DarioHealth Corp. — Q3 2019 Form 10-Q
Reporting period: Three and nine months ended September 30, 2019. Financial amounts below are in U.S. dollars, thousands, unless stated otherwise. The company develops digital health products and services, including its diabetes management solution, DarioEngage, and planned Dario Intelligence offerings.
Financial results
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Revenue | $1,868 | $1,879 | $5,761 | $5,694 |
| Gross profit / margin | $873 / 46.7% | $468 / 24.9% | $1,757 / 30.5% | $1,542 / 27.1% |
| Operating loss | $(2,799) | $(4,054) | $(13,524) | $(12,762) |
| Net loss | $(2,805) | $(4,063) | $(13,563) | $(12,820) |
| Basic and diluted loss per share | $(0.06) | $(0.17) | $(0.28) | $(0.67) |
- Q3 revenue was down 0.6% year over year; nine-month revenue rose 1.2%. Product revenue declined to $1,244 in Q3 and $4,315 for nine months, while services revenue increased to $624 and $1,446, respectively.
- Q3 gross profit improved as cost of revenue fell and deferred membership revenue was recognized. Nine-month operating expenses rose 6.8% to $15,281: sales and marketing increased to $8,804, R&D to $2,852, while G&A fell to $3,625.
- Cash used in operations was $12,873 for nine months, versus $8,031 a year earlier. Investing activities used $97; financing provided $6,558, versus $15,720 in the prior period. Cash and cash equivalents declined by $6,412 to $4,585.
- At September 30, current assets were $7,158 and current liabilities $4,219; total assets were $8,603, stockholders’ equity $3,907, and accumulated deficit $102,817. The filing reports operating lease liabilities of $764 in total. No other debt balance is presented in the supplied filing text.
Changes, financing, and significant items
- Management attributed the shift toward higher-margin services partly to the membership offering and said it reduced direct-to-consumer acquisition spending in Q3 to redirect resources toward lower-acquisition-cost business-to-business channels.
- On May 24, 2019, the company’s public offering of common shares and pre-funded warrants generated $6,558 net proceeds. The offering included 4,855,341 shares and pre-funded warrants for 7,175,525 shares, creating potential dilution. Common shares outstanding were 43,683,840 at September 30; the filing reported 43,696,840 outstanding as of October 28.
- In September, DarioHealth announced a strategic alliance with Dance Biopharm Holdings. It also received a U.S. patent notice of allowance relating to optical data transmission between a sensor and smart device.
- ASC 606 adoption did not significantly affect the financial statements. Adoption of ASC 842 resulted in recognition of lease right-of-use assets and liabilities; the company reported a $719 right-of-use asset at September 30.
Liquidity, outlook, and risks
- The company reported recurring operating losses and negative operating cash flows and stated that these conditions raise substantial doubt about its ability to continue as a going concern. It expects to need additional liquidity to commercialize products and sustain R&D; there is no assurance financing will be available.
- The filing gives inconsistent cash-runway estimates: one passage says resources may last into January 2020, while another says into February 2020, assuming expected sales and other inflows. Management cautions that cash could be consumed faster than expected and that failure to raise capital or achieve sales targets could jeopardize operations.
- No quantified revenue or earnings guidance is provided. Commercialization, market penetration, partner relationships, product development, regulatory clearances, intellectual property, and access to financing are identified as important uncertainties. The company said its disclosure controls were effective at a reasonable assurance level and reported no material change in internal control over financial reporting.
- The filing discloses that the company had no off-balance-sheet arrangements. It describes legal claims generally but does not provide a specific material contingency value in the supplied text.
Key facts investors should verify
- Which runway estimate—January or February 2020—management intended, and the assumptions supporting it.
- Available liquidity, subsequent financing needs, and the pace of operating cash burn relative to commercial sales.
- Whether the shift to B2B channels produces sustained revenue growth and whether service revenue and gross margins are repeatable.
- Potential dilution from pre-funded warrants, equity compensation, and shares issued in lieu of cash compensation.
- Progress and required regulatory approvals for DarioEngage, Dario Intelligence, and expansion into additional conditions and markets.