DarioHealth Corp. — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. Unless otherwise noted, amounts are U.S. dollars in millions; financial statements are unaudited. DarioHealth provides digital therapeutics and health-management products and services for chronic conditions. Its 2021 portfolio expanded through acquisitions of Upright Technologies (musculoskeletal health) and PsyInnovations/WayForward (behavioral health).
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $5.629 | $2.042 | $14.485 | $5.496 |
| Gross profit | $0.826 | $0.549 | $3.415 | $1.964 |
| Operating expenses | $23.325 | $7.151 | $58.244 | $22.803 |
| Operating loss | $(22.499) | $(6.602) | $(54.829) | $(20.839) |
| Net loss | $(22.444) | $(6.550) | $(55.175) | $(20.448) |
- Revenue increased 176% in Q3 and 164% year to date, reflecting higher direct-to-consumer sales and the consolidation of acquired businesses. Hardware and consumables accounted for $12.613 million of nine-month revenue; services accounted for $1.872 million.
- Reported gross margin was 14.7% in Q3 and 23.6% year to date, versus 26.9% and 35.7% in the respective 2020 periods. The company attributed the decline principally to $1.706 million of Q3 and $3.324 million of year-to-date acquisition-related inventory step-up and acquired-intangible amortization. Excluding those charges, management reported gross profit of $2.532 million (45%) for Q3 and $6.739 million (46.5%) year to date.
- Operating expenses rose substantially, driven by acquired operations, payroll, marketing, and stock-based compensation. Nine-month stock-based compensation was $18.670 million, compared with $8.988 million in 2020.
- Basic and diluted net loss per share was $1.18 in Q3 and $2.98 for the first nine months, compared with $0.71 and $2.95 in the prior-year periods. Nine-month loss attributable to common stockholders was $56.695 million, including a $1.520 million deemed dividend.
Cash, liquidity and capitalization
- At September 30, cash and cash equivalents were $51.331 million, versus $28.590 million at December 31, 2020. Current assets were $59.227 million and current liabilities $12.681 million. Stockholders’ equity was $104.439 million; accumulated deficit was $199.943 million.
- For the first nine months, operating cash used was $35.273 million, investing cash used was $7.690 million, and financing cash provided was $65.766 million. The financing total primarily reflects $64.877 million net proceeds from a February 2021 common-stock offering. Management said available resources should fund obligations for at least 12 months from issuance of the statements, but cautioned that long-term funding is not assured.
- The balance sheet reports $0.251 million of short-term restricted bank deposits, while the cash-flow reconciliation uses $0.197 million. The filing text does not clearly reconcile this difference.
- No conventional borrowings are listed on the balance sheet; lease liabilities totaled $0.359 million. Common shares outstanding increased from 8.119 million at year-end 2020 to 16.509 million at September 30, 2021. Equity issuance, acquisition consideration, and stock awards contributed to dilution.
Changes, acquisitions and outlook
- Upright was acquired in February for preliminary consideration of $28.933 million, principally stock; WayForward was acquired in June for preliminary consideration of $23.511 million, including cash, stock, and earn-out consideration. The preliminary allocations recorded combined goodwill of $39.399 million. Acquisition accounting and valuations remained subject to a one-year measurement period.
- Unaudited pro forma results assuming both acquisitions had occurred at the start of 2021 showed nine-month revenue of $15.927 million and net loss attributable to common stockholders of $63.144 million, or $3.21 per share. The filing cautions these results are not necessarily indicative of actual results.
- No quantified financial guidance was provided. Management described expansion across diabetes, hypertension, pre-diabetes, musculoskeletal and behavioral health, and cited employer, provider, and health-plan agreements expected to begin generating revenue or enroll members from late 2021 into 2022. These are forward-looking expectations, not guaranteed results.
- Management reported continued Dario monitor sales and no supply-chain disruption from COVID-19, but said the pandemic slowed negotiations with some prospective business partners while increasing interest from others. Its financial and operational impact could be material and was not estimable.
- The company expects continued losses and has not established recurring revenue sufficient to cover operating costs. Management warned that faster-than-expected cash use, failure to meet commercial targets, or inability to raise capital could require earlier financing or changes to business plans. The filing also identifies risks involving commercialization, regulatory clearances, partnerships, manufacturing, and product acceptance.
- Other notable items: nine-month acquisition costs were $0.880 million; the company reported no off-balance-sheet arrangements. Management concluded disclosure controls were effective at a reasonable-assurance level and reported no material quarterly change in internal control over financial reporting.
Key facts for investors to verify
- Whether new employer, health-plan, and provider contracts convert to enrolled members and recurring revenue on the anticipated timelines.
- Cash-burn trajectory, funding needs, and the assumptions underlying management’s 12-month liquidity assessment.
- Acquisition integration, actual acquired-business contribution, and final purchase-price allocations, including goodwill and intangible-asset amortization.
- Share-count and equity-compensation dilution, including outstanding awards and contingent acquisition consideration.
- The restricted-deposit discrepancy ($0.251 million on the balance sheet versus $0.197 million in the cash-flow reconciliation), and the MD&A’s presentation of acquisition amortization within cost of revenue.