DarioHealth Corp. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; comparisons are with Q1 2020 unless noted. Amounts below are U.S. dollars. DarioHealth provides digital therapeutics, devices, coaching, and related services for chronic conditions. The February 2021 acquisition of Upright added digital musculoskeletal-health products.
Financial performance and liquidity
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Revenue | $3.595 million | $1.667 million |
| Gross profit / margin | $1.081 million / 30.1% | $0.779 million / 46.7% |
| Operating expenses | $15.408 million | $10.893 million |
| Operating loss | $14.327 million | $10.114 million |
| Net loss | $14.966 million | $9.892 million |
| Net loss attributable to common stockholders | $15.510 million | $11.167 million |
| Net cash used in operating activities | $10.532 million | $4.545 million |
Revenue increased 116%, primarily from higher direct-to-consumer sales and the consolidation of Upright from February 2. Product revenue was $3.120 million versus $1.185 million; service revenue was $0.475 million versus $0.482 million. Management reported pro forma Q1 revenue of $4.650 million as if Upright had been acquired at the start of the quarter.
Gross margin declined year over year, principally due to $0.526 million of acquired inventory step-up and technology amortization. Excluding those amortizations, management reported gross profit of $1.607 million, or 44.7% of revenue. Research and development expense rose to $2.655 million, sales and marketing to $7.132 million, and general and administrative expense was $5.621 million. Net financial expense was $0.639 million, mainly reflecting foreign-currency effects; the prior-year period had $0.222 million of net financial income.
Cash and cash equivalents were $81.171 million at March 31, 2021, compared with $28.590 million at year-end 2020. Cash, cash equivalents, and short-term restricted deposits totaled $81.364 million at quarter-end. Financing activities provided $65.711 million, including $64.877 million net proceeds from a February common-stock offering. Investing activities used $2.540 million, including repayment of a loan to Upright. Current liabilities were $11.742 million; total liabilities were $11.920 million, primarily payables, deferred revenue, and operating lease liabilities. The filing does not disclose material interest-bearing debt.
Management cited cumulative losses of $158.758 million since inception and ongoing operating losses, but said available cash was sufficient for obligations for at least 12 months from issuance of the statements and removed the going-concern note. It cautioned that long-term funding needs remain and additional financing may not be available on acceptable terms.
Material changes and unusual items
- Upright was acquired for total consideration reported at $31.971 million, including $28.933 million in shares and vested options, plus escrowed and holdback restricted stock units. The preliminary allocation included $9.600 million of technology intangibles and $25.334 million of goodwill; purchase accounting remained subject to a one-year measurement period.
- The company issued 3,278,688 common shares in the February offering at $21.35 per share, generating approximately $70 million gross proceeds. Common shares outstanding increased from 8,119,493 at December 31 to 15,398,851 at March 31. The company also issued acquisition shares and equity awards.
- Stock-based compensation was $4.438 million, versus $6.356 million. A $0.544 million deemed dividend increased loss attributable to common stockholders. The filing reported $24.509 million of unrecognized stock-based compensation expected to be recognized over a weighted-average 1.46 years.
- Operating cash use more than doubled year over year, which management attributed mainly to increased marketing activities. Inventories rose to $5.020 million from $2.293 million.
Outlook, risks, and other disclosures
No quantified revenue, earnings, or cash-flow guidance was provided. Management planned to develop a full-risk health-plan business and expected to offer AI-driven remote patient monitoring and coaching across chronic conditions in 2021. Commercialization, partner execution, sales growth, regulatory clearances, manufacturing scale-up, and the ability to secure future capital remain important uncertainties.
COVID-19 had not disrupted product sales or supply chains, but slowed discussions with some prospective B2B partners; other prospective partners showed increased interest in telehealth. The company said the pandemic’s financial impact could be material but was not estimable. It reported no material changes in internal control over financial reporting and concluded disclosure controls were effective at a reasonable-assurance level. No off-balance-sheet arrangements were reported.
Important facts for investors to verify
- Whether revenue growth and B2B/B2B2C adoption can continue, and how much of reported growth came from Upright versus Dario’s existing business.
- Upright’s integration, contribution to revenue and margins, and the final purchase-price allocation, including goodwill and acquired-technology amortization.
- Cash runway relative to operating cash use, planned commercial investment, and the need for additional financing.
- Equity dilution from the offering, acquisition consideration, preferred-stock conversions, and ongoing stock-based awards.
- The filing has an apparent stockholders’ equity inconsistency: the balance sheet reports $112.267 million at March 31, while MD&A states $111.368 million. The reported cost-of-revenue presentation also differs between the statements and MD&A; reconcile the figures against the filed financial statements and XBRL.