DarioHealth Corp. 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2020. Financial amounts are in U.S. dollars in thousands unless otherwise noted. The interim financial statements are unaudited.
Business context
DarioHealth develops digital therapeutics and connected health products, with a focus on diabetes and expansion into hypertension and other chronic conditions. Its offerings include the Dario blood glucose monitoring system, membership services, and digital engagement tools. The company sells directly to consumers and is pursuing business-to-business relationships with providers, payers, and employers.
Key financial results
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | $2,042 | $1,868 | $5,496 | $5,761 |
| Gross profit | $549 | $873 | $1,964 | $1,757 |
| Gross margin | 26.9% | 46.7% | 35.7% | 30.5% |
| Operating loss | $(6,602) | $(2,799) | $(20,839) | $(13,524) |
| Net loss | $(6,550) | $(2,805) | $(20,448) | $(13,563) |
| Net loss attributable to common stockholders | $(7,480) | $(2,805) | $(23,439) | $(13,563) |
Q3 2020 revenue growth reflected higher direct-to-consumer sales. For the nine-month period, product revenue was $4,052 versus $4,315, while service revenue was $1,444 versus $1,446. The filing reports no positive operating cash generation: nine-month cash used in operations was $10,976, compared with $12,873 a year earlier. Cash used in investing was $73; financing provided $27,548, chiefly from equity and warrant transactions.
At September 30, 2020, cash and cash equivalents were $36,907, total current assets $39,830, and current liabilities $5,852. Total assets were $41,144 and stockholders’ equity $35,034. Lease liabilities were $543 in total; the filing reports no other borrowings. The company had an accumulated deficit of $133,584. It reported no off-balance-sheet arrangements.
Material changes versus prior period
- Q3 revenue increased 9.3%, but gross profit fell from $873 to $549 and gross margin contracted from 46.7% to 26.9%, primarily because of a greater mix of product sales and higher related costs.
- Nine-month revenue declined 4.6%, while gross profit rose to $1,964, attributed mainly to a higher membership-services contribution and lower production costs.
- Operating expenses increased substantially: Q3 sales and marketing rose 94.9% and general and administrative rose 170%; nine-month general and administrative expense increased 161%. Management cited higher compensation and stock-based compensation, marketing, consulting, and investor-relations costs.
- Nine-month net loss increased to $20,448 from $13,563. Stock-based compensation was $8,988, compared with $1,928 in the prior-year period.
- Cash increased from $20,395 at December 31, 2019 to $36,907 at September 30, 2020, supported by financing proceeds. The July 2020 offering generated approximately $28,591 gross and $26,460 net proceeds; a warrant exercise generated approximately $1,156 gross proceeds.
Outlook, risks, and unusual items
- Management expects available resources to fund obligations for at least 12 months from issuance of the statements, and removed the going-concern note. It also cautioned that long-term funding is not assured, the company expects continuing losses, and additional capital may be needed sooner if cash use or commercialization needs exceed expectations.
- No specific revenue, earnings, or cash-flow guidance was provided. Management said it had not established recurring revenue sufficient to cover operating costs.
- COVID-19 had not disrupted product sales or supply chains as of the filing, but some prospective business partners slowed discussions while others showed increased interest in telehealth. The company said the pandemic’s financial and operational impact could be material and could not yet be estimated.
- Preferred-stock dividends and warrant exchanges produced deemed dividends of $930 in Q3 and $2,991 for the nine months, increasing the loss attributable to common stockholders. The July equity offering and warrant exercises also increased shares outstanding and involve dilution risk.
- The company described claims and legal proceedings generally but did not provide a clear quantified contingency amount. It reported disclosure controls effective at a reasonable-assurance level and no material quarterly change in internal control over financial reporting.
Important facts for investors to verify
- Whether direct-to-consumer growth and business-to-business partnerships can sustain revenue and improve gross margins.
- Cash burn, financing needs, and whether available liquidity remains adequate as commercialization and operating expenses continue.
- The scale and timing of dilution from common-stock offerings, preferred-stock conversions, warrants, and equity compensation.
- How COVID-19 and partner negotiations affect sales, supply, and planned expansion into additional conditions and markets.
- The effect of stock-based compensation and deemed dividends when assessing reported losses and per-share results.