DarioHealth Corp. — FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. This is an annual report, not a standalone fourth-quarter report. Financial amounts below are in U.S. dollars.
Business context
DarioHealth develops digital therapeutics and connected devices for chronic-condition management, combining apps, remote monitoring, coaching and personalized software. In 2020, its offerings centered on diabetes, hypertension and prediabetes, with a shift from direct-to-consumer sales toward business-to-business-to-consumer customers, including employers, providers and health plans. The company acquired Upright, a digital musculoskeletal-health business, on February 1, 2021, after year-end.
Key financial metrics
| Metric | FY2020 | FY2019 | Change / context |
|---|---|---|---|
| Revenue | $7.576 million | $7.559 million | Up $17,000, or about 0.2% |
| Cost of revenue | $5.063 million | $4.962 million | Up $101,000 |
| Gross profit / margin | $2.513 million / 33.2% | $2.597 million / 34.4% | Gross profit down $84,000; margin down about 1.2 percentage points |
| Operating expenses | $32.416 million | $20.302 million | Up $12.114 million |
| Operating loss | $29.903 million | $17.705 million | Loss widened $12.198 million |
| Net loss | $29.445 million | $17.736 million | Loss widened $11.709 million |
| Net loss attributable to common shareholders | $33.103 million | $20.891 million | Includes deemed dividends of $3.658 million in 2020 and $3.155 million in 2019 |
| Operating cash flow | $(17.736) million | $(15.725) million | Cash used increased $2.011 million |
| Cash and cash equivalents at year-end | $28.590 million | $20.395 million | Up $8.195 million |
Products generated $5.767 million of revenue and services $1.809 million in 2020; membership services rose to $3.184 million from $2.930 million, while consumer products and other revenue declined to $4.392 million from $4.478 million. Sales and marketing expense rose to $15.227 million from $11.127 million, research and development to $4.433 million from $3.692 million, and general and administrative expense to $12.756 million from $5.483 million. The G&A increase was primarily attributed to stock-based compensation.
Stock-based compensation was $11.102 million, compared with $2.316 million in 2019. The company’s non-GAAP adjusted loss was $18.611 million versus $15.206 million; this measure is not a substitute for GAAP results. Finance income was $458,000, mainly from foreign-currency gains, compared with $31,000 of finance expense in 2019.
Liquidity, financing and capital structure
- Year-end current assets were $34.128 million and current liabilities $7.034 million, a current ratio of approximately 4.9x. Cash and cash equivalents were $28.590 million; restricted deposits were reported separately.
- Financing activities provided $27.548 million in 2020, primarily from the July equity offering. Investing activities used $1.622 million, including a $1.5 million loan to Upright. The company reported no off-balance-sheet arrangements.
- Year-end operating lease liabilities totaled $532,000. The filing does not report material conventional borrowings or other financial debt. Contractual cash obligations totaled $3.572 million, including $2.881 million of purchase commitments and $691,000 of lease obligations.
- In February 2021, the company completed a common-stock offering for $70 million gross proceeds, or $64.880 million net. The filing’s subsequent-event note says management believed year-end cash plus these proceeds would fund obligations for at least 12 months from issuance. Separately, the MD&A states that, before additional capital, resources were expected to last only into June 2021. These statements reflect different financing assumptions.
- Common shares outstanding increased from 2.236 million at year-end 2019 to 8.119 million at year-end 2020; the filing reports 15.273 million outstanding as of March 5, 2021. The February offering, Upright consideration shares and other equity issuances contributed to dilution.
Material changes, outlook and risks
- Revenue was essentially flat year over year while operating expenses expanded substantially, principally reflecting stepped-up commercial hiring, stock-based compensation and public-company, legal, insurance and investor-relations costs.
- Management described plans to expand B2B2C sales, add conditions and customers, develop a full-risk health-plan business in 2021 and deploy an MSK virtual clinic in the second half of 2021. The filing provides no formal revenue or earnings guidance.
- Management cited increased interest in virtual care during COVID-19, but said the pandemic slowed negotiations with some prospective business partners. It reported no material supply-chain disruption to date, while warning that future effects remained uncertain.
- Key risks include continued losses and cash burn, dependence on raising capital and potential shareholder dilution; uncertain customer adoption and sales conversion; competition; third-party manufacturing and distribution reliance; reimbursement and regulatory requirements; privacy, cybersecurity and product-liability exposure; and successful integration of Upright. The company also identified risks relating to its Israeli operations and foreign-currency movements.
- Clinical results highlighted in the filing are largely retrospective analyses of user data. They are not, on their own, assurance of future outcomes, commercial adoption or reimbursement.
- The auditor issued an unqualified opinion on the financial statements and identified revenue recognition—especially estimates of standalone selling prices for bundled membership services—as a critical audit matter. Management said disclosure controls and internal control over financial reporting were effective at year-end; the auditor was not engaged to audit internal-control effectiveness. No material legal proceeding was reported.
Important facts for investors to verify
- Whether B2B2C agreements and prospective partnerships are producing sustained, material recurring revenue, and how much revenue comes from services versus devices.
- Cash burn and liquidity after the February 2021 financing, including whether the offering proceeds and expected sales support the stated operating runway.
- The impact of equity issuance, options, warrants, preferred-stock conversions and Upright consideration on fully diluted share count and future dilution.
- Upright’s purchase consideration, assumed liabilities, integration progress and contribution to revenue and expenses.
- Whether membership-service revenue allocations and the clinical evidence supporting the company’s claims withstand scrutiny as the business scales.