speaker 2

Thank you.

Operator

Raul Ragini, please proceed with your question, please.

Speaker 5

Sure. I was just wondering if you could help us understand the increase in Potential revenue from large regional health plan now that you guys are expanding beyond hypertension?

Speaker 6

So you're talking about the expansion of the membership beyond the 3,000,000 well, it's 3,000,000 members and you're talking about the expansion of going from hypertension to hypertension diabetes?

Speaker 2

Yes.

Speaker 6

So it's probably I mean it's the same population that we're talking about, but it probably will increase the revenue opportunity by about 20 Give or take a bit.

Speaker 5

Got it. Okay.

Speaker 6

Diabetes is obviously the smallest prevalence Of the conditions that we're covering. It's usually about 8% of the commercial population versus hypertension is going to be in the 30%, 35%.

Speaker 5

Got it. Okay. That makes sense. I appreciate that color. Maybe could you also provide just some detail on the process that led to Plant's decision to expand the partnership.

Speaker 5

I mean, how actively were you guys pursuing expansion? Or does it kind of come organically? And I guess, Yes. On that end, how should we think about potential for expansion for other existing plans as we look to the back end of the year?

Speaker 6

I think the expansion takes like generally 2 forms, let's say. So one of those is expanding conditions like we saw with that health plan. The other is expanding, especially in a health plan from one population to another. So we have active opportunities In our pipeline right now for existing customers expanding in both ways, both population, Lines of business, so where we may be in Medicaid thinking about commercial or Medicare populations with plans, things of that nature. So we're having conversations like that ongoing.

Speaker 6

Obviously, we're pursuing them. Frankly, though, this one, we were a little bit surprised By the timing, we're always having conversations and I think really what this one shows is the value of the multi condition platform Because this was an opportunity where the customer said, look, we like what we're doing, even though we haven't launched yet, we like what we're doing with you guys as it relates hypertension, we want to expand that and we like the fact that we can expand it on the same platform. So I think that's what you're seeing is that ability to Access a broader population through having a multi condition strategy.

Speaker 5

Got it. Okay, that's helpful. I appreciate the insights there. And then Erez, just kind of wondering as we think about the back half of the year, should we expect any more changes to the OpEx?

Speaker 7

Yes. So

Speaker 2

we keep optimizing our OpEx and Our objective is to build viable business in digital health that is getting to cash flow positive around $80,000,000 in revenue. So We keep consolidate activities. We did some more offshoring. And we believe that in the second half of the year, we're going to see another 3% 5% reduction in the overall OpEx. And overall 2024 despite Revenue growth, we're going to see an OpEx that is probably lower by 5% to 7% to what we see in the overall 2023.

Speaker 2

So it's multiple activities that we are running in between some offshoring activities, Optimization of the acquisitions that we did in 2021 and consolidation of activities and also Post few years that we invested into integrating the platform and now we have multiple health plans that are in production and to Rick's We have those that already in production seeing the results and opening the platform and asking to open the platform for additional population. We believe that we can optimize our investments. So we see overall OpEx that is declining a bit, not something that is too big, but there is some kind Declined.

Speaker 5

Got it. Yes. No, great to see the improvements based off of those activities. Thanks for taking the questions guys.

Speaker 2

Thank you, Paul.

Operator

Our next question comes from Charles Rhyee with TD Cowen. Please go ahead.

Speaker 4

Hi, this is Lucas on for Charles. Wanted to ask about the Aetna partnership. I understand that you guys now are going to have a oneone start in 2024 And that you're now selling into a larger population compared to the original EAP population of 10,000,000. In your press release, you guys noted that it could present a larger revenue opportunity, obviously selling into a larger population. Is there anything else That we should think about in terms of selling into the behavioral health side of this of Aetna compared to the EAP population that would also kind of warrant Higher revenue opportunity is there and then also are there any differences in terms of how this will be sold within Aetna other than obviously being a

Speaker 1

Yes. And so

Speaker 6

the they're related sides of the business, But they're different populations and they're sold differently. Behavioral Health can sell independently, but they also sell A lot alongside their medical benefit counterparts. So that is one difference. There's a different Group of people essentially in the way it gets packaged is a bit different. And just for clarity, they're selling this solution through to their customers.

