DarioHealth Corp. — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. This is an annual filing, not a standalone fourth-quarter report; quarterly results are not clearly provided in the supplied filing text. Financial amounts below are in U.S. dollars.
Business context
DarioHealth provides digital therapeutics and related services, devices, and coaching for diabetes and other chronic conditions. The company has shifted from direct-to-consumer sales toward a business-to-business-to-consumer model serving employers, health plans, and partners. Its offerings cover metabolic health, musculoskeletal health, and behavioral health. Dario reported more than 100 signed contracts and said commercial revenue exceeded consumer revenue in 2022.
Key financial metrics
| Metric | FY2022 | FY2021 |
|---|---|---|
| Revenue | $27.656 million | $20.513 million |
| Gross profit / margin | $9.655 million / 34.9% | $3.963 million / 19.3% |
| Operating loss | $56.810 million | $76.494 million |
| Net loss | $62.193 million | $76.761 million |
| Net loss per share, basic and diluted | $2.54 | $4.07 |
| Cash used in operating activities | $47.845 million | $50.409 million |
| Cash and cash equivalents at year-end | $49.357 million | $35.808 million |
- Revenue mix shifted sharply: commercial revenue was $16.377 million, versus $0.851 million in 2021; consumer revenue was $11.279 million, versus $19.662 million.
- Gross margin excluding amortization of acquired technology was 50.7%, compared with 39.3% in 2021. This is a company-presented adjusted measure; GAAP gross margin was 34.9%.
- Research and development expense rose to $19.649 million from $17.219 million. Sales and marketing expense fell to $30.323 million from $39.706 million; general and administrative expense fell to $16.493 million from $23.532 million.
- Net finance expense increased to $5.379 million from $0.235 million, primarily reflecting the new loan facility and related interest and remeasurement costs.
- Year-end current assets were $65.524 million and current liabilities were $19.350 million. The balance sheet reported $8.823 million of current loan and $18.105 million of long-term loan. Stockholders’ equity was $79.999 million.
- Financing cash flow was $61.940 million, including $38.288 million net proceeds from an equity offering and $23.786 million from the credit facility. Investing cash outflow was $0.573 million.
Material changes and notable items
- Revenue increased 34.8% year over year, driven by commercial-channel growth; the company also reported higher service revenue and lower hardware and consumables revenue.
- The 2022 operating loss narrowed as gross profit increased and sales and marketing and general and administrative expenses declined. Net loss also narrowed, despite higher finance expense.
- In June 2022, Dario obtained a five-year senior secured credit facility of up to $50 million. It drew the initial $25 million commitment, netting $23.786 million; the additional $25 million delayed-draw tranche was unavailable at year-end because revenue requirements were not met. The loan bears interest at the higher of adjusted SOFR or 0.50%, plus 9.50%, and is secured by substantially all company and guarantor assets.
- Based on the credit agreement’s revenue covenant, repayment of the initial loan began in January 2023, in monthly installments of up to approximately $518,500, including repayment premium and fees. The company must maintain at least $10 million of unrestricted cash and cash equivalents.
- The 2022 Sanofi agreement has an initial five-year term and provides for up to $30 million in upfront, development, and contingent milestone payments. Dario recognized $5.506 million for the first two development plans in 2022; $2.494 million of second-plan revenue was expected by June 2023. Contingent payments were excluded from the transaction price at year-end because recognition was not considered sufficiently certain.
- A Physimax technology acquisition was completed in 2022 for total consideration of $1.686 million. Dario also completed acquisitions of Upright and WayForward in 2021; year-end goodwill was $41.640 million, with no goodwill impairment recorded.
- Common shares outstanding increased from 16.573 million at year-end 2021 to 25.724 million at year-end 2022. Preferred-stock conversions and the 2022 equity offering contributed to the increase.
Outlook, risks, and contingencies
- Liquidity and going concern: The filing identifies substantial doubt arising from recurring losses, operating cash outflows, debt interest and repayment obligations, and the $10 million minimum-liquidity covenant. Management said planned expense reductions, R&D deferrals or reprioritization, and executive compensation reductions would alleviate the doubt for at least 12 months from issuance of the financial statements. These plans are subject to execution and market conditions; management cautioned that additional capital may be needed. The auditor identified the going-concern assessment as a critical audit matter but issued an unqualified opinion on the financial statements.
- Customer concentration: One customer represented 39.8% of 2022 revenue and 80.9% of year-end trade receivables, creating significant customer and collection concentration.
- Execution and market risks: Key risks include scaling enterprise sales and user engagement, competition, customer adoption and reimbursement, reliance on third-party manufacturers and suppliers, integration of acquisitions, regulatory and clinical requirements, data privacy and cybersecurity, and the ability to obtain future financing.
- Israel and macroeconomic exposure: A substantial portion of long-lived assets and operations is in Israel. The filing describes regional political and security risks, as well as foreign-exchange, inflation, and broader market risks.
- Contingencies: The company reported no pending litigation it believed would have a material adverse effect. It has conditional royalty obligations to the Israeli Innovation Authority equal to 3% of qualifying sales and related revenue, capped at 100% of grants received.
- Guidance: The filing provides no formal quantitative revenue or earnings guidance. Management described continued commercial expansion and partnerships as strategic priorities. In early 2023, Dario reported a Dexcom continuous glucose-monitoring data integration and further development and co-promotion activity with Sanofi.
- Controls and audit: Management reported effective disclosure controls and internal control over financial reporting at December 31, 2022. The auditor did not audit internal control effectiveness, consistent with the company’s smaller-reporting-company status.
Important facts for investors to verify
- Whether cash generation, cost actions, and commercial growth are sufficient to maintain the $10 million unrestricted-liquidity covenant while servicing the loan.
- Whether the delayed-draw facility remains unavailable, and the actual timing and total cost of loan repayments, interest, premiums, and fees.
- How much revenue is recurring and diversified, including the duration, renewal terms, utilization, and performance conditions of commercial contracts.
- The major customer’s receivable collection and the effect of its revenue concentration on future results.
- Whether the Sanofi and other partnership opportunities convert into contracted sales and cash receipts; distinguish recognized revenue from contingent or anticipated payments.
- Potential dilution from future equity financing, outstanding warrants and options, and share-based compensation.
- The filing contains some inconsistent or unclear descriptions of certain historical funding and liquidity matters; verify material amounts against the audited financial statements and loan agreement.