DarioHealth Corp. — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019; unaudited. Financial amounts are in U.S. dollars in thousands unless otherwise stated. DarioHealth develops and sells digital diabetes-management products and services, including its Dario glucose-monitoring system and membership offering, and is developing DarioEngage and Dario Intelligence.
Financial results and liquidity
| Metric | Q1 2019 | Q1 2018 |
|---|---|---|
| Revenue | $2,242 | $1,756 |
| Gross profit | $558 | $552 |
| Gross margin | 24.9% | 31.4% |
| Operating expenses | $5,921 | $3,467 |
| Operating loss | $(5,363) | $(2,915) |
| Net loss | $(5,376) | $(2,919) |
| Basic and diluted loss per share | $(0.15) | $(0.20) |
| Net cash used in operating activities | $(3,987) | $(2,766) |
- Revenue increased 27.7%, primarily from higher product sales, including the membership offering. Revenue included $1,682 from products and $560 from services; the prior-year period reported $1,756 from products and no service revenue.
- Cost of revenue rose 40% to $1,684. Gross profit increased slightly, but gross margin declined to 24.9%, which management attributed partly to deferring some membership revenue.
- Sales and marketing expense more than doubled to $3,946, reflecting increased U.S. sales and marketing headcount and online campaigns. R&D increased 35% to $1,002, mainly due to software-development costs; G&A rose 13% to $973.
- Cash and cash equivalents were $6,958 at March 31, down from $10,997 at December 31, 2018. Cash used in investing activities was $52; there were no financing cash proceeds in Q1 2019. The comparable 2018 quarter included $6,034 of financing proceeds.
- Current assets were $9,864 and current liabilities were $7,018. Stockholders’ equity fell to $3,865 from $8,925 at year-end, reflecting the quarterly loss. Accumulated deficit was $94,630.
- The filing reports operating lease liabilities of $817 in total ($267 current and $550 non-current); no conventional borrowings are presented in the supplied financial statements. Lease obligations mature through 2022.
Material changes, outlook and risks
- Management estimates existing resources, including anticipated sales inflows, will support planned activities into January 2020, but states that additional liquidity is required to support commercialization and R&D. The filing identifies substantial doubt about the company’s ability to continue as a going concern.
- Management warns that cash may be consumed faster than anticipated and that failure to scale sales, meet commercial targets, or obtain financing could require changes to business plans or threaten continuation of operations. Financing may not be available on acceptable terms or at all.
- The company plans to expand production, marketing, distribution and customer support, and continue product development and regulatory, quality and patent work. No formal revenue or earnings guidance is provided.
- Risks highlighted include execution of commercial launches and market penetration; partner relationships; product development and regulatory clearances or approvals; financing needs; and protection of intellectual property. Dario’s system had regulatory clearance or approval in several markets, including the U.S., Canada, EU, Israel and Australia; future clearances and commercialization remain uncertain.
- In April 2019, the compensation committee approved grants of 1,032,144 shares and 675,698 options, and separately approved 142,624 shares in lieu of officers’ performance bonuses. These subsequent events may affect dilution.
- The company adopted ASC 842 lease accounting in 2019, recording lease right-of-use assets and liabilities; adoption of ASC 606 revenue guidance was reported to have no significant financial-statement impact.
Facts investors should verify
- Whether cash, actual sales and financing availability support the estimated runway into January 2020, given the going-concern warning.
- Whether revenue growth can continue while improving gross margin, and how deferred membership revenue converts into recognized revenue.
- Whether higher sales and marketing investment generates durable customer growth and revenue sufficient to offset operating losses and cash burn.
- The status and timing of DarioEngage and Dario Intelligence development, commercialization and any required regulatory approvals.
- The share and option grants approved after quarter-end and their effect on dilution and compensation expense.