Speaker 6

This isn't because they've purchased the platform, which is their new behavioral health Platform, their digital platform that they're selling through to their end customers. So it's their sales force that is selling it. It's Going to be a different sales force that's doing it. It's already in process. So we as I noted during the call, we have a little bit more visibility than we had previously in terms of what the status of that is, but they're selling into bigger opportunities in a bigger context, I guess, is what I would say As it relates to it, but the primary increase in opportunity is due just largely due to the different size of the population that they currently have.

Speaker 2

Okay, cool.

Speaker 4

And then thinking about the employer market, looking over the past few announcements You guys have made most of your recent wins have been with health plans. Can you give us an update on what you're seeing in the employer market? Have you gotten any sense that there's any pressure on employers currently? Do you think you could see that turnaround? Yes.

Speaker 6

So I mean, I think that we're definitely seeing so I guess I would this is what I would say is the economy is not the same for all companies. So we're seeing a lot of differences between organizations that are still struggling for talent versus those that are Maybe under more pressure based on results, etcetera, in this current economic environment and they are responding differently. The other big That we're seeing or starting to see in the market is medical renewals, meaning what customers are paying for their Cost of delivering basic medical care is the trend rates are much higher than they've been in a decade. And so that's impacting people as they try and find ways to reduce that. I mean, some people are talking about trend rates that are as high as 20%, which is extremely high in context.

Speaker 6

And I think that's impacting some people's decisions and pushing some things back in the year. That's what we hear from the benefit consultants continuously. All of that said, I mean, we continue to get traction in terms of selling into the market. I mean, some of that has to do The fact that Dario is a newer player relatively. So our increases are maybe differential to what the overall market experience If you're looking at that through that lens.

Speaker 6

But I think the other thing that's really important that that drives is we're seeing more and more focus Less vendors and more conditions per vendor trying to reduce their cost of administering these kinds of plans As well as looking for solutions that lower their overall costs. And this is where we lean into the Sanofi studies Where I believe the Sanofi studies will be most valuable in the health plan market, but they definitely are validating. I mean, these are third party studies, which are almost unheard of. And the results from very rigorous studies are showing that we're getting significant cost reductions. And that's The kinds of things that self insured employers are looking at in this kind of environment as well.

Speaker 6

So I think we've got a very strong ROI story as it relates to that and I think we're benefiting from the trends in the marketplace as it relates to that and By the way, that we will continue to benefit from that as we go into next year.

Speaker 4

Okay, great. And then my last question is around artificial intelligence. At a recent conference, you guys noted that you have been utilizing GenAI for some elements in the business around personalization and making recommendations to members on the platform. Could you give us more details on how you've seen users take to this sort of capability and feature? And then is it something that is becoming an attractive feature for health plans and employers?

Speaker 4

And can you I guess I'd be curious to hear what sort of success you've had in terms of driving business through these features, if that's a factor or not?

Speaker 2

Yes, absolutely. So I think that one of the unique parts about Dario is the fact that we will Well, Consumer First. So the idea of collecting data and learning from data how people behave, This is one of the biggest differentiator that we have. So we hear all the noise in the market around positive in the market around AI. From our perspective, this is something that we are doing for years and collecting a lot of data.

Speaker 2

And based on the data, we learn about the behavior of the users and then we are reinforcing this learning Into a better engagement. So I think that the best way to think about it And to understand whether we are achieving a goal or not is by looking into real world Studies, data that we have and the 2 Sanofi studies showing that we have the ability I think that with AI and generative AI, Our ability to iterate and keep improving because every month the platform is becoming better and better Because the platform is learning better and better and today there are tools in the market and capabilities and data that we have That is that can make our iterative process toward improvement much faster than what we used to see like 4 or 5 years ago. So I think that when we think about digital health and we think about how companies can create Platform, sometimes I'm being asked by investors, hey, why this company and the other company can create this platform overnight by investing $200,000,000 I think that the big point here is time and data. And the time that we are operating as a consumer centric solution and the data that we collected is something that eventually helps us iterate faster and get better results because we have a lot of data.

Speaker 2

Specifically for health plans and employers, they are getting the benefit of the AI by having users that are more engaged in improving outcomes. And the bottom line is the studies that we were presenting with Sanofi that shows that it's performing. And For us, it's a big, big, big differentiator that helps us sell into these two channels.

Speaker 4

Thanks. That's really helpful. I'll jump back in queue.

