DarioHealth Corp. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024. Unaudited consolidated financial statements; amounts below are in U.S. dollars unless otherwise noted. DarioHealth provides digital therapeutics and health-management solutions across diabetes, hypertension, weight management, musculoskeletal health and behavioral health.
Financial performance
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Revenue | $5.758 million | $7.066 million | Down 18.5% |
| Gross profit / margin | $2.432 million / 42.2% | $3.168 million / 44.8% | Margin down 2.6 percentage points |
| Operating expenses | $20.287 million | $15.576 million | Up $4.711 million |
| Operating loss | $17.855 million | $12.408 million | Loss increased |
| Net loss | $7.175 million | $12.825 million | Loss narrowed 44% |
| Net loss attributable to common shareholders | $9.209 million | $12.825 million | Includes $2.034 million deemed dividend |
| Basic and diluted loss per common share | $0.20 | $0.45 | Improved |
| Net cash used in operating activities | $13.110 million | $4.757 million | Use increased |
Revenue declined mainly because strategic-partnership revenue fell to $0.489 million from $3.692 million. B2B2C commercial revenue rose to $3.470 million from $1.258 million; consumer revenue was $1.799 million versus $2.116 million. Q1 2024 includes Twill only from its February 15 acquisition. Twill contributed $1.927 million of revenue and $2.077 million of net loss during the period.
Net loss improved primarily because the company recorded $9.181 million of warrant remeasurement income, largely related to Twill acquisition pre-funded warrants, and a $1.994 million tax benefit from a valuation-allowance change related to the acquisition. These items do not indicate improved operating performance. Non-GAAP adjusted loss increased to $9.078 million from $6.342 million; reported EBITDA was negative $16.529 million versus negative $11.198 million.
Financial position, liquidity and financing
- At March 31, 2024, cash and cash equivalents were $34.367 million, versus $36.797 million at year-end 2023. Current assets were $52.509 million and current liabilities $17.802 million.
- Total assets were $136.964 million; stockholders’ equity was $78.033 million. Accumulated deficit was $358.570 million.
- Long-term loan carrying value was $28.462 million, including $3.954 million classified as current. The Avenue facility bears interest at the greater of prime plus 4.5% or 12.5%; substantially all borrower and guarantor assets secure the facility. The company must maintain at least $5 million of unrestricted U.S. cash.
- Warrant liability was $15.516 million at quarter-end. The company issued pre-funded warrants for up to 10,000,400 common shares as Twill acquisition consideration; their fair-value changes contributed materially to reported earnings and may continue to cause volatility.
- Q1 financing provided $20.206 million net from preferred-stock issuance. The offering generated approximately $22.422 million gross proceeds. Investing cash use of $8.852 million included $8.796 million of net acquisition payments. Cash, cash equivalents and restricted cash totaled $35.041 million at quarter-end in the cash-flow statement.
Material changes and unusual items
- DarioHealth acquired Twill on February 15, 2024, for $10 million cash and pre-funded warrants valued at $24.456 million, or $34.456 million total consideration. The preliminary allocation recorded $19.435 million of acquired intangibles and $15.787 million of goodwill. Management said the deal expands its multi-condition platform, channels and care offerings. Unaudited pro forma revenue and net loss, assuming Twill had been acquired at the start of each comparable quarter, were $7.721 million and $15.765 million for Q1 2024, and $11.812 million and $23.100 million for Q1 2023.
- Operating expenses rose, including research and development up 28.6%, sales and marketing up 9.0%, and general and administrative up 65.4%. The company attributed much of the increase to Twill consolidation and higher stock-based compensation. Total stock-based compensation was $6.858 million, up from $4.856 million.
- Common shares issued and outstanding increased to 29,439,740 at quarter-end from 27,191,849 at December 31, 2023; 29,923,250 were outstanding on May 10, 2024. Potential dilution also includes preferred shares, options and warrants. The company reported 26.7 million potential common shares excluded from diluted loss-per-share calculations as anti-dilutive.
Outlook, risks and contingencies
Management expects continued losses and states it believes available resources are sufficient for at least 12 months from issuance of the statements. The company has not established recurring revenue sufficient to cover operating costs and expects to depend on additional capital until profitability or positive cash flow. Management warns that funding may be unavailable on acceptable terms, and cash could be consumed faster than anticipated. No quantified revenue or earnings guidance is provided.
- Commercial developments cited include the Q1 launch of Aetna’s behavioral platform with approximately a dozen customers, with further employer additions expected, and four new employer contracts announced in April for Q2 starts.
- Revenue and receivables are concentrated: two major customers represented 8.5% and 16.5% of Q1 revenue and 32.8% and 25.4% of receivables, respectively. The filing identifies Sanofi and a national health plan as key customer exposures.
- The filing highlights risks from competition, execution and commercialization, customer retention, regulatory clearance or approval, financing needs, potential dilution, and volatility in warrant valuations and the share price. It also discusses Israel-related conflict and political/economic conditions, including possible employee absences and operational disruption; war-related losses may not be covered by commercial insurance.
- Contingencies include Israeli Innovation Authority royalties of up to $0.932 million on future qualifying sales, payable only if such sales occur. The filing says there were no material changes to previously disclosed risk factors other than the matters described.
- Management reported disclosure controls and procedures effective at a reasonable-assurance level and no material quarter-over-quarter changes in internal control over financial reporting.
Most important facts for investors to verify
- Whether B2B2C growth and new Aetna/employer activity can offset the sharp reduction in strategic-partnership revenue and produce sustainable revenue growth.
- Cash burn, collection of receivables, and the assumptions supporting management’s 12-month liquidity assessment; also monitor the availability and terms of additional financing.
- The terms, potential share issuance and valuation effects of Twill-related pre-funded warrants, preferred-stock dividends, the Avenue loan and other equity awards.
- Whether Twill integration delivers the anticipated commercial benefits, and whether acquired goodwill and intangibles remain recoverable as the business and share price evolve.
- The effect of customer concentration, Israel-related operating risks, and the distinction between underlying operating results and reported earnings affected by warrant remeasurement and tax accounting.