Speaker 2

Thank you, Lucas.

Operator

Our next question comes from Ben Haynor with Aller Global Partners. Please go ahead.

Speaker 7

Good morning, guys. Thanks for taking the question. I just wanted to hit on a couple items. On The recurring B2B to C revenue, obviously congrats on 10 consecutive quarters of growth There, but can you give us a sense of what that sequential growth looked like in the quarter? I mean is it 5%, is it 50%, what kind of growth did you have there?

Speaker 2

Yes. Overall, if you look on the overall revenues that we have, The total B2B is around 63% from the total revenues and breakdown between strategics To the membership, I don't want to call it ARR and I will explain in a second why. If you're looking into pure membership, it's around fifty-fifty out of the B2B. This is the ballpark number. When we think about the strategic, just to reemphasize, in the strategic, some of it is also considered an ARR, Because as part of the strategic, we are getting paid for data and things that are also recurring.

Speaker 2

They are milestone driven on a yearly in terms of revenue recognition, but on a yearly basis, it's also recurring. So I just want to make sure that the investors that when they think about gross margins and recurring revenue, We are counting both the members that are on the platform as they are, but also the portion of the strategic, which is data related, it is also recurring. And I think that this is very important because eventually the objective is to create a business that is very SaaS oriented model With very high gross margins and ARR of existing business that is rolling year over year of at least 80% of today's revenue should roll into next year because of user retention And because of the ability to generate revenue also from the data, in other words, data monetization. Okay. So basically Data

Speaker 7

Plus continuing retained customers Make up the recurring B2B2C on the B2B side, if I'm hearing you right.

Speaker 2

Yes. And just to be accurate, in these results, you have seen around, I think that the number is 63% B2B and the rest is B2C. And inside the B2B, you have around 50% of it is membership. And then on top of that, you have additional That is data and so on. So I would consider like 75% of what you see as part of the B2B is kind of recurring that you can Count on rolling into next year.

Speaker 7

Okay. Okay. That's helpful. Okay. So but do you have a sense of what sort of growth there was there?

Speaker 7

I mean, I would imagine Sequentially, I mean, I imagine it's probably more on the order of 10% than 30%, Just so with the doing the math.

Speaker 2

It's in the ranges of more than 10% 30%. Overall, Year over year, we are somewhere around between 70% to 100% growth at the moment for the pure

Speaker 6

Okay. One thing to keep in mind about growth of this sort is it's not linear Because of the fact that you have it's impacted significantly by when we add new customers on the platforms And the few quarters after that. So if you think about health plans can happen throughout the year, but they tend to be large, so they can impact that growth rate. And also because most employers come on the platform in the Q1 that impacts it earlier in the year, right? So you have you'll tend to have higher growth rates.

Speaker 6

If you exclude the health plans for a moment, you'd have higher growth rates at the beginning of the year. Those growth rates would slow down In the back half of the year before you added the new customers in the Q1, what impacts that is like when we bring on a health plan We did this quarter that obviously accelerates the growth in those periods. So it's not you shouldn't think about it as being linear.

Speaker 7

Yes. This is kind of more stair step. Yes. Got it. Okay.

Speaker 7

Makes sense. And then On the B2C, you've been talking a while about that kind of being at a constant level, but it actually has ticked up a little bit The past couple of quarters, why is that? Is that more people finding you and getting on the B2C platform? Is it Taking a little bit of price, what

Speaker 6

goes into that? Largely, there's a couple of things that go into it. Some of it is Going to be cyclical in terms of what quarter that you're in because the way that people tend to spend On those types of devices, it's also we've seen a reduction in the acquisition costs. So as we balance what we're doing and depending on what the demand is in the market conditions as it relates to Digital advertising for that kind of revenue, we may put some more additional money behind that if we think we can generate Additional profit, but it's what you're seeing is really just what I would call like kind of between the hedges optimization.

Speaker 7

Okay, got it. Excellent. Well, that's all I had guys. Thanks for taking the questions.

Speaker 2

Thank you. Thank you so much,

Operator

There are no further questions at this time. I would like to turn the floor back over to Erez Raphael for closing comments. Please go ahead.

Speaker 2

Thank you so much. I'd like to thank all of you for joining our call this morning and looking Forward to keep following the story. Thank you.

Operator

This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation and have a good day.

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DarioHealth Q2 2023
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